In its Judgment of 18 June 2019, the General Court of the European Union annulled the decision of the European Commission of 30 March 2015 (the so-called “Micula Decision” or the “Commission Decision”) declaring that the Commission had no competence to apply EU State aid rules prior to Romania’s accession to the EU.
In 2005, as part of the process of accession to the EU, Romania revoked a series of tax and custom duty incentives promoting investment in certain underdeveloped regions in order to comply with EU State aid rules. Swedish investors Ioan Micula and Viorel Micula and three companies controlled by them (“the Investors”), who had considered said incentives when investing in the regions, initiated arbitration proceedings against Romania under the dispute settlement provisions of the Bilateral Investment Treaty between Sweden and Romania. The Investors alleged Romania violated their legitimate expectations that the regime should remain unchanged until April 2009.
In 2013, the arbitral tribunal issued an award ordering Romania to compensate to the Investors the amount of EUR 178 million, for withdrawing the incentives scheme before the promised date. The Investors sought the enforcement of the arbitral award before Romanian Courts, and lodged several applications for its recognition and enforcement in various EU Member States and the United States.
Although the Regional Court of Bucharest accepted the application for execution of compensation, the procedure was put on hold due to its apparent incompatibility with EU State aid rules. In the meantime, Romania had already paid part of the compensation to one of the Investors by offsetting their outstanding tax debt.
Subsequently, following an in-depth investigation, on 30 March 2015, the Commission adopted the Micula Decision, finding that the compensation paid by Romania was in breach of the EU State Aid rules and ordered Romania to recover the already paid aid from the beneficiaries. The Investors appealed the Commission Decision before the General Court.
The judgement establishes that EU law and its State aid rules became applicable to Romania only after its accession to the EU in January 2007. On that basis, the Court concluded that the right to receive the aid was conferred to the Investors with the adoption of the incentive schemes in 1998 and the right to receive compensation arose in 2005 when such incentives were repealed – both actions which took place before Romania’s accession in 2007. As such, the Commission had no powers to review State aid measures that concerned the pre-accession period.
Following the same reasoning, the Court concluded that the compensation paid to the Investors could not itself be classified as “aid” under Article 107(1) of the Treaty on the Functioning of the European Union (“TFEU”) because, in pre-accession period, EU law was not applicable to the compensation awarded for the revocation of incentives in 2005.
However, the Court acknowledged the Commission’s competence to review the compensation awarded after Romania’s accession to the EU, specifically for the period between 2007 and 2009. Nonetheless, because the Commission had treated the compensation award without drawing a distinction between pre and post accession, it in any event exceeded its powers of review. The General Court has left open the possibility of reexamining the compensation covering the period after Romania joined the EU.
The Court also found that the fact that the compensation under arbitral award was paid after Romania joined the EU is irrelevant because (i) compensation for damage merely constitutes an enforcement of the right, which arose in 2005, and (ii) because EU law did not apply in Romania at the time.
Additionally, the Court also noted that landmark Achmea judgment, which found arbitration clauses in intra-EU Bilateral Investment Treaties to be incompatible with the EU legal order, was not applicable to the case at hand since the arbitral tribunal in Micula case was not bound to apply EU law.
Following all of the above, the General Court annulled the Commission Decision.
The Commission is likely to appeal the Judgment because the General Court’s findings risk jeopardizing the case initiated by the Commission in 2018 against Romania for failing to recover already paid compensation to the Micula brothers. Similarly, expecting the Commission’s appeal and the judgment from the top EU Court, the UK Supreme Court decided to adjourn the Micula’s appeal to enforce an arbitration award until October 7, 2019.
Over the past years, the European Commission has shown a special interest in cases related to compensations paid by EU Member States to international investors for breaching their legitimate expectations after legislative changes. Therefore, it has repeatedly intervened in various national and arbitral proceedings submitting amicus curae observations defending that such compensations may constitute illegal stated aid.
It must be noted, however, that the Judgment cannot be analogously extended to all pending proceedings that concern unlawful State aid because its application is limited to the payment of compensation stemming from the measures adopted by Member States before their accession to the EU.