EU General Court Confirms Ban on Romania’s €178 Million ICSID Award Payment to the Micula Brothers

On October 2, 2024, the EU General Court upheld the European Commission’s decision to prevent Romania from paying a €178 million arbitration award to the Micula brothers, citing violations of EU state aid rules. This ruling brings to an end a long-standing legal battle that underscores the complex relationship between international arbitration and EU law, particularly in the context of state aid.

Background

Prior to its accession in 2007, Romania granted investment incentives, inter alia, a number of tax advantages to attract investment to those areas of the state that were poor economically. Utilizing the incentive, the Micula brothers constructed various facilities for food processing. In 2005, when accession was imminent, the Romanian government abolished these incentives in order to bring domestic law into line with EU standards concerning state aid. Based on this repeal, the Micula brothers filed an arbitration under the International Centre for Settlement of Investment Disputes (ICSID), arguing that this repeal was a violation of the bilateral investment treaty that was concluded between the Swedish Government and the Romanian Government “BIT”.

Arbitration and Award

In 2013, the ICSID tribunal awarded damages to the Micula brothers of approximately €178 million, representing compensation for losses they had suffered because of the abrogation of those tax incentives. That decision spawned a perverse litigation over how to enforce the award-all the more so in the context of Romania’s obligations under EU law.

Enforcement and EU Law

The European Commission intervened to argue that any payment by Romania, in regard to the ICSID award, would amount to illegal state aid within the meaning of EU rules, notably under Articles 107 and 108 of the Treaty on the Functioning of the European Union (TFEU). While Article 107 prohibits the aid granted by a Member State, which distorts the competition by favoring certain undertakings, Article 108 provides for the requirement of notification to the Commission for its approval of any such aid. In 2015, the Commission prohibited Romania from executing the award and ordered recovery of amounts already disbursed to the Micula brothers. The Micula brothers appealed, and the case started on an extensive and burdensome multi-step road of litigation before the courts in the EU.

On January 2022, the Court of Justice of the European Union (CJEU) ruled that the European Commission had competence to examine whether the compensation constituted state aid because the claim for compensation was based on an ICSID Award that was issued after Romania’s accession to the EU. Consequently, on October 2, 2024, the General Court of the EU confirmed the prohibition against payment ordered by the Commission and once more declared that any such payment by Romania would amount to a violation of relevant state aid rules within the EU. The court explained that even though the BIT and the ICSID award predated Romania’s membership, EU law would nonetheless take precedence over prior international commitments made by Romani.

The court has further based its judgments on the Achmea judgment of 6 March 2018, wherein it had held intra-EU investment arbitration was incompatible with EU law, and thus further solidifying the stance against such arbitration in EU member states.

Implications of the Judgment

The ruling has wider ramifications; hence it shapes how the EU member states manage ICSID awards and negotiate the complexity of state aid compliance. The Micula case provides a yardstick for critical analysis in future disputes that concern international investment treaties and EU law, underlining the tension between national obligations and European regulations that remains.

This decision reflects the EU’s firm stance on prioritizing its legal framework over conflicting international arbitration awards, especially when state aid is at play, and is likely to influence similar cases across the EU.