Analysis: “From Asteris to Achmea – Micula hearing scrutinises award in light of State aid law and broader concerns over Intra-EU Investment Arbitration” by Johannes Fahner
In yesterday’s hearing in the Micula case, parties debated whether the General Court had been right to annul a Commission Decision that classified an investment arbitration award as State aid because it compensated for the withdrawal of tax incentives prior to Romania’s accession to the EU. The Grand Chamber asked the parties to reflect on two issues: first, whether the Achmea case had any bearing on the Micula case, and second, at what point in time the State aid assessment should be made.
According to the judgment under appeal, the arbitral award merely recognised a right to compensation that had been acquired by the Micula brothers and their companies already in 2005 when Romania repealed the advantages. Since EU law did not apply to Romania prior to its accession in 2007, the Commission was not competent to assess the lawfulness of this compensation, at least not in respect of the amounts granted for the period between the withdrawal of the advantages and Romania’s accession. This finding also implied that unlike the Achmea tribunal, the Micula tribunal was not bound to apply EU law.
How and when Achmea bites
Several Member States argued that the Achmea objection should be assessed ‘in limine litis’ as it deprived the case of admissibility. Spain advanced a ‘systemic approach’, arguing that the tribunal had lost any competence it might have had upon Romania’s accession, when Romania became part of the EU legal order with its own constitutional structure and supervisory system. Poland added that there was no need to review concrete awards in light of Achmea, since the infringement inherent in intra-EU investment arbitration rendered all intra-EU awards contrary to EU law.
Some parties addressed the applicability of Achmea in more detail and considered whether the Micula arbitration specifically posed a threat to the autonomy of EU law. The Commission argued that the tribunal had applied EU State aid law when assessing whether the claimants had reasonably believed that the tax incentives were compatible with EU law. In response to a question from the Juge-rapporteur in the case, Judge Regan, the Commission argued that the mere possibility of a tribunal interpreting or applying EU law suffices to trigger Achmea.
The Miculas emphasised that in Achmea, the arbitration clause became invalid upon Slovakia’s accession, prior to the start of the arbitration proceedings, whereas Romania was not yet a Member State when the Miculas brought their claim. Accordingly, the agreement to arbitrate was valid from the start and, in light of Article 25 of the ICSID Convention, could not be affected by a unilateral withdrawal of consent.
Moreover, the Miculas argued that neither of the two pillars of Achmea, mutual trust and autonomy, were affected by the Micula case. In accordance with paragraph 129 of the CETA Opinion, the principle of mutual trust does not apply to third countries: indeed, the Commission’s 2003 Progress Report had voiced concerns as to the independence of Romania’s judicial system. Nor did the arbitration adversely affect the autonomy of EU law, as the tribunal was not required to apply or interpret EU law, because the relevant wrongs occurred before accession.
Advocate General Szpunar steered the debates towards the question of when Achmea bites, wondering whether the competence of an arbitral tribunal, once established, would not continue to exist even if circumstances changed. In response, Germany argued that this would only be the case if a principle to this effect would exist at the level of EU primary law and if it would overcome not only factual changes but also a change of law such as the one that occurred through Romania’s accession.
Whether and when the Miculas received State aid
The Court’s second question asked at what moment in time the State aid assessment should be made. Referring to C‑129/12 (Magdeburger Mühlenwerke), the Commission argued that aid is granted when the beneficiary obtains an enforceable legal title under national law. This was the case when Romania implemented the award, whereas in 2005 the Miculas only had an uncertain claim. In contrast, the Miculas argued that the right to compensation arose at the moment of the breach, the fait générateur, and neither the duration nor the uncertainty of subsequent legal proceedings seeking to determine liability were relevant in that regard.
The question of timing relates to a more fundamental question, namely whether the award should be perceived as State aid or as compensation for damages. According to the Miculas, the tribunal did not reinstate incompatible State aid. Unlike in case C-110/02, there was no Commission decision that had found the initial scheme to be incompatible. Moreover, the arbitral tribunal was not concerned with the withdrawal of the aid scheme as such, but rather with the manner in which this had happened, and with the continuation of obligations incumbent on the beneficiaries when the scheme was repealed. Germany argued, however, that the distinction between compensation and State aid made in the Asteris judgment did not apply to the Micula case, since Asteris was concerned with payments ordered by a national court under national law. The confidence towards domestic courts shown in Asteris could not be extended to tribunals constituted in breach of EU law, Germany argued, bringing the debate back to the Achmea question.
The Micula case is easy to simplify. According to the Commission, it is an attempt to circumvent EU State aid law, demonstrating the risks that investment arbitration poses to the EU legal order. According to the Miculas, the case involves damages for wrongs committed by Romania in breach of international law before Romania’s accession. Yesterday’s pleadings show that the chronology of the events renders the case much more intricate than either simplification would suggest.
Fundamentally, the Court will have to answer two questions of timing: does Achmea bite at the moment when an agreement to arbitrate is formed or also at any later point in time? And should the compatibility of an investment arbitration award with EU State aid law be assessed at the moment in time when the award was issued or when the allegedly harmful events took place?
The importance of timing in the Micula case means that most of the questions discussed before the Court might be relatively specific to this case. At the same time, it is hoped that the AG’s Opinion (expected on 1 July) and the Court’s judgment will shed further light on the nuances, if any, of the Achmea judgment, and on the subtle distinction between compensation for damages and reinstatement of state aid in light of the Asteris judgment.
Johannes Fahner is a Post-doctoral Researcher and Lecturer affiliated with the Amsterdam Center for International Law and a lawyer at a law firm in Amsterdam. His research focuses on international dispute settlement and on the interaction between international and domestic legal orders.