European Court of Human Rights & UN Human Rights Committee blog of attorney Prof.S.Tomas ❑ Advokato prof.S.Tomo tinklaraštis apie Europos žmogaus teisių teismą ir JTO Žmogaus teisių komitetą ❑ Блог адвоката проф.С.Томаса о Европейском суде по правам человека и Комитете по правам человека ООН
In my last video I have spoken about the fight between the EU and the ICSID in the Micula case. It is a case where the ICSID arbitral tribunal has awarded damages of € 178 million to the Swedish investors for the breach of their rights by the European Commission. In that video I have predicted that the European Court of Justice would take the position that the Micula brothers should be paid nothing, that the ECJ would prohibit the execution of the award. As always, I was right.
The Micula execution case is still under consideration, however we have got the Achmea case.
In the Achmea case, the arbitral tribunal established under the UNCITRAL rules has awarded a compensation of € 22.1 million for the breaches of the Dutch investors rights by Slovakia. In this case, the Slovakian Government behaved in a very stupid way: they prohibited distribution of profits generated by private sickness insurance companies. I think that this is a very stupid approach. If a legal business generates profit, why should you prevent it from distributing profits? So this business has got € 22 million from the arbitral tribunal. What does happen next?
The German Federal Court of Justice decides to transfer the question whether the award is executable to the European Court of Justice, and as I have predicted this is very bad for the investors. Foreign investors do not trust the European courts, and they are right.
There are two important positions that are present in the Achmea judgment: the position of the German Federal Court of Justice and the one of the ECJ itself.
The German Federal Court of Justice supports the execution of the award, and makes two very important statements:
1)The EU law is not applicable to the Achmea case, because it is decided by the arbitral tribunal with no references to the Union law. The Union law is not necessary in this case. The Union law does not regulate this kind of issues.
2)If the execution would be contrary to the Union law, if it went against the policy of the European Commission, then the German courts would annul the execution.
This is a moderate approach of which I was talking in my last video. However, the European Commission takes the radical approach or even a Jihadist approach, and the ECJ ratifies this radical position as its own: the Luxembourg court prohibits all the intra-EU BITs with their arbitration remedies.
Now let’s take a look at the arguments of the ECJ:
It agrees that the Union law is not necessary for solving the Achmea dispute, however the ECJ says that the issue of application might raise in other cases, and then the arbitral tribunal would consider, apply and interpret the Union law in those other cases (§§ 42 and 58). They do not talk about Micula, but we know that they imply Micula, and the breaches of investors rights by the European Commission.
Then, the ECJ explains everything it thinks about international arbitration in the same Jihadist manner: it says that the arbitral tribunals are not national courts of Member States (§ 45), they are not common courts of Member States like the Benelux Court of Justice (§ 47), and they are created in order to escape from the ordinary judicial system (§§ 46 and 55). Well, this is true, because the investors do not trust the European courts. This is normal. Investors want to have independent courts. Therefore, they try to escape from the European courts.
Finally, the ECJ says that in principle it could authorise the EU to transfer a part of its competence to the ICSID and UNCITRAL tribunals, but in the case of BITs the competence is transferred by the individual Member States themselves.
So, as I have predicted, the ECJ denounces the intra-EU BITs in a retrospective manner.
Why do I call this approach Jihadist? First of all, the same argumentation is applicable not only to the intra-EU BITs, but to all BITs concluded by the Member States all around the world. Look: the EU breaches the rights of Russian investors in the same manner as it breaches the rights of Dutch investors. It means that the same issue of interpreting the Union law may raise in extra-EU arbitration. And then – yes – almost all extra-EU BITs are concluded by individual Member States.
Second, if the EU is allowed to invoke its internal law to invalidate the arbitration awards, then Russia also has the same right. This is a collapse of the whole arbitration system.
As an Islamic fundamentalist, the European Commission and the ECJ decide to explode all the system. However, I predict that they will fail.
The most exciting business law case that I have seen in the recent years is without doubt Micula v Romania. This is the case where the ICSID arbitration tribunal has, in fact, decided that the European Union law had breached the investors’ right to a fair and equitable treatment. This case makes me laugh, because it sets aside a huge segment of the European Commission arrogance. The case is quite unknown. For instance, none of the LSE professors of law has ever heard about this.
After observing the success of the tax paradise in the City of London, the Government of Romania decided to create a tax paradise like the British one in one of the poorest regions of the country. No tax attracts investment and creates prosperity – this was the logic of Romania, and this is actually a result of the City of London.
Some ethnic Romanians from Sweden started their investment in the Ştei Nucet region. The European Union reacted with the Union Common Position requiring to repeal the tax policy, since a measure providing tax benefits for particular parts of Romania only should be considered as a State aid distorting competition. The common position does not explain why this is prohibited in Romania, but this is not prohibited in the City of London.
Romania agreed, and the Micula brothers sued Romania before the ICSID arbitration tribunal under the BIT between Romania and Sweden. In 2013, the Arbitration Tribunal awarded the Micula brothers a compensation of € 178 million.
The Arbitration Tribunal argued that the actions of Romania created legitimate expectations for the investors that the tax policy would not be repealed. If you change your mind after the investment has already started, the fair and equitable treatment principle requires paying damages.
The Arbitration Tribunal states that there is no contradiction between the fair and equitable treatment principles under the BIT and the Europe Treaty on preparation of Romania to become an EU member state, since both Romania and Sweden signed those treaties in full understanding of their content. This attitude is required by the Vienna Convention on the Law of Treaties.
An amazing thing happens when the award come to the Bucharest Tribunal for execution. There are three things that I’d never expect from a Romanian court: 1) the Bucharest Tribunal refuses to stay the execution, because – this is very important – the ICSID ad hoc committee has refused to do so. 2) The Bucharest Tribunal rejects the proposal of the European Commission to make a preliminary reference to the CJEU. The EC wants to transfer the case to the CJEU because this court is tool to implement the official policy of the EU. The investors have zero chances to win over there. What does the Bucharest Tribunal do? It rejects the proposal of the EC. 3) The Bucharest Tribunal rejects the main action by Romania. This is amazing.
Then the case goes to the Bucharest Court of Appeal, which stays the execution. Nevertheless, – and this is also amazing – the Romanian Government opens a bank account in the name of the investors, and transfers them the money. The account is blocked until the end of the litigation, but the Romanian Government at least is able to declare that the award is executed. This is a kind of a temporary compromise, and this is also a strike of the Romanian Government against the EC.
After this, the EC issued a decision prohibiting Romania to execute the award. This decision is interesting in two respects: the position of Romania, and that of the EC. 1) Romania argues that the Romanian Constitution prohibits influencing judges, and the national constitution has higher power than the Union law. This is a very brave argument, because it challenges the case law of the ECJ. The next Romanian argument is even braver: the award shall be executed until it has not been determined at the ICSID level whether the ICSID Concention of the Union law should take precedence. At this point, it already clear that the ICSID ad hoc committee will argue that international arbitration is higher than the Union law, and it is clear that the ECJ will enter a contrary judgment.
The approach of the European Commission is radical. It states that the intra-EU BITs are not valid, since they are contrary to the Union law, and the Union law provides that it is higher than any other international obligations of Member States. The EC might take a more moderate approach in saying that the intra-BITs are invalid only to the extent of their contradiction with the Union law, but this is not the case. So the EC chooses to provoke a direct conflict with the international arbitration system instead of finding a verbal formula allowing parties to keep honor.
The EC explains that the award provides a selective advantage to Micula brothers, and not to other investors operating in the region. It is the same as in a situation where you have black and white segregation. Blacks do not have the right to use the same bus as white people. One of those blacks goes to the tribunal, and the tribunal enters a judgment saying that this is against fair and equitable treatment and this particular black person should be paid a compensation, and then the European Commission replies that this judgment shall not be executed because it privileges one black over thousands of other black people. This is the same.
The investors lodged an appeal with the CJEU On one hand, this is a logical remedy. On the other hand, transferring the case to the CJEU because usually it supports the initiatives of the EC in a very enthusiastic manner.
As it might be foreseen the ICSID ad hoc committee dismissed the application for annulment by Romania, and upheld the award of the arbitration tribunal. The ad hoc committee pointed that the arbitration tribunal had in fact applied the Europe Treaty to the full extent that had been necessary.
The attempts to execute the award continue before the UK courts, however the High Court of Justice stays the execution until the end of the proceedings before the ECJ. The High Court of Justice makes reference to the “principle of sincere cooperation” of the MS courts with the European Commission. This is not the best sign. It will be interesting to see how the High Court of Justice will continue after the departure of the UK from the EU.
The litigation over execution also continues in the USA.
I don’t believe there is much chance to win this case before the ECJ. The European Court of Justice is consistently resisting the attempts to create a higher court than itself: the Strasbourg judges have prohibited to submit the European Union to the authority of the European Court of Human Rights and to that of the European and Community Patent Court (CJEU opinion 1/09).