Kasacinis skundas ir Europos žmogaus teisių teismas – advokatas Stanislovas Tomas

EU against ICSID, UNCITRAL, arbitration, investors' rights, ISDR, TTIP, CETA, ECT: Micula v Romania - Stanislovas Tomas

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argued that the actions of Romania created legitimate expectations for the investors that the tax policy would not be repealed.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).

Looks like discrimination of foreign business in Liechtenstein. AK v Liechtenstein, 38191/12

German citizen AK accused the Constitutional Court of Liechtenstein of discrimination against foreigners in their corporate law. A partially successful judgement was delivered on 09/07/2015. AK insists that there is a long-standing constitutional anti-foreign business case law (§§ 16).

He had a dispute with Liechtenstein citizen FH over the property right in 75 % of the bearer shares in both the EMK stock corporation and the EMK Engineering stock corporation, both companies resident in the Principality (§ 7).  There was an EMK Engineering extraordinary shareholders’ meeting on 23/07/2004 that voted out FH of his office of corporation’s representative and member of its supervisory board, as well as named AK as new CEO (§ 8). All the courts of Liechtenstein supported the Liechtenstein citizen, and consequences of that shareholders’ meeting were set aside.

AK tried to replace all 5 judges of the Liechtenstein Constitutional Court, and his main argument on their bias was that judge H was a brother of FH (§ 18). Other judges were friends and co-workers of judge H. Moreover, other judges were previously working for the Government of Liechtenstein (§§ 19 – 22), which apparently was interested in the outcomes of the proceedings or at least in promotion of its nationals’ interests. The five motions were dismissed one by one by a panel of 4 judges.

The Government argued that Liechtenstein is a very small country, it has a limited number of officials, and therefore its inability to replace even the judge brother of FH was justified (§§ 62 & 64).

The European Court of Human Rights dismissed the argument on discrimination, however found objective partiality for two reasons (§ 79):

1. AK tried to remove judges accusing them of more of less same sins. Thus in deciding on partiality of a colleague, the judge was in fact deciding on an accusation against himself.
2. While deciding about partiality of a colleague, a particular judge was himself under attack, since the question of his own partiality was not clear.

The Strasbourg Court decided that there shall be substitute judges to replace all possibly partial judges of each final instance (§ 83).

European whistle-blowers policy, Andreasen v 27 EU Member States, 28827/11

The Catalan language is lower

No doubt, Marta ANDREASEN is the most famous whistle-blower in Europe. On 01/01/2002 she became the first EU Chief Accountant with a diploma of an accountant. When she started her functions, very soon she noticed that there was a risk of fraud possibly amounting to € 5 billion. She refused to sign EU financial documents, and in fact for this reason she was fired.

The theoretic problem for EU States was that the national law of all those 27 countries forbade dismissing whistleblowers. However the European law did not. Thus she was dismissed in a manner that was impossible under national law of those 27 States.

It was impossible to sue the European Union, so she sued 27 individual States before the European Court of Human Rights, and I represented her. We lost the case in Strasbourg.

The European Court of Human Rights states that we failed to prove that the EU General Court had not been an equivalent human rights defense mechanism to national human rights mechanisms (§ 70).

This is abuse of deduction. In fact, under national law it is possible to attack dismissal as such, to go in-depth of the facts grounding the dismissal. The situation is absolutely different before the EU General Court. First, there is no such thing as a prohibition on dismissal of whistle-blowers. Second, the EU Courts in Luxembourg do not review the facts grounding the dismissal, and their competence is limited to procedural issues.

Thus, there is no efficient whistleblowers defense mechanism in Luxembourg, and the European Court of Human rights refused to look at the problem closer.

After such a response from the Strasbourg Court, there is a possibility of appeal to United Nations.

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CATALÀ

Sens dubte, Marta Andreasen és la delatora més famosa d’Europa. L’1 de gener del 2002 es va convertir en la primera Cap de Comptabilitat de la UE amb el diploma de comptable. Quan va començar les seves funcions, molt aviat va adonar-se que hi havia un gran risc de frau, possiblement fins a 5 bilions d’euros. Ella va negar-se a signar els documents financers de la UE i per aquesta raó va ser acomiadada.

El problema teòric que tenien els Estats de la UE és que la legislació nacional de tots els 27 països prohibia el acomiadaments dels delators. Per contra, la legislació europea no ho feia. D’aquesta manera, sota la legislació nacional dels 27 Estats, si hi hagués un delator, seria impossible d’acomiadar-lo. Aquesta és una norma que ve de les Nacions Unides.

Era impossible atacar la Unió Europea davant el Tribunal Europeu dels Drets Humans. Per la qual cosa va atacar els 27 Estats individuals de la UE davant el Tribunal d’Estrasburg, i jo la representava. Hem perdut el cas.

El Tribunal Europeu dels Drets Humans va declarar fa 5 dies que no vam demostrar que el Tribunal General de la UE no era un mecanisme de defensa dels drets humans equivalent als mecanismes nacionals dels drets humans (§ 70).

Aquest és l'abús de la deducció. De fet, segons el dret nacional és possible atacar l'acomiadament com a tal, per anar al fons dels fets i dels motius de l'acomiadament. La situació és absolutament diferent davant del Tribunal General de la UE. En primer lloc, no hi ha tal cosa com la prohibició d'acomiadament dels delator. En segon lloc, els tribunals de la UE a Luxemburg no revisen els fets i els motius de l'acomiadament, i la seva competència es limita a qüestions de procediment.

Per tant, no existeix un mecanisme eficient de defensa dels delators a Luxemburg, i el Tribunal Europeu dels Drets Humans va negar-se a mirar el problema de prop.

Després d'aquesta resposta del Tribunal d'Estrasburg, hi ha la possibilitat d'apel·lar davant les Nacions Unides.

Suing State for damage by its supreme court before its administrative courts as an exhaustion condition, NML Capital Ltd v France, 23242/12

In 2000 Argentine issued bonds to be paid in 2020 and 2030, but the Republic became bankrupt already in 2001. Argentine signed a Fiscal Agency Agreement providing that it renounced its sovereign immunity as a State, and that in a case of its default at least 25 % of the total amount of debt were immediately payable. Under the Fiscal Agency Agreement the judicial competence was transferred to the United States District Court for the Southern District of New York.

Deptee company NML Capital from Caiman Islands obtained an order from the latter New York obliging Argentina to refund and compensate $ 284 184 632.30 (§ 7). After this, NML Capital addressed the French Courts in order to arrest the funds of Argentina’s diplomatic missions in Paris.

The French Cassation Court agreed with the validity of the New York judgment, however refused to order arrest of Argentina’s funds in France due to sovereign immunity.

It is quite natural to think that after the Cassation Court you have exhausted all internal remedies, and NML Capital attacked it before the European Court of Human Rights. However on 13/01/2015 the Strasbourg judges decided that NML Capital had to attack the French Republic before the French administrative courts for “breach of equality in terms of public burdens” (“rupture de l'égalité devant les charges publiques”, § 19).

“Breach of equality in terms of public burdens” is a procedure absolutely similar to the Köbler procedure of the EU Court of Justice. It is interesting to note that the European Court of Human Rights already several times interpreted that the Köbler procedure is not a requirement within any obligatory meaning of Strasbourg procedures.

After Strasbourg, there is an appeal open to the UN Human Rights Committee. This UN jurisdiction does not accept complaints from legal persons. It is interesting to know that many UN States do not recognize Caiman Islands companies as legal persons. Could NML Capital act as a natural person then?

“Death words” of the plaintiff killing his tax case, Cañada Mora v Spain, 2070/2011

Spanish wine producer José Antonio Cañada Mora was attacked by tax authorities imposing on him a tax debt of € 481 154 for periods from 1992 to 1996 (§ 2.1). There were chances to avoid loosing the money, since the debts for 1992 and 1993 had expired pursuant to the legal statute of limitations, and a substantial part of evidence, i.e. copies not supported by originals, filed by tax authorities had been declared inadmissible (§ 2.2).

On 14/03/2005 Cañada Mora filed an application for amparo (legal protection) before the Spanish Constitutional Court, however his case was still pending before the lower Supreme Court. On 01/04/2005 the Supreme Court dismissed the cassation, since its value taken separately for each quarter was less than € 150 258 (§ 2.8).

On 25/04/2005 Cañada Mora second time applied for amparo before the Constitutional Court, and the application contained the words that he “reiterate[d] the application for amparo that was lodged on 14/03/2005” (§ 2.9).

These words became death words. The Constitutional Court merged the second application with the first one, took into consideration the date of 14/03/2005, and on that ground declared it inadmissible (proceedings still pending before a lower court, § 2.10).

The European Court of Human Rights supported the Spanish judges (§ 2.11), and Cañada Mora appealed before the UN Human Rights Committee.

The UN Committee answered that it does not follow from the death words that the purpose of Cañada Mora was to submit a second request for amparo separate from 14/03/2005 (§ 4.3).

ECtHR re-establishes Khodorkovskiy’s wealth, 11082/06

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Mikhail Khodorkovskiy, former Yukos head and current prisoner, achieved a huge victory in Strasbourg. The biggest Russian oil company was convicted in tax and business fraud.

It was liquidated leaving $ 9.2 billion of unsatisfied liabilities (§ 18). Together with Platon Lebeder, former Yukos director, he was ordered to pay the State all remaining tax liabilities of Yukos (§ 227), since they were de facto organisers and beneficiaries of the tax evation scheme (§ 319). The Russian Courts held that there is a subsidiary liability of managers if the corporate taxpayer had no assets (§ 875). Russians considered that owners used the limited liability company as a façade for fraudulent action, and therefore piercing of the corporate veil was an appropriate solution for defending the rights of its creditors, including the State (§ 877).

However the Strasbourg judges considered that, as a matter of principle, the Russian law did not provide for the recovery of unpaid company taxes from the managers guilty of tax evasion (§ 875). Such a practice was not “adequately accessible and sufficiently precise” (§ 876) or “clear” (§ 877).

If unpaid taxes are claimed as “damages”, the ECtHR analyses national expressis verbis law, Article 1068 of the Russian Civil Code must apply, which provides that damage caused by an employee of the company while performing his official duty must be compensated by that company (§ 879).

Article 56 of the Russian Civil Code previews personal liability of owners and managers in cases when they caused insolvency of their company. The Strasbourg judges replied that this Article was not applied in the Khodorkovskiy case, since (§ 880):

1)      The claim of the tax authorities was granted while the corporate taxpayer still existed.

2)    Article 56 provides subsidiary liability of owners and managers, while Khodorkovskiy and Lebedev were ordered to recover the amounts on the solidary basis with the company.

3)      Article 56 was not mentioned in Russian judgments.

In addition, in internal case I and K, 11/01/2001, the Russian Supreme Court interpreted the law as not allowing for the shifting of liability for unpaid company taxes from the company to its executives (§§ 449 & 882).

Slight reduction in compensation of damages for inhuman treatment of prisoners, Yepishin v Russia, 591/07

 

The European Court of Human Rights slightly reduced the amount of compensation of damages for inhuman treatment of prisoners in case Yepishin v Russia, 591/07. Previously, it was used to calculate the damages as € 6 000 for the first year of imprisonment in inhuman conditions, and € 3 500 for each next year.

This time the imprecise spirit of “equitable satisfaction” told that over 5 years in inhuman conditions shall cost € 19 000 only (§ 83).

In this particular case, the inhuman conditions meant a personal space narrower than 2 m² (§ 63),  

However, what I like about this case is the conclusion of the ECtHR that infrequent and short periods of raising personal space to over 4 m² do not alleviate the prisoner’s situation (§ 65).

Realist views in dissenting opinions of Lithuanian justices on the impeachment of President Paksas, 8/2012

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The purpose of this blog is not only making advertising for my private legal practice, but also a development of a critical scholarship empirically analyzing judicial reasoning (that I call judicial shamanism). Therefore, it is sometimes interesting to take look at how the critical legal scholarship develops in dissenting opinions of Lithuanian justices, for instance, in the impeachment case of Lithuanian President Rolandas Paksas.

The story could be summarized as follows. Twice former Prime Minister Paksas got 55 % of votes and became a President of Lithuania in 2003. On 31/03/2004 the Constitutional Court found him guilty of corruption, disclosure of State secret, and abusing his office for the benefit of a friend. He was impeached, but then stood for election, and it became obvious he would be re-elected. Therefore, on 25/05/2004 the Constitutional Court interpreted that “the Spirit of the Constitution” forbids him to stand for parliamentary and presidential election for life, and then the lifelong prohibition was extended even to the office of Prime Minister or Minister. On 06/01/2011 we partially won the case: the European Court of Human Rights found that the lifelong prohibition to stand for parliamentary elections was breaching the right to free elections. On 22/03/2012 the Lithuanian Parliament amended the Law on Parliamentary Elections, and allowed the impeached President to stand. However on 05/09/2012 the Constitutional Court declared that amendment unconstitutional, since the execution of the ECtHR judgment would alter the "value system of the Lithuanian Constitution" in a too extreme manner. In June 2011 we started an action against Lithuania before the UN Human Rights Committee, and it is currently pending.

As with politicians, you may never be sure what the judges think when they get alone. Nonetheless, from time to time dissenting opinions make a contribution to the development of critical legal scholarship.

I really smiled when I saw that justice Egidijus Šileikis, PhD, and justice Gediminas Mesonis, PhD, attempt to calm down the majority of justices in their dissenting opinions (respectively § 2.7 and § 7.1). They try to convince the colleagues that executing the Strasbourg judgment will not deny the supremacy of the Lithuanian Constitutional Court. However the majority of justices are not that naïve.

Justice Šileikis pointed out that the Constitutional Court had amended its case law on application of the ECtHR judgments. Previously those judgments were considered as a binding source for Lithuania, but in the Paksas case the Constitutional Court decided to re-establish its independence. Justice Sileikis qualifies this decision as “case Although”, since the case law amendment was introduced with the word “although” (§ 3.9). Dr Šileikis also uses the concept of “magic words” from the heritage of legal realism in order to express his critical approach (§ 3.2).

Justice Šileikis describes the refusal of the Constitutional Court to apply the Strasbourg judgment as “excessive ambition vis-à-vis the European Court of Human Rights and excessive activism vis-à-vis the Lithuanian Parliament” (§ 2.1).

In general, I do not like the concept of “activism”, since it is difficult to define it in operational term. I remember the course of constitutional law that I had many years ago. Prof Egidijus Kuris, President of the Lithuanian Constitutional Court, explains that “activism” and “passivism” have certain positive and negative aspects. As far as the Lithuanian Constitutional Court is concerned, it stands “in between”. This is a bullshit that has no practical meaning.

Therefore, I prefer using the conception of “judicial shamanism”, since it embraces both, activism and passivism, and moves towards an empirical description of judicial practice in recognising that possibly all the spirits (principles, articles, rules, etc.) are alive, and possibly they really live in certain amulets (case law, Constitution, legal acts, etc.). However the variety of different techniques of entering into a contact with those spirits in order to see their interaction makes it impossible, in most cases, to establish an objective or in some way “reasonable” judicial practice.