Introduction
In an unusual judgment, the Court of Justice found on 14 March 2024, in case C-516/22, Commission v UK, that the UK had infringed Article 4(3) TEU, Article 108(3) TFEU, Article 267(1)&(3) TFEU and Article 351(1) TFEU, in conjunction with Article 127(1) of the Agreement on the withdrawal of the UK from the EU because the UK Supreme Court erred in its judgment of 19 February 2020 in a case brought by bothers Ioan Micula and Viorel Micula against Romania. The two brothers demanded compensation for the abolition of the preferential tax treatment they enjoyed before Romania acceded to the EU.1
In order to obtain compensation, the Micula bothers initiated a dispute resolution process under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States [ICSID]. The arbitration tribunal found in their favour.
However, in March 2015, the Commission ruled in decision 2015/1470 that that preferential tax treatment constituted State aid and that Romania was prohibited from paying any compensation for withheld benefits since that aid was incompatible with the internal market.
The appeal lodged by the Micula brothers was upheld by the General Court in June 2019, in case T-624/15, European Food v Commission. The General Court considered that since the tax privileges had been granted before Romania’s accession, the Commission had no jurisdiction to exercise its State aid powers. In the meantime, the Micula brothers initiated proceedings in the UK to have the arbitral award enforced. In February 2020, the UK Supreme Court ordered enforcement of the arbitral award.
However, the Commission appealed against the judgment of the General Court and in January 2022, in case C-638/19 P, Commission v European Food, the Court of Justice annulled the judgment of the General Court, on the ground that the General Court was wrong to find that the aid had been granted before Romania’s accession to the EU. According to the Court of Justice, the aid was granted on the date the award was decided by the tribunal. The case was referred back to the General Court and it is still pending [T-624/15 RENV].
According to the Withdrawal Agreement, the Court of Justice had jurisdiction to give preliminary rulings on requests by UK courts before the end of the transitional period. Moreover, the Agreement confers the right to the Commission to initiate action against the UK if it considers that the UK failed to fulfil its obligations before the end of the transitional period. The transitional period ended on 31 December 2020.
This article reviews only the part of the judgment that refers to State aid rules.
Article 108(3) TFEU
After the Court held that it had jurisdiction, that the UK Supreme Court should have had doubts as to the conformity of the arbitral award with EU law and that, as a consequence, the UK Supreme Court should have requested guidance from the Court of Justice, the latter turned its attention to the consequences of compliance with State aid rules.
First, it recalled the relevant principles. “(159) Since the application of the rules of EU law on State aid is based on an obligation of sincere cooperation between, on the one hand, the national courts, and, on the other hand, the Commission and the Courts of the European Union, those national courts must refrain from taking decisions which conflict with a decision of the Commission on State aid, even if that decision is provisional.”
“(160) In that context, it should be recalled that Member States are under an obligation, first, to notify to the Commission each measure intended to grant new aid or alter aid for the purposes of Article 107(1) TFEU and, secondly, not to implement such a measure, in accordance with the last sentence of Article 108(3) TFEU, until the Commission has taken a final decision on the measure”.
“(161)) According to the case-law of the Court, an aid measure which is put into effect in infringement of the obligations arising from that provision is unlawful”.
“(162) The prohibition on implementation of planned aid laid down in the last sentence of Article 108(3) TFEU has direct effect and that the immediate enforceability of the prohibition on implementation referred to in that provision extends to all aid which has been implemented without being notified”.
“(163) Consequently, […], it is for the national courts to draw the necessary conclusions with respect to the infringement of Article 108(3) TFEU, in accordance with their national law, with regard to both the validity of the acts giving effect to the aid and the recovery of financial support granted in disregard of that provision”.
“(164) The national courts therefore have jurisdiction to order the recovery of unlawful aid from its recipients”.
“(165) Moreover, where the national courts are seised of a request seeking the payment of aid which is unlawful, they must, in principle, reject that request”.
Then the Court of Justice applied the above principles to the present case.
“(166) In the present case, […], in the final decision, the Commission found that the payment of the compensation granted by the arbitral award of which it had not been notified constituted State aid that was unlawful and incompatible with the internal market. Although that decision was indeed annulled by the judgment of the General Court, the fact remains that an appeal against that judgment was pending before the Court of Justice at the time when the Supreme Court of the United Kingdom delivered the judgment at issue.”
“(167) In addition, […], the judgment of the General Court did not affect the legality of the suspension injunction and of the opening decision, by which the Commission had also found that the payment of the compensation granted by the arbitral award constituted unlawful State aid incompatible with the internal market and had ordered Romania not to implement that award before the adoption of its final decision.”
“(168) It must be held that by ordering the enforcement of the arbitral award, the judgment at issue requires Romania to pay the compensation granted by that arbitral award in breach of the obligation laid down in the last sentence of Article 108(3) TFEU.”
“(169) It follows that Romania is thus faced with conflicting decisions concerning the enforcement of that award. Therefore, far from ensuring compliance with that provision, […], the judgment at issue fails to comply with that provision by ordering another Member State to infringe it.”
In other words, unlawful aid must be stopped not only by the courts of the granting Member State but also by any other court in any other Member State that happens to deal with a case of unlawful aid. Then the Court of Justice made an important clarification.
“(170) It is irrelevant, in that regard, that the last sentence of Article 108(3) TFEU lays down an obligation on ‘the Member State concerned’, namely, in principle, the Member State that pays the aid, in this case Romania.”
“(171) As the Commission rightly submits, the obligation of sincere cooperation enshrined in Article 4(3) TEU, which underpins the application of the rules of EU law on State aid, required the United Kingdom, and, in particular, its national courts, to facilitate Romania’s compliance with its obligations under Article 108(3) TFEU, if that provision is not to be deprived of its effectiveness”.
“(172) That conclusion cannot be invalidated by the fact that the arbitral award has become final either. The rule that the Commission has exclusive competence to assess the compatibility of State aid with the internal market is necessary in the national legal order as a result of the principle of the primacy of EU law. EU law precludes the application of the principle of res judicata from preventing the national courts from drawing all the necessary conclusions with respect to the infringement of Article 108(3) TFEU”.
“(173) Nor is the first paragraph of Article 351 TFEU capable of precluding the application of Article 108(3) TFEU, since, as is apparent from paragraphs 71 to 84 above, that first paragraph of Article 351 TFEU was not applicable to the dispute before the Supreme Court of the United
Kingdom, with the result that the rules of EU law on State aid could not be set aside by virtue of the latter provision.”
Conclusion
There are many pending cases of disputes between investors and Member States. Even if arbitration tribunals decide in favour of investors, such awards cannot be enforced by any court in the EU if they constitute unlawful State aid. The question that immediately arises is whether enforcement of awards by courts outside the EU would have legal validity in the EU.
