Panos Koutrakos is Professor of EU Law and Jean Monnet Professor of EU Law at City, University of London and a barrister at Monckton Chambers, London. This comment was first published as an Op-Ed for EULaw:Live.
Introduction
More than four years after the United Kingdom had left the European Union, in Commission v UK (Case C-516/22) the Court of Justice held that the UK Supreme Court (UKSC) ‘seriously compromised the EU legal order’ (para. 87): by handing down the Micula judgment, the UKSC misinterpreted and misapplied Article 351 TFEU, violated the duty of cooperation under Article 4(3) TEU, failed to refer to the Court of Justice under Article 267 TFEU, and infringed the duty laid down in Article 108(3) TFEU. This comment will examine the first three grounds.
The significance of the judgment is threefold. First, it illustrates the long arm of EU law which may extend beyond Brexit. Second, it adds yet another piece in the developing and bold case-law that originates in Achmea (Case C-284/16) and extends the scope of EU law at the expense of investor-State dispute settlement rules laid down in international law. Third, it adds to the very limited case-law (Commission v France, Case C-416/17) that finds a court of last instance to have violated the principle of acte clair.
The factual and legal framework
While the UK left the EU on 31 January 2020, EU law was applicable in the UK until 31 December 2020 (Article 127(1) of the UK-EU Withdrawal Agreement). During that period, the Court of Justice had jurisdiction to give preliminary rulings on requests from UK courts (Article 86 of the UK-EU Withdrawal Agreement).
In the Micula judgment (of 19 February 2020), the UKSC ordered the enforcement of the Micula v Romania arbitral award (‘the Award’) that had been delivered in 2013 under the ICSID Convention. In a 2015 Decision (‘the 2015 Decision’), the Commission had found payment of the Award by Romania to amount to State aid which would be incompatible with Articles 107-8 TFEU. The Decision was annulled by the General Court in European Food SA and Others v Commission (Cases T-624/15, T-694/15 and T-704/15) which was under appeal at the time of the UKSC Micula judgment (the Court of Justice set aside the General Court judgment in Commission v European Food and Others (Case C-638/19 P)).
Judgment by default
The judgment was given by default, under Article 41 of the CJEU Statute, as the UK refused to participate in the proceedings and did not lodge a defence, even though it was invited twice to do so.
The decision of the UK Government not to engage with the Court of Justice illustrates a narrow-minded approach to the interactions of the UK with the EU. It also did a disservice to the UKSC: rather than defending the judgment of its most senior judges, the UK Government succumbed to the parochial view of the Court of Justice as a monster with which any interaction would be politically toxic.
The main threads of the judgment
There are three main threads that underpin the line of reasoning of the judgment. The first is about Article 351 TFEU: by enabling Member States to override their EU law obligations in order to comply with obligations they assumed under international agreements concluded prior to their accession to the EU, that provision introduces an exception from the principle of primacy of EU law. Therefore, it must be interpreted in narrow terms.
The second is the need to avoid conflicting decisions in the EU legal order. The UKSC judgment was part of a web of parallel proceedings before different courts: in addition to litigation before the General Court and the Court of Justice about the validity of the Commission’s Decision, a Swedish District Court had refused to enforce the Award and an action before Belgian courts was pending at the time.
The third thread is the principle set out in Achmea (Case C-284/16) as developed in subsequent case-law (Komstroy,Case C-741/19 and PL Holdings, Case C-109/20): to remove intra-EU disputes from the EU judicial system would ‘call into question the consistency, full effect and autonomy of EU law as well as, ultimately, the particular nature of the law established by the Treaties’ (Case C-516/22, para. 86).
These threads are not surprising as they reflect either settled case-law or, in the case of the autonomy of EU law, the clear direction of recent case-law.
The violation of Article 351(1) TFEU
The central question was whether the obligation of the courts of a Contracting Party to enforce an award under Article 54 ICSID Convention is owed to all ICSID Contracting Parties or only to the investor’s home State. The UKSC went for the former view and concluded that, by virtue of the first paragraph of Article 351 TFEU, the right of each non-EU Member State party to the ICSID Convention to have the Award enforced by UK courts ‘shall not be affected’ by the TFEU State aids provisions.
However, the Court of Justice did not agree: following the Opinion of Advocate General Emiliou (Case C-516/22), it distinguished between the ‘purely factual interest’ that all parties have in the enforcement of arbitral awards according to the ICSID Convention and the legal ‘right’ of the Contracting Party to have a specific award enforced (Case C-516/22, para. 76). It is only the latter that may be protected under the first paragraph of Article 351 TFEU and, given that the investors in Micula were established in Sweden and they sought to have the Award enforced by a UK court (when it was bound to apply EU law) against another Member State, the protection afforded under the first paragraph of Article 351 TFEU was not applicable.
The Court of Justice considered the reasoning of the UKSC judgment lacking as it ‘failed to examine in detail’ the extent to which, by refusing to enforce the Award in an intra-EU context, the UK could incur international liability towards non-EU Member States contracting parties to the ICSID Convention, particularly under Article 64 ICSID Convention (Case C-516/22, para. 77). However, its own contrasting interpretation of the Convention is not only strikingly broad-brush but also makes no reference to the principles of interpretation of international treaties as codified in the Vienna Convention on the Law of Treaties. In fact, rather than based on the wording, purpose and context of the ICSID Convention, in its interpretation of the latter the Court of Justice appears to be guided mainly by the requirement that the first paragraph of Article 351 TFEU be interpreted narrowly. This is unfortunate, as the underlying issue merited thorough and convincing reasoning.
There is also something else lurking in the background, namely the Achmea judgment and the subsequent case-law which gradually affirms the application of EU law to investor-State intra-EU disputes at the expense of the protection afforded under Bilateral Investment Treaties. While the autonomy of EU law is only mentioned expressly once (Case C-516/22, para. 86), it is the Court’s broad understanding of that principle that underpins its interpretation of the ICSID Convention within the meaning of the first paragraph of Article 351 TFEU.
In his robust criticism in this blog of the Opinion of Advocate General Emiliou on this point, Paschalis Paschalidis defended the UKSC’s interpretation of Article 54 ICSID Convention and argued that the Court of Justice should intervene only if the latter was ‘so plainly wrong that no bona fide interpreter of Article 54 could have reached that interpretation’. However, this is quite a low bar to apply given the exceptional nature of the first paragraph of Article 351 TFEU, let alone the exclusive jurisdiction of the Court of Justice to interpret the scope of this provision and the specific legal context within which the UKSC handed down the Micula judgment.
The violation of the duty of cooperation under Article 4(3) TEU
The UKSC was found to have violated the duty of cooperation under Article 4(3) TEU because, while the annulment action against the 2015 Decision was pending before the Court of Justice, it should have either stayed its proceedings pending final judgment or referred to the Court of Justice on the validity of the Decision.
Given the ongoing Micula litigation before both the Court of Justice of the European Union and domestic courts of other Member States, it is difficult to envisage circumstances which would have made a reference to the Court of Justice more necessary. The argument that the UKSC had made (that it was not for the Court of Justice to determine the scope of the UK obligations under the ICSID Convention) was not convincing and its reliance on the case-law (Levy, Case C-158/91, para. 21 and Evans, C-324/93, paras. 29) was misconceived. On the one hand, the division of tasks between domestic courts and the Court of Justice in the context of a preliminary reference procedure may not be viewed as depriving the latter from its jurisdiction to interpret the scope of EU law (in this case, the first paragraph of Article 351 TFEU). On the other hand, this is all the more so given that the existence of the annulment action against the Commission’s Decision. The distinction between annulment actions and preliminary references that the UKSC made (Micula, para. 99) illustrates a narrow approach to judicial review and does not take into account the interpretation of the two procedures as a whole in the context of judicial review (for instance, Rosneft, Case C-72/15, paras. 68-70).
As for the argument that the prospect of either the General Court or the Court of Justice addressing the applicability of the first paragraph of Article 351 TFEU was remote (Micula, paras. 55 and 114), it was rightly dismissed. Not only did it ignore the implications of the procedure governing annulment actions under Article 263 TFEU but it also construed the duty of cooperation that binds domestic courts, let alone a court of last instance, in unduly narrow terms.
The violation of the duty to refer under Article 267 TFEU
The conclusion that the UKSC violated its obligation to refer to the Court of Justice was based, amongst others, on the complexity of the scope of the obligations assumed under the ICSID Convention, the absence of case-law on the specific issue of interpretation of the first paragraph of Article 351 TFEU and its impact on the primacy of EU law, the divergence of views adopted by the Commission and different courts in different Member States, including the UK where both the High Court and the Court of Appeal had decided not to interpret Article 351 TFEU in order to avoid a risk of conflicting decisions.
To argue that the interpretation of the first paragraph of Article 351 TFEU in the circumstances under which the UKSC handed down the Micula judgment was so obvious as to leave no scope for any reasonable doubt is simply not credible. In fact, these circumstances were paradigmatic of when a court of last instance ought to refer to the Court of Justice.
Conclusion
While this enforcement action may well have been brought by the Commission as part of its overall strategy in the Micula litigation, it is difficult to defend the UKSC judgment in the light of the duty of cooperation imposed under Article 4(3) TEU and the duty to refer under Article 267 TFEU. A decision of a court of last instance not to refer in circumstances as contested as those in Micula would be at odds with their responsibility as EU courts and the objective of the preliminary reference to avoid the real risk of conflicting decisions. This would undermine not only the effectiveness of EU law but also the legal certainty that investors need. Viewed from this angle, the judgment in Commission v UK (Case C-516/22) sends a message to domestic courts of last instance to take their duty to refer seriously.
Stepping back from the procedural context of the case, the judgment consolidates the case-law that originates in Achmea (Case C-284/16). While its reasoning on the matter is no clearer or more detailed than what we have come to expect (in addition to Achmea, Case C-284/16, a case in point is Komstroy,Case C-741/19), it illustrates clearly the distaste that the Court of Justice has for any interference of international law with the application of EU law in intra-EU disputes.
Panos Koutrakos is Professor of EU Law and Jean Monnet Professor of EU Law at City, University of London and a barrister at Monckton Chambers, London. This comment was first published as an Op-Ed for EULaw:Live.
the European Advocate 