Ioan Micula, Viorel Micula and others v. Romania [II]

Case summary

At a glance

Parties: Ioan Micula and Viorel Micula (Sweden) and ten Romanian companies (Scandic Distilleries, European Food, Transilvania General Import-Export, Starmill, European Drinks, Multipack, Rieni Drinks, Tonical Trading, Edri Trading, West Leasing International) v. Romania
Case no.: ICSID Case No. ARB/14/29 (Micula II)
Forum and rules: ICSID Convention; ICSID Arbitration Rules 2006; place of proceeding Paris
Treaty: Sweden–Romania BIT (signed 29 May 2002, in force 1 April 2003)
Tribunal: Prof. Donald McRae (President), Mr. John Beechey CBE (who replaced Dr. Michael Pryles), Prof. John Crook
Sector: Alcoholic spirits and beverages; mineral water
Outcome: Award of 5 March 2020: the Achmea objection was rejected, the mineral water claim was dismissed for lack of jurisdiction ratione temporis, and all liability claims were dismissed.
Amount: Claimed: RON 9,082.4 million (spirits business) and RON 39.4 million (mineral water), both including interest to 30 November 2018. Awarded: nothing. The Claimants bear 75% of the arbitration costs (total USD 863,569.94) and 75% of Romania's legal costs. They must pay Romania USD 215,892.49, plus USD 337,500, RON 13,917,686.54 and EUR 1,303,368.55, with simple interest at 2.91% a year.

The dispute

The Micula brothers, Swedish nationals, and companies they control built an integrated food and drinks group in Romania from 1990. The group included a spirits distillery and a mineral water project run under a 1997 contract later assigned to the state-owned SNAM. Between 2003 and 2006 Romania raised excise duties on alcohol by almost 700% to meet EU accession requirements. The Claimants argued that Romania then failed to enforce its tax laws, which let an untaxed black market grow to about 90% of spirits sales. On that basis they claimed breach of fair and equitable treatment, of the ban on unreasonable or discriminatory measures (Article 2(3) of the BIT) and of full protection and security, which they imported through the MFN clause in Article 3(1). They also claimed breach of the umbrella clause (Article 2(4)) because SNAM had changed the mineral water price unilaterally. Romania objected that, after the Achmea judgment, the intra-EU arbitration clause was inapplicable, and that the mineral water dispute arose before the BIT entered into force. On the merits it argued that it had made no representations to the Claimants and had enforced its tax laws seriously and cost-effectively.

Key holdings

The late Achmea objection was admissible under Rule 41(1). If its consequences were as Romania claimed, the Achmea judgment would take away ab initio the legal basis for jurisdiction, so it qualified as a new fact. The Tribunal therefore did not need to consider Rule 41(2). ¶¶ 260–263
Achmea objection rejected. Whether the Claimants could consent is governed by the ICSID Convention and the BIT, not by Swedish domestic law that incorporates EU law. The BIT and the TFEU are not successive treaties on the same subject matter under VCLT Article 30(3), because BIT tribunals do not decide disputes under EU law. The 2019 Member State declarations and the exchange of diplomatic notes between Romania and Sweden only restate Achmea and cannot remove jurisdiction. ¶¶ 268–289
No jurisdiction over the mineral water claim. The dispute arose when prices were raised unilaterally on 25 February 2002 under the December 2001 legislation, before the BIT entered into force on 1 April 2003 (Article 9(1)). Later invoices increased the loss but were not new disputes. ¶¶ 298–300
The Micula I award is not res judicata on how the BIT is to be interpreted. The claims, the conduct and the relief sought are different, so the earlier award is persuasive only. ¶¶ 351–352
No breach of fair and equitable treatment. Legitimate expectations need not rest on a specific representation, but an expectation that a State will enforce its laws is too general. In any case, Romania made 'serious and visible' efforts to enforce its alcohol tax laws: it had an enforcement structure, carried out controls, imposed fines and brought prosecutions. This fell short of an 'outright and unjustified repudiation' (GAMI) and of a 'manifest, systematic and sweeping' failure (Zelena). The claims on a stable legal framework and good faith failed for the same reason. ¶¶ 362–378
The claims of discrimination, unreasonableness and failure of full protection and security all depended on a failure to enforce the tax laws, which the Claimants had not proved. The Tribunal accepted that the MFN clause can import a full protection and security obligation but did not decide its scope. It did not reach the umbrella clause, causation, damages or the admissibility of the brothers' claims. ¶¶ 411–416, 446–449
Costs. Romania prevailed on liability and on the mineral water claim; the Claimants defeated the Achmea objection. Neither side's procedural conduct amounted to an abuse justifying an adverse costs order. The Claimants bear 75% of the arbitration costs and 75% of Romania's legal fees and expenses, with simple interest at 2.91% a year. ¶¶ 457–465, 466

Procedural history

30 October 2014Request for arbitration filed. ICSID registered it on 24 November 2014.
24 April 2015Tribunal constituted.
1 March 2016Decision on Provisional Measures: the Tribunal directed the parties not to aggravate the dispute and directed Romania to give advance notice of measures that could significantly impair the corporate Claimants' finances. The other requests were denied.
6 March 2017Decision on Enforcement Proceedings, concerning Romania's measures to recover the Micula I award payments as State aid: the earlier orders were reaffirmed and the other requests denied.
22 January 2018Tribunal reconstituted with John Beechey after Dr. Michael Pryles resigned (resignation notified 1 December 2017).
15 March 2018Second Decision on Enforcement Proceedings: the orders requested were declined, and the Tribunal called on Romania to exercise restraint.
1 August 2018Romania filed its Additional Preliminary Objection based on Achmea.
21 January – 1 February 2019Hearing on the merits in Paris.
12 April 2019Procedural Order No. 15 denied the European Commission's application to intervene as a non-disputing party.
5 March 2020Award: jurisdiction upheld except over the mineral water claim; all liability claims dismissed; costs largely awarded against the Claimants.

Tribunal, counsel and experts

Decided by: Donald M. McRae President — appointed by the institution
John Beechey Co-arbitrator — appointed by the claimant (replaced Dr. Michael Pryles on 22 January 2018)
John R. Crook Co-arbitrator — appointed by the respondent
Michael Pryles Co-arbitrator — appointed by the claimant (resigned; resignation notified 1 December 2017)
For the claimant: Mannheimer Swartling Advokatbyrå AB · Dentons · Dragne & Asociatii
For the respondent: LALIVE · Leaua Damcali Deaconu Paunescu - LDDP
Experts: Carlos Lapuerta (claimant) · Richard Caldwell (claimant) · Mihai Belu (claimant) · Mircea Petru Capros (claimant) · Ramona Maria Milea (claimant) · Roy J. Epstein (claimant) · Robin L. Cohen (respondent) · Knight Sukthaworn (respondent) · Wojciech Kopczuk (respondent)