Chillin'Competition

A very good friend tells me that the world of international arbitration is discovering the mysteries of EU State aid law, and that some of its peculiarities have not been received particularly well (to put it elegantly). Curiously enough, these developments have not gathered much attention so far in the parallel universe of EU competition law. It is a pity, as the questions raised by the interface between these disciplines are genuinely interesting. May an arbitral award amount to State aid within the meaning of Article 107(1) TFEU? May the Commission order its recovery as a result? Imagine the implications of an affirmative answer to these two questions in other areas of the law.

If you are not familiar with the ongoing debates, you may be interested to know that these issues are being discussed in the Micula case. In December 2013, Romania was ordered to pay around EUR 82 million (plus interest) as a result of an investment dispute. The arbitration tribunal found that the said Member State had breached a Bilateral Investment Treaty with Sweden. Shortly thereafter, the Commission informed the Romanian government that the implementation of the award would amount to new aid within the meaning of Article 108 TFEU and would therefore have to be notified. In addition, it issued a suspension injunction to ensure that Romania would not take any steps in this regard. From the perspective of the Commission, the implementation of the award would conflict with a previous decision declaring a tax incentive to be incompatible with EU State aid law. Romania was thus left torn between two regimes.

If you take a look at the letter submitted by the Commission in Micula, you will realise that the legal and factual scenario is fairly straightforward from the perspective of EU State aid law. I was in fact struggling to find something unusual in the case. If a measure adopted by a Member State is found to be incompatible with the internal market, it is simply natural that any subsequent measure intended to compensate the recipients of the aid for the consequences of a recovery obligation is also found to run counter to the principles set out in Articles 107 and 108 TFEU. If it were possible for a Member State to grant damages in such a context, the whole system would collapse. The ECJ understood early on that, indeed, the ex ante control for the award of State aid would otherwise become meaningless. These ideas stem clearly from cases like Van Calster or Commission v Council (2006).

It does not matter how well-established these principles may be under EU State aid law. From the perspective of international arbitration, I can understand that the intervention of the Commission in cases like Micula is received with surprise, if not shock. How can it be argued that it is unlawful for a Member State to comply with its obligations under the ICSID Convention? The same that I said in relation to EU State aid law in the preceding paragraph could be said in relation to international arbitration. The whole system for the settlement of investment disputes could be jeopardised if such arguments were to be accepted. It is in fact not unusual for States to claim that their domestic regime makes it impossible for them to comply with the award.

Underlying the Micula case there seems to be something that looks like a primacy (or, if one prefers, a kompetenz-kompetenz) issue – a debate that brings me straight out of my comfort zone. It seems to be about determining which of the two legal orders prevails. There are other issues that may be less fundamental but not necessarily less interesting, and on which I hope to work in the coming months. If you read the Commission letter, you will see that the issue of legitimate expectations is understood very differently in EU State aid law and investment arbitration, respectively. It is well-known that legitimate expectations can be validly invoked only in truly exceptional circumstances under the former. Articles 107 and 108 TFEU would not be practicable if the possibility to circumvent recovery obligations were not limited to the narrowest set of scenarios. This is a distinct feature of EU State aid law that is very unlikely to be found in other areas of the law. It should therefore come as no surprise that the principle of legitimate expectations has a broader scope of application in the context of investment arbitration, the point of which is after all to provide a framework for the protection of international investments.