European Commission refers United Kingdom to Court of Justice of the European Union over a UK judgment allowing enforcement of an arbitral award granting illegal State aid

European Commission refers United Kingdom to Court of Justice of the European Union over a UK judgment allowing enforcement of an arbitral award granting illegal State aid.

The Commission has decided to refer the United Kingdom to the Court of Justice of the European Union in relation to a judgment of its Supreme Court of 19 February 2020 allowing enforcement of an arbitral award ordering Romania to pay compensation to investors, despite a 2015 Commission decision having found that the compensation infringed EU State aid rules. 

According to the UK Supreme Court, on the basis of Article351 TFEU, the UK's EU law obligations at the time did not stand in the way of its alleged international obligation to recognise and enforce the arbitral award under the International Convention for the Settlement of Investment Disputes. When the UK Supreme Court delivered its judgment, proceedings concerning the validity of the Commission's 2015 decision were pending before the Union Courts. The Commission considers that, in rendering such a judgment, the UK: 

(i) breached the principle of sincere cooperation, by adjudicating a legal question that was already put before the Union courts; 

(ii) infringed Article 351 TFEU, by misinterpreting and misapplying that provision in the aforementioned circumstances; 

(iii) infringed Article 267 TFEU, by failing to make a preliminary reference to the European Court of Justice on the application of Article 351 TFEU; 

(iv) infringed Article 108(3) TFEU, by failing to respect, regarding the implementation of the arbitral award, the suspensive effect of the Commission's 2014 decision to open a formal State aid investigation procedure. 

The Commission considers that the UK Supreme Court judgment has significant implications for the application of EU law to investment disputes and that UK courts' recognition and enforcement of such awards is incompatible with EU law. In this context, the Commission has recently launched infringement proceedings against those Member States that have failed to terminate their intra-EU bilateral investment treaties. The Commission has therefore decided to refer the UK to the Court of Justice. Under Article 87 of the Withdrawal Agreement, the Commission may, within four years after the end of the transition period, initiate proceedings before the Court of Justice, if it considers that the UK has failed to fulfil an obligation under the Treaties before the end of that period. In accordance with Article 89 of the Withdrawal Agreement, judgments of the Court of Justice in such proceedings have binding force in their entirety on and in the UK. For More information click here.

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George Kazoleas, Lawyer

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