In this case, Mr Justice Blair was asked to consider the claimants’ alternative application for security and application for permission to appeal in the decision handed down on 20 January 2017 where he decided to stay the enforcement of an ICSID (International Centre for Settlement of Investment Disputes) award in circumstances where the European Commission had decided that payment under the award would constitute unlawful state aid and there is an outstanding appeal to the EU courts against that decision.

Factual background

The facts of this case concerned the intersection of international law rules for investment arbitration with EU law rules on state aid. In 2013, an ICSID tribunal awarded the Micula brothers and associated companies substantial damages against Romania in respect of Romania’s withdrawal of an investment incentive programme. The European Commission later declared that implementation or execution of the ICSID award by Romania (including payment) would constitute new state aid, incompatible with the internal market. The claimants registered the award and sought to enforce it as a judgment of the High Court. However, in January this year, a stay of enforcement was granted pending the resolution of the claimants’ proceedings in the European courts, pursuant to Art. 4(3) TEU. In fact, the claimants have applied to the EU courts for the Commission’s final decision to be annulled and the proceedings remain pending. It appears that this was the first time that an ICSID award’s further enforcement has been stayed on such terms in the UK.

The application for security

Mr Justice Blair was asked to consider the claimants’ request to order Romania to provide security in the sum of £150 million as a term of the stay. In the January judgment, the court considered that the claimants had advanced a persuasive case for an order to provide security because (i) the proceedings related to an ICSID award which pre-dated the decisions of the Commission, (ii) the award was to be treated as a final judgment of the English court given at the time of the award, and (iii) the award had been unpaid for some years. Mr Justice Blair said that although granting an order for security is not the same as enforcement or payment, it is at least consonant with the obligation placed on the UK under the ICSID convention to enforce awards. Also, should the EU court rule in the claimants’ favour, security would assist them in recovering the sums due to them.

Mr Justice Blair was required to consider the following:

  1. Whether there was the legal power to make such an order for security, and
  2. Whether the making of this order, and any such steps that may be required as a result of non-compliance with the order, would be treated as a violation of EU law.

In dealing with point (i) the defendant sought to rely on the decision in IPCO (Nigeria) Limited -v- Nigerian National Petroleum Corporation [2017] UKSC 16 (see our March edition for a summary of this case). In considering the IPCO case, the judge said that, although it showed the importance of clarity as to the legal power under which the court orders security, the specific issue there was a different one (IPCO being concerned with the power to order security under Section 103 of the Arbitration Act 1996) and it was decided that this power was limited to adjournments under section 103(5), whereas, in the case now before him for consideration, the claimants sought to rely on CPR 3.1(3), along with the court’s inherent jurisdiction. In dealing with this point the judge held that there was force in the claimants’ contention that if there is the power to order a stay then there is the power to do so on terms, including the grant of security. However, because of the judge’s view as to point (ii) (below) there was no need to reach a final conclusion on this point.

As to point (ii), the claimants submitted that the court’s concerns as to what would happen on non-compliance would only arise if the defendants were to expressly state that they would not comply with the order. The claimants regarded the defendant’s tactic as being one of delay and that they were suffering major prejudice as a result of non-payment of the award. Further to this, the claimants relied on the fact that the judgment of 20 January 2017 recorded that the Commission appeared to accept in oral argument that the court had the power to order security. However, in its written submissions for this hearing, the Commission clarified its position in this respect, stating that the Commission’s final decision would regard security sought as a payment under the award made to the claimants and that this would trigger the defendant’s obligation to recover those sums. As to enforcement, the Commission said that, because enforcement of the award fell within the prohibition in its final decision, any enforcement measures taken by the claimants would be liable to be unwound immediately by way of recovery of aid pursuant to the defendant’s obligations under the final decision. The Commission consequently said that the court should not be persuaded to make an order which would lead to such absurd results. The defendant emphasised these statements by arguing that it should not be subject to conflicting decisions of the English court and the Commission, stating that there was a material risk of a conflict.

In response to these arguments the judge said that he did not accept the claimants’ submission and that it was clearly necessary to consider what would happen on non-compliance. The judge went on to consider the draft order submitted with the claimants’ application, which stipulated that, unless the defendant provided security, the claimants might enforce the award without further direction from the court. He held that, because payment under the award was prohibited under the Commission’s final decision, if the court were to proceed to enforce the award, it would be acting in direct contradiction with the Commission’s final decision.

The claimants sought to deal with this difficulty by stating that, in the event of non-compliance, the parties could come back before the court to consider what the consequences should be. The judge did not believe this to be an appropriate course of action because first of all this proposal did not address the Commission’s assertion that the provision of security would itself amount to a breach of the final decision and, secondly, there was a timing issue as the court could be asked to take action to enforce the condition of the stay whilst the appeal was still pending. On this point, the judge said that this could be a recipe for confusion, particularly because of the fact that the claimants’ position was that the court has no power to order a stay at all as enforcement under the Arbitration Act 1996 is automatic. Thirdly, and finally, this course of action was not needed because the GCEU had notified the Commission that the claimants’ annulment action had been given priority and was likely to be heard before the end of the year. The judge therefore ruled against making the stay conditional on the provision of security.

The application for permission to appeal

The claimants’ case on appeal was that enforcement is automatic under the Arbitration Act 1996 and this is not overridden by section 2 of the ECA 1972.

In considering the claimants’ applications for permission to appeal the judge acknowledged the fact that difficult issues of law were raised in this case and recognised that similar issues arise in other arbitral proceedings. The judge went on to say that both limbs of CPR 52.6(1) were satisfied and accordingly granted the permission.

Case comment

This decision confirms, as in the IPCO case albeit on different facts, the limited power the English courts have to order a party to put up security for costs in the context of enforcement procedure of an arbitration award. Whilst in IPCO the ordinary procedural rules of the English courts did not give them the power to order security, in this case the claimants sought to rely on these rules (CPR 3.1(3)). However, the application was ruled out for the time being because of the risk of a breach of EU law.

This article originally appeared in the July 2017 edition of shipping case digest.