Case C‑516/22
European Commission
v
United Kingdom of Great Britain and Northern Ireland
Judgment of the Court (Fifth Chamber) of 14 March 2024
(Failure of a Member State to fulfil obligations – Default procedure – Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community – Article 127(1) – Transition period – Jurisdiction of the Court of Justice – Judgment of the Supreme Court of the United Kingdom – Enforcement of an arbitral award granting the payment of compensation – Decision of the European Commission declaring that that payment constitutes State aid which is incompatible with the internal market – Article 4(3) TEU – Sincere cooperation – Obligation to stay proceedings – First paragraph of Article 351 TFEU – International agreement between Member States and third countries concluded before the date of their accession to the European Union – Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) – Application of EU law – Article 267 TFEU – National court or tribunal adjudicating at last instance – Obligation to make a reference to the Court for a preliminary ruling – Article 108(3) TFEU – Suspension of implementation of the aid)
1. Actions for failure to fulfil obligations – Jurisdiction of the Court – Action brought against a Member State that has withdrawn from the European Union – Agreement on the withdrawal of the United Kingdom – Article 87 – Jurisdiction of the Court over actions for failure to fulfil obligations against the United Kingdom brought after the end of the transition period – Conditions – Alleged failure to fulfil obligations before the expiry of the transition period – Action brought during a defined period
(Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, Arts 2(e), 87(1), 126, 127 and 185; Art. 258 TFEU)
(see paragraphs 50, 51, 53)
2. International agreements – Agreements concluded by the Member States – Agreements concluded before the accession of a Member State to the European Union – Prohibition on affecting the rights and obligations arising from those agreements – Conditions – Existence of obligations with which third countries can require compliance – Jurisdiction of the Courts of the European Union to assess the existence of such obligations – Obligation of a Member State to enforce an arbitral award – Erroneous interpretation of EU law by a national court or tribunal – Failure to fulfil obligations
(Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, Art. 127(1); Arts 258 and 351, first para., TFEU)
(see paragraphs 59-65, 68-87, 119-128, operative part 1)
3. Member States – Obligations – Obligation of sincere cooperation – Implementation of EU law – Obligations of national courts or tribunals – Obligation of a national court or tribunal to stay proceedings in the event of a risk of conflict between its decision and the decisions of the EU institutions – Failure to stay the proceedings – Failure to fulfil obligations
(Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, Art. 127(1); Art. 4(3) TEU; Art. 258 TFEU)
(see paragraphs 94-98, 104, 116, 117, operative part 1)
4. Questions referred for a preliminary ruling – Reference to the Court – Issues of interpretation – Obligation to make a reference for a preliminary ruling – Scope – Obligation to make a reference for a preliminary ruling in the event of reasonable doubt – National court or tribunal having concluded that there was no reasonable doubt – Risk of misinterpretation of EU law by a court or tribunal giving a decision against which there is no judicial remedy under national law – Failure to fulfil obligations
(Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, Art. 127(1); Arts 258 and 267, first and third paras, TFEU)
(see paragraphs 141-144, 146-154, operative part 1)
5. Aid granted by a Member State – Respective powers of the Commission and the national courts or tribunals – Role of the national courts or tribunals – Obligation of national courts or tribunals to refrain from taking decisions which conflict with a Commission decision – Failure of a national court or tribunal to comply with that obligation – Failure to fulfil obligations
(Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, Art. 127(1); Art. 4(3) TEU; Arts 108(3) and 258 TFEU)
(see paragraphs 159-165, 168-171, operative part 1)
Résumé
Hearing an action for failure to fulfil obligations, the Court of Justice holds, in a judgment delivered by default in the absence of a defence, that, by a judgment of the Supreme Court of the United Kingdom, the United Kingdom of Great Britain and Northern Ireland failed to fulfil its obligations during the transition period following the entry into force of the Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community. (1)
The Court rules on the novel question of whether the enforcement by a Member State of an arbitral award made against another Member State under the provisions of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (2) – which was concluded by most of the Member States which are parties to that convention, before their accession to the European Union, and therefore constitutes for them a prior international agreement for the purposes of the first paragraph of Article 351 TFEU – implies that those States are bound by ‘obligations’ vis-à-vis third countries that have concluded that convention, with the result that the latter derive from it correlative ‘rights’ which would be ‘affected’ by the provisions of the Treaties.
The ICSID Convention entered into force in respect of the United Kingdom and Romania prior to their accession to the European Union. It provides that each Contracting State must recognise an award rendered pursuant to that convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State. (3) In 2002, the Kingdom of Sweden and Romania had concluded a bilateral investment treaty (4) which provides that each Contracting Party must at all times ensure fair and equitable treatment of the investments by investors of the other Contracting Party and must not impair the management, maintenance, use, enjoyment or disposal thereof, through unreasonable or discriminatory measures. (5)
With a view to its accession to the European Union, Romania repealed a regional investment aid scheme in the form of tax incentives. Swedish investors allegedly harmed thereby then obtained an arbitral award, from an arbitral tribunal established under the ICSID Convention, ordering Romania to pay them the sum of EUR 178 million by way of compensation, and sought recognition and enforcement of that award, in particular in the United Kingdom.
After ordering Romania to suspend the execution of that arbitral award, on the ground that such action appeared to constitute unlawful State aid, the European Commission adopted, in 2014, a decision initiating a formal investigation procedure (‘the opening decision’). (6) In 2015, it adopted a further decision, by which, after stating that Article 351 TFEU was not applicable to the present case given that the BIT was a treaty concluded between two Member States of the European Union, with the result that no third country Contracting Party to the ICSID Convention was involved in the proceedings at issue, it found that the payment of the compensation awarded by the arbitral award constituted ‘State aid’ incompatible with the internal market (7) which Romania is required in particular not to pay out (‘the final decision’).
In 2019, the General Court annulled the final decision, (8) on the ground, in essence, that the Commission lacked competence ratione temporis to adopt it under Article 108 TFEU (‘the judgment of the General Court’). That judgment was the subject of an appeal to the Court of Justice. Before the Court of Justice could rule on that appeal, the Supreme Court of the United Kingdom ordered, on 19 February 2020, in Micula v Romania (‘the judgment at issue’), the enforcement of the arbitral award. By the judgment in Commission v European Food and Others, (9) the Court of Justice set aside the judgment of the General Court and referred the case back to it.
At the end of a pre-litigation procedure initiated in December 2020, the Commission brought an action under Article 258 TFEU, seeking a declaration that, by the judgment at issue, the United Kingdom of Great Britain and Northern Ireland had failed to fulfil its obligations under EU law.
Findings of the Court
First of all, the Court recalls that, in accordance with the Withdrawal Agreement, (10) it is to have jurisdiction in actions for failure to fulfil obligations brought before it within four years after the end of the transition period, that transition period having concluded on 31 December 2020 (‘the transition period’), where it considers that the United Kingdom has failed to fulfil an obligation under the Treaties before the end of that transition period. In the present case, since the alleged failure to fulfil obligations arises from the judgment at issue, delivered during the transition period, and the present action was brought by the Commission during the four-year period following the end of that transition period, the Court has jurisdiction over that action.
Subsequently, the Court examines and upholds the four complaints raised by the Commission in support of its action for failure to fulfil obligations. To that end, the Court notes at the outset that the United Kingdom – even if the failure to fulfil obligations of which it is accused is subsequent to its withdrawal from the European Union, although prior to the expiry of the transition period – must be regarded as a ‘Member State’, and that, moreover, EU law was applicable to the United Kingdom during that transition period.
(i) The complaint alleging an infringement of Article 351 TFEU
The Court notes, in the first place, that it is established that the ICSID Convention, which does not form part of EU law, is a multilateral treaty which was concluded by the United Kingdom, before its accession to the European Union, with both Member States and third countries and that, consequently, that international agreement is capable of falling within the scope of Article 351 TFEU, which provides, in particular, that the rights and obligations arising from agreements concluded before the date of accession to the European Union are not to be affected by EU law.
However, the mere fact that a prior international agreement has been concluded by a Member State with third countries is not sufficient to trigger the application of that provision. Such international agreements may be relied upon in relations between Member States only where those third countries derive rights which they can require the Member State concerned to respect.
The Court examines, in the second place, whether the ICSID Convention imposes on the United Kingdom obligations which it is bound to fulfil towards third countries and which those countries are entitled to rely upon as against the United Kingdom. In that regard, the Court recalls that an arbitral tribunal established under the ICSID Convention, pursuant to the arbitration clause provided for in the BIT concluded between the Kingdom of Sweden and Romania before Romania’s accession to the European Union, ordered Romania to pay compensation to the Swedish investors. However, since Romania’s accession to the European Union, the BIT must be regarded as a treaty concerning two Member States.
In the present case, the dispute submitted to the Supreme Court of the United Kingdom concerned the alleged obligation of the United Kingdom to comply with the provisions of the ICSID Convention, vis-à-vis the Kingdom of Sweden and its nationals and, accordingly, the alleged right of the latter to require the United Kingdom to comply with those provisions.
By contrast, the Court notes that a third country does not appear entitled to require the United Kingdom to enforce the arbitral award pursuant to the ICSID Convention. Indeed, that international agreement, despite its multilateral nature, is intended to govern bilateral relations between the contracting parties in an analogous way to a bilateral treaty. In that regard, the Court observes that the United Kingdom Supreme Court confines itself, in essence, to making clear that third countries that have concluded the ICSID Convention could have an interest in the United Kingdom complying with its obligations vis-à-vis another Member State by enforcing an arbitral award. As it is, such a purely factual interest cannot be equated with a ‘right’, within the meaning of Article 351 TFEU, capable of justifying the application of that provision.
However, in the judgment at issue, the Supreme Court of the United Kingdom failed to examine the fundamental question of the extent to which a third country could engage the international liability of the United Kingdom for failure to fulfil its obligations under that convention in the context of the enforcement of an arbitral award made at the conclusion of a dispute between Member States.
The Court points out that Article 351 TFEU is a rule which may allow derogations from the application of EU law, including primary law. That provision is thus capable of having a considerable impact on the EU legal order, since it makes it possible to derogate from the principle of the primacy of EU law. In that context, were the judgment at issue followed, all the Member States which concluded the ICSID Convention before their accession to the European Union could, by relying on Article 351 TFEU, be in a position to remove disputes concerning EU law from the judicial system of the European Union by entrusting them to arbitral tribunals. However, the Court recalls that the system of judicial remedies laid down by the Treaties had replaced the arbitration procedures established between the Member States. Article 351 TFEU must, therefore, be interpreted strictly, so that the general rules laid down by the EU Treaties are not negated.
In those circumstances, the Supreme Court of the United Kingdom was required, before giving a ruling, to examine in detail whether such an enforcement obligation entails rights which third countries might rely on as against the Member States in question. Such a detailed examination is, however, lacking in the judgment at issue, with the result that that court misinterpreted and misapplied Article 351 TFEU by conferring on it a broad scope, the object and effect of which is deliberately to exclude the application of EU law in its entirety. Such an interpretation, which has the effect of setting aside the principle of the primacy of EU law, that principle being one of the essential characteristics of that law, is such as to 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. Accordingly, the Supreme Court of the United Kingdom seriously compromised the EU legal order.
(ii) The complaint alleging an infringement of Article 4 TEU
In the first place, the Court finds that where the outcome of the dispute depends on the validity of the Commission decision, it follows from the obligation of sincere cooperation laid down in Article 4 TEU that the national court should stay its proceedings pending final judgment in the action for annulment before the Courts of the European Union, unless it takes the view that, in the circumstances of the case, a reference to the Court of Justice for a preliminary ruling on the validity of the Commission decision is warranted.
In the present case, the proceedings pending before the EU institutions and the Supreme Court of the United Kingdom concerned the same matter, involved the interpretation of the same provisions and concerned the validity or effectiveness of the decisions adopted by the Commission. Thus, as at the date on which the Supreme Court of the United Kingdom delivered the judgment at issue, the matter of the effect of Article 351 TFEU on the application of EU law was the subject of a provisional examination by the Commission and could still be assessed by the Courts of the European Union. In those circumstances, there was a risk of conflicting decisions. That risk, moreover, materialised, since in contradistinction to the conclusion arrived at in the judgment at issue quite the opposite conclusion had been reached in the opening decision, as in the final decision, the legality of which was subject to an appeal as at the date on which that judgment was delivered.
In the second place, the Court holds that that finding cannot be called into question by the grounds advanced by the Supreme Court of the United Kingdom in order to disapply the application of the principle of sincere cooperation.
As regards the ground that questions as to the existence and extent of obligations stemming from prior international agreements are not reserved to the Courts of the European Union or even fall outside their jurisdiction, the Court states that the obligation of sincere cooperation incumbent on national courts presupposes that the same question may fall within the concurrent jurisdiction of the Courts of the European Union and that of the national courts, with the result that there is a risk of conflicting decisions.
The matter which was referred, in the present case, both to the Supreme Court of the United Kingdom, on the one hand, and to the Commission and Courts of the European Union, on the other hand, concerned the scope of Article 351 TFEU, which is a provision of EU law. Its definitive interpretation falls, therefore, within the exclusive jurisdiction of the Court of Justice. The Court points out that that article does not make any reference to the law of the Member States or to international law, with the result that the expressions in that provision must be regarded as autonomous concepts of EU law. It follows that the Courts of the European Union have jurisdiction to determine whether the ICSID Convention imposes obligations with which a third country is entitled to require compliance and whether those rights and obligations are affected by the EU Treaties. That is the case, in the context of an action for annulment, an action for failure to fulfil obligations or even a reference for a preliminary ruling. In the case of a reference for a preliminary ruling, the jurisdiction of the national court or tribunal cannot deprive the Court of Justice of all jurisdiction to examine those questions. This is all the less the case where the application of Article 351 TFEU to such an international agreement is likely to exert a decisive effect on the outcome of a parallel direct action, seeking the annulment of a final Commission decision.
Indeed, where the Courts of the European Union are called upon to rule on the validity of an act of EU law, it is consistent with the division of roles between the national courts and the Courts of the European Union for the Court of Justice alone to have jurisdiction to interpret the relevant prior international agreement in order to determine whether or not Article 351 TFEU precludes the application of EU law by that act, the Court alone having jurisdiction to declare an EU act invalid.
(iii) The complaint alleging infringement of Article 267 TFEU
The Court finds, first, that the question of the scope of Article 351 TFEU, in the circumstances of the present case, is a novel question in the Court’s case-law and that the scope of the expression ‘affected by the provisions of the Treaties’ in that article has not yet been clarified by the Court. Yet that article is capable of having a considerable impact on the EU legal order.
Secondly, in the opening decision and in the final decision, the Commission had adopted an interpretation of Article 351 TFEU which conflicts with that adopted by the Supreme Court of the United Kingdom in the judgment at issue. That interpretation is, moreover, called into question by the investors in support of their action before the General Court seeking the annulment of the final decision. In the light of the appeal brought against that judgment before the Court of Justice, the question of the effect of Article 351 TFEU on the enforcement of the arbitral award therefore remains pending before the Courts of the European Union.
Thirdly, both the High Court of Justice (England & Wales) and the Court of Appeal (England & Wales), before which the investors had previously brought an action, had refused to rule on the question of the applicability of Article 351 TFEU, on the ground that there was a risk of conflicting decisions.
Fourthly, the Court notes that the Nacka tingsrätt (Nacka District Court, Sweden), had held that Article 351 TFEU did not apply to the enforcement of the arbitral award and had, therefore, refused to enforce that award in Sweden.
Fifthly, the issue of the enforcement of the arbitral award was pending before the Belgian courts at the time when the Supreme Court of the United Kingdom ruled.
In the light of those findings, the Court of Justice concludes there was, in the present case, sufficient evidence to raise doubts as to the interpretation of Article 351 TFEU. Those doubts, in view of the impact of that provision on one of the essential characteristics of EU law and the risk of conflicting decisions within the European Union, ought to have led the Supreme Court of the United Kingdom to consider that the interpretation of that provision is not so obvious as to leave no scope for any reasonable doubt.
In those circumstances, the Court of Justice holds that it was for the Supreme Court of the United Kingdom, as a national court or tribunal against whose decisions there is no judicial remedy under national law, to make a reference to the Court of Justice concerning the interpretation of Article 351 TFEU, in order to avert the risk of an incorrect interpretation of EU law which it did in fact reach in the judgment at issue.
(iv) The complaint alleging an infringement of Article 108 TFEU
The Court holds that the judgment at issue requires Romania to pay the compensation awarded by the arbitral award, in breach of the obligation, laid down in Article 108 TFEU, not to implement planned aid before the Commission has taken a final decision. Romania is thus faced with conflicting decisions concerning the enforcement of that award. Therefore, by ordering another Member State to infringe the aforementioned provision, the judgment at issue fails to comply with that provision.
It is irrelevant, in that regard, that Article 108 TFEU lays down an obligation on ‘the Member State concerned’, namely, in this case Romania. Indeed, the obligation of sincere cooperation required the national courts and tribunals of the United Kingdom to facilitate Romania’s compliance with its obligations under Article 108 TFEU, if that provision is not to be deprived of its effectiveness.