The U.S. Court of Appeals for the District of Columbia Circuit (DC Circuit) has issued a decision that casts a positive light on the enforcement prospects of intra-EU awards in the US. As we discussed in our last update, EU member States continue to resist enforcement of intra-EU awards on the basis of EU law and the Court of Justice of the European Union (CJEU)’s judgments in Achmea and Komstroy. On 14 May 2024, the DC Circuit dismissed Romania’s intra-EU objections in the enforcement proceedings of the Micula v Romania intra-EU award. Coming only a few days after a German court dismissed Spain’s attempts to prevent the enforcement of an intra-EU award in the US, this new Micula judgment may be a further step in the consolidation of the US as a viable jurisdiction to enforce intra-EU investment treaty awards.
In our last update on intra-EU award enforcement efforts in the US, we noted that different judges from the US District Court for the District of Columbia (DC District Court) have issued contradictory decisions in enforcement proceedings of intra-EU Energy Charter Treaty (ECT) awards against Spain. Although one judge of the DC District Court granted enforcement in NextEra and 9REN, another denied it in PV Investors (also known as Blasket). These decisions are now under appeal before the DC Circuit, which is expected to render its decision by the end of 2024. The recent DC Circuit decision in Micula v Romania, however, may have already set a path for key legal issues in question.
Current key legal issues to be decided
The key question in enforcement proceedings of intra-EU investment treaty awards in the US relates to whether US courts have jurisdiction over proceedings against sovereign states. Such jurisdiction depends on whether a specific exception under the US Foreign State Immunities Act (FSIA) is deemed to apply. More specifically, under the FSIA, US courts have jurisdiction over an action brought against a sovereign state if it concerns enforcement of an award rendered pursuant to an arbitration agreement. Thus, the crux is whether US courts will find that arbitration agreements on which intra-EU investment treaty awards are based (eg the arbitration clause in the ECT) fall under the arbitration exception of the FSIA.
In 2023, two DC District Court judges issued contradictory decisions, which raised uncertainties as to the enforceability of intra-EU investment treaty awards in the US:
- Mere existence of an arbitration agreement is sufficient: In February 2023, Judge Tanya Chutkan dismissed Spain’s intra-EU objection and denied its motion to dismiss a petition for enforcement of two ECT awards (NextEra v Spain; 9REN v Spain), worth €290 million and €42 million, respectively. Judge Chutkan held that establishing the existence of an agreement to arbitrate, as opposed to its validity, was sufficient to uphold jurisdiction under the FSIA and thus to allow enforcement of intra-EU investment treaty awards. Under this view, EU member states cannot rely on the supposed invalidity of the arbitration agreement under EU law to resist enforcement in the US, as that issue bears only on the arbitrability of the dispute, as understood under US law;
- US courts need to determine the validity of the arbitration agreement and EU law renders the ECT arbitration agreement invalid intra-EU: In March 2023, Judge Richard Leon, of the same district, took a different position. He rejected Blasket’s request to enforce the intra-EU ECT award in PV Investors v Spain worth €26.5 million and granted Spain’s motion to dismiss the proceedings. Judge Leon followed Spain’s EU law arguments and decided that Spain lacked the legal capacity to extend an offer to arbitrate to EU investors under EU law. Thus, in his view, no valid arbitration agreement existed and therefore Spain had not waived its sovereign immunity from US courts’ jurisdiction. The court therefore found that it lacked jurisdiction and rejected the enforcement request.
The Micula judgment: a step towards more certainty
The recent judgment of the DC Circuit in the Micula enforcement proceedings sheds some light on the approach this court may adopt in the appeals in NextEra, 9REN, and PV Investors (Blasket), which will be decided by the very same panel of judges. Although the Micula enforcement proceedings reached the DC Circuit on a different procedural posture (Rule 60(b) motion) than the NextEra, 9REN, and PV Investors (Blasket) appeals, some of the reasoning that the panel adopted in Micula may extend to these cases as well.
In the Micula enforcement proceedings, the Swedish investors had already obtained judgments at the DC District Court level confirming their intra-EU award. In 2019, the DC District Court denied Romania’s motions against enforcement on the grounds that EU law was inapplicable because the dispute preceded Romania’s accession to the EU. In 2022, Romania sought to vacate the 2019 ruling through a motion for relief from judgment on the basis of two CJEU judgments (Micula and Romatsa), which found that the relevant facts occurred after Romania’s accession to the EU and that the award was not enforceable in the EU. The DC District Court rejected Romania’s motion for relief from judgment in December 2022, deciding that the CJEU judgments did not upend US courts’ jurisdiction because they did not alter the fact that there was an arguable basis for the jurisdiction of the court under the FSIA.
The DC Circuit has now affirmed the findings of the DC District Court. In doing so, although it did not side expressly with the approaches adopted in either NextEra (and 9REN) or PV Investors, the Court offered four key insights that arguably militate in favour of allowing enforcement of intra-EU investment treaty awards:
- It held that the DC District Court did not abuse its discretion by exercising its jurisdiction under the FSIA arbitration exception;
- It rejected Romania’s reliance on the CJEU judgments in Micula and Romatsa to argue that the intra-EU arbitration agreement was void ab initio;
- It stressed that states signatory to the ICSID Convention must give ICSID awards full faith and credit, must recognise them as binding, and are not permitted to examine the merits; and
- It rejected Romania’s arguments invoking the international principle of comity (ie, the degree of deference that a domestic court must pay to acts of foreign governments), on the basis that this would entail ignoring the FSIA and the US’ treaty obligations under the ICSID Convention.
Takeaways
The Micula ruling has broader implications for the enforcement of investment arbitration awards arising from intra-EU disputes. It underscores the US judiciary’s commitment to uphold the principles of the ICSID Convention and international law. If applied in a consistent fashion, this approach could potentially provide EU investors with comfort that enforcement of their intra-EU investment treaty awards will be viable in the US. It remains to be seen how the reasoning in Micula will bear on efforts to enforce future awards, but the DC Circuit’s pending decisions in NextEra, 9REN and PV Investors are likely to clarify the Court’s approach moving forward.
