IN THE HIGH COURT OF JUSTICE
THE BUSINESS AND PROPERTY COURTS OF ENGLAND & WALES
QUEEN’S BENCH DIVISION
COMMERCIAL COURT
In the Matter of the Arbitration Act 1996
And in the matter of an Arbitration

Between:

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Thomas Steward (instructed by HFW LLP) for the Claimant (Respondent in the Arbitration)
Karen Maxwell (instructed by Lax & Co LLP) for the Defendant (Claimant in the Arbitration)
Hearing date: 19 September 2019
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HTML VERSION OF JUDGMENT
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Crown Copyright ©

Robin Knowles J:

Introduction

1. 1. The claimants, Tricon Energy Ltd (“the Charterers”) appeal pursuant to section 69 of the Arbitration Act 1996 (“the 1996 Act”) in respect of a question of law arising out of the award of an experienced arbitral tribunal, dated 13 February 2019 (“the Award”). Permission to appeal was given by Popplewell J on 21 June 2019.
   2. The defendants, MTM Trading LLC (“the Owners”) were the owners of the vessel ‘MTM HONG KONG’ (“the vessel”) which was chartered to the Charterers under a charterparty dated 13 February 2017 (“the Charterparty”).
   3. The Owners brought a claim for demurrage in the amount of US$56,049.36 as a result of delays at both the load port, Antwerp, and the discharge port, Houston. A formal demurrage claim was submitted by email on 9 June 2017, which attached a number of documents. The demurrage due was calculated in the net sum of US$55,841.16. The claim was subsequently revised to US$56,049.36, the figure maintained in the arbitration proceedings.
   4. The Charterers disputed that the demurrage claimed was due to the Owners. The principal grounds were that the demurrage claim had not attached all of the necessary documents and that, because the 90-day period to submit those documents had elapsed, the demurrage claim had become time-barred.
   5. At the invitation of the parties, the tribunal made the Award on the basis of written submissions alone. By the Award, the tribunal held that the Owners’ demurrage claim succeeded in full. It awarded the Owners US$56,049.36.

The Charterparty terms

1. 1. The Charterparty was on an amended Asbatankvoy form.
   2. The most relevant provisions of the Charterparty were as follows:

By clause 10:“Laytime/Demurrage

… …

(e) If load or discharge is done simultaneously with other parcels then laytime to be applied prorate between the parcels.

…

(g) In the event of Vessel being delayed in berthing and the Vessel has to load and / or discharge at the port(s) for the account of others, then such delay and/or waiting time and /or demurrage, if incurred, to be prorated according to the Bill of Lading quantities”.

By clause 12:

“Statement of Facts

Statement of facts must be signed by supplier or receiver, respectively. If they refuse to sign, the Master must issue a contemporaneous protest to them. Owner shall instruct each port agent to release port information to Charterer on request and to forward to Charterer the statement of facts and N.O.R. as soon as possible after Vessel has completed loading or discharge there”.

By clause 38:

“Time Bar Clause

Charterer shall be discharged and released from all liability in respect of any claim/invoice the Owner may have/send to Charterer under this Charter Party unless a claim/invoice in writing and all supporting documents have been received by Charterer within [90] days after completion of discharge of the cargo covered by this Charter Party or after other termination of the voyage, whichever occurs first. Any claim/invoice which Owner may have under this Charter Party shall be waived and absolutely barred, if claim/invoice and all supporting documents are not received by Charterer before the time bar”.

1. 1. Both parties accepted that a manuscript amendment to clause 38 meant that the time bar period was one of 90 days.

Common ground

1. 1. The following was common ground:

(a) the Vessel tendered Notice of Readiness (“NOR”) at the loadport, Antwerp, on 21 February 2017 at 11.12;(b) hoses disconnected on 25 February 2017 at 20.20;

(c) NOR was tendered at the discharge port, Houston, on 20 March 2017 at 01.12;

(d) the Vessel was shifting to her berth between 14.48 and 20.40 on 21 March 2017;

(e) discharge commenced on 22 March 2017 at 03.20;

(f) discharge was completed, with hoses disconnected, at 04.30 on 23 March 2017.

1. 1. A second parcel of cargo was discharged at the same berth in Houston. This engaged the provisions of clause 10 of the Charterparty, which governs simultaneous cargo operations.
   2. The Owners’ claim for demurrage of US$55,841.16 was submitted within the 90-day period (on 9 June 2017). The claim was supported by the demurrage invoice, laytime/demurrage calculations, NOR, vessel timesheet/statement of facts, hourly rate/pressure logs and various letters of protest.
   3. The Owners did not provide copies of the two bills of lading for the two parcels of cargo (the Charterers’ parcel and the second parcel).
   4. The statement of facts provided did not accurately record the bill of lading quantities, at least insofar as the bill of lading for the Charterers’ parcel was concerned. The Owners stated that the error arose from the wrong figure having been recorded by the Master in the NOR for discharge at Houston which was then inserted into the statement of facts and not picked up by the port agent.
   5. The statement of facts for the third party’s parcel of cargo was redacted and covered the discharge port only. It suggested that the bill of lading quantity for that parcel was 6,014.906 MT.

The dispute

1. 1. The Charterers’ case was that the Owners had failed to provide “all supporting documents” in accordance with clause 38 because copies of the bills of lading were not provided.
   2. The Owners’ case was that their claim was sufficiently documented for the purpose of clause 38 by the statements of facts and, in any event, the bill of lading for the second parcel was not an available document for the purposes of clause 38.

The question on the appeal

1. 1. The question of law on which the Charterers have been granted permission to appeal by Popplewell J is framed as follows:

“Where a charterparty requires demurrage to be calculated by reference to bill of lading quantities, and contains a demurrage time bar which requires provision of all supporting documents, will a claim for demurrage be time-barred if the vessel owner fails to provide copies of the bills of lading?”

The Award

1. 1. The tribunal answered the question in the negative, on the basis that the provision of the statement of facts was sufficient.
   2. The tribunal reasoned:

“The statement of facts which records the bill of lading figure is in reality all that Charterers need to check that the apportionment of waiting and discharging time has been correctly calculated.”

1. 1. The tribunal added:

“We were not persuaded by the Charterers’ argument that they needed to see the bill of lading to satisfy themselves that the cargo quantity figures recorded in the statements of facts had been calculated on the same basis, namely measured in air or in a vacuum; since the statements of facts were prepared by ship’s officers in the knowledge that they would be required to pro-rate discharging time, they would have used the cargo quantity figure recorded by the same method in each bill of lading.”

1. 1. The tribunal recorded that to the best of its recollection in disputes involving the discharge of different parcels of cargo, parties to those disputes have “only ever adduced in evidence statements of facts and never any bills of lading”. It also had “very real doubts whether an owner could properly forward a copy of a bill of lading to a third party in an unconnected transaction without the permission of the holder of that bill of lading”.

Interpretation

1. 1. The Charterers argued that the tribunal was in error in construing clause 38 of the Charterparty as requiring no more than the presentation of sufficient information to allow the Charterers to understand the Owners’ case. They argued that “all supporting documents” had to be submitted, and that included the bills of lading for both the Charterers’ parcel and the third-party parcel. Without such documents, they argued, the Charterers could not determine whether the claim for demurrage was well-founded.
   2. The Owners, on the other hand, argued that the tribunal was correct and that on its proper construction, clause 38 only required presentation of “essential” documents, which generally meant the statement of facts.
   3. In this regard the Owners relied on the statements made by Mr Justice McNair in Metalimex Foreign Trade Corporation v Eugenie Maritime Co. Ltd., [1962] 1 Lloyd’s Rep. 378 at page 386:

“… when one is dealing with general disputes under a charter-party such as this, it is wholly reasonable and in the interests of both parties that there should be some time limit imposed within which claims should be made … Great difficulties may be anticipated by both owners and charterers in obtaining the necessary information as to facts, or evidence as to facts, if some limit is not put upon the time within which claims can be presented”.

1. 1. The Owners also referred to Longmore LJ’s judgment in The Eagle Valencia [2010] EWCA Civ 713 at [23] that demurrage claims must be made “promptly” to allow factual investigation to be done “while minds are moderately fresh”, and Popplewell J’s statement in The Ocean Neptune [2018] 1 Lloyd’s Rep. 654 at [16] that demurrage time bar claims are intended “to enable the parties to have a final accounting as swiftly as possible and, if any factual enquiries have to be made, to ensure that the parties are able to do so whilst recollections are reasonably fresh”. These passages, argued the Owners, showed that the proper meaning of the phrase “all supporting documents” was all essential documents rather than every document that might lend support to the Owner’s case.
   2. In my judgment these passages are addressed principally to the reason for time limits. Further in none of the passages relied upon was the court seeking to define what documents are required to be presented under the clause. As explained by Hamblen J (as he then was) in The Adventure [2015] 1 Lloyd’s Rep 473 at [37], in The Eagle Valencia Longmore LJ was: “simply stating that the NOR is an essential document; he was not saying that only essential documents need to be presented”.
   3. In The Abqaiq [2012] 1 Lloyd’s Rep. 18 (a case concerning Clause 20.1 of the BPVoy4 form) Tomlinson LJ explained (at [65]) that the requirement was for “documents which objectively [the charterers] would or could have appreciated substantiated each and every part of the claim”, and so that they “were thereby put in possession of the factual material which they required in order to satisfy themselves that the claim was well-founded”.
   4. In that case the following documents had been provided:

“(1) a summary demurrage report, plus detailed demurrage reports for Freeport and Singapore; (2) notice of readiness, port log, statement of facts and Master’s letters of protest for Freeport; and (3) notice of readiness, statement of facts, discharging log, timesheet, Master’s letter of protest and pumping log for Singapore.”

Mr Thomas Steward, for the Charterers noted these documents included a port log and a timesheet as well as a statement of facts recording that information. He suggested that it was clear from this that a statement of facts is not sufficient in and of itself even if it contains important information. I do not consider that the fact that a port log and a timesheet were provided in one case gives them the quality of required documents in all cases. However Mr Steward also used their provision to argue that what was important was the provision of the primary source of information, because (as in the present case) a statement of facts could be wrong.

1. 1. Ms Karen Maxwell, for the Owners, referred to clauses which required the documents provided to substantiate “each and every constituent part of the claim”. She argued that those words imposed an evidential standard of proof as part of the time bar, and were notable by their absence in the present case. She said the words “supporting documents” in clause 38 should be given their natural meaning and that meaning extended only to documents relied on in support of the claim.
   2. I do not accept that the words “substantiate each and every constituent part of the claim” are a relevant point of distinction. In each of the authorities cited by Ms Maxwell, the courts endorsed the statements made by Bingham J in The Oltenia [1982] 1 Lloyd’s Rep 448 at page 453 that the commercial intention underlying such clauses is to: “ensure that claims were made by the owners within a short period of final discharge so that the claims could be investigated and if possible resolved while the facts were still fresh …”. In The Adventure Hamblen J expressly stated at [26] that the documentary requirement was not onerous and applied to a very limited class of documents which, if they existed, ought to be capable of submission without undue difficulty or expense.
   3. Ms Maxwell contended that signed statements of fact are “essential” or “primary” documents in a demurrage claim. Where such essential documents are submitted, the underlying purpose of the clause 38 does not, she argued, require the Owners to provide further documents that duplicate the information. She said the parties are most unlikely to have intended to impose such a documentary requirement and this was because it was inefficient or wasteful. Rather, effect should be given to the natural meaning of the words used, and to the purpose of the clause, by construing it as requiring the provision of documents that are relied on by the Owners in support of the relevant claim, that are “sufficient” to allow the Charterers to understand and evaluate that claim.
   4. As Mr Steward highlighted, the Charterparty in the present case contains an express reference to “Bill of Lading quantities” in clause 10(g). While clause 10(e) does not make a specific reference to bill of lading quantities, it is made clear in 10(g) that “pro rating” means a division according to bill of lading quantities. The tribunal was right to observe in the Award that the Charterparty “made it clear” that pro-rating for demurrage purposes had to be calculated by reference to the bill of lading quantities. Furthermore the Charterparty in the present case refers not simply to “supporting documentation” but “all” such documentation.
   5. In these circumstances I do not consider it possible to treat the bills of lading as outside the requirements of clause 38. The practical difficulties that Ms Maxwell suggested the Owners might encounter in having to produce bills of lading were not in my judgment an answer. In the present case there was no evidence that the bills were unavailable to the Owners (or even, as Mr Steward said, that they were not in the Owner’s possession). The suggestion was that they were confidential, but there I would accept Mr Steward’s submission that if there were sensitive elements to the bill of lading, those could very easily be redacted and the redaction would not realistically include the quantities. If a bill of lading was not available then a proper explanation of that fact would need to be provided for the purposes of clause 38 alongside what was available.
   6. One final point made by Ms Maxwell was that failure to submit the third-party bill cannot affect the entirety of her claim but only the part of the claim attributable to delays in berthing. She contended that that element of demurrage is addressed separately in the Charterparty, attracts separate and unique evidential requirements and can naturally be “hived off” from the remainder on the claim. In this regard she relied on Hamblen J’s comments in The Adventure [44] to [45], citing The Eternity [2009] 1 Lloyd’s Rep 107 and Cooke, Voyage Charters para 16.21(4).
   7. In the present case I am not persuaded that this point, on which I heard less argument, is good on the particular wording of Clause 38 and in the context of the Charterparty as a whole. The clause refers to a claim/invoice as a single item and does not (in contrast to the clause in The Adventure) refer to “constituent part[s]” of a claim for demurrage. Accordingly, I find that the Owners’ failure to produce bills of lading in support of their demurrage claim bars the entire claim.

Conclusion

1. For these reasons, I am respectfully unable to agree with the conclusion of the experienced tribunal on this occasion. I answer the question formulated at paragraph 17 above “yes” but only on the basis of an interpretation of the particular clauses in this case, and without suggesting that there is a requirement to provide bills of lading where these are not available in a particular case.

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

Introduction

[1] The plaintiff (TCC) is a motor sports club that conducts sport meetings and events at Centennial Park, Taupō. The defendant (TMP) operates the Taupō Motor Sports Park (also known as the Bruce McLaren Motor Sport Park) located on Centennial Park. TMP leases the land from the Taupō District Council (the Council).

[2] TCC and TMP are parties to a 2005 agreement (the Agreement) which gives TCC use rights to the track at the motor sport park for a specified number of days “free of charge” and on terms set out in the Agreement.

[3] The parties are disputing whether, under the Agreement, TMP is entitled to charge TCC a participant levy and, if so, the quantum of such a levy.

[4] The Agreement contains a multi-tiered dispute resolution process culminating in arbitration for “remaining differences” not resolved at the preceding stages of negotiation and alternative dispute resolution (ADR).

[5] TCC has applied for summary judgment seeking a declaration that it is unlawful for TMP to demand a $50 per car/day “participation levy”. TMP has filed an application in response seeking a dismissal or stay of the proceedings on the grounds that the Court lacks jurisdiction. The application for stay is based on cl 8(1) of Schedule 1 to the Arbitration Act 1996 (the Act). TMP contends that TCC’s claims breach cl 5 of the Agreement.

[6] In response, TCC contends cl 5 of the Agreement is inoperative because TMP has repudiated the Agreement. TCC claims TMP has failed to comply with its fundamental obligation to provide TCC with its guaranteed use rights free of charge and has also failed to engage with any of its cl 5 dispute resolution obligations.

[7] The critical issue I must determine is whether under cl 8 of Schedule 1 of the Act, the Agreement is inoperative; i.e. Has TMP repudiated the arbitration clause of the Agreement? If that clause is still operative, then cl 8 of the Act requires me to grant the stay TMP now seeks.

Factual background

[8] TCC has been conducting sports meetings at Centennial Park since 1959. Up until the early 2000s TCC used its own motor-racing circuit on the land leased directly from the Council.

[9] Under the Agreement, TMP agreed to develop TCC’s existing circuit and extensions on the circuit. TMP took an assignment of TCC’s lease from the Council.

[10] Under clause 3 of the Agreement, TMP agreed to pay TCC an annual fee of
$20,000 plus GST. TMP also granted TCC “guaranteed use” of specified tracks for a specified number of car race meetings per year. TMP guaranteed use of the tracks “free of charge on the basis set out in Clause 3.2 of this Agreement”.

[11] In January 2018, TMP notified TCC that it cancelled the Agreement. TCC then issued legal proceedings but those were settled at a mediation in November 2018. Under that settlement, TMP’s liability to pay TCC an annual fee of $20,000 plus GST was deleted and clause 3.2(a) was replaced as follows:

(a) The race meetings referred to in clause 3.1(b) include, free of charge, track hire, and the control tower Control-Roof for the track hired. TMP is entitled to charge for all other rights and services and including but not limited to:

(i) Catering and/or hospitality rights;
(ii) Signage rights;
(iii) Car park charge rights;
(iv) Pit garages
(v) Hospitality suites;
(vi) Participant levies;
(vii) Track cleaning levies;
(viii) non-race-control rooms in the control tower (including the timing room, the Clerk of the Course’s room, and the Stewards’ Room) (provided that TMP shall not be entitled to charge for these rooms for any of the three two-day events in clause 3.1(b)(i));
(ix) Paddock buildings/facilities (e.g. scrutineering pavilion);
(x) Temporary structures supplied by TMP;
(xi) Track (lights and start/finish) control light system;
(xii) Production broadcast or connectivity rights;
(xiii) Any other systems or facilities or rights to be provided by TMP.
[12] Clause 5 of the Agreement, which was unaffected by the 2018 settlement agreement, reads:

5.1 Initiating resolution – If a dispute arises out of or in connection with this Agreement the parties, using the procedures set out in this Clause 5, agree to make a genuine effort to resolve the dispute without resorting to litigation and without limiting in any way the parties’ obligations in Clause 2, Clause 3 or Clause 4. A party may initiate these resolution procedures by giving written notice to the other party with which it is in dispute.

5.2 Negotiations – The party who initiates the resolution procedures must name the representative in the negotiations when giving the written notice referred to in Clause 5.1. The party receiving such written notice must then promptly give written notice to the other party to the dispute naming its representative in the negotiations. Each representative must have authority to settle the dispute. Within three

(3) Business Days after both parties to the dispute have been so advised of each other’s representatives, the representatives must enter into negotiations to try to resolve the dispute. Each party to the dispute must conduct all such negotiations in good faith and with a desire to preserve a commercial relationship with the other parties to this Agreement.

5.3 Alternative dispute resolution – If the dispute is not resolved within the following 10 Business Days then, within a further five (5) Business Days, the parties in dispute must try to agree on a process for resolving the dispute, such as further negotiations, mediation, independent expert determination or mini-trial, but not arbitration or litigation. Agreement on a process is to include agreement on:

(a) the procedure and timetable for any exchange of documents and other information relating to the dispute;

(b) procedural rules and a timetable for the conduct of the selected method of proceeding; and

(c) a procedure for selection and compensation of any neutral person who may be employed by the parties in dispute.

…

5.5 Arbitration – If the parties in dispute fail to agree pursuant to Clause

5.3 on a dispute resolution process within the set or extended time limit or, using an agreed dispute resolution process, fail to settle the dispute within the set or any extended time limit, then any remaining differences and disputes arising between those parties concerning the construction or performance of this Agreement, or the rights and obligations of those parties (but no other differences or disputes), shall be referred to arbitration in accordance with the Arbitration Act 1996. The arbitration shall be conducted by one arbitrator, if the parties in dispute can agree upon one or, failing agreement, by an arbitrator to be appointed by the President for the time being of the Wellington District Law Society or his or her nominee.

[13] TCC had a motor sports event scheduled for March 2019. On 22 January 2019, TMP sent TCC an event contract for signature. This contract included a vehicle participation levy of $50 per car/day. TCC rejected the contract.

[14] The parties then negotiated and agreed upon interim arrangements so that the March 2019 meeting could go ahead. The meeting was held on that agreed basis. Further TCC meetings had been scheduled for June 2019 but these did not occur.

[15] TCC filed these proceedings in July 2019.

[16] By letter dated 14 August 2019, the solicitors for TMP wrote to TCC’s solicitors proposing that TCC discontinue the proceedings and that the parties instead refer TCC’s claims to arbitration in accordance with cl 5 of the Agreement. The letter noted that this would involve “skipping” the intermediate steps in the rest of cl 5 (i.e. negotiations, alternative dispute resolution, etc). TMP suggested that arbitration would likely achieve a quicker resolution of the claims made by TCC.

Relevant legal principles

[17] Clause 8(1) of Schedule 1 of the Act provides:

A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so requests no later than when submitting that party’s first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed, or that there is not in fact any dispute between the parties with regard to the matters agreed to be referred.

[18] When interpreting arbitration agreements, a generous, liberal and inclusive reading is appropriate. The general principle, stated by this Court in Marnell Corrao Associates Inc v Sensation Yachts Ltd, is that:

Courts should uphold arbitration, by striving to give effect to the intention of parties to submit disputes to arbitration, and not allow any inconsistencies or uncertainties in the wording or operation of the arbitration clause to thwart that intention.

[19] In accordance with standard principles of contract law, a party to an arbitration agreement can lose the right to arbitrate where it has repudiated the arbitration agreement and the other party has accepted that repudiation, and so cancelled it. That is what the English Court of Appeal concluded had happened in Downing v Al Tameer, an authority TCC relies upon, addressed in greater detail below.

[20] The law in New Zealand as to cancellation of a contract is largely codified in subpart 2 of the Contract and Commercial Law Act:

36 Party may cancel contract if another party repudiates it

(1) A party to a contract may cancel the contract if, by words or conduct, another party (B) repudiates the contract by making it clear that B does not intend to –

(a) perform B’s obligations under the contract; or

(b) complete the performance of B’s obligations under the contract.

(2) This section is subject to the rest of this subpart.

38 No cancellation if contract is affirmed

A party is not entitled to cancel the contract if, with full knowledge of the repudiation, misrepresentation, or breach, the party has affirmed the contract.

Analysis and decision

[21] The parties agree that the critical question in determining the stay application is whether, prima facie, the arbitration clause of the Agreement remains operative. If the answer is yes, the proceeding must be stayed, with full consideration of the matter (if pursued) being left to an arbitral tribunal. The prima facie assessment standard of review is now well settled.

[22] The principal contention for TCC is that TMP has repudiated the arbitration agreement and in filing these proceedings TCC has accepted that repudiation. TCC further contends that the requirement in cl 5.5 for arbitration does not arise unless and until the preceding steps of the resolution dispute process set out in cls 5.1 – 5.3 have been taken. In particular, it is claimed that there has been no attempt to refine the issues (“any remaining differences and disputes”) as expressly contemplated by cl 5.5.

[23] TCC submits that TMP has persistently flouted the dispute resolution procedure in cl 5 of the Agreement. This is because it has refused to allow TCC to hold its events free of charge, as required, unless TCC submits to TMP’s demands for a participation levy at whatever level TMP sets.

[24] Mr Judd QC (for TCC) submitted that if there is a dispute under cl 5.1 of the Agreement (and there clearly is a dispute) then the procedures under the dispute resolution process are to be invoked without limiting in any way TMP’s obligation under cl 3 of the Agreement to provide track hire to TCC “free of charge”. This means that pending the determination of the dispute (which might ultimately be at the arbitration stage), TMP must adhere to the “free of charge” obligation. However, TMP, in insisting on participation levies, has repudiated the Agreement.

[25] TCC also says that TMP has no entitlement at all under the Agreement to impose a participation levy of the kind at issue here, and particularly where it is not providing any extra facilities or services in addition to what it is already contracted to provide.

[26] As noted above, TCC relies upon the English Court of Appeal decision Downing v Al Tameer, and contends that the essential facts of that case are almost identical to those of the present case.

[27] In Downing, the Court was concerned with whether the first defendant could rely on an arbitration agreement to stay proceedings. Prior to the proceedings having been issued, the first defendant ignored repeated attempts by the claimant to set arbitration proceedings in motion (requests to nominate arbitrators, etc), before eventually responding by denying any contractual relationship and stating in unqualified terms “the defendants have no intention of dealing with you further” (i.e. in relation to the obligation to arbitrate). In later correspondence, the first defendant’s solicitors had stated in similarly clear terms that it denied the existence of any contractual relationship.

[28] The Court found that prior to the issue and service of proceedings, the defendants were plainly indicating an intention not to be bound by the agreement to arbitrate. That is, they had repudiated both the contract generally and the arbitration agreement. The Court concluded:

Approaching the matter objectively, and looking at the correspondence as a whole, this was a situation which the claimant, having sought and requested the first defendant to pursue the arbitration route, only resorted to proceedings because of the first defendant’s refusal to cooperate or acknowledge the existence of the arbitration agreement. The statement made and attitude evinced in the first defendant’s letter dated 22 June 1995 in response to the claimant’s request to arbitrate, which denied any contractual relationship and stated an intention to deal with the claimant no further, was effectively maintained thereafter.

[29] I understand the frustration and concern of TCC that having long conducted events at Centennial Park and having given up its $20,000 annual fee entitlement in 2018, TMP now seeks to impose charges that appear fundamentally at odds with TMP’s obligation to guarantee use rights to TCC free of charge. However, I find that, at best, TCC’s claims and submissions establish a breach of cls 3 and 5.1 (i.e. a breach of contract) but do not amount to repudiation. I accept that there is a dispute and despite some initial delay by TMP, so do the parties. The dispute is over the interpretation of the Agreement and in my view, the arbitration clause of the Agreement remains operative for determination of that dispute.

[30] Whether a breach of contract amounts to a repudiation is “a serious matter not to be lightly found or inferred”. What has to be established is that the defaulting party has made clear it intends no longer to perform its side of the bargain. Proof of such an intention requires an investigation of the nature of the conduct, the attendant circumstances and the motives which prompted the conduct (among other things).

[31] In Kumar v Station Properties Ltd, the Supreme Court summed up the law in this way:

The mere fact that a party vigorously espouses a view of a contract’s meaning that is ultimately shown or accepted to have been wrong does not mean that the party is thereby manifesting an intention not to perform its obligations under the contract. If it is clear that the party accepts that it is bound by the contract, whatever meaning it is ultimately determined to have, the party should not be held to have repudiated the contract. By contrast, if a party persistently refuses to perform unless the other party accepts additional onerous terms inconsistent with the contract or in the mistaken view that there was never an enforceable contract, the party may well be found to have repudiated the contract. In such circumstances, the stance adopted amounts to a refusal to accept any obligation to complete the contract in accordance with its terms (emphasis added).

[32] Here, TMP accepts that it is bound by the entire contract (i.e. both the main contract and the arbitration clause) but simply takes a different stance on the meaning of participation levies, which is a matter of interpretation to be construed in light of the obligations in cl 3 generally. Clause 3.2(a) does expressly state that TMP is entitled to charge for “all other rights and services” including “participant levies”. Whatever the correct interpretation, I do not believe the threshold of a persistent refusal to perform has been reached, requiring TCC to accept additional onerous terms inconsistent with the contract. As discussed below, the parties have been attempting to negotiate a solution and an interim arrangement was reached in relation to the March 2019 race meeting.

[33] I also find that this case is not “essentially identical” or similar to Downing. At no point has TMP denied the existence of the Agreement, the dispute resolution clause or the arbitration clause. TMP has not repudiated either the main contract or the secondary agreement manifested in the arbitration clause. Despite its initial reluctance and its apparent hard-line stance on participation levies, TMP has not ignored or rejected attempts by TCC to initiate the dispute resolution process contemplated in cl 5. In Downing the first defendant denied the existence of the main contract and repeatedly ignored attempts to set arbitration proceedings in motion and indicated no intention of dealing further with the claimant. The position here is quite different.

[34] I accept the submission of Mr Judd that the principles in Downing can apply even if through filing the Court proceedings the innocent party has accepted the repudiation of the secondary agreement to arbitrate. This is because the innocent party can seek to uphold the main contract, notwithstanding the repudiation of the secondary contract. Mr Little did not dispute that proposition. However, and contrary to Mr Judd’s submission, I find that there has been no repudiation of either the main contract (the grant of use rights) or the secondary contract (the agreement to arbitrate).

[35] I now turn to address the Mr Judd’s second argument, namely that the requirement for arbitration under cl 5 does not and has not arisen in this case because the preceding steps in cls 5.1, 5.2 and 5.3 have not been met.

[36] That is not an attractive argument, particularly in a context such as this where there is a mutual obligation on the parties to make genuine efforts to resolve the disputes without resorting to litigation. As noted by Williams & Kawharu on Arbitration:

8.8.3 Dangers of multi-tier dispute resolution clauses

As noted above, specifying pre-arbitration conditions can often lead to uncertainty as to when arbitration can commence as it can be difficult to determine whether the pre-conditions to the arbitration have been satisfied, or whether they are even required to be satisfied. These difficulties have given rise to arguments that a failure to comply with particular pre-conditions renders the arbitration agreement invalid and unenforceable. Tribunals and courts are generally reluctant to reach this conclusion since, if an arbitration agreement ultimately fails, parties are likely to end up in court

– the exact place they had hoped to avoid by agreeing to an alternative dispute resolution (ADR) procedure. In other instances, arbitration may be inevitable and requiring compliance with the procedures provided for in the pre-conditions will simply add costs and further delays to the ultimate resolution of the dispute (emphasis added).

[37] The comments of Williams & Kawharu are supported by the findings of the Court of Appeal in J R Porter & Ors v Gullivers Travel Group Ltd, where that Court held:

Provisions of the type contained in clause 28 [a referral for expert determination] are common in commercial contracts. If it should be that whenever negotiations broke down after meetings, consultations and the like, the parties could come to the court for relief, or seek some remedy rather than following the agreed arbitration or other dispute resolution, there would be little point in having such agreed processes in commercial contracts. It is difficult to believe that commercial parties would agree to a dispute resolution process which was intended to deal with an important substantive dispute concerning the calculation of price, but was not intended to deal with disputes about the provision of information and documents relevant to that price calculation. Yet that is the effect of the appellant’s argument. We note that as part of the price adjustment process the appellants were entitled under clause 3.2(b)(i) of the contract to liaise with PWC regarding the audit. This provided an opportunity for them to seek information and explanations as to the basis of the calculation prior to the dispute resolution process being invoked.

[38] In any event, on the facts of this case, I find the contention that the arbitration clause is inoperative because the preceding steps in cl 5 have not been followed, should be rejected. It is clear on the evidence that the parties have been negotiating with a view to try and resolve their dispute and I reject the submission of Mr Judd that the negotiations leading to the interim solution for the March 2019 meeting were focused only on that meeting and did not deal more generally with the dispute.

[39] Mr Terry O’Brien, the President of TCC, acknowledged in his email of 13 June 2019 to Mr Tony Walker of TMP that negotiations were taking place and that in terms of cl 5 of the Agreement the parties were required to try and resolve the matter between themselves. There was also a meeting between three board members of TMP and the full committee of TCC on 10 April 2019. The letter from Mr O’Brien to the board of TMP dated 27 May 2019 confirms that the reason for the levy (namely, whether other track hirers would be charged a levy and how the figure of $50/car per day was reached) was discussed at that April meeting. In my view, while far from perfect, the steps the parties did take were broadly in accordance with the substance of the requirements imposed by cls 5.1 and 5.2 (i.e. the steps preceding arbitration). It may be that the solicitors for TMP did not always respond to correspondence from TCC’s solicitors but in my view that does not provide a basis for inferring that TMP was not taking steps to try and resolve the dispute in the manner contemplated by cl 5.

[40] I accept in principle the submission of Mr Judd that the correspondence from TMP after the proceedings which proposed moving straight to arbitration cannot cure any previous default in complying with the preceding steps in the dispute resolution process. However, in this case there is probably some fault on both sides in failing to follow all the steps in cl 5, but I do not see that as a basis for concluding that cl 5 has been rendered inoperative. The practical solution proposed in TMP’s solicitor’s letter of 14 August 2019 is surely a sensible one. As noted by Wild J in Marnell Corrao Associates Inc v Sensation Yachts Ltd, where the parties have agreed on an arbitration evaluation clause, the Court will give full weight to the manifest intention to submit disputes to arbitration and create continuing legal relations.

[41] I also note that TCC likely had the option under cl 17 of Schedule 1 of the Act to seek interim relief if there was a practical problem in relation to holding sports events with a participation levy before the dispute could be finally resolved under cl 5.

[42] For all these reasons I conclude that cl 5 of the Agreement prima facie remains operative. In accordance therefore with cl 8(1) of Schedule 1 of the Act, the proceedings must be stayed with a full consideration of the issue of the participation levy (if pursued) to be left to the relevant arbitral tribunal.

Result

[43] The defendant’s application for a stay of the proceedings dated 12 September 2019 is granted in accordance with cl 8(1) of Schedule 1 to the Arbitration Act 1996.

[44] I am of the preliminary view that the plaintiff should pay costs to the defendant on a 2B basis and that the defendant’s application for increased costs should not be granted. If the parties cannot agree, then short memoranda (no more than three pages) are to be filed and served within 14 days.

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
FINANCIAL LIST (ChD)

Introduction

1. 1. This is an application by the claimant, Madison Pacific Trust Limited (the “Trustee”) as trustee of two series of notes (the “Notes”) issued by UK SPV Credit Finance Plc (the “Issuer”), for directions.
   2. The Issuer is an orphan special purpose vehicle, established for the purpose of (inter alia) issuing the Notes. The first series of Notes (the “2010 Notes”) was issued pursuant to a trust deed dated 24 September 2010 (the “2010 Trust Deed”). The 2010 Notes were in the aggregate amount of US$200 million and were originally due 23 September 2015, but the maturity date was extended to 23 January 2018 (and in August 2016 a 20% amortisation payment was made). The second series of Notes (the “2013 Notes”) was issued pursuant to a trust deed dated 28 February 2013 (the “2013 Trust Deed”). The 2013 Notes are in the aggregate amount of US$175 million and were due 28 February 2018.
   3. The funds raised upon the issuance of both series of Notes were advanced by the Issuer to the second defendant, Joint Stock Company Commercial Bank PrivatBank (“PrivatBank”), pursuant to (1) a loan agreement dated 17 September 2010, relating to a loan of US$200 million (the “2010 Loan Agreement”) and (2) a loan agreement dated 25 February 2013 relating to a loan of US$175 million (the “2013 Loan Agreement”).
   4. The Issuer has charged and assigned by way of security all of its interest under the Loan Agreements in favour of the Trustee.
   5. The Notes are all limited recourse, payment being dependent upon the extent to which recoveries are made under the Loan Agreements. In particular, by clause 2.4 of the Trust Deed, the obligations of the Issuer are “solely to make payments of amounts in aggregate equivalent to each sum actually received by or for the account of the Issuer from [PrivatBank]”. Noteholders were therefore reliant “solely and exclusively upon [PrivatBank’s] covenant to pay under the Loan Agreement and the credit and financial standing of [PrivatBank]”.
   6. The maturity date in respect of both series of Notes has now passed, without payment of principal having been made to the Noteholders. That is a direct result of PrivatBank having failed to repay the amounts due under either of the Loan Agreements.
   7. The Loan Agreements are in materially similar terms. They each contain a provision that “any dispute arising out of or connected with” the Loan Agreement “including a dispute as to the validity, existence or termination [of the Loan Agreement] or the consequences of its nullity … shall be resolved … by arbitration in London … in accordance with the LCIA Rules.”
   8. On 8 November 2017, the Trustee, on its own behalf and on behalf of the Issuer, served two requests for arbitration seeking awards ordering PrivatBank to pay the amounts due under the Loan Agreements. The Trustee acted following instruction from and indemnification by certain holders of interests in the Notes (the “Instructing Group”).
   9. PrivatBank advanced two defences: first, that as a result of the nationalisation of PrivatBank in Ukraine and the subsequent ‘bail-in’, as and when the bail-in is recognised by the Bank of England pursuant to the Banking Act 2009 the obligations of PrivatBank under the Loan Agreements will have been discharged; and, second, that the Loan Agreements are unenforceable for illegality perpetrated by two former owners of PrivatBank (the “Former Owners”).
   10. In partial awards published in the arbitration relating to each Loan Agreement on 13 June 2019 (the “Awards”), the arbitration tribunal (the “Tribunal”) concluded that (subject to the bail-in defence, the determination of which had been postponed) PrivatBank would be required to pay only certain amounts due under the Loan Agreements, for the following reasons:

i) The Loan Agreements were indeed tainted by illegality. That illegality also infected the Notes to the extent that interests in the Notes had been acquired by the Former Owners or entities under their control.

ii) Many of those who had acquired interests in the Notes (including the Instructing Group), on the other hand, were innocent. Not only were they not parties to the illegality, they were victims of it.

iii) The public policy considerations that underlay the defence of illegality under English law required “…a court or tribunal to act to prevent recovery where to allow the claim would be in effect to endorse the fraud and assist in the achievement of the fraudulent purpose. Equally, it can readily be seen that a court or tribunal should aim to protect innocent investors from fraud who would be damaged despite being victims of the fraud if the claims brought for their benefit were to be refused.”

iv) The difficulty the Tribunal faced, in these circumstances, was that the entities actually suing to recover under the Loan Agreements were the Issuer and, as holder of a security interest, the Trustee. As between the Issuer and Trustee (on the one hand) and PrivatBank (on the other) illegality would appear to operate as a binary defence: each Loan Agreement was either enforceable as a whole, or not at all.

v) The Tribunal considered whether there were other ways of ensuring that innocent holders of interests in the Notes could recover, while preventing the Former Owners and their associated entities from recovering (including applications by the Trustee to court in relation to the proceeds of any repayment of the Loans), but decided that “stopping the funds at source is in the view of the Tribunal a much more attractive and economic solution if it can be achieved.”

1. 1. Accordingly, the Tribunal fashioned its Awards as follows:

i) PrivatBank had no liability and should not be required to make any payment to the claimants (the Issuer and the Trustee) “in a sum equal to” the principal value of the Notes which as at 14 June 2019 (the “Relevant Date”) were held for the benefit of the Former Owners or entities owned or controlled by them;

ii) PrivatBank was required to pay to the Trustee “an amount equal to the aggregate principal value of the Notes” held as at the Relevant Date for the benefit of the Instructing Group;

iii) The Trustee was required (by paragraph 5.2(3) of the operative part of the Awards) to pay to each member of the Instructing Group pro rata the amount of its respective interest in the Notes; and

iv) A mechanism was put in place for those persons who held an interest in the Notes but fell within neither (i) nor (ii) above, which entailed notices being published requesting such persons to make themselves known to the Trustee and provide information and evidence within 60 days. PrivatBank was given the opportunity to object to any payment being made to such persons, on the grounds that their claims are (on the findings of the Tribunal) infected with illegality. Any dispute was to be resolved by the Tribunal, and PrivatBank was required to pay to the Trustee only where PrivatBank’s objection was not upheld;

v) The Trustee was required (by paragraph 6.3(3) of the operative part of the Awards) to pay to each entity referred to in (iv) above where either PrivatBank raised no objection, or the objection was not upheld;

vi) The Tribunal stated, however, that nothing in the Awards required the claimants to make any payment under paragraph 5.2(3) or paragraph 6.3(3) until the Trustee had had an opportunity to make an application to a judge of the High Court, seeking directions “in order to confirm that it will have no further liability under the Trust Deed or otherwise as a result of making the payments envisaged by [the Awards]”. In the event that the Court declines to give such confirmation, then the operative parts of the Awards will cease to have effect and the Tribunal retains jurisdiction to deal with the matters raised by the claim and the illegality defence as it may consider appropriate.

1. 1. This is the application by the Trustee which the Tribunal indicated should be made.

The holding structure of the Notes

1. 1. In order properly to explain the problem which the Tribunal sought to resolve by its Awards, and the issues which arise on this application, it is necessary to set out in some detail the structure through which the Notes are held, and the relevant terms of the Trust Deeds. I will do this by reference to the 2010 Trust Deed, but there are no material differences from 2013 Trust Deed.
   2. In relation to the 2010 Notes only one Note has been issued, a permanent global note which is deposited with a common depositary who holds it on behalf of Euroclear and Clearstream (the “Clearing Systems”). The Clearing Systems facilitate trading in the Notes by crediting interests in the global note to account holders, or “participants” in the Clearing Systems.
   3. The participants hold such interests on behalf of persons in the market who wish to acquire beneficial interests in the global note, the ultimate account holders (“UAHs”). The UAHs may hold their interest directly with a participant in the Clearing System or through one or more intermediaries. All dealings in interests in the notes take place by way of book entries, in the books either of the Clearing Systems, the participants or intermediaries.
   4. As a matter of English law, there is a chain of contractual and proprietary relationships between the Issuer and each UAH, as follows (see, for example, Gullifer and Payne, Corporate Finance Law (2^nd ed) at 389-390). The common depositary has contractual rights (set out in the global note, which incorporates the terms of the Trust Deed). The Clearing System has contractual rights against the common depositary; the participants have contractual rights against the Clearing Systems; and where there are no further intermediaries the UAH has contractual rights against the participant. If there are further intermediaries between the participant and the UAH, then each intermediary has contractual rights against the entity next above it (i.e. closer to the Issuer) in the chain.
   5. In addition, the contractual rights of each entity against the entity next above it in the chain are typically held on trust for the entity next below it in the chain. For example, a participant’s contractual rights against the Clearing System are held by it for the benefit of the intermediary next below it in the chain. The common depositary’s contractual rights under the global note against the Issuer are thus held via a trust and series of sub-trusts for each UAH.
   6. In parallel, there is a similar chain of ownership in relation to the security structure, as follows:

i) By clause 2.3 of the Trust Deed, the Issuer covenanted to pay to or to the order of the Trustee amounts corresponding to principal and interest in respect of the Notes, and the Trustee agreed to hold the benefit of that covenant on trust for the benefit of itself and the Noteholders.

ii) By clause 4 of the Trust Deed, the Issuer charged and assigned to the Trustee, for the benefit of itself and the Noteholders all of the Issuer’s rights, interests and benefits in and to the Loan Agreement. This was as security for all sums due under the Trust Deed (in particular the covenant of the Issuer to the Trustee in clause 2) and the Notes.

iii) The immediate beneficiaries of the trust of the security are the Noteholders, in this case consisting only of the common depository as holder of the global note. It holds that interest on a sub-trust for the Clearing Systems, who hold on a sub-trust for the participants and so on down the chain to the UAH.

1. 1. While the Trustee strictly speaking holds the benefit of the security for the common depositary (as the sole Noteholder) alone, the terms of the global note recognise this sub-trust structure by entitling the Trustee “to the extent it considers it appropriate to do so” to have regard to information provided by the Clearing Systems as to the identity of accountholders, and to “consider such interests on the basis that such accountholders were the permanent holder of this Permanent Global Note.”
   2. The arbitration proceedings were brought by the Trustee both in its own name and in the name of the Issuer (as permitted by clause 4.8.3 of the Trust Deed) by way of enforcement of the security.
   3. As such, any sums received from PrivatBank represent “moneys received by [the Trustee] … in connection with the enforcement or realisation of the Security Interests” within the meaning of clause 8.1 of the Trust Deed. Accordingly, they must be applied pursuant to the terms of the payment waterfall set out in clause 8.1, as follows:

“8.1.1 first, in payment or satisfaction of the costs, charges, expenses and liabilities incurred by the Trustee in or about the preparation, execution and performance of the trusts of this Trust Deed (including remuneration of the Trustee and of any Appointee appointed hereunder) and incurred by the Trustee or a Receiver (and any Appointee) in the realisation or enforcement of the Security Interests;

8.1.2 secondly, in or towards payment pari passu and rateably of all arrears of amounts corresponding to principal and interest remaining unpaid in respect of the Notes; and

8.1.3 thirdly, the balance (if any) in payment to the Issuer …”

The issues raised by this application

1. 1. The principal form of relief sought in the Claim Form by the Trustee is an order that:

“The Trustee is at liberty to make payments to or at the direction of the Noteholders (as that term is used in the Trust Deeds) or Ultimate Account Holders (as that term is used in the Awards) in accordance with the payment scheme set out at operative paragraphs 5 to 9 of the Awards.”

1. 1. Alternatively, it seeks an order that:

“The Trustee shall not be liable to any Noteholder, Ultimate Account Holder or other direct or indirect beneficiary under the Trust Deeds by reason of the making or withholding of payments in accordance with the payment scheme [set out at paragraphs 5 to 9 of the Awards]”

1. 1. I will refer to the UAHs to whom paragraphs 5.2(3) and 6.3(3) of the Awards require payment to be made as the “Entitled UAHs”. I will refer to those UAHs to whom the Awards preclude any payment being made as the “Related UAHs”.
   2. By order of Mann J dated 20 November 2019, the first defendant, Shakoor Capital Limited (“Shakoor”) was appointed to represent the Instructing Group and all other Entitled UAHs. The Trustee has sent notice of this application to the Clearing Systems, for onward transmission to UAHs, requesting UAHs to state whether they wished to participate in the application or otherwise set out their views. Aside from one UAH which initially indicated an intention to appear but, having sold its interest in the Notes, no longer wishes to do so, no UAH has indicated an intention to participate in the application, made written representations, or appeared on the hearing of the application.
   3. The Trustee was represented before me by Sonia Tolaney QC and Nicholas Sloboda. Shakoor was represented by Adrian Beltrami QC and Louise Hutton. PrivatBank was represented by David Wolfson QC, Simon Atrill and Nick Daly. The principal submissions in favour of the directions were made by Mr Beltrami. These were adopted by Mr Wolfson, who made further points in support. Ms Tolaney took an initially neutral stance, but in reply made such arguments as she considered could be made against the directions, for the purposes of ensuring the Court was presented with at least some of the arguments that might be made on behalf of UAHs who might be prejudiced by the directions.
   4. The principal submission of Shakoor and PrivatBank is that on the true construction of the Trust Deed the Trustee is required to make the payments to the Entitled UAHs, either pursuant to clause 8.1.1 or clause 8.1.2 of the Trust Deed. If that argument succeeds, no question of breach of trust arises.
   5. In the alternative, I am asked to relieve the Trustee of any liability it may incur to any of the UAHs by reason of making payment in accordance with the terms of the Awards, whether pursuant to the inherent jurisdiction of the Court to supervise trustees (or its variant named after Re Benjamin [1902] 1 Ch 723) or pursuant to s.57 or s.61 of the Trustee Act 1925.

Clause 8.1.1

1. 1. Mr Beltrami contends that the payments required to be made pursuant to paragraphs 5.2(3) and 6.3(3) of the operative part of the Awards constitute “liabilities” incurred by the Trustee in or about the performance of the Trust and incurred by the Trustee in the realisation or enforcement of the Security Interests, within the meaning of clause 8.1.1 of the Trust Deed.
   2. The first step in the argument is that the word “liabilities” is a word of broad meaning, which extends to all legal obligations without limitation, save for that found in the clause itself, namely that they were incurred in or about the performance of the Trust and in the realisation or enforcement of the security. The clause is to be construed as at the time it was entered into and not against the background of the circumstances in which it is now sought to be applied. It is irrelevant, therefore that the drafter of clause 8.1.1 would not have envisaged circumstances such as those which the Trustee currently faces.
   3. Mr Beltrami submitted that there is no reason to limit its scope, for example, by reference to the identity of the person to whom the liability is owed. Nor is there any necessary link between clause 8.1.1 and clause 8.1.2: there is accordingly no reason to exclude from clause 8.1.1 liabilities on the basis that they are owed to persons for the benefit of whom payments in respect of the Notes are to be made under clause 8.1.2.
   4. I accept these submissions. The strongest argument to the contrary is that, given that payments to Noteholders in discharge of arrears due under the Notes are governed by clause 8.1.2, such payments cannot have been the intended subject-matter of clause 8.1.1. Even though the recipients of the payments, the UAHs, are not those entitled to any payment made pursuant to paragraph 8.l.2, payments made under that provision are for their benefit and, by clause 7.4 of the Trust Deed, the realisation of the security and application of the proceeds in accordance with clause 8 will have the consequence of satisfying the Issuer’s payment obligations under the Notes. In other words, however broad is the meaning of “liabilities” under clause 8.1.1, it cannot extend to a liability to Noteholders of amounts due under the Notes.
   5. Although at first sight this argument is compelling, I do not think it is right. The circumstances in which the Trustee might come under a liability within the meaning of clause 8.1.1 to pay either the Noteholders or UAHs any amount in respect of sums due under the Notes are extremely rare. Indeed, it is difficult to think of any circumstances in which that would be possible other than in a case materially similar to this one. That is because a liability to pay an amount due under the Notes could rarely be characterised as having been “incurred by the Trustee in the realisation or enforcement of the Security Interests”.
   6. It is capable of being so characterised in this case only because of the conditionality attaching to the payment to be made by PrivatBank to the Trustee under the Awards. The Awards have resulted from steps taken by the Trustee to enforce the security. As a result of the form of Awards fashioned by the Tribunal the Trustee can receive payment under the Awards only if it accepts the liability to pay the UAHs imposed upon it by paragraphs 5.2(3) and 6.3(3) of the operative parts of the Awards. Accordingly, that liability is properly characterised as having been incurred in or about the “performance of the trusts of this Trust Deed” and “the realisation and enforcement” of the security.
   7. For these reasons I accept that while it is counter-intuitive to consider that a liability to make payment for the benefit of the holders of the beneficial interests in the Notes could fall within clause 8.1.1, on the peculiar facts of this case, it would do so.
   8. The next question is whether the Trustee is in fact under such a liability as a consequence of the Awards. If looked at in isolation, paragraphs 5.2(3) and 6.3(3) of the operative parts of the Awards clearly impose obligations to make payment and would thus constitute a liability. They must, however, be read together with paragraphs 10 and 13. Paragraph 10 provides that:

“Nothing in this Partial Award shall require the Claimants [which includes the Trustee] to make any payment pursuant to paragraph 5 or 6.3(3) until the Trustee has had an opportunity to make an application seeking directions to make those payments from a Judge of the High Court in England and Wales, in order to confirm that it will have no further liability under the Trust Deed or otherwise as a result of making the payments envisaged by this Partial Award. For the avoidance of doubt, such application shall not be a challenge to the terms of this Partial Award or to the Trustee’s entitlement or obligation to make the payments anticipated hereunder.”

1. 1. Paragraph 13 provides that:

“If, on the final determination of such an Application, the Court declines to direct the Trustees to make the payments specified in this Partial Award, paragraphs 1 to 9 hereof shall cease to have effect in their entirety.”

1. 1. Mr Beltrami and Mr Wolfson both submitted that upon a proper analysis of the provisions of the Awards, the Trustee is under an existing liability to make the payments envisaged by paragraphs 5.2(3) and 6.3(3). They accept that the liability is contingent, on the outcome of the bail-in issue which has yet to be resolved by the Tribunal, and defeasible, because if this Court declines to direct the Trustee to make the payments specified in the Awards, then the Awards (and all payment obligations in them) simply fall away. Nevertheless, they submit, until such time as the event referred to in paragraph 13 arises, the Trustee is subject to the liabilities in paragraphs 5.2(3) and 6.3(3).
   2. I would accept that if the Trustee receives payment under the Awards then it will at that point be subject to a liability within the meaning of clause 8.1.1. I do not accept, however, that it is currently subject to such a liability. That is because the liability is also subject to the further contingency that the Trustee receives payment. Unless the Trustee receives payment from PrivatBank the obligations under paragraphs 5.2(3) and 6.3(3) of the operative parts of the Awards do not arise and there would in any event be no proceeds of enforcement to which clause 8.1 of the Trust Deed could apply.
   3. In this case, the enforcement process has been paused pursuant to that part of the Awards which permits the Trustee to seek directions from this Court. Even without the pause button being pressed in that way, I consider that the Trustee would in any event not be bound to receive payment from PrivatBank under the Awards. As with a judgment of a court, the fact that the Trustee has the benefit of it does not mean that (as between it and the judgment debtor) it is bound to receive payment. Such an issue would rarely arise and does so in this case only because of the condition attached to receiving payment which the Tribunal has imposed.
   4. Accordingly, although not quite framed in this way by the Awards or the Claim Form, I consider that the essential question for the Trustee is whether it is consistent with its duties under the Trust Deed to continue the enforcement action it has started, by accepting payment under the Awards and thus incurring the liability to apply all of the proceeds of that enforcement in favour only of the Entitled UAHs.
   5. That question is not answered by the conclusion (which, as I have noted, I accept) that once the proceeds of enforcement against PrivatBank are in its hands the Trustee will be subject to a liability, falling within clause 8.1.1 of the Trust Deed, to apply them in that way.
   6. I will return to this question after considering the alternative construction arguments advanced by the parties.

Clause 8.1.2

1. 1. As noted above, clause 8.1.2 provides for the application of funds received by the Trustee upon enforcement of the security to be applied in or towards payment “pari passu and rateably” of all “arrears” corresponding to the sums remaining unpaid in respect of the Notes.
   2. Mr Beltrami submitted that if the obligation to make payment does not fall under clause 8.1.1 then it falls under clause 8.1.2, on the basis that the only “arrears” to which that clause now applies are those in favour of the Entitled UAHs.
   3. The argument runs (in summary) as follows. “Arrears” means amounts that are both due and payable. That clearly encompasses amounts due and payable by the Issuer, but it is also capable of encompassing amounts due and payable by the Trustee. There are no amounts due and payable by the Issuer in respect of the Notes, because (i) (as a consequence of the limited recourse nature of the rights of Noteholders) the Issuer’s obligation to pay is conditional on it receiving funds from PrivatBank and, (ii) since the Awards require payment to be made only to the Trustee, the Issuer will not receive any funds from PrivatBank. The Awards do create an obligation on the Trustee, but that is limited to the obligation to pay the Entitled UAHs. Accordingly the only “arrears” that exist within clause 8.1.2 so far as the Trustee is concerned, are the sums due and payable by it to the Entitled UAHs.
   4. I do not accept this argument, which requires a strained and unnatural reading of clause 8.1. In my judgment, “arrears” in the context of clause 8.1.2 is not intended to be limited by reference to the extent to which amounts are actually payable by the entity required to make payment (whether it be the Issuer or the Trustee). Rather, it is intended merely to identify the amounts of principal and interest which are outstanding from the perspective of the Noteholders, i.e. which have not been repaid to the Noteholders. That is clear from the words of the clause itself, which links “arrears” to the amounts “remaining unpaid” in respect of the Notes.
   5. That view is reinforced by the fact that paragraph 8.1 is intended to apply wherever the Trustee has enforced its security over the debt due from PrivatBank. Whenever it does so, it will be the Trustee, and not the Issuer, that receives funds from PrivatBank. Thus, if Shakoor’s argument were correct, clause 8.1.2 could never be engaged where the Trustee takes such enforcement: there would be no “arrears” owed by the Issuer (as it had never received any funds so as to render amounts due under the Notes payable by it) and there would be no “arrears” owed by the Trustee (as nothing imposes any liability on the Trustee to make payment to the Noteholders from the proceeds of security other than clause 8.1.2 itself). The fact that Shakoor’s argument would prevent 8.1.2 operating at all in circumstances (recovery of proceeds of enforcement of security by the Trustee) that clause 8.1 as a whole was clearly intended to cover is a compelling indication that the argument is wrong.
   6. That conclusion is reinforced when it is appreciated that payment by PrivatBank under the Loan Agreements to or to the order of the Trustee “…shall pro tanto satisfy the obligations of the Issuer in respect of the Notes…” (see clause 13 of the Trust Deed). As a result of this provision, any payment by PrivatBank to the Trustee (whether pursuant to enforcement of the security or otherwise) would automatically discharge the Issuer, and thus prevent there being “arrears” due from it to the Noteholders.
   7. Mr Beltrami suggested that Noteholders would ultimately recover because if the proceeds were not paid under clause 8.1.2 then they would be paid to the Issuer under clause 8.1.3, at which point the Issuer would have received proceeds such as to give rise to its obligation to make payment under the Notes. I do not think the drafter intended funds to be sent round the waterfall twice in this way. Rather, the drafter intended that any sums payable to the Issuer under clause 8.1.3 would be for the Issuer’s own account. Indeed, it is not immediately obvious how sums paid to the Issuer under clause 8.1.3 would remain subject to the security created by the Trust Deed at all, since the subject matter of the charge in clause 4 is limited to the rights under the Loan Agreements, the sums in the Lender Account and the interest in Permitted Investments. This further supports the conclusion that “arrears” in clause 8.1.2 refers to the amounts unpaid from the perspective of the Noteholders: it is only when the Noteholders have no further right to any principal or interest that the Issuer should receive anything under clause 8.1.3.
   8. In the further alternative, it was submitted that there was no obligation to distribute proceeds of enforcement under clause 8.1.2 pari passu, because the entitlement of Noteholders was to receive payment upon actual receipt by the Issuer from PrivatBank and then only “subject to the conditions attaching to” any such receipt. I do not accept this argument. The phrase relied on appears in clause 2.2 of the terms and conditions of the Notes, under the heading “Limited Recourse”, and follows on from the statement that sums actually received by the Issuer will be paid pari passu to all Noteholders. It cannot have been intended, in my judgment, to remove the right to pari passu distribution that had been given by the immediately preceding words in that clause. In any event, (i) it deals with payments to Noteholders, whereas the payments under the Awards are to be made to UAHs and (ii) it deals with payments by the Issuer, whereas the sums to be paid – both under the Awards and under clause 8.1 of the Trust Deed – are payable by the Trustee.

Trustee’s powers and duties in connection with enforcement of the Security

1. 1. I return to the question I posed in paragraph 41 above, namely whether the Trustee may, consistent with its duties under the Trust Deed, continue enforcement action which will result in it assuming an obligation to apply all of the proceeds of enforcement in payments to the Entitled UAHs alone.
   2. The Trustee has an unfettered discretion as to the manner in which it enforces the security: see in particular clause 7.1 of the Trust Deed (which permits the Trustee after an Event of Default under the Loan Agreements “…at its discretion … to institute such steps, actions or proceedings as it may think fit to enforce the rights of the Noteholders…”) and clause 4.8 and Schedule 10 (which provide for a similarly wide discretion in relation to calling in, collecting, selling or otherwise dealing with the Loan after a Relevant Event has occurred).
   3. It must, however, exercise that discretion subject to its overarching obligation to act in the interests of all the Noteholders: see clause 4.1 of the Trust Deed (which provides that the rights under the Loan Agreements are charged and assigned to the Trustee “for the benefit of itself and the Noteholders”); clause 17.1.6 (which requires the Trustee, whenever it is to have regard to the interests of the Noteholders, to “have regard to the interests of the Noteholders as a class”); and clause 8.1.2 (which, as noted above, requires the funds received by the Trustee to be applied, after costs, charges, expenses and liabilities of the Trustee, pari passu to the Noteholders).
   4. The trust on which the Trustee holds the security is (in the first instance) a bare trust under which the interests of the Noteholders, as beneficiaries, are fixed by reference to the face value of their Notes. In this case the picture is then complicated by the beneficial interest in the Notes being divided up via the sub-trust structure referred to above. Each of those sub-trusts is also a bare trust, the interest of each UAH being fixed by the amount of their interest in the Notes. There is no question of any discretion vesting in the Trustee in this respect.
   5. Conceptually, therefore, the Trustee may be said to hold its rights under the Loan Agreements for the ultimate benefit of each and every one of the UAHs, owing each of them an obligation to recover the amount of the Loan required to repay that UAH. The duty to each UAH is qualified, however, by the duty owed to all other UAHs. In practice, that means that the Trustee cannot take action to the benefit of one UAH which would prejudice others. It could not, for example, under normal circumstances take all the available proceeds of security and apply them in payment of some only of the UAHs. Nor could it take such proceeds as were currently available on a partial enforcement of the security and pay them to some only of the UAHs, if there was any doubt over being able to enforce the remainder of the security. In each case, that would amount to preferring the interests of some beneficiaries over the interests of others.
   6. In considering whether accepting the payments, and the attached obligations, under the Awards would fall foul of its duties, it is first necessary to identify what real alternatives the Trustee has to doing so.
   7. If the Court refuses to grant the relief sought on this application then the matter is automatically referred back to the Tribunal. At that stage, in light of its clear conclusion that no recovery can be made by or for the benefit of any of the Related UAHs, there are only two realistic options. Either the Tribunal concludes that the Trustee’s action against PrivatBank fails altogether by reason of illegality or it provides for an alternative solution to ensure that the Related UAHs recover nothing which – as it acknowledged at paragraph 128 of the Awards – would involve considerably more delay and expense given the locations, resources and conduct of those who might be targeted for relief. Importantly, in neither case would any recovery be made by or for the benefit of the Related UAHs.
   8. It is also instructive to consider the rights of the Noteholders where the Trustee simply refrains from taking action. The final sentence of clause 7.1 of the Trust Deed provides that while Noteholders may not generally enforce the provisions of the Trust Deed, they may do so if “the Trustee, having become bound to proceed in accordance with this Trust Deed, has failed to do so within a reasonable time and such failure is continuing.” Enforcement of the provisions of the Trust Deed includes taking action pursuant to the security over the Loan Agreements to enforce payment by PrivatBank.
   9. The Trustee becomes bound to take action if instructed by Noteholders holding at least one-quarter in principal amount of the Notes outstanding, provided it is indemnified to its satisfaction. This has already been satisfied in this case, where the Trustee took enforcement action upon the instruction of the Instructing Group. While clause 17.2.3 permits the Trustee to refrain from doing anything that would or might in its opinion be contrary to any law or which it may not have power to do, I do not think that would be engaged, since the issue is not whether the Trustee lacks the power to enforce the security, but whether it would be a proper exercise of its discretion where the result would be to benefit some only of the UAHs.
   10. There would be practical hurdles to overcome, caused by the fact that there is only one Noteholder (the common depository). There are, however, circumstances in which the global note may be converted into multiple definitive notes to be held by the participants or, with the co-operation of the participants and the relevant UAHs, the UAHs themselves. The terms of the global note entitle the holder of the Note to request the exchange of the global note for definitive notes in defined circumstances. In the case of the 2013 Notes, those circumstances already exist (one of the circumstances being the occurrence of a “Relevant Event”, which includes the non-payment by the Issuer of principal or interest when the same becomes due). In the case of the 2010 Notes those circumstances do not exist, but in any event those provisions define only the circumstances in which the Noteholder can require exchange, and there does not appear to be anything in the terms of the global note which precludes the Issuer from offering to replace the global note with definitive notes, assuming the persons to whom the definitive notes are to be issued can be ascertained.
   11. If the Trustee was in fact bypassed in this way, then it would create privity directly between the individual holders of the Notes (whether each UAH or an account holder acting on their behalf) and PrivatBank. In that case, as Mr Beltrami submitted, the conclusion of the Tribunal in the existing Awards would, to the extent that any Related UAH itself sought to pursue action against PrivatBank, prevent them from doing so by virtue of issue estoppel.
   12. Where legal action is brought by a trustee, for example to recover trust property from a third party, then a decision adverse to the trustee is binding on the trustee and all of the beneficiaries of the trust, so as to prevent a beneficiary of the trust bringing its own subsequent claim against the third party. That is because there is a sufficient degree of identification between the interests of the beneficiaries and the interests of the trustee: see Gleeson v Wippell & Co Ltd [1977] 1 WLR 510, per Megarry VC at p.515, cited with approval in Lemas v Williams [2013] EWCA Civ 1443, per Arden LJ at [40].
   13. I was initially concerned that, in this case, the effect of the solution which the Tribunal has imposed creates a conflict between the Entitled UAHs on the one hand, and all other UAHs on the other. As such, it might be said that there is insufficient degree of identification (for the purposes of creating an issue estoppel) between any one UAH and the Trustee.
   14. I am persuaded, however, that that is not the correct approach. Rather, it is necessary to focus on the precise issues determined by the Tribunal and the extent to which there is sufficient degree of identification between the Trustee and each UAH in relation to them. The Trustee sought payment under the Loan Agreements for the benefit of all UAHs. The Tribunal’s findings, as to (i) the existence and nature of the illegality and (ii) public policy requiring it to act so as to prevent recovery where to allow the claim would enforce the fraud and assist in the achievement of the fraudulent purpose, are ones in which the Trustee and all UAHs had a sufficient degree of identification. That is sufficient to preclude any of the Related UAHs from being able to recover anything (directly) from PrivatBank. On the other hand, there would be no bar to the Entitled UAHs from recovering in full.
   15. In short, the position the Trustee is faced with is that in no circumstances can it recover anything for or on behalf of the Related UAHs and it can only make any recovery at all if it is prepared to accept that whatever it receives can be paid only to the Entitled UAHs. All parties urged on me the commercial and practical sense in making the order sought in the Claim Form. It would be a “significant step” if the court were to reach a conclusion which led to innocent UAHs who invested in good faith in an English law note instrument being unable to recover on their investments, solely because of the fraud of other non-related noteholders.
   16. I do not think I am driven to that conclusion. Specifically, in the special circumstances of this case I do not think that the Trustee’s duty to act in the interests of all UAHs precludes it from accepting the payments under the Awards. Importantly, although its actions would in fact result in benefit to some only of the UAHs, that would not be at the expense of the other UAHs, because the Trustee is simply incapable of doing anything to benefit them as a result of a legal impediment. The Related UAHs’ inability to recover (and the Trustee’s inability to recover on their behalf) is not due to any action (or inaction) of the Trustee, but is due to the decision of the Tribunal. In other words, the fact that the Trustee cannot recover on behalf of the Related UAHs should not prevent it from recovering on behalf of the Entitled UAHs, where doing so does not itself prejudice the Related UAHs.

The late-responding UAHs

1. 1. So far, I have focused on the position of the Related UAHs. The solution imposed by the Tribunal also arguably prevents those UAHs who failed to respond by the deadline imposed by the Tribunal from recovering under the Awards. The position is not certain, and at least one former UAH (which had intended to appear on this application, but then sold its interest in the Notes) indicated an intention to argue before the Tribunal that no absolute bar had been imposed.
   2. There is therefore the possibility that some UAHs who are not in fact Related UAHs will still be prevented from recovering. These fall into two categories: those who have yet to come forward at all and those that have come forward but only after the deadline set by the Tribunal.
   3. Nevertheless, I do not think this alters the conclusion that the Trustee would be acting consistently with its duties under the Trust Deed by accepting payment, and the attached obligation, under the Awards. The Trustee’s actions would be no more taken at the expense of the late-responding UAHs than its actions would be at the expense of the Related Noteholders. In neither case does the Trustee use any proceeds of enforcement that were referable to the relevant UAHs’ interest under the Notes, nor is it a consequence of its own action or inaction that precludes the relevant UAHs from recovering. On the assumption that the terms of the Awards do prevent a late-responding UAH from recovering at all, then it is the Awards, and not any action of the Trustee, that has that consequence. The decision of the Tribunal as to what constitutes an “Entitled UAH” is binding on the Trustee and all UAHs (including where that is by reference to a time-bar on claims imposed by the Tribunal), in the same way as its findings as to illegality and its consequences.
   4. There is one potential difference, however. If, as was suggested before me, there remains some uncertainty as to the impact of the deadline imposed by the Tribunal, then there remains the possibility that the late-responding UAHs could persuade the Tribunal that they are to be regarded as Entitled UAHs for the purposes of benefitting from the Awards. If so, then the Trustee’s duty to act in the interests of each UAH, to the extent it is practically able to do so, would require the Trustee to advance such arguments as can be made before the Tribunal on behalf of late-responding UAHs.

Conclusion

1. For the above reasons, I conclude that the Trustee would not be acting in breach of trust if it accepts the payments from PrivatBank under the Awards and makes the payments to Entitled UAHs in accordance with the payment mechanism set out in the Awards. On that basis, I am prepared to make the order sought in paragraph 1 of the draft Order.
2. In those circumstances, I need not address the alternative arguments based on the Court’s inherent jurisdiction to relieve the Trustee from liability for breach of trust.

Hilary Term

[2020] UKSC 5

On appeals from: [2018] EWCA Civ 1801

and [2019] EWHC 2401 (Comm)

Micula and others (Respondents/Cross-Appellants) v Romania (Appellant/Cross-Respondent)

JUDGMENT

LORD LLOYD-JONES AND LORD SALES: (with whom Lady Hale, Lord Reed and Lord Hodge agree)

Introduction

1. On 11 December 2013 an International Centre for Settlement of Investment Disputes (“ICSID”) tribunal made a final investment arbitration award (“the Award”) in favour of the Respondents to this appeal (“the Claimants”) against the appellant (“Romania”). The Award related to investments made by the Claimants in food production in Romania prior to Romania’s accession to the European Union on 1 January 2007.
2. The present appeal is the latest chapter in the Claimants’ extensive attempts in a number of different jurisdictions to enforce their award against Romania and the attempts of the European Commission (“the Commission”) to prevent enforcement on the ground that it would infringe EU law prohibiting unlawful State aid. More specifically, this appeal arises out of Romania’s application in the Commercial Court to set aside the registration of the Award or to stay enforcement pending the determination of the proceedings in the EU courts, and out of the Claimants’ application in response for security in the amount of the Award.

Factual and procedural background

3. The First and Second Claimants are brothers born in Romania who became Swedish nationals in 1995 and 1992 respectively, having renounced their Romanian nationality. The Third to Fifth Claimants are Romanian companies incorporated by the First and Second Claimants.

4. In 1993 Romania entered into an association agreement with the European Community and the then 15 member states of that Community, which entered into force in 1995 (“the Europe Agreement”). The Europe Agreement included a provision on State aid and required Romania eventually to introduce State aid rules similar to the EC rules on State aid. The Europe Agreement further encouraged Romania to establish and improve a legal framework which favours and protects investment and to conclude agreements for the promotion and protection of investment.

5. In 1997 to 1998 the Commission was of the view that Romania did not yet meet the criteria for EU membership and recommended, inter alia, that Romania pursue rapid privatisation, secure foreign direct investment and engage in regional development.

6. In 1999, in the context of attempting to develop its regional policy, Romania adopted an investment incentive scheme in the form of Emergency Government Ordinance No 24/1998 (“EGO 24”). With effect from 1 April 1999 the Ștei-Nucet region of Romania was designated as a disfavoured region for a ten-year period. The designation was later extended to include Drăgăneşti.

7. On 30 June 1999 Romania adopted Law No 143/1999 incorporating State aid rules into domestic law and designating the Romanian Competition Council as the competent authority for authorising the grant of State aid. On 15 May 2000 the Romanian Competition Council issued Decision No 244/2000 declaring that certain facilities provided under EGO 24 distorted competition because they constituted incompatible State aid within the meaning of Law No 143/1999 and therefore had to be eliminated unless modified. On 16 June 2000 Romania passed Emergency Government Ordinance No 75/2000 which, with effect from 1 July 2000 modified but did not eliminate EGO 24. The Claimants do not accept that the Romanian Competition Council had authority to require the revocation of the schemes or that its decision followed from EU State aid rules.

8. During the early 2000s, the Claimants, in reliance on the EGO 24 incentives (which required investments to be maintained for twice the period of the benefits received) invested in a large, highly integrated food production operation in that region as part of a ten-year business plan.

9. In 2002 Romania and Sweden negotiated the Sweden-Romania Bilateral Investment Treaty on the Promotion and Reciprocal Protection of Investments (“the BIT”). The BIT entered into force on 1 April 2003. It provided for reciprocal protection of investments and included provision for investor-State dispute resolution under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“the ICSID Convention”). Romania had ratified the ICSID Convention in 1975 and the United Kingdom had done so in 1966.

10. During the formal accession negotiations between Romania and the EU from 2000 to 2004, the EU informed Romania that various Romanian government schemes, including the EGO 24 scheme, were not in line with the State aid rules of the acquis communautaire. The EU urged Romania to bring its schemes into alignment without delay. The EU in 2001 also invited Romania to identify existing schemes that Romania considered were compatible with the acquis and to provide information on the benefits of schemes to disfavoured regions. In a 2003 paper the EU proposed that Romania close existing schemes to new entrants.

11. On 31 August 2004 Romania passed a Government Ordinance repealing all but one of the tax incentives provided in EGO 24 subject to certain transitional periods agreed with the EU with effect from 22 February 2005. The government report accompanying these measures indicated that the repeal was effected in order to meet the criteria in the Community rules on State aid and also facilitate completion of accession negotiations.

12. On 28 July 2005 the Claimants filed a request for arbitration with ICSID under the terms of the BIT, claiming that the repeal of the EGO 24 incentives was a breach of the BIT. Romania contended that it was forced to revoke the incentives in order to comply with EU requirements and allow lawful accession by Romania to the EU. The Commission participated in the arbitration as amicus. Both Romania and the Commission submitted that any payment of compensation arising out of any award in the arbitration would constitute illegal State aid under EU law and render the award unenforceable in the EU.
13. On 1 January 2007 Romania acceded to the EU.

14. On 24 September 2008 the ICSID Tribunal dismissed Romania’s objections on jurisdiction and admissibility and concluded that it had jurisdiction over the claims asserted by the Claimants.

15. On 11 December 2013 the ICSID Tribunal issued the Award. It held that Romania had breached the terms of the BIT by failing to ensure fair and equitable treatment, respect the Claimants’ legitimate expectations and act transparently. Compensation of RON 376,433,229 was awarded (approximately £70m at the time) plus interest to the date of the award of RON 424,159,150 (approximately £80m at the time) plus compound interest until satisfaction of the Award. The Tribunal declined to address in the Award the effect of the EU State aid rules on its enforceability.

16. On 9 April 2014 Romania applied to annul the Award under the procedure set out in the ICSID Convention and to suspend its enforcement pending a decision on that application.

17. Following Romania purportedly implementing the Award in part by setting off tax debts owed by the Third Claimant (which set-off was later annulled by the Romanian courts), on 26 May 2014 the Commission issued an injunction under article 11(1) of Regulation 659/1999 (“the injunction decision”) ordering Romania to suspend any action which might lead to the execution or implementation of the Award until the Commission had taken a final decision on the compatibility of that State aid with the EU internal market, on the ground that the execution of the Award appeared to the Commission to constitute unlawful State aid contrary to article 107(1) of the Treaty on the Functioning of the EU (“TFEU”).

18. On 7 August 2014 the ICSID ad hoc Committee agreed to a continuation of the stay of enforcement of the Award, provided that Romania filed an assurance that it would pay the Award in full and subject to no conditions whatsoever if the annulment application was dismissed. Romania did not give this assurance and the stay was revoked in September 2014.

19. On 1 October 2014 the Commission took a decision formally opening the State aid investigation (“the initiating decision”).

20. On 30 March 2015 the Commission adopted Final Decision 2015/1470 (“the Commission Decision”) which was addressed to Romania. It decided that the payment of the Award by Romania constituted State aid within article 107(1) TFEU and was incompatible with the internal market. It prohibited Romania from making any payment of such State aid to the Claimants and demanded that Romania recover any payments already made under the Award. It further provided that the Claimants and five other entities directly or indirectly owned by the First and Second Claimants were jointly liable to repay any sums received by any one of them as part payment of the Award.

21. Proceedings seeking annulment of the Commission Decision were commenced before the General Court of the European Union (“GCEU”) by the Third to Fifth Claimants on 6 November 2015, by the First Claimant on 28 November 2015 and by the Second Claimant on 30 November 2015. The Claimants did not apply for interim relief before the GCEU.

22. On 26 February 2016, having heard arguments from the parties to the arbitration and from the Commission as amicus, the ICSID ad hoc Committee delivered a decision rejecting Romania’s application to annul the Award.
23. On 18 June 2019 the GCEU annulled the Commission Decision on the ground that the Commission had purported retroactively to apply its powers under article 108 TFEU and Regulation No 659/1999 to events predating Romania’s accession to the EU: European Food SA and Others v European Commission (Cases T-624/15, T-694/15 and T-704/15) EU:T:2019:423. The GCEU did not rule upon certain other grounds of appeal presented by the Claimants because, in the light of its decision, they did not arise.
24. On 31 July 2019 the Commission adopted a decision to appeal against the decision of the GCEU. That decision was communicated to this court and the parties on 13 August 2019. On 27 August 2019 the Commission lodged its appeal to the Court of Justice of the European Union (“CJEU”). The appeal is limited to the pleas of law addressed by the GCEU in its judgment of 18 June 2019. Should it succeed on its appeal, the Commission has invited the CJEU to remit the remaining pleas to the GCEU for further consideration.

25. There are ongoing enforcement proceedings by the Claimants in the United States, France, Belgium, Luxembourg and Sweden. On 12 March 2019 the Brussels Court of Appeal referred three questions to the CJEU concerning the enforcement of the Award and the principle of sincere co-operation in EU law.

26. On 7 September 2018 the Commission responded to a request for an opinion from Romania stating, inter alia, that it continued to view the payment into court of security by Romania as breaching the Commission Decision, the position it maintained throughout the High Court and Court of Appeal proceedings.

27. On 7 December 2018 the Commission adopted a decision empowering it to refer Romania to the CJEU for infringement proceedings for failure to recover sums said to have been paid by Romania to the Claimants under the Award.

The proceedings in this jurisdiction

28. On 2 October 2014 the First Claimant applied without notice for registration of the Award in the Commercial Court, pursuant to the Arbitration (International Investment Disputes) Act 1966 (“the 1966 Act”). Registration was effected on 17 October 2014. On 28 July 2015 Romania filed an application to the Commercial Court to vary or set aside the registration order. By a counter application the Claimants sought an order for security to be made in the event that a stay of enforcement was ordered.
29. In a judgment dated 20 January 2017 [2017] EWHC 31 (Comm); [2017] Bus LR 1147 Blair J dismissed Romania’s application to set aside registration, but granted Romania’s application to stay enforcement of the Award pending determination of the proceedings in the GCEU.

(1)              The Claimants had advanced a case on the basis that the Award was res judicata. The judge held that he could not determine whether the Award could be enforced on this basis, because this was in issue in the pending proceedings before the GCEU and accordingly there was a real risk of inconsistent decisions if the domestic court were to decide as a matter of EU law that the Award could be enforced.

(2)              The judge held that the Commission Decision did not prevent registration of the Award and accordingly he refused Romania’s application to set aside registration. However, he held that the domestic court could not enforce the judgment consequent on registration of the Award in circumstances in which the Commission had prohibited Romania from making any payment under the Award to the Claimants. In his view this did not create a conflict with the international obligations of the United Kingdom under the ICSID Convention, because a purely domestic judgment would be subject to the same limitation.

(3)              The judge held that the domestic court could not rule on whether article 351 TFEU applies in the present case because it was being considered by the GCEU and so there was a real risk of conflicting decisions if the domestic court were now to rule on the issue.

(4)              The judge held that there was no conflict between the European Communities Act 1972 and the 1966 Act and accordingly he rejected a submission on behalf of the Claimants that the court should give priority on this ground to the 1966 Act.

(5)              The judge held that he could not rule on the Claimants’ arguments that EU law did not preclude enforcement because the issue had been raised before the GCEU and there was a real risk of conflict.

(6)              The judge rejected arguments by Romania that the Award had already been paid in full.

(7)              The judge held that the domestic court cannot rule on the validity of the BIT between Sweden and Romania, although he accepted the submission of behalf of the Claimants that the validity of that treaty was not relevant to the issues to be decided.

30. Following a further hearing in May 2017, Blair J handed down a second judgment on 15 June 2017 [2017] EWHC 1430 (Comm) in which he refused the Claimants’ application for security. He considered that, as payment under the Award was prohibited under the Commission Decision, if the court were to proceed to enforce the award against the assets of Romania it would be acting in direct contradiction of the Decision. Accordingly, it was not possible to order security as a condition of the stay. The judge also rejected a submission on behalf of the Claimants that the consequences of non-compliance with an order for security need not be set out in the order which could instead provide that the parties could come back to court to consider what the consequences should be. He considered that the balance at that time was against ordering security but he did not rule it out definitively for the future.
31. The Claimants appealed both orders to the Court of Appeal. On 27 July 2018 the Court of Appeal (Arden, Hamblen and Leggatt LJJ) [2018] EWCA Civ 1801; [2019] Bus LR 1394 dismissed the appeal against the order for a stay but allowed the appeal against the security order and ordered that security should be provided in the sum of £150m.
32. In dismissing the Claimants’ appeal against the grant of a stay:

(1)              The Court of Appeal did not agree with Blair J that the issue ought not to be decided because of a risk of conflict with the GCEU. However, it considered that to permit enforcement on the basis that the Award was res judicata would frustrate the effective application of EU State aid law.

(2)              Arden and Leggatt LJJ held that Blair J had erred in holding that the effect of the 1966 Act, in implementing the ICSID Convention in domestic law, is to give an award upon registration the same status within English law as any other judgment. Hamblen LJ dissented on this issue and considered that Blair J had correctly held that there was no conflict between the international obligations of the United Kingdom under the ICSID Convention (and the 1966 Act which gives effect to those obligations) and under EU law.

(3)              Arden and Leggatt LJJ held that a stay was within the powers of the domestic court because it was consistent with the purposes of the ICSID Convention and it was appropriate to exercise the discretion to order a stay on the facts of the case.

(4)              Leggatt and Hamblen LJJ held that, if there was a conflict between the international obligations of the United Kingdom under the ICSID Convention as reflected in the 1966 Act and the court’s duties under EU law, the judge had correctly concluded that there ought to be a stay because the applicability of article 351 TFEU was an issue before the GCEU and there was a clear risk of conflicting decisions.

33. The Court of Appeal held that there was power to order security. It considered that the judge was correct in holding that the duty of sincere co-operation precluded the provision of security as a condition of the stay. However, the Court of Appeal held that EU law did not preclude an order for security which did not provide as a consequence of any failure to provide security that the stay would be lifted. It considered that there was no material risk of conflict which would preclude such an order. Accordingly, it ordered Romania to provide security in the sum of £150m. It suspended enforcement of the Court of Appeal security order, however, to allow Romania time to lodge an application for permission to appeal to the Supreme Court.

34. On 31 October 2018 the Supreme Court granted Romania permission to appeal limited to Grounds 1, 3 and 4 as set out in the notice of appeal. The Supreme Court also ordered that the stay of the security order made by the Court of Appeal be continued until determination of the appeal or further order. The same order granted the Commission permission to intervene in the appeal, as it had in the High Court and the Court of Appeal. On 11 April 2019 the Supreme Court granted the Claimants permission to cross-appeal in relation to the order for a stay on Grounds 1 and 2 in the notice of cross-appeal and reserved to the hearing the question of permission to cross-appeal on Grounds 3 and 4 in that notice. The grounds of appeal are set out at paras 37 to 39 below.

35. The appeal was listed for hearing over three days commencing on 18 June 2019. On the morning of that day the GCEU handed down its judgment annulling the Commission Decision. As the Court of Appeal’s order of a stay had lapsed with the GCEU giving its judgment, and as security had been ordered as a term of the stay, by its order of 18 June 2019, the Supreme Court adjourned the hearing to a further hearing listed for 7-9 October 2019 and gave directions for other steps to be taken with a view to establishing or clarifying the basis on which it would have jurisdiction to hear the appeals.

36. Following the Commission’s confirmation that it intended to appeal against the decision of the GCEU to the CJEU, Romania issued an application for the stay of enforcement of the Award, which had lapsed with the GCEU’s judgment, to be imposed or extended pending determination of the appeal to the CJEU. The Claimants also issued applications against Romania for security in respect of any stay. These applications were heard by Phillips J on 9 September 2019. On 10 September 2019 Phillips J [2019] EWHC 2401 (Comm) ordered that enforcement of the Award be stayed pending the final determination of the CJEU appeal proceedings. He also ordered that Romania provide security in the amount of £150m by 17 October 2019. Following judgment, the parties applied for certificates for a leapfrog appeal to the Supreme Court under the Administration of Justice Act 1969, which the judge granted.

Grounds of appeal

37. Romania appeals against the order for security on the following grounds.

Ground 1:      The Court of Appeal erred in its approach to assessing whether there was a risk of conflict.

Ground 3:      The security ordered and whether it is to be used to pay the Award is to be subject to the jurisdiction of the Commercial Court, which, from the date on which the United Kingdom withdraws from the EU, will not be bound to observe EU law. While the United Kingdom remains a member state of the EU, it is contrary to EU law for the Court of Appeal as an emanation of the State to create a situation whereby the authority of the EU institutions could be wholly circumvented.

Ground 4:      By ordering Romania to provide security, the Court of Appeal has erred in going further than the process of enforcement which it itself considered to be premature.

38. The Claimants cross-appeal against the grant of a stay on the following original grounds.

Original Ground 1:   Under the ICSID Convention and the 1966 Act there is no power to order a stay of the Award.

Original Ground 2:   The stay is incompatible with the ICSID Convention in any event and serves no useful purpose.

Original Ground 3:   The European Communities Act 1972 does not require the United Kingdom to breach its pre-accession obligations under the ICSID Convention as implemented by the 1966 Act.

Original Ground 4:   Article 351 TFEU applies with the result that the obligations of the United Kingdom under the pre-accession ICSID Convention are not subject to the over-riding effect of EU law.

39. In addition, the Claimants, with the permission of the Supreme Court, rely on a new ground of appeal:

New Ground:  The effect of the GCEU’s judgment annulling the Commission Decision is that the duty of sincere co-operation can no longer require courts in this jurisdiction to stay enforcement of the award.

40. It is convenient to consider the Claimants’ appeal (by way of the cross-appeal) in respect of the stay first.

The Stay Appeal

The new ground

41. Article 4(3) of the Treaty on European Union (“TEU”) provides:

“Pursuant to the principle of sincere cooperation, the Union and the member states shall, in full mutual respect, assist each other in carrying out tasks which flow from the Treaties.

The member states shall take any appropriate measure, general or particular, to ensure fulfilment of the obligations arising out of the Treaties or resulting from the acts of the institutions of the Union.

The member states shall facilitate the achievement of the Union’s tasks and refrain from any measure which could jeopardise the attainment of the Union’s objectives.”

42. The duty of sincere co-operation contained in article 4(3) TEU was described, in its application to State aid law, in the following terms by the Court of Justice in Deutsche Lufthansa AG v Flughafen Frankfurt-Hahn GmbH (Ryanair Ltd intervening) (Case C-284/12) [2014] 2 CMLR 20, para 41:

“It is also important to note that the application of the European Union rules on State aid is based on an obligation of sincere co-operation between the national courts, on the one hand, and the Commission and the courts of the European Union, on the other, in the context of which each acts on the basis of the role assigned to it by the Treaty. In the context of that co-operation, national courts must take all the necessary measures, whether general or specific, to ensure fulfilment of the obligations under European Union law and refrain from those which may jeopardise the attainment of the objectives of the Treaty, as follows from article 4(3) TEU. Therefore, national courts must, in particular, refrain from taking decisions which conflict with a decision of the Commission …”

In imposing and upholding the stay in the present case, Blair J and the Court of Appeal both referred to this passage and acted on the premise that the Commission Decision was valid in accordance with the principle stated in Masterfoods v HB Ice Cream (Case C-344/98) [2001] All ER (EC) 130, para 53 that:

“Acts of the Community institutions are in principle presumed to be lawful until such time as they are annulled or withdrawn.”

43. In the changed circumstances brought about by the decision of the GCEU annulling the Commission Decision, however, the Claimants now advance, with the permission of this court, their new ground of appeal. The courts below proceeded on the basis that the duty of sincere co-operation in EU law required a stay of enforcement because there was a valid Commission decision which imposed a direct prohibition on Romania from paying the Award. The Claimants now submit that as the Commission Decision has been annulled and the Commission has not sought interim measures staying the effect of the judgment, there is no EU law duty on courts in this jurisdiction to stay enforcement of the Award. They submit that the presumption of validity no longer applies in respect of the Commission Decision and that, on the contrary, the applicable and binding act of the EU institutions is now the judgment annulling the Commission Decision. In their submission the authoritative determination of the EU institutions, binding on the UK courts, is that the Commission had no competence to find that the Award was State aid or to apply EU law to the Award at all and that, accordingly, the basis for the stay has fallen away entirely. They further point to article 278 TFEU which states:

“Actions brought before the Court of Justice of the European Union shall not have suspensory effect. The Court may, however, if it considers that circumstances so require, order that application of the contested act be suspended.”

In the present case, no application has been made to suspend the application of the judgment of the GCEU. Similarly, article 279 TFEU provides that the CJEU may, in any cases before it, prescribe any necessary interim measures. No such measures have been sought or ordered. Accordingly, the Claimants submit that the reasoning in and the annulment ordered pursuant to the GCEU’s judgment have full legal effect.

44. In response, the Commission and Romania submit that the effects of the GCEU’s judgment are limited to annulling the Commission Decision, and that this does not extend to:

(1)              the injunction decision of 26 May 2014 prohibiting Romania from implementing the award pending further investigation by the Commission; or

(2)              the initiating decision of 1 October 2014 by which the Commission formally opened the State aid investigation.

They contend that neither is the subject of any successful or pending legal challenge and that, accordingly, the consequence of the relief granted by the GCEU is that the Commission’s State aid investigation into Romania’s implementation of the Award is reopened. The effect of this, they say, is that even if the Commission does not succeed in its appeal to the CJEU, it will be open to the Commission to re-take a State aid decision provided it can do so by addressing and avoiding the legal difficulties identified in the GCEU’s judgment. In the meantime, the injunction decision continues to have effect. They maintain that the duty of sincere co-operation requires courts in this jurisdiction to refrain from taking decisions that would conflict with these decisions. In addition, they point to the pending appeal by the Commission to the CJEU and the possibility that the Commission Decision may yet be vindicated as creating a further risk of conflict which engages the duty of sincere co-operation.

45. Before considering these submissions, it is appropriate to consider what precisely was decided in the judgment of the GCEU. In the view of the GCEU, the ICSID Tribunal in the Award had confined itself to determining the exact damage suffered by the Claimants on the basis of the repeal of EGO 24 and calculated the amount of damages corresponding to a right to compensation which arose at the time of the infringements committed by Romania in 2005 (para 74). The right to receive the compensation awarded arose prior to Romania’s accession to the EU on 1 January 2007. The Award was simply the recognition of that right and payments made in 2014 merely represented the enforcement of that right which arose in 2005 (para 78). EU law was not applicable in Romania before its accession and it was only from Romania’s accession that the Commission acquired the competence enabling it to review Romania’s actions pursuant to article 108 TFEU (para 79). As the EGO 24 incentives were repealed in 2005, “the Commission was by no means competent to assess their alleged unlawfulness in the light of EU law, at least with regard to the period predating accession” (para 86). The GCEU noted that, as the compensation awarded was calculated from the repeal of EGO 24 on 22 February 2005 until its scheduled expiry on 1 April 2009, that period covered 27 months during which Romania was a member of the EU (para 89). The amounts awarded as compensation for the pre-accession period could not constitute State aid in EU law and the Commission had exercised its powers retroactively “in relation to a situation predating Romania’s accession to the European Union, at least with regard to those amounts” (para 90). With regard to the award of compensation in respect of the post-accession period,

“even assuming that the payment of compensation relating to that period could be classified as incompatible aid, given that the Commission did not draw a distinction between the periods of compensation for the damage suffered by the applicants before or after accession, the Commission has, in any event, exceeded its powers in the area of State aid review.” (para 91)

46. The GCEU then addressed the classification by the Commission of the Award as an advantage and a State aid within the meaning of article 107 TFEU and concluded as follows:

“107.  … the Commission is not competent and … EU law is not applicable to the EGO scheme, to its revocation or to the compensation for that revocation, because the arbitral award, which found that there was a right to compensation in 2013, did not have the effect of triggering the applicability of EU law and the Commission’s competence to the earlier EGO tax incentives and, accordingly, to the compensation at issue which resulted therefrom.

108. Therefore, as the compensation at issue covered, at least in part, a period predating accession (from 22 February 2005 to 1 January 2007) and as the Commission did not draw a distinction, among the amounts to be recovered, between those falling within the period predating accession and those falling within the period subsequent to accession, the decision by which it classified the entirety of the compensation as aid is necessarily unlawful.
109. It follows that the contested decision is unlawful in so far as it classified as an advantage and aid within the meaning of article 107 TFEU the award, by the arbitral tribunal, of compensation intended to compensate for the damage resulting from the withdrawal of the tax incentives, at least in respect of the period predating the entry into force of EU law in Romania.”

In summary, the GCEU held that the Commission had exceeded its competence to the extent that it had applied its State aid powers retroactively to events predating Romania’s accession and the Commission Decision was unlawful to the extent that it classified as an advantage or aid compensation relating to the period prior to Romania’s accession to the EU. As the Commission had not distinguished between the pre- and post-accession periods, the Commission Decision as a whole was annulled.

Initiating decision and injunction decision

47. Romania and the Commission submit that the effect of that relief is that the position prior to the Commission Decision is restored. They submit that the injunction decision and the initiating decision commencing the formal investigation into State aid arising from the Award are distinct from the annulled Commission Decision and are unchallenged. (The Claimants did, in fact, challenge the injunction decision before the GCEU but they later withdrew that action: Micula v European Commission (Case T-646/14) EU:T:2016:135. The initiating decision has never been challenged.) The result, Romania and the Commission therefore submit, is that the Commission’s investigation into Romania’s implementation of the Award is reopened and that both the injunction decision and the initiating decision are restored. The Commission submits that the reopening of the investigation means that the investigation must be closed, either by a successful appeal to the CJEU reinstating the Commission Decision, or by the Commission adopting a new final decision. The Commission also points to the fact that the initiating decision recalls Romania’s obligations under the standstill provision in article 108(3) TFEU which provides that the member state concerned shall not put its proposed measures into effect until this procedure has resulted in a final decision.
48. The case law of the Court of Justice establishes that annulment of an EU measure does not necessarily affect the preparatory acts (R v Ministry of Agriculture, Fisheries and Food, Ex p Fedesa (Case C-331/88) [1990] ECR I-4023, para 34; Kingdom of Spain v Commission of the European Communities (Case C-415/96) [1998] ECR I-7008, para 32). In certain circumstances, therefore, it may be possible to resume the procedure for replacing a measure at the point at which the illegality occurred. In the present case, Romania and the Commission, relying on ArcelorMittal Tubular Products Ostrava v Commission (Case T-364/16) EU:T:2018:696, para 64, maintain that the prior acts adopted in the context of the investigation, the injunction decision and the initiating decision, are separate acts unaffected by the judgment of the GCEU and must therefore be presumed to be lawful. On that basis they rely on Deutsche Lufthansa AG (Case C-284/12) EU:C:2013:755, which establishes that where the Commission has initiated a formal investigation procedure under article 108(2) TFEU with regard to a State measure which has not been notified and is being implemented, a national court is required, pursuant to the duty of sincere co-operation, to adopt all the necessary measures with a view to drawing the appropriate conclusions from an infringement of the obligation to suspend the implementation of that measure. (See also European Commission v Hansestadt Lübeck (Case C-524/14 P) EU:C:2016:971, paras 29, 30 where this was endorsed by the Grand Chamber of the Court of Justice.) Moreover, Deutsche Lufthansa also establishes that where a national court, in these circumstances, entertains doubts as to whether the measure at issue constitutes State aid within article 107(1) TFEU, or as to the validity of interpretation of the decision to initiate the formal examination procedure, the appropriate course is for it to seek clarification from the Commission or to refer a question to the Court of Justice for a preliminary ruling.
49. In response the Claimants submit that the injunction decision and the initiating decision are tainted by the same illegality as the Commission Decision which has been annulled by the GCEU. Relying on Asteris AE v Commission of the European Communities (Joined Cases 97/86, 193/86, 99/86 and 215/86) [1988] ECR 2181, paras 27-29, they submit that the Commission is under an obligation by virtue of article 266 TFEU to comply not only with the operative part of the judgment but also with its reasoning. In Asteris the Greek government had secured the annulment of a regulation fixing aid for the production of tomato concentrates for the 1983/84 marketing year. While that case had been pending before the Court of Justice the Commission had made the same error in relation to regulations adopted in relation to subsequent marketing years. The Court of Justice held that the Commission was bound to have regard “not only to the operative part of the judgment but also to the grounds which led to the judgment and constitute its essential basis, in so far as they are necessary to determine the exact meaning of what is stated in the operative part” (para 27) and concluded:

“However, by virtue of the retroactive effect of judgments by which measures are annulled, the finding of illegality takes effect from the date on which the annulled measure entered into force. It follows that in the present case the institution concerned is also under an obligation to eliminate from the regulations already adopted when the annulling judgment was delivered and governing marketing years after 1983/84 any provisions with the same effect as the provision held to be illegal.” (para 30)

On behalf of the Claimants, Ms Demetriou QC submits that the injunction decision and the initiating decision are vitiated by the same legal errors which resulted in the annulment of the Commission Decision and that it is, therefore, not open to the Commission to rely on the preceding decisions as giving rise to a duty of sincere co-operation on the part of national courts.

50. In determining the effect of the annulment of an EU measure on a preparatory measure, it is necessary, in each case, to identify the precise provision held to be illegal and the specific reasons which underlie the finding of illegality and which the institution concerned must take into account when replacing the annulled measure (Asteris, para 27; Kingdom of Spain v Commission of the European Communities, para 31). As stated above, the Commission Decision was flawed because the Commission exceeded its competence by applying its State aid powers retroactively to events predating Romania’s accession and because the Commission Decision classified as an advantage or aid compensation relating to the period prior to Romania’s accession to the EU. The failure to distinguish between pre- and post-accession periods led to the annulment of the whole Commission Decision. These errors also characterise the injunction decision and the initiating decision. The initiating decision (C (2014) 6848), while expressly stating in the preamble, para (57) that the obligation not to put into effect any aid measure only applies to aid measures put into effect after the entry into force of the Romanian Treaty of Accession on 1 January 2007, continues:

“(58)   The Commission considers that executing the Award would amount to ‘new aid’ in the sense of article 1(c) of Regulation (CE) No 659/1999 of 22 March 1999, as the decision to execute the Award would take place after the entry into force of the Treaty for Romania.

(59)     It does not matter that the revocation of the EGO 24 facilities occurred before the entry into force of the Treaty for Romania or that the amount granted or to be granted would correspond, at least partially, to the operating expenses incurred by the claimants before the entry into force of the Treaty for Romania. For the purposes of State aid law it does not matter at which time these expenses were incurred; rather, the decisive point in time is the moment at which the State decides to relieve the undertaking of the economic burden that those expenses constitute.”

Similarly, at para (34) the Commission states that implementation of the Award would grant to the Claimants an amount corresponding to the advantages foreseen under the abolished EGO 24 scheme from the moment it was repealed (22 February 2005) until the scheduled expiry (1 April 2009) and that this constitutes an economic advantage within article 107(1) TFEU. In the same way the preamble to the injunction decision states at para 23 that by implementing the award Romania is reinstating the EGO incentives and will grant to the Claimants the advantages foreseen under the abolished EGO 24 from its repeal until its scheduled expiry. These preliminary decisions are, therefore, subject to the same flaws as the Commission Decision.

51. Nevertheless, we are not persuaded that these errors in the preparatory decisions prevent the Commission from relying on the initiating decision as giving rise to a duty of sincere co-operation on the part of national courts. The judgment of the GCEU leaves in existence an extant Commission investigation into State aid. In the absence of a final decision of the Commission closing the formal investigation procedure, the effects of that initiating decision subsist (European Commission v Hansestadt Lübeck (Case C-524/14 P), para 31). This necessarily imposes a duty of sincere co-operation on the part of the United Kingdom. Whereas in Asteris the reasoning of the Court of Justice totally undermined the legality of the regulations in respect of subsequent years, it may well be open to the Commission to reconfigure the investigation in the present case so as to avoid the errors which resulted in the annulment of the Decision. Thus, for example, it may be open to the Commission to reframe its investigation so that it is limited to the post-accession period. Similarly, we note that the reasoning of the GCEU judgment does not address the Commission’s case, founded on the terms of Romania’s accession agreement (L 157/203, 21.6.2005; Annex V, section 2, para 5) which exceptionally permits the Commission to object to any aid measure granted in the pre-accession period from 1 September 2004 and to initiate a formal investigation procedure in relation to it and which empowers the Commission to decide thereafter that Romania shall take all necessary measures to recover the aid from the beneficiary. It may be open to the Commission to reconfigure its investigation on this basis. In any event, courts in this jurisdiction cannot be confident that the judgment of the GCEU rules out such possibilities. For these reasons, we consider that the subsisting initiating decision continues to engage the duty of sincere co-operation owed by national courts, notwithstanding the failure of the Commission to apply to suspend the effect of the GCEU decision or to seek an interim order from the CJEU.

52. With regard to the injunction decision, the Claimants object that on its construction it cannot have any application in the present circumstances. The operative part of the decision provides that Romania shall immediately suspend any action which may lead to the execution or implementation of the Award “until the Commission has taken a final decision on the compatibility of that State aid with the internal market”. The Claimants submit that this created only an interim prohibition until the Commission took a final decision, that that final decision was taken on 31 March 2015 and that at that point this injunction ceased to apply. Whether the injunction may have revived as a result of the annulment of the Commission Decision, as suggested by the Commission, was a point not fully argued before us. In any event, it is not necessary to reach a concluded view on this point in the light of the conclusions to which we have come on the parties’ other submissions.

The pending appeal

53. The decision of the GCEU is currently under appeal to the CJEU. Romania and the Commission submit that, as a result, the duty of sincere co-operation continues to apply. They observe that it has not been suggested that the Commission’s appeal has no realistic prospect of success and they point to a risk of conflict between the EU courts and courts in this jurisdiction if the GCEU judgment does not stand and the Commission Decision is vindicated.

54. In Masterfoods (Case C-344/98) the Irish High Court had granted HB a permanent injunction restraining Masterfoods from inducing retailers to store Masterfoods’ products in freezers belonging to HB, in breach of an exclusivity clause, thereby rejecting Masterfoods’ case that the clause and HB’s conduct infringed EC competition rules. In parallel proceedings before the Commission, the Commission ruled that the exclusivity provision infringed article 85(1) of the Treaty establishing the European Community (“EC”) and that HB’s inducement to retailers in Ireland to enter into freezer cabinet agreements subject to a condition of exclusivity infringed article 86 EC. The Irish Supreme Court made a preliminary reference to the Court of Justice in which it asked whether the obligation of sincere co-operation required the Supreme Court to stay the proceedings pending the disposal of the appeal to the Court of First Instance against the decision of the Commission and any subsequent appeal to the Court of Justice. The Court of Justice expressed the duty on a national court in such circumstances in the following terms:

“When the outcome of the dispute before the national court depends on the validity of the Commission decision, it follows from the obligation of sincere co-operation that the national court should, in order to avoid reaching a decision that runs counter to that of the Commission, stay its proceedings pending final judgment in the action for annulment by the Community Courts, unless it considers 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.” (para 57)

55. On behalf of the Claimants, Ms Demetriou seeks to distinguish Masterfoods on two grounds. First, she points to the fact that the decision by the Commission in that case was valid and subsisting whereas the Commission Decision with which we are concerned has been annulled. Secondly, she submits that in Masterfoods the national court was seized with precisely the same issue of law as had been decided by the Commission in its decision, namely the application of the same competition provisions to the same agreements, and that accordingly the Court of Justice was concerned to avoid a direct conflict which would have infringed the principle of legal certainty. By contrast, she submits, there is no such risk in the present case. In these proceedings the court is not asked to determine whether the award or any part of it constitutes State aid, so there is no risk of conflicting judgments on that point or on EU law more generally. In the absence of a stay of the national proceedings, the award could be enforced which might result in Romania paying compensation to the Claimants. Should the Court of Justice allow the Commission’s appeal, she submits, that would oblige Romania to recover the payments of compensation which would not be a conflict but, at most, a possible practical inconvenience. Moreover, that possibility would be remote because if the Commission were to succeed on appeal before the Court of Justice it would be necessary for the matter to be remitted to the GCEU to resolve the other grounds for annulment not yet ruled on by that court.

56. The first suggested ground of distinction may be dealt with very briefly. The judgment of the Court of Justice in Masterfoods makes clear that the duty of sincere co-operation (and therefore the obligation to stay national proceedings) continues pending final judgment in the action for annulment by the Community Courts (paras 57, 59). We are also unable to accept the second suggested ground of distinction. The duty of sincere co-operation is intended to preserve the effectiveness of actions taken by EU bodies with relevant competence. While it is true that the present state of legal proceedings before the EU courts and in this jurisdiction does not present the stark direct conflict apparent in Masterfoods, we are concerned with potentially contradictory decisions on the same subject matter between the same parties (cf Crehan v Inntrepreneur Pub Co [2007] 1 AC 333, per Lord Bingham of Cornhill, at para 11). Ms Demetriou minimises unduly the risk of conflict which the duty of sincere co-operation is intended to avoid. It is only where there is “scarcely any risk” of a conflict between decisions of domestic and EU institutions that national authorities should proceed (Delimitis v Henninger Brau AG (Case C-234/89) EU:C:1991:91, at para 50; Emerald Supplies Ltd v British Airways plc (Nos 1 & 2) (CA) [2016] Bus LR 145, para 70). Moreover, it appears by analogy with Kernkraftwerke Lippe-Ems GmbH v Hauptzollamt Osnabruck (Case C-5/14) EU:C:2015:354 at para 33, that national institutions should defer even if the impediment to the full effectiveness of EU law is only temporary. Subject to the other grounds of appeal considered below, it is not possible to conclude that there is scarcely any risk of conflict. On the contrary, the risk of the consequences to which Ms Demetriou points would amount to a substantial impediment to the operation of EU law. Accordingly, the existence of a pending appeal to the Court of Justice with a real prospect of success is, in itself, sufficient to trigger the duty of cooperation and, subject to the further grounds of appeal considered below, requires the grant of a stay so as not to undermine the effect of the Commission Decision, should it be upheld.
57. For these reasons, we would dismiss this ground of appeal.

Cross-Appeal Original Ground 1: Under the ICSID Convention and the 1966 Act there is no power to stay

Cross-Appeal Original Ground 2: The stay is incompatible with the ICSID Convention in any event and serves no useful purpose

58. Grounds 1 and 2 may conveniently be considered together.

59. There are currently 154 State parties to the ICSID Convention. Both the United Kingdom and Romania are Contracting States. The United Kingdom became a party in 1966, prior to its accession to the EEC in 1973. Romania became a party in 1975, prior to its accession to the EU in 2007. The EU is not a party to the ICSID Convention.

60. Section 6 of Chapter IV of the ICSID Convention provides for the recognition and enforcement of awards. Article 53 provides in relevant part:

“Article 53

(1)       The award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention. Each party shall abide by and comply with the terms of the award except to the extent that enforcement shall have been stayed pursuant to the relevant provisions of this Convention. …”

Article 54 provides in relevant part:

“Article 54

(1)       Each Contracting State shall recognize an award rendered pursuant to this 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. …

(2)       A party seeking recognition or enforcement in the territories of a Contracting State shall furnish to a competent court or other authority which such State shall have designated for this purpose a copy of the award certified by the Secretary-General. Each Contracting State shall notify the Secretary-General of the designation of the competent court or other authority for this purpose and of any subsequent change in such designation.

(3)       Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought.”

61. Article 55 provides that nothing in article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution.

62. Article 53(1) prohibits “any appeal or … any other remedy except those provided for in this Convention”. The exception is a reference to the provisions in section 5 of Chapter IV of the Convention. Article 50 provides for any dispute between the parties as to the meaning or scope of an award to be decided by a Tribunal. Article 51 provides for revision of an award by a Tribunal on the ground of the discovery of some fact which decisively affects the award. Article 52 provides for the annulment of an award by an ad hoc Committee on the grounds that the Tribunal was not properly constituted, that it has manifestly exceeded its powers, that there was corruption on the part of a member of the Tribunal, that there has been a serious departure from a fundamental rule of procedure, or that the award has failed to state the reasons on which it is based. In each case the Tribunal or Committee concerned may stay enforcement of the award pending its decision.

63. The Arbitration (International Investment Disputes) Act 1966 implements the ICSID Convention in the domestic law of the United Kingdom. Section 1(2) provides that a person seeking recognition or enforcement of an ICSID award shall be entitled to have the award registered in the High Court. Section 2 provides:

Subject to the provisions of this Act, an award registered under section 1 above shall, as respects the pecuniary obligations which it imposes, be of the same force and effect for the purposes of execution as if it had been a judgment of the High Court given when the award was rendered pursuant to the Convention and entered on the date of registration under this Act, and, so far as relates to such pecuniary obligations –

proceedings may be taken on the award,

(b)       the sum for which the award is registered shall carry interest,

(c)       the High Court shall have the same control over the execution of the award,

as if the award had been such a judgment of the High Court.

(2)       Rules of court under section 84 of the Senior Courts Act 1981 may contain provisions requiring the court on proof of the prescribed matters to stay execution of any award registered under this Act so as to take account of cases where enforcement of the award has been stayed (whether provisionally or otherwise) pursuant to the Convention, and may provide for the provisional stay of execution of the award where an application is made pursuant to the Convention which, if granted, might result in a stay of enforcement of the award.”

64. A rule of court, CPR 62.21(5), provides with regard to registration under the 1966 Act:

“Where, on granting permission to register an award or an application made by the judgment debtor after an award has been registered, the court considers –

(a)       that the enforcement of the award has been stayed (whether provisionally or otherwise) under the Convention; or

(b)       that an application has been made under the Convention which, if granted, might result in a stay of the enforcement of the award,

the court may stay the enforcement of the award for such time as it considers appropriate.”

65. At first instance, Blair J dismissed the application by Romania to set aside the order of Burton J registering the award. In Blair J’s view, registration of the award would not place Romania in breach of the Commission Decision. However, he stayed enforcement of the award pending the resolution of the annulment proceedings in the GCEU on the basis that under the ICSID Convention and under section 2 of the 1966 Act an arbitral award was to be equated for the purposes of enforcement with a judgment of the High Court. As the High Court would not enforce a domestic judgment which conflicted with a decision of the Commission, it could not enforce the Award pending the outcome of the annulment proceedings. Accordingly, article 351 TFEU (set out at para 90, below) did not apply because there was no conflict between the obligations of the United Kingdom under the ICSID Convention and the EU Treaties.
66. The Court of Appeal unanimously dismissed the appeal against the order for a stay. The majority (Arden and Leggatt LJJ) held that while section 2(1) of the 1966 Act did not have the effect of making an ICSID award registered under section 1 equivalent for all purposes to an ordinary domestic judgment, the domestic court could grant a stay of execution if in the circumstances of the case it was just to do so, provided the stay was temporary and consistent with the purposes of the ICSID Convention. Hamblen LJ (dissenting on this point) held that the ICSID Convention and the 1966 Act conferred on a registered award the same status as a final domestic judgment. Since such a judgment would not be enforced where inconsistent with EU law, there was no inconsistency with the ICSID Convention or the 1966 Act in not enforcing an award where inconsistent with EU law.

67. On behalf of the Claimants it is submitted that Blair J and the Court of Appeal were in error in granting a stay because the ICSID Convention and the 1966 Act do not permit a stay in such circumstances. Distinguishing between enforcement and execution, they submit that a stay of enforcement may only be granted pursuant to articles 50-52 of the ICSID Convention. Article 54 imposes a duty on national courts to enforce awards and does not permit a national court to refuse enforcement where it would refuse to enforce a domestic judgment. They accept that the national court has control over the execution of an award, including power to grant a temporary stay; however, this is strictly for procedural (not substantive) reasons and only where no inconsistency arises with the duties to recognise and enforce the award. They submit that the stay granted in these proceedings was not a stay of execution but a stay of enforcement pending the determination of the GCEU proceedings, which the Court had no power to order.

68. The provisions of the 1966 Act must be interpreted in the context of the ICSID Convention and it should be presumed that Parliament, in enacting that legislation, intended that it should conform with the United Kingdom’s treaty obligations. It is a notable feature of the scheme of the ICSID Convention that once the authenticity of an award is established, a domestic court before which recognition is sought may not re-examine the award on its merits. Similarly, a domestic court may not refuse to enforce an authenticated ICSID award on grounds of national or international public policy. In this respect, the ICSID Convention differs significantly from the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. The position is stated in this way by Professor Schreuer in his commentary on article 54(1):

“The system of review under the Convention is self-contained and does not permit any external review. This principle also extends to the stage of recognition and enforcement of ICSID awards. A domestic court or authority before which recognition and enforcement is sought is restricted to ascertaining the award’s authenticity. It may not re-examine the ICSID tribunal’s jurisdiction. It may not re-examine the award on the merits. Nor may it examine the fairness and propriety of the proceedings before the ICSID tribunal. This is in contrast to non-ICSID awards, including Additional Facility awards, which may be reviewed under domestic law and applicable treaties. In particular, the New York Convention gives a detailed list of grounds on which recognition and enforcement may be refused …” (Christoph H Schreuer, The ICSID Convention: A Commentary, 2nd ed (2009), p 1139, para 81)

“The Convention’s drafting history shows that domestic authorities charged with recognition and enforcement have no discretion to review the award once its authenticity has been established. Not even the ordre public (public policy) of the forum may furnish a ground for refusal. The finality of awards would also exclude any examination of their compliance with international public policy or international law in general. The observance of international law is the task of the arbitral tribunal in application of article 42 of the Convention subject to a possible control by an ad hoc committee … Nor would there be any room for the application of the Act of State doctrine in connection with the recognition and enforcement of an ICSID award …” (Schreuer, pp 1140-1141, para 85)

69. Contracting States may not refuse recognition or enforcement of an award on grounds covered by the challenge provisions in the Convention itself (articles 50-52). Nor may they do so on grounds based on any general doctrine of ordre public, since in the drafting process the decision was taken not to follow the model of the New York Convention. However, although it is recognised that this is the general position under the Convention, it is arguable that article 54(1), by framing the relevant obligation as to enforcement as an obligation to treat an award under the Convention as if it were a final judgment of a local court, allows certain other defences to enforcement which are available in local law in relation to such a final judgment to be raised.

70. The principle that arbitration awards under the ICSID Convention should be enforceable in the courts of all Contracting States and with the same status as a final judgment of the local courts in those States, as eventually set out in article 54(1), was a feature from an early stage in the drafting of the Convention. Mr Aron Broches, General Counsel of the World Bank at the time who chaired the regional consultative meetings (“the Regional Consultative Meetings”) that occurred as part of the Convention’s drafting, explained to delegates that by virtue of this formula Contracting States would be entitled to apply their local law of sovereign or state immunity with regard to the enforcement of awards, and thereby avoid or minimise possible embarrassment at having to enforce awards against other friendly Contracting States. Accordingly, it was made clear that article 54(1) had the substantive effect of introducing to some degree a principle of equivalence between a Convention award and a local final judgment as regards the possibility of applying defences in respect of enforcement. See ICSID, History of the ICSID Convention (Washington DC, 1968) vol II-1: Doc 22 (20 September 1963) “Memorandum of the discussion by the Executive Directors, September 10, 1963, Discussion of the First Preliminary Draft Convention”, p 177); Doc 25, (30 April 1964) “Summary Record of Proceedings, Addis Ababa Consultative Meetings of Legal Experts, December 16-20, 1963”, p 242; Doc 31 (20 July 1964) “Summary Record of Proceedings, Bangkok Consultative Meetings of Legal Experts, April 27-May 1, 1964”, p 520.
71. In his report on the Regional Consultative Meetings, Mr Broches referred to certain comments that had dealt with the effect of what was then draft section 15 (which became article 54(1)) on existing law with respect to sovereign immunity. Mr Broches “explained that the drafters had no intention to change that law. By providing that the award could be enforced as if it were a final judgment of a local court, section 15 implicitly imported the limitation on enforcement which in most countries existed with respect to enforcement of court decisions against Sovereigns. However, this point might be made explicit in order to allay the fears expressed by several delegations” (History, vol II-1: Doc 33 (9 July 1964) “Chairman’s Report on the Regional Consultative Meetings of Legal Experts”, p 575; and see Doc 27 (12 June 1964) “Summary Record of Proceedings, Santiago Consultative Meetings of Legal Experts, February 3-7, 1964”, pp 342 et seq, where Mr Broches again indicated that this was the intended effect of what became article 54(1), but that it could be made completely clear to allay concerns).

72. Accordingly, the provision which eventually became article 55 was included in what was designated as the First Draft of the Convention and was retained in the final version of the Convention (History, vol I, 254; vol II-1, Doc 43 (11 September 1964) “Draft Convention: Working Paper for the Legal Committee”, p 636). The official Report of the Executive Directors on the Convention confirmed that this provision was introduced for the avoidance of doubt (as its text indicates): see ICSID, Report of the Executive Directors of the International Bank for Reconstruction and Development on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (Washington DC, 1965), para 43; Mr Broches made the same point in his Memorandum to the Executive Directors (History, vol II-2, Doc 128 (19 January 1965) “Memorandum from the General Counsel and Draft Report of the Executive Directors to accompany the Convention”, paras 43-44). The law of State immunity varies from State to State, and the Convention made no attempt to harmonise it. As Professor Schreuer points out in his commentary on article 54, persons seeking to enforce arbitration awards made pursuant to the Convention will tend to choose to do so in those jurisdictions which have the least generous rules of State immunity for the protection of the assets of other Contracting States (Schreuer, p 1124, para 27).
73. The fact that the specific qualification of the obligation to enforce an award like a final court judgment relating to state immunity was expressly dealt with in article 55 for the avoidance of doubt indicates that article 54(1) was itself understood to have the effect of allowing the possibility of certain other defences to enforcement if national law recognised them in respect of final judgments of local courts.

74. The travaux préparatoires also indicate that it was accepted that further defences available in national law in relation to enforcement of court judgments could be available in exceptional circumstances by virtue of the formulation of the obligation in article 54(1). Mr Broches pointed out “that the First Draft went further than the Secretariat draft since treating awards in the same way as court judgments implied that exceptional grounds only could be invoked to prevent recognition and enforcement” (Aron Broches, “Awards Rendered Pursuant to the ICSID Convention: Binding Force, Finality, Recognition, Enforcement, Execution”, (1987) ICSID Rev 287, 312). But he also resisted a proposal by the Austrian representative to delete the words (in what became article 54(1)) requiring an award to be enforced “as if it were a final judgment [of a local court]”, so as to make the obligation in that provision an unqualified one, since the Austrian representative noted that “there were several possibilities for annuling [sic] judgments even after they had been declared final” (History, vol II-2, Doc 120 (11 January 1965) “Summary Proceedings of the Legal Committee meeting, December 11, morning”, p 901). Mr Broches stated that in his opinion “by making an award the equivalent of a final judgment one had reached the maximum obtainable” (that is to say, in practical terms, given the issues raised in the drafting meetings) (Broches, p 314). So, for example, there was discussion of the possibility in English law of applying to have a final judgment of a national court set aside on the grounds that it was obtained by fraud, and Mr Broches confirmed that this would also be applicable in relation to a Convention award: see History, vol II-2, Doc 113 (11 January 1965) “Summary Proceedings of the Legal Committee meeting, December 10, afternoon”, p 889 (“If a final judgment against a sovereign State could not be executed, then an award could not be executed either; and in the same way, if a final judgment was open to some extraordinary remedy in the case of fraud or similar occurrence, that would be true for the award as well.”). Later, Mr Broches resisted a suggestion that what is now article 55 should be expanded so as also to “cover the cases where there were laws which, although not related to immunities, might limit the execution of the award against the State”, on the grounds that he “thought this was unnecessary because full recognition had been given to the laws of the State in article [54]” and “[article 55] dealt with one specific problem on which certain delegations had expressed concern” (History, vol II-2, Doc 120, p 905).

75. In his commentary on article 54, Professor Schreuer observes that at the stage of recognition and enforcement of awards “[t]he otherwise self-contained nature of the Convention does not apply” (p 1120, para 10). At, pp 1142-1143, para 91 he says (omitting references):

“The fact that article 54(1) assimilates ICSID awards to final judgments of domestic courts implies that enforcement may be resisted in countries where national rules provide for an exceptional refusal to enforce a final judgment. Though this possibility was already acknowledged during the drafting of the Convention, it has not yet been relied upon in practice in order to defy recognition and enforcement of ICSID awards. Instead, past attempts to resist enforcement of awards have relied upon immunity from execution.”

76. Article 54(3) of the Convention is concerned with execution of awards. Its effect is that the available processes of execution will be those in the law of the State where enforcement is sought. It does not require that State to make available any other processes of execution. This provision does not limit the obligation on Contracting States to enforce awards. Once again, the matter is explained by Professor Schreuer in his commentary: having regard to all the authentic language versions of the Convention, no distinction is to be drawn between enforcement and execution (p 1134, para 64). He observes in his commentary on article 54(3):

“The drafting history and the context of article 54(3) make it clear that the laws of the enforcing State that govern execution of an ICSID award are of a procedural nature only. Article 54(3) does not detract from the obligation of every State party to the Convention to enforce awards. In particular, the laws of the enforcing State may not serve as a standard for the review of awards. Article 54(3) does not affect the finality and non-reviewability of awards …” (p 1149, para 112)

77. Articles 50(2), 51(4) and 52(5) make specific provision for staying enforcement of an award in certain specific situations, none of which applies here. Section 2(2) of the 1966 Act and CPR 62.21(5) make corresponding provision in domestic law for the grant of a stay in such situations. These stays pursuant to the Convention are available only in the context of interpretation, revision and annulment of awards addressed by those articles. In the present case, Romania has already exercised and exhausted its right under article 52 of ICSID to seek annulment of the Award. The ICSID ad hoc Committee upheld the Award on 26 February 2016.

78. However, in light of the wording of articles 54(1) and 55 and the travaux préparatoires reviewed above, it is arguable that there is scope for some additional defences against enforcement, in certain exceptional or extraordinary circumstances which are not defined, if national law recognises them in respect of final judgments of national courts and they do not directly overlap with those grounds of challenge to an award which are specifically allocated to Convention organs under articles 50 to 52 of the Convention. Mr Broches proposed at the drafting meeting on 11 December 1964 referred to above that representatives “should consciously accept something that was of necessity not precise, which each country in good faith would seek to translate into appropriate local law. He thought that it was necessary to leave some freedom to the Contracting States to interpret in good faith the principal concept laid down in the Convention” (ie the obligation in article 54(1)) (History, vol II-2, Doc 120, 903).

79. In the Court of Appeal Hamblen LJ accepted Romania’s submission that the relevant obligation of the United Kingdom under article 54(1) was one of “equivalence”. He considered that, while there will be different national rules and procedures relating to enforcement, provided the same rules and procedures are applied to registered awards as to final court judgments in the State concerned article 54 will be complied with. In his view, the effect of section 2(1) of the 1966 Act was to make an ICSID award registered under section 1 of the Act equivalent for all purposes to a judgment of the High Court given in ordinary domestic proceedings. As a result, in his view, if the present award had been a final decision of the English court there could be little doubt that the English court would stay enforcement because payment was prohibited by a subsequent Commission decision. On that basis, he considered that enforcement of the Award had to be stayed. The courts have general powers under the CPR to order a stay where that would be appropriate outside the specific situations dealt with in CPR 62.21: see in particular CPR 3.1(2)(f), CPR 40.8A and CPR 83.7(4).

80. Hamblen LJ’s view on the general question whether article 54(1) operates on the basis of a principle of “equivalence” gains some support from the points set out above and the travaux préparatoires referred to. But as appears below, even if he is right on that point, consideration of the effect of article 351 TFEU means that it does not follow that Romania succeeds in showing that the enforcement of the Commission Award should be refused under the ICSID Convention and the 1966 Act.

81. On the other hand, it might be said that this reading of the obligation of each Contracting State under article 54(1) to enforce the pecuniary obligations imposed by an ICSID award “as if it were a final judgment of a court in that State” fails to take proper account of the scheme of the ICSID Convention as described above. It is arguable that there is countervailing force in the view of Arden and Leggatt LJJ in the Court of Appeal that it would be inconsistent with that scheme for a national court to refuse to enforce an award on the ground that, if it had been an ordinary domestic judgment, giving effect to it would be contrary to a provision of national law and that the only circumstances in which the validity or enforceability of an ICSID award can be challenged are those set out in the ICSID Convention itself. It is arguable that the words “as if it were a final judgment of a court in that State” in article 54(1) should not be read as referring to the circumstances in which an award is enforceable in the State concerned or as importing national standards as a requirement of enforceability. Rather it is arguable that, as Leggatt LJ put it (at para 258), albeit without consideration of the travaux préparatoires, “the purpose of equating an award with a final judgment of a court in the state where enforcement is sought is to give legal force to an award for the purpose of executing it and to provide machinery for that purpose”. If that is right, then section 2(1) of the 1966 Act, which implements article 54(1), would not entitle courts in this jurisdiction to refuse to enforce an award on grounds that would justify staying enforcement of a domestic judgment. On this view, article 54(1) simply provides a legal basis for execution. If anything, this might be said to emerge even more clearly from section 2(1) which provides that an award shall “be of the same force and effect for the purposes of execution …” (emphasis added) as a domestic judgment (although clearly that provision should be read so as to conform with article 54(1), to which it is intended to give effect).

82. Nevertheless, despite the view they took about the effect of article 54(1), Arden and Leggatt LJJ came to the conclusion that it was open to the court to grant a stay. In their view article 54(3) gave the national court control over the process of execution which includes its manner and timing and that was reflected in section 2(1)(c) of the 1966 Act. Rules of court, CPR 40.8A and CPR 83.7(4), confer wide discretionary powers to stay the execution of a final judgment. Accordingly, it was open to courts in this jurisdiction to grant a stay of execution if in the particular circumstances of the case it was just to do so, provided that the stay was temporary and consistent with the purposes of the ICSID Convention (Arden LJ at paras 122-126; Leggatt LJ at paras 260-262). Both emphasised, however, that this power could not extend to declining to enforce an award because of a substantive objection to it or staying enforcement of an award permanently or indefinitely (at paras 125, 262).
83. The difference between Hamblen LJ on the one hand and Arden and Leggatt LJJ on the other regarding the proper interpretation of article 54(1) of the ICSID Convention is something which ultimately could only be authoritatively resolved by the International Court of Justice. There are valid arguments on both sides. It is perhaps not altogether surprising that there is some doubt about the true meaning and effect of article 54, given that the work on drafting that provision was carried out “under great time pressure and is described by Broches as being characterized by great fluidity, sometimes bordering on confusion” (Schreuer, p 1135, para 66). However, the important point for present purposes is that whichever view is correct, it does not assist Romania in this case.

84. We first address the position which arises on the interpretation of article 54(1) preferred by Arden and Leggatt LJJ. We agree with them that courts in this jurisdiction have the power to stay execution of an ICSID award in the limited circumstances which they describe. However, we consider that in granting a stay of execution of the Award in the present case pending the determination of the annulment proceedings in the GCEU (or further order in the meantime) they exceeded the proper limits of that power. The grant of a stay in these circumstances was not consistent with the ICSID Convention, on their interpretation of it, under which the United Kingdom and its courts had a duty to recognise and enforce the Award. This was not a limited stay of execution on procedural grounds, but a prohibition on enforcement of the Award on substantive grounds until the GCEU had ruled on the apparent conflict between the ICSID Convention and the EU Treaties. Effect was given to the Commission Decision until such time as the GCEU might pronounce upon it. The logic of the position adopted by Arden and Leggatt LJJ was that if the GCEU upheld the Commission Decision, the stay would continue indefinitely (and the same would be true if the CJEU allows the Commission’s appeal against the decision of the GCEU). But the grounds of objection raised by the Commission, even if upheld before the EU courts, were not valid grounds of objection to the Award or its enforcement under the ICSID Convention, as interpreted by Arden and Leggatt LJJ. The principle laid down in article 53(1) that awards are binding on the parties and are not subject to any appeal or other remedy except those provided under the Convention and reflected in article 54 (on their interpretation of it) was disregarded. In substance, the Court of Appeal made use of powers to stay execution granted by domestic law in order to thwart enforcement of an award which had become enforceable under the ICSID Convention.

85. On the other hand, if article 54(1) incorporates the principle of equivalence, in line with Hamblen LJ’s interpretation, it remains the case that Romania’s submission in answer to the Claimants’ cross-appeal cannot succeed. This is because article 351 TFEU has the effect that any obligation on the UK courts to give effect to a decision such as the Commission Decision pursuant to the duty of sincere co-operation which might arise under the Treaties in other circumstances does not arise in this case. The discussion below of Original Ground 4 of the cross-appeal, explains that the United Kingdom owes relevant obligations to non-EU member states under the ICSID Convention, a treaty to which the United Kingdom was party before it became a member state. By virtue of article 351 TFEU this means that the obligations on the United Kingdom arising from the ICSID Convention are “not … affected by the provisions of the Treaties”.

86. Leaving aside the Treaties, in the circumstances of the present case the English courts are obliged under article 54(1) of the ICSID Convention to give effect to the Award in favour of the Claimants and this is not a case in which any of the exceptional possible types of defence to enforcement contemplated by Mr Broches and Professor Schreuer arise. Leaving the Treaties out of the analysis, if the Award were a final judgment of an English court it would be enforced without question. Similarly, on Hamblen LJ’s interpretation of article 54(1) involving the principle of equivalence, it must follow that the Award would be enforced in the same way. Article 351 TFEU means that this obligation cannot be affected by anything in the Treaties, which are the foundation for the legal effect of Commission rulings and for the obligation of sincere co-operation on which Romania seeks to rely. Romania’s attempt to pray in aid the obligation of sincere co-operation is an attempt to pull itself up by its own bootstraps. It cannot make out the necessary foundation for its argument, since it cannot show that the obligation of sincere co-operation has any application at all.

87. Finally, in this regard, we should refer to the submission on behalf of Romania that to the extent that there is any uncertainty as to the meaning of the relevant provisions of the ICSID Convention and the 1966 Act, this court is bound by EU law to interpret them so far as possible in accordance with EU law in order to comply with the EU principle of effectiveness (seeking to gain support from van Munster v Rijksdienst voor Pensioenen (Case C-165/91) [1994] ECR I-4661, para 34; Budĕjovický Budvar národní podnik v Rudolf Ammersin GmbH (Case C-216/01) [2003] ECR I-13617, paras 168-169). This is another bootstraps argument on behalf of Romania. The first step in the analysis should be to ask whether the United Kingdom has relevant obligations arising from the ICSID Convention which, by operation of article 351 TFEU, preclude the application of the Treaties. As explained below in relation to Cross-Appeal Original Ground 3 (paras 101-108), on a proper interpretation of the ICSID Convention, the United Kingdom clearly does have such obligations. Therefore, the Treaties do not have any relevant effect and this court is not bound by EU law to interpret the Convention in the manner for which Romania contends. In any event, the proper interpretation of the Convention is given by principles of international law applicable to all Contracting States and it cannot be affected by EU law.

Cross-Appeal Original Ground 3: The European Communities Act 1972 does not require the United Kingdom to breach its pre-accession obligations under the ICSID Convention, as implemented by the 1966 Act

88. On behalf of the First Claimant, Viorel Micula, Mr Patrick Green QC advances this ground of appeal, which the other Claimants adopt, on the basis that a conflict might be said to arise between the United Kingdom’s obligations under the ICSID Convention and EU law. Mr Green submits that the UK Parliament, in enacting section 2(1) of the European Communities Act 1972, could not have intended to empower the EU to put the United Kingdom in breach of pre-accession international obligations, with only EU institutions as arbiters of the lawfulness of doing so. He says this is so for two reasons. First, it undermines the scheme of the Convention and the express terms and purpose of the 1966 Act. Secondly, at the time Parliament enacted the 1972 Act there was before it a treaty which provided, in what has become article 351 TFEU, that it would not affect the pre-accession international obligations of member states. The effect of the 1972 Act was to confer defined competences within limited fields and the limitations included the preservation of prior international obligations falling within what is now article 351 TFEU. In this regard he relies on the decision of the Court of Appeal in Shindler v Chancellor of the Duchy of Lancaster [2016] EWCA Civ 469; [2017] QB 226, in particular the observations of Elias LJ at paras 58-59, and the observations of Lord Mance in Pham v Secretary of State for the Home Department [2015] UKSC 19; [2015] 1 WLR 1591, para 82.
89. The constitutional principles which underlie this submission are clearly correct. Under the UK constitution Parliament is sovereign and EU law has effect within the United Kingdom only to the extent that it has been given such effect by section 2(1) of the European Communities Act 1972 (R (Buckinghamshire County Council) v Secretary of State for Transport (“HS2”) [2014] UKSC 3; [2014] 1 WLR 324, para 79; Pham v Secretary of State for the Home Department [2015] 1 WLR 1591, paras 80, 90; R (Miller) v Secretary of State for Exiting the European Union [2017] UKSC 5; [2018] AC 61, paras 60, 61). It is for the UK courts to decide on the scope and effect of section 2(1) and, as Lord Reed observed in HS2 at para 79, if there is a conflict between a constitutional principle and EU law, that conflict has to be resolved by our courts as an issue arising under the constitutional law of the United Kingdom. However, by contrast with HS2, which concerned article 9 of the Bill of Rights, the present case concerns obligations arising under the ICSID Convention which are given effect by the 1966 Act, which is not a statute of fundamental constitutional importance. In these circumstances, there is no sound basis for concluding that the effect of section 2(1) of the European Communities Act 1972 was impliedly excluded so far as the 1966 Act is concerned. In any event, successive treaties which have been given effect in the domestic law of the United Kingdom by section 2(1) of the 1972 Act have included a provision equivalent to the current article 351 TFEU. As a result, the 1972 Act has already made provision for the effect of accession on pre-accession treaties and, accordingly, this ground of appeal collapses into Original Ground 4 to which we now turn.

Cross-Appeal Original Ground 4: Article 351 TFEU (formerly article 307 EC)

90. Article 351 TFEU provides:

“The rights and obligations arising from agreements concluded before 1 January 1958 or, for acceding States, before the date of their accession, between one or more member states on the one hand, and one or more third countries on the other, shall not be affected by the provisions of the Treaties.

To the extent that such agreements are not compatible with the Treaties, the member state or States concerned shall take all appropriate steps to eliminate the incompatibilities established. member states shall, where necessary, assist each other to this end and shall, where appropriate, adopt a common attitude.

In applying the agreements referred to in the first paragraph, member states shall take into account the fact that the advantages accorded under the Treaties by each member state form an integral part of the establishment of the Union and are thereby inseparably linked with the creation of common institutions, the conferring of powers upon them and the granting of the same advantages by all the other member states.”

91. At first instance Blair J held that article 351 TFEU did not apply because there was no conflict between the obligations of the United Kingdom under the ICSID Convention and the EU Treaties. In the Court of Appeal the majority (Hamblen and Leggatt LJJ) considered that the issue of whether there was a conflict between the United Kingdom’s duties under EU law and under the ICSID Convention depended on the proper application of article 351 TFEU. That issue had been before the GCEU in the annulment proceedings, although not in precisely the same way, and Blair J had been entitled to stay the proceedings on the basis that without a stay, there would be a clear risk of conflicting decisions with the EU courts. There had been no appeal against his finding on that point. Leggatt LJ considered that while the point could be taken by the court of its own motion, it was inappropriate to do so. Arden LJ (dissenting on this point) considered that the interpretation of article 351 TFEU was a point which should be taken by the court of its own motion. It was for the UK courts to decide whether article 351 TFEU applied to the ICSID Convention. In view of her conclusion that a stay could be ordered consistently with the ICSID Convention, there was no need to reach a final decision on the article 351 TFEU point. However, she considered that there was little overlap between that issue and the proceedings in the GCEU.

92. Before the Supreme Court, the parties have addressed this ground of cross-appeal on the basis that it arises only if Blair J and the Court of Appeal erred in concluding that to stay the enforcement or execution of the award pending the annulment proceedings is consistent with the ICSID Convention. We agree that the matter should be approached on this basis. In those circumstances, Romania and the Commission submit that the EU duty of sincere co-operation nevertheless requires the imposition of a stay, while the Claimants submit that the United Kingdom’s obligations to recognise and enforce awards under the ICSID Convention are pre-accession treaty obligations within article 351 TFEU and are therefore unaffected by EU obligations.

Preliminary issue: permission to appeal

93. A preliminary issue which arises under this ground of cross-appeal is whether the Claimants should be given permission to appeal on this ground, the question of permission having been reserved to the full hearing.

94. At first instance, the Claimants argued that article 351 TFEU applied with the result that the obligations of the United Kingdom arising from the pre-accession ICSID Convention were not subject to the over-riding effect of EU law. Blair J did not express any conclusion as to the United Kingdom’s separate international law obligations under the ICSID Convention, but considered that article 351 TFEU was one of the grounds on which the Claimants asked the GCEU to annul the Commission Decision and that, even though those issues were not necessarily the same as those which arose in these proceedings, there was a risk of conflicting decisions if the court were to decide the effect of article 351 TFEU while the GCEU proceedings were pending (Blair J, Judgment of 20 January 2017 [2017] EWHC 31 (Comm); [2017] Bus LR 1147, para 152). In the Court of Appeal, Leggatt LJ (at para 265) and Hamblen LJ (at paras 160-164) agreed with that conclusion.
95. The grounds of appeal of the Claimants before the Court of Appeal did not raise objection to the judge’s rejection of their arguments on article 351 TFEU. However, although the position is not entirely clear, it seems that they did seek to rely on article 351 TFEU in the course of argument without amending their grounds of appeal (see Arden LJ at para 172, cf Leggatt LJ at para 265). Romania now objects to the Supreme Court considering the submissions of the Claimants on article 351 TFEU, on the ground that the point was not appealed from Blair J to the Court of Appeal.

96. We would grant permission to appeal on this ground. First, we agree with the observation of Arden LJ in the Court of Appeal (at para 173) that courts in this jurisdiction should normally, so far as the law allows, exercise their powers so as to ensure compliance with the international obligations of the United Kingdom. The article 351 TFEU issue as now presented to this court is concerned with seeking to identify what are the relevant international obligations of the United Kingdom and, in the event of a conflict, which obligations are to prevail. Furthermore, we are persuaded that this issue goes to the heart of the present dispute and that the parties cannot by their conduct withdraw it from the court’s consideration. Secondly, the ground is a pure point of law and we are satisfied that Romania and the Commission have had ample time to enable them to meet the case which is now put against them.

Article 351 TFEU

97. Article 351 TFEU is an express provision of EU law regulating priority where there are potentially conflicting obligations. It is general in scope and applies to any international agreement, irrespective of subject matter, which is capable of affecting the application of the EU Treaties (Criminal proceedings against Levy (Case C-158/91) [1993] ECR I-4287, para 11). It applies to agreements concluded by the United Kingdom before its accession on 1 January 1973 (Commission of the European Communities v United Kingdom of Great Britain and Northern Ireland (“Open Skies”) (Case C-466/98) [2003] 1 CMLR 6, para 25). Article 351 TFEU is intended to establish, in accordance with principles of international law, that the application of the EU Treaties does not affect the duty of a member state to respect the rights of non-member states under a prior agreement and to perform its obligations thereunder (Commission of the European Economic Community v Government of the Italian Republic, In re Italian Customs Duties on Radio Valves (Case C-10/61) [1962] ECR 1; Attorney General v Burgoa (Case C-812/79) [1980] ECR 2787, para 8; Levy (Case C-158/91), para 11; R v Secretary of State for the Home Department, Ex p Evans Medical Ltd (Case C-324/93) EU:C:1995:84; [1995] All ER (EC) 481, para 27). It also implies a duty on the part of the EU institutions not to impede the performance of the obligations of the member states which stem from a prior agreement (Attorney General v Burgoa (Case C-812/79), para 9). The rule in article 351 TFEU is concerned with conflicting obligations. Accordingly, where an international agreement merely permits but does not require a member state to act in a manner contrary to EU law, the member state must refrain from such conduct (Evans Medical (Case C-324/93), para 32). Moreover, article 351 TFEU does not apply to the obligations of a member state under a pre-accession agreement where the rights of non-member states are not involved. If the only obligations in play are those owed to other member states, the matter is regarded as an intra-EU matter and EU law prevails over obligations under pre-accession agreements (Commission v Italy, In re Italian Customs Duties on Radio Valves (Case C-10/61) [1962] ECR 1, 10; Radio Telefis Eireann v Commission of the European Communities (“RTE”) (Joined Cases C-241/91 P and C-242/91 P) [1995] All ER (EC) 416, para 84).

Determining the scope of obligations under pre-accession agreements

98. In order to determine whether a rule of EU law may be deprived of effect by a pre-accession international agreement, it is necessary to consider whether that agreement imposes on the member state concerned obligations the performance of which may still be required by non-member states which are parties to it (Levy (Case C-158/91), para 13; Evans Medical (Case C-324/93), para 28). In Levy the Court of Justice considered a submission that an International Labour Organization Convention, ratified by France prior to the entry into force of the Treaty of Rome, was inconsistent with a Council Directive. The Court of Justice held:

“… [I]n proceedings for a preliminary ruling, it is not for this Court but for the national court to determine which obligations are imposed by an earlier international agreement on the member state concerned and to ascertain their ambit so as to be able to determine the extent to which they constitute an obstacle to the application of … the directive.” (para 21) [See also Office national de l’emploi v Minne (Case C-13/93) [1994] ECR I-371, para 18.]

Similarly, in Evans Medical (Case C-324/93) the Court of Justice held (paras 29-30) that it was not for that court but for the national court to determine which obligations were imposed by the Single Convention on Narcotic Drugs, a treaty concluded by the United Kingdom before its accession, and to ascertain their ambit so as to be able to determine the extent to which they thwarted the application of Community law. The authorities cited by Romania on this point cast no doubt on the principle stated in Levy and Evans Medical. In Budĕjovický Budvar národní podnik v Rudolf Ammersin GmbH (Case C-216/01) [2003] ECR I-13617, the obligation owed under the prior bilateral treaty was common ground (para 147). In T Port GmbH & Co v Hauptzollamt Hamburg-Jonas (Joined Cases C-364/95 and C-365/95) [1998] ECR I-1023 the Court of Justice merely held that what is now article 351 TFEU did not apply in a case involving imports from a third country which was not at the relevant time a party to a prior international agreement concluded by member states (paras 61-65).

99. Both Levy and Evans Medical were concerned with proceedings for a preliminary ruling. As Advocate General Lenz explained in Evans Medical (at EU:C:1994:357, para 39), what is now article 267 TFEU empowers the Court of Justice to give preliminary rulings on EU law. It does not confer any power to interpret agreements in international law which member states concluded with non-member states before the entry into force of the Treaties or prior to their own accession. Accordingly, it would not be possible for the Supreme Court to make a preliminary reference to the CJEU on this issue in the present case. While it may well be open to the Court of Justice to rule on the extent of a member state’s prior treaty obligations in other circumstances – for example in infringement proceedings (see Evans Medical per Advocate General Lenz at para 44; European Commission v Slovak Republic (Case C-264/09) [2011] ECR I-8065, paras 32-40) or in direct actions (RTE (Joined Cases C-241/91 P and C-242/91 P)), Levy and Evans Medical make clear that this is not a question of EU law and that there can be no objection to the courts of a member state deciding the issue. Furthermore, as this is a matter of the interpretation of the prior agreement in international law, EU courts are no better placed to determine the scope of obligations under a pre-accession agreement than the courts of the member state concerned or, indeed, a court or tribunal which has jurisdiction to rule on its meaning under the prior agreement itself.
100. On behalf of Romania, Mr O’Donoghue QC submits that in applying article 351 TFEU it is necessary to distinguish between two questions. The first is whether there is a relevant prior international obligation in play at all. The second is whether, even if as a matter of international or domestic law the obligation is in some sense owed to all parties to the prior agreement, “the effect of that is that the case does not only involve ‘intra-Community relations’ for the purposes of article 351 TFEU”. His formulation of the second limb, however, mis-states the effect of the authorities. While it is correct that in order for article 351 TFEU to apply relevant obligations under the prior treaty must be owed to a non-member state, that does not impose an additional requirement that the particular dispute before the court must relate to extra-EU activities or transactions. The decisions of the Court of Justice demonstrate that the opposite is the case. Thus, Levy was concerned only with conduct within France. Similarly, Evans Medical concerned activities entirely within the EU – the importation of drugs from the Netherlands to the United Kingdom – but article 351 TFEU was nevertheless engaged. In both cases what mattered was that the relevant obligations under the prior treaties were owed to non-member states. Thus, notwithstanding the fact that the United Kingdom, Sweden and Romania were at the material times all member states, if the relevant obligations under the ICSID Convention are owed to ICSID contracting States which are non-member states, article 351 TFEU will be engaged.

Does article 351 TFEU apply to the United Kingdom’s relevant obligations under the ICSID Convention?

101. It is not difficult to see that all States which are parties to the ICSID Convention have an interest in the effective operation of the Convention scheme for the enforcement of arbitral awards. However, article 351 TFEU is concerned with conflicting obligations and, accordingly, it is only if a relevant obligation under ICSID is owed by the United Kingdom to a non-member state that the Claimants can succeed on this ground. We also accept the submission on behalf of Romania that we are not here concerned with the general question whether the United Kingdom owes obligations under the ICSID Convention to non-member states, but with the question whether the specific obligation of the United Kingdom under the ICSID Convention to enforce this award is owed by the United Kingdom to non-member states. Romania’s case is that the only legal obligation of the United Kingdom which is in play is the obligation owed under the ICSID Convention to Sweden, which is an EU member state. It submits that Sweden is the only State with a direct interest in the enforcement of the award. The Claimants, on the other hand, identify as the relevant obligations of the United Kingdom articles 54 and 69 of the ICSID Convention. Article 54(1) provides that each contracting State shall recognise an award rendered pursuant to the Convention as binding and shall enforce the pecuniary obligations imposed by that award as if it were a final judgment of a court in that State. Article 69 provides that each Contracting State shall take such legislative or other measures as may be necessary for making the provisions of the ICSID Convention effective in its territories. The Claimants submit that these obligations are owed to all other parties to the ICSID Convention.
102. Mr O’Donoghue on behalf of Romania submits that if the Claimants are correct in their submission, this would apply equally to every significant obligation in every multilateral treaty with the result that every multilateral treaty involving some parties which are not EU member states would fall within article 351 TFEU. He submits that this clearly is not correct and points to decisions of the Court of Justice relating to other multilateral conventions where, he says, article 351 TFEU did not apply: Commission v Italy, In re Italian Customs Duties on Radio Valves (Case C-10/61); Ministere Public v Deserbais (Case C-286/86) [1988] ECR 4907; RTE (Joined Cases C-241/91 P and C-242/91 P). Thus, for example, he submits that in RTE (Joined Cases C-241/91 P and C-242/91 P), a direct action, the CJEU found that the rights of non-member states under the Berne Convention were not involved, since the case – involving the United Kingdom and Ireland – only concerned the rights of EU member states, notwithstanding that the Berne Convention was a multilateral treaty involving multiple non-member states. He relies in particular on para 84 of the judgment where the Court of Justice observed:

“It is, however, settled case law that the provisions of an agreement concluded prior to entry into force of the Treaty or prior to a member state’s accession cannot be relied on in intra-Community relations if, as in the present case, the rights of non-member countries are not involved …” (Emphasis added)

We note, however, that since its decision in RTE, the Court of Justice has had occasion to consider the Berne Convention in Luksan v van der Let (Case C-277/10) EU:C:2012:65; [2013] ECDR 5, where it stated (para 58) that the Berne Convention displayed the characteristics of an international agreement for the purposes of article 351 TFEU, although it concluded (para 62) that article 351 TFEU was not engaged in that case because the relevant provision of the Convention allowed but did not require a member state to adopt a measure which appears to be contrary to EU law.

103. There is, however, a shorter and more fundamental answer to this submission of Romania: it is founded on a non sequitur. In order to determine whether article 351 TFEU applies in any particular case it will be necessary to construe the prior agreement in question in order to ascertain whether any relevant obligations arising from it are owed to non-member states. The authorities on which Romania relies can cast no light on the question whether obligations under articles 54 and 69 of the ICSID Convention are owed to all Contracting States.

104. It is clear that the specific duties in articles 54 and 69 of the ICSID Convention are owed to all other Contracting States. The Convention scheme is one of mutual trust and confidence which depends on the participation and compliance of every Contracting State. The importance within this scheme of the effective recognition and enforcement of awards is apparent from the preamble which emphasises the requirement that “any arbitral award be complied with”.
105. The structure of the ICSID Convention supports this interpretation. The Convention establishes the International Centre for Settlement of Investment Disputes to provide facilities for conciliation and arbitration of investment disputes between Contracting States and nationals of Contracting States (article 1). The Convention provides that in relation to such disputes any Contracting State or any national of a Contracting State can apply to a tribunal appointed pursuant to Chapter IV of the Convention. However, article 64 provides a separate route for resolution of disputes between Contracting States by permitting an aggrieved State to refer the matter to the International Court of Justice. This is required to provide a remedial mechanism in cases of infringement of direct obligations owed to other States. The obligations of Contracting States in articles 53, 54 and 69 are expressed in unqualified terms, without limit as to the persons to whom they are owed. Article 64 is expressed in entirely general terms which are apt to include disputes regarding the obligations set out in those articles. These features of the Convention regime provide a strong indication that a Contracting State which has obligations under the Convention in relation to an award owes those obligations to all other States party to the Convention as well as to any party to the award. Article 27(1) confirms that the obligation on a Contracting State against whom an arbitration award is made to comply with the award is not just owed to the other parties to the dispute, since it recognises that any Contracting State whose national is involved in the dispute may bring an international claim against the other Contracting State if it fails to comply with the award rendered. Professor Schreuer in his commentary on article 53 confirms that the obligation of compliance under article 53 is in fact owed to every other Contracting Party: p 1100, para 13 and p 1109, para 46. The same is true of the obligation under article 54, as Professor Schreuer confirms in his commentary on that provision at p 1125, para 28, (non-compliance with article 54 “would carry the usual consequences of state responsibility …”).
106. The Claimants identify four features of the scheme, which demonstrate that its purpose requires that the relevant obligations must be owed, not only to the State of nationality of the party seeking to enforce the award, but to all Contracting States. First, a key purpose of the Convention is to encourage investment by providing investors with reassurance that a monetary award can be enforced in the territories of all Contracting States. The failure of any Contracting State to enforce an award in accordance with article 54 would undermine the Convention scheme on which investors and Contracting States all rely. This points to a network of mutual enforcement obligations. Secondly, were a Contracting State, when implementing its Convention obligations into domestic law, to qualify them by providing that no award was to be recognised or enforced if illegal under domestic law or contrary to its public policy, that would represent a plain breach of duty owed to all other Contracting States of which they would all be entitled to complain, even before such legislation came to be applied in any particular case. Thirdly, if a Contracting State were to fail to enforce an award in accordance with the ICSID scheme the beneficiaries of the award would be compelled to seek enforcement elsewhere and the burden of enforcement would fall on other States involving expenditure of resources within their legal systems. Fourthly, in such situations attempts to enforce in an alternative forum might result in the party against which enforcement is sought reducing or withdrawing its commercial assets in that alternative forum to the detriment of the State concerned.
107. The travaux préparatoires of the ICSID Convention also support the view that obligations to comply with the Convention scheme are owed to all Contracting States. Thus, at the Fifth Session held on 18 December 1963, responding to a suggestion by the representative of Dahomey that, by analogy with article 94 of the UN Charter, the Security Council be given power to enforce awards, the Chairman stated that he did not believe that any State which had acceded to the Convention would fail to fulfil its provisions but added:

“If it did, other Contracting States might take such action as might be appropriate.” (History, vol II-I, Doc 25 (30 April 1964) “Summary Record of Proceedings, Addis Ababa Consultative Meetings of Legal Experts, December 16-20, 1963”, p 273)

Similarly, in the Sixth Session held on 20 February 1964 the Chairman acknowledged that a Contracting State’s duty to comply with an award was owed to all other Contracting States.

“Apart from legal sanctions based on the revival of the right of diplomatic protection of the investor’s State there would be even more serious indirect sanctions because a State which did not comply would fail to meet its obligations not only to the investor but also to the community of Contracting States which would presumably include capital-exporting countries from which the losing State could expect assistance.” (History, vol II-I, Doc 29 (1 June 1964) “Summary Record of Proceedings, Geneva Consultative Meetings of Legal Experts, February, 17-22, 1964”, p 425)

Although these statements were made in the context of compliance with awards, as opposed to recognition and enforcement, they are powerful indications that obligations under the ICSID Convention are owed by all Contracting States to the community of Contracting States.

108. Accordingly, neither the Convention nor its travaux préparatoires provide any warrant for restricting the duties owed by a Contracting State under articles 54 and 69 so that they are owed only to the State of nationality of an award beneficiary.

Does the article 351 TFEU issue give rise to a risk of conflict which requires the imposition of a stay pending the outcome of the proceedings before the EU courts?

109. Romania and the Commission submit that this court is precluded from deciding the issue of the extent of the obligations of the United Kingdom and to whom those obligations are owed because there would be a risk of a conflict between such a ruling and a future ruling by an EU court in the present dispute. It is said that the duty of sincere co-operation requires courts in this jurisdiction to impose a stay pending the resolution of the issue by the EU courts.

110. Neither the EU courts nor domestic courts have competence to give an authoritative decision, binding as between States, as to the existence and extent of obligations under a prior multilateral convention. The convention itself will usually make provision for the resolution of disputes. In the case of the ICSID Convention that function is reserved to the International Court of Justice by article 64. However, both the EU courts (for example, in infringement proceedings or direct actions) and domestic courts (in national proceedings) have competence to consider and rule upon the effect of a multilateral treaty, insofar as it may bear upon the outcome of the proceedings before them.

111. In the present case, the duty of sincere co-operation does not require courts in this jurisdiction to decline to decide this issue pending its resolution by the EU courts, or otherwise to defer to the EU courts on this issue, for the following reasons.

112. First, the case law of the Court of Justice makes clear that, as a matter of EU law, questions as to the existence and extent of obligations under prior treaties, in the context of article 351 TFEU, are not reserved to the EU courts. In Levy and Evans Medical the Court of Justice has accepted the appropriateness of national courts ruling on such issues. Such questions are not governed by EU law and the Court of Justice is in no better position than a national court to answer them. This is addressed at paras 98-99 above.

113. Secondly, although the Claimants have raised an article 351 TFEU issue in the proceedings before the EU courts, it is not the same issue as that with which this court is seized. In the proceedings to annul the Commission Decision, the Claimants advanced eight pleas of law, one of which was that the Commission Decision was in breach of article 351 TFEU, because that provision affords primacy to Romania’s pre-existing international obligations under the BIT and the ICSID Convention. The GCEU did not rule on that plea and, accordingly, it is not the subject of the appeal to the CJEU by the Commission. Although the pleadings before the GCEU made references to article 54 of the ICSID Convention in conjunction with article 53, the essential article 351 TFEU issue raised by the Claimants in the annulment proceedings concerned Romania’s obligation to abide by and comply with the award under article 53 of the ICSID Convention. By contrast, the issue with which we are concerned in these proceedings is the United Kingdom’s obligations to implement the ICSID Convention and to recognise and enforce the award under articles 54 and 69 of the ICSID Convention. The extent of the United Kingdom’s obligations under those articles has not been raised before the EU courts. There is, therefore, no congruence of the issues before the domestic courts and the EU courts.

114. Thirdly, the prospect of an EU court addressing the applicability of article 351 TFEU to pre-accession obligations under the ICSID Convention in the context of the present dispute is remote. Although the Claimants raised in the annulment proceedings the issue of Romania’s obligations under the ICSID Convention, the GCEU did not rule on this issue. The pending appeal to the CJEU is limited to those grounds on which the GCEU decided the application. Accordingly, if the Commission fails on the appeal, the article 351 TFEU issue will not be addressed in those proceedings. If the Commission succeeds on the appeal, however, the matter will have to be remitted to the GCEU for consideration of the other pleas advanced by the Claimants and the article 351 TFEU issue, so far as concerns the obligations of Romania, may then be considered by the GCEU or on a further appeal by the CJEU.

115. The preliminary reference to the CJEU made by the Belgian court does not raise any issue in relation to article 351 TFEU. Belgium was an original signatory of the Treaty of Rome and the entry into force of that treaty pre-dated Belgium’s ratification of the ICSID Convention.

116. It is conceivable that if the United Kingdom courts were to conclude that no stay of enforcement is required, because article 351 TFEU secures pre-accession obligations owed to non-member states under articles 54 and 69 of the ICSID Convention, and if the United Kingdom were to enforce the award on that basis, the Commission might thereafter bring infringement proceedings against the United Kingdom in which that issue would be squarely raised. It is important to point out, however, that the Commission has given no indication that it is contemplating any such proceedings and the possibility is entirely speculative. There is no good answer to the Claimants’ submission that relevant duties are owed by the United Kingdom under articles 54 and 69 of the ICSID Convention to non-member states, so it seems unlikely that the Commission could bring infringement proceedings on this basis. It would have no realistic prospect of success in disputing the existence of such obligations. Moreover, were it to seek to do so, the principle of comity and the two-way application of the principle of sincere co-operation would be likely to lead the Court of Justice to leave the interpretation of the Convention, to which the EU is not a party, to the domestic courts of the United Kingdom as a Contracting State. (In this regard see the observation of the Court of Justice in Commission v Slovak Republic (Case C-264/09), para 40.) In any event, it would not be appropriate for this court to stay enforcement in deference to the EU courts on this issue, which is not one of EU law, simply because of the speculative possibility of infringement proceedings in the future. (See, generally, Patmalneice v Secretary of State for Work and Pensions [2011] 1 WLR 783.)
117. The possibility that the EU courts may consider this issue at some stage in the future is both contingent and remote. We cannot accept that in such circumstances the duty of sincere co-operation requires the imposition of a stay on the enforcement of the award.

Conclusion on the cross-appeal

118. For these reasons the duty of sincere co-operation is not applicable in this case and there is no impediment to the lifting of the stay, which is an unlawful measure in international law and unjustified and unlawful in domestic law. We would therefore allow the cross-appeal of the Claimants and lift the stay on enforcement of the award.

The appeal

119. In the light of our conclusion in relation to the cross-appeal, it is no longer necessary to consider the appeal in relation to the provision of security. We would discharge the order for security.