The Micula case: A dangerous precedent in investor-state arbitration

The long-running Micula Brothers case—officially Micula and Others v. Romania—is one of the most consequential investment arbitration disputes in recent history. The Micula brothers, established businesses in Romania in 1998 under the Sweden-Romania Bilateral Investment Treaty (BIT). This treaty included economic incentives designed to stimulate development in Romania’s rural areas. However, in 2004, as Romania prepared for EU accession, these incentives were terminated to comply with EU state aid rules, breaching the BIT and causing significant financial losses to the Micula brothers. This sparked a legal battle spanning over two decades, culminating in a compensation award under the World Bank’s ICSID Convention, which Romania ultimately settled, writes Marijana Milić.

Throughout this prolonged legal saga, the European Union has persistently sought to challenge bilateral treaties and international agreements such as the ICSID Convention, asserting that only European courts should govern investor-state dispute settlements (ISDS) within its jurisdiction. In 2014, the European Commission (EC) ruled that compensation awarded to the Micula brothers violated EU state aid rules. Despite this, in 2020, the UK Supreme Court upheld the brothers’ right to compensation.

This prompted the EC to sue the United Kingdom in 2024, alleging a breach of its obligations under Article 89 of the Brexit Withdrawal Agreement. It remains uncertain how the UK will respond to this judgment, particularly in light of British political hostility toward the European Court of Justice (ECJ). The General Court’s Ruling: Unprecedented Liability On 2nd October 2024, the EU General Court escalated the legal controversy by ordering the Micula brothers to repay the €400 million compensation. Remarkably, the court held them personally liable for recovering this amount.

This decision reveals the EC’s attempt to transpose the ICSID Tribunal’s findings on damages into a state aid framework, retroactively applying EU law. Consequently, five non-claimant companies affiliated with the Miculas—none of which received the disputed funds or qualified for state aid under the original incentive scheme—are now being held liable for repayment. Even more troubling is the EC’s unprecedented step of holding the brothers personally responsible for reimbursing state aid. The Miculas were not awarded damages in their personal capacity by the ICSID tribunal. By declaring them personally liable, the EC has enabled Romania to seize their personal assets, including property and pensions.

Implications for limited liability and EU law

This decision has profound implications for limited liability principles under Romanian law, which is governed by Law No. 31/1990. Limited liability shields shareholders from corporate creditors’ claims, while legal personality protects corporate assets from shareholders’ personal creditors. The EC’s approach pierces the corporate veil unlawfully, violating Romanian corporate legislation and EU directives safeguarding shareholder rights. Ordinarily, this occurs only under exceptional and explicitly regulated circumstances. By disregarding these protections, the EC risks undermining investor confidence and setting a perilous precedent that could erode corporate stability across the EU.

A threat to investor protections

At its core, the EC’s decision penalizes investors for exercising their fundamental right to a fair trial and effective remedy—rights that were legally available under the ICSID framework. By dismissing the ICSID award’s clear legal basis and pursuing aggressive recovery measures, the EC has sent a chilling message to investors. This decision undermines the legal certainty and protections historically afforded to investors in the EU. The Micula brothers have filed an appeal, with a hearing scheduled for 15th December 2024, and a judgment expected early next year.

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