Investor-state arbitration – an analysis of the decision in Masdar Solar & Wind Cooperatief UA v Kingdom of Spain – Neil Newing

By Signature Litigation
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Signature Litigation

Of Counsel Neil Newing discusses the recently published decision of the Tribunal in the investor-state arbitration between Masdar Solar & Wind Cooperatief UA v Kingdom of Spain.

A version of this article was published in published in Lexis PSL, 12 June 2018, and can be found here.

In May 2018, an ICSID tribunal found Spain to be in breach of the Energy Charter Treaty. In this article, Neil Newing, Of Counsel at Signature Litigation LLP, (i) explains why Spain’s series of energy reforms affecting the renewables sector led to investor-state arbitration, (ii) considers the implications of the Tribunal’s award against Spain in this case, and (iii) discusses the interrelation of this decision against Spain with the decision of the European Court of Justice in Slovakia v Achmea.

What are the key implications of this award?

This dispute arose out of the claimant’s investment in Spain by acquiring three solar plants, on the basis of an expectation that those plants would benefit for their lifetime from the remuneration regime in place at the time of investment. That regime was subsequently abolished, and the claimant started International Centre for Settlement of Investment Disputes (ICSID) arbitration under the Energy Charter Treaty (ECT) for Spain’s breach of Article 10(1) of the ECT.

The case is of interest for two reasons. The first of these is the tribunal’s ruling on the standard of fair and equitable treatment (FET) provided by Article 10(1) and when legitimate expectations will arise. In the context of the ECT being a treaty designed specifically to promote long-term cooperation in investment in the energy market, the tribunal found that the FET standard in Article 10(1) is a:

‘standard the purpose of which is to ensure that an investor may be confident that: (i) the legal framework in which the investment has been made will not be subject to unreasonable or unjustified modification and (ii) the legal framework will not be subject to modification in a manner contrary to specific commitments made to the investor.’

The tribunal also undertook a review of previous decisions outlining the two schools of thought on how a specific commitment is made to the investor and whether these can be in the nature of a general statement in laws or regulations, or whether something more specific is needed. The tribunal did not, in fact, need to decide which school of thought it preferred as it found evidence of both general and specific commitments.

The second area of interest concerns a topical issue in investor-state arbitration—that of intra-EU arbitration. One of the main jurisdictional challenges raised by Spain was that an arbitration brought by an investor of one EU Member State (the claimant is a Dutch company) against another EU Member State was incompatible with EU law. This was, of course, the subject of the recent Court of Justice (CJEU) judgment in Slovakia v Achmea, Case C-284/16, where it was decided that in the context of a BIT between the Netherlands and Slovakia, investor-state arbitration was not compatible with EU law. The Achmea ruling was not published until after the final hearing in this matter, but before the award was rendered. Spain thus sought to reopen the arbitration to allow Achmea to be considered but the tribunal declined this request, stating that it had no bearing on the case.

Aside from its view on the Achmea case, the tribunal found that investor-state arbitration under the ECT is not incompatible with EU law:

  • first, it found that there was nothing in the text of the ECT which precludes intra-EU disputes from its scope
  • second, it referred to Article 16 of the ECT which provides for provisions of the ECT to take precedence over provisions of other international agreements that have been or are subsequently entered into by any of the contracting parties where they are more favourable to the investor or investment. The tribunal found in this regard that Article 26 of the ECT (containing the provision for investor-state arbitration) is more favourable to the investor than the EU treaties as the latter do not provide for a direct claim by an investor against a state and thus Article 26 obviates the need for an investor to bring the claim in the national courts of the host state (here, Spain). As such, the tribunal found that Article 16 of the ECT affords precedence to Article 26 over the EU treaties
  • third, the tribunal decided that EU law is not in any event incompatible with the ECT because while the CJEU has exclusive jurisdiction over disputes between Member States, it does not as between private parties or between a private party and a state. It further found that nothing in EU law could be interpreted as precluding ISDS under the ECT and ICSID Convention

This analysis, which is consistent with and affirmed the analysis undertaken by previous tribunals addressed with this question, is of interest as on its face it may appear to be inconsistent with the view of the CJEU in Achmea. It does, however, indicate that arbitral tribunals may not feel bound by Achmea in relation to ECT claims.

Whether the award will be able to be enforced, however, is a different question. As this was an ICSID arbitration seated in Washington, any annulment proceedings will take place outside of the EU and thus will be outside the scope of any reference to the CJEU. Should enforcement measures be taken within the EU, though, it is highly likely that Spain will seek to oppose them on the basis of Achmea. Indeed, in a separate case involving an award made against Spain, Spain has recently asked the Swedish Court of Appeal to seek a preliminary ruling from the CJEU on the compatibility of the ECT with EU law in view of Achmea, and so it seems likely that this question will be dealt with directly by the CJEU in the not too distant future.

What was the background?

In 2007, Spain introduced a regime which was designed specifically to attract investors in the renewable energy market by offering significant incentives to installations that were registered within a short window. The claimant invested in three solar plants and registered them during this period to take advantage of these economic incentives. Subsequent legislation in 2012/2013 sought to reverse these incentives and ultimately repealed the previous legislation.

The claimant brought a claim under the ECT for breach of Article 10(1). The primary basis for this claim was that the investment had been made with the legitimate expectation that the projects would benefit from the incentives under the 2007 regime for their operational lifetimes, but that the measures introduced by Spain a few years later effectively abolished that regime, causing the claimant damage.

Spain challenged the claim not only on the merits (arguing primarily that the regime was always susceptible to change and that there was no guarantee that it would not) but also on a number of jurisdictional grounds, including that the claimant was not an investor under the ECT, that the claimant did not make any investment, that Spain invoked the denial of benefits clause in the ECT as the claimant did not have sufficient operations in the Netherlands, that part of the claim dealt with tax issues that were excluded from the ECT, and that this was an intra-EU dispute and thus incompatible with EU law.

What did the tribunal decide?

The tribunal dismissed all but one of the challenges to jurisdiction (the tax one being the only one upheld, but this only related to part of the claim).

The tribunal then found that Spain had breached the FET standard, as it considered that the claimant did have the legitimate expectations claimed. First, the laws included stabilisation clauses which would be sufficient to exclude any modification of the law so far as investors who had made investments in reliance upon its terms were concerned. Second, Spain made a specific unilateral offer in undertaking to offer to investors the possibility to continue to enjoy the existing benefits provided they registered within the window. This was then emphasised by resolutions and communications which were addressed specifically to the three plants in questions confirming that they qualified for the benefits for their operational lifetime.

The tribunal ordered Spain to pay €65m in damages plus pre and post-award interest. Each party was ordered to pay its own costs.

What were the tribunal’s conclusions on the impact of Slovakia v Achmea on ECT cases?

As noted above, the tribunal declined Spain’s request to reopen the case in order to consider the impact of the Achmea decision. It held that the Achmea judgment had no bearing on this case because:

  • it is specifically limited to the Netherlands-Slovakia BIT
  • even if it were wider than that, it is still limited only to treaties of that nature, i.e. BITs, and in particular it does not apply to multilateral treaties, such as the ECT, to which the EU it itself a party

The tribunal relied in this regard on the reasoning in Advocate General Wathelet’s Opinion in Achmea that no EU institution or Member State had sought an opinion from the CJEU on the compatibility of the ECT with the EU treaties as ‘none of them had the slightest suspicion that it might be incompatible’. The tribunal also noted that the CJEU had the opportunity in its judgment to address this point of the Advocate General’s Opinion if it did not agree, but that it had instead chosen to stay silent on this issue.


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