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Are ECT tribunals improving the stability of the Spanish
renewable energy investment climate?
A review of the Spanish renewable energy saga through the lenses of
consistency
Francesca Pascone
12608475
LL.M. thesis
International and European Law
International Trade and Investment Law track
Under the supervision of Prof. dr. S.W.B. Schill
Email: fpascone@outlook.it
Word count (including footnotes): 13.000 Date of submission: 24th July 2020
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TABLE OF CONTENTS
ABSTRACT………..3
INTRODUCTION………... 4
PART I: CONSISTENCY AS TO WHETHER ECT TRIBUNALS LACK JURISDICTION TO HEAR INTRA-EU DISPUTES ………..………9
1. Introduction and relevant case-law………..………....9
2. Discussion…….……….…….9
A. The diversity of territory argument……….………….……….……9
B. The implied presence of a disconnection clause in Article 26(1) ECT…...…11
C. The applicability of Achmea………..………...……..…….12
D. The primacy of EU law over conflicting ECT provisions…………..……...…15
3. Interim conclusions: all the roads lead to the ECT…………...………..…16
PART II: CONSISTENCY AS TO THE APPLICATION OF THE FET STANDARD ENSHRINED IN ARTICLE 10(1) ECT………..…………...21
1. Introduction and relevant case-law……..………..………21
2. Discussion……….………...……...…………..23
A. The range of regulatory stability expectations investors can legitimately rely on under Article 10(1) ECT………...………….………….…….23
B. The conduct through which a State can, in principle, give rise to legitimate expectations against radical regulatory changes………..…………25
C. Whether Article 44.3 gave rise to legitimate expectations as to regulatory immutability………..……..28
D. Whether the guarantee of a reasonable rate of return could amount to the essential characteristic of the Spanish regulatory framework……...……….31
3. Interim conclusions: much ado about nothing?...35
PART III: CONCLUSIONS………..………...38
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ABSTRACT
Following the rise and fall of its renewable energy investment support scheme, foreign investors have lodged a multitude of ECT-based claims against the Kingdom of Spain. The case-law stemming from the Spanish renewable energy saga lends itself well to a consistency-driven evaluation. This is not only because the characteristics of the saga militate towards a prima facie presumption of consistency in arbitral decision-making, but also because predictability as to the outcome of these disputes can significantly enhance the stability of the Spanish renewable energy investment climate. Based on a comprehensive review of all published awards, this contribution concludes that ECT arbitrators are contributing towards enhancing the stability of the Spanish RE investment climate in so far as they are reassuring investors as to the availability of intra-EU ISDS. However, the unjustifiable inconsistencies characterizing arbitral decision-making in relation to the alleged breaches of Article 10(1) ECT indicates that ECT tribunals are also equally undermining such stability. Overall, this contradiction can be rationalized by considering that, by ensuring consistency as to the availability of ISDS and creating inconsistency as to the application of the FET standard enshrined in the Article 10(1), ECT tribunals are essentially serving their own collective and individual self-interest.
Keywords: Spanish renewable energy saga, low-carbon investment arbitration, consistency, intra-EU objection, fair and equitable treatment standard, ECT, self-interest
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INTRODUCTION
In 2007 Spain introduced a support scheme1 to encouraging the inflow of private investment in its renewable energy (“RE”) sector. The incentives were geared towards attracting much-needed private capital in this risky and resource-intensive area in order to increase national consumption levels2. Subsequently, between 2008 and 2014, Spanish regulators drastically modified the scheme, removed the incentives provided therein and established a completely new remuneration methodology, thereby reducing the profitability of many investments3.
Following the revocation of incentives, foreign investors have lodged 46 claims against Spain4 under Article 26 of the Energy Charter Treaty 1994 (“the ECT”), a multilateral international agreement providing for, inter alia, legal standards of protection that Contracting Parties have undertaken to observe for the benefit of foreign investors committing private capital in their national energy sector. According to the latter provision, investors satisfying the criteria set out in Article 1(7) ECT5 can submit claims concerning alleged ECT breaches to either the International Centre for the Settlement of Investment Disputes (herein after “ICSID”), the Stockholm Chamber of Commerce (“SCC”) or to a sole arbitrator or ad hoc tribunal established under the
1 Royal Decree 661/2007
2 See generally Dias Simoes, F. (2017). When Green Incentives Go Pale: Investment Arbitration and
Renewable Energy Policymaking. Denver Journal of International Law and Policy, 45(2), pp.251-285
3See Dromgool, T. and Ybarra Enguix, D. (2016). The Fair and Equitable Treatment Standard and
the Revocation of Feed in Tariffs—Foreign Renewable Energy Investments in Crisis-Struck Spain. In: V.
Mauerhofer, ed., Legal Aspects of Sustainable Development: Horizontal and Sectorial Policy Issues. Springer, pp.389-422
4 See Energy Charter Secretariat, “List of cases”:
https://www.energychartertreaty.org/cases/list-of-cases/
5 “Investor” means:
(a) with respect to a Contracting Party:
(i) a natural person having the citizenship or nationality of or who is permanently residing in that Contracting Party in accordance with its applicable law;
(ii) a company or other organisation organised in accordance with the law applicable in that Contracting Party;
(b) with respect to a “third state”, a natural person, company or other organisation which fulfils, mutatis mutandis, the conditions specifed in subparagraph (a) for a Contracting Party.
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Arbitration Rules of the United Nations Commission on International Trade Law (“UNCITRAL”). So far, a total of twenty disputes have been settled6.
Academic scrutiny over the awards stemming from the Spanish renewable energy saga7 (“Spanish RE saga”) has so far covered issues pertaining to both the jurisdictional and merits stages of these disputes. With regards to jurisdiction, commentators have focused on Spain’s “intra-EU objection”8, namely the argument that ECT tribunals lack
6 1. Charanne B.V. and Construction Investments S.A.R.L. v. Kingdom of Spain, SCC Case No.
062/2012, Award (21 January 2016) ; 2. The PV Investors v. Spain, PCA Case No. 2012-14, Preliminary Award on Jurisdiction (13 October 2014) and Final Award (28 February 2020); 3. Isolux Netherlands,
BV v. Kingdom of Spain, SCC Case V2013/153. Final Award (17 July 2016); 4. RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v Spain (ICSID Case No.
ARB/13/30), Decision on Jurisdiction (6 June 2016) and Decision on Responsibility and on the Principles of Quantum (30 November 2018); 5. Eiser Infrastructure Limited and Energía Solar Luxembourg S.à
r.l. v. Kingdom of Spain, (ICSID Case No. ARB/13/36), Final Award (4 May 2017); 6. Infrastructure Services Luxembourg S.à.r.l. and Energia Termosolar B.V. (formerly Antin Infrastructure Services Luxembourg S.à.r.l. and Antin Energia Termosolar B.V.) v. Kingdom of Spain, (ICSID Case No.
ARB/13/31), Award (15 June 2018); 7. Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain (ICSID Case No. ARB/14/1), Award (16 May 2018); 8. Foresight Luxembourg Solar 1 S.r.l., Greentech
Energy Systems A/S, and others (SCC Case No. 2015/150) (“Greentech”), Final Award (14 November
2018); 9. Novenergia II - Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v. The
Kingdom of Spain, SCC Case No. 2015/063, Final Award (15 February 2018); 10. NextEra Energy Global Holdings B.V. and NextEra Energy Spain Holdings B.V. v. Kingdom of Spain (ICSID Case No.
ARB/14/11), Final Award (31 May 2019); 11. OperaFund Eco-Invest SICAV PLC and Schwab Holding
AG v. Kingdom of Spain (ICSID Case No. ARB/15/36), Award (6 September 2019); 12. RWE Innogy GmbH and RWE Innogy Aersa S.A.U. v. Kingdom of Spain, (ICSID Case No. ARB/14/34), Decision on
Jurisdiction, Liability and Certain Issues of Quantum (30 December 2019); 13. 9REN Holding S.a.r.l v.
Kingdom of Spain, (ICSID Case No. ARB/15/15), Award (31 May 2019); 14. Cube Infrastructure Fund SICAV and others v. Kingdom of Spain, (ICSID Case No. ARB/15/20), Decision on Jurisdiction, Liability
and Partial Decision on Quantum (19 February 2019); 15. Stadtwerke München GmbH, RWE Innogy
GmbH, and others v. Kingdom of Spain, (ICSID Case No. ARB/15/1), Award (2 December 2019); 16. SolEs Badajoz GmbH v. Kingdom of Spain, ICSID Case No. ARB/15/38, Award (31 July 2019); 17. BayWa r.e. Renewable Energy GmbH and BayWa r.e. Asset Holding GmbH v. Spain, ICSID Case No.
ARB/15/16, Decision on Jurisdiction, Liability and Directions on Quantum (2 December 2019); 18.
Hydro Energy 1 S.à r.l. and Hydroxana Sweden AB v. Kingdom of Spain, ICSID Case No. ARB/15/42,
Decision on Jurisdiction, Liability and Directions on Quantum (9 March 2020); 19. Watkins Holdings
S.à r.l. and others v. Kingdom of Spain, ICSID Case No. ARB/15/44, Award (21 January 2020), 20. InfraRed Environmental Infrastructure GP Limited and others v. Kingdom of Spain, ICSID Case No.
ARB/14/12. Award (2 August 2019)
7 See Reynoso, I. (2019). Spain’s Renewable Energy Saga, Lessons For International Investment Law
and Sustainable Development. IISD Investment Treaty News. [online]; Cortes, N. (2017). Spanish Energy Arbitration Saga: Green Light for Investors Claiming Breach of FET?. [Blog] Kluwer
Arbitration Blog
8 Stefan, F. (2019). Intra-EU Disputes under the Energy Charter Treaty: Quo Vadis? [Blog] Kluwer
Arbitration Blog; Muñoz, R. and Sanderson, B. (2018). The Achmea Storm Heads Straight for Spain.
[Blog] DLA Piper Publications; Lacson, A. (2019). What Happens Now? The Future of Intra-EU
Investor-State Dispute Settlement under the Energy Charter Treaty. New York University Journal of International Law and Politics, 51(4), pp.1327 – 1346; Verburg, C. and Lavranos, N. (2018). Recent Awards in Spanish Renewable Energy Cases and the Potential Consequences of the Achmea Judgment for IntraEU ECT Arbitration. European Investment Law and Arbitration Review Online, 3(1), pp 197
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jurisdiction to hear disputes involving Spain, a Member State of the European Union (“EU MS”), and investors from another EU MS, despite the neutral language of Article 26 ECT. As for the merits, commentary has revolved almost exclusively around the way tribunals have interpreted and applied the fair and equitable treatment (“FET”) standard9 enshrined in Article 10(1) ECT10. In particular, the focus has been directed towards evaluating and comparing the reasonings employed by different ECT tribunals in determining whether the regulatory changes introduced by Spain breached the investors’ legitimate expectations under that provision11.
Despite the wealth of academic commentary surrounding the Spanish RE saga, the literature still presents a significant gap. As for jurisdictional issues, no commentator has attempted to evaluate trends of consistency in the way different ECT tribunals have responded to Spain’s intra-EU objections. As for the merits, the few consistency-driven
222; Olmos, J. and Maristany, A. (2018). Arbitration cases in the renewable energy sector following
Spanish legislative changes: at a cross-road. [Blog] Financier Worldwide Magazine; Power, R. (2018). Novenergia v. Kingdom of Spain, the ECT and the ECJ: Where to now for intra-EU ECT claims? [Blog] Kluwer Arbitration Blog; Fermeglia, M. and Mistura, A. (2020). The Fate of EU Environmental and Investment Law after the Achmea Decision. Journal for European Environmental and Planning Law,
17(1), pp 29 – 46; Lopez-Rodriguez, A.M. (2019). The Sun Behind the Clouds? Enforcement of
Renewable Energy Awards in the EU. Transnational Environmental Law Journal, 8(2), pp 279 – 302.
9 See Selivanova, Y. (2018). Changes in Renewables Support Policy and Investment Protection under
the Energy Charter Treaty: Analysis of Jurisprudence and Outlook for the Current Arbitration Cases.
ICSID Review - Foreign Investment Law Journal, 33(2), pp.433-455 at 436; Baetens, F. (2019).
Renewable energy incentives: reconciling investment, EU State aid and climate change law. [Blog] EJIL:
Talk!.; Patrizia, C., Profaizer, J., Cooper, S. and Timofeyev, I. (2019). Investment Disputes Involving
the Renewable Energy Industry under the Energy Charter Treaty. In: W. Rowley, ed., The Guide To
Energy Arbitrations, 3rd ed. Global Arbitration Review; Dias Simoes, F. (2017) supra note 2; Restrepo,
T. (2017). Modification of Renewable Energy Support Schemes under the Energy Charter Treaty: Eiser and Charanne in the Context of Climate Change. Goettingen Journal of International Law, 8(1),
pp.101-137; In De Braekt, M. and Geldhof, W. (2017). Mixed results in recent arbitral awards concerning
Spain’s renewable energy policy. [Blog] Stibbeblog; Hendel, C. and Pérez, M. (2018). The Past, Present and Possible Future of the Spanish Renewable Energy Arbitration Saga. NYSBA International Law Practicum, 31(1), pp.96 – 101; Franklin, A. (2018). Legitimate Expectations - Lessons from Recent Energy Arbitration Cases on Renewable Energy Relationship of Fair and Equitable Treatment Standard to Indirect Expropriation. Available at SSRN: https://ssrn.com/abstract=3167034; Verburg, C. (2019).
Modernising the Energy Charter Treaty: An Opportunity to Enhance Legal Certainty in Investor-State Dispute Settlement. The Journal of World Investment & Trade, 20(2-3), pp.425-454; see Reynoso, I.
(2019), supra note 7
10 “Each Contracting Party shall, in accordance with the provisions of this Treaty, encourage and create
stable, equitable, favourable and transparent conditions for Investors of other Contracting Parties to make Investments in its Area. Such conditions shall include a commitment to accord at all times to Investments of Investors of other Contracting Parties fair and equitable treatment. Such Investments shall also enjoy the most constant protection and security and no Contracting Party shall in any way impair by unreasonable or discriminatory measures their management, maintenance, use, enjoyment or disposal”
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evaluations conducted have inevitably been premised on a very limited number of awards, usually because of the under-developed state of the case-law at the time of writing12. The underlying argument of this thesis is that the lack of a comprehensive, consistency driven, and up-to-date analysis of the Spanish RE saga awards is a gap which is worth addressing.
First, prima facie, the specific characteristics of the saga arguably give rise to a presumption of consistency in arbitral decision-making, given that the disputes were all brought under the terms of the same investment treaty and involve the revocation of RE incentives in Spain between 2008 and 2014. Second, consistency in arbitral decision-making can play a significant role in safeguarding the stability and attractiveness of the Spanish RE investment climate. Indeed, by adopting consistent interpretations of the relevant provisions and generating predictability as to the outcome of pending and future disputes, ECT tribunals involved in the Spanish RE saga can provide clarity as to the international standards governing and protecting the RE investments at stake. In turn, it has been argued that such predictability can increase the regulatory certainty of these investments, thereby also reducing the costs of low-carbon policies13. Moreover, predictability can help aggrieved investors making informed choices when evaluating whether to undertake the major financial risk entailed in the initiation of ISDS proceedings14 to challenge the 2008-2014 changes. Finally, predictability can also improve the understanding Spanish regulators have of the legal benchmarks against which the lawfulness of their conduct will be assessed by investment tribunals15, thereby allowing them to plan RE subsidization initiatives more strategically in the future and avoid engaging in conduct that may undermine the credibility of their national support schemes16.
12 Ibid
13 Boute, A. (2012) 'Combating Climate Change Through Investment Arbitration' 35(3) Fordham
International Law Journal, page 661
14 Franck, S.D. (2005) 'The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public
International Law Through Inconsistent Decisions' [2005] 73(4) Fordham Law Review, page 1540
15 Dias Simoes, F. (2017) supra note 2, page 277 16 See Boute, A. (2012), supra note 13, page 664
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Thus, this contribution aims to conduct a comprehensive and consistency-driven analysis of all the published awards stemming from the saga17. In particular, the research question is the following: have ECT tribunals been consistent in interpreting and applying ECT provisions when settling disputes in the context of the Spanish RE saga? More specifically, the question will be tackled by considering consistency in arbitral decision-making only with respect to the intra-EU objection and the interpretation of the FET standard in Article 10(1) ECT.
The specific focus on the intra-EU objection and the FET standard can be justified on two grounds. First, as mentioned above, commentary surrounding the Spanish RE saga has so far focused prominently on these aspects. It is thus appropriate for the purposes of this thesis to restrict the analysis accordingly, excluding other less “contentious” issues (e.g. jurisdiction ratione materiae or indirect expropriation claims). Second, the aim of the research is to determine whether tribunals have been consistent in their interpretation and application of the relevant ECT provisions. Therefore, evaluating trends of consistency in decision-making with respect to issues which do not entail the interpretation or application of any ECT provisions (e.g. valuation issues18 or annulment and setting aside proceedings19) would not be pertinent.
The thesis is structured as follows. Part I will reviews and compares the way different ECT tribunals have tackled Spain’s intra-EU objection so far. Specifically, the aim of this Part is to evaluate the extent of consistency in arbitral decision-making with respect to four key issues covered by all tribunals. Subsequently, Part II contains a similarly-framed comparative analysis, focusing specifically on ascertaining whether tribunals have been consistent in their approach towards the claim that the regulatory changes introduced by Spain between 2008 and 2014 amount to a breach of the
investors’ expectations as to regulatory stability. Finally, Part III draws the
conclusion that the current case-law cannot be said to indicate that ECT tribunals have contributed to reinforcing the stability of the Spanish RE investment climate. Rather,
17 See supra note 6 and Landesbank Baden-Württemberg and others v. Kingdom of Spain, (ICSID
Case No. ARB/15/45) Decision on the Intra-EU Jurisdictional Objection (25 February 2019)
18 The only provision would be Article 13(1) ECT, governing compensation for lawful expropriation 19 Such proceedings are a matter for either the courts of the seat (setting aside for non-ICSID
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this Part will argue that the underlying objective ECT tribunals have sought to achieve throughout the saga is the pursuit of their own collective or individual self-interest.
PART I: CONSISTENCY AS TO WHETHER ECT TRIBUNALS LACK JURISDICTION TO HEAR INTRA-EU DISPUTES
1. INTRODUCTION AND RELEVANT CASE-LAW
Spain has so far articulated the intra-EU objection through four main sub-arguments: the “diversity of territory” argument, the alleged presence of an implied disconnection clause in the ECT, the applicability of the Achmea judgment on ECT intra-EU arbitration and, finally, the primacy of EU law over the ECT. Coherently with this finding, for the purposes of this Part, trends of consistency and inconsistency will be evaluated by reference to the tribunals’ response to each of these four arguments. This section will consider all twenty-one published decisions on jurisdiction, namely:
Charanne, PV Investors, Isolux, RREEF, Eiser, Antin, Masdar, Greentech, Novenergia, NextEra, OperaFund, Landesbank, RWE, 9REN, Cube, Stadtwerke, SolEs, Bay Wa r.e., Hydro Energy, InfraRed and Watkins.
2. DISCUSSION
A. THE “DIVERSITY OF TERRITORY” ARGUMENT
Most tribunals20 were faced with the issue as to whether they lacked jurisdiction to hear intra-EU claims in the light of the “diversity of territory” requirement set out in Article 26(1) ECT21. In other words, this argument entails that since the EU is a party to the ECT and all of its MSs form part of the broader EU territory, intra-EU disputes
20 Except in 9REN
21 1) Disputes between a Contracting Party and an Investor of another Contracting Party relating to an
Investment of the latter in the Area of the former (emphasis added), which concern an alleged breach of
an obligation of the former under Part III shall, if possible, be settled amicably. See also paragraph 2) if such disputes cannot be settled according to the provisions of paragraph (1) within a period of three months from the date on which either party to the dispute requested amicable settlement, the Investor party to the dispute may choose to submit it for resolution: (a) to the courts or administrative tribunals of the Contracting Party party to the dispute; (b) in accordance with any applicable, previously agreed dispute settlement procedure; or (c) in accordance with the following paragraphs of this Article
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are characterized by an identity between the territories of the investors’ home and host States which deprives the disputes of their “foreignness” element22.
In rejecting this argument, a majority of tribunals23 considered that the ordinary meaning of the words in Article 26(1) ECT indicated that the relevant “territory” for the purposes of the latter provision was that of the Contracting Party against which the claim was brought24. Differently, the Eiser, Stadtwerke and Watkins tribunals substantiated their rejection of the argument on the ground that it entailed the existence of the concept of “EU investor” without there currently being any transnational body of EU rules granting EU-wide nationality to corporations established within the territory of an EU MS25.
As a preliminary observation, the corollary of the reasoning adopted by the first group of tribunals is that ECT tribunals will continue rejecting the diversity of territory argument as long as the responding Party to an intra-EU dispute is not the EU itself. However, it is important to consider that EU Regulation 912/201426 empowers both the Commission and Member States against which investor-State proceedings are brought to decide whether it is the EU or the Member State which should be the respondent in the proceedings27. Therefore, by making the success of the “diversity of territory” argument independent from the identity of the responding Party, the reasoning articulated in Eiser, Stadtwerke and Watkins can arguably prevent the 2014 Regulation from being used by either the Commission or Spain so as to manipulate the fortunes of the intra-EU objections in the context of future and pending disputes.
22 Borrowing the language used by the InfraRed tribunal at 263
23 Note that the OperaFund and RREEF tribunals failed to address this issue despite Spain’s arguments
to this effect (OperaFund at 336-337; RREEF Decision on Jurisdiction at 37-38)
24 Charanne at 428-432; PV Investors at 178-180; Isolux at 634-636; Masdar at 319-323; Antin at 212
and 216-222; Greentech at 210-212; Landesbank at 116-117; Cube at 122-124; SolEs ar 223-225;
InfraRed at 262-263; Bay Wa r.e. at 250; RWE at 323 and 327-328; Novenergia at 451-453; Stadtwerke
at 125-127; Eiser at 194; NextEra at 341-342; Hydro Energy at 470
25 Eiser at 196; Stadtwerke at 128-129; Watkins at 188
26 Regulation (EU) No 912/2014 of the European Parliament and of the Council of 23 July 2014
establishing a framework for managing financial responsibility linked to investor-to-state dispute settlement tribunals established by international agreements to which the European Union is party [2014] OJ L257/121
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B. THE IMPLIED PRESENCE OF A DISCONNECTION CLAUSE IN ARTICLE 26(1) ECT
Another argument featuring in virtually all cases28 was that concerning the alleged existence of an implied disconnection clause within the text of the ECT whereby EU MSs can decide “to not apply or to only partially apply”29 the dispute settlement mechanism envisaged under Article 26(1) in their mutual relations. To sum up, this argument asks tribunals to look beyond the plain language of the Article and interpret it in a way that excludes intra-EU claims from their jurisdiction.
All tribunals rejected this. In the majority of cases, it was concluded that the plain reading of Article 26 ECT was so clear in upholding jurisdiction over all ECT disputes, including intra-EU ones, that implying a disconnection clause would have effectively meant disregarding the primacy that Article 31 VCLT accords to the ordinary meaning of the words in a treaty30. In particular, it was highlighted that the international law principle of pacta sunt servanda requires for the exact meaning of a treaty provision to be readily ascertainable by all Contracting Parties, without concealing “traps for the
unwary with hidden meanings and sweeping implied exclusions”31.
Differently, other tribunals decided to reject the implied disconnection clause argument by considering the conduct of the EU throughout the negotiation of the ECT. Hence, the Cube tribunal embarked on an “historical” analysis32 of the broader context and travaux of the ECT and concluded that the EU’s failure to raise objections as to the inter-EU applicability of the ECT in 199433 or 200434 militated towards a
28 Except Masdar, see at 312 29 Isolux at 637; Watkins at 197
30 Charanne at 437; Novenergia at 454; PV Investors at 182-183; Antin at 215; Greentech at 207-208;
NextEra at 341-342; 9REN at 164; SolEs at 227-232; Opera Fund at 381; RWE at 345; RREEF at 85; Eiser at 185-187, Bay Wa r.e. at 249; Stadtwerke at 129; Hydro Energy at 462 and 71; Watkins at 200.The
issue was not fully discussed in Isolux, albeit some remarks in this respect can be found at 654
31 See e.g. Eiser at 83
32 Beham, M. 'Intra-EU Investment Reform: What Options for the Energy Charter Treaty?' (Kluwer
Arbitration Blog, 7th January) available at:
<http://arbitrationblog.kluwerarbitration.com/2020/01/07/intra-eu-investment-reform-what-options-for-the-energy-charter-treaty/?doing_wp_cron=1591890202.8406810760498046875000>
33 I.e. when the ECT was negotiated. See Cube at 134
34 I.e. when former socialist States joined the EU and “a considerable legal consolidation of the regime
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presumption of compatibility between the latter and the Treaty on the Functioning of the European Union (“TFEU”), which, in turn, excluded the possibility for an implied disconnection clause to be read into Article 2635. Similarly, the decision of the
Landesbank and InfraRed tribunals was premised on the fact that the proposal for the
inclusion of such clause was considered but ultimately dropped by the EU itself in the context of the negotiations for the ECT36.
Overall, this indicates that tribunals involved in the Spanish RE saga have so far refused to imply a disconnection clause based on two lines of reasoning. The majority acted out of the duty to ensure the uniform and effective interpretation of Article 26 ECT, so as to avoid creating a situation whereby “the same provision has different
meanings for different parties to the same treaty”37. In this respect, one cannot help but draw a parallelism with the concern expressed by the European Court of Justice (“ECJ”) in Achmea as to the need to ensure the uniform interpretation of EU law38. Arguably, this indicates that ECT tribunals regard Article 31 VCLT and the pacta sunt servanda principle as having broadly the same role as that which Article 267 TFEU has for the ECJ. On the other hand, a minority of tribunals embarked on a more “historical” and
travaux-based analysis, holding the EU accountable for its passivity throughout the
process leading to the conclusion of the ECT.
C. THE APPLICABILITY OF ACHMEA TO INTRA-EU ECT DISPUTES
On the 6th of March 2018, the ECJ issued the Achmea39 judgment in reply to a preliminary ruling question from the German Federal Court of Justice. In this landmark ruling, the ECJ found that investor-State dispute settlement (“ISDS”) clauses in intra-EU BITs are incompatible with both Articles 344 and 267 TFintra-EU, because they empower bodies that are outside of the EU legal order to interpret and apply EU law,
35 Cube at 134-137
36 Landesbank at 117 and 123; InfraRed at 271. Also note Bay Wa r.e. at 247, where this factor was
considered together with the need to accord primacy to the ordinary meaning of the words in Article 26 ECT
37 RWE at 345
38 See Slowakische Republik v Achmea BV, Case C-284/16 (2018) at 37 and 49 39 Supra note
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thereby undermining its uniformity and effectiveness40. Moreover, since domestic courts are only allowed to review the decisions adopted by these tribunals in very limited circumstances, these provisions also prevent EU national courts from fulfilling their function in referring issues concerning EU law to the ECJ when needed41. No concrete action was taken at the EU level to address the applicability of this judgment to the ECT context up until January 2019, when the EU MSs issued three Declarations articulating their understanding as to the implications of Achmea. Twenty-two Member States indicated that the Achmea reasoning also applied to intra-EU arbitration under the ECT42. However, Hungary took the opposite approach43. Finally, in a third Declaration44, the remaining Member States indicated that expressing views as to this issue thereby affecting pending intra-EU ECT claims would have been “inappropriate”.
Among these political uncertainties, Spain has consistently sought and is still fighting to make its case as to the applicability of the Achmea judgment to Article 26 ECT. Starting from the Masdar proceedings, its argument has been premised on the fact that intra-EU ECT arbitration is just as likely to undermine the full effectiveness and uniform interpretation of EU law as the BIT arbitration at issue in Achmea, since ECT tribunals, just as BIT tribunals, are unable to use the preliminary ruling procedure under Article 267 TFEU.
This argument was rejected in all instances. Nine tribunals found that Achmea was not applicable in the ECT context45. In so doing, seven of them relied on the fact that the judgment had only expressly addressed the compatibility between the TFEU and the ISDS clause contained in a bilateral investment treaty (“BIT”) to which the EU was
40 Ibid at 56 and 58 41 Ibid at 50-56
42 Declaration of the Representatives of the Governments of the Member States of 15 January 2019 on
the Legal Consequences of the Judgment of the Court of Justice in Achmea and on Investment Protection in the European Union
43 Declaration of the Representative of the Government of Hungary, of 16 January 2019 on the Legal
Consequences of the Judgment of the Court of Justice in Achmea and on Investment Protection in the European Union
44 Declaration of the Representatives of the Governments of the Member States, of 16 January on the
Enforcement of the Judgment of the Court of Justice in Achmea and on Investment Protection in the European Union
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not a party, whereas the ECT was a multilateral treaty which the EU had actively negotiated and concluded46. On the other hand, the Landesbank and OperaFund tribunals also considered that the self-contained nature of the ICSID regime under which they operated rendered the ECJ’s statements as to the supervisory role of EU national courts inapplicable47.
Quite differently, four tribunals concluded that even assuming the applicability of
Achmea to ECT ISDS proceedings, the judgment could not affect their jurisdiction. In SolEs, this was premised on the finding that Article 16 ECT directed the tribunal to
apply the provisions of the ECT over conflicting EU law. In Hydro Energy, the tribunal reasoned that its jurisdiction was solely governed by international law, whereas Achmea represented “a decision on the constitutional order of the EU”48. Finally, the Watkins
and Cube tribunals considered that ICSID proceedings were isolated from the lex
arbitri., thereby rendering the national legal system of the seat, including EU law and,
by extension, the Achmea judgment, irrelevant to the issue of kompetenz-kompetenz49. This analysis reveals that ECT tribunals involved in the Spanish RE saga have so far adopted two approaches in rejecting the alleged applicability of Achmea with respect to intra-EU ECT arbitration. The first relies on the limits imposed on the reach of the judgment by the ECJ itself. In turn, this suggests that tribunals will continue rejecting this argument until the ECJ specifically rules that Achmea applies to the ECT as well as to ICSID arbitrations. Differently, the second approach accepts that Achmea is applicable in the ECT context but ultimately rejects its relevance for the purposes of the tribunals’ kompetenz-kompetenz. Following this approach, the Achmea argument is doomed to fail until the provisions of the ECT are reformed so as to exclude either the possibility for investors to resort to ICSID proceedings50 or, following the approach in
SolEs and Hydro Energy, intra-EU arbitration altogether.
46 Masdar at 679; Greentech at 220; 9REN at 152-157; InfraRed at 269; Bay Wa r.e. at 282; Stadtwerke
142-143; RWE at 363
47 Landesbank at 148 and 154, OperaFund at 387 48 Hydro Energy at 500
49 Cube at 143-147 and Watkins at 221-226 50 Lacson, A. (2019). supra note 8 at 1343
15
D. THE PRIMACY OF EU LAW OVER CONFLICTING ECT PROVISIONS
Overall, the primacy argument alleges that ECT tribunals lack jurisdiction to hear intra-EU disputes because intra-EU relations are governed exclusively by EU law. Therefore, Article 344 TFEU51, granting EU courts an “interpretative monopoly” over EU law, allegedly prevails over the conflicting plain meaning of Article 26(1) ECT which, as discussed, prima facie grants ECT tribunals jurisdiction to hear all ECT disputes including intra-EU ones. Just as the other objections considered above, this one was also consistently rejected in all cases.
Seven tribunals circumvented the primacy issue by finding that no conflict existed between Article 344 TFEU and Article 26(1) ECT, given the different subject matter of the two provisions52. Moreover, some of them rejected that Article 344 TFEU could grant the ECJ an “interpretative monopoly” over the interpretation and application of EU law on the ground that “reality of jurisdictional practice” indicated that international tribunals operating outside of the EU legal order are often required to apply EU law to determine international law breaches53.
Differently, other tribunals decided to tackle the primacy issue more directly. Nine of them considered that their duty was to ensure the full application of their constitutive instrument by resolving any potential conflict between the ECT and the TFEU in favour of the former, based on the terms of the ECT itself. In particular, this was either because the applicable law provision, Article 26(6) ECT54, did not grant EU law primacy for the purposes of determining the tribunal’s jurisdiction55, or because Article 16 ECT expressly directed the tribunals to accord primacy to the more favourable terms of the ECT over the conflicting provisions of EU law56.
51 “Member States undertake not to submit a dispute concerning the interpretation or application of the
Treaties to any method of settlement other than those provided for therein”
52 i.e. ie State-State vs investor-State disputes and application of EU law vs application to ECT law. See
Charanne at 443-444; Masdar at 337; Eiser at 199; Isolux at 645 and 652; Novenergia at 462-463; Hydro Energy at 502(11)-(12); Watkins at 191-196, PV Investors at 188-189
53 See e.g. Charanne at 443-444; Isolux at 652-654; Masdar at 338-340
54 “A tribunal established under paragraph (4) shall decide the issues in dispute in accordance with this
Treaty and applicable rules and principles of international law”
55 Antin at 224; RREEF at 74-75 and 87; Greentech at 218-219; Cube at 158-159; Landesbank at
183-186; RWE at 361; 9REN at 146
16
On the other hand, two tribunals decided to grant the ECT primacy over EU law based on rules derived from the VCLT. In particular, the Bay Wa r.e. and Opera Fund tribunals considered that the TFEU did not meet the requirements imposed by Articles 30 and 41 VCLT, respectively concerning the application of successive treaties covering the same subject matter and agreements to modify multilateral treaties between certain of the parties only57. As a result, it could not be said that its provisions prevailed over conflicting ECT provisions. Finally, the SolEs and NextEra tribunals premised their rejection of the primacy of EU law on the grounds of both the terms of the ECT and the requirements of the VCLT58.
To sum up, ECT tribunals have so far embraced four approaches towards the primacy argument in the context of the Spanish RE saga. Some have adopted a “diplomatic” reasoning, geared towards finding ways to avoid dealing with the issue altogether. A second group adopted an “ECT-based” analysis whereby the finding that the ECT prevailed over conflicting EU law provisions was premised on the terms of the ECT itself. A third set of tribunals adopted a “VCLT-based” analysis and considered that EU law, specifically the TFEU, did not prevail over the ECT because it failed to comply with VCLT-based requirements as to the succession and modification of treaties. Finally, a fourth group embraced what could be described as an “hybrid” approach, involving the application of both the ECT and the VCLT.
3. INTERIM CONCLUSIONS: ALL ROADS LEAD TO THE ECT
ECT tribunals have adopted divergent approaches in addressing the intra-EU objection within the context of the Spanish RE saga. Specifically, it seems that the arguments giving rise to the highest variety of approaches and, therefore, conceptual inconsistencies, were those concerning the applicability of Achmea and the primacy of EU law. This can be appreciated by considering Table I below:
Table I
57 Bay Wa r.e. 274-280; OperaFund at 383
58 NextEra at 350-351 (ECT-based) and 352 (VCLT-based); SolEs at 246-248 (ECT-based) and
17 Diversity of territory? Implied disconnection clause in Article 26(1) ECT? Achmea applicable? Primacy of EU law over conflicting ECT? Does Article 26(1) ECT grant intra-EU
jurisdiction?
1. Charanne Yes - EU not Respondent
No - ordinary meaning
Not argued No conflict Yes
2. Isolux Yes - EU not Respondent
No - ordinary meaning
Not argued No conflict Yes
3. Eiser Yes - no “EU
investor”
No - ordinary meaning
Not argued No conflict Yes
4. Novenergia Yes - EU not Respondent
No - ordinary meaning
Not argued No conflict Yes
5. Masdar Yes - EU not Respondent
Not argued No - ECT vs BIT
No conflict Yes
6. Antin Yes - EU not Respondent
No - ordinary meaning
Not argued ECT-based Yes
7. Greentech Yes - EU not Respondent No - ordinary meaning No - ECT vs BIT ECT-based Yes
8. RREEF Yes - EU not Respondent
No - ordinary meaning
Not argued ECT-based Yes
9. PV Investors Yes - EU not Respondent
No - ordinary meaning
Not argued No conflict Yes
10. InfraRed Yes - EU not Respondent
No – travaux No - ECT vs BIT
ECT-based Yes
11. Cube Yes - EU not Respondent
No – travaux Yes – but not binding
ECT-based Yes
12. Landesbank Yes - EU not Respondent
No – travaux No – ICSID vs non-ICSID
ECT-based Yes
18
What stands out from this review is that these divergences create some uncertainty in so far as, by formulating different justifications to support their decisions, ECT tribunals have also sometimes implicitly expressed conflicting views as to the types of political and legal developments which could change the fortunes of the intra-EU objection in the future. For instance, as discussed in Section C, following the reasoning developed by the Masdar tribunal in rejecting the Achmea argument59, the intra-EU objection will only ever succeed after the ECJ expressly rules that intra-EU ECT arbitration is incompatible with EU law. Similarly, following Landesbank60, the
outcome of the objection is tied to future ECJ rulings addressing whether the scope of
Achmea includes ICSID arbitration. However, both developments would presumably
be considered as being irrelevant by tribunals following the reasoning developed in
59 Followed by the Greentech, InfraRed, Bay Wa r.e., Stadtwerke, RWE and 9REN tribunals. See Table
I and the discussion in Section C
60 Followed in OperaFund. See Table I and the discussion in Section C
Respondent meaning BIT
14. Stadtwerke Yes - no “EU investor” No - ordinary meaning No - ECT vs BIT Hybrid Yes
15. NextEra Yes - EU not Respondent
No - ordinary meaning
Not argued Hybrid Yes
16. OperaFund Yes - EU not Respondent No - ordinary meaning No – ICSID vs non-ICSID VCLT - based Yes
17. RWE Yes - EU not Respondent
No - ordinary meaning
No - ECT vs BIT
ECT - based Yes
18. 9REN Yes - EU not Respondent No - ordinary meaning No - ECT vs BIT ECT-based Yes
19. SolEs Yes - EU not Respondent
No - ordinary meaning
Yes – but not binding Hybrid Yes 20. Hydro Energy Yes - EU not Respodent No – ordinary meaning
Yes – but not binding
No conflict Yes
21. Watkins Yes - no “EU investor”
No - ordinary meaning
Yes – but not binding
19
Cube, SolEs, Hydro Energy and Watkins, according to which developments in the EU
acquis can never affect the jurisdiction of ECT tribunals. Indeed, the latter reasoning seems to imply that the intra-EU objection is doomed to fail until the ECT is amended to exclude intra-EU arbitration from the scope of Article 26(1) ECT.
Nevertheless, these divergences have not yet resulted in inconsistent interpretations or applications of Article 26(1), the ECT provision underpinning the intra-EU objection. Indeed, the review conducted throughout this Part has revealed that the Spanish RE saga tribunals have uniformly accepted that Article 26(1) ECT grants them jurisdiction over intra-EU disputes, at least until some further action is taken at either the EU or the ECT level. In so doing, arbitrators have always acted unanimously, and often emphasising the need to ensure consistency with previous awards61. In two occasions, this actually prompted them to limit their ratio decidendi to a mere restatement of the grounds on which the objection had been rejected before, without engaging in a detailed
ex novo analysis of the arguments raised by Spain62. In other words, it seems that, in dealing with the intra-EU objection, ECT tribunals involved in the Spanish RE saga have often been willing to sacrifice their own discretion and independent decision-making process for the sake of consistency and predictability as to the ultimate outcome of the objection.
This represents an interesting finding. Among the legal and political uncertainties surrounding the compatibility between intra-EU ECT arbitration and EU law as well as the enforceability of awards issued in spite of the intra-EU objection within the territory of the EU63, ECT tribunals have presented themselves as a united front in affirming their jurisdiction to hear disputes between Spain and EU-based investors. In this respect, commentators have considered that the more this jurisprudence constante develops, the less likely future tribunals are to depart from previous decisions and refuse to exercise their jurisdiction64. By creating some certainty as to the outcome of this specific aspect of pending and future disputes, the latter finding also points to the conclusion that ECT
61 See e.g. Eiser at 464; Masdar at 314; Greentech at 221; InfraRed at 259; OperaFund at 380;
Novenergia at 464
62 InfraRed at 259; OperaFund at 380. See, however, Landesbank at 105-109, where the tribunal stated
that consistency in earlier awards did not absolve it from its task of “coming to its own conclusion”
63 See Lacson, A. (2019) supra note 8, at page 1329 64 See Stefan, F. (2019) supra note 8
20
tribunals are enhancing the stability of the Spanish Re investment climate by sending a clear message to investors and Spain alike as to the availability of intra-EU ISDS proceedings.
21
PART II: CONSISTENCY AS TO THE APPLICATION OF THE FET STANDARD ENSHRINED IN ARTICLE 10(1) ECT
1. INTRODUCTION AND RELEVANT CASE-LAW
Due to their elevated upfront operating costs, low-carbon investments cannot be profitable unless they receive a stable financial support on the part of the host State65. To encourage the commission of private capital in its RE sector, Spain enacted Royal Decree (“RD”) 661/200766. This RD was implemented within the framework of the Electricity Law No. 54/1997 (“Electricity Law”) and established an enticing “Special Regime” of remuneration for RE investments67. Under the Regime, investors who had registered for this purpose within a specific timeframe were entitled to gain privileged access to the national electricity grids and receive an annually updated fixed-in-tariff (FiT) or premium68. The full value of the FiT or premium, set higher than the market price for electricity, was guaranteed for a 25-year period, with an 80% reduction from the 26th year onwards69. Article 44.3 of the RD provided for the review of the FiT in the year 2010 but expressly indicated that such review would not have affected facilities registered before “January 1 of the second year after the year in which the adjustment
was implemented”70.Importantly, Article 30.4 of the Energy Law provided that any remuneration schemes implemented by means of RDs, hence including 661/2007, would have to be set so as to ensure “reasonable rates of return with reference to the
cost of money in the capital market”71.
The attractiveness of the Regime gave rise an unexpected growth of investments72. To tackle the over-incentivization of its RE market, the Spanish authorities issued RD
65 Boute, A. (2012) supra note 13, page 657
66 Dromgool, T. and Ybarra Enguix, D. (2016) supra note 3, page 393-395 67 Ibid, page 395
68 PV Investors at 190-194 69 PV Investors at 192 70 PV Investors at 194 71 PV Investors at 183
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1578/200873. This decree, inapplicable to the investors registered under RD 661/2007, provided for a reduced FiT which was guaranteed for a maximum of 25 years74. Subsequently, in light of its ever-increasing tariff deficit, Spain gradually proceeded to further modify or partially amend RD 661/2007. The first drastic modification occurred in 2010, with the enactment of RD 14/2010 and the imposition of an “hours cap” whereby regulators limited the hours per year in which investors could sell electricity in exchange for the FiT75. Eventually, the complete dismantlement of the Special Regime occurred in 2013 with RDs 2/2013 and 9/2013. In particular, the latter Decree eliminated the FiT-based scheme set up by RDs 661/2007 and 1578/2008 and substituted it with an entirely new remuneration mechanism which was only fully revealed in 2014, with the enactment of RD 413/2014. Under the “New Regime”, investors were only entitled to sell their energy at market price plus, when appropriate, a small premium geared towards ensuring that each investment would generate a reasonable rate of return, as provided by the Energy Law 199776.
The following Chapter will outline and compare how ECT tribunals have responded to the claims that these regulatory changes amounted to a breach of the FET standard enshrined under Article 10 of the ECT. In particular, the focus will be placed on the tribunals’ reception of the argument that the 2008-2014 regulatory changes amounted to a breach of the investors’ legitimate expectations as to the stability of the normative environment governing the subsidization of RE investments. The following review has been conducted taking account of all twenty published awards pertaining to the Spanish RE saga, namely: Charanne, Isolux, RREEF, Eiser, Antin, Masdar, Greentech,
Novenergia, NextEra, OperaFund, RWE, 9REN, Cube, Stadtwerke, SolEs, Bay Wa r.e., PV Investors, Watkins, InfraRed and Hydro Energy.
73 Ibid 74 Ibid
75 Ibid, page 397 76 Ibid, page 398
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2. DISCUSSION
A. THE RANGE OF REGULATORY STABILITY EXPECTATIONS INVESTORS CAN LEGITIMATELY RELY ON UNDER ARTICLE 10(1) ECT
Most tribunals approached the claim as to the alleged breach of Article 10(1) ECT by interpreting the FET standard enshrined therein and setting out their understanding as to the role played by the doctrine of legitimate expectations in the context of that provision77.Thus, it seems appropriate to start the following analysis by considering the degree of consistency ECT tribunals have managed to achieve in this respect. The Charanne tribunal, the first to provide an interpretation of the FET standard in the context of the Spanish RE saga, considered that “the existence of legitimate
expectations […]is a relevant factor” to determine breaches of the Article 10(1) ECT78. Specifically, this provision entitled investors to challenge the legality of regulatory changes through which Spain had frustrated their legitimate expectations as to the maintenance of the incentives set out in RDs 661/2007 and 1578/2008 regulatory frameworks 79 . Importantly, the degree of normative stability investors could legitimately expect under this provision had to be ascertained by considering the extent to which Spain had specifically committed itself to maintaining such stability80. In particular, the tribunal indicated that legitimate expectations as to regulatory “immutability” could arise, but only if the investor could point to a specific commitment, namely “a stabilization clause or any kind of statement that the State has
directed to the investors, according to which the existing regulatory framework will not change”81.
The Charanne tribunal was also clear in highlighting that, even in the absence of any specific commitments from which immutability expectations could legitimately arise,
“an investor has a legitimate expectation that , when modifying the existing regulation
77 e.g. Charanne at 476-477 and 486; Antin at 508, 520-532; Greentech at 341; Bay Wa r.e. at 456; PV
Investors at 561-571; SolEs at 312-319; Cube 381-382; InfraRed at 365; Hydro Energy at 540 – 591; RWE at 425, Stadtwerke at 256; NextEra at 580-581; Novenergia at 641-661; Isolux at 763-766
78 Charanne at 486 79 Charanne at 486 80 Charanne at 495 81 Charanne at 490
24
based on which the investment was made, a State will not act unreasonably, disproportionately or contrary to the public interest”82. In particular, the tribunal
considered that the proportionality requirement entailed that the State cannot radically alter the normative environment in which the investment operate and consequently “eliminate the essential characteristics of the existing regulatory framework”83. Overall, Charanne indicates that Article 10(1) ECT entitles investors to rely on a potentially broad spectrum of legitimate expectations. Specifically, such spectrum can potentially range from expectations against any modifications to expectations against
radical modifications, depending on the specificity of the commitment through which
the State has bound itself. Importantly, this approach was later followed by all tribunals84, thereby evidencing a significant degree of consistency at least with respect to the interpretation of the broad contours of the standard applicable under Article 10(1) ECT to review the legitimacy of the investors’ alleged expectations as to regulatory stability in the context of the Spanish RE saga. Nevertheless, as the following section will demonstrate, tribunals seem to have failed to achieve consistency in the application of this standard. Specifically, no clear answer has emerged as to the following aspects underpinning the Charanne analysis: a) through what type of conduct can a State give rise to legitimate expectations against radical regulatory changes? b) does Article 44.3 of RD 661/2007 amount to a stabilization clause giving rise to legitimate expectations as to regulatory immutability? c) was the guarantee of a reasonable rate of return the essential characteristic of the Spanish regulatory framework when the investment was made in the first place?
82 Charanne at 514 83 Charanne at 517
84 Antin at 531-532, 555; Masdar at 484, 488; SolEs at 316-318; Greentech at 356 and 359; RWE at 448
– 451; Bay Wa re at 459; 9REN at 366-369; Hydro Energy at 586 and 584-590; InfraRed at 366-368; PV
Investors at 578 and 583; Watkins 507-509, 518, 521; Stadtwerke at 263, 264; Isolux at 774-776; OperaFund at 481, 508; Eiser at 362-363; RREEF at 315, 379; Novenergia at 650-654; NextEra at 591; Cube at 386-388
25
B. THE CONDUCT THROUGH WHICH A STATE CAN, IN PRINCIPLE, GIVE RISE TO LEGITIMATE EXPECTATIONS AGAINST RADICAL REGULATORY CHANGES
Except for Masdar, Stadtwerke and 9REN, all tribunals considered whether the investors had legitimate expectations as to the substantial maintenance of the regime established under RD 661/2007 or, using the language in Charanne, as to the preservation of its essential characteristics85. On the one hand, most decisions suggest that proving the existence of legitimate expectations against disproportionate regulatory changes does not entail a particularly heavy evidentiary burden for the investor. Specifically, since the preservation of “stable investment conditions” is a key element of the FET standard set out in Article 10(1) ECT86, most tribunals considered that, depending on the circumstances, the investors were in principle entitled to form expectations against radical changes based on the terms and content of the RDs in place when they made the investment in the first place without the need for an explicit assurance on the part of Spain87.
85 The Masdar and 9REN tribunals did not rule on this issue, having the legitimate expectations as to
regulatory immutability (Masdar at 521; 9REN at 297). The Stadtwerke tribunal entertained this claim in terms of whether the regulatory changes were proportional under Article 10(1) ECT but did not discuss the legitimacy of expectations as to proportionality (see 323 and onwards)
86 Charanne at 477; Eiser at 382 and 533; Antin at 523 and 533; SolEs at 315; Greentech at 351; RREEF
at 314; Hydro Energy at 548-552; OperaFund at 508-509; Watkins at 562; PV Investors at 56; RWE at 429; Isolux at 764-766; Novenergia at 643, 646; Bay Wa r.e. at 458. The InfraRed tribunal did not expressly state so but impliedly accepted that at 368
87 Charanne at 515; Eiser at 532, 540 and 553-554; Antin at 553; Greentech at 377-378; OperaFund at
512 (“through its regulatory offer” means through RD 661/2007, see paragraph 513); Novenergia at 666-667 and 681; PV Investors at 616; RREEF at 315-322; Cube at 388-391; Watkins at 526, and 556-563;
Infrared at 368-369
The same approach was indirectly upheld in Hydro Energy, SolEs, Bay Wa r.e. and RWE because: a)
Hydro Energy: the tribunal determined the essential characteristics of the 661/2007 regulatory
framework on the basis of the terms of the RD, thereby implying that legitimate expectations as to the preservation of these characteristics could arise from the terms of the RD itself (see at 677-682, 690 and 695); b) SolEs: the tribunal found that the investors’ expectations as to the stability of the FiT regime guaranteed under 1578/2008 (“the essential characteristic” of the regulatory framework) were legitimate based on the terms of the RD itself, considered against the background of the Spanish Supreme Court case-law (427-439) and strengthened by various regulatory reports (418-426 and 443); c) Bay Wa r.e.: the tribunal implied that, while the regulatory framework in itself could not give rise to immutability commitments, it did give rise to legitimate expectations that the essential characteristic of the regulatory framework (ie: reasonable rate of return, according to the tribunal) would have been preserved (467-476 and 498); d) RWE: the tribunal implied that expectations as to the preservation of the essential characteristics of the regulatory regime could in principle arise from the terms of the regulatory framework in itself, but ultimately declined to recognize the legitimacy of such expectations in the
26
Differently, however, the NextEra tribunal categorically rejected that the regulatory framework on which the investors relied when making the investment could give rise to any type of legitimate expectations, including those against radical or disproportionate changes88. Instead, the only reason why the tribunal accepted the existence of such expectations in that case was because the investor could point to certain specific communications through which Spanish officials had reassured the company’s representatives as to the fact that the regulatory framework was “governed
by the principles of judicial and regulatory stability”89. Hence, considered against the
background of the RD 661/200790 framework, those communications ultimately entitled the investors to expect that “the regulatory regime in RD 661/2007 would not
be changed in a way that would undermine the security and viability of their investment”91.
This creates uncertainty as to whether the terms of RDs 661/2007 and 1578/2008 will be enough to satisfy future ECT tribunals on the existence of a legitimate expectation as to the preservation of the essential characteristics of the regulatory framework. Indeed, if embraced, the NextEra approach may well lead tribunals to demand more from investors, including specific assurances and statements on the part of Spanish officials. Interestingly, the investors in Masdar managed to persuade the tribunal about the existence of legitimate expectations as to regulatory immutability by relying on official statements and assurances that were arguably even less specific than those at issue in NextEra92. Indeed, as rightly pointed out in 9REN, the assurances in Masdar amounted to a mere restatement of the terms of RD 661/200793. On the other hand, the assurances in NextEra were specifically aimed at persuading the investors as to the stability of the regulatory regime. Hence, it is arguable that, in NextEra, the tribunal
context of the case because the investors were deemed to be aware of the possibility of major regulatory changes based on the due diligence they should have carried out (see at 491-505)
88 NextEra at 584 89 NextEra at 588-596
90 Emphasis added to highlight that the regulatory framework could only provide for a background,
rather than the sole basis, against which the assurances had to be evaluated
91 NextEra at 596
92 The relevant statements are outlined in Masdar at 517-522 93 9REN at 293
27
applied an evidentiary burden suited to claims concerning alleged expectations as to regulatory immutability in the context of a claim concerning legitimate expectations against radical regulatory changes.
Importantly, the specific factual circumstances of each case may justify divergences in the way different tribunals apply the legal standard under Article 10(1) ECT. For instance, in Isolux, the investor was prevented from premising its legitimate expectations against radical changes on the basis of the regulatory framework precisely because, by the time the investment had been made (2012) the regulatory regime had already changed significantly and the Spanish Supreme Court had expressly indicated that such changes were lawful under Spanish law94. Therefore, one could argue that the inconsistency between the NextEra approach and the reasoning developed in the context of disputes concerning investments made at an earlier stage (e.g. Charanne,
Novenergia, Masdar, Greentech, OperaFund, Bay Wa r.e., RWE, PV Investors, Stadtwerke, Cube) could be attributed to the fact that the likelihood of drastic changes
to the 661/2007 regime was more evident to investors who invested in 2010 (the situation in NextEra) than to investor that invested in e.g. 2007, 2008 or 2009 (the situation in the other cases). This, in turn, may persuasively justify why the tribunal was not satisfied with the investor premising its legitimate expectations based on the terms of the regulatory framework alone.
However, this argument loses most of its appeal if one considers the following. First, the NextEra tribunal did not actually justify its approach based on these considerations. Indeed, the tribunal premised its demand for ulterior assurances on the universally applicable consideration that “legislation can change”, rather than on the specific finding that the regulatory framework had already changed significantly by the time the investor decided to commit its capital95. Given the generality of this statement, the
NextEra reasoning is in principle applicable to all the disputes considered above, which,
in turn, does not explain why the same approach was not followed in all cases. Second, the Antin, Hydro Energy, Watkins and REEF tribunals dealt with investments made at
94 Differently from the NextEra tribunal, the Isolux tribunal did impliedly accept that legitimate
expectations as to the preservation of the essential characteristics of the 661/2007 regulatory framework could, in theory, have arisen from the terms of the regulatory framework itself. See, in this respect, the discussion of the InfraRed tribunal at 360
28
an even later time than in NextEra (ie 2011), and yet took no issue in concluding that the investors’ expectations against radical changes could, in principle, be legitimately premised on the terms of the regulatory framework alone96. Considering this, increasing the evidentiary burden in the context of a claim against radical regulatory changes is a decision which cannot be readily justified by reference to the date in which the NextEra investment was made, which, in turn, should have prompted the tribunal to substantiate its reasoning more thoroughly and persuasively.
C. WHETHER ARTICLE 44.3 GAVE RISE TO LEGITIMATE
EXPECTATIONS AS TO REGULATORY IMMUTABILITY
Through the enactment of Article 44.3 of RD 661/2007, Spain made a seemingly clear and unambiguous promise: “revisions […] shall not affect the facilities for which
certificates have been granted”97. As a result, it is not surprising that investors have consistently tried to argue that such provision represented a specific commitment on the part of Spain, giving rise to the legitimate expectation that, once registered, their investments would not have been affected by any of the regulatory changes that occurred throughout 2008 and 201498.
This argument was accepted in four cases. First, in OperaFund, it was stated that recognizing the binding effects of the commitment enshrined in Article 44.3 was a way to respect Spain’s legislative authority99. Similarly, the InfraRed tribunal reasoned that a failure to interpret the latter provision as a specific commitment would have deprived this clause of “any legislative purpose”100. Third, the 9REN arbitrators considered that the provision was sufficiently specific as to its object and purpose, namely the attraction of private investments in the Spanish RE sector, so as to give rise to legitimate
96 See supra note 87 97 See e.g. Eiser at 113
98 Except in Isolux, Novenergia, Bay Wa r.e., RWE, SolEs and RREEF 99 OperaFund at 485
100 InfraRed at 418-420. Although note that, in this case, the tribunal found that the commitment
enshrined in Article 44.3 guaranteed the immutability of the RD 661/2007 regime only in respect to
