Antaris v. Czech Republic (PCA Case No. 2014-01)
Summary by Natalia Charalampidou, citation details below.
The final award in these proceedings was issued on May 2, 2018. It is publicly available only in a redacted form.
Invoked instruments, purported breaches & administering institution:
This was an arbitration under the ECT and the Germany - Czech Republic BIT (1990), arising out of an alleged breach of the standard of fair and equitable treatment, unreasonable and arbitrary measures, the umbrella clause (Art. 10(1) of the ECT) and indirect or creeping expropriation (Art. 13 of the ECT), according to claimants' statement of claim (¶ 74). The dispute was submitted to a PCA arbitral tribunal under the UNCITRAL Arbitration Rules according to Article 26(4)(b) of the ECT. The specific articles of the BIT purportedly breached were not stated.
Any third parties:
The European Commission submitted an application for leave to intervene as a non-disputing party (¶ 36). The tribunal granted the leave as amicus curiae, subject to the condition of undertaking to pay in full the reasonable costs of both parties resulting from the submission (¶ 38). Following the European Commission's statement that it cannot undertake this, the tribunal invited it to apply for verification of the procedural order to undertake the reasonable costs, if so determined by the tribunal. Still the European Commission failed to submit this application. Consequently, the tribunal did not consider the amicus curiae submission (¶¶ 39-42). In this respect, it is noteworthy that respondent made clear already prior to the European Commission's application for a leave that it did not object to the tribunal's jurisdiction on the grounds that such did not extend to disputes between EU investors and EU Member States (¶ 30).
Factual background, including procedural history:
Claimants in this arbitration were Antaris GmbH ("Antaris"), a limited liability company incorporated under the laws of Germany, and Dr Michael Göbe ("Dr Göbe"), a German national and the ultimate beneficial owner of Antaris. Respondent was the Czech Republic (¶¶ 3, 6, 8).
Briefly, claimants alleged that respondent breached the invoked investment treaties by repealing incentive arrangements to attract investors in photovoltaic power generation contrary to its guarantees (¶ 10). The incentive regime comprised of the following three statutes: (i) the Act on Income Tax, which in the relevant sections provided for exemption from income tax for the year in which solar facilities were put into operation and the following five years; (ii) the 2005 Act on Promotion that provided for a period of 15 years for recovery of investor's investment through the feed-in-tariff, and setting forth a maximum annual reduction of 5% of the feed-in-tariff for photovoltaic plants, among others; and (iii) the 2005 Technical Regulation, as amended in 2007 and 2009, that provided technical and economic parameters for assuring the 15-year pay-back period through the support of the feed-in-tariff, and the 2009 Pricing Regulation (¶¶ 81-88).
The significant drop in the price of photovoltaic panels began in 2008 and accelerated in 2009. At the same time, electricity transmission and distribution companies began receiving a significantly increasing number of preliminary applications for connection to the grid for solar installations. That was highly undesirable, as: (i) it would increase the price of renewable support paid by consumers; (ii) it would lead to higher profits for solar investors compared to other producers of renewable electricity; and (iii) it would threaten the stability of the grid due to the unpredictable and volatile nature of solar electricity production (¶ 120).
Over the ensuing years, new legislation changed the incentive regime, not without prior press releases and published articles informing of statutory amendments being under preparation (¶¶ 131, 140). "[A] reasonable vacatio legis period" was ensured for investors to be able to prepare sufficiently in advance for the change in the conditions of investing (¶ 133). More specifically, in 2010 the 5 % rule was abolished for solar plants connected to the grid from 2011 onwards (¶ 94). A levy on revenues generated by photovoltaic power plants was enacted also in 2010 and was applicable from January 1, 2011 onwards for photovoltaic plants put into operation between January 1, 2009 and December 31, 2010 (¶¶ 96, 102), whereas all incentives were cancelled for electricity generated by solar power plants placed into service after January 1, 2014 (¶ 99). In addition, the income tax exemption was repealed from January 1, 2011, and the 2005 Act on Promotion was abolished two years later (¶¶ 100-101).
At the outset, the tribunal addressed the question whether all amendments to the incentive regime constituted tax for the purpose of Art. 21(1) of the ECT (¶¶ 175, 215). The tribunal agreed with claimants, who did not dispute that the repeal of the income tax exemption constituted a "taxation measure" for the purposes of the ECT. It therefore concluded that it had no jurisdiction regarding the measures arising out of this measure (¶ 217). Yet, the tribunal did not accept this line of reasoning for the solar levy. It took the view that in order to ascertain whether a putative tax measure qualifies under Art. 21 of the ECT it is required first to characterize it in nature and substance under domestic law and then to apply the inner limits of said provision (¶¶ 224-225, 229). The tribunal found that the Czech Supreme Administrative Court decision of July 10, 2014 was authoritative on the issue of characterization of the solar levy. In essence, it had made the finding that said levy was not a tax for the purpose of prohibiting double taxation (¶ 233). In addition, the tribunal noted that the solar levy lacked the undisputed element of non-equivalence, which was an essential feature for distinguishing taxes from fees under domestic law (¶¶ 235-236). Further, the legislative history of the relevant statute supported the conclusion that it was a formally correct mechanism for reduction of the support of renewable energy sources from photovoltaic plants, such that it could not be legally contested (¶ 243). Moreover, the tribunal noted that other tribunals had limited the application of Art. 21 of the ECT to state actions directed at raising general revenue of the state (¶ 248). It then noted that ECT tribunals had to make substantive determination of the measure in question in light of the relevant facts rather than simply adopting the state's own formal characterization of that measure (¶ 249). In the present dispute, the tribunal found that said levy's principal aim was a reduction in the level of feed-in-tariffs payable to certain solar investors and not the raising of revenue. Its structure as a tax was aimed to reduce the risk of claims against the state under international law, not an indication of respondent acting in bad faith, the tribunal found (¶¶ 252-253).
Thereafter, the tribunal turned to the submitted substantive claims, those of legitimate expectation and arbitrary or unreasonable behavior. Yet, aforehand, the tribunal summarized the current state of international law and practice on the interpretation or application of the standards of fair and equitable treatment, of full protection and security, and of the non-impairment (¶¶ 360-362). Regarding the first question of whether claimants had made their investment in 2010 through a legitimate and reasonable expectation based on respondent's representation, the tribunal accepted that such representations may be inferred from domestic legislation, including official statements without legal force (¶¶ 364, 366). Taking into account that claimants would have been well aware of the political and economic issues having arose from the solar boom, that Dr Göde neither received any written legal advice nor commissioned specific due diligence (¶¶ 368, 383, 395) and that the markets which claimants were entering was a bubble as well as the consideration of the Czech government that the feed-in-tariffs regime was out of balance, the tribunal decided that Dr Göde's actions were essentially opportunistic. It underscored that the investment protection regime was never intended to promote and safeguard those who "pile[d] in" to take advantage of laws possibly in state of flux caused by investors of that type. The tribunal agreed with respondent that claimants in truth had a speculative hope, rather than an internationally-protected expectation (¶¶ 434-435). The second complaint of impairment by arbitrary and unreasonable conduct equally failed (¶ 441), as the tribunal concluded that respondent had a rational objective, when reducing excessive profits and sheltering consumers from excessive electricity price rises, and respondent's actions were neither arbitrary nor irrational (¶¶ 444-446).
Respondent's jurisdictional objection that the operating license of one of claimants plants had been acquired in bad faith after submitting falsifying reports, as verified by the domestic administrative courts that annulled it, was not discussed, as in light of the aforementioned conclusions on the merits, this issue did not arise (¶¶ 3, 6, 8, 403, 447).
This dispute is one of the "green energy" cases concerning the legislative changes in domestic Energy Law, mainly in relation to the incentive regime, brought against the Czech Republic. The legislative changes provided for a reasonable vacatio legis period in order to allow investors to sufficiently prepare. The tribunal did not consider the amicus curiae submission of the European Commission, as the latter was not willing to undertake the parties' reasonable costs resulting from the submission. The tribunal, after classifying under "taxation measures" some of the amendments to the incentive regime, it concluded that it had no jurisdiction over those. Still, it found that it had jurisdiction over the solar levy, as it was not a tax under domestic law, pursuant to the legislative history of the relevant statute and according to the line of reasoning adopted by other ECT tribunals. Turning to the merits, the tribunal found that one of the claimants, Dr Göde received no written legal advice and commissioned no specific due diligence. Parallel to that, the markets which claimants were entering, w ere a bubble. Therefore, the tribunal found that Dr Göde acted essentially opportunistic and claimants merely had a speculative hope not a protected expectation. The tribunal dismissed the complaint of impairment by arbitrary and unreasonable conduct, as respondent's actions were neither arbitrary nor irrational.
This summary comes from the following paper:
The paper is part of the joint OGEL/TDM/ArbitralWomen Special Issue:
TDM 7 (2018) - OGEL/TDM/ArbitralWomen - Strategic Considerations in Energy Disputes