Below you will be able to find a free to download TDM IACL Case Report (1), a PDF, as well as a brief case summary (2) from a paper from the joint OGEL/TDM/ArbitralWomen Special Issue on "Strategic Considerations in Energy Disputes".
1) Case Report (free download)
Case Report by Eleni Bakalarou, Editor: Ignacio Torterola
Claimant brought an action for relief against the Kingdom of Spain pursuant to the Energy Charter Treaty (hereinafter referred to as "ECT") alleging Spain did not honour its undertakings for offering and guaranteeing certain conditions to investors, by implementing a series of energy reforms affecting the renewables sector. Following preliminary objections, the Tribunal decided to have a phase of the proceedings dedicated to determining whether Res pondent has breached its obligations under the ECT.
Fair and equitable treatment - Minimum standard of treatment, including denial of justice claims.
Case report provided by International Arbitration Case Law (IACL)
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2) Case Summary
Novenergia v. Spain (SCC Case No. 2015/063)
Summary by Natalia Charalampidou, citation details below.
The final award in this proceeding was issued on February 15, 2018. On March 13, 2018 respondent filed a Request for Rectification, Clarification and Complement of the Final Award. Following an examination pursuant to Art. 41 of the SCC Rules and Art. 32 of the Swedish Arbitration Act, the Arbitration Institute of the Stockholm Chamber of Commerce dismissed all requests in Procedural Order No. 17 of April 9, 2018. On May 16, 2018 claimant filed a petition to confirm foreign arbitral award with the U. S. District Court for the District of Columbia.
Invoked instruments, purported breaches & administering institution:
This was an arbitration under the ECT, arising out of an alleged breach of the standard of encouraging and creating stable, equitable, favorable and transparent conditions, fair and equal treatment, full protection and security, prohibition of impairment by unreasonable or discriminatory measures and the umbrella clause (Art. 10(1) ECT) (¶ 399). The dispute was submitted to a SCC arbitral tribunal according to Art. 26(4)(c) of the ECT.
Any third parties or parallel proceedings:
The European Commission applied for a leave to intervene as a Non-Disputing Party on March 3, 2017 (¶ 43). The tribunal permitted the submission of one written amicus curiae brief solely regarding jurisdiction of up to 30 pages. This was submitted on May 2, 2017 (¶¶ 44-45).
Claimant in this arbitration was Novenergia, a Société d'investissement en capital à risque (SICAR) ("Novenergia"), an entity incorporated under the laws of the Grand Duchy of Luxembourg on February 1, 2007. Respondent was the Kingdom of Spain ("Spain") (¶¶ 1, 7).
The dispute related to legislative measures undertaken by respondent in the renewable energy sector (¶¶ 153-155). The laws and decrees in question are largely identical to the ones complained of in Charanne v. Spain. Two points deserve mention. Claimant in this arbitration made investments on September 13, 2007 in eight photovoltaic plants (¶¶ 154, 2-5) and the disputed legislative measures were enacted from 1997 until 2014 (¶¶ 78-152).
The tribunal first addressed the jurisdictional objections, those being: (a) the "intra-EU" dispute objection; and (b) the taxation carve-out objection under Art. 21 of the ECT. The first objection rested on the contention that claimant as a Luxembourgian entity was not from an "Area" of "another Contracting Party" according to Art. 26(1) of the ECT, on the ground that investors of EU Member States are considered to be investors of the EU, in line with the views expressed by the European Commission in its amicus curiae brief of May 2, 2017 (¶¶ 449-450). The tribunal underscored that respondent failed to recognize the fact that the EU's membership to the ECT does not eliminate the EU Member States' individual standing as respondents under the ECT. It was unable to deduce any limitation from the wording of Art. 26(1) of the ECT (¶ 453). Similarly, it was unconvinced from respondent's argument that the ECT contained a disconnection clause barring EU Member States from applying the ECT inter se, as no such clause is explicitly contained (¶ 454). It took the view that the "primacy of EU law in intra-EU relations" argument found support neither in the text of the treaty, nor in the point of law that claimant submitted no claims based on EU law and that tribunal's jurisdiction was based exclusively on the explicit terms of the ECT, nor in the absence of clash between EU law and the ECT (¶¶ 456, 459-462). In addition, the tribunal found no reason to depart from the approach followed by ECT tribunals in other previous similar cases (Charanne, Isolux, RREEF and Eiser) that involved similar legal issues (¶ 464). Thus, it rejected the intra-EU objection (¶ 466). To the contrary, it accepted the objection under Art. 21 of the ECT. The disputed provisions were undoubtably relating to a tax of domestic law, whereas their enactment in good faith is the starting point. Therefore, claimant bears the burden of proving that the specific legislation was not enacted for the purpose of raising general revenue for the state, but for a different purpose. In the present case, the tribunal was unconvinced by the adduced evidence and noted that respondent actions fell short of the extreme actions that led other tribunals to accept mala fide grounds (¶¶ 517-525).
Turning to the merits, the tribunal addressed the assertions of breach of the standards of fair and equitable treatment and expropriation. With reference to the first standard, it discussed the date of claimant's investment as this laid the foundation for the assessment of its legitimate expectations (¶ 531). The tribunal explained that while the fair and equitable treatment standard has an objective core, its application depends on expectations cultivated and fostered by local laws and regulations that were in place at the time of the investment (¶ 534). Here said timing was the time when investment was made, a determination usually perplexed by the consecutive stages of an investment. The tribunal took the view that the timing of investor's decision to invest set a backstop date for the evaluation of legitimate expectations, that being September 13, 2007, when investor acquired 100% of the photovoltaic plant Solarsaor (¶¶ 538-539). Then, the tribunal examined the question whether the stability and transparency obligation in the ECT is a standalone obligation, or was included in the fair and equitable treatment standard (¶ 642). In line with Isolux, Eiser and Plama, the tribunal took the view that the stability and transparency obligation is simply an illustration of the obligation to respect investor's legitimate expectations through the fair and equitable standard (¶ 646). Thereafter, the tribunal determined the outer limits of the fair and equitable treatment standard (¶ 647). The tribunal agreed with Electrabel and Micula in host state's assurances not always being indispensable, or in other words being both explicit and implicit, while taking the view that an expectation of the regulatory framework being stable can arise from state conduct or statements, or be strengthened thereby (¶¶ 648-651). In this case, the tribunal examined the specific issue of whether the statement or conduct objectively sufficed to create legitimate expectations in the recipient (¶ 652). In line with Micula, Eiser and AES Summit, the tribunal affirmed that regulatory regimes may evolve, still not outside the acceptable range of legislative and regulatory behavior. Should this threshold be reached, the fair and equitable treatment standard is breached (¶¶ 654-655). The tribunal further noted that assessing host state's measures allows for a balancing exercise, as described in Electrabel and Saluka, while underscoring the importance of the element of transparency, in line with Plama (¶¶ 657-659). Thereafter, it addressed the issue of whether claimant's expectations were legitimate and reasonable. The tribunal found that respondent made a number of assurances in the enacted legislation and in the prospectuses of the government. The specific government's statements aimed at incentivizing companies to heavily invest in the Spanish electricity sector, in the tribunal's view (¶¶ 666-669). Respondent's arguments regarding warning signs of the special regime not remaining intact over the course of the photovoltaic plant's lifetime were unconvincing, mostly because the majority of them were affected after the investment was made. The ones already in place prior to the investment were generally vague and insufficiently defined (¶¶ 671-673). Thus, the tribunal found claimant's initial expectations to having been legitimate both legitimate and reasonable (¶ 681). Consequently, the tribunal determined the issue of whether the legislative measures taken by respondent constituted a radical change reaching the threshold of amounting to a violation of the fair and equitable treatment standard under Art. 10(1) of the ECT (¶ 682). After setting out the relevant findings in Charanne, Isolux and Eiser (¶¶ 683-687), the tribunal assessed the particular statutory provisions against the fair and equitable treatment standard. It found that neither the measures enacted in 2010 nor the Royal Decree 2/2013 fell outside the acceptable range of legislative and regulatory behavior (¶¶ 688-689). However, the measures starting with Royal Decree Law 9/2013 examined according to said balancing exercise, and not in line with Eiser, were found to be radical and unexpected and entirely transforming and altering the legal and business environment under which the investment was decided and made. In fact, the tribunal found that the challenged measures of 2013 and 2014 had a significant damaging economic effect on claimant's investments (¶¶ 691-695). Consequently, the tribunal adjudicated that Royal Decree Law 9/2013, Law 24/2013, Royal Decree 413/2013 and Order 1045/2014 amounted to breach of respondent's obligation to accord to claimant fair and equitable treatment under Art. 10(1) of the ECT (¶ 697). The other claims put forward by claimant, those of full protection and security and impairment by unreasonable or discriminatory measures, were treated as a further illustration of the fair and equitable treatment standard and therefore not modifying the awarded compensation (¶ 714). Similarly, the umbrella clause was considered not to have any impact on the compensation, yet for the reason that no contract was made between claimant and respondent, and thus, this claim was dismissed (¶ 715). The expropriation claim was dismissed, as the assets were not expropriated or affected by measures having an effect equivalent to expropriation, notwithstanding the diminishing of their value due to said measures that were incompatible with the fair and equitable treatment obligation (¶¶ 762-763).
Finally, the tribunal applied the principle of full reparation enshrined in Art. 31 of the ILC Articles to determine the compensation standard for breach of Art. 10(1) of the ECT, as no relevant provision is embodied therein (¶¶ 805-809). It accepted claimant's approach to damages calculation using a method of discounted cash flow, in line with CMS (¶¶ 818, 821), as the specific model was conventional, robust and sufficiently substantiated to form the basis of damages evaluation in the present case (¶ 837). Interest was awarded on the basis of the 10-year Spanish yield bond, while no differentiation for post-award interest was made (¶¶ 846-847).
This dispute was one of the "green energy" cases concerning the legislative changes in domestic Energy Law brought against Spain. The tribunal dismissed the jurisdictional "intra-EU" objection, as it found no reason to depart from the approach followed by ECT tribunals in other previous similar cases. However, the tax objection under Art. 21 of the ECT was successful, as claimant did not establish that the legislation in question was enacted for a purpose other than raising general revenue for the state. Moreover, the present case did not involve extreme actions that led other tribunals to accept mala fide grounds. Turning to the merits, the tribunal reiterated that the application of the fair and equitable treatment standard depended on the expectations cultivated by domestic legislation in force at the time of the investment. In the present case, the respondent's assurances that were expressed in the enacted legislation and the prospectuses gave rise to legitimate and reasonable expectations of claimant. The radical change of the regulatory framework that took place thereafter reached the threshold of amounting to a violation of the fair and equitable treatment standard. The tribunal dismissed the claim of breach of the umbrella clause, as no contract was made. It also rejected the claim of expropriation, since the assets were neither expropriated nor affected by measures having an effect equivalent to expropriation. The tribunal awarded full reparation under Art. 31 of the ILC Articles using the method of discounted cash flow.
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