Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v Italy - ICSID Case No. ARB/14/3 - Award - 27 December 2016
Blusun v. Italy (ICSID Case No. ARB/14/3)
Summary by Natalia Charalampidou, citation details below.
The final award in these proceedings was issued on December 27, 2016. Claimant filed an application for an annulment decision on May 2, 2017; it is still pending.
Invoked instruments, purported breaches & administering institution:
This was an arbitration under the ECT, arising out of an alleged breach of the standard of fair and equal treatment (Art. 10(1) ECT) and/ or measures having effect equivalent to nationalization or expropriation (Art. 13(1) ECT) (¶ 6). The dispute was submitted to an ICSID arbitral tribunal according to Art. 26(4)(a)(i) of the ECT.
Any third parties or parallel proceedings:
The European Commission applied for a leave to intervene as a Non-Disputing Party pursuant to ICSID Arbitration Rule 37(2) (¶ 15). The tribunal accepted the application de bene esse (¶ 19) and the European Commission submitted it after the parties' written submissions and before the hearing. Respondent substantially incorporated the European Commission's views in its submission on the jurisdiction of the tribunal over intra-EU disputes (¶ 27). Such an application was equally filed by Eskosol, a subsidiary of Blusun. Yet, for the reasons that it was submitted extraordinary late without any excuse and that it would disrupt the proceedings, it was rejected by the tribunal (¶ 43). Further, said claimant's subsidiary, Eskosol, initiated a separate proceeding before ICSID (Eskosol v. Italy, ICSID Case No. ARB/15/50).
Claimants in this arbitration were Blusun S.A. ("Blusun"), a company incorporated on December 20, 2009 under the laws of Belgium, Mr Jean-Pier Lecorcier, a French national, and Mr Michael Stein, a German national. The first claimant is wholly owned and exclusively controlled by the two latter claimants, and owns 80% of Eskosol S.p.A. ("Eskosol") and 50% of Societá Interconnessioni Brindisi SR.L. ("SIB"), both of them incorporated under the laws of Italy. Respondent was the Italian Republic ("Italy") (¶¶ 1-5).
The dispute concerned an energy project of building 120 photovoltaic plants, joining them to each other and to two substations for connection to the national grid of an overall capacity of approximately 120 MW (¶ 53). This project further included construction of said substations, acquisition of electric power lines and obtaining construction permits (¶¶ 82, 84-90). Messrs Lecorcier and Stein to the purpose of acquiring the project, purchased the special purpose vehicles that had the rights and permits for the development of the plants in November 2009 (¶¶ 56, 57). For the development of the project Messrs Lecorcier and Stein established a Belgian holding company, Blusun, and two Italian subsidiaries, SIB and Eskosol in December 2009 (¶¶ 59, 61 ). The Italian legislative and regulatory framework for solar projects as of November 2009 provided for a simplified procedure for obtaining construction permits and allowed construction of solar plants on agricultural land (¶¶ 67-68). Further, to the purpose of encouraging the production of electricity from solar source respondent had adopted a remuneration system for solar plants based on fixed rates ("FITs"). The relevant statutory provisions provided that solar plants that became operational by a certain date would receive FITs based on the nominal power of the plant, according to a scheme that would be valid for twenty years (¶ 77). In the ensuing two years, respondent introduced changes to the regulatory framework of solar plants. Thereby the applicability of FITs was restricted, in the sense of eligible plants by the date of their entry into operation (¶ 103). The applicability of FITs was also restricted to solar plants having capacity of less than 1 MW and occupying less than 10% of the agricultural parcel on which they are erected (¶ 104). In December 2010, claimants signed an EPC contract with Siemens for the construction of the plants (¶ 96). Siemens suspended the performance of the EPC contract in March 2011 due to Eskosol's failure to make down payment (¶ 101). In autumn 2011 claimants decided to split the project and build only 27 solar plants due to the difficult financial situation of Eskosol (¶ 113). During the construction phase, local authorities issued a stop-work order preventing any work on plants in the project. This order had full effect for two days as the national court decided to suspend it. Moreover, two months later the disputed order was annulled by same court, which concluded that local authorities had excessed their power (¶ 119). Further legislative changes took place in January 2012, excluding solar plants built on agricultural land from the FITs, albeit providing for some exceptions (¶ 120). Claimants' plants could not comply with this as they were all built on agricultural land (¶ 122). Following futile attempts to transform the project in order to benefit from the FITs and to sell the substations, claimants decided to abandon the project (¶ 124).
While deciding on its jurisdiction, the tribunal noted the definitions of "investment" and "Economic Activity in the Energy Sector" set out in the ECT (Art. 1(6) and (5) of the ECT) (¶ 263) and refrained from explicitly adopting the Salini criteria (¶ 271). Further, it stated that although the ECT does not lay down an explicit requirement of legality, it does not offer protection to investments unlawful under the law of the host state at the time that they were made. It argued that this would be contrary to the international public order, citing Yukos, Plama, World Duty, Fraport, Phoenix and Minnotte v. Poland . Albeit, in this case it declined the argument of the alleged illegality of the investment, as claimants produced no specific example of fraudulent or deceptive conduct (¶ 264). Turning to the (lack of) good faith argument, it conjugated it with the one of (un)clean hands and, in view of the lack of evidence on deceiving the public authorities, it decided that it was unnecessary to decide whether a generic "clean hands" defense or ground of inadmissibility exists in international investment law (¶ 273).
The tribunal then discussed the inter se argument introduced by the European Commission. It reaffirmed the unanimous position among the parties that the applicable law in determining this issue is international law and in particular the provisions of VCLT, while adding that it can and should apply European law either as part of international law or domestic law of Italy (¶ 278). It further stated that nothing in the text of the ECT carves out or excludes issues arising between EU Member States on its face, let alone the travaux préparatoires that point against a disconnection clause (¶ 280). Thereafter, it proceeded with noting that the mere fact of the EU being a party to the ECT does not mean that the EU Member States did not have competence to enter into inter se obligations of the treaty (¶ 281), while highlighting the lack of declaration of competence in the text of the ECT in view of Arts. 6 and 46 of the VCLT. The tribunal presumed that the present dispute arose from the issue that at the time the ECT was signed the here disputed competence, now enshrined in Art. 3(2) of the TFEU, was a shared one (¶ 283). Thereafter, it noted that obligations under EU law are larger than those in ECT, while endorsing the finding that EU law can be presumed not to conflict or otherwise be inconsistent with the ECT, as in Electrabel (¶ 286). Thus, it ruled that no incompatibility of Art. 26 of the ECT with Art. 344 of the TFEU exists (¶ 288). Consequently, the suggested combined effects of the lex specialis and lex posterior presumptions were not discussed due to the lack of incompatibility between the TFEU and the ECT (¶ 290). It also offered an overview of cases brought under BITs, where the argument that accession to the EU had terminated or partially superseded the relevant BIT was rejected (¶¶ 292 -303). Thus, it dismissed the intra-EU objection (¶ 309).
When deciding on the merits of the case, the tribunal examined the claims of legal stability, fair and equitable treatment with particular emphasis on legitimate expectations and expropriation (Arts. 10(1) and 13 of the ECT) (¶ 311). The tribunal noted that the fair and equitable treatment standard under the ECT incorporates the same standard under customary international law (¶ 319(3)), hence the rule in PSEG is freely applicable (¶ 314). It went on reaffirming the award of Charanne and adopting the sharp distinction between a regulatory standard and a specific commitment of the state, while emphasizing the absence of a legitimate expectation that a legal framework shall not change parallel to acknowledging a State's obligation to act reasonably, proportionately and pursuant to public interest ( ¶ ¶ 317-374). Moreover, it ruled that, in the absence of a specific commitment, the state had no obligation to grant subsidies or to maintain them unchanged once granted (¶ 319). The tribunal was not convinced that the introduced legislative changes violated the fair and equitable treatment standard (¶¶ 329, 342) and thus Art. 10(1) of the ECT was not breached (¶¶ 330, 343, 360). It also rejected the argument that the cumulative effect of the state actions examined here caused the project to fail, as the present factual background was much different than the one in El Paso (¶¶ 361-364). Thereafter, the tribunal examined the suggestion of indirect expropriation (¶ 396), without making any distinction between the notion under ECT and the one of customary international law. In fact, it pointed to Metalclad and Electrabel in order to define said notion (¶ 398) and endorsed the finding that decisive factor is the degree of possession taking or control, as ruled in Nykomb (¶ 400). Having said that, as claimants failed to establish that any part of the investment was subject to expropriation or a situation tantamount thereto (¶ 407), the tribunal opined that the expropriation claim must fail (¶ 409).
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 Italy. The tribunal found that it had jurisdiction over this case after dismissing the raised objections. The intra-EU objection was rejected as nothing in the text of the ECT carved out issues arising between EU Member States and, in alignment with Electrabel, EU law was not in conflict with the ECT. The objection of investment's illegality was equally rejected as no specific example of fraudulent or deceptive conduct was offered. Similarly, the lack of good faith argument, which was conjugated with the one of (un)clean hands, was dismissed since no evidence on deceiving the public authorities was offered. The tribunal then proceeded to the merits of the case. It examined the alleged breach of the fair and equitable treatment standard and, after adopting Charanne, it noted that in the absence of a specific commitment, a state is not obliged to grant FITs or maintain the ones provided. This was here the case. The tribunal then discussed the indirect expropriation claim. After underscoring that decisive factor is the degree of possession or control, citing Nykomb, it noted that claimants failed to establish it. Therefore, this claim was also dismissed.
This summary comes from the following paper:
N. Charalampidou; "Range of Disputes under the Energy Charter Treaty"
OGEL 5 (2018), www.ogel.org/article.asp?key=3798
N. Charalampidou; "Range of Disputes under the Energy Charter Treaty" TDM 7 (2018), URL: www.transnational-dispute-management.com/article.asp?key=2622
The paper is part of the joint OGEL/TDM/ArbitralWomen Special Issue:
OGEL 5 (2018) - OGEL/TDM/ArbitralWomen - Strategic Considerations in Energy Disputes
TDM 7 (2018) - OGEL/TDM/ArbitralWomen - Strategic Considerations in Energy Disputes