Masdar v. Spain (ICSID Case No. ARB/14/1)
Summary by Natalia Charalampidou, citation details below.
The final award in these proceedings was issued on May 16, 2018. Respondent filed an application for a supplementary decision on July 5, 2018, which is currently pending.
Invoked instruments, purported breaches & administering institution:
This was an arbitration under the ECT, arising out of an alleged breach of the standards of fair and equal treatment, the non-impairment and the umbrella clause (Art. 10(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) (¶ 12) and was granted such, subject to a number of conditions, including an undertaking of bearing costs arising from its intervention, as the tribunal may think fit (¶ 16). The European Commission submitted the requested undertaking on costs and its written submission was incorporated into the record of the arbitration (¶¶ 25-26, 28).
Claimant in this arbitration was Masdar Solar & Wind Cooperatif U.A. ("Masdar"), a private limited company incorporated under the laws of The Netherlands on March 19, 2008. Respondent was the Kingdom of Spain ("Spain") (¶¶ 2-3, 90).
The dispute related to legislative measures undertaken by respondent in the renewable energy sector (¶ 5). 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 in November 2008 and July 2009 in three concentrated solar power plants (¶ 5) and the disputed legislative measures were enacted in 2012 (¶ 100).
The tribunal first addressed the jurisdictional objections raised by respondent, those being: (a) lack of jurisdiction "ratione personae"; (b) lack of jurisdiction "ratione materiae"; (c) lack of jurisdiction "ratione voluntatis" on the ground of Art. 17 of the ECT and, separately, due to Art 21 of the ECT; and (d) the "intra-EU" objection (¶ 144). In support of the first objection, respondent maintained that claimant's conduct was attributable to the United Arab Emirates ("UAE"), which is not a party to the ECT (¶ 145). The tribunal, taking into consideration Arts. 4, 5 and 8 of the ILC Articles as well as the CSOB award, noted that claimant was neither acting as an agent for the government nor was it discharging an essentially government function. Further, no evidence of the UAE exercising a general control over claimant and a control on its investment decisions was adduced by respondent (¶¶ 167-171). In view of the standard test of nationality of a juridical person in international law, which is the place of its incorporation, the Amco Asia award and Art. 1 of the ECT, the tribunal dismissed the objection (¶¶ 174-177). The tribunal equally rejected the second objection, in alignment to Energoaliance, although it did agree with GEA and Isolux in the sense of the term "investment" having an objective meaning in itself and therefore requiring a commitment or allocation of resources for a duration and involving risk (¶¶ 196, 198-199, 202). The denial of benefits objection was rejected by the majority of the tribunal due to the cumulative conditions of Art. 17(1) of the ECT not having been met (¶ 251). The tribunal took note of the Khan award and endorsed the aim of creating a predictable legal framework for investments in the energy field (¶¶ 235-236). It also accepted that the notification of Art. 17 of the ECT had prospective effect, an absolutely germane issue, affirming Plama, Liman Caspian Oil, Yukos Universal and Ascom. (¶¶ 239-243). The awards of Ulysseas, Guaracachi and Pac Rim, which are not ECT cases, did not provide any basis upon which to depart from the consistent line of the ECT precedent (¶¶ 244-250). The "levy" objection of Art. 21(1) of the ECT was accepted, as the tribunal concluded that the circumstances of the present case did not reach the high bar set by the cases in which tribunals concluded that the conduct of the state was such as to merit the loss of the benefit of the "carve out" provision of Art. 21(1) of the ECT (¶¶ 291, 295). Finally, the "intra-EU" objection was unconvincing, as the tribunal saw no reason to depart from the reasoning and conclusions of the final awards of PV Investors, Charanne and Isolux in regard to intra-EU disputes being excluded from Art. 26 of the ECT (¶¶ 323, 319-322) and in regard to the compatibility of the EU law with the ECT (¶¶ 340, 336-339).
Then the tribunal addressed liability, starting with the alleged breach of the fair and equitable treatment standard. It affirmed that a state is at liberty to amend its legislation, citing Parkerings, Continental Casualty v. Argentina, Plama, EDF, AES (II), El Paso, CMS and Eiser (¶¶ 485-488). It set out the two schools of thought on the question of which kind of specific commitments can give rise to protected legitimate expectations (¶¶ 489-508). Thereafter the tribunal took the view that the present case was different from Charanne, despite the common legislative changes, and it needed not be detained by the decision of this tribunal (¶ 511). The tribunal concluded that the required registration with the apposite domestic registries was not merely an administrative requirement, due to the specific letters that each plant of the present case received (¶¶ 513-517). In addition, the communication exchanged between same plants and the Ministry of Industry, Tourism and Business was conceived as specific commitment of respondent for the plants' operational lifetime (¶¶ 518-520). Thus, claimant did have legitimate expectations that the benefits granted by the domestic legislation of 2007 would remain unaltered and respondent was in breach of said standard (¶¶ 521-522). The two additional claims for breach of Art. 10(1) of the ECT were not addressed on the ground of judicial economy (¶¶ 666-668).
Remedy was provided by customary international law due to the silence of Art. 10(1) of the ECT. Thus, the Chorzów Factory standard codified in Art. 31 of the ILC Articles was applied (¶¶ 548-552). Yet, restitution was denied on the ground of unduly burdening respondent's legislative and regulatory autonomy, in alignment to LG&E and Eiser (¶¶ 559-562). Consequently, pecuniary compensation calculated on the basis of the discounted cash flow analysis was awarded (¶¶ 563, 575) with higher post-award interest compounded monthly (¶ 665).
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 Spain. The tribunal found that it had jurisdiction over this case after dismissing the raised objections. The intra-EU objection was dismissed as the tribunal found no reason to depart from PV Investors, Charanne and Isolux. The objection of lack of jurisdiction "ratione personae", as allegedly claimant was controlled by the UAE was also unsuccessful under Arts. 4, 5 and 8 of the ILC Articles, the standard test of nationality of a juridical person and lack of evidence of control. The objection on application of the denial of benefits provision (Art. 17(1) of the ECT) was dismissed, as the criteria had not been met as well as the need of predictable legal framework for investments in the energy field. However, the taxation objection (Art. 21 of the ECT) was accepted and the claim about the levy was not discussed. In discussing the merits, the tribunal took a view different from Charanne and found that the specific letters that each plant received from the authorities gave rise to legitimate expectations. Thus, respondent was in breach of the fair and equitable standard. The tribunal denied restitution. It rather awarded compensation with higher post-award interest.
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