Green Power and SCE v. Spain

SCE Solar Don Benito APS ('SCE’ or 'the Second Claimant’) is a Danish private limited company ('Anpartsselskab'), with business address at Silkeborgvej, 8000 Aarhus C/Denmark, registered under company registration number (CVR number) 30834062 and without Danish VAT registration.¹

The First and Second Claimant are jointly referred to as 'the Claimants’.

The current dispute pertains to different investments in photovoltaic plants ('PV plants’) in the Spanish solar energy market. The relevant investments were made between 2008 and 2011, and allegedly intended to profit from the applicable regulatory framework providing, inter alia, a favourable tariff regime based on State subsidies. As a result of different factors, the Respondent adopted several measures between 2010 and 2014 which altered this regulatory framework. The Claimants argue that these alterations violated the Respondent’s obligations under the Energy Charter Treaty ('ECT’) and international law and impacted its investments in the Spanish energy market. The Claimants accordingly claim payment of compensation.

The Claimants have started the present arbitration proceedings by their Request for Arbitration of 8 September 2016, submitted to the Arbitration Institute of the Stockholm Chamber of Commerce ('SCC’), and referring to Article 26 of the ECT, which entered into force for both, the Kingdom of Denmark and the Kingdom of Spain, on 16 April 1998.² Article 26(4)(c) ECT provides for 'arbitration proceedings under the Arbitration Institution of the Stockholm Chamber of Commerce’.

The Arbitration Tribunal ('the Tribunal’), appointed under Article 13 of the SCC Arbitration Rules ('SCC Rules’), consists of:

Prof. Dr. Hans van Houtte
Van Houtte Partners
A.Smetsplein 3 D, # 4.02
3000 Leuven
Belgium

Chairperson

Dr. Inka Hanefeld
Hanefeld Rechtsanwälte Rechtsanwaltsgesellschaft GmbH
Brooktorkai 20
20457 Hamburg
Germany

Co-Arbitrator

Prof. Dr. Jorge E. Viñuales
Maison de la Paix, PT-715
Ch Eugene-Rigot 2, 1202.
PO Box 1672
CH-1211 Geneva 1
Switzerland

Co-Arbitrator

On 12 September 2016, the SCC transmitted the Request for Arbitration to the Respondent, requiring it to submit an Answer to the SCC pursuant to Article 5 of the SCC Rules by 12 October 2016.

Pursuant to Article 20 of the SCC Rules, and in accordance with the letter dated 15 December 2016 of the Board of the Arbitration Institute of the Stockholm Chamber of Commerce, the seat of arbitration is Stockholm, Sweden.

On 25 January 2017, the Arbitral Tribunal issued Procedural Order No. 1, confirming inter alia that the 2010 version of the SCC Rules was applicable and establishing the further procedural framework of the arbitration proceedings.

Present were for the Claimants: Heiko Büsing, PWC Legal
Moritz Pottek, PWC Legal
Loretta van Winkoop, PWC Legal
Lars Christian Gaarn-Larsen, Green Power
Pablo Galvan, Green Power

Present were for the Respondent: Roberto Fernandez Castillo, State Attorney
Maria José Ruiz-Sanchez, State Attorney
Ahnudena Pérez-Zurita Gutierrez, State Attorney

On 3 April 2019, the Tribunal with Procedural Order No. 7 closed the proceedings pursuant to Article 34 of the SCC Rules and invited the Parties to submit their costs, as defined by Article 44 of the SCC Rules.

On 6 May 2019, the Claimants applied for a re-opening of the proceedings pursuant to Article 34 in fine SCC Rules. They asked to be entitled to add the Opinion 1/17 of the Court of Justice of the European Union ('CJEU’), published on 30 April 2019, and requested a hearing to discuss the relevance of Opinion 1/17 for the dispute before the Tribunal.

By letter of 4 December 2019, the Respondent requested leave to submit the award rendered in Stadtwerke München GmbH, RWE Innogy GmbH and Others v. the Kingdom of Spain, ICSID Case No. ARB/15/1, and the decision on jurisdiction, liability and directions on quantum rendered in BayWa R.E. Renewable Energy GmbH and BayWa R.E. Asset Holding GmbH v. the Kingdom of Spain, ICSID Case No. ARB/15/16 into the record. By e-mail of 9 December 2019, the Tribunal granted the request.

Present were for the Claimants: Oliver Bolthausen (DWF)
Lea Christ (DWF)
Andreas Panzer (DWF)
Michael Zierhut (DWF)

Present were for the Respondent: Rafael Gil Nievas (State attorney)
Javier Comerón (State attorney)
Lorena Fatás Pérez (State attorney)
Maria del Socorro Garrido Moreno (State attorney)
Elena Oñoro Sainz (State attorney)
Prof. Steffen Hindelang (Legal Expert)

On 24 March 2022, as per Procedural Order No. 10, the Claimants submitted a copy of their Powerpoint Presentation, presented in the Hearing (2), the decision of the Ad Hoc Committee in SolEs Badajoz GmbH v. Kingdom of Spain, ICSID ARB/15/38, of 16 March 2020 (as CL-349) and Council and Commission Decision 98/181/EG of 23 September 1997 on the conclusion, by the European Communities, of the Energy Charter Treaty and the Energy Charter Protocol on energy efficiency and related environmental aspects (as CL-350) into the record and provided an updated comprehensive list of all exhibits and legal authorities submitted by the Claimants. On the same day, as per Procedural Order No. 10, the Respondent submitted a copy of its Powerpoint Presentation, presented in the Hearing (2).

By 4 May 2022, the Tribunal with Procedural Order No. 11 closed the proceedings pursuant to Article 34 of the SCC rules.

In accordance with Article 24 of the SCC Rules, the Claimants request the following relief³:

(a) A declaration that the dispute is within the jurisdiction and competence of the Arbitral Tribunal;

(b) A declaration that Spain has violated the ECT and international law with respect to Claimants' investments, and thus engages its international responsibility;

(c) An order directing Spain to pay monetary damages to Claimant Green Power in an amount of EUR 43,204,887.00, and to Claimant SCE in an amount of EUR 31,122,645.00;

(d) An order directing Spain to pay pre- and post-award interest, including compound interest, to Claimants at the applicable rate until the date of Spain's full and effective payment;

(e) An order directing Spain to pay the costs of tins arbitration proceeding, including the costs of the Arbitral Tribunal, the SCC Registration Fee, as well as the legal and other costs, inclusive of all attorney's fees incurred by Claimants, on a full indemnity basis, together with interest on such costs, in an amount to be determined by the Arbitral Tribunal with applicable law;

(f) Any other relief the Arbitral Tribunal may deem just and appropriate, in the circumstances.

In their Reply on the Merits and Counter-Memorial on Jurisdiction, the Claimants further requested the Tribunal:

(g) To dismiss Respondent’s motion lit (d) that Claimants shall pay 'ICSID administrative expenses ’;

(h) To dismiss Respondent’s motion/reservation under para. 1406 of the Counter Memorial to be allowed to 'supplement, modify or complement these allegations and present any and all additional arguments that may be necessary in accordance with the ICSID Convention, the ICSID Rules of Arbitration’.

The Claimants have reserved their rights pursuant to Article 25 of the SCC Rules to amend or supplement their claims; 'in particular Claimant Green Power reserved the right to amend the respective request made under Section IX lit (c) of the Statement of Claim, by claiming monetary damages of up to EUR 45.78 million’.⁴

(a) [...] [D]eclares its lack of jurisdiction to hear the claims of the Claimants, or where appropriate, the inadmissibility of the same, [...];

(b) Secondarily [Subsidiarily] in the event that the Arbitral Tribunal were to decide that it has jurisdiction to hear the present dispute, it should reject all the claims of the Claimants on the merits, since the Kingdom of Spain has not in any way breached the ECT, [...];

(c) Secondarily [Subsidiarily], dismiss all of the Claimants’ compensatory claims, as the Claimants have no right to compensation, [...]; and

(d) Order the Claimants to pay all costs and expenses derived from this arbitration, including SCC administrative expenses, arbitrators’ fees, and the fees of the legal representatives of the Kingdom of Spain, their experts and advisors, as well as any other cost or expense that has been incurred, all of this including a reasonable rate of interest from the date on which these costs are incurred and the date of their actual payment.

'The revisions to the regulated tariff and the upper and lower limits indicated in this paragraph shall not affect facilities for which the deed of commissioning shall have been granted prior to 1 January of the second year following the year in which the revision shall have been performed.’

The following diagram indicates the exponential growth of PV capacity between 2006 and 2008, which resulted in an equivalent rise in costs of the FiTs for the Respondent.

Figure 1. Annual installed capacity of PV Plants in Spain, 1999-2012⁴⁸

'During 2012, in view of the technological development of the sector and the market and the operation of the remuneration regime, there may be modifications to the remuneration of the activity of electric energy production through solar photovoltaic technology.,⁵¹

Apart from this provision, RD 1578/2008 does not provide for a revision of the regime as Article 44 (3) RD 661/2007 did.⁵²

The difference between the legal regime under RD 661/2007 and 1578/2008 can be summarised as follows:

'The growing tariff deficit [...] is causing serious problems which, in the current international context of financial crisis, is deeply affecting the system and puts not only the financial situation of the electricity sector companies at risk, but also the sustainability of the system itself.'⁵⁷

And further:

'Due to its increasing incidence on the tariff deficit, mechanisms are established in regard to the repayment system of installations of the special regime. [...] Thus, it has become necessary to adopt a measure of urgency to guarantee the necessary legal security for those who have made investments, and set the basis for the establishment of new economic regimes that enhance compliance with the intended objectives.'⁵⁸

Green Power’s investments are structured as follows:⁶² 

To summarise, Green Power acquired, either directly or indirectly through holding companies and acquisitions of operating companies, a 100 % interest in 15 PV facilities in Spain from July 2008 until December 2010. These PV plants all came into operation after Green Power, or its holding companies, had acquired the operating companies and related EPC agreements. The 15 PV plants are subject either to the regime of RD 661/2007 or RD 15778/2008. The timing, capacity and economic regime applicable to each of these PV Plants is as follows:⁷³

Table 1

Characteristics of the Green Power PV Plants⁶²

SCE has been established as a so-called Anpartsselskab which might be best characterized as a private limited company.⁷⁴ On 24 July 2009, it acquired from Scan Energy Solar A/S the shares of what is now named SCE Solar Don Benito GmbH & Co. KG.⁷⁵ The latter is a special purpose vehicle, which had acquired in 2008 100 % of the respective shares in the Spanish companies Planta Fotovoltaica Zujar I, S.L. and Planta Fotovoltaica Zujar II, S.L. Said Spanish companies have been the owners and operators of the solar park Don Benito in the Spanish province of Badajoz (Extremadura) since 2008. The diagram of SCE's investments is as follows:⁷⁶

The Claimants rely on Article 26 ECT ['Settlement of Disputes between an Investor and a Contracting Party’] as the basis for the Tribunal’s jurisdiction. Article 26 ECT reads in relevant parts:⁹³

'(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, which concern an alleged breach of an obligation of the former under Part III shall, if possible, be settled amicably.

(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.

(3) (a) Subject only to subparagraphs (b) and (c), each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration or conciliation in accordance with the provisions of this Article.

[...]

(4) In the event that an Investor chooses to submit the dispute for resolution under subparagraph (2)(c), the Investor shall further provide its consent in writing for the dispute to be submitted to:

(a) (i) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of other States opened for signature at Washington, 18 March 1965 (hereinafter referred to as the ICSID Convention"), if the Contracting Party of the Investor and the Contracting Party party to the dispute are both parties to the ICSID Convention; or

[...]

(c) an arbitral proceeding under the Arbitration Institute of the Stockholm Chamber of Commerce.’

The Respondent has raised four objections to the jurisdiction of the Tribunal and the admissibility of certain claims. These objections were raised in the Respondent’s Counter-Memorial on the Merits and Memorial on Jurisdiction, in conformity with Article 5(1)(i) of the SCC Rules, and they were further discussed in the light of subsequent developments in the Respondent’s Submission on Opinion 1/17 and in the Respondent’s Additional Comments 2022. The first two objections were initially presented as a single general objection. In its Rejoinder on the Merits and Reply on Jurisdiction, filed after the CJEU’s Achmea Judgment, the Respondent formulated the two main dimensions of the initial objection into two separate objections. The Tribunal considers that the second formulation, which relies primarily on Articles 267 and 344 of the Treaty on the Functioning of the European Union ('TFEU’), was already contained in the first, and that it better reflects the issues that the Tribunal has to address. It therefore deems these objections timely submitted. The four objections are as follows:

First, the Respondent submits that Article 26 ECT does not apply because the Claimants do not originate from the territory of another ECT Contracting Party, as both Denmark and the Kingdom of Spain are Member States of the EU. This is hence an objection for lack of jurisdiction ratione personae (infra Section C).

Secondly, the Respondent submits that Article 26 ECT does not apply due to the primacy of EU law, which makes its offer to arbitrate under Article 26 ECT inapplicable and prevents this dispute from being submitted to arbitration. This is hence an objection for lack of jurisdiction ratione voluntatis (infra Section D).

Thirdly, the Respondent submits that there is no consent to arbitrate as far as TVPEE is concerned. The Respondent relies on Article 21 ECT, which provides that the ECT does not generate obligations regarding taxation measures (infra Section E).

Fourthly, the Respondent alleges that the expropriation claim is inadmissible since the issue has not been referred to the competent national tax authorities as required by Article 21 (5)(b) ECT (also infra Section E).

The foregoing point is relevant in connection with the Tribunal’s consideration of the arguments submitted in the Amicus Curiae Brief of the European Commission. For the Claimants, the Tribunal should not take into account the Amicus Curiae Brief of the European Commission, which is not a party to the present dispute. The Claimants refer in this regard to their objection to the European Commission’s Request.⁹⁵ The Respondent admits, referring to the award rendered in Wirtgen v. Czech Republic, that 'it is not open to a non-disputing party to raise a defence of lack of jurisdiction.’⁹⁶ However, the Respondent correctly notes that the Tribunal should review its jurisdiction ex officio.

It is on this basis that the Tribunal will give due consideration to the Amicus Curiae Brief submitted by the European Commission in these proceedings. The Tribunal refers, in this regard, to the Decision on Jurisdiction, Applicable Law and Liability rendered by the tribunal in Electrabel v. Hungary, on which both Parties to the present proceedings have extensively relied. Facing a more extreme configuration of arguments, that tribunal came to the following conclusion:

'As far as jurisdiction is concerned, the Tribunal notes that the Respondent has not raised any like objection to jurisdiction as that made by the European Commission. It is however the Tribunal’s duty independently to check whether or not it has jurisdiction to decide the Parties’ dispute, particularly when such jurisdiction is contested by the European Commission based on the interpretation and application of EU law'⁹⁷

Article 26(6) ECT requires the Tribunal to decide the 'issues in dispute in accordance with this Treaty and applicable rules and principles of international law’. According to the Respondent, the applicable law thus includes EU law, which is international law.⁹⁸

The Respondent specifies that EU law as a whole (and thus not only the EU Treaties) must be regarded as part of public international law.⁹⁹ Relying on the awards in Electrabel v. Hungary¹⁰⁰ and Blusun v. Italy,¹⁰¹ on the decision in Vattenfall v. Germany on the 'Achmea issue’,¹⁰² and on the judgment of the CJEU Grand Chamber in the Achmea case¹⁰³ (the 'Achmea Judgment’), which all recognise that EU law operates as international law,¹⁰⁴ the Respondent emphasises that the entire EU legal order, which stems from treaties that are part of international law, is itself part of international law.¹⁰⁵ The Respondent also refers, in this connection, to the case law of the CJEU, inter alia Budějovický Budvar, národní podnik v. Rudolf Ammersin GmbH¹⁰⁶ as well as to the judgment of the German Bundesgerichtshof of 31 October 2018,¹⁰⁷ which annulled the arbitral award in Achmea v. Slovakia.¹⁰⁸

The Respondent submits that under Article 26(6) ECT, international law not only applies to the merits of the dispute but also to jurisdictional matters.¹⁰⁹ In its Additional Comments 2022, the Respondent further emphasises, by reference of the judgment of the CJEU Grand Chamber in the Komstroy case¹¹⁰ (the 'Komstroy Judgment’), that EU law must be necessarily applied to the determination of jurisdiction in the present proceedings because the ECT itself, as an international agreement ratified by an EU act, is part of the EU law.

The Respondent further observes¹¹⁸ that it is on this basis that Swedish courts are required to apply the rulings of the CJEU and will on that basis annul decisions by arbitral tribunals asserting jurisdiction in contradiction with such rulings. This argument is made by reference to the referral by the Swedish Supreme Court to the CJEU under Article 267 TFEU in the case Poland v. PL Holdings, leading to a CJEU Judgment in this case¹¹⁹ (the 'PL Holdings Judgment’), and the withdrawal by the Svea Court of Appeals of another Article 267 TFEU referral, in the case Italy v. Athena¹²⁰, upon reception of the CJEU’s Komstroy Judgment and PL Holdings Judgment.¹²¹ The Respondent sees these developments as an indication of the accuracy of its arguments.¹²²

Contrary to the Respondent’s position,¹²⁸ the Claimants observe that Article 26(6) ECT, which sets out the law applicable to 'the issues in dispute’,¹²⁹ only refers to the law applicable to the 'merits ’. The Tribunal’s jurisdiction is, instead, determined by the general principles of international law as well as by the law that has been agreed upon by the Parties, namely the ECT.¹³⁰

The Claimants argue that this view is supported by Article 22 SCC Rules, which likewise only applies to the merits of the dispute.¹³¹ Thus, they contend that neither Article 22 SCC Rules nor Article 26(6) ECT are relevant to the question of the Tribunal’s jurisdiction, a position likewise supported by the Vattenfall arbitral decision.¹³²

The Claimants ascertain that even if Article 26(6) ECT referred to the law applicable to jurisdiction, rules of international law in terms of Article 26(6) ECT would not include EU law. In this regard, the Claimants rely on para. 133-134 of Opinion 1/17 in which the CJEU concluded with regard to a similarly worded provision in the CETA that "the CETA Appellate Tribunal [will not] be called upon to interpret or apply the rules of EU law other than the provisions of the CETA."¹³³ Further, the Claimants contend that EU law cannot be qualified as public international law. While the basis for public international law is consensus of the participating states, the basis of EU law is the sovereign command or the institutionally guaranteed regulation of a superior coercive organisation.¹³⁴

The Claimants acknowledge that the arbitral tribunal in Vattenfall v. Germany admitted that in arbitrations subject to the SCC Rules - instead of to the ICSID Convention, as in Vattenfall 'the arbitral jurisdiction may be circumscribed by the local arbitration law of the place of arbitration'.¹³⁵ However, the Claimants argue that in the present case the Parties did not choose Stockholm as the seat of arbitration but that it was the SCC Board which selected that seat after the Respondent’s arbitration offer became an arbitration agreement by the submission of the Claimants’ Request for Arbitration. In their view, since the seat in Sweden is fortuitous, the arbitration agreement should only be affected by international law, from which it emanated.

The Claimants admit that the lex arbitri provides the basis to challenge an award before Swedish courts.¹⁴⁴ However, they do not see in some earlier developments invoked by the Respondent, such as the stay by the Svea Court of Appeals, on 16 May 2018, of the enforcement of the award rendered in Novenergia Il-Energy & Environment, SICAR vs. Kingdom of Spain, any confirmation of the accuracy of the Respondent’s arguments.¹⁴⁵

The starting point of the analysis, as was mentioned in Procedural Order No. 1, paragraph 3, is Article 26 ECT. Specifically, Article 26(6) ECT contains a 'choice of law’ clause according to which '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’. However, the Parties disagree on the interpretation of this provision and, specifically, as to whether this provision attracts the application of EU law into these proceedings for jurisdictional matters. For the Respondent, the ordinary meaning of the terms 'applicable rules and principles of international law’ plainly encompasses EU law as a whole, including for jurisdictional matters. Moreover, the ECT itself, including Article 26 ECT, would in all events have to be considered as EU law, as noted in the Komstroy Judgment. The Claimants argue instead that EU law, due to its specificities, would not be covered by this clause or only to a limited extent with respect to the merits of the dispute.

The Tribunal considers that, although constituting a 'choice of law’ clause in the ECT, Article 26(6) ECT does not provide a conclusive answer regarding the law applicable to jurisdiction. The ordinary meaning of the terms 'issues in dispute in accordance with this Treaty and applicable rules and principles of international law’ would admit several interpretations, including those advanced by the Parties.

However, a contextual interpretation of this provision relying on Article 26(1) ECT to ascertain the meaning of 'issues in dispute' clarifies the scope of Article 26(6) ECT significantly. Indeed, Article 26(1) ECT refers to disputes 'which concern an alleged breach of an obligation [...] under Part IIP of the ECT. This leads to the conclusion that Article 26(6) ECT only contains a choice of law rule for the merits of the dispute, and not for the jurisdictional assessment. The Tribunal notes that the arbitral tribunal in Vattenfall v. Germany reached the same conclusion,¹⁴⁷ and so did the tribunal in Sevilla Beheer v. Spain,¹⁴⁸ on which the Claimants rely to challenge the relevance of the Komstroy Judgment.¹⁴⁹

For present purposes, this conclusion means that the Parties have not agreed on the law applicable to jurisdictional matters under Article 26(6) ECT. The agreement of the Parties on the arbitration rules applicable to the present proceedings, i.e., the SCC Rules, does not assist in the resolution of this question, either. Indeed, as rightly noted by the Claimants, Article 22 SCC Rules concerns the law applicable to the merits of the dispute, as it has been noted by the Tribunal in Procedural Order No. 1, paragraph 4.

Absent an explicit or implicit choice of law in the ECT or the SCC Rules, the Tribunal must then ascertain the law applicable to its jurisdiction, taking as a starting point Article 26 ECT. This was also the position taken by the Vattenfall tribunal, which held that: 'In the absence of any choice of law clause for the law applicable to the Tribunal’s jurisdiction, it follows that questions of the Tribunal’s jurisdiction must be answered under the terms of the ECT itself, and in particular Article 26 thereof.'¹⁵⁰

However, considering Article 26 ECT as the starting point for the Tribunal’s determination does not mean that it is the only provision relevant for jurisdictional purposes. Other provisions of the ECT and of international law, whether customary or treaty law, may also be relevant and applicable. Arbitral tribunals constituted under the ICSID Convention likewise routinely rely on such Convention, particularly - but not only - on its Article 25, as part of the law applicable to the determination of jurisdiction. Such was the case of the arbitral tribunals in Electrabel v. Hungary¹⁵¹ and Vattenfall v. Germany,¹⁵² which both operated under the ICSID Convention, and which both Parties in this arbitration have extensively quoted in their pleadings. Similarly, the tribunal in Sevilla Beheer v. Spain, which also operated under the ICSID Convention, reasoned that the jurisdiction was to be determined under Article 26 ECT, but it also relied on Article 25 of the ICSID Convention.¹⁵³

The reasoning of these tribunals, as well as of some others referred to by the Parties for several purposes in their pleadings, is also noteworthy to highlight a significant difference between ICSID proceedings and arbitration proceedings such as the present one. As noted by the arbitral tribunal in Electrabel v. Hungary: 'this ICSID arbitration does not have its seat or legal place of arbitration in Hungary or elsewhere in the European Union. Such an arbitral seat could trigger the application of the lex loci arbitri and give rise to the jurisdiction of the local courts in regard to the arbitral process, including challenges to the award' (emphasis added).¹⁵⁴ Similarly, in Vattenfall v. Germany, addressing specifically the implications of the Achmea Judgment, the arbitral tribunal observed that: 'In contrast, in cases where the investor opts for another forum, such as an ad hoc UNCITRAL arbitration or arbitration under the SCC Rules, that tribunal’s jurisdiction may be circumscribed by the local arbitration law of the place of arbitration’ (emphasis added).¹⁵⁵

This observation is relevant for the present case, in which the Claimants could have opted for an ICSID arbitration under Article 26(4)(a)(i) ECT, given that both Demnark and Spain are - and were at the time the arbitration was commenced - parties to the ICSID Convention. The Claimants opted instead to conduct the proceedings under the SCC Rules and, upon the Claimants’ proposal in a letter dated 21 October 2016, the seat of the arbitration was set in Stockholm.¹⁵⁶ Both Parties agree that this determination of the seat attracts the application of Swedish arbitration law, particularly the SAA, as the applicable lex arbitri.¹⁵⁷

In point of fact, the application of this lex arbitri and the control exercised by the Swedish courts was one of the considerations for which the Claimants opted for a SCC arbitration in Stockholm. As noted in the aforementioned letter of 21 October 2016: 'The reference in Article 26 (4) (c) of the ECT to SCC arbitration at Stockholm has, at least impliedly, also granted to Claimants the advantages of the pertinent lex arbitri, i.e. the Swedish Arbitration Act as the law governing the arbitral proceedings which take place in Sweden’ (emphasis added).¹⁵⁸

The selection of the seat in Sweden, an EU Member State, also attracts the application of EU law, which is part of the law in force in every EU Member State, including Sweden. As noted by the CJEU Grand Chamber in the Achmea Judgment, where the underlying arbitration had its seat in Germany: '[g]iven the nature and characteristics of EU law [...] that law must be regarded both as forming part of the law in force in every Member State and as deriving from an international agreement between the Member States’.¹⁶¹ This conclusion has been confirmed by the CJEU Grand Chamber in the Komstroy Judgment, where the seat of the arbitration was in France: 'in any event, it should be noted that the parties to the dispute [...] chose [...] to submit that dispute to an ad hoc tribunal [...] and agreed [...] that the seat of the arbitration should be established in Paris. That choice, made freely by those parties, has the effect of rendering applicable French law as the lex fori to the dispute [...] under the conditions and within the limits laid down by that law. [...] EU law forms part of the law in force in every Member State. Consequently, the establishment of the seat of arbitration on the territory of a Member State, in this case France, entails, for the purposes of the proceedings brought in that Member State, the application of EU law, compliance with which the court hearing the case is obliged to ensure in accordance with Article 19 TEU.¹⁶²

Furthermore, it is the peculiarity of investment treaty arbitration to oppose private persons (whether physical or legal) and States, a feature which requires the determination, at the jurisdictional stage and beyond, of a range of legal questions that cannot be fully subsumed under domestic law alone. Swedish arbitration law can only to some extent deal with the matters relevant for the determination of jurisdiction in the present case. Some other matters must necessarily be analysed under international law, including - potentially - the interpretation under the law of treaties of certain provisions, such as Articles 21, 25 and 26 ECT, which have been raised in the Respondent’s jurisdictional and admissibility objections.

In conclusion, the Tribunal considers that both under international law, in the exercise of its compétence de la compétence, and under the applicable lex arbitri, it is required to take as a starting point Article 26 ECT and then consider and, if necessary, apply other rules of both international law and domestic law, as relevant for each question.

The reasoning of the arbitral tribunal in Electrabel v. Hungary on this point is apposite here: 'EU law has a multiple nature: on the one hand, it is an international legal regime; but on the other hand, once introduced in the national legal orders of EU Member States, it becomes also part of these national legal orders' (emphasis added).¹⁶³ The Electrabel tribunal concluded that 'EU law as a whole is part of the international legal order'¹⁶⁴ on the grounds that 'it would be artificial to categorise, as an international legal rule, Article 87 EC (precluding 'any aid granted by a Member State or through State resources...incompatible with the internal market’), and refuse that same status to the necessary implementation of that international rule by the non-national organ created by the same EU treaty [...] For this international rule to be translated into legal obligations binding on EU Member States, decisions have to be taken by the European Commission.'¹⁶⁵ The tribunal thus considered EU law as a whole to be applicable as international law, including for jurisdictional purposes, but it concluded that there was 'no relevant inconsistency between EU law, the ECT and the ICSID Convention in the present case, as regards both the merits of the Parties’ dispute and the Tribunal’s jurisdiction to decide this dispute."¹⁶⁶

With respect to the application of EU law as part of domestic law, the Electrabel tribunal noted that 'when it is not applied as international rules under the ECT, EU law must in any event be considered as part of the Respondent’s national legal order, i.e. to be treated as a fact’ before this international tribunal.'¹⁶⁷ Irrespective of whether or not considering domestic law as a 'fact’ is an appropriate approach in the specific context of ICSID arbitration proceedings, a context which the arbitral tribunal in Electrabel repeatedly recalled,¹⁶⁸ it is certainly not so under Section 48 SAA in respect of the law governing the 'arbitration agreement’. EU law is unquestionably part of the Swedish legal system, as of that of other EU Member States, and it therefore has a bearing on some questions arising under the SAA, such as matters of arbitrability, public policy, and validity of the arbitration agreement under Sections 33 and 34 SAA. It must therefore be applied to determine the jurisdiction of the Tribunal in the present case.

The Respondent’s first argument is that the wording of Article 26(1) ECT excludes any case where an investor of one EU Member State has a dispute with another EU Member State in relation to its investment in that State because, pursuant to Article 26 ECT, a dispute must be between a 'Contracting Party' and an 'investor of another Contracting Party’.¹⁶⁹

The Respondent also contends in its Rejoinder on the Merits that the Claimants’ double Danish and European nationality excludes this dispute from the jurisdiction of the Tribunal. In particular, the Respondent argues that Article 26(1) ECT requires a diversity of nationalities in arbitration procedures.¹⁷¹ The Respondent makes this argument by analogy with the diversity requirement in Article 25(2) ICSID Convention.¹⁷² Because both Spain and Denmark are EU Member States, the Denmark-based Claimants hold both Danish and European nationality under Article 20 TFEU.¹⁷³ Therefore, Claimants cannot be considered foreign investors in Spain as there is no diversity of nationality, Denmark and Spain sharing the European nationality.

In support of their interpretation of Article 26(1) ECT, the Claimants rely on Article 31(1) of the VCLT, which provides that: 'A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose'.¹⁷⁵

According to the Claimants, relying, amongst others, on Kruck v. Spain, the 'ordinary meaning’ of the terms 'an Investor of another Contracting Party’ in Article 26(1) ECT does not, within an intra-EU context, exclude investors from EU Member States. Rather, if one considers the definition of 'Contracting Party’ in Article 1(2) ECT,¹⁷⁶ each EU Member State in relation to another EU Member State is 'another Contracting Party It follows that investors from one EU Member State investing in another EU Member State are 'Investors of another Contracting Party ’ under Article 26(1) ECT.¹⁷⁷

The Claimants also rely on the definition of 'Area’ in Article 1(10) ECT to support their position. They say that the definition of 'Area’ must be read in the context of Article 26(1) and, relying on the arbitral decision in Charanne v. Spain, they argue that the territory of the EU does not replace the territories of the Member States. The Claimants further note that this interpretation was confirmed in Isolux v. Spain, where the Respondent raised the same argument.¹⁷⁹

For the European Commission, Article 26 ECT does not apply to intra-EU investment disputes. It notes that the ECT, as well as its predecessor, the European Energy Charter, were from the outset EU projects whereby the EU and the Member States acted as a single contracting party. Consequently, for the European Commission, it was clear from the very beginning that the ECT was not designed to apply amongst EU Member States for matters where competence was transferred to the EU.¹⁸²

The Tribunal does not agree with the Respondent’s contention that the investment dispute between the Danish Claimants and the Kingdom of Spain is not a dispute between 'a Contracting Party’ and 'an investor of another Contracting Party’, as required by Article 26(1) ECT.

Under Article 31(1) VCLT, the terms 'Contracting Party’ and 'investor of another Contracting Party’ in Article 26(1) ECT have to be interpreted 'in accordance with the ordinary meaning to be given to the terms’. In this light, there is nothing in Article 26(1) ECT that prevents Denmark and Spain as EU Member States from constituting a ' Contracting Party’ under the ECT in respect of each other. In this regard, the Tribunal takes notes of the similarly-minded decision of the arbitral tribunal in Kruck v. Spain which stated: "But nothing in the wording of ECT Article 26 points to the conclusion that because the EU is itself a Contracting Party, [Member States] cease to be distinct Contracting Parties vis-à-vis another."¹⁸⁴

The coincidence that, under Article 20 TFEU, the Danish investors have, besides the Danish nationality, also an EU nationality, which they happen to share with Spanish nationals, does not erase their Danish nationality.

Nor is it relevant that, to define the territorial application of the ECT in the EU, under Article 1(10) ECT, the EU has an 'Area’ which encompasses the territories of the EU Member States. Indeed, this does not mean that each EU Member State, for the purpose of the ECT, has ceased to have its own territory. The Tribunal agrees with the conclusions of the arbitral tribunals in Charanne v. Spain and Isolux v. Spain, according to which the territory of the EU does not replace the territory of the EU Member States.¹⁸⁵

The Respondent also refers to the Achmea Judgment,¹⁹⁶ which it considers very clear on the matter and which excludes any further detailed consideration of the Advocate General’s contrary opinion. Indeed, for the Respondent, the Achmea Judgment implies that, when Member States submit disputes to arbitral tribunals, which are not part of the EU court system and cannot request preliminary rulings from the CJEU on the interpretation of the EU Treaties, the autonomy of EU law would be undermined. The CJEU has maintained and further clarified this position with respect to arbitral tribunals hearing disputes arising from the ECT in the Komstroy Judgment¹⁹⁷ and with respect to domestic laws admitting ad hoc arbitration agreements between an EU Member State and an investor of another EU Member State in the PL Holdings Judgment.¹⁹⁸ Both subsequent decisions confirm the underlying reasoning of the Achmea Judgment for the issues and contexts they discuss.¹⁹⁹

The starting point of the Achmea Judgment,²⁰⁰ according to the Respondent, is that the autonomy of the Union has to be ensured by the EU judicial system, with at its core the possibility to refer questions for a preliminary ruling to the CJEU under Article 267 TFEU.²⁰¹ The Tribunal, the creation of which rests on Article 26 ECT, is not part of the EU judicial system and has no possibility to refer questions for preliminary rulings to the CJEU under Article 267 TFEU.

The Respondent concedes that the Achmea Judgment, in paragraphs 57-58, states that an international agreement which has established a court responsible for the interpretation of its provisions and whose decisions are binding on the institutions, is not in principle incompatible with EU law when the autonomy of the EU legal order is not jeopardized.²⁰² Such a possibility has been confirmed by the CJEU in its Opinion 1/17²⁰³ and in the Komstroy Judgment.²⁰⁴ However, such international agreements would only be compatible with EU law 'provided that the autonomy of the EU and its legal order is respected'. International agreements providing for their own specific dispute settlement mechanisms, which do not respect the autonomy of the EU and its legal order, are incompatible with EU law.

Article 344 TFEU applies regardless of whether the Member State’s counterparty is another Member State or a private investor from such Member State.²⁰⁷ Unlike a provision such as Article 273 TFEU which expressly states that it applies 'between Member States’, the wording of Article 344 TFEU does not contain this limitation, and it therefore concerns also investment disputes between an EU Member State and an investor of another EU Member State.²⁰⁸ This has been confirmed by the CJEU in the Achmea Judgment and in the Komstroy Judgment to which Respondent refers.²⁰⁹ Article 344 TFEU prevents Spain from referring any dispute with an investor concerning the application or interpretation of EU law, including one relating to the Internal Electricity Market, to international arbitration²¹⁰ because this method of dispute settlement would not guarantee the autonomy of EU law, as required under Article 344 TFEU.²¹¹

The Respondent affirms that the impact of the Achmea Judgment, which concerned an intra-EU case relating to the Bilateral Investment Treaty ('BIT’) between The Netherlands and the Slovak Republic ('Netherlands-Slovakia BIT’), cannot be limited to BITs but also applies to multilateral investment treaties such as the ECT.²¹² Indeed, it is the circumvention of the judicial system established by the EU Treaties by a whole category of disputes, whether on the basis of a BIT or of a multilateral investment treaty, that violates fundamental EU law principles and undermines the autonomy of the EU.²¹³

The Respondent observes that any doubt regarding the relevance of the Achmea Judgment for arbitration proceedings based on Article 26 of the ECT has now been removed by the Komstroy Judgment, where the CJEU Grand Chamber reproduced the holdings made in Achmea and expressly noted that 'it must be concluded that Article 26, paragraph 2, letter c), of the TEC [i.e. the ECT] must be interpreted in the sense that it is not applicable to the disputes between a Member State and an investor from another Member State in relation to an investment made by the latter in the first Member State’²¹⁶

Referring to the decision of the arbitral tribunal in Vattenfall v. Germany, the Respondent points out that the CJEU’s interpretation of Articles 267 and 344 TFEU in the Achmea Judgment is part of EU law, and therefore it is binding on all instances where these provisions have to be interpreted and applied.²¹⁹ The Respondent submits that the arbitration clause of the ECT excludes from the jurisdiction of the EU judicial system the dispute between an investor of an EU Member State and an EU Member State, and that it is therefore inconsistent with the autonomy of EU law.

As noted earlier in connection with the law applicable to jurisdiction, the Respondent argues that EU law as a whole (and thus not only the EU Treaties) must be regarded as part of public international law.²²⁴ Referring to the Achmea Judgment²²⁵ and to the decision in Electrabel v. Hungary²²⁶ the Respondent emphasises that the entire EU legal order, which stems from treaties that are part of international law, is itself part of international law.²²⁷ The Respondent refers, in this connection, also to the case law of the CJEU, including Budějovický Budvar, národní podnik v. Rudolf Ammersin GmbH²²⁸, as well as to the judgment of the German Bundesgerichtshof of 31 October 2018.²²⁹

Referring to the Achmea Judgment, as subsequently confirmed by the Komstroy Judgment, the Respondent contends that it could not be deemed to have offered arbitration as a means to settle the present dispute under Article 26 ECT because: (i) the dispute before the Tribunal requires the interpretation and application of EU law, including the ECT itself, matters of foreign direct investment and State aid, which are under the Union’s exclusive competence, as well as, ultimately, the fundamental freedoms of the EU²⁴¹; (ii) the present arbitration proceedings could not respect the autonomy of EU law to the extent that the ECT would not be capable of 'guaranteeing the full application of EU legislation in all Member States and guaranteeing the judicial protection of people’s rights pursuant to the Law’²⁴²; and (iii) the Tribunal’s award would not be subject to a sufficient degree of review by a court of a Member State.²⁴³

In all events, and in subsidiary order, the Respondent argues that, even if it were considered that Spain may have consented to intra-EU arbitration of investment disputes in Article 26 of the ECT, such consent would not be valid, as authoritatively stated by the CJEU in its Achmea Judgment,²⁴⁹ and subsequently confirmed in the Komstroy Judgment.²⁵⁰

For the Respondent, also under international law, the EU Treaties prevail over the ECT by virtue of Articles 30 and 59 VCLT.²⁵³ The Lisbon Treaty, which excludes ECT arbitration for intra-EU investment disputes in its Article 344 TFEU, was concluded in 2007, while the ECT was concluded in 1994. Under Articles 30 and 59 VCLT, Article 344 TFEU would thus prevail over a prior provision, i.e. Article 26 ECT. Consequently, also from this perspective, Article 26 ECT is no longer applicable for intra-EU investment disputes covered by Article 344 TFEU.²⁵⁴

The Respondent furthermore refers to the Member States’ 'Declaration of 15 January 2019 on the legal consequences of the Judgment of the Court of Justice in Achmea and on the investment protection in the European Union’, which confirmed that Article 26 ECT was not applicable between EU Member States.²⁶² For the Respondent, this Declaration is not only a political statement, but also, under Article 31 VCLT, an important expression of the EU Member States which signed the Declaration on their understanding of Article 26 ECT.²⁶³

The Respondent further notes that, any doubt pertaining to the application of the CJEU’s conclusions in the Achmea Judgment to Article 26 ECT has been put to rest by the CJEU’s reasoning in the Komstroy Judgment, where the Grand Chamber expressly stated that 'it must be concluded that Article 26, paragraph 2, letter c), of the TEC [i.e. the ECT] must be interpreted in the sense that it is not applicable to the disputes between a Member State and an investor from another Member State in relation to an investment made by the latter in the first Member State’ .²⁶⁵

Relying on the reasoning of the tribunal in Electrabel v. Hungary, the Respondent observes that the ECT should be interpreted, as far as possible, in harmony with EU law. For the Respondent, several provisions within the ECT, if properly analysed, indicate that the ECT can operate in harmony with EU law as it does not apply to intra-EU investments.²⁶⁶

The Respondent considers that the primacy of the EU legal system is recognised inter alia in the text of Article 1(3) ECT, which admits Regional Economic Integration Organisations ('REIO’) as Contracting Parties and expressly recognises the decisions taken by a REIO as 'binding on [its Member-States] in respect to those matters’. The EU is the only REIO that is party to the ECT.²⁶⁷ Consequently, according to the Respondent, for matters over which competence has been transferred to the EU, the Member States are inter se bound by EU law and no longer by the ECT.²⁶⁸

Moreover, for the Respondent, Article 25 ECT, which provides that the ECT’s most-favoured-nation obligation does not extend any preferential treatment given to Member States of an Economic Integration Area ('EIA’) (such as the EU) to countries which are not part of that area, also suggests that the ECT recognises the preferential nature of the EU protection system, which is thus not extended beyond intra-EU relations.²⁶⁹

The Respondent furthermore notes that the principle according to which the EU stands in the shoes of its Member States in areas where it has competence, is also reflected by Article 36(7) ECT, which accords a REIO, hence the EU, a number of votes equivalent to the number of its Member States for matters over which the REIO has competence.²⁷⁰ The Respondent finally observes that its interpretation of the ECT is confirmed by the ECT’s purpose.²⁷¹

The Respondent’s primary contention under this heading remains that the objectives of the EU Treaties, i.e. a common market based on the principle of non-discrimination and price formation in accordance with the rules of the market, were not similar to those of the ECT, but in fact exceeded them. However, even if the ECT could be said to cover the same subject-matter as the EU Treaties, the regime introduced by the EU Treaties would still prevail over the ECT under Article 16 ECT, because the ECT grants less favourable substantive rights to the investor than EU law does. Nor is arbitration, provided for in Article 26 ECT as one of several possibilities, a more favourable dispute resolution mechanism, because under the ECT no discrimination or illegal State aid in the investment process is sanctioned.²⁷²

As noted earlier in the discussion of the law applicable to jurisdiction, the Respondent submits that under Article 26(6) ECT, international law not only applies to the merits of the dispute but also determines whether the Tribunal can assume jurisdiction over a dispute.²⁷³ According to the Respondent, the international law that the Tribunal is required to apply under Article 26(6) ECT comprises EU law, which is contained in or follows from an international treaty such as the TFEU.²⁷⁴ The Respondent extensively relies on the award in Electrabel v. Hungary²⁷⁵, the award in Blusun v. Italy²⁷⁶ and the decision of the arbitral tribunal in Vattenfall v. Germany,²⁷⁷ which all recognised that EU law operates as international law.²⁷⁸ Within the body of international law applicable to the dispute, the Tribunal therefore has to apply EU law - including the EU rules governing the Internal Electricity Market - as part of its implementation of the EU fundamental freedoms. Moreover, following the Komstroy Judgment, the Respondent also notes that EU law would apply to the present dispute because the ECT itself is part of EU law as well as because foreign direct investment and State aid law are exclusive competences of the EU.²⁷⁹

The Respondent observes that the non-arbitrability of the dispute and/or invalidity of the arbitration agreement because of EU law is part of the domestic law of the Member States and concludes that, regardless of whether the Tribunal decides its jurisdiction under international law, as Article 26 ECT suggests, under Swedish law (i.e. the law of the seat), or under Spanish and Danish law (i.e. the law of the Parties), the result is that it has no jurisdiction over the present dispute.²⁹⁰

For the Claimants, the ECT contains the Respondent’s offer, governed by international law, to unconditionally consent to arbitration, which is met by the Claimants’ consent through the Request for Arbitration, equally governed by international law.²⁹³ Under Article 216(2) TFEU, the EU Institutions and the Member States are bound by the ECT.²⁹⁴

The Claimants further argue that the Tribunal, established under a public international law instrument, the ECT, has to take an 'outsider’s perspective' vis-à-vis EU law and that EU law is thus not (automatically) to be seen as 'supreme'.²⁹⁶ The Claimants rely on the award rendered in Electrabel v. Hungary, which indicated that 'the Tribunal is required to operate in the international framework of the ECT and the ICSID Convention, outside the European Union'.²⁹⁷ They moreover refer to the award rendered in RREEF v. Spain, according to which 'in case of any contradiction between the ECT and EU law, the Tribunal would have to insure the full application of its 'constitutional’ instrument upon which its jurisdiction is founded.'²⁹⁸ They also note that in Landesbank Baden-Württemberg et al. v. Kingdom of Spain, the Tribunal stated that "[it] does not [...] operate under EU law but under international law and, in particular, the terms of the ECT.²⁹⁹

For the Claimants, the Respondent cannot pretend not to be bound by the ECT for intra-EU investment disputes on the grounds that the ECT is incompatible with the fundamental principles of EU law with regard to the fourth freedom and the harmonisation of the EU Internal Energy Market. Referring to Western Sahara Campaign UK,³⁰⁰ the Claimants submit that the CJEU itself recognised that the EU is bound by the international treaties it has concluded. According to the Claimants, the EU and the Member States cannot invalidate existing international treaties. Therefore, the Achmea Judgment cannot be interpreted to invalidate investment treaty arbitration clauses such as Article 26 ECT.³⁰¹ The Claimants further note that "whenever the ECJ refers to certain international agreements being incompatible with EU law, it is necessary to check whether said agreement is already in force or not. [...] Whenever reference is made [...] with regard to the compatibility of the EEA Agreement, the Accession of the EU to the ECHR or the Opinion on the Patent Court, one has to bear in mind that the respective international agreements were subject to opinion procedures before the EU’s accession to them.³⁰²

The Claimants dispute the Respondent’s contention that, when ratifying the ECT, Spain could not have made an offer to arbitrate under Article 26 ECT because of the 'prevailing’ framework of the EU Internal Energy Market. For the Claimants, Article 46 VCLT does not allow Spain to allege that it could not bind itself to the ECT because it would thereby allegedly violate provisions of internal law (including EU law).³⁰³ As stated in Article 27 VCLT, the Respondent can neither invoke its domestic law or EU law to justify its breach of ECT obligations. Indeed, EU law, in its double capacity of institutional law of the EU and domestic law of the Member States, does not allow to deviate from the principle of pacta sunt servanda.³⁰⁴ Referring to previous intra-EU cases,³⁰⁵ decisions in WTO Dispute Settlement proceedings³⁰⁶ and other multilateral treaties such as CETA,³⁰⁷ the Claimants urge the Tribunal to consider EU law as a factual element of municipal law, in an arbitration under the ECT, where international law applies to the merits. EU law thus should only be considered as a fact.³⁰⁸

The Claimants note that the absence of a disconnection clause has been acknowledged by tribunals in other intra-EU arbitrations under the ECT.³²⁰ For example, in Foresight Luxembourg Solar 1 S.A.R.L et. al. vs. Kingdom of Spain, the tribunal asserted: "The ECT does not contain a disconnection clause. Further, the Tribunal can discern no attempt in the ECT’s provisions to carve out 'intra-EU’ investor State disputes from the protections afforded by the treaty."³²¹ More so, in FREIF Eurowind Holdings Ltd. v. Kingdom of Spain, the tribunal emphasized that "[t]he lack of any express carve out is of particular note given that the ECT allows ORIEs such as the EU to become Contracting Parties [...]. If the ECT intended to exclude the jurisdiction of arbitral tribunals when competence over certain matters governed by the ECT has been transferred to an ORIE, Spain’s complaints ought to have been front of mind in the drafting of Article 26 [...]."³²²

EU law does not contain any rules on investor-State arbitration or a substantive protection standard such as Articles 10 and 13 ECT.³²⁶ The Claimants refer in this regard to the decision on the Achmea issue rendered by the arbitral tribunal in Vattenfall v. Germany, which noted also that Articles 267 and 344 TFEU do not concern the same subject matter as Part III and V of the ECT.³²⁷ Articles 267 and 344 TFEU are not a stumbling block for the compatibility of EU law with Article 26 ECT.³²⁸

The Claimants disagree with the Respondent that, under Articles 30(3) and 59(1) VCLT, EU law would prevail over the ECT.³³³ They observe that for Articles 30(3) and 59(1) VCLT to apply, the ECT and EU law must cover the same subject-matter. This is not the case because the substantive protection standard granted to an investor in the ECT is far more specific than any rules available under EU law.³³⁴

With respect to Article 30 VCLT, the Claimants more specifically submit that this Article does not preclude the application of ECT -provisions in intra-EU arbitrations.³³⁵ Article 30 VCLT only governs the issue of incompatible provisions in successive treaties.³³⁶ However, the Claimants reiterate that no incompatibility exists between the ECT and EU law because they cover a different subject-matter.

In the event of any incompatibility, the EU and the Member States would certainly have adopted a subordination clause to indicate which body of rules prevails, as foreseen in Article 30(2) VCLT. However, neither the ECT nor the EU Treaties contain such a clause.³³⁷

Finally, even assuming that the ECT and EU law were covering the same subject-matter and were incompatible, the Claimants still argue that the ECT would prevail over EU law under the explicit collision rule of Article 16 ECT.³³⁸ For the Claimants, Article 16 ECT establishes the ECT’s priority over any other prior or subsequent treaty which is less favourable for the investor (such as the EU Treaties).³³⁹ The Claimants rely in this regard on the award in RREEF v. Spain, which concluded that what is more favourable has to be 'determined from the perspective of public international law, not of EU law.’ ³⁴⁰

In the Claimants’ view, the ECT is indeed more favourable for investors than EU law because Article 26 ECT does not limit the ability of the investor to pursue its claim before the national courts of the host State; in addition, it confers the right to bring its claim before a neutral forum, i.e. international arbitration. EU law or Spanish national law do not contain any comparable, effective and neutral dispute settlement mechanism for investor claims against sovereign States.³⁴¹ Quite to the contrary, they prohibit that mechanism of dispute resolution. According to the Claimants, empirical data shows that international arbitration is clearly more favourable to the investor than court settlement.³⁴² Moreover, for the Claimants, the SolEs Badajoz, Masdar and Oostergetel awards, and the Vattenfall v. Germany decision have confirmed that the right enjoyed by investors under the ECT to bring claims directly against the Contracting Party in international neutral arbitration proceedings is more favourable to the investor than the investor’s standing under EU law.³⁴³ Also, given that the Claimants initiated this arbitration as the legal protection procedure of their choice, it further stands to reason that they judged it to be the most favorable for them.³⁴⁴ The right to international arbitration under Article 26 ECT would therefore trump EU law in a conflict.

The Claimants first argue that Article 26(6) ECT only refers to the law applicable to the 'merits’. They rely on the Vattenfall v. Germany decision, which held that Article 26 ECT concerns investment disputes (Part III ECT), not disputes over dispute settlement (Part V ECT).³⁴⁷ The law applicable to the determination of the Tribunal’s jurisdiction is, instead, the general principles of international law as well as the law that has been agreed by the Parties, i.e. the ECT.³⁴⁸ The Claimants argue moreover that, similarly, the applicable law provision of Article 22 SCC Rules does not refer to jurisdiction but only applies to the merits of the dispute.³⁴⁹

The Claimants submit that the Tribunal’s jurisdiction stems from Article 26 ECT. The ECT, which is a valid treaty under public international law, must be interpreted and applied in accordance with the relevant rules of the VCLT.³⁵⁰ Specifically, Article 31(1) VCLT requires the Tribunal to follow the ordinary meaning of Article 26(6) ECT.

In the event the Tribunal would be required to apply EU law to intra-EU investment disputes, the Claimants observe that the Respondent’s reasoning would lead to diverging levels of protection depending on whether a Contracting Party was an EU Member State or not at the moment the ECT was signed and/or ratified. Such a result would be unacceptable according to the Claimants who refer, on this point, to the Masdar v. Spain and the Vattenfall v. Germany decisions.³⁵⁶

The Claimants argue that the historical context, emphasised by the European Commission in paragraphs 9-12 of its Amicus Curiae brief to reveal the scope of its consent under Article 26 ECT, concerns the legislative history of the ECT which, under Article 32 VCLT, merely qualifies as a supplementary means of interpretation, while under Article 31 VCLT the starting point of any interpretation is the ordinary meaning of the relevant terms in the treaty.³⁵⁷

For the Claimants, Articles 16, 15, 36 and 2 ECT as well as the ECT’s purpose exclude the possibility that certain investments (i.e. intra-EU investments) may be deemed to fall outside the scope of Article 26 ECT. Such exclusion would render the ECT’s provisions ineffective.³⁶⁶ The Claimants observe that the Vattenfall v. Germany decision did not rule out intra-EU disputes from the scope of Article 26 ECT.³⁶⁷ The Claimants also refer to two decisions from arbitration tribunals, Infracapital v. Spain³⁶⁸ and Sevilla Beheer v. Spain³⁶⁹ which considered the implications of the Komstroy Judgment but nevertheless upheld their jurisdiction under the ECT.³⁷⁰

For the Claimants, the Respondent is obliged by the principle pacta sunt servanda, contained in Article 26 VCLT, to honour its commitment to resolve disputes by international arbitration as provided under Article 26 ECT.³⁷¹

The Claimants further point out that no carve-out or disconnection clause has been included for the EU Treaties, even though the EU and the Member States included such clauses in other treaties, and the ECT has carved-out the Svalbard Treaty concerning Spitsbergen (Article 16 ECT) and Economic Integration Agreements (Article 25 ECT).³⁷² The Claimants further refer to a 1993 document from the archives of the Energy Charter Secretariat referring to a proposed disconnection clause for intra-EU matters, which would have appeared in what is today Article 24 ECT, but which was apparently not retained.³⁷³

In short, for the Claimants, the ECT neither contains a disconnection clause, nor any other equivalent clause, whether express or implied, allowing the Respondent to depart from its obligation under Article 26 ECT.³⁷⁶ Referring to Landesbank Baden-Württemberg et al. v. Kingdom of Spain³⁷⁷ and Vattenfall AB et al. v. Federal Republic of Germany,³⁷⁸ the Claimants ascertain that the absence of such a disconnection clause becomes particularly significant, when one considers, that other treaties by the EU and its Member States with third parties do indeed include such clauses (argumentum e contrario).³⁷⁹

The Claimants challenge the Respondent’s argument that the special regime applicable to Economic Integration Agreements, granted by Article 25 ECT, implies a preference to settle intra-EU disputes in the Member-State courts. For the Claimants, Article 25 ECT does not contain any indication on that issue.³⁸⁰ Nothing prevents an investor protected under the ECT from bringing claims before international neutral arbitration bodies in intra-EU disputes.³⁸¹

Moreover, so the Claimants further argue, the issue whether the Tribunal had to apply the EU law on State aid and whether it did so correctly may arise after the award is rendered in the course of possible enforcement proceedings. As stated — amongst others - by the arbitral tribunals in BayWa v. Spain and Vattenfall vs. Germany, it is not in the purview of the Tribunal to look into potential enforcement issues to decide on its jurisdiction.³⁹¹ The Claimants further refer, in this regard, to the decision in Sevilla Beheer v. Spain, where the tribunal observed that 'the enforceability issues are irrelevant for the purposes of deciding on this jurisdictional objection’.³⁹²

The CJEU has moreover no monopoly to interpret international treaties.⁴⁰⁹ Furthermore, the statement in Achmea that EU law has primacy over the laws of Member States⁴¹⁰ does not mean that EU law also has primacy over international law in intra-EU relations, as argued by the Respondent. Indeed, the Claimants consider the reference to the Opinion 2/13, which was rendered under the Article 218(11) TFEU procedure before the accession of the EU to the ECHR, to be of no support for the contention that the autonomy of EU law would exclude intra-EU investment disputes from the remit of Article 26 ECT. The Claimants further consider that Opinion 1/17 was also rendered before the relevant parts of the CETA, notably Chapter 8 on Investment Protection, were in force.⁴¹¹

The Claimants admit that the CJEU has jurisdiction to decide issues of interpretation and application of EU law. But it is not in its purview to nullify international treaties or some of their provisions.⁴¹⁶ Furthermore, the ECT does not name in its Articles 42 and 47 judgments or opinions of the CJEU - or any national court for that matter - as mechanism to amend or terminate the ECT.⁴¹⁷

The Claimants moreover observe that the Achmea Judgment concerned a BIT which was concluded by the Slovak Republic before this country joined the EU in 2003. As the German Bundesgerichtshof correctly observed,⁴²¹ the issue in Achmea was therefore that once the Slovak Republic had joined the EU, this BIT became incompatible with EU law (although Article 351 TFEU (Article 307 TEC) provided for a grace period).⁴²² The issue in the present case is different: Denmark and Spain were already Member States when they concluded the ECT together with the EU. Article 46 VCLT does not allow them to rebut their international obligations by invoking an alleged violation of internal law with regard to their competence to conclude the ECT. Moreover, the ECT - contrary to the Netherlands-Slovakia BIT - is a mixed agreement, entered into by the EU as well as by the Member States. Because the Member States were allowed to become parties to the ECT, they could assume that they had competence to do so, even for intra-EU investments. For the Claimants, any allegation that the ECT would circumvent EU law is absurd. In fact, the ECT itself became part of EU law through the accession of the EU.⁴²³ The Claimants further observe that the CJEU has confirmed that, even after conclusion of the Lisbon Treaty, the Member States retained their competence for dispute settlement in another mixed agreement, i.e. the Singapore Free Trade Agreement.⁴²⁴

For the Claimants, the ruling of the Achmea Judgment does not apply to the ECT, which is a mixed agreement, entered into by the Member States as well as by the EU. The Claimants admit that the Achmea Judgment, in paragraphs 60 and 62, formulates its holding as applying to 'a provision in an international agreement concluded between Member States’. However, the ECT is not an agreement between Member States, but an agreement concluded between Member States, the EU and many third States.⁴²⁵ The fact that the EU itself partakes in an international agreement, such as the ECT, causes international law to have a direct effect in the EU legal order.⁴²⁶

As regards the Komstroy Judgment, which extends the reasoning in the Achmea Judgment to the ECT context, the Claimants argue, as noted earlier, that '[t]he CJEU rested its reasoning [...] on premises that are dogmatically unsubstantiated, unsustainable and solely politically motivated’.⁴²⁷ Given its deficiencies⁴²⁸ and the fact that other investment tribunals acting under the ECT have upheld their jurisdiction despite the CJEU’s reasoning in the Komstroy Judgment,⁴²⁹ the ruling has no effect on the jurisdiction of the Tribunal in the present proceedings.⁴³⁰

The European Commission’s Amicus Curiae brief notes that, under Articles 1(3) and 26 ECT, the Tribunal has to apply to the present intra-EU investment dispute EU law as part of international law.⁴³⁵ Referring to the Achmea Judgment, to its Decision SA 40348 of November 2017⁴³⁶ and to its Communication of 19 July 2018,⁴³⁷ the European Commission states that Articles 267 and 344 TFEU make Article 26 ECT inapplicable for intra-EU investment disputes.

The European Commission notes that EU law prevails over the ECT. It refers inter alia to the award in Electrabel v. Hungary, which established the primacy of EU law on the basis of Article 351 TFEU, which in turn reflects international customary law, as codified in Article 30 VCLT.

The European Commission considers that in all events the inter se obligations between Member States under the 1994 ECT are superseded by the 2007 Treaty of Lisbon pursuant to Article 30(4)(a) VCLT. For the European Commission, the ECT and the EU Treaties have the same subject matter and are conflicting. Consequently, the ECT does not apply to intra-EU investment disputes.⁴⁴⁴

For the European Commission, Article 16 ECT does not apply because this provision concerns the mutual interpretation of two treaties and does not contain a rule for conflicting treaties. However, the ECT and the EU Treaties are in conflict. Moreover, Article 16 ECT has been overtaken by the later Declaration 17 of the Treaty of Lisbon, which establishes the primacy of EU law.⁴⁴⁵

Even if intra-EU investments had been covered by the ECT at the outset, the European Commission observes that this would no longer be the case when the dispute concerns matters which have become the exclusive competence of the EU. Indeed, as the European Commission sees it, Articles 1(2), 1(3) and 1(10) and 36(7) ECT, which consider the EU as well as the Member States to be parties to the ECT, recognise the transfer of competences from the Member States to the EU and the consequences thereof.⁴⁴⁶

The European Commission finally observes that the Claimants are not entitled to invoke legitimate expectations. Nor can they invoke Article 70 VCLT, which governs the consequences of the termination of a treaty, as this provision is not concerned with the rights of individuals, to rely on Article 26 ECT.⁴⁵¹