tutorial video tutorial video Discover the CiteMap in 3 minutes

Lawyers, other representatives, expert(s), tribunal’s secretary

Final Award

TABLE OF ABBREVIATIONS
Act 180 / Act on Promotion Act No. 180/2005 Coll., on Promotion of Electricity Production from Renewable Energy Sources and on Amendments to Certain Laws
Act 165/2012 Act No. 165/2012 Coll., on Promotion of Sources of Energy and Amending Certain Acts
Act 310/2013 Act No. 310/2013 Coll.
Act 346/2010 Act No. 346/2010 Coll., Amending the Income Tax Act, as amended, and Other Related Acts
Act 586/1992 / Income Tax Act Amicus Curiae Submission Act 586/1992 Coll. on Income Tax EC’s Amicus Curiae Submission of 11 December 2015
BIT / Treaty Treaty between the Federal Republic of Germany and the Czech and Slovak Federal Republic on Encouragement and Reciprocal Protection of Investments of 2 October 1990
Commission’s Application EC’s Application to Intervene as a Non-Disputing Party of 11 July 2014
Commission Decision European Commission’s decision of 2 December 2016
Commission’s Submission European Commission’s submission of 17 February 2017
EC / Commission European Commission
ECJ European Court of Justice
ER Expert report
ERO Energy Regulatory Office
EU European Union
Exh. C- Claimants’ Exhibit (Documentary exhibits)
Exh. CLA- Claimants’ Legal Authority
Exh. R- Respondent’s Exhibit (Documentary exhibits)
Exh. RLA- Respondent’s Legal Authority
FET Fair and Equitable Treatment
FIT Feed in Tariff
[REDACTED] ICJ [REDACTED] International Court of Justice
ICSID International Centre for Settlement of Investment Disputes
vii

ILC International Law Commission
ILC Articles ILC Articles on Responsibility of States for Internationally Wrongful Acts, 2001
Income Tax Act Act No. 586/1992 Coll. on Income Taxes
kWp Kilowatt peak
MW Megawatts
NT National Treatment
Objections to Jurisdiction Respondent’s Objections to Jurisdiction dated 27 October 2014
PCA Permanent Court of Arbitration
PILA Swiss Federal Act on Private International Law
PO Procedural Order
Rej. Respondent’s Rejoinder dated 17 December 2015
Reply Claimants’ Reply Memorial dated 16 September 2015
RES Renewable Sources of Energy
RfA Claimants’ Request for Arbitration dated 24 June 2013
SoC Claimants’ Statement of Claim dated 18 July 2014
SoD Respondent’s Statement of Defense dated 20 March 2015
Solar Levy Levy introduced through Act No. 402/2010 Coll.
Technical Regulation Decree No. 475/2005 Coll. on Implementation of Certain Provisions of the Act on Promotion of Exploitation of Renewable Energy Sources
Terms of Appointment Terms of Appointment of 3 March 2014
TFEU Treaty on the Functioning of the European Union
Tr. Transcript hearing on jurisdiction and merits
VCLT or Vienna Convention Vienna Convention on the Law of Treaties
WACC Weighted average cost of capital
WS Witness statement viii

I. THE PARTIES

A. THE CLAIMANTS

1.
The first Claimant is Mr. Jürgen Wirtgen, [REDACTED], with domicile at [REDACTED] Germany ("Claimant 1").
2.
The second Claimant is Mr. Stefan Wirtgen, [REDACTED], with domicile at [REDACTED], Germany ("Claimant 2").
3.
The third Claimant is Mrs. Gisela Wirtgen, [REDACTED], with domicile at [REDACTED], Germany ("Claimant 3).
4.
The fourth Claimant is JSW Solar (zwei) GmbH & Co. KG, a limited partnership organized and existing under the laws of Germany, with domicile at Reinhard-Wirtgen-StraBe 2, 53578 Windhagen, Germany, registered with the commercial register in Montabaur, Germany ("JSW" or "Claimant 4").
5.
Claimants 1-3 are shareholders of Claimant 4.
6.
The Claimants and their investments have been illustrated as follows: being specified that the three Czech power plants at issue in this arbitration — Struharov, Svétlá and Vernérov — are directly owned by three Czech special purpose vehicles set up for that purpose.1
7.
The Claimants are represented in this arbitration by:

[REDACTED]

LUTHER RECHTSANWALTSGESELLSCHAFT MBH

Gansemarkt 45

20354 Hamburg

Germany

Tel.: +49 40 18067 12766

Email: [REDACTED] @luther-lawfirm.com

[REDACTED]@ luther-lawfi rm.com

B. THE RESPONDENT

8.
The Respondent is the Czech Republic (the "Republic").
9.
The Respondent is represented in this arbitration by:

Ministry of Finance Independent Unit 9006

International Protection of Investments and Foreign Receivables

Petr Plásil

Marie Talasová

Markéta Filipová

Letenská 15

118 10 Praha 1

Czech Republic

Tel.: + 420 257 041 111

E-mail: petr.plasil@mfcr.cz

marie.talasova@mfcr.cz

marketa.filipova@mfcr.cz

Karolína Horáková

Weil, Gotshal & Manges s.r.o. advokátní kancelár

Charles Bridge Center

Krizovnicke nam. 193/2

Prague, Czech Republic

Tel.: +420 22140 7303

Fax: +420 22140 7310

E-mail: karolina.horakova@weil.com

In addition, until 16 July 2015, the Respondent was represented by:

stephen P. Anway sQUIRE sANDERs (Us) LLP

30 Rockefeller Plaza

New York, New York 10112

Tel.: +1 216 479 8279

E-mail: stephen.Anway@squiresanders.com

David W. Alexander sQUIRE sANDERs (Us) LLP

2000 Huntington Center

41 south High street

Columbus, ohio 43215

United states of America

Tel.: +1 614 365 2801

E-mail: David.Alexander@squiresanders.com

Rostislav Pekar Mária Lokajová

SQUIRE SANDERs, V.o.s., ADVOKÁTNÍ KANCELÁR Václavské námestí 57/813 110 00 Prague 1 Czech Republic

Tel.: +420 221 662 289

E-mail: Rostislav.Pekar@squiresanders.com

Maria.Lokajova@squiresanders.com

Zachary Douglas

MATRIX CHAMBERS

Griffin Building Gray’s Inn London WC1R 5LN

Tel.: +44 020 7404 3447 E-Mail::zacharydouglas@matrixlaw.co.uk

From 17 July 2015, the Respondent has been represented by:

Paolo Di Rosa

ARNOLD & PORTER KAYE SCHOER LLP

601 Massachusetts, NW Washington DC 20001

USA

E-mail:Paolo.DiRosa@apks.com Dmitri Evseev

ARNOLD & PORTER KAYE SCHOER LLP

Tower 42

25 old Broad street London EC2N 1HQ United Kingdom

E-mail:Dmitri.Evseev@apks.com

II. MAIN FACTS

10.
The following summary is meant to give a general overview of the present dispute. It does not include all the facts which may be of relevance, particularly as they emerged from the extensive evidence gathered at the hearing. To the extent relevant and useful, additional facts will be addressed in the Tribunal’s analysis.

A. BACKGROUND

11.
The Czech Republic came into existence on 1 January 1993 upon the dissolution of the Czechoslovak Federation. It acceded to the European Union ("EU") on 1 May 2004.
12.
As a result of the accession, the Republic was required to harmonize its legal system with EU law and transpose existing EU Directives into its national legislation.
13.
one area where such transposition was required was the renewable energy sector. In 2001, through Directive 2001/77/EC,2 the EU had set non-binding indicative renewable energy production targets for its Member states. These targets envisaged that the share of renewable energy should be at or above 8% by 2010.3 In 2009, through Directive 2009/28/EC, these targets were raised to 13% by 2020.4
14.
The Czech Republic undertook to achieve an 8% share of production of electricity from renewable sources of energy ("REs") in its gross energy consumption by 2010.5 Discussions for devising the appropriate framework to meet this target started in 2002, even before accession. These discussions continued in 2003 and 2004 when a draft bill was prepared.

B. SUPPORT SCHEME

15.
In March 2005, a "support scheme" for renewable energies came into effect.6 It broadly consisted of two parts: the continuation of existing tax incentives (1) and the enactment of Act 180 entitled "on the support of Electricity Generation from Renewable Energy sources"7 ("Act 180") (2).

1. Tax Incentives

16.
Act No. 586/1992 Coll. on Income Taxes (the "Income Tax Act"),8 in force since 1993, provided specific rules for calculating the corporate income tax of producers of electricity from renewable sources of energy ("REs producers"). REs producers were exempt from income tax in the year the plant was put into operation and for the following five years.9 Further, the Act provided preferential depreciation periods for certain intangible assets of REs producers (the tax exemption and the preferential depreciation period are collectively referred to as "the Tax Incentives").
17.
An Explanatory Report to a draft of a legislation that eventually became Act 180 dated 12 November 2003 (the "2003 Explanatory Report") referred to these income tax exemptions for REs producers.

2. Act 180

18.
Act 180 was enacted on 31 March 2005 and entered into force on 1 August 2005. Act 180 supported the production of electricity from REs through a combination of tariff and non-tariff mechanisms.
19.
First, operators of the electricity grid were obliged to primarily connect facilities that generated electricity from renewable energy sources:

"The operator of the transmission system or the operators of distribution systems are obliged to primarily connect the devices according to section 3 (hereinafter referred to as the "devices") to the transmission system or to the distribution systems on their locality [...]".10

20.
Grid operators were also under an obligation to purchase all the electricity generated by REs producers for fixed prices or so-called feed-in tariffs:

"The operators of the local distribution systems and the operator of the transmission system are obliged to buy out every electricity from the renewable sources, to which the support applies, and to enter into the contract on supply […]".11

21.
The Act did not contemplate compensating grid operators for the feed-in tariffs ("FITs") which they were to pay to the REs producers. These tariffs were funded through a compulsory surcharge set by the Energy Regulatory office (the "ERO") in its yearly price decisions and invoiced to all electricity consumers by the grid operators as part of the electricity bill.12
22.
RES producers were entitled to choose between FITs13 and so-called green bonuses14 applicable at the time when their plants were first put into operation:

"The producer of the electricity from the renewable sources, to which the support applies, has the right to chose, whether he offers his electricity for buy-out according to the subsection 4 or whether he requires the green bonus for it".15

23.
Each year the ERO was to determine the rate of FITs and green bonuses for plants connected to the grid in the following year. Specific considerations were to be taken into account by the ERO while setting these tariffs, as provided in Article 6 of Act 180, for which the Parties provided different translations:

Claimants’ Translation of Article 6 of Act 180 (Exh.C-031) Respondent’s Translation of Article 6 of Act 180 (Exh.R-004)
Level of the prices for the electricity from the renewable sources and the green bonuses Amounts of Prices for Electricity from Renewable Sources and Amounts of Green Bonuses
(1) The Authority defines the buy-out prices for the electricity from the renewable sources (hereinafter referred to as the "buy-out prices") separately for individual types of the renewable sources and the green bonuses always for the calendar year in advance in such way that (1) The Office sets, one calendar year in advance, the purchasing prices for electricity from Renewable Sources (the "Purchasing Prices"), separately for individual kinds of Renewable Sources, and sets green bonuses, so that
a) the conditions are created for the fulfilment of the indicative target of the share of the generation of the electricity from the renewable sources in the gross consumption of a) the conditions are created for the achievement of the indicative target so that the share of electricity produced from Renewable Sources accounts for 8% of gross electricity

electricity from the renewable sources on the market with the electricity. electricity from Renewable Sources in the electricity market.
(3) When defining the buy-out prices and the green bonuses, the Authority starts out from various costs for acquisition, connection and operation of individual types of devices including the time development thereof. (3) When setting Purchasing Prices and green bonuses, the Office proceeds on the basis of differing costs for the acquisition, connection and operation of individual types of facilities, including the development thereof over time.
(4) The buy-out prices defined by the Authority for the next calendar year may not be lower that 95 % of the value of the buy-out prices valid in the year, in which the new decision is to be taken. This provision is to be used for the first time for the prices defined for the year 2007. (4) Purchasing Prices set by the Office for the following calendar year shall not be less than 95% of the Purchasing Prices in effect in the year for which the setting decision is made. This provision shall be used for the first time for the prices set for 2007.

24.
Section 6(3) clarified that the ERO should set tariffs based on the differing installation and operating costs of different sources of RES, "including the development [of those costs] over time", recognizing that changes in costs over time would lead to an adjustment of the tariffs. Moreover, the FIT for electricity generated by a plant newly put into operation could not be lower than 95% of the tariff applicable to the electricity generated by the plants connected in the previous year (Section 6(4)) (so-called "5% brake rule"). Finally, pursuant to Public Notice No. 150/2007, the FITs would be increased annually to reflect the producers’ price index, by at least 2% but no more than 4%.16
25.
Further guidance for calculating the FIT was provided by means of Decree No. 475/2005 Coll., on Implementation of Certain Provisions of the Act on Promotion of Exploitation of Renewable Energy Sources (the "Technical Regulation"), which established the specific technical parameters to be used by the ERO:

"In order for the 15-year pay-back period to be assured through the support by Purchasing Prices of electricity produced from renewable sources, technical and economic parameters of an installation producing electricity from renewable sources must be satisfied, where the producer of electricity from renewable sources shall achieve, with the given level of Purchasing Prices

a) an adequate return on invested capital during the total life of the installation, such return to be determined by the weighted average cost of capital (WACC), and

b) the net present value of the cash flows after tax over the total life of the installation, using a discount rate equal to WACC, at least equal to zero".17

26.
The formula to calculate the net present value required by Section 4(1)(b) of the Technical Regulation and the weighted average cost of capital ("WACC") was published on the ERO’s website.18 Until the end of 2010, the WACC used by the ERO in calculating the tariffs was 7% per year.19
27.
Annex 3 to the Technical Regulation specified the individual technical parameters that would be applied in calculating the FIT. These included (i) the assumed lifetime of the installation; (ii) the assumed level of efficiency of the solar panels used; (iii) the assumed investment costs per installed kilowatt peak ("kWp"); and (iv) the assumed annual usage in kilowatt hours of installed kWp. The levels of these parameters were set for a representative hypothetical installation and were modified as appropriate by the ERO prior to calculating tariffs for the coming year.
28.
The period for which the producers would be eligible to receive the FIT calculated on the basis of Act 180 and its supporting framework was set through Public Notices:

o Under Public Notice No. 150/2007, the FIT was to apply "throughout the lifetime of the facility producing electricity";20

o Through Public Notice No. 475/2005, the "lifetime of the facility producing electricity" was set at 15 years;21

o Through Public Notice No. 364/2007, this period was increased to 20 years.22 The reasons for the increase were described as follows:

"[T]he lifespan of the facilities shall be modified; owing to the progress in the industry, the lifespan has increased from 15 years to 20-25 years; it is proposed to count on 20 years. However, this involves the issue of the ageing of the panels because the panel output at the end of its lifespan is not the same as its output once it is installed. This is why it is proposed to count on the year-on-year decline in the panel output by 0.8% of the nominal output per year".23

C. THE CLAIMANTS' INVESTMENTS

29.
In 2009, Mr. [REDACTED] t, the managing director of [REDACTED], a company engaged in the search, management and operation of PV projects, approached the Claimants with investment opportunities in the Czech solar sector. With [REDACTED] ’s co-operation, the Claimants invested in three solar PV plants in the Czech Republic, Struharov (1), Svétlá (2), and Vernérov (3).

1. Struharov

30.
on 14 August 2009, [REDACTED] provided Claimants 1 and 2 with a proposal for a PV project in the municipality of Struharov.
31.
On 25 August 2009, Claimant 4 purchased plots of land in the Struharov municipality through [REDACTED], a project developer. One month later, on 25 September 2009, it entered into a turnkey contract with [REDACTED] for the construction of a solar PV plant. The construction permit for the plant was subsequently issued on 27 November 2009. Thereafter, on 14 December 2009, ERO issued a license for the generation of electricity at the Struharov plant. The plant was put into service on 16 December 2009 and connected to the grid on the same day pursuant to a contract with the grid operator [REDACTED].
32.
As mentioned above, the Claimants could choose to be paid for the electricity generated through a FIT or through a green bonus. The Claimants chose the former. At the time, the tariff was 12.79 CZK per kWh (EUR 0,492 per kWh) in accordance with ERO’s Price Decision No. 8 of 18 November 2008 for plants commissioned in 2009.

2. Svétlá

33.
After the commissioning of the Struharov plant, Claimants 1 and 2 considered further investments in the Czech Republic. Eventually, they invested in two other PV plants along with their [REDACTED], Claimant 3.
34.
In February 2010, [REDACTED] advised the Claimants that the city of Svétlá was seeking to sell property development rights by way of tender. The city intended to participate in the profits of a PV plant without committing capital. On 12 February 2010, [REDACTED] responded to the tender. Its bid was successful and a development contract was signed between [REDACTED] and the city of Svétlá on 26 March 2010. The contract provided that, besides the purchase price, the city would receive a fee [REDACTED] of the tariffs paid by the grid operator for the electricity produced.
35.
Two months later, on 7 April 2010, the Claimants set up JSW Solar (zwei) k.s., a company directly owned by Claimant 4 (99.9%) and by JSW Solar (zwei) Verwaltungs GmbH (0.01%), and indirectly owned by Claimants 1, 2 and 3 who are shareholders of both companies. The development contract entered into by [REDACTED] was assigned to JSW Solar (zwei) k.s. by trilateral agreement.
36.
The construction permit for the Svétlá plant was granted on 18 May 2010, and a turnkey contract was entered into with [REDACTED] on 26 May 2010. The license for the generation of electricity at the plant was issued by ERO on 22 September 2010. The plant was put into service on 13 October 2010 and connected to the grid on the same day.
37.
As in the case of the Struharov plant, the Claimants opted for compensation in the form of FIT. At the time, the tariff was 12.15 CZK per kWh (EUR 0.48 per kWh) in accordance with ERO’s Price Decision No. 5 of 23 November 2009 for plants commissioned in 2010.

3. Vernérov

38.
While the investment in Svétlá was ongoing, the Claimants received information from [REDACTED] about a project at Vernérov. On 28 May 2010, JSW Solar (zwei) k.s. signed a turnkey construction contract with [REDACTED] for a PV plant at that location.
39.
Somewhat later, on 7 July 2010, to develop the PV plant at Vernérov, JSW Solar (zwei) k.s. together with JSW Solar (zwei) Verwaltungs-GmbH acquired all shares in FVE Verne s.r.o.24 FVE Verne s.r.o. was owned by JSW Solar (zwei) k.s. (99.9%) and by JSW Solar (zwei) Verwaltungs GmbH (0.01%), which were in turn owned by Claimants 1-3.
40.
The construction permit for the Vernérov plant was granted on 20 September 2010. The license for the generation of electricity at Vernérov was issued by ERO on 11 October 2010. The plant was put into service on 17 December 2010 and connected to the grid on the same day.
41.
Like for their other plants, the Claimants chose a FIT rather than a green bonus. At the time, the tariff was 12.15 CZK kWh (approximately EUR 0.48 per kWh) in accordance with ERO’s Price Decision No. 5 of 23 November 2009 for plants commissioned in 2010.

D. CHANGES IN THE PV SECTOR

42.
The Respondent contends that a "fundamental change" in the global market for solar panels occurred in 2009 and 2010. The price of solar panels - which form the bulk of a producer’s investment costs - fell dramatically. As the FIT was set on the basis of a higher investment costs, a "perfect storm" was in the making: while the investment costs of RES plants decreased substantially, the Respondent could not reduce the tariffs proportionately due to the 5% brake rule. The result, so says the Respondent, was that producers stood to earn windfall profits at the expense of the Czech consumers.
43.
In these circumstances, the Respondent argues that it "had no choice" but to modify the Support Scheme, which it did.

E. AMENDMENTS TO THE SUPPORT SCHEME

44.
The Support Scheme was amended on several occasions in 2009 and 2010. The principal amendments are outlined below.

1. Abolishing the 5% Brake Rule

45.
On 21 April 2010, the Respondent enacted a first amendment of its Support Scheme through Act 137/2010, which ended the 5% brake rule. As a result, ERO could reduce the FIT by more than 5% for plants connected in the following year, i.e. 2011. This amendment did not affect the Claimants,25 other than it allegedly "made it extremely important that [the Claimants’ projects] would be concluded within 2010 in order to be entitled to the 2010 feed-in tariff".26

2. Limiting the Support Scheme to Small PV Plants

46.
On 3 November 2010, in Act 330/2010, the Respondent limited, as from 1 March 2011, the Support Scheme to small PV plants that had an installed capacity of up to 30 kWh. This Act, in effect from 1 January 2011, applied to all plants connected from 2011 onwards. It did not affect the Claimants’ plants as these were all put into operation in 2009 (Struharov) or 2010 (Svétlá and Vernérov).

3. Abolishing the Tax Incentives

47.
Still on 3 November 2010, through Act No. 346/2010 Coll., Amending the Income Tax Act, as amended, and Other Related Acts ("Act 346/2010"), the Respondent amended the Income Tax Act. More specifically, it terminated the Tax Incentives as of 1 January 2011. The reasons for the amendment were set out in the Explanatory Report accompanying Act 346/2010:

"The proposed changes are in response to the need to eliminate all legal means for the indirect support of electric power generation from renewable resources (mainly solar power plants) that is no longer justified, and therefore they are making taxation on environmentally friendly power generation sources and facilities stricter and eliminating the tax-exempt status of income from the operation of environmentally friendly power generation facilities. In order to simplify legal regulation and enable easier administration, the elimination of this exempt status for other environmentally friendly facilities has also been proposed".27

4. Introducing the Solar Levy

48.
On 14 December 2010, the Respondent adopted Act 402/2010 Coll., ("Act 402/2010"),28 which limited the contribution of consumers to the RES subsidies (FIT or green bonus) to CZK 370/MWh. This created a shortfall between the funds raised from the final consumers and the amount of subsidy to be paid to RES producers. Act 402/2010 provided that this shortfall would be financed from the state budget. The state budget, consequently, needed additional revenues to fund this expenditure.
49.
These additional revenues were to come from multiple sources, one of which was a 26% so-called solar levy (the "Solar Levy") which was introduced through Act 402/2010.29 The Solar Levy was to remain in force for a period of three years and applied to PV plants put into operation between 1 January 2009 and 31 December 2010:

"Subject-Matter of Levy from Electricity from Solar Radiation

The subject-matter of the levy for the electricity from the solar radiation (hereinafter referred to as the "levy") is the electricity generated from the solar radiation in the period of time from January 1, 2011 to December 31, 2013 in the device that was put into operation in the period of time from January 1, 2009 through December 31, 2010".30

50.
The Solar Levy was imposed on PV producers, but was to be remitted by the grid operators:

"Persons subject to the Levy

(1) The payer of the levy is the producer, if he generates the electricity from the solar radiation.

(2) The payer remitting the levy is the operator of the transmission system or the operator of the local distribution system".31

51.
The Solar Levy was withheld at source. The grid operator continued to pay the FIT to the RES producers, but after deduction of the Solar Levy.
52.
A formal order providing for the deduction of the Solar Levy was never issued to the Claimants. They therefore complained about it to the grid operator [REDACTED].32 They also filed complaints with the relevant offices, but their complaints were dismissed.33 They appealed these dismissals, but later withdrew their appeals on the basis of the decision of the Czech Constitutional Court which is discussed below. The Solar Levy continues to be deducted from the monthly payments by [REDACTED] to the Claimants’ plants in Svétlá and Vernérov.

F. CONSOLIDATION OF THE SUPPORT SCHEME AND FURTHER LEGISLATION

53.
On 30 May 2012, the Respondent published Act 165/2012 Coll., on Promotion of Sources of Energy and Amending Certain Acts ("Act 165/2012"), which repealed and replaced Act 180. Act 165/2012 came into effect partly from the date of publication and partly as of 1 January 2013. It incorporated the FIT as set out in Act 180 and the Solar Levy introduced in Act 402/2010.
54.
Act 165 was itself amended with effect from 2 October 2013 by Act No. 310/2013 Coll. ("Act 310/2013"). Act 310/2013 extended the Solar Levy at a rate of 10% of the FIT for the plants commissioned in 2010 for the entire period of time during which these plants would have right to electricity support.34
55.
The provisions of Acts 346/2010 and 402/2010 applied to all of the Claimants’ plants. The prolongation of the Solar Levy under Act 310/2013 applies to the Claimants’ plants in Svétlá and Vernérov.

G. DECISIONS OF THE CZECH COURTS

1. Decision of the Czech Constitutional Court

56.
On 10 March 2011, a group of 20 senators (members of the upper chamber of the Czech Parliament) filed a petition with the Czech Constitutional Court asking the Court to repeal, inter alia, the Solar Levy. The withdrawal of the tax exemption was challenged as well. The petition was subsequently modified and supplemented on several occasions.
57.
The Constitutional Court defined the legal question before it as follows:

"[W]hether there existed on the part of the affected operators of [solar plants] such a strong, constitutionally-relevant interest in the keeping of the existing stipulated-in-law price for electricity from renewable sources, and the stipulated amounts of green bonuses, without having such support curtailed by the levy, that such interest would outweigh the public interest in reducing the stipulated electricity prices".35

58.
On the Solar Levy, the Court observed that under Act 180 RES producers were at most entitled to expect that their investment would be paid back in 15 years, which time was maintained despite the Solar Levy:

"The Constitutional Court consequently concurred with the conclusion that the consequence of the enactment of the parts of Act No. 402/2010 Coll. that were challenged by the petitioners consists, in the case of investors that commissioned their installations during the period from 1 January 2009 to 31 December 2010, merely of the fact that the extent of their profits was temporarily affected by the amount of the newly-introduced levy and the resulting extension of the payback period on their investment. However, the system of support and the principles for setting regulated prices, as regulated in Act No. 180/2005 Coll., continue to guarantee such conditions as to enable investors to achieve a simple payback period on investment of 15 years. In relation to the payback period, the change is merely reflected in the fact that the payback will be achieved in a longer time horizon (but one that is maintained by the act) than the producers of electricity from renewable sources had expected."36

59.
The Constitutional Court also observed that the introduction of the Solar Levy was proportionate to the "entirely legitimate" objective of "averting the social and economic impacts of a substantial rise in electricity prices for end consumers, and regulating state support in response to an extreme fall in capital expenditure costs":37

"The means that were selected for attaining such objectives seem to be reasonable and appropriate, since as follows from the materials presented, the levy on electricity from solar radiation was set so as to continue to guarantee a fifteen year payback period on investment, the period guaranteed by the law. [T]his was not an extreme measure, the production of electricity from renewable sources continues to be subsidized to a significant extent".38

60.
On the withdrawal of the tax exemption, the Court made the following observations:

"[T]he challenged provisions responded to the need to eliminate, through the use of all legal means, the indirect support provided for the production of electricity from ecological sources, support that was no longer justified at that time, particularly as concerned solar installations, and such provisions therefore made the tax regime applicable to ecological sources and installations stricter by ending the tax exemption on income from the operation of ecological installations.

The relevant legal regulation concurrently aimed to fulfill a major public interest (that of keeping energy prices stable, keeping the public debt from rising etc.), an aim which, in the spirit of the case-law of the Constitutional Court, can be used to justify even potential interference with the legitimate expectations of taxpayers.

It is therefore evident that the reasons and objectives of the challenged legal regulation, which was used to cancel the exemption from income tax with regard to income from the operation of solar installations […] are identical to the reasons and objectives that led to the enactment of the legal regulation stipulating the levy on electricity from solar radiation, and accordingly the Constitutional Court makes reference to paragraphs [above] that fully fit this issue. For the sake of completeness, the Constitutional Court would like to add that the income tax exemption was also cancelled with regard to other ecological installations. Taxpayers could use this exemption for the last time in the tax period that commenced in 2010, which means that the change also applies to taxpayers that commissioned their ecological energy sources and installations before these amendments entered into force".39

61.
In conclusion, the Court emphasized:

"The principle of legal certainty cannot be viewed as being identical to a requirement of absolute unchangeability of legal regulation, since legal regulation is subject to, among other things, social and economic changes and the requirement of ensuring that the state budget remains stable.

[…]

[T]he Constitutional Court has not ignored the fact that it had been the state that guaranteed, by means of a law, a fifteen year payback period on investment and a certain amount of revenues per unit of electricity produced from renewable sources, thereby motivating the affected entities to undertake entrepreneurial activities in the area of energy production from renewable sources.

As was stated above, however, the Constitutional Court concurrently feels that it is legitimate for lawmakers, after objectively ascertaining that a change has occurred in the investments in PVPP, to take the step of regulating support for the production of electricity from RES, to regulate it in a manner so as to maintain the balance between inputs and revenues that had been established by the original version of [the Act on Promotion], a balance that was expressed by the fifteen year payback period […] and a firmly-established amount of revenues".40

62.
These principles were subsequently upheld by a later decision of the Court.41

2. Decisions of the Supreme Administrative Court

63.
Although the Constitutional Court held that the contested measures were not unconstitutional, it recognized that they could harm individual investors in a disproportionate manner. It therefore opened the way for investors who could demonstrate that the measures had a "strangling effect" on their business to seek judicial redress or apply to the relevant tax authority for tax deferrals.
64.
Consequently, a large number of solar generators brought proceedings against the local tax administrations, arguing that the Solar Levy had a "strangling effect" in their particular cases.
65.
Most of these cases were dismissed on the basis that solar investors had no legitimate expectations beyond the 15-year payback guarantee. In its decisions, the Supreme Administrative Court confirmed that the guarantee under the Act 180 did not include a guarantee of sufficient cash flow or of a certain level of profitability:

"The fact that the investment made is not capable in certain years of its existence of generating a sufficient cash flow to cover the repayment of interest and the principal amount of the loan that is provided for a period shorter than the expected payback period does not mean that such investment cannot be expected to be paid back - there is only a problem with cash flow, resulting from various requirements pertaining to its amount in the course of the lifespan of the investment, not from the fact that the investment as a whole would not be paid back. Therefore, not only the issue of simple payback of the investment (in the sense of statutory guarantees), but also another issue of adequate profit from carrying out business on a regulated market must be perceived in relation to the overall period of the expected 20-year lifespan of photovoltaic panels. The Constitutional Court has addressed the issue of profitability in a comprehensive manner (i.e. also with respect to the method of determining the purchase prices) and has not found any defects in the amended version of [the Act on Promotion] that would automatically collide with any constitutionally guaranteed rights of photovoltaic plant operators".42

66.
The Supreme Administrative Court further clarified that a "strangling effect" was one that would cause the liquidation or affect the substance of the producer:

"In certain specific, individually assessed cases, the application of [the Solar Levy] could indeed, in the opinion of the Constitutional Court, be contrary to the Constitution; however, these would only be cases where the charges would have liquidation effects and or would affect the very substance of the electricity producer in terms of its assets".43

67.
A Grand Chamber of the Supreme Administrative Court later held that the Ministry of Finance should grant tax relief to solar generators which demonstrated that, in their individual circumstances, the effect of the Solar Levy was "suffocating" in the sense of the 2012 Constitutional Court judgment. It also set the parameters for obtaining relief.44

III. PROCEDURAL HISTORY

A. WRITTEN PHASE

68.
On 24 June 2013, Claimants 1 and 2 served the Czech Republic with a Request for Arbitration under Article 10 of the Treaty between the Federal Republic of Germany and the Czech and Slovak Federal Republic on encouragement and reciprocal protection of investments of 2 October 1990 ("the Treaty" or "the BIT")45 accompanied by exhibits.
69.
On 23 August 2013 Mr. Gary Born was appointed as co-arbitrator by the Claimants. On 26 August 2013 Judge Peter Tomka was appointed as co-arbitrator by the Respondent. With the consent of the co-arbitrators and the Parties, Prof. Gabrielle Kaufmann-Kohler was appointed as President of the Tribunal.
70.
On 3 March 2014, the Parties and Tribunal signed the Terms of Appointment ("Terms of Appointment"). In the Terms of Appointment, the Parties agreed to the choice of Geneva as the seat of the arbitration and to the rules that would govern the arbitration. Further, they consented to the appointment of Ms. Eva Kalnina, an attorney in the firm of the President as Secretary to the Tribunal. Mr. Rahul Donde, also an attorney in the firm of the President, later replaced Ms. Kalnina with the consent of the Parties. The Parties also approved the tasks which the Secretary would perform in the course of the arbitration as described in the Tribunal’s letter of 19 August 2014.
71.
On 12 March 2014, the Tribunal issued Procedural Order No. 1 ("PO 1") in which it set the procedural calendar and other procedural rules for the arbitration. The proceedings were bifurcated, it being provided that the Respondent’s jurisdictional objections would be heard first. The bifurcation was later undone with the consent of the Parties as it arises from the following account.
72.
On 18 July 2014, the Claimants filed their Statement of Claim ("SoC") accompanied by factual and legal exhibits, witness statements of Messrs [REDACTED], and an expert report of Mr. [REDACTED] of Alvarez and Marsal on quantum.
74.
On 23 July 2014, the Tribunal forwarded the application to the Parties, inviting them to comment. It also advised the Commission that it would hear the disputing parties on the application and revert to the Commission with its decision. An amended application filed by the Commission was subsequently conveyed to the Parties (the "Commission’s Application").
75.
On 15 August 2014, the Parties submitted their comments on the Commission’s Application.
76.
On 25 August 2014, the Respondent advised the Tribunal that since it intended to raise only a single jurisdictional objection regarding the lack of standing of Claimant 4, it did not wish to proceed with the bifurcation of the present arbitration. Further, it had initiated discussions with the Claimants on a new calendar for the arbitration where jurisdiction, merits and quantum issues would be heard together.
77.
On 27 August 2014, the Tribunal invited the Parties to propose a new calendar for the arbitration, and suspended the preparation of its decision on the Commission’s Application. It also separately informed the Commission that, due to likely changes in the calendar of the arbitration, its decision may be delayed.
78.
On 8 September 2014, the Tribunal noted that the Parties had been unable to agree on a procedural calendar, principally because the Claimants maintained that the proceedings should remain bifurcated - a position which the Respondent opposed. On the basis of the Parties’ submissions, the Tribunal decided to de-bifurcate the arbitration. The Claimants later objected to this decision.
79.
On 26 September 2014, the Tribunal directed the Respondent to submit its Objections to Jurisdiction as contemplated by PO 1, and to make any additional comments on bifurcation/de-bifurcation by 27 October 2014. The Claimants were then to state whether they maintained their objections to the de-bifurcation of the arbitration and to the Commission’s Application.
80.
On 27 October 2014, the Respondent filed its Objections to Jurisdiction ("Objections to Jurisdiction") accompanied by legal authorities.
81.
On 31 October 2014, the Claimants agreed to the de-bifurcation of the arbitration. However, they maintained their opposition to the Commission’s Application.
82.
Following the Claimants’ approval of de-bifurcation, on 6 November 2014, the Tribunal advised the Parties that, since both Parties now consented, jurisdiction, admissibility and merits (liability and quantum) would be heard together. Accordingly, it invited the Parties to submit (preferably joint) proposals for the calendar of the arbitration, specifying that they were not to take into account the (possible) effect of the Commission’s Application. If the Tribunal allowed the Commission’s Application, it would insert the Commission’s submission and the Parties’ related comments into the calendar in parallel to other steps such that the calendar would not be affected.
83.
On 13 November 2014, the Respondent contended that the Claimants had provided limited information on their purported investments "indicat[ing] licensing irregularities that may warrant an objection to the Tribunal’s jurisdiction on the grounds of illegality of Claimants’ investment". Accordingly, it requested that document production should precede the filing of its Statement of Defense ("SoD") because otherwise it would be precluded from raising its illegality objection. It also submitted a proposal for the procedural calendar and commented on the Claimants’ objections of 31 October 2014 to the Commission’s Application.
84.
On the same day, the Claimants insisted that document production should occur in the usual course after the first round of submissions. They also submitted their own proposal for the procedural calendar in the arbitration.
85.
To facilitate the decision on the timing of the document production, on 24 November 2014, the Tribunal invited the Respondent "to identify the documents that it seeks from the Claimants and the reasons why it does so". At the same time, the Tribunal noted that the Respondent had agreed to the Claimants’ proposal that the Tribunal rule on the Commission’s Application only after the first round of submissions, i.e. after the SoD. As a result, the Tribunal advised the Parties that it would address the Commission’s Application, its power to accept an amicus intervention, and, if applicable, the merits of such intervention and practicalities, after the submission of the SoD.
86.
On 4 December 2014, the Respondent produced a table listing its document requests and explaining their relevance and materiality.
87.
On 11 December 2014, the Claimants responded to the Respondent’s submission.
88.
On 16 December 2014, the Tribunal granted the Respondent’s request for a document production phase, and set a schedule for document production. This schedule was revised on 6 January 2015.
89.
On 16 February 2015, the Tribunal issued Procedural Order No. 2 ("PO 2"), in which it decided the Respondent’s document production requests. It appended a revised procedural calendar.
90.
On 20 March 2015, the Respondent filed its SoD accompanied by factual exhibits, legal authorities, an expert report of Ms. Kelyn Bacon, QC and an expert report by Mr. Michael Peer. The Respondent advised the Tribunal that it was seeking a decision from the Commission on whether the State aid granted for installations put into operation before 1 January 2013 was compatible with the EU internal market. It requested the Tribunal to stay the present proceedings until the Commission’s decision.
91.
In their reply of 13 April 2015, the Claimants opposed the Respondent’s request for a stay. They argued that the Commission’s decision would not affect the outcome of the case and, therefore, could not justify a stay of the proceedings. According to them, the decision was a matter outside these proceedings that would "very likely arise only after the award was rendered".46 Further, the decision would likely be issued only in mid to late 2016, not counting time for challenges.
92.
On 24 April 2015, the Tribunal rejected the Respondent’s request. It noted that the request was belated and that, in any event, the Respondent had not shown how itself or the arbitration proceedings would be prejudiced if the stay was not granted. It further noted that "[i]f the Commission’s decision is rendered while the arbitration is ongoing, then the Tribunal will, of course, entertain the submissions the Parties choose to make on the effect of the decision on the arbitration. If the time comes for the Tribunal to render the award and the decision has still not been issued, the Tribunal will see at that time whether that requires it to delay the award".
93.
On the same day, the Tribunal advised the Parties that it was about to rule on the Commission’s Application and that, before doing so, it would consider any additional comments the Parties wished to make.
94.
The Claimants submitted their comments on 29 April 2015, maintaining their objections of 15 August and 31 October 2014. The Respondent submitted its comments on 4 May 2015, also reiterating its earlier position.
95.
On 27 May 2015, the Tribunal issued Procedural Order No. 3 ("PO 3") in which it decided on the Parties’ document production requests submitted to the Tribunal on 10 April 2015.
96.
On 16 September 2015, the Claimants filed their Reply (the "Reply") accompanied by factual exhibits, legal authorities, the second witness statement of Mr. [REDACTED], as well as the second expert report of Mr. [REDACTED].
98.
On 12 November 2015, upon a request by the Commission and after consulting the Parties, the Tribunal confirmed that the Commission’s understanding of the nature of the dispute as stated in the Commission’s communication of 30 October 2015 was correct. It also advised the Commission that Acts No. 165/2012, No. 310/2013 and No. 346/2010 Coll. (in respect of the latter, specifically Article I(36) and Article I(75) and transitional provisions being Articles II(2), II(9), and II(10) thereof) could be relevant to the dispute.
100.
On 17 December 2015, the Respondent filed its Rejoinder (the "Rejoinder" or "Rej.") accompanied by factual exhibits, legal authorities, a witness statement by Mr. [REDACTED] and [REDACTED] the expert reports of Mr. Wynne Jones of Frontier Economics and Ms. Kelyn Bacon, QC, and the second expert report of Michael Peer of KPMG.
101.
On 14 January 2016, the Claimants requested the Tribunal to disregard the witness statement of Mr. [REDACTED] and the expert report of Mr. Wynne Jones (the "New Evidence") on the basis that they contained evidence that should have been submitted earlier. In its response of 20 January 2016, the Respondent opposed the exclusion of the New Evidence. In its ruling of 25 January 2016, the Tribunal (i) admitted the New Evidence into the record, (ii) gave the Claimants an opportunity to file rebuttal evidence and brief explanatory comments limited to the New Evidence, and (iii) gave the Respondent an opportunity to file sur-rebuttal evidence and brief explanatory comments limited to the Claimants’ just preceding submission.
102.
On 15 February 2016, the Claimants and the Respondent filed their replies to the Amicus Curiae Submission (the "Claimants'/Respondent’s Comments on the Amicus Curiae Submission").
103.
On 11 March 2016, the Claimants filed their "Reply to the New Evidence Submitted in Respondent’s Rejoinder" (the "Claimants’ Comments on the New Evidence"), accompanied by factual exhibits and an expert report of Mr. [REDACTED] of Onyx Energy Consulting.
104.
On 29 March 2016, upon receipt of the Parties’ comments, the Tribunal advised the Parties and the Commission that, as it had the benefit of the Commission’s extensive submission, it did not require Commission representatives to attend the hearing.
105.
On 14 April 2016, the President, acting on behalf of the Tribunal, and the Parties held a telephone conference to discuss the outstanding issues pertaining to the organization of the hearing.
106.
On 18 April 2016, the Respondent filed its "Sur-Rebuttal Comments on 'New Evidence'", accompanied by factual exhibits, legal authorities and the second expert report of Mr. Wynne Jones.
107.
On 19 April 2016, the Tribunal issued Procedural Order No. 5 ("PO 5") in which it set out certain organizational issues for the hearing. Further directions were issued subsequently.

B. HEARING ON JURISDICTION AND MERITS

108.
From 9 to 12 May 2016, a hearing on jurisdiction and merits was held at the Peace Palace in The Hague. In addition to the Tribunal and the Secretary, the following persons attended the hearing in whole or in part:

• For the Claimants:

o Counsel

[REDACTED], Luther Rechtsanwaltsgesellschaft Luther Rechtsanwaltsgesellschaft Luther Rechtsanwaltsgesellschaft

[REDACTED], Luther Rechtsanwaltsgesellschaft Luther Rechtsanwaltsgesellschaft

o Party Representative

[REDACTED] Wirtgen

o Experts:

[REDACTED] Onyx Energy Consulting

[REDACTED] Onyx Energy

[REDACTED] Alvarez & & Marsal

[REDACTED] Alvarez & & Marsal

o Witnesses:

[REDACTED]

• For the Respondent:

o Counsel

Paolo Di Rosa, Arnold & Porter LLP Dmitri Evseev, Arnold & Porter (UK) LLP Mallory Silberman, Arnold & Porter LLP Peter Nikitin, Arnold & Porter (UK) LLP Bart Wasiak, Arnold & Porter (UK) LLP Aimée Reilert, Arnold & Porter LLP Dara Wachsman, Arnold & Porter (UK) LLP

Karolina Horáková, Weil, Gotschal & Manges s.r.o. Advokátní kancelár Libor Morávek, Weil, Gotschal & Manges s.r.o. Advokátní kancelár Pavel Kinnert, Weil, Gotschal & Manges s.r.o. Advokátní kancelár

o Party representatives

Marie Talasová, Ministry of Finance of the Czech Republic Anna Bilanová, Ministry of Finance of the Czech Republic

o Experts

Wynne Jones, Frontier Economics Ltd.

Michael Peer, KPMG Ceská republika, s.r.o.

Jiri Urban, KPMG Ceská republika, s.r.o. (colleague of Mr. Peer)

o Witness

[REDACTED]

109.
Except for Messrs [REDACTED] and Urban, whose cross-examination was not requested, all the fact witnesses and experts listed above were heard.
110.
On the penultimate day of the hearing, the Tribunal posed several questions to the Parties, which they answered in their closing oral statements on the last day of the hearing.

C. POST-HEARING PHASE

111.
On 17 May 2016, the Tribunal issued Procedural Order No. 6 ("PO 6"), reproducing the directions given by the Tribunal at the end of the hearing with regard to post-hearing matters. It noted the Parties’ agreement that there would be no post hearing briefs.
112.
On 31 May 2016, the Parties submitted their joint revisions to the hearing transcripts.
113.
On 15 June 2016, the Parties submitted their cost submissions.
114.
On 20 June 2016, in response to an allegation made by the Claimants in their cost submission concerning double recovery, the Respondent confirmed that "the costs for which the Czech Republic seeks recovery in this case are ones that are solely allocated to this proceeding, and shall not be included in cost submissions in any other matter. In consequence, there is no risk of "double recovery".
115.
On 21 October 2016, the Tribunal advised the Parties and the Commission that it had deliberated and determined that it had all necessary information to proceed to draft its award. Subject to any comments to be made by 4 November 2016, the Tribunal would thus close the proceedings.
116.
On 29 October 2016, the Commission advised the Tribunal that the German Bundesgerichtshof had requested the European Court of Justice ("ECJ") to issue a preliminary ruling on whether a provision similar to Article 10 of the Treaty appearing in an intra-EU BIT was compatible with EU law. It suggested that the Tribunal stay the arbitration pending a decision by the ECJ. It also advised the Tribunal that the Commission had adopted the second step of the infringement procedure against five EU Member States for not having formally terminated their intra-EU BITs.
117.
On 4 November 2016, the Claimants and the Respondent confirmed that they did not have any comments to make before the Tribunal closed the proceedings.
118.
On 7 November 2016, the Tribunal conveyed the Commission’s submission of 29 October 2016 to the Parties, giving them the opportunity to comment on the submission by 14 November 2016.
119.
On 7 November 2016, the Claimants requested the Tribunal to instruct the Commission to submit an English language translation of Annex 1 of the Commission’s submission.
120.
On 11 November 2016, the Tribunal advised the Parties that they could submit their comments referring to their own translation of Annex 1 if at all necessary.
121.
On 14 November 2016, the Claimants responded to the Commission’s submission, opposing the Commission’s suggestion of staying the proceeding. They pointed out that the Bundesgerichtshof had approached the ECJ on 3 March 2016, two months before the oral hearing in the present arbitration. The Commission had thus approached the Tribunal belatedly, in an attempt to delay the award. Further, they submitted that the Commission’s submission should be rejected as it was inadmissible and had no legal basis.
122.
In its response of the same day, the Respondent too opposed the Commission’s suggestion of staying the proceeding. It submitted that, while the Czech Republic shared many of the Commission’s concerns about the possible incompatibility of intra-EU investor-state dispute settlement with EU law, the pendency of the preliminary ruling proceeding did not justify staying the present arbitration as neither disputing Party had asked the Tribunal to declare that the Treaty was incompatible with EU law. It also pointed out that a decision by the ECJ would take a long time, and that the court could limit the effect of the ruling to the period after the ruling, in which case it would not affect the present dispute.
123.
On 2 December 2016, the Claimants requested the Tribunal to reopen the proceedings. They noted that on 28 November 2016, the Commission had decided that the Support Scheme did not constitute unlawful State aid (the "Commission Decision"). The Claimants also requested leave to introduce into the record the press release of the Commission and, once available, the Commission Decision.
124.
On 6 December 2016, the Tribunal invited the Respondent to comment on the Claimants’ request by 13 December 2016.
125.
In its response of 13 December 2016, the Respondent did not object to the Claimants’ request to reopen the proceedings, or their request to file the Commission Decision and accompanying press release into the record. Instead, it offered to submit an unredacted version of the Commission Decision into the record, on the condition that it be treated as confidential. It also submitted that the Parties should only be given a limited opportunity to comment on the Commission Decision.
126.
On 15 December 2016, the Tribunal advised the Parties that it would accept submissions on the Commission Decision and that, subject to these submissions, the proceedings were closed. The Respondent was invited to introduce the un-redacted version of the Commission Decision and accompanying press release into the record on the understanding that the un-redacted version of the Commission Decision would be treated as confidential. Moreover, the Parties were invited to make simultaneous submissions on the Commission Decision by 6 January 2017. There would be a second round of simultaneous submissions if a Party so requested or if the Tribunal so directed.
127.
The next day, the Claimants agreed to the procedure proposed by the Tribunal and requested that the Respondent produce the Commission Decision by 19 December 2016, or else they would need more time to prepare their submission.
128.
On 19 December 2016, the Respondent confirmed that it would submit the Commission Decision on 19th or 20th December 2016, and subsequently did so on 20 December.
129.
On 21 December 2016, the Tribunal advised the Parties that as the Commission Decision was filed a day later than requested by the Claimants, and having due regard to the intervening holidays, the time limit for submission of the Parties’ comments on the Commission Decision was extended to 10 January 2017 and the subsequent time limit for advising the Tribunal if either Party wished a second round was deferred to 17 January 2017.
130.
On 10 January 2017, the Parties submitted their comments on the Commission Decision (the "Claimants'/Respondent’s Comments on the Commission Decision").
131.
On 17 January 2017, the Parties advised the Tribunal that they did not seek a second round of submissions. The next day, the Tribunal confirmed that it too did not require further submissions.
133.
On 1 March 2017, the Tribunal conveyed the Commission’s Submission to the Parties. It advised them that while the Tribunal did not expect any further submissions from the Parties, if either Party considered that the Commission’s Submission called for further comments, it could file such comments by 10 March 2017.
134.
On 10 March 2017, the Claimants commented on the Commission’s Submission, stating that it did not agree with the Commission’s views. On its part, the Respondent advised the Tribunal that it did not intend to provide comments.
135.
On 23 March 2017, the Claimants asked the Secretary for a status update on the issuance of the award. The Secretary replied on 27 March 2017 stating that the Tribunal would advise the Parties of the status of the award shortly.
136.
On 27 March 2017, the Tribunal advised the Parties that it anticipated being in a position to issue its decision in principle in late June or early July.
137.
On 7 July 2017, the Tribunal advised the Parties that it was well advanced in its deliberations and that it anticipated issuing its award no later than September. It stated that the Parties would be given three days advance notice before sending out the award.
138.
On 25 August 2017, the Tribunal advised the Parties that the award was ready to be issued. However, one member of the Tribunal was preparing an opinion that would not be ready before late September. The Parties could therefore choose to jointly receive the award first and the opinion later, or to receive the award and the opinion together at a later time.
139.
On 28 August 2017, the Claimants advised the Tribunal that they would prefer receiving the award and opinion together. The Respondent wrote on 1 September 2017 that "the Czech Republic would prefer that the Award be issued as soon as possible, and [...] any separate opinion be distributed at a later time."
140.
On 11 September 2017,the Tribunal advised the Parties that it would follow the usual practice in international arbitration and issue award and opinion together.
141.
On 6 October 2017, the Parties were notified that the award would be issued on 11 October 2017.

IV. POSITIONS OF THE PARTIES AND RELIEF REQUESTED

A. SUMMARY OF THE CLAIMANTS' POSITION

142.
The Claimants have summarized their case as follows:

"Claimants invested in 2009 and 2010 in three PV-plants in the Czech Republic. Their investment decision was based on explicit guarantees contained in the Support Scheme, among others, that the feed-in tariff given at the time of commissioning the plants would be guaranteed for twenty years. The Support Scheme also preserved long-term income tax exemptions and shortened depreciation periods. The Czech Republic endorsed these benefits at home and abroad in order to attract foreign investors.

Based on these guarantees, Claimants, having procured due diligence reports to assess the factual and legal risks involved, proceeded with their investment. At the time of their investments, the introduction of the solar levy was in no way foreseeable. Claimants relied on the explicit guarantees that the Czech Republic itself deemed to be in full compliance with EU law.

Respondent has tried to argue that the guarantee for a return on investment within fifteen years [was the] "operative basis" of the Support Scheme. Claimants have shown that this term coined by Respondent for the purpose of these proceedings finds no basis whatsoever in the wording of the Support Scheme, the legislative history, the representations of the Czech Republic or the decisions of domestic courts. Respondent also failed to show that Claimants or any other investors received "windfall profits" as a result of an alleged drop in prices for solar panels between 2009 and 2010. Furthermore, Respondent has not submitted any evidence suggesting that the solar levy was introduced to curb "windfall profits". Instead, the legislative documents show that the solar levy was simply introduced to reduce the effect of the solar subsidies on the national budget and on the consumer prices.

Finally, Respondent has failed to explain what any other due diligence, besides the extensive due diligence reports obtained from three law firms by Claimants, should have brought to light and why this should have discouraged Claimants to invest in the Czech Republic. All of Claimants three PV-plants are currently operating and there are no pending disputes with Czech authorities regarding the permits or licenses of those plants.

This is not a dispute about naive or negligent investors rushing-in to benefit from "windfall profits". It is a dispute about experienced businessmen investing in the Czech Republic on the basis of highly specific legislative guarantees which they were invited to rely on by the Czech Republic. In essence, the question that has to be decided is whether states should be allowed to open the honeypot to attract foreign investors and then, once those investors commit serious capital to the host country, to retract and circumvent long-term guarantees and simply fail to hold-up their end of the bargain".47

143.
In so far as they are relevant to resolve the issues in dispute, the Claimants’ detailed arguments will be summarized in the introduction to the Tribunal’s analysis of each disputed issue. For the avoidance of doubt, the Tribunal emphasizes that, while it has only referred to the aspects of the Claimants’ case which are most pertinent to its decision, it has considered all of the Claimants’ submissions and evidence.

B. THE CLAIMANTS' REQUEST FOR RELIEF

144.
In their SoC, the Claimants sought the following relief:

"I. DECLARE that the Czech Republic has breached its obligations towards Claimants under the BIT;

II. ORDER the Czech Republic to pay damages to the Claimants, currently calculated to [EUR 19,012,000]48 and pre- and post award interest on the damages in an amount of 2,23 % from 01.01.2014 until date of payment, compounded annually;

III. ORDER the Czech Republic to compensate Claimants for their costs of arbitration in an amount to be specified later together with interest thereon and, as between the parties, alone to bear all costs for the arbitration including compensation and fees to the Arbitral Tribunal and the administrative costs of the PCA".49

145.
This request for relief was substantially similar to the one contained in the RfA.50
146.
At the end of the hearing, however, the Claimants revised their request for relief as follows:

"Claimants therefore ask the Tribunal to

I. Declare that the Czech Republic has breached its obligations towards Claimants under the BIT;

II. Order the Czech Republic to pay, together with an appropriate pre-and post award interest rate since 1.1.2015,

1. For damages [sic] relating to the plant Struharov to claimants Jürgen Wirtgen and Stefan Wirtgen each TEUR 1,105.3 including tax consequences,

2. For damages to the plant Svétlá

a. to Claimant JSW Solar (zwei) GmbH & Co. KG TEUR 7,171.50 including tax consequences; (OR)

b. if the Tribunal finds it has no jurisdiction over Claimant JSW Solar (zwei) GmbH & Co. KG, to Claimants Jürgen Wirtgen, Stefan Wirtgen and Gisela Wirtgen TEUR 2,390.50 each including tax consequences,

3. For damages to the plant Vernérov

a. to Claimant JSW Solar (zwei) GmbH & Co. KG TEUR 9,629.50 including tax consequences, (OR)

b. if the Tribunal finds it has no jurisdiction over Claimant JSW Solar (zwei) GmbH & Co. KG, to claimants Jürgen Wirtgen, Stefan Wirtgen and Gisela Wirtgen TEUR 3,209.80 each including tax consequences

III. In the alternative,

1. order the Czech Republic to pay, together with an appropriate pre-and post award interest rate since 1.1.2015,

a) For damages [sic] relating to the plant Struharov to claimants Jürgen Wirtgen and Stefan Wirtgen each TEUR 580.50,

b) For damages to the plant Svétlá

(1) to Claimant JSW Solar (zwei) GmbH & Co. KG TEUR 3,766.90; (OR)

(2) if the Tribunal finds it has no jurisdiction over Claimant JSW Solar (zwei) GmbH & Co. KG, to claimants Jürgen Wirtgen, Stefan Wirtgen and Gisela Wirtgen TEUR 1,255.60 each,

c) For damages to the plant Vernérov

(1) to Claimant JSW Solar (zwei) GmbH & Co. KG TEUR 5,057.90, (OR)

(2) if the Tribunal finds it has no jurisdiction over Claimant JSW Solar (zwei) GmbH & Co. KG, to claimants Jürgen Wirtgen, Stefan Wirtgen and Gisela Wirtgen TEUR 1,686 each.

d) Declare that the Czech Republic shall compensate the Claimants for any and all tax that may be levied by the tax authorities on them as a consequence of any damages being awarded to them in accordance with III 1. (a) - (c) above,

and

IV. Order the Czech Republic to compensate Claimants as joint creditors for their costs of arbitration in amount to be specified later together with interest thereon and, as between the parties, alone to bear all costs for the arbitration including compensation and fees to the Arbitral Tribunal and the administrative costs of the PCA".51

147.
The Respondent opposed the revision of the Claimants’ requests for relief as untimely.

C. SUMMARY OF THE RESPONDENT'S POSITION

148.
The Respondent has summarized its case as follows:

"Like thousands of other investors, Claimants raced to take advantage of the massive decline in solar panel costs [...], before the price drop could be reflected in the regulated subsidy price. In doing so, Claimants hoped to earn substantially more than the rate of return targeted by the regulation. However […] Claimants never received any assurances of stabilization of the regime, or assurances that the State would refrain from measures that could reduce their excess profits. Unlike a traditional business, Claimants’ investments were (and remain) almost wholly shielded from market risk for a period of 20 years. This does not mean, however, that they were also shielded from the risk of legislative change. To the contrary, in a subsidy-based regulated environment and in the absence of market forces, it is the State and its energy regulator that must protect the public interest by ensuring that industry subsidies do not result in windfall profits at the expense of electricity consumers and taxpayers.

[…]

Claimants’ [arguments] are largely divorced from reality. Some of these arguments rely on the denial of basic facts, including the dramatic decline in solar panel prices by mid-2009 and the resulting imbalance between the fixed subsidies and the profit levels targeted by the regulation. Other arguments attempt to shift focus away from the key benchmarks of investment return (within 15 years) and reasonable profit (over the 20-year lifetime of the solar plants), by emphasizing other provisions, such as those providing for fixed tariff rates, which in fact were not modified at all by the Tax Measures. By the same token, Claimants’ repeated references to "contracts and licenses" embodying their supposed guarantees lose sight of the fact that none of these documents contained any guarantees whatsoever with respect to taxation, profitability, or even the RES Scheme more broadly.

Claimants’ Reply also fails to acknowledge the clear relevance of EU law to the core issues in this case. [T]he EU Treaties remain part of the applicable law in this arbitration, regardless of the fact that the seat of this arbitration is outside the EU […] EU law is important both to the merits of the dispute and to the issue of enforceability of the award

[…]

Claimants fail to establish that the Tribunal has jurisdiction to entertain claims for alleged injury to Claimant JSW Solar KG, because that entity does not qualify as an "investor" within the meaning of the BIT. The fact that JSW Solar KG does not qualify as an investor under the BIT means that all claims for alleged injury to that entity must be excluded from this arbitration.

In any event, all of the Claimants have utterly failed to substantiate their merits claims. As discussed below, Claimants assert claims under three different provisions of the BIT — the umbrella clause, the fair and equitable treatment clause, and the full protection and security clause — which ultimately boil down to two unfounded theories of liability: first, that the Government supposedly altered domestic law in circumstances when it was internationally-bound not to do so; and, second, that the measures are flawed because they allegedly were intended to deliberately harm Claimants. Each of these theories founders on both law and fact".52

149.
In so far as they are relevant to resolve the issues in dispute, the Czech Republic’s detailed arguments will be summarized below just before the Tribunal’s analysis of each disputed issue. For the sake of clarity, the Tribunal emphasizes that, while it has only referred to the elements of the Respondent’s case which are most important for its decision, it has considered all of the Respondent’s submissions and evidence.

D. THE RESPONDENT'S REQUEST FOR RELIEF

150.
In the SoD, the Respondent sought the following relief:

"For the foregoing reasons, and reserving the right to further develop and expand its submission and request for relief, the Czech Republic respectfully requests the Tribunal to:

a) order a stay of the present proceedings until the European Commission issues a decision in the proceedings regarding state aid represented by the RES Scheme as applicable to installations commissioned before 1 January 2013 (the other requested relief thus being in the alternative);

b) declare that the Tribunal does not have jurisdiction ratione personae over Claimant JSW Solar (zwei) GmbH & Co. KG;

c) declare that the Czech Republic has not breached the Treaty;

d) dismiss all of the Claimants’ claims in their entirety;

e) order the Claimants to pay the costs of these arbitral proceedings, including the cost of the Tribunal and the legal and other costs incurred by the Czech Republic, on a full indemnity basis; and

f) order the Claimants to pay interest on any costs awarded to the Czech Republic, in an amount to be determined by the Tribunal".53

151.
In its Rejoinder, the Respondent sought the following relief:

"For the reasons set forth above, the Czech Republic respectfully reiterates its request that the Tribunal (a) reject Claimants’ claims in their entirety because (with regard to JSW Solar KG) they are outside the Tribunal’s jurisdiction and, in any case, are entirely lacking in merit; and (b) issue an award of costs and fees (including all legal fees and expenses), and interest thereon, in favor of the Czech Republic".54

152.
These requests were not changed at the hearing.

V. ANALYSIS

A. PRELIMINARY MATTERS

153.
Prior to entering the merits of the dispute, the Tribunal will address the applicable procedural law (1), the law governing jurisdiction (2) and the merits of the dispute (3) as well the maxim jura novit curia (4) and the relevance of previous decisions or awards (5).

1. Applicable Procedural Law

154.
This ad hoc investment arbitration is governed by (i) the procedural rules contained in the BIT and, as it is seated in Geneva and involves non-Swiss parties, by (ii) Chapter 12 of the Swiss Federal Act on Private International Law Act (PILA).55 As for the Treaty, Article 10(2) contains some basic provisions on the constitution of an arbitral tribunal for settlement of an investment dispute. It further provides that "[i]nsofar as the parties do not agree otherwise, the provisions of Article 9, paragraphs 3 to 556 shall be appropriately applied" in an investment arbitral proceeding. In accordance with Article 9(5), the arbitral tribunal shall reach its decisions by a majority of votes and the decisions of the Tribunal shall be binding. This Article also gives some guidance on costs and provides that the arbitral tribunal shall determine its own procedure in respect of other matters.57
155.
In implementation of Article 9(5) of the Treaty and taking account of the seat of the arbitration, Section 8 of the Terms of Appointment provides as follows:

"APPLICABLE PROCEDURAL RULES

This arbitration shall be governed by (in the following order of precedence):

a) The mandatory rules of the law on international arbitration applicable at the seat of the arbitration;

b) These Terms of Appointment and the procedural rules issued by the Arbitral Tribunal, as will be reflected in Procedural Order No. 1 and any amendments thereof.

44. If the provisions therein do not address a specific procedural issue, the applicable procedural issue shall be determined by agreement between the Parties or, in the absence of such agreement, by the Arbitral Tribunal".

2. Law Governing Jurisdiction

156.
It is generally accepted that an investment tribunal’s jurisdiction is governed by international law, first and foremost by the BIT. In addition, the Tribunal may look to other rules of international law which may apply as between the Contracting Parties. National law may be relevant to jurisdictional requirements depending on the issue in question, particularly if the Treaty contains a reference to national law58 or uses a term that can only be understood by reference to national law.59

3. Law Governing the Merits

157.
While they agree on the application of the BIT to the merits of the dispute, the Parties and the EC diverge on the applicability of EU law. In light of this divergence, it falls on the Tribunal to determine whether EU law may find application. It will do so (d) after having summarized the Parties’ ((a) and (b)) and the Commission’s positions (c).60

a. The Claimants’ position

158.
The Claimants assert that the Parties agreed that the law relevant to the present dispute is the Treaty and public international law. Had the Parties intended for any law to apply additionally, they would have said so. The Claimants further submit that although the Treaty does not define the applicable law, its existence is governed by public international law. Thus, where the Treaty provides no guidance, deficiencies in the Treaty can be remedied by turning to principles of public international law.
159.
As to the application of EU law, it is the Claimants’ position that EU law is irrelevant to the resolution of the dispute. The application of EU law would "exceeds the commitments as agreed by the parties to the BIT, as well as the parties to this dispute",61 which is underscored by the agreement of the Parties to arbitrate outside of the EU.
160.
The Claimants are further of the view that, while EU law may be applied as international or supranational law within the EU, this does not mean that EU law is international law within the international legal order. The Tribunal cannot place EU law at the same level as the rules set in the Treaty. In the event that the Tribunal considers it necessary to take EU law into account, the Claimants argue that it should apply as national law. Other international tribunals have treated national law as fact and there is no reason to deviate from that approach here.
161.
Moreover, the Claimants submit that the closest connection test provided in Article 187 of the PILA is irrelevant for present purposes. Domestic conflict law rules, they contend, play no role in an investor-State arbitration under a BIT. They further underline that the Treaty provides for both state-to-state arbitration in Article 9 and for investor-State arbitration in Article 10, and that the latter refers to the former in respect of procedural matters. They contend that "[i]t is evidently absurd to assume that proceedings under Article 9 should be subject to national law. It is equally absurd to assume that proceedings under Article 10, which refer to the same subject matter, should be subject to national law".62
162.
In any event, they submit that the closest connection test is only relevant where the parties have not chosen the applicable law. Here, as the Parties have chosen the Treaty and public international law, the closest connection test does not come into play.

b. The Respondent’s position

163.
The Respondent submits that for issues that are not expressly regulated in the Treaty, the Tribunal must look to the Treaty’s governing law. Since the Treaty offers no guidance, the Tribunal must determine "the rules of law with which the case has the closest connection" in accordance with Article 187 of the PILA.
164.
In the Respondent’s submission, the "rules of law" with the closest connection in this case are the rules and principles of international law. This is because the Treaty is an international instrument and because the Claimants allege that the Czech Republic has breached international law. Further, as the Claimants invested in the Czech Republic and because they are German nationals, Czech law and, to some extent, German law are also relevant. Swiss law too is relevant as it provides the procedural rules that the Tribunal must follow in the absence of an agreement between the Parties. In sum, the Tribunal must first have regard to the rules and principles of international law, supplemented if necessary by the rules of Czech and German law as applicable.
165.
Furthermore, the Respondent argues that because of the Czech Republic’s accession to the EU, "[t]he EU Treaties, and the general principles, rules and regulations comprised therein […] constitute applicable rules and principles of international law in force between the Contracting Parties to the BIT".63 Consequently, EU law too forms part of the "rules of law" applicable in this dispute.
166.
For the Respondent, EU law itself is highly relevant in multiple ways. First, EU law forms part of the international law applicable to this dispute and is a source of international obligations. Second, to the extent the Tribunal finds that the municipal law of the Czech Republic or Germany are applicable to any issue in dispute, EU law is relevant as it forms an integral part of these legal systems. Third, EU law must also be taken into account when interpreting the obligations contained in the Treaty pursuant to Article 31(3)(c) of the Vienna Convention on the Law of Treaties ("VCLT"). Fourth, as part of the legal order binding on the Czech Republic, EU law is relevant as a fact when assessing the rationality of the Czech Republic’s conduct, as well as the legitimacy of the Claimants’ expectations. Fifth, EU law is relevant to the enforceability of the award.
167.
Finally, the Respondent submits that, as a matter of international law, the Treaty must be interpreted harmoniously with EU law to the extent possible. If harmonious interpretation is not possible, the Treaty must be "disapplied". This is so because of the fundamental principle of "primacy" of the EU legal order over all conflicting norms including treaties concluded between EU Member States. If this were not so, EU Treaties would be unable to function as its Member States could enter into new international agreements amongst themselves that would derogate from EU law. The Treaty does not allow its Contracting Parties to escape obligations imposed by EU law.

c. The Commission’s position

168.
The Commission observes that, like other German BITs, the Treaty contains no choice of law. Thus, the governing law must be determined in conformity with the rules under which the arbitration is conducted. Arbitral tribunals have generally considered that BITs are governed by international law. Further, EU law is also applied as part of international law binding on Germany and the Czech Republic. The outcome would be the same under the "closest connection" test: EU law would apply because the Czech Republic transposed EU directives into the Czech legal order as part of its obligations under EU law.
169.
Finally, the Commission shares the view of the Respondent that Member States cannot invoke international agreements which they have concluded between themselves to justify a failure to comply with EU law.

d. Analysis

170.
Section 7 of the Terms of Appointment records that the Parties consent to the application of the BIT.64 Indeed, this arbitration has been initiated under Article 10 of the Treaty. The Claimants’ seek damages for the Czech Republic’s alleged breaches of the Treaty. In the circumstances, the Treaty is the primary source of applicable law.
171.
Beyond the application of the BIT, Section 7 of the Terms of Appointment notes that the Tribunal will determine the governing law:

"APPLICABLE SUBSTANTIVE LAW

The applicable law, in addition to the application of the BIT which is uncontroversial, will be subject to briefing by the Parties and determined by the Tribunal".

172.
From the Parties’ submissions, the Tribunal understands that there is no dispute - and rightly so - on the applicability of international law in addition to the Treaty.65
173.
By contrast, there is no common ground on the status and applicability of EU law. The Claimants argue that EU law cannot be categorized as international law. Only if relevant or necessary, may EU law be applied as domestic law. The Respondent takes a contrary position, arguing that EU law forms part of the applicable international law.
175.
The status and applicability of EU law in investment treaty arbitration were exhaustively discussed in Electrabel v. Hungary.67 Essentially, Electrabel considered that EU law was "a sui generis legal order, presenting different facets depending on the perspective from where it is analysed". Accordingly, it found that EU law was on the one hand an "international legal regime" and, on the other, "once introduced in the national legal orders of EU Member States",68 it became "part of these national legal orders".69 This being so, EU law should not be confined to the national legal order: "[i]n the international setting in which this Tribunal is situated and from which it necessarily derives its perspective",70 so continued the ICSID tribunal, "EU law has to be classified first as international law",71 "because it is rooted in international treaties".72 It added that "EU law as a whole is part of the international legal order"73 and that "EU legal rules are part of a regional system of international law and therefore have an international legal character".74 In other words, the fact that EU law is also applied within the national legal order of an EU Member State does not deprive it of its international legal nature, whereby it is irrelevant from the perspective of international law "whether such application within a national legal order take effect directly or indirectly".75 As a result, the Electrabel tribunal concluded that there was no "fundamental difference in nature between international law and EU law that could justify treating EU law, unlike other international rules, differently in an international arbitration requiring the application of relevant rules and principles of international law".76 Finally, Electrabel noted that, "when it is not applied as international rules [...], 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".77
176.
Tribunals in Achmea v. Slovak Republic78 and Euram v. Slovak Republic79 have reached similar conclusions.

4. Jura Novit Curia

5. Relevance of Previous Decisions

180.
In support of their positions, both sides have relied on previous decisions or awards, either to conclude that the same solutions should be adopted in the present case or in an effort to explain why this Tribunal should depart from a solution reached by another tribunal.

B. JURISDICTION

182.
It is not disputed that the Treaty is in force. Through the Exchange of Notes on 18 December 1992 and 1 January 1993, the Governments of the Czech Republic and of the Federal Republic of Germany have agreed that the treaties concluded between the latter and the Czech and Slovak Federal Republic would remain in force with respect to the Czech Republic as long as both parties would not agree otherwise. No such contrary agreement has been concluded.
183.
The Claimants initiated the present arbitration under Article 10 of the Treaty which provides in relevant part as follows:

"(1) Disputes concerning investments between a Contracting State and an investor from the respective other Contracting State should as far as possible be settled amicably between the parties to the dispute.

(2) If the dispute cannot be settled within six months of the date on which it was raised by one of the parties to the dispute, it shall, at the request of the investor from the other Contracting State, be submitted to arbitration.

[…]"

184.
It is undisputed83 that the following requirements set in Article 10 have been complied with:

• The Parties "numerous" attempts to settle the dispute amicably have failed.84 Hence, the requirement of Article 10(1) of the Treaty is met.

• Each of the Claimants has accepted the Respondent’s offer to arbitrate contained in Article 10(2) of the Treaty:

o Claimants 1, 2 and 4, i.e. Jürgen Wirtgen, Stefan Wirtgen and JSW Solar (zwei) GmbH & Co. KG, have accepted the offer by filing the Request for Arbitration on 24 June 2013;

o Claimant 3, i.e. Ms. Gisela Wirtgen, has accepted the offer to arbitrate by her letter of 6 January 2014.

• The present dispute concerns "investments". Article 1(1) of the Treaty contains a broad definition of "investment", which includes "ownership of movable and immovable property" and "shares of companies and other kinds of interest in companies". Moreover, there is common ground that the Claimants made an allocation of resources for a long duration at their risk when they invested through JSW Solar v.o.s., JSW Solar (zwei) k.s. and FVE Verne s.r.o. in the construction and operation of three PV plants in the Czech Republic.

• The Respondent does not dispute that Claimants 1, 2 and 3 qualify as "investors" as defined in Article 1(3) of the BIT.

185.
By contrast, the Respondent contends that Claimant 4, i.e. JSW, is not an investor within the meaning of Article 1(3) of the BIT (1). Further, in its Amicus Curiae Submission, the Commission argues that EU law deprives this Tribunal of jurisdiction (2). Both these arguments are considered below.

1. Is Claimant 4 an Investor?

a. The Respondent’s position

186.
The Respondent submits that the Claimants bear the burden of establishing the Tribunal’s jurisdiction under the Treaty and that they have failed to meet this burden with respect to JSW.
187.
According to the Respondent, the wording of Article 1(3) of the Treaty is clear. The Claimants must meet three cumulative requirements for JSW to be considered as an "investor" within the meaning of Article 1(3): (i) JSW is a "juridical person", (ii) JSW has its seat in "the territory covered by" the Treaty, and (iii) JSW is "authorized to act as an investor". For the Czech Republic, JSW fails to meet the first requirement. It is not a "juridical person", because it is a "limited partnership" (Kommanditgesellschaft or "KG"), which lacks legal personality under German law.85
188.
The Respondent objects to the Claimants’ translation of Article 1(3) of the Treaty and submits that the term "juristische person" in the German version and "právnická osoba" in the Czech version "unequivocally translate as juridical person",86 and not as "legal entity". Thus, despite the Claimants’ submissions to the contrary, the Treaty only covers investors who are "juridical persons", a requirement that JSW does not satisfy.
189.
The Respondent denies the Claimants’ submissions that the term "juridical person" must be interpreted autonomously. For the Respondent, the Claimants have advanced no "principled reason" why the Tribunal should ignore German law for purposes of determining whether JSW can be deemed a German "investor" under the Treaty. Indeed, a treaty is not a self-contained legal system and reference may be made to a "wider juridical context".87 The absence of express renvoi to domestic law is not determinative, as tribunals have frequently relied on definitions of domestic law to give content to treaty terms, even absent an express reference.
190.
The Respondent also refutes the Claimants’ submission that an entity only needs legal capacity, but not legal personality to fall within the ambit of Article 1(3) of the Treaty. This view is not in line with the text of the Treaty. Neither is it supported by German treaty practice or international law. It is irrelevant in the Respondent’s submission that resort to domestic law may yield different results for Czech and German entities. Indeed, a BIT is not meant to standardize nationality requirements or corporate formalities of the two Contracting Parties.
191.
The Respondent opposes the Claimants’ argument that this approach would not respect the object and purpose of the Treaty. According to it, "if a person or entity does not qualify as an "investor of the other Contracting Party", by definition the exclusion of that person or entity from the BIT’s protection cannot contradict the object and purpose of the BIT. In fact, the precise opposite is true: it would contradict such object and purpose to include such a person within the BIT’s scope of coverage".88
192.
The Respondent also refutes the Claimants’ argument that the exclusion of KGs from treaty protection would entail that a majority of German entities would be deprived of investment protection. It submits that, when entering into the Treaty, Germany may
193.
Moreover, the Respondent observes that other German BITs contain broader notions of the term "investor", expressly including entities other than juridical persons. Therefore, if the Tribunal were to accept the Claimants’ arguments, "the express extension to German law partnerships in other investment treaties concluded by Germany would be rendered meaningless".89
194.
Should the Tribunal deny jurisdiction over Claimant 4, the Respondent argues that all claims for alleged injury suffered by that entity must be discarded from the scope of this arbitration. Claimants 1-3 cannot be substituted for Claimant 4 as the Claimants suggest. According to the Respondent, this is so for several reasons, including "(1) JSW Solar KG cannot assert such claims itself, (2) the remaining Claimants have not asserted claims for injury to JSW Solar KG, and (3) the remaining Claimants could not assert claims for injury to JSW Solar KG without effectively undoing any decision to decline jurisdiction over JSW Solar KG".90 Further, the Claimants have not asserted or established any damages for their indirectly held investments.

b. The Claimants’ position

195.
The Claimants challenge the Respondent’s position. According to them, Article 1(3) of the Treaty "leads to the conclusion that an '[i]nvestor' only needs legal capacity, but not legal personality: it needs to be able to invest, i.e. to buy and sell, conclude contracts, sue and be sued".91 As it is undisputed that a KG has these attributes, JSW is an "investor" within the scope of Article 1(3).
196.
More specifically, the Claimants submit that the term "juridical person" has to be interpreted autonomously; a position which they say is supported by decisions of other investment tribunals. They also note that KGs acted as claimants in three ICSID proceedings in the past without their standing being questioned. In addition, two proceedings brought by KGs are currently pending. According to the Claimants, "if KGs can pass the hurdle under ICSID, then [...] they should also be considered juridical persons under the BIT".92
197.
For the Claimants, the very premise of the Respondent’s argument is incorrect. The Respondent assumes that the Contracting Parties intended to refer to different definitions of "juridical person" under their national laws. That is not the case. First, a review of German BITs shows that, when Germany wished to refer to national law, it did so explicitly. Second, the Respondent’s interpretation would lead to "nonsensical" results. A KG would be an investor in Germany, but not in the Czech Republic, which would be contrary to the reciprocal protection expressly stated in the preamble of the BIT. Finally, the Claimants stress that "it […] is possible that a company from another EU member state which transferred its seat to Germany is an investor within the terms of the Treaty. Applying German law standards to these companies clearly is impossible".93
198.
The Claimants insist that about one third of all German companies are KGs; they are the "heart" of the German economy. The Respondent "[hasn't] put forward a single quotation, a single document from the [Treaty] negotiations which could explain why Germany suddenly should have wanted to waive protection for one third of its companies".94
199.
The Claimants also dispute that German treaty practice supports the Respondent’s case. While some German BITs explicitly refer to "companies or associations with or without legal personality", these treaties define the term "investor" differently for each contracting state. This is not true of the German-Czech BIT, which contains one definition for both Contracting Parties. Of the seven German BITs (including the Treaty) that contain a single definition, in four treaties the definition explicitly includes legal entities without legal personality. However, all four were concluded after the German-Czech BIT. The two other BITs, concluded in 1989, do not address the question of legal personality.95 Thus, in all but three BITs, Germany protects companies with or without legal personality. For the Claimants, there is no reason why Germany should have excluded companies without legal personality from the scope of investor protections in the German-Czech BIT.
200.
Finally, the Claimants submit that, the exclusion of Claimant 4 would in any event have no "major relevance" for the resolution of their dispute. Claimants 1-3, all of whom are natural persons, invested their own money into the solar plants through Claimant 4. In the circumstances, as the Treaty does not exclude investments held indirectly, the claims of Claimant 4 could be brought by Claimants 1-3.96

c. Analysis

201.
Article 10 of the BIT refers to disputes between a Contracting State and an "investor". The term "investor" is defined in Article 1(3), being specified that the German and Czech texts are equally authentic.97 In the German text, Article 1(3) of the Treaty reads as follows:

"[Für die Zwecke dieses Vertrag] bezeichnet der Begriff "Investor" eine natürliche Person mit standigem Wohnsitz oder eine juristische Person mit Sitz im jeweiligen Geltungsbereich dieses Vertrags, die berechtigt ist, Kapitalanlagen zu tatigen".98

202.
In the Czech text, Article 1(3) of the Treaty reads as follows:

"[Pro úcely této Dohody] Pojem "investor" znamená fyzické osoby se stálym bydlistém nebo právnické osoby se sídlem v okruhu püsobnosti této Dohody, jez jsou oprávnény jednat jako investori".99

203.
Several English translations are in the record:

• In the Request for Arbitration, the Claimants translated Article 1(3) as:

"[For the purposes of this Agreement] an "Investor" is either a natural person who has its permanent residence in a contracting state or a juridical person with its seat in one of the Contracting States".100

• In the SoC, the Claimant then translated Article 1(3) somewhat differently:

"investor" means a "natural person with permanent residence or a legal entity with registered office in the respective area of jurisdiction of this Treaty who or which is entitled to make investments.101

• In the SoD, the Respondent provided its translation:

""investor" shall mean a natural person with permanent residence or a juridical person with its seat in the territory covered by the application of this Treaty and authorized to act as an investor".102

• In the Reply, the Claimant appeared to agree103 with the Respondent’s translation just quoted:

"the term "investor" means a natural person with permanent residence or a legal entity [read "juridical person"] with registered office in the respective area of jurisdiction of this Treaty who or which is entitled to make investments (emphasis supplied)".104

204.
As a consequence, the Tribunal understands that the Parties are in principle in agreement that the term "investor" in the Treaty is defined as:

"a natural person with permanent residence or a juridical person with its seat in the territory covered by the application of this Treaty and authorized/entitled to act as an investor".

205.
From its own reading of the original versions of the Treaty, the Tribunal considers this translation accurate being specified that the word "berechtigt" in German or "oprávnény" in Czech is more precisely reflected by "entitled" to invest or "act as investor" than by "authorized", which may convey the idea that a specific approval or permission is required, a requirement not implied in the original version. It follows that "investors" under the Treaty are (1) "natural persons" with permanent residence or (2) "juridical persons" that have a seat in the territory of one of the Contracting Parties and are entitled to act as an investor.
206.
JSW is not a "natural person". Thus, in order for it to fall within the scope of the Treaty, it must be (i) a "juridical person" (ii) that has its seat in "the territory covered by" the Treaty. Further, it must be entitled to act as an investor (iii). The latter two requirements - that JSW has its seat in Germany and that it be entitled to act as an investor - are not contested.105
207.
By contrast, the Parties disagree whether JSW is a "juridical person". The Respondent submits that the term "juridical person" must be understood by reference to German law. As German law does not confer legal personality to KGs such as JSW, JSW is not a "juridical person" for purposes of Article 1(3) of the Treaty. The Claimants object, stating that the term "juridical person" must be interpreted autonomously. As JSW can invest, conclude contracts, acquire property and sue and be sued in its own name, it must be deemed a "juridical person" within the meaning of the Treaty.
208.
To resolve this dispute, the Tribunal must interpret Article 1(3) of the Treaty in which the term "juridical person" appears. For doing so, the Tribunal turns to the rules of interpretation of treaties contained in Articles 31106 and 32107 of the VCLT, which applies because both Czechoslovakia108 and Germany became parties to it in 1987, some three years prior to the conclusion of the Treaty in 1990. Accordingly, it will interpret Article 1(3) of the Treaty giving the term "juridical person" its ordinary meaning, in its context, and in light of the object and purpose of the Treaty.

(i) Ordinary meaning and context

209.
The threshold question here is whether the term "juridical person" is to be interpreted by reference to German law as the Respondent suggests, or interpreted autonomously, as the Claimants propose. For the following reasons, the Tribunal is of the view that the term "juridical person" is an autonomous or treaty-specific concept.
210.
First, the Tribunal notes that the definition in Article 1(3) of the Treaty recognizes two kinds of investors. "Natural persons" who must have a "permanent residence" and "juridical persons" with a seat in a territory covered by the Treaty and entitled to invest. No recourse to national law is provided in respect of either type of investors.
211.
By contrast, other provisions of the Treaty do refer to national law. Thus, Article 1(1) of the Treaty which defines the term "investments", expressly refers to the "internal legislation" of the Contracting States:109

"the term "investments" covers assets of any kind which are invested by investors from one Contracting State in the territory of the other Contracting State in accordance with the internal legislation of the respective other State."

212.
Similarly, Article 2(1) of the Treaty which considers investment promotion and fair and equitable treatment, too contains an express reference to the Contracting States’ domestic legislation:110

"Each Contracting State shall in its territory promote as far as possible investments by investors from the other Contracting State and admit such investments in accordance with its legislation. Each Contracting State shall in every case accord investments fair and equitable treatment."

213.
Other provisions of the Treaty also contain references to the Contracting States’ domestic legislation. This is so in Article 7(1) ("If the legislation of either Contracting State or international obligations existing at present or established hereafter between the Contracting States in addition to this Treaty contain any provisions, whether general or specific, entitling investments by investors from the other Contracting State to a treatment more favourable than is provided for by this Treaty, such provisions shall prevail over this Treaty to the extent that they are more favourable"); Article 8 ("This Treaty shall also apply to investments made since 1 January 1950 but prior to the Treaty’s entry into force by investors from either Contracting State in the territory of the respective other Contracting State consistent with the latter’s legislation"); and paragraph 3(c) of the Protocol to the Treaty ("Within the framework of their internal legislation […]").
214.
It is evident that when the Contracting Parties wished their municipal laws to govern, they included an express reference to this effect. In the absence of such reference, it is reasonable to conclude that the Contracting Parties intended to give a term a treaty-specific meaning "for the purposes of this Agreement", as the chapeau of Article 1 expressly states. It is not unusual for contracting states to give a term used in a treaty an autonomous meaning which may differ from its significance under national law. It is a technique used to achieve the uniform applications of a treaty. So for instance, terms used in the New York Convention in principle have an autonomous meaning.111 This conclusion is strengthened when one examines the object and purpose of the Treaty, as well as the relevant treaty practice which the Tribunal does below.
215.
The Tribunal is sensitive to the Respondent’s submission that tribunals should consider national law in interpreting treaty terms and that an express renvoi is not required. This is uncontroversial. It does not mean, however, that a tribunal should turn to national law in all cases. If it appears, taking into account the object and purpose112 of a treaty that the parties to it did not wish to give to the term used therein a particular or specific meaning which it may have in national law, but rather a general one, a treaty term can be interpreted independently from the national law of the parties to the treaty.
216.
The Tribunal is equally sensitive to the Respondent’s contention that "a tribunal does not have authority to autonomously articulate rules for the creation or establishment of nationality".113 This too is uncontroversial. The Tribunal certainly considers German law to identify the characteristics or attributes of a KG under the law of its constitution. Being so informed about national law, it must then examine whether an entity with the characteristics given by its national law falls within the autonomous concept of a "juridical person" under the Treaty.
217.
The Tribunal thus concludes that the term "juridical person" must be interpreted autonomously. The next question is for the Tribunal to determine what this term means.
218.
The first thing that strikes the interpreter when reading Article 1(3) is the opposition between "national persons" on one side and "juridical persons" on the other. A "juridical person" is an "artificial person". However, such an artificial person can be an investor like a natural one. Hence, it must have similar legal attributes, such as the capacity to invest, enter into contracts, acquire property, and sue and be sued in its own name.
219.
This understanding is confirmed when looking at dictionary definitions. For instance, The Legal Dictionary defines the term "juridical person" as:

"a body recognized by the law as being entitled to rights and duties in the same way as a natural or human person, the common example being a company".114

220.
The Abaclat tribunal came to the same conclusion interpreting the same term "juridical persons", which also appears in Article 25(2) of the ICSID Convention.115 It was faced with associations formed under Italian law, which under such law lack legal personality, but enjoy the attributes specific to legal entities:

"Based on the wording of Article 1(2)(b) BIT and the situation under Italian law, it has to be concluded that not only entities with full legal capacity qualify as "juridical persons" under Article 1(2)(b) BIT. Under Article 36 Italian Civil Code […] associations not recognized as legal entities (hereinafter "non-recognized associations") have the procedural capacity to stand in court and to be represented by their president or director. In other words, whilst non-recognized associations may not have legal personality, they possess certain attributes of legal personality and in particular the right to sue and to be sued. To the extent that the relevant Claimants had the capacity to make the relevant investment, and that they also have the statutory right to litigate in their own names, and that their constituents all have the requisite nationality, the "juridical person" requirement of Article 25(2)(b) ICSID Convention must be considered satisfied".116

221.
There is common ground between the Parties that, under German law, KGs have legal capacity to invest, conclude contracts, acquire property, and sue and be sued in their own name.117 In the Tribunal’s view and as will further be seen below, the fact that German KGs are not "juristische person" under German law does not alter this conclusion. Indeed, the reason for the lack of legal personality lies in the mode of creation of the entity. A corporation with legal personality comes into existence through registration, while a KG is constituted by agreement. Beyond this difference, the legal capacity of these entities is identical when it comes to entering into legal transactions, owning assets, or standing to sue or to be sued in court.118
222.
It follows from the foregoing discussion that the ordinary meaning of the term "juridical person" used in Article 1(3) of the Treaty taken in its context refers to an entity which can invest, enter into contracts, acquire property, sue and be sued in its own name.

(ii) Object and purpose of the Treaty

223.
After the ordinary meaning and context, the Tribunal turns to object and purpose. The overall objects and purposes of the Treaty are set out in its Preamble, which provides that Germany and the Czech Republic enter into the Treaty to "intensify economic cooperation between the two States" and to "create favourable conditions for investments by investors from either State in the territory of the other State".119
224.
The Respondent argues that Claimant 4 not being a "juridical person" is not an "investor" and thus cannot initiate an arbitration under Article 10 of the BIT. At the same time, the Czech Republic does not dispute that Claimants 1, 2 and 3 are the limited partners (Kommanditisten) of Claimant.120 Claimants 1, 2 and 3 have the capacity to make the relevant investment and also have the right to litigate in their own names. In other words, the Respondent contends that an entity (such as a KG) whose constituents are fully entitled to make a protected investment under the Treaty and who can both sue and be sued in their own name in respect of their investment, are not allowed to initiate an arbitration under the Treaty. The Tribunal does not see why this should be the case. As above, the object and purpose of the Treaty is not only to "intensify economic cooperation", but also to "create favourable conditions for investment". It would be contrary to the object and purpose of the Treaty to deny entities that have made protected investments under the Treaty the right to invoke protection for violation of the rights concerning such investments.
225.
The Abaclat tribunal came to the same conclusion in respect of the ICSID Convention and the Argentina-Spain BIT:

"Where a non-natural investor falls within the definition of juridical persons provided for in the BIT, and where such investor has under the law applicable to it the legal capacity to acquire an investment protected under the BIT and to sue and to be sued, it would be contrary to the purpose of the BIT and the ICSID Convention to deny such investor the capacity to initiate ICSID arbitration. Indeed, it would make no sense to allow on one hand an investor to make an investment protected under the BIT, and deny on the other hand such investor the right to invoke protection under the BIT for violation of the rights attached to such investment".121

226.
The Tribunal further notes that Czech law also knows the concept of a KG. However, unlike German law, Czech law does not treat KGs differently from other corporate entities. Under Czech law, a corporate entity, entered into a register, be it a KG or another form, is considered a juridical person.122 Thus, if the Respondent’s argument is followed, it would mean that a Czech KG investing in Germany would benefit from the protections of the Treaty, but a German KG investing in the Czech Republic would not. Such distinct treatment of German and Czech KGs would be contrary to the principle of reciprocal protection expressly stated to be the object and purpose of the Treaty as stated in the Preamble of the Treaty:

"recognising that the encouragement and reciprocal protection of such investments are suitable means to strengthening all forms of economic initiatives, especially those associated with private enterprise".123

227.
Moreover, unlike in other treaties the object and purpose of which are neutral towards economic initiatives, the BIT’s Preamble just quoted, expressly records the Contracting States’ wish to strengthen "all forms" of economic initiatives, "especially those associated by private enterprises".
228.
Furthermore, the Claimants’ observation that one third of all German companies are KGs124 was not disputed. If the Respondent’s arguments are followed, it would mean that one third of all private enterprises in Germany would not be covered by the Treaty. This can hardly be said to meet the object and purpose of the Treaty just stated. No cogent reason has been advanced why the Contracting Parties would have intended such a result.
229.
An analysis of the ordinary meaning, context, and object and purpose of the Treaty leads the Tribunal to conclude that a "juridical person" in Article 1(3) is an entity with the legal capacity to invest, conclude contracts, acquire property and sue and be sued. It is not disputed that KGs have these attributes. Thus, KGs are "juridical persons" falling within the ambit of Article 1(3) of the Treaty. The supplementary means of interpretation provided in Article 32 of the Vienna Convention, to which the Tribunal now turns, confirm this interpretation.

(iii) Treaties with third States

230.
Both Parties have relied on other treaties concluded by Germany in support of their respective submissions. The Respondent draws attention to the fact that Germany has entered into BITs that contain a broad definition of investor which includes German law partnerships like KGs.125 Hence, it argues that when "[i]n accordance with the effet utile principle of treaty interpretation, the Tribunal must give effect to the express words of the Treaty in Article 1(3) by giving effect to the limitation inherent in this formulation for the definition of an "investor" for otherwise the express extension to German law partnerships in other investment treaties concluded by Germany would be rendered meaningless".126 By contrast, the Claimants point out that the treaties invoked by Respondent are those in which the term "investor" is defined specifically for each contracting state. Therefore, they cannot be compared to this Treaty which has a single definition of investor for both Contracting Parties. They further note that some German BITs require that an entity be "incorporated/organized" under the laws of Germany,127 which purportedly shows that when German BITs are meant to refer to national law, they do so explicitly.
231.
Treaties addressing the same subject matter entered into with third States may be of some assistance in the interpretation exercise. Tribunals in Churchill Mining,128AAPL129, Plama130, Metal-Tech131 and ICS132 have for instance referred to other treaties concluded by the contracting parties with third States.
232.
Having reviewed the German treaty practice invoked by the Parties with respect to the definition of the term "investor",133 the Tribunal makes the following observations:

• While some German BITs contain a separate definition of "investor" for each Contracting State, 13 German BITs (including the German-Czech BIT) do not;

• Out of these 13, two treaties (Germany-Poland (1989) and Germany-Russia (1989)) pre-date the Treaty and have definitions of "investor" similar to the one of the Treaty;134

• 9 of the remaining 10 treaties that post-date the Treaty contain language "[association/organization] with or without legal personality".135 The Germany-Mexico BIT employs an altogether different formulation speaking of "commercial companies or other companies or associations";136

• All of the treaties examined that contain a separate definition of "investor" for each Contracting State whether they pre-date or post-date the Treaty, use the wording "[association/organization] with or without legal personality" within that definition.

233.
It follows from these indications that German treaty practice changed after 1990, the year of the Treaty, to expressly include in the definition of "investor" the mention of "associations/organizations with or without legal personality". After 1993, the treaties examined with common definitions consistently use "with or without personality".137 This appears as an evolution of treaty drafting clarifying the meaning present in earlier BITs, rather than - as the Respondent suggests - a sign that Germany wished to exclude entities without legal personality from the ambit of the Treaty. No cogent reason is indeed advanced why German KGs investing in the Czech Republic would not benefit from treaty protection when German KGs investing in other countries would.
234.
Thus, German treaty practice confirms the meaning arising out of the ordinary meaning of the term "juridical person" in its context and taking into account the object and purpose of the Treaty.

(iv) Decisions of other tribunals

235.
In support of its submissions, the Respondent relies on the majority view of the tribunal in Renta4.138 There, the claimants were three Spanish investment funds and four variable stock companies. As the Russia-Spain BIT required that an "investor" be a "corporate body", and as the investment funds could not be considered "corporate bodies" under Spanish law, the tribunal declined jurisdiction over the funds.139 The Tribunal is unable to see the relevance of this decision to the present case.
236.
First, the definition of "investor" in the Spain-Russia BIT is materially different from that of the Treaty. It includes two references to domestic legislation ("in accordance with the legislation of either Party", "under the legislation in force there").140 As was discussed above, Article 1(3) of the Treaty does not refer to national law. Second, the Tribunal has reached its conclusion after conducting a thorough analysis. It has examined the context, object and purpose of the Treaty and considered the supplementary means of interpretation as well. In the circumstances, and in view of the materially different treaty provisions, this Tribunal cannot simply follow the views of the Renta4 tribunal.
237.
For similar reasons, the dicta in Impregilo141 and LESI142 are unavailing as well.
238.
The Tribunal does, however, agree with the conclusions of the tribunal in Abaclat. There, the tribunal was called to interpret the words "persona jurídica" (Spanish) or "persona giuridica" (Italian) found in the definition of the term "investor" in the Italy-Argentina BIT.143 The tribunal concluded that although some of the claimants were not "persona giuridica" under Italian law, they were nevertheless protected by the Italy-Argentina BIT as they could make investments, and litigate in their own name. While the wording in the Italy-Argentina BIT was admittedly broader than the one applicable in this case,144 the reasoning of the tribunal is enlightening to the extent it focuses on an entities’ capacity to make investments and sue and be sued:

"With regard to the nature of the capacity necessary for corporations to benefit from the protection of the BIT and be a party to the present arbitration, the Tribunal is of the opinion that neither Article 1(2)(b) BIT nor Article 25 ICSID Convention limits the scope of eligible entities to those having full legal capacity, and also encompasses entities which enjoy limited civil capacity to the extent that such entities have the capacity to make an investment under the BIT and further to sue and to be sued".145

(v) Conclusion

239.
For the foregoing reasons, the Tribunal holds that the term "juridical person" in Article 1(3) of the Treaty includes KGs. As a result, Claimant 4 is an "investor" under the Treaty. Consequently, the Respondent’s jurisdictional objection in respect of Claimant 4 must be rejected. The Tribunal does have jurisdiction over Claimant 4.
240.
Having reached this conclusion, the Tribunal need not address the Respondent’s submission that Claimants 1-3 cannot assert the claims of Claimant 4. Similarly, the Claimants revised request for relief reproduced above [§146] has become moot. Accordingly, the Tribunal can dispense with ruling on the Respondent’s objections to this revised request.

2. Does EU Law Deprive this Tribunal of Jurisdiction?

a. The Commission’s position

241.
According to the Commission, the "decisive question" for this Tribunal’s jurisdiction is whether, on the day on which the Claimants filed the Request for Arbitration, the Czech Republic’s offer to arbitrate contained in Article 10 of the Treaty was valid under public international law. The EC submits that the Respondent’s offer was invalid for several reasons: first, because the Treaty as a whole must be regarded as terminated, since the conclusion of the Treaty on Accession of the Czech Republic to the EU implied the termination of the BIT pursuant to Article 59 of the VCLT; second, because the relevant provisions of the Treaty cannot be applied in light of Article 351 of the Treaty on the Functioning of the European Union ("TFEU") as they are incompatible with the TFEU; and, third, because it results from the operation of the conflict rules in Article 30(3) of the VCLT.
242.
While these arguments have been rejected by other arbitral tribunals, the Commission submits that this Tribunal should undertake a "fresh analysis" as "there are three new elements that those Arbitral Tribunals have either overlooked (the relevance of Article 351 TFEU), or that constitute new elements that could not have been known to them because they post-date the awards (the judgment of the ECJ in Pringle), or were not yet relevant for their decision (the entry into force of the Treaty of Lisbon, and in particular the new exclusive competence of the Commission in the field of investment protection)".146

b. The Claimants’ position

243.
The Claimants deny that the Treaty has been terminated due to the Czech Republic’s accession to the EU or rendered inapplicable due to the Lisbon Treaty. Investment tribunals, so say the Claimants, have repeatedly concluded that BITs remain in force following a State’s accession to the EU. The Treaty grants specific protections to investors and EU law cannot interfere with either the Tribunal’s jurisdiction or those protections.
244.
The Claimants note that the Contracting States have not terminated the Treaty. A third party such as the Commission cannot insist that the Treaty is terminated, nor can the Tribunal consider the Treaty terminated without hearing Germany. Moreover, the EU’s acknowledgement that it has proceeded to the second step of the infringement procedure against five EU Member States for their failure to terminate their intra-EU BITs, "underlines once again that the Intra-EU BITs are valid and can only be terminated by the contracting states".147
245.
The Claimants refute the Commission’s submission that there is a conflict between the Treaty and EU law that affects the Treaty’s validity. The Parties to the EU treaties and the BIT are distinct as are the protections provided. Other investment tribunals have come to the same conclusion.
246.
The Claimants further submit that the reliance on Article 344 of the TFEU is misplaced. First, Article 344 only applies between two Member States of the EU. It does not apply between a Member State and an investor. Second, as Article 344 is limited to issues of interpretation and as EU law only applies as fact in this case, "any issue of interpretation, application or compatibility is irrelevant".148
247.
Similarly, the Commission’s invocation of Article 351 of the TFEU is inapposite. According to the Claimant, that provision applies to agreements between a Member State and a third country. Agreements concluded between a Member State and a State that only later becomes an EU Member are excluded.
248.
Finally, the Claimants also dispute that there is a conflict with EU competences. Article 2(2) of the TFEU provides that, where there is a shared competence, Member States may act, provided that the EU has not acted. The EU has not exercised its competence in a way that would deprive the investor of its rights and protections arising under the Treaty. As such, there is no conflict with the substantive provisions of EU law.

c. The Respondent’s position

249.
Unlike the Commission, the Respondent does not consider that the applicability of EU law deprives this Tribunal of jurisdiction. Indeed, the Czech Republic "does not join the Commission’s objections to this Tribunal’s jurisdiction".149

d. Analysis

251.
Article 10 of the Treaty sets out the Czech Republic’s standing offer to arbitrate disputes with German investors. In the Commission’s opinion, this provision has become inoperative upon the Czech Republic’s accession to the EU in 2004, or, at the latest, when the Lisbon Treaty entered into force. The Tribunal notes that - as the Commission itself recognizes - its principal arguments are not new. They have been rejected by other arbitral tribunals.151
267.
It follows from the analysis above that the Tribunal has jurisdiction over the dispute before it. The Tribunal must therefore review the merits of the dispute. It will first consider the Respondent’s arguments in respect of the police powers doctrine (section (C) below) and then the Claimants’ allegations in respect of the Respondent’s breaches of the Treaty (sections (D)-(E) below).

C. APPLICATION OF THE DOCTRINE OF POLICE POWERS

268.
For the Respondent, it is "beyond doubt" that obligations in investment treaties must be interpreted against the background of the doctrine of police powers in general international law. This doctrine, so says the Respondent, applies especially to measures of taxation such as the Solar Levy, in respect of which international law permits only a "limited degree of scrutiny".
269.
The Claimants oppose the Respondent’s submissions, contending first that as the Solar Levy effectively results in a reduction of the FIT, which the Czech Republic could not have otherwise achieved, the Solar Levy is not a good faith taxation measure. Further, the Claimants point to the lack of indications that the Contracting States intended protections offered by general international law, to restrict the application of the BIT. In any event, the Respondent cannot rely on the doctrine of police powers to justify its breaches of the Treaty, because the doctrine "finds its limits [in cases] where the State has undertaken very specific commitments of stability".166
271.
This does not mean, however, that the imposition of the Solar Levy - whether a true taxation measure or otherwise - did not affect the Claimants’ revenue as a matter of fact. Indeed, while the grid operators continue to pay the FIT to solar RES producers, they do so after withholding the Solar Levy. Thus, while the Solar Levy as a matter of law did not directly reduce the FIT, the effect is that the Claimants’ revenue is reduced by the amount of the Levy. The Constitutional Court came to the same conclusion,169 which the Respondent also accepts.170
272.
The Respondent contends that the Tribunal must apply the doctrine of police powers in its analysis, to which the Claimants object. Again, the Tribunal can dispense with resolving this issue.171 As already mentioned, the Tribunal is of the view that the regulatory framework contains no stabilization commitment of the content put forward by the Claimants. To reach this conclusion, the Tribunal need not to examine the status, role or applicability of the doctrine of police powers.
273.
Having addressed the Respondent’s reliance on the doctrine of police powers to excuse it from liability, the Tribunal will now examine the Claimants’ submission that, by abrogating the Tax Incentives and introducing the Solar Levy, the Respondent violated Article 2(1) (fair and equitable treatment), Article 4(1) (full protection and security) and Article 7(2) (umbrella clause) of the Treaty.

D. FAIR AND EQUITABLE TREATMENT

1. The Claimants’ Position

274.
According to the Claimants, Article 2(1) of the Treaty requires a State "[n]ot to deliberately cause damage to foreign investors; and [t]o protect their legitimate expectations relied on when investing".172 The Respondent has breached both these aspects of Article 2(1) of the Treaty.

a. The Respondent attracted and then deliberately harmed solar PV investors

275.
The Claimants submit that the Support Scheme was created to attract foreign investors to the Czech Republic for the purpose of complying with the Republic’s obligations under EU law. Once foreign investors had been attracted, the Respondent changed course and abrogated the Support Scheme. Doing so, it specifically targeted solar PV investors and required them to pay for a tariff deficit which was caused by the government’s own prior actions. The Respondent’s conduct was neither fair nor equitable.

b. The Claimants’ legitimate expectations

276.
It is the Claimants’ submission that they legitimately expected to benefit from the Tax Incentives and the fixed FIT for at least 15 years. They relied on these expectations when making their investments. By abrogating the Support Scheme, the Respondent breached the Claimants’ legitimate expectations.
277.
The Claimants contend that their legitimate expectations arose from the Support Scheme itself. Besides the terms of Article 6(1)(b), the 5% brake rule provided "additional stability and an additional guarantee for investors that there would be no unexpected changes, and it strengthened the value of the tariff guarantee given in Article 6(1)(b) [of Act 180]".173 In addition, the Claimants also rely on a series of public statements by senior government officials, explanatory notes to the relevant laws and official communications, all of which, they submit, affirmed the existence of the guarantees conveyed by the Support Scheme.
278.
In answer to the Respondent, the Claimants specify that they do not claim that every statutory provision gives rise to legitimate expectations. Rather, their position is that the very specific, long-term guarantees contained in the Support Scheme did create expectations. They also clarify that they do not rely on political statements as the primary source of their legitimate expectations. Yet, these statements confirm the "stability guarantee" contained in the Support Scheme.

c. Specific guarantees or representations made to the Claimants

279.
The Claimants submit that the Support Scheme is a "very specific targeted legislation". In order to receive the benefits of the Support Scheme, producers were required to follow a number of steps including obtaining construction permits, signing construction contracts, fulfilling technical requirements, and entering into contracts with grid operators. Addressed only to investors who built a solar plant authorized and licensed by the Respondent and connected to the grid within a certain year, the Support Scheme is "the institutional equivalent of what [a] contractual stabilization clause would be, just in terms of modern regulation, where the actual contracts closing is delegated to private operators, in this case, the transmission system operators".174
280.
According to the Claimants, through (i) the investors’ right to choose between feed-in tariffs and green bonus, (ii) "[o]fficial price setting by the ERO for specific plants", (iii) grid operators’ statutory duty to enter into contracts with qualifying RES producers, and (iv) ERO licenses, the "Support Scheme" created a "system of reliance", on which the Claimants precisely relied when making their investment.
281.
The Claimants also point out that the 2003 Explanatory Report issued by the Respondent "confirms the already unambiguous wording of the Support Scheme and underscores "that the profit" for the energy sold to the grid operators "shall be guaranteed for 15 years"".175

d. The Solar Levy effectively ended the feed-in tariffs

282.
The Claimants disagree with the Respondent’s submission that the feed-in tariffs remained intact in spite of the Solar Levy. Since grid operators are under an obligation to deduct the Levy from the payments due to the solar PV producers, the Claimants effectively receive 26% less than the amount to which they are entitled under Act 180. Through the Solar Levy, so say the Claimants, the Respondent has "blatantly tried to mask a de facto reduction of the guaranteed feed-in tariffs".176

e. Guarantees in respect of taxation

283.
The Claimants are in agreement that the tax exemptions already existed at the time when Act 180 entered into force. However, relying on the 2003 Explanatory Report issued by the Respondent, the Claimants submit that these incentives were made an "integral part" of the Support Scheme. The Claimants therefore legitimately expected "that an exemption that is part of the Support Scheme is not suddenly amended to reduce the impact of long term price guarantees contained in the Support Scheme and thereby circumventing the actual benefits received under the Support Scheme".177
284.
The Claimants also rebut the Respondent’s argument that the Claimants could not rely on the prospective five year income tax exemption contained in Act 586/1992 Coll. on Income Tax ("Act 586"), because the Act was amended several times. They reply that only five amendments abolished tax exemptions and that none of these five amendments retroactively affected tax exemptions that were granted for a set period, save for the one presently in dispute. They maintain, therefore, that the abolition of the Tax Incentives was unprecedented.

f. Expectation to receive a 15-year payback

285.
For the Claimants, the 15-year payback is only one of three independent guarantees which ERO was to respect when setting the tariff for the following year. The other two were the set tariff and the 5% brake rule. ERO must comply with all three guarantees cumulatively, not, as the Respondent suggests, with only one to the detriment of the others. Thus, the Respondent’s argument that the 15-year payback period was the "operative basis" of the Support Scheme is "smoke and mirrors". This term is not found in the law itself and is "irreconcilable with the plain wording of the Support Scheme, the explicit intent of the legislator and the representations made by the Czech Republic at the time".178 In fact, in its own documents, the Respondent made no mention of the 15-year pay-back guarantee as the "operative basis" of the Support Scheme.
286.
The Claimants further challenge the Respondent’s position as incompatible with the purpose of Act 180, which was meant to attract private investment into renewables, thereby helping the Respondent meet its indicative EU targets for renewable energy. According to the Claimants, "[n]o reasonable investor would have invested considerable sums of capital in a foreign country if they were only guaranteed a return of their investment within 15 years and nothing more".179

g. "Windfall profits"

287.
In reply to the Respondent’s argument that the drop in investment costs led to "windfall profits" for investors which could legitimately be curbed in order to alleviate budgetary constraints, the Claimants argue that there is no evidence that the Claimants benefited from that alleged drop. At least for the Claimants, the reduction of the feed-in tariff by 5% in 2010 meant that they only hypothetically benefited from a reduction in investment costs of around [REDACTED] %.
288.
In any event, the Claimants deny that they received any "windfall profits". Their preamendment rate of return was between [REDACTED] and [REDACTED] % compared to the 7% allegedly promised by ERO. For the Claimants, "[t]his is not a case where the gold price escalated two or three times over the old price, increased six-fold within a couple of years only".180 Furthermore, the level of the present rate of return is "currently irrelevant". After all, one cannot know what the situation will be in five or ten years -the plants may break down and there may be other technical issues.
289.
The Claimants also dispute that they profited from the alleged price decrease in solar panels. The engineering, purchasing and construction contracts concluded between [REDACTED] and [REDACTED] for the construction of the three PV plants specified the costs for the purchase of solar panels. The contracts show that the overall investment costs between 2009 and 2010 were reduced by only [REDACTED] % compared to the alleged [REDACTED] % price drop for solar panels.
290.
For the Claimants, the Respondent has failed to explain the link between the alleged windfall profits and the Solar Levy. In fact, the Explanatory Report to Act 402/2010 briefly mentioned a drop in investment prices, but did not correlate Solar Levy and "windfall profits". The real reason for the introduction of the Solar Levy, so say the Claimants, was that the Respondent considered solar power plants to be inefficient in relation to their cost.

h. Decisions of the Czech courts

291.
The Claimants object to the Respondent’s reliance on the decisions of its local courts. They regard these decisions as irrelevant for the issues of international law which have to be decided here. The Claimants also point out that these decisions were rendered after the Respondent abrogated its guarantees. Therefore, any interpretation of the Support Scheme by the domestic courts "[cannot] be reliably used to test Claimants’ ex ante legitimate expectations".181

i. Tariff reduction in the [REDACTED] lease

292.
The Claimants submit that the Respondent’s reliance on the tariff reduction provision in the [REDACTED] lease agreement (see below §330) is misguided. That provision was meant to address decreases in tariffs resulting from a failure to complete the [REDACTED] plant before the end of the calendar year. It is, therefore, inapposite to refer to it in the present dispute.

j. The Claimants’ due diligence

293.
The Claimants oppose the Respondent’s submission that they could have no legitimate expectations because they failed to conduct a proper due diligence (see below §§331 et. seq.). In any event, they contend that the Respondent has not explained what the Claimants ought to have discovered as part of their due diligence. In addition, the Claimants point out that "none of the changes to the Support Scheme were foreseeable".

k. Opinion of Ueltzhoffer Balada

294.
Prior to investing in the Czech Republic, the Claimants secured a legal opinion signed by Mr. Andreas Ueltzhoffer, a partner at the Czech law firm Ueltzhoffer Balada. On the letterhead of this firm, Mr. Ueltzhoffer confirmed to the Claimants that the principle of "Bestandsschutz" that prohibits retroactive changes in the law exists in Czech law. It was, inter alia, on the basis of this opinion that the Claimants eventually invested in the Czech Republic.
295.
In answer to the Respondent’s argument that the Claimants should not have relied on the opinion of Mr. Ueltzhoffer because he is a German lawyer, the Claimants observe that the advice was given by the Czech law firm Ueltzhoffer Balada (now Ueltzhoffer Klett Jakubec & Partneri), which was authorized to advise on matters of Czech law. They note that, in a subsequent letter of 18 August 2015, Ueltzhoffer Klett Jakubec & Partneri confirmed that Mr. Jan Balada, the second partner of the law firm at the time, was a fully qualified legal professional under Czech law and therefore entitled to advise on matters of Czech law.
296.
The Claimants add that, although the opinion was only signed by Mr. Ueltzhoffer, it was given on the official letterhead of the law firm in the name of the firm, Mr. Ueltzhoffer having signed because the opinion was issued in German.

l. State aid

297.
The Claimants consider that the legitimacy of their expectations cannot be questioned on the ground that the Support Scheme constitutes State aid. First, they contest that the Scheme can be characterized as State aid as it was initially financed by the ultimate consumers of electricity only. Second, they point out that, in its Decision, the Commission held that the Support Scheme was not incompatible with EU law on State aid.
298.
In any event, the Claimants submit that what matters to assess their legitimate expectations is their knowledge when making the investment. At that time, there was no decision of the Commission declaring a feed-in tariff scheme to be incompatible State aid. In fact, while examining draft legislation which was later adopted as Act 180, the Commission itself concluded that the act would not constitute State aid. Further, in its 2003 Explanatory Report, the Czech Republic also considered that the Support Scheme was compatible with EU law.
299.
For the Claimants, the Commission’s submission that this Tribunal is bound by the Commission’s decision on legitimate expectations is "evidently nonsense". The Commission does not have jurisdiction to decide this dispute.

m. The legislative changes were not foreseeable

300.
For the Claimants, the contested measures were not foreseeable. Four small German investors cannot be expected to foresee retroactive legislative changes which even the government had not contemplated. No information was publicly available on the retroactive changes at the time of the investments. Only one document dated November 2010 envisaged such a change, but at that time the Claimants had already made their investments. The only change discussed at the time of the Claimants’ investment was the removal of the 5% brake rule, which is why the Claimants took efforts to get their plants online in 2010.
301.
The Claimants further submit that Mr. [REDACTED] admitted that ERO itself had no proper information available. It received details about the rise in capacity only in 2010. As the regulator itself did not have the relevant information, it was unreasonable to expect an investor to do so. The 2010 ERO Report only summarized ERO’s activities in 2009 and explained ERO’s efforts in abolishing the 5% brake rule. The retroactive changes were not addressed.
302.
It is wrong, so say the Claimants, for the Respondent to draw a comparison with the changes introduced in the German solar PV framework. While it was true that the amendment to the German Renewable Energy Act was passed in August 2010 and entered into force retroactively as of July 2010, such amendment served to implement a decision of the Federal Supreme Court of December 2009. Thus, since December 2009, operators in the German PV sector knew that changes were likely. In any event, the Claimants emphasize that the German framework is different and cannot be compared with that of the Czech Republic.
303.
Finally, the Claimants assert that both ERO and the government should have taken action to inform investors of possible retroactive changes. Yet, no action was taken.

n. The Decision

304.
The Claimants acknowledge that, in its Decision, the Commission has commented on possible breaches of the FET standard of the Treaty. For the Claimants, these views are irrelevant as "[t]he EU Commission has no jurisdiction to assess legitimate expectations of investors under the German-Czech BIT".182

2. The Respondent’s Position

305.
The Respondent essentially submits that the Claimants have not established (i) that the Czech Republic made "specific commitments" that its laws would not change, (ii) that the Claimants reasonably relied on such alleged specific commitments when making their investment, and (iii) that the Czech Republic abrogated these alleged commitments when it introduced the challenged measures. As a result, the FET claims should be dismissed.

a. The Respondent did not deliberately attract PV investors

306.
The Czech Republic denies the Claimants’ suggestion that it deliberately attracted PV investors in order to fulfill its obligations vis-a-vis the EU. Solar power is by far the most expensive source of renewable energy. Therefore, the legislature could never have anticipated that Act 180 would prompt any significant growth in the production of solar energy. The Explanatory Report to Act 402/2010 emphasized that the environmental conditions in the Czech Republic were unsuitable for solar generation and instead envisioned growth in other RES like wind mills. Further and in any event, the 8% target had already been superseded by a new target for 2020, and "it is hardly plausible that the Czech Republic would have intentionally committed electricity consumers and taxpayers to pay enormous subsidies for a period as long as 20 years simply to achieve a non-binding target".183
307.
The Respondent submits that Act 180 was intended to provide cost-efficient subsidies for investment in renewable energy sources. Thus, the Claimants’ "core" premise, i.e. that the Czech Republic deliberately attracted "large investments" into the PV sector and then "shortchanged" the investors once this goal was attained, is not correct. The Czech Republic never sought to attract foreign investors to investment in solar RES production in the first place.
308.
In response to the Claimants’ argument that the Czech Republic required solar investors to pay for a tariff deficit which was caused by the government’s own actions, the Respondent submits that austerity measures designed to protect the State budget - in and of themselves - cannot constitute a violation of the FET standard. Moreover, the Claimants’ argument effectively turns that standard into a mechanism by which investors can defeat any tax assessment, and that cannot be correct. States enjoy the sovereign right to change domestic laws, so long as such changes are not manifestly inconsistent, non-transparent, unreasonable, or discriminatory. The fact that, in retrospect, some aspects of the regulation proved difficult to manage does not mean that the Czech Republic acted wrongly.

b. The Claimants’ expectations

309.
At the outset, the Respondent submits that, EU law being part of the applicable law under the Treaty, the legitimate expectations standard under the Treaty must be interpreted in line with that standard under EU law. If the Treaty were to provide for a different standard than that known in EU law, then the latter should prevail.
310.
On this basis, the Respondent submits that the measures complained of did not breach the Treaty because they did not violate a stabilization commitment owed to the Claimants or legitimate expectations held by them, and because the measures were reasonably tailored to achieve legitimate State objectives. For the Respondent, "[i]nvestment treaties [are not intended] to protect investors from what is properly business risk; to serve as the functional substitute of a stabilization clause or to fetter the power of [a] State to adopt rational and proportional measures in the public interest".184
311.
To give rise to legitimate expectations, so says the Respondent, statements must be "clear", "definitive" and "unambiguous". This is not so here. The Solar Levy did not change the feed-in tariffs and, therefore, the question of stabilization does not arise. As for the Tax Incentives, "the 2003 Explanatory Report simply cannot be read as a promise to investors to maintain the [tax exemption], and it makes no mention at all of depreciation".185 In addition, neither the Income Tax Act nor the 2003 Explanatory Report were "specific" to the Claimants.
312.
Moreover, the Respondent points out that Section 6(1) of Act 180 begins with the words "[t]he Office" which is a reference to ERO. It then specifies the tariff-setting framework which ERO is bound to apply. Contrary to the Claimants’ assertions, Section 6 contains no commitment that such section will not be amended. Nor does it include a stabilization guarantee guarding against other changes in law. The contested measures were adopted through primary legislation and did not involve an amendment of Section 6 of Act 180.

c. Specific guarantees or representations made to the Claimants

313.
The Respondent denies that it provided specific guarantees or representations to the Claimants. More specifically, it refutes the Claimants’ argumentation as follows:

(i) Choice of two forms of subsidies

314.
According to the Respondent, it is difficult to discern anything "specific" about the right of eligible RES investors to choose between tariffs and green bonus, a choice which was open to all investors.

(ii) ERO price decisions

315.
Contrary to the Claimants’ submissions, the Respondent is of the view that the ERO price decisions were not issued "for specific plants", but merely for different categories of RES plants, depending on the date of commissioning, the method of production of electricity, and the size of the plant.

(iii) Contracts with grid operators

316.
For the same reasons, argues the Czech Republic, the contracts with the grid operators are also unhelpful to the Claimants’ case. These contracts do not relate to the feed-in tariffs at all. They contemplate connections to the grid and the producer’s entitlement to supply electricity. Moreover, the counterparty to the contract was one of the three regional grid operating companies, not the State.

(iv) ERO licenses

317.
Similarly, continues the Respondent, the ERO licenses issued to the producers do not assist the Claimants either. The licenses only list details, such as the license holder’s address, the name of the responsible representative, and the installed capacity of the plant. They do not confer on license holders any right other than the right to generate electricity. They do not mention the entitlement to the feed-in tariffs or to other elements of the Support Scheme. Their general format is universal, not specific to any particular license holder.

(v) Other documents

318.
Finally, according to the Respondent, most of the other documents relied upon by the Claimants are not contemporaneous with the Claimants’ investment. More importantly, the Claimants do not allege that they reviewed any of them prior to making their investment. In any event, none of these documents contain specific assurances or "guarantees" given by the Czech Republic.

d. The Solar Levy did not end the feed-in tariffs

319.
The Respondent agrees that the Solar Levy impacts the cash flows of PV producers such as the Claimants. However, it does not agree that the Solar Levy ended the feed-in tariffs altogether. First, the Solar Levy applied at the 26% level for three years only, when a tariff reduction or suppression would apply permanently. Second, there is a difference from the perspective of the State budget, in the sense that, the general budget benefits from the revenues from the Solar Levy, but not from a reduction in tariffs. Third, there is also a difference from the perspective of the electricity consumers, as a cut in tariffs would reduce the burden on electricity consumers, which was not directly the case with the Solar Levy.

e. Guarantees in respect of taxation

320.
Contrary to Claimants’ submissions, the Respondent submits that neither Act 180 nor its implementing regulations specified any limitations on the taxation of RES producers. The Tax Incentives were part of the Income Tax Act for more than a decade before Act 180 entered into force. Nothing in the Czech legislation excludes or limits the legislator’s ability to amend the Income Tax Act. In reality, it is amended frequently.
321.
The Czech Republic also observes that there is nothing "unprecedented" about withdrawing tax exemptions. For instance, Act No. 338/1992 Coll., on Real Estate Tax provided a 15 year property tax exemption for owners of new dwellings who used them for permanent residence. That exemption, which existed since 1993, was subsequently withdrawn without providing any exceptions for existing homeowners.
322.
The Respondent further draws attention to the fact that the only basis for the Claimants’ position that they received guarantees in respect of taxation is (i) a single sentence in the 2003 Explanatory Report and (ii) the words "'tax holiday' - 1 + 5 years" in an October 2006 presentation by an ERO official at a workshop dedicated to the promotion of biogas. For the Respondent, neither of these documents is equivalent to a guarantee restricting the fiscal powers of the Czech legislature. Further and in any event, both the 2003 Explanatory Report and the ERO presentation were publicly available, and the Claimants have not alleged that they reviewed, let alone relied on these documents prior to investing in the Czech Republic.

f. Expectation to receive a simple return on investment

323.
The Respondent submits that the 15-year payback period was the operative basis of the Support Scheme. In its submission, two benchmarks must be considered in this connection: (i) an adequate return over the useful life of the investment (also referred to as "reasonable profit") and (ii) a simple return of capital expenditure within 15 years (also referred to as "payback"). Both benchmarks were met under the Support Scheme and continue to be met despite the Solar Levy and the changes to the income tax regime. In fact, the Claimants’ plants continue to be profitable despite the adoption of the impugned measures.
324.
The Respondent challenges the Claimants’ position that nothing in the Support Scheme limits the returns of PV producers. It points to the Technical Regulation which sets the tariff as a function of costs to enable an adequate return, defined as a function of the WACC. For the Respondent, "any sophisticated investor who did adequate legal due diligence would have seen those references to the WACC and to the reasonable rate of return, and would not have assumed that they had no limit on the returns".186
325.
According to the Respondent, the Claimants’ only legitimate expectation could have been to receive a 15-year return on their investment, an expectation which was met. The Solar Levy was set at 26% to maintain the 7% rate of return over the 20-year useful life of the plant in accordance with the criteria specified in the Technical Regulation. With the Solar Levy, it was estimated that the payback would be achieved in approximately 11 years, considerably less than the 15-year period mentioned in Section 6 of Act 180.
326.
In this context, the Respondent argues that Section 6(1)(b)(1) of Act 180 directed ERO to set the tariff "so that [...] there is attained [...] a fifteen year payback period on capital expenditures [...]"187, which was the key to setting the appropriate tariff. The highest courts in the Czech Republic too found that under Act 180, the Claimants could legitimately expect a "simple return" of investment, i.e., a full return of capital, without profit. In fact, a reference to a guarantee of "reasonable profit" in addition to the 15-year return of capital contained in an early version of the draft Act was not taken over in the final version.

g. "Windfall profits"

327.
The Respondent alleges that it introduced the Solar Levy on revenues of solar plants commissioned in 2009 and 2010 to partially offset the State’s direct contribution to the costs of renewable electricity subsidies. The Solar Levy curtailed only the producers’ windfall profits, leaving intact the guarantee of return contemplated in Act 180 and related regulations. The Tax Incentives too were revoked as part of a broader set of austerity measures, especially in light of the high profits earned by producers. In any event, the Respondent was under no obligation to maintain the existing tax regime.
328.
The Respondent disputes that the Solar Levy or the revocation of the Tax Incentives breached any legislative promise or guarantee. To the contrary, these measures "struck an appropriate balance between protecting the long-term profitability of […] investments and the interests of other investors, consumers and the public at large".188 They were carefully calibrated to preserve the original payment guarantees, as well as to provide a reasonable profit level over the 20-year life of the PV plants. Indeed, the tariff rate remained unaffected. Contrary to the Claimants’ arguments, the challenged measures merely did "align profitability closer to the regime’s original target and the level of return deemed acceptable for other regulated activities".189

h. Decisions of the Czech courts

329.
The Respondent submits that most of the Claimants’ submissions in respect of legitimate expectations, legal stability, non-retroactivity, and the alleged lack of justification of the challenged measures were exhaustively heard - and rejected - by the Constitutional Court and the Supreme Administrative Court. While conclusions under domestic law are not determinative for the Tribunal, the rationale of the Czech Courts is nonetheless relevant.

i. Tariff reduction in the [REDACTED] lease

330.
The Respondent argues that the operator of the [REDACTED] plant, [REDACTED], and the local municipality agreed on a risk-sharing provision applying to a scenario in which feed-in tariffs would fall by over [REDACTED] % during the term of the lease.190 For the Czech Republic, the existence of such a provision shows that the Claimants knew that the feed-in tariffs could be reduced at any time.

j. The Claimants’ due diligence

331.
The Respondent stresses that the Claimants had no prior experience in the solar PV sector. Had they acquired a proper understanding of the legal framework or given due regard to the circumstances at the time, they would not have formed the expectation that they would continue to benefit from excessive profits without any regulation limiting these profits.
332.
The due diligence undertaken by the Claimants before investing in the Czech PV sector was, so says the Respondent, "woefully inadequate or non-existent". The decision to invest was based solely on: "(1) marketing materials provided by, and discussions with, a representative of a Spanish company that had no prior experience in the Czech solar market and little knowledge of the country’s legal environment; (2) a one-and-a-half page legal opinion on Czech law signed by a German lawyer; and (3) Claimants’ overall 'good experience with the Czech Republic'".191
333.
According to the Czech Republic, had the Claimants carried out a proper due diligence exercise, they would have understood that the legislative and regulatory framework gave no guarantee of profitability, apart from seeking to ensure a 15-year return of capital and a reasonable profit for plants that met the parameters set. In particular, no guarantee was given that solar investments would not be subject to changes in taxation. Through a proper due diligence, the Claimants would have also discovered that the Support Scheme was out of balance with its underlying objectives, and that significant changes were thus likely.
334.
The Respondent additionally notes that the Claimants’ own Czech counsel (i) acknowledged the unexpected fall in the price of solar panels, (ii) noted that the feed-in-tariffs would be modified to adapt to economic conditions; and (iii) warned about the possibility of further changes in the law. What is more, the Claimants themselves were skeptical about the advice they received from their lawyers. For instance, even though the Claimants were told that the feed-in tariffs would remain in place for 20 years, they used a shorter period of 15 years in their business forecasts.

k. Opinion of Ueltzhoffer Balada

335.
The Respondent asserts that the one and a half page opinion prepared by Mr. Ueltzhoffer does not suggest that the Claimants’ investment would be free from regulation. The opinion says nothing of substance about the 'Bestandsschutz' or about its potential application to the measures at issue. Further, the Claimants could derive no expectation of "legislative stasis" from a statement about the Czech legal system by a German lawyer not qualified to give advice on Czech law. In fact, Mr. Ueltzhoffer was not even authorized to provide legal advice on matters of Czech law and could not be presumed to meet the conditions required to qualify as a Czech lawyer.
336.
The letter from Ueltzhoffer, Klett, Jakubec & Partneri (the successor firm to Ueltzhoffer Balada) of August 2015 does not assist the Claimants. It has no evidentiary value as its authors have not presented themselves as experts or witnesses. Furthermore, Mr. Ueltzhoffer claims that his earlier advice was validly given because it was on the letterhead of Ueltzhoffer Balada, a "general partnership", and must be regarded as legal advice provided by the firm. Yet, Ueltzhoffer Balada is an "association (sdruzení)", which lacks legal personality. As such, it cannot itself practice law. Finally, under Czech law, the presumption is that foreign registered lawyers like Mr. Ueltzhoffer do not have the necessary experience and knowledge in matters of Czech law.

l. State aid incompatible with EU Law

337.
The Respondent submits that the Decision makes clear that the Support Scheme constitutes State aid within the meaning of Article 107(1) of the TFEU. The Claimants’ submissions to the contrary must thus be rejected.
338.
The Czech Republic further submits that, in its Decision, the Commission found that the Support Scheme constituted "unapproved" State aid since it was introduced in 2006. The Commission further found that under EU law, there was no "right" to State aid and no legitimate expectation to receive unapproved State aid.
339.
Under EU State aid law, so says the Respondent, the Czech Republic is prohibited from paying subsidies to solar investors in excess of their cost of capital. Thus, beneficiaries of State aid - like the Claimants - cannot "invoke any 'legitimate expectations’ to claim entitlement to more aid than currently granted".192 The Commission held that the level of State was admissible only because it took into account the Solar Levy, the tax exemption and the reduced depreciation periods. Had it not done so, the "approval of the State aid by the Commission likely would have been impossible".193
340.
The Respondent emphasizes that the Claimants are sophisticated businessmen with access to specialist legal advice. They cannot ignore EU State aid law. By investing in a subsidized regime within the EU, the Claimants accepted the risk that this regime may be contrary to EU law.
341.
The Czech Republic also argues that the Claimants have not shown that they invested on the basis of assurances that the Support Scheme would not be characterized as incompatible State aid. The 2003 Explanatory Report dates from a time well before the Claimants’ investment and was not addressed specifically to the Claimants. In any event, there is no evidence that the Claimants even reviewed the Report before investing in the Czech Republic. Further, the 2003 Explanatory Report was based on the Czech Republic’s then understanding of State aid, which has since been considerably clarified.
342.
Moreover, according to the Respondent, the Claimants’ reliance on the Czech Republic’s views in 2003 as to the characterization of the Support Scheme under State aid law was misguided. State aid is an EU matter which the Czech Republic lacks the competence to assess. The Czech legislators are not the "competent authority" and their statements cannot give rise to legitimate expectations in this respect.

m. The legislative changes were foreseeable

343.
The Respondent first submits that the impugned measures were not retroactive. It notes that, in its Decision, the Commission expressed the same view.
344.
The Claimants are said to have misunderstood the Respondent’s case on foreseeability: "[t]he Czech Republic has never argued that the Solar Levy was specifically foreseeable prior to middle of 2010".194 Rather, the Respondent’s position is that "investors who invest in a regime involving subsidized regulated tariffs must understand that regulatory intervention is possible to recalibrate a regime if it is known to be in imbalance with the purpose of the law".195
345.
According to the Respondent, an imbalance did exist: the reasonable rate of return set out in the Technical Regulation was 7% per year over 20 years. Therefore, in respect of any solar installation commissioned after 1 January 2008, ERO sought to achieve (i) a reasonable rate of return equal to 7% per year over the 20-year life of the installation, and (ii) a payback of justified investment costs in no more than 15 years. However, the solar boom in combination with the 5% brake rule made it impossible for ERO to comply with these benchmarks, resulting in faster payback and higher rate of return for solar installations commissioned in 2009-2010. In these circumstances, the Claimants should have foreseen changes in the regulatory regime.

n. The measures taken by the Czech Republic were reasonable

346.
The Respondent finally insists that the measures at issue were taken after earlier measures had failed to stop the ever-increasing investments in the solar sector. By late 2010, the Czech Republic was suffering from the effects of the global financial crisis and had a serious budget deficit. Given the Republic’s efforts to put an end to the solar boom as quickly as possible, at the time they invested, the Claimants "could not have had any legitimate expectations of legislative stasis".196 This is all the more true as there was then a moratorium on new connections.
347.
For the Respondent, a State measure is "reasonable" if it "bears a reasonable relationship to some rational policy". In assessing "reasonableness", two elements must be considered: "(1) the existence of a rational policy; and (2) the reasonableness of the act of the state in relation to the policy".197 Here, the measures taken by the Czech Republic were reasonable.

o. The Decision

3. The Commission’s Position

4. Analysis

a. Act 180

b. Context of introduction of Solar Levy and withdrawal of income tax incentives

392.
It was in these particular circumstances that the Czech Government withdrew the Tax Incentives (i) and introduced the Solar Levy (ii).

(i) Withdrawal of the Tax Incentives

393.
On 8 December 2010, through Act 346/2010, the Czech Republic adopted changes to the Income Tax Act, abolishing the five-year income tax exemption and amending the tax depreciation period for solar panels.
394.
The reasons for withdrawing the tax exemption were mentioned in the Explanatory Report accompanying Act 346/2010:

"The proposed changes are in response to the need to eliminate all legal means for the indirect support of electric power generation from renewable resources (mainly solar power plants) that is no longer justified, and therefore they are making taxation on environmentally friendly power generation sources and facilities stricter and eliminating the tax-exempt status of income from the operation of environmentally friendly power generation facilities. In order to simplify legal regulation and enable easier administration, the elimination of this exempt status for other environmentally friendly facilities has also been proposed."238

395.
Similarly, the rationale for amending the depreciation provisions were stated as follows:

"Since more than three quarters of costs need to be spent for the technological part of solar power facilities and only one quarter needs to be spent for the construction part of solar power facilities, and the construction part is usually included in depreciation group 4 with a depreciation period of 20 years (and in the case of construction projects for a definite period even 30 years), the specified changes have been proposed only for the technological part of the assets. For the purpose of easier application of the proposal, the technological part, which consists particularly of solar panels, converters and switches, is defined by its inclusion in the Standard Production Classification groups with code 31.10, 31.20 or 32.10. The change has been proposed in view of the fact that in the case of solar technology there has been a sharp decrease in acquisition prices, particularly for solar panels, and an increase in their efficiency."239

396.
Both the withdrawal of the tax exemption and the amendment to the depreciation provision of the Income Tax Act were measures that had been taken before by the Czech Republic in different contexts.240

(ii) Introduction of the Solar Levy

397.
On 14 December 2010, through Act 402/2010, the Czech Republic introduced the Solar Levy. When doing so, it was careful not to alter the framework of Act 180.
398.
First, only those producers who benefited the most from the solar boom, i.e. solar plants commissioned in 2009 and 2010 were subject to the Solar Levy. Initially, the Solar Levy only applied for three years from 1 January 2011 for the PV plants put into operation between 1 January 2009 and 31 December 2010.
399.
Second, when setting the Solar Levy, care was taken to ensure that the initial payback period of 15 years for capital expenses and the reasonable profit of 7% promised through Act 180 would be retained. As Mr. [REDACTED] explained:

"Before settling on a Solar Levy, the Ministry of Industry and Trade requested ERO to assess whether simple payback and return on investment parameters would still be met. We assessed the proposed levy and determined that investors would still receive simple payback of their investment in less than 15 years and that return over the life of the investment would remain appropriate, i.e. above the 7% WACC. We therefore considered that the levy was properly calibrated to reduce the excessive profit provided by the Subsidies."241

400.
Eventually, the Solar Levy was set at 26% initially for a period of three years to ensure that these elements of Act 180 were maintained. The Government resolution accompanying Act 402 explained this as follows:

"The ERO in the determination of the purchase prices mainly acts according to Act No. 180/2005 Sb. on support of electricity production from RES, as well as related implementing regulations. One of the significant documents is Decree of ERO No. 475/2005 Coll., as amended, which among other things stipulates the technical and economic parameters applied to the calculation of the prices for a given type of plant for production of electricity from RES and the concerned calendar year. Typically this concerns measurable investment costs, assumed period of usage and lifecycle of the given type of source.

The ERO last time amended this Decree in mid-2009 under Decree No. 409/2009 Coll.), in which it responded to the decline in the prices of solar technology and on the basis of evaluation of concrete projects from the first half of 2009, it set reference investment costs for installed sources with an output above 30 kWp in the amount of 90 thousand CZK/kWp, respectively 90 million CZK/MWp.

If we use this binding legislative condition to calculate the purchase price and if we set the next ROI parameter at 11 years at 7% discount, we get a purchase price of CZK 9000/MWh. This value is 26 % lower than the purchase price set for 2010 in the amount of CZK 12150/MWh (due to the limitation of decline to only 5 %). While the ROI guaranteed by law is 15 years.

The simple ROI of 11 years for calculation of the size of the withholding tax was chosen in view of the fact that the same period was chosen in the amendment bill to Act No. 180/2005 Coll. (No. 137/20101 Coll.) as the threshold value, which if exceeded makes it possible to choose an extraordinary (steeper) drop of the price, than the standard maximum of 5%".242