OperaFund v. Spain

This proceeding concerns the application by the Kingdom of Spain for the annulment of the award rendered on 6 September 2019 in the arbitration proceeding captioned OperaFund Eco-Invest SICAV PLC and Schwab Holding AG v. Kingdom of Spain, ICSID Case No. ARB/15/36, as rectified by the Tribunal's Decision on Rectification of the Award dated 28 October 2019 (the "Award"). The Award was rendered by the Arbitral Tribunal composed of Professor Dr. Karl-Heinz Böckstiegel (President), Professor MMag. Dr. August Reinisch and Professor Philippe Sands, Q.C. (the "Tribunal"). Professor Philippe Sands issued a Dissent on Liability and Quantum.

The dispute in the underlying arbitration related to an investment in the photovoltaic sector in Spain.¹ The dispute arose out of regulatory measures implemented by Spain modifying the economic regime for renewable energy investments in Spain. On jurisdiction, the Tribunal concluded that it had jurisdiction over the claims submitted by OperaFund and Schwab, except for the claim concerning the Tax on the Value of the Production of Electrical Energy ("TVPEE").² On liability, the majority of the Tribunal found Spain liable for breach of the fair and equitable treatment standard ("FET") in Article 10(1) of the ECT,³ and ordered Spain to pay OperaFund and Schwab damages assessed at EUR 29.3 million, together with pre-Award and post-Award interest.⁴ Professor Philippe Sands appended a Dissent on Liability and Quantum.

On 8 October 2019, OperaFund and Schwab filed a Request for Rectification of the Award, which was registered on 10 October 2019. They requested the Tribunal to rectify a clerical error concerning the currency of the compensation awarded. Without objection from Spain, on 28 October 2019, the Tribunal issued its Decision and rectified the clerical error.

Spain seeks the annulment of the Award under Article 52(1)(b), (d) and (e) of the ICSID Convention.

On 25 February 2020, Spain submitted an Application for Annulment of the Award ("Application for Annulment"), accompanied by Annexes 1 to 24. In its Application for Annulment, Spain requested, among other things: (i) a provisional stay of enforcement of the Award in accordance with Article 52(5) of the ICSID Convention and Rule 54(2) of the ICSID Rules of Procedure for Arbitration Proceedings ("ICSID Arbitration Rules"); and (ii) the continuation of the stay of enforcement of the Award until the Committee renders its Decision on the Application for Annulment.⁵

On 3 March 2020, the Secretary General of ICSID registered the Application for Annulment and notified the Parties of the registration, in accordance with ICSID Arbitration Rule 50(2)(a) and (b); and informed the Parties of the provisional stay of enforcement of the Award pursuant to ICSID Arbitration Rule 54(2).

The ad hoc Committee was constituted in accordance with Article 52(3) of the ICSID Convention. Its members are Mr. Timothy J. Feighery, a U.S. and Irish national, President; Mr. Milton Estuardo Argueta Pinto, a Guatemalan national; and Professor Fausto de Quadros, a Portuguese national, (the "Committee"), all appointed by the Chairman of the ICSID Administrative Council.

On 17 June 2020, in accordance with ICSID Arbitration Rules 6(1) and 53, the Secretary General notified the Parties that all three members of the Committee had accepted their appointments and that the Committee was therefore deemed to have been constituted on that date. Ms. Luisa Fernanda Torres, ICSID Legal Counsel, was designated to serve as Secretary of the Committee.

"For the reasons set forth above, the Committee unanimously decides to:

(1) Reject Spain's request for a continuation of the stay of enforcement of the Award;

(2) Orders that the stay of enforcement of the Award currently in place be lifted;

(3) Reserves the right to modify this Decision if requested by either Party upon a modification of the prevailing circumstances; and

(4) Reserves the decision on costs for a later stage of the proceedings."

On 8 December 2020, pursuant to ICSID Arbitration Rules 37(2) and 53, the Committee invited the Parties to provide their observations on the EC Application.

On 13 January 2021, the Committee invited the Parties to provide a second-round of submissions regarding the EC Application. In making these second-round submissions, the Committee invited the Parties to address "the question of whether the points on which the EC seeks to intervene (identified in the EC Application) fall within the scope of the grounds for annulment in Article 52(1) of the ICSID Convention."

"For the reasons stated above, the Committee hereby:

a) Allows the EC to file a written submission as a non-disputing party, in accordance with ICSID Arbitration Rule 37(2), on whether the Tribunal manifestly exceeded its powers by finding jurisdiction, and/or by failing to apply the proper law;

b) Decides that the EC shall file its submission no later than 12 March 2021, with a translation into Spanish to follow no later than 15 March 2021, and that the submission shall be limited to 25 pages, with no exhibits or annexes;

c) Rejects the EC's request to have access to the documents filed in the case;

d) Rejects the EC's request to attend the hearing;

e) Rejects OperaFund and Schwab's request to condition the EC's intervention on the provision of an undertaking or on the provision of a guarantee or security for any costs of this proceeding;

f) Decides that the Parties shall present their observations on the EC written submission in the course of their currently scheduled second round submissions (Reply on Annulment and Rejoinder on Annulment, respectively);

g) Decides that this Procedural Order shall be communicated to the European Commission, which shall not communicate it to third parties or use it outside of this annulment proceeding."

"The Committee has taken note of the Parties communications of 27 May 2021. It observes that pursuant to ICSID Arbitration Rule 29 '[e]xcept if the parties otherwise agree, the proceeding shall comprise two distinct phases: a written procedure followed by an oral one.' As there is no agreement between the Parties to dispose of the oral Hearing, the Committee confirms that the Hearing will take place on the scheduled dates 19‐20 July 2021 (with 21 July 2021 in reserve), as established in Procedural Order No. 1, Annex A (REV 1). The Committee further notes the Parties' agreement as to the virtual format, and it thus confirms that the Hearing will be virtual. […].

Finally, the Committee observes that it will revert to the Parties separately on the issue of the admissibility of expert submissions, prior to the Pre‐Hearing Conference."

"For the reasons stated above, the Committee hereby:

(a) determines that the Gosalbo Reports are inadmissible;

(b) determines that the Eeckhout Expert Declaration and the Bermann Expert Declaration are inadmissible;

(c) rejects Spain's request that Prof. Gosalbo attend the hearing;

(d) without prejudice to the above decisions, permits the Parties to rely on the entirety of their written submissions made during the written procedure, including excerpts taken from and footnotes referencing the Gosalbo Reports, the Eeckhout Expert Declaration and the Bermann Expert Declaration, in the remainder of this procedure;

(e) determines to assess costs at the conclusion of the Annulment Proceeding."

Committee:

Mr. Timothy J. Feighery President
Prof. Milton E. Argueta Pinto Member
Prof. Fausto de Quadros Member

ICSID Secretariat:

Ms. Luisa Fernanda Torres Secretary of the Committee

OperaFund and Schwab:

Mr. Alberto Fortún Cuatrecasas, Gonçalves Pereira
Mr. José Ángel Rueda García Cuatrecasas, Gonçalves Pereira
Mr. Borja Álvarez Sanz Cuatrecasas, Gonçalves Pereira
Mr. Gustavo Mata Morreo Cuatrecasas, Gonçalves Pereira
Mr. José Ángel Sánchez Villegas Cuatrecasas, Gonçalves Pereira
Ms. Ana Martínez Valls Cuatrecasas, Gonçalves Pereira
Ms. Lucía Pérez-Manglano Villalonga Cuatrecasas, Gonçalves Pereira
Ms. Elisa Salcedo Sánchez Cuatrecasas, Gonçalves Pereira, Paralegal
Ms. Inmaculada Romero Vázquez Cuatrecasas, Gonçalves Pereira, Assistant
Mr. Gonzalo Arnejo Meijueiro Cuatrecasas, Gonçalves Pereira, IT
Mr. Alex Boss Party Representative
Mr. Dominik Milani Party Representative
Mr. Jorge Frey Party Representative

Kingdom of Spain:

Ms. Socorro Garrido Moreno Abogacía General del Estado, Ministerio de Justicia
Ms. Ana Fernández Daza Abogacía General del Estado, Ministerio de Justicia
Ms. Gabriela Cerdeiras Megías Abogacía General del Estado, Ministerio de Justicia
Mr. José Manuel Gutiérrez Delgado Abogacía General del Estado, Ministerio de Justicia
Mr. Juan Quesada Navarro Abogacía General del Estado, Ministerio de Justicia
Mr. Javier Comerón Herrero Abogacía General del Estado, Ministerio de Justicia

Court Reporters:

Mr. Trevor McGowan Caerus Reporting Ltd. (English)
Ms. Georgina Vaughn Caerus Reporting Ltd. (English)
Mr. Paul Pelissier D-R Esteno (Spanish)
Ms. Marta Rinaldi D-R Esteno (Spanish)

Interpreters:

Mr. Jesús Getan Bornn Interpreter
Ms. Anna Sophia Chapman Interpreter
Ms. Amalia de Klemm Interpreter

Technical Support:

Mr. Mike Young Sparq
Ms. Marisela Vázquez Marrero ICSID, Paralegal

• Spain: AD-001 (Opening Statement).

• OperaFund and Schwab: OD-001 (Opening Statement).

"502. By virtue of the foregoing, the Kingdom of Spain respectfully requests the ad hoc Committee to annul the Award on the basis of the grounds and arguments set out in this Memorial and, in particular, that:

a) Annul the Award in its entirety under Article 52(1)(b) of the ICSID Convention, on the grounds that the Tribunal manifestly exceeded its powers by entering into the case and improperly declaring its jurisdiction over an intra-EU dispute;

b) [A]nnul the Award in its entirety under Article 52(1)(b) of the ICSID Convention, on the grounds that the Tribunal manifestly exceeded its powers by disregarding the application of applicable international law, including the ECT itself, and totally disregarding the application of all EU law;

c) Annul the Award in its entirety under Article 52(1)(b) of the ICSID Convention on the grounds that the Tribunal manifestly exceeded its powers by manifestly misapplying the applicable law to be taken into account in assessing legitimate expectations;

d) Annul the Award in its entirety under Article 52(1)(d) of the ICSID Convention for serious breach of essential procedural requirements insofar as the Tribunal committed multiple procedural breaches in relation to the evidentiary activity and the evaluation of evidence in the Arbitration;

e) Annul the Award in its entirety under Article 52(1)(d) of the ICSID Convention, for serious breach of essential procedural requirements insofar as the Tribunal committed multiple procedural violations relating to the treatment of the European Commission's amicus curiae;

f) Annul the Award in its entirety under Article 52(1)(d) of the ICSID Convention, for serious breach of essential procedural requirements insofar as the Tribunal committed multiple procedural breaches involving a lack of impartiality and unequal treatment of the parties in violation of the Kingdom of Spain's rights of defence and right to be heard;

g) Annul the Award in its entirety under Article 52(1)(d) of the ICSID Convention, for serious breach of essential procedural requirements insofar as the Tribunal committed multiple procedural breaches relating to the burden and evaluation of evidence developed in relation to the method of quantification of Damages and its application;

h) [A]nnul the Award in its entirety under Article 52(1)(e) of the ICSID Convention for failure to state reasons why it disregards the application of applicable international law, including the ECT itself, and why it disregards the application of all EU law altogether;

i) Annul the Award in its entirety under Article 52(1)(e) of the ICSID Convention for failure to state reasons in the findings on liability which determines that there are serious deficiencies in the Award as to the interpretation of how Article 10(1) of the ECT is to be applied;

j) Annul the Award in its entirety under Article 52(1)(e) of the ICSID Convention, for repeated [f]ailure to state reasons in relation to the evidentiary activity and the evaluation of the evidence developed in the Arbitration;

k) Annul the Award in its entirety under Article 52(1)(e) of the ICSID Convention, for [f]ailure to state reasons concerning the Claimants' expectations regarding the immutability of the regulatory framework under which they made their investment and the alleged breach thereof;

l) Annul the Award under Article 52(1)(e) of the ICSID Convention, insofar as it relates to the determination of Damages, insofar as there is a clear failure to state reasons for the Tribunal's assessment;

m) Orders the OperaFund parties to pay all the costs of the proceedings.

503. In the event that the Annulment Committee considers that the facts described above constitute a ground for annulment on a ground of Article 52(1) of the ICSID Convention other than those alleged, the Kingdom of Spain requests the Committee to proceed to annul the Award on that ground as well. […]."¹³

"271. In light of the foregoing, OperaFund respectfully requests that the Committee:

(i) […]

(ii) Render a Final Decision

a. dismissing Spain's request for annulment of the Award; and

b. ordering Spain to pay OperaFund's legal fees and all annulment costs (including Committee members' fees, ICSID fees and all related expenses) incurred in these proceedings."¹⁴

• "the Tribunal had no jurisdiction over a claim brought by intra-European Union […] corporations against an EU Member State;"⁴³

• "under Article 10(1) of the [ECT] the Tribunal's determination of liability for breach of the fair and equitable treatment ('FET') obligation was inconsistent and contradictory, unreasonable and without foundation, and failed to apply the appropriate law, in particular the EU State Aid Act;"⁴⁴ and

• "even if EU law [was] understood to have been applied (quod non) there [was] an incorrect use of the applicable law" because (i) "the assessment of legitimate expectations must include whether a subsidy is lawful under the law applicable to the investment in question and under domestic law," and (ii) under EU law "there could be no expectation of subsidy petrification" in a situation "when EU law qualifies such subsidies as State aid and EU law itself indicates that individuals are not entitled to claim State Aid."⁴⁵

"The 'manifest' nature of the excess of powers has been interpreted by most ad hoc Committees to mean an excess that is obvious, clear or self-evident, and which is discernable without the need for an elaborate analysis of the award. However, some ad hoc Committees have interpreted the meaning of 'manifest' to require that the excess be serious or material to the outcome of the case."⁵¹

"[…] ad hoc Committees have taken different approaches to whether an error in the application of the proper law may effectively amount to non-application of the proper law. Some ad hoc Committees have concluded that gross or egregious misapplication or misinterpretation of the law may lead to annulment, while others have found that such an approach comes too close to an appeal."⁵²

"Articles 267 and 344 TFEU must be interpreted as precluding a provision in an international agreement concluded between Member States, such as Article 8 of the Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Czech and Slovak Federative Republic, under which an investor from one of those Member States may, in the event of a dispute concerning investments in the other Member State, bring proceedings against the latter Member State before an arbitral tribunal whose jurisdiction that Member State has undertaken to accept."⁹⁵

"[…] there is no need to 're-invent the wheel' and start a new examination of all the details regarding the intra-EU objection. The Tribunal agrees with all the recent conclusions of other tribunals to the effect that, also after the Achmea Judgment of the Court of Justice of the EU, the intra-EU objection is not justified, and the Tribunal has indeed jurisdiction in the present case. […]"¹¹⁴

"[…] manifestly exceeded its powers because it did not apply EU law (which led, in turn, to erroneously assert its jurisdiction) and in the very few partial and tangential mentions it made of EU law, it made ostentatious errors whose seriousness should be grounds for annulment because they affect a vital element of the arbitration system, namely the jurisdiction of the Tribunal."¹⁵⁶

• "by failing to clarify and reason why it did not apply EU law;"

• "by failing to give a literal interpretation of Article 26 of the ECT, in accordance with the object and purpose of the Treaty;"

• "by failing to give a systematic interpretation of Articles 1, 10, 16, 25, 26 and 36 of the ECT, in accordance with the object and purpose of the Treaty;"

• "by failing to assess, in view of the interpretation of the above Articles;"

• "by failing to apply the principles of the primacy and autonomy of EU law, the EU Treaties and the interpretation made of them by the CJEU, thereby ignoring […] that a clause such as […] Article 26 of the ECT cannot be applied to […] [EU] Member States […] in intra-EU disputes, as such an interpretation is contrary to EU law;"

• "[…] by rendering an Award whose award of compensation is contrary to European State Aid law."

"Since the Tribunal must resolve disputes in accordance with the ECT and other principles and rules of international law in accordance with Article 26 (6) of the ECT, the Tribunal must apply EU Law and the ECT under equal conditions. By virtue of the principle of primacy, EU Law and not the ECT is the international law that must be applied to resolve this dispute."¹⁹⁰

• First, contrary to Spain's submissions, the Tribunal did interpret Article 26 of the ECT under the VCLT, explicitly mentioning that Articles 31-33 of the VCLT were "applicable to the construction of the ECT and the ICSID Convention,"³²² and was not required to repeat each time it analyzed an ECT provision that it was doing so under the VCLT.³²³

• Second, the Tribunal provided a "reasonable and sound interpretation" of Article 26(1) of the ECT as it carefully analyzed the previous decisions in other 5 Spain cases on the issue, and the Parties' arguments (including remarks on those decisions);³²⁴ and "processed" the Parties' and the EU Commission's arguments on the interpretation of Article 26(1).³²⁵ Only after "careful analysis of Article 26" the Tribunal concluded that it agreed with the prior decisions and that "there was no need to list again all the arguments" made in those decisions.³²⁶

• Third, contrary to Spain's submissions, the January 2019 communication is simply a declaration by some EU Member States, and not a source of EU law, as the Tribunal itself noted in a letter of 11 February 2019.³²⁷ Thus, it was not "manifestly unreasonable" to conclude that this communication cannot have an interpretive effect "on the scope and content of EU law regarding investment protection and treaties concluded, inter alia, between EU member states."³²⁸ Notably, Malta did not subscribe to this declaration.³²⁹ And even if had been signed by all the EU Member States or if it were a source of EU law, it would still not be a joint interpretation issued by all the ECT Contracting Parties (only ones empowered to do so).³³⁰

• Fourth, the Tribunal concluded (as many others) that the absence of an explicit disconnection clause confirmed the ECT Contracting Parties' intention to apply Article 26 of the ECT intra-EU; and Spain's allegation that international custom supports the conclusion that the ECT has an implicit disconnection clause is "wrong."³³¹

• Fifth, the Tribunal rejected Spain's contention that the definitions in Article 1(2) and 1(3) of the ECT prevented the intra-EU application of the ECT, simply following jurisprudence constante.³³²

• First, the Tribunal respected the difference between applicable substantive law (governed by Article 26(6) of the ECT), and the law to be applied to jurisdiction (governed by Article 26(3) and 26(4) of the ECT, and Article 25 of the ICSID Convention); and thus concluded that Article 26(6) of the ECT would not be applicable to the jurisdictional objection.³³⁴

• Second, while Spain "wrongly" – according to OperaFund and Schwab – submitted that Article 267 and Article 344 of the TFEU prevented intra-EU arbitration, the Tribunal concluded that those provisions did not conflict with Article 26 of the ECT because they do not share the same subject matter.³³⁵

• Third, the Tribunal explained that the principle of primacy of EU law is not binding on an ECT tribunal, and does not exclude the intra-EU application of the ECT, with reasoning that was "sound and reasonable": (i) the Achmea Judgment makes no mention of the ECT, and its reasoning does not extend to ECT arbitrations;³³⁶ (ii) there was no basis for the contention that by virtue of the accession of Malta the EU Treaties superseded the ECT, because the ECT and TFEU are two very different treaties;³³⁷ (iii) the lack of a disconnection clause implies that the ECT provides jurisdiction in this case;³³⁸ and (iv) per Articles 53 and 54 of the ICSID Convention Spain is bound by the Award with no appeal option outside the ICSID system.³³⁹

• Fourth, the Tribunal disagreed with Spain's contention that in case of conflict between EU law and the ECT the former would prevail, highlighting that: (i) the principle of primacy of EU law was not lex posterior; and (ii) Article 16 of the ECT would be the lex applicable to resolve the conflict, and its application would result in favor of intra-EU arbitration.³⁴⁰

• Fifth, Spain has failed to show that the Tribunal's conclusion that there is no incompatibility between EU law and the ECT is "manifestly wrong or unreasonable," and in any event, pursuant to Article 16 of the ECT, the ECT would prevail over EU law.³⁴¹

• First, the Award "makes clear" that the Achmea Judgment does not prevent the intra-EU application of Article 26(1) of the ECT,³⁴² and remarks that this judgment makes no mention of the ECT and its reasoning does not extend to ECT arbitrations, as the case arose under a BIT and the UNCITRAL rules.³⁴³

• The Tribunal clearly outlined the distinctions between the Achmea case and the present one, including that, unlike in the present case, in Achmea (i) the BIT called for application of national law; (ii) the local courts had competence to review the validity of the award; and (iii) it was in the course of that review process that the German courts had submitted the preliminary question to the CJEU.³⁴⁴ It follows, OperaFund and Schwab argue, that the BIT at issue in Achmea was a "completely different type of treaty," applying a different body of law, and applying only to EU Member States;³⁴⁵ and that Spain mischaracterizes the Award in saying that it totally ignored the Achmea Judgment.³⁴⁶ Instead, the Tribunal "carefully scrutinized the Achmea decision" and concluded that it did not prevent intra-EU application of Article 26(1) of the ECT.³⁴⁷

• Second, the Tribunal ruled that EU law was not relevant to the arbitration given that the Tribunal was "placed in a public international law context and not in a national or regional context;" and therefore, it cannot be said that the Tribunal denied any relevance to the Achmea Judgment.³⁴⁸

• Third, even if EU law were relevant (which the Tribunal denied) and even if the Achmea Judgment applied to intra-EU ECT arbitrations, Spain has not explained how the Achmea Judgment could apply retroactively to an arbitration agreement entered into before that judgment was rendered.³⁴⁹

• Fourth, Spain has failed to explain why the Tribunal's conclusion that the Achmea Judgment has no bearing on ECT arbitrations was "unclear" or "unreasonable;"³⁵⁰ and recently an ad hoc committee has confirmed an intra-EU BIT award even in light of the Achmea Judgment, which further confirms that the OperaFund Tribunal's conclusion in the Award was not "manifestly wrong or arbitrary."³⁵¹

• Although Spain submits that EU law qualifies as "principles and rules of international law" under Article 26(6) of the ECT, the Committee should not forget that one of the Claimants in the arbitration was Swiss.³⁹⁰

• Many other arbitral tribunals do not consider EU law as part of the "rules and principles of international law" including, for example, Eskosol.³⁹¹

• If anything, EU law should be considered as a fact, and that is what the Tribunal did.³⁹²

• The central question in the arbitration was whether Spain had breached its obligations under the ECT, and the Claimants never asked for compensation under EU law.³⁹³

• A State cannot invoke its internal law or domestic decisions to justify a breach of international law.³⁹⁴

• The Tribunal considered Spain's allegations on State Aid, and did not find any specific provision of EU law dispositive of the merits.³⁹⁸ The Award considered those arguments as "a fact," and indeed Spain itself and the EC treated EU law as a fact when arguing why the challenged measures were proportional.³⁹⁹

• The Tribunal rejected Spain's allegation that had the Claimants correctly analyzed EU State Aid law, they would have concluded that the incentives were "illegal state aid" and should not have had legitimate expectations.⁴⁰⁰

• The Tribunal also rejected Spain's proportionality defense, based on the EC State Aid Decision of November 2017.⁴⁰¹