|TABLE OF SELECTED DEFINED TERMS|
|Arbitration Rules||ICSID Rules of Procedure for Arbitration Proceedings in force as of 10 April 2006|
|CJEU||Court of Justice of the European Union|
|CL-[#]||Claimant's legal authority|
|Cl. Mem. or Claimant's Memorial||Claimant's Statement of Claim dated 9 September 2016|
|Cl. PHB||Claimant's Post-Hearing Brief dated 31 July 2018|
|Cl. Rej. or Claimant's Rejoinder||Claimant's Rejoinder on Jurisdiction dated 31 January 2018|
|Cl. Reply or Claimant's Reply||Claimant's Reply on the Merits and Counter-Memorial on Jurisdiction dated 10 July 2017|
|Cl. Sub. Costs||Claimant's Submission on Costs dated 10 May 2019|
|Claimant or SolEs||SolEs Badajoz GmbH|
|CNE or NEC||National Energy Commission of Spain (Comisión Nacional de Energía)|
|DCF||Discounted Cash Flow|
|EC or Commission||European Commission|
|ECT||Energy Charter Treaty|
|FET||Fair and equitable treatment|
|First AMG Report||Expert Report of Altran-MaC Group titled "Expert Report Relating to the Arbitration SolEs Badajoz GmbH vs. the Kingdom of Spain, ICSID Case ARB/15/38" dated 27 January 2017, prepared by Grant Greatrex, Jesús Fernández Salguero and Carlos Montojo González|
|First Brattle Regulatory Report||Expert Report of The Brattle Group titled "Changes to the Regulation of Photovoltaic Installations in Spain Since November 2010" dated 9 September 2016, prepared by José Antonio García and Carlos Lapuerta|
|First Brattle Quantum Report||Expert Report of The Brattle Group titled "Financial Damages to Investors" dated 9 September 2016, prepared by Carlos Lapuerta and Richard Caldwell|
|First Hopp Statement||Witness Statement of Thomas Hopp dated 8 September 2016|
|First Montoya Statement||Witness Statement of Carlos Montoya dated 4 January 2017|
|First Voigt Statement||Witness Statement of Markus Voigt dated 8 September 2016|
|Hearing||Hearing on jurisdiction, merits and quantum held in Paris, France, from 26 to 29 June 2018|
|ICSID Convention||Convention on the Settlement of Investment Disputes Between States and Nationals of Other States dated 18 March 1965|
|ICSID or the Centre||International Centre for Settlement of Investment Disputes|
|IDAE||Instituto para la Diversificación y Ahorro de la Energía|
|IRR||Internal Rate of Return|
|LSE||Act 54/1997 of 27 November 1997, on the Electricity Sector (Ley del Sector Eléctrico)|
|MINETUR||Ministry of Industry, Trade and Tourism of Spain (Ministerio de Industria, Comercio y Turismo)|
|RDL||Royal Decree Law|
|Resp. C-Mem. or Respondent's Counter-Memorial||Respondent's Counter-Memorial on the Merits and Memorial on Jurisdiction dated 27 January 2017|
|Resp. PHB||Respondent's Post-Hearing Brief dated 10 September 2018|
|Resp. Rej. or Respondent's Rejoinder||Respondent's Rejoinder on the Merits and Reply on Jurisdiction dated 15 September 2017|
|Resp. Sub. Costs||Respondent's Submission on Costs dated 9 May 2019|
|Respondent or Spain||Kingdom of Spain|
|Rev. Tr. Day [#] (ENG), [page:line] ([Speaker(s)])||Transcript of the Hearing (as revised by the Parties on 25 July 2018)|
|Request for Arbitration or RfA||Request for Arbitration dated 3 August 2015|
|RL-[#]||Respondent's legal authority|
|Second AMG Report||Expert Report of Altran-MaC Group titled "Rebuttal Expert Report Relating to the Arbitration SolEs Badajoz GmbH vs. the Kingdom of Spain, ICSID Case ARB/15/38" dated 15 September 2017, prepared by Grant Greatrex, Jesús Fernández Salguero and Carlos Montojo González|
|Second Brattle Regulatory Report||Expert Report of The Brattle Group titled "Rebuttal Report: Changes to the Regulation of Photovoltaic Installations in Spain Since November 2010" dated 10 July 2017, prepared by José Antonio García and Carlos Lapuerta|
|Second Brattle Quantum Report||Expert Report of The Brattle Group titled "Rebuttal Report: Financial Damages to Investors" dated 10 July 2017, prepared by Carlos Lapuerta and Richard Caldwell|
|Second Hopp Statement||Second Witness Statement of Thomas Hopp dated 10 July 2017|
|Second Montoya Statement||Second Witness Statement of Carlos Montoya dated 13 September 2017|
|Second Voigt Statement||Second Witness Statement of Markus Voigt dated 10 July 2017|
The Tribunal wishes to express that the procedural directions laid out in Procedural Order No. 3 (including paragraph 47(d), related to the allocation of costs) are not included in order to deter participation by the Commission. Rather, they are intended to ensure that the Commission's participation does not unduly burden or unfairly prejudice either Party, consistent with ICSID Arbitration Rule 37(2).
Having considered the Commission's Request and the views of the Parties, the Tribunal declines to alter Procedural Order No. 3. The Tribunal emphasizes that it has made no decision that any costs should be allocated to the Commission, as was stated in Procedural Order No. 3. In addition, the Tribunal offers the following clarifications in response to the Commission's Request, which may be of assistance to the Commission:
(a) Paragraph 47(d) does not contemplate any order that would allocate to the Commission costs other than those arising from its participation in this case;
(b) If the Commission intervenes as a Non-Disputing Party, the Tribunal will seek the views of the Commission (in addition to those of the Parties) in respect of the possible allocation of costs to the Commission, prior to any decision on the allocation of those costs.3
|Judge Joan E. Donoghue||President|
|Professor Giorgio Sacerdoti||Arbitrator|
|Sir David A R Williams KNZM, QC||Arbitrator|
|ICSID Secretariat :|
|Mrs. Ana Conover||Secretary of the Tribunal|
|For Claimant :|
|Mr. Charles Kaplan||Orrick Herrington & Suttcliffe (Europe) LLP|
|Mr. Tunde Oyewole||Orrick Herrington & Suttcliffe (Europe) LLP|
|Ms. Agnès Bizard||Orrick Herrington & Suttcliffe (Europe) LLP|
|Ms. Lorna Maupilé||Orrick Herrington & Suttcliffe (Europe) LLP|
|Ms. Federica Re Depaolini||Orrick Herrington & Suttcliffe (Europe) LLP (intern)|
|Ms. Lucille Coulon||Orrick Herrington & Suttcliffe (Europe) LLP (intern)|
|Ms. Marie Chereau||Orrick Herrington & Suttcliffe (Europe) LLP (intern)|
|Ms. Mahalkita Guiberd||Orrick Herrington & Suttcliffe (Europe) LLP (intern)|
|Mr. Fernando Bedoya||Pérez-Llorca|
|Ms. Sara Martín||Pérez-Llorca|
|Mr. Thomas Hopp||Voigt & Collegen|
|Mr. Markus Voigt||Voigt & Collegen|
|Mr. Carlos Lapuerta||The Brattle Group|
|Mr. Richard Caldwell||The Brattle Group|
|Ms. Claudia Cuchi||The Brattle Group|
|Mr. Jose Antonio García||The Brattle Group|
|Ms. Ying-Chin Chou||The Brattle Group|
|For Respondent :|
|Mr. Roberto Fernández Castilla||Abogacía General de Estado|
|Mr. Antolín Fernández Antuña||Abogacía General de Estado|
|Ms. Patricia Fröhlingsdorf Nicolás||Abogacía General de Estado|
|Mr. Javier Torres Gella||Abogacía General de Estado|
|Ms. María José Sánchez Ruiz||Abogacía General de Estado|
|Mr. Alberto Torró Molés||Abogacía General de Estado|
|Ms. Raquel Vázquez Meco||IDAE|
|Mr. Carlos Montoya Rasero||IDAE|
|Mr. Grant Greatrex Mr. Jesús Fernández Salguero Mr. Carlos Montojo González Mr. David Pérez López Mr. Antonio Sanchis Boscá||ALTRAN-Mac Group ALTRAN-Mac Group ALTRAN-Mac Group ALTRAN-Mac Group ALTRAN-Mac Group|
|Court Reporters : Mr. Trevor McGowan Ms. Luciana Sosa Ms. Elizabeth Cicoria||D. R. Esteno D. R. Esteno|
|Interpreters : Mr. Jesús Getan Bornn Ms. Amalia Thaler-de Klemm Ms. Anna-Sophie Chapman|
|On behalf of Claimant :|
|Mr. Thomas Hopp Mr. Markus Voigt Mr. José Antonio García Mr. Carlos Lapuerta Mr. Richard Caldwell||Voigt & Collegen Voigt & Collegen The Brattle Group The Brattle Group The Brattle Group|
|On behalf of Respondent :|
|Mr. Carlos Montoya Mr. Grant Greatrex Mr. Jesús Fernández Salguero Mr. Carlos Montojo González||IDAE ALTRAN-Mac Group ALTRAN-Mac Group ALTRAN-Mac Group|
To work out the premiums, the voltage level on delivery of the power to the network, the effective contribution to environmental improvement, to primary energy saving and energy efficiency, the generation of economically justifiable useful heat and the investment costs incurred shall all be taken into account so as to achieve reasonable profitability rates with reference to the cost of money on capital markets.9
Production of electricity directly through photovoltaic sources presents undeniable energetic, industrial, environmental and social, etc. advantages. Among them, the implementation of photovoltaic solar energy as widely as possible will contribute to boosting future technological development, which will cause this power generating process to be increasingly competitive compared to other generation methods.16
The NEC understands that transparency and predictability in the future of economic incentives reduces regulatory uncertainty, incentivising investments in new capacity and minimizing the cost of financing projects, thus reducing the final cost to the consumer. The regulation must offer sufficient guarantees to ensure that the economic incentives are stable and predictable throughout the service life of the facility. In each case, regulation must provide both transparent annual adjustment mechanisms, associated to robust trend indexes (such as the average or reference tariff, the CPI, ten-year bonds, etc.) and regular reviews that only affect new facilities (e.g. every four years) with regard to investment costs, which could also affect the reduction of operating costs at existing facilities.23
Spanish society today, in the context of reducing dependence on foreign energy, better use of available energy sources, and a greater awareness of the environment, is increasingly demanding the employment of renewable sources of energy and efficiency in the generation of electricity as basic principles in the achievement of sustainable development from an economic, social, end environmental point of view.
The creation of the special regime for the generation of electricity meant an important milestone in the energy policy of our country. The targets in respect of the promotion of renewable energy and combined heat and power are covered in the Renewable Energy Plan 2005-2010 and in the Strategy for Energy Saving and Efficiency in Spain (E4), respectively. In view of the above, it can be seen that although the growth seen overall in the special regime for electricity generation has been outstanding, in certain technologies the targets posed are still far from being reached.
From the point of view of compensation, the business of the production of electrical energy under the special regime is characterized by the possibility that the compensation system can be supplemented by the receipt of a premium under the terms and conditions established in the regulations, in order to determine which such factors as the voltage level of the energy delivered into the grid, the contribution to the improvement in the environment, primary energy saving, energy efficiency, and the investment costs incurred, may all be taken into account.
The economic framework established in the present Royal Decree develops the principles provided in Law 54/1997, of 27 November, on the Electricity Sector, guaranteeing the owners of facilities under the special regime a reasonable return on their investments, and the consumers of electricity an assignment of the costs attributable to the electricity system which is also reasonable, although incentives are provided to playing a part in this market since it is considered that in this manner lower government intervention will be achieved in the setting of prices, together with better, more efficient, attribution of the costs of the system, particularly in respect of the handling of diversions and the provisions of supplementary services.26
During the year 2010, on sight of the results of the monitoring reports on the degree of fulfilment of the Renewable Energies Plan (PER) 2005-2010, and of the Energy Efficiency and Savings Strategy in Spain (E4), together with such new targets as may be included in the subsequent Renewable Energies Plan 2011-2020, there shall be a review of the tariffs, premiums, supplements and lower and upper limits defined in this Royal Decree with regard to the costs associated with each of these technologies, the degree of participation of the special regime in covering the demand and its impact upon the technical and economic management of the system, and a reasonable rate of profitability shall always be guaranteed with reference to the cost of money in the capital markets. Subsequently a further review shall be performed every four years, maintaining the same criteria as previously.
The revisions to the regulated tariff and the upper and lower limits indicated in this paragraph shall not affect facilities for which the deed of commissioning shall have been granted prior to 1 January of the second year following the year in which the revision shall have been performed.32
b) Legal certainty and the protection of legitimate expectations.
Stability and predictability of economic incentives (tariffs and premiums) reduce regulatory uncertainty, which encourages investments in new capacity to address their projects, while minimizing the cost of financing and thereby reducing the final cost to the consumer. The current regulation has established annual updates of economic incentives, based on robust indexes (such as the IPC, ten-year bonds, etc.), and periodic reviews every four years, which in this case only affect the new facilities.
Certainly, the principles of legal certainty and the protection of legitimate expectations (Article 9.3 EC) do not constitute insurmountable obstacles to the innovation of the legal system and cannot therefore be used as instruments to petrify the legal framework in force at any given time. In this sense, these principles do not prevent the dynamic innovation of the regulatory frameworks, nor of new normative provisions which can be applied pro-future to situations initiated before it comes into force. But these principles do require that regulatory innovation - especially if it is abrupt, unforeseeable or unexpected - is carried out with certain guarantees and cautions (transitional periods to adapt to the new regimes, where appropriate compensatory measures, etc.) that dampen, moderate and minimize, as far as possible, the disappointing of any expectations generated by the previous regulations.38
5.2 On the criterion of minimizing regulatory uncertainty
Special-regime production facilities are often capital-intensive and have long recovery times. The regulation of the generation facilities under the special regime established in Royal Decree 661/2007, has tried to minimize the regulatory risk of this group, providing security and predictability to economic incentives during the useful life of the facilities, by establishing transparent mechanisms to update them annually, and by exempting existing installations from the four-year review, since the new incentives that are being set out only affect the new installations.
The guarantees included in this regulation allow for better financing, with lower project costs and less impact on the electricity tariff finally paid by the consumer.39
(1) RDL 14/2010 of 23 December 2010, which imposed a cap on the number of hours per year during which PV installations could sell electricity under the FIT;57
(2) Law 15/2012 of 27 January 2012, imposing a seven percent tax on electric energy production;58 and
(3) RDL 2/2013 of 1 February 2013, which changed the inflation index used to update FITs.59
In formulation of these measures, care has been taken to ensure the safeguard of the supply of electricity, in terms of universality, quality, safety and continuity and to ensure the protection of consumer rights for electrical power supply, under equitable terms, as well as to ensure compliance of the targets regarding energy efficiency and the promotion of renewable energies. In parallel, special attention and care has been taken not to affect the economic-financial balance of companies within the sector, and not solely for large companies, preserving the principles of a free market, which are governed under Law 54/1997, of 27 November, on the electricity sector, but also for sets of power generation facilities, monitoring such, because, especially in the case of power generation companies under the special regime, these have secured adequate and reasonable compensation.
[I]t is deemed reasonable that producers under the special regime also make a contribution to mitigate the additional costs on the system, and such contribution must be proportionate to the characteristics of each technology, to the degree of participation in the generation of such additional costs and to the current extent for compensation, whose reasonable return, nonetheless, is guaranteed. Thus, for the same purpose, there has been Government approval, over recent months, for regulatory measures directed at producers of wind, solar thermal and co-generation electricity.
Thus, in consideration of the rate of growth of photovoltaic installations, and for safeguarding the principle of sufficiency for compensation, due to the special impact that the deviations in the forecast generation of this energy source have caused to the tariff deficit, it is established, in general terms, the possibility for limiting the recognised equivalent operating hours entitled by the prevailing economic system.61
4. Additionally, and in the terms determined legally by Royal Decree of the Council of Ministers, for the remuneration for the sale of the energy generated, valued at market price, the facilities shall be able to receive a specific remuneration made up of one term per power unit installed, that covers, when appropriate, the investment costs of standard facility that cannot be recovered by the sale of energy and an end to the operation that covers, as applicable, the difference between the operating costs and revenue by participation in the market of such standard facility.
For purposes of calculating this specific remuneration, the Law shall consider the following for any standard facility throughout its useful life and in reference to the business activity carried out by an efficient and well-managed company:
a) The standard revenue for the sale of the energy generated, valued at the production market price.
b) The standard operating costs.
c) The standard value of the initial investment.
For these purposes, this shall never include the costs or investments determined by regulations or administrative acts which are not applicable across the entire Spanish territory. In the same way, this will only take into account those costs and investments that respond exclusively to the field of production of electricity.
As a result of the unique characteristics of the insular and extra-peninsular electricity systems, standard facilities may be defined exceptionally for each one of them.
This remuneration scheme does not exceed the minimum level necessary to cover the costs that allow for the facilities to compete equally with the rest of technologies in the market and that would lead to a reasonable rate of return by reference to the standard facility applicable in each case. Notwithstanding the foregoing, exceptionally the remuneration scheme may also include an incentive for investment and the execution within a specific time period when the facility in question involves a significant reduction of costs in the insular and extra-peninsular systems.
This reasonable rate of return shall focus, before tax, on the average yield in the secondary market of the Obligations of the State within ten years by applying the appropriate differential.
The parameters of the remuneration scheme may be revised every six years.67
The remuneration regime will not exceed the minimum level required to cover costs which allow production installations from renewable energy sources, high-efficiency and waste cogeneration to compete on an equal footing with the other technologies on the market and which allows a reasonable return to be earned on the installation type in each applicable case. This reasonable return will refer, before tax, to the mean yield on the secondary market for Ten-Year State Bonds, applying the appropriate differential.71
In connection with this acquisition […] SolEs Badajoz paid EUR 18,678,523 for the transfer to it of (i) a profit participating loan of EUR 2,517,671, (ii) an intercompany loan of EUR 15,987,197, which FS Solar had previously provided to the Company and (iii) the reimbursement of an amount of EUR 173,655 under the agreement on remuneration and reimbursement of expenses with the [Landesbank Baden-Württemberg].
In May 2010, SolEs Badajoz began the re-financing of Fotones de Castuera which included the execution of the following agreements:
- (i) a new intercompany loan agreement entered into on 11 May 2010 by and among SolEs Badajoz and Fotones de Castuera for an amount of EUR 17,000,000 (the "IC Loan Agreement");
- (ii) a credit facility agreement dated 25 May 2010 in relation to the erection and operation of Badajoz I and Badajoz II between Fotones de Castuera, as borrower and two German banks (the "Credit Facility Agreement"). Under this agreement Fotones de Castuera was extended over EUR 93,475,000 in credit. This agreement was amended a number of times. […]90
• that it has jurisdiction to hear this dispute;
• that the Kingdom of Spain has breached Article 13 of the ECT by unlawfully expropriating SolEs Badajoz;
• that the Kingdom of Spain has breached Article 10(1) of the ECT by failing to accord fair and equitable treatment to SolEs Badajoz's investment;
• that the Kingdom of Spain has breached Article 10(1) of the ECT by violating the umbrella clause of the Treaty.
- Order the Kingdom of Spain:
• to compensate SolEs Badajoz for damage caused as a result of its violations of the ECT amounting to €81.8 million, including the necessary tax gross-up, which when adjusted for pre-Award interest as at July 2018 should result in an Award of €95.8 million;
• to pay interest at the rate of 5.94% compounded with quarterly rests on all compensation for damages awarded by the Tribunal until full payment of the Award;
• to reimburse SolEs Badajoz for any damage that may occur in the future as a result of its violations of the ECT; and
• to pay all of the costs and expenses of this arbitration, including SolEs Badajoz's legal and expert fees, the fees and expenses of any experts appointed by the Tribunal, the fees and expenses of the Tribunal, and ICSID's other costs.94
(a) declare its lacks of jurisdiction to hear the claims of the Claimant, or if applicable their inadmissibility, in accordance with what is set forth in Section III of the present Memorial, referring to Jurisdictional Objections; and
(b) Subsidiarily, in the event that the Arbitral Tribunal decides that it has jurisdiction to hear this dispute, to dismiss all the Claimant ['s] claims regarding the Merits, as the Kingdom of Spain has not breached the ECT in any way, pursuant to Sections IV and V herein, referring to the Facts and the Merits, respectively;
(c) Secondarily, to dismiss all the Claimant's claims for damages as the Claimant has no right to compensation, in accordance with Section V herein; and
(d) Order the Claimant to pay all costs and expenses derived from this arbitration, including ICSID administrative expenses, arbitrators' fees, and the fees of the legal representatives of the Kingdom of Spain, their experts and advisors, as well as any other cost or expense that has been incurred, all of this including a reasonable rate of interest from the date on which these costs are incurred until the date of their actual payment.95
Article 30. APPLICATION OF SUCCESSIVE TREATIES
RELATING TO THE SAME SUBJECT-MATTER
1. Subject to Article 103 of the Charter of the United Nations, the rights and obligations of States parties to successive treaties relating to the same subject-matter shall be determined in accordance with the following paragraphs.
2. When a treaty specifies that it is subject to, or that it is not to be considered as incompatible with, an earlier or later treaty, the provisions of that other treaty prevail.
3. When all the parties to the earlier treaty are parties also to the later treaty but the earlier treaty is not terminated or suspended in operation under article 59, the earlier treaty applies only to the extent that its provisions are compatible with those of the later treaty.
4. When the parties to the later treaty do not include all the parties to the earlier one:
(a) As between States parties to both treaties the same rule applies as in paragraph 3;
(b) As between a State party to both treaties and a State party to only one of the treaties, the treaty to which both States are parties governs their mutual rights and obligations.
5. Paragraph 4 is without prejudice to article 41, or to any question of the termination or suspension of the operation of a treaty under article 60 or to any question of responsibility which may arise for a State from the conclusion or application of a treaty the provisions of which are incompatible with its obligations towards another State under another treaty.
Article 31. GENERAL RULE OF INTERPRETATION
1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.
2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:
(a) Any agreement relating to the treaty which was made between all the parties in connexion with the conclusion of the treaty;
(b) Any instrument which was made by one or more parties in connexion with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.
3. There shall be taken into account, together with the context:
(a) Any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;
(b) Any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation;
(c) Any relevant rules of international law applicable in the relations between the parties.
4. A special meaning shall be given to a term if it is established that the parties so intended.
Article 32. SUPPLEMENTARY MEANS OF INTERPRETATION
Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31:
(a) Leaves the meaning ambiguous or obscure; or
(b) Leads to a result which is manifestly absurd or unreasonable.
Article 41. AGREEMENTS TO MODIFY MULTILATERAL TREATIES BETWEEN CERTAIN OF THE PARTIES ONLY
1. Two or more of the parties to a multilateral treaty may conclude an agreement to modify the treaty as between themselves alone if:
(a) The possibility of such a modification is provided for by the treaty; or
(b) The modification in question is not prohibited by the treaty and:
(i) Does not affect the enjoyment by the other parties of their rights under the treaty or the performance of their obligations;
(ii) Does not relate to a provision, derogation from which is incompatible with the effective execution of the object and purpose of the treaty as a whole.
2. Unless in a case falling under paragraph l(a) the treaty otherwise provides, the parties in question shall notify the other parties of their intention to conclude the agreement and of the modification to the treaty for which it provides.
The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable. (Emphasis added).
• Spain has been an ICSID Contracting State since 17 September 1994.
• Claimant is a company incorporated in Germany, which has been an ICSID Contracting State since 18 May 1969, and thus is a "national of another Contracting State" within the meaning of Article 25(2)(b) of the ICSID Convention.
• Claimant's shareholding, interests and other rights in Fotones constitute an "investment" for purposes of Article 25(1) of the ICSID Convention.
• There is a legal dispute between Claimant and Respondent arising directly out of Spain's alleged acts and omissions with respect to Claimant's investment in Spain which, according to Claimant, violate Respondent's obligations under the ECT.
• Article 1(2) : Regional Economic Integration Organisations ("REIOs") are included in the definition of Contracting Parties, and the EU is the only REIO that is a party to the ECT.141
• Article 1(3) : The definition of REIOs explicitly recognizes their authority to take decisions binding on their member States in respect of certain matters a number of which are governed by the ECT. If the ECT had not wanted to consider that part of the matters comprised by it were exclusively decided by the EU, such formulation would not have been adopted.142
• Article 25 : This provision excludes from the application of the ECT's most favored nation clause the preferential treatment applicable between parties to an economic integration agreement, thereby preventing the intra-EU investment promotion and protection system from extending to ECT signatory States that are not EU member States.143
• Article 26(6) : This provision sets forth that disputes shall be decided in accordance with the ECT "and applicable rules and principles of international law." In this case, EU law is applicable international law and its rules and principles must be applied with the same hierarchy as the ECT itself. Therefore, the initiation of arbitration proceedings under the ECT by an EU investor against an EU member State would be contrary to EU law and incompatible with the content of Article 26(6).144
(1) Does Article 344 TFEU preclude the application of a provision in a bilateral investment protection agreement between Member States of the European Union (a so-called intra-EU BIT) under which an investor of a Contracting State, in the event of a dispute concerning investments in the other Contracting State, may bring proceedings against the latter State before an arbitral tribunal where the investment protection agreement was concluded before one of the Contracting States acceded to the European Union but the arbitral proceedings are not to be brought until after that date?
If Question 1 is to be answered in the negative:
(2) Does Article 267 TFEU preclude the application of such a provision?
If Questions 1 and 2 are to be answered in the negative:
(3) Does the first paragraph of Article 18 TFEU preclude the application of such a provision under the circumstances described in Question 1?156
The Court of Justice of the European Union shall have jurisdiction
to give preliminary rulings concerning:
(a) the interpretation of the Treaties;
(b) the validity and interpretation of acts of the institutions, bodies, offices or agencies of the Union;
Where such a question is raised before any court or tribunal of a Member State, that court or tribunal may, if it considers that a decision on the question is necessary to enable it to give judgment, request the Court to give a ruling thereon.
Where any such question is raised in a case pending before a court or tribunal of a Member State against whose decisions there is no judicial remedy under national law, that court or tribunal shall bring the matter before the Court.
The arbitral tribunal shall decide on the basis of the law, taking into account in particular though not exclusively:
- the law in force of the Contracting Party concerned;
- the provisions of this Agreement, and other relevant Agreements between the Contracting Parties;
- the provisions of special agreements relating to the investment;
- the general principles of international law.160
[T]he referring court essentially asks whether 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 BIT, 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.161
Consequently, having regard to all the characteristics of the arbitral tribunal mentioned in Article 8 of the BIT […], it must be considered that, by concluding the BIT, the Member States parties to it established a mechanism for settling disputes between an investor and a Member State which could prevent those disputes from being resolved in a manner that ensures the full effectiveness of EU law, even though they might concern the interpretation or application of that law.164
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.165
The Achmea case ruling affirms that the principle of primacy of the European Union law precludes that intra-European Union disputes regarding investments could be solved by arbitral tribunals. This is admitted under the international law, because Article 41(b) of the Vienna Convention allows that two or more of the parties of a multilateral treaty may modify a multilateral treaty when it affects only procedural rules.
So the international law allows that in 2008 the Member States of the European Union modified between them the priority of the methods to resolve disputes between the Member States.176
The Commission considers that any provision that provides for investor-State arbitration between two Member States is contrary to Union law; in particular, this concerns Article 19(1) TEU, the principles of the freedom of establishment, the freedom to provide services and the free movement of capital, as established by the Treaties (in particular Articles 49, 52, 56, and 63 TFEU), as well as Articles 64(2), 65(1), 66, 75, 107, 108, 215, 267 and Article 344 TFEU, and the general principles of Union law of primacy, unity and effectiveness of Union law, of mutual trust and of legal certainty.
[…] Union law provides for a complete set of rules on investment protection (in particular in Articles 49, 52, 56, and 63 TFEU, as well as Articles 64(2), 65(1), 66, 75 and 215 TFEU). Member States are hence not competent to conclude bilateral or multilateral agreements between themselves, because by doing so, they may affect common rules or alter their scope. As the two sets of rules on investment protection potentially applicable between an EU Member State and an investor of another State (i.e. the Treaties and intra-EU bilateral investment treaties (BITs) or the ECT in an intra-EU setting) are not identical in content and are applied by different adjudicators, there is also a risk of conflicts between the international investment treaty and Union law.
[…] The resulting treaty conflict is to be solved, in line with the case-law of the Court, on the basis of the principle of primacy in favour of Union law. For those reasons, ECT does not apply to investors from other Member States initiating disputes against another Member States.179
• Article 1(2) : Claimant agrees with Respondent that this provision provides the definition of a REIO, the EU being the only REIO that is a party to the ECT.184 Claimant argues that, as a REIO, the EU is a party to the ECT, and the member States of the EU are also parties to the ECT and are each bound by the ECT, in their own capacity. Claimant submits that the ECT makes no exception to jurisdiction as to a dispute between State that is a party to the ECT and an investor of another State party to the ECT on the basis that both States are also members of the same REIO. Accordingly, there cannot be an exception to jurisdiction for intra-EU disputes under the ECT.185
• Article 1(3) : Claimant disagrees with Respondent's interpretation of this provision. Claimant notes that Spain cannot establish that the EU (then the European Economic Community ("EEC")) member States transferred competence over energy investments and their protection to the EEC at the time they signed the ECT. In fact, the Lisbon Treaty, which transferred to the EU exclusive competence over investment protection, was not signed until 2007.186
• Article 25 : Claimant indicates that Respondent has failed to establish why and how this provision impacts the arbitration clause of the ECT. Claimant explains that the fact that the benefits extended among EU member States do not automatically extend to non-EU signatories of the ECT "does not exclude the fact that EU Member States are bound by other obligations under a different treaty regime, in this case, the arbitration clause of the ECT."187
Claimant also considers that the EC's declaration under Article 25 of the ECT mentioned by Respondent is a limited carve-out from the ECT that allows EU Member States to extend benefits between themselves without an obligation to extend them to non-EU Members and in fact suggests that outside the "necessary" "derogations" from the ECT rules, the ECT provisions will prevail.188
• Article 26(6) : Claimant recalls that, pursuant to this provision, tribunals established under the ECT shall decide the issues in dispute in accordance with this treaty and applicable rules and principles of international law. Claimant argues that the primary applicable law in this case is the ECT itself (as the dispute concerns breaches of the FET, expropriation and the umbrella clause contained in the ECT), and not EU law.189
Where two or more Contracting Parties have entered into a prior international agreement, or enter into a subsequent international agreement, whose terms in either case concern the subject matter of Part III or V of this Treaty,
(1) nothing in Part III or V of this Treaty shall be construed to derogate from any provision of such terms of the other agreement or from any right to dispute resolution with respect thereto under that agreement; and
(2) nothing in such terms of the other agreement shall be construed to derogate from any provision of Part III or V of this Treaty or from any right to dispute resolution with respect thereto under this Treaty, where any such provision is more favourable to the Investor or Investment.
Except as otherwise provided in this Article, nothing in this Treaty shall create rights or impose obligations with respect to Taxation Measures of the Contracting Parties. In the event of any inconsistency between this Article and any other provision of the Treaty, this Article shall prevail to the extent of the inconsistency.239
ARTICLE 10 PROMOTION, PROTECTION AND TREATMENT OF INVESTMENTS
(1) Each Contracting Party shall, in accordance with the provisions of this Treaty, encourage and create stable, equitable, favourable and transparent conditions for Investors of other Contracting Parties to make Investments in its Area. Such conditions shall include a commitment to accord at all times to Investments of Investors of other Contracting Parties fair and equitable treatment. [N]o Contracting Party shall in any way impair by unreasonable or discriminatory measures their management, maintenance, use, enjoyment or disposal.
Spain's commitment to the Claimant's investment must be judged according to an objective standard, understood in the light of Spain's past commitments (in the present case, RD 661/2007 and RD 1578/2008, and indeed Law No. 54/1997). On the basis of such previous legislation, SolEs Badajoz and other investors who qualified under RD 1578/2008 were entitled to expect that a "reasonable return" under the Spanish PV regime would (1) remain at a level consistent with the return provided by the regulatory scheme up to that point; (2) remain at a broadly secure, fixed rate (rather than the variable rate now offered by the New Regulatory Regime); and (3) at most, be subject to reasonable and limited amendments which would nevertheless leave the core features of the regime intact. Spain, of course, chose to disregard these expectations.272
the purpose of the fair and equitable treatment standard is to provide to international investments treatment that does not affect the basic expectations that were taken into account by the foreign investor to make the investment, as long as these expectations are reasonable and legitimate and have been relied upon by the investor to make the investment.301
Taking account of the context and of the ECT's object and purpose, the Tribunal concludes that Article 10(1)'s obligation to accord fair and equitable treatment necessarily embraces an obligation to provide fundamental stability in the essential characteristics of the legal regime relied upon by investors in making long-term investments. This does not mean that regulatory regimes cannot evolve. Surely they can. "[T]he legitimate expectations of any investor [...] [have] to include the real possibility of reasonable changes and amendments in the legal framework, made by the competent authorities within the limits of the powers conferred on them by the law." However, the Article 10(1) obligation to accord fair and equitable treatment means that regulatory regimes cannot be radically altered as applied to existing investments in ways that deprive investors who invested in reliance on those regimes of their investment's value […]302
the ECT is not a type of insurance policy for investors against the risk of changes in the regulatory framework and, therefore:
a) There must be specific commitments made to an investor that the regulations in force will remain unchanged [; and]
b) The investor's expectations have to be reasonable and justified in relation to any changes to the laws of the host country.312
The host State is not required to elevate unconditionally the interests of the foreign investor above all other considerations in every circumstance. […] even assuming that Electrabel had an expectation that it would be awarded the maximum compensation [...], once weighed against Hungary's legitimate right to regulate in the public interest, such an expectation does not appear reasonable or legitimate. [Emphasis and ellipsis added by Respondent]315
To convert a regulatory standard into a specific commitment of the state, by the limited character of the persons who may be affected, would constitute an excessive limitation on power of states to regulate the economy in accordance with the public interest.
[…] in the absence of a specific commitment toward stability, an investor cannot have a legitimate expectation that a regulatory framework such as that at issue in this arbitration is to not be modified at any time to adapt to the needs of the market and to the public interest. [Emphasis and ellipsis added by Respondent]316
(a) The EDF Test v. Romania, which allows us to examine whether Spain has fulfilled the main objective of the ECT, adopting non-discriminatory measures against the Claimant;
(b) The AES Summit test v. Hungary, accepted by the Claimant as relevant, which allows us to examine whether the Kingdom of Spain has respected the FET standard of 10(1) ECT; and
(c) The Test Total v. Argentina that allows us to examine whether the Kingdom of Spain has respected the minimum protection standard guaranteed by International Law for long-term investments, as happens in the Energy Sector."321
The test set out in the AES SUMMIT case is used to determine whether or not an abusive (unreasonable) or disproportionate measure exists that does not comply with the FET standard laid down by the ECT. This Award has been invoked by the Claimant, so that the parties agree on the decision criterion applicable in respect of this Award. The Tribunal of the Case Aes Summit v. Hungary established:
'There are two elements that must be analysed to determine whether a State's act was unreasonable: the existence of a rational policy; and the reasonableness of the act of the State in relation to the policy.
A rational policy is taken by a State following a logical (good sense) explanation and with the aim of addressing a public interest matter.
(…) A challenged measure must also be reasonable. That is, there needs to be an appropriate correlation between the State's public policy objective and the measure adopted to achieve it. This has to do with the nature of the measure and the way it is implemented.'324