While I believe that the above represents a fair general description of the circumstances that gave rise to this dispute, I take a very different view of important elements of the context and facts of this dispute from that of my distinguished colleagues. It is fair to say that we agree that the Kingdom of Spain did violate Section 10(1) of the ECT, and that some measure of compensation is due to the Claimants. But other than those two conclusions, I would have weighed the facts differently and would have reached a different outcome regarding virtually everything else.
"Governments and firms can both benefit. Governments benefit from a commitment device that can address concerns from investors, and thus help them attract more investment at lower cost, and also reduce the risk of any later dispute becoming politicized. Firms benefit from reduced risks and a more reliable mechanism for protecting their rights if the relationship with the host government deteriorates."4
"... The obvious policy objective is to access international capital at the lowest possible cost. Investors are rational: to insist that those who act in the name of governments have an unfettered right to alter the terms of investment in the alleged public interest would lead to tragic disempowerment and dependence. If states were incapable of giving reliable promises — because their misconceived ‘sovereignty’ renders them powerless to do so — the policy objective of attracting foreign investment would be illusory."6
(1) According to the Decision’s interpretation of the FET Standard, there was no specific commitment by the Kingdom of Spain or an explicit undertaking because, inter alia:
(i) Spain’s alleged "commitment" arose from a regulation of general application — which should not be interpreted as the equivalent of a contractual commitment — or more specifically a "stabilization clause."10
(ii) The law of Spain provides for a hierarchy of laws, regulations, etc. which means that where a law sets forth a particular policy, no regulation may conflict with or contradict such policy — and this is something that potential investors must know when they decide to invest. In addition the Supreme Court of Spain has held on numerous occasions that, for example:
There is no legal obstacle that exists to prevent the Government, in the exercise of the regulatory powers and of the broad entitlements it has in a strongly regulated issue such as electricity, from modifying a specific system of remuneration...11
Because of the above circumstances, it is concluded that there could not have been a firm commitment regarding RE tariffs in the first place, or, stated otherwise, the existence of these features of Spanish law undercut a claim by these investors based on "reasonable and legitimate expectations." Also, if one views this transaction by the standards of normal commercial negotiations — there were weaknesses in Claimants case on "due diligence" and "reliance."
(iii) Nonetheless, it is found that these alleged weaknesses in the Claimants’ case do not mean that Claimants have no legal rights if the Tribunal finds (as it does) that there has been a complete change in the system on which Claimants’ made their investments. Their compensation will, however be limited to those situations in which Spain has not taken their interests sufficiently into account, or where the impacts on Claimants’ investments have been "disproportionate."
(iv) Finally, the Tribunal examines whether Spain’s Measures were "proportionate" or "not disproportionate" making use of the accepted three-part test described at ¶17, supra. The conclusion reached is that Spain’s Measures have passed the test of proportionality with the exception of minor adjustments regarding seven of Claimants’ 24 plants. The Tribunal also requires Spain to return to Claimants certain sums which Claimants had received as compensation for a given quantity of electric power sold in 2013 — and which Claimants were later required to return to Respondent, when RD 413/2014 and IET/1045/2014 retroactively lowered the price to which Claimants had been previously entitled for those sales.
"In the view of the Tribunal, the objects and purposes of the ECT are therefore more balanced than either Party allows for, and it approaches the interpretation of Article 10(1) on that basis."15
I cannot agree. To conclude that the ECT is relatively neutral regarding protection of foreign investment is not I believe, an appropriate conclusion. The careful analysis of the words of Section 10(1) does not, I believe, give sufficient weight to the context and origin of the ECT. The Berlin Wall fell in November 1989.
"The overall background of the Treaty [the ECT] was the effort to help the transition economies of Eastern Europe to attract investment, mainly by helping to install a rule of law, safeguarding of property, respect for contracts and liberalization of investment conditions in the model of Western market economies."16
Prof. Wälde continues:
"...[T]he overriding purpose of the Treaty [ECT] is the encouragement of private investment by stable, equitable, transparent conditions at a "high level" of protection... The tools — the ‘investment disciplines' in part III of the Treaty — have to be seen as instruments to implement the overall emphasis on promotion of private investments...
...the Treaty [ECT] emphasizes a "high" (i.e. not as other BITs a "normal") level of protection of foreign investors, highlights the importance of "liberalization", i.e. movement away from socialist command-control energy economy and monopolies with a new emphasis on property, contract and competition and highlights all features of a market economy in energy which are the opposite of socialist energy industry — that is respect for property rather than pervasive state control, separation of private ownership and entrepreneurship from politicized comingling of state, politics and energy industry, fair and transparent treatment of foreign investor — rather than exposing them to the volatilities and vagaries of intricate and not easily intelligible political maneuvering... The Treaty's language has therefore to be seen before the background and overall objectives and context — liberalization and modernization of still state-dominated energy industries, and the objects and purposes — to provide in a legally binding form with maximum effectiveness a high degree of investment security.
From this detailed identification of relevant objectives of the Treaty identified in a formal, explicit and legally relevant form (i.e. not super-imposed by the interpreter's personal subjective views and preferences) it seems clear that the broad thrust of the ECT is intended to offer extensive, rather than restrictive, protection to foreign energy investors and their investments". (emphasis added)17
"[establish] a legal framework in order to promote long-term co-operation in the energy field, based on complementarities and mutual benefits, in accordance with the objectives and principles of the [European Energy] Charter."18
As described in ¶131-132 of the Decision, Article 28(1) then established a requirement of prior administrative authorization of the construction and operation of installations under the Special Regime, while a series of rights and obligations for such installations were set forth in Article 30.4, which stated, inter alia that:
"The remuneration arrangements for electric power generation...under the Special Regime shall be supplemented by the payment of a premium under statutory terms set out in regulations...
"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 as to achieve reasonable profitability rates with reference to the cost of money on capital markets." (Emphasis added)21
"for the facilities based on renewable energies and waste, the incentive established has no time limit as the environmental benefits need to be internalized, and because of their special characteristics and technological level, their higher costs do not allow them to compete in the free market."23 (Emphasis added).
"2. The tariffs, premiums, incentives and supplements resulting from any of the revisions provided for in this section shall come into force on January 1st of the second year subsequent to the year that the revision has been carried out.
3. The tariffs, premiums, incentives and supplements resulting from any of the revisions provided for in this section shall apply solely to the plants that commence operating subsequent to the date of the entry into force referred to in the paragraph above and shall not have a backdated effect on any previous tariffs and premiums."25
We want to expand RE electric generation in Spain as quickly as possible. In order to incentivize long-term RE investment in Spain, you may be assured of the following: Once your plant has been approved as qualified under the Special Regime you may sell all of your power either (1) at a favorably regulated market rate, or (2) directly into the market in which case you will receive an incentive payment, and, if qualified, also a premium.
Finally we know that in order to make these investments you need the assurance of reasonable stability. Therefore, though remuneration rates may change beginning in 2006, no such changes will affect plants already approved and in operation at that time — and future rate changes will only take effect on January 1 of the second year subsequent to the year that the revision is carried out.
But, no matter. If one considers that this position represents perhaps, the law as it should be, rather than as it is, we may move instead to a legal foundation that the Decision does accept, at lease in principle. The Decision, (¶462) recognizes that even in the putative absence of a specific commitment, this does not mean that an investor, who has invested under a given tariff regime, has no rights under the FET Standard and Article 10(1).
"[a] judgment of what is fair and equitable cannot be reached in the abstract; it must depend on the facts of the particular case."35
A major issue which, in my view, has led to confusion relates, in one way or another, to Respondent’s right to regulate and, as appropriate, to change laws or regulations in the public interest. For the avoidance of doubt, as we have stated earlier, numerous tribunals have found that, in the absence of a specific commitment, States retain the right to modify their regulatory regimes.39 Such tribunals have found that "in order to adapt to changing economic circumstances the State’s regulatory powers still remain in place."40 And where there is not a specific stabilization clause or its equivalent, investors must expect that legislation or regulations may change.41 I recognize and accept this.
"... the Respondent’s obligation under the ECT to afford investors fair and equitable treatment does protect investors from a fundamental change to the regulatory regime in a manner that does not "take account of’ existing reliance on the prior regime. The ECT did not bar Spain from making appropriate changes to the regulatory regime of RD 661/2007. Thus, the Tribunal does not accept Claimants’ contention that RD 661/2007 gave them immutable economic rights that could not be altered by changes in the regulatory regime. Nevertheless, the ECT did protect Claimants against the total and unreasonable change that they experienced here."42
The Decision recognizes that, in addition to the Eiser case, tribunals in other Spanish investment cases — including Novenergia have also found that even if no "specific commitment" to the investor was found, that the relevant question:
"is[still] whether the statement or conduct is objectively sufficient to create legitimate expectations in the recipient. Such conduct or statements can take the form of laws or regulations."44
"In my view the right distinctions are here being drawn: governments may indeed need to be able to act qua government and in the public interest. That fact will prevent specific performance (including restitution) from being granted against them. But that is not to liberate them from the obligation to compensate those with whom it has entered into specific arrangements. That is the reasonable place to strike the balance between the expectations of foreign investors and the bona fide needs of governments to act in the public interest."45
The legal system of Spain is certainly among the world’s oldest and most sophisticated. No serious arbitrator can view decisions of Spain’s Supreme Court other than with appropriate respect. But as to the decisions regarding the issue of "change" of regulations, such as those cited in the Decision (at ¶ 234 to ¶ 236 and ¶ 515 to ¶ 534), this arbitrator was struck by the absence of any discussion at all of the role of international law arising from treaties to which Spain is a signatory. As called for by Article 26 of the VCLT, parties to a treaty are required to abide by their terms and perform their obligations in good faith - (Pacta Sunt Servanda). Article 27 provides that a party may not invoke provisions of its internal law as justification for its failure to perform a treaty.
"1. Validly concluded international treaties, once officially published in Spain, shall be part of the internal legal system. Their provisions may only be repealed, amended or suspended in the manner provided for in the treaties themselves or in accordance with general international law."
This means that the terms of the ECT, including the standard of Fair and Equitable Treatment are considered to be part of Spanish law. As a result, if Respondent made a change in Spanish law or regulations which might have resulted in a violation of the FET standard, Respondent would be required to conform its actions to the FET standard, or provide some explanation as to why the standard did not apply, or face the consequences of a violation of international law.
But in any event, as stated in the Tribunal in CMS v Argentina in its Award:
"The Tribunal is mindful that, in its Decision on Jurisdiction, the distinction was made between measures of a general economic nature, such as those concerning the economic and financial emergency, and measures specifically directed to the investment’s operation. It then reached the following conclusion:
...the Tribunal concludes on this point that it does not have jurisdiction over measures of general economic policy adopted by the Republic of Argentina and cannot pass judgment on whether they are right or wrong. The Tribunal also concludes, however, that it has jurisdiction to examine whether specific measures affecting the Claimant’s investment or measures of general economic policy having a direct bearing on such investment have been adopted in violation of legally binding commitments made to the investor in treaties, legislation or contracts."47
As an arbitrator attempting in good faith to give respect and appropriate deference to policy decisions of a sovereign government, many questions come to mind. But, in the dispute before us, the first and most serious question is, "To which legitimate and sovereign government of the Kingdom of Spain shall we defer?" Respondent gradually developed and refined the characteristics of the Special Regime beginning in 1998. It settled, with the enactment of RD 434/2004 and subsequent provisions, on a regulatory structure that was intended to attract major RE investments, and was very successful in doing so. Having attracted major RE investments on this basis and with RE plants already in place and committed to operate for their useful life (or for 20 to 25 years, as later amendment provided), the Kingdom was faced with a financial crisis involving multiple contributing factors. Respondent decided to move forcefully to deal with this crisis., and, in 2013-14, enacted the Disputed Measures. In doing so it changed the fundamental rules pursuant to which these investment had been made.
The Tribunal has accorded to Respondent a wide degree of deference. This is accomplished by giving credence to Respondent’s sophisticated and elaborate effort to demonstrate that Claimants were only entitled to a "reasonable return." It is understandable that Respondent might have utilized the means that it did given the predicament in which the government found itself. In the circumstances, it is also understandable for a tribunal to attempt to somehow honor fully both the sovereign decisions of 2004 and 2013-14. But we are not charged with deciding this dispute ex aequo et bono. Respondent also appeals to and purports to apply the principles of proportionality. To this final consideration, we now turn.
"Overall, Claimants plants are impacted by a drop in future revenue in excess of EUR 400 million, with Claimants suffering a 54% reduction in forecasted cash flows from their plants. These are by any standards very substantial reductions."50
The Tribunal concludes that by allowing Claimants their return of 7.398%, Respondent has used an acceptable standard to protect the Measures, generally, from being declared "disproportionate." The Tribunal does find a violation of the FET standard, but only to the extent that seven of Claimants’ plants had returns below that minimum return figure. In other words, with that sole exception, the Tribunal finds the Measures to have successfully passed each of the three requisites of proportionality analysis. I see this matter differently.
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