Spain held liable for breach of FET under the ECT for frustrating legitimate expectations of 9REN, a Luxembourg-based renewable energy investor

9REN Holding S.À.R.L. v. The Kingdom of Spain, ICSID Case No. ARB/15/15

On May 31, 2019, an ICSID tribunal held that Spain violated FET under ECT Art. 10(1) through the frustration of legitimate expectations of Luxembourg-based renewable energy investor 9REN Holding S.À.R.L. (9REN) but dismissed the expropriation claims. It ordered Spain to pay damages of EUR 41.76 million plus interest compounded annually and legal and other costs of EUR 4.609 million. 

Backgrounds and claims

On April 23, 2008 9REN acquired 96.5 per cent shareholding in companies involved in renewable energy production in Spain for EUR 211 million. In response to Spain’s changes to its energy sector regulations between 2010 and 2014, 9REN commenced arbitration against Spain on March 31, 2015 claiming breaches of the FET, impairment and umbrella clauses (ECT Art. 10), and expropriation (ECT Art. 13).

In particular, 9REN contended that (1) Royal Decrees (RDs) 2007 and 2008 guaranteed stability and non-revocation of the benefits of FIT and certain premium rates throughout the lifetime of facilities registered before September 29, 2008; (2) the reforms introduced by Spain should be interpreted contextually as aiming at attracting investors; and (3) Spain dismantled the scheme under the RDs, because of which 9REN had originally invested, leading 9REN to sell its investment.

Spain countered that (1) it had the right and the duty to regulate its energy sector in the public interest, exercising its sovereign authority; (2) 9REN knew or should have known about the changes brought by the reforms had it performed due diligence; and (3) the reforms were also aimed at ensuring the economic sustainability of the Spanish Electricity System (SES).

Achmea objection dismissed

Relying on the CJEU’s reasoning in Achmea, Spain objected to the tribunal’s jurisdiction. It contended that the effect of the ECT arbitration was to remove a dispute between an EU investor and an EU member state from EU courts, circumventing EU law.

Per the tribunal, Achmea distinguished intra-EU BITs from multilateral treaties such as the ECT and recognized that the EU is subject to non-EU dispute resolution mechanisms under treaties to which it is a party. The tribunal held that Achmea could not have contemplated that the EU will be subject to ECT claims but that EU member states would be immunized. Furthermore, it noted that nothing in the ECT text or in Achmea differentiates the rights and remedies of ECT’s EU and non-EU members. Accordingly, it dismissed the objection. 

No legitimate expectation absent clear and specific commitments

The tribunal sought to balance the state’s regulatory autonomy against international obligations. It acknowledged a state’s sovereign right to regulate its economy in the interest of its citizens. Noting previous awards (Saluka v. Czechia, El Paso v. Argentina and Glamis v. United States), the tribunal held that enforceable legitimate expectations arise only when a state makes very specific promises and representations to an investor or when the change of the legal framework is total, and that FET should not be interpreted to mean freezing of economic and legal regulations.

The tribunal held that though there was no specific communication to the investor from an authorized Spanish official that RD 2007 benefits were irrevocable, RD 2007 was a specific and clear undertaking (para. 295) as it was addressed to an “identifiable class of persons” (“prospective investors whose money was solicited by Spain’s FIT program”) (para. 257), the purpose and object of the regulation was specific (“inducing investments”—para. 295), and it succeeded in attracting 9REN’s investment. Thus, it concluded that RD 2007 created legitimate expectations of stability of 9REN’s benefits (para. 259).

Contextual reading of RD and 9REN’s reliance on it gave rise to legitimate expectation

For the tribunal, RD 2007 should be read in the “broader context in which it was made and its clear and obvious paramount purpose” (para. 266), which was to induce investments in renewable energy (para. 266). It considered that Spain was under pressure from the EU to meet its renewable energy targets and hence dramatically improved its regime through RD 2007.

Accepting the testimony of 9REN’s director and the due diligence opinion obtained by 9REN, the tribunal held that 9REN would not have invested EUR 211 million had it known that Spain might retroactively change the tariffs for completed projects (paras. 270–273). Further, considering the “large up-front costs” (para. 273) of the investment, it concluded that it was reasonable that 9REN would have required and did require a guarantee to make such an investment.

Timing of the investment is when the investment is made and not when it is implemented

Spain contended that 9REN’s investment was not covered by RD 2007 as 9REN did not invest by the cut-off date of September 29, 2008 and that legitimate expectations should be assessed at the date of the final step of the investment. However, according to the tribunal, Spain confused the date on which the investment was made with the date of registration of projects. It sided with 9REN, concluding that it had invested in one go and before the cut-off date.

Frustration of legitimation expectation leads to violation of FET

The tribunal concluded that Spain frustrated 9REN’s legitimate expectations, given that Spain’s representation of benefits under RD 2007 was clear and specific and 9REN’s expectations of tariff stability were reasonable and legitimate. However, it noted that the frustration of legitimation expectations does not necessarily mean a violation of FET (para. 308).

Here, the tribunal analyzed other factors, including the financial vulnerability of 9REN’s projects, with “heavy up-front capital costs” (para. 311), locked in the long term, and the fact that Spain alone was to benefit from the rising energy prices, but the burden of falling prices was borne by the investors. The tribunal held that such one-sided treatment violated FET under the ECT.

Tribunal rejects breaches of transparency and non-discrimination obligations

9REN claimed that Spain violated the ECT’s impairment clause through non-transparent and discriminatory measures. It argued that its returns were determined through complex formulas under the new regime; it also argued that the Tax on the Value of the Production of Electrical Energy (TVPEE) was not a genuine tax, but that it discriminated between renewable and conventional energy producers. Spain countered that the new regime was more detailed and specific and had meticulous details to calculate returns.

The tribunal found that the newer regime had different variables and explicit formulas for arriving at the compensation of investors, which might have made it complex, but not necessarily non-transparent. Further, it concluded that Spain’s measures were rationally connected to a legitimate state objective: ensuring the solvency of SES. Accordingly, it held that the measures were not unreasonable or arbitrary. It also held that the TVPEE issue lies beyond its jurisdiction by virtue of tax carve-out of ECT Art. 21.

Legislation and administrative regulations are not covered by ECT’s umbrella clause

9REN argued that under the RDs Spain undertook explicit obligations to pay the investors and that these undertakings are protected by the ECT’s umbrella clause. The tribunal rejected the claim, agreeing with Spain that the clause does not protect statutory obligations. It reasoned that the term “any obligation” must be interpreted in accordance with other terms used in Art 10(1): “entered into” and “with an investor.” It concluded that these terms cover bilateral obligations, such as a contract, concession or a licence, but not a state’s legislation or regulations, which it does not “enter into” (para. 342). Bringing the RDs under the umbrella clause, according to the tribunal, would conflate the protections under FET and the umbrella clause.

Loss in value of 9REN’s shares does not constitute expropriation

The tribunal held that the loss in value of 9REN’s shares in Spanish companies did not constitute an expropriation (paras. 369–372). It clarified that 9REN did not have any right to revenue from electricity sold to SES, but that the downstream operating companies did. Though the value of 9REN’s shares was impacted by the regulatory changes, Spain never denied any payments, and 9REN never alleged loss of control of shares. Therefore, the tribunal dismissed the expropriation claim.

Notes: The tribunal was composed of Ian Binnie (president, appointed by agreement of the parties, Canadian national), David R. Haigh (claimant’s appointee, Canadian national) and V.V. Veeder, (respondent’s appointee, British national). The award of May 31, 2019 is available at

Yashasvi Tripathi is a lawyer based in New York. She holds an LL.M. in international arbitration and litigation from New York University School of Law and a B.A.LL.B (Hons.) from National Law University, Delhi.