In yet another renewable energy case, Spain held liable for FET breach for frustrating French and Luxembourger investors’ legitimate expectations under the ECT

Cube Infrastructure Fund SICAV and Others v. The Kingdom of Spain, ICSID Case No. ARB/15/20

On February 19, 2019, an ICSID tribunal ordered Spain to pay damages to French and Luxembourger investors in compensation for its breach of the FET standard under ECT Article 10(1), as well as half of the investors’ legal costs. The tribunal awarded EUR 33.7 million in damages for lost profits.

Background and claims

Between 2008 and 2012, Cube Infrastructure Fund SICAV, Cube Energy SCA and Cube Infrastructure Managers SA (collectively, Cube), and Demeter 2 FPCI and Demeter Partners SA (collectively, Demeter) made investments in the Spanish photovoltaic (PV) and hydro sectors. The investors were allegedly relying on guarantees provided in Royal Decree (RD) 661/2007, which formed part of Spain’s regime of incentives for investments in the energy sector.

In 2010 and 2013–2014, Spain implemented changes to this regime, including tariff adjustments and limits to eligibility requirements for incentives. In response, Cube and Demeter filed for arbitration against Spain on April 16, 2015, claiming a breach of ECT Articles 10 (Promotion, Protection and Treatment of Investments) and 13 (Expropriation). In particular, they argued that Spain’s regulatory changes violated their legitimate expectations for PV and hydroelectric investments.

Tribunal dismisses Spain’s EU law and corporate personality objections but upholds objection to jurisdiction to address taxation measures

In its first jurisdictional objection, Spain argued that the claimants were not from the area of another ECT Contracting Party because France, Luxembourg and Spain are EU member states.

The tribunal reasoned that ECT Article 26(1) does not differentiate between different classes of contracting parties and, therefore, the ECT also applies to disputes involving the EU and its member states (para. 124). Moreover, the tribunal indicated that ECT Article 16 establishes that the contracting parties, including Spain and the EU, did not agree that EU law would take precedence over other sources. Neither did it agree that the ECT jurisdictional clause would become inapplicable should any inconsistency be found.

The tribunal also examined the effect of the CJEU’s Achmea judgment on the case. For the tribunal, Achmea cannot apply to an arbitration brought under the ECT and the ICSID Convention because they are multilateral treaties, whose scope of application extends beyond the boundaries of the EU. The tribunal indicated that legitimacy originates from the consent of all signatories and that no single state party can impose a specific requirement for an ECT or ICSID tribunal. Accordingly, it dismissed Spain’s jurisdictional objection based on EU law.

Further, Spain invoked the “no reflective loss” principle, arguing that the claimants did not own the plants and, therefore, had no legitimacy to bring claims for losses. However, the tribunal rejected the objection, explaining that this was an issue of quantum rather than jurisdiction (paras. 162–164).

Spain also argued that because of the tax carve-out contained in ECT Article 21, it has not consented to arbitrate issues surrounding the tax on the value of production of electrical energy (the TVPEE) and the levy on the use of continental waters to produce electrical power (the Water Levy). The tribunal agreed and declined jurisdiction, interpreting the meaning of the term “taxation measures” under ECT Article 21 based on principles of international law.

Spain created and subsequently frustrated legitimate expectations of stability, tribunal holds

The tribunal considered that Spain created legitimate expectations by enacting legislation that created a special regime of benefits and incentives. It averred that there is no need for specific commitment for a legitimate expectation to arise, especially when it comes to highly regulated industries. For the tribunal, expectations are created deliberately when a regulatory regime is established with a clear intention to attract investment subject to an advantageous regulatory scheme and policy. The tribunal added, “to the extent that those expectations are objectively reasonable, they give rise to legitimate expectations when investments are, in fact, made in reliance upon them” (para. 388).

The tribunal explained that under RD 661/2007, Spain committed to applying a special regime to power plants. According to the arbitrators, while the 2010 modifications merely adjust the special regime, the 2013–2014 changes amounted to a breach of the investor expectations because they completely removed the benefits, eliminating essential features of the special regime (para. 476).

The full tribunal found that Spain breached legitimated expectations for PV investments, and the majority of the tribunal considered the 2013–2014 measures a breach of the investors’ legitimate expectations with respect to the hydro investments.

Expropriation and umbrella clause claims rejected

Cube and Demeter claimed that Spain’s modifications of the RD 661/2007 expropriated their investment breaching ECT Article 13 (para. 456). The tribunal rejected the claim as it concluded that the regulatory changes were not discriminatory or unreasonable but rather a reasonable public policy measure. It also held that the means for its implementation did not discriminate against the claimants (para. 450). The tribunal concluded that “where each alleged interference with an individual property right has already been considered in the context of a claim based on breach of the standards in Article 10 ECT, it is hard to see that any purpose is served by making a further determination on the question whether it also constitutes an expropriation in violation of Article 13 ECT” (para. 456).

The tribunal did not find a violation of the ECT’s umbrella clause, given that there was no implied engagement between Spain and the claimants or their investments. The tribunal further explained that it “does not consider legislative measures to be engagements of this kind” (para. 452) agreeing with the approach taken by the tribunal in Charanne v. Spain, where the tribunal concluded that measures addressed to a limited group of investors do not constitute specific commitments made to each of those investors.

Damages and costs

The claimants argued that the discounted cash flow (DCF) method should be used to calculate the loss in value of the investments. In turn, Spain maintained that a cost-based method should be used to determine the internal rate of return on the plants since Spain consistently aimed at securing a reasonable rate of return for investors (paras. 469–471).

The tribunal sided with the claimants, awarding EUR 2.89 million in respect of losses caused to the PV investments and around EUR 30 million in respect of losses caused to the hydro investments. The tribunal also ordered Spain to cover half of the claimants’ legal fees and part of the arbitration costs.

Tomuschat’s dissenting opinion: no expectation of stability of hydro investments

In a partial dissent, arbitrator Tomuschat reasoned that when the investors acquired the hydro plants, the original legal framework had been altered, changing “the conditions of the regime significantly” (dissent, para. 7). He noted how, in 2009, the deficit in the electricity system “had reached a critical major dimension … which must have put on alert every investor” (dissent, paras. 8 and 14). He concluded that, at the time the claimants made the investment, the stability of hydro investments was not guaranteed. Therefore, the regime could not have created legitimate expectations for any professional investor.

Notes: The tribunal was composed of Vaughan Lowe (president appointed by the parties, British national), James Jacob Spigelman (claimants’ appointee, Australian national), Christian Tomuschat (respondent’s appointee, German national). The award of February 19, 2019, including the dissent, is available at

Maria Bisila Torao is an international lawyer based in London. She holds an LL.M. in investment treaty arbitration from Uppsala University, an LL.M. in international commercial arbitration from Stockholm University and a bachelor’s degree in law from the University of Malaga.