Tribunal finds Romania liable for breaching Art. 10(1) of the ECT, stating that its measures impaired claimants’ investments

LSG Buildings and others v. Romania, ICSID Case No. ARB/18/19

The dispute

This case concerns a dispute brought against Romania by 10 investors from Austria, Cyprus, Germany, and the Netherlands (“claimants”) in response to changes by Romania to an incentive scheme to attract investments in renewable energy sources (“RESs”). The claimants alleged that they had been induced to invest in Romania through the incentive scheme, and the changes brought about by Romania to the scheme between 2013 and 2014 and later between 2017 and 2018 harmed their investments (“disputed measures”). Romania, on the other hand, alleged that it had never committed to the investors that the incentive scheme would never change and that the changes had been enacted in pursuance of legitimate public policy concerns and were proportionate and reasonable.

The tribunal included Oliver Thomas Johnson, Jr. as the investor’s appointee, Pierre-Marie Dupuy as Romania’s appointee, and Juan Fernández-Armesto as the President (hereinafter referred to as the “tribunal”).


In 2004, Romania introduced an incentive scheme to attract investments in RES as part of its international commitments to reduce greenhouse gas emissions. The scheme was based on a system of trading “Green Certificates” (“GCs”) and was designed to achieve a 33% share of RESs in its energy consumption by 2010. GCs are a quantity-based market instrument which ensures set consumption over a period. Under the scheme, Romania introduced mandatory quotas and GC trading. In 2008, Law 220/2008 turned this scheme into law.

The scheme was amended with loftier goals after the adoption of the EU Directive 2009/28/EC. Under the 2009 Directive, Romania was assigned a target of 24% in total consumption of energy (including electricity, transport, and heating and cooling) by 2020. The amendments extended the period for the incentive scheme, increased the mandatory annual quotas, increased the number of GCs available to six GCs per MWh of electricity produced, extended the GC price trading until 2025, and increased the fine on suppliers who did not purchase GC from EUR 70 to EUR 110. In its application to the Commission, for the approval of Law 220/2008 and subsequent amendments, Romania had assured the Commission that the scheme would not result in overcompensation at an aggregate level. In 2011, the Commission approved Romania’s GC scheme.

Due to a fall in prices in solar photovoltaic (“SPV”) plants between 2008 and 2013, and Romania’s incentive scheme, investors’ interest in the Romanian solar energy market grew. After 2010, the claimants invested in five SPV plants.

To benefit from the scheme, the claimants had to obtain accreditations from the Romanian National Energy Regulatory Authority (“ANRE”), all of which were granted by 2013. In March 2013, however, Romania amended Law 220/2008 to rebalance the interests of electricity consumers and RES electricity investors. Between 2013 and 2014, and again between 2017 and 2018, Romania adopted a series of measures to control the increased price of electricity for the end consumer resulting from the scheme, which was found to be overcompensating investors. This resulted in investors receiving four GCs per MWh out of the six promised initially. The remaining two GCs were recoverable after January 1, 2025. Romania also decreased the penalty on suppliers for non-purchase of GCs, restricted the sale of GCs, and brought about changes to the method for calculating the mandatory annual quota for the acquisition of GCs.

On May 23, 2018, in response to the changes by Romania, the claimants brought a claim under the ECT and the ICSID Convention.

Jurisdictional objections

The claimants argued that the five requirements set out in Art. 25 of the ICSID Convention and Art. 26 of the ECT had been satisfied in the present dispute (paras. 258–259). Romania opposed the tribunal’s jurisdiction on three grounds: first, it had not consented to a multi-party proceeding; second, a Romanian national was the sole shareholder of two claimants, Anina and Giust, which precluded the jurisdiction of the tribunal; and third, the ECT’s arbitration clause was inapplicable to an intra-EU dispute (para. 260).

Multi-party proceedings

Romania opposed the jurisdiction of the tribunal, stating that the ICSID Convention and the ECT required Romania’s explicit consent for a multi-party proceeding. The tribunal rejected this objection, stating that the wording of neither Art. 26 of the ECT (para. 213) nor Art. 25(1) of the ICSID Convention (paras. 321–322) excluded multi-party proceedings. The tribunal also found the claims to constitute a single dispute, thereby meeting the homogeneity threshold (para. 351).

Piercing the corporate veil

Romania objected to the claims brought by Anina and Guist, since the companies were wholly owned and controlled by a Romanian national, and allowing them to sue Romania would undermine the object and purpose of the ICSID Convention (para. 391). The tribunal rejected Romania’s objection stating the place of incorporation was sufficient to satisfy the requirements of nationality under the ICSID Convention (para. 398) and the ECT (paras. 425 and 428).

Denial of benefits

Romania argued that a “realistic” application of Art. 17 would allow it to deny benefits to the two companies. The claimants disagreed, stating that Art. 17 only applied to foreign control by “third states,” that is, states not parties to the ECT. The tribunal agreed with the claimants stating that “under the ECT, a ‘third state’ is any state that is not a Contracting Party to the ECT” (para. 433).

Intra-EU objection

Romania argued that Art. 26 of the ECT could not apply to intra-EU disputes and, if the tribunal were to find the jurisdiction, it would have to establish that the conclusion of the Treaty of Lisbon constituted a modification to the ECT under Art. 41 of the VCLT (para. 449). The Opinion of the Advocate General of the CJEU and the Komstroy judgment were also submitted.

As opposed to the tribunal in Green Power vs. Spain, which upheld Spain’s intra-EU objection, the tribunal in the present case did not approve Romania’s objection. The tribunal did not find a conflict between Art. 26 of the ECT and Arts. 267 and 334 of the TFEU, as alleged by Romania (para. 769). Romania had also argued that the potential unenforceability of the award in the future should preclude the tribunal from assuming the jurisdiction (para. 770). The claimants countered that Romania’s objection was speculative and irrelevant (para. 771). The tribunal agreed with the claimants, citing the Vattenfall tribunal, which said, “unenforceability of this decision is a separate matter which does not impinge upon the Tribunal’s jurisdiction” (paras. 772–775).

Regulatory stability

On the merits of the dispute, the claimants argued that the fundamental alterations made to the GC scheme by Romania violated their legitimate expectations and that Romania had acted in an untransparent manner and created instability, which amounts to a violation of Art. 10(1) of the ECT (para. 908). On the contrary, Romania submitted that the FET standard in the ECT only protects investors from arbitrary or discriminatory acts and dismissed the claimants’ arguments, stating that its measures were reasonable and justified (para. 909). The tribunal noted that under Art. 10(1) of the ECT, Romania was under an obligation to provide investors with a stable, equitable, favourable, and transparent environment for their investments in Romania (para. 1006).

The tribunal highlighted that the obligation to create a stable legal framework is not an absolute requirement. However, “the host State must act in the public interest, exercising these powers reasonably, proportionally, transparently and consistently, and abstaining from arbitrary or discriminatory measures” (para. 1015). The tribunal also stated that such an assessment would require considering other factors such as the magnitude and abruptness of the change, the economic impact on the investor, and if external circumstances justified such a change (para. 1015).

The parties had disputed the meaning of FET in the ECT, with the tribunal stating that the international minimum standard provides a floor while the FET standard provided additional protection (paras. 1019 and 1060). The tribunal held that an analysis of an alleged breach of the FET standard requires a tribunal to balance the rights of the state and the investors, including the investor’s duty to perform pre-investment due diligence and the state’s right to regulate (para. 1023).

The tribunal accepted that legitimate expectations are a subcategory of the FET standard (para. 1026). It highlighted the two schools of thought, one that supports laws or regulations to give rise to legitimate expectations, and the other that requires specific commitments to give rise to legitimate expectations (paras. 1032–1039). Romania had contended that it had not given any specific commitments to the claimants, and in the absence of such a commitment, no legitimate expectations could be said to have existed (para. 1062).

The tribunal opined that states were allowed to change their regulatory framework in the absence of a stability clause. However, Art. 10(1) of the ECT protected investors from drastic changes, especially in the case of long-term investments where it was reasonable for investors to expect that the essential characteristics of the regulatory framework will remain constant (para. 1064).

Given that the dispute included multiple parties (all of whom made investments at different times), and expectations of stability are analyzed at the time an investment is made, the tribunal divided them into two groups: claimants that had invested before Romania enacted the 2013 government ordinance and those that had invested after the law had been enacted (para. 1065).

The tribunal stated that the claimants in the first group foresaw certain clearly defined sources of income for 15 years because of the GC scheme (para. 1066). It agreed with Romania that in the absence of a stabilization clause an investor could not reasonably expect that the regime would not change (para. 1067). Nonetheless, the tribunal found Romania’s actions to have drastically altered the essential characteristics of the law, resulting in the claimants being unreasonably impaired of their investment’s value (para. 1068).

What is interesting to note in this respect is that after establishing that there had been reliance by investors on the regulatory promise, the tribunal held that the regulatory promise had also been converted into a specific commitment. The tribunal highlighted the fact that Romania’s GC scheme required investors to obtain an “accreditation” from the ANRE, which would then allow the claimants to benefit from Romania’s regulatory promise (para. 1107). According to the tribunal, the issuance of the accreditation from the ANRE amounted to a specific commitment confirming the expectations of the investors (para. 1111). It found Romania to have reneged on its assurances by deferring the number of GCs investors were entitled to, imposing limitations on GC trading, and altering the minimum price of GCs (para. 1157).

When Romania argued that these measures were necessary to prevent overcompensation and lower the cost for the end consumer, the tribunal disagreed (paras. 1167–1168), reasoning that Romania had been aware of the risk of overcompensation since 2010 but did not take steps initially to circumvent the risk (para. 1169). The tribunal accepted that states need to regulate energy prices to prevent undue burdens on end consumers. However, it should be fair for all parties involved; therefore, Romania should have compensated the investors.

As to the second group that invested after the enaction of EGO 57/2013, the tribunal also found a breach of Art. 10(1) of the ECT (para. 1206). The tribunal reasoned that the claimants knew that EGO 57/2013 would be enacted and that would lower the number of GCs provided to them from six to four. However, what the claimants did not know was that Romania would extend the deferral period from December 2017 to December 2020 (para. 1211). The extended deferral amounted to an unreasonable impairment and therefore was deemed to be a breach of FET.

In his dissenting opinion, Judge O. Thomas Johnson argued that the majority had failed to apply the FET standard properly, as Romania’s specific commitment giving rise to the legitimate expectation had not been properly defined (Diss. Op., para. 1). While Judge Johnson largely agreed with the majority’s analysis, he diverged on the scope of Romania’s specific commitment concerning the sale of GCs. In his view, the decision had focused on the supply side of the GC scheme while ignoring the demand side (Diss. Op., para. 12). Ignoring the demand side of the GC scheme ignored the essential nature of the GC scheme (Diss. Op., para. 30). Consequently, he argued that the issues considered by the majority went to damages and not to liability (Diss. Op., para. 36).


As to the quantification of the damages, the tribunal found the parties’ submitted valuations unhelpful as they were premised on different things (para. 1346). Consequently, the tribunal proposed that the parties submit their calculations based on the liability findings of the tribunal (para. 1350). It further directed the parties to reach an agreement on the quantum of damages (para. 1351).


The LSG Buildings v. Romania case is another in a string of similar decisions issued against Spain, Italy, and the Czech Republic that show that ISDS poses risks to states not only regarding the necessary phase-out of fossil fuels but also regarding the implementation of regulatory frameworks for RES. Governments will need flexibility for regulatory experimentation. Decisions like the present one deny them this flexibility. Instead, they allow for the privatization of profits arising from new regulatory frameworks while they socialize the associated risks.



Raza Ali recently graduated from the Geneva Graduate Institute with an LL.M in international law and is currently interning at the United Nations Commission on international trade law focusing on Working Groups II and III. He has previously worked at the Office of the Attorney-General for Pakistan.

Notes: The tribunal was composed of Oliver Thomas Johnson, Jr. appointed by the investor, Pierre-Marie Dupuy, appointed by Romania, and Juan Fernández-Armesto, as chairman (hereinafter the “tribunal”).