{"id":5422,"date":"2018-07-30T08:34:05","date_gmt":"2018-07-30T13:34:05","guid":{"rendered":"https:\/\/www.iisd.org\/itn\/?p=5422"},"modified":"2024-08-09T18:28:43","modified_gmt":"2024-08-09T16:28:43","slug":"luxembourg-fund-awarded-eur-53-3-million-for-fet-breach-arising-out-of-spains-curtailment-of-renewable-energy-incentive-schemes","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2018\/07\/30\/luxembourg-fund-awarded-eur-53-3-million-for-fet-breach-arising-out-of-spains-curtailment-of-renewable-energy-incentive-schemes\/","title":{"rendered":"Luxembourg fund awarded EUR 53.3 million for FET breach arising out of Spain\u2019s curtailment of renewable energy incentive schemes"},"content":{"rendered":"

Novenergia II – Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v. The Kingdom of Spain, SCC<\/span> Case No. 063\/2015<\/h2>\n

In a proceeding brought by Novenergia, a Luxembourg investment fund, a tribunal at the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) found that Spain\u2019s electricity reforms breached its obligation to accord to the investor fair and equitable treatment (FET<\/span>) under the Energy Charter Treaty (ECT<\/span>). In particular, the tribunal stated that Spain\u2019s actions fell \u201coutside the acceptable range of legislative and regulatory behaviour and entirely transform[ed] and alter[ed] the legal and business environment under which the investment was decided and made\u201d (para. 695). The award was issued on February 15, 2018.<\/p>\n

Background and claims<\/h3>\n

Following Spain\u2019s special regime for renewable energy support under Law 54\/1997 and Royal Decree RD 661\/2007, the claimant invested in Spain\u2019s photovoltaic (PV) sector on September 13, 2007. The special regime guaranteed, with respect to all PV plants registered with the Administrative Registry for Electrical Power Generating Units (RAIPRE), a feed-in-tariff (FIT) to renewable energy producers for the lifetime of the PV plants.<\/p>\n

However, due to the economic crisis and a regulated electricity tariff set lower than the FITs, this support scheme became a heavy financial burden and was replaced with a less favourable regime in 2013. Novenergia initiated arbitration claiming compensation for Spain\u2019s breach of its ECT obligations, particularly the obligation to accord FET under ECT Article 10(1).<\/p>\n

Tribunal dismisses the intra-EU<\/span> objection<\/h3>\n

Spain contended that the tribunal lacked jurisdiction to hear intra-EU investment disputes. First, it emphasized that ECT Article 26 on arbitration covers disputes between \u201ca Contracting Party\u201d and \u201can Investor of another Contracting Party,\u201d and argued that as both Spain and the European Union are parties to the ECT, the condition envisaged in the article is not met. Second, relying on Flaiminio Costa v. ENEL, <\/em>Spain argued that, since the dispute involves intra-EU relations, EU law should prevail and displace any other law, including the ECT. However, the tribunal disagreed and stated that it derived its jurisdiction solely from the ECT and not from EU law.<\/p>\n

Applicability of the taxation carve-out<\/h3>\n

In addition, Spain argued that the tribunal lacked jurisdiction to hear the claim related to the introduction of the tax in Law 15\/2012 since Spain had not specifically consented to submitting this issue to arbitration. Spain maintained that the tax was a bona fide tax and covered by the carve-out for taxation measures under ECT Article 21(1) from its obligations under ECT Article 10(1). The tribunal agreed that Law 15\/2012 was a taxation measure and rejected the claimant\u2019s arguments that the measure was not a bona fide<\/em> taxation measure. Consequently, it denied jurisdiction to hear the claims arising out of the tax.<\/p>\n

Breach of FET standard under ECT Article 10(1)<\/h3>\n

Novenergia alleged that Spain retroactively repealed the special regime, truncating its legitimate expectations created through Spain\u2019s assurances and undertakings. It also claimed that the ECT contained a reinforced obligation to create and maintain stable and transparent investment conditions by virtue of the first sentence of Article 10(1), which Spain breached. The tribunal agreed with Spain, however, that the stability and transparency obligation was simply an illustration of the obligation to respect investors\u2019 legitimate expectations through the FET standard, rather than a separate obligation. Accordingly, the tribunal did not assess this obligation separately, but as part of the FET standard.<\/p>\n

On the FET breach itself, the tribunal decided that Spain\u2019s conduct had given rise to a legitimate and reasonable expectation that there would not be any radical or fundamental changes to the special regime as set out in RD 661\/2007. However, it held that the changes enacted by Spain in 2013 and 2014 abolished the fixed long-term FIT previously guaranteed and did so retroactively. It concluded that the subsequent legislations introduced by Spain amounted to a breach of its obligation to accord to the investor FET under ECT Article 10(1), entitling the claimant to compensation.<\/p>\n

Revocation of special regime does not amount to expropriation<\/h3>\n

Novenergia argued that the complete elimination of the special regime and the imposition of a tax on renewable energy producers also amounted to the expropriation of its investment, in breach of ECT Article 13(1) on expropriation.<\/p>\n

However, the tribunal held that the expropriation claim was not well founded. It reasoned that Novenergia\u2019s assets that could have been expropriated were its industrial properties and the shares in the companies involved in the investment that it directly or indirectly owned and controlled. It considered that, even if the value of these assets diminished as an effect of the state measures, the assets as such were neither expropriated nor affected by measures having an effect equivalent to an expropriation, and Novenergia was still the untouched owner of its plants and the direct or indirect holder of the companies\u2019 shares and relevant capital. The tribunal concluded that, although in violation of the FET standard, Spain\u2019s measures did not affect Novenergia\u2019s proprietary rights.<\/p>\n

Damages and costs<\/h3>\n

The tribunal ordered Spain to pay EUR 53.3 million in damages for its violation of ECT Article 10(1) and an additional EUR 2.6 million for the claimant\u2019s arbitration costs, plus compound interest.<\/p>\n

Post-award developments: Achmea<\/em> decision issued, clarification requested but dismissed, enforcement stayed<\/h3>\n

On March 6, 2018, the Court of Justice of the European Union (CJEU<\/span>) issued its judgment in Slovak Republic v. Achmea BV<\/a><\/em>, holding that investor\u2013state arbitration clauses in intra-EU BITs are not compatible with EU law. However, the judgment is not clear as to whether it applies to intra-EU ECT claims.<\/p>\n

On March 13, 2018, Spain made a request to rectify, clarify and complement the final award, including with respect to the applicability and relevance of EU law and its relationship with the ECT provisions. However, the tribunal found that it was not empowered to make a renewed assessment of Spain\u2019s case on the merits and dismissed the request on April 9, 2018.<\/p>\n

On May 16, 2018, the investor filed a petition in the U.S. Court for the District of Columbia for an order and judgment confirming, recognizing and enforcing the award. On the same day, however, upon Spain\u2019s request, the Swedish Svea Court of Appeal stayed the enforcement of the award based on the decision in Achmea<\/em>.<\/p>\n

Notes<\/em>: The tribunal was composed of Johan Sidklev (Chairperson appointed by the SCC), Antonio Crivellaro (claimant\u2019s appointee) and Bernardo Sep\u00falveda Amor (respondent\u2019s appointee). The award is available at https:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw9715.pdf<\/a>.<\/p>\n

Gladwin Issac<\/strong> is a graduate of the Gujarat National Law University, India.<\/p>\n