{"id":6432,"date":"2019-06-27T08:22:35","date_gmt":"2019-06-27T13:22:35","guid":{"rendered":"https:\/\/www.iisd.org\/itn\/?p=6432"},"modified":"2024-08-09T18:29:53","modified_gmt":"2024-08-09T16:29:53","slug":"investors-legitimate-expectation-claims-against-italy-dismissed-due-to-the-absence-of-specific-commitments-xiaoxia-lin","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2019\/06\/27\/investors-legitimate-expectation-claims-against-italy-dismissed-due-to-the-absence-of-specific-commitments-xiaoxia-lin\/","title":{"rendered":"Investors\u2019 legitimate expectation claims against Italy dismissed due to the absence of specific commitments"},"content":{"rendered":"

Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic, ICSID<\/span> Case No. ARB\/14\/3<\/h2>\n

On December 27, 2016, an ICSID tribunal constituted under the ECT<\/span> issued its award, dismissing all three investors\u2019 claims. Notably, this was the first investment arbitration award against Italy stemming from the Italian reform in the solar energy sector.<\/p>\n

Background and claims<\/h3>\n

The claimants were Blusun S.A., a holding company incorporated in Belgium, and its shareholders, Jean-Pierre Lecorcier, a French national, and Michael Stein, a German national. Blusun was established in 2009 to pursue a 120 MW energy project in Puglia, Italy, through two Italian subsidiaries, Eskosol and SIB. One of the main legislative sources at the time the claimants invested in the project was Legislative Decree 387\/2003 enacted in January 2004, which established a simplified authorization procedure for the construction of plants powered by renewable sources.<\/p>\n

The investors disputed a series of measures taken by the Italian authorities between 2010 and 2012, including the Constitutional Court\u2019s decision of 2010, ruling the provisions of Legislative Decree 387\/2003 unconstitutional; the Romani Decree of March 2011, limiting the application of the feed-in tariffs applicable for that time period; and the Fourth Energy Account adopted in April 2011, making further changes to the feed-in tariffs. The claimants asserted that Italy\u2019s regulatory measures and judicial decisions breached the FET<\/span> standard under ECT Article 10(1) and had an effect equivalent to nationalization or expropriation under ECT Article 13(1).<\/p>\n

Tribunal dismisses jurisdictional objection<\/h3>\n

Italy objected to the tribunal\u2019s jurisdiction, denying that the claimants had a protected investment as the project did not amount to an investment but could only be characterized as a pre-investment activity.<\/p>\n

Apart from noting that construction of the solar plants had commenced, the tribunal specified that it was not a mere paper project of a speculative character once there were \u201csubstantial measures of implementation, including assumption of financial risk\u201d (para. 269).<\/p>\n

Italy also argued that the claims were inadmissible since the claimants lacked \u201cclean hands\u201d in pursuing the project by failing to conduct an environmental impact assessment (EIA). The tribunal dismissed this objection since the ECT did not require investors to carry out an EIA for any proposed project. The tribunal also observed that while Italian law required large solar plants to complete a screening process as a result of which an EIA may be imposed, it did not require an EIA procedure for small solar power plants. In the tribunal\u2019s view, given the \u201caggregative\u201d character of the project, there existed uncertainty as to the applicability of the screening procedure (para. 276). The tribunal noted that no screening seemed to have been required for individual plants and that the time for an EIA had passed by the time Eskosol acquired the 12 development companies.<\/p>\n

The European Commission submitted an amicus curiae brief, objecting to the tribunal\u2019s jurisdiction over the intra-EU<\/span> dispute. First, the tribunal stated that the text of the ECT did not carve out or excluded issues arising between EU member states and that EU member states did not lack competence to enter into obligations between themselves in the treaty. Drawing from a series of arbitral awards that unanimously rejected intra-EU jurisdictional objections, the tribunal concluded that there was no incompatibility between the TFEU<\/span> and the ECT, because the obligations between EU member states under the ECT had not subsequently been modified or superseded by later EU law.<\/p>\n

Tribunal frowns on the legal instability claim<\/h3>\n

The tribunal first interpreted the commitment set out in the first and second sentences of ECT Article 10(1). It suggested that the obligation to create stable conditions embedded in the first sentence is part of the FET standard which, as pointed out by various previous tribunals, is the core commitment under Article 10(1) by virtue of the second sentence. The tribunal disagreed with the criteria suggested in Charanne v. Spain<\/a><\/u><\/em>, namely, \u201cpublic interest\u201d and \u201cunreasonableness,\u201d because they were largely indeterminate; however, the tribunal endorsed the \u201cdisproportionality\u201d criterion, as it carried built-in limitations and was more determinate.<\/p>\n

In analyzing the alleged measures that caused the instability, the tribunals examined each of the state acts complained of by the investors and concluded that none of them was a breach of Article 10(1). First, with respect to the Constitutional Court decision of 2010, the tribunal held that while this decision may have contributed to some initial market uncertainty, it had never created doubts about the applicable legal regime. According to the tribunal, by proceeding with their investments despite the pending constitutional challenge, the claimants took the risk on their own.<\/p>\n

Second, the tribunal found that while the reduction in feed-in tariffs introduced in the Romani Decree and the Fourth Energy Account was substantial, it was a response to a genuine fiscal need and was not in itself crippling or disabling. Therefore, it concluded that the measures were not disproportionate.<\/p>\n

Finally, with respect to the stop-work order that was \u201cthe final blow to the project\u201d as alleged by the claimants (para. 351), the tribunal held that the stop-work episode did not create legal instability as it was temporary, legally motivated and in accordance with due process of law. Furthermore, the order was not arbitrary or discriminatory, but fell well \u201cwithin the range or legal risk of an industrial enterprise, in particular one based on debatable regulatory grounds\u201d (para. 360).<\/p>\n

Legitimate expectations claim dismissed in the absence of specific commitments<\/h3>\n

The investors alleged that multiple representations made by Italy gave rise to legitimate expectations, that their investment relied on such representations, but that their expectations were frustrated due to Italy\u2019s later legislation (paras. 165\u2013168). Italy\u2019s main argument was built on the lack of a causal link between the state\u2019s conduct and the failure of the project.<\/p>\n

The tribunal endorsed the view in Charanne v. Spain<\/em>, El Paso v. Argentina<\/em> and Philip Morris v. Uruguay<\/em>, in which the tribunals made a distinction between a law and a promise or contractual commitment and declined to \u201csanctify laws as promises\u201d (paras. 367\u2013371). The tribunal stressed that in the absence of specific commitment, the state had no obligation to grant subsidies such as feed-in tariffs, or to maintain them unchanged once granted. The tribunal, however, added an exception to this rule by stressing that the modification should be done in a manner that \u201cis not disproportionate to the aim of the legislative amendment, and should have due regard to the reasonable reliance interests of recipients who may have committed substantial resources on the basis of the earlier regime\u201d (paras. 319, 372).<\/p>\n

The tribunal took the view that the expectations in this case were less powerful. In the tribunal\u2019s view, Italy did not make special commitments with respect to the extension and operation of feed-in tariffs, nor did it specifically ensure that relevant laws would remain unchanged.<\/p>\n

Tribunal rejects expropriation claim<\/h3>\n

The claimants argued that the measures enacted by Italy had an effect equivalent to nationalization or expropriation, leading to a total loss of the investment value. They argued that the land could no longer be used for the purpose of the project and that the substations were disconnected and served no purpose.<\/p>\n

The tribunal noted that the laws enacted by Italy had significantly changed the terms laid down in previous legislation in the green energy sector in a non-discriminatory way. The claimants\u2019 project, as observed by the tribunal, was \u201cradically incomplete\u201d and therefore never \u201cqualified for feed-in tariffs\u201d (para. 401). Hence, the tribunal held that the original value of the land had been retained after the project\u2019s failure and that the investor\u2019s argument would have only been valid if there was a completed project already entitled to the benefit of feed-in tariffs.<\/p>\n

Based on the above reasons, the tribunal dismissed all of the claimants\u2019 claims on the merits. Italy was ordered to pay USD 29,410.69 to the claimants as its share of the costs of the proceedings.<\/p>\n

Notes<\/em>: The tribunal was composed of James Crawford (president appointed by the parties, Australian national), Stanimir Alexandrov (claimants\u2019 appointee, Bulgarian national) and Pierre-Marie Dupuy (respondent\u2019s appointee, French national). The award is available at https:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw8967.pdf<\/a><\/u><\/p>\n

Xiaoxia Lin<\/strong> is an alumna of New York University\u2019s IFD Fellowship with IISD<\/span>\u2019s Investment for Sustainable Development Program.<\/p>\n