{"id":7693,"date":"2020-03-10T08:32:18","date_gmt":"2020-03-10T13:32:18","guid":{"rendered":"https:\/\/iisd.org\/itn\/?p=7693"},"modified":"2024-08-09T18:30:44","modified_gmt":"2024-08-09T16:30:44","slug":"in-a-new-icsid-award-spains-reforms-of-the-renewable-energy-sector-are-found-not-to-violate-the-ect","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2020\/03\/10\/in-a-new-icsid-award-spains-reforms-of-the-renewable-energy-sector-are-found-not-to-violate-the-ect\/","title":{"rendered":"In a new ICSID award, Spain\u2019s reforms of the renewable energy sector are found not to violate the ECT"},"content":{"rendered":"

Stadtwerke M\u00fcnchen GmbH, RWE Innogy GmbH, and others v. Kingdom of Spain, ICSID<\/span> Case No. ARB\/15\/1<\/h2>\n

On December 2, 2019, an ICSID tribunal found that Spain complied with its ECT<\/span> obligations and that the claims raised by German investors were meritless. Thus, the tribunal ordered the claimants to pay EUR 2.3 million toward Spain\u2019s legal fees and USD 362,237 toward Spain\u2019s arbitration costs.<\/p>\n

Background and claims<\/h3>\n

In 2009, the Andasol 3 power generation facility was built in Andalusia, southern Spain, by Marquesado Solar S.L. (Marquesado), a Spanish company that is directly or indirectly wholly owned by German company Stadtwerke M\u00fcnchen GmbH (SWM)<\/strong> along with a group of other German companies. SWM and the other companies alleged that their decision to build and operate the plant was based on the guarantees provided by the Spanish regulatory system of incentives for investments in the renewable energy sector\u2014specifically, Royal Decree (RD) 661\/2007.<\/p>\n

In 2012, Spain reformed its renewable energy regime by imposing additional levies, altering the feed-in tariff remuneration to producers and limiting the eligibility requirements for incentives. In response, the claimants and Marquesado initiated ICSID arbitration against Spain on December 29, 2014, claiming breaches of ECT Article 10(1), including the FET<\/span>, umbrella and non-impairment clauses.<\/p>\n

Tribunal dismisses Spain\u2019s\u00a0jurisdictional objections related to claimants\u2019 EU<\/span> nationality and EU law<\/h3>\n

The tribunal dismissed Spain\u2019s objection that Marquesado was not a covered investor, considering that it was controlled by investors of another contracting state. Additionally, it considered that ECT Article 26(1) does not distinguish between different types of contracting parties, thus applying to disputes between an investor from an EU state and another EU member state (para. 129).<\/p>\n

The tribunal found that the EU\u2019s accession to the ECT did not nullify the competence of ECT tribunals for intra-EU disputes. In particular, the tribunal denied Spain\u2019s argument that ECT Article 1(2) provides for the transfer of adjudicating competence from the ECT to a Regional Economic Integration Organization (REIO)\u2014such as the EU\u2014when the latter joins the ECT (para. 131). Additionally, the tribunal declined to recognize the prevalence of EU law over ECT Article 25, since the latter simply prohibits non-EU member states that are contracting parties to the ECT from benefitting from treatment between EU member states (para. 132).<\/p>\n

Spain argued that no jurisdiction existed over the dispute since SWM, as a publicly owned company, should be equated with Germany and that disputes between EU member states fell within the CJEU<\/span>\u2019s jurisdiction. However, the tribunal rejected the argument since SWM was constituted as a company under German law and thus fell within the definition of \u201cinvestor\u201d under ECT Article 1(7), notwithstanding its shareholding status (para. 134).<\/p>\n

Lastly, the tribunal declined to dismiss the case on the basis of the incompatibility of ECT with EU law following Achmea<\/em>. It found that, even if completely accepting Spain\u2019s and Achmea<\/em>\u2019s views on legal conflict, the ECT should prevail, since ECT Article 16 provides that in instances of conflict the more favourable rule would apply. According to the tribunal, the ECT is the more favourable rule in the present case, given that the EU system does not allow an investor to seek recourse to an arbitral tribunal (paras.\u00a0145\u2013146).<\/p>\n

Spain\u2019s jurisdictional objection relating to taxation measures is upheld<\/h3>\n

The tribunal accepted Spain\u2019s argument that the 7% levy imposed by Law 15\/2012 on the value of electricity produced was excluded from its jurisdiction under the taxation carve-out contained in ECT Article 21. By interpreting the terms of Article 21 in light of their ordinary meaning (paras. 163\u2013168) and the travaux pr\u00e9paratoires, <\/em>the tribunal considered the levy a \u201ctax measure,\u201d declining its jurisdiction over the law (paras. 172\u2013176).<\/p>\n

The ECT does not provide an enforceable right to a stable legal framework<\/h3>\n

Turning to the merits, the tribunal rejected the claim that ECT Article 10(1) imposes a self-standing enforceable obligation on contracting parties to provide stable and equitable conditions to investors. Indeed, it held that Article 10(1) is \u201cfar too general\u201d to impose specific directions and obligations, and that it informs the other obligations such as the FET standard in Article 10(1) (paras. 196\u2013198).<\/p>\n

Spain\u2019s measure did not breach its obligation to provide FET to claimants<\/h3>\n

The tribunal dismissed the claimants\u2019 allegations that Spain failed to provide a stable regulatory regime, frustrated claimants\u2019 legitimate expectations, failed to act transparently and adopted unreasonable or disproportionate measures.<\/p>\n

First, the tribunal found that the Spanish regulatory reform did not take place with the intention to drastically alter the regulatory framework after the desired investment was made, like a \u201cbait-and-switch\u201d stratagem. In the tribunal\u2019s view, the measures were legitimately undertaken to protect public policy and the sustainability of the Spanish electricity system (paras. 257\u2013261).<\/p>\n

Second, it deemed that the claimants failed to prove that the Spanish regulatory framework or the actions or inactions of the Spanish authorities guaranteed a stable remuneration for the electricity produced. Rather, it concluded that any prudent investor having undertaken appropriate due diligence would not have legitimately expected such a stable income stream for its investment (para.\u00a0308).<\/p>\n

Lastly, the tribunal rejected the claimants\u2019 arguments on transparency, unreasonableness and disproportionality. It considered that the measures adopted under the regulatory reform were transparent and involved prior consultations and preliminary reports (para. 315). What is more, the measures bore a reasonable relationship to the objective of achieving the sustainability of the electricity system and reducing the tariff deficit, while the burden imposed on the claimants was proportional to the aim and purpose of the contested measures (paras. 320\u2013322 and 354-355).<\/p>\n

Tribunal reaffirms reasonableness of contested measures and denies operation of umbrella clause<\/h3>\n

The tribunal reaffirmed that Spain\u2019s measures were reasonable and thus did not violate the obligation under ECT Article 10(1) to refrain from impairing investments through unreasonable measures (para. 364). Furthermore, it considered that Spain did not enter into any contractual or contractual-like obligations with the claimants. It also held that the claimants\u2019 alleged agreement of July 2010 (a press release issued by Spain) and a 2011 resolution by Spain\u2019s Directorate General for Energy Policy and Mines did not have any legal binding force as such (para. 383\u2013384).<\/p>\n

Allocation of costs and expenses<\/h3>\n

The tribunal took into account the ECT\u2019s silence on the allocation of costs and expenses but decided to examine the circumstances in order to reach a fair result. In light of the legality of the challenged measures, the failure of Spain\u2019s jurisdictional objections and the high amount of costs, the claimants were ordered to bear to 83.3% of Spain\u2019s costs and expenses (para. 403\u2013405).<\/p>\n

Kaj Hob\u00e9r\u2019s dissenting opinion: no expectation of stability of hydro investments<\/h3>\n

In his dissenting opinion on the merits, Kaj Hob\u00e9r considered that the radical and fundamental changes to the regulatory regime of Spain violated its obligations under ECT Article 10(1) since they were incompatible with the investors\u2019 legitimate expectations. The dissenting arbitrator stressed that legitimate expectations should not be equated to a guarantee or promise (para. 10) but considered that expectations were created based on the Spanish regulatory framework, the representations and the statements made by Spanish officials, referring to regulatory certainty and stability (para. 16).<\/p>\n

Notes<\/em>: The tribunal was composed of Jeswald W. Salacuse (president appointed by the ICSID Secretary General, U.S. national), Kaj Hob\u00e9r (claimants\u2019 appointee, Swedish national) and Zachary Douglas (respondent\u2019s appointee, Australian national). The award of December 2, 2019, including the dissent, is available at\u00a0https:\/\/www.italaw.com\/cases\/7791<\/a><\/p>\n

Marios Tokas<\/strong>\u00a0is an international lawyer based in Geneva. He is pursuing his Master\u2019s in international law at the Graduate Institute of International and Development Studies. He holds an LL.M. in public international law and an LL.B. from the University of Athens. He is currently interning at IISD<\/span>, Geneva Office.<\/p>\n