In our previous four Solar Wars articles, we considered arbitral awards in respect of investors’ claims under the Energy Charter Treaty (ECT) arising out of the curtailment of renewable incentive schemes across Europe and the European Commission’s (EC) statements that those claims breached EU law.
In an article published on 5 April 2018, we commented on the decision of the Court of Justice of the European Union (CJEU) in Slovak Republic v Achmea (Case C-284/16), which held that an arbitration clause in bilateral investment treaty (BIT) between two EU states contravened EU law. In that article, we considered whether Achmea applies to intra-EU arbitrations under the ECT. A recent award has shed some light on that issue.
Achmea: a reminder of the issues
Briefly, the CJEU in Achmea reasoned:
• The BIT’s arbitration clause required the arbitral tribunal to take account of the law of the contracting State as well as international law principles. This would include EU law, which is supreme within the EU. Consequently, the tribunal would have to interpret and apply EU law.
• The EU’s founding treaties provide that it is for EU Member State courts and the CJEU to determine the interpretation and application of EU law, to ensure uniformity and consistency. The treaties also prohibit Member States from agreeing to submit a dispute concerning the interpretation or application of the treaties (which establish EU law) to a method of resolution other than those provided for in the treaties i.e. Member State courts and the CJEU.
• An arbitral tribunal constituted under the BIT is not a ‘court or tribunal’ of a Member State. Therefore Member States could not have agreed to submit disputes which could involve the application and interpretation of EU law to that tribunal.
The judgment implied that (a) arbitral tribunals constituted under an intra-EU BIT would not have jurisdiction and (b) any award rendered by such a tribunal would not be enforced by Member State courts.
However, the judgment was silent on whether it applied to multilateral treaties such as the ECT, to which EU member states and the EU itself are signatories. As summarised in our article ECJ’s Achmea judgment leaves legal questions for Energy Charter Treaty claims, there are arguments both ways.
Masdar Solar & Wind Cooperatief U.A. v Kingdom of Spain ICSID Case No. ARB/14/1
Masdar was the first ECT claim against Spain decided after Achmea, and it specifically addressed the question of whether, in light of the arguments adopted in Achmea, Article 26 ECT applied to claims between an investor from one EU Member State and an EU Member State.
The tribunal decided that it had jurisdiction to hear the claim reasoning:
• The ECT contains no provision carving out intra-EU disputes, though it does for other treaties.
• The ECT treats signatory states as separate sovereign entities, not subsumed by the EU. Consequently, intra-EU claims fulfil the requirement that the investor must be of different nationality than the host state.
• Article 16 ECT provides that where signatory states entered into preceding treaties which concern the same subject matter as the ECT, nothing in the preceding treaty shall derogate from the protections in the ECT where such protection is more favourable to the investor. The EU founding treaties make no provision for investors to sue a state directly, whereas, more favourably to the investor, the ECT does. Otherwise, there is no conflict between investors’ rights under the ECT and EU law.
• Correctly interpreted, the EU founding treaties’ prohibition on EU Member States agreeing to refer questions of EU law to a tribunal other than the CJEU or a national court only applies to disputes between member states regarding the interpretation of the founding treaties.
• Finally, Achmea cannot be applied to multilateral treaties, such as the ECT, to which the EU itself is a party, as the EU thereby consented to the possibility of investor-state arbitration.
On liability, the tribunal’s reasoning broadly followed that in Eiser and Novenergia (see previous Solar Wars articles), in that it held that the ECT’s fair and equitable treatment standard protected the legitimate expectations of an investor that the legal framework in which its investment was made would not be subject to ‘unreasonable or unjustified modification’, or changed contrary to specific commitments made. The tribunal found that specific commitments had been made to Masdar, including in certificates registering its investment, as well as letters from Spain’s Ministry of Industry, Tourism and Business explicitly confirming that Masdar’s solar installations would be entitled to compensation for their entire operational lifetime. The tribunal, by a majority, awarded damages of €64.5m to Masdar.
The saga continues…
Spain has now asked the Swedish Court of Appeal to seek a preliminary ruling from the CJEU on whether Achmea applies to ECT cases. In its Decision of 10 November 2017 (EC Decision C(2017) 7384), the EC expressly criticised the ECT claims brought against Spain as being contrary to EU law. If the CJEU follows the EC’s lead, one might expect the CJEU to extend Achmea to ECT claims, notwithstanding the reasoning adopted by the Masdar tribunal. The Kingdom is poised to strike back.