Meet The Law - International Arbitration Decision

International Arbitration Decision | Breach of obligations concerning the Energy Charter Treaty | Kingdom of Spain vs. Eiser Infrastructure Limited e Energia Solar Luxemburg, S.à.r.l v

Was made available to public, last 4 May 2017, the decision issued under an arbitration procedure of ICSIDE international Centre for Settlement of Investment Disputes (process CIADI no. ARB/13/36) which opposed the Kingdom of Spain (respondent) and Eiser Infrastructure Limited e EnergiaSolar Luxemburg, S.à.r.l v. (claimants) which decided on the payment by the respondent of a compensation of EUR 128 million (plus interest) as a result of a breach of provisions of the Energy Charter Treaty (ECT).

Please refer to the decision (available only in Spanish version) available here.

Context

In a period previous to 2007, the claimants (British and Luxembourger companies) proceed to investment of around 640 million euros in the development of 3 solar parks in Spain. Such investments were carried having in consideration the legal regulatory framework in force (Royal Decree no. 661/2007), which, among other aspects, foreseen several incentives to the producers.

Since 2008, and having in consideration the high tariff deficit and financial crisis, the Spanish Government has decided to introduce several modification to regulatory framework in force, having approved several diplomas in the period between 2012-2014. Specifically, the Spanish Government introduced a new tax concerning energy production, and also introduced new rules and determination methods of incentives (calculated within the hypothetic investments and not concerning the real investments). Such modifications intended to reduce the incentives of the referred legislation of 2007, with a clear impact on previous investments made.

As a consequence of such legislative modifications, and in accordance with several provisions of ECT, the claimants have required an international arbitration. Specifically, the claimants alleged that, in the period of 2012-2014, the Spanish Government adopted several measures which changed dramatically the regulatory regime in force and resulted on the revocation of the Royal Decree no. 661/2007 and its replacement by a new and discretionary complete different regime. Such measures, they claim, have frustrated all executed investments, therefore they consider that Kingdom of Spain breached several obligations concerning ECT, among other the obligation to protect executed investments (article 10 no. 2 of ECT).

Decision

Having into consideration the "radicalistic" of measures introduced by the Spanish Government, the Arbitral Court decided that such measures have directly breached the obligation to protect investments foreseen in the ECT, having, as consequence, condemned the Kingdom of Spain to compensate the claimants with EUR 128 million euros (plus interest).

Comment

The decision in reference - which was broadly noticed by the Spanish media - has a huge relevance for Spain, since it is, as far as we can ascertain, the first arbitral unfavorable decision for the Spanish Government, concerning the legislative measures taken in the energy sector in the period of 2012-2014. Such decision may restrain or influence the outcome of other 30 arbitral procedures which are in course.

The Arbitral Court has decided that without prejudice of the rightful of the legislative modification, such modifications had a material impact, considering their radically and extent. In this respect the decision refers expressly that the obligation to assure the executed investments foreseen in the ECT "does not mean that the regulatory may not progress" but such progressions "may not modify radically in a way that deprive the investments previously executed under such regulatory regimes" (our translation of the final of p. 382, page 133 of the decision).

This decision may be an important case-study for Portugal, namely for regulatory changes in the energy sector (occurred and to occur). Please note that, as a consequence of ratification executed in 1996 (Resolution of the Portuguese Assembly no. 36/96 of 15 November), the TCE is binding for Portugal.

Para informação adicional, por favor contacte:

/ For further information please contact:

Rui Pena | Sócio | Partner
rui.pena@cms-rpa.com

Mónica Carneiro Pacheco | Sócia | Partner
monica.pacheco@cms.rpa.com

Bernardo Cunha Ferreira | Associado | Associate

bernardo.ferreira@cms-rpa.com