In part one of this article we explained how one of this year's arbitration awards might have given investors a new hope. In this article (part two) we analyse the recent string of Energy Charter Treaty claims arising out of the curtailment of renewable incentive schemes across Europe. We consider how two arbitration awards published later in 2017 might have swung the pendulum back in favour of the states.

Spain: Isolux Netherlands, BV v. Kingdom of Spain (SCC Case V2013/153)

The claims in Isolux were similar to those in Eiser, i.e. breach of Article 10(1) on the basis of the 2013/14 measures. However, the tribunal in Isolux determined that those same measures that constituted a breach in Eiser did not amount to a breach in this case.

As in Charanne, the tribunal held that in determining an investor's legitimate expectations, a crucial factor is the information which the investor ought reasonably to have known prior to investing. The tribunal held that the date upon which the claimants' legitimate expectations arose in this case was not the date of the decision to invest (June 2012, when the Spanish and Canadian parent companies decided to relocate the Spanish solar assets with the Dutch entity which became the claimant), but the date upon which the restructuring actually took place (October 2012). That was only weeks before Spain passed a law imposing a 7% tax on electricity production.

Consequently, as at that date the claimant could not have possessed legitimate expectations that the 2007 "Special Regime" would not be subject to substantial change; indeed, in 2009 the Spanish Supreme Court had held that the only limit on the government's powers to amend the 2007 regime was to ensure that "reasonable returns" could be achieved by investors.

It was held (by the majority of the tribunal) that this was the only legitimate expectation attributable to the claimant at the time of investing, and as at October 2012, all investors in the Spanish solar energy industry knew/ought to have known that the abolition of the "Special Regime" was a real possibility.

Italy: Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic (ICSID Case No. ARB/14/3)

Spain is not the only State facing ECT claims in respect of its renewable energy industry: Blusun was the first of at least nine claims brought against Italy to be decided.
In order to promote renewable energy sources, Italy passed laws in 2003 which provided for a remuneration system for solar power plants based on fixed feed-in tariffs. As with Spain, the financial crisis caused Italy to amend those laws to reduce costs. Blusun, a Belgian company, had invested in a 120-megawatt solar project in Puglia. As a result of the legislative changes, Blusun sought compensation from Italy on the basis of (a) failing to create stable, equitable, favorable and transparent conditions in the energy sector in Italy in accordance with Article 10(1) ECT; (b) frustrating their legitimate expectations of fair and equitable treatment; and/or (c) subjecting their assets to measures having an effect equivalent to nationalisation or expropriation.

The tribunal considered the circumstances in which a state may be said to have breached Article 10(1) by modifying its regulatory framework. Rejecting the tripartite criteria proposed in Charanne of public interest, unreasonableness and disproportionality, the tribunal concluded that "in the absence of a specific commitment", a state has no obligation to grant or maintain subsidies, but any modification should be done "in a manner which is 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." On the facts, the tribunal held that none of the regulatory changes had been disproportionate, nor had Italy made "special commitments". In any event, the tribunal held that the claimants had failed to show that the State's measures were the "operative cause" of the project's failure, rather than the claimants' inability to obtain finance.

This left only the claimants' indirect expropriation argument pursuant to ECT, Article 13, alleging that they had purchased land at a premium on the mistaken basis that they could use that land for the project. The tribunal noted that this argument rested on the assumption that the failure of the project was properly attributable to the State – an assumption which the tribunal had already dismissed. Therefore, a majority of the tribunal found in favour of the Italy.

The claimant has submitted an application to annul the award, and (at the time of writing) those proceedings are ongoing.

Where are we now?

What can we glean from these cases? At the very least, they demonstrate that investment treaty tribunals tend to support the proposition that fair and equitable treatment protections, such as that in Article 10(1) ECT, do not preclude a state amending its regulatory regime, unless (i) it has given specific assurances to keep that regime in place for the lifetime of the investment; and/or (ii) such changes are disproportionate to the aim of the legislative amendment, and fail to take due regard to investors' reasonable reliance interests. Another point to note from Isolux is that the date upon which any legitimate expectations were formed is likely to be crucial.

Nevertheless, there is no system of precedent in investment treaty decisions: one tribunal could interpret the effect of legislative provisions differently to another. So while Eiser opens up the prospect of more claims against Spain based on the 2013/14 measures succeeding, and Blusun may narrow the basis for claims against Italy (and perhaps other states), there is no certainty that a new tribunal will not depart from those decisions. In that respect, there is hope for both disgruntled investors and beleaguered states, but precious little certainty.

Originally published in Energy Voice

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