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IISD | 2 April 2023
ICSID Tribunal upholds jurisdiction over an intra-EU Dispute
par TERFÈ GEROTTO
– Cavalum SGPS, S.A. v. Kingdom of Spain, ICSID Case No. ARB/15/34
This case concerns a dispute between Cavalum SGPS, S.A (the claimant), a Portuguese-incorporated company, and the Kingdom of Spain (the respondent), about changes introduced by the respondent to the regulatory and economic regime for renewable energy projects.
Initially, the ICSID Tribunal with its decision, dated 31 August 2020 (2020 Decision), found its jurisdiction over such dispute, despite the dispute arising out of a claim between an EU investor and an EU Member State under the Energy Charter Treaty (ECT).
Nevertheless, it did not take long until Spain requested the Tribunal to reconsider its decision, objecting its jurisdiction. In the first request, Spain based its argument on the new pronouncement of the Court of Justice of the European Union (JCEU) in the Republic of Moldovia v. Komstroy LLC Case C-741-19 (Komstroy). Whereas, in the second one, Spain’s request was grounded on the recent award of the Stockholm Chamber of Commerce (SCC) Tribunal in Green Power K/S and SCE Solar Don Benito v. Kingdom of Spain, SCC-2016/135 (Green Power Award).
Background and claims
The case relates to an investment made by the claimant in Spain, under a favorable regime, guaranteed by RD 661/2007 and RD 1578/2008, which provided specific incentive tariffs. However, the progressive alteration and subsequent replacement of such RDs with the New Regulatory Regime caused loss and damage to the claimant’s investment. As a result, on 27 July 2015, the claimant filed for arbitration administered by the International Centre for Settlement of Investment Disputes, complaining the violation of the fair and equitable treatment (FET) as well as the expropriation of its investment, pursuant to Articles 10(1) and 13(1) ECT respectively.
Objections to jurisdiction based on Achmea Judgment
Spain objected to the Tribunal’sjurisdiction, basing its argument on the inapplicability of the provisions on investment protection and dispute settlement of the ECT to relationships between EU Member States. In its view, EU law forbids the existence of a dispute mechanism other than the one established by the EU Treaties and in case of a conflict of norms, EU law should prevail over the ECT provisions. Furthermore, Spain referred to the judgment of the CJEU in Slowakische Republik (Slovak Republic) v. Achmea BV (Achmea Judgment), in which the CJEU asserted the incompatibility of investor-State arbitration clauses in bilateral investment treaties (BITs) between EU Member States with EU law, as they adversely affect the autonomy and primacy of EU law.
In this regard, the claimant argued that the Achmea Judgement cannot produce any effect on the proceedings, because an ICSID Tribunal applies international law and not EU law. Moreover, the scope of Achmea Judgment is limited to BITs, and it does not extend to multilateral agreements, such as the ECT. The claimant also highlighted that both Portugal and Spain are Contracting Parties to the ICISD Convention and the ECT, and since Spain has given its unconditional consent to the submission of the dispute to ICSID arbitration in Article 26(3) ECT, the ICSID Tribunal has jurisdiction to decide the case.
The Tribunal upheld jurisdiction over an intra-EU dispute under the ECT
With its 2020 Decision, the ICSID Tribunal upheld jurisdiction over the dispute, basing its reasoning on Article 25(1) ICSID Convention and Article 26 (1)(2)(3) ECT since the investor was a national of a Contracting Party of the ECT and the ICSID Convention, and Spain as well. Furthermore, Article 42(1) of the ICSID Convention and Article 26(6) ECT provide that the ICSID Tribunal applies the ECT Treaty and applicable rules and principles of international law. Accordingly, it found that the Achmea Judgment was not affecting the jurisdiction of the Tribunal, and the fact that the Tribunal could not refer to CJEU as a mechanism of international law did not deprive it of jurisdiction under international law.
Spain’s Request to Reopen the Proceedings in light of Komstroy case
Unsatisfied with the outcome of the 2020 Decision, on 4 October 2021, Spain asked the Tribunal to reopen the proceedings and reconsider its decision on jurisdiction on the intra-EU investment arbitration, in line with the recent ruling of the CJEU in Komstroy.
In the Komstroy ruling, the CJEU has found that the ECT, as an international treaty to which the EU is a party, forms part of the legal order of the EU. Accordingly, an arbitral Tribunal constituted under Article 26 ECT will have to interpret and apply EU law, even if the arbitral Tribunal might not be part of the judicial system of an EU Member State, with significant risks to the autonomy of EU law. As such, it found the investor-State arbitration clause in Article 26(2)(c) ECT not applicable to intra-EU disputes.
Spain used this judgment to support its request to reopen the proceedings, asking the Tribunal to deny its jurisdiction over the dispute. However, the claimant highlighted that Spain failed to demonstrate the existence of exceptional circumstances that justify the request to revisit the jurisdictional determination, which has res judicata effect. Furthermore, it asserted that Komstroy Judgment was not binding on the ICSID Tribunal because it was a decision from a court of a regional legal order, whereas the ICSID Tribunal is not constituted under EU law. Hence, the interpretation provided by the CJEU does not amend or invalidate the ECT or alter the unconditional consent freely given by Spain. In fact, the ICSID Tribunal is bound by the Vienna Convention on the Law of Treaties (VCLT) and the rules of customary international law to apply the terms of Article 26 ECT.
Lastly, the claimant argued that Spain did not follow the specific mechanism for amending the ECT.
The Tribunal found the Komstroy case did not alter its 2020 Decision
In the Tribunal’s view, the Request to reopen the proceedings can take place only in exceptional circumstances, such as the discovery of controlling legal authorities existing prior to the decision, which had been overlooked by the parties and the Tribunal. Only in such case, the Tribunal would have an inherent jurisdiction to revisit its decision so as to amend obvious injustices. But in the case object of analysis, the Tribunal found that the production of the Komstroy case as a subsequent legal authority was not sufficient to justify reconsideration. Furthermore, the reasoning of the Komstroy case was already anticipated by the parties and it led to the 2020 Decision. Hence, it asserted that Komstroy does not undermine its 2020 Decision on jurisdiction.
Spain’s second attempt to Reopen the Proceedings in light of the Green Power case
Not satisfied by the outcome of its request, on 28 June 2022, Spain submitted a second request to the Tribunal to revisit its 2020 Decision and the Decision on Spain’s request of reconsideration of 10 January 2022, but this time in light of the Green Power Award. This award relates to an ECT claim made by Danish companies against Spain in an arbitration administered by the SCC, in which the SCC Tribunal ascertained its lack of jurisdiction over an intra-EU dispute under the ECT.
Here, the Tribunal assessed the consent to arbitrate an intra-EU dispute under the ECT, verifying whether Article 26 ECT could apply in light of other ECT provisions and Articles 31, 32, and 33 of the VCLT and it found that such an offer to arbitrate is invalid by virtue of primacy of the EU legal order.
The position of Spain was that the Green Power Award justified the reopening of the proceedings, as it constituted a decisive factor and, therefore, it was meeting the threshold stated in Rule 38(2) of the ICSID Arbitration Rules. In Spain’s view, the SCC Tribunal’s reasoning would have been followed by other SCC Tribunals. In fact, despite it was the award of an arbitration administered by the SCC, Spain believed the judgment was not only the outcome of the application of the Swedish law as lex arbitri.
On the other hand, the claimant argued that in international arbitration, the rule of binding precedent (stare decisis) does not exist, and in any case, the Green Power Award did not meet the threshold provided in Rule 38(2) of the ICSID Arbitration Rules. Moreover, it highlighted that the Green Power Tribunal was seated within the EU, so EU law was applicable to determine its jurisdiction, whereas the proceedings object of analysis is an ICSID arbitration, without a seat. Hence, the reasoning of the SCC Tribunal in Green Power could not be applicable.
The Tribunal weighs in on the applicability of Green Power reasoning in ICSID arbitration
Weighing in on this highly debated topic, firstly, the Cavalum Tribunal stated that the Green Power Award could not affect its Decision on Jurisdiction, because it is only an international arbitral decision provided in a different case, as such, it does not constitute evidence, and even if it was evidence, it would not be decisive.
Then, the Cavalum Tribunal highlighted the significant differences existing between the current proceedings and the Green Power one, an element that was emphasized also by the Green Power Tribunal. In the Cavalum Tribunal’s view, the two proceedings differ because the case object of analysis is an ICSID proceedings, i.e., without a legal seat of arbitration, and as such, it cannot be affected by the applicable law attracted by the selection of the seat in an EU Member State. Whereas the latter was rendered in an arbitration having its arbitration seat in Sweden, with Swedish law as the law applicable to the jurisdiction. Therefore, it is only in light of the choice of Sweden as the arbitration seat that the SCC Tribunal could use EU law to determine jurisdiction. Accordingly, the incompatibility of the offer to arbitrate enclosed in Article 26 ECT with the principle of primacy of EU law arises only in those arbitrations having their arbitration seats in an EU Member State. Considering the above, the Tribunal declared that the Green Power award does not affect its 2020 Decision and its Decision on Spain’s request for reconsideration of 10 January 2022.
The Tribunal included Lord Collins of Mapesbury, LLD, FBA, a national of the United Kingdom, as the President, Mr. David R. Haigh K.C., a national of Canada, as the investor’s appointee, and Sir Daniel Bethlehem K.C., a national of the United Kingdom, as Spain’s appointee.
The dissenting opinion of Mr. David R. Haigh K.C. is available here.
Terfè Gerotto is an LL.M. Graduate in International Law at the Graduate Institute of International and Development Studies, and she holds a J.D. from the University of Bologna.