Green Power v. Spain: Intra-EU Game Changer or an Exception that Confirms the Rule?

by Iván Levy[1]

Introduction

On June 16, 2022, the Tribunal in Green Power Partners K/S & SCE Solar Don Benito APS v. The Kingdom of Spain (Green Power v. Spain) issued its award and became the first tribunal to uphold the so-called intra-EU objection.[2] After a large number of decisions historically rejecting the objection, is Green Power v. Spain a game changer or simply the exception confirming the rule?

The Dispute in Green Power v. Spain

The dispute in Green Power v. Spain involved two Danish investors in the photovoltaic energy sector against Spain. The relevant alleged investments were made between 2008 and 2011, and the investors claimed that a series of measures taken by Spain between 2010 and 2014 altered the regulatory framework and were in violation of Respondent’s obligations under the Energy Charter Treaty (‘ECT’).

The arbitration was conducted under the rules of the Stockholm Chamber of Commerce (‘SCC’), and the seat of arbitration was Stockholm, Sweden. The case was bifurcated at the suggestion of the Tribunal so that the first hearing would only cover issues of jurisdiction and admissibility. As in other intra-EU disputes, the European Commission submitted an Amicus Curiae brief.

The Respondent raised four objections to jurisdiction and admissibility, but the present commentary will only focus on the so-called intra-EU ratione voluntatis objection.

The So-Called Intra-EU Objection

In dealing with this general objection to jurisdiction, the first inquiry for the Tribunal was the determination of the law applicable to its jurisdiction. The Tribunal initially noted that the dispute featured no explicit or implicit choice of law in this regard. Hence, the Tribunal took as a starting point Article 26 of the ECT (para. 159).

The Tribunal then drew a difference between an ICSID arbitration and this SCC arbitration. In the case at hand, as per the Swedish Arbitration Act (‘SAA’), Section 48, the law of the seat governs the arbitration agreement (para. 165). The Tribunal relied on Achmea and Komstroy to rule that the effect of selecting Sweden as a seat is to also attract the application of EU law, which is part of the law in force in every EU Member State, including Sweden (para. 166). However, the Tribunal cautioned that each body of law would only apply to the extent that it is relevant to determine the issues arising in the case (para. 167).

The Tribunal then opined that EU law is unquestionably part of the Swedish legal system, and that it therefore has a bearing on some questions arising under the SAA, such as matters of arbitrability, public policy, and validity of the arbitration agreement under Sections 33 and 34 SAA. The Tribunal concluded that EU law must, therefore, be applied to determine the jurisdiction of the Tribunal in the present case (para. 172).

Interpretation of the ECT without resorting to EU Law

Given that the basis of consent emerged from the ECT, the Tribunal took as a starting point Article 26 of the ECT and performed an interpretative analysis through the lens of the Vienna Convention on the Law of Treaties (‘VCLT’) before resorting to EU law. Upon analyzing the offer to arbitrate under the ECT by its ordinary meaning, the Tribunal concluded that, on its wording, the offer to arbitrate is unqualified by any carve-out for intra-EU investor-State arbitration, and it is “unconditional” (para. 341). However, relying on the ICJ Judgment in the Gabčíkovo-Nagymaros Project, the Tribunal noted that the purpose of the treaty and the intentions of the parties in concluding it should prevail over its literal application (para. 345).

The Tribunal therefore did not close the inquiry with the literal meaning and moved to analyze the context in accordance with the VCLT. In this regard, it considered that the text of the ECT expressly recognizes the possibility for a group of States to enter into a network of special legal relations among them (such as a REIO) (para. 351). The Tribunal analyzed Article 25 of the ECT and concluded that, while this provision does not automatically carve-out disputes between members of an integration agreement, it does place the meaning of the dispute resolution clause of Article 26 of the ECT “in a different light” (para. 352).

The Tribunal then moved to state that Article 1(3) ECT expressly recognizes that members of a REIO may be subject to special requirements as a result of their membership. While the ECT does not purport to regulate those special requirements, it acknowledges that the matters concerned may, to some extent, overlap with those governed by the ECT (para. 353). In the Tribunal’s view, the relations between EU States such as Spain (host State), Denmark (home State of the investors) and Sweden (State of the seat of arbitration) are subject to some special requirements. In particular, the Tribunal mentioned (i) the exclusive jurisdiction of the European Commission regarding State aid, and (ii) the requirements of Article 344 TFEU for EU Member States not to submit a dispute concerning the interpretation or application of the EU Treaties to any method of settlement other than those provided for in the EU Treaties (para. 354).

The Tribunal also analyzed a number of other tools of interpretation under the VCLT. For instance, regarding Article 31(3)(c), which refers to relevant rules of international law applicable in the relations between the parties, the Tribunal considered the decision in Vattenfall v. Germany, which rejected the applicability of EU law to interpret the ECT through VCLT Article 31(3)(c). The grounds in the Vattenfall decision were that the result sought by the European Commission in that case contradicted the ordinary meaning of Article 26 ECT and could generate potentially different interpretations of the same ECT provision.[3] The Tribunal in Green Power disagreed with this conclusion, mainly because it found EU law relevant to the interpretation of ECT provisions, and applicable not just under the VCLT, but also under the ECT or as a matter of applicable law through the SAA (paras. 394-398).

The Tribunal hence concluded that interpreting Article 26 ECT without resorting to EU law is inconclusive as to whether an offer to arbitrate is invalid in intra-EU cases. Therefore, the Tribunal moved to analyze Article 26 ECT in the light of the wider body of legal relations between Denmark and Spain, specifically, the relevant norms of EU law. The Tribunal added that the applicability of EU law also derives from the seat, Sweden.

Interpretation of the ECT Resorting to EU Law

Initially, the Tribunal clarified that the applicability of EU law under this analysis would be as international law or as part of the law governing the agreement to arbitrate in accordance with Swedish law as the law of the seat (para. 414).

The Tribunal determined that the CJEU Judgment in Achmea is relevant to the dispute as it “clearly states its understanding regarding the applicability of EU law to determine the validity of the offer to arbitrate by an EU Member State” (para. 422). The Tribunal gave full deference to the CJEU and even recognized that when intra-EU disputes are unrelated to matters of State aid, Achmea “remains fully relevant and it cannot be seriously contended that investment arbitration tribunals could not affect the interpretation of the EU Treaties in a manner which is detrimental to the consistent and uniform interpretation of EU law” (para. 428). The Tribunal also gave full deference to the CJEU in its judgment in Komstroy regarding specifically the ECT (paras. 431-432).

When having to draw a distinction with cases which rejected the application of the Achmea doctrine, such as Infracapital v. Spain and Sevilla Beheer v. Spain, the Tribunal referred to the fact that these were ICSID cases, which did not take into account the relevance for jurisdictional matters of the applicable law attracted by the selection of a seat in an EU Member State (para. 439).

The Tribunal then applied the interpretations of the CJEU to the dispute at stake and concluded, as a matter of both State aid and the invalidity of the offer to arbitrate, that it lacked jurisdiction to adjudicate the dispute (para. 478).

Conclusion

While it would be a crystal ball exercise to determine whether Green Power has started a new trend in intra-EU disputes or has merely confirmed the rule by exception that intra-EU disputes remain arbitrable, the deference that the Tribunal in Green Power showed to the CJEU is unprecedented. While the seat of arbitration in an EU Member State may have been a relevant factor, it was not the only basis for the application of EU law to the issue of jurisdiction. In any event, the seat of arbitration in an EU Member State remains a distinctive ground for which the Tribunal departed from other past ICSID decisions.

Notes

  1. Iván Levy is an LL.M. candidate at Columbia Law School.

  2. Green Power K/S and SCE Solar Don Benito APS v. Kingdom of Spain, SCC Case No. V2016/135, Award, 16 June 2022.

  3. Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea Issue, 31 August 2018, ¶¶ 152-165.

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