By Anastasia Choromidou[1] and Mark Konstantinidis[2]
In May 2023, an ICSID ad hoc committee contributed the latest episode to the Spanish solar arbitration saga, by rejecting Spain’s arguments based on the CJEU Komstroy ruling on intra-EU arbitration. The BayWa v Spain annulment decision reflects the tense, from a doctrinal and institutional perspective, relationship between EU law and investment tribunals, and compounds post-Achmea complexities with regards to arbitration proceedings within Europe.
Factual and procedural background
BayWa Renewable Energy and BayWa Asset Holding, incorporated in Germany (the Claimants) commenced proceedings in 2015. The Claimants’ companies own and operate two wind farms located in Spain; these had benefited from Spanish aid since 1999 under a Special Regime. Starting in late 2012, Spain adopted changes to its state aid regime with regards to the renewable energy sector, seeking, inter alia, to limit reliance on subsidies. This included the clawing back of subsidies paid under said Special Regime. In 2019, the Tribunal reached a decision on jurisdiction and liability, in which it found that Spain had breached its obligation of stability under Article 10.1, first and second sentences, of the Energy Charter Treaty (ECT) due to the retroactivity of the measure. In 2021, it awarded the Claimants €22 million plus interest.
Spain had unsuccessfully contested the Tribunal’s jurisdiction, including on the basis of the CJEU’s Achmea ruling. In light of the more recent Komstroy ruling, it presented similar EU law arguments at the annulment proceedings. Namely, Spain requested the annulment of the Award pursuant to Article 52 of the ICSID Convention, by arguing that the Tribunal:
- manifestly exceeded its powers;
- failed to state reasons; and
- seriously departed from a fundamental rule of procedure.
Decision on annulment
Manifest excess of powers
Spain argued that the Tribunal manifestly exceeded its powers by, firstly, deciding on intra-EU dispute where it lacked jurisdiction and, secondly, by failing in its application of EU law (paras 46 et seq). It set out the CJEU’s reasoning in Achmea and Komstroy, as well as the principle of primacy of EU law and the autonomy of the EU legal order. It also emphasised its obligations under its EU membership, including by reference to Articles 3 and 4 of the Treaty on European Union. It further argued that the Tribunal had failed to properly consider EU law, when deciding the merits of the dispute.
The Committee defended the Tribunal’s reasoning (paras 169 et seq), heavily relying on the absence of an explicit disconnection or carve-out clause in the ECT, which would preclude the application of the treaty vis-à-vis EU Member States inter se. Notably, though accepting that there is no formal stare decisis doctrine in investment arbitration, the Committee stated that it ‘cannot ignore, when assessing the case at hand, the previous jurisprudence of other tribunals and committees’ (para 179) as evidence that an alleged excess of powers is not manifest (para 140). In this regard, ‘a significant number of decisions rendered by tribunals and ad hoc committees have upheld similar conclusions to those of the BayWa Tribunal in the respect of the jurisdictional issues that it decided’ (para 180). The Committee further emphasised the source of the Tribunal’s competence –that is, international law– largely by reference to the Vattenfall decision on the Achmea issue. Crucially, it listed awards and decisions on jurisdiction with similar findings, including Eiser Infrastructure v Spain, Novenergia II v Spain, OperaFund Eco-Invest and Schwab v Spain, RREEF Infrastructure v Spain, Cube Infrastructure v Spain, NextEra Energy v Spain, SolEs Badajoz v Spain and InfraRed Environmental Infrastructure v Spain, which concern the same reforms in the renewables sector which gave rise to the dispute in BayWa (paras 185 and 187). It also made extensive reference to Antin v Spain, noting that the ad hoc committee in that case ‘settled issues similar to those under discussion in the present proceedings’ (para 186).
The Committee distinguished the present case from the Green Power v Spain award, the only known instance where a tribunal accepted Spain’s Achmea/Komstroy objection, on the basis of the non-ICSID nature of those proceedings: instead, that tribunal’s seat was in Stockholm, in an EU Member State (para 188). As a result, its conclusions ‘cannot be transposed’ to ICSID arbitration (para 189).
Failure to state reasons
Second, Spain claimed that the Tribunal failed to give reasons when rejecting its original Achmea objection (para 64 et seq). The basis of Spain’s claim for this ground of annulment was that a tribunal’s reasoning must be adequate and that ‘frivolous or contradictory reasons do not serve’ (para 70). In particular, Spain highlighted the alleged ‘false premise’ of the Award, which suggested that Achmea only applies to bilateral rather than multilateral investment treaties, such as the ECT. Spain also claimed that the Tribunal failed to justify why it did not apply EU law.
The Committee set out the reasoning of the Tribunal (para 198), seemingly endorsing its approach: ‘it is excessive to state that the Tribunal has failed to give reasons for its findings on […] the applicability of EU law to its jurisdiction. To the contrary, [it] expressly considered the issue, and reached a conclusion that is in line with the case law of other tribunals that have dealt with the same issue previously’ (para 199).
For the Committee, again, engagement with past awards and decisions was indicative of arbitral propriety. Though ‘legitimate criticism’ against the Tribunal’s reasoning could be launched by Spain, this did not, in itself, suffice to consider its reasoning inadequate under Article 52 of the ICSID Convention (para 202).
Serious departure from a fundamental rule of procedure
Third, Spain argued that the Tribunal did not respect its right to be heard and the principle of equal treatment of the Parties (paras 72 et seq) on two accounts: (i) the Tribunal denied Spain’s request to introduce to the record the EU Member States’ Declaration on the Achmea Judgment; and (ii) it did not permit the European Commission’s amicus curiae intervention.
According to the Committee, these issues did not amount to a breach of fundamental procedural guarantees. The Committee highlighted that the Tribunal used its discretion properly (paras 209 and 214). In any event, the Committee did not consider that the Member States’ Declaration on the Achmea Judgment would have had a ‘material impact on the outcome of the Award’ (para 211) or that the Commission’s amicus curiae would have provided the Tribunal with knowledge or insight which disputing parties had not already contributed (para 217).
Analysis
At the time of writing, BayWa v Spain is the latest annulment decision engaging with issues arising from the ECT disputes against Spain and intra-EU investment arbitration objections.
It is established jurisprudence that the remit of ICSID annulment committees does not extend to substance. ICSID Annulment is not an appeals’ procedure but a review of a tribunal’s decision-making process. In this light, the Committee’s limited review of substantive arguments is not surprising. For example, with regards to Spain’s first argument, the Committee’s analysis largely eschews original legal analysis in favour of an extensive redirection towards past awards and decisions, mostly with regards to the same set of Spanish measures. This is not only a testament to the significant body of ECT disputes on Spanish solar power policies, but also, perhaps, indicative of the Committee’s unwillingness to substantively engage with objections not made on the basis of the ECT and international law. The above approach asserts the autonomy of the ICSID system on the basis of its international law foundations. With regards to Spain’s third argument, the Committee’s analysis accords with the significant discretion typically afforded to tribunals and, in effect, reaffirms the Committee’s previous consideration of the jurisdictional issue.
BayWa v Spain, together with the other ICSID annulment cases brought by Spain, may also be considered in light of their systemic importance for intra-EU investment arbitration. In their majority, despite relevant EU law pronouncements, investor-State mandated bodies continue to recognise tribunals’ jurisdiction to hear intra-EU disputes. In contrast, EU institutions and Member States’ courts (mostly) do the opposite. These opposing sides have created uncertainty for both investors and States. Prospective claimants may be able to pursue an investment arbitration but face difficulties enforcing its outcomes, even under the ICSID Convention. At the same time, EU Member States, such as Spain, are faced with competing international and EU law obligations. Following the unsuccessful annulment, the BayWa v Spain award remains enforceable under the ICSID Convention. However, should Spain conform with the Tribunal’s findings, it may be found in breach of EU law obligations. Already, these difficulties are apparent in the protracted enforcement battles in Micula v Romania, where national and EU courts engaged with issues related to intra-EU investment arbitration. In addition, investors and EU Member States face further uncertainty over contrasting decisions about the enforceability of the awards on the basis of intra-EU issues by courts in the United States (see here and here).
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Anastasia Choromidou, LLM (UCL) | LLB (AUTh) | Solicitor of England & Wales | Bar Association of Thessaloniki. The author is an international arbitration practitioner and serving as Editor at the EFILA Blog. ↑
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Mark Konstantinidis is a PhD candidate and Visiting Lecturer at King’s College London, and Teaching Fellow at University College London. He is serving as Senior Editor at the EFILA Blog. ↑