Insights

There was a time when lawyers and funders flocked to assist claimants whose investments in European green power projects had been frustrated by host member states.  Treaty claims against offending sovereigns became de-rigueur, whether under specific bilateral investment treaties – ‘BITs’ – or the behemothic Energy Charter Treaty – ‘ECT’ – to which the E.U. was itself a signatory.

These claims often had compelling narratives, exhibiting the classic ‘moving of the goal-posts’ by sovereigns with respect to ‘feed-in’ energy tariffs, sounding in significant sunk and future losses for investors.  Many of them resulted in tribunals awarding claimants significant monetary damages against sovereigns for the latter’s breach of relevant investor protections under the relevant BITs or the ECT.

But the winds hinted at potential change in 2018.  In March that year, the Court of Justice of the European Union (‘CJEU’) handed down its judgment in the case of Achmea vs Slovakia (‘Achmea’).  It ruled that the arbitration provisions of the relevant BIT between The Netherlands and Slovakia were incompatible with European law as enshrined in the Treaty on the Functioning of the European Union (‘TFEU’), and in particular, article 344 TFEU, which provided for the exclusive jurisdiction of the CJEU for disputes concerning the interpretation or application of the EU Treaties.

There was much grousing about Achmea in the corridors of international arbitration.  The prevailing view was that the CJEU had overreached given the established norms of arbitration and public international law.  Arbitral tribunals nevertheless continued to find their own jurisdiction when presented with claims brought under the myriad intra-EU BITs.

Moreover, claims brought under the ECT were perceived to be at little risk of a similar challenge, given that the EU had itself adopted that treaty (albeit pausing there, the ECT is itself seemingly on borrowed time, the European Commission having recently called on the EU and its members to exit the treaty as a result of the failure to negotiate a modernised green version).

Enter stage left Republic of Moldova vs Komstroy LLC (2021) (‘Komstroy’).  In Komstroy, the CJEU took it upon itself to widen the scope of the reference it had received from the Paris court and to rule that, consistently with its earlier decision in Achmea, ECT based intra-EU arbitrations were contrary to EU law.

The death knell for pursuing (and funding) intra-EU BIT claims?  Not quite.

First, and despite the CJEU’s stance, almost all arbitral tribunals faced with what has become known as the ‘Intra-EU Objection’ have determined that they still have jurisdiction to hear the disputes in front of them.  The only recorded exception is the tribunal in Green Power Partners K/S and SCE Solar Don Benito APS vs Spain (2022), an arbitration governed by the SCC rules in Sweden.

Secondly, the recent decision of the English and Welsh High Court in Infrastructure Services vs Spain [2023] EWHC 1226 (Comm) (‘Infrastructure’) may provide comfort to claimants (and putative claimants) looking beyond BIT/ECT awards to their eventual enforcement.  Enforcement is of course the first stage to collection of an award i.e., recovery, and ought to be high on the list of priorities of a claimant considering embarking on a claim; it is without doubt, a vital facet of a funder’s due diligence when presented with a potential fundable opportunity.

In Infrastructure, Luxembourgish and Dutch claimants sought enforcement of their ICSID award against Spain (worth around USD120 million) in England and Wales.  They did so as part of a broader strategy of non-EU enforcement, hopefully avoiding the Intra-EU Objection.  The UK’s position with respect to the EU has of course changed since 2018 and Achmea; whilst at that time a fully paid up (albeit outgoing) member state, by the beginning of 2021, the UK had become a fully-fledged non-member, albeit with certain legacy obligations remaining.  The burning question was whether an English court would cock a snook at the CJEU jurisprudence.

In its judgment of 24 May 2023, the High Court (Mr Justice Fraser) upheld an order for the recognition of the award, finding that there were ‘no proper grounds’ for setting it aside.  Fraser J. adopted the reasoning of the Supreme Court in Micula v Romania [2020] UKSC 5, that EU law did not override the UK’s pre-accession treaty obligations to implement the ICSID Convention as enacted in the Arbitration (International Investment Disputes) Act 1966.  There were no ‘exceptional or extraordinary circumstances’ at play that might alter that conclusion, despite Spain’s prolix submissions based on the Intra-EU Objection.  In forthright terms Fraser J. stated that it simply could not be correct that:

‘by reason of the terms of the EU Treaties, and by reason of the rulings of the CJEU and its supremacy over EU law matters, the EU and the CJEU […] unilaterally changed – if not removed – all the existing treaty obligations of all the Contracting Parties to the ICSID Convention’.

Consequent upon Fraser J.’s decision, on 2 August 2023, Master Thornett, sitting in the High Court, issued an interim charging order allowing the Infrastructure claimants to seize the freehold title to a property Spain owns at 317 Portobello Road in London.

Commentators have noted that the ‘potential significance of the High Court’s judgment (in Infrastructure) cannot be overstated’.   A number of green power award creditors – including the claimants in Infrastructure – have sought to enforce elsewhere, including in the US and Australia.  The US Appeals Court in Washington DC is due to hear consolidated enforcement appeals arising out of green awards against Spain.  The Federal Court in Australia recently rejected Spain’s state immunity defence to enforcement and recognition proceedings commenced by the Infrastructure claimants but was careful to make clear that its conclusion did not affect any foreign state immunity enjoyed by Spain in relation to the award’s execution.

Given the huge significance of execution to dispute stakeholders, perhaps the UK may celebrate a small Brexit-inspired benefit with respect to recovery in, ironically, intra-EU disputes?

Next time:  The demise of the ECT; wither the pursuit and funding of energy claims?