New ICSID arbitration registered against 'Bel Paese' for presumed breaches of Energy Charter Treaty's obligations in the context of the solar energy industry: “Chronicle of a Death Foretold”?

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On 6 October 2020, another case against the Republic of Italy was registered at ICSID.

Investment Arbitration reported that this dispute arose in relation to certain photovoltaic power plants owned by Encavis AG and its 57 subsidiaries (Encavis Case). As for all the other Italian cases of the “photovoltaic saga”, the heart of the dispute is the negative effects of the so-called Spalma Incentivi Decree (enacted by Italy in 2014), which reduced feed-in tariffs that were agreed upon at the time the investment was made.

As of the date of the publication of this article, no additional information about this case is available on the ICSID’s website.

On 14 September 2020 (only a couple of weeks before the commencement of the Encavis Case), in ESPF Beteiligungs GmbH, ESPF2 and ICE v. the Republic of Italy (ESPF Case) the Arbitral Tribunal found the Republic of Italy had breached the ECT’s obligation through the modification of its renewable energy incentives scheme and ordered that investors be compensated with approximately EUR 16 million, plus interest. Similar conclusions were reached by the ECT Arbitral Tribunals in Greentech Energy Systems A/S, et al v. Italian Republic, SCC Case No. V 2015/095 and CEF Energia BV v. Italian Republic SCC Case No. 2015/158.

In the wake of the decision of the Court of Justice of the EU (CJEU) in the case Slovak Republic v. Achmea (C-284/16, 6 March 2018, the “Achmea Decision”) the assessment of its impact on the pending arbitrations and, moreover, on the crucial phase of the award enforcement has become a very popular topic. As Ana Stanič noted “arbitral awards that cannot be enforced or can easily be set aside are of little value to investors,” (Ana Stanič, in The Future of Investment Treaty Arbitration in the EU: the Intra-EU BITs, the Energy Charter Treaty and the Multilateral Investment, p. 144).

This article focuses on the intra-EU ECT arbitrations from the perspective of investors that have been granted compensation for the negative effects of the Respondent State’s reduced incentives scheme within the photovoltaic industry.

In the Achmea Decision, the CJEU maintained that the arbitration clause in the Slovakia-Netherlands bilateral investment treaty (BIT) and, more generally, in all intra-EU BIT arbitrations, is incompatible with EU law.

A couple of months after the Achmea Decision, the European Commission Communication to the European Parliament and the Council: Protection of Intra-EU Investment, (COM (2018) 547, 19 July 2018 (the EC Communication 547/2018)) stated that in relation to arbitration clauses included in intra-EU BITs: “(…) national courts are under the obligation to annul any arbitral award rendered on … basis [of such dispute resolution clauses] and to refuse to enforce it.” The European Commission also clarified that “[t]he Achmea judgement is also relevant for the investor-State arbitration mechanism established in Article 26 of the Energy Charter Treaty,” thus implying that national courts of the Member States shall treat intra-EU ECT awards as intra-EU BIT awards.

The repercussions of the Achmea Decision may be different depending on the relevant set of rules applicable to the enforcement of an arbitral award. A distinction should be made between ECT awards enforced in accordance with the New York Arbitration Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 10 June 1958 (“NY Convention”) and those subject to the ICSID Convention.

As to arbitral awards enforced under the auspices of the NY Convention, in accordance with Article V of the NY Convention, national courts shall refuse the recognition and enforcement of the award if:

  • the arbitration agreement is invalid – based on the Achmea Decision, a provision of investor-state dispute settlement (ISDS) contained in an intra-EU BITs is incompatible with EU law; hence domestic courts might refuse enforcement to an intra-EU arbitral award if EU law is found to be governing the validity of the arbitration clause;
  • the arbitration lacks arbitrability – after the Achmea Decision, issues in dispute in investor-state intra-EU arbitrations can no longer be settled by arbitration;
  • the award is contrary to public policy – domestic courts might refuse enforcement should they find that the arbitral award is contrary to the national public policy. It is likely that that domestic courts will comply with the indications of the CJEU and of the EC Communication and thus refuse enforcement to intra-EU arbitration awards. This scenario has even more chances of prospering, considering that the European Commission has stated that it would consider State Aid the compensation paid by EU-Member States to investors in execution of arbitral awards.

In contrast, ICSID awards seem to be more insulated to this kind of objection. Art. 53(1) of the ICSID Convention makes it clear that ICSID awards “shall not be subject to any appeal or to any other remedy except those provided for in this Convention.” Furthermore, the ICSID Convention enshrines provisions that bind the Contracting States to:

  • “recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State” (art. 54, § 1 of the ICSID Convention);
  • execute the award in accordance with “the laws concerning the execution of judgments in force in the State in whose territories such execution is sought” (art. 54, § 3 of the ICSID Convention); accordingly, all EU Member States (except Poland) should be obliged to enforce ICSID arbitral awards as if they were a final judgment of their own national courts (Ana Stanic, cited, p. 152).

So far, in all the arbitrations concluded after the Achmea Decision, the ECT Arbitral Tribunals dismissed the jurisdiction objection raised by the Respondents States on the basis of the arguments of the Achmea Decision [Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic, ICSID Case No. ARB/14/3, Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain, ICSID Case No. ARB/14/1]. In the EPSF Case, the Arbitral Tribunal concluded that the “The Contracting Parties [to the ECT] intended all of the provisions of the ECT to be binding on all of the Contracting Parties and that together, the EC and its Member States had competence to agree to be bound by all of the provisions of the ECT. Thus, the Tribunal reaches the conclusion, as other tribunals have also reached, that EU Member States and the EU are all Contracting Parties to the ECT and, as such, the Treaty applies equally between its Parties” (§ 290 and § 295, respectively; the EPSF award is available here).

Yet, this trend does not overcome the obstacles created by the Achmea Decision on the enforcement phase.

It is likely that domestic courts in EU Member States will refuse the enforcement on the basis of the arguments drawn by the Achmea Decision and the EC Communication 547/2018.

Even more so, in light of the opinion of the EU Advocate General - Saugmandsgaard ØE (“EU Advocate General”) - released on 29 October 2020 (just a couple of days prior to the publication of this article) within the preliminary ruling of the CJEU sought by the Administrative Court of Lazio on 17 December 2018. In a nutshell, the EU Advocate General confirmed the lawfulness of the Italian’s renewable energy reform under EU law and indicated that: (i) the violation of legitimate expectations shall be assessed by local courts; (ii) the ECT does not apply to claims by investors against their own member state and (iii) “it may even be the case, having regard to the observations made by the Court in that judgment (i.e. Achmea) [… ] that the Energy Charter is entirely inapplicable to such disputes”.

In contrast, non-EU domestic courts dealing with set-aside proceedings and/or enforcement of intra-EU arbitration awards might consider the implications of the Achmea Decision without being bound by such principles of EU law.

As a matter of fact, the Federal Court of Australia has enforced two ICSID awards against the Kingdom of Spain in Eiser Infrastructure Ltd v. Kingdom of Spain (the decision is available here).

Approximately ten ECT cases for enforcement of arbitral awards (in the context of the photovoltaic sector) are now pending before the Washington, DC district courts against the Kingdom of Spain, although the relevant outcome is not yet known and therefore uncertainties remain.

Last, but certainly not least, UK courts might become popular fora in which seeking the enforcement of ECT awards after the landmark decision of the Supreme Court issued on 19 February 2020, in the Micula saga. The Supreme Court overturned the Court of Appeal’s decision that stayed the enforcement proceedings of the Micula award until the final ruling of the CJEU was rendered. The English Supreme Court stated that the “ground of objection raised by the Commission, even if upheld before the EU courts, were not valid objections to the Award or its enforcement under the ICSID Convention.”

In light of the above, considering the position of the EU Advocate General and surmising from this latest UK Supreme Court’s decision, it is likely that the enforcement of intra-EU BIT and intra-EU ECT arbitral awards post-Achmea will fall on fertile ground in the UK.