Federal Tribunal upholds intra-EU Investment Award
In 1997, A.________ (purportedly, the Kingdom of Spain) established a regime by decree to promote renewable energy sources. Several companies made substantial investments to take advantage of the favorable Feed-in-Tariff in the decree. Starting in 2010, A.________ began to roll back the regime and in 2013, a new regulation replaced it entirely.
In 2011, a group of investors (all with headquarters or domiciles in the EU) negatively affected by the changes, relying on the Energy Charter Treaty (ECT), initiated an arbitration under the auspices of the Permanent Court of Arbitration (PCA), governed by the UNCITRAL rules. An Arbitral Tribunal was constituted, with its seat in Geneva.
In 2014, the Arbitral Tribunal issued a Preliminary Award, in which it rejected several preliminary jurisdictional objections, including one that argued that intra-Community disputes between a company headquartered in an EU Member State and an EU Member State concerning ECT-covered investments made by the former in the territory of the latter cannot be decided by arbitration. The Appellant did not appeal this decision to the Federal Tribunal.
In 2018, A.________ requested the Arbitral Tribunal address a “new jurisdictional objection” based on “new facts” – i.e., the (now very well-known) March 6, 2018 decision of the ECJ in Achmea v. Slovakia. In a Procedural Order, the Arbitral Tribunal also rejected this request. The Appellant did not appeal this decision to the Federal Tribunal.
In 2019, A.________ asked the Arbitral Tribunal to place the January 15, 2019 Declaration of 22 Member States regarding the consequences of the Achema decision on the record of the Arbitration. When the Arbitral Tribunal agreed to do so, A.________ invited the Arbitral Tribunal to again review its jurisdiction, on its own motion. The Arbitral Tribunal held the request to be decided in its final Award. In that Award, it found that the Preliminary Award was not challenged and had the force of res judicata, and upheld its jurisdiction. A.________ then appealed the final Award to the Federal Tribunal.
This is perhaps more ‘factual’ information than we would normally set out in our summary. However, it highlights a significant facet of the judgment of the Federal Tribunal: the timeliness of legal challenges to decisions, even when those decisions are rendered during an ongoing arbitral process.
The Appellant did not succeed and the following points are of particular note in the decision:
(i) The Federal Tribunal reiterated its past case law regarding the meaning of “award”, noting that a final award, partial award, or even preliminary or interlocutory awards can be subject to procedures pursuant to Arts. 190-192 PILA. (See Section 4 of the decision in this respect.)
(ii) The Federal Tribunal noted that while the Appellant could perhaps have argued that the Procedural Order wrongly failed to address the matter of its new objection to jurisdiction in breach of 190(2)(b) PILA, as it was clearly a decision on jurisdiction, it should have been challenged within 30 days. The Appellant was thus precluded from raising grievances related to the PO in these proceedings. (See Section 5.2.2 of the decision in this respect.)
(iii) The Federal Tribunal noted that while preliminary or interlocutory awards may not enjoy the authority of res judicata such awards remain binding on the arbitral tribunal from which they emanate. (See Section 6.3.2 of the decision in this respect.)
(iv) The Appellant alleged the Arbitral Tribunal had breached public policy by misapplying the principle of res judicata. However, the Federal Tribunal found that the Appellant did not, in fact, show that the Arbitral Tribunal had breached public policy but instead was criticizing the Arbitral Tribunal’s assessment of its jurisdiction – which the Appellant had not challenged before the Federal Tribunal. (See Section 6.3.3 of the decision in this respect.)
Charles PONCET and Luisa MOCKLER
Judgment of February 23, 2021
First Civil Law Court
Federal Judge Kiss (Mrs.), Presiding
Federal Judge Niquille (Mrs.)
Federal Judge Rüedi (Mr.)
Clerk of the Court: Mr. O. Carruzzo
Represented by Mr. Jean-Marie Vulliemin, Mr. Jean Marguerat, and Mr. Tomàs Navarro Blakemore
represented by Mrs. Nathalie Voser, Mrs. Anya George, Mr. Sebastiano Nessi, and Mr. Damien Clivaz
represented by Allen & Overy, LLP
In 1997, A.________ (Defendant, Appellant) passed a law establishing a special regime to promote renewable energy sources. The details of this special scheme were regulated in several successive decrees. Decree [XXX], issued in 2007, set the Feed-in-Tariff (FiT) for photovoltaic electricity. It provided for an attractive FiT for the first 25 years of operation of the photovoltaic installations, and a lower FiT for the subsequent years. In order to compensate for inflation, the FiT could be adjusted annually on the basis of the national consumer price index. In order to be able to sell the electricity produced at the FiT provided for in the said decree, renewable energy producers had to register with the appropriate authority within a certain period.
Following the adoption of the aforementioned decree, the 26 commercial operators mentioned in the first page of this judgment (hereinafter the investors, the Respondents), all of whom have their registered office or domicile in a Member State of the European Union (EU), made substantial investments and took the necessary steps to be able to sell the electricity produced at the advantageous tariff set out in the decree.
As early as 2010, A.________ took various legislative measures affecting the remuneration of renewable energy producers. In 2013, it adopted a new regulation that ended the previous incentives for photovoltaic installations.
B.a. On November 16, 2011, the investors, relying on Art. 26(4)(b) of the Energy Charter Treaty of December 17, 1994 (ECT; RS 0.730.0), brought arbitration proceedings against A.________ for the purpose, among others, of obtaining payment of damages for violation of Art. 10(1) ECT.
The defendant argued that the appeal should be rejected in its entirety.
A three-member Arbitral Tribunal was established pursuant to the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL) under the auspices of the Permanent Court of Arbitration (PCA) and its seat was set in Geneva.
B.b. The Arbitrators, after consultation with the parties, issued Procedural Order No. 4 on February 28, 2013, in which they decided, among other things, to split the proceedings and to first consider the five preliminary objections to the jurisdiction of the Arbitral Tribunal raised by the Respondent.
After receiving the parties' submissions and holding a hearing to consider its jurisdiction, the Arbitral Tribunal issued a Preliminary Award on October 13, 2014, in the operative part of which it declared that it had jurisdiction to hear the dispute between the parties to the present proceedings.
In particular, the Arbitral Tribunal rejected the third argument of lack of jurisdiction put forward by the Respondent, according to which intra-Community disputes between a company headquartered in an EU Member State and an EU Member State concerning ECT-covered investments made by the former in the territory of the latter cannot be decided by arbitration (hereinafter, the intra-Community exception).
In interpreting the ECT in accordance with the rules of the Vienna Convention of May 23, 1969, on the Law of Treaties (RS 0.111), the Arbitrators found that the EU, itself a party to the ECT, had not expressed any reservations with regard to the possibility of submitting an intra-Community dispute to arbitration under Art. 26 ECT. The EU's declaration of accession to the ECT makes no provision for a special regime to be applicable to such disputes falling within the scope of the ECT. The Arbitral Tribunal notes that the parties to the ECT have, however, expressly reserved certain provisions contained in other treaties, when they considered it necessary to regulate the relationship between the ECT and those treaties. It further notes that the ECT does not contain a “disconnection clause”, allowing the member parties of a regional organization, such as the EU, not to apply the rules of the ECT in their mutual relations. Neither the EU nor its members have therefore expressed any intention to exclude the dispute resolution mechanism of the ECT. The Arbitrators further considered that Art. 344 of the Treaty on the Functioning of the EU (TFEU), according to which Member States shall not submit a dispute concerning the interpretation or application of the Treaties to a method of settlement other than those provided for therein, does not exclude the right to arbitration. This rule applies only to disputes between two Member States. Indeed, the European treaties do not contain rules on arbitration between a Member State and an investor. Moreover, Art. 344 TFEU does not prevent a priori the submission of certain disputes falling within the scope of the ECT, which do not concern the interpretation or application of European law, to an arbitral tribunal. In addition, the Court of Justice of the EU (ECJ) does not have a monopoly in the field of interpretation and application of European law. Therefore, there is no incompatibility between the arbitration procedure under Art. 26 ECT and the role of the ECJ. The other elements put forward by the Respondent do not lead to a different conclusion. In particular, the position taken by the European Commission (EC) in various arbitration proceedings relating to intra-Community disputes cannot be regarded as an interpretation shared by all parties to the ECT as to the meaning to be given to certain provisions of the Treaty.
At the end of their analysis, the Arbitrators considered that they had jurisdiction under Art. 26 ECT to hear intra-Community disputes, while noting that such a solution is in line with that adopted by other arbitral tribunals that had to decide the same question.
The Preliminary Award was not the subject of a civil appeal or a request for revision.
B.c. Following the issuance of the Award, the Arbitral Tribunal continued the hearing of the case. On August 13, 2018, the defendant requested the Arbitral Tribunal to consider a “new jurisdictional objection” based on “new facts” and to open a new hearing on this issue and to allow the defendant to submit the following three documents in support of this objection (hereinafter, collectively referred to as the Achmea documents):
< >the decision of March 6, 2018, of the ECJ in Achmea v. Slovakia (C-284/16), in which the ECJ ruled on the compatibility of the arbitration clause contained in a bilateral investment treaty with the TFEU;
a communication of July 19, 2018, from the EC, entitled “Intra-EU Investment Protection”, calling on EU Member States in particular to “draw all necessary conclusions from the Achmea judgment” by formally terminating their bilateral investment treaties;
a fact sheet published on July 19, 2018, in which the EC emphasized that investor-state arbitration under bilateral investment treaties between EU Member States was not compatible with EU law.