Swiss Supreme Court upholds Energy Charter Treaty Award

Case information
February 7, 2020
Interest to foreign readers: 
Required reading
Jurisdiction of the Arbitral Tribunal
Energy Charter Treaty
Investment arbitration
Original language: 
Introductory note: 

In the early 2000s, the X.________ Republic (purportedly, the Czech Republic) put into place a beneficial framework designed to incentivize investment in and utilization of renewable energy. When the framework turned out to be even more successful than it ever forecasted, the Republic began to scale back parts of the program, particularly the parts that related to a feed-in tariff, or FiT. It also introduced a “solar tax”. Finally, as of January 1, 2013, the program, was completely removed.


Several companies (here, the Respondents) initiated an arbitration under the arbitration clauses of the Energy Charter Treaty (ECT) and three bilateral investment treaties (“BIT”s). An Arbitral Tribunal was constituted in accordance with the UNCITRAL rules, under the auspices of the Permanent Court of Arbitration, with its seat in Geneva. On December 20, 2017, the Arbitral Tribunal issued a partial award, accepting jurisdiction over some of the claims, and finding violations of the FET standards of the ECT and two of the BITs.


The Appellant appealed to the Federal Tribunal, arguing that the “solar tax”, as a taxation measure, in fact fell outside of the jurisdiction of the ECT, and further that the companies at issue were in fact controlled by its own nationals, who engaged in impermissible forum shopping by restructuring their investments at a time where a dispute was foreseeable.


The Federal Tribunal rejected the appeal in full. The following points are of particular interest:


-    The Federal Tribunal noted that while, pursuant to Art 99(1)LTF, new facts and evidence are not generally admissible, this provision does not prohibit recourse to new legal theories produced in a timely manner (with some qualifications). The Court also recalled its previous case law that the decisions of prior arbitral tribunals do not form binding precedent on an arbitral tribunal (See Section 2.4 of the decision in this respect.)


-    Federal Tribunal noted that the highest court of the Appellant had found that the measure in question was not a tax. The Federal Tribunal did not find any issue with the interpretation of the Arbitral Tribunal regarding the formal features of a tax, noting the thorough analysis performed. (See Section 3.7 of the decision in this respect.)


-    The Federal Tribunal reviewed the definition of investment and investor, noting that the ECT in particular vests the notion of “foreignness” in the person of the investor, rather than the investment. The Court found that formal criterion of (foreign) incorporation of the Respondents was sufficient to establish foreignness and the facts as presented could not establish that the investments were de facto controlled by nationals of the Appellant.  (See Section 4.6 of the decision in this respect.)


-    The Court also concurred with the Arbitral Tribunal’s finding that, while the Appellant had signaled regulatory changes to the regime, at that time it had given no indication that such changes would affect plants commissioned prior to that date, such as those of the Respondents. Therefore, the Federal Tribunal found there were none of the characteristic features that would authorize recourse to the exceptional remedy of abuse of rights.  (See Section 4.8 of the decision in this respect.)


Charles PONCET and Luisa MOCKLER




Judgment of February 7, 2020,


First Civil Law Court

Federal Judge Kiss (Mrs.), Presiding,

Federal Judge Klett (Mrs.)

Federal Judge Hohl (Mrs.)

Federal Judge Niquille (Mrs.)

Federal Judge Rüedi (Mr.)

Federal Judge May Canellas (Mrs.)

Clerk of the Court: Mrs. Mont



The Republic of X.________,

Represented by Mr. Franz X. Stirnimann and Mr. Jean-Marie Vulliemin,





1.       A.________ N.V.,

2.       B.________ Ltd,

3.       C.________ Ltd,

4.       D.________ SARL,

All four represented by Mr. Henry Peter,






A.a.   As early as the 1990s, X.________ (also referred to as “the X.________ Republic”) adapted its legislation to promote renewable energy sources. In 1992, it introduced two tax incentives: the first provided a five-year tax exemption for income earned from the operation of photovoltaic installations (Income Tax Holiday, Art. 19 of the 1992 Income Tax Act); the second allowed the tax depreciation of certain components of photovoltaic installations over a period of five to ten years.


From 2004, the X.________ Republic introduced legislation aimed at achieving the non-binding EU targets assigned to it, i.e. that by 2010, 8% of its electricity consumption should come from renewable energy sources.


It was thus that on March 31, 2005, the X.________ Republic adopted the 2005 Act on Promoting Electricity Production from Renewable Energy Sources,2 which entered into force on August 1, 2005, (hereinafter referred to as “the Renewable Energy Promotion Act”). This law required grid operators to purchase electricity generated by renewable energy installations as a priority, and to purchase it at a price set by the government, i.e. the Energy Regulatory Office3 (hereinafter referred to as: “ERO”). This price per kilowatt-hour (Feed-in-Tariff4 or “FiT”) was calculated on the basis of the investment and operating costs of renewable energy installations in a given category. In the field of solar energy, it was set in such a way that the investment would pay for itself after a period of 15 years, which was then increased to 20 years, corresponding to the estimated lifetime of a photovoltaic installation. The regulator’s power to adjust the FiT was limited in two ways: first, a change in the FiT could only affect installations that were put into operation in the following calendar year; secondly, the FiT could only be reduced by 5% in relation to the FiT for the current year. The payment of the initial FiT was thus guaranteed for 15 years (and then 20 years), i.e. for the entire estimated lifetime of the photovoltaic installation, without taking into account an indexation to compensate for inflation.


The FiT was higher than the price per kilowatt hour from conventional fossil fuels. This extra cost was passed on to the consumer, who initially had to bear the full cost. The legislature expected the cost of electricity to rise by 1% per year, based on the premise that photovoltaic power plants would generate only a small share of the electricity produced in X.________ by 2010, the same as geothermal energy.


A.b. Initially, these legislative measures did not generate significant investments. However, the arrival on the market of low-cost solar panels imported from China and Taiwan changed this situation considerably. In the summer of 2009, the regulator (ERO) informed the government of a massive increase in requests for the connection of new solar installations, judging the situation “extremely serious”. The rapid drop in the cost of solar panels was far greater than the maximum 5% reduction in the FiT that it was entitled to apply, and the 15-year guarantee of the price of solar panels allowed operators to make much higher profits than those envisaged by the legislator. The regulator feared an unbearable increase in the price of electricity for private and industrial consumers, not to mention grid instability due to the unpredictable and volatile nature of photovoltaic production. In fact, the number of solar installations exploded, upsetting the economic forecasts made in 2005: while they had been expecting 15 gigawatt hours (GWh) in 2010, the production of photovoltaic energy reached 616 GWh that year, and 2182 GWh in 2011.


A.c. This “solar boom” was part of a turbulent political period that led to the installation of a provisional government. In addition, the X.________ Republic was also affected by the global economic crisis of 2008. In 2009, its gross domestic product (GDP) decreased by 4.8 percent; its public debt increased from 24.9 percent to 30 percent of GDP, while the budget deficit increased from 0.5 percent to 4.9 percent of GDP.


On the advice of the ERO, the Ministry of Industry and Trade announced on August 28, 2009, its intention to remove the 5 percent limit with immediate effect to allow the regulator to adjust the FiT to current investment costs in the solar energy sector. Under pressure from investors and banks, it reversed this decision in favor of a more gradual approach to reducing the FiT. In a letter to the ERO, the Ministry explained that the 5% limit reduction in the FiT was not sufficient to meet the investment costs. The limit on investment in renewable energy should guarantee a transparent and predictable return on investment in renewable energy; an outright cancellation of this limit could expose the X.________ Republic to the risk of lawsuits related to investment losses.


At a press conference held on November 16, 2009, the Minister of Industry and Trade announced that he would allow the ERO to adapt the FiT by waiving the 5% limit for photovoltaic investments made from 2011 onwards. The corresponding provision of the Renewable Energy Promotion Act was abolished by a law of March 17, 2010, which came into force on May 20, 2010. This applied to all installations connected to the grid after January 1, 2011.


The X.________ Republic adopted a series of other measures amending the Income Tax Act and the Renewable Energy Promotion Act.


By the Law 2010 of December 28, 2010, it amended Art. 7 of the Law on the Promotion of Renewable Energy and introduced a solar “tax”5. A linguistic clarification is required at this stage. The Award under appeal, written in English, translates the term as “levy”. This noun, which is also a verb meaning “to raise”6, “to collect”7, “to impose”8, is derived from Old French levée and Latin levare (see;; Black's Law Dictionary). It is translated [into French] usually by prélèvement [levy] or impôt [tax], and the former term seems more faithful to the etymology. It seems that the original noun can also be translated by prélèvement [levy] (see in particular, which is admitted by the X.________ Republic, which also proposes the translation “taxe” [tax]. In any event, these two expressions will be used in the present decision in an equivalent capacity, without prejudging the question at issue.


This “solar tax” was aimed at photovoltaic plants commissioned between January 1, 2009 and December 31, 2010, and which benefited from the FiT. The basis of assessment consisted of the payments due to solar energy producers in exchange for the electrical energy they delivered to the grid. The debtor – or paying agent – was the grid operator, which was responsible for withholding 26% of the FiT due and paying this share to the government. This “levy” was initially planned for a period of three years, from January 1, 2011 to December 31, 2013; this period was then extended, while the rate was reduced to 10%.


On January 1, 2011, the X.________ Republic ended all incentives for photovoltaic systems commissioned after March 1, 2011 with a maximum output exceeding 30 kilowatt peaks9 (kWp), repealed the Income Tax Holiday10 and amended the tax depreciation regulations.


Finally, a law that came into force partially on May 30, 2012, and completely on January 1, 2013, repealed other measures and terminated all contracts between renewable energy producers and grid operators subject to the FiT, effective December 31, 2012.


A.d. Various investors complained about the introduction of the “solar tax”, including the following companies:

-      B.________ Ltd (hereinafter: B.________), a company incorporated under Cypriot law on October 29, 2009,

-      A.________ N.V., (hereinafter: A.________), a company incorporated under Dutch law on December 8, 2009, a subsidiary of the former, both belonging to investment group I.________, owned by X.________11 nationals,

-      C.________ Ltd (hereinafter: C.________), a company incorporated under Cypriot law in 2004, and

-      D.________ SARL (hereinafter: D.________), a company incorporated under Luxembourg law.

These companies invested in an entity incorporated under X.________ law, Z.________ . Incorporated in 2007, the latter is itself a shareholder in eleven entities incorporated under X.________ law, entities which own and operate photovoltaic installations in the same Republic. The investments were made in the form of acquisition of shares in Z.________ and financing (loans or repurchase of claims arising from loans) (see also at 4.5 below).



B.a. The X.________ Republic concluded various agreements to encourage and protect investments.


In particular, it was bound by a multilateral treaty, the Energy Charter Treaty12 of December 17, 1994, (RS 0.730.0; hereinafter: the Energy Charter Treaty, or ECT). For Cyprus, Luxembourg, the Netherlands, and Switzerland, this convention entered into force on April 16, 1998.


It begins with a series of definitions, in particular of the words “investment” and “investor” (Art.1 ECT; see at 4.6.1 below).


Art. 10, in Part III of the treaty, which constitutes the core of the substantive obligations assumed by the Contracting States, stipulates, inter alia, that


Promotion, Protection and Treatment of Investments

1. Each Contracting Party shall, in accordance with the provisions of this Treaty, encourage and create stable, equitable, favorable and transparent conditions for Investors of other Contracting Parties Such conditions shall include a commitment to accord at all times to Investments of Investors of other Contracting Parties fair and equitable treatment. Such Investments shall also enjoy the most constant protection and security and no Contracting Party shall in any way impair by unreasonable or discriminatory measures their management, maintenance, use, enjoyment or disposal. (...)

Art. 21, which is one of the focal points of the present dispute, states that the ECT, barring exceptions, creates neither rights nor obligations with respect to the tax measures of the contracting parties (at 3.1.1 below).


Finally, Part V on Dispute Resolution contains, at Art. 26 ECT, a jurisdiction clause under which each State accepts in advance, for the benefit of investors who are nationals of other Contracting States, that disputes relating to investment be brought before an independent arbitral tribunal. The investor may, according to its choice, bring the case before the judicial or administrative courts of the host State, or opt for several types of arbitration, including ad hoc arbitration under the Arbitration Rules of the United Nations Commission on International Trade Law [UNCITRAL] (Art. 26(4)(b) ECT).


In addition, the X.________ Republic bound itself by various bilateral investment treaties (hereinafter: BIT) three of which are mentioned below for the purposes of the legal discussion. These are built on the same model as the ECT, in that they contain material commitments such as the guarantee of fair and equitable treatment, as well as a jurisdiction clause by which the parties agree to submit the dispute to an independent arbitral tribunal. The following are some examples:


- The Agreement between the Belgian-Luxembourg Economic Union and Republic X.________ concerning the reciprocal promotion and protection of investments, which entered into force on February 13, 1992 (hereinafter: the BIT-Lux);

- The Agreement between the Kingdom of the Netherlands and Republic X.________ on the Reciprocal Promotion and Protection of Investments, which entered into force on October 1, 1992 (the BIT-NL);

- The Agreement between the X.________ Republic and the Republic of Cyprus for the Reciprocal Promotion and Protection of Investments, which entered into force on September 25, 2002 (the BIT-Cy).


B.b.   On May 8, 2013, A.________, B.________, C.________ and D.________ initiated arbitration proceedings against the X.________ Republic by availing themselves of the arbitration clauses contained in the four aforementioned treaties (the ECT, the BIT-Lux, the BIT-NL and the BIT-Cy). They claimed a final amount of XXX13 2,022 million, to be divided between them as follows: XXX 379 million for A.________ and B._______, XXX 424 million for C.________, and XXX 1,219 million for D.________. The basis of these claims for damages apparently lay in alleged violations of the commitments undertaken by the X.________ Republic under these four treaties, by virtue of which it should grant the investments covered fair and equitable treatment and the most constant possible protection and security, while refraining from adopting unreasonable or discriminatory measures hindering their management, maintenance, use, enjoyment, or disposal (see in particular Art.10(1) ECT cited above).


A three-member arbitral tribunal was constituted in accordance with the UNCITRAL Rules, under the auspices of the Permanent Court of Arbitration (PCA). Its seat was established in Geneva and English was designated as the language of arbitration.


X.________ raised seven preliminary objections to the jurisdiction of the Arbitral Tribunal. Its request for a preliminary ruling was denied and the proceedings continued. On the merits, the defendant argued that the request should be rejected on the ground that it had not violated any obligation arising from the ECT or the BITs, and in the alternative, that the claimants were not entitled to any compensation.


B.c.    On December 20, 2017, the Arbitral Tribunal issued a “partial award”14. It declined jurisdiction with respect to the grievances concerning the repeal of the Income Tax Holiday15 and the modification of the tax depreciation regime. It also declared that it did not have jurisdiction to deal with alleged violations of BIT-Cy (argued by C.________) and the BIT-Lux (raised by D.________). For the rest, it accepted jurisdiction. That being so, it confined itself to deciding the principle of the responsibility of the X.________ Republic, indicating that it would later take the necessary steps to continue the procedure now centered on the calculation of the damage. Among the violations raised, it upheld only one: the claim relating to the standard of fair and equitable treatment. All the plaintiffs were entitled to claim compensation for this fact, on the basis of Art. 10 ECT. It found violations of the same guarantee under Art. 2(2) BIT-Cy to the detriment of B.________, and respectively of Art. 3(1) BIT-NL to the detriment of A.________. The arguments supporting this Award will be discussed below to the extent that they are useful for the discussion.



On February 1, 2018, the X.________ Republic submitted a civil law appeal with the Federal Tribunal alleging a violation of Art. 190 (2)(b) of the Federal Law on Private International Law of December 18, 1987, (PILA; RS 291), for the purposes of obtaining the annulment of the “partial award” of December 20, 2017, (subject to the sections of the operative part establishing the Arbitral Tribunal's lack of jurisdiction or rejecting certain parts of the request). In particular, it produced a legal opinion drawn up by a professor of X.________ law intended to strengthen and further its point of view.


The Arbitral Tribunal declined to comment on the appeal.


In their Answer of April 12, 2018, the Respondents submitted that the appeal should be rejected insofar as the matter is capable of appeal.


The Appellant submitted a Reply on May 2, 2018, prompting a Rejoinder from the Respondents on May 22, 2018.


On June 5, 2018, the Appellant submitted a Surrejoinder requesting that both Exhibit 16 submitted by the Respondents in support of their Rejoinder, namely an arbitral award of [exact date omitted] 2018, and the allegations relating thereto (allegations 25-31, 51 and 52) be removed from the official record; it also produced a document related to this award.


By letter dated June 12, 2018, the Respondents requested mainly that the Surrejoinder and its Appendix be declared inadmissible, and in the alternative, that a time limit be set for them to determine their content. The Clerk of the Court informed them, on June 13, 2018, that the panel called upon to decide on the award under appeal would determine the admissibility of the disputed document and exhibit. He advised them of their right to submit comments on the Appellant’s latest document, a right which they exercised the following June 19.


The Appellant deemed it appropriate to submit its own comments on the new document on the following June 26, and the Respondents submitted a short brief in which they confirmed their position. They produced an additional exhibit on July 11, 2018 (namely, a publication, from an online journal, of the Award of 2018).






According to Art. 54(1) of the Law on the Federal Tribunal of June 17, 2005, (LTF16; RS 173.110), the Federal Tribunal issues its judgment in an official language17, as a rule, in the language of the award under appeal. When the decision was issued in another language (here, English), the Federal Tribunal uses the official language chosen by the parties. Before the Arbitral Tribunal, they used English, while, in the appeal briefs sent to the Federal Tribunal, they both used French.


According to its practice, (see ATF 142 III 521 at 1), the Federal Tribunal shall consequently issue its judgment in French.



In the field of international arbitration, a Civil law appeal is admitted pursuant to the requirements of Art.190 to 192 PILA18 pursuant to Art. 77 (1) LTF.


2.1. The seat of arbitration was fixed in Geneva. The award under appeal – whose title is not definitive – technically constitutes an interlocutory decision by which the Arbitral Tribunal ruled on its own jurisdiction (Art. 186(3) PILA), and on one of the material conditions of the request, the basis of the host State's liability). In accordance with Art. 190(3) PILA, it can be appealed for the reasons provided for in Art. 190(2)(a) and (b) PILA (ATF 143 III 462 at 2.2; Judgment 4A_65/2018 of December 11, 2018, at 2.1). The grievances referred to in Art. 190(2) PILA, may also be raised against such interlocutory decisions, but only to the extent that they are strictly limited to matters directly related to the jurisdiction or composition of the arbitral tribunal (ATF 143 III 462 at. 2.2 p. 465 and the judgments cited).


The use of Art. 77 LTF is generally purely for the purposes of annulment, in the sense that the Federal Tribunal, if it accepts the said appeal, has no alternative than to annul the award (see Art. 77(2) LTF which restricts the scope of Art. 107(2) LTF). By way of exception, the court may itself declare the jurisdiction of the arbitral tribunal or the lack thereof ATF 136 III 605 at 3.3.4 p.616; 117 II 94 at 4; judgment 4A_394/2017 of December 19, 2018, at 2.2). In such a context, the Appellant may either make reformatory submissions or be content with submissions for annulment (judgment 4A_490/2016 of March 6, 2017, at. 2.3).


2.2. In order for an eligible and duly-raised grievance in a civil law appeal to be admissible, it must be justified, as prescribed by Art. 77(3) LTF. This provision corresponds to the stipulations of Art. 106(2) LTF for the grievance alleging the breach of fundamental rights or provisions of cantonal and inter-cantonal law. Like this article, it establishes the grounds for challenge (Rügeprinzip) and thus excludes the admissibility of appellate criticism ATF 134 III 186 at 5; judgments cited above 4A_65/2018 at 2.2; judgment 4A_34/2015 of October 6, 2015 at 2, not published in ATF 141 III 495). In addition, the Appellant may not rely on arguments of fact or of law that were not submitted in a timely manner, that is, before the expiry of the non-extensible time for bringing an appeal (Art.100(1) LTF in conjunction with Art. 47(1) LTF) or to supplement, outside of the prescribed period, insufficiently reasoned submission The same applies to the content of a possible rejoinder (judgment cited above 4A_65/2018 and 4A_34/2015).


2.3. The Federal Tribunal adjudicates on the basis of the facts found in the award under appeal (see Art.105(1) LTF). It may not rectify or supplement of its own motion the findings of the arbitrators, even if the facts have been established in a manifestly inaccurate manner or in violation of the law (see Art. 77(2) LTF, ruling out the applicability of Art. 105(2) LTF). However, the Court retains the ability to review the facts underlying the award under appeal if one of the grievances mentioned in Art. 190(2) PILA is raised against this fact or new facts or evidence must exceptionally be taken into account in the Civil appeal procedure (ATF 138 III 29 at 2.2 and the judgments cited; judgment 4A_394/2017 of December 19, 2018, at 2.4).



2.4.1. Art. 99(1) LTF, which also applies to international arbitration (Art. 77(2) LTF a contrario), prohibits in principle the submission of new facts and new evidence before the Federal Tribunal. The prohibition of nova concerns the facts (ATF 134 V 208 at 3.6.1).


Conversely, this provision does not prohibit new legal grounds. Thus, the production of legal opinions, extracts of legal commentaries, or case law are in principle not covered by the prohibition on nova, insofar as these elements are aimed at strengthening the legal argument of the Appellant (ATF 138 II 217 at 2.4; 108 II 167 at 5 principio; 105 II 1 at 1; judgments 5A_714/2016 of January 30, 2017, at 1.3; 4A_500/2015 of January 18, 2017 at 2.2). However, it is necessary that they be produced in a timely manner, i.e. within the time limit for appeal (ATF 138 II 217 at 2.5; 108 II 69 at 1; judgments 4A_86/2013 of July 1, 2013, at 1.2.3; 4A_190/2007 of October 10, 2010, at 5.1).


Various qualifications and nuances have to be made. Thus, an expert opinion on foreign law, extracts of legal commentaries or decisions of foreign judicial authorities can have, at least partially, the character of evidence, insofar as the parties must contribute to the establishment of the foreign law (see Art.16(1) PILA; ATF 138 II 217 at. 2.3; judgment 5A_648/2018 of February 25, 2019 at 2.3, in Praxis 2019 1217; see also Judgment 5A_973/2017 of June 4, 2019, at 4.3). It also happens that a party produces a judgment related to the case, to support facts (see, for example, Judgment 4A_247/2017 of April 18, 2018 at 3). Moreover, the production of judgments subsequent to the decision is in itself contrary to the underlying premise of Art. 99 LTF, namely that the authority of that court controls the application of the law on the basis of the situation prevailing at the time of the award sought; the expression “precedents” (see the aforementioned judgment 4A_190/2007 at 5.1), which characterizes the weight that can be conferred by case law, is sufficiently meaningful in this respect.


In international arbitration, for example, this court has declared inadmissible a French court decision, an opinion of the Court of Justice of the European Union, and a foreign law, noting that these elements subsequent to the date of issuance of the award were inadmissible new documents, as were the allegations relating thereto (judgment 4A_157/2017 of December 14, 2017 at 3.3.1). The production of an arbitral award subsequent to the award under appeal was faced with the same inadmissibility pitfall (judgment 4P.104/2004 of October 18, 2004 at 3.3 in fine).


2.4.2. In its Reply of May 2, 2018, the Appellant referred to the Achmea decision of March 6, 2018 (C-284/16), in which the Court of Justice of the European Union gave an opinion on the compatibility of the arbitration clause contained in Art. 8 of the aforementioned BIT-NL with the Treaty on the Functioning of the European Union (TFEU). The Appellant argues that this judgment is based on the Arbitral Tribunal's lack of jurisdiction; at the same time, it admits that it cannot argue this grievance in these proceedings since the time limit for appeal has expired. This concession is already sufficient to exclude any discussion.


2.4.3. The parties are divided as to the admissibility of an arbitral award produced by the Respondents in support of their Rejoinder.


This 2018 award is subsequent to the Award which is the subject of these proceedings. Moreover, it was issued in proceedings that also involved the Appellant and also reached a decision on the nature of the “solar tax”. However, the Respondents cannot take advantage of the additional information that may result from this award – for example, with respect to case law and X.________ legal commentary – when they should have made these contributions in due time.


Moreover, the Federal Tribunal has already stressed, particularly in the field of international investment protection, that the conclusions reached in other arbitrations are not binding on an arbitral tribunal, such that arbitral jurisprudence cannot be seen as a source of arbitration law in the strict sense of the term (ATF 144 III 559 at 4.2.2 p. 569, judgment 4A_616/2015 of September 20, 2016, at 3.4.1 and the reference, mutatis mutandis, to judgment 4A_110/2012 of October 9, 2012, at 3.2.2 on sports arbitration).


For these reasons alone, this Court will disregard the 2018 award and the comments it elicited from the parties, all of which are inadmissible. Moreover, in keeping with its practice, it will endeavor to determine the meaning of the treaties in question itself, in accordance with the applicable methods of interpretation, taking into account legal commentary, where appropriate, but in complete freedom in relation to other arbitral awards issued on the subject, even if it is aware of the important place they occupy in the specialized literature.


2.5. It may be helpful to remember that, when called upon to deal with a jurisdictional defense (Art. 190(2)(b) PILA), the First Civil Law Court freely examines the questions of law, including preliminary questions, which determine the jurisdiction or lack of jurisdiction of an arbitral tribunal (for examples in the field of investment protection, see the aforementioned judgments 4A_157/2017 at 3.3.4 and references; 4A_65/2018 at 2.4.1 and 3.2.1-3.2.3). Where appropriate, the Tribunal may also review the application of pertinent foreign law, also with full power of review; but it defers to the clear majority view on the issue involved and, in case of disagreement between case law and legal commentary, to the opinion of the supreme court of the country stating the applicable rule of law (judgment 4A_34/2016 at 3.1; judgment 4A_538/2012 of January 17, 2013 at 4.2, cited above; 4A_50/2012 of October 16, 2012 at 3.2).


2.6. It is on the basis of these principles and reservations that the Court will examine the two branches of grievances concerning the jurisdiction of the Arbitral Tribunal.



The first point of disagreement concerns the nature of the “solar tax”, which X.________ argues is a “tax measure” within the meaning of Art. 21 ECT. If this were the case, the Respondents would not have been able to claim any rights from this treaty (Art. 21(1) ECT), nor could they avail themselves of the arbitration clause in Art. 26 ECT.



3.1.1. The specific regulation reads as follows:

Art. 21


(1) Except as otherwise provided in this Article, nothing in this Treaty shall create rights or impose obligations with respect to Taxation Measures of the Contracting Parties. (...)


7. For the purpose of this Article:

a) The term 'Taxation Measure' includes:

i)   any provision relating to taxes of the domestic law of the Contracting Party or of a political subdivision thereof or a local authority therein; and

ii)  any provision relating to taxes of any convention for the avoidance of double taxation or of any other international agreement or arrangement by which the Contracting Party is bound.


d) For the avoidance of doubt, the terms 'tax provisions' and 'taxes' do not include customs duties.19

3.1.2. This interpretation of the ECT must comply with the rules of the Vienna Convention of May 23, 1969, on the Law of Treaties (RS 0.111; hereinafter “VCLT”; ATF 141 III 495 at 3.5.1 p. 503), or according to Art.31 ff. VCLT, which codifies the substance of customary international law (ATF 145 II 339 at 4.4.1, 122 II 234 at 4c).


According to these precepts, a treaty must be interpreted in good faith, according to the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose (Art. 31(1) VCLT). The ordinary meaning of the terms is the starting point for interpretation, although the Agreement does not impose a hierarchical order in the criteria for interpretation. The principle of good faith particularly implies loyalty on the part of the Contracting State in the performance of its commitments (see also Art. 26 VCLT). A Contracting State must prohibit any conduct or interpretation that would result in its evading of its international commitments or in diverting the treaty from its meaning and purpose (ATF 143 II 202 at 6.3.1 p. 208; on the useful effect of the treaty, see, for example, ATF 144 II 130 at 8.2.1, 141 III 495 at 3.5.1, p. 503).


3.2.    Taxation is the ultimate expression of state sovereignty (Blumenstein/Locher, System des schweizerischen Steuerrechts, 7th ed. 2016, pp.1, 6 and 53). States wishing to conclude investment protection treaties are therefore inclined to eliminate the tax field from the scope of the treaty, or to limit it to certain types of taxes (Abba Kolo, Tax 'Veto' as a Special Jurisdictional and Substantive Issue in Investor-State Arbitration: Need for Reassessment?, in Suffolk Transnational Law Review 2009, vol. 32 (2) p. 475; Newcombe/Paradell, Law and Practice of Investment Treaties, 2009, p. 506 ff. sections 10,11 ff.). The effectiveness of these exclusion clauses is sometimes relative, for various reasons, including the fact that some treaties do not define what is meant by “taxation measures”, or do so only vaguely and opaquely, or the fact that these exclusion clauses (carve-outs20) are often accompanied by exceptions (“claw-backs”21), in particular with regard to expropriation (Uribe/Montes, Building a Mirage: The Effectiveness of Tax Carve-out Provisions in International Investment Agreements, in Investment Policy Brief, No.14, March 2019, pp. 1 and 8, accessible at This may unduly restrict tax sovereignty (Ugur Erman Özgür, Taxation of Foreign Investments under International Law: Article 21 of the Energy Charter Treaty in Context, Energy Charter Secretariat, 2015, p.64 ff.).


Art. 21 ECT is a good illustration of this problem. It contains an exclusion clause in paragraph 1 stating, in particular, that the treaty does not impose any obligation on the host state with regard to “taxation measures”. However, Art. 13 ECT, which lays down a prohibition in principle on expropriation measures, applies to "taxes" (Art. 21(5)(a)). Art. 21(7) ECT does provide a definition of “taxation measures”, but it is relatively vague and in a provision with a complex articulation, so that many uncertainties remain (see Özgür, op. cit., especially pp.13 and 64). Arbitral Tribunals – in particular in the frequently cited Yukos case with many twists and turns – have further held that governments can only rely on the carve-out to the extent that they levy taxes in good faith in order to increase government revenues. In the above-mentioned case, it was held that actions undertaken under the cover of taxation for completely unrelated purposes, for example to destroy a company or eliminate a political opponent, could not benefit from the exemption of Art. 21 ECT (Yukos Universal Ltd [Isle of Man] v. Russian Federation, UNCITRAL, PCA Case No. AA 227, Final Award of July 18, 2014, N 1407 and 1430 ff; Gloria Alvarez, in Commentary on The Energy Charter Treaty, 2018, n. 21.01 ff. to Art. 21 ECT; Sophie Nappert, Square Pegs and Round Holes: The Taxation Provision of the Energy Charter Treaty and the Yukos Awards, in Les Cahiers de l'Arbitrage, 2015, pp. 16 and 21, which argues that Art. 21(7) ECT provides a “neutral” definition).


Art. 21(7) ECT refers to the law of the host state (domestic law and international agreements and arrangements), which is in line with the principle of legality as a traditional condition of the collection of a tax. It does not, however, eliminate all forms of controversy. In particular, there is the question of appeal to an independent standard of a supra-national nature, potentially derived from the regulations of international organizations such as the OECD (Organisation for Economic Co-operation and Development), a standard that would supplement the law of the Host state. On this point, too, there are hardly any clear-cut answers in legal commentary. It is worth noting in passing the slightly different wording adopted in the English version of Art. 21(7)(a) ECT.


That being said, all the problems inherent in Art. 21 ECT, part of which is outlined here very briefly, do not call for further reflection. Indeed, the Arbitral Tribunal has found that, with regard to X.________’s law itself, the “solar levy”22 was not a tax.


As it was not a taxation measure within the meaning of Art. 21(1) ECT, jurisdiction was acquired by the Arbitral Tribunal. The analysis of the Arbitrators should be summarized (at 3.3 below), before examining the grievances of the Appellant.


3.3.    The Arbitral Tribunal clarified in its preamble that two of the measures adopted by the X.________ Republic in the wake of the “solar boom”, namely the repeal of the tax exemption (Income Tax Holiday23) and the modification of the depreciation regime, were clearly taxation measures within the meaning of Art. 21(7) ECT; the plaintiffs finally accepted this. The claims submitted on this count were therefore outside the scope of its jurisdiction.


As for the “solar levy”, it inspired the following reflections:


Art. 21(7)(a) of the ECT referred to the domestic law of a Contracting State and to the international agreements applicable to it. The parties had focused on the law of X._______. It was therefore necessary to examine whether the “solar levy” constituted a tax under this domestic law, without forgetting the terms of the ECT.


Among all the documentation provided by the parties, the Arbitrators paid particular attention to court decisions, especially those of the Supreme Administrative Court of X._______. Many of them recognized the legality of this levy. However, they only examined whether the levy could be formally classified as a tax, in particular from the perspective of the Tax Procedure Code or Tax Administration Law; they did not attempt to determine whether, in substance too, it was a tax. Art. 2(3)(b) of the Tax Procedure Code defined tax as a “pecuniary levy”24, the administration of which was subject by law to this Code; it followed that various fees and charges were levied pursuant to this Code without being designated as taxation measures. In finding that the collection of the “solar levy” was subject to the said Code, the decisions therefore did not prejudge whether it was a tax within the meaning of X._______ law. In order to appreciate the nature of the “solar levy”, it was first necessary to refer to the context of its introduction. While new tax laws are typically presented to parliament by the Minister of Finance, the “solar levy” was introduced by the Minister of Industry and Trade. Moreover, the legislative technique took the form of an amendment to the Law on the Promotion of Renewable Energy, rather than a change in tax legislation – like the other two measures mentioned above, which were of a fiscal nature. In addition, the Minister of Industry had made statements to the Economic Committee of the Chamber of Deputies and to European Commissioner L.________, in which he acknowledged that the aim of such a measure was to reduce the level of subsidy enjoyed by a group of operators who had recently invested in the photovoltaic sector, in order to make it “bearable” for the government and electricity consumers.


The most convincing evidence as to the nature of the “solar levy” under X._______ law was a decision of the Supreme Administrative Court of July 10, 2014, which had to examine whether the “solar levy”, combined with corporate income tax, represented proscribed double taxation. It was clear from this that although the “solar levy” was introduced as a measure to provide income to the general state budget, in substance it was not a tax, but a measure designed to reduce the level of government support25 for solar energy producers. The “solar levy” introduced was by nature a government subsidy26 and not a tax, the characteristic feature of which was the principle of non-equivalence.


This decision, read in conjunction with other decisions of the X._______ Constitutional Court and of the Supreme Administrative Court, was authoritative as to the nature of the “solar levy” under the law of X._______, and was consistent with the context in which the measure had been adopted. The fact that it was subject to the Tax Procedure Code and collected according to its rules, like taxes but also other emoluments such as court fees, did not change this. In fact, the “solar levy” specifically led to a reduction in the subsidy – Feed-in Tariff – payable by the government, i.e. reducing expenditure, rather than bringing in revenue to the government.


It did not matter that the tax was paid into the general government funds in the Ministry of Finance account, as long as this did not change the way the measure operated. The analysis could not be confined to the formal features of the measure, except to allow the parties to wrongly avoid the obligations arising from Part III of the ECT, as well as the commitment to submit to arbitration (Art. 26 ECT), merely because the measures undertaken had been given the label of “taxation”.


It was not intended to imply – and the Arbitral Tribunal defended this – that the X.________ Republic had acted in bad faith in seeking to reduce the level of subsidy in a manner which it hoped would comply with its obligations, including those arising from investment treaties. The Arbitrators simply found that the measure undertaken was designed to ‘reduce the support’27 payable to solar energy producers and acted as such, regardless of the procedure applied.


3.4. The cornerstone of this analysis is a decision of the Supreme Administrative Court of X._______ of July 10, 2014, which is partially reproduced below:

(...) the nature of any tax in the taxation system involves the government requiring funds from tax payers without immediate compensation. (...) a common essential feature of all taxes is their non- equivalence. The subject of the levy collected under the Renewable Energy Sources Act is the amount resulting from the consideration of stipulating the amount of government support for this type of economic activity. Unlike collecting income tax on income resulting from the activities of the entity subject to the tax without any performance from the state at the time of taxation, the state uses the levy to lower the support it calculated and provided. (...) The levy (...) is in nature a decrease in government subsidy and not a tax, where the basic criterion is non-equivalence."28

X._______ tax, we learn here, has the characteristic of being levied without regard to any particular benefit provided by the government (“non-equivalence”29). Swiss taxes are also levied unconditionally (voraussetzungslos, gegenleistungslos30), when a taxpayer is in a certain financial situation, independently of any benefits provided by the government or any particular advantage (ATF 140 I 176 at 5.2; 122 III 305 at 4(b) p.309). This is in contrast to a causal contribution, which is precisely corresponds to a special benefit or a special advantage provided by the government that is financially significant, or to a third category of contribution, namely an incentive tax (ATF 135 I 130 at 2). This characteristic of tax (the absence of consideration) can be found in the Interpretation Guide developed by the OECD for the classification of taxes, to which the Appellant refers (see, OECD Tax Classification and Interpretation Guide).


In its landmark decision, the X._______ Court noted that personal income tax typically hits the business income of a taxpayer without any government benefit at the time of taxation. However, the same is not true of the “solar levy”. The purpose of this is the amount that results from the analysis determining the extent of government support or this type of economic activity. The government uses this tax to reduce the support it has calculated and provided. Therefore, it is not a tax.


The Appellant contests both the authority of this decision (at 3.5 below) as well as its merits (at 3.6).



3.5.1. According to the Appellant, the Arbitrators allegedly extracted “an isolated, undiscussed, superfluous and ill-founded discussion from a decision that was unpublished, uncited and devoid of authority”. Under the guise of a so-called “careful” examination of the case law, they have allegedly painted an inaccurate and superficial picture of X.________ law and case-law. The Constitutional Court ostensibly analyzed the “solar levy” as a tax from a material point of view and supposedly admitted its constitutionality; many decisions of the high administrative courts have apparently systematically treated the "solar levy" as a tax.


3.5.2. In the X.________ Republic, the judicial system consists of a Constitutional Court (a specialized jurisdiction) and an order of ordinary courts. Within the latter, the Supreme Administrative Court is the supreme body with jurisdiction to hear cases in the administrative field, ensuring the uniformity and legality of the case law (see official website of the European Union https:/, section “Judicial Systems”; see also judgement, p. 37 n. 134). The Arbitral Tribunal decided that the judgement of July 10, 2014, by this body, read in conjunction with other decisions of the Constitutional Court and others, was authoritative on the material nature of the “solar levy”, which was analyzed in this specific light.


3.5.3. The Appellant submits that other decisions apparently analyzed the “solar levy” materially as a tax. In an attempt to demonstrate this, it refers to a legal opinion issued by a professor at an X.________ law school M.________), which it produced in support of its appeal. According to settled case-law, the statement of reasons must be included in the appeal brief itself, the appellant cannot simply refer to other documents, in particular documents submitted with the previous authority (see ATF 133 II 396 at 3.2. p 400; 130 I 290 at 4.10; judgment 4A_600/2016 of June 29, 2017 at 1.2; 4A_137/2007 of July 20, 2007 at 4; see also ATF 135 II 384 at 2.2.1). If a blanket reference to an entire legal document extending over forty pages is not admissible (see Appeal p. 30 in fine), the situation may be different when, in the course of a grievance, reference is made to specific paragraphs of such a document, drafted in support of the appeal and taking a position in relation to the decision taken (see Appeal p.35 ff.). However, reading the passages selected does not help the Appellant in this case.


The legal commentaries pay close attention to two decisions issued by the Constitutional Court on May 15, 2012, and January 13, 2015. These are referred to in the Award, which quotes one or two sentences from them. The Supreme Administrative Court refers to the older one several times in its judgment of July 10, 2014. It emerges from this that the Constitutional Court ruled out a violation of the guarantees of property and free enterprise, or a violation of the essential principles of a democratic constitutional state. According to the Appellant's expert, this highest authority also ruled out a violation of the principles of equal treatment and non-retroactivity, denying also that there had been a breach of “legitimate expectations”. However, in view of the grievances at issue and their fate, the Constitutional Court was not required to carry out a decisive analysis of the real, substantial nature of the disputed “tax”, an important feature of which it found, moreover, was that it constituted in essence a reduction in the level of ‘support’31 granted to the operators of photovoltaic installations. It is not sufficient to cite one or other brief extract from a judgment adopting tax terminology in order to demonstrate the existence of a substantial analysis. It should also be stressed that the expert's method of referring to his previous report of 2016, submitted to the Arbitrators, is not admissible, nor is the completion of a statement of reasons after the expiry of the time limit for appeal.


The Appellant further argues that the contested analysis of the Supreme Administrative Court is an isolated obiter dictum; this does not appear to be the case. This authority was asked to decide on a double taxation grievance by a photovoltaic electricity producer benefiting from the FiT purchase price. One part of its argument was that the 26% "solar levy", which was a ‘withholding tax’32 on income from the sale of electricity, was in essence incompatible with the income tax on the balance of that income. It was this grievance that led the Supreme Administrative Court to consider the material nature of the “solar levy”. The Appellant does not claim that the Constitutional Court has apparently decided a claim of double taxation.


In short, there is no reason to deviate from the Arbitrators' finding that the judgment of July 10, 2014, expresses the position of the highest X.________ court of ordinary jurisdiction on the real nature of the “solar levy”, it being understood that the Constitutional Court did not decide directly on this issue, but referred to the concrete effects of this levy.


3.6. The Appellant further submits that the analysis conducted in this case law is erroneous and seeks to demonstrate this by relying on the legal commentary produced and on extracts from a law textbook. In so doing, it disregards the practice of this Court, which it has nevertheless pointed out, of giving precedence to the position expressed by the highest court in the country (see 2.5 above). There is, moreover, nothing unusual about legal commentary criticizing case law. As to the fact that the crucial decision was issued by a three-judge court and was not published in the official gazette, this is not sufficient to alter the above-mentioned practice.


At this point a remark must be made. The Supreme Administrative Court's reasoning, which was relied upon by the Arbitrators, revolves around the fact that the Feed-in Tariff paid to the solar energy producers was partially subsidized. However, for some undetermined reason, the Arbitral Award does not analyze this point. Nevertheless, the X.________ Republic does not venture to dispute that it was subsidizing the said FiT; this subsidy is even discussed and documented in the submissions that the parties made to the authorities. By the admission of the Appellant and its expert, the FiT price was initially borne entirely by consumers; however, this price, which was higher than the market price, became too high when solar energy production unexpectedly increased – production which, it should be remembered, had to be purchased as a matter of priority. The government then partially subsidized the FiT, in order to relieve consumers. The list of abbreviations at the beginning of the award furthermore indicates, under “Act 2010”, that this law introduced the solar levy and government subsidies for the partial financing of the renewable energy promotion scheme (Award p. iv; see also p. vii: Subsidies: Subsidized Feed-in Tariffs [...] to be paid for qualifying RES electricity generation [...])33. In its judgment of July 2014, the Supreme Administrative Court also explained that the government decided to impose a subsidized non-market price34 and reviewed the amount of its support, which proved to be unsuitable with regard to the significant drop in investment costs necessary for this form of electricity generation. The solar levy, it added, is by nature a decrease in government subsidy.35


It therefore appears that, in the broadest sense, government support took the form, first, of a first set of measures imposing the priority purchase of electricity produced by photovoltaic installations, at a fixed price (“Feed-in Tariff”36) (Section 6 of the Law on the Promotion of Renewable Energies), then, after the appearance of the “solar boom”, of a partial subsidy of this fixed price which could not be lowered.


3.7. In short, the Arbitrators found that the “solar levy” did not materially have the nature of a tax, according to the judgement of the highest ordinary X.________ court which they adopted for their own purposes. They concluded that it was not a taxation measure within the meaning of Art. 21 ECT.


It is difficult to see how the Arbitrators may have thus breached Art. 21 ECT and the principles governing the interpretation of the Treaties. The analysis carried out recalled the characteristics of a tax, levied without consideration (“non-equivalence”) and intended to generate state revenue. Detailing the “solar levy”, it took into account the formal features arguing for a tax (in particular its submission to the Code of Fiscal Procedure, due to the particular definition of the tax contained therein), as well as those arguing against (adoption in a non-tax piece of legislation, by a ministry other than the Ministry of Finance). The formal intention of the levy, aimed at bringing in income for government treasury according to Art. 7(i) of the Law of 2010, was not ignored. However, the analysis went beyond these formal aspects to take into account the essence of the levy, the context of its introduction – concomitant with the regulation of the subsidy – on the occasion of a “solar boom” which induced costs that became unbearable for the consumer alone, considering also the avowed purpose of the “levy” according to the Minister of Industry, and finally its real effect coinciding with the said purpose, namely, to reduce the amount of the subsidy due. Such a process is indeed part of an interpretation governed by the principle of good faith and the ordinary meaning of the terms.


It should be pointed out in passing that the question of who – the Ministry of Finance or the Ministry of Industry – submitted the tax in question is a matter of fact and is binding on the authority of this court (see at 2.3 above). Similarly, where it is found that the “solar levy” was intended to reduce the state subsidy and did in fact have this effect, this finding is essentially based on factual data over which this Court has no control.


These considerations lead to the rejection of the first set of grievances.



4.1.    The second ground of appeal is the rejection of an objection which the Appellant had raised in relation to the Respondents B.________ and A.________. The Award under appeal summarizes the objection as follows: The three treaties on which these companies base their claims (i.e. the BIT-Cy [by reason of the incorporation of the first company in Cyprus], the BIT-NL [by reason of the incorporation of the second company in the Netherlands], and the ECT) would not be applicable, and the Arbitral Tribunal would lack jurisdiction for two reasons: on the one hand, these treaties would only protect foreign investments, a condition which is not met in this case as these entities were controlled by X._______ nationals; on the other hand, these persons would have carried out inadmissible “forum shopping”37 by restructuring their investments at a time when the occurrence of a dispute with the X.________ government was foreseeable.


This objection did not find favor in the eyes of the Arbitral Tribunal, which essentially put forward the following argument: neither the BIT-Cy nor the BIT-NL makes any requirements as to the source of the funds invested or as to the nationality of the investor at the time the investment is made; therefore, under the aegis of these two treaties, an investment may well become a foreign investment after having been made, as a result of a transaction or a change in the nationality of the investor (whether a natural or legal person). Furthermore, there is no indication that the dispute between these companies and the X._______ Republic was foreseeable at the time of their foundation, respectively on October 29, 2009, in Cyprus and on December 8, 2009, in the Netherlands. X.________ itself has argued, with expert opinion in support, that the “solar boom” could not be accurately predicted until mid-2010; if it had been foreseeable, it would have been the same for the “solar levy”.


4.2. The Appellant disagrees with this analysis, which, moreover, addresses only part of the problem raised. From its point of view, the investments of B.________ and A.________ cannot benefit from the protection of the three treaties (ECT, TBI-Cy and TBI-NL) because they are in fact purely domestic investments made by three X._______ nationals holding investment group I.________, who would be the economic beneficiaries of B.________, A.________ and Z.________. There are two arguments for taking into account the economic reality: first, the concept of investment adopted by these treaties, which only cover flows of assets from one Contracting State to another, with effective control of said assets having to be exercised in the country of origin; and second, these treaties contain an implicit “anti-abuse” clause, like double taxation treaties. However, the X._______ nationals holding investment group I.________ abusively interposed two new entities with no real substance between themselves and Z.________, namely a Dutch shell (A.________) and a Cypriot shell (B. ________, holding the previous one entirely), while the legislative measures designed to affect the investments of the X._______ economic beneficiaries were imminent and a dispute with the Republic X.________ was foreseeable: the government had already threatened to remove the 5% limit on the FiT price and then reversed its position under the threat of arbitration proceedings, warning that it would not take any significant action until the next elections scheduled for October 2009 - precisely the time chosen to found the two entities.


4.3. The Appellant raises the issue of the strategic change of nationality, carried out with a view to obtaining the protection of the substantive and/or jurisdictional clauses of an investment treaty that would otherwise not be applicable. This is referred to as “treaty shopping”38, taken here in its broadest sense (Jorun Katharina Baumgartner, Treaty Shopping in International Investment Law, 2016, pp. 7ff, 30ff and 305). Both legal commentators and arbitral tribunals consider treaty shopping to include not only when an investor who is a national of a third State – not party to the treaty – (re)structures its investment so as to be connected to a Contracting State, but also when such a transaction emanates from a national of the host State; in this case, the investor has to “internationalize” its investment which would otherwise not fall within the scope of the treaty, a process sometimes referred to as “round-tripping”39 (Baumgartner, op. cit., p. 2). cit., p.12 and pp.101 ff. and the awards cited, including Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, April 29, 2004; Efe Uzezi Azaino, Nationality/Treaty Shopping: Can Host Countries Sift the Wheat from the Chaff? in CEPMLP Annual Review [University of Dundee] - CAR Volume 16 (2013), pp. 7ff. and 11; Peter Muchlinski, Corporations and the Uses of Law: International Investment Arbitration as a “Multilateral Legal Order”, Oñati Socio-Legal Series, v. 1, no. 4 (2011), pp. 3 and 16 ff.).


In most cases, the strategic adoption of a certain nationality takes place through the use of legal persons (Baumgartner, op. cit., p. 11 in fine). As in the case of tax law, treaty shopping involves drawing a line between legitimate planning and abusive procedures (Baumgartner, op. cit., p. 31).


Governments have different ways of influencing the practice of treaty shopping. They can, for example, influence the definition of investor and investment and the criteria for determining the nationality of a legal person; they can require a certain effective link with the nation state, apply a “denial of benefits clause”40 to an entity controlled by a national of a third state – or even of the host state – or impose requirements as to the origin of the funds invested (Baumgartner, op. cit., pp. 237 ff. and 264 ff.; see also Azaino, op. cit. pp.11 ff.).


Therefore, the first step is to find out what the Contracting Parties to the investment treaty have agreed, by interpreting their agreement in the usual way (Baumgartner, op. cit., pp. 279 ff.). This being so, legal commentary and arbitral tribunals see abuse of law (and its procedural aspect, abuse of process) as a possible remedy to treaty shopping41 (Baumgartner, op. cit., pp.197 ff., 294 ff. and 303; Yuka Fukunaga, Abuse of Process under International Law and Investment Arbitration, ICSID Review vol. 33 No.1 [2018] pp.183 and 208; Markus Perkams, Protection for Legal Persons, in International Investment Law, 2015, pp.642-644 and pp.650-652). Abuse of procedure, in particular, has been discussed in numerous cases by legal commentators (see for example Fukunaga, op. cit., pp.181 ff; Watson/Brebner, Nationality Planning and Abuse of Process: A Coherent Framework, ICSID Review vol. 33 No.1 [2018] p.302 ff). It seems that “piercing the corporate veil”42 is regularly requested before arbitral tribunals, without much success according to some authors (see Baumgartner, op. cit., pp.288 et seq. and the references cited; Azaino, op. cit., pp.12 et seq.; Albert Badia, Piercing the Veil of State Enterprises in International Arbitration, 2014, pp. 143 et seq.


4.4. It will therefore be a question here of examining, in the context of the grievances raised by the Appellant, whether the Cypriot and Dutch companies referred to above are investors protected by the three treaties of which they avail themselves and, if so, of investigating whether they are committing an abuse of rights by claiming such protection.


Like the Respondents, the Appellant has a point: the Award under appeal fails to analyze the problem in the light of the third treaty, the ECT. This Court may consider this issue once it has been duly raised before the Arbitral Tribunal, it being specified that the Appellant does not claim a violation of its right to be heard. However, such consideration of legal issues remains dependent on the findings of fact in the award.


This is precisely the place to present the factual information available with regard to the investments.


4.5.    The investment of the four plaintiffs took the form of the purchase of shares in Z.________, incorporated under X.________ law, and/or financing granted to it (loans/repurchase of claims arising from loans). This entity, which was incorporated in 2007, owned 11 "vehicle" companies under X.________ law, operating several photovoltaic plants in the X.________ Republic.


Originally, all the shares of Z.________ were held by J.________ B.V., a company incorporated under Dutch law which is not a party to this arbitration. On December 18, 2009, that entity sold 46.75% of those shares to Respondent A.________, a company incorporated under Dutch law founded on December 8, 2009, wholly owned by Respondent B.________, itself a Cypriot company founded on October 29, 2009 The latter granted financing to Z.________. Both Respondents (A.________ and B.________) are part, together with other companies, of the investment group I.________, owned by X.________ nationals. According to a diagram reproduced in the Award, this group belongs to the three X.________ nationals Y1.________, Y2.________ and Y3.________, who have 100% ‘beneficial ownership’43 of the Cypriot B.________ and, through it, of the Dutch A.________. Y3._______ is presented as the representative and controlling beneficial shareholder44 of the defendants A.________ and B.________ (Award, p.viii; see also p.101 no. 282: “controlling beneficial shareholder”).


4.6.    The Appellant disputes that B.________ and A.________ made investments protected by the three treaties. The situation will be examined in the light of the ECT (at. 4.6.1 et seq. below) and then the two BITs at 4.7).


4.6.1. Art. 1(6) ECT defines investment in these terms:

“Investment” means every kind of asset, owned or controlled directly or indirectly by an Investor and comprising

a) [...]

b) a company or business enterprise, or shares, stock, or other forms of equity participation in a company or business enterprise, and bonds and other debt of a company or business enterprise; [...]

An interpretative clause No. 3 at the end of the treaty clarifies the notion of control as follows:

For greater clarity as to whether an Investment made in the Area of one Contracting Party is controlled, directly or indirectly, by an Investor of any other Contracting Party, control of an Investment means control in fact, determined after an examination of the actual circumstances in each situation. In any such examination, all relevant factors should be considered, including the Investor's

a)  financial interest, including equity interest, in the Investment;

b)  ability to exercise substantial influence over the management and operation of the Investment; and

c)  ability to exercise substantial influence over the selection of members of the board of directors or any other managing body.

Where there is doubt as to whether an Investor controls, directly or indirectly, an Investment, an Investor claiming such control has the burden of proof that such control exists. [...]

Art. 1 ECT further sets out the following definitions:

7.  “Investor” means:

a)  with respect to a Contracting Party:

i)   a natural person having the citizenship or nationality of or who is permanently residing in that Contracting Party in accordance with its applicable law;

ii)  a company or other organization organized in accordance with the law applicable in that Contracting Party;

b)  with respect to a “third state”, a natural person, company or other organization which fulfils, mutatis mutandis, the conditions specified in subparagraph (a) for a Contracting Party.

8.  “Make Investments" or "Making of Investments" means establishing new Investments, acquiring all or part of existing Investments or moving into different fields of Investment activity.

The ECT contains a clause allowing the contracting parties to refuse the benefit of the treaty (denial of benefits clause45) under the following conditions:

Article 17 Non-application of Part III in certain circumstances

Each contracting party reserves the right to refuse the benefit of this Part to:

(1) a legal entity if the citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the area of the contracting party in which it is organized;


4.6.2. It follows from the above-mentioned regime that it is indeed in the person of the investor – and not in the investments – that the requirement of foreignness in relation to the host state is reflected. However, it is still necessary to link the investment to an investor.


Often, one or more third parties come in between the investor and the investment; in such cases, the investment is an indirect investment. Legal commentary notes that indirect investment has at least two layers and that the question of ownership and/or control must be considered at each level. The difficulty lies in determining whether the investor should have some form of global control (Bischoff/Happ, The Notion of Investment, in International Investment Law, 2015, p.527 no. 85 and p. 531 no. 104 ff.; see also Baumgartner, op. cit., p.141).


In the definition of investment adopted by the ECT, the adjective “indirect” seems to refer to the result of actually owning or having de facto control of an asset, rather than the action phase undertaken to obtain the investment. This treaty requires that the investor has control over the asset46 (asset/ Vermögenswert47/ attività48) constituting an investment, which in itself does not necessarily coincide with the control (in particular economic) of the legal entity that formally holds this asset.


4.6.3. The Appellant argues that in the case in point, three natural persons of X.________ nationality apparently have de facto control of the investments.


The Award refers to a deed of sale concluded on December 18, 2009, between J.________ B.V. and the Respondent A.________ by which the former sold to the latter 46.75% of the shares in Z.________.


As for B.________ Ltd., it provided financing to Z.________. It can be inferred from this that these two legal persons are owners of the investments.

However, the factual situation that binds this Court does not allow us to conclude that these assets are indirectly owned or controlled by the three X.________ nationals. Information on the investment group and its owners is tenuous. The interpretative clause requires an overall assessment of the circumstances, noting in particular the capacity of the investor to substantially influence the management of the investment (see Interpretative Clause No.3(b) to Art.1(6) ECT). However, there is no evidence to seriously support this argument. Nor is there any indication that the three X.________ nationals took an active part in the investment operations. The Appellant asserts that the two legal persons are empty shells, which is also not apparent from the Award (see also infra at 4.8). To find, in such a vague context, an indirect investment would practically amount to denying any scope to the legal personality and to misunderstanding the ECT regime.


4.6.4. For legal persons, the ECT has traditionally adopted the formal criterion of incorporation. In so doing, it has abandoned the requirement of closer links between the entity and its State of incorporation, by requiring, for example, that it carry on a substantial activity in that State. Nor did it choose the criterion of the nationality of the person or persons controlling the legal entity (see Baumgartner, op. cit., pp.72-75; Perkams, op. cit., pp.638 et seq.).


Art. 17 ECT does, however, achieve a compromise in this multilateral treaty. It tempers this liberal regime by allowing the host State to refuse the benefit of Part III of the treaty when the legal entity is owned or controlled by the national of a “third State” and does not engage in substantial commercial activities in the area of the Contracting State in which it is organized. This applies specifically to companies that are pure mailboxes or other empty shells (Jagusch/Sinclair, Investments and Investors covered by the ECT [...], in Investment Arbitration and the Energy Charter Treaty, 2006, p.93 et seq.; see Baumgartner, op. cit., p.114).


This clause has given rise to much discussion, in particular in so far as it refers to nationals of a “third State” without mentioning, as in other treaties, nationals of the host State (see Baumgartner, op. cit., pp. 247 et seq.). However, it is not excluded that the latter may also be denied protection, according to some authors (see Richard Happ, The Energy Charter Treaty, and Anne K. Hoffmann, Denial of Benefits, in International Investment Law, 2015, p. 254 no.46 and p.612 no.50).


In any case, the Appellant itself does not avail itself of this clause, which spares any discussion.


Finally, it can be acknowledged that the ECT aims to promote international investment flows, to “catalyze economic growth by means of measures to liberalize investment and trade in energy;” in the words of its preamble. The fact that the investments have a foreign element is inherent to this type of agreement. However, it all depends on how the agreement in question defines the foreign element. Now, the ECT has placed this burden on the investor and has defined the nationality of legal persons according to a formal criterion. Declarations of intention as to the goal pursued cannot change this state of affairs.


In short, B._______ and A.________ are companies incorporated in two state parties to the ECT (Cyprus and the Netherlands) and have held an investment within the meaning defined by the said treaty.


4.7.    It remains to examine the situation in the light of the other two treaties, namely the BIT-Cy and the BIT-NL.


The Appellant repeats the same argument, namely that these bilateral treaties also require “a trans-territorial flow from Contracting Party to Contracting Party of assets controlled in the country of origin of the flow”. It relies on the definition of investment resulting from the two treaties, which would implicitly rely on the test of de facto control, given their goal of promoting transnational investment.


Art. 1 TBI-NL stipulates the following:

a) the term “investments” shall comprise every kind of asset invested either directly or through an investor of a third State and more particularly, though not exclusively:


b) the term ‘investors’ shall comprise:

i.   natural persons having the nationality of one of the Contracting Parties in accordance with its law;

ii.   legal persons constituted under the law of one of the Contracting Parties.” In accordance with Art. 1 TBI-Cy, it states the following:

1.  “The term 'investment' shall comprise every kind of asset invested in connection with economic activities by an investor of one Contracting Party in the territory of the other Contracting Party in accordance with the laws and regulations of the latter and shall include, in particular, though not exclusively:


2.  The term 'investor' shall mean any natural or legal person of one Contracting Party who invests in the territory of the other Contracting Party, and for the purpose of this definition;

(a) The term 'natural person' shall mean any natural person having the nationality of either Contracting Party in accordance with its laws.

(b) The term 'legal person' shall mean, with respect to either Contracting Party, any entity incorporated or constituted in accordance with, and recognized as legal person by its laws, having the permanent seat in the territory of that Contracting Party.”49


Like the ECT, it is also in the person of the investor that the requirement of foreignness in relation to the host state is expressed. Moreover, the set of facts that binds this Court does not allow it to conclude that the three X.________ nationals had any indirectly-invested assets within the meaning of these two treaties. Again, the Appellant argues – without establishing it – that such persons exercise a de facto control over the assets. Moreover, it appears that the TBI-NL also adopts the formal criterion of incorporation. As for TBI-Cy, it differs from the other two treaties by requiring a permanent seat in the territory of the contracting party. However, the Arbitral Tribunal reached the conclusion that this condition was met for B.________ and the Appellant makes no admissible criticism of this analysis. It does not avail itself of other provisions of these treaties, except for the aim expressed in their preambles, which inspire the same reflection as for the ECT. The argument that would seek to defeat the application of these two BITs is therefore unfounded.


4.8.    There remains the question of abuse of rights. In the absence of specific clauses in investment treaties, it is difficult to see how the legal personality of an investing entity falling within the scope of the treaty can be disregarded, except by resorting to the prohibition of abuse of rights (see Baumgartner, op. cit., pp.291, 294, 297 and 303, in relation to the procedure of “lifting the corporate veil”). This component of the principle of good faith is considered a general principle of international law, or even a rule of customary international law (Baumgartner, op. cit., p.197; Fukunaga, op. cit., pp. 183 and 208; Dinh/Daillier/Pellet, Droit international public, 7th ed. 2002, p. 352 no. 227(a); see also ATF 132 III 389 at 2.2.1, from the point of view of substantive public policy).


We will not prejudge here the question of the hierarchical structure between Art. 17 ECT and the correction of abuse of right. Indeed, it is sufficient to note that the latter presupposes exceptional circumstances (see for example, Fukunaga, op. cit., p. 209), which are not made out in the case at hand.


The Appellant places great emphasis on a temporal factor, namely the date of incorporation of the Cypriot and Dutch companies, which are October 29, 2009, and December 8, 2009, respectively. In its view, the dispute was foreseeable and imminent at that time; the transitional government had already announced that it wanted to remove the 5% limit for the FiT and threats of arbitration proceedings had forced it to back down; it had warned that it did not want to take legislative action until the next elections scheduled for October 2009; and portage companies with no real economic activity would have been set up at that time, with the sole aim of obtaining treaty protection.


The Award rejected the foreseeability argument. Contrary to the arguments put forward by the Respondents, this is not a question of fact, but of law. On the other hand, these legal considerations are necessarily based on facts that are reflected in the arbitral Award.


These are as follows:

-                 At the request of the ERO, the X.________ government announced on August 28, 2009, its intention to abolish with immediate effect the 5% limit reduction in order to allow the regulator to adapt the FiT to the current investment costs in the solar energy sector;

-                 however, under pressure from investors and banks, it backed down in favor of a more gradual approach to reducing the FiT. The Ministry of Industry and Trade explained in a letter to the ERO that the 5% limit was intended to give renewable energy investors a guarantee that their investments would be profitable; an outright cancellation of this limit would expose the X.________ Republic to the risk of proceedings related to the loss of their investments.

-                 At a press conference held on November 16, 2009, the Minister of Industry and Trade authorized the ERO to waive the 5% limit for any installation connected to the grid after January 1, 2011. This resulted in the 2010 law of March 17, 2010, which entered into force on May 20, 2010, amending the law on the promotion of renewable energy.

-                 These events took place in a context of political crisis. A provisional government was established in May 2009. In its policy speech, it had indicated that it would avoid any potentially divisive legislation and would leave major decisions to the next parliament. Elections were originally scheduled for October 2009 but were postponed until May 2010.

-                 B.________ was founded on October 29, 2009, and A.________, a subsidiary of the former, on December 8, 2009.


It thus appears that at the time of the creation of these companies, investors and the X.________ Republic had already crossed swords: the Ministry of Industry had expressed its intention to simply repeal the 5% limit on the setting of the FiT; however, investors had the upper hand, since the X.________ Republic had, under their pressure combined with that of the banks, renounced this measure and publicly communicated that it would repeal the aforementioned limit for installations connected to the grid after January 1, 2011. The X.________ nationals could therefore reasonably believe that this date marked the end of a chapter and that installations previously commissioned would escape a similar measure. It would have been very surprising if the X.________ Republic had initially targeted facilities connected to the grid after January 1, 2011, and then extended the same measure to installations connected to the grid before that date. Moreover, the Arbitrators found no indication in the file that the regulatory changes would affect plants commissioned in 2009 and 2010.


In short, the investors did not have to assume that the X.________ Republic would choose another means than the adaptation of the FiT to achieve the same result and that they would introduce, almost a year later (Law of December 28, 2010), the “solar levy”.


For the sake of completeness, the temporal component should be placed in the overall context of the appeal. Indeed, the X.________ company Z.________ – holding the entities operating photovoltaic installations in the X.________ Republic – was founded in 2007 and was originally wholly owned by J.________ B.V. in the Netherlands, a company not party to the present proceedings. There was therefore already a Dutch structure interposed between Z.________ and the natural persons who were the ultimate economic beneficiaries. Admittedly, another foreign element was added with the Cypriot law company B.________, incorporated in October 2009, which wholly owns Respondent A.________. However, it does not appear that this element is a key element in the reasoning. In particular, the Appellant does not argue that the benefit of the BIT-Cy is greater than the protection conferred by the ECT – to which Cyprus is also a party – or the BIT-NL. Moreover, it attempts, in vain, to equate an admission of abuse with the simple recognition that investments can be structured in such a way as to legitimately benefit from the protection of a treaty.


In addition, the Panel held that B.________ had a “permanent seat” in Cyprus and was thus an investor within the meaning of Art. 1(2)(b) BIT-Cy. The Appellant cannot criticize the Respondent for not having provided more evidence than was necessary to prove a permanent seat, a notion which the Arbitral Tribunal found did not involve ‘effective management’50 at the place of incorporation. In any event, the factual situation presented in the Award clearly does not have the characteristic features that would authorize recourse to the exceptional remedy of abuse of right.


4.9. In short, the second branch of grievances relating to the alleged lack of jurisdiction of the Arbitral Tribunal fails.



Under these circumstances, the present appeal must be dismissed insofar as it is admissible.


Accordingly, the Appellant, who is unsuccessful, will have to pay the costs of the federal proceedings (Art. 66(1) LTF) and pay costs to the Respondents, joint creditors (Art. 68(1) and (2) LTF).



For these reasons, the Federal Tribunal pronounces:



The appeal is rejected.



The judicial costs, set at CHF 200’000, shall be borne by the Appellant.



The Appellant shall pay the Respondents, joint creditors, compensation of CHF 250’000 as costs.



This Judgment shall be communicated to the Parties and to the Arbitral Tribunal sitting in Geneva.


Lausanne, February 7, 2020.



On behalf of the First Civil Law Court of the Swiss Federal Tribunal


The Presiding Judge:                                                                                       The Clerk of the Court:


Kiss                                                                                                                Monti

  • 1. Translator’s Note: Quote as The X.________ Republic v. A.________, B.________, C.________, and D.________, 4A_80/2018. The original decision was issued in French. The full text is available on the website of the Federal Tribunal,
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  • 16. Translator’s Note: LTF is the French abbreviation for the Federal Statute of June 17, 2005, organizing the Federal Tribunal, RS 173.110
  • 17. Translator’s Note: The official languages of Switzerland are German, French, and Italian.
  • 18. Translator’s Note: PILA is the most frequently used abbreviation for the Swiss Private International Law Act of December 18, 1987
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  • 46. Translator’s Note: French “l’avoir” in the original text. 
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