Charanne v Spain and Eiser v Spain: Comparative Case Analysis on Legitimate Expectations and Fair and Equitable Standard

AuthorKudrat Dev
Charanne v Spain and Eiser v Spain:
Comparative Case Analysis on Legitimate
Expectations and Fair and Equitable
Standard
Kudrat Dev
The present Article analyses the two
landmark decisions of Charanne v Spain and
Eiser v Spain to analyse which arbitral
tribunal had legitimate expectations under the
Fair and Equitable Treatment Standard
(FET) when dealing with sovereign changes
in regulation and legislation. The present
Article challenges the existing dominant view
that both the tribunals gave a same holding
but just under different fact patterns. On the
contrary it concludes that the content of the
FET standard, particularly interpretation of
what constitutes legitimate expectation for
breach of the FET is contradictory and
incoherent as a result of the decisions of both
the tribunals. Analysis of both the decisions is
relevant for three primary reasons: investors
have moved for enforcement of the awards last
June and November outside the European
Union as the European Commission disagrees
with the Eiser Award, Spain considers
challenging the award and many countries
consider withdrawing from the Energy
Charter Treaty.
88 SLJ 5(2)
Introduction
Spain adopted Renewable Energy Support Scheme (RESs) to
incentivise investment in capital-expensive renewable energy
sector in exchange of subsidies to investors.1 Spain’s
experience regarding the RESs illustrates what is termed as
‘Obsolescing bargain cycle and the Price cycle’2. The former is
when the Host State which had incentivised heavy
investments by foreign investors decides to modify an
obsolete bargain by removing or reducing the subsidies after
the production, consumption and development targets for
the sector are achieved.3 The latter is when the Hosts State
* Kudrat Dev is a commercial dispute resolution lawyer
qualified in India and an accredited mediator and consultant in
the UK. She has represented clients in matters which have
resulted in landmark judgments by the Supreme Court of India
and State High Courts on issues involving environment laws,
mining laws, arbitration laws and administrative laws. She is
presently pursuing her Masters in Law as a Chevening Scholar.
She is grateful to Dr. Emilia Onyema and Mr. Baiju Vasani for
the valuable discussions on the Fair and Equitable Standard in
the International Investment Law and Arbitration Course and
feedback on the present article.
1 Tomas Restrepo, ‘Modification of Renewable Energy Support
Schemes under the Energy Charter Treaty: Eiser and Charanne
in the Context of Climate Change’ (2017) 8(1) GoJIL
http://www.gojil.eu/issues/81/81_article_restrepo.pdf>accessed
17 April 2018.
2 Peter D. Cameron, International Energy Investment Law: the
Pursuit of Stability (OUP 2010) 4-7.
3Restrepo (n1) 104; Also see: Iuliana-Gabriela Iacob and Ramona-
Elisabeta Cirlig, ‘The Energy Charter Treaty and Settlement of
Charanne v Spain and Eiser v Spain 89
decides to restructure an investments scheme because a sharp
decrease in the production costs leads to disproportionate
profits for the investors. 4 The Spain’s decision based on such
economic cycles may be a justified approach in economics
but has to pass the Fair and Equitable Treatment standard
(FET standard) under international investment law when
dealing with foreign investors.
Thus, such foreign investors filed a number of claims as
investor-State arbitration cases to resolve disputes arising
under the Energy Charter Treaty, 1994 (ECT).5 As such,
Charanne6 and Eiser7 awards have been subject matter of
debates. The former was the first decision regarding
alterations to economic support programmes in the
renewable energy market8 holding Spain not liable for breach
of FET standard, finding ‘no specific commitment’ by Spain
directed towards the investor for creation of legitimate
expectations that the regulatory environment will not
change.9 The latter was the first decision holding Spain liable
Disputes - Current Challenges’ (2016) 6(1) Juridical Tribune
http://oaji.net/articles/2017/5275-1516538393.pdf>
4 Ibid.
5 Stibbe, ‘Mixed results in recent arbitral awards concerning
Spain’s renewable energy policy’ (Lexology, 19 July 2017)
31cf-4411-8898-adc714c414b6> accessed 22 April 2018.
6 Charanne B.V. and Construction Investments S.a.r.l. v Spain,
SCC Case No. 062/2012, 21 January 2016.
7 Eiser Infrastructure Limited and Energía Solar Luxembourg S.à
r.l. v Kingdom of Spain, ICSID Case No. ARB/13/36/2017.
8 Fernando D. Simões, ‘Charanne and Construction Investments
v. Spain: Legitimate Expectations and Investments in Renewable
Energy’ (2017) 26(2) RECIEL.
9 Deyan Dragiev, ‘Legitimate Expectations in Renewable Energy
Treaty Arbitrations: The Lessons So Far’ (Kluwer Arbitration
90 SLJ 5(2)
for breach of FET-standard10 finding ‘total and unreasonable’
change in the regulatory regime not taking into account
‘circumstances of existing investments made in reliance on
the prior regime’.11
Majority of the academic analysis on the awards with
opposing outcomes justifies or at least mentions that different
facts, counsels, and arguments before different tribunals will
lead to different outcomes 12 and there is no precedent in
investor-state arbitrations under the International Centre for
Blog, 22 March 2018)
ate-expectations-renewable-energy-treaty-arbitrations-lessons-
far/> accessed 22 April 2018; also see Charanne B.V. and
Construction (n 6) 490.
10 Ibid; also see Restrepo (n 1)105.
11 Charanne B.V. and Construction (n 6) 363-365.
12 Restrepo (n 1)106; also See: Raul Pereira de Souza Fleury,
‘Eiser Infrastructure v. Spain: Could the tide be turning in favor
of photovoltaic foreign investors in Spain?’ (Kluwer Arbitration
Blog, 20 June 2017)
infrastructure-v-spain-tide-turning-favor-photovoltaic-foreign-
investors-spain/> accessed 17 April 2018; Iacob and Cirlig (n3)
77; Daniel Behn, ‘Spain Wins First PV Solar Arbitration: A Word
of Caution in Using this Case to Predict Outcome in the more
than Three Dozen Cases to Come’ (UIO 27 January 2016)
friedrich-behn/2016-01-26-arbitration-spain.html> accessed 17
April 2018; and Mejia Sebastian, 'The Protection of Legitimate
Expectations and Regulatory Change: the Spanish Case' (2014)
21 Spain Arbitration Review in Wolters Kluwer Arbitration 113,
130.
Charanne v Spain and Eiser v Spain 91
Settlement of Investment Disputes (ICSID) Convention. 13
This Article goes beyond such simplistic albeit true
justifications and undertakes a comparative analysis of both
the tribunals’ reasoning for their respective holdings and
impact of the same on the stakeholders.
Part I of the Article attempts a layered comparative analysis
of the outcomes by examining similarities and differences in:
(i) how both tribunals define the FET standard in
international law, particularly legitimate expectation, and (ii)
which tool of interpretation is used for defining the FET
standard and applied to the facts and (iii) how the meaning
of the FET standard is incoherent and contradictory as an
outcome of both the awards. Part I concludes that both the
awards are not the same holding under different fact patterns
as there are points of similarities and differences in
construing the FET standard and application to the facts.
Part II examines potential justifications (other than the
interpretation of law by the tribunals) for opposite outcomes
in both the awards: (i) Similarity in the Charanne Tribunal’s
approach and the Eiser Tribunal’s approach on legitimate
expectation to the ‘proportionality doctrine’ and the ‘sole-
effects doctrine’ of expropriation, respectively and (ii) timing
and proximity in the Claimant’s position of reliance on the
Host State’s representation.
Part III concludes that: (i) the content of the FET-standard is
even more contradictory and incoherent after the Charanne
13 Richard Power and Paul Baker, ‘Energy Arbitrations’ (Global
Arbitration Review, October 2017)
european-arbitration-review-2018/1148943/energy-arbitrations>
accessed 22 April 2018.
92 SLJ 5(2)
award and Eiser award, (ii) there is a need to rethink
questions on the future behaviour of States, investors,
tribunals and the ICSID system being fit for purpose.
I. Comparative Analysis on Law and its
Application
FET standard’s content is contentious and depends on the
language used in investment treaties.14 It has been receiving
meaning from Investment Tribunals only from the 2000’s.15
There are no two academicians who state the same list of
elements for the content of the FET standard.16 Some criticise
the FET standard for vagueness and others acknowledge that
it is a broad principle but its specific elements can be
identified through judicial practice. 17 Some argue it is a
standard from customary international law (the content of
which is ambiguous)18 and some argue it is an autonomous
standard of the rule of law in Host States.19 Arbitral
tribunals/commentators generally agree that transparency,
stability, non-discrimination, due process and investors’
14 Christoph Schreuer, ‘Fair and Equitable Treatment (FET):
Interactions with Other Standards’, in Graham Coop and
Clarisse Ribeiro (eds), Investment Arbitration and the Energy
Charter Treaty (JurisNet 2008) 65.
15 Rudolph Dolzer and Christoph Schreuer, Principles of
International Investment Law (OUP 2008) 159.
16 Jonathan Bonnitcha et al, The Political Economy of the
Investment Treaty Regime (OSAIL 2017) 201.
17 Dolzer and Schreuer (n 15) 161.
18 Bonnitcha et al (n 16) 113.
19 Dolzer and Schreuer (n 15) 161; Also see: US Model BIT, 2012
and UNCTAD Series on Issues in International Investment
Agreements II: Fair and Equitable Treatment, 2012.
Charanne v Spain and Eiser v Spain 93
legitimate expectations are all key ingredients in defining the
FET standard.20
The general nature of the concept of legitimate expectations
makes it difficult to draw mechanical conclusions from it 21 as
some interpret it to further the rule of law for investor’s
protection22 and others as disempowering the State measures
in public interest.23 The two approaches to origination of
legitimate expectation are that it originates: (i) only in specific
commitments or (ii) in specific commitments and Host-State’s
legislative background.24 There exists ‘significant opposition’
to the second approach in the case-law, whereas, the first
approach’s application has been inconsistent in the investor-
State arbitration jurisprudence.25 Furthermore,
representations must create legitimate expectations on an
objective and subjective basis and not in a vacuum.26 Whilst
20 Felipe M. Téllez, 'Conditions and Criteria for the Protection of
Legitimate Expectations under International Investment Law'
(2012) 27(2) ICSID Review 432
date accessed; Also see: Simões (n 8) 176, Dolzer and Schreuer
(n 15) at 168.
21 Supra note 15 at 148; Also see: Christopher Campbell, ‘House
of Cards: The Relevance of Legitimate Expectations under Fair
and Equitable Treatment Provisions in Investment Treaty Law’
(2013) 30(4) Journal of International Arbitration in Kluwer Law
International 361-379.
22 José E. Alvarez, The Public International Law Regime
Governing International Investment (Brill-Nijhoff 2011) 248.
23 Stephan W. Schill, The Multilateralization of International
Investment Law (CUP 2009) 333-38.
24 Restrepo (n 1) 116-117.
25 Ibid and Dolzer and Schreuer (n 15) 148.
26 Téllez (n 20) 433-34 and Suez and Ors v Argentina, ICSID Case
No. ARB/03/17, 127.
94 SLJ 5(2)
the principle of legitimate expectations is inherent in the FET-
standard and is in its essence, objective, its application will
depend upon the expectations nurtured and fostered by the
local laws as they stand specifically at the time of the
investment.27
In this backdrop, FET-standard’s content is comparatively
analysed with a focus on legitimate expectation as
interpreted by the Charanne Tribunal and the Eiser Tribunal,
consecutively applied to facts and the actual effect on the FET
standard.
Interpretation using VCLT
The Eiser Tribunal heavily relied on Article 31 of the Vienna
Convention on Law of Treaties (VCLT) to interpret the FET
standard by noting that: (i) Article 10(1), ECT must be
interpreted in good faith in accordance with the ordinary
meaning to be given to the terms of the ECT in its context and
in the light of its object and purpose28 and (iii) hence, as per
Article 2, ECT, its purpose is to provide legal framework for
long term co-operation and mutual benefit and its precursor,
the 1991 European Energy Charter points to legal stability
and transparency as its aims.29 However, the Charanne
Tribunal did not mention the VCLT in relation to FET
standard although it did mention it on other issues.30
27 Rudolph Dolzer and Christoph Schreuer, Principles of
International Investment Law (OUP 2012) 115.
28 Luxembourg v Spain (n 7) 375-383; Also see Article 31(2) of the
Vienna Convention on Law of Treaties, 1969 (came in force on
1980).
29 Ibid 378-89.
30 Investments S.a.r.l. v Spain (n 6).
Charanne v Spain and Eiser v Spain 95
Stability requirement
Both the Tribunals identify the ECT as the governing treaty,
particularly Article 10(1) 'each Contracting Party shall, in
accordance with the provisions of this Treaty, encourage and
create stable, equitable, favourable and transparent
conditions for Investors of other Contracting Parties to make
Investments in its Area’.31
There is similarity in recognizing the obligation of stability
under the ECT32 yet there is a difference. The Eiser Tribunal
examined the issue of stability in depth by analysing ECT’s
object and purpose to conclude that Article 10(1)’s obligation
to accord fair and equitable treatment ‘necessarily embraces
an obligation to provide fundamental stability in the essential
characteristics of the legal regime relied upon by investors in
making long term investments’.33 On the other hand, the
Charanne Tribunal limited itself from an in-depth
investigation noting that only norms up to 2010 were being
challenged by the Claimant34 and to analyse instability in the
regulatory framework would require examination of all
regulations passed till date.35 However, the Charanne
Tribunal could have analysed the stability in the regulations
up to 2010 and caveated its finding with such limitation.
31 Investments S.a.r.l. v Spain (n 6) 476 and Luxembourg v Spain
(n 7) 374.
32 Investments S.a.r.l. v Spain (n 6) 484 and Luxembourg v Spain
(n 7) 382, 383.
33 Luxembourg v Spain (n 7) 382, 383.
34 Investments S.a.r.l. v Spain (n 6) 374, 380.
35 Investments S.a.r.l. v Spain (n 6) 484.
96 SLJ 5(2)
State’s Right to Change the Regime and Specific
Commitment
Both the Tribunals acknowledge the State’s reasonable right
to change the legal/business/economic framework36 noting
the same has to be predictable, fair/non-arbitrary/non-
retroactive, proportional, and in public interest (tariff-deficit
in Spain’s case).37 There is some similarity in noting the
creation of legitimate expectations in specific commitments
made personally by the State to the investor38 or an explicit
undertaking/specific assurance or a stabilisation clause, at the
time of investment.39
Some interpret that both the Tribunals rejected the presence
of specific commitments and as a consequence the legitimate
expectations resulting from such commitments.40
The Charanne Tribunal noted that there was no specific
commitment to Investors as: (i) the 2008 regulations do not
constitute specific commitment by the mere fact that it is for
limited investors, moreover, such interpretation will be an
excessive limitation on the State’s power to regulate the
economy in public interest,41 (ii) the presentation documents
inviting investments did not include any specific language to
36 Investments S.a.r.l. v Spain (n 6) 500-2 and Supra note 7 at 362,
387.
37 Ibid.
38 Investments S.a.r.l. v Spain (n 6) at 488.
39 Luxembourg v Spain (n 7) 362, 366.
40 Restrepo (n 1) 123; Investments S.a.r.l. v Spain (n 6) 490-493,
499; Luxembourg v Spain (n 7) 363.
41 Investments S.a.r.l. v Spain (n 6) 490-93.
Charanne v Spain and Eiser v Spain 97
reasonably infer that the regulated tariff would remain
untouched for the duration of the plants’ lives.42
On a closer look, it is apparent that the Eiser Tribunal dilutes
the requirement of specific commitment in two ways. Firstly,
it does not give a clear finding on facts whether Spain made a
specific commitment to Eiser or not and only mentions it in
its analysis as a statement of law citing case-laws43.
Interestingly, while summarising the facts of the case it did
note the disagreement on the commitments as binding or
being only factual information statements.44 Secondly, it
shifts focus by questioning the extent to which the FET
standard gives rise to the right to compensation when the
State exercises its acknowledged right to regulate45 Thus, its
approach is similar to the Charanne Tribunal’s dissent, which
notes that the State has the right to regulate and change
regulations even if there exists a stabilisation clause, although
the investor has to be compensated.46 The Eiser Tribunal
couched a strong statement in a subtle manner. The critique
remains that such an understanding makes a stabilisation
clause redundant.47 Hence, no clarity of finding by the Eiser
Tribunal on the issue of Spain making a specific commitment
has resulted in an annulment application by Spain before
ICSID. One of the grounds urged by Spain is that the
Tribunal has failed to state reasons coupled with manifest
excess of power as the Tribunal had: (i) held that there was
no specific commitment by Spain and (ii) acknowledged its
right to amend legislations.48
42 Ibid at para 497.
43 Luxembourg v Spain (n 7) 362.
44 Luxembourg v Spain (n 7) 125, 126, 134, 347, 360.
45 Ibid.
46 Investments S.a.r.l. v Spain (n 6) 10-11 (Dissent).
47 Restrepo (n 1)124, 125.
48 Power and Baker (n 13).
98 SLJ 5(2)
Essential Features Retained
Some argue that both the awards are ‘complimentary and not
contradictory’ as they note that the FET standard includes
protection for investors from fundamental change of the
regime they relied upon at the time of making the
investment.49 The Charanne Tribunal held that the ECT/FET-
standard was not breached as the essential feature of Feed-in-
Tariff for 26 years was retained 50and the Eiser Tribunal held
that the new regulations (particularly 2013 and 2014) ripped
off the investors of the subsidy and investment amounting to
‘total’ change in the regime.51
Non-retroactivity and Non-arbitrary
Both the Tribunals noted non-retroactivity and non-arbitrary
nature of regulatory change as an element of the FET
standard.52 The Charanne Tribunal noted that: (i) the
Claimant’s argument on retroactivity attempts to thwart the
acknowledged right of the State to modify the legal and
regulatory framework benefitting the Claimant, (ii) the
registration was an administrative requirement to sell
electricity and not an acquired right to remuneration, and (iii)
no principle of international law prohibits a State to take
regulatory measures with immediate effect.53 The Eiser
Tribunal noted that Spain retroactively applied new
regulations with hypothetically developed standards, as ‘one
size fits all’ to existing facilities that were previously financed
49 Restrepo (n 1)124-5.
50 Investments S.a.r.l. v Spain (n 6) 518-20.
51 Luxembourg v Spain (n 7) 363, 370, 393.
52 Investments S.a.r.l. v Spain (n 6) paras 546-48; Supra note 7,
414.
53 Ibid.
Charanne v Spain and Eiser v Spain 99
and constructed on the very different 2007 regulatory
regime.54 2014 design choices on plants were imposed to hold
the ones adopted in reliance of the 2007 regulations as
’inefficient and undeserving of subsidy’.55
Due Diligence
Both the Tribunals noted absence of due diligence and
investor’s reasonably foreseeability as defences to legitimate
expectations.56 The Charanne Tribunal found that: (i) the
adjustments to the regulatory framework in 2010 were easily
foreseeable; (ii) the possibility of modification to the
compensation scheme was left open by Spanish law; and (iii)
such possibility was reinforced by the Spanish Supreme
Court decisions in 2005-06 which are not binding but are
relevant factual elements at the time of investment for a
reasonable expectation.57 The Eiser Tribunal took a different
approach to due diligence which diluted the defence of not
undertaking due diligence. It stated that the Claimants took
the risk after due diligence with the legitimate and
reasonable expectation that they would be entitled to fair
compensation.58 It further stated that the fact that the Spanish
Supreme Court (after the investment) upheld the
constitutionality of the regulations repealing the 2007
regulations is different from whether ECT obligation has
been met.59 Deference to the national authorities and courts
54 Luxembourg v Spain (n 7) 400-08.
55 Luxembourg v Spain (n 7) 400-414.
56 Investments S.a.r.l. v Spain (n 6) 505 and Supra note 7 at 371.
57 Investments S.a.r.l. v Spain (n 6) 505-08.
58 Luxembourg v Spain (n 7) 371; 364; ADC v Hungary, ICSID
Case No. ARB/03/16, 424.
59 Luxembourg v Spain (n 7) 73.
100 SLJ 5(2)
might give more legitimacy to the tribunals' decisions 60 but
the Eiser Tribunal and Charanne Tribunal have taken
different approaches justifiably because of the timing of the
court’s decision being pre or post investment.
Thus, there is similarity in the interpretation of the law, that
is the FET standard as both the Tribunals note the following
as contents of and aspects related to the FET standard: (i)
requirement of stability in the Host State as per Article 10(1)
of the ECT. (ii) Acknowledgement of the State’s reasonable
right to change the legal, business, economic framework in a
predictable, fair, non-arbitrary, non-retroactive and
proportional manner in public interest. (iii) Requirement of
specific commitment for creation of a legitimate expectation,
(iv) Protection from fundamental changes to essential
features of the regulatory and legislative regime, and lastly
(v) defences of due diligence and reasonable foreseeability by
the investor.
However, the points of differences arise in the application of
the law and content of FET-standard as: (i) the Charanne-
Tribunal withdrew from examining stability of regulations in
the Host State and the Eiser Tribunal carries and in-depth
examination to find instability. (ii) The Eiser Tribunal
emphasized on the Article 31 of the VCLT as a tool of
interpretation of the ECT to find stability as an integral
content of FET, whereas the Charanne Tribunal did not
mention VCLT at all in its analysis on the FET-standard. (iii)
The Eiser Tribunal despite noting the requirement for a
specific commitment by the State to the investor on stability
for creation of legitimate expectation, unlike the Charanne
Tribunal did not give a clear finding or application of the
same on facts and (iv) the Eiser Tribunal diluted the defence
60 Restrepo (n 1) 133.
Charanne v Spain and Eiser v Spain 101
of due-diligence to legitimate expectation by identifying the
Claimant’s risk as risk taken with legitimate expectation after
conducting due diligence.
Moreover, the aforesaid analysis shows that what prima facie
appears as the same holding on different fact patterns
primarily because both the Tribunals note similar content of
the FET standard, is actually different holdings which is
evident from different approaches to: (i) application of the
law as well as (ii) the meaning of the similarly identified
elements of the FET standard. Thus, in such a manner, the
Charanne Tribunal did not find, and the Eiser Tribunal did
find legitimate expectations under the FET right when
dealing with sovereign changes in regulation and legislation.
II. Potential Influences and Reconciliations
Having established that both tribunals had different
approaches on meaning of the similarly identified elements
of FET standard, the potential reasons for such different
approaches may include influence of: (i) the doctrines of
expropriation and (ii) record/evidence on timing of investor’s
reliance and Claimant-investor’s proximity to the decision to
invest and interaction with the Host State.
The ‘proportionality doctrine’ of expropriation states that ‘the
investor's property is not deemed to be expropriated if the
measures were taken for public good, were reasonable and
proportional’ and hence, precludes State’s liability. 61 The
61 Jaunius Gumbis and Rapolas Kaparavicius, ‘State's Right to
Regulate: What Constitutes a Compensable Expropriation in
Investor-State Arbitration’ (2017) 5 Yearbook on International
Arbitration 153.
102 SLJ 5(2)
influence of the same exists on the question of legitimate
expectation as the Charanne Tribunal did not get swayed by
allegedly serious impact on the investor’s profitability 62 and
found that the essential measure of Feed-in-Tariff for 26 years
was in place63 to meet the trade-deficit. On the other hand,
the Eiser Tribunal appears to be influenced by the ‘sole-
effects doctrine’64 of expropriation i.e. sole focus on economic
impact of the state measures as it framed its analysis as how
to balancing between the investor’s right to compensation
and the State’s acknowledged right to regulate.65 Arguably, it
was swayed by the impact of the loss of the investor of being
ripped of its major investment value66 for reverse engineering
to hold breach of legitimate expectations and the FET
standard. Interestingly, the Charanne-dissenting award, on
this aspect appears not be swayed by the alleged or proven
impact of loss to investor as oppose to the Eiser Tribunal, to
find legitimate expectation and violation of the FET
standard.67
Scholars have noted that it seems that some tribunals give
awards on the ground of justice, particularly the Eiser
Tribunal, as there is no clear application of the criteria of a
proportionality test reflecting balancing of diverse interests of
consumers, tax payers, national and global economy,
environment concerns and the impact on the State’s decision
not to take pro-environment measures to avoid the risk of
facing high-value claims or adverse decisions. 68Moreover, the
dichotomy of views and standard of reviews in related
62 Investments S.a.r.l. v Spain (n 6) 462, 463.
63 Investments S.a.r.l. v Spain (n 6) 518-20, 533.
64 Bonnitcha et al (n 16).
65 Luxembourg v Spain (n 7) 362/first-line.
66 Luxembourg v Spain (n 7) 418.
67 Investments S.a.r.l. v Spain (n 6) 12-13 (Dissent).
68 Restrepo (n 1)127, 128.
Charanne v Spain and Eiser v Spain 103
concepts in international investment law, have side-effects on
concepts such as the FET standard, as evident from the
Charanne-Award and Eiser-Award.69
The potential reconciliations include questions such as
whether the record/evidence on timing of investor’s reliance
and Claimant-investor’s proximity to the decision to invest
and interaction with the Host-State are the reasons for
different outcomes. Additionally, it is questionable whether if
Spain provided more time to investors for compliance70, it
would make the regime change more reasonable. Another
important aspect of the Charanne award concerns the
relationship between investors’ expectations, which was of
shareholding in 37 photovoltaic plants with lesser evidence
on due diligence.71 In the Eiser case, claimants were direct
investors in three major solar plants with extensive evidence
of due diligence including correspondence with the State
before and during the progress of the investment and
restructuring of financing.
Thus, the Charanne-Tribunal’s and Eiser-Tribunal’s approach
on legitimate expectation is similar to the ‘proportionality
doctrine’ and the ‘sole-effects doctrine’ of expropriation,
respectively. Furthermore, the timing of reliance and
proximity in the Claimant’s position and degree of reliance
recorded in documents are potential justifications for
opposite outcomes.
69 Gumbis and Kaparavicius (n 61) 160-163.
70 Stibbe (n 5).
71 Simões (n 8) 179.
104 SLJ 5(2)
III. Conclusion
The content of FET standard, particularly interpretation of
the requirement of legitimate expectation stands even more
contradictory and incoherent by the Charanne Trbunal and
the Eiser Tribunal. The former examined for legitimate
expectation by questioning existence of specific commitments
directly to the investor. Despite acknowledging the specific
commitment requirement, the latter () examined for
legitimate expectation and found its existence in the
provisions of the treaty itself and focused on the extent of
compensation when the State exercised the acknowledged
right to regulate. On a dangerous note for States, the Eiser
Tribunal by not specifically and explicitly applying the
acknowledged requirement of specific commitment to the
facts of the case has in effect strengthened72 the outlying view
that ‘foreign investors have a legitimate expectation of a
stable regulatory environment, even absent expectations
based on specific commitments 73.
Behaviour of States
The UNCTAD 2017 Reports74 recognize that ‘the wording of
specific treaty provisions is a key factor in case outcomes’
and this equally applies to all communications by the State
with the investors. Hence, States will place explicit-caveats
providing for the alteration of the legislative framework at
the time of the initial investments. The States may
exhaustively state the elements of the FET standard in
72 Luxembourg v Spain (n 7) para 381 mentioning Occidental
Exploration and Production Company v The Republic of Ecuador,
LCIA Case No. UN3467/2004.
73 Ibid.
74 UNCTAD World Investment Report 2017.
Charanne v Spain and Eiser v Spain 105
treaties as done in Article 9 of the Canada-European
Union Comprehensive Economic and Trade Agreement
(legitimate expectation is not a free-standing-component) 75
and may also expand narrow/non-existent ‘carve-outs’76 on
measures such as subsidy schemes.
Importantly, in February 2018 in Novenergia v Spain award77,
a broader approach to protect investors than the Eiser
Tribunal was adopted to hold Spain liable for breach of FET
standard.78 Hence, it may not be surprising news that Spain
may join the ‘withdrawal-from-the-ECT-club’ with Italy79.
Behaviour of Investors
The aforesaid State measures are unlikely to create the
optimal environment for foreign investment.80 Investors have
the lesson that documentation and recording of the reliance
or basis for making an investment and its financing can be a
critical piece of evidence for proving for breach of the FET
standard.81 The European Commission that the investors in
Spain did not have legitimate expectations as per EU law
may create enforcement problems for the EU
75 Bonnitcha et al (n 16) 115.
76 Bonnitcha et al (n 16) 117-118.
77 Novenergia v Kingdom of Spain, SCC Case No. 063/2015.
78 Richard Power, ‘Novenergia v. Kingdom of Spain, the ECT
and the ECJ: Where to now for intra-EU ECT claims?’ (Kluwer
Arbitration Blog, 20 March 2018)
rgia-v-kingdom-of-spain/> accessed 22 April 2018.
79 Restrepo (n1) 10472, 80.
80 Power and Baker (n 13).
81 Power and Baker (n 13).
106 SLJ 5(2)
investors within the EU, hence, investors may opt for
enforcement options outside the EU82, like Eiser.83
Behaviour of Tribunals
Most FET clauses being ‘short and open-ended formulation
provide broad interpretive discretion to investment
tribunals’. 84 Inconsistency flowing from lack of binding
precedent will allow for a never-ending conflict between the
State's right to regulate and the investor's protection under
international investment agreements.85
82 Supra note 78.
83 ‘US No. 2018-W1, Eiser Infrastructure Limited, et al. v.
Kingdom of Spain, United States District Court, Southern
District of New York, No. 17 CV 3808 (LAK), 27 June 2017 and
13 November 2017' in Albert Van Den Berg (ed), Yearbook
Commercial Arbitration (Kluwer Law International 2018) 1-4.
84 Bonnitcha et al (n 16).
85 Restrepo (n1) 107; Susan Franck, ‘The Legitimacy Crisis in
Investment Treaty Arbitration: Privatising Public International
Law through Inconsistent Decisions" (2005) 27 Fordham Law
Review 1545.
Charanne v Spain and Eiser v Spain 107
Bibliography
Journal Articles
Campbell C, ‘House of Cards: The Relevance of Legitimate
Expectations under Fair and Equitable Treatment Provisions
in Investment Treaty Law’ [2013] 30(4) Journal of
International Arbitration in Kluwer Law International 361
Téllez F, 'Conditions and Criteria for the Protection of
Legitimate Expectations under International Investment Law'
[2012] 27(2) International Centre for Settlement of lnvestment
Disputes Review 432
Simões F, ‘Charanne and Construction Investments v. Spain:
Legitimate Expectations and Investments in Renewable
Energy’ [2017] 26(2) Review of European Comparative &
International Environmental Law 174
Iacob I and Cirlig R, ‘The Energy Charter Treaty and
Settlement of Disputes - Current Challenges’ [2016] 6(1)
Juridical Tribune 71
Gumbis J and Kaparavicius R, ‘State's Right to Regulate:
What Constitutes a Compensable Expropriation in Investor-
State Arbitration’ [2017] 5 Yearbook on International
Arbitration 153
Sebastian M, 'The Protection of Legitimate Expectations and
Regulatory Change: the Spanish Case' [2014] 21 Spain
Arbitration Review in Wolters Kluwer Arbitration 113
Franck S, ‘The Legitimacy Crisis in Investment Treaty
Arbitration: Privatising Public International Law through
Inconsistent Decisions" [2005] 27 Fordham Law Review 1545
108 SLJ 5(2)
Restrepo T, ‘Modification of Renewable Energy Support
Schemes under the Energy Charter Treaty: Eiser and
Charanne in the Context of Climate Change’ [2017] 8(1)
Goettingen Journal of International Law 101
Books
Schreuer C, ‘Fair and Equitable Treatment (FET): Interactions
with Other Standards’, in Graham Coop and Clarisse Ribeiro
(eds), Investment Arbitration and the Energy Charter Treaty
(JurisNet 2008)
Bonnitcha J and others, The Political Economy of the Investment
Treaty Regime (OSAIL 2017)
E. Alvarez J, The Public International Law Regime Governing
International Investment (Brill-Nijhoff 2011)
Cameron P, International Energy Investment Law: the Pursuit of
Stability (OUP 2010)
Dolzer R and Schreuer C, Principles of International Investment
Law (OUP 2008)
Dolzer R and Schreuer C, Principles of International Investment
Law (OUP 2012)
Schill S, The Multilateralization of International Investment Law
(CUP 2009)
Subedi S, International Investment Law: Reconciling Policy and
Principle (3rd edn, Hart Publishing 2016)
Charanne v Spain and Eiser v Spain 109
‘US No. 2018-W1, Eiser Infrastructure Limited, et al. v.
Kingdom of Spain, United States District Court, Southern
District of New York, No. 17 CV 3808 (LAK), 27 June 2017
and 13 November 2017' in Albert Van Den Berg
(ed), Yearbook Commercial Arbitration (Kluwer Law
International 2018).
Online Resources
Behn D, ‘Spain Wins First PV Solar Arbitration: A Word of
Caution in Using this Case to Predict Outcome in the more
than Three Dozen Cases to Come’ (UIO 27 January 2016)
friedrich-behn/2016-01-26-arbitration-spain.html> accessed 17
April 2018
\Dragiev D, ‘Legitimate Expectations in Renewable Energy
Treaty Arbitrations: The Lessons So Far’ (Kluwer Arbitration
Blog, 22 March 2018)
timate-expectations-renewable-energy-treaty-arbitrations-
lessons-far/> accessed 22 April 2018
Al-Rashid M and Ziyaeva D, ‘State Liability To Foreign
Investors In The Renewable Energy Sector: Eiser v Spain and
its Implications’ (Power Law Newsletter, 1 September 2017)
Pereira de Souza Fleury R, ‘Eiser Infrastructure v. Spain:
Could the tide be turning in favor of photovoltaic foreign
investors in Spain?’ (Kluwer Arbitration Blog, 20 June 2017)
r-infrastructure-v-spain-tide-turning-favor-photovoltaic-
foreign-investors-spain/> accessed 17 April 2018
110 SLJ 5(2)
Power R and Baker P, ‘Energy Arbitrations’ (Global
Arbitration Review, 13 October 2017)
european-arbitration-review-2018/1148943/energy-
arbitrations> accessed 22 April 2018
Power R, ‘Novenergia v. Kingdom of Spain, the ECT and the
ECJ: Where to now for intra-EU ECT claims?’ (Kluwer
Arbitration Blog, 20 March 2018)
energia-v-kingdom-of-spain/> accessed 22 April 2018
Stibbe, ‘Mixed results in recent arbitral awards concerning
Spain’s renewable energy policy’ (Lexology, 19 July 2017)
31cf-4411-8898-adc714c414b6> accessed 22 April 2018
Reports
UNCTAD Report on Investor–State Dispute Settlement:
Review of Developments In 2016, May 2017
fBh5VOIYJ:investmentpolicyhub.unctad.org/Publications/Det
ails/172+&cd=3&hl=en&ct=clnk&gl=uk> accessed 11 April
2018
UNCTAD Series on Issues in International Investment
Agreements II: Fair and Equitable Treatment, 2012
UNCTAD’s World Investment Report 2017
Charanne v Spain and Eiser v Spain 111
Cases
ADC v Hungry, ICSID Case no ARB/03/16, 424
Charanne B.V. and Construction Investments S.a.r.l. v Spain, SCC
Case no 062/2012
Eiser Infrastructure Limited and Energía Solar Luxembourg S.à r.l.
v Kingdom of Spain, ICSID Case no ARB/13/36/2017
LG&E International, Inc. v Argentine Republic, ICSID Case no
ARB/02/1/2007
Novenergia v Kingdom of Spain, SCC Case no 063/2015
Occidental Exploration and Production Company v The Republic of
Ecuador, LCIA Case No. UN3467/2004
Suez and Ors v Argentina, ICSID Case no ARB/03/17

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT