Arbitrating Under the ECT
The ECT allows for disputes to be settled in one of three ways: (a) in the “Courts or administrative tribunals of the Contracting Party”; (b) “in accordance with any applicable previously agreed dispute settlement procedure”; or (c) through International Arbitration. Article 26(3)(a) of the treaty provides any disputes under the treaty to be resolved by arbitration given the signatory state’s “unconditional consent to the submission of a dispute to international arbitration.” Investors have the choice under Article 26(4) to submit the dispute to International Centre for Settlement of Investment Disputes (ICSID) arbitration (provided that both parties are signatories to the Washington Convention); to ICSID Additional Facility arbitration (if one party is a signatory to the Washington Convention, but the other party is not); to ad hoc UNCITRAL arbitration; or to arbitration administered by the Stockholm Chamber of Commerce. The vast majority of the cases have been submitted to ICSID arbitration.
Causes of Action
Though most of the information surrounding the current disputes being filed by renewable energy investors is confidential and therefore not publicly available, the Energy Charter Secretariat lists the subject matter of the disputes as “legal reforms affecting the renewable energy sector.” In particular, most of the disputes are thought to be based upon the erosion of “feed-in tariffs,” related to renewable energy and a large amount of investments in solar technology.
Feed-in tariffs provide a premium price to renewable energy producers for the production of their green energy. Feed-in tariffs typically have three elements in common: guaranteed (premium) sales prices, guaranteed grid access and long-term contracts. Moreover, depending on the regime, utility grid companies may be under an obligation to purchase all of the electricity produced by the renewable energy company, thereby ensuring the energy investors a return on their investment into the country and the technology.
Spain and Italy have both publicly decided to reduce the amount of the feed-in tariffs for renewable energy in attempts to lower individual utility bills and minimize other governmental expenditures associated with renewable energy. These decisions, however, have exposed the host states to a significant number of ECT claims seeking damages for the change in regulatory regime from the one that induced investment. Spain, with a previously booming solar energy industry, has also borne the brunt of investor claims seeking compensation for their losses.
The sheer number of claims recently filed under the ECT surrounding the changes to the regulatory environment have brought renewed attention to the ECT. Many will also recall that the ECT is also the instrument under which the largest international arbitration award was issued in July 2014. (Hulley Enterprises Ltd., Yukos Universal Ltd. and Veteran Petroleum Ltd. v. Russian Federation) The adverse award against Russia amounted to approximately US$50 billion to be paid by Russia to the shareholders of “Yukos” and is currently in the midst of annulment proceedings in the Netherlands.