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Swiss Supreme Court Rejects Spain’s Challenge to ECT Arbitral Award: A Landmark Decision
Swiss Supreme Court Rejects Spain’s Challenge to ECT Arbitral Award: A Landmark Decision
Introduction:
On April 3, 2024, the Swiss Supreme Court (SSC) dismissed Spain’s challenge to an arbitral award under the Energy Charter Treaty (ECT) in favour of EDF Energies Nouvelles S.A. (EDF). This pivotal decision notably disregards the Court of Justice of the European Union’s (CJEU) judgments in Achmea and Komstroy, reinforcing the validity of intra-EU arbitration under the ECT in Swiss jurisdiction.
Background:
Spain’s Renewable Energy Measures and Subsequent Legal Dispute
In 2007-2008, Spain introduced measures to attract investments in renewable energies. EDF, a French power company, acquired twelve solar installations through its Spanish subsidiaries under this regime. However, Spain later replaced these measures in 2013-2014 with less favourable regulations, prompting EDF to initiate arbitration in 2016 under the ECT. The Geneva-seated arbitral tribunal ruled in April 2023, ordering Spain to pay EUR 29.6 million plus interest for breaching the ECT’s fair and equitable treatment standard.
Spain’s Challenge to the Tribunal’s Jurisdiction
Spain contested the arbitral tribunal’s jurisdiction, arguing that its consent to arbitration under the ECT did not cover intra-EU disputes and that Article 26 of the ECT was incompatible with EU law, which should prevail.
SSC Disregards Achmea and Komstroy's Judgments
- Non-Binding Nature of CJEU Judgments on Switzerland
The SSC highlighted that CJEU rulings are binding only on EU member states, not Switzerland. Despite usually considering foreign jurisprudence, the SSC criticized the CJEU’s approach in Achmea and Komstroy as driven by the autonomy of EU law rather than international law principles. The SSC viewed the CJEU’s stance as part of an EU “crusade” against intra-EU investment arbitration, thus deciding not to accord particular weight to these judgments.
- Interpretation of Article 26 ECT
The SSC examined Article 26 ECT using the Vienna Convention on the Law of Treaties, interpreting it in good faith according to the ordinary meaning of its terms. The court found that the ECT’s language provided for “unconditional” consent to arbitration, with no carve-out for intra-EU disputes.
- Context, Object, and Purpose of the ECT
The SSC further dismissed Spain’s arguments based on other ECT provisions, noting that Articles 1(3), 1(10), and 25 did not support an exclusion of intra-EU disputes. The court asserted that the ECT’s aim to promote international cooperation and energy investments would be undermined by excluding intra-EU arbitration.
Rejection of EU Declarations and Historical Attempts
The SSC rejected Spain’s reliance on the 1997 Statement of the European Communities and the 2019 Declaration of the EU Member States, emphasizing that these did not amount to a binding agreement or practice excluding intra-EU arbitration. The court also referenced the absence of a disconnection clause in the ECT’s final text, which would have excluded intra-EU disputes, as evidence supporting its interpretation.
Compatibility with EU Law
The SSC dismissed Spain’s argument that EU law, post-Treaty of Lisbon, rendered the ECT incompatible. Citing cases like Vattenfall v. Germany, the court maintained that EU law did not invalidate pre-existing treaties like the ECT. Moreover, the SSC noted that Article 16 ECT ensured its provisions took precedence over conflicting treaties, including EU law.
The SSC’s decision highlights a growing divide between EU and non-EU jurisdictions regarding intra-EU investment disputes. This is contrasted by the Svea Court of Appeal’s annulment of a similar award in Triodos v. Spain, reflecting differing judicial approaches within and outside the EU.
Spain’s Withdrawal from the ECT
Following the SSC’s ruling, Spain confirmed its withdrawal from the ECT, effective April 17, 2025. Despite this, the ECT’s sunset clause extends protections for existing investments for 20 years post-withdrawal, leaving future arbitration landscapes uncertain.
Conclusion:
The SSC’s judgment reaffirms the validity of intra-EU arbitration under the ECT within Swiss jurisdiction, challenging the CJEU’s stance and potentially influencing future arbitration and enforcement dynamics in Europe and beyond. As countries navigate the complexities of the ECT and its sunset provisions, the broader implications for international investment arbitration remain to be seen.
- Despite usually considering foreign jurisprudence, the SSC criticized the CJEU’s approach in Achmea and Komstroy as driven by the autonomy of EU law rather than international law principles.
- The court found that the ECT’s language clearly provided for “unconditional” consent to arbitration, with no carve-out for intra-EU disputes.
- Despite this, the ECT’s sunset clause extends protections for existing investments for 20 years post-withdrawal, leaving future arbitration landscapes uncertain.
