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Encavis AG and Others v. Italy: An ICSID Tribunal's Decision Amid Intra-EU Disputes
Encavis AG and Others v. Italy: An ICSID Tribunal's Decision Amid Intra-EU Disputes
Factual Background:
On March 11, 2024, an ICSID arbitral tribunal delivered its award in the case of Encavis AG and Others v. Italy, adding to the array of intra-EU disputes involving the Energy Charter Treaty (ECT). This case, featuring German company Encavis AG and its 58 controlled companies against the Italian Republic, centres around measures Italy adopted in the energy sector. The claimants owned over 70 photovoltaic plants in Italy and argued that Italy’s decision to reduce tariff rates for solar plants by approximately 8% and to end the minimum granted price (MGP) scheme negatively impacted their investments, in breach of Article 10(1) of the ECT.
Jurisdictional Challenges:
Italy contested the tribunal's jurisdiction on three grounds: the intra-EU nature of the dispute, the exclusive jurisdiction clause in the agreements (Convenzioni), and the invalidity of Italy's consent to arbitrate disputes under the ECT with EU investors. The tribunal dismissed all objections. Italy, supported by the EU Commission, referenced the CJEU's decision in Republic of Moldova v. Komstroy LLC, which questioned the applicability of ECT's Article 26(2)(c) to intra-EU disputes. However, the tribunal found Komstroy and similar cases inapplicable, emphasizing that the Encavis arbitration, governed by the ICSID Convention, did not fall under domestic or EU law as the lex arbitri.
Merits of the Case:
The tribunal's analysis on the merits revolved around Article 10(1) of the ECT, focusing on whether Italy failed to provide stable and transparent conditions, breached the non-impairment requirement, and frustrated the investors' legitimate expectations. The tribunal concluded that Italy did not breach Article 10(1), finding the measures proportionate, transparent, and in the public interest without radically altering the incentive schemes. The tribunal also discussed the nature of the Convention, determining them as "accessory contracts" that did not generate legitimate expectations that the regulatory framework would remain unchanged for 20 years.
Umbrella Clause and Legitimate Expectations:
The tribunal's decision aligned with previous awards like Silver Ridge v. Italy, considering the Convenzioni insufficient to establish obligations "entered into" by the State under the umbrella clause of Article 10(1). It noted that the measures implemented by Italy were in the public interest and proportionate, thus not violating the stable conditions requirement. This contrasts with decisions such as Greentech v. Italy, where Convenzioni were deemed capable of generating legitimate expectations and thus protected under the ECT.
Concluding Remarks:
The Encavis case joins a series of decisions on Italy’s Spalma-incentive decree, with mixed outcomes for investors and the State. While Encavis follows the reasoning of cases like Belenergia and Silver Ridge, siding with Italy, it highlights the ongoing inconsistencies in arbitral awards under the ECT. Enforcement of these awards remains contentious, as seen in cases where domestic courts have suspended or annulled enforcement based on jurisdictional objections and EU law inconsistencies. The pending case of CIC Renewable Energies v. Italy will further test the consistency of arbitral tribunals’ reasoning and the robustness of enforcement mechanisms. As enforcement challenges persist, the viability of investor-state arbitration in intra-EU disputes remains uncertain, underscoring the critical importance of enforceability in arbitration. In conclusion, while the Encavis tribunal's decision adds depth to the legal discourse on the ECT and intra-EU disputes, it also amplifies the uncertainties and challenges facing investors in enforcing arbitral awards within the EU legal framework.
- Italy contested the tribunal's jurisdiction on three grounds: the intra-EU nature of the dispute, the exclusive jurisdiction clause in the agreements (Convenzioni), and the invalidity of Italy's conse
- The tribunal concluded that Italy did not breach Article 10(1), finding the measures proportionate, transparent, and in the public interest without radically altering the incentive schemes.
- It noted that the measures implemented by Italy were in the public interest and proportionate, thus not violating the stable conditions requirement.
