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Swiss Federal Supreme Court Decision on Spain's Application for Annulment of Arbitral Award
Swiss Federal Supreme Court Decision on Spain's Application for Annulment of Arbitral Award
Factual Background:
In the mid-2000s, Spain adopted Royal Decrees setting attractive feed-in tariffs for photovoltaic installations, spurring significant investments, including from a French company developing twelve installations via Spanish subsidiaries. The decrees, however, created a financial imbalance in Spain's electricity market. Between 2010 and 2013, Spain modified its financial support measures, culminating in 2013 and 2014 with the replacement of fixed feed-in tariffs by a remuneration aimed at providing a reasonable rate of return. In 2016, the French investor initiated arbitration against Spain under the Energy Charter Treaty (ECT), claiming that Spain’s regulatory changes breached its obligation to accord fair and equitable treatment (FET) and sought EUR 29 million in compensation for the resulting financial losses.
Legal Background: The Energy Charter Treaty and the Treaty of Lisbon
The ECT, effective since April 1998, aims to liberalize energy trade and protect investments in the energy sector, offering substantive protections like FET, FPS, non-discrimination, and compensation for expropriations. The ECT allows investors to resolve disputes through arbitration under various rules, including UNCITRAL and ICSID. With the Treaty of Lisbon in 2009, the EU gained exclusive competence over foreign direct investments, leading to legal questions about the interplay between EU law and investment protection treaties. The European Court of Justice (ECJ) in Achmea (2018) ruled that arbitration clauses in intra-EU BITs were incompatible with EU law, raising doubts about their applicability in multilateral treaties like the ECT. This was affirmed obiter dictum in the Komstroy case (2021), extending the Achmea principles to the ECT.
Arbitral Proceedings and Award:
In 2016, the French investor initiated arbitration under Art. 26(3)(a) ECT. The arbitral tribunal seated in Geneva rejected Spain’s jurisdictional objections based on the Achmea and Komstroy decisions, ruling in 2023 that Spain had breached Art. 10(1) ECT and awarding EUR 29 million in compensation.
Swiss Federal Supreme Court Decision:
In May 2023, Spain appealed to the Swiss Federal Supreme Court (SFSC) for annulment of the arbitral award, arguing lack of jurisdiction due to the intra-EU nature of the dispute and EU law prohibiting arbitration in such cases. The SFSC dismissed the appeal, rejecting Spain’s arguments and the ECJ’s reasoning.
Komstroy Judgment Lacks Basis in International Law:
The SFSC criticized the ECJ’s Komstroy judgment for asserting EU law primacy without considering international law or treaty interpretation rules, rendering the ECJ’s opinion irrelevant to the SFSC’s decision.
Interpretation of Art. 26(3)(a) ECT:
The SFSC interpreted Art. 26(3)(a) ECT according to fundamental treaty interpretation principles, rejecting the ECJ’s interpretation.
Ordinary Meaning:
Art. 26(3)(a) ECT’s “unconditional consent” to arbitration applies to “any dispute,” with no limitation excluding intra-EU disputes. The SFSC found the ordinary meaning clear and unqualified.
Context:
The SFSC dismissed arguments that Art. 1(3) and (10) and Art. 25 ECT created an autonomous legal regime recognizing EU law primacy, finding no basis for excluding intra-EU disputes from Art. 26(3)(a) ECT’s scope.
Object and Purpose:
The ECT’s goal of promoting long-term cooperation in energy does not differentiate between investors’ geographical origins. Excluding intra-EU disputes would frustrate investor expectations and the ECT’s purpose.
Declaration of the 22:
The SFSC rejected the Declaration of the 22 (2019) as a subsequent agreement or practice affecting Art. 26 ECT’s interpretation, noting it was neither unanimous among ECT parties nor retroactive.
The primacy of EU Law:
The SFSC found no conflict between Art. 26 ECT and EU law under Artt. 30 and 41 VCLT, rejecting the idea of EU law’s primacy over the ECT. The SFSC emphasized that treaties must be interpreted consistently for all parties, not subordinated to other commitments by some parties.
Conclusion:
The SFSC upheld the arbitral tribunal's jurisdiction and award, dismissing Spain's application for annulment and affirming the ECT’s provisions allowing arbitration of intra-EU investment disputes.
- The ECT allows investors to resolve disputes through arbitration under various rules, including UNCITRAL and ICSID.
- The SFSC interpreted Art. 26(3)(a) ECT according to fundamental treaty interpretation principles, rejecting the ECJ’s interpretation.
- The SFSC found no conflict between Art. 26 ECT and EU law under Artt. 30 and 41 VCLT, rejecting the idea of EU law’s primacy over the ECT.
