Baywa r.e. Renewable Energy GMBH and Baywa r.e. Asset Holding GMBH v. Kingdom of Spain

The dispute arose from regulatory changes in Spain’s renewable energy framework that affected the investments of German companies BayWa r.e. Renewable Energy GmbH and BayWa r.e. Asset Holding GmbH (collectively, ""BayWa""). BayWa had acquired interests in two Spanish special purpose vehicles (SPVs), Parque Eólico La Carracha, S.L. and Parque Eólico Plana de Jarreta, S.L., which owned and managed wind farms in northern Spain. Following Spain’s 2013/2014 regulatory reforms, which included a clawback provision impacting subsidies, BayWa initiated arbitration under the Energy Charter Treaty (ECT). The tribunal dismissed most of BayWa’s primary claims but found that Spain had violated Article 10(1) of the ECT due to the instability caused by the clawback measure. During the proceedings, the tribunal rejected three attempts by the European Commission (EC) to intervene, concluding that its submissions did not add distinct legal arguments beyond Spain’s position. The tribunal also dismissed most of Spain’s jurisdictional objections, including an intra-EU objection, but upheld the tax carve-out exception. On January 25, 2021, the tribunal awarded BayWa approximately $22 million USD plus interest. Spain later applied for annulment of the award. Jurisdiction: The Tribunal rejected Spain’s intra-EU objection, affirming that the Energy Charter Treaty (ECT) applied among EU Member States before and after the Treaty on the Functioning of the European Union (TFEU). It found no exclusion clause in the ECT and ruled that EU law did not override it under the Vienna Convention on the Law of Treaties (VCLT). Distinguishing Achmea, which addressed a bilateral treaty, the Tribunal held that its jurisdiction remained valid since the ECT is a multilateral treaty to which the EU itself is a party. The Tribunal ruled that the TVPEE (Tax on the Value of the Production of Electrical Energy) is a taxation measure and falls outside its jurisdiction under Article 21.1 of the Energy Charter Treaty (ECT), aligning with previous tribunal decisions. Introduced under Law 15/2012, the TVPEE imposes a 7% tax on total revenue from electricity production, aiming to raise funds for the state and promote energy efficiency and environmental sustainability. The Tribunal found that the TVPEE meets the definition of a tax as a compulsory exaction for public purposes, a classification upheld by Spanish courts, including the High Court and Constitutional Court. It rejected the Claimants’ argument that a tax must be enacted in good faith to qualify under Article 21.1, noting no evidence of bad faith in Spain’s adoption of the TVPEE. The Tribunal also dismissed the Claimants’ attempt to invoke investment protections via Article 21.3, ruling that the TVPEE qualifies as a tax on income under Article 21.7.b, thereby excluding the application of the Most-Favored Nation (MFN) clause. Consequently, the claim was dismissed for lack of jurisdiction. Merits: The Tribunal concluded, by majority, that Spain did not generally breach the Fair and Equitable Treatment (FET) standard under Article 10.1 of the ECT, though it found a limited breach concerning the clawback of subsidies. It noted that investment was made amid economic difficulties, that Spain had made no specific binding commitments to investors, and that non-discriminatory regulatory changes were expected risks. While some Disputed Measures (2013-14) were criticized, a substantial support system remained, including priority access and a 7.98% IRR for wind power. The Tribunal acknowledged that Special Regime subsidies were unnotified state aid under EU law, making them legally vulnerable. However, the European Commission never declared them unlawful or required recovery. Ultimately, the Tribunal ruled that Spain's clawback of previously paid subsidies breached the ECT’s obligation of stability, but other regulatory changes did not constitute unfair treatment. Arbitrator Grigera Naón dissented, and the Tribunal proceeded to assess quantum. Conclusion: Conclusively, on January 25, 2021, the Tribunal awarded BayWa approximately 22 million USD, plus interest. This decision was further challenged by Spain before an ICSID Annulment Committee. Post Award Proceedings: The ICSID ad hoc committee dismissed Spain’s application to annul the tribunal’s award in BayWa v. Spain, rejecting claims of manifest excess of powers and procedural violations. The committee emphasized that annulment is not an appeal and found no egregious error in the tribunal’s decision to uphold jurisdiction over the intra-EU dispute, nor in its rejection of the Achmea ruling as inapplicable to the Energy Charter Treaty (ECT). It also upheld the tribunal’s discretion in refusing the European Commission’s amicus curiae request, as the Commission’s arguments mirrored Spain’s position and had been well covered in prior case law. Spain was ordered to bear all annulment costs and 85% of the claimants’ legal fees, with interest accruing at 4.5% annually after a 60-day grace period.