Cube Infrastructure Fund SICAV and others v. Kingdom of Spain

Background: The case concerns Claimants, Cube Infrastructure and others, who made investments in Spain's renewable energy sector, specifically in photovoltaic (PV) plants and hydroelectric (hydro) facilities. These investments were made under a "Special Regime" established by regulations like Royal Decree (RD) 661/2007, which was designed to incentivize new investment in renewable energy technologies by offering fixed tariffs and premiums for an extended operational life. The Claimants acquired rights to PV plants and later to hydro facilities, relying on the stability of this regulatory framework. However, Spain subsequently introduced a series of regulatory changes, including RD 1565/2010, RDL 14/2010, and culminating in a new regulatory regime in 2013-2014 (RDL 9/2013, RD 413/2014), which significantly altered the remuneration system for these renewable energy investments, moving away from the guaranteed tariffs towards a system based on a "reasonable rate of return". The Claimants argued that these measures were not bona fide taxation measures but rather a reduction of guaranteed remuneration, and that they discriminated against renewables. Tribunals reasoning on the merits: The Tribunal's analysis focused on the legitimate expectations of the investors at the time they made their PV and hydro investments. For the PV plants, the Tribunal found that RD 661/2007 created expectations that the tariffs and premiums would be maintained throughout the reasonable planned operating life of the plants. The Tribunal reasoned that while a sovereign legislature can amend laws, RD 661/2007 indicated a commitment not to exercise this power in certain respects for a limited time, and investors were entitled to rely on this assurance of stability. The regulatory changes of 2013-2014, which shifted to a "reasonable rate of return" model, were deemed a "radical and decisive break" and a "mid-stream switch in the regulatory paradigm" that fundamentally changed the economic basis of the investments, thus breaching FET. For the hydro investments, made later when some regulatory changes had already occurred, the Tribunal found a similar, though slightly nuanced, legitimate expectation that the core features of the Special Regime (fixed tariffs based on output) would remain and not be capped based on a "reasonable rate of profitability". The Tribunal acknowledged that Cube, one of the claimants, recognized a regulatory risk but still based its investment on the understanding that the Special Regime would not be significantly amended retroactively for existing plants. The Tribunal rejected arguments that the measures were discriminatory merely because they applied to renewables, as the Special Regime itself was designed to discriminate in favor of renewables. It also found no evidence of bad faith on Spain's part, noting efforts to resolve the tariff deficit, albeit in a manner that defeated legitimate expectations. Decision of the Tribunal: The Tribunal decided unanimously that Spain breached the Claimants’ right under Article 10 ECT to fair and equitable treatment in respect of their investments in PV plants. By a majority, the Tribunal also found that Spain breached the Claimants' right to FET for their investments in hydro plants. The Tribunal dismissed all other claims regarding both PV and hydro plants. Consequently, the Tribunal awarded damages: €2.89 million unanimously for losses to the PV investments. For the hydro investments, the majority awarded damages calculated by taking the Claimants' computed damages for post-June 2013 measures (€41.8 million) and reducing this amount by 40% to account for regulatory risk. The Tribunal directed the parties' experts to jointly compute this reduced loss for the hydro investments. Claims related to certain taxation measures (Act 15/2012) were rejected on jurisdictional grounds. Follow on Proceedings: Following an adverse award, Spain initiated ICSID annulment proceedings in the case of Cube Infrastructure Fund SICAV and others v. Kingdom of Spain. On 28 March 2022, the Committee issued its decision, rejecting Spain’s application and upholding the original award, thereby confirming Spain’s liability under the Energy Charter Treaty for its reforms to the renewable energy sector.