Energy Charter Treaty Claims and EU Member States

1. Gordon Nardell QC FCIArb
gordon.nardell@39essex.com
Energy Charter Treaty
Claims and EU
Member States

2. Why the interest?
• ECT/BITs in shadows until
recently – and most interest one-way
(western investors v. eastern/southern governments)
• But recent history:
– Yukos v Russian Federation PCA July 2014 – record $50Bn
award
– Flurry of intra-EU claims – impact of austerity policies on funding
for renewables projects
– TTIP – heightened public awareness
• How does it fit into energy sector dispute-resolution?

3. What’s it all about?
• ECT a largely European initiative to
address post cold-war political map:
– Transit
– Liberalisation
– Investor protection
• Investment provisions modelled on BITs. The theory:
– Prevent abuse of sovereign power
– ISDS to overcome deficiencies in local dispute resolution
• So…
– Whistle-stop tour of key protections (Part III) and ISDS (Part V)
– Scope of recent intra-EU cases
– Opportunities and challenges: relationship with domestic
remedies; the problem of investors based in non-party States

4. Investor protection (1): Art 10
• Art 10(1):
– Stable, equitable, favourable and transparent conditions
– Fair and equitable treatment (FET)
– Unreasonable or discriminatory measures
– “Shall observe any obligations it has entered into…”
• Art 10(2), (3):
– No less favourable treatment
• The FET standard:
– Arbitrary policies or decisions
– Legitimate expectation
– Due process

5. Investor protection (2): Art 13
• Expropriation – Art 10(1):
– Nationalisation/expropriation
– Measures having equivalent effect
– Except where (a) in public interest, (b) non-
discriminatory, (c) under due process of law
and (d) accompanied by “prompt, adequate and effective
compensation” at fair market value pre-expropriation
• Does that mean that even “lawful” measures justified
under (a), (b) and (c) must be compensated?
– Yes: only question is whether “substantial deprivation” – Tippets
v. Iran, 6 Iran-US C.T.R.
– No: regulatory autonomy/“police power”: Methanex v USA, Nafta
2005
– Proportionality: Tecmed v. Mexico ICSID 2003

6. Dispute settlement
• Art 26(1)-(4):
– Settle amicably if possible. But if no agreement within 3 months
of either party’s request for amicable settlement, then…
– domestic courts or administrative tribunals, or
– Arbitration: ICSID, ad hoc under UNCITRAL rules, or Stockholm
Chamber of Commerce Arbitration Institute. Decision “in
accordance with this Treaty and the applicable rules and
principles of international law”
• Can arbitrate without exhausting domestic remedies
• But no arbitration against Annex ID State where dispute
previously submitted to domestic court/tribunal (Art
26(3)(b))

7. Recent intra-EU claims
• The trend:
– Down to 2010, 23 arbitrations commenced. Only 2 against (then)
EU States. 15 cases pending in 2010.
– Now: total arbitrations commenced 64. 30 pending, value from
US$1.8m to US$4.6Bn. 26 pending cases against EU States
• A flavour:
– Vattenfall AB v. Germany, ICSID Arb/12/12: phase-out of nuclear
power by 2022 following Fukushima. Claim €700m.
– PV Investors v. Spain, Uncitral 2011 (+12 others): generous
subsidy replaced with “market price + fair compensation”
formula. Limited info re claim value: 1 of the 12 (CSP Equity
SarL) seeks €60m per year.
– Antaris Solar v. CZ, Uncitral/PCA 2013 (+5 others): incentives
replaced with “solar levy” of 26% on revenue. Claim €50m-70m.

8. Opportunities and challenges (1):
Identifying claims
• The unpredictability problem. But some pointers:
• Changes in financial rules (subsidies/taxation), esp:
– applied retrospectively to investments already committed
– breach of legitimate expectation about future government
behaviour
• Discriminatory treatment, eg. between technologies?
• Sudden or arbitrary changes in policy towards projects
under development?
• Failure to prevent market abuse?
• Delay in decision-making?
• Politicised decision-making?

9. Opportunities and challenges (2):
ECT v. domestic remedy
• The balance of advantage:
– ECT -- after-the-event compensation.
Lengthy, costly.
– Domestic law -- quashing/annulment, but
damages likely to be harder to obtain
• Annex ID States -- the “fork in the road”:
which way to go?
• Non- Annex ID States: wait and see?
• Do international remedies count?
– EU law: caught as part of Member State law
– But ECHR available: Yukos v. Russia June 2014 - €1.86Bn

10. Opportunities and challenges
(3): The non-party problem
• Art 17(1):
– States reserve right to “deny advantages” of Part III
to entity controlled by nationals of a third state where entity has
“no substantial business activities” in respondent state
• Corporate veil controversial in investment law:
– Tokios Tokeles v. Ukraine (2004) – claimant 99% controlled by
respondent state nationals. Jurisdiction accepted.
– But Vacuum Salt v. Ghana – reality of Ghanaian control.
• ECT: Amto v. Ukraine SCC 080/2005
– Claimant incorporated in Latvia, owned by Liechtenstein
foundation with Russian beneficial owners. 2 full-time staff at
rented office in Riga
– “Substantial” in Art 17(1) not same as “large”.

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