Mathias Kruck and others v. Kingdom of Spain

Case summary

At a glance

Parties: Mathias Kruck and others (73 "DSG Claimants": 65 German limited partnerships, DSG Deutsche Solargesellschaft mbH, DSG Spanien Verwaltungs GmbH and six German individuals) v. Kingdom of Spain
Case no.: ICSID Case No. ARB/15/23
Forum and rules: ICSID Convention; ICSID Arbitration Rules 2006
Treaty: Energy Charter Treaty (ECT)
Tribunal: Prof. Vaughan Lowe (President), Dr. Michael Pryles, Prof. Zachary Douglas (partial dissent). Gary B. Born was a member in 2018; a proposal to disqualify him was rejected.
Sector: Renewable energy; solar photovoltaic (PV) feed-in tariffs
Outcome: Decision of 14 September 2022: by majority, Spain breached fair and equitable treatment (ECT Article 10) by introducing the New Regulatory Regime. The claims for impairment, breach of the umbrella clause and expropriation were dismissed. Quantum was remitted to the parties for calculation.
Amount: Claimed: €60.5 million as of June 2014, of which €24.5 million for the DSG Claimants. Award: the difference between the actual tariffs and the RD 661/2007 tariffs (as modified in 2010), valued at 21 June 2014, plus interest at 1.16% compounded monthly. The sum was to be fixed in a later Award; costs were reserved.

The dispute

The claimants are German companies and individuals of the Kruck/DSG group. In 2008 they invested in 65 PV plants of 100 kW each in Spain (Projects Alcolea, Calasparra and Tordesillas), held through Spanish SPVs and registered under Royal Decree 661/2007. Some of them also held contractual bonus rights and interests in land-owning companies. RD 661/2007 offered PV plants fixed, CPI-linked feed-in tariffs for 25 years, then 80% of the tariff, and said that future revisions would not affect existing facilities. Spain later capped the tariff period and the annual operating hours (2010), imposed the 7% TVPEE tax (2012), changed the CPI index (2013), and then replaced the regime with the New Regulatory Regime (RDL 9/2013, Law 24/2013, RD 413/2014, Order IET/1045/2014), which pays a "reasonable rate of return" based on hypothetical standard facilities. The claimants alleged breaches of fair and equitable treatment, of the non-impairment and umbrella clauses, and expropriation. Spain objected that the ECT does not apply between EU States (the intra-EU objection) and relied on the tax carve-out. On the merits it argued that it had promised only a reasonable return, that a Royal Decree cannot create legitimate expectations, and that the measures were reasonable macroeconomic measures.

Key holdings

In its earlier Decision on Jurisdiction and Admissibility (19 April 2021), the Tribunal rejected the intra-EU objection. It upheld the tax carve-out in ECT Article 21, so claims based on the TVPEE were excluded. It upheld the multi-party objection in part and declined to decide the claims of the 43 TS Claimants. Spain's two requests for reconsideration, based on the CJEU's Komstroy judgment and on the Green Power award, were refused. The 2022 Decision affirmed these rulings and held that the Tribunal has jurisdiction over all DSG claims. ¶¶ 4, 14–22, 85–91, 366(1)–(2)
The case is governed by the ECT and international law. EU law is a regional legal system and is relevant as fact, but it cannot have dispositive force to alter the rights and duties established by the ECT. ¶¶ 78–82
By majority, the Tribunal held that RD 661/2007 contained specific commitments, made through general legislation, on which investors were invited to rely. The commitments were fixed tariffs for a fixed term that would not be changed for registered facilities. The commitment was not limited to a "reasonable return". Only investments made after 25 May 2007 could rely on it, so the 2006 land-company investments were excluded. ¶¶ 189–197, 202, 204–205, 210
The 2010 duration cap, the 2010 cap on annual hours and the 2013 change to the CPI index kept the fundamentals of the regime and did not breach the ECT. The New Regulatory Regime was reasonable in itself, but it abolished the guaranteed fixed tariffs for investors who had relied on them. That breached fair and equitable treatment under ECT Article 10, with effect from 21 June 2014. ¶¶ 214–225, 305
The claim for impairment by unreasonable or discriminatory measures was dismissed: there was no discrimination, and the measures were not independently unreasonable. The umbrella-clause claim was dismissed as duplicative. The expropriation claim was dismissed because the claimants kept title and control and complained only of reduced income. ¶¶ 258–261, 270, 290–292
Compensation is the difference between the tariffs actually paid and those due under RD 661/2007 as modified in 2010 (30-year period, hours cap, no cap on the rate of return), valued at 21 June 2014. Nothing is awarded for the contractual bonus and option claims, and there is no tax gross-up. Interest runs at 1.16%, compounded monthly, before and after the award. The parties were to calculate the sums from the First Brattle Quantum Report data within 60 days. ¶¶ 357–365
Spain's proposal to disqualify Gary Born was rejected. It relied on his dissent in Wirtgen v. Czech Republic and on his questioning in Masdar and KS Invest. The two other members found that these showed neither prejudgment nor bias. The costs of the challenge were reserved. Decision on Disqualification ¶¶ 54–61

Procedural history

4 June 2015ICSID registers the Request for Arbitration.
19 January 2016Tribunal constituted (Lowe, Born, Douglas).
14 March 2016Spain's preliminary objections under Rule 41(5) are dismissed.
13 February 2018Spain proposes Gary Born's disqualification. The proceeding is suspended, and the hearing set for 26 February–1 March 2018 is vacated on 15 February 2018.
16 March 2018Decision rejecting the proposal to disqualify Gary Born.
3–7 June 2019Hearing on jurisdiction and merits.
19 April 2021Decision on Jurisdiction and Admissibility: the intra-EU objection is rejected, the TVPEE claims are excluded, and the TS Claimants' claims will not be decided.
6 December 2021Decision refusing Spain's request for reconsideration based on Komstroy.
25 July 2022Decision refusing Spain's second request for reconsideration, based on Green Power.
14 September 2022Decision on Jurisdiction, Liability and Principles of Quantum: fair and equitable treatment breach found by majority, with a partial dissent by Zachary Douglas.

Tribunal, counsel and experts

Decided by: Vaughan Lowe President — appointed by the parties jointly
Zachary Douglas Co-arbitrator — appointed by the respondent (partial dissenting opinion on the 2022 Decision)
Michael Pryles Co-arbitrator
Gary B. Born Co-arbitrator — appointed by the claimant (disqualification proposal rejected 16 March 2018; not a member of the Tribunal that issued the 2022 Decision)
For the claimant: King & Spalding LLP · Gómez-Acebo & Pombo
For the respondent: Abogacía General del Estado
Experts: The Brattle Group (claimant) · Manuel Aragón Reyes (claimant) · Jaume Margarit (claimant) · Grant Greatrex (respondent) · Jesús Fernández Salguero (respondent)