Voltaic Network GmbH v. Czech Republic

Case summary

At a glance

Parties: Voltaic Network GmbH (Germany) v. the Czech Republic
Case no.: PCA Case No. 2014-20
Forum and rules: UNCITRAL Arbitration Rules 1976, administered by the PCA; seat Geneva, Switzerland
Treaty: Germany–Czech and Slovak Federal Republic BIT; Energy Charter Treaty
Tribunal: Prof. Dr. Hans van Houtte (President), Mr. John Beechey CBE, Mr. Toby Landau QC
Sector: Renewable energy (solar photovoltaic)
Outcome: Jurisdiction upheld, except over the income-tax measures under the ECT; all claims dismissed on the merits (15 May 2019).
Amount: Claimed: not less than CZK 320.07 million, including pre-award interest and tax gross-up (earlier CZK 198.5 million, then CZK 333.6 million). Awarded: nothing. The Claimant bears 75% of the arbitration costs and must pay the Respondent EUR 49,180.98. Each party bears its own legal costs.

The dispute

Voltaic Network GmbH is a German company. On 14 May 2010 it acquired Solarpark Rybníček s.r.o., a Czech company that built a photovoltaic plant. The plant was connected to the grid with effect from 5 November 2010. The investment relied on the Czech incentive regime for renewable energy: feed-in tariffs under Act No. 180/2005 (the Act on Promotion) and ERO regulations, plus an income-tax holiday and accelerated depreciation under the Act on Income Tax. After the 2009–2010 solar boom, the Czech Republic acted with effect from 1 January 2011. It repealed the tax incentives (Act No. 346/2010) and imposed a 26% "Solar Levy" on electricity from plants commissioned in 2009–2010 (Act No. 402/2010). The levy was later extended at 10% (Act No. 310/2013). Voltaic claimed that these measures breached fair and equitable treatment, full protection and security, and the prohibition of unreasonable or arbitrary impairment under the ECT and the BIT. The Czech Republic objected to jurisdiction on three grounds: Voltaic had made no contribution of its own; the ECT tax carve-out (Article 21) applied; and, late in the case, the CJEU's Achmea judgment made intra-EU arbitration impossible. On the merits it argued that the measures were a legitimate regulatory response to excessive returns.

Key holdings

Voltaic had a protected investment. Under the ECT and the BIT it is enough that the investor owns and controls the asset. The investor does not need to have funded it itself, so the Solarpark shares qualified even though a related company paid the CZK 200,000 price. ¶¶ 206–208
The repeal of the income-tax holiday and the change to accelerated depreciation are taxation measures under Article 21 ECT, so the Tribunal has no ECT jurisdiction over them. The Solar Levy is not covered by the carve-out, for two reasons. First, the Respondent did not prove that it is a tax under Czech law; the Supreme Administrative Court's 10 July 2014 decision characterised it as a de facto reduction of the feed-in tariff. Second, it falls outside the implicit international limits of Article 21, because its main aim was to cut the tariffs and it was given the form of a tax to avoid ECT claims. ¶¶ 243–273
The Achmea judgment has no effect on jurisdiction. The Respondent clearly and unequivocally waived any intra-EU objection: it said so in its Response, its Counter-Memorial and at the hearing. Under Article 186(2) of the Swiss PILA it is therefore foreclosed. Arbitrability is governed only by Article 177(1) PILA, EU law has no primacy in Switzerland, and Article 177(2) bars the State from relying on its own law. The Tribunal did not decide how Achmea applies to the ECT. ¶¶ 348–370
No breach of fair and equitable treatment. There was no stabilisation commitment. The Act on Promotion guaranteed only a tariff giving a 15-year payback and a 7% WACC return, and these remained: the reference plant's payback was 9.9 years and its return 8.4%. The Claimant did not show that it relied on any assurance, and any reliance in May–September 2010 would have been unreasonable given the many public warnings. EU State aid law also ruled out legitimate expectations, because the regime had never been notified to or approved by the European Commission. The Respondent was as transparent as it could be in the circumstances. ¶¶ 486–544
No breach of full protection and security, for the same reasons as under fair and equitable treatment. No unreasonable, arbitrary or discriminatory impairment: lowering electricity costs for consumers by reducing excessive photovoltaic profits was a rational policy, and it was carried out in a reasonable way. ¶¶ 554, 601–609
Costs. The Claimant won on jurisdiction and the Respondent on the merits, and both counsel teams behaved properly. The arbitration costs are split 75% to the Claimant and 25% to the Respondent, so the Claimant must pay the Respondent EUR 49,180.98. Each party bears its own legal costs, because the claims, although unsuccessful, were reasonable. ¶¶ 642–649

Procedural history

8 May 2013Voltaic and nine other investors filed a joint Notice of Arbitration. On 10 June 2013 the Respondent split the claims into six separate arbitrations.
17 March 2014The co-arbitrators appointed Hans van Houtte as President, which constituted the Tribunal.
22 April 2014Voltaic filed its individual Notice of Arbitration, the formal start of these proceedings.
1 August 2014Co-arbitrator Doak Bishop resigned. The Claimant appointed Gary Born on 24 September 2014.
27 February 2015Procedural Order No. 2 moved the seat from Paris to Geneva. It also gave the European Commission conditional leave to intervene as amicus curiae; the Commission's submissions were disallowed on 14 April 2015 because it would not give the required undertaking on costs.
27 February – 3 March 2017Hearing held in The Hague.
18 April 2018The Tribunal invited submissions on the effect of the Achmea judgment.
24 June 2018Gary Born resigned. The Claimant appointed John Beechey on 20 August 2018, and the SCC Arbitration Institute dismissed the Respondent's challenge to him on 26 October 2018.
15 May 2019Final Award: all claims dismissed and costs allocated.