RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of Spain

Case summary

At a glance

Parties: RREEF Infrastructure (G.P.) Limited (Jersey) and RREEF Pan-European Infrastructure Two Lux S.à r.l. (Luxembourg), members of the Deutsche Bank Group, v. the Kingdom of Spain
Case no.: ICSID Case No. ARB/13/30
Forum and rules: ICSID Convention arbitration; ICSID Arbitration Rules 2006
Treaty: Energy Charter Treaty (Article 10(1); Article 26)
Tribunal: Prof. Alain Pellet (President), Prof. Robert Volterra, Prof. Pedro Nikken
Annulment Committee: Prof. Lawrence Boo (President), Prof. Enrique Barros Bourie, Ms Bertha Cooper-Rousseau
Sector: Renewable energy (wind and concentrated solar power)
Outcome: Spain was held liable in part: for applying the new regime retroactively, and for failing to secure a reasonable return for the CSP plants. The Tribunal awarded EUR 59.6 million (by majority, with Robert Volterra partly dissenting). The ad hoc Committee dismissed Spain's annulment application in full on 10 June 2022.
Amount: Claimed: EUR 265 million (Reply, excluding interest and tax gross-up), plus a tax gross-up of EUR 115 million. Awarded: EUR 59.6 million (EUR 58.5 million for the CSP plants, EUR 1.1 million for the wind plants), with interest at 2.07% compounded monthly from 30 June 2014. Each side bore its own costs and the arbitration costs were split equally. In the annulment, Spain was ordered to pay the Claimants' costs of GBP 791,385.23 and all costs of the proceeding (USD 451,108.54).

The dispute

The RREEF entities, infrastructure investors in the Deutsche Bank Group, bought interests in Spanish renewable energy projects between February and August 2011: the Dédalo wind project (San Lorenzo C, San Lorenzo D and Esquilvent) and the Arenales, Andasol 1 and Andasol 2 concentrated solar power (CSP) plants. These plants were remunerated with feed-in tariffs under the special regime of RD 661/2007. From 2012 Spain replaced this regime in a series of measures (Law 15/2012, RDL 2/2013, RDL 9/2013, Law 24/2013, RD 413/2014 and the 2014 Ministerial Order). The new regime paid a 'specific remuneration' based on a 'standard installation' and targeted a pre-tax return of 7.398%, and it took past remuneration into account. The Claimants alleged breaches of the fair and equitable treatment standard and the umbrella clause in Article 10(1) ECT. Spain argued that the Tribunal had no jurisdiction over the 7% generation tax (Article 21 ECT), that the reforms were needed to cure the tariff deficit and over-remuneration, and that the investors were only ever guaranteed a reasonable return. In the annulment it also argued that the ECT's arbitration offer does not apply to intra-EU disputes.

Key holdings

The Tribunal unanimously declined jurisdiction over the 7% levy on electricity production (Law 15/2012). However, it took the levy into account as a cost when it assessed the post-tax return. Decision on Responsibility ¶¶ 571, 600(1)
The Claimants' only legitimate expectation was a reasonable return on their investment, measured against the cost of money on the capital market. They had no right to an unchanged RD 661/2007 regime. The claims based on lack of transparency and on discrimination failed. Decision on Responsibility ¶¶ 386–399, 416, 433
Spain breached the ECT, unanimously, by applying the new regime retroactively: it counted remuneration already received in calculating future payments. This breach concerns both the wind and the CSP plants. Decision on Responsibility ¶¶ 481–483, 600(2)
By majority, the Tribunal held that a reasonable return must be no lower than a WACC of 5.86% plus a 1% premium, giving 6.86% post-tax project IRR. The wind assets earn about 13% pre-tax, which is reasonable. Each CSP plant falls below 6.86%, so Spain must pay the difference. Robert Volterra dissented: he found further ECT breaches ('bait-and-switch') and rejected the majority's approach to quantum. Decision on Responsibility ¶¶ 569, 586–589; Volterra dissent ¶¶ 16–19, 26
In the Award, the Tribunal adopted the Claimants' experts' discount rate, applied an illiquidity discount in both scenarios and took account of inflation indexation for the wind plants. On that basis it awarded EUR 58.5 million for the CSP plants and EUR 1.1 million for the wind plants (EUR 59.6 million, by majority). It refused the tax gross-up as uncertain and hypothetical. It awarded interest, unanimously, at 2.07% compounded monthly from 30 June 2014. Each party bears its own legal costs and half the arbitration costs. Award, pp. 15–16, 20–21, 24–25
The ad hoc Committee continued the stay of enforcement without security. Spain was likely to pay and post-award interest would compensate the delay. By contrast, there was a real risk that Spain could not recover the money from the Claimants if the Award were later annulled: the Second Claimant had negative equity, and the First Claimant offered no evidence of its finances. Decision on Stay, pp. 20–25
The Committee dismissed the annulment application unanimously. Spain's objection concerning the First Claimant (Jersey) was raised for the first time in the annulment and was inadmissible. Article 26 ECT covers claims by EU investors against EU member States. Neither the 2019 member-State declarations on Achmea nor the CJEU's Komstroy judgment displaces Spain's consent. The Tribunal did not disregard EU law, and EU State aid law would not have changed the outcome. The ground of failure to state reasons (Article 52(1)(e)) had not been properly pleaded. Spain must pay GBP 791,385.23 and all costs of the proceeding, and the stay was terminated. Decision on Annulment, pp. 18–35, 39–52, 54

Procedural history

22 October 2013ICSID receives the Request for Arbitration. It is registered on 22 November 2013.
31 July 2014The Tribunal is constituted.
5 February 2015Procedural Order No. 2 declares the European Commission's application to intervene inadmissible. A second application is rejected on 14 January 2016. On 7 February 2015 the proceedings are bifurcated.
6 June 2016Decision on Jurisdiction, giving the reasons for the determination of 7 March 2016: objections rejected, and the tax (Article 21 ECT) objection joined to the merits.
20–24 March 2017Hearing on the merits in Paris.
30 November 2018Decision on Responsibility and on the Principles of Quantum, with Robert Volterra's partially dissenting opinion. The parties are directed to try to agree on quantum.
11 December 2019Award: EUR 59.6 million plus interest.
8 April 2020Spain applies for annulment and a stay of enforcement. The ad hoc Committee is constituted on 17 July 2020.
28 October 2020Decision on stay: the stay of enforcement is continued without security.
10 June 2022Decision on Annulment dispatched: the application is dismissed in its entirety and the stay is terminated.

Tribunal, counsel and experts

Decided by: Alain Pellet President — appointed by the institution
Robert Volterra Co-arbitrator — appointed by the claimant (dissented in part on liability and quantum)
Pedro Nikken Co-arbitrator — appointed by the respondent
Lawrence Boo Committee president — appointed by the institution
Enrique Barros Bourie Committee member — appointed by the institution
Bertha Cooper-Rousseau Committee member — appointed by the institution
For the claimant: Allen & Overy LLP · Gibson, Dunn & Crutcher LLP
For the respondent: Abogacía General del Estado
Experts: Carlos Lapuerta (claimant) · Richard Caldwell (claimant) · José Antonio García (claimant) · Jack Stirzaker (claimant) · Thomas R. Mancini (claimant) · Piet Eeckhout (claimant) · Manuel Vargas González (respondent) · Eduardo Pérez Ruiz (respondent) · David Mitchell (respondent) · Susan Blower (respondent) · Jorge Servert (respondent) · Jesús Casanova Kindelán (respondent) · Ricardo Gosalbo Bono (respondent)