Foresight Luxembourg Solar 1 S. Á.R1., et al. v. Kingdom of Spain

Case summary

At a glance

Parties: Foresight Luxembourg Solar 1 S.à r.l. and Foresight Luxembourg Solar 2 S.à r.l. (Luxembourg), GWM Renewable Energy I S.p.A. and GWM Renewable Energy II S.r.l. (Italy), and Greentech Energy Systems A/S, now Athena Investments A/S (Denmark), v. the Kingdom of Spain
Case no.: SCC Arbitration V (2015/150); Svea Court of Appeal Case No. T 1626-19; New York Supreme Court Index No. 656251/2018
Forum and rules: SCC Arbitration Rules 2010; seat Stockholm; hearings in Paris
Treaty: Energy Charter Treaty
Tribunal: Dr Michael Moser (Chairperson), Prof. Dr Klaus Michael Sachs, Dr Raúl Emilio Vinuesa (partial dissent)
Court: Svea Court of Appeal (set-aside); Supreme Court of the State of New York, New York County (confirmation petition)
Sector: Renewable energy; solar photovoltaic
Outcome: By majority, Spain breached fair and equitable treatment (Article 10(1) ECT) by replacing the RD 661/2007 regime; the other claims failed. The Svea Court of Appeal declared the award invalid on 28 June 2024.
Amount: Claimed: EUR 58.2 million plus interest. Awarded: EUR 39 million, plus interest (1.4% before the award, 3.5% after, both compounded monthly) and costs of EUR 3,900,374.73 and USD 2,997,596.33. In the set-aside case, the investors were ordered to pay Spain's court costs of EUR 352,684.19 and SEK 2,800.

The dispute

Between May 2009 and May 2010, Luxembourg, Italian and Danish investors bought Spanish companies that owned three solar PV plants: Madridejos (8 MW), La Castilleja (9.8 MW) and Fotocampillos (1.8 MW). All three were registered under Royal Decree 661/2007, which offered fixed feed-in tariffs and priority grid access. From 2010 Spain changed the scheme to tackle its tariff deficit: it limited the tariff period and the hours of production that earned tariffs, added a grid access toll, imposed a 7% tax on generation revenue (TVPEE, Law 15/2012) and changed the inflation index. In 2013–2014 it replaced RD 661/2007 with the "New Regulatory Regime" (RDL 9/2013, Law 24/2013, RD 413/2014 and MO 1045/2014), which pays a "reasonable rate of return" of 7.398% pre-tax for a "standard plant". The investors claimed breaches of fair and equitable treatment, the impairment clause and the umbrella clause, and unlawful expropriation. Spain objected that the ECT does not cover intra-EU disputes and that the TVPEE falls under the taxation carve-out. On the merits it argued that the investors were only ever entitled to a reasonable return and that the measures were proportionate and consistent with EU State aid law.

Key holdings

The intra-EU objection was rejected. The ordinary meaning of Article 26(1) ECT covers the dispute, the ECT has no disconnection clause, EU law is not relevant to jurisdiction, and the Achmea judgment does not apply to the ECT. The Tribunal upheld the taxation carve-out (Article 21 ECT) for the claim that the TVPEE breached Article 10(1): the TVPEE is a tax, and no bad faith was proven. Award ¶¶ 207–222, 260
The investors had no legitimate expectation that the exact RD 661/2007 tariffs would stay in place for the life of their plants. They did have a legitimate expectation that the framework would not be fundamentally and abruptly changed. RD 1565/2010, RDL 14/2010 and RDL 2/2013 did not breach fair and equitable treatment. By majority, the New Regulatory Regime was a fundamental change that breached Article 10(1) ECT. Award ¶¶ 365, 388, 398
The majority found no need to decide the impairment claim separately. The umbrella clause claim failed because neither RD 661/2007 nor the plants' registrations were a specific commitment to the investors. The expropriation claim failed because the measures did not substantially deprive the investors of the value, use or enjoyment of their shareholdings. Award ¶¶ 412–413, 431
The majority accepted FTI's discounted cash flow model and rejected BDO's regulatory asset base approach and its added regulatory-risk premium. It deducted EUR 11.2 million to reflect a 30-year rather than 35-year plant life. It deducted EUR 8 million to remove all losses before 30 June 2014, because the claimants had not broken down losses by measure. Damages: EUR 39 million. Award ¶¶ 517, 527, 537–540
Interest runs at 1.4% from 30 June 2014 to the date of the award and at 3.5% after it, both compounded monthly. Spain bears all the costs of the arbitration and the claimants' reasonable costs: EUR 3,900,374.73 and USD 2,997,596.33. Award ¶¶ 546, 561–562
Dr Vinuesa dissented. In his view EU law, including the Commission's State aid decision of 10 November 2017, was part of the law applicable to the merits; the claimants' due diligence was inadequate; and Spain was not liable, so no damages, interest or costs were owed. Partial Dissenting Opinion ¶¶ 12, 38, 52–53
The Svea Court of Appeal declared the award invalid under Section 33(1)(2) of the Swedish Arbitration Act. Relying on Achmea, Komstroy, PL Holdings and NJA 2022 s. 965, it held that an intra-EU award under Article 26 ECT is clearly incompatible with the fundamental principles of Swedish law. It ordered the investors to pay Spain's costs and refused leave to appeal. Svea Court of Appeal Judgment, pp. 13–15

Procedural history

2 November 2015The investors file their Request for Arbitration under Article 26 ECT with the SCC.
27 March 2017The Tribunal grants the European Commission leave to file a written amicus curiae submission. The Commission files it on 20 July 2017.
22–26 January 2018Hearing on jurisdiction and merits in Paris.
14 November 2018Final Award: by majority, Spain must pay EUR 39 million plus interest and costs. Dr Vinuesa attaches a partial dissent.
14 December 2018The investors petition the Supreme Court of the State of New York to confirm the award.
8 January 2019Procedural Order No. 4: the Tribunal rejects Spain's request to correct the award and cut damages to EUR 7.8 million.
21 February 2019The Svea Court of Appeal stays enforcement of the award pending Spain's challenge.
26 October 2020The Svea Court of Appeal allows the European Commission to file written observations and refuses Spain's request for a preliminary reference to the CJEU.
28 June 2024The Svea Court of Appeal declares the award invalid and orders the investors to pay Spain's costs. The judgment cannot be appealed.

Tribunal, counsel and experts

Decided by: Michael J. Moser President — appointed by the institution
Klaus Michael Sachs Co-arbitrator — appointed by the claimant
Raúl E. Vinuesa Co-arbitrator — appointed by the respondent (dissented on applicable law, due diligence, liability and damages)
Ulrika Beergrehn Judge, Svea Court of Appeal — appointed by a court
Maj Johansson Judge, Svea Court of Appeal — appointed by a court
Eva Edwardsson Judge, Svea Court of Appeal — appointed by a court
Anne Kuttenkeuler Judge, Svea Court of Appeal — appointed by a court
Sara Ulfsdotter Judge, Svea Court of Appeal — appointed by a court
For the claimant: King & Spalding LLP · Gómez-Acebo & Pombo · Mannheimer Swartling Advokatbyrå AB
For the respondent: Abogacía General del Estado · Advokatfirman Vinge KB
Experts: Richard Edwards (claimant) · Boaz Moselle (claimant) · Dora Grunwald (claimant) · Manuel Aragón Reyes (claimant) · Jaume Margarit (claimant) · Eduardo Pérez Ruiz (respondent) · David Mitchell (respondent) · Pablo Pérez Tremps (respondent) · Marcos Vaquer Caballería (respondent)