G.I.H.G. Limited, Natland Group Limited, Natland Investment Group NV, and Radiance Energy Holding S.A.R.L. v. Czech Republic
PCA · Investment (ICSID and treaty) · Czech Republic · 20 Dec 2017
Why it matters
This partial award is significant for its detailed analysis of the ECT tax carve-out, clarifying that a levy on revenue (Solar Levy) is not a 'tax' for purposes of Article 21(7) and thus subject to treaty protection. It also addresses the interaction between EU state aid law and investment treaty obligations, and the scope of FET protection for regulatory changes in the renewable energy sector. The award provides guidance on the standard of review for claims involving multiple treaties and the importance of segregating damages from different measures.
Summary
The case concerns claims by four investors (Natland Investment Group N.V., Natland Group Limited, G.I.H.G. Limited, and Radiance Energy Holding S.à.r.l.) against the Czech Republic under the Energy Charter Treaty (ECT) and three bilateral investment treaties (BITs) with Cyprus, the Netherlands, and Luxembourg. The investors owned solar photovoltaic plants in the Czech Republic and challenged several measures adopted by the Czech government in 2010-2013 that altered the renewable energy support regime. The measures included: (1) the repeal of a five-year income tax holiday for renewable energy producers; (2) changes to depreciation rules for solar plants; and (3) the introduction of a 'Solar Levy' on revenues from solar installations commissioned in 2009 and 2010. The investors alleged that these measures breached the fair and equitable treatment (FET), full protection and security (FPS), and non-impairment standards under the ECT and BITs. The Czech Republic raised jurisdictional objections, arguing that the Solar Levy was a tax exempt under Article 21(7) of the ECT, that some claimants lacked standing, and that the claims were incompatible with EU state aid rules. The Tribunal issued a Partial Award on jurisdiction and liability. It held that the Solar Levy was not a tax under the ECT carve-out, so it had jurisdiction over those claims. However, it dismissed claims based on the income tax holiday and depreciation changes for lack of jurisdiction under the ECT (as they were taxes) and for lack of merit under the BITs. The Tribunal also dismissed claims by G.I.H.G. and Radiance under the Cyprus and Luxembourg BITs for lack of jurisdiction. On the merits, the Tribunal found that the Solar Levy breached the FET standard under the ECT and the applicable BITs, as it was a sudden and unexpected change that undermined the legitimate expectations of the investors. The FPS and non-impairment claims were dismissed. The Tribunal deferred the quantum phase, noting that the investors' damages model did not segregate the impact of the Solar Levy from the other measures. The award is notable for its analysis of the ECT tax carve-out, the interaction between EU law and investment treaties, and the standard for FET in the context of regulatory changes in the renewable energy sector.
The detail
Parties: G.I.H.G. Limited, Natland Group Limited, Natland Investment Group NV, and Radiance Energy Holding S.A.R.L. v. Czech Republic
Case number: PCA Case No. 2013-35
Outcome: The Tribunal granted the claim for breach of fair and equitable treatment under the ECT and the BITs, dismissed other claims for lack of jurisdiction or on merits, and deferred quantum to a later phase.
Applicable law: Energy Charter Treaty (ECT), Cyprus-Czech Republic BIT, Netherlands-Czech Republic BIT, Luxembourg-Czech Republic BIT, UNCITRAL Rules (1976)
Issues in play: The case involved the interaction between investment treaty protections (FET, FPS, non-impairment) and the Czech Republic's regulatory changes to its renewable energy support scheme, including the Solar Levy, repeal of income tax holiday, and modification of depreciation provisions. The Tribunal also considered the EU state aid rules and the tax carve-out under Article 21(7) of the ECT.
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