Sevilla Beheer B.V. and others v. Kingdom of Spain
ICSID · Investment (ICSID and treaty) · Spain · 22 May 2023
Why it matters
This award is one of many in the wave of Spanish renewable energy arbitrations under the ECT. It clarifies the standard for compensation when a state retroactively alters incentives, setting a reasonable rate of return at 7% post-tax. The decision also addresses the interplay between compensation for retroactivity and for achieving a reasonable return, and allocates costs based on procedural conduct.
Summary
The case concerns claims by Dutch and Spanish investors in five photovoltaic plants in Spain against the Kingdom of Spain under the Energy Charter Treaty. The investors alleged that Spain's regulatory changes between 2010-2014 (the 'Disputed Measures'), including the retroactive application of the New Regime (RDL 9/2013 and related measures), violated Article 10(1) of the ECT by destroying the stability of the regulatory framework and reducing their returns. In a prior Decision on Jurisdiction, Liability and the Principles of Quantum (11 February 2022), the tribunal found Spain liable for breaching the ECT to the extent that the New Regime was applied retroactively to remuneration already received, and to the extent (if any) that the New Regime did not provide a reasonable return of 7% after taxes. The present Award quantifies damages. The parties agreed on a methodology for calculating compensation for retroactivity but disagreed on the pre-tax rate of return to use in the calculation. The tribunal adopted a 10% pre-tax rate (converting 7% post-tax using a 30% tax rate). For the compensation to achieve a reasonable return, the tribunal found that the claimants' internal rate of return (IRR) was below 7% post-tax and awarded the difference. The total compensation was EUR 6,756,894, plus interest at EURIBOR + 1% compounded semi-annually from 20 June 2014. The tribunal also addressed costs, ordering each party to bear its own legal costs and share arbitration costs equally, except that Spain had to bear the costs of its unsuccessful second request for reconsideration (USD 15,000 and EUR 15,000).
The detail
Parties: Sevilla Beheer B.V. and others v. Kingdom of Spain
Case number: ICSID Case No. ARB/16/27
Outcome: Spain ordered to pay EUR 6,756,894 in compensation plus interest for breaching Article 10(1) of the ECT by retroactively applying the New Regime and failing to provide a reasonable return of 7% after taxes.
Quantum: EUR 6,756,894
Applicable law: Energy Charter Treaty (ECT), ICSID Convention, Spanish law (RD 661/2007, RD 1578/2008, RDL 9/2013, Law 24/2013, Order IET/1045/2014, RD 413/2014)
Issues in play: The ECT's fair and equitable treatment standard collided with Spain's regulatory changes to its renewable energy subsidy regime. The tribunal had to determine whether retroactive application of the New Regime and the resulting return below 7% post-tax breached the ECT.
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