International Arbitration Newsletter - July 2020 | Regional Overview: Europe

Azerbaijan

Georgian businessman files ICSID claim against Azerbaijan on share sale interference

ICSID has registered a claim filed by a Georgian businessman Mr. Leshkasheli against Azerbaijan for allegedly interfering with the sale of the claimant's shares in in Shirvan, an oil company operating the country’s largest oil and gas field, a field located in Kurovdag, Baku.

Leshkasheli had a 51 % stake in the Kurovdag project, but in the early 2000s the relationship between the businessman and Azerbaijan started to deteriorate and Leshkasheli decided to sell his stake in the project.

Leshkasheli now invokes the Energy Charter Treaty (ECT), arguing that Azerbaijan has breached the ECT’s fair and equitable treatment standard and failed to offer full protection and security. He is seeking compensation in excess of US$ 700 million.

POLAND

Poland  facing claim for obstructing two coal projects.

Prairie Mining, an Australian mining company, has announced that a subsidiary of Australian finance company Litigation Capital Management (LCM) has agreed to provide US$ 12.3 million to help finance an imminent lawsuit against Poland. The claim is based on the obstruction of two coal projects the company has tried to develop in Poland: The Jan Karski mine in Lublin province in the southeast and the Debiensko mine in Upper Silesia.

Prairie hopes that these two projects will enable it to become the cheapest supplier of coking coal –used in steel production– in Europe.

The demand is based on the fact that Poland has unjustifiably failed to grant Prairie a mining usufruct agreement on the mine’s concessions and will invoke the ECT and the Australia-Poland BIT.

SPAIN

Spanish Constitutional Court bolsters arbitration in a recent decision

In its freshly delivered judgment 46/2020, of June 15, 2020, the Spanish Constitutional Court recalled and settled its theory on a few important concepts related to the scope of control of arbitral awards by the courts, and by doing so has added to Spain’s strength as a contender to be an arbitration venue.

This judgment resulted from action to set aside an award brought by the losing party in an arbitration proceeding with Madrid High Court (‘TSJM’), which questioned the impartiality of the institution that administered the arbitration. During the proceeding for setting aside the award, the parties reached an agreement and requested its termination. Madrid High Court rejected the petition by arguing that the subject-matter of the proceeding for setting aside awards was not at the parties’ disposal, because there was a public interest in establishing those that are contrary to public policy (a ground for setting aside an award at the court’s initiative), which goes beyond the parties’ power of decision over the proceeding. Madrid High Court continued with the conduct of the proceeding, even though the parties objected and failed even to appear at the hearing, which ended with a judgment rendering the award null and void due to a breach of public policy, after concluding that it had been rendered with a clear loss of objective impartiality. Against this the appellants submitted to the Constitutional Court several breaches of fundamental rights due to Madrid High Court not accepting their decision to discontinue the proceeding.

The Constitutional Court upheld the appeal for protection of constitutional rights by arguing that Madrid High Court’s decision was contrary to the constitutional principle that court decisions have to be reasonable and because Madrid High Court’s reasoning was contrary to the appellants’ right to effective judicial protection, by denying the effects of an agreement based on the parties’ power of decision over the proceeding, even though no prohibiting rule exists that would authorize it to do so.

In its reasoning, the Constitutional Court examined its settled theory on the scope of judicial control over arbitral awards. It started with a reminder that arbitration comes from a specific waiver by the parties for a specific case willingly and of their own accord of their right to effective judicial protection and that judicial control of the award must be confined to a formal review, an external check of the validity of the award, which leaves out substantive issues, and that none of the grounds for setting aside allowed in the Spanish Arbitration Law may be interpreted in a way that alters that restriction.

Lastly, regarding breach of public policy as a potential ground for setting aside the award, on which Madrid High Court founded its decision, the Constitutional Court acknowledged that the definition of public policy is blurred, that for this reason the risk of it becoming a pretext for the court to reexamine the case submitted for arbitration multiplies, because the arbitration would be neutralized and ultimately it would infringe the parties’ freedom of contract. Further to this the court stated that the breach of public policy determining the Madrid High Court’s decision was brought to the proceeding at its initiative by the court, since the claimants founded their petition to set aside the award on the abusive nature of the arbitration clause and not on an infringement of the right to an impartial arbitrator.

In short, this new judgment in a way brings up to date Spain’s strength as a contender to be an arbitration venue.

Enforcement of renewable energy award requested in US Court against Spain

Two private equity investment funds, Luxembourg-based Cube Infrastructure (CI) and France-based Demeter, have filed a petition in U.S. courts to enforce the 34 million euros ICSID award against Spain.

This petition includes a long list of creditors seeking to collect the claims won against Spain for the country’s reforms in the renewable energy sector.

Specifically, Demeter and CI based their claims on the fact that the regulatory and legislative reforms that Spain carried out by modifying the subsidy regime for renewable energies have damaged their investments in the photovoltaic and hydroelectric power plants that they had invested in.

The list of creditors includes Eiser, Novenergia, Masdar, Infrastructure Services Luxembourg (formerly known as Antin), Rreef, NextEra Energy, 9REN Holding and Infrared Capital Partners.