International Arbitration Newsletter - September 2019 | Regional Overview: Europe

Bulgaria

ICSID tribunal awards costs in favour of Bulgaria after Omani fund withdrawal in bank collapse claim

An ICSID tribunal has awarded Bulgaria the entirety of its costs following the withdrawal of an €80 million claim by the State General Reserve Fund of Oman over the collapse of a bank.

The tribunal dismissed with prejudice all claims and ordered the sovereign Fund of Oman to pay all Bulgaria’s legal fees and expenses and as well as its share of the arbitration costs.

The dispute concerned the funds´ indirect 30% interest in Corporate Commercial Bank (KTB), once Bulgaria’s fourth-largest lender. In 2014, KTB’s largest borrower made allegations of fraud against the bank’s majority shareholder, Tsvetan Vasilev, causing customers to withdraw their deposits and Bulgaria’s central bank to place KTB under supervision. The central bank proceeded to revoke KTB’s licence and an independent audit revealed a US$2.6 billion black hole in its accounts.

The fund argued that the actions of Bulgaria’s government, courts and central bank breached the Bulgaria-Oman bilateral investment treaty – including the declaration of KTB’s bankruptcy and the refusal to grant liquidity assistance or a rescue plan in another form.

Italy

Italy defeats ECT claim on solar reforms

Italy has reportedly defeated a €19 million Energy Charter Treaty (ECT) arbitration as an ICSID tribunal has dismissed the claim brought against the state by Luxembourg entity Belenergia.

The case relates to Italy´s 2014 parliamentary decree that reduced state incentives in the renewable energy sector and directed investors to accept one of three measures: a cut to feed-in tariffs of between 6% and 8% under 20-year agreements; the spreading of subsidies over a longer period of 24 years or a new agreement providing a reduced tariff incentive for an initial period and a higher incentive in a later period.

The tribunal held that Belenergia should have considered that Italy’s incentive system was more generous than those offered by other European states such as France and Germany, while acknowledging that Italy receives more sun than those two countries.  

The panel upheld jurisdiction over the case despite an objection from Italy based on the European Court of Justice’s  Achmea ruling, arguing that EU membership does not mean that arbitral disputes must be resolved within the European judicial system.

Montenegro

Montenegro succeeds on jurisdiction in treaty claim filed by UK investor

An UNCITRAL tribunal has declined jurisdiction over a US$100 million investment treaty claim against Montenegro brought by Medusa, a subsidiary of Scotland’s Sea Energy.

Details of the claim are scarce, but it is understood that the claim was brought under Montenegro’s bilateral investment treaties with Austria and Finland, as well as the BIT between the UK and the former Yugoslavia. 

The case, which was administered by the Permanent Court of Arbitration in The Hague, relates to the termination of an oil and gas concession in the Adriatic Sea.

In 2000 Medusa entered into a joint venture contract for oil and gas exploration with local petroleum company Jugopetrol AD.  

Medusa commenced arbitration in 2015, alleging that state authorities disrupted its crude petroleum and natural gas exploration activities in the offshore area of Prevlaka in breach of the

most-favoured-nation clauses under the BITs, domestic law and unilateral state declarations.   

Poland

Poland challenges UNCITRAL award in real estate treaty claim

Poland is challenging a US$10 million UNCITRAL treaty award won by Manchester Securities Corporation (MSC), a subsidiary of US hedge fund manager Elliott Management in the Brussels Court of First Instance.

The dispute relates to loans made by MSC to a real estate developer called Leopard, which was overseeing the construction of an apartment complex in Krakow. Leopard entered bankruptcy proceedings in 2008, leading to a fight between its creditors as to who would have priority to recover their debts against the value of the complex. After three years of litigation, the Polish Supreme Court ruled in 2012 that MSC did not have priority over the would-be apartment owners.

MSC filed its claim under the US-Poland bilateral investment treaty in 2015, arguing it had been subject to unfair and inequitable treatment and denial of justice and that its investment had been expropriated by the Polish courts. It sought a reported US$15 million in compensation. The tribunal held Poland liable for denial of justice.

As well as applying to set aside the award, Poland has asked the Belgian court for a preliminary measure to suspend the execution of the award. A hearing date has not yet been set.

Spain

Spain successfully stays enforcement of two ECT awards in the US and Australia

Following a request by the award creditors Infrastructure Services Luxembourg (ISL, formerly known as Antin) and its Dutch affiliate Energia Termosolar, the US District Court for the District of Columbia and the Federal Court of Australia have both agreed to stay enforcement of a €101 million Energy Charter Treaty (ECT) award against Spain while an ICSID ad hoc committee rules on the state’s annulment application.  

ISL and Energia Termosolar won a €112 million award against Spain after an ICSID tribunal found that Spain’s revocation of incentives for renewable energy reforms had breached the investor’s legitimate expectations for their investments in two solar power plants in Granada, southern Spain. However, that award was reduced to €101 million in damages, after the tribunal acknowledged there had been arithmetical errors.

Spain filed an annulment application resulting in ICSID granting a provisional stay. The solar investor filed its enforcement petition in the Australian and US courts, Spain, however, opposed that stay, as it wanted to use a hearing scheduled for 29 October 2019 to object to the court’s jurisdiction to enforce the award on grounds of state immunity.

The ISL case is one of many intra-EU investment arbitrations where the European Commission has intervened to contest jurisdiction on the basis of the Achmea decision.

Spain hit with another ICSID renewable energy claim

Belgian conglomerate Sapec has recently filed an ECT claim against Spain before ICSID.

The dispute relates to the state’s decision to roll back regulatory policies encouraging renewable energy projects following the 2008 global financial crisis.

In its 2013 annual report, Sapec said it opened a number of photovoltaic parks five years earlier but that the tariff legislation adopted by the Spanish government had a “very negative impact.”

Spain held liable again in third-party funded ECT claim

An ICSID tribunal has ordered Spain to compensate UK-registered InfraRed Environmental Infrastructure, a UK subsidiary of a private equity fund manager InfraRed Capital, over the country’s reforms to its renewable energy sector.

The amount the state has been ordered to pay is unclear, but the Spanish government had disclosed that the investors were claiming over €92 million in the arbitration.

The award is the latest to be issued against Spain in the numerous investment treaty claims it has faced over its decision to roll back regulatory policies encouraging renewable energy projects following the 2008 global financial crisis.

Infrared and the other investors filed their claim in 2014, three years after InfraRed invested in two thermosolar power projects in the regions of Andalucia and Extremadura. Spain is thought to have raised a jurisdictional objection on the basis of the European Court of Justice's ruling in Achmea without success.