The Investment Treaty Arbitration Review: Fair and Equitable Treatment


The fair and equitable treatment (FET) standard in investment protection treaties remains at the core of states' obligations and thus many disputes. With notable exceptions,2 particularly in the newer generation of treaties,3 the FET standard is also often left undefined. Notwithstanding that, tribunals have elaborated on this standard to develop both substantive and procedural principles. This chapter will provide a brief review of these standards and highlight how this has been applied in some of the more recent cases. Notably, a number of awards related to the renewable energy sectors in Spain and the Czech Republic, and concerning Article 10(1) of the Energy Charter Treaty (ECT). Interestingly, while Spain was largely found liable for breaches of the FET standard, the Czech Republic was not. These two groups of cases thus help to draw the line between conduct that is lawful under the FET standard and that which is not. These cases are addressed separately below.


i Anglo American PLC v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/14/1, 18 Jan 2019

The claimant claimed against Venezuela under the Venezuela–United Kingdom Treaty for the seizure of certain reversionary assets and also the non-issuance of VAT credit certificates (VAT CERTS).

The claimant argued that Venezuela had breached the FET standard on the following grounds: legitimate expectations, consistency and stability, transparency and due process, and non-arbitrariness.4

Venezuela argued for limiting the standard to the customary international law minimum standard of treatment of foreigners and their assets, such that it was necessary to demonstrate that the state had acted with a gross or flagrant disregard for the basic principles of fairness, consistency, even-handedness, due process, or natural justice expected by and of all states under customary international law; the lack or denial must be gross, manifest, complete, or such as to offend judicial propriety.5

The tribunal concluded that the seizure of assets was not a breach of the FET standard as Venezuela had taken assets it owned pursuant to a contractual obligation with which the claimant had to comply.

In relation to the claim for non-issuance of VAT CERTS:

  1. Despite repeated requests, Venezuela refused to issue VAT CERTS. The claimant argued, among others, that this was a breach of legitimate expectations, as requirements for the VAT CERTS had been fulfilled.6 The claimant argued that Venezuela breached its obligation to accord a consistent, stable and predictable legal framework by suddenly requiring compliance with a deduction rule that went against the existing VAT law;7 and Venezuela's conduct was not transparent, lacked due process and was arbitrary.8
  2. In response, Venezuela argued, among others, that the requirements for issuance of VAT CERTS were not complied with (in particular, deduction of a requested refund amount).9 Venezuela also argued that the question of the consistency of the requirement with the VAT Law was a matter of Venezuelan law, and the claimant was not denied access to the local courts.10

The tribunal held that the formula 'in accordance with international law' was not synonymous with the 'minimum standard of treatment under international law'11 and held that respect for legitimate expectations, transparency, reasonableness, and due process, as well as the absence of discrimination and arbitrariness are part of the FET standard under treaty.12

As to the substantive claim, the tribunal held that imposing the deduction requirement was not in itself contrary to law.13 Further, it was not the lack of transparency of Venezuela's administration or the lack of predictability of its legal framework that prevented the claimant from obtaining the VAT CERTS; rather, it was the claimant's obstinacy in considering the deduction requirement to be improper and its refusal to comply with it.14 The tribunal also noted that there was no violation of due process because the claimant did not seek recourse in relation to the non-issuance of VAT CERTS until very late in the day, and national court proceedings were still ongoing.15 The tribunal also held that Venezuela's conduct was not arbitrary: the claimant was not prevented from making an appeal against the conduct of Venezuela's tax administration, and had not shown that Venezuela's not responding to requests was attributable to bad administration or on a whim.16

Thus, the tribunal dismissed the claimant's claim for alleged violation of the FET standard.

ii United Utilities (Tallinn) B.V. and Aktsiaselts Tallinna Vesi v. Republic of Estonia, Award of the Tribunal, ICSID Case No. ARB/14/24, 21 Jun 2019

The claimant alleged that Estonia had breached the FET standard in the Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of The Netherlands and the Republic of Estonia, among others, on the following grounds:

  1. The alleged violation of claimants' legitimate expectations related to the privatisation of ASTV (the 2nd claimant), pursuant to which the claimants entered into certain privatisation agreements and the investment was made; and
  2. Estonia had breached the FET standard by rejecting a 2011 tariff application by the Estonian Competition Authority (ECA), and ordering ASTV to apply for tariffs 29 per cent lower than its previous ones.

The tribunal recalled that assessing alleged legitimate expectations 'requires balancing these expectations against the State's legitimate regulatory interest'.17 The tribunal noted also that there was a distinction between purely contractual rights, which may not in themselves guarantee stability of the regulatory regime, and the formation of legitimate expectations, and agreed with Estonia that not every contractual right can amount to a legitimate expectation protected under international law, as this would render all umbrella clauses redundant.18 The tribunal emphasised that 'absent other circumstances, the mere expectation that a contractual commitment will be respected and performed cannot suffice to establish a breach of the FET standard'.19

The tribunal then considered the representations made by City of Tallinn in relation to the privatisation agreements, noting their terms were 'determinative in delineating what the claimants could, and could not reasonably expect since they crystallise the common intention of the parties at the time of the privatisation'.20 In relation to the claimants' legitimate expectations concerning the mechanism for determining water tariffs, the tribunal concluded that the City of Tallinn did not make any commitment regarding the tariff-setting mechanism or ASTV's profitability more generally; a reference to the 2001 Business Plan at Schedule E of the Services Agreement did not amount to an incorporation of the entire Business Plan and a legitimate expectation that the investor could legitimately expect to earn any return implied in the Business Plan.21

As to the claimants' expectations in the various clauses of the privatisation agreements regarding changes in the law and the identity of the regulator, the tribunal agreed with Estonia that the terms of the Services Agreement plainly provided that the regulatory framework was not static and, further, that change was indeed likely; there was also no stabilisation clause in the Services Agreement. The tribunal concluded that a sophisticated investor, in the circumstances, could not have expected the regulatory regime prevailing at the time of the investment to apply without change, particularly where the City of Tallinn did not have authority to guarantee the maintenance of the relevant law or the stability of the Estonian legal order.22

Hence, in totality, the tribunal held that the claimants had not formed legitimate expectations at the time of entering into the privatisation agreements that the privatisation would be shielded from any legal of regulatory change, nor were there legitimate expectations of any specific legal of return or profitability.23 For completeness, the tribunal also considered and held that the claimants had not shown they could hold any legitimate expectations based on post-privatisation events.24

Separately, the tribunal considered whether the claimants had established a breach of the FET standard going beyond a claim of legitimate expectations.

The tribunal first stated that the 'police powers doctrine' did not constitute a separate affirmative defence to FET claims as that analysis is already subsumed into any inquiry into the breach of the FET standard: 'A finding of a violation of the FET standard necessarily entails a determination that the State exceeded its reasonable right to regulate, and to interfere with investors' rights.'25

As to the basis for Estonia ordering a decrease of ASTV's tariffs, the tribunal concluded that the legislative change through the amendment of the legislative framework did not indicate breach of the FET standard: this could have been foreseen in view of the terms of the Services Agreement, and further the tribunal was mindful that curtailing of perceived luxury profits constituted a proper policy motivation.26

The ECA did not legally succeed to the City of Tallinn as a party to the Services Agreement,27 and therefore the Services Agreement did not bind the ECA.28 The tribunal agreed with the national courts that the ECA had properly exercised its discretion to elaborate the tariff methodology, which amounted to an administrative regulation.29 The ECA's adoption of this methodology did not breach the FET standard: it could not be said that one regulatory regime necessarily prevailed as a matter of international good practice. Therefore, the claimants did not hold any legitimate expectations, and the adoption of such a regulatory regime did not run afoul of the claimants' rights.30

iii Lao Holdings N.V. v. Lao People's Democratic Republic, Award, ICSID Case No. ARB(AF)/12/6, 6 Aug 2019

In this arbitration, the claimant alleged that Laos had violated the FET standard in Article 3(1) of the 2005 Netherlands–Laos BIT.

  1. First, it was claimed that the FET standard had been breached as, among other reasons, it had been deprived of its investment in a company (i.e., Sanum) when Sanum was subject to court proceedings that were allegedly arbitrary, unfair, discriminatory and lacking in due process.31 This included allegations that the Laotian courts had been interfered with by the government of Laos, that a trial was called with only 48 hours' notice, held for only 90 minutes, and had been prejudged.32
  2. Second, the claimant also alleged that the FET standard had been breached as the government of Laos had carried out a tax audit on Sanum in bad faith – and, as a result, the claimant's investments were subject to taxes in excess of US$23.8 million, or in a discriminatory fashion.33

However, the tribunal rejected both claims.

On the court proceedings, while the tribunal agreed that 48 hours was excessively short notice for a trial, in the absence of evidence from the Sanum representatives present at the trial, it accepted the evidence of Laos that, when the trial was called, Sanum was present and did not object to the trial proceeding with its participation. It also accepted that the Laotian court had not prejudged the case or been subject to any interference by the Laotian government. The claimant's case on a violation of the FET standard thus failed because of a lack of evidence.

As for the audit, the tribunal found there was no basis for the allegations made. Among other reasons, the tribunal found that the Laotian government had good cause for concern to carry out the audit as Sanum had not complied with its reporting obligations, and such suspicion was vindicated when the serious financial irregularities were disclosed.34

iv Glencore International A.G. and C.I. Prodeco S.A. v. Republic of Colombia, Award, ICSID Case No. ARB/16/6, 27 Aug 2019

This arbitration concerned the FET standard under Article 4(2) of the Switzerland–Colombia BIT, and allegations by the claimants that it had breached the same by: (1) denying one of the claimants (i.e., Prodeco) due process in a fiscal liability proceeding which held it liable for damages to Colombia's finances; (2) acting with bias and bad faith; and (3) breaching the claimants' legitimate expectations.

On due process, the claimants said that Colombia had wrongfully seized assets of witnesses to cause them to change their prior witness statements and incriminate Prodeco, and had also denied Prodeco the opportunity to submit additional evidence in its defence.35 The tribunal held that, while a breach of due process could violate the FET standard, in the context of administrative proceedings (where the decision-maker is also the investigator, accuser and adjudicator) due process would, at a minimum, only require that the decision be subject to full judicial review.36 Nonetheless, the tribunal rejected the claimants' due process allegations. First, the decision against Prodeco was based on documentary evidence (not the evidence of the witnesses), and no concerns were voiced by Prodeco at the material time.37 Second, the claimants had not proven that Colombia had wrongfully caused the witnesses to change their earlier evidence to incriminate Prodeco.38 Last, the decision to deny Prodeco the opportunity to submit additional evidence had been duly reasoned, Prodeco's appeals against it had been dismissed, and Prodeco had not alleged any wrongful conduct with respect to its appeals.39

As for bias and bad faith, the claimants alleged that its conviction had been predetermined by a Ms Morelli Rico, the head of the Colombian agency tasked with investigating and coming to a decision in the fiscal liability proceeding.40 The tribunal agreed that bias would violate the FET standard and that Ms Rico had made public statements which showed that she had 'already made up her mind, without having properly analysed Prodeco's defences and its arguments on appeal'.41 However, the tribunal held that the claimant's bias and bad faith claim had to be dismissed as Ms Rico had left office before deciding Prodeco's appeal.

Finally, on legitimate expectations, the claimants alleged that, by way of the fiscal liability proceeding, Colombia had contravened its legitimate expectations created by the mining contract it signed with the claimants42 by: (1) using its fiscal control powers to nullify its commitments in the eighth amendment to the mining contract for the year 2010;43 (2) adopting decisions of various Colombian authorities that were inconsistent with each other;44 and (3) ignoring the basis of the parties' negotiations on the eighth amendment to the mining contract (i.e., the expansion of the mine).45

None of these arguments found favour with the tribunal.

First, the tribunal found that the claimants did not have any legitimate expectations that Colombia would abstain from using its fiscal control powers given that: (1) administrative contracts (like the mining contract) had been subject to such fiscal control powers for more than a decade prior to the mining contract's execution; and (2) the claimants must have been aware of the same.46

Second, the tribunal disagreed that Colombia had adopted inconsistent decisions (and thus that there was a breach of legitimate expectations on this basis).47 This was because the different Colombian authorities had different legal and policy responsibilities or objectives. In the present case, the decisions in question were not inconsistent because one concerned the law of contract, the other concerned the fiscal liability regime – and both were applicable to administrative contracts.

Last, the tribunal held that ignoring the basis of the parties' negotiations on the eighth amendment to the mining contract alone did not give rise to any legitimate expectation that there would be no application of Colombia's fiscal liability regime to review the eighth amendment.48


The past year saw a number of awards issued in relation to claim brought against Spain for alleged breaches of Article 10(1) of the ECT, in particular the FET standard therein, the relevant part of which provides:

Each Contracting Party shall, in accordance with the provisions of this Treaty, encourage and create stable, equitable, favourable and transparent conditions for Investors of other Contracting Parties to make Investments in its Area. Such conditions shall include a commitment to accord at all times to Investments of Investors of other Contracting Parties fair and equitable treatment. Such Investments shall also enjoy the most constant protection and security.

For the most part, tribunals have found Spain liable for breaches of the FET standard; in several cases, the claimants' legitimate expectations were found to be frustrated by Spain's changes to its renewable energy regime.49

In most of these awards, the tribunals were conscious of and made comparisons to analyses by tribunals in other Spanish renewable energy (RE) cases, particularly where the very same regulatory measures were at issue. However, whereas some tribunals readily adopted the factual conclusions in previous cases, other tribunals took a more cautious approach in this respect.

i Cube Infrastructure Fund SICAV and others v. Kingdom of Spain, ICSID Case No. ARB/15/20, 19 Feb 2019

This was a claim against Spain under the ECT arising out of changes to the state's renewable energy policies. The claimants alleged a breach of the FET standard.

The tribunal stated at the outset that: '[I]t is only in so far as the negation of expectations constitutes unfair or inequitable treatment that there can be a breach of this provision in the ECT. The fact that an investor's expectations have been defeated will not necessarily imply that there has been a breach of the FET standard'.50

The majority of the tribunal held that the claimants did not necessarily have to show that every point of their understanding was confirmed by external counsel nor that it had obtained a legal report on issues of regulatory stability or the risk of the regulatory regime being revoked 'provided that the investor has given careful consideration to the legal position and has acted in reliance upon representations by the State concerning the stability of the regulatory regime'.51 They found that Spain 'held out the assurance of the stability of specific regulatory provisions as an inducement to invest in the renewable energy sector', which investors were entitled to rely on as a firm commitment, and therefore Spain was bound to not renege on it.52

The majority found that the first claimant, Cube, had appraised the regulatory regime and made the considered decision to invest in photovoltaic and hydro facilities on the understanding that a particular regulatory regime would not be significantly amended or abolished retroactively in respect of plants already registered and operating under that regime. The majority held that the claimants' reliance was justified, among others, because the representations and assurances in a particular law, RD 661/2007 were clear and specific, were re-emphasised, and such representations had to be viewed under the lens of international law, not Spanish law.53

Relatedly, the tribunal held a co-claimant Demeter was 'so closely engaged and involved in the decision to invest that the investment can properly be regarded as a joint venture between the co-claimants' such that the representations made to Cube could be regarded and made to Demeter, and Demeter did not have to show it had undertaken its independent due diligence.54

In relation to what would amount to a breach, the tribunal referred to Saluka Investments B.V. v. Czech Republic55 and held that while the FET obligation does not require a State to 'petrify' its laws, where a State 'represented that certain provisions would be maintained for a certain time, those provisions either are maintained for that time or are adjusted in a manner that does not significantly alter the fundamental economic basis of investments made in reliance on that representation'.56

Hence, the tribunal held that regulatory changes had to be considered in totality, and while in themselves might be considered reasonable and fair, there would be a breach of the FET standard 'in the face of an express statement that the tariff regime applicable to existing plants registered under the Special Regime would not be withdrawn, and after investments had been made with a view to profitability over a long term'.57

Hence, the claimants were in principle entitled to recover losses shown to have been caused by replacement of a 2007 regime of fixed tariffs and premiums with a later 'reasonable rate of return' regime.58 In relation to investments in hydro facilities, the majority of the tribunal considered that the regulatory changes in the meantime did not prevent the claimants from relying on the commitment made by Spain, and the claimants expectations were thereafter defeated by the 'significant retroactive changes' put into place.59

Generally, the tribunal found that Spain had not acted in bad faith, and dismissed the claimants' claim alleging failure to act in good faith.60 The tribunal found that Spain had not adopted discriminatory measures against the claimants, as opposed to other investors, because the measures were directed at the renewal electricity energy as a whole, finding that the measures were reasonable public policy choices. The tribunal also found that the Spanish measures were not unreasonable save insofar as they breached the assurances given by Spain and the claimants' legitimate expectations.61

One arbitrator, Professor Christian Tomuschat, issued a separate and partial dissenting opinion disagreeing with the majority's conclusion that the claimants had justifiably relied on Spain's commitment. Among others, he took the view that the claimants were 'clearly negligent in assessing the regulatory risks inherent in their planned investment decisions', and that over time the 'factual framework' around Spain's original commitment was slowly dismantled.62 He noted that Spain still maintained a guarantee of reasonable profitability or reasonable return63 and the claimants were therefore not entitled to claim compensation for the damage they allegedly suffered in relation to their hydro activities through the introduction of the new regulatory regime.64

ii NextEra Energy Global Holdings B.V. and NextEra Energy Spain Holdings B.V. v. Kingdom of Spain, ICSID Case No. ARB/14/11, 12 Mar 2019

This case again concerned a claim under Article 10(1) of the ECT.

The tribunal stated that the claimants should have been aware that changes could be made to the regulatory regime in question, Regulatory Framework I, and could not reasonably have an expectation that they would be entitled to receive precisely the benefits prescribed in regulation.65 However, the tribunal observed that it had to examine whether 'in light of the assurances that they were given by Spain, the claimants had a legitimate expectation that the regime would not be changed in a way that would undermine the security that the claimants had in respect of the economic regime set out in RD 661/2007'.66

The tribunal concluded that the claimants 'had a legitimate expectation that the regulatory regime in RD 661/2007 would not be changed in a way that would undermine the security and viability of their investment',67 for reasons including the following:

  1. use of terms such as such as 'guaranteeing' and 'preserv[ing] legal security', in letters from a Spanish minister could reasonably interpreted to understand the Spanish government had no intention of making significant changes to the investment regime set out in RD 661/2007;68
  2. the claimants would also have expected Spain not to unilaterally change the solar energy regime without industry consultation, reinforcing the notion that the regime would not be radically changed;69 and
  3. the tribunal observed that statements made in writing by Spanish officials constitute the best evidence of its assurances that could be the basis for legitimate expectations.70

The new regime of Regulatory Framework III, the tribunal noted, put in place an economic regime 'substantially different' from that under Regulatory Framework I, and noted that the claimants were deprived of the security and certainty that they otherwise could have expected.71

In response to Spain's argument that all the claimants could have expected was a reasonable return on their investment, the tribunal held that the assurances made by Spanish authorities were, however, about 'regulatory certainty and stability', and by failing to provide that, Spain had denied the claimants their legitimate expectations.72

iii 9REN Holding S.a.r.l. v. Kingdom of Spain, ICSID Case No. ARB/15/15, 31 May 2019

In this matter, the parties disputed whether Spain owed an irrevocable obligation under international law to the claimant to pay the feed-in tariff established by a certain law (RD 661/2007) for 25 years and thereafter at 80 per cent of the original base rate for the life of a certain renewable energy facility. The claimant argued that it had a legitimate expectation in view of, among others, the circumstances and Spain's statements and conduct, that the benefits set out in RD 661/2007 were irrevocable.

The tribunal concluded that the claimant reasonably relied upon a legitimate expectation that the benefits of RD 661/2007 would continue for the useful life of seven of the claimant's eight facilities. In particular, the tribunal found that the Spanish Supreme Court judgment affirming the modification of regulatory measures did not mean that such changes could be made without financial consequences under the ECT.73 In addition, Spain's authority to amend its regulations did not necessarily mean that the costs of such changes should fall on investors.74

The tribunal agreed that the claimant was unable to point to any specific communication from Spain affirming the irrevocability of RD 661/2007 entitlements.75 However, the tribunal held that the regulation could give rise to a 'commitment of the requisite clarity and specificity' particularly where such a commitment is made for the purpose of inducing investment, and did in fact succeed in attracting the claimant's investment that subsequently resulted in losses to the claimant.76

In addition, the tribunal concluded that the legitimate expectations of the claimant under RD 661/2007 were frustrated. Among others, Spain had made a clear and specific representation of non-retroactivity in Article 44(3) of RD 661/2007, the claimant's expectations of tariff stability were reasonable and legitimate in the circumstances, and the claimant reasonably relied upon Spain's representation when it made its investment.77 The tribunal concluded that the frustration of the claimant's legitimate expectation violated the FET standard: it led to one-sided advantages with only Spain benefiting from rising energy prices but yet being able to resile from any guarantee of price stability in the event of prices falling.78

The tribunal, however, rejected the claimant's argument that there was a breach of the FET standard because Spain's measures lacked transparency or were unreasonable or discriminatory, noting that a regulatory measure 'rationally connected to a legitimate State objective, where the means chosen are proportionate to achievement of the objective . . . is neither unreasonable nor arbitrary'.79

iv SolEs Badajoz GmbH v. Kingdom of Spain, ICSID Case No. ARB/15/38, 31 July 2019

The claimant, a German company which Spanish subsidiary owned two photovoltaic (PV) plants located in the Autonomous Region of Extremadura, alleged that Spain's measures between 2010 and 2014 constituted a breach of Article 10(1) of the ECT. In particular, the claimant argued that Spain had failed to respect its legitimate expectations and implemented unreasonable and disproportionate regulatory measures in relation to the feed-in tariff (FIT) payable to RE producers.

While the tribunal referred to and relied on previous Spanish RE cases at times, it was careful to note the differences in the factual matrix of each case, '[e]ven when cases arise under the same treaty (the ECT) and involve the same regulatory regime'.80

In setting out the legal tests for legitimate expectations, and unreasonable and disproportionate measures, the tribunal referred to previous Spanish RE cases.81 Notably, the tribunal adopted the test for proportionality in Charanne:82

The Arbitral Tribunal considers that the proportionality requirement is fulfilled inasmuch as the modifications are not random or unnecessary, provided that they do not suddenly and unexpectedly remove the essential features of the regulatory framework in place.

Considering Spain's regulations and regulatory reports, statements regarding those regulations, the case law of Spain's Supreme Court and the economic circumstances as of March 2010 (the date of the claimant's investment), the tribunal held that the claimant had the legitimate expectation that it would receive a FIT that was stable for the first 25 years of a plant's operation (save for inflation adjustment).83

The tribunal reached this finding despite observing that prudent investors during this period would have been aware of Spain's tariff deficit in this sector and of the prospect that Spain would take steps to address this.

The tribunal also rejected Spain's argument that the claimant could not have had such a legitimate expectation to receive stable FITs because a prudent investor would have realised that there was no right to state aid under EU law and Spain's aid provided pursuant to RD 1578/2008 'could eventually be seen as excessive'. The tribunal held that Spain's argument was speculative and there was no basis to say that an investor should have anticipated that as of March 2010, Spain's regulatory regime on and before 2008 would eventually have found to be inconsistent with EU requirements.84

The first set of measures (taken between 2010 to 2013) did not breach the claimant's legitimate expectations and could not be considered disproportionate according to the definition in Charanne, because they did not 'remove the essential features of the regulatory regime in place when the claimant invested'.85 These measures related to an imposition of a cap on the number of hours per year during which PV installations could sell electricity under the FIT, an imposition of a tax on electric energy production, and a change to the inflation index used to update FITs. The tribunal also noted that its conclusion in relation to this first set of measures was aligned with the reasoning of other tribunals in other Spanish RE decisions, such as in Charanne, Eiser86 and Novenergia II87.88

The second set of measures (taken between 2013 and 2014), in contrast, both breached the claimant's legitimate expectations and were disproportionate. These measures eliminated the FITs that had been assigned to the claimant's plants and changed the basic features of the regulatory regime; remuneration under these measures was uncertain because the FITs were subject to periodic revision, thereby frustrating the claimant's legitimate expectations for a stable FIT. Further, the measures were disproportionate because they 'suddenly and unexpectedly removed the essential features of the regime in place when Claimant invested' and the severe impact on the value of the claimant's investment exceed that which a prudent investor could have reasonably anticipated.89

v BayWa r.e. Renewable Energy GmbH and BayWa r.e. Asset Holding GmbH v. Spain, ICSID Case No. ARB/15/16, 2 December 2019

The claimants, the Spanish subsidiaries of two German companies, that owned and managed wind farms in the province of Zaragoza, Spain, alleged that Spain's measures between 2012 to 2014 amounted to a breach of the FET standard under Article 10(1) of the ECT.

In contrast to the SolEs Badajoz tribunal, the tribunal here relied significantly on the factual conclusions of the tribunals in previous Spanish RE cases.

The tribunal held that the despite the absence of any specific commitment given by Spain as to the immutability of the FIT regime,90 the claimants had legitimate expectations that the subsidies would continue, though not to the extent that the subsidies regime of RD 661/2007 would be maintained unchanged for the life of the investment. In this regard, the tribunal noted that the tribunals in previous Spanish RE cases had reached different conclusions in relation to the same regulatory measure.91

In NextEra,92 the tribunal held that the claimants could not have expected, from RD 661/2007 itself, that the regime would never be changed, although it ultimately found that Spain had given specific assurances to such effect to the investors.93

In contrast, the tribunals in 9REN94 and Cube Infrastructure Fund95 decided that RD 661/2007 itself constituted a clear and specific commitment.96

Further, the tribunal found that the measures were not disproportionate, with the exception of Spain's decision to claw back benefits that had already been paid.

The tribunal held that it was not unreasonable for Spain to calculate subsidies by reference to when a standard facility was regarded to have recovered its investment, the operation costs through market revenues and subsidies received. The tribunal considered 25 years to be an appropriate regulatory life for wind plants and considered that all tribunals in other Spanish RE cases had similarly conclusions, even though those cases did not involve wind turbine plants.97

In relation to the claw-back of profits, the tribunal held that this was disproportionate:

To claw back those profits on the basis of a subsequent judgment that they were 'excessive' was inconsistent with the principle of stability in Article 10.1 of the ECT and has not been shown to have been necessary to resolve the tariff deficit problem, which would have been solved in any event by the Disputed Measures without much further delay and without the element of claw-back of payments earlier lawfully made.

In coming to this conclusion, the tribunal agreed with the approach by the RREEF98 tribunal and noted that different approaches had been taken by the Charanne and Isolux tribunals, which formulated the question as being 'to what extent the State can modify, with immediate effect, generally applicable regulatory provisions'. The tribunal disagreed with this position:99

But although some claimants may have put it in these terms, that is not the question . . . it is one thing to give new regulatory measures immediate effect for existing installations, and quite another to eliminate future subsidies otherwise payable by reference to amounts lawfully paid and received in earlier years on a quite different basis.

Finally, the tribunal observed that the measures were overall proportionate, by reference to 'the aim of the legislative amendment, and . . . due regard to the reasonable reliance interests of recipients who may have committed substantial resources on the basis of the earlier regime'.100 The tribunal agreed with the RREEF tribunal that the only legitimate expectation the claimants could have had was that of a 'reasonable return' in terms of Law 54/1997. Therefore, because the internal rate of return after the enactment of the measures was above the pre-tax target of the Spanish regulator and above the RREEF tribunal's reasonable rate of return calculated, the measures were proportionate.101


The claimants in the arbitrations listed below alleged that the Czech Republic had violated the FET standard by cancelling the legal, tax and regulatory inventive regime that had previously been established in its photovoltaic sector:

  1. WA Investments Europa Nova Ltd v. Czech Republic, Award, PCA Case No. 2014-19, 15 May 2019;
  2. Voltaic Network GmbH v. Czech Republic, Award, PCA Case No. 2014-20, 15 May 2019;
  3. Photovoltaic Knopf Betriebs GMBH v. Czech Republic, Award, PCA Case No. 2014-21, 15 May 2019; and
  4. ICW Europe Investments Limited v. Czech Republic, Award, PCA Case No. 2014-22, 15 May 2019.

These decisions are examined together as they concerned the same measures by the Czech Republic, were analysed in an identical fashion by the same tribunal (with respect to the material parts), and the FET obligation in question was also identical102 (i.e., Article 10(1) of the ECT, cited above).103

In these arbitrations, the claimants asserted that the Czech Republic had violated the FET standard in two ways: by failing to provide a stable and predictable legal framework and by failing to protect the claimants' legitimate expectations. In addition to this, the tribunal also examined whether the Czech Republic's actions were taken in a non-transparent manner in violation of the FET standard.

In contrast, the Czech Republic argued, among others, that a mere change of the legal framework applicable to the claimant's investment, in the absence of a specific stabilisation arrangement or guarantee to that effect, did not amount to violation of the treaty obligation to provide FET. The Czech Republic argued it did not provide a guarantee of stabilisation to photovoltaic investors.104 The Czech Republic also argued, among others, that legitimate expectations could only derive from specific legislative provisions (whereas in this case the claimant had not referred to specific provisions of the Act on Income Tax), a legislative purpose is not in itself sufficient to create legitimate expectations, even if the purpose itself is clear, and further the claimant anticipated possible legislative changes in the scheme.105 The Czech Republic argued that there had not been evidence of reliance on the claimant's part,106 and in any case any such reliance was not reasonable.107 In any event, no legitimate expectations were violated, among others because there had not been any drastic, discriminatory or radical change in the regulatory environment.108

On the allegation regarding a stable and predictable legal framework, the tribunal distinguished between an express stabilisation commitment in relation to the claimant's investments (which it did not find present)109 – and a 'general obligation' to provide a stable and predictable framework as part of the FET standard (which was held to be present).110 The tribunal held that the latter obligation was not absolute and, in the absence of a specific stabilisation promise, a state was not precluded from changing its legislation.111 In the circumstances, the changes introduced by the Czech Republic were a legitimate exercise of its sovereign right to regulate tariffs in light of the adverse consequences arising from the solar boom in the Czech solar energy sector in or around 2009. In particular, the tribunal noted that even after the change: the fundamental features of the previous incentive scheme remained112 and the claimants continued to secure a more than reasonable return, and were in fact more profitable than envisaged when the support system was created.113

As for legitimate expectations, the tribunal considered the following factors: (1) whether there was an assurance; (2) whether there was reliance on the assurance; (3) whether the reliance was reasonable; and (4) whether the legitimate expectations arising from the aforementioned had been violated.114 However, none of these were satisfied. First, there was no assurance because, among other things, the relevant legislation, measures and other conduct of the Czech Republic did not indicate or mention that the incentive regime they created were meant to be long-term guarantees or not meant to be withdrawn.115 Second, even if there had been an assurance, the claimants had not reasonably relied on the same (i.e., the second and third parts) because: (1) there was no evidence that the claimants were aware of the conduct allegedly giving rise to the assurances when they had made their investments; (2) there were warnings that the incentive regime might change; or (3) the wording of documents allegedly giving rise to the assurance were equivocal.116

Notably, the tribunal considered that, in any event, the law of the European Union on State Aid precluded any legitimate expectations. This was because: EU law amounts to mandatory rules which would have primacy over the Czech Republic's domestic law and under EU law, state aid was only permitted after it had been approved by the European Commission. Following from this, the tribunal concluded that there could not have been any legitimate expectations by the claimants because, at the time the investments were made, the incentive regime had not been notified to, and approved by, the European Commission.117

Finally, the tribunal considered that the FET standard required there to be transparency, as confirmed by the express text of Article 10(1) of the ECT. However, this was not violated as there was an obvious need for the incentive regime to be changed and the Czech Republic was as transparent as it could have been in light of the political vacuum until July 2010 and the dramatic increase in photovoltaic plant grid connections shortly after.118


1 Andre Yeap SC is a senior partner, Paul Tan is a partner, Matthew Koh is a senior associate, and David Isidore Tan and Ryce Lee are associates at Rajah & Tann Singapore LLP.

2 See Notes of Interpretation of Certain Chapter 11 Provisions (adopted by the NAFTA Free Trade Commission on 31 July 2001).

3 See Article 9.4 of the Singapore–European Union Free Trade Agreement. See especially footnote 11 of Chapter 9.

4 Anglo American PLC v. Bolivarian Republic of Venezuela at [407].

5 id., at [415]

6 id., at [411].

7 id., at [412].

8 id., at [413]–[414].

9 id., at [418]–[423].

10 id., at [424]–[425].

11 id., at [439].

12 id., at [443].

13 id., at [447]–[457].

14 id., at [461]–[465].

15 id., at [466].

16 id., at [470].

17 United Utilities (Tallinn) B.V. and Aktsiaselts Tallinna Vesi v. Republic of Estonia at [570]–[590].

18 id., at [581]–[587].

19 id., at [588].

20 id., at [618].

21 id., at [684]–[689].

22 id., at [708]–[710].

23 id., at [711]–[716].

24 id., at [725]–[761].

25 id., at [767].

26 id., at [802].

27 id., at [823].

28 id., at [828].

29 id., at [837]–[841].

30 id., at [858] to [859].

31 Lao Holdings N.V. v. Lao People's Democratic Republic at [241].

32 id., at [242]–[245].

33 id., at [260]–[261].

34 id., at [265]–[269].

35 Glencore International A.G. and C.I. Prodeco S.A. v. Republic of Colombia at [1313].

36 id., at [1319].

37 id., at [۱۳۳۱]–[۱۳۳۳].

38 id., at [1334]–[1337].

39 id., at [1342]–[1344].

40 id., at [1345].

41 id., at [1348]–[1349], [1355]–[1357].

42 id., at [1361], [1369].

43 id., at [1408].

44 id., at [1418].

45 id., at [1426].

46 id., at [1409]–[1417].

47 id., at [1419]–[1425].

48 id., at [1426]–[1430].

49 The exception is BayWa r.e. Renewable Energy GmbH and BayWa r.e. Asset Holding GmbH v. Spain, ICSID Case No. ARB/15/16, 2 December 2019.

50 Cube Infrastructure Fund SICAV and others v. Kingdom of Spain at [387].

51 id., at [396].

52 id., at [397].

53 id., at [398]–[404].

54 id., at [406].

55 Saluka Investments B.V. v. Czech Republic, UNCITRAL, PCA Case No. 2001-04, Partial Award, 17 March 2006 at [305].

56 Cube Infrastructure Fund SICAV and others v. Kingdom of Spain at [411]–[413].

57 id., at [419]–[431].

58 id., at [434].

59 id., at [435]–[442].

60 id., at [444]–[446].

61 id., at [448]–[451].

62 id., at [18]–[22].

63 id., at [23]–[25].

64 id., at [26].

65 9REN Holding S.a.r.l v. Kingdom of Spain at [584].

66 id., at [591].

67 id., at [596].

68 id., at [593].

69 id., at [594].

70 id., at [590].

71 id., at [599].

72 id., at [600].

73 id., at [242]–[244].

74 id., at [253]–[259].

75 id., at [292].

76 id., at [295].

77 id., at [307].

78 id., at [311].

79 id., at [320]–[325].

80 SolEs Badajoz GmbH v Kingdom of Spain at [334].

81 id., at [315]–[317].

82 id., at [316], citing Charanne B.V. Construction Investments S.à r.l. v. Kingdom of Spain, SCC

Arbitration, Arbitration No. 062/2012, 21 January 2016 at [517].

83 id., at [375]–[444].

84 id., at [441]–[442].

85 id., at [446]–[452].

86 Eiser Infrastructure Limited and Energía Solar Luxembourg S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/36, 4 May 2017.

87 Novenergia II – Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v. Kingdom of Spain, SCC Case No. V 063/2015, Final Award, 15 February 2018.

88 SolEs Badajoz GmbH v Kingdom of Spain at [453].

89 id., at [454]–[463].

90 BayWa r.e. Renewable Energy GmbH and BayWa r.e. Asset Holding GmbH v. Spain at [465]–[466].

91 id., at [467]–[476].

92 NextEra Energy Global Holdings B.V. and NextEra Energy Spain Holdings B.V. v. Kingdom of Spain, ICSID Case No. ARB/14/11, 12 Mar 2019.

93 BayWa r.e. Renewable Energy GmbH and BayWa r.e. Asset Holding GmbH v. Spain at [474].

94 9REN Holding S.a.r.l v. Kingdom of Spain, ICSID Case No. ARB/15/15, 31 May 2019.

95 Cube Infrastructure Fund SICAV and others v. Kingdom of Spain, ICSID Case No. ARB/15/20, 19 Feb 2019.

96 BayWa r.e. Renewable Energy GmbH and BayWa r.e. Asset Holding GmbH v. Spain at [475]–[476].

97 id., at [481]–[486].

98 RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom Spain, ICSID Case No. ARB/13/30, 30 November 2018.

99 BayWa r.e. Renewable Energy GmbH and BayWa r.e. Asset Holding GmbH v. Spain at [493]–[494].

100 id., at [502].

101 id., at [497]–[515].

102 For ease of reference, and unless otherwise stated, references are to WA Investments Europa Nova Ltd. v. Czech Republic.

103 For completeness, the claimant in Photovoltaic Knopf Betriebs GMBH v. Czech Republic also relied on Article 2(1) of the Germany–Czech Republic BIT: see Photovoltaic Knopf Betriebs GMBH v. Czech Republic at [478]. However, no different analysis ensued from this.

104 WA Investments Europa Nova Ltd. v. Czech Republic at [476]–[483].

105 id., at [505]–[513].

106 id., at [515].

107 id., at [527]–[534].

108 id., at [540]–[542].

109 id., at [569], [573].

110 id., at [570]–[571]

111 id., at [571].

112 id., at [574].

113 id., at [577].

114 id., at [583].

115 id., at [585]–[588].

116 This was different in each of the awards, the relevant parts of which are: (1) Voltaic Network GmbH v Czech Republic at [506]–[517]; (2) WA Investments Europa Nova Ltd. v. Czech Republic at [589]–[604]; (3) Photovoltaic Knopf Betriebs GMBH v. Czech Republic at [502]-[513]; and (4) I.C.W. Europe Investments Limited v. Czech Republic at [548]–[557].

117 WA Investments Europa Nova Ltd. v. Czech Republic at [605]–[623].

118 id., at [624]–[630].

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