Energy Disputes: An Up to Date Overview of Investment Arbitration Cases under the Energy Charter Treaty
The Energy Charter Treaty [1] provides a multilateral framework for cooperation in the sector of energy matters, aiming to promote energy security by encouraging the signatory parties to respect such principles as open and competitive energy markets and sustainable development. Following Article 2 the purpose of the Treaty has been the establishment of a legal framework for the promotion of long-term cooperation in the field of energy based on mutual benefits and complementarity in accordance with the objectives set by the Charter.
The Treaty, in line with its legally binding nature, contains carefully drafter provisions offering several dispute resolution mechanisms. These are contained in Part V of the Treaty. Article 26 provides for the settlement of disputes between investors and states party to the Treaty, whereas Article 27 concerns state-to-state disputes.
Following Article 26 (1), an investor is entitled to seek remedy if he or she or it alleges a breach of its rights related to obligations listed in Part III on investment promotion and protection on the part of the State. These relate to non-discriminatory treatment, compensation for losses, and protection against unlawful expropriation. The Treaty encourages amicable settlement of disputes; hence, the Secretariat through its good office has an important role to play in efforts to address arising disputes through mediation and negotiation, but also providing administrative support.
However, where an agreement is not negotiated within three months,[2] the Treaty enables the Investor(s) to seek resolution through alternative routes, namely international arbitration,[3] under the International Centre for Settlement of Investment Disputes (ICSID) rules[4] or via ad hoc arbitration under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL),[5]or hold arbitration proceedings per the rules of the Arbitration Institute of the Stockholm Chamber of Commerce (SCC).[6]
As of October 2020,[7] the Secretariat reported 134 investment arbitration cases[8] instituted under the Energy Charter Treaty.[9] Statistical data paint a rather interesting picture with respect to the subject matter of the disputes as it identifies an increase of cases concerning investment in projects related to renewable energy. Nonetheless, in terms of damages claimed, cases that relate to fossil fuels represent by far the largest share with a total amounting to 84 billion euros claimed and 37 billion euros awarded by arbitration tribunals.
In terms of Contracting State party to the ECT, Spain[10] is the state with most claims brought against it. Interestingly, among claimant investors, the data shows that SMEs[11] represent the largest group.[12]In terms of alleged breaches, nearly 24% of cases raised issues under the fair and equitable treatment principle, and out of the 34 cases where breaches have been found, 61% relate to the same principle. As for the procedural rules applied, 65% of the cases have been decided under the ICSID rules, followed by the SCC rules.[13] Lastly, for those curious about the composition of the tribunals, nationals of the US, UK, Canada, France, Italy, Germany, and Sweden sat on 60% of the tribunals. British and American arbitrators have been appointed in 28 and 26 instituted tribunals.
In conclusion, the ECT is said to be the most frequently invoked international investment agreement in international investment arbitration proceedings with 134 cases registered in less than 20 years, among which the infamous Yukos case. In 2015 a sharp increase of reported cases is observed; yet, the years following that the number of investment arbitration disputes under the Charter has been declining. However, given the spike of cases related to matters of renewable energy,[14] as well as the recent appetite for investments in similar projects in line, it is yet to be seen whether this declining trend will remain the same as we strive to reach a climate-neutral economy by 2050.
Bibliography:
The Energy Charter Treaty. 1994. Available at: https://www.energycharter.org/fileadmin/DocumentsMedia/Legal/1994_ECT.pdf
Accessed: 11/10/2020
The International Energy Charter. Consolidated Energy Charter Treaty with Related Documents. 2016. Available at: https://www.energycharter.org/fileadmin/DocumentsMedia/Legal/ECTC-en.pdf
Accessed: 11/10/2020
Energy Charter Secretariat. Conflict Prevention and Dispute Resolution: Main Provisions and Instruments. 2016. Available at: https://www.energycharter.org/fileadmin/DocumentsMedia/Other_Publications/20161122-Conflict_Prevention_and_Dispute_Resolution-Main_Provisions_and_Instruments.pdf
Accessed: 11/10/2020
Energy Charter Secretariat. Statistics - Cases under the Energy Charter Treaty. October 2020. Available at: https://www.energycharter.org/fileadmin/DocumentsMedia/News/20201009_Statistics_of_ECT_Cases_9_October.pdf
Accessed: 11/10/2020
[1] Signed in 1994 and enacted in 1998.
[2] ECT 1994, Part V, Article 26(2)
[3] Ibid Article 26(3)(a)
[4] Ibid Article 26(4)(a)
[5] Ibid Article 26(4)(b)
[6] Ibid Article 24(4)(c)
[7] The ECT Secretariat. Statistics of the ECT Cases. October, 2020.
[8] It is worth noting that this figure only illustrates the number of disputes publicly known of. Given the confidentiality of many arbitration proceedings it is arguable that the number of investor-state arbitration cases on matters under the ECT is higher than what is publicly knows as.
[9] The first ever case invoking the ECT was registered in 2001.
[10] Spain acted as respondent state in 47 out of the 134 total publicly known arbitration cases.
[11] Small and Medium Enterprises.
[12]261 SMEs have acted as claimant investors.
[13] Some 25 out of the 134 cases were carried under the rules of the Arbitration Institute of the Stockholm Chamber of Commerce.
[14] See for example: Cube Infrastructure Fund SICAV and Others v. The Kingdom of Spain, ICSID Case No. ARB/15/20; Eiser Infrastructure Limited and Energia Solar Luxembourg S.à.r.l. v. Kingdom of Spain
ICSID Case No. ARB/13/36