Energy-related investor-state disputes continue to dominate arbitration market in Spain

Spain is one of the most affected states in arbitration proceedings based on the ECT. A large number of foreign renewable energy investors have sought compensation from the government under the treaty following policy changes between 2008 and 2014 that reduced incentives and subsidies it previously introduced to support investment in its renewable energy sector in accordance with EU Directives. German utility company E.ON is the latest to have won an arbitration award against Spain for the policy changes.

According to the Spanish government, the total amount claimed by foreign investors stands at almost €8 billion. The government has since taken action in various jurisdictions to annul some of the renewable energy arbitral awards against it. In 2023, it achieved mixed results in its claims for annulment.

Two ad hoc committee annulment decisions of the Administrative Counsel of the International Centre for the Settlement of Investment Disputes (ICSID) have been issued which confirmed adverse awards against Spain.  The first application for annulment was against an award in favour of Malta-incorporated OperaFund Eco-Invest SICAV Plc and Swiss company Schwab Holding AG. The second was to annul a 2015 award towards a group of companies under Watkins Holdings, which have installed and operated wind farms in Spain.

In April 2023, the High Court of Australia in Spain v. Infrastructure Services Luxembourg SÀRL held that Spain had waived its foreign state immunity in Australia by ratifying the ICSID Convention. Consequently, the court considered that Spain lost its foreign state immunity. Accordingly, the High Court confirmed that courts were able to ‘recognise’ and ‘enforce’, but not ‘execute’, the €101m ICSID award against Spain.

On 24 May 2023, the English High Court upheld an order for the recognition of the same award (54-page / 595KB PDF), finding that there were “no proper grounds” for setting it aside. In the judgment, Justice Fraser said that the prohibitions on investment arbitration under EU law do not apply to extra-EU multilateral treaties or condition legal treaties and do not impose legal obligations on jurisdictions outside the EU.

As an example of Spain’s successful claims, on 29 March 2023, the US District Court for the District of Columbia denied recognition and enforcement of an award rendered by an arbitral tribunal located in Switzerland against the Kingdom of Spain for lack of jurisdiction ‘rationae materiae’. Specifically, the court decision held that the consent given by Spain to arbitrate under the ECT was invalid under EU law. In the absence of a valid arbitration agreement, the US did not have jurisdiction to recognise the Award.

Last year, partially adverse ECT awards continued to be rendered against Spain. The most notable ones included two ICSID awards issued in May in favour of Dutch companies Sevilla Beheer and Infracapital respectively, and an ICSID award issued in October in favour of a group of investors led by Mathias Kruck.

In an interesting development, the Permanent Court of Arbitration in The Hague has recently dismissed a €700m arbitration claim filed by Antonio del Valle and other investors against Spain in relation to the resolution of Banco Popular. The award declares its lack of jurisdiction to resolve some of the claims related to the withdrawals of deposits made by public entities as they are not ‘ius imperi’ acts – actions of a public institution that can be attributed to the state. The tribunal rejected all of the claimants' claims and confirmed that the actions taken by all the Spanish authorities and entities, including the Minister of Economy, Bank of Spain, the Spanish Securities Market Commission (CNMV) and the Spanish Executive Resolution Authority (FROB) were lawful and ordered the claimants to pay arbitration costs up to €8m.

The Madrid International Arbitration Centre’s (CIAM) new rules

New CIAM arbitration rules came into force on 1 January 2024. One of the main changes has been to reduce deadlines and streamline the arbitration procedure.

The new rules include, among others:

• a highly expedited procedure, which means that the deadline for issuing the award will be three months from the filing of the statement of claim, very useful for certain disputes such as maritime conflicts;
• shortening the deadline for corrections, clarifications, rectification and complement of the arbitration award procedure, reducing it from one month to 15 days and resolution from two months to 30 days;
• publication of awards – anonymised – if no party objects to it; and
• ·new regulation of the optional procedure for challenging the award, based only on a manifest violation of the substantive rules applicable to the merits of the dispute or a manifest error in the assessment of the facts.

Key court decisions on annulment

Since 2020, the Spanish Constitutional Court has rendered three decisions restricting the concept of "public policy" as ground for annulment of arbitral awards. In its most recent decision, dated May 2022, which reiterates the arguments of the first two, the Spanish Constitutional Court established that an arbitration decision may be annulled on the ground of contradiction with public policy only exceptionally if it meets one of the five specified conditions.

The conditions are:

• if fundamental procedural guarantees have been breached (i.e. the right of defence, equality, bilaterality, contradiction and evidence);
• if the award lacks motivation;
• if it is arbitrary, illogical, absurd or irrational;
• if imperative legal norms are infringed; or
• if the intangibility of a previous final decision is violated.

Regarding the lack of motivation criteria, the Spanish Constitutional Court made it clear that the judicial body reviewing the award, as a result of an extraordinary action for annulment, cannot examine the suitability, sufficiency or adequacy of the statement of reasons, but only verify its existence.

Cases where arbitral awards are annulled remain exceptional. However, the doctrine of the Constitutional Court is being irregularly followed by the civil courts in decisions on the annulment of awards. Two recent examples: while the High Court of Justice of Valencia maintains a restrictive concept of public order and agreed the annulment in a case of partiality of the arbitrator, the High Court of Justice of Madrid, in a judgement of October 2023, annuled an award  on the basis that the grounds for the decision on loss of profit made in the arbitration award were contrary to public order.