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The reform of the renewable energy industry in Spain has resulted in more than ten arbitration procedures filed by foreign or foreign-controlled investors, given the difficulty involved in obtaining investment protection from Spanish courts.

Foreign control of investments is the critical element which opens the way to arbitration to protect investment. It must be decided whether the basic principles of investor protection have been observed and suitable compensation must be awarded, if appropriate, for any regulatory measures having the same effect as expropriation.

In recent years there has been an upsurge in the use of investment arbitration as an international dispute mechanism for investments. Not in vain has it been qualified as “The Sleeping Beauty” that has resurfaced, since it is increasingly used by investors against the national courts of investment-receiving countries.

However, in the renewable energy industry this goes further; there is strong momentum in place for investment arbitration procedures against the Government of Spain by foreign or foreign-controlled Spanish investors. More than 10 international arbitration procedures have been initiated in a few months.

The Government of Spain has obtained some favourable rulings in claims filed before local courts (Supreme Court, see Judgment of 13 January, 2014). These rulings held that there was no violation of the principles of legal certainty, legitimate trust, non-attachability, effective court protection and prohibition of the unfavourable retroactivity of the reform.

The above has led those affected by the reforms made in the sector by successive laws and regulations to seek international arbitration.

International arbitration procedures have been filed before the ICSID (International Centre for Settlement of Investment Disputes, a member of the World Bank Group, headquartered in Washington) or UNCITRAL, seeking damages for the retroactive regulatory changes which have changed the payment regime for the generation of electricity from renewable sources.
The procedures are grounded on the Convention on the Settlement of Disputes between States and Nationals of Other States (Washington Convention), 1965, to which Spain is a party, and on the Energy Charter Treaty, 1994, to which Spain is also a party (in particular, Article 26 of the Energy Charter Treaty establishes the use of arbitration for the settlement of disputes).
One of the litigation issues of particular interest on these matters is the fact that the claimant is effectively a foreign investor and therefore, the legal standing to assert an arbitration claim, which is limited to the foreign or foreign-controlled investor, particularly when the Spanish company operating the facilities affected by the reforms is not clearly controlled by a foreign investor.
Under Article 26.7 of the Energy Charter Treaty, an investor other than a natural person which has the nationality of a Contracting Party party to the dispute on the date of the consent in writing and which, before a dispute between it and that Contracting Party arises, is controlled by Investors of another Contracting Party, shall be treated as a national of another Contracting State for the purpose of filing arbitration procedures.

Investment arbitration case law has established foreign investment control to be based on the stake in the share capital of the investor, considering, among others, the percentage of shares with voting rights, the company’s decision-making methods and the management and leadership of the company (Letco v. Liberia).

The moment in time to be taken into account to verify the foreign control has also been analysed for the purposes of the legal standing to assert a claim and the jurisdiction of the arbitration. In Holiday Inn v Morocco, on the date when the investment was made, neither the State of which the investor was a national or the host State were parties to the Convention, but they were when the arbitration procedure began.

The verification of foreign control has reached direct control, that is, immediate first degree over the local investor (Vacuum Salt v. Ghana, Amco v. Indonesia), but also indirect control over the national company, that is, through conduit companies (Soabi v Senegal).

From a substantive point of view, the Energy Charter Treaty recognises the principles of fair and equitable treatment of investors, full protection and security of the investments, and equitable and more favourable treatment (Article 10).

The claims are based on the fact that the Government’s regulatory measures must be qualified as having effect equal to expropriation, given their non-equitable nature, their lack of proportion, and their lack of prompt, fair compensation, both for actual damages and for private loss of profits, by invoking a violation of Article 13 of the Energy Charter Treaty.


Victor Mercedes is a member of the Dispute Resolution team at Baker & McKenzie in Barcelona. Víctor Mercedes co-heads the Firm’s Litigation & Insolvency Practice Group in Barcelona and has more than 12 years of legal experience. He is also an associate professor at University Pompeu Fabra, teaching business litigation, corporate and arbitration law in different business programs. Mr. Mercedes has authored and co-authored various publications on procedural and public law, tax and administrative law. Prior to joining the Firm, Mr. Mercedes worked in the State Advocate-General’s Office in Tarragona and later served as State Advocate in Barcelona during which time acted for over 2000 disputes before different courts (Civil, Commercial, Criminal and Administrative). He was also a member of the National Administrative Observatory for Tax Crime, Contraband and Punishable Insolvencies of the Spanish Ministry of Economy and Finance. He is ranked and recommended as a leading lawyer in dispute resolution, restructuring and insolvency and corporate crime in Best Lawyers, Chambers Europe (2012,2013,2014) and Chambers Global (2012,2013,2014) and in Legal 500. Victor Mercedes can be reached at and + 34 93 206 08 38.