Legal analysis of indirect expropriation claim

That the tribunal erred in finding that the offer to arbitrate in the Poland-Belgium-Luxembourg bilateral investment treaty BIT did not include claims for breach of the fair and equitable treatment FET standard.

Legal analysis of indirect expropriation claim

Paul Hastings LLP The renewable energy sector often depends on large, upfront investments, which can only be recouped over a long period. Given the substantial initial capital investment required, many countries particularly those in the European Union have enacted schemes, such as feed-in tariffs or other special rates, to encourage long-term investment.

Investors in the renewable energy sector have a strong interest in the stability of this regulatory regime — including, significantly, the continuity of any incentive schemes for renewable energy over the period of expected recovery — and protection from unwarranted government policy changes that could amount to expropriation or a denial of fair and equitable treatment.

The past decade saw a significantly increased level of investment, including foreign investment as a result of international initiatives on the development of alternative energy sources. These measures were designed to favour renewable resources over continued use of fossil fuels and to account for the significant upfront expense associated with the new technologies.

Legal analysis of indirect expropriation claim

These regulatory changes, in turn, have sparked a considerable number of legal disputes, including investor—state arbitrations under the ECT. Spain, the Czech Republic and Italy in particular have found themselves facing disputes following changes in regulatory structures for energy investment.

Spain For over a decade, Spain had laws subsidising new investments in wind energy, solar energy and waste incineration. The Spanish Promotion Plan for Renewable Energy, originally promulgated in and revised inprovided for grants, tax incentives, soft loans and loan guarantees.

These incentives attracted tens of billions of euros in investment in renewable energy assets from outside investors. Subsequently, however, the Czech Republic sought to roll back the payments required under the tariff, and in imposed a retroactive levy on revenues from solar electricity, which was upheld by the Czech Constitutional Court.

The tariff was originally enacted in by Legislative Decree No. The incentives system, however, was costly, and eventually became unaffordable.

Investors were required to select one of the following new incentive regimes: Although the Italian government justified its decision by the desire to reduce the costs of participating in international organisations, the risk of further disputes under the ECT and potential adverse decisions may have influenced the withdrawal.

These are similar to protections typically found in BITs, such as fair and equitable treatment, constant protection and security, non-discrimination, most-favoured nation, fulfilment of commitments, prohibition against expropriation, and compensation of losses. While the renewable energy arbitrations brought under the ECT are generally confidential, several legal issues are likely to be central to these proceedings.

Under Article 10 1each ECT signatory promised to: Such conditions shall include a commitment to accord at all times to Investments of Investors of other Contracting Parties fair and equitable treatment.

BREAKING DOWN 'Expropriation'

Such Investments shall also enjoy the most constant protection and security and no Contracting Party shall in any way impair by unreasonable or discriminatory measures their management, maintenance, use, enjoyment or disposal.

In no case shall such Investments be accorded treatment less favourable than that required by international law, including treaty obligations. The FET standard commonly contains the following requirements: There are two acknowledged approaches to determining when investor expectations are reasonable so as to warrant treaty protection.

The first approach requires the host state to have made clear assurances to the investor regarding the specific business relationship. As some commentators have suggested, this provision could serve as the basis for affording the legitimate expectations of investors operating in the energy field comparatively greater protection against regulatory changes.

Indeed, in Charanne — the first renewable energy arbitration that resulted in an award — the tribunal concluded that Spain did not breach its FET guarantee under the ECT.

Distinguishing CMS as involving a specific contractual commitment, the tribunal viewed the retroactivity argument as simply a restatement of the unsuccessful argument that investors had a legitimate expectation in the original regulatory framework.

Latvia, the tribunal addressed claims of indirect expropriation under the ECT, and construed such expropriation narrowly. According to the rules applicable at the time, the investor would have received a double tariff for eight years.

"Indirect expropriation: property rights protection, state sovereignty " by Kiratipong Naewmalee

Just before the plan commenced operation, Latvia revoked this favourable treatment and introduced retroactively a significantly lower tariff. It therefore remains to be seen what approach other arbitral tribunals will adopt when determining whether the reductions of a feed-in tariff or, more broadly, the roll-back of the renewable energy investment incentive regimes, deprive investors of the use and benefit of their investment to such an extent to constitute an indirect expropriation under the ECT.

As the Charanne award indicates, such decisions will likely examine closely the specific facts and circumstances of each case. Thus, in the Czech cases, the Commission reportedly has taken the position that EU law may prohibit some of the original solar investment incentives the Czech Republic offered to investors, and therefore required their elimination.C.

Henckels, “Indirect Expropriation and the Right to Regulate: Revisiting Proportionality Analysis and The Standard of Review in Investor-State Arbitration” () J . Academic journal article Chicago Journal of International Law. The Iran-United States Claims Tribunal, NAFTA Chapter 11, and the Doctrine of Indirect Expropriation.

By Brunetti, Maurizio. Read preview NAFTA Chapter 11, and the Doctrine of Indirect Expropriation. By Brunetti, Maurizio. Read preview. Introduction A learned commentator has recently suggested that the focus of debate in international investment law has shifted from the standard of compensation to the definition of expropriation.[1].

Iran-U.S. Claims Tribunal: A Policy Analysis Of The Expropriation Cases by Steven R. Swanson* I. INTRODUCTION The recent events surrounding the Iranian Revolution have provided. 1 the expropriation clause and the tension between foreign investment and the public interest.

an analysis of recent international investment arbitration. expropriation had occurred and supported Tippetts’ claim of indirect expropriation. The Standard of Purpose Test. under domestic legal procedures; (iii) shall not be Analysis on the Standards of Indirect Expropriation Analysis on the Standard of Sole Effect Test.

Claims and Defenses Expropriation