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VDR founder Tomas Vail quoted in Law360 article on Spanish renewables cases before DC Circuit

A U.S. judge’s recent refusal to enforce a €26.5 million ($29 million) arbitral award against Spain has queued up a high-stakes appeal at the D.C. Circuit, with hundreds of millions of euros owed by Madrid to renewable energy investors hanging in the balance.

U.S. District Judge Richard J. Leon ruled on March 29 that Spain had lacked the legal capacity to agree to arbitrate the dispute, which was lodged by a pair of Dutch solar energy investors. Those investors later assigned the award to an entity called Blasket Renewable Investments LLC.

Judge Leon rejected the reasoning of U.S. District Judge Tanya S. Chutkan, who in February had cleared a path toward the enforcement of arbitral awards against Spain worth a combined €332.8 million.

Blasket immediately appealed Judge Leon’s decision and has now asked that the appeal be aligned with the parallel challenges lodged by Spain in the cases decided on by Judge Chutkan, which involved Dutch subsidiaries of U.S.-based NextEra Energy Inc. and Luxembourg-based 9REN Holding SARL.

The significance of the appeal goes far beyond these cases, which concern just three of more than a dozen outstanding awards ordering Spain to pay hundreds of millions of euros to investors after the country yanked a series of renewable energy subsidies.

Experts tell Law360 that Spain’s fate in these cases is likely to depend on a fiercely contested point of law: Should U.S. courts follow the lead of Europe’s highest court, which has found that the awards are invalid? Or should the American courts defer to the findings of the international tribunals that issued the awards in the first place?

“The court in [Blasket] … seemed to take it as a matter of assumption … that EU law nullified any decision by Spain or any other EU state, for that matter, to agree to investment treaty arbitration. But that begs the question: What is the relationship between EU law and international law for the purposes of deciding this issue?” asked Boies Schiller Flexner LLP partner Ben Love.

“I could see that issue being brought to the fore for the appellate court to consider, because with the decision in Blasket, you have a U.S. court taking what has to date been a distinctly minority view on the intra-EU jurisdictional question with respect to investment treaty consent,” he said.

The European Union’s executive branch, the European Commission, which has weighed in on these and other similar enforcement cases in the U.S., has pressed federal courts to consider the cases from a solely European perspective, saying the awards cannot be enforced. And for at least a decade, the commission has tried to persuade international tribunals and courts alike to reject intra-EU cases that pit European investors against European member states.

Despite the commission’s arguments, however, experts say that the question isn’t that simple. International law comes into play here because the awards were all issued by international arbitration tribunals under the Energy Charter Treaty, a multilateral pact that includes many EU member states, but also countries from outside the bloc.

The vast majority of international tribunals have rejected the EU law arguments, making Judge Leon’s approach to the issue something of an outlier.

The commission got help in 2018, when the European Court of Justice held in a case known as Achmea that arbitration clauses contained in intra-EU treaties are invalid, and again in 2021, when the ECJ affirmed that EU courts have exclusive authority to determine the meaning and validity of EU law and struck down the arbitration provision in the Energy Charter Treaty for disputes within the bloc.

Still, international law experts say the U.S. isn’t necessarily bound to that. 

George A. Bermann, the Walter Gellhorn professor of law and Jean Monnet professor of European Union law at Columbia Law School, submitted an expert declaration for NextEra to the D.C. court. He told Law360 this week that he thinks Judge Leon’s decision could well be overturned.

“I don’t see why we have to bow and scrape to the EU and apply its law to determine whether these treaties are valid,” he told Law360. “I know the argument is that it’s an intra-EU treaty, and therefore EU law is most affected. I understand that argument, [but] I’m a little shocked that it’s just assumed that EU law, rather than, say, international law, should govern.”

London-based Tomas Vail of Vail Dispute Resolution also had doubts about the commission’s argument. “I think that the EU approach is not consistent with international law,” he said.

“The EU and the ECJ have repeatedly tried to assert the supremacy of EU law over international law,” he said. “My own view is that these are international law agreements that states have freely entered into by exercising their sovereignty, and they should not be able to have these awards set aside based on policy change within the EU.”

One recent decision that could provide a clue into how the D.C. Circuit may approach the issue was issued three years ago in a case involving two Swedish investors, brothers Ioan and Viorel Micula, who were seeking enforcement of a more than $356 arbitral award against Romania.

In the underlying arbitration, the European Commission had argued that the arbitration agreement was precluded under EU law under the types of arguments that were eventually supported in the ECJ’s 2018 decision in Achmea. In that case, involving Dutch insurer Achmea BV, the ECJ concluded arbitration clauses in intra-EU bilateral investment treaties are inconsistent with EU law.

After the tribunal rejected these arguments, the commission tried again before the court in D.C., pointing to the since-issued Achmea decision and arguing that it had stripped the D.C. federal court of jurisdiction.

But the D.C. Circuit disagreed, affirming U.S. District Judge Amit P. Mehta’s ruling that the arbitration agreement was applicable in the case because the events at issue took place before Romania joined the EU.

“One might expect that, post-Achmea, this would lead national courts to try to undermine the Micula arbitral award at the enforcement stage as there is arguably a new legal landscape,” said Vail. “But the fact that the D.C. Circuit affirmed Judge Mehta’s decision to enforce the award, despite the Achmea development, suggests that they would similarly not be convinced here that Achmea suddenly renders Spain not competent to enter into an arbitration agreement.”

Author: Caroline Simson

Originally Published:

Publish Date: April 7, 2023

–Editing by Jill Coffey and Jay Jackson Jr.