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Investor awarded damages for arbitrary regulatory changes to renewable energy regime

Lucking David
David Lucking


New York

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North Deborah
Deborah North


New York

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07 June 2018

Allen & Overy scores second win against Kingdom of Spain under Energy Charter Treaty

An international arbitral tribunal has ordered the Kingdom of Spain to pay EUR64.5 million (plus interest) in compensation to Allen & Overy client Masdar Solar & Wind Cooperatief (Masdar). 

The Tribunal hearing the dispute was constituted under the rules of the International Centre for Settlement of Investment Disputes (ICSID), which is an arm of the World Bank. It found that reforms made by Spain to its renewable power sector violated the investor protections of the Energy Charter Treaty (the ECT). 

The Award in favour of Masdar, issued in May 2018, represents the second victory against the Kingdom of Spain for an Allen & Overy client and follows the decision of another ICSID tribunal in May 2017, which awarded infrastructure fund Eiser Infrastructure Limited EUR128 million in damages (plus interest).

In both cases, Spain was found to have violated the ECT by failing to afford the investors ‘fair and equitable treatment’ (FET). In the Masdar case, the arbitrators explained that the purpose of the FET standard, among other things, is to ensure that a protected investor may be confident that the legal framework under which the investment was made will not be subject to:

i. unreasonable or unjustified modification; and

ii. modification in a manner contrary to specific commitments made to the investor.

The Tribunal found that, while a State has the right to modify its legislation, Spain had made changes in a manner that was unreasonable and which violated specific commitments made to Masdar. Masdar was awarded damages to compensate it for its losses caused by Spain’s extensive changes to the regulatory framework, which it had originally put in place to attract international investors – such as Masdar – to invest in its renewable energy sector. 

The findings of the Tribunal demonstrate that a thorough legal due diligence exercise at the time of making significant cross-border investments can assist later in substantiating what an investor’s expectations were at the time it invested, in order to support an investment treaty claim.  It also shows the critical importance of taking advice as to the structuring of investments at the time they are made, so as to ensure the investments (and the investors) benefit from the substantial protections that are available under investment treaties, such as the ECT.  

The ECT is a multilateral treaty, with fifty-three Signatories and Contracting Parties (including both the European Union and Euratom), and offers extensive protections to investments made in the energy sector.  Allen & Overy has unrivalled expertise in relation to disputes arising under the ECT. We acted on the first-ever case under the ECT, as well as the first-ever collective claim under the Treaty.  To date, we have acted in more ECT disputes than any other firm in the world.  

Our investment protection specialists advise clients on the structuring of investments, assist in negotiations with host States, and represent investors in investment disputes against States (including appearing as advocates).​​​