Blasket Renewable Investments v. Kingdom of Spain, No. 1:21-cv-3249-RJL (D.D.C. Mar. 29, 2023).
In 2007, two Dutch companies, AES Solar Energy Coöperatief U.A. and Ampere Equity Fund B.V. (collectively, the “Companies”), invested in renewable energy projects in order to take advantage of favorable tax incentives offered by the Kingdom of Spain (“Spain”). However, in the wake of the 2008 financial crisis, Spain implemented reforms in its energy sector that had the effect of reducing the value of the Companies’ investment. The Companies invoked the arbitration provision of the Energy Charter Treaty (“ECT“), to which both Spain and the Netherlands are signatories, and were awarded compensation for their losses by an arbitral tribunal seated in Switzerland.
Spain challenged the award before the Swiss Federal Supreme Court, which dismissed the challenge and confirmed the award in 2021. That award is now final and not subject to further challenge in Switzerland. The Companies brought this proceeding in the U.S. District Court for the District of Columbia to confirm their award.
The District Court Decision Spain argued that the court lacked subject matter jurisdiction. At the heart of that argument was a decision by Court of Justice of the European Union (“CJEU”), the highest EU court, in the Achmea case, which held that investor-state arbitration provisions in the Netherlands-Slovakia BIT were incompatible with EU law. Therefore, according to the CJEU, EU Member States are prohibited from entering into a “treaty by which [it] agree[s] to remove from the jurisdiction of [its] own courts . . . disputes which may concern the application or interpretation of EU law.”
Spain argued, based on Achmea, that it could not make a valid offer to arbitrate. As the court explained, courts in the D.C. Circuit have routinely held that challenges to the validity of an arbitration clause on grounds that the parties lacked the legal capacity to form an agreement to arbitrate must be resolved by a court, not an arbitrator. Deference to the arbitrator merely presupposes that the party in question both had that capacity and had exercised it to form the arbitration agreement.
The court noted that its colleague, Judge Chutkan, in two recent cases to resolve petitions to enforce arbitral awards issued against Spain under the authority of the ECT, rejected the same arguments Spain made in this case and found that the petitioners had established jurisdiction under the arbitration exception to the FSIA. This court disagreed with her reasoning. Judge Chutkan relied on precedent that, in the view of this court, merely stands for the proposition that a reviewing court must defer to an arbitral tribunal’s judgment that a particular investment fell within the scope of an arbitration provision that applies to disputes between two parties to that agreement. However, neither challenge was predicated on an argument that, under the law applicable to them, the parties were incapable of entering into an agreement to arbitrate anything at all. Deference to the tribunal in such a case effectively assumes away the antecedent question of whether the parties could have agreed to do so in the first instance. The court said that it was not bound by the decision of the arbitrators concerning whether Spain had agreed to arbitrate. It looked at that issue anew.
The court explained that the text of the ECT, supported by the subsequent interpretation of the signatories, precludes a tribunal constituted under its authority from disregarding EU law invalidating the purported agreement to arbitrate between an EU Member State signatory and other EU nationals. The court was influenced by Achmea, but also by the fact that, in 2019, the EU Member States expressly stated that the logic of the Achmea decision applied equally to multilateral investment treaties like the ECT.
The court ultimately held as follows:
“As such, the bottom line is straightforward. Spain lacked the legal authority to make a standing offer to arbitrate to the Companies under the law that applies to both parties. The tribunal was bound to issue a decision “in accordance with” that law by the terms of the treaty under which it was convened. Because there was no valid offer to arbitrate, there is no arbitration agreement, which is required to establish subject matter jurisdiction under 28 U.S.C. § 1605(a)(6). As such, this Court cannot establish jurisdiction under that FSIA exception.”
The court therefore granted Spain’s motion to dismiss for lack of subject matter jurisdiction.
This Article was originally published in the North America Newsletter.