The Complex Relationship Between Competition Law and Investment Arbitration After Achmea: The Novenergía v. Spain Case

Abstract

In recent years several European investors have initiated investor-state arbitration against Spain under the Energy Charter Treaty (ECT) as a result of the radical changes adopted by the Spanish authorities in the regulatory framework of the renewable energy sector. The Novenergía arbitration highlights the complex relationship between competition law and investment arbitration, especially in intra-EU investment disputes. This type of dispute has caused much controversy because EU competition law often plays a central role in investment arbitration. According to Spain’s position, arbitral tribunals are jurisdictionally not competent to render an award since the power to authorize state aid falls within the exclusive competence of the European Commission (EC). When an arbitral tribunal orders the payment of compensation to an investor, that tribunal could act ultra vires, deciding a matter that EU competition law (state aid regime) establishes as beyond any submission to arbitration. But the new scenario opened by Achmea can allow Spain to challenge the jurisdiction of the arbitral tribunal created on the basis of the ECT, request the set-aside of the award issued and oppose recognition and enforcement, at least before the courts of the member states. The EC has underlined the public order nature of the EU competition rules, already established by the Court of Justice of European Union (CJEU) in Eco Swiss, and has pointed out the difficulties that US courts would face when asked to recognize and enforce the international awards. However, in the recent Micula judgment, the General Court of the EU observed that compensation for damage suffered did not constitute state aid unless it represented compensation for the withdrawal of aid that was unlawful, since the EC had no power to review Romanian conduct prior to Romania’s accession to the EU. However, while Micula appears to be closely related to measures taken by Romania prior to its accession to the EU in 2007, other cases seem to relate only to incentive schemes (cuts to renewable energies) implemented after EU accession, thus giving the EC a clearer path to intervene. Finally, the Novenergía arbitration, highlights the difficulties for the recognition and enforcement of the awards issued in the saga of renewable energy arbitrations against Spain, especially where that award is issued under arbitration rules other than the International Centre for Settlement of Invesment Disputes Convention.