Herbert Smith Freehills secures victory for Kingdom of Spain in investor-state arbitration

Herbert Smith Freehills has helped secure a victory for the Kingdom of Spain in an investor-state arbitration under the Stockholm Chamber of Commerce rules commenced by two European investors Charanne B.V. (Netherlands) and Construction Investments S.à.r.l. (Luxembourg).

The disputes concerned regulatory changes made by Spain in 2010 to the Feed in Tariff regulation governing the PV sector in Spain. The claimants alleged that these regulatory changes breached the investment protection provided for in Articles 10 (fair and equitable treatment and effective means for the assertion of claims) and 13 (expropriation) of the Energy Charter Treaty.

On 21 January 2016, an international tribunal comprised of Alexis Mourre (President), Guido Tawil and Claus Von Wobeser, rejected (by majority) the totality of the claimants' claims and ordered the claimants to pay the Kingdom of Spain's costs (€1.3 million).

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For further information, please contact Christian Leathley, Partner, Eduardo Soler-Tappa, Partner or your usual Herbert Smith Freehills contact.

Christian Leathley
Christian Leathley
+1 917 542 7812

Eduardo Soler-Tappa
Eduardo Soler-Tappa
Partner, co-head of dispute resolution
+34 91 423 4061

Madrid court sets aside awards on grounds of public order after reviewing merits

Under the Spanish Arbitration Law,[1] an arbitral award is final and binding and can only be challenged on six specific grounds, including that the award is contrary to public order.[2] Up until now, when considering challenges to arbitral awards, Spanish courts have held that an award cannot be appealed or reviewed on its merits[3] and that it is not the role of the Spanish courts to correct hypothetical deficiencies in the merits (fact and law) of the award. The concept of “public order” has also been very narrowly interpreted, requiring a violation of a fundamental constitutional right or, more recently, a breach of competition and antitrust principles as required under European Union law.[4]

Three recent decisions of the Tribunal Superior de la Justicia, Madrid (the “Court“)[5][6] have apparently changed, or at least cast doubt, on this past approach. In all three cases, the Court has set aside arbitral awards after reviewing the merits of the decision taken by the relevant arbitral tribunals and finding the incorrect application of the law to be contrary to Spanish public order[7]. In so doing, the Court has arguably exceeded the scope of its formal functions of the judicial supervision of arbitration, adopting a new and extended definition of public order as a basis for setting aside the award.

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Madrid Court of Appeal affirms optional dispute resolution clause

On 18 October 2013, the Madrid Court of Appeal (the Court of Appeal) affirmed the validity of an optional dispute resolution clause which provided for disputes to be resolved either before an arbitration tribunal or national courts.

The Court of Appeal also affirmed, in line with earlier case law of the Court of Justice of the European Union  (CJEU) and jurisprudence of the Spanish Supreme Court, that EU competition law issues can validly be submitted to arbitration (i.e., they are arbitrable).

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South Africa terminates its bilateral investment treaty with Spain: Second BIT terminated, as part of South Africa’s planned review of its investment treaties.

On 23 June 2013, South Africa served a notice of termination in respect of its BIT with Spain, thus ensuring that the investment treaty will terminate on 23 December 2013. Pursuant to Article XII of the BIT, the treaty entered into force for a period of 10 years from 23 December 1999, and thereafter for consecutive 2 year periods, unless terminated by 6 months’ notice before the date of expiry.

Investments made or acquired prior to 23 December 2013 will, however, continue to benefit from protection until 23 December 2023, by virtue of the survival clause in the BIT.

Those wishing to invest in South Africa should include contractual investment protection mechanisms, consider carefully how their investment is structured, and keep appraised of developments further to South Africa’s redistributive Black Economic Empowerment policy.

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