Green Power and SCE Solar v Spain: From the Primacy of EU Law to Lex Superior

Jed Odermatt

In the arbitration proceedings in Green Power Partners K/S & SCE Solar Don Benito APS v Spain (SCC 2016/135) the tribunal decided that it has no jurisdiction to hear and decide the claims before it. This finding is important because it is the first time that an arbitral tribunal has accepted the so-called ‘intra-EU’ objection to admissibility of claims between EU Member States.

In Achmea the Court of Justice of the European Union (CJEU) held that the dispute settlement provisions “such as” those in a Bilateral Investment Treaties (BITs) between EU Member States were incompatible with EU law and the autonomy of the EU legal order. In Komstroy, the CJEU extended this analysis to the Energy Charter Treaty (ECT), finding that intra-EU application of the ECT’s investor-state dispute settlement mechanisms was incompatible with EU law. Following the judgments in Achmea and Komstroy, arbitral tribunals have heard objections to their jurisdiction in disputes involving EU Member States. Until now, however, no tribunal had accepted that the findings in Achmea apply with respect to tribunals established under the ECT.

Green Power involved a claim brought by Danish investors against Spain regarding changes it had made to the regulatory framework in the energy market, claiming that this violated the ECT and international law. The respondent, Spain, challenged the admissibility of the tribunal’s jurisdiction, relying on the CJEU’s judgments. Since EU primary law (and the case law in Achmea and Komostroy) forbid intra-EU cases, Spain argued, there was no valid offer to arbitrate under Article 26 ECT.

One of the questions facing the Tribunal was whether EU law was relevant to the question of jurisdiction. The ECT Tribunal has the power to determine its own jurisdiction, which must be established in accordance with the ECT and the applicable rules and principles of international law. Spain argued that the term ‘international law’ in the ECT also includes the law of the European Union. The claimants argued that EU law is not part of international law, and that the ECT does not belong to the EU law system.

The parties’ submissions revolved around various arguments based on international law and EU law. These arguments often require the tribunal to adopt either an EU law or international law approach to a particular question:

“Moreover, each party has presented its arguments on two planes, the ECT and EU law, each emphasising the plane that better serves its position but also placing itself on the other plane and defending its position in the alternative.” [para 331]

The Tribunal in Green Power does not adopt either an ‘EU law view’ or ‘international law view’ to the question. Rather, it finds that “the distinction made between separate planes is artificial and obscures the issues that must be decided.” [para 332] The resolution of the dispute “must overcome the binary logic of an either ‘insider’ or ‘outsider’ perspective with respect to EU law” [para 332]. This approach contrasts with the approach in previous cases, in which the tribunal’s findings turned on whether it saw EU law as a part of international law. The tribunal in Electrabel v. Hungary the tribunal found

“EU law is a sui generis legal order, presenting different facets depending on the perspective from where it is analysed. It can be analysed from the perspectives of the international community, individual Member States and EU institutions.” [4.117]

In previous instances where the intra-EU objection was raised, the EU Member State (supported by the European Commission) relied on arguments based on the autonomy and primacy of EU law. While Spain also relied on arguments based in EU law, it packaged its arguments in terms of public international law, in particular the rules in the Vienna Convention on the Law of Treaties (VCLT). The Tribunal considered the ECT as the starting point for determining its jurisdiction. As such, it turned to the rules in the VCLT to interpret Article 26 ECT. The Tribunal first employs the general rule of treaty interpretation included in Article 31 VCLT. This requires the Tribunal to examine the ‘ordinary meaning’ of the terms in Article 26 ECT. The Tribunal found that, on its wording, the offer to arbitrate must be ‘unconditional’ and that there may be other norms applicable to determine the validity to arbitrate. The Tribunal had to determine whether an EU Member State’s unilateral offer to arbitrate under the ECT can be validly given, even though the EU Member States had made another agreement (EU law) that prevents it from making such an offer.

The Tribunal also used Article 31 VCLT to examine the terms of the treaty in their context. This allows the interpreting body to consider “any subsequent agreement between the parties regarding the interpretation of the treaty” and “any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation.” The Tribunal considered some of the declarations made by the EU Member States to be ‘subsequent practice’ that is relevant for the interpretation of the treaty. In particular, it considered the 2019 declaration made by representatives of EU Member States following the Achmea judgment. The Tribunal found that the declaration would be relevant only “to the 22 EU Member States which signed Declaration II and it would reflect their authentic interpretation of the meaning of certain legal relations inter se.” [para. 370]

The Tribunal did not consider this to be an inter se amendment of the ECT. Rather than modifying the terms of Article 26 ECT, the declaration was considered as evidence of the shared understanding of Spain, Denmark and twenty other EU Member States regarding the relevance of EU law to the issue of investment arbitration. The Tribunal stresses that the declaration is thus used for the purposes on interpretation. The Tribunal thus found a way to bring in EU law when determining the jurisdictional question: via systemic integration and the application of Article 31(3)(c) VCLT. This declaration of 22 EU Member States does not show evidence of all the ECT parties, however. The Tribunal found that “this mismatch must be taken into account when considering the weight to be given to this means of interpretation” [para 392] and thus would exclude the assessment of EU law in relations between an EU Member State and an ECT Party that is not an EU Member State.

The Tribunal thus found that EU law is valid for the interpretation of the ECT, but only insofar it applies to the mutual relations of the EU Member States. The Tribunal could then examine EU law, including the Achmea and Komstroy cases, and their impact on the offer to arbitrate. The Tribunal attaches special importance to the fact that norms in the EU legal order have superior and overriding status: “The Tribunal deems important to note that the primacy of EU law in the relations between EU Member […] is not a matter of lex specialis or of lex posterior, but one of lex superior.” [para 469]

This approach allows the interpretation of the ECT to change depending on the party to the ECT dispute. This goes against the finding in Vattenfall in which the Tribunal found that Article 26 ECT includes EU Member States and non-EU Member States without distinction, finding that there was no inter se carve out for EU Member States:

“States party to a multilateral treaty are entitled to assume that the treaty means what it says, and that all States parties will be bound by the same terms. It cannot be the case that the same words in the same treaty provision have a different meaning depending on the independent legal obligations entered into by one State or another, and depending on the parties to a particular dispute. The need for coherence, and for a single unified interpretation of each treaty provision, is reflected in the priority given to the text of the treaty itself over other contextual elements under Article 31 VCLT.” [para. 156.]

While the Green Power award breaks new ground by accepting the intra-EU objection, it may not necessarily be applied in other contexts. As the Tribunal notes, the dispute was governed under the SCC rules and the Swedish Arbitration Act. Situated in Sweden, an EU Member State, the tribunal is bound to apply Swedish law, which includes EU law. In a dispute situated outside an EU Member State, or using different rules, an arbitral tribunal may find that EU law has no relevance when determining issues of jurisdiction. The Green Power award shows how arguments based in the primacy and autonomy of EU law can be presented in the language of international law. Rather than speaking of the primacy of EU law, the tribunal discusses the law of treaties and the concept of lex superior.