Dutch court denies RWE, UNIPER damages for coal phase-out. Rejects ia ‘permit defence’ under the EU Emissions Trading Scheme ETS.

RWE’s case (seeking huge damages for the impact on its assets following the Dutch coal phase-out) under investor-State dispute settlement (ISDS) continues I understand (I would also suggest it is problematic given the ECT’s fork in the road provisions), while Uniper’s will be dropped as part of its bail-out conditions. Yet this post is about yesterday’s first instance Uniper judgment and RWE judgment in the Dutch courts. I use the Uniper judgment for this post, the RWE judgment is not materially different as to its legal analysis.

Of note is first of all that these judgments are by the ‘commercial’ chamber at the Den Haag court, not an ‘environmental’ chamber. This might be relevant for those wishing to present the judgment as one of a maverick band of environmental crusaders.

RWE and UNIPER’s claims are based on ‘A1P1‘ (Article 1 of the First Protocol to the European Convention on Human Rights) and Article 17 of the Charter of Fundamental Rights of the EU, both of which protect the right to property.

[5.6] the court lays out the benchmarks (translation courtesy of DeepL and double-checked by me):

( a) is there “possession” (property)

( b) is there “interference,” that is, deprivation or regulation of the right to property?

If both these conditions are met, then the following requirements are examined:

( c) is the interference “lawful,” that is, provided for by law;

( d) if so, does the infringement have a legitimate objective that serves to promote the “general interest,” and

( e) if so, is there a “fair balance,” that is, a reasonable balance, between the requirements of the general interest and the protection of the fundamental rights of the individual?

The latter “fair balance test” is not satisfied if there is an individual and excessive burden on the person concerned.

[5.9] the State had argued that uncertain future earnings are not caught by A1P1 however the court [5.10] disagrees. The corporations have a long-term guarantee to use of the site, ia via a long-term lease. That the earnings might potentially not qualify as possessions, does not diminish the qualification of the guaranteed economic interest as ‘property’.

Interference, lawfulness and general interest are established each in one para [5.11 ff] , and did not seem to be the focus of much discussion even by the parties.

Fair balance is discussed extensively [5.14] ff. [5.15.3] the court qualifies the measure as regulatory interference and not de facto expropriation (the latter would have triggered guaranteed compensation rights). Even if electricity generation using coal will be phased-out, after the end of the transition period, Uniper will continue to have use of the site and has indeed already assumed such use in announced coal-free business plans.

The court then discusses the foreseeability at length, concluding [5.16.31] that although the Dutch Government frequently expressed support for modern facilities generating electricity using coal, this was always done with the caveat that that method had to be compatible with the Dutch climate commitments. [5.16.35] the ETS permit defence is dismissed.

[5.17.9] the court, having studies the various scientific reports presented to it, holds that there are most definitely alternative uses for the site. That their profitability is uncertain, is simply also a feature of energy markets as a whole.

[5.18] the court holds that the Dutch coal phase-out does have an effect on reduced CO2 emissions (carbon leakage is not accepted as being of much relevance to that conclusion). For the measure to be considered not the least trade-restrictive, the Dutch State is held to have a wide margin of manoeuvre and it is not established that the State gravely erred in opting for a coal phase-out [5.18.7]. The long transition period is held to substantiate enough room for compensation [5.19.6], again with reference to the volatility of market returns as being part and parcel of energy markets full stop.

Like the Dutch judgments eg in Urgenda, this judgment on protection of property rights viz GHG emission reduction policies, is likely to serve as an international benchmark. It can be appealed, of course.

Geert.

Lithuania v Veolia. How the CJEU’s ISDS judgments in Achmea, Komstroy etc revive interest in foreign public law limitations.

Many thanks Bruno Hardy, counsel at Liedekerke, for reconnecting me with a case I had seen in passing and then lost track off. Bruno also reports on the issues here; there is also a mainstream media report and a more specialised report.

On 18 January the Lithuanian Supreme Court held that the France-Lithuania BIT is no obstacle to Lithuania seizing the Lithuanian courts of a claim that Veolia and consorts unlawfully took over control of heating businesses in a dozen Lithuanian municipalities in 1993-2003, and excessively profited from same. The claim was initially formulated as a counterclaim in ongoing ICSID proceedings (note there are also ongoing commercial arbitration proceedings relating to the case under Stockholm Chamber of Commerce rules) and is now pursued in the courts in ordinary, using Article 7(2)’s locus damni gateway.

The SC first of all rejected Veolia’s claim that the case should at the least be stayed until the ICSID ruling has been issued. For the SC, CJEU Achmea (which declared dispute settlement via ISDS in intra-EU BITs incompatible with EU law) implies that the arbitration procedure under the BIT has now lapsed (and this ab initio, hence making the later entry into force of the EU Member States’ BIT termination agreement irrelevant) meaning Lithuania not merely may but indeed it must drop its claims in the ISDS procedure.

From what I understand, the SC did not hold on whether A7(2) BIa is a possible gateway, focusing instead on the fate of Lithuania’s involvement in the ISDS procedure. In a perhaps unexpected ruling, as Bruno reports, the Vilnius Regional Court subsequently found that it lacked international jurisdiction seeing as in its (prima facie unconvincing) view the Lithuanian claim falls under acta iure imperii, hence cancelling out Brussels Ia, instead making the claim subject to residual Lithuanian private international law rules. These seem to direct the suit to France, the domicile of the defendant.

This is where there is a final twist in the tail. What I assume to be the reason for the court to find acta iure imperii (that the claim’s origin and DNA are actions taken by a state in its sovereign capacity) may well result in the French court refusing to entertain the claim as well (potentially leading to the need for a Lithuanian forum necessitatis). Indeed as Bruno points out, under the French SC Guatemala rule, French courts do not rule on cases necessarily involving the application of foreign public law (this echoes some of the issues in Skatteforvaltningen, currently under appeal). The 1975 Institute of International Law’s Resolution on same comes to mind.

The judgment shows very clearly the urgency for a proper debate on the relationship between EU law, the CJEU, ISDS and other forms of international dispute settlement. I fear the rather unnuanced CJEU statements in cases like Komstroy do little to resolve many of the underlying issues.

Geert.

State immunity. Congo v Commisimpex. French Supreme Court rules Sapin II applies retroactively.

I applied for funding 2 years back to have someone conduct a thorough review of recent development in State Immunity. Funding was not granted: quelle horeur!. Reviewers suggested there was no need to revisit an area where law and practice is settled: quelle erreur!

Needless to say both statutory and case-law developments have proven reviewers wrong since. I would still be happy by the way to supervise research in the area (happier still for someone to fund it).

Now, coming to the point: in 16-22.494 Congo v Commisimpex the French Supreme Court essentially held that the French Sapin II law applies retroactively. State assets employed iure imperii are only available for seizure following express and property-specific waiver. The Court’s decision does not reflect unisono developments in other States (neither indeed, I agree with Victor Aupetit), does it help France with regulatory competition in civil procedure: quite a few jurisdictions have taken a more relaxed and wide approach to contractual waiver of State immunity.

Geert.

 

The perfect (take home) exam question. Court of Appeal plain packaging v Bundesverfassunsgericht Energiewende.

Update 12 april 2017: the UK Supreme Court refused permission to appeal [the decision should appear here in due course], hence the Court of Appeal’s ruling is now final.

Isn’t it just a perfect exam question for a graduate course, nay this question involves so many issues it could arguably serve as one single exam for a whole law degree: such is the intensity of legal areas at issue: constitutional law, international law, international trade, regulatory law and risk analysis, intellectual property law…

Discuss why the Court of Appeal for England and Wales denied Government wrongdoing in plain packaging, while the German Bundesverfassungsgericht rejected an argument of expropriation in Energiewende yet held that German Government must nevertheless pay compensation to the energy companies involved (E.ON, RWE and Vatenfall).

Source tip: you may want to consult my former student Dr Catherine Banet’s excellent analysis on the Vatenfall issue.

Issues tip: a good way to go about it would be to draft a table of issues that both cases have in common and those which they do not (eg the Court of Appeal’s review of intellectual property). A discussion of the precautionary principle would not go amiss (in the plain packaging case: specifically whether precaution applies to uncertainty as to efficiency of remedies rather than uncertainty as to a phenomenon). A point of discussion may also be why the CA refers profusely to European precedent while the Bundesverfassungsgericht does not. Finally, any consideration of the link between the latter proceedings and the concurrent ISDS procedure, will gain you brownie points.

To fellow faculty out there: if you do use this exam Q, please do share good student answer copies.

Geert.

 

Mind your ISDS language! Authentic language texts of BITs in Kilic Insaat Ithalat Ihracat Sanayi ve Ticaret Anonim Sirketi v. Turkmenistan (ICSID).

Linguistic interpretation features regularly of course in Treaty interpretation, including in Bilateral Investment Treaties – BITs. Kilic Insaat Ithalat Ihracat Sanayi ve Ticaret Anonim Sirketi v. Turkmenistan (ICSID Case No. ARB/10/1) concerned the Turkey-Kyrgyzstan BIT, which is authentic in English and Russian – neither a Turkish nor Turkmen version had been signed.

The tribunal’s analysis of the object and purpose of the Treaty, with a view to determining the procedural requirements prior to submitting to ICSID and given the inconsistencies between the two authentic versions, is a good reminder of similar issues in the EU, on which I reported extensively in previous work (since that paper, the relevance of the issue in the EU has only increased).

Geert.

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