Summary

AD HOC ARBITRATION UNDER THE 1976 UNCITRAL RULES - PCA CASE NO. 2013-35

TABLE OF CONTENTS

I. INTRODUCTION
A. THE PARTIES
B. THE DISPUTE

II. PROCEDURAL HISTORY
A. COMMENCEMENT OF ARBITRATION AND CONSTITUTION OF TRIBUNAL
B. FIRST PROCEDURAL MEETING
C. THE EUROPEAN COMMISSION'S INTERVENTION
D. WRITTEN PHASE AND REQUEST FOR BIFURCATION
E. REQUESTS FOR FURTHER WRITTEN SUBMISSIONS
F. HEARING

III. FACTUAL BACKGROUND
A. THE RES REGIME ESTABLISHED BY THE RESPONDENT
1. Domestic Legislation and EU Directives (1992-2005)
2. The Act on RES Promotion (2005)
3. Regulations Implementing the Act on RES Promotion (2005-2010)
B. THE CLAIMANTS' INVESTMENTS (2007-2011)
C. THE "SOLAR BOOM" AND AMENDMENTS TO THE RES REGIME
D. THE CZECH CONSTITUTIONAL COURT'S REVIEW OF THE MEASURES AMENDING THE RES REGIME
E. ATTEMPTS TO SETTLE THE DISPUTE AND THE CLAIMANTS' COMMENCEMENT OF ARBITRATION (2011-2012)
F. EUROPEAN UNION STATE AID ASSESSMENT (2013-2017)

IV. THE PARTIES' REQUESTS FOR RELIEF
V. THE PARTIES' POSITIONS ON JURISDICTION

A. WHETHER EACH OF THE CLAIMANTS HAS STANDING TO ASSERT THEIR CLAIMS
1. The Respondent's Arguments
2. The Claimants' Arguments

B. WHETHER THE ECT'S TAX CARVE-OUT APPLIES TO ALL OF THE CLAIMANTS' ECT CLAIMS IN RESPECT OF THE SOLAR LEVY AND OTHER MEASURES
1. The Respondent's Arguments
2. The Claimants' Arguments

C. WHETHER NATLAND INVESTMENT HAS MADE AN "INVESTMENT" UNDER THE NETHERLANDS-CZECH REPUBLIC BIT
1. The Respondent's Arguments
2. The Claimants' Arguments

D. WHETHER THE TRIBUNAL HAS JURISDICTION TO HEAR THE "NON-IMPAIRMENT" CLAIMS UNDER THE CYPRUS-CZECH REPUBLIC BIT
1. The Respondent's Arguments
2. The Claimants' Arguments

E. WHETHER GIHG AND NATLAND GROUP ARE "INVESTORS" UNDER THE CYPRUS- CZECH REPUBLIC BIT
1. The Respondent's Arguments
2. The Claimants' Arguments

F. WHETHER RADIANCE IS ENTITLED TO MAKE CLAIMS UNDER THE LUXEMBOURG- CZECH REPUBLIC BIT
1. The Respondent's Arguments
2. The Claimants' Arguments

G. WHETHER NATLAND GROUP AND NATLAND INVESTMENT ARE INVESTORS WHO HAVE MADE INVESTMENTS ENTITLED TO PROTECTION UNDER THE CYPRUS-CZECH REPUBLIC BIT, NETHERLANDS-CZECH REPUBLIC BIT AND THE ECT
1. The Respondent's Arguments
2. The Claimants' Arguments

VI. THE TRIBUNAL'S ANALYSIS ON JURISDICTION
A. THE CLAIMANTS' STANDING TO ASSERT THEIR CLAIMS
B. THE TRIBUNAL'S JURISDICTION UNDER THE ECT
C. THE TRIBUNAL'S JURISDICTION OVER NATLAND INVESTMENT UNDER THE NETHERLANDS-CZECH REPUBLIC BIT AS TO THE EXISTENCE OF "INVESTMENT"
D. THE TRIBUNAL'S JURISDICTION TO HEAR THE "NON-IMPAIRMENT" CLAIMS UNDER THE CYPRUS-CZECH REPUBLIC BIT
E. THE TRIBUNAL'S JURISDICTION OVER GIHG AND NATLAND GROUP AS "INVESTORS" UNDER THE CYPRUS-CZECH REPUBLIC BIT
F. THE TRIBUNAL'S JURISDICTION OVER RADIANCE'S CLAIMS UNDER THE LUXEMBOURG-CZECH REPUBLIC BIT
G. THE TRIBUNAL'S JURISDICTION OVER NATLAND GROUP AND NATLAND INVESTMENT AS PROTECTED INVESTORS UNDER THE CYPRUS-CZECH REPUBLIC BIT, THE NETHERLANDS-CZECH REPUBLIC BIT AND THE ECT

VII. THE PARTIES' POSITIONS ON THE MERITS
A. FAIR AND EQUITABLE TREATMENT AND FULL PROTECTION AND SECURITY
1. The Claimants' Arguments
2. The Respondent's Arguments
B. NON-IMPAIRMENT
1. The Claimants' Arguments
2. The Respondent's Arguments
C. EU STATE AID RULES
1. The Claimants' Arguments
2. The Respondent's Arguments

VIII. THE TRIBUNAL'S ANALYSIS ON THE MERITS
A. THE FAIR AND EQUITABLE TREATMENT CLAIM
1. Alleged breach of the Fair and Equitable Treatment standard in Article 10 of the Energy Charter Treaty
2. Alleged breach of the Fair and Equitable Treatment standard in Article 2(2) of the Cyprus-Czech Republic BIT
3. Alleged breach of the Fair and Equitable Treatment standard in Article 3(1) of the Netherlands-Czech Republic BIT
B. THE FULL PROTECTION AND SECURITY CLAIM
C. THE NON-IMPAIRMENT CLAIM
1. Alleged breach of the Non-Impairment standard in Article 10 of the ECT
2. Alleged breach of the MFN standard in Article 3 of the Cyprus-Czech Republic BIT
D. THE RELEVANCE OF THE EU STATE AID RULES AND DECISIONS

IX. THE PARTIES' POSITIONS ON QUANTUM
A. THE CLAIMANTS' ARGUMENTS
1. The "Updated Model"
2. The "Deal Model"
3. Response to the Respondent's characterization of the Claimed Damages as Speculative Future Damages
4. Causation
B. THE RESPONDENT'S ARGUMENTS
1. Principles of Quantum and Future Damages
2. Flaws in the Claimants' Damages Analysis
C. THE TRIBUNAL'S ANALYSIS ON QUANTUM

X. COSTS

XI. PARTIAL AWARD

...

B. THE DISPUTE

4. The Claimants' claims in this arbitration are based on, and these proceedings are commenced pursuant to:

- Article 26 of the 1994 Energy Charter Treaty, which was signed by Cyprus, Luxembourg and the Netherlands on 17 December 1994, and by the Czech Republic on 8 June 1995, and entered into force on 16 April 1998 (the "ECT");

- Article 8 of the Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Czech and Slovak Federal Republic, which was signed on 29 April 1991 and entered into force on 1 October 1992 (the "Netherlands-Czech Republic BIT");

- Article 8 of the Agreement between the Czech Republic and the Republic of Cyprus for the Promotion and Reciprocal Protection of Investments, which was signed on 15 June 2001 and entered into force on 25 September 2002 (the "Cyprus-Czech Republic BIT"); and

- Article 8 of the Agreement between the Belgo-Luxembourg Economic Union and the Czechoslovak Socialist Republic concerning the Reciprocal Promotion and Protection of Investments, which was signed on 24 April 1989 and entered into force on February 1992 (the "Luxembourg-Czech Republic BIT," and together with the Netherlands-Czech Republic BIT and the Cyprus-Czech Republic BIT, the "BITs").

5. The dispute concerns the Claimants' investments1 in the photovoltaic (or "PV") sector in the Czech Republic. The Claimants' investments were effected through their purchase of shareholdings in, and/or the financing of, Energy 21 a.s. ("Energy 21"), a Czech joint stock company, beginning in 2008. As a result of the Claimants' investments in Energy 21, the Claimants indirectly owned eleven special purpose vehicles ("SPVs"), each of which has operated at least one solar power plant in the Czech Republic. The Claimants' investments were made subsequent to the establishment by the Czech Republic, beginning in 1992, of a legal, regulatory and tax regime for renewable energy sources ("RES" and the "RES Regime"). The Claimants argue that the "dismantling" of the RES Regime breached several obligations incumbent on the Czech Republic under the ECT and the BITs.

6. The Claimants seek declarations that the Respondent's actions (a) constitute unfair and inequitable treatment; (b) breach the obligation to provide full protection and security; and (c) were implemented through unreasonable and arbitrary measures which impaired the maintenance, use, enjoyment and disposal of the Claimants' investments, all in breach of the ECT and the BITs. The Claimants claim compensation for loss suffered as a result of the Respondent's breaches of the ECT and the BITs in an amount of not less than CZK 2,212 million (equivalent to approximately EUR 82 million), plus costs.

7. The Respondent argues that the Claimants have failed to meet the burden of establishing jurisdiction under the ECT and the BITs for their various claims. In the event that the Tribunal finds that it has jurisdiction, the Respondent submits that its conduct did not breach any of its obligations under the ECT and the BITs, and that the Claimants' analysis on quantum of damages is flawed. Accordingly, it requests the Tribunal to (a) declare that all of the Claimants' claims are barred for lack of jurisdiction; (b) declare that the Czech Republic did not breach any of its obligations under the ECT and the BITs; (c) declare that the Claimants are not entitled to any damages; and (d) order the Claimants to pay all costs.

[1] The term "investments" is used here for convenience and is without prejudice to the Tribunal's consideration as to whether or not the Claimants' activities in the Czech Republic qualify as an "investment" under the ECT and the BITs.

II. PROCEDURAL HISTORY

A. COMMENCEMENT OF ARBITRATION AND CONSTITUTION OF TRIBUNAL

8. On 8 May 2013, the Claimants, together with five other entities and one individual,2 served upon the Respondent a Notice of Arbitration (the "Notice of Arbitration") pursuant to Article 26 of the ECT, Articles 8 of the Netherlands-Czech Republic BIT, the Cyprus-Czech Republic BIT and the Luxembourg-Czech Republic BIT, and Article 3 of the Arbitration Rules of the United Nations Commission on International Trade Law Arbitration Rules as revised in 2010. The Respondent received the Notice of Arbitration on 15 May 2013.

9. In the Notice of Arbitration, the Claimants requested "that the dispute be decided by a three-member arbitral tribunal" and appointed Mr Doak Bishop, a national of the United States of America, as arbitrator.

10. By letter dated 10 June 2013, the Respondent stated that it:

... understand[s] the Notice of Arbitration to be an invitation for the Czech Republic to consent to the consolidation of the claims brought by [the Claimants] with the claims of the other six investors.

...

The Czech Republic does not consent to the proposed consolidation: the claims set forth in the Notice of Arbitration are brought under different investment treaties by largely unrelated claimants, with different alleged investments, and made at different times and in different circumstances.

The Czech Republic does, however, consent to the consolidation of the claims brought by the [Claimants], as they involve the same investment operation.

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X. COSTS

507. As the Tribunal has decided to issue a Partial Award, it does not consider it necessary or indeed appropriate to take any decisions on costs at this stage of the proceedings.

XI. PARTIAL AWARD

508. For the reasons set out above, the Tribunal decides as follows:

(a) The Claimants' claim that the Respondent breached the Energy Charter Treaty by repealing the Income Tax Holiday and by modifying the Original Depreciation Provisions of the Act on Income Tax (Act No. 586/1992) is dismissed for lack of jurisdiction;

(b) GIHG's claim that the Respondent has breached the Cyprus-Czech Republic Bilateral Investment Treaty is dismissed for lack of jurisdiction;

(c) Radiance Energy Holding's claim that the Respondent has breached the Luxembourg- Czech Republic Bilateral Investment Treaty is dismissed for lack of jurisdiction;

(d) The Claimants' claim that the Respondent has breached the fair and equitable treatment standard in Article 10 of the Energy Charter Treaty is granted;

(e) Natland Group's claim that the Respondent has breached the fair and equitable treatment standard in Article 2(2) of the Cyprus-Czech Republic Bilateral Investment Treaty is granted;

(f) Natland Investment's claim that the Respondent has breached the fair and equitable treatment standard in Article 3(1) of the Netherlands-Czech Republic Bilateral Investment Treaty is granted;

(g) The Claimants' claim that the Respondent has breached the full protection and security standard in Article 10 of the Energy Charter Treaty is dismissed;

(h) Natland Group's claim that the Respondent has breached the full protection and security standard in Article 2(2) of the Cyprus-Czech Republic Bilateral Investment Treaty is dismissed;

(i) The Claimants' claim that the Respondent has breached the non-impairment standard in Article 10 of the Energy Charter Treaty is dismissed;

(j) Natland Group's claim that the Respondent has breached the most-favored-nation clause in Article 3 of the Cyprus-Czech Republic Bilateral Investment Treaty is dismissed; and

(k) All other claims, defenses and requests for relief, including claims for compensation and costs, are deferred to a subsequent phase of the arbitration.

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