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Investment in renewable energies is a vital part of the global strategy to address climate change. Many States provide strong support and incentives to encourage investments and accelerate the growth of this sector. Other States, such as Spain, Italy and the Czech Republic, have withdrawn incentives or subsidies that were offered. Such regulatory changes have had a detrimental impact on the development and growth of renewable energy. There may be minimal, or indeed no scope, for any remedies for these investments in the relevant national legal system.

Investors may be able to take advantage of protections provided by States in investment treaties. Around 40 investment treaty cases have been brought against Spain as a result of its regulatory changes. Some investors have obtained awards ordering Spain to pay compensation for losses suffered as a result of regulatory changes. Two of those awards have just been enforced by the Australian courts and may now be executed against commercial assets of Spain found in Australia.

Cases brought against Spain

The investors involved in the awards recently enforced in Australia brought claims against Spain arguing that the regulatory changes made by Spain had adversely affected their investments in breach of the Energy Charter Treaty (ECT). The investors argued, amongst other things, that Spain had failed to provide fair and equitable treatment as required by the ECT.

The claims were brought in international arbitration as provided for in the ECT. In this case, the arbitrations were conducted under the International Convention on the Settlement of Investment Disputes between States and Nationals of other States (the ICSID Convention) and ICSID Arbitration Rules.

The arbitral tribunal issued an award ordering Spain to pay compensation to the investors for the losses suffered as a result of Spain’s breach of the ECT. Those awards have now been enforced in the Australian courts. Enforcement is also being sought in other jurisdictions.

What protections are available?

Investors making an investment in another State may be able to benefit from certain protections provided by an investment treaty. The treaty may be a bilateral investment treaty (BIT), multilateral treaty (such as the ECT) or an investment chapter in a free trade agreement (FTA) (such as the ASEAN-Australia-New Zealand FTA).

Investment treaties provide protections to investors of one of the States that are party to the treaty (home State) making investments in another State that is party to the treaty (Host State). In the recent Spanish cases, Spain and the home States where the Investors were incorporated were parties to the ECT.

The investment treaty will usually provide:

  • No unlawful expropriation – the Host State must not “take” (directly or indirectly) or substantially interfere with the investment of an Investor, unless it is done for a public purpose, is non-discriminatory, is in accordance with the due process of law, and prompt, adequate and effective compensation is paid.
  • Fair and equitable treatment – the Host State must provide a transparent and stable legal and regulatory framework for investments of Investors. It must not act unreasonably or arbitrarily, nor contrary to the legitimate expectations of the investor and it must provide due process.
  • Full protection and security – the Host State must act with due diligence to provide physical protection and security to an investment of an Investor.
  • National treatment – the Host State must grant Investors the same treatment that is given to its nationals.
  • Most favoured nation treatment – the Host State must provide the Investor with treatment as favourable as that given to nationals of any third countries.

There are often exceptions to these protections to allow the Host State to take measures relating to, for example, public health, safety and the environment.

What if the Host State breaches these protections?

If the Host State takes actions or measures that interfere with or adversely impact on an investor’s investment in breach of these protections, then the investor may be able to bring a claim in arbitration. Such measures may include regulatory changes as carried out by Spain, withdrawal of licences or permits or other actions that adversely affect the investment.

The actions or measures may be carried out by any part of the State, including central, regional or local authorities and a State enterprise acting with government authority. It does not include actions of private parties.

How is a claim brought?

Most investment treaties enable an investor to bring a claim in international arbitration against the Host State, rather than bringing a claim in the courts of the Host State. This is referred to as investor-state dispute settlement (ISDS).

Before commencing arbitration, the investor must send a notice of dispute to the Host State requesting negotiations or consultations. If the dispute is not resolved within a certain period (usually between 3 and 18 months), the investor may commence arbitration.

The investment treaties usually provide that the arbitration may be conducted under the ICSID Convention and Arbitration Rules, the UNCITRAL Arbitration Rules or another arbitral institution agreed to by the investor and Host State.

The arbitral tribunal may award damages for losses suffered by the investor as a result of the Host State’s breaches of the investment protections. That award may be enforced under the ICSID Convention or the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in the courts of a State that is party to one of those conventions.

This was the process used by the investors to enforce the ICSID awards against Spain in Australia. Notably, the Australian court held that Spain was not immune from enforcement of the awards and ordered that the award be enforced as a judgment of the Australian courts. The court also acknowledged that immunity from execution could not be relied upon with respect to commercial property of Spain that is found in Australia.

Steps to protect your investment

The recent events in countries such as Spain emphasise the importance of ensuring you take advantage of any investment protections available when making an investment in renewable energies.

Like tax planning, investment protection planning is an important consideration at the time of making an investment. Issues to consider include:

    • is there an investment treaty between the State of the investor and the State where the investment is being made?
    • if so, does the investment treaty provide the protections referred to above?
    • does the investment treaty provide for ISDS, i.e. for claims to be brought in international arbitration?
    • if no

t, is there another state through which the investment can be made to ensure such protections are available?

Even if you have already made your investment, you may want to consider restructuring that investment to ensure protections are available. Restructuring may be effective before the Host State makes regulatory changes but may not be effective if the restructuring is carried out after the regulatory changes have been made.

Please discuss any questions you have with our experienced renewables energy and arbitration teams.


Paul Curnow is a partner in Baker McKenzie's Environmental Practice Group in Sydney and the head of the Asia Pacific Renewable Energy and Clean Technology practice. Paul is also co-chair of the Global Carbon Capture and Storage practice. He has worked for over 12 years on Australian and cross border transactions involving offices in many other jurisdictions, particularly in Asia and Africa. Paul is ranked as one of Australia's foremost energy lawyers, and globally as a market leader in climate change. He was named "Lawyer of the Year" for Climate Change and also listed for Energy Law by Best Lawyers Australia 2016. Paul is ranked Band 2 for Climate Change by Chambers Global, 2011-2015.


Ilona Millar is a partner in the Environmental Markets team at Baker McKenzie's Sydney office. Ilona is an environmental and projects lawyer with a diverse range of experience in domestic and international climate change, carbon markets, environmental law and policy, and a strong background in all aspects of water management, planning and projects. She joined the Firm in 2008 from the Foundation for International Environmental Law and Development, and International Institute for Environment and Development, in London. Ilona regularly writes, teaches and presents on environmental topics — she has lectured on environmental law, environmental markets and international climate change law at UNSW, Sydney University and University College London and for the past six years has co-coordinated the international climate change law course at ANU where she is a visiting fellow at the College of Law. Ilona's extensive pro bono work includes advising a number of developing country governments and non-government organizations on international climate change negotiations, and advising the Wentworth Group of Concerned Scientists on water and natural resource management law. She is listed among the best lawyers for Climate Change by Best Lawyers Australia 2016.


Jo Delaney is a partner in Baker McKenzie's Dispute Resolution team in Sydney. Jo has more than 20 years of experience as counsel in complex cross-border disputes based in Sydney and London, most of which were resolved through international arbitration. Jo re-joined Baker McKenzie in 2013, having spent her first two years as a graduate lawyer in the Sydney office. In the intervening time, Jo developed her international arbitration experience at a preeminent arbitration practice London. Jo is currently one of the Australia members of the ICC Court of Arbitration.