Arbitration in 2021: the Constitutional Court promotes international arbitration in Spain, regulatory developments in different countries and new IBA rules

27 / 01 / 2022

2021 has proven to be an interesting year for arbitration. Among some of the most important and commented news of the past year, we highlight the Spanish Constitutional Court judgements limiting the scope of the “public order” concept as a cause for annulment of awards, the on going renewable energy dispute saga in Spain, the protectionist drift some countries and regions are experiencing in their investment and arbitration legislation, the return of Ecuador to the international investment dispute resolution system through its re-accession to the ICSID convention. We can also highlight the European Court of Justice´s 'Komstroy' decision effectively forbidding intra-EU arbitration under the Energy Charter Treaty (ECT), as well as the publication of the 2020 IBA Rules on the Taking of Evidence in International Arbitration.

The following is an overview of the most important cases of the past year in the different jurisdictions.

Spain

Spain’s year was once again been marked by the effects of its 2010s renewable energy tariff reforms, commonly referred to as the Renewables saga, succeeding in a number of active proceedings and being defeated in others. For instance, in the claim initiated by FREIF Eurowind –a subsidiary of the investment fund Blackrock– before the SCC, the arbitral tribunal dismissed the investor’s claims and ordered FREIF Eurowind to pay the costs of the arbitration. A similar outcome was experienced by the investor in the Eurus v Spain case, where an ICSID tribunal dismissed a €258 million ECT claim brought by Toyota´s subsidiary. On the other hand, the year started with an ICSID tribunal awarding €22 million in damages in favour of the investor in BayWa v Spain. Another ICSID tribunal ruled in favour of the German company Steag GmbH after deciding that Spain’s change of its investment regime had in fact interfered with the company’s investment.

In this context, Spain has attempted but failed to use the European Court of Justice’s (“ECJ´s”) recent Komstroy ruling to overturn a tribunal´s jurisdiction in a case brought by Landesbank Baden-Württemberg and three other German banks before ICSID. The arbitral tribunal held that the ECJ´s decision was not only res judicata, but were they to consider it, the Komstroy decision would not change the outcome of its ruling, for the tribunal did not deem EU law to be applicable to the case at hand.

After the approval in November 2019 of a royal decree offering investors economic incentives only accessible by dropping pending ECT cases, several investors have chosen to do so: in January, Stadtwerke München GmbH, RWE Innogy GmbH, and others waived their rights to pursue arbitration claim, discontinuing the annulment proceedings in their ICSID case against Spain.

In another matter, the Spanish Constitutional Court clarified the extent of the concept of “public policy” under Spanish law. The Court unanimously established that the notion of public policy in the Spanish Arbitration Act, which allows for the setting aside of arbitral awards, should be interpreted in a very restrictive manner, thereby making the annulment of awards rather exceptional under Spanish law. This ruling, which highlights the definitive nature of arbitration under Spanish law, limits the Courts´ ability to review the merits of the case, strengthening the use of international arbitration in Spain.

European Union

At an EU-Level, the international arbitration scene has been rocked by the aforementioned Komstroy ruling. The ECJ reaffirmed the Court’s Achmea decision, under which investment arbitration clauses in intra-EU BITS are deemed to be incompatible with EU law, and ruled that this principle further extends to multilateral treaties such as the Energy Charter Treaty, where many EU member states and the EU itself are signatory parties.

Moreover, in yet another move against intra-EU investment arbitration, the ECJ ruled in the The Republic of Poland v PL Holdings Sarl case that ad-hoc agreements which provide for intra-EU investment arbitration, even if not contained in a BIT, are also incompatible with EU law. Nevertheless, this offensive by the EU against investment arbitration has been met by an equal resistance from the arbitration community and arbitral tribunals alike, which have repeatedly refused to allow for the reexamination or annulment of intra-EU awards based on these ECJ rulings.

Global

Globally, the effects of COVID-19 on global supply chains and international transactions have continued to shape the international arbitration agenda in 2021. Indeed, the Covid-19 pandemic has also served to highlight the increasing protectionist tendencies that have come to prevail in certain regions of the world.

For instance, Mexico’s energy sector, which had in recent years been significantly liberalized, has experienced a protectionist shift in the past years, prompting several international investors to bring arbitral claims against the State for allegedly interfering with the legitimate expectations of their investments.

Similarly, Peru, which previously stood as one of the most arbitral-friendly jurisdictions in Latin America, has also experienced a profound move against arbitration in 2021. In February, the National Assembly passed the new Peruvian Arbitration Law, which places limits on the choice of applicable law to the arbitration as well as severely constraining the parties’ ability to choose the arbitrators.

Elsewhere, this interventionist trend has also taken root in countries like Egypt, where the government has increasingly been accused of interfering with foreign assets, eventually leading to several arbitral claims against the state; or in the Congo region, where local governments have allegedly sought to terminate concession agreements with Western companies in order to favor Chinese businesses.

Other countries have however followed the opposite directions and have improved the investment climate in their jurisdictions. A very significant example is Ecuador, which despite deciding to leave the ICSID Convention in 2009, has recently made official its return to the ICSID arbitration system after the country’s Constitutional Court in June 2021 ratified the government’s decision to rejoin.

The Indian international arbitration scene has also seen significant improvement, after the Indian Supreme Court ruled that parties under Indian law are free to select the venue they desire for the arbitration, even if both parties are Indian and subject to the Indian Arbitration Act.

Furthermore, in what was to be a highly anticipated decision, the US Supreme Court was set to rule on the deeply controversial topic of the applicability of the principle of discovery in international arbitrations conducted in the US. However, the last minute withdrawal of the petition by the claimants prevented the Supreme Court from providing a definite answer to the issue, which remains heavily disputed among practitioners.

Institutions

At an institutional level, arbitral institutions have continued the 2020 trend of updating their arbitration rules in order the meet the new obstacles and requirements that have emerged in international arbitration. In this regard, early in 2021 the International Bar Association (IBA) announced its revised IBA Rules on the Taking of Evidence in International Arbitration. The new rules have provided for much needed clarification on the regulations for witness testimony, cybersecurity and the production of evidence in international arbitration; regulating new topics thereof that have come to the frontline of the arbitration community as a result of the COVID-19 pandemic.

In-depth analyis

Finally, we would like to highlight the articles in our newsletter in which, throughout the year and from Garrigues' various offices around the world, we have analysed in depth issues of interest for international arbitration. These are listed below:

In the February edition, the Garrigues International Arbitration and ADR Newsletter will report on the main developments and events in international arbitration that 2022 will bring.