AES Solar and others (PV Investors) v. Spain: The Role of Nationality, Control, and MFN in Investor-State Arbitration

In AES Solar PV Investors v Spain, an issue that came to light was centered on the debate over the Tribunal’s jurisdiction in relation to the 62 out of 88 Claimants incorporated in Spain. Spain contended that these Claimants, as entities incorporated within the country, could not bring claims in an UNCITRAL arbitration under Article 26 of the ECT. The entities included AES Solar España Finance S.L., AES Solar España I B.V. y CIA S.C., and La Solana S.L. 1 to La Solana S.L. 60, which were part of the AES Solar and KGAL corporate groups respectively.

The dispute hinged on the interpretation of Articles 26(1), 26(7), and 1(7)(a) of the ECT. Spain argued that, generally, only a non-national of the host state could commence proceedings under the ECT against that state and that the only exception, outlined in Article 26(7), only applied to arbitrations under the ICSID Convention or the ICSID Additional Facility Rules, but not to UNCITRAL arbitrations or SCC arbitrations.

The Claimants countered that Article 26 did not prohibit entities organized under the laws of the host Contracting Party from bringing claims under the UNCITRAL Rules against that host Contracting Party where those entities were controlled by separate entities organized in other Contracting Parties. They argued that Article 26(7) was an “inclusionary provision”, needed because the ICSID Convention contained its own jurisdictional provisions that must be met in addition to the ECT jurisdictional requirements.

The Claimants suggested their interpretation was supported by the travaux préparatoires and ensured internal consistency with the ECT’s objectives. They asserted that the alternative would have discriminated among investors, encouraged parallel proceedings, and potentially rendered the UNCITRAL and SCC arbitration options largely irrelevant.

Differing Provisions for UNCITRAL and ICSID Arbitration

The ECT provides four different sets of arbitration rules (ICSID Convention, ICSID Additional Facility, UNCITRAL, and SCC) for the resolution of investment disputes. However, access to these different systems is dependent on certain jurisdictional requirements.

For instance, ICSID Convention arbitration and ICSID Additional Facility arbitration are available only if either both or one of the investor’s home state or the respondent state were parties to the ICSID Convention. The ECT also had certain jurisdictional requirements in terms of the definition of an “Investor,” which depended on the place of incorporation and control for juridical persons.

Specifically, Article 26(7) of the ECT allows a locally incorporated company, controlled by investors of another Contracting Party, to be treated as a “national of another Contracting State” for the purposes of arbitration under the ICSID Convention and the ICSID Additional Facility Rules. However, this provision does mention arbitration under the UNCITRAL or SCC Rules. Therefore, the tribunal interpreted this to mean that such a company could only resort to ICSID arbitration or ICSID Additional Facility arbitration, but not to arbitration under the UNCITRAL or SCC Rules.

The tribunal further pointed out that different categories of investors (e.g., nationals, permanent residents, locally incorporated companies under foreign control) might have access to different sets of arbitration rules, based on the specific requirements of the ECT. According to the tribunal, these differences in “jurisdictional rights” were not discriminatory but were inherent in the ECT itself and in line with its object and purpose.

The Claimants explained that their rationale for this action was to simplify the process and avoid multiple parallel claims by individual foreign investors. However, the tribunal was not convinced that reasons of practical efficiency could justify a departure from the ECT’s explicit provisions.

The issue was further accentuated by the tribunal’s interpretation of Article 26(7) of the ECT. This was done in accordance with Article 31 of the Vienna Convention on the Law of Treaties (VCLT), which stipulates that treaties must be interpreted in good faith according to the ordinary meaning of their terms. The tribunal concluded that the only interpretation consistent with the VCLT is the one that restricts Article 26(7) of the ECT to the arbitration mechanisms explicitly mentioned within it, namely, arbitration under the ICSID Convention and the ICSID Additional Facility Rules.

The dissenting opinion of Judge Brower emphasized the relevance of Understanding No. 3 of the Final Act of the European Energy Charter Conference as part of the “context” of the ECT.

Nonetheless, the majority view was upheld. It reinforced the understanding that Article 26(7) of the ECT, dealing with locally incorporated companies under foreign control, is specifically and only applicable in the ICSID context.

The Role of the Most-Favored-Nation (MFN) Clause in AES Solar v. Spain

Finally, the Claimants suggested that the Most-Favoured-Nation (MFN) clause in the ECT would allow them to invoke the more favorable treatment contained in the Spain-Colombia BIT.

The claimants argued that the Most Favored Nation (MFN) clause of the Energy Charter Treaty permitted them to invoke provisions from the Spain-Colombia Bilateral Investment Treaty (BIT). They pointed specifically to Article 1(2) and Article 10 of the Spain-Colombia BIT, which define the terms “investor” and “investment”, and establish UNCITRAL and ICSID arbitration as the dispute resolution mechanisms, respectively.

In its counter-argument, the Respondent, Spain, asserted that the Claimants couldn’t use the MFN clause of the ECT to introduce provisions from a third-party treaty such as the Spain-Colombia BIT. This was based on their premise that the MFN clause wasn’t designed to import provisions from an external treaty to redefine ‘investor’ or ‘investment’ as set out in the ECT.

Spain fortified this position by invoking precedents from previous arbitral decisions, including Metal-Tech Ltd. v. Republic of Uzbekistan[mfn]Metal-Tech Ltd. v. Republic of Uzbekistan (ICSID Case No. ARB/10/3, Award, 4 October 2013, para. 145): The tribunal ruled that an MFN clause cannot be used to import a more favorable definition of investment contained in another BIT. The claimant must fall within the scope of the treaty to invoke the treaty protections, of which MFN treatment forms part.[/mfn] and HICEE B.V. v. Slovak Republic[mfn]HICEE B.V. v. Slovak Republic (UNCITRAL, Partial Award, 23 May 2011, para. 149): The tribunal opined that the MFN clause cannot be used to broaden the definitions of the investors or the investments themselves.[/mfn]. In both instances, it was established that an MFN clause could not be used to broaden the definitions of ‘investor’ and ‘investment’, thereby strengthening Spain’s argument.

Furthermore, Spain highlighted that the MFN clause within the ECT applies only to “Investments… of Investors of other Contracting Parties”. As the Claimants did not fit this category with respect to Spain, they were, according to Spain, ineligible for the benefits of the MFN clause.

Tribunal’s Conclusions and References to Arbitral Jurisprudence

In considering these opposing viewpoints, the Tribunal maintained that even if the Claimants’ interpretation of Article 1(2) of the Spain-Colombia BIT was accepted, it could not allow the MFN clause in the ECT to be used to import provisions from another treaty. This decision echoes the ruling in Société [mfn]Société Générale In respect of DR Energy Holdings Limited and Empresa Distribuidora de Electricidad del Este, SA v. Dominican Republic (LCIA Case No. UN 7927, Award on Preliminary Objections to Jurisdiction, 19 September 2008, paras. 40-41).[/mfn], in respect of DR Energy Holdings Limited and Empresa Distribuidora de Electricidad del Este, SA v. Dominican Republic, where the tribunal stated that the MFN clause only applies to the treatment accorded to defined investments, but not to the definition of ‘investment’ itself.

Building upon this, the Tribunal ruled that since the Spanish entities were not “Investors of other Contracting Parties” in relation to Spain, they could not benefit from MFN treatment. This decision is supported by precedents such as Berschader et al. v. Russian Federation[mfn]Berschader et al. v. Russian Federation (SCC Case No. 080/2004, Award, 21 April 2006, para. 188)[/mfn] and Vannessa Ventures Ltd. v. Bolivarian Republic of Venezuela[mfn]Vannessa Ventures Ltd. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB(AF)/04/6, Award, 16 January 2013, para. 133)[/mfn], which clarify the definition of “investment”.

In the final assessment, the Tribunal, affirming the Treaty’s terms’ literal meaning and declining to support the claimants’ broad interpretation of their ECT rights, concluded that it lacked jurisdiction over certain entities, as the Spanish Claimants could not utilize the MFN clause in the ECT to import a distinct definition of “investor” or “investment” from another treaty.