PCA Case No. 2014-03 11 October 2017 Ad hoc Arbitration between Mr. Jürgen Wirtgen Mr. Stefan ...

141 Pages·2017·1.48 MB·English

PCA Case No. 2014-03 11 October 2017
Ad hoc Arbitration
between
Mr. Jürgen Wirtgen
Mr. Stefan Wirtgen
Mrs. Gisela Wirtgen
JSW Solar (zwei) GmbH & Co. KG
and
The Czech Republic
FINAL AWARD
ARBITRAL TRIBUNAL
Professor Gabrielle Kaufmann-Kohler (Presiding Arbitrator)
Mr. Gary Born
Judge Peter Tomka
Secretary of the Tribunal
Rahul Donde
TABLE OF CONTENT
TABLE OF ABBREVIATIONS ...................................................................................................... vii 
I. THE PARTIES ........................................................................................................................ 1 
A. The Claimants ....................................................................................................................... 1 
B. The Respondent ................................................................................................................... 3 
II. MAIN FACTS ......................................................................................................................... 4 
A. Background ........................................................................................................................... 4 
B. Support Scheme ................................................................................................................... 5 
1. Tax Incentives ...................................................................................................................... 5 
2. Act 180 ................................................................................................................................. 6 
C. The Claimants’ investments .............................................................................................. 11 
1. Struhařov ........................................................................................................................... 11 
2. Světlá ................................................................................................................................. 12 
3. Vernéřov ............................................................................................................................ 13 
D. Changes in the PV Sector ................................................................................................. 13 
E. Amendments to the Support Scheme .............................................................................. 14 
1. Abolishing the 5% Brake Rule ........................................................................................... 14 
2. Limiting the Support Scheme to Small PV Plants ............................................................. 14 
3. Abolishing the Tax Incentives ............................................................................................ 15 
4. Introducing the Solar Levy ................................................................................................. 15 
F. Consolidation of the Support Scheme and further legislation ..................................... 17 
G. Decisions of the Czech Courts ......................................................................................... 17 
1. Decision of the Czech Constitutional Court ...................................................................... 17 
2. Decisions of the Supreme Administrative Court ............................................................... 20 
III. PROCEDURAL HISTORY ................................................................................................... 21 
A. Written Phase ...................................................................................................................... 21 
ii
B. Hearing on Jurisdiction and Merits .................................................................................. 27 
C. Post-Hearing Phase ........................................................................................................... 28 
IV. POSITIONS OF THE PARTIES AND RELIEF REQUESTED ............................................ 33 
A. Summary of the Claimants’ Position ............................................................................... 33 
B. The Claimants’ Request for Relief .................................................................................... 34 
C. Summary of the Respondent’s Position .......................................................................... 36 
D. The Respondent’s Request for Relief .............................................................................. 37 
V. ANALYSIS............................................................................................................................ 38 
A. Preliminary Matters ............................................................................................................ 38 
1. Applicable Procedural Law ................................................................................................ 38 
2. Law Governing Jurisdiction ............................................................................................... 39 
3. Law Governing the Merits ................................................................................................. 40 
a. The Claimants’ position ..................................................................................................... 40 
b. The Respondent’s position ................................................................................................ 41 
c. The Commission’s position ............................................................................................... 42 
d. Analysis .............................................................................................................................. 43 
4. Jura Novit Curia ................................................................................................................. 45 
5. Relevance of Previous Decisions ...................................................................................... 46 
B. Jurisdiction ......................................................................................................................... 46 
1. Is Claimant 4 an Investor? ................................................................................................. 48 
a. The Respondent’s position ................................................................................................ 48 
b. The Claimants’ position ..................................................................................................... 50 
c. Analysis .............................................................................................................................. 52 
(i) Ordinary meaning and context ................................................................................... 55 
(ii) Object and purpose of the Treaty ............................................................................... 58 
(iii) Treaties with third States ............................................................................................ 60 
iii
(iv) Decisions of other tribunals ........................................................................................ 63 
(v) Conclusion .................................................................................................................. 64 
2. Does EU Law Deprive this Tribunal of Jurisdiction? ......................................................... 65 
a. The Commission’s position ............................................................................................... 65 
b. The Claimants’ position ..................................................................................................... 65 
c. The Respondent’s position ................................................................................................ 67 
d. Analysis .............................................................................................................................. 67 
C. Application of the Doctrine of Police Powers ................................................................. 72 
D. Fair and Equitable Treatment ............................................................................................ 74 
1. The Claimants’ Position ..................................................................................................... 74 
a. The Respondent attracted and then deliberately harmed solar PV investors .................. 74 
b. The Claimants’ legitimate expectations ............................................................................ 75 
c. Specific guarantees or representations made to the Claimants ....................................... 75 
d. The Solar Levy effectively ended the feed-in tariffs .......................................................... 76 
e. Guarantees in respect of taxation ..................................................................................... 76 
f. Expectation to receive a 15-year payback ........................................................................ 77 
g. “Windfall profits” ................................................................................................................. 77 
h. Decisions of the Czech courts ........................................................................................... 78 
i. Tariff reduction in the lease ............................................................................... 79 
j. The Claimants’ due diligence ............................................................................................ 79 
k. Opinion of Ueltzhöffer Balada ........................................................................................... 79 
l. State aid ............................................................................................................................. 80 
m. The legislative changes were not foreseeable .................................................................. 80 
n. The Decision ...................................................................................................................... 81 
2. The Respondent’s Position ............................................................................................... 81 
a. The Respondent did not deliberately attract PV investors................................................ 81 
iv
b. The Claimants’ expectations ............................................................................................. 82 
c. Specific guarantees or representations made to the Claimants ....................................... 84 
(i) Choice of two forms of subsidies ................................................................................ 84 
(ii) ERO price decisions ................................................................................................... 84 
(iii) Contracts with grid operators ...................................................................................... 84 
(iv) ERO licenses .............................................................................................................. 84 
(v) Other documents ........................................................................................................ 85 
d. The Solar Levy did not end the feed-in tariffs ................................................................... 85 
e. Guarantees in respect of taxation ..................................................................................... 85 
f. Expectation to receive a simple return on investment ...................................................... 86 
h. Decisions of the Czech courts ........................................................................................... 87 
i. Tariff reduction in the lease ............................................................................... 88 
j. The Claimants’ due diligence ............................................................................................ 88 
k. Opinion of Ueltzhöffer Balada ........................................................................................... 89 
l. State aid incompatible with EU Law .................................................................................. 90 
m. The legislative changes were foreseeable ........................................................................ 91 
n. The measures taken by the Czech Republic were reasonable ........................................ 91 
o. The Decision ...................................................................................................................... 93 
3. The Commission’s Position ............................................................................................... 93 
4. Analysis .............................................................................................................................. 93 
a. Act 180 ............................................................................................................................... 94 
b. Context of introduction of Solar Levy and withdrawal of income tax incentives ............... 99 
(i) Withdrawal of the Tax Incentives .............................................................................. 105 
(ii) Introduction of the Solar Levy ................................................................................... 106 
c. Legitimate expectations ................................................................................................... 109 
(i) Solar Levy ................................................................................................................. 111 
v
(ii) Tax Incentives ........................................................................................................... 117 
d. Deliberate harm ............................................................................................................... 119 
E. Full Protection and Security ........................................................................................... 122 
1. The Claimants’ Position ................................................................................................... 122 
2. The Respondent’s Position ............................................................................................. 123 
3. Analysis ............................................................................................................................ 123 
F. Umbrella Clause ............................................................................................................... 124 
1. The Claimants’ Position ................................................................................................... 124 
2. The Respondent’s Position ............................................................................................. 125 
3. Analysis ............................................................................................................................ 126 
G. Conclusion ........................................................................................................................ 128 
VI. COSTS ............................................................................................................................... 129 
VII. DECISION .......................................................................................................................... 132 
vi
TABLE OF ABBREVIATIONS
Act 180 / Act on Act No. 180/2005 Coll., on Promotion of Electricity Production from
Promotion Renewable Energy Sources and on Amendments to Certain Laws
Act 165/2012 Act No. 165/2012 Coll., on Promotion of Sources of Energy and
Amending Certain Acts
Act 310/2013 Act No. 310/2013 Coll.
Act 346/2010 Act No. 346/2010 Coll., Amending the Income Tax Act, as amended,
and Other Related Acts
Act 586/1992 /
Act 586/1992 Coll. on Income Tax
Income Tax Act
Amicus Curiae
EC’s Amicus Curiae Submission of 11 December 2015
Submission
BIT / Treaty Treaty between the Federal Republic of Germany and the Czech and
Slovak Federal Republic on Encouragement and Reciprocal Protection
of Investments of 2 October 1990
Commission’s EC’s Application to Intervene as a Non-Disputing Party of 11 July 2014
Application
Commission Decision European Commission’s decision of 2 December 2016
Commission’s European Commission’s submission of 17 February 2017
Submission
EC / Commission European Commission
ECJ European Court of Justice
ER Expert report
ERO Energy Regulatory Office
EU European Union
Exh. C- Claimants’ Exhibit (Documentary exhibits)
Exh. CLA- Claimants’ Legal Authority
Exh. R- Respondent’s Exhibit (Documentary exhibits)
Exh. RLA- Respondent’s Legal Authority
FET Fair and Equitable Treatment
FIT Feed in Tariff

ICJ International Court of Justice
ICSID International Centre for Settlement of Investment Disputes
vii
ILC International Law Commission
ILC Articles ILC Articles on Responsibility of States for Internationally Wrongful
Acts, 2001
Income Tax Act Act No. 586/1992 Coll. on Income Taxes
kWp Kilowatt peak
MW Megawatts
NT National Treatment
Objections to Respondent’s Objections to Jurisdiction dated 27 October 2014
Jurisdiction
PCA Permanent Court of Arbitration
PILA Swiss Federal Act on Private International Law
PO Procedural Order
Rej. Respondent’s Rejoinder dated 17 December 2015
Reply Claimants’ Reply Memorial dated 16 September 2015
RES Renewable Sources of Energy
RfA Claimants’ Request for Arbitration dated 24 June 2013
SoC Claimants’ Statement of Claim dated 18 July 2014
SoD Respondent’s Statement of Defense dated 20 March 2015
Solar Levy Levy introduced through Act No. 402/2010 Coll.
Technical Regulation Decree No. 475/2005 Coll. on Implementation of Certain Provisions of
the Act on Promotion of Exploitation of Renewable Energy Sources
Terms of Appointment Terms of Appointment of 3 March 2014
TFEU Treaty on the Functioning of the European Union
Tr. Transcript hearing on jurisdiction and merits
VCLT or Vienna Vienna Convention on the Law of Treaties
Convention
WACC Weighted average cost of capital
WS Witness statement
viii
I. THE PARTIES
A. THE CLAIMANTS
1. The first Claimant is Mr. Jürgen Wirtgen, , with domicile at
Germany (“Claimant 1”).
2. The second Claimant is Mr. Stefan Wirtgen, , with domicile at
, Germany (“Claimant 2”).
3. The third Claimant is Mrs. Gisela Wirtgen, , with domicile at
, Germany (“Claimant 3).
4. The fourth Claimant is JSW Solar (zwei) GmbH & Co. KG, a limited partnership
organized and existing under the laws of Germany, with domicile at Reinhard-Wirtgen-
Straβe 2, 53578 Windhagen, Germany, registered with the commercial register in
Montabaur, Germany (“JSW” or “Claimant 4”).
5. Claimants 1-3 are shareholders of Claimant 4.
6. The Claimants and their investments have been illustrated as follows: being specified
that the three Czech power plants at issue in this arbitration — Struhařov, Světlá and
Vernéřov — are directly owned by three Czech special purpose vehicles set up for that
purpose.1

1 Rej., §168.
1