Several years ago, Spain was ordered by the Permanent Court of Arbitration (PCA) to pay compensation to two Dutch undertakings. Although the arbitral award had become final, the Amsterdam District Court (District Court) ruled in a judgment dated 5 February 2025 (English translation) that the compensation constituted unlawful state aid. The undertakings involved were also ordered to compensate Spain if the arbitral award is successfully enforced.
The case
The case concerns a subsidy scheme introduced by Spain in 2007 in favour of investors in solar energy. In 2010, Spain reduced the amount of the subsidy and shortened the period of eligibility. The EU Commission (Commission) was not informed in any way of the “2017 scheme” or the changes implemented in 2010. In 2014, Spain withdrew the amended 2007 scheme and replaced it with a new scheme. This time the “2014 scheme” was notified to the Commission as state aid. In a decision of 10 November 2017 (Approval Decision), the Commission approved both the 2014 scheme and the payments made under the 2007 scheme including its 2010 amendments (marginal 3.3).
The Dutch undertakings AES and AEF invested in Spanish solar energy installations from 2007 onwards. As a result of the changes made to the 2007 scheme in 2010, they received less subsidy than they had expected. AES and AEF claimed to have suffered damage as a result and initiated arbitration proceedings under the Energy Charter Treaty (ECT). In an arbitral award dated 28 February 2020, the PCA ordered Spain to pay €15.4 million to AES and €11.1 million to AEF. The Swiss Federal Supreme Court upheld this award in a decision dated 23 February 2021. Subsequently, Spain the arbitral award to the Commission as an aid measure.
In an attempt to collect the damages awarded, AES and AEF initiated proceedings before the Court for the District of Columbia (Washington DC). They subsequently assigned their right to claim the arbitral award to the American undertaking Blasket Renewable Investments LLC (Blasket).
In order to pre-empt the consequences of a possible enforcement of the arbitral award, Spain initiated proceedings before the District Court. Despite a jurisdictional objection raised by AES and AEF, the District Court declared itself competent to hear Spain’s claims in an interim judgment of 29 May 2024. Following this ruling, which is discussed in the blog: State aid and arbitration: the New York Convention versus Brussels I-bis (Dutch only), the District Court is now considering the merits of the case.
Judgment of the Court
The State aid rules
According to the District Court, a measure that qualifies as state aid within the meaning of Article 107(1) TFEU may not be implemented before the Commission has given its approval. State aid paid in breach of this standstill obligation is unlawful.
A judgment ordering a Member State “to make a payment to a private undertaking” may constitute State aid. Such a judgment may “have res judicata effect (or be final). A judgment with res judicata effect may not be called into question again. However, the principle of the primacy of Union law entails that the national court must ensure the full effectiveness of Union law provisions and must set aside any conflicting national provision, ex officio where necessary. This also applies to national rules that establish the principle of res judicata. Therefore, the final nature of a judgment does not preclude the possible ordering of recovery of unlawfully paid State aid” (marginal 5.8). In the case of unlawful State aid, the national court is obliged to “take the necessary measures to ensure that the beneficiary (AES and AEF in this case) cannot freely dispose of the aid or the advantage received until the Commission has ruled on the compatibility of that aid with the internal market (marginal 5.9).
EU law or ECT
According to the District Court concludes that the provisions of the ECT are part of EU law. Spain is therefore obliged to comply with the arbitral award in accordance with the provisions of Article 10 ECT. At the same time, Spain must also comply with the obligations arising from Articles 107 and 108 TFEU (marginal 6.4). However, the ECT does not affect the requirement that aid measures taken by a Member State must first be notified and may only be implemented after approval by the Commission. This also applies to awards that confer an economic advantage on undertakings and may therefore constitute State aid. Where applicable, the Member State concerned is obliged, on the basis of the principle of sincere cooperation (Article 4 TEU), the judgment to the Commission. It is irrelevant whether the judgment was handed down by a national court or by an arbitral tribunal. After all, it is the payment obligation that must be examined for compatibility with the internal market (marginals 6.4-6.9). The District Court thus reaches the intermediate conclusion that, in addition to the ECT provisions, the EU rules on state aid also apply to the payment obligation arising for Spain from the arbitral award (marginal 6.13).
State aid test
The amounts paid by Spain under the subsidy schemes are not in dispute. The present case concerns solely the question of whether the compensation awarded by the arbitral tribunal to AES and AEF constitutes State aid, and if so, when that aid was granted (marginals 7.1–7.2). These questions were also raised in the . Unlike in the present dispute, in the Micula case the arbitral award had already been enforced and the Commission had ordered recovery. However, the District Court considers this irrelevant and concludes that the judgments in the Micula case are particularly suitable for answering the legal questions in the case at hand (marginals 7.3-7.6).
During the by the Commission into the 2014 scheme, arbitral proceedings between, several investors and Spain were ongoing. In this regard, the Commission noted in the that the award of damages by the arbitral tribunal would qualify as State aid subject to notification within the meaning of Article 108(3) TFEU. According to the District Court, the arbitral tribunal’s finding that the damages are compatible with the internal market (marginal 6.9) is irrelevant. Only the Commission is competent to take such a decision. In line with this, the Dobeles HES and Mytilinaios/DEI judgments cited by AES and AEF fail to demonstrate that Spain’s payment obligation under the arbitral award does not constitute a new independent aid measure. In the District Court’s view, it follows from the Dobeles HES and Micula 2024 judgments that a payment obligation of an EU Member State arising from an arbitral award may indeed constitute state aid (marginals 7.8-7.14).
In the arbitral award, the PHA effectively awarded AES and AEF compensation for damages resulting from what they claimed was an unlawful amendment to the 2007 scheme. At the same time, this compensation to an amount that is established to be state aid. Namely, a higher subsidy than that to which AEN and AEF are entitled on the basis of the aid schemes approved by the Commission. Consequently, the compensation meets the as referred to in Article 107(1) TFEU (marginals 7.15-7.20).
No abuse of rights
The moment on which the beneficiary acquires an irrevocable legal claim to State aid under the applicable national rules is the date on which State aid is granted. The fact that Spain has not yet made any payment under the arbitral award is therefore irrelevant (marginals 7.21-7.23). The confirmation by the Swiss Supreme Court of the arbitral award made the awarded compensation final. From that point onwards, Spain is required both to notify the payment obligation and to comply with the standstill obligation (marginals 7.23.3). By adhering to these requirements, Spain has not abused its rights (marginals 7.29-7.30).
Declaratory judgment
Although AES and AEF have transferred their claim from the arbitral award to Blasket, Spain has an interest in the claim for a declaratory judgment concerning the arbitral award against them. After all, the transfer in question does not mean that AES and AEF did not receive any advantage. Blasket only purchased the right to claim and is not considered to be advantaged in the eyes of the District Court. A claim for recovery from Blasket will therefore not succeed. Furthermore, a different interpretation would mean that beneficiary undertakings could escape the application of EU law by selling the right to claim to a party outside the EU. As the Commission has convincingly pointed out, this is undesirable (marginals 7.43-7.47).
Claims for repayment of State aid
According to the Eesti Pagar judgment, the legal basis for the recovery of State aid must be grounded in national law. In this regard, Spain has rightly argued that AEN and AEF have been unlawfully enriched by the arbitral award within the meaning of Article 6:212 of the Dutch Civil Code:
| (i) | a payment of aid by an EU Member State during the standstill obligation is unlawful; |
| (ii) | AES and AEF have obtained an advantage to which they were not entitled and have been enriched as a result of the arbitral award; |
| (iii) | Spain’s financial position will be diminished if, in the event of a successful future enforcement of the arbitral award (anywhere in the world), it is required to make a payment to Blasket (or its possible legal successor). |
Although Spain has not yet paid anything, this does not alter the fact that Spain has a contingent claim. On the basis of the principle of loyalty, Spain is indeed required “to take and adopt all measures necessary to ensure that no payment arising from that State aid [measure] can be made as long as the Commission has not decided on the compatibility of that payment obligation with the internal market” (marginals 7.49-7.57).
Decision
Briefly summarized the District Court:
| (i) | declares that the arbitral award constitutes a measure constituting unlawful State aid; |
| (ii) | orders AES and AEF to pay the amount that Spain must pay to Blasket upon enforcement of the award; |
| both as long as the Commission has not declared this measure to be wholly or partly compatible with the internal market. | |
Comments
ECT arbitration
Arbitration under Article 26(2)(c) ECT has produced interesting case law in recent years. Pursuant to Article 26(3) ECT, Member States have agreed in advance to arbitration. According to the Komstroy judgment, this means that disputes between an investor from one Member State and another Member State concerning Union law “may be removed
from the judicial system of the European Union such that the full effectiveness of that law is not guaranteed”. According to the ECJ, Article 26(2) of the ECT must therefore be interpreted
“as not being applicable to disputes between a Member State and an investor of another Member State concerning an investment made by the latter in the first Member State” (marginals 62-66). In the present case, the possible lack of jurisdiction of the PHA was not a matter of dispute before the District Court. However, it does show that the full effect of EU law is not guaranteed in the event of arbitration based on the ECT. From the text of the judgment under discussion, it is not clear how the PHA actually applied the EU state aid rules to the case at hand. In any event, the District Court is of the opinion that the state aid rules were not properly recognized, leading to the award of unlawful state aid.
Res judicata and primacy of EU law
The arbitral award was confirmed by the Swiss Federal Supreme Court and thus became final. According to the District Court, this does not preclude the possible award of a recovery order of potentially unlawfully paid state aid. The District Court in this context only to the Commission Communication on the enforcement of State aid rules by national courts. At least as relevant is the Amicus Curiae observation of 22 December 2023 the Commission submitted to the District Court. In line with the aforementioned Communication, the Commission describes the role of national courts in state aid cases. What really makes the observation noteworthy is the description of the EU State aid rules as “fundamental rules that are indispensable for the functioning of the Union’s internal market and must therefore be regarded as national rules of public policy“. So even if none of the parties to the proceedings has raised a violation of the state aid rules, the Commission is of the opinion that the national court must examine ex officio whether the state aid rules have been complied with. An important pointer for professional practice!
Qualification as state aid
One of the elements that determine whether a measure qualifies as state aid within the meaning of Article 107(1) TFEU is that the measure must originate from the State and be financed by the State. According to, among others, the Tercas judgment, these are two cumulative conditions (marginal 70). The District Court only mentions the funding by Spain (see marginal 7.20). Why the arbitral award must be attributed to Spain remains unmentioned. AEN and AEF may have recognised this aspect. After all, they argued that the “payment in the context of the enforcement of the arbitral award constitutes the aid measure” (marginal 7.14.4). Does the payment decision therefore, in the view of AEN and AEF, produce the required attribution? If so, there may not yet be any state aid involved. After all, a decision to make the payment is still lacking. From this perspective, it is unfortunate that the District Court refused to address the possible relevance of the Mytilinaios/DEI judgment (marginal 7.14.2).
Show stopper
The Commission wants to prevent, at all costs, undertakings receiving unlawful state aid from being able to avert recovery by selling the right to claim to a third party. The District Court’s judgment seems to provide the desired show stopper. An arbitral tribunal may still, in violation of the state aid rules, order a Member State to pay compensation to an undertaking. This undertaking can sell that claim. However, it must now take into account the possibility that it will have to compensate the Member State if the buyer successfully enforces the arbitral award in a distant foreign country. This prevents unlawful state aid from being paid. Moreover, the sale of a right to claim arising from an (arbitral) award is no longer a no-lose transaction.
