Fair and Equitable Treatment: Spain, ECT and the Middle Ground

In investment treaties, the Fair and Equitable Treatment (‘FET’) standard generally protects investors from state measures that are arbitrary, opaque, or otherwise contrary to legitimate expectations. The FET standard has, however, been labeled as a ‘chewing-gum provision’, as it appears elastic enough to be interpreted in various ways.

In this article, I examine three recent investment arbitration awards that relate to Spain and renewable energy (‘RE’), focusing on how tribunals have interpreted the FET standard. In all three cases, Spain was found to have breached her FET obligation under Article 10(1) of the Energy Charter Treaty (‘ECT’).

1. Antin v Spain

In Antin v Spain, the claimants (‘Antin’) alleged that they invested substantially in Spanish solar power plants based on legitimate expectations that the Spanish regulatory framework, which at that time incentivised such investments, will remain stable and the plants will generate regular income. However, Spain subsequently altered her regulatory framework, causing substantial losses to Antin’s investments.


According to the tribunal, the FET standard in the ECT is an independent and autonomous standard, additional to the international minimum standard ([361]). Based on Article 31 of the Vienna Convention on the Law of Treaties (‘VCLT’), the ordinary meaning of ‘fair’ and ‘equitable’ read in the context of the purpose of the ECT indicates that host states are required to ‘create stable, equitable, favourable and transparent conditions’ for investors from other contracting states ([525]).

Whilst the ECT does not eliminate a host state’s regulatory powers, the tribunal emphasised that a host state must afford ‘fundamental stability’ and cannot ‘suddenly and unexpectedly eliminate the essential features of the regulatory framework in place’, especially when the regulatory regime was ‘specifically created to induce investments in the energy sector’ ([531]-[532]).

The tribunal found that, at the time when Antin invested in the plants, Spain represented (through acts and regulations that incentivised RE investments) that the Spanish economic framework will remain stable and predictable ([554]). Accordingly, Antin had legitimate expectations that regulatory changes will not destabilise essential regulatory features, such as Spain’s feed-in-tariff mechanism. Spain’s new measures contravened such expectations.

Spain’s contention that Antin’s only legitimate expectation was a reasonable return on their investment was rejected on the basis that ‘what Spain labelled as a “reasonable rate of return” seemingly depends on governmental discretion’ and was not based on any identifiable criteria ([568]).

2. Masdar v Spain

Masdar v Spain was similarly a dispute relating to Spain’s regulatory changes. The claimant (‘Masdar’) held substantial shares in a local company which operated solar power plants in Spain. Masdar alleged that Spain, inter alia, wrongfully removed the special regulatory regime that was in effect when Masdar made its investment.


The tribunal noted that the FET standard ‘[ensures] that an investor may be confident that (i) the legal framework in which the investment has been made will not be subject to unreasonable or unjustified modification; and (ii) the legal framework will not be subject to modification in a manner contrary to specific commitments made to the investor.’ ([484]). The Masdar tribunal also noted that a host state has the right to amend its legislation, but such regulatory power is not unfettered ([485]-[486]).

The tribunal then considered which kinds of commitments can give rise to protected legitimate expectations. The tribunal did not think it was necessary to give a definitive answer as to whether legitimate expectations could only stem from specific commitments or whether they could arise from more general legislation and documentation ([511]). However, it noted that the arrangement under Spain’s previous regulatory regime, whereby foreign investors had to comply with certain procedural and substantive conditions during a window of time in order to benefit from special tariffs, ‘was a very specific unilateral offer from the State, which an investor would be deemed to have accepted, once it had fulfilled the substantial condition of construction of the plant and the formal condition of registration within the prescribed “window.”’ ([512]). There were also other communications between the parties that the previous regime would continue throughout the operational lifetime of Masdar’s investments ([515]-[520]).

Given such factors, the tribunal concluded that Masdar had legitimate expectations that the previous regime would remain unaltered and found, on the facts and by reason of the loss of the previous regime, that Spain had violated her FET obligation ([521]-[522]).

3. Novenergia v Spain

In Novenergia v Spain, the claimant (‘Novenergia’) argued that Spain induced its investments in photovoltaic plants by offering, inter alia, guaranteed tariffs for the lifetime of those plants. Novenergia argued that Spain contravened its legitimate expectations by retroactively repealing the regime.


First, the tribunal noted that ‘a state has a right to regulate and investors must expect that legislation may and will change’; however, the FET standard ‘protect[s] investors from a radical or fundamental change to legislation or other relevant assurances’ ([654]).

The tribunal then addressed two questions: (i) whether Spain ‘by virtue of its statements and conduct… has given rise to a legitimate and reasonable expectation on [Novenergia’s] part that the regulation… would be stable’ ([652]) and (ii) whether ‘subsequent legislation by [Spain] radically altered the essential characteristics of the legislation in a manner that violates the FET standard’ ([656]).

With regards to (i), the tribunal opined that Spain’s old regulatory regime was clearly enacted to create ‘a very favourable investment climate for RE investors’ ([665]). There were also statements ‘aimed at incentivising companies to invest heavily in the Spanish electricity sector’ ([667]). Consequently, Novenergia had legitimate expectations that ‘there would not be any radical or fundamental changes to the [regulatory regime]’ ([681]).

As to (ii), the tribunal considered Spain’s subsequent measures, which effectively abolished the previous regime, to be radical and unexpected. The tribunal rejected the contention that Spain’s measures must have entirely obliterated Novenergia’s investments for an FET breach to arise ([694]). Instead, ‘the assessment of whether the FET standard has been breached is a balancing exercise, where the state’s regulatory interests are weighed against the investors’ legitimate expectations and reliance’ and ‘[d]estruction of the value of the investment… is but one of several factors’, albeit an important one, in the exercise ([694]).

On the whole, the tribunal concluded that Spain’s measures fell ‘outside the acceptable range of legislative and regulatory behaviour’, as they ‘entirely transform[ed] and alter[ed] the legal and business environment under which the investment was decided and made’ and had ‘a significant damaging economic effect’ on Novenergia’s investments ([695]).

4. Comment

Balance in regulatory space: All three tribunals recognised the need to strike a balance between respecting a host state’s sovereignty in her regulatory space and protecting foreign investors’ reasonable expectations of a stable and transparent regulatory framework. The tribunals sought to locate a middle ground: the host state retains some regulatory power, but her measures cannot alter essential features of her promised regulatory framework and must not be arbitrary. What amounts to an essential feature or radical disruption of the regulatory framework depends on the facts of each case.

The tribunals’ nuanced interpretation of the FET standard is part of a promising trend of tribunals recognising that impractical or idealistic interpretations, seen in earlier cases like Metalclad v Mexico (NAFTA) and Tecmed v Mexico (Mexico-Spain BIT), are largely untenable. In those earlier, oft-cited, awards, the tribunals accorded little weight to the host state’s right to regulate. For instance, the Tecmed tribunal interpreted the FET standard as requiring the state to, inter alia, act ‘free from ambiguity and totally transparent’ such that the investor ‘may know beforehand any and all rules and regulations that will govern its investment’. Arguably, such interpretations lack textual legitimacy and impose unrealistic burdens on states by failing to recognise the intricacies of policymaking and governance.

By contrast, the Antin, Masdar and Novenergia tribunals emphasised that, after entering into an investment treaty, a host state retains some residual (or persisting) regulatory autonomy and power. Such residual power, rightly, tempers investors’ legitimate expectations and shapes the FET standard. Nevertheless, on the facts, Spain’s measures exceeded her residual power and therefore breached the FET standard.

While the Antin tribunal stressed that its interpretation is limited to the ECT, the difference in approach between earlier cases (e.g. Tecmed) and recent cases (Antin, Masdar and Novenergia) cannot be explained solely based on treaty wording and context.

Methodology: Although there is no doctrine of stare decisis in investment arbitration, the tribunals seemingly recognise the benefit of developing a consistent jurisprudence, as they frequently relied on or distinguished previous awards (e.g. Charanne v Spain and Eiser v Spain) to support their decisions. This once again sets these recent cases apart from the earlier cases.

Such careful reliance on past awards that are contextually similar is justifiable under the VCLT and should be encouraged. If this methodology is properly followed, it will likely result in greater consistency in the interpretation of the FET standard in the ECT, which will assist both investors in understanding their rights and host states in complying with their obligations, and may enhance the legitimacy of the investment arbitration regime.


  1.  Antin Infrastructure Services Luxembourg S.à.r.l. and Antin Energia Termosolar B.V. v The Kingdom of Spain, ICSID Case No. ARB/13/31, Award (15 June 2018).
  2.  Masdar Solar & Wind Cooperatief U.A. v Kingdom of Spain, ICSID Case No. ARB/14/1, Award (16 May 2018).
  3.  Noveneriga II – Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v Kingdom of Spain, SCC Arbitration (2015/063), Final Arbitral Award (15 February 2018).

* Alperen Afşin Gözlügöl is a recent LLM graduate of the University of Cambridge and holds a BA (Law) from Bilkent University, Turkey.