PCA CASE Nº 2014-01 IN THE MATTER OF AN ARBITRATION - pursuant to – THE ENERGY CHARTER TREATY - and – THE AGREEMENT BETWEEN THE FEDERAL REPUBLIC OF GERMANY AND THE CZECH AND SLOVAK FEDERAL REPUBLIC ON THE PROMOTION AND RECIPROCAL PROTECTION OF INVESTMENTS SIGNED ON OCTOBER 2, 1990, IN FORCE AS OF OCTOBER 2, 1992 - between - (1) ANTARIS GMBH (GERMANY) (2) DR MICHAEL GÖDE (GERMANY) (the “Claimants”) - and - THE CZECH REPUBLIC (the “Respondent”, and together with the Claimants, the “Parties”) _____________________________________________________ AWARD _________________________________________________________ ARBITRAL TRIBUNAL: Lord Collins of Mapesbury (Presiding Arbitrator) Mr Gary Born HE Judge Peter Tomka REGISTRY: The Permanent Court of Arbitration 2 May 2018 PCA Case No. 2014-01 Award CONTENTS I. Introduction ....................................................................................................................... 5 A. The Treaties ....................................................................................................................... 5 B. The Parties ......................................................................................................................... 5 C. Overview of the dispute ...................................................................................................... 7 II. Procedural history ............................................................................................................................ 8 A. Written Procedure .............................................................................................................. 9 B. Hearing ............................................................................................................................ 15 C. Post-hearing Proceedings .................................................................................................. 16 III. The Parties’ requests for relief ...................................................................................................... 17 A. The Claimants .................................................................................................................. 17 B. The Respondent ............................................................................................................... 19 IV. The incentive regime .................................................................................................................... 20 A. The Act on Income Tax 586/1992 ..................................................................................... 20 B. The Act on Promotion 180/2005 ........................................................................................ 20 C. ERO Regulations .............................................................................................................. 21 V. State aids ........................................................................................................................................ 22 VI. The changes to the Incentive Regime ........................................................................................... 23 A. Abolition of 5% rule for plants connected to the grid from 2011 .......................................... 23 B. Adoption of Solar Levy .................................................................................................... 23 C. Amendment of Act on Income Tax .................................................................................... 24 D. Repeal of Act on Promotion .............................................................................................. 24 E. Extension of Solar Levy .................................................................................................... 24 F. Subsequent developments .................................................................................................. 24 VII. The background and history ........................................................................................................ 25 A. Development of the incentives .......................................................................................... 25 B. The solar boom and proposals for change: 2009-2010 ............................................................. 29 C. The changes ............................................................................................................................... 35 VIII. Jurisdictional/admissibility issues .............................................................................................. 41 A. Whether the Solar Levy is a tax for the purposes of Energy Charter Treaty, Art 21(1) ........... 41 1. The Respondent’s position ......................................................................................................... 41 2. The Claimants’ position ............................................................................................................. 47 3. The Tribunal’s conclusion ......................................................................................................... 53 B. Whether the Claimants complied with the notice requirements under the BIT and the ECT with regard to the claims arising out of the extension of the Solar Levy by Act 310/2013 ..... 67 1. The Respondent’s position ......................................................................................................... 67 2. The Claimants’ position ............................................................................................................. 67 3. The Tribunal’s conclusion ......................................................................................................... 68 C. Whether the Claimants’ alleged misrepresentations in obtaining the operating licence for the Mozolov plant bar their claims in relation to the plant ........................................................ 68 D. Whether the Claimants have made a prima facie showing of a violation of the BIT and ECT in relation to the Holýšov plant ........................................................................................ 68 IX. The substantive claims: legitimate expectation and arbitrary or unreasonable behaviour ............ 68 1. The Claimants’ position ............................................................................................................. 68 2. The Respondent’s position ......................................................................................................... 84 3. The Tribunal’s analysis .............................................................................................................. 97 A. The Principles ................................................................................................................. 97 B. Promise of stability ......................................................................................................... 100 C. Knowledge of the issues arising out of the solar boom ...................................................... 102 D. Dr Göde’s evidence ........................................................................................................ 105 i PCA Case No. 2014-01 Award E. Overall conclusions ........................................................................................................ 109 (i) The investments .............................................................................................................. 110 (ii) Non-retroactivity of the FiT changes ............................................................................. 111 (iii) The Solar Levy .............................................................................................................. 114 X. Other issues .................................................................................................................................. 120 XI. Costs ........................................................................................................................................... 120 XII. Operative part ............................................................................................................................ 121 ii PCA Case No. 2014-01 Award LIST OF DEFINED TERMS 5% Break-Out Rule Rule established by Section 6(4) of the Act on Promotion under which the FiT set by the ERO in a given year may not drop by more than 5% of the value of the FiT in the previous year 2001 Directive Directive 2001/77/EC of the European Parliament and of the Council of September 27, 2001 on the promotion of electricity produced from renewable energy sources in the internal electricity market 2003 Treaty of Treaty of Accession to the European Union of the Czech Republic, Accession Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia of April 16, 2003 2005 UN Report The Fourth National Communication of the Czech Republic on the UN Framework Convention on Climate Change of 2005 2009 Directive Directive 2009/28/EC of the European Parliament and of the Council of April 23, 2009 on the Promotion of the Use of Energy from Renewable Sources Amending and Subsequently Repealing Directive 2001/77/EC and 2003/30/EC 2010 Action Plan “National Renewable Energy Action Plan” which the Ministry of Industry and Trade published in July 2010 Act on Income Tax The Act on Income Tax of 1992 (The Act No. 586/1992) Act on Promotion The Act for the Promotion and Use of Renewable Sources (Act No. 180/2005 Coll.) Antaris Antaris GmbH Antaris AG Antaris Solar AG Antaris ZNL Antaris Solar GmbH, Zweigniederlassung Kreuzlingen BIT The Agreement between