ISDS is known to lack transparency, but in the multi-billion euros arbitration that Vattenfall v. Germany (II) represents, a review of both parties’ most likely arguments appears necessary. Such a case clearly illustrates the paradox of ISDS: a ‘chilling effect’ for investors that may impair States’ regulatory powers. On 31 May 2012, the Swedish energy company Vattenfall registered its claim at the ICSID Secretariat in Washington DC under the Energy Charter Treaty (ECT), a Multilateral Investment Agreement intended to protect investors in the energy sector. Vattenfall is suing Germany for adopting a nuclear-phase out legislation, which breaches its contract to let Vattenfall build and operate nuclear power plants. It is reported that Vattenfall claims up to €4bn.

Background to the dispute

Germany adopted an amendment to its Atomic Energy Act at the end of July 2011 as a response to the Fukushima disaster in Japan. Since the entry into force of this amendment, Germany undertook its Energiewende (Energy transition) and pledged to close every nuclear power plant by 2022 (Atomausstieg). German energy companies such as E.ON, RWE and EnBW were also hit by the Energiewende. But as companies of German nationality and controlled by German investors, they cannot sue the German government under the Energy Charter Treaty.

In 2009, Vattenfall had brought a claim against Germany under the ECT claiming that the Hamburg Environmental Authority had adopted new water regulations that made its investment to build a coal-fired power plant in the Hamburg district unviable. The precise agreement between both parties is, however, unknown, although it is recognised that Germany nevertheless provided the licence to Vattenfall. On 31 March 2015, it was reported that the EU Commission was about to lodge a complaint against Germany before the European Court of Justice for having decreased its environmental requests vis-à-vis Vattenfall, which consequently breached EU requirements.

Jul-Sep 2015 issue

Association for International Arbitration