Spain has legal problems. Lots of them. A steadily lengthening queue of foreign investors have lined up to sue the country before international arbitration tribunals.

The investors made billions of dollars of investments in the country's renewable energy sector, relying on promises that authorities would pay premium rates for this clean energy. Unfortunately, those generous promises became untenable when a financial crisis swept the globe in the late 2000s. Spain has since raised taxes on energy production and rolled back other incentives in order to tighten its fiscal belt.


Foreign investors have hired international law firms in their droves. These investors contend that they have fallen victim to a bait and switch: lured to invest in expensive clean energy plants with the promise of earning premium rates, and then seeing those pledges evaporate once the plants were built.

Mixed messages 

Until recently, Spain was facing plenty of foreign investor lawsuits, but none of them had been resolved. That changed at the beginning of 2016 when some of the longest running arbitration cases started to conclude. Unfortunately for Spain, the lessons of three decided cases are deeply ambiguous.

In the first case, Spain prevailed but it was more of a technical knock-out. The relevant investors had filed their lawsuit before Spain completely tore up its old renewables regime, and replaced it with a wholly new regime in 2014. Thus, the investors were not challenging some of the more recent – and most harmful – measures introduced by Spanish authorities. It is not surprising, then, that this legal case ended in a victory for Spain.

In the second case, Spain appears to have had a more robust legal victory, but due to the strict confidentiality governing some international arbitrations – has thus far refrained from releasing the arbitration ruling to the wider public.

In the latest case to be resolved, by a ruling issued in early May, a panel of arbitrators at the World Bank has ruled in favour of a pair of foreign investors, UK-registered Eiser Infrastructure and its Luxembourg subsidiary Energia Solar Luxembourg. The companies had stakes in a trio of concentrated solar power plants in Spain.

The arbitrators scrutinised the full range of actions taken from 2007 through 2014 to slowly dismantle Spain's favourable renewables regime, and they concluded that Spain should be held liable for a "total" evisceration of earlier promises that it had made to attract investments such as those from Eiser and Energia Solar.

The arbitrators were not troubled by the fact that Spain's own constitutional court ruled in 2015 that the country's roll-back of preferential treatment for renewable investors was not in breach of the country's constitution. The tribunal curtly noted that this domestic legal determination did not dictate whether or not Spain had breached the further obligations found under international treaties. It went on to confirm that Spain had indeed breached binding legal commitments contained in an obscure multilateral treaty, the Energy Charter Treaty, which governs investments in the global energy sector. 

To compensate the investors for their losses, Spain was ordered to pay €128m to reflect the profits that were lost by the investors on their venture.

The fear factor 

This result should send a chill down the spine of officials in Spain's national treasury. There are currently upwards of 30 similar arbitrations pending against the country, with foreign investors collectively seeking billions in compensation.

To be sure, Spain may continue to win some and lose some as the remaining arbitrations play their way out. Arbitration is notorious for not following a strict system of precedent, and every arbitral tribunal is free to adopt its own assessment as to whether Spain's policy makeover went so far that it breached international treaties that guarantee stability and fairness to foreign investors. 

However, the prospect of even a few more adverse legal rulings in the hundreds of millions of dollars could lead the country once again to re-evaluate its policy framework for renewable energy investors. The financially strapped government may need to find some way to offer more some relief to investors in order to stem the tide of legal claims. 

Indeed, setting to one side the possible damages that might be awarded by arbitrators, all of these arbitration cases are expensive to contest – win or lose. In its most recent loss, the government spent more than €3m just on lawyers’ and arbitrators’ fees. The fees and expenses associated with participating in all of these 30 ongoing arbitration cases could approach €90m to €100m if they are all litigated in a similar manner.

Viewed in the broader perspective, Spain may want to consider whether it is well served by the current system of ad hoc arbitration of foreign investment disputes. In recent years, there have been various proposals for creating a single global panel or court to adjudicate such cases. Such an approach would offer more consistent legal guidance – with one court speaking, rather than dozens of unrelated panels of arbitrators. 

Some investor interests and global law firms are wary of proposals that would take away some of the flexibility and autonomy of arbitration. However, for states that are serial defendants in such cases, a single global adjudicator might be a more efficient solution. 

Luke Eric Peterson is the publisher of, an online news and analysis service focused on investor-state arbitration cases.