December 16, 2016 Practice Points

Ruling Leads to Investor Arbitration Claims Against Italy

By Andrea Carraretto

On December 7th the Italian Constitutional Court, which hears cases that involve constitutional challenges to Italian legislation, confirmed the validity of a law which cuts tariff incentives for investors in the Italian photovoltaic industry.

Section 26 para. 2 and 3 of the Decree-Law n. 91 of June 24th, 2014, a temporary measure adopted by the Italian Government converted by the Parliament into the definitive law n. 116 of 11th August, 2014, reduce tariff incentives available to companies operating in the photovoltaic industry. These paragraphs have been highly criticized because they are basically ex post facto provisions, and this negatively impacts investors who were counting on the incentives when they made the decision to enter into the photovoltaic business.

Several companies and trade associations brought an action before the TAR del Lazio, an Italian court specialised in administrative law, seeking the annulment of these provisions. They argued that section 26 para. 2 and 3 were incompatible with the Italian Constitution because the cut of tariff incentives is applicable also to those contracts already concluded between private companies and Public Administration, in breach of the principle of legitimate expectation (provided by articles 3 and 41 of the Italian Constitution).

The TAR del Lazio considered the action worthy of further consideration and forwarded the case to the Constitutional Court for decision. However, the Constitutional Court rejected the challenge to section 26 para. 2 and 3 and declared them constitutional. The decision has been communicated through a press release, without the corresponding motivation, which will be published in the future.

In light of this ruling, foreign investors who believe that section 26 para. 2 and 3 treat them unfairly have the right to bring an arbitration against Italy in the International Centre for Settlement of Investment Disputes, as provided by the Energy Charter Treaty (ECT). Although Italy is no longer a member of the ECT (law n. 190 of December 23rd, 2014, article 3 section 318, attached n. 8), it is still obligated to guarantee foreign investors all of the protections provided by the Energy Charter Treaty itself. In fact, article 47 of the ECT, the so-called "sunset clause," states that "[t]he provisions of this Treaty shall continue to apply to Investments made in the Area of a Contracting Party by Investors of other Contracting Parties or in the Area of other Contracting Parties by Investors of that Contracting Party as of the date when that Contracting Party's withdrawal from the Treaty takes effect [and] for a period of 20 years from such date."

To deal with the actions that already have been filed and those which are anticipated, the Italian Minister of Environment issued a public competition aiming to select a team of experts in International Arbitration.

Keywords: alternative dispute resolution, adr, litigation, ICSID, Italy, constitution, photovoltaic, arbitration, Energy Charter Treaty

Andrea Carraretto is a 2015 J.D. candidate at University of Padua Law School in Padua, Italy.

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