GERMANY Trends and Developments Contributed by: Patricia Nacimiento, Catrice Gayer, Lara Panosch and Theo Pauthonier, Herbert Smith Freehills Kramer LLP
(under Article 52 of the ICSID Convention). Pending a decision on the annulment, the final outcome remains uncertain. Learnings for EU-investors are that being based in the EU does not automatically bar ISDS against an EU member state. Nonetheless, enforcement in the EU might be difficult due to intra-EU jurisdictional issues. German courts strongly interpret national law to give effect to EU law (principle of effet utile ) (see also the discussion on the influence of EU law below). Mainstream Renewable Power v Germany Other renewable energy cases include the still-pend- ing Mainstream Renewable Power Ltd and others v Germany (ICSID Case No ARB/21/26) arbitration under the ECT. Initiated in 2021 by an Irish-led consor- tium, this case involves another set of offshore wind projects (Horizont I, II, III) that never received gov- ernment backing and was abandoned. The claimants argue that a series of legislative changes in Germany from 2012 onward – including a moratorium on cer- tain offshore projects and shifts to an auction model – undermined their investments. In a notable procedural development, Germany obtained a ruling from the Higher Regional Court of Berlin declaring the arbitration initiated by Mainstream inadmissible. The decision, issued in April 2022, emphasised that the dispute resolution framework under the ICSID Convention constitutes a self-con- tained legal system. Consequently, the Berlin court held that Section 1032 (2) of the German Code of Civil Procedure (ZPO), which governs applications to state courts on preliminary objections to arbitration, does not apply to ICSID proceedings. Conversely, in September 2022, the Higher Regional Court of Cologne reached a different conclusion in two ICSID cases brought by German investors against the Netherlands. It found those arbitrations inadmis- sible under Section 1032 (2) ZPO, reasoning that the arbitration clause in Article 26 of the ECT was incom- patible with EU law. In support of its decision, the court explicitly cited the CJEU’s Achmea and Kom- stroy rulings.
Appeals were lodged in all three cases before the Ger- man Federal Court of Justice (BGH), which issued a consolidated decision on 27 July 2023. The Federal Court endorsed the Cologne court’s interpretation, affirming that intra-EU investor–state arbitration claus- es referring disputes to ICSID tribunals contravene EU law and are therefore inadmissible and unenforceable under German procedural standards. This jurisprudence signals a clear trajectory: German courts are very unlikely to recognise or enforce intra- EU arbitral awards, regardless of whether the pro- ceedings were conducted under the ICSID Conven- tion or alternative arbitral frameworks. However, this is not expected to affect the enforcement of investment awards involving non-EU parties. At the same time, German courts have shown restraint in intervening in enforcement efforts pursued outside the EU. This was illustrated by the Regional Court of Essen’s decision in a case concerning the enforce- ment of the RWE Innogy v Spain award in the United States. Spain sought an injunction to prevent enforce- ment of the intra-EU award abroad, arguing its incom- patibility with EU law. The Essen court declined to grant the relief, citing principles of state sovereignty and territorial jurisdiction, which it found would be undermined by interfering with proceedings in a for- In 2020, Germany moved towards the coal exit, anoth- er pillar of German climate policy. It passed the Coal- Fired Power Generation Termination Act ( Kohleauss- tiegsgesetz ), a landmark law to phase out coal-fired electricity generation by 2038. Germany provided for compensation schemes, particularly for operators of lignite (brown coal) mines and plants. Meanwhile, investors of newer coal plants claimed that they were left with “stranded assets”. eign jurisdiction. Coal Phase-Out This policy shift has similarities with Germany’s nucle- ar exit in the wake of the 2011 Fukushima accident that prompted the second ICSID claim against Ger- many and sparked public debate over the legitimacy of ISDS. Germany’s government imposed acceler- ated shutdowns of all nuclear reactors. Vattenfall, a Swedish energy company that co-owned two German
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