Sovereignty Ends Where Broken Promises Begin -By Fransiscus Nanga Roka

The US Supreme Court did not simply kick Spain to the curb and laugh @ the vagaries of pleadings. A geopolitical warning shot: sovereign immunity is no protection for states rewriting the rules at investor expense.

The discourse on the Spanish renewable energy saga is dominated by how it’s a story of fiscal necessity. Madrid announced generous subsidies in 2007 to attract international investment into green energy. Investors, predictably rational and ballsy on larger scales, came. Then, in 2013, the government did a dramatic about-face, cutting subsidies and adding new production taxes. The unspoken message was deafening: yesterday’s promises are merely a loose change when today’s budget comes under pressure.

Investors engaged in all that international law now allows. They sued. In fact, it was only with the Energy Charter Treaty (ECT) arbitration panels that held Spain liable for breach of its obligations and ordered compensation billions, yes have billed industrial scale which is part of millions in damages.

Spain’s response was perhaps more predictable but very much more worrying. It refused to pay.

Instead, Madrid built up a legal defense that is close to a perilous doctrine: that states may use sovereign immunity and regional legal order (in this instance, EU law under Judgments Achmea and Komstroy) to invalidate international obligations when compliance proves its way too challenging for nationals. In short, Spain contended that the sovereignty established through EU membership prevails over those very commitments, innaed in treaty form, made to lure foreign investment into its territory in the first place.

US courts have tend not to view this as convincing. The Supreme Court declined to intervene after lower courts rejected Spain’s claims of immunity. That silence is deafening. It preserves a legal route that enables investors to automatically take over Spanish state assets in the United States in order to enforce arbitral awards.

For that reason, this is not only a Spanish problem. It is a stress test on the global investment regime written in systemic terms.

If Spain had emerged victorious, the consequences would have been grave. Any state could entice investors with uniform regulatory frameworks, then backtrack and use perverse domestic or regional legal reasons to be free from responsibility. Investment treaties will be reduced to political theater—committed until they are not.

The Court’s decision to not hear the case serves as an indirect affirmation of another principle: that assent to binding arbitration is no mere symbol. It comes with repercussions, even for sovereigns.

Critics will claim that this is a violation of democratic governance. Governments, it argues, have to be able to change course, especially in something so unpredictable as energy. That is true. Flexibility does not mean a licence to damage the economy without recompense. If you agree to something and if it costs you nothing to rewrite the commitment, well then domestic or international rule of law collapses.

There is also a deeper irony. Earlier Spanish Policy Was Meant To Speed Up The Green Transition But by breaking promises, it has created a long-term cloud over the very cross-border investing that energy transitions need. What investors fear is not policy change, they fear arbitrary change.

This is not the real clash between US courts and EU law. It stands in between two visions of legal order. Is one where rather than treating international commitments as non binding constraints, The others treat them as instruments of a negotiated politics.

There was no opinion wrote by the Supreme Court. It did something even more significant: It declined to bailout a state from outcomes of its own pledges.

And in doing so, it gave a warning that should alarm cities well beyond Madrid: if you open up your country to international capital sous l’enseigne de la légalité guaranteed, be careful, if you’re lying the court can be anywhere.

Faculty of Law University 17 August 1945 Surabaya and Managing Partner Law Firm Victorious Indonesia