This document is a partial dissenting opinion by Arbitrator Zachary Douglas KC in the ICSID arbitration between Mathias Kruck and Others and the Kingdom of Spain. The dissent challenges the majority's finding that Spain breached the Fair and Equitable Treatment (FET) standard under Article 10 of the Energy Charter Treaty (ECT) by altering its renewable energy regulatory framework.

Dissent on the Standard for Legitimate Expectations

The core of the dissent addresses the proper legal test for a breach of legitimate expectations. Professor Douglas argues that the majority erroneously adopted a strict liability standard, treating Spain's public regulation (Royal Decree 661/2007) as analogous to a private law contract. He contends that this approach is fundamentally flawed, as it ignores the inherent distinction between a state's sovereign power to regulate in the public interest and a private party's contractual commitments.

Professor Douglas posits that the doctrine of legitimate expectations, to be a valid component of the FET standard, must be interpreted by reference to general principles of law found in major legal systems. A survey of comparative law, particularly EU law, reveals that liability for regulatory changes is invariably fault-based. It requires a balancing of the public interest against the investor's frustrated expectations and typically involves a high threshold, such as a finding of manifest disproportionality, abuse of power, or a sufficiently serious breach of law. The majority's strict liability approach, which renders the state's public policy justifications irrelevant, creates a unique and unsupported no-fault compensation scheme for foreign investors.

Analysis of the Factual Basis for Expectations

The dissent further argues that, on the facts of the case, the Claimants could not have had a legitimate expectation that the subsidy regime was immutable. Professor Douglas reasons that the Spanish legal framework, including the superior Law 54/1997, always contemplated that the regulatory regime would be adjusted to ensure a 'reasonable rate of return' and respond to changing market conditions. He points to the legislative history, which included the repeal of a prior, similar regime (RD 436/2004), and Spanish Supreme Court jurisprudence, which had explicitly rejected the notion that the regulatory framework was unchangeable. The stability provision in Article 44(3) of RD 661/2007 provided only 'micro-stability' against periodic internal adjustments, not 'macro-stability' against a wholesale repeal of the decree if its underlying assumptions became untenable.

Conclusion and Proposed Alternative

Professor Douglas concludes that the Claimants had no legitimate expectation of immutability and that Spain's actions were a reasonable and pragmatic response to an unsustainable economic situation. He suggests that proportionality, as a standalone general principle of law, may be a more coherent analytical tool than legitimate expectations for such cases. This would focus the inquiry on whether the regulatory measures imposed a disproportionate burden on the investor, with a key consideration being whether the investment continued to earn a reasonable rate of return. Accordingly, he dissents from the majority's decision on both liability and the principles of quantum.