The dispute concerned Claimant and Additional Party’s assertion that the December 2010 transaction by which they purchased EDFI’s stake in EnBW involved an element of State aid in violation of European law. Claimant and Additional Party claimed that they were entitled to recover the alleged State aid element from EDFI, or that alternatively, on this basis, the Tribunal should order Respondent to pay over €4.6 billion to Claimant and Additional Party and reassign the EnBW shares.  In another alternative, Claimant and Additional Party asserted that the entire transaction should be determined null and void and launched arbitration proceedings in early 2012 seeking to rely on European and German laws. 

The claims against Respondent EDFI were principally grounded on a breach of the State aid provisions contained in Articles 107 and 108(3) of the Treaty on the Functioning of the European Union (TFEU).  Claimant and Additional Party alleged that in accordance with with Article 108(3) TFEU, the European Commission should have been notified of the December 2010 transaction, which in their view contains State aid as defined in Article 107 TFEU. Respondent contended that the purchase price did not contain State aid.

In rejecting Claimant and Additional Party’s claim, a majority of the Arbitral Tribunal’s members concluded that the December 2010 transaction did not contain State aid.  As a result, they concluded that the European Commission did not have to be notified of the December 2010 transaction and that Claimant and Additional Party’s claims should be dismissed.  Claimant’s party-appointed arbitrator Karl-Heinz Böckstiegel disagreed in a partial dissent and concluded that the transaction contained State aid and therefore the European Commission should have been notified.

Notwithstanding the Arbitral Tribunal’s lack of unanimity as to whether the transaction contained State aid, the full Arbitral Tribunal concluded that Claimant and Additional Party’s claims would have to be dismissed even if it had reached the conclusion that the purchase price contained State aid. The Arbitral Tribunal noted that Claimant and Additional Party undertook in the relevant Share Purchase Agreement (SPA) to comply with applicable laws, according to which Claimant was responsible for seeking necessary notifications and approvals.  In light of Claimant and the Additional Party’s contractual undertakings and legal opinions provided to Respondent setting out further assurances regarding compliance with applicable laws, the Arbitral Tribunal unanimously concluded that Claimant and Additional Party failed to fulfill their duty to meet their contractual obligations. 

Specifically, Claimant and Additional Party based their claims on their own failure to notify the European Commission of the December 2010 transaction.  In other words, they sought to exercise a legal right based on conduct contrary to their duty to comply with the contractual obligations set out in the SPA. The Arbitral Tribunal reasoned that the same entity cannot invoke its own failure in order to create a legal remedy in detriment to its contractual partner. Therefore, it concluded that under German law, Claimant and Additional Party’s recovery claims should be dismissed because they contradicted the contractual obligations as well as the principle of good faith.

Furthermore, the Arbitral Tribunal also concluded that Claimant and Additional Party’s reliance on European law was in contradiction to good faith and amounted to an abuse of the provisions of European law. The Arbitral Tribunal observed that “the State of Baden-Württemberg uses the provisions of European law for the sole purpose of reducing an agreed price and for obtaining the shares at a price which the seller had not agreed and at which the seller clearly had said it would not sell” and that the conduct of the Land was “a clear attempt to abuse the European regulation of State aid.”  The Arbitral Tribunal also noted that Claimant and Additional Party have “invoked European competition law as a false pretext” and that “European law cannot be a rescue solution for Claimant and Additional Party, in order to obtain reimbursement of a purchase price that they consider too high.” 

Therefore, the Arbitral Tribunal decided unanimously that Claimant and Additional Party’s claims would have been dismissed had the obligation to notify the transaction been admitted.

During the arbitration, EDFI filed counterclaims seeking damages of €24.8 million (plus interest) based on the Land’s pursuit of a negative media campaign against EDF’s brand and image.  The Arbitral Tribunal agreed that Claimant and Additional Party had breached their contractual obligations under the SPA not to make press releases or other public announcements concerning the December 2010 transaction without the approval of Respondent. However, the Arbitral Tribunal dismissed the counterclaims on the ground that Respondent did not show it was damaged by the relevant media reports.

Considering that “these proceedings are an abuse of European regulations on State aid for the purpose of gaining a financial advantage,” a majority of the Arbitral Tribunal determined that “a very substantial part of the arbitration costs must be borne by Claimant and Additional Party.”  In sum, the majority determined that Claimant and Additional Party shall bear 75 percent and Respondent shall bear 25 percent of the arbitration costs, and ordered Claimant and Additional Party to pay to Respondent €4 million of its legal fees and costs, plus interest. Taking into account his partial dissent on the issue of State aid, Karl-Heinz Böckstiegel noted that he would have considered it appropriate for each side to bear 50% of the arbitration costs and its own legal fees and costs.

Lead Counsel for EDFI, commented, “The Tribunal’s well-considered decision confirms the propriety of EDFI’s conduct in the sale of EnBW. This decision shows that the Land of Baden-Württemberg’s claims were nothing more than an instrumentalization of the arbitral process to seek reduction of an agreed transaction price based on the false pretext of a breach of European law.”

EDFI was represented in the arbitration by Shearman & Sterling, as lead counsel. The Shearman & Sterling team included counsel Daniel Reich in Paris.