A private investor is challenging the imposition of a windfall tax on its by two EU Member States, including Denmark, as a secondary of applicable EU secondary law, before an arbitral tribunal under the International Centre for Settlement of Investment Disputes (ICSID), under the World Bank Group.
The Klesch Group, the owner of the Kalundborg refinery, have launched ICSID proceedings against Denmark, and an arbitral tribunal has been formed.
The case
The private investor – The Klesch Group – have initiate international arbitration proceedings against Denmark before the International Centre for Settlement of Investment Disputes (ICSID), under the World Bank Group.
The case is ICSID Case No. ARB/23/48), Klesch Group Holdings Limited, Klesch Refining Denmark A/S and Kalundborg Refinery A/S v Denmark. The applicant has assets in Denmark as the owner of the Kalundborg refinery.
The Klesch Group has also taken proceedings against Germany (ICSID Case No. ARB/23/49) and EU (ICSID Case No. ARB(AF)/23/1).
When the proceedings against Denmark, Germany, and the EU are taken together. The Klesch Group is seeking to recoup apporximately €95m (approx. 700m DKK).
This is the second time Denmark has been the the subject of ICSID proceedings. The previous proceedings did not reach the stage of an arbitral award, and was concluded.
The applicable law
The applicable law is an international agreement, the Energy Charter Treaty (ECT), a multilateral treaty from 1994 that promotes and protects foreign investment in the energy sector.
Denmark is a Contracting Party to this treaty. It signed it in 1994, ratified and deposited it in 1997, and entered into force in 1998.
Also relevant is the ICSID Convention, and the ICSID Arbitration Rules of 2022.
The pleas
Like all EU Member States, Denmark has imposed a ‘windfall profits tax’ on companies in the energy sector in accordance with Regulation 2022/1854. In several jurisdictions, legal challenges have followed.
The pleas put forth by the Klesch Group before the ICSID tribunal are not public as the proceedings are ongoing. But it is likely that in this case, and from what is known about pleas in other legal forums, such parties are claiming that the taxation imposed is incompatible with several legal treaties on the basis of breaching the principle of non-discrimination.
Before the ICSID tribunal rules on the lawfulness of the taxation imposed by Denmark, it is likely the Court of Justice of the European Union (CJEU) will decide the matter, given the case referred to it by a national court in Case C.533/24, Vermilion Energy. That referral is public. The judgment of the CJEU in that case will in effect settle the EU law issues before the ICSID tribunal.
More on the case
The procedural following of ICSID Case No. ARB/23/48), Klesch Group Holdings Limited, Klesch Refining Denmark A/S and Kalundborg Refinery A/S v Denmark can be tracked here.