Energy companies must engage communities earlier to avoid lawsuits

Energy companies need to take steps to engage local communities affected by energy projects at an earlier stage to reduce the risk of environmental lawsuits, attendees at a British Embassy event in Madrid heard this week


Eversheds partner Richard Little said there was a growing realisation on the part of energy companies that they need to engage with local communities affected by energy projects sooner and get them on side.

“Companies need to engage much earlier so that local communities support their projects and perhaps establish community funds, as has happened in some cases in the UK,” he said.

Little added that the recent increase in the number of environmental claims brought against global energy companies was due to the fact there was now an increased awareness of environmental issues.

“If companies discuss and address any local community concerns at the outset, this would reduce the possibility of claims being brought,” he said.

Little was one of the attendees at a roundtable discussion on energy related legal issues hosted by the British Embassy and presided over by the Lord Mayor of the City of London Alderman Fiona Woolf and the British Ambassador to Spain Simon Manley. Participants included representatives from Acciona Energía, Endesa, Eon, GDF Suez, and Iberdrola.

Little also said there was some concern among Spanish companies about recent regulatory changes and there was discussion at the roundtable about potential legal challenges being made under the Energy Charter Treaty. The treaty aims to strengthen the rule of law on energy issues by creating a level playing field by establishing rules to be observed by all participating governments, thereby mitigating risks associated with energy-related investment and trade.

“A challenge under the treaty does not provide a certain outcome – it is the retrospective effect of the changes, unlike the route taken in UK, for example, that is a key driver of the formulation of potential claims”

María Pilar García Guijarro, partner at Watson Farley Williams and head of the firm´s Madrid office, said that because Spanish investors cannot file claims against the Spanish government under the Energy Charter Treaty – which only protects foreign investors – they instead have the option of Spanish tribunals.

But she added: “The jurisprudence of the Spanish Supreme Court on the matter basically maintains the the Spanish government is sovereign and can change laws in certain circumstances.”

The benefits and drawbacks of arbitration was also discussed by participants in the roundtable. García Guijarro said: “Arbitration can be more convenient if there is an international component – it means foreign investors are not at a disadvantage from domestic parties.” She added: “There is a cost component, arbitration can be more expensive, but also time wise it can be quicker. Moreover, energy projects are technologically complex and a panel of arbitrators expert in the field may understand energy technically complex matters in greater detail.”