As countries have been grappling with the pressing need for energy transition and climate change actions, the case of Rockhopper Exploration Plc, Rockhopper Italia S.p.A. and Rockhopper Mediterranean Ltd v. Italian Republic (ICSID Case No. ARB/17/14) (Rockhopper vs. Italy) exemplifies the challenges faced by states in fulfilling their promises in relation to substantive protections granted to investors under bilateral investment treaties whilst ensuring their climate-related commitments are being met. The dispute in this case arose between Rockhopper Exploration plc and other related claimants (collectively, Rockhopper) and Italy, when Italy denied Rockhopper’s application for a production concession for the Ombrina Mare Oil Field. The tribunal rendered an award in favour of Rockhopper under the Energy Charter Treaty (ECT) and ordered the government of Italy to pay damages amounting to approximately €190 million plus interest.  

Background 

In August 2014, Rockhopper Exploration plc (Rockhopper Exploration), a UK-based company, acquired Mediterranean Oil & Gas plc (MOG) and its wholly owned subsidiary Medoilgas Italia S.p.A. (Medoilgas Italia). The acquisition also included the onshore and offshore interests that MOG owned in Italy with one such right being that to explore and develop the Ombrina Mare Field.  

The exploration permits for the field were granted in May 2005 to MOG for a duration of six years and presence of oil was confirmed in 2008. Subsequently, MOG applied for a production concession and while administrative procedures and approvals were pending, certain protests emerged from local communities opposing the application, which soon turned into a national concern. In turn, this led the government of Italy to enact Law No. 128 in 2010, which prohibited all new oil and gas drilling projects within 12 miles of the Italian coastline.  

In 2012 an exception was made to the 2010 law, (by way of Law No. 83 of 2012) which meant that the prohibition would not apply to applications for production concession that were under review at the time of Law No. 128 of 2010. As a result, drilling projects that were pending prior to the entry into force of Law No. 128 would be exempted from this ban, allowing MOG’s application for a production concession to proceed. However, persistent public protests and political tensions led Italy to pass a new law in 2015 (Law No. 208), which led to the removal of the exception which otherwise applied to MOG’s pending concession. 

After acquiring MOG in 2014, Rockhopper Exploration resumed the application process, and had already received approvals from the Italian Ministry of Environment for its Environmental Impact Assessment. Rockhopper Exploration then applied for a final exploitation authorisation, when Law No. 208 was enacted in 2015. This led to Rockhopper Exploration's application being rejected by Italy. 

In response, Rockhopper initiated arbitration proceedings against Italy in April 2017, under the auspices of the International Centre for Settlement of Investment Disputes (ICSID), alleging that Italy had breached its obligations under the ECT. [1] 

A crucial aspect of this case has been the application of the ECT’s sunset clause. Even though Italy had withdrawn from the ECT effective from 1 January 2016, Rockhopper was able to pursue its claims in 2017 given that Article 47(3) of the ECT allows the ECT’s protections to remain in force for a period of 20 years after withdrawal, so long as the investments in respect of which such protection is claimed were made prior to the withdrawal. As Rockhopper’s investments were made in 2014 (i.e. prior to Italy’s withdrawal from the ECT), they benefited from the ECT’s regime until 2036.[2] While the tribunal did not address the sunset clause directly in the case, its decision was based on the protection provided under the ECT to Rockhopper’s investments. 

Award 

In its award, the tribunal declared that it had jurisdiction to decide this dispute under the ECT and ICSID Convention and denied the preliminary objections of the respondent in this regard. 

On the merits, the tribunal also declared that Italy had violated its obligations under Article 13 of the ECT (the obligation not to unlawfully expropriate the claimant’s investment).  

Accordingly, Italy was ordered to pay compensation to Rockhopper of approximately €190 million.[3]

Key Issues 

The key issues before the tribunal were the following: 

Intra-EU Jurisdictional Challenge: 

• In its jurisdictional challenge, Italy argued that Article 26 of the ECT cannot provide jurisdiction between nationals of one EU member state and another EU member state. Relying on the judgment of the Court of Justice of the EU (CJEU) in the Achmea case, [4] Italy contended that arbitration clauses contained in intra-EU investment agreements were not compatible with EU law: upholding such dispute resolution provisions would jeopardise the integrity of EU law. 

• The tribunal, rejecting Italy’s argument, established that the Achmea judgment should be confined to the specific bilateral investment treaty (BIT) in that case, further stating that the ECT was different from intra-EU bilateral investment treaties, particularly given that, in the case of the ECT, the EU itself and EU member states were separate contracting parties.  

• Italy also argued that the dispute could not be submitted to the tribunal under the “fork-in-the road” principle contained in the ECT as Rockhopper had already requested satisfaction on the same grounds before the domestic courts. As such, the “fork-in-the road” provisions under Article 26(2) and (3) of the ECT which states that the claimant investor must make a choice between the host state’s domestic courts or international arbitration to pursue their claims applied.  

• The tribunal did not find Italy’s argument here to be persuasive, explaining that the domestic litigation and the current dispute were different in nature. The issue in that litigation was based on a requirement to obtain an integrated environmental authorisation (AIA) which differed from the issue before the arbitration tribunal, which concerned Italy’s rejection of the production concession.  

Breach of ECT Article 13 through Unlawful Expropriation 

• On the merits, Rockhopper advanced claims for unlawful expropriation, impairment of investment and fair and equitable treatment (FET), contending that their investment in Italy enjoyed the protection of the ECT and was within the definition “investment” under the Treaty.  

• The tribunal found that Italy had unlawfully expropriated Rockhopper’s investment when it denied the application for production concession in January 2016 without prompt compensation being paid.  

• The Tribunal did not consider Rockhopper’s other claims (i.e. regarding FET and Impairment) reasoning that it was unnecessary to do so, given its finding of unlawful expropriation.  

Conclusion  

This case is but one recent example which highlights the need for states to carefully consider their treaty obligations when adopting measures that effectively abandon extant policies and concessions in relation to the energy sector. It also illustrates the practical and legal difficulties governments face in attempting to usher in the energy transition. On the other hand, from the perspective of investors, international arbitration remains a robust mechanism to safeguard rights and obtain remedies in relation to energy-related measures that are adopted in breach of investment treaty obligations. While this has led to more contracting parties (i.e. Germany, Spain, Poland, Portugal, etc.) notifying their withdrawal from the ECT due to concerns related to climate change, the modernisation of the ECT, which places emphasis on sustainability commitments and the states’ right to regulate to safeguard the environment, looks to rebalance these competing policy interests.[5]

[1] Rockhopper Exploration Plc, Rockhopper Italia S.P.A and Rockhopper Mediterranean Ltd. v. Italian Republic, ICSID Case No. ARB/17/14 Final Award, (23 August 2022)

[2] Energy Charter Treaty (entered into force on 16 April 1998) (ECT) Art. 47(3)

[3] bid (n-1) para 335

[4] Case C-284/16, Slowakische Republik (Slovak Republic) v. Achmea BV [2018] EU:C:2018:158 

[5] Clément Bonnechère, ‘Amendments to the Energy Charter Treaty’ (Ciarb, 29 January 2025)

Srishti Chawla ACIArb is currently working at Ciarb as an International Arbitration Professional Practice Intern. She holds an LLM in International Dispute Resolution from King’s College London and a BBA LLB integrated degree from Vivekananda Institute of Professional Studies in New Delhi. She is passionate about international commercial and investment arbitration.