Procedural Background and Annulment Application

This document is the Decision on Annulment issued by an ad hoc Committee constituted under the ICSID Convention. The Kingdom of Spain (the "Applicant") sought the full annulment of the Award rendered on 21 January 2020 in the arbitration proceedings initiated by Watkins Holdings S.à r.l. and other investors (the "Claimants"). The underlying dispute arose from Spain's reforms to its renewable energy regulatory framework, which the arbitral tribunal found to be a breach of the Fair and Equitable Treatment (FET) standard under the Energy Charter Treaty (ECT), awarding the Claimants €77 million in damages.

Spain advanced three grounds for annulment under Article 52(1) of the ICSID Convention: (b) manifest excess of powers by the tribunal; (e) failure to state the reasons on which the Award is based; and (d) a serious departure from a fundamental rule of procedure.

Committee's Analysis of Annulment Grounds

On the ground of manifest excess of powers, Spain argued that the arbitral tribunal lacked jurisdiction over an intra-EU dispute, contending that EU law, as reinforced by the Court of Justice of the European Union's (CJEU) judgments in Achmea and Komstroy, precluded arbitration under the ECT. The Committee rejected this argument, finding that the tribunal had correctly identified the ECT and public international law as the basis for its jurisdiction. The Committee held that the tribunal's decision was reasonable and that it had not manifestly exceeded its powers by declining to give primacy to EU law over the ECT in an ICSID context. The Committee also found no evidence of an implicit "disconnection clause" that would exclude intra-EU disputes from the ECT's scope.

Regarding the alleged failure to state reasons, Spain challenged the adequacy of the Award's reasoning on the applicable law, liability, and quantum. The Committee conducted a thorough review and, while noting some brevity and stylistic issues in the Award's drafting, concluded that the tribunal's reasoning was sufficiently clear, logical, and comprehensible to be followed. It found that the tribunal had provided adequate justification for its key determinations, including its findings on legitimate expectations, the breach of the FET standard, and its choice of the discounted cash flow (DCF) method for calculating damages. The Committee characterized a computational error related to a 7% tax (TVPEE) as a mistake rather than a failure to state reasons, emphasizing that the annulment process is not an appellate review for correcting such errors.

Finally, on the alleged serious departure from a fundamental rule of procedure, Spain claimed a violation of its right to be heard and improper treatment of evidence. The Committee found no basis for this claim, holding that the tribunal's procedural and evidentiary rulings were within its discretion and that Spain had been afforded a full and fair opportunity to present its case. There was no evidence of partiality or a breach of due process.

Decision and Costs

The ad hoc Committee unanimously dismissed Spain's application for annulment in its entirety. Consequently, the Committee lifted the stay of enforcement of the Award. It ordered that each party bear its own legal costs and that the costs of the annulment proceedings be shared equally between the parties.