Procedural Background

This document is a Decision on Annulment issued by an ICSID ad hoc Committee concerning the Award dated 29 September 2022 in the arbitration between Cavalum SGPS, S.A. and the Kingdom of Spain. Both parties filed applications for annulment pursuant to Article 52 of the ICSID Convention. Cavalum sought partial annulment of the Tribunal's damages framework, while Spain sought full annulment of the Award, challenging both the Tribunal's jurisdiction and its findings on liability.

Principal Legal Issues and Parties' Positions

Cavalum sought partial annulment under Article 52(1)(b) (manifest excess of powers) and Article 52(1)(e) (failure to state reasons). Cavalum argued that the Tribunal manifestly exceeded its powers by assessing damages based on the actual costs of Cavalum's specific plants rather than utilizing an efficient "standard plant" metric, which Cavalum alleged was the undisputed regulatory standard in Spain. Spain sought full annulment on the same statutory grounds, contending that the Tribunal failed to apply EU law. Specifically, Spain argued that the Tribunal manifestly exceeded its powers by upholding jurisdiction over an intra-EU dispute in contravention of the CJEU's Achmea and Komstroy judgments, and by failing to apply EU State aid rules to defeat Cavalum's legitimate expectations on the merits.

Committee's Analysis and Findings

The Committee dismissed both applications in their entirety. Addressing Cavalum's application, the Committee found no manifest excess of powers, determining that the Tribunal's reliance on actual investment costs was a tenable application of the international law of damages, specifically the Chorzów Factory principle of full reparation. The Committee concluded that the Tribunal did not depart from any clear agreement between the parties and provided intelligible reasons for its methodology.

Regarding Spain's application, the Committee held that the Tribunal's interpretation of the Energy Charter Treaty (ECT) and the ICSID Convention was tenable. The Committee noted that the Tribunal had expressly considered the Achmea and Komstroy judgments but concluded they did not deprive it of jurisdiction under international law. The Committee emphasized that an arguable misinterpretation of the applicable law does not constitute a manifest excess of powers. Furthermore, the Committee found that the Tribunal adequately addressed EU State aid law as a factual element in its assessment of legitimate expectations, and its refusal to apply EU law to defeat jurisdiction or liability was sufficiently reasoned and not censorable under Article 52.

Operative Decision

The Committee dismissed both Cavalum's and Spain's applications for annulment. In allocating costs, the Committee determined that as both parties were partially successful in defeating the other's application, each party shall bear its own legal fees and expenses. The costs of the proceedings, including ICSID administrative fees and the Committee's expenses, were apportioned such that each party bears the costs associated with its respective application. Finally, the Committee terminated the provisional stay of enforcement of the Award.