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INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES

In annulment proceedings between

CAVALUM SGPS, S.A.

Applicant/Respondent

and

KINGDOM OF SPAIN

Applicant/Respondent

ICSID Case No. ARB/15/34

DECISION ON ANNULMENT

Members of the ad hoc Committee
Judge Dominique Hascher, President
Prof. Fernando Cantuarias Salaverry, Member
Prof. Dr. Yannick Radi, Member

Secretary of the ad hoc Committee
Mr. Marco Tulio Montañés-Rumayor

Date of dispatch to the Parties: 23 December 2025

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REPRESENTATION OF THE PARTIES

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TABLE OF ABBREVIATIONS/DEFINED TERMS

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I. INTRODUCTION AND PARTIES

1. This decision concerns two applications for annulment of the award rendered on 29 September 2022 (“Award”)¹ in the arbitration proceeding ICSID Case No. ARB/15/34 between Cavalum SGPS, S.A. and the Kingdom of Spain (“Arbitration”).

2. The Award decided on a dispute submitted to the International Centre for Settlement of Investment Disputes (“ICSID” or the “Centre”) based on the Energy Charter Treaty (“ECT”) and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“Convention”).

3. Cavalum SGPS, S.A. is referred to as “Cavalum” or the “Claimant.” The Kingdom of Spain is referred to as “Spain.” Cavalum and Spain are collectively referred to as the “Parties.”

II. SUMMARY OF THE AWARD

4. The Award was rendered by a tribunal composed of Lord Collins of Mapesbury, LL.D., F.B.A., (President); Mr. David R. Haigh K.C; and Sir Daniel Bethlehem K.C. (“Tribunal”).

5. The Award incorporates the Decision on Jurisdiction and Liability and Directions on Quantum issued on 31 August 2020 (“Decision”).² In the operative part of the Decision, the Tribunal

(1) [...] declares that it has jurisdiction over the Claimant’s claims, except for its claim that the TVPEE violates Article 10(1) ECT.

(2) The Tribunal, by majority[³], declares that by enacting and applying the New Regulatory Regime, Spain has undermined the Claimant’s legitimate expectations implicit in the FET obligation in Article 10(1) to

¹ The Award was supplemented by the Tribunal’s Decision on the Respondent’s Request for a Supplementary Decision, dated March 8, 2023. ↩

² Award, ¶ 5. ↩

³ Mr. Haigh dissented. ↩

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the extent (if any) that the return on its investments in the plants falls short of a reasonable return by reference to the cost of money in the capital markets and, to that extent also, breached the obligation of stability in Article 10(1) ECT. [footnote omitted]

(3) The Parties are directed to endeavour to agree within 28 days of notification of this Decision (or such later date as may be agreed or directed) a timetable for reaching agreement on (a) a post-tax reasonable rate of return based on WACC as at 30 June 2014; (b) agreed post-tax IRRs for the Claimant’s plants; and (c) to the extent that (b) falls short of (a), the compensation which would be due from Spain to the Claimant.

(4) The timetable shall include the provision to the Tribunal within 28 days thereafter (or such later date as may be agreed or directed) by the experts of a Joint Memorandum indicating the areas of agreement, and (if any) the areas of disagreement, together with reasons, and any proposals for a procedural timetable for further submissions thereon. The Joint Memorandum shall include a Joint Model to enable the Tribunal to make the necessary calculations flowing from its determination of disputed issues.

(5) The Parties shall notify the Tribunal, upon expiry of the 28 day period from notification of this Decision, of the agreed timetable, which shall also include provision for one round of submissions by the Parties on the remedy for breach (if any) of the stability obligation in Article 10(1) ECT.

(6) If the remuneration of the Claimant’s plants falls short of a reasonable post-tax return in the PV sector, the Claimant will be entitled to EUR 1.8 million in compensation in respect of its expenditure on its interest in the Abandoned Projects (Fotovoltaica Lobon, Solar Lobon, and Solar Botoa).

(7) The Tribunal dismisses the Claimant’s claims under Article 13(1) ECT.

(8) Costs are reserved to the Award.⁴

6. In the Award, the Tribunal ordered Spain to pay to the Claimant

(2) [...] by way of compensatory damages an amount of €7.4 million, being €5.6 million for the two plants which do not achieve a reasonable rate of return, and €1.8 million for the Abandoned Projects.

(3) [...] interest on the amount of €5.6 million at the 1-year Euribor rate, plus 1%, established and compounded annually, payable from 30 June 2014 to the date of actual payment.

⁴ Decision, ¶ 706. ↩

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(4) [...] interest on the amount of €1.8 million at the 1-year Euribor rate, plus 1%, established and compounded annually, payable from 27 January 2012 to the date of actual payment.

(5) [...] an amount of €1.5 million towards the Claimant’s legal fees, together with interest at the 1-year Euribor rate, plus 1%, established and compounded annually, from the date of notification of this Award until the date of actual payment.⁵

7. In the sections below, the Committee provides excerpts of the Decision (A) and the Award (B) that are relevant to the Parties’ arguments in the annulment proceedings.

A. DECISION

(1) Background

8. The Decision’s Section II.J named “Post-Hearing Procedures” provides that:

67. On March 12, 2020, Spain submitted its comments on RDL 17/2019, and introduced the Final Award rendered on 28 February 2020 in The PV Investors v. Spain (PCA Case No. 2012-14), along with the Dissenting Opinion of Charles Concurring and Dissenting Opinion of Charles N. Brower [sic], Legal Authorities RL-0100 and RL-0101. [“PV Investors award”]

68. On 13 March 2020, the EC submitted a communication concerning a Decision by which “it authorizes the measures adopted in the Spanish legislation in 2013 and 2014 as State aid”, which in its opinion “directly affects the legal assessment” of the current proceeding.

69. On 6 April 2020, the Claimant submitted its comments on the PV Investors Final Award, and copies of the Preliminary Award on Jurisdiction issued in the same case on 13 October 2014. [“Cavalum’s Comments on PV Investors”]

70. On 20 April 2020, Spain submitted its comments on the PV Investors Final Award.

(2) Jurisdiction

9. Section VIII.A(1)(a) of the Decision introduces the Tribunal’s reasoning on jurisdiction regarding “[t]he Intra-EU Issue” as follows:

301. Spain and the Commission contend (in summary) that the Tribunal has no jurisdiction because (1) the ECT does not apply to the relationship

⁵ Award, ¶ 282. ↩

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between EU Member States; (2) even if it did create inter se obligations between EU Member States, those obligations would not include the provisions on investment protection and dispute settlement; (3) EU law forbids the existence of any dispute mechanism other than that established by the EU Treaties; and (4) in the event of a conflict between EU law and the provisions of the ECT, EU law prevails. [footnote omitted]

302. Since the initial pleadings in this case the CJEU has given its ruling in the Achmea ruling [“Achmea Judgment” or “Achmea”]. The operative part of the ruling was:

Articles 267 and 344 TFEU must be interpreted as precluding a provision in an international agreement concluded between Member States, such as Article 8 of the Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Czech and Slovak Federative Republic, under which an investor from one of those Member States may, in the event of a dispute concerning investments in the other Member State, bring proceedings against the latter Member State before an arbitral tribunal whose jurisdiction that Member State has undertaken to accept. [footnote omitted]

303. The Achmea ruling will be analysed below, but at this stage it is important to notice that the ruling was given in proceedings relating to a BIT and that the operative part was expressed to apply to “an international agreement..., such as” the relevant provision of the BIT, and there is an important question as to whether it applies to a multilateral treaty to which the EU and its Member States, together with many other States, are parties.

304. The Claimant says that: (1) the Achmea ruling has no effect on these proceedings because the Tribunal applies international law and not EU law; (2) in any event, its scope is limited to BITs (with an express reference to the law of the Contracting Parties) and it does not apply to multilateral agreements such as the ECT, to which the EU is a party; and (3) this Tribunal should follow the many other decisions of arbitral tribunals under BITs and the ECT which have refused (both before and after the Achmea ruling) to accept the intra-EU objection as depriving them of jurisdiction. [footnote omitted]

307. The principal question is whether (as Spain and the Commission argue) Article 26 ECT generates obligations between the EU Member States, because the Member States of the then European Community were unable to contract obligations between them as regards the Internal Market (because it is an area in which they had transferred competence to the European Community) and for this reason the EU is a Contracting Party to the ECT.

308. Within this main point, that intra-EU disputes are outside the competence of the Tribunal, are the arguments of Spain and the

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Commission that (1) the Achmea ruling applies to multilateral treaties such as the ECT (and the Masdar v. Spain award [footnote omitted] to the contrary is wrong); (2) EU law is international law; (3) EU law is paramount and displaces any other national or international provision; (4) EU law (relevant to issues in the arbitration) applies to claims in the arbitration; (5) the Achmea ruling is binding on the Tribunal because it has to apply EU law.

10. Section VIII.A(1)(b) contains the Tribunal’s reasoning regarding the “Intra-EU Issue – Does Achmea Apply to Multilateral Agreements such as ECT?”:

309. The starting point is the express wording of the jurisdiction and choice of law provisions in the ECT and the ICSID Convention.

310. Energy Charter Treaty: The effect of Article 26.1-3 is that where there arise “Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former” which cannot be settled amicably, the Investor may submit it to a form of dispute resolution including ICSID arbitration “if the Contracting Party of the Investor and the Contracting Party to the dispute are both parties to the ICSID Convention” and in such a case “each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration ... in accordance with the provisions of this Article” (Article 26.3.a), and the tribunal “shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law” (Article 26.6).

311. ICSID Convention: By Article 25(1): “The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally.”

314. With regard to jurisdiction, the combined effect of these provisions on their face is that the Tribunal has jurisdiction where the investor is a national of a Contracting Party and the respondent State is a Contracting Party. Those conditions are plainly fulfilled since Portugal and Spain are ECT Contracting Parties, the Claimant is a Portuguese company, and both Spain and Portugal are parties to the ICSID Convention.

315. So far as choice of law is concerned, the combined effect of Article 42 (1) of the ICSID Convention and Article 26.6 ECT is that the Tribunal, which has jurisdiction under Article 26 ECT, applies, by virtue of Article 26.6 ECT, the ECT Treaty and “applicable rules and principles of international law.”

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318. There are, therefore, three ways in which the Spain [sic] and the Commission can argue that the Tribunal lacks jurisdiction to determine the dispute.

319. The first is to say that, as a matter of construction, the ECT Treaty does not apply to the present dispute. This is the principal basis of the argument that, because of the provisions relating to REIOs, the Tribunal has no jurisdiction because an investment by an EU investor in another EU Member State is not an investment in the “Area” of another Member State for the purposes of Article 26.1 ECT.

320. The second way of putting the argument is to say that EU law is to be applied because (a) it is applicable international law; (b) EU law has primacy; and (c) EU law precludes intra-EU investment disputes from being submitted to extra-EU dispute settlement.

321. The third way (which is a variant on the second) is to say that the ECT dispute settlement provisions are inapplicable because they are inconsistent with EU Treaty obligations and therefore inapplicable by virtue of the [Vienna Convention on the Law of Treaties (“VCLT”)] VCLT or the ECT.

11. Section VIII.A(1)(c) contains the Tribunal’s reasoning regarding the “Intra-EU Issue – The Regional Economic Integration Organization [“REIO”] Point”:

322. The argument of Spain and the Commission is that: (1) the ECT acknowledges the special nature of the EU as an international organisation constituted by States to which they have transferred competence over certain matters: Articles 1.3 and 36.7 ECT; and (2) the effect of the ECT is that in such circumstances relationships between EU Member States are governed by EU law: Articles 1.2 and 1.10 ECT. [footnote omitted]

323. The relevant provisions of the ECT are as follows.

324. By Article 1:

(2) “Contracting Party” means a state or Regional Economic Integration Organization which has consented to be bound by this Treaty and for which the Treaty is in force.

(3) “Regional Economic Integration Organization” means an organization constituted by states to which they have transferred competence over certain matters a number of which are governed by this Treaty, including the authority to take decisions binding on them in respect of those matters.

...

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(10) “Area” means with respect to a state that is a Contracting Party:

(a) the territory under its sovereignty, it being understood that territory includes land, internal waters and the territorial sea; ...

With respect to a Regional Economic Integration Organization which is a Contracting Party, Area means the Areas of the member states of such Organization, under the provisions contained in the agreement establishing that Organization.

325. By Article 25:

(1) The provisions of this Treaty shall not be so construed as to oblige a Contracting Party which is party to an Economic Integration Agreement (hereinafter referred to as “EIA”) to extend, by means of most favoured nation treatment, to another Contracting Party which is not a party to that EIA, any preferential treatment applicable between the parties to that EIA as a result of their being parties thereto.

(2) For the purposes of paragraph (1), “EIA” means an agreement substantially liberalizing, inter alia, trade and investment, by providing for the absence or elimination of substantially all discrimination between or among parties thereto through the elimination of existing discriminatory measures and/or the prohibition of new or more discriminatory measures, either at the entry into force of that agreement or on the basis of a reasonable time frame.

326. The dispute settlement provisions of the ECT apply to “Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former”: Article 26.1 ECT.

327. By Article 36.7 ECT:

A Regional Economic Integration Organization shall, when voting, have a number of votes equal to the number of its member states which are Contracting Parties to this Treaty; provided that such an Organization shall not exercise its right to vote if its member states exercise theirs, and vice versa.

328. The Tribunal considers [footnote omitted] that these provisions do not assist Spain in its objections to jurisdiction. Article 26.1 ECT plainly means that the “investment in the Area of the former,” i.e., the Contracting Party, is an investment in the national territory of the respondent State. The fact that the EU is also a Contracting Party and a “Regional Economic International Organization” does not mean in the context of Article 26.1 that the Area is the territory of the EU as a whole, which would make no sense. Neither can it in itself bar the Tribunal’s

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jurisdiction; nor can the Tribunal’s jurisdiction be removed by the fact that the ECT recognises that competence may be transferred to such an REIO, or the fact that in certain circumstances the Organization may vote instead of the Member States. Article 25 ECT does not prevent REIO members from agreeing to other obligations under a different treaty regime, such as the ECT.

12. Section VIII.A(1)(d) contains the Tribunal’s reasoning regarding the “Intra-EU Issue – Disconnection Clause”:

329. Nor is there anything express or implied in these provisions to support the EC’s argument [footnote omitted] that there is an implied “disconnection clause,” i.e., a provision that disapplies certain provisions of a treaty in mutual relations between certain parties. As the tribunal in RREEF v Spain said: “The purpose of a disconnection clause is to make clear that EU Member States will apply EU law in their relations inter se rather than the convention in which it is inserted ... given that there is no disharmony or conflict between the ECT and EU ... there was simply no need for a disconnection clause, implicit or explicit...” [footnote omitted]

13. Section VIII.A(1)(e) contains the Tribunal’s reasoning regarding the “Intra-EU Issue – EU law, the Achmea Ruling Point, and the VCLT”:

330. The principally relevant provisions of EU law are as follows:

(1) Article 267 TFEU (formerly, with immaterial differences, Article 177 EEC Treaty and Article 234 TEC) ...

(2) Article 344 TFEU (formerly, with immaterial differences, Article 219 EEC Treaty and Article 292 TEC)

(3) Article 351 TFEU (formerly, with immaterial differences, Article 234 EEC Treaty and Article 307 TEC) ...

331. Article 16 ECT provides:

Where two or more Contracting Parties have entered into a prior international agreement, or enter into a subsequent international agreement, whose terms in either case concern the subject matter of Part III [“Investment Promotion and Protection”, which includes Articles 10 and 13] or V [“Dispute Settlement”, which includes Article 26] of this Treaty,

(1) nothing in Part III or V of this Treaty shall be construed to derogate from any provision of such terms of the other agreement or from any right to dispute resolution with respect thereto under that agreement; and

(2) nothing in such terms of the other agreement shall be construed to derogate from any provision of Part III or V of this Treaty or from any

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right to dispute resolution with respect thereto under this Treaty, where any such provision is more favourable to the Investor or Investment.

332. The effect of Article 26.1-3 ECT is that where there arise “Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former” which cannot be settled amicably, then the Investor party may submit it to a form of dispute resolution including ICSID arbitration “if the Contracting Party of the Investor and the Contracting Party to the dispute are both parties to the ICSID Convention” and in such a case “each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration ... in accordance with the provisions of this Article” (Article 26.3.a), and the tribunal “shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law” (Article 26.6).

14. Section VIII.A(1)(g) contains the Tribunal’s reasoning regarding the “Intra-EU Issue – The Achmea Ruling”:

337. In determining the scope and effect of the Achmea ruling, it is important to put its background in context, and to give a detailed account of the reasoning.

338. The arbitration to which the ruling gave rise was an UNCITRAL arbitration (with the PCA as Registry) with a seat in Germany brought under the Netherlands-Czechoslovakia BIT by a Dutch investor against Slovakia. The tribunal awarded damages against Slovakia, which sought, in the German courts, to have the award set aside on the ground (inter alia) that the award was contrary to public policy because the tribunal was unable to make a reference to the CJEU on questions of EU law which it had failed to take into account.

15. Section VIII.A(1)(h) contains the Tribunal’s reasoning regarding the “Intra-EU Issue – EU law as International Law, and the Primacy of EU law”:

357. It is also necessary to mention three fundamental points about EU law. First, it has been established for more than 50 years that, from the viewpoint of EU law, the European Union [“EU”] “constitutes a new legal order of international law for the benefit of which the states have limited their sovereign rights, albeit within limited fields, and the subjects of which comprise not only Member States but also their nationals”. [footnote omitted] In Electrabel v Hungary [footnote omitted] it was said that EU law is international law because it is rooted in international treaties as legal instruments under public international law; and EU law as a whole is part of the international legal order, without any material distinction between the EU Treaties and the “droit dérivé,” with the result that all EU legal rules are part of a regional system of international law

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and therefore have an international legal character (citing Van Gend den Loos).

358. Like the tribunal in Vattenfall AB v. Germany, [footnote omitted] this Tribunal considers that this formula can be accepted on the basis that “the corpus of EU law derives from treaties that are themselves a part of, and governed by, international law, and contains other rules that are applicable on the plane of international law, while also containing rules that operate only within the internal legal order of the EU and, at least arguably, are not a part of international law ...”. The tribunal in Vattenfall AB v. Germany went on to say that since the CJEU was empowered by the EU treaties to give preliminary rulings on the interpretation of EU law, including the treaties, the Achmea ruling’s “interpretation of the EU Treaties likewise constitute[d] a part of the relevant international law”. [footnote omitted]

359. But in the view of this Tribunal, the point that EU law (or most of it) is international law, or that the rulings of the CJEU are part of international law is not in any sense conclusive. The question still remains as to whether EU law and the rulings of the CJEU are part of the applicable international law.

[...]

366. The Achmea ruling is a decision on the constitutional order of the EU in support of the policy of European integration rather than an orthodox application of the rules of treaty interpretation. As such the ruling of the CJEU is entitled to the greatest respect from an international arbitral tribunal. But such a tribunal is not in any sense bound by the ruling. Nor, consequently, can the Tribunal find that on any normal basis of interpretation under customary international law or the VCLT that the dispute resolution provisions of the ECT are incompatible with Articles 267 and 344 TFEU.

367. It follows that, in the view of the Tribunal, there is no conflict between Article 26.1-3 ECT and Articles 267 and 344 TFEU such as to bring the principles reflected in Articles 30 or 41 VCLT into play. Nor does Article 16 ECT have the effect of invalidating the dispute resolution provisions in Part V of the ECT, since, even if (which is not the case) the EC and EU Treaties gave a right to dispute resolution in respect of the subject matter of Part III (investment protection) and Part V (dispute settlement) of the ECT, Part V would still be operative if it were more favourable to the investor.

16. The Tribunal found in section VIII.A of the Decision that it had jurisdiction to hear the dispute, holding as follows:

370. The Tribunal therefore concludes: [footnote omitted]

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(1) The Tribunal is “the judge of its own competence:” ICSID Convention, Article 41(1).

(2) The question of jurisdiction must be distinguished from the question of applicable law, or choice of law. As indicated above, Article 42.1 provides that the “Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties ...”

(3) In the present case Article 26.6 ECT provides that the “tribunal established ... shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law.”

(4) The issues in dispute are those concerning alleged breaches of obligations relating to investments: Article 26.1 ECT. Accordingly, Article 42(1) ICSID Convention and Article 26.6 ECT do not determine jurisdiction, and are not relevant for present purposes.

(5) By virtue of Article 25(1) ICSID Convention jurisdiction exists where (1) there is a legal dispute which (2) arises directly out of an investment, (3) between a Contracting State and a national of another Contracting State, and (4) which the parties to the dispute consent in writing to submit to the Centre.

(6) By virtue of Article 26.1-3 ECT: (1) where there arise disputes between a Contracting Party and an investor of another Contracting Party relating to an investment of the latter in the area of the former, (2) which cannot be settled amicably, (3) the investor party may submit it to ICSID arbitration, (4) if the Contracting Party of the investor and the Contracting Party to the dispute are both parties to the ICSID Convention.

(7) There is plainly a dispute between the Claimant and Spain which arises out of an investment in Spain, and the Contracting Party of the investor, Portugal, is party to the ECT and to the ICSID Convention, as is Spain.

(8) Accordingly Spain has given “its unconditional consent to the submission of [the] dispute to international arbitration” (Article 26.3.a ECT), and the Claimant has taken advantage of that consent.

(9) If the principles in the Achmea ruling apply to the ECT as a matter of EU law, that cannot affect the jurisdiction of the Tribunal under the applicable international law, namely the ECT and the ICSID Convention.

(10) For the reasons given above there is nothing in the combination of the ECT and EU law which could give rise to an implication of a “disconnection” clause.

(11) There is no conflict between Article 26.1-3 ECT and Articles 267 and 344 TFEU such as to bring Article 30 VCLT into play.

(12) It is therefore not necessary to decide whether the effect of Article 16 ECT is that, even if there were an inconsistency between Articles 267 and

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344 TFEU (and their predecessors) and the ECT, there would be no derogation from the dispute resolution provisions in Part V of the ECT.

(13) There is nothing in the Achmea ruling which could deprive a Tribunal so constituted of jurisdiction. Neither it, nor the decisions which it cites on multilateral agreements, suggest that Member States had no capacity to enter into agreements such as the ECT.

(14) The fact that the Tribunal, as a mechanism of international law, and not national law, cannot make a reference to the CJEU, does not deprive it of jurisdiction under international law. Nor can the plain meaning of the jurisdictional provisions of the ECT and the ICSID Convention be affected by the CJEU’s interpretation of Articles 267 and 344 TFEU.

(15) The declaration of the majority of the Member States of January 2019 is a political declaration without legal force and ex post facto cannot and does not affect the jurisdiction of the Tribunal; and in particular, as a declaration by only some of the parties to the ECT it cannot, for the purposes of Article 31 VCLT, be regarded as a subsequent agreement between the parties regarding its interpretation or application, or as subsequent practice establishing such agreement.

(16) The fact that EU law is international law for at least some purposes does not affect the conclusion that, on the plain meaning of the ECT and the ICSID Convention, the Tribunal has jurisdiction. It is true that EU law is international law because it is rooted in international treaties, but it does not follow that all of EU law is international law for all purposes, nor that it will necessarily be the applicable law in all circumstances.

(17) The fact that EU law has primacy under the principle in Costa v. ENEL does not affect the position. The principle is concerned with primacy over national law and not international law, whether customary law or treaty law.

(18) The fact that an Award of the Tribunal may not be effectively enforceable in an EU Member State does not affect its jurisdiction.⁶

(3) Liability

17. Section VII.C (2) entitled “Fair and Equitable Treatment” summarizes Spain’s position on FET as follows:

247. Both Spanish law and EU law require subsidies to be proportional to the goal that is pursued (i.e., enable the recipient to compete on equal footing in the market). They cannot go any further without breaching Spanish and EU State aid laws. [Footnote omitted] As the Electrabel tribunal stated, foreign investors cannot have a legitimate expectation that the ECT would shield their investments from the effects of EU law in

⁶ Decision, ¶ 370. ↩

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regard to anti-competitive conduct. [Footnote omitted] Under EU State aid laws, any subsidies must also be notified to the EC. A recipient of State aid cannot have legitimate expectations in the lawfulness of aid that has not been notified to the Commission. That is also settled case law of the CJEU. There is no doubt that the feed-in tariffs set forth in RD 661/2007 and RD 1578/2008 are subsidies subject to EU State aid regulations. This has been conclusively decided by the EU Commission, which is the competent authority to make this determination. [Footnote omitted]

18. Moreover, section VIII.B.1(3) entitled “The Main Points in Issue,” provides that:

456. It is relevant to recall, at the risk of over-simplification and repetition, the essential points in issue.

a. The Claimant’s Case

457. The Claimant’s overall case is that Spain guaranteed under RD 661/2007 and RD 1578/2008 that the Claimant’s PV installations would receive incentive tariffs at fixed amounts for a period of 25 years, and then at 80% of those fixed amounts for the remaining lives of the plants subject to RD 661/2007; and that Spain would not retroactively alter the value of those incentives once the plants were established and registered under the RD 661/2007 and RD 1578/2008 regimes.

458. The Claimant invested in reliance on these guarantees and the value of the incentivised revenue streams which resulted from them.

459. Spain undermined and then abolished the RD 661/2007 and RD 1578/2008 regimes through the Disputed Measures and replaced them with the New Regulatory Regime:

(1) RDL 14/2010 (a) imposed hourly limitations on the quantity of electricity produced by PV plants which was eligible to receive FiTs under RD 661/2007 and RD 1578/2008; and (b) created a new access toll of 0.5 €/MWh on all electricity which a producer delivered into the grid, reducing the tariffs guaranteed in the original regulatory framework, in violation of Article 44.3 of RD 661/2007 and Article 12 of RD 1578/2008.

(2) RD 1565/2010 (a) cancelled the right of the Claimant’s RD 661/2007 projects to receive the tariffs after year 25 of their operating lives (which Spain then lengthened to year 28 and then to year 30 by RDL 14/2010 and Law 2/2011); (b) reduced the tariff rates available under RD 1578/2008 by 46% for certain facilities.

(3) RDL 1/2012 cancelled the incentive programs under RD 661/2007 and RD 1578/2008 for new facilities and suspended pending pre-allocation registration processes under RD 1578/2008. This measure led the Claimant to abandon three other renewable energy projects under development, after having committed nearly €2 million in investment costs, a measure which the Spanish Supreme Court has ruled was

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“unexpected and violated the principle of legitimate expectations.” [footnote omitted]

(4) Law 15/2012 further reduced the amount of the tariff for all renewable energy facilities under the guise of a 7% energy tax (TVPEE), which was applied not just to the market value of the electricity generated by renewable producers, but also to the premium component of the tariffs that Spain guaranteed. Spain then transferred the proceeds into the electricity system in order to reduce the tariff deficit.

(5) In 2013, Spain reduced the rate of tariff growth by redefining the inflation adjustment in RDL 2/2013. Although the new inflation index was at times higher than the CPI index, it was lower on balance over time, and therefore this measure harmed the Claimant’s investment and contravened the terms of Article 44.1 of RD 661/2007 and Article 12 of RD 1578/2008.

(6) Spain abolished RD 661/2007 and RD 1578/2008 in their entirety in June 2013 and substituted those regimes with the New Regulatory Regime in 2014, when Spain enacted a fundamentally different incentive scheme: RDL 9/2013, Law 24/2013; RD 413/2014; and Order IET/1045/2014.

(7) The New Regulatory Regime changed the structure of the incentive payments to the detriment of investors such as the Claimant. It substituted a production-based system for a system based on installed capacity. By this shift from a production incentive to a capacity incentive Spain appropriated the benefits that investors expected to receive as a result of their productivity-maximising choices in respect of issues such as the location and amount of solar irradiation of the plants, the proximity to the transmission grid, the project scale, and the plant’s design, etc.

(8) While the previous regulatory framework fixed the returns that investors could expect from a PV plant in the form of fixed tariff rates, irrespective of whether interest rates went up or down, the New Regulatory Regime provided that Spain would update the rate of return every six years based on prevailing interest rates. As Spain implemented this change in 2014, knowing that interest rates had declined substantially since 2007, it appropriated the gains that investors would have otherwise received on their fixed-rate PV investments. This change has also harmed investors like the Claimant, which relied on the fixed-rate nature of RD 661/2007 and RD 1578/2008 when structuring the financing for their investments through swap agreements.

b. Spain’s Case

460. Spain’s case is that Law 54/1997 only guaranteed renewable energy generators enrolled in the Special Regime a reasonable rate of return calculated by reference to the cost of money in the capital market. [footnote omitted]

461. To ensure this level of remuneration, subsidies were offered to producers to cover their investment and operating costs and generate a

[Page 15]

reasonable return. [footnote omitted] The implementing decrees (RD 2818/1998; RD 436/2004; RD 661/2007; RD 1578/2008) established financial incentives in the form of feed-in subsidies tied to production. This form of remuneration was neither imposed nor required to be maintained by Law 54/1997.

462. Law 54/1997 established a dynamic or flexible framework so that the government would have sufficient flexibility to adjust remuneration if the formula resulted in higher than reasonable returns, in contravention of Law 54/1997 or EU State aid rules.

463. The fundamental criterion used by Law 54/1997 to judge the reasonableness of the rate of return was the cost of money in the capital markets. Law 54/1997 did not guarantee that producers would receive FiTs for the whole lifetime of the plants.

464. The elimination of fixed tariffs for PV installations after 30 years by RD 1565/2010 was in line with the estimated useful life of the plants. After this period, an investor would have recovered all its costs and made a reasonable profit.

465. RDL 14/2010 set a limit on the annual operating hours for which PV facilities could receive feed-in tariffs in accordance with the calculations made in the PER 2005-2010. These estimated annual operating hours were known to investors. Above these caps, plants could continue producing and selling its energy on the market.

466. Law 15/2012, introducing the TVPEE to contribute to finance the electricity system, did not have any impact on the Claimant’s installations because under the New Regulatory Regime the operating incentive payments are calculated to allow renewable producers to recover the amounts paid for TVPEE.

467. The new index, CPI, substituted by RDL 2/2013, for updating remuneration was adopted in order to bring the updating mechanism into conformity with generally accepted economic practices, excluding those inputs that were most variable in the calculation’s formula. CPI, although it was superseded by additional regulations, did not adversely affect the Claimant’s PV facilities. The Claimant benefited from it during the short time it was in force.

468. The New Regulatory Regime in RDL 9/2013, Law 24/2013, RD 413/2014, and Order IET/1045/2014 strengthens the support for renewable technologies, and the key components of the former regime are largely preserved.

469. Both the former and the new remuneration regimes provide generous subsidies to renewable energy producers. Although the New Regulatory Regime specifies that the rate to be used for this purpose is that of the average yield of ten-year Spanish government bonds plus 300 basis points, the result is essentially the same: a rate of return of 7.398% before taxes,

[Page 16]

which is consistent with the 7% post-tax return which the former regime sought to provide. It gives investors greater legal security because the basic parameters are set out in the law.

19. The Tribunal held in section VIII.B.1(4) entitled “Legitimate Expectations and the Legal and Commercial Position at the Time of the Claimant’s Investments”, the following:

531. This Tribunal is, of course, applying the international law standard of legitimate expectation, and not that of Spanish law, but in deciding what expectations an investor has it is highly relevant to determine what it reasonably considered that it was obtaining through its investments. Business people will not necessarily be expected to know about such judicial decisions, but their lawyers, especially well-known experts in international commercial law and Spanish energy and administrative law, can properly be held to a standard of knowledge in respect of such decisions.

20. The Tribunal further determined as to liability, in section VIII.B.1(7) entitled “The Reasonable Rate of Return Issue”, the following:

596. The essence of Spain’s case on what investors were reasonably entitled to expect (their legitimate expectation) is that the reasonable rate of return principle is the cornerstone of the remuneration system for the production of energy from renewable sources, and this principle requires a necessary balance between the benefits to be received by producers and the effort involved in the rollout of renewable technology. [footnote omitted]

597. Spain’s “reasonable rate of return” contention is described by the Claimant as “self-serving,” “arbitrary,” “idiosyncratic,” and as determined by “arbitrary, opaque, and complex formulas,” [footnote omitted] and as a “myth” and “revisionist history, clearly devised for purposes of litigation.” [footnote omitted]

598. The crucial question is what, if any, legitimate expectations the regulatory regime engendered. Spain says that it engendered no more than an expectation of a reasonable rate of return. The Claimant’s principal argument is that it invested in Spain on the legitimate expectation that its facilities would receive the precise tariffs established in RD 661/2007 and RD 1578/2008 for all of the electricity produced by its installations which were properly constructed, connected, and registered before an established deadline.

599. The Tribunal has already rejected the Claimant’s principal argument on legitimate expectation, concluding that the Claimant had no legally protected right to the RD 661/2007 incentives for the life of the plants, [footnote omitted] and in particular that the 2010 changes cannot be impugned.

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600. The relevant question, therefore, is whether the reasonable rate of return principle is the cornerstone of the incentive regime in relation to the substantive complaints concerning the New Regulatory Regime, and also to the question of damages.

601. The Tribunal, by majority, is satisfied that Spain is right in contending that the “reasonable rate of return” or reasonable profitability is the cornerstone of the incentive regime and the only relevant expectation which was legitimate in the present context.

[...]

609. The Claimant emphasises that (1) it did not invest in Spain on the expectation of receiving a “reasonable rate of return” as unilaterally and arbitrarily defined by Spain ex post facto; [footnote omitted] (2) Law 54/1997 did not define the rate of return which Spain was to take into account when establishing incentives; (3) from 1998 to 2013, Spain never enacted a measure implementing Law 54/1997 in a way that incentivised investors on the basis of a defined return on their investments; (4) enabling a reasonable return on investment was an objective of the premiums for renewable generation authorised by Law 54/1997, but it does not follow that Law 54/1997 therefore guaranteed a reasonable rate of return. [footnote omitted]

610. In the view of the majority of the Tribunal these are not answers to the basic point that, as confirmed by later judicial and legislative developments, the basis of the enabling legislation was the reasonable rate of return principle.

611. Spain has argued that the Claimant could have no legitimate expectation that the RD 661/2007 and RD 1578/2008 regime would remain unaltered, because a recipient of State aid cannot, in principle, have legitimate expectations of the lawfulness of aid that has not been notified to the Commission. But it is clear that neither Spain nor the Commission ever had any concern that the RD 661/2007 regime was contrary to State aid rules, and that is confirmed by the EC’s Decision on State Aid of 10 November 2017. [footnote omitted][“2017 EC Decision”] In the light of its conclusions, the Tribunal does not consider that Spain’s State aid argument arises, but if it had arisen, the Tribunal would have dismissed it on the basis that there is no necessary connection between an investor’s legitimate expectation of a reasonable rate of return and a failure by the State to notify state aid, and that in any event it was not now open to Spain in the light of its prior conduct to raise it.

612. Consequently the Tribunal, by majority, is of the view that the cornerstone of the subsidy regime was the principle embodied in the enabling legislation under the umbrella of which the Claimant made its investments, namely the principle of reasonable rates of return by reference to the cost of money on capital markets, in Law 54/1997.

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21. Moreover, section VIII.B.1(8) entitled “The Radical and Fundamental Changes Introduced by the New Regulatory Regime” provides that:

625. The essence of the regime under Law 54/1997 was the principle of “reasonable rate of return.” As the Tribunal, by majority, has pointed out, the material legislation at the time of the Claimant’s investments and after they were made, all purported to apply notions of reasonable profitability or reasonable rates of return. To the extent that the New Regulatory Regime did not adhere to that principle in relation to the Claimant’s plants, there has been a breach of the Claimant’s legitimate expectations.

626. In the view of the majority of the Tribunal, a reasonable rate of return (but not one which is unilaterally determined by Spain) is the only legally protected expectation that the Claimant could legitimately have had.

[...]

629. The Tribunal considers that, notwithstanding the Claimant’s disavowal, it is entitled to find that the Claimant had a legitimate expectation of a reasonable rate of return because it has always been the essence of the Claimant’s case that (a) it had a legitimately held expectation, (b) that expectation related to the return that it expected on its investments, and (c) that return was rooted in the measures and provisions that have been at the heart of the Tribunal’s liability analysis. In addition the Claimant’s expert produced alternative calculations assuming a “reasonable return” of 7% and 8%. [footnote omitted] In these circumstances, the fact that the Claimant did not advance a reasonable rate of return case as an alternative to its maximalist case is not determinative.

630. A similar approach was taken in RREEF, where it appears from the Decision that the Claimants’ position was that they “did not base their investments on the notion of reasonable return,” [footnote omitted] but the Tribunal decided that “the only legitimate expectation of the Claimants was to receive a reasonable return ...” [footnote omitted]

631. The conclusion, by majority, therefore, is that, to the extent (if any) that the New Regulatory Regime did not provide a reasonable rate of return for investors entitled to take advantage of the ECT there has been a breach of Article 10(1) ECT.

632. But the New Regulatory Regime is opaque and it is not easy to determine whether it provides a reasonable rate of return. Consequently, the Tribunal, by majority, agrees with the conclusion of the tribunal in RREEF v. Spain:

... the Claimants had, when they made their investments, a legitimate expectation to get a reasonable return on their investments. Such expectation did not include a guarantee to have the legal regime in place unchanged until the end of the operation

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of the plants, but it did include to have any modifications reasonable and equitable. Whether such a legitimate expectation was violated can only be assessed by way of a global view of the situation that resulted from the modifications introduced by the Respondent after the date of the investment. It is only in case the answer to this question is in the affirmative that compensation is due to the Claimants under this head of claim. [footnote omitted]

633. It is necessary to turn to the so-called “claw-back” point. If the return before July 2013 exceeded the target return, it will not be entitled to the regulated revenue, even though the scheme did not then exist, as if the scheme had then been in existence. If the installation passed the “reasonable return” test (7.398%) it will not receive further subsidies.

634. The Claimant did not put the claw-back point at the forefront of its submissions, but it was squarely put by its experts both in their reports and at the Hearing without objection, and will be treated by the Tribunal as the Claimant’s submission.

[...]

637.The Tribunal agrees with the conclusion of the RREEF tribunal that to the extent that it was applied to the Claimant, the claw-back was inconsistent with the obligation of stability in Article 10(1) ECT. For that reason, as will appear in the section on damages, returns in the years before the New Regulatory Regime became effective will not be counted against remuneration going forward (claw-back) because to do so would be contrary to Spain’s obligation of stability.

22. The Tribunal concluded in section VIII.B.1(10) entitled “Overall effect” that:

642. The overall effect of the findings of the majority of the Tribunal is that, by enacting and applying the New Regulatory Regime, Spain has undermined the Claimant’s legitimate expectations implicit in the FET obligation in Article 10(1) to the extent (if any) that the return on its investments in the plants falls short of a reasonable return by reference to the cost of money in the capital markets and, to that extent also, breached the obligation of stability in Article 10(1) ECT.

(4) Damages

23. Section VIII.C(1) introduces the Tribunal’s reasoning on damages as follows:

655. Given its findings on liability, the Tribunal’s task, for purposes of an assessment of damage (whether nominal or actual), and, if there is actual damage, of an assessment of the quantum of damages properly due to the Claimant, is to calculate the difference between the present value of the actual returns on the Claimant’s investments and the putative present value of the returns that there would have been under a reasonable rate of return hypothesis. [footnote omitted]

[Page 20]

656. The overall effect of the Tribunal’s findings is that, by enacting and applying the New Regulatory Regime, to the extent (if any) the return on its investments in the plants falls short of a reasonable return by reference to the cost of money in the capital markets, frustrated the Claimant’s legitimate expectations implicit in the FET obligation in Article 10(1) and was in breach of the obligation of stability in Article 10(1).

[...]

658. The Tribunal has concluded that, notwithstanding the Claimant did not found its claim on a legitimate expectation of a right to a reasonable return, the Tribunal is entitled to find such a legitimate expectation because it has always been the essence of the Claimant’s case that (a) it had a legitimately held expectation, (b) that expectation related to the return that it expected on its investments, and (c) that return was rooted in the measures and provisions that have been at the heart of the Tribunal’s liability analysis. The fact that the Claimant did not advance a reasonable rate of return case as an alternative to its maximalist case is not determinative, particularly since both sets of experts addressed the question in the second round of pleadings. [footnote omitted]

24. The Tribunal held in section VIII.C(2), named “Legal Principles”, the following:

659. In approaching these issues, the Tribunal has in mind the long-settled principle of the Permanent Court of International Justice in the Chorzów Factory case, now commonly accepted to be applicable beyond inter-State disputes, that “reparation must, as far as possible, wipe out all the consequences of the illegal act.” [footnote omitted] In a well-known passage, the Permanent Court said: [footnote omitted]

The essential principle contained in the actual notion of an illegal act – a principle which seems to be established by international practice and in particular by the decisions of arbitral tribunals – is that reparation must, as far as possible, wipe out all the consequences of the illegal act and reestablish the situation which would, in all probability, have existed if that act had not been committed. Restitution in kind, or, if this is not possible, payment of a sum corresponding to the value which a restitution in kind would bear; the award, if need be, of damages for loss sustained which would not be covered by restitution in kind or payment in place of it – such are the principles which should serve to determine the amount of compensation due for an act contrary to international law.

660. This indicates that the primary task of the Tribunal is to assess what would have happened if the New Regulatory Regime measures had not been enacted, and the answer must be that Spain would have enacted some measures to deal with the tariff deficit, and, for damages purposes, Spain should be regarded as having enacted measures which give a reasonable rate of return.

[Page 21]

661. It follows that the Claimant is not, as it claimed, entitled to damages based on the difference between what it will receive under the New Regulatory Regime and what it would have received under the RD 661/2007 regime.

662. This is in line with what the tribunal in RREEF v. Spain said, of tribunals which had found liability, that they had:

... considered that, since the Respondent had been found in breach of Article 10 of the ECT, it was obliged to make full reparation for the losses suffered; this has been the position taken by the Eiser and Novenergia tribunals. This last position would be illogical in the present case since the Tribunal accepted that the Claimants were not immune from reasonable changes in the regime applicable to its investment; therefore, it is only to the extent that the modifications would have exceeded the limits of what is reasonable that compensation would be due and should be calculated. [footnote omitted]

663. The tribunals in Antin v. Spain, Foresight v. Spain and Masdar v. Spain adopted the same approach as Eiser v. Spain and Novenergia II v. Spain. In Cube v. Spain [footnote omitted] and 9REN Holding Sarl v. Spain [footnote omitted] the solution was to discount the return which would have been made under the old regime by the chance of lawful changes being made.

664. The Tribunal is satisfied that the approach in RREEF v. Spain is right in principle and accords with the principle in the Chorzów Factory case.

665. Otherwise than in exceptional circumstances, compensatory damages are contingent on proof of loss, and an award of compensation must be linked to economically assessable damage sustained by the injured party.

25. Moreover, the Decision’s section VIII.C(3) “Damages” provides that:

666. The Tribunal has concluded that it is not in a position at this stage to determine that Spain’s breach of Article 10(1) ECT must necessarily sound in compensatory damages. Whether this is the case will turn on the Tribunal’s assessment of whether, under the New Regulatory Regime, the Claimant would be entitled to, and would in practice receive, a reasonable rate of return, which the Tribunal considers comports with the formula “reasonable profitability rates with reference to the cost of money on capital markets” – or whether it would receive something less.

667. A decision on this issue is accordingly deferred pending further submissions from the Parties and their quantum experts in the light of the Tribunal’s findings on liability and such other directions that the Tribunal considers that it can usefully provide at this stage.

[Page 22]

668. The reasons that have led the Tribunal to this conclusion are as follows. The Tribunal, in this Decision, has reached a determination of liability with which the Parties and their quantum experts have not been able to engage fully. More particularly, the Parties in their pleadings did not deal with the hypothetical that the other side might prevail on liability, or that there might be some outcome on liability that gave them less than that for which they contended, and the experts did not deal as fully with the reasonable rate of return calculations as they would have done if it had been the Claimant’s pleaded contention.

[...]

674. In this Decision the Tribunal refrains from setting out or engaging in any detail with the Parties’ submissions and expert evidence on damages. But some of the expert evidence put forward in the context of the Claimant’s case, denied by Spain, that the Claimant had a legitimate expectation in respect of premiums under the previous regime, touches upon issues which the Tribunal has to decide.

675. The Tribunal considers that it is useful to set out some indicia relevant to the issue of damages. The Tribunal provides additional guidance and direction on what it would wish to hear from the Parties in the subsequent procedure in the section that follows, having regard to the evidence on quantum that has already been submitted.

[...]

677. The Claimant has said that in the actual scenario 7.398% IRR pre-tax is equivalent to 5.6% IRR post-tax, based on a 30 year operating life, a 30% corporate tax rate until 2014, lowered to 28% in 2015, and to 25% from 2016 onwards; and standard (rather than actual) investment and operating costs as set out in Ministerial Order MO IET/1045/2014 [footnote omitted]

678. Spain has said that the equivalent post-tax figure is 7.7% IRR (excluding management fees), or 7% IRR (including management fees), based on the Claimant’s actual investment costs, an effective tax rate of 20.9% and a 30 year operating life. [footnote omitted]

679. The Claimant will only be entitled to damages if the IRR of the facilities falls short of the RRR.

680. The first consideration is that the Parties accept that the targeted return of 7.398% is pre-tax, and consequently the IRR should be calculated on a post-tax basis.

681. Second, an assessment of damage must be based on the Claimant’s interest in the plants on a plant-by-plant, or project, basis. Remuneration under the New Regulatory Regime is on a plant-by-plant basis and the experts have in substance adopted this method in relation to their opposing approaches to damages and their responses. Such loss or damage that the

[Page 23]

Claimant may have suffered in the actual scenario (IRR) falls to be assessed by reference to its individual circumstances rather than by reference to an aggregation of the plants in question or to an industry analogue.

682. Third, for purposes of assessing what constitutes a reasonable rate of return – which the Tribunal equates with “reasonable profitability rates with reference to the cost of money on capital markets” – the Tribunal considers that the relevant benchmark will be the RRR for the PV sector. The remuneration formula that the Tribunal has found to be capable of giving rise to a legally protected legitimate expectation is a formula derived from general legislation which applied to renewables as a whole, but its implementation was affected by the sector involved.

683. Fourth, in determining the cost of money on capital markets, the Tribunal will wish to have submissions from the Parties on which market or markets should be the benchmark.

[...]

687. Eighth, the Tribunal agrees with the conclusion of the tribunal in RREEF v. Spain that a WACC calculation was required because Act 54/1997 required the calculation to be made by reference to the cost of money in the capital markets, a reasonable return had to be superior to the cost of money. To calculate the cost of money, both Parties used the WACC, which reflected the cost of raising funds from shareholders and lenders for a typical company operating in a given industry. [footnote omitted] In that case, the tribunal found, following the CAPM model, that the reasonable post-tax rate of return was WACC (as calculated by the tribunal) plus 1%. [footnote omitted]

B. AWARD

26. The Award’s section II “Procedural History” provides that:

8. By letter dated 17 December 2020, the Claimant sought clarification regarding the scope of further submissions and the procedure envisaged by the Tribunal’s Decision. The Claimant further informed the Tribunal of the Parties’ agreement to extend the time for submission of the joint memorandum until 22 January 2021 (subject to further extension, if necessary, for the Tribunal to resolve the application made in that letter).

9. By letter of 22 December 2020, Spain confirmed its agreement to the deadline extension and presented its observations on the Claimant’s request for clarification.

[...]

23. Following the directions of the Tribunal in the Decision on Jurisdiction and Liability, on 29 April 2021, the Parties submitted the

[Page 24]

Joint Memorandum [“Joint Memorandum”] and Joint Model [“Joint Model”] prepared by FTI (the Claimant’s expert) [“FTI”]and Accuracy (the Respondent’s expert)[“Accuracy”].

[...]

29. By letter of 29 January 2021, the Claimant replied to Spain’s letter to say that the admission of additional evidence did not prejudice Spain and that its objections to the introduction of new evidence lacked merit.

[...]

35. On 4 October 2021, Spain submitted its “Petition of Reconsideration regarding the intra-EU Objection on the basis of the CJEU Decision in the Case C-741/19, Republic of Moldavia, ECLI:EU:C:2021:655.” Spain applied for the reconsideration of the Tribunal’s Decision on Jurisdiction and Liability in the light of the judgment issued on 2 September 2021 by the CJEU in Case C-741/19, Republic of Moldova v. Komstroy LLC [“Komstroy Judgement” or “Komstroy”]. The application was accompanied by legal authorities RL-0090, RL-0106, and RL-0107 [“First Request for Reconsideration”].

[...]

41. On 10 January 2022, the Tribunal issued its decision on Spain’s Request for Reconsideration. The Tribunal considered that there was nothing in the reasoning in Komstroy which had not been anticipated by the Tribunal in its Decision on Jurisdiction and Liability, or by the Parties in their submissions in advance of the Tribunal’s Decision on Jurisdiction and Liability. Accordingly, the Tribunal rejected Spain’s Request for Reconsideration and reserved the costs [“First Reconsideration Decision”].

[...]

46. On 28 June 2022, the Respondent filed a request [...] for the reconsideration of the Tribunal’s decisions of 31 August 2020 and 10 January 2022. [“Second Request for Reconsideration”]

[...]

48. On 7 September 2022, the Tribunal issued Procedural Order No. 6 on Spain’s Request for Reconsideration of the Tribunal’s Decisions on Jurisdiction of 31 August 2020 and 10 January 2022, rejecting Spain’s request. [“Second Reconsideration Decision”].

27. Section V.A(1) “Post-tax RRR based on WACC as at 30 June 2014” provides that:

106. FTI considers that a 6% post-tax WACC should be used as the basis of calculation of the post-tax RRR as of 30 June 2014.80 FTI comes to this figure using its initial 5.3% WACC estimation and adding a 0.7% risk

[Page 25]

premium to the post-tax WACC to reflect the alleged increased level of risk that the New Regulatory Regime entails. [footnote omitted]

107. Initially, Accuracy had calculated an overall post-tax WACC of 5.8%. In the Joint Memorandum, Accuracy states that it would be agreeable to using the 5.5% post-tax WACC figure relied upon by FTI in one of Mr. Edwards’ early reports, but with no added risk premium. Accuracy contends that there is no lack of predictability in the counterfactual scenario that can justify adding such a premium and notes that FTI did not follow the same rationale in its RRR damages calculations. Accuracy also takes issue with the references used by FTI to add a 0.7% risk premium, which Accuracy considers irrelevant for the purposes of calculating the base WACC in this case. [footnote omitted]

28. Section V.A(2) “Premium over WACC” states that:

108. In FTI’s opinion, a premium should be added to the WACC for the purposes of calculating the post-tax RRR. This is needed to reflect the scope for investors to create value by earning returns above the cost of capital. Referencing a CNE study and Dr. Moselle and Dr. Grunwald’ calculations, FTI’s proposes adding a 1.8% premium, which it says is in line with the premium embedded in RD 661/2007 and RD 1578/2008 over the 7.0% benchmark. [footnote omitted]

109. Accuracy considers that a lower premium of 1% may be added to remunerate efficiencies, but only to the extent that the Claimant’s actual costs are taken into account; otherwise, Accuracy alleges that it would not be justified. Consequently, Accuracy rejects FTI’s proposal to add a 1.8% premium. Moreover, Accuracy considers that an “embedded” premium runs contrary to the Tribunal’s findings on liability, which found that the Claimant did not have a vested right to the level of incentives under RD 661/2007 and RD 1578/2008. [footnote omitted]

110. Even if a premium is added, Accuracy says, it could only apply to investments prior to 2007 and, in any case, not to plants built under RD 1578/2008, which provided for lower tariffs. Accuracy also refutes FTI’s contention that RD 661/2007 and 1578/2008 allowed for a premium, underscoring that cost of capital over WACC was a sufficient incentive in itself for investors. Accuracy points out that a 1.8% premium is a self-serving estimation based on FTI’s own views rather than a CNE calculation. [footnote omitted]

29. Section V.B(2) “Type of investment cost” provides that:

120. FTI considers that the appropriate investment cost should be the investment costs of the standard facilities corresponding to each of the Claimant’s plants and not the actual investment costs. In its view, calculations based on the actual build cost would favour inefficient developers, while efficient developers such as the Claimant would be “less

[Page 26]

likely to be deemed to have suffered a loss as a result of the Regulatory Changes.”[footnote omitted]

121. FTI also opposes the proposal of Accuracy to add a premium to the RRR only in the situation of actual investment costs. In FIT’s opinion, unless the RRR as at 30 June 2014 is uniformly applied to all PV plants, it loses its purpose. This way, the incentive component of the allowed returns for efficient developers would be reinforced. [footnote omitted]

122. Accuracy objects to the use of standard investment costs, arguing that the Tribunal directed the Parties to calculate the actual costs of each plant. In addition, Accuracy contends that FTI proposes an approach that would result in an artificial expansion of damages. Responding to FTI’s remarks about losses and efficient developers, Accuracy notes that they have offered to accept a premium to account for efficiency when calculating investment costs under the counterfactual scenario.

30. In the Award’s section VIII “Tribunal’s Analysis,” the Tribunal found that:

188. The Tribunal recalls that, in its Decision on Jurisdiction and Liability, it emphasised that in approaching the damages issues, it had in mind the long-settled principle of the Permanent Court of International Justice in the Chorzów Factory case, now commonly accepted to be applicable beyond inter-State disputes, that “reparation must, as far as possible, wipe out all the consequences of the illegal act.” [footnote omitted] In a well-known passage, the Permanent Court said:

The essential principle contained in the actual notion of an illegal act – a principle which seems to be established by international practice and in particular by the decisions of arbitral tribunals – is that reparation must, as far as possible, wipe out all the consequences of the illegal act and reestablish the situation which would, in all probability, have existed if that act had not been committed. Restitution in kind, or, if this is not possible, payment of a sum corresponding to the value which a restitution in kind would bear; the award, if need be, of damages for loss sustained which would not be covered by restitution in kind or payment in place of it – such are the principles which should serve to determine the amount of compensation due for an act contrary to international law. [footnote omitted]

189. Neither Party has suggested that restitution is an appropriate remedy in this case, and Cavalum has accepted expressly that “restitution or some other form of remedy ‘in kind’ is impossible...” [footnote omitted]

190. Accordingly, the Tribunal’s object is to determine the difference (if any) between (a) what would be the post-tax reasonable rate of return (“PTRRR”) on the plants (“But-for position”) and (b) the actual internal rate of return (“Actual IRR”/“Actual position”). If the Actual IRR falls short of a PTRRR, compensation would be due to the Claimant.

[Page 27]

191. On FTI’s figures, all 7 plants fall short of the PTRRR, resulting in a total loss for the Claimant of €41.2 million.

192. On Accuracy’s figures, 2 plants fall short of the PTRRR, resulting in a total loss for the Claimant of €4.3 million.

193. Accordingly, it is necessary for the Tribunal to address (A) the PTRRR in the But-for position; (B) the Actual IRR of the plants; (C) the compensation due, if any; and (D) the losses (if any) on the abandoned projects.

194. The relevant elements in the calculation of the PTRRR and the Actual IRR on which the experts disagree, are as follows.

195. In the But-for analysis: the WACC as of 30 June 2014, and the premium to be added, if any.

196. In the Actual IRR analysis: (1) whether the IRR calculation should consider cash flows over the entire life of the plants or only after 30 June 2014, and, if so, how this should be done; (2) whether standard costs or actual investment costs should be used and, if actual investment costs are used, whether the Claimant’s revised figure (now, after correction, €92.3 million), as against the original €88.1 million, should be accepted; (2) whether cash flows should be of analogous facilities or rather based on the real cash-flows of the plants; (3) whether investment remuneration in future regulatory periods should be modelled to reflect expected changes in the yields on Spanish Bonds.

197. The experts agree that the PTRRR based on WACC should be calculated as at 30 June 2014; the IRRs of the Claimant’s plants should be assessed separately and not on an aggregate basis; the IRRs of the Claimant’s plants should be based on an operating life of 30 years; and they also agree, with the exception of the calculation of investment remuneration in future periods, the historical and forecast cash flows of the plants in the Actual position.

31. In the Award’s section VIII.A(3) titled “But-For PTRRR”, the Tribunal held that:

206. FTI and Accuracy agree that the PTRRR based on WACC should be calculated as at 30 June 2014. However, they differ on two issues: (1) the post-tax WACC figure as at that date; and (2) the premium to be applied over WACC, if any.

207. The Tribunal considers that FTI is right in principle to come to the 6% figure by taking an initial 5.3% WACC estimation and adding a 0.7% risk premium to the post-tax WACC to reflect the increased level of risk that the New Regulatory Regime entails. [footnote omitted] It also agrees with FTI that a premium should be added to the WACC to calculate the post-tax RRR in order to reflect the scope for investors to create value by earning returns above the cost of capital. But the Tribunal prefers Accuracy’s alternative figure of 1%, on the basis that it would reflect

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investors’ expectations, rather than FTI’s 1.8%, because there is no principled basis for FTI’s reliance, for the 1.8% figure, on the returns under RD 661/2007 since (as Accuracy says) the Tribunal has found that the Claimant had no vested right to those returns.

208. Accordingly, the Tribunal finds that the PTRRR should be 7%, i.e. FTI’s WACC figure of 6% plus Accuracy’s figure of a 1% premium, to be applied to the actual investment costs as determined below.

32. In section VIII.B titled “Actual IRR,” the Tribunal held that:

214. The Tribunal’s view is that the appropriate comparator for cash-flows is after the 30 June 2014 Valuation date. FTI’s position on the calculation period is correct and is consistent with the Tribunal’s approach to the claw-back issue, since otherwise, as FTI says, Accuracy’s approach would be a claw-back mechanism in a different guise.

215. As regards the capitalisation rate, the Tribunal’s view is that Accuracy’s approach based on the current regime is correct, because no principled basis has been established by FTI for an approach based on the prior regime. [footnote omitted]

33. In section VIII.B(2)(a) named “Standard costs or investment costs,” the Tribunal determined that:

216. FTI’s position [footnote omitted] is that it is appropriate to base the IRR analysis on the investment costs incurred by efficient operators, i.e., standard investment costs as defined by Spain. To base the calculations on actual investment costs would be to suggest that the more inefficient the operator, the more likely it is to be entitled to compensation as a result of reduced remuneration under the current regime. Taking actual investment costs would favour inefficient producers, while efficient producers would be less likely to have suffered a loss as a result of the regulatory changes. Through their efficiency they are actually earning higher returns than inefficient investors. Conversely, inefficient developers (those that spent more than the efficient build cost) would be more likely to be deemed to have suffered a loss and, because of the low returns they are actually earning due to their inefficiency, due compensation – in effect a refund of the amount they overspent. It would be an economically perverse result to compensate only inefficient investors for a change to the regulatory regime that was applied to all investments equally.

217. Accuracy’s position is that it has followed the Tribunal’s instructions to calculate the Plants’ IRR based on real cash-flows (both investment and operating cash-flows). The plants are efficient compared to the standard facilities in capex (€88.1 million compared with €107.8 million), which means that under the current scheme the plants will be receiving a return exceeding the standard facilities. By proposing standard costs in the

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Actual IRR calculation, FTI artificially reduces the return of the plants, and increases the number of plants eligible for damages.

218. The Tribunal’s conclusion, by majority, is that FTI’s approach is wrong in principle. The Tribunal’s task is, in accordance with general principles of the law of damages (reflected in the Chorzów Factory case, at paragraph 47, and Article 31 of the Articles on State Responsibility) to calculate the actual damages suffered by the Claimant, and for that purpose the only principled approach is to take actual investment costs, and not standard costs.

34. In section VIII.B(2)(b) named “Investment costs: audited accounts or revised figures,” the Tribunal determined that:

227. Although this issue has loomed large in the exchanges, it does not make a substantial difference to the figures after the reduction of about €2 million. [footnote omitted] But as a matter of principle, the Tribunal, by majority, [footnote omitted] considers that it would be wrong to allow figures to be revised at such a late stage in the proceedings. It is accepted by the Claimant that it was decided not to identify the costs attributable to each project because “Mr Edwards indicated that he did not believe the actual plant development costs were logical to consider at all,” the correct way being to look at standard costs [footnote omitted] and that the defect was in part at least due to misunderstandings by, or between, the Claimant, its experts and its counsel.

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III. PROCEDURAL HISTORY

35. On 30 June 2023, Cavalum filed an application for partial annulment of the Award (“Cavalum’s Application”). The Committee addresses Cavalum’s Application in Section IV infra.

36. Also on 30 June 2023, Spain filed an application for annulment of the Award (“Spain’s Application”).⁷ Spain’s Application contained a request for the stay of enforcement of the Award (“Spain’s Stay Request”) pursuant to Article 52(5) of the Convention and Arbitration Rule 54(1) of the ICSID Rules of Procedure for Arbitration Proceedings (“Arbitration Rules”). The Committee deals with Spain’s Application in Section V below.

37. On 14 July 2023, the Acting Secretary-General registered Cavalum’s Application and Spain’s Application pursuant to Arbitration Rule 50(2). In accordance with Arbitration Rule 54(2), the Acting Secretary-General also informed the Parties that the enforcement of the Award had been provisionally stayed.

38. On 16 October 2023, the Chairman of the ICSID Administrative Council appointed Judge Dominique Hascher (a national of France), Prof. Fernando Cantuarias Salaverry (a national of Peru), and Prof. Dr. Yannick Radi (a national of France), as Members of the ad hoc Committee (“Committee”) pursuant to Arbitration Rules 6, 52(2), and 53.

39. On 8 November 2023, the Committee transmitted a draft Procedural Order No. 1 (“PO1”) to the Parties for their comments in preparation for the first session (“First Session”). The Committee also requested the Parties to agree on a timetable for Spain’s Stay Request.

40. On 20 November 2023, the Parties: (i) submitted their comments on draft PO1; (ii) proposed dates to hold the First Session; and (iii) agreed to maintain the stay of enforcement of the Award until the Committee issued its decision on annulment. The

⁷ Spain originally applied for annulment on January 27, 2023. On that day, ICSID informed the Parties that due to Spain’s pending Request for a Supplementary Decision, ICSID “[could not] process [Spain’s] Application at this time” but “would be prepared to entertain such Application once the Decision on the Request for a Supplementary Decision has been rendered.” ↩

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Committee approved the Parties’ agreement regarding Spain’s Stay Request on the same date.⁸

41. On 13 December 2023, the Committee held the First Session by videoconference.

42. On 20 December 2023, the Committee issued PO1, fixing the procedural calendar.

43. On 28 December 2023, in accordance with section 15.3 of PO1, Spain requested leave to file expert reports on: (i) EU law and (ii) quantum (“Spain’s First Request”). On that same date, the Committee invited Cavalum to submit its observations on Spain’s First Request by 5 January 2024.

44. On 5 January 2024, Cavalum submitted its observations on Spain’s First Request. Cavalum argued that the Committee’s inquiry was limited to the Tribunal’s evaluation of the evidence presented during the Arbitration and asserted that introducing new expert evidence would fall outside the scope of annulment proceedings.

45. On 16 January 2024, the Committee rejected Spain’s First Request because: (i) Spain failed to demonstrate the existence of special circumstances that would justify the admission of new evidence, as required under section 15.3 of PO1; (ii) the request to introduce expert evidence on EU law was premature and lacked specificity regarding the aspects of EU law requiring clarification within the annulment proceedings; and (iii) the request to submit quantum-related expert reports was irrelevant to the scope of annulment, as such proceedings do not revisit factual determinations or the merits but address legal defects in the award and arbitration process.

46. On 16 February 2024, Cavalum filed its Memorial on Partial Annulment (“Cavalum’s Memorial”).

47. On 16 February 2024, Spain filed its Memorial on Annulment (“Spain’s Memorial”).

48. On 1 April 2024, Cavalum filed its Counter-Memorial on Annulment (“Cavalum’s Counter-Memorial”). In Cavalum’s Counter-Memorial, the Claimant asserted that Spain

⁸ See also PO1, ¶ 24.1. ↩

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had introduced 45 new documents with Spain’s Memorial in breach of PO1. Cavalum also contended that the new evidence exceeded the scope of an annulment process, contravening the Committee’s decision of 16 January 2024. Therefore, Cavalum requested the Committee to strike Spain’s documents from the record (“Cavalum’s Request”).⁹

49. Also on 1 April 2024, Spain submitted its Counter-Memorial on Partial Annulment (“Spain’s Counter-Memorial”).

50. On 4 April 2024, Spain requested leave to introduce new exhibits to the record. It argued that “special circumstances” under section 15 of PO1 justified their admission because such exhibits provided context on intra-EU disputes and the ECT (“Spain’s Second Request”).

51. On 18 April 2024, the Committee rejected Cavalum’s Request and granted Spain’s Second Request. The Committee deemed Spain’s new exhibits prima facie relevant, while reserving judgment on their probative value. The Committee also dismissed Cavalum’s objections to Spain’s new legal authorities, affirming that PO1 allowed their submission, but cautioned against mischaracterizing evidence as legal authorities. The Committee reserved its decision on costs to a later stage.

52. On 8 May 2024, the Parties requested the Committee’s leave to extend the deadline to file their reply memorials from 14 May 2024 to 17 May 2024. On 9 May 2024, the Committee granted the agreed time extension.

53. On 17 May 2024, Cavalum submitted its Reply Memorial on Partial Annulment (“Cavalum’s Reply”).

54. Also on 17 May 2024, Spain submitted its Reply Memorial on Annulment, (“Spain’s Reply”).

55. On 14 June 2024, the Committee consulted with the Parties about their availabilities for the pre-hearing organizational meeting (“PHC”). On 10 July 2024, the Parties agreed to hold the PHC on 4 September 2024.

⁹ See Cavalum’s Counter-Memorial, ¶¶ 2-18; Cavalum’s Rejoinder, ¶¶ 3-17. ↩

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56. On 10 July 2024, Spain requested leave to introduce into the record two new legal authorities: (i) an Agreement on the Interpretation and Application of the ECT; and (ii) a Declaration on the legal consequences of the Komstroy Judgment (“Spain’s Third Request”). Spain argued that these documents were relevant to its intra-EU objection and requested their admission pursuant to section 15.4 of PO1 as the documents postdated the Parties’ last written submissions.

57. On 11 July 2024, the Committee invited Cavalum to comment on Spain’s Third Request by 19 July 2024.

58. On 19 July 2024, Cavalum submitted its observations on Spain’s Third Request. Cavalum objected to the introduction of the legal authorities into the record because the documents postdated the Arbitration, were irrelevant to the Tribunal’s jurisdiction, and were non-binding political statements.

59. On 24 July 2024, the Committee granted Spain’s Third Request (“Decision on Spain’s Third Request”). The Committee found that the documents had prima facie relevance but emphasized that its decision did not imply any conclusion on their pertinence to Spain’s intra-EU objection. Also, the Committee invited Spain to submit its position on such documents by 12 August 2024, and Cavalum to submit a reply by 2 September 2024. Moreover, the Committee stated that the Parties would have the opportunity to comment on these documents at the hearing on September 18-20 (“Hearing”). Finally, the Committee reserved its decision on costs regarding this matter to a later stage.

60. On 12 August 2024, Spain filed observations pursuant to the Committee’s Decision on Spain’s Third Request.

61. On 22 August 2024, the Committee transmitted to the Parties for their comments and agreements a draft Procedural Order No. 2 (“PO2”) regarding the organization of the Hearing.

62. On 23 August 2024, the Parties confirmed that, in light of the agreements reached, there were no outstanding matters to discuss in preparation for the Hearing. Therefore, the Committee canceled the PHC.

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63. On 28 August 2024, the Committee issued PO2 on the organization of the Hearing.

64. On 2 September 2024, Cavalum replied to Spain’s 12 August 2024 submission pursuant to the Decision on Spain’s Third Request.

65. The Hearing was held on 18-19 September 2024 in Paris, France. The Hearing was attended by:

66. On 30 September 2024, the European Commission (“EC”) filed an application for leave to intervene as a non-disputing party in the proceedings (“EC Application”).

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67. On 2 October 2024, the Committee invited the Parties to comment on the EC Application by 15 October 2024.

68. On 15 October 2024, the Parties submitted their observations on the EC Application.

69. On 4 November 2024, the Committee issued Procedural Order No. 3 (“PO3”), deciding not to grant the EC Application. The Committee held that “authorizing the EC’s Application at this advanced stage of the proceeding would disrupt the Committee’s deliberations and drafting of its decision on annulment and would force it to reopen the written and oral phase when no additional submissions are expected from the Parties.”¹⁰

70. On 4 November 2024, the Parties submitted their statements on costs (“Cavalum’s Costs” and “Spain’s Costs”).

71. On 26 November 2025, the Committee declared the proceedings closed.

¹⁰ PO3, ¶ 26. ↩

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IV. CAVALUM’S APPLICATION

72. Section V of Cavalum’s Memorial titled “Scope of Partial Annulment Requested” sets out in detail what aspects of the Award Cavalum does and does not seek to annul.

73. The Committee notes that Cavalum does not seek to annul the Tribunal’s (i) jurisdictional findings; (ii) rejection of Cavalum’s position that it had a legitimate expectation to continued receipt of the FiT rates established in the Royal Decrees under which it invested; (iii) conclusion that the “‘reasonable rate of return’ or reasonable profitability is the cornerstone of the incentive regime and the only relevant expectation which was legitimate in the present context,” and that “[t]o the extent that the New Regulatory Regime did not adhere to that principle in relation to the Claimant’s plants, there has been a breach of the Claimant’s legitimate expectations;” (iv) conclusion that the reasonable return benchmark (i.e., PTRRR) is a post-tax return of 7%.

74. However, Cavalum does seek annulment of the “Tribunal’s decision that the proper framework for assessing Spain’s liability and computing damages under the reasonable return principle necessitates a comparison of the IRR of Cavalum’s particular plants to the reasonable return benchmark, rather than a determination of the level of remuneration required to provide the reasonable return to an efficient standard plant.”¹¹

A. CAVALUM’S POSITION

75. Cavalum submits that the Award must be partially annulled because the Tribunal (i) manifestly exceeded its powers in accordance with Convention Article 52(1)(b);¹² and (ii) failed to state the reasons upon which the Award is based under Convention Article 52(1)(e).¹³ Each of these grounds for annulment will be analyzed infra.¹⁴

¹¹ Cavalum’s Memorial, ¶ 144. ↩

¹² See Cavalum’s Memorial, ¶ 100. ↩

¹³ See Cavalum’s Memorial, ¶ 107. ↩

¹⁴ A third ground for annulment is asserted in Cavalum’s Application– that there was a serious departure from a fundamental rule of procedure under Convention Article 52(1)(d). But Cavalum later clarified in Cavalum’s Reply that, while appearance of bias can in some cases fall under Convention Article 52(1)(d), the key issue here is the Tribunal’s failure to address its arguments, which is more appropriately considered under Article 52(1)(e). The ↩

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(1) Manifest Excess of Powers

(a) Standard

76. Cavalum asserts that to find that a tribunal manifestly exceeds its powers under Convention Article 52(1)(b), a “two-step” analysis must be conducted:¹⁵ (i) first, to determine whether the tribunal exceeded its powers; and (ii) second, to assess whether such an excess is “manifest.”¹⁶ Both elements must be satisfied to annul an award.¹⁷

77. Regarding the first element, Cavalum states that the ICSID Convention drafters intended “excess of powers” to refer to cases “when a Tribunal went beyond the scope of the parties’ arbitration agreement, decided points which had not been submitted to it, or failed to apply the law agreed by the parties.”¹⁸ Cavalum further argues that excess of powers is directly tied to a fundamental limitation on the “power of an arbitral tribunal: [...] to decide the issues in dispute between the parties.”¹⁹ For Cavalum, a tribunal exceeds its powers when it resolves an issue that is not in dispute between the parties, and even more so “when it decides that issue contrary to the parties’ stated, undisputed position.”²⁰

Claimant concedes in its Reply that it cannot prove that the Award was influenced by a personal bias of the Tribunal’s President and it concludes that the gravamen of the issue is the Tribunal’s failure to acknowledge its arguments and confront them. Cavalum thus abandoned its third ground for annulment based on Convention Article 52(1)(d) concerning the serious departure from a fundamental rule of procedure. The Committee will therefore not consider this ground.

¹⁵ See Cavalum’s Memorial, ¶ 100. ↩

¹⁶ See Cavalum’s Memorial, ¶ 100; OI European Group B.V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/11/25, Decision on the Application for Annulment of The Bolivarian Republic of Venezuela, 6 December 2018, ¶ 180 (CL-0274); Standard Chartered Bank (Hong Kong) Limited v. Tanzania Electric Supply Company Limited (Tanesco), ICSID Case No. ARB/10/20, Decision on Annulment Request, 22 August 2018, ¶ 182 (CL-0258) (“Standard Chartered Bank Decision on Annulment”); Sempra Energy International v. Argentine Republic, ICSID Case No. ARB/02/16, Decision on the Argentine Republic’s Application for Annulment of the Award, 29 June 2010, ¶ 212 (RL-0118) (“Sempra Decision on Annulment”); CDC Group plc v. Republic of Seychelles, ICSID Case No. ARB/02/14, Decision on Annulment, 29 June 2005, ¶ 39 (CL-0262) (“CDC Decision on Annulment”). ↩

¹⁷ See Cavalum’s Memorial, ¶ 100. ↩

¹⁸ Cavalum’s Memorial, ¶ 101(emphasis in the original) citing to ICSID’s Updated Background Paper on Annulment, 5 May 2016, ¶ 81 (RL-011) (“ICSID Background Paper”). ↩

¹⁹ Cavalum’s Memorial, ¶ 103; Helnan International Hotels A/S v. Arab Republic of Egypt, ICSID Case No. ARB/05/19, Decision of the ad hoc Committee, 14 June 2010, ¶ 41 (C-0242) (“Helnan Decision on Annulment”); ECT, Art. 26(6) (C-0001). ↩

²⁰ Ioan Micula, Viorel Micula and others v. Romania (I), ICSID Case No. ARB/05/20, Decision on Annulment, 26 February 2016, ¶ 126 (C-0243). ↩

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78. As to the second element, Cavalum claims that the threshold for applying this rule is “very high”²¹ because committees “must avoid disturbing the finality of an award and crossing the line from annulment into an appeal.”²² According to Cavalum, a “mere error,” even if serious, would not justify annulment, unless it constitutes “a complete and egregious failure to apply the applicable law.”²³

(b) Application of the Standard to the Facts

79. Cavalum argues that the Parties requested the Tribunal to resolve the dispute between two competing interpretations: (i) Cavalum’s assertion that it had a legitimate expectation based on the specific terms of the legal framework under which it invested; or (ii) Spain’s position that Cavalum’s expectations were limited to receiving remuneration consistent with the reasonable return principle of its incentive regime, which was designed for an efficient standard plant.²⁴ Instead of doing so, the Tribunal “took a third path,”²⁵ finding that “Cavalum’s plants were entitled to remuneration based on a regulatory paradigm that has never existed in Spain, in which the reasonable return concept applies as both a floor and ceiling on the remuneration that a plant is entitled to receive based on the individual cost and performance characteristics of that particular plant.”²⁶

80. For Cavalum, the Tribunal exceeded its powers when it defined the reasonable return principle in “exactly the opposite manner as the Parties agreed it should be defined,”²⁷ creating an “entirely new regulatory model.”²⁸ Cavalum argues that this new model

²¹ Cavalum’s Memorial, ¶ 101. ↩

²² Cavalum’s Memorial, ¶ 101; AES Summit Generation Limited and AES-Tisza Erömü Kft. v. Hungary, ICSID Case No. ARB/07/22, Decision of the ad hoc Committee on the Application for Annulment, 29 June 2012, ¶ 33 (RL-0042) (AES Decision on Annulment); Occidental Petroleum Corporation and Occidental Exploration and Production Company v. Republic of Ecuador, ICSID Case No. ARB/06/11, Decision on Annulment, 2 November 2015, ¶ 56 (RL-0082) (“Occidental Decision on Annulment”). ↩

²³ Cavalum’s Memorial, ¶ 101; CME Czech Republic B.V. v. The Czech Republic, Comments on Partial Award Submitted to the Svea Court of Appeal, prepared by Christoph Schreuer, 30 March 2003, p. 9 (CL-0279); Joseph C. Lemire v. Ukraine II, ICSID Case No. ARB/06/18, Excerpts of Decision on Annulment, 8 July 2013, ¶ 251 (CL-0280) (“Lemire Decision on Annulment”). ↩

²⁴ See Cavalum’s Memorial, ¶ 104. See also supra, ¶ 19. ↩

²⁵ Cavalum’s Memorial, ¶ 104. ↩

²⁶ Cavalum’s Memorial, ¶ 104. ↩

²⁷ Cavalum’s Reply, ¶ 16. ↩

²⁸ Cavalum’s Memorial, ¶ 105. ↩

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allowed individual plants to achieve the reasonable return benchmark regardless of inefficiencies or factors unrelated to the Disputed Measures.²⁹ As such, this model denied plants exceeding the efficiency standard the full remuneration they would have otherwise received.³⁰

81. Moreover, Cavalum contends that Spain’s renewable energy scheme has consistently operated by setting uniform incentive rates for categories of plants based on the production cost of a hypothetical efficient or “standard” plant, rather than tailoring rates to individual plants and their unique efficiency characteristics.³¹ Instead of acknowledging this issue, Cavalum submits that Spain attempts to “deflect and saw confusion”³² based on the following four arguments.

82. First, Spain incorrectly claims that the Tribunal’s definition of the reasonable return principle aligned with the position advanced by its experts throughout the Arbitration.³³ Cavalum refutes this by stating that “Spain does not and cannot show that it ever maintained a position in the Arbitration anything like what the Tribunal adopted; it said the exact opposite in its submissions and does not even attempt to dispute that now.”³⁴

83. Second, the definition of Cavalum’s legal entitlement under the reasonable return principle is not primarily a matter of quantum, as Spain has alleged. Instead, the central issue is the proper definition of Cavalum’s legal entitlement rooted in the Tribunal’s finding that

²⁹ Cavalum’s Memorial explains the disputed measures (“Disputed Measures”) as follows. First, in 2010, RD 1565/2010 shortened the period for receiving FiTs under RD 661/2007, which was later partially mitigated by extending the full FiT rate from 25 to 30 years. Second, RDL 14/2010 imposed caps on electricity eligible for FiTs, affecting plants differently under RD 661/2007 and RD 1578/2008. Third, RDL 1/2012 terminated enrollment for new PV plants in the RD 1578/2008 regime, causing Cavalum to abandon three projects. Fourth, Law 15/2012 introduced a 7% levy on electricity revenue, effectively reducing FiT rates, though this was excluded from the Tribunal’s jurisdiction. Fifth, RDL 2/2013 revised the inflation indexation for FiTs, using a metric excluding food, energy, and tax changes. Finally, in 2013-2014, Spain allegedly replaced the FiT scheme with the New Regulatory Regime, significantly reducing remuneration rates and revising them every 3-6 years based on ex postproduction costs and market conditions (see Cavalum’s Memorial, ¶¶ 41-45). ↩

³⁰ See Cavalum’s Memorial, ¶ 105. ↩

³¹ See Cavalum’s Reply, ¶ 13. ↩

³² Cavalum’s Reply, ¶ 16. ↩

³³ See Cavalum’s Reply, ¶ 17 referring to Spain’s Counter-Memorial, ¶ 85. ↩

³⁴ Cavalum’s Reply, ¶ 17. ↩

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“Cavalum had a legitimate investment expectation based on the ‘reasonable return’ principle that the Tribunal concluded was the cornerstone of the incentive regime.”³⁵

84. Cavalum argues that the Tribunal should have incorporated the efficiency standard to determine the remuneration required for standard plants using the correct reasonable return benchmark.³⁶ Cavalum further contends that the quantification of damages for Spain’s breach depends on the definition of Cavalum’s legal entitlement, making the issue primarily one of entitlement, not quantum. This distinction, Cavalum adds, has two important ramifications:³⁷ (i) Spain’s quantum experts “were not qualified to offer an opinion”³⁸ on Cavalum’s legal entitlement because their role was limited to calculating damages based on the Tribunal’s findings; and (ii) Spain’s claim that tribunals have wide discretion³⁹ in quantifying damages is irrelevant, as this discretion pertains to valuing losses, not defining legal rights.⁴⁰

85. Third, Spain claims that the Tribunal did not chart its own path because the Award follows Accuracy’s proposal by including a 1% “efficiency premium” in the “reasonable return” benchmark.⁴¹ For Cavalum, the Award “does not say that the Tribunal itself conceived of the premium over WACC as a mechanism to compensate superefficient plants for the punitive effect of misapplying the “reasonable return" principle as a cap.”⁴² Moreover, such an approach would be unnecessarily complex and arbitrary because it is inconsistent

³⁵ Cavalum’s Reply, ¶ 22. See supra, ¶ 20. ↩

³⁶ See Cavalum’s Reply, ¶ 23. ↩

³⁷ See Cavalum’s Reply, ¶ 24. ↩

³⁸ Cavalum’s Reply, ¶ 25. ↩

³⁹ Cavalum acknowledges that tribunals have wide discretion in quantifying damages, such as choosing valuation methods or assumptions. However, Cavalum argues that this principle does not apply here, as the issue concerns the definition of the legal entitlement breached by Spain, not the valuation of losses resulting from the breach (see Cavalum’s Reply, ¶ 27). ↩

⁴⁰ See Cavalum’s Reply, ¶ 26; Quiborax S.A., Non-Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Award, 16 September 2015, ¶ 376 (RL-0169); Compañia de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Award, 20 August 2007, ¶ 8.3.16 (CL-0119); Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)09/1, Award, 22 September 2014, ¶¶ 685-686 (CL-0051); JSC DTEK Krymenergo (Ukraine) v. Russian Federation, PCA Case No. 2018-41, Award, 1 November 2023, ¶ 842 (CL-0329); Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain, ICSID Case No. ARB/14/1, Award, 16 May 2018, ¶ 577 (CL-0198); Lion Mexico Consolidated L.P. v. United Mexican States, ICSID Case No. ARB(AF)/15/2, Award, 20 September 2021, ¶ 645 (CL-0330). ↩

⁴¹ See Cavalum’s Reply, ¶ 29. ↩

⁴² Cavalum’s Reply, ¶ 34. ↩

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with: (i) the purpose of the premium as described in RREEF v. Spain,⁴³ which the Majority cited approvingly;⁴⁴ (ii) FTI’s reasoning for the premium, which the Tribunal explicitly agreed with;⁴⁵ and (iii) the Tribunal’s assertion that loss analysis must be conducted on a plant-by-plant basis.⁴⁶

86. Fourth, Spain refers to other decisions to confuse and deflect attention away from the Tribunal’s failure to consider Spain’s own position in the definition of the reasonable return principle.⁴⁷

(c) Conclusion

87. Cavalum concludes that the approach taken by the Tribunal ignored Spain’s repeated acknowledgment that the “efficiency standard” was a component of the reasonable return principle. Therefore, the Tribunal exceeded its mandate under Convention Article 52(1)(b).⁴⁸

(2) Failure to State Reasons

(a) Standard

88. Cavalum states that an award can be annulled under Convention Article 52(1)(e) when the tribunal has failed to state the reasons upon which the award is based.⁴⁹ It further submits

⁴³ Cavalum contends that the purpose of the RREEF tribunal in including a 1% premium over WACC in the “reasonable return” benchmark was to acknowledge that Spain had intentionally set the “reasonable return” level above WACC as a means to attract investment in the renewable energy sector. That tribunal emphasized that Spain raised investors’ expectations of above-average profits to incentivize investment, and this justified the inclusion of the premium. Specifically, the RREEF tribunal concluded that a return below WACC would not be reasonable and that the additional 1% premium reflected Spain’s strategy to induce investment rather than compensate for the punitive effects of applying the “reasonable return” principle without an efficiency standard. The RREEF tribunal’s decision thus focused on ensuring that the “reasonable return” benchmark aligned with the legitimate expectations created by Spain’s regulatory framework rather than addressing plant-specific efficiency issues (see Cavalum’s Reply, ¶¶ 31-33; RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/30, Decision on Responsibility and on the Principles of Quantum, 30 November 2018, ¶¶ 587-588 (CL-0222). ↩

⁴⁴ See Cavalum’s Reply, ¶¶ 31-34, 41; Hydro Energy 1 S.A.R.L. and Hydroxana Sweden AB v. Kingdom of Spain, ICSID Case No. ARB/15/42, Decision on Jurisdiction, Liability and Directions on Quantum, 9 March 2020, ¶ 740 (CL-0239) (“Hydro Energy decision”). ↩

⁴⁵ See Cavalum’s Reply, ¶¶ 34-37, 41. ↩

⁴⁶ See Cavalum’s Reply, ¶¶ 38-40, 41. ↩

⁴⁷ See Cavalum’s Reply, ¶ 42. ↩

⁴⁸ See Cavalum’s Memorial, ¶ 106; Cavalum’s Reply, ¶¶ 42-44. ↩

⁴⁹ See Cavalum’s Memorial, ¶ 107. ↩

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that a “failure to state reasons” under the above provision occurs when “(i) the conclusion that allegedly lacks reasons is ‘outcome determinative' [...]and (ii) it is ‘impossible' to understand how the tribunal arrived at its conclusion.”⁵⁰ For Cavalum, a reader of an ICSID award should be able “to follow how the tribunal proceeded from Point A. to Point B. and eventually to its conclusion, even if it made an error of fact or of law.”⁵¹

89. According to Cavalum, the scope of review under Convention Article 52(1)(e) is “strict and the threshold for annulment is high.”⁵² It refers to decisions where committees held that annulment for failure to state reasons is confined to situations where the issue is significant, and the tribunal’s lack of cogent reasoning is serious.⁵³

90. Cavalum also cites to several decisions in which committees annulled awards for failure to state reasons under Article 52(1)(e) because the tribunal ignored questions that were “essential arguments.”⁵⁴

91. In Cavalum’s view, Convention Article 52(1)(e) is triggered in the following scenarios: (i) a total absence of reasoning in all or part of an award; (ii) contradictory reasoning; (iii) reasoning that is unclear, insufficient, inadequate, or “frivolous”; and (iv) a failure to address arguments and questions raised by the parties.⁵⁵

⁵⁰ Cavalum’s Memorial, ¶ 108. ↩

⁵¹ Cavalum’s Application, ¶ 32; Cavalum’s Memorial, ¶¶ 108-113, referring to Maritime International Nominees Establishment (MINE) v. Government of Guinea, ICSID Case No. ARB/84/4, Decision on the Application by Guinea for Partial Annulment of the Arbitral Award, 14 December 1989, ¶¶ 5(1), 5.09, 5.08. (C-0010) (“MINE Decision on Annulment”). ↩

⁵² Cavalum’s Memorial, ¶ 107. ↩

⁵³ See Cavalum’s Memorial, ¶ 132. See also CMS Gas Transmission Company v. Argentina, ICSID Case No. ARB/01/8, Decision of the ad hoc Committee on the Application for Annulment of the Argentine Republic, 25 September 2007, ¶¶ 96-97 (CL-0152) (“CMS Decision on Annulment”); Victor Pey Casado and President Allende Foundation v. Republic of Chile, ICSID Case No. ARB/98/2, Decision on the Application for Annulment of the Republic of Chile, 18 December 2012, ¶¶ 86, 282-287 (CL-0270) (“Pey Casado Decision on Annulment”); TECO Guatemala Holdings, LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, Decision on Annulment, 5 April 2016, ¶¶ 131, 137, 138 (CL-0248) (“TECO Decision on Annulment”). ↩

⁵⁴ Cavalum’s Reply, ¶¶ 68-69; TECO Decision on Annulment, ¶¶ 131, 138 (CL-0248); Klöckner Industrie-Anlagen GmbH and others v. Cameroon and Société Camerounaise des Engrais (I), ICSID Case No. ARB/81/2, Decision on Annulment, 3 May 1985, ¶¶ 141, 142 (CL-0245) (“Klöckner Decision on Annulment”). ↩

⁵⁵ See Cavalum’s Application, ¶ 33; Cavalum’s Memorial, ¶ 114; Cavalum’s Reply, ¶ 50. ↩

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(b) Application of the Standard to the Facts

92. For Cavalum, all the above-mentioned four scenarios occur in this case.⁵⁶

93. First, the Award failed to explain why or how the Majority decided to exclude the efficiency standard from the reasonable return principle.⁵⁷ Cavalum contends that by recognizing this principle as the cornerstone of Spain’s incentive regime, it was “incumbent”⁵⁸ on the Tribunal to clarify its scope. However, the Tribunal failed to do so. Therefore, there is a “significant lacuna”⁵⁹ in the Award.

94. Second, the Tribunal contradicted itself by concluding, on the one hand, that Cavalum’s legitimate expectations were grounded in the reasonable return principle, while on the other hand, disregarding Spain’s position that this principle guaranteed a reasonable return to a standard efficient plant rather than to any specific plant of an individual investor. Cavalum argues that this “contradiction” creates an irreconcilable conflict between the Tribunal’s reliance on the reasonable return principle and its rejection of Spain’s interpretation of that principle.⁶⁰

95. Third, the Tribunal failed to provide a clear and reasoned explanation for how it moved from concluding that Cavalum’s legitimate expectations were grounded in the cornerstone principle of reasonable return (which Spain acknowledged included an efficiency standard) to awarding damages without applying that standard. Cavalum identifies four possible explanations consistent with the Award’s text, namely that the Tribunal (i) either overlooked the efficiency standard by ignoring submissions from both Spain and Cavalum; (ii) was aware of Spain’s acknowledgment but deemed it non-binding; (iii) concluded that the efficiency standard was historically part of the principle, but not fundamental to Cavalum’s legitimate expectations; or (iv) agreed with its inclusion, but decided the issue was addressed through a 1% premium, despite the lack of logic and the unfairness of resolving a critical matter through an arbitrary adjustment. Cavalum contends that the

⁵⁶ See Cavalum’s Memorial, ¶ 115. ↩

⁵⁷ See Cavalum’s Memorial, ¶ 116; Cavalum’s Reply, ¶ 69. ↩

⁵⁸ Cavalum’s Memorial, ¶ 116. ↩

⁵⁹ Cavalum’s Memorial, ¶ 115. ↩

⁶⁰ See Cavalum’s Memorial, ¶ 117; Cavalum’s Application, ¶¶ 36-37. ↩

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Tribunal’s failure to clarify its reasoning rendered the Award incomplete and “ambiguous,” undermining its coherence.⁶¹

96. Fourth, the Tribunal “completely failed to address Cavalum’s submissions on this essential point.”⁶² Cavalum argues that the Tribunal failed to address its arguments on the necessity of including an efficiency standard in the reasonable return principle. It maintains that the Tribunal could have addressed these arguments by either: (i) disagreeing with Cavalum’s position and explaining why; or (ii) or justifying Spain’s interpretation that the 1% premium addressed the efficiency standard issue. Cavalum adds that the Tribunal did neither, leaving its reasoning unexplained.⁶³

97. Moreover, the Tribunal failed to consider Cavalum’s submissions regarding the decisions of other tribunals in arbitrations against Spain.⁶⁴ In particular, Cavalum’s Comments on PV Investors emphasized that applying the reasonable return principle based on the IRR of actual plants, rather than an efficient standard plant, was inconsistent with Spain’s own definition of such principle.⁶⁵ Cavalum maintains that this argument required a response, which the Tribunal failed to provide to the Parties.⁶⁶

98. Finally, the Tribunal ignored Cavalum’s arguments on the reasonable return principle to avoid highlighting the flawed reasoning in the Tribunal President’s prior Hydro Energy decision. Cavalum argues that addressing its submissions would have forced the Tribunal to either contradict the Hydro Energy decision or dismiss Spain’s position without clear justification.⁶⁷

⁶¹ Cavalum’s Reply, ¶¶ 66-67. ↩

⁶² Cavalum’s Memorial, ¶ 118. ↩

⁶³ See Cavalum’s Reply, ¶¶ 58-59. ↩

⁶⁴ See Cavalum’s Memorial, ¶¶ 118-138. ↩

⁶⁵ See Cavalum’s Memorial, ¶ 118; Cavalum’s Comments on PV Investors (C-0316). See also Cavalum’s Reply, ¶¶ 54, 56. ↩

⁶⁶ See Cavalum’s Memorial, ¶¶ 119-130; Cavalum’s Application, ¶ 40. See Cavalum’s Letter to the Tribunal dated 17 December 2020, pp. 2-3 (C-0327); Cavalum’s Letter to the Tribunal dated 29 January 2021, pp. 1-2 (C-0315). ↩

⁶⁷ See Cavalum’s Memorial, ¶¶ 133-136; Hydro Energy Decision, ¶¶ 722-724 (CL-0239); See also Cavalum’s Reply, ¶¶ 70-72. ↩

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(c) Conclusion

99. Cavalum submits that the Tribunal failed to state the reasons upon which the Award is based under Convention Article 52(1)(e).⁶⁸

B. SPAIN’S POSITION

100. Spain contends that the (i) Tribunal did not manifestly exceed its powers under Convention Article 52(1)(b);⁶⁹ and (ii) Award adequately states the reasons upon which it is based, in accordance with Convention Article 52(1)(e).⁷⁰

(1) Manifest Excess of Powers

(a) Standard

101. Spain appears to agree with Cavalum regarding the two-step test to annul an award under Convention Article 52(1)(b), namely that (i) the tribunal must have exceeded its powers, and (ii) the excess must be “manifest.”⁷¹

102. As to the first requirement, for Spain, manifest excess of powers exists when a tribunal: (i) incorrectly finds that it has jurisdiction when in fact it lacks jurisdiction; (ii) exceeds the scope of its jurisdiction; (iii) rejects jurisdiction when jurisdiction actually exists; or (iv) fails to apply the proper law.⁷²

103. Spain refers to decisions where committees found that a manifest excess of powers occurred when arbitrators decided (i) disputes beyond the scope of their conferred powers; (ii) matters outside their jurisdiction; (iii) or issues that cannot be solved through arbitration.⁷³

⁶⁸ See Cavalum’s Application, ¶ 40. See also Cavalum’s Memorial, ¶ 138. ↩

⁶⁹ See Spain’s Counter-Memorial, Section IV, ¶ 63. ↩

⁷⁰ See Spain’s Counter-Memorial, Section V, ¶ 101. ↩

⁷¹ See Spain’s Counter-Memorial, ¶ 73. ↩

⁷² See Spain’s Counter-Memorial, ¶¶ 65-66; Occidental Decision on Annulment, ¶¶ 48-50 (RL-0082); Spain’s Rejoinder, ¶ 48. ↩

⁷³ See Spain’s Counter-Memorial, ¶¶ 68-72; Occidental Decision on Annulment, ¶ 49 (RL-0082); Hussein Nuaman Soufraki v. United Arab Emirates, ICSID Case No. ARB/02/7, Decision on Annulment, 5 June 2007, ¶ 42 (RL-0072) (“Soufraki Decision on Annulment”). ↩

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104. Moreover, Spain contends that a failure to apply the law may exist “when the tribunal disregards the applicable law, or its erroneous interpretation or misapplication of the law” is “so gross or egregious as substantially to amount to failure to apply the proper law.”⁷⁴

105. Additionally, Spain argues that a tribunal has broad discretion in determining the criteria used to calculate compensation, and that such a discretion cannot serve as a basis to annul an award.⁷⁵

106. Regarding the second requirement, Spain agrees with Cavalum in that the term “manifest” sets a high threshold.⁷⁶ Otherwise, there is a risk that this ground for annulment may be used to appeal tribunals’ decisions.⁷⁷

107. Spain then refers to annulment decisions defining “manifest” as “perceived without difficulty”⁷⁸ and “textually obvious and substantively serious.”⁷⁹

108. Finally, Spain emphasizes that under the ICSID Convention, annulment is not an appeal mechanism but an “exceptional” and “limited” remedy, as consistently confirmed by decisions of ad hoc committees.⁸⁰

(b) Application of the Standard to the Facts

109. Spain contends that the Tribunal did not manifestly exceed its powers in deciding whether the reasonable return principle was upheld in this case.⁸¹ For Spain, the Tribunal acted within its authority by evaluating damages based on the specific costs and performance

⁷⁴ Spain’s Counter-Memorial, ¶ 67; Soufraki Decision on Annulment, ¶ 86 (RL-0072). Spain submits that a misapplication of the law was not the reason for Cavalum’s Application, but that it was rather an alleged excess of jurisdiction. ↩

⁷⁵ See Spain’s Counter-Memorial, ¶¶ 71-72; Quiborax S.A., and Non-Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Award, 16 September 2015, ¶ 376 (RL-0169); Impregilo S.p.A. v. Argentine Republic, ICSID Case No. ARB/07/17, Decision of the ad hoc Committee on the Application for Annulment, 24 January 2014, ¶ 160 (RL-0170) (“Impregilo Decision on Annulment”). ↩

⁷⁶ See Spain’s Counter-Memorial, ¶ 73. ↩

⁷⁷ See Spain’s Counter-Memorial, ¶¶ 73-79. ↩

⁷⁸ Spain’s Counter-Memorial, ¶ 74, citing to Occidental Decision on Annulment, ¶¶ 57-58 (RL-0082). ↩

⁷⁹ Spain’s Counter-Memorial, ¶ 75, citing to Soufraki Decision on Annulment, ¶ 40 (RL-0072). ↩

⁸⁰ Spain’s Rejoinder, ¶¶ 24-31. ↩

⁸¹ See Spain’s Counter-Memorial, ¶ 84. ↩

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characteristics of the Claimant’s individual plants, rather than by relying on those of a hypothetically efficient standard plant, because of the following two reasons.⁸²

110. First, the Tribunal’s decision to assess liability and quantum based on the specific costs and performance of Cavalum’s plants was fully consistent with the position advanced by Spain and Accuracy throughout the Arbitration.⁸³

111. Spain explains that the Tribunal had two methodological options for determining the reasonable return principle and, consequently, whether damages should be awarded: to calculate them (i) based on the costs of an efficient standard plant, as proposed by Cavalum and FTI, to account for efficiencies; or (ii) based on the actual costs incurred by Cavalum’s plants, with a 1% premium added to the reasonable rate of return (WACC) to reward efficiencies, as proposed by Spain and Accuracy.⁸⁴ Spain submits that the Tribunal followed its approach when stating that “[t]he Tribunal’s conclusion, by majority, is that FTI’s approach is wrong in principle” and that “the only principled approach is to take actual investment costs, and not standard costs.”⁸⁵

112. Moreover, Spain asserts that the Tribunal did not take a third path, as alleged by Cavalum.⁸⁶ Instead, the Tribunal adopted the methodology proposed by Spain during the Arbitration.⁸⁷ Spain emphasizes that the Award did not exclude the efficiency standard from the reasonable return principle, as a 1% premium over the WACC was included when establishing the reasonable return benchmark to account for efficiencies.⁸⁸

113. Second, the Tribunal’s decision to assess compliance with the reasonable return principle, and calculate damages based on the specific costs and performance of Cavalum’s plants, aligns with the approach taken by other tribunals in similar cases, such as PV Investors, as

⁸² See Spain’s Counter-Memorial, ¶¶ 80-84. ↩

⁸³ See Spain’s Counter-Memorial, ¶¶ 85-92. ↩

⁸⁴ See Spain’s Counter-Memorial, ¶ 90. ↩

⁸⁵ Spain’s Counter-Memorial, ¶ 91. ↩

⁸⁶ See Spain’s Rejoinder, ¶ 39. ↩

⁸⁷ See Spain’s Counter-Memorial, ¶¶ 91-92. ↩

⁸⁸ See Spain’s Rejoinder, ¶¶ 49-50. ↩

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acknowledged by Cavalum itself.⁸⁹ For Spain, none of these other awards have been annulled on similar grounds nor have claimants in those cases alleged a manifest excess of powers.⁹⁰

114. In Spain’s Rejoinder, Spain submits that by improperly appealing substantive arguments from the Arbitration rather than addressing the specific grounds for annulment, Cavalum is seeking to re-open a dispute already decided by the Tribunal.⁹¹

115. Furthermore, Spain asserts that Cavalum’s Reply failed to counter Spain’s arguments due to the following four reasons.⁹²

116. First, Cavalum misinterprets the methodology used by the Tribunal in assessing the reasonable return principle.⁹³ For Spain, Cavalum’s references to Spain’s submissions in the Arbitration, which explained that the Spanish regulator calculated remuneration based on an efficient standard installation, reinforce Spain’s position.⁹⁴ Spain further asserts that the Tribunal followed its understanding and methodology, confirming that while standard installations served as the regulatory framework, verifying whether a particular plant achieved a reasonable return required consideration of its actual costs and cash flows.⁹⁵

117. Second, contrary to Cavalum’s claims, Accuracy proposed using Cavalum’s actual costs rather than those of a standard plant.⁹⁶ Spain cites to Accuracy’s reports, which from the outset used real investment costs to calculate the impact of the Disputed Measures and critiqued FTI’s reliance on standard costs.⁹⁷

118. Spain further notes that Cavalum’s own experts, FTI, also used real costs in certain calculations, such as when determining the plants’ return, undermining their current

⁸⁹ See Spain’s Counter-Memorial, ¶¶ 94-95, referring to Cavalum’s Memorial, ¶¶ 9, 118. ↩

⁹⁰ See Spain’s Counter-Memorial, ¶ 96. ↩

⁹¹ See Spain’s Rejoinder, ¶¶ 24, 36. ↩

⁹² See Spain’s Rejoinder, ¶ 51. ↩

⁹³ See Spain’s Rejoinder, ¶ 52. ↩

⁹⁴ See Spain’s Rejoinder, ¶¶ 52-53. ↩

⁹⁵ See Spain’s Rejoinder, ¶¶ 54-55. ↩

⁹⁶ See Spain’s Rejoinder, ¶¶ 61-62. ↩

⁹⁷ See Spain’s Rejoinder, ¶¶ 62-64. ↩

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argument against this approach.⁹⁸ Additionally, Cavalum’s witnesses, including Ms. Brandão, extensively addressed the real costs during the Arbitration. For Spain, all this reinforces that the Tribunal’s decision on this matter is consistent with the evidence presented by the Parties.⁹⁹

119. Third, Spain notes that the Tribunal adopted Accuracy’s proposal to use the WACC plus a 1% premium as the reasonable return benchmark. Spain emphasizes that this 1% premium was intended to remunerate efficiencies, consistent with Accuracy’s position that real costs, rather than standard costs, should be used to calculate the plants’ IRR.¹⁰⁰

120. Furthermore, Cavalum’s assertion that its plants were ‘superefficient’ was incorrect because “Cavalum’s plants were efficient in terms of investment cost (CAPEX) but half of them were inefficient in terms of operating costs (OPEX).”¹⁰¹ Thus, Accuracy was conservative by proposing 1% premium to compensate Cavalum for its efficiencies.

121. For Spain, Cavalum’s claim that Accuracy proposed a range of -0.1% to +5.4% as a premium for efficiencies is false because Accuracy merely highlighted this range as being implicit in FTI’s analysis.¹⁰²

122. Lastly, the reasonable return principle and the approach of assessing damages based on individual costs and performance of specific plants has been applied not only in the PV Investors award but also by other tribunals in renewable energy cases.¹⁰³ Spain notes that none of the awards rendered in those cases have been annulled, nor has there been any attempt to annul them on the grounds invoked by Cavalum.¹⁰⁴

⁹⁸ See Spain’s Rejoinder, ¶¶ 65-67. ↩

⁹⁹ See Spain’s Rejoinder, ¶¶ 68-70. ↩

¹⁰⁰ See Spain’s Rejoinder, ¶¶ 72-76; Joint Memorandum, “Summary of the Experts’ positions”, “Opinion of Mr. Saura, Mr Schmit and Mr. Perrotto”, Section A2 “Premium over the WACC”, p. 9 (C-332/R-0364); Award, ¶¶ 106-109, 208. ↩

¹⁰¹ Spain’s Rejoinder, ¶ 78. ↩

¹⁰² See Spain’s Rejoinder, ¶ 79. ↩

¹⁰³ See Spain’s Rejoinder, ¶ 80. ↩

¹⁰⁴ See Spain’s Rejoinder, ¶ 80. ↩

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(c) Conclusion

123. Spain concludes that Cavalum failed to demonstrate that the Tribunal manifestly exceeded its powers. Consequently, Cavalum’s Application based on this ground should be rejected.¹⁰⁵

(2) Failure to State Reasons

(a) Standard

124. According to Spain, a tribunal’s failure to address key issues raised by the parties may constitute a failure to state reasons under Convention Article 52(1)(e). However, for Spain, this applies only if the omitted issue is substantial enough to have a material impact on the outcome of the decision.¹⁰⁶

125. Spain also notes that Cavalum’s Memorial states that the scope of review is “strict” and the threshold for annulment is “high.”¹⁰⁷

(b) Application of the Standard to the Facts

126. Spain contends that the Award does not fail to state the reasons upon which it is based because of the following three reasons.¹⁰⁸

127. First, Spain asserts that the Award provided clear reasoning for using the actual costs of Cavalum’s plants and the WACC plus a 1% premium as the reasonable return benchmark, ensuring efficiencies were remunerated and fully addressing the relevant questions in line with the principle of reasonable return.

128. Spain argues that Cavalum’s claim that the Majority excluded the efficiency standard from the reasonable return principle is “simply not true.”¹⁰⁹ For Spain, the Majority incorporated

¹⁰⁵ See Spain’s Rejoinder, ¶ 83. ↩

¹⁰⁶ See Spain’s Counter-Memorial, ¶¶ 108-110; MINE Decision on Annulment, ¶¶ 6.99, 6.101(RL-0081); TECO Decision on Annulment, ¶ 138 (RL-0153). ↩

¹⁰⁷ Spain’s Counter-Memorial, ¶ 111. ↩

¹⁰⁸ See Spain’s Counter-Memorial, ¶¶ 112-114. ↩

¹⁰⁹ Spain’s Counter-Memorial, ¶ 115. ↩

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the efficiency standard implicitly in the reasonable return principle by adding a 1% premium to the WACC when establishing the reasonable rate of return target.¹¹⁰

129. Spain notes that the key dispute between the Parties centers on whether Cavalum’s plants achieved a reasonable return, which would determine their entitlement to compensation. Cavalum and FTI proposed using the costs of a standard plant, arguing that this approach better accounted for efficiencies.¹¹¹ By contrast, Spain argues that its expert Accuracy advocated for using the real costs of Cavalum’s plants, while applying a WACC plus 1% premium to remunerate efficiencies.¹¹² Spain submits that the Majority ultimately accepted its position, incorporating the efficiency standard into the reasonable return principle.¹¹³

130. Second, Spain argues that there is no contradiction. The Tribunal’s decision to consider the actual costs of Cavalum’s plants, rather than those of a standard plant, aligns with the concept of reasonable return and the implicit “efficiency standard." Spain highlights that the Award accounted for efficiencies by adding a 1% premium to the WACC when setting the reasonable return benchmark, a decision Cavalum omitted in its arguments. Spain also criticizes Cavalum’s contradictory position in the annulment proceedings, as it effectively seeks to double-count efficiencies by advocating for the use of standard plant costs while maintaining the additional 1% premium to the WACC.¹¹⁴ For Spain this amounts to an appeal rather than a valid annulment and argues that Cavalum’s position improperly suggests that more than full reparation should have been awarded.¹¹⁵

131. Third, Spain contends that committees have recognized the tribunals’ broad discretion in determining compensation.¹¹⁶ For Spain, the use of a 1% premium, as proposed by Spain’s expert, was a reasonable and valid approach.¹¹⁷ Spain further notes that in the Joint Model,

¹¹⁰ See Spain’s Counter-Memorial, ¶ 116. ↩

¹¹¹ See Spain’s Counter-Memorial, ¶¶ 117-119. ↩

¹¹² See Spain’s Counter-Memorial, ¶¶ 120-121. ↩

¹¹³ See Spain’s Counter-Memorial, ¶ 122. ↩

¹¹⁴ See Spain’s Counter-Memorial, ¶¶ 124-126. ↩

¹¹⁵ See Spain’s Counter-Memorial, ¶ 127. ↩

¹¹⁶ See Spain’s Rejoinder, ¶ 95; Impregilo Decision on Annulment, ¶ 160 (RL-0170). ↩

¹¹⁷ See Spain’s Rejoinder, ¶ 95. ↩

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FTI agreed that a single premium could be applied across all plants, undermining Cavalum’s argument for individual premiums.¹¹⁸ Additionally, the actual return was calculated on a plant-by-plant basis, demonstrating that the Tribunal considered each plant individually in its decision.¹¹⁹

(c) Conclusion

132. Spain concludes that the Committee should reject Cavalum’s Application under Convention Article 52(1)(e) because the Tribunal provided reasons in the Award.¹²⁰

C. COMMITTEE’S ANALYSIS

133. The Committee notes that Cavalum “only seeks”¹²¹ partial annulment of the Award.

134. In this section, the Committee will examine the two grounds of annulment advanced by Cavalum,¹²² namely: (i) manifest excess of powers under Convention Article 52(1)(b); and (ii) failure to state reasons upon which the Award is based under Convention Article 52(1)(e).¹²³

(1) Manifest Excess of Powers

(a) Standard

135. The Committee notes that the Parties agree¹²⁴ that to annul an award pursuant to Convention Article 52(1)(b), the Committee must apply a two-part test, inquiring into

¹¹⁸ See Spain’s Rejoinder, ¶ 96; Joint Model, Tab “Control”, Columns L-N (R-0373). ↩

¹¹⁹ See Spain’s Rejoinder, ¶ 97; Joint Model, Column E (R-0373). ↩

¹²⁰ See Spain’s Counter-Memorial, ¶¶ 139-140; Spain’s Rejoinder, ¶ 99. ↩

¹²¹ Cavalum’s Memorial, ¶ 139. ↩

¹²² See supra, ¶ 75. ↩

¹²³ See Cavalum’s Memorial, ¶ 99. In Cavalum’s Application, Cavalum asserted a third ground for annulment, namely, that there was a serious departure from a fundamental rule of procedure under Convention Article 52(1)(d). However, Cavalum later clarified in Cavalum’s Reply that the key issue in the proceedings was the Tribunal’s failure to address its arguments. While it stated that appearance of bias may in some cases fall under Article 52(1)(d), it finally concluded that the issue would be more appropriately considered under Article 52(1)(e) (see footnote 14). Cavalum also emphasized that “the ICSID system would not be well-served by a rule that could be misunderstood as a rigid bar against arbitrators adjudicating multiple similar cases, but would be well-served by a clear acknowledgement that arbitrators who do so should take care to acknowledge and address material arguments that might reflect poorly on the arbitrator’s prior decision.” Cavalum’s Reply, ¶ 74. ↩

¹²⁴ See Cavalum’s Reply, ¶ 12; Spain’s Counter-Memorial, ¶ 73. ↩

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whether (i) the tribunal exceeds its powers; and (ii) the excess is “manifest.” The Parties also agree that the term “manifest” sets a high threshold.¹²⁵

(b) Application of the Standard to the Facts

136. It is beyond contestation that the Parties have opposite positions as regards the scope of Cavalum’s legitimate expectations, which the Claimant describes as “the core liability dispute”¹²⁶ between them. Nonetheless, the gist of Cavalum’s argument under Convention Article 52(1)(b) is that an agreement was formed, considering Spain’s undisputed understanding of the reasonable return principle as including a reference to standard installations.¹²⁷

137. Cavalum summarized its position at the Hearing as follows:

Cavalum’s case was on the meaning of the reasonable return principle, and that we agreed completely on that secondary issue, so once we began to suspect that there was a possibility that the Tribunal would agree with Spain on the main issue, we then made very clear what our position was on the secondary issue and that there was an agreement within the disagreement [...].¹²⁸

138. For Cavalum, the Tribunal “ignored a point of clear party agreement and effectively stepped into the shoes of a regulator”¹²⁹ in deciding an issue contrary to the Parties’ undisputed position in the Arbitration. According to Cavalum, the Tribunal manifestly exceeded its powers by giving the reasonable return principle the meaning of a cap on the remuneration that any particular plant was entitled to receive based on its own cost and performance characteristics.¹³⁰

139. However, this is not an express agreement. It is one resulting from Cavalum’s understanding of Spain’s submissions regarding the reasonable rate of return, which in the

¹²⁵ See supra, ¶¶ 78, 106. ↩

¹²⁶ Cavalum’s Memorial, ¶ 3. ↩

¹²⁷ See Cavalum’s Memorial, ¶¶ 7-8. ↩

¹²⁸ Tr. Day 1, p. 256: 11-21. ↩

¹²⁹ Cavalum’s Memorial, ¶ 8. ↩

¹³⁰ See Cavalum’s Memorial, ¶¶ 7-8, 104-106. ↩

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Claimant’s own words, “always has been a metric used to set uniform subsidy rates for categories of plants based on an efficiency standard.”¹³¹

140. Cavalum refers to a sample of assertions from Spain’s memorials in the Arbitration.¹³² Some citations mention the methodology consisting of defining different standard facilities for fixing subsidies, which has been maintained by the New Regulatory Regime,¹³³ as the regulator does not calculate the return taking into account the specific costs of each investor.¹³⁴ Others highlight the purpose of the remuneration systems as providing plants a reasonable return on investment costs for a standard facility.¹³⁵ These references also emphasize that the standard and operating costs of a standard facility are in line with the actions of a diligent investor¹³⁶ or clarify that the target rate of return is not a cap or limit on profitability.¹³⁷ Cavalum infers from these extracts that neither Party ever asserted that the reasonable return principle, which formed the investor’s expectations, was limited to the receipt of a reasonable return based on the actual cost and performance of particular plants.¹³⁸ For Cavalum, there is thus no doubt that the investor’s real legitimate expectation was to receive a remuneration providing a reasonable return to an efficient standard plant scheme based on reasonable profitability.¹³⁹

141. By contrast, Spain interprets these extracts as showing that the Tribunal followed its position on the reasonable return principle.¹⁴⁰ For Spain, Cavalum’s understanding of the investor’s legal entitlement as a reasonable rate of return to a standard plant¹⁴¹ was never Spain’s case. Spain explained that investors are entitled to a reasonable rate of return by

¹³¹ Cavalum’s Memorial, ¶ 7. ↩

¹³² See Cavalum’s Memorial, ¶ 59. ↩

¹³³ See Spain’s Counter-Memorial on the Merits and Memorial on Jurisdiction, ¶¶ 22, 26, 32, 506 (C-016) (“Spain’s CM on Merits”). ↩

¹³⁴ See Spain’s Rejoinder on Merits and Reply on Jurisdiction, ¶¶ 386-387 (C-320) (“Spain’s Rejoinder on Merits”). ↩

¹³⁵ See Spain’s CM on Merits, ¶ 1066 (C-016); Spain’s Rejoinder on Merits, ¶¶ 321, 812, 857 (C-320). ↩

¹³⁶ See Spain’s CM on Merits, ¶¶ 817, 819, 838 (C-016); Spain’s Rejoinder on Merits, ¶¶ 405-795 (C-320). ↩

¹³⁷ See Spain’s CM on Merits, ¶ 814 (C-016); Spain’s Rejoinder on Merits, ¶ 793 (C-320). ↩

¹³⁸ See Cavalum’s Memorial, ¶¶ 60-61. Tr. Day 1, pp. 160: 19-25, 161-163: 1-3. ↩

¹³⁹ Tr. Day 1, pp. 176: 7-25, 177-179. ↩

¹⁴⁰ See Spain’s Rejoinder, ¶ 53. ↩

¹⁴¹ Tr. Day 1, p. 262: 1-25. ↩

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reference to the cost of money in capital market.¹⁴² Implementation of the incentive regime can only be organized by the regulator by providing a homogeneous remuneration for all plants of a same type referred to as standard installations, and not by providing a reasonable return to each individual facility. This is due to the massive size and diversity of the sector as there are thousands of different plants that can be built with different characteristics.¹⁴³ Spain specified that the regulator calculates the remuneration based on an efficient standard installation with the aim of achieving a reasonable rate of return and explained that this methodology is consistent with the fact that the actual costs and cashflows of a particular plant need to be taken into consideration for assessing whether that particular facility has achieved the said reasonable rate of return.¹⁴⁴ Spain described standard installations, not as being the principle, but as the reference, in the methodology to reach the principle used to set the specific subsidies.¹⁴⁵

¹⁴² Tr. Day 1, pp. 273: 5-16, 279: 7-18; Tr. Day 2, pp. 298-305:1-5, 307: 15-24. See also Spain’s CM on Merits (C-016), ¶ 16 (“Therefore, the Spanish system for supporting renewable energies has always been based on the principle of “reasonable return on the cost of money on the capitals market” as an objective. This principle was initially established in Article 30(4) of Act 54/1997 and has remained in Article 14(7) of Act 24/2013. This Principle guaranteed and guarantees to the investor, until a “level playing field” is achieved, the recovery (1) of the investment in the generation facility’s construction, (2) of operating costs and (3) obtaining a return, which must be reasonable according to the capitals market”); ¶ 18 (“The same methodology has always been maintained for this purpose. This consisted, and consists of defining, within each technology and according to the state of the art that exists at any given time, different standard facilities. Once said standard facilities had been determined, different benchmarks were established in each one (cost of investment, operating cost, useful life of the plant, production hours subject to a premium, market price), which permitted said standard facility to earn a reasonable return, according to the cost of money on the capitals market”). ↩

¹⁴³ See Spain’s Rejoinder, ¶ 54. Tr. Day 1, p. 238: 1-10. See also Spain’s CM on Merits (C-016), ¶ 1039(6) (“In addition to the absence of a commitment in their favour by the Kingdom of Spain, already outlined, an investor that had made a reasonable analysis of the regulatory framework applicable to the Spanish RE sector knew or ought to know that this Framework had the following basic principles: (6) That the determination of the subsidies is fixed on the basis of changing demand and other basic economic data, set out in the Renewable Energies Plans on the costs of investment and operation of standard installations with the objective that these installations achieve reasonable profitability during their useful life”); ¶1040 (“These basic principles constitute the objective legitimate expectations of a diligent investor”). ↩

¹⁴⁴ See Spain’s Rejoinder, ¶ 56. ↩

¹⁴⁵ See Spain’s Rejoinder, ¶ 55. Spain’s CM on Merits (C-016), ¶ 22 (“It will also prove that RD 436/2004 modified the remuneration model. This RD 436/2004, linked to the RE Development Plan 2000-2010, continued to follow the methodology consisting of defining different standard facilities. Once said standard facilities had been determined, different benchmarks were established in each one (cost of investment, operating cost, useful life of the plant, production hours subject to a premium, market price), which permitted said standard facilities to earn a reasonable return, according to the cost of money on the capitals market”); ¶ 26 (“RD 661/2007, on the determination of subsidies, maintained its link to the methodology explained above for standard facilities, set out in the Renewable Energies Plan 2005-2010. Similarly, it maintained its link to the base economic parameters set out in the aforementioned Plan”); ¶ 32 (“This reform has maintained the following essential elements of the renewables support system: (a) Priority ↩

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142. Spain further explained at the Hearing the role of standard installations as follows.¹⁴⁶ First, the regulator fixes the renewable reasonable return target in relation to the cost of money in the capital market.¹⁴⁷ Second, it determines the specific tariffs and subsidies in order for the investors to reach that target reasonable rate of return by reference to a standard efficient plant cost.¹⁴⁸ Third, once calculated, those tariffs and specific subsidies are incorporated into the regulations or other pieces of legislation. Investors thus knew that, if they incurred the costs of an average plant, they would get the specific return that had been

access. (b) Priority dispatch. (c) The methodology for fixing subsidies based on the establishment of type and standard facilities. (e) The earning of the market price for energy sold, plus a subsidy, with the aim of achieving reasonable rates of return, with reference to the cost of money on the capitals market, allowing them to compete on the market under equal conditions. (f) Premiums are a SES cost that must guarantee its operation in a sustainable manner”).

¹⁴⁶ Tr. Day 2, pp. 301: 3-25, 302, 303: 1-10, 308: 8-25, 309: 1-12. ↩

¹⁴⁷ See Spain’s CM on Merits (C-016), ¶¶ 377, 378 (d) (“The definitiveness, clarity and continuity of the applicable case-law leaves no doubt about the scope, content and legal limits of the remuneration scheme based on the reasonable profitability to which investors were entitled. And therefore, it leaves no doubt concerning the real legitimate expectations that the Kingdom of Spain was offering to all investors, regardless of whether they are Spanish or from overseas.” “In other words, all investors knew or should have known the following essential conditions of the special scheme remuneration system: d) This subsidy has always been set based on the investment and operating costs of a standard facility, and its objective is for investors to be able to recover the CAPEX and OPEX and earn reasonable profitability according to the capital market”); ¶ 506 (“We must also remember that, in the Spanish model, the CAPEX and the OPEX have never been designed in reference to a specific installation of particular investor. These costs have always referred to a standard facility. Always referring to an efficient investor in terms of cost [...]”) (emphasis omitted). Spain’s Rejoinder on Merits (C-320) ¶ 405 (“Also, in the Spanish model, the CAPEX and the OPEX have never been drawn up with reference to a particular facility of a particular investor. These costs have always referred to a standard facility. Always picturing an efficient investor in terms of cost [...]”); ¶ 812 (“The subsidies that derived from RD 661/2007 were not laid-down in contemplation of each investor’s individual plants. Said subsidies had the objective of achieving a certain return on investment costs established at standard facilities”); ¶ 857 (“In any case, both remuneration systems have the same purpose: to provide plants with a reasonable return on the investment costs for a standard facility. Also, in the two models the same components are taken into account to achieve said purpose: the market price and the subsidy that supplements the former. The essence of the remuneration model envisaged in Act 54/1997 is currently maintained”). ↩

¹⁴⁸ See Spain’s Rejoinder on Merits (C-320), ¶ 321 (“Secondly, one of the key elements for setting the premiums is the investment cost incurred. The Spanish system of support for renewables is based on providing a reasonable return on investment costs. Investment costs of a standard facility. We shall return to this issue later when we consider the way in which the reasonable return was determined”); ¶¶ 386-387 (“The Regulator does not calculate the return taking into account the specific costs of each investor. The premiums established by RD 661/2007 are set with the aim of providing a Standard Facility a return of about 7% according to the standards set in the PER 2005 -2010 itself: the CAPEX of a Standard Facility, the OPEX of a Standard Facility, equivalent operating hours, unit costs, implementation periods, useful life and selling prices of the final energy unit”; “The Government does not set the return in an arbitrary way. According to the 2005-2010 PER, the Regulator acknowledges and reconstructs an economic structure of exploitation identifying the standard costs of a standard facility (CAPEX) and its operating and maintenance costs (OPEX), in line with the actions of a diligent investor. Once this first phase has concluded, it proceeds to set a balanced and proportionate target of economic return in terms of profitability, according to certain standards established for a Standard Facility. This target was set for solar photovoltaic projects at approximately a 7% return”). ↩

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targeted. But if investors managed to build their plants for slightly lower costs, they would get more than the targeted return because they would be beating the standard.¹⁴⁹

143. Spain argued at the Hearing that:

the standard installations are not part of the legal entitlement. The legal entitlement is to grant a reasonable rate of return by reference to the cost of money in the capital markets. Standard installations are merely used as a reference in the methodology used to set the specific subsidies that Spain is going to give to make sure that the investors get what they are entitled to, a reasonable rate of return.¹⁵⁰

144. Cavalum questioned at the Hearing whether there was a major disagreement between the Parties as the notion of reasonable return cannot be isolated from that of the reasonable return to a standard facility, because the regime provided investors with a set amount of remuneration that would enable a standard facility to get the targeted rate of return.¹⁵¹ The alleged agreement on the meaning of the reasonable return principle would in this way stem from an analysis of Spain’s legislation and practice.¹⁵²

¹⁴⁹ See Spain’s CM on Merits (C-016), ¶ 817 (“Similarly, if the plant continues to produce more energy than forecast for the standard installation it could sell that energy in the market receiving the corresponding market price and consequently obtaining a higher return than forecast for the standard installation”); ¶ 819 (“Consequently, if the facility manages to improve the parameters taken into consideration to define a standard facility (investment cost, cost of operation and production, etc.) it would beat the standards and obtain a return in excess of 7.398 %”); ¶ 838 (“If the actual investment costs are the same as those forecast for the corresponding Typical Installation, the plant would be guaranteed the recovery of the investment made in its construction and, furthermore, if its operating costs are in line with those of an efficient and well-managed company, a minimum return of 7.398. If the investment costs are lower than those of the installation, the return it will obtain will be higher than 7.398. However, if the costs incurred in the construction of a plant are not those of an efficient and well-run company, its return arising from the regulatory framework will not reach as high as 7.398%”). Spain’s Rejoinder on Merits (C-320), ¶ 793 (“In any case we should state that the aforementioned figure is not a ceiling or limit on returns. It is the expected return for that facility, whose investment and operation costs match the parameters of the applicable standard facility”); ¶ 795 (“If the investor is efficient and is able to reduce its investment costs below the parameter set for the applicable standard facility, it will obtain a higher return for investment. Similarly, if the facility is able to reduce its operating and maintenance costs below the parameter set for the standard facility, it will obtain a higher return for operation”). ↩

¹⁵⁰ Tr. Day 2, p. 304: 14-23. ↩

¹⁵¹ Tr. Day 2, pp. 309: 14-16, 310: 23-25, 311: 1-6. Cavalum acknowledged at the Hearing that, once the legal entitlement is decided, the damages owed to every plant have to be calculated on a plant-by-plant basis (Tr. Day 1, p. 249: 1-10). ↩

¹⁵² Tr. Day 1, pp. 274: 14-25, 275: 1-11, 276: 22-25, 277: 1-10. Spain pointed out that Law 54 of 1997 speaks about a reasonable rate of return by reference to the cost of money in the capital market while Cavalum considers that Law 54 is silent on whether the reasonable return principles should be treated as a guarantee towards standard plants or as a guarantee towards specific facilities. However, the Claimant adds that it is consistent with Law 54 to set subsidies on the basis of standard facilities because that was Spain’s practice. It further notes that law and practice are consistent. ↩

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145. In line with what precedes, the Claimant asserts that the Parties’ positions are not too far apart on the meaning of the law. Cavalum does not contest that Law 54 of 1997, which created the Special Regime,¹⁵³ mentions a reasonable rate of return by reference to the cost of money in the capital market.¹⁵⁴ The Claimant considers that “in implementing regulation and, to get to [the cost of money in the capital markets] the only thing ever used by the Spanish regulator was a standard plant, it was the efficient standard”.¹⁵⁵ Cavalum invites the Committee to follow its interpretation of Spain’s legislative regime, backed by further interpretation of witness testimony, as evidencing the Claimant’s entitlement to a reasonable return with reference to the cost of money in capital markets that necessarily entails the notion of standard installations.

146. Furthermore, Cavalum alleges that Spain disagreed with its own expert’s calculations of the quantum on the basis of a reasonable return to its specific investments which contradicts a core premise of Spain’s entire case.¹⁵⁶ The Claimant refers to FTI, who offered an alternative scenario for how to calculate Cavalum’s losses which incorporated Spain’s own efficiency standard.¹⁵⁷ Spain replied that its position and that of Accuracy had always been that the costs and characteristics of a particular plant (and not those of a standard plant) should be considered for liability and quantum.¹⁵⁸

147. The Committee does not need to investigate further the extent of the alleged disagreement between Spain and its expert or between the experts.¹⁵⁹ Regardless of Accuracy’s qualifications to offer an opinion on Cavalum’s legal entitlement,¹⁶⁰ the recommendations of the experts are evidentiary in nature. Only the Parties’ submissions which determine the object of the dispute may be taken into consideration for a manifest excess of powers.

¹⁵³ Act 54/1997 on the Electric Power Sector (C-066). ↩

¹⁵⁴ Tr. Day 2, p. 326: 6-25, 327: 1. ↩

¹⁵⁵ Tr. Day 2, pp. 326: 6-25, 327: 1-12. Cavalum explained at the Hearing that “standard facility” and “efficiency standard” are interchangeable terms (Tr. Day 1, pp. 262: 14-25, 263: 1). ↩

¹⁵⁶ Tr. Day 1, p. 181: 5-9. ↩

¹⁵⁷ Letter of 29 January 2021, p. 2 (C-315). Slide 40. Cavalum’s Memorial, ¶¶ 63-65. ↩

¹⁵⁸ See Spain’s Counter-Memorial, ¶¶ 85-86; Spain’s Rejoinder, ¶¶ 62-69. ↩

¹⁵⁹ See Spain’s Rejoinder, ¶ 66. ↩

¹⁶⁰ See Cavalum’s Reply, ¶¶ 21, 25. Tr. Day 1, pp. 180: 15-25, 181: 1. ↩

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148. Before proceeding any further, the Committee observes that Cavalum has rightly put forward that an annulment is not an appeal.¹⁶¹ In this regard, Cavalum has successfully opposed Spain’s First Request to submit new expert reports on quantum in the context of Cavalum’s Application.¹⁶²

149. The “point of clear party agreement,”¹⁶³ whose alleged existence was ignored by the Tribunal, according to Cavalum, cannot be considered by the Committee as an issue of merits but within the context and for the purpose of Convention Article 52(1)(b). Under this provision, ad hoc committees have early established that “the excess of power must be self-evident rather than the product of elaborate interpretations one way or the other.”¹⁶⁴

150. As mentioned above,¹⁶⁵ the Committee is invited to identify an agreement against the backdrop of the “core liability dispute” between the Parties regarding the scope of Cavalum’s legitimate expectations. The Committee notes that there appears to be a disagreement as to whether the use of the real costs or of the standard costs of plants is an issue pertaining to the definition of an investor’s legal entitlement, as Cavalum declares, or an issue of quantum, as Spain claims.¹⁶⁶ For Cavalum, the disagreement on the use of actual or standard costs is subsidiary to the primary disagreement.¹⁶⁷ According to the Claimant, the Tribunal conflates two issues, i.e., the definition of the reasonable return principle and the assessment of damages.¹⁶⁸

151. The accumulation of disagreements, which are all obstacles to identifying Cavalum’s alleged “clear agreement,” induces the Committee to make further remarks on the interpretation and application of the “manifest” requirement under Convention Article 52(1)(b).

¹⁶¹ See Cavalum’s Memorial, ¶ 101. See also supra, ¶ 78. ↩

¹⁶² See supra, ¶¶ 44, 45. ↩

¹⁶³ Cavalum’s Memorial, ¶ 8. ↩

¹⁶⁴ Wena Hotels Limited v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Decision on the Application for Annulment, 5 February 2002, ¶ 25 (RL-0086) (“Wena Decision on Annulment”). ↩

¹⁶⁵ See supra, ¶ 136. ↩

¹⁶⁶ Tr. Day 1, pp. 232: 18-25, 233: 1-7. ↩

¹⁶⁷ Tr. Day 1, p. 233: 18-24. ↩

¹⁶⁸ See Cavalum’s Memorial, ¶ 8. ↩

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152. “Manifest” denotes an excess of powers of some intensity. Cavalum recognizes that the threshold for applying “this exceptional rule is very high.”¹⁶⁹ Notwithstanding the relevance and appropriateness of such an acknowledgement, the Committee is left to search for an agreement – if any – whose existence could only be revealed by interpreting laws and regulations constituting the Spanish incentive regime, and by analyzing the witness statements and the expert reports in the Arbitration. Therefore, the Committee cannot share Cavalum’s assertion that “no ‘elaborate interpretations' are required.”¹⁷⁰

153. The continuation of this debate would require that the Committee unearth the alleged “clear agreement” – if any – from a full review of the entire record of the Arbitration, including the decisions of other investment tribunals.¹⁷¹ Such a review would amount to a retrial of the case. This would amount to an appeal, not an annulment, of Cavalum’s claim.¹⁷² As another committee held, “if the issue requires examination of the materials on which the tribunal’s decision is based, the tribunal’s determination is conclusive.”¹⁷³ A tribunal which exceeds the boundaries of its mission as charted by the parties’ submissions, including any amendments thereto or formal agreement reached on one issue during the arbitration, is censorable under Convention Article 52(1)(d). Moreover, a claim, such as the one from Cavalum, that the Tribunal ignored the Parties’ implicit agreement during the Arbitration would under the cloak of manifest excess of powers address the merits. And

¹⁶⁹ See supra, ¶ 78. Cavalum’s Memorial, ¶ 101, referring primarily to AES Decision on Annulment, ¶ 33 (RL-0042). ↩

¹⁷⁰ Cavalum’s Memorial, ¶ 106. See Wena Decision on Annulment (RL-0086), ¶ 25 (“The excess of power must be self-evident rather than the product of elaborate interpretation one way or the other. When the latter happens the excess of power is no longer manifest”). ↩

¹⁷¹ See Cavalum’s Memorial, ¶¶ 66-67. Whether these other awards which, as Spain submits, have adopted the same solution on the reasonable return principle (see Spain’s Counter-Memorial, ¶¶ 94-97; Spain’s Rejoinder ¶¶ 80-82) is however not at issue here because Cavalum’s grievance is about the Tribunal ignoring a parties’ agreement, not its ignorance of the applicable law (Cavalum’s Reply, ¶¶ 42-43). An arguable error or tenable interpretation is not a manifest excess of power (See MTD Equity Sdn Bhd and MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/01/7, Decision on Annulment, 21 March 2007, ¶ 47 (CL-277); Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines, ICSID Case No. ARB/03/25, Decision on the annulment request, ¶¶ 112, 118, (CL-271) (“Fraport Decision on Annulment”). ↩

¹⁷² Infrastructure Services Luxembourg S.À.R.L. and Energia Termosolar B.V. (Formerly Antin Infrastructure Services Luxembourg S.A.R.L. and Antin Energia Termosolar B.V.) v. Kingdom of Spain, ICSID Case No. ARB/13/31, Decision on Annulment, 30 July 2021, ¶ 168 (CL-294) (“Antin Decision on Annulment”) (“The Committee “cannot review de novo the facts, evidence and criteria used by the Tribunal [...], nor can the Committee make or substitute its own findings of fact in lieu of the Tribunal’s”); Watkins and others v. Kingdom of Spain, ICSID Case No. ARB/15/44, Decision on Annulment, 21 February 2023, ¶ 118 (CL-316) (“Watkins Decision on Annulment”). ↩

¹⁷³ CDC Decision on Annulment, ¶ 41 (CL-0262). ↩

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searching through the Arbitration record for the existence of an alleged implied agreement by the Parties exceeds the Committee’s mandate under Convention Article 52.

154. Having dealt with Cavalum’s argument that the Tribunal departed from the Parties’ agreement, the Committee now moves to Cavalum’s allegation that by disregarding such agreement, the Tribunal chose a “third path.”¹⁷⁴

155. Cavalum’s argument is grounded on a well acknowledged example of manifest excess of power under international law as “that of a tribunal having been asked to adjudicate on one of two possible boundary lines submitted by the parties [but] chooses a third line.”¹⁷⁵ Indeed, to modify the parties’ submissions is reprehensible because a failure to take into account the parties’ submissions, or a distortion thereof, amounts to acting beyond the authority granted by the parties to the tribunal.

156. The “third path” argument, according to which the Tribunal endorsed the role of a regulator by creating an entirely new regulatory model that was never advanced by Spain, fails as a consequence of the rejection of Cavalum’s first line of arguments. As the Committee cannot identify an agreement between the Parties under its limited mandate, it cannot determine whether the Tribunal took such a “third path.”

157. Inasmuch as the two grounds that Claimant invokes in support of Cavalum’s Application, namely manifest excess of powers and failure to state reasons, are “highly intertwined,”¹⁷⁶ the Committee will now examine Cavalum’s allegation that Spain’s interpretation of the premium over WACC cannot offset the failure to include an efficiency standard¹⁷⁷ with that latter ground.¹⁷⁸

¹⁷⁴ See Cavalum’s Memorial, ¶¶ 7-9, 15, 104, 105. ↩

¹⁷⁵ Wena Decision on Annulment, ¶ 25 (CL-261/RL-0086). ↩

¹⁷⁶ Cavalum’s Reply, ¶ 47. ↩

¹⁷⁷ See Cavalum’s Reply, ¶¶ 29-41. ↩

¹⁷⁸ See Spain’s Counter-Memorial, ¶¶ 115-127, 136-139. ↩

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(c) Conclusion

158. Based on the Parties’ submissions in the annulment proceedings, and pursuant to its limited mandate, the Committee cannot identify an agreement between the Parties regarding the meaning of the reasonable return principle. The Committee finds that the Tribunal neither ignored such an agreement nor took a “third path.” Therefore, the Committee decides that the Tribunal did not exceed its powers and dismisses Cavalum’s Application based on Convention Article 52(1)(b).

(2) Failure To State Reasons

(a) Standard

159. The Committee notes that the Parties agree that the threshold for annulment is high under Convention Article 52(1)(e), which is intended to ensure that the reader can understand the reasoning of a tribunal.¹⁷⁹ It reminds that whether the reasoning is correct or convincing is not relevant to determine whether a tribunal has failed to state reasons. By contrast, reasons which cancel each other out do not allow the reader to understand the tribunal’s reasoning and are regarded, as such, as one of the manifestations of absence of reasons. Another manifestation is the failure to address submissions which are material to resolve the dispute.¹⁸⁰

160. The control of reasons by an ad hoc committee has a restricted application given the limited scope of review of awards under Convention Article 52(1). Under this provision, a committee cannot reevaluate the evidence of the arbitration record to determine whether there is an irreconcilable contradiction in the tribunal’s motives. Also, the ICSID Convention forbids an enquiry into the substance of the case. Therefore, the focus of a review under Convention Article 52(1) concerns the award, not the arbitration record, as that would be the case for an appeal.¹⁸¹

¹⁷⁹ See supra, ¶¶ 89, 125. ↩

¹⁸⁰ ICSID Background Paper (CL-245). ↩

¹⁸¹ See Tulip Real Estate and Development Netherlands B.V. v. Republic of Turkey, ICSID Case No. ARB/11/28, Decision on Annulment, 30 December 2015, ¶ 44 (CL-272); Alapli Elektrik B.V. v. Republic of Turkey, ICSID Case No. ARB/08/13, Decision on Annulment, 10 July 2014, ¶ 245 (CL-269) (“Alapli Decision on Annulment”); Lemire Decision on Annulment, ¶ 233 (CL-0280). ↩

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(b) Application of the Standard to the Facts

161. Cavalum claims that the Award displays a “significant lacuna,”¹⁸² making it “impossible to ascertain why the Tribunal excised an efficiency standard from its definition of the reasonable return principle, and how that can be reconciled with Spain’s clear and consistent concessions that an efficiency standard has always been an essential element of that principle.”¹⁸³

162. For Cavalum, this lacuna implicates all the different scenarios in which a failure to state reasons can give rise to an annullable error.¹⁸⁴ Among those scenarios identified by Cavalum,¹⁸⁵ the Committee consolidates below absence of reasons and inadequacy of reasons insofar as Cavalum has only clearly distinguished between (i) absence, (ii) contradiction, and (iii) failure to address submissions, when it substantiated its claims under Convention Article 52(1)(e).¹⁸⁶

(i) Absence of Reasons

163. As mentioned above,¹⁸⁷ Cavalum alleges that the Tribunal did not explain its decision to exclude the efficiency standard from the reasonable return principle while concluding that said principle was the cornerstone of the incentive regime and the ground of an investor’s legitimate expectations. For Cavalum, had the Tribunal provided explanations, it would have taken notice of Spain’s repeated concessions that an efficiency standard has always been an essential component of that cornerstone principle.¹⁸⁸ This would have required that the Tribunal then either incorporate an efficiency standard when applying such principle to the facts of this case or explain why it did not do so.¹⁸⁹

¹⁸² See Cavalum’s Memorial, ¶ 115. ↩

¹⁸³ See Cavalum’s Memorial, ¶ 115. ↩

¹⁸⁴ See Cavalum’s Memorial, ¶ 115. ↩

¹⁸⁵ See supra, ¶ 91. ↩

¹⁸⁶ See Cavalum’s Memorial, ¶¶ 116-118. ↩

¹⁸⁷ See supra, ¶ 93. ↩

¹⁸⁸ See Cavalum’s Memorial, ¶ 116. ↩

¹⁸⁹ See Cavalum’s Memorial, ¶ 116. ↩

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164. Spain identifies an implicit reference to the efficiency standard in paragraph 207¹⁹⁰ of the Award. In this paragraph, the Tribunal held that it “prefers Accuracy’s alternative figure of 1%, on the basis that it would reflect investors’ expectations, rather than FTI’s 1.8%, because there is no principled basis for FTI’s reliance, for the 1.8% figure, on the returns under RD 661/2007 since (as Accuracy says) the Tribunal has found that the Claimant had no vested right to those returns.”¹⁹¹ According to Spain, the Tribunal implicitly considered the efficiency standard when accepting Accuracy’s proposal in the Joint Memorandum to use the actual costs of the Claimant’s specific plants and adding a 1% premium over the WACC, to set the benchmark for reasonable return.¹⁹²

165. Cavalum counters that the Tribunal never endorsed Accuracy’s position regarding the reasons for including a premium in the reasonable return benchmark. For Cavalum, the Tribunal merely agreed with Accuracy concerning the proposal for the premium, i.e. 1%, rather than with FTI’s proposal of 1,8%.¹⁹³

166. The discussions at the Hearing showed, as Cavalum explained, that the Tribunal agreed, not with Accuracy (Spain’s expert), but with FTI (Cavalum’s expert). FTI had proposed that a premium was appropriate because Spain had considered that a premium over WACC should be included for attracting a large amount of investment in a short amount of time.¹⁹⁴ The Tribunal held a paragraph 207 of the Award as follows:

The Tribunal considers that FTI is right in principle to come to the 6% figure by taking an initial 5.3% WACC estimation and adding a 0.7% risk premium to the post-tax WACC to reflect the increased level of risk that the New Regulatory Regime entails. It also agrees with FTI that a premium should be added to the WACC to calculate the post-tax RRR in order to

¹⁹⁰ See supra, ¶ 31. ↩

¹⁹¹ Award, ¶ 207. ↩

¹⁹² Joint Memorandum, Section A2 Premium over the WACC, p. 10 (C-332/R-0364). Tr. Day 1, pp. 237: 13-21, 243: 5-17, 244: 5-23. ↩

¹⁹³ See Cavalum’s Reply, ¶¶ 35-36. Tr. Day 2, pp. 184, 185, 186: 1-5, 330: 23-24, 331-338: 1-11, 346: 12-23. ↩

¹⁹⁴ Cavalum’s Reply, ¶¶ 60, 63. See also Joint Memorandum (C-332/R-0364)), p. 17: “the WACC is the market remuneration of an efficient investor. We [Accuracy] accept that it can be reasonable for some companies to obtain returns above the WACC if the investor was particularly efficient. [...] We explained that considering the actual building costs of the Plants (i.e. €88.1 million), a 1% premium would be reasonable. Of course, if the Actual costs are not efficient or the RRR is based on standard costs there is no room for a premium over the WACC.” ↩

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reflect the scope for investors to create value by earning returns above the cost of capital.¹⁹⁵

167. However, the discussion regarding the WACC may not be seen as evidence that the Tribunal stepped into the shoes of a regulator, ignoring thereby the Claimant’s assertions on the efficiency standard. The Claimant’s scenario assumes that Spain’s case about the reasonable return was to an efficient standard plant. Yet, absent any determination¹⁹⁶ that Spain’s case was what Cavalum wishes to read in Spain’s submissions,¹⁹⁷ no explanation about why and how the Tribunal “excised”, according to the Claimant, “the efficiency standard from the ‘reasonable return' principle”¹⁹⁸ can be said to be necessary to satisfy the obligation to provide reasons.

168. The Committee will now examine Cavalum’s further argument under Convention Article 52(1)(e) that the Award is based on contradictory reasons.

(ii) Contradictory Reasons

169. Cavalum claims that the Tribunal contradicted itself by endorsing, on the one hand, Cavalum’s position that legitimate expectations are grounded in the reasonable return principle, and rejecting, on the other hand, Spain’s position regarding the substance of the principle which, according to Cavalum, guaranteed a reasonable return to an efficient standard plant.¹⁹⁹ For Cavalum, this amounts to an absence of reasons because the reasons cancel each other out.²⁰⁰

170. Inasmuch as it could not be determined that a reasonable return approach to an efficient standard plant was Spain’s case,²⁰¹ the Tribunal’s reasons cannot be found to being contradictory.

¹⁹⁵ Award, ¶ 207. ↩

¹⁹⁶ See supra, ¶ 158. ↩

¹⁹⁷ See Cavalum’s Memorial, ¶¶ 9, 53, 59, 122, 130. ↩

¹⁹⁸ Cavalum’s Reply, ¶ 69. ↩

¹⁹⁹ See supra, ¶ 94. ↩

²⁰⁰ See supra, ¶ 94. ↩

²⁰¹ See supra, ¶ 158. ↩

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(iii) Failure to Address Submissions

171. Cavalum alleges²⁰² that the Tribunal failed to address its submissions on the “efficiency standard.”²⁰³

172. In Cavalum’s Comments on PV Investors, where that tribunal applied the reasonable return principle in the same way as this Tribunal did,²⁰⁴ Cavalum stressed that FTI’s calculations of loss were consistent with “the correct way to assess harm under a reasonable return approach [...] [which] is the alternative tariff model that the PVI tribunal started to implement, but then inexplicably abandoned by considering actual IRRs.”²⁰⁵

173. The Claimant also contrasted FTI’s approach with Accuracy’s approach, arguing:

Accuracy’s ABV model is completely unhelpful to any reasonable return analysis. As FTI explains, what Accuracy’s ABV model really measures is the difference in IRR between Claimant’s plants and the standard plant arising from the fact that the Claimant’s plants cost less than the standard. That is the exact wrong thing to measure, because it is completely inconsistent with core principles of Spain’s regulatory framework to

²⁰² See supra, ¶ 96. ↩

²⁰³ An interchangeable term with “standard facility” as already noted. See Tr. Day 1, pp. 262: 14-25, 263: 1. ↩

²⁰⁴ Cavalum’s Comments on PV Investors (C-316), ¶ 13: “Inexplicably, however, the PVI majority then did an about-face, and reintroduced actual costs and IRRs into its analysis. It determined that actual costs are relevant to the experts’ IRR calculations, and embarked on a fraught analysis of what categories of cost are properly included in those calculations. Then, in its final conclusion, it decided that damages are only due to those plants whose actual IRRs are below the reasonable rate of 7%. This approach is completely irreconcilable with its conclusion just pages earlier that damages should be calculated using a DCF with an alternative tariff that would provide a reasonable return to a standard plant. It also is just wrong, because it contradicts a fundamental principle of Spain’s regime (from the ORR to today) that remuneration should provide a reasonable return to a standard plant, not to each particular plant”. See also Tr. Day 2, pp. 320: 23-25, 321: 1-12. ↩

²⁰⁵ Cavalum’s Comments on PV Investors (C-316), ¶ 19: “FTI’s alternative calculations of loss under a “reasonable return” theory are consistent with this approach. FTI evaluates Claimant’s losses assuming that the standard plant was entitled to a post-tax return of either 8% or 7% and concludes that there are significant losses (€52.1 or €41.9 million, respectively). That should not be surprising; it confirms Claimant’s point that plants across Spain are receiving far less than a reasonable return, even using Spain’s post-hoc standard plant parameters. However, FTI assumed a reasonable rate of return fixed as of 2007 and no debt financing in the capital structure, both of which increase the calculation of loss. If the tribunal were to reach different findings regarding the benchmark reasonable return or whether debt financing should be considered, FTI would need to revise its calculations”. Cavalum described in those comments how the Tribunal should proceed to correctly assess harm under a reasonable return approach: “Under the correct approach, a tribunal should: (a) determine the reasonable return benchmark; (b) derive an alternative tariff that would allow a standard plant to earn the return benchmark (using Spain’s own standard plant parameters from the NRR); (c) insert the alternative IRR into the DCF model in the Counterfactual scenario in place of the ORR tariff; and (d) assess harm based on the difference in value between this alternative Counterfactual and the Actual scenario” (¶ 18). ↩

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conclude that Cavalum’s plants are entitled to less remuneration because they are more efficient than the typical plant in Spain.²⁰⁶

174. The Committee notes that the Parties’ submissions on the PV Investors award are mentioned in the “Post-Hearing Procedures” section of the Decision.²⁰⁷ However, considering the absence of any further allusion to these submissions elsewhere in the Decision, Cavalum submits that it was unclear whether the issue of the conflict between the PV Investors tribunal’s actual cost approach and the structure of Spain’s incentive regime had already been determined in the Decision.²⁰⁸

175. The Committee further notes that Cavalum wrote to the Tribunal on 17 December 2020, seeking clarification on whether the experts’ Joint Model and Memorandum may consider new evidence relevant to the questions posed by the Tribunal in the Decision. In the letter, Cavalum stated that

Spain itself has consistently and unambiguously acknowledged that the principle of “reasonable return” in its remuneration framework has always been a guarantee addressed to a standard plant, and not a guarantee (or limit) of the returns to be achieved by any particular plant. [...] in order to assess whether the New Regulatory Regime is compatible with that principle, it is logically necessary to assess whether a standard plant earns a reasonable return under the New Regulatory Regime.²⁰⁹

²⁰⁶ Cavalum’s Comments on PV Investors (C-316), ¶¶ 19-20. “Put differently, once a tribunal decides that investors are not entitled to immutable tariffs but that Spain’s discretion to reduce remuneration is not unlimited, then tribunals necessarily must assess what level of remuneration is required. Whether that remuneration should be set to guarantee a reasonable return to an individual plant or a standard plant is a question of correctly interpreting and applying the regulatory principles that have always defined the Spanish incentive regime and thus investors’ expectations, not a question of quantum” (Footnote 12, Cavalum’s Comments on PV Investors). Spain’s Comments on PV Investors award, 20 April 2020 (C-326), ¶ 18: “Cavalum’s position is that the appropriate investment base should be the RAB for the following reasons: a) Using a simplified example, K&S states that using actual investment costs would result in less damages awarded for efficient plants, and higher for inefficient plants. And this is contrary to Spain’s principles (reasonable return to an efficient and well-managed plant. b) If a plant is efficient in terms of investment costs, using actual investment costs will not remunerate efficiencies”. ↩

²⁰⁷ Decision, ¶¶ 67, 69-70. See supra, ¶ 8. ↩

²⁰⁸ See Cavalum’s Memorial, ¶¶ 118-121. ↩

²⁰⁹ Letter of 17 December 2020 (C-327), p. 2. It added in footnote 5 of that page: “Claimant explained this point in more detail in its comments on the PV Investors case, in which Claimant demonstrated that using actual plant costs can result in a plant that was not earning a 7% target return under the original regime to be awarded damages under this type of approach, which runs counter to both Spain’s position and the Tribunal’s liability findings. See also Cavalum’s Comments on PV Investors,” ¶¶ 5-9. ↩

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Cavalum further argued that

Assessing whether a particular plant earns a reasonable return based on its actual costs conflates the efficiency of each plant relative to the standard plant, and therefore (1) says nothing about whether the New Regulatory Regime is consistent with the principle of reasonable return as Spain has always defined it, and (2) perversely inflates the damages sustained by less efficient plants while masking the damages sustained by more efficient plants.²¹⁰

176. The Claimant argues that the Tribunal did not answer in Procedural Order No. 5 (“PO5”),²¹¹ which decided on its request to submit new evidence, the two arguments it had made: (i) that an efficiency standard forms part of the reasonable return principle that must be defined to establish its legal entitlement before damages can be assessed for Spain’s violation of that entitlement, and (ii) that this conception of the reasonable return principle without an efficiency standard was irreconcilable with Spain’s own concessions on that very point.²¹²

177. Cavalum submits that it wrote again to the Tribunal on 29 January 2021 because Spain renewed its objection to the Tribunal’s decision to admit new evidence following the issuance of PO5. According to the Claimant, it explained again why, in its view, the actual IRR of its plants should not be relevant to the assessment of Spain’s liability and the computation of damages under the reasonable return principle.²¹³ It also noted that

[...] there is no logical way to marry Spain’s positions that (a) investors’ only legitimate expectation was based on the principle of “reasonable return,” (b) the principle of “reasonable return” has always been applied to a RAB rather than the parameters of a particular investment, but (c) the principle of “reasonable return” should now for the first and only time be applied to the parameters of Claimant’s particular investments for purposes of assessing whether Spain has violated the principle of reasonable return and quantifying damages.

In this context, Accuracy’s position that quantum should be calculated on the basis of a reasonable return to Claimant’s specific investments was

²¹⁰ Letter of 17 December 2020 (C-327), p. 2. ↩

²¹¹ Procedural Order No. 5, 18 January 2021 (C-329); Cavalum’s Memorial, ¶ 90. ↩

²¹² See Cavalum’s Memorial, ¶ 89. ↩

²¹³ See Cavalum’s Memorial, ¶ 90. ↩

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frivolous at best, because it contradicts a core premise of Spain’s entire case.²¹⁴

178. These post-Decision communications of 17 December 2020 and 29 January 2021 appear in the procedural history of the Award.²¹⁵

179. Cavalum submits that paragraph 218 of the Award, which reads as follows,

The Tribunal’s conclusion, by majority, is that FTI’s approach is wrong in principle. The Tribunal’s task is, in accordance with general principles of the law of damages (reflected in the Chorzów Factory case, at paragraph 47, and Article 31 of the Articles on State Responsibility) to calculate the actual damages suffered by the Claimant, and for that purpose the only principled approach is to take actual investment costs, and not standard costs.

is the closest statement that can be found in the Award addressing its arguments concerning the irreconcilability of the “actual IRR” approach with Spain’s definition of the reasonable return principle.²¹⁶

180. By contrast, for Spain, the Tribunal made a reasoned decision.²¹⁷ According to Spain, paragraph 659 of the Decision provides reasons by incorporating into the analysis the principle of full reparation and the Chorzow Factory case.²¹⁸ Furthermore, Spain argues that paragraph 681 of the Decision, which reads as follows, is consistent with that line of reasoning:

Second, an assessment of damage must be based on the Claimant’s interest in the plants on a plant-by-plant, or project, basis. Remuneration under the New Regulatory Regime is on a plant-by-plant basis and the experts have in substance adopted this method in relation to their opposing approaches to damages and their responses. Such loss or damage that the Claimant may have suffered in the actual scenario (IRR) falls to be assessed by reference to its individual circumstances rather than by reference to an aggregation of the plants in question or to an industry analogue.

²¹⁴ Letter of 29 January 2021 (C-315), p. 2. ↩

²¹⁵ Award, ¶¶ 8, 12. See supra, ¶ 26. ↩

²¹⁶ See Cavalum’s Memorial, ¶¶ 122, 124; Cavalum’s Reply, ¶ 56. ↩

²¹⁷ Spain’s Counter Memorial, ¶¶ 128-139. ↩

²¹⁸ See supra, ¶ 24. ↩

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181. For Cavalum, the above paragraph is ambiguous. Cavalum argued at the Hearing that it is unknown whether the Tribunal linked the assessment of compensation to the calculation of remuneration, considering rightly or wrongly that the calculation was based on a plant-by-plant approach, or because this was required by the laws of state responsibility and the Chorzow case. More generally, Cavalum asserted that the law of damages has nothing to say about the decision which the Tribunal failed to make.²¹⁹ It noted that the Tribunal never addressed its argument that damages have to be determined on a plant-by-plant basis only after the investor’s legal entitlement has been determined.²²⁰

182. The Committee considers that the obligation to give reasons constitutes the parties’ guarantee that their claims and arguments have been considered by the tribunal. The Committee notes that, in contrast with Convention Article 48(3), Article 52(1)(e) does not refer to “every question submitted to the tribunal” in relation to the failure to state reasons.²²¹ Cavalum is aware that Convention Article 52(1)(e) does not pertain to an obligation for tribunals to address every single argument presented by a party or every piece of evidence presented in support thereof.²²² The submissions which need to be answered for Article 52(1)(e) purposes are all those that contain a legal reasoning which deduces from factual or legal elements that a claim or defense is well-grounded. Yet it regards its arguments that the “actual IRR” approach contradicts Spain’s own definition of the reasonable return principle as being “very important submissions” that should have been addressed by the Tribunal.²²³ Cavalum describes the issue as “one of defining the substance of [its]legitimate expectations and legal entitlement [...]to receive remuneration sufficient to provide a reasonable return to its particular plants (and nothing more) or [...] to receive a remuneration sufficient to provide a reasonable return to an efficient standard

²¹⁹ See Cavalum’s Memorial, ¶ 126. ↩

²²⁰ Tr. Day 1, pp. 248: 14-25, 249, 250: 1-4, 262: 1-13. Cavalum’s Memorial, ¶ 89. ↩

²²¹ Wena Decision on Annulment, ¶ 100 (RL-0086). ↩

²²² See Cavalum’s Memorial, ¶ 111, citing Teinver S.A., Transportes de Cercanias S.A. and Autobuses Urbanos del Sur S.A. v. Argentine Republic, ICSID Case No. ARB/09/1, Decision on Argentina’s Application for Annulment, 29 May 2019, ¶ 210 (CL-268) (“Teinver Decision on Annulment”). ↩

²²³ Cavalum’s Memorial, ¶¶ 122-123. On the essential question test, see Klöckner Decision on Annulment, ¶ 148 (CL-307). ↩

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plant.”²²⁴ Cavalum further argues that the Tribunal’s missing decision was essential for the calculation of actual damages.

183. For the Committee, there is no failure to state reasons when a tribunal provides reasons based on an informed consideration of the parties’ contentions, which enables a reader to follow its reasoning from point A to point B, and eventually to its conclusion.²²⁵

184. Here, when it addressed the type and measure of investment costs in the Award, the Tribunal restated FTI’s position which consists in basing the IRR analysis on standard investment costs as defined by Spain, and not on actual investment costs.²²⁶ The Tribunal also restated Accuracy’s position under which the calculation of the plants’ IRR is based on real cash-flows, as contrasted with the standard costs which, according to Accuracy, artificially reduce the return of the plants and increase the number of plants eligible for damages.²²⁷ The Award further echoes that discussion in noting that Cavalum’s expert “did not believe the actual plant development costs were logical to consider at all, the correct way being to look at standard costs.”²²⁸

185. For the Committee, paragraph 218 of the Award provides a justification, based on an informed consideration of the Parties’ contentions, to the Tribunal’s conclusion regarding the calculation of damages.²²⁹ It explains therein that its decision to rely on actual investment costs, and not on standard costs, derives from its task that consists in calculating the actual damages suffered by Cavalum. The Tribunal further states that this task and approach are based on the “general principles of the law of damages” as reflected in the Chorzów Factory case and in the Articles on State Responsibility. Even though the Tribunal did not expressly address Cavalum’s abovementioned point, and even though that

²²⁴ Cavalum’s Memorial, ¶ 126. ↩

²²⁵ MINE Decision on Annulment, ¶¶ 5.08-5.09 (C-0010). ↩

²²⁶ See supra, ¶ 33; Award, ¶ 216. ↩

²²⁷ See supra, ¶ 33; Award, ¶ 217. ↩

²²⁸ See supra, ¶ 34; Award, ¶ 227. As explained in the Letter of 17 December 2020 at page 4, the Claimant focused on standard costs because of Spain’s position that “the reasonable return principle was always addressed to standard plants rather than to any particular plant” (C-327). ↩

²²⁹ See supra, ¶ 179. ↩

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justification is a short one, the Committee finds that the Award is intelligible and that it can follow the Tribunal’s reasoning from point A to point B.²³⁰

(c) Conclusion

186. The Committee concludes that the Tribunal has not failed to state the reasons upon which the Award is based. Therefore, it dismisses Cavalum’s Application based on Convention Article 52(1)(e).

²³⁰ Cavalum’s Memorial, ¶ 114. d. ↩

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V. SPAIN'S APPLICATION

A. SPAIN'S POSITION

187. Spain’s Application is based on two annulment grounds: (1) manifest excess of powers and (2) failure to state the reasons upon which an award is based.²³¹ Each argument is addressed infra.

(1) Manifest Excess of Powers

(a) Standard

188. According to Spain, manifest excess of powers under Convention Article 52(1)(b) exists when a tribunal does not apply the proper law, or where the tribunal exceeds its jurisdiction or has no jurisdiction, or the tribunal rules on issues not raised by the parties.²³²

189. For Spain, the Tribunal manifestly exceeded its powers by “(1) going beyond its jurisdiction in contravention of EU law; [and by] (2) omitting the law applicable to the dispute and, in particular, by failing to apply EU law to the merits of the dispute.”²³³

(b) Manifest Excess of Powers - Jurisdiction

190. Spain argues that the Tribunal “made an erroneous and biased interpretation of EU law which led it to conclude, contrary to the most basic principles of EU law, that it had jurisdiction to hear the present case.”²³⁴

191. According to Spain, for an ICSID tribunal to have jurisdiction over a dispute, three conditions under Convention Article 25 must be met: (i) the dispute must exist between a Contracting State and a national of another Contracting State (ratione personae); (ii) the dispute must arise directly out of an investment (ratione materiae); and (iii) written consent

²³¹ See Spain’s Application, ¶ 28; Spain’s Reply, ¶ 34. ↩
²³² See Spain’s Memorial, ¶ 53. ↩
²³³ Spain’s Memorial, ¶ 51. See also Spain’s Reply, ¶ 37. ↩
²³⁴ Spain’s Memorial, ¶ 257. ↩

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must be given by both parties (ratione voluntatis).²³⁵ For Spain, the Tribunal incorrectly addressed the ratione personae and ratione voluntatis conditions pursuant to Convention Article 25, exceeding thereby its powers.²³⁶

192. With regard to the ratione personae condition, Spain states that Portugal, Claimant’s country of nationality, and Spain, are Member States of the EU. The EU is a REIO under ECT Article 1(3). Spain submits that, since “the EU is a Contracting Party of the ECT as defined by its Article 1(2)”, Cavalum is not from another Contracting Party but rather from the same one as Spain.²³⁷ Therefore, the dispute between Cavalum and Spain has an internal dimension governed by EU law in preference to any other international law. For Spain, ECT Article 26 applies only to disputes where an investor of a Contracting Party has made an investment in the territory of another Contracting Party, but not as here where the investment is made in the territory of the same Contracting Party. Spain claims that under Article 26 of the ECT, the Tribunal therefore lacked jurisdiction to hear intra-EU disputes because “the ECT (including Article 26) does not apply intra-EU,” but rather “EU law must be considered applicable law to this arbitration according to Article 26(6) ECT.”²³⁸ As such, it cannot create obligations between Members States. Cavalum may only claim for protection within the EU judicial system.²³⁹

193. With regard to ratione voluntatis, Spain recalls the basic principles of EU law which make ECT Article 26 non-applicable to intra-EU relations. For Spain, relations between Member States are governed by the mutual trust principle which includes trust in each Member State’s judiciaries. The CJEU guarantees the principles of autonomy and uniform application of EU law within the EU judicial system. These principles would be breached by intra-EU arbitration because the CJEU is the supreme interpreter of EU law and has exclusive jurisdiction to determine the scope and content of EU law. TFEU Article 267 thus requires the highest judicial instances of each Member State to refer questions of EU

²³⁵ See Spain’s Application, ¶ 32; Spain’s Memorial, ¶¶ 72, 53; Spain’s Reply, ¶ 57. ↩
²³⁶ See Spain’s Memorial, ¶¶ 69-74; Spain’s Reply, ¶ 67. ↩
²³⁷ Spain’s Application, ¶ 34; Spain’s Memorial, ¶¶ 74, 96-97; Spain’s Reply, ¶¶ 78-82. ↩
²³⁸ Spain’s Application, ¶¶ 35-36; see also Spain’s Memorial, ¶¶ 75-77, 85-86. See also Spain’s Reply, ¶¶ 69, 72. ↩
²³⁹ See Spain’s Memorial, ¶¶ 94-101; Spain’s Reply, ¶¶ 76-83; Tr. Day 1, pp. 19: 2-25, 20-22: 1-16. ↩

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law to the CJEU through the preliminary ruling procedure for ensuring the uniformity of application of EU law. TFEU Article 344 correlatively prohibits Member States from submitting a dispute concerning the interpretation or application of EU law elsewhere than before the State judiciaries such as arbitral tribunals which are not admitted to refer interpretative questions to the CJEU. Neither Spain nor Portugal have consequently made a valid arbitration offer to investors from other EU Member States under ECT Article 26.²⁴⁰ Spain maintains that an effective interpretation of the ECT leads to a lack of consent to submit the dispute to arbitration because the EU Member States cannot bind themselves under Part III of the ECT (investment) as this “would imply a breach of the principle of the autonomy of the Union;”²⁴¹ and the ECT recognized in Article 25 the principle of primacy of EU law.²⁴²

194. Spain categorizes its jurisdictional arguments on manifest excess of powers as follows: the Tribunal (i) refused to assess the application of Achmea to the ECT after Komstroy; (ii) misinterpreted ECT Article 26 (b); (iii) misapplied Achmea; and (iv) misapplied the ECT REIO clause.²⁴³

(i) The Tribunal refused to assess the application of Achmea to
the ECT after Komstroy

195. Spain argues that Achmea prohibits EU Member States to arbitrate disputes involving the interpretation or application of EU law.²⁴⁴ Spain emphasizes that Komstroy reproduces Achmea, “the former quot[ing] the latter fourteen times.”²⁴⁵ As such, Spain queries “why, when Komstroy is issued and the possibility of the Tribunal reconsidering its Decision on Jurisdiction is raised, does it not go into it, when it had the answer?”²⁴⁶

196. For Spain, the Tribunal manifestly exceeded the powers that “had been clearly conferred on it. And it implicitly acknowledges this by raising the possibility that Achmea is

²⁴⁰ See Spain’s Memorial, ¶¶ 75-84, 118; Spain’s Reply, ¶ 71; Tr. Day 1, pp. 16: 8-25, 17: 1-11. ↩
²⁴¹ Spain’s Memorial, ¶ 128. ↩
²⁴² See Spain’s Memorial, ¶¶ 111-114, 128. ↩
²⁴³ See Spain’s Memorial, ¶¶ 256-288; Spain’s Reply, ¶¶ 134-153. ↩
²⁴⁴ See Spain’s Memorial, ¶¶ 130-131; Achmea Judgment, ¶¶ 5, 11, 12, 14 (RL-0090); Spain’s Reply, ¶ 136. ↩
²⁴⁵ Spain’s Memorial, ¶ 265. ↩
²⁴⁶ Spain’s Memorial, ¶ 266. ↩

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applicable to treaties such as the ECT, and therefore to this specific case, and then, when this confirmation exists, it does not enter into an assessment of it.”²⁴⁷

(ii) The Tribunal misinterpreted ECT Article 26 as covering
intra-EU disputes

197. Spain asserts that even if ECT Article 26 could be interpreted as covering intra-EU disputes, this interpretation would “conflict with the EU Treaties.”²⁴⁸ For Spain, such conflict must be resolved in favor of EU law.²⁴⁹

198. According to Spain, EU law is part of public international law. As such, it is binding on all EU Member States.²⁵⁰ Spain further asserts that the inapplicability of ECT Article 26 as a matter of EU law means that Spain has not made a valid arbitration offer to investors from other EU Member States. Therefore, no arbitration agreement exists between the Claimant and Spain.²⁵¹

199. Spain maintains that if there is a conflict between the ECT and EU law, EU Member States have agreed on a “specific rule for the resolution of conflicts among treaties, which is the primacy of EU law over the other international obligations of the Member States. In other words, the primacy of EU law is a special conflict rule under international law.”²⁵²

200. Further, Spain notes that “EU law applies in the territory of the Union. Thus, in the event of a conflict between the rules of a Member State and EU law, the principle of primacy gives precedence to EU law.”²⁵³ Spain references Electrabel v. Hungary, which held that EU law prevails over the ECT in cases of incompatibility.²⁵⁴

²⁴⁷ Spain’s Memorial, ¶ 267. ↩
²⁴⁸ Spain’s Memorial, ¶ 268. ↩
²⁴⁹ See Spain’s Memorial, ¶ 268. ↩
²⁵⁰ See Spain’s Memorial, ¶ 269. ↩
²⁵¹ See Spain’s Memorial, ¶ 269. ↩
²⁵² Spain’s Memorial, ¶ 270. ↩
²⁵³ Spain’s Memorial, ¶ 75; Spain’s Reply, ¶ 68. ↩
²⁵⁴ See Spain’s Memorial, ¶¶ 121-126; Electrabel S.A. v. Republic of Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012, ¶¶ 4.178-4.189 (RL-0002) (“Electrabel decision”). ↩

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201. Spain posits that the CJEU clarified that intra-EU disputes under ECT Article 26 necessarily involve the interpretation and application of EU law, which fall exclusively under the jurisdiction of the EU’s judicial system and cannot be delegated to arbitral tribunals that are outside this system.²⁵⁵

202. For Spain, the Komstroy Judgment reinforces the incompatibility of the ECT’s arbitration mechanism with the EU legal framework, as arbitral tribunals lack the capacity to ensure the uniform application of EU law. Spain concludes that the Tribunal in the present case should have declared its lack of jurisdiction, as the dispute is not covered by Article 26(3) of the ECT, aligning with the principles upheld by the CJEU.²⁵⁶

(iii) The Tribunal’s application of Achmea

203. Spain submits that Achmea confirms the inapplicability of arbitration mechanisms under international agreements, such as the ECT, to disputes involving the interpretation or application of EU law.²⁵⁷ Spain emphasizes that judgments such as Achmea establish a consistent legal framework, reaffirming that Articles 267 and 344 of the TFEU preclude Member States from submitting such disputes to arbitral tribunals outside the EU judicial system.²⁵⁸

204. Spain highlights that the CJEU’s reasoning in Achmea, articulated in general and non-specific terms, applies broadly to international agreements, including multilateral treaties like the ECT. For Spain, the Achmea Judgment stands for the proposition that the autonomy of the EU legal order must be respected, and arbitration mechanisms that fail to comply with this principle are incompatible with EU law.²⁵⁹

²⁵⁵ See Spain’s Memorial, ¶¶ 138-143; Judgement of CJEU, Republic of Moldova v. Komstroy LLC., Case C-741/19, 2 September 2021, ¶¶ 49-53, 60-62 (RL-0106) (“Komstroy Judgment”). See also Spain’s Application, ¶¶ 78-88. ↩
²⁵⁶ See Spain’s Memorial, ¶¶ 144-145; Komstroy Judgment, ¶ 65 (RL-0106). See also Spain’s Application, ¶¶ 78-88; Spain’s Reply, ¶¶ 109-111. ↩
²⁵⁷ See Spain’s Memorial, ¶ 146; Achmea Judgment, ¶¶ 57, 62 (RL-0090); Komstroy Judgment, ¶ 65 (RL-0106); PL Holdings S.á.r.l. v. Republic of Poland, Case T 1569-19, Judgment of the Swedish Supreme Court, 14 December 2022 (RL-0164) (“PL Holdings Judgment”). See also Spain’s Reply, ¶¶ 112, 122-123. ↩
²⁵⁸ See Spain’s Memorial, ¶¶ 147-151; Spain’s Reply, ¶¶ 113-121. ↩
²⁵⁹ See Spain’s Memorial, ¶¶ 152-158; Achmea Judgment, ¶¶ 33, 44-49, 52 (RL-0090). ↩

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205. Furthermore, Spain asserts that multiple annulment proceedings related to intra-EU ECT disputes are currently pending before the Stockholm Chamber of Commerce.²⁶⁰ In one of the cases referenced, Spain argues that the tribunal raised two relevant questions: (i) “whether Article 26 of the ECT applies to intra-EU disputes” and (ii) “whether EU law should be interpreted as an obstacle to the application of Article 26 of the ECT in the intra-EU context.”²⁶¹ On November 12, 2021, the Svea Court of Appeal withdrew its request for a preliminary ruling to the CJEU, considering it unnecessary after the Komstroy and PL Holdings judgments, which reaffirmed the Achmea case rulings.²⁶²

206. Spain contends that these cases should be treated as analogous to the current dispute for several reasons: (i) they all involve the same treaty, the ECT, which serves as the legal basis for the underlying arbitration; (ii) the disputes similarly concern EU investors on one side and an EU Member State on the other, highlighting the intra-EU nature of the issues; (iii) the Member States in these cases raised identical jurisdictional objections, arguing that Article 26 of the ECT does not apply to intra-EU disputes; and (iv) in all instances, the arbitral tribunals rejected the intra-EU objection, compelling the Member States to initiate annulment proceedings.²⁶³

207. Spain later asserts that the Swedish Supreme Court and the Svea Court of Appeal reaffirmed the invalidity of intra-EU arbitration under EU law. According to Spain, these courts held that arbitration agreements in intra-EU treaties violate TEU Articles 19(1) and TFEU Articles 267 and 344, by removing disputes involving EU law from the Union’s judicial system. They further recognized that such awards contravene EU legal principles and public policy, making them subject to annulment under Swedish arbitration law.²⁶⁴

208. Additionally, Spain references the Green Power award, where the tribunal declined jurisdiction over a comparable intra-EU dispute. Spain argues that consistent with Achmea

²⁶⁰ See Spain’s Memorial, ¶¶ 166-167. ↩
²⁶¹ Spain’s Memorial, ¶ 168. ↩
²⁶² See Spain’s Memorial, ¶ 169; Spain’s Reply, ¶ 124. ↩
²⁶³ See Spain’s Memorial, ¶¶ 170-173. ↩
²⁶⁴ See Spain’s Memorial, ¶¶ 196-203; PL Holdings Judgment (RL-0164); Novenergía II- Energy & Environment (SCA) v. Kingdom of Spain, Case no. T 4658-18, Judgment of the Svea Court of Appeal, 13 December 2022, p. 54 (RL-0164). ↩

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and Komstroy, the Green Power tribunal determined that Article 26 of the ECT does not apply to intra-EU disputes because “there has never been a valid offer of arbitration for intra-EU disputes.”²⁶⁵ Spain contends that the Tribunal in the present case should have followed the reasoning of the Green Power tribunal.²⁶⁶

209. Spain cites the Opinion 1/20 of the CJEU which allegedly “confirm[ed] the applicability of Komstroy to the case at hand and thus confirm[ed] [...] this Honourable Tribunal had no jurisdiction to hear intra-Community disputes.”²⁶⁷

210. In addition, Spain refers to two judgments of the Paris Court of Appeal to support its position that: (i) the submission of such disputes to arbitration is incompatible with EU law; (ii) arbitral tribunals erred in retaining jurisdiction, given the CJEU rulings that unequivocally established the incompatibility of investor-state arbitration provisions between EU Member States with EU law; and (iii) the principles of the Achmea Judgment apply beyond the specific treaty it addressed, extending to other treaties with similar provisions.²⁶⁸

211. Spain reiterates that the Achmea Judgment is directly relevant to the present case, as the Tribunal was required to apply EU law. Yet, the resulting Award is not subject to review within the EU judicial system.²⁶⁹ Spain underscores that Article 26 of the ECT does not extend to intra-EU disputes, consistent with the CJEU’s conclusions that arbitration clauses in intra-EU BITs and the ECT conflict with EU law. According to Spain, this position has also been affirmed by the EC and the Member States involved in the dispute before this Committee.²⁷⁰

²⁶⁵ Spain’s Memorial, ¶¶ 174-194; Green Power Partners K/S and SCE Solar Don Benito APS v. the Kingdom of Spain, SCC-2016/135, Award, 16 June 2022, ¶¶ 158, 333, 342-344, 352, 355, 413-438 (RL-0120) (“Green Power award”). See also Spain’s Application, ¶¶ 46-47. ↩
²⁶⁶ See Spain’s Memorial, ¶ 195. ↩
²⁶⁷ Spain’s Memorial, ¶¶ 204-209; Opinion 1/20 of the CJUE issued on 16 June 2022 (RL-0161). ↩
²⁶⁸ See Spain’s Memorial, ¶¶ 210-240; Slot v République de Pologne, No. 49/2022, Paris Court of Appeal Judgement of 19 April 2022, ¶¶ 22, 44, 48, 58, 65-68, 70 (RL-0159); Strabag v République de Pologne, No. 48/2022, Paris Court of Appeal Judgement of 19 April 2022, ¶¶ 60-65, 76, 86-88, 90 (RL-0160). See also Spain’s Reply, ¶ 124. ↩
²⁶⁹ See Spain’s Memorial, ¶¶ 245-248. ↩
²⁷⁰ See Spain’s Memorial, ¶ 249. ↩

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212. Spain references a 2018 EC communication,²⁷¹ which underscores that tribunals constituted under intra-EU BITs or the ECT lack jurisdiction because of the absence of valid arbitration agreements. National courts are thus obligated to annul awards based on such clauses. Spain argues that the principles established in Achmea and related EU jurisprudence should guide this Committee to recognize the lack of jurisdiction in the Arbitration and to correct the Tribunal’s misapplication of EU law.²⁷²

(iv) The Tribunal’s application of the REIO clause

213. Spain argues that the ECT, promoted and adopted at the initiative of the EU, was designed to foster cooperation in the energy sector between the EU and Soviet bloc states.²⁷³ Spain emphasizes that the ECT was never intended to modify the principles of EU law, such as the Union’s autonomy and the primacy of EU law. While the ECT includes mechanisms for protecting investments between contracting parties, Spain contends that these mechanisms do not apply to disputes between EU Member States, as investments made by EU investors within the EU are not considered investments made in the territory of another contracting party for the purposes of the Treaty.²⁷⁴

214. Spain asserts that the introduction of a disconnection clause in the ECT is unnecessary, as EU law already governs intra-EU relations and its primacy is recognized both implicitly and explicitly within the ECT itself.²⁷⁵

215. Based on the above, Spain contends that the Tribunal exceeded its powers under Article 52(1)(b) of the Convention by asserting jurisdiction despite clear rulings from the CJEU establishing that arbitration agreements between EU Member States violate EU law.²⁷⁶

²⁷¹ Communication from The European Commission to The European Parliament and The Council on the Protection of intra-EU investment, COM (2018) 547/2, 19 July 2018 (RL-0135). ↩
²⁷² See Spain’s Memorial, ¶¶ 250-255. ↩
²⁷³ Spain’s Memorial, ¶¶ 89-90. ↩
²⁷⁴ See Spain’s Memorial, ¶ 90. See also Spain’s Reply, ¶ 68. ↩
²⁷⁵ See Spain’s Reply, ¶ 94. ↩
²⁷⁶ See Spain’s Memorial, ¶¶ 256-258; Spain’s Reply, ¶¶ 127-133. ↩

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(c) Manifest Excess of Powers - Merits

216. Spain also argues that the Tribunal manifestly exceeded its powers under Convention Article 52(1)(b) by failing to apply the proper law to the merits of the dispute.²⁷⁷ Spain maintains that EU law, as international law applicable under the ECT, should have been applied not only to assess jurisdiction but also to evaluate the merits of the case.

217. Spain appears to be making two separate arguments, which could be summarized as follow: the Tribunal (i) did not take EU law into account; and (ii) did not take EU law into account correctly.

(i) Whether EU law was taken into account

218. Spain asserts that the Tribunal omitted to apply EU law, the applicable legal framework under ECT Article 26(6), to the merits of the dispute.²⁷⁸ Spain argues that the Tribunal’s failure to apply EU law constitutes a manifest excess of powers because EU law is part of the applicable international law under ECT Article 1(3). Such omission disregarded the binding nature of EU rules and the EC’s findings on State aid, which were critical to the dispute. For Spain, the Tribunal’s decision to ignore EU law significantly affected its findings on liability and compensation, warranting annulment of the Award.²⁷⁹

219. Spain maintains that the Tribunal exceeded its powers when it manifestly failed to determine the applicable law since, considering that the present case concerns State aid, the omission of any reference to the EU rules is a serious error in a clear case of exceeding its powers.²⁸⁰

220. Spain refutes Cavalum’s argument that the Tribunal considered EU law when shaping legitimate expectations, asserting that the Tribunal failed to apply EU law as international law. Spain emphasizes that the 2017 EC Decision classified RD 661/2007 as a non-notified

²⁷⁷ See Spain’s Application, ¶¶ 48-50; Spain’s Reply, ¶¶ 156-161. ↩
²⁷⁸ See Spain’s Memorial, ¶¶ 330, 341. ↩
²⁷⁹ See Spain’s Reply, ¶¶ 205-206. ↩
²⁸⁰ See Spain’s Application, ¶ 298; Spain’s Reply, ¶¶ 163-164. ↩

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State aid, rendering it unlawful and excluding any legitimate expectations of receiving such aid.²⁸¹

(ii) Whether EU law was taken into account correctly

221. Spain states that had EU law been properly applied, the Tribunal would have concluded that Cavalum’s claim for subsidies was incompatible with EU law, undermining both the legitimacy of its expectations and the rights it claimed under the disputed State aid scheme.²⁸² It refers to several cases to illustrate the circumstances under which a misapplication of the law constitutes a manifest failure to apply the proper law.²⁸³

222. Moreover, Spain alleges that EU law excludes legitimate expectations regarding unnotified State aid, as such aid is unlawful under EU law.²⁸⁴ For Spain, legitimate expectations under EU law were excluded because Spain’s renewable energy incentive scheme was not properly notified to the EC as State aid.²⁸⁵

223. Moreover, Spain alleges that even if EU law was considered national law, consistent arbitral practice establishes that investors cannot rely on expectations based on measures that contravene mandatory legal provisions.²⁸⁶

224. Spain argues that the subsidies under Royal Decree 661/2007 are classified as State aid. As such, they fall under the exclusive competence of the EC, as it is “one of the cornerstones that guarantees the distribution of competences between the Member States and the European Union.”²⁸⁷

225. Spain maintains that under EU law, subsidies must ensure a level playing field for renewable energy producers without resulting in over-remuneration that distorts

²⁸¹ See Spain’s Reply, ¶¶ 194-203. ↩
²⁸² See Spain’s Memorial, ¶ 329. ↩
²⁸³ See Spain’s Memorial, ¶¶ 62-63 citing to Enron Creditors Recovery Corp. and Ponderosa Assets, L.P. v. The Argentine Republic, ICSID Case No. ARB/01/3, Decision on the Application for Annulment, 30 July 2010, ¶ 377 (RL-0149); Venezuela Holdings B.V. and others v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Annulment, 9 March 2017, ¶¶ 141-142, 160, 182 (RL-0150). ↩
²⁸⁴ See Spain’s Memorial, ¶¶ 333-334; Spain’s Reply, ¶ 176. ↩
²⁸⁵ See Spain’s Application, ¶¶ 51-54; Spain’s Memorial, ¶¶ 291-297. ↩
²⁸⁶ See Spain’s Memorial, ¶¶ 300-302. ↩
²⁸⁷ Spain’s Memorial, ¶ 308; 2017 EC Decision, ¶¶ 156, 165 (RL-0089). ↩

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competition in the internal market. Spain adds that, under the Commission’s guidelines on State aid for environmental protection (“EU Guidelines on State aid”), subsidies must be phased out to maintain market competitiveness and correct any over-remuneration.²⁸⁸

226. Spain highlights that the EC has reaffirmed that the incentives under RD 661/2007 constitute State aid because the Commission decided: (i) in 2016, that support schemes must comply with the EU Guidelines on State aid and can be modified to prevent overcompensation;²⁸⁹ (ii) in 13 November 2017, that the aid granted under RD 661/2007 and RD 1578/2008 complied with EU law (the Commission determined that the total subsidies received by existing renewable energy facilities were proportional and did not result in overcompensation throughout their lifespan);²⁹⁰ and (iii) the Commission reiterated that Spain’s renewable energy support system is subject to EU State aid rules, including Articles 107 and 108 TFEU, which also apply to arbitration awards granting compensation to investors.²⁹¹

227. Additionally, Spain contends that State aid is subject to the requirements of Articles 107 and 108 of the TFEU and the rules adopted for its implementation. According to Spain, the implementation of State aid regulations implies: (i) “prior notification and authorization” by the EC as the only “competent institution”, and (ii) ensuring that “the granting of such State aid may in no case entail distortions of competition” with its concession being “limited to the achievement of the so-called level playing field.”²⁹²

228. Spain contends that the application of EU law to the merits of the dispute would have significantly impacted the scope of Cavalum’s legitimate expectation claims. For instance, Spain refers to the EC decision in Micula v. Romania, which deemed compensation awarded in an ICSID arbitration to constitute unlawful State aid incompatible with EU

²⁸⁸ See Spain’s Memorial, ¶¶ 312-314; Directives on state aid regarding environmental protection and energy 2014-2020, 2014/C200/01 (R-0032). ↩
²⁸⁹ See Spain’s Memorial, ¶ 315; Response of the European Commission of 29 February 2016 to the request 2520/2014 for an investigation by the National Association of Renewable Energy Producers and Investors (R-0160). ↩
²⁹⁰ See Spain’s Memorial, ¶ 315; 2017 EC Decision, ¶¶ 4, 156 (RL-0089). See also Spain’s Reply, ¶ 167. ↩
²⁹¹ See Spain’s Memorial, ¶ 315; European Commission C (2021). State Aid SA.54155 (2021/NN) – Arbitration award to Antin – Spain. July 2021, ¶¶ 71-72 (RL-0158). ↩
²⁹² Spain’s Memorial, ¶ 317. ↩

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law.²⁹³ Furthermore, the Commission emphasized that Member States retain the right to modify or terminate State aid schemes to prevent over-remuneration or address unforeseen circumstances.²⁹⁴

229. Moreover, Spain argues that Cavalum’s claim for subsidies under an unnotified State aid scheme violated EU law, as established by the Commission and CJEU jurisprudence.²⁹⁵ Specifically, the Commission clarified that recipients of unnotified State aid cannot have legitimate expectations regarding its lawfulness.²⁹⁶

230. Based on the above, Spain argues that by disregarding EU law, the Tribunal exceeded its powers under Convention Article 52(1)(b), leading to flawed conclusions on jurisdiction and the merits. Consequently, Spain requests that the Award be annulled on this ground.²⁹⁷

(2) Failure to State Reasons

(a) Standard

231. Spain claims that under Convention Articles 52(1)(e) and 48(3) an award can “be annulled if it has not stated the reasons on which it is based” because a tribunal “must deal with all matters referred to it, and state the reasons on which it bases its findings.”²⁹⁸

232. Furthermore, Spain cites several cases to demonstrate that ad hoc committees have consistently recognized the requirement to provide clear and coherent reasoning, annulling awards where the tribunal’s reasoning was “inconsistent or contradictory.”²⁹⁹

²⁹³ See Spain’s Memorial, ¶¶ 322-326; Judgment of the CJEU in Case C-638/19 P (European Commission v European Food SA and Others), 25 January 2022 (RL-0162). ↩
²⁹⁴ See Spain’s Memorial, ¶ 325. ↩
²⁹⁵ See Spain’s Memorial, ¶¶ 327-328. ↩
²⁹⁶ See Spain’s Memorial, ¶ 329; 2017; 2017 EC Decision, ¶ 158 (RL-0089). ↩
²⁹⁷ See Spain’s Memorial, ¶¶ 340, 342. ↩
²⁹⁸ Spain’s Application, ¶¶ 59-60; Spain’s Memorial, ¶ 344; Spain’s Reply, ¶ 208. ↩
²⁹⁹ Spain’s Memorial, ¶¶ 346-354 referring to, inter alia, Sempra Decision on Annulment, ¶ 167 (RL-0119); Tidewater Investment SRL and Tidewater Caribe, C.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Annulment, 27 December 2016, ¶¶ 164-166, 181, 189 (RL-0121) (“Tidewater Decision on Annulment”); Soufraki Decision on Annulment, ¶¶ 122-123 (RL-0072); Klöckner I Decision on Annulment, ¶¶ 116, 144 (RL-0146); Pey Casado Decision on Annulment, ¶¶ 86, 281-286 (RL-0085); TECO Decision on Annulment, ¶ 90 (RL-0153); Caratube International Oil Company LLP v. Republic of Kazakhstan, ICSID Case No. ARB/08/12, Decision on the ↩

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233. According to Spain, annulment committees have established that an award must allow the reader to “follow how the tribunal proceeded from Point A to Point B.”³⁰⁰

(b) Application of the Standard to the Facts

234. Spain argues that the Tribunal failed to state the reasons in the Award as follows.

235. First, the Tribunal failed to state the reasons for its conclusions on jurisdiction by rejecting Spain’s First Request for Reconsideration based on the claim that it had already considered the applicability of the Achmea Judgment to the ECT.³⁰¹

236. Second, the Tribunal contradicted itself by first acknowledging the possibility that the Achmea Judgment applies to multilateral treaties like the ECT but later dismissing this in its First Reconsideration Decision.³⁰² As such, the Tribunal contradicted its own reasoning by affirming the applicability of the Achmea Judgment while simultaneously upholding its jurisdiction.³⁰³

237. Third, the Tribunal failed to explain why it disregarded the Contracting Parties’ agreement to apply EU law alongside the ECT.³⁰⁴ Spain maintains that the Tribunal failed to apply EU law.

238. Fourth, the Tribunal failed to state the reasons for disregarding EU State aid regulations in analyzing Cavalum’s legitimate expectations. Spain refutes Cavalum’s claims that the Award adequately explained the non-application of EU law, emphasizing that: (i) the lack of notification of the aid regime does not negate the existence of binding norms under the TFEU; (ii) paragraph 611 of the Tribunal’s Decision does not address the Claimant’s legitimate expectations; (iii) the Tribunal’s analysis of EU law was only implicit and not

Annulment Application, 21 February 2014, ¶ 185 (RL-0129); MINE Decision on Annulment, ¶ 6.99 (RL-0081). See also Spain’s Application, ¶¶ 61-63; Spain’s Reply, ¶¶ 211-216.
³⁰⁰ Spain’s Memorial, ¶ 345, citing MINE Decision on Annulment, ¶ 5.09 (RL-0081); Spain’s Reply, ¶ 210. ↩
³⁰¹ See Spain’s Application, ¶¶ 65-69, 73; Decision, ¶ 356; First Reconsideration Decision, ¶¶ 92-93; Komstroy Judgment, ¶¶ 44-66 (RL-0106). ↩
³⁰² See Spain’s Application, ¶ 70; Decision, ¶¶ 356, 370. ↩
³⁰³ See Spain’s Application, ¶¶ 71-72; Decision, ¶ 356. ↩
³⁰⁴ See Spain’s Memorial, ¶¶ 357-364; Spain’s Application, ¶ 75. ↩

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explicit in the Award; and (iv) EU State aid law should have been applied to define the scope of investors’ rights and assess the Claimant’s legitimate expectations.³⁰⁵

239. Finally, the Tribunal’s reasoning lacked clarity and coherence, leaving a significant gap between the premise and conclusion, with no reference to treaty interpretation rules, doctrine, or other arbitral precedents.³⁰⁶ Spain asserts that this omission denied the State the ability to understand the reasoning behind the Tribunal’s decisions, leaving it defenseless.³⁰⁷

240. Based on the foregoing, Spain argues that the Award should be annulled because the Tribunal “failed to fulfill its essential obligation to provide reasoning.”³⁰⁸

B. CAVALUM'S POSITION

241. Cavalum claims that Spain’s Application should be rejected because the (i) Tribunal did not manifestly exceed its powers;³⁰⁹ and (ii) Award does not fail to state the reasons on which it is based.³¹⁰ Cavalum’s arguments are summarized infra.

(1) Manifest Excess of Powers

242. Cavalum argues that the Tribunal did not manifestly exceed its powers because (i) Spain “advances the wrong legal standard;”³¹¹ (ii) the “tribunal properly found it had jurisdiction over the dispute;”³¹² and (iii) the “tribunal did not fail to apply the proper governing law to the merits of the dispute.”³¹³

³⁰⁵ See Spain’s Reply, ¶¶ 219-225. ↩
³⁰⁶ See Spain’s Memorial, ¶¶ 361-362. ↩
³⁰⁷ See Spain’s Memorial, ¶ 365. ↩
³⁰⁸ Spain’s Reply, ¶ 228. ↩
³⁰⁹ See Cavalum’s Counter-Memorial, § III. ↩
³¹⁰ See Cavalum’s Counter-Memorial, § IV. ↩
³¹¹ Cavalum’s Counter-Memorial, § III.A. ↩
³¹² Cavalum’s Counter-Memorial, § III.B. ↩
³¹³ Cavalum’s Counter-Memorial, § III.C. ↩

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(a) Standard

243. Cavalum argues that Spain advances the wrong legal standard.³¹⁴ Cavalum notes that both Parties agree that the ground for annulment under Convention Article 52(1)(b) can apply to findings on jurisdiction and on the merits. However, Cavalum argues that Spain fails to clearly articulate the standard that this Committee should apply when evaluating this ground, whether concerning the Tribunal’s determination of jurisdiction or Spain’s claim that the Tribunal failed to apply the correct governing law. Cavalum emphasizes that Spain’s omission was likely because it could not meet the high threshold demanded by the Convention.³¹⁵

244. Cavalum further notes that, while a failure to apply the correct governing law can constitute grounds for annulment, the Tribunal in this case properly applied the ECT and principles of international law. Spain’s argument that EU law should have taken precedence reflects a disagreement on the merits, not an excess of power. Cavalum highlights that annulment committees in at least fifteen similar cases involving Spain have consistently rejected such arguments, affirming that arbitral tribunals that chose to apply the ECT and international law instead of EU law did not commit a manifest excess of power.³¹⁶

245. Cavalum further argues that Spain failed to establish the dual requirement for proving a manifest excess of power: that (i) the Tribunal must have exceeded its power; and (ii) such excess must have been manifest.

246. Moreover, Cavalum argues that even if Spain were correct in asserting that upholding jurisdiction over an intra-EU dispute constitutes an error—a claim that has been consistently rejected by all ICSID annulment committees considering similar cases—this would satisfy only the first element of the test for a manifest excess of power. Spain would still need to demonstrate that the alleged excess of power was “manifest.”³¹⁷ Cavalum highlights that only a minority of annulment committees have considered jurisdictional

³¹⁴ See Cavalum’s Counter-Memorial, § III.A. ↩
³¹⁵ See Cavalum’s Counter-Memorial, ¶ 64. ↩
³¹⁶ See Cavalum’s Counter-Memorial, ¶¶ 65-67. ↩
³¹⁷ See Cavalum’s Counter-Memorial, ¶ 74. ↩

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errors or failures to apply the proper law to qualify as “manifest” excesses of power, and only in instances where the failures were “egregious.”³¹⁸

247. Cavalum adds that the mere “error in judicando,” even if serious, does not meet this threshold unless it constitutes a complete and egregious failure to apply the applicable law.³¹⁹ The errors, Cavalum argued, “must attain such a ‘gross and consequential’ level that no ‘reasonable person (‘bon père de famille’) could accept’ it,” and “the alleged errors identified by Spain do not reach this level.”³²⁰

248. Cavalum further references the ICSID Background Paper to emphasize that a “manifest” excess of powers has been consistently interpreted by ad hoc committees as one that is “obvious, clear, or self-evident,” and can be identified without requiring a detailed or complex analysis of the award.³²¹ Therefore, Cavalum maintains that in order to accept Spain’s view, the Committee would have to conclude that every tribunal “upheld its jurisdiction under the ECT in an intra-EU dispute has been wrong in a way that is obvious and evident.”³²²

249. In Cavalum’s Rejoinder, the Claimant emphasizes that Spain attempted to address the legal standard applicable to manifest excess of power in Spain’s Reply, citing various authorities. However, according to Cavalum, Spain’s references, such as the ICSID Background Paper, the Patrick Mitchell case and Helnan v. Egypt case, fail to substantiate its arguments and, instead, underscore the correctness of the Tribunal’s decisions and Cavalum’s position.³²³ For instance, the ICSID Background Paper reinforces the notion that an excess of power must be obvious, clear, or self-evident, an interpretation

³¹⁸ See Cavalum’s Counter-Memorial, ¶¶ 75-76, referring to, inter alia, MTD Decision on Annulment, ¶ 46 (CL-0277); AES Decision on Annulment, ¶ 33 (RL-0042); Occidental Decision on Annulment, ¶ 56 (RL-0082); Malicorp Limited v. Arab Republic of Egypt, ICSID Case No. ARB/08/18, Decision on the Annulment Request, 3 July 2013, ¶ 49 (CL-0276). ↩
³¹⁹ Cavalum’s Counter-Memorial, ¶ 77; CME Czech Republic B.V. v. The Czech Republic, Comments on Partial Award Submitted to the Svea Court of Appeal, prepared by Christoph Schreuer, 30 March 2003, p. 9 (CL-0279); Lemire Decision on Annulment, ¶ 251 (CL-0280). ↩
³²⁰ Cavalum’s Counter-Memorial, ¶ 77; Soufraki Decision on Annulment, ¶ 86 (RL-0072). ↩
³²¹ See Cavalum’s Counter-Memorial, ¶ 83, referring to ICSID Background Paper, ¶ 83 (RL-0118). ↩
³²² Cavalum’s Counter-Memorial, ¶¶ 84-86. ↩
³²³ See Cavalum’s Rejoinder, ¶¶ 30-32; Helnan Decision on Annulment, ¶ 41 (CL-0242). ↩

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incompatible with the “elaborate analysis”³²⁴ Spain presented, involving complex interpretations of disconnection clauses, REIOs, and EU law, all of which were beyond the Tribunal’s remit.

250. Cavalum argues that the Tribunal did not manifestly exceed its powers because (i) the “tribunal properly found it had jurisdiction over the dispute;”³²⁵ and (ii) the “tribunal did not fail to apply the proper governing law to the merits of the dispute.”³²⁶

(b) Manifest Excess of Powers - Jurisdiction

251. Cavalum asserts that the Tribunal correctly established jurisdiction over the dispute, arguing that: (i) Spain’s claims of jurisdictional overreach demonstrate a “failure to understand the plain text of the ECT;”³²⁷ and (ii) Spain failed to substantiate its claim that the Tribunal manifestly exceeded its powers by asserting jurisdiction over Cavalum and the intra-EU dispute with Spain.³²⁸

252. Cavalum refutes Spain’s claims that the Tribunal exceeded its jurisdiction (i) ratione personae and (ii) ratione voluntatis.

253. With regard to jurisdiction ratione personae, Cavalum asserts that the dispute is between Spain and a Portuguese company, not between two Member States or a REIO, making the REIO provisions in the ECT irrelevant. Cavalum contends that the Tribunal analyzed and rejected Spain’s interpretation, affirming that the REIO clauses did not affect its jurisdiction.³²⁹

254. As to jurisdiction ratione voluntatis, Cavalum argues that Spain had explicitly given “unconditional consent” to arbitration in ECT Article 26(3). Cavalum further asserts that the Tribunal ruled that Spain’s consent, coupled with Cavalum’s initiation of the arbitration, satisfied the jurisdictional requirements. Further, Cavalum cites several cases

³²⁴ See Cavalum’s Rejoinder, ¶ 26. ↩
³²⁵ Cavalum’s Counter-Memorial, § III.B. ↩
³²⁶ Cavalum’s Counter-Memorial, § III.C. ↩
³²⁷ Cavalum’s Counter-Memorial, § III.B.1. ↩
³²⁸ See Cavalum’s Counter-Memorial, § III.B.3. ↩
³²⁹ See Cavalum’s Counter-Memorial, ¶ 94; Cavalum’s Rejoinder, ¶¶ 39-41. ↩

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that have rejected Spain’s argument that EU law invalidates its consent to arbitration under the ECT.³³⁰

255. For Cavalum, the Tribunal properly exercised its jurisdiction, revisited its Decision twice, and analyzed logically and thoroughly Spain’s objections.³³¹

256. Cavalum asserts that Spain’s position misinterprets the ECT. For Cavalum, Spain’s attempt to relitigate these issues is outside the Committee’s mandate.³³² According to Cavalum, Spain failed to prove that the Tribunal manifestly exceeded its powers by upholding jurisdiction for the following four reasons.³³³

(i) The Tribunal did not refuse to assess the application of
Achmea to the ECT after Komstroy

257. Cavalum argues that the Tribunal did not fail to consider the Komstroy Judgment.³³⁴ Cavalum emphasizes that the Tribunal thoroughly assessed the Komstroy Judgment when Spain submitted its First Request for Reconsideration. Specifically, Cavalum adds that in its Decision, the Tribunal assumed, for the sake of argument, that the CJEU would apply the Achmea Judgment to disputes arising under the ECT.³³⁵

258. Nevertheless, the Tribunal concluded that this assumption did not affect its jurisdiction, reasoning that the Achmea Judgment was rooted in EU constitutional principles rather than in traditional treaty interpretation and that it was not binding on the Tribunal under international law. The Tribunal also found that nothing in the Komstroy Judgment added to the reasoning in the Achmea Judgment, which had already been considered in its Decision.³³⁶

³³⁰ See Cavalum’s Counter-Memorial, ¶¶ 95-97. ↩
³³¹ See Cavalum’s Counter-Memorial, ¶¶ 68-71. ↩
³³² See Cavalum’s Counter-Memorial, ¶ 98. ↩
³³³ See Cavalum’s Counter-Memorial, ¶ 128. ↩
³³⁴ See Cavalum’s Counter-Memorial, ¶ 129. ↩
³³⁵ See Cavalum’s Counter-Memorial, ¶ 130. ↩
³³⁶ See Cavalum’s Counter-Memorial, ¶¶ 131-133. ↩

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259. Cavalum further states that the Tribunal concluded that the Komstroy Judgment did not affect its jurisdiction under the ECT or ICSID Convention. Cavalum references multiple precedents where tribunals upheld jurisdiction in comparable intra-EU disputes.³³⁷

260. Citing the Tribunal’s First Reconsideration Decision, Cavalum emphasizes that “nothing in Achmea or Komstroy could act to deprive the Tribunal of jurisdiction under the applicable international law.”³³⁸ Cavalum finally argues that Spain’s repeated objections simply demonstrated its dissatisfaction with the Tribunal’s well-reasoned conclusions, which do not amount to a manifest excess of power.³³⁹

(ii) The Tribunal’s interpretation of ECT Article 26 as covering
intra-EU disputes does not conflict with the EU Treaties

261. Cavalum claims that the Tribunal properly concluded that EU law does not prevail over the ECT, emphasizing that the Tribunal found no conflict between ECT Article 26 and TFEU Articles 267 and 344.³⁴⁰ Furthermore, Cavalum maintains that the Tribunal acknowledged that EU law forms part of international law but held that this alone does not make it binding or grant it “primacy” over the ECT. In this sense, the Tribunal found that:

the point that EU law (or most of it) is international law, or that the rulings of the CJEU are part of international law is not in any sense conclusive. The question still remains as to whether EU law and the rulings of the CJEU are part of the applicable international law.³⁴¹

262. Cavalum cites to the Tribunal’s Decision, which stated, “there is no conflict [...] such as to bring the principles reflected in Articles 30 or 41 VCLT into play.”³⁴² Also, Cavalum

³³⁷ See Cavalum’s Counter-Memorial, ¶ 133. ↩
³³⁸ Cavalum’s Counter-Memorial, ¶ 135; First Reconsideration Decision, ¶¶ 92-93, 97. ↩
³³⁹ See Cavalum’s Counter-Memorial, ¶¶ 134-142. See Watkins Decision on Annulment, ¶¶ 91-93 (CL-0316); Cube Infrastructure Infra. Fund SICAV et al. v. Kingdom of Spain, ICSID Case No. ARB/15/20, Decision on Annulment, 28 March 2022, ¶ 219 (CL-0257) (“Cube Decision on Annulment”); OperaFund Eco-Invest SICAV PLC et al. v. Spain, ICSID Case No. ARB/15/36, Decision on Annulment, 2 March 2023, ¶¶ 255-266 (CL-0292) (“OperaFund Decision on Annulment”). ↩
³⁴⁰ See Cavalum’s Counter-Memorial, ¶¶ 143-145. ↩
³⁴¹ Cavalum’s Counter-Memorial, ¶ 144. ↩
³⁴² Cavalum’s Counter-Memorial, ¶ 145; Decision, ¶¶ 359, 366-367. ↩

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adds that the Tribunal affirmed that Article 16 of the ECT would govern any potential conflict and would ensure that investor protections prevail.³⁴³

263. Cavalum further contends that cases like Patrick Mitchell v. Congo and Helnan v. Egypt cited by Spain confirm that a tribunal does not manifestly exceed its power when its decision aligns with the plain language of its constitutive instruments. For example, in Patrick Mitchell v. Congo, the committee found the tribunal’s error was manifest because it was evident “on the first reading of the Award.”³⁴⁴

264. In contrast, Cavalum asserts that the Tribunal derived its jurisdiction from the plain wording of the ECT and the ICSID Convention, applying ECT Article 26(6), which mandates the application of the Treaty and principles of international law. Spain’s argument, Cavalum claims, relies not on the Tribunal’s failure to apply the proper governing law but on its disagreement with the Tribunal’s interpretation—a disagreement that does not meet the threshold for annulment.³⁴⁵

(iii) The Tribunal’s application of Achmea

265. Cavalum asserts that the Tribunal correctly declined to “retroactively apply CJEU Judgments to the Cavalum dispute,” since such an application would contradict fundamental principles of international adjudication. Cavalum emphasizes that jurisdiction is determined by reference to the date on which judicial proceedings are initiated, meaning that events or rulings occurring after that date cannot affect the Tribunal’s jurisdiction. Specifically, Cavalum notes that Spain’s attempt to rely on Achmea, Komstroy, and PL Holdings, which postdated the registration of Cavalum’s Request for Arbitration was legally unfounded.³⁴⁶

266. According to Cavalum, the Tribunal recognizes that the CJEU’s decisions in these cases did not render the agreement to arbitrate void or incompatible with the ECT but rather left

³⁴³ See Cavalum’s Counter-Memorial, ¶¶ 145-150. See also SolEs Badajoz GmbH v. Kingdom of Spain, ICSID Case No. ARB/15/38, Decision on Annulment, 16 March 2022, ¶ 127 (CL-0315). ↩
³⁴⁴ Cavalum’s Rejoinder, ¶ 27; Mr. Patrick Mitchell v. The Democratic Republic of Congo, ICSID Case No. ARB/99/7, Decision on the Application for Annulment of the Award, 1 November 2006, ¶¶ 26, 24, 46 (CL-0246). ↩
³⁴⁵ See Cavalum’s Rejoinder, ¶¶ 27-30. ↩
³⁴⁶ See Cavalum’s Counter-Memorial, ¶¶ 151-155. ↩

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open questions about the effect of preclusion, as stated: “the CJEU merely had ruled that the agreement to arbitrate [in the ECT] is precluded, not that it is void, or incompatible with the TEC/TFEU.”³⁴⁷

267. Additionally, Cavalum cites the principle that the annulment record is limited to materials presented during the Arbitration, as confirmed by the annulment committee in ESPF v. Italy, which rejected attempts to introduce new legal authorities postdating the Arbitration.³⁴⁸ Thus, Cavalum argues that Spain’s position was not only legally flawed but would have compelled the Tribunal to exceed its powers by considering CJEU decisions issued after the registration of the Request for Arbitration as a basis to decline jurisdiction, contrary to established principles of international adjudication.³⁴⁹

268. Cavalum argues that the Tribunal’s jurisdiction was firmly rooted in the explicit terms of the ECT and the ICSID Convention, rejecting Spain’s claim that the Tribunal disregarded the interplay between ECT Article 26(1) and Article 1(2). Spain reiterated its previously rejected argument that the ECT contains an implied disconnection clause and cited the Green Power award to bolster its position. However, Cavalum highlights that the Tribunal thoroughly considered and rejected Spain’s arguments concerning the ECT’s REIO provisions and their alleged impact on jurisdiction, basing its conclusions on a detailed textual analysis of the ECT’s provisions, including Articles 1, 25, and 36(7).³⁵⁰

269. Further, Cavalum emphasizes that annulment committees in numerous cases have consistently upheld tribunals’ interpretations of the ECT’s plain language, concluding that no manifest excess of power occurred in their jurisdictional determinations. Notably, the Green Power award cited by Spain was distinguished by the Tribunal as irrelevant, given that it arose under Swedish law as the lex arbitri, which does not apply to ICSID arbitrations.³⁵¹

³⁴⁷ Cavalum’s Counter-Memorial, ¶¶ 152-153. ↩
³⁴⁸ See Cavalum’s Counter-Memorial, ¶ 156; ESPF Beteiligungs GmbH et al. v. Italian Republic, ICSID Case No. ARB/16/5, Decision on Annulment, 31 July 2023, ¶ 86 (CL-302). ↩
³⁴⁹ See Cavalum’s Counter-Memorial, ¶ 157. ↩
³⁵⁰ See Cavalum’s Counter-Memorial, ¶¶ 158-161. ↩
³⁵¹ See Cavalum’s Counter-Memorial, ¶¶ 167-170; PO 6, ¶ 56. ↩

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(iv) The Tribunal’s application of the REIO clause

270. Cavalum points out that Spain ignored the findings of fifteen ICSID annulment committees that addressed nearly identical claims and consistently upheld arbitral tribunals’ jurisdiction over intra-EU disputes under the ECT. For Cavalum, Spain’s failure to engage with this body of jurisprudence demonstrates the lack of merit in its arguments.³⁵² Cavalum argues that Spain has failed to identify a single ICSID tribunal that has adopted its position on jurisdiction, asserting that this underscores the absence of a manifest and egregious error by the Tribunal.³⁵³

271. Based on the above, Cavalum argues that Spain “has not identified any error that the Cavalum Tribunal committed arising to the level of a ‘manifest excess of power.’”³⁵⁴

(c) Manifest Excess of Powers - Merits

272. Cavalum argues that contrary to Spain’s assertions, the Tribunal (i) took EU law into account as the appropriate governing law; and (ii) correctly applied the governing law.

(i) Whether EU law was taken into account

273. Cavalum contends that the Tribunal correctly considered EU State aid law as part of its analysis and did not disregard it as Spain claims. Spain argues that the Tribunal exceeded its powers by not applying EU law, particularly State aid rules, to determine the merits of the dispute and the scope of Cavalum’s legitimate expectations.³⁵⁵

274. However, Cavalum highlights that the Tribunal carefully assessed the factual background, including the 2017 EC Decision, and integrated these considerations into its evaluation of the FET standard.³⁵⁶ Cavalum adds that the Tribunal explicitly noted that the protection

³⁵² See Cavalum’s Rejoinder, ¶¶ 35-37. ↩
³⁵³ See Cavalum’s Counter-Memorial, ¶¶ 89-90; Cavalum’s Rejoinder, ¶ 37. ↩
³⁵⁴ Cavalum’s Counter-Memorial, ¶ 171. ↩
³⁵⁵ See Cavalum’s Counter-Memorial, ¶ 172. ↩
³⁵⁶ See Cavalum’s Counter-Memorial, ¶ 176. ↩

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of legitimate expectations must be evaluated in light of “the legal framework at the time of the investment,” which implicitly involves an analysis of EU State aid law.³⁵⁷

275. Furthermore, Cavalum emphasizes that the Tribunal acknowledged Spain’s State aid argument but dismissed it, stating that “neither Spain nor the Commission ever had any concern that the RD 661/2007 regime was contrary to State aid rules, and that is confirmed by [the 2017 EC Decision].”³⁵⁸

276. Cavalum submits that the Tribunal concluded that Spain’s failure to notify the original aid scheme as required by EU law did not preclude investors from having legitimate expectations or excuse Spain’s liability under the ECT. Cavalum argues that Spain’s position reflects dissatisfaction with the Tribunal’s findings rather than evidence of a manifest excess of power.³⁵⁹

(ii) Whether EU law was taken into account correctly

277. Cavalum argues that the Tribunal correctly rejected Spain’s claim that EU law should have been applied to analyze the legitimacy of Cavalum’s expectations. Spain contends that EU law, particularly State aid rules, should have influenced the Tribunal’s determination of whether Cavalum could expect the RD 661/2007 incentives to remain unchanged.³⁶⁰ However, Cavalum emphasizes that the Tribunal explicitly addressed these arguments and found them unfounded.³⁶¹

278. For instance, Cavalum highlights that the Tribunal rejected the notion that RD 661/2007 created legitimate expectations of unchanged incentives, stating that “the Claimant had no legally protected right to the RD 661/2007 incentives for the life of the plants” and instead agreed with Spain’s position that the “reasonable rate of return” principle was the cornerstone of the incentives regime.³⁶²

³⁵⁷ Cavalum’s Counter-Memorial, ¶ 176; Decision, ¶ 531. ↩
³⁵⁸ Cavalum’s Counter-Memorial, ¶ 178; Decision, ¶ 611. ↩
³⁵⁹ See Cavalum’s Counter-Memorial, ¶ 179. ↩
³⁶⁰ See Cavalum’s Counter-Memorial, ¶ 180. ↩
³⁶¹ See Cavalum’s Rejoinder, ¶¶ 90-91. ↩
³⁶² Cavalum’s Counter-Memorial, ¶¶ 180, 182; Decision, ¶¶ 596-601. ↩

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279. Cavalum also emphasizes the Tribunal’s dismissal of Spain’s State aid argument, wherein the Tribunal noted that neither Spain nor the EC had concerned that RD 661/2007 violated State aid rules. The Tribunal concluded that “issues of state aid were not relevant to the assessment of liability” but even if they were, Spain could not benefit from its own failure to notify the regime to the Commission.³⁶³

280. Furthermore, Cavalum cites other annulment decisions that “have rejected the claim that a failure to consider EU State aid law when assessing the merits of a dispute amounts to a manifest excess of power.”³⁶⁴

281. In Cavalum’s Rejoinder, the Claimant reiterates that the Tribunal applied the correct governing law, contrary to Spain’s assertions.³⁶⁵ Cavalum argues that Spain’s claim of manifest excess of power is without merit for several reasons.

282. First, Cavalum emphasizes that Spain’s argument hinges on the claim that EU law, as part of international law, should have been applied as the governing law for the dispute. However, Cavalum notes that the Tribunal explicitly found that while EU law constitutes international law, it does not form part of the applicable law under the ECT or ICSID Convention. This interpretation, according to Cavalum, was correct as the phrase “rules and principles of international law” under ECT Article 26(6) refers to general international law and not to the regional set of laws of the EU.³⁶⁶

283. Second, Cavalum maintains that Spain failed to meet the high burden of demonstrating a manifest error. Cavalum highlights the NextEra v. Spain committee’s ruling that an annulment petitioner must prove that its interpretation of the governing law is a “monolithic and firmly settled principle” that is “not subject to debate.”³⁶⁷ Cavalum argues that Spain’s position that EU law must be part of the applicable international law under the ECT does

³⁶³ Cavalum’s Counter-Memorial, ¶ 188. ↩
³⁶⁴ Cavalum’s Counter-Memorial, ¶¶ 182-187; OperaFund Decision on Annulment, ¶ 292 (CL-0292); Watkins Decision on Annulment, ¶ 143 (CL-0316); Cube Decision on Annulment, ¶¶ 224, 227-228 (CL-0257). ↩
³⁶⁵ See Cavalum’s Rejoinder, ¶ 60. ↩
³⁶⁶ See Cavalum’s Rejoinder, ¶¶ 61-63. ↩
³⁶⁷ Cavalum’s Rejoinder, ¶ 64, citing NextEra Energy Global Holdings B.V. and NextEra Energy Spain Holdings B.V. v. Kingdom of Spain, ICSID Case No. ARB/14/11, Decision on Annulment, 18 March 2022, ¶ 244 (CL-0312) (“NextEra Decision on Annulment”). ↩

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not meet this standard, particularly given the divergent interpretations across various tribunals.³⁶⁸

284. Cavalum further argues that Spain’s reliance on cases like BayWa and Eurus—which held that EU State aid law was applicable—does not demonstrate error on the part of the Tribunal.³⁶⁹ Rather, it shows that the issue is debatable, and therefore, that no manifest excess of power occurred. In support, Cavalum cites to the InfraRed annulment committee, which found that “the mere fact that the issue is controversial and the Tribunal’s findings related thereto were neither innovative nor unsupported” is sufficient to reject claims of manifest excess of power.³⁷⁰

285. Third, Cavalum underscores that the Tribunal did consider EU State aid law as a factual matter relevant to assessing Cavalum’s legitimate expectations. For instance, the Tribunal reviewed Spain’s State aid argument but rejected it, noting that “neither Spain nor the Commission ever had any concern that the RD 661/2007 regime was contrary to State aid rules.” The Tribunal concluded that State aid issues were not relevant to liability under the ECT and that, even if they were, Spain could not rely on its failure to notify the scheme to the EC as a defense.³⁷¹

286. Cavalum also highlights that Spain’s argument reflects dissatisfaction with the Tribunal’s factual findings, particularly regarding the 2017 EC Decision, rather than a failure to apply the proper governing law. Referring to InfraRed v. Spain,³⁷² Cavalum argues that annulment committees cannot attempt to second-guess factual determinations by arbitral

³⁶⁸ See Cavalum’s Rejoinder, ¶¶ 63-65. ↩
³⁶⁹ See Cavalum’s Rejoinder, ¶ 68, referring to Spain’s Reply, ¶¶ 187-188. ↩
³⁷⁰ Cavalum’s Rejoinder, ¶ 68, referring to InfraRed Environmental Infrastructure GP Limited et al. v. Kingdom of Spain, ICSID Case No. ARB/14/12, Decision on Annulment, 10 June 2022, ¶ 534 (CL-0313) (“InfraRed Decision on Annulment”). ↩
³⁷¹ Cavalum’s Rejoinder, ¶ 69. ↩
³⁷² InfraRed Decision on Annulment, ¶¶ 547-548 (CL-0313). ↩

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tribunals, especially when Spain’s failure to notify the subsidies was attributable solely to its own conduct.³⁷³

287. Cavalum concludes that the Tribunal’s decision to apply the ECT and general principles of international law, while considering EU law as a factual matter, was proper and does not amount to a manifest excess of power. For Cavalum, Spain’s annulment claims lack legal and factual basis and should be dismissed.³⁷⁴

288. Based on the above, Cavalum maintains that Spain’s Application was baseless and outside the Committee’s scope because the Tribunal: (i) considered and rejected Spain’s argument that EU State aid law undermined Cavalum’s legitimate expectations, finding no violation of EU law in the RD 661/2007 regime; (ii) declared that the State aid issues were irrelevant to liability and that Spain could not use its failure to notify the regime as a defense; and (iii) established that Cavalum’s legitimate expectation was limited to a “reasonable return,” which Spain never argued violated EU law. Thus, Cavalum asserts that Spain’s Application must be dismissed.³⁷⁵

(2) Failure to State Reasons

(a) Standard

289. Cavalum argues that Spain misinterprets the standard for annulment under Convention Article 52(1)(e). According to Cavalum, annulment under this provision is warranted only when an award completely fails to state the reasons that connect its findings and conclusions, making it “impossible” for an informed reader to understand the tribunal’s reasoning.³⁷⁶ For Cavalum, a committee is not tasked with assessing the adequacy or correctness of the reasons provided, but merely with confirming that such reasons exist to explain the tribunal’s decision.³⁷⁷

³⁷³ Cavalum’s Rejoinder, ¶ 74, referring to RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/30, Decision on Annulment, 10 June 2022, ¶ 128 (CL-0311) (“RREEF Decision on Annulment”). ↩
³⁷⁴ See Cavalum’s Rejoinder, ¶¶ 75-76. ↩
³⁷⁵ See Cavalum’s Counter-Memorial, ¶ 188. ↩
³⁷⁶ See Cavalum’s Counter-Memorial, ¶ 190. ↩
³⁷⁷ See Cavalum’s Counter-Memorial, ¶ 190. ↩

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(b) Application of the Standard to the Facts

290. Cavalum contends that Spain’s argument that the Tribunal failed to apply or explain its reasoning regarding EU law is unfounded. For Cavalum, the Tribunal explicitly considered Spain’s position on EU State aid law and rejected it. In particular, Cavalum argues that the Tribunal found that RD 661/2007 was not incompatible with EU state aid rules, referencing the 2017 EC Decision that confirmed that the scheme was not a concern under State aid law. This conclusion was based on the Tribunal’s evaluation of the evidence and Spain’s conduct, which did not raise concerns about the legality of the RD 661/2007 regime at the relevant time.³⁷⁸

291. Cavalum asserts that the Tribunal provided clear reasons for dismissing Spain’s argument that State aid law precluded any legitimate expectations. According to Cavalum, the Tribunal concluded that there was no connection between an investor’s legitimate expectation of a reasonable rate of return and Spain’s failure to notify the aid to the EC. Furthermore, the Tribunal noted that Spain’s reliance on its own failure to notify State aid constituted a defense tainted by “unclean hands.”³⁷⁹

292. Cavalum emphasizes that the Tribunal thoroughly analyzed the ECT, focusing on the standard of legitimate expectations under international law. Cavalum adds that the Tribunal considered the legal and commercial environment at the time of the investment, the extent of Cavalum’s due diligence, and the relevant legal framework, including EU and Spanish laws. The Tribunal then concluded that Spain’s argument that legitimate expectations were limited to a reasonable return was unsupported by the evidence and did not justify annulling the Award.³⁸⁰

293. According to Cavalum, even if the Tribunal had engaged with EU law in the manner suggested by Spain, this would not have changed the outcome. Further, Cavalum notes that the Tribunal found Spain’s interpretation of EU law to lack credibility and determined that any alleged failure to notify State aid could not diminish Cavalum’s legitimate

³⁷⁸ See Cavalum’s Counter-Memorial, ¶¶ 193-194. ↩
³⁷⁹ See Cavalum’s Counter-Memorial, ¶¶ 195-196, 202. ↩
³⁸⁰ See Cavalum’s Counter-Memorial, ¶¶ 197-200. ↩

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expectations. As Spain did not connect the notification of State aid to a specific outcome-determinative issue, Cavalum posits that its claim under Convention Article 52(1)(e) fails.³⁸¹

294. Cavalum further asserts that the Tribunal comprehensively addressed the issue of applicable law, directly engaging with Spain’s arguments. The Tribunal began its analysis by interpreting the combined effect of ECT Article 26(6) and Convention Article 42(1), concluding that the dispute would be governed by the ECT and applicable international law. It specifically considered whether EU law was part of international law or had primacy in the context of the dispute.³⁸²

295. Cavalum refutes Spain’s claim that the Tribunal’s reasoning on EU law is insufficient because it is not explicitly located within a specific section of the Decision. Cavalum emphasizes that the ICSID Convention does not mandate a particular structure for a tribunal’s reasoning, as long as the reasoning is clear to an informed reader. Cavalum notes that the Tribunal explicitly addressed the 2017 EC Decision and thoroughly analyzed Spain’s arguments on this issue.³⁸³

296. In sum, Cavalum submits that Spain’s allegation that the Tribunal failed to state reasons does not meet the high threshold required under Article 52(1)(e) of the ICSID Convention. Accordingly, Spain’s Application should be dismissed.³⁸⁴

³⁸¹ See Cavalum’s Counter-Memorial, ¶¶ 202-203. ↩
³⁸² See Cavalum’s Rejoinder, ¶¶ 88-89. ↩
³⁸³ See Cavalum’s Rejoinder, ¶¶ 94-95. ↩
³⁸⁴ See Cavalum’s Counter-Memorial, ¶ 203; Cavalum’s Rejoinder, ¶ 100. ↩

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C. COMMITTEE'S ANALYSIS

(1) Manifest Excess of Powers

(a) Standard

297. The Committee notes, as recognized by Spain,³⁸⁵ that Convention Article 52(1)(b) makes no distinction between jurisdiction and merits.³⁸⁶ The Committee also observes that ad hoc committees have long accepted that the non-application of the applicable law may constitute a manifest excess of powers.³⁸⁷ By contrast, as a matter of principle, an incorrect interpretation or application of the applicable law does not call for annulment.³⁸⁸

298. Spain’s claims that the Tribunal manifestly exceeded its power as regards jurisdiction and merits are analyzed in turn.

(b) Manifest Excess of Powers - Jurisdiction

299. Spain’s overarching claim is that the Tribunal failed to apply EU law to jurisdictional matters. To assess whether a tribunal manifestly exceeded its powers, the focus shall be on the law that governs jurisdiction. In the present case, this law is the ECT and the ICSID Convention, as the Tribunal determined at paragraph 370(5) and (6) of the Decision.³⁸⁹

300. As mentioned in paragraph 194 above, Spain classifies its jurisdictional arguments regarding manifest excess of powers as follows: the Tribunal’s: (i) refusal to assess the application of Achmea to the ECT after Komstroy; (ii) interpretation of ECT Article 26; (iii) application of Achmea; and (iv) application of the REIO clause.³⁹⁰

³⁸⁵ Tr. Day 1, p. 38: 11-17. ↩
³⁸⁶ See M.C.I. Power Group L.C. and New Turbine Inc. v. Republic of Ecuador, ICSID Case No. ARB/03/6, Decision on Annulment, 19 October 2009, ¶ 55 (RL-0145) (“MCI Decision on Annulment”); Mr. Tza Yap Shum v. Republic of Peru, ICSID Case No. ARB/07/6, Decision on Annulment, 12 February 2015, ¶ 79 (RL- 0147) (“Mr. Tza Yap Shum Decision on Annulment”); Alapli Decision on Annulment, ¶ 238 (CL-269). ↩
³⁸⁷ ICSID Background Paper (CL-300). ↩
³⁸⁸ ICSID Background Paper (CL-300). ↩
³⁸⁹ See supra, ¶ 16. ↩
³⁹⁰ See Spain’s Memorial, ¶¶ 256-288; Spain’s Reply, ¶¶ 127-153. See supra, ¶ 194. ↩

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301. The Committee examines below Spain’s manifest excess of powers’ allegations concerning jurisdiction in line with that classification.

(i) Whether the Tribunal refused to assess the application of
Achmea to the ECT after Komstroy

302. Spain submits³⁹¹ that the Tribunal manifestly exceeded its powers when it failed to reconsider its Decision after the CJEU issued the Komstroy Judgment, which applies the Achmea Judgment, concerning an intra-EU BIT in the context of the ECT.

303. The Committee notes that the Tribunal, after issuing its Decision, rejected both of Spain’s requests for reconsideration based on subsequent developments in CJEU case law.³⁹²

304. The First Reconsideration Decision, which followed Spain’s request to reconsider the Decision in light of the Komstroy Judgment, reads in its pertinent part:

[...] the Tribunal, notwithstanding the ruling in Komstroy, fully adheres to and affirms the reasoning in its 2020 Decision, and concludes:

(1) by virtue of Article 25(1) ICSID Convention jurisdiction exists where (a) there is a legal dispute which (b) arises directly out of an investment, (c) between a Contracting State and a national of another Contracting State, and (d) which the parties to the dispute consent in writing to submit to the Centre.

(2) By virtue of Article 26.1-3 ECT: (1) where there arise disputes between a Contracting Party and an investor of another Contracting Party relating to an investment of the latter in the area of the former, (2) which cannot be settled amicably, (3) the investor party may submit it to ICSID arbitration, (4) if the Contracting Party of the investor and the Contracting Party to the dispute are both parties to the ICSID Convention.

(3) There is a dispute between the Claimant and Spain which arose out of an investment in Spain, and the Contracting Party of the investor, Portugal, is party to the ECT and to the ICSID Convention, as is Spain.

(4) Accordingly, Spain has given “its unconditional consent to the submission of [the] dispute to international arbitration” (Article 26.3.a ECT), and the Claimant has taken advantage of that consent.

³⁹¹ See supra, ¶¶ 195-196. ↩
³⁹² See supra, ¶ 26. ↩

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(5) The ruling in Komstroy does not affect the jurisdiction of the Tribunal under the applicable international law, namely the ECT and the ICSID Convention.

(6) There is nothing in the Achmea and Komstroy rulings which could deprive a Tribunal so constituted of jurisdiction, or suggest that Member States have no capacity to enter into agreements such as the ECT.³⁹³

305. The Second Reconsideration Decision ruled on Spain’s request to reconsider the Tribunal’s Decision, as well as the First Reconsideration Decision, in light of the Green Power award.³⁹⁴ The Tribunal discussed in the Second Reconsideration Decision the Komstroy Judgment and its relation to Achmea, as well as their consequences for upholding its jurisdiction under ECT Article 26, in light of Spain’s objection. It found that:

[...] There was no new ruling by the CJEU which would decisively affect the 2020 Decision and which was unknown to the Tribunal and the parties. There was nothing in the reasoning in Komstroy which was not anticipated by the Tribunal or by the parties in their submissions leading to the 2020 Decision. Komstroy added nothing material to Achmea apart from its express application to the ECT, which had been taken fully into account by the parties in their arguments and by the Tribunal in its 2020 Decision.³⁹⁵

306. When rejecting Spain’s Second Request for Reconsideration, the Tribunal concluded therein that:

55. [...] The mere fact that a subsequent case suggested that a tribunal’s decision on the law might have been wrong was not sufficient to justify reconsideration, as otherwise there would be no finality. In its 10 January 2022 Decision, the Tribunal said: footnote omitted]

‘80. What must be shown is that the subsequent legal development not only undermines the Tribunal’s legal conclusion but shows that it was wholly wrong. It must be a decisive legal authority which, if it had existed at the time of the decision, would plainly have led to a different conclusion.

81. That, in the Tribunal’s view, is the relevant and appropriate touchstone, namely, some development (such as a relevant and controlling judgment or award) of such a nature as would have decisively affected a pre-final-award decision (of whatever

³⁹³ First Reconsideration Decision, ¶ 97 (RL-115). ↩
³⁹⁴ Green Power award (RL-0120). ↩
³⁹⁵ Second Reconsideration Decision, ¶ 46 (RL-117). ↩

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character), had it been known to the tribunal at the time of the decision.³⁹⁶

307. The Committee notes that pre-award decisions are not subject to annulment unless they are incorporated into the award. They may in such a case be attacked as part of the award. Even assuming, quite extensively, that the Tribunal implicitly incorporated the First Reconsideration Decision and the Second Reconsideration Decision into the Award when it recounted these episodes in its procedural history,³⁹⁷ the Committee considers that Spain does not articulate a valid ground for annulment here.³⁹⁸ In the Committee’s view, the Tribunal did assess the application of Achmea to the ECT after Komstroy. For the Committee, a tribunal’s refusal to follow a party’s argumentation is not in itself indicative of an excess of powers.³⁹⁹ Accordingly, it rejects this argument.

308. The Committee moves on to the second allegation.

(ii) Whether the Tribunal’s interpretation of ECT Article 26 as
covering intra-EU disputes conflicts with the EU Treaties

309. Spain submits⁴⁰⁰ that interpretating ECT Article 26 as covering intra-EU disputes conflicts with EU law. For Spain, such a conflict must be resolved in favor of EU law. Spain explains that the principle of the primacy of EU law over the international obligations of the Member States owed to each other is a special conflict rule whose application leads to discard ECT Article 26 in the context of intra-EU disputes.⁴⁰¹

310. According to Spain, conflicts between the ECT and EU law are resolved under ECT Article 25,⁴⁰² which recognizes the principle of the primacy of EU law in intra-EU relations. It submits that this principle has been proclaimed in the Electrabel v. Hungary

³⁹⁶ Second Reconsideration Decision, ¶¶ 55-56 (RL-117). ↩
³⁹⁷ Award, ¶¶ 41, 48. See supra, ¶ 26. ↩
³⁹⁸ See Spain’s Memorial, ¶¶ 260, 266, 267. ↩
³⁹⁹ Watkins Decision on Annulment, ¶ 93 (CL-316) (“While Spain may disagree with the Tribunal’s reasoning and manner of distinguishing it, that of itself is not a basis for any annulment application”). See Cavalum’s Counter-Memorial ¶¶ 132-137; Tr. Day 1, pp. 94: 24-25, 95-96: 1-7. ↩
⁴⁰⁰ See supra, ¶¶ 197-202. ↩
⁴⁰¹ See Spain’s Memorial, ¶ 268; Spain’s Reply, ¶¶ 85, 138; Tr. Day 1, pp. 24: 13-16, 29: 13-23. ↩
⁴⁰² See supra, ¶ 11. ↩

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award.⁴⁰³ Spain further asserts that, by virtue of the most favoured nation clause contained in ECT Article 25, EU law prevails over the ECT because the regime applicable within the EU is more favorable than that of the ECT. For Spain, the arbitral system is not necessarily more favorable than the European judicial system because the latter offers guarantees of unity and uniformity in the application of EU law.⁴⁰⁴ It also submits that the principle of primacy is reflected in two ECT provisions: (i) Article 1(3),⁴⁰⁵ which defines REIO as an organization of States to which they have transferred competence over certain matters governed by the ECT; and (ii) Article 36(7),⁴⁰⁶ which regulates the voting rights of an REIO. According to Spain, these provisions establish that, in some ECT matters, the EU or its Member States are the relevant Contracting Party.⁴⁰⁷

311. Spain claims that its interpretation of the ECT is the only one compatible with a good faith interpretation of the ECT in accordance with VCLT Articles 31 and 32.⁴⁰⁸ Spain opines that EC declarations and CJEU rulings are relevant interpretative instruments under VCLT Article 31(3). It also considers, in relation to VCLT Article 31(2)(b), that the other ECT signatory States did not make any declaration, nor formulate any opposition, to the treaty.⁴⁰⁹

312. Spain adds that EU law would prevail even if the determination of the prevailing legal order were to be made under international law, in application of VCLT Articles 30 (on the application of successive treaties relating to the same subject matter) and 59 (on the termination or suspension of the operation of a treaty implied by conclusion of a later treaty).⁴¹⁰ Lastly, Spain submits that the application of ECT Article 16 (“Relation to Other Agreements”) to solve the conflict would also give precedence to EU Law⁴¹¹ because the

⁴⁰³ See Spain’s Memorial, ¶ 126. Electrabel Decision, ¶¶ 4.178-4.189 (RL-0002). ↩
⁴⁰⁴ Tr. Day 1, pp. 135: 9-23, 136: 13-23. ↩
⁴⁰⁵ See supra, ¶ 11. ↩
⁴⁰⁶ See supra, ¶ 11. ↩
⁴⁰⁷ See Spain’s Memorial, ¶¶ 111-115, 118. ↩
⁴⁰⁸ Tr. Day 1, p. 27: 11-24. ↩
⁴⁰⁹ Tr. Day 1, pp. 133-134: 8-15. ↩
⁴¹⁰ See Spain’s Memorial, ¶¶ 119-122. Tr. Day 1, p. 26: 16-21. ↩
⁴¹¹ See supra, ¶ 13. ↩

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ECT neither introduces substantive rights more favorable to investors than EU law, nor provides for arbitration as the only dispute settlement mechanism.⁴¹²

313. The Committee considers that Spain does not articulate a valid ground for annulment by inviting the Committee to bring the principle of the primacy of EU law out of the terms of the ECT. This escapes the Committee’s powers under the limited remit of Convention Article 52(1)(b).

314. It is not for committees to superimpose their own views on that of tribunals about a correct interpretation.⁴¹³ Interpretation falls within the exclusive province of arbitral tribunals. For the Committee, the Tribunal plainly exercised this power when it concluded that

[t]here is no conflict between Article 26.1-3 ECT and Articles 267 and 344 TFEU such as to bring Article 30 VCLT into play. It is therefore not necessary to decide whether the effect of Article 16 ECT is that, even if there were an inconsistency between Articles 267 and 344 TFEU (and their predecessors) and the ECT, there would be no derogation from the dispute resolution provisions in Part V of the ECT.⁴¹⁴

315. The Tribunal further determined that “[t]he fact that EU law is international law for at least some purposes does not affect the conclusion that, on the plain meaning of the ECT and the ICSID Convention, the Tribunal has jurisdiction [...].⁴¹⁵

316. Also, the Tribunal held the following regarding Spain’s argument on the inapplicability of ECT Article 26(3) as a matter of EU law:

[...] there is no conflict between Article 26.1-3 ECT and Articles 267 and 344 TFEU such as to bring the principles reflected in Articles 30 or 41 VCLT into play. Nor does Article 16 ECT have the effect of invalidating the dispute resolution provisions in Part V of the ECT, since, even if (which is not the case) the EC and EU Treaties gave a right to dispute resolution in respect of the subject matter of Part III (investment protection) and Part V (dispute settlement) of the ECT, Part V would still be operative if it were more favourable to the investor.⁴¹⁶

⁴¹² Tr. Day 1, p. 26: 22-25, p. 27: 1-10. ↩
⁴¹³ MCI Decision on Annulment, ¶ 54 (RL-0145); Fraport Decision on Annulment, ¶ 112 (RL-0080). ↩
⁴¹⁴ Decision, ¶ 370(11) and (12). ↩
⁴¹⁵ Decision, ¶ 370(16). ↩
⁴¹⁶ Decision, ¶ 367. See supra, ¶ 15. ↩

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317. It is a consistent feature of Convention Article 52(1)(b), as applied since the Klöckner decision, that committees do not control the correctness of the interpretation given by tribunals.⁴¹⁷ This would otherwise lead to the crossing of the line between annulment and appeal, as Cavalum remarks.⁴¹⁸ For purposes of a manifest excess of powers, ad hoc committees are only concerned with tribunals’ interpretations distorting the clear terms of a text (i.e., a gross misinterpretation), which cannot be the case when the interpretation is tenable,⁴¹⁹ as in the present instance.

318. Cavalum has referred the Committee to a line of over 45 ICSID awards rejecting intra-EU objections and upholding a tribunal’s jurisdiction on the basis of the applicable treaty and the ICSID Convention.⁴²⁰ As the Teinver v. Argentina committee ruled, “the fact that a tribunal has relied to make its decision on tenable solutions adopted in several previous cases may be considered as an indication that an excess of powers is not manifest.”⁴²¹

319. The Committee notes in this regard Antin v. Spain, where that committee encapsulated the discussion of the tenable character of the interpretation conducted by tribunals that had found jurisdiction over intra-EU disputes:

The Committee notes that [as of July 2021] 56 other tribunals have dismissed the intra-EU jurisdictional argument raised by Spain (of which 35 were considering the intra-EU argument in the context of the ECT). The Committee agrees with the view of the tribunal in InfraRed v. Spain that one cannot “overstate the importance of the long record of recent arbitral awards or partial awards which disposed of the intra-EU jurisdictional objections and maintained the jurisdiction of the respective ECT tribunals... [as] these form an arbitral jurisprudence constante which, short of binding this Tribunal, provides nonetheless a persuasive, reasoned and documented analytical framework that the Tribunal endorses and adopts without the need to spell it out in detail below.” In the Committee’s view, the fact that 56 other tribunals agree with the

⁴¹⁷ Klöckner Decision on Annulment, ¶ 52(a) (b) (RL-0146); CMS Decision on Annulment, ¶ 85 (CL-152). ↩
⁴¹⁸ See Cavalum’s Counter-Memorial, ¶ 76. ↩
⁴¹⁹ NextEra Decision on Annulment, ¶ 244 (CL-0312) (“a party seeking annulment on this basis must ‘prove that its interpretation is a monolithic and firmly settled principle of law that is ‘not subject to debate’”) (CL-312). See also ¶ 247, regarding the tribunal’s interpretation and application of ECT Article 26(6) which was “tenable as a matter of law ... A tenable decision to not apply a certain law is not a failure to apply the law annullable under Art. 52(1)(b)”). See also Mr. Tza Yap Shum Decision on Annulment, ¶¶ 80, 81 (RL-0147); Fraport Decision on Annulment, ¶ 112 (CL-271). ↩
⁴²⁰ See Cavalum’s Counter-Memorial, ¶ 85. ↩
⁴²¹ Teinver Decision on Annulment, ¶ 59 (CL-268). ↩

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Tribunal’s views suffices to show that the Tribunal’s reasoning was tenable and not clearly or self-evidently wrong.⁴²²

320. While endorsing this approach, the Committee stresses that the specifics of the present case constituted the starting point of its analysis. The Committee finds that the Tribunal’s interpretation and application of ECT Article 26, in particular paragraphs 357-369 of the Decision, is tenable as a matter of law, and thereby not censorable.

321. The Committee next turns to the third argument.

(iii) Whether the Tribunal applied Achmea

322. The Tribunal dedicated paragraphs 337-356 of the Decision to the scope and effect of the Achmea Judgment. It then concluded as regards the relevance of this judgment that:

If the principles in the Achmea ruling apply to the ECT as a matter of EU law, that cannot affect the jurisdiction of the Tribunal under the applicable international law, namely the ECT and the ICSID Convention.⁴²³

323. Spain opines that ECT Article 26(4)⁴²⁴ does not cover intra-EU disputes pursuant to EU law, as expressed in the Achmea Judgment which is part of EU law that it considers as applicable international law.⁴²⁵

⁴²² Antin Decision on Annulment, ¶ 154 (CL-294). ↩
⁴²³ Decision, ¶ 370(9). See supra, ¶ 16. ↩
⁴²⁴ ECT Art. 26(4) (C-001): “In the event that an Investor chooses to submit the dispute for resolution under subparagraph (2)(c), the Investor shall further provide its consent in writing for the dispute to be submitted to: ↩
(a) (i) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of other States opened for signature at Washington, 18 March 1965 (hereinafter referred to as the “ICSID Convention”), if the Contracting Party of the Investor and the Contracting Party to the dispute are both parties to the ICSID Convention; or
(a) (ii) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention referred to in subparagraph (a)(i), under the rules governing the Additional Facility for the Administration of Proceedings by the Secretariat of the Centre (hereinafter referred to as the “Additional Facility Rules”), if the Contracting Party of the Investor or the Contracting Party party to the dispute, but not both, is a party to the ICSID Convention;
(b) a sole arbitrator or ad hoc arbitration tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law (hereinafter referred to as “UNCITRAL”); or
(c) an arbitral proceeding under the Arbitration Institute of the Stockholm Chamber of Commerce”.
⁴²⁵ See Spain’s Memorial, ¶¶126, 245. ↩

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324. Spain states⁴²⁶ that the Achmea Judgment, extended to the ECT by the Komstroy and PL Holdings judgments, confirms its position in these proceedings. It emphasizes that the CJEU interpreted Articles 267 and 344 of the TFEU “as precluding a provision in an international agreement concluded between Member States [...] under which an investor from one of those Member States may in the event of a dispute concerning investments in the other Member States, bring proceedings against the latter Member State before an arbitral tribunal whose jurisdiction that Member State has accepted.”⁴²⁷ Spain stresses that interpretations provided by the CJEU in preliminary rulings are res judicata on EU law and that they are binding for any other case in which the precepts drawn out by the Court are to be interpreted and applied.⁴²⁸ Spain also refers to subsequent developments to the Achmea Judgment, notably in Member States’ national courts, which confirm its position in the proceedings.⁴²⁹

325. As to the relevance of the Achmea Judgment and of EU law for jurisdictional purposes, the Committee notes that the Tribunal took another view than that proposed by Spain.

326. The Tribunal first found that the law applicable to jurisdiction is different from the law governing the merits, pursuant to the choice of law clause in ECT Article 26(6). The Tribunal stated at paragraph 370(2) of the Decision that:

[t]he question of jurisdiction must be distinguished from the question of applicable law, or choice of law. As indicated above, Article 42.1 provides that the “Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties [...].

327. It further held at paragraph 370(5) and (6) of the Decision that:

By virtue of Article 25(1) ICSID Convention jurisdiction exists where (1) there is a legal dispute which (2) arises directly out of an investment, (3) between a Contracting State and a national of another Contracting State, and (4) which the parties to the dispute consent in writing to submit to the Centre.

⁴²⁶ See supra, ¶ 203. See Spain’s Memorial, ¶¶ 273-277. ↩
⁴²⁷ Achmea Judgment, ¶ 31 (RL-0090). ↩
⁴²⁸ See Spain’s Memorial, ¶¶ 129-165, 278; Spain’s Reply, ¶¶ 101-126; Tr. Day 1, pp. 30: 12-25, 31-36. ↩
⁴²⁹ See Spain’s Reply, ¶¶ 124-126. ↩

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By virtue of Article 26.1-3 ECT: (1) where there arise disputes between a Contracting Party and an investor of another Contracting Party relating to an investment of the latter in the area of the former, (2) which cannot be settled amicably, (3) the investor party may submit it to ICSID arbitration, (4) if the Contracting Party of the investor and the Contracting Party to the dispute are both parties to the ICSID Convention.

328. There is a wide consensus in ICSID arbitration that the jurisdiction of the Centre is determined by Convention Article 25, and not by Article 42(1) which addresses the merits of the dispute.⁴³⁰ In case of an investment treaty arbitration governed by the ICSID Convention, the jurisdiction of the tribunal derives from both the applicable international investment agreement, i.e. the ECT in this case, and the ICSID Convention. These two instruments are part of international law governing jurisdictional matters.

329. Spain considers that EU law is international law,⁴³¹ a proposal with which Cavalum does not disagree.⁴³² The Tribunal accepted the conclusion of the Vattenfall tribunal that

[S]ince the CJEU was empowered by the EU treaties to give preliminary rulings on the interpretation of EU law, including the treaties, the Achmea ruling’s “interpretation of the EU Treaties likewise constitute[d] a part of the relevant international law.”⁴³³

However, it stated that

[T]he point that EU law (or most of it) is international law, or that the rulings of the CJEU are part of international law are not in any sense conclusive. The question still remains as to whether EU law and the rulings of the CJEU are part of the applicable international law.⁴³⁴

330. Turning next to the correctness of the Tribunal’s application of the Achmea Judgment and EU law, the Committee notes that the Tribunal determined that:

The Achmea ruling is a decision on the constitutional order of the EU in support of the policy of European integration rather than an orthodox application of the rules of treaty interpretation. As such the ruling of the CJEU is entitled to the greatest respect from an international arbitral

⁴³⁰ Duke Energy International Peru Investments No. 1, Limited v Republic of Peru (ICSID Case No. ARB/03/28), Decision of the ad hoc Committee, 1 March 2011, ¶ 127 (CL-263, RL-0151) (“Duke Decision on Annulment”). ↩
⁴³¹ Tr. Day 1, p. 131: 13-20. ↩
⁴³² Tr. Day 1, p. 139: 22-25. ↩
⁴³³ Decision, ¶ 358. See supra, ¶ 15. ↩
⁴³⁴ Decision, ¶ 359. See supra, ¶ 15. ↩

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tribunal. But such a tribunal is not in any sense bound by the ruling. Nor, consequently, can the Tribunal find that on any normal basis of interpretation under customary international law or the VCLT that the dispute resolution provisions of the ECT are incompatible with Articles 267 and 344 TFEU.⁴³⁵

331. Substantive correctness of an award and erroneous application of the law pertain to the way arbitral tribunals apply such law. But the focus of manifest excess of powers is not on how the tribunal applied the law. Instead, it is on which law the tribunal applied.⁴³⁶ On the latter, Spain submits that the Tribunal completely disregarded the application of EU law when it determined that “[t]here is nothing in the Achmea ruling which could deprive a Tribunal so constituted of jurisdiction,”⁴³⁷ and when it concluded: “[t]he fact that the Tribunal, as a mechanism of international law, and not national law, cannot make a reference to the CJEU, does not deprive it of jurisdiction under international law. Nor can the plain meaning of the jurisdictional provisions of the ECT and the ICSID Convention be affected by the CJEU’s interpretation of Articles 267 and 344 TFEU.”⁴³⁸

332. Spain’s criticism is limited to the Tribunal’s application and interpretation of the Achmea Judgment in the context of the EU law principles it relies on. Spain thus claims that the Tribunal’s conclusions on jurisdiction are not well-founded because of its erroneous application and interpretation of EU law.⁴³⁹

333. Cavalum⁴⁴⁰ has referred to a series of decisions in which committees have dismissed Spain’s manifest excess of power allegations on the Achmea Judgment and its impact on jurisdiction.⁴⁴¹ As ad hoc committees have consistently held, “[a] debatable solution is not

⁴³⁵ Decision, ¶ 366. See supra, ¶ 15. ↩
⁴³⁶ It is consistently held since Klöckner that the failure to decide a dispute in accordance with the rules agreed on by the parties may constitute a manifest excess of powers, Klöckner Decision on Annulment (CL-245). ↩
⁴³⁷ Decision, ¶ 370(13). ↩
⁴³⁸ Decision, ¶ 370(14). See also Decision, ¶ 365 (“It is impossible to see how, on the face of Articles 267 and 344 TFEU, and in accordance with normal rules of treaty interpretation, the effect of Article 26.3 ECT is to prevent national courts from making references to the CJEU or to allow Member States to submit disputes concerning the interpretation or application of the Treaties to any method of settlement other than those provided for in the EU Treaties”). ↩
⁴³⁹ See Spain’s Memorial, ¶¶ 257, 263. ↩
⁴⁴⁰ See Cavalum’s Counter-Memorial, ¶¶ 137-142. ↩
⁴⁴¹ OperaFund Decision on Annulment, ¶ 255 (CL-0292); Watkins Decision on Annulment, ¶ 93 (CL-316). See also ↩

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amenable to annulment, since the excess of powers would not be then ‘manifest.’”⁴⁴² In the Committee’s view, this consistent pattern of decisions demonstrates that the Tribunal’s conclusion is tenable and debatable, and therefore not censorable.

334. Lastly, the Committee notes that Spain’s new legal authorities and evidence, which were not produced before the Tribunal, do not help Spain to discharge its burden of proof under Convention Article 52(1)(b). The reprobation of the Tribunal’s manifest excess of powers concerns the impugned Award when it was made. A tribunal cannot be said to have committed a manifest excess of powers based on materials that it did not have access to because they were not produced by the parties. This would otherwise defy logic as other ad hoc committees have explained.⁴⁴³

335. The Committee finally turns to the fourth argument.

(iv) Whether the Tribunal applied the REIO clause

336. Spain claims⁴⁴⁴ that the Tribunal ignored that the literal wording of ECT Article 26(1)⁴⁴⁵ is not sufficient in the light of ECT Article 1(2)⁴⁴⁶ and that it made no effort to analyze which meaning, State or REIO, should prevail when considering that ECT Articles 1(2) and (10),⁴⁴⁷ 25,⁴⁴⁸ and 36(7).⁴⁴⁹

Cube Decision on Annulment, ¶ 219 (CL-0257); 9REN Holding S.à.r.l. v. Kingdom of Spain (ICSID Case No. ARB/15/15), Decision on Annulment, 17 November 2022, ¶ 233 (CL-293); BayWa r.e. AG v Kingdom of Spain (ICSID Case No. ARB/15/16), Decision on Annulment, 8 May 2023, ¶¶ 169-171 (RL-0095).

⁴⁴² Duke Decision on Annulment, ¶ 99 (RL-0151) (“An ad hoc committee will not therefore annul an award if the tribunal’s disposition of the law is tenable, even if the committee considers that it is incorrect as a matter of law”). ↩

⁴⁴³ See inter alia, cited in Cavalum’s Counter-Memorial, ¶¶ 14-17 and Rejoinder, ¶¶ 19, 20, Watkins Decision on Annulment, ¶ 118 (CL-316) (“The Committee also wishes to add that annulment proceedings are not occasions to inquire (again) into the merits of the underlying dispute between the parties. This has consequences for both prongs of Spain’s challenge based on manifest excess of powers. Whether in respect of jurisdiction or the merits, this means that annulment committees should not conduct de novo inquiries of any sort as set out at paragraph 72 [quoted] above. The prohibition from inquiring into underlying merits also means that it is not open for this Committee to criticize the Tribunal’s application of the law based on new arguments or evidence not put before the Tribunal.”) and Cube Decision on Annulment, ¶ 95 (CL-257). ↩

⁴⁴⁴ See Spain’s Memorial, ¶ 284; Spain’s Reply, ¶ 150. ↩

⁴⁴⁵ See supra, ¶ 13. ↩

⁴⁴⁶ See supra, ¶ 11. ↩

⁴⁴⁷ See supra, ¶ 11. ↩

⁴⁴⁸ See supra, ¶ 11. ↩

⁴⁴⁹ See supra, ¶ 11. ↩

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[...] do not assist Spain in its objections to jurisdiction. Article 26.1 ECT plainly means that the “investment in the Area of the former,” i.e., the Contracting Party, is an investment in the national territory of the respondent State. The fact that the EU is also a Contracting Party and a “Regional Economic International Organization” does not mean in the context of Article 26.1 that the Area is the territory of the EU as a whole, which would make no sense. Neither can it in itself bar the Tribunal’s jurisdiction; nor can the Tribunal’s jurisdiction be removed by the fact that the ECT recognises that competence may be transferred to such an REIO, or the fact that in certain circumstances the Organization may vote instead of the Member States. Article 25 ECT does not prevent REIO members from agreeing to other obligations under a different treaty regime, such as the ECT.⁴⁵⁰

337. According to Spain,⁴⁵¹ an express disconnection clause in the ECT to regulate the relationship between EU law and the ECT is unnecessary, as one “manifestation of this EU autonomy is the disconnection from international treaties without a disconnection clause to apply EU law to intra-EU matters.”⁴⁵² For Spain, there is only an implicit disconnection clause in the ECT that disapplies Article 26 in the context of mutual relations between Member States Contracting Parties. It finds support for its claim in the Achmea, Komstroy and PL Holdings Judgments in which the disconnection became apparent.

338. Spain also relies on the Green Power award, made under the auspices of the SCC, which attached a particular relevance to the fact that under ECT Article 1(3), the EU has a REIO character based on an economic integration agreement, as provided for in ECT Article 25.⁴⁵³

339. The Tribunal examined the Green Power award which Spain had submitted in support of its Second Request for Reconsideration. This award, made by a tribunal operating under the influence of the CJEU jurisprudence because of its seat in Stockholm, was not considered to be a decisive legal authority by the Tribunal. In particular, the Tribunal found

⁴⁵⁰ Decision, ¶ 328. ↩

⁴⁵¹ See supra, ¶ 214. See Spain’s Memorial, ¶¶ 123-124, 279, 285-287; Spain’s Reply, ¶¶ 94-100, 151-153. ↩

⁴⁵² Spain’s Reply, ¶ 144. ↩

⁴⁵³ Green Power award, ¶ 352 (RL-0120); Spain’s Memorial, ¶ 187-188; Cavalum’s Counter-Memorial, ¶¶ 166-167. Tr. Day 1, pp. 134: 17-25, 135: 1-8. ↩

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that “the Green Power tribunal expressly stated that different considerations would be applicable to ICSID arbitration.”⁴⁵⁴

340. On the disconnection clause, the Tribunal concluded:

Nor is there anything express or implied in these provisions to support the EC’s argument that there is an implied “disconnection clause,” i.e., a provision that disapplies certain provisions of a treaty in mutual relations between certain parties. As the tribunal in RREEF v Spain said: “The purpose of a disconnection clause is to make clear that EU Member States will apply EU law in their relations inter se rather than the convention in which it is inserted ... given that there is no disharmony or conflict between the ECT and EU ... there was simply no need for a disconnection clause, implicit or explicit...⁴⁵⁵

341. Spain insists that the reference to an REIO in ECT Article 1(10) pertains only to the EU, as the Union is the only organization involved in the Treaty. This necessarily implies for it that the ECT was not designed to address disputes between EU Member States since both Member States are part of the same REIO which constitutes one and the same Contracting Party.⁴⁵⁶ Spain recalls that Member States have transferred part of their sovereignty to the EU to sign the ECT, while underlining that ECT Article 36(7) specifies that an REIO and its members cannot vote simultaneously, except within the field of their respective competences. Spain finds support for its position⁴⁵⁷ in the Interpretative Declaration submitted by the EU to the ECT Secretariat in March 1998 whereby the EU opined that the ECT contains an implicit disconnection clause, and that ECT Article 26(1) applies only to claims made by third country investors to the EU.⁴⁵⁸

⁴⁵⁴ Second Reconsideration Decision, ¶ 56 (RL-117) (“[...] the crucial point of difference between that case and this is that the Green Power arbitration was conducted under the Rules of the Stockholm Chamber of Commerce and Swedish law, and that the Tribunal treated Swedish law as the law applicable to jurisdiction. Notably, the Green Power tribunal expressly stated that different considerations would be applicable to ICSID arbitrations”). ↩

⁴⁵⁵ Decision, ¶ 329. See supra, ¶ 12. ↩

⁴⁵⁶ Tr. Day 1, pp. 17: 12-25, 18-19: 1-2. ↩

⁴⁵⁷ See Spain’s Memorial, ¶ 98. ↩

⁴⁵⁸ The Committee notes that Footnote 2 of the Declaration specifies: “Disputes between an investor of a Member State and a Member State under the Energy Charter Treaty do not fall within the scope of this statement. The EU and its Member States may address this matter at a later stage. Disputes between an investor of a Member State and a Member State under the Energy Charter Treaty do not fall within the scope of this statement. The EU and its Member States may address this matter at a later stage.” (RL-0142) ↩

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342. The Committee considers that the Tribunal’s conclusion that “there is nothing in the combination of the ECT and EU law which could give rise to an implication of a “disconnection” clause,”⁴⁵⁹ appears to be tenable seen in light of other awards which have reached a similar conclusion on this issue.⁴⁶⁰ As such, it is not censorable under Convention Article 52(1)(b).

(c) Manifest Excess of Powers - Merits

343. Spain submits that the Tribunal manifestly exceeded its powers by failing to apply EU law to the merits of the dispute.⁴⁶¹ The Committee examines in turn the two different claims made by Spain, namely whether the Tribunal (i) took EU law into account; and (ii) took EU law into account correctly.

(i) Whether EU law was taken into account

344. Spain explains that the Tribunal heard a dispute on State aid which is a matter at the very core of the EU internal market and which is exemplary of autonomy. This was in its view in clear contravention of the central principles of distribution of competence, primacy, direct effect, loyal cooperation and legitimate expectations of the EU.⁴⁶² For Spain, the Tribunal completely disregarded EU law.⁴⁶³ The non-application of EU law to the merits had fundamental consequences inasmuch as it affects the expectations of any investment made over the EU territory and the scope of investors’ rights, as recognized by the tribunals in Baywa and Eurus.⁴⁶⁴ In Spain’s view, the EC decisions, according to which the Spanish support system for renewable energies is affected by EU State aid regulations, are part of

⁴⁵⁹ Decision, ¶ 370(10). ↩

⁴⁶⁰ See supra, ¶ 9. In addition to the RREEF v. Spain award cited by the Tribunal at para. 329, see notably, Hydro Energy decision, ¶ 247 (CL-0239); InfraRed Decision on Annulment, ¶ 502 (CL-0313); Watkins Decision on Annulment, ¶ 105 (CL-0316). ↩

⁴⁶¹ See Spain’s Memorial, ¶ 298. ↩

⁴⁶² Tr. Day 1, pp. 26: 5, 27: 15. ↩

⁴⁶³ See Spain’s Memorial, ¶ 290; Spain’s Reply, ¶¶ 155, 164. ↩

⁴⁶⁴ BayWa Decision on Jurisdiction, ¶ 569(a) (RL-0095); Eurus Decision on Jurisdiction, ¶¶ 236, 428 (RL-157); Spain’s Memorial, ¶¶ 304, 305, 331-333; Spain’s Reply, ¶¶ 176-178. Tr. Day 1, pp. 48: 18-25, 49: 1-4. ↩

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EU law and therefore of the international law applicable between Portugal and Spain, as also recognized by arbitration tribunals.⁴⁶⁵

345. Spain focuses on paragraph 359 of the Decision which reads:

But in the view of this Tribunal, the point that EU law (or most of it) is international law, or that the rulings of the CJEU are part of international law is not in any sense conclusive. The question still remains as to whether EU law and the rulings of the CJEU are part of the applicable international law.

346. According to Spain, the Tribunal acknowledged in the above passage that EU law is international law, although it cast doubts on it, and completely forgot to apply it. Spain further notes that the Tribunal relied merely on the subjective appreciation that “it is clear that neither Spain nor the Commission ever had any concern that the RD 661/2007 regime was contrary to State aid rules.”⁴⁶⁶

347. The Committee notes that paragraphs 357-359 of the Decision are formally included in the Tribunal’s reasoning on the intra-EU issue regarding jurisdiction. Whether paragraph 359 is about the law governing jurisdiction or about the proper law designated by ECT Article 26(6)⁴⁶⁷ is open to discussion.

348. The language of paragraph 359 of the Decision⁴⁶⁸ should be read in the context of the discussion of EU law as international law and of the primacy of EU law, to which the Tribunal devoted a whole section of the Decision.⁴⁶⁹ The Tribunal did not dispute in paragraphs 357-358 of the Decision that the CJEU decided in the Van Geend en Loos judgment that the EU constitutes a new legal order of international law. Referring to EU

⁴⁶⁵ Spain’s Memorial, ¶¶ 291-303 (citing Electrabel Decision on Jurisdiction (RL-0048)). ↩

⁴⁶⁶ Decision, ¶ 611. See Spain’s Memorial, ¶¶ 296-299; Spain’s Reply, ¶¶ 166-168; Tr. Day 1, p. 39: 5-13. ↩

⁴⁶⁷ ECT Article 26(6): “A tribunal established under paragraph (4) shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law.” ↩

⁴⁶⁸ See supra, ¶ 345. ↩

⁴⁶⁹ Decision, ¶¶ 357-370. ↩

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law as a part of the international legal order, the Tribunal explained at paragraph 358 of the Decision:

Like the tribunal in Vattenfall AB v. Germany, this Tribunal considers that this formula can be accepted on the basis that “the corpus of EU law derives from treaties that are themselves a part of, and governed by, international law, and contains other rules that are applicable on the plane of international law, while also containing rules that operate only within the internal legal order of the EU and, at least arguably, are not a part of international law [...].

349. The Tribunal stated in yet another passage of its reasoning on jurisdiction at paragraph 315 of the Decision that

so far as choice of law is concerned, the combined effect of Article 42 (1) of the ICSID Convention and Article 26.6 ECT is that the Tribunal, which has jurisdiction under Article 26 ECT, applies, by virtue of Article 26.6 ECT, the ECT Treaty and ‘applicable rules and principles of international law’.⁴⁷⁰

350. For the Committee, when the Tribunal held that the “question still remains as to whether EU law and the rulings of the CJEU are part of the applicable international law,”⁴⁷¹ it did not imply that it would not apply international law as the proper law, disregarding the choice of law clause of ECT Article 26(6).⁴⁷² Rather, the Tribunal’s analysis concerns the determination of the components of EU law, as part of international law, which should apply to Cavalum’s legitimate expectations.

351. Spain contends that the Tribunal’s incorrect determination of the applicable law constitutes a manifest excess of powers.⁴⁷³ For Spain, a literal interpretation of ECT Article 26(6) indicates that this provision establishes an application on equal terms of the Treaty and of other rules and principles under international law.⁴⁷⁴ As a matter of principle, the Committee considers that an annulment cannot be decided on the ground that a tribunal

⁴⁷⁰ See supra, ¶ 10. The Tribunal also noted: “In the present case Article 26.6 ECT provides that the “tribunal established ... shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law.”, Decision, ¶ 370 (3). ↩

⁴⁷¹ Decision, ¶ 359. ↩

⁴⁷² MINE Decision on Annulment, ¶ 5.03 (RL-0081). ↩

⁴⁷³ See Spain’s Memorial, ¶ 304. ↩

⁴⁷⁴ Tr. Day 1, pp. 39: 19-25, 40: 1. ↩

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applied a part of the proper law. A challenge for manifest excess of powers focuses on which law other than the proper law was applied by the tribunal,⁴⁷⁵ not which parts and provisions of the proper law were applied by it.⁴⁷⁶ The Committee notes that the Tribunal applied the international law standard set by the ECT, which is part of the proper law as designated by ECT Article 26(6).⁴⁷⁷ Spain does not deny that treaties, such as the ECT, are sources of public international law under Article 38(1) of the International Court of Justice Statute.⁴⁷⁸ As such, the Tribunal applied no other law than the one prescribed by ECT Article 26(6). Nonetheless, the non-application of a part of the proper law may lead to annulment if this has the same consequences as a total non-application.⁴⁷⁹

352. Spain submits that the Tribunal ignored the content of EU law, which EC decisions are a part of, which amounts for it to a non-application of the proper law. This is evidenced in⁴⁸⁰ paragraph 611 of the Decision:

Spain has argued that the Claimant could have no legitimate expectation that the RD 661/2007 and RD 1578/2008 regime would remain unaltered, because a recipient of State aid cannot, in principle, have legitimate expectations of the lawfulness of aid that has not been notified to the Commission. But it is clear that neither Spain nor the Commission ever had any concern that the RD 661/2007 regime was contrary to State aid rules, and that is confirmed by the EC’s Decision on State Aid of 10 November 2017. In the light of its conclusions, the Tribunal does not consider that Spain’s State aid argument arises, but if it had arisen, the Tribunal would have dismissed it on the basis that there is no necessary connection between an investor’s legitimate expectation of a reasonable rate of return and a failure by the State to notify state aid, and that in any event it was not now open to Spain in the light of its prior conduct to raise it.⁴⁸¹

353. Spain’s argumentation mentioned in paragraph 611 can be found at paragraph 247 of the Decision.⁴⁸² There, Spain attempts to refute Cavalum’s claim that its legitimate

⁴⁷⁵ See Soufraki Decision on Annulment, ¶ 85 (RL-0072). ↩

⁴⁷⁶ AES Decision on Annulment, ¶ 35 (RL-0042). ↩

⁴⁷⁷ Decision, ¶ 531 (“This Tribunal is, of course, applying the international law standard of legitimate expectations, and not that of Spanish law”). ↩

⁴⁷⁸ Tr. Day 1, p. 153: 1-9. ↩

⁴⁷⁹ Ch. Schreuer, The ICSID Convention: A Commentary (2nd ed. Supplemented 2009, CUP), p. 964, ¶ 226 (CL-241). ↩

⁴⁸⁰ Tr. Day 1, pp. 43: 13-24, 144: 6-15. ↩

⁴⁸¹ Decision, ¶ 611. ↩

⁴⁸² See supra, ¶ 17. ↩

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expectations to receive the tariffs in the amount and duration defined in RD 66/2007 (or RD 1578/2008) had been breached.⁴⁸³ Cavalum properly submits⁴⁸⁴ that the Tribunal, in paragraph 611 of the Decision, considered Spain’s State aid arguments under both angles - as if they had arisen, and as if they had not. Under both scenarios, the Tribunal decided not to follow Spain’s position. Therefore, Spain’s contention that the Tribunal ignored EU law is factually incorrect. As argued by Cavalum, to determine legitimate expectations, the Tribunal considered EU derivative law on renewable energy sources when analyzing the legislation in force at the time of the investment.⁴⁸⁵ The Tribunal took EU law into consideration in all manners, including as a matter of fact, in relation to the view expressed by the Tribunal taking note “that neither Spain nor the Commission ever has any concern that the RD 661/2007 regime was contrary to State aid rules, and that is confirmed”⁴⁸⁶ by the 2017 EC Decision. In light of the above, the Committee cannot conclude that the alleged non-application of a part of the governing law amounts to the non-application of the proper law as a whole.

(ii) Whether EU law was taken into account correctly

354. Spain submits that, had EU law been applied, the Tribunal would have had to consider inter alia whether RD 661/2007 was notified to the EC, and the impact of its non-notification on investors’ expectations.⁴⁸⁷ For Spain, the lack of notification of the State aid regime leads to a situation of illegality which cannot serve as a foundation for any legitimate expectation.⁴⁸⁸ According to the 2017 EC Decision, a recipient of State aid cannot in principle have any legitimate expectation that this aid is lawful if it was not notified to the EC.⁴⁸⁹ Spain refers here to the legitimate expectations under EU law, meaning to the

⁴⁸³ Decision, ¶ 247, cited supra, ¶ 17. ↩

⁴⁸⁴ See Cavalum’s Counter Memorial, ¶ 179. Tr. Day 1, pp. 115: 8-25, 116: 1-15. ↩

⁴⁸⁵ Decision, ¶¶ 485, 486; Tr. Day 1, p. 112: 12-21. ↩

⁴⁸⁶ Cavalum’s Counter-Memorial, ¶ 194. ↩

⁴⁸⁷ Spain’s Memorial, ¶¶ 306, 315, 325, 328, 336, 338; Spain’s Reply, ¶¶ 171-175; Tr. Day 1, p. 51: 6-10. ↩

⁴⁸⁸ Tr. Day 1, p. 50: 13-23. ↩

⁴⁸⁹ See Spain’s Memorial, ¶ 329; 2017 EC Decision, ¶ 158 (RL-0089). ↩

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legitimate expectations that only the beneficiary of a lawful State aid (a notified aid) can have that it will not be under the obligation to repay the aid.⁴⁹⁰

355. The principle of interpretation in conformity, on which the EC relies for its above conclusion, is however not one that the Committee may enforce for annulment purposes. The coherence of the EU legal order, even if regarded through the lenses of its participation to the international legal order, is not part of the Committees’ mandate under Convention Article 52(1)(b). Spain claims that the Committee should immediately terminate any pending intra-EU proceeding⁴⁹¹ because the Award which accords compensation constitutes a State aid which remains unenforceable absent notification and authorization from the EC.⁴⁹² Such an admonition is likewise without pertinence.

356. Spain’s complaint about the omission of any reference to the EU rules on State aid⁴⁹³ does not qualify as an egregious or a gross misinterpretation or misapplication of the applicable law, amounting to a manifest excess of powers.⁴⁹⁴ Its grievance against the Tribunal amounts to the mere reproach for having considered that “there is no necessary connection between an investor’s legitimate expectations of a reasonable rate of return and a failure by the State to notify state aid”⁴⁹⁵ and for having concluded that to “the extent that the New Regulatory Regime did not adhere to that principle [reasonable return] in relation to the Claimant’s plants, there has been a breach of the Claimant’s legitimate expectations.”⁴⁹⁶

⁴⁹⁰ The lawfulness of the State aid should however be distinguished from its compatibility with the internal market if the EC considers it to be proportionate, such as the New Spanish Regime, with the precision that payments made under RD 661/2007 are covered by the decision to assess proportionality, i.e, the absence of overcompensation. See 2017 EC Decision, ¶¶ 4, 131 (RL-0089). ↩

⁴⁹¹ Tr. Day 1, p. 25: 1-7. ↩

⁴⁹² Spain’s Memorial, ¶¶ 317, 318, 321-327, citing Letter of the European Commission – State Aid SA.54155 (2021/NN) Arbitration award to Antin-Spain (RL-0158) and Decision of the European Commission (EI) 2015/1470 on State aid SA.38517 (2014/C) (ex 2014/NN) implemented by Romania – Arbitral award Micula v Romania of 11 December 2013, 30 March 2015 (R-002) (“EC Letter about Antin”); Tr. Day 1, p. 147: 13-25. ↩

⁴⁹³ See Spain’s Memorial, ¶ 55-57. ↩

⁴⁹⁴ Soufraki Decision on Annulment, ¶ 86 (RL-0072). See also, Hydro Decision on Annulment, ¶ 308 (CL-291). ↩

⁴⁹⁵ Decision, ¶ 611. ↩

⁴⁹⁶ Decision, ¶ 625. ↩

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357. The conclusions of the BayWa and Eurus tribunals on the applicability of EU law on State aid illustrate that another solution is possible. However, as mentioned above,⁴⁹⁷ ad hoc committees are not tasked under Convention Article 52(1)(b) to proclaim the correct interpretation of the applicable law and to annul the award because it does not comport with its new findings.⁴⁹⁸

358. No manifest excess of powers has been demonstrated by Spain so far. Inasmuch as the Tribunal may have applied EU law in addition to international law, the Committee cannot express any view on the correctness of the application of EU law. Moreover, the Committee may not review how the Tribunal took EU law into account.⁴⁹⁹ In whichever manner the Tribunal relied on EU law, as a matter of law or fact, its findings fall outside the Committee’s mandate.

359. We now examine Spain’s additional challenge to the Tribunal’s interpretation of the 2017 EC Decision which found unnecessary to assess whether the originally foreseen payments under the previous schemes would have been compatible or not, because Spain replaced the RD 661/2007 and RD 1578/2008 regime with the new regulatory regime which granted proportionate aid.⁵⁰⁰ Spain’s incorrect application argument comes here under the form of a wrongful and cursory analysis of the 2017 EC Decision.⁵⁰¹ Spain declares that the Tribunal erred in its analysis of the 2017 EC Decision when it inferred from paragraphs 4 and 107 of this decision that RD 661/2007 was compatible with EU State aid rules and when it stated that there is no connection between the legitimate expectations of the investor and the existence of an aid scheme.⁵⁰² The Tribunal’s deduction from the above

⁴⁹⁷ See supra, ¶¶ 297, 314. ↩

⁴⁹⁸ As the InfraRed Committee held regarding Spain’s argumentation that no legitimate expectation could accrue for the investor as a consequence of the illegality of State aid flowing from Spain’s failure to notify the EC: “This argument may be sound or not. The Tribunal might have erred in the way it applied the law in the Award. But the Committee considers that errors of tribunals – even if they were manifest and obvious, which does not seem to be the case as too many tribunals and committees were not convinced in similar situations – are outside the scope of the annulment system of Article 52(1)(b) of the ICSID Convention,” InfraRed Decision on Annulment, ¶ 548 (CL-313). ↩

⁴⁹⁹ Soufraki Decision on Annulment, ¶ 87 (RL-0072). ↩

⁵⁰⁰ 2017 EC Decision, ¶ 156 (RL-0089), citing the EC Letter about Antin (RL-158) which explicitly said that the 2007 regime was illegal aid. Tr. Day 1, pp. 44: 11-25, 45: 1-4. ↩

⁵⁰¹ See Spain’s Reply, ¶ 168. ↩

⁵⁰² See Spain’s Reply, ¶¶ 167-168. Tr. Day 1, pp. 42: 2-25, 43: 1-12. ↩

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passages of the 2017 EC Decision, that the EC never had any concern that the RD 661/2007 regime was contrary to State aid rules, again falls outside the scope of the Committee’s mandate. Error in the application and interpretation of the law is not a censorable error.

360. For the Committee, the manner in which the Tribunal considered EU State aid law is not censorable under Convention Article 52(1)(b). Therefore, the Committee finds that the second prong of Spain’s challenge does not cross the threshold that would lead to a manifest excess of powers.

(d) Conclusion

361. The Committee concludes that the Tribunal did not exceed its powers when deciding on jurisdiction and the merits. Therefore, Spain’s Application based on Convention Article 52(1)(b) is dismissed.

(2) Failure to State Reasons

(a) Standard

362. The Committee notes that Spain argues that the literal drafting of Convention Article 48(3) establishes that the award shall deal with every question submitted to the tribunal and state the reasons upon which it is based. For Spain, not complying with these obligations leads to annulment under Convention Article 52(1)(e).⁵⁰³

363. The Committee clarifies that Convention Articles 48(3) and 52(1)(e) have different domains. On the one hand, Article 48(3), which requires the tribunal to deal with every question submitted to it and to provide reasons, concerns the content of the award. On the other hand, Article 52(1)(e) opens defective reasoning to censorship.⁵⁰⁴

(b) Application of the Standard to the Facts

364. Spain invokes here insufficient and inadequate, or otherwise contradictory reasons, as grounds for annulment. It challenges the Award because the Tribunal allegedly failed to

⁵⁰³ Tr. Day 1, p. 52: 1-8. ↩

⁵⁰⁴ See Spain’s Memorial, ¶¶ 346-354. Tr. Day 1, p. 52: 17-24. ↩

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address its arguments pertaining to the application of EU law as regards both (i) jurisdiction and (ii) merits.⁵⁰⁵

365. First, as regards jurisdiction, the Committee notes that the Tribunal referred to investment case law when analyzing the REIO issue and the existence of an implied disconnection clause.⁵⁰⁶ Also, the Tribunal referred to the VCLT, EU law, the Achmea Judgment,⁵⁰⁷ and it offered its reasoning relying on the Opinions of the CJEU concerning international agreements providing for a court created or designed by such agreements,⁵⁰⁸ before concluding that, if the compatibility of the ECT with the TFEU arose before the CJEU, it would apply the Achmea Judgment to the dispute mechanism under the ECT.⁵⁰⁹ The Tribunal then examined EU law and the primacy of EU law,⁵¹⁰ explaining that it does not follow from the CJEU’s role in the final determination of the content of EU law that non-EU courts are precluded from deciding issues of EU law.⁵¹¹ It also found that, on the face of TFEU Articles 267 and 344, it is impossible to see how “the effect of ECT Article 26(3) is to prevent national courts from making references to the CJEU or to allow Member States to submit disputes concerning the interpretation or application of the Treaties to any method of settlement other than those provided for in the EU Treaties.”⁵¹²

366. The Committee also notes that the Tribunal considered the Achmea Judgment to be a decision of the constitutional order of the EU and not a normal case of treaty interpretation binding on international tribunals.⁵¹³ The Tribunal inferred that, in the absence of a conflict between ECT Article 26(3) and TFEU Articles 267 and 344, the principles reflected in VCLT Articles 30 (“Application of successive treaties relating to the same subject matter”) and 41 (“Agreements to modify multilateral treaties between certain of the parties only”) do not come into play. The Tribunal also concluded: “Nor does Article 16 ECT have the

⁵⁰⁵ See Spain’s Memorial, ¶ 355; Spain’s Reply, ¶ 217. ↩

⁵⁰⁶ Decision, ¶¶ 322-329. ↩

⁵⁰⁷ Decision, ¶¶ 330-337. ↩

⁵⁰⁸ Decision, ¶¶ 337-355. ↩

⁵⁰⁹ Decision, ¶ 356. ↩

⁵¹⁰ Decision, ¶¶ 357-370. ↩

⁵¹¹ Decision, ¶ 362. ↩

⁵¹² Decision, ¶ 365. ↩

⁵¹³ Decision, ¶¶ 363, 366. ↩

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effect of invalidating the dispute resolution provisions in Part V of the ECT, since, even if (which is not the case) the EC and EU Treaties gave a right to dispute resolution in respect of the subject matter of Part III (investment protection) and Part V (dispute settlement) of the ECT, Part V would still be operative if it were more favourable to the investor.”⁵¹⁴

367. The Tribunal thus cited and referred to the relevant international law, EU law (including the EC amicus)⁵¹⁵ and national case law discussed by the Parties, throughout its analysis,⁵¹⁶ before affirming that it had jurisdiction.

368. The Committee considers that such reasoning enables the reader to understand the Tribunal’s decision to uphold its jurisdiction against the backdrop of the intra-EU issues which were raised and discussed.

369. Second, regarding the merits, Spain asserts that the analysis conducted by the Tribunal does not reach the minimum standard of reasoning. For Spain, the application of EU law would have had an impact on essential elements which influenced the merits of the dispute and constituted the basis of the conclusion on the merits.⁵¹⁷ Spain contends that the Tribunal did not give any reasons at paragraph 359 of the Decision as regards the application of EU law as international law. Spain also submits that the Tribunal omitted to consider EU law while it had stated that the determination of Cavalum’s legitimate expectations needed to include a verification of whether the allegedly promised subsidies were lawful under EU law, as part of the international law applicable to the merits of the case, which should have been applied on an equal footing with the ECT.⁵¹⁸

370. For the Committee, Spain’s contention that the application of EU law received no response from, and that no reasoning thereon was provided by, the Tribunal is unfounded.⁵¹⁹ The Tribunal addressed the non-application of the EU State aid scheme at paragraph 611 of the

⁵¹⁴ Decision, ¶ 367. ↩

⁵¹⁵ Amicus Curiae Brief submitted by the European Commission to the President and Members of the Tribunal in Cavalum SGPS, S.A. v. Kingdom of Spain, 22 June 2018 (R-0349). ↩

⁵¹⁶ Decision, ¶¶ 301-370. ↩

⁵¹⁷ Tr. Day 1, p. 53: 10-18. ↩

⁵¹⁸ See Spain’s Memorial, ¶¶ 358-360, 364; Tr. Day 1, pp. 53: 19-25, 54: 1-3. ↩

⁵¹⁹ See Spain’s Reply, ¶ 217. ↩

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Decision.⁵²⁰ The Tribunal explained, refuting Spain’s argument on the absence of Cavalum’s legitimate expectations, that the RD 661/2007 regime did not raise concerns regarding its compatibility with State aid rules. Moreover, the Tribunal ruled that, if Spain’s State aid argument had arisen, it “would have dismissed it on the basis that there is no necessary connection between an investor’s legitimate expectation of a reasonable rate of return and a failure by the State to notify state aid, and that in any event it was not now open to Spain in the light of its prior conduct to raise it.”⁵²¹

371. Spain contends that paragraph 611 is not included in the analysis of Cavalum’s legitimate expectations and, therefore, that it cannot be considered as a ground for the analysis of Cavalum’s legitimate expectations.⁵²² The Committee notes that the Tribunal devoted ten subsections of the Decision to the “FET and Related Claims” as part of its analysis on liability.⁵²³ Subsection 4 is entitled “Legitimate Expectations and the Legal and Commercial Position at the Time of the Claimant’s Investments.”⁵²⁴ Paragraph 611 appears in subsection 7 entitled “The Reasonable Rate of Return Issue.”

372. The Committee considers that as long as a motivation can be discerned, Spain’s objection on the existence of such motivation under one or the other sub-headings of the analysis on “Liability” does not ground an annulment claim under Convention Article 52(1)(e).

373. At any rate, the Committee observes that the Tribunal’s statement at paragraph 611 is notably buttressed by the view it expressed at paragraph 531 in section VIII.B.1(4), that “[t]his Tribunal is, of course, applying the international standard of legitimate expectation, and not that of Spanish law.”⁵²⁵ This refers the reader back to paragraphs 400-449 of the Decision, which contains numerous references to investment awards, and more particularly to paragraphs 418-440 about legitimate expectations.

⁵²⁰ See supra, ¶¶ 19,352. ↩

⁵²¹ Decision, ¶ 611. ↩

⁵²² See Spain’s Reply, ¶ 222. ↩

⁵²³ Decision, pp. iv-v. ↩

⁵²⁴ Decision, ¶¶ 470-558. ↩

⁵²⁵ See supra, ¶ 19. ↩

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374. Nevertheless, Spain asserts that no reference to any past arbitral award can be found in the liability section.⁵²⁶ In this regard, the Committee notes that failure to cite authority is not ground for annulment.⁵²⁷ Moreover, tribunals are not required to explain why they deviate from the findings of other tribunals.⁵²⁸

375. Furthermore, Spain states that the only explicit reference to EU law on State aid liability is to be found at paragraph 611 of the Decision. Spain complains that the Tribunal rejected its application therein, relying on an argument which, according to it, has no legal content, because the lack of notification is not a sufficient legal reason to not apply at all the rules on State aid.⁵²⁹ Spain contends that the Tribunal had to state reasons to justify the non-application of EU law, considering that paragraph 611 provides only a very scant reasoning.⁵³⁰ While Spain may deplore⁵³¹ that the Tribunal did not align the FET principle under the ECT with the EU notion of legitimate expectations,⁵³² the Tribunal’s reasoning is accessible to any reader.⁵³³

376. For the Committee, it cannot be concluded that the Tribunal did not deal with the non-application of EU law under ECT Article 26(6) and that no mention to that provision nor to ECT Article 16 can be found in the Decision.⁵³⁴ The Tribunal addressed Spain’s contentions regarding the application of EU law affecting “both the merits and the

⁵²⁶ See Spain’s Memorial, ¶ 362; Tr. Day 1, pp. 54: 24-25, 55: 1-9. ↩

⁵²⁷ Soufraki Decision on Annulment (RL-0072), ¶ 128 (“It is scarcely necessary to note that reasons set out in an ICSID arbitral award do not become insufficient or inadequate under Article 52(1)(e) of the ICSID Convention simply because such reasons are not documented by citations to the relevant case law or literature. Lack of references supporting a proposition in an award is not, by itself, a ground for annulment, particularly where such documentation is provided by the parties to the case in their memorials and counter-memorials, and relate to well-known propositions. It is also possible that a tribunal may give reasons for its award without elaborating the factual or legal bases of such reasons. So long as those reasons in fact make it possible reasonably to connect the facts or law of the case to the conclusions reached in the award, annulment may appropriately be avoided.”) ↩

⁵²⁸ Kilic Insaat Ithalat Ihracat Sanayi Ve Ticaret Anonim Sirketi v Turkmenistan, ICSID Case No. ARB/10/1, Decision on Annulment, 14 July 2015, ¶ 137 (CL-285). ↩

⁵²⁹ Tr. Day 1, p. 54: 4-16. ↩

⁵³⁰ Tr. Day 1, p. 143: 10-18. ↩

⁵³¹ See Cavalum’s Rejoinder, ¶¶ 97-98. ↩

⁵³² According to the EC, “the principle of fair and equitable treatment cannot have a broader scope than the Union law notions of legal certainty and legitimate expectations in the context of a State aid scheme.” See 2017 EC Decision, ¶ 164 (RL-0089). ↩

⁵³³ See Tidewater Decision on Annulment, ¶ 169 (RL-0121). ↩

⁵³⁴ Tr. Day 1, p. 54: 17-23. ↩

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determination of the lack of jurisdiction of the Tribunal.”⁵³⁵ When Spain adds that “[r]egrettably the Cavalum Award does not give a proper answer to these questions,”⁵³⁶ it places blame indistinctly on the Tribunal’s discussion for not having followed its arguments. However, neither the correctness and persuasiveness of the motivation, nor the quality of the reasons are reviewable under Convention Article 52(1)(e).⁵³⁷ As the Wena committee held, the purpose of Convention Article 52(1)(e) is not to have the award reversed on the merits but only to allow the parties to understand the decision.⁵³⁸ It is the Committee’s view that far from “incurring the invoked ground for annulment,”⁵³⁹ any “reasonable, attentive and willing reader”⁵⁴⁰ may find reasons in the Award justifying the Tribunal’s decisions on jurisdiction and merits. Accordingly, anyone “may follow how the tribunal proceeded from Point A to Point B and eventually to its conclusion.”⁵⁴¹

(c) Conclusion

377. The Committee decides that the Tribunal has not failed to provide the reasons upon which the Award is based. Therefore, it dismisses Spain’s Application based on this ground.

⁵³⁵ Spain’s Memorial, ¶ 355. ↩

⁵³⁶ Spain’s Memorial, ¶ 355. ↩

⁵³⁷ Total S.A. v. Argentine Republic, ICSID Case No. ARB/04/1, Decision on Annulment, 1 February 2016, ¶ 271 (RL-0155). ↩

⁵³⁸ Wena Decision on Annulment, ¶ 83 (RL-0086). ↩

⁵³⁹ Spain’s Memorial, ¶ 355. ↩

⁵⁴⁰ Tidewater Decision on Annulment, ¶ 169 (RL-0121). ↩

⁵⁴¹ MINE Decision on Annulment, ¶ 5.09 (RL-0081). Spain’s Memorial, ¶ 345. ↩

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VI. COSTS

378. After having discussed issues related to costs at the Hearing as prescribed in PO1,⁵⁴² the Parties filed their submissions on costs on 4 November 2024.⁵⁴³

A. PARTIES’ POSITIONS

(1) Cavalum’s Position

379. Cavalum seeks the reimbursement of its costs on the ground that it was forced to defend itself against arguments that were not well-founded under the ICSID Convention and international law. It contrasts its conduct with that of Spain which it characterizes as an abuse of its rights to annulment. Cavalum further claims that it should not be asked to contribute to the costs of the proceedings because a successful annulment respondent has never been required to reimburse the applicant of any such costs.⁵⁴⁴

380. Cavalum asks that Spain be ordered to pay all of the costs of the proceedings incurred in both Cavalum’s Application and Spain’s Application, including ICSID’s fees and expenses (ICSID administrative fees and direct expenses and the Committees’ fees and expenses), as well as Cavalum’s legal fees and expenses, plus interest until the date of payment.⁵⁴⁵ Cavalum requests that Spain pay post-decision interest at a compound commercial rate of interest to be determined by the Committee, until the date of the full satisfaction of the Committee’s orders on costs.⁵⁴⁶

⁵⁴² Tr. Day 2, p. 349: 10-25, 350: 1-11. See also PO1 providing that the Committee will decide taking into account the views of the Parties (§ 21.1). ↩

⁵⁴³ See supra, ¶ 70. ↩

⁵⁴⁴ Cavalum’s Costs, ¶¶ 4-6. ↩

⁵⁴⁵ Cavalum’s Application, ¶ 46; Cavalum’s Memorial, ¶ 149; Cavalum’s Reply, ¶ 76; Cavalum’s Counter Memorial, ¶ 204; Cavalum’s Rejoinder, ¶ 101. ↩

⁵⁴⁶ Cavalum’s Costs, ¶ 12. ↩

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381. Cavalum’s fees and expenses are summarized as follows:⁵⁴⁷

(2) Spain’s Position

382. Spain submits that it should be compensated for the costs incurred because it was compelled to initiate an annulment proceeding. It claims that Cavalum should be responsible for its costs because it was Cavalum who decided to have the dispute settled by a Tribunal which, in Spain’s view, lacked jurisdiction to hear an intra-EU dispute.⁵⁴⁹ Spain also seeks reimbursement of the costs incurred in the annulment proceeding initiated by Cavalum.⁵⁵⁰

383. Spain requests that Cavalum be ordered to pay the full costs of the proceedings for both Cavalum’s Application and Spain’s Application, including ICSID’s fees and expenses (ICSID administrative fees and direct expenses and the Committees’ fees and expenses), as well as Spain’s legal fees and expenses, with interest at a commercial rate.⁵⁵¹ It further requests that Cavalum be ordered to pay post-decision interest on these sums, at a compound rate of interest to be determined by the Committee, until the date of full satisfaction of the Committee’s decision.⁵⁵²

⁵⁴⁷ Cavalum’s Costs, ¶ 9. ↩

⁵⁴⁸ After the Parties submitted their cost statements, ICSID requested a third and final advance of USD 50,000 to each Party. Cavalum paid this advance on 18 August 2025. ↩

⁵⁴⁹ Spain’s Costs, ¶¶ 6-8. ↩

⁵⁵⁰ Spain’s Costs, ¶ 10. ↩

⁵⁵¹ Spain’s Application, ¶ 79 e); Spain’s Rejoinder, ¶ 100 b). ↩

⁵⁵² Spain’s Costs, ¶¶ 20-21. ↩

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384. Spain’s fees and expenses are summarized as follows:⁵⁵³

B. COMMITTEE’S ANALYSIS

385. As a preliminary remark, the Committee notes that the costs of these annulment proceedings include the costs of both Cavalum’s Application and Spain’s Application.

386. The Committee also notes that the decision below on the allocation of costs includes its decisions on Cavalum’s Request, and Spain’s Second and Third Requests, which it had reserved to a later stage.⁵⁵⁵

387. The costs of the proceedings, including the fees and expenses of the Committee, ICSID’s administrative fees and direct expenses, amount to (in USD):

⁵⁵³ Spain’s Costs, ¶ 19. ↩

⁵⁵⁴ After the Parties submitted their cost statements, ICSID requested a third and final advance of USD 50,000 to each Party. Spain paid its advance on 12 November 2025. ↩

⁵⁵⁵ See supra, ¶¶ 51, 59. ↩

⁵⁵⁶ This amount includes expenses related to the First Session and the Hearing, as well as court reporting, interpretation, and translation services. ↩

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388. The above-mentioned costs have been paid out of the advances made by both Cavalum and Spain, as applicants, pursuant to ICSID Administrative and Financial Regulation 15(5).

389. Convention Article 61(2), which pursuant to Convention Article 52(4), applies “mutatis mutandis to proceedings before the Committee, provides that:

[T]he [Committee] shall ... assess the expenses incurred by the parties in connection with the proceedings, and shall decide how and by whom those expenses, the fees and expenses of the members of the [Committee] and the charges for the use of the facilities of the Centre shall be paid. Such decision shall form part of the [Decision on Annulment].

390. Arbitration Rule 47(1)(j), which applies mutatis mutandis to these annulment proceedings pursuant to Arbitration Rule 53, provides that a tribunal’s award “shall contain ... any decision ... regarding the cost of the proceeding [...]”.

391. Cavalum and Spain agree that Convention Article 61(2) and Arbitration Rule 47(1)(j) confer discretion to the Committee to allocate the costs of the proceedings, including legal fees and expenses, between the Parties.⁵⁵⁷

392. The Parties also agree that the ‘costs follow the event’ approach should guide the Committee in its costs’ decision.⁵⁵⁸ The Committee will then exercise its discretion in light of this approach.

393. The Committee notes that both Parties base their requests on the apportionment of the costs on the claim that they should prevail in these proceedings, both in advancing their respective application and in defending themselves against the application of the other side.

394. For the Committee, a successful applicant should not be ordered to bear the costs of these proceedings, unless special circumstances exist that would render such an approach inappropriate. The Committee has dismissed Cavalum’s Application.⁵⁵⁹ The Committee has also dismissed Spain’s Application.⁵⁶⁰ As such, none of the Parties succeeded in

⁵⁵⁷ Cavalum’s Costs, ¶ 3; Spain’s Costs, ¶ 5. ↩

⁵⁵⁸ Cavalum’s Costs, ¶ 3 (which speak of the “correct” approach); Spain’s Costs, ¶ 6. ↩

⁵⁵⁹ See supra, ¶¶ 132, 186. ↩

⁵⁶⁰ See supra, ¶¶ 361, 377. ↩

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advancing their respective application for annulment. However, both Parties were successful in defeating the other side’s application. In other words, both Parties were ‘partially successful’ in these proceedings. For the Committee, this outcome entails a partial adjustment in the application of the ‘costs follow the event’.

395. In the exercise of its discretion, the Committee decides to apportion the costs of the proceedings as follows:

1. Cavalum shall bear the costs of the proceedings (ICSID administrative fees and direct expenses as well as the Committee’s fees and expenses) related to Cavalum’s Application; and
2. Spain shall bear the costs of the proceedings (ICSID administrative fees and direct expenses as well as the Committee’s fees and expenses) associated with Spain’s Application.

396. With regard to the Parties’ legal fees and expenses, the Committee notes the following. First, both Parties have incurred fees and expenses of a comparable magnitude. The Committee observes that Cavalum and Spain view their own legal fees as being reasonable, considering the complexity and duration of the case.⁵⁶¹ The Committee nonetheless acknowledges that some of the arguments made by both Parties in support of their respective applications on annulment have likely extended the duration of these proceedings.

397. Second, as to the Parties’ behavior, the Committee notes that bad faith or abusive conduct may influence the decision on the allocation of costs. Here, Cavalum’s argument that it was forced to incur legal fees and expenses defending itself against unmeritorious arguments in relation to Spain’s Application cannot be upheld. In the Committee’s view, Cavalum did not demonstrate that it was excessively burdened to defend itself in the annulment proceeding initiated by Spain which was exercising a right conferred by Convention Article 52.⁵⁶² Cavalum rightly submits that it incurred legal fees and expenses

⁵⁶¹ Spain’s Costs, ¶ 6; Cavalum’s Costs, ¶ 10. ↩

⁵⁶² Cavalum’s Costs, ¶ 5. ↩

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to defend against arguments that were unfounded.⁵⁶³ But this holds true every time an application is rejected, without this implying an abuse of the annulment process.

398. As to Spain’s Application, the Committee disagrees with the main argument put forward by Spain in support of its request. Having dismissed all of Spain’s challenges to the jurisdictional findings of the Award, the Committee cannot conclude, as Spain does, that Cavalum should be responsible for the legal fees and expenses incurred in the proceedings because it initiated the arbitration before a Tribunal which allegedly lacked jurisdiction to hear intra-EU disputes.⁵⁶⁴

399. In light of the above, the Committee decides that each Party shall bear its own legal fees and expenses incurred in Cavalum’s Application and Spain’s Application, an allocation which appears even more appropriate as the legal fees are similar and reasonable.

400. Finally, the Committee finds that the Parties’ reciprocal requests for interest on costs are without merits.

⁵⁶³ Cavalum’s Costs, ¶ 5. ↩

⁵⁶⁴ Spain’s Costs, ¶ 7. ↩

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VII. DECISION

401. Accordingly, the Committee decides as follows:

1. Regarding Cavalum’s Application:
   1. To dismiss Cavalum’s Application;
   2. To order Cavalum to bear the costs of the proceeding (ICSID administrative fees and direct expenses, as well as the Committee’s fees and expenses) related to Cavalum’s Application;
   3. To order Cavalum to bear its legal fees and expenses incurred in connection with Cavalum’s Application;
   4. To order Spain to bear its legal fees and expenses incurred in connection with Cavalum’s Application;
   5. To dismiss Cavalum’s request for interest on costs related to Cavalum’s Application; and
   6. To dismiss Spain’s request for interest on costs related to Cavalum’s Application.
2. Regarding Spain’s Application:
   1. To dismiss Spain’s Application;
   2. To order Spain to bear the costs of the proceeding (ICSID administrative fees and direct expenses as well as the Committee’s fees and expenses) related to Spain’s Application;
   3. To order Spain to bear its legal fees and expenses incurred in connection with Spain’s Application;
   4. To order Cavalum to bear its legal fees and expenses incurred in connection with Spain’s Application;
   5. To dismiss Spain’s request for interest on costs related to Spain’s Application;
   6. To dismiss Cavalum’s request for interest on costs related to Spain’s Application; and
   7. To terminate the stay of enforcement of the Award as of the date of this decision, in accordance with Arbitration Rule 54(3).

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