Galo M. Márquez Ruiz1
Introduction
On 11 April 2024, I published an opinion analysis at the Online Forum of Harvard International Law Journal, on the arbitral award rendered in Eiser v. Spain in 2017 (“Eiser I”). The Eiser saga stems from the Government of Spain’s decision to withdraw from its commitments to grant financial incentives for the renewable energy industry. There, I introduced the “Margin of Wrongfulness” as a critical item that needs to be developed regarding liability in international investment law based on several decisions by arbitral tribunals (See, here, here and here). The Margin of Wrongfulness represents “the difference between the injury caused by the measure actually imposed, and the hypothetical injury that would have been caused by a lawful alternative measure”. It questions if a foreign investor must be indemnified for damages that falls short of those caused by unlawful conduct.
Since then, several arbitral awards have surfaced which brings a necessity to update the content of the first piece. Relevantly, the Eiser I award was annulled by an ICSID Ad Hoc Annulment Committee, and subsequently, on 16 October 2025, a second arbitral tribunal awarded even more damages to the investor (“Eiser II”). The decision in Eiser II was not without critique, and Prof. Marcelo Kohen penned a lengthy dissenting opinion. The Eiser saga provides an insight into the minds of individual international adjudicators and how their decisions are the accumulation of their academic and professional upbringings.
This second opinion discusses the content of Eiser II, its impact concerning the Margin of Wrongfulness, and how international investment law unfolds in a short period of time. I discuss in Section II the approach of both tribunals, and the importance of the individuals behind these decisions. Section III addresses how Eiser II justifies the Margin of Wrongfulness.
Recalling the Eiser Saga
This piece will not repeat the content of the first piece, except when necessary. In summary, after the Spanish government backtracked from its financial incentives, dozens of investment arbitrations were triggered claiming that the State breached its international obligations.
Eiser I was resolved by three eminent jurists: John R. Crook, Stanimir A. Alexandrov, and Campbell McLachlan. Prof. McLachlan arrived at Cambridge, with his views formed on the discretion that a State enjoys when treating foreign investors. His book on substantive principles of foreign investment narrates how the award in Tecmed v. Mexico described the FET standard as a series of expectations requiring “the host State to act in a consistent manner, free from ambiguity and totally transparently” (at pg. 314-315). This, he recognized, jointly with other tribunals (See, White Industries v. India, para 10.3.5), describes a perfect ―non-existent― State. It is misguided for a businessperson to expect under reasonable circumstances that a State would fully act under no commission of error.
Despite this recognition, McLachlan, and the rest of the tribunal, did not question this imperfect world, where the State would have committed an act that does not breach an international obligation. They did recognize that, absent an express commitment, States retain their ability to modify the regulatory regime and public policies (Eiser I, para. 362), but the ECT protected against the total and unreasonable changes. McLachlan joined a unanimous arbitral tribunal in finding the State liable and awarding damages.
Eiser II was equally put forward before a panel of distinguished internationalists, including O. Thomas Johnson and Marcelo Kohen (appointed by the claimant and respondent respectively). Prof. Kohen had already sat with Judge Johnson, in another case involving Spain, where Sun-Flower Olmeda GmbH & Co KG and others acted as claimants (“Sun-Flower”). The Sun-Flower arbitration emerged from the same measures disputed in Eiser II, where the investor was awarded damages and Prof. Kohen issued a still-confidential dissent. While the underlying analysis in Sun-Flower remains largely confidential, these decisions tell practitioners a bit more about the tribunal’s dynamics and appreciation for the deference that should be afforded to the State’s decision-making.
It is then unsurprising that a similar result followed in Eiser II. Again, Prof. Kohen dissented, and he did so with no reference to the Sun-Flower award. But he opened with a prominent critique to the saga of renewable cases against Spain, cataloguing arbitral tribunals with “dismantling a multilateral treaty through decisions contrary to the will of the Parties concerned” (See, Dissent, para 1). Prof. Kohen sided with a range of awards that saw no express commitment from Spain to stabilize its regime for renewable energies (See, here and here). Prof. Kohen did recognize that the tariffs could have been varied within a reasonable threshold (See, Dissent, para 105). Despite Kohen’s dissent, the majority in Eiser II again awarded damages to the claimant.
The Margin of Wrongfulness
Eiser II does recognize the underlying principle in the Margin of Wrongfulness, when it recalls that, in principle, the “[F]ET standard does not prevent States from modifying their laws and regulations, or from adopting measures they deem appropriate […]. Absent a stabilization clause, or other specific commitment of the State, investors cannot rely on the absolute stability of the regime […].” If stability is unbounded, then the State enjoys a degree of discretion as a matter of international law to undertake activities that would not rise to an international illegal act. As Prof. McLachlan, from Eiser I, explains, while the review of a state’s measure is similar to that conducted by a domestic court, “[t]he important distinction that the applicable standard against which the administrative conduct is measured is one of international law not national law” (para 7.147).
The Margin of Wrongfulness is structured on a series of principles in the law of State responsibility. First, it is commonly accepted that there are some acts that, while being illegal under municipal law, do not constitute an internationally wrongful act as understood in the ILC Articles on State Responsibility. Secondly, it is accepted that States enjoy a margin of regulatory discretion, so long as their conduct is not unreasonable, not arbitrary or non-transparent, and does not violate due process..
But a contrarian position is not too far-fetched. International law often seeks compensation that wipes out all the consequences of the internationally wrongful act. Understanding how the Margin of Wrongfulness influences the general doctrine on damages might require practitioners to reassess their abundant reliance on the Chorzow Factory case, the leading case law on compensation. While some academic work has been developed in this subfield of international law (See, work by Prof. Cohen and by G. Kahale III), much has been left for tribunals to make sense of. Eiser I and II are no different.
Conclusion
In a way, the Eiser decisions are two sides of the same coin. Not only are the underlying facts identical, but the tribunal’s mindset seems contagious from the first award to the latter. In Eiser II, the tribunal recognizes an absence of guarantee for an ‘absolute stability of the regime’ (Award, para 429), and that the State may employ regulatory measures “subject however to incurring the consequences of any breach of its international law obligations” (Award, para 544). It is then puzzling that an alternative scenario for damages is not performed by the tribunal.
Following this, several aspects are missing from Eiser II. First, McLachlan’s identification of an imperfect State remains largely absent in Eiser II’s analysis on damages, which would have been an opportunity for the second tribunal to address this point. Second, the continuous recognition by the arbitrators in both Eiser I and Eiser II that a remedy should be limited to that committed by the internationally wrongful act, is dropped in the damages analysis, as no other scenario is contemplated but that under which the unlawful measure would not have existed.
Thirdly, Eiser II fleshes out what surely had been a contentious debate on these points in the Sun-Flower award. It is then unsurprising that Prof. Kohen closes his dissent in Eiser II by noting that the “the public policy objectives of the regulatory measures at issue should not be left out of an investment tribunal’s damage assessment analysis”, a factor that has become ghostly in tribunal’s review. No comment is made by the majority in Eiser II on Kohen’s proposition, and the damages awarded continue to reflect a desired, but fictional, perfect State.
- Galo Márquez Ruiz, MJur (Oxford University & Executive Finance Programme at Oxford Saïd Business School), LL.M. (QMUL), is a Professor of Law at Tec de Monterrey University, and a Visiting Professor at several universities. Galo is also an Associate in the Arbitration and Dispute Resolution practice at Creel, Garcia-Cuellar, Aiza y Enríquez. Comments are welcome at: [email protected] ↩︎