Nykomb Synergetics Technology Holding AB v The Republic of Latvia

Year of the award: 2003
Forum: Arbitration Institute of the Stockholm Chamber of Commerce
Applicable investment treaty: Energy Charter Treaty (1994)

Arbitrators:
Bjørn Haug, Chairman
Rolf A. Schütze
Johan Gernandt

Executive summary

Nykomb, a Swedish company, acquired a Latvian subsidiary (Windau) in order to engage in the business of producing and supplying electric power in Latvia. In 1997 Windau entered into a contract with Latvenergo, a State-owned Latvian company and a sole purchaser and distributor of electricity through the national grid. Under the Contract, Windau undertook to construct a power plant and Latvenergo agreed to purchase the electric power from Windau at a price composed of two elements - the general tariff and a multiplier, both set by Latvian laws.

At the time of concluding the Contract, the Latvian law provided for a multiplier of two (a "double tariff") to be paid during the initial eight years of plant operation. However, that law was modified in October 1998 to provide for 0.75 tariff. After the construction of the plant was finished in 1999, a dispute arose between Windau and Latvenergo about the proper price. Latvenergo refused to pay the double tariff and paid 0.75 tariff instead.

Nykomb initiated arbitral proceedings against Latvia under the Energy Charter Treaty ("ECT") alleging that the non-payment of the double tariff violated several ECT obligations: on fair and equitable treatment, on arbitrary and discriminatory measures and others. Nykomb claimed damages that have arisen from the price difference both for the past period and for the remainder of 8 years, with the overall amount totalling approx. US$ 12.8 million (expressed in Latvian currency).

Having examined both the Latvian legislation and the Contract, the Tribunal found that Latvenergo was obliged to pay the double tariff for the first 8 years of plant operation. The Tribunal also found that the non-payment of the double tariff was attributable to Latvia and that this non-payment was discriminatory (Latvenergo had paid the double tariff to two other Latvian producers of electric power). On this basis, the Tribunal concluded that Latvia breached Article 10(1) of the ECT prohibiting discriminatory measures.

The Tribunal found it inappropriate to apply the standard of compensation envisaged for expropriation cases and chose the route of monetary restitution. The Tribunal limited recoverable damages to the losses pre-dating the Award (with regard to the remainder of the 8 years, the Tribunal ordered Latvia to ensure the payment of the double tariff). Notably, the Tribunal did not accept that the investor, Nykomb, suffered the same amount of damages as its investment, Windau. At the same time, there was not enough data to calculate the exact loss suffered by Nykomb. Therefore, the Tribunal awarded, on a discretionary basis, only one third of the missing price difference to Nykomb (approx. US$ 2.4 million). The Tribunal also awarded simple interest at the rate of 6% p.a. from the dates of breach until the date of payment.