A dispute arose out of a shareholders' agreement concluded between the parties and governing the management of their joint venture company (LaGeo), located in El Salvador.

The ComisionEjecutivaHidroelectrica del Rio Lempa (CEL) was a public company organised in El Salvador and responsible for electricity distribution. As part of El Salvador's privatisation policy, it transferred its production activities to LaGeo in 1998. LaGeo was a joint venture between CEL and ENEL Green Power SPA (later replaced by ENEL Produzione SPA and subsequently ENEL Green Power, together ENEL).

On 4 June 2002, CEL and ENEL concluded the shareholders agreement, which provided for the financing and technical development of LaGeo. In 2006, CEL transferred its interests in LaGeo to InversionesEnergeticas (INE), a Salvadoran company.

Pursuant to the shareholders agreement, ENEL could be called on to make investments in LaGeo in return for an increased shareholding of equivalent value. However, the shareholders agreement did not include a mechanism for calculating the value of such capital increases.

On 15 October 2008, a dispute over that calculation was referred to ICC arbitration by ENEL. During the arbitral proceedings, CEL and INE argued that the relevant share values should be calculated on the basis of the increased capacity of the company (in terms of megawatts) resulting from ENEL's investments. ENEL argued that the calculation should be based on the nominal value of the shares.

On 30 May 2011, an arbitral tribunal issued an award, electing to base its calculation on the real value of LaGeo's assets.

On 27 July 2011, CEL and INE filed an application to have the award set aside. On 21 December 2011, an addendum to the award was rendered by the arbitral tribunal, and was likewise subjected to setting aside proceedings on 1 February 2012. The two proceedings were merged by the Paris Court of Appeal.

Before the Court of Appeal, CEL and INE argued that, by basing its decision on the real value of LaGeo's assets (as opposed to adopting either of the approaches suggested by the parties) without allowing the parties to comment on their proposed approach, the arbitral tribunal had violated the principe du contradictoire, pursuant to which each party should be given the opportunity to fully present its case in adversarial proceedings.

The Court of Appeal rejected CEL and INE's arguments and dismissed their attempts to set aside the award.

The court noted that procedural fairness required that each party be given the opportunity to submit its own case and to comment on the other party's case and, therefore, everything on which the arbitral tribunal based its decision would have been subject to submissions by the parties. However, it did not require that the tribunal submit a draft award to the parties for their comment.

The court also noted that the task of calculating the value of ENEL's shareholding was well within the scope of the arbitral tribunal's mission. Furthermore, the court observed that CEL and INE had raised the possibility of using LaGeo's real value in their submissions (as an argument against the nominal value calculation proposed by ENEL) and that the tribunal's calculations were based entirely on LaGeo's accounting records, which had been produced during the arbitration.

Therefore, the court held that CEL and INE could not argue for the award to be set aside on the grounds that it was not afforded the opportunity to comment on a calculation method that they had raised during the proceedings.

Finally, the court found that, although CEL and INE's application should be dismissed, ENEL's argument that it constituted an abusive procedure was unfounded.

The decision raises the interesting issue of the extent to which an arbitral tribunal is bound by the details of the parties' submissions, and, conversely, the extent to which it is empowered to adopt its own reasoning, as opposed to simply choosing between the positions taken by the parties.

Inevitably, such an issue will amount to a line-drawing exercise in which courts attempt, over a series of cases, to define the limits of an arbitral tribunal's jurisdiction, finding in certain instances that the tribunal has gone too far and in others that it has remained within the bounds of its jurisdiction.

In this context, the present case provides an interesting contrast to a 2011 decision of the French Supreme Court (see Legal update, Cour de Cassation insists on strict compliance with principles of due process by upholding decision setting aside award for violation of the adversarial principle). In that case, the claimant had sought damages for loss of profits. In calculating the quantum of such damages, the arbitral tribunal adopted a loss of chance model, reducing the amount claimed as lost profits by a percentage intended to reflect the uncertainty of any future gains. The Supreme Court agreed with the Paris Court of Appeal that, in so doing, the tribunal had not simply adopted its own method of calculation, but had in fact changed the basis on which damages were awarded. As the parties were not given the opportunity to comment on this reasoning, the tribunal had violated the principe du contradictoire. However, in that case, neither of the parties had raised the loss of chance argument.

Reading the two cases together, it appears that the French courts will be reticent to set aside awards provided that the arbitral tribunal, in calculating the quantum of damages, has based itself on facts submitted before it and methodologies that have, at the least, been addressed in the parties' submissions. However, an arbitral tribunal that goes beyond this, implicitly relying on a distinct basis for recovery without allowing the parties to address the issue in their submissions, may risk exceeding its jurisdiction and exposing the resulting award to setting aside proceedings.