Hrvatska Elektroprivreda d.d. (HEP), the national electric company of Croatia, sought compensation from Slovenia for financial losses that it alleged resulted from Slovenia's failure to resume electricity delivery from the Krško Nuclear Power Plant between 30 June 2002 and 19 April 2003. The Krško Plant was co-owned and managed by Slovenia and Croatia and their national power industries according to a parity principle set out in its governing agreements. Disputes arose between the parties after Slovenia and Croatia declared independence from the former Federal Republic of Yugoslavia, and in 1998 Slovenia discontinued electricity supply to HEP.

The governments of Slovenia and Croatia signed a 2001 Agreement in order to resolve their disputes over the plant and resume electricity delivery. Article 17(1) of the Agreement provided that financial relations up to the signing of the Agreement should be regulated according to an Exhibit 3. Exhibit 3, in turn, provided that certain costs were to be borne by Slovenia until 30 June 2002, at which point the shareholders would split costs. The parties disagreed as to whether Article 17(1) and Exhibit 3 together obligated Slovenia to in fact restore electricity to HEP on 30 June 2002. The Agreement was not ratified by both parties until after that date and on its face the Agreement was not to take effect until 11 March 2003.

All members of the tribunal agreed that the Agreement was to be interpreted in accordance with to the Vienna Convention on the Law of Treaties (VCLT). As an initial matter, the majority of the tribunal emphasised the lack of legal hierarchy governing the treaty interpretation tools set out in the VCLT. In the majority’s view, analysis of the Agreement's object and purpose, as well the general context of the Agreement, showed that the parties agreed to "draw a line in time" and reincarnate the parity principle as of 30 June 2002. For the majority, it did not matter that the Agreement lacked express terms requiring a reinstatement of electricity supply on that date because, in its words, "no greater or lesser force resides in a term by virtue of the relative magnitude of the clarity with which it has been (or has not been) written." The majority considered it irrelevant that the Agreement did not enter into force until 11 March 2003, because it did not change the parties' intent that Slovenia take on financial responsibility for electricity deliveries on 30 June 2002. According to the majority, the Agreement comprised a financial settlement that obligated Slovenia to restore electricity to HEP on that date. Thus, the majority held, Slovenia was liable to HEP for the financial value of 50% of the electricity produced between 30 June 2002 and 19 April 2003 (subject to certain other determinations).

Arbitrator Jan Paulsson issued a strong dissent in his first ever separate opinion. Paulsson contended that the majority had justified their desired outcome by implying terms not in the Agreement, ignoring terms that were in the Agreement, and giving retroactive effect to the Agreement without express authority to do so. According to Paulsson, the VCLT requires interpretation of a treaty in accordance with the meaning given to the terms of the treaty in their context. Contrary to the majority’s approach, Paulsson considered the terms of the treaty as a whole rather than the general context in which the treaty was formed. Under this view, Paulsson concluded that Slovenia was not liable because the Agreement contained no express obligation to deliver electricity from 1 July 2002 onwards. Additionally, Paulsson relied on the rule that international agreements do not operate retroactively in the absence of an express stipulation to that effect. Therefore, he found, Slovenia could not have had an obligation to reinstate electricity before the Agreement entered into force in March 2003.

The Hrvatska award, and particularly the interplay between the majority’s decision and arbitrator Paulsson’s separate opinion, is of substantial interest to those concerned with principles of treaty interpretation. Tribunals considering close interpretive questions in future treaty-based disputes will likely review carefully the differing approaches advocated by the majority and Paulsson, both with respect to the emphasis on textual ambiguity and the retroactivity of treaty provisions.

Hrvatska Elektroprivreda DD v The Republic of Slovenia (ICSID Case No ARB/05/24) and Individual opinion