Sacyr v. Panama and the Limits of Recasting Contract Claims as Treaty Claims

A few recent infrastructure projects have carried the symbolic and economic weight of the Panama Canal Expansion. Approved by national referendum in 2006,  the Third Set of Locks Project (“TSLP”) was a project of national scale, implemented by the Panama Canal Authority (“ACP”), an entity with special constitutional status, and designed to secure the country’s long-term economic outlook.

It also gave rise, on 31 October 2025, to one of the most notable investment awards of the year. In ICSID Case No. UNCT/18/6, a UNCITRAL tribunal administered by ICSID dismissed in full claims exceeding USD 2.6 billion brought by the Spanish company Sacyr under the Spain–Panama BIT. The tribunal, composed of John Beechey CBE (President), Horacio A. Grigera Naón and Zachary Douglas, was unanimous in the outcome. Yet, Grigera Naón’s Separate Opinion reveals a deeper disagreement than that consensus might suggest.

The Third Set of Locks and the Origins of the Dispute

The TSLP was awarded in August 2009 to the “Grupo Unidos por el Canal” (“GUPC”) consortium under a lumpsum FIDIC design-and-build contract for approximately USD 3.35 billion. GUPC brought together four companies of different nationalities: Sacyr S.A. (Spain), Impregilo S.p.A., now Webuild (Italy), Jan De Nul N.V. (Belgium), and Constructora Urbana S.A. (Panama). Cost overruns eventually exceeded USD 2.8 billion, triggering a cascade of ICC arbitrations between GUPC and the ACP.

Two technical disputes came to the centre of the case. The first concerned the basalt’s quality in the Pacific Lock Excavation (“PLE”). Sacyr argued that the ACP had failed to disclose relevant geotechnical information. This lack of detail, in their opinion, showed that the basalt was of lower quality than expected, which substantially increased the cost of producing aggregates and, thereby, the cost of the project’s performance. The second was related to the seismic reduction factor applicable to the design of the new rolling gates. According to Sacyr, before the contract was signed, the ACP knew that the applicable factor was more demanding than the one reflected in the tender documents, but failed to disclose it.

On that basis, Sacyr sought to frame both issues as acts attributable to the State that had frustrated its expectations and breached the fair and equitable treatment standard (“FET”), under the Spain–Panama BIT.

Panama rejected that characterization. Its position was that the ACP had acted throughout as a contractual counterparty, not as sovereign authority. The disputes over the PLE basalt, the seismic reduction factor, cost overruns, and risk allocation therefore remained matters of contract claims, not treaty ones. Panama further argued that some of those facts had already been litigated in the ICC arbitrations, raising the question whether issues debated in the contractual forum could later be reformulated as treaty breaches.

Neither State Involvement nor Harm Is Enough: The Threshold of Puissance Publique

In its reasoning, the tribunal began from a basic premise about the treaty’s function. In its view, the treaty is not there to correct every dispute arising out of a State contract, but to protect the investor against a different kind of exposure, namely sovereign risk. That is why only State conduct, involving the exercise of public power, can engage obligations such as FET. In other words, the fact that the ACP was a State organ and that its acts were attributable to Panama did not, by itself, mean that those acts could engage Panama’s international responsibility under the treaty.

By contrast, where a State organ acts on the same contractual plane as its counterparty and exercises powers equally available to a private party, the dispute remains one of contract and contractual remedies, not treaty law. A treaty breach requires a genuine State wrongdoing that goes beyond the contractual sphere and reflects an exercise or abuse of sovereign power. Therefore, it is not enough to group together a series of acts attributable to the State and show that they caused harm to the investment.

The difficulty, however, did not disappear in a project of this kind. The ACP was created by the Panamanian Constitution, administers the country’s most important asset, and controls the production of the geotechnical information relevant to the tender. Seen from that angle, one may ask whether the relationship with the bidders really resembled that of two contracting parties operating on an equal footing, or whether the State’s exclusive control over material technical information introduced an element that is harder to reduce to a purely contractual dispute.

That is precisely where Grigera Naón’s Separate Opinion becomes relevant, because it puts pressure on the idea that the conduct could simply be treated primarily as contractual.

In his view the threshold question is misconceived. On the one hand the FET standard is not conditioned on whether the State acted in its sovereign capacity or as a commercial party. The majority's acta iure imperii / acta iure gestionis distinction, he argues, comes from the law of State immunity to determine the jurisdiction of domestic courts and not to define the substantive scope of an international investment standard. On the other hand, a State that omits material information during a tender process, whether it acts as regulator or as contractual counterparty, may, in his view, engage the FET standard, because pre-contractual failures to disclose are "standalone FET illicit conduct" (see Sacyr v. Panama, para. 1032) independent of the public-private character of the conduct.

Naón nonetheless concurs in dismissing Sacyr's claims, and his reasoning is instructive. While he questions whether issue estoppel and issue preclusion carry the status of general principles of international law, he accepts that the ICC findings constitute at minimum relevant "evidence" that this tribunal should not disregard. The practical effect is identical to the majority's conclusion, but the doctrinal path diverges sharply. Had the majority adopted Naón's FET framework, the analysis would not have ended at the puissance publique threshold as the tribunal would have had to engage directly with the substance of the pre-contractual omissions. The disagreement therefore centers not on whether Sacyr should have won, but on what kind of case this was allowed to be.

Merits First, Admissibility After

The discussion, however, did not end at the puissance publique threshold. Even though the ICC arbitrations formed an unavoidable backdrop, the tribunal insisted on examining directly whether Sacyr’s claims could fall within the scope of treaty protection. It therefore addressed, before turning to preclusion doctrines, Sacyr’s theory that Panama had withheld material information about the PLE basalt and the seismic factor, thereby inducing the investment and then denying any relief once those risks materialized.

For the tribunal, the difficulty was not only legal but evidentiary. Sacyr was asking the tribunal to draw from certain facts a much stronger conclusion than the record could sustain - namely, that Panama knew of material information, deliberately chose not to disclose it, and acted out of a desire to preserve the project’s viability. The majority did not accept that leap. It considered the case too heavily dependent on inference and also rejected the suggestion that Panama should bear the burden of disproving it. From that point on, the reasoning became doubly to Sacyr’s interests. There was not enough evidence of deliberate concealment, and nor even a pre-contractual omission; if established, it would still have remained, for this case, within the grounds of contractual liability rather than FET.

Admissibility, Essential Basis, and Why the Treaty Could Not Become a Second Remedial Track

Perhaps the most sophisticated part of the award comes after the merits. Having dismissed the claims on the merits and echoing the formulation of the Vivendi I Annulment Committee, - the landmark 2002 ICSID decision that established the "essential basis" test, under which a treaty tribunal must give effect to a contractual forum-selection clause where the essential basis of the claim is a contract breach, rather than a genuine treaty violation, the tribunal held that they would in any event have been inadmissible, since this arbitration could not be used to reopen a dispute, whose essential basis remained contractual.

As to several issues already litigated in other ICC arbitrations between GUPC and Panama, the majority found that Sacyr was attempting to reopen matters distinctly raised and distinctly decided upon in the past, and made clear that it would have treated them as precluded by issue estoppel had it not already addressed them on the merits. Preclusion, then, did not replace the merits analysis. It reinforced it.

As regards the still pending ICC Case No. 22466/ASM/JPA (C‑22967/JPA), concerning global delay and disruption claims under the construction contract between GUPC and the ACP (ICC, the “Disruption Arbitration”), the tribunal emphasized the substantial overlap in facts, losses, and remedies pursued across the different fora, and saw in that overlap a real risk of duplication and double recovery.

But the most important of the three ideas is the essential basis of the claims. What emerges there is a broader institutional thesis: the treaty cannot serve as a vehicle for ex post review of the State’s contractual good faith, nor as a general corrective for commercial risk. In the majority’s view, allowing that would blur the sanctity of the contract, deprive the parties’ chosen contractual forum of real force, and turn investment arbitration into a second remedial track for disputes that never ceased to be, in substance, contractual.

Conclusion

Sacyr v. Panama draws a line of containment for investment arbitration in disputes arising out of complex State contracts. The award demands more than the mere presence of the State in the contract, more than the damage suffered by the investor, and more than the recasting of old contractual grievances in treaty language. It demands sufficient proof of an internationally wrongful act and, in addition, rejects the idea that investment arbitration can function as a second forum for reopening issues, whose essential basis remains contractual.

The majority’s express reply to Grigera Naón’s Separate Opinion confirms that this closing move rested not only on the disposition of the case, but also on a precise conception of FET and that of the function of investment arbitration. The disagreement between the arbitrators concerned how much room the treaty leaves for capturing contractual or pre-contractual conduct by the State, and the point at which that discussion ceases to belong to contract and begins to belong to international law. That is where the award’s lasting significance lies.