ICSID Tribunal condemns Argentina to pay US$ 165,240,753

The arbitral panel was integrated by Andres Rigo Sureda from Spain, Daniel Hugo Martins from Uruguay and Mark Lalonde from Canada, who had replaced Elihu Lauter Pacht after his resignation for health reasons.

On September 2001 Azurix filed a request for arbitration against Argentina with the ICSID. Azurix based its claim on the violation of obligations owed to Azurix under the BIT executed between Argentina and the U.S. in 1991 (the “BIT”), and on the violation of international and Argentine law as a result of the cancellation of the concession of drinking water distribution and treatment and disposal of sewerage water in certain districts of the Province of Buenos Aires.

In the Preliminary Observations of the Award, the Tribunal decided that claims arising out of the concession agreement, such as breaches of the agreement, were excluded from the jurisdiction of the Tribunal, though the concessionaire should file those claims before the local courts. Also, quoting case “Compañía Aguas del Aconquija S.A. and Vivendi Universal v. Argentine Republic” and article XIII of the BIT, the Tribunal held that the Argentina Republic is responsible for the acts and omissions of the organs and political subdivisions of the State.

In connection with the applicable law, the panel decided that the controversy was to be resolved under (i) ICSID Convention, (ii) the applicable BIT, and (iii) the applicable International Law. Additionally, the Tribunal considered that the law of Argentina should also be helpful to analyze the alleged breaches of the concession agreement by the host state.

In the analysis of the merits of the case, the Tribunal decided that, although the management of the concessionaire was affected by the Province’s actions, such actions were not sufficient to consider that Azurix investment had been expropriated under the terms of the BIT. Thus, the Tribunal rejected the application of the creeping expropriation doctrine[1], noting that Azurix had not lost the ownership and control of the concessionaire and its shares.

On the other hand the Tribunal considered that the standard of fair and equitable treatment (Article II(2)(a) of the BIT) had been breached by the Province. This conclusion was based on (i) the conduct of the Province when it terminated the concession agreement based upon the abandonment of the concession when the concessionaire had requested the cancellation of the concession by mutual consent; (ii) the politization of the tariff regime, which prevented the concessionaire from raising tariffs in accordance with the concession agreement, highlighting that after the termination the new service provider was allowed to raise tariffs; and (iii) the calls for the non-payment of the bills by customers made by the Governor due to problems with the service, when such problems would have been avoided if the Province had completed the works that were under its responsibility.

The Tribunal concluded that under the applicable BIT the violation of the standard of fair and equitable treatment also leads to the violation of the standard of full protection and security, even if no physical violence or damage occurs[2].

Finally, the tribunal also considered that in order to constitute a breach of the BIT a measure only needs to be arbitrary, and that arbitrary measures were taken directly or indirectly by the province violating the standard of Article II.2(b), impairing the operation of Azurix’s investment.

When considering the compensation requested by the Claimant, the Tribunal applied the fair market value principle at the time immediately before the investment was affected. In this sense, the Tribunal reduced the market value of the canon paid by Azurix before entering into the concession from US$ 438,555,531 to US$ 60,000,000. It also recognized additional investments for the amount of US$ 105,240,753.

Other damages requested by the claimant (i.e. consequential damages) were rejected.

Comments

This is the second award rendered by an ICSID panel after the emergency measures taken by the Argentine Government during the crisis of 2001/2002.

Both awards coincide in the fact that there was no expropriation stemming out of the Governmental measures, but that the Argentine Republic had in both cases violated the fair and equitable treatment principle recognized to foreign investors under the applicable BITs.