a. That the dispute should be between a Contracting State and a national of another Contracting State and that Claimants should have jus standi to act in these proceedings;
b. That the issue should be a dispute of a legal nature arising directly from an investment;
c. That the parties should have given their consent, in writing, to submit to arbitration and, specifically to the ICSID arbitration; and
d. That all the other requirements of both the ICSID Convention and the Bilateral Treaty should be met in order to submit a dispute to arbitration.
a. Held that the present dispute is within the jurisdiction of the Centre and the competence of the Tribunal;
b. Dismissed all of the Respondent’s objections as to the admissibility of the dispute and all of the Respondent’s objections to the jurisdiction of ICSID and the competence of this Tribunal;
c. Ordered, pursuant to Rule 41(4) of the Arbitration Rules, the continuation of the proceeding;
d. Reserved all questions concerning the costs and expenses of the Tribunal and the parties for future determination.
In accordance with Procedural Orders Nos. 4 and 5, dated 13 and 18 January 2005, respectively, the hearing on the merits was held between 23 and 29 January 2005, at the seat of the Centre in Washington, D.C. The following persons were present at that hearing:
Tatiana B. de Maekelt, President
Francisco Rezek, Arbitrator
Albert Jan van den Berg, Arbitrator
Secretary of the Tribunal:
Counsel for Claimants:
Oscar M. Garibaldi (Covington & Burling, Washington, D.C.)
Eugene D. Gulland (Covington & Burling, Washington, D.C.)
Eric D. Brown (Covington & Burling, Washington, D.C.)
Miguel Lopez Forastier (Covington & Burling, Washington, D.C)
Karin Kizer (Covington & Burling, Washington, D.C.)
Warda Henning (Covington & Burling, Washington, D.C.)
Harris Bor (Covington & Burling, Washington, D.C.)
Matthew Chester (Covington & Burling, Washington, D.C.)
Jadranka Poljak (Covington & Burling, Washington, D.C.)
Alma Ramirez (Covington & Burling, Washington, D.C.)
Karin Lui (Covington & Burling, Washington, D.C.)
Horacio Ruiz Moreno (Rosso Alba, Francia & Ruiz Moreno Abogados, Buenos Aires, Argentina)
Leonardo Orlanski (Rosso Alba, Francia & Ruiz Moreno Abogados, Buenos Aires, Argentina)
Also present on behalf of Claimants:
Dorothy O’Brien (LG&E Energy LLC)
Counsel for Respondent:
Osvaldo Guglielmlno (Procurador del Tesoro de la Nación Argentina, Buenos Aires, Argentina)
Gustavo Adolfo Scrinzi (Subprocurador del Tesoro de la Nación Argentina, Buenos Aires, Argentina)
Ana Badillos (Procuración del Tesoro de la Nación Argentina, Buenos Aires, Argentina)
Luz Moglia (Procuración del Tesoro de la Nación Argentina, Buenos Aires, Argentina)
Gabriel Bottini (Procuración del Tesoro de la Nación Argentina, Buenos Aires, Argentina)
Ignacio Pérez Cortés (Procuración del Tesoro de la Nación Argentina, Buenos Aires, Argentina)
Gastón Rosenberg (Procuración del Tesoro de la Nación Argentina, Buenos Aires, Argentina)
Also present on behalf of Respondent:
Carlos Garber (Ministerio de Relaciones Exteriores, Comercio Internacional y Culto, Buenos Aires, Argentina)
Alicia Federico (Ente Nacional Regulador del Gas (ENARGAS), Buenos Aires, Argentina)
Charles Joseph Masano (Secretaría de Energía, Buenos Aires, Argentina) Marcelo Masonni: (Embassy of the Argentine Republic, Washington, D.C.)
David A. Kasdan
(i) Declaring that the Respondent has breached its obligations under Article II(2)(c) of the Bilateral Treaty by failing to observe obligations that it entered into with regard to the Claimants’ investment;
(ii) Declaring that the Respondent has breached its obligations under Article II(2)(a) of the Bilateral Treaty by failing to accord to the Claimants’ investment fair and equitable treatment and by according treatment less than that required by international law;
(iii) Declaring that the Respondent has breached its obligations under Article II(2)(b) of the Bilateral Treaty by taking arbitrary and discriminatory measures that impair the use and enjoyment of the Claimants’ investment;
(iv) Declaring that the Respondent has breached Article IV(1) of the Bilateral Treaty by indirectly expropriating the Claimants’ investment without complying with the requirements of the Bilateral Treaty, including observance of due process of law and payment of prompt, adequate, and effective compensation;
(v) Ordering the Respondent to pay the Claimants full compensation in the amounts set forth in the Memorial, plus pre- and post-award compound interest;
(vi) Ordering the Respondent to pay all costs and expenses of this arbitration proceeding, including the fees and expenses of the Tribunal and the cost of the Claimants’ legal representation, plus interest thereon in accordance with the Bilateral Treaty; and
(vii) Such other or additional relief as may be appropriate under the Bilateral Treaty or may otherwise be just and proper.
1. Finding the Argentine Republic to be in breach of its obligations under the Treaty;
2. Ordering the Argentine Republic to pay LG&E: (i) compensation in the amounts specified in Part VI of [the] Reply; (ii) all costs and fees of the arbitration, including reasonable attorneys’ fees; and (iii) compound interest on the monetary award from the date of the award until the date of actual payment; and
3. Ordering such additional relief as may be appropriate under the applicable law or otherwise just and proper.
"(1) The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of International Law as may be applicable."
Técnicas Medioambientales Tecmed S.A. v. The United Mexican States, ICSID Case No. ARB (AF)/00/02 Award ¶ 154 (29 May 2003); MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/01/7 Award ¶ 113 (25 May 2004); Occidental Exploration and Production Company v. The Republic of Ecuador, LCIA Case No. UN 3467 Final Award (1 July 2004).
"1. Investments shall not be expropriated or nationalized either directly or indirectly through measures tantamount to expropriation or nationalization ("expropriation") except for a public purpose; in a non-discriminatory manner; upon payment of prompt, adequate and effective compensation; and in accordance with due process of law and the general principles of treatment provided for in Article 11(2)."
Under Claimants’ theory, indirect expropriation occurs when government action substantially impairs the value of an investment (Claimants’ Post-Hearing Brief, ¶ 53 citing Dolzer Reb., 56). In this case, the Claimants consider that the Argentine Government’s actions had a substantial effect on LG&E’s shares in the Licensees, which are an investment protected under Article I(1)(a) of the Treaty. The value of LG&E’s investment was based on a tariff system and depended on the Respondent respecting the system. The value of LG&E’s shares in the Licensees now fluctuates according to general speculation around the future tariff relief that Argentina may or may not grant (Claimants’ Post-Hearing Brief, 53).
"No enterprise... can escape from the chances and hazards resulting from general economic conditions. Some industries may be able to make large profits during a period of general prosperity, or else by taking advantages of a treaty of commerce or of an alteration in customs duties; but they are also exposed to the danger of ruin or extinction if circumstances change. Where this is the case, no vested rights are violated by the State."60
"This Treaty shall not preclude the application by either Party of measures necessary for the maintenance of public order, the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests."
"Nationals or companies of either Party whose investments suffer losses in the territory of the other Party owing to war or other armed conflict, revolution, state of national emergency, insurrection, civil disturbance or other similar events shall be accorded treatment by such other Party no less favorable than that accorded to its own nationals or companies or to nationals or companies of any third country, whichever is the more favorable treatment, as regards any measures it adopts in relation to such losses." (Emphasis added)
a. The claim for expropriation of the investment is hereby dismissed.
b. Argentina breached the standard of fair and equitable treatment, no less favorable treatment than that to be accorded under the international law, and adopted discriminatory measures, causing damage to LG&E. Argentina’s abrogation of the guarantees under the statutory framework, as indicated under paragraph 175 supra, violated its obligations to Claimants’ investments, giving rise to liability under the umbrella clause.
c. The standard prohibiting the adoption of arbitrary measures is not deemed to have been violated.
d. Between 1 December 2001 and 26 April 2003, Argentina was in a state of necessity, for which reason it shall be exempted from the payment of compensation for damages incurred during that period.
e. The Argentine Republic is liable for damages to Claimants for the aforementioned violations, except during the period of the state of necessity, which damages, including interest, as well as specification of the periods during which Respondent has incurred in violation of its international obligations, shall be determined in a next phase of the arbitration and in respect of which the Tribunal retains jurisdiction.
f. Any decision on the costs of the arbitration is reserved.