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Lawyers, other representatives, expert(s), tribunal’s secretary

Award

 

TABLE OF LEGAL MATERIALS
No. Material
1. ADC Affiliate Limited and ADC & ADMC Management Limited v. Republic of Hungary (ICSID Case No. ARB/03/16), Award of 2 October 2006
2. ADF Group Inc. v. United States of America (ICSID Case No. ARB(AF)/00/1), Award of 9 January 2003
3. AMCO Asia Corp. v. Indonesia (ICSID Case No. ARB/81/1), Final Award of 5 June 1990
4. American International Group, Inc. v. The Islamic Republic of Iran, 4 Iran-U.S. C.T.R. 96, Award No. 93-2-3, 19 December 1983
5. Amoco International Finance Corp. v. The Government of the Islamic Republic of Iran, et al., 15 Iran-U.S. C.T.R. 189, Partial Award No. 310-56-3, 14 July 1987
6. Asian Agricultural Products, Ltd. v. Republic of Sri Lanka (ICSID Case No. ARB/87/3), Final Award of 27 June 1990
7. Azinian v. United Mexican States (ICSID Case No. ARB(AF)/97/2), Award of 1 November 1999
8. Azurix Corp v. Argentine Republic (ICSID Case No. ARB/03/30), Award of 14 July 2006
9. Antoine Biloune v. Ghana, UNCITRAL, Award on Jurisdiction and Liability of 27 October 1989
10. CME Czech Republic B. V. v. Czech Republic, UNCITRAL (The Netherlands/Czech Republic BIT), Award of 13 September 2001
11. CMS Gas Transmission Company v. Argentine Republic (ICSID Case No. ARB/01/8), Award of 12 May 2005
12. CMS Gas Transmission Company v. Argentine Republic (ICSID Case No. ARB/01/8), Decision of the ad hoc Committee on the Application for Annulment of the Argentine Republic, 25 September 2007
13. Ebrahimi v. The Government of the Islamic Republic of Iran, 30 Iran-U.S. C.T.R. 170, Award No. 560-44/46/47-3, 12 October 1994
14. Case concerning Elettronica Sicula S.p.A (United States of America v. Italy), I.C.J. Rep. 1989. 15, Judgment of 20 July 1989
15. EnCana Corporation v. Republic of Ecuador, LCIA Case No. UN3481, UNCITRAL (Canada/Ecuador BIT), Award of 3 February 2006
16. Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic (ICSID Case No. ARB/01/3), Award of 22 May 2007
17. Eureko B. V. v. Republic of Poland, UNCITRAL (Netherlands/Poland BIT), Partial Award of 19 August 2005
18. Case Concerning the Factory at Chorzow (Germany v. Poland), 1927 PCIJ, Series A, No 9 (Jurisdiction); 1928 PCIJ, Series A, No 17 (Merits)
19. Marvin Feldman v. Mexico (ICSID Case No. ARB(AF)/99/1), Award on Merits of 16 December 2002
20. Garni Investments, Inc. v. Mexico, UNCITRAL (NAFTA), Final Award of 15 November 2004
21. Alex Genin, Eastern Credit Limited, Inc., andA.S. Baltoil v. Republic of Estonia (ICSID Case No. ARB/99/2), Award of 25 June 2001
22. Antoine Goetz et consorts c. République du Burundi (ICSID Case No. ARB/95/3), Award of 10 February 1999
23. Impregilo S.p.A. v. Islamic Republic of Pakistan (ICSID Case No. ARB/03/3), Decision on Jurisdiction of 22 April 2005
24. INA Corp. v. Iran, 8 Iran-U.S. C.T.R. 373, Award No. 184-161-1, 13 August 1985
25. International Thunderbird Gaming Corporation v. United States of Mexico, UNCITRAL (NAFTA), Award of 26 January 2006
26. LETCO v. Republic of Liberia (ICSID Case No. ARB/83/2), Award of 31 March 1986
27. LG&E Energy Corp., LG&E Capital Corp., LG&EInternational, Inc. v. Argentine Republic (ICSID Case No. ARB/02/1), Award of 25 July 2007
28. Loewen Group. Inc., et al v. United States of America (ICSID Case No. ARB(AF)/98/3), Award on Merits of 26 June 2003
29. Emilio Agustín Maffezini v. The Kingdom of Spain (ICSID Case No. ARB/97/7), Award of 13 November 2000
30. Metalclad Corporation v. United States of Mexico (ICSID Case No. ARB(AF)/97/1), Award of 30 August 2000
31. Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic of Egypt (ICSID Case No. ARB/99/6), Award of 12 April 2002
32. Mondev International Ltd. v. United States of America (ICSID Case No. ARB(AF)99/2), Award of 11 October 2002
33. MTD Equity Sdn, Bhd. and MTD Chile S.A. v. Republic of Chile (ICSID Case No. ARB/01/7), Award of 25 May 2004
34. MTD Equity Sdn, Bhd. and MTD Chile S.A. v. Republic of Chile (ICSID Case No. ARB/01/7), Decision on Annulment of 21 March 2007
35. Occidental Exploration and Production Company v. Republic of Ecuador, LCIA Case No. UN3467 (US/Ecuador BIT), Final Award of 1 July 2004
36. Phillips Petroleum Company Iran v. The Islamic Republic of Iran, et ai, 21 Iran-U.S. C.T.R. 79, Partial Award No. 425-39-2, 29 June 1989
37. Rankin v. Islamic Republic of Iran, 17 Iran-U.S. C.T.R. 135, Award No. 326-10913-2, November 3, 1987
38. James M. Saghi et al v. Iran, 29 Iran-C.T.R. 20, Award No. 544-298-2, 22 January 1993
39. Salini Costruttori S.p.A. and Italstrade S.p.A. v. Jordan (ICSID Case No. ARB/02/13), Award of 31 January 2006
40. Saluka Investments BVv. Czech Republic, UNCITRAL, (Dutch/Czech BIT), Award, 17 March 2006
41. Compañía del Desarrollo de Santa Elena, S.A. v. The Republic of Costa Rica (ICSID Case No. ARB/96/1), Award of 17 February 2000
42 Sapphire International Petroleums, Ltd. v. National Iranian Oil Company, 35 ILR 136 (1963)
43. S.D. Myers, Inc. v. the Government of Canada, UNCITRAL (NAFTA), Second Partial Award (Damages) of 21 October 2002
44. Sempra Energy International v. Argentine Republic (ICSID Case No. ARB/02/16), Award of 18 September 2007
45. SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan (ICSID Case No. ARB/01/13), Award of 6 August 2003
46. Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt (ICSID Case No. 84/3), Award of 20 May 1992
47. Starrett Housing Corp., et al. v. The Government of the Islamic Republic of Iran, et al., 16 Iran-U.S. C.T.R. 112, Final Award No. 314-24-1 of 14 August 1987
48. Técnicas Medioambientales Tecmed S.A. v. United Mexican States (ICSID Case No. ARB(AF)/00/2), Award of 29 May 2003
49. Tippetts, Abbett, McCarthy, Stratton v. TAMS-AFFA Consulting Engineers of Iran, et al., 6 Iran-U.S. C.T.R. 219, Award No. 141-7-2, 29 of June 1984
50. Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic (ICSID Case No. ARB/97/3), Decision on Annulment of 3 July 2002
51. Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic (ICSID Case No. ARB/97/3), Award of 20 August 2007
52. Waste Management, Inc. v. United Mexican States (ICSID Case No. ARB(AF)/00/3), Award of 30 April 2004
53. Wena Hotels Ltd. v. Arab Republic of Egypt (ICSID Case No. ARB/98/4), Award on Merits of 8 December 2000
54. Crawford, The International Law Commission’s Articles on State Responsibility (CUP, 2002).
55. Kantor, Valuation for Arbitration: Compensation Standards, Valuation Methods and Expert Evidence (Kluwer, 2008)
56. Kazazi, Burden of Proof and Related Issues (Kluwer, 1996)
57. Ripinsky & Williams, Damages in International Investment Law (BIICL, 2008)
58. McGregor, Damages (18th ed; 2009)
59. Chaplin v Hicks [1911] 2 KB 786

 

PART I: INTRODUCTION

(01) THE PARTIES

1.1.
The Claimants: The four Claimants in these two conjoined arbitration proceedings are (i) Gemplus S.A., (ii) SLP S.A., (iii) Gemplus Industrial S.A. de C.V., and (iv) Talsud S.A; and the Respondent in these two proceedings is the United Mexican States. The first three Claimants are collectively described below as "the Gemplus Claimants".
1.2.
Gemplus: Gemplus, S.A. ("Gemplus") is a corporation organized under the laws of France, incorporated in 1988. Its principal place of business is Avenue du Pic de Bertagne, Parc d’activités de Gemenos, 13240 Gemenos, France. It is described below as (inter alia) "Gemplus" and "Gemplus France".
1.3.
SLP: SLP S.A. ("SLP") is a corporation organised under the laws of France, incorporated in 1997. Its principal place of business is Avenue du Pic de Bertagne, Parc d’activités de Gemenos, 13240 Gemenos, France. It is described below as "SLP".
1.4.
Gemplus Industrial: Gemplus Industrial S.A. de C.V ("Gemplus Industrial") is a corporation organized under the laws of Mexico, formed in 1996. Its principal place of business is Calle 9 Este No. 192, Cuidad Industrial del Valle de Cuernavaca, 62500 Jiutepec, Morelos, Mexico. It has been owned and controlled by SLP, which holds more than 99% of the company’s share capital. On 1 March 2008, Gemplus Industrial changed its name to Gemalto Mexico S.A. de C.V. It is described below as "Gemplus Industrial".
1.5.
Talsud: Talsud, S.A. ("Talsud") is a corporation organized under the laws of Argentina, incorporated in 1988. Its principal place of business is Moreno 794, City of Buenos Aires, Argentina.
1.6.
The Claimants’ Legal Representatives: The Claimants were represented in these proceedings by Philippe Sands QC, Matrix Chambers, Griffin Building, Gray’s Inn, London WC1R 5LN, United Kingdom; and David Fraser and Edward Poulton Esqs, all of Baker & Mackenzie, 100 New Bridge Street, London EC4V 6JA, United Kingdom. Alexis Martinez was also part of the team representing the Claimants until April 2010.
1.7.
The Respondent: The Respondent is the United Mexican States, Secretaría de Economía, Dirección General de Inversión Extranjera, Insurgentes Sur 1940, piso 8 Col. Florida, Mexico Distrito Federal, C.P. 01030, Mexico.
1.8.
The Respondent’s Legal Representatives: The Respondent was represented in these proceedings by Hugo Perezcano Díaz, Luis Alberto González García, Alejandra Treviño Solís and Geovanni Hernández Salvador, as part of the Ministry of the Economy, Alfonso Reyes No. 30, Piso 17, Colonia Condesa, C.P. 01640, Mexico, D.F., Mexico; Salvador Behar Lavalle, of the Embassy of Mexico in the United States of America, 1911 Pennsylvania Avenue, N.W., Washington, D.C. 20006, USA; J. Christopher Thomas QC, J. Cameron Mowatt, Alejandro Barragán, Mónica Jiménez Esqs, all of Thomas & Partners, 2211 West 4th Avenue, Suite 226, Vancouver, British Columbia, Canada, V6K 4S2; Stephan E. Becker and Sanjay J. Mullick Esqs, both of Pillsbury Winthrop Shaw Pittman LLP, 2300 N Street, N.W., Washington, D.C. 20037-1128, USA.

(02) THE DISPUTE

1.9.
The Claimants claim damages against the Respondent for the latter’s several breaches of two bilateral investment treaties made by the Respondent with France and Argentina respectively, namely (i) as regards the Gemplus Claimants, the 1998 Agreement between the Government of the Republic of France and the Government of the United Mexican States on the Reciprocal Promotion and Protection of Investments (the "France BIT") and (ii) as regards Talsud, the 1996 Agreement between the Government of the Republic of Argentina and the Government of the United States of Mexico for the Reciprocal Promotion and Protection of Investments (the "Argentina BIT").
1.10.
The Claimants allege against the Respondent (a) unlawful expropriation, (b) unfair, inequitable and arbitrary treatment and (c) failure to provide full protection and security in regard to their investments in the Concessionaire, Renave S.A. de C.V. (part owned by the Claimants as to 49% of its shareholding), determined either as at 21 August 2000 or alternatively no later than 13 December 2002. (For ease of reference, references in this Award are made to this Concessionaire as "Renave" or the "Concessionaire").
1.11.
The Claimants advance their claims under the two BITs only; neither treaty contains any form of "umbrella clause"; and the Claimants do not advance any claims in contract, administrative law or private law against the Respondent, whether under the Concessionaire’s concession agreement made with the Respondent directly, derivatively or otherwise.
1.12.
The Claimants claim damages in the total principal sum of 340 million pesos (equated to approximately US $37 million) or alternatively 222 million pesos (equated to approximately US $24 million), 29% of such sum for Talsud and 20% for the Gemplus Claimants, together with interest and costs.
1.13.
According to their claim, the Claimants invested a total of 35.8 million pesos in their Concessionaire: 21.4 million pesos by Talsud and 14.5 million pesos by Gemplus between September 1999 and June 2001 (equivalent to about US $3.3 million). The Claimants subsequently received from their Concessionaire dividends and the return of share capital totalling 39.4 million pesos, being 23.5 million for Talsud and 15.9 million for the Gemplus Claimants by 30 December 2002.
1.14.
In October 2001, the Claimants complained to the Respondent of the unlawful treatment of their Concessionaire (as they saw it). Further complaints followed; but no amicable resolution of such complaints was reached between the Claimants and the Respondent.
1.15.
On 10 August 2004, the Gemplus Claimants and Talsud simultaneously filed two Requests for Arbitration with the International Centre for Settlement of Investment Disputes ("ICSID" or the "Centre"). Both Requests were registered by the ICSID Secretariat on 29 September 2004. Following the constitution of the Tribunal on 9 March 2005, it was agreed that the cases would be determined by the same tribunal and would be heard and dealt with together in as far as it remained practicable to do so.
1.16.
The Claimants request a single award in these two cases, to which the Respondent has consented as to form.
1.17.
In summary, the Respondent challenged the jurisdiction of this Tribunal to decide the Claimants’ claims (later limited to the Gemplus Claimants); and it also disputed liability, causation and the compensation claimed by all the Claimants.

(03) THE ARBITRATION AGREEMENTS

1.18.
The two arbitration agreements separately invoked by the Claimants are contained, respectively in Article 9 of the France BIT (as to the Gemplus Claimants) and Article 10 of the Argentina BIT (as to Talsud). These provide as follows, as translated into English from the original texts in French and Spanish:

(A) The "France BIT"

"Article 9

Resolution of Disputes between an Investor of one of the Contracting Parties and the other Contracting Party

1. This Article only applies to disputes between one Contracting Party and an investor of the other Contracting Party in relation to an alleged breach by the Contracting Party under this Agreement which causes loss or damage to the investor or his investment.

2. In relation to submission of a claim to arbitration:

a) An investor of one of the Contracting Parties may not allege that the other Contracting Party has breached an obligation under this Agreement, both in arbitration proceedings in accordance with this Article and in proceedings before a competent judicial or administrative tribunal of the former Contracting Party who is party to the dispute;

b) Also, when a company from one of the Contracting Parties, which is a legal person owned or controlled by an investor from the other Contracting Party, alleges, during the course of proceedings before a competent judicial or administrative tribunal of the Contracting Party involved in the proceedings, that the Contracting Party has breached an obligation under this Agreement, the investor may not allege the same breach in arbitration proceedings under this Article.

3. Any dispute under this Article shall be settled amicably between the Parties concerned.

4. A dispute under this Article may be submitted to arbitration, provided that six months have passed since the events giving rise to the request for arbitration occurs, but in any event no later than four years from the date when the investor first became aware or should have become aware of the events giving rise to the dispute, and that the investor has delivered to the Contracting Party that is a party to the dispute written notification of its intention to submit a claim to arbitration at least 60 days in advance:

i) before the International Centre for Settlement of Investment Disputes ("The Centre "), established under the Convention on the Settlement of Investment Disputes between States and Nationals from other States ("the ICSID Convention"), if the investor’s Contracting Party and the Contracting Party which is a party to the dispute are both signatories to the ICSID Convention;

ii) before the Centre in accordance with the Rules of the Additional Facility of ICSID, if either the Contracting Party of the investor or the Contracting Party which is a party to the dispute but not both is a party to the ICSID Convention;

iii) before an ad hoc arbitration tribunal constituted in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law ("UNCITRAL");

iv) before the International Chamber of Commerce, by an ad hoc tribunal constituted in accordance with its arbitration rules.

5. The arbitration shall be governed by the applicable rules of arbitration except to the extent modified by this Article.

6. Unless otherwise agreed between the Parties to the dispute, the arbitration tribunal shall be composed of three members. Each disputing party shall nominate one member and two members will agree on the appointment of a third member, who shall act as president.

The members of the tribunal shall have experience in international law and in investment matters.

Where an arbitration has not been constituted within 90 days of the date and the claim was submitted to arbitration, either because one disputing party has not nominated a member or because the two nominated members have not agreed a president, the Secretary General of ICSID, at the request of any one of the disputing Parties, shall appoint at his discretion the member or members not yet appointed. However, in appointing the president, the Secretary General of ICSID shall ensure that the president is not a national of one of the Contracting Parties.

7. A tribunal constituted in accordance with this Article shall decide the dispute by majority vote in accordance with the terms of this Agreement and any applicable rules and principles of international law.

8. Arbitration awards may provide for the following types of remedy:

a) a declaration that the Contracting Party has breached its obligations under this Agreement;

b) monetary indemnification including interest incurred from the occurrence of the loss or damage to the date of the payment;

c) restitution in kind, where this is appropriate, except if the Contracting Party pays monetary indemnification in place of restitution where such restitution is not feasible; and

d) with the consent of both disputing Parties, any other form of remedy.

Arbitral awards shall be final and binding only on the disputing Parties and only in respect of the particular case.

The final award shall only be published with the written consent of both disputing Parties.

An arbitration tribunal cannot order a Contracting Party to pay punitive damages. "

(B) The "Argentina BIT"

"Article 10: Dispute Settlement between an Investor and the Contracting Party which has received the Investment

1. All disputes arising from the provisions of this Agreement between an investor of one Contracting Party and the other Contracting Party, shall, as far as possible, be resolved amicably or by negotiation.

2. This Article and the corresponding Annex establish a mechanism for the resolution of investment disputes, which arise from the date of entry into force of this Agreement, and ensure both equal treatment between investors from the Contracting Parties in accordance with the principle of international reciprocity and due process before an impartial arbitration tribunal, when appropriate.

3. If the dispute has not been resolved within six months of the date when the relevant disputing party raised the dispute, it may be submitted, at the investor’s request:

- to the competent court of the Contracting Party in whose territory the investment was made; or

- to international arbitration under the terms and conditions established in paragraph (4).

Once an investor has submitted the dispute to the jurisdiction of the Contracting Party involved or to international arbitration, the election of either of these procedures shall be final.

4. The investor shall notify in writing the Contracting Party of its intention to submit the dispute to international arbitration at least 90 days in advance, a term which may run parallel to the second half of the term to which paragraph (3) refers.

In the event of recourse to international arbitration, the investor may submit the dispute under:

a) the International Convention on the Settlement of Investment Disputes between States and Nationals from other States, signed in Washington on 18 March 1965, ("the ICSID Convention "), when both Contracting Parties are signatories thereof; the Rules of the Additional Facility of the International Centre for the Settlement of Investment Disputes ("ICSID ") when one of the Contract Parties is a signatory of the ICSID Convention; or

b) the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL), approved by the General Assembly of the United Nations on 15 December, 1976.

5. The arbitration body shall rule on the disputes submitted for its consideration on the basis of the provisions of this Agreement and the applicable rules and principles of international law. The interpretation of a provision in this Agreement made by the Contracting Parties, by mutual agreement in writing, shall be binding upon any arbitration body established in accordance with this Agreement.

6. The arbitration award shall be limited to determining whether a Contracting Party has breached this Agreement, whether this breach has caused a loss to the investor and, if so:-

a) fix the amount of compensatory indemnification for the damage suffered;

b) restitution of property or, if that is not possible, the corresponding compensatory indemnification.

c) any applicable interest.

The arbitration body may not order payment of punitive damages.

The award shall not affect the rights of any third Parties under applicable local legislation.

7. Arbitration awards shall be final and binding for the Parties to the dispute. Each Contracting Party shall enforce them pursuant to its legislation; otherwise the investor may have recourse to enforcement of an arbitration award under the ICSID Convention, the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, signed in New York on 10 June 1958 ("New York Convention") or the Inter-American Convention on International Commercial Arbitration, signed in Panama, on 30 January, 1975 ("Inter-American Convention").

For the purposes of Article One of the New York Convention, the claim submitted to arbitration shall be held to have arisen from a commercial relationship or transaction.

8. In all investment arbitrations, a Contracting Party may not allege, either as defence, counterclaim, objection to compensation or any other action, that the investor received or will receive, pursuant to an insurance contract or warranty agreement, indemnification of other compensation for all or part of the alleged loss. "

1.19.
ICSID Arbitration (Additional Facility) Rules'. It was agreed by the Parties that these proceedings were subject to the ICSID Arbitration (Additional Facility) Rules in force since 1 January 2003, except to the extent modified in the Argentina BIT and France BIT, respectively, at the First Session: see below.

(It is agreed that the Annex to the Argentina BIT is not relevant for present purposes: see Article 10(2) of the Argentina BIT cited above).

(04) THE ARBITRAL TRIBUNAL

1.20.
The Arbitral Tribunal was constituted on 9 March 2005 and was comprised of three members:

(1) L. Yves Fortier, CC, QC, a national of Canada, appointed as Arbitrator by the Claimants by letter dated 12 November 2004, of Ogilvy Renault LLP, now of 1 Place Ville Marie, Suite 2500, Montréal QC, H3B 1R1, Canada;

(2) Eduardo Magallón Gómez, a national of Mexico, appointed as Arbitrator by the Respondent by letter dated 12 January 2005, of Magallón, Peniche y Del Pino Abogados, Fuego 719, Col. Jardines del Pedregal, México, DF 01900, Mexico; and

(3) V.V. Veeder, QC, a national of the United Kingdom, as President of the Arbitral Tribunal, appointed by the Parties by letters dated 22 February and 23 February 2005, of Essex Court Chambers, 24 Lincoln’s Inn Fields, London WC2E 3EG, United Kingdom.

1.21.
Ms Evgeniya Rubinina and Mr Tomás Solis were successively appointed Secretaries to the Tribunal; and Ms Alison G. FitzGerald was appointed, by consent of the Parties, as Administrative Assistant to the Tribunal.

(05) THE ARBITRAL PROCEDURE

1.22.
The First Session'. The First Session was held on 4 May 2005 at the seat of the Centre in Washington, D.C., U.S.A. During this First Session it was agreed, among other things, that the place of proceedings would be the seat of the Centre in Washington, D.C.
1.23.
It was further agreed that both arbitrations should be determined by the same tribunal and that the cases should be conjoined, i.e. heard and decided together in so far as it was practicable to do so. It was agreed, at that stage and subject to further order, that questions concerning the merits and those concerning damages should be considered separately, in successive phases of these proceedings. (As recited below, this order for bifurcation was later superseded by an order for "debifurcation").
1.24.
Written Phase: The Parties agreed that there would be four consecutive written pleadings within each phase of the proceedings: a Memorial by the Claimant, a Counter-Memorial by the Respondent, a Reply and a Rejoinder. It was further agreed that the Parties would present their complete case with their Memorial and Counter-Memorial, respectively, including all documentary evidence, witness statements, and expert reports.
1.25.
Memorials'. In the first written phase the Claimants filed their Memorial on 13 October 2005 ("Memorial"); the Respondent filed its Counter-Memorial on 31 May 2006 ("Counter-Memorial"); the Claimants filed their Reply on 12 October 2006 ("Reply"); and the Respondent filed its Rejoinder on 12 April 2007 ("Rejoinder"). In the second written phase, the Claimants filed their Memorial on Quantum on 12 April 2007 ("Quan. Mem."); the Respondent filed its Counter-Memorial on Quantum on 19 July 2007 ("Quan. CM"); the Claimants filed their Reply on Quantum on 14 September 2007 ("Quan. Rep."); and the Respondent filed its Rejoinder on Quantum on 16 November 2007 ("Quan. Rej.").
1.26.
Witness Statements: The following written witness statements were submitted by the Claimants: the witness statement of Mr José Eduardo Salgado; the first, second, and third witness statements of Mr Roberto Armando Siegrist; the first, second and third witness statements of Mr Victor Taiariol; the first and second witness statements of Ms Maria Elena Barrera Sánchez; and the witness statement of Mr José Rojas.
1.27.
The written witness statement of Mr Guillermo Bilbao Gonzalez was also submitted by the Claimants; but the Claimants did not make this witness available for crossexamination as requested by the Respondent. Accordingly, the Tribunal has placed no reliance upon it for the purpose of the decisions recorded in this Award.
1.28.
The following written witness statements were submitted by the Respondent: the witness statement of Mr Javier Martin Gallardo Guzmán, the witness statement of Ms Maria Jimena Valverde Valdés, the witness statement of Ms María de la Esperanza Guadalupe Gómez Mont Urueta, the witness statement of Dr Herminio Blanco Mendoza,; the witness statement of Mr Guillermo González Lozano; a letter from Mr Miguel B. de Erice Rodriguez dated 25 February 2008; and a letter from Mr Adolfo Durañona dated 13 March 2008.
1.29.
Expert Reports: The following expert reports were submitted by the Claimants: the expert opinion of Mr Patrick Kinsch, the expert opinion of Mr José Antonio Chávez Vargas, the expert opinion of Mr Luis Enrique Graham Tapia, the LECG/Horwath letter of 7 October 2005, the LECG/Horwath letter of 9 October 2006, the LECG/Horwath report of 27 April 2007, and the LECG/Horwath report of 12 September 2007.
1.30.
The following expert reports were submitted by the Respondent: the expert opinion of Dr. Carla Huerta, the Pablo Rión & Associates report of 18 July 2007, and the Pablo Rión & Associates report of 13 November 2007.
1.31.
"Debifurcation": By letter dated 17 January 2007, the Claimants requested that the proceedings be "debifurcated", i.e. to re-join the questions of liability and quantum. The Respondent opposed this request by letter dated 19 January 2007.
1.32.
One month later, by letter dated 14 February 2007, the Claimants supplemented their reasons for joining the issues of liability and quantum in reply to the Respondent’s objection.
1.33.
On 20 February 2007, the Tribunal held a procedural meeting by telephone conference-call during which the Parties further expressed their views on the issue of "debifurcation".
1.34.
By letter dated 9 March 2007, the Tribunal informed the Parties of its decision to "debifurcate", re-joining the questions of liability and quantum. The Tribunal further fixed the dates for the joined hearing on liability and quantum from 18 February to 29 February 2008.
1.35.
Main Hearing'. The first part of the main hearing took place over eight days from 18 February to 27 February 2008. The Parties made their respective opening statements on the first day: for the Claimants, Mr Sands and Mr Fraser [DI.8 & 98] and for the Respondent, Mr González and Mr Thomas [DI. 132 & 179], The Parties made their respective closing statements on the last day: for the Claimants, Mr Sands and Mr Fraser [D8.1689 & 1770] and for the Respondent, Mr González, Mr Thomas and Mr Mowatt [D8.1790, 1803 & 1901].

(References to the verbatim transcript of the oral hearings are made thus: "DI. 132" signifies the first day of the main hearing, 18 February 2008, at page 132 of the transcript. Also in reference to the verbatim transcripts, the Tribunal has used their English version, and, whenever possible, it has resorted to the Spanish transcripts for the purposes of the Spanish version of this Award, or it has otherwise included a Spanish translation of the relevant portions of the English transcripts.)

1.36.
The following witnesses gave oral evidence at the first part of the main hearing:

For the Claimants: Mr Eduardo Salgado [D2,242-355]; Mr Roberto Siegrist [D2,356-491 & D3,500-567]; Mr Víctor Taíariol [D3,587-721]; Ms Maria Elena Barrera [D3,730-736, D4,745-812]; Mr José Rojas [D4,813-55]; and Mr Charles Tormo [D4,857-59, 861-948, 950-59].

For the Respondent: Mr Herminio Blanco [D5,968-1100]; Ms Jimena Valverde [D5.1102-1161]; Ms Esperanza Gómez-Mont [D6.1172-1346]; Mr Guillermo González [D6.1347-1375]; Mr Javier Gallardo [D6.1376-1400 & D7.1408 & 1460-64]; and Mr Pablo Ríon [D7.1465-1647].

1.37.
The second part of the main hearing took place on 28 May 2008. The following witnesses gave further oral evidence: for the Claimants: Mr Taíariol [D9.1978-2052]; and Mr Siegrist [D9.2052-94]; and for the Respondent: Mr Miguel de Erice [D9.2094-2207].
1.38.
Post-Hearing Submissions: By letter dated 10 March 2008, the Tribunal invited the Parties to provide written post-hearing submissions by 4 April 2008 and to address certain queries set out by the Tribunal in its letter, in their respective submissions.
1.39.
On 4 April 2008, the Parties each submitted written post-hearing submissions in accordance with the Tribunal’s request.
1.40.
Costs Submissions: Upon the conclusion of the first part of the main hearing in February 2008, the Tribunal ordered the Parties to provide written submissions on costs.
1.41.
During the second part of the main hearing on 28 May 2008, the Tribunal extended the date for providing cost submissions to 16 June 2008.
1.42.
On 16 June 2008, the Parties respectively made their submissions on costs.
1.43.
Further Submissions: By letter dated 1 October 2008, the Tribunal invited the Parties to provide further written submissions on costs and certain other matters. By letter dated 7 October 2008, the Tribunal provided, at the request of the Respondent, clarification as to the submissions sought in its letter of 1 October 2008.
1.44.
On 17 October 2008, the Parties respectively made further written submissions in accordance with the Tribunal’s letters of 1 and 7 October 2008.
1.45.
By letter dated 31 October 2008, the Respondent made further written submissions on costs, in accordance with the Tribunal’s direction in its letter of 1 October 2008.
1.46.
By email correspondence dated 3 November 2008, the Claimants objected to certain aspects of the Respondent’s supplemental costs submissions.
1.47.
By letter dated 3 November 2008, the Tribunal invited the Respondent to reply to the Claimants’ objections.
1.48.
By letter dated 4 November 2008, the Respondent submitted its reply to the Claimants’ objections.
1.49.
Closure of the Proceedings: By letter dated 30 November 2009, further to the letter dated 1 October 2008, the Secretary of the Tribunal informed the Parties that the Tribunal had declared the proceeding closed in accordance with Article 44(1) of the ICSID Arbitration (Additional Facility) Rules.

(06) THE PARTIES’ FINAL CLAIMS FOR RELIEF

1.50.
The Gemplus Claimants'. By their Request for Arbitration, the Gemplus Claimants seek the following relief

(i) a declaration that the Government of Mexico has acted arbitrarily and (1) has failed to accord the Claimants’ investments fair and equitable treatment; (2) has failed to accord the Claimants’ investments no less favourable treatment and/or most favoured nation treatment; (3) has breached its treaty obligation not to harm the management, maintenance, use, enjoyment or order of such investments with arbitrary or discriminatory measures; (4) has expropriated and dispossessed the Claimants’ investments without just cause and without compensation; and/or (5) has adopted measures equivalent to expropriation without just cause and without compensation;

(ii) their losses set out at paragraph 52 of their Request for Arbitration: "The investment of Gemplus/SLP/Gemplus Industrial is quantified as (a) 20% of the profits that Renave would have made during the initial 10-year Concession period and the further 10-year term pursuant to Article 19 of the Concession Agreement; alternatively (b) the value, immediately prior to the expropriation and breach of the BITs, of Gemplus Industrial’s shareholding in Renave, if to be quantified by any measure other than (a); alternatively (c) such other quantification as may be assessed."

(iii) interest pursuant to Article 5.3 of the France BIT; and

(iv) legal costs and costs of this arbitration, including ICSID and Tribunal fees.

1.51.
Talsud: By its Request for Arbitration, Talsud seeks the same relief as the Gemplus Claimants save that the cross-references are made to paragraph 46 of its Request for Arbitration (as to losses) and Article 5.4 of the Argentina BIT (as to interest).
1.52.
Final Relief: The Claimants seek the following relief from the Tribunal, as finally formulated:

(A) Gemplus, SLR and Gemplus Industrial'.

(1) Rejection of the Respondent’s objections to jurisdiction as without merit;

(2) Damages for violations of Articles 4.1, 4.2, 4.3, 5.2 and 5.3 of the France BIT;

(3) Their share of the costs of these arbitration proceedings, including but not limited to expert and legal fees and disbursements and the costs of the Arbitral Tribunal;

(4) An assessment of the share of the costs incurred by the Gemplus Claimants to the date of the Award and an order that the Respondent is liable to pay for those costs;

(5) Interest on the sums claimed in subparagraphs (2), (3) and (4) until such time as they are paid.

(B) Talsud:

(1) Rejection of the Respondent’s objection to jurisdiction as without merit;

(2) Damages for violations of Articles 3.1, 3.2, 5.1, 5.2 and 5.3 of the Argentina BIT;

(3) Its share of the costs of these arbitration proceedings, including but not limited to expert and legal fees and disbursements and the costs of the Arbitral Tribunal;

(4) An assessment of the share of the costs incurred by Talsud to the date of the Award and an order that the Respondent is liable to pay for those costs;

(5) Interest on the sums claimed in subparagraphs (2), (3) and (4) until such time as they are paid.

1.53.
The Respondent: The Respondent seeks from the Tribunal (i) as to jurisdiction, the dismissal of the Gemplus Claimants’ claim for lack of standing; and (ii) as to the merits (including quantum), the dismissal of the Claimants’ claims in their entirety, with a corresponding order on costs.

PART II: THE PRINCIPAL ISSUES

(01) INTRODUCTION

2.1.
The Parties’ written and oral submissions in these arbitration proceedings are very extensive. The Tribunal has, where convenient, reproduced parts of the Parties’ submissions in the body of this Award, as far as possible in the Parties’ own original words (to facilitate this Award’s two versions in English and Spanish). It is of course not possible to incorporate in this Award the entirety of the Parties’ submissions, both written and oral, made during the course of these arbitration proceedings.
2.2.
The summaries below are made for the sole purpose of explaining the Tribunal’s general approach in this Award. The Tribunal has nevertheless considered the full submissions of the Parties in identifying the principal issues listed below and in arriving at its decisions on all issues addressed in this Award.
2.3.
As indicated below, the determination of many of these issues is significantly dependent upon facts. For this reason, the Tribunal’s approach is first determined by its findings of fact, set out in Part IV of this Award.

(02) LIST OF PRINCIPAL ISSUES

2.4.
The following principal issues arise from the Claimants’ Claims and the Respondent’s Defence, listing them in turn: (A) Jurisdiction; (B) Liability - General Approach; (C) Fair and Equitable Treatment; (D) Expropriation; (E) Full Protection and Security; (F) NLF/MFN Treatment; (G) Causation and Fault; (H) Damages - General Approach; (I) Lost Future Profits; (J) Past Payments to Claimants; (K) Currency and Interest; and (L) Legal and Arbitration Costs.

(03) ISSUE A: JURISDICTION

2.5.
This first issue arises in connection with the Tribunal’s jurisdiction under Article 45(4) of the ICSID Arbitration (Additional Facility) Rules. Whilst the Respondent originally raised jurisdictional objections in connection with both Talsud and the Gemplus Claimants’ claims, it has maintained its objections only in respect of the Tribunal’s jurisdiction over the latter. This issue is addressed below in Part V of this Award.

(i) The Respondent’s Case

2.6.
The Respondent’s jurisdictional claim relates to the Gemplus Claimants’ "standing" to bring their claim. Specifically, the Respondent contends that the continuous chain of ownership and nationality of the Gemplus Claimants’ claims has been broken with the legal effect, under international law and the France BIT, that each of the Gemplus Claimants lacks any standing to advance its claim in these proceedings.

(ii) The Claimants’ Case

2.7.
The Gemplus Claimants contend that the Respondent’s jurisdictional arguments are flawed in several respects. In essence, the Gemplus Claimants submit that the several corporate transactions entered into by the Gemplus Claimants prior to and following the filing of their Request for Arbitration did not affect their right respectively to present their claim under the France BIT. In the alternative, they submit that in the event this right was lost by Gemplus, it is held by SLP.

(04) ISSUE B: LIABILITY- GENERAL APPROACH

2.8.
This issue addresses the general approach to the merits espoused by each of the Parties, including the legal character of the claims presented, the relevance of the domestic proceedings involving the Concessionaire in Mexico, the contractual landscape to the Claimants’ claims and the applicable standard of proof. This issue is addressed below in Part VI of this Award.

(i) The Claimants’ Case

2.9.
The Claimants submit that their claims are treaty-based claims, but that it is open to the Tribunal to take into account the underlying factual circumstances of these claims, including the contractual relationship between the Concessionaire and the Respondent, relying for support in this regard on the ICSID awards in Compania de Aguas del Aconquija SA and Vivendi Universal SA v. Argentine Republic and Azurix v. Argentina. The Claimants further submit that the Respondent’s approach in regard to the matter of deference owed by this Tribunal to the governmental decisions of the Respondent is "misconceived", contending that no measure of deference is justified in this case. Finally, as regards the standard of proof, the Claimants contend that the standard applicable is set forth in the two BITs.

(ii) The Respondent’s Case

2.10.
The Respondent contends that the Claimants’ claims are contract claims, not treaty claims, and that these claims fall within the exclusive jurisdiction of the Mexican courts. Even if the claims could be treated as treaty claims, the Respondent submits that this Tribunal must have "due deference" to governmental decisions, relying upon the standard of deference articulated by the tribunal in S.D. Myers v. Canada. Finally, as regards the applicable standard of proof, the Respondent contends that the Claimants face a heavier burden in making out their claims for treaty breach than is normally the case in proving breach of contract, characterizing the standard of proof as "high".

(05) ISSUE C: FAIR AND EQUITABLE TREATMENT

2.11.
This issue relates to the first of the Claimants’ principal claims for treaty breach and in particular whether the Respondent treated the Claimants unfairly and inequitably in breach of Article 3 of the Argentina BIT and Article 4 of the France BIT. This issue is addressed below in Part VII of this Award.

(i) The Claimants’ Case

2.12.
The Claimants plead their fair and equitable treatment claim in three parts: (1) transparency and protection of the investor’s legitimate expectations; (2) due process and the absence of arbitration; and (3) good faith. The Claimants also plead a fourth argument as regards (4) "arbitrary and/or discriminatory measures or to harm the management, maintenance, use, enjoyment or order of Talsud’s investment".
2.13.
As regards the first part, the Claimants contend that the measures taken by Mexico following the arrest of Mr Cavallo (on 24 August 2000) were neither consistent nor transparent, relying on the principles of transparency and predictability articulated by the tribunals in Metalclad v. Mexico and Tecmed v. Mexico.
2.14.
As regards the second part, the Claimants submit that the Respondent interfered with their investment through the technical and administrative interventions (from 29 August 2000 onwards), described as unlawful, arbitrary and capricious and having no justification by reason or necessity. The subsequent Requisition of the Concessionaire (on 25 June 2001) and the Revocation of the Concession (on 13 December 2002) are described as further infringements of the fair and equitable treatment standard, being arbitrary and carried out by the Respondent without due process.
2.15.
As regards the third part, the Claimants contend that the various acts of the Respondent beginning on 21 August 2000 up to the Revocation of the Concession on 13 December 2002 evidence a material lack of good faith by the Respondent.
2.16.
Finally, as regards the last part in connection with the treatment of Talsud’s investment, the Claimants invoke a distinct provision of the Argentina BIT (Article 3) which precludes a Party to the BIT from prejudicing "the management, maintenance, use, enjoyment, or disposition" of an investor’s investments through arbitrary or discriminatory measures. The Claimants rely on the same arguments in connection with the arbitrariness of the acts of the Mexican authorities following the arrest of Mr Cavallo on 24 August 2000.
2.17.
The Claimants reject the Respondent’s response based on local remedies and, in particular, its invocation of the Waste Management award as inapposite to the facts of this case. The Claimants submit that they have not brought, nor have they participated in, any legal proceedings before the Mexican courts; and, in any event, the Claimants submit that the issue of local remedies is irrelevant in the case of a claim for expropriation under both BITs.

(ii) The Respondent’s Case

2.18.
The Respondent rejects each of the Claimants’ claims of unfair and inequitable treatment. Beginning with the Claimants’ expectations, the Respondent maintains that the Secretariat acted at all times on the basis of the criteria set forth in the legal framework governing the Concession, exercising its legal rights and defending its measures in the proper forum, i.e. the Mexican courts.
2.19.
Turning to the Claimants’ due process argument, the Respondent submits that there is simply no evidence that the Secretariat acted in "wilful disregard" of due process, citing the standard for proving arbitrariness articulated by the International Court of Justice in ELSI (United States of America v. Italy).
2.20.
As concerns the third element of the Claimants’ claim, the Respondent contends that it acted at all times in good faith, pointing also to the affirmation of its reasons for intervention in the course of the Revocation proceedings and later the legal challenge of the administrative intervention.
2.21.
Finally, the Respondent contends, on the basis of the principles set forth in Azinian v. Mexico and Waste Management v. Mexico (among other legal materials), that it is not open to the Claimants to impugn acts of the Secretariat which have been validated by the Mexican courts; nor may this Tribunal review the decisions of those courts for any error in applying domestic law. The Respondent also rejects the Claimants’ argument that the availability of local remedies is relevant only in the case of a fair and equitable treatment claim and not in the case of an expropriation claim, submitting that the tribunals in Azinian and Waste Management based the dismissal of the claimant’s expropriation claim on the resort to local remedies.

(06) ISSUE D: EXPROPRIATION

2.22.
This issue relates to the second of the Claimants’ principal claims for treaty breach and in particular whether the Respondent expropriated the Claimants’ investment in violation of the requirements set forth in Article 5 of the Argentina and France BITs. This issue is addressed below in Part VIII of this Award.

(i) The Claimants’ Case

2.23.
The Claimants submit that the measures taken by the Respondent during the period prior to the Revocation of the Concession amounted to an indirect expropriation of their investment and (or in the alternative) that the Revocation constituted a direct expropriation of their investment. The Claimants contend that the Respondent’s conduct during this period fell outside any contractual scope and was a clear exercise of the Respondent’s sovereign authority. The Claimants further contend that the Respondent’s actions were unlawful because they were not justified on grounds of public interest or utility, and they were not accompanied by the payment of adequate compensation, both of which are requirements in the two BITs.
2.24.

The Claimants reject the Respondent’s argument that the acts constituting expropriation were lawful because they were taken pursuant to rights under the Concession Agreement and Mexican law. In any event, the Claimants submit, relying on the Tecmed v. Mexico award, that the Respondent’s acts were unjustified and disproportionate, amounting therefore to unlawful expropriation.

2.25.
Finally, relying upon the requirements of the two BITs in respect of the obligation to pay compensation, the Claimants contend that the Respondent’s failure to pay compensation to the Claimants in accordance with the fair market value of their investment on its own renders the expropriation unlawful.

(ii) The Respondent’s Case

2.26.
The Respondent denies that an expropriation claim can be made out on the facts of this case, describing the various acts about which the Claimants complain as reasonable and legitimate. The Respondent further submits, in particular with regard to the Requisition and the Revocation, that it simply exercised a right or power contemplated in the Concession Agreement.
2.27.
The Respondent also submits, relying on Waste Management v. Mexico and Azurix Corp. v. Argentina (among other awards), that where a state instrumentality has contracted with an investment of a foreign investor, the tribunal must look at the terms of the contract in order to determine whether the State is acting as co-contractor. In this case, the Respondent submits that it possessed contractual rights of audit, inspection, intervention, termination, requisition and revocation; and that the exercise of these rights cannot be considered a termination or variance of the Concessionaire’s contractual rights by means not contemplated by the Concession Agreement.
2.28.
In the alternative, the Respondent contends that in the event that the Tribunal does not accept its submission as to the circumstances which led to the exercise of the Respondent’s legal rights, the resort to local remedies "in and of itself disposes of the Claimants’ grievances".

(07) ISSUE E: PROTECTION AND SECURITY

2.29.
This issue relates to the third of the Claimants’ claims for treaty breach, namely whether the Respondent granted the Claimants’ investment appropriate protection and security consistent with Article 3 of the Argentina BIT and Article 4 of the France BIT. This issue is addressed below in Part IX of this Award.

(i) The Claimants’ Case

2.30.
The Claimants submit that the scope of the full protection and security provisions in the two BITs extend beyond protection from physical violence and threats and incorporates a much broader requirement to protect the position of investors and their investments, relying on the discussion of this issue in the awards in CME v. Czech Republic, Goetz v. Burundi and Rankin v. Iran, among other cases.
2.31.
In this regard, the Claimants submit that the Respondent’s various acts and omissions undermined the stability of the investment environment in which they had to operate and frustrated their legitimate expectations, thereby giving rise to this independent claim for breach of the Respondent’s obligations to accord full and complete protection and security for their investment.

(ii) The Respondent’s Case

2.32.
The Respondent rejects this claim as a "make weight", cautioning that "full protection and security" should not be compared with fair and equitable treatment.
2.33.
The Respondent further relies upon the award in Asian Agricultural Products Limited v. Republic of Sri Lanka in support of its submission that the concept of full protection and security must not be read more broadly than its plain meaning, which refers to the State’s obligation to afford protection to a foreign investor or its property in situations of threatened harm, such as civil conflict or some other disturbance of the peace.

(08) ISSUE F: NLF/MFN TREATMENT

2.34.
This issue relates to the fourth and final of the Claimants’ claims for treaty breach, albeit advanced as a conditional answer to a possible defence by the Respondent, namely whether the Respondent granted to the Claimants no less favourable / most favoured nation ("NLF/MFN") treatment consistent with Article 3 of the Argentina BIT and Article 4 of the France BIT. This issue is addressed below in Part X of this Award.

(i) The Claimants’ Case

2.35.
The Claimants contend that the Respondent is precluded from relying on the national security exception in the Argentina BIT as a defence, by virtue of the MFN provision in that BIT, because there is no national security exclusion in the France BIT.

(ii) The Respondent’s Case

2.36.
The Respondent submits that the Claimants’ arguments in connection with these treaty provisions are anticipatory of a defence not in fact advanced by the Respondent. As a matter of principle, however, the Respondent disagrees that an MFN provision, such as that contained in the Argentina BIT, can override a national security clause, such as contained in the same Argentina BIT.

(09) ISSUE G: CAUSATION AND FAULT

2.37.
This issue relates to the matter of causation in connection with the Claimants’ treaty claims, in particular whether any unlawful act or omission by the Respondent caused the Claimants’ loss and whether any fault of the Claimants contributed to that loss, such that any amount of compensation should be reduced or extinguished. This issue is addressed below in Part XI of this Award.

(i) The Claimants’ Case

2.38.
The Claimants submit that they have suffered loss as a direct result of the Respondent’s expropriation of their investments and the failure by the Respondent to provide fair and equitable treatment and full protection and security in respect of their investments.
2.39.
The Claimants reject the Respondent’s case that they contributed themselves to their losses and that therefore any compensation should be reduced or extinguished accordingly.

(ii) The Respondent’s Case

2.40.
The Respondent contends that Article 39 of the International Law Commission’s draft Articles on State Responsibility should preclude any recovery in these arbitrations because the Claimants contributed to any injury they may have suffered because Talsud was responsible for the appointment of Mr Cavallo as General Director of the Concessionaire. In the Respondent’s submission, whatever prospects the Registry may have had for public acceptance and viability (in August 2000) were destroyed by the Cavallo incident.
2.41.
In the alternative, the Respondent submits that any recovery should be reduced by 50% to account for the Claimants’ contributory fault.

(10) ISSUE H: COMPENSATION-GENERAL APPROACH

2.42.
This issue relates to the legal approaches respectively advanced by the Claimants and the Respondent in respect of the Tribunal’s assessment of compensation, assuming a finding of liability and causation on one of the above-described principal claims. This issue is addressed below in Part XII of this Award.

(i) The Claimants’ Case

2.43.
The Claimants’ primary submission is that the market value measure of compensation contained in the two BITs is virtually identical and reflects the standard of compensation prescribed by the Permanent Court of International Justice ("PCIJ") in the Chorzow Factory case for unlawful expropriations, that is full reparation so as to "wipe out all the consequences of the unlawful act" and re-establish the situation which likely would have existed if that unlawful act had not been committed. This standard, the Claimants’ submit, includes the potential to recover future lost profits.

(ii) The Respondent’s Case

2.44.
The Respondent agrees with the Claimants that the standard of compensation contained in the BITs is materially the same and reflects the standard set forth by the PCIJ in Chorzow Factory. However, the Respondent contests the Claimants’ assertion that this standard entitles the Claimants to recover compensation prescribed in the BIT, plus loss of profits.

(11) ISSUE I: COMPENSATION-LOST FUTURE PROFITS

2.45.
This issue relates to the particular method of calculating damages for a breach of one or both of the BITs advocated respectively by the Parties. This issue is addressed below in Part XIII of this Award.

(i) The Claimants’ Case

2.46.
The Claimants submit that where an asset is not publicly traded and there is no open market for it, as in this case, its value must be established by reference to its "likely value in a hypothetical market". Drawing on the arbitral jurisprudence of the U.S.-Iran Claims Tribunal, the Claimants consider that the market value is the price that a willing buyer would pay to a willing seller in circumstances in which each had good information, each desired to maximize his financial gain and neither was under duress or threat.
2.47.
Based on this methodology, the Claimants contend that the ‘Income Approach’, which relies on a discounted cash flow ("DCF") model, is the most appropriate method to value their investments.
2.48.
The Claimants submit that the relevant date from which to calculate compensation, under the two BITs, is the date immediately preceding the acts or omissions that rendered the expropriation irreversible. This date is, in the Claimants’ submission, no later than 20 August 2000, the date preceding the Respondent’s decision on 21 August 2000 to postpone the deadline for the registration of used vehicles.
2.49.
Whilst the Claimants assess the value of their investments as at two other potential valuation dates put to them by the Tribunal, i.e. 27 June 2001 and 13 December 2002, the Claimants maintain their submission that a DCF analysis is the only method available to achieve full reparation for their losses in this case.
2.50.
With regard to the Claimants’ other treaty claims, it is submitted that the same standard of compensation applies, relying upon the tribunal’s decision in the Vivendi v. Argentina award to the effect that the level of damages flowing from different treaty breaches was equivalent.

(ii) The Respondent’s Case

2.51.
The Respondent submits that, in the circumstances of this case, the ‘asset value’ and ‘declared tax value’ methods should be preferred over the DCF method. Highlighting the difficulties associated with exclusive reliance on the DCF method, also identified in awards by the Iran-U.S. Claims Tribunal, the Respondent contends that the DCF method is inappropriate here because there is no proven track record of profitable operations at the Claimants’ chosen valuation date.
2.52.
As to the alternative potential valuation dates identified by the Tribunal, the Respondent contends that the Claimants’ valuation methodology is similarly inappropriate.
2.53.
Finally, the Respondent submits that, consistent with the Chorzów Factory case, the results of one valuation method must be tested against the results of the other methods in order to avoid "speculative or undue awards of damages".

(12) ISSUE J: PAST PAYMENTS TO CLAIMANTS

2.54.
This issue relates to the sum of payments effected by the Respondent to the Claimants prior to the termination of the Concession, and the appropriate accounting of that sum in connection with the amounts claimed as compensation by the Claimants in these proceedings. This issue is addressed below in Part XIV of this Award.

(i) The Claimants’ Case

2.55.
The Claimants contend that the losses which they sustained due to the Respondent’s unlawful acts and omissions far exceeds the amounts disbursed to the Claimants through cash distributions effected by the Respondent.

(ii) The Respondent’s Case

2.56.
The Respondent submits that the Claimants were, in effect, made whole by the disbursements made to the Claimants in the form of dividends and return of capital.

(13) ISSUER: CURRENCY AND INTEREST

2.57.
This issue relates to the appropriate currency, rate and amount of pre- and post-award interest that may be owing on any principal amount awarded by the Tribunal as compensation. This issue is addressed below in Part XVI of this Award.

(i) The Claimants’ Case

2.58.
The Claimants submit that the BITs respectively require interest at a "reasonable commercial rate" and at "the applicable market rate". Additionally, while the BITs are silent on whether interest should be compounded, the Claimants contend that current arbitral practice supports the compounding of interest. As a result, the Claimants identify the CETES 364 day Mexican government bond rate, compounded annually, as the appropriate rate applicable to pre-award interest, with the award expressed in US dollars.

(ii) The Respondent’s Case

2.59.
The Respondent argues that interest should be calculated according to the Mexican CETES rates, but submits that the 28-day rate is a more commonly used indicator than the 364 day rate; and that it would satisfy the requirements of the BITs. The Respondent objects to the compounding of interest on any amount awarded to the Claimants, submitting that an award of simple interest is adequate in the circumstances of these arbitrations.

(14) ISSUE L: LEGAL AND ARBITRATION COSTS

2.60.
This issue relates to the allocation and amount, if any, of costs amongst the Parties associated with these arbitration proceedings. This issue is addressed below in Part XVII of this Award.

(i) The Claimants’ Case

2.61.
The Claimants begin their submissions on costs with the general principle that the losing party should pay the reasonable costs incurred by the successful party in these proceedings. However, in any event, the Claimants contend that the Respondent should bear the costs which the Claimants incurred in order to address the Respondent’s jurisdictional objections and to attend the supplemental hearing on 28 May 2008.

(ii) The Respondent’s Case

2.62.
The Respondent submits that the Claimants’ arguments on costs assume, wrongly, that the measures taken by Mexico were unlawful. The Respondent further contends that its defence against the Claimants’ claims was conducted responsibly, rejecting any suggestion that it presented its case deficiently. The Respondent adds that if the Tribunal should decide that this is a case in which the successful claimants ought to recover costs, costs should at a minimum be awarded in the Respondent’s favour in respect of the expenses occasioned by Mr. Taíariol’s testimony at the supplemental hearing.
2.63.
Conclusion & Summary and Operative Part: The Tribunal sets outs its "Conclusion and Summary" in Part XV; and this Award’s Operative Part is contained in Part XVIII below.

PART III: THE PRINCIPAL TEXTS

(01) INTRODUCTION

3.1.
It is necessary here to set out, in full, relevant extracts from the two principal texts to which reference is made later below: the France BIT (as regards the Gemplus Claimants) and the Argentina BIT (as regards Talsud).

(02) THE FRANCE BIT

3.2.
Preamble: The France BIT provides in its preamble that the Contracting Parties are "DESIRING to strengthen their economic co-operation between the two States and to create favourable conditions for Mexican investments in France and French investments in Mexico" and "CONVINCED that promoting and protecting such investments will stimulate transfers of capital and technology between the two countries in the interests of their economic development".
3.3.
Article 2\ Article 2 sets out the scope of application of the BIT as follows:

"ARTICLE 2

Scope of Application of this Agreement

1. It is understood that investments covered by this Agreement are those which have already been made or might be made after this Agreement enters into force, in accordance with the laws of the Contracting Party on whose territory or in whose maritime zone the investments are made.

2. This Agreement applies to the territory and maritime zone of each of the Contracting Parties.

3. Nothing in this Agreement shall be interpreted so as to prevent either Contracting Party from taking any measure to control investments made by foreign investors and the way in which these investors carry out their investments, within the framework of measures aiming to preserve and encourage cultural and linguistic diversity."

3.4.
Articles 4 and 5: Articles 4 and 5 set out the substantive protections invoked in part by the Gemplus Claimants, providing in their entirety as follows:

‘ARTICLE 4

Protection and Treatment of Investments

1. Each of the Contracting Parties undertakes to ensure, within its territory and its maritime zone, a fair and equitable treatment, in accordance with principles of International Law, of investments made by investors of the other Contracting Party and shall ensure that the exercise of their recognized rights shall not be impeded either in law or in practice.

2. Each of the Contracting Parties shall grant, within its territory and maritime zone, to investors of the other Contracting Party a treatment no less favourable than it would grant its own investors or treatment granted to investors of the Most Favoured Nation, if the latter is more favourable, with regard to their investments and the operation, administration, maintenance, use, enjoyment or disposition of such investments.

Notwithstanding the principle of national treatment, each of the Contracting Parties may require an investor from the other Contracting Party, or a company located in its territory which is owned or controlled by said investor, to provide routine information relating to its investments for statistical purposes.

This treatment shall not, however, extend to privileges granted by a Contracting Party to investors from a third State pursuant to its participation or its association with a free trade area, a customs union, a common market or any other form of regional economic organization.

The provisions of this article shall not apply to fiscal matters.

3. Investments made by investors of one Contracting Party within the territory or the maritime zone of the other Contracting Party shall benefit from full and complete protection and security within the territory and maritime zone.

4. Each Contracting Party shall favourably examine, within the framework of its domestic law, applications for the entry and the authorization to reside, work and travel presented by nationals of a Contracting Party, pursuant to an investment made within the territory or maritime zone of the other Contracting Party."

"ARTICLE 5

Expropriation and Indemnification

1. Neither Contracting Party shall nationalize or expropriate directly or indirectly, or take any other measure of equivalent effect, with respect to an investment of the other Contracting Party in its territory or its maritime zone, except:

i) for reasons of public interest;

ii) provided that such measures are non-discriminatory;

iii) in accordance with due process;

iv) on payment of indemnification in accordance with the provisions ofparagraphs 2 and 3 of this Article.

2. Indemnification shall be paid without delay, shall be freely transferable and fully realizable.

3. The indemnification shall be equivalent to the fair market value or, in the absence of such value, to the actual value of the expropriated or nationalized investment immediately before the expropriation or nationalization was carried out and shall not reflect any changes in the value which arise as a result of the expropriation becoming known prior to the date of expropriation. Valuation criteria shall include going concern value, asset value including the declared tax value of tangible property and any other criteria which, in the circumstances, are appropriate to determine fair market value. The aforementioned indemnification, its amount and its mode of payment shall be fixed no later than the date of deprivation. Indemnification will be subject to interest calculated at the applicable rate until the date of payment."

(03) THE ARGENTINA BIT

3.5.
Preamble: The preamble to the Argentina BIT is somewhat more extensive, providing as follows:

"DESIRING to strengthen the ties of friendship between their nations and seeking to extend and intensify the economic relationship between the Contracting Parties, particularly with regard to the investments made by investors of one Contracting Party in the territory of the other Contracting Party;

ACKNOWLEDGING that a bilateral agreement on the promotion and protection of investments is necessary to foster economic development and stimulate the flow of capital and technology between the Contracting Parties;

WISHING to create favourable conditions for investment of investors from one Contracting Party in the territory of the other Contracting Party, in accordance with the principle of international reciprocity;"

3.6.
Article 2: Article 2 sets out the scope of application of the Argentina BIT, providing as follows:

"ARTICLE 2. Scope of Application

1. This Agreement applies to measures adopted or maintained by a Contracting Party in relation to the investors of a Contracting Party as regards its investments and the investments made by those investors in the territory of the other Contracting Party.

2. This Agreement applies to the whole territory of the Contracting Parties as defined in Article First, paragraph (6). The provisions of this Agreement shall prevail over any incompatible rule which exists in the domestic law of the Contracting Parties.

3. With regard to the provisions foreseen in Articles Fourth and Tenth, natural persons who are nationals of one Contracting Party and who are domiciled in the territory of the other Contracting Party in which the investment is located, may only avail themselves of the treatment granted by this Contracting Party to its own nationals.

4. This Agreement shall apply to all investments made before or after its entry into force, but the provisions of this Agreement shall not be applicable to any disputes, claims or differences of any kind which arose before the date of its entry into force.

5. This Agreement shall not apply to:

a. economic activities reserved to the State pursuant to the legislation of each Contracting Party;

b. measures adopted by a Contracting Party for reasons of national security or public order;

c. financial services except as authorized by the legislation of each Contracting Party.

6. Article Third shall not apply to any measure which a Contracting Party still maintains pursuant to its legislation in force at the time this Agreement enters into force. As of this date, any incompatible measure which a Contracting Party adopts shall not be more restrictive than those in place at the time this Agreement enters into force."

3.7.
Articles 3 and 5: Articles 3 and 5 set out the substantive protections invoked in part by Talsud, providing in their entirety as follows:

"ARTICLE 3. National Treatment and Most Favoured Nation Treatment

1. - Each Contracting Party shall ensure at all times a fair and equitable treatment of all investors and investments of investors of the other Contracting Party, and shall not damage the management, maintenance, use, enjoyment or disposition of their investments through arbitrary or discriminatory measures.

2. - Each Contracting Party, after admitting in its territory investments from investors of the other Contracting Party, shall provide full legal protection to those investors and their investments and shall grant them a treatment no less favourable than that granted to investors and investments of its own investors or investors from third States.

3. - If a Contracting Party grants special treatment to investors or investments of investors coming from a third State, as a result of agreements containing provisions to avoid double taxation, create free trade areas, customs unions, common markets, regional agreements, economic or monetary unions or other similar institutions, that Contracting Party shall not be obliged to grant such treatment to investors or investments of investors of the other Contracting Party.

4.- Each Contracting Party shall grant the investors of the other Contracting Party, in respect of investments which suffer losses in their territory due to armed conflicts, a state of national emergency or insurrection, no less favourable treatment than that granted to its own investors or to investors of a third State, with regard to restitution, indemnification, compensation or other redress"

"ARTICLE 5. Expropriation and Indemnification

1. - Neither of the Contracting Parties may nationalize or expropriate, either directly or indirectly, an investment of an investor of the other Contracting Party in its territory or adopt any measures equivalent to the expropriation or nationalization of that investment, except:

a) for reasons of public utility;

b) on a non-discriminatory basis;

c) in accordance with due process; and

d) with indemnification, pursuant to paragraphs (2) through (4).

2. - The indemnification shall be equivalent to the market value of the expropriated investment immediately before the expropriatory measure was implemented ("date of expropriation") or before the expropriatory measure was made public. The valuation criteria shall include current value, declared tax value of tangible goods, and other criteria that are appropriate to determine market value.

3. - Indemnification shall be paid without delay, fully realizable and freely transferable.

4. - The amount paid shall be no less than the equivalent amount which would have been paid as indemnification on the date of expropriation in a freely-convertible currency on the international financial market, that currency having been converted to the standard market quotation on the date of valuation, plus interest corresponding to a reasonable commercial rate for that currency until the date ofpayment"

PART IV: THE PRINCIPAL FACTS

(A) INTRODUCTION

4.1.
Before reciting the relevant facts in the chronology of principal facts below, as found by the Tribunal, it is helpful to describe briefly the several persons and entities involved in this case.
4.2.
Gemplus: Mr Eduardo Salgado was an officer of Gemplus and Legal Director for Latin America for the Gemplus group of companies until 2006. Mr José Rojas was an employee of Gemplus until 2006 and remained thereafter an employee of Gemalto, a company jointly formed by Gemplus and Axalto Holding N.V. (Mr Salgado and Mr Rojas were called as witnesses).
4.3.
Talsud: Mr Victor Taiariol was and remains President of Talsud. Mr Roberto Siegrist acted as an adviser to Talsud until 1999. Mr Ricardo Cavallo was and remains a shareholder in Talsud. (Mr Taiariol and Mr Siegrist were called as witnesses; Mr Cavallo could not be called as a witness).
4.4.
Mr Henry Davis: Mr Henry Davis Signoret, of Aplicaciones Informáticas S.A. de C.V. owned and/or controlled the Henry Davis group of companies in Mexico. Neither Mr Davis nor Aplicaciones Informáticas was a party to these arbitration proceedings, nor was either represented before this Tribunal.
4.5.
The Concessionaire: The Concessionaire (also called "Renave") was incorporated on 6 September 1999. Mr Cavallo was the Concessionaire’s General Director until 23 August 2000. On 25 August 2000, Mr Guillermo Bilbao was appointed General Director of Renave, retroactive to 23 August 2000 (He did not appear as a witness). Ms Maria Elena Barrera served as Director of Administration and Finance under Mr Bilbao for a brief period in 2000, prior to the appointment of Mr Erasmo Marin as Administrative Intervenor; and she stayed with Renave to the closure of its operations (Ms Barrera was called as a witness).
4.6.
The Secretariat: Dr Herminio Blanco Mendoza was the Secretary at the Secretariat of Commerce and Industrial Development (also known as "SECOFI" or the "Secretariat"), from 1994 to until December 2000 (Dr Blanco was called as a witness). The Undersecretary was Dr Ramos Tercero, who served in this capacity from 1994 until his sudden death on 6 September 2000. Under the new political administration formed on 1 January 2001 by President Fox, the Secretary of the new Secretariat, the name of which was changed to the "Secretariat of the Economy", was Dr Derbez (who was not called as a witness).
4.7.
Mr Javier Gallardo was a partner in the Mexico City law firm of Creel, Garcia-Cuellar and Müggenburg until 2006, when he formed his own firm. He was contracted by Casa de Bolsa Bancomer, S.A. in 1998 to assist in developing the legal structure for implementation of the Concession by SECOFI (he was called as a witness).
4.8.
Mr Guillermo González Lozano was part of the Second Administrative Intervention under Ms Gómez-Mont in 2001 and the requisition or seizure of Renave in 2002, responsible in some measure for the financial and administrative aspects of the Concessionaire during these periods (he was called as a witness).
4.9.
Ms Jimena Valverde was Director of Judicial Affairs of the Juridical Matters Unit of SECOFI from 1996 to 2003, at which time she was promoted to Head of the Juridical Matters Unit (she was called as a witness).
4.10.
The first "intervener" was Mr Erasmo Marin, from September 2000 to May 2001 (who was not called as a witness). The second intervener was Ms. Esperanza Gómez-Mont (who was called as a witness).

(B) THE PRINCIPAL CHRONOLOGY

4.11.
As already indicated, the Tribunal sets out below the principal factual basis for its decisions in this Award in the form of an overall chronology. Where disputed by the Parties, the Tribunal has established these facts primarily from the contemporary documentation adduced in evidence by the Parties, supplemented by testimony of their factual witnesses (both oral and written) as provided to the Tribunal in these arbitration proceedings.
4.12.
Many of the events in this chronology are concurrent and several overlap significantly. It is therefore convenient at times to break up the chronology into different subjects to avoid unnecessary repetition as far as possible. Where texts are quoted from the original Spanish, the quotations are taken from English translations, either agreed between the Parties or settled by the Tribunal.

(01) Antecedents to the National Vehicle Registry

4.13.
1995: The chronology starts in 1995, with the renewed initiative within Mexico for a national vehicle registry. It was prompted, in part, by a concern that the absence of such a registry facilitated criminal activity, particularly car-theft and organized crime generally. This initiative was included in the national development programme advanced in 1995 by the newly-elected President of Mexico (Mr Ernesto Zedillo of the PRI) and the Federal Government, adopting a proposal made by the opposition PAN party. National vehicle registries had been proposed earlier in Mexico; but none of these proposals had succeeded. At this time, some states operated their own state registry (but others did not); such regional systems operated with rudimentary technology; there was no co-ordination between states or between states and federal agencies; and there was no comprehensive registration of used vehicles.
4.14.
The national development programme described the principal objectives for the new national vehicle registry as two-fold: first, protecting the property assets of Mexican citizens; and second, combating crime. Vehicles represented (then as now) an important part of property owned by Mexicans; and there were increasing social concerns over the widespread theft of vehicles, as well as related criminal activity such as kidnappings and robberies. This had led to strong public support for the creation of a secure national database containing all relevant information relating to the ownership of both used and new vehicles, as well as all vehicles imported into Mexico.
4.15.
As all prior initiatives had failed, it was determined within the Federal Government that, under this new proposal, the national vehicle registry should be operated by a private concessionaire.

(02) The National Vehicle Registry Act

4.16.
1997: In December 1997, President Zedillo's Federal Government introduced a bill to create the National Registry of Motor Vehicles (the "Registry", also known as "Renave" but here distinct from the future Concessionaire). The National Vehicle Registry Act (the "Act") was approved by Mexico's Congress of the Union in April 1998 and published in the Official Bulletin on 2 June 1998. The regulations supplementing the Act were published on 27 April 2000.
4.17.
The Act: The purpose of the Act was to put into place a modem and efficient national system of vehicle registration to safeguard the vehicular property of Mexican citizens, provide security with regard to commercial transactions involving vehicles and prevent illegal vehicle trade in Mexico.
4.18.
The Act specifically empowered the Secretariat to undertake certain activities for the proper operation of the Registry, including the following:

• To establish the rules to which the reception, storage and transmission of the Registry’s information should be subject and, in general, the operation, functioning and administration of the public service it provides;

• To operate and, as the case may be, to concession and regulate the Registry’s operation;

• To enter into coordination agreements with the state and Federal District governments, in order to facilitate the Registry’s coverage, to try to achieve its proper functioning and effect the exchange of information;

• To collaborate with the National System of Public Security for the fulfillment of its objectives; and

• To verify the compliance with this law, and if applicable, to penalize infractions of the same.1

4.19.
In regard to the operation of the Registry, the Act provided for the creation of a "Renave Advisory Committee", to be made up of various government offices and automotive industry associations, for the purpose of advising on issues relative to the integration, organization and operation of the Registry.
4.20.
The Act set out in detail the terms and functioning of the Registry itself. Among other requirements, the Registry was to operate as a public service under the responsibility of the Secretariat and was to maintain a database of information on each vehicle to be provided by the authorities, manufacturers, assemblers, dealers, insurers, private parties or any other source.2 Furthermore, the database was to remain the exclusive property of the Secretariat.
4.21.
The Registry was to contain specific information about each vehicle registered in the database, including: (i) the vehicle’s identification number, (ii) the vehicle’s essential characteristics; (iii) the name and domicile of the vehicle’s owner; (iv) notices updating this information; and (v) any other information established in the regulations.3
4.22.
Information related to theft and recovery of vehicles was to be provided by the National System of Public Security pursuant to Article 8 through co-ordination agreements established for this purpose.
4.23.
In the Tribunal’s view, it is manifestly self-evident that much of the information to be recorded in the Registry’s database would be confidential and would be so regarded both by vehicle-owners particularly and by the public generally.
4.24.
The Act also prescribed conditions for concessions operating the Registry, including mandatory terms to be included in an eventual ‘title of concession’ or concession agreement with a concessionaire.
4.25.
Article 16: Article 16 prescribed criteria that prospective concessionaires had to meet in order to qualify to operate the Registry:

"Article 16. The Secretariat may grant one or more concessions for the provision of the public service of the Register, to those who meet the following requirements:

I. Being a corporation with variable capital incorporated under Mexican laws.

II. Having a corporate capital without right to withdraw and paid in full, and that cannot be less than that set by the Secretariat, and

III. Demonstrate its technical, administrative andfinancial capacity.

Foreign investment may participate up to no more than 49% of the concessionaire’s capital stock. A favourable resolution from the National Commission of Foreign Investment is required for foreign investors to participate in a higher percentage. "

Accordingly, the concessionaire had to be a Mexican entity; and if there were to be any foreign interest, the foreign investor would have to invest in that Mexican entity.

4.26.
Article 17: Concessions were to be granted for a period up to ten years, after which the concession could be extended "at the Secretariat’s discretion" for an additional maximum period of ten years, "provided that the concessionaire has complied with the conditions foreseen in the concession and requests it not later than three years before its conclusion". Accordingly, the maximum term for a concession was to be twenty years; but it could be ten years or less.
4.27.
Articles 21, 22 & 24: The grounds for termination and revocation of the concession were set forth in Articles 21 and 22, respectively. Amongst the grounds identified in Article 21 for termination was revocation. Article 24 provided for indemnification in cases where termination was due to reasons of public utility or interest.
4.28.
Article 25: The Secretariat also had the power, pursuant to Article 25 of the Act to "requisition" the Registry on national security grounds. Article 25 provided as follows:

"Article 25. In case of any imminent peril for the national security, the country’s peace or the national economy, the Secretariat may request the operations centre and other facilities, immovable or movable goods and equipment used for the Registry’s operation. The Secretariat shall be equally entitled to use the staff working for the operating companies whenever it deems it necessary. The requisition shall last as long as the conditions that prompted it subsist. "

4.29.
Article 26: Finally, the Act established infringing conduct under the Act and correlative sanctions for those infringements. Amongst conduct proscribed in Article 26 was the concessionaire’s "failure to comply with any of its obligations". An infringement of Article 26 gave rise to incremental monetary sanctions ranging from a fine of 500 "minimum wages"4 for minor infractions to 30,000 minimum wages for more serious infractions.

(03) The Concession Tender and Bidding

4.30.
1999: In February 1999, the Secretariat published the bidding rules for the concession’s tender. One month later, on 26 March 1999, a committee was created with a mandate of ensuring the compliance of the tendering process with applicable regulations. Outside consultants were engaged to conduct the tender within the framework established by the Secretariat. This framework was comprised of three elements: (1) design, control and oversight by the Federal Government; (2) private operation of the Registry; and (3) active involvement of State administrations.
4.31.
The Secretariat instructed consultants, Casa de Bolsa Bancomer, S.A. de C.V. ("CBB"), GEO Grupo de Economistas y Asociados, S.C. ("GEA"), Tecnofin, S.A. de C.V. ("Tecnofin’) and Creel, Garcia Cuellar y Muggenburg, S.C. ("Creel") (collectively, the "Consultants") to prepare an informational overview of the project for entities interested in participating in the concession’s tender. This overview described the Registry’s general purpose as providing an information source that would enable Mexican citizens to know the legal status and ownership of vehicles circulating in the country’s territory from the point of manufacture (or importation) to their final removal from circulation.
4.32.
In order to achieve this purpose, the Registry was to have the following characteristics:

Completeness That includes all the possible sources of creation, destruction and modification of the legal status of vehicles
Binding nature That assures the maximum coverage and usefulness of the information
National coverage That attains the necessary centralization of the information to meet national problems That improves the safety of the register by controlling only one database
Public access That provides information to the agents participating in the automobile markets -including individuals - financial and insurance agents, to promote its better operation
Automated That shall be designed taking advantage of the available equipment and communication technology, which shall allow to rely on updated information

4.33.
On 29 March 1999, the Secretariat published an invitation to tender. One of the bidders was a Consortium comprising Talsud, Gemplus, and Mr Henry Davis Signoret. In accordance with Article 16 of the Act, the concessionaire was to be a Mexican legal entity, with its ownership split as to 51% for the Henry Davis Group, as to 29% for Talsud and 20% for Gemplus.
4.34.
On 3 May 1999, the Consortium presented a formal request for registration as a bidder. There were 91 bidders for the project; and 45 of those bidders, from 24 consortia, were registered as bidders by 21 May 1999. It was clearly a project which was attractive to private investors both within and without Mexico.
4.35.
On 21 May 1999, the Secretariat issued a prospectus which anticipated the registration of both used vehicles and new vehicles, but which recognized that used vehicles would constitute the vast bulk of the registrations within the new Registry. The registration of new vehicles would be relatively straightforward because it would be made mainly through car dealerships at the point of sale when the car was purchased in Mexico. It was known that the registration of used vehicles raised more complex issues; and it was appreciated that, at least initially, the registration of used vehicles would be less profitable or even loss-making, requiring it to be subsidized by the registration of new vehicles (which would be more profitable). Over time, however, it was expected that the registration of used vehicles would become profitable. It was always envisaged that both used and new vehicles would be registered; and there was no intent or plan to register only used or only new vehicles.
4.36.
On 30 July 1999, the Consortium and five other bidders were permitted to file their bids with the Secretariat.
4.37.
On 6 August 1999, the Consortium demonstrated its proposed system; and on 20 August 1999, the Secretariat opened the economic proposals submitted by the remaining bidders.
4.38.
On 27 August 1999, the Secretariat awarded the Concession to the Consortium; and on 15 September 1999, the Secretariat and the Concessionaire concluded the Concession Agreement (to which the Tribunal returns in more detail below).
4.39.
The Claimants, at a late stage of these arbitration proceedings, appeared to criticise this bidding procedure, adopting allegations made by others elsewhere that the award of the concession to the Consortium had been influenced by corruption. In the cross-examination of Dr Blanco, Leading Counsel for the Claimants questioned, in particular, whether certain transparency measures taken during the bidding process, such as the video-taping of meetings, were the result of concerns that there might later be allegations of irregularities [D5,993],
4.40.
This was perhaps a surprising line of attack on the Respondent’s case and on Dr Blanco as a witness, given that the Claimants were the successful bidder. In the Tribunal’s view, there was nothing of any substance in this forensic exercise; and it can be ignored as completely ill-founded on the evidence adduced in these proceedings.

(04) The Consortium and Incorporation of the Concessionaire

4.41.
The Consortium incorporated a Mexican legal person which was to become the Concessionaire on 6 September 1999, controlled by three groups of shareholders: Mr Henry Davis Signoret, Talsud and Gemplus. Each group was selected to contribute to the Consortium: Gemplus was a leading manufacturer of smart cards worldwide and would supply the vehicle registration cards; Talsud contributed its technical experience as having operated vehicle registries in Central and South America (including Sertracen in El Salvador); and Mr Henry Davis was chosen by the other two investors as a result of his reputation as a successful businessman in Mexico.
4.42.
The share capital in the Concessionaire was divided as follows:

Shareholder % Ownership Series

Gemplus Industrial 20% "C"

Talsud, S.A. 29% "B"

Henry Davis Signoret 51% "A"

(Mr Henry Davis subsequently transferred his shares to a Mexican company owned and controlled by his family, Aplicaciones Informáticas S.A. de C.V., with the Secretariat’s approval).

4.43.
As already recited above, within a week of the Concessionaire’s formation, on 15 September 1999, the Secretariat and the Concessionaire executed their Concession Agreement (the "Concession Agreement" or "Title of Concession"). Neither Mr Henry Davis, nor Talsud nor the Gemplus Claimants were contracting parties to this Concession Agreement.

(05) The Concession Agreement

4.44.
The Concession Agreement set out twenty-one conditions applicable to the public service of the Registry, including the applicable legal framework (fourth condition), services to be provided (sixth condition), the level of service required (seventh condition), security (ninth condition), the Concessionaire’s rights and obligations (tenth condition) and the conditions for "termination, revocation and requisition" (seventeenth condition). Among other documents, a copy of the Consortium’s Technical Bid and its Economic Bid, along with a copy of its Business Plan, were annexed to the Concession Agreement. The Concession Agreement envisaged the registration of both used and new vehicles, like the Act; and it was never envisaged that the project would be limited to new vehicles.
4.45.
Sixth Condition: As already indicated, the sixth condition of the Concession Agreement prescribed the services that were to be provided by the Concessionaire, including the following:

"I. Registration - Which shall consist in the incorporation of Vehicles to the Registry’s control through the issuance of the Proof of Registration.

II. Notices of Change of Status - Which shall consist in the updating of the Information on the vehicle and the Owner’s Personal Data.

III. Constitution and removal of Lien - Which shall consist in the registration and elimination of registration of any lien on the Vehicle.

IV. First Hand Sale - The Registration Service granted to Distributors.

V. Consultation - Which shall permit Users to consult certain information on a specific Vehicle identified by its Registration number.

VI. Physical Revision - Which shall enable Users or Owners to request the Concessionaire to verify Vehicle characteristics, and for the latter to issue a report on the Vehicle’s status at the time of the inspection.

VII. Exceptional Services - The following shall be considered as Exceptional Services:

a. The replacement of the Proof of Registration and, if appropriate, of the Confidential Code;

b. The reactivation of a previous procedure;

c. The correction of mistakes;

d. The reactivation of an acknowledgement of receipt or a number of Proof of Registration that has been reported;

e. The authorization of procedures based on a final judicial ruling; and

f. Any other specifically contemplated by the Operation Manual.

VIII. Services for Registered Users - The following:-

a. User’s Registration - Which shall consist in the creation of a directory of Registered Users, and their permission to access the Database;

b. Changes in the registration parameters - Which shall consist of the procedure to modify the data or conditions under which the Registered User was registered in the Registry;

c. Report - The Concessionaire shall send a monthly account statement to the Registered Users with information on the transactions carried out before the Registry, the charges generated as a consequence thereof, and the current balance of the account;

d. Receipt of payments - The Concessionaire shall put in place processes and procedures to receive periodic payments of the prices from the Registered Users; and

e. Administration of the Authentication Codes.

4.46.
Tenth Condition: The Concessionaire’s rights and obligations under the Concession Agreement were set out in the tenth condition, which provided as follows:

"The Concessionaire shall have the following rights:

1. To charge the price, which will be published in the Official Gazette of the Federation for the provision of the Services;

2. To request the Secretariat to revise the prices charged for the Services pursuant to the terms and conditions established by the General Guidelines and the Operation Manual.

3. In case the Registry’s start-up is postponed or its structure is changed due to a decision taken by the Secretariat, the Concessionaire will be able to submit to the Secretariat’s consideration an adjustment to the program of commitments established in the Operation Manual; the Secretariat shall have absolute discretion to make said adjustments, and shall respond within 30 calendar days at the latest following receipt of the Concessionaire’s application;

4. To exploit the information of the Registry’s Database in accordance with the Contract of Construction by Commission and the License Agreement entered into on this same date by the Secretariat and the Concessionaire;

5. In the event that the Registry’s start-up is postponed, its structure is changed, or the terms and conditions under which the winner of the bid submitted its Technical and Economic Bid are directly or indirectly altered, for reasons not attributable to the Concessionaire, it may submit for the Secretariat’s consideration the modification of its obligations established in this Title of Concession, or in any other provision issued by the competent authority. The Secretariat shall evaluate and, if appropriate, proceed to make the proposed modifications, seeking at all times to maintain the same correlation between the Concessionaire’s rights and obligations existing at the time this Title of Concession is granted.

6. To participate with the Secretariat in the definition of the terms of the Coordination Agreements that it enters into with several entities of the Federal and State Public Administration, as well as of the International Treaties and inter-institutional Agreements with regard to the information exchange with other countries.

The Concessionaire shall have the following obligations:

1. To provide the Services in accordance with the applicable legal framework;

2. To notify immediately the Secretariat of any suspension in the provision of any of the Services;

3. To have, directly or indirectly, at least the required minimum infrastructure;

4. To grant and update the guarantees securing the fulfillment of all its obligations under the applicable legal framework.

5. Not to assign, encumber, transfer or in any way dispose of the concession or rights derived therefrom, except with the Secretariat’s prior and written authorization;

6. To guarantee the security of the information contained in the Registry, in accordance with the terms and conditions established by the applicable legal frame;

7. To comply with the provisions of the Coordination Agreements to be entered into with several entities of the Federal and State Public Administrations; as well as of the agreements with respect to the exchange of information with entities of other countries.

8. To comply with the service quality levels established in this Title of Concession, the Operation Manual, and the General Guidelines;

9. To comply with the promotional and coordination of other sources of information requirements contemplated in the Operation Manual and the General Guidelines;

10. To make timeously the payment established in this Title of Concession;

11. To allow the Secretariat access to its facilities to oversee and verify compliance with the applicable legal framework, as well as to provide the necessary conditions that will allow it to verify and perform informatics, operations and results audits by the authorities, as well as the special ones that might be necessary;

12. To submit to the Secretariat’s approval the modifications to its articles of incorporation and by-laws; including, without limitation, any change to its capital structure;

13. To obey final judicial rulings in accordance with the procedure described in the Operation Manual;

14. To comply with the Calendar of activities hereto attached as Exhibit "13 "; and

15. Others that are established in the applicable legal framework. "

4.47.
Seventeenth Condition: As indicated above, the seventeenth condition of the Concession Agreement set out the circumstances under which the Concession could be terminated or revoked by the Secretariat:

"The Concession shall terminate, be revoked by the Secretariat or be subject to requisition by it, pursuant to the terms and conditions established in the Law.

If, for any reason or event of a political or social nature at the federal level, the Registry’s operations start-up is prevented, the Secretariat, at the Concessionaire’s request, shall take the necessary steps before the Secretariat of the Treasury and Public Credit for the prompt refund of the payment made by the Concessionaire, providing that the term does not exceed sixty (60) calendar days following the acknowledgement of said event or cause by the Secretariat with the understanding, however, that there will be no reimbursement of the expenses incurred by the Secretariat by reason of the grant of the concession the subject-matter thereof.

In case the Registry cannot operate at the level of certain states or municipalities for reasons not attributable to the Concessionaire, the latter shall be freed from its responsibilities in connection with said state or municipality, and therefore, from paying any conventional penalty to the Secretariat. "

4.48.
Nineteenth Condition: The Nineteenth Condition, mirroring Article 17 of the Act (see above) prescribed the period of the Concession:

"Pursuant to the provisions of Article 17 of the Act this Concession shall be in force for a term of ten (10) years, to be counted as of the date of signature of the document. The Concession may be prorogated at the Secretariat’s discretion, up to for a term equal to the one originally established, provided that the Concessionaire has complied with the conditions foreseen in the Concession and requests it not later than three (3) years before its conclusion. "

The "date of signature" was 15 September 1999; and accordingly the Concession was to expire on 14 September 2009 or, if all the specified conditions were met as to compliance, notice and the exercise of the Secretariat’s discretion, up to 14 September 2019.

4.49.
Twenty-First Condition: The Concession Agreement contained an express jurisdiction agreement, as follows:

"Any dispute which arises in connection with the interpretation, execution, or compliance with the provisions of the same, shall be submitted to the competent federal courts located in Mexico, Federal District. "

(06) The Operation of the Registry

4.50.
1999: On 18 November 1999, the Secretariat appointed Analitica Consultores Asociados S.C. ("Analitica"), a Mexican consultancy, to supervise the Registry’s preoperative stage and to advise the Secretariat whether and to what extent the Concessionaire was complying with its obligations under the Concession Agreement. (It was removed from this role by the Secretariat in early 2001).
4.51.
2000: The pilot phase for the operation of the Registry began on 15 February 2000 with the registration of new and used vehicles in the states of Hidalgo and San Luis Potosí. 71 document processing centers ("CTDs") were created in Hidalgo and 82 CTDs were created in San Luis Potosí. Over the period from 15 February 2000 to 31 May 2000, about 40,000 registration applications were submitted, approximately 6,000 of which related to new vehicles and about 34,000 relating to used vehicles.
4.52.
On 28 April 2000, the Secretariat published in the Official Bulletin the schedule of obligations arising under the Act, in respect both of the pilot phase in the states of Hidalgo and San Luis Potosí and of the national phase for new vehicles. It was indicated that a schedule of obligations for the registration of all used vehicles in the national phase would follow within two months (i.e. June 2000).
4.53.
On 8 June 2000, as indicated, the Secretariat published in its Official Bulletin the schedule for owners of all used vehicles to register their vehicles with the Concessionaire. The schedule imposed a deadline of 15 December 2000. This schedule further established other dates for various transactions, including the filing of notice of change in regard to a vehicle, i.e. change of vehicle information, plates, retirement, etc.
4.54.
On 30 June 2000, an "Agreement" concerning the ceiling prices that could be charged for all notices and services provided to users of the Registry was published in the Official Bulletin, establishing the following maximum fees (amongst others):

ServiceMaximum fee (MXN $P)
Registration of First Hand Sales $375
Registration of Second Hand Sales $100
Inquiries/Confirmation of Vehicular Information $25

4.55.
Although 100% of the fee charged for the registration of new vehicles was remitted to the Concessionaire, the Concessionaire retained only 25 pesos of the maximum 100 pesos for the registration of used vehicles in order to permit competition among CTDs on the basis of commission, which could range from no commission to 75 pesos.

(07) Registration of New Vehicles

4.56.
The registration of new vehicles nation-wide began on 2 May 2000.
4.57.
The "White Book", published later by the Secretariat on 25 October 2000 in accordance with the National Development Plan, reported that as of that date "the infrastructure hired by Concesionaria RENAVE, S.A. de C.V. to operate the service exceeds the requirements to process the number of new vehicle transactions and to serve the vehicles that have been already registered." According to this same source, over 250,000 new vehicles had by then been registered by the Concessionaire.
4.58.
At this point, in regard to new vehicles, there was no material criticism of the Concessionaire’s conduct by reference to its obligations under the Concession Agreement, still less any criticism of the Consortium, neither by the Secretariat or its technical adviser, Analitica.

(08) The Registration of Used Vehicles

4.59.
The registration of used vehicles began nation-wide on 15 June 2000.
4.60.
As explained in more detail below, the registration of used vehicles proved to be highly unpopular for several reasons. As a result, the number of registrations of used vehicles dropped precipitously after 21 August 2000 (following the Secretariat’s suspension of the legal obligation to register used vehicles by 15 December 2000) and still further after 24 August 2000 (following news reports concerning the alleged criminal past of the Concessionaire’s General Director, Mr Cavallo and his arrest in Mexico). Accordingly, in contrast with the number of new vehicles registered by October 2000 (not being equally susceptible to public opinion), less than 200,000 used vehicles had been registered by that same date.
4.61.
In addition, there was a change of political administration at the level of the Presidency and the Federal Government. On 2 July 2000, Mr Vicente Fox Quesada (PAN) was elected to be the new President of Mexico; and under these same national elections the PRI lost power at the level of the Federal Government. The new political administration assumed power on 1 December 2000. It was perhaps inevitable that there would be at least a change of emphasis in regard to the Registry under the new PAN Federal Government (given the Registry’s statutory PRI origin); and, moreover, PRI state politicians who previously had to support the PRI’s initiative could now oppose it, particularly within the Federal District. (It was always and remained essential for the Secretariat to secure co-ordination agreements for the Registry with all states and other relevant state entities: see the Concession Agreement’s Seventeenth Condition, cited at Paragraph 4-47 above).

(09) The Management of the Concessionaire

4.62.
Before these events, by the beginning of July 2000, Mr Henry Davis Signoret (as chairman of the Concessionaire’s Board of Directors) expressed reservations over the Concessionaire’s performance of the Concession at meetings of its Board. The minutes of the Board meeting on 2 July 2000 reflect the following financial and technical concerns during this period:

"FIRST ITEM: In relation to the first item of the Agenda, the Chairman informed those present that to this date, the Company has been financing itself solely on the basis of cash flow, and as a consequence, the Company has stopped paying some of its suppliers because the actual cash flow is not sufficient given the level of the Company’s costs.

Consequently, the Chairman stated that it was necessary to increase the capital of the Company and proposed the Board of Directors to present to the shareholders of the Company a request to increase the capital of the Company in the amount of P$10,000,000 (Ten Million Pesos National Currency). After an extensive discussion of this matter, the Chairman requested those present to take a resolution in this respect.

RESOLUTIONS

1. It was approved by unanimous decision of those present that the shareholders be presented with a request to increase the capital to the Company in the amount of P$10,000,000 (Ten Million Pesos National Currency).

2. It was approved that if necessary, once the contribution of capital referred to above had been made, Banco Invex, SA. will be requested to provide an additional amount of P$10,000,000 (Ten Million Pesos National Currency) under the line of credit contracted with said financial institution.

SECOND ITEM: In relation to the second item on the Agenda, the Chairman informed those present that to date, the Board had not received information pertinent to the technical processes and the structure of the systems of the Company having doubts over its functioning, and consequently, he proposed that a technical audit be conducted by a company with recognized prestige, which shall review and evaluate the technical processes, the structure of the systems database, and any questions in relation to informatics, systems, administration and the technical areas of the Company.

[...]

RESOLUTION

‘1. The conduct of a technical audit of the Company is approved.

2. The company that will conduct said audit will be designated in the next few days by Mr Henry Davis Signoret, Chairman of the Board of Directors. "’

4.63.
By the end of July 2000, the Chairman’s criticisms had led to personal differences with Mr Taiariol of Talsud in respect of the management of the Concessionaire. Mr Taiariol was persuaded to resign as a director; and a resolution was passed at the Board meeting held on 25 July 2000 to accept Mr Taiariol’s resignation as Commercial Director in these terms:

"SIXTH ITEM: In discussion of the Sixth Item of the Agenda, the Chairman [Mr Henry Davis Signoret] commented to those present that the presence of Mr Victor Taiariol as Commercial Director of the Company was not entirely favourable for either the internal or external image of the Company, and it made the accountability and the evaluation of his performance more difficult, since Mr Taiariol is also a Principal Member of the Board of Directors. To this, Mr Taiariol tendered his resignation as Commercial Director of the Company. The Chairman requested those present to evaluate Messrs. Domenico Suave or Slim Masmoudi as possible candidates to hold the position of Commercial Director of the Company. The Chairman asked those present if they wish to make a decision in that respect, and after ample discussion, the following was unanimously agreed:

RESOLUTION

‘1. The resignation of Mr Victor Taiariol from the position of Commercial Director of the Company is accepted with effect as of today, thanking him for his efforts during the time that he held this position. ’[...]"

4.64.
Two weeks later, at the Board meeting on 8 August 2000, Mr Bilbao presented several matters of concern with regard to the Concessionaire’s finances and operations, recorded in the minutes of this meeting as follows:

"2. Mr Guillermo Bilbao made a presentation on the financial, administrative and human resources situation of the Company. The most relevant points were the following:

• There is an important delay in the preparation of the Financial Statements and consequently it is not possible to reconcile, completely, the income of the Company vs. the operations.

• There are some claims for delays in payments to the CTDs [Document Processing Centers]. It was agreed to develop an easy process to notify the CTDs of the receipt of the corresponding invoices so that both parties are aware of the date in which the 15 day period to effect payment begins to run.

• The total revenues of the Company to date are 67.4 Million Pesos.

• It is necessary to identify which operations correspond to used automobiles and which correspond to new autos because that affects the "floating" of the Company.

• As regards to the loan with INVEX, it was proposed to GE Capital Bank to establish bridging accounts with the banks to concentrate the revenue. In that respect, Banorte and Banamex have not responded although the other banks have.

• The works for the security systems for the offices of the Company are hoped to be finished in about 3 weeks.

[...]"

4.65.
One week later, on 15 August 2000, another Board meeting was held in which public opposition to the Concessionaire was discussed, including the filing of "amparos" or constitutional court challenges to the Act and the Secretariat by Mexican citizens. The minutes of the meeting include the following passages:

"I Situation of the Line of Credit issued by Banco Invex, SA. ("INVEX") to the Company.

The Chairman [Mr Davis] reported to those present on INVEX’s concerns regarding the political situation which confronts the Company at the present moment and consequently, its financial situation to face its payment obligations in relation to the Line of Credit granted by INVEX.

II. Guarantees granted by the shareholders of the Company under contracts with suppliers entered into by the Company.

The Chairman indicated that to date, there are inconsistencies in the guarantees and/or guarantors granted by the shareholders of the Company (the "Shareholders") in favour of the same Company. In this respect, the Chairman requested the General Director [Mr Ricardo Cavallo] to prepare a list of the pending payment obligations for the Company pointing out which are guaranteed by the Shareholders and in what proportions, with the objective of evaluating the situation in detail and reorganizing the issuance of the guarantees and/or guarantors by the Shareholders in order for the three Shareholders to guarantee the total amount of said obligations in the same proportions as their participation in the shareholding capital of the Company.

At the same time, the Chairman stated that once the study of the pending payment obligations of the Company has been completed, they should contemplate the possibility of requesting the Shareholders to increase the capital stock of the Company in order to be able to face said obligations. [...]

VI. Legal situation of the Company in relation to the Concession for the Operation of the Public Service of Operating the National Vehicle Registry and the Contract signed with SECO FI: position of the Company and defense of the Amparos brought against the Act and SECOFI.

8 Amparos have been brought, of which only in four cases does the Company appear as an affected third party. A firm of lawyers has been retained to oversee the cases against the Company, SECOFI and the law [the Act].

[...]

VIII. Plans and measure for modifying the political opposition to the project.

• The General Director [Mr Cavallo] will be requested to request the Public Relations area to make a presentation to the Board.

• Each Director of each area shall make a presentation of 10 minutes to the Board in each Session, starting with the next Meeting of the Board. The General Director was requested to inform the directors in this respect.

• The General Director and Mr Bertrand Moussel will coordinate to inform the Board on the possibility of using a simpler smart card.

• A meeting was held with Advantage on the past 14 August 2000, at which it was agreed that Advantage would begin production to reach 5MM overlays by the end of the year. However, it was warned that it would be informed of the project’s status by 15 September 2000 as to the situation of the project and the decision to continue or not with the production of the overlays. "

4.66.
This was nonetheless the relative calm before the storm unleashed within the next few days, with allegations of grave criminality against Mr Cavallo and his arrest at Cancún on 24 August 2000 amidst a blaze of publicity adverse to the Concession and the Concessionaire (The Tribunal returns to these events in detail below).
4.67.
Following Mr Cavallo’s detention in prison in Mexico City, Mr Bilbao was appointed General Director of the Concessionaire (back-dated to 23 August 2000). This appointment was notified by letter to the Secretariat on 24 August 2000 and ratified at the next Board meeting, held on 20 September 2000.
4.68.
The minutes of that Board meeting summarise the adverse events then affecting the Concessionaire, as of 20 September 2000:

"III. Legal Actions

It was agreed by the Board that, with the opinion and assistance of the Legal Direction of the Company and the external lawyers, the possibility of bringing legal actions against SECOFI and/or before the competent tribunals will be evaluated in order to protect the interests of the Company and the patrimony of its shareholders.

[...]

VII. Obligations under the Title Concession [the Concession Agreement] :

• It was evident that in accordance with the decrees published in the Official Gazette of the Federation on 29 August 2000 and 13 September 2000, SECOFI ordered a technical intervention and subsequently an administrative intervention into the company.

• Those present recognized that as long as the Concession is not revoked in strict compliance with the applicable legal provisions, the Company, inasmuch as is possible and insofar as the intervention allows, will continue to comply with its obligations under the Title of Concession. "

(The Tribunal describes these Technical and Administrative Interventions below).

4.69.
Following his appointment as General Director, Mr Bilbao engaged the accountants, Deloitte & Touche, to conduct an audit of the performance of the Concessionaire’s "General Directorate" up to 25 August 2000. The results of this audit were discussed at the Board meeting held on 11 December 2000. The minutes of this meeting record the following discussion:

"Based on the audit ordered by the Board as requested by the General Director appointed after 25 August 2000 [Mr Bilbao], which was conducted by the accounting firm of Deloitte Touche, which was discussed in this meeting, it was determined that in said administration there were important deficiencies in the execution and control of different aspects that affected the adequate and efficient operation of the company. In particular the lack of order and administrative controls and certain irregularities in the exercise of the powers of certain officers with responsibility for the management of the company were underscored. It was pointed out that the General Director [Mr Carvallo] did not timely and adequately present the information regarding the Company’s business, the financial situation of the same, nor the problems and deficiencies derived from the contracts with the principal suppliers of goods and services to the Company. It was also mentioned that, under that administration, the administrative, accounting and information systems, necessary for the adequate functioning of the Company, were not implemented, and that the General Director omitted to inform the Board of the problems that were faced in their implementation. "

4.70.
The Board therefore resolved at this meeting that the "activities of the Company shall be focused on correcting the problems faced by the operation of the same in order for it to have a working registry that will allow the provision of an adequate service to the consumers."
4.71.
In the Tribunal’s view, these internal problems within the Concessionaire’s management were not trivial; but equally, they were not seriously imperilling the Concessionaire as a future long-term business concern, as at 24 August 2000.

(10) Political Opposition to the Concessionaire and the Concession

4.72.
By mid-August 2000, as already noted, the Concessionaire faced growing political difficulties within Mexico. In particular, the public objections to the Concession made it difficult for the Federal Government to secure the necessary "co-ordination agreements" with other entities, which would allow the Concessionaire access to vehicular information collected and maintained by state and federal agencies.
4.73.
Complaints concerning the cost of registering used vehicles and, in particular, confusion caused by the discrepancy in the commissions charged by CTDs for this service, also fuelled public criticism of the Registry. The Government of the Federal District of Mexico voiced strong opposition to the Registry and in particular its operation by a private concessionaire.
4.74.
It is necessary to examine these several related difficulties in turn.

(11) The Negotiation of Co-ordination Agreements

4.75.
During the period running up to and following the national elections on 2 July 2000, the negotiation of co-ordination agreements with state and federal entities became increasingly difficult. In addition, technical difficulties arose because (for example) the Secretary of Security had been unable to provide relevant data relating to certain stolen vehicles to the Registry.
4.76.
Article 3 of the Act had provided the Secretariat with the power to "enter into coordination agreements with the state and Federal District governments, in order to facilitate the Registry’s coverage, try to achieve its proper functioning and effect the exchange of information".
4.77.
The Secretariat’s initial strategy had been to negotiate and enter into agreements concurrently with the start-up of the Registry’s operations. The Secretariat’s Undersecretary (Dr Ramos Tercero) and the Concessionaire’s General Director (Mr Cavallo) with others involved in the project had travelled extensively throughout Mexico in an effort to meet with State officials and to negotiate and conclude co-ordination agreements.
4.78.
Six coordination agreements were signed with the states of Baja California, Baja California Sur, Colima, México, Nuevo Leon and Sonora between April and August 2000. By mid-August 2000, meetings had taken place with officials from 14 other States with varying degrees of progress. The exercise remained far from complete.

(12) The 2 July 2000 Federal Elections

4.79.
In June and early July 2000, political opposition to the Concessionaire and the Secretariat began to grow, particularly during the final weeks of the national elections. The candidate for the PRI party (the party of the incumbent President) was challenged by Mr Fox Quesada of the PAN. On 2 July 2000, Mr Fox was elected as the next President, breaking seventy or more years of PRI incumbency at the level of the Federal Government.
4.80.
On 1 December 2000, the new PAN administration took office as the new Federal Government. President Fox appointed Mr Luis Ernesto Derbez Bautista as Secretary of the Economy (formerly SECOFI), thereby replacing Dr Herminio Blanco. These political changes were to have significant effects for the Concessionaire.

(13) Public Perceptions of the Cost of Registering a Vehicle

4.81.
The cost of registering new and used vehicles had also become increasingly controversial during the summer of 2000.
4.82.
As already described, the original fee schedule for the registration of used vehicles was designed to permit competition between CTDs in regard to commissions charged for registering used vehicles. The fees for used vehicles were, however, considered confusing by vehicle-owners; and the project became highly unpopular and perceived as a new tax on existing car-ownership, notwithstanding the large-scale publicity campaign the Concessionaire had undertaken to explain the purpose of registration and the basis for the fees charged.
4.83.
14.07.2000: On 14 July 2000, Mr Henry Davis Signoret (as the Concessionaire’s Chairman) wrote to Dr Ramos (at the Secretariat) concerning public protests over the cost of registering vehicles. In his letter, Mr Davis proposed that the maximum price that should be charged by CTDs be defined and published by the Secretariat to quell public confusion, as follows:

"Pursuant to our discussion during our last meeting and pursuant to Condition Fifth of the Title of Concession of the public service of operating the National Vehicle Registry, I submit to the Secretariat’s consideration the advisability of defining the maximum price that the Document Processing Centers [CTDs] will be able to charge for the procedures contemplated in the Agreement published in the Official Gazette on 20 June 2000.

The foregoing, in view of the unfavourable comments caused by said fees and protests by the users and the media who believe that a charge in excess of 300% of the maximum fee charged by the Operator of the Registry is unjustified.

In addition and notwithstanding the publicity campaign that has been effected, there is a lot of confusion at a national level among the users of the National Vehicle Registry due to the diversity in said commissions.

It should be noted that this measure may generate dissatisfaction among the Document Processing Centers, and hence, a reduction in the coverage, as well as claims for compensation by users who have already paid the current fee. "

4.84.
20.08.2000: On 20 August 2000, a press article published in the national newspaper Reforma reported President-elect Fox as saying during a radio interview that although the National Vehicle Registry was an efficient mechanism to fight auto theft and organized crime, it was debatable "who should pay for it". Whether so intended or not at the time, this qualified support was understood as questioning whether it was appropriate to place the Registry in the hands of a private concessionaire working for profit and not a national state agency.
4.85.
21.08.2000: On 21 August 2000, the Secretariat announced a reduction in the maximum cost of registering used vehicles from 100 to 50 pesos. Owners of used vehicles who had already paid the registration charge were eligible for reimbursement at the CTD where the vehicle had been registered, up to 50% of the amount paid. The cost of registering new vehicles remained fixed at 375 pesos. (In addition, as already noted, the Secretariat postponed the deadline for registering used cars from 15 December 2000 to 1 July 2001, to which we return separately below).
4.86.
The reduction in the registration fee for used vehicles meant, however, that CTDs could only charge a maximum commission of 25 pesos for the service, instead of 75 pesos. This led to a diminished number of CTDs available for the processing of used vehicle registrations. This in turn led to a reduction in the registration of used vehicles (caused also by the postponed deadline).
4.87.
The Claimants complain in these proceedings that the Secretariat made its decisions "unilaterally" and caught the Concessionaire "completely unaware" [DI.44], The Tribunal rejects this complaint. It is clear from Mr Davis’ letter that something had to be done and done quickly to calm growing public concerns; that the Concessionaire wanted something done, particularly as regards fees for registering used cars; that the Concessionaire was in communication with the Secretariat to have something done; and that ah this could only be done by the Secretariat as the responsible agency of the Federal Government, not the Concessionaire itself. (The Tribunal returns to other criticisms below).

(14) Specific Opposition within the Federal District

4.88.
The Government of the Federal District of Mexico, under the leadership of Mayor Rosario Robles was one of the most vocal public opponents of the Concession.
4.89.
24.08.2000: On 24 August 2000, Mayor Robles wrote to Secretary Blanco (at the Secretariat) regarding the impact of news reports released on that day alleging the association of Mr Cavallo, the Concessionaire’s General Director, with a criminal past:

"The information published by the media in respect of Mr Ricardo Miguel Cavallo, Director of the National Vehicle Registry, has increased the concerns and preoccupations that I previously conveyed to you with respect to the legal uncertainty that can be generated for the citizens by leaving the operation of the Registry in the hands of a private party.

As you already know, the Permanent Commission of Congress approved on the 29th [July], an agreement by which it proposed to revise the law to eliminate the fee for registration at the National Vehicle Registry and eliminate the possibility of tendering it to private parties.

For that reason, I respectfully request that all the necessary measures are taken to suspend application of the Registry in the Federal District and to reimburse the citizens that have already registered, the total amount paid for this concept as a provisional measure, while we await a decision by Congress. "

On the materials adduced in these proceedings, it can be reasonably assumed that the media in Mexico City had received information on Mr Cavallo from sources close to Mayor Robles: the timing of her letter and the media reports was therefore no coincidence.

4.90.
Moreover, in an interview on the Cavallo incident recorded in May 2005, Mr Ricardo Pascoe (a former member of Mayor Robles’ cabinet) indicated that the Government of the Federal District was aware of the allegations against Mr Cavallo prior to their publication in Reforma, but that it elected not to raise the issue with the Secretariat in order that it should be communicated to the public by the Mexican press:

"Well, my contact with the Cavallo case came about through a long-time friend, who gave me his observation about Cavallo and sent me information about the background of this individual, who to us, at the time, was totally unknown because he appeared on the Mexican scene as a concessionaire who won a call for him to manage a National System for Vehicle Registration.

This, even though it is not the main topic, is for us Mexicans an important one because, at that time, a serious discussion between the Government of the National [Federal] District and the Federal Government precisely about the establishment of the vehicle registration system was occurring.

And precisely what drew attention to its connection with Cavallo, it has to be said, is that, Cavallo, being Argentine and apparently owner of a concessionaire company, it had been brought to our attention that he had a criminal background and also a background in political repression in Argentina.

Immediately, this appeared very important to us. We received lots of information about the case, such as Cavallo’s aliases and origin in terms of military hierarchy. Additionally we learned about the businesses that he had set up in the Republic of Argentina from his participation in the repression. This, in Mexico immediately drew attention, well it drew my attention.

I was in Mexico, the holder of this information and I immediately discussed it with my boss at that time, [Mayor] Rosario Robles. We also discussed it once during a cabinet meeting; I submitted the information and introduced the topic. And for us, this had a double path: on the one hand, we are talking about someone who apparently had participated in the repression in Argentina, but on the other hand, we are also talking about a person representing a project with which we were not in agreement in Mexico, in terms of vehicle registration.

So, then, it was discussed and analyzed and I made the information available to the head of government [of the Federal District], and well, after a time of evaluating the information, we decided that we had to handle the information not through the government, but through a communication medium. "

This is politics, in Mexico as elsewhere. It was a political attack by the Mayor of the Federal District on the Federal Government and on the Secretariat in particular. It was hardly attractive as a form of good public administration. Yet by itself, the conduct of the Federal District’s Government was not a breach by Mexico of international law or of the two BITs here at issue. (The Tribunal considers its broader implications below).

(15) Postponement for Used Vehicles

4.91.
21.08.2000: On 21 August 2000, as already noted, the Secretariat announced the postponement of the deadline for the registration of used vehicles from 15 December 2000 to 1 July 2001.
4.92.
The postponement was intended by the Secretariat to allow the Secretariat additional time to conclude co-ordination agreements with the States and the Federal District, to simplify the registration procedure in order to take advantage of existing local infrastructure and the States’ collection of motor taxes and, more essentially, to take some of the political heat out the situation caused by the deadline of 15 December 2000, then only four months away. This was at the time a reasonable intention, reached in good faith by the Secretariat.

(16) The Cavallo Incident

4.93.
It is here necessary to relate at some length the relevant details of the so-called Cavallo incident, including the criminal allegations against him, his arrest, his detention and his eventual extraditions from Mexico to Spain and from Spain to Argentina. The Tribunal re-states what is set out at the beginning of this Award: Mr Cavallo was not a named party to these proceedings; he was not legally represented before this Tribunal; he was not a witness in these proceedings; and this Tribunal has no jurisdiction to adjudicate upon any of the criminal allegations made against him. For all of these reasons, the Tribunal does not here address the merits of any of the several criminal allegations made against him. Moreover, whilst no-one is above the law; no-one is beneath it; and in Mr Cavallo’s case (where he has still not been brought to trial and his defence rests on mistaken identity), it is obvious that the legal presumption of innocence remains for him of paramount importance, as it does for this Tribunal.

(17) Mr Cavallo’s Arrest, Detention and Extraditions

4.94.
24.08.2000: On 24 August 2000, Reforma, a national Mexican newspaper, published an article on its front page entitled "Director of Renave accused of being a criminal." Mr Cavallo, as the General Director, was responsible for the Concessionaire’s day-to-day operations; and he was, moreover, the public face of the Registry throughout Mexico.
4.95.
The article alleged Mr Cavallo’s involvement in the international crimes of genocide, terrorism, torture and murder as a military officer, as well as a personal pecuniary involvement in document forgeries, auto thefts and property thefts, committed by the Argentinean military dictatorship during the so-called "Dirty War" of 1976-1983.
4.96.
The article read, in part, as follows:

"Ricardo Miguel Cavallo, director of the National Vehicle Registry in Mexico, was identified yesterday [sic] in a photograph by five Argentinean former political prisoners as the person who tortured them in the Mechanics School of the Argentinean Navy (ESMA), during the military dictatorship between 1976 and 1983.

The evidence also points to businessman Ricardo Miguel Cavallo as the alleged former military man and Argentinean torturer then known as Miguel Angel Cavallo now accused in Spain of auto theft, document forgery, terrorism, and torture by Judge Baltazar Garzón.

Paradoxically, Cavallo is a director at Talsud, which together with the companies Aplicaciones Informáticas, S.A. [Mr Davis’ company] and Gemplus Industrial, S.A. incorporated Renave [the Concessionaire], which was created by Mexican authorities to try to thwart auto theft and document forgery.

Although the accused denies being the person accused, an investigation by Grupo Reforma based on the testimony of former Argentinean political prisoners, an identity study performed by an expert and confidential information belie his statement..."

4.97.
Later on the same day, Mr Cavallo was detained by the Attorney General’s Office at Cancún airport while attempting to leave Mexico for Argentina on a commercial flight, on a holding charge related to a possible immigration offence. He was returned that same day under guard to Mexico City, where he was held in custody.
4.98.
25.08.00: On 25 August 2000, the Spanish judicial authorities, who had been investigating crimes committed against Spanish nationals in Argentina, ordered the Juzgado Central de Instrucción Número Cinco to request the provisional arrest for extradition purposes of "Miguel Angel Cavallo" for alleged involvement in the crimes of genocide, terrorism and torture committed during the Argentinean dictatorship.
4.99.
That same day, the Attorney General’s Office in Mexico City received the request for provisional arrest and extradition of "Miguel Angel Cavallo" from the Spanish Government. The request was submitted to the Seventh District Court for Criminal Matters in the Federal District of Mexico, which issued a provisional arrest warrant for Mr Cavallo. Mr Cavallo was then placed in the formal custody of Interpol and held in prison in Mexico City, awaiting extradition proceedings to Spain.
4.100.
It will be noted that Mr Cavallo was detained in Cancún before the extradition request was received by the Mexican authorities. It appears that an investigation by Interpol had begun in Mexico before the article on Mr Cavallo’s past was published in Reforma, in which both Spain and France were possibly involved. The evidence adduced in these proceedings leaves it unclear precisely when, why or by whom such investigations were instigated. The Respondent’s Counsel stated at the main hearing: "It is our understanding that there were former Argentine nationals who had moved to Mexico as a result of the Dirty War and that people saw Mr Cavallo through the media and identified him as the alleged torturer..." [DI. 187], However, it appears to the Tribunal that no conclusive evidence of Mr Cavallo’s identity as "Miguel Angel Cavallo" had been secured by the relevant Mexican authorities before the publication of the Reforma article on 24 August 2000; and the article itself refers to identification by torture victims only on the previous day (23 August 2000). There was evidently a difference in name.
4.101.
It is unnecessary to recite here the details of the criminal allegations against Mr Cavallo. They are very grave; and they relate, in the words of the Claimants’ Counsel, to "the most serious international crimes in Argentina from the 1970s onwards" [DI.46], It suffices here to indicate that these allegations were not limited to widespread torture and cold-blooded murder but included the forced dispossession of prisoners’ property and systematic forgeries made to facilitate thefts of property, including vehicles. Whilst the former constituted despicable international crimes, the latter appeared at the time to strike directly at the secure workings of the Registry, particularly its confidential database of vehicle registration numbers and vehicle owners’ names, addresses and other personal details. In Mexico, it was considered that such confidential details in the possession of organized criminals could greatly facilitate not only car-theft but also kidnapping, extortion and murder.
4.102.
11.01.2001: On 11 January 2001, a Mexican district judge authorized Mr Cavallo’s extradition from Mexico to Spain.
4.103.
28.06.2003: Following several unsuccessful appeals against his detention and order for extradition before the Mexican courts, Mr Cavallo was extradited to Spain on 28 June 2003 to face prosecution for crimes of genocide and terrorism. He was then held in a Spanish prison awaiting trial. It never took place. By diplomatic note of 5 June 2007, Spain sought Mexico’s consent to the extradition of Mr Cavallo to Argentina from Spain. This was granted by Mexico on 7 February 2008.
4.104.
31.03.2008: Spain authorized his extradition to Argentina on 28 February 2008. The criminal proceedings against Mr Cavallo in Spain were stayed on 14 March 2008 in order to permit his extradition to Argentina. Although victims’ associations in Spain appealed against this stay, the appeal was dismissed. Mr Cavallo was extradited to Argentina on 31 March 2008, where he was arraigned and transferred to the Marcos Paz prison in the province of Buenos Aires, to await trial.
4.105.
Mr Cavallo continues to await trial in Argentina, in prison, for the criminal offences of aggravated illegal deprivation of liberty, torture resulting in death, robbery, extortion, "ideological forgery of public documents" (i.e. whereby a document looks authentic but its content has been modified) and criminal association. One of these charges was filed in 1999, three were filed in 2003, and one in 2004, all relate to alleged crimes committed by military officers of the Escuela Mecanica de la Armada (ESMA).
4.106.
If Mr Cavallo’s defence of mistaken identity prevails at trial, he will not be guilty of any of the criminal charges against him; and he will have spent nine or more years in prison as an innocent man. If guilty of these particular charges, it may be thought that no sentence would be too harsh.
4.107.
Mr Cavallo was scheduled to stand trial in Argentina in the autumn of 2009. As of the date of this Award, it is not known to the Tribunal whether Mr Cavallo’s trial has taken place.

(18) The Concession’s Shareholders and Mr Cavallo

4.108.
Mr Cavallo was (and remains) a shareholder in Talsud, holding one third of the shares in this company. He was a director of Talsud; and he was put forward as a candidate for the general directorship of the Concessionaire by Talsud. His credentials, as listed in his contemporary curriculum vitae, include training and professional experience at the "Escuela Naval Militar" and the "Armada", respectively, in Argentina. He made no secret of his Argentinean background, his service as a naval officer and his name; and as the Concessionaire’s general director he had frequently appeared in public, being photographed and filmed by the Mexican media many times as the public face of the Concessionaire.
4.109.
Shortly following publication of the Reforma article on Mr Cavallo, Mexican newspapers began to report on his association with Talsud and its directors, including Mr Taiariol.
4.110.
In an article published in Reforma on 30 August 2000, speculations were made concerning Mr Taiariol’s sudden departure from Mexico following Mr Cavallo’s arrest:

"Renave partners desert Mexico

Representatives of the Argentinean company Talsud leave Cavallo behind. Gemplus criticizes the absence and announces a lawsuit if irregularities are confirmed.

The principal executives of the Argentinean company Talsud, one of the three firms that were granted control of the National Vehicle Registry (Renave), deserted Mexico and left Ricardo Miguel Cavallo, the partner facing extradition, by himself.

The president of Talsud, Mr Taiariol, is in San Salvador. He said he went there to "show his face " at the scandal caused by the Cavallo case with its partners in that country.

[...]

In a telephone interview from El Salvador, Taiariol commented that he did not leave Mexico to escape justice, but to be "where I am most needed".

[...]

"Due to this situation, the problems that initiated in Mexico, I am facing consequences not only in El Salvador, but also in Argentina, and other places where we directly or indirectly operate, and hence, at every moment, I will have to be where I am most needed, " said Taiariol.

[...]

"According to Taiariol, both Davis and executives from Gemplus, which is a minority shareholder in the concessionaire, were notified of his trip to Central America.

The Argentinean denied any support for Cavallo, who is responsible for the scandal. "He will have to defend himself at a personal level, " he insisted.

On the other hand, Gemplus, through its legal representative, Eduardo Salgado, said it was disappointed andfelt defrauded in its association with Talsud. "

4.111.
On the evidence adduced in these proceedings, this report was materially inaccurate as regards the reasons for the absence from Mexico of Talsud’s representatives: Mr Taiariol and Mr Siegrist. In fact, following the Cavallo incident, they returned to Mexico City from El Salvador on 29 August and 7 September 2000 respectively. In any event the situation was more complicated, as appeared from evidence adduced at a late stage of these proceedings, whatever the public perception as at 30 August 2000 and, more particularly, early September 2000. By the latter date, the death of Undersecretary Ramos Tercero had taken place. (The Tribunal addresses these evidential materials separately below.)
4.112.
On the evidence adduced in these proceedings, the Tribunal concludes that, if Mr Cavallo were guilty of the crimes alleged against him, none of the Claimants (including Talsud) had any actual knowledge of Mr Cavallo’s criminal past before August 2000. The Respondent had checked the good standing of (inter alios) Mr Cavallo with the Argentinean authorities during the bidding process and had received assurances that there was nothing adverse recorded against him. The Respondent acknowledged (rightly in the Tribunal’s view) that none of the Claimants could have discovered Mr Cavallo’s alleged criminal past [DI.230 & D8.1680],
4.113.
Accordingly, for the purpose of this Award, the Tribunal finds that none of the Claimants or the Respondent knew or could have known or was otherwise at fault in not discovering the criminal past alleged against Mr Cavallo before August 2000. If he were an innocent man, it would of course have been quite impossible to do so.

(19) Preliminary Audits of the Concession’s Operations

4.114.
Immediately following the publication of the accusations against Mr Cavallo on 24 August 2000, the Secretariat ordered an audit of the Concessionaire’s operations and the data centers responsible for processing information, in order to ensure the security of the Registry’s database.
4.115.
24.08.2000: Dr Ramos Tercero (as the Under-Secretary) wrote to Mr Davis (for the Concessionaire) informing him of the terms of an immediate "Verification Visit" on 24 August 2000:

"Pursuant to article 34 subsection XXX of the Federal Public Administration Law; 16 subsections II and VIII, 50, 62, 63, 64, 65, 66, 67, 68 and 69 of the Federal Administrative Proceedings Law; 3 subsection VII of the Law of the National Vehicle Registry and; 59 subsection III and 60 subsection II of its Regulations, a Verification Visit is issued under the following terms:

Allow access to the National Vehicle Registry’s Computing Centre located in the facilities of Hewlett Packard, located in Prolongacion Reforma # 700 in Lomas de Santa Fe, zip code 01210 in Mexico City...

The inspection will start at 19:00 hours on 24 August 2000 and will last as long as it takes to complete these objectives... "

4.116.
The Secretariat also requested that the Concessionaire deliver up all passwords and access codes, cancel existing passwords, deliver all files provided to the Concessionaire and delete any additional backup copies of this information.
4.117.
In the Tribunal’s view, this was a responsible and measured response by the Secretariat to the public concerns resulting from the allegations made against Mr Cavallo. It was suggested by the Claimants that these amounted to unlawful ‘co-ordinated raids of remarkable spontaneity and speed’, whilst apparently conceding that there was no cogent evidence before the Tribunal to justify such an allegation [DI.48], The Tribunal rejects this criticism: the swiftness of the Secretariat’s response was the natural consequence of public concerns over the Cavallo incident; and it was a reasonable and necessary response in difficult circumstances.

The eventual outcome of these audits and inspection was reassuring to the Secretariat, confirming that the confidentiality of information held by the Concessionaire had not been breached from the Registry’s start-up onwards, such that no-one would have been able to make improper use of the database's information. However, this did not suffice to calm public concerns within Mexico.

(20) The Technical Intervention

4.118.
29.08.2000: On 29 August 2000, facing continued pressure from public and political opposition concerning the security of information collected and managed by the Registry, the Secretariat issued a decree authorizing a ‘Technical Intervention’ in the management of the Registry directed at the Concessionaire.
4.119.
The purpose of such a Technical Intervention was set forth in the decree, reproduced below:

"WHEREAS

That the operation of the National Vehicle Registry is a public service whose purpose is the identification of vehicles manufactured, assembled, imported or circulating in the national territory, as well as providing the service of information to the public;

That this system of vehicle identification in all the country contributes to the legal security of the legitimate owners of vehicles and discourages the theft of the same;

That the current legal status of the former director of the concessionaire referenced, due to the presumption of responsibility for illegal acts imported to it, has generated uncertainty among the users of the service and the public in general with respect to the confidentiality of the information contained in the database that is necessary to provide the service;

That this secretariat may use the [provision] in the second paragraph of Article 25 of the Law of the National Vehicle Registry [cited earlier in this Part IV of the Award, at Paragraph 4-28 above], to intervene in the administration of the public service, in any circumstance which prevents the concessionaire from maintaining the optimal operation of the service, and due to these circumstances, it is imperative and urgent to take immediate measures, therefore I have decided to issue the following:

DECREE WHICH DECLARES THE INTERVENTION OF THE PUBLIC SERVICE OF THE NA TIONAL REGISTRY OF VEHICLES

ARTICLE l.-The Federal Government, through the Secretariat of Commerce and Industrial Development, declares the intervention of the public service of operation of the National Vehicle Registry.

ARTICLE 2.-The Federal Government, through the Secretariat of Commerce and Industrial Development, shall appoint a technical intervener who shall exercise the powers necessary to guarantee the integrity and confidentiality of the information contained in said registry.

ARTICLE 3.-Concesionaria RENAVE, S.A. de C.V. [the Concessionaire] shall grant the intervener all powers necessary for the fulfillment of its objectives, in accordance with all powers of Article 20, numeral X, of the Law of the National Vehicle Registry.

ARTICLE 4.-The Secretariat shall decide when this intervention shall cease, after the evaluation of the conditions which motivated it. "

Within the Secretariat, the individual officer responsible for this decree was the Secretary, Dr Blanco, to whose testimony the Tribunal returns below. It is to be noted that this decree was not based on any "imminent peril for the national security" under the first part of Article 25 of the Act.

4.120.
Mr Erasmo Marin Cordova was promptly appointed by the Secretariat as the technical intervener responsible for overseeing and supervising the Concessionaire's operations, beginning his work immediately. Mr Marin was not called as a witness in these proceedings; but his written reports were adduced in evidence. The Tribunal has found them objective, professional and useful.
4.121.
05.09.2000: Mr Marin issued his first report on the confidentiality aspects of the Concessionaire on 5 September 2000. He reported the following observations to Secretary Blanco:

• "[...] Currently, there is a place in the company Hewlett Packard where the central computers and official databases of RENAVE function. Additionally, there is an installation and equipment for disaster recovery in the Concessionaire’s building, however, due to its function and to the capacity of this equipment, the latter does not meet the need and convenience of having a "mirror" installation which should be located outside and far from HP.

Due to the increasing importance of this data base at the national level and due to the circumstances such as that diverse private organizations operationally intervene in the process of vehicle registration; it is necessary and convenient to design and build a mirror centre in SECOFI. The mirror centre should not be conceived as a non-operating centre, a "dark room" with a terminal that monitors the network and periodical controlled updates. The mirror centre of SECOFI should have terminals that are connected with the workflow system that allows monitoring the operation of each of the actors of the systems of the company and of the databases that are not completely linked. In this way it could be publicly confirmed that the database is secure with the redundancy and with the controlled updating in the Public Sector premises.

• The company Keon of Mexico, as part of a network of companies that make up the RENA VE system, has as a main duty to make the final review of the documentation submitted by the individual that requests the registration; likewise to capture the information of the owners and the vehicles; verify them internally and "scan" the copies of documents received in order to build a database that will permit the verification of the precision of the content of a database of RENAVE.

• During the visit of 1st September [2000] it was observed that the system’s operation of said organization was completely interrupted from 30th [August,] supposedly by failures in the Informix database; simultaneously due to that same failure and a failure in one of the two Scanners, the scanning was also interrupted. To date the system is still not working and since yesterday, the technical personnel continue to try to re-establish the operation or obtain a backup to be operated at IBM.

The data obtained and the facts witnessed have led us to verify on one side, the importance of this process for the company and on the other side, the great vulnerability of the same...."

4.122.
11.09.2000: On 11 September 2000, Mr Marin provided Secretary Blanco with a second written report containing the following observations, amongst others:

"In order to confirm the assessments expressed to you and to Mr Raul Ramos during our meeting on the 5th [September], and due to the first review of the two main databases that provide the fundamental support for the functioning of the RENAVE database; we have observed that in their real actual operative conditions, they are unable to satisfy the needs of the service offered to individuals and companies who own used vehicles.

[...]

Given the conditions of the system’s operation and the situation of nonconformity expressed in the media and in the Chamber of Deputies, it is advisable to redefine the strategy to implant [sic] the system to continue only with the registration of new vehicles and federal public transport, during the time that is necessary in order to secure that the other data bases can be in conditions to provide the updated, sufficient and appropriate information to the service offered by RENAVE...

Further to the letter submitted to you on the 5th of this month, the cause of the failure in the computing equipment and the backup tapes that Keon Mexico has in order to attend to RENAVE’s service, which occurred on the 30th of last month, has not been identified or corrected. Therefore, its operation has not been reestablished, as a result of which twelve days have passed without the processing of any of the registration requests.

[...]

Regarding our recommendation to establish in SECOFI, a "mirror installation" in which the database of RENAVE users is updated continuously; I inform you that the proposal by Hewlett Packard has been submitted to Ing. Luis Young which contains two options which could satisfy the needs that were raised. It is convenient for the General Directorate of RENAVE in SECOFI to carefully analyze these or other options in view of the actual circumstances, and to determine the best solution for SECOFI to have the effective control of the public database of Renave. Pursuant to article 5 of the Law, "The database remained exclusive property of the Federal Government... "; measures suggested could further guarantee the control and security of said database. "

4.123.
During the period of this technical intervention, Mr Marin also engaged Grupo Corporativo Informatico S.A. de C.V. ("GCI") to undertake a technical evaluation of the Concessionaire’s information security systems. The GCI report was issued in early October 2000.
4.124.
In the Tribunal’s view, the appointment of a ‘technical intervener’ under the Act was a responsible and measured response by the Secretariat to the public concerns inevitably resulting from the grave criminal allegations made against Mr Cavallo. Eventually, it might have sufficed to assuage those concerns and restore public confidence in the Concession, leading to the registration of both used and new vehicles as originally planned, were it not for the events which soon followed.

(21) The Death of Under-Secretary Dr Ramos Tercero

4.125.
07.09.2000: On 7 September 2000, Dr Ramos Tercero, who had been responsible for running the project as Under-Secretary at the Secretariat (under Secretary Blanco) was found dead in a wooded area to the west of Mexico City. His death was either a murder or suicide. In either event, it was a very unexpected, sudden and brutal death.
4.126.
Several personal documents were found after Dr Ramos’ death, including a letter apparently written by him addressed to the General Director of Reforma. This letter, if written by the deceased, confirms the difficult situation prevailing by early September 2000 in regard the Concessionaire following Mr Cavallo’s arrest. It reads, in relevant part, as follows:

"... Iam a clean man. Iam an honest man. I have always been one. I have never unduly benefited from office. My life is an open book in which there is nothing to hide.

The bid for the concession of the National Vehicle Registry was carried out fully consistent with the law and with complete transparency. The audits that are about to be made undoubtedly will show that. I have no doubts about that. Moreover, the operation of the Concessionaire has been professional and clean and the operative difficulties that it faced can be explained by the fact that the administrative unit under my charge has been unable to provide certain necessary operation criterion rules in a timely manner.

We did not do so because we were overwhelmed with work. For that reason alone, there is no plot or conspiracy to make the National Vehicle Registry an instrument to perform criminal acts, there never was, on the contrary, we made a serious and professional effort to comply with our duties despite the increasingly difficult conditions, created by the media, which insisted on making us look like true criminals...."

4.127.
It is impossible here to record in full, from the evidence, the devastating and immediate effect of Dr Ramos’ death on the Secretariat, the Concessionaire and the Mexican public at large. Dr Ramos was indeed well-known and respected in Mexico (and abroad) as an honest man of great professional abilities, with a broad experience of government and international affairs. Moreover, he was not known as a person who succumbed to pressure or suffered from suicidal tendencies. He had shown no sign of distress at the meeting earlier on 6 September 2000 with Dr Blanco and the Concessionaire’s representatives.
4.128.
Notwithstanding personal documents suggesting suicide, it was widely believed at the time that Dr Ramos had been murdered by powerful criminal interests in Mexico and that such criminals were thereby protecting their illegal activities connected to the workings of the Registry, whether the Registry was thought to impede these activities (being effective to combat organized crime) or conversely to facilitate them (being susceptible to leaks of confidential information). Conversely, if his death were suicide, questions arose as to the reason why Dr Ramos would take his own life if it were not a reason somehow connected with the Registry and the Concessionaire.
4.129.
Accordingly, the violent death of Under-Secretary Ramos Tercero, so soon after the arrest of Mr Cavallo, greatly exacerbated public speculation and concerns over the whole project for the National Vehicle Registry.
4.130.
Following Dr Ramos’ death, Mr Luis Young Fonseca, Director General of the National Vehicle Registry, assumed his position as Under-Secretary within the Secretariat.

(22) The Reaction of Talsud

4.131.
23.08.2000: Talsud first learned of the criminal allegations against Mr Cavallo late on 23 August 2000, the day before the publication of the front-page article in Reforma. Mr Cavallo had earlier been approached by a journalist from Reforma; and he in turn spoke to Mr Taiariol. At that time, Mr Taiariol was in Mexico City; and Mr Siegrist had just arrived on 22 August 2000 to attend board meetings of the Concessionaire on 23 and 24 August 2000. Mr Cavallo told them it was a case of mistaken identity and that he was proposing to return to Buenos Aires to secure further proof of his identity. At this time, the journalist’s inquiries did not seem to raise an immediate concern with Talsud.
4.132.
24.08.2000, That changed the next morning. The publication of the article in Reforma, Mr Cavallo’s arrest and the public reaction on 24 August 2000 posed a clear threat to the future of the Concession and the Concessionaire, including Talsud as an Argentinean company and Mr Cavallo’s original employer. Mr Miguel de Erice (then Talsud’s lawyer in Mexico City) testified that he thought at the time that it was "the death of Renave" leading to the cancellation of the Concession [D9.2128 & 2129],
4.133.
On 24 August 2000, soon after the article’s publication, a meeting was held at the law offices of Noriega & Escobedo in Mexico City, starting in the morning and continuing into the afternoon. It was attended by Mr Siegrist, Mr Taiariol, Mr Juan José Boija Papini and Mr de Erice (of Noriega y Escobedo). Mr de Erice had earlier acted as the Concessionaire’s legal adviser but he was now advising Talsud. He left the afternoon meeting to attend the Interpol office in Mexico City, awaiting Mr Cavallo’s return from Cancún (under arrest) and instructing criminal lawyers to assist Mr Cavallo.
4.134.
On 25 August 2000, after Mr Cavallo’s arrest and detention in prison, a meeting was held between Mr Siegrist, Mr Taiariol, Mr Boija and Mr de Erice. On 26 August 2000 (Saturday), there was another meeting between Mr Taiariol and Mr de Erice in Mexico City. Mr Taiariol and Mr Siegrist then travelled by plane to El Salvador, as earlier planned. On 28 and 29 August 2000, Mr de Erice met Mr Taiariol in El Salvador. On 29 August, Mr de Erice and Mr Taiariol travelled from El Salvador to Mexico City. On 7 September 2000, Mr Siegrist also returned to Mexico City, with Mr Borja.
4.135.
06.09.2000'. A meeting took place on 6 September 2000 between Mr Davis & Mr Salgado for the Concessionaire and Dr Blanco & Dr Ramos at the offices of the Secretariat, addressing the status of the Registry and the Concessionaire. (This meeting was not attended by Mr Taiariol or Mr Siegrist). Later that night, Dr Ramos’ body was found and his death announced on the radio and television.
4.136.
07.09.2000, Mr Taiariol learned of Dr Ramos’ death on 7 September 2000. He was very shocked and saddened. Mr Taiariol considered at the time that Dr Ramos was murdered and did not commit suicide, as he still does today [D9.2030, 2031], He also considered that, if murdered, Dr Ramos’ death was somehow linked to the Registry; and that it was therefore possible that more murders could take place [D9.2030],
4.137.
Mr Siegrist testified that, on learning of Dr Ramos’ death on 7 September 2000, he "was just totally overcome by circumstance. It was a person I knew, had dealt with, a person that Mr Salgado told me: I was with him yesterday, and he was great, he was fine, and then in the afternoon he takes his life?" [D9.2077] and "...They were very, very hard circumstances" [D9.2079],
4.138.
Mr de Erice testified that he was "very shocked and very, very worried" on learning of Dr Ramos’ death [D9.2145], His worries concerned the personal safety of those closely involved with the Concessionaire, including Mr Taiariol and Mr Siegrist of Talsud.
4.139.
08.09.2000: There were further meetings and other conversations between Mr Taiariol, Mr Siegrist and Mr de Erice during the following days. Their timing and details are not here relevant. Before returning to El Salvador on 8 September 2000, Mr Siegrist testified that he "perceived panic in Dr de Erice" [D9.2073], In his testimony, Mr Siegrist used the phrase "mental and physical integrity" to describe the sensation of fear felt by him at the time in Mexico [D9.2068], Mr Siegrist decided that he would leave Mexico City for El Salvador; that it was "crazy" for him to stay in Mexico [D9.2088 & 2090]; and that he would not be returning to Mexico until circumstances changed (he returned only in February 2001). He so informed Mr Taiariol before his departure.
4.140.
11.09.2000: Mr Taiariol met Mr de Erice during the morning of 11 September 2000, during which there was also a telephone conversation between them. There was another meeting between Mr Taiariol, Mr de Erice and a third person accompanying Mr de Erice during the afternoon. Acting on their advice, Mr Taiariol decided to leave Mexico on the next available flight to Argentina that same evening. Mr Taiariol left Mexico City by plane late on 11 September 2000, arriving in Buenos Aires on the following day. He was driven by car to the airport; but it is not clear whether he was accompanied by Mr de Erice and/or the third person.
4.141.
The Tribunal does not consider that the third person attending the afternoon meeting was Mr Santiago Creel, as recalled by Mr Taiariol. (Mr Creel was then active in Mexican politics with PAN and close to President-elect Fox). The Tribunal accepts that Mr Taiariol holds an honest belief otherwise; but the Tribunal considers that his belief is probably mistaken. His present recollection is more than eight years old; he did not know Mr Creel personally at the time; he therefore did not so recognize him at the meeting (although he knew his name as a former law partner of Mr de Erice); and Mr Taiariol’s recollection, whilst indirectly supported by Mr Siegrist, does not square with other cogent evidence before this Tribunal, including the written and oral testimony of Mr de Erice. (Mr Creel was not a witness in these proceedings).
4.142.
It does not matter, for the purpose of this case, who this third person actually was. The Tribunal accepts the honesty of Mr Taiariol’s testimony (albeit incorrect) as regards this third person’s identity; his mis-recollection does not impeach him as an honest witness or otherwise work to discredit him; and the Tribunal therefore rejects the submission made by the Respondent that, having "lied" as a witness in regard to this third person’s identity, an adverse inference should be drawn by the Tribunal against all of Mr Taiariol’s testimony on all other issues in these proceedings. The Claimants made it plain that their case did not depend in any way upon the identity of this third person; and the Tribunal has placed no reliance on this third person’s identity for the purpose of its decisions in this arbitration. However, this afternoon meeting is not wholly irrelevant to certain other issues addressed by the Tribunal in this Award.
4.143.
Whoever this third person was, it is clear that with Mr de Erice, the two men strongly advised Mr Taiariol on 11 September 2000 that he should leave Mexico City urgently for his personal safety. In the words of Mr Taiariol, "they told me that somehow they had some information, and it was better for me to leave the country." [D9.2020] and "if Renave continued, there could be more death" [D9.2033], Their advice was based on the lack of security for Mr Taiariol as a person linked to Talsud, the Concessionaire and the Registry; and it was consistent with the earlier impression received from Mr de Erice by Mr Siegrist, as relayed to Mr Taiariol.
4.144.
As was apparent from his testimony before the Tribunal, Mr Taiariol was not a person to be easily frightened; and he described himself, in his own words, as "not an easy person to deal with" [D9.2033], Nor did Mr Siegrist give any different impression to the Tribunal. Moreover, at about this time, Mr Cavallo’s companion and their young daughter were instructed by Talsud to leave Mexico City and return to Argentina, also on advice from Mr de Erice. This companion had worked as the Concessionaire’s Comptroller; and her departure was arranged by Mr de Erice, as he confirmed during his testimony [D9.2148], In the Tribunal’s view, Mr de Erice conducted himself professionally towards Talsud in these very difficult times; and his advice was both sound and reasonable.
4.145.
In the Tribunal’s view, the death of Dr Ramos had a far worse effect on the Concessionaire than even the arrest and detention of Mr Cavallo, to which it was closely linked in the minds of the public. As reports of Mr Cavallo’s extradition proceedings continued in Mexico over the next 2 Vi years (until his extradition to Spain on 28 June 2003), that disturbing link was maintained in the public mind. Dr Ramos’ death and the Cavallo incident were and remain important factors in this case. (The Tribunal considers the legal significance of these factors later in this Award.)

(23) The Suspension of the Obligation to Register Used Vehicles

4.146.
15.09.2000: One week after Dr Ramos’ death, on 15 September 2000, the Secretariat published a decree indefinitely suspending the legal obligation of owners, suppliers, and sellers to register used vehicles.
4.147.
The preamble to this decree describes the purpose of the suspension as follows:

"WHEREAS

That the Law of the National Vehicle Registry establishes that the Registry shall have a database, integrated with information about each vehicle provided by the authorities, manufacturers, assemblers, commercial entities, insurers, individuals or any other source;

That the Law of the National Vehicle Registry and its Regulation provide that the obligation to register vehicles in circulation before the National Vehicle Registry and the obligation to provide the notifications set out in the said regulations shall be completed according to the calendar that shall be published by the Secretariat of Commerce and Industrial Development for such purpose;

That on 28 April 2000, the Agreement, which sets out the calendar of registration and notification obligations to register before the National Registry of Vehicles by establishing dates for the compliance of the obligations derived from the Law of the National Vehicle Registry in its pilot phase for the states of Hidalgo and San Luis Potosí, as well as the calendar for the fulfillment of the obligations which derive from the same law and its regulation in its national phase in respect to new vehicles, was published in the Official Gazette of the Federation.

That on 8 June of the present year, the Agreement, which sets out the calendar of registration and notification obligations before the National Registry of Vehicles in its national phase, with the purpose that the individuals that are bound by the Law of the National Vehicle Registry and the Regulation submit the notifications and register vehicles in circulation which are referred to in the ordinances, was published in the Official Gazette of the Federation.

That in order to achieve the well-functioning and coverage of the National Registry of Vehicles, suspension of the obligation to register vehicles in circulation has been considered while the execution of coordination agreements with the federative entities is concluded so that the information contained in the vehicle lists of the federative entities and of the Federal District can be relied on and the cost to the individual can be removed;

That auto theft mainly affects recent vehicle models, and in order to prevent andfight this offence, it is considered imperative to give continuity to the public service of the Registry in relation to new vehicles. As provided by article two of the Agreement which sets out the calendar of obligations to register and give notice to the National Vehicle Registry, published on 28 April 2000 in the Official Gazette of the Federation, I have decided to issue the following:

DECREE THAT REVOKES ARTICLE ONE OF THE AGREEMENT WHICH SETS OUT THE CALENDAR OF THE OBLIGATIONS TO REGISTER AND GIVE NOTICE TO THE NATIONAL VEHICLE REGISTRY AND REVOKES THE AGREEMENT WHICH SETS OUT THE CALENDAR OF THE OBLIGATIONS TO REGISTER AND GIVE NOTICE TO THE NATIONAL VEHICLE REGISTRY IN ITS NATIONAL PHASE. "

4.148.
This announcement was followed on the same day by an ‘administrative intervention’ in the operation of the Registry. It was the first of two different administrative interventions ordered by the Secretariat.

(24) The First Administrative Intervention

4.149.
15.09.2000: On 15 September 2000, the Secretariat ordered the first ‘Administrative Intervention’ directed at the Concessionaire. This intervention was justified by reference to "a situation which has generated uncertainty among the users of the service and the public in general, in relation to the confidentiality of information contained in the database of the National Vehicle Registry".
4.150.
The decree ordering the administrative intervention provided (inter alia) as follows:

"WHEREAS

That with the aim of urgently confronting a situation which has generated uncertainty among the users of the service and the public in general, in relation to the confidentiality of information contained in the database of the National Vehicle Registry, the Secretariat has published a decree ordering the technical intervention of the public service of the said Registry in the Official Gazette of the Federation.

That it is of great importance to address the concerns generated by the functioning of the concession of the public service as to the operation of the National Vehicle Registry, which led to the cessation of the registration of used vehicles; and

That the foregoing lets us conclude that circumstances subsist which prevent the concessionaire from maintaining the optimal operation of the service. Therefore, the Secretariat is authorized to intervene, not only in the technical aspects in relation to the integrity and confidentiality of the Registry’s database, but also to intervene in the administration of the concessionaire, as a precautionary and necessary measure. That will enable supervision of its functioning. Due to the extraordinary circumstances which have arisen, I have decided to issue the following:

DECREE WHICH DECLARES THE ADMINISTRATIVE INTERVENTION OF THE PUBLIC SERVICE OF THE NATIONAL REGISTRY OF VEHICLES

ARTICLE 1. The Federal Government, through the Secretariat of Commerce and Industrial Development, declares the administrative intervention of the public service of operation of the National Vehicle Registry in all the national territory.

ARTICLE 2. The Federal Government, through the Secretariat of Commerce and Industrial Development, shall appoint an administrative intervener, as well as other persons who may be required to perform his duties.

The administrative intervener, with the purpose of maintaining the optimal operation of the public service:

I.- Shall hold the office of intervener with the authorities and powers inherent to the general director.

II.- Shall take administrative and operative control.

III.- Shall answer to the Secretary and shall inform him periodically about the development of the intervention.

IV.- Shall exercise the necessary authority to guarantee the integrity and confidentiality of information contained in the Registry.

V.- Shall take all other actions which the Secretary authorizes.

ARTICLE 3. Concesionaria RENAVE, S.A. de C.V. shall grant the intervener all the necessary powers for the achievement of its objectives in accordance with article 20, numeral X of the Law of the National Vehicle Registry and the provisions established in the twelfth condition, paragraph 15 of the Title of Concession.

ARTICLE 4. The Secretary shall decide when this intervention shall cease, after evaluating the conditions which gave rise to it. "

Within the Secretariat, the individual officer responsible for these two decrees of 15 September 2000 was again Dr Blanco (as with the earlier decree of 29 August 2000). It is to be noted that neither of these two decrees was based on any "imminent peril for the national security" under the first part of Article 25 of the Act (cited above). It was not intended that the suspension of the legal obligation to register used vehicles should be permanent; and this administrative intervention was to be temporary: see Article 4 of the second decree above.

4.151.
The administrative intervener was to be the former technical intervener, Mr Marin. He thereby assumed administrative authority over the Concessionaire’s General Director (Mr Bilbao) and reported directly to the Secretariat. Over the course of his tenure as the first administrative intervener, Mr Marin remitted several written reports to the Secretariat on the operations and financial situation of the company. Again, the Tribunal has found these reports objective, professional and useful.
4.152.
19.10.2000, Mr Marin issued his first report as Administrative Intervener on 19 October 2000, proposing several measures to be implemented by the Concessionaire.
4.153.
Among matters discussed in Mr Marin’s first report were the results of GCI’s technical review of the confidentiality of information held by the Registry and registration cards for both new and used vehicles:

"SECURITYEVALUATION. [...]

The evaluation reveals a wide variety of insecure conditions in the vehicle registration service of information security operations as well as express and implied suggestions for the correction of these conditions. The analysis was centred on the three main nodes located at the premises of Hewlett Packard Mexico, Keon de México, and of Concesionaria Renave itself. It covered the equipment, applications, operating systems, databases, measures to protect the physical and logical aspects of the operations, processing, accesses, teleprocessing, information integrity, etc.

Within the overall scope of the study, and the different levels of impact, importance and significance that the inadequate security conditions encountered may have, which are directly related to the security levels specified in the "prospectus" and the bid terms on which this service is based, below is a summary of the most significant:

• "The security specification of the equipment, components, databases, and operating systems must be at least B2. " (page 124 of the prospectus). The technical evaluation verified that the B2 security level is not reached at any of the computing nodes in the concessionary’s network, not even at the main node located at HP Mexico. [...]

• As a corollary to the above and in accordance with your instructions to "evaluate the operation of the company to determine possible grounds for termination of the concession ", the conclusion to be drawn is that it has been demonstrated that the points mentioned constitute clear grounds for terminating the concession. Assuming the possibility that the concession might be revoked, I consider that it is essential to:

o Determine and prepare all the technical, administrative, legal, and media necessary activities.

o Define a new "prospectus " in which the Renave’s operating process is redesigned and resized to include only new vehicles (May 2000 and later) and changes of ownership of the same, as well as miscellaneous appropriate notices established provided for in the prospectus....

[...]

REGISTRATION CARDS FOR USED VEHICLES. About 200,000 applications for registration with different dates of origin are currently being processed. In accordance with regulations, within three months of the receipt of an application a registration card should be issued or an explanation given as to why a card has not been issued. Given the very few cooperation agreements with the States and the incompleteness of the information contained in the federal databases (SAT and SNSP), the resumption of the used vehicle registration service will translate into the necessity of informing the people who submitted an application the reasons why they will not receive their card, or if the cards are delivered, of the restrictions attached to them because it will not have been possible to make full checks of their conditions in the databases. The sensitive nature of this matter warrants the definition by SECOFI of an appropriate strategy in order to prevent dissatisfaction and further inconvenience. If deemed necessary, this issue should be jointly agreed beforehand with the appropriate authorities and appropriate social representatives. If the service is definitely to be discontinued, the source of the money to be refunded to the owners of the used cars shall need to be determined, as well as the cost of this refund and proceed in the short-term to publish the procedure for paying the people who have claimed refunds. The total amount involved is estimated between 8 million and 12 million pesos, and that the cooperation of the competent authorities will be necessary to authorize the deduction of this expense.

REGISTRATION CARDS FOR NEW VEHICLES. These applications continue to be processed normally. However, it is necessary to initiate a communication campaign focusing particularly on new car owners (May 2000 or later) to inform them and future purchasers of their obligations and benefits in terms of security by timely reporting changes in ownership and the transfer of the registration card and the scratch-off card to the new owner. The value and level of confidence associated with this solution would be derived from the RENAVE database without the necessity of resorting to the S.A.T. and S.N.S.P. databases. It will also be necessary gradually to replace the services provided by the CTDs and CTDCs since they are practically closed and do not offer the service anymore. It is advisable to redesign the current regulations given that the new circumstances do not correspond to it. Additionally, it will be necessary to define the legal status that Renave smart card might have. "

4.154.
It will be noted that Mr Marin here refers to the Secretariat’s instructions to him "to evaluate the operation of the company to determine possible grounds for the termination of the Concession". Clearly, there was already an option being considered within the Secretariat to terminate the Concession Agreement, taking place before the change in the Federal Government’s political administration. The Tribunal concludes from the evidence, particularly the testimony of Dr Blanco, that this was only one of several policy options addressed by the Secretariat; and that it was not a plan, still less a decision to terminate the Concession Agreement. Indeed, it would have been surprising, given the public concerns being directed at the Concession, if the Secretariat had not considered whether or not grounds existed to terminate the Concession and enlisted the advice of Mr Marin.
4.155.
03.01.2001: On 3 January 2001, following the replacement of Secretary Blanco by Secretary Derbez under the new political administration of President Fox, Mr Marin wrote to Secretary Derbez outlining a strategic proposal for the management of the Concessionaire’s operations:

• "The drastic fall in the number of used-vehicle registrations and the subsequent suspension of the obligation to register them caused several problems in the service contractual relationship with Keon de Mexico S.A. de C.V. As a result of this situation, registration was interrupted and information on almost 50% of the people who applied to register their used vehicles is missing. Furthermore, although it will not all be useful now, the physical file containing the copies of documents delivered by the applicants is in a sense being held "semi-hostage " in Keon because of the financial problems caused by the known events. One of the critical problems caused by this situation is that it is impossible to obtain the minimum information needed to correctly make refunds to almost 50% of those applicants.

Given the important public nature of this physical file, it is necessary that the Secretariat decides and orders the physical relocation of this file to the Concessionaire’s premises or to another location, in accordance with its instructions. By acting on this suggestion, we would have the security required to make the refund mentioned earlier.

• The report dated 22 November 2000 described the severe difficulties experienced and the mistakes committed by both the Concessionaire and "GemPlus", which impeded production of new-vehicle registration cards as of that date. As of today, although some progress has been made, not a single new registration card has yet been produced.

This failure is in breach of the regulation and merits an official warning from the Secretariat. [...]"

At this time, there was apparently no suggestion that the Concession might be requisitioned, revoked or terminated by the Secretariat under the Act or the Concession Agreement itself.

4.156.
01.02.2001: One month later, on 1 February 2001, Mr Marin submitted a further written report to Secretary Derbez, concluding as follows with regard to the Concessionaire’s financial status: "From a financial stand point, the figures reported in the Concessionaire’s financial statements show a satisfactory trend. This situation will enable the necessary adjustments to be made to its structure, procedures and operations so as to achieve the level of service and quality demanded by both the legislation and the population. In combination with the low operation volumes, this financial position will enable the internal control procedures to be strengthened."
4.157.
Mr Marin recommended that several measures be taken in respect of the Concessionaire’s financial reporting, including the following: "There is an urgent need to implement the organisational elements, procedures and controls required to ensure the suitability and quality of the services, as well as those of the information on which the financial statements are based."
4.158.
With regard to services, Mr Marin reported the following:

"SERVICES NOT A WARDED

At the express request of Mr Luis Young [of the Secretariat’s Undersecretary], the Concessionaire commenced evaluation of the degree of compliance with entry in the tax register, particularly for new vehicles. To date, talks have been held with organisations offering both finance lease and true lease arrangements. In both cases, it has been confirmed that as the vehicles are invoiced to the lessor, which therefore holds ownership, entry in the tax register is not applicable.

As regards the automobile finance companies and other non-specialised finance companies that also work in the automobile market, entry in the tax register is applicable. Of the total number of approximately 300 finance companies, only 11 are entered in the system. To date, of 466,000 new vehicles registered, only 135,000 have been entered in the tax register, a figure that is below the forecast result.

As regards this situation, four main errors are observed. 1.- An insufficient number of notifications from vehicle Distributors. 2.-Wrongful collection of the fee [...] from owners. 3.- Lack of confirmation sent to RENAVE by finance companies and 4. - Payment of the fee applicable to them.

The aforementioned errors mean that the legislation is not complied with and that significant financial losses are incurred by the company. It is estimated that to date approximately 3.5 million pesos have not been collected.

RECOMMENDED MEASURES

As a result of the aforementioned, the necessary instructions have been issued to reorganise and activate the required systems and procedures so that within the shortest possible period of time (March): 1° No new vehicle may be sold on credit without the corresponding tax being registered. 2° A review of the previous months will be undertaken to endeavour to recover and update the databases and corresponding charges. "

4.159.
Finally, Mr Marin reported continuing problems with regard to the delivery of registration documents, i.e. smart cards, recommending the following measures:

"PROGRESS IN THE DELIVERY OF REGISTRATION CARDS

As previously mentioned, this has been one of the critical problems with the Concessionaire’s operations; the procedures that have somehow delayed delivery have been reactivated; we have established controls to keep a daily track of the production process, we have sustained conversations and established schedules to comply with the commitment of the timely delivery of cards and have made strong complaints to the provider for the significant backlog, however, to this date, we have been unable to recover and it is practically in worse condition than a month ago.

From a total of approximately 420,000 registration applications received in the course of this month approximately 242,000 registrations we have delivered to the provider Gemplus, of which only 12,500 have been produced and sent to the users. The situation is still serious. Adding to the situation is the fact that the provider [Gemplus] is also an important shareholder in the Concessionaire.

Once again we are seeing a problem of management control and this indicates the urgent need to structure the MANAGEMENT CONTROL function. The company Freysinnier y Morin has already been requested to provide a proposal with a view to institutionalizing the control of all the Concessionaire’s administrative and service processes. "

4.160.
16.04.2001: Mr Marín submitted a further written report on 16 April 2001, with comments on the Concessionaire’s financial status and an explanation of the strategies and measures adopted to improve the operation and future service of the Registry. Amongst those general conclusions presented in the report were the following:

"First general conclusion. This first analysis shows that the technological infrastructure does not represent the most significant account asset although it supports the entire operation; paradoxically, since it is a financially sound operation, liquidity exceeds by far the normal requirements of its activity.

[...]

On the other hand it is important to draw the Second Conclusion [...] regarding the positive Treasury changes that enable current liabilities to be covered more than enough by current assets as of these dates.

[...]

Important changes such as cancellation of the KEON service, reduction of the A VANTEL service and termination of the Tecmarketing service lead us to a third conclusion, namely, to take the necessary action for the appropriate regrouping and relocation of the several cost items and accounts so that the operating costs may be reviewed more accurately.

[...]

Fourth conclusion: The imminent termination of the concession entails studying the total financial plan in order to forecast the return once all the services which are now incipient or which have not been provided are fully expedited. "

It is to be noted that Mr Marin here refers to the "imminent termination" of the Concession. It is to be inferred that between his report of 1 February 2001 and this report of 16 April 2001, a decision was taken within the Secretariat to terminate the Concession, communicated to Mr Marin. This conclusion is confirmed by a later passage in the report of 16 April 2001 and other evidence to which the Tribunal returns below.

4.161.
Mr Marin further informed the Secretariat that delays in the issuance of 340,000 registrations, in the aggregate, were "fully overcome" as of the date of his report.
4.162.
However, Mr Marín also identified continuing difficulties resulting from the refusal of the Federal District and other state entities to cooperate with the Registry, noting as regards the registration of new cars (which had not been suspended under the decree of 15 September 2000):

"Mr. Luis Young has been made aware of this matter and, in principle, it has been concluded that since there are no applicable rules clearly and specifically requiring owners of new cars to register them with RENAVE, there is no power to demand that they do so. As regards the above, I consider that our efforts in this respect will be unsuccessful since the responsibility to register is limited to the distributors or dealers that sell new cars.

We are concerned about the fact that the Federal District Government’s attitude of denial may be imitated by other entities in the Republic. "

4.163.
Finally, Mr Marin sought directions as to the further steps to be taken under his administrative intervention, adverting to a "warning" to him by the General Director of the National Vehicle Registry, Mr Young Fonseca:

"It is publicly known that the population is waiting for significant changes in the service and operation of the RENAVE. Likewise the Concessionaire’s personnel is concerned about its future and that of its staff. Termination of the concession is presumed and the legal way in which the service will be continued or changed remains unknown. It is acknowledged that it is wholly unlikely that the present situation will be maintainedfor a long time.

In view of such reality and my duties I wish to tell you that I assume my obligation to support the Secretariat as regards all such matters as are deemed to be necessary and for that reason I hereby request that a hearing be held so that I may receive your guidelines and thus pave the way for the future transformation of this entity.

[...]

On Tuesday 10th of this current month [i.e. 10 April 2001] I received a warning from [the General Director of the National Vehicle Registry] [...] reading as follows:

I require that in your capacity as controller of the public service of the National Vehicle Registry subordinate to this Secretariat of Finance, you limit your action to verify that Concesionaria Renave S.A. de C.V. guarantees security of the information contained in the National Vehicle Registry by observing the principles of confidentiality of the information and that you supervise Concesionaria Renave SA. de C.V. ’s management as regards the provision of the public service and inform this Secretariat of Finance of the course of supervision as established in the Agreement ...’ dated September 15th, 2000.

I am not aware of the reason for the ‘requirement ’ because this is not explained in the written notice in question. With all due respect and as you will understand I cannot accept such a requirement without a broad and satisfactory explanation thereon.

In view of the above, I request that I get a fair hearing so that I can understand the reasons for the requirement and, if pertinent, give you all the answers that may be necessary to clarify any misunderstanding regarding the difficult responsibility which has been conferred upon me.

You may be sure that I fully complied with the duties of my office. Likewise, I confirm to you that I remain at your disposal to tender my resignation to the office when circumstances may so require or when you may so decide. "

By the date of this report (16 April 2001), it is clear that active consideration was being given within the Secretariat as to how to terminate of the Concession Agreement in one form or another, including the dismissal of Mr Marin as the administrative intervener. As this report records, "Termination of the concession is presumed and the legal way in which the service will be continued or changed remains unknown"; but it was evidently to be linked, somehow, to the "security of the information contained in the National Vehicle Registry".

4.164.
On the evidence adduced in these proceedings, it is equally clear that such consideration did not originate from Mr Marin but, rather, from new political figures within the Secretariat, including Secretary Derbez.
4.165.
04.05.2001: On 4 May 2001, Mr Marin submitted his final report to Secretary Derbez, identifying further areas for improvement in the Concessionaire’s work but stating that "the operation has been normalized".
4.166.
Among those issues listed as "pending", Mr Marin identified the following:

"2.2.1 Agreement with the National Public Security Service, and/or otherwise agreements with the States’ Attorney’s Office regarding the exchange of information as to Vehicle Theft Notices or certification of Change of Ownership Notices. This is an essential tool in the quality and reliability RENAVE offers to users, to be supported by the timely certification of a vehicle’s ownership. Notwithstanding that in September 2000 the authorization registration [sic] in the second hand vehicle system was suspended, the natural aging of new vehicles in circulation from May 2000, requires certification of vehicle ownership in the national database, given the increasing number of changes in ownership. Without such a process in place, the RENAVE is unwarranted and lacks grounds to exist.

2.2.2 Agreement with the Tax Administration Service and/or otherwise, agreements with States and Municipalities to exchange information from their vehicle registries. Similarly to the previous item, the possibility of querying the system from across the whole country is beneficial and necessary for all the States as well as vehicle owners.

2.2.3 Reinstatement of the service of Change of Ownership Notice for New Vehicles beginning in May 2000. The incentive to reinstate this service through Distributors and Dealers and given the closure of over 2000 CTDs and CTDCs has not been fruitful. From October to present, only less than 100 Change of Ownership notices have been registered. "

4.167.
Mr Marin proposed the following strategic action, noting that "[a]ll the measures suggested are deemed feasible, although some of them are not directly dependent on the Concessionaire, and therefore it is not possible to define deadlines":

"4.1 Production of smart cards by Assemblers and delivery of smart cards with the vehicle of Distributors or Dealers.

4.2 Customization of smart cards at the Distributors and production of invoices therein to deliver them to owners with the vehicle.

4.3 Coordination agreements with S.A. I, S.N.S.P. andS. C. T.

4.4 New official incentives with States and Federal District Administrations for the acceptance and support of a National Vehicle Registry, with an electronic connection to their vehicle ‘registries’ at the state and municipal level, that renders a high quality public service to citizens overall.

4.5 In view of the uncertainty expressed by the public, users, and related organizations as to the future of the public service created by the National Vehicle Registry Act, it is necessary to decide upon the future of the service and the Concession. "

4.168.
The Tribunal notes Mr Marin’s references to the current "uncertainty" over the National Vehicle Registry. It is also to be noted that Mr Marin emphasises a need by the Secretariat "to decide upon the future of the service and the Concession". It was by now almost eight months since Secretary Blanco’s decrees of 15 September 2000 envisaging a temporary solution, limiting registration to new vehicles; the project for the National Vehicle Registry still required the registration of both new and used vehicles; the Concession remained in place, albeit limited to the registration of new vehicles; and the Secretariat was still searching for a means to terminate the Concession Agreement.
4.169.
Shortly following Mr Marin’s report of 4 May 2001, he was replaced as the administrative intervener of the Concessionaire, thereby marking the beginning of the Secretariat’s second administrative intervention. The latter was of a quite different character. Mr Marin had not determined that there was any breach in the Registry’s security or other leakage of confidential information; he did not advise that there was any imminent peril to national security; and whilst he did identify several technical defects in the work of the Concessionaire, these were remediable and did not justify the termination of the Concession. The second intervener was instructed to pursue a different approach by the Secretariat, as the Tribunal recites below.

(25) The Second Administrative Intervention

4.170.
18.04.2001: On 18 April 2001, Mr Luis Pablo Monreal Loustaunau of the Secretariat prepared an internal memorandum to Secretary Derbez and others, including Dr Maria del Refugio González (General Director of the Secretariat’s Legal Service), concerning the first administrative intervention under Mr Marin. It was sharply critical of Mr Marin.
4.171.
This memorandum read (inter alia) as follows:

"Throughout the period of administrative intervention, 15 September 2000 to date), the intervener has been carrying out his tasks in the terms requested by this Ministry; however, given the time the intervention has lasted, Ifeel he has lost power and presence with the concessionaire.

This is detrimental to the intention of the intervention and is causing, among other things, problems in the information flow necessary for the process of valuing the concessionaire and terminating the concession. There is thus a need to take relevant steps to reinforce the process. "

Mr Monreal concluded his memorandum by proposing the appointment of a new administrative intervener. It is to be noted that the memorandum reflects a decision by the Secretariat to terminate the Concession, as at mid-April 2001. This conclusion is supported by the passages in Mr Marin’s report of 16 April 2001: see above.

4.172.
During this same period, i.e. between April and May 2001, Dr Maria del Refugio González (Dr. González) prepared an "Information Note" for Secretary Derbez "with reference to the possibility of seizing the RENAVE". Dr González was not a witness in these proceedings; but her high standing and good reputation in legal affairs was acknowledged by both sides. The fact that her legal advice was sought by the Secretariat is itself significant: it confirms that from a time in April 2001 onwards a team working at a senior level within the Federal Government was giving serious consideration to the requisition or termination of the Concession in one form or another. The content of her written advice provides further corroboration.
4.173.
In her Note, Dr González made the following observations on the question posed to her for legal advice:

"1. In fact, Article 25 of the Law regarding RENAVE stipulates the seizure of the operations and installations centre, movable property, immovable property and equipment assigned for operating the Register, always and whenever ‘there is any imminent danger to national security, peace within the country or to the national economy’. From the perspective of the working team, none of these assumptions can be demonstrated for the time being. Moreover, one could consider the fact that the RENAVE Law does not indicate whether indemnity is appropriate; other laws which provide for seizures, in certain cases consider indemnity whilst in other cases they do not. Lastly, it is fitting to point out that in the case of RENAVE, there is no similarity either with the labour requisitions or with the bank interventions, since both have been developed in each applicable law.

2. From this perspective, it would be much closer to the law and much safer to begin work through intervention according to the terms of the intervention Agreement and leave seizure until a later stage, if this is the case. In our opinion, the intervener would be the one indicated to inform the Secretary if in the development of the tasks inherent in the intervention there are to be found elements which make it possible a) to revoke the dealership; b) to impose legal sanctions; c) to carry out the seizure.

3. It is possible that up to now intervention did not work adequately. However, this fact may have various explanations: a) the conditions in which the current intervener began; b) the personality of the intervener; c) the way in which the intervener is linked to the concessionaire and d) the uncooperative attitude of the latter. The new intervention is based on healthier grounds, whereby it seems sensible to expect positive results.

[...]

6. It is necessary to point out that although seizure is an aspect provided for by the same law, according to the historical experience it was only resorted to in very specific cases with regard to imminent danger, which in the case of RENA VE would tend to be for national security or the economy. Seizure would be justified if the intervener were to find huge missing elements in the automobile register, misuse of information provided by individuals, handling of false documents, knowing that they were being duplicated for the benefit of third parties or some similar assumptions. If that is not so, the Ministry of the Economy would find it impossible to take any action. "

Accordingly, this senior legal adviser was expressing, unambiguously, her opinion as to the lack of any present basis for the Requisition or Revocation of the Concession under Article 25 of the Act and, in particular, the absence of any grounds based on national security. Her advice also suggested an alternative strategy: first, the appointment of a new intervener and, subject to new and material information provided by that intervener, the possible seizure of the Concession "at a later stage", if this is the case.

4.174.
07.05.2001 : On 7 May 2001, Ms Maria de la Esperanza Guadalupe Gomez-Mont Urueta was appointed as the new administrative intervenor, in succession to Mr Marin. Notwithstanding her political qualities and connections, she was a quite different kind of person from Mr Marin. It is clear that she acted at all times in strict accordance with the Secretariat’s instructions and objectives.
4.175.
It is also clear on the evidence before this Tribunal that Secretary Derbez instructed Ms Gomez-Mont on her appointment to determine whether any reasons existed to revoke the Concession or otherwise adversely affect the Concessionaire. By itself, this was not necessarily an improper instruction; but, in the Tribunal’s view, it was the first step in a concerted pattern of malign conduct within the Federal Government which was to lead to the Concession’s Requisition on 25 June 2001 and its eventual Revocation on 13 December 2002. Such conduct was known to have no justifiable legal basis by the Respondent, acting by its Secretariat. Yet, a decision was reached by the Secretariat, by mid-April 2001, to ‘pull the plug’ on the Concession regardless of whether or not it was legally justified; and the manner and timing of such termination was dictated by a strategy calculated to minimise the risk of legal proceedings and the payment of compensation to the Concessionaire (including the Claimants).
4.176.
The Tribunal records its regret that Secretary Derbez and his close colleagues at the Secretariat were not called by the Respondent as witnesses in these arbitration proceedings. It would have been helpful to the Tribunal to test the conclusions drawn from the contemporary documentation against their testimony, if different. As it is, the Tribunal can only decide these much disputed matters on the evidence adduced before it in these proceedings, as to which the contemporary documentation is conclusive.

(26) The Requisition

4.177.
25.06.2001, On 25 June 2001, by decree, the Secretariat ordered the "requisition" of the Concessionaire’s operations on grounds of national security under Article 25 of the Act. No other grounds were advanced by the Secretariat at the time.
4.178.
The decree ordering the Requisition provided as follows:

"WHEREAS

[...]

That the deterioration in the operation of the public service of the National Vehicle Registry threatens national security since, as the legislator stated in the reasons for enacting the Law of the National Vehicle Registry, said Registry guarantees the protection of the rights of vehicle ownership of the Mexican people;

That by means of the Agreement published in the Official Gazette of the Federation on 29 August 2000, the Secretariat of Commerce and Industrial Development, now the Secretariat of the Economy, declared the technical intervention of the public service of the National Vehicle Registry, with the purpose of confronting the uncertainty generated among the users of the National Vehicle Registry and the public in general, in relation to the confidentiality of the information contained in the database necessary for the rendering of the service;

That the then-Secretariat of Commerce and Industrial Development, now the Secretariat of the Economy, determined the existence of circumstances preventing Concesionaria Renave, SA. de C. V. from operating the service in an optimal fashion, which persisted, and therefore, by means of the Decree published in the Official Gazette of the Federation on 15 September 2000, declared, as a precautionary measure, the administrative intervention of the public service of the National Vehicle Registry, with the purpose of intervening not only the technical aspects related to the integrity and confidentiality of the database, but also the administration of the company;

That the results recently obtained during the aforementioned administrative intervention demonstrate that Concesionaria Renave, S.A. de C.V., has provided the public service of operation of the National Vehicle Registry in a deficient manner, and consequently the registry is not fully complying with its purpose, and as a consequence, not providing legal security to users of the same and not guaranteeing the confidentiality of information provided by them in relation to the vehicles, with imminent peril to national security;

That the deficient provision of the public service undertaken by Concesionaria Renave, S.A. de C.V, is due, amongst other things, to inadequate administration and operation practices, which, together with the lack of measures taken by the Concessionaire aimed at avoiding them may provoke deterioration of the security measures necessary to guarantee the adequate functioning of the Registry, which represents an imminent peril to national security, since it generates incongruities in the information contained in the Registry’s database, and uncertainty with respect to the legal origin of the vehicles registered in it;

That the foregoing requires that the Federal Executive, through the Secretariat of the Economy, take immediate action to correct such practices, reorienting the operation of the public service by means of the requisition, which will allow the broadening of the controls currently available to the administrative intervention; and

That Article 25 of the Law of the National Vehicle Registry, grants the Secretariat of the Economy, the power to requisition the operations centre and other facilities, real estate, goods and equipment committed to the operation of the Registry, as well as to dispose of the personnel employed by the company that operates the registry, when imminent peril to national security exists, I have decided to issue the following:

DECREE FOR THE REQUISITION OF THE PUBLIC SERVICE OF THE OPERATION OF THE NATIONAL VEHICLE REGISTRY GRANTED IN FAVOUR OF CONCESIONARIA RENAVE, S.A. DE C. V.

ARTICLE FIRST.- The Federal Executive, through the Secretariat of the Economy, pursuant to Article 25 of the Law of the National Vehicle Registry, requisitions the operations centre and other facilities, real estate goods and equipment committed to the operation of the public service of the National Vehicle Registry performed by Concesionaria Renave, S.A. de C.V, due to the imminent peril to national security that its inadequate functioning represents.

[...]"

4.179.
27.06.2001: Two days later, on 27 June 2001, Secretary Derbez appointed Ms Gómez-Mont as the general administrator of the Requisition under this decree.
4.180.
The factual chronology established by the Tribunal above, running from Secretary Blanco’s decree of 29 August 2000 to the information note of Dr Maria del Refugio González and Mr Marin’s final report of 4 May 2001 establishes that the Secretariat’s invocation of "imminent peril to national security" was a pretence and known to be factually false to the Secretariat on 26 June 2001.
4.181.
As to the conduct of this Requisition, it is unnecessary here to say much. In effect, the Secretariat, acting through Ms Gómez-Mont took over the running of the Concession, displacing the Concessionaire.
4.182.
25.04.2002: On 25 April 2002, Mr Monreal wrote to Secretary Derbez concerning a report made by Ms Gómez-Mont two days earlier in which various deficiencies had been identified in the operations of the Concessionaire (this report was not, however, produced by the Respondent in these arbitration proceedings). In particular, Mr Monreal indicated apparent failures to comply or inconsistencies with the Act, the Concession Agreement and other applicable regulations.
4.183.
It will be necessary later in this Award to return in detail to the Secretariat’s overall conduct as regards the Requisition and its implementation from 25 June 2001 to 13 December 2002, when the Secretariat revoked the Concession. For reasons there set out, the Tribunal finds that during this period the Respondent was responsible for a pattern of conduct that can only be characterised as irrational, perverse and tainted with bad faith towards the Concessionaire.

(27) The Revocation

4.184.
13.12.2002: On 13 December 2002, the Secretariat revoked the Concession Agreement.
4.185.
In the decree revoking the concession, published several days later on 17 December 2002, the following reasons for the Revocation were identified by the Secretariat:

"WHEREAS

[...]

On several occasions, Concesionaria Renave, S.A. de C.V., infringed the rules applicable to the Registro Nacional de Vehículos; therefore, pursuant to Sections 21, subsections III and 22, subsections I, V and IX of the Law of the Registro Nacional de Vehículos, on December 13, 2002, the Secretariat of Economy revoked the Concession Instrument of the public service of operation of the Registro Nacional de Vehículos, granted to Concessionaria Renave, S.A. de C.V.; such revocation was notified to Concesionaria Renave, S.A. de C. V. on December 16, 2002 and published in the Official Bulletin of the Federation on December 17, 2002;

One of the reasons for the revocation of the Concession Instrument of the public service of operation of the Registro Nacional de Vehículos consisted in Concessionaria Renave, S.A. de C. V. ’s failure to implement the infrastructure required and the necessary systems for the public service of the operation of the Registro Nacional de Vehículos to be rendered in the manner provided for by the applicable rules;..."

4.186.
It is necessary to return to these decrees as to Requisition and Revocation in detail later in this Award. It suffices to record that neither were justifiable on any factual basis in the previous work of Mr Marin, Dra del Refugio González and others, as adduced in these arbitration proceedings.
4.187.
For reasons set out later in this Award, the Tribunal finds that, as regards the Revocation, the Respondent was responsible for further conduct that, like the earlier Requisition, can only be characterised as irrational, perverse and tainted with bad faith towards the Concessionaire.
4.188.
As at 13 December 2002, the Concession had registered 2.2 million new vehicles. As a business concern, it could be regarded as profitable. It was still not, of course, registering used vehicles; the registration of new vehicles was therefore unduly remunerative (being intended to subsidise the costs of registering used vehicles); and it was not therefore operating as the National Vehicle Registry originally intended by the Respondent and, indeed, the Concessionaire. The Concession was effectively operating as a quite different and much more limited project, as it had since Secretary Blanco’s decree of 15 September 2000.
4.189.
As at 24 June 2001, immediately prior to the Requisition, there remained, objectively, a reasonable hope that the project, temporarily curtailed by Dr Blanco, could be restored as a National Vehicle Registry for both new and used vehicles operated by the Concessionaire - provided that the Respondent did not conduct itself unlawfully in breach of its obligations under the two BITs. There were, of course, many other difficulties facing the Concessionaire, flowing directly from the Cavallo incident and Dr Ramos’ death. It is therefore necessary later in this Award to assess that objective hope: it was, in short, a ‘possibility’ and not a ‘probability’.

(28) Legal Proceedings against the Federal Government

4.190.
Following the technical intervention initiated on 29 August 2000, the Concessionaire began several judicial and administrative proceedings in Mexico to challenge various acts and decisions of the Secretariat. None of the Claimants were parties to these proceedings; and none of their present claims under the two BITs were advanced in those proceedings by the Concessionaire.
4.191.
On 20 September 2000, the Concessionaire initiated a review proceeding against the Technical Intervention. The Concessionaire contended that the Technical Intervention was not contemplated in any legal instrument and that the decree which authorized it established neither its scope nor its duration. The Secretariat ruled against the Concessionaire on 8 January 2001, on the ground the Technical Intervention had been implicitly revoked by the decree ordering the First Administrative Intervention on 15 September 2000.
4.192.
The Concessionaire also instituted an amparo against this First Administrative Intervention and the acts of the first intervenor (Mr Marin). On 13 December 2000, the Sixth District judge on Administrative Matters in the Federal District dismissed the case in regards to the acts of the intervenor and denied the amparo. The learned judge did not, in this proceeding, determine the legality of the intervention vis-à-vis the Concession Agreement. The Concessionaire filed a challenge against this ruling in April 2001.
4.193.
On 31 August 2001, the Sixth Collegiate Tribunal on Administrative Matters of the First Circuit dismissed the challenge because the Concessionaire had not filed a copy of the Concession Agreement with the first instance judge.
4.194.
On October 30, 2000, the Secretariat published the Rules of Operation of the Registry. The Concessionaire filed a review proceeding on 21 November 2000 concerning the adoption of the Rules of Operation, requesting a suspension of these Rules until the merits of its request regarding the Rules had been considered. The Secretariat dismissed this request for suspension on 28 November 2000.
4.195.
The Concessionaire filed an amparo against the Secretariat’s refusal to suspend the application of the Rules, which was denied on 18 January 2001 by the Second Judge on Administrative Matters of the Federal District.
4.196.
On 20 February 2001, the Secretariat ruled against the Concessionaire and confirmed the Rules of Operation. On 2 May 2001, the Concessionaire filed an annulment claim before the Federal Court for Tax and Administrative Justice (the "TJFA") against the Secretariat’s decision to confirm the Rules of Operation.
4.197.
On 23 April 2003, the TJFA annulled the Rules of Operation and the Secretariat’s administrative decision confirming them; and it ordered that the Concessionaire’s complaint be heard.
4.198.
The Secretariat filed an appeal from the TJFA’s ruling for failure to consider the supervening event of the Revocation of the Concession Agreement (which had taken place on 13 December 2002). The TJFA’s ruling was ordered set aside on 11 February 2004 by the Fourth Collegiate Tribunal on Administrative Matters of the First Circuit. The TJFA subsequently set aside its original ruling; and it suspended the annulment proceeding concerning the Rules of Operation pending the outcome of the annulment proceeding concerning the Revocation of the Concession Agreement.
4.199.
Following several other challenges by both the Concessionaire and the Secretariat, the TJFA again annulled, on 11 February 2005, the Rules of Operation and the Secretariat’s administrative decision. Following a final appeal by the Secretariat, the TJFA dismissed the case on 11 July 2005.
4.200.
On 7 September 2001, the Concessionaire initiated an annulment proceeding before the TJFA against the Requisition of 25 June 2001, requesting the suspension of the requisition. On 3 June 2002, the request was denied by the TJFA. The Concessionaire initiated an amparo against this ruling, which was denied on September 2002. The Concessionaire then appealed this decision. The Concessionaire’s appeal was dismissed on 26 May 2003 on the ground that the Requisition had ceased to exist as of 13 December 2002, when the Secretariat revoked the Concession Agreement. Following another round of pleadings, the TJFA confirmed the dismissal of these proceedings on 9 January 2005. The Concessionaire filed an amparo against this decision on August 2005 which was also denied on 9 February 2006.
4.201.
On 7 March 2003, the Concessionaire filed an annulment proceeding against the Revocation of the Concession Agreement and requested the suspension of the order of Revocation. As of the date of this Award, it appears that this annulment proceeding remains pending before the TJFA. Accordingly, the TJFA has yet to decide on the legality of the Secretariat’s Revocation of the Concession Agreement.
4.202.
These several court proceedings in Mexico are complicated, lengthy and incomplete; and this summary omits other proceedings taken by other persons in regard to the concessionaire and the Secretariat. Save for one minor issue (to which the Tribunal returns later below), the Tribunal considers these court proceedings to be irrelevant to the principal issues addressed in this Award. Moreover, although the Claimants complain of a denial of justice where the Mexican courts "bent over backwards" to defeat the Concessionaire’s rightful claims, the Claimants do not advance any claim for denial of justice in these proceedings [DI.56]; and accordingly the Tribunal does not here address it.

(29) The New National Vehicle Registry

4.203.
On 1 September 2004, the Public Register of Vehicles Act was published in the Official Gazette, repealing the 1998 Act under which the Concessionaire had operated. This new legislative framework prohibited the operation of the registry by private entities. However, Article 3 of this 2004 Act stipulated that all registrations, notices and other processes completed under the auspices of the former legislation remained fully valid and applicable. Accordingly, it appears that the Federal Government necessarily took the view that the adoption and transfer to the new registry of the Concessionaire’s registrations of new cars (in excess of two million) was administratively appropriate and posed no threat to national security, whether as an imminent peril or otherwise.
4.204.
Thus, ten years after the initiative begun in 1994, Mexico was to acquire a national vehicle registry for both new and used vehicles as originally planned. The difference between the 1998 Act and this 2004 Act lay in the absence of any private concessionaire under the latter legislation. It is that essential difference and its reasons which gave rise to the present dispute between these Parties.

(C) FURTHER FINDINGS OF FACT

4.205.
The Tribunal has set out above the principal chronology of factual events relevant to this Award. As already indicated, it will be necessary to return in more detail to specific aspects of this chronology later below.
4.206.
This case, as was rightly submitted by Counsel at the main hearing, turns in substantial part on factual issues. The relevant facts relating to liability, causation and quantum, as determined by the Tribunal, are somewhat complicated and lengthy to relate, for which the Tribunal can here make no apology.

PART V: ISSUE A - JURISDICTION

(01) INTRODUCTION

5.1.
The Respondent challenged the "competence", or jurisdiction, of the Tribunal under Article 45 of the ICSID Arbitration (Additional Facility) Rules. The Claimants disputed such challenge.
5.2.
The Tribunal has the power to rule on its competence in these arbitration proceedings under Article 45(1) of the Arbitration (Additional Facility) Rules. With the Parties’ consent, the Tribunal joined the Respondent’s challenge to the merits of the Parties’ dispute to be decided in this Award under Article 45(5) of the Arbitration (Additional Facility) Rules.

(02) THE RESPONDENT’S CASE

5.3.
The Respondent raised two separate objections to the Tribunal’s jurisdiction over the Claimants’ claims pleaded in their Counter-Memorial, within the time-limit required by Article 45(2) of the Arbitration (Additional Facility) Rules.
5.4.
Talsud: The first objection concerned the claims advanced by Talsud in these arbitration proceedings. Later, in its Rejoinder, the Respondent withdrew its objection concerning Talsud’s "standing" in view of the information contained in the evidential materials submitted by Talsud with the Claimants’ Reply (Rejoinder, para 128 at 40). This information was confirmed by Counsel for Talsud on the first day of the main hearing and uncontested by the Respondent [DI.69],
5.5.
The Gemplus Claimants: The Respondent maintained its second objection as regards the "standing" of the Gemplus Claimants: (i) Gemplus, (ii) SLP and (iii) Gemplus Industrial.
5.6.
In summary, the Respondent contends that the continuous chain of ownership and nationality for their claims was broken with the legal effect, under international law and the France BIT, that each of these Gemplus Claimants lacks any standing to advance its claims; and that this Tribunal therefore lacks any jurisdiction, ratione personae, to decide the merits of any such claims against the Respondent in these arbitration proceedings.
5.7.
Gemplus Industrial: The Gemplus Claimants contend that Gemplus Industrial has at all times been and remains a corporation constituted under the laws of Mexico, which merged with Gemplus Card International de Mexico SA de C.V. and Grupo Gemplus de Mexico on 31 October 2003 (the merged company remaining Gemplus Industrial); its share capital "has at all times been at least 99% owned by a French company" (Request for Arbitration, paragraph 11); and it is the legal owner of 20% of the issued share capital of the Concessionaire.
5.8.
With regard to Gemplus Industrial (also described by the Respondent as "Gemplus Mexico"), the Respondent submits as follows (Counter-Memorial at 7-8):

"30. Gemplus Mexico subscribed for 20% of the shares in Concesionaria (all of the Series "C " shares issued by the company).

31. Gemplus Mexico was and remains to the present day a Mexican company. At the time of the granting of the Concession it was owned by a French company, Gemplus, SA.

32. It is trite law that in the absence of clear unambiguous treaty text to the contrary, a national of a State has no right to initiate an international claim against its own State.

33. Consistent with customary international law, Gemplus Industrial is not an "investor from the other Contracting Party" within the meaning of Article 9, "Settlement of disputes between an investor of one Contracting Party and the other Contracting Party " of the Mexico-France Treaty.

34. Article 9 plainly distinguishes between the investor and its investment. In addition to its title, paragraph 1 states:

This Article only applies to disputes between one Contracting Party [i.e., Mexico] and an investor of the other Contracting Party in relation to an alleged breach by the Contracting Party under this Agreement which causes loss or damage to the investor or his investment .

35. This is further underscored by the article’s treatment of the interaction between local and international proceedings in paragraph 2. Article 9(2) states:

2. In relation to submission of a claim to arbitration:

a) An investor of one of the Contracting Parties may not allege that the other Contracting Party has breached an obligation under this Agreement, both in arbitration proceedings in accordance with this Article and in proceedings before a competent judicial or administrative tribunal of the former Contracting Party who is party to the dispute.

b) Also, when a company from one of the Contracting Parties, which is a legal person owned or controlled by an investor from the other Contracting Party, alleges, during the course of proceedings before a competent judicial or administrative tribunal of the Contracting Party involved in the proceedings, that the Contracting Party has breached an obligation under this Agreement, the investor may not allege the same breach in arbitration proceedings under this Article.

36. Article 9 does not permit a national of a State to submit an international claim against its own State. "

[The Respondent’s emphasis; footnotes omitted]

5.9.
Gemplus: The Gemplus Claimants submit that Gemplus is a corporation organised under the laws of France; that it held (until 31 October 2003) 99% of the issued share capital of Gemplus Card International de Mexico SA de C.V., which in turn held 99% of the issued share capital of Gemplus Industrial; and that from 31 October 2003 to 27 April 2004, Gemplus held 99% of the issued share capital of Gemplus Industrial.
5.10.
The Respondent contends that Gemplus (described by the Respondent as "Gemplus France" and also known as "GSA") has no standing to bring its claims, for the following reasons (Counter-Memorial at 8-9):

"38. Gemplus France initially had standing to advance this claim because, as a French national, it owned and controlled Gemplus Mexico [i.e. Gemplus Industrial]. However, on 22 March 2004, Gemplus France entered into a Stock Purchase Agreement to sell to a Luxembourgian company, Gemplus International S.A. (hereinafter "Gemplus Luxembourg"), all or substantially all the issued and outstanding shares of a number of its subsidiaries with effect as of 1 January 2004.

39. The subsidiaries listed in Exhibit A to that Stock Purchase Agreement included Gemplus Mexico, and therefore, as of 1 January 2004, the French owner of the Mexican enterprise, which originally held the 20% shareholding interest in the Concessionaire, transferred it [sic: its] shares to a Luxembourgian national.

40. With the transfer of the ownership of Gemplus Mexico to a Luxembourgian company, Gemplus France lost its standing to advance an international claim in respect of that enterprise’s interest in the Concessionaire. "

[Footnotes omitted]

5.11.
The Respondent submits that Gemplus Luxembourg (also known as "GISA") has no standing to advance a claim under a treaty between Mexico and France for the obvious reason that it is a national of Luxembourg (not France); and, indeed, Gemplus Luxembourg is not named as a claimant party to these arbitration proceedings. It is for this reason, in the Respondent’s submission, that Gemplus Luxembourg transferred ownership of Gemplus Industrial back to its French affiliate, SLP.
5.12.
SLP: The Gemplus Claimants contend that SLP is a corporation organised under French law; that on 27 April 2004 Gemplus transferred ah its shares in Gemplus Industrial to SLP; and that, accordingly, SLP became and remains the holder of 99% of the issued share capital of Gemplus Industrial.
5.13.
The Respondent contends that SLP lacks standing to bring any claim because the chain of nationality required under the France BIT was severed when Gemplus transferred ownership in Gemplus Industrial to Gemplus Luxembourg. In the Respondent’s submission, SLP’s claim is barred by the principle nemo dat quod non habet, i.e. no one may transfer better title than he has.
5.14.
In advancing this argument, the Respondent describes the transfer of ownership in Gemplus Industrial as follows (Counter-Memorial at 9-11):

"45. Mr Salgado [of Gemplus] testifies that:

12. On 27 April 2004 Gemplus transferred all its shares in Gemplus Industrial to SLP. SLP continues to be the holder of more than 99% of the share capital of Gemplus Industrial carrying voting rights and it controls Gemplus Industrial by virtue of this shareholdings. I attach charts indicating the changes in the corporate structure related to Gemplus Industrial from the date of its incorporation [A19].

46. The first sentence of this paragraph can easily be misinterpreted. The reference to "Gemplus" should be understood in the following manner: Gemplus Luxembourg, which five weeks previously had purchased the shares of Gemplus Mexico with effect as of 1 January 2004 gave instructions to the former owner to transfer the shares of Gemplus Mexico to SLP. By the express terms of the Share Purchase Agreement (see section II.B. 2), with effect as of 1 January 2004, the "Seller hereby irrevocably sells, conveys and assigns, and Purchaser purchases and accepts, the issued and outstanding stock of the Transferred Subsidiaries", including those of Gemplus Luxembourg, which later exercised its right under section 7.1 of the Share Purchase Agreement to "designate an affiliate to whom the Seller shall transfer the Shares with respect to the applicable Transferred Subsidiary. "

47. The charts attached to Mr Salgado’s witness statement omit to indicate that, between 31 October 2003 (Mr Salgado’s fourth chart) and 27 April 2004 (his fifth chart, this being the date of the designation of SLP as the holder of the shares in Gemplus Mexico), the shares of Gemplus Mexico were exclusively owned by Gemplus Luxembourg.

48. This was done by means of an "Acknowledgement" agreement pursuant to the Share Purchase Agreement with effect "as of April 27, 2004. " In the Acknowledgement, Gemplus Luxembourg designated an affiliate transferee "for the purchase of the shares of Gemplus Industrial S.A. de C.V."

49. An updated confidential Memorandum of Understanding ("MOU") between Gemplus Luxembourg, Gemplus France, Gemplus Mexico, and SLP sets out the general terms governing the transfer of Gemplus Mexico to SLP. This MOU is exclusively concerned with the parties’ attempt to resuscitate the requisite standing to bring the international claim.

50. SLP, a once operating company that was inactive at the time of the Acknowledgement, was selected because of its French nationality. Paragraph 5 of the MOU states:

5. The parties acknowledge that SLP is within the group of companies affiliated with GISA (the "Gemplus Group") ["GISA" is the acronym for Gemplus Luxembourg] and has had significant operational activities. Those prior operations for the Gemplus Group ceased in or before the year 2003. SLP remains a suitable entity to act as a designated transferee for GISA and for the purposes of receiving and holding the Shares in connection with the Stock Purchase Agreement and this Memorandum. SLP shall not need any employees for any of the activities it may have as a designated transferee of the Shares.

51. Paragraph 6 then refers to the fact that the present dispute concerning the Concessionaire arose with Mexico and reflects the agreements by the parties to the MOU:

To the fullest extent permitted by law, GSA [Gemplus France] and Gemplus Industrial [Gemplus Mexico] retain all rights they currently have in relation to the Claims and there shall be no effect on such rights by virtue of the transfer of the Shares to SLP. SLP shall provide all assistance and take all necessary action and sign all documents, including the joining of any legal proceedings, such as any arbitration, brought in connection with the Claims ("Legal Proceedings") and act jointly and cooperate with GSA and Gemplus Industrial in connection therewith, as may be requested by GSA and Gemplus Industrial.

52. The purport of this clause is of no legal effect because Gemplus France and Gemplus Mexico have no right to the claims (Gemplus Mexico never had any rights in the first place, and Gemplus France lost its rights in the claims when it irrevocably conveyed ownership in Gemplus Mexico to Gemplus Luxembourg). Nor can they eliminate by means of a contract the international legal effects of the transfer of ownership of Gemplus Mexico to Gemplus Luxembourg. [...]

53. The MOU also contemplated that SLP might not be effective for the transactions contemplated thereunder to be fully effective and enforceable to the satisfaction of the Luxembourgian company. Accordingly, Gemplus Luxembourg retains the right to revoke the transfer and to designate a different transferee:

10. In the event that SLP is unable to complete actions reasonably necessary for the transactions contemplated hereunder to remain fully effective and enforceable in manner to the satisfaction of GISA, then GISA shall designate a different transferee (including, at its election, GISA itself) and the Parties will take all actions reasonably requested to effectuate the transfer of the Shares to such alternate transferee so as to have the same economic and the same effective date as of any previously made or intended transfer.

54. The MOU was executed under the laws of the Grand Duchy of Luxembourg and the competent courts of that State have sole and exclusive jurisdiction over any legal proceedings arising thereunder. "

[The Respondent’s emphasis; footnotes omitted]

5.15.
The Respondent further submits, by reference to the language of the France BIT and international law, that continuous and uninterrupted nationality was not maintained up to the submission of SLP’s claim to these arbitration proceedings (Counter-Memorial at 11-12):

"55. Article 9(7) of the Mexico-France BIT requires the Tribunal to resolve this dispute in accordance with the terms of the Agreement and "applicable rules and principles of international law". Those include the rules of customary international law which continue to apply to relations between France and Mexico except to the extent that they are varied by treaty.

56. One such rule of customary international law is the principle of "continuous nationality ", described by Oppenheim ’s as follows:

It may accordingly be stated as a general principle that from the time of the occurrence of the injury until the making of the award the claim must continuously and without interruption have belonged to a person or a series of persons (a) having the nationality of the state by whom it is put forward, and (b) not having the nationality of the state against whom is [sic: it is] put forward.

57. Brownlie cites this passage with approval. He notes that some argue that the rule does not require continuous nationality from the injury up to the date of the award (the dies ad quern). Brownlie comments:

The first part of the rule of continuity does not give rise to much difficulty: the relevant nationality must exist at the time of injury. The second part of the rule is variously stated in terms of nationality continuing until the ‘presentation of the award’, or the fding of a claim before a tribunal, or the formal presentation of the diplomatic claim in the absence of submission to a tribunal. However, the majority of governments and of writers take the date of the award or judgment as the critical date.

58. Regardless of where the dies ad quern falls between date of presentation and date of the award, there is consensus that continuous and uninterrupted nationality must exist at a minimum until the presentation of the claim or its submission to arbitration. In this case the claim was submitted to arbitration on 10 August 2004, after ownership was transferred to Gemplus Luxembourg.

59. With respect to the assignment of claims, Brownlie notes:

If during the critical period a claim is assigned to or by a nonnational of the claimant state, the claim must be denied. However, assignment does not affect the claim if the principle of continuity is observed.

60. Oppenheim’s agrees:

In cases... of assignment, a claim will normally be allowed if the continuity of nationality is maintained and disallowed if it is not.

61. In this case, continuity of nationality was not maintained in the critical period. With the transfer of ownership of Gemplus Mexico, the claim passed from a French company to a Luxembourgian company and then back to another French company (and even then only conditionally). In short, to use Brownlie’s terms, the continuous nationality rule is triply offended because the claim has been assigned to a non-national and by a non-national of France and it remains susceptible to being further reassigned by that non-national. "

[The Respondent’s emphasis; footnotes omitted]

5.16.
The Respondent concluded its written submissions with a lengthy passage from the NAFTA award in The Loewen Group of Companies v. United States. The tribunal there decided that a change in the nationality of the claimant corporation, by virtue of a corporate reorganization midway through the arbitration, was fatal to that claim as a matter of jurisdiction under Chapter 11 of NAFTA (Counter-Memorial at 13-14).

(03) THE GEMPLUS CLAIMANTS’ CASE

5.17.
Gemplus Industrial: The Gemplus Claimants contend that the Respondent’s submissions with regard to the standing of Gemplus Industrial to bring its claim are flawed in several material respects.
5.18.
The Gemplus Claimants take issue with the Respondent’s interpretation of Article 9 of the France BIT (Reply at 15-17):

"35. To begin with, it is submitted by the Gemplus Claimants that Article 9 must be read as being subject to the definition of "Investor " in Article 1. The heading of Article 9 reads as follows:

‘Resolution of disputes between an Investor from one of the Contracting Parties and the other Contracting Party. ’

36. The reference to "Investor" in this heading requires reference to be made to the definition in Article 1. Article 9 must be read by reference to Article 1, which defines this word. A failure to do so would otherwise leave the term "Investor " bereft of a definition.

37. By Article l(2)(b) of the BIT an "Investor" includes:

‘any moral entity constituted in the territory of one of the Contracting States in accordance with the laws of that country and with its registered office in that country, or directly or indirectly controlled by nationals of one of the Contracting Parties, or by moral entities which have a registered office within the territory of one of the Contracting Parties and are constituted in accordance with the laws of that country. A moral entity is deemed to be controlled if the majority of its issued shares carrying voting rights is held by a national or a moral entity which has its registered office within the territory of a Contracting Party and is constituted in accordance with the laws of that Contracting Party. ’

38. Gemplus Mexico [i.e. Gemplus Industrial] is, for the purposes of this definition, a moral entity directly or indirectly controlled by moral entities which have their registered office within the territory of one of the Contracting Parties (namely Gemplus, S.A. and/or SLP) and are constituted in accordance with the laws of that Contracting Party. It is deemed to be controlled as provided in the last sentence of that Article 9(2)(b) because the majority of its issued shares carrying voting rights is held by a moral entity which has its registered office within the territory of a Contracting State (France) and is constituted in accordance with the laws of that Contracting State (France).

39. This provision permits the nationality of an investor to be identified by the Contracting State in which its controllers have their registered office and are constituted. Applied to a claim by a French company, the definition extends to a company constituted and with its registered office in France or to a company directly or indirectly controlled by one or more companies having their registered office in and constituted in France. "

5.19.
The Gemplus Claimants submit that there is no issue between the Parties as to the ownership and control by Gemplus of Gemplus Industrial up to 1 January 2004. Thus, the Claimants contend that, "[s]ubject to the nationality of the controller being a French company, Gemplus Mexico is a company owned or controlled by a Contracting Party other than the Respondent and is therefore an investor for the purpose of Article 1, paragraph 2(b) of the [France] BIT" (Reply at 17).
5.20.
Gemplus: The Gemplus Claimants similarly dispute the Respondent’s allegation that Gemplus has no standing to bring its claim. The Claimants submit that the relevant issue is not whether Gemplus sold its shares under the Stock Purchase Agreement ("SPA"), but rather whether that sale affected its right to bring its present claims under the France BIT.
5.21.
The Gemplus Claimants set out their submissions as follows (Reply at 19-20):

"46. The primary contention of the Gemplus Claimants is that Gemplus France retained its rights to the claims in this arbitration, notwithstanding the SPA. This is because Gemplus Mexico and Gemplus France entered into a Memorandum of Understanding ("MOU"), to which Gemplus Luxembourg is also a party, which contains the following provision:

‘7. The Parties acknowledge that prior to the transfer of the Shares in connection herewith, there arose a dispute with the Government of the United States of Mexico concerning Concesionaria Renave S.A. de C. V. ("Renave "). Renave was incorporated as a consequence of the granting by the Mexican government to Gemplus Industrial and its partners of the concession title to manage and operate the National Vehicle Registry of Mexico and which was subject to a series of confiscatory actions in the years 2000 through 2002, all of which have given rise to claims regarding such actions (the "Claims"). To the full extent permitted by law, GSA [Gemplus France] and Gemplus Industrial [Gemplus Mexico] retain all rights they currently have in relation to the Claims and there shall be no effect on such rights by virtue of the transfer of the Shares to SLP. SLP shall provide all assistance and take all necessary action and sign all documents, including the joining of any legal proceedings, such as any arbitration, brought in connection with the Claims ("Legal Proceedings ") and act jointly and co-operate with GSA and Gemplus Industrial in connection therewith, as may be requested by GSA and Gemplus Industrial. ’

47. It is the Claimants’ case that the impact of this provision could not be clearer: the shares were transferred by Gemplus France, but the right to bring this claim was not.

48. The response of the Respondent is that this clause has no legal effect for three reasons:

(i) Gemplus Mexico has no rights in the first place. This is wrong for the reasons given above.

(ii) Gemplus France lost its rights when it transferred the shares under the SPA. Leaving aside the identity and nationality of the transferee, this assertion is self-serving: it ignores the provision on which the Gemplus Claimants rely. The SPA must be read together with the Acknowledgment and the MOU to obtain an understanding of what the parties did and intended: the shares were transferred but the rights in relation to the claims in this arbitration were expressly retained by Gemplus France, "to the fullest extent permitted by law ". No reasons are advanced by the Respondent to explain why effect should not be given to the plainly expressed intentions of the parties to the MOU; and

(iii) The Gemplus companies cannot "eliminate by means of a contract the international legal effects of the transfer of ownership of Gemplus Mexico [...]". No attempt is made to define "international legal effects " or to explain how or why these should inhibit the parties in defining what rights in addition to the shares are transferred or retained. It is accepted by the Gemplus Claimants that the transfer of shares to a non-French company would not give any rights to the transferee to make a claim under the Mexico-France BIT. But there is no reason why a French transferor should not retain the right to pursue claims which it is acknowledged by the Respondent were validly held by it up to the date of the transfer. "

[Footnotes omitted]

5.22.
In the alternative, contrary to their primary case, the Gemplus Claimants submit that should the Tribunal determine that Gemplus has not retained the right to pursue its claims under the France BIT, the Tribunal must necessarily find that such right is now held by SLP.
5.23.
SLP: With regard to the Respondent’s argument that the transfer of shares by Gemplus in Gemplus Industrial to Gemplus Luxembourg and then on to SLP severed the chain of nationality required under the France BIT and international law, the Gemplus Claimants contend that such a conclusion may only be reached on a "highly selective reading of the SPA and Acknowledgement". The Claimants submit that these documents instead support a different conclusion (Reply at 21-22):

"51.... These documents make it clear that:

(i) The transfer of shares under the SPA is expressly made "Subject to the Terms of this Agreement" (Clause 1.1);

(ii) The SPA is intended as a "framework agreement" and is subject to "Additional Agreements" as defined in Clause 7.1 (third recital);

(iii) The Additional Agreement provides for the designation of an affiliate to whom Gemplus France shall transfer shares in Gemplus Mexico instead of Gemplus Luxembourg;

(iv) Such designation was done by the Acknowledgment, whereby SLP is identified as the Transferee;

(v) Gemplus France as seller represents and warrants that it is the lawful owner of the shares on the Closing Date (Clause 3.5);

(vi) The Closing Date is "as the Parties may agree" (Clause 2.1). By the terms of the Acknowledgment, that date is 27 April 2004. This is confirmed in the MOU (Clause 12); and

(vii) The governing law of the SPA is that of Luxembourg. "

5.24.
The Gemplus Claimants rely upon the expert opinions of Mr Kinsch and Mr José Antonio Chávez Vargas in regard to the legal effects produced by the transfer of ownership in Gemplus Industrial under the SPA, Acknowledgement and MOU under the laws of Luxembourg and Mexico respectively (Reply at 22):

"52. The Gemplus Claimants refer to and rely on the opinion of Mr Patrick Kinsch, a member of the Luxembourg bar and Adjunct Professor of Law at the University of Luxembourg. His view is that:

"[...] In order to decide that property has passed to a specific party, the Arbitral Tribunal would have to find both that (i) under Luxembourg law as the law applicable to the contract, property was intended to pass, and that (ii) under Mexican law as the lex situs such steps as may be necessary to effectuate the passing of title in the shares have been taken. The property will have passed only after the requirements of both laws have been satisfied. "

53. Having considered the general rules of Luxembourg law on the transfer of ownership by contract of sale and the wording of the SPA, the Acknowledgment and the MOU, Professor Kinsch reaches the following conclusion:

"It follows from the Stock Purchase Agreement and from the Acknowledgment that the description, given in the Memorandum of Understanding and in Mr Salgado’s witness statement, of the transfer of ownership in the shares in Gemplus Industrial, as having taken place not between Gemplus and Gemplus International, but between Gemplus and SLP, is entirely in line with Mexican law. In fact, under Luxembourg law the theory of the Counter-Memorial, according to which there has been, by virtue of the signing of the Stock Purchase Agreement, an immediate passing of ownership of the shares of Gemplus to Gemplus International, is contrary to the parties’ clearly expressed intention and therefore also contrary to Luxembourg law. "

54. To the extent that the position under Mexican law may be relevant to this question, the Gemplus Claimants refer to and rely on the opinion of Mr José Antonio Chávez Vargas, an experienced Mexican business lawyer and partner in the Mexico City office of Thacher Proffitt & Wood, S.C. Mr Chávez, having examined the Gemplus Industrial share certificates and share register, expresses his conclusion as follows:

"41. The share certificates, endorsements and other means employed to implement the stock transfer, as well as the structure used for the transaction and the intention of the parties expressed in the Agreement, the Acknowledgment and MOU, all point clearly to the conclusion that the shares in Gemplus Industrial were transferred directly to and are held by SLP (with the exception of the three shares transferred to Gemplus Finance, S.A.) and that no shares in Gemplus Industrial were transferred to Gemplus International at any time. "

[Footnote omitted]