|Arbitration Rules||ICSID Rules of Procedure for Arbitration Proceedings |
|Counter-Memorial||Respondent’s Counter-Memorial dated 2 February 2018|
|CNEE||National Electric Energy Commission|
|Decision on Annulment||Decision on Annulment in TECO Guatemala Holdings LLC v. The Republic of Guatemala|
|DEOCSA||Distribuidora Eléctrica de Occidente S.A.|
|DEORSA||Distribuidora Eléctrica de Oriente S.A.|
|DR-CAFTA or Treaty||Dominican Republic-Central America-United States Free Trade Agreement|
|EEGSA||Empresa Eléctrica de Guatemala, S.A.|
|EPM||Empresas Públicas de Medellin E.S.P.|
|ICSID Convention||Convention on the Settlement of Investment Disputes Between States and Nationals of Other States dated March 18, 1965|
|ICSID or the Centre||International Centre for Settlement of Investment Disputes|
|LGE||General Electricity Law|
|Memorial||Claimant’s Memorial dated 1 September 2017|
|Navigant Report I||Expert Report of Brent C. Kaczmarek, dated 23 September 2011|
|Navigant Report II||Expert Report of Brent C. Kaczmarek, dated 24 May 2012|
|Navigant Report III||Expert Report of Brent C. Kaczmarek, dated 1 September 2017|
|Navigant Report IV||Expert Report of Brent C. Kaczmarek, dated 30 May 2018|
|Original Award||Award in TECO Guatemala Holdings LLC v. The Republic of Guatemala (ICSID Case No. ARB/10/23) dated December 19, 2013|
|Rejoinder||Respondent’s Rejoinder dated 26 September 2018|
|Reply||Claimant’s Reply dated 30 May 2018|
|RLGE||Reglamento de la Ley General de Electricidad (General Electricity Law Regulation), approved on 21 March 1997|
|TECO or the Claimant||TECO Guatemala Holdings LLC|
|Terms of Reference||Terms of Reference for conducting the VAD study for EEGSA in the period 2008-2013; CNEE Resolution No. 13680-2007 of April 30 as amended by Resolution No. 124-2007 of October 9, 2007 and Resolution No. 5-2008 of January 17, 2008|
|Tr. Day [#], [page:line]||Transcript of the Hearing on Jurisdiction and Merits, held on 11-14 March 2019 in Washington, D.C.|
|Tribunal||Arbitral tribunal constituted on February 8, 2017|
|VAD||Value Added for Distribution (in original in Spanish Valor Agregado de Distribución)|
|Prof. Vaughan Lowe QC||President|
|Prof. Stanimir A. Alexandrov||Co -Arbitrator|
|Prof. Brigitte Stem||Co -Arbitrator|
|Ms. Mercedes Cordido-Freytes de Kurowski||Secretary of the Tribunal|
|Mr. Sebastián Canon||Intern|
|Ms. Andrea J. Menaker||White & Case LLP|
|Mr. Petr Polášek||White & Case LLP|
|Ms. Kristen M. Young||White & Case LLP|
|Ms. Harpreet K. Dhillon||White & Case LLP|
|Ms. Laetitia Souesme||White & Case LLP|
|Mr. Daniel Shults||White & Case LLP|
|Mr. Carlos Natera||White & Case LLP|
|Mr. Adrian Hernández||White & Case LLP|
|Mr. David Nicholson||TECO Energy Inc.|
|Mr. Javier Cuebas||TECO Energy Inc.|
|Mr. Brent C. Kaczmarek||IAV Advisors LLC (formerly Navigant Consulting, Inc.)|
|Mr. Gabriel Perkinson||Ankura (formerly Navigant Consulting, Inc.)|
|Mr. Nigel Blackaby||Freshfields Bruckhaus Deringer LLP|
|Mr. Lluís Paradell Trius||Freshfields Bruckhaus Deringer LLP|
|Ms. Francesca Loreto||Freshfields Bruckhaus Deringer LLP|
|Mr. Alexandre Alonso||Freshfields Bruckhaus Deringer LLP|
|Mr. Pieter Bas Munnik||Freshfields Bruckhaus Deringer LLP|
|Mr. Reynaldo Pastor||Freshfields Bruckhaus Deringer LLP|
|Ms. Sandra Díaz||Freshfields Bruckhaus Deringer LLP|
|Mr. Jean-Paul Dechamps||Dechamps International Law|
|Mr. Jorge Luis Donado Vivar||Procuraduría General de la Nación, República de Guatemala|
|Mr. Mario de Jesús Morales Morales||Procuraduría General de la Nación, República de Guatemala|
|Ms. Ana Luisa Gatica Palacios||Procuraduría General de la Nación. República de Guatemala|
|Dr. Manuel Abdala||Compass Lexecon|
|Mr. Julián Delamer||Compass Lexecon|
|Mr. Federico Gonzalez-Loray||Compass Lexecon|
|Mr. Brian Thompson||Immersion Legal Graphics|
|Ms. Elizabeth Cicoria||Spanish-Language Court Reporter|
|Mr. Dionisio Rinaldi||Spanish-Language Court Reporter|
|Mr. David Kasdan||English-Language Court Reporter|
|Mr. Charles Roberts||English-Spanish Interpreter|
|Ms. Judith Letendre||English-Spanish Interpreter|
|Ms. Elena Howard||English-Spanish Interpreter|
"A. Claimant’s requests for relief
434. In its July 8, 2013 Post-Hearing Reply, the Claimant requested that the Arbitral Tribunal issue an Award:
1. Finding that the Tribunal has jurisdiction ratione materiae over the Claimant's claim arising under Article 10.5 of DR-CAFTA;
2. Finding that Respondent has breached its obligation under Article 10.5 of the DR-CAFTA to accord Claimant’s investment in EEGSA fair and equitable treatment;
3. Ordering Respondent to pay compensation to Claimant in the amount of US$243.6 million;
4. Ordering the Respondent to pay interest on the above amount at 8.8 percent, compounded from 1 August 2008 until full payment has been made; and
5. Ordering Respondent to pay Claimant's legal fees and costs incurred in these proceedings.
B. Respondent’s requests for relief
435. In its July 8, 2013 Post-Hearing Reply, the Respondent requested that the Arbitral Tribunal:
1. Declare that it does not have jurisdiction over the claim filed by TGH;
2. Alternatively and subsidiarily, to reject each and every one of the claims made by TGH on their merits; and, in addition to either case;
3. Grant any other compensation to Guatemala that the Tribunal deems appropriate and fair; and
4. Order that TGH pay all costs of these arbitration proceedings, including the fees and costs of the Tribunal and ICSID as well as all fees and costs incurred by Guatemala for its legal representation in this arbitration, with interest prior and subsequent to the award being issued until the date of actual payment."28
"although the conclusions of the Expert Commission were not technically binding upon the CNEE, the CNEE had the duty to seriously consider them and to provide its reasons in case it would decide to disregard them.
... the distributor was under no obligation to incorporate in its VAD study observations made by the CNEE in respect of which there was a disagreement properly submitted to the Expert Commission. Unless the regulator provided valid reasons to the contrary, it is only if and when the Expert Commission had pronounced itself in favor of the regulator that such an obligation would arise."29
"has repudiated the two fundamental principles upon which the regulatory framework bases the tariff review process: first that, save in the limited cases provided in Article 98 RLGE the tariff would be based on the VAD study prepared by the distributor’s consultant; and, second, that any disagreement between the regulator and the distributor regarding such VAD study would be resolved by having regard to the pronouncements of a neutral Expert Commission.
The Arbitral Tribunal finds that such repudiation of the two fundamental regulatory principles applying to the tariff review process is arbitrary and breaches elementary' standards of due process in administrative matters. Such behavior therefore breaches Guatemala’s obligation to grant fair and equitable treatment under article 10.5 of [the] CAFTA-DR.... [T]he Arbitral Tribunal finds that such breach has caused damages to the Claimant, in respect of which the Claimant is entitled to compensation."30
"780. The Arbitral Tribunal decides:
A. That it has jurisdiction to decide on Teco’s claims under the CAFTA-DR;
B. That Guatemala has violated its obligation to accord to Teco’s investment Fair and Equitable Treatment under Article 10.5 of the CAFTA-DR;
C. That Guatemala shall pay US$21,100,552 to Teco as damages;
D. That the amount mentioned in section C above will bear interest at the US Prime rate plus a 2 percent premium as from October 21, 2010 until the date of full payment;
E. That interest shall be compounded on an annual basis;
F. That Guatemala shall support the entirety of its costs and expenses and pay US$ US$7,520,695.39 to Teco on account of its legal costs and expenses;
G. That all any other claims and pleas for relief are rejected."
"1.1 TECO’s Application
29. TECO has made the following request for relief before the Committee:
"[...] TECO respectfully requests that the Committee issue a Decision:
1. Partially annulling the damages section of the Award insofar as it does not award TECO any compensation for losses arising from the sale of EEGSA on 21 October 2010;
2. Partially annulling the damages section of the Award insofar as it does not award TECO any interest accruing in the period from 1 August 2009 until 21 October 2010;
3. Partially annulling the damages section of the Award with respect to the interest rate applicable to pre-award interest at the U.S. Prime rate plus two percent; and
4. Ordering Guatemala to pay TECO’s legal fees and costs incurred in these proceedings."
30. For its part, Guatemala requests that the Committee:
"(a) Reject TGH’s annulment application in full;
(b) Order TGH to pay Guatemala’s legal fees and costs, and all the fees and costs of the ad hoc Committee and ICSID in these proceedings, including all costs relating to the phase of these proceedings related to the stay of enforcement of the Award."
1.2 Guatemala’s Application
31. Guatemala is seeking the following relief from the Committee:
"(a) To ANNUL the Award in its entirety or any part thereof in exercise of the Committee’s power;
(b) To ORDER TGH to pay all costs of these annulment proceedings, including the costs of Guatemala’s representation, with interest."
32. For its part, TECO requests "that the Committee reject Guatemala’s request for annulment of the Award and order Guatemala to pay TECO’s legal fees and costs incurred in these proceedings". [Footnotes omitted]
382. For the reasons set out above, the Committee decides as follows:
(1) Pursuant to Article 52(1)(e) of the ICSID Convention, decides to annul the Award’s decision on damages for the loss of value claim, as reflected in paragraphs C and G of the dispositif of the Award of 19 December 2013 and the corresponding paragraphs in the body of the Award related to damages (paragraphs 743-761);
(2) Pursuant to Article 52(1)(d) of the ICSID Convention, decides to annul the Award’s decision on interest on historical damages for the period 1 August 2009 until 21 October 2010. as reflected in paragraphs D and G of the dispositif of the Award and the corresponding paragraphs in the body of the Award related to damages (paragraphs 765, 768);
(3) As a result of the above annulment, decides to annul the Award’s decision on costs, as reflected in paragraph F of the dispositif of the Award and the corresponding paragraphs in the body of the Award related to costs (paragraphs 769-779);
(4) Dismisses the other grounds of TECO’s Application for the Partial Annulment of the Award rendered on 19 December 2013;
(5) Dismisses the other grounds of Guatemala's Application for the Annulment of the Award rendered on 19 December 2013;
(6) Decides that each Party shall bear its own legal costs and expenses incurred in connection with TECO's Application for the Partial Annulment of the Award;
(7) Decides that Guatemala shall reimburse TECO half of ICSID’s administrative fees and expenses in connection with TECO's Application for the Partial Annulment of the Award, including the fees and expenses of the Members of the Committee, and of the Committee's Assistant;
(8) Decides that Guatemala shall bear the full costs and expenses incurred by ICSID in connection with Guatemala’s Application for the Annulment of the Award, including the fees and expenses of the Members of the Committee;
(9) Decides that Guatemala shall reimburse TECO the amount of USD 273,652.39, representing 60% of the total USD 456,087.33 of TECO's legal costs and expenses incurred in connection with Guatemala’s Application for the Annulment of the Award;
(10) Notes that the stay of enforcement of the Award terminates automatically as of the date of this Decision pursuant to Arbitration Rule 54(3);
(11) Dismisses all other claims."
"(6) If the award is annulled the dispute shall, at the request of either party, be submitted to a new Tribunal constituted in accordance with Section 2 of this Chapter."
"TECO hereby resubmits to arbitration the following aspects of its dispute with Guatemala: (i) its claim for loss of value damages suffered as a result of the impaired value at which TECO sold its investment in EEGSA as a consequence of Guatemala's breach, (ii) its claim for interest on the historical damages suffered by TECO (compounded through payment) accruing in the period from 1 August 2009 until the date of TECO’s sale of its interest in EEGSA on 21 October 2010, and (iii) its claim for costs and fees in connection with the original arbitration proceeding.... In addition. TECO seeks an award of the costs incurred in connection with this resubmitted arbitration."
1. The claim for damages for loss of value
2. The claim for interest on the historical damages
3. The allocation of the costs of the proceedings
These issues will be addressed in turn; but before turning to those issues, it is convenient to address the question of res judicata. In the context of this case, we mean by 'res judicata' the matters decided by the First Tribunal that have not been annulled and which are, therefore, not within our jurisdiction to decide.
"67. With respect to historical losses, the Tribunal awarded TECO the amount of USD 21,100,552, consisting of TECO’S share of the higher revenues that EEGSA would have received had the CNEE observed due process in the tariff review, calculated from the moment the high revenues would have been first received until the moment TECO sold its share in EEGSA. The Tribunal quantified these losses in the ‘but for’ scenario on the basis of the Bates White 28 July 2008 study, which reflected the tariffs that would have been applicable if the CNEE had complied with the regulatory framework.
68. The Tribunal rejected TECO’S claim for loss of value (future losses). In doing so. the Tribunal first found that TECO’S decision to divest was taken primarily as a consequence of the breach by the CNEE of the regulatory framework. However, the Tribunal added that it found no sufficient evidence of the existence and quantum of the losses that were allegedly suffered as a consequence of the sale’ and dismissed the claim."48
"their ruling on historical loss damages is res judicata, but their ruling as to the proper inputs into the But-for Model, that has been decided by the Original Tribunal. It has not been annulled, so it’s binding in this proceeding and can’t be revisited, and that is why we say that they’re really at bottom isn’t much for this Tribunal to do because once you accept those inputs, the result is. in essence, inevitable, as I've shown or as I've explained because you just subtract the difference between the but-for and the actual models which have already been accepted."50
"The first is the VNR [sc., the Replacement Value of the Assets], the asset base itself;
The second was the proper FRC [sc. the Capital Recovery Factor] formula, and that's the formula that you apply to the asset base, the VNR to get your return, then a return on capital;
And then the level of capital expenditures of the Actual Company which would affect the cash flows of the company."52
"Guatemala’s unlawful acts had a significant financial impact on the value of TECO’s investment in EEGSA, causing TECO to sell its interest in EEGSA at a depressed price to EPM on 21 October 2010. As demonstrated by TECO’s quantum expert in the original arbitration, the loss suffered by TECO in the sale of its interest in DECA II-the company through which it held EEGSA’s shares-to EPM on 21 October 2010 amounted to US$ 222,484,783 (before interest)."64
"There was a lot of argument and testimony on this. Dr. Barrera testified on behalf of Claimant, and he went through the Bates White Model step by step and showed how every single one of the Expert Commission’s rulings had been incorporated into the revised model, and he showed all of that. And then he went through every single Expert Commission ruling and showed why it was reasonable and why it was in conformity with the Regulatory Framework.
Now. the Original Tribunal, looking at that, they noted the discrepancy in the value of the asset base, that it was 1.1 billion for Bates White. It was only 629 million for Mr. Damonte. And they said, first, they carefully reviewed the evidence, and they found that Bates White had properly incorporated the Expert Commission’s rulings into its revised model.
And then, second, they said that there were no reasons to depart from the rulings of the Expert Commission.
Now, not only did they say that Guatemala, the CNEE failed to give reasons, they actually said that the CNEE would have had no valid reasons to disregard the rulings of the Expert Commission with respect to the VNR. So, again, Guatemala tries to narrow the liability' finding in saying, ‘if we had just explained ourselves more thoroughly, then we would have been okay. We could have disregarded the rulings of the Expert Commission and applied the other VNR.’ but that’s not the case, that they made all of the arguments as to what they would have said if they had explained themselves more thoroughly, and the Tribunal said no. you would have had no reason because what the Expert Commission did comported with the Regulatory Framework, and what you were doing did not and, therefore, you could not impose that—you could not calculate the tariff off of that other VNR."68
a. The value of EEGSA at the point of its sale to EPM
b. The ‘But-for’ value of EEGSA
c. The causal link between any loss of value and the breach of the DR-CAFTA.
"because the US$ 21,100,552 historical losses damages correspond to revenues that would have progressively flowed into EEGSA from August 2008 until October 2010 and because such amount has not been discounted to August 2008, calculating interest on the entire amount of the historical damages as from the first day of the tariff period would result in an unjust enrichment of the Claimant. As a consequence, interest shall accrue only from October 21, 2010."101 (footnote omitted)
"765. The Arbitral Tribunal considers that interest should only accrue from the date of the sale of EEGSA to EPM in October 2010. As a matter of fact, because the US$21,100,552 historical losses damages correspond to revenues that would have progressively flowed into EEGSA from August 2008 until October 2010, and because such amount has not been discounted to August 2008, calculating interest on the entire amount of the historical damages as from the first day of the tariff period would result in an unjust enrichment of the Claimant. As a consequence, interest shall only accrue from October 21, 2010.
766. The Arbitral Tribunal agrees with the Respondent that applying EEGSA's WACC post-October 2010 would not make sense since the Claimant had sold its interest in EEGSA and ceased to assume the company’s operating risks. The Arbitral Tribunal thus agrees with the Respondent that a risk-free rate should be applied.
767. Because the loss suffered by the Claimant corresponds to the cost of borrowing money in the United States, the Arbitral Tribunal agrees with Mr. Kaczmarek’s evidence that the proper interest should be based on the US Prime rate of interest plus a 2 percent premium in order to reflect a rate that is broadly available to the market.
768. As a consequence, the Arbitral Tribunal finds that the damages granted to the Claimant will bear pre and post-aw ard interest at the US Prime rate of interest plus a 2 percent premium from October 21, 2010 until full payment. Such interest shall be compounded on an annual basis." (footnotes omitted)
|Arbitrators’ fees and expenses|
|Prof Vaughan Lowe, Q.C.||US $79,598.01|
|Dr. Stanimir Alexandrov||US $92,340.71|
|Prof. Brigitte Stem||US $106,107.32|
|ICSID’s administrative fees||US $158,000.00|
|Direct expenses (estimated)||US $91,472.80|
|White & Case Legal Fees & Expenses White & Case LLP Fees White & Case LLP Costs (not including TRANSLATION COSTS) White & Case LLP TRANSLATION Costs||Incurred Costs (US$) US$ 5,883,811.65 US$ 217,867.86 US$ 226,223.78|
|Total White & Case Fees & Expenses||US$ 6,327,903.29|
|Expert & Consultant Fees & Expenses||US$ 2,932,603.33|
|TECO Arbitration Expenses||US$ 17,087.24|
|ICSID COSTS||US$ 750,000.00|
|Total Incurred Costs||US$ 10,027,593.86|
|WHITE & CASE LEGAL FEES & EXPENSES|
|WHITE & CASE LLP FEES||US$ 2,699,055.65|
|WHITE & CASE LLP EXPENSES||US$ 105,454.94|
|TOTAL WHITE & CASE FEES & EXPENSES||US$ 2,804,510.59|
|EXPERT & CONSULTANT FEES & EXPENSES||US$ 857,324.73|
|TECO ARBITRATION EXPENSES||US$ 8,057.17|
|ICSID COSTS||US$ 410,000.00|
|TOTAL INCURRED COSTS||US$ 4,079,892.49|
|Amounts paid||Amounts accrued and not yet paid||Total|
|Tribunal and ICSID|
|Guatemala ’s share of costs||US$400,000||N/A||US$400,000|
|Guatemala’s public officials|
|Travel costs and other disbursements||US$11,665.80||N/A||US$11,665.8|
|Valuation experts for Guatemala|
|Guatemala’s legal representation|
|Freshfields Bruckhaus Deringer US LLP||US$2,266,650||US$1,304,100||US$3,570,750|
|Total costs claimed by Guatemala in the arbitration||US$4,782,415.80|
In the case of arbitration proceedings the Tribunal shall, except as the parties otherwise agree, assess the expenses incurred by the parties in connection with the proceedings, and shall decide how and by whom those expenses, the fees and expenses of the members of the Tribunal and the charges for the use of the facilities of the Centre shall be paid. Such decision shall form part of the award.
i. That Respondent shall bear its own costs and reimburse 75% of Claimant’s costs, including its contribution to the costs and expenses incurred by ICSID, arising in the proceedings before the Original Tribunal;
ii. That each Party shall pay the costs and expenses relating to the Annulment proceedings as determined in paragraph 382 of the Annulment Decision;
iii. That each Party shall bear its own costs and one half of the costs and expenses incurred by ICSID in the proceedings before this Tribunal.
A. Claimant is entitled by way of damages to recover the cash flow shortfall between the 21 October 2010 sale date and the end of the 2008-2013 Tariff Period on 31 July 2013, i.e., the sum of US$ 26,793,001, calculated as at 21 October 2010;
B. Claimant is entitled by way of damages to recover ‘pre-sale interest’ up to the date of the sale on 21 October 2010, in the sum of US$ 838,784, calculated as at 21 October 2010;
C. The US Prime rate of interest plus 2%, payable both pre- and post-Award until the date of payment, is the rate of interest applicable to the sums owing as of 21 October 2010;
D. All other claims are dismissed;
E. On the matter of costs,
i. Respondent shall bear its own costs and reimburse 75% of Claimant’s costs, including its contribution to the costs and expenses incurred by ICSID, arising in the proceedings before the Original Tribunal;
ii. Each Party shall pay the costs and expenses relating to the Annulment proceedings as determined in paragraph 382 of the Annulment Decision;
iii. Each Party shall bear its own costs and one half of the costs and expenses incurred by ICSID in the proceedings before this Tribunal.
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