Data

Date:
30-07-2010
Country:
International Centre for Settlement of Investment Disputes (ICSID)
Number:
ARB/03/17
Court:
International Centre for Settlement of Investment Disputes (ICSID)
Parties:
Suez & others v. Argentine Republic

Keywords

STATE CONTRACTS - LONG-TERM CONTRACTS - CONCESSION CONTRACT - BETWEEN FRENCH AND SPANISH INVESTORS AND THE ARGENTINIAN GOVERNMENT - DUE TO ARGENTINA'S FINANCIAL CRISIS ARGENTINIAN AUTHORITIES ADOPTED A SERIES OF MEASURES NEGATIVELY AFFECTING PROFITABILITY OF FOREIGN INVESTORS' INVESTMENT - ALLEGED VIOLATION BY ARGENTINA OF BILATERAL INVESTMENT TREATIES - REFERENCE TO UNIDROIT PRINCIPLES TO INTERPRET APPLICABLE LAW (INTERNATIONAL LAW)

RESPONDENT INVOKING FORCE MAJEURE AS EXCUSE FOR VIOLATION OF BIT - OBJECTION REJECTED ON THE GROUND THAT RESPONDENT WAS PARTLY RESPONSIBLE FOR ITS FINANCIAL CRISIS

REQUEST FOR RE-NEGOTIATION OF TERMS OF CONCESSION - IN ACCORDANCE WITH INTERNATIONAL STANDARDS IMPOSING IN LONG-TERM CONTRACTS IN THE EVENT OF HARDSHIP AN OBLIGATION TO NEGOTIATE CONTRACT ADAPTATION - REFERENCE TO ARTICLE 6:111 PRINCIPLES OF EUROPEAN CONTRACT LAW AND ARTICLES 6.2.2 AND 6.2.3 UNIDROIT PRINCIPLES

Abstract

In 1995 Claimants, three companies variously incorporated in France and Spain, were granted, through their Argentinean subsidiary, a 30-year concession (“the Concession”) for water distribution and wastewater treatment in the province of Santa Fe, Argentina. From 2001 until 2003, Argentina adopted a series of measures to deal with the financial crisis it faced, which had the effect of freezing the tariff that Claimants’ subsidiary could charge for its services. After unsuccessful attempts by Claimants to renegotiate the tariff regime and to withdraw from the Concession, Argentina terminated the Concession in 2006 and Claimants lost their entire investment.

Claimants commenced arbitral proceedings at the International Centre for Settlement of Investment Disputes (ICSID), arguing that Argentina had violated several obligations under the Argentina-France BIT and the Argentina-Spain BIT. Argentina opposed the claim by raising the defence of necessity under international law, to excuse any alleged breach of the BITs.

The Arbitral Tribunal first of all rejected Argentina's defence of necessity on the ground that the measures taken by Argentina were not the only ones available to it and that Argentina has contributed to the financial crisis of 2001-2003. Secondly the Arbitral Tribunal found that Argentina's “persistent and rigid” refusal to revise the tariff, “particularly once the crisis had abated”, breached Argentina’s obligation to accord to investors fair and equitable treatment. Argentina frustrated Claimants' legitimate expectations that the tariff would be revised in accordance with the legal framework and the procedures provided for in the Concession.

In a separate opinion, one of the Arbitrators agreed that Argentina had breached its obligation of fair and equitable treatment by maintaining the tariff freeze, but pointed out that fair and equitable treatment does not include stability of the legal framework of the investment. Argentina had the right, not prohibited by the BITs or international law, to take exceptional measures in a crisis situation, which could not have been predicted at the time the BITs had been signed. However, these exceptional measures could not be extended indefinitely as they have been in the case at hand.

The Arbitrator also disagreed with the majority’s finding that Argentina, by forcing the Argentinean subsidiary to renegotiate the Concession during the financial crisis, had breached its obligation to treat Claimants fairly and equitably. In support of his conclusion the Arbitrator referred to Arts. 6.2.2 and 6.2.3 UNIDROIT Principles as an expression of an international standard for long-term contracts which in the event of hardship aims to require the parties to negotiate the adaptation of the contract.

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Source

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