-
ICSID Case No. ARB/07/26
-
Date of Award 8 December 2016
-
Claimants Urbaser S.A. (Urbaser) and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa (CAAB)
-
Respondent The Argentine Republic (Argentina)
-
Treaty Agreement on the Reciprocal Promotion and Protection of Investments between the Argentine Republic and the Kingdom of Spain (Argentina−Spain BIT or BIT)
Introduction
On 8 December 2016, an International Centre for Settlement of Investment Disputes (ICSID) tribunal chaired by Professor Andreas Bucher, with co-arbitrators Professor Pedro J. Martinez-Fraga (Claimants' appointee) and Professor Campbell McLachlan QC (Respondent's appointee), issued its award in Urbaser and CAAB v. Argentina (Award). The dispute related to a Concession Contract granted to Aguas Del Gran Buenos Aires S.A. (AGBA), a company in which Claimants were shareholders, for the provision of water and sewerage services in the Province of Greater Buenos Aires (Province). Claimants alleged that they had faced numerous obstacles created by the Province's authorities, which precluded the efficient and profitable operation of their Concession. Respondent counterclaimed that Claimants had failed to make the necessary investment in the Concession, thereby violating their obligation under international law based on the human right to water.
Claimants filed a Request for Arbitration against Argentina in 2007 under Article X of the Argentina−Spain BIT, alleging that the Province had obstructed the operation of the Concession, unreasonably refused to renegotiate following the 2001–2002 economic crisis, and wrongfully terminated the Concession Contract in 2006. Claimants claimed that the Province's acts amounted to violations by Argentina of each of Articles III (prohibition on unfair and discriminatory measures), IV (obligation to provide fair and equitable treatment (FET)), and V (prohibition on expropriation) of the BIT, and requested US$316 millionFootnote 1 in compensation for losses caused by those breaches.
Argentina argued that the problems arose from Claimants' deficient management and counterclaimed against Claimants, alleging that Claimants’ failure to fulfill their investment obligations under the Concession Contract violated their international law obligation relating to the human right to water. Argentina requested that the Tribunal award damages of up to US$191 millionFootnote 2 and any other appropriate remedies.
The Award:
-
• Confirmed the Centre's and the Tribunal's jurisdiction over Claimants' claims and Respondent's counterclaims;
-
• Found that Argentina had breached Article IV(1) of the BIT by failing to accord Claimants FET in relation to renegotiation of the Concession Contract between 2003 and 2005;
-
• Dismissed Claimants' other claims for Treaty breach and dismissed in full Claimants' claims for damages; and
-
• Dismissed Respondent's counterclaim.
Why Is This Case Relevant?
The Award is significant in light of the Tribunal's finding that it had jurisdiction to hear a counterclaim involving allegations that Claimants had violated human rights obligations. The Tribunal further departed from past practiceFootnote 3 in prioritising a ‘manifest’Footnote 4 factual linkage between the claims and counterclaim over a legal connection between the two, concluding that the legal connection was established ‘to the extent the Counterclaim is not alleged as a matter based on domestic law only’.Footnote 5 As both the claims and the counterclaim were based on the same investment in relation to the same Concession, the connection was sufficiently close to adopt jurisdiction over the counterclaim. In so doing, the Tribunal may have lowered the jurisdictional hurdle for States to bring counterclaims against investors in circumstances where Treaty language is sufficiently broad.
Second, the Tribunal rejected Claimants’ claim that the BIT was asymmetric in nature. The Tribunal agreed that the ‘BIT's main and manifestly prevailing focus is on a number of standards of protection for the investors rights and interests’,Footnote 6 but not exclusively so. Influenced by the terms of the BIT, which afforded rights to both the host State and investors, the Tribunal concluded that ‘such categorical understanding [of the BIT] would be wrong’.Footnote 7
Third, the Tribunal reached the novel conclusion in the investment arbitration context that certain human rights obligations may apply to individuals − including corporate individuals − as well as to States.Footnote 8
Main Findings of the Tribunal
Argentina violated its FET commitment during the renegotiation of the Concession, but Claimants were not entitled to damages
Claimants argued that Argentina failed to engage in an effective process for renegotiating the Concession Contract, and that the parties’ renegotiation ultimately failed as a result of Argentina's political desire to award the Concession to a state-owned provider.Footnote 9 The Tribunal accepted that Argentina had failed to provide ‘transparent treatment that could reasonably be expected from the host State in its relation to foreign investors’,Footnote 10 thereby violating the FET standard under the Treaty.
The Tribunal dismissed Claimants’ other claims that Respondent had breached the FET obligation. Specifically, the Tribunal found that the emergency measures taken by Argentina in response to the financial crisis were not responsible for the Concession's failure; rather, ‘the Concession had been in serious difficulties already’.Footnote 11 The Tribunal also determined that Argentina was justified in terminating the Concession Contract as a result of Claimants’ contractual breaches.Footnote 12 The Tribunal dismissed Claimants' expropriation and unjustified and discriminatory measures claims on broadly similar grounds.Footnote 13
Turning to the question of compensation for breach of the FET obligation, the Tribunal found that, at the time of the Province's actions, the Concession already had no future, and ‘the fate of the Concession was entirely based on AGBA's and its shareholders' failure to comply with their commitments and had not been caused by the Province's handling of the renegotiation in terms not complying with the fair and equitable treatment required by Article IV of the BIT’.Footnote 14 Accordingly, the Tribunal dismissed Claimants' damages claim in respect of this breach.Footnote 15
The Tribunal was entitled to assert jurisdiction over Argentina's counterclaim
In asserting jurisdiction over the counterclaim, the Tribunal rejected Claimants' claim that that ‘the asymmetric nature of BITs prevents a State from invoking any right based on such a treaty, not even a right to submit a counterclaim against an investor’.Footnote 16 The Tribunal found the broad wording of Article X of the BIT, permitting any disputes between a State and an investor in connection with an investment to be referred to arbitration, to be neutral as to the identities of the claimant or respondent. It followed from the ‘dual possibility to initiate an arbitration’ that either party should equally be able to bring a counterclaim.Footnote 17
The Tribunal also rejected Claimants' assertion that they had ‘restricted their consent to their involvement in the proceedings as claimants, to the exclusion of any potential counterclaim’.Footnote 18 The Tribunal determined that ‘[t]he consent given by Claimants … covers all disputes in connection with investments within the meaning of the BIT’.Footnote 19
Private investors can be subject to human rights obligations, but Claimants as private parties were not obligated to guarantee the human right to water
The Tribunal considered that the terms of the BIT permitted reference to external sources of law, including both the host State's domestic law and general international law principles. In this context, the Tribunal considered that corporations may have international law obligations:Footnote 20 ‘it can no longer be admitted that companies operating internationally are immune from becoming subjects of international law’.Footnote 21
Argentina argued that Claimants' ‘most important obligation during the Concession term was to guarantee the access to water’Footnote 22 and that, in failing to meet their investment obligations, Claimants ‘did not only affect mere contractual provisions, but basic human rights’.Footnote 23 The Tribunal considered that the human right to water entails an obligation of compliance on States, but not on a company providing that service pursuant to a contract.Footnote 24 Even if the obligation could be imposed on a private law actor, Respondent did not assert that this obligation was based on international law. Any obligation to guarantee access to water arose from domestic law or the Concession Contract itself, over which the Tribunal did not have jurisdiction.Footnote 25
