Abengoa S.A. y COFIDES S.A. v. United Mexican States
ICSID · Investment (ICSID and treaty) · Mexico · 18 Apr 2013
Why it matters
This award is significant because it confirms that a host state's revocation of operating permits for a hazardous waste facility, driven by political and social opposition, can constitute indirect expropriation and a breach of fair and equitable treatment. The tribunal applied the 'sole effects' doctrine, focusing on the impact of the measures rather than the state's intent. It also addressed the standing of a state-owned development finance institution (COFIDES) as an investor under the treaty.
Summary
Abengoa S.A. and COFIDES S.A., Spanish companies, invested in a Mexican subsidiary (SDS) to build and operate a hazardous waste treatment and confinement facility in Zimapán, Hidalgo, Mexico. The facility received all necessary federal permits, including an environmental impact authorization. However, local opposition arose, and after changes in municipal government, the operating license was revoked twice. The second revocation in March 2010 effectively shut down the plant permanently. The claimants initiated arbitration under the Mexico-Spain BIT (APPRI 2006) via ICSID's Additional Facility. Mexico objected to jurisdiction, arguing that COFIDES, a state-owned entity, was not an 'investor' under the treaty. The tribunal rejected this, finding that COFIDES qualified as an investor because it was a Spanish company and the treaty did not exclude state-owned entities. On the merits, the tribunal found that the second revocation of the operating license was an indirect expropriation because it deprived the investment of all economic value. The tribunal applied the 'sole effects' test, focusing on the severe impact on the investment rather than the state's purpose. It also found a violation of fair and equitable treatment because the revocation was arbitrary and not based on legitimate public welfare grounds. The tribunal rejected Mexico's defense that the claimants failed to implement a proper community relations program, finding no such obligation under the treaty. The tribunal awarded damages for expropriation (based on discounted cash flow), lost profits during the shutdown period, cost overruns, and VAT refunds, totaling approximately 491.8 million Mexican pesos, plus interest at 5% per annum. The award also ordered the transfer of the facility's assets to Mexico upon payment. The decision is notable for its detailed analysis of indirect expropriation and the standing of state-owned entities as investors.
The detail
Parties: Abengoa S.A. y COFIDES S.A. v. United Mexican States
Case number: ICSID Case No. ARB(AF)/09/2
Outcome: Mexico was found to have indirectly expropriated the investment and violated fair and equitable treatment; ordered to pay SDS (the Mexican subsidiary) approximately 491.8 million Mexican pesos plus interest and costs.
Quantum: 491,809,534.54 Mexican pesos
Applicable law: Agreement for the Promotion and Reciprocal Protection of Investments between Mexico and Spain (APPRI 2006); ICSID Additional Facility Rules; Mexican law.
Issues in play: The case involved the collision between Mexico's regulatory police powers (environmental and municipal licensing) and the investor's right to protection against expropriation and fair and equitable treatment under the bilateral investment treaty.
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