El Paso Energy International Company v. The Argentine Republic
ICSID · Investment (ICSID and treaty) · Argentina · 31 Oct 2011
Why it matters
This award is significant for its detailed analysis of the fair and equitable treatment standard, distinguishing between general regulatory measures and indirect expropriation. It also addressed the state of necessity defense under Article XI of the BIT, rejecting Argentina's argument that the economic crisis excused its breaches. The tribunal's reasoning on legitimate expectations and the requirement of specific commitments has been influential in subsequent investment treaty cases.
Summary
El Paso Energy International Company, a US corporation, invested in Argentina's electricity and hydrocarbon sectors through shareholdings in local companies. Following Argentina's severe economic crisis in 2001-2002, the government enacted emergency measures, including pesification of dollar-denominated tariffs, export restrictions, and withholding taxes. El Paso claimed these measures violated the US-Argentina BIT, alleging indirect expropriation, discriminatory and arbitrary treatment, unfair and equitable treatment, and breach of the umbrella clause. The tribunal, constituted under ICSID, first upheld jurisdiction, finding that El Paso's shares constituted an investment under the ICSID Convention and the BIT. On the merits, the tribunal rejected claims of indirect expropriation, holding that general regulatory measures do not amount to expropriation unless they neutralize the use of the investment, which did not occur here. It also dismissed claims of discrimination and arbitrariness. However, the tribunal found that Argentina breached the fair and equitable treatment standard by fundamentally altering the legal framework in a way that frustrated El Paso's legitimate expectations, particularly regarding the stability of the regulatory regime in the electricity and hydrocarbon sectors. The tribunal emphasized that fair and equitable treatment requires stability of the legal framework unless specific commitments are made, and that Argentina's measures were unreasonable and disproportionate. Argentina's defense of necessity under Article XI of the BIT was rejected because Argentina had substantially contributed to the crisis through its own policies. The tribunal awarded El Paso US$43.03 million in damages, calculated based on the discounted cash flow method, plus interest at LIBOR plus 2% compounded semi-annually from January 1, 2002. Each party bore its own costs.
The detail
Parties: El Paso Energy International Company v. The Argentine Republic
Case number: ICSID Case No. ARB/03/15
Outcome: Argentina breached fair and equitable treatment; ordered to pay US$43.03 million plus interest.
Quantum: US$43.03 million
Applicable law: 1991 US-Argentina BIT; ICSID Convention; international law
Issues in play: The case involved the collision between Argentina's right to regulate in times of economic crisis and the investor's right to fair and equitable treatment under the BIT, particularly regarding legitimate expectations and the state of necessity defense.
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