Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic
ICSID · Investment (ICSID and treaty) · Argentina · 22 May 2007
Why it matters
This award is a landmark in investment treaty arbitration for its detailed analysis of the fair and equitable treatment standard and the umbrella clause in the context of Argentina's 2001-2002 economic crisis. It established that non-discriminatory measures taken in a state of necessity may still breach treaty obligations if they violate specific commitments. The case also clarified the calculation of damages for lost investment value due to regulatory changes.
Summary
Enron Corporation and its subsidiary Ponderosa Assets, L.P. (US companies) invested in Transportadora de Gas del Sur (TGS), a gas transportation company in Argentina. They claimed that Argentina's measures during its 2001-2002 economic crisis, including freezing tariffs, abolishing the US PPI adjustment mechanism, and pesifying dollar-denominated tariffs, violated the US-Argentina Bilateral Investment Treaty (BIT). The BIT required fair and equitable treatment and observance of obligations entered into with regard to investments (umbrella clause). Argentina argued that its measures were necessary to protect public order and its essential security interests under the BIT's non-precluded measures clause and customary international law on necessity. The Tribunal rejected Argentina's necessity defense, finding that the measures were not the only way to safeguard its essential interests and that Argentina had contributed to the crisis. It held that Argentina breached the fair and equitable treatment standard by fundamentally altering the regulatory framework that the investors relied upon, and breached the umbrella clause by failing to honor specific commitments regarding tariff adjustments. The Tribunal awarded US$106.2 million in damages, calculated as the difference between the value of the investment before and after the measures, plus interest. The award was later partially annulled by an ICSID annulment committee in 2010, which set aside the umbrella clause finding but upheld the fair and equitable treatment breach and the quantum.
The detail
Parties: Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic
Case number: ICSID Case No. ARB/01/3
Outcome: The Tribunal found Argentina breached fair and equitable treatment and the umbrella clause, awarding US$106.2 million in compensation plus interest.
Quantum: US$106.2 million
Applicable law: Treaty between the United States of America and the Argentine Republic Concerning the Reciprocal Encouragement and Protection of Investments (1991); ICSID Convention
Issues in play: The case involved the collision between Argentina's sovereign right to regulate in response to its economic crisis and its treaty obligations to protect foreign investments, specifically fair and equitable treatment and the umbrella clause.
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