Hochtief AG v. Argentine Republic
ICSID · Investment (ICSID and treaty) · Argentina · 29 Dec 2014
Why it matters
This case is a landmark for its detailed analysis of fair and equitable treatment in the context of economic crises. It clarified that while a state may take emergency measures, it must restore the contractual equilibrium once the crisis ends. The decision also addressed the admissibility of shareholder claims for reflective loss and the treatment of political risk insurance, setting important precedents for investor-state arbitration.
Summary
Hochtief AG, a German construction company, invested in a toll road concession in Argentina through its local subsidiary Puentes del Litoral S.A. (PdL). The concession contract, signed in 1998, provided for toll adjustments linked to the US Consumer Price Index and a subsidy from Argentina. After Argentina's 2001-2002 economic crisis, the government enacted Law 25,561, which abolished the peso-dollar peg and 'pesified' all dollar-denominated contracts, including the concession. Tolls were frozen and the subsidy was not paid. Hochtief made additional loans to keep PdL afloat. Renegotiations failed, and PdL entered insolvency proceedings. Hochtief brought an ICSID claim under the Germany-Argentina BIT, alleging expropriation, unfair treatment, and breach of the umbrella clause. The tribunal (by majority) upheld jurisdiction and found Argentina liable for breaching the fair and equitable treatment standard. It held that while the emergency measures were not per se unlawful, Argentina failed to restore the economic balance of the concession after the crisis subsided. The tribunal rejected Argentina's necessity defense under customary international law. It also ruled that Hochtief's claims as a lender were inadmissible because they were derivative of PdL's rights, but its shareholder claims were admissible. Damages were to be calculated as the reduction in PdL's value due to the breaches, with Hochtief entitled to 26% (its shareholding). The tribunal ordered the parties to calculate the quantum based on specified principles, and awarded Hochtief US$6,925,318.50 in costs.
The detail
Parties: Hochtief AG v. Argentine Republic
Case number: ICSID Case No. ARB/07/31
Outcome: Argentina breached fair and equitable treatment under the Germany-Argentina BIT by failing to restore the commercial balance of the concession after the 2002 economic crisis and by pesifying operation and maintenance expenses. Claimant is entitled to 26% of damages to its local subsidiary, with quantum to be determined later.
Quantum: To be determined; costs awarded: US$6,925,318.50
Applicable law: Germany-Argentina BIT (1991); ICSID Convention; Argentine law; Concession Contract for Rosario-Victoria highway
Issues in play: The BIT's fair and equitable treatment standard collided with Argentina's emergency measures (Law 25,561) that pesified dollar-denominated contracts and suspended toll adjustments. The tribunal weighed the state's right to regulate during crisis against the investor's legitimate expectations of contractual stability.
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