Nations Energy Corporation, Electric Machinery Enterprises Inc., and Jamie Jurado v. The Republic of Panama
ICSID · Investment (ICSID and treaty) · Panama · 24 Nov 2010
Why it matters
This case is significant for its detailed analysis of the 'in accordance with host state law' requirement for investment protection under the BIT. The Tribunal held that the claimants' investment did not comply with Panamanian law because they failed to obtain a required certification for tax credits, thus the investment was not protected. It also clarified that tax measures are generally excluded from BIT protection unless they constitute expropriation, and that legitimate expectations must be based on clear and specific commitments.
Summary
The dispute arose from investments in COPESA, a Panamanian electricity company. The claimants, US nationals, alleged that Panama indirectly expropriated their investment by denying them the ability to transfer tax credits they claimed under Panamanian law. The Tribunal first addressed jurisdiction, finding that Jaime Jurado was a US national (not Panamanian) and thus a protected investor, and that Nations and EME had standing. However, on the merits, the Tribunal found that the claimants' investment did not comply with Panamanian law because they never obtained a formal certification of their investment from the tax authority, as required by Law 28 of 1995. Therefore, the investment was not protected under the BIT. The Tribunal also held that the tax measures were not expropriatory because the claimants had no vested right to the tax credits without certification. The fair and equitable treatment claim failed because the claimants could not have legitimate expectations based on informal consultations. The Tribunal dismissed all claims and ordered the claimants to bear most of the costs. One arbitrator dissented, arguing that the tax credits were a property right and that Panama's actions constituted expropriation and a breach of fair and equitable treatment.
The detail
Parties: Nations Energy Corporation, Electric Machinery Enterprises Inc., and Jamie Jurado v. The Republic of Panama
Case number: ICSID Case No. ARB/06/19
Outcome: The Tribunal dismissed all claims and ordered Claimants to pay 75% of Respondent's legal costs and 50% of arbitration costs.
Applicable law: US-Panama Bilateral Investment Treaty (1982, amended 2000); ICSID Convention; Panamanian tax law (Law 28 of 1995, Law 6 of 2005)
Issues in play: The case involved the interaction between Panamanian tax incentive laws and the BIT's expropriation and fair and equitable treatment provisions. The key issue was whether the denial of transferability of tax credits constituted an indirect expropriation or a breach of fair and equitable treatment.
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