PACC Offshore Services Holdings v United Mexican States, ICSID Case No. UNCT/18/5
ICSID · Investment (ICSID and treaty) · Mexico · 11 Jan 2022
Why it matters
This case clarifies the limits of state police powers in investment arbitration, particularly where criminal investigations target a third party but affect an investor's assets. The tribunal distinguished between lawful detention for investigation and unlawful interference that breaches fair and equitable treatment. It also addressed causation and damages for lost opportunities when contracts expire during detention.
Summary
PACC Offshore Services Holdings (POSH), a Singapore company, invested in Mexico through subsidiaries that bareboat chartered vessels to Oceanografía (OSA), which sub-chartered them to Pemex. In 2014, Mexican authorities detained several of POSH's vessels as part of a criminal investigation into OSA for fraud against Pemex. POSH claimed the detention and related measures amounted to expropriation and unfair treatment under the Mexico-Singapore BIT. The tribunal upheld jurisdiction over claims arising after May 4, 2014, but rejected expropriation claims, finding the detention was a temporary measure within Mexico's police powers. However, it found Mexico breached fair and equitable treatment because the detention was prolonged without due process and caused unnecessary harm to POSH's investment. The tribunal awarded damages of USD 6,712,226 for lost profits during the detention period, applying a 80% probability of contract renewal for vessels with expired contracts. Interest was set at LIBOR compounded annually. The decision underscores that while states may investigate crimes, they must respect procedural fairness and minimize impact on foreign investors.
The detail
Parties: PACC Offshore Services Holdings v United Mexican States, ICSID Case No. UNCT/18/5
Case number: italaw/cases/6620
Outcome: Tribunal found Mexico breached fair and equitable treatment by detaining vessels; awarded USD 6,712,226 plus interest; each party bears own costs and half of tribunal costs.
Quantum: USD 6,712,226
Applicable law: Mexico-Singapore BIT (2009); UNCITRAL Arbitration Rules (2010)
Issues in play: Fair and equitable treatment standard under Article 4 of the BIT vs. Mexico's sovereign right to enforce criminal and tax laws; the tribunal balanced investor protection against state police powers.
Read the full decision at italaw ↗
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