SGS Société Générale de Surveillance S.A. v. The Republic of Paraguay
ICSID · Investment (ICSID and treaty) · Paraguay · 10 Feb 2012
Why it matters
This award is a landmark application of an umbrella clause in a BIT, confirming that a state's failure to pay contractual invoices can constitute a breach of international law. It illustrates the tension between contract claims and treaty claims, and the scope of umbrella clauses to protect contractual commitments. The decision also addresses interest calculation and costs allocation in ICSID arbitration.
Summary
SGS Société Générale de Surveillance S.A. (SGS), a Swiss company, entered into a contract with Paraguay's Ministry of Finance in 1996 to provide pre-shipment inspection services. The contract required Paraguay to pay SGS a fee for each inspection. During the three-year contract term, Paraguay paid only 10 of 35 invoices, leaving US$ 39,025,950.86 unpaid. SGS initiated ICSID arbitration under the Switzerland-Paraguay BIT, claiming that Paraguay's non-payment breached the BIT's umbrella clause (Article 11), which requires each party to 'observe any obligation it may have entered into with regard to investments.' Paraguay objected to jurisdiction, arguing that the contract's forum selection clause (submitting disputes to Asunción courts) precluded arbitration. The Tribunal had already rejected this objection in its 2010 Decision on Jurisdiction. On the merits, the Tribunal found that Paraguay's failure to pay the invoices violated Article 11 of the BIT. The Tribunal rejected Paraguay's defenses, including that SGS had waived its rights or that the invoices were invalid. It awarded SGS the full principal amount plus simple interest at LIBOR plus one percentage point from July 1999 until payment. The Tribunal also ordered Paraguay to pay half of the ICSID arbitration costs. The award is significant for its interpretation of umbrella clauses and the interaction between contract and treaty claims.
The detail
Parties: SGS Société Générale de Surveillance S.A. v. The Republic of Paraguay
Case number: ICSID Case No. ARB/07/29
Outcome: Tribunal found Paraguay breached Article 11 of the Switzerland-Paraguay BIT by failing to guarantee observance of its contractual commitments, and awarded SGS US$ 39,025,950.86 plus interest and half of arbitration costs.
Quantum: US$ 39,025,950.86 plus interest
Applicable law: Switzerland-Paraguay BIT (1992); ICSID Convention; Paraguayan law (contract); Contract terms
Issues in play: The BIT's umbrella clause (Article 11) was interpreted to cover contractual commitments, requiring the host state to observe its obligations. Paraguay argued the contract's forum selection clause (Asunción courts) precluded ICSID jurisdiction, but the Tribunal had already upheld jurisdiction.
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