Unión Fenosa Gas, S.A. v. Arab Republic of Egypt
ICSID · Investment (ICSID and treaty) · Egypt · 31 Aug 2018
Why it matters
This award is significant for its detailed analysis of state attribution in the context of state-owned enterprises, the rejection of the necessity defense in a non-exceptional economic crisis, and the application of the fair and equitable treatment standard to contractual breaches. It also addresses the calculation of damages for lost profits and the duty to mitigate, with a strong dissent on quantum.
Summary
Unión Fenosa Gas (UFG), a Spanish company, invested in a liquefied natural gas (LNG) plant in Damietta, Egypt, through a joint venture with Egyptian state-owned entities. UFG had a gas supply agreement (SPA) with EGPC and EGAS, Egyptian state-owned companies. After the 2011 Egyptian revolution, gas supplies to the plant were drastically reduced, causing UFG to purchase expensive replacement gas. UFG initiated ICSID arbitration under the Spain-Egypt BIT, claiming Egypt expropriated its investment and violated fair and equitable treatment. Egypt argued that the gas shortages were due to a legitimate necessity (energy crisis) and that EGAS's actions were not attributable to the state. The Tribunal (majority) held that Egypt breached the BIT's fair and equitable treatment standard by failing to provide a stable legal framework and by allowing EGAS to cut supplies without compensation. It rejected Egypt's necessity defense, finding that Egypt did not meet the high threshold of a grave and imminent peril. The Tribunal also found that EGAS's conduct was attributable to Egypt because EGAS acted under the direction and control of the Egyptian government. On damages, the majority awarded UFG approximately $2.0 billion for lost profits and replacement costs, applying a contractual limitation clause. Arbitrator Clodfelter dissented, arguing that the damages were overstated and that UFG failed to mitigate. The award is notable for its extensive analysis of state responsibility and the limits of the necessity defense in investment treaty arbitration.
The detail
Parties: Unión Fenosa Gas, S.A. v. Arab Republic of Egypt
Case number: ICSID Case No. ARB/14/4
Outcome: The Tribunal found Egypt liable for breach of the Spain-Egypt BIT, awarding damages of approximately $2.0 billion plus interest, with one arbitrator dissenting on quantum and attribution.
Quantum: approximately $2.0 billion
Applicable law: Agreement on the Reciprocal Promotion and Protection of Investments between the Kingdom of Spain and the Arab Republic of Egypt (1992 BIT); ICSID Convention; ILC Articles on State Responsibility
Issues in play: The case involved the collision between Egypt's necessity defense under the BIT and customary international law, and the attribution of conduct of state-owned entities (EGAS) to the state. The Tribunal rejected Egypt's necessity defense and found EGAS's actions attributable to Egypt.
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