United Utilities (Tallinn) B.V. and Aktsiaselts Tallinna Vesi v. Republic of Estonia
ICSID · Investment (ICSID and treaty) · Estonia · 21 Jun 2019
Why it matters
This award is significant for its detailed analysis of legitimate expectations in the context of a regulated utility sector. The tribunal clarified that contractual commitments by a municipality do not create immutable expectations against future regulatory changes by the state, especially where the contracts themselves acknowledge the possibility of legislative change. It also addressed the impact of EU law (Achmea) on intra-EU BIT arbitration, upholding jurisdiction despite the CJEU's Achmea judgment.
Summary
The dispute arose from the privatisation of Tallinn's water and wastewater services in 2001. The City of Tallinn sold shares in ASTV, the municipal water company, to United Utilities (Tallinn) B.V. (UUTBV), a Dutch company. The privatisation agreements included a tariff mechanism with K-coefficients designed to ensure cost recovery and a reasonable return. In 2010, Estonia enacted the Anti-Monopoly Bill (AMB), which amended the Public Water Supply and Sewerage Act and gave the Estonian Competition Authority (ECA) power to set water tariffs. The ECA subsequently rejected ASTV's 2011 tariff application, which was based on the contractual K-coefficients, and prescribed lower tariffs. Claimants argued that this breached their legitimate expectations, fair and equitable treatment, and the umbrella clause of the Netherlands-Estonia BIT. The tribunal first upheld jurisdiction, rejecting Estonia's argument that the BIT was incompatible with EU law following the CJEU's Achmea judgment. On the merits, the tribunal found that Claimants did not have a legitimate expectation that the tariff mechanism would remain unchanged for the duration of the agreements. The privatisation agreements were entered into with the City of Tallinn, not the national government, and they expressly contemplated future regulatory changes. The tribunal also noted that the 2007 amendment to the Services Agreement, which set K-coefficients at zero until 2020, reflected the parties' awareness of regulatory uncertainty. The AMB was a legitimate public interest measure aimed at preventing excessive water tariffs, and its adoption did not violate the BIT. The tribunal dismissed all claims and ordered Claimants to bear 25% of Respondent's costs.
The detail
Parties: United Utilities (Tallinn) B.V. and Aktsiaselts Tallinna Vesi v. Republic of Estonia
Case number: ICSID Case No. ARB/14/24
Outcome: The Tribunal dismissed all claims for breach of the BIT and ordered Claimants to pay 25% of Respondent's legal costs and arbitration costs.
Applicable law: Netherlands-Estonia BIT (1992), ICSID Convention, Estonian law (including Public Water Supply and Sewerage Act and Anti-Monopoly Bill)
Issues in play: The case involved a collision between the investor's contractual expectations under privatisation agreements and Estonia's sovereign right to regulate water tariffs through legislative reform, specifically the Anti-Monopoly Bill and the Estonian Competition Authority's methodology.
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