Fernando Paiz Andrade and Anabella Schloesser de León de Paiz v. Republic of Honduras

Case summary

At a glance

Parties: Fernando Paiz Andrade and Anabella Schloesser de León de Paiz v. Republic of Honduras
Case no.: ICSID Case No. ARB/23/43
Forum and rules: ICSID Convention arbitration; ICSID Arbitration Rules in force as of 1 July 2022, as modified or supplemented by CAFTA-DR; place of proceeding Washington, D.C.
Treaty: Dominican Republic-Central America-United States of America Free Trade Agreement (CAFTA-DR), signed 5 August 2004
Tribunal: Prof. Nicolas Angelet (President), Mr. Stephen L. Drymer, Prof. Brigitte Stern
Sector: Electricity generation; solar power purchase agreement
Outcome: Procedural only. The Tribunal bifurcated four of Honduras's five initial jurisdictional objections, kept the expropriation objection for the merits, and ordered the three later objections to be briefed before it decides whether to bifurcate them. The published texts do not show the decision on jurisdiction.

The dispute

The claimants say they own Pacific Solar Energy, S.A. de C.V. (Pacific Solar), which sells electricity to Honduras's national electricity company ENEE under a power purchase agreement (PPA), backed by a State Guarantee and an Operations Agreement. They complain that Honduras's 2022 New Energy Law and ENEE's push to renegotiate the contract, together with grossly insufficient payments and a growing debt, indirectly expropriated their investment and threaten it with direct expropriation. They also claim breach of the CAFTA-DR Minimum Standard of Treatment, and use the most-favoured-nation (MFN) clause to import umbrella clauses from the Honduras–Switzerland and Honduras–Germany BITs. Honduras objects to jurisdiction on several grounds: its consent requires prior exhaustion of local remedies; Ms. Schloesser skipped the consultation and negotiation required by Article 10.15; the expropriation claim is premature; the MFN clause cannot import an umbrella clause and procurement is carved out; and the PPA is not an "investment agreement" under Article 10.28. It later added objections on the limitation period, on the claimants' ownership and control of the investment, and on the purely contractual nature of the claims.

Key holdings

Bifurcation granted for Preliminary Objections 1 (exhaustion of local remedies), 2 (Ms. Schloesser's consultation and negotiation), 4 (MFN clause) and 5 (investment agreement). The arbitration proceeds under Procedural Calendar No. 2 of PO1, and costs are reserved. PO3 ¶ 73
Objection 3, that the expropriation claim is premature, is not bifurcated. It would require examining the payments made for electricity and the financial viability of the investment. These facts should be weighed together with the Minimum Standard of Treatment claim at the merits phase, if any. PO3 ¶¶ 46–48, 62
Objections 4 and 5 must be heard together. Both mainly raise treaty interpretation and turn partly on the distinction between public and private operations: whether ENEE is a "national authority" and whether buying electricity for distribution to citizens is "for governmental purposes". Objections 1 and 2 were bifurcated with them so that the bifurcated phase is used efficiently. PO3 ¶¶ 58–59, 63–64
PO3 did not mean that every additional objection raised in the Memorial on Jurisdictional Objections would be decided in the bifurcated phase. Under Article 41(2) of the ICSID Convention and the Arbitration Rules, the Tribunal keeps the power to bifurcate the additional objections or join them to the merits. PO4 ¶¶ 19–23
The Tribunal cannot find in the bifurcated phase that the claims are purely contractual, because that would first require a finding that no Treaty standard was breached. Only the related legal question, whether and when it has jurisdiction over purely contractual claims, is to be briefed now. PO4 ¶¶ 51–52
The parties must brief the three additional objections in the bifurcated written phase. On the limitation period, they are to assume the alleged facts are Treaty violations and address continuous and composite acts. On ownership and control, they are to address the chain of corporations and the effect of Pacific Solar's transfer of rights. The Tribunal will decide on bifurcation within 30 days after the Rejoinder on Jurisdictional Objections. PO4 ¶ 55
Under CAFTA-DR Article 10.21, ICSID publishes orders, decisions, the award and pleadings, subject to redaction of protected information. Exhibits, witness statements and expert reports are not published. Hearings are public. PO2 ¶¶ 13–20