EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v. Argentine Republic

Case summary

At a glance

Parties: EDF International S.A., SAUR International S.A. (France) and León Participaciones Argentinas S.A. (Luxembourg) v. Argentine Republic
Case no.: ICSID Case No. ARB/03/23
Forum and rules: ICSID Convention arbitration; ICSID Institution and Arbitration Rules as amended on 1 January 2003
Treaty: Argentina–France BIT of 3 July 1991 (also invoked: Argentina–Belgium/Luxembourg BIT of 28 June 1990)
Tribunal: William W. Park (President), Gabrielle Kaufmann-Kohler, Jesús Remón (replaced Fernando de Trazegnies, who resigned in 2006)
Annulment Committee: Sir Christopher Greenwood (President), Teresa Cheng, Yasuhei Taniguchi
Sector: Electricity distribution (Province of Mendoza)
Outcome: Award of 11 June 2012: Argentina breached the umbrella clause (imported through the MFN clause) and fair and equitable treatment; the other claims were dismissed. Annulment application dismissed in full on 5 February 2016.
Amount: Awarded: US$ 136,138,430 as of 31 December 2001 (US$ 133,635,633 for the emergency measures plus US$ 2,502,797 for pre-emergency measures), with interest compounded annually at the 10-year U.S. Treasury rate until payment. Arbitration costs of US$ 1,631,297.95 shared 50/50; each side bore its own legal costs. In the annulment, Argentina bore the costs of the Committee and ICSID; each side bore its own legal costs.

The dispute

EDFI and SAURI, through the consortium SODEMSA, and León, through MENDINVERT, held an indirect 44.88% stake in EDEMSA. EDEMSA was the electricity distributor of the Province of Mendoza under a 30-year Concession Agreement of 15 July 1998. SODEMSA won 51% of EDEMSA's Class A shares with a bid of US$ 237.8 million. The concession set tariffs in U.S. dollars, converted at the 1:1 peso-dollar parity, with U.S. inflation adjustment and a reasonable rate of return. In 2002 Argentina's Emergency Law (Law No. 25,561) ended convertibility, converted ("pesified") and froze tariffs, and delayed renegotiation for years. Before the emergency, Mendoza had also changed the tariff regime. The claimants sold their stake to IADESA, a buyer that already held shares in EDEMSA, for US$ 2 million; the sale was agreed on 30 June 2004 and closed on 30 March 2005. They claimed breaches of fair and equitable treatment, full protection and security, non-discrimination, the expropriation provision, and umbrella clauses imported through the MFN clause. Argentina argued that the claims were contractual, raised res judicata and double recovery, and relied on Article 5(3) of the BIT, Article 3(2) of the Luxembourg BIT and the customary defence of necessity.

Key holdings

The challenge to Gabrielle Kaufmann-Kohler, based on her seat on the UBS board and on links between UBS and EDF, was rejected. Any link was trivial and de minimis. Not disclosing the board seat did not show a manifest lack of reliability to exercise independent judgment. Challenge Decision ¶¶ 71–74, 98, 133, 135
Liability: Argentina breached its obligations (i) to respect specific commitments undertaken for the claimants' investment and (ii) to give fair and equitable treatment. No indirect expropriation: the claimants kept and ran EDEMSA and later sold it. The claims for discrimination, arbitrariness and full protection and security gave no separate basis for relief. Award ¶¶ 1101–1118; Disposition I, V
All defences failed. Local court rulings were not res judicata, because the parties, the causes of action and the legal standards differed. Article 5(3) of the France BIT is a non-discrimination provision, not an exemption from liability. The necessity defence under ILC Article 25 failed: Argentina did not show that the measures were the only means available, it had contributed to the crisis, and it did not restore the status quo or pay compensation. Award ¶¶ 1125–1136, 1157–1162, 1171–1180
Damages were measured as the 'but for' value on a DCF basis (WACC 11.34%, valuation date 31 December 2001), giving US$ 147,750,151 for the claimants' stake. The actual purchase price, not the official valuation, was used as the asset base. The duty to mitigate applied: the share purchase agreement did not provide for the pending tariff renegotiation. The Tribunal therefore deducted 50% of the value implied by IADESA's 2007 resale for US$ 60 million, discounted to 2001 (US$ 14,114,518). The total awarded was US$ 136,138,430, with annually compounded interest at the 10-year U.S. Treasury rate. Award ¶¶ 1182–1184, 1310–1317; Disposition II–III
Costs: both sides won on some issues and lost on others. Each side bears its own legal costs, and the arbitration costs of US$ 1,631,297.95 are shared equally. Award ¶¶ 1345–1346
Annulment refused. The Committee found no annullable error on: the constitution of the Tribunal, including the challenges to Kaufmann-Kohler and Remón; the applicable law; shareholder (derivative) claims and the umbrella clause; necessity; the treatment of evidence; and damages. On necessity it preferred the approach of the CMS committee to that of the Enron committee. Damages based on the 'but for' standard were a correct application of international law. A committee keeps a discretion whether to annul even if a ground is shown. Decision on Annulment ¶¶ 73, 276–280, 329, 371, 392
Argentine courts upheld an access-to-information amparo brought by Facundo Pablo Pérez Aznar. The Treasury Attorney's condition that the decisions not be published had no basis in the exceptions of Law 27.275. Article 48(5) of the ICSID Convention binds only the Centre, not the State. The court ordered access to the ICSID decisions, including the EDF Decision on Jurisdiction and the two stay decisions, without limits on their use or publication. Appeals Court judgment, Part IV.3 and V

Procedural history

16 June 2003EDFI and SAURI file the request for arbitration. An amended request adding León is registered on 12 August 2003.
2 June 2004The Tribunal is constituted after all three arbitrators accept their appointments.
7 July 2006Fernando de Trazegnies resigns after Argentina proposes his disqualification. Argentina appoints Jesús Remón on 26 September 2006.
25 June 2008Park and Remón reject Argentina's challenge to Kaufmann-Kohler.
5 August 2008Decision on Jurisdiction upholds jurisdiction.
11 June 2012Award: liability found and US$ 136,138,430 plus interest awarded.
9 October 2012Argentina applies for annulment. The stay of enforcement is lifted with effect from 30 September 2013 because Argentina declined to give the payment undertaking the Committee required.
20 November 2015The proposal to disqualify Committee member Teresa Cheng is rejected.
5 February 2016Decision on Annulment: application dismissed in its entirety.
14 September 2018 – 27 December 2018The La Plata Federal Court No. 4, then the Federal Appeals Court of La Plata (Chamber II), grant access to the ICSID decisions without restrictions on publication.