United Utilities (Tallinn) B.V. and Aktsiaselts Tallinna Vesi v. Republic of Estonia

Case summary

At a glance

Parties: United Utilities (Tallinn) B.V. (Netherlands) and Aktsiaselts Tallinna Vesi (Estonia) v. Republic of Estonia
Case no.: ICSID Case No. ARB/14/24
Forum and rules: ICSID Convention arbitration; ICSID Arbitration Rules of 10 April 2006; place of proceeding Washington, D.C.; hearing in Paris
Treaty: Netherlands–Estonia BIT (signed 27 October 1992, in force 1 September 1993)
Tribunal: Stephen L. Drymer (President), Brigitte Stern, David A.R. Williams
Sector: Water and wastewater services; privatisation; tariff regulation
Outcome: Jurisdiction upheld over all claims, but all claims dismissed on the merits (Award dispatched 21 June 2019). David A.R. Williams attached a dissenting opinion.
Amount: Costs: the claimants pay 25% of Estonia's legal costs, fees and expenses (stated at EUR 1,997,966.77) and 25% of the expended portion of Estonia's advance on costs. The claimants' own costs were stated at EUR 5,207,672.06.

The dispute

In January 2001 UUTBV, a Dutch company, bought 50.4% of AS Tallinna Vesi (ASTV), Tallinn's water and sewerage utility, from the City of Tallinn for about EUR 85 million. The privatisation agreements included a Services Agreement that set a tariff formula based on CPI plus a "K-coefficient". Later amendments, including one in 2007, set K-coefficients up to 2020. In 2010 Estonia's Anti-Monopoly Bill amended the Public Water Supply and Sewerage Act and moved tariff approval to the Estonian Competition Authority (ECA). In 2011 the ECA rejected ASTV's tariff application and ordered tariffs 29% lower than ASTV's 2010 tariffs. The claimants alleged breaches of fair and equitable treatment (legitimate expectations, due process, a negative publicity campaign), of the ban on unreasonable or discriminatory measures, and of the umbrella clause. Estonia objected to jurisdiction: it argued that ASTV was not controlled by UUTBV, that ASTV's parallel Estonian court cases engaged Article 26 of the ICSID Convention, and that the BIT was incompatible with EU law after the Achmea judgment. On the merits it argued that the privatisation agreements expressly allowed for changes in the law and in the regulator.

Key holdings

The Tribunal has jurisdiction over all claims. Estonia's objections failed, including its intra-EU objection based on the Achmea judgment, which the Tribunal treated as irrelevant. Award ¶ 939(1); ¶ 930
The claimants had no protected legitimate expectations. The Services Agreement's reference to the 2001 Business Plan did not commit the City to any implied return or level of profitability. The agreements had no stabilisation clause and in effect contained anti-stabilisation clauses, because they foresaw changes in the law and in the regulator. The City could not bind Parliament or the Central Government to freeze the regulatory framework. Award ¶¶ 685–689, 708–716
The amendment limiting profitability to the "capital invested by the water undertaking" was aimed at excluding privatisation value from the tariff base and was directed at ASTV in particular. It was still a foreseeable legislative change and did not breach fair and equitable treatment. Award ¶¶ 801–802
Following the Estonian Supreme Court (12 December 2017), the ECA did not succeed to the City as a party to the Services Agreement and was not bound by it. Under Estonian law the ECA properly exercised its discretion in adopting its tariff Methodology. No regulatory model necessarily prevails as international good practice. Estonia did not breach fair and equitable treatment. Award ¶¶ 823, 828, 842, 859–860
No breach of due process under international law. The ECA was unreceptive to the privatisation agreements, but it is not evident that the outcome would have been different. The claims about the publicity campaign and about unreasonable or discriminatory measures also failed. The umbrella clause claim duplicated the legitimate expectations claim and was dismissed. Award ¶¶ 889, 901, 918, 923, 927, 939
Costs: Estonia won on the merits but lost on jurisdiction and on its illegality arguments. The claimants pay 25% of Estonia's legal costs and 25% of the expended portion of its advance on costs. Award ¶¶ 934–938
Provisional measures were granted in part. The parties may discuss the case in public, including summaries of their positions, as long as they do not aggravate the dispute. They may not publish the arbitration documents (submissions, witness statements, expert reports, produced documents) or extracts of them. Decision on Provisional Measures, Section IV