Alicia Grace and others v. United Mexican States

Case summary

At a glance

Parties: Alicia Grace and 26 other US investors (individuals, trusts, retirement accounts and funds, including the Estate of Carlos Williamson-Nasi and José Antonio Cañedo-White) v. the United Mexican States
Case no.: ICSID Case No. UNCT/18/4
Forum and rules: UNCITRAL Arbitration Rules (1976), administered by ICSID; seat Toronto, Canada
Treaty: NAFTA Chapter 11 (Articles 1116, 1117, 1105, 1110)
Tribunal: Prof. Diego P. Fernández Arroyo (President), Prof. Andrés Jana Linetzky, Prof. Gabriel Bottini
Sector: Oil and gas; offshore drilling rigs (Oro Negro)
Outcome: Final Award of 19 August 2024: the Tribunal unanimously held that it lacked jurisdiction over all claims.
Amount: Mexico's press release says the claimants sought more than USD 270 million. Nothing was awarded. The Tribunal's fees and ICSID's costs (USD 1,590,477.06) were split 75% to the claimants and 25% to Mexico, so the claimants must pay Mexico USD 397,619.3. Each side bears its own legal costs (claimants USD 27,837,106.11; Mexico USD 1,873,564.35).

The dispute

The claimants were US shareholders, mostly minority shareholders, in Integradora de Servicios Petroleros Oro Negro. Through its subsidiary Perforadora Oro Negro, Integradora leased jack-up drilling rigs to PEMEX under five contracts (the Oro Negro Contracts). The rigs were financed by bonds issued by Oro Negro Drilling Pte. Ltd. After the contracts were renegotiated, PEMEX terminated them in the context of Oro Negro's insolvency. Criminal investigations and tax audits in Mexico followed. The claimants argued that Mexico, through PEMEX and in collusion with the bondholders and competitors, expropriated their investment (Article 1110) and denied them fair and equitable treatment and full protection and security (Article 1105). Mexico objected that the claims fell outside the Tribunal's jurisdiction: two claimants were dual nationals with dominant Mexican nationality, and the shareholders had no standing to claim for losses suffered by the company. Mexico also argued that PEMEX's acts could not be attributed to it and denied any breach.

Key holdings

The consistent practice of the NAFTA Parties in their submissions to tribunals is subsequent practice under Article 31(3)(b) VCLT, and it is 'most persuasive and compelling'. Read with that practice, Article 1116(1) covers claims for direct injury to an investor. Article 1117(1) covers claims for indirect injury, brought on behalf of a host-State enterprise that the investor owns or controls. Award ¶¶ 531–534, 539–541
Articles 1116 and 1117 are distinct rules of standing (locus standi) and go to jurisdiction. The Tribunal warned against applying this reading outside NAFTA, because other treaties lack these provisions and the related practice. Award ¶ 541
The only Article 1117 claims were those of Mr. Cañedo White and the Estate of Mr. Williamson-Nasi. The Tribunal had already held that their claims fell outside its jurisdiction, in its analysis of their nationality. Award ¶ 542 (referring to ¶¶ 491, 499)
The remaining claimants complained of wrongs done to Oro Negro and its officers, which affected them only indirectly. Such claims cannot proceed under Article 1116(1). The claimants did not own or control Integradora, so they could not claim on its behalf under Article 1117(1). The Tribunal therefore lacked jurisdiction over all claims, and they were dismissed in their entirety. Award ¶¶ 543–546
The claimants were the unsuccessful party. But Mexico had failed to produce documents ordered in Procedural Orders Nos. 8 and 9, which the Tribunal treated as sanctionable procedural misconduct. The claimants therefore bear 75% of the Tribunal's fees and ICSID's costs and Mexico 25%; each party bears its own legal and expert costs. Award ¶¶ 560–566
Earlier, in Procedural Order No. 4, the Tribunal refused by majority (Mr. Bottini dissenting) an application by an ad hoc group of Oro Negro bondholders to file an amicus submission. The proposed submission did not address matters within the scope of the dispute and would not assist the Tribunal. PO 4 ¶¶ 49–56
In Procedural Order No. 6, the Tribunal refused to order Mexico to refrain from arresting claimants and witnesses. It ordered Mexico to abstain from unjustified measures that could aggravate the dispute. It also asked Mexico to report whether any investigation existed against Quinn Emanuel or its lawyers. PO 6 ¶¶ 64–77