Orazul International España Holdings S.L. v. Argentine Republic

Case summary

At a glance

Parties: Orazul International España Holdings S.L. (Spain; formerly Duke Energy International España Holdings S.L.U.) v. Argentine Republic
Case no.: ICSID Case No. ARB/19/25
Forum and rules: ICSID Convention; ICSID Arbitration Rules 2006; place of proceeding Washington, D.C.
Treaty: Argentina–Spain BIT of 3 October 1991 (with MFN reliance on the US–Argentina and Australia–Argentina BITs)
Tribunal: Dr. Inka Hanefeld (President), Mr. David R. Haigh KC (dissenting on liability), Prof. Alain Pellet
Sector: Electricity generation (hydro and thermal power)
Outcome: Award of 14 December 2023: the Tribunal unanimously upheld jurisdiction and admissibility, but by majority rejected all claims on the merits. Each party bears its own costs and half of the arbitration costs.
Amount: Claimed (alternative valuations in the post-hearing brief): USD 667.3 million, USD 504.8 million or USD 364.4 million, plus interest. Awarded: nothing. Arbitration costs of USD 1,486,422.00 were shared equally. The parties' own costs were USD 17,437,692.09 (Claimant) and USD 1,709,080 (Respondent).

The dispute

Orazul is a Spanish company, incorporated on 22 October 2003 as Duke Energy International España Holdings S.L.U. In December 2003 it acquired, through a restructuring within the Duke Energy group, an indirect 90.80% interest in Hidroeléctrica Cerros Colorados S.A. This was later reduced to 86.33%. Cerros Colorados operates the Planicie Banderita hydroelectric plant under a 1993 concession and the Alto Valle thermal plant. In December 2016 the I Squared Capital fund acquired Duke Energy's Argentine interests. The claims targeted Argentine electricity measures adopted from 2003 onward: Resolutions 240/03, 406/03 and 943/03, the FONINVEMEM schemes that turned unpaid receivables into investments in new plants, Resolution 95/13 and later measures. Orazul said these measures were promised to be temporary but were never reversed, and it claimed breaches of fair and equitable treatment, the non-impairment clause, the expropriation clause, and full protection and security and an umbrella clause imported through the MFN clause. Argentina argued that the claims were belated, that Orazul had not first litigated in Argentine courts for 18 months as Article X of the BIT requires, and that Orazul was a shell company used in an abuse of process. It also argued that Cerros Colorados had consented to the measures and waived its claims, that it had complied with the BIT, and that the defence of necessity applied.

Key holdings

Jurisdiction upheld and claims admissible. The MFN clause in Article IV(2), which covers "all matters governed by this Agreement", reaches dispute resolution. Orazul could therefore rely on the dispute-resolution clauses of the Australia–Argentina BIT (Article 13) and the US–Argentina BIT (Article VII) in place of the requirement to litigate first in Argentine courts. Award ¶¶ 995, 1057
No breach of fair and equitable treatment (majority). According to the dissent's summary of the Award, the majority held that the words "transitory" and "temporary" in the 2003 resolutions were not a specific promise to restore the 1990s framework. It also held that the Electricity Law left the Energy Secretariat considerable discretion, and that the investment was made in December 2003, in the middle of a crisis. On that basis it distinguished Total v. Argentina and El Paso v. Argentina. Award ¶¶ 634–709, as summarised in the Haigh Dissent ¶¶ 4–44
No direct or indirect expropriation. Orazul joined the FONINVEMEM agreements voluntarily, and a failure to pay receivables does not amount to a taking. Cerros Colorados stayed profitable, with average EBITDA of USD 14.4 million a year from 2004 to 2020, so the threshold for indirect or creeping expropriation was not met. Entitlements under the Electricity Law, such as a uniform spot price, are not property rights that can be expropriated. Award ¶¶ 944–959
Umbrella clause not available. The BIT contains no umbrella clause, so the subject is not a "matter governed by this Agreement". The MFN clause therefore cannot import Article II(2)(c) of the US–Argentina BIT. The Tribunal followed Teinver v. Argentina and distinguished EDF v. Argentina. Award ¶¶ 992–1003
Because no breach was found, the Tribunal did not decide Argentina's necessity defence, and it rejected the claim for compensation and interest. Award ¶¶ 1023–1024, 1031
Costs: each party bears its own costs and half of the arbitration costs of USD 1,486,422.00. The Claimant won on jurisdiction and the Respondent on the merits, and the Tribunal declined to sanction either party's conduct. Award ¶¶ 1052–1055
Dissent: David R. Haigh agreed on jurisdiction, expropriation and the umbrella clause. He would have found a breach of fair and equitable treatment: Argentina did not honour its repeated assurances that the 2003 measures were transitory, and did not return to the mandatory pricing rules in Articles 35 and 36 of the Electricity Law. He would have awarded substantial damages and full costs. Haigh Dissent ¶¶ 2, 5–46
The proposal to disqualify the President was dismissed. Dr. Hanefeld had served as co-arbitrator with Argentina's legal expert Prof. Viñuales in an SCC case (Green Power v. Spain). The unchallenged arbitrators said disclosing this would have been advisable, but found that the omission was fully mitigated and was not a conflict of interest. Her questioning of witnesses showed no bias or prejudgment. Decision on Disqualification ¶¶ 46–53