Nations Energy Corporation, Electric Machinery Enterprises Inc., and Jamie Jurado v. The Republic of Panama

Case summary

At a glance

Parties: Nations Energy Corporation, Electric Machinery Enterprises Inc. (EME) and Mr. Jaime Jurado, v. the Republic of Panama
Case no.: ICSID Case No. ARB/06/19
Forum and rules: ICSID Convention arbitration (award in Spanish)
Treaty: Panama–United States BIT of 27 October 1982, as amended by the Protocol of 1 June 2000
Tribunal: Mr. Alexis Mourre (President), Dr. José María Chillón Medina, Dr. Claus von Wobeser
Sector: Electricity generation; tax incentives
Outcome: Jurisdiction upheld, but all claims dismissed (award dispatched 24 November 2010). Dr. Chillón Medina dissented in part.
Amount: No damages awarded. The claimants were ordered, jointly and severally, to pay Panama USD 4,587,219.17 in costs.

The dispute

The claimants invested in COPESA (Corporación Panameña de Energía S.A.), which built and ran a 40 MW diesel-fired power plant in Panama. They believed the investment entitled them to tax credits under Law 28 of 20 June 1995 on tax incentives for production. They planned to pass the credits on to third parties, first through a COPESA bond issue and later through a sale of COPESA shares. When Panama's tax authority (DGI) and Vice-Minister Mirones refused to recognise that the credits could be transferred, the sale collapsed and COPESA went bankrupt. The claimants called this an indirect expropriation and a breach of the treaty's other protections.

Key holdings

Jurisdiction over Mr. Jurado. He lost his Panamanian nationality when he became a US national in 1954 and never regained it, so he was not a dual national barred by Article 25(2)(a) of the ICSID Convention. ¶¶ 403–404
The protected investment was the claimants' shareholding in COPESA and the plant, not the tax credits themselves. It met the requirements of the BIT and of Article 25 of the ICSID Convention. Nations had standing. ¶¶ 440, 455
The dispute concerns "matters of taxation" (Article XI of the BIT). The Tribunal therefore has jurisdiction over it only within the exceptions in Article XI(2), and here only the expropriation exception (Article XI(2)(a)) applied. ¶¶ 466, 483, 487
No legitimate expectation arose from the DGI's opinion of 26 August 2004, because the request for that opinion rested on mistaken facts. ¶ 536
Law 28 tax credits are personal. Neither Law 28 nor Decree 274 allows them to be transferred through indirect investment, by a bond issue or by a sale of shares. ¶¶ 579, 595–596
No indirect expropriation was proven, and every claim was dismissed. Panama's counterclaim for damages for abuse of process was also rejected for lack of proof. ¶¶ 693–695
Costs. The claimants bear all the costs of the arbitration (USD 441,545.75 to reimburse Panama's half of the advances) and 40% of Panama's legal costs (USD 4,145,673.42). The share was limited because the claimants had not acted in bad faith, the legal framework was uncertain, and the claimants had won on jurisdiction. ¶¶ 708–716
Partial dissent (Dr. Chillón Medina). Article XI(1) of the BIT (states "shall strive to accord" fair and equitable treatment in tax matters) is a binding obligation within the Tribunal's jurisdiction. Dissent, section I