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LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc .v. Argentine Republic, ICSID Case No. ARB/02/1

New
Short Name:

LG&E Energy v. Argentina

Case Type:
International Investment Agreement (Investor–State)
Applicable Procedural Rules:
ICSID Convention - Conciliation Rules (1984)
Seat of Arbitration:
Washington D.C. (United States)
Applicable Treaty:
United States-Argentina BIT (1991)
Applicable Legal Instruments:
Argentina-United States BIT
Economic Sector:
Energy (power Generation)
Outcome:
In Favour of Respondent(s)
Amount of Damages:
US $57,400,000
Other Remedy:
The Tribunal ordered Argentina to pay Claimants US$57.4M in damages plus compound interest for breaches of the BIT. Each party was ordered to bear its own costs.
See case mapped on Investor-State LawGuide

Available documents

30 Apr 2004
Decision of the Arbitral Tribunal on Objections to Jurisdiction (English)
Decision of the Arbitral Tribunal on Objections to Jurisdiction (Spanish)
Document Details:
PARTICIPANTS
Decision of the Arbitral Tribunal on Objections to Jurisdiction (English)
Decision of the Arbitral Tribunal on Objections to Jurisdiction (Spanish)
Participants listed are for this document only and may not include all participants involved in the entire case. Always consult the original documents.
Claimant appointee
Claimant appointee:
Albert Jan van den Berg
Respondent appointee
Respondent appointee:
Francisco Rezek
Tribunal/Panel chair
Chair/President:
Tatiana B. de Maekelt
Arbitrator(s)
Sole Arbitrator
ICSID Annulment Committee president
ICSID Annulment Committee members
WTO Appellate Body members
WTO Appellate Body chair
Judges
Claimant's counsel
Oscar M. Garibaldi, Eugene D. Gulland, Horacio J. Ruiz Moreno
Respondent's counsel
Carlos Lo Turco, Rubén Miguel Citara, Carlos Ignacio Suárez Anzorena, Ignacio Pérez Cortés, Horacio Daniel Rosatti
Other counsel
Claimant's expert
S. Bradford Rives
Respondent's expert
Claimant's witness
Dorothy O'Brien, S. Bradford Rives
Respondent's witness
Other witnesses
Tribunal secretary
Claudia Frutos-Peterson
Tribunal assistant
Country
Print reporter
Entities
LG & E Energy Corp, LG & E Capital Corp, LG & E International, Covington & Burlington, Hope Duggan & Silva, Argentina
Document Summary
Decision of the Arbitral Tribunal on Objections to Jurisdiction (English)
Decision of the Arbitral Tribunal on Objections to Jurisdiction (Spanish)
This summary note is machine-generated. Always consult the original materials.

Procedural Posture and Jurisdictional Objections

This document is the Arbitral Tribunal's decision on the objections to jurisdiction raised by the Respondent, the Argentine Republic, in an ICSID arbitration initiated by three U.S. corporate investors under the Argentina-United States Bilateral Investment Treaty (BIT). The dispute arose from measures taken by Argentina, including the freezing of tariff adjustments for gas distribution, which allegedly harmed the Claimants' investments in Argentine gas licensee companies.

Argentina raised several jurisdictional objections, principally arguing that: (i) the Claimants, as mere shareholders in the local licensees, lacked jus standi (standing) to bring claims for harm suffered by those companies; (ii) the dispute arose from the license agreements, not directly from an investment, and was subject to the jurisdiction of Argentine courts; (iii) the claims were inadmissible as they concerned general economic measures; and (iv) certain procedural requirements under the BIT, such as the six-month cooling-off period, had not been met.

The Tribunal's Analysis and Findings

The Tribunal systematically rejected each of Argentina's objections. On the central issue of jus standi, the Tribunal held that the BIT's definition of "investment" explicitly includes "shares of stock or other interests in a company." This language, the Tribunal reasoned, confers a direct right of action upon shareholders to protect their investment against breaches of the treaty, independent of any rights held by the local company in which they invested. The Tribunal distinguished the case from the principles of diplomatic protection articulated in Barcelona Traction, emphasizing that the BIT establishes a distinct legal regime of direct investor-State dispute settlement.

The Tribunal further determined that the dispute constituted an "investment dispute" within the meaning of the ICSID Convention and the BIT, as the claims were founded on alleged breaches of treaty obligations, not on the underlying license agreements. Consequently, forum selection clauses within those licenses designating local courts were found not to preclude the Tribunal's jurisdiction over treaty-based claims. The Tribunal also affirmed its competence to examine whether specific state measures, even if part of a general economic policy, directly and adversely affected the investment in violation of the Respondent's treaty commitments.

Decision and Operative Orders

Based on its analysis, the Tribunal concluded that it possessed jurisdiction over the dispute and that the claims were admissible. It dismissed all of the Respondent's objections to jurisdiction and admissibility. The Tribunal ordered the continuation of the arbitral proceedings on the merits and reserved all questions concerning costs for a subsequent determination.
3 Oct 2006
Decision on Liability (English)
Decision on Liability (Spanish)
Document Details:
PARTICIPANTS
Decision on Liability (English)
Decision on Liability (Spanish)
Participants listed are for this document only and may not include all participants involved in the entire case. Always consult the original documents.
Claimant appointee
Claimant appointee:
Albert Jan van den Berg
Respondent appointee
Respondent appointee:
Francisco Rezek
Tribunal/Panel chair
Chair/President:
Tatiana B. de Maekelt
Arbitrator(s)
Sole Arbitrator
ICSID Annulment Committee president
ICSID Annulment Committee members
WTO Appellate Body members
WTO Appellate Body chair
Judges
Claimant's counsel
Alma Ramírez, Dorothy O'Brien, Eric D. Brown, Eugene D. Gulland, Gustavo Cedrone, Harris Bor, Horacio J. Ruiz Moreno, Jadranka Poljak, Karin L. Kizer, Karin Lui, Leonardo Orlanski, Matthew Chester, Miguel López Forastier, Oscar M. Garibaldi, Warda Henning
Respondent's counsel
Ana R. Badillos, Carlos Ignacio Suárez Anzorena, Gabriel Bottini, Gastón Rosenberg, Adolfo Gustavo Scrinzi, Ignacio Pérez Cortés, Luz Moglia, Osvaldo Cesar Guglielmino
Other counsel
Claimant's expert
Antoni Peris Mingot, Carlos Lapuerta, Eduardo Schwartz, Jose E. Álvarez, Rudolf Dolzer
Respondent's expert
Anne-Marie Slaughter, Nouriel Roubini
Claimant's witness
S. Bradford Rives, Eduardo A. Hurtado, Patricio Carlos Perkins
Respondent's witness
Eduardo A. Ratti, Jorge G. Simeonoff, Cristian Folgar, Fabian Bello
Other witnesses
Tribunal secretary
Claudia Frutos-Peterson
Tribunal assistant
Country
Print reporter
Entities
LG & E Energy Corp, LG & E Capital Corp, LG & E International, Covington & Burling, Hope Duggan & Silva, Rosso Alba, Argentina
Document Summary
Decision on Liability (English)
Decision on Liability (Spanish)
This summary note is machine-generated. Always consult the original materials.

Procedural Posture

This document is the Tribunal's Decision on Liability in an ICSID arbitration initiated by LG&E Energy Corp., LG&E Capital Corp., and LG&E International Inc. against the Argentine Republic. The claims arise under the Bilateral Investment Treaty (BIT) between the United States and Argentina, concerning investments in the Argentine gas distribution sector.

Tribunal's Analysis on Merits

The Tribunal addressed the Claimants' allegations of breaches of fair and equitable treatment (FET), the prohibition on arbitrary and discriminatory measures, the umbrella clause, and the prohibition on indirect expropriation. The Tribunal determined that the applicable law consisted first of the BIT, supplemented by general international law and Argentine domestic law.

The Tribunal found that Argentina breached the FET standard under Article II(2)(a) of the BIT. It reasoned that the stability of the legal and business framework is an essential element of FET. Argentina had created specific expectations for investors through its Gas Law and privatization framework, which included key guarantees such as tariffs calculated in U.S. dollars, semi-annual tariff adjustments based on the U.S. PPI, and protection from price controls. The Tribunal held that Argentina's abrogation of these guarantees during its economic crisis violated the stability and predictability required by the FET standard.

Regarding Article II(2)(b), the Tribunal concluded that Argentina had adopted discriminatory measures by imposing stricter rules on the gas-distribution companies compared to other public-utility sectors. However, it found that the measures were not arbitrary, as they were the result of reasoned judgment in response to a severe crisis, rather than a simple disregard for the rule of law.

The Tribunal also found a breach of the umbrella clause in Article II(2)(c). It determined that the guarantees in the Gas Law and its implementing regulations were specific obligations undertaken by Argentina to induce foreign investment, not merely general legislation. Their subsequent abrogation constituted a failure to observe obligations entered into with regard to the investment.

Conversely, the Tribunal dismissed the claim for indirect expropriation under Article IV. It held that while the state's measures had a severe impact on the investment's value, they did not deprive the Claimants of ownership or control. The Tribunal found the effect was not permanent enough to be 'tantamount to expropriation'.

State of Necessity Defense

A central element of the decision was the Tribunal's analysis of Argentina's state of necessity defense under Article XI of the BIT and customary international law. The Tribunal determined that the severe economic, political, and social crisis in Argentina constituted a state of necessity. It defined the period of necessity as lasting from 1 December 2001 to 26 April 2003. The Tribunal concluded that during this period, Argentina was excused from liability for its breaches of the BIT, as the measures taken were necessary to maintain public order and protect its essential security interests. Consequently, the damages suffered by the investor during this period were to be borne by the investor.

Decision

The Tribunal rendered a decision partially granting the Claimants' claims. It held that:

  1. The claim for expropriation was dismissed.
  2. Argentina breached the FET standard, the non-discrimination standard, and the umbrella clause.
  3. The prohibition on arbitrary measures was not violated.
  4. Argentina was in a state of necessity from 1 December 2001 to 26 April 2003 and is exempt from liability for damages incurred during that period.
  5. Argentina is liable for damages resulting from violations that occurred before and after the period of necessity.

The determination of damages and costs was reserved for a subsequent phase of the arbitration, for which the Tribunal retained jurisdiction.

 
25 Jul 2007
Final Award (English)
Final Award (Spanish)
Document Details:
PARTICIPANTS
Final Award (English)
Final Award (Spanish)
Participants listed are for this document only and may not include all participants involved in the entire case. Always consult the original documents.
Claimant appointee
Claimant appointee:
Albert Jan van den Berg
Respondent appointee
Respondent appointee:
Francisco Rezek
Tribunal/Panel chair
Chair/President:
Tatiana B. de Maekelt
Arbitrator(s)
Sole Arbitrator
ICSID Annulment Committee president
ICSID Annulment Committee members
WTO Appellate Body members
WTO Appellate Body chair
Judges
Claimant's counsel
Eugene D. Gulland, Oscar M. Garibaldi, Eric D. Brown, Karin L. Kizer, Miguel López Forastier, Dorothy O'Brien, Horacio J. Ruiz Moreno, Leonardo Orlanski
Respondent's counsel
Osvaldo Cesar Guglielmino
Other counsel
Claimant's expert
Eduardo Schwartz, Carlos Lapuerta
Respondent's expert
Fabian Bello
Claimant's witness
Enrique Jorge Flaiban
Respondent's witness
Other witnesses
Geoffrey Senogles, Vanessa Rossi, Simon Knapp, Douglas Glassford
Tribunal secretary
Claudia Frutos-Peterson
Tribunal assistant
Country
Print reporter
Entities
LG & E Energy Corp, LG & E Capital Corp, LG & E International, Covington & Burling, E. ON U.S, LBC International Investigative Accounting, Oxford Economic Forecasting, Rosso Alba Francia & Ruiz Moreno, Argentina
Document Summary
Final Award (English)
Final Award (Spanish)
This summary note is machine-generated. Always consult the original materials.

Procedural Context and Scope

This Award exclusively addresses the determination of damages and costs following the Tribunal's Decision on Liability of 3 October 2006. In that prior decision, the Tribunal found that the Argentine Republic had breached its obligations under the US-Argentina Bilateral Investment Treaty, including the standards of fair and equitable treatment, non-discrimination, and the umbrella clause. However, the Tribunal also held that Argentina's conduct was justified under the state of necessity defense for the period from 1 December 2001 to 26 April 2003, exempting it from responsibility during that time.

Analysis of Damages

The central legal issue was the appropriate standard for compensation for treaty breaches not amounting to expropriation. The Claimants argued for full compensation based on the Fair Market Value (FMV) of their investment prior to the breaches, calculated using stock market data, which they quantified at approximately US$248 million. Argentina contested this, arguing that FMV was inapplicable and that any loss was attributable to the general economic crisis rather than its specific measures.

The Tribunal rejected the FMV standard, reasoning that it is primarily applicable to cases of expropriation. It noted that the Claimants had not been deprived of their investment, which had since rebounded in value, and thus a claim for loss of capital value was premature. Instead, the Tribunal adopted an "actual loss" standard, defining the compensable damage as the amount of dividends the Claimants would have received 'but for' Argentina's wrongful acts. This approach focused on the direct financial consequence of abrogating the gas regulatory framework's guarantees, such as dollar-denominated tariffs and PPI adjustments.

The Tribunal further rejected the Claimants' claim for lost future profits as overly speculative, given that they retained title to their investment and its future earning potential. The calculation of damages was confined to the period from 18 August 2000 to 28 February 2005, the evidentiary cut-off date in the proceedings. The Tribunal determined that compound interest, reflecting modern financial practice, was appropriate to ensure full reparation and should run from the date of the first breach.

Decision and Costs

Based on its 'but for' dividend methodology, the Tribunal quantified the Claimants' actual loss. It calculated the hypothetical dividends that would have been paid, subtracted the dividends actually received, and then deducted losses attributable to the period of the state of necessity. The Tribunal awarded the Claimants a total of US$57,400,000.00, inclusive of compound interest calculated up to the date of the Award. The Tribunal also ordered that, in the event of non-payment within 30 days, further compound interest would accrue at the rate of six-month U.S. Treasury bills. Concluding that neither party was wholly successful, the Tribunal directed that each party should bear its own costs, expenses, and attorneys' fees.
8 Jul 2008
Decision on Claimants' Request for Supplementary Decision
Document Details:
PARTICIPANTS
Decision on Claimants' Request for Supplementary Decision
Participants listed are for this document only and may not include all participants involved in the entire case. Always consult the original documents.
Claimant appointee
Claimant appointee:
Albert Jan van den Berg
Respondent appointee
Respondent appointee:
Francisco Rezek
Tribunal/Panel chair
Chair/President:
Tatiana B. de Maekelt
Arbitrator(s)
Sole Arbitrator
ICSID Annulment Committee president
ICSID Annulment Committee members
WTO Appellate Body members
WTO Appellate Body chair
Judges
Claimant's counsel
Respondent's counsel
Other counsel
Claimant's expert
Respondent's expert
Claimant's witness
Enrique Jorge Flaiban
Respondent's witness
Other witnesses
Tribunal secretary
Claudia Frutos-Peterson
Tribunal assistant
Country
Print reporter
Entities
LG & E Energy Corp, LG & E Capital Corp, LG & E International, Argentina
Document Summary
Decision on Claimants' Request for Supplementary Decision
This summary note is machine-generated. Always consult the original materials.

Procedural Context and Parties' Submissions

This decision addresses the Claimants' request for a supplementary decision pursuant to Article 49(2) of the ICSID Convention, following the Tribunal's final Award on damages of 25 July 2007. The Claimants sought to have the Tribunal update the quantum of compensation to include damages sustained after the Award's cut-off date of 28 February 2005, arguing that the Tribunal had left this issue unresolved. They submitted new evidence of the Respondent's continuing breach and contended that supplementing the Award would serve the interests of justice and efficiency by avoiding new proceedings.

The Respondent, the Argentine Republic, opposed the request, arguing that it exceeded the narrow scope of Article 49(2). The Respondent asserted that the provision is intended to correct inadvertent, non-substantial omissions, not to revisit deliberate decisions, address substantial issues, or consider new evidence. Granting the request, it argued, would amount to an improper reopening of the proceedings and would violate its right to due process.

Tribunal's Analysis and Decision

The Tribunal denied the Claimants' request, finding that it did not concern a matter that the Tribunal had "omitted to decide" as required by Article 49(2). The Tribunal clarified that its decision in the final Award to establish a cut-off date for damages was a deliberate one, grounded in the principle of due process. It had explicitly declined to consider evidence of post-cut-off date damages because the Respondent had not been afforded an opportunity to respond to it.

The Tribunal held that the supplementation process is not a mechanism for parties to continue proceedings on the merits or to challenge the validity of a tribunal's decision. It emphasized that Article 49(2) does not provide a means of appeal or revision. While acknowledging the Claimants' concerns, the Tribunal concluded that it could not disregard fundamental principles of due process. The decision confirms that the Claimants' right to claim additional damages through new proceedings remains intact. The Tribunal ordered the Claimants to bear the costs of the supplementary proceedings (US$74,954.74), with each party bearing its own legal expenses.
20 Feb 2015
Procedural Order Taking Note of the Discontinuance of the Proceeding (English)
Procedural Order Taking Note of the Discontinuance of the Proceeding (Spanish)
Document provided by: ICSID Website
Document Details:
PARTICIPANTS
Procedural Order Taking Note of the Discontinuance of the Proceeding (English)
Procedural Order Taking Note of the Discontinuance of the Proceeding (Spanish)
Participants listed are for this document only and may not include all participants involved in the entire case. Always consult the original documents.
Claimant appointee
Respondent appointee
Tribunal/Panel chair
Arbitrator(s)
Sole Arbitrator
ICSID Annulment Committee president
ICSID Annulment Committee members
WTO Appellate Body members
WTO Appellate Body chair
Judges
Claimant's counsel
Miguel López Forastier, Charlotte Toerber, Horacio J. Ruiz Moreno
Respondent's counsel
Angelina María Esther Abbona
Other counsel
Claimant's expert
Respondent's expert
Claimant's witness
Respondent's witness
Other witnesses
Tribunal secretary
Tribunal assistant
Country
Print reporter
Entities
LG & E Energy Corp, LG & E Capital Corp, LG & E International, Covington & Burling, Mitrani Caballero Ojam & Ruiz Moreno, Argentina
Document Summary
Procedural Order Taking Note of the Discontinuance of the Proceeding (English)
Procedural Order Taking Note of the Discontinuance of the Proceeding (Spanish)
This summary note is machine-generated. Always consult the original materials.

This document is an Order issued by the Secretary-General of the International Centre for Settlement of Investment Disputes (ICSID) formally taking note of the discontinuance of the annulment proceeding in ICSID Case No. ARB/02/1. The proceeding concerned cross-applications for the partial annulment of an Award rendered on July 25, 2007, and a Supplementary Decision of July 8, 2008. The Order records that on January 26, 2015, the Claimants requested the discontinuance of the proceeding pursuant to Rule 44 of the ICSID Rules of Procedure for Arbitration Proceedings. Subsequently, on February 2, 2015, the Argentine Republic confirmed that it had no objections to the discontinuance. As the conditions of Rule 44 were met and no Annulment Committee had yet been constituted, the Secretary-General formally recorded the discontinuance, thereby terminating the proceeding.
Case Summary
This summary note is machine-generated. Always consult the original materials.

Case Overview

In LG&E Energy v. Argentina, three U.S. energy corporations brought a claim against the Argentine Republic under the 1991 Argentina-U.S. Bilateral Investment Treaty (BIT). The dispute, administered by the International Centre for Settlement of Investment Disputes (ICSID), arose from measures enacted by Argentina during its severe economic crisis of 1999-2003. The Claimants had invested in the Argentine natural gas distribution sector following its privatization in the 1990s. They alleged that Argentina's measures—including the abrogation of a peso-dollar parity, the conversion of tariffs to pesos, and the freezing of tariff adjustments—destroyed the stable and predictable legal framework that had induced their investment, thereby violating the BIT.

Procedural History

The Claimants filed a request for arbitration in December 2001, which was registered by ICSID in January 2002. The three-member Arbitral Tribunal, presided over by Tatiana B. de Maekelt, was constituted in November 2002. After a contested jurisdictional phase, the Tribunal affirmed its competence in a Decision on Objections to Jurisdiction in April 2004. It found that the Claimants had standing as foreign investors despite investing through local companies and that no fork-in-the-road provision barred the claim. The case then proceeded to the merits, culminating in the Tribunal's Decision on Liability issued on October 3, 2006, which resolved the substantive claims while reserving the quantum of damages for a subsequent phase. This final phase concluded with the issuance of an Award on July 25, 2007, which determined the compensation owed to the Claimants. Claimants subsequently requested a supplementary decision to extend the period for damages, but the Tribunal denied this request in July 2008, holding that it had already deliberately decided the issue and could not reopen the proceedings. Following the Award, both parties filed applications for partial annulment in late 2008. The annulment proceeding was suspended by agreement and ultimately discontinued at the parties' request in February 2015, rendering the 2007 Award final.

Key Issues and Positions

Merits

The Claimants argued that Argentina breached multiple provisions of the BIT. They contended that the government's actions violated the Fair and Equitable Treatment (FET) standard by dismantling the specific guarantees upon which their investment was based, including tariffs calculated in U.S. dollars, semi-annual tariff adjustments based on the U.S. Producer Price Index (PPI), and a commitment against price controls without compensation. They further alleged that the measures were arbitrary and discriminatory, as the gas sector was treated more harshly than other industries. The Claimants also invoked the BIT's umbrella clause, arguing that Argentina's repudiation of specific commitments made in its domestic Gas Law constituted a treaty breach. Finally, they claimed that the severe diminution in the value of their investment amounted to an indirect expropriation. Argentina countered that its actions were not treaty breaches but were necessary, non-discriminatory regulatory measures taken in response to an unprecedented economic, social, and political crisis. It argued that the FET standard requires adherence to the minimum standard of treatment under customary international law, which was not violated. Argentina's central defense rested on Article XI of the BIT, asserting that the crisis constituted a state of necessity that excused it from liability for any measures taken to maintain public order and protect its essential security interests.

Quantum

In the damages phase, the Claimants sought full compensation based on the fair market value (FMV) of their investment prior to the treaty breaches, arguing for approximately US$248 million. Argentina opposed this, arguing that the Claimants' valuation methods were inadequate and that any damages should be calculated using a discounted cash flow (DCF) analysis, while also contending that no damages were actually due.

Tribunal/Court Reasoning and Holdings

Merits

The Tribunal found that Argentina had breached several of its obligations under the BIT. It held that the FET standard required the maintenance of a stable and predictable legal framework, which Argentina had created to attract foreign investment and then subsequently dismantled, violating the Claimants' legitimate expectations. The Tribunal also found that Argentina's measures were discriminatory, as the gas distribution sector was subjected to more unfavorable treatment than other public utilities. However, the Tribunal concluded the measures were not arbitrary, as they were the result of reasoned judgment in a crisis, rather than a simple disregard for the rule of law. The Tribunal upheld the claim under the umbrella clause, reasoning that the specific guarantees in the Gas Law and its regulations were obligations entered into by Argentina with regard to the investment, and their abrogation constituted a treaty breach. The claim for indirect expropriation was dismissed, as the Tribunal found that the Claimants had not been deprived of ownership or control of their investment, and the measures' effects were not permanent.

State of Necessity

A crucial part of the ruling was the Tribunal's analysis of Argentina's state of necessity defense under Article XI of the BIT. The Tribunal accepted the defense, but only for a defined period. It determined that a state of necessity existed from December 1, 2001, to April 26, 2003. Consequently, Argentina was excused from liability for damages arising from its treaty breaches during this specific period. However, the Tribunal held that Argentina remained liable for breaches committed before this period and for its failure to restore the guaranteed tariff regime after the state of necessity had ended.

Quantum/Damages

The Tribunal rejected the Claimants' request to measure compensation by the fair market value of the investment. It reasoned that since the claim for indirect expropriation had been dismissed and the Claimants had not been deprived of their investment, the FMV standard was inappropriate. Instead, the Tribunal adopted a measure of "actual loss," which it defined as the value of dividends the Claimants would have received "but for" Argentina's treaty breaches. This "but for" calculation was based on the dividends that would have been generated had the original tariff regime remained in place. The Tribunal calculated these lost dividends for the period between August 2000 and February 2005, subtracting the dividends actually received and also excluding any losses incurred during the period of the state of necessity. The Tribunal dismissed the Claimants' claim for lost future profits, deeming it too speculative given that the Claimants retained their investment.

Disposition / Relief

The Tribunal ordered the Argentine Republic to pay the Claimants US$57.4 million in compensation for damages, plus compound interest from the date of the Award until payment in full. The Tribunal decided that each party should bear its own legal fees and costs.