In 1996, Claimant was awarded a contract for a concession to privatize the water and sewer services of the Province of Buenos Aires. To execute the contract, Claimant incorporated AGBA (an Argentinean company).
Under the contract, AGBA acquired the exclusive right to collect, treat, transport, distribute and commercialize water and sewage and, in return, was to pay US$ 1,260,000 to the Province. The contract further provided AGBA with payment for all “operating expenses, maintenance expenses and service amortization” (Article 12.1.1 of the contract).
However, starting in the beginning of 2001, Claimant faced difficulties obtaining payment from customers. This problem grew worse with the economic crisis in Argentina, which resulted in emergency measures implemented by the Argentine government affecting the claimant’s investment.
Those measures included the freezing of public service tariffs and a new regulatory framework for water services. Between 2001 to 2005, AGBA attempted to renegotiate the contract in order to restore its economic equilibrium. Despite AGBA’s efforts, negotiations failed and, on July 10, 2006, AGBA was fined for violation of several of its obligations. One day later, the Governor of the Province terminated the contract and AGBA’s concession was transferred to ABSA, a State-owned entity.
Following these events, Claimant filed for arbitration before the ICSID on July 25, 2007.
In its award issued on June 21, 2001, the Arbitral Tribunal upheld its jurisdiction and, although it rejected Claimant’s claim of expropriation, ruled that Respondent had violated Article 2.2 of the BIT between Italy and Argentina in relation to the fair and equitable treatment standard.
With respect to expropriation, the Arbitral Tribunal ruled that Respondent’s emergency measures did not amount to a loss of Claimant’s property right or concession. Even though the Province rescinded the contract, this was done on permissible grounds.
On the other hand, the Tribunal ruled that Respondent’s emergency measures and legislation severely altered the economic balance and, as per the contract, Respondent was under the obligation to restore the said balance, which it failed to do. As a consequence, the Tribunal held that Respondent had aggravated Claimant’s economic and financial situation and thus violated the BIT by failing to provide fair and equitable treatment to Claimant.
Further, the Tribunal rejected Respondent’s defense of a state of necessity, finding that the conditions set forth in Article 25 of the International Law Commission’s Articles on Responsibility of States for Internationally Wrongful Acts were not satisfied.