INTERNATIONAL COURT OF JUSTICE
CERTAIN IRANIAN ASSETS
(ISLAMIC REPUBLIC OF IRAN v. UNITED STATES OF AMERICA)
REJOINDER
SUBMITTED BY
THE UNITED STATES OF AMERICA
May 17, 2021
ANNEXES
VOLUME VII
Annexes 386 through 402
ANNEX 386
In the arbitration under the UNCITRAL Arbitration Rules
and the Dominican Republic-Central America-United States Free Trade Agreement
between
SPENCE INTERNATIONAL INVESTMENTS, et al
Claimants,
and
THE REPUBLIC OF COSTA RICA
Respondent.
ICSID Secretariat File No. UNCT/13/2
NON-DISPUTING PARTY SUBMISSION
OF THE REPUBLIC OF EL SALVADOR
April 17, 2015
Annex 386
TABLE OF CONTENTS
I. Article 10.5 (Minimum Standard of Treatment) ................................................................. 1
A. The source of customary international law is State practice .................................... 1
B. The burden to prove the existence of a norm of customary international law
resides with the party alleging its existence, normally the claimant.. ...................... 2
C. The minimum standard of treatment does not include the protection of
investors' expectations, legitimate or otherwise ...................................................... 2
D. Only extreme levels of State conduct fall below the minimum standard of
treatment .................................................................................................................. 5
E. A claimant has the burden to prove that the concept of "fair and equitable
treatment" may be applied in contexts other than denial of justice ......................... 6
II. Article 10.7 (Expropriation and Compensation) ................................................................. 7
III. Article 10.18 (Conditions and Limitations on Consent of Each Party) .............................. 8
A. Knowledge of the existence of a measure alleged to breach CAFTA-DR and
resulting harm is sufficient to trigger the three-year statute oflimitations .............. 9
B. It is not necessary to know the exact amount of loss or damage, only that loss
or damage has been suffered as a result of the measure .......................................... 9
C. It is irrelevant whether an alleged breach is characterized as an act having a
continuing character ............................................................................................... 10
IV. Article 10.1 (Scope and Coverage) ................................................................................... 10
Annex 386
1. The Republic of El Salvador ("El Salvador") makes this submission pursuant to Article
10.20.2 of the Dominican Republic-Central America-United States Free Trade Agreement (the
"Treaty" or "CAFTA-DR"), regarding the interpretation of Articles 10.5 (Minimum Standard of
Treatment), 10.7 (Expropriation and Compensation), 10.18 (Conditions and Limitations on
Consent of Each Party), and 10.1 (Scope and Coverage).
2. El Salvador does not express a position regarding how the interpretations included in this
submission apply to the facts of this case. In addition, no inference should be made from the
absence of comments regarding any question not specifically addressed in this submission.
I. ARTICLE 10.5 (MINIMUM STANDARD OF TREATMENT)
A. The source of customary international law is State practice
3. CAFTA-DR Article 10.5 is titled "minimum standard of treatment." The first paragraph
of Article 10.5 provides that each CAFTA-DR Party "shall accord to covered investments
treatment in accordance with customary international law, including fair and equitable treatment
and full protection and security."
4. The second paragraph explains that the concept of "fair and equitable treatment" does not
require treatment beyond the minimum standard of treatment to aliens in accordance to
customary international law.
5. Finally, Article 10.5 must be interpreted in accordance with Annex 10-B, which explains
the CAFTA-DR Parties' understanding that customary international law "results from a general
and consistent practice of States that they follow from a sense of legal obligation."
6. The CAFTA-DR Parties thus made it clear that customary international law must be
proven through evidence of ( 1) general and consistent practice of States (2) that they follow from
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a sense of legal obligation. 1 Therefore, while decisions of arbitral tribunals that discuss State
practice might be useful as evidence of the State practice they discuss, arbitral decisions can
never substitute for State practice as the source of customary international law.
B. The burden to prove the existence of a norm of customary international law
resides with the party alleging its existence, normally the claimant
7. The general and consistent practice of States crystallizes as a norm in customary
international law through the passage of time until it can be recognized as such. The party that
alleges the existence of a norm of customary international law (normally the claimant) has the
burden to prove the existence of State practice followed from a sense of legal obligation that has
given rise to the alleged norm. 2
C. The minimum standard of treatment does not include the protection of
investors' expectations, legitimate or otherwise
8. Because the focus of an inquiry regarding the minimum standard of treatment must be the
conduct of the State, it is incorrect to make reference to the expectations of an investor to decide
if the State has complied with the minimum standard of treatment. The minimum standard of
treatment must be an objective concept to evaluate the treatment a State accords to an investor,
not a concept that can vary depending on the investor's subjective understanding about the
treatment it expects to receive. This is so even when those expectations might be based on what
has been offered to the investor. Considering the investor's legitimate expectations would have
the effect of eliminating States' regulatory capacity, something the States Parties never agreed to
1 The second requirement is also known by the Latin phrase "opinio juris" (opinio juris sive necessitates).
2 Apotex Holdings Inc. and Apotex Inc. v. United States of America, ICSID Case No. ARB(AF)/12/1, CounterMemorial
on the Merits and Objections to Jurisdiction of Respondent United States of America, Dec. 14, 2012,
paras. 352, 354, available at http://www.state.gov/documents/organization/203097.pdf.
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do in the Treaty. Therefore, State conduct is the only relevant factor in any inquiry regarding the
minimum standard of treatment.
9. El Salvador is not alone in this interpretation. In fact, the majority of CAFTA-DR Parties
have previously declared that the minimum standard of treatment does not include the protection
of investors' expectations. In a previous CAFTA-DR arbitration between Teco Holdings and the
Republic of Guatemala, four CAFTA-DR non-disputing Parties (El Salvador, the Dominican
Republic, Honduras, and the United States of America) filed written submissions interpreting
that the minimum standard of treatment under customary international law, as referred to in
CAFTA-DR Article 10.5, does not include the protection of investors' expectations, legitimate or
otherwise. 3
10. Three non-disputing Parties in the Teco v. Guatemala arbitration also made oral
submissions. During its oral submission, the United States incorporated by reference its
interpretation regarding investors' expectations expressed in a NAFTA proceeding also
interpreting the content of the minimum standard of treatment under customary international
law. 4 In that NAFTA arbitration, Grand River v. United States, the United States clearly stated
that "States are not obligated to protect a foreign investor's expectations-legitimate or
otherwise-under the minimum standard of treatment." 5
3 TECO Guatemala Holdings LLC v. Republic of Guatemala, IC SID Case No. ARB/10/23, Non-disputing Party
Submissions of El Salvador, Oct. 5, 2012, paras. 13-14 (attached to this Submission as Annex A); the Dominican
Republic, Oct. 5, 2012, para. 10 (Annex B); Honduras, Nov. 15, 2012, paras. 9-10 (Annex C); and the United States
of America, Nov. 23, 2012, para. 6 (Annex D). The non-disputing Party submissions are also available at
http://portaldace.mineco.gob.gt/casos-guatemala .
4 TECO Guatemala Holdings LLC v. Republic of Guatemala, IC SID Case No. ARB/10/23, Oral Submission of the
United States of America, Hearing Transcript, Vol. 5, Mar. 4, 2013, at 822-824 (Annex E).
5 Grand River Enterprises Six Nations, Ltd., et al. v. United States of America, UNCITRAL, Counter-Memorial of
Respondent United States of America, Dec. 22, 2008, at 96-100, available at http://www.state.gov/documents/
organization/114065.pdf. See also, Glamis Gold, Ltd. v. United States of America, Counter-Memorial of Respondent
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11. In addition to the four non-disputing Parties, Guatemala declared in its written
submissions in Teco v. Guatemala the same interpretation that "the doctrine of legitimate
expectations does not apply in the context of the international minimum standard."6 Therefore, at
least five of the seven CAFTA-DR Parties have declared in the previous CAFTA-DR arbitrations
that there is no role for investors' expectations in an analysis of whether a State has complied
with its international obligations under CAFTA-DR Article 10.5.
12. Finally, El Salvador would like to clarify an apparent misunderstanding regarding what
the tribunal in the TECO v. Guatemala arbitration decided regarding this issue. The Claimants in
the present arbitration seem to indicate that the tribunal in TECO v. Guatemala rejected
Guatemala's interpretation that there is no role for investors' expectations in an analysis regarding
compliance with the minimum standard of treatment. 7 El Salvador notes that the passage of the
award quoted by the Claimants in this arbitration does not correspond to the tribunal's analysis; it
is a summary of the claimant's arguments in that case. 8 In reality, the tribunal in the TECO v.
Guatemala arbitration agreed with Guatemala that there is no role for legitimate expectations in
an analysis under the minimum standard of treatment, and cited the non-disputing Party
United States of America, Sept. 19, 2006, at 233-234, available at http://www.state.gov/documents/organization/
73686.pdf.
6 TECO Guatemala Holdings LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, Rejoinder of the
Republic of Guatemala, Sept. 24, 2012, paras. 172, 182, available at http://portaldace.mineco.gob.gt/sites/default/
files/unidades/DefensaComercial/Casos/Controversias/Inversionista%20-%20Estado/Arbitraje%2010-23%20%28
Teco%29/Memorial%20de%20D%C3%BAplica/Memorial%20de%20D%C3%BAplica/Ingles/Rejoinder%20ENG.
lliif.
7 Spence International Investments, LLC, et al. v. Costa Rica, Claimants' Rejoinder on Jurisdiction, Feb. 4, 2015,
para. 117 and n.85, available at http://www.comex.go.cr/tratados/vigentes/cafta/Casos/150204%20Claimants…
Rejoinder%20on%20Jurisdiction.pdf.
8 TECO Guatemala Holdings LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, Award, Dec. 19, 2013,
para. 267, available at https://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&acti… Val=show
Doc&docld=DC4012 En&caseld=C1280.
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submissions of El Salvador, the Dominican Republic, and Honduras to support this
determination. 9
D. Only extreme levels of State conduct fall below the minimum standard of
treatment
13. Due to the origin of the minimum standard of treatment in customary international law as
an absolute floor to the treatment States may provide, only State actions of an extreme nature can
violate the minimum standard of treatment. Like other CAFTA-DR Parties, El Salvador
understands that the conduct of a State must rise to the level of manifest arbitrariness, utter lack
of due process, blatant unfairness, evident discrimination, or egregious denial of justice, to
become a breach of CAFTA-DR Article 10.5. 10
14. Conversely, conduct that is merely arbitrary has not been established to constitute a
breach of the minimum standard of treatment based on evidence of general and consistent State
practice followed from a sense oflegal obligation, as required by CAFTA-DR Article 10.5. 11
15. In addition, as the United States expressed in its non-disputing Party submission in the
Teco case, "[d]etermining a breach of the minimum standard of treatment 'must be made in the
9 TECO v. Guatemala Holdings LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, Award, Dec. 19, 2013,
para. 621 and n.513 ("It is clear, in the eyes of the Arbitral Tribunal, that any investor has the expectation that the
relevant applicable legal framework will not be disregarded or applied in an arbitrary manner. However, that kind of
expectation is irrelevant to the assessment of whether a State should be held liable for the arbitrary conduct of one of
its organs. What matters is whether the State's conduct has objectively been arbitrary, not what the investor expected
years before the facts.").
' 0 See, e.g., TECO Guatemala Holdings LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, Non-disputing
Party Submissions of the Dominican Republic, Oct. 5, 2012, paras. 6-9 (Annex B); Honduras, Nov. 15, 2012, para. 9
(Annex C); and the United States of America, Nov. 23, 2012, para. 6 (Annex D).
11 See, e.g., Glamis Gold, Ltd. v. United States of America, Counter-Memorial of Respondent United States of
America, Sept. 19, 2006, at 227-230, available at http://www.state.gov/documents/organization/73686.pdf.
5
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light of the high measure of deference that international law generally extends to the right of
domestic authorities to regulate matters within their borders."' 12
E. A claimant has the burden to prove that the concept of "fair and equitable
treatment" may be applied in contexts other than denial of justice
16. Article 10.5, second paragraph, specifically mentions that the concept of "fair and
equitable treatment" as part of the minimum standard of treatment "includes the obligation to not
deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the
principle of due process embodied in the principal legal systems of the world."
17. The United States noted in its non-disputing Party submission in the TECO v. Guatemala
case that "the minimum standard of treatment is an umbrella concept reflecting a set of rules that,
over time, has crystallized into customary international law in specific contexts." 13
18. InApotex v. United States of America, the United States explained that the applicability
of the minimum standard of treatment under customary international law has only been
established in a few areas. The United States explained in further detail:
Sufficiently broad State practice and opinio juris thus far have
coincided to establish minimum standards of State conduct in only
a few areas, such as the requirements to provide compensation for
expropriation; to provide full protection and security ( or a
minimum level of internal security and law); and to refrain from
denials of justice. In the absence of an international law rule
governing State conduct in a particular area, a State is free to
conduct its affairs as it deems appropriate. 14
12 TECO Guatemala Holdings LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, Non-disputing Party
Submission of the United States of America, Nov. 23, 2012, para. 7 (internal citation omitted) (Annex D).
13 TECO Guatemala Holdings LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, Non-disputing Party
Submission of the United States of America (November 23, 2012), para. 3 (emphasis added) (Annex D).
14 Apotex Holdings Inc. and Apotex Inc. v. United States of America, ICSID Case No. ARB(AF)/12/1, CounterMemorial
on the Merits and Objections to Jurisdiction of Respondent United States of America, Dec. 14, 2012, para.
353 ( emphasis added, internal citations omitted), available at http:/ /www.state.gov/documents/
organization/203097 .pdf.
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19. CAFTA-DR includes expropriation in Article 10.7 and deals withfull protection and
security in Article 10.5 .2(b ). This makes denial of justice the only established area of application
recognized in Article 10.5.2(a) for the concept of "fair and equitable treatment" as part of the
minimum standard of treatment.
20. A party alleging the applicability of the minimum standard of treatment beyond the area
of denial of justice has the burden to prove the existence of the norm it alleges. As mentioned
before, the proof must be based on the general and consistent State practice that States follow
from a sense of a legal obligation.
21. In the absence of evidence of general and consistent State practice that they follow from a
sense of a legal obligation, as required by CAFTA-DR Article 10.5 and Annex 10-B, it is not
possible to establish the existence of additional obligations as part of the concept of "fair and
equitable treatment" included in the minimum standard of treatment. Therefore, unless a party
(normally the claimant) proves otherwise with evidence of the general and consistent practice of
States that they follow from a sense of legal obligation, the concept of "fair and equitable
treatment" used in CAFTA-DR as part of the minimum standard of treatment, has only been
established as applicable in the area of denial of justice.
II. ARTICLE 10.7 (EXPROPRIATION AND COMPENSATION}
22. Article 10.7.1 protects investments covered by CAFTA-DR from direct and indirect
expropriation, except (a) for a public purpose; (b) in a non-discriminatory manner; (c) on
payment of prompt, adequate, and effective compensation in accordance with paragraphs 2-4 of
Article 10.7; and (d) in accordance with due process oflaw and Article 10.5.
23. The CAFTA-DR Parties made it clear that Article 10.7 must be interpreted in accordance
with Annex 10-C. In Annex 10-C, the CAFTA-DR Parties "confirm[ed] their shared
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understanding" that, "[e]xcept in rare circumstances, nondiscriminatory regulatory actions by a
Party that are designed to protect legitimate public welfare objectives, such as public health,
safety, and the environment, do not constitute indirect expropriations."
24. Therefore, a claimant would have the burden to rebut the strong presumption created in
CAFTA-DR that a State's nondiscriminatory regulatory measures designed to protect the
environment do not constitute an indirect expropriation.
Ill. ARTICLE 10.18 (CONDITIONS AND LIMITATIONS ON CONSENT OF EACH PARTY)
25. Article 10.18.1 provides that "no claim may be submitted to arbitration ... if more than
three years have elapsed from the date the claimant first acquired, or should have first acquired,
knowledge of a breach under CAFTA-DR Article 10.16.1 ... and knowledge that the claimant ..
. has incurred loss or damage."
26. CAFTA-DR does not require the investor to act immediately. Article 10.15 encourages
the parties to a dispute to "seek to resolve [it] through consultation and negotiation, which may
include the use of non-binding, third-party procedures such as conciliation and mediation." In
addition, Article 10.16.3 mandates a minimum period of six months between the date of the
events giving rise to a claim and the date when an investor may submit the claim to arbitration. 15
27. According to Article 10.18.1, a claim becomes time-barred three years from the date
when the claimant first acquired, or should have first acquired, knowledge of the alleged breach
and knowledge ofloss or damage as a result of that breach. This three-year time limit includes
the time that the parties to the dispute may be engaged in direct consultation or negotiation, as
well as in conciliation or mediation procedures.
15 This is the minimum waiting time, provided that the claimant has also filed the required Notice oflntent within
those six months and at least 90 days earlier, in accordance with CAFTA-DR Article 10.16.2.
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28. This leaves a window of 2½ years ( after the mandatory minimum of six months counted
from the events that give rise to the claim) for an investor to initiate arbitration under CAFTADR
Article 10.16.
A. Knowledge of the existence of a measure alleged to breach CAFTA-DR and
resulting harm is sufficient to trigger the three-year statute of limitations
29. Article 10.18.1 refers to knowledge ofa "breach alleged under [CAFTA] Article 10.16.1"
and knowledge ofresulting harm as the triggering event for the three-year statute oflimitations
to begin to run. However, it is not necessary for the investor to know that there has been a breach
of a certain provision of CAFTA-DR Section A, of an investment authorization, or of an
investment agreement, in the legal sense. It is sufficient if the investor is aware, or should be
aware, of the existence of a measure that harms it and that is later alleged to constitute the breach
under CAFTA-DR Article 10.16.1.
B. It is not necessary to know the exact amount of loss or damage, only that loss
or damage has been suffered as a result of the measure
30. While knowledge ofloss or damage is required, it is not necessary to have knowledge of
the precise amount of the loss or damage. 16 The only requirement in Article 10 .18 .1 is
knowledge that there has been some loss or damage as a result of the offending measure.
16 Grand River Enterprises Six Nations, Ltd., et al. v. United States of America, UNCITRAL, Decision on
Objections to Jurisdiction, July 20, 2006, para. 77 ("A party is said to incur losses, debts, expenses or obligations, all
of which may significantly damage the party's interests, even ifthere is no immediate outlay of funds or if the
obligations are to be met through future conduct. Moreover, damage or injury may be incurred even though the
amount or extent may not become known until some future time."), available at http://www.state.gov/documents/
organization/69499. pdf.
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C. It is irrelevant whether an alleged breach is characterized as an act having a
continuing character
31. Because the requirement refers to "the date on which the claimant first acquired, or
should have first acquired, knowledge of a breach", it is irrelevant whether the measure is
characterized as an act having a continuing character. El Salvador agrees with the United States'
submission regarding the same language in NAFTA:
An investor first acquires knowledge of an alleged breach and loss
at a particular moment in time: under Article 1116(2), that
knowledge is acquired on a particular "date." Such knowledge
cannot first be acquired on multiple dates, nor can such knowledge
first be acquired on a recurring basis. 17
IV. ARTICLE 10.1 (SCOPE AND COVERAGE)
32. CAFTA-DR Article 10.1.3 provides that:
For greater certainty, this Chapter [Ten] does not bind any Party in
relation to any act or fact that took place or any situation that
ceased to exist before the date of entry into force of this
Agreement.
33. This clause tracks the language of the non-retroactivity principle as stated in Article 28 of
the Vienna Convention on the Law of Treaties and affirms that this principle applies to all of the
provisions on investment in CAFTA-DR Chapter Ten, including Section B: Investor-State
Dispute Settlement. The consent of CAFTA-DR Parties to arbitration in Article 10.17 is thus
limited ratione temporis by the language of Article 10.1.3. Each Party's consent does not extend
to arbitration with respect to measures adopted or any act or fact that took place before CAFTADR
entered into force for that Party.
17 Merrill & Ring Forestry, L.P. v. Canada, UNCITRAL, Submission of the United States of America, July 14,
2008, para. 5 ( emphasis in original), available at http://www.state.gov/documents/organization/12885 l .pdf.
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34. El Salvador thus interprets that a dispute that existed before CAFTA-DR entered into
force and that remains unresolved after CAFTA-DR entered into force, cannot give rise to a
claim for a breach of the substantive provisions of CAFTA-DR.18
DIRECTOR OF TRADE POLICY
18 See Railroad Development Corporation v. Republic of Guatemala, ICSID Case No. ARB/07/23, Non-disputing
Party Submi ion of El Salvador, Mar. 19, 2010 (Annex F).
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ANNEX 387
U.S. Department of State
Office of Language Services
Translating Division
LS No. 2021-0113416
Spanish/English
ALK/GPG
TRANSLATION
International Center for Settlement of Investment Disputes
In the Arbitration Proceeding Between:
TECO Guatemala Holdings LLC, Claimant
and
Republic of Guatemala, Respondent
ICSID Case No. ARB/10/23
Brief of Non-Disputing Party, the Republic of Honduras
1. The Republic of Honduras makes this submission, which concerns the interpretation of
Article 10.5 the Dominican Republic - Central America - United States Free Trade
Agreement ("Agreement"), pursuant to Article 10.20.2 of the Agreement.
2. Honduras is not opining on the merits of this dispute, and the fact that this submission
does not address the fact that this is a legal issue that has arisen during the proceeding
must not be considered as an indication that Honduras either agrees or disagrees with the
positions adopted by the disputing parties.
3. In current international investment arbitration practice, the term "fair and equitable
treatment" covers two very different concepts. The first concept has to do with the
minimum standard of treatment under customary international law and is very limited in
scope. The second concept is used in many investment protection agreements, but
Annex 387
without reference to the minimum standard of treatment under customary international
law, and is therefore much broader in scope than the first.
4. Under Article 31.1 of the Vienna Convention on the Law of Treaties, treaties shall be
interpreted in good faith in accordance with the ordinary meaning to be given to its terms.
5. Article 10.5 establishes that each State Party shall accord to covered investments
treatment in accordance with customary international law, including fair and equitable
treatment and full protection and security. It is important to note from the outset that the
title and purpose of Article 10.5 is "Minimum Standard of Treatment," not "Fair and
Equitable Treatment." "Fair and equitable treatment" is merely mentioned as a
subordinate concept that is included under the broader category of "minimum standard of
treatment." The second paragraph of Article 10.5 clearly establishes that this concept of
"fair and equitable treatment" cannot go beyond the minimum standard of treatment to be
afforded to aliens under customary international law.
6. Therefore, the terms of Article 10.5 of the Agreement clearly reflect the intention of the
States Parties to adopt the most restrictive possible interpretation of "fair and equitable
treatment" as a part of the minimum standard of treatment under customary international
law.
7. Annex 10-B of the Agreement makes it clear that in referring to "customary international
law" in Article 10.5, the States Parties understood that customary international law
"results from a general and consistent practice of States that they follow from a sense of
legal obligation."
8. In order to ascertain the current state of customary international law, it is necessary to
look to the practice of States rather than rely on arbitral tribunal decisions that have not
Annex 387
reviewed the minimum standard of treatment. As far back as the era of the Permanent
Court of Justice, it has been established that the party alleging the existence of a norm of
customary international law has the burden of proving the existence of a general and
consistent practice of States-a practice that States follow from a sense of legal
obligation--that has given rise to the alleged norm.
9. Owing to the origins of "minimum standard of treatment" in customary international law,
as the absolute lowest threshold that supplements the obligation of States to afford aliens
at least the same standard of treatment that States afford their own nationals, only actions
by a State that are shocking, egregious, [ and] outrageous can breach the minimum
standard of treatment, which includes fair and equitable treatment as a concept included
in the minimum standard.
10. The Republic of Honduras considers the following to be valid specific examples of
conduct that can violate the minimum standard of conduct: a serious denial of justice;
manifest arbitrariness; blatant unfairness; a complete lack of due process; evident
discrimination; or a manifest lack of reasons for a particular decision 1. Since the focus
must be on the State's conduct, however, the Republic of Honduras does not believe that
it is valid or necessary to refer to investors' expectations in order decide whether or not
the minimum standard of treatment has been violated.
[Stamp: Ministry oflndustry and Commerce] [Initialed]
Jose Adonis Lavaire
Minister of Industry and Commerce
1 Glamis Gold Ltd., v. United States of America, Award of June 8, 2009, paragraphs 616 and 627. Available at
https://www. ital aw .com/docu ments/Gla mis_Awa rd_ 001.pdf
Annex 387
Annex 387
CENTRO INTERNACIONAL DE ARREGLO DE DIFERENCIAS RELATIV AS A INVERSIONES
EN EL ARBITRAJE ENTRE
TECO Guatemala Holdings, LLC
Dem andante
y
LA REPUBLICA DE GUATEMALA
Demandado
Caso CIADI NO. ARB/10/23
ESCRITO DE PARTE NO-CONTENDIENTE DE LA
REPUBLICA DE HONDURAS
1. La Repl'.'1blica de Honduras presenta esta comunicacion de conformidad con el
Articulo 10.20.2 del Tratado de Libre Comercio cntre la Republica Dominicana Centroamerica y
los Estados Unidos (el "Tratado") sobre la interpretaci6n del Articulo 10.5 del Tratado.
2. Honduras no se pronuncia sobre los hechos de esta disputa, y el hecho que esta es
una cuesti6n juridica que haya surgido durante el procedimiento no se aborde esta comunicaci6n
no debera considerarse como que Honduras esta de acuerdo o en desacuerdo con la posici6n
adoptadas por las partes contendientes.
3. En el arbitraje intemacional de inversiones actual se manejan dos conceptos muy
distintos bajo el nombre de "trato justo y equitativo." El primer concepto de "trato justo y
cquitativo" sc hace con rcfcrcncia al nivcl minima de trato bajo cl derecho intcmacional
Annex 387
consuetudinario, yes un concepto muy limitado. El segundo concepto de 11trato justo y equilativo"
ha sido utilizado en muchos tratados de protecci6n de inversiones, pero sin relacionarlo al nivel
minimo de trato bajo el derecho intemacional consuetudinario, y por lo tanto es un concepto mas
amplio que el primero.
4. De conformidad con el Articulo 31.1 de la Convenci6n de Viena sobre el Derecho
de los Tratados, los tratados deben interpretarse de buena fe, de conformidad con el significado
corriente de sus terminos.
5. El Articulo 10.5 establece que cada Estado Parte "otorgara a las inversiones
cubiertas un trato acorde con el derecho internacional consuetudinario, incluido el trato justo y
equitativo, asi como la prutecci6n y seguridad plenas. 11 Es importante comenzar con la
observaci6n que el titulo y objeto del Articulo 10.5 es el 11Nivel Minima de Trato,11 no el "trato
justo y equitativo. 1' El 11trato justo y equitativo" solamente se menciona con el range de un
"concepto" que esta incluido en el II ivel Minima de Trato. 11 El segundo parrafo del Articulo 10.5
establece claramente que este concepto de "trato justo y equitativo" no puede ir mas alla del nivel
minima de trato a los extranjeros segun el derecho internacional consuetudinario.
6. Por lo tanto, los terminos del Articulo 10.5 del Tratado reflejan claramente la
intenci6n de los Estados Parte de adoptar el concepto mas restrictivo posible de "trato justo y
equitativo" coma parte del nivel minima de trato conforme al derecho internacional
consuetudinario.
7. El Anexo 10-B del Tratado deja claro que al referirse al derecho internacional
consuetudinario en el Articulo 10.5, los Estados Parte entendieron que el derecho internacional
consuetudinario es el que "resulta de una practica general y consistente de los Estados, seguida por
ellos en el sentido de una obligaci6n legal. 11
Annex 387
8. Para determinar cual es el estado actual del derecho internacional consuetudinario
es necesario referirse a la practica de los Estados, no a decisiones de tribunales arbitrales que no
han examinado el nivel minimo de trato. Desde los tiempos de la Corte Permanente de Justicia ha
quedado establecido que la parte que alega la existencia de una norrna de derecho internacional
consuetudinario corrc con la carga de la prueba para demostrar que existe una practica general y
consistente de los Estados seguida por un sentimiento de obligaci6n legal que ha generado la
no1ma alegada.
9. Debido al origen del "Nivel Minimo de Trato" en el derecho intemacional
consuetudinario, corno un "piso" absoluto que complementa la obligaci6n de los Estados de
otorgar a los extranjeros al menos el mismo nivel de trnto que los Estados otorgan a sus propios
nacionales, solamente acciones de caracter chocante, excesivo, ultrajante, de parte de un Estado,
pueden violar el nivel minimo de trato, incluyendo el trato justo y equitativo como un concepto
incluido en el nivel minirno de trato.
10. La Republica de Honduras considera validos los siguientes ejemplos especificos de
conducta que puede violar el nivel minimo de trato: una grave denegaci6n de justicia, una
arbitrariedad manifiesta, una injusticia flagrante, una completa falta de debido proceso, una
discriminaci6n manifiesta, o la ausencia rnanifiesta de las razones para una decision. 1 Sin
embargo, debido a que el enfoque debe ser en la conducta dcl Estado, la Republica de Honduras no
considera valido ni necesario hacer referencia a las expectativas de los inversionistas para decidir
~
cf: hos de
1 Glamis Gold, Ltd c. United States of America, Laudo del 8 de junio de 2009, parrafos 616, 627,
disponible en http://italaw.com/documents/G lam is _A ward_ 00 l. pd[
Annex 3.87
ANNEX388
IN THE ARBITRATION UNDER CHAPTER ELEVEN OF THE NORTH AMERICA
TRADE AGREEMENT
ELI LILLY AND COMPANY
v.
GOVERNMENT OF CANADA
(Case No. UNCT/14/2)
SUBMISSION OF MEXICO PURSUANT TO NAFTA ARTICLE 1128
I. Pursuant to NAFrA Article 1128, the Government of Mexico is providing its views on
certain matters of interpretation of the NAFf A.
2. No inference should be drawn from the fact that Mexico has chosen to address only some
of the issues raised by the disputing parties. Mexico ha-; previously addressed the interpretation of
provisions of NAFf A Chapter Eleven in its submissions in other disputes, and Mexico reaffirms
those prior submissions.
Mexico has taken no position on the facts of this dispute.
Article 1116 and 1117 - Limitation period
4. Mexico concurs with Canada~s submissions on the three-year time limit prescribed by
Articles 1116(2) and I 117(2), as stated in paragraphs 66 to 80 of the Rejoinder.
5. The NAFT A Parties made their consent to arbitration conditional upon compliance with
the procedural requirements established in NAFf A Chapter Eleven, including Article I I 16(2) and
1117 2). Mexico agrees, and has previously stated, that a Chapter Eleven arbitral tribunal's
jurisdiction rationae temporis is reliant on a claimant's compliance with the requirement to submit
its claim · to arbitration within three years of the date that it first acquired, or ought to have first
acquired, knowledge of the alleged breach and knowledge that the investor (or investment, as the
case may be) has incurred loss or damage.
6. NAFf A tribunals, such as Grant! River v. the United States and Feldman v. Mexico have
recognized that there is a "clear and rigid limitation defense - not subject to any suspension,
prolongation or other qualification"1 introduced by Articles 1116(2 and 1117(2).
Grand Ri11er Emerprise Si,r Nations Ltd c. United States of America (UNCITRAL), Decision on Objcclions
10 Jurisdic1ion. 20 July 2006, at para. 29.
Annex 388
7. It follows that neither a continuing course of conduct nor the occurrence of subsequent acts
or omissions can renew or interrupt the three-year limitation period once it has commenced to run.
8. Additionally, as Canada has stated at paragraph 75 of its Rejoinder, given that the NAFf A
Parties have repeatedly concurred the view that the three-year limitation period cannot be extended
by an allegation that the alleged violation has continued, their "clear and consistent position . .. on
this issue constitutes a 'subsequent agreement between the parties regarding the interpretation of
the treaty' and/or 'subsequent practice' which 'shall be taken into account' when interpreting
NAFfA.
Article 1105 - Minimum Standard of Treatment
9. Article J 105(1) reads "[e/ach Parry shall accord to investments of i1111estors of another
Party treatment in accordance with i11tematio11al law. including fair and equitable treatment and
full protectio11 and security."
I 0. In accordance with the NAFI' A Free Trade Commission, "Article l 105( I) prescribes the
customary international law minimum standard of treatment of aliens as the minimum standard uf
creatment to be afforded to invesrmems of investors of another Party". 2 This statement expressly
confirms that the applicable standard in Anicle 1105(1) is the customary international law
minimum standard of treatment, and tribunals established under Chapter I I should apply it in
accordance with Article I 131 (2). 3
11. As Mexico stated in Loewen "· The United States of America,"{ c/ustomC11)' international
law results from the accretion and broadening of State practice until it assumes widespread
acceptance.""' Thus, two requirements must be met to establish the existence of an obligation under
the customary international law: State practice and opinio juris.5 Mexico has consistently
maintained that position, in common with boch of the other Parties, in subsequent submissions
under Article 1128.6
2 NAFTA Free Trade Commission. Notes of Interpretation of Certain Chapter 11 Pmvisions ('.\I July 200 I)
(FTC Note of Interpretation). The FTC Note of Interpretation olso clarified that ''The concepts of "fair and equitable
treatment·• and "full protection and security" do not require treatment in addition lo or beyond that which is required
by the customary international law minimum standard of treatment of aliens". and that "A determination that there
has been a breach of another provision of the NAFT A. or or a separate international agreement. docs not establish that
there has been a breach of Article 1 !05(1)."
Article I 131(2): An interpretation by the Commission of a provision of this Agreement shall be binding on
a Tribunal established under this Section.
111e l.oewe11 Group, Inc. and Raymond L. loewe11 v. 77,e U11i1ed S1(l{es of America (ICSID Case No.
ARB(AF)/98/3). Second Article 1128 Submission of the United Mexican States. 9 November 2001 at page 2.
As explained by the United States in its Second Submission in Mesa v. Govemme111 of Ccmada (PCA Case
No. 2012-17). this two-element approach has been widely supported by the literature. State practice and decisions or
international courts like the International Court of Justice. Second Article 1128 Submission of the United States. 12
June 2015 at paras. 9 - I 0.
6 Sec. for example. Mexico's Article 1128 submission in Mercer /111erna1ional 111,·. ,,. Gol'em111e111 of Canada
dated May 8. 2015 at para.19. Mexico's second Article 1128 submission in Mesa Power LLC v. GovN111111m1 of
Canada dated June 12. 2015 at para 9; and Mexico's Article 1128 submission in Winds1rec1111 E11ergr LLC v.
2
Annex 388
12. Mexico agrees with the United States that currently" ... customary imerna1ional law has
crysw/lized a minimum standard of treatment in only a few areas. One such area which is expressly
addressed in Arricle 1 /05( 1 ), concerns the obligation to provide 'fair and equitable trearmenr'.
This includes. for example, the obligation not to deny justice in criminal, civil or administrative
adjudicatory proceedings, such as when a State's judiciary administers justice to aliens in a
·11otoriously unjust' or ·egregious· manner "which offends a sense of judicial property"'
[footnotes omitted].7
13. lt has been recognized that a State is responsible for the conduct of its legislative, executive
and judicial organs, either at the central or sub-central level of govemment.8 However, in the
particular case of judicial acts of a State, Mexico has expressed that even when those acts can rise
to international responsibility, there are " ... fundamental distinctions that international law has
made and continues to make between acts of the judiciary and the acts of other organs of the State.
International tribunals defer to the acts of municipal courts not only because the courts are
recognized as being expert in matters of a State's domestic law, but also because of the judiciary 's
role in the organization of the State".9
14. Thus, because of the particular role of the adjudicative power within the organization of
states, Mexico agrees with Canada that, with respect to judicial acts, denial of justice is the only
rule of customary international law clearly identified and established so far as part of the minimum
standard of treatment of aliens, as explained in paragraphs 231 - 245 of the Counter-Memorial of
Canada.10 Thus. if a claimant asserts a breach of Article 1105( I) based on a different concept, that
party has the burden of identifying the relevant obligation under the customary international law
based on State practice and opinio juris. 11 However, it should be noted that decisions of
international tribunals do not constitute State practice that can assist to identify a rule of customary
Governmem of Canada dated January 12, 2016 at paras 6 and 7. Mexico's Article 1128 submissions in Mercer. Mesa
and Windstream arc not avai lable on the web and are thus ottachcd hereto for ease of reference.
Mesa v. Govemmem of Canada, Second Article 1128 Submission of the United Slates. 12 June 2015 at para.
12.
Arlicle 4.1. Articles on Responsibility of States for International Wrongful Acts (2001 ).
'> 11,e Loewen Group. Inc. and Raymond L. Loewen v. 111e United States of America (ICSID Case No.
ARB(AF)/9813). Second Article I 128 Submission of the United Mexican States, 9 November 2001, at page 5.
IO Eli Ully and Co111pt111y v. Governmem of Canada, Counter-Memorial of Canada. 27 January 2015.
11 In Ca,-gi/1 /11c. 1•. 111e United Mexican States (ICSID Case No. ARB (AF)/05n). the tribunal stated in para.
273: "The Parties disagree. however. as to how that customary standard has in fact. if at all, evolved since that time.
The burden of establishing any new elements of this cus1om is Claiman1. The Tribunal acknowledges thal the proof
of chance in a custom is not an easy matter 10 establish . However. the burden of doing so falls clearly on Claimant If
Claimant does not provide the Tribunal proof of such evolution. in such an instance. should hold Claimant fails to
establish the particular standard asserted."
Annex 388
international law,'2 particularly arbitral decisions that interpret autonomous stand-alone fair and
equjtable treatment. 13
15. With respect to "legitimate expectations" of investors, Mexico concurs with Canada's
submissions in paragraphs 275 - 278, and 280-283 of its Counter- Memorial, particularly with
respect the following statements:
• " ... [t]he mere failure to meet an investor's legitimate expectations does not constitute
a breach Article 11 OS( I) .. . [T)he unjustified repudiation of specific representations
made to the investor in order to induce an investor can be a factor in assessing whether
the minimum standard of treatment has been breached ... "; 14
• '" ... states may amend or modify their regulations to achieve legitimate welfare
objectives and will not incur liability under customary international law merely because
such changes interfere with an investor's 'expectations' about the state of regulation in
a particular sector"; 15 and
• " ... the theory of legitimate expectations has not been proven to be a rule of customary
international law ... " and •· .. . the requirement that an investor's legitimate expectations
must be based on specific promises or representations to the investor is by no means a
"narrow standard" - it is the standard". 16
16. As Canada describes in its Counter-Memorial, NAFT A tribunals have reached the same
conclusions in general. 17
12 See also. Mesa v. Govemmem of Ca11ada, Second Anicle 1128 Submission of lhc United State~. 12 June
201 S. at para. 14: Eli lilly and Compon,v v. Govemme111 of Ca11ada. C untcr-Memorial of Canada. 27 January 2015.
at para. 271: and Mercer lntemational Inc. 1•. Govem111e111 of Ca11ada. Submission of Mexico pursuant 1128 or
NAFfA. 8 May 2015, at para. 18.
n In Glamis Gold v. the United Stmes the tribunal staled: "'Looking. for instance. to Claimant 's reliance on
Teemed v. MP.rico for various of i1s argumems. 1he Trihunal finds thaL Claimant has nm proven that 1his □ wa rd . based
on a BIT between Spain and Mexico. defines anything other than an autonomous standard and thus an award from
which this Tribunal will not find guidance. Article 4( I ) of the Spain- Mexico BIT involved in the Termed proceeding
provides 1hat each contracting party guarantees just and equitable treatment conforming wi1h "International Law" to
the investments of investors of the other contracting party in its territory. Article 4(2) proceeds to explain that this
treatment will not be less favorable than that grant1..'d in similar circumstances by each contracting party to the
investments in its territory by an investor or a third State. Several interpretations or the requirement espoused in Article
4(2) are indeed possible. but the Teemed tribunal itself states that it ·understands that the scope of the undertaking of
fair and equitable treatment under Article 4(1) of the Agreement described ... is that resulting from an autonomous
interpretation ... .' Thus. this Tribunal finds that the language or analysis of the Teemed award is not relevant to the
Trihunal's consideration." (Award. 8 June 2009, at para. 610)
275 .
lh
Eli lilly and Company v. Govemme/11 of Canada, Countcr~Memorial of Canada. 27 January 201 S. at para.
Id. at para. 278.
Id. at para. 280.
17 See also. Dumberry, Patrick: The Protection of Investors legitimate E.xpectations a,u/ the fair and
Equitable Treatme/11 Standard under NAFTA Artirle 1/05: Journal of lmemational Arbilration 31. No. I (20/4).
"The position adopted by NAFTA tribunals regarding the interpretation of the concept of legitimate expecwtio11s
4
Annex 388
Article 1110- Expropriation and Compensation.
17. Article 1110(1) of NAFrA reads as follows: "J. No Party may directly or indirectly
nationalize or expropriate an investment of an investor of another Party in its territory or rake a
measure tantamount to 11atio11alization or expropriation of such an investment ("expropriation"),
except: (a) for a public purpose; (b) on a non-discriminatory basis; (c) in accordance with due
process of law and Article 1105( I); and (d) on payment of compensation in accordance with
paragraphs 2 through 6."
18. A claim of expropriation under Article 1110( I), first requires the claimant (in its capacity
as an investor of a Party) to establish that it has an "investment" (as defined in Article 1139
"Definitions") in the territory of the host Party. An investment can only be based on vested legal
rights under the legal system of the host Party. Pending legal rights and contingent legal rights
cannot constitute an "investment" under NAFT A Article 1139 (Definitions), or for the purposes
of Article 110 I (Scope and Coverage) or Article 1110 (Expropriation and Compensation). Rather,
there must be valid and subsisting property rights that fal l within one or more of the categories
listed in Article 1139.
19. When legal rights are declared a nullity, or void ab initio, by a court of competent
jurisdiction, there cannot be a claim of expropriation. Mexico agrees with Canada that in such case,
as a matter of domestic law, the alleged investment never existed for the purposes of Article I I 10.
In such circumstances a disputing investor would have to establish a claim of "denial of justice"
under Article 1105 in order to succeed.
20. Azinian v. the United Mexican States, illustrates this point. The Ayuntamiento of
Naucalpan de Juarez in the State of Mexico issued an administrative resolution nullifying a
municipal waste collection concession on grounds that misrepresentations inducing the granting
of the concession rendered it void ab initio, notwithstanding that it had been partly performed by
clearly contrasts with the 11111clr more liberal approach that has been taken by non-NAFTA tribunals. 11111s. 011/y one
mvard s11p11oris the 11iew that the concept c·onstitutes" stand-alone element of the FCT standard under Artide I 105.
The mlliori1" gf NAf7'A tribunals ha11e held. 011 the contrarv. rltqt the host state's {qj/11re to respect an investor's
legitimate exwxwtio11s does not cmlS(ifllte a breach of the FET standard bw is rat{,rr a 'factor' to be 1akr11 inro
cu·cou/11 when assessing whether or 1101 other we/I-established c•lemems ofthr sumdard havr been breached. Another
notable 1111ique feafllre of NAFTA cau Jaw is the fact //1ar tribunals have repe(ltedl_v narrowly qualified the concept of
legitimate e.11>e('(£11io11s. Tribwwls have thus required that "" investor's exvectations be obiec1ive and be based 011
'definitfve, 11nq111biguo11s (lJld repeated ' .m e[ific 'co111111itme111s' 1.nL..:.assura11ces·, made b\' the host state ro {J_qve
'pumosely tmd wecificallv induced tire i11vestment' by tire i11vestor. A11orlrer ill11stratio11 of this trend is the fa ct tlrar
NAFTA tribunals have also concluded that legitimllle expectatio11s cannot simply be based 011 the host state's existing
domestic legislation on foreign i1111estme111s at the time when the i1111estor makes its investment. The Glamis award thus
emphasized the threshold requiremem of cz quasi-contractual relmionship between the investor and the host state.
Fin(l/J_v. 1111/ikt• 11011-NAFfA tribunals (including CMS. Enron: Teemed: and man_v others), 110 NAFTA tribunal has
ei•er rea i1110 the FET s Ida n obli atio11 or the hosr stare to 11 ·, : t s a le le al and h11si11ess em•iromnenr.
11u:se efforts of darifirntiun by NAFTA 1rib1111als huve sig11ificamly reduced the scope of C/flfllirntiun of the concept
of legitimale e.1·1u•ctatio11s. It is no surprise that to date, 110 NAFTA tribunal has come to the co11cl11sio11 1lu11 a host
state stood in 11iolatin11 nf an investor's legitimate expectarions 1111der Article I 105." [ emphasis added/I
5
Annex 388
the Claimants. 1g The Ayuntamiento's resolution of nullity was upheld on three levels of appeal
the Mexican courts, and the Azinian Tribunal made the following finding:
The possibility of holding a State internationally liable for judicial decisions does not,
however, entitle a claimant to seek international review of the national court decisions as
though the international jurisdiction seised has plenary appellate jurisdiction. This is not
true generally, and it is not true for NAFf A. What must be shown is that the court decision
itself constitutes a violation of the treaty. Even if the Claimants were to convince this
Arbitral Tribunal that the Mexican courts were wrong with respect to the invalidity of tl1e
Concession Contract, this would not per se be conclusive as to a violation of NAFTA.
More is required; the Claimants must show either a denial of justice, or a pretence of form
to achieve an internationally unlawful end.
But the Claimants have raised no complaints against the Mexican courts; they do not
allege a denial of justice. Without exception, they have directed their many complaints
against the Ayuntamiento ofNaucalpan. The Arbitral Tribunal finds that this circumstance
is fatal to the claim, and makes it unnecessary to consider issues relating to performance
of the Concession Contract. For if there is no complaint against a determination by a
competent court that a contract governed by Mexican law was invalid under Mexican law,
there is by definition no contract to be expropriated. 19 [Emphasis added]
21. As explained by the Azinian Tribunal, in such circumstances a claimant could only
complain of "denial of justice":
A denial of justice could be pleaded if relevant courts refuse to entertain a suit, if they
subject it to undue delay, or if they administer justice in a seriously inadequate way.
There is no evidence, or even argument, that any such defects can be ascribed to the
Mexican proceedings in this case.
There is a fourth type of denial of justice, namely the clear and malicious misapplication
of the law. This type of wrong doubtless overlaps with the notion of "pretence of form"
to mask a violation of international law. In the present case, not only has no such wrongdoing
been pleaded, but the Arbitral tribunal wishes to record that it views the evidence
as sufficient to dispel any shadow over the bona fides of the Mexican judgments. Their
findings cannot possibly be said to have been arbitrary, let alone malicious.20
Applicatio,i of Article I I 10(7)
22. Article 11 10(7) does not invite an arbitral tribunal constituted under Section B of Chapter
Eleven to determine whether the host Party has complied with Chapter Seventeen when revoking
or limiting intellectual property rights owned by an investor of another Party.
19
Sec. Robert A::.inia11 et al v. the United Mexican States, at paras. 9 - 17.
Rohen A:;;i11ia11 et al v. the U11ited Me.rican States, Award. November I 1999, ot paras. 99 - 100.
Id. at paras. I 02 - I O'.I .
6
Annex 388
23. The NAFT A is very clear where Chapter Eleven tribunals are vested with authority to
consider and apply other provisions of the NAFTA:
• Articles 1116 and I 117 expressly provide that an investor of Party may submit a claim that
another Party has breached an obligation under (a) ... Article 1503(2) (State Enterprises) or
(b) Article 1502(3)(a) (Monopolies and State Enterprises) where the monopoly has acted
in a manner inconsistent with the Party's obligations under Section A [of Chapter Eleven].
• Article 1401(2), (the Scope and Coverage provision in Chapter Fourteen, the Financial
Services Chapter) expressly provides that "Articles I I09 through 1111, 11 13, 11 14 and
1211 are hereby incorporated into and made a part of this Chapter. Articles 1115 through
1138 are hereby incorporated into and made a part of this Chapter solely for breaches by a
Party of Articles 1109 through 1111, 1 l 13 and 1114, as incorporated into this Chapter".
24. All other dispute settlement under the NAFfA is restricted to Chapter Nineteen (Review
and Dispute Settlement in Antidumping and Countervailing Duty Matters) and Chapter Twenty
(Institutional Arrangements and Dispute Settlement Procedures).
25. Chapter Twenty would apply to a dispute between two or more NAFf A Parties concerning
a Party's alleged nonconformity with a requirement of Chapter Seventeen.21
26. It will be observed that Chapter Seventeen contains a lengthy, complicated and highly
technical description of the Parties' various obligations pertaining to various forms of intellectual
property rights.
27. It will also be observed that Chapter Twenty provides for establishment panels of five
properly qualified individuals (Article 2010 "Qualification of Panelists"), direct participation by
the third (non-disputing) NAFT A Party (Article 2013 "Third Pa11y Participation"), the engagement
of experts (Article 20 14 "Role of Experts"}, the establishment of a scientific review board (Article
2015 "Scientific Review Boards) and a short time frame for rendering panel reports (Article 2016
"Initial Report", and Article 2017 "Final Report").
28. The remedy under Chapter Twenty is based on panel 's determinations and
recommendations (if any) for the respondent Party to bring itself into compliance with the panel's
interpretation of the NAFTA provision at i sue22 and that a respondent Party's failure to implement
the panel's determinations and recommendations can provide grounds for the complaining Party
to seek suspension of benefits.
29. Importantly, a Party cannot be compelled to implement a Chapter Twenty panel's finding,
nor can it be compelled to pay financial compensation to the complaining Party or any person or
21 NAFT A Article 2004 (Recourse to Di spute Selllement Procedures) and Article 2018(2) (Implementation of
Final Report).
?l NAFTA Article 20 I 6(2)(b) (In itial Report).
7
Annex 388
entity affected by the impugned measure.23 It also expressly provides that "no Party may provide
a right of action under domestic law on the ground that a measure of another Party is inconsistent
with this Agreement".24
30. Mexico submits that if the NAFf A Parties had intended that a Party should be liable to
compensate an investor of another Party for an alleged non-compliance with an obligation under
Chapter Seventeen, they would have so provided expressly.
31. Mexico further submits that the most a Chapter Eleven arbitral tribunal can do in
considering the application of Article 1110(7) is to determine whether or not it is plainly obvious
or clear on its face that measure allegedly amounting to termination or limitation of the intellectual
property rights at issue is inconsistent with Chapter Seventeen. If not, that would be the end of the
inquiry. If there appeared to be a genuine dispute as to whether the impugned measure conforms
with the requirements of Chapter Seventeen, in the absence of a finding of nonconformity by a
Chapter Twenty dispute settlement panel, the exception stipulated by Article 1110(7) would apply.
,a
Leti ui ·
Deputy General Counsel
18 March 2016
Jl NAFT A Article 2018 (Implementation of Final Report) and Article 2019 (Non implementation - Suspension
of Benefits).
NAFT'A Article 2021 (Private Righ1s).
Annex 388
ANNEX 389
COMPREHENSIVE AND PROGRESSIVE AGREEMENT
FOR
TRANS-PACIFIC PARTNERSHIP
PREAMBLE
The Parties to this Agreement, resolving to :
REAFFIRM the matters embodied in the preamble to the Trans-Pacific Partnership
Agreement, done at Auckland on 4 February 2016 (hereinafter referred to as "the
TPP");
REALISE expeditiously the benefits of the TPP through this Agreement and their
strategic and economic significance;
CONTRIBUTE to maintaining open markets, increasing world trade, and creating
new economic opportunities for people of all incomes and economic backgrounds;
PROMOTE further regional economic integration and cooperation between them;
ENHANCE opportunities for the acceleration of regional trade liberalisation and
investment;
REAFFIRM the importance of promoting corporate social responsibility, cultural
identity and diversity, environmental protection and conservation, gender equality,
indigenous rights, labour rights, inclusive trade, sustainable development and
traditional knowledge, as well as the importance of preserving their right to regulate
in the public interest; and
Annex 389
negotiated restructuring means the restructuring or rescheduling of a debt
instrument that has been effected through (a) a modification or amendment of that
debt instrument, as provided for under its terms, or (b) a comprehensive debt
exchange or other similar process in which the holders of no less than 75 per cent
of the aggregate principal amount of the outstanding debt under that debt
instrument have consented to the debt exchange or other process;
New York Convention means the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, done at New York, June 10, 1958;
non-disputing Party means a Party that is not a party to an investment dispute;
protected information means confidential business information or information
that is privileged or otherwise protected from disclosure under a Party's law,
including classified government information;
respondent means the Party that is a party to an investment dispute;
Secretary-General means the Secretary-General of ICSID; and
UNCITRAL Arbitration Rules means the arbitration rules of the United Nations
Commission on International Trade Law.
Article 9.2: Scope
1. This Chapter shall apply to measures adopted or maintained by a Party
relating to:
(a) investors of another Party;
(b) covered investments; and
( c) with respect to Article 9 .10 (Performance Requirements) and
Article 9.16 (Investment and Environmental, Health and other
Regulatory Objectives), all investments in the territory of that
Party.
2. A Party's obligations under this Chapter shall apply to measures adopted
or maintained by:
(a) the central, regional or local governments or authorities of that
Party; and
9-5
Annex 389
(b) any person, including a state enterprise or any other body, when it
exercises any governmental authority delegated to it by central,
regional or local governments or authorities of that Party. 13
3. For greater certainty, this Chapter shall not bind a Party in relation to an
act or fact that took place or a situation that ceased to exist before the date of entry
into force of this Agreement for that Party.
Article 9.3: Relation to Other Chapters
1. In the event of any inconsistency between this Chapter and another
Chapter of this Agreement, the other Chapter shall prevail to the extent of the
inconsistency.
2. A requirement of a Party that a service supplier of another Party post a
bond or other form of financial security as a condition for the cross-border supply
of a service does not of itself make this Chapter applicable to measures adopted or
maintained by the Party relating to such cross-border supply of the service. This
Chapter shall apply to measures adopted or maintained by the Party relating to the
posted bond or financial security, to the extent that the bond or financial security
is a covered investment.
3. This Chapter shall not apply to measures adopted or maintained by a Party
to the extent that they are covered by Chapter 11 (Financial Services).
Article 9.4: National Treatment14
1. Each Party shall accord to investors of another Party treatment no less
favourable than that it accords, in like circumstances, to its own investors with
respect to the establishment, acquisition, expansion, management, conduct,
operation, and sale or other disposition of investments in its territory.
2. Each Party shall accord to covered investments treatment no less
favourable than that it accords, in like circumstances, to investments in its
territory of its own investors with respect to the establishment, acquisition,
expansion, management, conduct, operation, and sale or other disposition of
investments.
13 For greater certainty, governmental authority is delegated under the Party's law, including
through a legislative grant or a government order, directive or other action transferring or
authorising the exercise of governmental authority.
14 For greater certainty, whether treatment is accorded in "like circumstances" under Article 9.4
(National Treatment) or Article 9.5 (Most-Favoured-Nation Treatment) depends on the totality of
the circumstances, including whether the relevant treatment distinguishes between investors or
investments on the basis of legitimate public welfare objectives.
9-6
Annex 389
3. For greater certainty, the treatment to be accorded by a Party under
paragraphs 1 and 2 means, with respect to a regional level of government,
treatment no less favourable than the most favourable treatment accorded, in like
circumstances, by that regional level of government to investors, and to
investments of investors, of the Party of which it forms a part.
Article 9.5: Most-Favoured-Nation Treatment
1. Each Party shall accord to investors of another Party treatment no less
favourable than that it accords, in like circumstances, to investors of any other
Party or of any non-Party with respect to the establishment, acquisition,
expansion, management, conduct, operation, and sale or other disposition of
investments in its territory.
2. Each Party shall accord to covered investments treatment no less
favourable than that it accords, in like circumstances, to investments in its
territory of investors of any other Party or of any non-Party with respect to the
establishment, acquisition, expansion, management, conduct, operation, and sale
or other disposition of investments.
3. For greater certainty, the treatment referred to in this Article does not
encompass international dispute resolution procedures or mechanisms, such as
those included in Section B (Investor-State Dispute Settlement).
Article 9.6: Minimum Standard of Treatment15
1. Each Party shall accord to covered investments treatment in accordance
with applicable customary international law principles, including fair and
equitable treatment and full protection and security.
2. For greater certainty, paragraph 1 prescribes the customary international
law minimum standard of treatment of aliens as the standard of treatment to be
afforded to covered investments. The concepts of "fair and equitable treatment"
and "full protection and security" do not require treatment in addition to or
beyond that which is required by that standard, and do not create additional
substantive rights. The obligations in paragraph 1 to provide:
(a) "fair and equitable treatment" includes the obligation not to deny
justice in criminal, civil or administrative adjudicatory proceedings
in accordance with the principle of due process embodied in the
principal legal systems of the world; and
15 Article 9.6 (Minimum Standard of Treatment) shall be interpreted in accordance with Annex 9-
A (Customary International Law).
9-7
Annex 389
(b) "full protection and security" requires each Party to provide the
level of police protection required under customary international
law.
3. A determination that there has been a breach of another provision of this
Agreement, or of a separate international agreement, does not establish that there
has been a breach of this Article.
4. For greater certainty, the mere fact that a Party takes or fails to take an
action that may be inconsistent with an investor's expectations does not constitute
a breach of this Article, even if there is loss or damage to the covered investment
as a result.
5. For greater certainty, the mere fact that a subsidy or grant has not been
issued, renewed or maintained, or has been modified or reduced, by a Party, does
not constitute a breach of this Article, even if there is loss or damage to the
covered investment as a result.
Article 9.7: Treatment in Case of Armed Conflict or Civil Strife
1. Notwithstanding Article 9.12.6(b) (Non-Conforming Measures), each
Party shall accord to investors of another Party and to covered investments nondiscriminatory
treatment with respect to measures it adopts or maintains relating
to losses suffered by investments in its territory owing to armed conflict or civil
strife.
2. Notwithstanding paragraph 1, if an investor of a Party, in a situation
referred to in paragraph 1, suffers a loss in the territory of another Party resulting
from:
(a) requisitioning of its covered investment or part thereof by the
latter's forces or authorities; or
(b) destruction of its covered investment or part thereof by the latter's
forces or authorities, which was not required by the necessity of the
situation,
the latter Party shall provide the investor restitution, compensation or both, as
appropriate, for that loss.
3. Paragraph 1 shall not apply to existing measures relating to subsidies or
grants that would be inconsistent with Article 9.4 (National Treatment) but for
Article 9.12.6(b) (Non-Conforming Measures).
9-8
Annex 389
Article 9.8: Expropriation and Compensation16
1. No Party shall expropriate or nationalise a covered investment either
directly or indirectly through measures equivalent to expropriation or
nationalisation ( expropriation), except:
(a) for a public purpose;17' 18
(b) in a non-discriminatory manner;
( c) on payment of prompt, adequate and effective compensation in
accordance with paragraphs 2, 3 and 4; and
(d) in accordance with due process of law.
2. Compensation shall:
(a) be paid without delay;
(b) be equivalent to the fair market value of the expropriated
investment immediately before the expropriation took place (the
date of expropriation);
( c) not reflect any change in value occurring because the intended
expropriation had become known earlier; and
(d) be fully realisable and freely transferable.
3. If the fair market value is denominated in a freely usable currency, the
compensation paid shall be no less than the fair market value on the date of
expropriation, plus interest at a commercially reasonable rate for that currency,
accrued from the date of expropriation until the date of payment.
16 Article 9.8 (Expropriation and Compensation) shall be interpreted in accordance with Annex 9-
B (Expropriation) and is subject to Annex 9-C (Expropriation Relating to Land).
17 For greater certainty, for the purposes of this Article, the term "public purpose" refers to a
concept in customary international law. Domestic law may express this or a similar concept by
using different terms, such as "public necessity", "public interest" or "public use".
18 For the avoidance of doubt: (i) if Brunei Darussalam is the expropriating Party, any measure of
direct expropriation relating to land shall be for the purposes as set out in the Land Code (Cap. 40)
and the Land Acquisition Act (Cap. 41 ), as of the date of entry into force of the Agreement for it;
and (ii) if Malaysia is the expropriating Party, any measure of direct expropriation relating to land
shall be for the purposes as set out in the Land Acquisitions Act 1960, Land Acquisition Ordinance
1950 of the State of Sabah and the Land Code 1958 of the State of Sarawak, as of the date of entry
into force of the Agreement for it.
9-9
Annex 389
4. If the fair market value is denominated in a currency that is not freely
usable, the compensation paid, converted into the currency of payment at the
market rate of exchange prevailing on the date of payment, shall be no less than:
(a) the fair market value on the date of expropriation, converted into a
freely usable currency at the market rate of exchange prevailing on
that date; plus
(b) interest, at a commercially reasonable rate for that freely usable
currency, accrued from the date of expropriation until the date of
payment.
5. This Article shall not apply to the issuance of compulsory licences granted
in relation to intellectual property rights in accordance with the TRIPS
Agreement, or to the revocation, limitation or creation of intellectual property
rights, to the extent that the issuance, revocation, limitation or creation 1s
consistent with Chapter 18 (Intellectual Property) and the TRIPS Agreement.19
6. For greater certainty, a Party's decision not to issue, renew or maintain a
subsidy or grant, or decision to modify or reduce a subsidy or grant,
(a) in the absence of any specific commitment under law or contract to
issue, renew or maintain that subsidy or grant; or
(b) in accordance with any terms or conditions attached to the
issuance, renewal, modification, reduction and maintenance of that
subsidy or grant,
standing alone, does not constitute an expropriation.
Article 9.9: Transfers20
1. Each Party shall permit all transfers relating to a covered investment to be
made freely and without delay into and out of its territory. Such transfers include:
(a) contributions to capital;21
(b) profits, dividends, interest, capital gains, royalty payments,
management fees, technical assistance fees and other fees;
19 For greater certainty, the Parties recognise that, for the purposes of this Article, the term
"revocation" of intellectual property rights includes the cancellation or nullification of those rights,
and the term "limitation" of intellectual property rights includes exceptions to those rights.
2° For greater certainty, this Article is subject to Annex 9-E (Transfers).
21 For greater certainty, contributions to capital include the initial contribution.
9-10
Annex 389
ANNEX390
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re/treat ies/cptp p/}.
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provisions/224/australia---viet-nam-bit-1991-)
Coexists with
AANZFTA (/international-investment-agreements/treaties/treaties-with-investmentprovisions/
3268/aanzfta)
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Coexists with
Australia-New Zealand Investment Protocol (/international-investmentagreements/
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protocol)
Coexists with
Japan - Viet Nam BIT (2003) (/international-investment-agreements/treaties/treaties-withinvestment-
provisions/2164/japan---viet-nam-bit-2003-)
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Japan-Viet Nam EPA (/international-investment-agreements/treaties/treaties-with-investmentprovisions/
3250/japan-viet-nam-epa)
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Australia-Singapore FTA (/international-investment-agreements/treaties/treaties-withinvestment-
provisions/3317 /australia-singapore-fta)
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3356/japan-mexico-epa)
Coexists with
ASEAN Comprehensive Investment Agreement (2009) (/international-investmentagreements/
treaties/treaties-with-investment-provisions/3273/asean-comprehensiveinvestment-
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Terminology
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ANNEX391
Formal Request to Commence UK Accession
Negotiations to CPTPP
On Monday 1st February, we submitted our notification of intent letter to begin the
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) accession
process.
From:
Department for International Trade
Published:
1 February 2021
--.--............. r--____,,,
Dear Minister O'Connor,
As the Minister of Trade in New Zealand, the depositary nation of the Comprehensive and
Progressive Agreement for Trans-Pacific Partnership, and with reference to Article 5:
'Accession' of the CPTPP treaty text, I am writing to you on behalf of the United Kingdom to
formally request the commencement of negotiations on UK accession to CPTPP.
Accession to CPTPP is a priority for the UK government and a key part of our trade negotiations
programme as a newly independent trading nation. CPTPP is one of the most important free
trade areas in the world and UK accession could see CPTPP's proportion of global GDP rise to
16%. UK membership would also be the first step in expanding this influential and modem trade
network of 11 dynamic economies beyond the ludo-Pacific region and Americas.
The UK shares the CPTPP's commitment to free trade and welcomes the high standards of this
ambitious agreement. The UK will comply fully with the process set out in the commission
decision of January 2019 on the Accession Process of the CPTPP. I believe UK membership
would send a powerful signal about the importance placed on free trade by this dynamic group of
countries at this critical time in our history.
In line with the accession process you have set out for aspirant economies, over the last two
years, the UK has actively engaged with all 11 Signatories at both ministerial and official level to
Annex 391
discuss UK accession to CPTPP. I am delighted that all CPTPP members have welcomed our
interest in accession.
CPTPP membership will complement and reinforce new and enhanced bilateral trade agreements
we have already signed or are negotiating now - with Australia, Canada, Chile, Japan, Mexico,
New Zealand, Peru, Singapore and Vietnam. We believe our strong bilateral trade relationships
with CPTPP members, including with Brunei and Malaysia, provide an effective springboard to
our CPTPP accession.
We would now like to formalise our request to commence accession negotiations. I hope you
will consider our request favourably and we stand ready to engage with you in order to establish
a Working Group and to agree a timetable to negotiate the UK's accession. The UK will publish
its outline approach, scoping analysis, and response to our public consultation before we begin
negotiations. I look forward to working with you and the CPTPP members.
Best wishes,
THE RT HON ELIZABETH TRUSS MP
Secretary of State for International Trade
& President of the Board of Trade
Annex 391
ANNEX392
IN THE MATTER OF AN INTERNATIONAL ARBITRATION UNDER
CHAPTER 11 OF THE NORTH AMERICAN FREE TRADE AGREEMENT
AND THE UNCITRAL ARBITRATION RULES
BETWEEN:
METHANEX CORPORATION
and
UNITED STATES OF AMERICA
FINAL AWARD OF THE TRIBUNAL
ON JURISDICTION AND MERITS
THE TRIBUNAL:
J. William F. Rowley
Professor W. Michael Reisman
V. V. Veeder (President)
Claimant/Investor
Respondent/NAFTA Party
Annex 392
(1) INTRODUCTION
PART IV - CHAPTER C
ARTICLE 1105 NAFTA
1. As noted in the previous Chapter, at the outset of the Tribunal's discussion of
NAFT A Article 1102, an affirmative finding of a malign intent under NAFT A
Article 1101 might satisfy the requirements of a showing of the requisite "relation"
under NAFT A Article 1105. But a failure to find a malign intent under Article 1101
might yet be repaired by an affirmative finding that an investor had not been
accorded treatment in accordance with international law. Hence in fairness to
Methanex, the Tribunal, as part of the joinder of jurisdictional questions and the
merits, will now turn to the material adduced with respect to the claims under
Article 1105 to determine whether a possible finding of a violation under Article
1105 could fulfil the requirements of Article 1101.
(2) METHANEX'S CASE REGARDING ARTICLE 1105 NAFTA
2. Methanex submits that the US measures were intended to discriminate against
foreign investors and their investments and that intentional discrimination is, by
definition, inequitable. Thus it is claimed that the USA's breach of Article 1102
NAFT A establishes a breach of Article 1105 as well.
3. Methanex's pleaded claim under Article 1105 was commendably succinct. It was
developed in three paragraphs in the Second Amended Statement of Claim and
consisted of a single assertion: "the California measures were intended to
discriminate against foreign investors and their investments, and intentional
Part IV - Chapter C - Page 1
Annex 392
discrimination is, by definition, unfair and inequitable" 1. Methanex went on to
state, "[T]his is a straightforward case of raw economic protectionism. On such
facts, the United States' breach of Article 1102 'establishes a breach of Article
1105 as wel1"'2• Methanex's Reply devoted only four paragraphs to its Article 1105
claim - two of which argued against the validity of the FTC's interpretation of
Article 11053 and two of which restated its contention that "intentional
discrimination violates even the minimum standard of treatment required by Article
1105"4 •
4. Both in its written and oral submissions, Methanex contended that the FTC's
interpretation of 31 st July 2001 is a purported amendment, as opposed to a valid
interpretation, of Article 1105; and it is therefore not binding on this Tribunal under
Article 1131(2) NAFTA. In oral argument, Methanex assailed the FTC's
interpretation as invalid substantively because Article 1131 requires the Tribunal
"to take into account all of international law"5; and invalid procedurally because
[t]hat's too distinct and too important a deletion from the Treaty to be anything
other than an amendment"6•
5. Accordingly, Methanex contends that the Tribunal should disregard the
interpretation on the basis that it is nothing more than an attempt by the USA
retroactively to suppress a legitimate claim. Methanex relies on the legal opinion
of the late Sir Robert Jennings in support of its contentions at the jurisdictional
phase
1 Second Am. Claim, para. 313; see id., para. 314 (referencing the NAFTA award in S.D. Myers).
2 Id., para. 315.
3 Reply, paras. 203-204; see generally Free Trade Commission Clarifications Related to NAFTA
Chapter 11, 31st July 2001.
4 Id., para. 205; see id., para. 206.
5 Transcript Day 8, p. 1854 (lines 6-7).
6 Id. at p. 1855 (lines 16-18).
Part IV - Chapter C - Page 2
Annex 392
of this case:
"It would be wrong to discuss these three-Party 'interpretations' of what
have become key words in this arbitration, without protesting the
impropriety of the three governments making such an intervention well into
the process of the arbitration, not only after the benefit of seeing the written
pleadings of the parties but also virtually prompted by them 7."
Methanex contends that, in any event, the interpretation should have no material
impact on the proceedings as it cannot alter the substance ofNAFTA's
investment protections.
6. In response, the USA argued that the FTC's interpretation is binding on this
Tribunal and, by its terms, precludes the contention that a breach of Article 1102
also breaches Article 1105 ( or, as the case may be, another article in Chapter
Eleven, such as Article 1110)8• Even ignoring the FTC's interpretation, the USA
argues, nationality-based discrimination was cabined exclusively under Article
11029 • Further, according to the USA, Methanex has not demonstrated the
existence of a rule of customary international law that prohibits a state from
differentiating between nationals and aliens 10 •
7. At the main hearing in June 2004, Methanex placed considerable weight on the
description of the general standard emerging for Article 1105(1) set out in the
award in the Waste Management v. Mexico arbitration:
"98. The search here is for the Article 1105 standard of review, and it is not
7 Expert Op. of Robert Jennings, 6th September 2001 (Methanex's Submission in Response to the
NAFTA Free Trade Commission Interpretation, 18th September 2001, Exh. 1).
8 Am. Defense at Part IV A.
9 See id., para. 365.
10 See, e.g., id., paras. 366-370.
Part IV - Chapter C - Page 3
Annex 392
necessary to consider the specific results reached in the cases discussed
above. But as this survey shows, despite certain differences of emphasis a
general standard for Article 1105 is emerging. Taken together, the S.D.
Myers, Mondev, ADF and Loewen cases suggest that the minimum standard
of treatment of fair and equitable treatment is infringed by conduct
attributable to the State and harmful to the claimant if the conduct is
arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and
exposes the claimant to sectional or racial prejudice, or involves a lack of
due process leading to an outcome which offends judicial propriety-as
might be the case with a manifest failure of natural justice in judicial
proceedings or a complete lack of transparency and candour in an
administrative process. In applying this standard it is relevant that the
treatment is in breach of representations made by the host State which were
reasonably relied on by the claimant.
99. Evidently the standard is to some extent a flexible one which must be
adapted to the circumstances of each case11 ."
8. According to Methanex, California's actions in banning MTBE and methanol and
precipitously introducing ethanol were arbitrary, grossly unfair, unjust and
idiosyncratic in the sense that there was a pandering to a domestic US industry, i.e.
the domestic ethanol industry. These actions were discriminatory because they
discriminated against foreign-owned investments such as the investments of
Methanex. In addition, Methanex argues that there was a complete lack of
transparency because the critical event was not the public hearings held in
California, but rather the meeting between Mr Davis and ADM in Decatur, Illinois.
Methanex claims that the promotion of ethanol in California was driven by the
political debt that Governor Davis felt he owed to ADM in return for its political
contributions, which was not in any way apparent in the administrative process 12.
Methanex submits that, whenever a political official implicitly favours one
competitor in return for political contributions and shuts another competitor out of
11 Waste Mgmt. Inc. v. Mexico, Arb (AF)/00/3, paras. 98-99 (ICSID 2004); ~. Transcript Day 8,
pp. 1939, 1944 (Mr Dugan for Methanex); Transcript Day 9, pp. 2151-2153 (Ms Guymon for the USA).
12 Transcript Day 8, pp. 1944-1945.
Part IV - Chapter C - Page 4
Annex 392
the market, that action is arbitrary, grossly unfair, unjust, and idiosyncratic as the
decision is not made on the merits 13 .
(3) THE TRIBUNAL'S DECISION REGARDING ARTICLE 1105
NAFTA
9. Article 1105 NAFTA provides:
"1. Each Party shall accord to investments of investors of another
Party treatment in accordance with international law, including fair
and equitable treatment and full protection and security.
2. Without prejudice to paragraph 1 and notwithstanding Article
1108(7)(b), each Party shall accord to investors of another Party,
and to investments of investors of another Party, non-discriminatory
treatment with respect to measures it adopts or maintains relating to
losses suffered by investments in its territory owing to armed conflict
or civil strife.
3. Paragraph 2 does not apply to existing measures relating to
subsidies or grants that would be inconsistent with Article 1102
but for Article 1108(7)(b)."
Article 1108(7)(b ), to which Article 1105(3) refers, provides: "(b) subsidies or
grants provided by a Party or a state enterprise, including government supported
loans, guarantees and insurance". Article 1131 (2) provides: "2. An interpretation by
the Commission of a provision of this Agreement shall be binding on a Tribunal
established under this Section".
10. As recited earlier in this Award, the FTC issued on 31 st July 2001 an interpretation
of Article 1105(1), as follows:
"B. Minimum Standard of Treatment in Accordance with
13 Id. at pp. 1940-1942.
Part IV - Chapter C - Page 5
Annex 392
International Law
1. Article 1105(1) prescribes the customary international law
minimum standard of treatment of aliens as the minimum standard
of treatment to be afforded to investments of investors of another
Party.
2. The concepts of ''fair and equitable treatment" and ''full
protection and security" do not require treatment in addition to or
beyond that which is required by the customary international law
minimum standard of treatment of aliens.
3. A determination that there has been a breach of another provision
of the NAFT A, or of a separate international agreement, does not
establish that there has been a breach of Article 1105(1)."
The purport of this FTC interpretation has been discussed in a number ofNAFTA
arbitral awards 14, some of which are relevant to this case.
11. The tribunal in Mondev, for example, emphasised that the application of the
customary international law standard does not per se permit resort to other treaties
of the NAFTA Parties or, indeed, other provisions within NAFTA 15 . The ADF
tribunal emphasised that recourse to customary international law "must be
disciplined by being based on State practice and judicial or arbitral case law or
other sources of customary or general intemational law"16• The Loewen tribunal
observed, by way of obiter dictum: "Manifest injustice in the sense of a lack of due
process leading to an outcome which offends a sense of judicial propriety is
14 See,.!<.:&., Metalclad Corp. v. Mexico, 5 ICSID Reports 209 (Second Am. Claim App., 3 LA tab
85); S. D. Myers v. Canada, Partial Award 40 ILM 1408 (Second Am. Claim App., 4 LA tab 97); Mondev
Int'! Ltd. v. United States, 6 ICSID Reports 181, 42 ILM 85 (Am. Defense App., 4 LA tab 61); The Loewen
Group, Inc. v. United States, 42 ILM 811 (Am. Defense App., 4 LA tab 58); ADF Group Inc. v. United
States, 6 ICSID Reports 470, (Am. Defense App., 1 LA tab 2).
15 Mondev Int'! Ltd., paras. 120-121.
16 ADF Group Inc., para. 184.
Part IV - Chapter C - Page 6
Annex 392
enough, even if one applies the [FTC] Interpretation according to its terms" 17.
12. Most recently, as more fully cited above from Methanex's argument, the NAFTA
tribunal in Waste Management attempted the difficult task of synthesising the postinterpretation
jurisprudence of Article 1105, as: "[T]he minimum standard of
treatment of fair and equitable treatment is infringed by conduct attributable to the
State and harmful to the claimant if the conduct is arbitrary, grossly unfair, unjust
or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial
prejudice, or involves a lack of due process leading to an outcome which offends
judicial propriety-as might be the case with a manifest failure of natural justice in
judicial proceedings or a complete lack of transparency and candour in any
administrative process."
13. Methanex marshals a number of arguments, which are considered below.
Ultimately, however, the Tribunal decides that Methanex's claim under Article
1105 fails for a number ofreasons.
14. First, even assuming that Methanex had established discrimination under Article
1102, (which the Tribunal has found it did not) and ignoring, for the moment, the
FTC's interpretation - the plain and natural meaning of the text of Article 1105 does
not support the contention that the "minimum standard of treatment" precludes
governmental differentiations as between nationals and aliens. Article 1105(1) does
not mention discrimination; and Article 1105(2), which does mention it, makes
clear that discrimination is not included in the previous paragraph. By prohibiting
discrimination between nationals and aliens with respect to measures relating to
losses suffered by investments owing to armed conflict or civil strife, the second
paragraph imports that the preceding paragraph did not prohibit - in all other
17 The Loewen Group, Inc., para. 132.
Part IV - Chapter C - Page 7
Annex 392
circumstances - differentiations between nationals and aliens that might otherwise
be deemed legally discriminatory: inclusio unius est exclusio alterius. The textual
meaning is reinforced by Article 1105(3), which makes clear that the exception in
paragraph 2 is, indeed, an exception.
15. Elsewhere, when the NAFTA Parties wished to incorporate a norm of nondiscrimination,
they did so - as one finds in Article 11 l0(l)(b) which requires that a
lawful expropriation must, among other requirements be effected "on a nondiscriminatory
basis". But Article 11 l0(l)(c) makes clear that the NAFTA Parties
did not intend to include discrimination in Article 1105(1). Article 11 l0(l)(c)
establishes that another requirement for a lawful expropriation is that it be effected
"in accordance with due process oflaw and Article 1105(1)". If Article 1105(1) had
already included a non-discrimination requirement, there would be no need to insert
that requirement in Article 1110( 1 )(b ), for it would already have been included in
the incorporation of Article 1105(1)'s due process requirement.
16. This is not an instance of textual ambiguity or lacuna which invites a tribunal even
to contemplate making law. When the NAFTA Parties did not incorporate a nondiscrimination
requirement in a provision in which they might have done so, it
would be wrong for a tribunal to pretend that they had. Thus, even if Methanex had
succeeded in establishing that it had suffered a discrimination for its claim under
Article 1102, it would not be admissible for it, as a matter of textual interpretation,
to establish a claim under Article 1105.
17. This textual analysis places the FTC's interpretation in perspective. The
interpretation, it will be recalled, stated in relevant part that: "3. A determination
that there has been a breach of another provision of the NAFT A, or of a separate
international agreement, does not establish that there has been a breach of Article
1105(1)". In clarifying that, for purposes of the present case, a determination of
discrimination under Article 1102 would not establish a breach of Article
Part IV - Chapter C - Page 8
Annex 392
1105(1 ), the FTC simply confirmed the text.
18. In this respect, the rather severe words of the late Sir Robert Jennings, in his
September 2001 legal opinion for Methanex - referring to the "impropriety" of the
FTC Interpretation under the circumstances of the case 18 - lack a predicate in this
case. For, as far as Methanex's textual claim under Article 1105(1) was concerned,
the interpretation changed nothing. Moreover, as a factual matter, the Tribunal
cannot now assume that the three NAFTA Parties had Methanex's claim
specifically in mind; the USA has observed that every NAFTA claimant in cases
pending in 2001 has argued that the FTC interpretation was specifically targeted
against it19 .
19. If there were rules of customary international law prohibiting differentiations by a
government between foreign investors or their investments and national investors or
their investments, a matter to which the Tribunal will turn in a moment, Sir
Robert's opinion might be more understandable; but in oral submissions at the main
hearing Methanex cited only one case, which had been delivered a month earlier
and whose purport is, on examination, not helpful to its argument.
20. But even ifMethanex's assertions of the existence of a customary rule were correct,
the FTC interpretation would be entirely legal and binding on a tribunal seised with
a Chapter 11 case. The purport of Article 1131 (2) is clear beyond peradventure ( and
any investor contemplating an investment in reliance on NAFTA must be deemed
to be aware of it). Even assuming that the FTC interpretation was a far-reaching
substantive change (which the Tribunal believes not to be so with respect to the
18 Expert Op. of Robert Jennings, 6th September 2001.
19 Rejoinder, para. 186.
Part IV - Chapter C - Page 9
Annex 392
issue relating to this case), Methanex cites no authority for its argument that farreaching
changes in a treaty must be accomplished only by formal amendment
rather than by some form of agreement between all of the parties.
21. Article 39 of the Vienna Convention on the Law of Treaties says simply that "[a]
treaty may be amended by agreement between the parties". No particular mode of
amendment is required and many treaties provide for their amendment by
agreement without requiring a re-ratification. Nor is a provision on the order of
Article 1131 inconsistent with rules of international interpretation. Article 31 (3 )(a)
of the Vienna Convention provides that:
"3. There shall be taken into account, together with the context:
(a) any subsequent agreement between the parties regarding
the interpretation of the treaty or the application of its
provisions."
22. Nor is Article 1131(2) improper under general principles oflaw or international
constitutional principles. If a legislature, having enacted a statute, feels that the
courts implementing it have misconstrued the legislature's intention, it is perfectly
proper for the legislature to clarify its intention. In a democratic and representative
system in which legislation expresses the will of the people, legislative clarification
in this sort of case would appear to be obligatory. The Tribunal sees no reason why
the same analysis should not apply to international law.
23. From the time of the Alabama award20 , it has been accepted that States may agree
to
arbitrate by specifying the principles and rules of law they wish the tribunal to
20 The Washington Treaty of 8 May 1871 between the United Kingdom and the USA included
agreement on three rules applicable to the United Kingdom as a neutral during the Civil War, which ensured
that the United Kingdom would be held liable by the Geneva tribunal, even though these rules imposed higher
duties than those previously accepted under international law (subject only to quantum and jurisdiction over
the so-called "Indirect Claims"). See Tom Bingham, The Alabama Claims Arbitration, 54 ICLQ 1 (2005).
Part IV - Chapter C - Page 10
Annex 392
apply. This is frequently referred to as arbitration on an agreed basis 21. When the
parties wish to arbitrate on an agreed basis, a tribunal is then bound by law and
honour to respect and give effect to the parties's selection of the rules oflaw to be
applied.
24. Nevertheless, the Tribunal agrees with the implication ofMethanex's submission
with respect to the obligations of an international tribunal - that as a matter of
international constitutional law a tribunal has an independent duty to apply
imperative principles oflaw or jus cogens and not to give effect to parties' choices
of law that are inconsistent with such principles. Yet even assuming that the USA
errs in its argument for an approach to minimum standards that does not prohibit
discrimination, this is not a situation in which there is a violation of a jus cogens
rule. Critically, the FTC interpretation does not exclude non-discrimination from
NAFT A Chapter 11, an initiative which would, arguably, violate a jus cogens and
thus be void under Article 53 of the Vienna Convention on the Law of Treaties.
All the FTC's interpretation of Article 1105 does, in this regard, is to confine
claims based on alleged discrimination to Article 1102, which offers full play for a
principle of non-discrimination.
25. As to the question of whether a rule of customary international law prohibits a
State, in the absence of a treaty obligation, from differentiating in its treatment of
nationals and aliens, international law is clear. In the absence of a contrary rule of
international law binding on the States parties, whether of conventional or
customary origin, a State may differentiate in its treatment of nationals and aliens.
As the previous discussion shows, no conventional rule binding on the NAFTA
Parties is to the contrary with respect to the issues raised in this case. Indeed, the
text of NAFT A indicates that the States parties explicitly excluded a rule of non-
21 See generally W. Michael Reisman, Nullity and Revision: The Review and Enforcement of
International Judgments and Awards (1971).
Part IV - Chapter C - Page 11
Annex 392
discrimination from Article 1105.
26. Customary international law has established exceptions to this broad rule and has
decided that some differentiations are discriminatory. But the International Court of
Justice has held that "[t]he Party which relies on a custom of this kind must prove
that this custom is established in such a manner that it has become binding on the
other Party"22 . In his oral submissions at the main hearing, Counsel for Methanex
cited only one case. That award, Waste Management, in the relevant part of the
excerpt quoted above, states that "the minimum standard of treatment of fair and
equitable treatment is infringed by conduct attributable to the State and harmful to
the claimant if the conduct is ... discriminatory and exposes the claimant to
sectional or racial prejudice ... "23 . The tribunal, presumably deriving this part of
its synthesis from Loewen, opined that the conduct must have been "discriminatory
and expose[d] the claimant to sectional or racial prejudice"24 . The Tribunal need
not comment on the accuracy of the cumulative requirement in this part of the
Waste Management synthesis, since Methanex failed, as explained in Part III of this
Award, to establish that California and the California ban on MTBE was
discriminatory or in any way exposed it to "sectional or racial prejudice". Methanex
offered no other authority for its assertion.
27. For all the above reasons, the Tribunal decides that Methanex's claim under Article
1105 NAFTA fails. The Tribunal also decides that Methanex's case under Article
1101 is not assisted by its arguments under Article 1105.
22 Rights of Asylum (Colombia v. Peru), 1950 ICJ Rep. 266,276 (US Reply Mem. on Jurisdiction,
Admissibility, and the Proposed Amendment App., 1 LA tab 11 ).
23 Waste Mgmt. Inc., para. 98.
24 Id. ( emphasis added).
Part IV - Chapter C - Page 12
Annex 392
ANNEX393
§ 41.Theory and factors warranting piercing the corporate veil, 1 Fletcher Cyc. Corp.§ 41
Fletcher Cyclopedia of the Law of Corporations
1 Fletcher Cyc. Corp. § 41
September 2020 Update
Chapter 2. THE CORPORATE ENTITY OR PERSONALITY
II. Disregard of the Corporate Entity; Piercing the Corporate Veil and Alter Ego Liability
§ 41. Theory and factors warranting piercing the corporate veil
West's Key Number Digest
West's Key Number Digest, Corporations and Business Organizations,o;,:.,-..1030 to 1032
West's Key Number Digest, Corporations and Business Organizations 1036 to 1040
West's Key Number Digest, Corporations and Business Organizations 1043
West's Key Number Digest, Corporations and Business Organizations~ 1044
West's Key Number Digest, Corporations and Business Organizations~ 1049
West's Key Number Digest, Corporations and Business Organizations,o;,:.,-..1051 to 1056
West's Key Number Digest, Corporations and Business Organizations 1058 to 1065
West's Key Number Digest, Corporations and Business Organizations~ 1067 to 1077
West's Key Number Digest, Corporations and Business Organizations 1078(1) to 1078(6)
There are essentially two major views of the nature of a corporation. A corporation may be regarded as a privilege granted by
the state and treated as an "artificial entity" to be operated by its members.1 According to this view, it is viewed as a privilege
that carries with it the responsibility to operate in accordance with the public interest. Thus, the corporate veil should be pierced
if there is an abuse of the corporate form.
Alternatively, a corporation may be viewed as a mere contractual arrangement between individuals.2 As such, the state should
not interfere with the corporate form any more than it would a private contract. Accordingly, the corporate veil should be pierced
only when it appears that something in the original "contract" has gone amiss.2·50
Regardless of the theory of the nature of a corporation, it is indisputable that there are some circumstances under which the
corporate entity will be disregarded and liability imposed upon its members.3 The tests and factors that the courts consider
to determine whether to disregard the corporate form differ from state to state.4 However, some of the most common factors
include fraud, illegality, contravention of contract, public wrong, inequity,5 and whether the corporation was formed to defeat
public convenience. 6 Organizing a corporation for the purpose of avoiding personal liability, however, does not alone justify
piercing the corporate veil. 7 Indeed, a corporation may be formed for the sole purpose of avoiding personal liability. 8 Thus, as
a general rule, it is often said that the corporation will be viewed as a legal entity unless it is used to defeat public convenience
or perpetrate or protect crime or fraud;9 when those situations occur, the courts will more carefully scrutinize the corporation
and may regard it merely as an association of persons and extend liability to them.1 o In some jurisdictions, evidence of fraud
WESTLAW © 2021 Thomson Reuters. No claim to original U.S. Government Works. Annex 393 1
§ 41.Theory and factors warranting piercing the corporate veil, 1 Fletcher Cyc. Corp.§ 41
alone may be sufficient to pierce the corporate veil. 11 Regardless of the basis for piercing the corporate veil, a determination
should be made with regard to the totality of the facts and circumstances of each case.12
While the factors that will justify piercing the corporate veil vary from jurisdiction to jurisdiction, a number of courts will
disregard the existence of a corporate entity when the plaintiff shows: (1) control, not merely majority or complete stock control,
but complete domination, not only of the finances, but of policy and business practice in respect to the transaction so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) that such control was
used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or to
commit a dishonest and unjust act in contravention of the plaintiff's legal rights; 13 and (3) that the aforesaid control and breach
of duty proximately caused the injury or unjust loss.14
Factors that many states consider include: (1) whether the shareholder sought to be charged owns all or most of the stock of
the corporation; (2) whether the shareholder has subscribed to all of the capital stock of the corporation or otherwise caused its
incorporation; (3) inadequate capitalization; ( 4) whether the shareholder uses the property of the corporation as the shareholder's
own; (5) whether the directors or executives of the corporation act independently in the interest of the corporation or simply
take their orders from the shareholder in the latter's interest; and (6) whether the formal legal requirements of the corporation
are observed. 15 In addition to factors such as the foregoing, some jurisdictions require that there be an element of injustice or
fundamental unfaimess. 16
Factors to consider in determining if there is a unity of ownership and interest may include: (1) inadequate capitalization; (2)
failure to issue stock; (3) failure to observe corporate formalities; (4) nonpayment of dividends; (5) insolvency of the debtor
corporation; ( 6) nonfunctioning of the other officers or directors; (7) absence of corporate records; (8) commingling of funds;
(9) diversion of assets from the corporation by or to a stockholder or other person or entity to the detriment of creditors; (10)
failure to maintain arm's-length relationships among related entities; and (11) whether, in fact, the corporation is a mere fac;:ade
for the operation of the dominant stockholders.1630
It is not always necessary to prove illegality in order to establish excessive control of the corporation by shareholders so as to
warrant the imposition of personal liability on the shareholders for the corporation's debts. 17 Because there is no single factor
that alone justifies piercing the corporate veil, a careful review of the entire relationship between various corporate entities and
their directors and officers may reveal that such an equitable action is warranted. 18
Wholly owned subsidiaries sometimes present a situation ripe for piercing the corporate veil under the alter ego theory. 19
Additionally, where a corporate entity is operated by a partnership and there is such an intermingling of the affairs of the
two businesses that they are mere instrumentalities of each other, the veil may be pierced.20 In other words, if an inter-entity
affiliation is devised for or is being used to accomplish an improper or unlawful purpose, equity has the authority to tear down
technical legal barriers and reach beyond them to impose liability or grant proper relief.21
Footnotes
2
2.50
Westlaw. © 2020 Thomson Reuters. No Claim to Orig. U.S. Govt. Works.
For a substantive discussion of this doctrine, see§§ 25 et seq.
See also Presser, Piercing the Corporate Veil, § 1 :2.
See Presser, Piercing the Corporate Veil, § 1 :2.
Tower Investors, LLC v. 111 E. Chestnut Consultants, Inc., 371 Ill. App. 3d 1019, 1033 (2007) (quoting
treatise); Willow Electrical Supply Company, Inc. v. Miracle Investment Group, Inc, 2020 IL App (1st)
181329-U.
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§ 41.Theory and factors warranting piercing the corporate veil, 1 Fletcher Cyc. Corp.§ 41
3 U.S.
Dole Food Co. v. Patrickson, 538 U.S. 468, 123 S. Ct. 1655, 155 L. Ed. 2d 643, 188 A.L.R. Fed. 661 (2003),
citing this treatise; Sky Cable, LLC v. DIRECTV, Inc., 886 F.3d 375 (4th Cir. 2018), quoting this treatise; In
re Cambridge Biotech Corp., 186 F.3d 1356, 44 Fed. R. Serv. 3d 595 (Fed. Cir. 1999); Fidelity & Deposit Co.
of Maryland v. Commercial Cas. Consultants, Inc., 976 F.2d 272 (5th Cir. 1992); Itel Containers Intern. Corp.
v. Atlanttrafik Exp. Service Ltd., 909 F.2d 698 (2d Cir. 1990) (applying New York law); Bodenhamer Bldg.
Corp. v. Architectural Research Corp., 873 F.2d 109, 13 Fed. R. Serv. 3d 1144 (6th Cir. 1989); U.S. v. Sutton,
795 F.2d 1040, 21 Fed. R. Evid. Serv. 30 (Temp. Erner. Ct. App. 1986); Contractors, Laborers, Teamsters &
Engineers Health and Welfare Plan v. Hroch, 757 F.2d 184 (8th Cir. 1985); Pepsi-Cola Metropolitan Bottling
Co., Inc. v. Checkers, Inc., 754 F.2d 10 (1st Cir. 1985); Jaloy Mfg. Co., Inc. v. U.S. Fidelity & Guar. Co., 736
F.2d 1131 (6th Cir. 1984)(applying Michigan law); J-R Grain Co. v. FAC, Inc., 627 F.2d 129 (8th Cir. 1980)
(applying Nebraska law); DeWitt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co., 540 F.2d 681 (4th Cir.
1976) (piercing corporate veil and imposing individual liability on president of debtor corporation); Edgar
v. Fred Jones Lincoln-Mercury of Oklahoma City, Inc., 524 F.2d 162 (10th Cir. 1975) (applying Oklahoma
law); Quinn v. Butz, 510 F.2d 743 (D.C. Cir. 1975); U.S. v. Finnigan, 504 F.2d 1355 (8th Cir. 1974); Capital
Tel. Co., Inc. v. F.C.C., 498 F.2d 734 (D.C. Cir. 1974); Rainbo Gold Mines v. Magnus, 371 F.2d 519 (10th
Cir. 1966), citing this treatise; Mayo v. Pioneer Bank & Trust Co., 274 F.2d 320 (5th Cir. 1960), citing this
treatise; Fitzgerald v. Central Bank & Trust Co., 257 F.2d 118 (10th Cir. 1958); Simmons Co. v. Crew, 84
F.2d 82, 91 (C.C.A. 4th Cir. 1936); Majestic Co. v. Orpheum Circuit, 21 F.2d 720 (C.C.A. 8th Cir. 1927);
Antonie Rigging and Erecting of Missouri, Inc. v. Foundry East Ltd. Partnership, 773 F. Supp. 420 (S.D.
Ga. 1991) (applying Georgia law); CNC Service Center, Inc. v. CNC Service Center, Inc., 753 F. Supp. 1427
(N.D. Ill. 1991) (applying Wisconsin law); Central States, Southeast and Southwest Areas Pension Fund
v. Sloan, 714 F. Supp. 943 (N.D. Ill. 1989), judgment affd, 902 F.2d 593 (7th Cir. 1990) (intent to avoid
labor obligations linchpin of alter ego doctrine); Thermothrift Industries, Inc. v. Mono-Therm Insulation
Systems, Inc., 450 F. Supp. 398 (W.D. Ky. 1978) (applying Kentucky law); Miller & Miller Auctioneers, Inc.
v. Mersch, 442 F. Supp. 570, 23 U.C.C. Rep. Serv. 626 (W.D. Okla. 1977) (quoting this treatise); Woodland
Nursing Home Corp. v. Weinberger, 411 F. Supp. 501 (S.D. N.Y. 1976), citing this treatise; Consumers Time
Credit, Inc. v. Remark Corp., 227 F. Supp. 263, 8 Fed. R. Serv. 2d 64.5, Case 1 (E.D. Pa. 1964)
U.S.
"Growing tendency" is to look beyond the corporate form to the purpose of it, and to the officers who are
identified with it for that purpose. J.J. McCaskill Co. v. U.S., 216 U.S. 504, 515, 30 S. Ct. 386, 54 L. Ed.
590 (1910)
Ala.
Chenault v. Jamison, 578 So. 2d 1059 (Ala. 1991); Thome v. C & S Sales Group, 577 So. 2d 1264 (Ala.
1991); Messick v. Moring, 514 So. 2d 892 (Ala. 1987); First Nat. Bank v. Winchester, 119 Ala. 168, 24
So. 351 (1898)
Ala.
Separate legal existence will not be recognized when the corporation is organized and controlled such that
it is merely an instrumentality of another corporation, or when it is the alter ego of the person owning and
controlling it. Environmental Waste Control, Inc. v. Browning-Ferris Industries, Inc., 711 So. 2d 912 (Ala.
1997)
Alaska
Pyramid Printing Co. v. Alaska State Com'n for Human Rights, 153 P.3d 994 (Alaska 2007)
Ariz.
Employer's Liability Assur. Corp. v. Lunt, 82 Ariz. 320, 313 P.2d 393 (1957); Mosher v. Lee, 32 Ariz. 560,
261 P. 35 (1927); Phoenix Safety Inv. Co. v. James, 28 Ariz. 514,237 P. 958 (1925)
Ark.
Anderson v. Stewart, 366 Ark. 203,234 S.W.3d 295 (2006); National Bank of Commerce (of El Dorado)
v. HCA Health Services of Midwest, Inc., 304 Ark. 55, 800 S.W.2d 694 (1990) (burden is on plaintiff to
show corporate form abused to injury of third person); Winchel v. Craig, 55 Ark. App. 373, 934 S.W.2d
946 (1996) ( citing this treatise)
Cal.
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§ 41.Theory and factors warranting piercing the corporate veil, 1 Fletcher Cyc. Corp.§ 41
Midwest Air Filters Pacific v. Finn, 201 Cal. 587, 258 P. 382 (1927); Wenban Estate v. Hewlett, 193 Cal.
675, 227 P. 723 (1924); Lyons v. Stevenson, 65 Cal. App. 3d 595, 135 Cal. Rptr. 457 (1st Dist. 1977)
Colo.
Micciche v. Billings, 727 P.2d 367 (Colo. 1986); Industrial Commission v. Lavach, 165 Colo. 433,439 P.2d
359 (1968)
Conn.
Hoffman Wall Paper Co. v. City of Hartford, 114 Conn. 531, 159 A. 346 (1932); Woodbridge v. Pratt &
Whitney Co., 69 Conn. 304, 37 A. 688 (1897)
Del.
Opdyke v. Kent Liquor Mart, Inc., 40 Del. Ch. 316, 181 A.2d 579 (1962); Terry Apartments Associates
v. Associated-East Mtg. Co., 373 A.2d 585 (Del. Ch. 1977), citing this treatise; Pauley Petroleum, Inc. v.
Continental Oil Co., 43 Del. Ch. 366, 231 A.2d 450 (1967), judgment affd, 43 Del. Ch. 516, 239 A.2d 629
(1968), citing this treatise; Equitable Trust Co. v. Gallagher, 34 Del. Ch. 76, 99 A.2d 490 (1953), adhered
to, 34 Del. Ch. 249, 102 A.2d 538 (1954)
Del.
Harper v. Delaware Valley Broadcasters, Inc., 743 F. Supp. 1076 (D. Del. 1990), affd, 932 F.2d 959 (3d
Cir. 1991)
D.C.
Camacho v. 1440 Rhode Island Ave. Corp., 620 A.2d 242 (D.C. 1993)
Fla.
Roberts' Fish Farm v. Spencer, 153 So. 2d 718 (Fla. 1963); Hester v. Tucker, 465 So. 2d 1261 (Fla. 2d DCA
1985)
Ga.
The concept of piercing the corporate veil is applied in Georgia to remedy injustices which arise where a
party has overextended its privileges in the use of a corporate entity in order to defeat justice, to perpetrate
fraud, or evade statutory contractual or tort responsibility. Antonie Rigging and Erecting of Missouri, Inc.
v. Foundry East Ltd. Partnership, 773 F. Supp. 420 (S.D. Ga. 1991)
Hickman v. Hyzer, 261 Ga. 38,401 S.E.2d 738 (1991); Deubler v. Hart, 139 Ga. 773, 78 S.E. 176 (1913)
Haw.
Robert's Hawaii School Bus, Inc. v. Laupahoehoe Transp. Co., Inc., 91 Haw. 224, 982 P.2d 853 (1999)
Idaho
VFP VC v. Dakota Co., 141 Idaho 326, 109 P.3d 714 (2005); Surety Life Ins. Co. v. Rose Chapel Mortuary,
Inc., 95 Idaho 599, 514 P.2d 594 (1973), citing this treatise
Ill.
Steiner Elec. Co. v. Maniscalco, 51 N.E.3d 45 (II. App. 2016). For an expanded analysis of this case see
34 No. 5 Fletcher Corp Law Adviser NL 4; Donovan v. Purtell, 216 Ill. 629, 75 N.E. 334 (1905). Loy v.
Booth, 16 Ill. App. 3d 1077, 307 N.E.2d 414 (2d Dist. 1974); People ex rel. Troxell v. Baylor, 15 Ill. App.
3d 815, 305 N.E.2d 15 (4th Dist. 1973)
Ind.
DeWeese v. Pribyla, 114 N.E.3d 501 (Ind. App 2018); Clarke Auto Co. v. Fyffe, 124 Ind. App. 222, 116
N.E.2d 532 (1954)
Iowa
DeCook v. Environmental Sec. Corp., Inc., 258 N.W.2d 721, 100 A.L.R.3d 1094 (Iowa 1977), citing this
treatise
Kan.
Kilpatrick Bros., Inc. v. Poynter, 205 Kan. 787, 473 P.2d 33 (1970); Amoco Chemicals Corp. v. Bach, 222
Kan. 589,567 P.2d 1337 (1977), citing this treatise; Kvassay v. Murray, 15 Kan. App. 2d 426, 808 P.2d 896,
14 U.C.C. Rep. Serv. 2d 1093 (1991)
Ky.
Dare To Be Great, Inc. v. Com. ex rel. Hancock, 511 S.W.2d 224 (Ky. 1974)
Ky.
Thermothrift Industries, Inc. v. Mono-Therm Insulation Systems, Inc., 450 F. Supp. 398 (W.D. Ky. 1978)
La.
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§ 41.Theory and factors warranting piercing the corporate veil, 1 Fletcher Cyc. Corp.§ 41
Hamilton v. AAI Ventures, L.L.C., 768 So. 2d 298 (La. Ct. App. 1st Cir. 2000); West Bldg. Materials, Inc.
v. Daley, 476 So. 2d 554 (La. Ct. App. 3d Cir. 1985); Dunham v. Anderson-Dunham, Inc., 466 So. 2d 1317
(La. Ct. App. 1st Cir. 1985), writ denied, 472 So. 2d 29 (La. 1985); Kingsman Enterprises, Inc. v. Bakerfield
Elec. Co., Inc., 339 So. 2d 1280 (La. Ct. App. 1st Cir. 1976); Camp v. Gibbs, 331 So. 2d 517 (La. Ct. App.
2d Cir. 197 6)
Me.
State v. Weinschenk, 2005 ME 28, 868 A.2d 200 (Me. 2005)
Md.
Maryland Unemployment Compensation Board v. Albrecht, 183 Md. 87, 36 A.2d 666 (1944)
Mass.
My Bread Baking Co. v. Cumberland Farms, Inc., 353 Mass. 614,233 N.E.2d 748 (1968)
Mich.
Gallagher v. Persha, 315 Mich. App. 647, 891 N.W.2d 505 (2016); Industrial Steel Stamping, Inc. v. Erie
State Bank, 167 Mich. App. 687,423 N.W.2d 317 (1988)
Mich.
Jaloy Mfg. Co., Inc. v. U.S. Fidelity & Guar. Co., 736 F.2d 1131 (6th Cir. 1984)
Minn.
Congdon v. Congdon, 160 Minn. 343, 200 N.W. 76 (1924); Almac, Inc. v. JRH Development, Inc., 391
N.W.2d 919 (Minn. Ct. App. 1986)
Mo.
66, Inc. v. Crestwood Commons Redevelopment Corp., 998 S.W.2d 32 (Mo. 1999); Real Estate Investors
Four, Inc. v. American Design Group Inc., 46 S.W.3d 51 (Mo. Ct. App. E.D. 2001 ); Community Federal Sav.
and Loan Ass'n v. Boyer, 710 S.W.2d 332 (Mo. Ct. App. E.D. 1986); Standard Leasing Corp. v. Missouri
Rock Co., Inc., 693 S.W.2d 232, 41 U.C.C. Rep. Serv. 1280 (Mo. Ct. App. W.D. 1985); Pasta House Co.
v. Miller, 691 S.W.2d 460 (Mo. Ct. App. E.D. 1985)
Neb.
Inre Estate of Price, 223 Neb. 12,388 N.W.2d 72 (1986); ServiceMaster Industries Inc. v. J.R.L. Enterprises,
Inc., 223 Neb. 39, 388 N.W.2d 83 (1986); J.L. Brock Builders, Inc. v. Dahlbeck, 223 Neb. 493,391 N.W.2d
110 (1986); Ehlers v. Bankers' Fire Ins. Co., 108 Neb. 756, 189 N.W. 159 (1922); Ridenour v. Kuker, 185
Neb. 321, 175 N.W.2d 287 (1970); Graham Graphics, Inc. v. Baer Marketing Intern., Inc., 10 Neb. App.
382, 631 N.W.2d 550 (2001)
Neb.
J-R Grain Co. v. FAC, Inc., 627 F.2d 129 (8th Cir. 1980)
Nev.
Nevada Tax Commission v. Hicks, 73 Nev. 115,310 P.2d 852 (1957). LC. Deal v. 999 Lakeshore Ass'n, 94
Nev. 301, 579 P.2d 775 (1978)
N.H.
Peter R. Previte, Inc. v. McAllister Florist, Inc., 113 N.H. 579, 311 A.2d 121 (1973), citing this treatise
N.J.
Dom v. Transport of New Jersey, 200 N.J. Super. 159,491 A.2d 1 (App. Div. 1984)
N.M.
State Trust & Savings Bank v. Hermosa Land & Cattle Co., 1925-NMSC-037, 30 N.M. 566, 240 P. 469
(1925); Morrissey v. Krystopowicz, 365 P.3d 20 (N.M. App. 2015) (abuse of corporate form). For an
expanded analysis of this case see 33 No. 10 Fletcher Corp Law Adviser NL 10
N.Y.
People v. North River Sugar Refining Co., 121 N.Y. 582, 24 N.E. 834 (1890); People by Koppell v. Empyre
IngroundPools Inc., 227 A.D.2d 731,642 N.Y.S.2d 344 (3dDep't 1996); Rothermel v. Ermiger, 161 A.D.2d
1016, 557 N.Y.S.2d 587 (3d Dep't 1990); Glassman v. Glassman, 19 A.D.2d 801, 243 N.Y.S.2d 194 (1st
Dep't 1963) (corporate structure to be ignored where used for fraudulent purpose)
N.Y.
Itel Containers Intern. Corp. v. Atlanttrafik Exp. Service Ltd., 909 F.2d 698 (2d Cir. 1990)
N.C.
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§ 41.Theory and factors warranting piercing the corporate veil, 1 Fletcher Cyc. Corp.§ 41
Glenn v. Wagner, 313 N.C. 450, 329 S.E.2d 326 (1985); WaffBros, Inc. v. Bank of North Carolina, N.A.,
289 N.C. 198,221 S.E.2d 273 (1976), citing this treatise; Henderson v. Security Mortg. & Finance Co., 273
N.C. 253, 160 S.E.2d 39 (1968); Copley Triangle Associates v. Apparel America, Inc., 96 N.C. App. 263,
385 S.E.2d 201 (1989)
Ohio
Damascus Mfg. Co. v. Union Trust Co., 119 Ohio St. 439, 6 Ohio L. Abs. 710, 164 N.E. 530 (1928);
Springfield v. Palco Invest. Co., Inc., 2013-Ohio-2348, 992 N.E.2d 1194 (Ohio Ct. App. 2d Dist. Clark
County 2013); Saeks v. Saeks, 24 Ohio App. 3d 67,493 N.E.2d 280 (2d Dist. Montgomery County 1985)
Okla.
Edgar v. Fred Jones Lincoln-Mercury of Oklahoma City, Inc., 524 F.2d 162 (10th Cir. 1975)
Or.
Creditors Protective Ass'n v. Balcom, 248 Or. 38,432 P.2d 319 (1967); Epton v. Moskee Inv. Co., 180 Or.
86, 174 P.2d 418 (1946); Security Sav. & Trust Co. v. Portland Flour Mills Co., 124 Or. 276, 261 P. 432
(1927); Sneed v. Santiam River Timber Co., 122 Or. 652,260 P. 237 (1927)
Pa.
College Watercolor Group, Inc. v. William H. Newbauer, Inc., 468 Pa. 103,360 A.2d 200, 92 A.L.R.3d 126
(1976); Gagnon v. Speback, 389 Pa. 17, 131 A.2d 619 (1957); Lomas v. Kravitz, 130 A.3d 107 (Pa. Super.
2015) (undercapitalization, failure to adhere to corporate formalities, intermingling of funds, and fraud)
Pa.
Consumers Time Credit, Inc. v. Remark Corp., 227 F. Supp. 263, 8 Fed. R. Serv. 2d 64.5, Case 1 (E.D.
Pa. 1964)
R.I.
Vennerbeck & Clase Co. v. Juergens Jewelry Co., 53 R.I. 135, 164 A. 509 (1933)
s.c.
Multimedia Pub. of South Carolina, Inc. v. Mullins, 314 S.C. 551,431 S.E.2d 569 (1993) (employing twopronged
test for piercing veil); Peoples Federal Sav. & Loan Ass'n v. Myrtle Beach Golf & Yacht Club, 310
S.C. 132,425 S.E.2d 764 (Ct. App. 1992) (corporate form disregarded to assist third party); C.T. Lowndes
& Co. v. Suburban Gas & Appliance Co., Inc., 307 S.C. 394,415 S.E.2d 404 (Ct. App. 1991)
S.D.
Glanzer v. St. Joseph Indian School, 438 N.W.2d 204 (S.D. 1989)
Tenn.
Electric Power Bd. of Chattanooga v. St. Joseph Valley Structural Steel Corp., 691 S.W.2d 522 (Tenn. 1985);
Widdicombe v. McGuire, 221 Tenn. 601, 429 S.W.2d 815 (1968); Fidelity Trust Co. v. Service Laundry
Co., 160 Tenn. 57, 22 S.W.2d 6 (1929); Oceanics Schools, Inc. v. Barbour, 112 S.W.3d 135 (Tenn. Ct. App.
2003); Newman v. Bartee, 787 S.W.2d 929 (Tenn. Ct. App. 1990), citing this treatise
Tex.
Mancorp, Inc. v. Culpepper, 802 S.W.2d 226 (Tex. 1990); Castleberry v. Branscum, 721 S.W.2d 270 (Tex.
1986); First Nat. Bank v. Gamble, 134 Tex. 112, 132 S.W.2d 100, 125 A.LR. 265 (Comm'n App. 1939);
Tryco Enterprises, Inc. v. Robinson, 390 S.W.3d 497 (Tex. App. Houston 1st Dist. 2012), review dismissed,
(Apr. 5, 2013)
Utah
Colman v. Colman, 743 P.2d 782 (Utah Ct. App. 1987) (holding modified by, Jones & Trevor Marketing,
Inc. v. Lowry, 2012 UT 39,284 P.3d 630 (Utah 2012))
Va.
Lewis Trucking Corp. v. Com., 207 Va. 23, 147 S.E.2d 747 (1966)
Wash.
Kueckelhan v. Federal Old Line Ins. Co. (Mut.), 69 Wash. 2d 392, 418 P.2d 443 (1966); Soderberg
Advertising, Inc. v. Kent-Moore Corp., 11 Wash. App. 721, 524 P.2d 1355 (Div. 1 1974), citing this treatise
W.Va.
Sanders v. Roselawn Memorial Gardens, Inc., 152 W. Va. 91, 159 S.E.2d 784 (1968)
Wis.
StebaneNash Co. v. CampbellsportMut. Ins. Co., 27Wis. 2d 112, 133 N.W.2d 737, 16A.L.R.3d 760 (1965);
Jonas v. State, 19 Wis. 2d 638, 121 N.W.2d 235, 95 A.L.R.2d 880 (1963); R. B. General Trucking, Inc. v.
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5
Auto Parts & Service, Inc., 3 Wis. 2d 91, 87 N.W.2d 863 (1958); Spearing v. Bayfield County, 133 Wis. 2d
165, 394 N.W.2d 761 (Ct. App. 1986) (piercing corporate veil inapplicable absent fraud or equity claim),
citing this treatise
Wis.
CNC Service Center, Inc. v. CNC Service Center, Inc., 753 F. Supp. 1427 (N.D. Ill. 1991)
For a historical and analytical overview of the piercing doctrine, see Presser, Piercing the Corporate Veil
§§ 1:1 et seq.
U.S.
U.S. v. Scherping, 187 F.3d 796 (8th Cir. 1999) (applying Minnesota law); In re Cambridge Biotech Corp.,
186 F.3d 1356, 44 Fed. R. Serv. 3d 595 (Fed. Cir. 1999); Longhi v. Animal & Plant Health Inspection Service,
165 F.3d 1057, 1999 FED App. 0027P (6th Cir. 1999) (state law controls issue of piercing the corporate
veil); Soviet Pan Am Travel Effort v. Travel Committee, Inc., 756 F. Supp. 126 (S.D. N.Y. 1991)
U.S.
Corporate form is disregarded only if considerations of fairness or public necessity warrant. InterGen N. V.
v. Grina, 344 F.3d 134 (1st Cir. 2003)
U.S.
The law of the state of incorporation determines when the corporate form will be disregarded and liability
will be imposed on shareholders. Kalb, Voorhis & Co. v. American Financial Corp., 8 F.3d 130 (2d Cir. 1993)
Minn.
U.S. v. Scherping, 187 F.3d 796 (8th Cir. 1999)
Mo.
66, Inc. v. Crestwood Commons Redevelopment Corp., 998 S.W.2d 32 (Mo. 1999)
For analyses of the law of individual states on this issue, see Presser, Piercing the Corporate Veil,§§ 2:1
et seq.
U.S.
U.S. v. Scherping, 187 F.3d 796 (8th Cir. 1999) (applying Minnesota law); In re Cambridge Biotech Corp.,
186 F.3d 1356, 44 Fed. R. Serv. 3d 595 (Fed. Cir. 1999); Freeman v. Complex Computing Co., Inc., 119 F.3d
1044 (2d Cir. 1997) (applying New York law); Capital Parks, Inc. v. Southeastern Advertising and Sales
System, Inc., 30 F.3d 627, 30 Fed. R. Serv. 3d 184 (5th Cir. 1994) (applying Texas law); Hystro Products,
Inc. v. MNP Corp., 18 F.3d 1384 (7th Cir. 1994) (applying Illinois law); Fidelity & Deposit Co. of Maryland
v. Commercial Cas. Consultants, Inc., 976 F.2d 272 (5th Cir. 1992); Minnesota Power v. Armco, Inc., 937
F.2d 1363 (8th Cir. 1991) (applying Minnesota law); Bodenhamer Bldg. Corp. v. Architectural Research
Corp., 873 F.2d 109, 13 Fed. R. Serv. 3d 1144 (6th Cir. 1989); Trustees of Bldg. Service 32B-J Pension,
Health and Annuity Funds v. Hudson Service Corp., 871 F. Supp. 631 (S.D. N.Y. 1994) (New York law);
Pulte Home Corp., Inc. v. Ply Gem Industries, Inc., 804 F. Supp. 1471 (M.D. Fla. 1992) (applying Michigan
law); Harper v. Delaware Valley Broadcasters, Inc., 743 F. Supp. 1076 (D. Del. 1990) (applying Delaware
law), aff'd, 932 F.2d 959 (3d Cir. 1991)
Ala.
Johnston v. Green Mountain, Inc., 623 So. 2d 1116 (Ala. 1993)
Ark.
Anderson v. Stewart, 366 Ark. 203,234 S.W.3d 295 (2006); Winchel v. Craig, 55 Ark. App. 373, 934 S.W.2d
946 (1996), citing this treatise
Conn.
SFA Folio Collections, Inc. v. Bannon, 217 Conn. 220, 585 A.2d 666 (1991) (separate corporation)
Del.
Harper v. Delaware Valley Broadcasters, Inc., 743 F. Supp. 1076 (D. Del. 1990), aff'd, 932 F.2d 959 (3d
Cir. 1991)
Fla.
Munder v. Circle One Condominium, Inc., 596 So. 2d 144 (Fla. 4th DCA 1992) (failing to maintain and
pay for insurance not enough to pierce corporate veil); Harrell v. Accurate Orthotics & Prosthetics, Inc., 529
So. 2d 358 (Fla. 2d DCA 1988)
Ga.
Hickman v. Hyzer, 261 Ga. 38,401 S.E.2d 738 (1991)
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Ill.
Roiser v. Cascade Mountain, Inc., 367 Ill. App. 3d 559, 305 Ill. Dec. 352, 855 N.E.2d 243 (1st Dist. 2006);
Import Sales, Inc. v. Continental Bearings Corp., 217 Ill. App. 3d 893, 160 Ill. Dec. 634, 577 N.E.2d 1205
(1st Dist. 1991)
Ill.
Hystro Products, Inc. v. MNP Corp., 18 F.3d 1384 (7th Cir. 1994)
Ind.
DeWeese v. Pribyla, 114 N.E.3d 501 (Ind. App 2018)
Kan.
Kvassay v. Murray, 15 Kan. App. 2d 426, 808 P.2d 896, 14 U.C.C. Rep. Serv. 2d 1093 (1991)
La.
Hamilton v. AAl Ventures, L.L.C., 768 So. 2d 298 (La. Ct. App. 1st Cir. 2000)
Mich.
Pulte Home Corp., Inc. v. Ply Gem Industries, Inc., 804 F. Supp. 1471 (M.D. Fla. 1992)
Minn.
U.S. v. Scherping, 187 F.3d 796 (8th Cir. 1999); Minnesota Power v. Armco, Inc., 937 F.2d 1363 (8th Cir.
1991) ( veil pierced)
Mo.
Real Estate Investors Four, Inc. v. American Design Group Inc., 46 S.W.3d 51 (Mo. Ct. App. E.D. 2001)
Neb.
Wolfv. Walt, 247 Neb. 858, 530 N.W.2d 890 (1995)
N.J.
AYR Composition, Inc. v. Rosenberg, 261 N.J. Super. 495, 619 A.2d 592 (App. Div. 1993) (fraud present)
N.Y.
Morris v. New York State Dept. of Taxation and Finance, 82 N.Y.2d 135,603 N.Y.S.2d 807,623 N.E.2d
1157 (1993), citing this treatise; Godwin Realty Associates v. CATV Enterprises, Inc., 275 A.D.2d 269, 712
N.Y.S.2d 39 (1st Dep't 2000) (fraud present); Morris v. New York State Dept. of Taxation and Finance, 183
A.D.2d 5, 588 N.Y.S.2d 927 (3d Dep't 1992), judgment rev'd, 82 N.Y.2d 135, 603 N.Y.S.2d 807, 623 N.E.2d
1157 (1993); Rothermel v. Ermiger, 161 A.D.2d 1016, 557 N.Y.S.2d 587 (3d Dep't 1990)
N.Y.
Freeman v. Complex Computing Co., Inc., 119 F.3d 1044 (2d Cir. 1997); Trustees of Bldg. Service 32B-J
Pension, Health and Annuity Funds v. Hudson Service Corp., 871 F. Supp. 631 (S.D. N.Y. 1994) (veil can
be pierced either by alter ego or fraud)
N.C.
Fischer Inv. Capital, Inc. v. Catawba Development Corp., 200 N.C. App. 644,689 S.E.2d 143 (2009)
Ohio
Belvedere Condominium Unit Owners' Assn. v. R.E. Roark Cos., Inc., 67 Ohio St. 3d 274, 1993-Ohio-l 19,
617 N.E.2d 1075 (1993) (holding modified by, Dombroski v. WellPoint, Inc., 119 Ohio St. 3d 506, 2008-
Ohio-4827, 895 N.E.2d 538 (2008))
Pa.
First Realvest, Inc. v. Avery Builders, Inc., 410 Pa. Super. 572, 600 A.2d 601 (1991) (no basis for piercing
corporate veil); Superior Stores Co. v. Pennsylvania Dept. of Health, Special Supplemental Food Program
for Women, Infants and Children, 151 Pa. Commw. 102, 616 A.2d 166 (1992); Longenecker v. Com., 142
Pa. Commw. 130,596 A.2d 1261 (1991)
Tex.
SSP Partners v. Gladstrong Investments (USA) Corp., 275 S.W.3d 444 (Tex. 2008); Mancorp, Inc. v.
Culpepper, 802 S.W.2d 226 (Tex. 1990); Kem v. Gleason, 840 S.W.2d 730 (Tex. App. Amarillo 1992)
Tex.
Capital Parks, Inc. v. Southeastern Advertising and Sales System, Inc., 30 F.3d 627, 30 Fed. R. Serv. 3d
184 (5th Cir. 1994)
Va.
Greenberg v. Com. ex rel. Atty. Gen. of Virginia, 255 Va. 594,499 S.E.2d 266 (1998); Sloan v. Thornton,
249 Va. 492, 457 S.E.2d 60 (1995)
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6
7
8
9
Wash.
U.S. Tobacco Sales and Marketing Co., Inc. v. State, Dept. of Revenue, 96 Wash. App. 932, 982 P.2d 652
(Div. 2 1999)
For a full discussion of fraud as justifying piercing corporate veil, see § 41.32; illegality as justifying piercing
corporate veil, see § 41.34.
See Establishing Elements for Disregarding Corporate Entity and Piercing Entity's Veil, 114 Am. Jur. Proof
of Facts 3d 403.
U.S.
Longhi v. Animal & Plant Health Inspection Service, 165 F.3d 1057, 1999 FED App. 0027P (6th Cir. 1999)
(applying Michigan law) (corporate veil may not be pierced absent misuse to accomplish fraud or other
wrongful purpose); Local 144 Hotel, Hosp., Nursing Home and Allied Services Union, SEIU, AFL-CIO v.
C.N.H. Management Associates, Inc., 752 F. Supp. 1195 (S.D. N.Y. 1990)
Mich.
Green v. Ziegelman, 282 Mich. App. 292, 767 N.W.2d 660 (2009)
Mich.
Longhi v. Animal & Plant Health Inspection Service, 165 F.3d 1057, 1999 FED App. 0027P (6th Cir. 1999)
( corporate veil may not be pierced absent misuse to accomplish fraud or other wrongful purpose)
Mont
The term "public convenience" refers to something fitting or suited to the public need. Drilcon, Inc. v. Roil
Energy Corp., Inc., 230 Mont. 166, 749 P.2d 1058 (1988)
Va.
Greenberg v. Com. ex rel. Atty. Gen. of Virginia, 255 Va. 594,499 S.E.2d 266 (1998)
See Establishing Elements for Disregarding Corporate Entity and Piercing Entity's Veil, 114 Am. Jur. Proof
of Facts 3d 403.
Ala.
The use of the corporate form to shield shareholders from personal liability is not a fraudulent purpose that
warrants piercing the corporate veil. Gilbert v. James Russell Motors, Inc., 812 So. 2d 1269 (Ala. Civ. App.
2001)
Colo.
Leonard v. McMorris, 63 P.3d 323 (Colo. 2003), citing this treatise
N.D.
Axtmann v. Chillemi, 2007 ND 179, 740 N.W.2d 838 (N.D. 2007)
Tex.
SSP Partners v. Gladstrong Investments (USA) Corp., 275 S.W.3d 444 (Tex. 2008)
Incorporating for purpose of insulation from personal liability, see § 14.
Conn.
Commissioner of Environmental Protection v. State Five Indus. Park, Inc., 304 Conn. 128, 37 A.3d 724
(2012)
La.
New Orleans Jazz and Heritage Foundation, Inc. v. Kirksey, 40 So. 3d 394 (La. Ct. App. 4th Cir. 2010), writ
denied, 45 So. 3d 1100 (La. 2010)
N.Y.
Miranco Contracting, Inc. v. Pere!, 57 A.D.3d 956, 871 N.Y.S.2d 310 (2d Dep't 2008)
U.S.
In re Cambridge Biotech Corp., 186 F.3d 1356, 44 Fed. R. Serv. 3d 595 (Fed. Cir. 1999); Longhi v.
Animal & Plant Health Inspection Service, 165 F.3d 1057, 1999 FED App. 0027P (6th Cir. 1999) (applying
Michigan law) (corporate veil may not be pierced absent misuse to accomplish fraud or other wrongful
purpose); Freeman v. Complex Computing Co., Inc., 119 F.3d 1044 (2d Cir. 1997) (applying New York law);
Hystro Products, Inc. v. MNP Corp., 18 F.3d 1384 (7th Cir. 1994) (applying Illinois law); Radaszewski by
Radaszewski v. Telecom Corp., 981 F.2d 305 (8th Cir. 1992); Ministry of Defense of the Islamic Republic
of Iran v. Gould, Inc., 969 F.2d 764 (9th Cir. 1992); Minnesota Power v. Armco, Inc., 937 F.2d 1363 (8th
Cir. 1991) (applying Minnesota law); Gunther v. Capital One, N.A., 703 F. Supp. 2d 264 (E.D. N.Y. 2010)
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(applying Virginia law), citing this treatise; Pulte Home Corp., Inc. v. Ply Gem Industries, Inc., 804 F. Supp.
1471 (M.D. Fla. 1992) (applying Michigan law)
U.S.
No fraud had been perpetrated, nor was there a paramount equity sufficient to enable the court to ignore the
separate corporate status of the corporation. Federal Sav. and Loan Ins. Corp. v. Quality Inns, Inc., 674 F.
Supp. 522 (D. Md. 1987), judgment afl'd in part, vacated in part, 876 F.2d 353 ( 4th Cir. 1989)
Ala.
Simmons v. Clark Equipment Credit Corp., 554 So. 2d 398 (Ala. 1989); Deupree v. Ruffino, 505 So. 2d
1218 (Ala. 1987)
Colo.
McCallum Family L.L.C. v. Winger, 221 P.3d 69 (Colo. App. 2009), citing this treatise; Great Neck Plaza,
L.P. v. Le Peep Restaurants, LLC, 37 P.3d 485 (Colo. App. 2001)
Conn.
SFA Folio Collections, Inc. v. Bannon, 217 Conn. 220, 585 A.2d 666 (1991)
Fla.
Dania Jai-Alai Palace, Inc. v. Sykes, 450 So. 2d 1114 (Fla. 1984); Munder v. Circle One Condominium,
Inc., 596 So. 2d 144 (Fla. 4th DCA 1992) (failing to maintain and pay for insurance not enough to pierce
corporate veil)
Ga.
Hickman v. Hyzer, 261 Ga. 38, 401 S.E.2d 738 (1991); Christopher v. Sinyard, 313 Ga. App. 866, 723
S.E.2d 78 (2012)
Ga.
There is no evidence that the corporation was a sham, or that it was used to justify wrong, protect fraud,
defend crime, or any other reason which in equity and good conscience would justify disregard of the
corporate separate entity. Brunswick Mfg. Co., Inc. v. Sizemore, 183 Ga. App. 482,359 S.E.2d 180 (1987)
Haw.
Robert's Hawaii School Bus, Inc. v. Laupahoehoe Transp. Co., Inc., 91 Haw. 224, 982 P.2d 853 (1999)
Ill.
Melko v. Dionisio, 219 Ill. App. 3d 1048, 162 Ill. Dec. 623, 580 N.E.2d 586 (2d Dist. 1991); Import Sales,
Inc. v. ContinentalBearings Corp., 217 Ill. App. 3d 893, 160 Ill. Dec. 634,577 N.E.2d 1205 (1st Dist. 1991)
Ill.
Hystro Products, Inc. v. MNP Corp., 18 F.3d 1384 (7th Cir. 1994)
La.
Hamilton v. AAI Ventures, L.L.C., 768 So. 2d 298 (La. Ct. App. 1st Cir. 2000)
Me.
State v. Weinschenk, 2005 ME 28, 868 A.2d 200 (Me. 2005)
Mich.
Longhi v. Animal & Plant Health Inspection Service, 165 F.3d 1057, 1999 FED App. 0027P (6th Cir. 1999)
(corporate veil may not be pierced absent misuse to accomplish fraud or other wrongful purpose); Pulte
Home Corp., Inc. v. Ply Gem Industries, Inc., 804 F. Supp. 1471 (M.D. Fla. 1992) (deception by defendant
and reliance by plaintiff)
Minn.
Minnesota Power v. Armco, Inc., 937 F.2d 1363 (8th Cir. 1991) (veil pierced)
Miss.
Penn Nat. Gaming, Inc. v. Ratliff, 954 So. 2d 427 (Miss. 2007)
Neb.
Wolfv. Walt, 247 Neb. 858, 530 N.W.2d 890 (1995)
N.H.
LaMontagne Builders, Inc. v. Bowman Brook Purchase Group, 150 N.H. 270, 837 A.2d 301 (2003)
N.M.
Scott v. AZL Resources, Inc., 1988-NMSC-028, 107 N.M. 118, 753 P.2d 897 (1988)
N.Y.
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Ventresca Realty Corp. v. Houlihan, 28 A.D.3d 537, 813 N.Y.S.2d 196 (2d Dep't 2006); Godwin Realty
Associates v. CATV Enterprises, Inc., 275 A.D.2d 269, 712 N.Y.S.2d 39 (1st Dep't 2000) (fraud present);
Morris v. New York State Dept. of Taxation and Finance, 82 N.Y.2d 135,603 N.Y.S.2d 807,623 N.E.2d
1157 (1993), citing this treatise
N.Y.
Freeman v. Complex Computing Co., Inc., 119 F.3d 1044 (2d Cir. 1997)
N.D.
Axtmann v. Chillemi, 2007 ND 179, 740 N.W.2d 838 (N.D. 2007)
Ohio
Society Natl. Bank v. Security Fed. S. & L., 71 Ohio St. 3d 321, 1994-Ohio-152, 643 N.E.2d 1090, 25
U.C.C. Rep. Serv. 2d 812 (1994); Belvedere Condominium Unit Owners' Assn. v. R.E. Roark Cos., Inc., 67
Ohio St. 3d 274, 1993-Ohio-119, 617 N.E.2d 1075 (1993) (holding modified by, Dombroski v. WellPoint,
Inc., 119 Ohio St. 3d 506, 2008-Ohio-4827, 895 N.E.2d 538 (2008)); Snapp v. Castlebrook Builders, Inc.,
7 N.E.3d 574 (Ohio App. 2014)
Pa.
Rinck v. Rinck, 363 Pa. Super. 593, 526 A.2d 1221 (1987)
s.c.
Oskin v. Johnson, 400 S.C. 390, 735 S.E.2d 459 (2012); Multimedia Pub. of South Carolina, Inc. v. Mullins,
314 S.C. 551,431 S.E.2d 569 (1993); Hunting v. Elders, 359 S.C. 217,597 S.E.2d 803 (Ct. App. 2004)
Tenn.
H.G. Hill Realty Co., L.L.C. v. Re/Max Carriage House, Inc., 428 S.W.3d 23 (Tenn. Ct. App. 2013), appeal
denied, (Nov. 14, 2013)
Tex.
Mancorp, Inc. v. Culpepper, 802 S.W.2d 226 (Tex. 1990); Kem v. Gleason, 840 S.W.2d 730 (Tex. App.
Amarillo 1992)
Tex.
There was no evidence to show that the corporation was used to perpetrate a fraud, avoid the effect of the
statute, evade an existing obligation, protect a crime, achieve or perpetrate a monopoly, or justify a wrong.
Mitchell v. Rancho Viejo, Inc., 736 S.W.2d 757 (Tex. App. Corpus Christi 1987), writ refused n.r.e., (Oct.
21, 1987)
Vt.
Jack C. Keir, Inc. v. Robinson & Keir Partnership, 151 Vt. 358, 560 A.2d 957 (1989)
Va.
Greenberg v. Com. ex rel. Atty. Gen. of Virginia, 255 Va. 594,499 S.E.2d 266 (1998); Sloan v. Thornton,
249 Va. 492, 457 S.E.2d 60 (1995)
Va.
Gunther v. Capital One, N.A., 703 F. Supp. 2d 264 (E.D. N.Y. 2010), citing this treatise
U.S.
Burnet v. Commonwealth Improvement Co., 287 U.S. 415, 53 S. Ct. 198, 77 L. Ed. 399 (1932); Ministry
of Defense of the Islamic Republic oflran v. Gould, Inc., 969 F.2d 764 (9th Cir. 1992); Minnesota Power
v. Armco, Inc., 937 F.2d 1363 (8th Cir. 1991) (applying Minnesota law); Bodenhamer Bldg. Corp. v.
Architectural Research Corp., 873 F.2d 109, 13 Fed. R. Serv. 3d 1144 (6th Cir. 1989); Cancun Adventure
Tours, Inc. v. Underwater Designer Co., 862 F.2d 1044, 8 U.C.C. Rep. Serv. 2d 1035 ( 4th Cir. 1988); Secon
Service System, Inc. v. St. Joseph Bank and Trust Co., 855 F.2d 406 (7th Cir. 1988) (applying Indiana law);
Electronic Switching Industries, Inc. v. Faradyne Electronics Corp., 833 F.2d 418 (2d Cir. 1987); Chicago
Florsheim Shoe Store Co. v. Cluett, Peabody & Co., Inc., 826 F.2d 725, 8 Fed. R. Serv. 3d 1001 (7th Cir.
1987) (applying Illinois law); U.S. v. Van Diviner, 822 F.2d 960 (10th Cir. 1987); Joyce v. Super Fresh Food
Markets, Inc., 815 F.2d 943 (3d Cir. 1987); Orion Shipping & Trading Co. v. Eastern States Petroleum Corp.
of Panama, S. A., 312 F.2d 299 (2d Cir. 1963); Allied Corp. v. Frola, 701 F. Supp. 1084 (D.N.J. 1988);
Hoffman v. Optima Systems, Inc., 683 F. Supp. 865 (D. Mass. 1988) (applying Massachusetts law); Federal
Deposit Ins. Corp. v. Martinez Almodovar, 671 F. Supp. 851 (D.P.R. 1987), citing this treatise; Porter v.
Beloit Corp., 667 F. Supp. 367 (S.D. Miss. 1987) (applying Mississippi law); Banegas v. United Brands Co.,
663 F. Supp. 198 (D.S.C. 1986); Quad/Graphics, Inc. v. Fass, 548 F. Supp. 966 (E.D. Wis. 1982),judgment
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afl'd, 724 F.2d 1230, 14 Fed. R. Evid. Serv. 737 (7th Cir. 1983) (veil pierced where corporate accounts
intermingled and owner withdrew corporate assets for personal use); Thermothrift Industries, Inc. v. MonoTherm
Insulation Systems, Inc., 450 F. Supp. 398 (W.D. Ky. 1978) (applying Kentucky law); Miller & Miller
Auctioneers, Inc. v. Mersch, 442 F. Supp. 570, 23 U.C.C. Rep. Serv. 626 (W.D. Okla. 1977), citing this
treatise; Honolulu Lumber Co. v. American Factors, Limited, 265 F. Supp. 578 (D. Haw. 1966) (piercing
corporate veil of plaintiff in antitrust action, in denying petition to proceeding on appeal in forma pauperis)
Ala.
Chenault v. Jamison, 578 So. 2d 1059 (Ala. 1991); Simmons v. Clark Equipment Credit Corp., 554 So. 2d
398 (Ala. 1989); Messick v. Moring, 514 So. 2d 892 (Ala. 1987); Fossum v. Poston, 464 So. 2d 116 (Ala.
Civ. App. 1985); Forester & Jerue, Inc. v. Daniels, 409 So. 2d 830 (Ala. 1982); Tri-State Bldg. Corp. v.
Moore-Handley, Inc., 333 So. 2d 840 (Ala. Civ. App. 1976)
Ala.
Piercing the corporate veil is not a power that is exercised lightly; the concept that a corporation is a legal
entity existing separately from its shareholders is well settled. First Health, Inc. v. Blanton, 585 So. 2d 1331
(Ala. 1991)
Alaska
Klondike Industries Corp. v. Gibson, 741 P.2d 1161 (Alaska 1987)
Ariz.
Standage v. Standage, 147 Ariz. 473, 711 P.2d 612 (Ct. App. Div. 1 1985)
Ark.
Julian James Stores, Inc. v. Bennett, 250 Ark. 279,465 S.W.2d 94 (1971); Arkla Chemical Corp. v. Palmer,
250 Ark. 405,465 S.W.2d 335 (1971)
Cal.
Lyons v. Stevenson, 65 Cal. App. 3d 595, 135 Cal. Rptr. 457 (1st Dist. 1977); Sheard v. Superior Court, 40
Cal. App. 3d 207, 114 Cal. Rptr. 743 (1st Dist. 1974)
Colo.
Micciche v. Billings, 727 P.2d 367 (Colo. 1986); Contractors Heating & Supply Co. v. Scherb, 163 Colo.
584,432 P.2d 237 (1967); Fink v. Montgomery Elevator Co. of Colo., 161 Colo. 342,421 P.2d 735 (1966);
Mccallum Family L.L.C. v. Winger, 221 P.3d 69 (Colo. App. 2009), citing this treatise
Conn.
SFA Folio Collections, Inc. v. Bannon, 217 Conn. 220, 585 A.2d 666 (1991); DeMartino v. Monroe Little
League, Inc., 192 Conn. 271,471 A.2d 638 (1984)
Del.
Pauley Petroleum Inc. v. Continental Oil Co., 43 Del. Ch. 516,239 A.2d 629 (1968), citing this treatise
Fla.
Munder v. Circle One Condominium, Inc., 596 So. 2d 144 (Fla. 4th DCA 1992) (failing to maintain and
pay for insurance not enough to pierce corporate veil); Gershuny v. Martin McFall Messenger Anethesia
Professional Ass'n, 539 So. 2d 1131 (Fla. 1989); Dania Jai-Alai Palace, Inc. v. Sykes, 450 So. 2d 1114 (Fla.
1984); State ex rel. Continental Distilling Sales Co. v. Vocelle, 158 Fla. 100, 27 So. 2d 728 (1946)
Ga.
Hickman v. Hyzer, 261 Ga. 38,401 S.E.2d 738 (1991); Farmers Warehouse of Pelham, Inc. v. Collins, 220
Ga. 141, 137 S.E.2d 619 (1964); Midtown Properties, Inc. v. George F. Richardson, Inc., 139 Ga. App. 182,
228 S.E.2d 303 (1976); Christopher v. Sinyard, 313 Ga. App. 866, 723 S.E.2d 78 (2012)
Idaho
Surety Life Ins. Co. v. Rose Chapel Mortuary, Inc., 95 Idaho 599, 514 P.2d 594 (1973) (dealings of husband
and wife sole stockholders were of such informality that recognition of entity would be inequitable)
Idaho
Common requirements for piercing the corporate veil include include: (1) such unity of interest and
ownership that the separate personalities of the corporation and the individual no longer exist; and (2) treating
it as a corporate entity would produce an inequitable result. Chick v. Tomlinson, 96 Idaho 483, 531 P.2d
573 (1975), citing this treatise
Ill.
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Melko v. Dionisio, 219 Ill. App. 3d 1048, 162 Ill. Dec. 623, 580 N.E.2d 586 (2d Dist. 1991); Geittmann v.
Geittmann, 126 Ill. App. 3d 470, 81 Ill. Dec. 597,467 N.E.2d 297 (5th Dist. 1984) (exception where distinct
entity rule poses obstacle to protection or enforcement of private or public rights); Berlinger's, Inc. v. Beefs
Finest, Inc., 57 Ill. App. 3d 319, 14 Ill. Dec. 764, 372 N.E.2d 1043 (1st Dist. 1978); Loy v. Booth, 16 Ill.
App. 3d 1077, 307 N.E.2d 414 (2d Dist. 1974); Chicago-Crawford Currency Exchange, Inc. v. Thillens,
Inc., 48 Ill. App. 2d 366, 199 N.E.2d 295 (1st Dist. 1964)
Ill.
Chicago Florsheim Shoe Store Co. v. Cluett, Peabody & Co., Inc., 826 F.2d 725, 8 Fed. R. Serv. 3d 1001
(7th Cir. 1987)
Ind.
Stacey-Rand, Inc. v. J.J. Holman, Inc., 527 N.E.2d 726 (Ind. Ct. App. 1988); Lambert v. Farmers Bank,
Frankfort, Ind., 519 N.E.2d 745 (Ind. Ct. App. 1988) (corporation alter ego of debtor and corporate assets
as subject to execution and satisfaction of personal liabilities); State v. McKinney, 508 N.E.2d 1319 (Ind.
Ct. App. 1987); Burger Man, Inc. v. Jordan Paper Products, Inc., 170 Ind. App. 295,352 N.E.2d 821 (1976)
Ind.
Secon Service System, Inc. v. St. Joseph Bank and Trust Co., 855 F.2d 406 (7th Cir. 1988)
Iowa
C. Mac Chambers Co., Inc. v. Iowa Tae Kwon Do Academy, Inc., 412 N.W.2d 593 (Iowa 1987);
Northwestern Nat. Bank of Sioux Cityv. Metro Center, Inc., 303 N.W.2d395 (Iowa 1981) (improper piercing
of corporate veil); In DeCook v. Environmental Sec. Corp., Inc., 258 N.W.2d 721, 100 A.L.R.3d 1094 (Iowa
1977); Newberry v. Barth, Inc., 252 N.W.2d 711 (Iowa 1977)
Kan.
Kilpatrick Bros., Inc. v. Poynter, 205 Kan. 787, 473 P.2d 33 (1970); Kvassay v. Murray, 15 Kan. App. 2d
426, 808 P.2d 896, 14 U.C.C. Rep. Serv. 2d 1093 (1991)
Ky.
Thermothrift Industries, Inc. v. Mono-Therm Insulation Systems, Inc., 450 F. Supp. 398 (W.D. Ky. 1978)
La.
Casson v. Hartford Fire Ins. Co., 548 So. 2d 66 (La. Ct. App. 3d Cir. 1989); Byles Welding and Tractor
Co., Inc. v. Butts Sales and Service, Inc., 541 So. 2d 992 (La. Ct. App. 3d Cir. 1989), writ denied, 546 So.
2d 1224 (La. 1989); Quaglino Tobacco & Candy Co., Inc. v. Barr, 519 So. 2d 200 (La. Ct. App. 4th Cir.
1987); Sparks v. Progressive American Ins. Co., 517 So. 2d 1036 (La. Ct. App. 3d Cir. 1987), writ denied,
519 So. 2d 106 (La. 1987)
La.
Because the corporate concept is beneficial, the limited liability attendant to corporate ownership should be
disregarded only in exceptional circumstances. Lopez v. TDI Services, Inc., 631 So. 2d 679 (La. Ct. App.
3d Cir. 1994), writ denied, 637 So. 2d 501 (La. 1994)
Me.
Brennan v. Saco Const., Inc., 381 A.2d 656 (Me. 1978); Maine Aviation Corp. v. Johnson, 160 Me. 1, 196
A.2d 748 (1964); Bonnar-Vawter, Inc. v. Johnson, 157 Me. 380, 173 A.2d 141 (1961)
Mass.
My Bread Baking Co. v. Cumberland Farms, Inc., 353 Mass. 614,233 N.E.2d 748 (1968)
Mass.
Hoffman v. Optima Systems, Inc., 683 F. Supp. 865 (D. Mass. 1988)
Minn.
Minnesota Power v. Armco, Inc., 937 F.2d 1363 (8th Cir. 1991)
Almac, Inc. v. JRH Development, Inc., 391 N.W.2d 919 (Minn. Ct. App. 1986); Groves v. Dakota Printing
Services, Inc., 371 N.W.2d 59 (Minn. Ct. App. 1985)
Miss.
Wood v. Gulf States Capital Corp., 217 So. 2d 257 (Miss. 1968) (veil not pierced where no fraud and
organized according to law)
Miss.
Porter v. Beloit Corp., 667 F. Supp. 367 (S.D. Miss. 1987)
Mo.
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Haynes v. Edgerson, 240 S.W.3d 189 (Mo. Ct. App. W.D. 2007); Terre Du Lac Ass'n, Inc. v. Terre Du Lac,
Inc., 737 S.W.2d 206, 74 A.LR.4th 141 (Mo. Ct. App. E.D. 1987); Krajcovic v. Krajcovic, 693 S.W.2d 884
(Mo. Ct. App. E.D. 1985); Fairbanks v. Chambers, 665 S.W.2d 33 (Mo. Ct. App. W.D. 1984); Smith v. City
of Lee's Summit, 450 S.W.2d 485 (Mo. Ct. App. 1970); National Plumbing Supply Co. v. Torretti, 237 Mo.
App. 570, 175 S.W.2d 947 (1943)
Mont
Drilcon, Inc. v. Roil Energy Corp., Inc., 230 Mont. 166, 749 P.2d 1058 (1988); E.C.A. Environmental
Management Services, Inc. v. Toenyes, 208 Mont. 336, 679 P.2d 213 (1984)
Neb.
Wolfv. Walt, 247 Neb. 858, 530 N.W.2d 890 (1995); Southern Lumber & Coal Co. v. M.P. Olson Real Estate
and Const. Co., Inc., 229 Neb. 249, 426 N.W.2d 504 (1988); J.L. Brock Builders, Inc. v. Dahlbeck, 223
Neb. 493,391 N.W.2d 110 (1986); In re Estate of Price, 223 Neb. 12,388 N.W.2d 72 (1986); ServiceMaster
Industries Inc. v. J.R.L. Enterprises, Inc., 223 Neb. 39,388 N.W.2d 83 (1986); Scribner Grain & Lumber Co.
v. Wortman, 204 Neb. 92,281 N.W.2d 394 (1979) (principal stockholder and managing officer as personally
liable for debts of corporation)
N.J.
Meredith v. Meredith, 133 N.J. Eq. 196, 31 A.2d 216 (Ch. 1943); Kugler v. Koscot Interplanetary, Inc., 120
N.J. Super. 216,293 A.2d 682 (Ch. Div. 1972)
N.M.
Scott v. AZL Resources, Inc., 1988-NMSC-028, 107 N.M. 118, 753 P.2d 897 (1988); Levy v. Disharoon,
1988-NMSC-009, 106 N.M. 699, 749 P.2d 84 (1988)
N.Y.
Morris v. New York State Dept. of Taxation and Finance, 82 N.Y.2d 135, 603 N.Y.S.2d 807,623 N.E.2d 1157
(1993), citing this treatise; Rothermel v. Ermiger, 161 A.D.2d 1016, 557 N.Y.S.2d 587 (3d Dep't 1990); Port
Chester Elec. Const. Co. v. Atlas, 40 N.Y.2d 652, 389 N.Y.S.2d 327, 357 N.E.2d 983 (1976); International
Aircraft Trading Co. v. Manufacturers Trust Co., 297 N.Y. 285, 79 N.E.2d 249 (1948); Bartle v. Finkelstein,
19 A.D.2d 256, 241 N.Y.S.2d 655 (4th Dep't 1963)
N.C.
Henderson v. Security Mortg. & Finance Co., 273 N.C. 253, 160 S.E.2d 39 (1968)
N.C.
Evidence was insufficient to support disregard of the corporate entity where nothing in the record showed
a sale was commercially unreasonable, or that there was usurpation of corporate opportunity or any
overreaching on the president's part. Dorton v. Dorton, 77 N.C. App. 667, 336 S.E.2d 415 (1985)
N.D.
Axtrnann v. Chillemi, 2007 ND 179, 740 N.W.2d 838 (N.D. 2007); Family Center Drug Store, Inc. v. North
Dakota State Bd. of Pharmacy, 181 N.W.2d 738 (N.D. 1970); Schriock v. Schriock, 128 N.W.2d 852 (N.D.
1964)
Ohio
Society Natl. Bank v. Security Fed. S. & L., 71 Ohio St. 3d 321, 1994-Ohio-152, 643 N.E.2d 1090, 25 U.C.C.
Rep. Serv. 2d 812 (1994); Belvedere Condominium Unit Owners' Assn. v. R.E. Roark Cos., Inc., 67 Ohio
St. 3d 274, 1993-Ohio-119, 617 N.E.2d 1075 (1993) (holding modified by, Dombroski v. WellPoint, Inc.,
119 Ohio St. 3d 506, 2008-Ohio-4827, 895 N.E.2d 538 (2008))
Okla.
Gulf Oil Corp. v. State, 1961 OK 71, 360 P.2d 933 (Okla. 1961); Mid-Continent Life Ins. Co. v. Goforth,
1943 OK 244, 193 Okla. 314, 143 P.2d 154 (1943)
Or.
West Bearing & Parts, Inc. v. Peet, 253 Or. 639,456 P.2d 993 (1969)
Pa.
First Realvest, Inc. v. Avery Builders, Inc., 410 Pa. Super. 572,600 A.2d 601 (1991); Ashley v. Ashley, 482
Pa. 228,393 A.2d 637, 25 U.C.C. Rep. Serv. 843 (1978); Sams v. Redevelopment Authority of City of New
Kensington, 431 Pa. 240,244 A.2d 779 (1968)
R.I.
R & B Elec. Co., Inc. v. Amco Const. Co., Inc., 471 A.2d 1351 (R.I. 1984)
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s.c.
Sturkie v. Sifly, 280 S.C. 453,313 S.E.2d 316 (Ct. App. 1984), citing this treatise
S.D.
Ethan Dairy Products v. Austin, 448 N.W.2d 226, 10 U.C.C. Rep. Serv. 2d 1253 (S.D. 1989); Mobridge
Community Industries, Inc. v. Toure, Ltd., 273 N.W.2d 128 (S.D. 1978)
Tenn.
Widdicombe v. McGuire, 221 Tenn. 601, 429 S.W.2d 815 (1968); H.G. Hill Realty Co., L.L.C. v. Re/Max
Carriage House, Inc., 428 S.W.3d 23 (Tenn. Ct. App. 2013), appeal denied, (Nov. 14, 2013); Neese v.
Fireman's Fund Ins. Co., 53 Tenn. App. 710,386 S.W.2d 918 (1964)
Tex.
LaChalet Intern., Inc. v. Nowik, 787 S.W.2d 101 (Tex. App. Dallas 1990); Lucas v. Texas Industries, Inc.,
696 S.W.2d 372 (Tex. 1984); Pace Corp. v. Jackson, 155 Tex. 179,284 S.W.2d 340 (1955) (corporate entity
not disregarded where no fraud, avoidance of personal liability, or evasion of any applicable statute)
Utah
Transamerica Cash Reserve, Inc. v. Dixie Power and Water, Inc., 789 P.2d 24 (Utah 1990); Municipal Bldg.
Authority of Iron County v. Lowder, 711 P.2d 273 (Utah 1985); Grover v. Garn, 23 Utah 2d 441, 464 P.2d
598 (1970) (corporate veil improperly pierced absent showing of fraud or injustice); Canada Dry Bottling
Co. ofUtah v. Board of Review, Indus. Commission ofUtah, Dept. of Employment Sec., 118 Utah 619,223
P.2d 586, 22 A.L.R.2d 664 (1950)
Vt.
Except in cases where recognition of corporate status would result in fraud or injustice, courts will generally
refuse to pierce the corporate veil. Jack C. Keir, Inc. v. Robinson & Keir Partnership, 151 Vt. 358, 560 A.2d
957 (1989)
Va.
Greenberg v. Com. ex rel. Atty. Gen. of Virginia, 255 Va. 594,499 S.E.2d 266 (1998); Sloan v. Thornton,
249 Va. 492,457 S.E.2d 60 (1995); Cheatle v. Rudd's Swimming Pool Supply Co., Inc., 234 Va. 207, 360
S.E.2d 828 (1987)
Wash.
Kueckelhan v. Federal Old Line Ins. Co. (Mut.), 69 Wash. 2d 392,418 P.2d 443 (1966); Washington SavMor
Oil Co. v. Tax Commission, 58 Wash. 2d 518,364 P.2d 440 (1961)
w.va.
Laya v. Erin Homes, Inc., 177 W. Va. 343, 352 S.E.2d 93 (1986)
Wis.
Posyniak v. School Sisters of St. Francis of St. Joseph's Convent, 180 Wis. 2d 619, 511 N.W.2d 300 (Ct.
App. 1993); Security Bank v. Klicker, 142 Wis. 2d 289,418 N.W.2d 27 (Ct. App. 1987)
Wyo.
Miles v. CEC Homes, Inc., 753 P.2d 1021 (Wyo. 1988) Langdon v. Lutheran Broth., 625 P.2d 209 (Wyo.
1981), citing this treatise; Peters Grazing Ass'n v. Legerski, 544 P.2d 449 (Wyo. 1975); State ex rel.
Christensen v. Nugget Coal Co., 60 Wyo. 51, 144 P.2d 944 (1944)
U.S.
Fidelity & Deposit Co. of Maryland v. Commercial Cas. Consultants, Inc., 976 F.2d 272 (5th Cir. 1992);
Towe Antique Ford Foundation v. I.R.S., Dept. of Treasury, U.S., 791 F. Supp. 1450 (D. Mont. 1992),
judgment aft'd, 999 F.2d 1387 (9th Cir. 1993) (applying Montana law); Harper v. Delaware Valley
Broadcasters, Inc., 743 F. Supp. 1076 (D. Del. 1990), aft'd, 932 F.2d 959 (3d Cir. 1991) (applying Delaware
law)
Del.
Harper v. Delaware Valley Broadcasters, Inc., 743 F. Supp. 1076 (D. Del. 1990), aft'd, 932 F.2d 959 (3d
Cir. 1991)
Fla.
Munder v. Circle One Condominium, Inc., 596 So. 2d 144 (Fla. 4th DCA 1992)
Ill.
Import Sales, Inc. v. Continental Bearings Corp., 217 Ill. App. 3d 893, 160 Ill. Dec. 634, 577 N.E.2d 1205
(1st Dist. 1991)
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13
Mont
Drilcon, Inc. v. Roil Energy Corp., Inc., 230 Mont. 166, 749 P.2d 1058 (1988)
Mont
Towe Antique Ford Foundation v. I.R.S., Dept. of Treasury, U.S., 791 F. Supp. 1450 (D. Mont. 1992),
judgment aff'd, 999 F.2d 1387 (9th Cir. 1993)
N.J.
AYR Composition, Inc. v. Rosenberg, 261 N.J. Super. 495, 619 A.2d 592 (App. Div. 1993)
N.Y.
Godwin Realty Associates v. CATV Enterprises, Inc., 275 A.D.2d 269, 712 N.Y.S.2d 39 (1st Dep't 2000)
(veil pierced)
Wash.
U.S. Tobacco Sales and Marketing Co., Inc. v. State, Dept. of Revenue, 96 Wash. App. 932, 982 P.2d 652
(Div. 2 1999)
For a full discussion of fraud as justifying piercing corporate veil, see § 41.32.
Kan.
Mr. Cinnamon of Kansas, Inc. v. Hall, 41 Kan. App. 2d 457, 202 P.3d 734 (2009)
La.
Louisiana Lift & Equipment, Inc. v. Eizel, 770 So. 2d 859 (La. Ct. App. 2d Cir. 2000); Kemper v. Don
Coleman, Jr., Builder, Inc., 746 So. 2d 11 (La. Ct. App. 2d Cir. 1999), writ denied, 752 So. 2d 861 (La.
2000) and writ denied, 752 So. 2d 861 (La. 2000)
Tenn.
H.G. Hill Realty Co., L.L.C. v. Re/Max Carriage House, Inc., 428 S.W.3d 23 (Tenn. Ct. App. 2013), appeal
denied, (Nov. 14, 2013)
U.S.
Trustees of the Graphic Communications Intern. Union Upper Midwest Local IM Health and Welfare Plan
v. Bjorkedal, 516 F.3d 719 (8th Cir. 2008) ( applying Minnesota law); Servo Kinetics, Inc. v. Tokyo Precision
Instruments Co. Ltd., 475 F.3d 783, 2007 FED App. 0048P (6th Cir. 2007) (applying Michigan law); Taylor
Steel, Inc. v. Keeton, 417 F.3d 598, 2005 FED App. 0330P (6th Cir. 2005) (applying Ohio law); Hambleton
Bros. Lumber Co. v. Balkin Enterprises, Inc., 397 F.3d 1217, 60 Fed. R. Serv. 3d 1065 (9th Cir. 2005)
(applying Oregon law); Holley v. Crank, 386 F.3d 1248 (9th Cir. 2004), opinion amended and superseded,
400 F.3d 667 (9th Cir. 2005), quoting this treatise; U.S. v. Scherping, 187 F.3d 796 (8th Cir. 1999) (applying
Minnesota law); Gardemal v. Westin Hotel Co., 186 F.3d 588 (5th Cir. 1999); Heating & Air Specialists,
Inc. v. Jones, 180 F.3d 923, 38 U.C.C. Rep. Serv. 2d 1110 (8th Cir. 1999); Carter-Jones Lumber Co. v.
Dixie Distributing Co., 166 F.3d 840, 1999 FED App. 0038P (6th Cir. 1999) (applying Ohio law) (individual
liability for CERCLA violation); Huard v. Shreveport Pirates, Inc., 147 F.3d 406 (5th Cir. 1998) (applying
Louisiana law); Johnson Enterprises of Jacksonville, Inc. v. FPL Group, Inc., 162 F.3d 1290, 37 U.C.C. Rep.
Serv. 2d 244 (11th Cir. 1998) (applying Florida law); Hystro Products, Inc. v. MNP Corp., 18 F.3d 1384
(7th Cir. 1994) (applying Illinois law); Miles v. Kohli & Kaliher Associates, Ltd., 917 F.2d 235, 14 U.C.C.
Rep. Serv. 2d 135 (6th Cir. 1990) (simply filing for bankruptcy insufficient to satisfy requirement of fraud);
Manville Sales Corp. v. Paramount Systems, Inc., 917 F.2d 544 (Fed. Cir. 1990), citing this treatise; Shades
Ridge Holding Co., Inc. v. U.S., 880 F.2d 342 (11th Cir. 1989), opinion amended and superseded, 888 F.2d
725 (11th Cir. 1989), as amended on denial ofreh'g, (Sept. 29, 1989) (corporation alter ego of taxpayer who
transferred property to it to avoid tax liability); Firstmark Capital Corp. v. Hempel Financial Corp., 859 F.2d
92 (9th Cir. 1988) (applying California law); Chicago Florsheim Shoe Store Co. v. Cluett, Peabody & Co.,
Inc., 826 F.2d 725, 8 Fed. R. Serv. 3d 1001 (7th Cir. 1987); Flynt Distributing Co., Inc. v. Harvey, 734 F.2d
1389 (9th Cir. 1984); Sicilia Di R. Biebow & Co. v. Cox, 732 F.2d 417 (5th Cir. 1984); U.S. v. Standard
Beauty Supply Stores, Inc., 561 F.2d 774 (9th Cir. 1977) (applying California law); Zubik v. Zubik, 384
F.2d 267 (3d Cir. 1967); World Class Const. Management Group v. Baylor, 962 F. Supp. 2d 296 (D.D.C.
2013) (applying District of Columbia law), citing this treatise; Papatheodorou v. Clark, 781 F. Supp. 2d
582 (N.D. Ohio 2011) (applying Ohio law); Tredit Tire & Wheel Co., Inc. v. Regency Conversions, LLC,
636 F. Supp. 2d 598 (E.D. Mich. 2009) (applying Michigan law); McWilliams Ballard, Inc. v. Broadway
Management Co., Inc., 636 F. Supp. 2d 1 (D.D.C. 2009) (applying Distirct of Columbia law); In re Western
States Wholesale Natural Gas Litigation, 605 F. Supp. 2d 1118 (D. Nev. 2009) (applying Wisconsin law);
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McConkey v. McGhan Medical Corp., 144 F. Supp. 2d 958 (E.D. Tenn. 2000) (applying Tennessee law);
Baker v. Dataphase, Inc., 781 F. Supp. 724 (D. Utah 1992) (applying Utah law) (officers receiving higher
compensation when corporation unable to pay other employees standing alone not conclusive proof of
fraud); Walk-In Medical Centers, Inc. v. Breuer Capital Corp., 778 F. Supp. 1116 (D. Colo. 1991) (applying
Colorado law); Factofrance Heller v. I.P.M. Precision Machinery Co., 627 F. Supp. 1412, 42 U.C.C. Rep.
Serv. 1829 (N.D. Ill. 1986); Armada Supply, Inc. v. S/T Agios Nikolas, 613 F. Supp. 1459 (S.D. N.Y. 1985);
Oriental Commercial and Shipping Co., Ltd. v. Rosseel, N.V., 609 F. Supp. 75 (S.D. N.Y. 1985); Vespe
Contracting Co. v. Anvan Corp., 433 F. Supp. 1226 (E.D. Pa. 1977); Spinoza, Inc. v. U.S., 375 F. Supp.
439 (S.D. Tex. 1974)
Ala.
Reisz v. Galt Industries, Inc., 93 So. 3d 918 (Ala. 2012)
Alaska
Elliott v. Brown, 569 P.2d 1323 (Alaska 1977)
Ariz.
Butler v. American Asphalt & Contracting Co., 25 Ariz. App. 26, 540 P.2d 757 (Div. 1 1975); Gardner v.
Royal Development Co., 11 Ariz. App. 447, 465 P.2d 386 (Div. 1 1970); Ferrarell v. Robinson, 11 Ariz.
App. 473,465 P.2d 610 (Div. 1 1970)
Cal.
Webber v. Inland Empire Investments, 74 Cal. App. 4th 884, 88 Cal. Rptr. 2d 594 (4th Dist. 1999) (the two
requirements for applying the alter ego doctrine are that (1) there is such a unity of interest and ownership
between the corporation and the individual or organization controlling it that their separate personalities no
longer exist, and (2) failure to disregard the corporate entity would sanction a fraud or promote injustice);
Cooperman v. Unemployment Ins. Appeals Bd., 49 Cal. App. 3d 1, 122 Cal. Rptr. 127 (2d Dist. 1975);
Roman Catholic Archbishop v. Superior Court, 15 Cal. App. 3d 405, 93 Cal. Rptr. 338 (1st Dist. 1971) (alter
ego doctrine inapplicable); O'Donnell v. Weintraub, 260 Cal. App. 2d 352, 67 Cal. Rptr. 274 (2d Dist. 1968)
Cal.
Firstmark Capital Corp. v. Hempel Financial Corp., 859 F.2d 92 (9th Cir. 1988); U.S. v. Standard Beauty
Supply Stores, Inc., 561 F.2d 774 (9th Cir. 1977)
Colo.
Fink v. Montgomery Elevator Co. of Colo., 161 Colo. 342, 421 P.2d 735 (1966), quoting this treatise; Martin
v. Freeman, 2012 COA 21, 272 P.3d 1182 (Colo. App. 2012) (quoting this treatise); Harding v. Lucero,
721 P.2d 695 (Colo. App. 1986), quoting this treatise; Reader v. Dertina and Associates Marketing, Inc.,
693 P.2d 398 (Colo. App. 1984); Rosebud Corp. v. Boggio, 39 Colo. App. 84, 561 P.2d 367 (App. 1977),
quoting this treatise
Colo.
Walk-In Medical Centers, Inc. v. Breuer Capital Corp., 778 F. Supp. 1116 (D. Colo. 1991)
Conn.
Naples v. Keystone Bldg. and Development Corp., 295 Conn. 214, 990 A.2d 326 (2010); SFA Folio
Collections, Inc. v. Bannon, 217 Conn. 220,585 A.2d 666 (1991) (separate corporation); Mountview Plaza
Associates, Inc. v. World Wide Pet Supply, Inc., 76 Conn. App. 627, 820 A.2d 1105 (2003)
Del.
Even in absence of fraud, there are cases which permit a direct action against the patent company where it has
completely ignored the separate identity of its wholly owned subsidiary. Walsh v. Hotel Corp. of America,
231 A.2d 458 (Del. 1967)
D.C.
Simon v. Circle Associates, Inc., 753 A.2d 1006 (D.C. 2000)
D.C.
World Class Const. Management Group v. Baylor, 962 F. Supp. 2d 296 (D.D.C. 2013), citing this treatise;
Mc Williams Ballard, Inc. v. Broadway Management Co., Inc., 636 F. Supp. 2d 1 (D.D.C. 2009)
Fla.
Munder v. Circle One Condominium, Inc., 596 So. 2d 144 (Fla. 4th DCA 1992) (failing to maintain and pay
for insurance not enough to pierce corporate veil); Charter Air Center, Inc. v. Miller, 348 So. 2d 614 (Fla. 2d
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DCA 1977); American Mortg. & Safe Deposit Co. v. Rubin, 168 So. 2d 777 (Fla. 3d DCA 1964); Sirmons
v. Arnold Lumber Co., 167 So. 2d 588 (Fla. 2d DCA 1964)
Johnson Enterprises of Jacksonville, Inc. v. FPL Group, Inc., 162 F.3d 1290, 37 U.C.C. Rep. Serv. 2d 244
(11th Cir. 1998) (improper conduct requirement)
Ga.
Hickman v. Hyzer, 261 Ga. 38,401 S.E.2d 738 (1991); Farmers Warehouse of Pelham, Inc. v. Collins, 220
Ga. 141, 137 S.E.2d 619 (1964); Graham v. Palmtop Properties, Inc., 284 Ga. App. 730, 645 S.E.2d 343
(2007); Trans-American Communications, Inc. v. Nolle, 134 Ga. App. 457, 214 S.E.2d 717 (1975), citing
this treatise
Idaho
Jolley v. Idaho Securities, Inc., 90 Idaho 373, 414 P.2d 879 (1966); Metz v. Hawkins, 64 Idaho 386, 133
P.2d 721 (1943)
Ill.
Import Sales, Inc. v. Continental Bearings Corp., 217 Ill. App. 3d 893, 160 Ill. Dec. 634, 577 N.E.2d 1205
(1st Dist. 1991); Edwards v. Chicago & N. W. Ry. Co., 79 Ill. App. 2d 48,223 N.E.2d 163 (4th Dist. 1967)
Ill.
Hystro Products, Inc. v. MNP Corp., 18 F.3d 1384 (7th Cir. 1994)
Ind.
Stacey-Rand, Inc. v. J.J. Holman, Inc., 527 N.E.2d 726 (Ind. Ct. App. 1988); Lambert v. Farmers Bank,
Frankfort, Ind., 519 N.E.2d 745 (Ind. Ct. App. 1988)
Kan.
Kvassay v. Murray, 15 Kan. App. 2d 426, 808 P.2d 896, 14 U.C.C. Rep. Serv. 2d 1093 (1991); Kilpatrick
Bros., Inc. v. Poynter, 205 Kan. 787,473 P.2d 33 (1970)
Ky.
Tavadia v. Mitchell, 564 S.W.3d 322 (Ky. App. 2018)
La.
Hamilton v. AAI Ventures, L.L.C., 768 So. 2d 298 (La. Ct. App. 1st Cir. 2000); Middleton v. Parish of
Jefferson, 707 So. 2d 454 (La. Ct. App. 5th Cir. 1998), writ denied, 716 So. 2d 896 (La. 1998); Coury v.
Coury Moss, Inc., 510 So. 2d 1316 (La. Ct. App. 3d Cir. 1987); Smith v. Moore, 34 7 So. 2d 316 (La. Ct.
App. 4th Cir. 1977); Matassa v. Temple, 346 So. 2d 803 (La. Ct. App. 1st Cir. 1977), writ denied, 349 So.
2d 332 (La. 1977); Sampay v. Davis, 342 So. 2d 1186 (La. Ct. App. 1st Cir. 1977); Texas Industries, Inc. v.
Dupuy & Dupuy Developers, Inc., 227 So. 2d 265 (La. Ct. App. 2d Cir. 1969)
La.
Huard v. Shreveport Pirates, Inc., 147 F.3d 406 (5th Cir. 1998)
Md.
Hildreth v. Tidewater Equipment Co., Inc, 378 Md. 724, 838 A.2d 1204 (2003), citing this treatise
Mass.
Scott v. NG U.S. 1, Inc., 450 Mass. 760, 881 N.E.2d 1125 (2008), citing this treatise
Mich.
Servo Kinetics, Inc. v. Tokyo Precision Instruments Co. Ltd., 475 F.3d 783, 2007 FED App. 0048P (6th Cir.
2007); Tredit Tire & Wheel Co., Inc. v. Regency Conversions, LLC, 636 F. Supp. 2d 598 (E.D. Mich. 2009)
Minn.
Trustees of the Graphic Communications Intern. Union Upper Midwest Local IM Health and Welfare Plan
v. Bjorkedal, 516 F.3d 719, 43 Employee Benefits Cas. (BNA) 2129 (8th Cir. 2008) (piercing not warranted);
U.S. v. Scherping, 187 F.3d 796 (8th Cir. 1999)
Mo.
APAC-Missouri, Inc. v. Boyer, 420 S.W.3d 651 (Mo. Ct. App. S.D. 2013), reh'g and/or transfer denied, (Nov.
21, 2013); Zubres Radiology v. Providers Ins. Consultants, 276 S.W.3d 335 (Mo. Ct. App. W.D. 2009);
Comninellis v. Comninellis, 99 S.W.3d 502 (Mo. Ct. App. W.D. 2003); Real Estate Investors Four, Inc. v.
American Design Group Inc., 46 S.W.3d 51 (Mo. Ct. App. E.D. 2001); Smith v. City of Lee's Summit, 450
S.W.2d 485 (Mo. Ct. App. 1970)
Mont
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Drilcon, Inc. v. Roil Energy Corp., Inc., 230 Mont. 166, 749 P.2d 1058 (1988) (either actual or constructive
fraud as sufficient to pierce corporate veil in given case)
Nev.
Polaris Indus. Corp. v. Kaplan, 103 Nev. 598, 747 P.2d 884 (1987); Carson Meadows Inc. v. Pease, 91 Nev.
187, 533 P.2d 458 (1975); North Arlington Medical Bldg., Inc. v. Sanchez Const. Co., 86 Nev. 515, 471
P.2d 240 (1970)
Nev.
Nevada courts apply the following test for piercing the corporate veil based on a finding of alter ego: (1)
the corporation must be influenced and governed by the person asserted to be its alter ego; (2) there must be
such unity of interest and ownership that one is inseparable from the other; and (3) the facts must be such
that adherence to the fiction of separate entity would, under the circumstances, sanction a fraud or promote
injustice. Lorenz v. Beltio, Ltd., 114 Nev. 795, 963 P.2d 488 (1998)
N.H.
Gautschi v. Auto Body Discount Center, Inc., 139 N.H. 457, 660 A.2d 1076 (1995)
N.M.
Morrissey v. Krystopowicz, 365 P.3d 20 (N.M. App. 2015). For an expanded analysis of this case see 33
No. 10 Fletcher Corp Law Adviser NL 10
N.Y.
Cortlandt St. Recovery Corp. v. Bonderman, 96 N.E.3d 191 (N.Y. 2018); Cobalt Partners, L.P. v. GSC Capital
Corp., 97 A.D.3d 35,944 N.Y.S.2d 30 (1st Dep't 2012); In re Estate of Moak, 92 A.D.3d 1040, 938 N.Y.S.2d
648 (3d Dep't 2012); Peery v. United Capital Corp., 84 A.D.3d 1201, 924 N.Y.S.2d 470 (2d Dep't 2011);
Old Republic Nat. Title Ins. Co. v. Moskowitz, 297 A.D.2d 724, 747 N.Y.S.2d 556 (2d Dep't 2002); Guptill
Holding Corp. v. State, 33 A.D.2d 362, 307 N.Y.S.2d 970 (3d Dep't 1970), order aft'd, 31 N.Y.2d 897, 340
N.Y.S.2d 638, 292 N.E.2d 782 (1972)
N.C.
Fischer Inv. Capital, Inc. v. Catawba Development Corp., 200 N.C. App. 644, 689 S.E.2d 143 (2009); East
Market Street Square, Inc. v. Tycorp Pizza IV, Inc., 175 N.C. App. 628, 625 S.E.2d 191 (2006); Becker v.
Graber Builders, Inc., 149 N.C. App. 787, 561 S.E.2d 905 (2002)
N.D.
Red River Wings, Inc. v. Hoot, Inc., 2008 ND 117, 751 N.W.2d 206 (N.D. 2008)
Ohio
Minno v. Pro-Fab, Inc., 121 Ohio St. 3d 464, 2009-Ohio-1247, 905 N.E.2d 613 (2009); Belvedere
Condominium Unit Owners' Assn. v. R.E. Roark Cos., Inc., 67 Ohio St. 3d 274, 1993-Ohio-119, 617 N.E.2d
1075 (1993) (holding modified by, Dombroski v. WellPoint, Inc., 119 Ohio St. 3d 506, 2008-Ohio-4827, 895
N.E.2d 538 (2008)); Springfield v. Palco Invest. Co., Inc., 2013-Ohio-2348, 992 N.E.2d 1194 (Ohio Ct. App.
2d Dist. Clark County 2013); Swayne v. Beebles Invests., Inc., 176 Ohio App. 3d 293, 2008-Ohio-1839, 891
N.E.2d 1216 (10th Dist. Franklin County 2008); Charvat v. Farmers Ins. Columbus, Inc., 178 Ohio App. 3d
118, 2008-Ohio-4353, 897 N.E.2d 167 (10th Dist. Franklin County 2008); Starner v. Guardian Industries,
143 Ohio App. 3d 461, 758 N.E.2d 270 (10th Dist. Franklin County 2001); Longo Constr., Inc. v. ASAP
Tech. Serv., Inc., 140 Ohio App. 3d 665, 748 N.E.2d 1164 (8th Dist. Cuyahoga County 2000)
Ohio
Taylor Steel, Inc. v. Keeton, 417 F.3d 598, 2005 FED App. 0330P (6th Cir. 2005); Carter-Jones Lumber
Co. v. Dixie Distributing Co., 166 F.3d 840, 1999 FED App. 0038P (6th Cir. 1999) (individual liability for
CERCLA violation); Papatheodorou v. Clark, 781 F. Supp. 2d 582 (N.D. Ohio 2011)
Okla.
Mainord v. Sharp, 1977 OK CIV APP 29, 569 P.2d 546 (Ct. App. Div. 1 1977)
Or.
State ex rel. Neidig v. Superior Nat. Ins. Co., 343 Or. 434, 173 P.3d 123 (2007), citing this treatise
Or.
Hambleton Bros. Lumber Co. v. Balkin Enterprises, Inc., 397 F.3d 1217, 60 Fed. R. Serv. 3d 1065 (9th Cir.
2005)
R.I.
McFarland v. Brier, 769 A.2d 605 (R.I. 2001)
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14
s.c.
Oskin v. Johnson, 400 S.C. 390, 735 S.E.2d 459 (2012); Drury Development Corp. v. Foundation Ins. Co.,
380 S.C. 97,668 S.E.2d 798 (2008)
S.D.
Glanzer v. St. Joseph Indian School, 438 N.W.2d 204 (S.D. 1989)
Tenn.
Bracken v. Earl, 40 S.W.3d 499 (Tenn. Ct. App. 2000); Anderson v. Durbin, 740 S.W.2d 417 (Tenn. Ct.
App. 1987)
Tenn.
McConkey v. McGhan Medical Corp., 144 F. Supp. 2d 958 (E.D. Tenn. 2000)
Tex.
Tryco Enterprises, Inc. v. Robinson, 390 S.W.3d 497 (Tex. App. Houston 1st Dist. 2012), review dismissed,
(Apr. 5, 2013); Zisblatt v. Zisblatt, 693 S.W.2d 944 (Tex. App. Fort Worth 1985), dismissed, (Feb. 19, 1986);
Duke v. Duke, 605 S.W.2d 408 (Tex. Civ. App. El Paso 1980), dismissed, (Jan. 21, 1981); Humphrey v.
Humphrey, 593 S.W.2d 824 (Tex. Civ. App. Houston 14th Dist. 1980), dismissed, (Apr. 16, 1980); Paine
v. Carter, 469 S.W.2d 822 (Tex. Civ. App. Houston 14th Dist. 1971), writ refused n.r.e., (Nov. 17, 1971);
George v. Houston Boxing Club, Inc., 423 S.W.2d 128 (Tex. Civ. App. Houston 14th Dist. 1967), writ refused
n.r.e., (Apr. 17, 1968); Williams v. Freeport Sulphur Co., 40 S.W.2d 817 (Tex. Civ. App. Galveston 1930)
Utah
Municipal Bldg. Authority of Iron County v. Lowder, 711 P.2d 273 (Utah 1985); Norman v. Murray First
Thrift & Loan Co., 596 P.2d 1028 (Utah 1979); Centurian Corp. v. Fiberchem, Inc., 562 P.2d 1252 (Utah
1977), citing this treatise; Groverv. Garn, 23 Utah 2d 441,464 P.2d 598 (1970)
Vt.
Jack C. Keir, Inc. v. Robinson & Keir Partnership, 151 Vt. 358, 560 A.2d 957 (1989) (no fraud found)
Wis.
Posyniak v. School Sisters of St. Francis of St. Joseph's Convent, 180 Wis. 2d 619, 511 N.W.2d 300 (Ct.
App. 1993)
Wis.
In re Western States Wholesale Natural Gas Litigation, 605 F. Supp. 2d 1118 (D. Nev. 2009)
See Establishing Elements for Disregarding Corporate Entity and Piercing Entity's Veil, 114 Am. Jur. Proof
of Facts 3d 403.
For a full discussion of fraud as justifying piercing the corporate veil, see § 41.32.
U.S.
Servo Kinetics, Inc. v. Tokyo Precision Instruments Co. Ltd., 475 F.3d 783, 2007 FED App. 0048P (6th
Cir. 2007) (applying Michigan law); Hystro Products, Inc. v. MNP Corp., 18 F.3d 1384 (7th Cir. 1994)
(applying Illinois law); Radaszewski by Radaszewski v. Telecom Corp., 981 F.2d 305 (8th Cir. 1992);
Bodenhamer Bldg. Corp. v. Architectural Research Corp., 873 F.2d 109, 13 Fed. R. Serv. 3d 1144 (6th Cir.
1989); Papatheodorou v. Clark, 781 F. Supp. 2d 582 (N.D. Ohio 2011) (applying Ohio law); In re Western
States Wholesale Natural Gas Litigation, 605 F. Supp. 2d 1118 (D. Nev. 2009) (applying Wisconsin law);
McConkey v. McGhan Medical Corp., 144 F. Supp. 2d 958 (E.D. Tenn. 2000) (applying Tennessee law)
Ala.
Heisz v. Galt Industries, Inc., 93 So. 3d 918 (Ala. 2012); Messick v. Moring, 514 So. 2d 892 (Ala. 1987)
( discussing similar tests)
Conn.
Naples v. Keystone Bldg. and Development Corp., 295 Conn. 214,990 A.2d 326 (2010)
Ga.
NEC Technologies, Inc. v. Nelson, 267 Ga. 390, 478 S.E.2d 769, 31 U.C.C. Rep. Serv. 2d 992 (1996)
(importer not alter ego of manufacturer of products it sells)
Ill.
Hystro Products, Inc. v. MNP Corp., 18 F.3d 1384 (7th Cir. 1994)
Md.
Hildreth v. Tidewater Equipment Co., Inc, 378 Md. 724, 838 A.2d 1204 (2003), citing this treatise
Mich.
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15
Servo Kinetics, Inc. v. Tokyo Precision Instruments Co. Ltd., 475 F.3d 783, 2007 FED App. 0048P (6th
Cir. 2007)
Mo.
John Knox Village v. Fortis Const. Co., LLC, 449 S.W.3d 68 (Mo. App 2014); APAC-Missouri, Inc. v.
Boyer, 420 S.W.3d 651 (Mo. Ct. App. S.D. 2013), reh'g and/or transfer denied, (Nov. 21, 2013); Zubres
Radiology v. Providers Ins. Consultants, 276 S.W.3d 335 (Mo. Ct. App. W.D. 2009); Real Estate Investors
Four, Inc. v. American Design Group Inc., 46 S.W.3d 51 (Mo. Ct. App. E.D. 2001); Dwyerv. ING Inv. Co.,
Inc., 889 S.W.2d 902 (Mo. Ct. App. E.D. 1994) (corporation being operated for personal benefit of sole
shareholder and partnership); Grote Meat Co. v. Goldenberg, 735 S.W.2d 379 (Mo. Ct. App. E.D. 1987)
N.M.
Scott v. AZL Resources, Inc., 1988-NMSC-028, 107 N.M. 118, 753 P.2d 897 (1988); Morrissey v.
Krystopowicz, 365 P.3d 20 (N.M. App. 2015). For an expanded analysis of this case see 33 No. 10 Fletcher
Corp Law Adviser NL 10
N.Y.
Cortlandt St. Recovery Corp. v. Bonderman, 96 N.E.3d 191 (N.Y. 2018); AZTE, Inc. v. Auto Collection,
Inc., 124 A.D.3d 81, 12 N.Y.S.3d 212 (2015); Cobalt Partners, L.P. v. GSC Capital Corp., 97 A.D.3d 35,
944 N.Y.S.2d 30 (1st Dep't 2012); In re Estate of Moak, 92 A.D.3d 1040, 938 N.Y.S.2d 648 (3d Dep't 2012);
Dana v. Shopping Time Corp., 76 A.D.3d 992, 908 N.Y.S.2d 114 (2d Dep't 2010)
N.Y.
Factors which determine whether corporate veil should be withdrawn under instrumentality rule in New
York are (1) domination and control over corporation by individuals which is so complete that corporation
has no separate mind, will, or existence of its own; (2) use of domination and control to commit fraud or
wrong or any other dishonest or unjust act; and (3) injury or unjust loss resulting to plaintiff from said control
and wrong. Brunswick Corp. v. Waxman, 459 F. Supp. 1222 (E.D. N.Y. 1978), judgment aff'd, 599 F.2d
34 (2d Cir. 1979)
N.C.
State ex rel. Cooper v. Ridgeway Brands Mfg., LLC, 362 N.C. 431, 666 S.E.2d 107 (2008); Fischer Inv.
Capital, Inc. v. Catawba Development Corp., 200 N.C. App. 644, 689 S.E.2d 143 (2009); East Market Street
Square, Inc. v. Tycorp Pizza IV, Inc., 175 N.C. App. 628,625 S.E.2d 191 (2006); Becker v. Graber Builders,
Inc., 149 N.C. App. 787,561 S.E.2d 905 (2002)
Ohio
Minno v. Pro-Fab, Inc., 121 Ohio St. 3d 464, 2009-Ohio-1247, 905 N.E.2d 613 (2009); Belvedere
Condominium Unit Owners' Assn. v. R.E. Roark Cos., Inc., 67 Ohio St. 3d 274, 1993-Ohio-119, 617 N.E.2d
1075 (1993) (holding modified by, Dombroski v. WellPoint, Inc., 119 Ohio St. 3d 506, 2008-Ohio-4827,
895 N.E.2d 538 (2008)); Snapp v. Castlebrook Builders, Inc., 7 N.E.3d 574 (Ohio App. 2014); Springfield
v. Palco Invest. Co., Inc., 2013-Ohio-2348, 992 N.E.2d 1194 (Ohio Ct. App. 2d Dist. Clark County 2013);
Swayne v. Beebles Invests., Inc., 176 Ohio App. 3d 293, 2008-Ohio-1839, 891 N.E.2d 1216 (10th Dist.
Franklin County 2008); Starner v. Guardian Industries, 143 Ohio App. 3d 461, 758 N.E.2d 270 (10th Dist.
Franklin County 2001); Longo Constr., Inc. v. ASAP Tech. Serv., Inc., 140 Ohio App. 3d 665, 748 N.E.2d
1164 (8th Dist. Cuyahoga County 2000); Link v. Leadworks Corp., 79 Ohio App. 3d 735,607 N.E.2d 1140
(8th Dist. Cuyahoga County 1992)
Ohio
Papatheodorou v. Clark, 781 F. Supp. 2d 582 (N.D. Ohio 2011)
s.c.
Colleton County Taxpayers Ass'n v. School Dist. of Colleton County, 371 S.C. 224, 638 S.E.2d 685, 215
Ed. Law Rep. 489 (2006)
Tenn.
McConkey v. McGhan Medical Corp., 144 F. Supp. 2d 958 (E.D. Tenn. 2000)
Wis.
In re Western States Wholesale Natural Gas Litigation, 605 F. Supp. 2d 1118 (D. Nev. 2009)
See Establishing Elements for Disregarding Corporate Entity and Piercing Entity's Veil, 114 Am. Jur. Proof
of Facts 3d 403.
U.S.
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Wachovia Securities, LLC v. Banco Panamericano, Inc., 674 F.3d 743 (7th Cir. 2012) (applying Illinois
law); Zimmerman v. Puccio, 613 F.3d 60 (1st Cir. 2010) (applying Massachusetts law), citing this treatise;
Trustees of the Graphic Communications Intern. Union Upper Midwest Local IM Health and Welfare
Plan v. Bjorkedal, 516 F.3d 719 (8th Cir. 2008) (applying Minnesota law); Commodity Futures Trading
Com'n v. Topworth Intern., Ltd., 205 F.3d 1107 (9th Cir. 1999), as amended, (Mar. 23, 2000) (extreme
undercapitalization); U.S. v. Scherping, 187 F.3d 796 (8th Cir. 1999) (applying Minnesota law); Gardemal
v. Westin Hotel Co., 186 F.3d 588 (5th Cir. 1999); Heating & Air Specialists, Inc. v. Jones, 180 F.3d 923,
38 U.C.C. Rep. Serv. 2d 1110 (8th Cir. 1999); Ost-West-Handel Bruno Bischoff GmbH v. Project Asia
Line, Inc., 160 F.3d 170 (4th Cir. 1998) (in admiralty context); Huard v. Shreveport Pirates, Inc., 147 F.3d
406 (5th Cir. 1998) (applying Louisiana law); Radaszewski by Radaszewski v. Telecom Corp., 981 F.2d
305 (8th Cir. 1992); U.S. v. Fidelity Capital Corp., 920 F.2d 827 (11th Cir. 1991) (applying Georgia law);
Mc Williams Ballard, Inc. v. Broadway Management Co., Inc., 636 F. Supp. 2d 1 (D.D.C. 2009) (applying
District of Columbia law); Cuiksa v. Hallmark Hall of Fame Productions, Inc., 252 F. Supp. 2d 1166 (D.
Kan. 2003) (applying Kansas law); McConkey v. McGhan Medical Corp., 144 F. Supp. 2d 958 (E.D. Tenn.
2000) (applying Tennessee law); U.S. v. ACB Sales & Service, Inc., 590 F. Supp. 561 (D. Ariz. 1984)
Alaska
L.D.G., Inc. v. Brown, 211 P.3d 1110 (Alaska 2009); Nerox Power Systems, Inc. v. M-B Contracting Co.,
Inc., 54 P.3d 791 (Alaska 2002); Uchitel Co. v. Telephone Co., 646 P.2d 229, 33 U.C.C. Rep. Serv. 1678
(Alaska 1982)
Colo.
Where the sole shareholder incorporated the business, used company money for personal purchases and
failed to hold directors' meetings there was a sound basis for the conclusion that the sole shareholder used
the corporate entity principally as an instrumentality for the transaction of his own affairs. Reader v. Dertina
and Associates Marketing, Inc., 693 P.2d 398 (Colo. App. 1984)
Conn.
Naples v. Keystone Bldg. and Development Corp., 295 Conn. 214,990 A.2d 326 (2010)
D.C.
Estate of Raleigh v. Mitchell, 947 A.2d 464 (D.C. 2008), citing this treatise
D.C.
Mc Williams Ballard, Inc. v. Broadway Management Co., Inc., 636 F. Supp. 2d 1 (D.D.C. 2009)
Ga.
U.S. v. Fidelity Capital Corp., 920 F.2d 827 (11th Cir. 1991)
Ill.
Fiumetto v. Garrett Enterprises, Inc., 321 Ill. App. 3d 946,255 Ill. Dec. 510, 749 N.E.2d 992 (2d Dist. 2001)
Ill.
Wachovia Securities, LLC v. Banco Panamericano, Inc., 674 F.3d 743 (7th Cir. 2012)
Ind.
Cantrell v. Putnam County Sheriff's Dep't, 894 N.E.2d 1081 (Ind. Ct. App. 2008); Community Care Centers,
Inc. v. Hamilton, 774 N.E.2d 559 (Ind. Ct. App. 2002); Price v. Aronson, 629 N.E.2d 268 (Ind. Ct. App.
1994), decision approved, 644 N.E.2d 864 (Ind. 1994)
Iowa
Cemen Tech, Inc. v. Three D Industries, L.L.C., 753 N.W.2d 1 (Iowa 2008)
Kan.
Cuiksa v. Hallmark Hall of Fame Productions, Inc., 252 F. Supp. 2d 1166 (D. Kan. 2003); K vassay v. Murray,
15 Kan. App. 2d 426, 808 P.2d 896, 14 U.C.C. Rep. Serv. 2d 1093 (1991)
La.
Crutcher-Tufts Resources, Inc. v. Tufts, 992 So. 2d 1091 (La. Ct. App. 4th Cir. 2008), writ denied, 998 So.
2d 105 (La. 2009); Town of Haynesville, Inc. v. Entergy Corp., 956 So. 2d 192 (La. Ct. App. 2d Cir. 2007),
writ denied, 964 So. 2d 334 (La. 2007); Amoco Production Co. v. Texaco, Inc., 838 So. 2d 821 (La. Ct.
App. 3d Cir. 2003), writ denied, 845 So. 2d 1096 (La. 2003) and writ denied, 845 So. 2d 1096 (La. 2003);
Hamilton v. AAI Ventures, L.L.C., 768 So. 2d 298 (La. Ct. App. 1st Cir. 2000)
La.
Huard v. Shreveport Pirates, Inc., 147 F.3d 406 (5th Cir. 1998)
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16
16.30
Md.
Turnerv. Turner, 147 Md. App. 350,809 A.2d 18 (2002)
Minn.
Hoyt Properties, Inc. v. Production Resource Group, L.L.C., 736 N.W.2d 313 (Minn. 2007)
Mass.
Zimmerman v. Puccio, 613 F.3d 60 (1st Cir. 2010), citing this treatise
Minn.
Trustees of the Graphic Communications Intern. Union Upper Midwest Local 1 M Health and Welfare Plan
v. Bjorkedal, 516 F.3d 719, 43 Employee Benefits Cas. (BNA) 2129 (8th Cir. 2008) (piercing not warranted);
U.S. v. Scherping, 187 F.3d 796 (8th Cir. 1999)
Mo.
Grote Meat Co. v. Goldenberg, 735 S.W.2d 379 (Mo. Ct. App. E.D. 1987) (corporation totally
undercapitalized)
Nev.
Polaris Indus. Corp. v. Kaplan, 103 Nev. 598, 747 P.2d 884 (1987)
Nev.
Factors concerning the alter ego theory include, but are not limited to, commingling of funds,
undercapitalization, unauthorized diversion of funds, treatment of corporate assets as the individual's own,
and failure to observe corporate formalities; no single factor is dispositive. Lorenz v. Beltio, Ltd., 114 Nev.
795, 963 P.2d 488 (1998) (finding alter ego and piercing the corporate veil)
N.Y.
Peery v. United Capital Corp., 84 A.D.3d 1201, 924 N.Y.S.2d 470 (2d Dep't 2011)
N.D.
Taszarek v. Lakeview Excavating, Inc., 883 N.W.2d 880 (N.D. 2016), citing this treatise. For an expanded
analysis of this case see 34 No. 10 Fletcher Corp Law Adviser NL 4
Pa.
Superior Stores Co. v. Pennsylvania Dept. of Health, Special Supplemental Food Program for Women,
Infants and Children, 151 Pa. Commw. 102, 616 A.2d 166 (1992) (corporation independent entity even if
controlled and owned by one person)
s.c.
Mid-South Mgt. Co. Inc. v. Sherwood Development Corp., 374 S.C. 588, 649 S.E.2d 135 (Ct. App. 2007)
Tenn.
McConkey v. McGhan Medical Corp., 144 F. Supp. 2d 958 (E.D. Tenn. 2000)
Tex.
Tryco Enterprises, Inc. v. Robinson, 390 S.W.3d 497 (Tex. App. Houston 1st Dist. 2012), review dismissed,
(Apr. 5, 2013); Howell v. Hilton Hotels Corp., 84 S.W.3d 708 (Tex. App. Houston 1st Dist. 2002) (observance
of formalities no longer factor for consideration in Texas alter ego cases); Fontenot Petro-Chem & Marine
Services, Inc. v. LaBono, 993 S.W.2d 455 (Tex. App. Corpus Christi 1999); Aztec Management and Inv.
Co., Inc. v. McKenzie, 709 S.W.2d 237 (Tex. App. Corpus Christi 1986)
See Establishing Elements for Disregarding Corporate Entity and Piercing Entity's Veil, 114 Am. Jur. Proof
of Facts 3d 403.
U.S.
Damon v. Groteboer, 937 F. Supp. 2d 1048 (D. Minn. 2013) (applying Minnesota law)
Minn.
Damon v. Groteboer, 937 F. Supp. 2d 1048 (D. Minn. 2013)
N.D.
Taszarek v. Lakeview Excavating, Inc., 883 N.W.2d 880 (N.D. 2016), citing this treatise. For an expanded
analysis of this case see 34 No. 10 Fletcher Corp Law Adviser NL 4
Ill.
Steiner Elec. Co. v. Maniscalco, 51 N.E.3d 45 (Il. App. 2016). For an expanded analysis of this case see 34
No. 5 Fletcher Corp Law Adviser NL 4; Gajda v. Steel Solutions Firm, Inc., 395 Ill. Dec. 796, 39 N.E.3d
263 (Ill. App. 2015)
N.D.
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§ 41.Theory and factors warranting piercing the corporate veil, 1 Fletcher Cyc. Corp.§ 41
17
18
19
20
21
Taszarek v. Lakeview Excavating, Inc., 883 N.W.2d 880 (N.D. 2016), citing this treatise. For an expanded
analysis of this case see 34 No. 10 Fletcher Corp Law Adviser NL 4
Ala.
Messick v. Moring, 514 So. 2d 892 (Ala. 1987)
Or.
State ex rel. Neidig v. Superior Nat. Ins. Co., 343 Or. 434, 173 P.3d 123 (2007), citing this treatise
U.S.
Dole Food Co. v. Patrickson, 538 U.S. 468, 123 S. Ct. 1655, 155 L. Ed. 2d 643, 188 A.L.R. Fed. 661 (2003),
citing this treatise; Wachovia Securities, LLC v. Banco Panamericano, Inc., 674 F.3d 743 (7th Cir. 2012)
(applying Illinois law); Heating & Air Specialists, Inc. v. Jones, 180 F.3d 923, 38 U.C.C. Rep. Serv. 2d 1110
(8th Cir. 1999); Ost-West-Handel Bruno Bischoff GmbH v. Project Asia Line, Inc., 160 F.3d 170 (4th Cir.
1998) (in admiralty context)
Idaho
Lunneborg v. My Fun Life, 163 Idaho 856, 421 P.3d 187 (2018), quoting this treatise. For an expanded
analysis of this case see 36 No. 8 Fletcher Corp Law Adviser NL 3
Ill.
Hills of Palos Condominium Ass'n, Inc. v. I-Del, Inc., 255 Ill. App. 3d 448, 193 Ill. Dec. 760, 626 N.E.2d
1311 (1st Dist. 1993); In re Rehabilitation of Centaur Ins. Co., 238 Ill. App. 3d 292, 179 Ill. Dec. 459, 606
N.E.2d 291 (1st Dist. 1992), judgment afl'd, 158 Ill. 2d 166, 198 Ill. Dec. 404, 632 N.E.2d 1015 (1994)
(parent and wholly owned subsidiary as distinct entities absent fraud)
Ill.
Wachovia Securities, LLC v. Banco Panamericano, Inc., 674 F.3d 743 (7th Cir. 2012)
Ind.
Stacey-Rand, Inc. v. J.J. Holman, Inc., 527 N.E.2d 726 (Ind. Ct. App. 1988)
N.C.
Fischer Inv. Capital, Inc. v. Catawba Development Corp., 200 N.C. App. 644,689 S.E.2d 143 (2009)
Ohio
Longo Constr., Inc. v. ASAP Tech. Serv., Inc., 140 Ohio App. 3d 665, 748 N.E.2d 1164 (8th Dist. Cuyahoga
County2000)
Or.
State ex rel. Neidig v. Superior Nat. Ins. Co., 343 Or. 434, 173 P.3d 123 (2007), citing this treatise
R.I.
McFarland v. Brier, 769 A.2d 605 (R.I. 2001)
s.c.
Drury Development Corp. v. Foundation Ins. Co., 380 S.C. 97,668 S.E.2d 798 (2008)
Tex.
Mancorp, Inc. v. Culpepper, 802 S.W.2d 226 (Tex. 1990) (court looking at all dealings of corporation and
sole shareholder to determine alter ego status); Stauffacher v. Lone Star Mud, Inc., 54 S.W.3d 810 (Tex.
App. Texarkana 2001); Fontenot Petro-Chem & Marine Services, Inc. v. LaBono, 993 S.W.2d 455 (Tex.
App. Corpus Christi 1999)
Utah
Jones & Trevor Marketing, Inc. v. Lowry, 2012 UT 39, 284 P.3d 630 (Utah 2012), citing this treatise
Determinative factors generally, see§ 41.3; detailed analysis of specific factors, see§§ 41.31 et seq.
Piercing the corporate veils of parent, subsidiary and affiliated corporations, see§ 43.
Piercing the corporate veil of partnerships, see § 41.80.
U.S.
N.L.R.B. v. G & T Terminal Packaging Co., Inc., 246 F.3d 103 (2d Cir. 2001); Heating & Air Specialists,
Inc. v. Jones, 180 F.3d 923, 38 U.C.C. Rep. Serv. 2d 1110 (8th Cir. 1999); Minnesota Power v. Armco, Inc.,
937 F.2d 1363 (8th Cir. 1991) (applying Minnesota law); Harper v. Delaware Valley Broadcasters, Inc., 743
F. Supp. 1076 (D. Del. 1990), afl'd, 932 F.2d 959 (3d Cir. 1991) (applying Delaware law)
Del.
Harper v. Delaware Valley Broadcasters, Inc., 743 F. Supp. 1076 (D. Del. 1990), afl'd, 932 F.2d 959 (3d
Cir. 1991)
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§ 41.Theory and factors warranting piercing the corporate veil, 1 Fletcher Cyc. Corp.§ 41
End of Document
Ind.
AGS Capital Corp., Inc. v. Product Action Intern., LLC, 884 N.E.2d 294 (Ind. Ct. App. 2008) (where prima
facie showing of misuse of corporate form for fraud or to promote injustice was made, sister corporation
was subject to a preliminary injunction)
Minn.
Minnesota Power v. Armco, Inc., 937 F.2d 1363 (8th Cir. 1991) (veil pierced)
Mo.
State v. Garrette, 699 S.W.2d 468 (Mo. Ct. App. S.D. 1985)
N.M.
Scott v. AZL Resources, Inc., 1988-NMSC-028, 107 N.M. 118, 753 P.2d 897 (1988)
Purpose of piercing corporate veil, see§ 41.20; equitable basis ofremedy, see§ 41.25.
© 2021 Thomson Reuters. No claim to original U.S. Government
Works.
WESTLAW © 2021 Thomson Reuters. No claim to original U.S. Government Works. Annex 393 25
ANNEX394
INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES
In the Matter of the Arbitration between
TSA SPECTRUM DE ARGENTINA S.A.
Claimant
V.
ARGENTINE REPUBLIC
Respondent
ICSID Case No. ARB/05/5
AWARD
Members of the Tribunal:
Judge Hans Danelius, President
Professor Georges Abi-Saab, Arbitrator
Mr. Grant D. Aldonas, Arbitrator
Secretary of the Tribunal: Ms. Natali Sequeira
Representing the Claimant:
Mr. R. Doak Bishop,
Mr. Craig S. Miles
Mr. Roberto Aguirre Luzi
Ms. Silvia Marchili
Mr. Ben Love
King & Spalding L.L.P.
1100 Louisiana St., Suite 4000,
Houston, Texas 77002, USA
Representing the Respondent:
Mr. Osvaldo Cesar Guglielmino
Procurador def Tesoro de la Nacion Argentina
Procuraci6n del Tesoro de la Nacion
Posadas 1641 ( 1121 ), Buenos Aires
Argentina
Date of Dispatch to the Parties: December 19, 2008
Annex 394
TABLE OF CONTENTS
I. SUMMARY OF THE FACTS ............................................................................................... 2
A. The Concession ............................................................................................................. 2
B. Criminal investigations ................................................................................................. 5
II. THE ICSID CONVENTION AND THE BIT ........................................................................ 5
III. PROCEDURAL HISTORY ................................................................................................. 11
IV. CLAIMS AND WRISDICTIONAL ISSUES ...................................................................... 13
V. FIRST ISSUE OF ruRISDICTION ..................................................................................... 15
A. The parties' arguments ................................................................................................ 15
1. The Argentine Republic .................................................................................... 15
2. TSA ................................................................................................................... 17
B. The Arbitral Tribunal's findings ................................................................................ .19
VI. SECOND ISSUE OF ruRISDICTION ............................................................................... .23
A. The parties' arguments ................................................................................................ 23
1. The Argentine Republic .................................................................................... 23
2. TSA ................................................................................................................... 26
B. The Arbitral Tribunal's findings ................................................................................. 30
VII. THIRD ISSUE OF ruRISDICTION .................................................................................... 34
A. The parties' arguments ................................................................................................ 34
1. The Argentine Republic .................................................................................... 34
2. TSA ................................................................................................................... 36
B. The Arbitral Tribunal's findings ................................................................................. 39
VIII. FOURTH ISSUE OF ruRISDICTION ............................................................................... .47
A. The parties' arguments ................................................................................................ 47
1. The Argentine Republic .................................................................................... 4 7
2. TSA ................................................................................................................... 49
B. The Arbitral Tribunal's findings ................................................................................. 50
IX. COSTS .................................................................................................................................. 51
X. AWARD ............................................................................................................................... 52
Annex 394
Indonesia37 , ADC Affiliate Limited and ADC & ADMC Management Limited v. Republic
of Hungary38, Tokios Tokeles v. Ukraine39 ). In a recent case - Rompetrol Group NV v.
Romania40 - the fact that there was a Romanian majority shareholding in a Dutch
company was not considered an obstacle to bringing proceedings against Romania under
the rules of the ICSID Convention and the Dutch-Romanian bilateral investment treaty.
132. Alternatively, even if the Tribunal (i) decides to analyse the nationality of all of the
companies that directly or indirectly own TSA's shares, and (ii) interprets the terms
"foreign control" on the date before the dispute arose as meaning "effective foreign
control" or as requiring the last controlling company in the ownership chain to be foreign,
TSA would still fulfil the "foreign control" requirement.
B. THE ARBITRAL TRIBUNAL'S FINDINGS
133. The Arbitral Tribunal will start its examination on this point by analyzing Article 25(2)(b)
of the ICSID Convention and then proceed to a consideration of its application in the
circumstances of the present case and taking into account the contents of the BIT between
Argentina and the Netherlands.
L Article 25(2)(b) of the ICSID Convention
134. Article 25 of the ICSID Convention defines the ambit of ICSID's jurisdiction. In other
words, it defines the extent, hence also the objective limits, of this jurisdiction (including
the jurisdiction of tribunals established therein) which cannot be extended or derogated
from even by agreement of the Parties.
135. In respect of Article 25(2)(b) of the ICSID Convention, which is the prov1s10n of
particular interest in the present case, Aron Broches has stated as follows:
"The purpose of that provision, as well as of Article 25(1 ), is to indicate
37 ICSID Case No. ARB/81/1, Decision on Jurisdiction, 25 September 1983, para. 14.
38 ICSID Case No. ARB/03/16, Award, 2 October 2006, paras. 335, 337, 342, 343 and 357.
39 See supra note 34, at paras 22, 36 and 46.
40 ICSID Case No. ARB/06/3, Decision on Preliminary Objections on Jurisdiction and Admissibility, 18 April 2008,
paras. 81-85, 93 and 110.
39
Annex 394
the outer limits within which disputes may be submitted to conciliation
or arbitration under the auspices of the Centre with the consent of the
parties thereto." 41
136. The objective character of these limits has been noted by several ICSID Tribunals
(Vacuum Salt Products Ltd v. Republic of Ghana42 , and Rompetrol Group NV v.
Romania: "reflects objective 'outer limits' beyond which party consent would be
ineffective"43).
137. ICSID and the Convention establishing it have for sole purpose and function, as their very
title indicates, "the settlement of investment disputes between States and nationals of
other States".
138. Article 25(2)(b) defines the juridical persons that can have access to ICSID as "nationals
of another Contracting State", classifying them in two categories :
(i) "any juridical person which had the nationality of a Contracting State other than
the State party to the dispute on the date on which the parties consented to submit
such dispute to conciliation or arbitration", and
(ii) "any juridical person which had the nationality of the Contracting State party to
the dispute on that date and which, because of foreign control, the parties have
agreed should be treated as a national of another Contracting State for the
purposes of this Convention".
139. The second clause of Article 25(2)(b) introduces a significant exception to one of the
major premises of the Convention (which also reflects a general principle of international
law), i.e. that it deals exclusively with disputes between parties of diverse nationalities, to
the exclusion of those between a State and its own national investors. The ratio legis of
this exception is the wording "because of foreign control". Foreign control is thus the
objective factor on which turns the applicability of this provision. It justifies the extension
41 Broches, Academy oflntemational Law, Recueil des cours, vol. 136 [1973 II].
42 See supra note 31, at paras. 36-38.
43 See supra note 40, at para. 80.
40
Annex 394
of the ambit of ICSID, but sets the objective limits of the exception at the same time. As
was stated in Vacuum Salt Products Ltd v. Republic of Ghana, "[t]he reference in Article
25(2)(b) to 'foreign control' necessarily sets an objective Convention limit beyond which
ICSID jurisdiction cannot exist".
140. A significant difference between the two clauses of Article 25(2)(b) is that the first uses a
formal legal criterion, that of nationality, whilst the second uses a material or objective
criterion, that of "foreign control" in order to pierce the corporate veil and reach for the
reality behind the cover of nationality.
141. Once the Parties have agreed to the use of the latter criterion for juridical persons having
the nationality of the host State, they are bound by this criterion as a condition for ICSID
jurisdiction and cannot extend that jurisdiction by other agreements.
142. In this respect, Professor Schreuer, after surveying the case-law, states:
"These cases, especially Vacuum Salt, make it abundantly clear that
foreign control at the time of consent is an objective requirement which
must be examined by the tribunal in order to establish jurisdiction". 44
143. The question as to whether, or to what extent, the corporate veil should be pierced or
lifted in the application of Article 25(2)(b) of the ICSID Convention presents itself in a
different light and can lead to different solutions, depending on whether the case falls
under the first or the second clause of this provision.
144. The first clause of Article 25(2)(b) mentions only the "nationality" of a Contracting State
other than the State party to the dispute. In other words, it uses as a criterion the formal
legal concept of nationality, which for legal persons is determined by one of the two
generally accepted criteria of the place of incorporation or the seat (siege social) of the
corporation. There is no reference here to "control", whether foreign or other, nor any
mention of "piercing" or looking beyond this nationality.
44 Schreuer, The ICSID Convention: A Commentary, p. 312, para. 548.
41
Annex 394
145. This text may be interpreted in a strict constructionist manner to mean that a tribunal has
to go always by the formal nationality. On the other hand, such a strict literal
interpretation may appear to go against common sense in some circumstances, especially
when the formal nationality covers a corporate entity controlled directly or indirectly by
persons of the same nationality as the host State.
146. In the two cases of Tokios Tokeles v. Ukraine and Rompetrol Group N V. v. Romania, the
Tribunals adopted the strict constructionist interpretation in spite of the control of the
foreign companies by nationals of the host States. However, this interpretation has not
been generally accepted and was also criticised by the dissenting President of the Tokios
Tokeles Tribunal.
147. The situation is different, however, when it comes to the second clause of Article 25(2)(b)
of the Convention. Here, the text itself allows the parties to agree to lift the corporate veil,
but only "because of foreign control", which justifies, but at the same time conditions, this
exception. Although the text refers to juridical persons holding the nationality of the host
State that the parties have agreed should be treated as nationals of another contracting
State "because of foreign control", the existence and materiality of this foreign control
have to be objectively proven in order for them to establish ICSID jurisdiction by their
agreement. It would not be consistent with the text, if the tribunal, when establishing
whether there is foreign control, would be directed to pierce the veil of the corporate
entity national of the host State and to stop short at the second corporate layer it meets,
rather than pursuing its objective identification of foreign control up to its real source,
using the same criterion with which it started.
148. However, in cases falling within the second clause of Article 25(2)(b), ICSID tribunals
have not been constant in dealing with this issue of whether or not to pierce the second
corporate layer after the one bearing the nationality of the host State, in identifying
foreign control. In AMCO and others v. Republic of Indonesia, Autopista Concesionada
de Venezuela, CA. v. Bolivarian Republic of Venezuela and Aguas def Tunari v. Republic
of Bolivia, the Tribunals refused to lift the veil beyond the first layer or rung of the
42
Annex 394
corporate ladder (bearing the nationality of the host State). On the other hand, the
Tribunals in Societe Ouest Africaine des Betons Industriels (SOABI) v. Senegal45 and,
most recently, African Holding Company of America and Societe Africaine de
Construction au Congo S.A.R.L. v. Republic of Congo 46 did not hesitate to pierce the
successive corporate layers in identifying foreign control and the nationality of those
holding it.
149. It is to be noted that in all these cases what was at issue was not the objective existence of
foreign control, which was not contested by the host State, but the nationality of this
foreign control.
150. In only one other case, Vacuum Salt Products Ltd v. Republic of Ghana, was the question
of the existence and reality of "foreign control" raised, i.e. the question whether the
company, formally national of the host State, was indeed under "foreign control" or
whether it remained, directly or indirectly, in the hands of nationals of the host State and
thus fell outside the objective bounds ofICSID'sjurisdiction under Article 25(2)(b).
151. Indeed, in that case, the Claimant deduced from a jurisdictional clause referring to ICSID
in the contract that the parties - Vacuum Salt Products Ltd., which was incorporated
under Ghanaian law, and the Government of Ghana - had agreed to treat the Company
"as a foreign national", i.e. that they had recognised the existence of "foreign control"
under the second clause of Article 25(2)(b ). The Tribunal considered that such an
agreement only "raises a rebuttable presumption that the 'foreign control' criterion of the
second clause of Article 25(2)(b) has been satisfied on the date of consent"47 . Thereupon,
the Tribunal proceeded to a thorough examination of the facts of the case, to reach the
conclusion that the presumption was rebutted, i.e. that the criterion of foreign control was
not satisfied, and dismissed the case for lack of jurisdiction.
45 ICSID Case No. ARB/82/1, Decision on Jurisdiction, 19 July 1984.
46 ICSID Case No. ARB/05/21, Award, 29 July 2008.
47 See supra note 31, at para. 38.
43
Annex 394
152. Writers and commentators are also divided on the issue of piercing the corporate veil
under Article 25(2)(b) in general. But a majority appear to favour piercing the veil and
going for the real control and nationality of controllers48 .
153. The reasons for piercing of the corporate veil up to the real source of control is a fortiori
more compelling under the second clause of Article 25(2)(b) when ultimate control is
alleged to be in the hands of nationals of the host State, whose formal nationality is also
that of the Claimant corporation. Thus, Professor Schreuer concludes his analysis with the
following rhetorical question: "Is it sufficient for nationals of non-Contracting States or
even of the host State to set up a company of convenience in a Contracting State to create
the semblance of appropriate foreign control?" And his answer is that "the better approach
would appear to be a realistic look at the true controller thereby blocking access to the
Centre for juridical persons that are controlled directly or indirectly by nationals of nonContracting
States or nationals of the host State"49 •
154. This is also why in the one case under the second clause of Article 25(2)(b) where
national control was alleged (Vacuum Salt Products Ltd. v. Republic of Ghana), the
Tribunal found the presumption of jurisdiction rebutted and declined jurisdiction. And in
no other such case up to date has an ICSID Tribunal, after setting aside the nationality of
the host State, stopped short at the second corporate layer or rung, refusing to pursue
control to its real source.
IL The Circumstances of the Case
155. TSA bases "foreign control" mainly on the interpretation of Article l(b)(iii) of the BIT
between the Netherlands and Argentina, and its Protocol which provides under B:
48 E.g. G.R. Delaune, "How to Draft an ICSID Arbitration Clause" (ICSID Rev -FIL.Jvol. 7 (1992)), p. 168 at 178;
A. Broches, "Denying ICSID's Jurisdiction : The ICSID Award in Vacuum Salt Products Ltd", Journal of
International Arbitration, vol. 13 (1996), p. 21 (Broches also presided the SOABI Tribunal); M. Hirsch, The
Arbitration Mechanism of the ICSID (1993), p. 104; Ch. Schreuer, "Access to ICSID Disputes Settlement for Locally
Incorporated Companies", in Friedleweiss, Deuters & de Waart (eds.) International Economic Law with a Human
Face (1998), p. 497; Ch. Schreuer, The ICSID Convention: A Commentary, (Commentary, op.cit., pp. 317-318,
paras. 562-563); M. Burgstaller, "Nationality of Corporate Investors and International Claims against the Investor's
own State", Journal a/World Investment and Trade, vol. 7, no 2 (Dec. 2006), p. 857.
49 Schreuer, Commentary, op.cit., p. 318 [para. 563].
44
Annex 394
"B. With reference to Article 1, paragraph b) (iii) the Contracting Party
in the territory of which the investments are undertaken may require
proof of the control invoked by the investors of the other Contracting
Party. The following facts, inter alia, shall be accepted as evidence of the
control:
i. being an affiliate of a legal person of the other Contracting Party;
ii. having a direct or indirect participation in the capital of a company
higher than 49% or the direct or indirect possession of the necessary
votes to obtain a predominant position in assemblies or company
organs."
156. However, the provisions of the BIT cannot provide ICSID jurisdiction unless the
conditions of Article 25(2)(b) of the ICSID Convention are satisfied. In this sense, the
Vacuum Salt Products Ltd v. Republic of Ghana Tribunal stated:
"( ... ) the parties' agreement to treat Claimant as a foreign national
'because of foreign control' does not ipso Jure confer jurisdiction. The
reference in Article 25(2)(b) to 'foreign control' necessarily sets an
objective Convention limit beyond which ICSID jurisdiction cannot exist
and parties therefore lack power to invoke same no matter how devoutly
they may have desired to do so."50
157. What is decisive is therefore whether the circumstances are such that TSA, although it is
an Argentinian juridical person, can base jurisdiction on the second clause of Article
25(2)(b) of the ICSID Convention.
158. TSA argues in this respect that the shares of TSA are wholly held by TSI, which is
incorporated under the law of the Netherlands and is domiciled there. It thus satisfies the
criterion of the Protocol and also Article 25(2)(b) of the Convention since the parties have
agreed in the BIT that TSA, because of TSI' s incorporation in the Netherlands and its
100% participation in TSA's capital, should be treated as a national of the Netherlands.
50 See supra note 31, at para. 36.
45
Annex 394
159. The Argentine Republic argues that TSA does not fulfil the conditions in Article 25(2)(b)
of the ICSID Convention for being treated as a national of the Netherlands, since it
appears from the information provided by TSA that at all possible critical dates ( the
request of arbitration, the consent to jurisdiction, the origin of the dispute), TSI was
controlled by an Argentinian national, Mr. Jorge Justo Neuss, who held, directly or
indirectly, a majority of its shares, starting with 51 %, increasing over time to near totality.
Therefore, TSA was not under foreign control and cannot be "treated as a national of
another Contracting State". The case must therefore be dismissed for lack of jurisdiction.
160. The Tribunal has found above that in the application of the second part of Article 25(2)(b)
it is necessary to pierce the corporate veil and establish whether or not the domestic
company was objectively under foreign control. It also appears from the text of Article
25(2)(b) that the relevant date is the date on which the parties consented to submit the
dispute to arbitration. In a letter of 10 December 2004 to the President of the Argentine
Republic, TSA consented to ICSID arbitration on the basis of the BIT which means that
on that date both parties had consented to arbitration.
161. TSA has submitted a chart showing that at the time of the notice of the dispute, on 16
December 2004, thus close to the date of consent, TSA, via other companies, was wholly
owned by TH Operations International NV (THOP) and that the owner of THOP's shares
was Mr. Jorge Justo Neuss, a German-Argentinian citizen. TSA contends, however, that
Mr. Jean-Nicolas d' Ancezune, a French citizen, has rights to 75% of THOP's shares
through a "fiduciary encumbrance" agreed to by Mr. Neuss, who continues all the same to
hold the shares on his behalf. In spite of questions put to TSA (and to Mr. d'Ancezune
during his witness statement) about the arrangements made with Mr. d' Ancezune and the
nature of the "fiduciary encumbrance", only scant information - and no corroborating
evidence - was provided. TSA' s contention in this regard thus remains vague and
unproven, and there is no evidence that TSA was, at the time of consent, under the real
control of Mr. d' Ancezune who, moreover, is not a Dutch but a French citizen.
162. The only conclusion that can be drawn from the information and evidence available to the
Tribunal is thus that the ultimate owner of TSA on and around the date of consent was the
Argentinian citizen Mr. Jorge Justo Neuss. It therefore follows that, whatever
46
Annex 394
interpretation is given to the BIT between Argentina and the Netherlands, including the
Protocol to the BIT, TSA cannot be treated, for the purposes of Article 25(2)(b) of the
ICSID Convention, as a national of the Netherlands because of absence of "foreign
control" and that the Arbitral Tribunal therefore lacks jurisdiction to examine TSA's
claims.
VIII. FOURTH ISSUE OF JURISDICTION
A. THE PARTIES' ARGUMENTS
1. The Argentine Republic
163. The Arbitral Tribunal's competence is outlined by Article 25(1) of the ICSID Convention
in which the term "investment" is not defined. The BIT is the instrument in which the
parties gave their consent and determined what kind of investment could be submitted to
the ICSID jurisdiction. Article l(a) of the BIT requires that an asset, in order to be
protected, must have been invested in accordance with the laws and regulations of the
relevant Contracting Party. An investment made in violation of such laws and regulations
shall not be considered an investment for the purposes of the BIT.
164. An investment made by illegal means such as corruption cannot be considered to have
been made in accordance with the laws and regulations of the host state. TSA is being
investigated in Argentina for corruption in regard to the awarding of the Concession
Contract in June 1997. A criminal accusation was filed on 16 July 2001 by the
Anticorruption Office. There was a partial acquittal but it was annulled by the Court of
Appeals on 15 November 2005. On 26 February 2008, several public officials as well as
Mr. Jorge Justo Neuss and Mr. Jean Nicolas d' Ancezune were charged with criminal
offences in connection with the awarding of the Concession to TSA.
165. There have been extensive press reports on corruption in connection with the Concession,
and a certain Mr. Lionel Queudot has made accusations against TSA. It is possible to note
the existence of bribery and/or corruption involving company officials and Argentine
public officers. Argentina considers the existence of events proven which confirm the
47
Annex 394
ANNEX 395
Wolters Kluwer
Document information
Publication
International Commercial
Arbitration (Second
Edition)
Bibliographic
reference
'Chapter 10: Parties to
International Arbitration
Agreements', in Gary B.
Born, International
Commercial Arbitration
(Second Edition), 2nd
edition(© Kluwer Law
International; Kluwer Law
International 2014) pp.
1404 -1524
KluwerArbitration
Chapter 10: Parties to International Arbitration
Agreements
[Chapter 10] (1)
P 1405 • An issue which arises recurrently in connection with the enforcement of international
arbitration agreements is the identity of the parties to such agreements: what entities •
are bound by, and what entities may invoke, an international arbitration agreement? This
p 1406 Chapter addresses these issues.
The Chapter first discusses the basic princi pie that international arbitration agreements
are, as consensual instruments, binding only on the parties to such agreements. Second,
the Chapter examines the various legal doctrines that have been used to give effect to
arbitration agreements as to entities that did not execute such agreements ("nonsignatories"),
including theories of agency, alter ego status (or veil piercing), "group of
companies," estoppel, guarantor relations, third party beneficiary rights, succession,
assignment, assumption and miscellaneous other doctrinal bases. Third, the Chapter
examines the choice-of-law rules governing the foregoing issues. Fourth, the Chapter
discusses the allocation of competence, between national courts and arbitral tribunals,
to decide disputes regarding the identity of the parties to an international arbitration
agreement. Finally, the Chapter addresses the subjects of arbitration in corporate
contexts and "class arbitrations."
§ 10.01 INTRODUCTION
As discussed above, international commercial arbitration is fundamentally consensual in
nature. (2) As a consequence, the effects of an arbitration agreement extend only to the
agreement's parties, and not to others. (3) Presumptively, and in most instances, the
parties to an arbitration agreement will be its formal signatories.
Nonetheless, as detailed below, there are a number of legal bases by which nonsignatories
may be held to be parties to - and consequently both bound and benefitted
by- an arbitration agreement. The extent to which non-signatories may be bound by an
arbitration agreement is among the most delicate and complex issues in international
commercial arbitration. (4)
[A] International Arbitration Agreements Are Binding On "Parties'' and Not Others
The principle that the rights and obligations of an arbitration agreement apply only to
the agreement's parties is a straightforward application of the doctrine of privity of
P 1407 contract, recognized in both civil and common law jurisdictions. (5) In some legal •
systems, the identity of the parties to an arbitration agreement is referred to as a
question of the "subjective" scope of the arbitration agreement or jurisdiction "rationae
personae." (6) In other legal regimes, the identity of the parties to the arbitration
agreement is characterized as a question of formation or existence of the agreement to
arbitrate. (7)
Whatever terminology is employed, the principle that only the parties to an international
arbitration agreement are either bound or benefitted by that agreement is fundamental
to international arbitration. That principle is uniformly reflected in international
arbitration conventions, national arbitration legislation, judicial decisions and arbitral
awards.
All leading international arbitration conventions adopt the non-controversial principle
that an agreement to arbitrate binds only the parties to such agreement. Article 11(1) of
the New York Convention impliedly recognizes the subjective limits on the binding nature
of arbitration agreements, providing that Contracting States "shall recognize an
agreement in writing under which the parties undertake to submit [their disputes] to
arbitration." (8) Other international conventions, including the European Convention, are
similar. (9) Each of these instruments rests on the principle that an arbitration agreement
is a contract between, and binding on, the "parties" to that agreement, and not on other
P140B persons. Equally, each ofthese instruments requires • recognition of arbitration
agreements insofar as their "parties," and not other entities, are concerned. (10)
National law also recognizes the limited subjective scope of arbitration agreements.
Article 7(1) of the UNCITRAL Model Law defines an arbitration agreement as "an
agreement by the parties to submit to arbitration all or certain disputes which have
arisen or which may arise between them." (11) Other national arbitration legislation is
similar. (12)
Even in the absence of statutory provisions to this effect, settled law in all developed
jurisdictions provides that it is the parties to an international arbitration agreement -
and not other persons -that are bound by the agreement. (13) In the words of one U.S.
judicial decision, "[a]rbitration is a matter of contract and a party cannot be required to
submit to arbitration any dispute which he has not agreed so to submit." (14) Similarly, a
recent English decision concludes: Annex 395
readily accessible to a counter-party. (95)
In principle, as with other choice-of-law issues in the context of arbitration agreements,
(96) a validation principle should apply to the effects of an agency relationship on a nonsignatory
party's status under an arbitration agreement. If either the law governing the
underlying arbitration agreement or the law governing the agency relationship would
subject the principal (or the agent) to the arbitration agreement, then the non-signatory
should be bound (and benefitted) by that agreement. This is consistent with the likely
intentions of the parties and serves more general interests in efficiency and fairness, by
centralizing disputes in a single forum. (97)
[B] Apparent or Ostensible Authority
Closely related to agency as a basis for concluding that an entity is party to an arbitration
agreement is ostensible or apparent authority. (98) This is referred to as the "principle of
appearance" or "mandat apparent" in some jurisdictions. (99)
P 1425 • Under the apparent authority theory, a party may be bound by another entity's acts
purportedly entered into on its behalf, even where those acts were unauthorized, if the
putative principal created the appearance of authorization through words or conduct,
leading a counter-party reasonably to believe that authorization actually existed. (100) In
particular, this theory of apparent authority can bind the "apparent" principal to a
contract (including an arbitration agreement) entered into putatively on its behalf by the
"apparent" agent. (101) In the words of one U.S. decision: An "agent enjoys implied
authority to enter into a transaction when verbal or other acts by a principal reasonably
P 1426 give the appearance of authority to the agent." (102) Or, from a civil • law perspective,
"[w]hat French law calls 'la theorie du mandat apparent' (the principle of apparent
authority) is generally accepted in international arbitration." (103)
This doctrine rests in part on principles of contract law and good faith, aimed at
objectively identifying the parties to a contract, but also on notions akin to estoppel and
abuse of right, which operate independently from principles of consent. (104) As
explained by one authority:
"Ostensible authority, on the other hand, derives not from any consensual
arrangement between the principal and the agent, but is founded on a
representation made by the principal to the third party which is intended to
convey, and does convey, to the third party that the arrangement entered into
under the apparent authority of the agent will be binding on the principal."
(105)
As with agency, the apparent authority doctrine raises choice-of-law issues. Possibly
applicable national laws include the law governing the arbitration agreement, (106) the
law of the state where the putative principal's or putative agent's conduct occurred, or
the law of the state where the counter-party apprehends the putative principal's conduct
or statements. (107)
There are few principled grounds for choosing among the options presented by existing
P 1427 choice-of-law rules, providing the basis for a substantial argument that a • specialized
rule of international law governing apparent authority should apply to international
arbitration agreements. (108) Such a rule would not upset private expectations (for
example, reflected in choice-of-law agreements), given that apparent authority does not
rest on principles of consent. A rule of substantive international law, governing apparent
authority, would also be consistent with the better-reasoned approach, discussed below,
to the choice of law governing estoppel in the context of international arbitration
agreements. (109)
[C] Implied Consent
As discussed above, it is not only by formal execution of an agreement, as a specifically
identified contractual party, that an entity can become a party to that agreement. Under
most developed legal systems, an entity may become a party to a contract, including an
arbitration agreement, impliedly - typically, either by conduct or non-explicit
declarations, as well as by express agreement or formal execution of an agreement. (110)
In general, ordinary principles of contract law apply to issues of implied consent (as to
other issues) with respect to arbitration agreements. (111) As discussed above, authorities
in some jurisdictions impose requirements for express consent to arbitration agreements,
but these decisions are dated and contrary to Article II and the New York Convention.
(112)
The fundamental question in the context of implied consent is whether the parties'
objective intention was that a particular entity be a party to the arbitration agreement.
Although the non-signatory's intent is often most controversial, the intention of other
parties to be bound by the agreement to arbitrate with the non-signatory is also
necessary. (113) That is, even if a non-signatory intended to be bound by the arbitration
agreement, one must also determine whether the signatory (and other) parties to the
P 1428 agreement accepted it as such: for commercial or other reasons, signatories to an •
arbitration agreement may wish to extend their obligations to arbitrate only to those
entities that have signed the agreement, and not to others.
Questions of implied consent arise in numerous factual settings. Some arbitral tribunals
Annex 395
have held that negotiation and /or performance of some or all of the obligations of a
contract, even when unsigned by a counter-party, can bind a party to that agreement,
including its arbitration provision. (114) As one award reasoned, the "scope of an
arbitration clause may be extended to non-signatory companies with separate legal
[existence] only if they played an active role in the negotiations leading to the clause, or
if they are directly implicated in the agreement." (115)
Other tribunals have held that a company's awareness of a contract (including an
arbitration clause) between other parties, and its confirmation of one aspect of the
underlying contract, does not necessarily make the company a party to the arbitration
clause. (116) In general, arbitral awards have also held that merely incidental
involvement in contractual performance is insufficient to constitute consent to the
underlying contract, or its arbitration clause. (117)
National courts have adopted similar approaches to issues of implied consent to an
international arbitration agreement. Where a party conducts itself as if it were a party to
a commercial contract, by playing a substantial role in negotiations and/or performance
of the contract, it may be held to have impliedly consented to be bound by the contract.
P 1429 (118) In the words of the Swiss Federal Tribunal, "a third party who • interferes in the
execution of the contract containing the arbitration agreement is deemed to have
accepted it, by way of conclusive acts." (119) Again, however, merely incidental
involvement in negotiations or performance is consistently held to be insufficient to
constitute implied consent to be bound by the contract, or its arbitration clause. (120)
Implied consent to be bound by the arbitration clause in one contract can also be
inferred from a party's conclusion of a related agreement. (121) This type of analysis has
P 1430 • close parallels to the incorporation of arbitration agreements by reference, which is
discussed above, (122) and which some courts have referred to as a basis for binding a
non-signatory to an arbitration agreement. (123)
As with other non-signatory issues, it is essential to consider questions of imp lied consent
to an arbitration agreement in the context of the separability presumption. As discussed
above, it is a party's implied consent to arbitrate - not to deliver or purchase goods -
that is decisive. (124)
Nonetheless, in most instances, a party's consent to the underlying contract will carry
with it consent to the associated arbitration clause, just as a party's formal execution of
the underlying contract carries with it consent to the arbitration agreement; there are
circumstances where this will not be the case, but these are exceptional. (125) Again,
negotiation or involvement in performance of only isolated aspects ofa contract is less
likely to constitute consent to the arbitration clause than broad involvement in many or
central aspects of the contractual relationship.
There are also instances in which a party's conduct after a dispute arises evidences its
implied consent to an arbitration clause. A classic example of such consent is where a
non-signatory party affirmatively invokes an arbitration clause or fails to object when
another party invokes the clause against it (126) (with this factual scenario often also
being considered under principles of estoppel (127) ). It remains essential, however, that
all the relevant parties agree to a non-signatory's inclusion as a party to the arbitration
agreement. (128)
P 1431 • As with other non-signatory doctrines, questions of implied consent raise choice-of-law
issues. Questions of implied consent should be governed by the law applicable to the
arbitration agreement, as is the case with other questions of interpretation and
formation. (129) Given the contractual character of the implied consent doctrine, this
approach is in keeping with private expectations. (130)
U.S. courts are divided with regard to the choice of law governing implied consent. Some
courts have applied principles of federal common law, (131) while other courts have
applied state (or foreign) law, particularly when the parties' agreement contains a
choice-of-law provision. (132) A few U.S. courts have concluded that, when a non-signatory
objects to being subjected to an arbitration clause, the existence of consent on its part is
governed by federal common law, while the question of consent by a non-signatory who
seeks to invoke an arbitration clause is governed by any choice-of-law agreement
associated with the clause. (133)
[D] Alter Ego and Veil-Piercing (134)
P 1432 • Authorities from virtually all jurisdictions hold that a party who has not assented to a
contract containing an arbitration clause may nonetheless be bound by the clause if that
party is an "alter ego" of an entity that did execute, or was otherwise a party to, the
agreement. This is a significant, but exceptional, departure from ''the fundamental
principle ... that each company in a group of companies (a relatively modern concept) is a
separate legal entity possessed of separate rights and liabilities." (135)
The alter ego doctrine is referred to in German as "Durchgriff," (136) in French as "levee du
voile social," (137) in Spanish as "levantamiento del veto societario" (138) and in many
English language contexts as "piercing" or "lifting'' the "corporate veil." (139) As discussed
below, whatever the terminology, the veil-piercing doctrine has broadly similar elements
in most jurisdictions, at least in the context of international arbitration agreements.
The International Court of Justice explained the veil-piercing doctrine in Barcelona
Traction as follows:
Annex 395
"the process of'liftingthe corporate veil' or 'disregarding the legal entity' has
been found justified and equitable in certain circumstances or for certain
purposes. The wealth of practice already accumulated on the subject in
municipal law indicates that the veil is lifted, for instance, to prevent misuse
of the privileges of legal personality, as in certain cases of fraud or
malfeasance, to protect third persons such as creditor or purchaser, or to
prevent the evasion of legal requirements or of obligations." (140)
Definitions of"alter ego" vary materially in different legal systems, and are applied in a
number of different contexts. Nonetheless, the essential theory of the "alter ego" doctrine
in most jurisdictions is that one party so strongly dominates the affairs of another party,
and has sufficiently misused such control, that it is appropriate to disregard the two
companies' separate legal forms, and to treat them as a single entity. In the context of
P 1433 arbitration agreements, demonstrating an "alter ego" relationship • under most
developed legal systems requires convincing evidence that one entity dominated the
day-to-day actions of another and /or that it exercised this power to work fraud or other
injustice or inequity on a third party or to evade statutory or other legal obligations.
The "alter ego" doctrine differs from principles of agency or imp lied consent, in that the
parties' intentions are not decisive; rather, the doctrine rests on overriding
considerations of equity and fairness, which mandate disregarding an entity's separate
legal identity in specified circumstances. (141) In the words of one arbitral award,
"[e]quity, in common with the principles of international law, allows the corporate veil to
be lifted, in order to protect third parties against an abuse which would be to their
detriment." (142) Or, as a U.S. judicial decision reasoned: "The concept of'piercingthe
corporate veil' is equitable in nature and courts will pierce the corporate veil 'to achieve
justice, equity, to remedy or avoid fraud or wrongdoing, orto impose a just liability."'
(143)
Many national courts have been circumspect in applying the alter ego doctrine. (144) In
England, an alter ego relationship may be found where the corporate structure is used to
evade mandatory legal obligations or the enforcement of existing and legitimate third
P 1434 party rights. (145) This standard generally requires fraud or other misconduct •
calculated to avoid or conceal liability through the use of company structure. (146) In a
frequently-cited decision, an English court declared:
"English law insists on recognition of the distinct legal personality of
companies unless the relevant contract or legislation requires or permits a
broad interpretation to be given to references to members of a group of
companies or the legal personality is a mere fai;ade or sham or unlawful
device." (147)
The court emphasized that it is legitimate to structure a corporate group so as to allocate
risk between members of the group and limit the liability of particular companies:
"we do not accept as a matter of law that the court is entitled to lift the
corporate veil as against a defendant which is the member of a corporate
group merely because the corporate structure has been used to ensure that
the legal liability (if any) in respect of particular future activities of the group
(and correspondingly the risk of enforcement of that liability) will fall on
another member of the group rather than the defendant company. Whether or
not this is desirable, the right to use a corporate structure in this manner is
inherent in our corporate law." (148)
Likewise, Swiss courts (149) and tribunals applying Swiss law (150) only disregard the
corporate form in exceptional circumstances, amounting to fraud or an abuse of right. In
the words of a leading Swiss commentator:
P 1435 • "Swiss law ... is resolutely committed to the legal independence of the
company in relation to its sole shareholder or of the subsidiary in relation to
the parent company. It will only be disregarded in exceptional circumstances,
where the fact ofresortingto such a subsidiary to escape one's obligations
would amount to fraud or to a patent abuse of right." (151)
German courts are also cautious in applying veil-piercing (Durchgriff) theories, (152)
requiring fraud or other misconduct. (153) Indeed, some German authorities question
(wrongly) whether the veil-piercing theory, which is traditionally used for purposes of
substantive liability, may ever be used to bind non-signatories to arbitration
agreements. (154)
While also relying on a potentially expansive "group of companies" theory (discussed
below), (155) French courts appear willing, often without clearly distinguishing the
doctrines, (156) to disregard corporate identities in cases amounting to fraud. (157) Courts
in Canada, (158) Ireland, (159) the Netherlands, (160) Korea, (161) Hong Kong (162) and
China (163) are also prepared to pierce the corporate veil, at least in some
circumstances.
P 1436 • U.S. courts have often been more willing than many other authorities to apply an alter
ego analysis to subject a non-signatory to an arbitration agreement. (164) According to
one U.S. decision:
Annex 395
"To apply the alter ego doctrine to justify the disregard of a corporate entity,
the court must determine that there is such unity of interest and ownership
that separate personalities of the corporations no longer exist, and that
failure to disregard the corporate form would result in fraud or injustice." (165)
Even in U.S. courts, the standard for establishing alter ego status is ordinarily difficult to
satisfy. The starting point is a strong presumption that a parent corporation and its
affiliates are legally separate and distinct entities. (166) In the memorable words of one
early authority:
P 1437 • "Normally, the corporation is an insulator from liability on claims of
creditors .... Limited liability is the rule not the exception; and on that
assumption large undertakings are rested, vast enterprises are launched, and
huge sums of capital attracted." (167)
Many U.S. courts have also held that piercing the corporate veil is an exceptional action,
in both international and other contexts, requiring persuasive evidence to overcome the
separate corporate identities of the parties. (168) The existence of overlapping boards of
directors and management, 100% share ownership and common corporate logos or
trademarks are not sufficient to establish (or even particularly probative of) alter ego
status. (169) Similarly, undercapitalization of a company is not sufficient, independently,
to justify piercing the corporate veil. (170)
Most U.S. courts have held that overcoming the presumption of separateness requires
showing: (a) the domination of a corporate affiliate, including disregard of corporate
formalities, such that it has no separate identity or existence, (171) and (b) fraudulent or
P 1438 collusive misuse of that control, or equivalent misconduct, to the injury of other •
parties. (172) In cases of complete domination or control ofone company's day-to-day
activities by another company, this may in some circumstances be independently
sufficient to pierce the corporate veil. (173)
U.S. judicial decisions have generally conducted fairly extensive factual inquiries in
deciding claims of domination or control. (174) Different U.S. authorities have identified a
variety offactors that are relevant to an inquiry into control for purposes of alter ego
status. (175) For example, in a recent U.S. decision arising from the attempted recognition
ofan international arbitral award, the court identified fifteen "private law" factors, which
it described as always "concerned with reality and not form":
"(1) the parent and subsidiary have common stock ownership; (2) the parent
and subsidiary have common directors or officers; (3) the parent and
subsidiary have common business departments; (4) the parent and subsidiary
file consolidated financial statements; (5) the parent finances the subsidiary;
P 1439 (6) the parent caused the incorporation of the subsidiary; (7) the subsidiary •
operated with grossly inadequate capital; (8) the parent pays salaries and
other expenses of the subsidiary; (9) the subsidiary receives no business
except that given by the parent; (10) the parent uses the subsidiary's property
as its own; (11) the daily operations of the two corporations are not kept
separate; (12) the subsidiary does not observe corporate formalities ... (13)
whether the directors of the 'subsidiary' act in the primary and independent
interest of the 'parent'; (14) whether others pay or guarantee debts of the
dominated corporation; and (15) whether the alleged dominator deals with the
dominated corporations at arm's length." (176)
Assessing these various factors, the court held that a foreign state-owned entity was not
financially independent from the foreign state that owned it (Turkmenistan), and that the
foreign state's intentional "bleeding [of] a subsidiary to thwart creditors is a classic
ground for piercing the corporate veil." (177) The court also noted that
"[u]ndercapitalization is often critical in alter ego analysis." (178)
As noted above, many U.S. courts have held that there must be a showing of fraud or
other wrongful or inequitable conduct in order to bind a non-signatory to an arbitration
agreement. (179) As explained by one U.S. court: "While complete domination of the
corporation is the key to piercing the corporate veil, ... such domination, standing alone, is
not enough; some showing of a wrongful or unjust act toward plaintiff is required." (180)
Other courts have expressed the same view, (181) although a considerable body of
P 1440 authority holds that, in some circumstances, • sufficiently extensive day-to-day control
or domination is sufficient to pierce the corporate veil. (182)
Typically, alter ego status can only be established with respect to an entity or person
which owns shares (directly or indirectly), or holds a corporate position, in a company.
Nonetheless, in unusual cases, other sorts of control relationships or corporate
affiliations have been regarded as sufficient to establish alter ego status. (183)
International arbitral tribunals have also generally been circumspect in applying alter
ego theories. Most awards have required persuasive evidence ofoverlapping ownership,
management and (often) involvement in negotiation and performance of the contract, as
well as (occasionally) affirmative statements that the affiliated company is involved in
the transactions in question. (184) Use of a common logo, brand, or trademark is
generally not a decisive factor in alter ego analysis, (185) nor is the mere fact of
overlapping management or supervisory boards or shared employees. (186) On the other
P 1441 hand, fraudulent or similarly abusive misconduct, (187) undercapitalization ofa •
Annex 395
corporate body, (188) deliberate tortious actions, (189) or siphoning off of assets
(resulting in undercapitalization) (190) are strong indicators of an alter ego relationship.
Some awards have also relied on the existence of reasonable, good faith mistake or
confusion as to the identity or character of a counter-party. (191) As one tribunal
explained, in the context of an effort to subject a controlling shareholder to the
arbitration agreement:
"arbitration is essentially based upon the principle of consent. So too, any
extension of the scope of application of the arbitration clause must have a
voluntary basis. Of course, such an intention can be merely implicit, otherwise
any discussion of extension would have no meaning .... [T]he fact that two
companies belong to the same group, or that a shareholder has a dominant
position, are never sufficient, in and of themselves, to legally justify lifting the
P 1442 • corporate veil. ... One would entertain this exception where confusion is
fostered by the group or by the majority shareholder .... An arbitrating body must
be very circumspect in matters of extending the effect of a clause to a director
or manager who has acted strictly in an official capacity. Any such extension
presupposes that the artificial person has been no more than the business
implement of the natural person, so that one can ascribe to the natural person
the contracts and undertakings signed by the artificial person." (192)
Other awards have emphasized the importance of principles of good faith in conducting
an alter ego analysis. (193) This approach parallels that of most national courts
(summarized above) (194) and the expectations of parties engaged in international
commercial transactions, being to give effect to corporate forms, save in exceptional
cases.
As with other non-signatory theories, the critical question in the alter ego context is
whether one party's relationship with another justifies treating it as a party to the
agreement to arbitrate (not the underlying contract). (195) There may, for example, be
instances where one party's domination of another party's participation in a particular
transaction (or in an arbitration) results in it being bound by the associated agreement to
arbitrate, notwithstanding the absence of any such control or alter ego relationship more
generally. More frequently, however, an alter ego relationship will exist with regard to a
particular commercial contract or relationship, which will also be applied with regard to
the associated arbitration agreement. (196)
Finally, as with other bases for binding non-signatories to arbitration agreements,
questions of alter ego status and veil piercing raise choice-of-law questions. Various
authorities have applied the law of the state of incorporation of a company, (197) or the
law governing the arbitration agreement, (198) or the law governing the underlying
contract, (199) to the question whether the company's corporate veil may be pierced. The
P 1443 • weight of authority rejects these analyses, (200) instead applying either international
principles (201) or general principles of law. (202)
Thus, a leading U.S. Supreme Court decision held that the question whether to pierce the
veil of a Cuban state-owned company was governed by principles of international law
(rather than Cuban law). (203) The Court reasoned:
P 1444 • 'To give conclusive effectto the law of the chartering state in determining
whether the separate juridical status of its instrumentality should be
respected would permit the state to violate with impunity the rights of third
parties under international law while effectively insulating itselffrom liability
in foreign courts." (204)
Accordingly, the Court applied veil-piercing principles "common to both international
law and federal common law" (20S)(reflecting an approach bearing some similarities to
the "cumulative" choice-of-law analyses adopted in a number of contemporary arbitral
awards): (206)
"Our decision today announces no mechanical formula for determining the
circumstances under which the normally separate juridical status of a
government instrumentality isto be disregarded. Instead, it is the product of
the application of internationally recognized equitable principles to avoid the
injustice." (207)
This authority is persuasive, and applies more broadly to veil-piercing issues arising in
determining whether either state or non-state entities are parties to an international
arbitration. As with the doctrines of apparent authority and estoppel, (208) it is artificial
to select the law of any particular national jurisdiction to define those circumstances in
which basic principles offairness and good faith in international business dealings
require disregarding a corporate identity conferred by national law and subjecting a
party to an international arbitration agreement. Rather, uniform international principles
better achieve the purposes of the veil piercing doctrine, without materially interfering
with the parties' expectations. (209)
[E] "Group of Companies'' Doctrine (210)
P 1445 • Another significant, but controversial, basis for binding non-signatories to an
arbitration agreement is the "group of companies" doctrine. Under this principle, non-
Annex 395
ANNEX396
GE Energy Power Conversion France SAS, Corp. v .... , 140 S.Ct. 1637 (2020)
207 L.Ed.2d 1, 20 Cal. Daily Op. Serv. 4741, 2020 Daily Journal DAR. 5215 ...
140 S.Ct. 1637
Supreme Court of the United States.
GE ENERGY POWER CONVERSION
FRANCE SAS, CORP., tka Converteam
SAS, Petitioner
v.
OUTOKUMPU STAINLESS USA, LLC, et
al.
Synopsis
No. 18-1048
I
Argued January 21, 2020
I
Decided June 1, 2020
Background: Buyer of cold rolling mills for steel plant
brought action in state court against supplier that provided
motors for mills to seller of mills. Supplier removed
action to federal court. The United States District Court
for the Southern District of Alabama, No.
1:16-cv-00378-KD-C, Kristi K. DuBose, J., 2016 WL
7422675, adopted report and recommendation of William
E. Cassady, United States Magistrate Judge, 2016 WL
7423406, and denied buyer's motion to remand, and
subsequently granted supplier's motion to compel
arbitration and dismiss action, 2017 WL 401951. Buyer
appealed. The Eleventh Circuit Court of Appeals, Beth
Bloom, District Judge, sitting by designation, 902 F.3d
1316, reversed the order compelling arbitration. Certiorari
was granted.
The Supreme Court, Justice Thomas, held that the
Convention on the Recognition and Enforcement of
Foreign Arbitral Awards does not conflict with domestic
equitable estoppel doctrines that permit the enforcement
of arbitration agreements by nonsignatories, abrogating
Yang v. Majestic Blue Fisheries, LLC, 876 F.3d 996.
Reversed and remanded.
Justice Sotomayor filed a concurring opinion.
See also 2017 WL 480716.
*1640 Syllabus'
ThyssenKrupp Stainless USA, LLC, entered into three
contracts with F.L. Industries, Inc., for the construction of
cold rolling mills at ThyssenKrupp's steel manufacturing
plant in Alabama. Each contract contained a clause
requiring arbitration of any contract dispute. F.L.
Industries then entered into a subcontractor agreement
with petitioner (GE Energy) for the provision of nine
motors to power the cold rolling mills. After the motors
for the cold rolling mills allegedly failed, Outokumpu
Stainless USA, LLC (which acquired ownership of the
plant), and its insurers sued GE Energy in Alabama state
court. GE Energy removed the case to federal court under
9 U.S.C. § 205. It then moved to dismiss and compel
arbitration, relying on the arbitration clauses in the F.L.
Industries and ThyssenKrupp contracts. The District
Court granted the motion, concluding that both
Outokumpu and GE Energy were parties to the
agreement. The Eleventh Circuit reversed. It concluded
that the Convention on the Recognition and Enforcement
of Foreign Arbitral Awards (New York Convention or
Convention) allows enforcement of an arbitration
agreement only by the parties that actually signed the
agreement and that GE Energy was a nonsignatory. It also
held that allowing GE Energy to rely on state-law
equitable estoppel doctrines to enforce the arbitration
agreement would conflict with the Convention's signatory
requirement.
Held: The New York Convention does not conflict with
domestic equitable estoppel doctrines that permit the
enforcement of arbitration agreements by nonsignatories.
Pp. 1643 - 1648.
(a) Chapter 1 of the Federal Arbitration Act (FAA) does
not "alter background principles of state contract law
regarding the scope of agreements (including the question
of who is bound by them)." Arthur Andersen LLP v.
Carlisle, 556 U.S. 624, 630, 129 S.Ct. 1896, 173 L.Ed.2d
832. The " 'traditional principles' of state law" that apply
under Chapter 1 include doctrines, like equitable estoppel,
authorizing contract enforcement by a nonsignatory. Id.,
at631--632, 129 S.Ct.1896.
The New York Convention is a multilateral treaty
addressing international arbitration. One Article of the
Convention addresses arbitration agreements-Article
II-and one provision of Article II addresses the
enforcement of those agreements-Article 11(3). Article
11(3) provides that courts of a contracting state "shall ...
refer the parties to arbitration" when the parties to an
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action entered into a written agreement to arbitrate and
one of the parties requests such a referral.
Chapter 2 of the FAA grants federal courts jurisdiction
over actions governed by the Convention. As relevant
here, Chapter 2 provides that "Chapter 1 applies to actions
and proceedings brought under this chapter to the extent
that [Chapter 1] is not in conflict with this chapter or the
Convention." 9 U.S.C. § 208. Pp. 1643 - 1645.
(b) The application of familiar tools of treaty
interpretation establishes that the state-law equitable
estoppel doctrines permitted under Chapter 1 do not
"conflict with ... the Convention." § 208. Pp. 1644 -
1648.
(1) The text of the New York Convention does not
address whether nonsignatories may enforce arbitration
agreements under domestic doctrines such as equitable
estoppel. The Convention is simply silent on the issue of
nonsignatory enforcement. This silence is dispositive
because nothing in the Convention's text could be read to
conflict with the application of domestic equitable
estoppel doctrines. Article 11(3)-the only provision in the
Convention addressing the enforcement of arbitration
agreements---contains no exclusionary language; it does
not state that arbitration agreements shall be enforced only
in the identified circumstances. Given that the Convention
was drafted against the backdrop of domestic law, it
would be unnatural to read Article 11(3) to displace
domestic doctrines in the absence of such language. This
interpretation is especially appropriate because Article II
contemplates using domestic doctrines to fill gaps in the
Convention. Pp. 1644 - 1645.
(2) This interpretation is confirmed by the Convention's
negotiation and drafting history as well as " 'the
postratification understanding' of signatory nations,"
Medellin v. Texas, 552 U.S. 491, 507, 128 S.Ct. 1346, 170
L.Ed.2d 190.
Cherry-picked generalizations from the negotiating and
drafting history cannot be used to create a rule that finds
no support in the treaty's text. Here, to the extent that the
Convention's drafting history sheds any light on the
treaty's meaning, it shows only that the drafters sought to
impose baseline requirements on contracting states so that
signatories would "not be permitted to decline
enforcement of such agreements on the basis of parochial
views of their desirability or in a manner that would
diminish the mutually binding nature of the agreements."
Scherk v. Alberto-Culver Co., 417 U.S. 506, 520, n. 15,
94 S.Ct. 2449, 41 L.Ed.2d 270.
The postratification understanding of other contracting
states-as evidenced by the "[ d]ecisions of the courts of
other Convention signatories," El Al Israel Airlines, Ltd.
v. Tsui Yuan Tseng, 525 U.S. 155, 175, 119 S.Ct. 662, 142
L.Ed.2d 576, and the "postratification conduct" of
contracting state governments, Zicherman v. Korean Air
Lines Co., 516 U.S. 217,227, 116 S.Ct. 629, 133 L.Ed.2d
596-may also serve as an aid to this Court's
interpretation. Here, numerous sources indicate that the
New York Convention does not prohibit the application of
domestic law addressing the enforcement of arbitration
agreements. These sources, however, are from decades
after the finalization of the New York Convention's text
in 1958. This diminishes their value as evidence of the
original understanding of the treaty's meaning.
Finally, because the Court's textual analysis and the
Executive's interpretation of the Convention align here,
there is no need to determine whether the Executive's
understanding is entitled to ''weight" or "deference." Cf.
Edelman v. Lynchburg College, 535 U.S. 106, 114-115,
n. 8, 122 S.Ct. 1145, 152 L.Ed.2d 188. Pp. 1645 - 1648.
( c) The Court of Appeals may address on remand whether
GE Energy can enforce the arbitration clauses under
equitable estoppel principles and which body of law
governs that determination. Pp. 1647 - 1648.
902 F .3d 1316, reversed and remanded.
THOMAS, J., delivered the opinion for a unanimous
Court. SOTOMAYOR, J., filed a concurring opinion.
ON WRIT OF CERTIORARI TO THE UNITED
STATES COURT OF APPEALS FOR THE ELEVENTH
CIRCUIT
Attorneys and Law Firms
Amanda K. Rice, Jones Day, Detroit, MI, Sara Anne
Ford, Wesley B. Gilchrist, Amie A. Vague, Lightfoot,
Franklin & White, L.L.C., Birmingham, AL, Shay
Dvoretzky, Jeffrey R. Johnson, Caroline Edsall Littleton,
Benjamin J. Cassady, Jones Day, Washington, DC, for
Petitioner.
Cheri Turnage Gatlin, Burr & Forman LLP, Jackson, MS,
Melinda S. Kollross, Joseph J. Ferrini, James R.
Swinehart, Clausen Miller, P.C., Chicago, IL, Jonathan D.
Hacker, Samantha M. Goldstein, O'Melveny & Myers
LLP, Washington, DC, Anton Metlitsky, O'Melveny &
Myers LLP, New York, NY, E. Travis Ramey, Devin C.
Dolive, Burr & Forman LLP, Birmingham, AL, W.
Gregory Aimonette, Kenneth R. Wysocki, Kelly A.
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Jorgensen, Clausen Miller, P.C., Chicago, IL, for
Respondents.
Opinion
Justice THOMAS delivered the opinion of the Court.
*1642 The question in this case is whether the
Convention on the Recognition and Enforcement of
Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517,
T.I.A.S. No. 6997, conflicts with domestic equitable
estoppel doctrines that permit the enforcement of
arbitration agreements by nonsignatories. We hold that it
does not.
I
In 2007, ThyssenKrupp Stainless USA, LLC, entered into
three contracts with F.L. Industries, Inc., for the
construction of cold rolling mills at ThyssenKrupp's steel
manufacturing plant in Alabama. Each of the contracts
contained an identical arbitration clause. The clause
provided that "[ a ]11 disputes arising between both parties
in connection with or in the performances of the Contract
... shall be submitted to arbitration for settlement." App.
171.
After executing these agreements, F.L. Industries, Inc.,
entered into a subcontractor agreement with petitioner GE
Energy Power Conversion France SAS, Corp. (GE
Energy), then known as Converteam SAS. Under that
agreement, GE Energy agreed to design, manufacture, and
supply motors for the cold rolling mills. Between 2011
and 2012, GE Energy delivered nine motors to the
Alabama plant for installation. Soon thereafter,
respondent Outokumpu Stainless USA, LLC, acquired
ownership of the plant from ThyssenKrupp.
According to Outokumpu, GE Energy's motors failed by
the summer of 2015, resulting in substantial damages. In
2016, Outokumpu and its insurers filed suit against GE
Energy in Alabama state court. GE Energy removed the
case to federal court under 9 U.S.C. § 205, which
authorizes the removal of an action from state to federal
court if the action "relates to an arbitration agreement ...
falling under the Convention [ on the Recognition and
Enforcement of Foreign Arbitral Awards]." GE Energy
then moved to dismiss and compel arbitration, relying on
the arbitration clauses in the contracts between F.L.
Industries, Inc., and ThyssenKrupp.
The District Court granted GE Energy's motion to dismiss
and compel arbitration *1643 with Outokumpu and
Sompo Japan Insurance Company of America.
Outokumpu Stainless USA LLC v. Converteam SAS, 2017
WL 401951 (SD Ala., Jan. 30, 2017).1 The court held that
GE Energy qualified as a party under the arbitration
clauses because the contracts defined the terms "Seller"
and "Parties" to include subcontractors. Id., at *4.
Because the court concluded that both Outokumpu and
GE Energy were parties to the agreements, it declined to
address GE Energy's argument that the agreement was
enforceable under equitable estoppel. Id., at *1, n. 1.
The Eleventh Circuit reversed the District Court's order
compelling arbitration. Outokumpu Stainless USA, LLC v.
Converteam SAS, 902 F.3d 1316 (2018). The court
interpreted the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (New York
Convention or Convention) to include a "requirement that
the parties actually sign an agreement to arbitrate their
disputes in order to compel arbitration." Id., at 1326
(emphasis in original). The court concluded that this
requirement was not satisfied because "GE Energy is
undeniably not a signatory to the Contracts." Ibid. It then
held that GE Energy could not rely on state-law equitable
estoppel doctrines to enforce the arbitration agreement as
a nonsignatory because, in the court's view, equitable
estoppel conflicts with the Convention's signatory
requirement. Id., at 1326-1327.
Given a conflict between the Courts of Appeals on this
question,2 we granted certiorari. 588 U.S.--, 139 S.Ct.
2776, 204 L.Ed.2d 1156 (2019).
II
A
Chapter 1 of the Federal Arbitration Act (FAA) permits
courts to apply state-law doctrines related to the
enforcement of arbitration agreements. Section 2 of that
chapter provides that an arbitration agreement in writing
"shall be ... enforceable, save upon such grounds as exist
at law or in equity for the revocation of any contract." 9
U.S.C. § 2. As we have explained, this provision requires
federal courts to "place [arbitration] agreements ' "upon
the same footing as other contracts." ' " Volt Information
Sciences, Inc. v. Board of Trustees of Leland Stanford
Junior Univ., 489 U.S. 468, 474, 109 S.Ct. 1248, 103
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L.Ed.2d 488 (1989) ( quoting Scherk v. Alberto-Culver
Co., 417 U.S. 506, 511, 94 S.Ct. 2449, 41 L.Ed.2d 270
(1974)). But it does not "alter background principles of
state contract law regarding the scope of agreements
(including the question of who is bound by them)." Arthur
Andersen LLP v. Carlisle, 556 U.S. 624, 630, 129 S.Ct.
1896, 173 L.Ed.2d 832 (2009).
The "traditional principles of state law" that apply under
Chapter 1 include doctrines that authorize the
enforcement of a contract by a nonsignatory. Id., at 631,
129 S.Ct. 1896 (internal quotation marks omitted). For
example, we have recognized that arbitration agreements
may be enforced by nonsignatories through "
'assumption, piercing the corporate veil, alter ego,
incorporation by reference, *1644 third-party beneficiary
theories, waiver and estoppel.' " Ibid. ( quoting 21 R.
Lord, Williston on Contracts § 57:19, p. 183 (4th ed.
2001)).
This case implicates domestic equitable estoppel
doctrines. Generally, in the arbitration context, "equitable
estoppel allows a nonsignatory to a written agreement
containing an arbitration clause to compel arbitration
where a signatory to the written agreement must rely on
the terms of that agreement in asserting its claims against
the nonsignatory." Id., at 200 (2017). In Arthur Andersen,
we recognized that Chapter 1 of the FAA permits a
nonsignatory to rely on state-law equitable estoppel
doctrines to enforce an arbitration agreement. 556 U.S. at
631-632, 129 S.Ct. 1896.
B
The New York Convention is a multilateral treaty that
addresses international arbitration. 21 U.S.T. 2517,
T.I.A.S. No. 6997. It focuses almost entirely on arbitral
awards. Article 1(1) describes the Convention as applying
only to "the recognition and enforcement of arbitral
awards." Id., at 2519. Articles III, IV, and V contain
recognition and enforcement obligations related to arbitral
awards for contracting states and for parties seeking the
enforcement of arbitral awards. Id., at 2519-2520. Article
VI addresses when an award can be set aside or
suspended. Id., at 2520. And Article VII(l) states that the
"Convention shall not ... deprive any interested party of
any right he may have to avail himself of an arbitral
award in the manner and to the extent allowed by the law
or the treaties of the country where such award is sought
to be relied upon." Id., at 2520-2521.
agreements-Article II. That article contains only three
provisions, each one sentence long. Article 11(1) requires
"[e]ach Contracting State [to] recognize an agreement in
writing under which the parties undertake to submit to
arbitration all or any differences which have arisen or
which may arise between them in respect of a defined
legal relationship, whether contractual or not, concerning
a subject matter capable of settlement by arbitration." Id.,
at 2519. Article 11(2) provides that "[t]he term 'agreement
in writing' shall include an arbitral clause in a contract or
an arbitration agreement, signed by the parties or
contained in an exchange of letters or telegrams." Ibid.
Finally, Article 11(3) states that "[t]he court of a
Contracting State, when seized of an action in a matter in
respect of which the parties have made an agreement
within the meaning of this article, shall, at the request of
one of the parties, refer the parties to arbitration, unless it
finds that the said agreement is null and void, inoperative
or incapable of being performed." Ibid.
C
In 1970, the United States acceded to the New York
Convention, and Congress enacted implementing
legislation in Chapter 2 of the FAA. See 84 Stat. 692, 9
U.S.C. §§ 201-208. Chapter 2 grants federal courts
jurisdiction over actions governed by the Convention, §
203; establishes venue for such actions, § 204; authorizes
removal from state court, § 205; and empowers courts to
compel arbitration, § 206. Chapter 2 also states that
"Chapter 1 applies to actions and proceedings brought
under this chapter to the extent that [Chapter 1] is not in
conflict with this chapter or the Convention."§ 208.
III
We must determine whether the equitable estoppel
doctrines permitted under *1645 Chapter 1 of the FAA,
see supra, at 1643 - 1644, "conflict with ... the
Convention." § 208. Applying familiar tools of treaty
interpretation, we conclude that they do not conflict.
A
"The interpretation of a treaty, like the interpretation of a
statute, begins with its text." Medellin v. Texas, 552 U.S.
Only one article of the Convention addresses arbitration 491, 506, 128 S.Ct. 1346, 170 L.Ed.2d 190 (2008). The
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text of the New York Convention does not address
whether nonsignatories may enforce arbitration
agreements under domestic doctrines such as equitable
estoppel. The Convention is simply silent on the issue of
nonsignatory enforcement, and in general, "a matter not
covered is to be treated as not covered"-a principle "so
obvious that it seems absurd to recite it," A. Scalia & B.
Garner, Reading Law: The Interpretation of Legal Texts
93 (2012).
This silence is dispositive here because nothing in the text
of the Convention could be read to otherwise prohibit the
application of domestic equitable estoppel doctrines. Only
one Article of the Convention addresses arbitration
agreements-Article II-and only one provision of
Article II addresses the enforcement of those
agreements-Article 11(3). The text of Article 11(3) states
that courts of a contracting state "shall ... refer the parties
to arbitration" when the parties to an action entered into a
written agreement to arbitrate and one of the parties
requests referral to arbitration. The provision, however,
does not restrict contracting states from applying
domestic law to refer parties to arbitration in other
circumstances. That is, Article 11(3) provides that
arbitration agreements must be enforced in certain
circumstances, but it does not prevent the application of
domestic laws that are more generous in enforcing
arbitration agreements. Article 11(3) contains no
exclusionary language; it does not state that arbitration
agreements shall be enforced only in the identified
circumstances. Given that the Convention was drafted
against the backdrop of domestic law, it would be
unnatural to read Article 11(3) to displace domestic
doctrines in the absence of exclusionary language. Cf.
Marx v. General Revenue Corp., 568 U.S. 371, 380-384,
133 S.Ct. 1166, 185 L.Ed.2d 242 (2013).
This interpretation is especially appropriate in the context
of Article II. Far from displacing domestic law, the
provisions of Article II contemplate the use of domestic
doctrines to fill gaps in the Convention. For example,
Article 11(1) refers to disputes "capable of settlement by
arbitration," but it does not identify what disputes are
arbitrable, leaving that matter to domestic law. Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S.
614, 639, n. 21, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985).
Similarly, Article 11(3) states that it does not apply to
agreements that are "null and void, inoperative or
incapable of being performed," but it fails to define those
terms. Again, the Convention requires courts to rely on
domestic law to fill the gaps; it does not set out a
comprehensive regime that displaces domestic law.
In sum, the only provision of the Convention that
addresses the enforcement of arbitration agreements is
Article 11(3). We do not read the nonexclusive language
of that provision to set a ceiling that tacitly precludes the
use of domestic law to enforce arbitration agreements.
Thus, nothing in the text of the Convention "conflict[s]
with" the application of domestic equitable estoppel
doctrines permitted under Chapter 1 of the FAA. 9 U.S.C.
§ 208.
B
"Because a treaty ratified by the United States is 'an
agreement among sovereign powers,' we have also
considered as *1646 'aids to its interpretation' the
negotiation and drafting history of the treaty as well as
'the postratification understanding' of signatory nations."
Medellin, 552 U.S. at 507, 128 S.Ct. 1346 (quoting
Zicherman v. Korean Air Lines Co., 516 U.S. 217, 226,
116 S.Ct. 629, 133 L.Ed.2d 596 (1996)). These aids
confirm our interpretation of the Convention's text.
Our precedents have looked to the "negotiating and
drafting history" of a treaty as an aid in determining the
shared understanding of the treaty. Id., at 226, 116 S.Ct.
629. Invoking this interpretive aid, Outokumpu argues
that the Convention's drafting history establishes a "rule
of consent" that "displace[ s] varying local laws." Brief for
Respondents 27. We are unpersuaded. For one, nothing in
the text of the Convention imposes a "rule of consent"
that displaces domestic law-let alone a rule that allows
some domestic-law doctrines and not others, as
Outokumpu proposes. The only time the Convention uses
the word "consent" is in Article X(3), which addresses
ratification and accession procedures. Moreover, the
statements relied on by Outokumpu do not address the
specific question whether the Convention prohibits the
application of domestic law that would allow
nonsignatories to compel arbitration. Cherry-picked
"generalization[ s ]" from the negotiating and drafting
history cannot be used to create a rule that finds no
support in the treaty's text. Zicherman, 516 U.S. at 227,
116 S.Ct. 629.
To the extent the drafting history sheds any light on the
meaning of the Convention, it shows only that the drafters
sought to impose baseline requirements on contracting
states. As this Court has recognized, "[i]n their discussion
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of [Article II], the delegates to the Convention voiced
frequent concern that courts of signatory countries ...
should not be permitted to decline enforcement of such
agreements on the basis of parochial views of their
desirability or in a manner that would diminish the
mutually binding nature of the agreements." Scherk, 417
U.S. at 520, n. 15, 94 S.Ct. 2449 (citing G. Haight,
Convention on the Recognition and Enforcement of
Foreign Arbitral Awards: Summary Analysis of Record of
United Nations Conference, May/June 1958, pp. 24-28
(1958)). Nothing in the drafting history suggests that the
Convention sought to prevent contracting states from
applying domestic law that permits nonsignatories to
enforce arbitration agreements in additional
circumstances.
2
"[T]he postratification understanding" of other
contracting states may also serve as an aid to our
interpretation of a treaty's meaning. Medellin, 552 U.S. at
507, 128 S.Ct. 1346 (internal quotation marks omitted).
To discern this understanding, we have looked to the
"[d]ecisions of the courts of other Convention
signatories," El Al Israel Airlines, Ltd. v. Tsui Yuan
Tseng, 525 U.S. 155, 175, 119 S.Ct. 662, 142 L.Ed.2d 576
(1999), as well as the "postratification conduct" of the
governments of contracting states, Zicherman, 516 U.S. at
227, 116 S.Ct. 629.
Here, the weight of authority from contracting states
indicates that the New York Convention does not prohibit
the application of domestic law addressing the
enforcement of arbitration agreements. The courts of
numerous contracting states permit enforcement of
arbitration agreements by entities who did not sign an
agreement. See 1 G. Born, International Commercial
Arbitration § 10.02, pp. 1418-1484 (2d ed. 2014)
(compiling cases). The United States identifies at least
one contracting state with domestic legislation illustrating
*1647 a similar understanding. See Brief for United
States as Amicus Curiae 28 (discussing Peru's national
legislation). And GE Energy points to a recommendation
issued by the United Nations Commission on
International Trade Law that, although not directly
addressing Article 11(3), adopts a nonexclusive
interpretation of Article 11(1) and (2). Report of the
United Nations Commission on International Trade Law
on the Work of Its Thirty-Ninth Session,
Recommendation Regarding the Interpretation of Article
II, Paragraph 2, and Article VII, Paragraph 1, of the
Convention on the Recognition and Enforcement of
Foreign Arbitral Awards ,r,r1, 2, U. N. Doc. A/61/17,
annex II (July 7, 2006) (UN recommendation).
These sources, while generally pointing in one direction,
are not without their faults. The court decisions, domestic
legislation, and UN recommendation relied on by the
parties occurred decades after the finalization of the New
York Convention's text in 1958. This diminishes the
value of these sources as evidence of the original shared
understanding of the treaty's meaning. Moreover, unlike
the actions and decisions of signatory nations, we have
not previously relied on UN recommendations to discern
the meaning of treaties. See also Yang v. Majestic Blue
Fisheries, LLC, 876 F.3d 996, 1000-1001 (CA9 2017)
( declining to give weight to the 2006 UN
recommendation). But to the extent this evidence is given
any weight, it confirms our interpretation of the
Convention's text.
3
Finally, the parties dispute whether the Executive's
interpretation of the New York Convention should affect
our analysis. The United States claims that we should
apply a " 'canon of deference' " and give " ' "great
weight" ' " to an interpretation set forth by the Executive
in an amicus brief submitted to the D C. Circuit in 2014.
Brief for United States as Amicus Curiae 30 (quoting
Abbott v. Abbott, 560 U.S. 1, 15, 130 S.Ct. 1983, 176
L.Ed.2d 789 (2010)); see also Brief for United States as
Amicus Curiae in No. 13-7004 (CADC), pp. 7, 9. GE
Energy echoes this request. Outokumpu, on the other
hand, argues that the Executive's noncontemporaneous
interpretation sheds no light on the meaning of the treaty,
asserting that the Executive expressed the "opposite ...
view at the time of the Convention's adoption." Brief for
Respondents 33. Outokumpu asserts that this Court has
repeatedly rejected executive interpretations that
contradict the treaty's text or the political branches'
previous understanding of a treaty. Id., at 34-35 (citing,
e.g., Chan v. Korean Air Lines, Ltd., 490 U.S. 122, 136,
109 S.Ct. 1676, 104 L.Ed.2d 113 (1989) (Brennan, J.,
concurring in judgment); Perkins v. Elg, 307 U.S. 325,
328, 337-349, 59 S.Ct. 884, 83 L.Ed. 1320 (1939)).
We have never provided a full explanation of the basis for
our practice of giving weight to the Executive's
interpretation of a treaty. Nor have we delineated the
limitations of this practice, if any. But we need not
resolve these issues today. Our textual analysis aligns
with the Executive's interpretation so there is no need to
determine whether the Executive's understanding 1s
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entitled to "weight" or "deference." Cf. Edelman v.
Lynchburg College, 535 U.S. 106, 114-115, n. 8, 122
S.Ct. 1145, 152 L.Ed.2d 188 (2002) ("[T]here is no need
to resolve deference issues when there is no need for
deference").
IV
The Court of Appeals did not analyze whether Article
11(3) of the New York Convention conflicts with equitable
estoppel. Instead, the court held that Article 11(1) and (2)
include a "requirement that *1648 the parties actually
sign an agreement to arbitrate their disputes in order to
compel arbitration." 902 F.3d at 1326. But those
prov1s10ns address the recognition of arbitration
agreements, not who is bound by a recognized agreement.
Article 11(1) simply requires contracting states to
"recognize an agreement in writing," and Article 11(2)
defines the term "agreement in writing." Here, the three
agreements at issue were both written and signed. 3 Only
Article 11(3) speaks to who may request referral under
those agreements, and it does not prohibit the application
of domestic law. See supra, at 1644 - 1645.
Because the Court of Appeals concluded that the
Convention prohibits enforcement by nonsignatories, the
court did not determine whether GE Energy could enforce
the arbitration clauses under principles of equitable
estoppel or which body of law governs that determination.
Those questions can be addressed on remand. We hold
only that the New York Convention does not conflict with
the enforcement of arbitration agreements by
nonsignatories under domestic-law equitable estoppel
doctrines.
***
For the foregoing reasons, we reverse the judgment of the
Court of Appeals and remand the case for further
proceedings consistent with this opinion.
It is so ordered.
Justice SOTOMAYOR, concurring.
I agree with the Court that the Convention on the
Recognition and Enforcement of Foreign Arbitral
Awards, June 10, 1958, 21 U.S.T. 2517, T.I.A.S. No.
6997 (New York Convention), does not categorically
prohibit the application of domestic doctrines, such as
equitable estoppel, that may permit nonsignatories to
enforce arbitration agreements. I note, however, that the
application of such domestic doctrines is subject to an
important limitation: Any applicable domestic doctrines
must be rooted in the principle of consent to arbitrate.
This limitation is part and parcel of the Federal
Arbitration Act (FAA) itself. It is a "basic precept,"
Stolt-Nielsen S.A. v. AnimalFeeds Int'[ Corp., 559 U.S.
662, 681, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010), that
"[ a ]rbitration under the [FAA] is a matter of consent, not
coercion," Volt Information Sciences, Inc. v. Board of
Trustees of Leland Stanford Junior Univ., 489 U.S. 468,
479, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989); see also,
e.g., Lamps Plus, Inc. v. Varela, 587 U.S.--,--, 139
S.Ct. 1407, 1416, 203 L.Ed.2d 636 (2019) ("Consent is
essential under the FAA"); Granite Rock Co. v.
Teamsters, 561 U.S. 287, 299, 130 S.Ct. 2847, 177
L.Ed.2d 567 (2010) ("[T]he first principle that
underscores all of our arbitration decisions" is that
"[a]rbitration is strictly 'a matter of consent' "). "We have
emphasized th[is] 'foundational FAA principle' many
times," Lamps Plus, 587 U.S., at--, 139 S.Ct., at 1415
(quoting Stolt-Nielsen, 559 U.S. at 684, 130 S.Ct. 1758)
(citing cases), and even the parties find common ground
on the point, see Tr. of Oral Arg. 7, 49; Brief for
Respondents 2.
Because this consent principle governs the FAA on the
whole, it constrains any domestic doctrines under Chapter
1 of the FAA that might "appl[y ]" to Convention
proceedings (to the extent they do not "conflict with" the
Convention). 9 U.S.C. § 208; cf. ante, at 1644 - 1645.
Parties seeking to enforce arbitration agreements under
Article II of the Convention thus may not rely on
domestic nonsignatory doctrines that fail to reflect
consent to arbitrate.
*1649 While the FAA's consent principle itself is
crystalline, it is admittedly difficult to articulate a
bright-line test for determining whether a particular
domestic nonsignatory doctrine reflects consent to
arbitrate. That is in no small part because some domestic
nonsignatory doctrines vary from jurisdiction to
jurisdiction. With equitable estoppel, for instance, one
formulation of the doctrine may account for a party's
consent to arbitrate while another does not. Cf. Brief for
Respondents 45 (maintaining that courts have applied at
least "three different versions" of GE Energy's
equitable-estoppel theory, including one that allegedly
"allows a non-party to force arbitration even of claims
wholly unconnected to the agreement"). Lower courts
WESTLAW © 2021 Thomson Reuters. No claim to original U.S. Government Works. 7
Annex 396
GE Energy Power Conversion France SAS, Corp. v .... , 140 S.Ct. 1637 (2020)
207 L.Ed.2d 1, 20 Cal. Daily Op. Serv. 4741, 2020 Daily Journal DAR. 5215 ...
must therefore determine, on a case-by-case basis,
whether applying a domestic nonsignatory doctrine would
violate the F AA's inherent consent restriction.'
S.Ct. 1758. Because the Court's opinion is consistent with
this limitation, I join it in full.
Article II of the Convention leaves much to the
contracting states to resolve on their own, and the FAA
imposes few restrictions. Nevertheless, courts applying
domestic nonsignatory doctrines to enforce arbitration
agreements under the Convention must strictly adhere to
"the foundational FAA principle that arbitration is a
matter of consent." Stolt-Nielsen, 559 U.S. at 684, 130
All Citations
140 S.Ct. 1637, 207 L.Ed.2d 1, 20 Cal. Daily Op. Serv.
4741, 2020 Daily Journal D.A.R. 5215, 28 Fla. L. Weekly
Fed. S 268
Footnotes
*
1
2
3
*
The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the
convenience of the reader. See United States v. Detrait Timber & Lumber Co., 200 U.S. 321, 337, 26 S.Ct. 282, 50 L.Ed. 499.
The District Court later granted GE Energy's motion to compel arbitration with additional insurers. Outokumpu Stainless USA LLC
v. Converteam SAS, 2017 WL 480716 (SD Ala., Feb. 3, 2017).
Compare 902 F.3d 1316, 1326 (CAll 2018), and Yang v. Majestic Blue Fisheries, LLC, 876 F.3d 996, 1001-1002 (CA9 2017), with
Aggarao v. MOL Ship Mgmt. Co., 675 F.3d 355, 375 (CA4 2012), and Sourcing Unlimited, Inc. v. Asimco Int'/, Inc., 526 F.3d 38, 48
(CAl 2008).
We do not address whether Article 11(2) requires a signed agreement.
In this case, however, I am skeptical that any domestic nonsignatory doctrines need come into play at all, because Outokumpu
appears to have expressly agreed to arbitrate disputes under the relevant contract with subcontractors like GE Energy. The
contract provided that disputes arising between the buyer and seller in connection with the contract were subject to arbitration.
App. 171. It also specified that the seller in the contract "shall be understood" to include "[s]ub-contractors." Id., at 88-89. And it
appended a list of potential subcontractors, one of which was GE Energy's predecessor, Converteam. Id., at 184-185.
End of Document © 2021 Thomson Reuters. No claim to original U.S. Government Works.
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ANNEX397
3/24/2021
WDGMENT OF THE COURT (Second Chamber)
14 March 2019 C'..)(i)
CURIA - Documents
(Reference for a preliminary ruling - Competition - Article 101 TFEU - Compensation for the damage
caused by a cartel prohibited by that article - Determination of the undertakings liable to provide
compensation- Succession of legal entities - Concept of 'undertaking' -Economic continuity test)
In Case C-724/17,
REQUEST for a preliminary ruling under Article 267 TFEU from the Korkein oikeus (Supreme Court, Finland),
made by decision of 19 December 2017, received at the Court on 22 December 2017, in the proceedings
Vantaan kaupunki
V
Skanska Industrial Solutions Oy,
NCC Industry Oy,
Asfaltmix Oy,
THE COURT (Second Chamber),
composed of A. Arabadjiev (Rapporteur), President of the Chamber, R. Silva de Lapuerta, Vice-President of the
Court, acting as Judge of the Second Chamber, E. Levits, M. Berger and P.G. Xuereb, Judges,
Advocate General: N. Wahl,
Registrar: L. Carrasco Marco, Administrator,
having regard to the written procedure and further to the hearing on 16 January 2019,
after considering the observations submitted on behalf of:
Vantaan kaupunki, by N. Mickelsson and 0. Hyvonen, asianajajat,
Skanska Industrial Solutions Oy, by A.P. Mentula and T. Vaatainen, asianajajat,
NCC Industry Oy, by I. Aalto-Setala, M. Kokko, M. von Schrowe and H. Koivuniemi, asianajajat,
Asfaltmix Oy, by S. Hiltunen, A. Laine and M. Blomfelt, asianajajat,
the Finnish Government, by J. Heliskoski and S. Hartikainen, acting as Agents,
the Italian Government, by G. Palmieri, acting as Agent, and by S. Fiorentino, avvocato dello Stato,
the Polish Government, by B. Majczyna, acting as Agent,
the European Commission, by C. Vollrath, H. Leupold, G. Meessen and M. Huttunen, acting as Agents,
after hearing the Opinion of the Advocate General at the sitting on 6 February 2019,
gives the following
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Judgment
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1 This request for a preliminary ruling concerns the interpretation of Article 101 TFEU and the principle of
effectiveness of EU law with regard to the rules in Finnish law applicable to actions for damages in respect of
infringements of EU competition law.
2 The request has been made in proceedings between Vantaan kaupunki (City ofVantaa, Finland) and
Skanska Industrial Solutions Oy, NCC Industry Oy and Asfaltmix Oy concerning compensation for damage
resulting from a cartel in the Finnish asphalt market.
Legal context
3 Pursuant to Paragraph 1 of Part 2 of the Vahingonkorvauslaki 412/1974 (Law 412/1974 on compensation)
any person who deliberately or negligently causes damage to another is liable to pay compensation to the latter.
4 Under Paragraph 6(2) of that law, if the damage was caused by two or more persons, or if two or more
persons are ordered to pay compensation for the same damage they are jointly and severally liable.
5 In accordance with Finnish Company law, every limited liability company is a separate legal person with
its own property and its own liability.
The dispute in the main proceedings and the questions referred for a preliminary ruling
6 Between 1994 and 2002 a cartel in the asphalt market was set up in Finland ('the cartel in question'). That
cartel, which agreed on dividing up contracts, prices and tendering for contracts, covered the whole of that
Member State and was also liable to affect trade between Member States. The aforementioned cartel included,
among others, Lemminkainen Oyj, Sata-Asfaltti Oy, Interasfaltti Oy, Asfalttinelio Oy and Asfaltti-Tekra Oy.
7 On 22 March 2000, Asfaltti-Tekra, which changed its name to Skanska Asfaltti Oy from 1 November
2000, acquired all the shares in Sata-Asfaltti. On 23 January 2002, the latter was wound up due to a voluntary
liquidation procedure in the course of which its business was transferred to Skanska Asfaltti on 13 December
2000. Skanska Asfaltti also took part in the cartel in question. On 9 August 2017, that company changed its
name to Skanska Industrial Solutions ('SIS').
8 Interasfaltti was a 100% owned subsidiary ofOy Lantinen Teollisuuskatu 15. On 31 October 2000, NCC
Finland Oy acquired the shares in Lantinen Teollisuuskatu 15. On 30 September 2002, Interasfaltti was merged
with Lantinen Teollisuuskatu 15 which, on that occasion, changed its name to Interasfaltti. On 1 January 2003,
NCC Finland was split into three new companies. One of them, NCC Roads Oy, received the ownership of all
the shares in Interasfaltti. On 31 December 2003, Interasfaltti was wound up following a voluntary liquidation
procedure, pursuant to which its commercial activities were transferred to NCC Roads with effect from
1 February 2003. On 1 May 2016, that company changed its name to NCC Industry ('NCC').
9 On 20 June 2000, Siilin Sora Oy, which changed its name to Rudus Asfaltti Oy, with effect from 17
October 2000, acquired all the shares in Asfalttinelio. On 23 January 2002, Asfalttinelio was wound up
following a voluntary insolvency procedure, pursuant to which its commercial activities were transferred to
Rudus Asfaltti from 16 February 2001. On 10 January 2014, that company changed its name to Asfaltmix.
10 On 31 March 2004, the Kilpailuvirasto (Competition Authority, Finland) proposed that fines should be
imposed on seven companies. By judgment of 29 September 2009, the Korkein hallinto-oikeus (Supreme
Administrative Court, Finland), in accordance with the economic continuity test recognised by the case-law of
the Court of Justice, imposed fines, inter alia, on SIS for its own conduct and that of Sata-Asfaltti, on NCC for
the conduct of Interasfalt, and on Asfaltmix for the conduct of Asfalttinelio.
11 On the basis of the judgment of the Korkein hallinto-oikeus (Supreme Administrative Court), the City of
Vantaa, which had concluded agreements with Lemminkainen for asphalt works for the years 1998 to 2001,
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brought an action for damages against, inter alia, SIS, NCC and Asfaltrnix, on 2 December 2009, before the
Karajaoikeus (District Court, Finland), claiming that those three companies were jointly and severally liable for
the additional costs which it had to pay for asphalt works due to overpricing resulting from the cartel in question.
SIS, NCC and Asfaltrnix claimed that they were not liable for the damage caused by the legally independent
companies involved in the cartel in question, and argued that the claim for compensation should have been
lodged in the liquidation proceedings of the latter companies.
12 The Karajaoikeus (District Court) ordered SIS to pay damages on the basis of its own conduct and that of
Sata-Asfaltti, NCC for the conduct oflnterasfaltti and Asfaltrnix for the conduct of Asfalttinelio. That court held
that, in a situation such as that at issue in the main proceedings, it is practically impossible or unreasonably
difficult for the party who has suffered damage as a result of an infringement of EU competition law to obtain
compensation for the damage suffered as a result of that infringement under Finnish civil liability and company
law. That court held that, in order to ensure the effectiveness of Article 101 TFEU, the economic continuity test
must be applied to the determination of liability for damage in the same way as that for the imposition of fines.
13 On appeal, the Hovioikeus (Court of Appeal, Finland) held that the principle of effectiveness cannot call
into question the fundamental characteristics of the Finnish rules on civil liability and that the economic
continuity test applied in relation to the imposition of fines cannot be applied to actions for damages in the
absence of detailed rules or more specific provisions. That court therefore dismissed the City of Vantaa's claims
in so far as they were directed against SIS, on account of Sata-Asfaltti's conduct and NCC and Asfaltmix.
14 The City ofVantaa appealed to the Korkein oikeus (Supreme Court, Finland) against the judgment of the
Hovioikeus (Court of Appeal).
15 The Korkein oikeus (Supreme Court) observes that Finnish law does not lay down rules on the attribution
ofliability for damage caused by an infringement of EU competition law in a situation such as that at issue in the
main proceedings. The rules on civil liability in Finnish law are based on the principle that only the legal entity
that caused the damage is liable. In the case of legal persons, it is possible to derogate from this basic rule by
lifting the corporate veil. However, that approach is only possible if the operators concerned used the group
structure, the relationship between the companies or the shareholder's control in a reprehensible or artificial
manner, resulting in the avoidance of legal liability.
16 The referring court observes that it is clear from the case-law of the Court that any person may claim
compensation for damage resulting from an infringement of Article 101 TFEU if there is a causal link between
that damage and the infringement and it is for the domestic legal order of each Member State to lay down the
detailed rules for exercising that right.
17 However, it is not clear from that case-law whether persons who are required to provide compensation for
such damage must be determined by direct application of Article 101 TFEU, or whether the detailed rules laid
down by the domestic legal order of each Member State are applicable.
18 If the persons liable to provide compensation for damage resulting from an infringement of Article 101
TFEU are to be determined by direct application of that article, it is not clear to the referring court which persons
may be held liable for the infringement of that article.
19 In that context, it is possible to establish the liability of the person infringing the competition rules or the
liability of an 'undertaking', within the meaning of Article 101 TFEU. According to the case-law of the Court,
when an undertaking consisting of several legal persons infringes the competition rules, it is for that undertaking
to answer for the infringement, in accordance with the principle of personal liability. According to that case-law,
liability for an infringement of Article 101 TFEU may be attributed to the entity which has continued the
business of the entity responsible for the infringement in question, if the latter has ceased to exist.
20 According to the referring court, if the persons liable for the damage caused by an infringement of
Article 101 TFEU are not to be determined by direct application of that article, that court must attribute liability
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for the damage caused by the cartel in question in accordance with the rules of Finnish law and the principle of
effectiveness of EU law.
21 In that regard, the referring court asks whether that principle requires that liability for an infringement of
EU competition law is to be attributed to the company which has acquired the share capital and business of a
company which has been wound up and which participated in the cartel. The question then arises as to whether
the principle of effectiveness precludes a national rule, such as that described in paragraph 15 of the present
judgment, and, if so, whether it can be held that the company which continued the business of the company
participating in the cartel is to be held liable only if the former company knew or should have known, when it
acquired the share capital of the latter company that the latter had committed such an infringement.
22 In those circumstances, the Korkein oikeus (Supreme Court) decided to stay the proceedings and to refer
the following questions to the Court of Justice for a preliminary ruling:
'(1) Is the determination of which parties are liable for the compensation of harm caused by conduct contrary
to Article 101 TFEU to be done by applying that provision directly or on the basis of national provisions?
(2) If the entities liable are to be determined directly on the basis of Article 101 TFEU, are the entities which
fall within the concept of "undertaking" mentioned in that article those liable for compensation? When
determining the entities liable for compensation, are the same principles to be applied as the Court of Justice has
applied to determining the entities liable in cases concerning fines, in accordance with which liability may be
founded, in particular, on belonging to the same economic unit or on economic continuity?
(3) If the entities liable are to be determined on the basis of national provisions of a Member State, are
national rules under which a company which, after acquiring the entire share capital of a company which took
part in a cartel contrary to Article 101 TFEU, dissolved the company in question and continued its activity is not
liable for compensation for the damage caused by the anticompetitive conduct of the company in question, even
though obtaining compensation from the dissolved company is impossible in practice or unreasonably difficult,
contrary to the EU law requirement of effectiveness? Does the requirement of effectiveness preclude an
interpretation of a Member State's domestic law making it a condition of compensation for damage that a
transformation of the kind described has been implemented unlawfully or artificially in order to avoid liability
for compensation for damage under competition law or otherwise fraudulently, or at least that the company knew
or ought to have known of the competition infringement when implementing the transformation?'
Consideration of the questions referred
23 By its first and second questions, which it is appropriate to examine together, the national court asks
essentially whether Article 101 TFEU must be interpreted as meaning that, in a case such as that in the main
proceedings, in which all the shares of the companies which have participated in a cartel prohibited by that
article were acquired by other companies, which dissolved the former companies and carried on their
commercial activities, the acquiring companies may be held liable for the damage caused by that cartel.
24 In that regard, it should be noted that Article 101(1) and Article 102 TFEU produce direct legal effects in
relations between individuals and directly create rights for individuals which national courts must protect
(judgment of 5 June 2014, Kone and Others, C-557/12, EU:C:2014:1317, paragraph 20 and the case-law cited).
25 It is settled case-law that the full effectiveness of Article 101 TFEU and, in particular, the practical effect
of the prohibition laid down in paragraph 1 of that provision would be put at risk if it were not open to any
individual to claim damages for loss caused to him by a contract or by conduct liable to restrict or distort
competition (judgment of 5 June 2014, Kone and Others, C-557/12, EU:C:2014:1317, paragraph 21 and the
case-law cited).
26 Any person is thus entitled to claim compensation for the harm suffered where there is a causal
relationship between that harm and an agreement or practice prohibited under Article 101 TFEU (judgment of
5 June 2014, Kone and Others, C-557/12, EU:C:2014:1317, paragraph 22 and the case-law cited).
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27 It is true that in the absence of EU rules governing the matter, it is for the domestic legal system of each
Member State to lay down the detailed rules governing the exercise of the right to claim compensation for the
harm resulting from an agreement or practice prohibited under Article 101 TFEU, provided that the principles of
equivalence and effectiveness are observed (see, to that effect, judgment of 5 June 2014, Kone and Others,
C-557/12, EU:C:2014:1317, paragraph 24 and the case-law cited).
28 However, as the Advocate General has pointed out in points 60 to 62 of his Opinion, the determination of
the entity which is required to provide compensation for damage caused by an infringement of Article 101
TFEU is directly governed by EU law.
29 It is clear from the wording of Article 101(1) TFEU that the authors of the Treaties chose to use the
concept of an 'undertaking' to designate the perpetrator of an infringement of the prohibition laid down in that
provision ( see, to that effect, judgment of 27 April 2017, Akzo Nobel and Others v Commission, C-516/15 P,
EU:C:2017:314, paragraph 46).
30 Furthermore, it is settled case-law that EU competition law refers to the activities of undertakings (see, to
that effect, judgments of 11 December 2007, ETI and Others, C-280/06, EU:C:2007:775, paragraph 38 and the
case-law cited, and of 18 December 2014, Commission v Parker Hannifin Manufacturing and Parker-Hannifin,
C-434/13 P, EU:C:2014:2456, paragraph 39 and the case-law cited).
31 Since the liability for damage caused by infringements of EU competition rules is personal in nature, the
undertaking which infringes those rules must answer for the damage caused by the infringement.
32 It follows from the foregoing consideration that the entities which are required to compensate for the
damage caused by a cartel or practice prohibited by Article 101 TFEU are the undertakings, within the meaning
of that provision, which have participated in that cartel or that practice.
33 That interpretation is not called into question by the European Commission's argument put forward at the
hearing that it is clear from Article 11 ( 1) of Directive 2014/104/EU of the European Parliament and of the
Council of 26 November 2014 on certain rules governing actions for damages under national law for
infringements of the competition law provisions of the Member States and of the European Union (OJ 2014
L 349, p. 1), according to which Member States are to ensure that undertakings which have infringed
competition law through joint behaviour are jointly and severally liable for the harm caused by the infringement
of competition law, that it is for the legal system of each Member State to determine, in accordance with the
principles of equivalence and effectiveness, the entity which is to compensate for that damage.
34 That provision of Directive 2014/104, which, moreover, does not apply ratione temporis to the facts of the
case in the main proceedings, does not apply to the definition of entities which are required to compensate for
such damage, but to the attribution of liability between those entities and, thus, does not confer on the Member
States the power to carry out that determination.
35 To the contrary, that provisions confirms, like Article 1 of Directive 2014/104, entitled 'Subject matter,
scope and definitions', in paragraph 1, first sentence thereof, that those responsible for damage caused by an
infringement of EU competition law are specifically the 'undertakings' which committed that infringement.
36 That being said, it must be recalled that the concept of an 'undertaking', within the meaning of Article 101
TFEU covers any entity engaged in an economic activity, irrespective of its legal status and the way in which it
is financed Gudgment of 11 December 2007, ETI and Others, C-280/06, EU:C:2007:775, paragraph 38 and the
case-law cited).
37 That concept, placed in that context, must be understood as designating an economic unit even if in law
that economic unit consists of several persons, natural or legal Gudgment of 27 April 2017, Akzo Nobel and
Others v Commission, C-516/15 P, EU :C:2017 :314, paragraph 48 and the case-law cited).
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38 As regards the restructuring of an undertaking, such as that at issue in the main proceedings, in which the
entity which committed the infringement of EU competition law has ceased to exist, it must be recalled that,
when an entity that has committed an infringement of the competition rules is subject to a legal or organisational
change, this change does not necessarily create a new undertaking free of liability for the conduct of its
predecessor that infringed the competition rules, when, from an economic point of view, the two are identical
(see, to that effect, judgments of 11 December 2007, ETI and Others, C-280/06, EU:C:2007:775, paragraph 42;
of 5 December 2013, SNIA v Commission, C-448/11 P, not published, EU:C:2013:801, paragraph 22; and of
18 December 2014, Commission v Parker Hannifin Manufacturing and Parker-Hannifin, C-434/13 P,
EU:C:2014:2456, paragraph 40).
39 It is therefore not contrary to the principle of individual liability to impute liability for an infringement to a
company which has taken over the company which committed the infringement where the latter has ceased to
exist Uudgment of 5 December 2013, SNIA v Commission, C-448/11 P, not published, EU:C:2013:801,
paragraph 23 and the case-law cited).
40 Furthermore, the Court has stated that, for the effective implementation of the EU competition rules, it
may be necessary to consider that the purchaser of the offending undertaking is liable for the infringement of
those rules if that offending undertaking ceases to exist by reason of the fact that it has been taken over by the
purchaser, which as the acquiring company, takes over its assets and liabilities, including its liability for breaches
of EU law Uudgment of 5 December 2013, SNIA v Commission, C-448/11 P, not published, EU:C:2013:801,
paragraph 25)
41 In that connection, Asfaltmix argues, in essence, that the case-law cited in paragraphs 36 to 40 of this
judgment has been developed in a context in which the Commission imposes fines for the implementation of
Article 23(2) of Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on
competition laid down in Articles [101] and [102 TFEU] (OJ 2003 L 1, p. 1), that case-law is not applicable to
an action for damages such as that at issue in the main proceedings.
42 That argument cannot be accepted.
43 As stated in paragraph 25 of this judgment, the right to claim compensation for damage caused by an
agreement or conduct prohibited by Article 101 TFEU ensures the full effectiveness of that article and, in
particular, the effectiveness of the prohibition laid down in paragraph 1 thereof.
44 That right strengthens the working of the EU competition rules, since it discourages agreements or
practices, frequently covert, which are liable to restrict or distort competition, thereby making a significant
contribution to the maintenance of effective competition in the European Union Uudgment of 5 June 2014, Kone
and Others, C-557/12, EU:C:2014:1317, paragraph 23 and the case-law cited).
45 As the Advocate General stated essentially, in point 80 of his Opinion, actions for damages for
infringement of EU competition rules are an integral part of the system for enforcement of those rules, which are
intended to punish anticompetitive behaviour on the part of undertakings and to deter them from engaging in
such conduct.
46 Therefore, if the undertakings responsible for damage caused by infringement of the EU competition rules
could escape liability by simply changing their identity through restructurings, sales or other legal or
organisational changes, the objective pursued by that system and the effectiveness of those rules would be
jeopardised (see, by analogy, judgment of 11 December 2007, ETI and Others, C-280/06, EU:C:2007:775,
paragraph 41 and the case-law cited).
47 It follows that the concept of 'undertaking', within the meaning of Article 101 TFEU, which constitutes an
autonomous concept of EU law, cannot have a different scope with regard to the imposition of fines by the
Commission under Article 23(2) of Regulation No 1/2003 as compared with actions for damages for
infringement of EU competition rules.
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48 In the case in the main proceedings, it is apparent from the information provided by the referring court that
SIS, NCC and Asfaltrnix acquired all the shares in Sata-Asfaltti, Interasfaltti and Asfalttinelio respectively,
which participated in the cartel in question and, subsequently, when those companies went into voluntary
liquidation in 2000, 2001 and 2003, took over all those commercial activities of those companies and wound
them up.
49 Therefore, it appears, subject to the definitive assessment by the referring court having regard to all the
relevant evidence that, from an economic perspective, SIS, NCC and Asfaltmix, on one hand, and Sata-Asfaltti,
Interasfaltti and Asfalttinelio respectively, on the other, are the same, and that the three latter companies have
ceased to exist as legal persons.
50 It must therefore be held that, SIS, NCC and Asfaltrnix, successors to Sata-Asfaltti, Interasfaltti, and
Asfalttinelio respectively, have assumed liability for the damage caused by the cartel in question, as they have,
as legal persons, ensured that those companies were able to continue their economic activities.
51 In the light of all the foregoing considerations, the answer to the first and second questions is that
Article 101 TFEU must be interpreted as meaning that, in a case such as that in the main proceedings, in which
all the shares in the companies which participated in a cartel prohibited by that article were acquired by other
companies which have dissolved the former companies and continued their commercial activities, the acquiring
companies may be held liable for the damage caused by the cartel in question.
52 In view of the answer to the first and second questions, it is unnecessary to reply to the third question.
The request that the effects of the present judgment should be limited in time
53 At the hearing, NCC requested the Court to limit the temporal effects of the present judgment in the event
that it considers that the economic continuity test applies to the determination of persons required to provide
compensation for damage caused by an infringement of EU competition rules.
54 In support of its request, NCC argued that that interpretation could not have been foreseen, that it therefore
had retroactive effect on those rules, and that it had unforeseen consequences for the conduct of undertakings.
55 In that connection, it should be recalled that, according to settled case-law of the Court, the interpretation
which, in the exercise of the jurisdiction conferred on it by Article 267 TFEU, the Court gives to a rule of EU
law clarifies and defines the meaning and scope of that rule as it must be or ought to have been understood and
applied from the time of its entry into force. It follows that the rule as thus interpreted may, and must, be applied
by the courts even to legal relationships which arose and were established before the judgment ruling on the
request for interpretation, provided that in other respects the conditions for bringing a dispute relating to the
application of that rule before the courts having jurisdiction are satisfied Gudgment of 22 September 2016,
Microsoft Mobile Sales International and Others, C-110/15, EU:C:2016:717, paragraph 59 and the case-law
cited).
56 It is only quite exceptionally that the Court may, in application of the general principle of legal certainty
inherent in the EU legal order, be moved to restrict, for any person concerned, the opportunity of relying on a
provision which it has interpreted with a view to calling into question legal relationships established in good
faith. Two essential criteria must be fulfilled before such a limitation can be imposed, namely that those
concerned should have acted in good faith and that there should be a risk of serious difficulties Gudgment of
22 September 2016, Microsoft Mobile Sales International and Others, C-110/15, EU :C:2016:717, paragraph 60
and the case-law cited).
57 More specifically, the Court has taken that step only in quite specific circumstances, notably where there
was a risk of serious economic repercussions owing in particular to the large number of legal relationships
entered into in good faith on the basis of rules considered to be validly in force and where it appeared that
individuals and national authorities had been led to adopt practices which did not comply with EU law by reason
of objective, significant uncertainty regarding the implications of European Union provisions, to which the
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conduct of other Member States or the Commission may even have contributed Gudgment of 22 September
2016, Microsoft Mobile Sales International and Others, C-110/15, EU:C:2016:717, paragraph 61 and the caselaw
cited).
58 In the present case, since the NCC has in no way substantiated its arguments, it has failed to establish that
the criteria referred to in paragraph 56 of this judgment have been satisfied in the present case.
59 It is therefore not appropriate to limit the temporal effects of the present judgment.
Costs
60 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the
national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the
Court, other than the costs of those parties, are not recoverable.
On those grounds, the Court (Second Chamber) hereby rules:
Article 101 TFEU must be interpreted as meaning that, in a case such as that in the main proceedings, in
which all the shares in the companies which participated in a cartel prohibited by that article were
acquired by other companies which have dissolved the former companies and continued their commercial
activities, the acquiring companies may be held liable for the damage caused by the cartel in question.
[Signatures]
* Language of the case: Finnish.
i The wording of paragraph 46 of this document has been modified after it was first put online.
Annex 397
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ANNEX 398
INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES
In the Proceeding between
Urbaser S.A.
and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa
(Claimants)
and
The Argentine Republic
(Respondent)
ICSID Case No. ARB/07 /26
AWARD
Rendered by
Professor Andreas Bucher, President
Professor Pedro J. Martinez-Fraga, Arbitrator
Professor Campbell McLachlan QC, Arbitrator
Secretary of the Tribunal: Mr. Marco Tulio Montafies-Rumayor
Date of dispatch to the Parties: December 8, 2016
Annex 398
Representing Claimants:
Dra. Mercedes Fernandez Fernandez
Dr. Juan Ignacio Santabaya Gonzalez
Jones Day
Madrid, Spain
Dr. Juan Carlos Calvo Corbella
Urbaser's Legal Representative
Dr. Enrique del Carril
Urbaser's and CABB's
Legal Representative
Del Carril, Colombres, Vayo y
Zabalia Lagos
Representing Respondent:
Dr. Carlos Francisco Balbin
Procurador del Tesoro de la Nacion
Procuraci6n del Tesoro de la Nacion
Buenos Aires, Argentina
Annex 398
I.
II.
III.
IV.
v.
Table of Contents
Background
A. Procedure
B. The dispute in short terms
The Concession Area
A. The situation before privatization
B.
C.
D.
E.
Privatization promoted at the national level and in the Provinces
The bidding process in the Province of Greater Buenos Aires
1. Region B
2. Bidders' information
AGBA as the Concessionaire
Characteristics of economic and social life in the Concession area
1.
2.
Overview
During 1998-2002
The Regulatory Framework
Claimants' Allegations on Violations of the Regulatory Framework
A. Summary
B. Scope of the dispute
C. Claimants' allegations reviewed
D.
1. The Zoning Coefficient
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Vacation time salaries accrued prior to Takeover
The Determination and application of tariffs by AGBA
Failure to deliver the UNIREC plants
The prohibition of applying the connection and work fees
The obstacles to the implementation of the collection mechanism
The prohibition of accounting for changes in the tax burden
The implementation of the metering system
The water and sewage coefficients
AGBA's exclusivity in the Concession area
The Regulatory Agency's and the Grantor's inaction
Conclusion
The Salient Features of AGBA's Concession
A. Categories of Work
B.
1. Basic distinctions
2. Connection of illegal users
3.
4.
Reconditioning of existing connections
Expansion work
a. The Parties' respective positions
b. The Tribunal's findings
c. Expansion related to the UNIREC plants
Collectability of bills for services
1. Claimants' position
2. Respondent's position
3. The Tribunal's findings
1
1
34
38
39
41
52
52
57
61
65
65
71
76
94
94
101
109
109
112
115
131
147
162
192
201
216
228
236
240
242
243
243
248
258
265
266
272
295
297
299
307
315
Annex 398
VI.
VII.
C. POES
1. Claimants' position
324
331
2. Respondent's position 337
3. The Tribunal's findings 348
4.
5.
The performance under the POES in the districts with UNIREC plants 365
The undertakings for investment retained in the POES 371
D.
E.
Investments
1. Claimants' initial investment
a. The shareholding in AGBA
b. Other funds provided initially by the shareholders
2. Third party funding
3.
4.
5.
a. Claimants' position
b. Respondent's position
c. The Tribunal's findings
No increase of shareholders' investments
The income arising from the Concession
Overall assessment
a.
b.
Claimants' position
Respondent's position
c. The Tribunal's conclusion
Contractual equilibrium v. business risk
1. Claimants' focus on contractual equilibrium
2.
3.
4.
5.
Respondent's focus on business risk
The Tribunal's views
The tariff regime and review
The cause of the disruption of the equilibrium: investment v. crisis
a.
b.
C.
Claimants' position
Respondent's position
The Tribunal's findings
Fair and Equitable Treatment
A. The law applicable to the merits of the claims
B. Article V of the BIT and the standard on fair and equitable treatment
1. Claimants' position
2. Respondent's position
3. The Tribunal's findings
a.
b.
C.
d.
Extreme positions
Positions lacking substance
Basics
The standard is not tied to one set of expectations
e. The standard encompasses the entire legal,
social and economic framework
£ The investor's protected expectations
The Emergency Measures and their Effects on the Concession
A. The crisis
B. The emergency measures
1. Claimants' views
2. Respondent's views
C. The impact of the emergency measures on AGBA's Concession
379
388
388
406
408
408
420
427
449
468
478
478
481
487
494
495
498
506
516
520
520
526
532
548
548
559
559
580
603
603
609
613
616
618
626
634
634
640
641
646
658
Annex 398
D.
E.
1.
2.
3.
Claimants' views
Respondent's views
The Tribunal's findings
The responsibility for the emergency measures (state of necessity)
1. Claimants' views
2.
3.
Respondent's views
The Tribunal's findings
The requirement for renegotiating the Concession Contract
658
667
672
684
686
698
709
733
VIII. The New Regulatory Framework and the Renegotiation 739
741
741
752
756
759
759
763
765
768
768
779
787
796
796
803
812
IX.
A. The main elements of the New Regulatory Framework
B.
C.
D.
1. Claimants' presentation
2. Respondent's presentation
3. The Tribunal's findings
No immediate application of the New Regulatory Framework to AGBA
1. Claimants' position
2. Respondent's position
3. The Tribunal's findings
The conduct of the renegotiation based on the New Regulatory Framework
1. Claimants' position
2.
3.
Respondent's position
The Tribunal's findings
The failure of the renegotiation
1. Claimants' position
2. Respondent's position
3. The Tribunal's findings
The Termination of the Contract 848
848
856
856
858
858
869
871
875
883
883
883
888
890
904
910
913
916
919
A.
B.
The way towards termination
Provincial Decree No. 1666/06 on termination
1.
2.
3.
4.
Outline of the grounds for termination
General matters
a. Claimants' views
b. Respondent's views
c. The Tribunal's findings
Scope of the dispute
The grounds of termination reviewed
a. The POES service expansion goals
aa.
bb.
Claimants' position
Respondent's position
cc. The Tribunal's findings
The micro-metering goals
Nitrate quality levels
Maintenance of drinking water storage tanks
Water pressure quality goals
The commissioning of the sewage treatment plants
b.
C.
d.
e.
£
g.
h.
The renewal of the Concession Contract performance bonds 924
The sewage quality parameters 927
The cooperation with the Regulatory Agency and the
application of the Customer Rules 931
Annex 398
X.
XI.
XII.
5. Are AGBA's alleged breaches cured by the non-application
of sanctions?
6. Conclusion
Expropriation
A. Claimants' position
B.
C.
Respondent's position
The Tribunal's findings
Discriminatory and Unjustified Measures
A. Article IIl(l) of the BIT
B.
C.
D.
Claimants' claim based on allegedly discriminatory measures
1. Claimants' position
2. Respondent's position
Claimants' allegations on unjustified measures
1. Claimants' position
2. Respondent's position
The Tribunal's findings
1. The meaning and purpose of Article III(l) of the BIT
2.
3.
The claims based on allegedly discriminatory measures
The claims based on allegedly unjustified measures
Respondent's Counterclaim
A. Jurisdiction and admissibility
B.
1. Claimants' objections
2.
3.
a. Preliminary matters
b. The Tribunal's lack of competence
c. The Counterclaim does not relate to a dispute arising
directly from an investment within the meaning
of the ICSID Convention and the BIT
Respondent's position
The Tribunal's findings
The merits of the Counterclaim
1.
2.
3.
Respondent's position
Claimants' position
The Tribunal's findings
a. The applicable law under the BIT
b. The BIT's relation to international law and human rights
c. The human right to water in the framework of
AGBA's Concession
XIII. Costs
XIV. Decision
934
943
951
951
975
997
1010
1010
1012
1012
1040
1055
1055
1068
1080
1080
1090
1102
1110
1110
1110
1110
1117
1126
1135
1143
1156
1156
1167
1182
1182
1193
1211
1222
1234
Annex 398
288
to enforce their unpaid invoices and that their right to enforcement was recognized in
Article 59 of Provincial Decree No. 878/03 approving the NRF.
1079. In conclusion, the measures adopted by the Argentine Republic were justified,
since they were reasonable and proportional to the objective pursued.
D. The Tribunal's findings
1. The meaning and purpose of Article III(]) of the BIT
1080. Claimants' claims regarding discriminatory and unjustified measures overlap significantly
with their claim based on fair and equal treatment and their attempt to bring
purely contractual claims under the BIT. Claimants, of course, have expressly admitted
that purely contractual disputes fall outside of this Tribunal's jurisdiction under the BIT.
Therefore, while assessing the relevance of Claimants' claims raised in reference to Article
III(l ), the Tribunal will also incorporate the evidence and the comments contained
in the respective chapters on Claimants' allegations on violation of the Contract and their
claim based on an alleged violation of the standard of fair and equitable treatment.
1081. In light of a reasonable reading of Article III( 1) in conjunction with the other provisions
of the BIT providing specific protections to investors' interest (Art. IV to VIII),
the protection afforded by Article III(l) cannot have the meaning of supplementing the
rules on more specific protections by an additional or extended protection or guarantee.
For instance, the investor's guarantee for fair and equitable treatment of its investment is
determined in Article IV(l) in its content and all its limits (subject to more favorable
terms under Article VII). Article III( 1 ), which is placed before Article IV, cannot have as
its meaning and purpose to provide for an extended guarantee as to the treatment of an
investment, above the range of what is to be understood as "fair and equitable."
1082. The Tribunal does not retain an additional requirement based on nationality. While
it is correct to say that nationality is often a factor for testing whether a measure or decision
qualifies as discrimination, as stated by Respondent, it does not appear as a criterion
circumscribing the notion of"discriminatory measures" in Article III(l ). The BIT is based
on the foreign origin in relation to the definition of investments exclusively. Claimants
comply with this requirement and therefore rightly object to Respondent's restrictive interpretation.
1083. The Tribunal further observes that the interpretation of the core terms of "unjustified
or discriminatory measures" must follow the provisions relating to the law to be applied
by this Tribunal pursuant to Article X( 5) of the BIT. This provision states that the
Tribunal has to make its decision on the basis of the BIT. This means that the concepts
Annex 398
289
used in Article 111( 1) are of an autonomous character, specific to this BIT. General principles
of international law may also be relevant in certain respects. Article X(5) also permits
the application of the Argentine Republic's domestic law "where appropriate."
1084. Contrary to Claimants' repeated assertions that they have themselves accepted as
not relevant for this Tribunal, the Concession Contract is not a basis for this Tribunal's
decision and is therefore not a basis either to understand and determine the content of the
"unjustified or discriminatory measures" referred to in Article 111(1).
1085. On the other hand, the rights and obligations arising out of the Concession Contract,
and Argentina's domestic law (to extent its consultation appears "appropriate"), are
important elements of reference for the Tribunal. They determine AGBA's and Claimants'
respective situation that has necessarily to be considered for the purpose of assessing
whether a measure taken by Respondent appears "justified" or not, "discriminatory" or
not, according to the standards set in Article 111(1) of the BIT.
1086. The Tribunal also draws the attention to another element of text in Article 111(1)
that is not commented by Claimants but noted as a restriction by Respondent. Indeed, the
terms ''unjustified or discriminatory measures" are not standing alone. The protection afforded
to the investors potentially faced with such measures has the meaning that these
measures "shall not obstruct" ("no obstaculizara") investments, and more specifically
"the management, maintenance, use, enjoyment, extension, sale and, where appropriate,
liquidation of such investments." In other words, the investor is not protected against such
measures when they are not "obstructing" its operation and activity.
1087. The requirements resulting from Article III( 1) are at the very basis of Claimants'
claims in this respect. The burden of proving the applicable conditions falls on Claimants.
The Tribunal does not share Claimants' view that once Respondent has accepted that
AGBA was afforded differential treatment, the burden of proof that such treatment was
validly justified would shift to Respondent.
1088. The Tribunal basically agrees with a position stating that measures affecting an
investor are discriminatory if they are clearly less favourable that those accorded to other
investors operating under the same or similar circumstances, they intend to harm the foreign
investor and cause actual damage, and if they are not justified by sufficient reasons.
Article 111(1) requires adding the requirement that such measure had to obstruct one of
the activities related to an investment as listed in the provision.
1089. The Tribunal recognizes the difficulty to provide the concept of "unjustified
measures" with a meaning reflecting the initial intentions of the Contracting Parties to the
BIT and suitable in comparison to the other rules covering the protection of investors in
the BIT. The Tribunal notes that the measures referred to are supplied by a negative and
Annex 398
290
not by a positive qualifier. Article 111(1) does not ensure the investor to be faced with
measures only that are "justified." The protection is more restrictively circumscribed as
a bar against measures that have "no justification." Such justification could be based on
the applicable law as determined by Article X(5), including, where appropriate, the host
State's domestic law. However, the measure to be addressed in a particular case must not
necessarily be "lawful" in order to meet the standard required under Article 111(1). This
provision does not use the term "unlawful" but instead the word "unjustified," which can
imply possible justifications by reference to grounds other than legal ones, in particular
in case of measures justified by reasons based on equity or good faith.
2. The claims based on allegedly discriminatory measures
1090. Claimants' numerous comparisons between the treatment afforded to AGBA and
the more favorable conditions offered to other concessionaires suffer in general from several
flaws making those explanations imprecise, vague or meaningless. In a great number
of cases, it is simply affirmed that a concessionaire compared with AGBA operated under
the same or "like" conditions, without any demonstration based in particular on the contract
and the undertakings for performance applicable to such concessionaire. Claimants
do not distinguish between those concessionaires that were operating an investment covered
by a BIT and state-owned companies placed on an entirely different legal, economic
and financial framework.
1091. Comparisons are made between treatments afforded to AGBA in 2002-2005 and
more favorable measures taken for entities operating in 2008 when the economic situation
of Argentina and the population's health and employment rate had seriously improved.
Claimants object that the same Province signed a Memorandum of Understanding with
AZURIX as concessionaire, while AGBA was barred from such a deal, without considering
that the conditions offered by AZURIX might have been more attractive for the Province,
in particular due to the very different and more favorable economic environment in Regions
A and C and in comparison with AGBA's record of non-compliance in respect of
the first Five-Year POES for the high-risk Region B. Claimants also complain about reliefs
offered to other concessionaires or entities in respect of investment to be provided
and expansion work to be achieved without observing that similar measures were envisaged
for AGBA during the renegotiation but rejected by the Concessionaire.
1092. Claimants complain extensively about the favorable conditions that were offered
to ABSA when it took over the AzURIX and the AGBA Concessions and allege that the
difference was so significant that it amounted to discriminatory treatment.
1093. The Tribunal observes, however, that ABSA was a state-controlled entity that did
not need to achieve an economic and financial equilibrium as this is sustained by Claimants
as private investors interested in a positive return and profit. The most important
Annex 398
ANNEX399
THE MATTER OF AN ARBITRATION
UNDER THE UNCITRAL ARBITRATION RULES 1976
SALUKA INVESTMENTS BV (THE NETHERLANDS)
Claimant
V
THE CZECH REPUBLIC
Respondent
PARTIAL AWARD
Arbitral Tribunal
Sir Arthur Watts KCMG QC (Chairman)
Maitre L. Yves Fortier CC QC
Professor Dr Peter Behrens
Representing Claimant
Mr. Jan Paulsson
Representing Respondent
Mr. George von Mehren
Mr. Peter J. Turner
Freshfields Bruckhaus Deringer
69 boulevard Haussmann
75008 Paris
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
France
and
Professor James Crawford
Lauterpacht Research Centre
for International Law
5 Cranmer Road
Cambridge CB3 9BL
United Kingdom
Registry
127 Public Square
Cleveland, Ohio 44114-1304
USA
and
Dr. Lubos Tichy
Squire, Sanders & Dempsey, v.o.s.
Advokatni kancelaf
Vaclavske namesti 57/813
110 00 Prague 1
Czech Republic
Permanent Court of Arbitration
Annex 399
TABLE OF CONTENTS
I. INTRODUCTION ............................................................................................................. 5
A. Commencement of the Arbitration ................................................................................ 5
B. Constitution of the Tribunal ........................................................................................... 5
C. Procedural Timetable ..................................................................................................... 6
D. The Written Pleadings .................................................................................................... 6
E. The Respondent's Counterclaim .................................................................................... 7
F. Subsequent Procedural Timetable .................................................................................. 9
G. Oral Hearings ................................................................................................................. 9
II. THE FACTS .................................................................................................................... 10
A. The Banking System in Czechoslovakia during the Period of Communist Rule ........ 10
B. The Agreement on Encouragement and Reciprocal Protection oflnvestments
Between the Kingdom of the Netherlands and the Czech and Slovak Federal
Republic 1991 .............................................................................................................. 10
C. The Separation of the Czech Republic and Slovakia ................................................... 10
D. The Reorganisation and Privatisation of the Banking System in the
Czech Republic ............................................................................................................ 11
E. The Czech Banking Sector's "Bad Debt" Problem ..................................................... 12
F. Nomura's Acquisition of Control over IPB on 8 March 1998 ..................................... 13
G. Acquisition and Sale of Pilsner Urquell Brewery ........................................................ 17
H. The Transfer of Nomura Europe's IPB Shares to Saluka ............................................ 18
I. The Government's Assistance to the Banking Sector (1998-2000) ............................. 19
J. Developments in Respect ofIPB (August 1999-end May 2000) ................................ 21
K. Developments in Respect ofIPB (end May 2000-7 June 2000) .................................. 26
L. The Second Bank Run on IPB and its Aftermath ........................................................ 27
M. The Forced Administration ofIPB and its Aftermath ................................................. 29
III. THE PARTIES' ARGUMENTS AND SUBMISSIONS ............................................ 33
IV. THE TRIBUNAL'S JURISDICTION ......................................................................... 35
A. The Parties' Arguments ............................................................................................... 35
B. Relevant Terms of the Treaty ...................................................................................... 40
C. The Respondent's Challenges to the Tribunal's Jurisdiction ..................................... .41
D. The Purchase ofIPB Shares as an Investment and Compliance with Legal
Requirements ............................................................................................................... 42
E. Saluka's Qualification as an "Investor" Entitled to Initiate the Arbitration
Procedures under the Treaty ........................................................................................ 46
1. The Corporate Relationship between Saluka and Nomura ...................................... 46
2. The Alleged Lack of Good Faith and Abuse of Rights .......................................... .47
3. Saluka's Lack of Factual Links with The Netherlands ............................................ 49
F. The Tribunal's Conclusions as to Jurisdiction ............................................................. 50
V. SALUKA'S CLAIMS UNDER ARTICLE 5 OF THE TREATY .................................. 50
A. The Treaty .................................................................................................................... 50
B. The Parties' Principal Submissions ............................................................................. 51
C. The Law ....................................................................................................................... 52
D. Analysis and Findings .................................................................................................. 54
E. Conclusion ................................................................................................................... 59
VI. SALUKA'S CLAIMS UNDER ARTICLE 3 OF THE TREATY .............................. 60
A. The Content of the Czech Republic's Obligations under Article 3 of the Treaty ........ 60
B. Fair and Equitable Treatment. ...................................................................................... 61
1. Meaning of the Standard .......................................................................................... 61
2
Annex 399
a) The Parties' Arguments ....................................................................................... 61
b) The Tribunal's Interpretation ............................................................................... 63
i) The Ordinary Meaning ..................................................................................... 63
ii) The Context. ..................................................................................................... 64
iii) The Object and Purpose of the Treaty ......................................................... 64
iv) Conclusion ................................................................................................... 66
2. Application of the Standard ..................................................................................... 67
a) The Czech Republic's Discriminatory Response to the Bad Debt Problem ........ 67
i) Comparable Position of the Big Four Banks regarding the Bad Debt
Problem ............................................................................................................ 68
ii) Differential Treatment ofIPB Regarding State Assistance ............................. 69
iii) Lack of a Reasonable Justification ................................................................... 70
b) Failure to Ensure a Predictable and Transparent Framework .............................. 74
i) Nomura's Expectation that IPB would not be Treated Differently ................. 74
ii) The Unpredictable Increase of the Provisioning Burden for
Non-Performing Loans .................................................................................... 75
iii) Nomura's Expectation regarding the Legal Framework for the
Enforcement of Loan Security ......................................................................... 75
c) Refusal to Negotiate in Good Faith ..................................................................... 76
i) The Developments during the First Half of 2000 ............................................ 77
(a) The Government's Role in CSOB's Acquisition ofIPB ......................... 77
(b) The Government's Role in IPB's and Saluka's/Nomura's Attempts
to Negotiate a Cooperative Solution ........................................................ 79
ii) The Tribunal's Finding .................................................................................... 84
(a) The Lack of Even-Handedness ................................................................ 85
(b) The Lack of Consistency ......................................................................... 86
( c) The Lack of Transparency ....................................................................... 87
( d) The Refusal of Adequate Communication ............................................... 88
d) Provision of Financial Assistance to IPB after Acquisition by CSOB ............ 89
e) Unjust Enrichment ofCSOB at the Expense of Saluka ................................... 92
C. Non-Impairment ........................................................................................................... 93
1. Meaning of the Standard .......................................................................................... 93
2. Application of the Standard ..................................................................................... 94
a) The Facts Underlying the Violations of the "Fair and Equitable
Treatment" Standard (Article 3.1 of the Treaty) .......................................... 95
b) The Facts Underlying the Deprivation Claim (Article 5 of the Treaty) ...... 95
c) The Czech Government's Alleged Triggering of the Second Run
on IPB .......................................................................................................... 96
D. Full Security and Protection ......................................................................................... 98
1. Meaning of the Standard .......................................................................................... 98
2. Application of the Standard ..................................................................................... 99
a) The Suspension of Trading in IPB Shares ........................................................... 99
b) The Prohibition of Transfers of Saluka' s Shares ............................................... 100
c) The Police Searches ........................................................................................... 100
E. Conclusion ................................................................................................................. 100
VIL OTHER MATTERS ................................................................................................... 102
VIII. DECISIONS ............................................................................................................... 103
3
Annex 399
On the basis of such and similar definitions, one cannot say much more than the tribunal did
in S.D. Myers by stating that an infringement of the standard requires
treatment in such an unjust or arbitrary manner that the treatment rises to the level
that is unacceptable from the international perspective. 33
This is probably as far as one can get by looking at the "ordinary meaning" of the terms of
Article 3.1 of the Treaty.
ii) The Context
298. The immediate "context" in which the "fair and equitable" language of Article 3.1 is
used relates to the level of treatment to be accorded by each of the Contracting Parties to the
investments of investors of the other Contracting Party. The broader "context" in which the
terms of Article 3.1 must be seen includes the other provisions of the Treaty. In the preamble
of the Treaty, the Contracting Parties
recognize[ d] that agreement upon the treatment to be accorded to such investments
will stimulate the flow of capital and technology and the economic development of
the Contracting Parties and that fair and equitable treatment is desirable.
The preamble thus links the "fair and equitable treatment" standard directly to the stimulation
of foreign investments and to the economic development of both Contracting Parties.
iii) The Object and Purpose of the Treaty
299. The "object and purpose" of the Treaty may be discerned from its title and preamble.
These read:
Agreement on encouragement and reciprocal protection of investments between the
Kingdom of the Netherlands and the Czech and Slovak Federal Republic
The Government of the Kingdom of the Netherlands
And
The Government of the Czech and Slovak Federal Republic,
hereinafter referred to as the Contracting Parties,
Desiring to extend and intensify the economic relations between them particularly
with respect to investments by the investor of one Contracting Party in the territory of
the other Contracting Party,
Recognizing that agreement upon the treatment to be accorded to such investments
will stimulate the flow of capital and technology and the economic development of
the Contracting Parties and that fair and equitable treatment is desirable.
64
Annex 399
Taking note of the Final Act of the Conference on Security and Cooperation in
Europe, signed on August, 1st 1975 in Helsinki.
300. This is a more subtle and balanced statement of the Treaty's aims than is sometimes
appreciated. The protection of foreign investments is not the sole aim of the Treaty, but rather
a necessary element alongside the overall aim of encouraging foreign investment and
extending and intensifying the parties' economic relations. That in turn calls for a balanced
approach to the interpretation of the Treaty's substantive provisions for the protection of
investments, since an interpretation which exaggerates the protection to be accorded to
foreign investments may serve to dissuade host States from admitting foreign investments
and so undermine the overall aim of extending and intensifying the parties' mutual economic
relations.
301. Seen in this light, the "fair and equitable treatment" standard prescribed in the Treaty
should therefore be understood to be treatment which, if not proactively stimulating the
inflow of foreign investment capital, does at least not deter foreign capital by providing
disincentives to foreign investors. An investor's decision to make an investment is based on
an assessment of the state of the law and the totality of the business environment at the time
of the investment as well as on the investor's expectation that the conduct of the host State
subsequent to the investment will be fair and equitable.
302. The standard of "fair and equitable treatment" is therefore closely tied to the notion of
legitimate expectations34 which is the dominant element of that standard. By virtue of the
"fair and equitable treatment" standard included in Article 3 .1 the Czech Republic must
therefore be regarded as having assumed an obligation to treat foreign investors so as to avoid
the frustration of investors' legitimate and reasonable expectations. As the tribunal in Teemed
stated, the obligation to provide "fair and equitable treatment" means:
to provide to international investments treatment that does not affect the basic
expectations that were taken into account by the foreign investor to make the
investment. 35
Also, in CME, the tribunal concluded that the Czech authority
breached its obligation of fair and equitable treatment by evisceration of the
arrangements in reliance upon which the foreign investor was induced to invest. 36
The tribunal in Waste Management equally stated that:
In applying [the "fair and equitable treatment"] standard it is relevant that the
treatment is in breach of representations made by the host State which were
reasonably relied on by the claimant. 37
303. The expectations of foreign investors certainly include the observation by the host
State of such well-established fundamental standards as good faith, due process, and nondiscrimination.
38 And the tribunal in OEPC went even as far as stating that
65
Annex 399
[t]he stability of the legal and business framework is thus an essential element of fair
and equitable treatment. 39
304. This Tribunal would observe, however, that while it subscribes to the general thrust of
these and similar statements, it may be that, if their terms were to be taken too literally, they
would impose upon host States' obligations which would be inappropriate and unrealistic.
Moreover, the scope of the Treaty's protection of foreign investment against unfair and
inequitable treatment cannot exclusively be determined by foreign investors' subjective
motivations and considerations. Their expectations, in order for them to be protected, must
rise to the level of legitimacy and reasonableness in light of the circumstances.
305. No investor may reasonably expect that the circumstances prevailing at the time the
investment is made remain totally unchanged. In order to determine whether frustration of the
foreign investor's expectations was justified and reasonable, the host State's legitimate right
subsequently to regulate domestic matters in the public interest must be taken into
consideration as well. As the S.D. Myers tribunal has stated, the determination of a breach of
the obligation of "fair and equitable treatment" by the host State
must be made in the light of the high measure of deference that international law
generally extends to the right of domestic authorities to regulate matters within their
own borders.40
306. The determination of a breach of Article 3 .1 by the Czech Republic therefore requires
a weighing of the Claimant's legitimate and reasonable expectations on the one hand and the
Respondent's legitimate regulatory interests on the other.
307. A foreign investor protected by the Treaty may in any case properly expect that the
Czech Republic implements its policies bona fide by conduct that is, as far as it affects the
investors' investment, reasonably justifiable by public policies and that such conduct does not
manifestly violate the requirements of consistency, transparency, even-handedness and nondiscrimination.
In particular, any differential treatment of a foreign investor must not be
based on unreasonable distinctions and demands, and must be justified by showing that it
bears a reasonable relationship to rational policies not motivated by a preference for other
investments over the foreign-owned investment.
308. Finally, it transpires from arbitral practice that, according to the "fair and equitable
treatment" standard, the host State must never disregard the principles of procedural propriety
and due process41 and must grant the investor freedom from coercion or harassment by its
own regulatory authorities.
iv) Conclusion
309. The "fair and equitable treatment" standard in Article 3 .1 of the Treaty is an
autonomous Treaty standard and must be interpreted, in light of the object and purpose of the
Treaty, so as to avoid conduct of the Czech Republic that clearly provides disincentives to
foreign investors. The Czech Republic, without undermining its legitimate right to take
measures for the protection of the public interest, has therefore assumed an obligation to treat
a foreign investor's investment in a way that does not frustrate the investor's underlying
66
Annex 399
legitimate and reasonable expectations. A foreign investor whose interests are protected
under the Treaty is entitled to expect that the Czech Republic will not act in a way that is
manifestly inconsistent, non-transparent, unreasonable (i.e. unrelated to some rational policy),
or discriminatory (i.e. based on unjustifiable distinctions). In applying this standard, the
Tribunal will have due regard to all relevant circumstances.
2. Application of the Standard
310. In applying Article 3 of the Treaty to the present case, the Claimant contends that the
Czech Republic has violated the "fair and equitable treatment" standard in Article 3 .1 of the
Treaty in a number of ways. The Claimant principally contends that
(a) the Czech Republic gave a discriminatory response to the systemic bad debt
problem in the Czech banking sector, especially by providing State financial assistance to the
other Big Four banks to the exclusion of IPB, and thereby created an environment impossible
for the survival ofIPB;
(b) the Czech Republic failed to ensure a predictable and transparent framework
for Saluka's investment;
( c) the Czech Republic's refusal to negotiate with IPB and its shareholders in
good faith prior to the forced administration was unreasonable and discriminatory;
( d) the provision by the Czech Republic of massive financial assistance to IPB 's
business, once the beneficiary of such assistance had become CSOB following the forced
administration, was unfair and inequitable; and
(e) the Czech Republic's failure to prevent the unjust enrichment of CSOB at the
expense of the IPB shareholders, including Saluka, upon the transfer of IPB's business to
CSOB and the aforementioned State aid following the forced administration was equally
unfair and inequitable.
311. The Tribunal will examine each of these claims separately.
a) The Czech Republic's Discriminatory Response to the Bad
Debt Problem
312. The Claimant contends that, whereas the "systemic" bad debt problem which
contributed to the serious difficulties of the Czech banking sector from 1998 to 2000 equally
affected the Big Four banks (i.e. IPB, KB, CS and CSOB), the Czech Republic, in assisting
these banks to overcome the problem, treated IPB differently in an unreasonable way which
made it impossible for IPB to survive, especially by excluding IPB from the state assistance
that was granted to its competitors, and which resulted in Saluka's loss of its investment.
313. State conduct is discriminatory, if (i) similar cases are (ii) treated differently (iii) and
without reasonable justification.
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ANNEX400
Date of Dispatch to the Parties: January 19, 2007
INTERNATIONAL CENTRE FOR SETTLEMENT
OF INVESTMENT DISPUTES
WASHING TON, D.C.
In the Proceeding Between
PSEG GLOBAL INC. AND KONYA ILGIN ELEKTRiK URETiM VE TiCARET LiMiTED SiRKETi
(CLAIMANTS)
Representing the Claimants:
Carolyn B. Lamm
Abby Cohen Smutny
Francis A. Vasquez, Jr.
Lee A. Steven
White & Case LLP
Mesut <;akmak
Tugba Bayman Keskin
and
REPUBLIC OF TURKEY
(RESPONDENT)
{ICSID Case No. ARB/02/5)
AWARD
Members of the Tribunal
Professor Francisco Orrego Vicufia
Mr. L. Yves Fortier, CC, QC
Professor Gabrielle Kaufmann-Kohler
Secretary of the Tribunal
Mr. Ucheora Onwuamaegbu
Representing the Respondent:
Mr. Daniel M. Price
Mr. Stanimir A. Alexandrov
Mr. Samuel B. Boxerman
Ms. Marinn F. Carlson
Ms. Jennifer Haworth McCandless
Sidley Austin LLP
Washington, DC
<;akmak A vukathk Biirosu Judge Stephen M. Schwebel
Washington, DC
Prof. Dr. M. Fadlullah Cerrahoglu
Cerrahoglu A vukathk Biirosu
John F. Doherty
PSEG Global
Mr. Serdar Paksoy
Paksoy & Co.
Istanbul, Turkey
Annex 400
Table of Contents
I. Procedure ..................................................................................................................................... 3
A. Procedure Leading to the Decision on Jurisdiction ................................................................. 3
B. Procedure Leading to the Award .............................................................................................. 4
II. Considerations ............................................................................................................................. 6
A. The Claimants' Participation in the Development of Turkey's Energy Sector ....................... 6
B. The Commercial Terms of the Contract ................................................................................... 8
C. The Claimants' Understanding of the Commercial Terms of the Contract ............................. 8
D. The Respondent's Understanding of the Commercial Terms of the Contract ....................... 13
E. The Benefits of a Private Law Framework under Law No. 4501 .......................................... 18
F. The Treasury Guarantee, Energy Sales Agreement and Fund Agreement.. ........................... 19
G. The Completion of Pre-Construction Development of the Project ....................................... .22
H. The Tribunal's Evaluation of the Facts ................................................................................. .22
1. Was the Kanya Ilgm Project Important to Turkey's Energy Sector
or was it a Mere Gold Rush? ............................................................................................... 22
2. Did the Implementation Contract Govern the Final Terms of the Project? ....................... .24
3. Did MENR Accept the Cost Increase of the Revised Mine Plan? ....................................... .26
4. For whom was the Tax Burden of the Project in Connection with the Corporate
Structure? ............................................................................................................................. 31
5. Was there Agreement on the Revised Tariff Structure Resultingfrom Increased Costs? ... 35
6. Were the Parties Engaged in Subsequent Negotiations in Bad Faith? .............................. .42
7. Did the World Bank and the IMF Apply Pressure on Turkey to Terminate the Project? ... .48
8. Were the Claimants Arbitrarily Denied the Benefits of Law No. 4501? ............................. 50
9. Did the Respondent Interfere with the Issuance of the Treasury Guarantee and
Supplementary Agreements? ................................................................................................ 52
10. Did the Claimants Abandon the Project? .......................................................................... 54
11. Were the Technical and Economic Aspects of the Project Feasible? ................................ 55
III. Considerations on Liability ..................................................................................................... 58
A. Was there a Breach of Fair and Equitable Treatment? .......................................................... 58
l. The Legal Arguments of the Parties .................................................................................... 58
2. The Tribunal's Findings ...................................................................................................... 62
B. Was there a Breach of the Obligation to Provide Full Protection and Security? ................... 67
C. Was there Arbitrariness or Discrimination? ........................................................................... 67
D. Was there a Breach of Obligations Entered into with Regard to the Investment? ................. 68
E. Was the Investment Expropriated through Measures Tantamount to Expropriation? ........... 70
IV. Damages and Compensation ................................................................................................... 72
A. Claims ............................................................................................................................ 72
l. The Claim for Compensation of Damages ........................................................................... 72
2. Fair Market Value ................................................................................................................ 73
3. Loss of Profits ...................................................................................................................... 73
4. Amount of Investment ........................................................................................................... 74
5. The Respondent's Opposition to the Claim for Damages .................................................... 75
B. The Tribunal's Findings ......................................................................................................... 78
l. Fair Market Value ................................................................................................................ 79
2. Loss of Profits ...................................................................................................................... 80
3. Compensation of Investment Expenses ................................................................................ 82
4. Interest ................................................................................................................................. 87
5. Costs ..................................................................................................................................... 89
AWARD ........................................................................................................................................... 90
ANNEX (DECISION ON mRISDICTION)
Annex 400
236. The Respondent argues that the Claimants only had a right to apply for a private
law contract under Law 4501, and that the Law offered no guarantee that such private
contract would be automatically granted. It further argues that arbitrariness and
discrimination are thus unfounded allegations, which could not lead to the frustration of
any legitimate expectation. For the Respondent, there can be no legitimate expectation
that the proposed revisions of the Contract would be accepted no matter the cost to the
Government.
237. The Respondent concludes that it acted in an equitable, transparent, and
reasonable manner, in good faith and full compliance with the domestic law, and that
there is thus no breach of the fair and equitable treatment standard under the Treaty.
The Respondent further concludes that absent evidence to the contrary, negotiations
must be presumed to be done in good faith, 112 and in light of both the UNIDROIT
Principles of International Commercial Contracts (Article 2.1.15) and the Wintershall
case, 113 there is no obligation to reach an agreement or liability for failure to do so.
2. The Tribunal's Findings
238. The standard of fair and equitable treatment has acquired prommence m
investment arbitration as a consequence of the fact that other standards traditionally
provided by international law might not in the circumstances of each case be entirely
appropriate. This is particularly the case when the facts of the dispute do not clearly
support the claim for direct expropriation, but when there are notwithstanding events
that need to be assessed under a different standard to provide redress in the event that
the rights of the investor have been breached.
239. Because the role of fair and equitable treatment changes from case to case, it is
sometimes not as precise as would be desirable. Yet, it clearly does allow for justice to
be done in the absence of the more traditional breaches of international law standards.
This role has resulted in the concept of fair and equitable treatment acquiring a standing
on its own, separate and distinct from that of other standards, albeit many times closely
related to them, and thus ensuring that the protection granted to the investment is fully
safeguarded.
112 Mobil Oil Iran, Inc. v. Government of the Islamic Republic of Iran and National Iranian Oil Company,
Award No. 311-74-3 ofJuly 14, 1987,para.160.
113 Winters hall, A.G. et al v. Government of Qatar, 28 I.L.M. 795, 814-15 (1989).
62
Annex 400
240. Recent awards have applied this standard to the assessment of rights affected by
inconsistent State action, 114 arbitrary modification of the regulatory framework 115 or
endless normative changes to the detriment of the investor's business and the need to
secure a predictable and stable legal environment. 116 This includes most significantly
the issue of legitimate expectations which, as the Tribunal in Teemed concluded,
requires a treatment that does not "detract from the basic expectations on the basis of
which the foreign investor decided to make the investment."117
241. Although the Claimants, as noted above, provide a long list of legitimate
expectations that in their view have not been met, the Tribunal is not persuaded that all
such complaints relate to legitimate expectations. Legitimate expectations by definition
require a promise of the administration on which the Claimants rely to assert a right that
needs to be observed. 118
242. In fact, the Claimants invoke issues on which the Tribunal has found that no
promise or commitment had been made by the Respondent. This is particularly the case
of the lack of evidence about the alleged agreement of the commercial terms of the
Project. Had these terms been missing, no Energy Sales Agreement or Fund
Agreement, and ultimately no Treasury Guarantee could have been issued. As no such
agreements were reached, the Tribunal finds that the Respondent is right in arguing that
they could not be later revoked.
243. Neither does the Tribunal find merit in the Claimants' argument that the
investment was actively requested by the Turkish Government. True enough, the whole
BOT policy was built on the premise that foreign investments would be needed,
encouraged and welcome, 119 but this was a matter of general policy that did not entail a
promise made specifically to the Claimants about the success of their proposed project.
244. The evidence in fact points to the contrary conclusion. A witness for the
Claimants testified that two high-ranking corporate executives made two short trips to
114 MTD Equity Sdn. Bhd. & MTD Chile S.A. v. Republic of Chile (ICSID Case No. ARB/01/7), Award
of May 25, 2004, para. 164).
115 Tecnicas Medioambientales Teemed, S.A. v. The United Mexican States (ICSID Case No.
ARB(AF)/00/2), Award of May 29, 2003, para. 154.
116 Occidental Exploration and Production Company v. The Republic of Ecuador, LCIA Case No. UN
3467, Award of July 1, 2004, para. 183.
117 Tecnicas Medioambientales Teemed, S.A. v. The United Mexican States (ICSID Case No.
ARB(AF)/00/2), Award of May 29, 2003, para. 154.
118 See J, Decision No. 349, World Bank Administrative Tribunal, 2006.
119 Opening Statement of Ms. Carolyn Lamm, April 3, 2006, Hearing transcripts, Vol. 1, at 80-81.
63
Annex 400
Turkey, because they "wanted to meet with senior government officials, make sure
they're aware of the Project, make sure that they viewed this as a beneficial
development that they were happy to host in their country."120 It thus appears that it
was rather the Claimants who approached the Turkish Government.
245. In the present case, the Claimants contend, moreover, that the breach of fair and
equitable treatment goes as far as to have reached the level of bad faith and have
entailed the deliberate attempt by the Respondent to destroy the investment without
paying compensation. The Tribunal, however, has found no evidence of bad faith or
ultimately of a kind of conspiracy to take away legitimately acquired rights that could
result in the deliberate termination of the Project. To that extent, the role of fair and
equitable treatment in this case does not bring the standard near to expropriation or
other forms of taking.
246. The Tribunal is persuaded nonetheless that the fair and equitable treatment
standard has been breached, and that this breach is serious enough as to attract liability.
Short of bad faith, there is in the present case first an evident negligence on the part of
the administration in the handling of the negotiations with the Claimants. The fact that
key points of disagreement went unanswered and were not disclosed in a timely
manner, that silence was kept when there was evidence of such persisting and
aggravating disagreement, that important communications were never looked at, and
that there was a systematic attitude not to address the need to put an end to negotiations
that were leading nowhere, are all manifestations of serious administrative negligence
and inconsistency. The Claimants were indeed entitled to expect that the negotiations
would be handled competently and professionally, as they were on occasion.
247. Secondly, there is a breach of the obligation to accord fair and equitable standard
of treatment in light of abuse of authority, evidenced in particular, but not exclusively,
by the discussion of the Claimants' application under Law 4501. As noted above,
MENR's demands for a renegotiation went far beyond the purpose of the Law and
attempted to reopen aspects of the Contract that were not at issue in this context or even
within MENR's authority.
248. Inconsistent administrative acts are also evident in this case in respect of some
matters. On occasion the administration would ignore rights granted by law as a matter
120 Testimony of Mr. Robert Dougherty, April 6, 2006, Hearing transcripts, Vol. 4, at 815-16; Written
Statement of Mr. Robert Dougherty, December 9, 2005, para. 9.
64
Annex 400
of policy or practice. This was particularly the case of the foreign branch corporate
structure, recognized under the law, the Implementation Contract, the Letter of
Undertaking and the Dam~tay, but was nevertheless ignored by MENR from February
1998 onward when it demanded the establishment of a Turkish corporation. A witness
for the Claimants testified that since 1996 "the various groups determining energy
policy in Turkey have not worked harmoniously." 121
249. Similar was the situation in respect of the Constitutional Court decision
upholding the rights acquired under a contract, which was simply ignored by MENR in
its dealings with the Claimants. Such inconsistent acts might be unlawful under Turkish
law, but in light of the provisions of the Treaty they are also in breach of the standard of
fair and equitable treatment.
250. Thirdly, the Tribunal also finds that the fair and equitable treatment obligation
was seriously breached by what has been described above as the "roller-coaster" effect
of the continuing legislative changes. This is particularly the case of the requirements
relating, in law or practice, to the continuous change in the conditions governing the
corporate status of the Project, and the constant alternation between private law status
and administrative concessions that went back and forth. This was also the case, to a
more limited extent, of the changes in tax legislation.
251. Even if some of these changes were introduced to facilitate investments and the
conclusion of projects, and to that extent cannot be open to criticism under this
standard, the administration again failed to address the consequences of such changes in
the negotiations and to accommodate the factors in the equation under discussion, with
particular reference to the commercial terms of the Project.
252. Various examples of the breach of fair and equitable treatment obligation are to
be found in the record of this case. Among such breaches, the most prominent are
indeed those that have been discussed earlier in connection with the administration's
negligence in the handling of the negotiations with the Claimants: an abuse of authority
by MENR, in particular with respect to the latter's demands for renegotiation in
connection with the Claimants' application under Law 4501, and the numerous changes
in the legislation and inconsistencies in the administration's practice, in particular with
121 Third Written Statement of Mr. Ahmet Eltekin, February 18, 2005, para. 18; Reply Statement of Mr.
Ahmet Eltekin, December 9, 2005, para. 8.
65
Annex 400
respect to the corporate status of the Project Company and the legal status of the
concess10n.
253. The aggregate of the situations explained raise the question of the need to ensure
a stable and predictable business environment for investors to operate in, as required not
only by the Treaty but also by the Turkish Constitution as noted above. This is what the
United States Technical Memorandum on the BIT had very much in mind when it
referred to fair and equitable treatment as a standard "that can be invoked in arbitration
to protect investments against possible vagaries of the host-Party's national laws and
their administration."
254. The handling of the case shows the exact opposite. Stability cannot exist in a
situation where the law kept changing continuously and endlessly, as did its
interpretation and implementation. While in complex negotiations, such as those
involved in this case, many changes will occur beyond the control of the government, as
was particularly the case with the increased costs, the issue is that the longer term
outlook must not be altered in such a way that will end up being no outlook at all. In
this case, it was not only the law that kept changing but notably the attitudes and
policies of the administration.
255. While noting that no investor "may reasonably expect that the circumstances
prevailing at the time the investment is made remain totally unchanged," the Tribunal in
Saluka held that the investor can still expect that the conduct of the host State
subsequent to the investment will be fair and equitable as the investor's decision to
invest is based on "an assessment of the state of the law and the totality of the business
environment at the time of the investment." 122
256. Even if all the above conduct were to comply with good faith, which the
Tribunal has no reason not to believe, there still would be an evident breach of the fair
and equitable treatment standard under the Treaty, and under Turkish law. To the extent
that this caused damage, compensation will of necessity be awarded.
122 Saluka Investments BV (The Netherlands) v. The Czech Republic, UNCITRAL, Partial Award of
March 17, 2006, paras. 301, 305.
66
Annex 400
B. Was there a Breach of the Obligation to Provide Full Protection and Security?
257. The Claimants have also alleged a breach of the obligation to provide full
protection and security as a separate heading of liability. This obligation is indeed
embodied in Article II (3) of the Treaty. The Claimants have advanced two arguments
in this respect. The first is that, following CME, full protection and security includes
the adverse effects of the amendments of the law or administrative actions on the
investment. The second argument is that, following OEPC, the breach of fair and
equitable treatment automatically entails the absence of full protection and security.
The Respondent opposes both arguments.
258. The Tribunal is mindful of the fact that this particular standard has developed in
the context of the physical safety of persons and installations, and only exceptionally
will it be related to the broader ambit noted in CME. To the extent that there is such an
exceptional situation, the connection with fair and equitable treatment becomes a very
close one.
259. The Tribunal does not find that in the present case there has been any question of
physical safety and security, nor has any been alleged. Neither does the Tribunal find
that there is an exceptional situation that could qualify under this standard as a separate
heading of liability. The anomalies that have been found are all included under the
standard of fair and equitable treatment discussed above. This heading of liability is
accordingly dismissed.
C. Was there Arbitrariness or Discrimination?
260. The Treaty also provides in Article II (3) for protection against arbitrary and
discriminatory measures that impair the management, operation, maintenance, use,
enjoyment, acquisition, expansion or disposal of the investment. This, the Claimants
argue, occurred in the present case, particularly in respect of the repudiation of the
Ministerial Approval and of the rights under the Contract, the refusal to reinstate such
rights following the decision of the Constitutional Court, as well as in connection with
the demands related to the application under Law 4501.
261. Again in this different context, the Tribunal finds that, to the extent supported by
the facts, the anomalies that took place in connection with the conduct just referred to
67
Annex 400
are included in the breach of fair and equitable treatment and that there is no ground for
a separate heading on liability on account of arbitrariness.
262. As far as discrimination is concerned, the Tribunal notes that all the measures
adopted, rightly or wrongly, related to the whole array of BOT projects under
consideration, as the Claimants themselves have repeatedly argued. Thus, it is quite
evident that Konya Ilgm was not singled out in a discriminatory manner. The
Claimants' argument about foreign investments having been discriminated against is
equally not supported by the facts. The changes in macroeconomic policy that would
have occurred concerned the economy as a whole. The question of foreign investment
being particularly intense in the energy sector is a separate matter unrelated to the claim
on discrimination. This heading of liability is accordingly also dismissed.
D. Was there a Breach of Obligations Entered into with Regard to the Investment?
263. The Claimants also argue that the Respondent has breached the obligation under
Article II (3) of the Treaty to "observe any obligation it may have entered into with
regard to investments," including therein not just the undertakings under the Contract
but also a host of other commitments originating in the legislative, administrative and
regulatory undertakings concerning the investment. Prominent among such alleged
breaches is the failure to permit the Claimants to benefit from the laws enacted
specifically to improve the financing of the Project, the failure to observe the regulatory
undertakings under Article 8 of the Contract, and the failure to exercise the regulatory
and administrative authority in good faith and in a reasonable manner.
264. As noted above, the Respondent asserts that under Article 8 of the Contract it
had discretion to approve the revised tariff. The discretion contrasted with the more
limited language of Article 5.1 of the Implementation Contract, 123 with the sole
requirement of reasonable grounds, which the Respondent argues was amply satisfied in
light of the public interest. 124 Judge Schwebel also concluded in this respect that
123 Affidavit of Judge Harun <;etintemel, September 9, 2006, para. 11.
124 Legal Opinion of Professor Zehreddin Aslan, September 14, 2005, para. 22; Legal Opinion of
Professor Ender Ethem Atay, September 15, 2005, para. 22; Second Legal Opinion of Professor Ergun
Ozsunay, September 13, 2005, para. 12.
68
Annex 400
MENR "rejected Claimants' various tariff proposals for what it saw as reasonable
grounds and that it did not do so roughly, abruptly, arbitrarily or capriciously." 125
265. The Respondent further asserts that at all times it proceeded to negotiate in good
faith and, as discussed above, there could be no liability attached to the failure to
conclude an agreement if it was deemed to be too onerous for Turkey and if less
expensive alternatives were available. 126
266. The Tribunal concluded in its Decision on Jurisdiction that the existence of the
Contract, its validity and binding effects were beyond doubt. The issue that was then
left pending for the merits stage was whether the parties had reached agreement on any
amendment to some important commercial terms of the Project. As noted above, the
Claimants maintain that the parties were under an obligation to complete the
negotiations and finalize the Project, while the Respondent asserts that the discretion
envisaged in Article 8 was broad enough so as to allow for the disagreements that
followed. The Tribunal has found above that important as the Feasibility Study and the
Implementation Contract were, they were not self-contained as some of the essential
commercial terms were still open to discussion, a conclusion that Article 8 of the
Contract clearly corroborates.
267. Although negotiations on the commercial terms were pursued for a long time
there is no decisive evidence about an agreement having been unequivocally reached.
In view of the fact that the Contract provided for such negotiations to be carried
forward, it follows that liability cannot be attached to the fact that agreement was not
reached.
268. While a legal expert for the Claimants expressed the view that MENR's legal
options were limited either to approve or disapprove on reasonable grounds, 127 this was
hardly realistic to expect in a project as complex as this. In fact the Claimants were
greatly interested in exhausting the possibilities of reaching a negotiated agreement.
269. It follows from the above that the Tribunal cannot conclude that there was a
breach of the Contract obligations, except to the extent that the sixty-day time line for a
rejection of the revised tariff was never complied with. Such a time limit was in any
event not essential as both parties pursued negotiations for many more months and it
125 Opening Statement of Judge Stephen Schwebel, April 4, 2006, Hearing transcripts, Vol. 2, at 332-35.
126 Affidavit of Mr. Cumhur Ersfuner, September 14, 2005, para. 11.
127 Legal Opinion of Professor Sait Gi.iran, December 9, 2005, para. 21.
69
Annex 400
could hardly be expected that it could be met in the context of a negotiation as complex
as this.
270. The Tribunal has also found that while both parties were required under the
Contract to pursue the negotiations on the additional agreements needed to complete the
Project, such as the Treasury Guarantee, the Energy Sales Agreement and the Fund
Agreement, such agreements were dependent upon the finalization of the commercial
terms of the Contract, a key event that never occurred. It follows that, in spite of the
fact that the Contract envisaged these agreements as a part of the overall commitments
undertaken by the parties, compliance with such objectives could not be achieved
irrespectively of or separately from the commercial terms.
271. A number of recent awards have extensively discussed the meaning of the
"umbrella clause" 128 and there is no point for this Tribunal to go over this discussion
again. In the context of the present dispute, it suffices to note that there are different
views about whether a contract breach can be transformed into a treaty breach or should
be handled differently as an ordinary commercial breach of contract. 129 As the Tribunal
has not found a specific breach of obligations under the Contract, the issue does not
arise in this case. Questions concerning the interference arising from the exercise of
sovereign powers of the State have been discussed above in connection with the breach
of fair and equitable treatment and are, in the light of the facts of this case, independent
from contract rights.
E. Was the Investment Expropriated through Measures Tantamount to Expropriation?
272. Although the Claimants have not argued the existence of direct expropriation in
this dispute, they have requested a finding of liability on account of the breach of
Article III (1) of the Treaty in that various measures adopted are tantamount to
expropriation and have resulted in indirect expropriation. Regulatory or creeping
128 SGS Societe Generate de Surveillance S.A. v. Islamic Republic of Pakistan (ICSID Case No.
ARB/01/13), Decision of the Tribunal on Objections to Jurisdiction of August 6, 2003; SGS Societe
Generate de Surveillance S.A. v. Republic of Philippines (ICSID Case No. ARB/02/6), Decision of the
Tribunal on Objections to Jurisdiction of January 29, 2004; Salini Costruttori S.p.A. and Italstrade S.p.A.
v. The Hashemite Kingdom of Jordan (ICSID Case No. ARB/02/13), Decision on Jurisdiction of
November 19, 2004; Noble Ventures, Inc. v. Romania (ICSID Case No. ARB/01/11), Award of October
12, 2005.
129 Joy Mining Machinery Limited v. The Arab Republic of Egypt (ICSID Case No. ARB/03/11), Award
on Jurisdiction of August 6, 2004, paras. 78, 81.
70
Annex 400
expropriation, the Claimants recall, has been long accepted in the literature of
international law and the decisions of international courts and tribunals.
273. Such measures can include, the Claimants assert, covert or incidental
interference with the property resulting in the deprivation of economic benefits, 130 the
taking of contract rights and the imposition of unreasonable regulatory regimes. 131 For
the Claimants, the aggregate of measures taken in this case resulted in the termination of
the Project and the complete destruction of the investment made.
274. The Respondent opposes such allegations on the ground that, as held by the
tribunal in Feldman, "not every business problem experienced by a foreign investor is
an indirect or creeping expropriation" 132 nor does the protection under the Treaty cover
commercial risks. 133
275. In the Respondent's view, the disputed actions were not expropriatory in nature
as no rights under the Contract were taken and no vested rights arose from the
Implementation Contract, which was only initialed and never signed, from the June 19,
1998 Ministerial Approval, which contained no contractual commitment, or from Law
No. 4501, which gave no automatic rights to the conversion of contracts.
276. The Respondent further asserts that neither was there a deprivation of substantial
rights, and the Claimants were free, and are still free, to pursue the proposed Project
under the terms originally agreed in the Feasibility Study. However, the Claimants
chose to abandon the Project even before the actual alleged date of expropriation.
277. In any event, the Respondent argues that, as held in OEPC, the deprivation must
affect a significant part of the investment, which was also the reason that led the
Tribunal in Noble Ventures to conclude that no viable company or valuable assets were
concerned in the actions taken in that case. 134 Given that the Respondent asserts that
the Project had no economic viability, no value could have been affected by its actions.
130 Meta/clad Corporation v. The United Mexican States (ICSID Case No. ARB(AF)/97/1), Award of
August 6, 2004, para. 103.
131 Marvin Roy Feldman Karpa v. Mexico (ICSID Case No. ARB(AF)/99/1), Award of December 16,
2002, at par 103; CME Czech Republic B. V. v. The Czech Republic, UNCITRAL, Partial Award,
September 13, 2001, para. 603.
132 Marvin Roy Feldman Karpa v. Mexico (ICSID Case No. ARB(AF)/99/1), Award of December 16,
2002, para. 112.
133 Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic of Egypt, (ICSID Case No.
ARB/99/6), Award of April 12, 2002, para. 153.
134 Noble Ventures, Inc. v. Romania (ICSID Case No. ARB/01/11), Award of October 12, 2005, para.
216.
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278. The Tribunal has no doubt that indirect expropriation can take many forms. Yet,
as the tribunal in Pope & Talbot found, there must be some form of deprivation of the
investor in the control of the investment, the management of day-to day-operations of
the company, interfering in the administration, impeding the distribution of dividends,
interfering in the appointment of officials and managers, or depriving the company of
its property or control in total or in part. 135
279. The Tribunal is not persuaded that any such extreme forms of interference took
place in this case. Many things were wrongly handled, but none could be considered to
amount to regulatory expropriation. The rights that were affected one way or the other,
including the Claimants' legitimate expectation, have indeed resulted in a finding of
breach of the standard of fair and equitable treatment, yet none of the measures adopted
envisaged the taking of property, which is still the essence of expropriation, even
indirect expropriation. Although measures tantamount to expropriation may well make
the question of ownership irrelevant, 136 it does require a strong interference with clearly
defined contract rights that in this case were in the end incomplete.
280. The Tribunal accordingly concludes that the Respondent has not breached
Article III (1) of the Treaty. This conclusion does not mean that there was no value of
property or rights affected, but this is a separate question that the Tribunal will address
next in the assessment of damages.
IV. Damages and Compensation
A. Claims
l. The Claim for Compensation of Damages
281. In the Claimants' view, the Respondent's violations of the BIT were so severe as
to deprive them of the value of their entire investment in the Project, thus resulting in
the complete loss of the benefit of such investment and of the value of the contract
rights. The Claimants accordingly request, in light of the Chorz6w Factory case, the
full reparation for the injuries caused so as to "as far as possible, wipe out all the
135 Pope and Talbot, Inc. v. The Government of Canada, UNCITRAL, Award on the Merits of Phase 2,
April 10, 2001, para. 100.
136 Waste Management, Inc. v. United Mexican States (ICSID Case No. ARB(AF)/00/3), Award of April
30, 2004, para. 143.
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ANNEX401
International Centre for Settlement of Investment Disputes
IOAN MICULA,
VIOREL MICULA,
S.C. EUROPEAN FOOD S.A.,
S.C. STARMILL S.R.L.
AND
S.C. MUL TIPACK S.R.L.
CLAIMANTS
v.
ROMANIA
RESPONDENT
ICSID Case No. ARB/05/20
AWARD
Rendered by an Arbitral Tribunal composed of:
Dr. Laurent Levy, President
Dr. Stanimir A. Alexandrov, Arbitrator
Prof. Georges Abi-Saab, Arbitrator
Secretary of the Tribunal
Ms. Martina Polasek
Assistant to the Tribunal
Ms. Sabina Sacco
Date of Dispatch to the Parties: 11 December 2013
Annex 401
TABLE OF CONTENTS
I. INTRODUCTION ................................................................................................................................... 9
A. OVERVIEW OF THE DISPUTE .............................................................................................................. 9
B. THE PARTIES ................................................................................................................................... 9
1. The Claimants ......................................................................................................................................... 9
2. The Respondent. ................................................................................................................................... 10
II. PROCEDURAL HISTORY .................................................................................................................. 11
A. INITIAL PHASE ................................................................................................................................ 11
B. THE JURISDICTIONAL PHASE .......................................................................................................... 12
C. THE MERITS PHASE ........................................................................................................................ 12
1. Initial procedural steps .......................................................................................................................... 12
2. The written phase on the merits ............................................................................................................ 13
3. Procedural steps predating the hearing on the merits ........................................................................... 24
4. The hearing on the merits and quantum ............................................................................................... 25
5. Procedural matters following the hearing .............................................................................................. 28
a. The Claimants' Applications for Provisional Measures and the Respondent's Application for
Revocation of Provisional Measures ............................................................................................... 28
b. The Claimants' Renewed Application for a Site Visit... .................................................................... 35
c. The Claimants' Revised Request for Relief ..................................................................................... 36
d. Post-hearing briefs and oral closing arguments .............................................................................. 36
e. Closure of the Proceeding and Submissions on Costs .................................................................... 38
Ill. FACTUAL BACKGROUND ................................................................................................................ 40
A. OVERVIEW ..................................................................................................................................... 40
B. LEGAL FRAMEWORK FOR THE DISFAVORED REGIONS ...................................................................... 41
1. Romania's efforts to attract investment in the early 1990s .................................................................... 41
2. EGO 24/1998 ........................................................................................................................................ 42
3. Government Decision 194/1999 and the 1999 Methodological Norms ................................................. 45
C. THE CLAIMANTS' INVESTMENTS ...................................................................................................... 47
1. The Claimants' initial investments in reliance on previous incentive regimes ....................................... 47
2. The Claimants' investments in reliance on the EGO 24 incentives ....................................................... 49
3. Permanent Investor Certificates ............................................................................................................ 51
D. ROMANIA'S ACCESSION PROCESS .................................................................................................. 52
1. Early steps: the Europe Agreement and Romania's application for EU membership ............................ 52
2. Romania's initial efforts to align its state aid laws ................................................................................. 57
3. Romania and the EU begin formal accession negotiations ................................................................... 62
4. The Decision of the Romanian Competition Council and amendments to the EGO 24 regime ............. 62
5. Romania's progress towards accession in the period 2000-2001 ......................................................... 64
6. Further amendments to the EGO 24 Regime (2000-2001) ................................................................... 69
7. Parallel developments in the EU and EGO 24 fronts (2002) ................................................................. 70
8. Events leading up to the revocation of EGO 24 .................................................................................... 72
9. Subsequent events ............................................................................................................................... 76
IV. SUMMARY OF THE PARTIES' POSITIONS ...................................................................................... 77
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A. THE CLAIMANTS' POSITION ............................................................................................................. 77
B. THE RESPONDENT'S POSITION ........................................................................................................ 82
V. PRELIMINARY MATTERS .................................................................................................................. 86
A. THE TRIBUNAL'S JURISDICTION ....................................................................................................... 86
B. APPLICABLE LAW ........................................................................................................................... 87
1. The Claimants' position ......................................................................................................................... 88
a. There is no conflict of treaties, and even if there were, the BIT should prevail. ............................... 88
b. Romania's interpretation of the provisions of the BIT is flawed ....................................................... 89
c. EU law requirements would not justify or excuse breaches of the BIT or international law ............. 89
2. The Respondent's position .................................................................................................................... 91
a. The BIT must be interpreted consistently with EU law ..................................................................... 91
b. In any event, the Contracting Parties to the BIT intended European law to prevail ......................... 92
c. EU law is relevant to the determination of wrongfulness ................................................................. 93
3. The Commission's position ................................................................................................................... 93
4. The Tribunal's analysis .......................................................................................................................... 93
C. THE ENFORCEMENT OF THE ARBITRAL AWARD AND EU LAW ........................................................... 95
1. The Respondent's position .................................................................................................................... 96
2. The European Commission's position ................................................................................................... 96
3. The Claimants' position ......................................................................................................................... 97
4. The Tribunal's analysis ......................................................................................................................... 97
VI. ANALYSIS OF THE CLAIMANTS' TREATY CLAIMS ....................................................................... 99
A. UMBRELLA CLAUSE ....................................................................................................................... 99
1. The Claimants' position ......................................................................................................................... 99
a. Nature and scope of the BIT's umbrella clause ............................................................. ..... ..... ........ 99
b. The EGO 24 regime gave rise to a specific obligation vis-a-vis the Claimants .............................. 102
c. Romania breached the BIT's umbrella clause ............................................................................... 107
2. The Respondent's position .................................................................................................................. 107
a. Nature and scope of the BIT's umbrella clause ............................................................................. 107
b. Romania did not enter into a specific obligation with the Claimants .............................................. 109
c. Even if the umbrella clause were applicable, Romania did not breach it.. ................... ..... ..... ........ 112
3. The Tribunal's analysis ....................................................................................................................... 113
a. Interpretation of the BIT's umbrella clause .................................................................................... 113
b. Did Romania enter into a specific obligation with the Claimants? ................................................. 116
i. Content of the Claimants' entitlement ...................................................................................... 116
ii. Does Romania's undertaking qualify as an "obligation" under Romanian law? If yes, did
Romania breach it? .................................................................................................................. 123
B. FAIR AND EQUITABLE TREATMENT ................................................................................................ 128
1. Summary of the Parties' positions ....................................................................................................... 128
a. The Claimants' position ................................................................................................................. 128
b. The Respondent's position ............................................................................................................ 133
2. Nature, interpretation and content of the fair and equitable treatment standard ................................. 138
a. Interpretation and general contours of the standard ...................................................................... 138
b. Conduct that is substantively improper .......................................................................................... 143
c. Regulatory stability and legitimate expectations ............................................................................ 145
d. Transparency/ Consistency ................................................ ..... ..... ...................... ..... ..... ................ 146
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3. Did Romania fail to provide a predictable and stable legal framework for the Claimants'
investments? In particular, did it violate the Claimants' legitimate expectations of regulatory
stability? .............................................................................................................................................. 14 7
a. The Claimants' position ................................................................................................................. 147
i. The standard for determining whether there has been a breach of legitimate expectations .... 148
ii. Romania made a promise or assurance to the Claimants that gave rise to a legitimate
expectation .............................................................................................................................. 149
iii. The Claimants relied upon that promise or assurance ............................................................. 150
iv. The Claimants' reliance was reasonable ................................................................................. 153
(a) The purpose and content of EGO 24 and its enacting legislation ..................... ..... ............. 153
(b) The issuance and content of the Pl Cs ............................................................................... 154
(c) Romania's intimate involvement in the granting of the EGO 24 incentives ........................ 155
(d) Romania's promotion and support of the EGO 24 regime and previous incentive regimes 156
( e) Romania's interaction with the Competition Council .......................................................... 157
(f) The Claimants' expectations were reasonable in light of Romania's impending accession
to the EU ............................................................................................................................ 159
v. Romania violated this legitimate expectation .......... ..... ................. ..... ..... ..... ................. ..... ...... 164
b. The Respondent's position ............................................................................................................ 165
i. The standard for determining if a measure has undermined legitimate expectations .............. 166
ii. Romania did not make a promise or assurance that could have created a subjective
expectation .............................................................................................................................. 168
iii. Any expectation of regulatory stability would have been unreasonable ................................... 174
iv. The Claimants have not proven that they relied on a subjective expectation that the facilities
would not change for 10 years ................................................................................................. 178
c. The Tribunal's analysis .................................................................................................................. 181
i. The standard to determine whether a legitimate expectation has been breached ................... 181
ii. Did Romania make a promise or assurance that gave rise to a legitimate expectation? ......... 183
iii. Was this expectation reasonable? ........................................................................................... 187
(a) Reasonableness in the context of Romania's Accession to the EU ................................... 188
(b) Reasonableness under Romanian law ............................................................................... 192
iv. Did the Claimants in fact rely on that expectation? .................................................................. 194
4. Did Romania act unreasonably? ......................................................................................................... 196
a. The Claimants' position ................................................................................................................. 196
b. The Respondent's position ............................................................................................................ 197
i. The Respondent's motivation in amending EGO 24 was to comply with EU accession .......... 198
ii. Romania reasonably balanced conflicting policies ................................................................... 200
iii. None of the Claimants' contentions about what Romania could or should have done
differently prove that Romania acted unreasonably ................................................................. 201
c. The Tribunal's analysis .................................................................................................................. 202
i. Did Romania act in pursuit of a rational policy? ....................................................................... 202
ii. The Claimants' specific allegations of unreasonable conduct... ............................................... 214
(a) The Claimants' allegation that Romania actively promoted and extended the EGO 24
regime, while at the same time negotiating for the scheme's early termination .................. 214
(b) The Claimants' allegation that Romania revoked the incentives regime prematurely,
without being required to do so by any competent legal authority and without attempting
to mitigate damages ........................................................................................................... 215
(c) The Claimants' allegation that Romania revoked the benefits of the incentives regime for
investors, while maintaining the investors' obligations under that regime .......................... 217
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iii. Conclusion ............................................................................................................................... 220
5. Did Romania act in bad faith? ............................................................................................................. 221
a. The Parties' positions .................................................................................................................... 221
b. The Tribunal's analysis .................................................................................................................. 221
6. Did Romania fail to act transparently or consistently? ......................................................................... 223
a. The Claimants' position ................................................................................................................. 223
b. The Respondent's position ....................................................................................... ..... ................ 224
i. Romania's balancing of confidentiality and openness was reasonable ................................... 225
ii. Romania complied with any standard of consistency or transparency that could reasonably
be imposed in the context of complex or politically sensitive legislation and negotiation ......... 226
iii. It was common knowledge that the facilities were vulnerable .................................................. 229
c. The Tribunal's analysis .................................................................................................................. 230
C. THE CLAIMANTS' REMAINING CLAIMS ........................................................................................... 233
VII. DAMAGES ......................................................................................................................................... 234
A. OVERVIEW ................................................................................................................................... 234
1. Overview of the Claimants' damages case ......................................................................................... 234
a. The Claimants' original damages case .......................................................................................... 234
b. The Claimants' damages case in their Reply ..... ..... ..... ............... ....... ..... ..... ..... ..... ............... ........ 235
c. The Claimants' revised request for relief ....................................................................................... 237
2. Overview of the Respondent's position ............................................................................................... 240
B. PRELIMINARY MATTERS ................................................................................................................ 243
1. Legal Standards .................................................................................................................................. 243
2. Does the Tribunal have jurisdiction over claims for damages relating to the non-claimant companies
of the EFDG? ...................................................................................................................................... 247
C. ANALYSIS OF THE CLAIMANTS' DAMAGES CLAIMS ......................................................................... 252
1. General comments .............................................................................................................................. 252
2. Increased cost of raw materials ........................................................................................................... 254
a. Increased cost of sugar ................................................................................................................. 254
b. Increased cost of PET ................................................................................................................... 256
c. Increased cost of other raw materials ............................................................................................ 258
d. Lost opportunity to stockpile sugar ................................................................................................ 259
3. The Claimants' claims for lost profits ................................................................................................... 262
a. Standard for an award of lost profits .............................................................................................. 263
i. The Respondent's position ...................... ..... ..... ..... ..... .......... ....... ..... ..... .......... ....... ..... ........... 263
ii. The Claimants' position ............................................................................................................ 265
iii. The Tribunal's analysis ............................................................................................................ 267
b. Lost profits on sales of finished goods ........................................................................................... 268
c. Lost profits on sales of sugar containing products (SCPs) ............................................................ 277
i. The Claimants never sold SCPs to industrial third parties ....................................................... 279
ii. The Claimants have not proven that they would have in fact engaged in the business of
selling SCPs to industrial third parties ...................................................................................... 281
d. Lost profits incurred as a result of the Claimants' inability to complete the Incremental
Investments ................................................................................................................................... 286
i. Overview of the Parties' positions ............................................................................................ 286
ii. The Tribunal's analysis ............................................................................................................ 288
(a) The Claimants' integrated business model - Advance planning for the Incremental
Investments ........................................................................................................................ 288
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(b) The malt manufacturing plant ............. ..... ................. .......... ..... ..... ................. ..... ..... ........... 291
(c) The can manufacturing plant. ............................................................................................. 295
(d) The co-generation plant ..................................................................................................... 298
(e) Conclusions ........................................................................................................................ 304
4. Financial penalties for failure to pay taxes .......................................................................................... 306
a. Overview ....................................................................................................................................... 306
b. The Tribunal's analysis .................................................................................................................. 311
D. THE RESPONDENT'S DEFENSE THAT ACCESSION TO THE EU BENEFITED THE CLAIMANTS ............... 317
E. THE CLAIMANTS' REQUEST THAT DAMAGES BE AWARDED NET OFT AXES ...................................... 322
F. TO WHOM SHOULD THE AWARD BE MADE? .................................................................................. 324
1. The Claimants' request for a different allocation of damages ............................................................. 324
2. The Parties' positions .......................................................................................................................... 326
a. The Individual Claimants' right to claim damages in their capacity as shareholders ..................... 326
b. Is it possible for the Individual Claimants to be designated as the sole or principal claimants at
this stage of the proceedings? ....................................................................................................... 333
c. The impact of the Claimants' requested allocation on the factual or legal bases for the claimed
damages or their quantification ..................................................................................................... 336
3. The Tribunal's analysis with respect to the requested allocation of damages ..................................... 341
a. The Claimants' request that all damages be awarded to the Individual Claimants ........................ 341
b. Allocation of damages to all five Claimants ................................................................................... 342
VIII. INTEREST ......................................................................................................................................... 346
A. INTRODUCTION ............................................................................................................................. 346
B. THE CLAIMANTS' POSITION ........................................................................................................... 347
C. THE RESPONDENT'S POSITION ...................................................................................................... 349
D. THE TRIBUNAL'S ANALYSIS .......................................................................................................... 351
1. Simple versus compound interest ....................................................................................................... 351
2. Rate .................................................................................................................................................... 351
3. Date of calculation ............................................................................................................................... 352
IX. THE PARTIES' OTHER REQUESTS FOR RELIEF ......................................................................... 355
A. THE PARTIES' REQUESTS CONCERNING SET-OFF OF THE AMOUNTS AWARDED AGAINST THE
EFDG's TAX DEBTS .................................................................................................................... 355
1. The Respondent's position .................................................................................................................. 355
2. The Claimants' position ....................................................................................................................... 355
3. The Tribunal's analysis ....................................................................................................................... 357
B. THE CLAIMANTS' REQUEST FOR POST-AWARD INJUNCTIVE RELIEF ................................................ 359
1. The Claimants' position ....................................................................................................................... 359
2. The Respondent's position .................................................................................................................. 360
3. The Tribunal's analysis ....................................................................................................................... 361
X. COSTS ............................................................................................................................................... 366
XI. DECISION .......................................................................................................................................... 367
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Annex 401
664. According to the Respondent, "[a]II of this belies any suggestion that Messrs Micula
made investment decisions relying upon a belief that the facilities would remain
unchanged until 2009. Indeed, the investment expansions in 2005 and thereafter
cannot possibly assist the Claimants' legitimate expectations arguments: they
espoused, rather than avoided, Romania's regulatory framework" (R-CM, ,r 131 ).
c. The Tribunal's analysis
i. The standard to determine whether a legitimate expectation has been
breached
665. As the Respondent puts it, the key issue before the Tribunal is "who bore the risk of
regulatory change: the state or the investors who benefitted from the existing
regulatory regime" (R-Rejoinder, ,r 9).
666. In the Tribunal's view, the fair and equitable treatment standard does not give a right
to regulatory stability per se. The state has a right to regulate, and investors must
expect that the legislation will change, absent a stabilization clause or other specific
assurance giving rise to a legitimate expectation of stability. Thus, the Claimants'
"regulatory stability" argument must be analyzed in the context of the protection of an
investor's legitimate expectations.
667. Cases supporting the doctrine of legitimate expectations are numerous. As noted by
Dolzer and Schreuer, the protection of legitimate expectations is by now "firmly rooted
in arbitral practice." 132 Although the question of whether these legitimate expectations
were breached is a factual one, an overwhelming majority of cases supports the
contention that, where the investor has acquired rights, or where the state has acted
in such a way so as to generate a legitimate expectation in the investor and that
investor has relied on that expectation to make its investment, action by the state that
reverses or destroys those legitimate expectations will be in breach of the fair and
equitable treatment standard and thus give rise to compensation. 133
132 Dolzer & Schreuer, p. 134.
133 See, e.g., Saluka v. Czech Republic, mf 302 (The standard of "fair and equitable treatment" is
therefore closely tied to the notion of legitimate expectations which is the dominant element of that
standard. By virtue of the "fair and equitable treatment" standard included in Article 3.1 the Czech
Republic must therefore be regarded as having assumed an obligation to treat foreign investors so as
to avoid the frustration of investors' legitimate and reasonable expectations"); Teemed v. Mexico, ,r
154 {where the tribunal found that the obligation to provide "fair and equitable treatment" meant "to
provide to international investments treatment that does not affect the basic expectations that were
taken into account by the foreign investor to make the investment"); CME v. Czech Republic, ,r 611
(where the tribunal concluded that the Czech authority "breached its obligation of fair and equitable
treatment by evisceration of the arrangements in reliance upon with the foreign investor was induced
to invest"); Waste Management v. Mexico II, ,r 98 ("In applying [the 'fair and equitable treatment']
standard it is relevant that the treatment is in breach of representations made by the host State which
were reasonably relied on by the claimant."); International Thunderbird v. Mexico, ,r 147 ("[t]he concept
of 'legitimate expectations' relates, within the context of the NAFTA framework, to a situation where a
Contracting Party's conduct creates reasonable and justifiable expectations on the part of an investor
(or investment) to act in reliance on said conduct, such that a failure by the NAFTA Party to honour
those expectations could cause the investor (or investment) to suffer damages")
181
Annex 401
668. The Parties agree that, in order to establish a breach of the fair and equitable
treatment obligation based on an allegation that Romania undermined the Claimants'
legitimate expectations, the Claimants must establish that (a) Romania made a
promise or assurance, {b) the Claimants relied on that promise or assurance as a
matter of fact, and (c) such reliance (and expectation) was reasonable. 134 This test is
consistent with the elements considered by other international tribunals. 135
669. In the Tribunal's view, elements (a) and (c) are related. There must be a promise,
assurance or representation attributable to a competent organ or representative of the
state, which may be explicit or implicit. The crucial point is whether the state, through
statements or conduct, has contributed to the creation of a reasonable expectation, in
this case, a representation of regulatory stability. It is irrelevant whether the state in
fact wished to commit itself; it is sufficient that it acted in a manner that would
reasonably be understood to create such an appearance. The element of
reasonableness cannot be separated from the promise, assurance or representation,
in particular if the promise is not contained in a contract or is otherwise stated
explicitly. Whether a state has created a legitimate expectation in an investor is thus
a factual assessment which must be undertaken in consideration of all the
surrounding circumstances.
670. In this regard, the Tribunal subscribes to the view of the tribunal in Duke Energy v.
Ecuador ( quoted in Bayindir v. Pakistan, ,r 179):
The stability of the legal and business environment is directly linked to the
investor's justified expectations. The Tribunal acknowledges that such
expectations are an important element of fair and equitable treatment. At
the same time, it is mindful of their limitations. To be protected, the
investor's expectations must be legitimate and reasonable at the time when
the investor makes the investment [Teemed, ,r 154; Occidental, ,r 185;
LG&E, ,r 127]. The assessment of the reasonableness or legitimacy must
take into account all circumstances, including not only the facts
surrounding the investment, but also the political, socioeconomic, cultural
and historical conditions prevailing in the host State. In addition, such
expectations must arise from the conditions that the State offered the
investor and the latter must have relied upon them when deciding to invest
[SPP v. Egypt136, ,r 82; LG&E, ,r,r 127-130; Teemed, ,r 154]. 137
134 In their final briefs, both Parties refer to the reasonableness of the reliance, although Romania at
first had focused on the reasonableness of the expectation. In the Tribunal's view, both must be
reasonable, but in particular the expectation itself.
135 For example, the late Prof. Thomas Walde explained that a claim of legitimate expectations
required "an expectation of the investor to be caused by and attributed to the government, backed-up
by investment relying on such expectation, requiring the legitimacy of the expectation in terms of the
competency of the officials responsible for it and the procedure for issuing it and the reasonableness
of the investor in relying on the expectation" (International Thunderbird v. Mexico, Separate Opinion of
Thomas Walde, 1 December 2005, ,r 1 ). It must be noted that Prof. Walde did not dissent on the
standard, but rather on the application of that to the facts of the case).
136 Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt (ICSID Case No.
ARB/84/3), Award, 20 May 1992 (hereinafter "SPP v. Egypt').
137 Duke Energy v. Ecuador, ,r 340. See also Generation Ukraine v. Ukraine, ,r 20.37 ("it is relevant to
consider the vicissitudes of the economy of the state that is host to the investment in determining the
investor's legitimate expectations").
182
Annex 401
671. This promise, assurance or representation may have been issued generally or
specifically, but it must have created a specific and reasonable expectation in the
investor. That is not to say that a subjective expectation will suffice; that subjective
expectation must also have been objectively reasonable. As stated by the Sa/uka
tribunal, "the scope of the Treaty's protection of foreign investment against unfair and
inequitable treatment cannot exclusively be determined by foreign investors'
subjective motivations and considerations. Their expectations, in order for them to be
protected, must rise to the level of legitimacy and reasonableness in light of the
circumstances."138
672. The Claimants must also have relied on that expectation when they made their
investments. However, it is not necessary for the entire investment to have been
predicated solely on such expectation. Businessmen do not invest on the basis of
one single consideration, no matter how important. In the Tribunal's view, that
expectation must be a determining factor in an investor's decision to invest, or in the
manner or magnitude of its investments.
673. When the alleged legitimate expectation is one of regulatory stability, the
reasonableness of the expectation must take into account the underlying presumption
that, absent an assurance to the contrary, a state cannot be expected to freeze its
laws and regulations. As noted by the Saluka tribunal, "[n]o investor may reasonably
expect that the circumstances prevailing at the time the investment is made remain
totally unchanged. In order to determine whether frustration of the foreign investor's
expectations was justified and reasonable, the host state's legitimate right
subsequently to regulate domestic matters in the public interest must be taken into
consideration as well." 139 Accordingly, for a state to violate the fair and equitable
treatment standard by changing the regulatory framework, the investor must have
received a legitimate assurance that the relevant laws and regulations would not be
changed in his or her respect. By legitimate assurance, the Tribunal refers to the
considerations identified in paragraph 669 above.
ii. Did Romania make a promise or assurance that gave rise to a
legitimate expectation?
674. In Section A on the umbrella clause, the Tribunal found that the EGO 24 framework,
in conjunction with the PICs, created a specific entitlement for the Claimants,
according to which they were entitled to receive the incentives until 1 April 2009. To
recall, the Tribunal found that EGO 24 created a general scheme of incentives
available to investors who fulfilled certain requirements, which were later "granted" to
qualifying investors through a specific administrative act (the PIC). In other words,
the legislation created a generalized entitlement that could be claimed by qualifying
investors, but this general entitlement was later crystallized with respect to qualifying
investors through the granting of the Pl Cs, becoming from that moment on a specified
entitlement with respect to specified investors.
138 Saluka v. Czech Republic, ,i 304.
139 Id, ,i 305.
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675. Although the majority of the Tribunal found that it had insufficient evidence as to
whether that entitlement gave rise to a legal obligation for purposes of the umbrella
clause, it stated that the same set of facts could give rise to a breach of the fair and
equitable treatment standard, if it found that the EGO 24 framework, in conjunction
with the PICs, provided the Claimants with the legitimate expectation that they would
be entitled to receive the incentives until 1 April 2009.
676. Another question remained open in the majority's analysis of the umbrella clause:
whether there was an element of stabilization in the EGO 24 framework (in other
words, whether PIC holders (including the Claimants) were entitled to receive the
incentives in the same form (or substantially the same form) as when they were first
given their PICs during the entire period, regardless of changes in the Romanian
legislation). Although the majority of the Tribunal was not able to answer that
question as a matter of Romanian law, it will do so now as a matter of fair and
equitable treatment.
677. After a review of all of the facts and circumstances surrounding the Claimants'
investment and Romania's enactment of EGO 24 and related legislation, the Tribunal
(again by majority 140) answers both questions in the affirmative. For the reasons set
out below, it finds that, even from an objective standpoint the legislative framework in
Romania between the years 1998-2002 (taking into consideration EU law, as it
applied to Romania at the time), together with the PICs, instilled in the Claimants a
legitimate expectation that they would be entitled to the EGO 24 incentives, in
substantially the same form as when they received their PICs, until 1 April 2009.
Specifically, the Tribunal finds that, through an interplay of the purpose behind the
EGO 24 regime, the legal norms, the PICs, and Romania's conduct, Romania made a
representation that created a legitimate expectation that the EGO 24 incentives would
be available substantially in the same form as they were initially offered.
678. First, the purpose behind the EGO 24 regime was to attract investment in the
disadvantaged areas, preferably long-term investment that created employment. In
the context in which this legislation was passed, it is evident that Romania was eager
to attract investment in order to boost its economy and work towards EU accession.
If Romania had spelled out that it retained the right to eliminate the incentives at its
discretion, despite the stated duration term for the incentives, Romania likely would
not have achieved its objective of attracting investment. Investors require legal
certainty, and Romania knew this full well, otherwise it would not have specified in
several different documents that the incentives would be available during the period in
which $tei-Nucet was declared a disadvantaged area. Indeed, it is evident from
Romania's conduct that it intended for the regime to remain in place until 1 April 2009
and, absent the EU's intervention, this is what would have happened, as discussed
further below.
140 Arbitrator Abi-Saab does not concur with this view, as expressed in his separate opinion.
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679. Second, the regime required a certain quid pro quo from the investors. As specified
in EGO 24 itself and in the Methodological Norms, investors had to fulfill certain
requirements to obtain their PIC, and undertook certain obligations:
a. Investors were required to create employment. The 2001 Methodological Norms
required 10 employees, 5 of which must have been previously unemployed
(Article 4(4) of the 2001 Methodological Norms).
b. Investors were required to create new investments. In this regard, Article 6(1) of
EGO 24 provided that the facilities would be granted to qualifying investors "for
their new investments in [the disfavoured] regions." Only three of the Claimants'
companies benefitted from the EGO 24 incentives, but the Claimants have
argued (and Romania has not disputed) that for each new investment they had to
submit an investment plan and amend their PIC.
c. PIC holders had to undergo substantial monitoring to continue receiving the
incentives under their PICs (Articles 14 and 16 of the 1999 Methodological
Norms, Articles 6, 8, 14 and 15 of the 2001 Methodological Norms). Indeed, the
Claimants' witnesses have described audits and monitoring procedures that
seem to go beyond what is provided in the Methodological Norms, but it is not
surprising that actual administrative procedures were more detailed than the
relevant norms set out. The Respondent has not challenged these descriptions.
d. Investors were required to maintain their investments in the disadvantaged area
for at least twice the time they benefitted from the incentives (Articles 7 and 9 of
EGO 24).
680. This last obligation was set out in Articles 7 and 9 of EGO 24, as follows:
Art. 7. - If an investment which is benefiting from the provisions of the
present Emergency Ordinance is voluntarily liquidated in a period of
time shorter than twice the period of time in which they enjoyed the
advantages granted through the Government Decision to create the
underprivileged area, the liquidator(s) is/are obligated first to pay the
funds related to the advantages granted in accordance with the
provisions of the present Emergency Ordinance, to the State Budget, the
State Social Insurance Budget and the Special Funds Budgets from the
funds resulting from the liquidation procedure.
Art. 9. - Businesses established in a disadvantaged area may voluntarily
cease to operate in the respective area, and those opening subsidiaries
as legal entities in such an area may close them or move the location of
their headquarters out of the disadvantaged area in a period shorter
than the one provided in Art. 7 only if they pay the funds they owe to
the State Budget, the State Social Insurance Budget and the Special
Funds Budgets related to the advantages granted in accordance with the
provisions of the present Emergency Ordinance. (Emphasis added)
681. Thus, Articles 7 and 9 of EGO 24 put investors on notice that, if they planned to
benefit from the incentives for the full period they were offered, they had to be
prepared to make long-term commitments and investments in the region, and make
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sure that their investments would continue to be profitable without the incentives
when the incentives were no longer available.
682. Third, the Respondent did not merely "trim down" the incentives, as the Respondent
contends. It is true that the incentives were amended several times, and that by 2002
the Machinery Incentive had been eliminated and the Raw Materials Incentive could
not apply to raw materials for the production, processing and preservation of meat.
(The Profit Tax Incentive had also been eliminated but grandfathered for existing PIC
holders). However, three of the original six incentives remained (four counting the
grandfathered Profit Tax Incentive). These three remaining incentives (other than the
Profit Tax Incentive) were eliminated by EGO 94/2004. Therefore, the incentives
were virtually eliminated rather than simply modified or amended.
683. Specifically, Chapter II, Section 3, Article Vl(2) of EGO 94/2004 provided (Exh. R-94):
Art. VI. - Emergency Government Ordinance no. 24/1998 on LessFavoured
Areas, republished in the Official Gazette of Romania, Part I,
Issue 545 of 8 November 1999, as subsequently amended and
supplemented, shall be amended and supplemented as follows:
1. After paragraph (1) of Article 141 insert a new paragraph, paragraph
(1 1) with the following content:
"(1 1) In calculating the intensity of State aid, eligible costs related to
investments made before 15 September 2004 shall be taken into
account."
2. Article 6(1)b}d} and e) shall be repealed within 90 days from the date
of entry into force of this Ordinance."
684. As can be seen from the text of EGO 94/2004, the amendment eliminated the
incentives and added rules for the calculation of the intensity of state aid. In turn, it
left in place all remaining provisions of the regime, including its obligations, which is
however disputed. In turn, this stripped EGO 24 of most of its practical content and
reduced almost to nothing its advantages given that the purpose of the regime for
disadvantaged areas was to attract investment in exchange for certain tax benefits.
After EGO 94/2004, the only tax benefit that remained was the Profit Tax Incentive,
and only for existing PIC holders. This is not a "trimming down" of the incentives. It
was an outright termination.
685. The Tribunal thus finds that Romania's representation that the EGO 24 incentives
would be available to PIC holders until 1 April 2009 meant that the Claimants would
continue to benefit from substantially the same incentives that were available when
the Claimants obtained their PIC.
686. As stated above, the Tribunal considers that, in determining whether the Claimants
had a legitimate expectation, it must take account of the accepted principle that
Romania is free to amend its laws and regulations absent an assurance to the
contrary. However, in this case the Tribunal finds that Romania's conduct had
included an element of inducement that required Romania to stand by its statements
and its conduct. Romania launched a program directed to attract investors to the
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disfavored regions. To obtain that investment, it offered certain tax benefits for a
certain amount of time. In other words, Romania created the appearance of a tenyear
tax holiday for investors who decided to invest in the disadvantaged area (and
this appearance conformed to what Romania did in fact wish to enact). The Tribunal
has noted in particular that the former president of the NARD, Mr. Neculai Liviu
Marcu, testified that the incentives were to be understood to be granted for the full
duration of the disadvantaged area (WS of Mr. N. Marcu, ffll 28, 32; Tr., Day 7, 15:2-9
(Marcu)). In the Tribunal's view, Romania thereby made a representation that gave
rise to the PIC holders' legitimate expectation that during this tax holiday they would
receive substantially the same benefits they were offered when they committed their
investments.
687. What is at stake is not Romania's regulatory sovereignty, which is not to be
questioned. However, it cannot be fair and equitable for a state to offer advantages
to investors with the purpose of attracting investment in an otherwise unattractive
region, require these investors to maintain their investments in that region for twice
the period they receive the investments, and then maintain the formal shell of the
regime but eviscerate it of all (or substantially all) content.
688. The record shows that Romania itself shared that belief. It did all it could to preserve
the incentives regime through its accession negotiations (see Section 4 below).
Whether or not it felt committed to existing PIC holders, it certainly wished to maintain
the regime for as long as possible and publicly stated so. Romania thereby created
the legitimate expectation that the regime would not be repealed or fundamentally
altered during the duration of each PIC.
689. Romanian officials also stated that investors would be compensated if the regime
were repealed or fundamentally altered. In particular, in his interview in May 2004
(Exh. C-652), Prime Minister Nastase indicated that during its negotiations with the
European Union, Romania would see if it was "able to obtain some transition periods"
for PIC holders, as well as "some compensation packages, established during direct
negotiations." The Prime Minister also stated that the government would talk to the
investors, and "based on the conclusions of the negotiations of the Competition
Chapter, we will negotiate with those who initially obtained these fiscal incentives"
(Exh. C-652, pp. 7-9 of translation). These statements confirm that Romania itself
understood that the EGO 24 regime was to last for 10 years, and that in repealing it
prematurely Romania was undermining PIC holders' legitimate expectations and
causing them to suffer damages.
iii. Was this expectation reasonable?
690. In broad terms, the Tribunal will analyze the reasonableness of the Claimants'
expectation from two perspectives: (i) the legitimacy of the expectation in the context
of Romania's accession to the EU, and (ii) the legitimacy of the expectation under
Romanian law.
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(a) Reasonableness in the context of Romania's Accession to the EU
691. After a careful review of the record, the Tribunal has come to the conclusion that
between 1998 and late 2003 it was reasonable for the Claimants to believe that the
EGO 24 incentives were compatible with EU law. The Tribunal agrees with Prof.
Dashwood's conclusion that "a strong case can be made that the Romanian
authorities were justified in treating the disputed aid as a valid regional operating aid,
up until the moment when they abolished it" (ER of A. Dashwood ,r 55).
692. There seems to be no dispute that, throughout the period during which the Claimants
received the EGO 24 incentives (that is, from receipt of European Food's TIC in 1999
until the incentives were abolished in February 2005), the EGO 24 scheme was
subject to the state aid regime of the Europe Agreement (which was the operative
pre-accession treaty; ER of A. Dashwood, ,r 31 ). As explained by Prof. Dashwood
(with no convincing rebuttal by Romania's experts), under the Europe Agreement
regime, the substantive rules to assess the compatibility of the EGO 24 incentives
with the common market were the substantive rules of the EU state aid regime
contained in Article 87 of the EC Treaty (through the operation of Article 64(2) of the
Europe Agreement), as amplified by case law and Commission practice, and as
subsequently clarified by the Implementing Rules that were annexed to Decision
4/2000 of the Romania-EU Association Committee (Exh. R-65; C-579).
693. Article 64 of the Europe Agreement provides in relevant part:
1. The following are incompatible with the proper functioning of this
Agreement, in so far as they may affect trade between the Community
and Romania: [ ... ] (iii) any public aid which distorts or threatens to
distort competition by favouring certain undertakings or the production
of certain goods.
2. Any practices contrary to this Article shall be assessed on the basis of
criteria arising from the application of the rules of Articles 85, 86, and
92 of the Treaty establishing the European Economic Community.
3. The Association Council shall, within three years of the entry into force
of the Agreement, adopt the necessary rules for the implementation of
paragraphes 1 and 2.
4. (a) For the purposes of applying the provisions of paragraph 1, point
(iii), the Parties recognize that during the first five years after the entry
into force of the Agreement, any public aid granted by Romania shall
be assessed taking into account the fact that Romania shall be
regarded as an area identical to those areas of the Community
described in Article 92(3)(a) of the Treaty establishing the European
Economic Community. The Association Council shall, taking into
account the economic situation of Romania, decide whether that
period should be extended by further periods of five years. [ ... ]
694. Article 64 of the Europe Agreement incorporated Article 87 of the EC Treaty, which is
the primary source of the EU's substantive rules on state aid. Article 87(1) of the EC
Treaty contains the general principle that "any aid granted by a Member State or
through state resources in any form whatsoever which distorts or threatens to distort
competition by favouring certain undertakings or the production of certain goods shall,
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in so far as it affects trade between Member States, be incompatible with the common
market." However, Article 87(3)(a) (which replaced Article 92(3)(a) of the Treaty
establishing the European Economic Community) expressly permitted "aid to promote
the economic development of areas where the standard of living is abnormally low or
where there is serious underemployment."
695. In turn, Art. 64(4)(a) of the Europe Agreement expressly stated that all of Romania
would be considered an underdeveloped area for purposes of Article 87(3)(a) of the
EC Treaty for the first five years after the entry into force of the Europe Agreement:
For the purposes of applying the provisions of paragraph 1, point (iii), the
Parties recognize that during the first five years after the entry into force of
the Agreement, any public aid granted by Romania shall be assessed
taking into account the fact that Romania shall be regarded as an area
identical to those areas of the Community described in Article 92(3)(a) of
the Treaty establishing the European Economic Community. The
Association Council shall, taking into account the economic situation of
Romania, decide whether that period should be extended by further
periods of five years. [ ... ] (Art. 64(4)(a) of the Europe Agreement).
696. Article 64(3) of the Europe Agreement provided that "[t]he Association Council shall,
within three years of the entry into force of the Agreement, adopt the necessary rules
for the implementation of paragraphes 1 and 2." With some delay, on 10 April 2001,
the EU-Romania Association Council adopted Decision 4/2000 which contained these
"Implementing Rules", Exh. R-65; C-579), which prescribed the manner in which
Article 64 of the Europe Agreement would be implemented by Romania. 141
697. Article 2(1) of the Implementing Rules provided that "[t]he assessment of compatibility
of individual aid awards and programmes with the Europe Agreement, as provided for
in Article 1 of these Rules, shall be made on the basis of the criteria arising from the
application of the rules of Article 87 of the Treaty establishing the European
Community, including the present and future secondary legislation, frameworks,
guidelines and other relevant administrative acts in force in the Community, as well as
the case law of the Court of First Instance and the Court of Justice of the European
Communities and any decision taken by the Association Council pursuant to Article
4(3)."
698. The criteria applied by the European Commission when examining the Article 87(3)(a)
exception were set down in the 1998 Guidelines on Regional Aid (first published in
1998 (Exh. RJ-9) and since replaced by a revised version for the years 2007-2013)
(Exh. C-298).
141 Article 4(1) of the Implementing Rules also extended the time period in which Romania would be
considered an underdeveloped area pursuant to Article 64(4)(a) of the Europe Agreement:
In accordance with and within the limits of Article 64(4)(a) of the Europe
Agreement, Romania shall be regarded as an area identical to those areas
of the Community referred to in Article 87(3)(a) of the Treaty establishing
the European Community. (Article 4(1) of Decision 4/2000).
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699. The Guidelines on Regional Aid distinguished between various types of state aid, and
described the circumstances under which certain state aid could be granted, including
where the economic situation was extremely unfavorable in relation to the Community
as a whole. In such cases, the aid could be granted as tax exemptions. In addition,
although operating aid aimed at reducing a firm's current expenses is normally
prohibited, the Guidelines recognize that, exceptionally, such aid may be granted in
regions eligible under the derogation in Article 87(3)(a), subject to certain conditions.
Specifically, the 1998 EU Guidelines on Regional Aid (RJ-9) provided:
Operating aid
4.15. Regional aid aimed at reducing a firm's current expenses (operating
aid) is normally prohibited. Exceptionally, however, such aid may be
granted in regions eligible under the derogation in Article 92(3)(a)
provided that (i) it is justified in terms of its contribution to regional
development and its nature and (ii) its level is proportional to the
handicaps it seeks to alleviate (36). It is for the Member State to
demonstrate the existence of any handicaps and gauge their
importance.
4.16. In the outermost regions qualifying for exemption under Article
92(3)(a) and (c), and in the regions of low population density
qualifying either for exemption under Article 92(3)(a) or under
92(3)(c) on the basis of the population density test referred to at
point 3.10.4, aid intended partly to offset additional transport costs
(37) may be authorised under special conditions (38). It is up to the
Member State to prove that such additional costs exist and to
determine their amount.
4.17. With the exception of the cases mentioned in point 4.16, operating
aid must be both limited in time and progressively reduced. In
addition, operating aid intended to promote exports (39) between
Member States is ruled out.
700. The Tribunal agrees with Prof. Dashwood that the EGO 24 incentives appeared to
meet most of the criteria for regional operating aid set forth in the 1998 Guidelines
(ER of A. Dashwood, ffll 52-53). Specifically:
a. EGO 24/1998 was created to contribute to regional development, and there is
evidence that it did in fact contribute to such development.
b. The level of disputed aid appears to have been proportional to the handicaps of
the disadvantaged areas that the aid was designed to alleviate, and the
Romanian government could have been able to demonstrate this.
701. The only unsatisfied criterion would be its "non-degressive character'' (i.e., the fact
that the EGO 24 incentives were not meant to be progressive, as mandated by Article
4.17 of the 1998 Guidelines). However, given the level of unemployment in the $teiNucet-
Dragane~ti area Prof. Dashwood did not consider it a determinative factor (ER
of A. Dashwood, ,r 54).
702. Neither the Respondent nor its experts contested Prof. Dashwood's conclusions
persuasively, and the Tribunal finds Prof. Dashwood's assessment reasonable.
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703. As a result, the Tribunal concludes that the EGO 24 incentives could have reasonably
been thought (both by the Romanian government and the Claimants) to be valid
regional operating aid under EU law. Indeed, Romania itself appears to have
believed that, at the time EGO 24 was enacted, the incentives were compatible with
EU state aid requirements. In its Counter-Memorial, Romania stated:
Especially given Romania's status as an 'underdeveloped area' within the
meaning of Article 87(3)(a) of the EC Treaty, the government could
reasonably conclude at the time that the EGO 24/1998 regime was not
incompatible with the Europe Agreement's provisions. Furthermore, given
the economic dislocation that existed at the time, measures to ameliorate
conditions in the disfavoured regions were necessary. Romania was not
alone among EU candidate States in making the policy choice to
implement new economic-assistance measures based upon such an
assessment of the legal position. For example, Poland passed similar
legislation authorizing State aid for underdeveloped regions in 1994, while
it was a candidate for EU admission (R-CM, ,T 29).
704. Similarly, in its comments to the Commission's Written Submission, Romania
acknowledged that:
The facilities in EGO 24/1998 appeared to be regional aid for economically
disadvantaged areas. Thus, EGO 24/1998 was reasonably considered as
falling within the exceptions in Article 87(3)(a) and 87(3)(c) EC Treaty.
(Respondent's Comments to the Commission's Written Submission, 16
Nov. 2009, ,T 2).
705. Romania's expert, Prof. Rudolf Streinz confirms the reasonableness of that position:
In my opinion, in 1998 and particularly in the absence of effective State aid
control and support from the European Commission, Romania could, in the
exercise of its discretion, reasonably have considered that the EGO
24/1998 regime fell under one of the State aid exceptions of the EC Treaty
[ ... ]. For example, Romania, having been designated in its entirety in Article
64(4) of the Europe Agreement as underdeveloped within the meaning of
Article 87(3)(a) of the EC Treaty, could have considered itself permitted to
enact EGO 24/1998. EGO 24/1998 provided for State aid to foster
economic development of areas - i.e. the whole of Romania - where the
standard of living was abnormally low or where there was serious
underemployment. Alternatively, Romania might have considered that the
State aid granted pursuant to EGO 24/1998 was exempt under Article
87(3)(c), because the regime amounted to assistance of regions which are
disadvantaged compared to the national average, based on national
criteria (First ER of R. Streinz, ,T 19).
706. As expressly acknowledged by Romania, many government officials maintained this
"sincere belief' until after the Competition Council issued Decision 244 in 2000, and
the Respondent's expert Mr. Petersen acknowledged that "Romanian politicians and
officials who thought that EGO 24 was legal were incorrect, but they were not
unreasonable, and they acted in good faith" (R-PHB, ,r 17 4, Tr., Day 6, 111, 178).
The Tribunal does not believe that investors should be held to a higher standard than
the government. Investors are entitled to believe that the government is acting
legally.
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707. The question is when should the Claimants have realized that the incentives were (or
became) vulnerable because they contravened EU law and, as a consequence, at
what time they might be phased out. As late as June 2002, Romania's "National
Programme for Accession of Romania to the European Union" (Exh. HEC-7) stated
that "[t]he provisions of the normative acts on facilities granted for 'D areas' will be
maintained till the moment of Romania's accession to the European Union" (p. 148).
Mr. Orban testified that this was Romania's intention, and that it "battled a lot with the
Commission to get this" (Tr., Day 8, 219-220 (Orban)). Indeed, when asked when it
should have been clear to the public that the facilities would not survive, Mr. Orban
testified that it could have been as late as April/May 2004 (Tr., Day 8, 12-14 (Orban)).
(b) Reasonableness under Romanian law
708. Determining whether the Claimants' expectations were reasonable under Romanian
law is less straightforward. On the one hand, the Claimants argue that the purpose of
EGO 24 and its enacting legislation, as well as the issuance and content of the PICs,
made their expectations reasonable. Romania argues that, to the contrary, nothing in
the regulation and the PICs themselves assured the Claimants that the incentives
would remain in place for 10 years. However, the Tribunal has already found that the
content of the legislation and the PICs themselves gave rise to a legitimate
expectation that the incentives would last until 1 April 2009.
709. On the other hand, Romania argues that the regulatory framework as it existed at the
time of the Claimants' alleged investment in reliance on Romania's assurances (from
2000 to 2004, if the issuance of European Food's PIC is taken as starting point)
contemplated the possibility that the incentives could be subject to repeal. Romania
argues that the incentives could have been revoked as a matter of general
administrative law, or because in 1999, prior to the issuance of the PICs, Romania
passed the Competition Law, which allowed the Competition Council to determine
whether any existing aid was compatible with the Europe Agreement and, if it was not
compatible, to recommend cancellation of such aid and request its repayment
(Articles 12-13 of the Competition Law). In Romania's submission, the fact that
Romanian legislation allowed the Competition Council to recommend the revocation
of the incentives undermines the reasonableness of any expectation that these
incentives would remain unchanged for 10 years. Indeed, Romania argues that this
is exactly what the Competition Council did with Decision 244/2000.
710. In the Tribunal's view, two distinct but related issues must be analyzed: (i) the
possibility that the incentives would be found incompatible with Romanian law, and (ii)
Romania's interaction with the Competition Council with respect to Decision
244/2000.
711. With respect to the first point, the Respondent argues that, under the existing
regulatory framework, the incentives were inherently subject to the Competition
Council's review and possible cancellation. Thus, the fact that the fate of all existing
legal aid could depend on a decision by the Competition Council weakens any
reasonable belief that any incentives would remain unchanged for any particular
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period of time. In other words, the Claimants should have known, when they obtained
the PICs, that the incentives could be at any time declared by the Competition
Council to be incompatible with Romanian law.
712. This proposition cannot be sustained. Any piece of legislation must comply with
higher ranking norms. That does not change the fact that enacted rules are
supposed to be valid and enforceable for so long as they have not been repealed or
annulled. Law-abiding actors may not violate enacted laws or regulations because
they question their validity or legality: they may know that such validity or legality is
debatable, and seek appropriate relief in court or otherwise, but, in the meantime,
they must obey the law. Romania has not argued that the incentives were illegal or
that there were any doubts as to their legality. In other words, the possibility of
cancellation of the incentives by order of the Competition Council is in itself not a valid
argument.
713. With respect to the second point, on 15 May 2000, the Competition Council issued
Decision 244/2000, which recommended that the Raw Materials Incentive be
abolished. However, the Romanian Government (with the approval of the judiciary)
overruled this decision, and thus confirmed the incentives' legality under Romanian
law.
714. The Claimants' expectation that the incentives were compatible with Romanian law
was particularly reasonable given the sequence of events with respect to the process
surrounding Decision 244 and the granting of the Claimants' Pl Cs. Decision 244 was
rendered on 15 May 2000, European Food's PIC was issued on 1 June 2000, and
EGO 75/2000 (which amended EGO 24 but maintained the Raw Materials Incentive)
was enacted on 16 June 2000. The Competition Council brought a law suit against
the Government, which the High Court of Cassation dismissed on admissibility
grounds on 19 February 2002. Multipack and Starmill's PICs were issued on 17 May
2002.
715. In the Tribunal's view, given that the Government, in this case through Parliament, did
not follow the Competition Council's recommendation to abolish the incentives, and
decided instead to confirm them via new legislation (EGO 75/2000), and immediately
afterwards issued the Claimants PICs confirming their eligibility for the questioned
incentives, it was reasonable for the Claimants to believe that the Government
considered that such incentives were legitimate and intended to maintain them for the
stated period. The fact that the Competition Council sought to enforce Decision 244
in Romanian courts and that its action was dismissed by the original and appellate
courts, further enhances the notion that the Government (at its legislative and judicial
level) endorsed the legitimacy of the incentives. In other words, the Government
implicitly confirmed the incentives' legality under Romanian law.
716. The fact that the court action was dismissed on admissibility grounds does not
change this conclusion. Indeed, by determining that the Competition Council did not
have the power to challenge legislative acts, the courts merely confirmed that, as a
matter of Romanian law, the existence and legitimacy of the incentives depended on
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Parliament, not on the Competition Council. And as a matter of Romanian law, the
Claimants were entitled to rely on the assumption that the incentives were legal. The
fact that Starmill and Multipack received their PICs after the challenge was dismissed
further confirms that it was reasonable for the Claimants to believe that the incentives
were legitimate.
717. In conclusion, the Tribunal finds that it was reasonable for the Claimants to believe
that the incentives were legal under Romanian law and would be maintained for the
full 10 year period.
iv. Did the Claimants in fact rely on that expectation?
718. There is no dispute that the Claimants invested in Bihor County, and that they made
use of the incentives. However, it is also evident from the record that their initial
investments were not made in reliance on the EGO 24 incentives, because they
began to invest in the early 90s, before these incentives were created. Indeed, the
Claimants concede that their initial investments were made in reliance on previous
incentive regimes (R-Reply, ffll 62-124). The Claimants have also stated that their
expectation that the Raw Materials Incentive would be available for 10 years arose
when the PICs (or TIC, in the case of European Food) were granted (Tr., Day 12, 91
(Reed)). In the Tribunal's view, a legitimate expectation could only have been
crystallized at the time when the Corporate Claimants were granted their permanent
investor certificates, not temporary certificates. A temporary certificate is, by its own
nature, granted only for a limited time and does not necessarily guarantee that a
permanent certificate will be issued. A TIC can give rise to an expectation that its
beneficiary is temporarily entitled to some benefits but not that the permanent
certificate will actually be issued as the beneficiary will have to prove that, in the
meantime, it has satisfied some conditions. Thus, the only investments that could
have been made in reliance on that expectation are those made after European Food
obtained its PIC in June 2000, and after Starmill and Multipack obtained theirs in May
2002. Whether the Claimants relied on previous incentive programs neither proves
their reliance on the EGO 24 incentives nor strengthens their reliance argument.
719. In addition, there is evidence that, further to the EGO 24 incentives, there were other
reasons why the Miculas invested in Bihor County. The Tribunal recalls that,
according to Mr. Viorel Micula's cross-examination, there were other reasons for the
Claimants' investment in Bihor apart from the availability of the Raw Materials Facility
for the planned 10 year period until 2009. Mr. Viorel Micula testified as follows:
Q. Mr Micula, let's not beat around the bush. I will read out a proposition
to you and you tell me if you agree. Your investment in Bihor in the
European Food and Drinks Group only made economic sense if you
could count on the benefits of the raw materials facility for the planned
ten-year period until 2009, is that correct? Is it true to say that your
investment makes economic sense only if you have the raw materials
facility?
A. It is wrong, Mr Petrochilos. I think no one, either myself or my brother
who knew about this leverage had made such a mistake. That would
have been a big mistake. Maybe you made that mistake.
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(Tr., Day 6, 279 (PetrochilosN. Micula}}.
720. In addition, the Micula brothers were born in Bihor County and loan Micula conceded
that that there was "a very emotional drive" behind their business initiative (Tr. Jur.,
Day 2, 23). However, he also stated that "it was not just a question of us being born
there, it was also a question of long-standing facilities and exemptions that have been
there for a very long time and many of them are still there" (Tr. Jur., Day 2, 54).
721. Taking all of this into consideration, it is clear that (i) not all of the Claimants'
investments were predicated on the EGO 24 incentives; and (ii) even when the
Claimants' took the EGO 24 incentives into account in making investment decisions,
other factors also influenced the Claimants' decisions. However, the Tribunal is
satisfied that a significant part of the Claimants' investments (from 2000 to 2004)
were made in reliance on the incentives. In particular, the Tribunal is satisfied that
the existence of the incentives was one of the reasons for the scale and manner of
those investments. It is evident from the record that the Claimants built a large and
complex platform for the production of food and drink products, and that its profits
depended largely on the reduction of their operating costs resulting from the Raw
Materials Incentive (Third WS of I. Micula, ffll 44-67, 83-84; Third WS of V. Micula, ,r
33, 51-52; WS of M. Ban ,r 38; WS of M. Halbac, ffll 12-61; First ER of D. Lessard, ffll
32-42; ER of R. Boulton, Sections 4 and 5; ER of C. Osborne, ffll 1.11-1.15; Section
4; Exh. C-385, C-987). Accordingly, the Tribunal is satisfied that the Claimants in fact
relied on the incentives to build and develop their investment in the manner in which it
stood at the date of the revocation of those incentives.
722. It goes without saying that the BIT only protects investments made in reliance on
legitimate expectations (see paragraphs 667 to 673 above). It does not protect
investments made after such an expectation has been destroyed. The Tribunal has
found that the Claimants' expectations arose in June 2000, with the granting of
European Food's PIC. This expectation was shattered once it became clear that
Romania would revoke the incentives without compensation, which, as discussed
further below, occurred on 31 August 2004, with the issuance of GO 94/2004.
Although Prime Minister Nastase publicly announced the termination of the regime for
the first time in January 2004, it was still uncertain at that time whether PIC holders
would be compensated (see Section 4 below). Accordingly, the BIT can only protect
the Claimants' investments made between 1 June 2000 and 31 August 2004.
723. The Tribunal does not ignore the fact that the Respondent has challenged the
credibility and reliability of the Claimants' witnesses, in particular with respect to the
question of whether, in making their investment decisions, the Claimants' relied on an
expectation that the incentives would remain in place for 10 years, and with respect to
their damages case.
724. The Tribunal will address the Respondent's arguments with respect to damages in
due course. With respect to Claimants' legitimate expectations, however, the
Tribunal is not persuaded that the testimony of the Claimants and their witnesses is
unreliable. The key issue before the Tribunal is whether and to what extent the
195
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Claimants relied on the EGO 24 incentives to make and develop their investments,
and if that reliance was reasonable. It is evident from the documentary record that
the Claimants did in fact rely on the EGO 24 regime to expand their business (see
paragraph 721 above). The Tribunal has also found that the Claimants' expectation
that the EGO 24 regime would be in place for 10 years was objectively reasonable. It
was also reasonable to rely, at least until 31 August 2004, on the survival of that
regime.
* * *
725. For the reasons set out above, the majority of the Tribunal finds that Romania
violated the Claimants' legitimate expectations with respect to the availability of the
EGO 24 incentives.
726. Although the majority of the Tribunal has found a breach of legitimate expectations, in
order to provide a complete ruling on Romania's compliance with its obligation to
provide fair and equitable treatment, the Tribunal will address the Parties' remaining
arguments with respect to this standard. The Tribunal will next address Romania's
defense that it acted reasonably (Section 4 below). It will then address whether
Romania acted in bad faith (Section 5 below). Finally, it will address the Claimants'
argument that Romania failed to act transparently and consistently (Section 6 below).
4. Did Romania act unreasonably?
727. The Respondent's main defense with respect to the Claimants' fair and equitable
treatment and unreasonableness claims is that it acted reasonably when it terminated
the EGO 24 incentives regime. It thus argues that it did not engage in what it has
called "substantively improper conduct", and it should not be made to compensate for
reasonable general regulation. Although the Respondent has acknowledged that the
Tribunal may find a breach of the BIT if it finds that Romania promised that the
incentives would remain unchanged for ten years and the Claimants reasonably relied
on that expectation (see paragraph 500 above, Tr., Day 13, 19-43 (King)), the
Respondent devoted considerable time and effort to establishing that it acted
reasonably.
728. The Claimants have not addressed this defense directly in the context of their fair and
equitable treatment claim, other than to argue that Romania's subjective motivation is
irrelevant to determine if it has breached the fair and equitable treatment standard.
However, in the context of their claim for "impairment by unreasonable or
discriminatory measures" under the second section of Article 2(3) of the BIT (the
"impairment clause"), the Claimants also argue that Romania acted unreasonably
when it repealed the EGO 24 incentives. When discussing unreasonableness in the
context of fair and equitable treatment, the Tribunal will thus refer to the arguments
made by the Claimants on that issue in the context of the impairment clause.
a. The Claimants' position
729. The Claimants argue that Romania acted unreasonably by:
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ANNEX402
International Centre for Settlement of Investment Disputes
Washington, D.C.
Total S.A.
v.
Argentine Republic
(ICSID Case No. ARB/04/1)
Decision on Liability
Members of the Tribunal
Professor Giorgio Sacerdoti, President
Mr. Henri C. Alvarez, Arbitrator
Dr. Luis Herrera Marcano, Arbitrator
Secretary of the Tribunal
Ms. Natali Sequeira
Representing Total S.A.: Representing the Argentine Republic:
Mr. Jan Paulsson, Mr. Nigel Blackaby,
Mr. Georgios Petrochilos, Mr. Noah Rubins,
Ms. Sylvia Noury, Mr. Craig Chiasson,
Mr. Mato Maeda, Ms. Caroline Richard
Freshfields Brockhaus Deringer LLP
Paris, France
Mr. Alexander Yanos and Mr. Giorgio Mandelli
Freshfields Brockhaus Deringer LLP
New York, NY, Unites States of America
Mr. Luis A. Erize and Mr. Sergio M. Porteiro
Abeledo Gottheil Abogados SC
Buenos Aires, Argentina
Dr. Joaquin Pedro da Rocha
Procurador del Tesoro de la Nacion Argentina
Procuracion del Tesoro de la Nacion Argentina
Buenos Aires, Argentina
Date of Dispatch to the Parties: December 27, 2010
Annex 402
TABLE OF CONTENTS
PART I - INTRODUCTION .......................................................................................................................... 1
1. PROCEDURAL BACKGROUND
2. GENERAL OVERVIEW OF THE SUBJECT MATTER OF THE DISPUTE AND OF TOTAL'S CLAIMS AND REQUEST FOR
RELIEF
3. APPLICABLE LAW
9
13
PART II-TOTAL'S CLAIM IN RELATION TO ITS INVESTMENT IN TGN ................................... 16
1. TOTAL'S INVESTMENT IN THE GAS SECTOR
2. RELEVANT FEATURES OF THE GAS REGULATORY SYSTEM INVOKED BY TOTAL
3. THE SUSPENSION OF THE PPI TARIFF ADmSTMENT IN 2000
4. THE MEASURES CHALLENGED BY TOTAL: THE EMERGENCY LAW
16
18
24
29
4.1 Argentina's Economic Evolution Leading to the 2001102 Emergency ........................................................... 30
4.2 Basic Features of the Emergency Law ................................................................................................................. 34
4.3 The Tariff Renegotiation Process Taking Place Pursuant to and Following the Emergency Law .................... 35
5. THE PARTIES' ARGUMENTS 39
6. LEGAL EVALUATION BY THE TRIBUNAL OF TOTAL'S CLAIMS 43
6.1 Applicable Standard: the Fair and Equitable Treatment Standard in General ................................................. 45
6.2. The Notion of Legitimate Expectations of Foreign Investors ............................................................................. 48
6.3 The Content of Article 3 of the Argentina-France BIT ........................................................................................ 55
6.4 Comparative Analysis ........................................................................................................................................... 56
6.5 Public International Law ...................................................................................................................................... 58
7. APPLICATION OF THE FAIR AND EQUITABLE TREATMENT STANDARD 60
7.1 The Elimination of the Calculation of Gas Tariffs in US Dollars ....................................................................... 60
7.2 No "Promise" of Dollar Denominated Tariffs and Their Adjustment was Made to Total .............................. 64
7.3 Relevance of the PPI Adjustment Suspension Being in Place when Total Invested in TGN .............................. 67
7.4 Reasons for Argentina's Abandonment of US Dollar Tariffs and Their Adjustment According to US PPI ...... 69
7.5 The Freezing of Tariffs Since 2002 ...................................................................................................................... 73
7. 6 Analysis of Previous Arbitral Decisions .............................................................................................................. 77
8. CONSEQUENCES OF THE TRIBUNAL'S FINDINGS FOR TOTAL'S DAMAGES CLAIM 80
8.1 The Tribunal's Conclusions About Total's Claims Concerning its Investment in TGN under Article 3 of the
BIT 81
9. TOTAL'S CLAIM THAT ARGENTINA HAS BREACHED ARTICLE 5(2) BIT WITH RESPECT TO ITS INVESTMENT IN
TGN (TOTAL'S CLAIM OF INDIRECT EXPROPRIATION) 82
9.1 Parties' Arguments ............................................................................................................................................... 82
9.2 Tribunal's Conclusions ........................................................................................................................................ 85
10. TOTAL'S CLAIM THAT ARGENTINA HAS BREACHED ARTICLE 4 OF THE BIT (NON-DISCRIMINATION) 90
JO.I Total's Position ................................................................................................................................................... 90
10.2 Argentina's Position ........................................................................................................................................... 95
10.3 Tribunal's conclusions ....................................................................................................................................... 97
11. ARGENTINA'S DEFENCES 100
11.1 Argentina's Defence of Necessity under Customary International Law ......................................................... 100
11.2 Argentina's Defence based on Article 5(3) of the BIT .................................................................................... 103
PART III-TOTAL'S CLAIM AS TO ITS INVESTMENTS IN POWER GENERATION ............... 107
1. TOTAL'S INVESTMENTS 107
11
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2. RELEVANT FEATURES OF THE ELECTRICITY REGIME IN ARGENTINA WHEN TOTAL MADE ITS INVESTMENT 108
3. TOTAL'S COMPLAINT CONCERNING THE ALTERATION OF THE ELECTRICITY SECTOR'S LEGAL FRAMEWORK L 128
3.1 General ............................................................................................................................................................... 128
3.2 Specific Measures Complained of by Total and Their Impact .......................................................................... 130
4. BIT BREACHES ALLEGED BY TOTAL 137
5. ARGENTINA'S POSITION 138
6. DAMAGES CLAIMED BY TOTAL 139
7. EVALUATION OF TOTAL'S CLAIMOFBREACHOFTHEFAIRANDEQUITABLE TREATMENT STANDARD 140
7.1 General Considerations ..................................................................................................................................... 140
7.2 Evaluation of Specific Measures ........................................................................................................................ 145
7 .2.1 The pesification of the capacity payments and of the spot price ................................................................................... 145
7 .2.2 The Alteration of the Uniform Marginal Price Mechanism .......................................................................................... 149
7.2.3 The "Refusal" to Pay Power Generators Their Receivables and the Conversion of Receivables Into a Stake in
FONINVEMEM ...................................................................................................................................................................... 153
8. CONSEQUENCES OF THE TRIBUNAL'S FINDINGS ON TOTAL'S CLAIM FOR DAMAGES 154
9. EXAMINATION OF TOTAL'S CLAIMS UNDER ARTICLES 4, 5(1) AND 5(2) OF THE BIT
10. ARGENTINA'S STATE OF NECESSITY DEFENCE
11. TRIBUNAL'S CONCLUSIONS AS TO TOTAL'S CLAIMS IN POWER GENERATION
155
157
159
PART IV -TOTAL'S CLAIM AS TO ITS INVESTMENTS IN EXPLORATION AND
PRODUCTION OF HYDROCARBONS .................................................................................................. 160
1.
2.
3.
TOTAL'S INVESTMENTS IN EXPLORATION AND PRODUCTION OF HYDROCARBONS
MEASURES TAKEN BY ARGENTINA
IMPACT OF THE MEASURES ALLEGED BY TOTAL TO BE IN BREACH OF ARTICLE 3 OF THE BIT
160
172
177
3.1 Domestic Sale of Natural Gas ........................................................................................................................ 179
3.2 Export of Natural Gas .................................................................................................................................... 182
3.2 Sale of Crude Oil ............................................................................................................................................ 184
3.3 Taxes on Crude Oil Exports ........................................................................................................................... 184
3.5 PricingofLPG ................................................................................................................................................ 186
4. ARGENTINA'S POSITION 187
5. TRIBUNAL'S LEGAL EVALUATION 189
5.1 The Content of Argentina's Law .................................................................................................................... 191
6. MEASURES CHALLENGED BY THE CLAIMANT RELATING TO CRUDE OIL 195
6.1 Domestic Sales of Crude Oil .......................................................................................................................... 195
6.2 Export Taxes on Crude Oil ............................................................................................................................. 196
7. ELIMINATION OF THE TIERRA DEL FUEGO TAX EXEMPTION 199
8.
9.
DOMESTIC AND INTERNATIONAL SALE OF NATURAL GAS
PRICING OF LPG
10. EVALUATION OF TOTAL'S CLAIM UNDER ARTICLE 4 OF THE BIT
11. ARGENTINA'S STATE OF NECESSITY DEFENCE
202
210
216
217
PART V - DECISION OF THE TRIBUNAL ON LIABILITY .............................................................. 219
lll
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that, under its own terms, the Licence, namely, the "contractual instrument allegedly
violated"88 that is subject to Argentina's law, could be modified by a Law passed by
the Argentine Congress, such that Total had to account for this possibility as part of
its legitimate expectations.89
6. Legal Evaluation by the Tribunal of Total's Claims
99. The first issue for the Tribunal is to determine whether the legislation, regulation and
provisions invoked by Total constitute a set of promises and commitments towards
Total whose unilateral modifications entail a breach of the legitimate expectations of
Total and, as a consequence, are in breach of the fair and equitable treatment standard
in the BIT. The opposite view held by Argentina is that Argentina has not breached
any promise or guarantee made to Total because "[T]he Argentine State did not
execute any contract with Total"90 nor did it induce Total to invest in TGN.91 The
provisions invoked by Total as "guarantees" are in Argentina's view nothing other
than the totality of the regulatory framework effective from time to time.92
100. It is undisputed that Total did not enter into a contractual relationship with
Argentina's authorities in 2000-2001 when it acquired an indirect share in TGN by
buying a share of Gasinvest from TransCanada, one of the various foreign
shareholders of TransCanada. All of the laws and regulations, which Total invokes as
a source of the promises that it relies upon (the Gas Law and the Gas Decree of
1992), are instruments of general application, enacted by the Congress or the
Executive branch of Argentina pursuant to the powers vested in these bodies under
the Constitution of Argentina. Further, Total does not submit that it had participated
in any way in the privatization of the gas transportation utilities of Argentina in 1991-
1992 through which the first private investors in TGN had become its shareholders.
101. As concerns Total's reliance on TGN's Licence as a contractual commitment
undertaken by Argentina, it is clear that this instrument establishes the rights and
obligations of the parties (namely TGN and Argentina's authorities) to that licence.
88 See Argentina's Post-Hearing Brief, para. 200.
89 See Argentina's Post-Hearing Brief, para. 193.
90 See Argentina's Counter-Memorial, para. 311.
91 See Argentina's Post-Hearing Brief, para. 253.
92 See Argentina's Counter-Memorial, para. 81.
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Specifically, the TGN Licence sets forth the obligations of the Argentine authorities
vis-a-vis the concessionaire. These obligations encompass details of how those
authorities may ( and should) exercise, with respect to the concessionaire, the
regulatory powers granted to them by the Gas Law and Gas Decree in order to
preserve the general interest underlying the performance of the public service. Since
Total is not a party to the concession, a more accurate description of the situation
would be that Total has invested in a public utility (namely TGN) which operated a
public service activity regulated by a defined legal regime set forth (also) in the
concession. Therefore TGN Licence cannot be regarded as a source of contractual
legal obligations of a specific character assumed directly by Argentina towards Total.
Accordingly, it is not correct to qualify and treat the TGN Licence provisions as
stabilisation clauses agreed between Total and Argentina Stabilisation clauses are
clauses, which are inserted in state contracts concluded between foreign investors and
host states with the intended effect of freezing a specific host State's legal framework
at a certain date, such that the adoption of any changes in the legal regulatory
framework of the investment concerned ( even by law of general application and
without any discriminatory intent by the host State) would be illegal. For the reasons
stated above, this characterization does not fit the relationship between Total and
Argentina as to Total's investment in TGN.
102. Total submits that legitimate expectations with respect to the stability of the legal
framework under which a foreign company makes an investment may derive not only
from contractual undertakings, but also from legislation and regulation that was
precisely meant to attract foreign investment. Total points out that the gas regulatory
framework was devised and enacted in order to attract long term private foreign
investments in utilities, which until then had been run by the State, that were badly in
need of modernization through massive investment by competent operators and
others, especially in view of the past record of high inflation in Argentina. This
regime was based on a sound economic underpinning, an integral part of which was
the overarching commitment to reasonable and fair tariffs for the operators and
specifically the US dollar peg.
44
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103. Subjectively, Total submits that the existence of such a framework, which had
been in place for almost nine years when it decided to become a shareholder of TGN,
was a major consideration in carrying out such an investment.
104. To the contrary, Argentina points to the agreed suspensions of the PPI, which
were in place when Total made its acquisition of the shareholding in TGN from
TransCanada, that should have put Total on notice that the Gas Regulatory
Framework was being undermined. Argentina also submits that Total was careless in
making its investment in that it did not carry out the due diligence analysis that is
commonly undertaken before making such a large direct investment abroad. Had
Total carried out proper due diligence, it would have been aware of the looming
economic difficulties of Argentina and of their possible impact on the future stability
of the Gas Regulatory Framework.
105. The legal issue for the Tribunal is thus to determine whether the fair and
equitable treatment standard of Article 3 of the BIT, in particular as far as it includes
the "protection of legitimate expectations" of the foreign investor, has been breached
by the unilateral changes of legislation and regulation effected by Argentina and
challenged by Total.
6.1 Applicable Standard: the Fair and Equitable Treatment Standard in General
106. The undertaking of the host country to provide fair and equitable treatment to the
investors of the other party and their investments is a standard feature in BITs,
although the exact language of such undertakings is not uniform. The generality of
the fair and equitable treatment standard distinguishes it from specific obligations
undertaken by the parties to a BIT in respect of typical aspects of foreign investment
operations such as those concerning monetary transfers, visas, etc. At the same time,
the fair and equitable treatment standard can be distinguished from other general
standards included in BITs, namely the national and the most favoured nation
treatment standards, which guarantee a variable protection that is contingent upon the
treatment given by the host State to its own nationals or to the nationals of the best
treated third state.
45
Annex 402
107. The fair and equitable treatment standard is, by contrast, an autonomous standard,
although its exact content is not predefined, except in cases where a treaty provides
additional specifications, which is not the case for the France-Argentina BIT.93 Since
this standard is inherently flexible, it is difficult, if not impossible, "to anticipate in
the abstract the range of possible types of infringements upon the investor's legal
position".94 Its application in a given case must take into account relevant State
practice and judicial or arbitral case law as well as the text of the BIT and other
sources of customary or general international law.95
108. The meaning of various fair and equitable treatment clauses has been tested in
several investment disputes and the issue has been dealt with by a number of
academic writings, including by the most prominent scholars in the field of
international investment law. Some tribunals have started from the ordinary meaning
of the term, in accordance with Article 31 ( 1) of the Vienna Convention of the Law of
Treaties ("VCLT"), recalling the dictionary definitions of just, even-handed,
unbiased, legitimate.96 On the other hand, one cannot but agree with Judge Higgins'
observation in the Oil Platforms case, that "the key terms "fair and equitable
treatment to nationals and companies".. . are legal terms of art well known in the
field of overseas investment protection".97
109. On the premise that a "judgement of what is fair and equitable cannot be reached
in the abstract; it must depend on the fact of the particular case" and that "the
standard is to some extent a flexible one which must be adapted to the circumstances
of each case"98, tribunals have endeavoured to pinpoint some typical obligations that
may be included in the standard, as well as types of conduct that would breach the
standard, in order to be guided in their analysis of the issue before them.
93 For instances of more specific content see the NAFTA Free Trade Commission Note oflnterpretation of 31 July
2001 available at http://www.intemational.gc.ca/trade-agreements-accords-commerciaux/disp… Alnterpr.
aspx?lang=en and the US Model BIT of 2004 available at
http://www.state.gov/documents/organization/117601.pdf
94 C. Schreuer, Fair and Equitable Treatment in Arbitral Practice, 6 J. World Trade,(2005/3), 357,365.
95 ADF Group Inc. v. United States, ICSID Case No. ARB (AF)/00/1, Award, 9 January 2003, para. 184.
96 See MTD Equity Sdn. Bhd. & MTD Chile S.A. v. Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004, para.
113; Siemens v. Argentina, ICSID Case No. ARB/02/8, Award, 6 February 2007, para. 290.
97 See Oil Platforms (Islamic Republic of Iran v. United States of America), Preliminary Objection, Judgment,
I.C.J. Reports 1996, p. 803, at p. 858 (Separate Opinion).
98 See Mondev International Ltd. v. United States of America, ICSID Case No. ARB(AF)/99/2, Award, 11 October
2002, para. 118, and Waste Management, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/00/3, Final
Award, 30 April 2004, para. 99, respectively.
46
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110. A breach of the fair and equitable treatment standard has been found in respect of
conduct characterized by "arbitrariness"99 and of "acts showing a wilful neglect of
duty, an insufficiency of action falling far below international standards, or even
subjective bad faith." 100 It has been also held that the standard requires "treatment in
an even-handed and just manner, conducive to fostering the promotion of foreign
investment", 101 thereby condemning conduct that is arbitrary, grossly unfair, unjust
or idiosyncratic or that "involves a lack of due process leading to an outcome which
offends judicial propriety - as might be the case with a manifest failure of natural
justice in judicial proceedings or a complete lack of transparency and candour in
administrative process."102 Awards have found a breach in cases of discrimination
against foreigners and "improper and discreditable" or ''unreasonable" conduct.103
This does not mean that bad faith is necessarily required in order to find a breach: "A
State may treat foreign investment unfairly and inequitably without necessarily acting
in bad faith."104
111. In determining the scope of a right or obligation, Tribunals have often looked as a
benchmark to international or comparative standards.105 Indeed, as is often the case
for general standards applicable in any legal system (such as "due process"), a
comparative analysis of what is considered generally fair or unfair conduct by
domestic public authorities in respect of private firms and investors in domestic law
may also be relevant to identify the legal standards under BITs.106 Such an approach
is justified because, factually, the situations and conduct to be evaluated under a BIT
occur within the legal system and social, economic and business environment of the
host State. Moreover, legally, the fair and equitable treatment standard is derived
99 See ElettronicaSicula SP.A. (ELSI), Judgment, I.C.J. Reports 1989, p. 15, para. 128 where an "arbitrary action"
was defined as "as a wilful disregard of due process of law, an act which shocks, or at least surprises, a sense of
judicial property."
100 Genin and others v. Estonia, ICSID Case No. ARB/99/2, Award, 25 June 2001, para. 367.
101 MTD Equity Sdn. Bhd. & MTD Chile S.A. v. Chile, supra note 96, para. 113.
102 Waste Management, Inc. v. United Mexican States, supra note 98, para. 98 (as to infringement of"the minimum
standard of treatment of fair and equitable treatment").
103 Saluka Investments BV v. The Czech Republic, UNCITRAL, Partial Award, 17 March 2006, para. 309.
104 Mondev International Ltd. v. United States of America, supra note 98, para. 116. See also Siemens v Argentina,
supra note 96, para. 299, reviewing precedents.
105 S.D. Myers, Inc. v. Canada, UNCITRAL, First Partial Award, 13 November 2000, paras. 263-264; Genin and
others v. Estonia, Award, 25 June 2001, para. 367 ff.
106 There is a substantial body of authority to this effect. See Noble Ventures, Inc. v. Romania, ICSID Case No.
ARB/01/11, Award, 12 October 2005, paras 177-178 stating that a legal proceeding that exists in virtually all legal
systems, such as bankruptcy proceedings, cannot be regarded as arbitrary.
47
Annex 402
from the requirement of good faith which is undoubtedly a general principle of law
under Article 38(1) of the Statute of the International Court of Justice.
112. UNCT AD has followed such an approach in its publication on the topic, besides
referring to arbitral practice, in order:
"to identify certain forms of behaviour that appear to be contrary to fairness and
equity in most legal systems and to extrapolate from this the type of State action
that may be inconsistent with fair and equitable treatment, using the plain
meaning approach. Thus, for instance, if a State acts fraudulently or in bad faith,
or capriciously and wilfully discriminates against a foreign investor, or deprives
an investor of acquired rights in a manner that leads to the unjust enrichment of
the State, then there is at least a prima facie case for arguing that the fair and
equitable standard has been breached".107
6.2. The Notion of Legitimate Expectations of Foreign Investors
113. We turn now to the more specific concept, which Total asserts forms part of the
fair and equitable treatment standard, of the protection of "legitimate expectations"
on the part of an investor concerning the stability of the legal framework under which
it has made its investment.
114. Tribunals have often referred to the principle of the protection of the investor's
legitimate expectations, especially with reference to the "stability" of the legal
framework of the host country applicable to the investment, as being included within
the fair and equitable treatment standard. However, case law is not uniform as to the
preconditions for an investor to claim that its expectations were "legitimate"
concernmg the stability of a given legal framework that was applicable to its
investment when it was made. On the one hand, stability, predictability and
consistency of legislation and regulation are important for investors in order to plan
their investments, especially if their business plans extend over a number of years.
Competent authorities of States entering into BITs in order to promote foreign
investment in their economy should be aware of the importance for the investors that
107 UNCTAD, Fair and Equitable Treatment, UNCTAD Series on Investment Agreements, 1999 UN Doc.
UNCTAD/ITE/IIT/11, Vol. III, at 12.
48
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a legal environment favourable to the carrying out of their business activities be
maintained.108
115. On the other hand, signatories of such treaties do not thereby relinquish their
regulatory powers nor limit their responsibility to amend their legislation in order to
adapt it to change and the emerging needs and requests of their people in the normal
exercise of their prerogatives and duties. Such limitations upon a government should
not lightly be read into a treaty which does not spell them out clearly nor should they
be presumed.109 In fact, even in those BITs where stability of the legal framework for
investment is explicitly mentioned, such as in the BIT between the United States and
Argentina of 1991 (in accordance with the U.S. Model BIT of the time) such a
reference appears only in the preamble.110
116. In various disputes between U.S. investors and Argentina under that BIT,
tribunals have relied on the explicit mention in its preamble of the desirability of
maintaining a stable framework for investments in order to attract foreign investment
as a basis for finding that the lack of such stability and related predictability, on
which the investor had relied, had resulted in a breach of the fair and equitable
treatment standard. 111 This reference is justified because, although such a statement
in a preamble does not create independent legal obligations, it is a tool for the
interpretation of the treaty since it sheds light on its purpose. 112 However, the BIT
between France and Argentina does not contain any such reference, following the
108 See M. Waibel, Opening Pandora's Box: Sovereign Bonds in International Arbitration, 101 American Journal
of International Law (2007) 711, 750, according to whom the fair and equitable standard as developed in the case
law protects "legitimate commercial expectations" and requires that "governmental acts need to conform to
international standards of transparency, non arbitrariness, due process and proportionality to the policy aims
involved."
109 In applying the fair and equitable standard under Article 1105 (1) NAFTA the Tribunal in S.D. Myers, Inc. v.
Canada, supra note 105, para. 263 considered that a determination of breach "must be made in the light of the high
measure of deference that international law generally extends to the right of domestic authorities to regulate matters
within their own border", taking also into account any specific rule of international law.
110 See Continental Casualty Company v. Argentina, supra note 53, para. 258, with reference to the U.S.-Argentina
BIT of 1991 which includes the following preambular language, following the U.S. Model BIT of the time:
"Agreeing that fair and equitable treatment of investment is desirable in order to maintain a stable framework for
investment and maximum effective utilization of economic resources ... ".
111 See LG&E v. Argentina, ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006, paras 124-125
citing similar findings by other tribunals "in light of the same or similar language"; Enron Corporation and
Ponderosa Assets, L.P. v. Argentina, supra note 20, para. 259. The Tribunal notes that the U.K.-Argentina BIT does
not include any reference to such stability. See National Grid pie v. Argentina, UNCITRAL, Award, 3 November
2008, paras. 168 ff. and in particular para. 170.
112 Occidental Exploration and Production Company v. The Republic of Ecuador, LCIA Case No. UN 3467, Final
Award, 1 July 2004 relies explicitly on the language of the preamble in order to hold that "the stability of the legal
and business framework is thus an essential element of fair and equitable treatment."
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French BIT model.113 This absence indicates, at a minimum, that stability of the legal
domestic framework was not envisaged as a specific element of the domestic legal
regime that the Contracting Parties undertook to grant to their respective investors. 114
The operative provisions of the France-Argentina BIT must in any case be read
taking into account, within the object and purpose of the treaty, the reference in the
Preamble to the desire of the Parties to create favourable conditions for the
investments covered. 115
117. In the absence of some "promise" by the host State or a specific provision in the
bilateral investment treaty itself, the legal regime in force in the host country at the
time of making the investment is not automatically subject to a "guarantee" of
stability merely because the host country entered into a bilateral investment treaty
with the country of the foreign investor. The expectation of the investor is
undoubtedly "legitimate", and hence subject to protection under the fair and equitable
treatment clause, if the host State has explicitly assumed a specific legal obligation
for the future, such as by contracts, concessions or stabilisation clauses on which the
investor is therefore entitled to rely as a matter oflaw.116
113 The BIT at issue here includes the obligation of each Party to extend "full protection and security" to covered
investments of nationals of the other Party in its territory, "in accordance with the principle of just and equitable
treatment in Article 3 of this Agreement" (Article 5(1) of the BIT). As to the scope of this kind of clause, some
awards (see Azurix v. Argentina, ICSID Case No. ARB/01/12, Award, 14 July 2006, para. 408; National Grid plc v.
Argentina, supra note 111, para. 187) have considered that this protection is not limited to physical assets and that it
encompasses the stability of the legal framework and legal security of the investment. Other awards have instead
stuck to the original limitation of physical security (BG Group Plc v. Argentina, UNCITRAL, Award, 24 December
2007, para. 326).
114 Total has pointed out, however, the official statement made by the representative of the Government of
Argentina to Congress in relation to the ratification of the BIT by Argentina: "Bearing in mind that the main
purpose of this type of agreements is to bolster genuine and productive investment, in consequence, certain
situations or measures which may affect negatively the value or product of the investment are foreseen. Hence, by
way of this agreement, the States agree to maintain the status, during the term of such, of certain rules concerning
the treatment of investments and enshrines among the signatory States the commitment not to contravene rules
which, being part of this subject, belong to the group of principles common to all nations ... This way, a stable and
satisfactory environment is created which mitigates the concerns of foreign investors related to non-commercial
risks -called political risks- and promotes the international capital flow within in compliance with the laws of the
host State." (Exhibit C-89, Mensaje de! Poder Ejecutivo al Congreso de la Nacion for Law 24.100/92, 10 June
1992). The Tribunal notes that this statement does not include a reference to stability, such as the one found in the
corresponding message relating to the 1992 BIT of Argentina with the U.K.: "By way of such [agreements], States
accord to maintain during its term certain rules concerning investment treatment, in order to establish an
environment of stability and trust to attract investments." (Exhibit C-87)
115 Connected with this statement is the general obligation of Article 2 of the BIT, according to which each
Contracting Party shall admit and promote investments made by investors of the other Party, however "within the
frame of its legislation and provisions hereof"
116 See CME Czech Republic B. V. v. Czech Republic, UNCITRAL, Partial Award, 13 September 2001, para. 611
concerning interference with contractual rights by a regulatory authority; Tecnicas Medioambientales Teemed, S.A.
v. United Mexican States, ICSID Case No. ARB (AF)/00/2, Award, 29 May 2003, para. 154 relating to the
replacement of an unlimited licence by one of limited duration for the operation of a landfill. See also Waste
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118. The situation is similar when public authorities of the host country have made the
private investor believe that such an obligation existed through conduct or by a
declaration. 117 Authorities may also have announced officially their intent to pursue a
certain conduct in the future, on which, in turn, the investor relied in making
investments or incurring costs. 118 As stated within the NAFTA framework "the
concept of "legitimate expectations" relates [ ... ] to a situation where a Contracting
Party's conduct creates reasonable and justifiable expectations on the part of an
investor (or investment) to act in reliance on said conduct, such that a failure by the
NAFTA party to honour those expectations could cause the investor (or investment)
to suffer damages."119
119. In fact, when relying on the concept of legitimate expectations, arbitral tribunals
have often stressed that "specific commitments" limit the right of the host State to
adapt the legal framework to changing circumstances. 120 Representations made by
the host State are enforceable and justify the investor's reliance only when they are
specifically addressed to a particular investor. 121 "Where a host State which seeks
foreign investment acts intentionally, so as to create expectations in potential
investors with respect to particular treatment or comportment, the host state should,
Management, Inc. v. United Mexican States, supra note 98, where the claim of the investor under Article 1105(1)
NAFTA was rejected. In particular the Tribunal considered at para. 98 that the fair and equitable standard would be
violated by the "breach of representations made by the host State which were reasonably relied upon by the
claimant."
117 See the case of assurances provided by senior government officials to an investor in Wena Hotels Ltd. v. Arab
Republic of Egypt, ICSID Case No. ARB/98/4, Award on Merits, 8 December 2000, paras. 59 ff.
118 For a review of such instances see M. Reisman and M.H. Arsanjani, The Question of Unilateral Governmental
Statements as Applicable Law in Investment Disputes, 19 ICSID Review-Foreign Investment Law Journal 328
(2004).
119 See International Thunderbird Gaming Corporation v. Mexico, UNCITRAL, Arbitral Award, 26 January 2006,
para. 147. This is defined as "detrimental reliance" by T.J. Grierson-Weiler and I.I. Laird, Standards of Treatment,
Chapter 8 of P. Muchlinsk:i, F. Ortino and C. Schreuer (Eds.), The Oxford Handbook of International Investment
Law, Oxford, 2008, 275.
120 See CMS Gas Transmission Company v. Argentina, ICSID Case No. ARB/01/8, Decision on Jurisdiction, 17
July 2003, para. 27, holding that when general measures are challenged: "A direct relationship can, however, be
established if those general measures are adopted in violation of specific commitments given to the investor in
treaties, legislation or contracts. What is brought under the jurisdiction of the Centre is not the general measures in
themselves but the extent to which they may violate those specific commitments."
121 See International Thunderbird Gaming Corporation v. Mexico, supra note 119, para. 147. On the facts of the
various cases some tribunals have, however, concluded that the legal order of the host State as it stood at the time
when the investor acquired the investment grounded the legitimate expectations of the investor with respect to the
stability of the relevant regulations: Gami Investments, Inc. v. Mexico, UNCITRAL, Final Award, 15 November
2004, para. 93; Feldman v. Mexico, ICSID Case No. ARB(AF)/99/1, Award on Merits, 16 December 2002, para.
128.
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we suggest, be bound by the commitments and the investor is entitled to rely upon
them in instances of decision". 122
120. In other words, an investor's legitimate expectations may be based "on any
undertaking and representations made explicitly or implicitly by the host State. A
reversal of assurances by the host State which have led to legitimate expectations will
violate the principle of fair and equitable treatment. At the same time, it is clear that
this principle is not absolute and does not amount to a requirement for the host State
to freeze its legal system for the investor's benefit. A general stabilization
requirement would go beyond what the investor can legitimately expect."123
121. The balance between these competing requirements and hence the limits of the
proper invocation of "legitimate expectations" in the face of legislative or regulatory
changes ( assuming that they are not contrary to a contractual, bilateral or similar
undertaking, binding in its own right) has been based on a weighing of various
elements pointing in opposite directions. On the one hand, the form and specific
content of the undertaking of stability invoked are crucial. No less relevant is the
clarity with which the authorities have expressed their intention to bind themselves
for the future. Similarly, the more specific the declaration to the addressee(s), the
more credible the claim that such an addressee (the foreign investor concerned) was
entitled to rely on it for the future in a context of reciprocal trust and good faith.
Hence, this accounts for the emphasis in many awards on the government having
given 'assurances', made 'promises', undertaken 'commitments', offered specific
conditions, to a foreign investor, to the point of having solicited or induced that
investor to make a given investment. Total itself described the acts of Argentina on
which it relies in this way. As a result of such conduct by the host authorities, the
expectation of the foreign investor may "rise to the level of legitimacy and
reasonableness in light of the circumstances."124 When those features are not present,
a cautious approach is warranted based on a case specific contextual analysis of all
relevant facts.
122 Conclusions by M. Reisman and M.H. Arsanjani, The Question of Unilateral Governmental Statements as
Applicable Law in Investment Disputes, supra note 118, 342.
123 See C. Schreuer, Fair and Equitable Treatment in Arbitral Practice, supra note 94, 374.
124 See Saluka Investments BV v. The Czech Republic, supra note 103, para. 304.
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122. Indeed, the most difficult case is ( as in part in the present dispute) when the basis
of an investor's invocation of entitlement to stability under a fair and equitable
treatment clause relies on legislation or regulation of a unilateral and general
character. In such instances, investor's expectations are rooted in regulation of a
normative and administrative nature that is not specifically addressed to the relevant
investor. This type of regulation is not shielded from subsequent changes under the
applicable law. This notwithstanding, a claim to stability can be based on the
inherently prospective nature of the regulation at issue aimed at providing a defined
framework for future operations. This is the case for regimes, which are applicable to
long-term investments and operations, and/or providing for "fall backs" or contingent
rights in case the relevant framework would be changed in unforeseen circumstances
or in case certain listed events materialize. In such cases, reference to commonly
recognized and applied financial and economic principles to be followed for the
regular operation of investments of that type (be they domestic or foreign) may
provide a yardstick. This is the case for capital intensive and long term investments
and operation of utilities under a license, natural resources exploration and
exploitation, project financing or Build Operate and Transfer schemes. The concept
of "regulatory fairness" or "regulatory certainty" has been used in this respect. 125 In
the light of these criteria when a State is empowered to fix the tariffs of a public
utility it must do so in such a way that the concessionaire is able to recover its
operations costs, amortize its investments and make a reasonable return over time, as
indeed Argentina's gas regime provided.
123. On the other hand, the host State's right to regulate domestic matters in the public
interest has to be taken into consideration as well. 126 The circumstances and reasons
(importance and urgency of the public need pursued) for carrying out a change
impacting negatively on a foreign investor's operations on the one hand, and the
seriousness of the prejudice caused on the other hand, compared in the light of a
standard of reasonableness and proportionality are relevant. The determination of a
breach of the standard requires, therefore, "a weighing of the Claimant's reasonable
and legitimate expectations on the one hand and the Respondent's legitimate
125 See T.J. Grierson-Weiler and I.I. Laird, Standards of Treatment, supra note 119,277.
126 See Saluka Investments BV v. The Czech Republic, supra note 103, paras 305-306. See also Feldman v. Mexico,
supra note 121, para. 112: "[G]overnments, in their exercise ofregulatory power, frequently change their laws and
regulations in response to changing economic circumstances or changing political, economic or social
considerations. Those changes may well make certain activities less profitable or even uneconomic to continue."
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regulatory interest on the other. "127 Thus an evaluation of the fairness of the conduct
of the host country towards an investor cannot be made in isolation, considering only
their bilateral relations. The context of the evolution of the host economy, the
reasonableness of the normative changes challenged and their appropriateness in the
light of a criterion of proportionality also have to be taken into account. 128 Additional
criteria for the evaluation of the fairness of national measures of general application
as to services are those found in the WTO General Agreement on Trade of Services
(GATS). The Tribunal recalls that Article VI of the GATS of 1994 on "Domestic
regulation" provides that "In sectors where specific commitments are undertaken,
each member shall ensure that all measures of general application affecting trade in
services are administered in a reasonable, objective and impartial manner" ( emphasis
added). This reference concerning services (as undoubtedly Total's operations in the
gas transportation and electricity were) in a multilateral treaty to which both
Argentina and France are parties offers useful guidance as to the requirements that a
domestic regulation must contain in order to be considered fair and equitable. The
Tribunal refers to the requirements found in Article VI GA TS just as "guidance"
because it has not been submitted that the GATS is directly applicable here. This
would require that Argentina had admitted Total's investment in the electricity sector
on the basis of a specific commitment in respect of the opening of electricity
generation to investors from other WTO Members.
124. Besides such an objective comparison of the competing interests in context, the
conduct of the investor in relation to any undertaking of stability is also, so to speak
"subjectively", relevant. Tribunals have evaluated the investor's conduct in this
respect, highlighting that BITs "are not insurance policies against bad business
127 See Saluka Investments BV v. The Czech Republic, ibid. See also D. Carreau, P. Juillard, Droit international
economique, 2ieme edition, 2005, 442, para. 1265 according to whom the "equitable" requirement of the standard
implies that a satisfactory equilibrium be ensured between the interests of the investor, of its nationality State and of
the host State.
128 For instance, see Genin and others v. Estonia, supra note 105, para. 348, where the Tribunal states that in
considering the revocation of a banking license to a financial institution (Estonian Innovation Bank) in which a U.S.
investor made its investments " ... the Tribunal considers it imperative to recall the particular context in which the
dispute arose, namely, that of a renascent independent state, coming rapidly to grips with the reality of modern
financial, commercial and banking practices and the emergence of state institutions responsible for overseeing and
regulating areas of activity perhaps previously unknown. This is the context in which Claimants knowingly chose to
invest in an Estonian financial institution, EIB."
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judgments" and that the investor has its own duty to investigate the host State's
applicable law.129
6.3 The Content of Article 3 of the Argentina-France BIT
125. The commitment to fair and equitable treatment in Article 3 of the BIT relates to
a treatment that must be in conformity with the principles of international law
("coriforme a los principios de Derecho International I en conformite des principes
du droit international''). The parties have discussed whether this reference is to a
minimum standard, as suggested by Argentina, 130 or whether it sets forth an
autonomous standard, as submitted by Total. 131 For the reasons stated hereunder the
Tribunal is of the opinion that the phrase "fair and equitable in conformity with the
principles of international law" cannot be read as "treatment required by the
minimum standard of treatment of aliens/investors under international law."132 This
is irrespective of the issue of whether today there really is a difference between this
traditional minimum standard and what international law generally requires as to
treatment of foreign investors and their investments.133
126. In order to elucidate the content of the treatment required by Article 3 in
conformity with international law, a tribunal is directed to look not just to the BIT in
isolation or the case law of other arbitral tribunals in investment disputes interpreting
and applying similarly worded investment protection treaties, but rather to the
content of international law more generally.
127. The Tribunal will, therefore, proceed to further interpret the "fair and equitable
treatment" standard looking also at general principles and public international law in
129 See Maffezini v. Spain, ICSID Case No. ARB/97/7, Award on the Merits, 13 November 2000, para. 64. See also
MTD Equity Sdn. Bhd. & MTD Chile S.A. v. Chile, supra note 96, para. 178.
130 According to Argentina (Opening Statement, Hearing Day 2, 443:19-444-1) the minimum standard would not
include the obligation to maintain a stable legal environment and protect legitimate expectations of the investor.
131 See Total's Post-Hearing Brief, 210 ff.
132 See to this effect the analysis ofUNCTAD, Fair and Equitable Treatment, supra note 107, 40. A detailed review
of different opinions and statements on the issue is found in OECD, International Investment Law, A Changing
Landscape, 2005, at 81-96.
133 Several arbitral tribunals dealing with investment disputes have held that the law of the international protection
of foreign investors ( of which the fair and equitable treatment standard is part) has considerably evolved since the
Neer decision of 1926 that was considered to restate the minimum treatment standard existing at that time (see
Enron Corporation and Ponderosa Assets, L.P. v. Argentina, supra note 20, para. 257; Mondev International Ltd. v.
United States of America, supra note 98, paras 116-117). See also R. Dolzer and C. Schreuer, Principles of
International Investment Law, 2008, 128-130.
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a non-BIT context. This approach is consistent with the interpretation of Article 3 of
the France-Argentina BIT by the "Vivendi If' tribunal which has expressed the view
we have developed above, namely, that: "The Tribunal sees no basis for equating
principles of international law with the minimum standard of treatment . . . the
reference to principles of international law supports a broader reading that invites
consideration of a wider range of international law principles than the minimum
standard".134 The views expressed by commentators on the French model BIT, from
which the phrase derives, are consistent with these conclusions. 135
6.4 Comparative Analysis
128. Since the concept of legitimate expectations is based on the requirement of good
faith, one of the general principles referred to in Article 38(1)(c) of the Statute of the
International Court of Justice as a source of international law, the Tribunal believes
that a comparative analysis of the protection of legitimate expectations in domestic
jurisdictions is justified at this point. While the scope and legal basis of the principle
varies, it has been recognized lately both in civil law and in common law
jurisdictions within well defined limits. 136
134 Compafiia de Aguas de! Aconquija S.A. and Vivendi Universal v. Argentina, ICSID Case No. ARB/97/3, Award,
20 August 2007 (hereinafter also "Vivendi IF'), paras. 7.4.6-7. referred to by Total in its Post Hearing Brief, para.
213.
135 See D. Carreau, P. Juillard, Droit international economique, 2ieme edition, supra note 127, para. 1286 at p. 456.
We do not read otherwise the Introductory Note of H. Goldsong to the France-U.S.S.R. BIT of 1989, 29 ILM 317
(1990) on which Argentina relies, where the author expresses the view that the reference to international law
"qualifies" the scope of the undertaking of fair and equitable treatment. This qualification rather directs the
interpreter to take fully into account the protection afforded by international law, without going beyond that in the
context of the BIT, but also without reducing it below that level. As stated by Carreau, Juillard, Droit international
economique, 2ieme ed., supra note 127, para. 1266 at p. 442: "the treatment granted to the investment by national
law could not breach the treatment required by the totality of the combined sources of international law."
136 The concept is considered to have originated in German law where it is extensively used, CF Forsyth, The
Provenance and Protection of Legitimate Expectations, Cambridge L.J. 47, 241 (1988). As to civil law, see
Argentina Industria Madera Lanin, Corte Suprema 1977, Fallos 298:223. The State was required there to
compensate for the breach of la expectativa razonable of an enterprise to which a forest concession had been
initially promised, but was thereafter revoked. In English law (leading case: Schmidt v Secretary of State for the
Home Affairs [1969] 2 Ch 149, per Lord Denning) the House of Lords has stated that "the doctrine of legitimate
expectations is rooted in fairness", R. v Inland Revenue Commissioners exp. Preston [1985] 2 All E.R. 327, para.
835 per Lord Bingham. See also R. v North and East Devon Health Authority exp. Coughlan [1999] LGR 703,
para. 57, holding that where "a lawful promise or practice has induced a legitimate expectation of a benefit which is
substantive, not simply procedural, authority now establishes that here too the court will in a proper case decide
whether to frustrate the expectation is so unfair that to take a new and different course will amount to an abuse of
power". Generally, as to the notion in administrative law of Common Law countries, see W. Wade and CF Forsyth,
Administrative Law, OUP Oxford 2004, 372-376.
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129. In domestic legal systems the doctrine of legitimate expectations supports "the
entitlement of an individual to legal protection from harm caused by a public
authority retreating from a previous publicly stated position, whether that be in the
form of a formal decision or in the form of a representation" .137 This doctrine, which
reflects the importance of the principle of legal certainty ( or rule of law), appears to
be applicable mostly in respect of administrative acts and protects an individual from
an incoherent exercise of administrative discretion, or excess or abuse of
administrative powers. 138 The reasons and features for changes (sudden character,
fundamental change, retroactive effects) and the public interest involved are thus to
be taken into account in order to evaluate whether an individual who incurred
financial obligations on the basis of the decisions and representations of public
authorities that were later revoked should be entitled to a form of redress. However it
appears that only exceptionally has the concept of legitimate expectations been the
basis ofredress when legislative action by a State was at stake. Rather a breach of the
fundamental right of property as recognized under domestic law has been the basis,
for instance, for the European Court of Human Rights to find a violation of the First
Protocol to the European Convention on Human Rights protecting the peaceful
enjoyment of property.139
130. From a comparative law perspective, the tenets of the legal system of the
European Community (now European Union), reflecting the legal traditions of
twenty-seven European countries, both civil and common law (including France, the
home country of the Claimant) are of relevance, especially since the recognition of
the principle of legitimate expectations there has been explicitly based on the
137 C. Brown, The Protection of Legitimate Expectations as A "General Principle of Law": Some Preliminary
Thoughts, Transnational Dispute Management, www.transnational-dispute-management.com, March 2009. See also
J. Temple Lang, Legal Certainty and Legitimate Expectations as General Principles of Law, U. Bemitz, J.
Nergelius (Eds.), General Principles in European Community Law, Kluwer, 2000, 163-184.
138 See C. McLachlan, Investment Treaties and General International Law, 51 Int'l & Comp. L.Q. 361 (2008), at p.
377 with reference to the holding of the Annulment Committee in MTD Equity Sdn. Bhd. & MTD Chile S.A. v.
Chile, ICSID Case No. ARB/01/7, Decision on Annulment, 21 March 2007, para. 67-71; Cami Investments, Inc. v.
Mexico, UNCITRAL, Final Award, 15 November 2004, 44 ILM 545,560 (2005).
139 See generally the review by the former president of the ECHR, L. Wildhaber, The Protection of Legitimate
Expectations in European Human Rights Law, M. Monti, N. Liechtenstein, B. Vesterdorf, L. Wildhaber, Economic
Law and Justice in Times of Globalisation, Festschrift Baudenbacher, 2007, 253, at 263: "the concept appears to
have no meaningful autonomous existence as far as its applicability is concerned. Where the applicants can point to
a possession, however, and to interference with their peaceful enjoyment of same, it is arguably the legitimacy of
their claim more than their subjective expectations that will weight in the balance". In a case involving the
legitimate expectations of beneficiaries to future social benefits provided by legislation, the European Court of
Human Rights found a breach of Article 1 of the Protocol in the later withdrawing of such benefits by governmental
action, Doldeanu v. Moldova, Application 17211/03, Decision 13 November 2007.
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international law principle of good faith. 140 Based on this premise, the Tribunal of the
European Union has upheld the legitimate expectations of importers that the
Community would respect public international law.141 According to the Court of
Justice of the European Union ("ECJ") private parties cannot normally invoke
legitimate expectations against the exercise of normative powers by the Community's
institutions, except under the most restrictive conditions (which the Court has never
found in any case submitted to it). 142
6.5 Public International Law
131. Under international law, unilateral acts, statements and conduct by States may be
the source of legal obligations which the intended beneficiaries or addressees, or
possibly any member of the international community, can invoke. The legal basis of
that binding character appears to be only in part related to the concept of legitimate
expectations-being rather akin to the principle of "estoppel". Both concepts may
lead to the same result, namely, that of rendering the content of a unilateral
declaration binding on the State that is issuing it. 143 According to the International
Court of Justice, only unilateral acts that are unconditional, definitive and "very
specific" have binding force, which derives from the principle of good faith. This
fundamental principle requires a State to abide by its unilateral acts of such a
140 See Opel Austria GmbH (formerly General Motors Austria GmbH) v. Council of the European Union, Case T-
115/94, Judgment, 22 January 1997 stating that "The principle of protection of legitimate expectations which
according to the case law, forms part of the Community legal order, is the corollary of the principle of good faith in
public international law."
141 In the case mentioned in the previous footnote, contrary to Article 18 of the VCLT (according to which
signatories to a treaty not yet in force may not adopt measures that would defeat the treaty's object and purpose),
the Community had increased a customs duty contrary to the treaty of accession of Austria to the EC due to enter
into force shortly.
142 Under ECJ case law, a competent businessman cannot invoke legitimate expectations in respect of the stability
of a regulation that the Commission has wide discretion to modify (see Di Lenardo Adriano Sri, Di/export Sri and
Ministero de! Commercio con l'Estero, Case C-37/02 and C-38/02, Judgment, 15 July 2004, para. 63, 82). The
liability of the EC for a legitimate normative act requires in principle, besides damage and causation, that the
damage be "unusual and special". This is so if a particular category of economic operators are affected in a
disproportionate manner in comparison with others ("unusual damage"), and if the damage ("special damage") goes
beyond the inherent risk of a given economic activity, without the legislative measure that gave rise to the alleged
damage being justified by a general economic interest. See Dorsch Consult Ingenieurgesellschaft mbH v. Council of
the European Union and Commission of the European Communities, Case T-184/95, Judgment, 28 April 1998,
para. 80, affirmed by the EC Court of Justice, Case C-237/98 P, Judgment, 15 June 2000.
143 See D.W. Bowett, "Estoppel" Before International Tribunals and its Relation to Acquiescence, 33 B. Y.I.L. 176
(1957): "It is possible to construe the estoppel as resting upon a responsibility incurred by the party making the
statement for having created an appearance of act, or as a necessary assumption of the risk of another party acting
upon the statement" referred to by M. Reisman and M.H. Arsanjani, The Question of Unilateral Governmental
Statements as Applicable Law in Investment Disputes, supra note 118, 340.
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character and to follow a line of conduct coherent with the legal obligations so
created.144
132. The recent "Guiding Principles applicable to unilateral declarations of States
capable of creating legal obligations"145 ("the Guidelines"), which were formulated
by the International Law Commission in 2006 as a restatement of international (interstate)
case law in the subject matter, are of interest here. We are aware that the
Guidelines deal with the legal effects of unilateral acts of States addressed to other
subjects of international law, and not with domestic normative acts relied upon by a
foreign private investor. Still, we believe that the conditions required for unilateral
declarations of a State to give rise to international obligations are of relevance here
since the issue before the Tribunal has to be resolved by application of international
law.146
133. Relevant provisions for our analysis are found in Article 7 of the Guidelines:
"A unilateral declaration entails obligations for the formulating State only if it is
stated in clear and specific terms. In case of doubt as to the scope of the
obligations resulting from such a declaration, such obligations must be
interpreted in a restrictive manner. In interpreting the content of such obligation,
weight shall be given first and foremost to the text of the declaration, together
with the context and the circumstances in which it was formulated."
Also of relevance is the final article of the Guidelines. Article 10 on revocation
provides that:
"[a] unilateral declaration that has created legal obligations for the State making
the declaration cannot be revoked arbitrarily. In assessing whether a revocation
would be arbitrary, consideration should be given to: (i) Any specific terms of the
declaration relating to revocation; (ii) The extent to which those to whom the
obligations are owed have relied on such obligations; (iii) The extent to which
there has been a fundamental change of circumstances".
134. International law on the binding nature of unilateral commitments, as evidenced
by the Guidelines, relies on concepts found in investment arbitral practice and in
144 See Nuclear Tests (New Zealand v. France), Judgment, I.C.J. Reports 1974, p. 457, para. 46 at p. 472 and W.
Fiedler, "Unilateral Acts in International Law", IV Encyclopedia of Public International Law 1018 (2000).
145 Adopted by the International Law Commission at its 58th session in 2006 together with commentaries thereto
(ILC Report, A/61/10, 2006, Chapter IX), based on the analysis of the jurisprudence of the ICJ and pertinent State
practice summarized in the eighth report of the Special Rapporteur (A/CN.4/557).
146 The preamble to the Guidelines states that "it is often difficult to establish whether the legal effects stemming
from the unilateral behaviour of a State are the consequence of the intent that it has expressed or depend on the
expectations that its conduct has raised among other subjects of international law" (4th sentence).
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comparative law concepts, such as the importance of factual circumstances, the
relevance of content and intent, non-arbitrariness in case of revocation and the
restrictive interpretation of unilateral acts invoked as a source of commitments for the
issuing party. 147 The cautious approach that emerges appears to be consistent, mutatis
mutandis, with that of domestic legal systems, European Union legal system and the
European Court of Human Rights case law.
7. Application of the Fair and Equitable Treatment Standard
135. We turn now to apply the legal principles that we have highlighted to the facts of
the case so as to evaluate Total's various claims of breach by Argentina. In this
respect we find it appropriate to distinguish and sub-divide the three distinct claims
made by Total, as follows:
- the elimination of the calculation of the tariffs in US dollars;
- the elimination of the automatic adjustments of the US dollar tariffs every six
months in accordance with the US PPI, distinguishing in this respect the 6-month
automatic adjustment in itself from its pegging to the US dollar based PPI;
- the non-application or elimination of the promises of economic equilibrium and a
reasonable rate of return through the ongoing suspension of the Five-Year and
Extraordinary Reviews, thus freezing the tariffs since 2002.
7.1 The Elimination of the Calculation of Gas Tariffs in US Dollars
136. The Tribunal recalls that the calculation of the gas transportation tariffs in US
dollars was provided for by Article 41 of the Gas Decree as an element of the
"normal and periodic adjustment of the tariffs authorized by the body" [ENARGAS].
The provision established further that the tariffs ("el cuadro tarifario") would be
expressed in convertible pesos in conformity with Law 23.928, that is, Argentina's
convertibility law of March 1991 (the "Convertibility Law"), with the reconversion
147 See Guidelines, Commentary to Article 7, supra note 145.
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Annex 402
Volume VII - Annexes 386-402