Campos de Pesé, S.A. v. Republic of Panama, ICSID Case No. ARB/20/19, 1 March 2024

An ICSID tribunal in Campos de Pesé, S.A. v. Republic of Panama, ICSID Case No. ARB/20/19, in its award dated March 1, 2024, found that it lacked jurisdiction ratione personae under Article I(2)(b) of the Italy–Panama BIT. The tribunal has dismissed a USD 100 million claim alleging that regulatory changes in Panama led to the closure of the biofuels company Campos de Pesé. The decision is notable because, as Pulecio-Boek observed, “it has become very rare over the past 20 years for tribunals to examine an entity’s ownership and control structure to determine jurisdiction.” This award is unique in its thorough analysis, tracing ownership all the way to the ultimate beneficial owners.^[1]

Background

The claimant, Campos de Pesé, S.A., is a Panamanian company that planted sugar cane and sold it to sugar mills for refining. The company then bought the refined sugar back as the raw material required for the production and sale of alcohol. In 2009, the shareholders of SER Holding Company Ltd, a British Virgin Islands (BVI)-headquartered company, acquired 50% of the issued shares of Campos de Pesé. SER then created Panama Sugar Estates (PSE), which became the direct owner of Campos de Pesé. By the time of the arbitration, SER had increased its stake in PSE to 99.96% in August 2014 (para. 70).

The investment dispute arose from the regulatory change in the biofuel policy. Panama first issued Law No. 42 of 2011, which established general guidelines on biofuels and offered incentives to foreign investors in the field (para. 49). Cabinet Decree No. 20 established a required set price for bioethanol, which gave Campos de Pesé a profit margin of USD 0.05 per litre in its bioethanol sales (para. 56).

However, following an environmental spill in 2014, the National Environment Authority imposed environmental sanctions on Campos de Pesé, including a fine of USD 608,930.44 (para. 63). The public prosecutor’s office issued criminal charges, and the National Environment Authority imposed environmental sanctions on Campos de Pesé, including a fine of USD 1,000,000 (para. 66). On August 19, 2014, Panama issued Cabinet Decree No. 29, which had the effect of eliminating the previously established fixed price for ethanol (para. 67).

Claims

The BIT violations claims were based on the change in biofuel policy established by Law No. 42 through the enactment of Cabinet Decree No. 29 and the imposition of administrative and criminal sanctions amounting to USD 1,608,930.44. Campos de Pesé claimed that Panama breached the BIT by expropriating its investment, failing to provide FET, and unlawfully interfering with its operations. It also alleged that Panama discriminated against the company and failed to offer full legal protection for its investment.

The issue before the tribunal

The tribunal faced the central question of whether Campos de Pesé was genuinely controlled by Italian nationals, as required under the Italy–Panama BIT. The complexity of the shareholding structure was a central issue, with the claimant submitting a 23-page chart outlining its ownership arrangement.

Tribunal analysis: Shareholder control

Campos de Pesé claimed that its ultimate ownership traced back to 26 Italian individuals who indirectly controlled SER. The claimant submitted that this control was exercised in three different ways: majority ownership; control over Campos de Pesé through the board of directors of SER; and control through the actions of Carlos Pellas.

Control by majority ownership

The claimant argued that because Campos de Pesé was fully owned by PSE and SER held the majority of PSE’s shares, the 26 individuals’ majority ownership in SER effectively gave them control over Campos de Pesé through PSE. Therefore, the majority ownership of SER shares would create a “legal presumption” of control under international law and evidence de facto control exercised by the 26 individuals who voted their shares “in concert” to appoint the SER board of directors and its Memorandum and Articles of Association.

The tribunal first turned to the legal control of Campos de Pesé under Panamanian law. It reaffirmed that none of the 26 individuals are registered in the books and records of the claimant in Panama as a shareholder of the claimant, and thus are not capable of exercising direct control (para. 159).

The tribunal reviewed expert testimony from Jaime Mora, presented by the claimant to substantiate its claims. During Mora’s cross-examination, he explained that under Panamanian law, the direct control of Campos de Pesé is exercised only by its shareholders, i.e., PSE. He further indicated that there was no provision in the law of Panama that defines or refers to indirect control. Mora testified that the individuals had neither direct nor indirect control over the claimant under Panamanian law. In the tribunal’s view, this evidence was sufficient to conclude that none of the 26 individuals, who allegedly are Italian nationals, exercise legal control over Campos de Pesé (para. 163). Since the 26 individuals were not shareholders, they could not exercise control, and Panamanian law does not recognize control through indirect ownership or management.

Second, the tribunal went to assess the legal control of SER under BVI law and the argument that since the 26 individuals control SER, they indirectly control the claimant. The tribunal placed weight on the fact that only 13 of the 26 individuals were registered as shareholders of SER. The remaining 13 individuals were not registered. The 13 registered members accounted for 12% of the shareholding of SER. Since the claimant did not provide any provision of BVI law to that effect, the tribunal also dismissed the argument that “acting/voting in unison” amounts to legal control by a group of individuals (para. 176).

A redacted section suggests that another BVI company held approximately 20% of SER’s shares, potentially controlled by Pellas, but no concrete evidence was disclosed.

Thirdly, the claimant argued that the 26 individuals exerted their control over SER by attending shareholder meetings of the company and voting in such meetings in an aligned manner. The tribunal, however, found this unconvincing, noting that only 4.5% of the shares were voted directly by the individuals, while the remaining individuals voted as “proxies” for the companies or trusts that they were representing (para. 192).

Control by the SER board of directors

The board of directors of Campos de Pesé was appointed by its shareholder, PSE, and the board of directors of the latter was appointed by SER. The SER board of directors was, in turn, appointed by its shareholders.

The claimant submitted that the SER board of directors was controlled by a majority of Italian nationals who thus controlled the company and who voted their shares in a coordinated manner to elect a common slate of seven Italian nationals to the board. The tribunal asserted that merely electing directors of the required nationality, regardless of the actual nationality of the owners, shareholders, or controllers, would effectively grant investment treaty protection without demonstrating genuine foreign control (para. 194). It also maintained, notwithstanding the previous argument, that the individuals’ shares were insufficient to form a majority needed to appoint the SER board of directors, meaning the company was not under the control of Italian shareholders (para. 198).

The tribunal finalized its point by saying “[a] decision by a parent company to grant a guarantee in favour of its subsidiary to secure a third-party loan is not an act of control of the subsidiary by the parent company but rather an act related to the management of the parent company” (para. 200). As such, the tribunal also found no persuasive evidence of control, “active involvement” or “strategic decision making” of the Italian nationals through SER in the operations of Campos de Pesé (para. 203).

Control by Carlos Pellas

The claimant placed particular weight on Pellas’s de facto control as the largest SER shareholder, and SER and PSE board of directors chair, as well as being a member of the board of directors of Campos de Pesé. However, the evidence that could have been found in Pellas’ testimony on the de facto control was struck from the record because of his unjustified absence from the hearing. The tribunal reaffirmed the undisputed fact that Pellas is not a shareholder in SER, and if he voted as a proxy for other shareholders, it does not mean he had control of the shares he voted. His directive roles could demonstrate his involvement in the operations of Campos de Pesé, but only in a “supervisory vein” and not a managerial role (para. 208). The tribunal concluded that the claimant has not proven that Pellas controlled SER on the relevant dates, either legally or de facto, directly or indirectly (para. 214).

The tribunal found that there is no evidence of control, legal or de facto, by the 26 individuals.
Failure to prove control due to key witness absences
The tribunal dedicated some time to quantifying the consequences of the unjustified decision of the two witnesses – Mr Pellas and Mr Palazio – not to attend the hearing, communicated only 5 days prior to the hearing. The tribunal made it clear that it did not draw adverse inferences from the reluctance to attend but sided with the respondent in that relevant facts remained unproven as a result (para. 216).

The claimant failed to demonstrate that Pellas exercised control over Campos de Pesé through his management role or that he was the final beneficiary of 20% of SER and a controlling shareholder of either SER or Campos de Pesé. Additionally, there was no evidence that the SER board of directors played a role in the company’s decision making during the relevant period, nor that Palazio was the final beneficiary of 3% of SER’s shares (para. 217). These gaps clearly undermined the claimant’s assertion that Campos de Pesé was controlled by Italian nationals, reinforcing the tribunal’s decision to dismiss the case for lack of jurisdiction.

Request for rectification

On September 12, 2024, the tribunal ruled on the rectification request submitted by the claimant, approving corrections for typographical errors, certain mis-citations and agreed-upon redactions while rejecting modifications to factual findings.

Conclusion

Despite these rectifications, the tribunal’s core findings remained unchallenged and unchanged. It reaffirmed that Campos de Pesé did not meet the requirements of the Italy–Panama BIT, and as a result, the case was dismissed for lack of jurisdiction.

This case underscores that indirect ownership alone is insufficient to establish jurisdiction under investment treaties. The tribunal emphasized that foreign investors must demonstrate actual decision-making authority, managerial influence, or operational control over the investment to clear the jurisdictional threshold. Mere shareholding or voting alignment without demonstrable strategic influence will not meet the jurisdictional threshold. More broadly, this decision highlights the increasing scrutiny tribunals apply to corporate structures in jurisdictional assessments, addressing rising concerns about forum shopping by reinforcing the need for investors to substantiate their claims with clear and tangible evidence of control tied to genuine economic activity.

Note

The tribunal was composed of Horacio Grigera-Naón, (Argentine national, appointed by claimant), Prof. Brigitte Stern (French national, appointed by respondent), and Eduardo Zuleta Jaramillo (Colombian national, president).

Author

Galina Milenova holds an LL.B. in international and European law from the University of Groningen and is an LL.M. candidate in international trade and investment law at the University of Amsterdam.

^[1] Simson. C. (2024). Panama skirts $100M claim over biofuel regulations. Law360. https://www.law360.com/articles/1809757/panama-skirts-100m-claim-over-biofuel-regulations