The AES Corporation v. Argentine Republic, ICSID Arbitration under the United States–Argentina BIT, Final Award, 30 May 2025)

Overview

In The AES Corporation v. Argentine Republic, an ICSID tribunal granted claims arising under the United States–Argentina Bilateral Investment Treaty (1994) (“the BIT”). The dispute concerned a series of measures taken by Argentina in its electricity sector, and whether those measures were a breach of its obligations under the BIT.

On May 30, 2025, the tribunal granted the claim and ordered Argentina to pay the sum of USD 715,900,000 as damages, bear all arbitration costs (including paying 80% of the claimant investor’s legal fees and expenses) and also pay simple interest on the damages and all other costs of the arbitration. In its decision, the tribunal reaffirmed the principle that obtaining benefits/profits from an investment does not preclude the possibility of being entitled to damages.

Background

Between 1993 and 1995, the AES Corporation (“AES”), a U.S. company, made its first investment in the Argentina (“the respondent”) by acquiring a controlling stake in the generator San Nicolás (a coal, oil and gas-fired plant located in the city of San Nicolás, Argentina). AES also made a number of investments (over which AES also acquired controlling stakes) in the respondent’s energy sector, which were described as “highly efficient hydro and thermal plants, as well as less efficient plants that have the ability to burn a range of fuels.”

From 1998, a series of financial shocks hit Argentina, leading to unprecedented tax increases in 2001 to boost the respondent’s economy. The situation continued to worsen, leading the well-known 2001 economic crisis. To control the situation, Argentina implemented a series of regulations (issued between 2002 and 2020) affecting the electricity market and, inevitably, AES.

In November 2002, AES submitted a claim to the ICSID on the basis of the BIT. The respondent contended that AES consented to its actions and also granted express waivers while participating in the overall regulatory scheme of its electricity sector. On its part, AES argued that it never waived its claims and there was no express or implied basis for the respondent to be able to assume that a waiver existed.

In an effort to reach a settlement, the arbitration was suspended in 2005, but it was recommenced in 2019 due to a breakdown in settlement terms.

Admissibility of the claim

The respondent contended that the claim was inadmissible on the basis of express waivers (allegedly granted by AES), consent, and the principle of estoppel. In determining whether there had been a waiver that could exclude its jurisdiction, the tribunal considered the identity of the parties, the specific language used in the BIT, the cause of action (and the particular circumstances of the case) as relevant, and emphasized that a waiver must be clear and explicit to leave no doubt that parties intended to withdraw from the dispute settlement treaty regime conferred by the BIT (para. 158).

Hence, in reaching a decision on this issue, the tribunal considered the evidence relied upon by the respondent to constitute a waiver, i.e., the 2005 Definitive Agreement and the 2008–2011 Agreement and found that while none of the provisions of the Definitive Agreement contemplated a waiver of claims against Argentina (para. 159), AES was also not one of the signatories (of the 2008–2011 Agreement) that had expressly consented to the renunciation of their rights and claims against Argentina (paras. 161 and 176). The tribunal also considered the cause of action and found that since the legal basis for the dispute was a breach of obligations under the BIT, any rights (if any) that could have been renounced under the 2008–2011 Agreement did not extend to AES’s rights under the BIT (para. 162). Finally, the tribunal also considered the language used in the BIT and found that the exceedingly broad language used in Article 3.2 of the BIT did not expressly indicate the clarity and precision that must characterize a waiver (para. 164).

The tribunal thereby found that the claim was admissible as there was no waiver by AES, and the principles of consent and estoppel were not applicable to justify an exclusion of jurisdiction under the BIT.

FET

Regarding the claim of a breach of the BIT standard of FET, AES maintained that dramatic regulatory changes constituted a breach of the FET standard by failing to provide a stable regulatory framework for the electricity sector and protect AES’s legitimate expectations. The respondent maintained that it did not commit to avoiding changing the regulatory framework of its electricity sector, and that all the regulatory changes were adopted by competent authorities, with the possibility for a judicial review of such measures.

While the tribunal agreed that (under the BIT) the respondent was not obliged to create stable conditions for investors nor to provide a stable framework, it noted that “disregard of due process, caprice, whim and unreasonable” were elements which, when present in a measure, would render it arbitrary, and it emphasized that a measure based on sole discretion rather than on law or facts or a measure taken for reasons other than those put forward by the decision-maker, constitutes arbitrariness (para. 269). The tribunal thereby found that the respondent’s adoption of measures affecting spot price formation and dispatch, capacity payments, and the withholding of revenues and investment programs in its electricity sector were arbitrary and in breach of the FET standard under the BIT (para. 351).

In reaching this decision, the tribunal found that—contrary to the respondent’s submissions—the resolutions adopted by the respondent did not clearly indicate that the reason for their implementation was to protect the interests of users and consumers (para. 350). The tribunal also emphasized that its finding of the arbitrariness of the measures adopted by the respondent was reinforced by the respondent’s own recognition (in 2016) that its policies had represented an “abandonment” and were “outside” the criteria established under the Electricity Law (para. 349).

Arbitrary and discriminatory measures

AES argued that the respondent’s implementation of regulatory changes was arbitrary and lacked transparency, and that this arbitrariness had been proved since the respondent had continued to implement said changes for almost 20 years. In response, the respondent argued that a measure ought to be considered arbitrary if it had not been taken through a rational decision-making process, and it also emphasized that AES was required to prove that there were no reasons for the implementation of those regulatory measures. The respondent thereby emphasized that AES had failed to explain how the measures could be considered as arbitrary.

In its analysis, the tribunal considered the text of the BIT, which required the contracting states to not impair “in any way” essential aspects of an investment by arbitrary measures. Hence, based on the tribunal’s earlier finding that the measures taken by the respondent were arbitrary (since they indicated a disregard of due process), the tribunal found that those arbitrary measures had specifically affected AES’ investments.

Full protection and security

AES contended that the respondent had an obligation to ensure that the amendment of its laws does not devalue the security and protection of the investment of its foreign investors (such as AES). AES thereby maintained that since the respondent violated its FET obligations to AES, the respondent had also breached its full protection and security (“FPS”) obligation that it owed to AES under the BIT. The respondent argued that the FPS obligation under the BIT only required it to provide police protection against any criminal acts causing physical damage to the investor or its investments and maintained that AES was seeking to expand the FPS obligation (under the BIT) without any basis.

In its analysis, while the tribunal agreed that the provisions of the BIT did not limit the respondent’s FPS obligation to the protection of AES’s investments against physical damage, the tribunal found that the respondent’s FPS obligation did not require the respondent to not change its regulations. The tribunal thereby emphasized that, in determining whether stability could be considered as part of FET, the text of the treaty and the specific representations made by the host state to investors (in order to induce investment) must be considered (para. 365). In the tribunal’s view, however, those elements were absent in this case, and it found that AES’s allegations were not covered by the scope of the respondent’s FPS obligation under the BIT.

State of necessity defence under Article 25 of the Articles on the Responsibility of States for Internationally Wrongful Acts

The respondent contended that any “potential wrongfulness” of the regulatory measures which it adopted would be precluded by the defence of necessity. By this defence, a state may be precluded from international responsibility for wrongful conduct done in order to prevent a greater harm. In response, AES argued that the defence of necessity could not be invoked by the respondent since it contributed to creating the situation requiring any alleged necessity for wrongful conduct.

While agreeing that the defence of necessity is a highly exceptional remedy that is subject to very strict conditions, the tribunal found that since the respondent had contributed to the financial crisis suffered by it between 2001 and 2002, then the respondent had contributed to the situation of necessity and could thereby not invoke the defence of necessity.

Update factor for passage of time/interest

It is important to note that one of the most significant aspects of this case was that it involved events that occurred more than 20 years ago. Hence, due to the passage of time, AES argued that the most appropriate interest rate to be awarded to it was one that fully considered the opportunity cost to AES of being deprived of the funds owed to it between 2002 and 2020, with interest being compounded annually. AES also contended that it was entitled to interest during the period when the arbitration was suspended, as it had only agreed to suspend the arbitration while relying on the respondent’s promises, which were never fulfilled.

In response, the respondent argued that if the tribunal found that interest was to be granted, it should not be computed over the arbitration suspension period, or it would amount to AES obtaining a double benefit. The respondent thereby argued that the particular circumstances of each case should be considered in determining the issue of interest.

The tribunal agreed that the awarding of interest depends on the circumstances of each case and emphasized that the interest rate and mode of calculation should be aimed at providing full reparation for the injury suffered. The tribunal thereby found that it would amount to punishing AES for entering into negotiations—which led to the suspension of the arbitration from 2005 to 2019—if AES was denied entitlements to interests throughout the suspension period (para. 558). But pursuant to Argentine law, the tribunal found that awarding compound interest would be inappropriate, hence it directed the respondent to pay simple interest (on the damages and all other costs) at a 1-year U.S. Treasury Bills rate, to AES.

In this regard, since AES was largely successful, the tribunal applied the full reparation principle and directed the respondent to bear all the costs of the arbitration, plus 80% of AES’ legal costs (except the costs incurred during the arbitration suspension period) including the sum of USD 715,900,000 as damages and simple interest (on the damages and all other costs) calculated at a 1-year US Treasury Bills rate running from December 31, 2020 (since AES’s losses had lasted from 2002 to 2020) to the date of payment [para. 602(xi)].

In a Dissenting Opinion, Professor Domingo Bello Janeiro agreed with the main conclusions reached, but disagreed with the majority on the issue of the distribution of the costs of the proceedings.

Conclusion

In conclusion, the potential impact of this case is that, where a host state is forced to impose regulatory measures due to a severe economic crisis faced by it, the liability for any damage to investors caused by those measures may be strictly interpreted by tribunals against the host state, especially if those measures can be considered as arbitrary.

Author

Adeyemi Gomes is a Nigeria-qualified lawyer, currently pursuing a master’s degree in international dispute settlement (the MIDS) at the CIDS Geneva Centre for International Dispute Settlement in Switzerland.

Note

The arbitral tribunal was presided over by Professor Ricardo Ramírez Hernández (a Mexican national) and comprised of Stephen L. Drymer (a Canadian national appointed by AES) and Professor Domingo Bello Janeiro (a Spanish national appointed by the respondent).