Awards and Decisions

Yukos shareholders awarded record damages in two separate proceedings against Russia

Martin Dietrich Brauch

In two separate proceedings, shareholders of the defunct Russian oil and gas company OAO Neftyanaya Kompaniya Yukos (Yukos) were awarded over US$52 billion in compensation from Russia for expropriation and due process of law violations.

On July 18, 2014, an UNCITRAL tribunal under the Permanent Court of Arbitration (PCA) ordered Russia to pay over US$50 billion in compensation for expropriation in breach of the Energy Charter Treaty (ECT). Two weeks later, on July 31, 2014, the European Court of Human Rights (ECtHR) published a majority judgment ordering Russia to pay over €1.86 billion in damages for breaches of the European Convention for the Protection of Human Rights and Fundamental Freedoms (Convention) and Protocol No. 1 to the Convention (Protocol).

Although the damages sought were much higher (2.36 times more in the PCA arbitrations, and 20 times more in the ECtHR case), the amounts awarded are the largest yet seen in investment treaty arbitration and in an ECtHR judgment, respectively. The direct beneficiaries of the PCA award are three companies that jointly held 70.5 percent of Yukos. The ECtHR judgment will benefit all shareholders of Yukos at the time of liquidation.

Yukos was created as a joint stock company in 1993 and privatized in 1995, with operations across the oil and gas sector; Yuganskneftegaz (YNG) was its main production subsidiary. In 2002, Yukos was Russia’s largest company in the sector and listed as one of the world’s top ten oil and gas companies by market capitalization. After a series of measures by Russia starting in July 2003, including tax reassessment and enforcement proceedings, Yukos was declared bankrupt in August 2006. Yukos was struck off the registry of companies in November 2007 and its assets nationalized. Russian state-owned companies Gazprom and Rosneft acquired Yukos’ remaining assets.

What follows are summaries of the judgements in both sets of proceedings.

The PCA tribunal awards

Hulley Enterprises Limited (Cyprus) v. The Russian Federation (PCA Case No. AA 226)

Yukos Universal Limited (Isle of Man) v. The Russian Federation (PCA Case No. AA 227)

Veteran Petroleum Limited (Cyprus) v. The Russian Federation (PCA Case No. AA 228)

Factual background and claims

Among Russia’s measures alleged to have breached the ECT are the criminal prosecution of the company and its management; Mikhail Khodorkovsky (CEO of Yukos and supporter of Russian opposition parties), Platon Lebedev (Director of two of the claimant companies) and Vasily Shakohvsky (President of Yukos-Moscow) were charged and convicted of crimes including embezzlement, fraud, forgery and tax evasion. To escape similar charges, other executives fled Russia, such as Leonid Nevzlin (Deputy Chairman of the Yukos Board of Directors).

During the arbitrations, Russia referred to Khodorkovsky, Lebedev, Nevzlin and others as the “oligarchs”—the individual owners of the claimant companies—and emphasized that they were involved in illegal activities. Russia characterized Yukos as a “criminal enterprise” that perpetrated embezzlement, tax evasion through the misuse of special low-tax zones, tax fraud and schemes to avoid the enforcement of tax liens, as well as transfer pricing schemes to divert the proceeds from the sale of oil to offshore shell companies owned by the “oligarchs.”

According to the claimants, Russia also imposed tax reassessments, VAT charges, fines and asset freezes against Yukos; threatened to revoke its licenses; annulled its merger with Russian oil company Sibneft; and forced it to sell YNG. They argued that, along with the harassment of Yukos’ executives, these measures amounted to a breach of the fair and equitable treatment (FET) standard under the ECT Article 10(1) and to an indirect expropriation in violation of ECT Article 13(1).

The interim award on jurisdiction

On November 30, 2009, the tribunal upheld its jurisdiction in an interim award, deciding the following issues.

Provisional application. ECT Article 45(1) mandates signatories to provisionally apply the treaty pending ratification. Russia signed the ECT on December 17, 1994, but never ratified it. On August 20, 2009, during the proceedings, Russia notified the depository of its intention not to ratify the treaty. The tribunal held that the ECT provisionally applied to Russia from the date of its signature until October 18, 2009 (60 days after the notification). It also held that investments made in Russia during provisional application would benefit from the ECT’s protections for 20 years, that is, until October 19, 2029. Therefore, Russia’s notification had no effect on jurisdiction.

Russia argued that it could only apply provisionally those treaty provisions that were consistent with Russian law, and that the dispute settlement provisions were not. The tribunal, however, held that “either the entire Treaty is applied provisionally, or it is not applied provisionally at all” (para. 311). In addition, it concluded that provisional application depended on whether the principle of provisional application itself was consistent with the state’s domestic law. The tribunal found that to be the case under Russian law.

Claimants as “investors.” Russia argued that the claimants, as companies owned and controlled by Russians, did not qualify as “investors.” Referring to ECT case Plama v. Bulgaria, the tribunal held that, as the claimants were organized under the laws of Cyprus, a Contracting Party to the ECT, they were protected investors, irrespective of the nationality of their owners or controllers.

Denial of benefits. Under ECT Article 17(1), a state may deny substantive treaty protections to an entity that has no substantial business where it is organized. Russia argued that it exercised this right by means of its 1994 Agreement with the European Union on Partnership and Cooperation, which determines that companies with a registered office in a state may only be considered companies of that state if they possess real and continuous links with its economy. The held that, as the 1994 Agreement and the ECT did not refer to each other, Russia had not exercised its right.

Fork-in-the-road. ECT Article 26(3)(b)(i) contains a fork-in-the-road provision: states listed in Annex ID (including Russia) do not grant consent to arbitration if the investor previously submitted the dispute to other means of resolution. Russia objected to jurisdiction, pointing to the other proceedings initiated by the “oligarchs” in Russian courts and their applications to the ECtHR. However, the tribunal concluded that Russia’s objection did not pass the “triple identity” test: “identity of parties, cause of action and object of the dispute” (para. 592).

Jurisdictional objections in the final award

The tribunal had postponed two jurisdictional issues to the merits phase: (a) whether the claimants’ wrongdoings deprived them of ECT protection (the “unclean hands” objection); and (b) whether the tribunal had jurisdiction over claims with respect to “Taxation Measures” other than those based on expropriatory “taxes” (the Article 21 objection).

Unclean hands objection

Listing 28 instances of alleged “illegal and bad faith conduct” by the claimants, Russia argued that the claimants ran a “criminal enterprise,” leading to lack of jurisdiction, inadmissibility of claims, or deprivation of the substantive protections of the ECT.

According to the claimants, their alleged misconduct could not impact the arbitrations for three reasons: the “unclean hands” principle is not in the ECT; neither is it a general principle of law; and their misconduct would amount to mere “collateral illegalities.” Those reasons guided the tribunal’s analysis.

Invoking ECT case Plama v. Bulgaria, the tribunal supported the view that the substantive provisions of the treaty did not apply to investments made illegally, even in the absence of language to that effect. As the treaty seeks to encourage legal investments made in good faith, investments made otherwise should not benefit from it.

Russia argued that not only illegalities in the making of the investment, but also in its performance, barred ECT claims. However, the tribunal was not persuaded, as denying the claimants’ right to initiate arbitration would undermine the ECT’s object and purpose.

Neither was it persuaded that the “clean hands” doctrine constituted a general principle of law, agreeing with the claimants that Russia failed to cite a majority decision in which the principle was applied and operated to bar a claim.

The tribunal considered that only illegalities related to the making of the investment, but not those carried out in its performance, could bar ECT claims. Analyzing the alleged illegalities in the acquisition of Yukos, the tribunal indicated that they were taken not by the claimants themselves, but by the “oligarchs” and other actors, before the claimants became shareholders of Yukos, and were not sufficiently connected with the transactions that consolidated claimants’ investment. While rejecting the jurisdictional objection, the tribunal recognized that the alleged illegalities could impact liability and damages.

Article 21 objection

Russia submitted that, under ECT Article 21, “taxation measures” broadly were “carved out” of the tribunal’s jurisdiction, while the same article provided for a narrow “claw-back” with respect to expropriatory “taxes,” but not other expropriatory “taxation measures.” Accordingly, Russia argued that the tribunal only had jurisdiction over claims concerning expropriatory taxes. Since the measures complained of were not taxes, but, more broadly, taxation measures, the tribunal would be devoid of jurisdiction.

The tribunal disagreed that the carve-out was broad and that the claw-back was narrow: assuming the taxation measures carve-out applied, any exempt measures would nonetheless be covered by the expropriation claw-back.

Furthermore, the tribunal agreed with claimants that Russia’s actions consisted in measures “under the guise of taxation,” aimed at bankrupting Yukos, appropriating its assets and politically harming its CEO. The tribunal referred to similar conclusions in RosInvestCo v. Russia and Quasar v. Russia, and held that the carve-out did not apply, thus upholding its jurisdiction.

Reasonable expectations and indirect expropriation

In the tribunal’s view, the claimants should have expected that their tax avoidance operations could prompt adverse reactions from Russia, but not that they would be so extreme. The tribunal considered that Russia’s measures had an effect equivalent to expropriation, and set out to analyze the elements of an illegal expropriation under ECT Article 10.

First, the tribunal found it questionable whether the expropriation of “Russia’s leading oil company and largest taxpayer” was in the public interest, pointing out that it was in the interest of state-owned oil company Rosneft, which is not the same (para. 1581).

Second, it considered that the treatment of Yukos might have been discriminatory, but did not see a reason to delve into the matter.

Third, while Yukos was subjected to processes of law, the tribunal did not find that the expropriation was “carried out under due process of law,” in view of the harsh treatment accorded to the executives and counsel of Yukos. The tribunal went so far as to state that the Russian courts, in sentencing Khodorkovsky and Lebedev, “bent to the will of Russian executive authorities to bankrupt Yukos, assign its assets to a State-controlled company, and incarcerate a man who gave signs of becoming a political competitor” (para. 1583).

Finally, given that Yukos was expropriated without compensation, Russia was found to be in breach of its obligations under ECT Article 13, and therefore liable under international law, without a need to consider whether it breached ECT Article 10 on fair and equitable treatment.

Contributory fault

The tribunal went on to determine whether and to what extent the compensation should be reduced because of the claimants’ wrongdoing, based on the legal principle of contributory fault. It found that, among the claimants’ many wrongdoings, only their abuse of low-tax regions and their misuse of the Cyprus-Russia tax treaty lessened Russia’s responsibility, contributed to the prejudice they suffered, and should lead to a reduction in the damages.

Noting the difficulty in determining the extent and proportion of the fault of each party, the tribunal referred to two earlier cases: the annulment committee in MTD v. Chile and Occidental v. Ecuador. The Occidental tribunal (which, like the Yukos arbitrations, was chaired by Yves Fortier) determined that the claimants’ contributory fault led to a 25 percent reduction. The Yukos tribunal, “having considered and weighed all the arguments” and “in the exercise of its wide discretion,” agreed that in this case a 25 percent reduction was a “fair and reasonable” apportionment of responsibility (para. 1637).


The claimants had proposed three interest rates, but the tribunal rejected all of them. It found that LIBOR had been “discredited,” that the yield on Russian sovereign bonds would lead to “excessive compensation” (para. 1679), and that the U.S. prime rate was not appropriate as there was no evidence that the claimants had to borrow money because of the expropriation.

The tribunal looked for guidance in Santa Elena v. Costa Rica (chaired, as the Yukos tribunal, by Yves Fortier), which supported using a rate based on the amount of interest that would have been earned on compensation had it been paid right after the expropriation—the “investment alternatives approach.” A rate based on ten-year U.S. Treasury bond rates was seen as appropriate by the tribunal, “in the exercise of its discretion” (para. 1685). While recognizing that compounded interest has become more frequent in investor-state arbitrations, it regarded as “just and reasonable” to grant simple pre-award interest and annually compounded post-award interest, if Russia does not fully pay the damages and costs within the 180-day grace period (para. 1689).

Quantification of damages

The claimants argued that the expropriation had occurred on November 21, 2007, when Yukos had ceased to legally exist, but the tribunal found that it had been crossed on December 19, 2004, the date of the forced auction of YNG. Finding support in Kardassopoulous and Fuchs v. Georgia and other decisions, the tribunal held that, having suffered an unlawful expropriation, the claimants could choose between valuations based on the expropriation date or on the award date.

As to causation, the tribunal considered that, but for the tax assessments and other enforcement measures, the claimants would not have suffered the damage. Russia suggested that the claimants could have mitigated their damages, but the tribunal concluded that, even if the claimants had paid the taxes and filed tax returns, Russia would have still taken the enforcement measures aimed at bankrupting Yukos.

According to the tribunal, the claimants were entitled to three heads of damages: the value of their shares, the value of lost dividends, and pre-award simple interest on both.

The claimants advanced eight valuation methods, resulting in amounts between US$74 billion and US$129 billion. Ultimately, the tribunal adopted the figure that resulted from the ‘comparable companies’ method, with a few corrections by Russia, as a starting point.

Once again exercising its discretion, the tribunal fixed the amounts of dividends as rough averages between the figures presented by the claimants and by Russia. It arrived at round figures of dividends at US$2.5 billion in 2004, and of US$45 billion from 2004 through the first half of 2014.

Accordingly, the tribunal found total damages of US$21.988 billion for the expropriation date, and of US$66.694 billion for the award date (fixed as June 30, 2014). Considering the higher amount only, and reducing it by 25 percent to account for contributory fault, the tribunal fixed damages at US$50,020,867,798, to be distributed among the claimants according to their participation in Yukos.


Arbitration costs and expenses amounted to €8,440,000. Russia, which had deposited €4,200,000 with the PCA for costs, was ordered to reimburse the €4,240,000 deposited by the claimants.

The claimants indicated that their legal costs amounted to US$79,628,055.56 in the jurisdictional phase plus £1,066,462.10 in the merits phase.   “In the exercise of its discretion,” the tribunal thought it “fair and reasonable” for Russia to reimburse US$60 million of the claimants’ legal costs, noting that this amounted to approximately 75 percent of their schedule of costs (para. 1887).

The ECtHR’s Just Satisfaction Judgment


Claims and the principal judgment

In its April 23, 2004 application, Yukos complained that Russia, by conducting expedited tax assessment proceedings, imposing disproportional penalties and enforcing them against the company in the early 2000s, breached Yukos’ due process of law rights under the Convention and unlawfully deprived it of its possessions, in violation of the Protocol.

By its principal judgment of September 20, 2011, a majority court held that the tax assessments did not allow sufficient time for Yukos to prepare its case, in breach of the due process of law guarantees of Convention Article 6. It also held that the imposition and calculation of tax penalties violated Protocol Article 1, which guarantees the right to peaceful enjoyment of property and protects against unlawful expropriation, while reserving the state’s right to enforce its laws to control property and to secure payment of taxes and penalties. Furthermore, the court held that the enforcement proceedings breached the same article, in that they “failed to strike a fair balance between the legitimate aid of the proceedings and the measures employed” (holding, para. 7).

Convention Article 41 provides that, where the court finds a violation of the Convention or its protocols, it “shall, if necessary, afford just satisfaction to the injured party.” Accordingly, Yukos sought €37,981,000,000 in pecuniary damages. In the principal judgment, the court held unanimously that the Article 41 question was not ready for decision, and postponed the issue—ultimately decided in the July 31, 2014 judgment.

Pecuniary damage

Based on its expert’s assessment of the company value on December 19, 2004, Yukos estimated that it had suffered a direct loss of €37,981,000,000, without any claim for interest payments. Russia argued that Yukos was worthless because of fraudulent tax management and the resulting legal risks.

The court focused on three heads of damages, based on each of the violations found in its principal judgment: (i) the violation of Convention Article 6; (ii) the violation of Protocol Article 1 on account of the retroactive imposition of tax penalties for the years 2000 and 2001; and (iii) the violation of Protocol Article 1 on account of the unbalanced enforcement proceedings. The court then ruled on the method of distribution of the damages.

Violation of Convention Article 6

The court noted that the violation drew from the rushed manner with which Russian courts conducted the tax assessments. As the court could not speculate as to what would have been the results of those proceedings in the absence of the violation, it awarded no damages with respect to this head.

Violation of Protocol Article 1 on account of the retroactive imposition of tax penalties

The court recalled that, in its principal judgment, it had found a violation of Protocol Article 1 in the penalties resulting from the 2000 tax assessment and, in part, in the penalties resulting from the 2001 assessment. Given that Yukos paid those amounts during the enforcement proceedings, the court reasoned that they represented a clear pecuniary loss subject to compensation under Convention Article 41 and in accordance with the principle of restitutio in integrum, established in the court’s case law. It added that, since the original penalties were unlawful, so were the 7 per cent enforcement fees applied by Russia.

Therefore, the court started from the full amount of the penalties for the year 2000 and from one-half of the penalties for the year 2001. To each of the amounts, it added 7 per cent to account for the enforcement fees. It then converted the amounts from Rubles to Euros according to the conversion rate on their estimated payment date. Finally, it adjusted the amounts for the inflation rate of 12.62 per cent for the Euro between the date of payment and the date of the judgment. These calculations resulted in €1,299,324,198.

Violation of Protocol Article 1on account of the unbalanced enforcement proceedings

Yukos had argued that the company would have survived the enforcement proceedings, which led to the forced sale of YNG, had they been conducted lawfully. Although it could not reach that conclusion, the court emphasized that the unlawful proceedings seriously contributed to the company’s demise and resulted in pecuniary damage compensable under Convention Article 41.

The 7 percent enforcement fee for the years 2000 through 2003 resulted in an amount “completely out of proportion to the amount of the enforcement expenses which could have possibly been expected to be borne or had actually been borne” (principal judgment, para. 655). “Making a reasonable assessment of the enforcement fee and having regard to the parties’ submissions,” the court accepted the figure advanced by Russia, deciding that “in order to satisfy the requirements of proportionality the enforcement fee should have been reduced to 4%” (para. 32).

To avoid double compensation, the court took the entire amount of enforcement fees paid at 7 percent and deducted from it the amount paid on the unlawful portion of the penalties for the years 2000 and 2001. It further deducted the amount of the fees calculated at 4 per cent, the rate deemed reasonable by the court, thus reaching an inflation-adjusted amount of pecuniary loss of €566,780,436.

Method of distribution of the award

In view of the liquidation of Yukos, the claimant asked the court to determine that the total damages of €1,866,104,634 be paid to Yukos International Foundation (YIF), an entity established to pay Yukos’ creditors and distribute funds to its shareholders. Russia argued that the court did not have jurisdiction to delegate to YIF the power to grant just satisfaction. It indicated that the beneficiaries of YIF were anonymous, that there was risk of double compensation as some shareholders had initiated parallel proceedings, and that a distribution by YIF might not reflect the interest of all shareholders.

The court dismissed Yukos’ suggestion, finding no evidence of who would benefit from the award were it paid to YIF. Considering that the Yukos company no longer existed, it ruled that Russia paid the damages to the “company’s shareholders and their legal successors and heirs, as the case may be, in proportion to their nominal participation in the company’s stock” at the time of the company’s liquidation, according to the official records (para. 38).

Russia had pointed out that managers and shareholders who had instigated Yukos to commit tax fraud and benefited from it should not be compensated. The court did not see reason to reduce the award on that account, as Yukos had already been held liable for tax fraud.

Russia had also argued that no compensation should be paid resulting from the invalidation of the penalties, considering that at the time of liquidation Yukos still owed about US$8 billion to Russia. The court noted that the Yukos’ outstanding debt was at least in part attributable to the decision of Russian authorities, who preferred to push Yukos to sell assets, assuming the risk that it might be unable to pay all of its debt. Rejecting Russia’s argument, the court noted that the 2007 enforcement and liquidation proceedings extinguished any debt that Yukos may have had.

In response to Russia’s reference to parallel proceedings, the court recognized that investment tribunals had rendered two final awards, in 2010 and 2012, in cases brought by minority shareholders. Yet the court noted that the case file contained no information on the enforcement of those awards. The court also reasoned that Russia’s reference to the PCA proceedings was irrelevant, as they were still pending.

Non-pecuniary damage

In line with Yukos’ submission undisputed by Russia, the court held that the findings of Convention and Protocol violations constituted sufficient just satisfaction for non-pecuniary damage.

Costs and Interest

Yukos requested payment of roughly €6.1 million for costs and expenses. Considering the documents in the file and referring to its case law, the court held that it was reasonable to award Yukos a lump sum of €300,000. It also determined that the default interest rate would be the marginal lending rate of the European Central Bank plus 3 per cent.



ICSID committee declines to annul award finding breaches of fair and equitable treatment obligation by Argentina

El Paso Energy International Company v. Republic of Argentina, ICSID Case No. ARB/03/15

Matthew Levine

An ICSID annulment committee declined the Argentine Republic’s application to annul an approximately US$43 million award in favor of an American company, El Paso Energy International Company. The annulment committee rejected Argentina’s claim that the award relied unduly on the notion of creeping violations of the fair and equitable treatment (FET) standard in the Argentina–United States BIT.


El Paso is a Houston-based energy company that had invested in a series of Argentine companies providing gas-related services. Following a financial crisis in Argentina, El Paso initiated investor-state arbitration in relation to, inter alia, the peso-isation (the forced conversion of dollars to pesos) of various contracts between its investments and branches of the state.

On October 21, 2011, an ICSID tribunal of Piero Bernardini, Brigitte Stern and Lucius Caflisch issued an award for $43.03 million (plus compound interest) in favour of El Paso. The award had notably found that the sum-total of Argentina’s crisis response led to a “creeping” form of unfair treatment. This was despite the fact that the tribunal had rejected all of El Paso’s specific claims for frustrated expectations.

On February 28, 2012, ICSID received Argentina’s application for annulment. On May 22, 2012, an ad hoc committee of Teresa Cheng, Rolf Knieper, and Rodrigo Oreamuno was constituted

Creeping violation of the fair and equitable treatment standard

Argentina argued that the tribunal had created a new standard: “in the same way as one can speak of creeping expropriation, there can also be creeping violations of the FET standard.”

Argentina further claimed that the tribunal resorted to Article 15 of the ILC’s Draft Articles, which contains the concept of composite acts. Further, Argentina noted that the BIT “… does not contain a standard condemning the performance of a series of lawful acts or the commission of creeping violations of the fair and equitable treatment standard and the Tribunal lacks the legislative capacity to create it.”

The committee reviewed Argentina’s arguments in light of the three relevant grounds for annulment: a manifest excess of powers, a failure to state reasons, and a serious departure from a fundamental rule of procedure.

In terms of a manifest excess of powers, the committee found that “what the Tribunal did in the Award was an interpretation of fair and equitable treatment of the BIT in relation to the facts of the case, based on what was decided [in previous cases].” The committee further found that the mere fact of the concept of a creeping violation of fair and equitable treatment being mentioned was not the reason for the finding of liability.

With respect to a failure to state reasons, the committee acknowledged Argentina’s allegation that creeping violation of fair and equitable treatment standard was a “judicial creation.” However, the committee found that a “judicial creation” would if anything be the opposite of a failure to state reasons.

In terms of a serious departure from a fundamental rule of procedure, as a threshold matter of law the committee indicated support for the position taken by previous committees that the relevant breach must have had a material impact on the outcome of the award. Argentina argued that, by sanctioning a creeping violation of FET, the tribunal affected legal certainty thereby seriously departing from fundamental rules of procedure. This was dismissed on the ground that Argentina had not identified the specific rule of procedure at issue.

Necessity analysis: the relationship between treaty and custom

Argentina also identified a variety of alleged short-comings in the tribunal’s treatment of necessity: the tribunal ignored Argentina’s evidence on the self-judging nature of the relevant treaty provision; it failed to examine Argentina’s customary international law defense; and, it failed to apply the provisions on non-discriminatory emergency loss measures in the BIT.

As regards Argentina’s claim that the tribunal ignored its evidence regarding the self-judging nature of Article XI of the BIT, the committee observed that: first, the tribunal held exclusive power to determine the probative value of any evidence, and a decision to downplay some evidence or dismiss it as irrelevant did not indicate a failure to assess it; and second, the tribunal had assessed the evidence in light of the Vienna Convention on the Law of Treaties. It therefore could not be said that the tribunal had manifestly exceeded its powers or had failed to state reasons.

With respect to Argentina’s customary international law defense, the committee observed that the tribunal had viewed the exceptions clause in Article XI of the BIT as a lex specialis; and as such, the tribunal had reasoned that the customary international law defense would only apply if the treaty defense did not apply. As the tribunal had found that the treaty defense did apply, the committee found that the tribunal’s decision not to review the customary international law defense was sufficiently well-reasoned so as not to manifestly exceed its powers.

On Article IV(3) of the BIT, while arbitrators in another ICSID case had interpreted an equivalent provision in a different manner, the ad-hoc committee noted that the El Paso tribunal was not bound by other case-law, and could freely give its own interpretation of the clause (and ultimately find it inapplicable to the El Paso case).

Jurisdiction: distinction between direct and indirect investments

The committee also reviewed Argentina’s application to annul the award on the basis of errors in the tribunal’s findings on jurisdiction.

Notably, Argentina argued that the tribunal had “amended” El Paso’s claim seeking recovery for both direct and indirect investments to make it viable. The committee, however, found that Argentina had not shown how the tribunal “amended” El Paso’s claim and the committee could therefore not agree that the tribunal manifestly exceeded its power.

Argentina also claimed that the tribunal had failed to state reasons as to why it was exercising jurisdiction over contracts and licenses held by the Argentine companies owned partially by El Paso, i.e. El Paso’s indirect investments. However, the committee found that it could not entertain such a claim as it would entail either analyzing the merits or adjudicating alleged errors on the merits.

Damages: Reference to Chorzow Factory case-law

Finally, Argentina claimed that the tribunal, in relying on the Chorzow Factory standard for calculating damages, had manifestly exceeded its powers as case-law does not constitute a source of international law.

The committee, however, observed that as the BIT itself was silent on the applicable standards of damages the tribunal enjoyed discretion in this respect. Moreover, while case-law is not strictly a source of international law, it could nevertheless be used as a basis of reasoning.

The committee was composed of Ms Teresa Cheng, Mr Rolf Knieper, and Mr Rodrigo Oreamuno (President).

The decision is available at: