CMS Gas Transmission Company v The Argentine Republic

Year of the award: 2005
Forum: ICSID
Applicable investment treaty: Argentina - United States BIT (1991)

Arbitrators
Mr Francisco Orrego Vicuña, President
Mr Marc LaLonde
Mr Francisco Rezek

Members of the Annulment Commitee
Judge Gilbert Guillaume, President
Judge Nabil Elaraby
Professor James Crawford

Executive summary

CMS, a US corporation, owned a 30% share of TGN, an Argentinean gas transportation company. At the time of making the investment, Argentina granted TGN the right to calculate tariffs in US dollars and then convert them to pesos at the prevailing exchange rate, and to adjust tariffs every six months to reflect changes in inflation. These rights were enshrined in the Argentinean law and in the License granted to TNG for the period of 35 years (until 2027).

At the time of a serious economic crisis in Argentina in late 1990-s, Argentina first temporarily suspended and then permanently terminated both TGN's right to calculate tariffs in US dollars and its right to make inflation adjustments. The peso was devalued with the effective rate being 3.6 peso for one dollar, whereas respective tariffs were redenominated at a rate of one peso to the dollar. This lead to a great decrease in TGN's profits and to the loss of value of the TGN as a company.

CMS claimed that the measures at issue were in violation of several of Argentina's obligations under the Argentina-US BIT and requested compensation of US$ 261 million (the decreased value of its shares in TGN plus interest and costs).

The Tribunal found violations of the fair and equitable treatment provision and the umbrella clause of the BIT. Despite the fact than no violation of the expropriation clause was established, the Tribunal applied the "fair market value" standard to make good the long-term losses caused to the investor by the measures at issue. In application of this standard and in order to estimate the lost value of CMS's shares in TGN, the Tribunal applied the discounted cash flow (DCF) valuation method. The Tribunal awarded US$ 133 million plus interest.

In the annulment proceedings, the Tribunal's findings relating to the umbrella clause were annulled. Other findings were upheld, even though errors of law detected in relation to the Tribunal's findings on necessity. The award of damages was not affected.