Siemens A.G. v Argentina

Year of the award: 2007
Forum: ICSID
Applicable investment treaty: Argentina - Germany BIT (1991)

Arbitrators:
Dr Andrés Rigo Sureda, President
Judge Charles N. Brower
Professor Domingo Bello Janeiro

Executive summary

In 1996, Argentina called for bids for the provision of services related to an immigration control, personal identification and electoral information technology systems. Siemens A.G., a German corporation, won the tender through its Argentinean subsidiary SITS. In 1998, SITS and Argentina entered into a Contract for the provision of these services for a six-year term that was renewable for two three-year terms (investment). Under the terms of the Contract, a US$ 20 million performance bond was paid to Argentina to guarantee the performance of SITS' obligations under the Contract.

In 1999, immediately prior to an election in Argentina, the provision of certain services under the contract was suspended at Argentina's request. Furthermore, as a result of the new Argentinean Government's actions, other services were suspended in 2000. Also in 2000, the new Argentinean Government sought to renegotiate the contract. Agreement was seemingly reached during the renegotiation process, but notwithstanding Siemens' efforts, nothing was ever formalised. In late 2000 the Argentine Congress approved a law which empowered the President to renegotiate public sector contracts. A new draft proposal was issued to Siemens in 2001 that was inconsistent with what was seemingly agreed in 2000. Siemens was informed that the "proposal" was non-negotiable. In May 2001 the Contact was terminated by decree because Siemens did not agree to that new proposal.

In 2002, Siemens initiated ICSID arbitral proceedings under the Argentina-Germany BIT. It claimed that Argentina's actions amounted to a breach of the umbrella clause, an expropriation of its investment, a violation of its obligations to accord fair and equitable treatment and full protection and security, and were arbitrary and discriminatory. Siemens claimed US$462,477,071 in damages plus compound interest at 6% per annum and requested the return of the performance bond.

The Tribunal found that Argentina had unlawfully expropriated Siemens' investment, had failed to afford fair and equitable treatment and full protection and security, and had taken arbitrary measures in respect of the investment. The Tribunal applied customary international law to award compensation because expropriation was held to be unlawful. It approached the determination of compensation on the basis of the investment's book value (as suggested by Siemens), which was calculated as a sum of funds invested by Siemens and evidenced by SITS' financial statements. The Tribunal rejected the claim for loss of profits but awarded compensation for post-expropriation costs and required Argentina to pay for services rendered but unpaid (US$217,838,439 in total). The Tribunal further required Argentina to indemnify Siemens for any future claims by subcontractors against Siemens in relation to the Contract, and ordered Argentina to return the performance bond. The Tribunal awarded annually compounded interest at the average interest rate applicable to US six-month certificates of deposit (2.66% at the relevant times).