Compañía de Aguas del Aconquija and Vivendi Universal v Argentine Republic

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

Arbitrators:
J. William Rowley QC, President
Professor Gabrielle Kaufmann-Kohler
Professor Carlos Bernal Verea

Executive summary

The dispute concerned the claims of Vivendi Universal, a French investor, and Compañía de Aguas del Aconquija S.A. (CAA), an Argentinean company, where Vivendi was the principal shareholder. In the course of the Argentinean privatisation campaign in the early 1990s, the Claimants entered into a 30-year Concession Agreement in May 1995 with the Argentine Province of Tucumán for the provision of water and sewage services. In accordance with the Concession Agreement, CAA made substantial investments to improve the quality of the service.

The Claimants encountered increasing opposition from the new Government of Tucumán elected soon after the Concession had been granted. The new Governor and his party opposed the privatisation and proclaimed that the Concession Agreement had been "born defective". The legislature of the Province adopted a resolution which recommended the Governor to unilaterally impose a temporary tariff reduction. Furthermore, following two episodes of turbidity in the drinking water, government officials called for non-payment of invoices for the services provided by CAA, which led to a steady decline in CAA's recovery on its invoices. Various governmental agencies continuously exerted pressure on the concessionaire to reduce tariffs, agreed in the Concession Agreement. Finally, the Government tried to force the Claimants to re-negotiate the agreement in order to lower the tariffs. After three failed attempts of re-negotiation, CAA terminated the Concession Agreement in August 1997 but was forced by the Provincial authorities to provide services until October 1998.

In 1996, the Claimants initiated the first ICSID proceedings, alleging several violations of the 1991 Argentina-France BIT and requesting damages. After the first decision, rendered in 2000 and annulled in 2003, the Claimants re-submitted the case. The Claimants contended that the acts and omissions of the province of Tucumán contravened Argentina's obligation to provide fair and equitable treatment to French investors and constituted an uncompensated expropriation of their investment. The Tribunal accepted both claims finding that the measures attributable to Argentina had radically deprived the Claimants of the right of use and enjoyment of their investment under the Concession Agreement and left them no choice but to terminate the Concession.

When dealing with compensation, the Tribunal held that the Treaty governed compensation for lawful (rather than wrongful) expropriation. The Tribunal relied on the Chorzów Factory case and to Article 36 of the ILC Articles on State Responsibility to hold that the fair market value was the most appropriate method to compensate the affected party fully and eliminate all the consequences of the State's action. The Tribunal rejected the DCF method of valuatuion because the Claimants failed to produce convincing evidence of their ability to make profit and considered the "actual investment" method as the "closest proxy" for valuing their investment. Due to the incomplete evidence of the amounts invested by the Claimants, the Tribunal resorted to approximation of damages. The Tribunal awarded a compensation of US$105 million and interest at the rate of 6%, compounded annually.