Urbaser v. Argentina

Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, ICSID Case No. ARB/07/26

(Published in 2018 in International Investment Law and Sustainable Development: Key cases from the 2010s and on this website on October 18, 2018. Read more here.)

Decisions and award are available at http://www.italaw.com/cases/1144

Keywords

Human rights, international accountability of investors, counterclaim

Key Dates

Request for Arbitration: July 20, 2007

Constitution of Tribunal: October 16, 2009

Decision on Jurisdiction: December 19, 2012

Award: December 8, 2016

Arbitrators

Andreas Bucher (president)

Campbell McLachlan (respondent appointee)

Pedro J. Martínez-Fraga (claimant appointee)

Forum and Applicable Procedural Rules

International Centre for Settlement of Investment Disputes (ICSID)

ICSID Rules of Procedure for Arbitration Proceedings

Applicable Treaty

Spain–Argentina Bilateral Investment Treaty (BIT)

Alleged Treaty Violations

• Arbitrary, unreasonable and/or discriminatory measures
• Expropriation
• Fair and equitable treatment

Other Legal Issues Raised

• Jurisdiction – 18-month litigation provision
• Jurisdiction – most-favoured-nation (MFN) treatment
• Jurisdiction/merits – counterclaim on human rights

1.0 Importance for Sustainable Development

The Urbaser v. Argentina case was rendered while the international accountability of corporations is the subject of intense debates within the international community. Most prominent are the discussions at the United Nations Human Rights Council. An open-ended intergovernmental working group was established in 2014 to work toward a bindingtreaty for transnational corporations and other business enterprises with respect to human rights. The present award thus feeds into the current discussion on foreign investment and human rights in the context of sustainable development.

The dispute in the Urbaser case arose as a result of the Argentina’s financial crisis. Urbaser was a shareholder in a concessionaire that was in charge of the supply of water and sewerage services. Argentina’s emergency measures led to financial losses of the concessionaire, resulting into its insolvency. Urbaser initiated arbitral proceedings against Argentina. For its parts, Argentina filed a counterclaim in which it alleged that the concessionaire’s failure to provide the necessary level of investment in the supply services led to violations of the human right to water.

The tribunal in the Urbaser case accepted its jurisdiction over the Argentina’s counterclaim based on human rights and confirmed that the “right to water” was a human right under international law. It is the first award to provide an in-depth discussion on a state’s counterclaim against an investor for an alleged violation of human rights obligations. At the same time, the award does not mark the breakthrough of human rights obligations directly applicable to foreign investors. While the case raises a number of complex issues, some important elements are the following:

First, the acceptance of the counterclaim was based on a broad jurisdictional clause. Other BITs might not allow a respondent state’s counterclaim. The award thus highlights that if states wish to insert a possibility for counterclaims in investor–state arbitration, it is important to draft jurisdictional clauses in a clear manner.

Second, it is on the one hand remarkable that the tribunal, by citing international human rights instruments, found that human rights obligations such as the right to water can be imposed directly on international corporations. Yet on the other hand, the award shows that international human rights obligations are primarily addressed to states and are not drafted in a way as to contain binding obligations on corporations. If states wish to impose direct obligations on investors, it is important to do so through explicit language in the BIT. A recent example in this context is the Morocco–Nigeria BIT. In the case of Urbaser, the tribunal could not imply that international human rights instruments would create obligations for the investor.

Third, the Urbaser case also points to the distinction between negative and positive obligations investors. Negative obligations require the investor not to violate human rights, whereas positive obligations require a positive (proactive) action by the investor to ensure that the local population enjoys its human rights. The Urbaser case moves in the direction of a positive obligation for investors to ensure an effective right to water, although in the specific case, the tribunal found that there was no international law basis for the investor’s positive obligation on the right to water.

The present summary focuses on the matters of jurisdiction and merits of the counterclaim on human rights.

2.0 Case Summary 

2.1 Factual Background

The dispute arose in the context of a concession for water and sewage services to be provided in the Province of Buenos Aires. The concession was granted to Aguas Del Gran Buenos Aires S.A. (AGBA). The claimants in the present case are shareholders of AGBA, namely Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa.

The emergency measures taken by Argentina in the context of the 2001–2002 economic crisis caused financial losses to the claimants, and the concession was finally running into deadlock. AGBA and its shareholders made numerous requests for a new valuation of its tariffs and for a complete review of the concession. However, the negotiating process did not lead to a successful outcome. In July 2006, the province finally terminated the concession.

2.2 Summary of Legal Issues and Award

At the jurisdictional level, Argentina objected to the jurisdiction of the tribunal because the claimants did not respect the requirement to first resort to Argentinian courts during an 18-month window as required in the Argentina–Spain BIT. The claimants in turn argued that the MFN clause contained in the Argentina–Spain BIT allowed them to circumvent the 18-month domestic litigation requirement because other BITs allowed access to international tribunals without such a requirement. Unlike previous tribunals dealing with this requirement, the tribunal in the present case did not focus its reasoning on the MFN clause and the possibility to import a more favourable procedural requirement for the investor, but instead interpreted the requirement in light of efficiency. It concluded that the 18-month litigation period was inapplicable because the local courts of Argentina were unlikely to be able to render a decision on the merits within this time limit (para. 22, decision on jurisdiction). Both approaches can be problematic from treaty drafters’ perspectives, as they allow tribunals to disregard clearly formulated requirements in the treaty that attempt to safeguard the role of domestic courts, an important part of any country’s legal governance.

On the merits, the claimants argued that the Province of Buenos Aires obstructed AGBA’s operations and was unwilling to renegotiate the concession. According to the claimants, this amounted to a breach of Argentina’s obligations under the Spain–Argentina BIT, namely the prohibition against adopting unjustified or discriminatory measures and the obligations to afford fair and equitable treatment (FET) and not to expropriate unlawfully.

Argentina in turn argued that the Province of Buenos Aires had no alternative but to terminate the concession, given AGBA’s and the claimants’ bad management and failure to fulfill their obligations under the concession. In addition, Argentina argued that the claimants never remedied the deficiencies and that Argentina tried to assist in the negotiations for more than a year, but no compromise could be reached. Interestingly, Argentina also filed a counterclaim for damages on the claimants’ failure to provide the necessary investment into the concession. According to Argentina, the claimants also violated their commitments and obligations under international law based on the human right to water (para. 1165).

The tribunal found that Argentina violated the FET standard during the negotiations period. However, it did not grant damages for the FET breach on the basis that the concession agreement failed predominantly due to the claimants’ failure to make the necessary investment. The tribunal dismissed all other claims. With respect to Argentina’s counterclaim, it affirmed its jurisdiction to hear it, but ultimately dismissed it on the merits.

3.0 Select Legal Issues

3.1 Human Rights Counterclaim: Jurisdiction

The tribunal in the present case was the first to entertain a counterclaim based on human rights. It affirmed its jurisdiction for four main reasons.

First, the tribunal looked at the dispute settlement clause in the Spain–Argentina BIT, Article X(1), which states: “[d]isputes arising between a Party and an investor of the other Party in connection with investments within the meaning of this Agreement shall, as far as possible, be settled amicably between the parties to the dispute.” The tribunal held that this provision is completely neutral as to the identity of the claimant or respondent in a dispute arising between the parties (para. 1143). It also considered that, as both parties are entitled to lodge a claim, it would be unfair that the one acting first could prevent the other from raising a claim (para. 1144).

Second, the tribunal rejected the claimants’ arguments that they would have never consented to the possibility of counterclaims. On the contrary, the tribunal found that the consent given by the claimants on the basis of Article X of the BIT, which they invoked, covers any disputes in connection with the investment and is therefore not restricted to the claims of the claimants.

Third, the tribunal found that the counterclaim was filed in time even though this occurred many years after the claimants had given notice of the dispute to the respondent. It indicated that, according to Rule 40(2) of the ICSID Rules of Arbitration, applicable here, a counterclaim must be submitted no later than the counter-memorial (para. 1150), and that Argentina respected this condition.

Fourth, the tribunal found that there was a direct connection between the claimants’ claim under the BIT and the counterclaim. The tribunal examined this question as a matter of jurisdiction. On the one hand, the tribunal held that “the factual link between the two claims is manifest” (para. 1151) as both claims concerned the same investment or the alleged lack of sufficient investment in relation to the same concession. On the other hand, the tribunal stressed the legal link between the two claims. In the present case, Argentina’s counterclaim was not based solely on domestic law. Argentina argued that the claimants’ failure to provide the necessary investment caused a violation of the fundamental right for access of water, “which was the very purpose of the investment agreed upon in the Regulatory Framework and the Concession Contract and embodied in the protection scheme of the BIT” (para. 1151).

For all these reasons, the tribunal concluded that it had jurisdiction on the basis of ICSID Convention Articles 25 and 46 and BIT Article X.

3.2 Human Rights Counterclaim: Merits

The analysis of the tribunal is divided into three parts: the applicable law, the BIT’s relation to international law and human rights, and the human right to water in the framework of AGBA’s concession.

With respect to the applicable law, the tribunal held that it would be wrong to categorically understand BITs as not providing any rights to the host state and not imposing any obligations upon investors (paras. 1182–1183).

In the eyes of the tribunal, the applicable BIT was not an isolated or closed system, since the BIT itself allows reference to other sources of international law. The tribunal came to this conclusion by looking at three provisions of the BIT: the dispute settlement clauses, the applicable law clause and the MFN clause titled “more favourable terms.” It noted that the applicable law clause was particularly interesting as it refers to “general principles of international law.” The tribunal found that this reference would be meaningless if the BIT were construed in isolation of the rest of international law. Interpreting the BIT in such a way would even be wrong, according to the tribunal, since the interpretation of a treaty must give effet utile to its provisions. Thus, the tribunal found that the BIT cannot be construed as an isolated set of rules of international law for “the sole purpose of protecting investments through rights exclusively granted to investors” (para. 1189).

The tribunal, then, turned to the question of the BIT’s relation with international human rights law. Here, it rejected the claimants’ argument that corporations could not by nature be subjects of international law in a state-to-state system and stated that, “[w]hile such principle had its importance in the past, it has lost its impact and relevance in similar terms and conditions as this applies to individuals” (para. 1194). Interestingly, the tribunal also held that, even if a BIT does not contemplate investors as subjects of international law, this would not undermine the idea that foreign investors could be subjected to international law obligations (para. 1194). Moreover, the tribunal stressed that, in the light of recent developments in international law, it could no longer be admitted that companies operating internationally would be immune from becoming subjects of international law (para. 1195).

To determine whether there are international law obligations attached to non-state entities, the tribunal held that the focus must be on contextualizing the “corporation’s specific activities as they relate to the human right at issue” (para. 1195). In doing so, the tribunal looked at international conventions and referred to the Universal Declaration on Human Rights (UDHR), the International Covenant on Economic, Social and Cultural Rights (ICESCR) and the International Labour Organization Declaration of Principles concerning Multilateral Enterprises and Social Policy. These instruments enounce human rights that are or can be associated with the right to water (paras. 1196–1197).

The tribunal found in particular that article 30 of the UDHR and Article 5(1) of the ICESCR are relevant in the present context (paras. 1196–1197). These articles read as follows:

Article 30 UDHR

“Nothing in this Declaration may be interpreted as implying for any State, group or person any right to engage in any activity or to perform any act aimed at the destruction of any of the rights and freedoms set forth herein.”

Article 5 (1) ICESCR

“Nothing in the present Covenant may be interpreted as implying for any State, group or person any right to engage in any activity or to perform any act aimed at the destruction of any of the rights or freedoms recognized herein, or at their limitation to a greater extent than is provided for in the present Covenant.”

The tribunal stressed that it was undisputed that the right to water and sanitation is recognized as part of human rights and that this right has as its corresponding obligation the duty of states to provide all persons living under their jurisdiction with safe and clean drinking water and sewage services (para. 1205).Despite this finding, the tribunal’s remaining challenge was to construe a legal obligation on the investor (para. 1206), but it could find no such obligation.

According to the tribunal, Argentina’s argument conflated the concessionaire’s provision of water and sewerage with the obligation to fulfill the human right to water, and this meant that the source of the human right in question was not the BIT or international law but the concession contract (para. 1206).

The tribunal stated that, “[f]or such an obligation to exist and to become relevant in the framework of this BIT, it should either be part of another treaty or it should present a general principle of international law” (para. 1207). The tribunal also found that the situation would be different if a negative obligation was at stake (for example, an obligation to abstain, such as the prohibition to commit acts that violate human rights). Of particular interest is thatthe tribunal stated that such a negative obligation “can be of immediate application, not only upon States, but equally to individuals and other private parties” (para. 1210).

Finally, the tribunal examined the human right to water in the framework of AGBA’s concession. It agreed with Argentina that the concession was designed as a substantial contribution to the enforcement of the population’s right to water. Even so, it found no such corresponding obligation exists under international law (para. 1212). The main responsibility was on the state to exercise its authority over the concessionaire so as to ensure and preserve the population’s basic right to water and sanitation.