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The Guide to Construction Arbitration - Second Edition

Construction Arbitration and Concession Contracts

In the first edition of this contribution, we defined concession contracts as instruments for the construction, financing and management of infrastructure and services of public interest,2 such as, for example, residential development, roads, ports, airports, mines, power plants, refineries and other energy-related projects. Among their main characteristics, we noted:

  • the existence of a long-term relationship between a public entity and a private person;
  • exposing the project to changes in circumstances over the long term;
  • the purpose of facilitating states' access to private financing for key public service projects; and
  • the state scrutiny and monitoring to which such contracts are usually subject.

We then proceeded to address a number of issues and challenges in the relationship between the conceding entity and the concessionaire, arising out of these characteristics.3

This update builds on the first edition of our contribution, and reflects the increased and increasing tendency of private entities to resolve disputes arising out of concession contracts (both in the construction and other sectors) through treaty-based arbitration against the state hosting the concession.

Such a trend can be explained in at least four ways. First, treaty-based arbitration offers an attractive dispute resolution avenue to stakeholders (with direct or indirect interest) in a project who may not have access to the contractually agreed-upon dispute resolution mechanism. Indeed, whereas the latter requires privity (or, at the very least, fulfilling the criteria for the extension of the arbitration agreement to non-signatories through the application of legal theories such as the alter ego, the group of companies or piercing the corporate veil),4 treaty-based arbitration ordinarily does not require that the claimant be a party to the concession contract. In order to access this type of arbitration, the claimant must instead, on the one hand, be a national of a state having concluded an international agreement for the protection of investments with the state hosting the concession. Most such treaties generally include both states' consent to submit disputes with investors of the other state to arbitration (for example, under the auspices of the International Centre for the Settlement of Investment Disputes (ICSID) or of the Permanent Court of Arbitration and pursuant to the Arbitration Rules of the United Nations Commission on International Trade Law), in addition to setting out standards of protection that such investors are to be afforded by the host state. Upon commencing such an arbitration, the claimant in fact accepts the state's offer to arbitrate and is able to invoke such standards of protection. On the other hand, the claimant must have a protected investment. It is today widely recognised in international investment arbitration that activities related to a construction contract (and even more so a concession contract) may constitute such an investment,5 and thus qualify for the protection of a multilateral or bilateral treaty or a similar instrument.

To the extent that the investor is able to prove that the host state has indeed breached the treaty standards invoked, it may thus be entitled to restitution or, alternatively, to the reparation of the harm actually suffered.

Second, claimants will seek to direct their claims for damages at a respondent which is likely to be able to satisfy a potential award on damages, and against which enforcement will be possible in the event that the entity does not voluntarily comply with such adverse award. A state will be more likely than a state (conceding) entity to dispose of the means to satisfy such an award. Likewise, enforcing a monetary award against a state is likely to be easier, given the wide variety and significantly higher number of assets that a state will generally own worldwide, as compared to a state entity.

Third, it may be the case that the dispute resolution mechanism contained in the concession contract is inadequate – either because, as discussed in the first edition of this contribution, the conceding entity may not have had the capacity to enter into an arbitration agreement or because the subject matter of the dispute may be inarbitrable under the applicable law to the concession contract or the laws applicable to the arbitration agreement. That dispute resolution provision might, in some cases, also be pathological – for instance, if it provides for ICSID arbitration, but the potential respondent state entity has not been designated by the state under Article 25 of the ICSID Convention.

Fourth and finally, it may be that, as discussed in the first edition of this contribution, the dispute arises out of actions or omissions of the state, and not of the state entity.

It is in this context that our updated contribution considers two specific issues that arise in investment treaty arbitrations relating to concessions involving major construction works. First, we look at the difference between a contractual and a treaty-based cause of action, and the consequences arising therefrom. Second, we consider the different ways in which a disturbance in the economic equilibrium of a concession contract has been framed as a claim in investment treaty arbitration.

Contractual versus treaty-based causes of action

Claimants resorting to treaty-based arbitration must pay particular attention to the cause of action underpinning their claims. Indeed, if such claims do not amount to breaches of treaty and are instead contractual in nature, they may be dismissed for lack of jurisdiction. This is because the jurisdiction of arbitral tribunals hearing treaty-based arbitration claims is limited by the scope of the underlying treaty, which sets out the obligations of the host state and its consent to arbitrate. Such obligations may include the provision to foreign investors of fair and equitable treatment and of full protection and security, the prohibition of unlawful expropriation of their investment and the provision of treatment no less favourable than that afforded to nationals of the host state or to nationals of a third, 'most favoured' state. Treaties, in other words, will not provide for contract-based causes of action (though, as explained below, they may include an observance of undertakings clause, also known as an umbrella clause). In the words of the annulment committee in the Vivendi v. Argentina case, when the fundamental basis of a claim 'is a treaty laying down an independent standard by which the conduct of the parties is to be judged,'6 the claim in question is a treaty claim. Conversely, when the legal standard against which conduct must be measured is a contract, the claim is contractual in nature and will ordinarily fall outside the scope of a treaty arbitration tribunal's jurisdiction. In such cases, to the extent that the contract contains a valid forum selection clause, such clause must be given full effect. Various international tribunals have noted, in this regard, that parties should not be able to approbate and reprobate in respect of the same contract. In other words, if an investor claims under the contract, 'it should comply with the contract in respect of the very matter which is the foundation of its claim.'7

One interesting example in this regard is that of a case brought against Peru by an Argentinian investor,8 on the basis of the Peru-Argentina investment treaty, in relation to a concession contract with a provincial entity for the design, construction, and operation of a highway leading to Peru's main international airport. Faced with a pathological ICSID arbitration clause in the contract (which prevented them from commencing an arbitration on that basis), the claimants commenced an arbitration on the basis of the investment treaty between Argentina and Peru. They argued that Peru had expropriated their investment by terminating the concession contract, and that the state had acted towards the concessionaire in an arbitrary, discriminatory and unfair manner.

The respondent raised objections to the jurisdiction of the arbitral tribunal, arguing that the claims put forth were contractual in nature and thus could not be decided in a treaty-based arbitration.9 This was all the more so since the treaty did not contain an umbrella clause, which would have been capable of elevating breaches of contract to the level of treaty breaches.10

The tribunal dismissed Peru's jurisdictional objection, holding that the investors had not limited themselves to a mere invocation of the treaty in order to dress up purely contractual claims. Instead, notably, the claimants had argued that the termination of the concession contract amounted to an act attributable to the state acting in its sovereign capacity. Moreover, the claims submitted to the tribunal were grounded in, and argued under international law.11

However, on the merits, the tribunal decided against the claimants and found that the state had not breached the treaty. Indeed, the concession contract contained a provision allowing for its termination by the conceding authority at any time on grounds of public interest. The tribunal thus found that the concession had been terminated through the exercise of a contractual prerogative of the conceding municipal authority and not in a manner involving the state acting in its sovereign capacity.12 In other words, though the claimants were held to have submitted treaty claims, the underlying actions of the municipal entity were contractual in nature and therefore not sanctionable under the treaty.

The outcome of this case illustrates one of the main challenges of treaty-based arbitration involving concessions, which is for the claimant to show that the claims are not contractual in nature and that the conduct at issue pertains to the state acting in its sovereign capacity.13 Naturally, this mechanism works to protect sovereign states against being forced to arbitrate claims they have not consented to submit to arbitration, in fora before which such claims may not rightfully belong.

Such issues do not arise in contract-based arbitration and may, depending on the circumstances, weigh in on a decision as to the type of proceeding to be resorted to by the private party (assuming it is both the concessionaire, i.e., the contracting party, and a protected foreign investor).

One way to sidestep the contract claims versus treaty claims debate is by relying on the observance of undertakings or umbrella clause of a treaty.14

Umbrella clauses are usually formulated as a commitment by a state party to an investment treaty to observe obligations entered into with respect to investments made by investors of the other contracting party.15 An umbrella clause may provide 'an additional protection of investor-state contracts [insofar as it functions as a] mechanism to make host states' promises “enforceable”.'16 Indeed, in some instances, umbrella clauses have been interpreted as allowing 'foreign investors to claim under the treaty for any breach of the host state's obligation, independent of the nature of the obligations and the nature of the breach,'17 thereby also allowing for the elevation of a purely contractual breach into a treaty breach.18 Bearing in mind that the success of such mechanism principally depends on the wording of the umbrella clause,19 concessionaires may wish to set up their investment from the outset in such a way as to be able to rely on a treaty containing a broadly-worded umbrella clause, and to consider resorting thereto in framing their case. States, on the other hand, may wish to consider whether or not to include such clauses in the treaties they conclude.20

Claims arising out of a disturbance in the economic equilibrium of a concession contract

A concession contract, like any other contract, is in fact an equation intended to yield a specific result for the contracting parties. On the side of the conceding state or state entity, it is often a tool to ensure the continuity of public service or the extraction of a natural resource and a means to access funding for these purposes. On the side of the concessionaire, it is a business like any other, aimed at achieving a return on a project and making a profit commensurate with the risks undertaken and the capital invested. Maintaining the balance of the risks-rewards-public interest equation – also known as the economic equilibrium of the contract – is essential, in many cases, to the continued operation of the concession in the long term.

In the first edition of this contribution, we explained that one of the tools available to the parties to a concession contract to ensure the preservation of the economic equilibrium of such contract are tariff regulation mechanisms, which can be based on a rate-of-return or price cap formula. A price cap tariff formula implies, through what is often referred to as an efficiency factor (EF), that the maximum amount of tariffs that the concessionaire may charge (by way of tolls on a highway or taxes for take-off and landing in an airport) is capped, though indexed to consider inflation. The concessionaire's ability to charge that maximum amount is conditional upon its compliance with a certain set of norms or its observance of specific milestones or quality criteria provided in the contract. Accordingly, the concessionaire is incentivised to invest in the concession, to expand the infrastructure and to ensure it functions at high standards of quality, as this will increase the demand for services and allow it to perceive a higher revenue by way of higher tariffs. Conversely, a concessionaire that fails to invest in or otherwise maintain the concession will see its revenue diminish through the effect of the EF, which will result in lower tariffs.

We considered, in the first edition of this contribution, the scenario of an existing infrastructure that the concessionaire would operate, and which the conceding entity may wish to modernise or maintain, with a view to ensure the continuity and quality of public service. For this purpose, we posited that the conceding entity would seek to incentivise the concessionaire to make substantial investments throughout the term of the concession, precisely through the operation of tariff regulation mechanisms. The concessionaire will therefore seek to charge higher tariffs to recoup its investments and maximise its return thereon. Conversely, the conceding entity will press to impose lower tariffs on the concessionaire, in order to ensure access to, and continuity of, public services. It is important that such diverging interests be conciliated by the parties, so as to avoid serious issues in the operation of the concession, which may ultimately lead to the irremediable breakdown and even the premature termination of the concession. We illustrated this hypothesis with two practical examples.21

Ultimately, the change in the premises that had been considered by the parties at the time of entering into the concession contract and the evolution in time of the agreed upon tariff scheme will be instrumental to the preservation of the economic equilibrium of such contract and the avoidance of disputes between the parties. It may be the case that such evolution is unfavourable to the concessionaire, to the extent of affecting the equilibrium of its side of the contractual equation and even leading to the suspension of further (international) financing of the project.

In this updated contribution, we further consider the different ways in which a disturbance in the economic equilibrium of a concession contract may be framed as a claim in investment treaty arbitration. In particular, a review of the decisions of international arbitral tribunals sitting in investment treaty arbitrations reveals that claimants have sought to cast such claims as breaches of the host state's obligation to provide fair and equitable treatment to foreign investors or as expropriations of their investment. We address these two causes of action in turn.

First, claimants have frequently sought to argue that a purported disturbance in the economic equilibrium of a contract was attributable to the state and amounted to a breach of their legitimate expectations, and thus of the fair and equitable treatment standard usually contained in investment treaties. This was the case in Hochtief v. Argentina22 and Walter Bau v. Thailand.23

One, in Hochtief v Argentina, the dispute arose out of a 25-year concession awarded to a consortium of construction companies (which included Hochtief) for the construction, maintenance and operation of a toll road and several bridges in Argentina. The consortium incorporated a local company with the purpose of performing the concession contract, of which the consortium members were shareholders. Subsequently, the consortium members assigned all of their rights and obligations under the concession contract to the local company. Hochtief's interest in the concession was thus indirect, through the local company.

As an indirect stakeholder in the concession, Hochtief commenced an international treaty-based arbitration and claimed that Argentina had breached its obligation under the Germany–Argentina investment treaty to afford it fair and equitable treatment, inter alia by enacting the pesification law during its 2001–2002 economic crisis. According to Hochtief, such law had eliminated the guarantees contained in the concession contract and significantly altered its commercial balance.

The tribunal analysed the terms of the concession contract and found that 'neither the Bidding Terms nor the Concession Contract stipulated that there could be no departure from dollar/peso parity'24 and thus that 'no specific promise or undertaking to maintain that parity was explicitly made by Respondent to Claimant.' However, the tribunal found that 'the position of the Concessionaire was protected by provisions that in effect tied the Concessionaire's revenues to US dollars and the US economy.'25 There was, in other words, 'a clear expectation that the commercial balance of the Contract would be maintained by the continuation of peso/dollar parity.'26 The concessionaire was thus entitled to the preservation of the commercial balance of the concession contract (put differently, 'the maintenance of the value, in dollar terms, of the revenues under the Contract'),27 though the precise means for such preservation were not explicitly defined. Though the pesification law did not, in and of itself, violate any expectations that the investor could have legitimately held, Argentina's subsequent failure to restore the claimant to the position in which it would have been absent the law, in terms of the commercial balance of the concession contract, amounted to a breach of the state's international obligations.28

Two, Walter Bau v. Thailand was a case brought under the investment treaty between the Kingdom of Thailand and the Federal Republic of Germany, in connection with a toll road concession. The rapid population growth recorded in Thailand in the 1980s had prompted the upgrade of the country's infrastructure, including a road linking the capital to the north of the country, and connecting it to an international airport. The claimant was party to a joint venture and, in that capacity, a shareholder in the company that became the concessionaire in the contract for the financing, design, construction, operation and maintenance of the road upgrade, for a period of 25 years.

While the concession contemplated hikes in the toll rate, with the prior approval of the Thai authorities, the authorities failed to approve such hikes throughout the term of the concession. The investor thus commenced arbitration proceedings against the state, contending, inter alia, that the latter had breached its obligation to treat it fairly and equitably. Specifically, according to Walter Bau, Thailand had acted in an arbitrary and unconscionable manner and had frustrated its legitimate expectation to a reasonable return on its investment.

The tribunal found for Walter Bau, holding that, despite the fact that 'there was no guarantee by the Respondent of an explicit rate of return, […] a reasonable rate of return was part of the Claimant's legitimate expectations and the failure to fulfil such a reasonable expectation was a breach of the Respondent's FET obligations.'29 According to the tribunal, the state 'could not reasonably have expected that foreign investors would enter into an arrangement of the nature proposed, over such a long period, without being fairly confident of a reasonable rate of return on investment.'30 This was all the more so since, at the end of the concession term, the toll road would revert to Thailand, in good condition and at no cost. Thus, 'the tolls to be received constituted the only way in which the reasonable return on investment could be achieved. The concessionaire had no permanent interest in the facility constructed which had to revert to the Respondent's ownership once the term of the concession had expired.'31

The tribunal also took into account the semi-public nature of the concession, which made it heavily regulated and therefore inevitably led to the mechanism for a reasonable return crystallising in the very ability to charge tolls.32 In this regard, the tribunal noted that, in the terms of the concession agreement, as subsequently modified, 'the Respondent was bound […] to have allowed toll increases as and when provided by that document.'33

Hochtief and Walter Bau are replete with lessons, for both states and investors. On the side of the former, it is evident that, while their regulatory freedom is preserved as a matter of principle,34 the effects of their conduct (e.g., changes to the regulatory framework or failure to consider changed circumstances) must be carefully considered, insofar as they may generate a ripple effect leading to the breach of the state's obligations under different international instruments. As Professors Dolzer and Schreuer advise, 'the host state must at all times be aware that its legal order forms the basis of legitimate expectations, which must be taken into account in future reforms.'35 It may well be that a change in the legal framework existing at the time of the execution of the concession agreement may alter the commercial balance thereof to the detriment of the investor. It may also be, as in Hochtief, that the investor has a legitimate expectation that such balance will be restored through other means. The state's failure to act accordingly may thus entail its international responsibility, irrespective of the lawfulness of or justification for the legislative modification under the domestic laws of the host state.

On the side of the concessionaire, the above-cited cases show the importance of the specific terms of the concession contract, which may provide the (sole, in certain cases) basis for a legitimate expectation that the economic equilibrium of the contract will be preserved. Concessionaires may even consider going one step further, and establishing specific mechanisms under the contract for the restauration of said equilibrium. In such case, however, the distinction between treaty and contract claims may be all the more difficult to achieve. The non-observance of a contractual mechanism for the preservation of the economic equilibrium of the contract may be the basis for a contract claim, which, absent an umbrella clause (as discussed above), may fall outside the scope of the jurisdiction of an international investment arbitration tribunal. In addition, even in the presence of such a mechanism, it may be that the imbalance is caused by actions of the state and not of one of the parties to the concession contract. In the latter case, a treaty claim brought against the state could have difficulty relying on the contractual corrective mechanisms.

It should be noted, in any event, that this does not dispense foreign investors from conducting adequate due diligence prior to the conclusion of any concession agreement. In order to successfully claim it held specific legitimate expectations, an investor will usually have to demonstrate that 'it exercised due diligence and that its legitimate expectations were reasonable'36 in light of such due diligence. Conversely, inexistent or otherwise inadequate due diligence may well lead, in addition to a negative finding regarding the purported legitimate expectations of the claimant, to a finding of contributory negligence and a corresponding reduction in any compensation awarded.37

Second, it may also happen that the conduct of the host state may be such as to substantially or even entirely deprive the investment of its value. In such cases, a claim for expropriation may be more adequate than one for breach of the fair and equitable standard of treatment. In the words of Judge Brower:

[F]ormal appropriation or extinguishment of title to property is not the only way an investor can be deprived of property in contravention of an applicable BIT. Instead, the host State can take actions and enact measures that are tantamount to expropriation, and constitute 'indirect' expropriation. […] In such cases, the analysis must focus not on the form of the alleged expropriatory measures, but on their actual substance and corresponding cumulative impact.38

This may occur in situations where the concessionaire must start from scratch, construct and operate an infrastructure project, for example, a power plant, a dam structure, a road or a highway. In such projects, the concessionaire's contractual performance is often dependent upon certain legislative or administrative measures that the conceding entity or the state itself must implement. If such measures are not implemented, the construction works may face significant delays and overwhelming costs or may even not be capable of being carried out at all. For example, a conceding entity might fail to provide to the concessionaire access to the construction site or the land on which the latter party was due to build – either by failing to nationalise it39 or by failing to issue necessary zoning and construction permits, or by revoking such existing permits. Given the complexity of construction projects and the fact that, in these scenarios, concessionaires do not have a revenue-generating investment until such time as the construction has been finalised and the asset begins operating, any such delays might cripple the concession and result in claims for damages from the concessionaire or other impacted third parties (such as contractors, subcontractors, and suppliers of goods or services).

By way of example, in the Consortium RFCC v. Morocco case,40 a consortium of five Italian companies had entered into a concession agreement for the construction and operation of a section of a road in Morocco linking Rabat to Fes. The dispute arose out of measures of the conceding state entity, which were alleged to be in breach of the state's obligations under the investment treaty between Italy and Morocco. In particular, the claimant consortium contended that certain measures applied by the conceding entity would have amounted to an indirect and unlawful expropriation, insofar as such measures would have deprived it of the return on its investment that it was entitled to expect.

The tribunal dismissed the claims, finding that the state had not breached any of its international law obligations, and had not expropriated the claimant. Interestingly, however, in determining whether an indirect expropriation had taken place, the tribunal focused on the effect of the measure criticised by the investor upon 'the economic benefit and value'41 of the investment. The tribunal held, in this regard, that indirect expropriation is characterised when the host state's measures have 'substantial effects of an intensity that reduces and/or removes the legitimate benefits related with the use of the rights targeted by the measure to an extent that they render their further possession useless.'42

Likewise, in the Vivendi v. Argentina case, the tribunal characterised the conduct of an Argentine province towards an investor in a water and sewage treatment concession as a series of acts having a 'devastating effect on the economic viability of the concession.'43 The Vivendi tribunal held that the measures criticised by the investor, 'taken cumulatively, rendered the concession valueless and forced [the locally incorporated company] and [the investor] to incur unsustainable losses.'44 Thus, the tribunal concluded that the claimant had been the object of an expropriation.

Similar issues have also given rise to more recent arbitrations. By way of example, significant delays in delivering the land permits necessary to commence excavations for the construction of the metropolitan railway in Peru's capital, Lima, have, according to the concessionaire, significantly hampered its ability to advance the construction works in a timely manner.45 Moreover, they have also led to financial penalties and additional costs being supported by the concessionaire, inter alia for the storage of equipment and materials required for the excavations. A similar claim was brought against Peru, in relation to a pier concession agreement, the performance of which was affected by permitting delays.46 The case was ultimately discontinued.


Concession contracts involving major construction projects may give rise to a variety of issues, by virtue of their very nature. Traditionally, such issues were resolved before the courts or the forum otherwise agreed-upon in the contract itself. Increasingly, however, investment treaty arbitration has become a valid dispute resolution method for such issues. This updated contribution discusses only a handful of its hallmarks, yet many more remain to be explored by practitioners and scholars alike.

Building on the first edition, we would like to suggest one issue worth exploring: the interplay of investment protection and the protection of the environment and human rights affected by construction projects. Indeed, though a concession may be granted by the public authorities, a social licence to operate may be crucial to its operation. Such a licence can be deemed to exist 'when a project has the ongoing approval within the local community and other stakeholders, [as] ongoing approval or broad social acceptance and, most frequently, as ongoing acceptance.'47 As such, it may be the case that the performance of a concession contract is adversely impacted not by the actions or omissions of the concessionaire or the conceding entity, but by the absence of a social licence to operate from the local community. Often, such situations arise due to the environmental or social impact the concession might have. The latter is often the case in mining and large infrastructure construction projects, which generally require the nationalisation of land and the displacement of communities, as well as raising significant environmental concerns.

In a recent case, Bear Creek v. Peru,48 following the conclusion of the hearing, the ICSID tribunal sought further clarification from the parties regarding the relevance of the social licence to operate and its consequences for the claimant's project. By way of context, in that case, one of the arguments submitted by Peru was that the project lacked a social licence to build and operate, and that, in the circumstances, the claimant's conduct would have contributed to the social unrest that had prompted the state's measures at issue in the arbitration. Specifically, the tribunal enquired as to the standard by which it was to determine whether the claimant had sufficiently reached out to the relevant communities in order to secure the social licence to operate. In that regard, the tribunal asked:

i. Which national and international legal provisions are applicable to informing that standard?

ii. Insofar as the State authorities have any discretion in this regard, what are the limits?

iii. What actions were legally required of the Claimant in seeking to obtain a Social Licence, and did the Claimant take these actions?

iv. In the present case, what were the State authorities' responsibilities in relation to obtaining a Social Licence?

v. As a matter of law, what are the consequences that follow from an absence of support on the part of one or more relevant communities, or parts thereof, in relation to this investment?49

Similar questions are also pending before the tribunal in the South American Silver v. Bolivia case.50 The answers that may be given to these and to many related questions may significantly impact the outcome of these and other similar disputes.


1 Philip Dunham and José Manuel García Represa are partners at Dechert (Paris) LLP. The authors extend their thanks to Ms Ruxandra Esanu for her assistance with the research leading to this contribution.

2 R. Jaidane, 'La gestion des contrats internationaux de concession', 3 Revue de droit des affaires internationales 289, 2005, p. 290.

3 P. Dunham and J.M. García Represa, 'Construction Arbitration and Concession Contracts', Global Arbitration Review –The Guide to Construction Arbitration (2017).

4 See for instance Permanent Court of Arbitration (ed.), Multiple Party Actions in International Arbitration, Oxford University Press (2009)

5 To date, as many as 12 ICSID investment arbitration tribunals have held that such activities constitute an investment. See Jan de Nul NV and Dredging International NV v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Award dated 6 November 2008; Saipem SpA v. Bangladesh, ICSID Case No. ARB/05/07, Decision on Jurisdiction and Recommendation on Provisional Measures dated 21 March 2007; Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction dated 23 July 2001; ADC Affiliate Ltd and ADC & ADMC Management Ltd v. the Republic of Hungary, ICSID Case No. ARB/03/16, Award dated 2 October 2006; Beifing Urban Construction Group Co Ltd (BUCG) v. Republic of Yemen, ICSID Case No. ARB/14/30, Decision on Jurisdiction dated 31 May 2017; Malicorp Limited v. The Arab Republic of Egypt, ICSID Case No. ARB08/18, Award dated 7 Februray 2011; Garanti Koza v. Turkmenistan, ICSID Case No. ARB/11/20, Award dated 19 December 2016; Toto Costruzioni Generali S.p.A. v. Republic of Lebanon, ICSID Case No. ARB/07/12, Decision on Jurisdiction dated 11 September 2009; Bayindir Insaat Turizm Ticaret Ve Sanayi A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Decision on Jurisdiction dated 14 November 2005; Desert Line Projects LLC v. The Republic of Yemen, ICSID Case No. ARB/05/17, Award dated 6 February 2008; Pantechniki S.A. v. Albania, ICSID Case No. ARB/07/21, Award dated 30 July 2009; Consortium RFCC v. Kingdom of Morocco, ICSID Case No. ARB/00/6, Award dated 22 December 2003.

6 Compañía de Aguas del Aconquija S.A. and Vivendi Universal v. Argentine Republic, ICSID Case No. ARB/97/3 (Vivendi v. Argentina), Decision on Annulment dated 3 July 2002, Paragraph 101.

7 SGS Société Générale de Surveillance S.A. v. The Republic of the Philippines, ICSID Case No. ARB/02/6, Decision on Exceptions to Jurisdiction dated 29 January 2004, Paragraph 155. See also Toto Costruzioni Generali S.p.A. v. The Republic of Lebanon, ICSID Case No. ARB/07/12, Decision on Jurisdiction dated 11 September 2009, Paragraph 202.

8 Convial Callao S.A. and CCI - Compañía de Concesiones de Infraestructura S.A. v. Republic of Peru, ICSID Case No. ARB/10/2 (Convial v. Peru).

9 Convial v. Peru, Final Award dated 21 May 2013, Paragraphs 293–297, 443.

10 Convial v. Peru, Final Award dated 21 May 2013, Paragraph 444.

11 Convial v. Peru, Final Award dated 21 May 2013, Paragraphs 449–450.

12 Convial v. Peru, Final Award dated 21 May 2013, Paragraphs 504, 509, 516 et seq.

13 See for example Tulip Real Estate Investment and Development Netherlands B.V. v. Republic of Turkey, ICSID Case No. ARB/11/28, Award dated 10 March 2014, Paragraph 354.

14 Today, about 43 per cent (some 1102 of the 2572) of the treaties recorded by the United Nations Conference on Trade and Development (UNCTAD) contain an umbrella clause. See http://investmentpolicyhub.unctad.org/IIA/mappedContent#iiaInnerMenu (last visited on 17 August 2018).

15 J. Wong, 'Umbrella Clauses in Bilateral Investment Treaties: of Breaches of Contract, Treaty Violations, and the Divide Between Developing and Developed Countries in Foreign Investment Disputes', 14(1) George Mason Law Review 137 (2007), p. 144.

16 K. Yannaca-Small, Arbitration Under International Investment Agreements – A Guide to Key Issues, Oxford University Press (2010) p. 480, citing S Schill, 'Enabling Private Ordering-Function, Scope and Effect of Umbrella Clauses in International Investment Treaties', Institute for International Law and Justice, Working Paper 2008/9, University School of Law (2008).

17 K. Yannaca-Small, Arbitration Under International Investment Agreements – A Guide to Key Issues, Oxford University Press, (2010) p. 487.

18 For a broader reading of umbrella clauses, see for instance SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction dated 29 January 2004; Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Award dated 12 October 2005; LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc. v. Argentine Republic, Decision on Liability dated 3 October 2006; Continental Casualty Company v. The Argentine Republic, ICSID Case No. ARB/03/9, Award dated 5 September 2008. For a narrower reading of umbrella clauses, see for instance Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision on Jurisdiction dated 6 August 2003; El Paso Energy International Company v. The Argentine Republic, ICSID Case No. ARB/03/15, Decision on Jurisdiction dated 27 April 2006. See also J. Antony, 'Umbrella Clauses since SGS v. Pakistan and SGS v. Philippines – A developing Consensus', 29(4) Arbitration International (2013); A Sinclair, 'The Origins of the Umbrella Clause in the International Law of Investment Protection', 20(4) Arbitration International 411 (2004); C Schreuer, 'Travelling the BIT Route: of Waiting Periods, Umbrella Clauses and Forks in The Road', 5(2) The Journal of World Investment and Trade 231 (April 2004).

19 K. Yannaca-Small 'What About this Umbrella Clause?', in K. Yannaca-Small 'What About this Umbrella Clause (ed.), Arbitration Under International Investment Agreements – A Guide to Key Issues, Oxford University Press (2010), p. 483.

20 By way of example, the Republic of Colombia has had for many years a policy against the inclusion of umbrella clauses in the international investment treaties it concludes. See J.A. Rivas, 'Colombia', in C. Brown (ed), Commentaries on Selected Model Investment Treaties, Oxford University Press (2013), p. 40.

21 Abertis Infraestructuras S.A. v. The Plurinational State of Bolivia, PCA Case No. 2011-14 (the case was settled by the parties in 2017), and a case arising out of a concession for the refurbishment and operation of an international airport in Costa Rica (the case ended with the dismissal of the claim by the tribunal on grounds of inarbitrability). See P. Dunham and J.M. García Represa, 'Construction Arbitration and Concession Contracts', The Guide to Construction Arbitration, Global Arbitration Review (2017), p. 190.

22 Hochtief AG v. The Argentine Republic, ICSID Case No. ARB/07/31 (Hochtief v. Argentina), Award dated 19 December 2016.

23 Werner Schneider, acting in his capacity as insolvency administrator of Walter Bau Ag v. The Kingdom of Thailand (formerly Walter Bau AG (in liquidation) v. The Kingdom of Thailand), UNCITRAL (Walter Bau v. Thailand), Award dated 1 July 2009.

24 Hochtief v. Argentina, Award dated 19 December 2016, Paragraphs 236, 239 ('While there was a clear expectation that the commercial balance of the Contract would be maintained by the continuation of peso/dollar parity, no specific promise or undertaking to maintain that parity was explicitly made by Respondent to Claimant. Neither the Bidding Terms nor the Concession Contract, nor any other instrument presented to the Tribunal, contains any specific and absolute undertaking not in any circumstances to pesify the Contract.').

25 Hochtief v. Argentina, Award dated 19 December 2016, Paragraph 236.

26 Hochtief v. Argentina, Award dated 19 December 2016, Paragraph 239.

27 Hochtief v. Argentina, Award dated 19 December 2016, Paragraph 238.

28 Hochtief v. Argentina, Award dated 19 December 2016, Paragraphs 241–242.

29 Walter Bau AG v. Thailand, Award dated 1 July 2009, Paragraph 12.3.

30 Walter Bau AG v. Thailand, Award dated 1 July 2009, Paragraph 12.2(c).

31 Walter Bau AG v. Thailand, Award dated 1 July 2009, Paragraph 12.4 (c).

32 Walter Bau AG v. Thailand, Award dated 1 July 2009, Paragraph 12.4 (a).

33 Walter Bau AG v. Thailand, Award dated 1 July 2009, Paragraph 12.14.

34 In this connection, the tribunal in Parkerings v. Lithuania explicitly emphasised 'each State's undeniable right and privilege to exercise its sovereign legislative power.' See Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/8 (Parkerings v. Lithuania), Award dated 11 September 2007, Paragraph 332.

35 R. Dolzer and C. Schreuer, Principles of International Investment Law, Oxford University Press (2008), p. 135.

36 Parkerings v. Lithuania, Award dated 11 September 2007, Paragraph 333.

37 See MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/01/7 (MTD v. Chile), Award dated 25 May 2004, Paragraph 167–178, 242–243. In this case, a Malaysian company and its Chilean subsidiary (collectively 'MTD') were to construct a residential and commercial complex in Pirque, Chile. MTD alleged that the Chilean government's denial of a zoning modification necessary for the execution of the project amounted to a breach of the fair and equitable standard of treatment. The land secured by the Claimant for the project needed to be rezoned for MTD to be able to build the complex. While the government had previously made assurances to MTD that the rezoning of the land would be achieved promptly, rezoning was refused by a Chilean government body, on the grounds that it would be contrary to Chilean law. MTD initiated arbitral proceedings pursuant to the Chile-Malaysia treaty. The tribunal reduced by 50 per cent the damages awarded to MTD on account of lack of diligence on the investors' part. The Tribunal justified its position by affirming that 'BITs are not insurance against business risk and the claimants should bear the consequences of their own actions as experienced businessmen.' The tribunal also held noted that '[the] conclusion of the Tribunal [that Chile breached its FET obligation] does not mean that Chile is responsible for the consequences of unwise business decisions or for the lack of diligence of the investor. Its responsibility is limited to the consequences of its own actions to the extent they breached the obligation to treat the Claimants fairly and equitably.' See MTD v. Chile, Award dated 25 May 2004, Paragraph 167.

38 Impregilo S.p.A. v. Argentine Republic, ICSID Case No. ARB/07/17, Concurring and Dissenting Opinion of Judge Charles N. Brower dated 21 June 2011, Paragraph 21.

39 As argued by the claimants in Convial v. Peru.

40 Consortium RFCC v. Kingdom of Morocco, ICSID Case No. ARB/00/6 (Consortium RFCC v. Morocco), Award dated 22 December 2003.

41 R. Dolzer, C. Schreuer, Principles of International Investment Law, Oxford University Press (2008), p. 101.

42 Consortium RFCC v. Morocco, Award dated 22 December 2003, Paragraph 69.

43 Vivendi v. Argentina, Award dated 20 August 2007, Paragraph 17.5.26.

44 Vivendi v. Argentina, Award, 20 August 2007, Paragraph 17.5.28.

45 Metro de Lima Línea 2 S.A. v. Republic of Peru, ICSID Case No. ARB/17/3.

46 APM Terminals Callao S.A. v. Republic of Peru, ICSID Case No. ARB/16/33. This case was discontinued in 2017.

48 Bear Creek Mining Corporation v. Republic of Peru, ICSID Case No. ARB/14/21 (Bear Creek v. Peru).

49 Bear Creek v. Peru, Procedural Order No. 10, Paragraph 2.1.4(a).

50 South American Silver v. Plurinational State of Bolivia, PCA Case No. 2013-15.

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