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Tribunal Finds Uruguay in Breach of Bilateral Investment Treaty in LARAH v. Uruguay Case
Background of the Dispute:
On February 13, 2024, a tribunal consisting of Alexis Mourre, Eduardo Siqueiros, and Eduardo Zuleta Jaramillo rendered an award in favor of Latin American Regional Aviation Holdings S. de S.R.L. (“LARAH”) in the case against Uruguay (ICSID Case No. ARB/19/16). This dispute arose from the forced sale of LARAH’s 75% indirect shareholding in Uruguay’s national airline, Pluna, in June 2012. LARAH claimed this sale, formalized in a Memorandum of Understanding (MOU) without any compensation, constituted breaches of the fair and equitable treatment standard (FET) and indirect expropriation under the Panama-Uruguay bilateral investment treaty.
Uruguay’s Jurisdictional Objections:
Uruguay raised three jurisdictional objections: lack of protected investor status based on nationality, lack of a protected investment, and the Claimant’s waiver to submit a claim. The Tribunal dismissed all objections. It concluded that LARAH was indeed a Panamanian company that made an investment in Uruguay, thus qualifying as a protected investor under the ICSID Convention and the Treaty.
Claims of Treaty Violations:
LARAH alleged Uruguay’s actions violated the FET standard by implementing arbitrary and discriminatory measures and that these actions resulted in an indirect expropriation of its investment. The Tribunal examined three key interrelated events:
- The interruption of Pluna's fuel supply cash facility by the National Fuel Association (ANCAP).
- The loss of a crucial bank loan from ING due to the State’s public opposition.
- A strong press campaign against Pluna by high-ranking public officials.
The Tribunal found these events significantly disrupted Pluna's operations, forcing LARAH to transfer its shareholding to the Uruguayan Government without compensation and leading to the airline's liquidation.
Damages and Compensation:
The Tribunal determined that the damages due to LARAH were identical whether based on the breach of the FET standard or indirect expropriation. It found that the appropriate method for calculating damages was not the discounted cash flow (DCF) method due to insufficient reliable data but rather the sunk costs method. Consequently, the Tribunal awarded LARAH $30 million in damages, reflecting the fair market value of its 75% stake in Pluna at the time of the MOU. Additionally, the Tribunal awarded pre-award and post-award interest based on the US prime rate and ordered Uruguay to cover a portion of the Claimant’s costs.
Conclusion:
The ICSID award in the LARAH v. Uruguay case underscores the significance of a state's conduct in investment disputes. Arbitrary and public actions by state officials that adversely affect a company's operations can constitute a breach of the fair and equitable treatment standard. Furthermore, such actions, when resulting in severe operational disruptions and loss of economic value, may lead to findings of indirect expropriation. The case also highlights the Tribunal’s approach to damage calculations, preferring the sunk costs methodology over the DCF method in scenarios involving significant financial uncertainties.
- LARAH alleged Uruguay’s actions violated the FET standard by implementing arbitrary and discriminatory measures.
- The Tribunal determined that the damages due to LARAH were identical whether based on the breach of the FET standard or indirect expropriation.
- Arbitrary and public actions by state officials that adversely affect a company's operations can constitute a breach of the fair and equitable treatment standard.
