IC Power Asia Development Ltd v Republic of Guatemala - PCA Case No 2019-43 - Final Award - 7 October 2020
Country
Year
2020
Summary
TABLE OF CONTENTS
I. INTRODUCTION
A. The Parties
B. The Background of the Dispute
C. The Arbitration Agreement
D. The Applicable Law
E. The Constitution of the Tribunal
F. The Applicable Arbitration Rules
G. The Seat of the Arbitration
H. The Language of the Arbitration
II. PROCEDURAL HISTORY
A. Initiation of the Arbitration and the Parties' Procedural Agreement
B. First Written Submissions and Document Production
C. Tribunal Constitution and Initial Procedural Steps
D. Further Written Submissions and Further Issues of Document Production
E. The Coronavirus Pandemic and the Timing of the Hearing
F. The Hearing and Post-Hearing Submissions
III. FACTUAL RECORD
A. Main Actors
1. The Claimant and Related Entities
2. Governmental Bodies
B. The 201 1 Transaction
C. Tax Implications of the 2011 Transaction
1. Tax Regulations in Guatemala
(a) Reverse Triangular Merger
(b) Allowable Deductions in Guatemala
2. Tax Audit of the Distributors by SAT
3. Binding Tax Opinions
4. Rectification Payments
D. Acquisition of the Distributors by IC Power
1. Due Diligence
2. Closing
E. Change of Leadership in SAT
1. Corruption Cases within SAT
2. Change of Leadership in SAT
3. Revision of the Distributors' Tax Declarations
F. Criminal Proceeding and Further Tax Audit Against the Distributors
1. SAT's Criminal Complaint
2. Criminal Proceedings and Second Tax Audit
(a) Provisional Measures: Preventive Seizure of BankAccounts
(b) Tax Audit by SAT for Years 2014-2015
(c) Hearing regarding Lifting of Preventive Seizures and Payments under Protest
(d) Provisional Measures: Designation of Receivers
(e) Preliminary Motions
(i) Motion of Prejudiciality
(ii) Motion to Dismiss for Failure to State a Claim
(iii) Objection for Lack of Causal Relation and Elements of Ihe Crime
(1) Audit in relation to Rectification Payments and Calculation of Amounts Allegedly Due
(g) Current Status of the Criminal Proceeding
G. Distributors' Request for Binding Tax Opinions regarding Debt Refinancing
H. Consultations between the Parties
I. Sale of the Distributors
J. The Claim Agreement and Supplemental Agreement
IV. RELIEF REQUESTED
V. THE TRIBUNAL'S JURISDICTION AND THE ADMISSIBILITY OF CLAIMS
A. The Tribunal's Jurisdiction
1. The Date on which the Investment Must be Held
(a) The Parties' Arguments
(b) The Tribunal's Considerations
2. The Claimant's Standing
(a) The Parties' Arguments
(b) The Tribunal's Considerations
3. Due Diligence and Abuse of Investment Arbitration
(a) The Parties' Arguments
(b) The Tribunal's Considerations
4. Domestic or International Law
(a) The Parties' Arguments
(b) The Tribunal's Considerations
5. Claimant's Prima Facie Case for a Violation of the Treaty
(a) The Parties' Arguments
(b) The Tribunal's Considerations
6. Denial of Justice or Procedural Error
(a) Requirement for Denial of Justice
(b) Existence of Denial of Justice
(c) The Tribunal's Considerations
B. Admissibility of Claims
1. The Parties' Arguments
2. The Tribunal's Considerations
C. The Tribunal's Conclusion in respect of Jurisdiction and Admissibility
VI. THE MERITS OF THE CLAIMANT'S CASE
A. Article 2 of the Treaty and Fair and Equitable Treatment
i. The Parties' Arguments on FET
(a) Breach of the Claimant's Legitimate Expectations
(b) Arbitrary Treatment
(i) Standard for Arbitrary Treatment
(ii) Arbitrary Behaviour by the SAT
(iii) Arbitrary Behaviour by the Criminal Courts
(c) Denial of Due Process and Procedural Fairness
(d) Failure to Act Transparently
2. The Tribunal's Considerations on FET
(a) The Binding Tax Opinions
(b) Requirement to Exhaust Administrative Proceedings
(c) The Criminal Court
(d) Did the Respondent Breach the FET Standard in the Treaty?
(i) Arbitrary Conduct
(ii) Legitimate Expectations
(iii) ue Process
(iv) Lack of Transparency
3. The Tribunal's Determination on FET
B. Article 2 of the Treaty and Obligation Not to Impair by Unreasonable Measures
(a) The Claimant's Position
(b) The Respondent's Position
(c) The Tribunal's Analysis and Determination on Non-Impairment
C. Article 3 and the MFN Clause and Umbrella Clause Protections
(a) Applicability of Umbrella Clause Protections
(b) Whether the Respondent Breached the Umbrella Clause Protections
(c) The Tribunal's Analysis and Determination on Article 3 and the MFN Clause and Umbrella Clause Protections
D. The Tribunal's Conclusion on the Merits
VII. COSTS
A. The Parties' Costs
1. The Claimant's Costs
2. The Respondent's Costs
B. The Tribunal's Analysis
I. Relevant Legal Provisions
2. Allocation of the Costs of Arbitration
3. Reasonableness of Costs
4. Quantification of Costs
(a) Arbitration Costs
(b) Legal Costs
VIII. THE TRIBUNAL'S DECISION
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B. THE BACKGROUND OF THE DISPUTE
3. A dispute has arisen between IC Power and the Government in respect of which the Claimant commenced these arbitration proceedings. The subject matter of the dispute concerns the Claimant's investment in the energy distribution market of Guatemala through the purchase of two Guatemalan companies, Distribuidora de Electricidad de Oriente, S.A. ("DEORSA") and Distribuidora de Electricidad de Occidente, S.A. ("DEOCSA" and, together with DEORSA, the "Distributors") and the measures taken by the Government with respect to back taxes allegedly owed by the Distributors. The subject matter of the dispute further concerns Binding Tax Opinions issued by the Government, prior to the Claimant's acquisition of the Distributors, in respect of the amortization of goodwill generated from a prior acquisition of the Distributors, carried out by way of a reverse merger.
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E. THE CONSTITUTION OF THE TRIBUNAL
7. The Tribunal is composed of Professor Albert Jan van den Berg, Professor Guido S. Tawil, and Professor Raul Emilio Vinuesa, with Professor van den Berg serving as the President of the Tribunal
8. The Claimant appointed Professor Tawil as a co-arbitrator on 15 June 2018. The Respondent appointed Professor Vinuesa as a co-arbitrator on 13 July 2018. In keeping with the Parties' Procedural Agreement of 26 April 2019, Professor van den Berg was appointed, and the Tribunal deemed constituted, on 14 November 2019.
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VIII. THE TRIBUNAL'S DECISION
655. For the reasons set out above, the Tribunal finds, declares and awards as follows:
(a) The Respondent's objections to the Tribunal's jurisdiction and the admissibility of the Claimant's claims are rejected;
(b) The Claimant's claim that the Respondent breached the Treaty is rejected;
(c) The Claimant shall bear its share of the Arbitration Costs and shall pay to the Respondent the amount of US$ 243,826.92 as reimbursement for the Arbitration Costs;
(d) The Claimant shall bear its own Legal Costs and shall pay to the Respondent the amount of US$ 1,559,215.69 towards its Legal Costs in these proceedings; and
(e) All other claims and requests are dismissed.
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OCR errors may be present.