ISDS CASE SUMMARY: Maffezini v. Spain

GaliciaBlogOur next case summary is Emilio Augustin Maffezini v. The Kingdom of Spain (ICSID Case No. ARB/97/7). The summary was prepared based on the award rendered on 9 November 2000.

The claimant was an Argentinian individual who established and invested in a corporation named EAMSA, for the purpose of building a production facility for chemical products in Galicia, Spain. The project was a joint venture with the Sociedad para el Desarrollo Industrial de Galicia(SODIGA), a public-private entity with a mandate to encourage industrial development in Galicia. SODIGA provided the investor with assistance in the form of advice and financing.

The project eventually failed due to surging costs, and the investor filed for arbitration under the Argentina-Spain BIT. The investor claimed (1) that the project failed because SODIGA had given flawed advice underestimating the costs of the project, and (2) that SODIGA was responsible for the additional costs resulting from the Environmental Impact Assessment (EIA) because it had pressured EAMSA to begin construction before the EIA process was finalized. Spain contested the allegations, stating that SODIGA was a private company whose acts were not attributable to the state, and that the investor had assumed any risk relating to the feasibility and profitability of his investment.

On the issue of state attribution, the tribunal found that some of SODIGA’s functions were governmental in nature while others were commercial. Accordingly, the tribunal found that it was necessary to categorize the various acts or omissions giving rise to the dispute. On the investor’s main claim – that SODIGA’s bad advice was responsible for the project’s failure – the tribunal found that even though SODIGA officials had provided certain assistance relating to the project’s costs and returns, that assistance did not amount to a public function attributable to the state. Moreover, the investor was, simply put, responsible for his own investment. The tribunal explained:

“Bilateral Investment Treaties are not insurance policies against bad business judgments. While it is probably true that there were shortcomings in the policies and practices that SODIGA and its sister entities pursued in the here relevant period in Spain, they cannot be deemed to relieve investors of the business risks inherent in any investment.”

The claimant also contended that SODIGA was responsible for the additional costs resulting from the EIA, which lead to the investor’s decision to stop the construction work and call off the project. In this regard, the tribunal concluded that the investor should have known that the project – a chemical plant – would require an EIA. According to the tribunal, the investor had known about the EIA requirement from the beginning of the project, but had tried to minimize it so as to avoid additional costs or technical difficulties.

For these reasons, the tribunal found that Spain could not be held responsible for the investor’s losses.