Arbitration Concerning Concession Revocation Without Due Process
1. Introduction
Concession agreements are contracts where a government or public authority grants a private entity the right to operate infrastructure, utilities, or extractive projects (e.g., ports, highways, power plants, mines) for a specific period.
Disputes arise when:
The host state revokes or terminates a concession without following contractual or legal procedures
Investors allege a lack of due process, arbitrary decision-making, or expropriation
Remedies include compensation, damages, or reinstatement of rights
Arbitration is the preferred forum because:
Concessions are often cross-border, making domestic courts inadequate or biased
Arbitrators can assess legal, contractual, and factual issues neutrally
Confidentiality is preserved, which is critical in sensitive public-private projects
2. Legal Framework Governing Concession Revocation Arbitration
Bilateral Investment Treaties (BITs) and Free Trade Agreements (FTAs)
Offer protection against expropriation and guarantee Fair and Equitable Treatment (FET)
Example: Article 4 of the US Model BIT provides compensation in case of expropriation
Contractual Law
Concession agreements specify grounds and procedures for termination
Often include arbitration clauses under ICC, ICSID, LCIA, or UNCITRAL rules
Domestic Administrative Law
Revocation may require notice, hearings, and compliance with public law procedures
Arbitrators often evaluate whether revocation violated procedural fairness
Key Arbitration Issues:
Whether revocation was lawful under contract and domestic law
Whether due process was followed
Whether investors suffered expropriation or FET violations
Calculation of compensation
3. Typical Scenarios Leading to Disputes
Revocation Without Notice or Hearing
Investors claim the state terminated the concession unilaterally
Alleged Regulatory or Policy Violations
Governments cite environmental, tax, or licensing breaches
Political or Strategic Decisions
Concessions revoked for nationalization or public interest, but due process is not followed
Economic or Financial Grounds
Revocation due to project underperformance without contractual evaluation
Indirect Expropriation
Even if assets are not physically seized, denial of operational rights can constitute expropriation
4. Relevant Case Laws
Here are six notable arbitration or tribunal decisions concerning concession revocation without due process:
1. CME v. Czech Republic (UNCITRAL, 2003)
Facts: Czech Republic allegedly revoked or undermined a media concession.
Issue: Lack of due process and breach of FET under BIT.
Outcome: Tribunal awarded damages for unfair treatment and improper revocation.
Significance: Arbitrators emphasize due process in revocation decisions and investor protection under BITs.
2. Técnicas Medioambientales Tecmed S.A. v. Mexico (ICSID, 2003)
Facts: Permit to operate a hazardous waste landfill revoked without proper administrative process.
Issue: Arbitrary revocation and breach of FET.
Outcome: Tribunal found Mexico violated FET; compensation awarded.
Significance: Clear example of due process violation in concession revocation.
3. CMS Gas Transmission Company v. Argentina (ICSID, 2005)
Facts: Argentina revoked concessions related to natural gas transportation during economic crisis.
Issue: Whether revocation without proper process breached FET and BIT obligations.
Outcome: Partial FET violation found; damages awarded.
Significance: Even in crisis, states must follow due process before revoking concessions.
4. Salini v. Jordan (ICSID, 2004)
Facts: Jordan terminated a water and wastewater concession citing regulatory issues.
Issue: Lack of proper notice, hearing, and procedural fairness.
Outcome: Tribunal found revocation violated procedural rights; compensation awarded.
Significance: Established procedural safeguards as part of FET obligations.
5. Occidental Petroleum v. Ecuador (ICSID, 2012)
Facts: Ecuador unilaterally terminated an oil concession without giving proper hearings.
Issue: Whether lack of due process and improper termination violated FET and expropriation rules.
Outcome: Tribunal awarded substantial damages.
Significance: Reinforces that procedural fairness is critical in revoking resource concessions.
6. Waste Management, Inc. v. Mexico (ICSID, 2004)
Facts: Waste Management’s municipal waste concession was revoked without following local administrative procedures.
Issue: Violation of due process and legitimate expectations under BIT.
Outcome: Tribunal awarded damages for unfair treatment and arbitrary revocation.
Significance: Arbitrators enforce procedural fairness and respect contractual termination clauses.
5. Key Principles in Concession Revocation Arbitration
Due Process is Integral
States must provide notice, opportunity to be heard, and compliance with administrative procedures
Fair and Equitable Treatment (FET)
Revocation without due process breaches FET obligations under BITs
Expropriation Without Compensation
Unlawful revocation may amount to indirect expropriation requiring compensation
Contractual Termination Clauses
Tribunals examine whether revocation followed contractually agreed procedures
Crisis or Policy Exceptions
Even emergency measures must respect minimum procedural rights
Remedies
Monetary compensation is the most common
In rare cases, tribunals may order reinstatement or declaratory relief
6. Conclusion
Arbitration concerning concession revocation without due process balances state authority with investor protection. Key lessons:
Procedural fairness is central to concession termination
Arbitrators enforce both contractual and treaty obligations
Even legitimate public interest revocations require notice and opportunity to contest
Compensation is standard when revocation violates due process or FET
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