## Facts

- Fireman’s Fund Insurance Co. (Fireman’s Fund), a United States insurance company, pursued arbitration against the United Mexican States (Mexico) under NAFTA, administered by ICSID under the Additional Facility Rules.
- The dispute arose from Fireman’s Fund’s investment in U.S. dollar–denominated subordinated debentures issued by Grupo Financiero BanCrecer, S.A. de C.V., a Mexican financial services group.
- During Mexico’s 1990s banking crisis, Mexico implemented rescue and recapitalization programs for the financial sector, including arrangements that facilitated the repurchase or repayment of certain debentures.
- Fireman’s Fund alleged that Mexico facilitated the purchase/repurchase of peso-denominated debentures held largely by Mexican investors but did not provide comparable facilitation for Fireman’s Fund’s dollar-denominated debentures.
- Fireman’s Fund claimed this differential treatment destroyed the value of its investment and amounted to an expropriation or a measure tantamount to expropriation under NAFTA Article 1110.
- Mexico objected that, because the dispute involved a financial institution and financial services measures governed by NAFTA Chapter Fourteen, investor–State arbitration could proceed only on a limited set of claims.
- In a 2003 Decision on the Preliminary Question, the tribunal concluded that its authority in this Chapter Fourteen dispute did not extend to stand-alone claims for national treatment, MFN treatment, or minimum standard of treatment; the case proceeded on the expropriation claim.
- The tribunal issued its final Award on July 17, 2006, dismissing the claim on the merits.

## Issues

1. In a NAFTA dispute involving financial services under Chapter Fourteen, what treaty claims may be submitted to investor–State arbitration, and is the tribunal’s authority limited largely to expropriation under Article 1110?
2. What is the meaning of “expropriation” and “a measure tantamount to expropriation” under NAFTA Article 1110, including the role of the measure’s effects, the deprivation threshold, and the relevance of public purpose and regulatory action?
3. Did Mexico’s conduct related to crisis-era debenture programs—especially the alleged facilitation of peso debenture repurchases but not the dollar debentures held by Fireman’s Fund—constitute an expropriation of Fireman’s Fund’s investment?

## Decision

- The tribunal held that, in this financial-services dispute, its authority did not extend to stand-alone claims under NAFTA Chapter Eleven standards such as national treatment, MFN, or Article 1105 minimum standard of treatment; the arbitrable claim was expropriation under NAFTA Article 1110 as applied through Chapter Fourteen.
- On the merits, the tribunal found no expropriation and no measure tantamount to expropriation under NAFTA Article 1110.
- The tribunal concluded that Mexico’s conduct did not effect a substantially complete deprivation of Fireman’s Fund’s rights in its debentures, and there was no governmental taking or appropriation of the investment.
- All claims were dismissed, and no compensation was awarded.

## Legal Principles

- NAFTA Chapter Fourteen (Financial Services) creates a special framework for disputes involving covered financial institutions; investor–State arbitration is not available for all Chapter Eleven protections in that setting, while expropriation claims under Article 1110 remain available.
- “Expropriation” under NAFTA Article 1110 can be direct or indirect, and it may involve tangible or intangible property; it can arise from a single act or a series of acts over time.
- The core inquiry is the effect of the State’s measures on the investor’s property rights, not the State’s motive; severe economic impact alone does not automatically establish expropriation.
- A compensable expropriation generally requires a substantially complete deprivation of the economic use and enjoyment of the investment; retention of legal title and the absence of effective appropriation weigh against a finding of expropriation.
- Public purpose and good-faith regulation matter in assessing whether the conduct is compensable: measures taken as part of legitimate financial-stability and prudential action may fall within police powers and not require compensation absent a qualifying taking.
- Alleged discriminatory treatment can be relevant to the expropriation analysis, but where the tribunal lacks authority to hear national treatment or MFN as separate claims, differential treatment is assessed only as part of whether the conduct amounts to an expropriation.
- An investor’s reasonable investment-backed expectations may be considered when evaluating whether government conduct crosses the line into an indirect expropriation, particularly in a crisis context affecting financial markets.

## Conclusion

In *Fireman’s Fund Insurance Co. v. Mexico*, the ICSID Additional Facility tribunal treated NAFTA’s financial-services rules as narrowing investor–State arbitration largely to expropriation and held that Mexico’s crisis-era debenture measures—including the alleged facilitation of peso debenture purchases without equivalent support for Fireman’s Fund’s dollar debentures—did not amount to a taking that substantially and permanently deprived the investor of its property rights, so the claim was dismissed with no damages.


Fireman's Fund Insurance Co. v. Mexico, ICSID Case No. ARB(AF)/02/1 (2006)