## Facts

- Técnicas Medioambientales Tecmed, S.A. (Tecmed), a Spanish company, invested in Mexico through acquiring an existing hazardous industrial-waste landfill and related assets near Hermosillo, Sonora.
- In February 1996, Tecmed purchased the landfill and associated assets through a public bid for approximately 34 million Mexican pesos.
- Mexico’s federal environmental authority issued Tecmed an operating authorization structured as a one‑year permit subject to renewal; the prior operator reportedly had a permit of indefinite duration.
- Tecmed did not challenge the one‑year term when it began operations, but later argued it expected to operate long enough to recover its investment under a stable regulatory setting.
- During operations, Mexican authorities conducted inspections and initiated proceedings for alleged non-compliance with permit conditions and environmental rules, including the imposition of fines.
- Public opposition intensified, with local community and municipal actors raising environmental and health concerns and urging closure or relocation of the facility.
- In November 1998, the federal environmental authority refused to renew the permit, which prevented Tecmed from continuing landfill operations at the site and significantly affected the economic value of the investment.
- Tecmed alleged that the non‑renewal and related conduct violated the Spain–Mexico Agreement on the Reciprocal Promotion and Protection of Investments (Spain–Mexico BIT), including by unlawfully taking the investment and by failing to treat it fairly and equitably.
- The Spain–Mexico BIT entered into force on 18 December 1996, after Tecmed acquired the landfill, raising questions about the treaty’s temporal reach.
- On 28 July 2000, Tecmed filed for arbitration under the ICSID Additional Facility Rules (ICSID Case No. ARB(AF)/00/2); Mexico raised objections including jurisdiction ratione temporis and the BIT’s three‑year limitation period.
- The tribunal was constituted with Dr. Horacio A. Grigera Naón (President), Prof. José Carlos Fernández Rozas, and Mr. Carlos Bernal Verea; the award was dispatched to the parties on 29 May 2003 and later reported at 43 I.L.M. 133 (2004).

## Issues

1. Whether, and to what extent, the tribunal had jurisdiction ratione temporis over conduct linked to an investment made before the Spain–Mexico BIT entered into force.
2. Whether the BIT’s three‑year limitation period barred any claims (and whether that question went to admissibility rather than the tribunal’s competence).
3. Whether Mexico’s refusal to renew the landfill permit (and associated administrative conduct) constituted an indirect expropriation under the BIT.
4. Whether Mexico breached the BIT’s fair and equitable treatment (FET) obligation, including by defeating Tecmed’s legitimate expectations and acting without sufficient consistency and transparency.
5. Whether Mexico breached full protection and security or other treaty standards, and whether any such breach added to liability beyond the expropriation and FET findings.
6. What compensation was owed if Mexico was responsible, and how to value the investment given the regulatory context and the status of the permit.

## Decision

- The tribunal rejected retroactive application of the BIT’s substantive obligations to acts completed before the treaty entered into force, while allowing pre‑treaty events to be considered as background and where conduct or effects continued after entry into force.
- The tribunal treated the BIT’s three‑year limitation defense as an admissibility issue; it also found that claims resting solely on pre‑entry‑into‑force conduct were outside its reach in any event.
- On the merits, the tribunal held that Mexico’s refusal to renew the operating permit, in the factual setting of the case, produced a substantial deprivation of the investment’s value and amounted to an indirect expropriation without the compensation required by the BIT.
- The tribunal further held that Mexico breached FET under Article 4(1) of the BIT, linking the standard to good faith and to the investor’s expectation of consistent, transparent, and non-arbitrary administrative conduct.
- Claims under other standards (including full protection and security) did not materially change the result compared to the findings on expropriation and FET.
- The tribunal awarded Tecmed monetary compensation of roughly USD 5.5 million plus interest, using a valuation approach that considered projected performance while applying adjustments for risk and other factors.

## Legal Principles

- A treaty may apply to investments made before entry into force, but the treaty’s substantive obligations are not automatically applied to state conduct completed before entry into force; pre‑treaty events may still matter where later conduct or later effects are in issue (including through the approach reflected in VCLT Article 28).
- A treaty time bar may be characterized as an admissibility objection rather than a question of competence, depending on the treaty text and how the claims are framed.
- Indirect expropriation can arise from regulatory or administrative measures that do not transfer title but effectively neutralize the investment by substantially depriving the investor of use, benefit, or value.
- In assessing whether a regulatory measure crosses the line into compensable expropriation, tribunals may look primarily to the measure’s effects, while also examining the public purpose and whether the burden on the investor is reasonably proportionate to that purpose.
- Fair and equitable treatment is tied to good faith and requires conduct that is consistent, transparent, and non-arbitrary, so the investor can understand the applicable rules and rely on administrative decisions and permits.
- Legitimate expectations are evaluated in light of the legal framework and specific state conduct at the time of investment and during the life of the investment, including how the host state administers permitting and renewal processes.
- When compensation is owed for an expropriatory measure, valuation may draw on discounted cash-flow style methods where appropriate, but tribunals may reduce speculative elements and reflect regulatory constraints and risks connected to the authorization at issue.

## Conclusion

In *Técnicas Medioambientales Tecmed, S.A. v. United Mexican States*, an ICSID Additional Facility tribunal held that Mexico’s 1998 refusal to renew Tecmed’s hazardous‑waste landfill permit, viewed against the surrounding administrative conduct and its economic impact, both breached the Spain–Mexico BIT’s fair and equitable treatment standard and amounted to an indirect expropriation requiring compensation; it addressed jurisdictional limits tied to the BIT’s entry into force and treated the treaty’s limitation period as an admissibility point, ultimately awarding Tecmed about USD 5.5 million plus interest.


Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2, 43 I.L.M. 133 (2004)