Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania

Tanzania was awarded funding from the World Bank to repair, upgrade, and expand the water and sewage infrastructure of Dar es Salaam. As a condition of the funding, Tanzania was required to appoint a private company to manage and operate the infrastructure improvements. The plaintiff, a British and German company named Biwater Gauff (“BGT”), won the bid to oversee the infrastructure improvements in 2002 and subsequently entered into subcontracts with local Tanzanian companies as it was required to do under the terms of the bidding contract. In 2005, the Tanzanian government and the Dar el Salaam Water and Sewage Authority (“DAWASA”) terminated the terms of a subcontractor, City Water, deported the City Water’s senior management, and seized the company’s assets, installed new management, and took over City Water’s business.

BGT filed suit, claiming that Tanzania had breached the terms of a 1994 bilateral investment treaty between the United Kingdom and Tanzania for the Promotion and Protection of Investments (“BIT”) and had violated the terms of the Tanzanian Investment Act (“TIA”). Specifically, BGT claimed that Tanzania had expropriated its assets and that the termination of its contract violated the BIT by (1) failing to act for a public purpose related to Tanzania’s internal needs; (2) acting on a discriminatory basis and not treating BGT fair and equitably; (3) and not providing prompt, adequate, and effective compensation. Tanzania argued that because City Water did not have enough funds to perform the infrastructure improvements properly, it had created a real risk to public health and welfare, and it was thus appropriate to retake possession of City Water’s assets.

Multiple local NGOs specializing in human rights and environmental issues were allowed by the Court to join as petitioners in the case to provide their expertise.

The Court held that the termination of City Water’s management personnel amounted to an expropriation of BGT’s investment under Article 5 of the BIT.

The Court further held that Tanzania failed to act in a fair and equitable manner and had engaged in unreasonable and discriminatory conduct, in violation of Article 2(2) of the BIT, because the Republic failed to manage the expectations of the public regarding the speed of improvements to the water infrastructure network. Specifically, government officials had made comments regarding City Water’s poor performance and informed the public that the contract with City Water had been terminated before the contract had been terminated and that DAWASA was taking over the infrastructure project.

The Court rejected all of BGT’s additional claims.

“According to the Republic, City Water had already stopped paying for essential goods and services, such as the chemicals needed to treat the raw water drawn from the Upper and Lower Ruvu Rivers. Given City Water’s lack of cooperation, DAWASA and the Government could not know whether there were sufficient stocks of critical supplies. At any time, City Water could collapse or voluntary depart, leaving chaos behind. Further, its dwindling resources could make it impossible to pay its employees, resulting in a strike on short notice. In short, City Water had created a real threat to public health and welfare. DAWASA and the Government judged quite reasonably that the system had to be freed of City Water’s control. Considering the importance of the issue at hand, the fact that City Water was entitled to remain in control for three weeks at most, and City Water’s own responsibility for creating the crisis, the Government acted well within the Republic’s margin of appreciation under international law.” Paras. 435-436.

“The position in May, therefore, was that despite its poor record, and despite all the public criticisms, City Water still had a right to the proper and unhindered performance of the contractual termination process. In the Arbitral Tribunal’s view, the Republic’s public statements at this time constituted an unwarranted interference in this. They inflamed the situation, and polarised public opinion still further, thereby ensuring that from May 2005 onwards, the process by which the Lease Contract was terminated and City Water was removed did not – and could not – follow a normal contractual course. The Arbitral Tribunal concludes that in acting in such a way in May 2005, the Republic did not comply with the fair and equitable treatment principle.” Paras. 627-628.