Uruguay faces global enforcement battle over $30M ICSID award as LARAH pursues seizures in Luxembourg and beyond

Executive summary: In November 2024, Latin America Regional Aviation Holding (LARAH) began enforcement proceedings in Luxembourg to recover a USD 30 million ICSID Award issued against Uruguay, stemming from the 2012 liquidation of Pluna, Uruguay’s national airline. The ICSID Tribunal found Uruguay had violated its fair and equitable treatment obligations under the Panama-Uruguay BIT, forcing LARAH to divest its shares without compensation. Uruguay, citing a 2012 MOU indemnifying it against shareholder claims, attempted a settlement with SARAH, another shareholder, but negotiations failed due to LARAH's demand to terminate criminal proceedings against its directors. While denying awareness of enforcement actions, Uruguay reaffirmed its commitment to comply with the Award, as LARAH pursues additional recovery efforts globally.

On 15 November 2024, the Panamanian company Latin America Regional Aviation Holding (LARAH) initiated enforcement proceedings in Luxembourg for an Award issued earlier this year by an ICSID arbitral tribunal against the Oriental Republic of Uruguay. Reportedly, the company successfully seized bank accounts and assets in Luxembourg, a key jurisdiction for Uruguay’s international bond debt.

 The conflict began in 2012, when the Uruguayan government took control of the Uruguayan civilian flag carrier Pluna and eventually liquidated it.

This prompted LARAH, which was a shareholder of Pluna, to initiate an investment arbitration before the International Centre for Settlement of Investment Disputes (ICSID Case No. ARB/19/16).

In an Award issued on 13 February 2024, the members of the ICSID Arbitral Tribunal, Alexis Mourre (President), Eduardo Zuleta Jaramillo and Eduardo Siqueiros Twomey ruled that the Oriental Republic of Uruguay had breached its obligation to grant LARAH’s investments fair and equitable treatment in accordance with Article 4 of the Agreement between the Republic of Panama and the Oriental Republic of Uruguay for the Promotion and Reciprocal Protection of Investments, in force since 14 April 2002.

According to the Tribunal, the Claimant was forced to divest its shares in Pluna to the Uruguayan State without compensation by virtue of a series of unlawful measures adopted by the Government of Uruguay, which led to the operational and financial asphyxiation of the company and its total loss of value, and prevented the private shareholders from continuing to operate the airline, including physical threats to its directors.

The proceedings established that Uruguay had done everything possible to avoid the restructuring and recapitalization of Pluna and thus achieve the immediate liquidation of the company in view of the risk of being forced to pay USD 3.5 billion for lawsuits brought against Pluna by some 900 former employees of Varig, the Brazilian operator that took over the management of the airline until the end of June 2005, and for which the Uruguayan State was liable under a Letter of Guarantee signed in 2007.

On the basis of these considerations, the Tribunal ordered Uruguay to pay LARAH the sum of USD 30 million, in compensation for the losses suffered, with their respective legal interests, and the costs of the proceeding.

Uruguay did not apply for the annulment of the decision, which rendered it final and binding as of June 2024.

The company announced plans to pursue similar legal actions in other countries, including the United States, until the full amount is recovered.

According to estimates, the total debt to date would exceed USD 60 million.

For its part, the Government of Uruguay relies on the Memorandum of Understanding (MOU) dated 15 June 2012, signed with the then private partners of Pluna, Sociedad Aeronáutica Oriental S.A. (SAO) and South American Regional Aviation Holding (SARAH), in order not to pay the Award. Under the MOU, Uruguay regained full control of the company and SAO and SARAH undertook to indemnify the State against legal action by its direct or indirect shareholders based on facts or circumstances related to Pluna. For this reason, Uruguay claims that these companies, of which SARAH is a shareholder, should be responsible for paying the Award.

In a statement issued on 19 November 2024, the Government pointed out that, despite its right under the MOU to claim to be held harmless, Uruguay has prioritized the possibility of reaching an amicable solution that would put an end to the matter and pay the Award.

In this regard, the Government stated that Uruguay proposed a payment to SARAH, which the company accepted after several months of negotiation. However, the negotiations ultimately failed because LARAH insisted that Uruguay terminate the criminal proceedings pending against three of the company’s directors. On this matter, the Government stated that “Uruguay does not accept the criminal indemnity requested by LARAH for those accused of fraud, especially aggravated by their management of Pluna”.

 Although in the statement Uruguay said that it had not been notified of any seizure nor was it aware of the initiation of any enforcement proceedings of the Award, it nevertheless ratified its commitment to comply with the Award.