In LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. v Argentina ICSID Case No. ARB/02/1 the claimants, three US-based corporate investors, had invested in Argentina’s newly privatised natural gas market in the 1990’s, by purchasing stakes in gas distribution companies. Argentina had guaranteed that gas tariffs would be figured in US dollars, adjusted regularly to cover costs, provide a reasonable rate of return, and would not be subject to price controls without compensation. As a result of its financial and economic crisis, Argentina passed emergency measures in 2001-2002 that halted tariff adjustments, calculated tariffs in Argentine pesos instead of dollars, and mandated renegotiation of gas distribution licenses under the threat of rescission. The claimants claimed Argentina had interfered with their investments in violation of the US-Argentina Bilateral Investment Treaty (BIT).

The three arbitrator tribunal (consisting of Dr Tatiana de Maekelt (Chairman), Judge Francisco Rezek and Prof. Albert Jan van den Berg) found that Argentina's acts were not arbitrary under the BIT, nor did they amount to an indirect expropriation. The measures adopted, although severe, did not deprive the investors of the right to enjoy their investment, and did not, therefore, "effectively neutralise the benefit of property of the foreign owner". Argentina had, however, breached the fair and equitable treatment standard in the BIT, and its abrogation of certain contractual undertakings gave rise to international liability under the so-called umbrella clause.

However, the tribunal excused Argentina from liability for breaches of the BIT for a 17 month period, from the Government announcement that it would freeze funds until the election of President Kirchner, as the country was in a “state of necessity”. It accepted that the country’s conditions at the time “threatened Argentina’s essential security interests” and were not merely a period of economic problems as suggested by the claimants. Whilst Argentina is exempt from paying damages for this period, it remains liable for damages related to violations of the treaty falling outside that 17 month period. The damages and interest will be determined during the next phase of the arbitration.

There has been some criticism of the tribunal’s finding on the question of "necessity" as it failed to consider the contrary findings on the point by the CMS v Argentina award. In contrast, in that case, the tribunal rejected Argentina’s "state of necessity" defence, holding that the US-Argentina BIT was “clearly designed to protect investments at a time of economic difficulties” and that “the Argentine crisis was severe but did not result in total economic and social collapse.”