Elina Mereminskaya
Arbitra International, Santiago

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Compensation for Covid-19-related construction costs denied to the Santiago International Airport concessionaire

On 22 May 2026, an ad hoc arbitral tribunal rendered an award resolving a dispute between the concessionaire of Santiago’s Arturo Merino Benítez International Airport and the Chilean Ministry of Public Works concerning the recovery of additional costs allegedly incurred by the claimant during the construction of the airport expansion works as a result of the Covid-19 pandemic.

Although the dispute was, as a matter of law, a domestic arbitration, the concessionaire’s shareholders are foreign companies, giving the case broader international significance. The shareholders of the claimant Nuevo Pudahuel SA (the ‘Concessionaire’) are Aéroports de Paris Management SA (45 per cent), VINCI Airports SAS (40 per cent) and Astaldi Concessioni SpA (15 per cent).

Parties’ main arguments

The Concessionaire brought a claim for damages against the Chilean Ministry of Public Works (the ‘MOP’). It requested the arbitral tribunal to declare that the measures adopted by the MOP in response to the Covid-19 pandemic had adversely affected the execution of the construction works under the Concession Agreement, rendering their performance significantly more costly and causing the Concessionaire to suffer losses exceeding US$40m, and to order the MOP to compensate for those losses.

The Concessionaire’s central argument was that the MOP had instructed it to continue the construction works throughout the pandemic, despite the numerous restrictions and public health measures that substantially increased construction costs, while also giving rise to additional prolongation costs and losses of productivity. The MOP’s Contract Administrator (Inspector Fiscal), however, granted only a 66-day extension of time on account of the pandemic and rejected any entitlement to monetary compensation.

In its Statement of Claim, the Concessionaire expressly denied that the Covid-19 pandemic constituted a force majeure event. Instead, it argued that the Concession Agreement had been affected by extraordinary circumstances which, although they did not render performance impossible, made it substantially more onerous. On that basis, it contended that it was entitled to financial compensation.

In response, the MOP argued that Article 22 of the Chilean Public Works Concessions Law (Supreme Decree No 900 of the Ministry of Public Works) (the ‘Concessions Law’) allocates the entire construction risk to the concessionaire during the construction phase. It further submitted that it was the Concessionaire itself that had sought the classification of the airport construction works as a critical activity, thereby enabling the project to continue notwithstanding the restrictions imposed during the pandemic.

Tribunal’s analysis of the contractual liability requirements

The arbitral tribunal began by examining the legal characterisation of the Concessionaire’s claim, emphasising that it was a claim for contractual damages. Accordingly, the tribunal considered it necessary to determine whether the legal requirements for contractual liability under Chilean law had been established.

The tribunal observed that the first requirement for contractual liability under Chilean law is the existence of a breach of a contractual obligation. It concluded that the Concessionaire had neither identified nor proven any contractual obligation owed by the MOP whose breach could justify the damages sought. As the tribunal stated: ‘All the arguments advanced by the Concessionaire in support of its claim seek to explain why it incurred additional costs in carrying out the works and why those costs should be borne by the State rather than by the Concessionaire itself. Nowhere, however, does it identify – or even refer to – any contractual obligation (or statutory obligation incorporated into the Contract) binding upon the MOP that was breached and could therefore justify the damages claimed.’

The tribunal also expressly rejected the argument that the alleged breach could consist of the MOP’s refusal to compensate the Concessionaire. In its view, the legal basis of the claim (the alleged breach of a contractual obligation) cannot be conflated with the remedy sought (an award of damages).

The tribunal further emphasised the fundamental distinction between compensation for additional costs and an award of damages. Whereas the recovery of additional costs does not depend on the other party having breached the contract, an award of contractual damages necessarily presupposes a contractual breach. In the tribunal’s view, damages constitute a civil remedy flowing from contractual liability and therefore require proof of an unlawful act, namely the breach of a pre-existing contractual obligation. By contrast, compensation for additional costs is based on the different rationale of restoring the contract’s economic and financial equilibrium, irrespective of fault or breach.

Since the Concessionaire had failed to establish that the MOP had breached any contractual obligation, the tribunal held that the first requirement for contractual liability had not been satisfied.

The tribunal then turned to the second requirement, namely that the breach must be attributable to the debtor’s fault or wilful misconduct. In this regard, it observed that: ‘Fault and wilful misconduct are not abstract concepts; they necessarily relate to a particular course of conduct, namely the breach of a pre-existing obligation.’

The tribunal went on to conclude that: ‘Since no contractual or statutory obligation breached by the MOP has been identified, any inquiry into negligence or intentional wrongdoing is devoid of purpose.’

Accordingly, the tribunal found that the second requirement for contractual liability was likewise absent, making it unnecessary to examine the remaining requirements under Chilean law.

Having concluded that the Concessionaire had brought a claim for contractual damages, the tribunal held that it could not recast that claim as one seeking compensation for additional costs, even by invoking the principle of iura novit curia. While that principle allows a tribunal to apply the law independently of the parties’ legal arguments, it does not permit the tribunal to disregard the legal nature of the claim before it or to alter the relief sought.

Risk allocation under the Concessions Law

Without prejudice to its foregoing analysis, the tribunal considered it appropriate to assess the Concessionaire’s claim as though it had sought compensation for additional costs rather than contractual damages.

In doing so, the tribunal recalled that, in a previous arbitration between the same parties concerning the effects of the Covid-19 pandemic on the airport’s operational phase, it had accepted the Concessionaire’s own characterisation of the pandemic as a ‘supervening natural event’, that is, an event of force majeure. Consequently, the tribunal held that the Concessionaire’s present contention that Covid-19 did not constitute a force majeure event was inconsistent with its previous position and therefore contrary to the doctrine of venire contra factum proprium.

The tribunal was not persuaded by the Concessionaire’s attempt to distinguish between the construction and operational phases by arguing that the pandemic qualified as force majeure only in the latter. On the contrary, it observed that the Concessionaire’s own reasoning – that, during the construction phase, performance had not become absolutely impossible – could equally be applied to the operational phase. The pandemic had not rendered airport operations absolutely impossible; rather, it had merely reduced passenger traffic and the frequency of flights.

The tribunal then turned to Article 22 of the Concessions Law, which, insofar as relevant, provides:

‘The legal regime governing the concession during the construction phase shall be as follows:

(2) The works shall be carried out entirely at the concessionaire’s risk, and the concessionaire shall bear all expenditures necessary for their completion, whether arising from force majeure, caso fortuito, or any other cause. The State shall not be liable for any consequences arising out of contracts entered into by the concessionaire with contractors or suppliers. The State shall, however, contribute to the payment of losses caused by caso fortuito or force majeure^[1] where the tender documents so provide.’

The tribunal attached particular significance to the breadth of this statutory risk allocation:

‘In light of the foregoing, it is evident that, by providing that the works are to be carried out entirely at the concessionaire’s risk, and that the concessionaire must bear all expenditures necessary for their completion, whether arising from caso fortuito, force majeure, or any other cause [emphasis in the award], the statute renders moot the Concessionaire’s argument as to whether the pandemic and its effects on the performance of the Contract constitute a caso fortuito. It is sufficient that the expenditures or additional costs arise from “any other cause” for them to fall upon the Concessionaire. This conclusion is reinforced both by the disjunctive conjunction “or”, which follows the reference to caso fortuito and force majeure, and by the statutory requirement that the works be carried out ‘entirely’ at the concessionaire’s risk.’

The tribunal further characterised the Concessionaire’s position as being ‘inconsistent with the principle of good faith’. In its view, the Concessionaire could not, on the one hand, argue that the measures adopted by the public authorities in response to the pandemic did not constitute a force majeure event while, on the other, rely on the MOP’s characterisation of those same circumstances as force majeure to obtain a 66-day extension of the construction period.

The tribunal also emphasised that Article 22(2) of the Concessions Law applies exclusively to the construction phase of the concession and not to its operational phase. It was for this reason, among others, that the same arbitral tribunal had previously upheld the Concessionaire’s claim arising out of the impact of the pandemic on the operation of the airport.

Finally, the tribunal rejected the Concessionaire’s reliance on the principle of legitimate expectations. Having examined the evidentiary record, it found no proof that the MOP had encouraged or promoted the acceleration plans and other measures that allegedly gave rise to the additional costs claimed by the Concessionaire. Rather, the evidence showed that those initiatives had originated with the Concessionaire itself. The tribunal considered this course of conduct entirely unsurprising in light of the Concessionaire’s statutory obligation to complete the works and place them into service within the contractual deadlines, coupled with the absence of any legal or contractual entitlement to compensation from the MOP for the resulting additional costs.

Finally, the tribunal held that the Concessionaire could not invoke the principle of good faith as a basis for restoring the economic and financial equilibrium of the Concession Agreement in the face of an express statutory provision allocating the entirety of the construction risk to the Concessionaire during the construction phase.

For all of these reasons, the arbitral tribunal dismissed the Concessionaire’s claim in its entirety. This arbitral award is now final and binding.

The same tribunal recognised the pandemic’s effects on the operational phase of the concession

This decision provides an interesting contrast with the tribunal’s earlier award, rendered on 15 May 2024, in which it partially upheld the Concessionaire’s claim concerning the effects of the Covid-19 pandemic on the airport’s operational phase.

In that earlier award, the tribunal found it beyond dispute that the Covid-19 pandemic had fundamentally disrupted the economic equilibrium of the concession contract, even placing the Concessionaire’s financial viability at risk. It further held that the pandemic constituted an event of caso fortuito or force majeure whose allocation had not been contemplated by the contract or by the applicable statutory and regulatory framework. In those circumstances, the contract could be adapted in order to restore its economic and financial equilibrium consistently with the requirements of good faith and the parties’ reciprocal duty of contractual cooperation.

Against that background, the tribunal concluded that the MOP’s refusal to agree to any form of compensation for the consequences of the pandemic was both legally and economically misguided. In its view, that position was contrary to the duties of loyalty and cooperation arising from the principle of good faith, as enshrined in Article 1546 of the Chilean Civil Code, and was likewise incompatible with the reciprocal and onerous nature of the concession contract.

According to the tribunal, the pandemic gave rise to a risk that had not been allocated under the contract. In such circumstances, the parties were under a duty to adapt the contract so as to restore the economic equilibrium inherent in a reciprocal contract. Contract adaptation was therefore intended to give effect to the parties’ original bargain by ensuring that each party continued to bear only those risks falling within the scope of the ‘ordinary contractual risk’ (alea normal) assumed when they entered the contract. In this way, the adaptation of the contract would correct the substantial imbalance produced by circumstances that were both unforeseeable and irresistible, such as the Covid-19 pandemic.

The tribunal further held that the MOP was under a genuine contractual obligation to restore the economic and financial equilibrium of the contract. That obligation arose, inter alia, from Article 1546 of the Chilean Civil Code, which enshrines the principle of contractual good faith, and required the parties – acting in accordance with the duties of loyalty, good faith and mutual cooperation – to restore the reciprocal balance of the contract that had been disrupted by the effects of the pandemic.

The tribunal was ultimately unable to conclude that any of the Concessionaire’s principal proposals represented the appropriate means of restoring that equilibrium. It therefore granted the Concessionaire’s alternative claim and ordered the parties to negotiate in good faith with a view to agreeing upon the most appropriate means of adapting the contract, consistently with the rights, obligations and risk allocation originally assumed by them.

The practical significance of the 2024 award is underscored by subsequent events. Following the tribunal’s order that the parties negotiate in good faith, the MOP and the Concessionaire established a joint task force that ultimately resulted in a formal amendment to the contract.^[2] The parties agreed to extend the concession term by 36 months and to adjust the revenue-sharing mechanism for the extension period (reducing the revenue percentage for the state from 77.56 per cent to 73 per cent).^[3] In exchange, the Concessionaire withdrew both its related domestic claims and the parallel International Centre for Settlement of Investment Disputes (ICSID) proceedings brought by its shareholders. Thus, the 2024 award produced concrete contractual adjustments rather than remaining a purely declaratory ruling.

Final remarks

Read together, the two awards point to a clear conclusion. Under the express terms of Article 22(2) of the Chilean Public Works Concessions Law, a concessionaire operating in Chile bears the entirety of the financial risk associated with the construction phase, even where the additional costs result from an event as extraordinary and unforeseeable as the Covid-19 pandemic. In this context, the characterisation of the pandemic as an event of caso fortuito or force majeure is ultimately immaterial, since the statute allocates to the Concessionaire the risk of additional costs arising from ‘any other cause’.

A different outcome may, however, arise where a force majeure event affects the operational phase of a concession. If the event is so extraordinary that it falls outside the contractual allocation of risk originally agreed by the parties, the Concessionaire may be entitled to seek the restoration of the contract’s economic and financial equilibrium. In this scenario, the parties may be under a duty to negotiate in good faith the appropriate contractual adjustments necessary to restore that equilibrium, and the Chilean Ministry of Public Works is willing and capable of negotiating in good faith when ordered to do so by a tribunal.

Elina Mereminskaya is an arbitrator at Arbitra International and is based in Santiago. She can be contacted at em@emereminskaya-arb.com.