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Railroad Development Corporation (RDC) v. Guatemala

In 1997, Pittsburgh-based Railroad Development Corporation (RDC) signed contracts with the government of Guatemala to operate the country's newly-privatized rails for 50 years. After initially reopening several defunct rail lines, RDC's progress slowed. After a decade, the company had only completed one of the five phases required to restore the national rail system. The sluggish investment stemmed largely from the company's sub-par financial performance.

In 2006, after months of negotiations with RDC failed to produce results, Guatemala's executive branch declared one of RDC's contracts to be lesivo – or injurious to the interests of the State. The concept of lesivo, the right of the executive branch to call out seemingly counterproductive government decisions and contracts, has existed in a half-dozen Latin American countries for decades. In Guatemala, which has had the lesivo provision on its books since 1928, a lesivo pronouncement initiates a legal process in which an administrative court weighs the executive branch's claims against the defense presented by the contractor (i.e. RDC). The contractor has the right to appeal the resulting decision to the Supreme Court. Continue reading...

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