Argentina

Argentina: A Look into Investor-state Arbitration

Since 1992 Argentina has entered into approximately 56 bilateral investment treaties (BITs).¹ As Grigera Naón² expressed in 2000, ‘the growth of foreign investment has been accompanied (perhaps one could say triggered) by a Copernican change in the attitude of host countries - particularly, but not exclusively, in the developing world - regarding the treatment and level of protection to be afforded to foreign private investments. From positions clearly adverse […] developing countries have generally shifted in more recent years towards positions favouring […] protection.’³ These protections usually included the obligation of the host state to treat investors according to minimum international standards, the rights of the investors to transfer currency out of the host state, the right of the host state to expropriate assets of the investors located in the host state, with the duty to provide full compensation, and the settlement of disputes through international arbitration, among others.

Most of the BITs provided for arbitration under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention),⁴ while some others provided for arbitration under UNCITRAL Rules.⁵ In 1991, Argentina signed the ICSID Convention,which entered into force on 18 November 1994.⁶ In Argentina, the ratification of BITs and of the ICSID Convention did not raise any public concerns as to the commitments therein contained.

During the 90s there was a wave of privatisations of public utilities in Argentina and foreign direct investments in the form of greenfield or de novo investments, international franchising, mergers and acquisitions and international joint ventures, among others.

However, for economic reasons that exceed the scope of this article, Argentina entered into its worst economic crisis around 2001. As a result, President De la Rua had to step down, several people died in violent riots, and the country was brought to the brink of chaos. On 2 January 2002 Duhalde was appointed president by Congress.

The political and economic crisis of Argentina

As a consequence of the economic and financial crisis suffered by Argentina in 2001/2002, the government enacted Emergency Law 25,561,⁷ followed by several other laws and decrees (the Emergency Laws), that heavily interfered with the tariffs and the economic equation set forth in public and concession contracts of public utilities privatised during the 90s. After long periods of unsuccessful negotiations with the Argentine government to restore the economic equation of those contracts, a considerable number of foreign investors decided to submit a notice of claim, and to request arbitration before ICSID or UNCITRAL arbitration panels. These claims were brought to Argentine public attention, and the ICSID system was put under examination and some voices went so far as to consider, against Argentine Supreme Court precedents, that arbitration awards should be subject to local judicial scrutiny.

After the initial submission of investor claims against Argentina before ICSID panels, scholars and diplomats discussed an interesting and complex issue related to the legal standing of investors, which was whether they could resort directly to international arbitration without submitting the case before local courts, and how jurisdictional clauses in the public contracts that referred disputes to local courts should be construed. At that time, the distinction between contract claims and treaty claims based on the violation of the fair and equitable treatment standard contained in the BITs was not very clear, as it is today.

As Cremades and Cairns explained in detail,⁸ the ad hoc Committee that decided the annulment⁹ of the Vivendi award¹⁰ is an excellent example of how to deal with this issue:

[...] A treaty cause of action is not the same as a contractual cause of action; it requires a clear showing of conduct which is in the circumstances contrary to the relevant treaty standard. The availability of local courts ready and able to resolve specific issues independently may be a relevant circumstance in determining whether there has been a breach in international law [...] But it is not dispositive, and does not preclude an international tribunal from comidering the merits of the dispute [...] Under the BIT they had the choice of remedies [...]¹¹

In addition, scholars and public officials also raised concerns about the obligation of the host state (in this case Argentina) set forth in article 54.1 of the ICSID Convention to consider the award as if it were a final judgment of a court in the host state,¹² thereby preventing the local courts from reviewing the award to determine whether it meets the standards required under the Argentine Constitution. This was considered a violation of Argentine public policies, such as the due process of law, equality and the relativity of certain rights that might be modified through the enforcement of new laws, between others¹³ and, therefore, incompatible with local law.

What appeared to be the core concern about the wave of cases filed against Argentina (approximately 50) was the Argentine government’s uncertainty about whether the different ICSID and UNCITRAL arbitral panels would accept the Argentine defence of the state of necessity that allowed it to enact the Emergency Laws, which entailed a break in the economic equation of contracts. It was sustained that, certainly, such defence would have been admitted by the local courts as the crisis met the standards set forth by the Argentine Supreme Court and cast doubts on the potential arbitrators’ approach.

Changes to Argentine Supreme Court decisions

On 1 June 2004, the Argentine Supreme Court issued a controversial ruling in the Cartellone case.¹⁴ Although the arbitration clause determined that the parties had waived their right to appeal, the Supreme Court reviewed the arbitration award. The case had been dismissed by the Federal Court of Appeals on the ground that the previous admittance of the appeal would require this court to enter into the merits of the case and such right had been waived by the parties. On the contrary, the Argentine Supreme Court ruled that the waiver contained in the arbitration clause could not be construed as covering an award that violates ‘public policy’ and further stated that an award that asses the facts and applies the law correctly is not subject to appeal, but at the time the award would be subject to judicial review (appeal) if it were deemed ‘unconstitutional, illegal or unreasonable’.

The ruling in Cartellone appeared to make possible the judicial review of any award, whether the parties had waived their right to appeal or not, or even under the prohibition under the ICSID Convention. However, scholars had divergent comments on the case. Some of them considered that the ruling only ratified Argentine Supreme Court precedents,¹⁵ while others considered it as a violent attack against the parties’ consent to refer their disputes to arbitration.¹⁶

Other scholars emphasised the value of Argentine commitments, such as the ratification of 56 BITs, whatever the result was in investor-state arbitrations, to avoid segregation from the international community.¹⁷

Back to the past

Although Argentina was the first Latin American country that experienced massive investor claims in the international forum, many other countries are joining the list. Ecuador registers 13 cases, Venezuela registers 12 cases, Peru registers five cases, and Bolivia registers three cases.¹⁸ This situation may bring back hostility of developing countries towards foreign investment.

The Argentine government was not alone in its challenge to investor-state arbitration. The decision of many Latin American countries to enter into BITs and to be part of the ICSID Convention is currently being revisited.

Although Ecuador’s experience with ICSID arbitration has appeared positive, its government has recently decided to withdraw from the ICSID Convention.¹⁹ That is, future disputes between investors and Ecuador shall not be referred to international arbitration.

Unfortunately, this decision could be followed by the other developing countries involved. However, as we will explain bellow, the Argentine experience in international arbitration so far does not justify a similar decision.

Argentina’s experience in arbitration

In the beginning, the Argentine government might have assumed that UNCITRAL or ICSID arbitration panels would favour investors, with the prejudice that arbitrators were likely to be biased, and that Argentina would not have its right to present its cases fairly, or that any claim presented by an investor would have been admitted for the full amount.

Argentine experience in ICSID arbitration turned out very differently. Each case has to be duly prepared, presented and argued by both sides before receiving an award, and experience shows that there are no given results beforehand. Each party has to work hard to obtain recognition of its rights and its defences.

The Emergency Laws were enacted almost eight years ago, and Argentina’s experience in investor-state arbitration has been as follows.

For ICSID cases, investors have filed 49 cases against the Republic of Argentina.²⁰ Of those cases, 31 are pending and 18 have been concluded.

Of the concluded cases, 13 cases were concluded by agreement of the parties and provided for the withdrawal of the claim.²¹ Three cases had a final award against Argentina with a partial admission of the claim,²² and three cases were dismissed either on the ground of lack of jurisdiction or on the merits.²³

Since 2004, the Attorney General of Argentina Osvaldo Guglielmino has lead the team of attorneys representing Argentina before international arbitration panels, and the record shows that he has been quite successful in defending Argentine interests.

According to some calculations, foreign investors’ claims against Argentina before ICSID totalled more than US$20 billion,²⁴ and as of 2008 the withdrawn or suspended cases represent US$9.52 billion.²⁵ The Office of the Attorney General concluded more than 25 per cent of the cases, with only three awards imposing pecuniary obligations on Argentina, at levels well below the original claims.

In addition, the state of necessity defence was also admitted by ICSID panels. In the Continental Casualty Company case the claim was admitted at only 3 per cent of its original value. The ground to dismiss the rest of the claim was based on the admission by the arbitral tribunal of the existence in Argentina of a crisis that allowed the government to impose the Emergency Laws according to article XI of the US-Argentina BIT,²⁶ which contemplates the adoption of measures necessary for the maintenance of public order.

***

Investor-state disputes have gone through different stages. From the Jecker Claim, where the Mexican government’s default on a loan determined France’s invasion of Mexico in 1862-1867, to international arbitration, the means to resolve international conflicts has continuously evolved.

Argentina has indeed gone through a very difficult period in its economic and political life and was compelled to adopt the Emergency Laws, which have interfered with the interests and rights of foreign and national investors.

From the Argentine experience, we can conclude that ICSID and the ad hoc UNCITRAL arbitration have been a satisfactory system to solve international disputes. Moreover, we can affirm that the initial hostility towards international arbitration was groundless.

In our opinion, Argentina does not need to resort to theories that challenge its commitments under BITs or ICSID rules for the enforcement of awards. The compliance with international rules of arbitration seems to be a better way to defend national interests.

Notes

1

http://icsid.worldbank.org, last visited 18 September 2009.

2

Former head of the International Chamber of Commerce (ICC).

3

Grigera Naón, Horacio, ‘The Settlement of Investment Disputes between States and Private Parties: An Overview from the Perspective of the ICC’, 1 Journal of World Investment 59-60 (2000).

4

575 UNTS 159.

5

Approved by General Assembly, 15 December 1976.

6

Argentine Law 24,353.

7

BO 1 July 2002.

8

Cremades, Bernardo M and Cairns, David JA ‘La seguridad juridica de las inversiones extranjeras: la protección contractual y de 1os tratados’, Revista Internacional de Arbitraje, June to December 2004, Bogota, Colombia.

9

Rule 52 of the ICSID Convention.

10

http://icsid.worldbank.org, last visited 18 September 2009.

11

See paragraphs 113 and 114 of the Vivendi annulment award.

12

ICSID Convention, article 54 (1) ‘Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State. A Contracting State with a federal constitution may enforce such an award in or through its federal courts and may provide that such courts shall treat the award as if it were a final judgment of the courts of a constituent state.’

13

Rosatti, Horacio, Los Tratados bilaterales de inversión, el arbitraje internacional obligatorio y el sistema constitucional argentino, La Ley 15 October 2003.

14

Supreme Court of Justice, 1 June 2004 - José Cartellone Construcciones Civiles SA v Hidroeléctrica Norpatagónica SA o Hidronor SA.

15

Marchesini, Gualterio Martín, Arbitraje y Recurso Extraordinario, La Ley 20 September 2004.

16

Palacio, Lino Enrique, Un disparo fatal contra el arbitraje voluntario, ED No. 11. 068. 17 August 2004.

17

Gordillo, Agustín, La progresiva expansión del control de constitucionalidad de oficio, LA LEY 27 August 2004.

18

http://icsid.worldbank.org, last visited 18 September 2009.

19

The World Bank announced that it received a written notice of withdrawal from the ICSID Convention from Ecuador on 6 July 2009. The withdrawal takes effect six months after the receipt of Ecuador’s notice.

20

http://icsid.worldbank.org, last visited 18 September 2009.

21

Pioneer Natural Resources Company, Pioneer Natural Resources (Argentina) SA and Pioneer Natural Resources (Tierra del Fuego) SA; CIT Group Inc; Pan American Energy LLC and BP Argentina Exploration Company; BP America Production Company and others; RGA Reinsurance Company; France Telecom SA; Compañía General de Electricidad SA and CGE Argentina SA; Camuzzi International SA; Lanco International, Inc; Empresa Nacional de Electricidad SA; Mobil Argentina SA; and Aguas Cordobesas SA, Suez, and Sociedad General de Aguas de Barcelona SA.

22

CMS Gas Transmission Company (US$133.2 million); Azurix Corp (US$175 million); and Continental Casualty Company (US$2,8 million).

23

Metalpar SA and Buen Aire SA; and TSA Spectrum de Argentina, SA.

24

Perrone, Nicolás M, Inversiones Extranjeras. Demandas contra la Argentina por controversias vinculadas con la crisis del año 2001, at www.derecho.uba.ar/investigacion/demandas.pdf, last visited 18 September 2009.

25

Idem.

26

Argentine Law 24,124.