Two recent decisions by tribunals have advanced the body of tribunal practice considering the issue of counterclaims by respondent states in investment treaty arbitration: Burlington Resources Inc. v. Ecuador, in which the tribunal awarded damages against the investor for breach of Ecuadorian environmental law in the performance of its investment, and Urbaser SA and Consorcio de Aguas Bilbao Bizkaia v. Argentina, in which the tribunal accepted jurisdiction to hear Argentina's counterclaim asserting that the investor had violated international human rights obligations. These decisions arise in the context of conceptual challenges to the pursuit of counterclaims in investment arbitration.
The United Nations Commission on the Limits of the Continental Shelf (the CLCS) has now published its full recommendations on the limits of Argentina's continental shelf. There was considerable press speculation following the issue of a preliminary CLCS press release in March 2016 that its recommendations may have impacted on areas of the continental shelf subject to the sovereignty dispute between the United Kingdom and Argentina relating to the Falkland Islands. This would have been a clear departure from its own rules of procedure, and its previous practice. For this reason, we suggested on our blog that the press speculation was likely to prove unfounded. The full recommendations available here have proved this correct – whereas the recommendations do clarify the limits of Argentina's continental shelf in uncontested areas, they make clear that the CLCS did not consider and qualify the parts of Argentina's submissions that were subject to the sovereignty dispute.
The United Nations Commission on the Limits of the Continental Shelf (the Commission or CLCS) has issued a press release referring to its adoption of certain recommendations in respect of submissions made by Argentina. It is understood that these refer, inter alia, to a 2009 submission regarding the extension of Argentina's rights over the continental shelf. The full recommendation is not currently available so the extent of the CLCS's recommendation is not yet known.
Argentina's 2009 submission included claims to continental shelf areas extending from disputed territory, including the Falkland Islands (known by Argentina as the Malvinas). Certain press reports have cited the CLCS press release as suggesting that the recommendations may relate to some of these disputed areas.
However, under Annex I, Rule 5(a) of the CLCS's Rules of Procedure, "In cases where a land or maritime dispute exists, the Commission shall not consider and qualify a submission made by any of the States concerned in the dispute." In such cases, the CLCS may only consider a submission relating to a land or maritime dispute with the prior consent of all parties to the dispute. The UK, through communications to the CLCS in 2009 and 2012, has made very clear its opposition to Argentina's claim to sovereignty over any of the disputed areas, including the Falkland Islands, and that it did not give its consent to the consideration by the CLCS of Argentina's submission over any disputed areas.
In cases such as this, Annex I, Rule 5(b) of the CLCS's Rules of Procedure provides that "The submissions made before the Commission and the recommendations approved by the Commission thereon shall not prejudice the position of States which are parties to a land or maritime dispute." No doubt for this reason, the CLCS press release recalls that "previously, the Commission had already decided that it was not in a position to consider and qualify those parts of the submission that were subject to dispute", suggesting that its Recommendation is appropriately limited to areas that are not in dispute.
On August 31, 2015, the U.S. Court of Appeals for the Second Circuit ruled in favour of Argentina’s Central Bank in one of the many proceedings initiated by Argentina’s unpaid bondholders. The decision in EM Ltd. and NML Capital Ltd v. Banco Central De La Republica Argentina reinforces the statutory presumption in favour of States’ instrumentalities sovereign immunity, and sets a very high threshold to rebut it.
On 24 February 2015, the German Federal Court of Justice (“Bundesgerichtshof“) handed down two judgements which could have a significant impact on holders of government bonds. The Federal Court of Justice held that the Argentine Republic cannot refuse payment to private creditors under its government bonds (“Inhaberschuldverschreibung“) by invoking state necessity due to inability to pay.
In a 7-2 majority decision on 5 March 2014, the United States Supreme Court has reinstated BG Group (BG)’s US$185 million arbitral award against Argentina. The Supreme Court sought to clarify the delineation between “procedural” and “substantive” arbitrability issues in relation to pre-conditions to arbitrate. The Supreme Court found that a litigation pre-condition to arbitrate was procedural in nature, and that issues of arbitrability arising out of such a pre-condition were, therefore, for the arbitrators, not the courts, to decide. Although Article 8 of the Argentina-UK bilateral investment treaty (BIT) was a dispute resolution provision in a treaty between two sovereign nations, both the majority and the dissenters on the Supreme Court limited their analyses to principles of US commercial contracts law. All justices appeared to have found a common ground in their deliberate disregard of the rules of treaty interpretation under international law. In this respect, the decision of the District Court of Columbia that originally confirmed the award remains the only instance in the BG v Argentina US court saga that recognised the relevance of international law, and of its rules of interpretation under the Vienna Convention, in the context of treaty arbitration.
Argentina has agreed to settle five separate investment treaty arbitration claims at a cost of around USD 500 million, in an historic departure from the Latin American state’s refusal to comply with awards made by international investment treaty arbitration bodies.
It was reported in an Argentine newspaper last Thursday, and confirmed by the counsel involved, that the settlements relate to the French media conglomerate Vivendi SA, British electricity and gas utility National Grid PLC, Continental Casualty Company (a subsidiary of the American financial and insurance products provider CNA Financial Corp), the American water company Azurix, and Blue Ridge Investments, the wholly owned subsidiary of Bank of America Corp. These companies were each successful in bringing claims against Argentina through the International Centre for the Settlement of Investment Disputes (ICSID) over the past 12 years, with the exception of National Grid which brought its claim under the Rules of the United Nations Commission on International Trade Law (UNCITRAL Rules) and Blue Ridge Investments, which acquired the ICSID award from the original claimant, CMG Gas Transmission.
While the details of the settlement are not yet clear, local newspapers in Argentina report that the settlement agreement involves a reduction of 15% of the original amount of the awards (USD 677 million) and 45% of the interest accrued, leading to an overall nominal discount of 25% on the amount originally claimed. The settlement is to take the form of sovereign bonds, which is a controversial choice given that Argentina has also been subject to ICSID claims regarding the state’s default on sovereign bonds, several of which are still outstanding. The settlement agreement is also reported to commit the parties benefiting from it to reinvest 10% of the amount (USD 67 million) in the purchase of additional sovereign bonds (BAADE).
In the latest development in Argentina’s challenge of the BG Group v Argentina arbitral award, the United States Solicitor General (“SG“) has argued that the United States Supreme Court should deny BG Group’s petition for a writ of certiorari (the application to the US Supreme Court for an appeal of the US District Court’s decision) (the “Petition“).
In the SG’s opinion, (1) the decision of the US Court of Appeals for the District of Columbia Circuit, reported at 665 F.3d 1363, had had been correct in ascertaining that it rather than the arbitral tribunal had jurisdiction to determine the gateway issue with regard to the 18 month litigation precondition in the UK-Argentina BIT; (2) the D.C. Circuit applied settled principles in determining a question of arbitrability by reference to the intent of the parties; (3) the decision did not conflict with decisions of other United States courts of appeals because all prior decisions were fact-specific; (4) the vacatur of the BG Group award was unlikely to have implications beyond the unusual circumstances of this case; and (5) because no modern treaty to which the United States is a party includes litigation as a precondition to arbitration, the D.C. Circuit decision did not implicate the interests of the United States. As a result, the SG considers that no further review by the US Supreme Court was warranted in this case.
In urging the Supreme Court to deny the Petition, the SG disregards the long-established distinction between “admissibility” and “jurisdiction” in international law, the long-established distinction between procedural and substantive admissibility in U.S. jurisprudence, and the threat that the D.C. Circuit decision poses both to treaty and commercial arbitration in the United States. The SG’s brief is truly a disappointment to arbitration practitioners, perhaps even more disappointing than the D.C. Circuit’s decision.
In Ambiente Ufficio S.p.A. and others v Argentine Republic, an ICSID tribunal held that it had general jurisdiction over a multi-party claim commenced by 90 distinct Italian nationals against Argentina in respect of harm said to result from Argentina’s default and later partial restructuring of its sovereign debt. It might at first blush appear that the tribunal’s willingness to admit a 90-party claim is an affirmation of the favourable approach to so-called “mass claims” taken by its “sister tribunal” in Abaclat (and others) v The Argentine Republic. However, the number of claimants in those two cases differs markedly, and the tribunal avoided deliberating on the correctness of the Abaclat award.
On 8 February 2013, the majority of the tribunal in the famous Abaclat and Others v Argentina case issued its 17th procedural order. The first such order dates back to 2008 and this will no doubt not be the last. As is now well known, in 2011, a divided tribunal found that it had jurisdiction to deal with a mass claim brought by 60,000 Italian bondholders in relation to a sovereign debt default by Argentina in 2001 during its financial crisis. In its procedural orders, the tribunal has sought to “reconcile equal treatment of the Parties with considerations of efficiency and the right to be heard“.
This order is particularly significant in that it deals with the appointment of an expert (Dr Wühler) and the scope of his mission to review information in relation to all of the separate entities bringing the claim. As such, it paves the way for the case to proceed. There is, of course, huge pressure for the tribunal to make the case workable in the wake of so much criticism of the Decision on Jurisdiction and Admissibility (the Decision) and in light of so much speculation as to how the procedure will be managed. How will the procedure be formulated within an ICSID framework that does not, on its face, accommodate mass claims?