Investment Arbitration Reporter

By Luke Eric Peterson

Two years ago, we published a run-down of where things stand with the barrage of arbitration claims filed against the Argentine Republic in the aftermath of that country’s earlier financial crisis.

It’s time for an update.

Argentina still accounts for a disproportionate number of outstanding claims between foreign investors and sovereign governments at the International Centre for Settlement of Investment Disputes (ICSID).

At present, 27 claims are pending against Argentina at the ICSID, accounting for more than 1/5th of that institution’s pending case-load. All but 1 of these 27 cases involve claims relating, at least in part, to Argentina’s response to its earlier financial crisis.**

Outside of ICSID, at least 2 additional crisis-related investment treaty claims are known to be in arbitration under the UNCITRAL rules: those of ICS Inspection and Control Services Limited and Anglian Water Group (AWG). Another UNCITRAL claim, by Bank of Nova Scotia is thought to remain suspended.

A further two UNCITRAL claims – brought by National Grid and BG – have been fully arbitrated, and are now being challenged by Argentina in the U.S. Courts. (See separate story)

While at least 30 financial crisis claims are still pending – either in arbitration or post-enforcement litigation, 7 of these cases are currently suspended while the parties pursue negotiations.

Since our last round-up in 2008, Argentina has settled at least four claims, and beat back another on jurisdictional grounds.*** These developments bring to 15 the number of financial crisis cases that have been concluded. ****

Argentina’s award liabilities shrink, even as government does not pay

While more than 24 months have elapsed since our last overview of Argentine crisis cases, a peculiar thing has happened: Argentina’s award-debts to foreign investors have shrunk by more than a third over the last two years, even as the government has yet to pay a penny to its award-creditors.

By the close of 2008, we reported that 2/3rds of a Billion Dollars (plus substantial sums of interest) had been awarded for breach of investment treaty protections in Argentine financial crisis disputes.

However, that figure now stands closer to 430 Million USD (plus interest).

Such a precipitous decline can be explained by the fact that no new damages awards have been rendered in the last 24 months, and a pair of earlier sizable arbitral awards – in the Enron and Sempra cases - evaporated last summer, when ICSID review panels found fault with the handiwork of the original arbitrators in those cases.

In little more than a month, a pair of ICSID ad-hoc annulment committees had lopped $234 Million (plus related interest) from Argentine’s to-do list.****

Of course, Argentina’s list of award-debts is not in permanent decline.

Last year, Decisions on Liability were issued by arbitral tribunals in several financial crisis cases – including 3 water privatization disputes, and a massive dispute with French energy company Total. These liability rulings confirmed that Argentina was liable for breaching its investment treaty obligations, but quantification of losses was held over til a later date.

Barring a settlement, these cases are likely to generate hefty damages awards – followed by the further uncertainty of annulment proceedings.

What’s more, other cases are moving towards merits and damages rulings, including claims by El Paso, EDF, SAUR, Mobil, and Daimler Financial Services.

Most awards still being challenged, but Argentina not paying proactively

Those intent upon extracting their pound of flesh from the Argentine Republic have long had to wrestle with the lack of predictability inherent in a system of one-off arbitration: with claims by 46 foreign investors being heard by 46 differently-constituted panels which are under no duty to hew to the reasoning of their predecessors.

Already, we have seen panels differ sharply as to the extent of Argentina’s liability for breaching treaty protections owed to foreign investors during its financial crisis. Moreover, as several “victorious” claimants have discovered, the record books can be rewritten dramatically by ICSID annulment panels.*****

Even those who manage to run the arbitral and annulment gauntlet have been disappointed to discover that Argentina is in no hurry to begin writing checks to truly victorious claimants. Just ask Michigan-based energy company, CMS Gas Transmission Company, which ultimately turned to a distressed debt specialist when it proved unable to collect on its 133.2 Million US award against Argentina.

Three other claimants with awards against Argentina – National Grid, BG Group, and Continental Casualty – have not advanced as far as CMS. They all remain embroiled in post-award annulment or confirmation battles.

A fourth claimant, LG&E, has a 57.4 Million award in hand, but had agreed to the suspension of the annulment process so as to discuss a possible settlement.

Non-crisis awards also unpaid

At least two arbitral awards against Argentina rising out of pre-crisis disputes also remain unpaid: a 2006 award for $165 Million in favour of the Azurix Corporation and a 2007 $105 Million award in favour of Vivendi Universal.

However, these two award-creditors have fared no better than those awarded compensation for losses arising out of the financial crisis. (Argentina did engage in serious talks with Azurix to settle that award, however, those discussions appeared to founder when the government refocused its priorities on negotiations with the country’s hold-out bondholders.)

Officially, Argentina insists that it is prepared to pay final arbitral awards, provided that claimants present them to the appropriate Argentine court for confirmation.

However, claimants have long protested that this is unnecessary, and could ensnare them in years of further litigation in the Argentine courts.

* See our 2008 round-up here. ** The Teinver S.A. case at ICSID does not relate to the financial crisis. *** These cases settled since our last round-up in late 2008: Telefonica, CIT, CGE, and Impregilo (highway dispute); See our reporting on the dismissal of the TSA case here. **** At present, there are actually 22 concluded cases involving Argentina at ICSID. By our count, 7 of these did not arise out of the financial crisis: Vivendi, Lanco, Houston Industries, Mobil (ICSID Case No. ARB/99/1), Empresa Nacional de Electricidad, Azurix (ICSID Case No. ARB/01/12, and Siemens). ***** See our reporting on the annulment of the Sempra v. Argentina award here. See also our reporting on the annulment of the Enron v. Argentina award here. The jilted investors have taken steps to file new claims at ICSID, but it remains to be seen if the claimants have the stomach for half a decade or more of new litigation with Argentina. Indeed, in recent days, an Argentine energy company announced that it has obtained an option to purchase the rights to the ICSID arbitration, and would withdraw the case as a goodwill gesture. See this January 19, 2011 announcement of Pampa Energia at :  and subsequent press reports in Argentina.

Investment Arbitration Reporter is a specialized news publication tracking developments in the area of international investment law and policy.

The publication does not offer legal or financial advice or recommendations of any kind.
 
To offer news-tips or comments, email the Editor, Luke Eric Peterson, at: editor@iareporter.com