Argentina has agreed a settlement relating to five investment treaty arbitration awards, made between 2005 and 2008, pursuant to which it was ordered to pay a total of over US$450 million plus interest.
The settlement involves the transfer of previously issued sovereign bonds to the award creditors in return for the discontinuance of all ongoing judicial proceedings relating to the awards. The settlement brings an end to a long stand-off between Argentina, which has always insisted that the awards needed to be enforced through its federal courts, and the award creditors who have maintained that the ICSID Convention requires Argentina to comply with the awards without any such enforcement procedure. The awards covered by the settlement relate to long-running disputes, some arising out of the privatisation of key industry sectors in Argentina in the 1990s and others arising out of its financial and political crisis of the late 1990s and early 2000s. The five cases settled Four of the five awards settled arise from proceedings conducted under the auspices of the International Centre for the Settlement of Investment Disputes (ICSID). The fifth, in favour of National Grid plc, the British electricity and gas utility company, relates to an arbitration conducted under the UNCITRAL Rules. In CMS Gas Transmission Company v the Argentine Republic, the US Claimant invested in an Argentine company which was granted a licence to operate gas transport services following the privatisation of the gas industry in Argentina. In an award issued in May 2005, the Tribunal held that measures taken by the Argentine Government affecting the tariffs charged by the operating company amounted to a breach of the right to fair and equitable treatment set out in the US/Argentina BIT. CMS was awarded damages of US$133.2m. In Azurix Corp v the Argentine Republic, an Argentine subsidiary of Azurix Corp (a US corporation) was granted a water services concession as part of the privatisation of the Argentine water services industry. The Tribunal found that Argentina had breached its obligations under the US/Argentina BIT to accord fair and equitable treatment to Azurix’s investment. By an award made in July 2006, the Tribunal awarded Azurix damages of US$165 million plus interest. In Vivendi Universal SA v the Argentine Republic, another claim arising out of the privatisation of the water services industry, the Tribunal found that measures taken by the Argentine Government relating to the tariffs charged by Vivendi had breached the fair and equitable treatment, full protection and security and expropriation provisions of the France/Argentina
BIT as Vivendi’s investment had been severely devalued by the measures. In August 2007 Vivendi was awarded damages of US$105 million plus interest. In Continental Casualty Company v The Argentine Republic, the Claimant (a US insurance company which at the time of the Argentine economic crisis had held assets denominated in pesos fully convertible to US dollars) sought compensation for measures taken by Argentina which prevented it from hedging against the risk of devaluation of the peso. In an award issued in September 2008, the tribunal held that, due to the emergency situation in Argentina in 2001-2002, Argentina was entitled to rely on a defence of necessity under the terms of the BIT. Contintental was awarded damages of US$2.8 million plus interest in respect of one category of investments to which the Tribunal found the defence of necessity did not apply. In National Grid plc v. Argentine Republic, the claimant was an investor in Argentina’s electricity industry and suffered losses as a result of measures taken by Argentina during its economic crisis. In November 2008, an UNCITRAL Tribunal awarded the Claimant damages of approximately US$53 million for breach of the fair and equitable treatment and protection and security standards in the UK/Argentina BIT. Argentina’s position on enforcement of ICSID awards As a signatory to the ICSID Convention, Argentina is obliged (by article 54 of the Convention) to recognise and enforce the obligations imposed by ICSID awards as if they were final judgments of its national courts. Argentina’s enforcement obligations were stayed for some time pending annulment proceedings relating to each of the ICSID awards. However, even after the annulment proceedings concluded and the stays on enforcement were lifted, Argentina refused to voluntarily pay the amounts due in respect of the awards, insisting that the successful claimants would have to commence court proceedings in Argentina’s federal courts in order to enforce their awards. The award creditors resisted commencing local court proceedings on the basis that enforcement should be automatic, a view supported by the majority of academic opinion on the subject. They did not wish to become embroiled in a further lengthy battle in the Argentine courts (following many years of arbitration) which they saw as simply unnecessary as their awards were binding without the approval of the Argentine judiciary. It appears that all beneficiaries of ICSID awards against Argentina have taken the same view as it is understood that no award creditor has yet sought to enforce an ICSID award in the Argentine Courts. The terms of the settlement The settlement, which was announced in the Buenos Aires-based newspaper Ambito on 10 October 2013, is reported to involve: The transfer of previously issued sovereign bonds, due to mature in 2015, with a value equal to 85% of the value of the original awards; The transfer of sovereign bonds, due to mature in 2017, with a value equal to 55% of the interest due on the awards; Reinvestment by the beneficiaries of the settlement of 10% of the amount originally claimed (which was superior to the amount awarded) in other sovereign bonds; and The discontinuance of all ongoing judicial proceedings relating to the awards with no order as to costs. The choice of sovereign bonds as a payment method is an interesting feature of the agreement given the historic volatility of Argentina’s sovereign bonds in the wake of the country’s debt crisis and
concerns about the possible effects of the US Supreme Court ruling in favour of the holdout bondholders on Argentina’s debt situation. The agreement nonetheless represents a significant step forward for the beneficiaries of the awards settled. However, it is by no means clear that there will be any change in Argentina’s stance regarding the enforcement of future investment treaty awards (there are 25 cases currently pending against Argentina under the auspices of the ICSID). The settlement appears to have been motivated by a number of political factors. The outstanding awards have long been a sticking point in discussions with the World Bank and IMF whereby Argentina is seeking substantial funds to assist in resolving its debt crisis. Azurix Corp and Blue Ridge Investments (a Bank of America subsidiary that has acquired the rights to enforce the award in favour of CMS) are understood to have lobbied the US Government to block Argentina’s access to World Bank loans until the obligations under the awards were fulfilled. Following the settlement, it has been reported that the World Bank is expected to provide Argentina with loans of up to US$3 billion over the next three years. Argentina is also thought to be seeking the support of the US Government for an appeal petition against a decision of the US Supreme Court to award damages of US$1.33 billion to holdout bondholders following restructurings of Argentina’s debt in 2005 and 2010. Comment A number of Argentina’s Latin American neighbours have withdrawn from ICSID entirely in recent years, disillusioned with arbitral awards made against them in investor-state disputes. In contrast, Argentina has not to date threatened to pull out of ICSID and has participated in the many ICSID proceedings arising out of its economic and political crisis, succeeding in a number of the cases resolved to date. It has, however, come in for criticism in relation to its non-payment of ICSID awards which goes against ICSID’s rationale of voluntary compliance. It remains to be seen whether there will be any change in Argentina’s approach to enforcement of ICSID awards following the recent settlement or whether it will settle future awards only on an ad hoc basis as and when it is politically convenient to do so.