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Decision of the Ad hoc Committee on Argentina's Application for Annulment

A. Introduction

On 8 September 2005, the Argentine Republic (Argentina) filed with the Secretary-General of the International Centre for Settlement of Investment Disputes (ICSID) an application in writing, requesting the annulment of an Award dated 12 May 2005 rendered by the Tribunal in the arbitration between CMS Gas Transmission Company (CMS) and the Argentine Republic.
The Application was made within the time provided in Article 52(2) of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention). In it, Argentina sought annulment of the Award on two of the five grounds set out in Article 52(1) of the ICSID Convention, specifically that the Tribunal had manifestly exceeded its powers and that it failed to state the reasons on which it was based.

The Application also contained a request, under Article 52(5) of the ICSID Convention and Rule 54(1) of the ICSID Rules of Procedure for Arbitration Proceedings (the Arbitration Rules), for a stay of enforcement of the Award until the Application for Annulment was decided.


The Secretary-General registered the Application on 27 September 2005 and on the same date, in accordance with Rule 50(2) of the Arbitration Rules, transmitted a Notice of Registration to the parties. The parties were notified that, pursuant to Arbitration Rule 54(2), the enforcement of the Award was provisionally stayed.


By letter of 30 September 2005, the Claimant made a request under Arbitration Rule 54(2) for the stay of enforcement of the Award to be lifted unless Argentina provided adequate assurances as to the payment of the Award should the application for annulment fail.


By letter of 18 April 2006, in accordance with Rule 52(2) of the Arbitration Rules, the parties were notified that an ad hoc Committee (the Committee) had been constituted, composed of Judge Gilbert Guillaume, of French nationality, Judge Nabil Elaraby, of Egyptian nationality, and Professor James Crawford, of Australian nationality. The parties were also informed that Mr. Gonzalo Flores, Senior Counsel, ICSID, would serve as Secretary of the Committee.

By letter of 20 April 2006, the parties were notified that Judge Gilbert Guillaume had been designated President of the Committee.

By letter of 2 May 2006, the Centre sent to the parties copies of the declarations signed by each Member of the Committee pursuant to Arbitration Rule 52(2).

The parties disagreed on the effects of the provisional stay of enforcement of the Award over Argentina’s option to purchase CMS’s shares in Transportadora de Gas del Norte (TGN), as provided for in sub-paragraph 3 of the dispositif of the Award.
After due deliberation, the Committee decided that, since the payment of compensation has been stayed, the condition precedent to the transfer of shares in TGN for the time being could not be met and thus the time limit set forth in the Award for such transfer must be considered as likewise provisionally stayed. The decision of the Committee was notified to the parties by the Secretariat on 10 May 2006.
By letter of 16 May 2006, the Argentine Republic requested that the provisional stay of enforcement of the Award be continued until the Committee had the opportunity to hear both parties on the matter. By letter of that same date, the Claimant reiterated its request that the stay be discontinued unless adequate assurances were provided by the Argentine Republic that it would comply with the Award in the event its annulment application was rejected.
By letter of 17 May 2006, the Committee informed the parties of its decision to continue the stay of the Award until 5 June 2006 (the date previously fixed for the first session of the Committee with the parties).
The first session of the Committee was held, as scheduled, with the agreement of the parties, on 5 June 2006, at the premises of the World Bank in Paris, France, and several issues of procedure were agreed and decided. During the session, both parties addressed the Committee on the question of the continuance of the stay of enforcement of the Award.
After having heard the parties’ arguments, the Committee requested a written statement on behalf of the Argentine Republic, to be filed within seven days, with respect to its compliance with the Award under the ICSID Convention if the Award were not annulled. It further decided that it would be open to CMS to comment within the further seven days on such statement. At the same time, it decided to continue the stay of enforcement of the Award until it had taken a decision.
In accordance with the Committee’s directions, the Argentine Republic submitted on 12 June 2006, a written statement signed by Dr. Osvaldo César Guglielmlno, Argentina’s Attorney-General, in which it stated that:

"The Republic of Argentina hereby provides an undertaking to CMS Gas Transmission Company that, in accordance with its obligations under the ICSID Convention, it will recognize the award rendered by the Arbitral Tribunal in this proceeding as binding and will enforce the pecuniary obligations imposed by that award within its territories, in the event annulment is not granted."

In a letter dated 19 June 2006, CMS contended that Dr. Guglielmlno’s letter did not provide additional comfort, that it must be viewed in context and that it did not bind Argentina.
On the invitation of the Committee, on 26 June 2006 Argentina submitted a copy of the decision rendered by its Supreme Court in Ekmedjián v. Sofovich.1
By letter dated 27 June 2006, Argentina expressed the view that the matters raised by CMS in its letter of 19 June 2006 did not require any further response. It did, however, provide a copy of the Argentine regulations relating to the power of the Procurador del Tesoro de la Nación Argentina.
By letter dated 30 June 2006, CMS made further comments and submitted to the Committee relevant passages of the Argentine Constitution.
After considering the parties’ written and oral arguments on the matter and due deliberation, the Committee issued on 1 September 2006 its Decision on the Argentine Republic’s Request for a Continued Stay of Enforcement of the Award.
In its Decision, the Committee ordered that the stay of execution be continued pending its decision on Argentina’s application for annulment without the need for Argentina to provide a bank guarantee. In the Committee’s view, Argentina had demonstrated that CMS would not be prejudiced by the grant of a stay, other than in respect of the delay which is, however, incidental to the Convention system of annulment and which could be remedied by the payment of interest in the event the annulment application was unsuccessful.
In accordance with the timetable set forth by the Committee during the 5 June 2006 session, Argentina filed its Memorial on Annulment on 13 September 2006.
By letter dated 15 September 2006, the law firm of Mayer, Brown, Rowe and Maw LLP informed the Committee that it would no longer represent the Argentine Republic in this proceeding.
By letter dated 22 September 2006, CMS claimed that 48 of the 60 legal and factual authorities referred to in Argentina’s Memorial were missing. By letter dated 29 September 2006, the Argentine Republic responded, stating that the authorities referred to in CMS’ letter were in the public domain and easily available to the Claimant. The Argentine Republic noted that it did enclose with its Memorial the Argentine legal authorities cited, which would not be of easy access to non-Argentine lawyers.
Through letter from the Secretary of the Committee dated 12 October 2006, the Committee, noting that, in fact, the documents in question were publicly available, invited CMS to indicate, by 13 October 2006, which of the legal authorities Argentina referred to in its Memorial it would need to receive, and instructed Argentina to provide copies of such documents to counsel for CMS in Buenos Aires, by 18 October 2006. By letter dated 13 October 2006, counsel for CMS informed the Committee that they had been able to collect all of the legal authorities referred to in Argentina’s Memorial.
On 21 December 2006, CMS filed its Counter-Memorial on Annulment; the Argentine Republic filed its Reply on 22 January 2007, and CMS filed its Rejoinder on 22 February 2007.
After consultation with the parties, the President of the Committee held a preliminary organizational telephone conference call with counsel for both parties on 19 March 2007. The conference call was attended by Ms. Lucy Reed, Mr. Nigel Blackaby and Dr. Guido Santiago Tawil, on behalf of CMS and by Dr. Gabriel Bottini, on behalf of the Argentine Republic. During the conference call the parties agreed on the manner in which the hearing on annulment would be conducted. These agreements were reflected in a letter from the Secretary of the Committee to the parties dated 20 March 2007.
As agreed, a 2-day hearing was held at the World Bank offices in Paris on 27-28 March 2007, at which counsel for both parties presented their arguments and submissions, and responded to questions from the Members of the Committee. Present at the hearing were the Members of the Annulment Committee: Judge Gilbert Guillaume, Judge Nabil Elaraby and Professor James Crawford; the Secretary of the Committee: Mr. Gonzalo Flores; CMS’ representatives: Ms. Lucy Reed, Mr. Nigel Blackaby, Dr. Lluis Paradell, Mr. Reza Mohtashami and Ms. Daina Bray of Freshfields Bruckhaus Deringer LLP; Dr. Guido Santiago Tawil and Dr. Ignacio Minorini Lima of M. & M. Bomchil and Ms. Sharon Mcllnay and Mr. Thomas Miller of CMS Gas Transmission Company; and representatives of the Argentine Republic: Dr. Osvaldo César Guglielmlno, Procurador del Tesoro de la Nación Argentina, Dr. Gabriel Bottini, Dr. Ignacio Torterola, Dr. Jorge Barraguirre, Dr. Ignacio Perez Cortés, Dr. Diego Gosis, Dr. Verónica Lavista and Dr. Juan José Zurrro, from Argentina’s Procuración del Tesoro de la Nación and Professor Philippe Sands, QC and Ms. Alison MacDonald of Matrix Chambers.
The President of the Committee declared the proceeding closed on September 21, 2007. During the course of the proceedings, the Members of the Committee deliberated by various means of communication, including meetings in Paris on 15 May and 3 July 2007, and have taken into account all pleadings, documents and testimony before them.

B. The Dispute

In order to put an end to the economic crisis of the late 1980s, Argentina adopted in 1989 an economic recovery plan which included a privatization program of government-owned industries and public utilities. For that purpose, it enacted Reform of State Law N° 23,696 of August 1989, Currency Convertibility Law N° 23,928 of March 1991 and Decree N° 2,128/91 pegging the Argentine currency to the United States dollar.
Within this framework, Gas Law N° 24,076 of May 1992, implemented by various decrees, established the legal framework for the privatization of the gas industry and regulated the transport and distribution of natural gas. The Law established a new regulatory regime with ENARGAS, the public regulatory agency of the gas industry, supervising the proper functioning of the industry, and in particular determining the tariffs charged by the transporters to the distributors.
Gas del Estado, a national State-owned monopoly, was thus divided into two transportation companies and eight distributor companies to be privatized. Transportadora de Gas del Norte was one of the companies established as a result of this restructuring. In December 1992, TGN was granted a license to transport gas in Argentina through the operation of the North and Central West pipelines in conformity with Decree 2,255/92.
At the same time, Argentina sold 70% in TGN to a consortium of investors. It placed 5% in an Employee share program and retained 25%. This 25% was purchased in 1995 by CMS Gas Argentina, a wholly owned subsidiary of CMS Gas Transmission Company. In 1999, CMS Gas Argentina purchased from third parties a further 4.42% share in TGN.
As recalled by the Tribunal,2 in CMS’s view, under the regime established by those laws and decrees and by the license granted to TGN, tariffs were to be calculated in dollars, conversion to pesos to be effected at the time of billing and tariffs adjusted every six months in accordance with the United States Producer Price Index (US-PPI). As noted again by the Tribunal, Argentina had a different understanding of the nature and legal effects of those various instruments.
Towards the end of the 1990s a serious economic crisis began to unfold in Argentina. The representatives of the gas companies agreed twice, subject to certain conditions, in January 2000 and July 2000, to defer the US PII adjustment of the gas tariffs. However an Argentine court issued in August 2000 an injunction for the suspension of the second agreement and on several occasions ENARGAS later confirmed the continuing freeze of the US-PPI adjustment.
In late 2001, the crisis deepened and, on 6 January 2002, Law N° 25,561 declared a public emergency. Under that Law the right of licensees of public utilities to adjust tariffs according to the US PPI was terminated, as well as the calculation of tariffs in dollars. The tariffs were redenominated in pesos at the rate of one peso to one dollar.3
In July 2001, ICSID had already received from CMS a request for arbitration relating mainly to the decisions taken in August 2000 concerning the application of the PPI to tariffs of the gas industry. The arbitral tribunal was duly constituted in January 2002. In its memorial of July 2002, CMS extended its claim to cover the measures taken later by Argentina, and in particular those adopted in January 2002.
In sub-paragraphs 3 and 4 of its dispositif the Tribunal added:

"3. Upon payment of the compensation decided in this Award, the Claimant shall transfer to the Respondent the ownership of its shares in TGN upon payment by the Respondent of the additional sum of US$2,148,100. The Respondent shall have up to one year after the date this Award is dispatched to the parties to accept such transfer.

4. The respondent shall pay the Claimant simple interest at the annualized average rate of 2.51% of the United States Treasury Bills for the period August 18, 2000 to 60 days after the date of this Award, or the date of the effective payment if before, applicable to both the value loss suffered by the Claimant and the residual value of its shares established in 2 and 3 above. However, the interest on the residual value of the shares shall cease to run upon written notice by Argentina to the Claimant that it will not exercise its option to buy the Claimant’s shares in TGN. After the date indicated above, the rate shall be the arithmetic average of the six-month US Treasury Bills rates observed on the afore-mentioned date and every six months thereafter, compounded semi-annually".

The Tribunal specified that "[e]ach party shall pay one half of the arbitration costs and bear its own legal costs."7 It dismissed all other claims.

Argentina asks the Committee to annul this Award.

C. The Grounds for Annulment

Before entering into the examination of the case, the Committee will first recall the basis on which it must deal with the submissions of Argentina. Under Article 52 of the ICSID Convention, each Party may request annulment of an award on one or more of the following grounds:

"(a) that the Tribunal was not properly constituted;

(b) that the Tribunal has manifestly exceeded its powers;

(c) that there was corruption on the part of a member of the Tribunal;

(d) that there has been a serious departure from a fundamental rule of procedure; or

(e) that the award has failed to state the reasons on which it is based."

In the present case, Argentina identifies a large number of perceived defects in the Tribunal’s jurisdictional findings, in its findings relating to Articles II(2)(a), II(2)(c) and XI of the BIT and to necessity under customary international law, as well as in the calculation of the damages. It submits that the Award must be annulled because, on many of those grounds, the Tribunal manifestly exceeded its powers (Article 52(b)) or failed to state the reasons on which it based its decisions (Article 52(e)).
As Argentine noted, the present arbitration was the first of a long series relating to the Argentine crisis of 2001-2002. Accordingly the Committee will seek to clarify certain points of substance on which, in its view, the Tribunal made manifest errors of law. It remains to be seen, however, whether as a consequence the award should be annulled.

(a) Manifest excess of powers

In the present case, Argentina first submits that the Tribunal "manifestly exceeded its powers by exercising jurisdiction over claims by a company’s shareholder for income lost by the company."13 It also contends that it did so "by authorizing CMS, which was not a party to any of the applicable instruments, to claim a breach of obligations" under Article II(2)(c) of the treaty, the so-called "umbrella clause".14
Argentina further submits that the Tribunal manifestly exceeded its powers in transforming the "fair and equitable" and "umbrella" clauses of the BIT into strict liability provisions. According to Argentina, it did so also "by failing to give effect to Treaty Article XI".16 Moreover Argentina contends that the Tribunal manifestly exceeded its powers in rejecting Argentina’s defense of necessity under customary international law.17 More generally it submits that the Tribunal failed to apply the governing law.18

(b) Failure to state reasons

D. CMS’s Jus Standi

(a) The Award

The Tribunal analyzed the objections by Argentina to CMS’s jus standi in observing in its decision on jurisdiction that those objections raised two issues: "First... whether a shareholder can claim for its rights in a foreign company independently from the latter’s rights and, if so, whether these rights refer only to its status as shareholder or also to substantive rights connected with the legal and economic performance of its investment. Second... whether the Claimant satisfies the jurisdictional requirements of the Convention and the BIT",27 particularly whether the alleged dispute "arises directly from the investment".28
The Tribunal examined the first question under Argentine legislation, general international law, the ICSID Convention and the Argentina-United States BIT.29 It concluded that Argentine legislation was not relevant in this respect.30 It found "no bar in current international law to the concept of allowing claims by shareholders independently from those of the corporation concerned"31 It arrived at the same conclusion with respect to the ICSID Convention.32 Finally it decided that CMS had a "direct right of action" as shareholder under the BIT.33
Passing to the second point, the Tribunal reaffirmed that "the rights of the Claimant can be asserted independently from the rights of TGN and those relating to the License..."34 It added that "the Claimant has a separate cause of action under the Treaty in connection with the protected investment..."35 It concluded that the dispute arose directly from the investment.36
On both grounds the Tribunal decided that CMS had jus standi.

(b) The Parties’ submissions

Argentina submits that "the Tribunal lacked jurisdiction over the case because CMS was claiming compensation for alleged breaches of rights belonging not to it, but to TGN."37 In its view "the Tribunal manifestly exceeded its powers by exercising jurisdiction over claims by a company’s shareholder for income lost by the company."38
In this respect Argentina first contends that the Tribunal "erroneously affirmed the non-applicability of Argentine law in the jurisdictional phase."39 It notes that the Tribunal "nevertheless went on to refer to that law in its process of decision."40 It adds that in doing so, the Tribunal failed to apply the relevant provisions of Argentine law which specify the rights of shareholders.41
Criticizing the conclusions of the Tribunal under general international law, Argentina submits that

"in its process of decision, the Tribunal was trying to determine whether shareholders have a direct right of action, when it should have considered (and never did) whether CMS was invoking it own rights in the proceedings. In order to determine the latter, it is obviously material whether the investor is a party to a concession agreement or a license agreement with the host State. The Tribunal had limited jurisdiction over that part of the investment dispute that concerned CMS’ rights as shareholder; it did not have jurisdiction over any part of any investment dispute concerning the rights of the party to the concession agreement or License."42

Passing to the issue of jus standi under the ICSID Convention, Argentine underlines that, before the Tribunal, "CMS was concerned not with its rights as shareholder, but with the alleged ‘dismantling’ of a tariff regime that granted rights to TGN, not to CMS."43 According to Argentina, this was an "indirect claim" which clearly falls outside ICSID’s jurisdiction as attested by the travaux préparatoires and by Article 25(2)(b) of the ICSID Convention44
Argentina concludes that the Tribunal did not have the power to go beyond the "outer limits" of ICSID’s jurisdiction set out in Article 25 of the ICSID Convention, even if the 1991 BIT authorized it to do so (which Argentina does not accept).45 "If the Tribunal had followed the applicable rules of treaty interpretation, as reflected in the 1969 VCLT, it would have avoided the manifest excess into which it fell."46
CMS submits that, "[a]s the Tribunal correctly determined, national law is not ‘determinant’ in establishing the jus standi of CMS in the present case."47 It adds that the Tribunal’s holding with respect to Argentine law is obiter dicta. It affirms that "no part of CMS’s dispute concerned TGN’s contract rights as such. Conversely, all aspects of the dispute concerned CMS’s own rights as a protected investor" under the BIT and "as a betrayed investor in Argentina’s gas privatization."48 It states that "investment treaty case law overwhelmingly recognizes the right of action of shareholders to complain of acts prejudicial to their shareholding that may be directed at the company in which the shares are held."49 It adds that article 25(2)(b) of the ICSID Convention has "no impact upon the autonomous right of a shareholder in a company incorporated in the host State to pursue its own BIT claim independently from the local company."50 Thus the Tribunal correctly analyzed the claim and rightly decided that it had jurisdiction on all aspects of the dispute.

(c) The Committee’s view

E. Fair and Equitable Treatment

(a) The Award

CMS asserted before the Tribunal that Argentina had breached the provisions of Article II(2)(a) of the BIT according fair and equitable treatment to investments covered by the Treaty. The Tribunal stated that "a stable legal and business environment is an essential element of fair and equitable treatment"63 and observed that "[t]he measures that are complained of did in fact entirely transform and alter the legal and business environment under which the investment was decided and made."64 It concluded that those measures "resulted in the objective breach of the standard laid down in Article II(2)(a) of the Treaty."65

(b) The Parties’ submissions

(c) The Committee’s view

Passing to the dispute, the Tribunal referred to its previous findings about the tariff regime. It analyzed the general principles of Argentine law applicable in this respect, mentioning the Gaz de Bordeaux decision as a landmark decision which was at the origin of the theory of "imprévision"79 It added however that it did not need to look into general principles of law to find an answer as to how the contract in this case could have been adjusted to new economic realities.80 It observed that the pertinent mechanisms were embodied in the Law and the License itself and that those mechanisms had not been used.
The Tribunal concluded that "[t]he measures that are complained of did in fact entirely transform and alter the legal and business environment under which the investment was decided and made."81 It added that "the guarantees given in this connection under the legal framework and its various components were crucial for the investment decision."82 It concluded that Article II(2)(a) of the BIT had been breached.

F. The Umbrella Clause

(a) The Award

The Tribunal first recalled that according to CMS, the BIT had been breached by Argentina under Article II(2)(c) of the Treaty, which provides that each party "shall observe any obligation it may have entered into with regard to investments" (the so called "umbrella clause").87 The Tribunal stated that it "will not discuss the jurisdictional aspects involved in the Respondent’s argument, as these were dealt with in the decision on jurisdiction."88 It went on to decide that "the obligation under the umbrella clause of Article II(2)(c) of the Treaty had not been observed by the Respondent to the extent that legal and contractual obligations pertinent to the investment have been breached and have resulted in the violation of the standards of protection under the Treaty."89

(b) The Parties’ submissions

Argentina submits that neither the Republic of Argentina, nor any of its instrumentalities, assumed any obligation to CMS, apart from the provisions of the 1991 Treaty itself.90 Therefore CMS could invoke no obligation under Article II(2)(c) of the Treaty. It stresses that nonetheless the Tribunal authorized CMS to claim for a breach of obligations under the umbrella clause in a manifest excess of powers and without giving any reason.91
CMS submits that it did not claim for breach of TGN’s tariffs rights as such, but for breach of the assurances given it as regards the tariff regime resulting from "the legal instruments relating to the gas privatization, including the License" issued to TGN.92 Those assurances "constituted undertakings that Argentina was bound to observe under the Umbrella Clause."93 In the light of findings made in other parts of the award, the Tribunal rightly decided that Argentina did not observe its obligations under that Article. There is no manifest excess of powers and no lack of reasoning.94

(c) The Committee’s view

G. State of Necessity under Customary International Law and Article XI of the BIT

(a) The Award

The Tribunal recorded that "Argentina has contended in the alternative that in the event the Tribunal should come to the conclusion that there was a breach of the Treaty the Respondent should be exempted from liability in light of the existence of a state of necessity or state of emergency."104 Argentina invoked the existence of such a state under both customary international law and Article XI of the BIT. The Tribunal noted that in doing so, Argentina raised "one fundamental issue"105 which it examined under customary international law before doing so under the BIT.
The Tribunal considered that Article 25 of the Articles of the International Law Commission (ILC) on State Responsibility106 "adequately reflects the state of customary international law on the question of necessity."107 Under that article:

"1. Necessity may not be invoked by a State as a ground for precluding the wrongfulness of an act not in conformity with an international obligation of that State unless the act:

(a) is the only way for the State to safeguard an essential interest against a grave and imminent peril; and

(b) does not seriously impair an essential interest of the State or States towards which the obligation exists, or of the international community as a whole.

2. In any case, necessity may not be invoked by a State as a ground for precluding wrongfulness if:

(a) the international obligation in question excludes the possibility of invoking necessity; or

(b) the State has contributed to the situation of necessity."

The Tribunal then undertook the task of finding whether the Argentine crisis met the various requirements of Article 25. It expressed doubts as to whether "an essential interest" of the State was involved in the matter and whether there was in this case a "grave and imminent peril".108 It added that the measures taken by Argentina "were not the only steps available" to safeguard its interest and concluded that the conditions set out under paragraph 1(a) of Article 25 were not met.109
By contrast the Tribunal decided that neither an essential interest of the United States110 nor an essential interest of the international community as a whole111 had been seriously impaired by the measures taken by Argentina. Accordingly it stated that the plea of necessity would not be precluded by paragraph 1(b) of Article 25.112
Passing to paragraph 2 of that Article, the Tribunal examined whether the object and purpose of the BIT excluded necessity. It arrived to the conclusion that "the Argentine crisis was severe but did not result in total economic and social collapse"113 and that in such a situation the "Treaty will prevail over any plea of necessity."114
The Tribunal further observed that Argentina’s "government policies and their shortcomings significantly contributed to the crisis"115 and that consequently state of necessity was precluded by paragraph 2(b) of Article 25.
Finally the Tribunal observed that all the conditions governing necessity under Article 25 must be cumulatively satisfied.116 It concluded that "the requirements of necessity under customary international law have not been fully met so as to preclude the wrongfulness of the acts."117
Then the Tribunal noted that "[t]he discussion on necessity and emergency is not confined to customary international law as there are also specific provisions of the Treaty dealing with this matter."118 In this respect it first recalled that Article XI of the BIT provides:

"This treaty shall not preclude the application by either Party of measures necessary for the maintenance of public order, the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests."

In this respect the Tribunal first determined that "there is nothing in the context of customary international law or the object and purpose of the Treaty that could on its own exclude major economic crises from the scope of Article XI."119 It added that "[a]gain, the issue is then to establish how grave an economic crisis must be so as to qualify as an essential security interest, a matter discussed above."120
Then the Tribunal, in the light of a lengthy discussion of the question by the Parties and their experts, expressed the view that "the clause of Article XI of the Treaty is not a self-judging clause".121 Accordingly it decided that the judicial review it had to perform under that clause was a "substantive review".122

(b) Argentina’s submissions

Argentina recalls that before the Tribunal it relied both on Article XI of the BIT and on the doctrine of necessity reflected in Article 25 of the ILC’s Articles on State Responsibility. It adds "[i]t is self-evident that these arguments are related but juridically distinct."123 It stresses that "the Tribunal has conflated the Article XI argument and the necessity argument and failed to distinguish between treaty and customary claims."124 By treating these arguments as identical, the Tribunal "has fallen into fundamental error."125 It incorporated "into the interpretation and application of Article XI the approach imposed by the law of responsibility but without any explanation as to why that is the proper approach."126 In doing so it entirely failed to carry out the task of interpreting Article XI and ignored the language of that Article.
Argentina further contends that the Tribunal wrongly decided that Article XI is not "self-judging" and that it must proceed to a substantive review of the measures taken. It adds that having determined that Article XI required such a review, the Tribunal failed to carry it out, or at least to carry out the good faith review proposed by Argentina.127 Nowhere in the Award did the Tribunal carry out any "analysis of whether the measures in question had been... necessary to maintain public security and its essential security interests in the circumstances that prevailed."128
Argentina adds that the Tribunal also failed to state reasons for its rejection of Argentina’s defense of necessity under customary international law and that again on that point it manifestly exceeded its authority.129 In this regard, it recalls that "[t]he Tribunal rejected Argentina’s alternative defense of necessity under customary international law on the basis that two of the factors set forth in Article 25 of the ILC’S Draft Articles on State Responsibility were not satisfied: the measures were not the only steps available, and Argentina itself contributed to the crisis."130
According to Argentina, the Tribunal based its decision on the first point "on the mere existence of different opinions on issues of economic policy, without considering whether the other alternatives were feasible."131 Moreover it nowhere addressed the impact of either resorting to the adjustment mechanisms provided in the Gas Law and License, or taking no action in response to the emergency.132
Furthermore the Tribunal asserted that Argentina substantially contributed to the crisis in two ambiguous sentences without engaging into any real analysis of the alleged "shortcomings" in government policies.133

(c) CMS’ submissions

CMS submits that, contrary to what Argentina contends, the Tribunal did not manifestly exceed its powers and that there was no failure to state reasons. It stresses that "[t]o the extent there is any conflating of matters in connection with Article XI and necessity under customary international law, it is Argentina and not the Tribunal that is at fault"134 According to CMS the Tribunal considered both defenses step by step, separately, in the order in which Argentina pleaded them.135
CMS moreover contends that the Tribunal correctly rejected Argentina’s defense on necessity under customary international law in stating that Argentina’s measures were not the only steps available to it and that Argentina contributed to the crisis.136 It adds that the Committee has no authority under Article 52 of the ICSID Convention to reconsider the Tribunal’s findings of fact.137
CMS further notes that "after having already rejected Argentina’s defense under customary international law, and after having concluded that Article XI is not self-judging, the Tribunal correctly reverted to customary international law standards as applicable in an analysis of Article XI."138 "[H]aving found that Argentina had failed to satisfy the conditions for establishing that a state of necessity existed, there was no need for the Tribunal to duplicate the same analysis in connection with its review of Article XI."139 In any case a review of whether the Tribunal correctly interpreted or applied Article XI in its determination of Argentina’s defense is beyond the scope of the Committee’s mandate.140 "It is sufficient to note that the Tribunal did - step by step and methodically, whether rightly or wrongly - interpret and apply Article XI in light of customary international law and on the basis of the parties’ submissions."141

(d) The Committee’s view

The Committee will first deal with Argentina’s arguments relating to failure to

state reasons under Article 52(e) before examining its submissions based on manifest excess of powers under Article 52(b).

(i) Failure to state reasons

The Committee observes that, in Section D of the Award, the Tribunal dealt with Argentina’s defense based on state of necessity or emergency under customary international law before examining Article XI of the BIT.
With respect to the defense based on Article XI of the BIT, the Tribunal examined the Parties’ arguments and concluded first that "there is nothing in the context of customary international law or the object and purpose of the Treaty that could on its own exclude major economic crises from the scope of Article XI."142 Then it addressed the debate which the parties had chosen to engage in as to whether Article XI is self-judging. The Tribunal concluded that under Article XI it had the authority to proceed to a substantive review and that "it must examine whether the state of necessity or emergency meet the conditions laid down by customary international law and the treaty provisions and whether it thus is or is not able to preclude wrongfulness."143

(ii) Manifest excess of powers

H. Temporary Character of Necessity and Consequences for Compensation

(a) The Award

After having decided that the requirements of necessity under customary international law and Article XI of the BIT had not been met and having rejected Argentina’s defense in this respect, the Tribunal considered the consequences to be drawn for those conclusions as far as compensation was concerned. It recalled that under Article 27 of the ILC’s Articles on State Responsibility:

"The invocation of a circumstance precluding wrongfulness in accordance with this chapter is without prejudice to:

(a) compliance with the obligation in question, if and to the extent that the circumstance precluding wrongfulness no longer exists;

(b) the question of compensation for any material loss caused by the act in question."

The Tribunal declared itself "satisfied that Article 27 establishes the appropriate rule of international law on this issue."156 It added that "[e]ven if the plea of necessity were accepted, compliance with the obligation would reemerge as soon as the circumstance precluding wrongfulness no longer existed, which is the case at present."157 It concluded that "any suspension of the right to compensation is strictly temporary, and that this right is not extinguished by the crisis events."158

Passing to the determination of the compensation due, the Tribunal calculated it on the basis of the damages suffered by CMS from 2000 to 2027.159

(b) Argentina’s submissions

Argentina submits that Article 27 of the ILC’s Articles on State Responsibility "does not require the payment of compensation for measures subject to the defense of necessity."160 According to Argentina, this text only contemplates the possibility of such a compensation in certain cases and does not attempt to specify in which circumstances compensation could be payable. It adds that, in the present case, the matter is governed by Article XI of the BIT, which necessarily excludes compensation.161
Argentina moreover contests "the Tribunal’s view that the period of necessity was temporary"162 and contends that "The tribunal entirely failed to consider the possibility that the continuing stability following the crisis depended upon the continuation of precisely the type of measures at issue in the case before it... Furthermore, the Tribunal’s view that the period of necessity was temporary cannot be reconciled with its award of damages for harm allegedly incurred during the period of necessity."163
Thus, according to Argentina, the Award must on that point be annulled for manifest excess of power.

(c) CMS’ submissions

CMS submits that "Argentina’s requested review of the Tribunal’s finding as to the temporary nature of the emergency falls outside the Committee’s mandate for several reasons."164 In fact "[t]he Tribunal’s discussion of this issue constituted obiter dicta... and could not be identified as a manifest excess of power."165 Moreover "it is not open to the Committee to second-guess the factual findings of the Tribunal."166
CMS also contends that "the Tribunal’s consideration of Argentina’s obligation to pay compensation retroactively in the event of a state of necessity was obiter dicta, in light of the Tribunal’s prior rejection of Argentina’s defenses based on Article XI and customary international law."167 Moreover, on this point, the Award is consistent with both Parties’ positions before the Tribunal.

(d) The Committee’s view

In paragraphs 379 to 394 of the Award, the Tribunal analyzed Article 27 of the ILC’s Articles on State Responsibility concerning the temporary nature of necessity and the conditions under which compensation might be due even if necessity is established.
The Committee observes that Article 27 covers cases in which the state of necessity precludes wrongfulness under customary international law. In the present case, the Tribunal rejected Argentina’s defense based on state of necessity. Thus Article 27 was not applicable and the paragraphs relating to that Article were obiter dicta which could not have any bearing on the operative part of the Award.

I. Compensation

(a) The Award

The Tribunal, in the absence of an agreed form of restitution, determined in paragraphs 409 to 469 the amount of compensation due by Argentina to CMS. For that purpose it decided to resort to the standard of fair market value and to calculate that value in using the discounted cash flow method. It noted that the expert chosen by CMS was the only one who estimated the value loss suffered by CMS on its TGN’s shares. It took that estimation as a starting point, but appointed its own experts and in the light of their report modified on a number of points the initial estimation. After that modification, it arrived "at a DCF loss valuation of US$133.2 million for the Claimant on August 17, 2000, representing the compensation owed in that regard by the Respondent to the Claimant at that date".169 It decided that Argentina must pay that amount. It added that:

"Upon payment of the compensation decided in this Award, the Claimant shall transfer to the Respondent the ownership of its shares in TGN upon payment by the Respondent of the additional sum of US$2,148,100. The Respondent shall have up to one year after the date this Award is dispatched to the parties to accept such transfer."170

The Tribunal then fixed the interest to be paid.171

(b) The Parties’ submissions

Argentina submits that the Tribunal failed "to explain why a percentage of a value of the company should be the basis for granting compensation to a shareholder in a case where there has been no expropriation. The Award goes on to put this principle into practice without any adequate explanation for the figures chosen."172 Moreover, according to Argentina, the Tribunal contradicted itself in deciding that no expropriation had taken place and in using the standard of compensation applicable in case of expropriation.173 It made its calculation without giving the reasons of many of its assumptions. "[T]he Award provides no reasons for the conclusion that CMS - rather than simply TGN - had the right to calculate tariffs in dollars, obtain PPI tariff adjustments, and benefit from the purported stabilization clause in the License."174
CMS, for its part, stresses that the Tribunal highlighted its reasons for adopting the fair market value standard for a breach of Article II of the BIT and clearly explained the methodology it used for that purpose in the light of the various experts’ reports.175 Moreover, no contradiction can be noted in the Award, the substance of which cannot be reviewed by the Committee.176

(c) The Committee’s view

The Committee observes that the Award is one of the most detailed decisions on damages in ICSID case-law. Under the title "Remedies", the Tribunal considered the matter in 25 pages. It declared itself "persuaded that the cumulative nature of the breaches discussed here is best dealt with by resorting to the standard of [compensation known as the] fair market value."177 It specified that "[w]hile this standard figures prominently in respect of expropriation, it is not excluded that it might also be appropriate for breaches different from expropriation if their effect results in important long-term losses."178 In doing so, the Tribunal clearly explained its reasons and did not contradict its decision dismissing CMS’s claim of expropriation.
The Tribunal then listed the various methods which could be retained to calculate the fair market value and concluded for reasons given in paragraphs 411 to 417 of the Award that the discounted cash flow method (DCF) was the one "that should be retained."179
Passing to the evaluation of the damages, the Tribunal carefully examined the reports of the experts chosen by both parties, in the light of the report of its own experts. It used the "direct equity value" method to compute the value of the firm and its securities.180 Starting from the assumptions which were the basis of CMS’s expert report, it modified them on a number of points in specifying the reasons of each modification. In particular, it examined two different DCF scenarios: one in the "no regulatory change" context ("without pesification") and the other for the post-measures "new regulatory context" ("with pesification").181 This last scenario was to take into account the impact of Argentina’s crisis on TGN’s performance in the absence of the measures complained of by CMS. Thus and contrary to what is contented by Argentina this element was taken into consideration.
The Committee accordingly concludes that there was no lack of reasoning or contradiction in the reasoning with respect both to the standard of compensation retained by the Tribunal and to the calculation of damages made by it.

J. Conclusion

In the event Argentina’s application for annulment must be upheld as far as the umbrella clause is concerned. The other claims of Argentina are dismissed.

As a consequence the stay of enforcement maintained by the Decision of the Committee of September 1, 2006 is automatically lifted as from the date of the present Decision, in accordance with Arbitration Rule 54(3). Consequently, payment by Argentina of the sum awarded is again obligatory: see paragraph 15 above, and this reactivates the Award’s stipulation182 that, on payment of the amount due plus an additional US$2,148,100, CMS’ shares in TGN are to be transferred to Argentina. Pursuant to Article 44 of the ICSID Convention (as applied to annulment proceedings by Article 52(4)), the Committee decides that Argentina has 228 days from the date this Decision is dispatched to the Parties to accept the transfer of ownership of CMS’ shares in TGN, as provided for in sub-paragraph 3 of the dispositif to the Award.

K. Decision

For the foregoing reasons, the Committee decides:

(1) Sub-paragraph 1 of the dispositif of the Award is annulled as far as it provided that "The Respondent breached its obligations... to observe the obligations entered into with regard to the investment guaranteed in Article II(2)(c) of the Treaty."

(2) The other claims of the Argentine Republic are dismissed.

(3) Argentina has 228 days after the date this Decision is dispatched to the Parties to accept the transfer of ownership of CMS shares in TGN as provided for in sub-paragraph 3 of the dispositif to the Award.

(4) Each Party shall bear one half of the costs incurred by the Centre in connection with this annulment proceeding.

(5) Each Party shall bear its own costs of representation in connection with this annulment proceeding.

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