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Decision of the Tribunal on Objections to Jurisdiction

A. Procedure

On July 26, 2001, the International Centre for Settlement of Investment Disputes (ICSID or the Centre) received from CMS Gas Transmission Company (CMS), an entity incorporated in the United States of America, a Request for Arbitration against the Republic of Argentina (Argentina). The request concerns the alleged suspension by Argentina of a tariff adjustment formula for gas transportation applicable to an enterprise in which CMS has an investment. In its request, the Claimant invokes the provisions of the 1991 "Treaty between the United States of America and the Argentine Republic Concerning the Reciprocal Encouragement and Protection of Investment." (The Argentina-U.S. Bilateral Investment Treaty or BIT).1
On July 27, 2001, the Centre, in accordance with Rule 5 of the ICSID Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings (Institution Rules), acknowledged receipt and transmitted a copy of the request to Argentina and to the Argentine Embassy in Washington D.C.
On August 15, 2001, the Centre requested CMS to confirm that the dispute referred to in the request had not been submitted by CMS for resolution in accordance with any applicable, previously agreed, dispute-settlement procedure under Article VII(2)(b) of the BIT. On August 23, 2001, CMS confirmed that it had taken no such steps.
On August 24, 2001, the Secretary-General of the Centre registered the request pursuant to Article 36(3) of the ICSID Convention (the Convention). On this same date, the Secretary-General, in accordance with Institution Rule 7, notified the parties of the registration of the request and invited them to proceed to constitute an Arbitral Tribunal as soon as possible.
On August 30, 2001, the Centre reminded Argentina of the Claimant's proposal concerning the number of arbitrators and the method of their appointment. Under this proposal, contained in paragraph 60 of the request for arbitration, the Arbitral Tribunal would consist of three arbitrators, one arbitrator to be appointed by each party and the third, who would be President of the Tribunal, to be appointed by agreement of the parties.
On September 13, 2001, Argentina informed the Centre of its agreement to the proposal of CMS concerning the number of arbitrators and the method of their appointment. On the same date the Centre informed the parties that since their agreement on the number of arbitrators and method of their appointment was equivalent to the formula set forth in Article 37(2)(b) of the Convention, the parties were invited to follow the procedure set forth in Arbitration Rule 3 for the appointment of arbitrators.
On October 24, 2001 Argentina appointed Judge Francisco Rezek, a national of Brazil, as an arbitrator. On November 9, 2001, CMS appointed the Honorable Marc Lalonde P.C., O.C., Q.C., a national of Canada, as an arbitrator. The parties, however, failed to agree on the appointment of the third, presiding, arbitrator. In these circumstances, by letter of December 5, 2001, the Claimant requested that the third, presiding, arbitrator be appointed in accordance with Article 38 of the ICSID Convention.2
After consultation with the parties, Professor Francisco Orrego Vicuña, a national of Chile, was duly appointed as President of the Arbitral Tribunal. On January 11, 2002, the Secretary-General, in accordance with Rule 6(1) of the ICSID Rules of Procedure for Arbitration Proceedings (Arbitration Rules) notified the parties that all three arbitrators had accepted their appointments and that the Tribunal was therefore deemed to have been constituted on that date. On the same date, pursuant to ICSID Administrative and Financial Regulation 25, the parties were informed that Mr. Alejandro Escobar, Senior Counsel, ICSID, would serve as Secretary of the Arbitral Tribunal.
The first session of the Tribunal with the parties was held on February 4, 2002, at the seat of ICSID in Washington, D.C. At the session the parties expressed their agreement that the Tribunal had been properly constituted in accordance with the relevant provisions of the ICSID Convention and Arbitration Rules and that they did not have any objections in this respect.
During the course of the first session the parties agreed on a number of procedural matters reflected in written minutes signed by the President and the Secretary of the Tribunal. The Tribunal, after ascertaining the views of the parties on this matter, fixed the following time limits for the written phase of the proceedings: The Claimant would file a memorial within 120 days from the date of the first session; the Respondent would file a counter-memorial within 120 days of its receipt of the Claimant's memorial; the Claimant would file a reply within 60 days from its receipt of the counter-memorial; and the respondent would file its rejoinder within 60 days of its receipt of the reply. At the first session it was further agreed that in the event of the Respondent raising objections to jurisdiction, the following time limits would apply: the Respondent would file its reply on jurisdiction within 30 days from its receipt of the Claimant's counter-memorial on jurisdiction; and the Claimant would file its rejoinder on jurisdiction within 30 days from its receipt of the Respondent's reply on jurisdiction.
On 24 May 2002, the Claimant requested an extension till July 5, 2002 of the time limited fixed for the fixing of its memorial. On June 6, 2002, the Tribunal granted the extension thought by the Claimant. In doing so, the Tribunal noted that Argentina would be entitled to an equivalent extension if requested, of the time limit fixed for its counter-memorial.
On July 5, 2002, the Claimant filed its memorial on the merits and accompanying documentation. On August 5, 2002, Mrs. Margrete L. Stevens replaced Mr. Alejandro Escobar as Secretary of the Tribunal. On September 4, 2002, Argentina requested an extension till October 7, 2002, of the time limit fixed for filing of the memorial on jurisdiction. On September 11, 2002, the Tribunal granted the extension sought by Argentina. On October 7, 2002, Argentina filed its memorial on jurisdiction.
On October 24, 2002, following the Respondent's filing of objections to jurisdiction, the proceeding on the merits was suspended in accordance with ICSID Arbitration Rule 41(3).
On December 17, 2002, the Claimant submitted its counter-memorial on jurisdiction. On January 22, 2003, the parties requested an extension of 30 days for each of the remaining two jurisdictional filings. On January 27, 2003, the Tribunal granted the extensions, and fixed the time limit for the filing of the Respondents reply on jurisdiction for February 11, 2003; and the time limit for the filing of the Claimant's rejoinder on jurisdiction for March 25, 2003.
On February 13, 2003, the Respondent filed its reply on jurisdiction, and on March 25, 2003, the Claimant filed its rejoinder on jurisdiction.
On April 7-8, 2003, the hearing on jurisdiction was held at the seat of the Centre in Washington, D.C. Ms. Lucy Reed and Messrs. Nigel Blackaby, Jonathan Sutcliffe and Guido Tawil addressed the Tribunal on behalf of the Claimant. Mr. Ignacio Suarez Anzorena addressed the Tribunal on behalf of Argentina. The Tribunal posed questions to the parties, as provided in Rule 32(3) of the Arbitration Rules.
The Tribunal has deliberated and considered thoroughly the parties' written submissions on the question of jurisdiction and the oral arguments delivered in the course of the April 7-8, 2003 hearing. As mentioned above, the consideration of the merits has been postponed until the issue of the Centre's jurisdiction and the Tribunal's competence has been decided by the Tribunal. Having considered the basic facts of the dispute, the ICSID Convention and the 1991 Argentina-U.S. BIT, as well as the written and oral arguments of the parties' representatives, the Tribunal has reached the following decision on the question of jurisdiction.

B. Considerations Argentina's privatization program

Beginning in 1989, the Republic of Argentina undertook a broad program of privatization of State-owned companies and other activities,3 while at the same time it proceeded to peg the Argentine peso to the United States dollar and adopted other stabilization measures.4 Important aims of this program were to achieve currency stability, eliminate inflation and attract foreign investment.
Under the arrangements made for the privatization of this sector, tariffs were to be calculated in U.S. dollars and expressed in pesos at the exchange rate at the time of billing, and there were also to be adjusted semi-annually in accordance with the United States Producer Price Index ("PPI"). Following a major economic and financial crisis, the Republic of Argentina enacted, starting late 1999, various measures which had, in the Claimant's view, an adverse impact on its business and breached the guarantees which protected its investment in TGN. These measures later led to the devaluation of the currency and the adoption of additional financial and administrative measures also alleged to have an adverse impact on the investor.9
The Republic of Argentina does not share those views and believes the measures adopted have a meaning and extent different from what CMS claims. Moreover, the Republic of Argentina explains that many of these measures are transitory in nature, are currently being subject to renegotiation with investors in the privatization program and do not entail an expropriation of the investment made. The only guarantees made to CMS by the Republic of Argentina, it is further affirmed, were those established in the Terms of the License and these have not been breached.

Nature and limits of the jurisdictional decision

The dispute between the parties has been submitted to arbitration under the ICSID Convention pursuant to the Argentina-United States Bilateral Investment Treaty.10 Although many of the views expressed by the parties concern aspects relating to the merits of the dispute, the Tribunal has at this stage to decide only on aspects of jurisdiction. The discussion which follows relates of course only to the issues and facts pertinent to this particular case.

Measures of public interest and industry-specific measures distinguished

Both in the written pleadings and in the hearing, the Republic of Argentina raised, in connection with questions of admissibility, the concern that part of the claim by CMS is not related specifically to the gas industry but to measures of general economic policy affecting the country as a whole. The latter measures, it is further explained, are mainly those connected with the situation of economic, financial and social emergency which arose in late 2001 and early 2002 and which led to the adoption of changes in the exchange and monetary policy then in effect.
The Republic of Argentina specifically discusses in its presentations Decree 1570/01 dated December 1, 200111 and Law 25,561 of January 6, 2002, related to the public emergency and amendment of the exchanged system.12 This legislation brought to an end the regime of convertibility and parity of the Argentine peso with the United States dollar which had been enacted by Law 23,928 in effect since 1991.13 Most of the foreign and domestic investments in the public utilities sector were made under that regime in the 1990's. The new legislation also mandated the restructuring and renegotiation of public and private contracts made in foreign currency, extinguished the right of the licensees in the regulated public sector to link tariffs to U.S. price indices and redenominated rates and tariffs into pesos at the exchange rate of one peso per dollar. A process of renegotiation which is still under way followed the "pesification" and related measures. The Claimant believes that all such measures are not separate and distinct from the original dispute and form a single continuum. According to the Claimant, the aggregate of measures has significantly affected the value of its investment, a view which is disputed by the Republic of Argentina.

Objection to admissibility on the issue of the Claimant's jus standi

Corporate personality in Argentine legislation

Shareholder rights under general international law

Shareholder rights under the ICSID Convention

Shareholder rights under the Argentina-United States Bilateral Investment Treaty

Jurisdictional objection on the dispute not arising directly from investment

Jurisdictional objection on not following contractual dispute settlement

Jurisdictional objection on the "fork in the road" triggering

The issue did not pass unnoticed during the approval and ratification of the BIT. In the letter of submittal of the BIT to the United States Congress, the U.S. President explained:

"The bilateral investment treaty (BIT) with Argentina represents an important milestone in the BIT program. (...) Argentina, like many other Latin American countries, has long subscribed to the Calvo Doctrine, which requires that aliens submit disputes arising in a country to that country's local courts. The conclusion of this treaty, which contains an absolute right to international arbitration of investment disputes, removes U.S. investors from the restrictions of the Calvo Doctrine and should help pave the way for similar agreements with other Latin American states."52

Objections on assumed consequences

The Republic of Argentina has also expressed concern about some consequences which could arise from the finding of jurisdiction by this Tribunal. In particular, the following possible situations were mentioned: (i) TGN could come to a successful finalization of the negotiation process under way and, separately, an ICSID tribunal could reach a different conclusion; (ii) the eventual discrimination which could take place between domestic and foreign investors in TGN as only the latter have access to arbitration; and (iii) the eventual multiplication of international claims by investors of different nationalities and under separate treaties.
The Respondent also argues that it cannot be assumed that CMS is entitled to claim compensation in proportion to its 29.42% share in TGN because, if TGN were to be compensated for measures adopted by Argentina, there is no guarantee that such benefit would flow through to TGN's shareholders.
In the Claimant's views those considerations are not relevant to jurisdiction as it is quite inevitable that different treaty arrangements will assign rights to different investors and these rights most probably will be different from those of domestic investors. Moreover, CMS believes that the negotiation process is not likely to lead to a successful outcome. But, even it were, CMS affirms that it is not claims for TGN's losses but for its own loss in the investment venture.

The law applicable to jurisdiction determination

Objections to admissibility on the nature and number of disputes

Relationship between the original dispute and that submitted to arbitration

Two disputes or a single continuing dispute

Ancillary claims

Observance of consultation period

Discussion of additional assumed consequences

Jurisdiction affirmed

The Republic of Argentina has also raised a question of admissibility in connection with CMS's allegation that it suffered damage connected with the transfer of funds, since this claim has never been presented as a disputed issue under the BIT. However, as noted above, because CMS is not pursuing this claim, at least for the time being, the question of admissibility is rendered moot.
The Republic of Argentina has also requested that CMS provide evidence, in connection with Article I(2) of the BIT, that it is not controlled by nationals of a third country and that it has substantial business activities in the United States. Upon review of the submissions of the parties, the Tribunal concludes that CMS has provided such evidence and the record is abundantly clear on this matter.
The Tribunal wishes to note in concluding that counsel for both parties have performed their duties with outstanding professionalism and have at all times fully cooperated with the work of the Tribunal, an attitude for which they must be commended. Their respective arguments have been made in the spirit of professionalism and have raised questions of great importance for this case, ICSID arbitration and arbitration in general.

C. Decision

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