|Acronyms and Abbreviations|
|AC||Claimants' Annex; document submitted by the Claimants|
|Award||Award of 11 June 2012 in EDF International SA and Others v. Argentine Republic (ICSID ARB/03/23)|
|BIT||Bilateral investment treaty|
|Counter-Memorial||Claimants' Counter-Memorial on Annulment|
|Disqualification Decision||Decision of 25 June 2008 on the challenge to Professor Kaufmann-Kohler in EDF International SA and Others v. Argentine Republic (ICSID ARB/03/23)|
|ICSID, or the Centre||International Centre for the Settlement of Investment Disputes|
|ICSID Arbitration Rules||International Centre for the Settlement of Investment Disputes Rules of Procedure for Arbitration Proceedings (2006 version)|
|ICSID Convention||Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 1965|
|Jurisdiction Decision||Decision of 5 August 2008 on Jurisdiction in EDF International SA and Others v. Argentine Republic (ICSID ARB/03/23)|
|Memorial||Argentine Republic's Memorial on Annulment|
|RA||Respondent's Annex; document submitted by the Argentine Republic|
|Rejoinder||Argentine Republic's Rejoinder on Annulment|
|Reply||Claimants' Reply on Annulment|
- the ad hoc Committee : Sir Christopher Greenwood, President of the Committee; Professor Teresa Cheng and Professor Yasuhei Taniguchi, Members of the Committee; and Mrs. Anneliese Fleckenstein, Secretary of the Committee;
- for the Argentine Republic : Dr. Javier Pargament, Subprocurador del Tesoro de la Nación ; Dr. Gabriel Bottini; Mrs. María Alejandra Etchegorry and Soledad Romero Caporale, and Mr. Nicolás Duhalde from the Procuración del Tesoro de la Nación; and
- for the Claimants : Mr. Paolo Di Rosa, Ms. Mallory B. Silberman, Mr. Pedro G. Soto, Mr. Kelby Ballena (Legal Assistant) and Ms. Aimee Reilert (Legal Assistant) from Arnold & Porter LLP; and Mr. Jean-Paul Palma and Mrs. Isabelle Praud from EDF.
The Claimants maintained that the pre-emergency interference with their investment and the emergency measures constituted violations of the Argentina-France Agreement for the Promotion and Reciprocal Protection of Investments (the "Argentina-France BIT"), and, to the extent relevant (a matter considered below), the Mutual Investment Promotion and Protection Treaty between Argentina and the Belgium-Luxembourg Economic Union (the "Argentina-Luxembourg BIT"). The Claimants contended that the measures taken both before and during the emergency were arbitrary and discriminatory, that they constituted unfair and inequitable treatment, violated the requirement of full protection and security and amounted to indirect expropriation. In addition, the Claimants maintained that the failure to respect the commitments entered into in the Concession Agreement and by means of the regulatory framework of laws adopted by Argentina and Mendoza contravened the Most Favoured Nation ("MFN") clause in Article 4 of the Argentina-France BIT, because other BITs concluded by Argentina, notably those with Luxembourg and Germany, contained umbrella clauses making failure to comply with specific commitments entered into in connection with an investment a breach of treaty.
(i) the Claimants no longer owned any relevant investment after the sale of shares to IADESA; and
(ii) the Claimants lacked standing to present claims for injuries allegedly suffered by EDEMSA.
Argentina also denied that the claims were well-founded on the merits, asserting in particular that the emergency measures were necessary and legitimate responses to an acute economic emergency.
Argentina had also argued that, in accordance with the judgments of the International Court of Justice in the Barcelona Traction,12ELSI13 and Diallo14 cases, international law did not recognize any right for the shareholders in a company to maintain a claim in respect of a wrong allegedly done to the company. The Tribunal held that these judgments concerned the right of diplomatic protection by a State and were inapplicable to claims brought by investors in their own name under the terms of a bilateral investment treaty.15 In the present case, the Tribunal held, the terms of both the Argentina-France BIT and the Argentina-Luxembourg BIT were broad enough to cover indirect investments. It also stated that:
174. Finally, this Tribunal cannot ignore the common-sense meaning given to "investment". Holding shares in a company normally means ownership of an investment in the underlying economic activity conducted by that entity, directly or indirectly. Every day people speak of oil, mining or timber investments, even though ownership resides in shares rather than rigs, gold deposits or forests. Stock in a bank might be said to implicate an investment in the financial services industry, when in fact the ownership relates to corporate securities of a distinct legal person, which in turn owns a loan portfolio and the bricks and mortar of a vault or building. To use language in any other way would create an artificial formalism unworthy of a living legal system.
175. In short, for treaty-based investment arbitration, the concept of investment must be understood to include the underlying business represented by the shares of the investment vehicle. Otherwise, an expropriation which left an empty corporate shell would never be compensable.
Claimant León is said to be an assignee of the investment made in Argentina by its French parent company, Crédit Lyonnais, and hence has standing to file arbitrations under the Argentina-France BIT. See Amended Request footnote 1. Nevertheless, to the extent its Luxembourgian corporate nationality is found to preclude standing, León invokes provisions of the Agreement between the Government of Argentina and the Belgian/Luxembourg Economic Union for the Promotion and Reciprocal Protection of Investments, signed on 28 June 1990 and which entered into force on 20 May 1993 ("Argentina-Luxembourg BIT").19
The Tribunal subsequently concluded that the case should be decided exclusively on the basis of the Argentina-France BIT and that it was unnecessary to refer to the Argentina-Luxembourg BIT, save in respect of the argument based on the MFN clause in the Argentina- France BIT.20
This does not mean that all contractual breaches necessarily rise to the level of treaty violation. However, the serious repudiation of concession obligations implicated by failure to respect the currency clause... must clearly be seen as a violation of "commitments... undertaken with respect to investors" (Article 10(2) Argentina-Luxembourg BIT) and "a commitment undertaken in connection with the investments made by nationals or companies from the other Contracting Party". (Article 7(2) Argentina-Germany BIT).24
Either party may request annulment of the award by an application in writing addressed to the Secretary-General 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.
(a) that UBS had listed EDF, the parent company of EDFI, as one of the companies in which it recommended investment;78
(b) that UBS and EDF had common interests in AEM Milan, an Italian company which was controlled by EDF through a subsidiary;79
(c) that UBS and EDF both held shares in Motor Columbus, a Swiss company,80 although the 20 December 2007 letter from UBS made clear that UBS had disposed of its shareholding in Motor Columbus before Professor Kaufmann-Kohler became a UBS director;
(d) that in October 2005 EDF and the French State had entered into an agreement with a group of financial institutions which included UBS in connection with a share offer in the French financial market;81 and
(e) that the UBS Foundation listed EDF securities as part of its portfolio.82
The facts asserted by Respondent give no reason to suppose that Professor Kaufmann-Kohler would be biased in favour of Claimants. Her position as a non-executive director at UBS gives her no financial interest in any of the Claimant companies. Nor would she benefit in any way from an award in favour of Claimants.86
The remaining members of the Tribunal considered whether Professor Kaufmann-Kohler might favour the Claimants on the ground that a victory for them might result in some benefit to UBS "an entity with which Professor Kaufmann-Kohler feels a sense of emotional solidarity and psychological identification by virtue of her position"87 but concluded that:
While the prospect of such subconscious influence can never be completely excluded, the possibility remains remote, tenuous and speculative. The outcome of this arbitration cannot be expected to have any material impact on the fortunes of UBS. Just as de minimis would be the effect on Professor Kaufmann-Kohler's psychological, social or economic well-being.88
As to the basic issue of the compatibility of a directorship in a major international bank and the function of international arbitrator, Professor Wolfram, strongly supported by Professor Mistelis during the hearing, makes the obvious point that a director in the exercise of his or her function is under a fiduciary duty vis-à-vis the shareholders of the bank to further the interests of the bank and therefore postpone [sic] conflicting interests.
That is fundamentally at variance with his or her duty as independent arbitrator in an arbitration involving a party in which the bank has a shareholding or other interest, however small it may be. Since a major international bank has connections with or an interest in virtually any major international company (which companies are also the most likely to end up in international arbitrations), this suggests that the positions of a director of such a bank, and that of an international arbitrator, may not be compatible and should not be, or in a modern international arbitration environment, should no longer be combined.104
The ad hoc Committee thus understands the argument that the... Tribunal was no longer properly constituted after the board appointment of Professor Kaufmann-Kohler, and that there was a serious departure from a fundamental rule of procedure and considers that this could lead to annulment whenever justified within the context of the case under consideration.105
Persons designated to serve on the Panels shall be persons of high moral character and recognized competence in the fields of law, commerce, industry or finance, who may be relied upon to exercise independent judgment. Competence in the field of law shall be of particular importance in the case of persons on the Panel of Arbitrators. (Emphasis added.)
Although that provision deals with the qualifications which must be possessed by persons appointed to the Panel of Arbitrators137 maintained by ICSID in accordance with Articles 12 and 13 of the Convention, Article 40(2) requires that "arbitrators appointed from outside the Panel of Arbitrators shall possess the qualities stated in paragraph (1) of Article 14".
The standard of appraisal of a challenge set forth in Article 57 of the Convention may be seen to have two constituent elements: (a) there must be a fact or facts (b) which are of such a nature as to ‘indicat[e] a manifest lack of the qualities required by' Article 14(1). The party challenging an arbitrator must establish facts, of a kind or character as reasonably to give rise to the inference that the person challenged clearly may not be relied upon to exercise independent judgment in the particular case where the challenge is made. The first requisite that facts must be established by the party proposing disqualification, is in effect a prescription that mere speculation or inference cannot be a substitute for such facts. The second requisite of course essentially consists of an inference, but that inference must rest upon, or be anchored to, the facts established. An arbitrator cannot, under Article 57 of the Convention, be successfully challenged as a result of inferences which themselves rest merely on other inferences.145
A party may propose to a Commission or Tribunal the disqualification of any of its members on account of any fact indicating a manifest lack of the qualities required by paragraph (1) of Article 14.
That provision has to be read together with Article 58, which states that:
The decision on any proposal to disqualify a conciliator or arbitrator shall be taken by the other members of the Commission or Tribunal as the case may be, provided that where those members are equally divided, or in the case of a proposal to disqualify a sole arbitrator, or a majority of the conciliators or arbitrators, the Chairman shall take that decision. If it is decided that the proposal is well-founded the conciliator or arbitrator to whom the decision relates shall be replaced in accordance with the provisions of Section 2 of Chapter III or Section 2 of Chapter IV.
(a) with regard to the fact that UBS recommended EDF, the parent company of EDFI, as a good investment opportunity, they noted that this gave Professor Kaufmann-Kohler no direct incentive to favour EDFI and concluded that "the connection remains speculative and indirect, and thus not determinative for the purposes of this challenge".164 They considered, however, that "a different conclusion might be indicated if an arbitrator held a substantial equity stake in a bank which owned and actively promoted a company that was party to the relevant proceedings".165
(b) with regard to the fact that UBS and a subsidiary of EDF both held shares in AEM Milan, they noted that UBS's stake in AEM was below 1.5% and was held in the ordinary course of its business activity as one of the largest banks in the world. They did not consider that it could affect the independence of Professor Kaufmann-Kohler.166
(c) they reached a similar conclusion with regard to the fact that UBS and EDF had both held shares in Motor Columbus,167 a conclusion which was reinforced by the fact that UBS had sold its shareholding before Professor Kaufmann-Kohler became a director.168
(d) with regard to the involvement of UBS in a consortium that assisted in the placement of EDF shares on the French market, they noted that UBS had not itself bought shares in the course of this placement and concluded that "we are unable to perceive any link between that consortium's activity and the way Professor Kaufmann-Kohler will evaluate the issues in this case".169
(e) it was the fact that the UBS Investment Foundation held an investment in EDF that the remaining members of the Tribunal considered "stands on a somewhat different footing from Respondent's other arguments". They noted, however, that the Foundation is an institution for the collective investment of assets by Swiss pension funds. Ultimately, the assets of the Foundation will benefit the various Swiss pension funds that have joined in the institutions which participate in the Foundation.170
They also noted that the total investment in EDF fell below 1.5%. Even had the investment in EDF been held by UBS itself, Professors Park and Remón considered that "a stake of less than 1.5% would not be significant enough to have an impact on the independence of Professor Kaufmann-Kohler."171
With respect to the alleged failure to disclose, we cannot accept that nondisclosure of the Board membership indicates a manifest lack of reliability in the exercise of independent judgment, the standard to be applied in this challenge. Whatever level of disclosure might be required under the ICSID Convention, a failure to inform the parties about this Board membership does not rise to that plane.172
Each relationship was different and must, like the relationship between UBS and Vivendi, be considered individually. Notably, a larger or smaller participation of UBS in the one or in the other company may have relevance in this connection. (Emphasis added)176
The Tribunal in the present case also considered that the size of an investment might be important in this regard.177
Since a major international bank has connections with or an interest in virtually any major international company (which companies are also the most likely to end up in international arbitrations), this suggests that the positions of a director of such a bank, and that of an international arbitrator, may not be compatible and should not be, or in a modern international arbitration environment, should no longer be combined.179
But the fact of an alleged connection between a party and an arbitrator in and of itself is not sufficient to establish a fact that would establish a manifest lack of that arbitrator's impartiality and independence. Arbitrators are not disembodied spirits dwelling on Mars who descend to earth to arbitrate a case and then immediately return to their Martian retreat to await inertly the call to arbitrate another. Like other professionals living and working in the world, arbitrators have a variety of complex connections with all sorts of persons and institutions.184
"an arbitrator cannot, under Article 57 of the Convention, be successfully challenged as a result of inferences which themselves rest merely on other inferences".194
... in the context of its mandate under the Argentine-France BIT, the terms of that treaty provide the lodestar for decision. It may well be that a national court deciding analogous issues would come to a different conclusion. However, in the present dispute the BIT supplies the primary foundation and framework for the Tribunal's consideration of investor protection.198
The third aspect of the Award challenged under this heading is the Tribunal's conclusion that, in its Jurisdictional Decision, it had "laid down no general requirement of discrimination as a basis for liability under relevant treaty provisions".199
An ad hoc committee will not therefore annul an award if the tribunal's disposition on a question of law is tenable, even if the committee considers it incorrect as a matter of law. The existence of a manifest excess of powers can only be assessed by an ad hoc committee in consideration of the factual and legal elements upon which the arbitral tribunal founded its decision and/or award based on the parties' submissions. Without reopening debates on questions of fact, a committee can take into account the facts of the case as they were in the record before the tribunal to check whether it could come to its solution, however debatable. Is the opinion of the tribunal so untenable that it cannot be supported by reasonable arguments? A debatable solution is not amenable to annulment, since the excess of powers would not then be "manifest".213
The Committee agrees with this analysis. It notes also that the Duke Committee stated that -
No distinction is to be drawn in this regard between the standard to be applied to determining an excess of power based on alleged excess of jurisdiction and any other excess of power. In both cases, the excess must be manifest.214
A greater source of concern is perhaps the ground of "failure to state reasons", which is not qualified by any such phrase as "manifestly" or "serious". However, it is well accepted both in the cases and the literature that Article 52(1)(e) concerns a failure to state any reasons with respect to all or part of an award, not the failure to state correct or convincing reasons. It bears repeating that an ad hoc committee is not a court of appeal. Provided that the reasons given by a tribunal can be followed and relate to the issues that were before the tribunal, their correctness is beside the point in terms of Article 52(1)(e). Moreover, reasons may be stated succinctly or at length, and different legal traditions differ in their modes of expressing reasons. Tribunals must be allowed a degree of discretion as to the way in which they express their reasoning.
In the Committee's view, annulment under Article 52(1)(e) should only occur in a clear case. This entails two conditions: first, the failure to state reasons must leave the decision on a particular point essentially lacking in any expressed rationale; and second, that point must itself be necessary to the tribunal's decision. It is frequently said that contradictory reasons cancel each other out, and indeed, if reasons are genuinely contradictory so they might. However, tribunals must often struggle to balance conflicting considerations, and an ad hoc committee should be careful not to discern contradiction when what is actually expressed in a tribunal's reasons could more truly be said to be but a reflection of such conflicting considerations.215
The ground for annulment of Article 52(1)(e) does not allow any review of the challenged award which would lead the ad hoc committee to reconsider whether the reasons underlying the tribunal's decisions were appropriate or not, convincing or not. As stated by the ad hoc committee in MINE, this ground for annulment refers to a "minimum requirement" only. This requirement is based on the tribunal's duty to identify, and to let the parties know, the factual and legal premises leading the tribunal to its decision. If such a sequence of reasons has been given by the tribunal, there is no room left for a request for annulment under Article 52(1)(e).
Neither Article 48(3) nor Article 52(1)(e) specify the manner in which the Tribunal's reasons are to be stated. The object of both provisions is to ensure that the parties will be able to understand the tribunal's reasoning. This goal does not require that each reason be stated expressly. The tribunal's reasons may be implicit in the consideration and conclusions contained in the award, provided they can be reasonably inferred from the terms used in the decision.216
... a tribunal has a duty to deal with each of the questions (" pretensions ") submitted to it, but it is not required to comment on all arguments of the parties in relation to each of those questions. Similarly, the Committee considers that the tribunal is required only to give reasons for its decision in respect of each of the questions. This requires the tribunal to state its pertinent findings of fact, its pertinent findings as to the applicable legal principles, and its conclusions in respect of the application of the law to the facts. If the tribunal has done this, the award will not be annulled on the basis that the tribunal could have given more detailed reasons and analysis for its findings of fact or law, or that the tribunal did not expressly state its evaluation in respect of each individual item of evidence or each individual legal authority or legal provision relied on by the parties, or did not expressly state a view on every single legal and factual issue raised by the parties in the course of the proceedings. The tribunal is required to state reasons for its decision, but not necessarily reasons for its reasons.217
"affirmative defense, asserted exclusively against Claimant León, namely that Article 3(2) of the Argentina-Luxembourg BIT applies to expressly exempt Argentina from any liability which might result from "...measures necessary to maintain public order".222
Had the Tribunal decided to grant relief on the basis of Article 3(2) of the Argentina-Luxembourg BIT, then the "public order" defense of that provision might have had consequences. Such is not the case, however.224
Claimant León is said to be an assignee of the investment made in Argentina by its French parent company, Crédit Lyonnais, and hence, has standing to file arbitrations under the Argentina-France BIT. See Amended Request footnote 1. Nevertheless, to the extent its Luxembourgian corporate nationality is found to preclude standing, León invokes the provisions of the [Argentina-Luxembourg BIT].232
884. The Tribunal notes that Claimants do not base their substantive request for relief on the Argentina-Luxembourg BIT, except to the extent of provisions that might be incorporated by reason of the Most Favored Nation clause in the Argentina-France BIT. See Claimants' Post-Hearing Brief on the Merits at paragraph 59.
885. While Claimants did invoke the Argentina-Luxembourg BIT in their Request for Arbitration, as well as certain subsequent pleadings, they did so only insofar as that BIT might have been relevant to claims by León. Claimant [sic] further noted that the relevant interests were held at the outset entirely by French companies.
886. At present, French investors again own all of the shares considered by the Tribunal in its findings of liability and quantum, including any which for a time were owned by León. Crédit Lyonnais (incorporated in France) was the initial owner of the relevant shares which were subsequently transferred to León, its wholly-owned subsidiary. Ultimately, those shares were acquired by EDFI, a French investor which now possesses all relevant rights. See Claimants' PostHearing Brief on the Merits, paragraphs 59-60.
887. Accordingly, Claimants' claims may be decided solely on the basis of the Argentina-France BIT.239
Respondent has breached its obligations to (i) respect specific commitments undertaken in connection with Claimants' investment and (ii) afford Claimants Fair and Equitable Treatment with respect to their investment.
The Committee is not persuaded by the Claimants' argument that this paragraph was not declaratory relief but "really just articulation of the conclusion by the Tribunal that Argentina had violated the BIT" and that "it didn't actually confer any relief as such".241 The form of the paragraph and its place in the dispositif means that it cannot be dismissed so readily. Moreover, the Claimants' Reply on the Merits in the proceedings before the Tribunal had concluded with a section entitled "Claimants' Request for Relief" which expressly requested that the Tribunal make the determination which appeared at paragraph I of the dispositif242 and the Award duly recited that request.243
The term "investors" means:
c) artificial persons effectively controlled directly or indirectly by... artificial persons having their seat in the territory of either of the Contracting Parties and constituted in accordance with its legislation.
The Committee considers that this provision encompasses León, because it was effectively controlled at the time of the Amended Request by Crédit Lyonnais and subsequently by EDFI, both of which were companies constituted under the law of France and having their seats in France.
The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be available.248
Article 8(4) of the Argentine-France BIT provides -
The arbitration organization shall rule based on the provisions of this Agreement, on the laws of the Contracting Party that is a party to the dispute -including rules relating to the conflicts of laws - and on the terms of any special agreements made in connection with the investment, and on the principles of international law on the subject.
The authentic texts are as follows -
L'organe d'arbitrage statuera, sur la base des dispositions du présent Accord, du droit de la Partie contractante partie au différend - y compris les règles relatives au conflits de loi -, des termes des accords particuliers éventuels qui auraient été conclus au sujet de l'investissement ainsi que des principes de droit international en la matière.
El órgano arbitral decidirá en base a las disposiciones del presente Acuerdo, al derecho de la Parte Contratante que sea parte en la controversia - incluidas las normas relativas a conflictos de leyes - y a los términos de eventuales acuerdos particulares concluidos con relación a la inversión como así también a los principios del Derecho Internacional en la materia.
While the English translation may be a little inelegant (e.g. in using "laws", rather than "law" as the translation of "droit" and "derecho"), in substance there is no difference between these texts.
To establish treaty breaches, Claimants must prove that Respondent's enactment and implementation of the Emergency Measures constituted discriminatory behaviour as defined in the French and Luxembourg investment treaties. The Tribunal would need to examine inter alia Respondent's motives and the impact of the Emergency Measures, and whether they constituted an attempt to deprive Claimants of their rights simply because they were foreign investors.
916. When read in context, the quoted language does not require discrimination as a necessary pre-requisite to recovery. Rather, the relevant language addressed Respondent's jurisdictional objection pursuant to Article 25(1) of the ICSID Convention.
917. In that connection, the Tribunal had to consider whether Claimants had demonstrated prima facie that the present dispute bore a direct relationship to their investments. Decision on Jurisdiction of August 5, 2008, at paragraph 142.
918. In finding that such a relationship existed, and for that purpose alone, the Tribunal noted Claimants' allegation about a pattern of discriminatory conduct.
919. The Tribunal went on to say that the Respondent would be given an opportunity to test such contentions, with Claimants bearing the burden of proving the alleged discrimination.
920. The Tribunal laid down no general requirement of discrimination as a basis for liability under relevant treaty provisions, but simply stated that any allegations of treaty breach based on discrimination would need to be proven by Claimants.
(1) the Tribunal's failure to apply Article 3(2) of the Argentina-Luxembourg BIT306 which the Tribunal acknowledged "might have had consequences"307 had the Tribunal found the Argentina-Luxembourg BIT applicable;
(2) the Tribunal's failure to apply Article 5(3) of the Argentina-France BIT,308 which Argentina maintains afforded it a defence; and
(3) the Tribunal's handling of Argentina's defence based upon customary international law principles regarding the state of necessity.
Investors of one Contracting Party whose investments have suffered losses owing to war or any other armed conflict, revolution, state of national emergency, or rebellion occurring in the territory or in the maritime zone of the other Contracting Party shall be accorded by the latter Contracting Party treatment no less favourable than that granted to its own investors or to those of the most favoured Nation.
Although there appears to be no ground for criticism of this translation, the importance of the provision makes it useful also to quote the official French and Spanish texts of Article 5(3), which provide:
Les investisseurs de l'une des Parties contractantes dont les investissements auront subi des pertes dues à la guerre ou à tout autre conflit armé, révolution, état d'urgence nationale ou révolte survenu sur le territoire ou dans la zone maritime de l'autre Partie contractante, bénéficient, de la parte de cette dernière, d'un traitement non moins favourable que celui accordé à ses propres investisseurs ou à ceux de la nation la plus favorisée.
Los inversores de una Parte Contratante cuyas inversiones hubiesen sufrido pérdidas a causa de una guerra o de cualquier otro conflicto armado, revolución, estado de emergencia nacional o rebelión ocurrido en el territorio o en la zona marítima de la otra Parte Contratante, recibirán de esta última un tratamiento no menos favorable que el acordado a sus propios inversores o a los de la Nación más favorable.
The plain language of Article 5(3) makes clear that it serves as a nondiscrimination provision, not a shield against host State liability for treaty violation.311
This Treaty shall not preclude the application by either Party of measures necessary for the maintenance of public order, the fulfilment of its obligations with respect to the maintenance or restoration of international peace or security, or the Protection of its own essential security interests.
This provision was at the heart of the awards in Continental Casualty Company v. Argentine Republic318 and LG&E v. Argentine Republic,319 in which tribunals assessing Argentina's emergency measures against the yardstick of the Argentina-USA BIT held that Argentina was relieved of its liability in respect of those measures by virtue of the provisions of Article XI. The Tribunal in the present case held that "the substance of Article 5(3) bears no resemblance to Article XI of the Argentina-US BIT".320 Argentina maintains, however, that it did not argue that Article 5(3) and Article XI were analogous but referred to the Continental Casualty and LG&E awards in order to draw similarities with the factual assumptions analysed in those cases.321
(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 means 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 noted that the question how far the provisions of Article 25 codified customary international law was a subject of debate322 but considered it did not need to enter into that debate, because
... both sides in this arbitration stipulate that the Tribunal's analysis should take as applicable legal norms the State of Necessity defense presented by the contours articulated in ILC Article 25. Neither side has argued for application of a standard more favorable to host states than the norms of Article 25.323
The Committee recalls, once more, that it has only a limited jurisdiction under Article 52 of the ICSID Convention. In the circumstances, the Committee cannot simply substitute its own view of the law and its own appreciation of the facts for those of the Tribunal. Notwithstanding the identified errors and lacunas in the Award, it is the case in the end that the Tribunal applied Article XI of the Treaty. Although applying it cryptically and defectively, it applied it. There is accordingly no manifest excess of powers.346
It is not for the Committee in these annulment proceedings to provide answers to these questions. It was however necessary for the Tribunal, either expressly or sub silentio, to decide or assume the answers in order to apply the ‘only way' provision of Article 25(1)(a) to the facts of the case.353
The Enron Committee considered that the tribunal had placed too much reliance on the report of an economic expert whose view could not be said to have been an analysis of whether other means were open to Argentina as a matter of law. The Enron Committee accepted that the parties had not identified these issues in their pleadings but nevertheless stated that "the Tribunal is required to apply the applicable law, and is required to state sufficient reasons for its decision".354
The Tribunal nowhere states expressly that it finds the requirement in Article 25(1)(b) of the ILC not to be satisfied in this case. The Committee considers it unclear whether the Tribunal ultimately did make such a finding or not. To the extent that the Tribunal did make such a finding, the Committee considers that it is entirely unclear on what basis that finding of law was made.356
It may well be that different interpretations of this provision are possible. However,... it is not for the Committee to determine whether or not the interpretation given to this provision by the Tribunal was correct or not. Whether it did so correctly or not, the Tribunal applied this provision as part of the applicable law.373
There is no doubt that the ILC Draft takes from customary law the state of necessity institute. However, international custom does not make such a detailed statement as to the requirements or exceptions of such cause which excludes illegality, as it appears in each of the paragraphs which constitute the ILC articles.380
... the discussion between the Parties as to whether the state of necessity can be applied as a principle of customary international law seems to be limited to knowing: (a) whether the measures were necessary; (b) whether the Argentine Republic did not "substantially" contribute to cause the crisis; (c) whether those measures were the only suitable means.382
Those are precisely the key issues under Article 25. The Committee therefore concludes that the Tribunal was correct in stating that "neither side has argued for application of a standard more favorable to host states than the norms of Article 25" and committed no annullable error in treating Article 25 as a statement of the applicable customary international law.
Necessity must be construed strictly and objectively, not as an easy escape hatch for host states wishing to avoid treaty obligations which prove difficult. In this connection, [Argentina] has failed to meet its burden to demonstrate three key elements of ILC Articles 25 and 27: (i) that the wrongful act was the only way to safeguard Argentina's essential interest under Article 25(1)(a); (ii) that [Argentina] did not contribute to the situation of necessity; and (iii) that [Argentina did not return to the status quo when possible, or compensate Claimants for damage suffered as a result of the relevant measures.383