On August 7, 2002, the parties agreed that the Arbitral Tribunal would consist of three arbitrators, one arbitrator to be appointed by each party and the third, who shall serve as the President of the Tribunal, to be appointed by the agreement of the parties. The Claimant appointed Judge Charles N. Brower, a U.S. national, and the Respondent appointed Professor Domingo Bello Janeiro, a Spanish national. However, the parties failed to agree on the appointment of the third, presiding arbitrator. On October 21, 2002, the Claimant requested that the third, presiding arbitrator be appointed in accordance with Article 38 of the Convention and Rule 4 of the ICSID Rules of Procedure for Arbitration Proceedings ("Arbitration Rules").
As previously decided by the Tribunal, the hearing on jurisdiction took place in Washington, D.C. on February 3 and 4, 2004. At the hearing, the Claimant was represented by Mr. Guido Santiago Tawil, Mr. Peter Gnam, Mr. Stephan Signer and Ms. María Inés Corra. Messrs. Tawil and Gnam addressed the Tribunal on behalf of the Claimant. The Respondent was represented by Ms. Andrea Gualde, Ms. Ana Badillos, and Mr. Jorge Barraguirre from the Procuración del Tesoro de la Nación Argentina, as well as by Messrs. Osvaldo Síseles from the Ministerio de Economía, and Mr. Roberto Hermida from the Embassy of Argentina in Washington, D.C. Ms. Gualde and Mr. Barraguirre addressed the Tribunal on behalf of the Respondent. During the hearing, the Tribunal also questioned to the parties in accordance with Arbitration Rule 32(3).
On December 1, 2004, the Respondent filed an application to disqualify the President of the Tribunal under Article 57 of the Convention. On December 7, 2004, in accordance with Arbitration Rule 9(6), the two coarbitrators informed the parties that the proceedings were suspended and that the schedule for the parties’ submissions and the date for the hearing on the merits were to be maintained.
On March 10, 2005, the Secretariat sent the parties Judge Brower’s and Professor Bello Janeiro’s separate opinions concerning Argentina’s proposal for disqualification. In accordance with Arbitration Rule 9, the proceeding was to remain suspended pending a decision on the disqualification proposal, and, therefore, the date for the hearing on the merits was postponed indefinitely. In addition, the 15-day extension requested by the Respondent to file its Rejoinder was granted, which was then to be filed no later than March 29, 2005.
On April 8, 2005, the parties were informed that the PCA would not hold a hearing with the parties, as requested by Argentina, but that it had agreed to receive any additional written information from the parties, besides that already filed by them and provided by ICSID to the PCA. Accordingly, the parties were informed on April 11, 2005, that considering Argentina’s intention to send such additional information, the decision by the Secretary-General of the PCA on the disqualification proposal was postponed until April 15, 2005. On such a date, the Secretary-General of the PCA sent his recommendation to ICSID. Based on that recommendation, the Secretary-General of ICSID informed the parties on April 15, 2005 that the disqualification proposal was not sustained. In accordance with Arbitration Rule 9, the proceeding was resumed with the composition of the Arbitral Tribunal unchanged.
Members of the Tribunal Andrés Rigo Sureda, President Charles N. Brower, Arbitrator Domingo Bello Janeiro, Arbitrator
Claudia Frutos-Peterson, Secretary of the Tribunal Mercedes Cordido-Freytes de Kurowski, Consultant
On behalf of the Claimant Peter Gnam (Siemens A.G.)
Stephan Signer (Siemens A.G.)
Rubén Daniel Slame (Siemens A.G.)
Guido Santiago Tawil (M. & M. Bomchil)
Rafael Mariano Manóvil (M. & M. Bomchil)
María Inés Corrà (M. & M. Bomchil)
Ignacio Minorini Lima (M. & M. Bomchil)
Federico Campolieti (M. & M. Bomchil)
Agustín García Sanz (M. & M. Bomchil)
On behalf of the Respondent
Osvaldo César Guglielmino (Procurador del Tesoro de la Nación Argentina)
Jorge Alberto Barraguirre (Procuración del Tesoro de la Nación Argentina) Fabián Rosales Markaida (Procuración del Tesoro de la Nación Argentina)
José Luis Cassinerio (Procuración del Tesoro de la Nación Argentina) María Luz Moglia (Procuración del Tesoro de la Nación Argentina)
Adriana Lilian Busto (Procuración del Tesoro de la Nación Argentina)
Luis Eduardo Rey Vásquez (Procuración del Tesoro de la Nación Argentina)
Martín Guillermo Moncayo von Hase (Procuración del Tesoro de la Nación Argentina)
Claudio Antonio Michalina (Procuración del Tesoro de la Nación Argentina)
Philippe Sands, Q.C.
On January 17, 2006, the Claimant noted that the Respondent had not filed observations on the Claimant’s letter of December 21, 2005 before the deadline set by the Tribunal, and requested the Tribunal to declare the proceeding closed pursuant to Arbitration Rule 38(1).
"If the laws and regulations of either Contracting Party or obligations under international law existing at present or established hereafter between the Contracting Parties in addition to this Treaty contain a regulation, whether general or specific, entitling investments by nationals or companies of the other Contracting Party to a treatment more favorable than is provided for by the Treaty, such regulation shall to the extent that it is more favorable prevail over this Treaty."
Therefore, the Claimant argues that Argentine law may prevail over the provisions of the Treaty only to the extent that it provides treatment to the investment more favorable than the Treaty. Conversely, those provisions of domestic law that may be less favorable are not applicable.
"From the standpoint of International Law and of the Court which is its organ, municipal laws are merely facts which express the will and constitute the activities of States, in the same manner as do legal decisions or administrative measures. The Court is certainly not called upon to interpret the Polish Law as such; but there is nothing to prevent the Court’s giving judgment on the question whether or not, in applying that law, Poland is acting in conformity with its obligations towards Germany under the Geneva Convention."7
(i) as regards the DNM sub-system, establishment of the immigration information center, and the immigration flows and border control systems at three locations; the Government first hindered this component from becoming operational and later hindered its functioning, but Argentina has nonetheless benefited from better processing, follow-up and control of immigration proceedings, and the generation of single, non-duplicate files for each alien, containing all identification data, which reduced tampering possibilities;
(ii) as regards the RNP sub-system, the engineering stage was completed by August 1999 and it became operational by August 19, 1999, the electronic loading of the Remaining Human Potential File ("Back Record Conversion" or "BRC") was performed (by December 1999, 45.8 million individual records had been digitalized), an ID personalization center was completed, hardware and software were acquired, buildings were fitted, the communications network was implemented, training courses were held, more detailed and demanding System applications were developed, and a pilot test not required under the Contract was performed. However, because of the measures taken by Argentina, only 3,189 DNIs were issued over a period of 147 days as opposed to 12,000 DNIs foreseen as the initial daily average;
(iii) as regards the DNE sub-system, the electoral information component was completed by August 1999, and SITS carried out the processing, printing and distribution of provisional lists and final voting rolls for the national elections of October 24, 1999; and
(iv) physical and IT security equipment and technical support were provided by SITS to the three implementation agencies.
"There is certainly no obligation for the Government to compensate the contractor as the events causing the contractual imbalance are totally beyond the Government’s control. There is nothing that would prevent the strict and specific application of the contract provisions and thus the termination of the contract [...] However, no benefit for the public interest can be derived from this situation; quite the contrary, the public interest will not be satisfied by the abrupt interruption of the service provision. Thus, the doctrine of unforeseeability or unforeseeable risk may be applied to these cases. According to the doctrine, the Government has to provide assistance to the concessionaire, sharing the risks that unpredictability might have arisen for purposes of avoiding a total collapse of the licensed service."24
"Only Argentina was in a position to identify its own political, economic and social needs involved in the System. It was also the one that had the duty to set the requirements consistent with its own capabilities and limitations. Contrary to its claims, it was Argentina and not the Contractor that had the duty to inform its contractual party of the economic, political or social limitations that could be encountered in the design, implementation and subsequent development of the Project."28
"Following Systems implementation, but prior to their being put into operation, the security and high degree of inviolability of the Systems shall be tested and certified by a world-class auditor appointed by mutual agreement of the parties. The inexistence of observations from the State’s Security Officer shall imply the acceptance of the Systems’ security and inviolability test results."
"As per your request, I would like to inform you the positive result of the verification test of the operativity [s/c] of the General Persons Identification System that forms part of the Argentine and International Public Bidding Process No. 01/96, the contract of which was terminated by Decree 669/01.
Therefore, it has been verified that it is possible to print identity documents at the plant."34
"Each Contracting Party shall observe any other obligation it has assumed with regard to investments by nationals or companies of the other Contracting Party in its territory."
"The dispute settlement clause in the BIT is merely a standing offer to investors. By accepting that offer an investor perfects a specific arbitration agreement. The ICSID arbitration agreement, as perfected through the institution of proceedings, applies only to the specific dispute. By contrast, the dispute settlement clause in the Contract refers to any dispute arising from the Contract. It follows that the ICSID arbitration agreement is the more specific one. The principle generalia specialibus non derogant, should work against the contractual forum selection clause and in favor of ICSID."47
Fourth, Siemens rejects the arguments on the essential claim base and the contractual forum clause for having been already rejected by the Tribunal in its decision jurisdiction.
"Progressive replacement of all DNIs [...] is actually the State’s guarantee rather than an obligation of the contractor, and defines the value of the contract [...]
[...] the contract term, which is defined as a six-year term that may be extended for two three-year periods, prescribes a mechanism that guarantees returns on the investment made; this relates to the need to have all existing DNIs replaced by the ones dealt with in the contract [...]."51
(i) From the date of execution of the Contract and up to August 1999 Argentina failed to meet the obligations it had undertaken to allow the performance of the Contract on schedule; it did not make the necessary budget allocations, it did not provide the funds and human resources necessary to make the system operational, it delayed approval of the FOM, it failed to execute agreements with the Provinces, and it did not adopt the statutory and executive measures necessary to carry out the replacement of existing DNIs by those issued through the System.
(ii) Argentina pressed SITS into postponing the initial date for DNI production because of the then upcoming elections and into agreeing to postpone until January 31, 2000 discontinuation of the manual issuance of DNIs.
(iii) Argentina failed: (A) to adopt alternative measures to implement the System throughout its territory even when the RNP had the exclusive power to issue the DNIs and gather the information to produce them, (B) to provide budget allocations for the Project for the year 2000, (C) to provide the technical definitions to complete implementation of the immigration proceedings system and the imposition of new requirements not included in the new Project, and (D) to provide the facilities to implement the External Circuit to extend the System throughout the national territory.
(iv) Argentina notified Siemens in January 2000 that it intended to reduce the originally agreed-upon prices in the Contract and that agreement to the reduction was a condition for the continuation of the Contract and, in February 2000, unjustifiably halted immigration processing and DNI production through the System.
(v) The negotiations that ensued were concluded in November 2000 with the promise that the System’s revenue-generating operations would immediately resume, and to speed approval of the new contractual terms the Contract was subjected to the Emergency Law of 2000. Notwithstanding assurances of the President of the Republic that a decree would be issued approving the new terms before the end of the year, the new terms were never approved.
(vi) New terms were proposed by Argentina in May 2001 on a take it or leave it basis without providing the basic elements for an evaluation of the proposal. The new proposal was not acceptable to SITS, which indicated its willingness to consider alternatives. Argentina terminated the Contract on May 18, 2001 invoking the power granted under the 2000 Emergency Law and without reference to any technical or other reason related to the fulfillment of the Contract by SITS.
(vii) After termination of the Contract, Argentina failed to pay compensation, although it had acknowledged its obligation to do so, denied the right of defense to SITS when SITS filed an appeal against Decree 669/01, failed to receive the equipment, facilities and instruments used in Project execution, and refused to return the Contract performance bond although it was mandatory to return it at Contract termination.
(viii) Siemens’ investment was the only foreign investment expropriated under the 2000 Emergency Law and the public purpose invoked to terminate the Contract was merely an excuse to legitimize the measure adopted by the Government for political convenience, since economic studies carried out by the Ministry of Economy had recommended renegotiation of the terms agreed by the parties.
"A plea of creeping expropriation must proceed on the basis that the investment existed at a particular point in time and that subsequent acts attributable to the State have eroded the investor’s rights to its investment to an extent that is violative of the relevant international standard of protection against expropriation."52
Argentina questions how Siemens has drawn the line to delimit the State’s legitimate actions from actions entitling an investor to compensation. Argentina argues that, if the effect of depriving a person of its property is the criterion for this purpose, then any regulation would be expropriatory because regulations have a damaging effect on regulated parties. Argentina refers to the proportionality test advanced by Tecmed between the measures taken and the public interest pursued by them, and to the deference due to the State when it defines issues of public policy. Thus this requires a more complex analysis than proposed by Siemens.
"(a) it did not act under its ius imperii powers; (b) it terminated the contract with SITS under the habitual and ordinary forms provided therefor by Argentine law; (c) such act did not thwart any right granted to the investor or its affiliate under the law of the Contract; and (d) after the termination of the Contract it was not engaged in any acts aimed at thwarting the rights agreed upon with SITS for the termination."62
Siemens notes that the Treaty includes measures tantamount to expropriation and explains that provisions on indirect expropriation are usually generic statements given the great variety of possible measures. Siemens refers to the findings by the tribunals in Compañía del Desarrollo de Santa Elena S.A. v. The Republic of Costa Rica,64 CME, Metalclad Corporation v. The United Mexican States,65 Tippetts, Abbett, McCarthy, Stratton v. TAMS-AFFA Consulting Engineers of Iran,66 Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic of Egypt67 and Tecmed to show the endorsement of the notion of indirect expropriation by arbitral tribunals; such expropriation takes place by a variety of measures that by themselves would not necessarily be expropriatory or adversely affect the investment, nor would they need to be intended to be expropriatory. Siemens refers to scholarly opinion on the notion of creeping expropriation:
"In some, if not most other, creeping expropriations, however, that intent [to expropriate], though possibly present at some level of the host state’s government, will be difficult, if not impossible to discern. Discrete acts, analyzed in isolation rather than in the context of the overall flow of events, may, whether legal or not in themselves, seem innocuous vis-à-vis a potential expropriation. Some may not be expropriatory in themselves. Only in retrospect will it become evident that those acts comprised part of an accretion of deleterious acts and omissions, which in the aggregate expropriated the foreign investor’s property rights."68
Tippetts, Abbett, McCarthy, Stratton v. TAMS-AFFA Consulting Engineers of Iran, Case No. 7, Award No. 141-7-2- (June 22, 1984), 6 IRAN-U.S. C.T.R. (1986), 219, at pa. 225, Legal Authorities No. 23, cited in the Memorial, para. 243.
M. Relsman et al, "Indirect Expropriation and its Valuation in the BIT Generation", 74 BYIL (2003) pp. 123-124, cited In the Reply, para. 422, emphasis added by the Claimant.
Siemens alleges that an analysis of Biloune and Marine Drive Complex Ltd. v. Ghana Investments Centre,69 Tradex Hellas S.A. v. Republic of Albania,70 Santa Elena, Tecmed, Generation Ukraine and Iran-US Claims Tribunal jurisprudence shows that expropriatory measures that take place step by step should be analyzed in their aggregate effects and not "autonomously and independently" as argued by Argentina. Siemens concludes that the termination of the Contract was not the only expropriatory step but the last of a clear chain of measures taken by Argentina since 1999 that destroyed the value of Siemens’ investment.
Biloune and Marine Drive Complex Ltd. v. Ghana Investments Centre, Award on Jurisdiction and Liability (October 27, 1989), 95 Int’l Law Reports (1994), 184, at pa. 210-11, Claimant’s Legal Authorities No. 35, cited In the Memorial, para. 372.
Tradex Hellas S.A. v. Republic of Albania, ICSID Case, No. ARB/94/2, Award (April 29, 1999).
"[...] the mere fact that the investment was made on the basis of a contract does not preclude a violation of the BIT [the Treaty], Nor does an allegation of contract violations mean that a BIT claim cannot arise from the same facts. The standards are simply different. It is incumbent upon the Claimant to demonstrate a violation of the BIT. This task is not made impossible or more onerous by the simultaneous existence of contract violations."71
Argentina in its Rejoinder affirms that Siemens fails to draw the line between a contractual breach and the expropriation of an agreement, and clarifies that it referred to Waste Management II in its argument because the tribunal in that case established criteria for expropriation of an agreement, namely, an effective repudiation of the property rights of the investor which prevents it from exercising them entirely or to a substantial extent, and not redressed by remedies available to the claimant. Argentina emphasizes the reasonableness of the measures taken as part of the expropriation concept and as held by the European Court of Human Rights and Tecmed.
" Pour qu’il y ait droit à compensation il faut que la personne de l’exproprié prouve qu’il a été l’objet de mesures prises par l’Etat agissant non comme cocontractant mais comme autorité publique. Les décisions aux cas d’expropriation indirecte mentionnent toutes I’ ‘interférence’ de l’Etat d’accueil dans l’exercice normal, par l’investisseur, de ses droits économiques. Or un Etat cocontractant n’ ‘interfère’ pas, mais ‘exécute’ un contrat. S’il peut mal exécuter ledit contrat cela ne sera pas sanctionné par les dispositions du traité relatives a l’expropriation ou à la nationalisation à moins qu’il ne soit prouvé que l’Etat ou son émanation soit sorti(e) de son rôle de simple cocontractant(e) pour prendre le rôle bien spécifique de Puissance Publique. "80
"Only the State, in the exercise of its sovereign authority (puissance publique), and not as a Contracting Party, has assumed obligations under the bilateral agreement. [...] In other words, an investment protection treaty cannot be used to compensate an investor deceived by the financial results of the operation undertaken, unless he proves that his deception was a consequence of the behavior of the receiving State acting in breach of the obligations which it had assumed under the treaty."87
"(1) The breach of an international obligation by a State through a series of actions or omissions defined in aggregate as wrongful occurs when the action or omission occurs which, taken with the other actions or omissions, is sufficient to constitute the wrongful act".
"Paragraph 1 of Article 15 defines the time at which a composite act ‘occurs’ as the time at which the last action or omission occurs which, taken with the other actions or omissions, is sufficient to constitute the wrongful act, without it necessarily having to be the last of the series."
"[...] it is clear that the rights of the Bayerische to the exploitation of the factory and to the remuneration fixed by the contract for the management of the exploitation and for the use of its patents, licenses, experiments, etc., have been directly prejudiced by the taking over of the factory by Poland. As these rights related to the Chorzow factory and were, so to speak, concentrated in that factory, the prohibition contained in the last sentence of Article 6 of the Geneva Convention applies in all respects to them."91
"An interpretation that is in accordance with the BIT’S object and purpose would also have to give some independent meaning to the fair and equitable treatment standard. An interpretation that reduces its meaning to standards that are contained already in customary international law would deprive it of any independent meaning and would make the provision redundant. The application of the general principles of international law is already mandated by Article 10, paragraph 5 of the BIT. If Article 2(1) of the BIT providing for fair and equitable treatment is to have an independent meaning it must be in addition to the general principles of international law."98
In its Rejoinder, Argentina argues that, given the failure of SITS to perform its obligations under the Contract and the circumstances of fiscal stringency, the issuance of Decree 669/01 could not be considered an arbitrary, grossly unfair, idiosyncratic measure, nor did it involve lack of due process. Argentina contests the broad interpretation of fair and equitable treatment by Siemens and takes issue with the approach taken by Tecmed and MTD in applying this standard of protection. Argentina considers that the standard applied by these tribunals does not reflect an accurate international standard. Argentina submits that fair and equitable treatment does not encompass the protection of legitimate expectations and the establishment of a stable investment environment.
"the FTC interpretations incorporate current international law, whose content is shaped by the conclusion of more than two thousand bilateral investment treaties and many treaties of friendship and commerce. Those treaties largely and concordantly provide for ‘fair and equitable’ treatment of, and for ‘full protection and security’ for, the foreign investor and his investments."108
And found that "To the modern eye, what is unfair or inequitable need not equate with the outrageous or the egregious. In particular, a State may treat foreign investment unfairly and inequitably without necessarily acting in bad faith."109
"the minimum standard of treatment of fair and equitable treatment is infringed by conduct attributable to the state and harmful to the claimant if the conduct is arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice, or involves a lack of due process leading to an outcome which offends judicial propriety - as might be the case with a manifest failure of natural justice in judicial proceedings or a complete lack of transparency and candour in an administrative process. In applying this standard it is relevant that the treatment Is in breach of representations made by the host State which were reasonably relied on by the claimant."111
The parties have also referred to Tecmed, which describes just and equitable treatment as requiring:
"treatment that does not affect the basic expectations that were taken into account by the foreign investor to make the investment. The foreign investor expects the host State to act in a consistent manner, free from ambiguity and totally transparently in its relations with the foreign investor, so that it may know beforehand any and all rules and regulations that will govern its investments, as well as the goals of the relevant policies and administrative practices or directives, to be able to plan its investment and comply with such regulations."112
Tecmed, para. 154. Unofficial translation from the Spanish original published by ICSID on its web site.
It emerges from this review that, except for Genin, none of the recent awards under NAFTA and Tecmed require bad faith or malicious intention of the recipient State as a necessary element in the failure to treat investment fairly and equitably, and that, to the extent that it has been an issue, the tribunals concur in that customary international law has evolved. More recently in CMS, the tribunal confirmed the objective nature of this standard "unrelated to whether the Respondent has had any deliberate intention or bad faith in adopting the measures in question. Of course, such intention and bad faith can aggravate the situation but are not an essential element of the standard."113 That tribunal also understood that the conduct of the State has to be below international standards but not at their level in 1927 and that, as in Tecmed and Waste Management II, the current standard includes the frustration of expectations that the investor may have legitimately taken into account when it made the investment.