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Lawyers, other representatives, expert(s), tribunal’s secretary

Decision on Jurisdiction

The Treaty Agreement between the Argentine Republic and the Kingdom of Spain on the Reciprocal Promotion and Protection of Investments of October 3, 1991
ICSID Convention Convention on the Settlement of Investment Disputes between States and Nationals of other States, Washington D.C., 1965
MFN clause Most-Favored Nation clause
VCLT Vienna Convention on the Law of Treaties, 1969
Assignment Agreement Credit Assignment Agreement among Teinver, Transportes de Cercanias and Autobuses Urbanos as the assignors and Air Comet as the assignee, dated January 18, 2010
Funding Agreement Funding Agreement made between Claimants and Burford Capital Limited, effective as of April 14, 2010
RFA Claimants’ Request of Arbitration, filed on December 11, 2008
Merits Claimants’ Memorial on the Merits, filed on September 29, 2010
Mem. Respondent’s Memorial on Jurisdictional Objections, filed on December 6, 2010
CM Claimants’ Counter-Memorial on Jurisdiction, filed on January 24, 2011
Rep. Respondent’s Reply on Jurisdictional Objections, filed on March 10, 2011
Rej. Claimants’ Rejoinder on Jurisdiction, filed on April 27, 2011
Exh. C- Claimants’ Exhibits and Legal Authorities
Exh. E- Respondent’s Exhibits
LAAR Respondent’s Legal Authorities
Tr. Day [#], [page:line] Transcript of the Hearing on Jurisdiction and Provisional Measures Day 1: May 27, 2011 Day 2: May 28, 2011 Day 3: May 30, 2011

I. Facts Relevant to Jurisdiction

a. Parties

This claim is brought by Teinver S.A. ("Teinver"), Transportes de Cercanías S.A. ("Transportes de Cercanías") and Autobuses Urbanos del Sur S.A. ("Autobuses Urbanos") (collectively, "Claimants"), all companies incorporated in the Kingdom of Spain, against the Argentine Republic ("Respondent"), under the Agreement between the Argentine Republic and the Kingdom of Spain on the Promotion and Protection of Investments of October 3, 1991 (the "Treaty").1 Claimants are members of a group of companies known collectively as the Grupo Marsans.

b. Dispute

This dispute concerns Claimants’ allegations that Respondent has violated the Treaty, international law, and Argentine law, as well as commitments and representations made by the Respondent to Claimants, by unlawfully re-nationalizing and taking other measures regarding Claimants’ investments in two Argentine airlines: Aerolineas Argentinas S.A. ("ARSA") and Austral-Cielos del Sur S.A. ("AUSA") (collectively, "the Argentine Airlines").2

i. Acquisition of the Argentine Airlines

By mid-2001, the Argentine Airlines were experiencing financial difficulties, and ARSA filed for bankruptcy reorganization.5 In June 2001, SEPI announced that it would sell its participation in Interinvest through a bidding process. At the time, SEPI owned 99.2% of Interinvest, and in turn Interinvest held 92.1% of ARSA’s shares and 90% of AUSA’s shares.6 Air Comet S.A. ("Air Comet"), a Spanish subsidiary of Grupo Marsans, bid on Interinvest and won. At this time, Air Comet was owned by two of the three Claimants, Autobuses Urbanos (35%) and Transportes de Cercanias (35%), as well as by two other Spanish companies, Proturin SA. (29.8%) and Segetur S.A. (0.2%).7 (Claimant Teinver became a shareholder of Air Comet later, that is, on July 20, 2006, when it purchased Proturin’s and Segetur’s entire shareholdings.8)
On October 2, 2001, Air Comet and SEPI entered into a Share Purchase Agreement ("SPA"), through which Air Comet acquired SEPI’s 99.2% interest in Interinvest (which, in turn, maintained the interests in the Argentine Airlines noted above).9
Air Comet paid a purchase price of US$1 for the interest in Interinvest.10 Under the SPA, Air Comet agreed, in accordance with the industrial plan it created for the Argentine Airlines, to assume the assets and liabilities of the Airlines, to retain airline employees for two years, to make a US$50 million capital increase, to maintain its majority interest in the corporations, to service specified flight routes, and to expand aircraft fleets.11 For its part, SEPI agreed to assume the airlines’ liabilities up to US$300 million, and to assume commitments resulting from the implementation of the industrial plan up to US$248 million.12 SEPI later agreed to contribute an additional US$205 million to cover the operational losses suffered by the airlines between July and October 2001.13
In December 2002, ARSA and a majority of its creditors reached a settlement on debt restructuring, which was subsequently approved by an Argentine commercial court, as well as a court of appeals.14

ii. Nature of the Dispute

Claimants allege that Respondent has unlawfully expropriated their investment in the Argentine Airlines.15 Claimants characterize this expropriation as consisting of two parts. The "formal" expropriation occurred when the Argentine Congress "purposefully and explicitly" enacted the nationalization of the companies in December 2008.16 However, this formal expropriation was allegedly the culmination of a long process of "creeping" expropriation which started in October 2004 or earlier.17 As such, according to Claimants, the dispute centers on two primary issues: (i) a disagreement between the Parties as to the Argentine regulatory framework—regarding airfare caps in particular—within which the Argentine Airlines were required to operate between 2002 and 2008, and (ii) disagreement between the Parties as to the remedy due to Claimants for the expropriation of their shares in those airlines.18

II. Procedural Matters

a. Request for Arbitration and its Registration by ICSID

On December 11, 2008, the International Centre for Settlement of Investment Disputes ("ICSID" or "the Centre") received a Request for Arbitration ("the Request") against Respondent from Claimants. The Request concerned the alleged nationalization of two commercial airlines, and their subsidiaries, in which Claimants alleged having invested.
In the Request, Claimants invoked Argentina’s consent to dispute settlement through ICSID arbitration provided in the Treaty, and, by way of an Most-Favored Nation ("MFN") clause contained in Article IV(2) of the Treaty, in the 1991 Bilateral Investment Treaty between the United States of America and the Argentine Republic (the "U.S.-Argentina BIT").
On December 17, 2008, ICSID, in accordance with Rule 5 of the ICSID Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings ("ICSID Institution Rules"), acknowledged receipt of the Request and transmitted a copy to the Argentine Republic and to the Argentine Embassy in Washington D.C.
On January 30, 2009, the Acting Secretary-General of the Centre registered the Request and notified the Parties thereof, pursuant to Article 36(3) of the Convention on the Settlement of Investment Disputes between States and Nationals of other States ("the ICSID Convention") and in accordance with Rules 6(l)(a) and 7(a) of the ICSID Institution Rules. The case was registered as ICSID Case No. ARB/09/1. On that same date, and in furtherance of Rules 7(c) and (d) of the ICSID Institution Rules, the Secretary-General invited the Parties to communicate any agreements reached regarding the number of arbitrators and the method for their appointment, and to constitute an arbitral tribunal as soon as possible.

b. Constitution of the Arbitral Tribunal

On April 3, 2009, Claimants requested that the Arbitral Tribunal be constituted in accordance with the formula set forth in Article 37(2)(b) of the ICSID Convention; that the Tribunal shall consist of three arbitrators, one appointed by each Party and the third, the President of the Tribunal, be appointed by agreement of the Parties. On that same date, ICSID acknowledged Claimants’ letter, and further advised the Parties that pursuant to Rule 3(1) of the ICSID Rules of Procedure for Arbitration Proceedings ("ICSID Arbitration Rules"), either Party was to proceed to name two persons, one as their party-appointed arbitrator, and the other for the position of the President of the Tribunal. This first Party was to then invite the other Party to concur on the proposal for the position of the President of the Tribunal, and to name its party-appointed arbitrator.
On April 27, 2009, Claimants appointed Henri C. Alvarez, a Canadian national, as arbitrator.
On May 12, 2009, Claimants informed ICSID that Respondent had failed to appoint an arbitrator and had made no proposals for the position of the President of the Tribunal, and in accordance with Article 38 of the ICSID Convention and Rule 4(1) of the ICSID Arbitration Rules requested that the Chairman of the Administrative Council appoint the two arbitrators that had not been appointed. The following day, ICSID informed Respondent that unless notification was received by May 29, 2009 that it had appointed an arbitrator, and that the Parties had reached an agreement on the appointment of the President of the Tribunal, then ICSID was to proceed to make the appointments in accordance with the relevant provisions of the ICSID Convention, ICSID Arbitration Rules and the normal procedures of the Centre.
On June 1, 2009, Respondent appointed Dr. Kamal Hossain, a Bangladeshi national, as arbitrator.
Following some exchanges between the Parties and ICSID, the Parties were informed on December 14, 2009, that ICSID was to propose to the Chairman of the ICSID Administrative Council the appointment of Judge Thomas Buergenthal, a United States national, as the President of the Tribunal. The Parties were invited to provide observations to the proposed appointment by December 21, 2009.
On December 21, 2009, both Parties informed ICSID that they did not have any observations on the proposed appointment of Judge Thomas Buergenthal as President of the Tribunal.
On December 28, 2009, the Chairman of the ICSID Administrative Council appointed Judge Thomas Buergenthal as President of the Tribunal.
By letter of January 4, 2010, in accordance with Rule 6(1) of the ICSID Arbitration Rules, the Secretary-General of ICSID informed the Parties and the arbitrators that the Tribunal was thus constituted by (i) Mr. Henri C. Alvarez, QC (appointed by Claimants), (ii) Dr. Kamal Hossain (appointed by Respondent), and (iii) Judge Thomas Buergenthal (appointed by ICSID pursuant to Article 38 of the ICSID Convention). Further, the Tribunal was informed that Dr. Sergio Puig, Counsel at ICSID, would serve as the Secretary to the Tribunal. He was subsequently succeeded in this capacity by Mrs. Mercedes Cordido-Freytes de Kurowski, Counsel, ICSID.

c. Arbitral Procedure

The First Session of the Tribunal with the Parties was held on March 22, 2010, at the World Bank’s Paris Conference Centre, at which the Parties confirmed their agreement that the Tribunal had been properly constituted in accordance with the relevant provisions of the ICSID Convention and the ICSID Arbitration Rules, and that they did not have any objections in this respect.
During the session, the Parties also agreed on a number of procedural matters, and that Claimants’ Memorial on the Merits would be filed by September 22, 2010. The Tribunal then proposed two schedules for the written and oral pleadings in this case.
On April 16, 2010, both Parties confirmed their agreement with the schedule proposed. Respondent, however, made a reservation to its agreement, noting that should the Tribunal decide to bifurcate, then a specific schedule for the proceedings on jurisdiction should be established.
On April 23, 2010, Respondent informed ICSID and the Tribunal of newspaper publications, in which it was reported that the alleged majority shareholder of some of the Claimants had transferred part of its ICSID claim to a U.S. investment fund in exchange for a contribution to pay the costs arising in the proceedings. Respondent requested that the Tribunal require Claimants to provide all available information regarding the matter and the content of the agreement that was signed with said investment fund, and to also submit all related documentation.
On May 28, 2010, Claimants filed their response stating that they had not sold their claim as alleged by Respondent. Claimants stressed that they had no obligation to disclose any agreements with third parties with respect to the funding of costs in this proceeding, and that Respondent did not argue the necessity or relevance of its request. Claimants further argued that due to Respondent’s conduct (alleged nationalization) and refusal to pay any compensation, Claimants’ group of companies were in a distressed financial state, and thus had no choice but to obtain external funding in order to afford the costs of the arbitration and pursue their claim against Respondent. Claimants lastly noted that in any instance, this financing did not affect the jurisdiction of the Tribunal.
The Parties were informed on June 16, 2010 that after careful consideration of their respective positions on the matter of obtaining third-party funding, the Tribunal had decided not to grant Respondent’s request at this early stage as it did not consider the currently available information on record as sufficient. However, the Tribunal added that it did not preclude granting a similar request in the future once the main pleadings had been filed.
On September 21, 2010, the Tribunal granted an extension of the deadline for the filing of Claimants’ Memorial on the Merits until September 29, 2010, as agreed by the Parties, noting that Respondent would then have a one-week extension of the deadline for the filing of its subsequent submission.
On September 29, 2010, Claimants filed their Memorial on the Merits.
On December 6, 2010, Respondent filed its Memorial on Jurisdiction, and Claimants’ Counter-Memorial on Jurisdiction was subsequently filed on January 24, 2012.
On February 4, 2011, the Tribunal issued Procedural Order No.l, ruling that Respondent’s jurisdictional objections would be dealt with as a preliminary question, and that the proceeding on merits was accordingly suspended. The Tribunal also decided that a second round of pleadings on jurisdiction would be filed, with Respondent to file their Reply on Jurisdiction by March 7, 2011, and Claimants to file their Rejoinder on Jurisdiction within thirty (30) days of their receipt of Respondent’s Reply on Jurisdiction. Additionally, the Tribunal proposed two sets of dates for the hearing on jurisdiction.
On February 9, 2011, the Respondent filed a request for the Tribunal to decide on production of documents. Subsequently, Claimants filed observations on the Respondent’s request on February 14, 2011, and Respondent filed a response on February 21, 2011.
On February 24, 2011, the Parties were invited to consult in regard to the schedule for the forthcoming hearing, and to submit an agreed proposal by April 25, 2011.
On February 28, 2011, Claimants filed a reply on Respondent’s request for production of documents.
On March 1, 2011, the Parties were informed that the Tribunal, after careful and due deliberation, had decided not to grant Respondent’s Request for the Production of Documents at this jurisdictional stage. It was added, however, that the Tribunal did not preclude a similar request at a later stage.
On March 10, 2011, Respondent filed its Reply on Jurisdiction.
On April 12, 2011, Claimants filed a request for provisional measures, asserting that Respondent had initiated measures to collect taxes that would result in Respondent’s effective acquisition of title to Claimants’ Argentine holding company, Interinvest S.A. ("Interinvest"), and was thus requesting that the Tribunal order Respondent to halt any court or administrative collection proceedings against this company. Specifically, Claimants sought an interim order directing Respondent to withdraw or otherwise cease and desist from enforcing the tax-related payment orders that it had issued until the Tribunal rendered its award. They also requested that the Tribunal issue an immediate order preserving the status quo ante until such time as it ruled on this application for provisional measures. Claimants further requested that the Tribunal issue an emergency, temporary order prohibiting Respondent from enforcing the existing tax payment orders or from issuing any new ones.
On April 13, 2011, the Tribunal fixed a procedural calendar for the filing of the Parties’ submissions on Claimants’ request for the Tribunal to decide on provisional measures.
On April 20, 2011, Respondent submitted its observations on Claimants’ request for an emergency, temporary order, stating that neither the ICSID Convention nor the Arbitration Rules made provision for the issuing of emergency, temporary orders, and that in any case, the absence of urgency was manifest in this instance. As such, Respondent requested that the Tribunal reject the request, and in addition reserved its rights and the State’s power to levy taxes and to enforce such rights through such channels and in such courts, tribunals and otherwise as may be appropriate.
On April 26, 2011, Respondent requested an extension of the deadline that had been set out during the first session for the filing of new documents.
After consulting with the Parties, on April 27, 2011, the Tribunal extended the deadline for the Parties to submit new documents; fixed a procedural calendar for the filing of the Parties’ subsequent submissions on Claimants’ requests for provisional measures; and invited the Parties to confer and to reach agreement on the structure, schedule and other matters regarding the hearing.
Also on April 27, 2011, Claimants filed their Rejoinder on Jurisdiction.
On April 29, 2011, the Tribunal issued Procedural Order No. 2, denying Claimants’ request for an emergency, temporary order, noting that the Parties would be able to fully present their arguments in such regard during the hearing on jurisdiction. The Parties were further invited to refrain from aggravating or extending the dispute.
On the same date, Claimants renewed their request for an emergency, temporary order, in light of the fact that Interinvest had been served with a notice for immediate payment of taxes. Respondent was invited to comment on Claimants’ request by May 4, 2011.
Also on April 29, 2011, Respondent filed observations on Claimants’ request for provisional measures of April 12, 2011. Claimants filed a response on May 4, 2011.
On May 6, 2011, Claimants informed the Tribunal of the Parties’ agreement concerning the organization of the hearing on jurisdiction, which was later confirmed by the Respondent. On the same date, Claimants filed their Reply on their Request for Provisional Measures.
On May 13, 2011, the Parties were informed that further to their exchanges on the matter of Claimants’ request for an emergency temporary order of April 29, 2011, the Tribunal had determined that in view of the proximity of the hearing, there was no imminent or sufficiently imminent threat until the hearing, and as such Claimants’ request was denied.
Also on May 13, 2011, Respondent filed a Rejoinder on Provisional Measures.
On May 27-31, 2011, the Tribunal held a hearing on jurisdiction and Provisional Measures at the seat of the Centre in Washington D.C.
On June 8, 2011, the Tribunal issued Procedural Order No. 3, posing questions to the Parties after the hearing.
The Parties filed their answers to the questions posed by the Tribunal in accordance with the procedural calendar that was set forth in Procedural Order No. 3, and on July 5, 2011, Claimants made a further submission to complement their answers.
On August 26, 2011, Ms. Annalise Nelson was appointed Assistant to the President of the Tribunal with the agreement of the Parties.
On August 30, 2011, Claimants filed a letter concerning the conclusion of the reorganization proceedings of Aerolineas Argentinas S.A. in Argentina and addressing recent case law, including the recent Decision on Admissibility and Jurisdiction in Abaclat and others v. Argentina19, and the Order Taking Note of the Discontinuance of the Annulment Proceeding in A TA v. Jordan20
On October 26, 2011, Respondent filed a letter in response to Claimants’ letter of August 30, 2011, and adjoining the expert report of Mr. Juan Antonio Cabezudo Alvarez.
On November 8, 2011, Claimants filed a letter in response to Respondent’s letter of October 26, 2011. In their letter, Claimants characterized portions of Respondent’s letter as rearguing out-of-time its jurisdictional objection arising out of Claimants’ alleged lack of jus standi. Claimants requested the Tribunal to strike Argentina’s belated arguments and disregard the new expert report from Mr. Juan Antonio Cabezudo Alvarez. Claimants also noted recent case law, including the Impregilo v. Argentina award21 and the Decision on Jurisdiction in Hochtief22
On December 15, 2011, the Tribunal informed the Parties, that it had taken note of the arguments made in Respondent’s October 26, 2011 letter and Claimants’ November 8, 2011 letter as they relate to the pleadings on jurisdiction, with the exception of the expert report of the Spanish attorney, Mr. Juan Antonio Cabezudo Alvarez, attached to Respondent’s letter, and Respondent’s arguments based thereon.
Also on December 15, 2011, Respondent requested leave from the Tribunal to file certain dissenting opinions in recent case law. The Tribunal granted Respondent’s request on December 20, 2011.

On December 22, 2011, Respondent filed a letter attaching the above-mentioned dissenting opinions, including those of (i) Professor Brigitte Stern in Impregilo', (ii) Mr. Chris Thomas in Hochtief; and (iii) Professor Georges Abi-Saab in Abaclat.

On February 17, 2012, Respondent filed a letter requesting leave from the Tribunal to introduce into the record the recently adopted decisions of the United States Court of Appeals for the District of Columbia Circuit in Republic of Argentina v. BG Group pic of January 17, 2012,23 and of the arbitral tribunal in the UNCITRAL case, ICS v. Argentine Republic24

III. Position of the Parties on Jurisdiction

a. Respondent’s position

b. Claimants’ position

IV. Analysis

a. First Jurisdictional Objection: Claimants’ Fulfillment of the Procedural Requirements of Article X of the Treaty

i. Compliance with the Requirements of Article X

1. Position of Respondent

6-month requirement

18-month local court requirement

2. Position of Claimants

6-month requirement

18-month local court requirement


3. Analysis of the Tribunal

(a) The Requirements of X(l) and X(2)

i. The Commencement of the 6-Month Period

ii. The Requirement of Formal Notification

iii. Determining When the Dispute Began

(b) Futility

(c) The Local Court Requirement of Articles X(2) and (3)

ii. The Application of the Most-Favored Nation Clause (Article IV(2)) to Dispute Settlement Provisions

1. Position of Respondent

2. Position of Claimants

3. Analysis of the Tribunal

b. The Ordinary Meaning of Article IV

(a) Jurisprudence Concerning the Application of MFN Clauses to Dispute Settlement Provisions

i. UNCTAD’s Case Taxonomy

ii. Other Interpretative Issues

(b) The dispute settlement clause of the U.S.-Argentina BIT and the Australia-Argentina BIT

c. Second Jurisdictional Objection: Claimants’ Standing

i. Claimants’ Investment in Interinvest and the Argentine Airlines

1. Position of Respondent

Respondent argues that Claimants’ claims, which are based on the alleged violation of rights held by Interinvest and the Argentine Airlines, are derivative and indirect in nature. As such, argues Respondent, Claimants do not have standing to bring this claim. On one hand, Claimants are claiming rights that are vested in third parties (namely, Interinvest and the Argentine Airlines) who are not parties to this arbitration.226 On the other hand, Claimants have only indirect shareholdings in these companies, which they hold through the Spanish intermediary company Air Comet S.A.227
According to Respondent, Claimants bring two different indirect claims. The first of these claims relates to Interinvest S.A.’s rights. Respondent asserts that Interinvest, an Argentine company which is not protected under the Treaty, is the only entity with legal standing to complain of the alleged expropriation of the Argentine Airlines’ shares.228 The second of these claims relates to the rights of ARSA and AUSA. Here, according to Respondent, Claimants also invoke a set of rights which are not held by them.229 The only entities with legal standing to complain of the adoption of airfare regulatory measures are ARSA and AUSA, the parties whose assets were affected by the measures.230
Respondent asserts that it did not adopt any measure to the detriment of Claimants’ own investment. None of Claimants’ shares in Air Comet were expropriated. Furthermore, the rights deriving from those shares were not infringed, nor was their exercise limited in any way.231 There is a distinction between the rights of companies and of their shareholders,232 and it would be unjust to award compensation to a person or an entity that is not entitled to obtain redress.233
According to Respondent, Claimants’ indirect claim is inadmissible under the Treaty, which affords no protection to indirect shareholders.234 Respondent notes that while some investment treaties refer to the "direct or indirect" control of assets or provide for the protection of both the rights and interests of investors, the Treaty does not allow indirect claims to be filed.235 Moreover, in defining "investment," the Treaty includes property and rights acquired by foreign investors.236 It does not protect the mere shareholders’ interests in the companies in which they have an indirect shareholding.237
Furthermore, Respondent asserts that Claimants’ indirect claim is inadmissible under general international law.238 It is a general principle of law that the company’s shareholders cannot complain of alleged violations of rights vested in the company in which they hold shares.239 The decisions rendered by the International Court of Justice have consistently maintained that, under international law, shareholders are not entitled to assert the rights of the companies in which they have a shareholding. In other words, derivative claims are not valid.240 Respondent notes that the European Court of Human Rights has also rejected the admissibility of indirect actions.241 Under international law, indirect or derivative claims can only be accepted where a treaty has expressly provided for indirect or derivative actions.242
Respondent also argues that the ICSID Convention does not allow indirect or derivative claims to be filed. Article 25 of the ICSID Convention lays down the objective criteria for a dispute to fall within the jurisdiction of the Centre.243 When the ICSID Convention was drafted, the drafters considered allowing controlling shareholders of domestic companies to bring claims to enforce the rights of the companies in which they held shares.244 However, the drafters ultimately rejected this possibility. Instead, they drafted Article 25(2)(b), which provides for the possibility of a domestic but foreign-controlled company to sue its own State when the parties agreed that the domestic company would be treated as a national of the other State due to its foreign control.245
It is further Respondent’s view that neither the ICSID Convention nor international investment law or customary or general international law provide for a jurisprudence constante principle.246 The judicial decisions cited favorably by Claimants that concern BITs permitting indirect shareholding are not applicable to this dispute.247
Respondent also urges that Claimants’ indirect claim is inadmissible under Argentine law. Argentine law does not allow indirect claims to be filed, and the corporation is the only entity empowered to defend its own interests.248 Respondent notes that general international law and the Treaty require that the Tribunal apply the domestic law of the State in which the shareholder holds interests in order to decide on the rights that may be invoked by a shareholder under international law.249 It has been recognized in ICSID decisions that domestic law is relevant for the purposes of determining ICSID’s jurisdiction.250
Respondent makes a number of policy claims regarding Claimants’ standing. It asserts that Claimants disregard the set of legal relationships existing among the companies which are part of the corporate chain connecting Teinver S.A. to the Argentine Airlines, as well as those relationships between these companies and their own creditors.251 If the Tribunal were to order Respondent to pay Claimants compensation, then Claimants would be allocated payments that should have been prioritized for the Argentine Airlines’ creditors and the remaining intermediary companies. Claimants, as the last link in this chain of creditors and shareholders, would be unjustly enriched.252
Furthermore, Respondent asserts that there is an actual risk of double or multiple claims, because there is nothing to prevent Interinvest S.A. from filing an action before the Argentine courts in parallel with the present arbitration.253 Multiple claims could potentially lead to a situation of double recovery.254 In addition, allowing Claimants to file this indirect action erroneously implies that shareholders have a right to the preservation of the value of their holdings, when in fact, the value of stockholdings varies according to the fluctuations in corporate assets.255
Finally, Respondent points out that only Teinver S.A. currently owns shares in Ar Comet. Between October 2007 and December 2009, both Transportes de Cercanias and Autobuses Urbanos transferred all of their shares in Air Comet to Teinver. As such, Transportes de Cercanias and Autobuses Urbanos are neither direct nor indirect shareholders in the Argentine companies.256

2. Position of Claimants

Claimants assert that they are not claiming rights held by Interinvest and/or the Argentine Airlines. Rather, they are claiming in their own name and on their own behalf, on the basis of the rights conferred on them by the Treaty and the ICSID Convention.257 Claimants reiterate that their own claims include the following actions taken by Respondent: 1) formally expropriating Claimants’ investment in the Argentine Airlines without any compensation; 2) effectuating the creeping expropriation of their investments in the Argentine Airlines; 3) failing to treat Claimants’ investment in Interinvest and the Argentina Airlines fairly and equitably; 4) impairing by unjustified and discriminatory measures the management, maintenance, use, enjoyment, extension or disposal of Claimants’ investments in Interinvest and the Argentine Airlines; 5) failing to provide the required protection to Claimants’ investments in Interinvest and the Argentine Airlines; and 6) violating specific obligations entered into with respect to Claimants’ investment in Interinvest and the Argentine Airlines.258
Claimants argue that these claims arise directly from their rights under the Treaty, that is, the protection that Respondent owes directly to Claimants as Spanish investors in Argentina. Claimants are thus not asserting contractual rights held by the Argentine companies in question. Claimants are entitled to claim that Respondent’s conduct was in breach of the Treaty, regardless of whether that conduct may also amount to a breach of Interinvest’s or the Argentine Airlines’ rights under local law.259

Claimants assert that claims by both direct and indirect shareholders for measures impacting their shareholdings are admissible under the Treaty and the ICSID Convention, and are well recognized in international law. First, Claimants assert that claims by shareholders for harm caused to their shareholdings have been unanimously upheld by ICSID tribunals. While Respondent asserts that a shareholder may not recover damages for harm caused to its "shares and other forms of participation" in companies incorporated in the host-State, virtually all ICSID tribunals that have decided similar objections unanimously have rejected them.260 Moreover, ICSID tribunals have acknowledged that an indirect shareholder could claim damages "suffered by a company in which it holds shares," even though the applicable BIT did not contain the "direct or indirect" wording.261

Second, Claimants argue that claims by indirect shareholders are admissible under the wording of the Treaty. While the Treaty does not contain "direct or indirect" language, Article 1(2) of the Treaty provides that "any kind of assets, such as property and rights of every kind [including] shares and other forms of participation in companies" constitute qualifying investments. Under this inclusive formulation, indirect shareholders may pursue claims for measures affecting their "shares and other forms of participation in companies."262 This conclusion was also reached by other ICSID tribunals interpreting Article 1(2) of the Treaty.263 Furthermore, the object and purpose of the Treaty is to create favorable conditions and to promote capital flow and investment between investors of the Contracting Parties. This aim is equally pursued through direct and indirect ownership of investments.264
Third, Claimants argue that international law does not support Respondent’s position, and that Argentina’s reliance on ICJ case law is misplaced. According to Claimants, the question addressed in those cases was not whether the shareholders had a cause of action under international law, but whether, under customary international law, a State could exercise diplomatic protection over its nationals, who are shareholders with investments affected by a third State.265 The right of a particular State to exercise diplomatic protection in favor of its nationals—even if they are shareholders in foreign companies—is irrelevant to the issue of whether an investor has standing under a BIT to claim for measures impacting its shareholding in local companies.266
Fourth, in Claimants’ view, Respondent misinterprets Article 25(2)(b) of the ICSID Convention. Article 25(2)(b) is not applicable to the present dispute, since the Treaty lacks any reference to the Parties’ consent to treat a company incorporated in the host State and controlled by a foreign investor as a foreign investor for the purposes of the Treaty. Claimants have not even attempted to invoke 25(2)(b) as a source of jurisdiction.267 Furthermore, Argentina misunderstands the negotiating history of this provision. The issue before the drafters concerned whether to allow local companies access to the ICSID Convention in certain situations such as when they were owned by foreign nationals.268
Fifth, Claimants assert that Argentine corporate law is irrelevant to decide whether Claimants have jus standi under the Treaty and international law. Claimants’ claims are Treaty claims, and they do not constitute an exercise of rights under Argentine domestic law.269
Sixth, Claimants argue that Argentina’s policy concerns are immaterial to the outcome of the current arbitration and, in any case, are misleading and unfounded. Claimants assert that none of Respondent’s policy objections has any support in the Treaty, the ICSID Convention or international law, including investment case law.270 Respondent’s concerns about preferential treatment over third parties (including creditors), double recovery and double-payment pertain to the merits of the dispute, not to the jurisdictional stage.271
Finally, Claimants assert that Transportes de Cercanias and Autobuses Urbanos are legitimate parties to the arbitration. Transportes de Cercanias and Autobuses Urbanos transferred their shares to Teinver on December 10, 2009, but this transfer has no impact on their standing in the current arbitration. The relevant dates for determining ICSID jurisdiction are the dates of consent and/or registration of the dispute.272 Transportes de Cercanias and Autobuses Urbanos indirectly held shares in Interinvest and the Argentine Airlines both when consent was perfected and at the time the Request for Arbitration was submitted.273

3. Analysis of the Tribunal

In maintaining that the Claimants do not have standing because they are merely "indirect" shareholders in Interinvest and the Argentine Airlines, Respondent advances two distinct legal arguments.274 The first argument addresses the question whether Claimants, as shareholders, can recover damages for harms that were inflicted upon the companies in which Claimants invested (i.e., Interinvest and the Argentine Airlines), as opposed to harms that were inflicted directly upon Claimants themselves. This will be referred to below as Respondent’s "derivative claim" argument. Respondent’s second legal argument concerns the question whether Claimants must be direct shareholders, in the sense that they must directly own the shares in Interinvest, rather than through an intermediary subsidiary such as Air Comet. This will be referred to below as Respondent’s "intermediary investor" argument.

(a) Respondent’s "Derivative Claim" Argument

i. Article I of the Treaty

According to Respondent, the Treaty provides no protection to "derivative" shareholders. While it protects the shareholders’ direct rights arising out of the shares, it does not, in Respondent’s view, protect the shareholders’ "mere interests" in the companies in which they have the shareholding. Respondent asserts that while some investment treaties may provide for the protection of both the rights and interests of investors, the Treaty does not provide for this possibility. Respondent contrasts the language of Article 1(2) with the analogous provision of the U.S.-Argentina BIT, which extends protections to "a company or shares of stock or other interests in a company or interests in the assets thereof"275 Respondent also notes that the U.S.-Argentina BIT, in contrast to the Treaty, protects investments that are "owned or controlled directly or indirectly,"276
While Respondent is correct to note that Article 1(2) of the Treaty does not explicitly include or exclude "indirect" investments from its coverage, the broad and inclusive language of this provision suggests that "indirect" shareholders are protected by the Treaty. Article 1(2) sets forth the definition of "investments" that are protected under the Treaty:

The term "investments" shall mean any kind of assets, such as property and rights of every kind, acquired or effected in accordance with the legislation of the country receiving the investment and in particular, but not exclusively, the following:

-shares and other forms of participation in companies;

This definition is broad and inclusive. "Investment" encompasses "any kind of assets," "property and rights of every kind," and the list of qualifying investments that follows the definition is exemplary rather than exclusive. Other ICSID tribunals interpreting the Treaty have noted the breadth of this definition. The tribunal in Gas Natural noted that "while the ICSID Convention does not define the term ‘investment,’ the BIT clearly does so in an inclusive way," and that the Treaty’s definition "follows the almost universal practice of BITs to define the subject of the Treaty as comprehensively as possible."277
The other ICSID tribunals that have looked at the Treaty have found Article 1(2)’s broad language to implicitly permit the kinds of claims that Claimants have advanced. In the Suez Vivendi and Suez InterAguas arbitrations, Argentina raised an identical argument, asserting that the shareholder claimants had no standing to bring the dispute because they were alleging a merely "derivative" injury based on the injury to the company in which they hold shares, rather than a direct injury claimants had suffered. The tribunals in these cases rejected this argument, finding that claimants had a valid "investment" under the terms of the Treaty:

"[U]nder the plain language of these BITs, the Tribunal finds that Suez’s as well as AGBAR’s and InterAguas’ shares in APSF are "investments" under the Argentina-France and Argentina-Spain BITs. These shareholders thus benefit from the treatment promised by Argentina to investments made by French and Spanish nationals in its territory. Consequently, under Article 8 of the French treaty and Article X of the Spanish treaty, these shareholder Claimants are entitled to have recourse to ICSID arbitration to enforce their treaty rights. Neither the Argentina- France BIT, the Argentina-Spain BIT, nor the ICSID Convention limit the rights of shareholders to bring actions for direct, as opposed to derivative claims. This distinction, present in domestic corporate law of many countries, does not exist in any of the treaties applicable to this case."278

It is notable that the Suez tribunals described the Treaty as not limiting the rights of shareholders to bring "derivative" claims. The tribunals explicitly rejected the notion that there is any "default" under international investment law that restricts what kinds of claims can be brought. In this respect, the tribunals refused to take their cues from domestic corporate law. Under this logic, the fact that the Treaty does not explicitly permit "derivative" actions is irrelevant, because the very concept of a "derivative" claim is alien to the Treaty or the ICSID Convention.

The tribunal in Gas Natural reached a similar result as the Suez tribunals, using a slightly different reasoning. In Gas Natural, Argentina again argued that claimant, a shareholder in an Argentine company that was granted concessions, lacked standing to bring its claim. The tribunal disagreed. After finding claimant’s shareholdings in the Argentine company to constitute a valid "investment" under the Treaty, it found the claimant to have standing because "a claim asserting the impairment of the value of the shares held by Claimant as a result of measures taken by the host government gives rise to an investment dispute within the meaning of Article X of the BIT[…]"279 The tribunal in Gas Natural accepted that a diminution in the value of the claimant’s shares constituted an injury under the Treaty. Like the Suez tribunals, the Gas Natural tribunal was simply not perturbed by the possibility that this claim was merely "derivative" of an injury to the Argentine company.280

In light of the language of Article 1(2), this Tribunal finds that the Claimants have standing based on their investments in the Argentine Airlines. Respondent’s subsequent legal arguments, which draw on ICJ case law, the ICSID Convention and Argentine law, assert that the "derivative" distinction matters for purposes of interpreting the Treaty. However, none of Respondent’s arguments, which are analyzed below, undermine the conclusions reached by this Tribunal in light of the text of Article 1(2).

ii. ICJ Case Law

iii. The ICSID Convention

However, there is no evidence that the ICSID Convention’s drafters rejected the possibility of shareholders bringing "derivative" suits under the ICSID Convention. The history cited by Respondent only concerns a very specific issue that arose in the ICSID Convention’s negotiations concerning the nationality of claimants. As Christoph Schreuer explained in his authoritative Commentary, while the ICSID Convention was intended for disputes between a State and a national of another State, and not for disputes between a State and its own nationals, the drafters were aware that the reality on the ground could be more complicated. Many States required a foreign investor to carry out its activities under a locally incorporated company.286 While such a company would otherwise be precluded from bringing a suit because of its nationality, the drafters ultimately created Article 25(2)(b) as an exception to the nationality requirement to accommodate this situation.
Therefore, to the extent that the drafters "rejected" the suggestion that the local company’s shareholders be granted standing, it was only in this specific and limited context. Moreover, the drafters rejected this suggestion in this specific context for practical reasons rather than because of any general view that "derivative" actions should not be permitted under the ICSID Convention: they noted that such an arrangement "would not be feasible where shares are widely scattered and their owners are insufficiently organized."287

iv. Argentine Law

Respondent has asserted that Argentine law does not permit "derivative" claims to be brought by shareholders to recover for injuries done to the companies in which shareholders own shares. However, Respondent fails to demonstrate how Argentine corporate law is relevant to the issue of jurisdiction.
Respondent has argued that "it has been recognized that domestic law is relevant for the purposes of determining ICSID’s jurisdiction."288 Respondent is, of course, correct that domestic law may be "relevant" to jurisdictional issues. However, the cases cited by Respondent address the situation in which domestic law is used by a tribunal to determine a question of fact in connection to a jurisdictional issue.289 In none of these cases does domestic law define the basic jurisdictional requirements. Instead, domestic law may be used by a tribunal in order to determine whether a claimant has, as a matter of fact, satisfied the legal requirements for ICSID jurisdiction that are set by the applicable BIT and the ICSID Convention.

(b) Respondent’s "Intermediary Investor" Argument

In addition to its "derivative claim" arguments, Respondent also argues that the Treaty does not provide standing to an "indirect" shareholder who only owns shares in the allegedly injured company through an intermediary (in this case, Air Comet).293 Respondent suggests that because Article 1(2) does not explicitly refer to investments made "directly or indirectly," indirectly-held investments are not protected.
Several other ICSID tribunals have found indirectly-held shareholdings to constitute investments, even where the BIT does not explicitly refer to "directly or indirectly" held investments. For example, the tribunals in Kardassopoulos v. Georgia295 Cemex v. Venezuela296 and Mobil v. Venezuela297 addressed similar fact patterns and reached similar conclusions to that in Siemens.

(c) Respondent’s Policy Arguments

In addition to its legal arguments regarding the issue of the "indirectness" of Claimants’ shareholdings, Respondent has advanced a number of policy arguments against Claimants’ standing in this dispute. According to Respondent, the Claimants are upsetting the hierarchy of creditor claims against the Argentine Airlines and Interinvest, and it is inappropriate to award damages to a shareholder rather than to the company that has actually suffered injury. Respondent also expresses its concern that this suit could increase the risk that Respondent could be subjected to double-payment, because Interinvest could recover through the Argentine Courts in addition to any recovery by the Claimants under the Treaty.
Respondent’s assertions could have relevance in the merits proceeding of this case, but Respondent fails to demonstrate why these assertions are relevant at the jurisdictional stage. Moreover, Respondent has failed to articulate why these policy issues, as specifically applied to the facts at hand, should affect the outcome of this jurisdictional objection. Respondent has not attempted to demonstrate the extenuating nature of the facts here, or to differentiate the facts in this case from the large number of other ICSID cases in which claimant shareholders were found to have standing.
To conclude, the Tribunal finds that Claimants, as indirect shareholders, have standing to recover for damages that were inflicted upon the companies—i.e., Interinvest and the Argentine Airlines—in which Claimants invested. The ordinary language of Article 1(2) is designed to protect "all assets"—including indirect shareholdings. The Tribunal also finds that Claimants are not deprived of standing by the fact that their investments were made through their subsidiary, Air Comet.

ii. Claimants’ Other Investments

1. Positions of the Parties

Claimants assert that they have made several qualifying investments under Article 1(2) of the Treaty, and that these investments in Argentina go beyond the ownership and control of "shares and other forms of participation in companies."298 Specifically, Claimants assert that they have also made the following qualifying investments under the Treaty: (a) significant capital contributions to expand and support the Argentine Airlines’ operations, (b) concessions to operate in the Argentine airlines sector, (c) investment in management and know-how, (d) rights relating to aircraft, engines, a flight simulator, etc., and (e) movable and immovable property.299
Respondent disputes that these investments qualify under Article 1(2). Specifically, Respondent asserts that Claimants have not substantiated by evidence their capital contributions, nor would such contributions confer any rights other than those vested in shareholders.300 Respondent asserts that Claimants do not directly hold concessions to operate in the Argentine airlines sector and that they did not invest in other property and rights already within the possession of the Argentine Airlines at the time of investment.301 Finally, Respondent asserts that Claimants have not demonstrated that they actually made investments in the Argentine Airlines’ aircrafts, or that the Argentine Airlines were the recipients of aircrafts ordered by Astra, an Irish subsidiary of Claimants, nor would these activities constitute qualifying "investments" under the Treaty.302

2. Analysis of the Tribunal

The Tribunal will not address Claimants’ other alleged investments at this time. The Tribunal has concluded that Claimants’ indirect shareholdings constitute an "investment" under the Treaty. Consequently, Claimants have standing to bring this dispute. The Tribunal may consider Claimants’ other alleged investments at the merits stage of these proceedings.

iii. Claimants’ Third-Party Funding Agreement and Assignment of Award Proceeds

During the hearing on jurisdiction, Respondent raised its concern that Claimants’ and Air Comet’s recent reorganization proceedings in Spain could affect Claimants’ authorization to bring this case.303 In its post-hearing submissions, Respondent has also questioned two agreements entered into by Claimants subsequent to commencing this arbitration. One of these, a Credit Assignment Agreement among Teinver, Transportes de Cercanias and Autobuses Urbanos as the assignors and Air Comet as the assignee (the "Assignment Agreement"), dated January 18, 2010, concerned the assignment to Air Comet of the proceeds of a potential award in this arbitration. The other, a Funding Agreement made between Claimants and Burford Capital Limited, an investment company headquartered in Guernsey, and effective as of April 14, 2010 (the "Funding Agreement"), concerned the financing of Claimants’ litigation expenses in this arbitration.
The Parties do not dispute that Air Comet commenced voluntary reorganization proceedings on April 20, 2010.304 Nor do they dispute that the Claimants each commenced voluntary reorganization roughly a year later, with Teinver on December 23, 2010, Autobuses Urbanos on January 28, 2011, and Transportes de Cercanias on February 16, 2011.305
The Parties also acknowledge that Claimants concluded the Assignment Agreement, by which Claimants agreed to assign to Air Comet proceeds of an eventual award in this case.306 In addition, the Parties acknowledge that Claimants executed the Funding Agreement with Burford.307 However, the Parties disagree as to the effects of these agreements on Claimants’ standing in this case.

1. Position of Respondent

As a procedural matter, Respondent asserts that Claimants concealed their reorganization proceedings as late as April 12, 2011, and that Claimants were under a duty to make registration documents and court filings available to the Tribunal and Respondent.308
Respondent asserts that Claimants’ assignment to Air Comet of proceeds from an eventual award in this case was "fraudulent," because it was made on a date "suspiciously close" to Air Comet’s reorganization, and "gratuitous," because it was not backed by consideration.309 Respondent asserts that Claimants should have notified Respondent as the alleged debtor of the agreement.310 Moreover, Respondent argues that the agreement contravenes Spanish public policy on collection preferences, and that consequently the parties to the agreement were required to obtain judicial authorization from the Spanish courts in order to proceed.311
As for the assignment itself, Respondent maintains that Claimants assigned to Air Comet a right they never owned, because Claimants themselves lack jurisdiction to bring this dispute and claim a remedy. Such an assignment would violate the general principle of law under which "a person can transfer no greater right than he owns[…]"312 Moreover, Claimants’ lack of standing is clear in light of the very text of the assignment to Air Comet and related court-filed writings, which note that "AIR COMET is the one that is in fact affected by the expropriation since it owns 100% of Interinvest S.A., which in turn owns 100% of Aerolineas Argentinas’ shares..,"313
Regarding Claimants’ Funding Agreement with Burford, Respondent asserts that it is Burford, and not Claimants, that is the real party interested in this arbitration. According to Respondent, Burford has "not only invoked that it holds a purported "common legal interest" with the Claimants in this proceeding, but it is also the only party that would seem to be potentially benefited in the case of a hypothetical award against Argentina in the instant case."314
According to Respondent, Burford does not meet the basic jurisdictional requirements under the ICSID Convention. Burford is not an investor in Argentina, nor is it a company organized in Spain that could invoke the Treaty relied upon by Claimants to institute this arbitration proceeding.315 Thus, allowing Burford to benefit from a dispute settlement mechanism authorized under the Treaty is contrary to the object and purpose of the latter, and would impermissibly bypass the limits of Argentina’s and Spain’s consent to arbitral jurisdiction.316

2. Position of Claimants

Claimants contest Respondent’s assertion that Claimants have purposefully concealed information from this Tribunal regarding the voluntary reorganizations. Claimants assert that they have disclosed in good faith all relevant facts during this arbitration proceeding, and that the allegedly "concealed" reorganizations have no bearing on this Tribunal’s jurisdiction. Likewise, the Assignment Agreement and the Funding Agreement are irrelevant to the question of the jurisdiction of this Tribunal.317
According to Claimants, Respondent’s assertions are misplaced for the following reasons: (i) Claimants’ standing to bring this arbitration is exclusively governed by the ICSID Convention and the Treaty; (ii) under the ICSID Convention, the Treaty and international law, the relevant date for the purposes of determining the Tribunal’s jurisdiction is the date of the institution of the proceedings; and (iii) both the Spanish reorganization proceedings and the Assignment Agreement post-date the institution of the proceedings.318
Claimants emphasize that Article 25 of the ICSID Convention defines "national of another contracting state" as "any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration"319 According to Claimants, this principle has been firmly established by ICSID tribunals, and moreover, is a firmly established rule in international adjudication.320
Claimants note that consent was perfected on November 20, 2008, that the Request for Arbitration was filed on December 11, 2008, and that registration of their Request by ICSID took place on January 30, 2009. No events between those dates would affect the Claimants’ standing in these proceedings.321 Each of Respondent’s allegations occurred after the institution of these proceedings, and is therefore irrelevant to the issue of jurisdiction. Specifically, the Assignment Agreement between Claimants and Air Comet was executed January 18, 2010. The Funding Agreement between Claimants and Burford took effect on April 14, 2010. Claimants’ Spanish reorganization proceedings occurred starting in late December, 2010.
With respect to Claimants’ Spanish reorganization proceedings, Claimants note that these proceedings were voluntarily initiated, and that Claimants have kept the administration and disposition powers over their assets.322 Claimants assert that under Spanish law, they do not need the express authorization of their respective reorganization administrators to continue any arbitration proceedings, including the instant one before ICSID, unless they were to withdraw, to accept a counter-claim, or to settle the dispute.323 Nonetheless, their respective reorganization administrators have provided letters demonstrating their knowledge and acquiescence to continue this arbitration.324
Claimants argue that their assignment of the rights of the net proceeds of this arbitration to Air Comet has no bearing on Claimants’ standing to bring this arbitration. The Assignment Agreement is a valid transaction which remains in full force and effect. Even if the Assignment Agreement was declared null and void, such circumstance would not undermine Claimants’ standing to bring the present claim against Argentina. Claimants’ position as Argentina’s creditor would remain unaltered, and Air Comet would be the only one affected by the declaration of nullity.325
Furthermore, Claimants argue that Respondent incorrectly characterizes the Air Comet assignment as an "assignment of a claim." In fact, Claimants have executed an assignment of the rights to the net proceeds that may be obtained from an eventual award against Argentina. Claimants remain the legal holders of the claim against Argentina.326 Under the assignment, Air Comet is to receive any proceeds that may remain after deducting all payments.327
Finally, with respect to the Burford Funding Agreement, Claimants submit that Burford is not a party to the arbitration. The Claimants did not sell or transfer the claim to Burford. Rather, Burford funds the arbitration in exchange for a percentage of the recovery in the case of a successful claim. Such financing agreements are frequently made, and Respondent has pointed to no investment award or decision finding third-party funding to be illegitimate, unlawful or inappropriate.328

3. Analysis of the Tribunal

(a) Existence of Jurisdiction

Second, to the extent that Respondent’s standing argument is based on the assertion that Claimants transferred their rights or interests in this case to Burford after initiating this arbitration, this argument is unavailing. As Schreuer notes, "ICSID Tribunals have applied [the principle that jurisdiction is determined as of the date of filing] consistently. In some cases the claimants had divested themselves of or had transferred the rights that had given rise to the dispute after the institution of proceedings. Tribunals have rejected the argument that, as a consequence, claimants in the proceedings were no longer the real parties in interest."331 In CSOB v. Slovakia, the claimant had, subsequently to filing the arbitration, assigned its arbitral claims against the respondent to a third party. The tribunal in CSOB held that it is generally recognized that the determination whether a party has standing in an international judicial forum for purposes of jurisdiction to institute proceedings is made by reference to the date on which such proceedings are deemed to have been instituted. Since the Claimant instituted these proceedings prior to the time when the two assignments were concluded, it follows that the Tribunal has jurisdiction to hear this case regardless of the legal effect, if any, the assignments might have had on Claimant’s standing had they preceded the filing of the case.332
Third, to the extent that Respondent’s characterization of the Assignment Agreement as "fraudulent" implies that Claimants committed illegalities under Spanish law with respect to the performance of their investment, this argument is similarly unavailing. In Hamester v. Ghana, the respondent argued that claimant had committed illegalities in the performance of the investment.333 Like the Treaty, the BIT in Hamester required the investment to be legally acquired. However, the Tribunal found that subsequent illegality did not affect its jurisdiction over claimant’s dispute.334
Respondent has not countered these cases with any opposing case law, nor has it seriously sought to distinguish the facts in the current dispute. As a factual matter, Respondent does not contest Claimants’ assertion that consent to this arbitration was perfected on November 20, 2008, that the Request for Arbitration was filed on December 11, 2008, and that registration took place on January 30, 2009. Nor does Respondent assert that any of the events it alludes to occurred prior to this time. Ordered chronologically, the subsequent events referred to by Respondent in its pleadings occurred as follows:

• January 10, 2010: Assignment Agreement executed assigning potential proceedings of an award under this arbitration from Claimants to Air Comet

• March 23, 2010: Reorganization proceedings of Air Comet commence

• April 14, 2010: Funding Agreement executed between Burford and Claimants regarding the financing of this arbitration

• April 24, 2010: Agreement executed between King & Spalding, counsel for Claimants, and Claimants

• June 21, 2010: Agreement between Air Comet and its reorganization administrators

• December 22, 2010: Spanish judge authorizes Air Comet’s reorganization administrators to consent to the Burford Agreement

• December 23, 2010: Reorganization proceedings of Teinver commence

• January. 28, 2011: Reorganization proceedings of Autobuses commence

• February 16, 2011: Reorganization proceedings of Cercanias commence

Based on the fact that each of the allegations made by Respondent concerns an event—the Claimants’ reorganizations, the Assignment Agreement and the Funding Agreement—that postdates the filing of the arbitration, the Tribunal finds this sufficient grounds to reject Respondents’ objection. The Tribunal will not address Respondent’s remaining allegations regarding the Assignment Agreement and the Funding Agreement as they concern Claimants’ standing, without prejudice to further submissions by the Parties in respect of the Respondent’s allegations in so far as they affect the merits of Claimants’ claims, as appropriate, during the merits stage.

d. Third Jurisdictional Objection: Issues of State Attribution

In their Memorial on the Merits, Claimants have asserted that the administration of Argentine President Nestor Kirchner was "hostile towards Claimants’ management of the Argentine Airlines and seemed driven by a desire to ultimately "re-Argentinize" the companies."335 Claimants assert that the administration took a number of measures that destabilized the legal and business environment surrounding Claimants’ investment.336
In particular, Claimants highlight President Kirchner’s appointment of Mr. Ricardo Cirielli as Undersecretary of Air Transportation. Claimants describe Mr. Cirielli as a powerful union leader who had a record—both before and after his appointment—of being openly critical of Claimants’ management of the Argentine Airlines.337 Claimants assert, moreover, that during his appointment as Undersecretary of Air Transportation, Mr. Cirielli repeatedly lent his support to the unions and spoke out against airfare increases requested by the Argentine Airlines.
Claimants also assert that the Government of Argentina "implicitly suppor[ed]" strikes organized by the Argentine Aeronautical Technical Staff Association ("APTA") and the Argentine Airline Pilots Association ("APLA").338 Claimants point to a 9-day strike that was organized by APLA and APTA in November 2005. Claimants allege that this strike severely affected the Argentine Airlines generally and ARSA in particular, affecting around 95,000 passengers, causing nearly 380 flights to be suspended and causing a loss of approximately US$12 million to the Argentine Airlines.339

i. Position of Respondent

ii. Position of Claimants

Claimants assert that questions of state attribution should be decided in the merits phase of this arbitration.352 Several investment law awards have held that whether state attribution is a question of jurisdiction or of merits is not clear-cut, and depends on the given case.353 Here, because the question of state attribution is closely intermingled with the merits, and because it requires an in-depth analysis of the complex relationships between certain acts and the state, it is appropriate to resolve these issues during the merits phase.354
In the alternative, Claimants argue that the acts of the unions are attributable to Respondent. There is ample evidence that in various instances, APTA and APLA acted "on the instructions or under the direction or control" of Respondent.355 Respondent maintains that the acts of the unions can only be attributable to the GOA if the government exercised "effective control" over them. Some tribunals have, however, rejected this "effective control" test in favor of an "overall control" test, including the Appeals Chamber of the International Criminal Tribunal for the former Yugoslavia and the European Court of Human Rights.356 Claimants assert that there is ample evidence that Respondent exerted overall control over the unions, especially through Mr. Cirielli.357 By appointing Mr. Cirielli as Undersecretary of Air Transportation while allowing him to simultaneously retain a position as union leader, Respondent created the situation of control over the union.358 Respondent also, at least implicitly, supported strikes organized by APLA and APTA, including strikes in November 2005, September and October 2007, and January 2008, which caused the Argentine Airlines significant harm.359
Claimants assert that they do not currently seek to attribute to Respondent acts by Mr. Cirielli made prior to his appointment as Undersecretary.360 Claimants simply seek to demonstrate that the Argentine Government knowingly appointed and kept in office an Undersecretary of Air Transportation who had previously served as the Secretary General of the powerful APTA union and who was openly hostile to Claimants’ management of the Argentine Airlines as an element of their allegations of unfair treatment under the Treaty at the hands of the Respondent.361 Moreover, Respondent does not dispute that the acts by Mr. Cirielli during his tenure as Undersecretary are attributable to Respondent.362 Citing Article 4 of the ILC Articles, Claimants assert that such acts are attributable to Respondent, even if they amount to an abuse of power.363

iii. Analysis of the Tribunal

The Tribunal notes that Respondent has not asserted that none of the acts alleged in Claimants’ Memorial on the Merits are attributable to the Argentine Government. Rather, Respondent’s arguments in this regard concern only whether certain alleged acts committed by two Argentine labor unions and by the Argentine Undersecretary of Air Transportation may be attributed to the State.
While Respondent asserts that substantial case law supports its position that the question of attribution is jurisdictional in nature,364 this case law also recognizes that not all questions of attribution are identical or involve an identical context. Case law on this subject does support the conclusion that matters of state attribution should be adjudicated at the jurisdictional stage when they represent a fairly cut-and-dry issue that will determine whether there is jurisdiction.
For example, the issue before the Maffezini tribunal concerned the question whether the dispute between the claimant and respondent, a private commercial corporation established by the Spanish government, constituted an investor-State dispute under the meaning of Article 25 of the ICSID Convention, or whether it merely constituted a private dispute. The Maffezini tribunal determined that the question whether the respondent could be considered a state entity was critical to whether the tribunal could take jurisdiction over the case.365 In CSOB, and also for purposes of determining whether the dispute constituted an investor-State dispute under Article 25, the tribunal had to determine whether the claimant was a private entity or subject to state control.366
Here it is not necessary for the Tribunal to attribute the acts of the unions and Mr. Cirielli to the Respondent in order for this Tribunal to have jurisdiction over the dispute. The Claimants allege actions by Argentine government institutions contrary to the Treaty, whose attribution to the Respondent is not in dispute. Moreover, the issue of the attribution of the acts by the unions and Mr. Cirielli is not clear-cut. As the tribunal in Hamester noted:

[I]n many instances, questions of attribution and questions of legality are closely intermingled, and it is difficult to deal with the question of attribution without a full enquiry into the merits. In any event, whatever the qualification of the question of attribution, the Tribunal notes that, as a practical matter, this question is usually best dealt with at the merits stage, in order to allow for an in-depth analysis of all the parameters of the complex relationship between certain acts and the State... This approach — to deal with the question of attribution as a merits question — is particularly appropriate, in the Tribunal’s view in this case. The Tribunal is not faced here with a situation where it is readily evident that the State is not involved at all, or where the issue is capable of an answer based upon a limited enquiry (akin to other jurisdictional issues).367

Respondent argues, based on Hamester, that it is clear that Respondent is not involved at all with these alleged acts, and that this issue can be resolved on a preliminary basis. However, the issue is not as straight-forward as Respondent asserts.

Claimants’ assertions regarding the unions and Mr. Cirielli are closely connected to their allegation that Respondent has violated the Treaty. Both sets of assertions concern the difficult and fact-intensive question of whether the Argentine government tolerated or encouraged or otherwise supported the union activities in question. In the case of the unions, Claimants assert that Respondent’s support of the unions was part of its broader goal to renationalize the Argentine Airlines.368 In the case of Mr. Cirielli, Claimants seek to demonstrate that Respondent knowingly appointed and kept in office an individual who was hostile to the Claimants’ presence in Argentina.369 If the Tribunal were to resolve these issues at this jurisdictional stage, it would do so only on the basis of the Parties’ arguments from their jurisdictional pleadings. The Tribunal would not have the benefit of the Parties’ further pleadings on the merits or any further evidentiary submissions that may touch upon these issues. Given the fact-intensive nature of Claimants’ allegations, the Tribunal must postpone adjudication of this issue until the merits phase. Consequently, Respondent’s jurisdiction objection is rejected.

Given this conclusion, it is not necessary for the Tribunal to address in detail the substance of Respondent’s arguments regarding attribution. The Tribunal does note, however, that Respondent has requested the Tribunal to expressly declare that the acts of labor unions are not attributable to the Argentine Republic under Articles 4 or 5 of the ILC Articles,370 which address, respectively, the conduct of organs of a State and of persons or entities that are empowered by the law of that State to exercise elements of government authority. Claimants have responded to this request, arguing that they do not in fact maintain that the unions fall within Articles 4 or 5 of the ILC Articles. Rather, to Claimants, the issue is whether they fall within Article 8 of the ILC Articles,371 which concerns conduct of a person or group acting on the instructions of, or under the direction or control of a State. Because the two Parties agree that Article 8, and not Articles 4 or 5, would be relevant to the analysis of the unions’ conduct,372 there is no need for this Tribunal to make any such declaration.373

Finally, it should be clarified that both Parties agree that the current objection on the attribution of state acts refers to Mr. Cirielli’s acts before and after his tenure as the Undersecretary of Air Transportation. While Claimants discuss Mr. Cirielli’s acts during office in their pleadings,374 this issue was not within the scope of Respondent’s original objection.375 Furthermore, Claimants assert that they do not seek to attribute liability to Respondent for Mr. Cirielli’s pre-office acts.376 As such, the Parties do not appear to actually disagree on the issue of attribution as it concerns Mr. Cirielli’s conduct before and after holding his office.377

e. Fourth Jurisdictional Objection: The Legality of Claimants’ Investment

i. Position of Respondent

In Respondent’s fourth and final objection, it asserts that Claimants’ investment is not protected by the Treaty because of alleged illegalities connected to that investment. Specifically, Respondent asserts that Claimants, by certain actions taken with respect to their investment, have violated Spanish and Argentine law and have committed other misdeeds.

Alleged Violations of Spanish Law

Respondent bases its allegations on a pending proceeding in Spain involving the directors of Air Comet. Respondent alleges that subject matters of the investigation have a direct impact on and relation to this arbitration.378
Respondent bases its allegations on facts alleged by the Office of the Attorney General in an ongoing Spanish court investigation of directors of SEPI and Air Comet, involving acts related to the 2001 Share Purchase Agreement ("SPA") between SEPI and Air Comet.379 According to Respondent, the investigation concerns whether these actors were guilty of misappropriation of public funds, fraud or illegal exaction, document forgery, fraudulent use of process, and/or crimes against the federal treasury in connection with the SPA.380
The SPA, which provided for the transfer of SEPI’s 99.2% shareholding in Interinvest to Air Comet, was approved by the Spanish Cabinet and was subsequently executed on October 2, 2001. As part of the SPA, SEPI sold to Air Comet S.A. its interest in Interinvest for US$ 1 dollar, while SEPI agreed to transfer $300 million to Interinvest to service ARSA’s liabilities (in addition to transferring other funds to Air Comet).381 Respondent alleges that instead of complying with the terms of the SPA, Air Comet used the SEPI funds to buy the existing claims against ARSA, with Air Comet subrogated as a creditor.382
According to Respondent, the defendants in this investigation purportedly have asserted that SEPI and Air Comet executed a supplemental private agreement, signed on October 15, 2001, in which the parties agreed that Air Comet would subrogate the claims as described above. However, the Spanish Office of the Attorney General believes this document may either be a false document created after its indicated date, or, to the extent it is an authentic document, it concerns conduct that deviates from that which was authorized in the SPA by the Spanish Cabinet.383
Respondent alleges that Air Comet committed tax fraud in connection with its subrogation of ARSA’s debt claims. Respondent asserts that Air Comet failed to declare its subrogation for tax purposes, even though it created a taxable event under Spanish law when it acquired claims against ARSA.384 According to Respondent, several of the defendants in the proceeding have already made court statements and the State Agency of the Tax Administration has issued an expert report.385
Respondent notes that the Spanish Central Court for Investigative Proceedings No. 6 of Madrid concluded on September 7, 2011 that the investigations in this proceeding allow the inference that Diaz Ferran, Pascual Arias and Mata Romayo were involved in conduct that could be "presumably and initially qualified as a crime against the Treasury Department committed by Air Comet."386 Respondent also notes that the Prosecution of the Spanish National Court has requested a penalty of imprisonment for Mr. Diaz Ferran, Mr. Pascual Arias and Mr. Antonio Mata Ramayo, along with a joint compensation amounting to 99 million euros.387
In addition to this investigation, Respondent notes a number of "new developments" as of March 26, 2012 in pending Spanish criminal proceedings that directly involve Mr. Diaz Ferran and Mr. Pascual Arias.388
First, Respondent notes that the Central Court for Investigation Proceedings No. 1 of Madrid admitted a criminal investigation proceeding on February 2, 2012 against Mr. Diaz Ferran, Mr. Pascual Arias and Mr. Ivan Losada (administrator of Teinver S.L.) in connection with their management of Viajes Marsans.389
Second, Respondent notes that Mr. Diaz Ferran and Mr. Pascual Arias are being investigated in another proceeding by the Spanish National Court in connection with the potential commission of procedural fraud. According to Respondent, the two men allegedly submitted false documentation to a judge in order to obtain an unfair judicial resolution.390
Third, Respondent notes that one of the Marsans Group’s creditors has brought a criminal action against Mr. Diaz Ferran, Mr. Pascual Arias, Mr. Ivan Losada and Mr. Angel de Cabo in the Court for Investigation Proceedings No. 8 of Madrid, concerning their actions with respect to insolvency proceedings. According to Respondent, Mr. Diaz Ferran and Mr. Pascual Arias sold their companies to Possibilitum Business, controlled by Mr. de Cabo, which had engaged in illegal activities in the course of reorganization proceedings.391
Fourth, Respondent points to a proceeding pending before Commercial Court No. 12 of Madrid, and notes that the Province of Madrid’s Prosecutor (Economic Crimes Section) has requested the court that Mr. Diaz Ferran, Mr. Pascual Arias and Possibilitum Business be declared guilty with respect to acts taken as the de facto and de jure administrators in the reorganization of Viajes Marsans S.A., Viajes Crisol S.A.U., Rural Tours S.A.U. and Tiempo Libre S.A.U.392
Fifth, Respondent notes that the Commercial Court No. 9 of Madrid found Mr. Diaz Ferran and Mr. Pascual Arias "guilty of the bankruptcy of Seguros Mercurio S.A."393 Respondent notes that the court also found Teinver and other Marsans Group companies "liable as accomplices to the bankruptcy."394 Specifically, Teinver and the other companies directly took part in transactions, particularly in 2008 and 2009, intended to fraudulently remove assets owned by Seguros Mercurio.395

Alleged Violations of Arsentine Law

Respondent notes that Air Comet was engaged in "irregular and fraudulent behavior" during the course of ARSA’s reorganization proceedings.396 Respondent asserts that during the reorganization proceedings, Air Comet was both the controlling company of the airline and its main creditor, thereby acting in an impermissible double role under Argentine law.397
Respondent also notes that a criminal investigation has been filed in the Argentine courts against Antonio Mata Ramayo, Diaz Ferran, Pascual Arias and others, as directors of ARSA, regarding the "fraudulent administration" of the company.398 The investigation comprises several components. First, and similar to the Spanish investigation above, the subjects of investigation have been charged with causing Air Comet’s fraudulent diversion of SEPI funds intended to settle ARSA’s liabilities.399 Second, the investigation concerns ARSA’s December 31, 2001 balance sheet, which allegedly included bogus entries regarding SEPI’s alleged capital contribution of ARS 1,238 million in 2001. Respondent asserts that these bogus entries resulted in the dilution of the Argentine State’s shares in the airlines, reducing its participation below the minimum legal threshold for active participation as a shareholder.400 Third, the investigation concerns possible crimes committed by Mr. Mata and others in relation to Air Comet’s subrogation of claims previously held by third-party creditors. Allegedly, Air Comet re-assigned these claims to another company, Royal Romana Playa S.A., for valuable consideration, allowing the latter to cast a vote in ARSA’s reorganization plan.401
Finally, Respondent asserts that it is irrelevant that the Commercial Court of Buenos Aires ended ARSA’s reorganization proceedings on June 17, 2011.402 The termination of those proceedings does not demonstrate that Claimants committed no illegalities with respect to ARSA’s reorganization, and indeed, the criminal investigations in Spain and Argentina are ongoing with respect to Claimants’ fraudulent conduct and irregularities in connection with ARSA.403

Other Alleged Misdeeds

Respondent also points to a number of "issues" with the business management of the Grupo Marsans and of the Argentine Airlines. Respondent characterizes Marsans’ management worldwide as "deplorable," noting that Air Comet’s operations halted in 2009, that a number of writs of attachment have been issued against Marsans’ owners, Diaz Ferran and Pascual Arias, that other legal suits that have been brought against certain Marsans affiliates, and that certain Marsans affiliates are undergoing reorganization.404 Respondent also notes "accounting irregularities" in the Argentine Airlines, including the commingling of assets.405The Relevant Inquiry of Legality for Purposes of Jurisdiction
Respondent asserts that the Treaty only protects investments that were made and carried out in accordance with the laws of the host state.406 The purpose of Article 1(2), which defines "investments," is to prevent the Treaty from protecting investments that should not be protected.407 Moreover, there is consensus within international investment law that fraud is prohibited according to good practices and international public policy.408
Respondent does not believe that the jurisdictional issue solely concerns whether the investments were made in accordance with Argentine law; this interpretation leads to results contrary to the object and purpose of the Treaty.409 If the investment’s inception was the only relevant criterion at the jurisdictional stage, this would lead to an absurd situation in which transactions that were made legally, but were followed by "an everlasting series of illegal acts" following their creation, nonetheless still benefit from the Treaty’s protections.410 Moreover, it would be necessary to consider the time at which each investment was made, which would be infeasible in most disputes in which there are numerous investment transactions involved.411
Respondent asserts that even if the jurisdictional test is limited to the time of the investment’s inception (here, the acquisition by Air Comet of Interinvest), the Tribunal is not limited to assessing only the formal act of executing the SPA.412 Rather, the Tribunal must take account of the whole complex transaction leading to the "inception" of the investment, which includes both the execution of the SPA and the breach of or compliance with its terms.413
Finally, Respondent notes that even though this Tribunal is not bound by the conclusions made by local authorities, they may be of "substantial assistance" for the Tribunal to determine the legality of Claimants’ investments.414 Furthermore, the "presumption of innocence" criminal law standard cannot be imputed into the context of international investment law, as Claimants have argued.415

Good Faith

As a final argument, Respondent asserts that an investment that "deliberately runs afoul of the law of the state" cannot be considered to have been made in good faith.416 Respondent points to Claimants’ alleged breach of good faith in Air Comet’s subrogation of ARSA’s creditors’ claims and in Air Comet’s failure to declare this subrogation to the Spanish authorities due to its character as a taxable event417 Respondent also accuses the Grupo Marsans of ignoring good faith principles "in multiple jurisdictions."418

ii. Position of Claimants

Claimants argue that Respondent has failed to establish that Claimants’ investments do not conform to Argentine or Spanish law. According to Claimants, Respondent’s allegations of illegality are "meritless."419 The mere existence of investigations in Spain and Argentina regarding Claimants’ investments does not provide grounds for the Tribunal to deny jurisdiction.420 Moreover, Respondent fails to demonstrate how the issues at play in the Spanish investigation would render Claimants’ acquisition of its investment illegal under Argentine law.421 Claimants assert that, in any event, the Treaty only requires that the investment be in conformity with the host State’s law at the time of the initiation of the investment, which it did.

Alleged Violations of Spanish Law

According to Claimants, the Spanish legal investigations are not relevant to the jurisdictional inquiry because they do not concern Claimants’ acquisition of their participation in the Argentine Arlines. Respondent has not claimed that Claimants made their acquisition through, for example, an act of corruption or fraud.422 Instead, the Spanish investigations concern 1) whether, in the performance of the SPA, SEPI should have requested prior consent of the Spanish Cabinet before allowing Air Comet to subrogate the rights of ARSA creditors,423 and 2) whether Air Comet should have considered the acquisition of those credits for purposes of corporate income tax.424
Moreover, Claimants assert that Air Comet properly used the funds provided by SEPI,425 and it did so with SEPI’s consent426 Claimants state that Respondent is also mistaken in its allegation that Air Comet gratuitously increased its patrimony with SEPI funds while failing to add them to its asset base for Spanish corporate tax purposes. Those credits against ARSA never actually entered into Air Comet’s patrimony. Air Comet acted in accordance with the SPA and the December 2001 Agreement in using SEPI’s funds in direct benefit of ARSA’s shareholder (Interinvest), which in return capitalized the credits, increasing its stockholding in ARSA and reducing the airline’s debt.427
Claimants argue that the "mere existence" of the investigations and court proceedings in Spain and Argentina is insufficient to demonstrate an illegality.428 Claimants note that even if a Spanish or Argentine court was to render a decision finding that Claimants had breached domestic law when making their investments, such a decision would not be binding on this Tribunal.429 Respondent must prove its allegations of illegality before this Tribunal.
More specifically, Claimants disagree with Respondent regarding the contents of the September 7, 2011 Spanish court order. Claimants assert that the order did not make a final determination that crimes had been committed.430 Rather, the court decided to continue with its investigation based on its finding that a crime may have been committed against the Spanish Treasury with respect to Air Comet’s Spanish corporate income tax for 2002.431 In that same order, however, the court also ordered the dismissal of every other accusation against Air Comet and the other individuals, including Diaz Ferran and Pascual Arias, which included the crimes of falsification, unlawful exaction, procedural fraud, and misappropriation of public funds.432 With respect to the alleged crimes against the Spanish Treasury, there has been no decision on the preliminary investigation.433
According to Claimants, even assuming that Respondent had provided sufficient legal and factual elements for the Tribunal to find a violation of Spanish law, it fails to demonstrate how such breaches of Spanish law could amount to breaches under Argentine law, which is the only standard under the Treaty (Art. 1(2)).434
With respect to the "new developments" alleged by Respondent, Claimants assert that these developments have no bearing on either the inception of Claimants’ investment or on Argentine law, and that in any case, these developments consist of "mere allegations."435
First, with respect to the proceedings at the Central Court for Investigation Proceedings No.l of Madrid regarding the alleged embezzlement by Mr. Diaz Ferran, Mr. Pascual Arias and Mr. Ivan Losada, Claimants assert that these proceedings are totally unrelated to the jurisdiction of this Tribunal and to the subject matter of the arbitration436
Second, with respect to the procedural fraud claims, Claimants deny the validity of the claims as well as Respondent’s purportedly unsupported conclusions.437
Third, with respect to the investigation concerning the legality of operations within the reorganization proceedings pending before the Court for Investigation Proceedings No. 8 of Madrid, Claimants assert that neither the claims nor the reorganizations themselves have any bearing on the present arbitration.438
Fourth, concerning the reorganization proceeding pending before Commercial Court No. 12 of Madrid, Claimants assert that this proceeding is irrelevant to the present arbitration. Moreover, the Prosecutor’s petition has been opposed by the interested parties and no decision has yet been issued439.

Fifth, Claimants address the Commercial Court No. 9 of Madrid’s findings that Gerardo Diaz Ferran and Gonzalo Pascual Arias were "guilty of the bankruptcy of Seguros Mercurio, S.A." and that Teinver and other Marsans Group companies were liable as accomplices. Claimants assert that the bankruptcy of Seguros Mercurio S.A. is "unrelated to Claimants’ second request for provisional measures, the jurisdiction of this tribunal, or even the subject matter of these proceedings."440 Moreover, the Court’s May 11, 2012 decision is not final, and Claimants understand that such appeal will be filed in due course.441

Alleged Violations of Argentine Law

Claimants assert that Argentine investigations into fraudulent management are groundless. First, Claimants state that the funds obtained from SEPI were properly used and directly or indirectly resulted in a benefit to ARSA and AUSA.442 Second, Claimants note that Respondent did not disapprove of ARSA’s 2001 balance sheets, and that Respondent’s participation levels shrank after it failed to make the necessary contributions to maintain its participation at prior levels443 Claimants note that the Argentine proceedings remain at the preliminary investigation stage444
Claimants also assert that Air Comet fully complied with the Argentine Bankruptcy Law with respect to the reorganization of ARSA.445 The majority of ARSA’s trustees approved the settlement agreement between ARSA and its creditors, and this settlement was subsequently approved by the responsible Argentine court446 Furthermore, the Commercial Court of Buenos Aires ended ARSA’s reorganization proceedings on June 17, 2011. The court made no finding that Claimants, Air Comet or Interinvest had committed irregularities or illegalities during the reorganization. This decision therefore confirms that Respondent’s accusations of "irregularities" in the context of ARSA’s reorganization are groundless.447Other Alleged Misdeeds
Claimants respond that Respondent has failed to demonstrate the relevance of the bankruptcy proceedings or of the other circumstances surrounding Grupo Marsans’ financial difficulties448 Furthermore, Claimants assert that it was Respondent’s own failure to grant prompt and adequate compensation and to observe its commitments that severely impacted Claimants’ group of companies.449

The Relevant Inquiry of Legality for Purposes of Jurisdiction

Claimants assert that the Treaty only requires that the investment conform to law of the host State at the time it was "acquired or effected."450 In other words, the analysis of the Tribunal at this stage must focus on the initiation of the investment. This assertion is also confirmed by relevant case law.451 Claimants note that Respondent has not denied that Air Comet prevailed at the SEPI auction and legally acquired 99.2% shares of Interinvest, and that the SPA is a legal and binding agreement under Spanish law.452
Respondent’s allegations refer only to the performance, rather than the inception, of Claimants’ investment.453 But Respondent has failed to provide any authority in support of its assertion that an investment must conform to the host state’s law throughout the course of its operation and not just at the time of its commencement in order for it to fall within the protection of the Treaty. If such a requirement existed, almost any investment could be disqualified from Treaty coverage by pointing to technical violations of local law in the operation of the investment.454 Furthermore, as described above, Respondent has failed to substantiate its allegations on non-performance.455Good Faith
Claimants assert that Respondent has not provided evidence that Claimants acted in bad faith at the time of making the investment (or later)456 Unlike the case law cited by Respondent, there is no evidence of fraud on the part of Claimants at the time of the making of their investment, nor is there evidence that Claimants have attempted to gain access to an ICSID arbitration procedure to which they would not otherwise have been entitled.457 Respondent has simply repeated certain allegations such as the allegation that Air Comet purportedly committed tax fraud under Spanish law in its acquisition of liabilities of ARSA.458

iii. Analysis of the Tribunal

The Parties disagree on two initial legal issues regarding the above allegations. First, they disagree over whether, under the Treaty and international investment law, all illegalities committed by investors in connection with an investment can deprive the investor of protection under the Treaty, or only illegalities that are related to the inception of the investment. Second, the Parties disagree on whether, as a factual matter, the illegalities alleged to have been committed by the Claimants occurred at the "inception" of the investment or at a subsequent time.

1. Timing of the Alleged Illegality

As Respondent notes, it is widely acknowledged in investment law that the protections of the ICSID dispute settlement mechanism should not extend to investments made illegally. As noted recently by the tribunal in Hamester v. Ghana,

An investment will not be protected if it has been created in violation of national or international principles of good faith; by way of corruption, fraud, or deceitful conduct; or if its creation itself constitutes a misuse of the system of international investment protection under the ICSID Convention. It will also not be protected if it is made in violation of the host State’s law (as elaborated, e.g. by the tribunal in Phoenix)459

Case law addressing BITs with similar language also supports this interpretation. The Germany-Ghana BIT at issue in Hamester contained similar language to the Treaty, and the tribunal ruled that only the inception of the investment was relevant for its jurisdictional inquiry:

The Tribunal considers that a distinction has to be drawn between (1) legality as at the initiation of the investment ("made") and (2) legality during the performance of the investment. Article 10 legislates for the scope of application of the BIT, but conditions this only by reference to legality at the initiation of the investment. Hence, only this issue bears upon this Tribunal’s jurisdiction. Legality in the subsequent life or performance of the investment is not addressed in Article 10. It follows that this does not bear upon the scope of application of the BIT (and hence this Tribunal’s jurisdiction) - albeit that it may well be relevant in the context of the substantive merits of a claim brought under the BIT. Thus, on the wording of this BIT, the legality of the creation of the investment is a jurisdictional issue; the legality of the investor’s conduct during the life of the investment is a merits issue.460

Similarly in Fraport, the respondent in that dispute had asserted that in order for the claimant to maintain jurisdictional standing under the Germany-Philippines BIT, the investment must not only be in accordance with the domestic law at the commencement of the investment but must also continually remain in compliance with the domestic law. While the tribunal ultimately agreed with the respondent that the investment was illegally acquired,461 the tribunal rejected the respondent’s interpretation regarding the continuation of the investment. It noted,

The language of both Articles 1 and 2 of the BIT emphasizes the initiation of the investment. Moreover the effective operation of the BIT regime would appear to require that jurisdictional compliance be limited to the initiation of the investment. If, at the time of the initiation of the investment, there has been compliance with the law of the host state, allegations by the host state of violations of its law in the course of the investment, as a justification for state action with respect to the investment, might be a defense to claimed substantive violations of the BIT, but could not deprive a tribunal acting under the authority of the BIT of its jurisdiction462

Even in Inceysa, a case in which the tribunal determined that the claimants had committed numerous fraudulent acts, the tribunal’s inquiry was directed towards the inception of the investment: "[T]he foreign investor cannot seek to benefit from an investment effectuated by means of one or several illegal acts and, consequently, enjoy the protection granted by the host state, such as access to international arbitration to resolve disputes, because it is evident that its act had a fraudulent origin and, as provided by the legal maxim, "nobody can benefit from his own fraud."463 All of the Inceysa tribunal’s factual findings of fraud concerned the inception of the investment, including the claimant’s presentation of false information as part of its bid tender, false representations made during the bidding process, false documents submitted as part of its bid, and a hidden relationship with another bidder in contravention of the bidding rules464
In addition, the Tribunal notes that the relevant law for purposes of determining whether the investment was legally made is the law of the host State. Several of Respondent’s arguments concern allegations of illegality under Spanish law. In support of these arguments, Respondent asserts that "the general principles that endorse the non-protection of illegal investments or investments made in bad faith... are not limited to the law of the host State, but also to the laws of other countries that may be involved."465 Once again, however, Article 1(2) of the Treaty, which refers to investments "acquired or effected in accordance with the legislation of the country receiving the investment," makes clear that the relevant law for this issue is the legislation of Argentina.

2. Claimants’ Alleged Illegalities

As Claimants note, Respondent has not denied that Air Comet prevailed at the SEPI auction and legally acquired 99.2% shares of Interinvest, and that the SPA is a legal and binding agreement under Spanish law.468 Instead, Respondent relies on the argument that account must be taken of the whole complex transaction leading to the "inception" of the investment—i.e., the SPA and its "related legal acts, including the breach of or compliance with its terms."469
However, Respondent’s reliance on the whole of the SPA "transaction" is misplaced. The SPA is a contract between SEPI and Air Comet to effectuate an exchange of benefits, liabilities and obligations. Some of the commitments made by the parties relate to the transfer of share ownership in Interinvest.470 However, the SPA’s other commitments concern not only SEPI’s assumption of liabilities and other economic commitments of the Argentine Airlines, but also obligations as diverse as management structures, the size of the Argentine Airlines’ aircraft fleet, the air routes to be taken by the Argentine Airlines, and employee headcount.471 Each of these commitments, whether they are related to the transfer of shares or not, represents a promise to perform once the contract has been executed. As such, any question of whether either party has complied with or breached any of these terms of the SPA is a question of performance. Any breach that occurs later does not retroactively invalidate, render illegal or otherwise undermine the integrity or binding nature of the SPA itself; rather, it triggers a party’s legal liability under the SPA.

3. Claimants’ Alleged Lack of Good Faith

As a final argument, Respondent asserts that Claimants breached good faith principles when Air Comet subrogated ARSA’s creditors’ claims and when it failed to declare this subrogation to the responsible tax authorities.472 Respondent also generally accuses Grupo Marsans of ignoring good faith principles "in multiple jurisdictions."473
In conclusion, for the reasons stated above, the Tribunal rejects Respondent’s fourth objection. The Tribunal notes that certain of the allegations raised under this objection may affect the merits of the claim and that it will be open to the Parties to make further submissions in respect of these allegations as appropriate during the merits stage of the Arbitration.

V. Costs

Both Parties have requested the Tribunal to order costs and fees, plus interest, against the opposing Party. The Tribunal reserves this question for subsequent adjudication.

VI. Decision on Jurisdiction

For the reasons set forth above, the Tribunal declares that:

1) The Objections to Jurisdiction are rejected;

2) It joins to the merits the determination of Respondent’s responsibility for the acts of nonstate entities.

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