"[A]cording to Claimants, the dispute centers on two preliminary 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".
The questions raised are as follows: Who are "the Parties" referred to in sub-paragraph (i) above, which shares can be described as "their (Claimants’) shares" and on what basis can the Claimants assert ownership of shares which are described in sub-paragraph (ii) above as "their shares" in the airlines ?
The answer to these questions will have to be taken into account in order to arrive at definitive findings at the merits stage on key questions such as Claimants’ investments. The statement in paragraph 2 of the CMM that: "This is a straightforward case of formal expropriation without compensation by the Government of Argentina... the GOA has paid no compensation to the Claimants for taking of their investments" requires consideration of evidence to determine what is meant by Claimants’ investments and whether their investments have been the subject-matter of expropriation.
i. The Tribunal lacks jurisdiction because Claimants failed to meet the requirements set forth in Article X of the Treaty;
ii. The Tribunal lacks jurisdiction because Claimants have no legal standing to claim for legal rights that belong to another legal person;
iii. The Tribunal lacks jurisdiction to adjudicate certain of Claimants’ allegations that concern the acts of non-state entities, which cannot be attributed to Respondent; and
iv. The Tribunal lacks jurisdiction because the investment invoked by Claimants is not an investment protected by the Treaty.
i. The Tribunal has jurisdiction over Claimants’ claims because Claimants have satisfied the procedural provisions of the Australia-Argentina BIT, which they may rely on through the application of the Treaty’s MFN clause;
ii. The Tribunal has jurisdiction, in the alternative, because Claimants have satisfied and/or are excused for reasons of futility from the requirements set forth in Article X of the Treaty;
iii. The Tribunal has jurisdiction over Claimants’ claims because Claimants are legitimate parties to this arbitration;
iv. The Tribunal should defer questions of state attribution for acts of nonstate entities to the merits phase of this arbitration or, in the alternative, determine that the acts alleged are attributable to Respondent; and
v. The Tribunal has jurisdiction over Claimants’ claims because Claimants’ investment was acquired and effected in accordance with the legislation of Argentina and in good faith.
"The cases after 2007 are less easily read as reflecting an even implicit consensus. Some recent decisions follow the earlier approaches. The 2009 decision in Tza Yap Shum and the majority decision in Austrian Airlines rejected the investors’ argument for the extension of its jurisdiction. The former tribunal explained itself as following both Plama and Maffezini and the majority of the latter tribunal also relied on the distinction between substantive and procedural rules attracted by the MFN clause. In 2011, a majority of the Impregilo tribunal explicitly situated itself within the Maffezini line of decisions. However, the recent general trend rejects earlier practices and explanations."
I find the analysis in the Concurring and Dissenting Opinion of Professor Brigitte Stern in the Impregilo case persuasive. The following extracts from that Opinion are set out below:5
"78. Just as an MFN clause cannot change the conditions ratione personae, ratione materiae, and ratione temporis, as has just been demonstrated, it must be equally true that an MFN clause cannot change the condition ratione voluntatis, which is a qualifying condition for the enjoyment of the jurisdictional rights open for the protection of substantial rights.
79. In other words, before a provision relating to the dispute settlement mechanism can be imported into the basic treaty, the right to international arbitration - here ICSID arbitration - has to be capable of coming into existence for the foreign investor under the basic treaty, in other words the existence of this right is conditioned on the fulfillment of all the necessary conditions for such jurisdiction, the conditions ratione personae, ratione materiae, and ratione temporis as well as a supplementary condition relating to the scope of the State’s consent to such jurisdiction, the condition ratione voluntatis.
80. As long as the qualifying conditions expressed by the State in order to give its consent are not fulfilled, there is no consent, in other words no access of the foreign investor to the jurisdictional treatment granted by ICSID arbitration. An MFN clause cannot enlarge the scope of the basic treaty’s right to international arbitration, it cannot be used to grant access to international arbitration when this is not possible under the conditions provided for in the basic treaty.
83. There appears to be no legal reason to treat differently these two types of requirements that condition the State’s consent. On this issue, I am in agreement with my co-arbitrator Charles Brower, who explained in his Separate opinion in Renta 4, that "... there is no reason to differentiate between admissibility-related aspects of accessing investor-State arbitration and matters of jurisdiction..."
93. The importance of consent has always been stressed in international arbitration cases and especially in ICSID cases. Plama, of course, has laid a great emphasis on the necessity of a clear an unambiguous consent:
In the view of the Tribunal, the following consideration is equally, if not more, important.... Nowadays, arbitration is the generally accepted avenue for resolving disputes between investors and states. Yet, that phenomenon does not take away the basic prerequisite for arbitration: an agreement of the parties to arbitrate. It is a well-established principle, both in domestic and international law, that such an agreement should be clear and unambiguous. In the framework of a BIT, the agreement to arbitrate is arrived at by the consent to arbitration that a state gives in advance in respect of investment disputes falling under the BIT, and the acceptance thereof by an investor if the latter so desires.
Doubts as to the parties’ clear and unambiguous intention can arise if the agreement to arbitrate is to be reached by incorporation by reference".
96. The decision in Wintershall has insisted again on the idea that the State must have given its consent and that this consent is a condition for the access to international arbitration:
In the present case, therefore the BIT between Argentina/and Germany is a treaty undoubtedly providing for a right of access to international arbitration (ICSID) for foreign investors, who are German nationals -but this right of access to ICSID arbitration is not provided for unreservedly, but upon condition of first approaching competent Courts in Argentina... a local-remedies rule may be lawfully provided for in the BIT - under the first part of Article 26; once so provided, as in Article 10(2), it becomes a condition of Argentina’s "consent" -which is, in effect, Argentina’s "offer " to arbitrate disputes under the BIT, but only upon acceptance and compliance by an investor of the provisions inter alia of Article 10(2); an investor (like the Claimant) can accept the "offer" only as so conditioned."
Objections to the Jurisdiction dated 6 December, 2010 ("MOJ"), at pages 41 to 79 may be summarized as follows:
(a) Argentina-Spain BIT does not afford any protection to "indirect shareholders"
(b) No "investment" recognized by Argentine law was expropriated.
(c) The definition of "investment" under the Argentine-Spain BIT is clearly narrower than that under the US-Argentina BIT. The following submission is made in paragraph 164 of the MOJ, page 64:
"164. The concept of investment under the US-Argentina BIT is clearly broader than that of the Argentina-Spain BIT. For these reasons, the material scope of the Argentina-Spain BIT should not be extended, as Claimants wrongly expect, to include their mere interests in the indirect shareholdings they currently have (in the case of Teinver S.A.) or previously had (in the case of Transportes de Cercanias S.A. and Autobuses Urbanos del Sur S.A.) in Interinvest S.A., Aerolineas Argentinas S.A. and Austral-Cielos del Sur. Claimants cannot interpret the applicable BIT in an extensive manner, distorting its content and invoking a scope of protection that simply does not exist."
"The Tribunal has conducted a detailed analysis of the reference in the Treaty to "investment" and "investor". The Tribunal observes that there is no explicit reference to direct or indirect investment as such in the Treaty."
"The Treaty does not require that there be no interposed companies between the investment and the ultimate owner of the company.
Therefore, a literal reading of the Treaty does not support the allegation that the definition of investment excludes indirect investments." (paragraph No. 137 of the Decision on Jurisdiction dated 03.08.2004 in Siemens Ag v. Argentine Republic I)
"The tribunal notes that there is no explicit reference to direct or indirect investments in the BIT. The definition of investment given in Article 1 is very broad. It includes "every kind of assets" and enumerates specific categories of investments as examples. One of those categories consists of "shares, bonds or other kinds of interests in companies and joint ventures".
"The BIT does not require that there be no interposed companies between the ultimate owner of the company or of the joint venture and the investment. Therefore, a literal reading of the BIT does not support the allegation that the definition of investment excludes indirect investments."
I find equally unacceptable the reasoning in the Mobil case referred to which is stated in the following terms: "Investment as defined in Article 1 could be direct or indirect as recognized in similar cases". (Paragraph No. 165 of the Decision on Jurisdiction dated 10.06.2010 in Mobil Corporation, Venezuela and others vs. Venezuela.)
"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 terms of participation in companies;
The content and scope of the rights corresponding to the various categories of assets shall be determined by the laws and regulations of the Party in whose territory the investment is situated."
The words "in accordance with the legislation of the country receiving investments" in Article 1(2) must be given due weight.
"Those involved in investment treaty arbitrations should take care not to allow the use of other awards to transgress the appropriate boundaries. Their citation should not overwhelm a tribunal’s consideration of the case before it."6
(a) The interpretative principle of in dubio mitius, requires that in interpreting treaties, if the meaning of a term is ambiguous, that meaning is to be preferred which is less onerous to the party assuming an obligation, or which interferes less with the territorial and personal supremacy of a party, or involves less general restrictions upon the parties.7
(b) The Respondent in its Memorial on Objections to the Jurisdiction dated 6 December 2010 submits that: "Under international law, indirect or derivative claims cannot be filed. Nonetheless, some treaties have expressly provided for indirect or derivative actions under extraordinary circumstances. This constitutes an exception to the general principle that no person may bring a claim on behalf of another" (p. 56, para 141). In support of its argument the Respondent cites the Case Concerning Ahmadou Sadio Diallo8 and International Thunderbird Gaming Corp and the United Mexican States, UNCITRAL case under the NAFTA rules (Submission of the United States of America, paras 4-9.)
"... arbitral tribunals have also recognized the right of intermediate ("shell") corporations to submit their own claims to arbitration. These developments have even led some authors to suggest the existence of a new "rule" of customary international law providing shareholders with a procedural "right" to bring arbitration claims against the State where they make the investment. These are undoubtedly overall positive developments for the protection of foreign investors. This evolution nevertheless gives rise to several legitimate concerns from the perspective of capital-importing States that have entered into numerous BITs.
The first area of concern relates to the fact that BITs typically do not distinguish between minority and majority shareholders which can submit separate claims from that of the corporation. As a matter of principle, all shareholders big and small, should receive legal protection under a BIT that does not expressly distinguish between them. This situation nevertheless raises some concerns where a corporation’s share capital is divided between numerous shareholders each holding a very small percentage of the total number of shares (imagine, for instance, 100 different shareholders each owning a mere 1% of the corporation’s share). Nothing (apart, of course, from the high costs of pursuing international arbitration) would prevent all these different shareholders from filing their own separate claims against the host State for the same treaty breach. Another area of concern is related to the protection offered to indirect investments made through multiple layers of intermediate corporations. Again, under a typical BIT, each holding company in a long chain of ownership could file its own separate claim against the host State for the same treaty breach.
As a result, capital-importing countries having entered into a significant number of BIT’s will increasingly run the risk of being respondents in multiple (and often simultaneous) arbitration claims filed by different entities included in the increasingly sophisticated and complex corporate structure of foreign investors. Such multiple claims will clearly result in very high legal costs for respondent States. They will also increase the likelihood of inconsistent arbitral decisions.
This possibility is not merely theoretical, as shown by the Lauder saga. Mr. Lauder, a U.S. national, was the ultimate beneficiary of an investment he made in the Czech Republic through an intermediate corporation (CME, a Dutch corporation). Mr. Lauder commenced an arbitration claim under the U.S. -Czech Republic BIT, while CME, 6 months later, started its own proceeding before a different arbitral tribunal under the Netherlands -Czech Republic BIT. Both claims arose from the same facts. It should be noted that the Czech Republic refused to consolidate the proceedings as requested by the Claimants. The disturbing aspect of these two parallel arbitration cases is that one Tribunal concluded that the Czech Republic had expropriated the investment and awarded $360 million in damages to the Claimant, while the other Tribunal rejected the claim.
The scenarios envisaged above also raise the issue of remoteness between a shareholder and the actual investment... This issue was addressed by the Enron Tribunal, which summarized a concern raised by Argentina as follows:
The Enron Tribunal concluded that such concern raises the "need to establish a cut-off point beyond which claims would not be permissible as they would have only a remote connection to the affected company. For the Enron Tribunal, the establishment of a "cut-off point" beyond which claims by indirect shareholders would not be allowed should be based on "the extent of the consent to arbitration of the host State:"
If consent has been given in respect of an investor and an investment, it can be reasonably concluded that the claims brought by such investor are admissible under the treaty. If the consent cannot be considered as extending to another investor or investment, these other claims should then be considered inadmissible as being only remotely connected with the affected company and the scope of the legal system protecting that investment.
The issue of remoteness of claims is likely to be one of the most contentious in the future. While some authors have criticized the Enron Tribunal’s reasoning on the "cut-off point" as lacking any "legal foundation", recent awards have acknowledged the seriousness of the issue. As explained by the Phoenix Tribunal, some concern has indeed been voiced by international tribunals, and is shared by this Tribunal, that not any minor portion of indirectly owned shares should necessarily be considered as an investment. For good reasons, tribunals will, however, be reluctant to establish in each case where exactly should be the cut-off point. Indeed, no consensus exists on what "too remote" really means in practical terms."
"... the Commercial matter No. 9 of Madrid found Gerardo Diaz Ferran and Gonzalo Pascual Arias - holders of a controlling interest in Claimants and witnesses in this arbitration - guilty of the bankruptcy of Seguros Mercurio, S.A. Furthermore, the court found Teinver S.L., one of the Claimants in this arbitration proceeding, and other companies of the Marsans Group, such as Viajes Marsans S.A. and Hotetur Club S.L, liable as accomplices to the bankruptcy" and than "... fraudulent acts were carried out by means of complex legal and accounting operations. In the opinion of the court, "all of them are part of a coordinated action aimed at removing the assets of the reorganized company in favour of other companies of the group.
In this sense, for instance, the court established that "by virtue of a private agreement entered into with a company in which Teinver has a 100% interest, related to Seguros Mercurio and also owned by Diaz Ferran and Pascual Arias through other companies, Seguros Mercurio proceeded to make payments in the amount of 5,847,039.84 euro in favour of other companies of the group other than the purchaser company." In light of the explanations afforded by the accused parties with respect to the terms of such operation, the court concluded that "the explanations provided by Mr. Diaz Ferran at the hearing were devoid of any logic.
Another questionable operation took place on October 30, 2009 and involves the sale of real property by Teinver to Seguros Mercurio. Oddly enough, it was found that at the time of the sale the property was about to be foreclosed at the request of the mortgagee. In this respect, the court held that "the operation is censurable from the legal point of view since it can be affirmed that, through it, a sham has been attempted in order to convey a property image different from the actual one.
Specially in relation to Diaz Ferran and Pascual Arias, the judge concluded that they should be reached by the declaration of guilt as "as they acknowledged in the act of the trial, they designed the operations described, controlling and deciding on the management not only of Seguros Mercurio, but of the entire Group, of which they were practically the sole shareholders."
The Respondent submits that the above facts provide a ground to the Tribunal for rejection on the ground of lack of 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."
(1) The Objections to Jurisdiction are rejected;
(2) It joins to the merits the determination of Respondent’s responsibility for the acts of non-state entities.
Already registered ?