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Avocats, autres représentants, expert(s), secrétaire du tribunal

Decision on Jurisdiction

A. Procedure

On April 5, 2001, the Centre requested the Claimants to explain how each of the two Claimants in the present case would meet the conditions for registration of its request. On April 6, 2003, the Claimants satisfied this request.
Pursuant to Article 36(3) of the ICSID Convention, on April 11, 2001, the Secretary-General of the Centre registered the Request. On the same date, in accordance with Institution Rule 7, the Secretary-General notified the parties of the registration of the Request and invited them to proceed to constitute an Arbitral Tribunal as soon as possible.
On April 12, 2001, the Claimants submitted a proposal for the number of arbitrators and the method of their appointment. Under the Claimants' proposal, the Tribunal would consist of three arbitrators, one arbitrator to be appointed by each party and the third, who would be the President of the Tribunal, to be appointed by agreement of the parties.
On April 25, 2001, the Argentine Republic notified the Centre of its agreement to the Claimants' proposal concerning the number of arbitrators and the method of their appointment. In those circumstances, on April 27, 2001, the Centre confirmed that the Arbitral Tribunal in the present case would consist of three arbitrators, one arbitrator appointed by each party and the third, who would serve as the President of the Tribunal, to be appointed by agreement of the parties.
On May 11, 2001, the Claimants appointed Mr. Pierre-Yves Tschanz, a Swiss national. On July 10, 2001, the Argentine Republic appointed Dr. Héctor Gros Espiell, a national of Uruguay. The parties, however, failed to agree on the appointment of the third, presiding, arbitrator. By letter dated August 30, 2001, the Claimants requested that the third, presiding, arbitrator be appointed pursuant to Article 38 of the ICSID Convention and Rule 4 of the ICSID Rules of Procedure for Arbitration Proceedings ("Arbitration Rules").
In those circumstances, and after consulting the parties, Professor Francisco Orrego Vicuña, a Chilean national, was appointed by the Centre as the third presiding arbitrator. Pursuant to Rule 6(1) of the Arbitration Rules, on November 1, 2001, the Secretary-General notified the parties that all three arbitrators had accepted their appointment and the Arbitral Tribunal was therefore deemed to have been constituted on that date. On the same date, in accordance with ICSID Administrative and Financial Regulation 25, the parties were informed that Ms. Claudia Frutos-Peterson, Counsel, ICSID, would serve as Secretary of the Arbitral Tribunal.
The first session of the Tribunal with the parties was held on December 5, 2001, in Washington, D.C. During the first session, the parties agreed that the Tribunal was properly constituted in accordance with the ICSID Convention and the Arbitration Rules and that they did not have any objections to any members of the Tribunal.
During the first session, the parties also agreed on several procedural issues, which were later reproduced in the written minutes signed by the President and the Secretary of the Tribunal. Regarding the written phase of the proceedings, the Tribunal, after consulting with the parties in this respect, fixed the following time limits for the presentation of the parties' pleadings: The Claimants would file a memorial within 90 days from the date of the first session; the Respondent would file a counter-memorial within 90 days from its receipt of the Claimants' memorial; the Claimants would file a reply within 60 days from their receipt of the Respondent's counter-memorial and the Respondent would file a rejoinder within 60 days from its receipt of the Claimants' reply. It was further agreed that if the Respondent raised any objections to jurisdiction the following alternative tentative schedule would apply: The Respondent would file a memorial on jurisdiction within 45 days from the receipt of the Claimants' memorial on the merits; the Claimants would file a counter-memorial on jurisdiction within 45 days from their receipt of the Respondent's memorial on jurisdiction; the Respondent would file a reply on jurisdiction within 30 days from its receipt of the Claimants' counter-memorial on jurisdiction, and the Claimants would file a rejoinder within 30 days from their receipt of the Respondent's reply on jurisdiction.
On January 14, 2002, the Claimants requested a suspension of the proceedings for six months in order to explore the possibility of settling the dispute through direct consultations with the authorities appointed by a new government of the Argentine Republic. By a letter dated January 30, 2002, the Argentine Republic informed the Centre that it did not consider it necessary that the proceedings be suspended at this stage.
On January 31, 2002, the Claimants requested the suspension of the proceedings for a period of six months in order to obtain certain internal authorizations to continue with the arbitration. On February 5, 2002, the Tribunal requested the Argentine Republic to present any observations in this respect. The Argentine Republic presented its observations on February 18, 2002, agreeing to an extension of only three months. On February 25, 2002, the Tribunal issued Procedural Order No. 1, granting an extension of 90 days, from the date of the procedural order, for the Claimants to obtain the relevant authorization to continue with the proceeding.
On May 22, 2002, the Claimants informed the Tribunal that they had been authorized to proceed with the arbitration and requested an extension until August 1, 2002 to file their memorial on the merits. On May 29, 2002, the Tribunal granted the extension sought by the Claimants. In its communication, the Tribunal noted that the Argentine Republic would, if it requested, be entitled to the same time extension granted to the Claimants to file its counter-memorial on the merits.
On August 1, 2002, the Claimants filed their memorial on the merits and accompanying documentation. On December 13, 2002, the Argentine Republic notified the Tribunal that it would be using part of the extension granted by the Tribunal in its letter of May 29, 2002 to file its memorial on January 15, 2003. Pursuant to ICSID Arbitration Rule 41(1), on January 15, 2003, the Argentine Republic filed a memorial raising objections to the jurisdiction of the Centre and the competence of the Tribunal.
On January 21, 2003, in accordance with ICSID Arbitration Rule 41(3), the proceedings on the merits were suspended.
On March 5, 2003, the Claimants requested an extension of time to file their counter-memorial on jurisdiction. On the same date, the Tribunal invited the Argentine Republic to provide its observations to the Claimants' request. The Argentine Republic presented its observations on March 7, 2003. On March 11, 2003, the Tribunal granted the extension sought by the Claimants and informed the parties that the Argentine Republic would be granted an extension on the same terms to file its reply on jurisdiction if it so requested.
On March 25, 2003, the Claimants filed before the Centre a new request for arbitration against the Argentine Republic. On the same date, the Claimants requested the Tribunal to suspend the jurisdictional proceedings in the present case until the Tribunal renders a decision concerning their new request for arbitration. On March 28, 2003, pursuant to Article 46 of the ICSID Convention, the Centre forwarded the request to the Arbitral Tribunal to determine whether to receive it as an additional claim to the present case. On the same date, the Tribunal requested the Argentine Republic to submit any observations that it may have in this respect and decided not to grant the suspension requested by the Claimants, asking them to file their counter-memorial on jurisdiction on the date previously decided. On April 15, 2003, the Argentine Republic presented its observations concerning the Claimants' new request for arbitration.
On April 25, 2003, after having examined the Claimants' new request for arbitration and the observations submitted by both parties in this respect, the Tribunal decided to accept the new request for arbitration as a claim ancillary to the present case and to have both cases proceed on separate tracks until the Tribunal has decided on jurisdiction in respect of both claims. In its communication, the Tribunal also proposed an expeditious procedure to the parties for filing their written submissions on the ancillary claim. According to this proposal, there would be no memorial on the merits submitted by the Claimants at this stage and the Argentine Republic would file a memorial on jurisdiction within 60 days. The Claimant would file a counter-memorial on jurisdiction within 60 days from the receipt of the Respondent's memorial on jurisdiction. The Argentine Republic would file a reply on jurisdiction within 30 days from the receipt of the Claimants' counter memorial on jurisdiction and the Claimants would file a rejoinder on jurisdiction within 60 days from the receipt of the Respondent's reply. The Claimants accepted the Tribunal's proposal on April 29, 2003 and the Respondent did the same on May 6, 2003.
On March 31, 2003, the Claimants filed their counter-memorial on jurisdiction, concerning the first claim here addressed by the Tribunal. Thereafter, on May 20, 2003, the Argentine Republic filed its reply on jurisdiction and on June 26, 2003 the Claimants filed their rejoinder on jurisdiction.
The hearing on jurisdiction took place in Paris on September 3-4, 2003. At the hearing the Claimants were represented by Messrs. R. Doak Bishop (King & Spalding, Houston), Guido Santiago Tawil (M. & M. Bomchil, Buenos Aires), Craig S. Miles (King & Spalding, Houston) and Ignacio Minorini Lima (M. & M. Bomchil, Buenos Aires); all of whom addressed the Tribunal on behalf of the Claimants. The Respondent was represented by Mr. Carlos Ignacio Suárez Anzorena, Mr. Jorge Barraguirre and Ms. Beatriz Pallarés, all of them from the office of the Procuración del Tesoro de la Nación Argentina. Mr. Suárez addressed the Tribunal on behalf of the Argentine Republic. During the hearing, the Tribunal also put questions to the parties in accordance with ICSID Arbitration Rule 32(3).

B. Considerations

The Claimants' participation in Argentina's privatization program

The Claimants in this dispute, like other companies that have brought to ICSID their differences with the Government of the Argentine Republic, is a participant in the privatization program that that government undertook beginning in 1989. The investments the Claimants seek to protect were made in the important gas industry of Argentina, the privatization of which was carried out under the terms of the Gas Law and related instruments.2 The Claimants satisfy the requirements of the Argentina-United States Bilateral Investment Treaty as to having substantial business activities in the United States and not being controlled by nationals of a third country, a matter in respect of which Argentina had requested a clarification.
This part of the Claimants' dispute before ICSID concerns only a question of tax assessments by some Argentine provinces. An auxiliary claim has been introduced for disputes concerning tariffs, devaluation and other financial measures adopted by the Government of the Argentine Republic. Jurisdictional issues as to the additional claim will be dealt with in due course by this Tribunal in a separate decision.
A number of questions introduced in the context of objections to jurisdiction are closely related to the merits of the dispute. The Tribunal at this stage will only deal with those issues that are strictly jurisdictional.

ICSID's case law concerning the Argentine Republic

A number of prior decisions adopted by other ICSID tribunals concerning disputes between foreign investors and the Argentine Republic have dealt with a number of relevant issues in the context of international law, the use of its sources and treaty interpretation.3 This Tribunal bears in mind those decisions but will not discuss their findings here, except insofar they are necessary for disposing of specific issues raised in this case.

Tax assessments by Argentine provinces

The Argentine Republic opposes such arguments and believes that the question cannot be submitted to this arbitration. A provisional stay for the collection of taxes has been granted by the Argentine Supreme Court on the basis of actions brought before it by TGS. As a result, the taxes have not been paid as of this date and no final decision has been taken by the Argentine courts. The Federal Government has supported before the courts TGS's arguments in respect of the illegality or inapplicability of the taxes assessed, including the view that some taxes violate the Law of Federal Co-participation that governs the relationship between the Federal Government and the Provinces, but is of the opinion that the actions of the Provinces do not amount to a violation of the Treaty.
In the view of the Argentine Republic the taxes assessed are within the range of 1%-2% of the contracts value, and are thus not confiscatory. The additional amounts owed by the Claimants, it is further explained, are the result of penalties and interests and this is not to be attributed to the Respondent. In the Claimants' view, however, the taxes are confiscatory and expropriatory as applied, including penalties and interests, their retroactive assessment for a five-year period and the fact that to an important extent the taxes levied by the different Provinces overlap each other.
The Argentine Republic has also made the argument that the Claimants' petitions to this Tribunal, if accepted, would disrupt the conditions of competition within the Argentine market as foreign investors would be exempt from taxes assessed on other business entities. The Claimants believe in this connection that if the taxes are illegal they should not be paid by any economic agent, national or foreign, and thus there is no discrimination involved in their petitions.
The line separating general tax measures from measures that affect the investor's rights is conceptually clear, but in practice what falls within or without the Tribunal's competence can only be established in the light of the evidence that the parties will produce in connection with the merits of the case.
The Argentine Republic has expressed the view that because the taxes have been assessed by the Argentine Provinces, and irrespective of whether this is a lawful or unlawful action or whether it violates the federal arrangements in force, the responsibility and liability of the Argentine Republic cannot be engaged. The Tribunal is mindful in this respect that under international law the State incurs international responsibility and liability for unlawful acts of its various agencies and subdivisions.5 The same holds true under Article XIII of the Bilateral Investment Treaty when providing that this "...Treaty shall apply to the political subdivisions of the Parties".

Admissibility and Jus Standi

The Argentine Republic has objected to the admissibility of the claim on the ground that the Claimants do not have the rights upon which they base such claim. The measures adopted, as the argument goes, directly affect only TGS, a corporation incorporated in Argentina. The Claimants are only indirectly affected as they are minority shareholders in TGS and they do not control CIESA, an entity which as explained controls TGS. Neither TGS nor CIESA qualify in the Respondent's view as an investment or as an investor under the Bilateral Investment Treaty. Indirect damages in this view are not included within the scope of the Treaty.
The Claimants oppose such views on the ground that they are not claiming for or on behalf of TGS, but in their own right as United States investors with investments qualifying under the Treaty. Their claim, according to the argument, is independent of any claim that TGS might have under Argentine law as it concerns an alleged violation of the Treaty. Claims that are treaty claims can, in the Claimants' view, stand on their own irrespective of whether they may further constitute a breach of TGS's rights under municipal law. Thus, the claims are in that opinion direct and not indirect.
The question of jus standi thus becomes inseparable from the determination of the Claimant's status as a protected investor. This determination involves, first, whether a shareholder can claim for its rights in a foreign company independently from the latter's rights. If so, then the inquiry must determine whether these rights refer only to the Claimants' status as shareholders or also to substantive rights connected with the legal and economic performance of the investment made. These various questions will be addressed next.

Argentine legislation, international law and ICSID's decisions

Shareholders' rights under the Bilateral Investment Treaty

Jurisdictional objection concerning the lack of direct connection between the dispute and the investment

Jurisdictional objection as to the consent to arbitration excluding tax matters

Article XII of the Bilateral Investment Treaty governs tax matters. Paragraph 1 of this Article states the overall policy on taxation, the Parties undertaking to "strive to accord fairness and equity in the treatment of investment of nationals and companies of the other Party". Paragraph 2 of the Article concerns the application of the Treaty to tax matters in the following terms:

"Nevertheless, the provisions of this Treaty, and in particular Article VII and VIII, shall apply to matters of taxation only with respect to the following:

(a) expropriation, pursuant to Article IV;

(b) transfers, pursuant to Article V; or

(c) the observance and enforcement of terms of an investment agreement or authorization as referred to in Article VII (1) (a) or (b),

The Argentine Republic has argued that the claim made in this case exceeds the limits set out in Article XII, first because the Claimants complain about the violation of the "transparency principle" in tax matters and about the lack of effective means available in Argentina for the protection of their rights. None of these questions, in the Respondent's view, allow for the application of the Treaty in accordance with Article XII. Moreover, the Respondent further argues, not even the complaint about violation of fair and equitable treatment could be brought in connection with tax matters as the Treaty only requires the parties to "strive" in this respect.
The Respondent is also of the view that the Claimants cannot invoke expropriation or the violation of an investment agreement or authorization as these questions are unrelated to the tax assessments affecting TGS and, furthermore, there is no investment agreement or authorization. The Treaty, it is concluded, does not apply to the present claim under Article XII as it concerns only tax matters; nor are the remedies sought by the Claimants allowed for under this Article or the Treaty.
The Claimants hold a different view. First, in their opinion fairness and equity as invoked in paragraph 1 of the Article are not meaningless, and "to strive" involves a commitment that cannot be ignored in the implementation of tax policies. Second, the Claimants argue that they are specifically invoking expropriation as part of their claim on the merits, as the tax assessed constitutes a measure tantamount to expropriation. And third, the Claimants believe that fair and equitable treatment and other standards set out in Article II (2) of the Treaty do apply as they are conditions for legal expropriation under Article IV of the Treaty.
The Claimants have satisfied the requirement of having a present interest to bring action under the Treaty, particularly in view of the fact that is has been alleged that the tax assessments resulted in the violation of specific provisions and standards of treatment established in the Treaty. These allegations can only be considered at the merits phase of the case, but prima facie they are sufficient to justify the exercise of the right of action by the Claimants. Accordingly, the Tribunal upholds jurisdiction to consider the matter on the merits as far as this objection is concerned.

Jurisdictional objection related to the absence of investment agreement or authorization

The Argentine Republic has raised another jurisdictional objection related to the question of absence of an investment agreement or authorization, another possibility foreseen by Article XII to trigger the application of the Treaty to tax matters and in particular the operation of the dispute settlement mechanism of Article VII. A part of the Claimants' complaint concerns the duty of the Argentine Republic to indemnify the investors for taxes assessed in respect of periods prior to the privatization of TGS as provided for under the Transfer Agreement. In the argument of the Respondent the Transfer Agreement does not qualify as an investment agreement or authorization because it only concerns TGS and not the Claimants. Moreover, it is argued that the conditions for the indemnification have not been satisfied.
The Claimants have explained, as noted above, that they consider the Transfer Agreement not as an investment agreement or authorization in itself, but that certainly it is a part of the overall elements involved in the privatization and the investment in shares which cannot now be ignored. In their view, the investment is a process that was manifested in several instruments, not just one agreement or authorization, and the claim concerns their rights as investors in the process as a whole. In particular the Claimants invoke the fact that EPCA, as noted, was required to execute the Transfer Agreement and, moreover, it executed a Technical Assistance Agreement with TGS in its capacity as technical operator. The Claimants have expressly stated that they have not desisted of their claim in connection with the existence of an investment agreement thus conceived. Accordingly, the argument continues, both Article XII and VII are applicable in this context.
The Tribunal must examine these various aspects to reach a conclusion about the claim and particularly about the manner in which tax measures might have affected the protected investment. Such a determination again belongs to the merits, particularly in so far there is a need to establish whether the requirements of indemnification have or have not been met. Accordingly, jurisdiction to consider these other aspects of the claim must also be upheld.

Jurisdictional objection concerning a hypothetical dispute

The parties have different views concerning the nature of the dispute. While for the Argentine Republic the dispute is purely hypothetical, for the Claimants it is quite actual and specific. The Respondent argues that because the taxes assessed have not been collected and might never be, or be collected only in a small amount, the dispute is hypothetical and not actual. As a result, according to the argument, expropriation has not occurred and cannot be invoked in the context of the present claim.
The Claimants believe otherwise. About AR$ 800 million have been assessed in taxes, enough to wipe out the entire value of the investment and lead to the Claimants' bankruptcy, cancellation of the licence and other consequences. This amount has not been collected only because there is an injunction ordered by the Supreme Court suspending judicial collection of those amounts. Expropriation, it is further argued, can occur much earlier than the actual taking of the investors' property or funds, as many times this is also a process gradual in time. All of it, the argument continues, results in the specific violation of the Bilateral Investment Treaty.
The Tribunal is mindful of the fact that once the taxes have been assessed and the payment ordered there is a liability of the investor irrespective of the actual collection of those amounts. This means that a claim seeking protection under the Treaty is not hypothetical but relates to a very specific dispute between the parties. Whether there has been a violation of the terms of the Treaty and its eventual extent is an aspect that belongs to the merits. The eventuality of an expropriation and its conditions is still more so. The Tribunal cannot decline its jurisdiction to examine these various points of fact and law. Jurisdiction is accordingly affirmed on this point too.

Jurisdictional objection concerning injunctive relief and other remedies

The Argentine Republic has made two objections to the jurisdiction of this Tribunal concerning the remedies requested by the Claimants. The first objection relates to the question that any remedy would really have its effect on TGS, which cannot benefit from the claim as not being in the Respondent's view an investment or an investor under the Treaty. This part of the objection has been dealt with above in the context of the determination that the Claimants are exercising a right in their own capacity under the Treaty which is separate from any rights appurtenant to TGS. Whether a remedy, in addition to protecting the investors' rights, benefits a separate but related corporate entity is not a ground for objection to jurisdiction.
The second objection to jurisdiction made under this heading is more complex. It concerns the power of the Tribunal to order injunctive relief. In the Respondent's view the Tribunal lacks such a power under the Convention and the Treaty, and it could only either issue a declaratory statement that might satisfy the investor or else determine the payment of compensation based on a finding that a certain measure is wrongful. In particular it is argued that an ICSID tribunal cannot impede an expropriation that falls exclusively within the ambit of State sovereignty; that tribunal could only establish whether there has been an expropriation, its legality or illegality and the corresponding compensation.

Jurisdictional objection concerning the absence of notification in respect of the Provinces of La Pampa and Chubut

The Argentine Republic has raised yet another jurisdictional objection on the ground that the claims against the Provinces of La Pampa and Chubut, unlike those concerning Neuquén and Rio Negro, were not notified to the Respondent in accordance with the Treaty requirements and hence neither was the six-month consultation period observed.

Jurisdictional objection concerning the dispute on indemnity under the Transfer Agreement

The Argentine Republic has also objected to the jurisdiction of this Tribunal in respect of the indemnity dispute under the Transfer Agreement on the ground that this Agreement provides for the submission of disputes to the Argentine courts. This aspect of the dispute, it is argued, should be considered as a purely contractual dispute and hence it is not subject to the jurisdiction of an ICSID tribunal under the Convention. The Respondent explains that in its view this situation is different from that relating to a contractual dispute which in turn becomes an investment dispute under the Treaty.
The Claimants again believe otherwise. In their view, even if the Transfer Agreement had a choice of forum clause they still have an option under the Treaty to resort to arbitration because the actual claim does not relate to contractual performance but to the violation of the investors' rights under the Treaty.
The issue for the Tribunal is then a narrower one, namely whether the indemnity clause of the Transfer Agreement is just a contractual provision subject to the jurisdiction of the courts of the Argentine Republic, or if it is in addition a clause that concerns the rights of the investors under the Treaty. In the latter case the Tribunal has jurisdiction in so far as those rights are concerned.
The Tribunal accordingly concludes that it also has jurisdiction to consider this matter on the merits.

Jurisdictional objection concerning the triggering of the "fork in the road"

The Claimants are of the view that the claimants, the respondents and the subject matter of the actions before Argentine courts being different from those involved in the present arbitration, there could be no triggering of the "fork in the road". They explain to this end that before local courts it is TGS and not the investors who is claiming, that the Respondents are the Provinces and not the government of the Argentine Republic, and that the subject matter concerns a violation of the legislation of Argentina and not a violation of treaty rights.

Jurisdiction affirmed

The Tribunal must note in concluding that counsel for both parties have performed their duties with outstanding professionalism and have at all times fully cooperated with the work of the Tribunal.

C. Decision

For the reasons stated above the Tribunal decides that the present dispute is within the jurisdiction of the Centre and the competence of the Tribunal. The Order necessary for the continuation of the procedure pursuant to Arbitration Rule 41(4) has, accordingly, been made.
So decided.
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