(a) that where a stay of enforcement is requested under Article 52(5) of the ICSID Convention, the ad hoc committee may decide not to grant the request, or may grant the request subject to the provision of security or to compliance with some other condition by the party requesting the stay, or may decide to grant the request unconditionally;1
(b) that in general, a stay should be granted under Article 52(5) if requested, unless the Committee finds that there are very exceptional circumstances why this should not occur, notwithstanding the possibility of making the stay conditional on the provision of security;2
(c) that an award creditor has no "counterbalancing right" to security in any case where a continuation of a stay is ordered, and that to require that security be provided as a matter of course in all but the exceptional case would risk compromising the important confidence-balancing function for Contracting States served by the annulment procedure;3
(d) that in deciding an application under Article 52(5), the Committee must consider all of the circumstances of a case as a whole;4
(e) that a relevant consideration in this respect is whether the party opposing the stay has established circumstances of sufficient doubt as to whether there will be compliance with ICSID Convention obligations on a final award in the event that it is not annulled;5
(f) that Article 53(1) of the ICSID Convention imposes on Argentina, in the event that the Award is not annulled, an obligation under international law to abide by and comply with the terms of the Award, without the need for action on the part of the Claimants pursuant to the enforcement machinery under Argentine law to which Article 54 of the ICSID Convention refers;6
(g) that under the Treaty between the United States of America and the Argentine Republic Concerning the Reciprocal Encouragement and Protection of Investment7 (the "BIT"), Argentina has a treaty obligation pursuant to the first obligation8 in the second sentence of Article VI 1(6), in the event that the Award is not annulled, to carry out without delay the provisions of the Award, without the need for enforcement action by the Claimants pursuant to the second obligation9 in that sentence;10
(h) that at the time of the first hearing in these annulment proceedings, it was Argentina’s intention, in the event that the Award is not annulled, not to pay the Award forthwith but to require the Claimants to bring proceedings for the enforcement of the Award under the provisions of Argentine law that give effect to Article 54 of the ICSID Convention, and that this would amount to non-compliance with Argentina’s obligations under Article VIl(6) of the BIT and Article 53(1) of the ICSID Convention;11
(i) that the Committee nonetheless accepted that Argentina had acted consistently with its own good faith interpretation of the BIT and the ICSID Convention, that the Committee did not assume that Argentina would continue to maintain that position following the conclusions of the Committee in the First Stay Decision, and that Argentina should be given an opportunity to consider its position going forwards;12 and
(j) that 60 days was sufficient time for Argentina to reconsider its position.13
In the First Stay Decision, the Committee therefore decided to extend the stay of enforcement of the Award, but further decided that at any time after 60 days from the date of the First Stay Decision, the Claimants could apply to request a modification or termination of the stay.
The Committee notes that in no event would it be minded to lift the stay of enforcement of the award or to make security a condition of a continuation of the stay without arrangements being put in place to ensure that any amounts recovered by, or any security provided to, the Claimants would be recoverable by Argentina in the event that the Award is annulled.
The Chairman stated that the Committee had concluded that this necessary part of the application for the stay to be lifted had not yet been satisfied. The Chairman announced that in the circumstances the Committee had decided, without taking any view on the other issues that had been raised, to adjourn the matter of the lifting of the stay to give the Claimants an opportunity to bring forward a proposal, on notice to Argentina, which would make provision to ensure that any amounts recovered by or any security provided to the Claimants would be recoverable by Argentina in the event that the Award is annulled. The Chairman went on to state that such provision should:
... eliminate the risk of third party execution or garnishee so that Argentina would not in fact recover the monies. The Committee takes the view that it is no function of establishing an account for escrow to give some third party a windfall fund to execute against..., and... the possibility of third party benefit is to be eliminated.
(a) In substance, Argentina contends that it has no obligation voluntarily to pay an award rendered against it and submits that a successful claimant in ICSID proceedings must initiate Article 54 enforcement procedures in Argentina in order to collect an award. The First Stay Decision concluded that this position is incorrect.
(b) The First Stay Decision gave Argentina 60 days to reconsider its stated position as to its obligations to pay on any final award. The First Stay Decision did not give Argentina leave to "appeal" the Committee's decision to reject Argentina’s position, and Argentina should not be permitted to bring further arguments on its obligations under Article 53 of the ICSID Convention.
(c) Argentina has refused to change its position and in fact has reiterated that it considers the First Stay Decision to be incorrect.14 In the Vivendi case, the ad hoc committee required Argentina to commit itself unconditionally to effect payment of the Award, to the extent that it is not annulled,15 but Argentina refused to provide this assurance and instead has continued to erroneously assert that parties must institute enforcement actions in Argentina in order to collect an award.16
(d) Given Argentina’s continued disregard of its Article 53 obligation to voluntarily pay this and other final ICSID awards against it, there is a serious risk of Argentina’s non-compliance in the event the Award is not annulled.
(e) Argentina’s concern that, because Enron is in bankruptcy, there is a risk that any secured funds could potentially be attached by Enron’s creditors, is unfounded. The Enron bankruptcy is nearing its conclusion. The transactions within the bankruptcy relating to the disposition of the proceeds of this ICSID claim and Award were settled by the bankruptcy court several years ago.
(f) While creditors of Argentina could potentially attach such funds, this possibility is the result of Argentina’s own malfeasance and defaulting on its obligations, and this is not a legitimate reason to absolve Argentina of the obligation to provide security as a condition of continuing the stay.
(g) Just over a month before the Award was issued, Enron changed its name to Enron Creditors Recovery Corp. As a result of the bankruptcy transactions, managerial control of this ICSID claim vested in the "CIESA/TGS Manager", who has continued to engage Enron’s counsel to represent the Claimants, and they are empowered to make representations on behalf of Enron regarding this ICSID claim, including enrolment and enforcement matters, which were obviously matters contemplated at the time the bankruptcy settlements were approved.
(h) In any event, it would be acceptable to the Claimants to name Ponderosa, a solvent Delaware entity in good standing, as the sole beneficiary of any security, which would eliminate Argentina’s concerns. Because the amount of the Award did not exceed Ponderosa’s claimed loss, Enron has no real financial interest in the Award.
(i) The claimants have three proposals:
(i) The first proposal (referred to below by the Committee as "Proposal 1") would require Argentina, as a condition for continuation of the stay, to open an escrow account into which it would place escrowed funds in an amount to be directed by the Committee. Argentina would grant to the Claimants a security interest in all of Argentina’s right, title and interest in the escrow account and the escrow funds. Control of the escrow funds would remain exclusively in the hands of the escrow agent in the name of the "Republic of Argentina", and no other person. There would be specific instructions as to fund distribution upon the Committee’s final decision on the Application for Annulment.
(ii) The second proposal (referred to below by the Committee as "Proposal 2") would require Argentina, as a condition for continuation of the stay, to secure from a bank of its choice, including Banco de la Nacion Argentina ("BNA"), an irrevocable standby letter of credit payable to the Claimants in an amount to be directed by the Committee, callable on in whole or in part by the Claimants upon presentment of the outcome of the Committee’s final decision on the Application for Annulment. The Claimants argue that there is no evidence in the record that a letter of credit would cost anything to Argentina, that BNA as the State-owned bank would surely not charge the State itself an exorbitant fee to issue such a letter, and would presumably not require collateral, and that in any event, any costs payable to BNA would be charged by a fully-owned State entity to the State itself, having no real economic effect on the Argentine economy.
(iii) The third proposal (referred to below by the Committee as "Proposal 3") would involve a lifting of the stay, upon the Claimants giving an irrevocable commitment to Argentina that any enforcement actions that may be initiated against Argentina during the pendency of the annulment proceeding would be brought only in the name and on behalf of Ponderosa, and upon Ponderosa undertaking to reimburse Argentina in full of any amounts collected by Ponderosa from any enforcement actions initiated against Argentina during the pendency of the annulment proceeding.
(j) Obviously it would be impossible to remove any possibility that other creditors could attempt attachment, and if this was the standard, no security would ever be required of any non-compliant State in any ICSID annulment proceeding. The possibility of attachment by other creditors against whom Argentina has already defaulted ranks very low on the scale of equities in determining whether and in what form security should be required at this stage.
(a) There is additional support for Argentina’s position that an ICSID award creditor may be required to follow the enforcement procedures under Argentine law to which Article 54 of the ICSID Convention refers.17
(b) The only thing that the award creditor has to do is complete the formalities applicable to compliance with final judgments of local courts, if any apply in the State in question, which in the case of Argentina are essentially before administrative authorities, in this case the Ministry of Economy, within the context of an enforcement judicial proceeding, in which the judge restrains himself to checking compliance with the award.
(c) Article 27 of the ICSID Convention constitutes the best proof of Argentina’s position on recognition and enforcement.
(d) In other cases, compliance by States with ICSID awards has taken six months or a year, and lawyers for claimants have accepted that there are procedures that States must go through to execute payments.
(e) For purposes of execution of the Award, the issue of Enron’s bankruptcy status is not a mere formality. Creditors may attach assets that were attached or obtained by Enron during the annulment proceeding, which assets may never be recouped by Argentina even if it prevailed in the annulment.
(f) Serious doubts remain as to the ability of the Claimants’ counsel, under the arrangements within Enron’s bankruptcy proceedings regarding this ICSID claim, to cause Enron to renounce certain rights it may have as to the execution of the Award.
(g) The costs of setting up the escrow arrangement or letter of credit in the Claimants’ first two proposals would be so high as to render them impracticable.
(h) BNA is an Argentine commercial banking institution created by the Argentine legislature, which operates independently from and is not controlled by Argentina. Under Article 25 of its charter, it is prohibited from lending to the Federal Government, except when a special guarantee is constituted that allows for the automatic reimbursement of the money, which in this case would mean that Argentina would have to constitute an escrow account for the total amount of the award.
(i) Each of Proposals 1 and 2 creates unacceptable risks of attachment. In the event that Argentina prevails in the annulment proceeding, Argentina will have the right to receive back the property in the escrow account, or collateral funds returnable to it. Judgment creditors of Argentina will accordingly argue that they have a right to attach Argentina’s right to receive the property in the event that Argentina prevails in the annulment proceeding.
(j) Requiring Argentina to incur such exorbitant costs in order to run the risk of losing probably millions of dollars even if it prevailed in the annulment is not justified. Even if Argentina’s position is not shared, at the end of the day all that Argentina is requiring is that ICSID award creditors follow a formal procedure almost exclusively before administrative authorities, something that has been successfully required by other States.
(1) In the Vivendi case, the ad hoc committee stated that:
In the opinion of the Committee, it would be contrary to the interpretation provisions of the Vienna Convention on the Law of Treaties to pretend that any organ of the host State can extend an administrative certification function to exercise any possible control over the enforcement process of pecuniary obligations under a finally binding ICSID award. Such activity would contradict the declared objectives of the ICSID Convention. Any possible intervention by a judicial authority in the host State is unacceptable under the ICSID Convention, as it would render the awards simply a piece of paper deprived from any legal value and dependent on the will of state organs.20
The ad hoc committee went on in that decision to note that "Argentina’s legal position in this respect... does not conform entirely with the Committee’s understanding of the interrelationship between Articles 53 and 54".21
(2) Subsequently, in the Sempra case, the ad hoc committee concluded that:
... a State Party against which an award has been made must (like a foreign investor party) abide by and comply with an ICSID award without the award creditor having to submit to any agency of the State Party to enforce the award as envisaged by Article 54 of the ICSID Convention.... The very fact that the Committee has found that Argentina is under a duty, unconditionally and in good faith, to "abide by and comply with’’ the Award according to Article 53, together with Argentina’s repeated and uncompromising affirmation that it has no such obligation in the absence of the award creditor submitting the award to a procedure within the State party’s domestic judicial system under Article 54, must necessarily lead to the conclusion that Argentina is not willing to comply with its obligations under Article 53 unless Sempra first seeks enforcement under Article 54.22
... in the absence of any indication by Argentina that it has changed its position to accord with that which the Committee has found as to the extent of the obligations under the BIT and the ICSID Convention, the Committee would be minded, again absent contrary arguments and evidence, to consider that there is a risk of non-compliance by Argentina with its obligations under Article 53 of the ICSID Convention if the Award is not annulled.24
What we state is that, again, Article 53 establishes an obligation to comply with ICSID awards. And we say that they are voluntary in the sense that the debtor does not have to be forced to comply with an ICSID award. What we state is that the ICSID creditor as [sic] to follow the formalities applicable under domestic law for compliance with final judgments of local courts. This is what Article 54 requires.26
In the letter of April 7, 2009, Argentina’s legal representatives appear to have maintained this position, stating that:
Even if Argentina’s position regarding the way in which ICSID awards are to be complied with were not shared, which is the case of this ad hoc Committee, at the end of the day all that Argentina is requiring is that ICSID creditors follow a formal procedure almost exclusively before administrative authorities...
On the basis of the material before it, the Committee is satisfied that Argentina has not changed its position that if the Award in this case is not annulled, Argentina will not comply with the Award without requiring the Claimants to bring proceedings for the enforcement of the Award under the provisions of Argentine law that give effect to Article 54 of the ICSID Convention.
The first and third proposals by Enron/Ponderosa - i.e., the creation of an escrow or the agreement by Enron/Ponderosa to hold any seized assets in an account pending resolution of the annulment proceeding - each create unacceptable risks of attachment to the [Argentine] Republic. In the event the Republic prevails in the annulment proceeding, the Republic will have the right to receive back the property in the escrow and/or the Enron/Ponderosa account. Judgment creditors of the Republic will accordingly argue that they have a right to attach the Republic's "right to receive" the property in the event the Republic prevails in the annulment proceeding.
Judgment creditors have in fact relied on this theory in obtaining attachments against the Republic. In CVI v. Republic of Argentina, 443 F3d 214 (2d Cir. 2006)...., the federal Court of Appeals for the Second Circuit held that the judgment creditor CVI was entitled to attach the Republic's right, in the year 2023, to receive the Brady bond principal collateral in the event such collateral is not collected by Brady bondholders. In 2008, CVI obtained attachments of, inter-alia, "contractual rights [of the Republic] to direct the release of or to receive assets constituting unclaimed payments on debt securities held by the Bank of New York pursuant to the Trust Indenture and/or the Terms."...
Judgment creditors would invoke the above authority in seeking to attach the escrowed property, notwithstanding the statement in the letter that the risk of attachment is eliminated by the fact that "[c]ontrol of the escrowed funds shall remains [sic] exclusively in the hands of the escrow agent," and that the Republic shall have no "control over the use of, or any right to withdraw any amount from" the accounts while the annulment proceedings are pending.... So long as the Republic has a "right to receive" the funds in the event it succeeds in the annulment, the rationale of the above decisions would be relied upon by judgment creditors in seeking to attach that right. In the CVI cases, fiscal agents and trustees controlled the subject accounts, and the courts nevertheless authorized attachments based on the Republic’s property interest in the accounts.
In the context of the proposed issuance of a letter of credit, if the Republic is required (as would be likely) to post as collateral funds returnable to it in the event the Republic prevails in the annulment proceedings, such funds would similarly be at risk for attachment as described above29
The position of Argentina suggests that under any of the proposals, amounts paid into the escrow account by Argentina, or given as collateral by Argentina for a bank guarantee, or obtained by Ponderosa in enforcement proceedings, might never be recovered by Argentina if the Award is annulled.
To be sure, creditors of Argentina could potentially attach such funds, but this possibility is the result of Argentina’s own malfeasance and defaulting on its obligations, and should not be considered by the Committee as a legitimate reason to absolve Argentina of the obligation to provide security here as a condition of continuing the stay. Claimants’ proposals herein nonetheless attempt to address this concern as well.
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