News and Commentary : Argentina, jurisdiction

Tribunal pierces the corporate veil in jurisdictional decision involving Argentina

Anonymous — Fri, 09 Jan 2009 13:53:00 GMT

By Damon Vis-Dunbar
9 January 2009

Two out of three members of an ICSID tribunal have declined jurisdiction in a claim brought by TSA Spectrum de Argentina S.A. (TSA) against the Argentine Republic under the Netherlands-Argentina bilateral investment treaty, having determined that TSA is not covered by the treaty because it is owned by an Argentine citizen.

TSA, an Argentine company that took over Argentina’s newly privatized radio spectrum, is a subsidiary of TSI Spectrum International N.V., a corporation registered in the Netherlands. However, after unraveling the complicated corporate structure that lay behind TSA, the tribunal determined that it was owned by an Argentine citizen, Mr. Jorge Justo Neuss.

It is not unusual for investments to be routed through a third country, in order to benefit from preferential tax regimes, not to mention the extensive BIT portfolios of countries’ like the Netherlands. Nonetheless, the question facing the tribunal was whether TSA could access the Argentina-Netherlands BIT by virtue of its affiliation with the Dutch incorporated TSI, or whether the tribunal was compelled to peel back the corporate layers until they arrived at the final owner.

In coming to a decision, the tribunal wrestled with the intent of the Article 25(2)(b) of the ICSID Convention, which sets out the Centre’s jurisdictional domain. The article provides two categories of “nationals of another Contracting State”: those that hold foreign citizenship, or company’s under foreign control. Given that TSA did not qualify for the first category—it is a Argentine company owned by an Argentine national¬—the question was whether it met the criteria for the second, i.e., was it a foreign controlled enterprise.

Split tribunal pierces the corporate veil

The award and dissenting opinion are notable for their conflicting views on whether ICSID tribunals are compelled to ‘pierce the corporate veil’ in an effort to determine who, ultimately, controls the investment under dispute.

Two members of the three person tribunal, Judge Hans Danelius and Professor Georges Abi-Saab, sided in favour of “piercing the veil and going for the real control and nationality of the controllers.” Indeed, given that ICSID is intended to settle disputes between foreign investors and host states, the two arbitrators argued that this approach was particularly important “when ultimate control is alleged to be in the hands of nationals of the host State, whose formal nationality is also that of the Claimant corporation.”

In his dissenting opinion, Grant D. Aldonas rejected the notion that either the ICSID Convention or the Argentina-Netherlands BIT moved the tribunal to look beyond where TSA’s parent company was incorporated. “To do so would substitute our judgment for that of the two sovereign states ...,” wrote Aldonas, who argued that the BIT was clear in its wording that it protected companies lawfully incorporated in the Netherlands, regardless of the nationality of the owner.

While the majority decision on TSA’s foreign control settled the question of the tribunal’s jurisdiction, three additional objections to jurisdiction were also raised by Argentina: 1) that TSA relinquished its access to ICSID arbitration under the BIT by signing a concession contract with its own dispute settlement procedures; 2) that TSA did not respect an 18 month period in which the claimant was to seek a settlement through local administrative and judicial remedies; 3) and finally, that TSA employees engaged in corrupt activities in Argentina, and therefore the investment was not made in accordance with Argentine law.

On the first, the tribunal held that the dispute resolution mechanism in the contract did not prevent the claimant from accessing arbitration under the BIT. A distinction could be drawn, said the tribunal, between claims arising out of a breach of the contract and claims arising out a breach of the BIT.

On the second, the tribunal acknowledged that TSA’s claim was premature, but since only three months out of the eighteen month period remained, it concluded that it would be overly formalistic to decline jurisdiction on this ground.

Finally, the tribunal declined to voice an opinion on the corruption charges introduced by Argentina, given that it had already declined jurisdiction over the matter of foreign control.

The award in TSA Spectrum de Argentina S.A. v. Argentina Republic, ICSID Case No. ARB/05/5 is available here: http://ita.law.uvic.ca/documents/TSAAwardEng.pdf

A concurring decision by Professor Georges Abi-Saab is available here: http://ita.law.uvic.ca/documents/TSAAbi-SaabConcurring.pdf

The dissenting opinion of arbitrator Grant D. Aldonas is available here: http://ita.law.uvic.ca/documents/TSADissent.pdf

German firm fails to pass jurisdictional hurdle in claim against Argentina; decision provokes questions about the scope and applicability of MFN Protection

Anonymous — Mon, 05 Jan 2009 09:04:00 GMT

By Elizabeth Whitsitt
5 January 2009

An ICSID tribunal has declined jurisdiction in a claim brought by a German firm against the government of Argentina, in a decision that marks the unpredictability over whether a claimant can invoke a Most-Favoured-Nation (MFN) clause to access an expedited arbitration process.

The claimant, Wintershall Aktiengesellschaft, alleged that the Argentine government took measures which negatively impacted its oil and gas operations by: (i) preventing it from receiving dividend payments from its Argentine subsidiary (ii) impairing the legal and contractual rights of its Argentine subsidiary, and (iii) violating a number of the substantive protections afforded investors under the Argentina–Germany bilateral investment treaty (BIT), including the prohibition against direct or indirect, expropriation.

Notwithstanding a provision in the Argentina-Germany BIT that requires disputes to first be brought to the Argentine courts, Wintershall submitted its claims directly to arbitration. Invoking the MFN clause in the Argentina-Germany BIT, the company argued that it was entitled to utilize what appears to be more favourable dispute settlement procedures found in the Argentina-United States BIT.

Finding that it did not have jurisdiction to hear the case, the tribunal based its determination on two primary findings: (1) that the claimant could not avoid prior compliance with the procedural requirements in the Argentina-Germany BIT before initiating arbitration proceedings and (2) that the Claimant could not rely on the most-favoured-nation clause in Article 3 of the Argentine-Germany BIT to avoid compliance with those requirements.

The tribunal, in its 8 December 2008 ruling, focused on the clear language of the text of Article 10(2) in the Argentina-Germany BIT and stated:

The manner in which Article 10 of the BIT is worded (and it is words that determine the intention of the Parties when interpreting a treaty) it is apparent that reference to ICSID arbitration is expressly conditioned upon inter alia a claimant-investor first submitting his/its dispute to a Court of competent jurisdiction in Argentina, during an 18–month period (and a three month further waiting period) and then proceeding to ICSID arbitration.

[…]

In the present case the Contracting Parties, (i.e. the Republic of Argentina and the Federal Republic of Germany) have been left free to provide, (and have specifically provided for) a local-remedies clause before resorting (ultimately) to ICSID arbitration. Since the Claimant (a German national) can only make a claim under the Argentina-Germany BIT, and under no other document, when the Claimant Wintershall so makes a claim (as it has done in the present case) it has no option but to comply with the closely interlinked conditions mentioned in Article 10, before exercising its right to ICSID arbitration, simply because that is the expressed will of the Contracting States.

In determining that the Wintershall could not overcome the unambiguous language in Article 10(2) by virtue of the MFN clause, the tribunal mad a number of findings. Of particular interest is the tribunal’s reasoning respecting the importance of consent as the foundational principle upon which its jurisdiction is grounded. In response to the claimant’s assertion that the application of the MFN clause in the Argentine-Germany BIT did not affect issues of jurisdiction, consent to arbitration or the substance of the dispute settlement mechanism, the tribunal noted that the 18-month requirement to pursue local remedies in Article 10(2) “is part and parcel of Argentina’s integrated ‘offer’ for ICSID arbitration; this ‘offer’ must be accepted by the investor on the same terms.”

The tribunal also noted that the dispute resolution clause in Article 10 of the Argentina-Germany BIT provides for ICSID as the ultimate and only arbitration forum, whereas Article VII of the Argentina-US BIT invoked by the claimant (in lieu of Article 10 of the Argentina-Germany BIT) prescribes “a different system of arbitration” because it provides an investor a choice of fora (either ICSID or UNCITRAL) in which to settle its disputes. As a result, the tribunal found that it could reject the claimant’s arguments respecting the scope and applicability of MFN protection. In so finding, the tribunal stated:

…[A] different dispute settlement provision under another treaty, whether or not “alien” to the basic treaty, is sufficient to negate the submission that the most-favoured-nation clause (in Article 3) applies to dispute resolution justifying abandoning the dispute resolution clause in the Argentine – Germany BIT and adopting Article VII of the Argentine – US BIT.

Given that previous arbitral tribunals had granted investors direct access to arbitration in the face of similar procedural hurdles*, the claimant’s attempt to invoke MFN protection in this case might have seemed to some an easy and predictable jurisdictional question to answer. The ruling of the tribunal confirms, however, that nothing is certain or predictable when it comes to examining the scope and applicability of MFN protection in international investment law.

*See e.g. Emilio Agustin Maffezini v. Kingdom of Spain (2003), 124 I.L.R. 9 (International Centre for Settlement of Disputes), (Arbitrators: Francisco Orrego Vicuña, Thomas Buergenthal, Maurice Wolf), also online:WorldBank<http://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=showDoc&docId=DC565_En&caseId=C163 [Maffezini];

Siemens AG v. Argentine Republic (3 August 2004), ARB/02/8 (International Centre for Settlement of Disputes), (Arbitrators: Dr. Andrés Rigo Sureda, Judge Charles N. Brower, Professor Domingo Bello Janeiro), online:WorldBank <http://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=showDoc&docId=DC508_En&caseId=C7> [Siemens].