Awards and Decisions

US court vacates award against Argentina
BG Group Plc v. Argentina
Lise Johnson

A US appellate court has vacated an award against Argentina in a decision that may give investors pause before attempting to bypass treaty provisions requiring that they first pursue their claims in the host state’s courts.

The long course of the dispute

The January 2012 decision was issued in BG v. Argentina, one of the many treaty claims that have been filed against Argentina due to measures it took during the financial crisis it suffered roughly ten years ago.[1] The claimant, BG Group PLC, filed its Notice of Arbitration against Argentina in April 2003 under the Argentina-United Kingdom BIT. In doing so, BG Group leapt over treaty provisions that require investors to first submit their claims to the host state’s courts before being able to pursue international arbitration.

BG’s decision not to seek court relief before commencing arbitration has remained a contentious issue. Before the tribunal, Argentina had argued that the language of the treaty was clear: Article 8(1) required investors to seek relief in domestic courts, while Article 8(2) added that if 18 months had passed since the dispute was submitted to the courts and the dispute was still unresolved, the investor could then submit its claims to international arbitration. Argentina argued that BG’s failure to comply with those provisions meant that the tribunal could not review its treaty claims.

The tribunal, however, rejected that argument, asserting that Article 8(2) could not “be construed as an absolute impediment to jurisdiction.”[2] It then proceeded to determine Argentina had breached the fair and equitable treatment obligation in the Argentina-UK treaty and ordered Argentina to pay BG more than US$185 million in damages, plus some US$684,000 for fees and expenses incurred by BG and the arbitrators.

Argentina then took steps to vacate the award – a move that, if successful, would effectively nullify it, preventing BG from enforcing it in any of the 146 countries that are party to the New York Convention.[3] BG, in turn, took action to attempt to enforce and collect on the tribunal’s judgment. The parties brought their respective claims for relief to the US court with jurisdiction over the matter. Before the US court, Argentina asserted that the 18-month requirement was a condition of its consent to arbitrate disputes, and because that condition was not complied with, it had not consented to arbitrate the dispute. Consequently, Argentina continued, this meant that the tribunal had arbitrated a dispute over which it had no power, which is one of the few grounds on which the US court could vacate the award under the New York Convention and US law.

The US district court rejected Argentina’s arguments, and granted BG’s motion to enforce the award. Argentina appealed. Again, the parties argued the issue of BG’s noncompliance with Articles 8(1) and (2) of the Argentina-UK BIT.

The appellate court, the Court of Appeals for the District of Columbia Circuit, sided with Argentina. In doing so, it made three main proclamations.

First it held that it is responsibility of courts, not arbitrators, to determine whether the dispute may be arbitrated in cases where: a treaty makes resort to local courts a condition to arbitration; the treaty is silent on whether arbitrators have the power to determine whether a dispute is arbitrable; and the local remedies condition is not complied with.

Second, the appellate court determined that the lower court erred as a matter of law because it did not determine that there was clear and unmistakable evidence that, contrary to the rule espoused above, the parties to the treaty had wanted the arbitrators to determine whether they had jurisdiction over the dispute.

Finally, the court decided that because “there could be only one possible outcome on the [question of whether] BG Group was required to commence a lawsuit in Argentina’s courts and wait eighteen months before filing for arbitration,” it would reverse the orders of the lower court and vacate the tribunal’s award.

The appellate court’s ruling has drawn critique from some who assert that it is inconsistent with the fundamental principle that tribunals have the power to determine their own jurisdiction. Nonetheless, it remains that under the New York Convention and US law, courts do have power to vacate arbitral awards in certain limited circumstances, including when the arbitrators decided a matter that the parties had not consented to arbitrate.[4]

India in breach of BIT for court delays
White Industries Australia Limited v The Republic of India, UNCITRAL
Larisa Babiy

In an award dated 30 November 2011, an UNCITRAL tribunal found that delays by Indian Courts amounted to a breach of the “effective means” standard, in what marks the first known investment-treaty ruling against India.

Background

The Australian claimant, White Industries, concluded a contract in 1989 for the supply of equipment and the development of a coal mine with Coal India, a State owned and controlled company. A dispute arose between the parties and was submitted to an ICC tribunal seated in Paris, which in 2002 awarded White A$4.08 million.

Coal India applied to the High Court of Calcutta to have the award set aside, while White Industries applied to the High Court of New Delhi to have the award enforced. The Calcutta High Court rejected White Industries’ application to have Coal India’s petition to set aside the award dismissed. White Industries appealed this decision in front of the Supreme Court. With the aim of avoiding conflicting decisions, in 2006 the New Delhi High Court decided to stay the enforcement proceedings until the decision of the Supreme Court was rendered. White Industries did not appeal to the stay. As a result, nine years after the ICC tribunal rendered its award in White Industries’ favor, the investor was still waiting for the Indian Courts to decide upon its jurisdictional claims.

On 27 July 2010 White Industries filed a claim against India under the Australia-India BIT. It contended that the Indian government, by the actions of its courts and of Coal India, breached its obligations to grant fair and equitable treatment (Article 3(2)) and effective means of asserting claims (Article 4(2)).

ICC award considered part of the investment

The tribunal considered that the broad definition of investment contained in the BIT encompassed the claimant’s contractual rights. In relation to White Industries’ rights under the ICC award, the arbitrators concluded that the award per se could not be considered an investment, but the “rights under the Award constitute part of the original investment” being a crystallization of its rights under the contract, and as such “are subject to such protection as is afforded to investments by the BIT.”

Court delays don’t breach FET provision

In addressing White Industries’ claim on the violation of the fair and equitable treatment provision, the tribunal considered that none of its allegations met the standard required to establish the frustration of legitimate expectations. In particular, White Industries knew, or ought to have known, that Indian courts regularly entertain applications to set aside foreign awards and could not have relied on any belief as to how India would apply the New York Convention. Moreover, the claimant or ought to have known that India’s domestic court system is overburdened and thus it could not have expected a timely enforcement of its award.

The tribunal found that a violation of fair and equitable treatment through a denial of justice was also not proven. It stated that “while the duration of the proceedings overall as well as the delay by the Supreme Court (…) is certainly unsatisfactory in terms of efficient administration of justice, neither has yet reached the stage of constituting a denial of justice.” In deciding on this issue, the tribunal considered that the question of whether Indian courts can entertain an application to set aside a foreign award is hotly debated in the country, thus it was not particularly surprising that the Supreme Court had not disposed of the claimant’s appeal.

Tribunal imports ‘effective means’ standard via the MFN clause and finds breach

White Industries relied on the most favored nation clause to benefit from the obligation to “provide effective means of asserting claims and enforcing rights” contained in the India-Kuwait BIT. In its analysis, the tribunal considered the enforcement and the set-aside proceedings separately. In relation to the former, it stated that although the procedural history has been “less than ideal”, the three and a half years of delay of the Indian courts did not violate the BIT, in particular because White Industries decided not to appeal the order to stay the proceedings.

Conversely, with regard to the set aside proceedings, the tribunal found that the claimant had done “everything that could reasonably be expected of it to have the Supreme Court deal with its appeal in a timely manner”. As a consequence, the tribunal stated that it had “no difficulty in concluding [that] the Indian judicial system’s inability to deal with White’s jurisdictional claim in over nine years, and the Supreme Court’s inability to hear White’s jurisdictional appeal for over five years amounts to undue delay and constitutes a breach of India’s voluntarily assumed obligation of providing White with ‘effective means’ of asserting claims and enforcing rights.”

The tribunal considered the grounds advanced by Coal India to resist the enforcement of the ICC award and found that the award was enforceable under the laws of India. It concluded that “had India not failed to provide White with ‘effective means’ of asserting its claims, the Indian courts ought by now to have determined the Award to be enforceable in India”.

For these reasons, the tribunal awarded White Industries some A$4 million, plus interest, costs and legal fees.

The tribunal was formed by J. William Rowley QC (chair), Charles Brower (investor’s nominee) and Christopher Lau SC (Respondent’s appointee).

Tribunal declines jurisdiction over claimant’s failure to litigate in Argentina’s courts
ICS Inspection and Control Services Limited v The Argentine Republic, UNCITRAL
Damon Vis-Dunbar

In a 10 February 2012 ruling, an UNCITRAL tribunal has declined jurisdiction in a claim against Argentina because the claimant neglected to first take its complaint to Argentina’s courts for 18 months.

The decision is part of a growing number to interpret provisions that call for disputes to be litigated in domestic courts before they can be tried in international arbitration under investment treaties. Arbitrators have reached diverging conclusions, and jurisdictional decisions have swung both directions as a result.

The claimant, ICS Inspection and Control Services, won a contract to inspect goods bound for import into Argentina before they left port. In its claim, ICS outlines a number of grievances in its dealings with Argentinean authorities, and these were compounded when Argentina entered an economic crisis and severed the link between the Argentine Peso and the US dollar.

ICS lodged an administrative claim in 2002, and eventually received payment for outstanding invoices in 2006, albeit for less that it claimed to be owed. The claimant sought relief under the UK-Argentina BIT in 2009, seeking some US$25 million in damages.

Jurisdictional issues

Argentina offered a number of arguments as to why the tribunal lacked jurisdiction:

• The claimant failed to abide by a provision in the UK-Argentina BIT that requires claims to be brought first to domestic courts for a period of 18 months, or until a decision has been made by the court, but the parties remain in dispute;
• The claim is essentially a contractual dispute, and should be settled under the terms of the contract, rather than under an international investment treaty;
• The claim is barred for reasons of “acquiescence” and “prescription”: essentially, that the claimant’s long wait of 4 years to bring its complaint to arbitration “extinguished” the claim or made it inadmissible.
• The contract was not directly with the claimant, but between Argentina and a company incorporated in the Cayman Islands, and thus ICS lacked standing to bring to the claim.

However, the case turned on the issue of the 18-month domestic litigation requirement. Having determined that this is a “mandatory” requirement, the tribunal considered whether it was a matter of admissibility or jurisdiction matter. The tribunal noted that while it enjoyed discretion in terms of how it dealt with issues of admissibility, it could not alter the rules to uphold its jurisdiction. Ultimately, the tribunal considered the requirement part of Argentina’s consent to arbitration, and therefore a matter of jurisdiction.

The tribunal did not accept the claimant’s argument that the domestic court requirement is futile, given that it only delayed the arbitration. The tribunal noted that a majority in another recent jurisdictional decision, Abaclat and Others v. Argentina, accepted a similar line of argument. In the Abaclat arbitration, the tribunal is considering a claim by thousands of claimants, and it based its decision in part on a conclusion that Argentina’s court system was not prepared to adequately address the claims.

In contrast, the ICS tribunal stated that it “could not create exceptions to treaty rules where these are merely based upon an assessment of the wisdom of the policy in question, having no basis in either the treaty text or in any supplementary interpretative source, however desirable such policy considerations might be seen to be in the abstract.”

The tribunal also rejected the claimant’s argument that it could by-pass the domestic litigation requirement by means of BIT’s Most Favoured Nation (MFN) clause. The tribunal concluded that Argentina and the UK most likely did not intend for the MFN provision to apply to dispute settlement. It noted, for instance, that the treaty was drafted before the debate on the scope of the MFN clause – and in particular whether in encompasses elements of investor-state dispute resolution – opened up.

“The Treaty was concluded by Argentina and the UK late in 1990 … This was long before Maffezini brought treaty-based questions concerning the MFN clauses and international investor-State dispute resolution into focus; indeed, these issues remained entirely unexplored.”

On the issue of costs, the tribunal stated that “there was clearly a successful party, the Respondent, and a clearly unsuccessful party, the Claimant.” That outcome led the tribunal to order the claimant to pay the full cost of the arbitration, while each party bears the cost of their legal representation.

The tribunal was formed by Pierre-Marie Dupuy (presiding arbitrator), Dr. Santiago Torres Bernardez (Respondent’s appointee) and Marc Lalonde (claimant’s appointee).

The decision on jurisdiction is available here: http://italaw.com/documents/ICS_v_Argentina_AwardJurisdiction_10Feb2012_En.pdf

Tribunal declines jurisdiction in Gallo v Canada
Vito G. Gallo v the Government of Canada, NAFTA, UNCITRAL, PCA Case No. 55798
Larisa Babiy

An UNCITRAL tribunal has declined jurisdiction in a case against Canada under the North American Free Trade Agreement’s investment chapter, having determined that the American claimant failed to prove the date when he acquired a Canadian company.

The claimant, Mr. Gallo, claimed to be the owner of a Canadian company that on 6 September 2002 purchased an abandoned mine in Ontario to use as a waste disposal site. On 5 April 2004 the Ontario government passed the Adams Mine Lake Act (AMLA), which prohibited the use of the mine as a waste disposal site and revoked the existing environmental approvals. The AMLA acknowledged that the company was entitled to limited compensation; however, it also stated that its actions did not constitute expropriation.

Following these developments, Mr. Gallo filed a claim against Canada on behalf of the company for alleged violation of NAFTA’s articles on Minimum Standard of Treatment Expropriation and Compensation and Customary International Law.

Canada objected to tribunal’s jurisdiction, arguing that the claimant must prove that he owned the company before the enactment of the AMLA “through reliable and contemporaneous documents.” It was Canada’s case that the tribunal would have jurisdiction only if the claimant was able to prove ownership of the company at the time AMLA was introduced.

Mr. Gallo considered that the burden of proof should be shifted to Canada, on the grounds that Canada was accusing him of “fraudulent conspiracy. However, Canada replied that is was not advancing allegations of fraud, prompting the tribunal to decide there had been no shift in the burden.

Tribunal’s analysis

In its 15 September 2011 decision on jurisdiction, the tribunal found that the claimant had not been able to demonstrate that the acquisition of the ownership of the company predated the AMLA. It then addressed the question of whether such finding implied a lack of jurisdiction ratione temporis (temporal jurisdiction).

Here the tribunal sided “without hesitation” with Canada. “For Chapter 11 of the NAFTA to apply to a measure relating to an investment, that investment must be owned or controlled by an investor of another party, and ownership and control must exist at the time the measure which allegedly violates the Treaty is adopted or maintained”.

Since claimant failed to prove the date of the acquisition of the ownership, “the necessary consequence is that his claim must fail for lack of jurisdiction ratione temporis,” ruled the tribunal

The tribunal unanimously concluded that it lacked jurisdiction and condemned the claimant to pay Canada’s arbitration costs.

The tribunal consisted of Prof. Juan Fernandez-Armesto (Chair), Laurent Levy (Canada’s appointee), and Prof. Jean-Gabriel Castel O.C. Q.C. (investor’s nominee).

Canada’s original nominee, Mr. J. Christopher Thomas Q.C., resigned from his appointment as an arbitrator in October, 2009 after ICSID’s Deputy Secretary-General determined that Mr. Thomas could not continue to provide legal advice to Mexico and serve as an arbitrator in the case, given that Mexico is a party to NAFTA and could have made a submission as a non-disputing party.

The decision is available at: http://italaw.com/documents/Gallo_v_Canada_Award15Sep2011.pdf