Argentina ordered to place US$75 million in escrow pending annulment decision on Sempra award
By Fernando Cabrera Diaz
16 March 2009
An ad-hoc committee formed under the rules of the International Centre for Settlement of Investment Disputes (ICSID) has ordered Argentina to put up US$75 million in escrow as a condition of a continued stay in the enforcement of an award.
Under ICSID rules a party seeking the annulment of an ICSID award can request a stay in the enforcement of the award pending the decision on the annulment. Once the request for a stay is made, a provisional stay is automatically granted and valid until the Annulment Committee decides on the issue.
In this case San Diego, California-based Sempra Energy International requested that the Annulment Committee suspend the provisional stay of enforcement of a US$128 million award, alleging that Argentina’s actions demonstrated it was not willing the pay the award should the committee reject the annulment request.
Sempra pointed to Argentina’s repeated assertions that award creditors must submit awards for enforcement to Argentina’s domestic judicial system as proof of the country’s unwillingness to comply.
While Argentina does not dispute the binding nature of ICSID awards, it maintains that award creditors must formally seek compliance of awards though domestic courts. In support of this view, Argentina sites Article 54 of the ICSID Convention, which states that contracting parties must “recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State.” Argentina interprets this article as requiring it to treat ICSID awards as it would treat domestic awards, which must be enforced by domestic courts.
Argentina also contends that placing millions in escrow would cause it economic hardship. “In the face of the current international financial uncertainty, a requirement to freeze such amount of money would be particularly detrimental to any State and, especially, to an emerging country such as Argentina,” wrote the Argentine government to the Committee.
In a 5 March decision, the Committee rejected Argentina’s arguments and held that, under the ICSID Convention, ICSID awards are unconditionally enforceable. In reaching this decision, the Committee relied on Article 53(1) of the ICSID Convention which states that awards “shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention.”
Argentina’s affirmation that creditors must submit awards to domestic courts, demonstrates its unwillingness to comply with its obligations under Article 53, continued the Committee.
As a result, the Committee concluded that in order to continue the stay of enforcement, “Argentina must be required to give some tangible demonstration of its preparedness to comply, unconditionally and in good faith, with its obligations under Article 53 of the Convention.” It therefore ordered the country to place US$75 million in escrow within 120 days of the 5 March 2008 ruling.
The decision demonstrates mounting pressure on Argentina to comply, unconditionally, with ICSID awards. In recent months, two annulment committees* have demanded so-called comfort letters from Argentina: written assurances that it will comply with ICSID awards in the case that annulment is rejected, without requiring a judicial review by domestic courts. In both cases, Argentina has missed its deadlines for supplying these letters to the committees.
In taking a stronger position, the Annulment Committee in the Sempra case has concluded that “comfort letters” are inadequate for two reasons: Argentina has failed to provide these letters in other cases; and the letters are unnecessary, given that they would simply “confirm and restate Argentina’s obligations under the ICSID Convention.”
The Decision on the Argentine Republic’s Request for a Continued Stay of Enforcement of the Award is available from ICSID’s website: http://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=showDoc&docId=DC991_En&caseId=C8
“Argentina ordered to reconsider its position on payment of ICSID awards”, By Damon Vis-Dunbar, 14 October 2008, available here: http://www.investmenttreatynews.org/cms/news/archive/2008/10/14/argentina-ordered-to-reconsider-its-position-on-payment-of-icsid-awards.aspx
** Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic (ICSID Case No. ARB/01/3); Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic (ICSID Case No. ARB/97/3)