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

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].