Prominent Issues in Latin American Arbitration: Annulment, Multi-party Arbitrations, Corruption and Fraud

Carolyn B. Lamm White & Case LLP April 12, 2012

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Prominent Issues

ANNULMENT

MULTI-PARTY ARBITRATIONS

FRAUD & CORRUPTION

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Finality is a hallmark of an ICSID Award

Finality is central to the ICSID system Article 53(1): “The award shall be binding on the parties and shall not be subject to

any appeal or any other remedy except those provided for in this Convention.”

Article 54(1): “Each Contracting State shall recognize an award … and enforce the pecuniary obligation imposed by that award … as if it were a final judgment of a court in that State.”

Annulment grounds are limited Article 52 (1): “Either party may request annulment of the award by an application in

writing addressed to the Secretary-General on one or more of the following grounds:

(a) that the Tribunal was not properly constituted;

(b) that the Tribunal has manifestly exceeded its powers;

(c) that there was corruption on the part of a member of the Tribunal;

(d) that there has been a serious departure from a fundamental rule of procedure; or

(e) that the award has failed to state the reasons on which it is based.”

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Annulments in Latin America

Claimants

Peru

Honduras

Ecuador

Chile

Argentina

Applying Party

7

1

1

2

2

10

Applications

ICSID annulment from Latin America: 40% of total (58% of pending)

2*

0

0

0

0

3*

Annulled

3

1

1

1

1

4

Not Annulled

2

0

0

1

1

3

Pending

*Vivendi v. Argentina and CMS Gas Transmission v. Argentina: “Partial” Annulment

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Awards Annulled in 2010/2011

GLOBALLY: 4 of 11 | LATIN AMERICA: 2 OF 6

March 25, 2010: Rumeli Telekom v. Kazakhstan Not annulled

May 11: Transgabonais v. Gabon Not annulled

June 14: Helnan v. Egypt Partially annulled

June 29: Sempra v. Argentina Annulled

July 30: Enron v. Argentina Annulled

Aug. 10: Vivendi v. Argentina II Not annulled

Dec. 10: Vieira v. Chile Not annulled

Dec. 23: Fraport v. Philippines Annulled

March 1, 2011: Duke v. Peru Not annulled

Sept. 6: Togo Electricité v. Togo Not annulled

Sept. 16: Continental Casualty v. Argentina Not annulled

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Examples of Appellate-like Decisions in Latin American

Sempra v. Argentina Annulled the Award on the ground of manifest excess of powers for resorting to customary

international law to interpret the BIT Essentially acted as an appellate body reviewing the merits of the Award

Enron v. Argentina Annulled the Award on the ground of manifest excess of powers for failure to apply customary

international law on necessity Yet found that the Parties had not argued the legal elements before the Tribunal, and the Tribunal

thus was not required expressly to address them The ad hoc Committee essentially reviewed the merits of the Award

Vivendi v. Argentina II No annulment, but replete with gratuitous criticism of Award Criticized the arbitrator severely, citing “most serious shortcomings” Criticized the arbitrator’s judgment in other cases

Additional Opinion of Professor Dalhuisen criticized the ICSID Secretariat generally as seeking too active a role

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Other Challenges to Finality in Latin America

Argentina’s Non-Payment of Awards In last decade, Argentina has not paid awards resulting from investor-state

arbitrations

Backlash:

On March 26, President Obama suspended Argentina from the U.S. Generalized System of Preferences program for failure to pay awards in CMS Gas (2005) and Azurix (2006).

Reported U.S. opposition to World Bank and IMF loans for Argentina

Denunciation of the ICSID Convention Bolivia (2007)

Ecuador (2010)

Venezuela (2012)

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Prominent Issues

ANNULMENT

MULTI-PARTY ARBITRATIONS

FRAUD & CORRUPTION

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Use of Multi-Party Arbitration

ICSID has registered joint requests for arbitration for 40 years 45+ ICSID arbitrations from Latin America have involved more than one

claimant: Argentina: 18 arbitrations

Venezuela: 10 arbitrations

Ecuador: 7 arbitrations

Peru: 4 arbitrations

Chile: 1 arbitration

El Salvador: 1 arbitration

Honduras: 1 arbitration

Nicaragua: 1 arbitration

Panama: 1 arbitration

Uruguay: 1 arbitration

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Argentina Water Concession Cases

4 disputes against Argentina relating to effect of emergency measures on water services concessions in different provinces: Suez, Sociedad General de Aguas de Barcelona, S.A. and InterAguas Servicios

Integrales del Agua S.A. v. The Argentine Republic, ICSID Case No. ARB/03/17

Aguas Cordobesas S.A., Suez, and Sociedad General de Aguas de Barcelona S.A. v. Argentine Republic ICSID Case No. ARB/03/18

Suez, Sociedad General de Aguas de Barcelona S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/03/19

AWG Group Ltd. v. Argentine Republic (UNCITRAL)

Each ICSID case involved multiple claimants and multiple BITs All 4 cases had same Tribunal and similar jurisdictional considerations

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Abaclat and others v. Argentina

Disputes relating to Argentine default on sovereign bonds

60,000 claimants are Italian bondholders

Decision on Jurisdiction (4 Augist 2011): Majority found that it had jurisdiction over “mass claims” The "mass aspect of Claimants' claims" present no barrier to the arbitration and the

"claims are admissible."

“This appears to be the first case in ICSID’s history [in which] mass claims are brought before it”

“Undeniable the large number of Claimants raises a series of questions and challenges”

Important to begin the analysis with a review of the terms of the relevant BIT. Here the Argentina-Italy BIT provides that bonds or “debt instruments” and securities are an investment; uses plural language for multiple claimants

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Abaclat and others v. Argentina (cont.)

The Argentine-Italy BIT is replete with references to plural “nationals” and “investors” Preamble: “between States and Nationals”

Art. 2(1): “investors of the Contracting Party”

Art. 2(2): ”Investments of investors”

Art. 3(1): “investments made by the investors”

Art. 4: “Investors of one Contracting Party”

Art. 5(1)(a):“investors of the other Contracting Party”

Art. 5(1)(b): “investors of one of the Contracting Parties”

Art. 6(1) and (4): “guarantee to investors”

Art. 8(3): “investors still continues to exist”

Art. 8(5)(a): “investments by investors”

Art. 10 (1): “Contracting Parties and their investors”

Art. 10 (2): “more favorable for the investors”

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Compare: Unconsolidated Related Cases

RELATED CASES SIMILARITIES DIFFERENCES

Camuzzi v. Argentina Sempra v. Argentina

Same Tribunal Similar proceedings Similar rules Similar disputed issues

Separate jurisdictional

rulings Sempra: Award in

2007; Anulled in 2010 Camuzzi: suspended in

2010

Electricidad Argentina v. Argentina EDF International v.

Argentina Same Claimant (EDF) Same Tribunal Similar disputed issues

Electricidad Argentina:

Suspended in 2006 EDF International:

Proceeding closed March 13, 2012. Decision pending

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Prominent Issues

ANNULMENT

MULTI-PARTY ARBITRATIONS

FRAUD & CORRUPTION

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Fraud/Corruption Allegations as Both Sword and Shield

Allegations of fraud/corruption by state may be part of claims for breach of BITs See EDF v. Romania (recognizing that requiring bribes would constitute, if proven, “a

violation of the fair and equitable treatment owed to the Claimant pursuant to the BIT” and a “fundamental breach of transparency and legitimate expectations”)

Allegations of fraud/corruption by investor may be bar against bringing claims See Plama v. Bulgaria (finding that material misrepresentations by investor in the

course of his investment resulted in the investment being deemed to be unprotected by the Energy Charter Treaty (“ECT”), even though the ECT did not have requirement that investment be “in accordance with law”.

See World Duty Free v. Kenya (holding that Claimant’s bribes violated international public policy and, as a result, that “Claimant is not legally entitled to maintain any of its pleaded claims”).

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Significant Latin American Case: Inceysa v. El Salvador

El Salvador objected to jurisdiction based on Claimant having obtained concession contract by fraud. Tribunal found numerous misrepresentations by Inceysa during bidding

process: Submitting false financial information

Failure to tell the truth regarding identity of strategic partner

Misrepresentation of corporate history and experience

Submitting false information concerning experience of sole administrator

Concealing affiliation with runner-up in bid

Tribunal found that even though BIT did not us “in accordance with law” language to define investment, “disputes that arise from an investment made illegaly are outside of the consent granted by parties and, consequently, are not subject to the jurisdiction of [ICSID], and that this Tribunal is not competent to resolve them…”.

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Other Latin American Cases

Fraud/Corruption allegations have been less salient in other Latin American arbitrations.

Luchetti v. Peru Tribunal didn’t reach Peru’s objection that Claimants’ investment was not in

accordance with Peruvian laws and regulations.

Aguas del Tunari v. Bolivia Tribunal rejected Bolivia’s jurisdictional challenge that Claimant’s corporate structure

breached concession contract and was misrepresented.

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