Faced with a significant number of investment treaty claims, Argentina looks set to withdraw from the International Centre for Settlement of Investment Disputes (ICSID) Convention. Argentina has signaled its intention to support instead a proposal by Ecuador to create an arbitral facility to decide investment disputes under the auspices of the Union of South American Nations, otherwise known as “UNASUR” for its Spanish acronym, a South American intergovernmental organization. Argentina's withdrawal from ICSID may have significant effects on an investor's ability to bring claims against Argentina. It is important that investors are aware of the potential consequences arising from these changes so that they can take steps to preserve their rights.
The ICSID Convention
The ICSID Convention is a multilateral Convention, to which 147 States are party. It provides for the arbitration of disputes between an investor and a State (or a subdivision or agency of that State). This arbitral mechanism is only available where both the home State of the investor and the host State are parties to the Convention.
All States which are party to the ICSID Convention are required to recognize and enforce any pecuniary award made in an ICSID proceeding as though it were a final judgment of a court of that State. Unlike the enforcement of awards under the New York Convention on the Recognition and Enforcement of Arbitral Awards, there are no grounds on which a court might seek to refuse enforcement. A dissatisfied party's only recourse is to seek annulment of the award through ICSID annulment proceedings. Annulment is only available in narrowly defined circumstances, which relate to the propriety of the arbitral process, rather than the substantive correctness of an award. For this and other reasons, arbitration under the ICSID Convention is seen as an attractive forum for investors.
The most common method for an investor to invoke ICSID's jurisdiction is to accept an offer contained in a bilateral investment treaty (BIT), whereby a State offers to arbitrate investment disputes with nationals of the other party to the BIT. Such an offer to arbitrate may provide that disputes are to be arbitrated under the ICSID Convention. An investor accepts a State's offer to arbitrate by filing a request for arbitration. It is at this time that consent to the jurisdiction of ICSID is "perfected."
Withdrawal from the ICSID Convention by Argentina?
The ICSID Convention specifically allows States to “denounce” or withdraw from the Convention. This withdrawal takes effect six months after the notification of withdrawal is received by the World Bank as the depositary of the Convention. During this time, a State remains a party to the ICSID Convention, and the State’s offers to arbitrate investment disputes under the ICSID Convention contained in its BITs remain unaffected. If an investor accepts the offer to arbitrate by filing a request for arbitration, this will be valid and the ICSID Convention will apply, even if, after arbitration has been commenced, a State ceases to be a party to the Convention.
The situation with respect to arbitrations commenced after a State's withdrawal from the ICSID Convention is more complicated. An argument can be made that, even once a State has withdrawn from the ICSID Convention, investors can still bring a claim before ICSID pursuant to a BIT. In particular, Article 72 of the ICSID Convention details the consequences flowing from withdrawal and provides that such withdrawal shall not affect the obligations of a State or its nationals "arising out of consent to the jurisdiction of the Centre given by one of them before such notice was received by the depositary." It is not clear whether this "survival clause" applies to a unilateral offer to arbitrate disputes (e.g. an offer to arbitrate contained in a BIT), or whether it only applies to situations where the parties have already "perfected" their agreement to submit their dispute to arbitration. While this argument has been advanced in pending ICSID arbitrations, no decision has yet been issued by an ICSID tribunal supporting or rejecting this view.
In any event, the withdrawal of a State from the ICSID Convention does not affect the continuing validity of BITs. Depending on the terms of the BIT, this move may leave an investor without an apparent forum in which to bring their claim where the BIT provides for arbitration of disputes before ICSID only. From the investor's viewpoint, this may eliminate the utility of a BIT.
BITs vary with respect to the mechanisms which they provide for an investor and a State to arbitrate disputes. In some treaties, the offer to arbitrate provides for ICSID arbitration only, whereas other BITs may give a choice between different fora, including arbitration under the ICSID Convention. Where an investor has a choice between different fora, the withdrawal of a State from the ICSID Convention will not affect the ability of an investor to bring a claim before those other fora (e.g. ad hoc arbitration under the UNCITRAL Rules). It would remove their ability to bring arbitral proceedings pursuant to the ICSID Convention.
An added layer of difficulty may arise from the common requirement in BITs that an investor provide a "cooling-off letter." Frequently, a pre-condition to instituting proceedings is that investors need to provide a State with notice of their claim. Typically, there will be a cooling-off period of between three and six months. Only at the end of this waiting period can proceedings be commenced. Investors need to take this into account, as complying with the cooling-off period may mean that a request for arbitration cannot be filed until after the withdrawal of a State from the ICSID Convention has come into effect.
Unilateral denunciation of BITs by Argentina
In addition to withdrawing from the ICSID Convention, it is also reported that President Cristina Fernández de Kirchner will ask the Argentine Congress to pass a law seeking to terminate the BITs which Argentina has entered into with other States. The law by itself is unlikely to have any effect on an investor's ability to bring a claim against Argentina pursuant to a BIT. Any termination of a treaty by Argentina is subject to the international law of treaties. Many BITs contain specific provisions dealing with termination, and it will be these provisions which govern the circumstances in which Argentina can terminate the relevant BIT. BITs typically apply for fixed terms and are subject to renewal. In such circumstances, Argentina could terminate the BITs at the end of the relevant term. However, most BITs contain survival clauses whereby the treaty will continue to provide protection to investments existing at the time of termination, often for period of 10 or even 20 years, but will not cover new investments made after termination of the treaty.