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

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1 Prominent Issues in Latin American Arbitration: Annulment, Multi-party Arbitrations, Corruption and Fraud Carolyn B. Lamm White & Case LLP April 12, 2012

2 Prominent Issues ANNULMENT MULTI-PARTY ARBITRATIONS FRAUD & CORRUPTION White & Case 2

3 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) (b) (c) (d) (e) that the Tribunal was not properly constituted; that the Tribunal has manifestly exceeded its powers; that there was corruption on the part of a member of the Tribunal; that there has been a serious departure from a fundamental rule of procedure; or that the award has failed to state the reasons on which it is based. White & Case 3

4 Annulments in Latin America ICSID annulment from Latin America: 40% of total (58% of pending) Applying Party Applications Annulled Not Annulled Pending Argentina 10 3* 4 3 Chile Ecuador Honduras Peru Claimants 7 2* 3 2 *Vivendi v. Argentina and CMS Gas Transmission v. Argentina: Partial Annulment White & Case 4

5 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 White & Case 5

6 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 White & Case 6

7 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) White & Case 7

8 Prominent Issues ANNULMENT MULTI-PARTY ARBITRATIONS FRAUD & CORRUPTION White & Case 8

9 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 White & Case 9

10 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 White & Case 10

11 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 White & Case 11

12 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 White & Case 12

13 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, Decision pending White & Case 13

14 Prominent Issues ANNULMENT MULTI-PARTY ARBITRATIONS FRAUD & CORRUPTION White & Case 14

15 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 ). White & Case 15

16 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. White & Case 16

17 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. White & Case 17

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