INTERNATIONAL COURT OF JUSTICE
CERTAIN IRANIAN ASSETS
(ISLAMIC REPUBLIC OF IRAN v. UNITED STATES OF AMERICA)
COUNTER-MEMORIAL
SUBMITTED BY
THE UNITED STATES OF AMERICA
October 14, 2019
ANNEXES
VOLUME IX
Annexes 183 through 202
ANNEX 183
3
CONTENTS
Page
Multilateral instruments cited in the present report ............................................................................................... 4
Works cited in the present report ........................................................................................................................... 6
Paragraphs
SCOPE OF THE PRESENT REPORT ......................................................................................................... 1 9
REVIEW OF DRAFT ARTICLES IN PART ONE ........................................................................................... 2–158 9
A. Part one, chapter III. Breach of an international obligation .................................................. 2–158 9
1. Introduction ..................................................................................................................... 2–4 9
(a) Overview ................................................................................................................... 2–3 9
(b) Comments of Governments on chapter III as a whole ................................................ 4 10
2. Review of specific articles in chapter III ........................................................................... 5–150 10
(a) Article 16. Existence of a breach of an international obligation .................................. 5–15 10
(b) Article 17. Irrelevance of the origin of the international obligation breached ............. 16–26 13
(c) Article 19, paragraph 1. Irrelevance of the subject matter of the obligation breached ...... 27–34 15
(d) Article 18, paragraphs 1–2. Requirement that the international obligation be in
force for the State ........................................................................................................ 35–51 16
(e) Articles 20–21. Obligations of conduct and obligations of result ............................... 52–80 20
(f) Article 23. Breach of an international obligation to prevent a given event.................. 81–92 27
(g) Articles 18, paragraphs 3–5, and 24–26. Completed and continuing wrongful acts ... 93–137 29
(h) Article 22. Exhaustion of local remedies ..................................................................... 138–150 39
3. Other issues relating to breach of an international obligation ........................................... 151–155 41
(a) The spatial effect of international obligations and questions of breach ...................... 152–155 41
(b) Possible distinctions between breaches by reference to their gravity ......................... 156–157 43
4. Summary of proposals concerning chapter III .................................................................. 158 43
B. Part one, chapter IV. Implication of a State in the internationally wrongful act of another State .... 159–214 45
1. Introduction ...................................................................................................................... 159–167 45
(a) The scope of chapter IV ............................................................................................... 159–160 45
(b) Accessory responsibility and cognate concepts ........................................................... 161–165 45
(c) Chapter IV as a statement of secondary rules? ............................................................ 166–167 47
2. Review of specific articles.................................................................................................. 168–210 47
(a) Article 27. Aid or assistance by a State to another State for the commission of an
internationally wrongful act ......................................................................................... 168–188 47
(b) Article 28. Responsibility of a State for an internationally wrongful act of another
State ............................................................................................................................. 189–210 52
3. Conclusions as to chapter IV ............................................................................................. 211–214 55
C. Part one, chapter V. Circumstances precluding wrongfulness ................................................ 215–358 57
1. Introduction ....................................................................................................................... 215–222 57
(a) Overview ..................................................................................................................... 215–216 57
(b) The evolution of chapter V .......................................................................................... 217 57
(c) Comments of Governments on chapter V as a whole ................................................. 218–222 58
STATE RESPONSIBILITY
[Agenda item 3]
DOCUMENT A/CN.4/498 and Add.1–4
Second report on State responsibility, by Mr. James Crawford, Special Rapporteur
[Original: English/French]
[17 March, 1 and 30 April, 19 July 1999]
Annex 183
4 Documents of the fifty-first session
Paragraphs Page
2. The concept of “circumstances precluding wrongfulness” ............................................... 223–231 58
(a) Some preliminary distinctions .................................................................................... 225–229 59
(b) Circumstances precluding wrongfulness or responsibility? ....................................... 230–231 60
3. Review of specific articles ................................................................................................ 232–305 60
(a) Article 29. Consent ..................................................................................................... 232–243 60
(b) Article 30. Countermeasures in respect of an internationally wrongful act ............... 244–251 64
(c) Article 31. Force majeure and fortuitous event ........................................................... 252–265 64
(d) Article 32. Distress ...................................................................................................... 266–276 67
(e) Article 33. State of necessity ...................................................................................... 277–293 69
(f) Article 34. Self-defence .............................................................................................. 294–304 74
(g) Article 35. Reservation as to compensation for damage ............................................. 305 76
4. Possible justifications or excuses not included in chapter V ............................................. 306–336 76
(a) Performance in conflict with a peremptory norm (jus cogens) .................................. 308–315 76
(b) The “exceptio inadimplenti non est adimplendum” ................................................... 316–331 78
(c) The so-called “clean hands” doctrine .......................................................................... 332–336 82
5. Procedural and other incidents of invoking circumstances precluding wrongfulness ....... 337–354 83
(a) Compensation for losses in cases where chapter V is invoked ................................... 338–349 83
(b) Temporal effect of invoking circumstances precluding wrongfulness ........................ 350 85
(c) Onus of proof .............................................................................................................. 351 85
(d) Loss of the right to invoke responsibility .................................................................... 352 86
(e) Dispute settlement in relation to circumstances precluding wrongfulness ................. 353–354 86
6. Conclusions as to chapter V .............................................................................................. 355–358 86
D. Countermeasures as provided for in part one, chapter V and part two, chapter III .............. 359–394 89
1. Reflections on the treatment of countermeasures in part two ........................................... 375–390 92
(a) Comments of Governments ........................................................................................ 376–381 92
(b) Developments in the law and practice relating to countermeasures ........................... 382–384 93
(c) Particular issues raised by articles 47–50 ................................................................... 385–390 94
i(i) Dispute settlement and the form of the draft articles ........................................... 386–389 94
(ii) The balance between “injured” and “target” States ............................................. 390 95
2. General conclusions........................................................................................................... 391-394 95
(a) Options for the Commission ....................................................................................... 391–393 95
(b) The formulation of article 30 ...................................................................................... 394 96
Annex. Interference with contractual rights: a brief review of the comparative law experience .... 97
Multilateral instruments cited in the present report
Source
Treaty of Peace between the Allied and Associated Powers and
Germany (Treaty of Versailles) (Versailles, 28 June 1919)
British and Foreign State
Papers, 1919, vol. CXII
(London, HM Stationery
Office, 1922), p. 1.
Treaty of Peace between the Allied and Associated Powers and Austria
(Peace Treaty of Saint-Germain-en-Laye) (Saint-Germain-en-Laye,
10 September 1919)
Ibid., p. 317.
General Agreement on Tariffs and Trade (Geneva, 30 October
1947)
United Nations, Treaty
Series, vol. 55,
No. 814, p. 187.
Convention on the Prevention and Punishment of the Crime of
Genocide (NewYork, 9 December 1948)
Ibid., vol. 78, No. 1021,
p. 277.
Geneva Conventions for the Protection ofWar Victims (Geneva,
12 August 1949)
Ibid., vol. 75, Nos. 970–973,
pp. 31 et seq.
Convention for the Amelioration of the Condition of theWounded
and Sick in Armed Forces in the Field
Ibid., p. 31.
Geneva Convention for the Amelioration of the Condition of
Wounded, Sick and Shipwrecked Members of Armed Forces at
Sea
Ibid., p. 85.
Annex 183
State responsibility 5
Source
Geneva Convention relative to the Treatment of Prisoners ofWar Ibid., p. 135.
Geneva Convention relative to the Protection of Civilian Persons
in Time ofWar
Ibid., p. 287.
Protocol Additional to the Geneva Conventions of 12 August 1949,
and relating to the protection of victims of international armed
conflicts (Protocol I) (Geneva, 8 June 1977)
Ibid., vol. 1125, No. 17512,
p. 3.
Convention for the Protection of Human Rights and Fundamental
Freedoms (European Convention on Human Rights)
(Rome, 4 November 1950)
Ibid., vol. 213, No. 2889,
p. 221.
Protocol to the above-mentioned Convention (Paris,
20 March 1952)
Ibid.
Convention on the Territorial Sea and the Contiguous Zone
(Geneva, 29 April 1958)
Ibid., vol. 516, No. 7477,
p. 205.
Vienna Convention on Diplomatic Relations (Vienna, 18 April 1961) Ibid., vol. 500, No. 7310,
p. 95.
Convention on the Settlement of Investment Disputes between States
and Nationals of other States (Washington, D.C., 18 March 1965)
Ibid., vol. 575, No. 8359,
p. 159.
Convention on Transit Trade of Land-locked States (NewYork,
8 July 1965)
Ibid., vol. 597, No. 8641,
p. 42.
International Convention on the Elimination of All Forms of Racial
Discrimination (NewYork, 21 December 1965)
Ibid., vol. 660, No. 9464,
p. 195.
International Covenant on Civil and Political Rights
(NewYork, 16 December 1966)
Ibid., vol. 999, No. 14668,
p. 171.
Optional Protocol to the International Covenant on Civil and
Political Rights (NewYork, 16 December 1966)
Ibid.
Vienna Convention on the Law of Treaties (Vienna, 23 May 1969) Ibid., vol. 1155, No. 18232,
p. 331.
American Convention on Human Rights: “Pact of San José,
Costa Rica” (San José, 22 November 1969)
Ibid., vol. 1144, No. 17955,
p. 123.
International Convention relating to Intervention on the High Seas in
Cases of Oil Pollution Casualties (Brussels, 29 November 1969)
Ibid., vol. 970, No. 14049,
p. 211.
Convention for the Suppression of Unlawful Acts against the Safety
of Civil Aviation (Montreal, 23 September 1971)
Ibid., vol. 974, No. 14118,
p. 178.
Convention on the Prohibition of Military or any Other Hostile Use of
Environmental Modification Techniques (New York, 10 December
1976)
Ibid., vol. 1108, No. 17119,
p. 151.
United Nations Convention on Contracts for the International Sale of
Goods (Vienna, 11 April 1980)
Ibid., vol. 1489, No. 25567,
p. 3.
United Nations Convention on the Law of the Sea (Montego Bay,
10 December 1982)
Ibid., vol. 1833, No. 31363,
p. 3.
Vienna Convention on the Law of Treaties between States and
International Organizations or between International Organizations
(Vienna, 21 March 1986)
A/CONF.129/15.
Statute of the International Tribunal for the FormerYugoslavia
(NewYork, 25 May 1993)
United Nations, Basic
Documents (Sales
No. E/F.98.III.P.1).
Statute of the International Tribunal for Rwanda (NewYork,
8 November 1994)
ICTR(093)/D637/No. 1
(August 1999).
United Nations Convention on the Law of the Non-navigational
Uses of InternationalWatercourses (NewYork, 21 May 1997)
Official Records of the
General Assembly, Fiftyfirst
Session, Supplement
No. 49, resolution 51/229,
annex.
Rome Statute of the International Criminal Court (Rome,
17 July 1998)
United Nations, Treaty
Series, vol. 2187,
No. 38544, p. 90.
Annex 183
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“Article 2 (6)”, in Bruno Simma, ed., The Charter of the United
Nations. A Commentary. Oxford, Oxford University Press, 1994.
1258 p.
ULMER, Peter, ed.
Münchener Kommentar zum Bürgerlichen Gesetzbuch, 3rd ed.
Munich, Beck, 1997.
WEERAMANTRY, Christopher
Nauru: Environmental Damage under International Trusteeship.
Melbourne, Oxford University Press, 1992. 448 p.
WHEATON, Henry
Reports of cases argued and adjudged in the Supreme Court of the
United States. 4th ed. New York, Banks Law Publishing Co.,
1911. Vol. X.
Annex 183
State responsibility 9
WYLER, ERIC
“Quelques réflexions sur la réalisation dans le temps du fait internationalement
illicite”, RGDIP, vol. 95, No. 4, 1991, pp. 881–914.
L’illicite et la condition des personnes privées: la responsabilité
internationale en droit coutumier et dans la Convention
européenne des droits de l’homme. Paris, Pedone, 1995. 361 p.
YOUNGS, RAYMOND
English, French and German Comparative Law. London, Cavendish,
1998. 466 p.
ZWEIGERT, KONRAD AND HEIN KÖTZ
Introduction to Comparative Law. Translated from the German by
TonyWeir. 2nd rev. ed. Oxford, Clarendon Press, 1992.
SCOPE OF THE PRESENT REPORT1
1. The present report continues the task, begun in 1998,2
of systematically considering the draft articles in the light
1 The Special Rapporteur would like to thank Mr. Pierre Bodeau, Research
Associate, Lauterpacht Research Centre for International Law,
University of Cambridge, for his substantial assistance in the preparation
of this report, and the Leverhulme Trust for its financial support.
A group of younger scholars (with financial assistance from the Humanities
Research Board of the British Academy) provided assistance
with the literature on State responsibility in various languages: they
were Mr. Andrea Bianchi, University of Siena; Mr. Carlos Esposito,
Autonomous University of Madrid; Mr. Yuji Iwasawa, University of
Tokyo; Ms. Nina Jorgensen, Inns of Court School of Law, London;
Ms. Yumi Nishimura, Sophia University; and Mr. Stephan Wittich,
University of Vienna.
2 See the first report on State responsibility, Yearbook . . . 1998,
vol. II (Part One), p. 1, document A/CN.4/490 and Add.1–7.
of the comments of Governments and developments in
State practice, judicial decisions and in the literature. In
later parts of the report it is also proposed to deal with
certain general issues raised by parts two and three of the
draft articles, and to begin considering the articles in part
two.3
3 Since the first report (see footnote 2 above), further Government
comments have been received: see Yearbook . . . 1998, p. 81, document
A/CN.4/488 and Add.1–3, and A/CN.4/492, reproduced in the present
volume. So far as these relate to articles 16 et seq., they are taken into
account in what follows. It is proposed to reserve discussion of further
comments on draft articles 1–15 until all the draft articles have been
dealt with, at which point they will have to be looked at again in their
ensemble.
A. Part one, chapter III.
Breach of an international obligation
1. INTRODUCTION
(a) Overview
2. Chapter III of part one consists of 11 articles dealing
with the general subject of “breach of an international obligation”.
The matters dealt with in chapter III on analysis
fall into five groups:4
(a) Articles 16, 17 and 19, paragraph 1,5 deal with the
notion of breach itself, emphasizing the irrelevance of the
source of the obligation or its subject matter;
4 For the travaux on chapter III see:
Fifth report: Yearbook . . . 1976, vol. II (Part One), p. 3, document
A/CN.4/291 and Add.1 and 2;
Sixth report: Yearbook . . . 1977, vol. II (Part One), p. 3, document
A/CN.4/302 and Add.1–3;
Seventh report: Yearbook . . . 1978, vol. II (Part One), p. 31, document
A/CN.4/307 and Add.1 and 2;
Yearbook . . . 1978, vol. I, pp. 232–237 (plenary debate); and
pp. 269–270 (report of the Drafting Committee);
Yearbook . . . 1978, vol. II (Part Two), pp. 76–78 (summary of the
travaux);
Yearbook . . . 1976, vol. II (Part Two), pp. 75–122;
Yearbook . . . 1977, vol. II (Part Two), pp. 11–50;
Yearbook . . . 1978, vol. II (Part Two), pp. 79–98 (text of the draft
articles and commentaries thereto).
5 Article 19, paragraphs 2–4, deals with the definition of international
crimes of States. The issues it raises are addressed in the context
of the discussion on the distinction between “criminal” and “delictual”
(b) Article 18, paragraphs 1 and 2, deals with the requirement
that the obligation be in force for the State at
the time of its breach;
(c) Articles 20–21 elaborate upon the distinction between
obligations of conduct and obligations of result,
and in similar vein article 23 deals with obligations of
prevention;
(d) Articles 24–26 deal with the moment and duration
of breach, and in particular with the distinction between
continuing wrongful acts and those not extending in time.
They also develop a further distinction between composite
and complex wrongful acts. Article 18, paragraphs 3–5,
seeks to specify when continuing, composite and complex
wrongful acts have occurred, and deals with issues of
inter-temporal law in relation to such acts;
(e) Article 22 deals with an aspect of the exhaustion of
local remedies rule, which is analysed within the specific
framework of obligations of result.
For reasons that will emerge, it is proposed to deal with
the articles in this order.
3. Taken together, the articles in chapter III seek to analyse
further the requirement, already laid down in principle
by article 3 (b), that in every case of State responsibility
there must be a breach of an international obligation
of a State by that State. But there is a difficulty in taking
this analysis much further without transgressing the
responsibility (see, for example, the Special Rapporteur’s first report
(footnote 2 above), paras. 43–60).
Review of draft articles in part one
Scope of the present report1
Annex 183
24 Documents of the fifty-first session
sion. In reaching this conclusion, it was not enough to rely
on the apparently clear language of the Declaration:
The Tribunal must analyze the matter further. Obligations under General
Principle B are, generally speaking, obligations of “result”, rather
than of “conduct” or “means”.Although it could be said that the United
States, by suspending the litigation rather than terminating it, failed to
comply with its obligations under the Algiers Declarations, the Tribunal
cannot confine itself to a strictly literal or grammatical interpretation of
those Declarations but must also test the method chosen by the United
States . . . against the object and purpose of those Declarations. The
answer to the question whether suspension fulfilled the function of termination
depends on practice. Thus, the test is in factual evidence.
Unless otherwise agreed by treaty, general international law permits
a state to choose the means by which it implements its international
obligations within its domestic jurisdiction . . . Nonetheless, a state’s
freedom with respect to the choice of the means for implementing an
international obligation is not absolute. The means chosen must be adequate
to satisfy the state’s international obligation, and they must be
lawful.141
The Tribunal went on to hold that, “by adopting the suspension
mechanism provided for in Executive Order
12294, the United States adhered to its obligations under
the Algiers Declarations only if, in effect, the mechanism
resulted in a termination of litigation as required by those
Declarations”.142 The test of whether the litigation had
been “in effect” terminated was whether the Islamic Republic
of Iran was “reasonably compelled in the prudent
defense of its interests to make appearances or file documents
in United States courts subsequent to 19 July 1981”
in respect of pending litigation within the jurisdiction of
the Tribunal, or any other claims filed with the Tribunal
until they were dismissed for want of jurisdiction.143 The
costs of such prudent defence, including the reasonable
costs of monitoring suspended cases, would be recoverable
in a second phase of the proceedings.
67. Pending the determination of these factual issues, the
case is incomplete, and detailed comment on it would not
be appropriate. Two points can be made, however. First,
the Tribunal did apply the distinction between obligations
of conduct and result, very much in the way envisaged
in the commentary to articles 20–21 (though it made no
reference to those articles). The effect of doing so was to
give the United States some flexibility in the way it implemented
General Principle B, though it was still required
to produce the “result” of termination for cases within
the jurisdiction of the Tribunal.144 Secondly, the Tribunal
reached its conclusions exclusively by the interpretation
of the relevant agreements in their context and having regard
to their object and purpose; in other words, at that
stage of the proceedings it was not concerned with the
secondary rules of responsibility at all. To that extent the
decision confirms that the distinction between obligations
of conduct and result concerns the classification of primary
obligations, i.e. it concerns primary not secondary
rules of responsibility. Thirdly, however, it is not apparent
141Award No. 590-A15(IV)/A24-FT (see footnote 138 above),
paras. 95–96.
142 Ibid., para. 99.
143 Ibid., para. 101.
144 Thus, the Tribunal held, for the United States to allow new cases
to be filed solely for the purposes of tolling limitations was a breach
of General Principle B: tolling limitations could have been lawfully
achieved by means other than allowing the filing of suit, but General
Principle B specifically prohibited “all further litigation” in claims
within the Tribunal’s jurisdiction for any reason at all (ibid., para. 131).
that the Tribunal’s decision would have been any different
in substance, if not in form, had it classified the obligation
as an obligation of conduct (the conduct of terminating
the litigation) rather than an obligation of result (the
result of the litigation being terminated). Presumably, the
same considerations would have applied to the obligation
in either case.
68. This brief review suggests that the distinction
between obligations of conduct and result can be used as a
means of the classification of obligations, but that it is not
used with much consistency. In each case the question was
one of interpretation of the relevant obligation, and the
value of the distinction lies in its relevance to the measure
of discretion left to the respondent State in carrying out
the obligation. That discretion was necessarily constrained
by the primary rule, and the crucial issue of appreciation
was, to what extent? The distinction may help in some
cases in expressing conclusions on this issue: whether it
helps in arriving at them is another matter.
(v) Human rights obligations as “obligations of result”
69. The commentary to article 21 insists that standard
obligations as to the treatment of persons by the State,
whether in the field of human rights or diplomatic protection,
involve what might be called “extended obligations
of result”, and that they are covered by article 21, paragraph
2. The consequence is that these obligations are not
breached by the enactment of legislation until that legislation
is definitively given effect. In other words, it is the
application of the legislation in the particular case, taken
together with the subsequent failure of the State to remedy
any resulting grievance, that constitutes the breach.
Until then, the breach is merely apprehended. This view
is graphically represented by Combacau in the following
terms:
[W]hen the International Covenant on Civil and Political Rights provides,
on the one hand, that “No one shall be subjected to arbitrary arrest
or detention” . . . and, on the other hand, that “Anyone who has been the
victim of unlawful arrest or detention shall have an enforceable right to
compensation” . . . it lays down two rules that have as their counterpart
in domestic law two State obligations, the one primary and the other
subsidiary; however, with regard to international law, it establishes only
one, which provides that the State cannot lawfully fail to comply successively
with both of these domestic obligations, and which—admitting
the somewhat unpleasant nature of this formulation—is ultimately
interpretable as follows: “No State may arbitrarily arrest or detain an
individual without offering him or her compensation.”145
But human rights courts and committees do not treat these
rights in this way, as the following brief and selective survey
shows.
70. Under the Convention for the Protection of Human
Rights and Fundamental Freedoms (European Convention
on Human Rights), petitions may be lodged by “any person,
non-governmental organization or group of individuals
claiming to be the victim of a violation” of the rights
in the Convention. In addition, inter-State cases may be
referred to the Court in relation to “any alleged breach of
145 Combacau, loc. cit., p. 191. Contra, see for example Higgins,
“International law and the avoidance, containment and resolution of
disputes: general course on public international law”, pp. 203–204.
Annex 183
State responsibility 25
the provisions of the Convention” and Protocols.146 Article
41 provides that:
If the Court finds that there has been a violation of the Convention
or the protocols thereto, and if the internal law of the High Contracting
Party concerned allows only partial reparation to be made, the Court
shall, if necessary, afford just satisfaction to the injured party.
This clearly implies that a violation of the Convention can
be established prior to and independently of the question
whether reparation for such a violation is available under
the relevant internal law. And that proposition has never
been doubted by the Convention organs. As the Court said
in one case:
Article 25 [now 34] of the Convention entitles individuals to contend
that a law violates their rights by itself, in the absence of an individual
measure of implementation, if they run the risk of being directly
affected by it . . . 147
71. The International Covenant on Civil and Political
Rights likewise distinguishes between individual and
inter-State communications. Under article 1 of the Optional
Protocol, individuals subject to the jurisdiction of a
State party to the Protocol who “claim to be victims of a
violation by that State Party” of rights set forth in the Covenant
may present communications to the Human Rights
Committee.148 In considering those communications, the
Committee has always required that the impact of State
action be such that the person concerned is individually
a “victim”, and it has refused to examine State legislation
in the abstract. On the other hand, it does not require that
a victim should necessarily have been prosecuted or otherwise
penalized. In certain cases the mere existence of
legislation may involve a breach of the Covenant; in other
cases a sufficiently imminent and direct threat of action
will justify treating a person as a victim. The test has been
summarized in the following words:
[P]rovided each of the authors is a victim within the meaning of article
1 of the Optional Protocol, nothing precludes large numbers of persons
from bringing a case under the Optional Protocol. The mere fact of
large numbers of petitioners does not render their communication an
actio popularis . . .
For a person to claim to be a victim of a violation of a right protected
by the Covenant, he or she must show either that an act or an omission
of a State party has already adversely affected his or her enjoyment of
such right, or that such an effect is imminent, for example on the basis
of existing law and/or judicial or administrative decision or practice.149
These limitations derive from the provisions of the
Optional Protocol, as interpreted by the Committee. Inter-
146 European Convention on Human Rights (as amended by Protocol
11), arts. 33–34. Local remedies must be exhausted, and a petition must
be brought “within a period of six months from the date on which the
final decision was taken” (art. 35).
147 Norris case, European Court of Human Rights, Series A: Judgments
and Decisions, vol. 142, Judgment of 26 October 1988 (Council
of Europe, Strasbourg, 1989), para. 31, citing the Klass and Others case,
ibid., vol. 28, Judgment of 6 September 1978, para. 33; the Marckx
case, ibid., vol. 31, Judgment of 13 June 1979, para. 27; and the Johnston
and Others case, ibid., vol. 112, Judgment of 27 November 1986,
para. 42. See also, inter alia, the Dudgeon case, ibid., vol. 45, Judgment
of 22 October 1981, para. 41; and the case of Modinos v. Cyprus, ibid.,
vol. 259, Judgment of 22 April 1993, para. 24.
148 The exhaustion of local remedies rule applies (art. 5, para. 2 (b).
149 Human Rights Committee, Communication No. 429/1990, decision
of 8 April 1993, E. W. et al. v. The Netherlands (Official Records
of the General Assembly, Forty-seventh Session, Supplement No. 40
(A/48/40 (Part II)), annex XIII.G), paras. 6.3–6.4. See also, inter alia,
Human Rights Committee, Communication No. R.9/35, Shirin Aumeeruddy-
Cziffra and 19 other Mauritian women v. Mauritius (ibid., Thirty-
State communications are subject to a different formula.
Under article 41, paragraph 1, of the Covenant, such communications
may be brought by a State Party which has
accepted the procedure and which claims that another
such State Party “is not fulfilling its obligations”.150 So
far this procedure has not been used, but it could conceivably
involve a challenge to a law as such.
72. The Inter-American Court of Human Rights applies
essentially the same principle in determining whether
there has been a breach of the American Convention on
Human Rights. In its advisory opinion on international
responsibility for the promulgation and enforcement of
laws in violation of the American Convention on Human
Rights, the Inter-American Court was asked several general
questions arising from a controversy about a draft law
which, if enacted, would have clearly violated commitments
of the State concerned under the Convention. On
the question whether a mere law could of itself violate an
obligation of result, the Court said:
[A] law that enters into force does not necessarily affect the legal sphere
of specific individuals. The law may require subsequent normative
measures, compliance with additional conditions, or, quite simply, implementation
by state authorities before it can affect that sphere. It may
also be, however, that the individuals subject to the jurisdiction of the
norm in question are affected from the moment it enters into force . . .
Non-self-executing laws simply empower the authorities to adopt measures
pursuant to them. They do not of themselves constitute a violation
of human rights.
In the case of self-executing laws . . . the violation of human rights,
whether individual or collective, occurs upon their promulgation.
Hence, a norm that deprives a portion of the population of some of
its rights—for example, because of race—automatically injures all the
members of that race.151
After analysing the specific provisions of the Convention,
and referring with approval to the European jurisprudence,
the Court concluded that:
The contentious jurisdiction of the Court is intended to protect the
rights and freedoms of specific individuals, not to resolve abstract questions.
There is no provision in the Convention authorizing the Court,
under its contentious jurisdiction, to determine whether a law that has
sixth Session, Supplement No. 40 (A/36/40), annex XIII), para. 9.2;
Communication No. R.14/61, Leo R. Hertzberg and Others v. Finland
(ibid., Thirty-seventh Session, Supplement No. 40 (A/37/40), annex
XIV), para. 9.3; Communication No. 163/1984, Disabled and handicapped
persons in Italy v. Italy (ibid., Thirty-ninth Session, Supplement
No. 40 (A/39/40), annex XV), p. 198, para. 6.2; Communications Nos.
359/1989 and 385/1989, John Ballantyne and Elizabeth Davidson, and
Gordon McIntyre v. Canada (ibid., Forty-eighth Session, Supplement
No. 40 (A/48/40, annex XII.P), para. 10.4 (“where an individual is in a
category of persons whose activities are, by virtue of the relevant legislation,
regarded as contrary to law, they may have a claim as ‘victims’
within the meaning of article 1 of the Optional Protocol”); Communication
No. 488/1992, Nicholas Toonen v. Australia (ibid., Forty-ninth
Session, Supplement No. 40 (A/49/40), vol. II, annex IX.EE), para. 5.1;
and Communication No. 645/1995, Vaihere Bordes et al. v. France
(A/51/40), vol. II, annex IX.G, paras. 5.4–5.5.
150 The requirement is stated slightly differently in article 41,
paragraph 1 (a): “is not giving effect to the provisions of the present
Covenant”. There is no requirement that the communication relate to
any specified individual, but available local remedies must have been
exhausted (art. 41, para. 1 (c)).
151 International Responsibility for the Promulgation and Enforcement
of Laws in Violation of the Convention (arts. 1 and 2 of the American
Convention on Human Rights), Inter-American Court of Human
Rights Advisory Opinion OC–14/94 of 9 December 1994, Series A,
No. 14, paras. 41–43.
Annex 183
26 Documents of the fifty-first session
not yet affected the guaranteed rights and freedoms of specific individuals
is in violation of the Convention . . .
The Court finds that the promulgation of a law that manifestly violates
the obligations assumed by a state upon ratifying or acceding to the
Convention constitutes a violation of that treaty and, if such violation
affects the guaranteed rights and liberties of specific individuals, gives
rise to international responsibility for the state in question.152
The suggestion in this passage that international responsibility
arises, following a manifest violation of the treaty,
only “if such violation affects the guaranteed rights and
liberties of specific individuals” requires some explanation.
Read literally, it suggests that there can be a violation
of a treaty without any responsibility, which is not
in accordance with the conception of State responsibility
contained in the draft articles.153 It seems however that
the Court was distinguishing here between State responsibility
for violation of the treaty per se and international
responsibility under the Convention’s procedures for direct
violation of the rights of individuals, which alone
falls within the Court’s contentious jurisdiction.
73. To summarize, this brief review shows a substantially
common approach to the problem on the part of the
various human rights bodies.154 Legislation itself, provided
that it is directly applicable to individuals or that its
application is directly threatened, can constitute a breach
of the convention concerned, although whether it does so
in a given case requires an examination of the facts of that
case. Subsequent processes within the State may provide
reparation for such a breach, but they are not constitutive
of it.155
74. A review of the field of diplomatic protection would
also, it is believed, reach the same general conclusion. The
point was succinctly made by the United Kingdom:
In general terms, the United Kingdom’s view is that in a case where
international law requires only that a certain result be achieved, the situation
falls under draft article 21, paragraph 2. The duty to provide a fair
and efficient system of justice is an example. Corruption in an inferior
court would not violate that obligation if redress were speedily available
in a higher court. In the case of such obligations, no breach occurs
until the State has failed to take any of the opportunities available to it
to produce the required result. If, on the other hand, international law
requires that a certain course of conduct be followed, or that a certain
result be achieved within a certain period of time, the violation of in-
152 Ibid., paras. 49–50; also in International Legal Materials,
vol. XXXIV, No. 5 (September 1995), pp. 1199–1201.
153 Especially articles 3 and 16; see paragraph 11 above.
154 Under the 1981 African Charter on Human and Peoples’ Rights,
there is provision both for communications from States and for other
communications (arts. 47 and 55) to the Commission. There has so far
been no public indication of the Commission’s approach to the questions
discussed here. Although similarities may be found in that respect
in the context of European Union law (see, for example, Brasserie du
Pêcheur SA v. Bundesrepublik Deutschland, case C–46/93, Reports of
Cases before the Court of Justice and the Court of First Instance (Luxembourg,
Office for Official Publications of the European Communities,
1996), p. I–1029, especially paras. 51 and 56), the specific character
of European law limits the value of the comparison. For a general
approach to State liability under European law see, for example, Craig
and de Búrca, EU Law: Texts, Cases, and Materials, pp. 240–282.
155 On the possibility that the enactment of a legislation may per se
constitute a breach by a State of its obligations, provided it has a direct
application on the individual, see, among others, Amerasinghe, Local
Remedies in International Law, pp. 209–210; Cançado Trindade, The
Application of the Rule of Exhaustion of Local Remedies in International
Law, pp. 201–206; and Dipla, La responsabilité de l’État pour
violation des droits de l’homme: problèmes d’imputation, pp. 20–22.
Contra, see Cahier, “Changements et continuité du droit international:
cours général de droit international public”, pp. 261–263.
ternational law arises at the point where the State’s conduct diverges
from that required, or at the time when the period expires without the
result having been achieved. Denial of a right of innocent passage, or a
failure to provide compensation within a reasonable period of time after
the expropriation of alien property, are instances of violations of such
rules. Recourse to procedures in the State in order to seek “correction”
of the failure to fulfil the duty would in such cases be instances of the
exhaustion of local remedies.156
75. Of course, there may be specific contexts in which
the State does have a right to affect the rights of individuals
provided compensation is payable. This is, in general,
the case with expropriation of property for a public purpose,
and the reason is precisely because in that context
the right of eminent domain is recognized. But there is no
right of eminent domain in relation to the arbitrary treatment
of persons. There are also cases where the obligation
is to have a system of a certain kind, e.g. the obligation to
provide a fair and efficient system of justice. There, systematic
considerations enter into the question of breach,
and an aberrant decision by an official lower in the hierarchy,
which is capable of being reconsidered, does not
of itself amount to an unlawful act.157 This is the example
given by the United Kingdom in the passage quoted
above. Systematic obligations have to be applied to the
system as a whole. But many human rights obligations
are not of this kind: for example, in cases of torture or
arbitrary killing by State officials, the violation would be
immediate and unqualified.158
76. It may be (as the United Kingdom notes) that the
problem which has been analysed here is more one of the
commentary to article 21 than of the text itself.159 But the
analysis suggests a number of conclusions.
(vi) The primacy of primary rules and of their interpretation
77. First, while it may be possible accurately to classify
certain obligations as obligations of conduct or result, and
while that may illuminate the content or application of the
norms in question, such a classification is no substitute
for the interpretation and application of the norms themselves,
taking into account their context and their object
and purpose. The problem with articles 20–21 is that they
imply the need for an intermediate process of classification
of obligations before questions of breach can be resolved.
But in the final analysis, whether there has been
a breach of an obligation depends on the precise terms
of the obligation, and on the facts of the case. For example,
it makes a difference that the obligations of States in
the field of humanitarian law are expressly “to ‘respect’”
156 Yearbook . . . 1998 (see footnote 7 above), p. 124.
157 Similarly, a temporary swamping of the system by litigation,
causing unexpected delays, does not involve a breach “if the State takes
appropriate remedial action with the requisite promptness” (Union Alimentaria
Sanders SA Case, European Court of Human Rights, Series A:
Judgments and Decisions, vol. 157, Judgment of 7 July 1989 (Council
of Europe, Strasbourg, 1989), p. 15, para. 40.
158 On further analysis it is probable that an obligation to provide a
fair and efficient system of justice contains diverse elements, including
certain obligations “of result” (e.g. the right to a judge) and others “of
conduct”. In short, it is a hybrid. See Tomuschat, “What is a ‘breach’
. . . ?”, p. 328. Another clear example is the obligation of respect for
family life: see the decision of the European Court of Human Rights as
analysed in the Marckx case (footnote 147 above), and later decisions.
159 The issue re-emerges, however, in the context of article 22
(Exhaustion of local remedies): see paragraphs 138–146 below.
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Footnotes
1 Jurisdiction for the underlying action was predicated on the exceptions to sovereign immunity detailed in 28 U.S.C. §
1605(a)(7).
2 The following facts are, unless otherwise specified, undisputed and come from the parties' L.R. 56.1 statements.
3 In 2011, the Museums appealed two orders by the district judge previously assigned to this case regarding discovery
issues and the propriety of the assertion of an affirmative defense. See Rubin v. The Islamic Republic of Iran, 637 F.3d
783, 785 (7th Cir.2011). That opinion dealt with these preliminary issues and remanded the case to the district court.
The details of the opinion are discussed below.
4 The court uses the terms “artifacts” and “collections” to describe all of the assets collectively. When an argument applies
to a subset of those collections, the court will name the collection individually.
5 On May 20, 2004, plaintiffs issued a Citation to Discover Assets to the Museums. Because those artifacts are the subject
of pending litigation, the Institute has not turned them over to Iran.
6 Plaintiffs separately identify each of the small collections that make up the OI collection, including: the Gremliza
Collection, the Adams Collection, the Cooper Collection, “Bronze Bands with Striding Griffins,” the Alizadeh Collection,
and Accession 3699. The Gremliza Collection came into the possession of the Institute in 1988 from a traveling medical
doctor, Dr. Gremliza, who visited Iranian villages in the mid–1960s. Plaintiffs allege that Dr. Gremliza did not lawfully
possess or own the items, and that he did not have permission to export them. The “Bronze Bands with Striding Griffins”
are four sections of a bronze band that are part of the residual OI collection, and plaintiffs note that there are no records
of how the items came into the possession of the Institute. The Adams Collection was acquired through Robert Adams,
but plaintiffs assert that Adams did not own the items and that the Institute's evidence as to provenance is insufficient.
The Cooper Collection was donated by Dr. Cooper, who found the items while stationed near Persepolis during World
War II. Plaintiffs allege that Cooper's ownership of the collection is questionable. The Alizadeh Collection was given to
the Institute in 1995 by a staffer, Abbas Alizadeh, who stated that he found them in a former staffer's home. Plaintiffs
argue that the Institute has no records as to the ownership or authorizations by the staffer. Accession 3699 is a Persian
tile “probably” given to the Institute by Otis Ellery Taylor. Plaintiffs argue that its chain of ownership is unknown.
7 The Museums argue that the Herzfeld and OI Collections are not the property of a foreign state, and that the FSIA therefore
cannot serve as the basis for attachment. Because the question of commercial activity, discussed below, resolves the
FSIA question for all the collections, the court need not reach the question of whether the items in the Herzfeld and OI
Collections are the property of Iran.
8 Plaintiffs have abandoned their FSIA argument regarding the Chogha Mish Collection and do not argue that the
commercial activity exception applies to the Museum Collections; therefore, the court will discuss only the Persepolis
Collection.
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9 The record also includes letters from the Institute to Iran wherein the Institute promises to “a full account of our activities
in behalf of [Iran],” and other assurances, but these documents do not grant Iran the power to direct the work of the
Museums.
10 Because the court finds that the commercial activity must be conducted by the sovereign, it need not reach the issue of
whether the Museums' activities may be characterized as commercial activity.
11 The Algiers Accords, 20 I.L.M. 224, was an agreement between the U.S. and Iran signed on January 19, 1981. Under
the Accords, “the United States agreed to “restore the financial position of Iran, in so far as possible, to that which existed
prior to November 14, 1979,” ibid., and (with some exceptions) to “arrange, subject to the provisions of U.S. law applicable
prior to November 14, 1979, for the transfer to Iran of all Iranian properties,” id., at 227. Ministry of Def. & Support for
the Armed Forces of the Islamic Republic of Iran v. Elahi, 556 U.S. 366, 370, 129 S.Ct. 1732, 1736, 173 L.Ed.2d 511
(2009) (internal quotations and citations omitted). Subsequent to the signing of the Accords, President Regan lifted legal
prohibitions against transactions involving Iranian property. See Exec. Orders Nos. 12277–12282, 3 CFR 105–113 (1981
Comp.); 31 C.F.R. §§ 535.211–535.215 (1981).
12 For example, plaintiffs cite a letter from a British law firm on behalf of Iran to a London gallery regarding a number of items
that the London gallery had advertised for sale. The letter states that those items were considered of historical interest,
and as such, proper authorization was required before those items could be removed. The letter further states that it is
the position of the law firm that ownership of those items remained with Iran.
13 Plaintiffs urge the court not to rely on OFAC's interpretation because the U.S. is a litigant in any case interpreting the
TRIA, and because an agency's interpretation should only be used when the regulation is ambiguous. Chase Bank USA,
N.A. v. McCoy, 562 U.S. 195, 131 S.Ct. 871, 178 L.Ed.2d 716 (2011). Both parties' readings of the regulation are plausible
and the court must therefore turn to the agency's interpretation of the regulation for guidance, unless that interpretation
is “plainly erroneous or inconsistent with the regulation.” Id. (internal citations and quotation marks omitted). Plaintiffs
further argue that courts should not defer to the position the U.S. when that position is announced during litigation in
which the U.S. is participating. However, as the First Circuit noted, “[t]he fact that blocked assets play an important role
in the conduct of United States foreign policy may provide a further reason for deference to the views of the executive
branch in this case.” Rubin v. Islamic Republic of Iran, 709 F.3d 49, 57 (1st Cir.2013) (citing Rep. of Austria v. Altmann,
541 U.S. 677, 701–02 (2004), and Estate of Heiser v. Islamic Rep. of Iran, 885 F.Supp.2d 429, 440–41 (D.D.C.2012).
14 In support of their argument that TRIA and the FSIA are applicable to the Herzfeld and OI Collections, plaintiffs contend
that Iran owns the artifacts, not the Museums. Because the court has found that even if the artifacts were owned by Iran,
the commercial activities exception would not apply and the artifacts do not qualify as “blocked” assets, it is unnecessary
for the court to reach the question of ownership.
End of Document © 2019 Thomson Reuters. No claim to original U.S. Government Works.
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Footnotes
* Of the Southern District of Illinois, sitting by designation.
1 The plaintiffs later converted their § 1605(a)(7) judgment to one under § 1605A. See Rubin v. Islamic Republic of Iran,
270 F.R.D. 7, 9 & n. 3 (D.D.C. 2010).
2 Section 1610 also permits in rem execution of certain foreclosure judgments against a foreign state’s vessels. 28 U.S.C.
§ 1610(e). Other parts of § 1610 address, for example, certain procedural requirements for execution, see, e.g., id. §
1610(c), and the sensitive matter of prejudgment attachment of foreign sovereign property, id. § 1610(d).
3 We’re not suggesting, however, that a legislative statement of purpose provides statutory meaning independent of the
operative statutory text.
4 Our holding makes it unnecessary to decide whether the University’s academic study of the Persepolis Collection is a
commercial use.
5 Moreover, as we’ve noted, subsection (g) was enacted at the same time as § 1605A. In the same 2008 legislation,
subsections (a)(7) and (b)(3) of § 1610 were amended to make the commercial-activity exceptions applicable to judgments
obtained under § 1605A, the new exception to jurisdictional immunity for terrorism-related cases. If, as the plaintiffs claim,
subsection (g) were a freestanding exception to execution immunity for § 1605A judgments, then these amendments—
enacted at the same time—were completely unnecessary.
6 Because this opinion overrules circuit precedent and creates a conflict with the Ninth Circuit, it has been circulated to
all judges in active service in accordance with Circuit Rule 40(e). Chief Judge Wood and Circuit Judges Posner, Flaum,
Easterbrook, and Rovner did not participate, so a majority did not vote to rehear this case en banc. Circuit Judge Hamilton
has filed a dissent from the denial of en banc review, which is attached to this opinion.
End of Document © 2019 Thomson Reuters. No claim to original U.S. Government Works.
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Footnotes
1 To fully understand the origin of the 6% rate, one must look at additional licensing agreements between Institut Pasteur
and its affiliates. The bankruptcy court concisely outlined these licensing agreements in Institut Pasteur v. Cambridge
Biotech Corp. (In re Cambridge Biotech Corp.), No. 94–43054–JFQ, slip op. at 7 n.2 (Bankr.D.Mass. Jan. 5, 1996).
2 The bankruptcy court resolved all of the issues between the parties in two opinions, Institut Pasteur v. Cambridge Biotech
Corp. (In re Cambridge Biotech Corp.), 186 B.R. 9 (Bankr.D.Mass.1995) (Pasteur I ) and Institut Pasteur v. Cambridge
Biotech Corp. (In re Cambridge Biotech Corp.), No. 94–43054–JFQ, slip op. (Bankr.D.Mass. Jan. 5, 1996) (Pasteur II ).
On appeal, the district court reviewed the relevant issues in both opinions in Institut Pasteur v. Cambridge Biotech Corp.
(In re Cambridge Biotech Corp.), 212 B.R. 10 (D.Mass.1997) (Pasteur III ).
3 Local Rule 201 provides that:
Pursuant to 28 U.S.C. § 157(a), any and all cases arising under Title 11 United States Code and any and all proceedings
arising under Title 11 or arising in or related to a case under Title 11 shall be referred to the judges of the bankruptcy
court for the District of Massachusetts.
D.Mass. Rule 201.
4 Under 28 U.S.C. § 157(b)(1), a bankruptcy court may enter judgments and orders only when the proceeding is deemed
a “core proceeding” as outlined in § 157(b)(2). Section 157(b)(1) states that:
Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or
arising in a case under title 11, referred under subsection (a) of this section, and may enter appropriate orders and
judgments, subject to review under section 158 of this title.
28 U.S.C. § 157(b)(1). In such case, the district court, in its appellate capacity under 28 U.S.C. § 158, reviews the
bankruptcy court's findings of fact under the clearly erroneous standard and its legal conclusions de novo.
In contrast, if a proceeding is not a “core proceeding” but is a “related proceeding,” 28 U.S.C. § 157(c)(1) provides that the
bankruptcy court may only enter proposed findings of fact and conclusions of law, none of which are entitled to deference
by the district court:
A bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under
title 11. In such proceeding, the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the
district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy
judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely
and specifically objected.
28 U.S.C. § 157(c)(1). However, § 157(c)(2) provides that, even in a related proceeding, a bankruptcy court may enter
orders and judgments as long as the parties all consent:
Notwithstanding the provisions of paragraph (1) of this subsection, the district court, with the consent of all the parties
to the proceeding, may refer a proceeding related to a case under title 11 to a bankruptcy judge to hear and determine
and to enter appropriate orders and judgments, subject to review under section 158 of this title.
28 U.S.C. § 157(c)(2). Accordingly, the complaint makes clear that appellants sought to establish their position that not
only was this proceeding not a “core proceeding,” but that even if it were a “related proceeding” they would not consent
to the bankruptcy court rendering final judgments or orders.
5 28 U.S.C. § 157(b)(2) provides in relevant part:
Core proceedings include, but are not limited to—
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(B) allowance or disallowance of claims against the estate ...;
(O) other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor or
the equity security holder relationship, except personal injury tort or wrongful death claims.
28 U.S.C. § 157(b)(2)(B), (b)(2)(O).
6 On June 5, 1995, appellants moved the district court for leave to appeal the bankruptcy court's order denying its demand
for a jury trial. See Joint App. at 375. This motion was denied, without formal order, over two years later on August 15,
1997, see Joint App. at 25, after the bankruptcy court had entered its final judgment in Pasteur I (September 1, 1995)
and its amended judgment in Pasteur II (February 12, 1996).
7 Rule 19 states in relevant part:
(a) Persons to be Joined if Feasible. A person who is subject to service of process and whose joinder will not deprive
the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in the person's
absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating
to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a
practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already
parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the
claimed interest. If the person has not been so joined, the court shall order that the person be made a party. If the
person should join as a plaintiff but refuses to do so, the person may be made a defendant, or, in a proper case, an
involuntary plaintiff. If the joined party objects to venue and joinder of that party would render the venue of the action
improper, that party shall be dismissed from the action.
(b) Determination by Court Whenever Joinder not Feasible. If a person as described in subdivision (a)(1)-(2) hereof
cannot be made a party, the court shall determine whether in equity and good conscience the action should proceed
among the parties before it, or should be dismissed, the absent person being thus regarded as indispensable. The
factors to be considered by the court include: first, to what extent a judgment rendered in the person's absence might be
prejudicial to the person or those already parties; second, the extent to which, by protective provisions in the judgment,
by the shaping of relief, or other measures, the prejudice can be lessened or avoided; third, whether a judgment
rendered in the person's absence will be adequate; fourth, whether the plaintiff will have an adequate remedy if the
action is dismissed for nonjoinder.
Fed.R.Civ.P. 19.
8 Section 158(a) states in relevant part:
The district courts of the United States shall have jurisdiction to hear appeals
(1) from final judgments, orders, and decrees ...
of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title.
An appeal under this subsection shall be taken only to the district court for the judicial district in which the bankruptcy
judge is serving.
28 U.S.C. § 158(a).
9 Article 8, ¶ 8.2 states:
This Agreement contains the entire understandings among the parties hereto with respect to the transactions
contemplated herein, and no party shall be bound by, or shall be deemed to have made, any representations and
warranties except those contained in this Agreement.
See Joint App. at A1277.
10 Under Article 10 of the 1989 Agreement, the parties agreed that the agreement would be governed by the law of
Massachusetts. See Joint App. at A1278.
11 When a court considers disregarding the corporate entity, i.e., “piercing the corporate veil,” the court applies the law of
the state of incorporation. See Stromberg Metal Works, Inc. v. Press Mechanical, Inc., 77 F.3d 928, 933 (7th Cir.1996).
12 As to the interpretation of the 1987 Agreement, we will apply Maryland law, as the parties agreed in Article XIII that
Maryland law should govern the agreement. See Joint App. at A1881.
End of Document © 2019 Thomson Reuters. No claim to original U.S. Government Works.
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ANNEX 188
CONSEIL
DE L’EUROPE
COUNCIL
OF EUROPE
COUR EUROPÉENNE DES DROITS DE L’HOMME
EUROPEAN COURT OF HUMAN RIGHTS
CASE OF THE NATIONAL & PROVINCIAL BUILDING SOCIETY,
THE LEEDS PERMANENT BUILDING SOCIETY AND
THE YORKSHIRE BUILDING SOCIETY v.
THE UNITED KINGDOM
(117/1996/736/933-935)
JUDGMENT
STRASBOURG
23 October1997
The present judgment is subject to editorial revision before its
reproduction in final form in Reports of Judgments and Decisions 1997.
These reports are obtainable from the publisher Carl Heymanns Verlag KG
(Luxemburger Straße 449, D-50939 Köln), who will also arrange for their
distribution in association with the agents for certain countries as listed
overleaf.
Annex 188
BUILDING SOCIETIES JUDGMENT i
List of Agents
Belgium: Etablissements Emile Bruylant (rue de la Régence 67,
B – 1000 Bruxelles)
Luxembourg: Librairie Promoculture (14, rue Duchscher
(place de Paris), B.P. 1142, L – 1011 Luxembourg-Gare)
The Netherlands: B.V. Juridische Boekhandel & Antiquariaat
A. Jongbloed & Zoon (Noordeinde 39, NL – 2514 GC ‘s-Gravenhage)
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 ii
SUMMARY1
Judgment delivered by a Chamber
United Kingdom – applicants’ legal claims to restitution of monies paid under invalidated
tax provisions extinguished under the effects of retrospective legislation (section 53 of
Finance Act 1991 and section 64 of Finance (No. 2) Act 1992)
I. ARTICLE 1 OF PROTOCOL No. 1
A. Whether there was an unlawful expropriation of applicants’ assets
Interest paid in gap period would inevitably have been taxed had voluntary
arrangements between building societies and Inland Revenue continued to apply – it was
held in applicants’ reserves waiting to be brought into account – in absence of transitional
regulations applicants would have obtained a windfall in changeover to new tax regime –
no support in domestic litigation for argument that interest subjected to double imposition –
interest never in fact taxed – Parliament clearly intended interest to be taxed – cannot be
maintained that it was misled in this respect – no unlawful expropriation of assets or double
imposition of interest through operation of 1986 Regulations.
B. Whether there were “possessions” within meaning of Article 1
Court expresses no concluded view on whether any of applicants’ claims could properly
be considered “possessions” – Leeds and National & Provincial had not secured a final and
enforceable judgment in their favour when they initiated first set of restitution proceedings
notwithstanding favourable outcome of Woolwich 1 litigation – judicial review
proceedings and second set of restitution proceedings launched by all three applicants
cannot be said to be sufficiently established – in particular, applicants cannot maintain that
they had a legitimate expectation that Government would not seek Parliament’s consent to
adopt retrospective legislation to validate impugned Treasury Orders.
Nevertheless, Court prepared to proceed on assumption that applicants’ claims
amounted to “possessions” and treat Article 1 as applicable given links between applicants’
arguments on this issue and substance of their claims to have been unjustifiably deprived of
their “possessions”.
C. Whether there was an interference
Not disputed – Court will examine whether interference justified on working
assumption that applicants’ claims amounted to “possessions”.
D. Whether the interference was justified
Reiteration of Court’s case-law on approach to interpretation of Article 1 – Court will
apply rule in second paragraph of Article 1 to facts to determine whether impugned
measures were a control of use of property in general interest to secure payment of taxes –
most natural approach in circumstances.
1. This summary by the registry does not bind the Court.
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 iii
Obvious public-interest considerations at stake justifying Parliament’s adoption of
section 53 of 1991 Act and section 64 of 1992 Act – section 53 sought to reassert
Parliament’s original intention to tax interest paid in gap period – that intention thwarted by
ruling in Woolwich 1 that 1986 Regulations void on technical grounds – Leeds and
National & Provincial must be reasonably considered to have appreciated Parliament would
adopt retrospective legislation to remedy technical defects in 1986 Regulations – section 64
designed to safeguard substantial sums of revenue placed at risk by applicants’ challenge to
validity of Treasury Orders – cannot be maintained in circumstances that sections 53 and
64 upset balance between protection of applicants’ rights to restitution and public interest
in securing payment of taxes due.
Conclusion: no violation (unanimously).
II. ARTICLE 1 OF PROTOCOL No. 1 TAKEN IN CONJUNCTION WITH ARTICLE 14
OF THE CONVENTION
Applicants not in relevantly similar situation to that of Woolwich – latter alone bore
costs and risks of litigation and had secured victories in House of Lords and Court of
Appeal before Leeds and National & Provincial had issued writs to launch their restitution
proceedings – even if applicants could be so considered there was reasonable and objective
justification for excluding Woolwich from scope of section 53 – understandable that
Parliament did not wish to interfere with House of Lords ruling in Woolwich 1 – cannot be
maintained that section 64 discriminated between applicants and Woolwich – measure was
of general application.
Conclusion: no violation (eight votes to one).
III. ARTICLE 6 § 1 OF THE CONVENTION
A. Applicability
Applicable – both sets of restitution proceedings were private-law actions irrespective
of fiscal dimension – judicial review proceedings clearly related to outcome of second set
of restitution proceedings and therefore decisive of private rights.
B. Compliance
Effects of sections 53 and 64 were to render applicants’ legal actions unwinnable –
whether this result constituted an interference with applicants’ right of access to a court
must be determined in light of all circumstances of case – Court must in particular subject
to careful scrutiny justifications adduced by authorities in view of retrospective nature of
impugned measures.
Applicants clearly understood that Parliament intended to tax interest paid in gap period
and can reasonably be considered to have anticipated that Treasury would react as it did to
remedy technical defects in 1986 Regulations following Woolwich 1 ruling – Leeds and
National & Provincial in effect tried to pre-empt adoption of remedial legislation by issuing
writs in restitution immediately before official announcement that Parliament would be
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 iv
asked to approve retrospective measures – section 53 not in fact specifically targeted at
Leeds’ and National & Provincial’s restitution actions even if its effect was to stifle these
actions – obvious public-interest considerations justifying adoption of section 53 with
retrospective effect, having regard to Parliament’s need and resolve to reassert its original
intention.
Furthermore, compelling public-interest reasons for rendering Treasury Orders immune
from legal challenge mounted by all applicants in taking judicial review proceedings and
contingent restitution proceedings – these proceedings were in effect an indirect assault on
Parliament's original intention to tax interest paid in gap period – even if section 64 adopted
by Parliament in knowledge of initiation by applicants of judicial review proceedings,
applicants themselves must be considered to have appreciated that Parliament would
intervene as it did.
Conclusion: no violation (unanimously).
IV.ARTICLE 6 § 1 OF THE CONVENTION TAKEN IN CONJUNCTION WITH
ARTICLE 14
Court’s reasons supporting its earlier conclusion of no violation of Article 1 of
Protocol No. 1 in conjunction with Article 14 of the Convention equally valid for a finding
of no violation under this head.
Conclusion: no violation (eight votes to one).
COURT’S CASE LAW REFERRED TO
26.3.1992, Editions Périscope v. France; 9.12.1994, Stran Greek Refineries and Stratis
Andreadis v. Greece; 23.2.1995, Gasus Dosier- und Fördertechnik GmbH v. the
Netherlands; 20.11.1995, Pressos Compania Naviera S.A. and Others v. Belgium;
22.10.1996, Stubbings and Others v. the United Kingdom
Annex 188
BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 1
In the case of the National & Provincial Building Society, the Leeds
Permanent Building Society and the Yorkshire Building Society v. the
United Kingdom1,
The European Court of Human Rights, sitting, in accordance with
Article 43 of the Convention for the Protection of Human Rights and
Fundamental Freedoms (“the Convention”) and the relevant provisions of
Rules of Court A2, as a Chamber composed of the following judges:
Mr R. RYSSDAL, President,
Mr R.MACDONALD,
Mr N. VALTICOS,
Mrs E. PALM,
Mr R. PEKKANEN,
Sir John FREELAND,
Mr P. JAMBREK,
Mr K. JUNGWIERT,
Mr E. LEVITS,
and also of Mr H. PETZOLD, Registrar, and Mr P.J. MAHONEY, Deputy
Registrar,
Having deliberated in private on 31 May and 27 September 1997,
Delivers the following judgment, which was adopted on the lastmentioned
date:
PROCEDURE
1. The case was referred to the Court by the European Commission of
Human Rights (“the Commission”) and by the Government of the United
Kingdom of Great Britain and Northern Ireland (“the Government”) on
16 September 1996 and 25 October 1996 respectively, within the threemonth
period laid down by Article 32 § 1 and Article 47 of the Convention.
It originated in three applications (nos. 21319/93, 21449/93 and 21675/93)
against the United Kingdom lodged with the Commission under Article 25
on 15 January 1993, 21 December 1992 and 11 January 1993 respectively
by the National & Provincial Building Society (hereafter “the National &
Notes by the Registrar
1. The case is numbered 117/1996/736/933-935. The first number is the case’s position on
the list of cases referred to the Court in the relevant year (second number). The third
number indicates the case’s position on the list of cases referred to the Court since its
creation and the last two numbers indicate its position on the list of the corresponding
originating applications to the Commission.
2. Rules of Court A apply to all cases referred to the Court before the entry into force of
Protocol No. 9 (1 October 1994) and thereafter only to cases concerning States not bound
by that Protocol. They correspond to the Rules that came into force on 1 January 1983, as
amended several times subsequently.
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 2
Provincial”), the Leeds Permanent Building Society (hereafter “the Leeds”)
and the Yorkshire Building Society (hereafter “the Yorkshire”).
The Commission’s request referred to Articles 44 and 48 and to the
declaration whereby the United Kingdom recognised the compulsory
jurisdiction of the Court (Article 46); the Government’s application referred
to Article 48. The object of the request and of the application was to obtain
a decision as to whether the facts of the case disclosed a breach by the
respondent State of its obligations under Article 1 of Protocol No. 1 taken
alone or in conjunction with Article 14 of the Convention and Article 6 § 1
of the Convention taken alone or in conjunction with Article 14.
2. In response to the enquiry made in accordance with Rule 33 § 3 (d) of
Rules of Court A, the applicants stated that they wished to take part in the
proceedings and designated the lawyers who would represent them
(Rule 30).
3. The Chamber to be constituted included ex officio Sir John Freeland,
the elected judge of British nationality (Article 43 of the Convention), and
Mr R. Ryssdal, the President of the Court (Rule 21 § 4 (b)). On
17 September 1996, in the presence of the Registrar, the President drew by
lot the names of the other seven members, namely Mr F. Gölcüklü,
Mr R. Macdonald, Mr C. Russo, Mr N. Valticos, Mr R. Pekkanen,
Mr P. Jambrek and Mr E. Levits (Article 43 in fine of the Convention and
Rule 21 § 5). Mr Gölcüklü and Mr Russo were later prevented from taking
part in the consideration of the case and were replaced by Mrs E. Palm and
Mr K. Jungwiert respectively.
4. As President of the Chamber (Rule 21 § 6), Mr Ryssdal, acting
through the Registrar, consulted the Agent of the Government, the
applicants’ lawyers and the Delegate of the Commission on the organisation
of the proceedings (Rules 37 § 1 and 38). Pursuant to the order made in
consequence, the Registrar received the Government’s and the applicants’
memorials on 31 January 1997.
On 10 March 1997 the Commission produced a number of documents
from the file on the proceedings before it, as requested by the Registrar on
the President’s instructions.
5. In accordance with the President’s decision, the hearing took place in
public in the Human Rights Building, Strasbourg, on 28 May 1997. The
Court had held a preparatory meeting beforehand.
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 3
There appeared before the Court:
(a) for the Government
Mr M.R. EATON, Deputy Legal Adviser,
Foreign and Commonwealth Office, Agent,
Mr S. RICHARDS,
Mr D. ANDERSON, Counsel,
Mr W.J. DURRANS, Inland Revenue,
Mr P.H. LINFORD, Inland Revenue, Advisers;
(b) for the Commission
Mrs J. LIDDY, Delegate;
(c) for the applicants
Lord LESTER OF HERNE HILL QC,
Mr J. GARDINER QC,
Mr P. DUFFY QC,
Mr J. PEACOCK,
Ms M. CARSS-FRISK, Counsel,
Mr H. ROSS, Solicitor, Clifford Chance
(for the Leeds),
Mr N. JORDAN, Solicitor, Clifford Chance
(for the Leeds),
Ms S. GARRETT, Solicitor, Addleshaw Booth & Co
(for the Yorkshire),
Ms F. FERGUSON, Solicitor, Slaughter and May
(for the National & Provincial), Solicitors.
The Court heard addresses by Mrs Liddy, Mr Gardiner, Lord Lester of
Herne Hill and Mr Richards.
AS TO THE FACTS
I. GENERAL BACKGROUND
6. The applicants were at all relevant times building societies within the
meaning of the Building Societies Act 1986. Building societies operate
under the status of “mutual societies” under English law as opposed to the
status enjoyed by companies under company law. A building society’s
members are made up of its investors who deposit savings with it and
receive a rate of interest or a dividend in return, and its borrowers who are
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 4
charged interest on their loans. By and large, loans are taken out by
borrowers to buy private residential property.
A. The income-tax liability of investors
7. Investors with a building society are liable to pay income tax in
respect of the interest earned on their deposits. The income tax owed to the
Inland Revenue for the purposes of the fiscal year running from 6 April of
one year to 5 April of the following year was in practice calculated or
measured with reference to a period of equal length preceding the actual
fiscal year. The so-called “measurement principle” required that the period
measured be always equal in length to the period taxed. The taxpayer was
not in fact taxed on the income of the preceding year but assessed to tax on
the income received in the current year, the amount of the current year’s
income being artificially computed by reference to the income of the
previous year. Accordingly, in normal circumstances, individual investors
with building societies would be obliged to declare in their tax returns for
the fiscal year in question the amount of interest or dividends earned on
their deposits in a preceding reference period of equal length to the fiscal
year, and the Inland Revenue would have to make individual assessments to
tax on the strength of the information supplied by the investor.
B. The voluntary arrangements for discharging investors’ tax
liability
8. However, in view of the very large number of building society
investors, many of whom had only modest savings and were thus only liable
to small amounts of income tax, or to no tax at all, it had for many years up
to and including the fiscal year 1985/86 been the practice for the Inland
Revenue to make voluntary arrangements with building societies for the
payment by each society of a single annual composite amount. The effect of
this payment by a building society was to discharge its investors’ liability to
income tax at the basic rate on the interest which they earned. These
arrangements, which were for very many years operated on a non-statutory
basis, were at the relevant time given statutory recognition under
section 343 (1) of the Income and Corporation Taxes Act 1970 – “the 1970
Act”.
9. The composite-rate payment under the voluntary arrangements
was calculated for each fiscal year by reference to the global amount
of interest paid by the society to its investors. However, in order to
reflect the fact that some of the investors would not have been liable to
tax at all given the modest amounts of their savings (see paragraph 8 above)
a reduced rate of tax was applied. For this reason the annual
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 5
payments made under this scheme were known as “reduced-rate tax” or
“composite-rate tax”, or “CRT”.
10. The amount paid to investors by way of interest on their investments
took account of the fact that their liability to income tax was discharged by
the building society via the payment of CRT to the Inland Revenue.
Investors thus received their interest net of tax.
C. Setting the rate of CRT and the revenue-neutrality principle
11. In accordance with the “revenue-neutrality” principle, set out in
section 26 of the Finance Act 1984, the CRT payment reflected only the
amount which would have been paid by the investors themselves had they
been obliged to declare and pay tax on the interest they earned through their
deposits.
12. To achieve this, the Treasury, following negotiations with the
Building Societies Associations, set each year, by statutory instrument, the
CRT rate. In doing so, it was required to aim at a result whereby the same
amount of tax was collected at source from building societies for the fiscal
year in question as would have been collected from the individual
depositors had they been taxed directly on the interest they received over a
preceding reference period (see paragraphs 7 above and 13 below).
D. The prior-period system and the accounting-year period
13. Until 1985/86, a “prior-period” system applied in respect of CRT.
The amount of CRT to be paid by each building society for each fiscal year
(see paragraph 12 above) was calculated by reference to the interest which it
paid to its investors not during the actual year being taxed, but during the
society’s own twelve months’ accounting period ending within that fiscal
year. The tax was in every case paid on or around 1 January of the year of
assessment. As noted above (see paragraph 8 above), the legal effect of this
payment representing income tax was to discharge investors’ basic-rate
liability on the interest earned in the year being taxed.
14. There was no legal requirement to have a harmonised accounting
period. Different time frames were used by different building societies, but
in all cases the time frames represented a period equal in length to the fiscal
year, having regard to the requirements of the measurement principle (see
paragraph 7 above). The following accounting periods were operated by
each of the applicant societies:
– the Leeds: 1 October to 30 September;
– the National & Provincial: 1 January to 31 December;
– the Yorkshire: 1 January to 31 December.
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 6
Thus, on or around 1 January 1986, the three applicant societies paid to
the Inland Revenue, to discharge their investors’ liability to income tax at
the basic rate for the fiscal year 6 April 1985–5 April 1986, sums measured
by reference to the interest paid to their investors in their accounting periods
ended 30 September 1985 (the Leeds) and 31 December 1985 (the
National & Provincial and the Yorkshire). Under the effect of the voluntary
arrangements (see paragraph 8 above), these payments completely
discharged the income-tax liability of their investors in respect of the
interest paid to them by the respective societies for the fiscal year 6 April
1985–5 April 1986.
On that basis each of the applicant companies paid the following
amounts by way of CRT to the Inland Revenue:
– the Leeds: 144,500,000 pounds sterling (GBP), a sum measured
by reference to the interest paid to its investors in its accounting period
ended 30 September 1985;
the National & Provincial: GBP 125,926,662, a sum measured by
reference to the interest paid to its investors in its accounting period ended
31 December 1985;
– the Yorkshire: GBP 34,001,214, a sum measured by reference to
the interest paid to its investors in its accounting period ended
31 December 1985.
E. The aim and effect of the new legislation: section 40 of the
Finance Act 1985
15. With a view to putting the taxation of the interest paid by building
societies to investors on a similar footing to the scheme which had been
introduced for banks by the Finance Act 1984, the Government proposed
the introduction of a mandatory regime for the collection of tax on
investors’ interest and the payment of the tax quarterly on the last days of
February, May, August and November instead of annually in January. In his
budget statement on 19 March 1985 announcing the introduction of the new
scheme, the Chancellor of the Exchequer declared that it would not produce
any additional revenue. The proposal was adopted by Parliament in the form
of section 40 of the Finance Act 1985.
16. Section 40 amended section 343 of the 1970 Act (see paragraph 8
above) by inserting a new sub-section (1A) which had the effect of bringing
to an end the long-standing voluntary arrangements as from 6 April 1986. It
also empowered the Inland Revenue Commissioners to make regulations
introducing a new system of accounting for the fiscal year 1986/87 and for
subsequent years. Under the Income Tax (Building Society) Regulations
1986 (“the 1986 Regulations”), which came into force on 6 April 1986, tax
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 7
was to be calculated on a quarterly basis on the actual interest paid during
the actual year of assessment, as opposed to a prior period.
F. The problem of the “gap period”
17. However the ending of the voluntary arrangements exposed a gap
(“the gap period”) between the end of the applicant societies’ accounting
periods in 1985/86 (see paragraph 14 above) and the start of the first quarter
under the new regime. In the case of the Leeds the gap period was from
1 October 1985 to 5 April 1986, and in the case of the National &
Provincial and the Yorkshire it was from 1 January 1986 to 5 April 1986. In
order to ensure that each payment of interest formed the basis of an
assessment to tax, transitional regulations were introduced which deemed
payments falling into the “gap period” to have been made in a later
accounting period, with the result that they formed the basis for an
assessment to tax under the new “actual-year” arrangements. In the view of
the Government the legislative intention was to ensure that the same amount
of tax was collected as would have been collected if the previous
arrangements had continued and that the building societies did not receive
an undeserved windfall in respect of the gap period.
18. Against this background, Regulation 11 (read in conjunction with
Regulation 3) of the 1986 Regulations purported to require building
societies to account for tax relating to payments of interest to their investors
in their respective gap periods. Regulation 11 (4) provided for tax to be
charged on interest paid in the gap period at 1985/86 rates, i.e. 25.25%, the
basic rate of income tax being 30% for that year.
II. PARTICULAR CIRCUMSTANCES OF THE CASE
19. Each of the applicant societies took the view that the transitional
regulations ran counter to the Government’s declared intention that the new
regime introduced by the Finance Act 1985 should not produce any
additional revenue (see paragraph 15 above), which view was reaffirmed
during the parliamentary debates on section 40 of that Act. They considered
that the effect of Regulations 3 and 11 was to impose tax again on interest
they had paid in 1985/86, a fiscal year for which liability on their investors’
interest had already been discharged (see paragraph 14 above). For the
applicants this had the result that, for twenty-four months’ interest paid to
its investors in the two fiscal years 1986/87 and 1987/88, a society like the
Leeds, with a 30 September year-end, was required to pay tax on thirty
months’ interest. For the National & Provincial and the Yorkshire, each
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 8
would have to pay tax on twenty-seven months’ interest for the twenty-four
month period covered by the fiscal years 1986/87 and 1987/88. In the view
of the applicant societies these consequences ran counter to the
measurement principle according to which the measurement period forming
the basis of assessment to tax can never exceed the length of the fiscal year
(see paragraph 7 above).
Each of the three applicant societies did in fact pay the tax claimed to be
due under the transitional provisions of the Regulations as follows:
– the National & Provincial: GBP 15,873,945;
– the Leeds: GBP 56,973,690;
– the Yorkshire: GBP 8,902,620.
20. The Government point out that the payments were made “without
formal protest”. However, the applicants assert that they made clear from
the outset that they disputed the lawfulness of the tax and that they
associated themselves with the proceedings initiated by the Woolwich
Equitable Building Society (“the Woolwich”) to challenge the lawfulness of
the transitional provisions in Regulation 11. For its part the Leeds issued a
press release when the Regulations were still at the draft stage, drawing
attention to, inter alia, their complaint that the Regulations would have the
objectionable effect of subjecting building societies to double taxation. The
affidavit sworn by the Executive Vice-Chairman of the Woolwich referred
to the Leeds’ support for its decision to initiate legal proceedings against the
transitional arrangements. Both the National & Provincial and the Yorkshire
made requests for the repayment of the amounts they had paid to the Inland
Revenue.
A. The Woolwich 1 proceedings for judicial review
21. On 18 June 1986 the Woolwich commenced judicial review
proceedings seeking a declaration that Regulation 11 was unlawful as being
outside the scope of the enabling legislation. It was further alleged that the
transitional arrangements transgressed the fundamental principles of
constitutional and taxation law and that the machinery adopted by the 1986
Regulations in order to implement the change in the system resulted in a
double charge to tax over the gap period.
B. The legislative response to the launch of the Woolwich 1
proceedings: section 47 of the Finance Act 1986
22. On 4 July 1986 the Government introduced in Parliament a measure
intended to validate retrospectively the impugned Regulations and to give
effect to what they claimed to be the original intention of Parliament when
adopting them (see paragraphs 15 and 17 above). The responsible
Government minister informed Parliament that the Regulations did not
affect the amount of tax collected, only the timing of payment and reiterated
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 9
that they would not bring extra tax to the Inland Revenue. On 25 July 1986
the Finance Act 1986 (“the 1986 Act”) received the Royal Assent.
Section 47 of the Act retrospectively amended section 343 (1A) of the
1970 Act (see paragraph 16 above) with the purpose of authorising the
Inland Revenue Commissioners to make regulations requiring the taxation
in the year 1986/87 and subsequent years of assessments of sums paid to
investors in the gap period and not previously brought into account.
C. The Woolwich 2 proceedings for restitution
23. On 15 July 1987 the Woolwich issued a writ against the Inland
Revenue claiming repayment of the sums paid by way of tax under the
transitional provisions of the Regulations, as well as interest from the date
of payment.
D. The decision of the High Court in the Woolwich 1 proceedings
24. On 31 July 1987 Nolan J granted the application in Woolwich 1 (see
paragraph 21 above) and made a declaration that Regulation 11 was void in
its entirety and that the remaining Regulations were void in so far as they
purported to apply to payments made to investors prior to 6 April 1986. He
held that:
(a) there was nothing in the enabling legislation to indicate that
Parliament intended to authorise a departure from the principle that income
tax should only be levied on the income of one year;
(b) the power to make regulations conferred by section 343 (1A) was
to be exercised solely with respect to 1986/87 and later years and nothing in
the section authorised the Revenue to go back on the arrangements with the
building societies and impose further tax on interest paid to their members
during the gap period;
(c) the fact that Regulation 11 (4) provided for tax to be charged at
1985/86 rates (which were higher than the 1986/87 rates) was itself a clear
indication that the Regulations went beyond the powers conferred by
section 343 (1A);
(d) the position was not affected by the amendment in section 47 (1)
of the 1986 Act which, whatever its intention, still left the power conferred
by section 343 (1A) as a power exercisable only with respect to 1986/87 and
subsequent years.
25. The Inland Revenue appealed against the decision. They conceded
that Regulation 11 (4) was invalid but contended that this partial invalidity
did not invalidate the rest of the Regulation.
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 10
26. Towards the end of 1987, the Inland Revenue repaid to the
Woolwich the sum of GBP 57,000,000 with interest from 31 July 1987 (the
date of the order of Nolan J) but refused to pay interest from any earlier
date. Thus, the remaining issue in the Woolwich 2 proceedings (see
paragraph 23 above) came to be whether or not Woolwich had grounds for
claiming interest on the payments made by them up to 31 July 1987.
E. The decision of the High Court in the Woolwich 2 proceedings
27. On 12 July 1988 Nolan J dismissed the Woolwich 2 action, holding
that the Woolwich was not entitled to recover the sums in issue under any
general principle of restitution or as having been paid under duress. He took
the view that the sums had been paid under an implied agreement that they
would be repaid if and when the dispute about the validity of the 1986
Regulations was resolved in favour of the Woolwich. Thus, the Woolwich
had no cause of action to recover the money until the date of his order of
31 July 1987. The Woolwich appealed against the decision and order.
F. The decision of the Court of Appeal in the Woolwich 1
proceedings
28. On 12 April 1989 the Court of Appeal allowed the appeal of the
Inland Revenue in the Woolwich 1 proceedings (see paragraph 25 above).
The court held that:
(a) as a matter of ordinary construction, the words of section 47 of
the 1986 Act were clear and enabled the Revenue to take account of, and to
charge to tax, interest paid by the societies in the gap period; and
(b) subject to the invalidity of Regulation 11 (4), which was
conceded by the Revenue, Regulation 11 was valid.
G. The decision of the House of Lords in the Woolwich 1
proceedings
29. On 25 October 1990 the House of Lords allowed the appeal of the
Woolwich in the Woolwich 1 proceedings. The House of Lords,
Lord Lowry dissenting, declared the transitional provisions in the 1986
Regulations to be ultra vires on the grounds that Regulation 11 (4), as the
Inland Revenue had previously conceded, and Regulation 3, so far as it
related to the period after February and before 6 April 1986, were ultra vires
the empowering statute. The House of Lords considered that
Regulation 11 (4) could not be severed from the rest of Regulation 11 and
that the transitional provisions in the 1986 Regulations were therefore void
in their entirety.
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 11
30. Lord Oliver, delivering the judgment of the majority, concluded:
“... I confess that I find the conclusion irresistible that Parliament intended by these
words [section 47 of the 1986 Act] to enable the Revenue to take account of and to
charge to tax sums which, rightly or wrongly, it regarded as otherwise representing
windfalls in the hands of building societies. One has only to look at the circumstances.
The Regulations of 1986 had been made and had been objected to. They were made
the subject of a direct challenge in legal proceedings, the evidence in support of which
clearly adumbrated the arguments advanced before the judge and the Court of Appeal.
The notion that Parliament should go to the trouble of enacting an expressly
retrospective amendment in order to provide, unnecessarily, for the use of these sums
as a measurement of tax liability – a matter never remotely in issue – is simply
fanciful ...
... I am bound to say that I think it unfortunate that the Revenue, through Parliament,
should have chosen by secondary rather than primary legislation to take what was, on
ordinary principles, the very unusual course of seeking to tax more than one year’s
income in a single year of assessment, but section 47 of the Finance Act 1986 is, on
any analysis, a very unusual provision and I have, in the end, found myself irresistibly
driven to the conclusion that this was what Parliament intended should occur. It may
be – I do not know – that the legislature did not appreciate fully that the effect of the
arrangements made in 1985 was to discharge all liability for tax on interest paid in the
year of assessment 1985/86, including tax on interest paid after the end of a society’s
accounting year, and that, accordingly, to tax those sums again in a subsequent year
was, in a sense, to tax them twice. But even making that assumption it amounts to no
more than saying that the legislature should not have intended to do that which it
plainly set out to do. I would, for my part, therefore, reject the Woolwich’s principal
argument.”
This ruling declaring Regulation 11 (4) void on technical grounds meant
that no mechanism existed to achieve what the Government claimed to be
Parliament’s initial intention that interest payments made during the gap
period should be assessed for tax. This led the Government to introduce new
legislative provisions. A draft press release was circulated as early as
7 March 1991 for the approval of the Chancellor of the Exchequer. The
draft indicated that the Chancellor in his budget-day speech on 19 March
1991 would introduce legislation to validate retrospectively the Regulations
which had been struck down in the Woolwich 1 case (see paragraph 33
below).
H. The Leeds 1 and National & Provincial 1 proceedings for
restitution
31. Following the House of Lords’ decision in the Woolwich 1
proceedings, and after having made several requests for repayment, the
Leeds commenced proceedings on 15 March 1991 against the Inland
Revenue for the restitution of the sum of GBP 56,973,690 paid pursuant to
the 1986 Regulations which had been declared void in the Woolwich 1
proceedings.
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 12
32. On 17 March 1991 the National & Provincial, which had also sought
but was refused repayment, commenced proceedings against the Inland
Revenue for the restitution of the sum of GBP 15,873,945 paid pursuant to
the void Regulations.
I. The legislative response to the Woolwich 1 decision: the
enactment of section 53 of the Finance Act 1991
33. On 19 March 1991, in his budget statement, the Chancellor of the
Exchequer announced the introduction of legislation to remedy “the
technical defects in the Regulations”. This legislation became section 53 of
the Finance Act 1991 (“the 1991 Act”), which entered into force on
25 July 1991. Section 53 provided, inter alia:
“Section 343 (1A) of the [1970 Act] ... shall be deemed to have conferred powers to
make all the provisions in fact contained in [the 1986 Regulations].”
34. The provision had retrospective effect, save that by subsection (4) it
had no effect “in relation to a building society which commenced
proceedings to challenge the validity of the Regulations before
18 July 1986”. The Woolwich was the only building society which satisfied
this condition.
35. In a letter dated 21 March 1991 the Director-General of the Building
Societies Associations informed the Financial Secretary to the Treasury that
the decision of the Government “[did] not come as any great surprise,
although it will still be very disappointing to the societies concerned”. In
fact, the concrete effect of the measure was to stifle the Leeds 1 and
National & Provincial 1 proceedings (see paragraphs 31and 32 above).
Although they had shown support for the Woolwich’s judicial proceedings
(see paragraph 20 above) neither had formally commenced legal
proceedings before 18 July 1986. At the costs hearing the Government
conceded that they had no defence to the action brought by the Leeds and
the National & Provincial had it not been for section 53 of the 1991 Act.
Costs were awarded against the Government.
J. The Woolwich 2 proceedings in the Court of Appeal
36. On 22 May 1991 the Court of Appeal, by a majority, allowed the
appeal by the Woolwich in Woolwich 2 and awarded the interest claimed.
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 13
37. The majority of the Court of Appeal accepted the Woolwich’s
primary submission that, where money was paid under an illegal demand
for taxation by a government body, the payer had an immediate prima facie
right to recover the payment.
K. The Leeds 2, National & Provincial 2 and Yorkshire 1
proceedings to challenge the validity of the Treasury Orders by
way of judicial review
38. On 10 July 1991 the Leeds applied for leave to commence judicial
review proceedings for a declaration that the Treasury Orders establishing
the composite-rate tax for 1986/87 and for the following years were
unlawful (“Leeds 2”). The Leeds claimed that:
(a) it was clear that in making the estimates for the years following
1986/87, and setting the rates of composite-rate tax on the basis of it, the
Treasury had assumed the correctness of the Government’s position that the
Regulations collected no “extra” tax;
(b) this position had been shown by the judgments in Woolwich 1 to
be wrong, with the result that the Treasury had underestimated the amount
of tax collection under the composite-rate tax system and so set the rate of
tax for those years substantially too high;
(c) this was of no significance so long as the Regulations were held
to be invalid, because the “extra” tax was in law repayable to the building
societies; however, by retrospectively validating them the Government had
automatically invalidated the bases of the statutory instruments setting the
rates;
(d) this, in principle, meant that all composite-rate tax paid in those
years had to be repaid, but in its proceedings the Leeds made a binding
commitment not to seek to recover more than the sums initially overpaid,
namely GBP 57,000,000.
39. On 6 November 1991 the National & Provincial was granted leave to
commence judicial review proceedings similar to those in Leeds 2 for a
declaration that the Treasury Orders establishing the composite-rate tax for
1986/87 and subsequent years were unlawful because of the retrospective
validation of the Regulations (“National & Provincial 2”). The application
was joined with the Leeds 2 proceedings and with a similar application
made by the Bradford and Bingley Building Society.
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 14
40. On 3 March 1992 the Yorkshire applied for leave to commence
similar judicial review proceedings for a declaration that the Treasury
Orders establishing the composite-rate tax for 1986/87 and subsequent years
were unlawful (“Yorkshire 1”).
L. The Leeds 3, National & Provincial 3 and Yorkshire 2
proceedings for restitution
41. Further proceedings were commenced by the Yorkshire on
11 May 1992 (“Yorkshire 2”), by the Leeds on 1 June 1992 (“Leeds 3”) and
by the National & Provincial on 12 June 1992 (“National & Provincial 3”).
In those proceedings the applicant societies claimed restitution of the money
due to them if the judicial review proceedings (Leeds 2 and National &
Provincial 2, and Yorkshire 1) were successful (see paragraphs 38–40
above).
M. The legislative response to the applicants’ proceedings for
judicial review and restitution: section 64 of the Finance (No. 2)
Act 1992
42. On 16 July 1992 section 64 of the Finance (No. 2) Act 1992 (“the
1992 Act”) entered into force. This legislation had been anticipated as from
7 May 1992 when the Financial Secretary in a reply to a parliamentary
question noted that his Government intended to introduce legislation to
validate retrospectively the impugned Treasury Orders. Section 64 provided,
with retrospective effect, that the Treasury Orders “shall be taken to be and
always to have been effective”. The Government acknowledged during the
parliamentary debates on section 64 that the measure was intended to preempt
the legal proceedings launched by the applicants to challenge the
validity of the Treasury Orders and that it would result in the Woolwich
being treated more favourably. However, they pointed out that the challenge
to the composite rate for CRT in the fiscal years 1986/87 to 1989/90 threw
into doubt the lawfulness of the collection of all sums from building
societies, banks and other deposit institutions in the periods in question.
While there was no doubt as to the lawfulness of the collection in respect of
the vast majority of those sums, the effect of impugning the rates set would
have been to render the collection of all sums unlawful. The amount at stake
was in the region of GBP 15 billion.
43. The effect of section 64 was to extinguish the remaining proceedings
lodged by the applicants for judicial review of the validity of the Treasury
Orders and for restitution (see paragraphs 39–41 above).
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 15
N. The final outcome of the Woolwich 2 proceedings
44. On 20 July 1992 the House of Lords, by a majority, dismissed the
Inland Revenue’s appeal in the Woolwich 2 proceedings.
The House of Lords did not accept that, on the facts of the Woolwich
case, there was any implied agreement for the repayment of the money paid
under the invalid Regulations if and when the dispute was resolved in the
taxpayer’s favour. Nevertheless, by a majority, the House of Lords held:
(a) that money paid by a citizen to a public authority in the form of
taxes or other levies pursuant to an ultra vires demand by the authority is
prima facie recoverable by the citizen as of right;
(b) that, accordingly, since the building society’s claims fell outside
the statutory framework governing repayment of overpaid tax, it was
entitled at common law to repayment of the sums and to interest in respect
thereof from the date of payment.
III. RELEVANT DOMESTIC LAW
45. Section 343 (1A) of the 1970 Act (introduced by section 40 of the
Finance Act 1985, and as amended by section 47 of the Finance Act 1986)
provides as follows:
“The Board may by regulations made by statutory instrument make provision with
respect to the year 1986/87 and any subsequent year of assessment requiring building
societies, on such sums as may be determined in accordance with the regulations
(including sums paid or credited before the beginning of the year but not
previously brought into account under subsection (1) above or this subsection), to
account for and pay an amount representing income tax ... and any such regulations
may contain such incidental and consequential provisions as appear to the Board to be
appropriate, including provisions requiring the making of returns.” [The words in bold
print were added by the 1986 Act.]
46. Section 53 of the Finance Act 1991 provides, so far as relevant, as
follows:
“(1) Section 343 (1A) of the Income and Corporation Taxes Act 1970 ... shall be
deemed to have conferred power to make all the provisions in fact contained in the
Income Tax (Building Societies) Regulations 1986 ...
(4) In relation to a building society which commenced proceedings to challenge the
validity of the Regulations before 18 July 1986, this section shall not have effect to the
extent that the Regulations apply (or purport to apply) to payments or credits made
before 6 April 1986.”
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 16
47. Section 64 of the Finance (No. 2) Act 1992 provides as follows:
“(1) For the purposes of this section each of the following is a relevant order –
(a) the Income Tax (Reduced and Composite Rate) Order 1985 ...
(b) the Income Tax (Reduced and Composite Rate) Order 1986 ...
(c) the Income Tax (Reduced and Composite Rate) Order 1987 ...
(d) the Income Tax (Reduced and Composite Rate) Order 1988 ...
(2) If apart from this section a relevant order would not be so taken, it shall be taken
to be and always to have been effective to determine the rate set out in the order as the
reduced rate and the composite rate for the year of assessment for which the order was
made.”
PROCEEDINGS BEFORE THE COMMISSION
48. In their applications (nos. 21319/93, 21449/93 and 21675/93),
lodged with the Commission on 15 January 1993, 21 December 1992 and
11 January 1993, the applicants alleged violations of Article 6 of the
Convention and Article 1 of Protocol No. 1, taken alone and in conjunction
with Article 14 of the Convention.
On 30 August 1994 the Commission joined the National & Provincial’s
application and the Yorkshire’s application, and on 10 January 1995 joined
the Leeds’ application with the other two applications. On 13 January 1995
the Commission declared the applications admissible. In its report of
25 June 1996 (Article 31) the Commission expressed the opinion that there
had been no violation of Article 1 of Protocol No. 1 (thirteen votes to three);
that there had been no violation of Article 1 of Protocol No. 1 taken in
conjunction with Article 14 of the Convention (fourteen votes to two); that
there had been a violation of Article 6 § 1 of the Convention (nine votes to
seven); and that it was not necessary to examine the complaint under
Article 6 § 1 of the Convention taken in conjunction with Article 14 of the
Convention (fourteen votes to two). The full text of the Commission’s
opinion and of the four separate opinions contained in the report is
reproduced as an annex to this judgment1.
1. Note by the Registrar. For practical reasons this annex will appear only with the printed
version of the judgment (Reports of Judgments and Decisions 1997), but a copy of the
Commission’s report is obtainable from the registry.
Annex 188
BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 17
FINAL SUBMISSIONS TO THE COURT
49. The applicant societies requested the Court to find that the facts
disclosed breaches of Article 1 of Protocol No. 1 and of Article 6 of the
Convention, taken alone or in conjunction with Article 14 of the
Convention, and to award them just satisfaction.
The Government for their part requested the Court to decide and declare
that the facts gave rise to no breach of the Convention.
AS TO THE LAW
I. ALLEGED VIOLATION OF ARTICLE 1 OF PROTOCOL No. 1
50. The applicants claimed to be victims of a breach of Article 1 of
Protocol No. 1, which provides as follows:
“Every natural or legal person is entitled to the peaceful enjoyment of his
possessions. No one shall be deprived of his possessions except in the public interest
and subject to the conditions provided for by law and by the general principles of
international law.
The preceding provisions shall not, however, in any way impair the right of a State
to enforce such laws as it deems necessary to control the use of property in accordance
with the general interest or to secure the payment of taxes or other contributions or
penalties.”
A. As to the alleged expropriation of the applicant societies’ assets
51. The applicant societies maintained that it had never been suggested
during the passage of section 40 of the Finance Act 1985 (see paragraphs 15
and 16 above) or at the time when the 1986 Regulations had been laid
before Parliament (see paragraphs 17 and 18 above) that the gap period
would be brought into account on a second occasion for tax purposes. The
Government had given repeated assurances, including during the
parliamentary discussions on section 47 of the Finance Act 1986, that the
new arrangements would not produce any additional revenue (see
paragraph 22 above). However, this indeed was the effect of the Regulations
since they taxed twice interest which had already been assessed to tax for
the fiscal year 6 April 1985 to 5 April 1986. The tax had been paid on or
around 1 January 1986 in order to discharge their investor’s liability for that
fiscal year (see paragraph 14 above). The House of Lords in the Woolwich 1
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 18
litigation had acknowledged when striking down those Regulations that the
transitional provisions subjected the interest paid in the gap period to double
taxation, and this consideration was a fundamental part of the ratio
decidendi of their decision (see paragraphs 29 and 30 above).
52. According to the applicant societies, it could only be concluded that
the Government had misled Parliament as to the aim of the legislative
scheme and had in effect procured the enactment of legislation which had
the result of expropriating substantial amounts of money lawfully held in
their reserves. They subsequently sought to legalise that expropriation by
means of retrospective legislation which deprived the societies of their legal
rights to recover those amounts.
53. The Government stressed that the sole intention behind section 40 of
the Finance Act 1985 and the adoption of the 1986 Regulations was to
ensure that in the transition from the prior to the actual year basis of
assessment (see paragraphs 13 and 15 above) the interest paid by building
societies to investors would be brought into account for tax purposes. Had
the 1986 Regulations, as validated ultimately by section 53 of the 1991 Act
(see paragraphs 33 and 34 above), not addressed the tax liability of the
interest paid during the gap period in the way they did certain building
societies like the applicant societies would have been left with considerable
amounts of untaxed interest in their reserves. The interest paid in the gap
period was taxed once and once only. The Government minister had
correctly informed Parliament that the new arrangements would not produce
additional revenue. The untaxed interest in the gap period would have been
brought into account had the voluntary arrangements continued in force.
The Regulations simply altered the timing of payment of tax on that interest
by spreading the liability to pay it over successive fiscal years.
54. In the view of the Government, the applicant societies could not rely
on the judgments given in the Woolwich 1 litigation to support their
contention that the 1986 Regulations imposed double taxation. The
Regulations had been declared void on purely technical grounds. Parliament
had never been misled as to the effect which the 1986 Regulations would
have on the gap period. Parliament had in fact legislated after extensive
debates on the new arrangements in full knowledge of the concerns
expressed by building societies at the relevant time about the effect of the
Regulations.
55. Before the Court the Delegate of the Commission stated that it had
been the clear intention of Parliament in enacting section 40 of the Finance
Act 1985 and adopting the 1986 Regulations to ensure that building
societies did not benefit from a windfall, but should remain liable to tax on
interest paid to their investors in the gap period. Furthermore, there was no
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 19
support in the House of Lords ruling in the Woolwich 1 litigation for the
argument that the applicant societies had been subjected to a double
imposition other than in a technical sense.
56. The Court notes that the assertions of the applicant societies in
regard to the intention of Parliament in 1985 and 1986 are central to their
complaints concerning the retroactive removal of their rights to recover the
monies which they paid to the Inland Revenue. It is fundamental to their
arguments on those complaints that those monies were in reality unlawfully
expropriated from their reserves under the guise of taxation.
57. Without prejudice to its subsequent consideration of the applicant
societies’ allegations that they had been unlawfully deprived of their legal
claims to restitution of their monies in breach of Article 1 of Protocol No. 1,
the Court is of the opinion that it should clarify at the outset whether or not
the applicant societies are correct in their submissions that the legislative
measures taken in 1985 and 1986 subjected the interest which they paid to
their investors in the gap period to a double imposition contrary to the
intention of Parliament.
58. It is to be noted in this respect that, had the voluntary arrangements
(see paragraph 8 above) continued to apply as between the building
societies and the Inland Revenue, the interest would inevitably have been
brought into account for tax purposes. Accordingly, and by way of example,
the Leeds would have had to pay to the Inland Revenue on or around
1 January 1987 tax on the interest earned by its investors between 1 October
1985 and 30 September 1986 in order to discharge the latter’s liability to tax
on that interest for the fiscal year 6 April 1986 to 5 April 1987. The interest
paid in the gap period in issue would thus have been taxed, and subsequent
gap periods would have been brought into account in future fiscal years in
accordance with the same logic. The voluntary arrangements made no
provision for interest to be omitted for tax-assessment purposes.
59. Since the interest earned by their investors in the gap period had
been paid to them net of tax (see paragraph 10 above), the applicant
societies had already deducted amounts representing tax on that interest.
Those amounts were lodged in their reserves waiting to be brought into
account. It is an inescapable conclusion that, had steps not been taken to
bring those amounts into account in the move from the prior-period system
(see paragraphs 13 and 14 above) to the actual-year system (see
paragraphs 15 and 16 above), the applicant societies would have been left
with considerable sums of money representing unpaid tax.
It cannot be maintained that the effect of the transitional arrangements in
the 1986 Regulations was to subject those amounts of money to double
taxation other than in a technical sense, since no tax had ever been paid on
the interest paid in the gap period before the changeover to the new actualyear
scheme of assessment. Admittedly, by deeming the interest to have
been paid in a later accounting period (see paragraph 17 above) the effect of
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 20
the transitional regulations was to accelerate the payment of tax owed to the
Inland Revenue in a way which may seem to be at variance with the
measurement principle (see paragraph 7 above). However, this cannot serve
to refute the conclusions that the volume of payments remained the same as
between the old and the new system and that there was no increase in the
revenue collected from the applicant societies.
60. Nor is the Court persuaded by the arguments of the applicant
societies that the judgment of the House of Lords in the Woolwich 1 case
(see paragraphs 29 and 30 above) provides support for their view that the
effect of the transitional mechanism in the 1986 Regulations was to subject
the interest paid to investors in the gap period to double taxation other than
in a theoretical sense, having regard to the way in which the measurement
principle was adjusted. As noted above (see paragraph 59), had the
measurement principle not been modified the applicant societies would
undoubtedly have each received a windfall, substantial in all cases but
especially so in the case of the Leeds, which had the longest gap period.
Neither is it convinced by their claim that Parliament was misled as to the
effect of the transitional arrangements. It would appear that both section 40
of the Finance Act 1985 (see paragraph 15 above) and section 47 of the
Finance Act 1986 (see paragraph 22 above) were fully discussed at the
various legislative stages against the background of strong lobbying on the
part of building societies to have the interest paid to investors in the gap
period omitted from assessment. It cannot be said therefore that Parliament
did not appreciate the impact of the 1986 Regulations, having regard to the
opportunities which the opponents of the proposals had to question
Government ministers and to clarify the precise implications of the scheme
for building societies.
61. Having regard to the above conclusions, the Court will therefore
consider the claims of the applicant societies that they were deprived of
their legal rights to restitution of the monies paid to the Inland Revenue
under the invalidated Regulations on the clear understanding that those
monies were intended by Parliament to be charged to tax, had not been
subjected to a double imposition and were not therefore wrongfully
expropriated.
B. As to the deprivation of the applicant societies’ legal claims
1. Whether there were possessions within the meaning of Article 1
62. The applicant societies contended that their legal claims to
restitution of the assets which had been “unlawfully expropriated” by virtue
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 21
of the 1986 Regulations constituted, like those assets, “possessions” within
the meaning of Article 1 of Protocol No. 1. As a result of the House of
Lords ruling in the Woolwich 2 litigation (see paragraph 44 above) the
applicant societies must be considered to have had enforceable common-law
rights to recover their assets, which rights accrued as soon as the money had
been paid over to the Inland Revenue pursuant to the invalidated
Regulations. The Government had no defence to their claim for recovery, a
point which they had conceded at the costs hearing in the wake of the stifled
restitution proceedings brought by the Leeds and the National & Provincial
(see paragraph 35 above). Having regard to the principles established by the
Court in its Stran Greek Refineries and Stratis Andreadis v. Greece
judgment of 9 December 1994 (Series A no. 301-B) and in its Pressos
Compania Naviera S.A. and Others v. Belgium judgment of
20 November 1995 (Series A no. 332), they maintained that that right was
sufficiently established and certain to constitute possessions and gave each
of them a clear legitimate expectation that they would be treated similarly to
the Woolwich on the basis of the law as it stood prior to the enactment of
section 53 of the 1991 Act. The judicial review proceedings directed at the
validity of the Treasury Orders (see paragraphs 38–40 above) and the
second set of restitution proceedings (see paragraph 41 above) brought by
all the applicant societies were an alternative route to the assertion of their
enforceable rights to restitution of their monies. These rights were once
again stifled under the impact of section 64 of the 1992 Act.
63. The Government disputed this conclusion and especially the reliance
by the applicant societies on the case-law cited. None of the applicant
societies’ legal claims had ever given rise to a binding enforceable
judgment. In fact the two sets of restitution proceedings had never
proceeded beyond the issuing of writs (see paragraphs 31, 32 and 41 above)
and the judicial review proceedings challenging the validity of the Treasury
Orders (see paragraphs 38–40 above) were at an equally embryonic stage
with the applicants having, at best, only an arguable chance of success.
Furthermore, the first set of restitution proceedings brought by the Leeds
and the National & Provincial (see paragraphs 31 and 32 above) and the
second set of restitution proceedings brought by all three applicant societies
(see paragraph 41 above) were in reality opportunistic legal moves having
regard to the dates when the writs were issued and the Government’s clear
intentions at those times. In fact the second set of restitution proceedings,
which were contingent on securing victory in the judicial review
proceedings, were bound to fail since they were launched after the
Government had officially announced their intention to validate
retrospectively the Treasury Orders (see paragraph 42 above).
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 22
64. For the above reasons the Government requested the Court to find
that Article 1 of Protocol No. 1 was not applicable since the applicant
societies could not validly claim to have “possessions”.
65. The Commission considered that the restitution proceedings initiated
by the Leeds and the National & Provincial (see paragraphs 31 and 32
above) were “possessions” having regard to the scope of the decision of the
House of Lords in the Woolwich 2 litigation. Had the Government not acted
as they did and secured the passage of section 53 of the 1991 Act through
Parliament (see paragraphs 33 and 34 above), there was nothing to suggest
that the authorities would have had any sustainable defence to the restitution
claim.
66. In the view of the Commission, it was less certain, however, whether
the judicial review proceedings and the second set of restitution proceedings
(see paragraphs 38–40 and paragraph 41 above) amounted to “possessions”.
Nevertheless, the Commission was prepared to assume that those claims
were possessions, having regard to the background to the proceedings and
to the fact that they were in effect alternative routes to the assertion of the
restitution claims which had been extinguished by section 53 of the
1991 Act. Before the Court the Delegate of the Commission stated that the
Commission had in fact assumed that the legal claims asserted by each of
the applicant societies were possessions in order to bring into play the third
sentence of Article 1 of Protocol No. 1 which preserves the right of a
Contracting State to pass laws which it deems necessary to secure the
payment of taxes.
67. The Court notes that the decision of the House of Lords in the
Woolwich 2 litigation lies at the heart of the applicant societies’ contention
that the claims which they sought to assert in each of the three sets of legal
proceedings amounted to “possessions” within the meaning of Article 1 of
Protocol No. 1. In that landmark decision the House of Lords established
that a plaintiff had a prima facie common-law right to repayment of sums
paid to a public authority in the form of taxes pursuant to a demand which is
found to be ultra vires (see paragraph 44 above). The Woolwich recovered
the interest owing on sums paid to the Inland Revenue on the strength of the
law on restitution as so clarified, having already been repaid towards the
end of 1987 the monies which had been collected from it by the Inland
Revenue under the Regulations which, by that stage, had been declared
invalid by the High Court (see paragraph 26 above).
However, the Leeds and the National & Provincial had not themselves
secured an enforceable final judgment in their favour at the time of
instituting the first set of restitution proceedings and it may be questioned
whether they could be considered in the circumstances to have had an
acquired right to the recovery of their monies at that time (see, mutatis
mutandis, the Stran Greek Refineries and Stratis Andreadis judgment cited
above, p. 85, §§ 61–62). The strength of their contention on this aspect lies
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 23
essentially in the fact, firstly, that the Inland Revenue had repaid the
Woolwich the principal sum (see paragraph 26 above) when it was
discovered that Regulation 11 (4) of the 1986 Regulations was defective,
entailing a risk that the transitional arrangements could not be saved despite
the enactment of section 47 of the Finance Act 1986 (see paragraph 22
above), and, secondly, that the House of Lords in the Woolwich 1 case (see
paragraph 29 above) ultimately found the 1986 Regulations including the
transitional arrangements to be void in their entirety. It is significant in this
regard that the Government conceded the merits of the cases brought by the
Leeds and the National & Provincial (see paragraph 35 above), thereby
indicating that in the absence of section 53 of the 1991 Act they would have
lost the cases.
68. At the same time it must also be observed that the Leeds and the
National & Provincial brought their restitution proceedings at a time when
the law on restitution was not in fact favourable to the outcome of their
cases. The House of Lords judgment in the Woolwich 2 case, which is
central to their claim to have an established right amounting to possessions,
was in fact delivered one year after the writs had been issued. Furthermore,
while it may be the case that the authorities did not intimate to the applicant
societies in the course of the Woolwich 1 litigation that they would seek to
restore with retroactive effect the original intention of Parliament should
that case go against the Inland Revenue, it is reasonable to question whether
these two building societies could have had a “legitimate expectation” (see
paragraph 62 above) that the Government would not have reacted as they
did to the outcome of the litigation. As the Government have pointed out
(see paragraph 63 above), the writs were issued after the decision had been
taken to rectify with retrospective effect the inadvertent defects in the 1986
Regulations and in the days immediately preceding the official
announcement by the Government of this course of action (see
paragraphs 30–32 above).
69. While noting that the Leeds and the National & Provincial may be
considered to have at best a precarious basis on which to assert a right
amounting to “possessions”, the Court is of the view that the claims asserted
in the judicial review proceedings (see paragraphs 38–40 above) and the
second set of restitution proceedings brought by all three applicant societies
in May and June 1992 respectively (see paragraphs 39 and 40 above) could
not be said to be sufficiently established or based on any “legitimate
expectation” (see paragraph 62 above) that those claims would be
determined on the basis of the law as it stood. By that stage Parliament had
shown its continuing resolve to reassert its original intention to tax the
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 24
interest paid in the gap period by enacting section 53 of the 1991 Act; nor
could they have any cast-iron guarantee of obtaining the declaration sought
in the judicial review proceedings to enable them to recover their monies in
the follow-up restitution proceedings.
70. While expressing no concluded view as to whether any of the claims
asserted by the applicant societies could properly be considered to constitute
possessions, the Court, like the Commission (see paragraph 66 above), is
prepared to proceed on the working assumption that in the light of the
Woolwich 2 ruling the applicant societies did have possessions in the form
of vested rights to restitution which they sought to exercise in direct and
indirect ways in the various legal proceedings instituted in 1991 and 1992.
In so doing, it notes that the arguments which have been advanced in
support of their contention that they had possessions are indissociably
bound up with their complaints that they were unjustifiably deprived of
those possessions. It will therefore treat Article 1 of Protocol No. 1 as
applicable for the purposes of examining whether there was an interference
with their legal claims and, if so, whether that interference was justified in
the circumstances.
2. Whether there was an interference
71. The applicant societies asserted that the concrete effect of section 53
of the 1991 Act was to stifle the restitution proceedings instituted by the
Leeds and the National & Provincial (see paragraph 35 above). The
subsequent enactment of section 64 of the 1992 Act (see paragraphs 42 and
43 above) effectively removed any prospect of securing redress in the
domestic courts against the “unlawful expropriation” of their assets. There
was accordingly an interference with their possessions.
72. The Government did not deny that the retrospective effects of the
impugned measures brought an end to the applicant societies’ claims to
recover the amounts which they had paid to the Inland Revenue.
73. The Commission concluded that the retrospective measures had the
effect of interfering with the applicant societies’ possessions on the
hypothesis that the various claims did amount to such.
74. The Court notes that it is common ground that the retroactive
measures operated in a way which constituted an interference with the
enjoyment of the applicant societies’ possessions. On the working
assumption that the legal claims in issue amounted to possessions within the
meaning of Article 1 of Protocol No. 1 (see paragraph 70 above), the Court
sees no reason to reach a contrary conclusion. It will therefore assess
whether or not that interference was justified.
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 25
3. Whether the interference was justified
75. The applicant societies reiterated that they were fairly and
reasonably entitled to consider themselves in exactly the same position as
the Woolwich with vested rights to recover the monies which had been
expropriated from them under the 1986 Regulations (see paragraph 62
above). However, the Government intentionally procured the enactment of
retrospective primary legislation in order to stifle the opportunity to assert
those rights in a way which was repugnant to principles of legal certainty
and legitimate expectation. The retrospective measures constituted a
disproportionate and discriminatory interference with their rights which left
them without any compensation. The measures were solely motivated by the
intent of the authorities to retain the applicant societies’ assets and could not
be considered justified as being necessary to secure the payment of taxes
within the meaning of the second paragraph of Article 1 of Protocol No. 1.
The monies expropriated were not tax since all liability to pay tax on the
interest earned by their investors in the gap period had been discharged (see
paragraphs 51 and 52 above). In any event that provision only concerned
procedural measures taken to enforce tax legislation and could not be
invoked to justify substantive tax legislation such as the Finance Acts in
issue in the instant case.
76. The Government argued that the ultimate aim of the impugned
measures was, in line with the original intention of Parliament, to secure the
payment of tax on the interest paid by building societies during the gap
period and, in the case of section 64 of the 1992 Act, also to secure
GBP 15 billion of revenue which had been collected from 1986 onwards
from building societies, banks and other deposit institutions (see
paragraph 42 above).
Having regard to a Contracting State’s margin of appreciation in the tax
field and to the public-interest considerations at stake, it could not be said
that the decisions taken by Parliament to enact these measures with
retrospective effect were manifestly without reasonable foundation or failed
to strike a fair balance between the demands of the general interest of the
community and the protection of the rights of the applicant societies. The
latter were in fact seeking by means of opportunistic legal proceedings to
exploit technical defects in the 1986 Regulations and to frustrate the original
intention of Parliament. They clearly understood what that intention was
and they could not have had any legitimate expectations following the
Woolwich 1 litigation that Parliament would be content to leave the law as
it then stood and allow them to retain a windfall.
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 26
77. The Commission found that the interference with the applicant
societies’ legal claims was justified and that there was no violation of
Article 1 of Protocol No. 1. Parliament intended by section 47 of the 1986
Act to authorise the Inland Revenue to charge to tax the interest paid to
investors in the gap period. The aim of section 53 of the 1991 Act (see
paragraph 33 above) and section 64 of the 1992 Act (see paragraph 42
above) was to prevent building societies from frustrating that intention by
exploiting technical defects in the drafting of the Regulations and benefiting
from a windfall. In adopting retrospective measures to reaffirm that
intention and to secure the payment of tax, the legislature did not upset the
fair balance between the demands of the general interest of the community
and the protection of the fundamental rights of the applicant societies.
(a) The applicable rule
78. The Court recalls that Article 1 of Protocol No. 1 guarantees in
substance the right to property. It comprises three distinct rules. The first,
which is expressed in the first sentence of the first paragraph and is of a
general nature, lays down the principle of the peaceful enjoyment of
possessions. The second, in the second sentence of the same paragraph,
covers deprivation of possessions and makes it subject to certain conditions.
The third, contained in the second paragraph, recognises that the
Contracting States are entitled to control the use of property in accordance
with the general interest or to secure the payment of taxes or other
contributions or penalties.
However, the three rules are not “distinct” in the sense of being
unconnected: the second and the third rules are concerned with particular
interferences with the right to peaceful enjoyment of property and should
therefore be construed in the light of the general principle enunciated in the
first rule (see, among many other authorities, the Gasus Dosier- und
Fördertechnik GmbH v. the Netherlands judgment of 23 February 1995,
Series A no. 306-B, pp. 46–47 § 55).
79. Having regard to the fact that the background to the alleged
deprivation of the applicant societies’ rights is constituted by the first
unsuccessful steps taken by Parliament to ensure that interest paid in the gap
period was charged to tax, it would appear to the Court to be the most
natural approach to examine their complaints from the angle of a control of
the use of property in the general interest “to secure the payment of tax”,
which falls within the rule in the second paragraph of Article 1. In so
proceeding, it recalls that it has already found that the transitional
arrangements contained in the 1986 Regulations did not, contrary to the
assertions of the applicant societies, impose double taxation on the interest
paid to their investors in the gap period or amount to a wrongful
expropriation of their assets (see paragraph 61 above).
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 27
On that factual understanding, the efforts to secure a firm legal basis
firstly, and unsuccessfully, in section 47 of the Finance Act 1986 (see
paragraphs 22 and 30 above), and secondly in section 53 of the 1991 Act
(see paragraphs 33–35 above) to give effect to Parliament’s legitimate aim
when adopting the defective Regulations (see paragraphs 15–18 above)
could be considered equally to be measures to secure the payment of tax. It
is to be recalled in this regard that irrespective of the move to the actualyear
system the interest in issue would always have been liable to be
brought into account for tax purposes (see paragraphs 58 and 59 above).
(b) Compliance with the conditions laid down in the second paragraph
80. According to the Court’s well-established case-law (see, among
many other authorities, the Gasus Dosier- und Fördertechnik GmbH
judgment cited above, p. 49, § 62), an interference, including one resulting
from a measure to secure the payment of taxes, must strike a “fair balance”
between the demands of the general interest of the community and the
requirements of the protection of the individual’s fundamental rights. The
concern to achieve this balance is reflected in the structure of Article 1 as a
whole, including the second paragraph: there must therefore be a reasonable
relationship of proportionality between the means employed and the aims
pursued.
Furthermore, in determining whether this requirement has been met, it is
recognised that a Contracting State, not least when framing and
implementing policies in the area of taxation, enjoys a wide margin of
appreciation and the Court will respect the legislature’s assessment in such
matters unless it is devoid of reasonable foundation (see the Gasus Dosierund
Fördertechnik GmbH judgment cited above, pp. 48–49, § 60).
81. Against that background, the Court notes that in enacting section 53
of the 1991 Act with retroactive effect Parliament was concerned to restore
and reassert its original intention which had been stymied by the finding of
the House of Lords in the Woolwich 1 litigation that the 1986 Regulations
were ultra vires on technical grounds (see paragraphs 29 and 30 above). The
decision to remedy the technical deficiencies of the Regulations with
retroactive effect was taken before 7 March 1991, namely before the date
when the Leeds and the National & Provincial issued their writs (see
paragraphs 30 and 33 above) and without regard to the imminent launch of
the first set of restitution proceedings. Although section 53 had the effect of
extinguishing the restitution claims of those two applicant societies, it does
not appear to the Court that the ultimate aim of the measure was without
reasonable foundation having regard to the public-interest considerations
which underpinned the proposal to legislate with retroactive effect and
Parliament’s endorsement of that proposal.
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 28
There is in fact an obvious and compelling public interest to ensure that
private entities do not enjoy the benefit of a windfall in a changeover to a
new tax-payment regime and do not deny the Exchequer revenue simply on
account of inadvertent defects in the enabling tax legislation, the more so
when such entities have followed the debates on the original proposal in
Parliament and, while disagreeing with that proposal, have clearly
understood that it was Parliament’s firm intention to incorporate it in
legislation.
Nor can the applicant societies maintain that the effect of the measure
imposed an excessive and individual burden on them given that the interest
they had paid to investors in the gap period would have been brought into
account for tax purposes had the voluntary arrangements continued in force
(see paragraph 58 above). They cannot assert that they had suffered
prejudice other than in the sense that they were treated differently from the
Woolwich. However, the substance of the latter allegation falls to be
considered under their complaint under Article 14 of the Convention taken
in conjunction with Article 1 of Protocol No. 1 (see paragraph 84 below).
82. Furthermore, it is to be noted that the history of the enactment of
section 64 of the 1992 Act must also be seen in terms of the same struggle
between the legislature’s efforts to safeguard the tax paid by the applicant
societies and the latter’s attempts to frustrate by all legal means possible
those efforts and recover that tax. The challenge to the validity of the
Treasury Orders was in reality an initiative on the part of all three applicant
societies to recover indirectly what two of them had been denied under the
effect of section 53 of the 1991 Act (see paragraph 35 above).
If the enactment of the latter provision can be considered to be justified
on public-interest grounds (see paragraph 81 above), it must also be the case
that the same public-interest justification can be lawfully asserted by the
respondent State to thwart the challenge to the Treasury Orders. Indeed, on
that occasion much more was at stake than the assertion of Parliament’s
right to secure tax on the interest paid by building societies over the course
of the gap period since the vulnerability of the Treasury Orders to legal
challenge placed at risk very substantial amounts of revenue collected from
1986 onwards from institutions other than building societies. The publicinterest
considerations in removing any uncertainty as to the lawfulness of
the revenue collected must be seen as compelling and such as to outweigh
the interests defended by the applicant societies in contesting the legality of
the rate set by the Treasury Orders in order to try once again to circumvent
Parliament’s original intention.
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 29
83. The Court considers therefore that the actions taken by the
respondent State did not upset the balance which must be struck between the
protection of the applicant societies’ rights to restitution and the public
interest in securing the payment of taxes.
There has accordingly been no violation of Article 1 of Protocol No. 1.
II. ALLEGED VIOLATION OF ARTICLE 1 OF PROTOCOL No. 1
TAKEN IN CONJUNCTION WITH ARTICLE 14 OF THE
CONVENTION
84. The applicant societies maintained that the impugned measures gave
rise to a breach of Article 1 of Protocol No. 1 taken in conjunction with
Article 14 of the Convention, having regard to their discriminatory effect.
Article 14 of the Convention is worded as follows:
“The enjoyment of the rights and freedoms set forth in [the] Convention shall be
secured without discrimination on any ground such as sex, race, colour, language,
religion, political or other opinion, national or social origin, association with a national
minority, property, birth or other status.”
85. The applicant societies contended that they were in a materially
identical situation to that of the Woolwich as regards the application of the
1986 Regulations. Like the Woolwich they enjoyed the same rights to
restitution of the monies which they had paid to the Inland Revenue
pursuant to an unlawful demand. The Leeds in particular had closely
associated itself with the Woolwich’s decision to seek judicial review of the
1986 Regulations and all the applicant societies had at various stages made
formal demands for repayment. They were not required to join the
Woolwich’s judicial review proceedings given that the outcome of the
action would have been declaratory of the law applicable to all taxpayers.
They were thus entitled to await the result of that litigation. On the strength
of the House of Lords ruling in the Woolwich 1 case the Leeds and the
National & Provincial issued writs to institute their own restitution
proceedings against the authorities.
86. Furthermore, section 64 of the 1992 Act could not be said to be nondiscriminatory
as between the Woolwich and the applicant societies merely
because it was of general application. This provision in fact favoured the
Woolwich since the Woolwich had recovered all the monies owing to it.
87. The Commission, with whom the Government agreed, concluded
that there had been no breach under this head. In contrast with the
Woolwich, none of the applicants had instituted proceedings to challenge
the validity of the 1986 Regulations. The Woolwich alone had borne the
costs and incurred the risks of litigation. The applicant societies could not
therefore be considered to have been in a relevantly similar situation to that
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 30
of the Woolwich. In any event there was a reasonable and objective
justification for the difference in treatment, having regard to the publicinterest
considerations motivating the enactment of section 53 of the 1991
Act and the appropriateness of excluding the Woolwich from the retroactive
effects of that measure given that that building society had secured a final
court judgment in its favour.
As to section 64 of the 1992 Act, the Commission found that this
provision applied across the board and could not be considered to be
discriminatory in its effect. The Government supported this conclusion.
88. The Court reiterates that Article 14 of the Convention affords
protection against discrimination in the enjoyment of the rights and
freedoms safeguarded by the other substantive provisions of the
Convention. However, not every difference in treatment will amount to a
violation of this Article. Instead, it must be established that other persons in
an analogous or relevantly similar situation enjoy preferential treatment, and
that there is no reasonable or objective justification for this distinction.
Furthermore, Contracting States enjoy a margin of appreciation in assessing
whether and to what extent differences in otherwise similar situations justify
a different treatment in law (for a recent authority, see the Stubbings and
Others v. the United Kingdom judgment of 22 October 1996, Reports of
Judgments and Decisions 1996-IV, p. 1507, § 72).
89. It is clear that the applicant societies were in an analogous if not
identical situation with respect to the impact of the transitional mechanism
in the 1986 Regulations on the monies held in their reserves. However, the
Woolwich alone took an independent and bold stance by mounting a legal
challenge to the validity of the Regulations (see paragraph 21 above). That
building society was undeterred by the attempt of Parliament to stifle the
litigation by enacting section 47 of the Finance Act 1986 (see paragraph 22
above).
Admittedly, the Woolwich’s action was backed by the applicant societies
and the Leeds in particular may be considered to have conspicuously
manifested its solidarity with the Woolwich (see paragraph 20 above).
However, the Court shares the view of the Commission that the Woolwich
alone showed its readiness to bear the costs and risks of the litigation, taking
complex and expensive proceedings against the Inland Revenue on two
occasions as far as the House of Lords. By the time section 53 of the
1991 Act was enacted, the Leeds and the National & Provincial had not
proceeded beyond the stage of issuing writs, whereas the Woolwich had
secured a victory in the House of Lords (see paragraphs 29 and 30 above)
and there were reasonable prospects that the House of Lords would uphold
the decision of the Court of Appeal in its restitution proceedings allowing it
interest on the sums paid (see paragraphs 36 and 37 above). It is also to be
noted that the authorities had already repaid to the Woolwich the tax which
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BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 31
had been collected from it with interest from 31 July 1987 (see paragraph 26
above). In these circumstances, the Court does not accept that the applicant
societies were in fact in a relevantly similar situation to that of the
Woolwich.
90. The Court also considers that, even if it were possible to regard the
applicant societies as having been in a relevantly similar situation to the
Woolwich in view of their arguments on the erga omnes effect of the
remedy sought by the Woolwich (see paragraph 85 above), there was
nevertheless a reasonable and objective justification for the distinction made
in section 53 of the 1991 Act (see paragraph 34 above). It was the aim of
Parliament in enacting that provision to restore its original intention to
secure the liability to tax of the interest paid to investors in the gap period
and to make the Regulations immune from any further exploitation on
technical grounds. The decision to do so retrospectively has been found by
the Court to be justified in the public interest (see paragraph 81 above). To
exclude the Woolwich from the retroactive effect of section 53 could be
considered on reasonable and objective grounds to be justified given that by
the time of enactment of that section the Woolwich had secured a final
judgment in its favour from the House of Lords and it was understandable
that Parliament did not wish to interfere with a judicial decision which
brought to an end litigation which had lasted over three years.
91. As to the effect of section 64 of the 1992 Act (see paragraphs 33–35
above), the Court notes that the measure applied generally to building
societies, banks and other deposit institutions. Admittedly the Woolwich
was not concerned about the validity of the Treasury Orders since it had no
interest in challenging them. However, it cannot be maintained that
section 64 perpetuated any difference in treatment between the Woolwich
and the applicant societies which resulted from section 53 of the 1991 Act
given the Court’s earlier conclusions on that complaint (see paragraphs 89
and 90 above).
92. Having regard to the above considerations, the Court concludes
therefore that there has been no breach of Article 1 of Protocol No. 1 taken
in conjunction with Article 14 of the Convention.
III. ALLEGED VIOLATION OF ARTICLE 6 § 1 OF THE
CONVENTION
93. The applicant societies further maintained that the measures taken by
the respondent State deprived them of their right of access to a court for a
determination of their civil rights to restitution of monies to which they
were lawfully entitled. They alleged that there had been a breach of
Article 6 § 1 of the Convention, which provides to the extent relevant:
Annex 188
BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 32
“In the determination of his civil rights and obligations ..., everyone is entitled to a
fair and public hearing within a reasonable time by an independent and impartial
tribunal established by law …”
A. Applicability of Article 6 § 1
94. The applicant societies maintained that the subject matter of the
three sets of legal proceedings which they had initiated (see paragraphs 31,
32 and 38–41 above) was pecuniary in nature and the outcome of the
litigation in each instance was decisive for their private-law rights to
restitution of the monies of which they had been unlawfully deprived by the
respondent State. Should any doubts exist about the classification of the
judicial review proceedings which each society set in motion between
10 July 1991 and 3 March 1992 (see paragraphs 38–40 above), the Court
should find, like the Commission, that these proceedings were in fact an
alternative route to the recovery of their monies. As such, the proceedings
could not therefore be considered to be purely of a public-law nature.
95. The Government disputed the applicability of Article 6 § 1 of the
Convention to the various proceedings instituted by the applicant societies.
While the first set of restitution proceedings instituted by the Leeds and the
National & Provincial (see paragraphs 31 and 32 above) may ostensibly
have borne the hallmark of private-law proceedings, they nonetheless
concerned a determination of rights and obligations which derived from tax
legislation and which were therefore fiscal in nature. The judicial review
proceedings instituted by the applicant societies (see paragraphs 38–40
above) were directed at obtaining a discretionary public-law remedy and
were not concerned with securing restitution of the monies which they had
paid pursuant to the 1986 Regulations. Furthermore, the second set of
restitution proceedings brought by the applicant societies (see paragraph 41
above) depended on the outcome of the judicial review proceedings and for
this reason could not be considered to be of a private-law nature.
For the above reasons, the Government maintained that the applicant
societies could not rely on Article 6 § 1.
96. The Commission concluded that Article 6 § 1 was applicable. The
two sets of restitution proceedings (see paragraphs 30, 31 and 41 above)
were pecuniary in nature. The judicial review proceedings (see
paragraphs 38–40 above) were closely linked to the second set of restitution
proceedings (see paragraph 41 above) and formed part of a sequence of
litigation which had its roots in the defective draftsmanship of section 40 of
the Finance Act 1985 and the transitional provisions of the 1986
Regulations.
Annex 188
BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 33
97. The Court considers that both sets of restitution proceedings (see
paragraphs 30, 31 and 41 above) were private-law actions and were decisive
for the determination of private-law rights to quantifiable sums of money.
This conclusion is not affected by the fact that the rights asserted in those
proceedings had their background in tax legislation and the obligation of the
applicant societies to account for tax under that legislation (see, mutatis
mutandis, the Editions Périscope v. France judgment of 26 March 1992,
Series A no. 234-B, p. 66, § 40).
98. As to the judicial review proceedings (see paragraphs 38–40 above),
it is to be noted that these were closely interrelated with the second set of
restitution proceedings and were part of a calculated strategy to reassert the
private-law claims which had been extinguished by section 53 of the
1991 Act. In these circumstances and irrespective of the public-law nature
of that litigation, the judicial review proceedings must also be considered to
have been decisive of private-law rights.
99. The Court concludes therefore that Article 6 § 1 of the Convention is
applicable.
B. Compliance with Article 6 § 1
100. The applicant societies contended that the Government of the
respondent State intentionally procured the enactment of retrospective
legislation to thwart their access to a court to assert their vested rights to
restitution of their assets. They argued that the legal victories secured by the
Woolwich (see paragraphs 29 and 44 above) left the authorities with no
defence to their claims. Indeed, the authorities had in fact conceded this by
paying the costs incurred by the Leeds and the National & Provincial in
bringing the first set of restitution proceedings (see paragraph 35 above). It
was equally significant that the Government minister at the time of the
passage through Parliament of the bill which eventually became the 1992
Act declared that section 64 thereof was designed to interfere with ongoing
legal proceedings, namely the legal challenge to the validity of the Treasury
Orders (see paragraph 42 above).
101. While accepting that limitations on the right of access to a court
guaranteed by Article 6 § 1 may in certain well-defined circumstances be
justified having regard to a Contracting State’s margin of appreciation, the
applicant societies stressed that any such margin cannot for the purposes of
that provision be as broad as the one which may be invoked by a
Contracting State under Article 1 of Protocol No. 1. With reference to the
Court’s own case-law governing the scope of limitations to the right of
access to a court, they insisted that the retrospective measures did not
pursue a legitimate aim given that the Government’s overriding concern was
to legalise the unlawful expropriation of their assets. The resulting
Annex 188
BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 34
interference was also disproportionate. More importantly, the very essence
of their right of access to a court had been impaired since the concrete result
of section 53 of the 1991 Act and section 64 of the 1992 Act was to remove
with retrospective effect the causes of action and render fruitless any
attempt to secure redress before the courts.
102. The Government reasoned that the “possessions” of which the
applicant societies claimed they had been deprived in breach of Article 1 of
Protocol No. 1 were in reality their claims to restitution of the monies which
they had been required to pay to the Inland Revenue. It must follow
therefore that the lawful deprivation of the substance of their claims
justified the removal of the procedural protection of those claims. For this
reason, a finding by the Court that there had been no violation of Article 1
of Protocol No. 1 compelled a similar finding in respect of the applicant
societies’ complaints under Article 6.
103. The Government further maintained that there was no absolute
rule which prohibited the intervention of the legislature in pending legal
proceedings to which the State was a party. Whether or not retrospective
legislation having this effect was lawful or not from the angle of Article 6
needed to be assessed in the light of factors such as the background to the
litigation, the stage reached in the legal proceedings and the reasons which
motivated legislative intervention.
Referring therefore to the arguments which they advanced both to
dispute that the applicant societies’ legal claims amounted to possessions
and to justify the deprivation of the applicant societies’ legal claims under
Article 1 of Protocol No. 1 (see paragraphs 63 and 76 above), the
Government requested the Court to find that the same justifications operated
in defence of the alleged violation of Article 6.
104. The Commission concluded that there had been a violation of
Article 6 § 1. While there may have been legitimate reasons for the
introduction of section 53 of the 1991 Act and section 64 of the 1992 Act,
by retrospectively validating the 1986 Regulations and the Treasury Orders
which were the subject of pending litigation, the respondent State had
intervened through the legislature in a manner which was decisive to ensure
a favourable outcome of proceedings to which it itself was party. The effect
of the measures was thus to deprive the applicant societies of their right to a
determination of their civil rights and obligations following a fair hearing
before a court.
105. The Court recalls that Article 6 § 1 of the Convention embodies the
“right to a court”, of which the right of access, that is, the right to institute
proceedings before a court in civil matters, constitutes one aspect.
However, this right is not absolute, but may be subject to limitations;
these are permitted by implication since the right of access by its very
nature calls for regulation by the State. In this respect, the Contracting
States enjoy a certain margin of appreciation, although the final decision as
Annex 188
BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 35
to the observance of the Convention’s requirements rests with the Court. It
must be satisfied that the limitations applied do not restrict or reduce the
access left to the individual in such a way or to such an extent that the very
essence of the right is impaired. Furthermore, a limitation will not be
compatible with Article 6 § 1 if it does not pursue a legitimate aim and if
there is not a reasonable relationship of proportionality between the means
employed and the aim sought to be achieved (see the Stubbings and Others
judgment cited above, p. 1502, § 50).
106. It is to be noted at the outset that the effect of section 53 of the
1991 Act was to deprive the Leeds and the National & Provincial of their
chances of winning their restitution proceedings against the Inland Revenue
(see paragraph 35 above). Section 64 of the 1992 Act effectively removed
any hope which all three applicant societies may have had of restoring their
chances of securing a favourable outcome against the Inland Revenue and
recovering the tax they had paid. At no stage did the legislature intervene
directly to bar the applicant societies’ access to a court to seek a
determination of the rights which they wished to assert. Admittedly, the end
result of sections 53 and 64 was to condemn to failure any attempt by the
applicant societies to proceed with their claims since Parliament, by means
of primary legislation, had rendered both the 1986 Regulations and the
Treasury Orders immune from judicial scrutiny. The applicant societies
accordingly took the decision to discontinue the various proceedings which
they had launched in the knowledge that they had no prospects of success.
107. Having regard to the above considerations, the Court must examine
whether the action taken by the legislature on both occasions to deprive the
applicant societies of their chances of winning litigation against the
respondent State constituted an interference with their right of access to a
court. In so doing, it will have regard to all the circumstances of the case
and will subject to close scrutiny the reasons adduced by the respondent
State for justifying any intervention which may have occurred in pending
litigation as a result of the retrospective effects of section 53 of the 1991 Act
and section 64 of the 1992 Act.
108. It is to be noted firstly that the applicant societies disputed from the
very beginning their liability to pay tax on the interest they had paid to their
investors in the gap period. The concerns of building societies were made
known to Parliament during the passage of section 40 of the Finance
Act 1985 (see paragraphs 15 and 16 above) and section 47 of the Finance
Act 1986 (see paragraph 22 above). However, by enacting those measures
Parliament clearly affirmed its intention to bring the interest paid in the gap
period into account for tax purposes in the manner indicated in the 1986
Regulations.
Annex 188
BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 36
109. The applicant societies subsequently became involved in a struggle
with the Treasury through the courts in order to circumvent that intention,
relying firstly on technical defects in the 1986 Regulations and secondly on
alleged defects in the Treasury Orders. They followed closely the outcome
of the Woolwich 1 litigation, and when the latter building society succeeded
in having the 1986 Regulations invalidated on technical grounds the Leeds
and the National & Provincial launched their own proceedings in the form
of restitution actions (see paragraphs 31 and 32 above) in order to take
advantage of the loophole exposed by the House of Lords in the
Woolwich 1 case (see paragraphs 29 and 30 above). However, having
regard to the clear aim of Parliament in adopting the impugned measures
(see paragraph 108 above), these two applicant societies must reasonably be
considered to have anticipated at the close of the Woolwich 1 litigation that
the Treasury would seek Parliament’s approval to cure the technical defects
in the 1986 Regulations and would not be content on public-interest grounds
to allow a substantial amount of already collected revenue to be lost on
account of a technicality.
It is to be noted in this respect that the Director-General of the Building
Societies Associations was not surprised by the Treasury’s announcement
that retrospective legislation would be introduced in the form of section 53
of the 1991 Act (see paragraph 35 above). It is also to be noted that the
Leeds and the National & Provincial instituted their restitution proceedings
after the authorities had formally decided to seek Parliament’s approval for
the retrospective validation of the 1986 Regulations and in the days
immediately before the official announcement of that decision (see
paragraphs 30–33 above). In these circumstances, those proceedings must
be considered to have been an attempt to benefit from the vulnerability of
the authorities’ situation following the outcome of the Woolwich 1 litigation
and to pre-empt the enactment of remedial legislation.
110. Furthermore, the decision of the authorities to legislate with
retrospective effect to remedy the defect in the 1986 Regulations was taken
without regard to pending legal proceedings and with the ultimate aim of
restoring Parliament’s original intention with respect to all building
societies whose accounting periods ended in advance of the start of the
fiscal year. That the extinction of the restitution proceedings was a
significant consequence of the implementation of that aim cannot be denied.
Nevertheless, it cannot be maintained that the Leeds and the National &
Provincial were the particular targets of the authorities’ decision.
111. While it is true that it was openly acknowledged by the authorities
that the enactment of section 64 of the 1992 Act was intended to bring an
end to the judicial review proceedings brought by all three applicant
societies (see paragraph 42 above), those proceedings were in reality a next
stage in the struggle with the Treasury and a deliberate strategy to frustrate
the original intention of Parliament. This is borne out by the aim of the
Annex 188
BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 37
applicant societies in bringing the contingent restitution proceedings to
recover no more than they had paid to the Inland Revenue under the
1986 Regulations (see paragraph 41 above). Given the reaction of the
authorities to the outcome of the Woolwich 1 litigation, the applicant
societies could not safely rely on the Treasury remaining inactive in the face
of a further challenge to Parliament’s original intention, the more so since
that challenge was directed at the validity of the Treasury Orders which
formed the legal basis for the very substantial amounts of revenue collected
from 1986 onwards, not just from building societies but also from banks and
other deposit institutions (see paragraph 42 above).
112. As noted above (see paragraph 107) the Court is especially mindful
of the dangers inherent in the use of retrospective legislation which has the
effect of influencing the judicial determination of a dispute to which the
State is a party, including where the effect is to make pending litigation
unwinnable. Respect for the rule of law and the notion of a fair trial require
that any reasons adduced to justify such measures be treated with the
greatest possible degree of circumspection (see the Stran Greek Refineries
and Stratis Andreadis judgment cited above, p. 82, § 49).
However, Article 6 § 1 cannot be interpreted as preventing any
interference by the authorities with pending legal proceedings to which they
are a party. It is to be noted that in the present case the interference caused
by section 64 of the 1992 Act was of a much less drastic nature than the
interference which led the Court to find a breach of Article 6 § 1 in the Stran
Greek Refineries and Stratis Andreadis case (cited above). In that case the
applicants and the respondent State had been engaged in litigation for a
period of nine years and the applicants had an enforceable judgment against
that State in their favour. The judicial review proceedings launched by the
applicant societies had not even reached the stage of an inter partes hearing.
Furthermore, in adopting section 64 of the 1992 Act with retrospective
effect the authorities in the instant case had even more compelling publicinterest
motives to make the applicant societies’ judicial review proceedings
and the contingent restitution proceedings unwinnable than was the case
with the enactment of section 53 of the 1991 Act. The challenge to the
Treasury Orders created uncertainty over the substantial amounts of revenue
collected from 1986 onwards (see paragraph 42 above).
It must also be observed that the applicant societies in their efforts to
frustrate the intention of Parliament were at all times aware of the
probability that Parliament would equally attempt to frustrate those efforts
having regard to the decisive stance taken when enacting section 47 of the
Finance Act 1986 and section 53 of the 1991 Act. They had
Annex 188
BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 38
engaged the will of the authorities in the tax sector, an area where recourse
to retrospective legislation is not confined to the United Kingdom, and must
have appreciated that the public-interest considerations in placing the
1986 Regulations on a secure legal footing would not be abandoned easily.
113. For the above reasons, the Court concludes that the applicant
societies cannot in the circumstances justifiably complain that they were
denied the right of access to a court for a judicial determination of their
rights. There has accordingly been no breach of Article 6 § 1 of the
Convention.
IV. ALLEGED VIOLATION OF ARTICLE 6 § 1 OF THE
CONVENTION TAKEN IN CONJUNCTION WITH ARTICLE 14
114. The applicant societies complained in addition that the impugned
measures violated Article 6 § 1 of the Convention taken in conjunction with
Article 14.
115. They reiterated that they were in a virtually identical situation to
that of the Woolwich. Like the latter building society they possessed
common-law rights to restitution of monies expropriated by the respondent
State. The Woolwich had been allowed to recover in full following
independent judicial determinations of its claims. Unlike the applicant
societies, the Woolwich was excluded from the retrospective effects of
section 53 of the 1991 Act. The Government minister responsible for the
passage through Parliament of the 1992 Act had expressly acknowledged
that there had been a disparity of treatment between the Woolwich and other
building societies (see paragraph 42 above). That disparity was maintained
in section 64 of the 1992 Act on account of the fact that the Woolwich had
recovered everything owing to it and was not therefore concerned about the
validity of the Treasury Orders.
116. The Government contended that the applicant societies were not in
a relevantly similar position to the Woolwich and, further, that there existed
a reasonable and objective justification for the difference in treatment. They
relied on the reasoning used by the Commission to reach its finding that
there had been no breach of Article 1 of Protocol No. 1 taken in conjunction
with Article 14 of the Convention (see paragraph 87 above).
117. The Commission did not find it necessary to examine the applicant
societies’ complaints under this head, having regard to its conclusion under
Article 6 § 1 of the Convention (see paragraph 104 above).
118. The Court observes that the complaints raised by the applicant
societies under this head reflect the substance of their earlier complaints
under Article 1 of Protocol No. 1 taken in conjunction with Article 14 (see
paragraphs 84–86 above). It concluded in connection with those complaints
that the Woolwich and the applicant societies were not in a relevantly
similar situation and that in any event there was a reasonable and objective
Annex 188
BUILDING SOCIETIES JUDGMENT OF 23 OCTOBER 1997 39
justification for excluding the Woolwich from the retrospective effects of
section 53 of the 1991 Act. Furthermore, it could not be validly contended
that section 64 of the 1992 Act was discriminatory in its effect (see
paragraphs 89–92 above).
119. The Court considers that the reasons which it has adduced in
respect of the above finding equally support the conclusion that there has
been no violation of Article 6 § 1 taken in conjunction with Article 14 of the
Convention.
The Court finds therefore that the applicant societies were not victims of
a violation under this head.
FOR THESE REASONS, THE COURT
1. Holds unanimously that there has been no violation of Article 1 of
Protocol No. 1;
2. Holds by eight votes to one that there has been no violation of Article 1
of Protocol No. 1 taken in conjunction with Article 14 of the
Convention;
3. Holds unanimously that there has been no violation of Article 6 § 1 of
the Convention;
4. Holds by eight votes to one that there has been no violation of Article 6
§ 1 of the Convention taken in conjunction with Article 14 of the
Convention.
Done in English and in French, and delivered at a public hearing in the
Human Rights Building, Strasbourg, on 23 October 1997.
Signed: ROLV RYSSDAL
President
Signed: HERBERT PETZOLD
Registrar
In accordance with Article 51 § 2 of the Convention and Rule 53 § 2 of
Rules of Court A, the partly concurring, partly dissenting opinion of
Mr Jambrek is annexed to this judgment.
Initialled: R. R.
Initialled: H. P.
Annex 188
BUILDING SOCIETIES JUDGMENT 40
PARTLY CONCURRING, PARTLY DISSENTING OPINION
OF JUDGE JAMBREK
1. I voted for non-violation of Article 1 of Protocol No. 1 and for nonviolation
of Article 6 § 1 of the Convention. I disagree, however, with the
majority as to whether there has been a violation of both provisions taken in
conjunction with Article 14 of the Convention.
2. In respect of Article 1 of Protocol No. 1 taken in conjunction with
Article 14, the applicants were in my opinion in a relevantly similar
situation to that of the Woolwich. In this respect I do not find it decisive that
they did not formally protest by instituting proceedings to challenge the
validity of the Regulations. In my view the effect of the Woolwich 1
litigation was to declare the impugned Regulations invalid erga omnes.
Other building societies were justified in believing that the ruling of the
House of Lords would also apply to them. It is quite common to use a class
action when many potential litigants are involved. The Woolwich may be
considered to have taken a test case on behalf of other building societies.
The other building societies identified themselves with the Woolwich and
awaited the outcome of the litigation. This sort of procedure is therefore in
line with the proper administration of justice. It is legitimate for one litigant
to pave the way for others. The applicants made it clear, especially the
Leeds, that they contested any obligation to pay the amounts required by the
Regulations.
3. I therefore consider that there was no sufficient objective and
reasonable justification for distinguishing between the Woolwich and the
applicants in section 53 of the Finance Act 1991.
4. In respect of Article 6 of the Convention taken in conjunction with
Article 14, I have serious reservations as to whether it is permissible for the
State to intervene by legislating in order to determine the outcome of
pending litigation which may thwart their policy objectives. The legislative
power to intervene in such a manner to prevent the individual from
obtaining justice should only be justified in exceptional cases. Like the
Woolwich, the applicants would have won their cases if the law had not
been amended. The applicant societies had good reasons to take proceedings
in view of the outcome of the Woolwich litigation.
5. I consider therefore that the principle of the rule of law and the notion
of a fair trial enshrined in Article 6 precluded in this case the interference by
the legislator with the administration of justice in a way designed to
influence the judicial determination of the dispute, given that this
interference also gave rise to inequality of treatment of parties in a
Annex 188
BUILDING SOCIETIES JUDGMENT – PARTLY CONCURRING, PARTLY
DISSENTING OPINION OF JUDGE JAMBREK 41
relevantly similar situation, in breach of Article 14 of the Convention. The
Woolwich was able to litigate (twice) the whole way to the House of Lords
and to recover all the monies it had paid to the Inland Revenue. Even the
Government minister during the parliamentary debates on section 64 of the
Finance (No. 2) Act 1992 acknowledged that there had been undoubted
disparity of treatment between the Woolwich and the other building
societies.
6. In conclusion, I find that there was insufficient objective and
reasonable justification for the discrimination suffered by the applicants in
the enjoyment of their rights set forth in Article 6 of the Convention, given
that the legal proceedings for restitution initiated by the applicants
following the Woolwich 1 and 2 decisions were effectively stifled by the
legislative action.
Annex 188
ANNEX 189
INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES
In the arbitration proceeding between
BRIDGESTONE LICENSING SERVICES, INC. AND BRIDGESTONE AMERICAS, INC.
Claimants
and
REPUBLIC OF PANAMA
Respondent
ICSID Case No. ARB/16/34
DECISION ON EXPEDITED OBJECTIONS
Members of the Tribunal
Lord Nicholas Phillips Baron of Worth Matravers, President of the Tribunal
Mr. Horacio A. Grigera Naón, Arbitrator
Mr. J. Christopher Thomas, QC, Arbitrator
Secretary of the Tribunal
Ms. Luisa Fernanda Torres
Date of dispatch to the Parties: 13 December 2017
Annex 189
i
REPRESENTATION OF THE PARTIES
Representing the Claimants Representing the Respondent
Mr. Justin Williams
Akin Gump Strauss Hauer & Feld LLP
Ten Bishops Square
London, E1 6EG
United Kingdom
and
Ms. Kimberly M. Myers
Ms. Katie Hyman
Mr. Johann Strauss
Akin Gump Strauss Hauer & Feld LLP
1333 New Hampshire Avenue, NW
Washington, DC 20036
United States of America
Mr. Aristides Valdonedo
Ms. Geniva Escobar
Ministry of Economy and Finances
Vía España y Calle 52E
Edificio OGAWA
Panama 3
Republic of Panama
and
Mr. Whitney Debevoise
Ms. Gaela Gehring Flores
Ms. Mallory Silberman
Ms. Amy Endicott
Ms. Katelyn Horne
Arnold & Porter Kaye Scholer LLP
601 Massachusetts Avenue, NW
Washington, DC 20001-3743
Annex 189
ii
TABLE OF CONTENTS
I. INTRODUCTION AND PARTIES ...................................................................................... 1
II. PROCEDURAL HISTORY................................................................................................... 2
A. Registration and Constitution of the Tribunal................................................................ 2
B. The First Session, the Parties’ Written Submissions and Procedural Applications ....... 3
C. The Oral Procedure ........................................................................................................ 6
D. The Post-Hearing Procedure .......................................................................................... 8
III. FACTS ................................................................................................................................... 9
A. The Background Facts.................................................................................................... 9
B. The Substantive Claims................................................................................................ 13
IV. SUMMARY OF THE PARTIES’ REQUESTS FOR RELIEF IN THE EXPEDITED
PHASE.......................................................................................................................................... 15
V. BURDEN OF PROOF AND THE EVIDENTIARY STANDARD.................................... 15
A. The Parties’ Positions................................................................................................... 15
(1) The Claimants’ Position........................................................................................ 15
(2) The Respondent’s Position ................................................................................... 21
B. The U.S. Submissions .................................................................................................. 25
C. The Tribunal’s Analysis ............................................................................................... 26
VI. OBJECTIONS RELATING TO BSAM.............................................................................. 36
A. First Objection: BSAM Does Not Have a Qualifying Investment............................... 36
(1) The Parties’ Positions ........................................................................................... 36
a. The Respondent’s Position............................................................................ 36
b. The Claimants’ Position ................................................................................ 41
(2) The U.S. Submissions........................................................................................... 50
(3) The Tribunal’s Analysis........................................................................................ 51
a. Introduction ................................................................................................... 51
b. In What Circumstances Does a Trademark Qualify as an Investment? ........ 54
c. In What Circumstances, if Any, Are the FIRESTONE Trademark License
and the BRIDGESTONE Trademark License Capable of Qualifying as an
Investment? ......................................................................................................... 58
d. Was the FIRESTONE Trademark License an Investment in Panama Owned
or Controlled by BSAM? .................................................................................... 59
e. Was the BRIDGESTONE Trademark License an Investment in Panama
Owned or Controlled by BSAM?........................................................................ 68
Annex 189
iii
f. Summary ....................................................................................................... 71
B. Second Objection: BSAM Does Not Have a Dispute “Arising Directly Out” of An
Investment .................................................................................................................... 71
(1) The Parties’ Positions ........................................................................................... 71
a. The Respondent’s Position............................................................................ 71
b. The Claimants’ Position ................................................................................ 73
(2) The Tribunal’s Analysis........................................................................................ 76
VII. OBJECTIONS RELATING TO BSLS................................................................................ 79
A. Third Objection: BSLS Is Not Entitled to the Benefits of Chapter 10 of the TPA..... 79
(1) The Parties’ Positions ........................................................................................... 79
a. The Respondent’s Position............................................................................ 79
b. The Claimants’ Position ................................................................................ 86
(2) The U.S. Submissions........................................................................................... 94
(3) The Tribunal’s Analysis........................................................................................ 95
B. Fourth Objection: BSLS’s Claims Amount to an Abuse of Process......................... 100
(1) The Parties’ Positions ......................................................................................... 100
a. The Respondent’s Position.......................................................................... 100
b. The Claimants’ Position .............................................................................. 104
(2) The Tribunal’s Analysis...................................................................................... 107
VIII. OBJECTIONS RELATING TO BOTH BSAM AND BSLS............................................ 110
A. Fifth Objection: The Tribunal Cannot Entertain Claims Based on Hypothetical
Actions of Other States............................................................................................... 110
(1) The Parties’ Positions ......................................................................................... 110
a. The Respondent’s Position.......................................................................... 110
b. The Claimants’ Position .............................................................................. 113
(2) The Tribunal’s Analysis...................................................................................... 114
IX. COSTS ............................................................................................................................... 118
A. The Parties’ Positions................................................................................................. 118
B. The Tribunal’s Decision............................................................................................. 120
X. DECISION......................................................................................................................... 120
Annex 189
110
VIII. OBJECTIONS RELATING TO BOTH BSAM AND BSLS
A. Fifth Objection: The Tribunal Cannot Entertain Claims Based on Hypothetical
Actions of Other States
(1) The Parties’ Positions
a. The Respondent’s Position
332. The Respondent contends that there is no jurisdictional basis for the claim for over
US$10 million dollars (in excess of the US$ 5,431,000 million ordered by the Supreme
Court judgment) for “the ‘loss’ that supposedly ‘has been and will be incurred’” as a
result of the Supreme Court decision.475
333. In particular, Panama takes issue with the Claimants’ contentions that (i) the loss arises
out of the fact that the Supreme Court decision may be followed by other countries in
Latin America, or (ii) may lead to more trademark applications similar and confusingly
similar to the Bridgestone mark in Panama and other Latin American countries.476
Referring to Articles 10.17, 10.1 and 10.16 of the TPA, Panama argues that “[t]he only
claims that the Tribunal has jurisdiction to entertain are claims that Panama allegedly
has breached the TPA, though ‘measures’ that Panama ‘has adopted or maintained’”,
and therefore, the Tribunal “cannot entertain claims based on the hypothetical actions of
other States […].”477
334. According to the Respondent, this conclusion is supported by two principles of
international law, namely, “that each State is responsible for its own conduct and in
respect of its own international obligations” and that “a tribunal cannot adjudicate any
claim where ‘the vital issue to be settled concerns the international responsibility of a
third State.’”478 The Respondent points out that while Article 10.1.2 of the TPA states
that the TPA Party’s obligations apply to a state enterprise or other person that exercises
475 Resp. Exp. Obj., ¶¶ 44-45. See also, id., ¶ 51.
476 Resp. Exp. Obj., ¶ 45.
477 Resp. Exp. Obj., ¶ 48 (emphasis in original). See also, Resp. Reply Exp. Obj., ¶ 93.
478 Resp. Exp. Obj., ¶ 49 (emphasis in original). See also, Resp. Reply Exp. Obj., ¶ 93.
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111
governmental authority, it says nothing about extending that to the conduct of other
States.479
335. For Panama, the issue is not a matter of causation, but rather of consent.480 This is so,
Panama explains, because consent is limited to claims for breaches of Articles 10.1 to
Article 10.14 of the TPA, and those obligations only apply with respect to “measures
adopted or maintained by a [TPA] Party […].” “They do not apply in respect of
(hypothetical) measures that other States (might) thereafter adopt in reaction thereto.”481
336. The Respondent explains that this objection does not need to address all of the four
“inter-related” factors underlying the US$ 10 million claim, nor could it have given the
nature of the objection. As Claimants argue that it is the “combination” of the various
factors which led to the loss, a problem with two of those factors is enough to defeat the
claim.482
337. However, Panama adds, “if it ever came a time when the Tribunal needed to consider”
whether those other factors have any merit, it would find flaws: (i) they amount to the
assertion that BSAM’s non-payment of the judgement prevented it from reinvesting in
sale, marketing and distribution of products; (ii) “Claimants are requesting damages
based on the hypothetical future conduct of private actors”; and (iii) the Tribunal is being
asked to accept that “Bridgestone” trademark policy efforts did not cause injury to
competitors, but that trademark applications by competitors injure the Claimants.483 The
Respondent goes on to conclude that:
“[F]or present purposes, those other factors do not matter. The
issue here is that Claimants are asserting claims based on the
conduct of other States, but the TPA does not impose any
obligations on Panama in respect of their conduct, and
international law in any event precludes the Tribunal from
479 Resp. Reply Exp. Obj., ¶ 93.
480 Resp. Reply Exp. Obj., ¶ 95.
481 Resp. Reply Exp. Obj., ¶ 95.
482 Resp. Reply Exp. Obj., ¶ 96.
483 Resp. Reply Exp. Obj., ¶ 97.
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112
evaluating such conduct without the consent of those other States.
Claimants do not provide any real response on this issue.”484
338. In the Post-Hearing Brief, Panama sums up the objection saying that the Claimants’
attempt to seek compensation for “hypothetical future injury that supposedly will result
from hypothetical future action of States other than Panama” is “improper” for two
reasons:485
First, consent to arbitration in the TPA is limited to claims arising out of measures
already “adopted or maintained” and the resulting damage already incurred.486 (The
Respondent rejects the allegation that this aspect of the problem was not mentioned
before the Hearing.487)
Second, Chapter 10 of the TPA does not apply to investments in other States or to
measures by other States different from Panama.488 Dismissing the allegation that
the only measure at issue is the Supreme Court judgement from which the conduct of
the other States flows causally, the Respondent argues that this type of reasoning
would only work if the other State had committed an internationally wrongful-act,489
which is an issue the Tribunal cannot evaluate.490
339. The Respondent emphasizes that it is not asking the Tribunal to make findings about the
quantum of the alleged injury, but rather, to confirm that it lacks jurisdiction over “(1)
hypothetical future events or injury, (2) investments outside of Panama, or (3) the
conduct of other States.”491 Once that is done, Panama argues, there is no remaining
claim for damages by BSAM and the only remaining claim for BSLS is for the payment
of the Supreme Court damages award (if it survives the other jurisdictional
challenges).492
484 Resp. Reply Exp. Obj., ¶ 98.
485 Resp. PHB Exp. Obj., ¶¶ 41-43.
486 Resp. PHB Exp. Obj., ¶ 42.
487 Tr. Day 4, 578:12-22 (Ms. Gehring-Flores); Resp. PHB Exp. Obj., ¶ 42.
488 Resp. PHB Exp. Obj., ¶ 43.
489 Resp. PHB Exp. Obj., ¶ 43.
490 Resp. PHB Exp. Obj., ¶ 44.
491 Resp. PHB Exp. Obj., ¶ 45.
492 Resp. PHB Exp. Obj., ¶ 45, nn. 194-195.
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113
b. The Claimants’ Position
340. The Claimants ask the Tribunal to dismiss this objection.493 According to their last
submission, the objection should be dismissed for either of the following alternative
reasons: (i) it is not a matter of competence; (ii) it is intertwined with the merits, and all
the necessary evidence is not before the Tribunal such that the Respondent has not
discharged its burden of proof; or (iii) if the objection is a matter of competence and the
Tribunal has sufficient evidence before it to decide it safely, then it should conclude that
there is nothing for the Tribunal to decide as there is no claim for actions by other
States.494
341. The Claimants argue that this objection fails as:
It only impacts two of the four possible grounds for loss under this head of damage.
And even though the four grounds are “inter-related” that does not mean that they
are inextricably linked so that if one fails all do.495
The loss claimed arises directly out of the decision of Panama’s Supreme Court, and
the TPA does not preclude a claim for loss suffered outside of Panama or the United
States, as long as it meets the basic test for causation.496
In reality, the objection relates to matters of causation, foreseeability and loss, and it
cannot be determined under Article 10.20.5 of the TPA, because it is not a
jurisdictional objection, and would require extensive evidence to be resolved.497
342. The Claimants observe, however, that “it appears that this objection is not directed to the
facts of causation and loss” and for that reason they have not put in evidence of fact on
the matter.498 Under the Article 10.20.5 proceeding on preliminary objections, the
Respondent is not allowed to argue that the Claimants cannot show causation, which is an
issue that can only be dealt with a trial.499
493 Cl. Res. Exp. Obj., ¶ 179.
494 Cl. PHB Exp. Obj., ¶ 3(a), 3(b), 3(c)(v).
495 Cl. Res. Exp. Obj., ¶¶ 18, 174-175, 178; Cl. Rej. Exp. Obj., ¶ 73; Cl. PHB Exp. Obj., ¶ 61.
496 Cl. Res. Exp. Obj., ¶¶ 18, 172. See also, Cl. Rej. Exp. Obj., ¶ 71.
497 Cl. Res. Exp. Obj., ¶¶ 18, 173, 178. See also, Cl. Rej. Exp. Obj., ¶¶ 69, 72.
498 Cl. Res. Exp. Obj., ¶ 178.
499 Cl. Res. Exp. Obj., ¶ 178.
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114
343. In addition, according to the Claimants, “there is nothing for the Tribunal to decide at
this point”, since the Claimants do not claim for measures adopted by other States, and
agree that the Tribunal does not have jurisdiction to hear those claims.500 The Claimants
explain that they accept that if the measures of other States caused loss to the Claimants
that would not be recoverable, but argue that this is a “question of fact as to what has
caused the loss and to what extent the measures result in loss.”501
344. Finally, the Claimants argue that the Respondent raised a new objection during the
Hearing that did not appear in the written pleadings, namely, one concerning
“hypothetical future actions of private actors.”502 Because this objection was not raised
within the 45-day time limit prescribed in Article 10.20.5 of the TPA, the Claimants
argue, it is out of time and must be dismissed.503
(2) The Tribunal’s Analysis
345. Dealing with the last point first, the Tribunal agrees that it is not open to Panama to
pursue, outside the 45-day period, the general objection that the Claimants cannot
advance a claim founded on the hypothetical future actions of private actors. Objection
No. 5 is limited to the contention that the Claimants cannot advance a claim based on the
hypothetical action of other States. Furthermore, the only timely grounds for this
Objection were those set out at paragraph 334 supra, not that the alleged actions of other
States were hypothetical and future.
346. This Objection arises out of the following passages in the Claimants’ Request for
Arbitration:
“56. Second, the decision of the Panamanian Supreme Court may
be followed in other Latin American countries as a matter of
government policy. Many countries in Latin America have
historically followed each other’s lead in the implementation of
protectionist trade policies in the area of intellectual property
500 Cl. PHB Exp. Obj., ¶ 59.
501 Cl. PHB Exp. Obj., ¶ 60.
502 Cl. PHB Exp. Obj., ¶ 13. See also, Tr. Day 4, 634:22-636:7 (Mr. Williams).
503 Cl. PHB Exp. Obj., ¶ 13.
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115
rights, and the decision of the Panamanian Supreme Court operates
as a de facto protectionist device, allowing potentially confusingly
similar marks to enter into the market because intellectual property
rights holders are unwilling to risk significant, apparently arbitrary,
penalties for their good faith use of the legal mechanisms intended
to preserve those rights. […]
57. Third, the decision of the Panamanian Supreme Court
establishes a precedent that is likely to be followed in other Latin
American legal systems. Such concerns are warranted in light of
the fact that it is not uncommon for ideas developed in the courts
in one national legal system to be transferred to another. […]
58. Fourth, the decision of the Panamanian Supreme Court to
impose damages for the good faith use of Panama’s own trademark
opposition proceedings is likely to result in more trademark
applications that are similar and confusingly similar to the
Bridgestone mark, both in Panama and elsewhere in Latin
America. Muresa and L.V. International, through the so-called
Luque Group, operate all over the Americas. There is therefore a
significant risk that the Luque Group will seek to achieve the same
result in those and other jurisdictions across the region. Other
unrelated competitors are also likely to use this opportunity to
follow the Luque Group’s lead and try to enter the various tire
markets in the region by filing and using confusingly similar
trademarks.
59. Accordingly, the risk that similar decisions may be issued in
other countries makes it much costlier for Bridgestone to invest not
only in Panama, but in other countries in Latin America.”504
347. In order to follow these averments it is necessary to consider what it is that the Claimants
allege was objectionable about the decision of the Panamanian Supreme Court. The
Claimants object that the decision was “unjust and arbitrary.”505 The Tribunal
understands this allegation to be fact specific. The Claimants do not suggest that Muresa
was pursuing a new and unrecognized cause of action that the Panamanian courts should
never have entertained. No complaint is made of the reasoning and approach of the two
Panamanian lower courts. The complaint is that, in reversing the decision of the lower
courts, the majority in the Panamanian Supreme Court perversely ignored the evidence,
or lack of evidence, and the reasoning based upon it by the lower courts:
504 Request for Arbitration, ¶¶ 56-59.
505 Request for Arbitration, ¶ 3.
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116
“In its decision, the Supreme Court did not consider evidence
submitted by Bridgestone nor the decision of the Eleventh Circuit
Court and the First Superior Court, which found that Bridgestone
had not acted recklessly in opposing the trademark, and that
Muresa and TGLF had not suffered any harm caused by the
trademark opposition action.”506
348. What then is intended by the Claimants’ allegation in paragraph 56 that “the decision of
the Panamanian Supreme Court may be followed in other Latin American countries as a
matter of government policy”? This appears to be suggesting administrative, not judicial,
activity for paragraph 57 deals with the latter. The Tribunal reads this as suggesting that
by some form of executive action the governments of other Latin American countries
may penalize the owners of trademarks that take legitimate action to protect those
trademarks.
349. And what is suggested by paragraph 57? What is the precedent alleged to have been set
by the Panamanian Supreme Court; is it the perverse disregard of evidence? It seems to
the Tribunal that both paragraph 56 and paragraph 57 envisage that other Latin American
countries may, in one way or another, be influenced by the example of the Panama
Supreme Court to act – if the allegations are to be accepted – in abuse of recognized
intellectual property rights.
350. As the Tribunal reads paragraph 58, the scenario there painted in relation to countries
outside Panama is premised on the likelihood that the governments and the courts of
these countries will copy the abuse of intellectual property rights shown by the Supreme
Court of Panama. This is evident from paragraph 59. The Claimants have made it clear
that they do not seek to impose on Panama liability for the direct consequences of actions
by other States. What, however, they are seeking to do is to impose liability for the
indirect consequences of those actions, namely the challenges to the Claimants’
intellectual property rights that the predicted actions by other States will encourage.
351. The contention made by Panama in its Expedited Objections is that this head of claim
requires the Tribunal to evaluate the likelihood of States other than Panama committing
506 Request for Arbitration, ¶ 42.
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117
intentionally wrongful acts, and that this is something that the Tribunal has no
jurisdiction to do under established principles of international law.507
352. Panama submits that it would be contrary to international law for the Tribunal to rule on
the likelihood of sovereign States committing wrongs when those States are not subject to
the jurisdiction of the Tribunal. Panama relies on the decision of the International Court
of Justice in the Monetary Gold Case.508 That case concerned a dispute between the
United Kingdom and Italy as to whether Italy had a prior claim to gold owned by Albania
that Albania wished to be paid to the United Kingdom. This depended upon whether or
not Italy had a claim against Albania to be paid the gold that took priority over that of the
United Kingdom. Although the United Kingdom and Italy had agreed to the jurisdiction
of the International Court of Justice, Albania had not. In these circumstances the Court
ruled that it had no jurisdiction to decide the issue as:
“[…] To adjudicate upon the international responsibility of
Albania without her consent would run counter to a wellestablished
principle of international law embodied in the Court’s
Statute, namely, that the Court can only exercise jurisdiction over a
State with its consent.”509
353. The Tribunal does not consider that this decision is precisely in point. The Monetary
Gold case involved rival claims to be paid by Albania gold owned by Albania and thus
Albania was directly concerned with the result. In the present case, a finding as to the
likely conduct of Latin American countries other than Panama would not purport to affect
their legal rights or amount to an assertion of jurisdiction over them. Nonetheless, the
Tribunal considers that it would be an extraordinary interpretation of the ICSID
Convention and the TPA that would bring within the jurisdiction of ICSID a dispute as to
whether or not sovereign States not party to the TPA are likely to act in abuse of
established intellectual property rights and, if they are, whether the respondent host State
507 Resp. Exp. Obj., ¶¶ 48-51.
508 RLA-029, Case of the Monetary Gold Removed from Rome in 1943, ICJ, Judgment on Preliminary Objections
(15 June 1954) [hereinafter, “Monetary Gold”].
509 RLA-029, Monetary Gold, p. 17.
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118
is liable for the consequences. Neither the United States, nor Panama could possibly
have envisaged such a claim arising under the TPA, and for good reason.
354. In the opinion of the Tribunal, a dispute as to whether States other than Panama are likely
to copy Panama’s alleged abuse of the Claimants’ intellectual property rights to the
detriment of the Claimants is both speculative and remote from each of the Claimants’
investments. That part of the overall dispute cannot possibly be said to “arise directly
out of” either Claimant’s investment. Thus, so far as BSAM is concerned, this Objection
succeeds not by reason of the grounds relied on in support of it but by reason of the
grounds advanced in support of Objection No. 2.
355. What is the position of BSLS? Objection No. 2 was only made against BSAM. Is it open
to the Tribunal to uphold Objection No. 5 against BSLS not on the grounds advanced in
support of that Objection but on the grounds advanced against BSAM in Objection No.
2? The Tribunal does not consider that it is. Accordingly, so far as BSLS is concerned
Objection No. 5 must be dismissed. But the Tribunal will add this. BSLS will no doubt
consider carefully whether to pursue a claim in relation to events outside Panama in
circumstances where the Tribunal has ruled that it has no jurisdiction to entertain an
identical claim by BSAM.
IX. COSTS
A. The Parties’ Positions
356. Panama has requested that the Claimants be held “jointly and severally” liable for all the
costs of the arbitration.510 Contrary to the Claimants’ allegations at the Hearing, the
Respondent argues that it is inapposite that some objections relate to one of the Claimants
and not the others: the Claimants decided to bring the case jointly, have tried to argue it
blurring the lines between the Claimants, and should not be permitted to draw a line now,
510 Resp. PHB Exp. Obj., ¶ 47; Resp. Exp. Obj., ¶ 55(b); Resp. Reply Exp. Obj., ¶ 99; Tr. Day 4, 643:12-644:6 (Mr.
Deveboise).
Annex 189
ANNEX 190
PL 96–72, SEPTEMBER 29, 1979, 93 Stat 503
UNITED STATES PUBLIC LAWS
96th Congress - First Session
Convening January 15, 1979
DATA SUPPLIED BY THE U.S. DEPARTMENT OF JUSTICE. (SEE SCOPE)
Additions and Deletions are not identified in this document.
PL 96–72 (S 737)
SEPTEMBER 29, 1979
An Act to provide authority to regulate exports, to improve the efficiency of export regulation, and to minimize
interference with the ability to engage in commerce.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SHORT TITLE
Section 1. This act // 50 USC app. 2401 // may be cited as the “Export Administration Act of 1979”.
FINDINGS
Sec. 2. // 50 USC app. 2401. // The Congress makes the following findings:
(1) The ability of United States citizens to engage in international commerce is a fundamental concern of United States
policy.
(2) Exports contribute significantly to the economic well-being of the United States and the stability of the world economy
by increasing employment and production in the United States, and by strengthening the trade balance and the value of the
United States dollar, thereby reducing inflation. The restriction of exports from the United States can have serious adverse
effects on the balance of payments and on domestic employment, particularly when restrictions applied by the United States
are more extensive than those imposed by other countries.
(3) It is important for the national interest of the United States that both the private sector and the Federal Government place
a high priority on exports, which would strengthen the Nation’s economy.
(4) The availability of certain materials at home and abroad varies so that the quantity and composition of United States
exports and their distribution among importing countries may affect the welfare of the domestic economy and may have an
important bearing upon fulfillment of the foreign policy of the United States.
(5) Exports of goods or technology without regard to whether they make a significant contribution to the military potential
of individual countries or combinations of countries may adversely affect the national security of the United States.
(6) Uncertainty of export control policy can curtail the efforts of American business to the detriment of the overall attempt
to improve the trade balance of the United States.
(7) Unreasonable restrictions on access to world supplies can cause worldwide political and economic instability, interfere
with free international trade, and retard the growth and development of nations.
(8) It is important that the administration of export controls imposed for national security purposes give special emphasis to
the need to control exports of technology (and goods which contribute significantly to the transfer of such technology)
which could make a significant contribution to the military potential of any country or combination of countries which
would be detrimental to the national security of the United States.
(9) Minimization of restrictions on exports of agricultural commodities and products is of critical importance to the
maintenance of a sound agricultural sector, to achievement of a positive balance of payments, to reducing the level of
1 Annex 190
Federal expenditures for agricultural support programs, and to United States cooperation in efforts to eliminate malnutrition
and world hunger.
DECLARATION OF POLICY
Sec. 3. // 50 USC app. 2402. // The Congress makes the following declarations:
(1) It is the policy of the United States to minimize uncertainties in export control policy and to encourage trade with all
countries with which the United States has diplomatic or trading relations, except those countries with which such trade has
been determined by the President to be against the national interest.
(2) It is the policy of the United States to use export controls only after full consideration of the impact on the economy of
the United States and only to the extent necessary—,
(A) to restrict the export of goods and technology which would make a significant contribution to the military potential of
any other country or combination of countries which would prove detrimental to the national security of the United States;
(B) to restrict the export of goods and technology where necessary to further significantly the foreign policy of the United
States or to fulfill its declared international obligations; and
(C) to restrict the export of goods where necessary to protect the domestic economy from the excessive drain of scarce
materials and to reduce the serious inflationary impact of foreign demand.
(3) It is the policy of the United States (A) to apply any necessary controls to the maximum extent possible in cooperation
with all nations, and (B) to encourage observance of a uniform export control policy by all nations with which the United
States has defense treaty commitments.
(4) It is the policy of the United States to use its economic resources and trade potential to further the sound growth and
stability of its economy as well as to further its national security and foreign policy objectives.
(5) It is the policy of the United States—,
(A) to oppose restrictive trade practices or boycotts fostered or imposed by foreign countries against other countries
friendly to the United States or against any United States person;
(B) to encourage and, in specified cases, require United States persons engaged in the export of goods or technology or
other information to refuse to take actions, including furnishing information or entering into or implementing agreements,
which have the effect of furthering or supporting the restrictive trade practices or boycotts fostered or imposed by any
foreign country against a countr friendly to the United States or against any United States person; and
(C) to foster international cooperation and the development of international rules and institutions to assure reasonable
access to world supplies.
(6) It is the policy of the United States that the desirability of subjecting, or continuing to subject, particular goods or
technology or other information to United States export controls should be subjected to review by and consultation with
representatives of appropriate United States Goverment agencies and private industry.
(7) It is the poicy of the United States to use export controls, including license fees, to secure the removal by foreign
countries of restrictions on access to supplies where such restrictions have or may have a serious domestic inflationary
impact, have caused or may cause a serious domestic shortage, or have been imposed for purposes of influencing the foreign
policy of the United States. In effecting this policy, the President shall make every reasonable effort to secure the removal or
reduction of such restrictions, policies, or actions through international cooperation and agreement before resorting to the
imposition of controls on exports from the United States. No action taken in fulfillment of the policy set forth in this
paragraph shall apply to the export of medicine or medical supplies.
(8) It is the policy of the United States to use export controls to encourage other countries to take immediate steps to prevent
the use of their territories or resources to aid, encourage, or give sanctuary to those persons involved in directing,
supporting, or participating in acts of international terrorism. To achieve this objective, the President shall make every
reasonable effort to secure the removal or reduction of such assistance to international terrorists through international
cooperation and agreement before resorting to the imposition of export controls.
(9) It is the policy of the United States to cooperate with other countries with which the United States has defense treaty
commitments in restricting the export of goods and technology which would make a significant contribution to the military
potential of any country or combination of countries which would prove detrimental to the security of the United States and
of those countries with which the United States has defense treaty commitments.
(10) It is the policy of the United States that export trade by United States citizens be given a high priority and not be
controlled except when such controls (A) are necessary to further fundamental national security, foreign policy, or short
supply objectives, (B) will clearly further such objectives, and (C) are administered consistent with basic standards of due
process.
(11) It is the policy of the United States to minimize restrictions on the export of agricultural commodities and products.
2 Annex 190
GENERAL PROVISIONS
Sec. 4. // 50 USC app. 2403. // (a) Types of Licensee.—Under such conditions as may be imposed by the Secretary which
are consistent with the provisions of this Act, the Secretary may require any of the following types of export licenses:
(1) A validated license, authorizing a specific export, issued pursuant to an application by the exporter.
(2) A qualified general license, authorizing multiple exports, issued pursuant to an application by the exporter.
(3) A general license, authorizing exports, without application by the exporter.
(4) Such other licenses as may assist in the effective and efficient implementation of this Act.
(b) Commodity Control List.—The Secretary shall establish and maintain a list (hereinafter in this Act referred to as the
“commodity control list”) consisting of any goods or technology subject to export controls under this Act.
(c) Foreign Availability.—In accordance with the provisions of this Act, the President shall not impose export controls for
foreign policy or national security purposes on the export from the United States of goods or technology which he
determines are available without restriction from sources outside the United States in significant quantities and comparable
in quality to those produced in the United States, unless the President determines that adequate evidence has been presented
to him demonstrating that the absence of such controls would prove detrimental to the foreign policy or national security of
the United States.
(d) Right of Export.—No authority or permission to export may be required under this Act, or under regulations issued
under this Act, except to carry out the policies set forth in section 3 of this Act.
(e) Delegation of Authority.—The President may delegate the power, authority, and discretion conferred upon him by this
Act to such departments, agencies, or officials of the Government as he may consider appropriate, except that no authority
under this Act may be delegated to, or exercised by, any official of any department or agency the head of which is not
appointed by the President, by and with the advice and consent of the Senate. The President may not delegate or transfer his
power, authority, and discretion to overrule or modify any recommendation or decision made by the Secretary, the Secretary
of Defense, or the Secretary of State pursuant to the provisions of this Act.
(f) Notification of the Public; Consultation With Business.—The Secretary shall keep the public fully apprised of changes in
export control policy and procedures instituted in conformity with this Act with a view to encouraging trade. The Secretary
shall meet regularly with representatives of the business sector in order to obtain their views on export control policy and the
foreign availability of goods and technology.
NATIONAL SECURITY CONTROLS
Sec. 5. // 50 USC app. 2404. // (a) Authority.—(1) In order to carry out the policy set forth in section 3(2)(A) of this Act, the
President may, in accordance with the provisions of this section, prohibit or curtail the export of any goods or technology
subject to the jurisdiction of the United States or exported by any person subject to the jurisdiction of the United States. The
authority contained in this subsection shall be exercised by the Secretary, in consultation with the Secretary of Defense, and
such other departments and agencies as the Secretary considers appropriate, and shall be implemented by means of export
licenses described in section 4(a) of this Act.
(2)(A) Whenever the Secretary makes any revision with respect to any goods or technology, or with respect to the countries
or destinations, affected by export controls imposed under this section, the Secretary shall publish in the Federal Register a
notice of such revision and shall specify in such notice that the revision relates to controls imposed under the authority
contained in this section.
(B) Whenever the Secretary denies any export license under this section, the Secretary shall specify in the notice to the
applicant of the denial of such license that the license was denied under the authority contained in this section. The
Secretary shall also include in such notice what, if any, modifications in or restrictions on the goods or technology for which
the license was sought would allow such export to be compatible with controls imposed under this section, or the Secretary
shall indicate in such notice which officers and employees of the Department of Commerce who are familiar with the
application will be made reasonably available to the applicant for consultation with regard to such modifications or
restriction, if appropriate.
(3) In issuing regulations to carry out this section, particular attention shall be given to the difficulty of devising effective
safeguards to prevent a country that poses a threat to the security of the United States from diverting critical technologies to
military use, the difficulty of devising effective safeguards to protect critical goods, and the need to take effective measures
to prevent the reexport of critical technologies from other countries to countries that pose a threat to the security of the
United States. Such regulations shall not be based upon the assumption that such effective safeguards can be devised.
(b) Policy Toward Individual Countries.—In administering export controls for national security purposes under this section,
United States policy toward individual countries shall not be determined exclusively on the basis of a country’s Communist
or non-Communist status but shall take into account such factors as the country’s present and potential relationship to the *
United States, its present and potential relationship to countries friendly or hostile to the United States, its ability and
3 Annex 190
willingness to control retransfers of United States exports in accordance with United States policy, and such other factors as
the President considers appropriate. The President shall review not less frequently than every three years in the case of
controls maintained cooperatively with other nations, and annually in the case of all other controls, United States policy
toward individual countries to determine whether such policy is appropriate in light of the factors specified in the preceding
sentence.
(c) Control List.—(1) The Secretary shall establish and maintain, as part of the commodity control list, a list of all goods and
technology subject to export controls under this section. Such goods and technology shall be clearly indentified as being
subject to controls under this section.
(2) The Secretary of Defense and other appropriate departments and agencies shall identify goods and technology for
inclusion on the list referred to in paragraph (1). Those items which the Secretary and the Secretary of Defense concur shall
be subject to export controls under this section shall comprise such list. If the Secretary and the Secretary of Defense are
unable to concur on such items, the matter shall be referred to the President for resolution.
(3) The Secretary shall issue regulations providing for review of the list established pursuant to this subsection not less
frequently than every 3 years in the case of controls maintained cooperatively with other countries, and annually in the case
of all other controls, in order to carry out the policy set forth in section 3(2)(A) and the provisions of this section, and for the
prompt issuance of such revisions of the list as may be necessary. Such regulations shall provide interested Government
agencies and other affected or potentially affected parties with an opportunity, during such review, to submit written data,
views, or arguments, with or without oral presentation. Such regulations shall further provide that, as part of such review, an
assessment be made of the availability from sources outside the United States, or any of its territories or possessions, of
goods and technology comparable to those controlled under this section. The Secretary and any agency rendering advise
with respect to export controls shall keep adequate records of all decisions made with respect to revision of the list of
controlled goods and technology, including the factual and analytical basis for the decision, and, in the case of the Secretary,
any dissenting recommendations received from any agency.
(d) Militarily Critical Technologies.—(1) The Secretary, in consultation with the Secretary of Defense, shall review and
revise the list established pursuant to subsection (c), as prescribed in paragraph (3) of such subsection, for the purpose of
insuring that export controls imposed under this section cover and (to the maximum extent consistent with the purposes of
this Act) are limited to militarily critical goods and technologies and the mechanisms through which such goods and
technologies may be effectively transferred.
(2) The Secretary of Defense shall bear primary responsibility for developing a list of militarily critical technologies. In
developing such list, primary emphasis shall be given to—,
(A) arrays of design and manufacturing know-how,
(B) keystone manufacturing, inspection, and test equipment, and
(C) goods accompanied by sophisticated operation, application, or maintenance know-how,
which are not possessed by countries to which exports are controlled under this section and which, if exported, would permit
a significant advance in a military system of any such country.
(3) The list referred to in paragraph (2) shall be sufficiently specific to guide the determinations of any official exercising
export licensing responsibilities under this Act.
(4) The initial version of the list referred to in paragraph (2) shall be completed and published in an appropriate form in the
Federal Register not later than October 1, 1980.
(5) The list of militarily critical technologies developed primarily by the Secretary of Defense pursuant to paragraph (2)
shall become a part of the commodity control list, subject to the provisions of subsection (c) of this section.
(6) The Secretary of Defense shall report annually to the Congress on actions taken to carry out this subsection.
(e) Export Licenses.—(1) The Congress finds that the effectiveness and efficiency of the process of making export licensing
determinations under this section is severely hampered by the large volume of validated export license applications required
to be submitted under this Act. Accordingly, it is the intent of Congress in this subsection to encourage the use of a qualified
general license in lieu of a validated license.
(2) To the maximum extent practicable, consistent with the national security of the United States, the Secretary shall require
a validated license under this section for the export of goods or technology only if—,
(A) the export of such goods or technology is restricted pursuant to a multilateral agreement, formal or informal, to which
the United States is a party and, under the terms of such multilateral agreement, such export requires the specific approval of
the parties to such multilateral agreement;
(B) with respect to such goods or technology, other nations do not possess capabilities comparable to those possessed by the
United States; or
(C) the United States is seeking the agreement of other suppliers to apply comparable controls to such goods or technology
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and, in the judgment of the Secretary, United States export controls on such goods or technology, by means of such license,
are necessary pending the conclusion of such agreement.
(3) To the maximum extent practicable, consistent with the national security of the United States, the Secretary shall require
a qualified general license, in lieu of a validated license, under this section for the export of goods or technology if the
export of such goods or technology is restricted pursuant to a multilateral agreement, formal or informal, to which the
United States is a party, but such export does not require the sepcific approval of the parties to such multilateral agreement.
(4) Not later than July 1, 1980, the Secretary shall establish procedures for the approval of goods and technology that may
be exported pursuant to a qualified general license.
(f) Foreign Availability.—(1) The Secretary, in consultation with appropriate Government agencies and with appropriate
technical advisory committees established pursuant to subsection (h) of this section, shall review, on a continuing basis, the
availability, to countries to which exports are controlled under this section, from sources outside the United States, including
countries which participate with the United States in multilateral export controls, of any goods or technology the export of
which requires a validated license under this section. In any case in which the Secretary determines, in accordance with
procedures and criteria which the Secretary shall by regulation establish, that any such goods or technology are available in
fact to such destinations from such sources in sufficient quantity and of sufficient quality so that the requirement of a
validated license for the export of such goods or technology is or would be ineffective in achieving the purpose set forth in
subsection (a) of this section, the Secretary may not, after the determination is made, require a validated license for the
export of such goods or technology during the period of such foreign availability, unless the President determines that the
absence of export controls under this section would prove detrimental to the national security to the United States. In any
case in which the President determines that export controls under this section must be maintained notwithstanding foreign
availability, the Secretary shall publish that determination together with a concise statement of its basis, and the estimated
economic impct of the decision.
(2) The Secretary shall approve any application for a validated license which is required under this section for the export of
any goods or technology to a particular country and which meets all other requirements for such an application, if the
Secretary determines that such goods or technology will, if the license is denied, be available in fact to such country from
sources outside the United States, including countries which participate with the United States in multilateral export
controls, in sufficient quantity and of sufficient quality so that denial of the license would be ineffective in achieving the
purpose set forth in subsection (a) of this section, subject to the exception set forth in paragraph (1) of this subsection. In any
case in which the Secretary makes a determination of foreign availability under this paragraph with respect to any goods or
technology, the Secretary shall determine whether a determination of foreign availability under paragraph (1) with respect to
such goods or technology is warranted.
(3) With respect to export controls imposed under this section, any determination of foreign availability which is the basis of
a decision to grant a license for, or to remove a control on, the export of a good or technology, shall be made in writing and
shall be supported by reliable evidence, including scientific or physical examination, expert opinion based upon adequate
factual information, or intelligence information. In assessing foreign availability with respect to license applications,
uncorroborated representations by applicants shall not be deemed sufficient evidence of foreign availability.
(4) In any case in which, in accordance with this subsection, export controls are imposed under this section notwithstanding
foreign availability, the President shall take steps to initiate negotiations with the governments of the appropriate foreign
countries for the purpose of eliminating such availability. Whenever the President has reason to believe goods or technology
subject to export control for national security purposes by the United States may become available from other countries to
countries to which exports are controlled under this section and that such availability can be prevented or eliminated by
means of negotiations with such other countries, the President shall promptly initiate negotiations with the governments of
such other countries to prevent such foreign availability.
(5) In order to further carry out the policies set forth in this Act, the Secretary shall establish, within the Office of Export
Administration of the Department of Commerce, a capability to monitor and gather information with respect to the foreign
availability of any goods or technology subject to export controls under this Act.
(6) Each department or agency of the United States with responsibilities with respect to export controls, including
intelligence agencies, shall, consistent with the protection of intelligence sources and methods, furnish information to the
Office of Export Administration concerning foreign availability of goods and technology subject to export controls under
this Act, and such Office, upon request or where appropriate, shall furnish to such departments and agencies the information
it gathers and receives concerning foreign availability.
(g) Indexing.—In order to ensure that requirements for validated licenses and qualified general licenses are periodically
removed as goods or technology subject to such requirements become obsolete with respect to the national security of the
United States, regulations issued by the Secretary may, where appropriate, provide for annual increases in the performance
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levels of goods or technology subject to any such licensing requirement. Any such goods or technology which no longer
meet the performance levels established by the latest such increase shall be removed from the list established pursuant to
subsection (c) of this section unless, under such exceptions and under such procedures as the Secretary shall prescribe, any
other department or agency of the United States objects to such removal and the Secretary determines, on the basis of such
objection, that the goods or technology shall not be removed from the list. The Secretary shall also consider, where
appropriate, removing site visitation requirements for goods and technology which are removed from the list unless
objections described in this subsection are raised.
(h) Technical Advisory Committees.—(1) Upon written request by representatives of a substantial segment of any industry
which produces any goods or technology subject to export controls under this section or being considered for such controls
because of their significance to the national security of the United States, the Secretary shall appoint a technical advisory
committee for any such goods or technology which the Secretary determines are difficult to evaluate because of questions
concerning technical matters, worldwide availability, and actual utilization of production and technology, or licensing
procedures. Each such committee shall consist of representatives of United States industry and Government, including the
Departments of Commerce, Defense, and State and, in the discretion of the Secretary, other Government departments and
agencies. No person serving on any such committee who is a representative of industry shall serve on such committee for
more than four consecutive years.
(2) Technical advisory committees established under paragraph (1) shall advise and assist the Secretary, the Secretary of
Defense, and any other department, agency, or official of the Government of the United States to which the President
delegates authority under this Act, with respect to actions designed to carry out the policy set forth in section 3(2)(A) of this
Act. Such committees, where they have expertise in such matters, shall be consulted with respect to questions involving (A)
technical matters, (B) worldwide availability and actual utilization of production technology, (C) licensing procedures which
affect the level of export controls applicable to any goods or technology, and (D) exports subject to multilateral controls in
which the United States participates, including proposed revisions of any such multilateral controls. Nothing in this
subsection shall prevent the Secretary or the Secretary of Defense from consulting, at any time, with any person representing
industry or the general public, regardless of whether such person is a member of a technical advisory committee. Members
of the public shall be given a reasonable opportunity, pursuant to regulations prescribed by the Secretary, to present
evidence to such committees.
(3) Upon request of any member of any such committee, the Secretary may, if the Secretary determines it appropriate,
reimburse such member for travel, subsistence, and other necessary expenses incurred by such member in connection with
the duties of such member.
(4) Each such committee shall elect a chairman, and shall meet at least every three months at the call of the chairman, unless
the chairman determines, in consultation with the other members of the committee, that such a meeting is not necessary to
achieve the purposes of this subsection. Each such committee shall be terminated after a period of 2 years, unless extended
by the Secretary for additional periods of 2 years. The Secretary shall consult each such committee with respect to such
termination or extension of that committee.
(5) To facilitate the work of the technical advisory committees, the Secretary, in conjunction with other departments and
agencies participating in the administration of this Act, shall disclose to each such committee adequate information,
consistent with national security, pertaining to the reasons for the export controls which are in effect or contemplated for the
goods or technology with respect to which that committee furnishes advice.
(6) Whenever a technical advisory committee certifies to the Secretary that goods or technology with respect to which such
committee was appointed have become available in fact, to countries to which exports are controlled under this section,
from sources outside the United States, including countries which participate with the United States in multilateral export
controls, in sufficient quantity and of sufficient quality so that requiring a validated license for the export of such goods or
technology would be ineffective in achieving the purpose set forth in subsection (a) of this section, and provides adequate
documentation for such certification, in accordance with the procedures established pursuant to subsection (f)(1) of this
section, the Secretary shall investigate such availability, and if such availability is verified, the Secretary shall remove the
requirement of a validated license for the export of the goods or technology, unless the President determines that the absence
of export controls under this section would prove detrimental to the national security of the United States. In any case in
which the President determines that export controls under this section must be maintained notwithstanding foreign
availability, the Secretary shall publish that determination together with a concise statement of its basis and the estimated
economic impact of the decision.
(i) Multilateral Export Controls.—The President shall enter into negotiations with the governments participating in the
group known as the Coordinating Committee (hereinafter in this subsection referred to as the “Committee”) with a view
toward accomplishing the following objectives:
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(1) Agreement to publish the list of items controlled for export by agreement of the Committee, together with all notes,
understandings, and other aspects of such agreement of the Committee, and all changes thereto.
(2) Agreement to hold periodic meetings with high-level representatives of such governments, for the purpose of discussing
export control policy issues and issuing policy guidance to the Committee.
(3) Agreement to reduce the scope f the export controls imposed by agreement of the Committee to a level acceptable to and
enforceable by all governments participating in the Committee.
(4) Agreement on more effective procedures for enforcing the export controls agreed to pursuant to paragraph (3).
(j) Commercial Agreements With Certain Countries.—(1) Any United States firm, enterprise, or other nongovernmental
entity which, for commercial purposes, enters into any agreement with any agency of the government of a country to which
exports are restricted for national security purposes, which agreement cites an intergovernmental agreement (to which the
United States and such country are parties) calling for the encouragement of technical cooperation and is intended to result
in the export from the United States to the other party of unpublished technical data of United States origin, shall report the
agreement with such agency to the Secretary.
(2) The provisions of paragraph (1) shall not apply to colleges, universities, or other educational institutions.
(k) Negotiations With Other Countries.—The Secretary of State, in consultation with the Secretary of Defense, the Secretary
of Commerce, and the heads of other appropriate departments and agencies, shall be responsible for conducting negotiations
with other countries regarding their cooperation in restricting the export of goods and technology in order to carry out the
policy set forth in section 3(9) of this Act, as authorized by subsection (a) of this section, including negotiations with respect
to which goods and technology should be subject to multilaterally agreed export restrictions and what conditions should
apply for exceptions from those restrictions.
(1) Diversion to Military Use of Controlled Goods or Technology.—( 1) Whenever there is reliable evidence that goods or
technology, which were exported subject to national security controls under this section to a country to which exports are
controlled for national security purposes, have been diverted to significant military use in violation of the conditions of an
export license, the Secretary for as long as that diversion to significant military use continues—,
(A) shall deny all further exports to the party responsible for that diversion of any goods or technology subject to national
security controls under this section which contribute to that particular military use, regardless of whether such goods or
technology are available to that country from sources outside the United States; and
(B) may take such additional steps under this Act with respect to the party referred to in subparagraph (A) as are feasible to
deter the further military use of the previously exported goods or technology.
(2) As used in this subsection, the terms “diversion to significant military use” and “significant military use” means the use
of United States goods or technology to design or produce any item on the United States Munitions List.
FOREIGN POLICY CONTROLS
Sec. 6. // 50 USC app. 2405. // (a) Authority.—(1) In order to carry out the policy set forth in paragraph (2)(B), (7), or (8) of
section 3 of this Act, the President may prohibit or curtail the exportation of any goods, technology, or other information
subject to the jurisdiction of the United States or exported by any person subject to the jurisdiction of the United States, to
the extent necessary to further significantly the foreign policy of the United States or to fulfill its declared international
obligations. The authority granted by this subsection shall be exercised by the Secretary, in consultation with the Secretary
of State and such other departments and agencies as the Secretary considers appropriate, and shall be implemented by means
of export licenses issued by the Secretary.
(2) Export controls maintained for foreign policy purposes shall expire on December 31, 1979, or one year after imposition,
whichever is later, unless extended by the President in accordance with subsections (b) and (e). Any such extension and any
subsequent extension shall not be for a period of more than one year.
(3) Whenever the Secretary denies any export license under this subsection, the Secretary shall specify in the notice to the
applicant of the denial of such license that the license was denied under the authority contained in this subsection, and the
reasons for such denial, with reference to the criteria set forth in subsection (b) of this section. The Secretary shall also
include in such notice what, if any, modifications in or restrictions on the goods or technology for which the license was
sought would allow such export to be compatible with controls implemented under this section, or the Secretary shall
indicate in such notice which officers and employees of the Department of Commerce who are familiar with the application
will be made reasonably available to the applicant for consultation with regard to such modifications or restrictions, if
appropriate.
(4) In accordance with the provisions of section 10 of this Act, the Secretary of State shall have the right to review any
export license application under this section which the Secretary of State requests to review.
(b) Criteria.—When imposing, expanding, or extending export controls under this section, the President shall consider—,
(1) the probability that such controls will achieve the intended foreign policy purpose, in light of other factors, including the
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availability from other countries of the goods or technology proposed for such controls;
(2) the compatibility of the proposed controls with the foreign policy objectives of the United States, including the effort to
counter international terrorism, and with overall United States policy toward the country which is the proposed target of the
controls;
(3) the reaction of other countries to the imposition or expansion of such export controls by the United States;
(4) the likely effects of the proposed controls on the export performance of the United States, on the competitive position of
the United States in the international economy, on the international reputation of the United States as a supplier of goods
and technology, and on individual United States companies and their employees and communities, including the effects of
the controls on existing contracts;
(5) the ability of the United States to enforce the proposed controls effectively; and
(6) the foreign policy consequences of not imposing controls.
(c) Consulatation With Industry.—The Secretary, before imposing export controls under this section, shall consult with such
affected United States industries as the Secretary considers appropriate, with respect to the criteria set forth in paragraphs
(1) and (4) of subsection (b) and such other matters as the Secretary considers appropriate.
(d) Alternative Means.—Before resorting to the imposition of export controls under this section, the President shall
determine that reasonable efforts have been made to achieve the purposes of the controls through negotiations or other
alternative means.
(e) Notification To Congress.—The President in every possible instance shall consult with the Congress before imposing
any export control under this section. Except as provided in section 7(g)(3) of this Act, whenever the President imposes,
expands, or extends export controls under this section, the President shall immediately notify the Congress of such action
and shall submit with such notification a report specifying—,
(1) the conclusions of the President with respect to each of the criteria set forth in subsection (b); and
(2) the nature and results of any alternative means attempted under subsection (d), or the reasons for imposing, extending, or
expanding the control without attempting any such alternative means.
Such report shall also indicate how such controls will further significantly the foreign policy of the United States or will
further its declared international obligations. To the extent necessary to further the effectiveness of such export control,
portions of such report may be submitted on a classified basis, and shall be subject to the provisions of section 12(c) of this
Act.
(f) Exclusion for Medicine and Medical Supplies.—This section does not authorize export controls on medicine or medical
supplies. It is the intent of Congress that the President not impose export controls under this section on any goods or
technology if he determines that the principal effect of the export of such goods or technology would be to help meet basic
human needs. This subsection shall not be construed to prohibit the President from imposing restrictions on the export of
medicine or medical supplies, under the International Emergency Economic Powers Act. // 50 USC 1701 // This subsection
shall not apply to any export control on medicine or medical supplies which is in effect on the effective date of this Act.
(g) Foreign Availability.—In applying export controls under this section, the President shall take all feasible steps to initiate
and conclude negotiations with appropriate foreign governments for the purpose of securing the cooperation of such foreign
governments in controlling the export to countries and consignees to which the United States export controls apply of any
goods or technology comparable to goods or technology controlled under this section.
(h) International Obligations.—The provisions of subsections (b), (c), (d), (f), and (g) shall not apply in any case in which
the President exercises the authority contained in this section to impose export controls, or to approve or deny export license
applications, in order to fulfill obligations of the United States pursuant to treaties to which the United States is a party or
pursuant to other international agreements.
(i) Countries Supporting International Terrorism.—The Secretary and the Secretary of State shall notify the Committee on
Foreign Affairs of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate
before any license is approved for the export of goods or technology valued at more than $7,000,000 to any country
concerning which the Secretary of State has made the following determinations:
(1) Such country has repeatedly provided support for acts of international terrorism.
(2) Such exports would make a significant contribution to the military potential of such country, including its military
logistics capability, or would enhance the ability of such country to support acts of international terrorism.
(j) Crime Control Instruments.—(1) Crime control and detection instruments and equipment shall be approved for export by
the Secretary only pursuant to a validated export license.
(2) The provisions of this subsection shall not apply with respect to exports to countries which are members of the North
Atlantic Treaty Organization or to Japan, Australia, or New Zealand, or to such other countries as the President shall
designate consistent with the purposes of this subsection and section 502 B of the Foreign Assistance Act of 1961. // 22
8 Annex 190
USC 2304. //
(k) Control List.—The Secretary shall establish and maintain, as part of the commodity control list, a list of any goods or
technology subject to export controls under this section, and the countries to which such controls apply. Such goods or
technology shall be clearly identified as subject to controls under this section. Such list shall consist of goods and
technology identified by the Secretary of State, with the concurrence of the Secretary. If the Secretary and the Secretary of
State are unable to agree on the list, the matter shall be referred to the President. Such list shall be reviewed not less
frequently than every three years in the case of controls maintained cooperatively with other countries, and annually in the
case of all other controls, for the purpose of making such revisions as are necessary in order to carry out this section. During
the course of such review, an assessment shall be made periodically of the availability from sources outside the United
States, or any of its territories or possessions, of goods and technology comparable to those controlled for export from the
United States under this section.
SHORT SUPPLY CONTROLS
Sec. 7. // 50 USC app. 2406. // (a) Authority.—(1) In order to carry out the policy set forth in section 3(2)(C) of this Act, the
President may prohibit or curtail the export of any goods subject to the jurisdiction of the United States or exported by any
person subject to the jurisdiction of the United States. In curtailing exports to carry out the policy set forth in section 3(2)(C)
of this Act, the President shall allocate a portion of export licenses on the basis of factors other than a prior history of
exportation. Such factors shall include the extent to which a country engages in equitable trade practices with respect to
United States goods and treats the United States equitably in times of short supply.
(2) Upon imposing quantitative restrictions on exports of any goods to carry out the policy set forth in section 3(2)(C) of this
Act, the Secretary shall include in a notice published in the Federal Register with respect to such restrictions an invitation to
all interested parties to submit written comments within 15 days from the date of publication on the impact of such
restrictions and the method of licensing used to implement them.
(3) In imposing export controls under this section, the President’s authority shall include, but not be limited to, the
imposition of export license fees.
(b) Monitoring.—(1) In order to carry out the policy set forth in section 3(2)(C) of this Act, the Secretary shall monitor
exports, and contracts for exports, of any good (other than a commodity which is subject to the reporting requirements of
section 812 of the Agricultural Act of 1970) // 7 USC 612c–3. // when the volume of such exports in relation to domestic
supply contributes, or may contribute, to an increase in domestic prices or a domestic shortage, and such price increase or
shortage has, or may have, a serious adverse impact on the economy or any sector thereof. Any such monitoring shall
commerce at a time adequate to assure that the monitoring will result in a data base sufficient to enable policies to be
developed, in accordance with section 3(2)(C) of this Act, to mitigate a short supply situation or serious inflationary price
rise or, if export controls are needed, to permit imposition of such controls in a timely manner. Information which the
Secretary requires to be furnished in effecting such monitoring shall be confidential, except as provided in paragraph (2) of
this subsection.
(2) The results of such monitoring shall, to the extent practicable, be aggregated and included in weekly reports setting forth,
with respect to each item monitored, actual and anticipated exports, the destination by country, and the domestic and
worldwide price, supply, and demand. Such reports may be made monthly if the Secretary determines that there is
insufficient information to justify weekly reports.
(3) The Secretary shall consult with the Secretary of Energy to determine whether monitoring or export controls under this
section are warranted with respect to exports of facilities, machinery, or equipment normally and principally used, or
intended to be used, in the production, conversion, or transportation of fuels and energy (except nuclear energy), including,
but not limited to, drilling rigs, platforms, and equipment; petroleum refineries, natural gas processing, liquefaction, and
gasification plants; facilities for production of synthetic natural gas or synthetic crude oil; oil and gas pipelines, pumping
stations, and associated equipment; and vessels for transporting oil, gas, coal, and other fuels.
(c) Petitions for Monitoring or Controls.—(1)(A) Any entity, including a trade association, firm, or certified or recognized
union or group of workers, which is representative of an industry or a substantial segment of an industry which processes
metallic materials capable of being recycled with respect to which an increase in domestic prices or a domestic shortage,
either of which results from increased exports, has or may have a significant adverse effect on the national economy or any
sector thereof, may transmit a written petition to the Secretary requesting the monitoring of exports, or the imposition of
export controls, or both, with respect to such material, in order to carry out the policy set forth in section 3(2)(C) of this Act.
(B) Each petition shall be in such form as the Secretary shall prescribe and shall contain information in support of the action
requested. The petition shall include any information reasonably available to the petitioner indicating (i) that there has been
a significant increase, in relation to a specific period of time, in exports of such material in relation to domestic supply, and
(ii) that there has been a significant increase in the price of such material or a domestic shortage of such material under
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circumstances indicating the price increase or domestic shortage may be related to exports.
(2) Within 15 days after receipt of any petition described in paragraph (1), the Secretary shall publish a notice in the Federal
Register. The notice shall (A) include the name of the material which is the subject of the petition, (B) include the Schedule
B number of the material as set forth in the Statistical Classification of Domestic and Foreign Commodities Exported from
the United States, (C) indicate whether the petitioner is requesting that controls or monitoring, or both, be imposed with
respect to the exportation of such material, and (D) provide that interested persons shall have a period of 30 days
commencing with the date of publication of such notice to submit to the Secretary written data, views, or arguments, with or
without opportunity for oral presentation, with respect to the matter involved. At the request of the petitioner or any other
entity described in paragraph (1)(A) with respect to the material which is the subject of the petition, or at the request of any
entity representative of producers or exporters of such material, the Secretary shall conduct public hearings with respect to
the subject of the petition, in which case the 30–day period may be extended to 45 days.
(3) Within 45 days after the end of the 30- or 45–day period described in paragraph (2), as the case may be, the Secretary
shall—,
(A) determine whether to impose monitoring or controls, or both, on the export of such material, in order to carry out the
policy set forth in section 3(2)(C) of this Act; and
(B) publish in the Federal Register a detailed statement of the reasons for such determination.
(4) Within 15 days after making a determination under paragraph (3) to impose monitoring or controls on the export of a
material, the Secretary shall publish in the Federal Register proposed regulations with respect to such monitoring or
controls. Within 30 days following the publication of such proposed regulations, and after considering any public comments
thereon, the Secretary shall publish and implement final regulations with respect to such monitoring or controls.
(5) For purposes of publishing notices in the Federal Register and scheduling public hearings pursuant to this subsection, the
Secretary may consolidate petitions, and responses thereto, which involve the same or related materials.
(6) If a petition with respect to a particular material or group of materials has been considered in accordance with all the
procedures prescribed in this subsection, the Secretary may determine, in the absence of significantly changed
circumstances, that any other petition with respect to the same material or group of materials which is filed within 6 months
after consideration of the prior petition has been completed does not merit complete consideration under this subsection.
(7) The procedures and time limits set forth in this subsection with respect to a petition filed under this subsection shall take
precedence over any review undertaken at the initiative of the Secretary with respect to the same subject as that of the
petition.
(8) The Secretary may impose monitoring or controls on a temporary basis after a petition is filed under paragraph (1)(A)
but before the Secretary makes a determination under paragraph (3) if the Secretary considers such action to be necessary to
carry out the policy set forth in section 3(2)(C) of this Act.
(9) The authority under this subsection shall not be construed to affect the authority of the Secretary under any other
provision of this Act.
(10) Nothing contained in this subsection shall be construed to preclude submission on a confidential basis to the Secretary
of information relevant to a decision to impose or remove monitoring or controls under the authority of this Act, or to
preclude consideration of such information by the Secretary in reaching decisions required under this subsection. The
provisions of this paragraph shall not be construed to affect the applicability of section 552(b) of title 5, United State Code.
(d) Domestically Produced Crude Oil.—(1) Notwithstanding any other provision of this Act and notwithstanding subsection
(u) of section 28 of the Mineral Leasing Act of 1920 (30 U.S.C. 185), no domestically produced crude oil transported by
pipeline over right-of-way granted pursuant to section 203 of the Trans–Alaska Pipeline Authorization Act (43 U.S.C. 1652)
(except any such crude oil which (A) is exported to an adjacent foreign country to be refined and consumed therein in
exchange for the same quantity of crude oil being exported from that country to the United States; such exchange must
result through convenience or increased efficiency of transportation in lower prices for consumers of petroleum products in
the United States as described in paragraph (2)( A)(ii) of this subsection, or (B) is temporarily exported for convenience or
increased efficiency of transportation across parts of an adjacent foreign country and reenters the United States) may be
exported from the United States, or any of its territories and possessions, unless the requirements of paragraph (2) of this
subsection are met.
(2) Crude oil subject to the prohibition contained in paragraph (1) may be exported only if—,
(A) the President makes and publishes express findings that exports of such crude oil, including exchanges—,
(i) will not diminish the total quantity or quality of petroleum refined within, stored within, or legally committed to be
transported to and sold within the United States;
(ii) will, within 3 months following the initiations of such exports or exchanges, result in (I) acquisition costs to the refiners
which purchase the imported crude oil being lower than the acquisition costs such refiners would have to pay for the
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domestically produced oil in the absence of such an export or exchange, and (II) not less than 75 percent of such savings in
costs being reflected in wholesale and retail prices of products refined from such imported crude oil;
(iii) will be made only pursuant to contracts which may be terminated if the crude oil supplies of the United States are
interrupted, threatened, or diminished;
(iv) are clearly necessary to protect the national interest; and
(v) are in accordance with the provisions of this Act; and
(B) the President reports such findings to the Congress and the Congress, within 60 days thereafter, agrees to a concurrent
resolution approving such exports on the basis of the findings.
(3) Notwithstanding any other provision of this section or any other provision of law, including subsection (u) of section 28
of the Mineral Leasing Act of 1920, // 30 USC 185. // the President may export oil to any country pursuant to a bilateral
international oil supply agreement entered into by the United States with such nation before June 25, 1979, or to any country
pursuant to the International Emergency Oil Sharing Plan of the International Energy Agency.
(e) Refined Petroleum Products.—(1) No refined petroleum product may be exported except pursuant to an export license
specifically authorizing such export. Not later than 5 days after an application for a license to export any refined petroleum
product or residual fuel oil is received, the Secretary shall notify the Congress of such application, together with the name of
the exporter, the destination of the proposed export, and the amount and price of the proposed export. Such notification shall
be made to the chairman of the Committee on Foreign Affairs of the House of Representatives and the chairman of the
Committee on Banking, Housing, and Urban Affairs of the Senate.
(2) The Secretary may not grant such license during the 30–day period beginning on the date on which notification to the
Congress under paragraph (1) is received, unless the President certifies in writing to the Speaker of the House of
Representatives and the President pro tempore of the Senate that the proposed export is vital to the national interest and that
a delay in issuing the license would adversely affect that interest.
(3) This subsection shall not apply to (A) any export license application for exports to a country with respect to which
historical export quotas established by the Secretary on the basis of past trading relationships apply, or (B) any license
application for exports to a country if exports under the license would not result in more than 250,000 barrels of refined
petroleum products being exported from the United States to such country in any fiscal year.
(4) For purposes of this subsection, “refined petroleum product” means gasoline, kerosene, distillates, propane or butane
gas, diesel fuel, and residual fuel oil refined within the United States or entered for consumption within the United States.
(5) The Secretary may extend any time period prescribed in section 10 of this Act to the extent necessary to take into
account delays in action by the Secretary on a license application on account of the provisions of this subsection.
(f) Certain Petroleum Products.—Petroleum products refined in United States Foreign Trade Zones, or in the United States
Territory of Guam, from foreign crude oil shall be excluded from any quantitative restrictions imposed under this section
except that, if the Secretary finds that a product is in short supply, the Secretary may issue such regulations as may be
necessary to limit exports.
(g) Agricultural Commodities.—(1) The authority conferred by this section shall not be exercised with respect to any
agricultural commodity, including fats and oils or animal hides or skins, without the approval of the Secretary of
Agriculture. The Secretary of Agriculture shall not approve the exercise of such authority with respect to any such
commodity during any period for which the supply of such commodity is determined by the Secretary of Agriculture to be
in excess of the requirements of the domestic economy except to the extent the President determines that such exercise of
authority is required to carry out the policies set forth in subparagraph (A) or (B) of paragraph (2) of section 3 of this Act.
the Secretary of Agriculture shall, by exercising the authorities which the Secretary of Agriculture has under other
applicable provisions of law, collect data with respect to export sales of animal hides and skins.
(2) Upon approval of the Secretary, in consultation with the Secretary of Agriculture, agricultural commodities purchased by
or for use in a foreign country may remain in the United States for export at a later date free from any quantitative
limitations on export which may be imposed to carry out the policy set forth in section 3(2)(C) of this Act subsequent to
such approval. The Secretary may not grant such aproval unless the Secretary receives adequate assurance and, in
conjunction with the Secretary of Agriculture, finds (A) that such commodities will eventually be exported, (B) that neither
the sale nor export thereof will result in an excessive drain of scarce materials and have a serious domestic inflationary
impact, (C) that storage of such commodities in the United States will not unduly limit the space available for storage of
domestically owned commodities, and (D) that the purpose of such storage is to establish a reserve of such commodities for
later use, not including resale to or use by another country. The Secretary may issue such regulations as may be necessary to
implement this paragraph.
(3) If the authority conferred by this section or section 6 is exercised to prohibit or curtail the export of any agricultural
commodity in order to carry out the policies set forth in subparagraph (B) or (C) of paragraph (2) of section 3 of this Act,
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the President shall immediately report such prohibition or curtailment to the Congress, setting forth the reasons therefor in
detail. If the Congress, within 30 days after the date of its receipt of such report, adopts a concurrent resolution disapproving
such prohibition or curtailment, then such prohibition or curtailment shall cease to be effective with the adoption of such
resolution. In the computation of such 30–day period, there shall be excluded the days on which either House is not in
session because of an adjournment of more than 3 days to a day certain or because of an adjournment of the Congress sine
die.
(h) Barter Agreements.—(1) The exportation pursuant to a barter agreement of any goods which may lawfully be exported
from the United States, for any goods which may lawfully be imported into the United States, may be exempted, in
accordance with paragraph (2) of this subsection, from any quantitative limitation on exports (other than any reporting
requirement) imposed to carry out the policy set forth in section 3(2)(C) of this Act.
(2) The Secretary shall grant an exemption under paragraph (1) if the Secretary finds, after consultation with the appropriate
department or agency of the United States, that—,
(A) for the period during which the barter agreement is to be performed—,
(i) the average annual quantity of the goods to be exported pursuant to the barter agreement will not be required to satisfy
the average amount of such goods estimated to be required annually by the domestic economy and will be surplus thereto;
and
(ii) the average annual quantity of the goods to be imported will be less than the average amount of such goods estimated to
be required annually to supplement domestic production; and
(B) the parties to such barter agreement have demonstrated adequately that they intend, and have the capacity, to perform
such barter agreement.
(3) For purposes of this subsection, the term “barter agreement” means any agreement which is made for the exchange,
without monetary consideration, of any goods produced in the United States for any goods produced outside of the United
States
(4) This subsection shall apply only with respect to barter agreements entered into after the effective date of this Act.
(i) Unprocessed Red Cedar.—(1) The Secretary shall require a validated license, under the authority contained in subsection
(a) of this section, for the export of unprocessed western red cedar (Thuja plicata) logs, harvested from State or Federal
lands. The Secretary shall impose quantitative restrictions upon the export of unprocessed western red cedar logs during the
3–year period beginning on the effective date of this Act as follows:
(A) Not more than thirty million board feet scribner of such logs may be exported during the first year of such 3–year
period.
(B) Not more than fifteen million board feet scribner of such logs may be exported during the second year of such period.
(C) Not more than five million board feet scribner of such logs may be exported during the third year of such period.
After the end of such 3–year period, no unprocessed western red cedar logs may be exported from the United States.
(2) The Secretary shall allocate export licenses to exporters pursuant to this subsection on the basis of a prior history of
exportation by such exporters and such other factors as the Secretary considers necessary and appropriate to minimize any
hardship to the producers of western red cedar and to further the foreign policy of the United States.
(3) Unprocessed western red cedar logs shall not be considered to be an agricultural commodity for purposes of subsection
(g) of this section.
(4) As used in this subsection, the term “unporcessed western red cedar” means red cedar timber which has not been
processed into—,
(A) lumber without wane;
(B) chips, pulp, and pulp products;
(C) veneer and plywood;
(D) poles, posts, or pilings cut or treated with preservative for use as such and not intended to be further processed; or
(E) shakes and shingles.
(j) Export of Horses.—(1) Notwithstanding any other provision of this Act, no horse may be exported by sea from the
United States, or any of its territories and possessions, unless such horse is part of a consignment of horses with respect to
which a waiver has been granted under paragraph (2) of this subsection.
(2) The Secretary, in consultation with the Secretary of Agriculture, may issue regulations providing for the granting of
waivers permitting the export by sea of a specified consignment of horses, if the Secretary, in consultation with the
Secretary of Agriculture, determines that no horse in that consignment is being exported for purposes of slaughter.
FOREIGN BOYCOTTS
Sec. 8. // 50 USC app. 2047. // (a) Prohibitions and Exceptions.—( 1) For the purpose of implementing the policies set forth
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in subparagraph (A) or (B) of paragraph (5) of section 3 of this Act, the President shall issue regulations prohibiting any
United States person, with respect to his activities in the interstate or foreign commerce of the United States, from taking or
knowingly agreeing to take any of the following actions with intent to comply with, further, or support any boycott fostered
or imposed by a foreign country against a country which is friendly to the United States and which is not itself the object of
any form of boycott pursuant to United States law or regulation:
(A) Refusing, or requiring any other person to refuse, to do business with or in the boycotted country, with any business
concern organized under the laws of the boycotted country, with any national or resident of the boycotted country, or with
any other person, pursuant to an agreement with, a requirement of, or a request from or on behalf of the boycotting country.
The mere absence of a business relationship with or in the boycotted country with any business concern organized under the
laws of the boycotted country, with any national or resident of the boycotted country, or with any other person, does not
indicate the existence of the intent required to establish a violation of regulations issued to carry out this subparagraph.
(B) Refusing, or requiring any other person to refuse, to employ or otherwise discriminating against any United States
person on the basis of race, religion, sex, or national origin of that person or of any owner, officer, director, or employee of
such person.
(C) Furnishing information with respect to the race, religion, sex, or national origin of any United States person or of any
owner, officer, director, or employee of such person.
(D) Furnishing information about whether any person has, has had, or proposes to have any business relationship (including
a relationship by way of sale, purchase, legal or commercial representation, shipping or other transport, insurance,
investment, or supply) with or in the boycotted country, with any business concern organized under the laws of the
boycotted country, with any national or resident of the boycotted country, or with any other person which is known or
believed to be restricted from having any business relationship with or in the boycotting country. Nothing in this paragraph
shall prohibit the furnishing of normal business information in a commercial context as defined by the Secretary.
(E) Furnishing information about whether any person is a member of, has made contributions to, or is otherwise associated
with or involved in the activities of any charitable or fraternal organization which supports the boycotted country.
(F) Paying, honoring, confirming, or otherwise implementing a letter of credit which contains any condition or requirement
compliance with which is prohibited by regulations issued pursuant to this paragraph, and no United States person shall, as a
result of the application of this paragraph, be obligated to pay or otherwise honor or implement such letter of credit.
(2) Regulations issued pursuant to paragraph (1) shall provide exceptions for—,
(A) complying or agreeing to comply with requirements (i) prohibiting the import of goods or services from the boycotted
country or goods produced or services provided by any business concern organized under the laws of the boycotted country
or by nationals or residents of the boycotted country, or (ii) prohibiting the shipment of goods to the boycotting country on a
carrier of the boycotted country, or by a route other than that prescribed by the boycotting country or the recipient of the
shipment;
(B) complying or agreeing to comply with import and shipping document requirements with respect to the country of origin,
the name of the carrier and route of shipment, the name of the supplier of the shipment or the name of the provider of other
services, except that no information knowingly furnished or conveyed in response to such requirements may be stated in
negative, blacklisting, or similar exclusionary terms, other than with respect to carriers or route of shipment as may be
permitted by such regulations in order to comply with precautionary requirements protecting against war risks and
confiscation;
(C) complying or agreeing to comply in the normal course of business with the unilateral and specific selection by a
boycotting country, or national or resident thereof, of carriers, insurers, suppliers of services to be performed within the
boycotting country or specific goods which, in the normal course of business, are identifiable by source when imported into
the boycotting country;
(D) complying or agreeing to comply with export requirements of the boycotting country relating to shipments or
transshipments of exports to the boycotted country, to any business concern of or organized under the laws of the boycotted
country, or to any national or resident of the boycotted country;
(E) compliance by an individual or agreement by an individual to comply with the immigration or passport requirements of
any country with respect to such individual or any member of such individual’s family or with requests for information
regarding requirements of employment of such individual within the boycotting country; and
(F) compliance by a United States person resident in a foreign country or agreement by such person to comply with the laws
of that country with respect to his activities exclusively therein, and such regulations may contain exceptions for such
resident complying with the laws or regulations of that foreign country governing imports into such country of trademarked,
trade named, or similarly specifically identifiable products, or components of products for his own use, including the
performance of contractual services within that country, as may be defined by such regulations.
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(3) Regulations issued pursuant to paragraphs (2)(C) and (2)(F) shall not provide exceptions from paragraphs (1)(B) and
(1)(C).
(4) Nothing in this subsection may be construed to supersede or limit the operation of the antitrust or civil rights laws of the
United States.
(5) This section shall apply to any transaction or activity undertaken, by or through a United States person or any other
person, with intent to evade the provisions of this section as implemented by the regulations issued pursuant to this
subsection, and such regulations shall expressly provide that the exceptions set forth in paragraph (2) shall not permit
activities or agreements (expressed or implied by a course of conduct, including a pattern of responses) otherwise
prohibited, which are not within the intent of such exceptions.
(b) Foreign Policy Controls.—(1) In addition to the regulations issued pursuant to subsection (a) of this section, regulations
issued under section 6 of this Act shall implement the policies set forth in section 3(5).
(2) Such regulations shall require that any United States person receiving a request for the furnishing of information, the
entering into or implementing of agreements, or tthe taking of any other action referred to in section 3(5) shall report that
fact to the Secretary, together with such other information concerning such request as the Secretary may require for such
action as the Secretary considers appropriate for carrying out the policies of that section. Such person shall also report to the
Secretary whether such person intends to comply and whether such person has complied with such request. Any report filed
pursuant to this paragraph shall be made available promptly for public inspection and copying, except that information
regarding the quantity, description, and value of any goods or technology to which such report relates may be kept
confidential if the Secretary determines that disclosure thereof would place the United States person involved at a
competitive disadvantage. The Secretary shall periodically transmit summaries of the information contained in such reports
to the Secretary of State for such action as the Secretary of State, in consultation with the Secretary, considers appropriate
for carrying out the policies set forth in section 3(5) of this Act.
(c) Preemption.—The provisions of this section and the regulations issued pursuant thereto shall preempt any law, rule, or
regulation of any of the several States or the District of Columbia, or any of the territories or possessions of the United
States, or of any governmental subdivision thereof, which law, rule, or regulation pertains to participation in, compliance
with, implementation of, or the furnishing of information regarding restrictive trade practices or boycotts fostered or
imposed by foreign countries against other countries.
PROCEDURES FOR HARDSHIP RELIEF FROM EXPORT CONTROLS
Sec. 9 // 50 USC app. 2408. // (a) Filing of Petitions.—Any person who, in such person’s domestic manufacturing process or
other domestic business operation, utilizes a product produced abroad in whole or in part from a good historically obtained
from the United States but which has been made subject to export controls, or any person who historically has exported such
a good, may transmit a petition of hardship to the Secretary requesting an exemption from such controls in order to alleviate
any unique hardship resulting from the imposition of such controls. A petition under this section shall be in such form as the
Secretary shall prescribe and shall contain information demonstrating the need for the relief requested.
(b) Decision of the Secretary.—Not later than 30 days after receipt of any petition under subsection (a), the Secretary shall
transmit a written decision to the petitioner granting or denying the requested relief. Such decision shall contain a statement
setting forth the Secretary’s basis for the grant or denial. Any exemption granted may be subject to such conditions as the
Secretary considers appropriate.
(c) Factors To Be Considered.—For purposes of this section, the Secretary’s decision with respect to the grant or denial of
relief from unique hardship resulting directly or indirectly from the imposition of export controls shall reflect the Secretary’s
consideration of factors such as the following:
(1) Whether denial would cause a unique hardship to the petitioner which can be alleviated only by granting an exception to
the applicable regulations. In determining whether relief shall be granted, the Secretary shall take into account—,
(A) ownership of material for which there is no practicable domestic market by virtue of the location or nature of the
material;
(B) potential serious financial loss of the applicant if not granted an exception;
(C) inability to obtain, except through import, an item essential for domestic use which is produced abroad from the good
under control;
(D) the extent to which denial would conflict, to the particular detriment of the applicant, with other national policies
including those reflected in any international agreement to which the United States is a party;
(E) possible adverse effects on the economy (including unemployment) in any locality or region of the United States; and
(F) other relevant factors, including the applicant’s lack of an exporting history during any base period that may be
established with respect to export quotas for the particular good..
(2) The effect a finding in favor of the applicant would have on attainment of the basic objectives of the short supply control
14 Annex 190
program.
In all cases, the desire to sell at higher prices and thereby obtain greater profits shall not be considered as evidence of a
unique hardship, nor will circumstances where the hardship is due to imprudent acts or failure to act on the part of the
petitioner.
PROCEDURES FOR PROCESSING EXPORT LICENSE APPLICATIONS
Sec. 10. // 50 USC app. 2409. // (a) Primary Responsibility of the Secretary.—(1) All export license applications required
under this Act shall be submitted by the applicant to the Secretary. All determinations with respect to any such application
shall be made by the Secretary, subject to the procedures provided in this section.
(2) It is the intent of the Congress that a determination with respect to any export license application be made to the
maximum extent possible by the Secretary without referral of such application to any other department or agency of the
Government.
(3) To the extent necessary, the Secretary shall seek information and recommendations from the Government departments
and agencies concerned with aspects of United States domestic and foreign policies and operations having an important
bearing on exports. Such departments and agencies shall cooperate fully in rendering such information and
recommendations.
(b) Initial Screening.—Within 10 days after the date on which any export license application is submitted pursuant to
subsection (a)(1), the Secretary shall—,
(1) send the applicant an acknowledgment of the receipt of the application and the date of the receipt;
(2) submit to the applicant a written description of the procedures required by this section, the responsibilities of the
Secretary and of other departments and agencies with respect to the application, and the rights of the applicant;
(3) return the application without action if the application is improperly completed or if additional information is required,
with sufficient information to permit the application to be properly resubmitted, in which case if such application is
resubmitted, it shall be treated as a new application for the purpose of calculating the time periods prescribed in this section;
(4) determine whether it is necessary to refer the application to any other department or agency and, if such referral is
determined to be necessary, inform the applicant of any such department or agency to which the application will be referred;
and
(5) determine whether it is necessary to submit the application to a multilateral review process, pursuant to a multilateral
agreement, formal or informal, to which the United States is a party and, if so, inform the applicant of this requirement.
(c) Action on Certain Applications.—In each case in which the Secretary determines that it is not necessary to refer an
application to any other department or agency for its information and recommendations, a license shall be formally issued or
denied within 90 days after a properly completed application has been submitted pursuant to this section.
(d) Referral to Other Departments and Agencies.—In each case in which the Secretary determines that it is necessary to
refer an application to any other department or agency for its information and recommendations, the Secretary shall, within
30 days after the submission of a properly completed application—,
(1) refer the application, together with all necessary analysis and recommendations of the Department of Commerce,
concurrently to all such departments or agencies; and
(2) if the applicant so requests, provide the applicant with an opportunity to review for accuracy any documentation to be
referred to any such department or agency with respect to such application for the purpose of describing the export in
question in order to determine whether such documentation accurately describes the proposed export.
(e) Action by Other Departments and Agencies.—(1) Any department or agency to which an application is referred pursuant
to subsection (d) shall submit to the Secretary, within 30 days after its receipt of the application, the information or
recommendations requested with respect to such application. Except as provided in paragraph (2), any such department or
agency which does not submit its recommendations within the time period prescribed in the preceding sentence shall be
deemed by the Secretary to have no objection to the approval of such application.
(2) If the head of any such department or agency notifies the Secretary before the expiration of the time period provided in
paragraph (1) for submission of its recommendations that more time is required for review by such department or agency,
such department or agency shall have an additional 30–day period to submit its recommendations to the Secretary. If such
department or agency does not submit its recommendations within the time period prescribed by the preceding sentence, it
shall be deemed by the Secretary to have no objection to the approval of such application.
(f) Action by the Secretary.—(1) Within 90 days after receipt of the recommendations of other departments and agencies
with respect to a license application, as provided in subsection (e), the Secretary shall formally issue or deny the license. In
deciding whether to issue or deny a license, the Secretary shall take into account any recommendation of a department or
agency with respect to the application in question. In cases where the Secretary receives conflicting recommendations, the
15 Annex 190
Secretary shall, within the 90–day period provided for in this subsection, take such action as may be necessary to resolve
such conflicting recommendations.
(2) In cases where the Secretary receives questions or negative considerations or recommendations from any other
department or agency with respect to an application, the Secretary shall, to the maximum extent consistent with the national
security and foreign policy of the United States, inform the applicant of the specific questions raised and any such negative
considerations or recommendations, and shall accord the applicant an opportunity, before the final determination with
respect to the application is made, to respond in writing to such questions, considerations, or recommendations.
(3) In cases where the Secretary has determined that an application should be denied, the applicant shall be informed in
writing, within 5 days after such determination is made, of the determination, of the statutory basis for denial, the policies
set forth in section 3 of the Act which would be furthered by denial, and, to the extent consistent with the national security
and foreign policy of the United States, the specific considerations which led to the denial, and of the availability of appeal
procedures. In the event decisions on license applications are deferred inconsistent with the provisions of this section, the
applicant shall be so informed in writing within 5 days after such deferral.
(4) If the Secretary determines that a particular application or set of applications is of exceptional importance and
complexity, and that additional time is required for negotiations to modify the application or applications, the Secretary may
extend any time period prescribed in this section. The Secretary shall notify the Congress and the applicant of such
extension and the reasons therefor.
(g) Special Procedures for Secretary of Defense.—(1) Notwithstanding any other provision of this section, the Secretary of
Defense is authorized to review any proposed export of any goods or technology to any country to which exports are
controlled for national security purposes and, whenever the Secretary of Defense determines that the export of such goods or
technology will make a significant contribution, which would prove detrimental to the national security of the United States,
to the military potential of any such country, to recommend to the President that such export be disapproved.
(2) Notwithstanding any other provision of law, the Secretary of Defense shall determine, in consultation with the Secretary,
and confirm in writing the types and categories of transactions which should be reviewed by the Secretary of Defense in
order to make a determination referred to in paragraph (1). Whenever a license or other authority is requested for the export
to any country to which exports are controlled for national security purposes of goods or technology within any such type or
category, the Secretary shall notify the Secretary of Defense of such request, and the Secretary may not issue any license or
other authority pursuant to such request before the expiration of the period within which the President may disapprove such
export. The Secretary of Defense shall carefully consider any notification submitted by the Secretary pursuant to this
paragraph and, not later than 30 days after notification of the request, shall—,
(A) recommend to the President that he disapprove any request for the export of the goods or technology involved to the
particular country if the Secretary of Defense determines that the export of such goods or technology will make a significant
contribution, which would prove detrimental to the national security of the United States, to the military potential of such
country or any other country;
(B) notify the Secretary that he would recommend approval subject to specified conditions; or
(C) recommend to the Secretary that the export of goods or technology be approved.
If the President notifies the Secretary, within 30 days after receiving a recommendation from the Secretary of Defense, that
he disapproves such export, no license or other authority may be issued for the export of such goods or technology to such
country.
(3) The Secretary shall approve or disapprove a license application, and issue or deny a license, in accordance with the
provisions of this subsection, and, to the extent applicable, in accordance with the time periods and procedures otherwise set
forth in this section.
(4) Whenever the President exercises his authority under this subsection to modify or overrule a recommendation made by
the Secretary of Defense or exercises his authority to modify or overrule any recommendation made by the Secretary of
Defense under subsection (c) or (d) of section 5 of this Act with respect to the list of goods and technologies controlled for
national security purposes, the President shall promptly transmit to the Congress a statement indicating his decision,
together with the recommendation of the Secretary of Defense.
(h) Multilateral Controls.—In any case in which an application, which has been finally approved under subsection (c), (f), or
(g) of this section, is required to be submitted to a multilateral review process, pursuant to a multilateral agreement, formal
or informal, to which the United States is a party, the license shall not be issued as prescribed in such subsections, but the
Secretary shall notify the applicant of the approval of the application (and the date of such approval) by the Secretary
subject to such multilateral review. The license shall be issued upon approval of the application under such multilateral
review. If such multilateral review has not resulted in a determination with respect to the application within 60 days after
such date, the Secretary’s approval of the license shall be final and the license shall be issued, unless the Secretary
16 Annex 190
determines that issuance of the license would prove detrimental to the national security of the United States. At the time at
which the Secretary makes such a determination, the Secretary shall notify the applicant of the determination and shall
notify the Congress of the determination, the reasons for the determination, the reasons for which the multilateral review
could not be concluded within such 60–day period, and the actions planned or being taken by the United States Government
to secure conclusion of the multilateral review. At the end of every 60–day period after such notification to Congress, the
Secretary shall advise the applicant and the Congress of the status of the application, and shall report to the Congress in
detail on the reasons for the further delay and any further actions being taken by the United States Government to secure
conclusion of the multilateral review. In addition, at the time at which the Secretary issues or denies the license upon
conclusion of the multilateral review, the Secretary shall notify the Congress of such issuance or denial and of the total time
required for the multilateral review.
(i) Record.—The Secretary and any department or agency to which any application is referred under this section shall keep
accurate records with respect to all applications considered by the Secretary or by any such department or agency, including,
in the case of the Secretary, any dissenting recommendations received from any such department or agency.
(j) Appeal and Court Action.—(1) The Secretary shall establish appropriate procedures for any applicant to appeal to the
Secretary the denial of an export license application of the applicant.
(2) In any case in which any action prescribed in this section is not taken on a license application within the time periods
established by this section (except in the case of a time period extended under subsection (f)(4) of which the applicant is
notified), the applicant may file a petition with the Secretary requesting compliance with the requirements of this section.
When such petition is filed, the Secretary shall take immediate steps to correct the situation giving rise to the petition and
shall immediately notify the applicant of such steps.
(3) If, within 30 days after a petition is filed under paragraph (2), the processing of the application has not been brought into
conformity with the requirements of this section, or the application has been brought into conformity with such requirements
but the Secretary has not so notified the applicant, the applicant may bring an action in an appropriate United States district
court for a restraining order, a temporary or permanent injunction, or other appropriate relief, to require compliance with the
requirements of this section. The United States district courts shall have jurisdiction to provide such relief, as appropriate.
VIOLATIONS
Sec. 11. // 50 USC app. 2410. // (a) In General.—Except as provided in subsection (b) of this section, whoever knowingly
violates any provision of this Act or any regulation, order, or license issued thereunder shall be fined not more than five
times the value of the exports involved or $50,000, whichever is greater, or imprisoned not more than 5 years, or both.
(b) Willful Violations.—(1) Whoever willfully exports anything contrary to any provision of this Act or any regulation,
order, or license issued thereunder, with knowledge that such exports will be used for the benefit of any country to which
exports are restricted for national security or foreign policy purposes, shall be fined not more than five times the value of the
exports involved or $100,000, whichever is greater, or imprisoned not more than 10 years, or both.
(2) Any person who is issued a validated license under this Act for the export of any good or technology to a controlled
country and who, with knowledge that such a good or technology is being used by such controlled country for military or
intelligence gathering purposes contrary to the conditions under which the license was issued, willfully fails to report such
use to the Secretary of Defense, shall be fined not more than five times the value of the exports involved or $100,000,
whichever is greater, or imprisoned for not more than 5 years, or both. For purposes of this paragraph, “controlled country”
means any country described in section 620(f) of the Foreign Assistance Act of 1961. // 22 USC 2370. //
(c) Civil Penalties; Administrative Sanctions.—(1) The head of any department or agency exercising any functions under
this Act, or any officer or employee of such department or agency specifically designated by the head thereof, may impose a
civil penalty not to exceed $10,000 for each violation of this Act or any regulation, order, or license issued under this Act,
either in addition to or in lieu of any other liability or penalty which may be imposed.
(2)(A) The authority under this Act to suspend or revoke the authority of any United States person to export goods or
technology may be used with respect to any violation of the regulations issued pursuant to section 8(a) of this Act.
(B) Any administrative sanction (including any civil penalty or any suspension or revocation of authority to export) imposed
under this Act for a violation of the regulations issued pursuant to section 8(a) of this Act may be imposed only after notice
and opportunity for an agency hearing on the record in accordance with sections 554 through 557 of title 5, United States
Code.
(C) Any charging letter or other document initiating administrative proceedings for the imposition of sanctions for violations
of the regulations issued pursuant to section 8(a) of this Act shall be made available for public inspection and copying.
(d) Payment of Penalties.—The payment of any penalty imposed pursuant to subsection (c) may be made a condition, for a
period not exceeding one year after the imposition of such penalty, to the granting, restoration, or continuing validity of any
export license, permission, or privilege granted or to be granted to the person upon whom such penalty is imposed. In
17 Annex 190
addition, the payment of any penalty imposed under subsection (c) may be deferred or suspended in whole or in part for a
period of time no longer than any probation period (which may exceed one year) that may be imposed upon such person.
Such a deferral or suspension shall not operate as a bar to the collection of the penalty in the event that the conditions of the
suspension, deferral, or probation are not fulfilled.
(e) Refunds.—Any amount paid in satisfaction of any penalty imposed pursuant to subsection (c) shall be covered into the
Treasury as a miscellaneous receipt. The head of the department or agency concerned may, in his discretion, refund any
such penalty, within 2 years after payment, on the ground of a material error of fact of law in the imposition of the penalty.
Notwithstanding section 1346(a) of title 28, United States Code, no action for the refund of any such penalty may be
maintained in any court.
(f) Actions for Recovery of Penalties.—In the event of the failure of any person to pay a penalty imposed pursuant to
subsection (c), a civil action for the recovery thereof may, in the discretion of the head of the department or agency
concerned, be brought in the name of the United States. In any such action, the court shall determine de novo all issues
necessary to the establishment of liability. Except as provided in this subsection and in subsection (d), no such liability shall
be asserted, claimed, or recovered upon by the United States in any way unless it has previously been reduced to judgment.
(g) Other Authorities.—Nothing in subsection (c), (d), or (f) limits—,
(1) the availability of other administrative or judicial remedies with respect to violations of this Act, or any regulation, order,
or license issued under this Act;
(2) the authority to compromise and settle administrative proceedings brought with respect to violations of this Act, or any
regulation, order, or license issued under this Act; or
(3) the authority to compromise, remit or mitigate seizures and forfeitures pursuant to section 1(b) of title VI of the Act of
June 15, 1917 (22 U.S.C. 401(b)).
ENFORCEMENT
Sec. 12. // 50 USC app. 2411. // (a) General Authority.—To the extent necessary or appropriate to the enforcement of this
Act or to the imposition of any penalty, forfeiture, or liability arising under the Export Control Act of 1949 // 50 USC app.
2021 // or the Export Administration Act of 1969, the head of any department or agency exercising any function thereunder
(and officers or employees of such department or agency specifically designated by the head thereof) may make such
investigations and obtain such information from, require such reports or the keeping of such records by, make such
inspection of the books, records, and other writings, premises, or property of, and take the sworn testimony of, any person.
In addition, such officers or employees may administer oaths or affirmations, and may by subpena require any person to
appear and testify or to appear and produce books, records, and other writings, or both, and in the case of contumacy by, or
refusal to obey a subpena issued to, any such person, the district court of the United States for any district in which such
person is found or resides or transacts business, upon application, and after notice to any such person and hearing, shall have
jurisdiction to issue an order requiring such person to appear and give testimony or to appear and produce books, records,
and other writings, or both, and any failure to obey such order of the court may be punished by such court as a contempt
thereof.
(b) Immunity.—No person shall be excused from complying with any requirements under this section because of his
privilege against self–incrimination, but the immunity provisions of section 6002 of title 18, United States Code, shall apply
with respect to any individual who specifically claims such privilege.
(c) Confidentiality.—(1) Except as otherwise provided by the third sentence of section 8(b)(2) and by section 11(c)(2)(C) of
this Act, information obtained under this Act on or before June 30, 1980, which is deemed confidential, including Shippers’
Export Declarations, or with reference to which a request for confidential treatment is made by the person furnishing such
information, shall be exempt from disclosure under section 552 of title 5, United States Code, and such information shall not
be published or disclosed unless the Secretary determines that the withholding thereof is contrary to the national interest.
Information obtained under this Act after June 30, 1980, may be withheld only to the extent permitted y statute, except that
information obtained for the purpose of consideration of, or concerning, license applications under this Act shall be withheld
from public disclosure unless the release of such information is determined by the Secretary to be in the national interest.
Enactment of this subsection shall not affect any judicial proceeding commenced under section 552 of title 5, United States
Code, to obtain access to boycott reports submitted prior to October 31, 1976, which was pending on May 15, 1979; but
such proceeding shall be continued as if this Act had not been enacted.
(2) Nothing in this Act shall be construed as authorizing the withholding of information from the Congress, and all
information obtained at any time under this Act or previous Acts regarding the control of exports, including any report or
license application required under this Act, shall be made available upon request to any committee or subcommittee of
Congress of appropriate jurisdiction. No such committee or subcommittee shall disclose any information obtained under this
Act or previous Acts regarding the control of exports which is submitted on a confidential basis unless the full committee
18 Annex 190
determines that the withholding thereof is contrary to the national interest.
(d) Reporting Requirements.—In the administration of this Act, reporting requirements shall be so designed as to reduce the
cost of reporting, recordkeeping, and export documentation required under this Act to the extent feasible consistent with
effective enforcement and compilation of useful trade statistics. Reporting, recordkeeping, and export documentation
requirements shall be periodically reviewed and revised in the light of developments in the field of information technology.
(e) Simplification of Regulations.—The Secretary, in consultation with appropriate United States Government departments
and agencies and with appropriate technical advisory committees established under section 5(h), shall review the regulations
issued under this Act and the commodity control list in order to determine how compliance with the provisions of this Act
can be facilitated by simplifying such regulations, by simplifying or clarifying such list, or by any other means.
EXEMPTION FROM CERTAIN PROVISIONS RELATING TO ADMINISTRATIVE PROCEDURE AND JUDICIAL
REVIEW
Sec. 13. // 50 USC app. 2412. // (a) Exemption.—Except as provided in section 11(c)(2), the functions exercised under this
Act are excluded from the operation of sections 551, 553 through 559, and 701 through 706 of title 5, United States Code.
(b) Public Participation.—It is the intent of the Congress that, to the extent practicable, all regulations imposing controls on
exports under this Act be issued in proposed form with meaningful opportunity for public comment before taking effect. In
cases where a regulation imposing controls under this Act is issued with immediate effect, it is the intent of the Congress
that meaningful opportunity for public comment also be provided and that the regulation be reissued in final form after
public comments have been fully considered.
ANNUAL REPORT
Sec. 14. // 50 USC app. 2413. // (a) Contents.—Not later than December 31 of each year, the Secretary shall submit to the
Congress a report on the administration of this Act during the preceding fiscal year. All agencies shall cooperate fully with
the Secretary in providing information for such report. Such report shall include detailed information with respect to—,
(1) the implementation of the policies set forth in section 3;
(2) general licensing activities under sections 5, 6, and 7, and any changes in the exercise of the authorities contained in
sections 5(a), 6(a), and 7(a);
(3) the results of the review of United States policy toward individual countries pursuant to section 5(b);
(4) the results, in as much detail as may be included consistent with the national security and the need to maintain the
confidentiality of proprietary information, of the actions, including reviews and revisions of export controls maintained for
national security purposes, required by section 5(c)(3);
(5) actions taken to carry out section 5(d);
(6) changes in categories of items under export control referred to in section 5(e);
(7) determinations of foreign availability made under section 5(f), the criteria used to make such determinations, the
removal of any export controls under such section, and any evidence demonstrating a need to impose export controls for
national security purposes notwithstanding foreign availability;
(8) actions taken in compliance with section 5(f)(5);
(9) the operation of the indexing system under section 5(g);
(10) consultations with the technical advisory committees established pursuant to section 5(h), the use made of the advice
rendered by such committees, and the contributions of such committees toward implementing the policies set forth in this
Act;
(11) the effectiveness of export controls imposed under section 6 in furthering the foreign policy of the United States;
(12) export controls and monitoring under section 7;
(13) the information contained in the reports required by section 7(b)(2), together with an analysis of—,
(A) the impact on the economy and world trade of shortages or increased prices for commodities subject to monitoring
under this Act or section 812 of the Agricultural Act of 1970;
// 7 USC 612c–3. //
(B) the worldwide supply of such commodities; and
(C) actions being taken by other countries in response to such shortages or increased prices;
(14) actions taken by the President and the Secretary to carry out the antiboycott policies set forth in section 3(5) of this Act;
(15) organizational and procedural changes undertaken in furtherance of the policies set forth in this Act, including changes
to increase the efficiency of the export licensing process and to fulfill the requirements of section 10, including an analysis
of the time required to process license applications, the number and disposition of export license applications taking more
than 90 days to process, and an accounting of appeals received, court orders issued, and actions taken pursuant thereto under
19 Annex 190
subsection (j) of such section;
(16) delegations of authority by the President as provided in section 4(e) of this Act;
(17) efforts to keep the business sector of the Nation informed with respect to policies and procedures adopted under this
Act;
(18) any reviews undertaken in furtherance of the policies of this Act, including the results of the review required by section
12(d), and any action taken, on the basis of the review required by section 12(e), to simplify regulations issued under this
Act;
(19) violations under section 11 and enforcement activities under section 12; and
(20) the issuance of regulations under the authority of this Act, including an explanation of each case in which regulations
were not issued in accordance with the first sentence of section 13(b).
(b) Report on Certain Export Controls.—To the extent that the President determines that the policies set forth in section 3 of
this Act require the control of the export of goods and technology other than those subject to multilateral controls, or require
more stringent controls than the multilateral controls, the President shall include in each annual report the reasons for the
need to impose, or to continue to impose, such controls and the estimated domestic economic impact on the various
industries affected by such controls.
(c) Report on Negotiations.—The President shall include in each annual report a detailed report on the progress of the
negotiations required by section 5(i), until such negotiations are concluded.
REGULATORY AUTHORITY
Sec. 15. // 50 USC app. 2414. // The President and the Secretary may issue such regulations as are necessary to carry out the
provisions of this Act. Any such regulations issued to carry out the provisions of section 5(a), 6(a), 7(a), or 8(b) may apply
to the financing, transporting, or other servicing of exports and the participation therein by any person.
DEFINITIONS
Sec. 16. // 50 USC app. 2415. // As used in this Act—,
(1) the term “person” includes the singular and the plural and any individual, partnership, corporation, or other form of
association, including any government or agency thereof;
(2) the term “United States person” means any United States resident or national (other than an individual resident outside
the United States and employed by other than a United States person), any domestic concern (including any permanent
domestic establishment of any foreign concern) and any foreign subsidiary or affiliate (including any permanent foreign
establishment) of any domestic concern which is controlled in fact by such domestic concern, as determined under
regulations of the President;
(3) the term “good” means any article, material, supply or manufactured product, including inspection and test equipment,
and excluding technical data;
(4) the term “technology” means the information and know-how that can be used to design, produce, manufacture, utilize, or
reconstruct goods, including computer software and technical data, but not the goods themselves; and
(5) the term “Secretary” means the Secretary of Commerce.
EFFECT ON OTHER ACTS
Sec. 17. // 50 USC app. 2416. // (a) In General.—Nothing contained in this Act shall be construed to modify, repeal,
supersede, or otherwise affect the provisions of any other laws authorizing control over exports of any commodity.
(b) Coordination of Controls.—The authority granted to the President under this Act shall be exercised in such manner as to
achieve effective coordination with the authority exercised under section 38 of the Arms Export Control Act (22 U.S.C.
2778).
(c) Civil Aircraft Equipment.—Notwithstanding any other provision of law, any product (1) which is standard equipment,
certified by the Federal Aviation Administration, in civil aircraft and is an integral part of such aircraft, and (2) which is to
be exported to a country other than a controlled country, shall be subject to export controls exclusively under this Act. Any
such product shall not be subject to controls under section 38(b)(2) of the Arms Export Control Act. For purposes of this
subsection, the term “controlled country” means any country described in section 620(f) of the Foreign Assistance Act of
1961. // 22 USC 2370. //
(d) Nonproliferation Controls.—(1) Nothing in section 5 or 6 of this Act shall be construed to supersede the procedures
published by the President pursuant to section 309(c) of the Nuclear Non–Proliferation Act of 1978.
(2) With respect to any export license application which, under the procedures published by the President pursuant to
section 309(c) of the Nuclear Non–Proliferation Act of 1978, // 92 Stat. 141. 42 USC 2139. // is referred to the Subgroup on
Nuclear Export Coordination or other interagency group, the provisions of section 10 of this Act shall apply with respect to
20 Annex 190
such license application only to the extent that they are consistent with such published procedures, except that if the
processing of any such application under such procedures is not completed within 180 days after the receipt of the
application by the Secretary, the applicant shall have the rights of appeal and court action provided in section 10(j) of this
Act.
(e) Termination of Other Authority.—On October 1, 1979, the Mutual Defense Assistance Control Act of 1951 (22 U.S.C.
1611—1613d), is superseded.
AUTHORIZATION OF APPROPRIATIONS
Sec. 18. // 50 USC app. 2417. // (a) Requirement of Authorizing Legislation.—Notwithstanding any other provision of law,
no appropriation shall be made under any law to the Department of Commerce for expenses to carry out the purposes of this
Act unless previously and specifically authorized by law.
(b) Authorization.—There are authorized to be appropriated to the Department of Commerce to carry out the purposes of
this Act—,
(1) $8,000,000 for each of the fiscal years 1980 and 1981, of which $1,250,000 shall be available for each such fiscal year
only for purposes of carrying out foreign availability assessments pursuant to section 5(f)(5), and
(2) such additional amounts, for each such fiscal year, as may be necessary for increases in salary, pay, retirement, other
employee benefits authorized by law, and other nondiscretionary costs.
EFFECTIVE DATE
Sec. 19. // 50 USC app. 2418. // (a) Effective Date.—This Act shall take effect upon the expiration of the Export
Administration Act of 1969. // 50 USC app. 2401. //
(b) Issuance of Regulations.—(1) Regulations implementing the provisions of section 10 of this Act // 50 USC app. 2409 //
shall be issued and take effect not later than July 1, 1980.
(2) Regulations implementing the provisions of section 7(c) of this Act // 50 USC app. 2406 // shall be issued and take effect
not later than January 1, 1980.
TERMINATION DATE
Sec. 20. // 50 USC app. 2419. // The authority granted by this Act terminates on September 30, 1983, or upon any prior date
which the President by proclamation may designate.
SAVINGS PROVISIONS
Sec. 21. // 50 USC app. 2420. // (a) In General.—All delegations, rules, regulations, orders, determinations, licenses, or
other forms of administrative action which have been made, issued, conducted, or allowed to become effective under the
Export Control Act of 1949 // 50 USC app. 2021 // or the Export Administration Act of 1969 and which are in effect at the
time this Act takes effect shall continue in effect according to their terms until modified, superseded, set aside, or revoked
under this Act.
(b) Administrative Proceedings.—This Act shall not apply to any administrative proceedings commenced or any application
for a license made, under the Export Administration Act of 1969, which is pending at the time this Act takes effect.
TECHNICAL AMENDMENTS
Sec. 22. (a) Section 38(e) of the Arms Export Control Act (22 U.S.C. 2788(E)) is amended by striking out “sections 6(c),
(d), (e), and (f) and 7(a) and (c) of the Export Administration Act of 1969” and inserting in lieu thereof “subsections (c), (d),
(e), and (f) of section 11 of the Export Administration Act of 1979, and by subsections (a) and (c) of section 12 of such
Act”.
(b)(1) Section 103(c) of the Energy Policy and Conservation Act (42 U.S.C. 6212(c)) is amended—,
(A) by striking out “1969” and inserting in lieu thereof “1979”; and
(B) by striking out “(A)” and inserting in lieu thereof “(C)”.
(2) Section 254(e)(3) of such Act (42 U.S.C. 6274(e)(3)) is amended by striking out “section 7 of the Export Administration
Act of 1969” and inserting in lieu thereof “section 12 of the Export Administration Act of 1979”.
(c) Section 993(c)(2)(D) of the Internal Revenue Code of 1954 (26 U. S.C. 993(c)(2)(D)) is amended—,
(1) by striking out “4(b) of the Export Administration Act of 1969 (50 U.S.C. App. 2403(b))” and inserting in lieu thereof
“7( a) of the Export Administration Act of 1979”; and
(2) by striking out “(A)” and inserting in lieu thereof “(C)”.
INTERNATIONAL INVESTMENT SURVEY ACT AUTHORIZATIONS
21 Annex 190
Sec. 23. (a) Section 9 of the International Investment Survey Act of 1976 (22 U.S.C. 3108) is amended to read as follows:
“AUTHORIZATIONS
” Sec. 9. To carry out this Act, there are authorized to be appropriated $4,400,000 for the fiscal year ending September 30,
1980, and $4,500,000 for the fiscal year ending September 30, 1981.”.
(b) The amendment made by subsection (a) // 22 USC 3108 // shall take effect on October 1, 1979.
MISCELLANEOUS
Sec. 24. Section 402 of the Agricultural Trade Development and Assistance Act of 1954 // 7 USC 1732. // is amended by
inserting “or beer” in the second sentence immediately after “wine”.
Approved September 29, 1979.
LEGISLATIVE HISTORY:
HOUSE REPORTS: No. 96—200 accompanying H.R. 4034 (Comm. on Foreign Affairs) and No. 96—482 (Comm. of
Conference).
SENATE REPORT No. 96—169 (Comm. on Banking, Housing, and Urban Affairs).
CONGRESSIONAL RECORD, Vol. 125 (1979):
July 18, 20, 21, considered and passed Senate.
May 31, July 23, Sept. 11, 18, 21, 25, H.R. 4034 considered and passed House; passage vacated and S. 737, amended, passed
in lieu.
Sept. 27, Senate agreed to conference report.
Sept. 28, House agreed to conference report.
PL 96–72, 1979 S 737
End of Document © 2019 Thomson Reuters. No claim to original U.S. Government Works.
22 Annex 190
ANNEX 191
INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES
WASHINGTON, D.C.
IN THE PROCEEDING BETWEEN
METALPAR S.A. AND BUEN AIRE S.A.
(Claimants)
and
THE ARGENTINE REPUBLIC
(Respondent)
___________________________________________
AWARD ON THE MERITS
___________________________________________
ICSID CASE NO. ARB/03/5
Members of the Tribunal:
Rodrigo Oreamuno Blanco, President
Duncan H. Cameron, Arbitrator
Jean Paul Chabaneix, Arbitrator
Secretary of the Tribunal: Natalí Sequeira
Representing the Claimants:
Roberto Mayorga and Joaquín Morales
Etcheberry Rodríguez, Abogados
Santiago, Chile
Jaime Paredes
Chairman Metalpar S.A., Santiago, Chile
Sergio Meli
Abogado-Fiscal del Grupo de Empresas
Metalpar, Santiago, Chile
Jorge Postiglione
Estudio Brons & Salas
Buenos Aires, Argentina
Gonzalo Varela
Manager Metalpar Argentina
Representing the Respondent:
Osvaldo César Guglielmino
Procurador del Tesoro de la Nación Argentina
Gustavo Scrinzi
Subprocurador del Tesoro de la Nación
Argentina
Gabriel Bottini
Jorge Barraguirre
Fabián Markaida
Ignacio Pérez Cortés
Cintia Yaryura
María Victoria Vitali
Ariel Martins
Verónica Lavista
Patricio Arnedo Barriero and
María Julieta Fontán
Procuración del Tesoro de la Nación Argentina
Ignacio Torterola
Embassy of the Argentine Republic
Date: June 6, 2008
Annex 191
2
TABLE OF CONTENTS
I. PROCEEDING............................................................................................................3
II. BACKGROUND........................................................................................................14
III. POSITIONS OF THE PARTIES IN CONNECTION WITH THE MERITS ....18
1. Claimants’ investment..........................................................................................20
2. Discrimination.......................................................................................................21
3. Expropriation........................................................................................................23
4. Interference ...........................................................................................................25
5. Prohibition from transferring funds abroad......................................................27
6. Fair and equitable treatment...............................................................................28
7. Compensation........................................................................................................31
8. State of necessity ...................................................................................................33
9. Obligation to mitigate damages...........................................................................36
10. Conclusions and requests .....................................................................................37
IV. DIFFICULTIES WITH EVIDENCE ......................................................................38
V. ANALYSIS OF THE MERITS OF THE CASE ....................................................40
1. Discrimination.......................................................................................................40
2. Expropriation........................................................................................................41
3. Interference ...........................................................................................................43
4. Prohibition on transferring funds abroad..........................................................44
5. Fair and equitable treatment...............................................................................45
6. The circumstances under which Claimants made their investment ................48
7. State of Necessity...................................................................................................54
8. Obligation to mitigate the alleged damage .........................................................56
9. Claimants’ Investment .........................................................................................57
VI. FINAL DECISION....................................................................................................62
Annex 191
3
The Tribunal, composed as described above, after consideration of the written and oral
presentations by the parties, and after having deliberated, issues the following award:
I. PROCEEDING
1. On February 3, 2003, the International Centre for Settlement of Investment
Disputes (“ICSID” or the “Centre”) received from Metalpar S.A. and Buen Aire S.A.,
(the “Claimants”), two companies incorporated in Chile, a Request for Arbitration against
the Argentine Republic (“Argentina” or the “Respondent”) under the Convention on the
Settlement for Investment Disputes between States and Nationals of Other States (the
“Convention”). The request was based on the alleged adverse effects that a series of
economic measures adopted by Argentine authorities in late 2001 and early 2002 would
have had on the investments made by Claimants in a company manufacturing bus bodies
for public transportation vehicles in Argentina.
2. In their request for arbitration, Claimants invoked the provisions of the 1991
bilateral investment treaty between Argentina and Chile for the Promotion and Reciprocal
Protection of Investments, in force as from January 1, 1995 (hereinafter, the “BIT” or the
“APPI”).
3. On February 5, 2003, in accordance with Rule 5 of the ICSID Rules of Procedure
for the Institution of Conciliation and Arbitration Proceedings (the “Institution Rules”),
the Centre acknowledged receipt of the request for arbitration and sent copies thereof to
the Argentine Republic and to the Argentine Embassy in Washington, D.C.
4. On April 7, 2003, the Acting Secretary-General of the Centre registered the
request pursuant to Article 36(3) of the ICSID Convention. On the same date, the Acting
Secretary-General, in accordance with Institution Rule 7, notified the parties of the
registration of the request and invited them to proceed to constitute an Arbitral Tribunal as
soon as possible.
5. On July 14, 2003, the parties agreed on the number of arbitrators that would form
the Arbitral Tribunal and on the method to appoint them. Under such agreement each
Annex 191
4
party would appoint one arbitrator by July 16, 2004, at the latest, and the President of the
Tribunal would be appointed by the Secretary-General of ICSID. The agreement also
provided that, should Respondent fail to appoint an arbitrator within the agreed term,
Claimants would be entitled to request the application of the mechanism provided for in
Article 37(2)(b) of the ICSID Convention (each of the parties appoints an arbitrator and
they reach an agreement on the third arbitrator, who acts as President of the Tribunal).
6. None of the parties appointed an arbitrator within the term agreed upon.
Consequently, by letter dated July 23, 2003, Claimants requested that ICSID constitute the
Arbitral Tribunal as set forth in Article 37(2)(b) of the Convention. By that same letter,
Claimants appointed Mr. Duncan H. Cameron, a national of the United States of America,
as arbitrator in the instant case.
7. After 90 (ninety) days had elapsed as from the notification of the registration
without the Tribunal having been constituted, on August 11, 2003, Claimants requested
the appointment of the other two arbitrators and the designation of the President of the
Arbitral Tribunal, as provided for in the mechanism set forth in Article 38 of the ICSID
Convention and Rule 4 of the ICSID Rules of Procedure for Arbitration Proceedings
(Arbitration Rules).
8. On August 20, 2003, Argentina appointed Jean Paul Chabaneix, a Peruvian
national, as arbitrator.
9. After consultation with the parties, the Chairman of the Administrative Council of
ICSID appointed Mr. Rodrigo Oreamuno Blanco, a national of Costa Rica, as President of
the Arbitral Tribunal.
10. On September 23, 2003, in accordance with Arbitration Rule 6(1), the parties were
notified that all the arbitrators had accepted their appointments and that therefore the
Tribunal was deemed to have been constituted on that date. On the same date, pursuant to
Regulation 25 of the ICSID Administrative and Financial Regulations, the parties were
informed that Mr. Gonzalo Flores, Senior Counsel of ICSID, would serve as Secretary of
the Arbitral Tribunal.
Annex 191
5
11. The first session of the Tribunal with the parties was held on November 13, 2003,
at the seat of the Centre in Washington, D.C. Claimants were represented by Messrs.
Roberto Mayorga, Joaquín Morales, Jorge Postiglione, and Sergio Meli. Mr. Jaime
Paredes also appeared on behalf of Claimants. Argentina was represented by Ms. Cintia
Yaryura and by Mr. Jorge Barraguirre, both of them from the Procuración del Tesoro de
la Nación Argentina. At the beginning of the session, Mr. Barraguirre, on behalf of the
Argentina, requested that the Tribunal decide briefly and immediately on the validity of
the registration of Claimants’ request for arbitration. After giving the floor to Claimants
and deliberating, the Tribunal advised the parties that it was not procedurally possible to
accept such petition on that occasion and noted that Argentina would have the opportunity
to file any objections it might have during the proceedings. Subsequently, the President of
the Tribunal invited the parties to continue with the session. Mr. Barraguirre indicated
that, based on express instructions from Argentine authorities, he could not accept the
Tribunal's decision. Immediately afterwards, the Argentine delegation left the session.
12. The President of the Tribunal regretted Argentina’s decision and expressed the
Tribunal’s wish that Respondent reconsider its position and participate in the proceedings
actively. He then invited those present to continue reviewing the agenda.
13. During the continuation of the first session, several procedural matters were
determined, which were reflected in minutes signed by the President and the Secretary of
the Tribunal. In addition, the following schedule was set for the written procedures:
Claimants would file a memorial on the merits within one hundred and thirty-five days
(135) from the date of the first session, and Respondent would file a counter-memorial
within one hundred and thirty-five says (135) days from its receipt of Claimants’
memorial; the Tribunal would then decide whether it was convenient for the parties to file
reply and rejoinder memorials.
14. Claimants submitted their Memorial on the Merits (referred to as “Memorial” in
the proceedings) with the related accompanying documentation on March 30, 2004.
15. On May 17, 2004, Argentina filed a Memorial on Objections to the Centre’s
Jurisdiction and the Competence of the Arbitral Tribunal.
Annex 191
6
16. By letter of May 21, 2004, the Tribunal confirmed the suspension of the
proceedings on the merits in accordance with Arbitration Rule 41(3) and the parties were
requested to file their proposals on a schedule regarding the issue of jurisdiction.
17. On June 15, 2004, the Tribunal, having reviewed the parties’ submissions on the
issue, established the following procedural schedule for filing the briefs on jurisdiction:
Claimants would file their Counter-Memorial on Jurisdiction within forty-five (45) days
as from that date; Respondent would file a Reply on Jurisdiction within the subsequent
forty-five (45) days as from the receipt of Claimants’ Counter-Memorial, and Claimants
would file a Rejoinder on Jurisdiction within the subsequent forty-five days (45) as from
the receipt of Respondent’s Reply. The Tribunal would subsequently fix, in consultation
with the parties, an appropriate date to hold a hearing on jurisdiction.
18. In conformity with the schedule set by the Tribunal, Claimants filed their Counter-
Memorial on Jurisdiction, with accompanying documentation, on July 28, 2004.
Argentina filed its Reply on Jurisdiction on September 21, 2004, and Claimants filed their
Rejoinder on Jurisdiction on November 8, 2004.
19. By letter dated December 13, 2004, the Tribunal forwarded to the parties
proposals for dates to hold the hearing on jurisdiction, which was set, with the agreement
of the parties, for March 17 and 18, 2005. As a result of a technical failure of the airplane
which transported the Argentine delegation to Washington, D.C. the hearing was held,
with the agreement of the parties, only on Friday March 18, 2005, at the Centre’s
headquarters. Claimants were represented by Messrs. Roberto Mayorga and Joaquín
Morales from the law firm Etcheberry/Rodríguez Abogados in Santiago de Chile, Mr.
Jorge Postiglione from the law firm Brons & Salas in Buenos Aires, and Messrs. Jaime
Paredes, Sergio Meli and Gonzalo Varela from Metalpar S.A. Respondent was
represented by Ms. Cintia Yaryura and Mr. Ignacio Torterola from the Procuración del
Tesoro de la Nación Argentina (Argentina’s Treasury Attorney General’s Office), Mr.
Osvaldo Siseles, Legal Under-Secretary of the Ministry of Economy and Production of
Argentina, and Mr. Marcelo Massoni from the Argentine Embassy in Washington, D.C.
During the hearing, Messrs. Mayorga, Meli, Morales, Postiglione and Varela addressed
the Tribunal on behalf of Claimants; Ms. Yaryura and Mr. Torterola did so on behalf of
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Argentina. The Tribunal posed questions to the representatives of the parties, in
accordance with Arbitration Rule 32(3).
20. On April 27, 2006, the Arbitral Tribunal issued its decision on the jurisdiction of
the Centre and its competence in which, as provided for in Arbitration Rule 41, it
unanimously rejected the objection on jurisdiction filed by Argentina and declared its
competence to hear and resolve the instant case.
21. On May 2, 2006, the Centre advised the Tribunal and the parties that, as a result of
an internal reorganization of the Centre, Ms. Gabriela Álvarez Ávila, Senior Counsel of
ICSID, would substitute Mr. Gonzalo Flores as Secretary of the Arbitral Tribunal.
22. On May 5, 2006, the Tribunal issued Procedural Order No. 1 in which it stated that
Argentina had to file its Counter-Memorial on the merits within eighty-five days (85) as
from the date of such order, that is to say, by July 31, 2006 at the latest. The Tribunal
stated that it would subsequently decide on the need or convenience that the parties file
Reply and Rejoinder memorials and that it would set a date for a hearing on the merits in
due course.
23. On June 20, 2006, Argentina asked the Tribunal to request Claimants to deliver
additional accounting, financial, corporate and other documentation related to the
contracts entered into with the customers of Metalpar Argentina S.A. and Inversiones
Loma Hermosa S.A., in order to complete the information provided by them in their
Memorial. Claimants opposed this request and Argentina insisted on it. After analyzing
the parties’ positions, on July 13, 2006, the Tribunal ordered Claimants to submit the
documents requested. On August 14, 2006, the Secretariat advised Argentina and the
Tribunal that it had received nine volumes of documents submitted by Claimants in
connection with this piece of evidence.
24. On August 8, 2006, the Tribunal issued Procedural Order No. 2, regarding items 7-
8 of the minutes of the First Session and the Argentine Republic’s request of July 14,
2006, that the time limit for filing substantive briefs be deemed to have been met upon
receipt by the Centre via email of the briefs and declarations of witnesses and experts.
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Once Claimants’ observations were received, the Tribunal decided by such Order that the
time limit for filing substantive briefs would be subsequently deemed to have been met: a)
upon receipt by the Centre via international courier or email in pdf format of the
substantive briefs, the statements of witnesses and experts and all the accompanying
documentation; b) if one of the parties decided to meet the time limit via email, it would
have to send the other party a copy of the email forwarding the documentation and on the
same day send the Centre via a first-rate international courier service the original and six
copies of the substantive brief and its exhibits.
25. At the request of Argentina, on August 29, 2006, the Tribunal granted an
extension until September 13, 2006, to file the Counter-Memorial. On that latter date, the
Centre acknowledged receipt of the Counter-Memorial filed by Respondent.
26. On October 2, 2006, the President of the Tribunal, in conformity with the minutes
of the first session and Procedural Order No. 1, invited the parties to make their
observations regarding the convenience of filing Reply and Rejoinder memorials and,
should they chose to do so, he asked them to make their observations on the term deemed
necessary for such purpose.
27. Taking into consideration both parties’ observations, on October 23, 2006, the
Tribunal granted a term of 75 days for each party to file its submission, as per the
following schedule: a) Claimants had to file their Reply within seventy-five (75) days
subsequent to the receipt of the communication from the Tribunal, that is to say, at the
latest on January 8, 2007; b) Argentina had to file its Rejoinder within the seventy-five
(75) days subsequent to the receipt of Claimants’ Reply. The Tribunal informed the
parties that, in the light of the fact that the terms granted were quite long, it excluded the
possibility of granting future extensions, unless circumstances occurred making such
concession indispensable.
28. On January 4, 2007, Claimants submitted a copy of the Reply memorial to the
Centre via email. On January 8, 2007, Claimants submitted a copy of Exhibit 2 to the
Reply memorial to the Centre via email. An electronic copy of these documents was
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forwarded to Argentina on those same dates. On January 15, 2007, the Centre sent a hard
copy of those documents to Argentina.
29. Through a communication of January 30, 2007, the Tribunal, having consulted
with the parties, set September 10 through 17, 2007, as the dates for the hearing on the
merits and it provided for the possibility of extending it for two further days should it be
necessary.
30. Argentina sent an electronic copy of its Rejoinder to the Centre on March 30,
2007. On April 6, 2007, the Centre sent to Claimants by international courier a copy of
that Rejoinder and the accompanying documentation, received by the Centre on the
previous day.
31. On April 4, 2007, the Tribunal took note of Claimants’ position as to the fact that
Argentina should have filed its Rejoinder on March 24, 2007 (75 days as from January 8,
2007). In addition, the Tribunal noted that Argentina had forwarded to the Centre an
electronic copy of its Rejoinder on March 30, 2007 (74 days as from January 15, 2007).
The Tribunal considered that, despite the fact that there was disagreement between the
parties as to how terms were calculated, even if it accepted Claimants' position in this
regard, Argentina's delay in filing its Rejoinder memorial did not seriously undermine
Claimants’ rights, especially considering the long period between the date of the last filing
and the hearing on the merits which, as resolved, had to begin on September 10, 2007.
32. On July 12, 2007, the Tribunal issued Procedural Order No. 3, whereby it decided
several issues related to the organization of the hearing on the merits, including the time
schedule, the distribution of time between the parties, the method for witness and expert
examination, the order in which witnesses and experts would appear, the preparation of
the documents to be used by the Tribunal and the parties during the hearing, the filing of
post-hearing briefs, the Tribunal’s questions and other administrative issues.
33. On August 21, 2007, the Arbitral Tribunal referred to the request filed by
Claimants on August 6, 2007, related to the appearance of Professor Hernán Salinas as an
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expert at the hearing on the merits. The Tribunal reminded Claimants that the minutes of
the first session held on November 13, 2003, contained the following agreement:
“18. Documentary Evidence
Notwithstanding the power of the Tribunal to request the parties to
submit additional evidence at any stage of the proceeding, it was
decided that each filing would include all the supporting documentation
and the statements of witnesses and experts, signed by them, that the
parties may wish to submit. It was set forth that, exceptionally, the
parties may request the Tribunal's authorization to file additional
supporting documents after filing their briefs.”
34. Consequently, the Tribunal dismissed Claimants’ request that Professor Hernán
Salinas appear during the hearing since it considered that the request had been filed late
and considering that: a) Claimants received Respondent’s Rejoinder memorial in early
April 2007 and, as from such date, at no time did they request any authorization from the
Tribunal to file any additional documentation nor did they state the exceptional reasons
justifying a request of such a nature; b) it is the Tribunal’s duty to guarantee that both
parties have the same opportunity to defend their positions and that is why clear rules
were established from the early stages of the procedure.
35. On August 24, 2007, the Senior Counsel of ICSID informed the Tribunal and the
parties that, as a result of an internal reorganization of the Centre, Ms. Natalí Sequeira
Navarro, Counsel of ICSID, would substitute Ms. Gabriela Álvarez Ávila as Secretary of
the Arbitral Tribunal.
36. On August 28, 2007, Claimants advised the Tribunal that they would “abstain
from calling the witnesses and experts that they had previously announced.”
37. On August 29, 2007, Argentina stated as follows:
“[…] this Office believes that the current distribution of examinations of
witnesses and experts is too concentrated, which could be detrimental to
the adequate examination thereof. We therefore suggest that Dr. Pérez
Rovira’s and Dr. De Riz’s examinations be postponed to the morning of
the third day and morning of the fourth day, respectively, […].”
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38. On August 31, 2007, Claimants referred to the request made by Argentina as
follows: “This party believes the method proposed to be inadequate as it damages and
disrupts the logical order that has been followed in the process.”
39. On September 3, 2007, the Tribunal reminded the parties that the method for
examining witnesses at the hearing (direct examination, cross-examination, and redirect
examination) had been established in items II and III of Order No. 3, in conformity with
the normal practice in this type of procedures and that such method had been confirmed
by Respondent in its communication dated July 30, 2007, and by Claimants in their letter
dated July 31, 2007.
40. As to the appearance of witnesses and experts, in that communication, the
Tribunal confirmed that, when one of the parties to an arbitral proceeding files expert
reports or written statements as evidence, it is obliged to present, if that is requested by
the other party or the Tribunal, its witnesses or experts so that they may be examined at
the hearing summoned for such purpose.
41. The Tribunal explained in its communication that, in the light of the fact that
Respondent had communicated within the appropriate term the names of the witnesses
and experts offered by Claimants that it wished to examine, it was Claimants’
responsibility to present these persons at the hearing. If something precluded them from
appearing at the hearing, Claimants should have given notice to the Tribunal sufficiently
in advance (item III(11) and (12) of Procedural Order No. 3).
42. In the same communication the Tribunal reminded the parties that paragraph II(5)
of Procedural Order No. 3 stated that if one of the parties decided not to present witnesses
or experts that it had previously offered for examination, the Tribunal would be entitled to
make such inferences as it deemed necessary and even deny any probative value to the
statements of such witnesses or experts.
43. Based on the above, the Tribunal invited both parties to confirm, no later than
September 5, 2007, the names of the witnesses and experts that would appear at the
hearing scheduled to begin on September 10, 2007.
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44. Through the communication of September 4, 2007, Claimants explained that the
witnesses and experts whose statements they offered during the proceedings and who
were summoned to appear at the hearing by Argentina “have stated their impossibility to
be present at the hearing” and that “Metalpar requested that they appear but, as stated,
they excused themselves and neither this party nor the Tribunal are in a position to compel
them to do so.”
45. By communication of September 4, 2007, Respondent confirmed the attendance of
all the witnesses and experts it had proposed.
46. On September 7, 2007, the Tribunal referred to the answers received by the parties
and noted that, in its letter dated August 31, 2007, Claimants advised the Tribunal that
Messrs. Miguel Virgós and Carlos Pérez Rovira would not be able to travel to
Washington, D.C. during the dates set for the hearing but, as to the other witnesses and
experts, they stated that “if Respondent was especially interested in cross-examining any
of the witnesses, it was such party that should have taken the necessary measures to make
sure they appeared at the hearing.”
47. In such communication, the Tribunal repeated what it had stated in its letter of
September 3, 2007, in the sense that the generalized practice in this type of arbitration
procedure before ICSID is that the party providing as evidence the written statement of a
witness or the report of an expert must make sure that they are available so that the other
party and the Tribunal may examine them.
48. The Tribunal also stated that the parties had had enough time to prepare the
organizational aspects and the logistical details necessary to submit their arguments and
evidence at the hearing on the merits, the dates of which had been communicated to them
well in advance.
49. The Tribunal also considered that, in the event of disagreement between the parties
on any issue related to the organization of the hearing, it was the parties’ obligation to
advise the Tribunal of such disagreement as soon as possible, for it to take the measures it
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deems appropriate, as provided for in Procedural Order No. 3, and the ICSID Convention
and Arbitration Rules.
50. In particular, the Tribunal called the attention of the parties to Arbitration Rule
34(3) which provides that the parties shall cooperate with the Tribunal in producing
evidence and that the Tribunal shall take note of the failure of a party to comply with its
obligations and of any reasons given for such failure.
51. Finally, the Tribunal confirmed that Arbitration Rule 34(1) grants the Tribunal the
power to decide on the admissibility of any evidence adduced and on its probative value
whenever deemed appropriate by the Tribunal.
52. Owing to a delay in the arrival of the flight of Claimants’ representatives, the
hearing on the merits, which was held at the Centre’s headquarters, started on Tuesday,
September 11, 2007, and it lasted through Friday, September 14, 2007.
53. The hearing was attended by the following people on behalf of Claimants: Messrs.
Roberto Mayorga and Joaquín Morales from the law firm Etcheberry/Rodríguez
Abogados in Santiago de Chile; Jorge Postiglione from the law firm Brons & Salas in
Buenos Aires; Jaime Paredes, Chairman of Metalpar S.A.; Sergio Meli, legal counsel for
Metalpar S.A.; Gonzalo Varela, Manager of Metalpar S.A.; Hernán Salinas, attorney-atlaw;
Pablo Grillo, attorney-at-law; Juan Fontaine, economist; and Hernán Buchi,
economist.
54. The following people attended the hearing representing Respondent: Mr. Gustavo
Adolfo Scrinzi, Subprocurador del Tesoro de la Nación Argentina (Deputy Treasury
Attorney General); Messrs. Gabriel Bottini, Fabián Markaida, Ariel Martins, Ignacio
Pérez Cortés, Jorge Barraguirre and Patricio Arnedo Barreiro, and Mses. Cintia E.
Yaryura, Verónica Lavista, María Julieta Fontán and María Victoria Vitali, all of them
from the Procuración del Tesoro de la Nación de la República Argentina (Argentina’s
Treasury Attorney General’s Office); and Mr. Ignacio Torterola, from the Argentine
Embassy in Washington, D.C.
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55. At different times during the hearing, the following people were present or gave
testimony at the request of Argentina:
Experts:
Dr. Augusto César Belluscio
Dr. Liliana de Riz
Dr. Roberto Frenkel
Dr. Mario Damill
Lic. Daniel Marx
Lic. José Echagüe
Witness:
Dr. Eduardo Ratti
56. As announced, Claimants failed to provide the experts and witnesses they had
offered and Argentina had requested to examine.
57. On September 28, 2007, both parties filed their written replies to questions posed
by the Tribunal at the hearing.
58. The Tribunal has thoroughly discussed and considered the content of the
memorials on the merits filed by the parties, the evidence provided and the oral statements
made by them at the hearing on the merits.
59. On February 13, 2008, the Tribunal communicated the closure of the proceeding
to the parties, in accordance with ICSID Arbitration Rule 28.
II. BACKGROUND
60. In its Memorial and Counter-Memorial on Jurisdiction, Metalpar S.A. and Buen
Aire S.A. described the following background of the instant case:
a. Metalpar S.A. (formerly named Comercial Metalpar S.A.) is a Chilean company
engaged mainly in manufacturing bus bodies.
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b. Buen Aire S.A. is also a Chilean company which is engaged in investing and
technical advisory services.
c. In May 1997, Metalpar S.A. and Mercobús S.A., a Chilean company formerly named
Inversiones Mercobús S.A., owned 11,880 and 120 shares respectively out of a total
number of 12,000, which formed the capital stock of an Argentine company called
Inversiones Loma Hermosa S.A.
d. On May 9, 1997, Inversiones Loma Hermosa S.A. acquired the Argentine company
Bus Carrocería S.A., which was in default and on the brink of bankruptcy.
e. On October 1, 1997, the shareholders of Bus Carrocería S.A. agreed to change the
company's name to Metalpar Argentina S.A. This change was registered with the
Inspección General de Justicia (Argentine regulatory agency of companies) (Exhibit 4
of the Memorial).
f. On December 10, 1998, the shareholders increased the capital stock of Inversiones
Loma Hermosa, which was distributed as follows: Metalpar S.A., 1,999,880 shares
and Mercobus S.A., 120 shares.
g. On July 13, 2000, Metalpar S.A. transferred such 1,999,880 shares to Inversiones
Metalpar S.A., a Chilean company set up in June 2000. Therefore, as from such date,
the capital stock of Inversiones Loma Hermosa S.A. was held as follows: Inversiones
Metalpar S.A., 1,999,880 shares and Mercobus S.A., 120 shares.
h. On November 16, 2001, Inversiones Metalpar S.A. transferred 1,999,760 shares to
Mercobús S.A. and kept 120; consequently, the capital stock of Inversiones Loma
Hermosa S.A. was held as follows: Inversiones Metalpar S.A., 120 shares of stock and
Mercobus S.A., 1,999,880 shares.
i. On October 11, 2002, Mercobús S.A. transferred its 1,999,880 shares to Buen Aire,
S.A.; thus, the shares of Inversiones Loma Hermosa S.A. were held as follows:
Inversiones Metalpar S.A., 120 shares and Buen Aire, S.A., 1,999,880 shares.
61. On February 3, 2003, on which date Claimants requested ICSID to register this
arbitration, the shares of the companies mentioned in this proceeding were held as
follows:
a) METALPAR S.A (Chilean):
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Jaime Paredes Gaete: 416,286 shares
Mario Paredes Gaete: 416,286 shares
Carlos Paredes Gaete: 416,286 shares
Inversiones Yelcho S.A.: 22,895,714 shares
Inversiones Río Baker S.A.: 69,936,000 shares
Constructora Marga Marga S.A.: 22,749,428 shares
Total: 116,560,000 shares
(Exhibit A.13 of Claimants’ Counter-Memorial on Jurisdiction).
b) BUEN AIRE S.A. (Chilean):
Jaime Paredes Gaete: 416,286 shares
Mario Paredes Gaete: 416,286 shares
Carlos Paredes Gaete: 416,286 shares
Inversiones Yelcho S.A.: 22,895,714 shares
Inversiones Río Baker S.A.: 69,936,000 shares
Constructora Marga Marga S.A.: 22,749,428 shares
Total: 116,560,000 shares
(Exhibit A.13 of Claimants’ Counter-Memorial on Jurisdiction).
c) INVERSIONES METALPAR S.A. (Chilean):
Metalpar S.A.: 111,832,696 shares
Jaime Paredes Gaete: 50,050 shares
Mario Paredes Gaete: 42,350 shares
Carlos Paredes Gaete: 30,800 shares
Total: 111,955,896 shares
(Exhibit A.5 of Claimants’ Counter-Memorial on Jurisdiction).
d) INVERSIONES LOMA HERMOSA S.A. (Argentine):
Inversiones Metalpar S.A.: 120 shares
Buen Aire S.A.: 1,999,880 shares
Total: 2,000,000 shares
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In addition, Metalpar S.A. had made “irrevocable contributions” to Inversiones Loma
Hermosa S.A. in the amount of USD 28,873,000.00.
(Exhibit A of Claimants’ Counter-Memorial on Jurisdiction; Exhibit 1 of the Memorial).
e) METALPAR ARGENTINA S.A. (Argentine):
Inversiones Loma Hermosa S.A.: 1,988,000 shares
Jaime Paredes Gaete: 12,000 shares
In addition, Inversiones Loma Hermosa S.A. had made “irrevocable contributions” to
Metalpar Argentina S.A. in the amount of USD 30,022,426.00.
(Exhibit A.8 of Claimants’ Counter-Memorial on Jurisdiction; Exhibit 1 of the
Memorial).
62. The Claim submitted involves several provisions of the Argentine legal system
which, for better understanding, are listed below:
a. Law No. 24,522: Bankruptcy and Insolvency Law.
b. Law No. 23,298: Convertibility Law of March 28, 1991.
c. Presidential Decree No. 1570/2001: Decree of December 1, 2001, which
contains the rules that govern the entities subject to the Superintendency of
Financial and Foreign Exchange Entities of the Central Bank of the Argentine
Republic. Such rules establish temporary limitations on cash withdrawals and
transfers abroad and ban the export of foreign currency bills and coins.
d. Law No. 25,561: Public Emergency and Foreign Exchange System Reform
Law, called “Pesification Law,” of January 6, 2002.
e. Presidential Decree No. 71/2002: Decree of January 20, 2002, which contains
the provisions regulating the foreign exchange system as established by Law
No. 25,561.
f. Presidential Decree No. 214/2002: Decree of February 3, 2002, on
Reorganization of the Financial System, regulating Law 25,561.
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g. Communication A 3471 of the Central Bank of Argentina (BCRA) of
February 8, 2002, which implemented Presidential Decree No. 260/2002 and
eliminated what Presidential Decree No. 71/2002 established.
h. Presidential Decree No. 260/2002: Decree of February 8, 2002, which
eliminated the official foreign exchange market.
i. Presidential Decree No. 320/2002: Decree of February 15, 2002, on
Reorganization of the Financial System, amending Presidential Decree No.
214/2002.
j. Presidential Decree No. 410/2002: Decree of February 8, 2002, on
Reorganization of the Financial System, which excluded several types of
operations from the pesification system.
k. Presidential Decree No. 704/2002: Decree of May 2, 2002, which widened the
exclusions established in Presidential Decree No. 214/2002.
l. Presidential Decree No. 905/2002: Decree of June 1, 2002, instructing the
Ministry of Economy to redress the damages suffered by financial institutions
as a consequence of the pesification.
m. Presidential Decree No. 53/2003: Decree of January 10, 2003, amending
Presidential Decree No. 410/2002.
n. Law No. 25,820: of December 4, 2003, amending Law No. 25,561.
III. POSITIONS OF THE PARTIES IN CONNECTION WITH THE MERITS
63. Claimants stated that their investments in Argentina amounted to over USD
30,000,000 (thirty million US dollars), which was sent by Metalpar S.A. to Inversiones
Loma Hermosa S.A. and then transferred by the latter to Metalpar Argentina S.A. as
irrevocable contributions to capital. (Exhibit 1 of the Memorial and Exhibit B of the
Counter-Memorial on Jurisdiction).
64. They also expressed that, as of December 2001, Argentina started a process of
change of the financial and foreign exchange system in the country that affected their
investments.
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65. In short, they argued that Presidential Decree No. 1570/2001 “openly breaches”
the APPI, which guarantees free transfers of funds, and that Law No. 25,561, called
“Pesification Law,” which established that the obligations contracted in US dollars were
bound to be converted into Argentine pesos and empowered the Executive Branch to set
up the system that would determine the Argentine peso-foreign currency peg, also violates
the APPI.
66. According to Claimants, because of the changes established “[…] debtors were
authorized to pay their obligations in Argentine pesos at the new market value, which
meant a loss in value of over 300% of the Argentine peso against the US dollar”
(Memorial, paragraph 49).
67. They also stated that Metalpar Argentina S.A. entered into several contracts with
different legal and natural persons in the amount of USD 18,000,000.00, by means of
which, as a bus body manufacturer, it provided those persons with financing for the
purchase of such bus bodies. Those contracts were secured with pledges over the vehicles
it sold and, in some cases, with further collateral; credits were agreed upon in US dollars,
based on articles 617 and 619 of the Civil Code, as in force at the time the contracts were
signed. Claimants argued that “[…] the pesification [...] amounts to expropriation or to a
measure similar in its effects on the credits in foreign currency, which is illegal and
overtly violates the rules of the APPI in this regard” (Memorial, paragraph 52).
68. In the Claimants’ view, the situation described above also violates the APPI
provisions that establish that investors shall be accorded fair and equitable treatment and
constitutes an indirect expropriation.
69. According to Argentina, the measures challenged by Claimants are authorized by
the BIT, Argentine law and general international law (Counter-Memorial, paragraph 1).
70. In addition, Argentina stated that: “It is not possible to argue the existence of an
expropriation of METALPAR’s investment. METALPAR’s investment in Argentina
currently, measured in US dollars, is worth a lot more […]” (Counter-Memorial,
paragraph 5).
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71. In Argentina’s opinion, the measures were adopted on the basis of the principles of
reasonability, good faith and proportionality (Counter-Memorial, paragraph 8).
72. In Argentina’s view, the Claimants’ argument on the alleged expropriation derives
from a conceptual error, because it does not specify what their investment in Argentina is
(Rejoinder, paragraph 6).
73. Argentina added that the need for and reasonableness of the measures adopted
have been ratified by international case law (Rejoinder, paragraph 7), and the state of
necessity has also been acknowledged by general international law (Rejoinder, paragraph
8).
74. The parties not only disagree on the general aspects of the claim filed by
Metalpar S.A. and Buen Aire S.A. They are also in disagreement on the specific aspects
of that claim, as analyzed in the following paragraphs.
1. Claimants’ investment
75. In their Reply, Claimants stated the following:
“Metalpar does not base its claim on the fact that its investment has been
expropriated by Argentina. SPECIFICALLY, WHAT HAS BEEN
EXPROPRIATED ARE THE RIGHTS AND CREDITS THAT
METALPAR HAD AGAINST ITS CLIENTS, WHICH IT HAS BEEN
UNABLE TO EXERCISE FULLY, BECAUSE THE ARGENTINE
AUTHORITIES HAVE PREVENTED IT FROM DOING SO
THROUGH THE FINANCIAL MEASURES ENFORCED TO THAT
EFFECT” (Reply, paragraph 225).
76. In connection with their investments, Claimants stated the following: “For us […]
the issue is not […] about the value of the investments but about the expropriation of
credits, a contractual breach” (transcript of the hearing on the merits, September 14, 2007,
page 714).
77. According to Argentina, Metalpar S.A. and Buen Aire S.A.’s investment “[…]
are indirect shareholdings in local companies […] any assessment or consideration of the
measures has to be made taking into account the effect of the measures on those
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investments and not on Metalpar Argentina’s contracts” (transcript of the hearing on the
merits, September 11, 2007, page 211).
78. Argentina added that Claimants confuses what their investment is, since such
investment is not Metalpar Argentina’s credits but rather Claimants’ shareholding, which
“is worth much more than what it would have been worth had the measures not been
adopted” (transcript of the hearing on the merits, September 11, 2007, page 240).
2. Discrimination
79. In Claimants’ opinion, “[…] compensations provided for the financial sector, in
accordance with Law No. 25,561, Law No. 25,789 and Presidential Decree No. 905/2002,
breach Article 2(3) of the APPI, which prohibits discriminatory or arbitrary acts against
the foreign investor […]” (Memorial, paragraph 169).
80. In that same memorial, Claimants stated that “The Argentine State has disregarded
the rights expressly recognized to Metalpar Argentina in the Argentine Constitution, and
has treated those affected by the ‘pesification’ unequally” (Memorial, paragraph 217). In
order to support their statements, they cited the report signed by Dr. Pablo Richards,
enclosed with the Memorial as Exhibit 6.
81. According to Claimants, Argentina discriminated against Metalpar S.A. and
Buen Aire S.A. since “[…] it established and acknowledged exceptional situations to
which it did not apply obligatory ‘pesification’” (Memorial, paragraph 360). This
argument is based on the fact that Presidential Decree No. 71/2002 made an exception
with regards to the pesification, by providing that if a member of the financial sector “[…]
holds pledge credits provided for the purchase of vehicles in an amount that exceeds at
origin (in other words, at the time the obligation was executed) the amount of USD
100,000, the debtors' obligations are not affected by ‘pesification’, thus maintaining ‘what
was originally agreed to’” (Memorial, paragraph 361).
82. Moreover, Claimants declared that “Argentina also acted unfairly and inequitably
when it adopted legal measures that affect Claimants’ investments but that did not affect
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the financial system, that type of action is arbitrarily discriminatory” (Reply, paragraph
281).
83. As for the alleged discrimination, Argentina stated that “It cannot be validly
stated, as Claimants argue, that the measure is discriminatory because other subjects
received a different treatment from that granted to METALPAR. It is illogical and
illegitimate to compare categories of subjects that are regulated by different rules and that
have different characteristics” (Counter-Memorial, paragraph 655).
84. Later on Argentina held that “[…] not discriminating does not entail treating
everyone absolutely the same. Rather, in order to treat everyone the same, the affected
people should be carefully listed into different categories based on the relevant
similarities among them” (Counter-Memorial, paragraph 664). It repeated this argument
in its Rejoinder in the following words: “[…] the measures did not discriminate between
subjects of the same category. The effects of the measures were suffered by the immense
majority of the players that held obligations outside the financial system. There was no
discrimination in the sense of inequality within a same category of equals” (paragraph
289).
85. Respondent also based its arguments on the award of May 12, 2005, in the case of
CMS against the Argentine Republic (ICSID case No. ARB/01/8), in which the Tribunal
stated that “[…] discrimination exist[s] only in similarly situated groups or categories of
people” (Rejoinder, paragraph 447).
86. Argentina also stated that “[…] it is worth highlighting that (sic) the financial
institutions were also affected by the measures since asymmetric pesification was imposed
on them (deposits had to be returned at USD1= ARS1.40 + CER (benchmark stabilization
coefficient) whereas loans were pesified at USD1= ARS1), and for this special impact
they were partially compensated” (Rejoinder, paragraph 453).
87. For all these reasons, Argentina rejected the arguments presented by Claimants
and stated that “the Argentine government did not adopt more favourable measures for
financial institutions” (Counter-Memorial, paragraph 686).
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3. Expropriation
88. For Claimants “[…] the measures adopted by the Argentine State, in connection
with Metalpar Argentina S.A., as the company receiving investments from Metalpar S.A.
and Buen Aire S.A., and with respect to them as foreign investors, are disproportionate
and constitute an ‘indirect expropriation’” (Memorial, paragraph 288).
89. In the same memorial they outlined the concept of indirect expropriation, which in
their view means that the measures taken by the State do not either physically or legally
seize the holder’s right or asset, but that “[…] they significantly reduce the bundle of
powers that ownership implies, or they considerably undermine its economic value”
(Memorial, paragraph 256). In addition, they asserted that: “It could be said that since the
‘pesification’ of credits derived from a general act of an authority, the confiscation would
become ‘indirect’ in nature” (Memorial, paragraph 190).
90. When referring to indirect expropriation, Claimants explained the tests that, from
the standpoint of scholar’s opinions and case law, make it possible to identify this type of
expropriation: the sole effect doctrine and the balancing test (Memorial, paragraphs 266-
294).
91. On the basis of the balancing test, Claimants stated that they “[…]
disproportionately have suffered the ‘expropriatory’ effects of the Argentine devaluation
measures without enjoying the potential benefits they could cause” (Memorial, paragraph
292).
92. In connection with the protection afforded by the APPI they stated the following:
“Article 4 of the Argentina-Chile APPI grants full legal protection and security to
Metalpar S.A. and Buen Aire S.A.’s investments in the Argentine territory. In accordance
with the Treaty, such investments cannot be expropriated, nationalized, or subject to other
measures the effects of which are equivalent to expropriation or nationalization, except by
law, for a public purpose or the common good, and upon payment of prior compensation”
(Memorial, paragraph 254).
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93. Claimants referred in their Memorial to the well-known principle according to
which no expropriation may take place without payment of the appropriate compensation
and they asserted that the “[…] expropriation clause is currently considered a general
Public International Law rule” (Memorial, paragraph 238). They added that: “It is
equitable for the State that expropriates for the common good to compensate the party that
suffers the individual costs of this common good” (paragraph 246).
94. Pesification, in Claimants’ opinion, “[…] disabled the mechanisms contractually
provided for in the case of pesification and prevented METALPAR from collecting the
dollars due, receiving instead Argentine pesos at a third of the promised value for the
dollar. This reduction in the value, obviously ‘… has caused a change in the substance of
the affected right which renders this reduction invalid under the Argentine Constitution’”
(Reply, paragraph 30).
95. Moreover, they alleged that the measures adopted by Argentina “[…] were
permanent in nature and have had ‘permanent effects’ on the contracts signed by
Metalpar, since it was never allowed to demand full compliance with them […]” (Reply,
paragraph 254).
96. Argentina denied that it had violated Claimants’ property rights (Counter-
Memorial, paragraph 224). In connection with the doctrine explained by Claimants, called
the sole effect doctrine, Argentina declared that “[…] there has been no expropriation
under that doctrine. An investment that is worth a lot more than what it would have been
worth had the measures not been adopted was clearly positively affected by such
measures” (Counter-Memorial, paragraph 225).
97. Based on the report prepared by Marx, Echagüe and Molina, Argentina also stated
that the measures “[…] rather than compensate negative effects with positive ones, were
widely beneficial for METALPAR’s investment” (Counter-Memorial, paragraph 234).
98. In Argentina’s opinion, in this case it is impossible to speak of an expropriation
since the investment “[…] is worth substantially more in US dollars than what it would
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have been worth if the measures had not been adopted” (Counter-Memorial, paragraph
185).
99. It also explained that Claimants’ position is based on an “[…] alleged
expropriation of some of Metalpar Argentina’s contractual rights and not of
METALPAR’s investment” (meaning Metalpar S.A. and Buen Aire S.A.), (Counter-
Memorial, paragraph 192).
100. Argentina quoted what Claimants declared in paragraph 225 of their Memorial,
(“Metalpar does not base its claim on the fact that its investment has been expropriated by
Argentina”), and concludes that “[…] Argentina can only request the rejection of the
expropriatory claim in limine on the grounds of what Claimants themselves have
declared” (Rejoinder, paragraphs 171 and 172).
4. Interference
101. According to Claimants, Argentina interfered in their exercise of property rights:
“[…] the measures adopted by Argentina, interfered with or ‘neutralized’ Metalpar’s
ownership and use of rights and credits, which prevented it from ‘running the daily
operations of its business and investments;’ in other words, it affected ‘the control over its
investments and business’ since it could not demand the compliance with the validly
executed contracts. These contracts are the essence of the activities related to its
investments since it uses them to legally carry out its trade or business transactions”
(Reply, paragraph 253).
102. Based on the award of August 30, 2000, of Metalclad against the United Mexican
States (ICSID Case No. ARB(AF)/97/1), Claimants commented that an expropriatory
action also includes the under-cover or incidental interference by the State with the use of
property by its owners as it causes the effect of depriving the owners of all or some
reasonably expected economic benefits, without it being necessary that there is an obvious
economic benefit for the State (Reply, paragraph 239).
103. Claimants also outlined other arguments related to the alleged State intervention:
“[…] had the Argentine State not interfered in Metalpar Argentina’s relationship with its
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clients (by establishing the ‘pesification’ of the credits in foreign currency), METALPAR
and BUEN AIRE would have maintained their investments today in the currency of origin
[…]” (Memorial, paragraph 149). They argue that this intervention became apparent in
the pesification of the credits, and the abandonment of the convertibility regime which
pegged the US dollar to the Argentine peso, through Law No. 25,561 modifying Law No.
23,928.
104. Claimants concluded that: “[…] the effects of Law No. 25,561 did not hinder the
enforcement of the credits guaranteed with pledges in the currency that had been
originally agreed upon. Nonetheless, first through the provisions made in article 11 of
Law No. 25,561 and then through articles 1 and 8 of Presidential Decree No. 214/2002,
Argentina interferes in the relationships between individuals and affects the rights that are
part of Metalpar Argentina’s equity as established by the Argentine Constitution and
METALPAR and BUEN AIRE’s investments, under the protection of the APPI”
(Memorial, paragraph 152).
105. In Argentina’s view “[…] it is impossible to affirm that METALPAR’s rights—
referring to Claimants’—have ‘become so useless that they should be considered
expropriated’, or that ‘the benefits of the property of the foreign investor has been
effectively neutralized’, since METALPAR’s investment is worth substantially more than
what it would have been worth if the measures had not been adopted […]” (Counter-
Memorial, paragraph 221).
106. Respondent also expressed:
“The Argentine Republic did not cause the Investor to lose control of its
investment.
The Argentine Republic did not run nor currently runs the daily
operations of the companies in which METALPAR has made its
investment.
The Argentine Republic has not detained nor currently detains any
executive or employee of the companies in which METALPAR has
made its investment […]
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The Argentine Republic has not interfered nor currently interferes with
the management or the activities of the shareholders.
The Argentine Republic did not prevent nor currently prevents the
companies in which METALPAR has made its Investment from paying
dividends to their shareholders.
The Argentine Republic has not interfered nor currently interferes with
the appointment of directors and managers. […]” (Counter Memorial,
paragraph 224).
5. Prohibition from transferring funds abroad
107. Claimants stated that Argentina breached Article 5 of the APPI, which refers to the
freedom to transfer investment-related payments. They explained that, through a letter of
“[…] May 8, 2003, which is Exhibit 8 of this Memorial, Metalpar Argentina S.A., as the
company receiving Metalpar S.A. and Buen Aire S.A.’s investments, asked BankBoston
of Buenos Aires to transfer USD 200,000, which corresponded to a distribution of
dividends that the investors had (sic) the right to transfer abroad in accordance with the
abovementioned Article 5” (Memorial, paragraph 369). They also asked BankBoston to
“[…] advise us on the procedure to be followed in order to perform such an operation”
(Exhibit 8 of the Memorial). They added that, in a telephone conversation, the
abovementioned bank indicated that they should “[…] refer to the legislation in force
[meaning the Presidential Decree No. 1570/2001, as Claimants pointed out later], which
banned those transfers” (Memorial, paragraph 370).
108. Claimants concluded “[…] that Argentina breached the guarantee to transfer funds
granted in the Argentina-Chile APPI and, what is more, it discriminated against foreign
investors in establishing exceptions to the transfer ban like payments of expenses incurred
abroad through credit cards” (Memorial, paragraph 372).
109. In relation to this issue, Argentina explained that it always permitted international
transfers and, only in the most difficult moment of the crisis, it required the prior approval
of the Central Bank for those transfers (Counter-Memorial, paragraph 9). The problem,
according to Argentina, is that, “[…] neither of the Claimants ever requested BCRA
authorization to carry out a transfer” (Counter Memorial, paragraphs 707 and 716).
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110. Argentina believes that, although it is true that Article 5 of the APPI indicates that
States must guarantee individuals or companies of the other Contracting Party free
transfer of investment-related payments, “[…] this does not prevent each State party from
establishing certain procedures for such transfers ” (Counter-Memorial, paragraph 721). It
added that “[…] in this particular case, the delays in the transfers are exclusively due to
Claimants’ non-compliance with the required formalities’” (Counter-Memorial, paragraph
744). Further, Argentina argued that the regulations related to this issue (Presidential
Decree No. 1570 and several Communications issued by the Central Bank) “[…] do not
discriminate between transfers in pesos and transfers in dollars” (Counter-Memorial,
paragraph 753).
111. Finally, in relation to this issue, Respondent explained that the requirement of
prior authorization became gradually more flexible and, after certain time, some transfers
could even be made without having to comply with the authorization of the Central Bank
(Counter-Memorial, paragraph 766).
6. Fair and equitable treatment
112. For Claimants, the fair and equitable treatment clause set forth in article 2.1 of the
APPI, “[…] operates as a general guarantee clause addressed to foreign investors that
their investments in that State will be given treatment that is compatible with those
expectations and that that guarantee is independent of the national law of the Host State”
(Memorial, paragraph 313).
113. Based on the proceedings in the arbitrations of Técnicas Medioambientales
Tecmed S.A. against the United Mexican States (ICSID Case No ARB(AF)/00/2, award
of May 29, 2003) and Mondev International Ltd. against the United States of America
(ICSID Case No. ARB(AF)/99/2, award of October 11, 2002), Claimants stated that the
breach of the fair and equitable treatment principle does not require that the State act in
bad faith (Memorial, paragraph 315 and 316).
114. As regards Argentina’s acts, Claimants said that “Argentina’s legislative action
was not coherent, it was ambiguous, unpredictable and lacking in transparency, which
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prevented investors from being able to plan their activities” (Memorial, paragraph 320).
Moreover, they stated that “[…] Argentina arbitrarily and illegally issued regulations that
changed the legal framework on the basis of which claimants had decided to invest […]”
(paragraph 322). According to Claimants as of December, 2001, Argentina started issuing
legal provisions of different levels in a disorderly and contradictory manner (Memorial,
paragraph 350).
115. After stating that the APPI “[…] does not define what should be understood as
‘fair and equitable’” (Memorial, paragraph 331), Claimants declared that there were two
thesis to approach this issue: the non-autonomy principle or “minimum standard of
treatment” observance principle. For this thesis, fair and equitable treatment is reflected in
“minimum standard of treatment” recognized in customary International Law. “In precise
terms, ‘fair and equitable treatment’ represents the obligation to give the ‘minimum
standard of treatment’ as established by customary International Law,” (Memorial,
paragraph 332). The second thesis the autonomous standard of protection, or plain
meaning approach, is based “[…] on the conventional nature of the fair and equitable
treatment clause and the rules of interpretation of the Vienna Convention […]”
(Memorial, paragraph 335). Claimants concluded that arbitral case law has tended to
interpret fair and equitable treatment clauses extensively (Memorial, paragraph 346).
116. Claimants declared that “[…] Argentina, by signing the APPI with Chile, took on
the obligation towards Chilean investments and investors to respect the rights acquired in
connection with such investments and the rational and legitimate expectations of the
investors. Argentina did not respect its duty and, therefore, the treatment given to
Metalpar S.A. and Buen Aire S.A.’s investments was neither fair nor equitable”
(Memorial, paragraph 359).
117. For Argentina, fair and equitable treatment is “[…] the international minimum
standard of treatment, this understood as a standard meaning reasonableness and
proportionality,” (Counter-Memorial, paragraph 473). It is its opinion that international
practice and organizations consider that “[…] the standard of fair and equitable treatment
a) ‘does not include an obligation to afford any additional treatment beyond the
requirements of the minimum standard under international customary law concerning the
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treatment of foreigners’; b) it is related to concepts such as denial of justice or
discrimination; c) based on the States’ understanding, it is not related to the stability of the
legal and business framework, or the investors’ expectations” (Counter-Memorial,
paragraph 485).
118. Based on the award issued on June 25, 2001, in the arbitration proceedings
between Alex Genin, Eastern Credit Limited Inc., and A.A. Baltoil against the Republic
of Estonia (ICSID Case No. ARB/99/2), Argentina pointed out, amongst other criteria,
that for the principle of fair and equitable treatment “[…] to be violated by the State
requires acts showing a willful neglect of duty, an insufficiency of action falling far below
international standards, or even subjective bad faith” (Counter-Memorial, paragraph 551).
119. On the grounds of what we have just explained, Argentina denied that during “the
emergency” it stopped respecting the fair and equitable treatment principle (Counter-
Memorial, paragraph 499).
120. Argentina concluded that the allegedly violating measures were in fact
proportional to the situation and that an equilibrium between all the economic agents in
society was sought. “The measures were not inconsistent as, not only did they consider
the society as a whole, but they also were successful in readjusting circumstances to the
prevailing economic situation.” (Counter-Memorial, paragraph 609).
121. According to Argentina, Claimants referred to incompatible concepts in relation to
fair and equitable treatment. “If fair and equitable treatment is a ‘minimum standard of
protection,’ then it cannot be, at the same time, a stabilization clause as Claimants intend”
(Rejoinder, paragraph 354).
122. Argentina also referred to the award of October 27, 2006, issued in the arbitration
proceeding Champion Trading Company and Ameritrade International Inc. against the
Arab Republic of Egypt, (ICSID Case No. ARB/02/9), which stated that “[…] according
to recent case law, the fair and equitable standard must be assessed in light of all the facts
and circumstances of the case, including the behaviour of the Claimants” (Rejoinder,
paragraph 424). Based on what was resolved in that case, Argentina emphasized the need
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to analyze the circumstances when assessing whether an investor was provided with fair
and equitable treatment.
123. In Argentina’s opinion: “METALPAR cannot argue that it had any legitimate
expectation that, in the face of the most serious economic, social and institutional collapse
in the history of the country, its investment would not be affected at all and that the legal
framework governing the contractual relationships between private persons would not be
readjusted.” (Rejoinder, paragraph 392).
7. Compensation
124. In their Memorial, Claimants requested consequential damages for the decrease in
value in dollars of the credit rights of Metalpar Argentina S.A., according to a financial
report as of December 31, 2003, that they presented as Annex 7, in the amount of USD
8,055,933 (paragraph 407). They requested that upon issuance of the award a new
calculation be prepared adjusted as of such date (paragraph 402). They also requested a
total amount of USD 1,405,010 as actual damages with respect to the court and out-ofcourt
costs as of January 6, 2002 (paragraph 410). With respect to lost profits, which is
mentioned as opportunity cost in the abovementioned report with the cut-off date as of
December 31, 2003, they requested the amount of USD 281,773 (paragraph 414); they
reduced the amount in USD 174,947 for the liabilities settled by Metalpar Argentina S.A.
in 2002 in Argentine pesos readjusted by CER, which—in their opinion—was a “benefit”
for that company (paragraph 416). After such reduction, they requested a total amount of
USD 9,567,769 for consequential damages and lost profits (paragraph 418). For moral
damages, they requested the payment of damages for USD 3,000,000 (paragraph 423) and
as “loss of chance,” a total amount of USD 2,870,330.81 (paragraph 432). They also
requested the amount of USD 2,500,000 for other damages related to economic, financial
and legal advisory services that Claimants “[…] had to resort to in order to face the
company’s situation in Argentina and in Chile […]” (paragraph 434).
125. To conclude, Claimants requested that Argentina be ordered to pay USD
17,938,099 plus “[…] compound interest from the date of the decision until the actual
payment thereof” (Memorial, paragraph 437 b).
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126. They also requested “In the alternative, to order the Argentine Republic to
compensate claimants for the damages caused, in the amount deemed appropriate by the
tribunal” (Memorial, paragraph 437).
127. In the hearing on the merits, Claimants stated as follows: “In order to reduce the
effect of pesification or to try to reduce the effect of damages for the benefit of the
Argentine Government and then require a lower compensation, Metalpar accepted
payments from debtors even if they were 1-to-1 without CER, […] thus, Metalpar was
able to collect a significant amount from debtors” (transcript of the hearing on the merits,
September 11, 2007, page 34).
128. Argentina expressed its disagreement with the compensation requested by
Claimants, based mainly on the fact that—in its opinion—the measures that it took “[…]
far from impairing METALPAR’s investment, have benefited it strongly […]” (Counter-
Memorial, paragraph 876). “[…] the measures amply benefited Metalpar Argentina as
they allowed its debtors not only to settle their payables but also to improve their
economic-financial situation as a result of the recovery in the demand of passenger
transportation, a circumstance that meant a rise in the acquisition of new vehicles”
(Rejoinder, paragraph 534).
129. Also, in its opinion, Metalpar should not have “[…] referred to the provisions
contained in the contracts signed by Metalpar Argentina, in order to calculate the amount
of compensation for alleged damages due to the breach of the BIT by Argentina”
(Counter-Memorial, paragraph 879). It added that Claimants did not consider the
economic crisis that Argentina went through either, which generated effects in the
business of Metalpar Argentina, even before the application of the emergency measures
adopted by such country. It stated that “[…] in fact, in the letter to the shareholders
[Memoria] included in the 2001 financial statements, the company itself acknowledged
that ‘[t]he billing of the fiscal year under analysis [2001] decreased in absolute values by
34.55% due to the macroeconomic situation previously mentioned…’” (paragraph 881).
130. According to Argentina, there is no causal relationship between its behaviour and
the damages alleged by Claimants (Counter-Memorial, paragraph 884) and furthermore,
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the headings of moral damages, loss of chance and other damages have no technical
grounds supporting their quantification (Rejoinder, paragraph 545).
131. Argentina asserted that—as acknowledged by Claimants—the method used to
estimate compensation is an accounting method, not a financial method and, further, there
is an error in the assessment of the alleged damages (Rejoinder, paragraphs 549-552).
Argentina challenged many of the aspects of the report submitted by Claimants as Exhibit
7 of the Memorial (“Financial Report, Metalpar, Effects of Pesification as of December
31, 2003”), since it was prepared by an accountant and the amounts disclosed derive from
Metalpar’s Management. “The report lacks independence […]” (transcript of the hearing
on the merits, September 11, 2007, page 196). At the hearing, Argentina also explained
the technical errors that it found in such report.
132. In the opinion of Argentina, the damages for moral damages are not admissible
because Claimants are judicial persons and according to Argentine law they cannot “[…]
experience spiritual suffering” (transcript of the hearing on the merits, September 11,
2007, page 207).
133. To conclude, Argentina argued that Claimants did not suffer any damage as a
result of the measures adopted by such State and it is “[…] obvious that the valuation of
the shareholding in Metalpar Argentina is currently much higher than that that could be
assessed in 2001” (Rejoinder, paragraph 577).
8. State of necessity
134. Argentina argued, as a circumstance precluding responsibility, the state of
necessity. In its opinion:
“[…] the collapse that affected and continues to affect it constitutes a
state of necessity that exempts it from international responsibility as:
• The Government has not contributed to the occurrence of such
state of necessity.
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• The measures adopted were the only means of safeguarding that
essential interest from the grave peril of social dissolution and
political anarchy.
• No essential interest of the State or States with respect to which
the obligation exists has been seriously impaired; neither has an
interest of the community as a whole nor the compliance with a
ius cogens obligation been affected.
• No unequal treatment has been given to foreign investors as
compared to their Argentine counterparts, or to investors with
respect to the other investors engaged in the same activity.
• The international obligation invoked (the BIT) does not rule out
the possibility of invoking a state of necessity” (Counter-
Memorial, paragraph 854).
135. According to Argentina, the crisis that it suffered is related to countless external
factors in which it had null or insignificant involvement (Counter-Memorial, paragraph
859; Rejoinder, paragraph 497).
136. Argentina also stated, based on the case of Sea-Land Service, Inc. against Iran,
Award No. 135-33-1 of 20 June 1984 issued by the Iran-United Status Tribunal, that in a
crisis situation government authorities may use “[…] a wide range of powers without
incurring in international responsibility” (Counter-Memorial, paragraph 864).
137. According to Argentina, during the crisis, there was a certain risk of disintegration
of the State itself (Rejoinder, paragraph 491). The measures that it adopted in view of this
risk represented the only way of safeguarding an essential interest from a grave and
imminent peril (Rejoinder, paragraph 517). Argentina also added that “[…] there is no
doubt that the disastrous state which the country was in gives rise to the state of necessity,
which is a clear cause of justification under both Argentine law and international law»
(Rejoinder, paragraph 280).
138. According to Claimants, the emergency or necessity law—based on local case
law—is limited and subject to the verification of certain circumstances established by the
case law of the Argentine Supreme Court (Reply, paragraph 23). According to the
Supreme Court, the measure adopted by a State shall be constitutional if it temporarily
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35
restricts the performance of the contract or decision, keeping the substance thereof
unharmed and integral (Reply, quotation in footnote number 5, page 13).
139. In Claimants’ opinion, “[…] it is admissible that the need to provide for common
welfare imply the limitation of certain individual rights; but in such case, that deprivation
should be compensated” (Reply, paragraph 31).
140. Another argument posed by Claimants as regards this issue is that the emergency
in Argentina “[…] did not come out of nowhere, and it was not a natural disaster, it was
the result of its own mismanagement” (Reply, paragraph 47).
141. Claimants emphasized that they do not question the power of Argentina to issue
the measures (Reply, paragraph 54) and that they are not intending to obtain a declaration
of unlawfulness as regards pesification or devaluation (Reply, paragraph 56); neither do
they question the sovereign power of Argentina to devalue its currency, “[…] Argentina
had sufficient imperium—through public order laws—to modify the conventions agreed
to freely between parties to the contracts” (Reply, paragraph 57). According to Claimants,
pesification was not necessary or mandatory (Reply, paragraph 98); it was a measure that
was deemed convenient and they do not question the power to issue it (Reply, paragraph
101). They concluded that, although they have no doubts as to Argentina’s sovereign
power to issue the measures challenged, such Government should compensate them for
the losses that they suffered.
142. Claimants asserted that Argentina “[…] did not have nor has any right to require a
‘patriotic contribution’ from a foreign investor, and that the decrease, reduction or partial
deprivation of their property (the investment instrumented through the contracts) must be
compensated” (Reply, paragraph 115).
143. According to Claimants’ opinion, the state of necessity is an exceptional excuse
and it should only be used under strict conditions (transcript of the hearing on the merits,
September 11, 2007, pages 82 and 86). It cannot be alleged “[…] if the responsible State
has contributed deliberately or negligently to the occurrence of such state of necessity”
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36
(page 96). “The state of necessity does not exclude the Government’s obligation to
provide compensation for the effectively caused loss” (page 102).
9. Obligation to mitigate damages
144. Argentina stated that the Argentine legal system expressly established a method to
amend situations of inequality that could arise from the application of pesification, and it
added that “METALPAR acknowledges that neither Claimants in this arbitration nor
Metalpar Argentina made use of the mechanism described” (Counter-Memorial,
paragraph 17).
145. According to the Argentine Republic, “Metalpar Argentina, a company controlled
by METALPAR, should have made a reasonable and ‘bona fide effort’ before local
authorities to amend the alleged inequalities resulting from the pesification of contracts”
(Counter-Memorial, paragraph 18). It clarified that this does not imply or equal the
requirement to exhaust internal remedies, but rather “[…] it refers to the mere fact that, in
the absence of a reasonable effort by the investor for the amendment of the measures
challenged, the likelihood that there is a breach of the BIT becomes at least doubtful”
(Counter-Memorial, paragraph 19).
146. Claimants expressed their disagreement with Argentina and asserted that they
could not be required to initiate local legal actions because that would have implied a
duplication of claims, which is inadmissible from the international point of view, and it
would have prevented them from resorting to an ICSID tribunal (Reply, paragraphs 143,
153 and 154). In addition, initiating the proceedings would have signified incurring in a
self-contradictory attitude in challenging the legality of the system and, at the same time,
making claims within such system (Reply, paragraph 144). They also considered that the
claim would not have even “produced results” because, as of December 27, 2006, there
were over 50,000 proceedings pending at the Argentine Supreme Court with respect to the
constitutionality of pesification (Reply, paragraph 145). Also, in their opinion, requiring
them to “go through” the complicated legal proceedings “[…] also implied an
expropriatory measure” (Reply, paragraph 146).
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147. In a communication of September 28, 2007, in response to several questions posed
by the Tribunal in the hearing on the merits, Claimants stated that “Metalpar received the
payments made by their customers ‘towards the final amount due’, as established by Law
No. 25,561, and proposed to their debtors a renegotiation of the loan” (page 7). They
added that: “As established by Law No. 25,642, CER could only be applied as from
October 1, 2002. That is why, we repeat, Metalpar used such date—and not any other
date—to calculate CER, and not because of foreign exchange speculation. Consequently,
Metalpar could only start claiming the payment of CER from its debtors as of October 1,
2002 […] Furthermore, Metalpar refinanced the loans of some of its customers” (page 7).
10. Conclusions and requests
148. In the hearing on the merits, Claimants concluded that “[…] pesification breaches
the legal framework and the Agreement for the Promotion and Reciprocal Protection of
Investments (APPI) that it took into account upon making the investment since it implied
substantive modifications to what Metalpar had considered upon carrying out the
investment” (transcript of the hearing on the merits, September 11, 2007, page 36). They
added that “Argentina breached its obligation to provide full protection and legal security
within its territory to the investments made by Metalpar and Buen Aire and caused them
to be subject to measures tantamount to expropriation” (transcript of the hearing on the
merits, September 11, 2007, page 49).
149. In their Memorial, Claimants requested that the Tribunal issue the award as
follows:
“a) Establish that the Argentine Republic has breached its obligations
under the Bilateral Investment Treaty previously mentioned, which was
signed between Chile and Argentina, international law and the
Argentine Constitution itself;
b) Condemn the Argentine Republic to pay to claimants Metalpar S.A.
and Buen Aire S.A. a compensation of USD 17,938,099, readjusted and
updated as previously requested, plus all additional court expenses
deriving from this litigation for claimants, as well as compound interest
from the date of issuance of the decision until actual payment.
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c) In the alternative, order the Argentine Republic to compensate
claimants for the damages caused, in the amount deemed appropriate by
the tribunal” (paragraph 437).
150. In their Reply, Claimants repeated the requests indicated in the previous paragraph
(XXV Request for Relief).
151. In its Counter-Memorial, Argentina requested that the Tribunal declare “[…] a)
that this Counter-Memorial be deemed filed in due time and manner; b) that
METALPAR’s claim against the Argentine Republic be dismissed in full, plus court
costs” (Counter-Memorial, paragraph 909).
152. In its Rejoinder, Argentina requested that the Tribunal declare “a) That the
Rejoinder be deemed filed in due time and manner; b) That the evidence offered and
submitted be considered; c) That METALPAR’s claim be dismissed in due time; e) That
court costs be imposed on Claimants” (Rejoinder, paragraph 593).
IV. DIFFICULTIES WITH EVIDENCE
153. As previously explained, for reasons unknown to the Tribunal, Claimants did not
present the witnesses and experts proposed by the parties in the hearing scheduled and
held precisely with the object that the Tribunal and each of the parties examine them.
Claimants proceeded in this way despite the fact that the Tribunal had indicated to them,
pursuant to Rule 34(3) of ICSID Arbitration Rules, that they were required to present
those witnesses and experts, so that they may be examined by Argentina and the Tribunal
as explained in paragraphs 36, 37, 38, 39, 40, 41, 42, 44, 46, 50 and 51 above.
Consequently, the Tribunal is unable to base its decision on the facts and conclusions that
those witnesses and experts would have allegedly proved, as stated by Claimants. To
proceed differently would imply causing a serious procedural inequality for Respondent,
who expressly requested the presentation of those persons in order to examine them. The
Tribunal also values the fact that the Argentine Republic did bring its witnesses and
experts to the hearing, and Claimants had full possibilities of interrogating them on that
occasion.
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154. Neither will the Tribunal be able to base its decision on the documents submitted
in the hearing by Dr. Juan Andrés Fontaine and Dr. Hernán Salinas, when they examined
some of the experts presented by Argentina, although the Tribunal reserves its right to use
their statements made at the hearing to clarify events. Accepting the inclusion of the
opinions and reports issued by experts in the proceedings through the examination of the
counterparty’s expert witnesses would imply placing the counterparty in an obvious
situation of procedural inequality, as those opinions and reports could not be examined
and those who prepared them could not be interrogated.
155. Claimants justified their procedural attitude with respect to evidence through their
alleged conviction—which was repeated by their legal counsel expressly—that the only
remaining issues were matters of law (and that there was no controversy as to the matters
of fact). Notwithstanding the reasons that led Claimants not to present their witnesses and
experts to be examined by Argentina at the hearing, the truth is that they imposed serious
probative limitations on the Tribunal that it cannot surpass without breaching the
procedural equilibrium that should exist between the parties. In any case, as the issue
discussed in this case is whether Claimants’ investment was affected, the Tribunal
considers that this fact should be proven and, therefore, it is not possible to treat the
controversy as if the only remaining issues were matters of law (and that there was no
controversy as to matters of fact).
156. Despite the objections made by Claimants, the Tribunal has no reason to doubt the
truthfulness of the assertions made by the witness offered by Argentina or the conclusions
reached by its experts. Their examination by Claimants’ representatives and the members
of the Tribunal might have shown some weaknesses in certain cases, but nothing that
could disqualify them.
157. With respect to the evidence offered by Argentina, Claimants stated that they “[…]
challenge the documentation, reports and statements filed by Argentina, both in form and
substance. With respect to form, because they were not filed pursuant to procedural
regulations, i.e. they did not form part of Argentina’s Counter-Memorial […]” (Reply,
paragraph 321).
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158. The Tribunal based on Rule 24 of the ICSID Arbitration Rules and point 18 of the
Minutes of the Tribunal’s First Session held on November 23, 2003, in which—among
other issues—the procedure for documentary evidence was analyzed, does not share
Claimants’ criterion. Argentina offered its evidence in a timely manner, as exhibits to its
briefs, just as Claimants did with theirs.
V. ANALYSIS OF THE MERITS OF THE CASE
159. Below the Tribunal will analyze and reach conclusions regarding the positions of
the parties with respect to the issues discussed in these proceedings, as mentioned in
section III above.
1. Discrimination
160. Claimants alleged, in brief, that Argentina, through Law No. 25,561, Law No.
25,789, and Presidential Decree No. 905/2002, had discriminated against them (Memorial,
paragraphs 169 and 360). Argentina denied the existence of such discrimination against
Claimants and in favor of the financial sector and, on the contrary, asserted that the
entities of such sector had received a more burdensome treatment.
161. The Tribunal considers that a State’s power to create its legal system—through its
competent authorities—allows it to establish different rules to govern different subjects. If
Claimants neither were nor are financial institutions, they cannot argue that the Argentine
Government should have treated them as such.
162. Treating different categories of subjects differently is not unequal treatment. The
principle of equality only applies between equal subjects, not between unequal subjects.
This was acknowledged by the Tribunal in the case CMS Gas Transmission Company
against the Argentine Republic, which stated as follows: “The Respondent’s argument
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about discrimination existing only in similarly situated groups or categories of people is
correct […].”1
163. Likewise, the Sempra Energy International against the Argentine Republic case
may be quoted:
“The Tribunal reaches a similar conclusion in respect of the alleged
discrimination. There are quite naturally important differences between the
various affected sectors, so it is not surprising that different solutions might
have been or are being sought for each. It could not be said, however, that
any such sector has been particularly singled out either to have applied to it
measures harsher than in respect of others, or conversely to be provided
with a more beneficial remedy to the detriment of another.”2
164. In conclusion, the Tribunal does not find in this case that Argentina discriminated
against Claimants through the rules cited by them because, as they belong to a group that
is different from the financial sector, to which the rules granted different treatment as
regards pesification, they cannot argue that they were treated in a discriminatory manner.
2. Expropriation
165. In the Memorial, Metalpar S.A. and Buen Aire S.A. argued that the APPI
provides for protection and legal security to its investments and that they cannot be
expropriated (paragraph 254). They also explained what is understood as indirect
expropriation and argued that the acts performed by Argentina constituted an indirect
expropriation.
166. Subsequently, they repeatedly explained their position as follows: “Metalpar does
not base its claim on the fact that its investment has been expropriated by Argentina.
SPECIFICALLY, WHAT HAS BEEN EXPROPRIATED ARE THE RIGHTS AND
CREDITS METALPAR HAD AGAINST ITS CLIENTS, WHICH IT HAS NOT BEEN
ABLE TO EXERCISE FULLY BECAUSE THE ARGENTINE AUTHORITY HAS
1 CMS Gas Transmission Company v. Argentine Republic (ICSID Case No. ARB/01/8), Award of May 12,
2005, paragraph 293.
2 Sempra Energy International v. Argentine Republic (ICSID Case No. ARB/02/16), Award of September
28, 2007, paragraph 319.
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PREVENTED IT FROM DOING SO BY MEANS OF THE FINANCIAL MEASURES
ISSUED TO THAT EFFECT” (Reply, paragraph 225).
167. Similarly, they stated at the hearing that: “In our opinion, the issue here is not the
valuation of the investments, but an expropriation of credits, a contractual breach”
(transcript of the hearing on the merits, September 14, 2007, page 714).
168. The BIT sets forth as follows:
“Article 4. Expropriation, nationalization and extraordinary situations.
1. The investments made by nationals or companies of one of the
Contracting Parties shall enjoy full protection and legal security within
the territory of the other Contracting Party.
2. The investments made by nationals or companies of one of the
Contracting Parties shall not be, within the territory of the other
Contracting Party, expropriated, nationalized or placed under the sphere
of measures whose effects are tantamount to an expropriation or
nationalization, except in the event of a law based on public use or
common welfare, and, in those cases, they shall be previously
compensated […].”
169. As already stated, Argentina, aside from asserting that Claimants’ investments
were not expropriated, repeated on different occasions Claimants’ alleged contradictions
on this issue, as they mistook their investments for the contracts signed by its subsidiary,
Metalpar Argentina S.A.
170. During the proceedings, Claimants repeated their position and asserted that what
had been expropriated were the loan agreements signed between Metalpar Argentina S.A.
and its customers, and they expressly stated that their Claim is not based “[…] on the fact
that their Investment was expropriated by Argentina” (Reply, paragraph 225).
171. According to Claimants, the loan agreements that they signed with their debtors
were financed with their investments and, therefore, they should be under the BIT’s
protection. In the opinion of Argentina, the investments and the loan agreements are
different things, and only the former are protected by the investment treaty.
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172. In another ICSID arbitration, the tribunal correctly stated that:
“In considering the severity of the economic impact, the analysis
focuses on whether the economic impact unleashed by the measure
adopted by the host State was sufficiently severe as to generate the need
for compensation due to expropriation. In many arbitral decisions, the
compensation has been denied when it has not affected all or almost all
the investment’s economic value. Interference with the investment’s
ability to carry on its business is not satisfied where the investment
continues to operate, even if profits are diminished. The impact must be
substantial in order that compensation may be claimed for the
expropriation.”3
173. This Tribunal agrees with what was expressed in the previous paragraph and
considers that in this proceeding Claimants were unable to prove that the actions taken by
the Argentine Government had a “sufficiently severe” effect on their investments “to
generate the need for compensation due to expropriation.” Furthermore, in this case, the
Tribunal has not had any evidence showing that the intervention in the loan agreements
alleged by Claimants produced any negative effects on their investment in Argentina.
174. In addition to the above, based on the evidence presented by Argentina, the
Tribunal considers that Claimants were never prevented from managing their investment
and they always had control over it through their subsidiary, Metalpar Argentina S.A.
What is more, such company continued performing its business activities, negotiating
with the customers that had already signed the contracts and with future customers.
Metalpar Argentina S.A. improved its production and sales in the Argentine market, as
acknowledged by its Chairman, Mr. Jaime Paredes, who is also one of the main
shareholders of Claimants (transcript of the hearing on the merits, September 14, 2007,
page 932). Therefore, there is no evidence of direct or indirect expropriation of Claimants’
investments.
3. Interference
175. For the same reasons given showing that Claimants’ investments were not
expropriated, the Tribunal concludes that it is also not possible to affirm that there was
3 LG&E Corp., LG&E Capital Corp. and LG&E International Inc. v. Argentine Republic (ICSID Case No.
ARB/02/1), Decision on Liability of October 3, 2006, paragraph 191.
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any significant interference by Argentina with respect to Claimants’ investments that may
have prevented the latter or Metalpar Argentina S.A. from carrying out their business
activities as they deemed most appropriate.
4. Prohibition on transferring funds abroad
176. According to Claimants, Argentina breached the guarantee of transfer of funds
included in the BIT and thus discriminated against them as compared to other foreign
investors (Memorial, paragraph 372). According to Argentina, there was no such violation
since, even during the worst part of the crisis, investors were always able to make
transfers, although for a period of time authorization from the Central Bank was required
(Counter-Memorial, paragraphs 9, 707, 715 and 716).
177. To solve this issue, it is necessary to review the regulations quoted by Claimants,
i.e. Presidential Decree No. 1570/2001, which, in the relevant part, establishes:
“Article 2 – The following transactions are hereby prohibited:
[…] b) Transfers abroad, except for those related to foreign trade
transactions, to the payment of expenses or withdrawals made abroad
through credit or debit cards issued within the country, or to the
settlement of financial transactions or for other concepts, in this last
case, subject to the authorization of the Central Bank of Argentina”
(Memorial, paragraph 371).
178. Claimants intended to prove the only case in which they were allegedly unable to
transfer funds abroad through a letter dated May 8, 2003 that was attached as Exhibit No.
9 to the Memorial. In that letter, Metalpar Argentina S.A. requested BankBoston to
provide advice as to how to transfer USD 200,000.00 to its shareholders; the bank
responded that current legislation prohibited such remittances.
179. The Tribunal concludes that Claimants, who knew the regulations on this matter
well, as indicated in the file, did not comply with the established procedure, which
consisted of requesting authorization from the Central Bank, not BankBoston, and that
Argentina did not breach article 5(b) of the BIT, which guarantees the transfer of funds
abroad. Should it be concluded that the events were the result of incorrect advice provided
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by BankBoston to Claimants, the consequences of that error could not be charged to
Argentina either.
5. Fair and equitable treatment
180. The Tribunal considers that, contrary to what Claimants stated, the treatment that
Argentina accorded to their investments did not breach the fair and equitable treatment
standard established in the BIT.
181. As explained in paragraphs 160 through 164, Argentina did not discriminate
against Claimants. Nor did it deny them access to justice. As previously stated, the
measures taken by Argentina to avert the crisis included judicial and extra-judicial
mechanisms to mitigate the effects thereof. Claimants, through their own decision, and not
because the Argentine authorities prevented them from doing so, did not use any of those
mechanisms.
182. With respect to the issue of the expectations alleged by Claimants, the Tribunal
observed that they were basically based on the award issued on May 29, 2003 in the
arbitration Tecmed against the United Mexican States (ICSID Case No. ARB/00/2);
however, it considers that it is required to analyze what was resolved in other cases in
order to achieve greater conceptual accuracy. The following paragraphs are included for
such purpose.
183. In the PSEG Global Inc. and Kenya Ilgin Elektrik Üretim ve Ticaret Limited
Sirketi against the Republic of Turkey case, the Tribunal stated as follows:
“Because the role of fair and equitable treatment changes from case to
case, it is sometimes not as precise as would be desirable […] Recent
awards have applied this standard to the assessment of rights affected by
inconsistent State action, arbitrary modification of the regulatory
framework or endless normative changes to the detriment of the
investor's business and the need to secure a predictable and stable legal
environment. This includes most significantly the issue of legitimate
expectations which, as the Tribunal in Tecmed concluded, requires a
treatment that does not “detract from the basic expectations on the basis
of which the foreign investor decided to make the investment” […].
Although the Claimants, as noted above, provide a long list of legitimate
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expectations that in their view have not been met, the Tribunal is not
persuaded that all such complaints relate to legitimate expectations.
Legitimate expectations by definition require a promise of the
administration on which the Claimants rely to assert a right that
needs to be observed”4 (emphasis added).
184. In the award of LG&E Corp., LG&E Capital Corp. and LG&E International Inc.
against the Argentine Republic, the Tribunal concluded that:
“Thus, this Tribunal, having considered, as previously stated, the
sources of international law, understands that the fair and equitable
standard consists of the host State’s consistent and transparent behavior,
free of ambiguity that involves the obligation to grant and maintain a
stable and predictable legal framework necessary to fulfill the justified
expectations of the foreign investor.”5
185. After analyzing the abovementioned awards, the conclusions of which, in essence,
this Tribunal shares as they properly reflect the concept of “fair and equitable treatment,”
it is necessary to point out the following: the tribunals in the cases PSEG Global Inc.
Konya Ilgin Elektrik Üretim ve Ticaret Limited Sirketi against Republic of Turkey
(ICSID Case No. ARB/02/5, award of January 19, 2007), Técnicas Medioambientales
Tecmed S.A. against United Mexican States (ICSID Case No. ARB(AF)/00/2, award of
May 29, 2003), ADC Affiliate Limited and ADC & ADMC Management Limited against
Republic of Hungary (ICSID Case No. ARB/03/6, award of October 2, 2006), Azurix
Corp. against Argentine Republic (ICSID Case No. ARB/01/12, award of July 14, 2006),
Siemens A. G. against Argentine Republic (ICSID Case No. ARB/02/8, award of
February 6, 2007), LG&E Corp., LG&E Capital Corp. and LG&E International Inc.
against Argentine Republic (ICSID Case No. ARB/02/1, award of July 25, 2007), and
Enron Corporation, Ponderosa Assets L.P. against Argentine Republic (ICSID Case No.
ARB/01/3, award of May 22, 2007), amongst others, asserted that investors’ expectations
were related to fair and equitable treatment. However, in all of them, the conflict arose out
of a state of facts different to the one under analysis in this case: in some of them, the
relevant governments had invited the foreign investors to participate in a bidding process
that was awarded to each of those investors and ended with the signing of a contract. In
4 PSEG Global Inc. and Kenya Ilgin Elektrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey
(ICSID Case No. ARB/02/5), Award of January 19, 2007, paragraphs 239-241.
5 LG&E Corp., LG&E Capital Corp. and LG&E International Inc. v. Argentine Republic (ICSID Case No.
ARB/02/1), Decision on Liability of October 3, 2006, paragraph 131.
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other cases, there were other types of contractual relations which created legitimate
expectations; in all of them, the Government refused to renew or to comply with the
contract, license or permit.
186. In this specific case, there was no bid, license, permit or contract of any kind
between Argentina and Claimants, and the Tribunal considers that there were no
legitimate expectations entertained by Claimants that were breached by Argentina.
187. In the hearing it was shown that both Claimants had business experience in
Argentina as well as in Chile (transcript of the hearing on the merits, September 11, 2007,
page 159) and that they knew that the automobile industry in Argentina was in bad
conditions since 1997, as affirmed by Mr. Jaime Paredes, one of the main shareholders of
Claimants (transcript of the hearing on the merits, September 14, 2007, page 927).
Therefore, the Tribunal considers that it is unlikely that Claimants legitimately expected
that their investments would not be subject to the ups and downs of the country in which
they were made or that the crisis that could already be foreseen would not make it
necessary to issue legal measures to cope with it. Since in this case there is no arbitrary
governmental conduct nor is there a contractual situation of any kind leading Claimants to
entertain legitimate expectations that were violated by such conduct, the Tribunal
concludes that Argentina did not violate the provision that requires it to afford fair and
equitable treatment to Claimants’ investments.
188. Based on what has been disclosed in the previous pages, the Tribunal concludes
that it was not proven during this proceeding that Metalpar S.A.'s and Buen Aire S.A.'s
investments in the Argentine Republic received discriminatory treatment or treatment
violating the provision requiring fair and equitable treatment from the Argentine
Government. Neither has it been proven to the Tribunal that these investments were
expropriated by that Government in a direct or indirect manner, that that Government
interfered considerably in how the investments were handled by Claimants, nor that they
were arbitrarily denied the possibility of making transfers abroad. That would be
sufficient to dismiss the claim filed by Claimants. However, as already mentioned and as
will be shown further ahead, this case, additionally, has the singular feature that there is
no evidence in the case file showing that the investments of Claimants were adversely
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affected, which is why their claims should be denied. The Tribunal also considers it
convenient to analyze other aspects of this dispute that make it different from other
similar disputes. The following paragraphs are devoted to this end.
6. The circumstances under which Claimants made their investment
189. As from 1998, a crisis began to shape in Argentina, which exploded violently in
late 2001. The extent of this situation is undeniable and was thoroughly proven in the
case. The severity of the phenomenon was described by Dr. Liliana De Riz, expert witness
offered by Argentina, who in her report and in her subsequent oral statement expressed as
follows:
“In 1998, the economy began a period of recession and the social
imbalance worsened until it turned into a social crisis that,
simultaneously, reflected a crisis in the legitimacy of the governing
authorities and a crisis of the State, which was incapable of maintaining
order” (Report, page, 1).
“After the abandonment of the convertibility regime, which was
determined by the market, chaos and economic depression continued to
reign. With a paralyzed banking system and no clear prospects of
possible international financial aid, GDP contracted by 16% in the first
half of 2002” (Report, page 6).
190. At the hearing, Dr. De Riz added: “There is no doubt that the unprecedented
nature of this Argentine crisis, the new aspect of it, was that it consisted, simultaneously,
of a collapse of the economy, a crisis of the Argentine Government, a crisis of the
political system of representation and a social crisis” (transcript of the hearing on the
merits, September 12, 2007, page 445).
191. When referring to the crisis, she said, on that same occasion:
“What did this translate into? As I said into the sudden increase in
poverty, pushing half the population under the poverty line and a quarter
of the population under the indigence line, which translates into the
rapid spreading towards the periphery, to the marginal sectors of society,
to those who do not receive a formal income, because the economic
chain is broken. And in a context of sudden impoverishment—as I have
said—there is an implosion, this social outburst that brings new social
characters into the Argentine scene. This is what the cacerolazos
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(people protesting through banging on pots and pans), the piqueteros
(picketers) are, they had already begun to protest but they grew in
significance” (transcript of the hearing on the merits, September 12,
2007, page 448 and 449).
192. The extremely grave situation experienced in Argentina during that time was not
only shown by expert testimony. It was also reported by some of the most important
newspapers around the world. As an example, the following headlines are transcribed
below:
“Argentina a la deriva” (Argentina adrift), ABC (Spain), December 21, 2001; “Argentina
se hunde sin ayuda” (Argentina sinks without help), El Nuevo Herald (Miami), December
21, 2001; “Frágil, el equilibrio político, económico y social en Argentina: un mal paso
desataría la furia” (Fragile, the political, economic and social balance in Argentina: a
wrong step would unleash fury), Jornada (Mexico), January 20, 2002; “El 70% de los
niños argentinos vive en la pobreza” (Seventy percent of Argentine children live in
poverty), La Nación, August 21, 2002 (exhibits A RA 44, 50, 45 and 36, respectively,
submitted by Argentina).
193. Several international financial institutions, such as the International Monetary
Fund, also expressed their concern over the severity of the crisis Argentina was going
through. Similarly, figures without any connection to either of the parties pointed out how
alarming the situation was. As an example, the following interview may be quoted:
“The U.S. Assistant Secretary of State for Latin American Affairs, Otto
Reich, said that the severity of the economic crisis which Argentina is
going through ‘more than doubles’ the Great Depression the United
States went through in the early thirties. At that time, there was a serious
financial crack which brought serious consequences for that country's
economy.
Reich also indicated in an interview published yesterday by the Italian
newspaper Corriere Della Sera that ‘the financial system in Argentina
exists but must be rebuilt’. Furthermore, the U.S. official pointed out
that due to the magnitude of the crisis, he is following ‘the negotiation
between the Argentine Government and the International Monetary
Fund (IMF) very attentively’” (Clarín.com, July 10, 2003, quoted by
Argentina in its Counter-Memorial, footnote on page 54).
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194. The Argentine Supreme Court of Justice itself recently recalled this chaotic
situation:
“[…] the questions at issue make it necessary to recall that the political,
social and economic events that gave rise to one of the most serious
crises in the contemporary history of Argentina are public and wellknown
events acknowledged by the Court upon ruling in Fallos […]
once the situation of serious economic, social and political distress that
represents a maximum danger for the country has been accepted, the
State’s duty to put in place exceptional rules is imperative; i.e. a set of
extraordinary remedies to ensure the self-defense of the community and
the reestablishment of the social normality that the political system
provided by the Constitution requires […].”6
195. There were many external factors that contributed to the chaotic situation
Argentina experienced in late 2001 and early 2002. Among them, those frequently
mentioned are the problems suffered by Mexico in 1995, Russia as from 1998, the
southeast Asian countries and, especially, Brazil in 1998 (Report by expert Carlos Pérez
Rovira, filed by Claimants, page 5, and report by Roberto Frenkel and Mario Damill, filed
by Argentina, page 33).
196. Although, in the words of the witnesses, the crisis in late 2001 and early 2002 is
incomparable to any other in Argentina’s past, it is true that this country has suffered
serious political and economic setbacks throughout its history. Without having to go back
farther in history, it is sufficient to recall the difficult situations experienced by Argentina
during the second part of the 20th century to know that, although extremely serious, the
crisis of the early 21st century is not without precedent in Argentina.
197. As regards the causes of the crisis and the appropriateness of the measures taken
by Argentina, the Tribunal cannot determine whether, as Claimants alleged, those
measures contributed to the crisis. It is possible that some of them were not the best
measures, but undoubtedly, they were aimed at overcoming the devastating situation
Argentina was going through. Therefore, the Tribunal will base itself on the objective fact
that, in a relatively short period, Argentina went from utter chaos in the social, economic
and political fields to a situation of stability as is currently the case.
6 Rinaldi, Francisco A. et al versus Guzmán Toledo et al. Mortgage foreclosure, Argentine Supreme Court
of Justice, March 15, 2007, Resolution 320 XLII.
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198. Leaders of different countries must make decisions of a very different nature on a
daily basis. Except in very obvious situations, it is extremely difficult to determine at the
time such decisions are made, and even some time afterwards, whether said decisions
were the best they could have been. In this case, to try to abstractly determine whether the
actions carried out by Argentina during the crisis were optimal is a difficult or impossible
task, especially if economic consequences are intended to be derived from the conclusion
reached.
199. Resolving whether the actions taken by the Argentine Republic during the
emergency were correct and taken in a timely manner and, consequently, whether they
were key to Argentina overcoming the crisis, or whether, quite the opposite, they
contributed to the creation of the crisis or, at least, made it more serious; or to evaluate the
way in which international financial institutions and the global economic system
conducted themselves, are discussions that go beyond this Tribunal’s sphere of action.
Even today, discussions continue on whether the financial aid received by Argentina was
timely or tardy, sufficient or insignificant and some hold that no matter what governments
and international institutions would have done, only Argentina could take the measures—
some of these measures being almost heroic—that were necessary to start to overcome the
situation that was weighing down its people. As regards the suggestions (or impositions,
according to some) made by the international financial organizations, the discussion
covers not only issues on their appropriateness, rather, it also includes other aspects such
as the debate on whether, even if they were in fact correct, they were incorrectly or
insufficiently applied by the governments of that country.
200. This Tribunal is fully aware that it was not appointed to make a historical and
economic analysis of the social, economic and political problems Argentina has
experienced. Neither is such a task of interest for the purpose of fulfilling the mission that
was entrusted to the Tribunal, which is to settle the dispute between the parties. The
undersigning arbitrators understand that the analysis of the causes of the crisis suffered by
Argentina, which reached the height of its severity in late 2001 and during 2002, exceeds
their field of action, as does the analysis of the appropriateness and timeliness of the
measures that Argentine authorities brought into effect. Therefore, this Tribunal will
neither take sides with those making the governing leaders responsible for the crisis
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suffered by Argentina, nor with those considering that their course of action was
optimum. To attempt to do so, as was expected in this proceeding, would constitute a
mistaken decision and might lead the Tribunal to make assertions the evidence of which
would be doubtful or impossible and whose consequences would be impossible to prove.
201. The representatives of Metalpar S.A. and Buen Aire S.A., Chilean companies
founded and based in this neighbouring country of Argentina, were not unaware of the
political and economic problems undergone by Argentina in the past. They themselves
expressed it on several occasions, one of such statements having been made in paragraph
139 of their Memorial. They were aware of the fact that in the near past Argentina had
suffered serious instability issues and, possibly, with a little diligence, they would have
been able to discover in 1996 and the following years, when they were making their
investments in Argentina (in 1997 they purchased Bus Carrocería and in 1998 they made
significant capital contributions in companies owned by them), that a new crisis was
shaping although, of course, it would have been impossible to foresee the gravity of the
events that were to come.
202. It is therefore valid to suppose that Claimants, with representatives who have
ample international experience, living in a neighbouring country and with strong relations
with that country, were aware of Argentina’s reality. This supposition became certain for
the members of this Tribunal during the hearing held in September 2007, when Claimants
themselves, and persons related to them, in their eagerness to show that Argentina had
contributed to the crisis that triggered the conflict that will be resolved in this proceeding,
showed that they had a good understanding of the economic, social and political
commotions that had been frequent in Argentina. They did this also in several
submissions throughout the proceeding.
203. As mentioned previously, long discussions have been held between economists on
the reasons for the crisis and with a view to defining whether the measures taken by
Argentina were the correct ones and whether they were implemented in a timely fashion.
There are several experts, on whose opinions Claimants have based themselves, which
state that Argentina contributed to the outbreak of the crisis. However, there is also
another group of knowledgeable persons on the subject, expert Carlos Pérez Rovira
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among them, introduced by Metalpar (page 5 of his report cited by Argentina on page 14
of the Rejoinder), which hold that the crisis resulted from external factors such as those
mentioned in paragraph 195 above.
204. In the world of finance, it is frequently held that “the greater the return, the greater
the risk.” Although this aphorism is normally applied to financial transactions between
private parties, such aphorism cannot be ignored when trying to decide which country to
invest in; that is why there is such a thing as a “country risk” rating. It cannot be denied
that there are countries in the world that enjoy greater stability than others. Claimants’
representatives, businesspersons with international experience who are knowledgeable of
Argentina’s situation, were aware, as already stated, of the problems Argentina had
suffered on several prior occasions. However, they decided to invest in that country
where, although there was a greater risk due to the instability problems Argentina had
experienced in the past, there was also the possibility of obtaining greater returns.
205. In one of his interventions in the hearing on the merits held in September 2007,
Dr. Hernán Salinas, who appeared as part of Claimants’ legal advisors, referred to the
CMS against Argentina case (ICSID, ARB 01/8) and said:
“[…] in this regard, the Arbitral Tribunal cited concludes that after
examining the circumstances of the controversy—I quote—‘The crisis
was not of the making of one particular administration and found its
roots in the earlier crisis of the 1980s and evolving governmental
policies of the 1990s that reached a zenith in 2002 and thereafter.
Therefore, the Tribunal observes that government policies and their
shortcomings significantly contributed to the crisis and the emergency
and while—it continues—exogenous factors did fuel additional
difficulties they do not exempt the Respondent for its responsibility in
the matter.’ End quote” (transcript of the hearing on the merits,
September 11, 2007, page 97).
Mr. Salinas added:
“As Argentina herself has pointed out, the Argentine crisis was not the
[sic] an isolated crisis. There were numerous economies that suffered
the external shocks, the effects of volatility or movements of funds and
the so-called contagion effects” (transcript of the hearing on the merits,
September 11, 2007, page 99).
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206. Claimants also stated that: “[…] during Argentina's democratic governments there
was never a period lasting longer than 7 years without an ‘emergency’ justifying the
subjugation of constitutional rights […] As established by the ICSID Tribunal in ‘LG&E
Energy Corp. vs. Argentine Republic’, there have been ‘…emergency periods in
Argentina longer than the non-emergency periods…’” (Reply, paragraph 26). Further
ahead, they expressed as follows: “That is why—in light of the ups and downs of the
economy—Metalpar Argentina included in the Agreements the clauses that established
the price in US dollars and, moreover, which expressly maintained that currency for
payment, waiving the theory of unpredictability, if the convertibility regime established
by Law No. 23,928 were to be altered” (Reply, paragraph 28).
207. When Claimants invested in Argentina, they knew that the Convertibility Law No.
23,298, published on March 28, 1991, was in effect, and that, in the event of certain
external events impacting on Argentina, the factual situation upholding what was
provided in that law could become unreal and a new crisis would lash such nation. In spite
of this, Claimants’ representatives decided to invest large sums of money in Argentina.
The Tribunal is not clear on whether, in addition to weighing the aforementioned risks,
Claimants had the possibility of foreseeing that the Argentine Government could, in such
circumstances, intervene with the contractual relations with its customers, forcing them to
change these relations the way it was done. However, as already stated, such analysis is
pointless considering that it has not been shown that Claimants’ investment in the
Argentine Republic was affected.
7. State of Necessity
208. Self-preservation is one of the fundamental duties of the government of a country.
If the government disappears, chaos and great hardship for that country's population
ensue. In this specific case, as already stated above, the Tribunal is convinced of the
severity of the crisis suffered by Argentina in late 2001 and early 2002. As already
mentioned, back then there were discussions, which persist to this day, on whether the
measures taken at that time by Argentina’s governing leaders were appropriate and
whether they were taken in a timely manner. The Tribunal also expressed, in previous
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55
paragraphs, that the determination of this matter exceeds its sphere of action and,
moreover, is unnecessary to resolve the dispute existing between the parties.
209. During this proceeding, the representatives of Argentina confirmed that the
measures taken by the Government during the months in which the crisis was at its peak
and subsequently, were absolutely essential to overcome the situation the country was
going through. They also added that, as regards Claimants, these measures had a
beneficial effect and contributed, in a definite manner, to their financial recovery.
Claimants, on the other hand, consider that Argentina contributed to causing the crisis
and, although they acknowledge Argentina’s sovereign right to take the measures it deems
necessary to solve the crisis, they state that as these actions adversely affected them,
Argentina should compensate them.
210. The parties disagree on what circumstances are necessary to be able to refer to a
“state of necessity,” on the duration of the ruling imposing it and on the consequences of
the actions taken by a government in such circumstances. To defend their points of view
in relation to this matter, they presented extensive written and oral arguments.
211. For the purposes of this proceeding, as explained below, it is not necessary to
clarify this matter due to the fact that, as will be shown further ahead, Claimants did not
prove that their investments in the Argentine Republic were adversely affected by the
actions taken by the Argentine Government, which would make it pointless to decide
whether the measures taken by Argentina and challenged by Claimants, were executed
due to there being a “state of necessity,” which would extinguish the liability that could be
attributed to Respondent.
212. This conclusion clearly distinguishes this matter from others filed against the
Argentine Republic. To exemplify, we mention the arbitrations of LG&E (ICSID case
ARB/02/1) and Enron Corporation (ICSID case ARB 01/3), which also discussed the
existence of a “state of necessity” in Argentina and its consequences. Both cases
mentioned are clearly different to this case because in them the existence of damages to
the investments was shown.
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56
213. The analysis of the state of necessity issue, as a circumstance precluding
responsibility, is required in cases in which a government is shown to conduct itself in a
manner that infringes the right of a person, whether natural or judicial, to have its
investment in that country respected. If, in addition to the existence of this detrimental
conduct to the investments it is proven that, as a result thereof damage was caused, and
moreover, the amount thereof can be proven, the definition of whether there is a state of
necessity precluding the government from responsibility, is unavoidable. None of this
occurs in this case and, therefore, going into this analysis would be completely futile.
8. Obligation to mitigate the alleged damage
214. Argentina stated that Claimants should have carried out a reasonable effort with
their debtors and before local authorities to remedy the supposed inequalities resulting
from the pesification (Counter-Memorial, paragraph 18). Claimants disagreed with such
statement and to support their position they provided several arguments.
215. Claimants basically argued that bringing any proceeding before Argentine courts
would have eliminated the possibility of accessing an arbitration proceeding before an
ICSID tribunal. They added that proceeding in this manner would have entailed,
moreover, a contradictory stance as, if they had done so, they would have been turning to
a system they were questioning. They concluded that such a proceeding would have
required an enormous effort on their part and would have had a futile outcome given the
backlog of cases pending before the Argentine Supreme Court of Justice in which there
are more than “[…] 50,00 proceedings pending a decision on whether the pesification is
constitutional” (Reply, paragraph 145). Argentina contradicted each of these arguments.
216. In other circumstances, it may be of importance to analyze whether Metalpar
Argentina S.A. should have attempted, through negotiations or, otherwise, through the
court system, the actions provided by the measures to counteract inequitable situations.
Evidently, if they had done so there would not have been an identity of parties, purpose
and causes of action between those hypothetical legal actions and this arbitration;
therefore, a legal action filed by Metalpar Argentina S.A. in this regard would not have
jeopardized Claimants’ possibility of beginning arbitration proceedings through ICSID.
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57
217. Given the conclusions that will be presented below, the Tribunal considers that to
resolve this dispute there is no need to go into the discussion on whether Claimants should
have acted before Argentine courts to attack the measures taken by the Argentine
Government or to mitigate the damages they allegedly suffered. For these same reasons,
the Tribunal is also not interested in judging on the duration of the proceedings filed or on
the discussion of whether Claimant’s actions brought before those courts would have
jeopardized their possibility of resorting to ICSID or would have required an effort from
them that was out of proportion.
9. Claimants’ Investment
218. According to the Tribunal, the evidence in the case determines doubtlessly that the
Argentine Republic’s current situation is much better, regardless from which perspective
the situation is looked at, than what it was some six years ago. The arbitrators also find it
evident that the effects of the recovery began to be felt a very short time after Argentine
authorities took, during the crisis, the actions that were referred to above.
219. The Tribunal will not enter into the analysis of whether the development of the
international economic context contributed to Argentina's economic recovery. It is very
possible that this was the case. However, the Tribunal finds it evident (and it lacks
evidence to reach a conclusion to the contrary) that the actions taken by the Argentine
Government in late 2001 and early 2002 had a beneficial effect and made it possible to
overcome the chaos the country experienced in those days.
220. The effects of the actions taken by the governmental authorities (or these effects
and the changes of other circumstances that also took place), benefited the Argentine
society in general, the automobile industry in particular and, according to Argentina’s
experts, the investments made by Metalpar S.A. and Buen Aire S.A. (report by Marx and
Echagüe and Molina, page 7).
221. At the hearing on the merits Argentina submitted several graphs to support its
statement that “[…] Metalpar’s investment is worth much more in a scenario, the real
scenario in which the measures were taken, than in an assumed scenario in which the
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58
measures would not have been taken […]” (transcript of the hearing on the merits,
September 11, 2007, page 208 and 209).
222. Through the evidence submitted, the Tribunal is shown that the bus bodies sold by
Metalpar Argentina S.A. from 1998 through 2005 were as follows:
Year Amount
1998: 75
1999: 17
2000: 56
2001: 107
2002: 98
2003: 147
2004: 431
2005: 1,048
(Report by Daniel Marx, José Echagüe and Federico Molina, August 29, 2006, page 8)
223. As Argentina showed in the hearing on the merits held September 11, Metalpar
Argentina S.A. had the following sales, in thousands of US dollars since 1998 through
2005:
Year Sales in USD
1998: $9,713,000
1999: $13,713,000
2000: $12,062,000
2001: $7,895,000
2002: $4,626,000
2003: $2,806,000
2004: $9,157,000
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59
2005: $20,754,000
(Report by Daniel Marx, José Echagüe and Federico Molina, August 29, 2006, page 8)
224. As far as this Tribunal knows, the only investments made by Metalpar S.A. and
Buen Aire S.A. in the Argentine Republic were the purchase of shares of the Argentine
company named Loma Hermosa S.A. and its capitalization. This company, in its turn, was
the sole shareholder of all the capital stock of the company that, after having changed its
name, was named Metalpar Argentina S.A. and received most of Claimants’ investments.
Part of these investments were used by Metalpar Argentina S.A., subsidiary of
Claimants’, to give financing to the persons purchasing the vehicles it manufactures; the
transactions were generally documented using contracts with a pledge executed in relation
to the vehicles. The Tribunal supposes (because, as indicated, it was not proven) that
Metalpar Argentina S.A.’s credits with its customers may have been temporarily affected
by the actions taken by Argentina but, in effect, it has no evidence that Claimants’
investments would have been adversely affected.
225. In fact, regardless of the vicissitudes that could have been suffered by the loans
that Metalpar Argentina S.A. granted the buyers of the vehicles it manufactured, the
Tribunal was unable to find one single piece of evidence showing that, in the end,
Claimants’ investments would have been adversely affected as a result of the measures
taken by Argentina to avert the crisis. On the contrary, the evidence received during the
proceeding (report dated August 29, 2006, written by Marx, Echagüe and Molina, page 7,
and the financial statements of Metalpar Argentina S.A., among others) show that
Metalpar Argentina S.A.’s financial situation improved significantly after 2004; the
Tribunal attributes this improvement to the combination of several factors, as will be
explained further ahead.
226. Claimants stated that “Metalpar recovered not as a result of the ‘Measures’ in itself
(sic), but rather due to the increase in turnover and production registered between 2004
and 2005 (2 years after implementing the ‘Measures’), which is explained: (i) through the
need to supply a market with a very significant delay in renewing the passenger vehicle
sector, infringing renovation laws and not abiding by the aging of the vehicles currently in
circulation due specifically to the ‘Measures’ that harshly punished the Argentine
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60
economy as a whole and in particular passenger public transport companies, and (ii) due
to the fact that Metalpar Argentina S.A. is in an advantageous competitive position as its
main competitor is undergoing a bankruptcy situation” (Reply, paragraph 302).
227. It is very possible that the improvement in Metalpar Argentina S.A.’s situation is
not only due to the measures taken by Argentina, but that in this improvement there was
an influence of the change in external and internal circumstances such as those mentioned
in the paragraph above and, of course, the actions taken by Metalpar Argentina S.A.
However, the objective fact which has been sufficiently proven is that the recent results of
the business of such company are much better than what it obtained in 2001, before
Argentine authorities took the measures that are being questioned by Claimants.
228. To speculate about what would have happened if Argentina had not taken any
action or if it had imposed different measures would, as has already been said, be a futile
exercise that would lead to purely hypothetical conclusions, which would be impossible to
prove. What in actual fact took place, and on which the Tribunal has no doubt whatsoever,
is that the putting in order of public finances, the subsidies that Argentina granted to
transport companies and the recovery of stability, in general, constituted a beneficial
environment for Metalpar Argentina S.A. to make the business decisions that would
enable it to make a speedy recovery.
229. In addition to those already mentioned, it is evident that other factors, which made
Metalpar Argentina S.A.’s success possible, must be taken into consideration, such as the
proven business ability of its representatives and the disappearance of its main
competitors.
230. In effect, as acknowledged by Mr. Paredes, Chairman and one of the main
shareholders of Claimants (transcript of the hearing on the merits, September 14, 2007,
pages 932-934), its Manager, Mr. Gonzalo Varela (transcript of the hearing on the merits,
September 14, 2007, pages 753-754) and their legal counsel, Messrs. Mayorga and
Postiglione, due to a series of factors, from which they exclude the measures taken by the
Argentine Republic, as from 2004 Metalpar Argentina S.A. has enjoyed, and shall
continue to enjoy, as stated by Mr. Paredes (the Tribunal deems him to do so with full
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61
knowledge of the facts) in the closing argument, spectacular success, as explained in the
following paragraphs.
231. Judging Metalpar Argentina S.A.’s business operation in Argentina by almost any
parameter, it is highly successful. After selling 56 bus bodies in 2000, it jumped to 431 in
2004 and 1,048 in 2005. Further, Mr. Paredes declared that in 2007 they would be
manufacturing 2400 bus bodies (transcript of the hearing on the merits, September 14,
2007, page 932).
232. The increases in sales affected Metalpar Argentina S.A. in such a way that it is
currently one of the main bus body sellers in Argentina. This is remarkable if it is taken
into consideration that in 2001 there were 28 companies engaged in this business and
today there are only 5 left (statement by Mr. Jaime Paredes, transcript of the hearing on
the merits, September 14, 2007, page 932). As mentioned repeatedly, it is obvious that
this success cannot be attributed exclusively to the measures taken by Argentine
authorities but it is evident that the Tribunal, in light of this scenario, cannot come to a
contradictory conclusion and rule that these measures had a ruinous effect on Claimants’
investments, the alleged ruin of which led to this proceeding.
233. When comparing sales and earnings of Metalpar Argentina S.A. in 2001 with
those of recent years, the Tribunal must inevitably come to the conclusion that the
situation of this company has not deteriorated, but quite the opposite, has notably
improved in the past five years and, furthermore, according to its representatives, shall
continue to do better and better. It is impossible to determine which factors had an
influence in this drastic improvement in Metalpar Argentina S.A.’s situation, related
directly to the investments of Claimants. It is just as impossible to determine the degree to
which each of those factors contributed to the final outcome and guess what would have
happened had Argentina not taken any action at all or had Argentina imposed different
measures. In any case, that determination is of no interest for the purpose of resolving this
dispute as, for the numerous reasons which have been set forth in the preceding
paragraphs, the Tribunal must reject, as to all its aspects, the Claim filed by Metalpar
S.A. and Buen Aire S.A.
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62
234. Legal costs: The Tribunal is not unaware of the fact that, for external or internal
reasons, or a combination of both, due to the fault or not of its governments, it is in fact
true that the Argentine Republic experienced a catastrophic situation in late 2001 and
during the early months of 2002, which to some extent altered all commercial relations in
existence at the time in its territory. To avert this crisis, it was necessary for authorities of
Argentina to take a series of emergency measures that, although in the long run had a
beneficial effect on Claimants, also constituted a factor disruptive to the business
relationships which their subsidiary had with their customers and to the contracts executed
with them. The Tribunal has affirmed that such measures did not adversely affect
Claimants’ investments; however, it cannot be denied that they distorted Metalpar
Argentina S.A.’s business activities in which Claimants had, indirectly, invested. Out of
fear of what had taken place, and the impossibility of being able to foresee in early 2003
the consequences that could derive from such measures, Claimants’ were driven to initiate
these arbitration proceedings in February 2003. Argentina’s defense brought to light the
weak points of Claimants’ case; their conduct in the proceedings as regards evidence
contributed to weakening their claim. However, there is no doubt that Argentina cannot
consider itself to have played no part in the alteration suffered by the legal relations
existing between Metalpar Argentina S.A. or its debtors and the commotion its actions
caused Claimants. Due to these considerations, the Tribunal considers it fair that each
party cover the costs they incurred in relation to this arbitration proceeding.
VI. FINAL DECISION
235. Due to the reasons mentioned above, the Arbitration Tribunal unanimously
resolves:
1. To dismiss the Claim filed by Metalpar S.A. and Buen Aire S.A. against the
Argentine Republic in its entirety.
2. Each party shall bear the costs which it has incurred in relation to this arbitration
proceeding.
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63
[signature] [signature]
Duncan H. Cameron Jean Paul Chabaneix
Arbitrator Arbitrator
Date: May 15, 2008 Date: May 9, 2008
[signature]
Rodrigo Oreamuno B.
President
Date: May 6, 2008
Annex 191
ANNEX 192
Date of dispatch to the parties: May 22, 2007
INTERNATIONAL CENTRE FOR SETTLEMENT
OF INVESTMENT DISPUTES
WASHINGTON, D.C.
IN THE PROCEEDINGS BETWEEN
ENRON CORPORATION
PONDEROSA ASSETS, L.P
(CLAIMANTS)
AND
ARGENTINE REPUBLIC
(RESPONDENT)
ICSID Case No. ARB/01/3
________________________________
AWARD
________________________________
Members of the Tribunal:
Professor Francisco Orrego-Vicuña, President
Professor Albert Jan van den Berg, Arbitrator
Mr. Pierre-Yves Tschanz, Arbitrator
Secretary of the Tribunal:
Ms. Claudia Frutos-Peterson
Annex 192
Representing the Claimants
Mr. R. Doak Bishop
King & Spalding
Washington, D.C.
United States of America
and
Mr. Guido Santiago Tawil
M&M Bomchil
Buenos Aires
Argentina
Representing the Respondent
H.E. Osvaldo César Guglielmino
Procurador del Tesoro de la Nación
Procuración del Tesoro de la Nación
Buenos Aires
Argentina
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74
Liability under Argentine law
231. The inescapable conclusion for the Tribunal to reach is that in considering the claims
purely from the point of view of the Argentine legislation as one of the laws applicable to
the dispute, the obligations which the Argentine Republic had and the commitments it
undertook under the License were not observed. This is particularly significant in view
that the License is expressly subject to Argentine law in some key respects, without
prejudice to the effect that these legal arrangements have under the Treaty and
international law. Liability is thus the consequence of such breach and there is no legal
excuse under the Argentine legislation which could justify the non-compliance, as the
very conditions set out by this legislation and the decisions of courts have not been met.
232. Yet, the Tribunal bears in mind that a major crisis indeed there was. While these
unfortunate events do not in themselves amount to a legal excuse, neither would it be
reasonable for the Claimants to believe they are not affected by some of the effects. The
economic balance of the license was clearly affected by the crisis situation, and just as it
is not reasonable for the licensees to bear the entire burden of such changed reality neither
would it be reasonable for them to believe that nothing happened in Argentina since the
License was approved. This is something the Tribunal will duly take into account in
considering the compensation that follows such finding of liability and how the crisis
period influences its determination.
The Treaty as the applicable law
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75
233. The Tribunal must now examine the question of whether the breach of the License and its
regulatory regime, in addition to its assessment under Argentine legislation, amounts to a
breach of the Treaty guarantees.
1. The claim of expropriation
234. The principal claim made in this arbitration is that the measures adopted since early 2000,
and particularly those following in 2002 under the Emergency Law, have expropriated the
Claimants’ investments, both directly and indirectly, in a manner contrary to the
protection granted under Article IV of the Treaty. The Claimants argue that their
investment comprises the equity in TGS, the capital contributed to this effect, the rights
under the Technical Assistance Agreement and the specific rights related to the tariff
regime of the License. The deprivation, the Claimants maintain, has been permanent, not
merely ephemeral, and no prompt, adequate and effective compensation has been paid. In
the Claimants’ view, compensation must be paid irrespective of the purpose of the
measures41.
235. The Claimants assert that the Respondent has directly expropriated the rights to tariff
adjustment and calculation they have under the License, as well as the right to be free
from a tariff freeze, as all of it was expressly derogated by the Emergency Law. A
transfer of revenues is also alleged to have taken place as a result. The Claimants also
invoke in support of their argument on expropriation an OPIC “Memorandum of
Determinations” of August 2, 2005, which concludes that expropriation in violation of
international law has taken place with regard to this investment.
41 Compañia del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica (ICSID Case No. ARB/96/1), Award of
February 17, 2000, available at <http://www.worldbank.org/icsid/cases/santaelena_award.pdf>, paras. 71-72.
Annex 192
76
236. Simultaneously, the Claimants maintain, the measures in question are “tantamount to
expropriation”, thus constituting an indirect or creeping expropriation unfolding in time
and resulting in a cumulative substantial destruction of the value of the investment. This
kind of measures includes various forms of regulatory action unreasonably interfering
with the investor’s property rights, the Claimants explain, just as the measures involve
conduct inconsistent with legitimate expectation and with the assurances offered to
induce the investment or the capacity for rational decision-making in the business.
237. The Respondent argues at the outset that the same measures complained of cannot give
rise simultaneously to a claim of direct and indirect expropriation and that the wrong
justification of the claim must lead to its rejection42. It is also argued as a preliminary
point that in the Tribunal’s Decision on Jurisdiction only equity participation was held to
be an investment qualifying for protection, not other kinds of peripheral rights that the
Claimants now untimely invoke in their argument on the merits43.
238. The Respondent opposes the claim arguing that there has been no transfer of property
rights to the benefit of the Government or the consumers and without redistribution there
is no expropriation44; in these circumstances, if compensation for expropriation were paid
there would be unjust enrichment of the service providers. The Respondent also asserts
that temporary measures, particularly emergency measures, do not qualify as
expropriation as they do not entail permanent deprivation of earnings or corporate rights
and no such effects can be shown in the present dispute; that substantial deprivation of
fundamental property rights must be established and that no such deprivation has taken
place or been proven in this case; that losses must be significant, while the Claimants
42 Generation Ukraine Inc. v. Ukraine (ICSID Case No. ARB/00/9), Award of September 16, 2003, 44 ILM 404
(2005), paras. 20, 22.
43 Remarks of Jorge Alberto Barraguirre, Hearing Transcript, Vol. 1, November 28, 2005, pp. 121-124.
44 Ronald S. Lauder v. The Czech Republic, UNCITRAL Arbitration Proceeding, Final Award of September 3, 2001,
available at <http://ita.law.uvic.ca/documents/LauderAward.pdf>, para. 203.
Annex 192
77
continue to benefit from earnings or the sale of shares; that the value of the investment
would have been further reduced had the measures not been adopted; and that a mere
contract violation cannot be turned into a Treaty claim.
239. The Respondent also argues that the purpose of the measures is relevant to make a
determination on an expropriation claim, particularly if such measures are adopted under
the police power of the State and are proportional to the requirements of public interest.
Moreover, the Respondent maintains, the Treaty does not protect legitimate expectations
but only specific rights and in this case none of the measures questioned can be equated to
those considered in other cases as being inconsistent with the guarantees offered to induce
the investor or amounts to the destruction of the capacity for rational decision-making.
240. The Tribunal is again grateful to counsel for the parties for having undertaken a thorough
explanation of their views on the issue of expropriation, invoking in support of their
respective views a wealth of decisions, opinions of writers and other authorities that allow
understanding the parties’ arguments in all their meaning and differences.
241. The first question the Tribunal must address is that of the protected investment. The
Respondent argues that the Tribunal in the jurisdictional stage held that the dispute was
one related to investment in equity and that nothing else can now be considered in the
merits This, however, has to be understood in the context of a determination about
whether minority shareholders had a right to claim independently, as the Respondent
itself recalls. In that context, the issue was whether an investment in equity so allows. The
Tribunal must also recall that the reference paragraph 30 of the Decision on Jurisdiction
made to a definition of investment is related to the very broad definition of the Treaty as
reproduced in paragraph 29 of that Decision. Accordingly that broad definition is the one
governing this discussion.
242. The equity investment was the vehicle through which a complex business relationship
was developed and which can be affected in other of its elements by the measures
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78
questioned. This is the case, for example, of the measures affecting the tariff regime
envisaged in the License, which is the key factor determining the success or failure of the
investment in the equity of TGS.
243. This discussion, in any event, turns out to be rather academic as the Tribunal is persuaded
by the merit of the Respondent’s argument on direct expropriation. In fact, the Tribunal
does not believe there can be a direct form of expropriation if at least some essential
component of property rights has not been transferred to a different beneficiary, in
particular the State. In this case it can be argued that economic benefits might have been
transferred to an extent from industry to consumer or from industry to another industrial
sector, but this does not amount to affecting a legal element of the property held, such as
the title to property.
244. The question of indirect or creeping expropriation is more complex to assess. The
Tribunal has no doubt about the fact that indirect or creeping expropriation can arise from
many kinds of measures and these have to be assessed in their cumulative effects. Yet, in
this case, the Tribunal is not convinced that this has happened.
245. The list of measures considered in the Pope & Talbot case as tantamount to expropriation,
which the Respondent has invoked among other authorities, is in the Tribunal’s view
representative of the legal standard required to make a finding of indirect expropriation.
Substantial deprivation results in that light from depriving the investor of the control of
the investment, managing the day-to-day operations of the company, arrest and detention
of company officials or employees, supervision of the work of officials, interfering in the
administration, impeding the distribution of dividends, interfering in the appointment of
officials and managers, or depriving the company of its property or control in total or in
part45.
45 Pope & Talbot Inc. v. Canada, NAFTA (UNCITRAL) Arbitration Proceeding, Interim Award of June 26, 2000,
para. 100.
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79
246. Nothing of the sort has happened in the case of TGS or CIESA or any of the related
companies, so much so that the Claimants’ interests in these companies have been freely
sold and included in complex transactions, some involving foreign companies too, as
evidenced by the 2005 and 2006 agreements already described. The Tribunal must
accordingly conclude that the Government of Argentina in adopting the measures
complained of has not breached the standard of protection established in Article IV(1) of
the Treaty.
247. The Tribunal must also point out that although the OPIC “Memorandum of
Determinations” referred to above reaches a different conclusion on this matter, it
responds to a different kind of procedure and context that cannot influence or be taken
into account in this arbitration.
248. The question of devaluation has also been discussed by the parties in the context of its
influence on a finding of expropriation, particularly in light of the meaning each attaches
to the Himpurna case.46 However, as the Tribunal has explained above, this is not a
dispute about devaluation, nor has so been claimed, but about allegedly breached rights
under a regulatory framework and the License. This discussion thus does not alter the
Tribunal’s determination about expropriation.
249. The Tribunal’s conclusion does not mean that the measures discussed are free from legal
consequences under other Treaty standards, as will be seen below, or free from liability
for compensation arising from the damage they may have caused.
250. The Respondent’s argument about the inappropriateness of claiming simultaneously a
direct and an indirect expropriation, as the Claimants have done, is also persuasive. In
fact, if a given measure qualifies as a form of direct expropriation it cannot at the same
time qualify as an indirect expropriation, as their nature and extent are different. The
46 Himpurna California Energy Ltd. v. Republic of Indonesia, UNCITRAL Arbitration Proceeding.
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80
converse is also true. This is not to conclude, like in Generation Ukraine, that the claim
has to be rejected because the measures complained of were not described with precision
and coherently, as here they have been competently substantiated.
2. The claim concerning the standard of fair and equitable treatment
251. The Claimants have argued that in addition to expropriation the Respondent has breached
the standard of fair and equitable treatment established under Article II(2)(a) of the Treaty
on various counts: failing to act in good faith, abusing its rights, repudiating assurances
given, altering regulatory approvals and conditions, and failure to provide a stable and
predictable legal environment.
252. Originating in the obligation of good faith under international law, the Claimants explain,
this particular standard has gradually acquired a specific meaning in light of decisions and
treaties, including a treatment compatible with expectations of foreign investors,47 the
observance of arrangements on which the investor has relied to make the investment48and
the maintenance of a stable legal and business framework.49
253. The Respondent’s argument on this matter is based on the premise that fair and equitable
treatment is a standard not different from the customary international law minimum
standard and that it is not for tribunals to set out its meaning or even less to legislate on
the matter. The Respondent asserts that this view is confirmed by the NAFTA Free Trade
47 Técnicas Medioambientales Tecmed, S.A. v. United Mexican States (ICSID Case No. ARB(AF)/00/2), Award of
May 29, 2003, 43 ILM 133 (2004), para. 115.
48 CME Czech Republic B.V. v. Czech Republic, UNCITRAL Arbitration Proceeding, Partial Award of September
13, 2001, available at <http://www.investmentclaims.com/decisions/CME-Czech-PartialAward-13Sept…;,
para. 611.
49 Occidental Exploration and Production Company (OEPC) v. Republic of Ecuador, London Court of International
Arbitration Administered Case No. UN 3467, Final Award of July 1, 2004, available at
<http://www.asil.org/ilib/OEPC-Ecuador.pdf >, para. 183.
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Commission 50 and the Chile-US Free Trade Agreement, in clarifying that fair and
equitable treatment does not entail any treatment additional to or beyond that required by
customary law,51 as well as by a number of NAFTA and ICSID decisions and the
opinions of learned writers.
254. In the Respondent’s view what has been criticized by recent decisions is a kind of
conduct that evidences inconsistency in State action,52 radical and arbitrary modification
of the regulatory framework53 or endless normative changes to the detriment of the
investor’s business.54 None of that, the argument follows, is present in the instant case
where the measures adopted were eminently reasonable in light of the economic crisis
described and the changes in the economic conditions of the country.
255. In particular, the Respondent maintains that devaluation was the result of market
decisions and that the constant decisions of courts in other crises has reaffirmed the
constitutionality of measures of this kind, most notably in the context of the United
States’ great depression. The Thunderbird v. Mexico decision has also been invoked by
the Respondent in support of its view that the standard of fair and equitable treatment
does not include the protection of legitimate expectation and it is not different from the
international minimum standard55.
256. The Tribunal notes that the Respondent is right in arguing that fair and equitable
treatment is a standard none too clear and precise. This is because international law is not
too clear and precise either on the treatment due to foreign citizens, traders and investors
50 FTC decision, NAFTA Free Trade Commission, Interpretation of NAFTA Article 1105(1), July 21, 2001,
available at < http://www.dfait-maeci.gc.ca/tna-nac/NAFTA-Interpr-en.asp>.
51 Chile-United States Free Trade Agreement of June 6, 2003, available at
<http://www.ustr.gov/assets/Trade_Agreements/Bilateral/Chile_FTA/Final_T…;,
Article 10.4.2.
52 MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile (ICSID Case No. ARB/01/7), Award of May 25,
2004, available at <http://www.asil.org/ilib/MTDvChile.pdf>, para. 164.
53 Tecmed, para. 154.
54 OEPC, pars. 184-186.
55 Respondent’s Post-Hearing Brief, p. 13.
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or with respect to the fact that the pertinent standards have gradually evolved over the
centuries. Customary international law, treaties of friendship, commerce and navigation,
and more recently bilateral investment treaties, have all contributed to this development56.
257. The evolution that has taken place is for the most part the outcome of a case by case
determination by courts and tribunals, as evidenced among many other investment treaty
and NAFTA decisions by the TECMED, the OEPC and the Pope & Talbot cases57. This
explains that, like with the international minimum standard, there is a fragmentary and
gradual development. Such development however partly hinges on the gradual
formulation – both in cases and legal writings – of ‘general principles of law’ (as
understood under Article 38(1)(c) of the ICJ Statute) able to guide and ‘discipline’58 the
evaluation of state conduct under investment treaty standards.
258. It might well be that in some circumstances where the international minimum standard is
sufficiently elaborate and clear, fair and equitable treatment might be equated with it. But
in other more vague circumstances, the fair and equitable standard may be more precise
than its customary international law forefathers. This is why the Tribunal concludes that
the fair and equitable standard, at least in the context of the Treaty applicable to this case,
can also require a treatment additional to, or beyond that of, customary law. The very fact
that recent FTC interpretations or investment treaties have purported to change the
meaning or extent of the standard only confirms that those specific instruments aside, the
standard is or might be a broader one.
56 Stephen Vasciannie, The Fair and Equitable Treatment Standard in International Investment Law and Practice,
BYIL, Vol. 70, 1999, para. 100.
57 Técnicas Medioambientales Tecmed, S.A. v. United Mexican States (ICSID Case No. ARB(AF)/00/2), Award of
May 29, 2003; Occidental Exploration and Production Company (OEPC) v. Republic of Ecuador, London Court of
International Arbitration Administered Case No. UN 3467, Final Award of July 1, 2004; Pope & Talbot Inc. v.
Canada, NAFTA (UNCITRAL) Arbitration Proceeding, Interim Award of June 26, 2000.
58 ADF Group Inc. v. United States of America (ICSID Case No. ARB(AF)/00/1), Award of January 9, 2003, 18
ICSID Rev.—FILJ 195 (2003); 6 ICSID Rep. 470 (2004), para. 124.
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259. The Tribunal is bound to interpret Article II(2)(a) of the Treaty “in good faith in
accordance with the ordinary meaning to be given to the terms of the treaty in their
context and in the light of the object and purpose” as required by Article 31 of the Vienna
Convention. The Tribunal gives weight to the text of the Treaty’s Preamble, which links
the standard to the goal of legal stability: ‘fair and equitable treatment of investment is
desirable in order to maintain a stable framework for the investment and maximum
effective use of economic resources.’
260. Thus, the Tribunal concludes that a key element of fair and equitable treatment is the
requirement of a ‘stable framework for the investment’, which has been prescribed by a
number of decisions59. Indeed, this interpretation has been considered ‘an emerging
standard of fair and equitable treatment in international law’60.
261. This Tribunal notes, however, that the stabilization requirement does not mean the
freezing of the legal system or the disappearance of the regulatory power of the State. As
noted by the tribunal in CMS:
It is not a question of whether the legal framework might need to be frozen
as it can always evolve and be adapted to changing circumstances, but
neither is it a question of whether the framework can be dispensed with
altogether when specific commitments to the contrary have been made.
The law of foreign investment and its protection has been developed with
the specific objective of avoiding such adverse legal effects61.
262. The protection of the ‘expectations that were taken into account by the foreign investor to
make the investment’62 has likewise been identified as a facet of the standard. The Tecmed
59 OEPC, paras. 190-191; CMS, paras. 274-276; LG&E Energy Corp., LG&E Capital Corp. and LG&E
International Inc. v. Argentine Republic (ICSID Case No. ARB/02/1), Decision on Liability of October 3, 2006,
available at <http://www.worldbank.org/icsid/cases/pdf/ARB021_LGE-Decision-on-Liabili…;, para. 124.
60 LG&E, para. 125.
61 CMS, para. 277.
62 Tecmed, para. 154.
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approach has been consistently adopted by subsequent decisions63. Tecmed described
such expectations as ‘basic’64, while in the context of NAFTA, tribunals have qualified
them as ‘reasonable and justifiable’65. What seems to be essential, however, is that these
expectations derived from the conditions that were offered by the State to the investor at
the time of the investment66 and that such conditions were relied upon by the investor
when deciding to invest67.
263. The Tribunal observes that, as acknowledged by previous arbitral tribunals, the principle
of good faith is not an essential element of the standard of fair and equitable treatment
and therefore violation of the standard would not require the existence of bad faith68.
264. The measures in question in this case have beyond any doubt substantially changed the
legal and business framework under which the investment was decided and implemented.
Argentina in the early 1990s constructed a regulatory framework for the gas sector
containing specific guarantees to attract foreign capital to an economy historically
unstable and volatile. As part of this regulatory framework, Argentina guaranteed that
tariffs would be calculated in US dollars, converted into pesos for billing purposes,
adjusted semi-annually in accordance with the US PPI and sufficient to cover costs and a
reasonable rate of return. It further guaranteed that tariffs would not be subject to freezing
or price controls without compensation. Foreign investors were specifically targeted to
63 MTD, para. 114.; OEPC, para. 185; Eureko B.V. v. Poland, Ad Hoc Proceeding, Partial Award of August 19,
2005, available at <http://www.investmentclaims.com/decisions/Eureko-Poland-LiabilityAward…;, para. 235;
LG&E, para. 127.
64 Tecmed, para. 154.
65 International Thunderbird Gaming Corporation v. United Mexican States, NAFTA (UNCITRAL) Arbitration
Proceeding, Award of January 26, 2006, available at <http://www.iisd.org/pdf/2006/itn_award.pdf>, para. 147.
66 Southern Pacific Properties (Middle East) Limited (SPP) v. Arab Republic of Egypt (ICSID Case No. ARB/84/3),
Award of May 20, 1992, 32 ILM 1470 (1993), para. 82; LG&E, para. 130.
67 SPP, para. 82; CME, para. 611; Tecmed, para. 154; Thunderbird, para. 147; LG&E, para. 127.
68 Mondev International Ltd. v. United States of America (ICSID Case No. ARB(AF)/99/2), Award of October 11,
2002, 42 ILM 85 (2003), para. 116; The Loewen Group, Inc. and Raymond L. Loewen v. United States of America
(ICSID Case No. ARB(AF)/98/3), Award of June 26, 2003, 42 ILM 811 (2003), para. 32; OEPC, para. 186; Tecmed,
para 153; Waste Management, Inc. v. United Mexican States (ICSID Case No. ARB(AF)/98/2), Award of June 2,
2000, 40 ILM 56 (2001), para. 93; CMS, para. 280; LG&E, para. 129.
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invest in the privatization of public utilities in the gas sector. Substantial foreign
investment was undertaken on the strength of such guarantees, including the investment
made by Enron in TGS.
265. The Tribunal observes that it was in reliance upon the conditions established by the
Respondent in the regulatory framework for the gas sector that Enron embarked on its
investment in TGS. Given the scope of Argentina’s privatization process, its international
marketing, and the statutory enshrinement of the tariff regime, Enron had reasonable
grounds to rely on such conditions.
266. A decade later, however, the guarantees of the tariff regime that had seduced so many
foreign investors, were dismantled. Where there was certainty and stability for investors,
doubt and ambiguity are the order of the day. The long-term business outlook enabled by
the tariff regime, has been transformed into a day-to-day discussion about what comes
next. Tariffs have been frozen for almost five years. The recomposition of the tariff
regime is subject to a protracted renegotiation process imposed on the public utilities that
has failed to provide a final and definitive framework for the operation of business in the
energy sector.
267. The Respondent might be right in distinguishing this case from the factual scenarios that
recent decisions have faced, but this does not mean that Argentina’s acts are consistent
with the meaning of the protection under the Treaty. It is clear that the ‘stable legal
framework’ that induced the investment is no longer in place and that a definitive
framework has not been made available for almost five years.
268. Even assuming that the Respondent was guided by the best of intentions, which the
Tribunal has no reason to doubt, there is here an objective breach of the fair and equitable
treatment due under the Treaty. The Tribunal thus holds that the standard established in
Article II(2)(a) of the Treaty has not been observed and that to the extent that it results in
a detriment to the Claimants’ rights it will give rise to compensation.
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3. The claim concerning the breach of the umbrella clause
269. The Claimants have also brought to this Tribunal a claim for an alleged breach of the
obligations the Respondent entered into with regard to the investment, in light of the
“umbrella clause” of Article II(2)(c) of the Treaty. This aspect of the claim is built on the
premise that the protection envisaged is an expression of the obligation to observe the
principle pacta sunt servanda. The Claimants cite in this context the view of Judge
Higgins to the effect that such principle and acquired rights “emphasize the protection
that the private party has been given against either a later change of mind by the State or
against the exercise of the State’s regulatory powers”69.
270. The Claimants argue that the clause applies to obligations arising from a contract or from
broader undertakings contained in the State’s own law and that the Respondent’s
measures breached every commitment made in the Gas Law, the Gas Decree and the
License, with particular reference to the tariff regime and the commitment not to amend
the License without TGS’s consent.
271. The Respondent opposes this claim arguing that it did not undertake any specific
obligation with regard to the investment or Enron in the Treaty, the investment legislation
or the legislation regulating the License. In addition, it alleges that under customary law,
violations of contracts cannot be equated with a treaty breach and thus do not engage the
international responsibility of the State70, and that, as held in SGS v. Pakistan, contract
69 Rosalyn Higgins, The Taking of Property by the State: Recent Developments in International Law, 176 Recueil
des Cours 267, 347 (1982), as cited in Claimants’ Memorial, para. 316.
70 Noble Ventures, Inc. v. Romania (ICSID Case No. ARB/01/11), Award of October 12, 2005, available at
<http://www.investmentclaims.com/decisions/Noble-Ventures-Final-Award.pd…;, para. 53.
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claims do not qualify as BIT claims71. Moreover, the Respondent maintains the Tribunal
in SGS v. Philippines, while disagreeing with some aspects of the Pakistan decision, still
held that the umbrella clause only comprises obligations undertaken with respect to a
specific investment and thus the clause does not extend to ordinary contractual breaches
that must be taken to the contract forum.
272. In any event, it is also asserted that because the commitments were made in respect of
TGS they cannot be invoked by the Claimants and the License does not qualify as an
investment agreement. The Respondent relies upon the Noble Ventures v. Romania
decision insofar as it would limit the application of the umbrella clause to investment
contracts. Claimants oppose such an interpretation because that decision, in their view,
referred to contracts made with regard to an investment72.
273. The Tribunal recalls that the text of Article II(2)(c) reads “[e]ach party shall observe any
obligation it may have entered into with regard to investments”, a text which should be
interpreted “in good faith in accordance with the ordinary meaning to be given to the
terms of the treaty” as indicated by Article 31(1) of the Vienna Convention.
274. Under its ordinary meaning the phrase ‘any obligation’ refers to obligations regardless of
their nature. Tribunals interpreting this expression have found it to cover both contractual
obligations such as payment73 as well as obligations assumed through law or regulation74.
‘Obligations’ covered by the ‘umbrella clause’ are nevertheless limited by their object:
‘with regard to investments’.
71 Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan (ICSID Case No. ARB/01/13), Decision of
the Tribunal on Objections to Jurisdiction of August 6, 2003, available at
http://www.investmentclaims.com/decisions/SGS-Pakistan-Jurisdiction-6Au….
72 Claimants’ Post-Hearing Brief, para. 17.
73 Fedax N.V. v. Republic of Venezuela (ICSID Case No. ARB/96/3), Award of March 9, 1998, 37 ILM 1391 (1998),
para. 29; Société Générale de Surveillance S.A. v. Republic of the Philippines (ICSID Case No. ARB/02/6),
Decision of the Tribunal on Objections to Jurisdiction of January 29, 2004; 8 ICSID Rep. 518, paras. 127-128.
74 SGS v. Islamic Republic of Pakistan para. 166; LG&E, para. 175.
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275. Through the Gas Law and its implementing legislation, the Respondent assumed
‘obligations with regard to investments’: tariffs calculated in US dollars converted to
pesos for billing purposes, linked to the US PPI and sufficient to provide a reasonable rate
of return were intended to establish a tariff regime that assured the influx of capital into
the newly privatized companies such as TGS and ensured the value of such investment.
The dismantling of these guarantees would suffice to establish a violation of the
obligations entered into by the Respondent with regard to the Claimants’ investment.
276. In addition, the prohibition of price controls without indemnification and the prohibition
of License amendments without consent, although contained in the License were also
approved by decree75 and formed part of the implementing legislation that established the
tariff regime. The obliteration of these commitments likewise entails a violation of
obligations entered into by the Respondent with regard to the Claimants’ investment.
277. The Tribunal concludes accordingly that the breach of the obligations noted undertaken
both under contract and law and regulation in respect of the investment have resulted in
the breach of the protection provided under the umbrella clause of Article II(2)(c).
4. The claim about arbitrariness and discrimination
278. The Claimants assert that there has also been a breach of Article II(2)(b) of the Treaty
because the measures adopted are both arbitrary and discriminatory. The claim of
arbitrariness is based on the argument that such measures destroyed the rights and
reasonable expectations of the Claimants, lacked proportionality and were in violation of
the law. The claim of discrimination relies on the view that the measures fell
75 Obligations undertaken in the License were initially approved by Decree 2255/92 (Model License) and later
specifically ratified with regard to TGS by Decree 2458/92.
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disproportionately on the largely foreign-owned gas sector. A long list of specific
measures is given by the Claimants in respect of each of these aspects.
279. The Respondent opposes this claim asserting that the measures were consistent with the
law and aimed at continuing the operational income and earnings of the companies, while
at the same time being proportionate to the purpose sought, reasonable and, in any event,
lacking in any intention to breach the rule of law or affect judicial propriety, as required
by numerous judicial and arbitral decisions.
280. Neither is there discrimination, the Respondent maintains, because the regulated gas
sector is very different from other sectors operating in a competitive market, such as
banking, and the entities involved are far from being in a similar or even comparable
situation, thus not being discriminated if treated differently in light of each individual or
sector requirement. Least of all is there any capricious, irrational or absurd differential
treatment of the Claimants, who are not even among those who have suffered the most
severe consequences of the measures adopted.
281. After examining the detailed arguments of the parties and their supporting authorities and
decisions, the Tribunal is not persuaded by the Claimants’ view that there is here
arbitrariness or discrimination. The measures adopted might have been good or bad, a
matter which is not for the Tribunal to judge, and as concluded they were not consistent
with the domestic and the Treaty legal framework, but they were not arbitrary in that they
were what the Government believed and understood was the best response to the
unfolding crisis. Irrespective of the question of intention, a finding of arbitrariness
requires that some important measure of impropriety is manifest, and this is not found in a
process which although far from desirable is nonetheless not entirely surprising in the
context it took place.
282. The Tribunal reaches a similar conclusion in respect of discrimination. There are quite
naturally important differences between the various sectors that have been affected, so it
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is not surprising either that different solutions might have been or are being sought for
each, but it could not be said that any such sector has been singled out, in particular either
to apply to it measures harsher than in respect of others, or conversely to provide a more
beneficial remedy to one sector to the detriment of another. The Tribunal does not find
that there has been any capricious, irrational or absurd differentiation in the treatment
accorded to the Claimants as compared to other entities or sectors.
283. The Tribunal accordingly concludes that the Respondent has not breached the protection
provided under Article II(2)(b) of the Treaty.
5. The claim about failure to give full protection and security
284. Lastly, the Claimants argue that there has been a failure to give full protection and
security to the Claimants’ investment, as required under Article II(2)(a) of the Treaty. The
Claimants rely to this effect on the broader interpretation of this requirement made
particularly in CME, where the standard was related not just to physical security but also
to the legal protection of the investment.
285. The Respondent believes differently, arguing first that the standard only relates to
physical protection and security, as evidenced in AAPL and AMT where installations were
destroyed, and asserting next that CME does not mean that the interpretation it made of
the standard is the accepted definition under international law, so much so that it was at
the same time contradicted by the opposite conclusion in Lauder.
286. There is no doubt that historically this particular standard has been developed in the
context of physical protection and security of the company’s officials, employees or
facilities. The Tribunal cannot exclude as a matter of principle that there might be cases
where a broader interpretation could be justified, but then it becomes difficult to
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ANNEX 193
Table of Contents
Page
I. BACKGROUND...................................................................................................... ........ 463
A. THE WEININGER JUDGMENT..................................................................... ........ 463
B. THE McCARTHY JUDGMENT............................................................................... 466
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C. JPM CHASE'S CROSS–MOTION FOR RELIEF IN THE NATURE OF
INTERPLEADER............................................................................................ ........ 467
II. STANDARD OF REVIEW...................................................................................... ........ 467
III. DISCUSSION.......................................................................................................... ........ 467
A. ENFORCEABILITY OF THE WEININGER AND McCARTHY JUDGMENTS ........ 469
1. The Full Faith and Credit Doctrine............................................................................................... ............. 470
2. Recognition by Other Courts........................................................................................................ ............. 476
B. TRIA SECTION 201(a)........................................................................................... 477
1. Subject Matter Jurisdiction......................................................................................................................... 477
2. TRIA § 201(a)............................................................................................................................... ............. 479
a. A Judgment Against a Terrorist Party................................................................................ ............. 479
b. A Claim Based on an Act of Terrorism Or a Claim for Which the Terrorist Party Is Not
Immune under § 1605(a)(7)............................................................................................................. 479
c. Blocked Assets................................................................................................................................. 480
d. Compensatory Damages.................................................................................................... ............. 480
e. Execution Upon the Assets of an Agency or Instrumentality of a Terrorist Party............................. 481
(i) Placing TRIA in Context in the FSIA........................................................................ ............. 481
(ii) The Effect of TRIA upon Bancec.............................................................................. ............. 483
3. Subject Matter Jurisdiction through Ancillary Jurisdiction.......................................................................... 489
4. Personal Jurisdiction..................................................................................................................... ............. 490
5. Whether the Assets Belong to Agencies or Instrumentalities of Cuba......................................... ............. 494
i. The EMTELCUBA Account.............................................................................. ............. 494
ii. The AT & T Long Lines Account..................................................................... ............. 496
iii. The Rabinowitz Boudin Account...................................................................... ............. 497
C. TURNOVER PURSUANT TO CPLR § 5225(b)............................................. ........ 499
D. JPM CHASE'S MOTION FOR INTERPLEADER RELIEF...................................... 499
1. Interpleader Relief...................................................................................................................................... 499
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2. Attorney's Fees and Costs........................................................................................................... ............. 501
IV. ORDER................................................................................................................... ........ 502
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Footnotes
1 JPM Chase characterizes its opposition to Plaintiffs' motions as a “response” rather than an opposition, presumably so
as to not to jeopardize its status as a neutral stakeholder under interpleader doctrine.
2 See Letter to Judge Victor Marrero from Beth Goldman, Assistant United States Attorney, dated January 6, 2006 (“DOJ
Ltr.”), attached as Ex. O to Declaration of James W. Perkins in Support of Motion for Partial Summary Judgment for
Turnover Order Pursuant to Fed.R.Civ.P. 13 and 69 and CPLR § 5525(b), dated Feb. 6, 2006 (“Perkins Decl.”).
3 McCarthy had also sought turnover from certain accounts at JPM Chase listing Banco Nacional de Cuba as “owner.”
However, in response to submissions by JPM Chase indicating that material issues of fact exist as to whether these
accounts are owned by Banco Nacional de Cuba, Plaintiffs have indicated that for purposes of the present motion,
Plaintiffs no longer seek turnover from those accounts. (See Joint Mem. of Plaintiffs in Reply to JPMorgan Chase's
Response Mem. and to Amicus Curiae Brief Filed by Cuban Electric Company, dated Apr. 14, 2006 (“Pls. Reply Mem.”),
at 3 n. 2.)
4 The factual recitation below is taken from the parties' submissions in support of and in opposition to Plaintiffs' and
JPM Chase's motions, as well as the various attachments accompanying these documents, including: Plaintiffs' Janet
Ray Weininger and Dorothy Anderson McCarthy's Joint Rule 56.1 Statement in Support of Motion for Partial Summary
Judgment, dated Feb. 6, 2006 (“R.56.1 Statement”); Declaration of James W. Perkins in Support of Motion for Partial
Summary Judgment for Turnover Order Pursuant to Fed.R.Civ.P. 13 and 69 and CPLR § 5525(b), dated Feb. 6, 2006
(“Perkins Decl.”); Declaration of Joseph A. DeMaria, Esq. in Support of Motion for Partial Summary Judgment, dated Feb.
6, 2006 (“DeMaria Decl.”); Reply Declaration of James W. Perkins in Support of Motion for Partial Summary Judgment for
Turnover Order Pursuant to Fed.R.Civ.P. 13 and 69 and CPLR § 5525(b), dated Apr. 14, 2006 (“Perkins Reply Decl.”);
Rule 56.1 Statement of JPMorgan Chase Bank, N.A. in Limited Opposition to Plaintiffs' Joint Motions for Partial Summary
Judgment, dated Mar. 10, 2006 (“JPM Chase R. 56.1 Statement”); Declaration of James Kerr, dated March 10, 2006
(“Kerr Decl.”); Supplemental Declaration with Respect to Service, dated May 2, 2006 (“Kerr Suppl. Decl.”). Except where
specifically cited or quoted, no further reference to these documents will be made.
5 JPM Chase had also named the United States Treasury Secretary as an adverse claimant-respondent due the
Government's blocking of the deposits, but pursuant to a stipulation so-ordered by the Court on December 21, 2005,
dismissed the Secretary without prejudice.
6 Weininger had earlier attempted to effect service in this action on the Republic of Cuba by service upon Rabinowitz
Boudin, referring to such firm as “Attorneys for the Republic of Cuba,” but by letter dated October 14, 2005, Rabinowitz
Boudin informed this Court that it did not represent the Republic of Cuba in this litigation and could not accept service on
behalf of the Republic of Cuba. (See Letter from Rabinowitz Boudin to Judge Marrero, dated Oct. 14, 2005 (Docket No.
30).) The Court received an additional letter dated October 27, 2005 from Rabinowitz Boudin indicating that Weininger
had attempted to serve the Cuban parties in this case in part by service on the Cuban Interests Section of the Embassy
of Switzerland and the Permanent Mission of the Republic of Cuba to the United Nations, and that such entities were
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not authorized to accept service on behalf of any of the Cuban entities. Weininger's cross-claim, however, is directed at
Rabinowitz Boudin in its capacity as fiduciary holding property of the judgment debtors in the Rabinowitz Boudin Account.
7 This writ of execution also levied upon accounts under the name of Banco Nacional. As indicated earlier, however, for
purposes of the present motion Plaintiffs no longer seek to execute upon those accounts.
8 The Court notes that some courts have also found jurisdiction over enforcement proceedings through ancillary jurisdiction
to enforce a judgment where the foreign sovereign has already been found not immune from jurisdiction under the FSIA,
and then determine whether a statutory exception to immunity from execution upon the particular property applies. This
theory is discussed below.
9 The Court notes that at least with respect to the Weininger judgment, which was previously domesticated by this Court,
the Court is not directly faced with enforcing a “foreign” judgment, but rather with its own judgment. Nonetheless, it may
be appropriate here to reexamine whether there is any constitutional infirmity with that judgment.
10 The Court notes that McCloud engages in these steps in reverse of the order suggested by Conopco and American Steel.
Underwriters does not dictate a particular order and accordingly the Court sees no harm in following the order suggested
in McCloud, as long as both inquiries are made.
11 Plaintiffs have suggested that Florida law applies res judicata to bar collateral attacks on default judgments, although
the case law they cite is less than conclusive on this point, and moreover, this proposition elides the second step of the
two-part full faith and credit inquiry.
12 “The term ‘amicus curiae’ means friend of the court, not friend of a party. We are beyond the original meaning now; an
adversary role of an amicus curiae has become accepted. But there are, or at least there should be, limits.” Ryan v.
Commodity Futures Trading Comm'n, 125 F.3d 1062, 1063 (7th Cir.1997) (Posner, J., in chambers) (citations omitted).
Seeking on behalf of a non-appearing party to void a judgment already so exhaustively prosecuted, with the judgment
debtors provided with ample notice and opportunity to appear at each stage, should be one of those limits.
13 In this regard, JPM Chase's argument here walks a very fine line. It declares that it does not oppose such relief,
yet simultaneously demands that Plaintiffs demonstrate both subject matter jurisdiction in this proceeding and in the
underlying Florida state court proceedings, and in fact maintains that reexamination of subject matter jurisdiction in the
underlying proceedings is barred by res judicata. (See Kerr Decl. ¶¶ 6–7.)
14 The arguments which that court faced are different from those presented here. The New York Supreme Court authorized
execution upon the judgment on the theory that (1) the Florida federal judgment had been registered in this Court, and
CPLR § 5018(b) explicitly permits direct entry of a judgment rendered or filed by a federal district court in New York as
a judgment of the New York state court; and (2) Cuba had received proper notice of the Florida federal default judgment
under the FSIA. See id. at 908–09. Nonetheless, the New York state court did recognize the judgment, providing further
reason for this Court to not re-open the issue.
15 The term “attachment in aid of execution” was intended to include attachments, garnishments, and supplemental
proceedings available under federal or state law to obtain satisfaction of a judgment. See H.R. No. 94–1487, at 28 (1976),
reprinted in 1976 U.S.C.C.A.N. 6604, 6627; Alejandre v. Telefonica Larga Distancia de Puerto Rico, Inc., 183 F.3d 1277,
1283 (11th Cir.1999).
16 Plaintiffs mistakenly suggest that the FSIA does not apply to any determination of jurisdiction—subject matter or personal
—over this matter because “the FSIA jurisdictional provisions only address cases in which the foreign sovereign is a
party ... [and] pursuant to Rule 69, Fed.R.Civ.P., this Court has authority to exercise jurisdiction here under the rules
and procedures applicable under New York law, and those rules allow jurisdiction under quasi in rem principles where
the Court has jurisdiction over garnishees holding property against which execution is allowed in satisfaction of the
judgment.” (Pl. Reply Br. at 12). Plaintiffs both conflate subject matter and personal jurisdiction and confuse jurisdiction
with procedure. Rule 69 does not create jurisdiction or authorize jurisdiction pursuant to state law jurisdiction principles.
See U.S.I. Props. Corp. v. M.D. Constr. Co., 230 F.3d 489, 498 n. 8 (1st Cir.2000) (“The incorporation of state enforcement
procedures through Rule 69 is not alone sufficient to create federal jurisdiction over such enforcement proceedings. The
fact that Rule 69(a) may (by way of state law) afford procedural mechanisms for enforcing an existing federal judgment
against a third party not otherwise liable does not obviate the need to establish the jurisdiction of the federal court over
the supplemental proceeding. The Federal Rules of Civil Procedure can neither expand nor limit the jurisdiction of the
federal courts, and the issue of jurisdiction remains distinct from the question of procedure.”) (citations omitted); Kashi v.
Gratsos, 712 F.Supp. 23, 25 (S.D.N.Y.1989) (“[Rule 69] does no more than establish a system of procedure for federal
district courts. Neither this rule nor state law create or withdraw the district court's jurisdiction to enforce its judgment.”);
see also Fed.R.Civ.P. 82 (“These rules shall not be construed to extend or limit the jurisdiction of the United States
Annex 193
district courts.”); Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 370, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978) (“[I]t is
axiomatic that the Federal Rules of Civil Procedure do not create or withdraw federal jurisdiction”).
17 Subsection (b) addresses diplomatic property and is not applicable to this case.
18 TRIA § 201(d)(1) defines “act of terrorism” to mean “(A) any act or event certified under section 102(1) [Pub.L. 107–297,
Title I, § 102(1), Nov. 26, 2002, 116 Stat. 2323, which is set out in a note under 15 U.S.C.A. § 6701]; or (B) ... any terrorist
activity (as defined in section 212(a)(3)(B)(iii) of the Immigration and Nationality Act (8 U.S.C. 1182(a)(3)(B)(iii))).”
19 Verlinden addressed exceptions to immunity of foreign states and their agencies and instrumentalities from suit under
§§ 1604, 1605, and 1607, and did not discuss immunity of property from execution or attachment under §§ 1609–1611.
However, the Court in Verlinden stated that the FSIA “contains a comprehensive set of legal standards governing claims
of immunity in every civil action against a foreign state or its political subdivisions, agencies or instrumentalities.” 461
U.S. at 488, 103 S.Ct. 1962 (emphasis added).
20 In that case, Bancec, a credit institution wholly owned by Cuba had sued Citibank to recover on a letter of credit. Citibank
counterclaimed and sought a setoff from Bancec for the value of Citibank's branches that had been seized by the Cuban
government. See Banco, 462 U.S. at 615, 103 S.Ct. 2591. Bancec contended that its separate juridical status shielded
it from liability for acts of the Cuban government. Id. at 617, 103 S.Ct. 2591.
21 The FSIA's legislative history also revealed that it was “ ‘not intended to affect the substantive law of liability [or] ... the
attribution of responsibility between or among entities of a foreign state.’ ” Id. (quoting H.R.Rep. No. 94–1487, at 12
(1976), reprinted in 1976 U.S.C.C.A.N. 6604, at 6610).
Perhaps even more relevant to this case, Bancec also quoted a section of the FSIA's legislative history on attachment and
execution under § 1610(a)(2); the legislative history indicated that in determining whether property in the United States
of a foreign state is immune from attachment and execution under that part of the statute, courts “will have to determine
whether property ‘in the custody of’ an agency or instrumentality is property ‘of’ the agency or instrumentality, whether
property held by one agency should be deemed to be property of another, [and] whether property held by an agency is
property of the foreign state.” Id. at 621 n. 8, 103 S.Ct. 2591 (quoting H.R.Rep. No. 94–1487 at 28, U.S.C.C.A.N.1976,
at 6627).
22 Because Bancec's claim arose under international law, which “is part of our law,” the court applied international law and
federal common law as informed by both international law principles and congressional policies. Id. at 622–23, 103 S.Ct.
2591.
23 Applying these principles, the Supreme Court concluded that Bancec could be held liable, because Bancec's claim against
which Citibank sought a setoff had devolved into the hands of the Cuban government, the Cuban government would be
the only beneficiary of any recovery, and Bancec itself had filed a claim against Citibank. Under such circumstances,
giving effect to Bancec's separate juridical status “would permit the real beneficiary of such an action, [ ] Cuba, to obtain
relief in our courts that it could not obtain in its own right without waiving its sovereign immunity and answering for the
seizure of Citibank's assets.” Id. at 631–32, 103 S.Ct. 2591.
24 The Court also takes note of another case pointed to by Plaintiffs, Rubin v. Islamic Republic of Iran, No. 01 Civ. 1655, 2005
WL 670770 (D.D.C. March. 23, 2005). In that case, plaintiffs had obtained a judgment against Iran, the Iranian Ministry
of Information and Security, and certain senior Iranian officials. See id. at *1 n. 2. To satisfy the judgment, the court
authorized execution under TRIA upon accounts owned by the Iranian consulate. See id. at *3, *5. The court therefore
appeared to follow a reading of TRIA that authorizes the use of an agency or instrumentality's assets to satisfy a judgment
against a terrorist party without engaging in any Bancec analysis. This Court notes, however, that the Rubin court did
not expressly examine the issue, and that it also referred to the consular assets as “belonging to the defendants.” Id. at
*1. Thus, the case is not definitive on the issue.
25 That provision was waived by the President the same day it was signed into law, although the scope of the waiver is in
dispute. See generally David M. Ackerman, Congressional Research Service, Suits Against Terrorist States (Jan. 25,
2002), available at http://fpc.state. gov/documents/ organization/8045.pdf.
26 The Circuit Court did not decide the issue because, by its analysis, there were two inquiries: whether the instrumentality
could be liable for the debts of its related foreign government, and whether the instrumentality retained its immunity from
execution. Id. Because it found that plaintiffs had not overcome the presumption that the instrumentality was juridically
separate and therefore not liable for the debts of its related foreign government, the Court did not address whether, even
if the instrumentality was liable, its assets were nonetheless immune from execution. Id.
27 The issue in these cases was the scope of the “notwithstanding any other provision of law” language. The courts
determined that the language addressed exceptions to immunity and therefore did not override other statutes that
did not conflict with immunity provisions. See, e.g., Holy Land Found., 445 F.3d at 787 (holding that because TRIA's
Annex 193
“notwithstanding” language addresses statutory immunities to execution, it does not preempt, trump, or otherwise interfere
with operation of criminal forfeiture statutes, which do not involve immunity of assets from execution); Smith, 280
F.Supp.2d at 319 (although the “notwithstanding” language removes conflicts related to sovereign immunity, it does “not
mean ... that the TRIA covers the entire field and nullifies all previous statutes that pertain to blocked assets”), aff'd, 346
F.3d at 271 (2d Cir.2003) (holding that the “notwithstanding” clause applies “only when some ‘other provision of law’
conflicts with TRIA”).
28 This “satisfactory to the court” standard is identical to the standard under Federal Rule of Civil Procedure 55(e) for entry
of default judgments against the United States, and is intended to provide foreign governments with the same protections
from default judgments that the federal government enjoys. See Commercial Bank of Kuwait v. Rafidain Bank, 15 F.3d
238, 242 (2d Cir.1994); Campuzano v. Islamic Republic of Iran, 281 F.Supp.2d 258, 268 (D.D.C.2003); Smith ex rel.
Estate of Smith v. Islamic Emirate of Afghanistan, 262 F.Supp.2d 217, 221 (S.D.N.Y.2003).
29 Under the law of this Circuit, the assertion of personal jurisdiction may also need to satisfy due process. See Shapiro, 930
F.2d at 1020 (applying minimum contacts due process standard to foreign state); Texas Trading Mill., 647 F.2d 300, 314
(2d Cir.1981) (establishing that “the safeguards of due process” apply to FSIA cases). Recently the D.C. Circuit, as well
as a California federal district court, have concluded that such “minimum contacts” are not required. See Price v. Socialist
People's Libyan Arab Jamahiriya, 294 F.3d 82, 90 (D.C.Cir.2002) (concluding that under § 1605(a)(7), the only required
link between the defendant nation and United States territory is the nationality of the plaintiff, and that § 1605(a)(7) allows
personal jurisdiction over defendants even in circumstances that do not satisfy the “minimum contacts” test of the Due
Process Clause); see also Cruz v. United States, 387 F.Supp.2d 1057, 1067 (N.D.Cal.2005) (applying Price's reasoning
to agencies and instrumentalities of a foreign state). The Supreme Court has not decided this issue, but has signaled that
the approach established by the Second Circuit in Texas Trading may be incorrect because foreign states may not be
persons under the Due Process Clause. See Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 619, 112 S.Ct. 2160,
119 L.Ed.2d 394 (1992) (“[a]ssuming, without deciding, that a foreign state is a ‘person’ for purposes of the Due Process
Clause,” and citing to South Carolina v. Katzenbach, 383 U.S. 301, 323–324, 86 S.Ct. 803, 15 L.Ed.2d 769 (1966), which
held that states are not “persons” for purposes of the Due Process Clause). See generally Joseph W. Glannon & Jeffrey
Atik, Politics and Personal Jurisdiction: Suing State Sponsors of Terrorism under the 1996 Amendments to the Foreign
Sovereign Immunities Act, 87 Georgetown L.J. 675 (1999) (concluding that there is no constitutional impediment to the
exercise of personal jurisdiction contemplated by the 1996 amendments to the FSIA).
30 The evidence that the Court in Alejandre looked to as supporting the characterization of EMTELCUBA as an entity not
juridically separate from Cuba consisted of: (1) documentation indicating that EMTELCUBA is a national directorate of
the the Ministry of Communications under its oversight and control; (2) a Ministry press release announcing operating
agreements between carriers and “EMTELCUBA, of the Ministry of Communications”; (3) that when Cuba unilaterally
deprived EMTELCUBA of its business by granting another entity an exclusive telephone operating concession, and
the ministry transferred facilities and equipment to that entity, it was unclear whether EMTELCUBA was compensated
separately from the Ministry; (4) licenses from the Office of Foreign Assets Control referencing “Cuba's share of
compensation due for its portion of the jointly provided international telecommunications service”; and (5) that such
licenses contained a clause describing deductions from payments for telecommunications services “owed to Cuba” under
the operating agreement negotiated between the carrier and EMTELCUBA. Id.
31 JPM Chase describes ETECSA as being owned by three Cuban companies, a Dutch subsidiary of a publicly owned
Italian company, and a Panamanian company. (See Kerr Decl. ¶ 18(e) n. 5.) It does not put forth evidence that the three
Cuban companies are in turn owned or controlled by Cuba, but as demonstrated by such argument apparently believes
this to be the case.
32 Plaintiffs also contend that Banco Nacional represented in briefs submitted in the Alejandre case that it comes within the
FSIA's definition of an agency or instrumentality, but Plaintiffs have not attached such briefs to their papers here. Plaintiffs'
memorandum directs the Court to Exhibit P of the Perkins Declaration, but Exhibit P contains a brief by RADIOCUBA
and EMTELCUBA in the Alejandre case, not a brief by Banco Nacional.
33 Federal procedure provides for both rule interpleader pursuant to Federal Rule of Civil Procedure 22 and statutory
interpleader pursuant to 28 U.S.C. § 1335. The two differ in terms of jurisdictional, venue, and other requirements. See
6247 Atlas Corp. v. Marine Ins. Co., Ltd., 155 F.R.D. 454, 461 (S.D.N.Y.1994).
End of Document © 2019 Thomson Reuters. No claim to original U.S. Government Works.
Annex 193
ANNEX 194
International Centre for Settlement of Investment Disputes
Washington, D.C.
In the proceedings between
Suez, Sociedad General de Aguas de Barcelona S.A., and Vivendi Universal S.A.
(Claimants)
and
The Argentine Republic
(Respondent)
ICSID Case No. ARB/03/19
and
________________________________________________________________________
In the arbitration under the Rules of the
United Nations Commission on International Trade Law between
AWG Group
(Claimant)
and
The Argentine Republic
(Respondent)
DECISION ON LIABILITY
__________________________
Professor Jeswald W. Salacuse, President
Professor Gabrielle Kaufmann-Kohler, Arbitrator
Professor Pedro Nikken, Arbitrator
Mr. Gonzalo Flores
Date: 30 July 2010
Annex 194
iv
Table of Contents
I. Procedural Background ...................................................................................................... 1
A. Commencement of the Arbitration ........................................................................... 1
B. Constitution of the Tribunal ..................................................................................... 3
C. Preliminary Session and Scheduling ........................................................................ 3
D. Respondent’s Challenge to Jurisdiction .................................................................... 4
E. Petition for Transparency and Participation as Amicus Curiae ................................ 4
F. Withdrawal of AASA as a Claimant ........................................................................ 5
G. The Tribunal’s Decision on Jurisdiction ................................................................... 6
H. Amicus Curiae Submission ...................................................................................... 7
I. Respondent’s First Arbitrator Challenge .................................................................. 7
J. Hearing on the Merits ............................................................................................... 8
K. Respondent’s Second Arbitrator Challenge .............................................................. 9
II. The Facts of this Dispute .................................................................................................. 10
A. Background ............................................................................................................. 10
B. The Privatization of the Buenos Aires Water and Sewage Systems ....................... 11
C. The Selection of the Claimants’ Consortium as Concessionaire ............................ 13
D. The First Eight Years of Operation (1993-2001) ................................................... 14
E. The Argentine Financial Crisis (2001-2003) .......................................................... 17
F. Attempts to Renegotiate the Concession ................................................................ 18
G. The Termination of the Concession ........................................................................ 21
III. The Law Applicable to This Dispute ................................................................................ 22
IV. The Legal Framework of the AASA Concession ............................................................. 24
A. Legislative and Regulatory Measures ..................................................................... 24
B. The Concession Contract ........................................................................................ 34
C. General Considerations ........................................................................................... 43
V. The General Nature of the Claimants’ Claims and Argentina’s Defenses ....................... 45
VI. Responsibility for Direct or Indirect Expropriation ......................................................... 45
A. The Applicable Treaty Provisions .......................................................................... 45
B. Argentina’s Measures to cope with the Crisis. ....................................................... 50
C. Argentina’s Refusal to Revise the Tariff ................................................................ 53
D. Argentina’s Termination of the Concession ........................................................... 55
E. The Tribunal’s Conclusions .................................................................................... 59
VII. Responsibility for Failure to Provide Protection and Security ......................................... 59
A. The Applicable Treaty Provisions .......................................................................... 59
B. Analysis and Jurisprudence .................................................................................... 61
C. The Tribunal’s Conclusions .................................................................................... 68
VIII. Responsibility for Failure to Accord Fair and Equitable Treatment ................................ 68
A. The Applicable Treaty Provisions .......................................................................... 68
B. The Claimants’ Position ......................................................................................... 73
1. Measures Altering the Investment Framework ..................................................... 74
Annex 194
v
2. Imposed Renegotiation .......................................................................................... 75
3. Unilateral Termination of the Concession ............................................................. 77
C. The Respondent’s Position ..................................................................................... 78
D. Analysis .................................................................................................................. 81
1. Argentina’s Measures Altering the Investment Framework .................................. 89
2. Argentina’s Measures to Renegotiate the Concession ........................................... 92
3. Argentina’s Termination of the Concession .......................................................... 94
E. The Tribunal’s Conclusions .................................................................................... 96
IX. Argentina’s Defense of Necessity .................................................................................... 96
A. The Nature of the Defense ...................................................................................... 96
B. Argentina’s Position ............................................................................................... 97
C. The Claimants’ Position ......................................................................................... 98
D. Amicus Curiae Submissions ................................................................................... 99
E. The Tribunal’s Analysis and Conclusions ............................................................ 100
X. The BIT Provisions on Armed Conflict and State of Emergency .................................. 103
XI. Further Procedure; Cost and Expenses ........................................................................... 106
XII. The Tribunal’s Conclusions with respect to the Respondent’s Liability ........................ 106
Annex 194
60
Article III.1 of the Argentina-Spain BIT provides:
And finally, Article 2(2), entitled “Promotion and Protection of Investment” of the
Argentina-United Kingdom BIT states:
159. At the outset, it should be noted that whereas the Claimants’ pleadings refer to these
treaty provisions as guaranteeing “full protection and security,” a term found in many bilateral
investment treaties, that specific phrase appears nowhere in the three BITs applicable to these
cases. The Argentina-France BIT promises that investments will be “fully and completely
protected and safeguarded…”; the Argentina-Spain BIT promises only that the Contracting
Parties “shall protect” investments; and the Argentina-United Kingdom BIT promises “protection
and constant security.” It remains to be seen whether these three BITs are in effect promising
Annex 194
61
differing levels of protection and whether the level of protection they provide is different from
that offered by the many treaties employing the terminology of “full protection and security”.
B.
160. In seeking to apply these provisions, this Tribunal is confronted initially with two basic
questions: Protection from whom? Protection against what? In other words, from whom is a
Contracting Party to protect an investor and against what specific actions by such person is a
Contracting Party to secure protection? The Claimants argue that in withdrawing certain alleged
guarantees made to the Concessionaire and its investors Argentina withdrew “…the legal
protection and security previously granted to an investment…”.108 Thus, Claimants’
interpretation of the above-quoted treaty provisions is that Argentina promised to protect the
investments of the other Contracting Party from actions that Argentina itself might take in the
exercise of its legal and regulatory authority. The Respondent, on the other hand, takes the
position that the provisions on protection and security apply primarily to protection from physical
acts against an investor or investment and that only in exceptional circumstances should they be
applied to other situations.
161. The origin of the terms “full protection and security”, “constant protection and security,”
or simply “protection and security” appears to lie in the bilateral commercial treaties that
countries concluded in the nineteenth and early twentieth centuries, such as the friendship,
commerce and navigation (FCN) treaties made by the United States during that period.109 For
example, of twenty-two early commercial treaties concluded by the United States before 1920,
fourteen contained reference to “special protection” and the remaining eight specified “full and
perfect protection” of persons’ private property.110 As an illustration, Article 3 the FCN treaty
that the United States concluded with Brunei in 1850 provided that His Highness the Sultan of
Borneo “…engages that such Citizens of the United States of America shall as far as lies within
in his power, within his dominions enjoy for themselves
108 Claimants’ Post-Hearing Submission, para. 361.
109 K. Vandevelde, 21 Cornell Int’l
L.J. 203, 204. (1988).
110 W. Wilson, R., 45 Am.
J. Int’l L. 84, 92-96(1951).
Annex 194
62
and for any property which they may acquire…” (emphasis added).111 A number of bilateral
treaties of other countries also employed this term.112
162. Traditionally, courts and tribunals have interpreted the content of this standard of
treatment as imposing a positive obligation upon a host State to exercise due diligence to protect
the investor and his property from physical threats and injuries, not as imposing an obligation to
protect covered investments and investors from all injuries from whatever sources. In the
in which the United States brought a claim against Italy on grounds that the requisition of
a U.S. investor’s factory by the Mayor of Palermo, Italy, violated Article V(1) of the United
States-Italy FCN treaty obligating the Contracting Parties to provide investors “the most constant
protection and security,” the International Court of Justice Chamber stated that: “The reference
in Article V to the provision of ‘constant protection and security’ cannot be construed as the
giving of a warranty that property shall never in any circumstances be occupied or disturbed.”114
163. With the development of bilateral investment treaties, whose texts were influenced by the
language of the earlier of FCN treaties, the drafters of BITs incorporated the term “full protection
and security,” or some variation thereof, in this new legal instrument designed to protect and
promote foreign investment in a new era. Early interpretations of BIT provisions on full
protection and security applied them essentially to protect investors and investments from
physical injuries and threats, particularly from actions, usually unauthorized, by a country’s army
units or individual soldiers, or from disgruntled workers.115 In each of these cases, the tribunals
stressed that the treaty provision was not a guarantee against all injuries that might befall an
investment but only required the host country to exercise due diligence. On the meaning of due
diligence, tribunals and scholars have often referred to the statement of Professor A.V. Freeman
in his lectures at the Hague Academy of International Law: “The ‘due diligence’ is nothing more
nor less than the reasonable measures of prevention which a well-administered government could
111 Treaty of Friendship, Commerce and Navigation with Brunei, 10 Stat. 909; Treaty Series 331
(entered into force July 11, 1853).
112 See for example the bilateral treaty between Italy and Venezuela, stating that “citizens of each
State should enjoy in the territory of the other ‘the fullest measure of protection and security of person and
property, and should have in this respect the same rights and privileges accorded to nationals.’ Quoted in
the case, Italy-Venezuela Mixed Claims Commission, U.N. Reports of International Arbitral
Awards, vol.X, p. 512.
113 ), (U.S. v. Italy), I.C.J. Reports 1989.
114 . § 108, p.65.
115 See , Asian Agricultural Products Limited v. Sri Lanka (ICSID Case No. ARB/ 87/3) Award
(27 June 1990); (ICSID Case No. ARB/93/1) Award
(21 February 1997).
Annex 194
63
be expected to exercise under similar circumstances.”116 The late Professor Ian Brownlie
observed that the decisions of tribunals give no definition of ‘due diligence’, but that ‘obviously
no very dogmatic definition would be appropriate, since what is involved is a standard which will
vary according to the circumstances.’117
164. The fact that the “full protection and security” standard implies only an obligation of due
diligence, as opposed to strict liability, has also been widely recognized in more recent arbitral
case decisions.118 On the other hand, there seems to exist no consensus as to the extent to which
the full protection and security standard may exceed the State’s obligation to provide mere
physical security to the investor and his assets.
165. Traditionally, the cases applying full protection and security have dealt with injuries to
physical assets of investors committed by third parties where host governments have failed to
exercise due diligence in preventing the damage or punishing the perpetrators. In the present
case, the Claimants are attempting to apply the protection and security clause to a different type
of situation. They do not complain that third parties have injured their physical assets or persons,
as in the traditional protection and security case. They are instead asserting that Argentina denied
it protection and security by dint of the actions which Argentina itself took in exercise of its
governmental powers against AASA’s contractual rights under the Concession Contract and the
governing legal framework. This Tribunal must therefore decide whether the treaty provisions
apply to the Claimants’ situation.
166. In recent years, a few arbitral tribunals have sought to expand the scope and content of
the “full protection and security” clause beyond protection from physical injury, and have
interpreted it to apply to unjustified administrative and legal actions taken by a government or its
subdivisions that injured an investment’s alleged legal rights. It is on these decisions that the
Claimants rely, particularly119and .120 For
example, in , which Claimants cite in support of their argument, the tribunal stated: “The
116 AV Freeman, ; 88 Recueil
des Cours (1956) 261.
117 I. Brownlie, (1990) 454.
118 See, among others, note 96; at para. 483;
(ICSID Case No. ARB/05/16) Award (29 July
2008), at para. 668; (ICSID
Case No. ARB/05/15), Award (1 June 2009), at para.447.
119 note 99.
120 note 92.
Annex 194
64
host State is obligated to ensure that neither by amendment of its laws nor by actions of its
administrative bodies is the agreed and approved security and protection of the foreign investor’s
investment withdrawn or devalued.”121
167. However, the precedential effect of the case might be reduced by the fact it was not
a unanimous decision, and that the tribunal did not conduct a detailed analysis of this particular
point. Furthermore, as is well known, the tribunal in the case, which was very closely
related to the case, reached a diametrically different conclusion. With respect to the
application of the full protection and security clause in the U.S.-Czech BIT, the tribunal in
held that “… none of the facts alleged by the Claimants constitutes a violation by the Respondent
of the obligation to provide full protection and security under the Treaty.”122
168. The tribunal was interpreting Article 3(2) of the Netherlands-Czech Republic BIT,
stipulating that “each Contracting Party shall provide to such investments full security and
protection” (emphasis added). That treaty formulation is somewhat different from the BIT
provisions applicable to the present case. Notably the Argentina-Spain and Argentina-U.K. BITs
refer only to “protection” and to “protect” without the qualifying word “full” or “fully,” while the
Argentina-France BITs states that investors shall be “fully protected.” Does the difference in
formulation affect the scope of protection afforded by the BITs? The tribunal in
implied that it did, for it justified on that basis a finding that the Argentina-United
States BIT providing for “full protection and security” applied to measures taken by a
government and was not limited to physical actions. It stated: “However when the terms
'protection and security' are qualified by full and no other adjective or explanation, they extend, in
their ordinary meaning, the content of this standard beyond physical security.”123 Thus,
seemed to suggest that the omission of “full” or “fully,” as is the case with two of the applicable
BITs in the present cases, restricted the scope of protection only to physical security and
protection. The tribunal in adhered to the same line of argument and noted that full
protection and security “implies a State’s guarantee of stability in a secure environment, both
physical, commercial and legal. It would in the Arbitral Tribunal’s view be unduly artificial to
121 note 100 at para. 613.
122 note 99, at para.309.
123 note 92, at para. 408.
Annex 194
65
confine the notion of “full security” only to one aspect of security, particularly in light of the use
of this term in a BIT, directed at the protection of commercial and financial investments.”124
169. Other tribunals have given less weight to the precise language used in the treaty when
determining the scope of the full protection and security standard. For example, in
125 the tribunal found that: “It is generally accepted that the variation of language
between the formulation ‘protection’ and ‘full protection and security’ does not make a difference
in the level of protection a State is to provide.”126
170. With regard to the third treaty in the present cases, the Argentina-France BIT requires
that investors are to be “… fully and completely protected …in accordance with the principle of
just and equitable treatment mentioned in Article 3…” The interpretation of this treaty provision
raises questions as to the interplay and scope of the two standards of “full and completely
protected” and “fair and equitable treatment.” If the Tribunal should find that a breach of the fair
and equitable treatment standard has taken place, does that mean that a breach of the guarantee of
full and complete protection has also taken? Some tribunals in the presence of a formulation like
the language employed in Article 3 quoted above have found that both breaches take place
simultaneously.127
171. The present Tribunal, however, takes the view that under Article 3, quoted above, the
concept of full protection and security is included within the concept of fair and equitable
treatment, but that the scope of full protection and security is narrower than the fair and equitable
treatment. Thus, State action that violates the full protection and security clause would of
necessity constitute a violation of fair and equitable treatment under the French BIT. On the
other hand, all violations of fair and equitable treatment are not automatically also violations of
full protection and security. Under the French BIT, it is possible for Argentina to violate its
obligation of fair and equitable treatment toward the Claimants without violating its duty of full
protection and security. In short, there are actions that violate fair and equitable treatment that do
not violate full protection and security.
124 (ICSID Case No. ARB/05/22),
Award, (24 July 2008), at para. 729.
125 (ICSID Case No. ARB/05/08), Award
(August 14, 2007).
126 Para. 354, citing Rubins N., Kinsella S.,
(2005) to justify this proposition.
127 (UNCITRAL), Award (3 November 2008).
Annex 194
66
172. The fact that the French BIT employs the fair and equitable treatment standard and the
full protections and security standard in two distinct articles and refers to them as separate and
distinct standards leads to the conclusion that the Contracting Parties must have intended them to
mean two different things. Thus, in interpreting these two standards of investor treatment it is
desirable to give effect to that intention by giving the two concepts distinct meanings and fields of
application.
173. In this respect, this Tribunal is of the view that the stability of the business environment
and legal security are more characteristic of the standard of fair and equitable treatment, while the
full protection and security standard primarily seeks to protect investment from physical harm.
This said, this latter standard may also include an obligation to provide adequate mechanisms and
legal remedies for prosecuting the State organs or private parties responsible for the injury caused
to the investor.
174. The tribunal discussed the more limited scope of the full protection and security
standard by noting that “there might be cases where a broader interpretation could be justified,
but then it becomes difficult to distinguish such situation from one resulting in the breach of fair
and equitable treatment, and even from some form of expropriation.”128 Generally, this Tribunal
also believes that an overly extensive interpretation of the full protection and security standard
may result in an overlap with the other standards of investment protection, which is neither
necessary nor desirable.
175. As far as this Tribunal is concerned, it is inclined to think that the absence of the word
“full” or “fully” in the full protection and security provisions in the Argentina-Spain and the
Argentina-U.K. BITs supports this view of an obligation limited to providing physical protection
and legal remedies for the Spanish and U.K. Claimants and their assets.
176. The importance of the precise legal formulation used in a BIT provision is further
illustrated in the award.129 In that case, the investor initiated the arbitration under the
German-Argentina BIT, alleging that Argentina breached its obligation to accord full
128 note 92, at para. 286; see also (ICSID Case No.
ARB/02/5), Award (19 January 2007), at para. 259.
129 note 93.
Annex 194
67
protection and security through the conduct that led to the frustration of the investor’s contract.
The respondent and the claimant had opposing positions on the scope of the protection under the
BIT standard. According to Argentina, “security” implied only physical security, while the
investor attributed to this term a wider meaning, in particular because the Treaty referred to “legal
security.” Thus, the tribunal had to interpret whether “security” referred merely to physical
security or to security in a wider sense. Having noted that the definition of investment included
tangible and intangible assets, the tribunal said that “the obligation to provide full protection and
security is wider than ‘physical’' protection and security.” It provided the following reasoning:
It is difficult to understand how the physical security of an intangible asset would
be achieved. In the instant case, “security” is qualified by “legal”. In its ordinary
meaning “legal security” has been defined as “the quality of the legal system
which implies certainty in its norms and, consequently, their foreseeable
application.” It is clear that in the context of this meaning the Treaty refers to
security that it is not physical. In fact, one may question given the qualification
of the term “security”, whether the Treaty covers physical security at all.
Arguably it could be considered to be included under “full protection”, but that is
not an issue in these proceedings. [§303]
Based on this understanding of ‘full protection and security’, the tribunal concluded that
Argentina’s initiation of the renegotiation of the contract for the sole purpose of reducing its
costs, unsupported by any declaration of public interest, affected the legal security of Siemens’
investment, and thus constituted a violation of its obligations under the BIT. In these cases, none
of the three BITs concerned refers to “legal security”. Therefore, this Tribunal is of the opinion
that the various formulations of protection and security employed in the present BITs cannot
extend to an obligation to maintain a stable and secure legal and commercial environment.
177. While strict textual interpretation of the treaty language would lead this Tribunal to
conclude that the applicable BITs in the present cases do not have the expansive scope on which
the Claimants are basing their claim, there is another reason for the Tribunal not to follow the
interpretation made in, , and x. Neither the nor awards provide
a historical analysis of the concept of full protection and security or give any clear reason as to
why it was departing from the historical interpretation traditionally employed by courts and
tribunals and expanding that concept to cover non-physical actions and injuries.
Annex 194
68
178. A few awards since have maintained the more traditional approach to interpreting
the notion of full protection and security. In ,130 the tribunal determined that the Czech
Republic did not violate the Czech Republic-Netherlands BIT which promised investors “full
security and protection” when it took measures to stop trading in the claimant’s securities. The
tribunal stated: “The practice of arbitral tribunals seems to indicate however that the ‘full
protection and security clause’ is not meant to cover just any kind of impairment of an investor’s
investment but to protect more specifically the physical integrity of an investment against
interference by the use of force.”131 More recently, a similar rationale has been applied by arbitral
tribunals in , and .132
179. Having considered the specific language of each of the three applicable BITs and the
historical development of the “full protection and security” standard under international law, as
well as the recent jurisprudence, this Tribunal is not persuaded that it needs to depart from the
traditional interpretation given to this term. Consequently, the Tribunal concludes that under all
the applicable BITs, Argentina is obliged to exercise due diligence to protect investors and
investments primarily from physical injury, and that in any case Argentina’s obligations under the
relevant provisions do not extend to encompass the maintenance of a stable legal and commercial
environment. As a result, in the instant cases Argentina has not violated its obligations under the
respective BIT provisions.
VIII. Responsibility for Failure to Accord Fair and Equitable Treatment
A.
180. The Claimants further allege that Argentina has breached the applicable BITs in that it
has failed to accord the Claimants’ investments “fair and equitable treatment” as required by the
treaties. Specifically they assert that Argentina has breached Articles 3 and 5(1) of the Argentina
France-BIT which provide:
130 note 96.
131 para. 484.
132 (UNCITRAL), Award (24 December 2007), at paras.
323-328; , note 128, at paras. 258-259; , note 118, at para.
669.
Annex 194
ANNEX 195
In proceedings pursuant to the Agreement between the
Government of the United Kingdom of Great Britain and
Northern Ireland and the Government of the Republic of
Argentina for the Promotion and Protection of
Investments, entered into on 11 December 1990 and the
UNCITRAL Arbitration Rules:
BG Group Plc.
Claimant
and
The Republic of Argentina
Respondent
Final Award
24 December 2007
Before the Tribunal comprising:
Alejandro M. Garro, Arbitrator
Albert Jan van den Berg, Arbitrator
Guillermo Aguilar Alvarez C., President
Representing the Claimant: Representing the Respondent:
Freshfields Bruckhaus
Deringer
Nigel Blackaby
Lluis Paradell
Sylvia Noury
Andrea Saldarriaga
Procuración del Tesoro de la
Nación
Osvaldo César Guglielmino
Cintia Yaryura
Jorge Barraguirre
Florencio Travieso
Marval, O’Farrell & Mairal
Francisco Macías
Administrative Secretary of the Arbitral Tribunal
Lucía Ojeda
Formal seat of the arbitration: Washington, D.C.
Annex 195
2
I n d e x
I. The Parties ..................................................... 5
II. The Tribunal and the Procedure ..................... 5
III. Findings of Fact ............................................ 10
A. BG’S INVESTMENT IN ARGENTINA .................................... 10
1. The Privatization of the Gas Industry ........... 10
2.BG’s Participation in the Privatization
Process ........................................................................ 12
B. THE REGULATORY FRAMEWORK ...................................... 13
1. The Gas Law (20 May 1992) ............................... 13
2.The Gas Decree (18 September 1992) ............. 14
3.The MetroGAS License (21 December 1992) 16
C. THE CRISIS ......................................................................... 20
D. THE MEASURES .................................................................. 22
1. Suspension of the Application of the US PPI
........................................................................................ 22
2.The Corralito ............................................................ 25
3.The Emergency Law and Ancillary
Regulations ............................................................... 26
4.The Renegotiation Process ................................. 27
IV. Summary of the Contentions of the Parties and
Relief Sought ................................................ 29
A. BG’S POSITION ................................................................... 29
B. ARGENTINA’S POSITION ..................................................... 30
V. Applicable Law ............................................. 31
Annex 195
3
VI. Jurisdiction and Admissibility ...................... 36
A. IS BG AN “INVESTOR”? ...................................................... 37
B. HAS BG MADE AN “INVESTMENT” IN ARGENTINA? ......... 37
C. ARE BG’S CLAIMS ADMISSIBLE? ...................................... 47
D. IS THE DISPUTE CONTRACTUAL? ...................................... 53
E. MAY BG BRING “DERIVATIVE CLAIMS”? ........................ 63
F. ARE MEASURES OF GENERAL APPLICATION ACTIONABLE
UNDER THE ARGENTINA-U.K. BIT? .................................. 72
G. IS THE RENEGOTIATION PROCESS AN OBSTACLE TO THIS
TRIBUNAL’S JURISDICTION? .............................................. 76
H. CONCLUSION ...................................................................... 78
VII. Article 5 of the BIT (Expropriation) .............. 79
A. SUMMARY OF PARTIES’ CONTENTIONS ............................. 80
1. BG’s Position ............................................................. 80
2.Argentina’s Position .............................................. 81
B. THE TRIBUNAL’S FINDINGS ............................................... 82
VIII.Article 2.2 of the BIT (Promotion and
Protection of Investment) ............................. 86
A. FAIR AND EQUITABLE TREATMENT ................................... 86
1.Summary of Parties’ Contentions ................... 86
2.The Tribunal’s Findings ....................................... 91
B. PROTECTION AND CONSTANT SECURITY .......................... 98
1.Summary of Parties’ Contentions ................... 98
2.The Tribunal’s Findings ..................................... 100
C. UNREASONABLE AND DISCRIMINATORY MEASURES ...... 102
1.Unreasonable Measures .................................... 102
2.Discriminatory Measures ................................. 106
D. OBSERVANCE OF OBLIGATIONS ENTERED INTO WITH
REGARD TO BG’S INVESTMENTS ..................................... 109
Annex 195
4
IX. National Emergency and State of Necessity .. 110
A. NATIONAL EMERGENCY UNDER THE BIT ....................... 111
1.Summary of Parties’ Contentions ................. 111
2.The Tribunal’s Findings ..................................... 115
B. THE STATE OF NECESSITY UNDER CUSTOMARY
INTERNATIONAL LAW ...................................................... 117
1.Summary of Parties’ Contentions ................. 118
2.The Tribunal’s Findings ..................................... 123
X. Damages ...................................................... 125
A. STANDARD ........................................................................ 126
B. CALCULATION .................................................................. 129
1. The GASA Debt Restructuring ........................ 129
2.Loss in Fair Market Value ................................ 131
C. INTEREST .......................................................................... 135
XI. Costs........................................................... 136
XII. Decision ..................................................... 138
Annex 195
100
the duty of protection and constant security of investments is
part of the standard of fair and equitable treatment.
b. Argentina’s Position
319. Argentina denied that it has violated the standard of
protection and constant security under the BIT and criticized
that BG does not specify which duty to act it has violated.
Argentina contended that BG has neither a factual nor a legal
basis to make Argentina responsible for having omitted due
diligence.
320. In contesting the relevance of the case law relied
upon by BG, Argentina stated, without the benefit of any
references, that jurisprudence and doctrine are unanimous in
conceiving that the standard of protection and security is a
standard of “physical protection”. BG, however, has not
invoked any act of physical violence against its investment.261
321. Relying on Tecmed, Argentina highlights that “the
security and protection guarantee is not absolute and that it
does not impose upon the Government issuing it strict
liability.” In the context of the present case, Argentina
submitted that MetroGAS had all the possibilities of resorting
to the legal system in force in Argentina in order to protect its
contractual rights under the same terms and conditions as
any other litigant.262
322. Finally, Argentina relies on the notion of emergency
and draws attention to the fact that, during the period under
examination, the country was undergoing the worst
economic, social and institutional crisis of its history.263
2. The Tribunal’s Findings
323. The Tribunal can be relatively brief in relation to the
allegations of BG. BG’s claim with respect to the standard of
protection and constant security must fail.
324. The Tribunal observes that notions of “protection and
constant security” or “full protection and security” in
international law have traditionally been associated with
situations where the physical security of the investor or its
261. Memorial de Contestación, paragraph 574.
262. Memorial de Contestación, paragraphs 575 and 576.
263. Memorial de Contestación, paragraph 577.
Annex 195
101
investment is compromised. Indeed, the authorities relied
upon by BG confirm this:
a) in AAPL the tribunal had to determine under the
Sri Lanka-U.K. BIT whether the physical
destruction of property of AAPL and the killing of
a farm manager and permanent staff members
were in violation of the provision of protection
and security under Article 2.2 of the Sri Lanka-
U.K. BIT; 264
b) in AMT the tribunal found that under the U.S.–
Zaire BIT, Zaire had violated the protection and
security standard required by the treaty in
relation to lootings carried out against AMT’s
investment.265
325. Similarly at issue in E.L.S.I was the occupation of the
investor’s plant by its workers following its requisition by the
Mayor of Palermo266 and Wena Hotels Limited v. Arab
Republic of Egypt relates to the forceful seizure of
property.267
326. The Tribunal is mindful that other tribunals have
found that the standard of “protection and constant security”
encompasses stability of the legal framework applicable to the
investment. By relating the standards of “protection and
constant security” and “fair and equitable treatment” such
tribunals have found that the host State is under an obligation
to provide a “secure investment environment”.268 However,
in light of the decisions quoted above, the Tribunal finds it
inappropriate to depart from the originally understood
standard of “protection and constant security”.
264. AAPL (paragraphs 28 and 53).
265. AMT (paragraphs 6.05-6.12).
266. Exhibit JL-195 (Elletronica Sicula S.p.A. (E.L.S.I.) (United States of
America v. Italy), 1989 ICJ Report 1989 RLA 56, Judgment dated 20 July
1989).
267. Exhibit JL-331 (Wena Hotels Ltd v A RA-b Republic of Egypt, ICSID
Case No ARB/98/4, Award of 8 December 2000, paragraphs 84-95).
268. Exhibit JL-495 (Azurix Corp. v The Argentine Republic, ICSID Case
No. ARB/01/12, Award dated 14 July 2006, paragraph 408); Siemens v.
The Argentine Republic, ICSID Case No ARB/02/8, Award of 6 February
2007, paragraph 303, referring to the Argentina-Germany BIT which
includes, however, the qualified term of ¨legal security¨ in the relevant
provision.
Annex 195
102
327. Considering the facts of this dispute and the Parties’
submissions, the Tribunal notes that BG has not alleged
physical violence or damage in the implementation of the
measures adopted by Argentina, nor does the Tribunal see
that such violence or damage has in fact occurred.
328. Accordingly, the Tribunal concludes that Argentina has
not breached the standard of protection and constant security
set out in Article 2.2 of the Argentina-U.K. BIT.
C. Unreasonable and Discriminatory
Measures
329. BG also contended that, in violation of the second
sentence of Article 2.2 of the BIT, Argentina impaired BG’s
use and enjoyment of its investment by unreasonable and
discriminatory measures, by placing a disproportionate and
discriminatory burden on MetroGAS and BG. Argentina
objected to BG’s allegations.
330. The second sentence of Article 2.2 of the BIT provides
as follows:
Neither Contracting Party shall in any way impair by
unreasonable or discriminatory measures the
management, maintenance, use, enjoyment or
disposal of investments in its territory of investors of
the other Contracting Party.
1. Unreasonable Measures
(a) Summary of Parties’
Contentions
(i) BG’s Position
331. BG contended that Argentina’s measures are
unreasonable because they dismantled the entire tariff regime
of the gas distribution industry.
332. As the term “unreasonable measures” is not defined,
BG relies on the following definition provided by the
commentator R. Happ that,
[I]t is possible to understand ‘unreasonable’ in two
different ways: Either as a procedural concept, that is
whether the governmental measure furthers the
government’s objectives (sic.) is the less restrictive
measure and whether the impairment is proportional
to the achieved end; or as a substantive concept.
However, since it is always in the eye of the beholder
Annex 195
ANNEX 196
THE MATTER OF AN ARBITRATION
UNDER THE UNCITRAL ARBITRATION RULES 1976
SALUKA INVESTMENTS BV (THE NETHERLANDS)
Claimant
v
THE CZECH REPUBLIC
Respondent
______________________
PARTIAL AWARD
______________________
Arbitral Tribunal
Sir Arthur Watts KCMG QC (Chairman)
Maître L. Yves Fortier CC QC
Professor Dr Peter Behrens
Representing Claimant
Representing Respondent
Mr. Jan Paulsson
Mr. Peter J. Turner
Freshfields Bruckhaus Deringer
69 boulevard Haussmann
75008 Paris
France
and
Professor James Crawford
Lauterpacht Research Centre
for International Law
5 Cranmer Road
Cambridge CB3 9BL
United Kingdom
Mr. George von Mehren
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304
USA
and
Dr. Luboš Tichy
Squire, Sanders & Dempsey, v.o.s.
Advokátní kancelá
Václavské námestí 57/813
110 00 Prague 1
Czech Republic
Registry
Permanent Court of Arbitration
Annex 196
2
TABLE OF CONTENTS
I. INTRODUCTION .............................................................................................................5
A. Commencement of the Arbitration ................................................................................5
B. Constitution of the Tribunal...........................................................................................5
C. Procedural Timetable .....................................................................................................6
D. The Written Pleadings....................................................................................................6
E. The Respondent’s Counterclaim....................................................................................7
F. Subsequent Procedural Timetable..................................................................................9
G. Oral Hearings .................................................................................................................9
II. THE FACTS ....................................................................................................................10
A. The Banking System in Czechoslovakia during the Period of Communist Rule ........10
B. The Agreement on Encouragement and Reciprocal Protection of Investments
Between the Kingdom of the Netherlands and the Czech and Slovak Federal
Republic 1991 ..............................................................................................................10
C. The Separation of the Czech Republic and Slovakia...................................................10
D. The Reorganisation and Privatisation of the Banking System in the
Czech Republic ............................................................................................................11
E. The Czech Banking Sector’s “Bad Debt” Problem .....................................................12
F. Nomura’s Acquisition of Control over IPB on 8 March 1998.....................................13
G. Acquisition and Sale of Pilsner Urquell Brewery........................................................17
H. The Transfer of Nomura Europe’s IPB Shares to Saluka ............................................18
I. The Government’s Assistance to the Banking Sector (1998-2000).............................19
J. Developments in Respect of IPB (August 1999-end May 2000) ................................21
K. Developments in Respect of IPB (end May 2000-7 June 2000)..................................26
L. The Second Bank Run on IPB and its Aftermath ........................................................27
M. The Forced Administration of IPB and its Aftermath.................................................29
III. THE PARTIES’ ARGUMENTS AND SUBMISSIONS ............................................33
IV. THE TRIBUNAL’S JURISDICTION.........................................................................35
A. The Parties’ Arguments ...............................................................................................35
B. Relevant Terms of the Treaty ......................................................................................40
C. The Respondent’s Challenges to the Tribunal’s Jurisdiction ......................................41
D. The Purchase of IPB Shares as an Investment and Compliance with Legal
Requirements ...............................................................................................................42
E. Saluka’s Qualification as an “Investor” Entitled to Initiate the Arbitration
Procedures under the Treaty ........................................................................................46
1. The Corporate Relationship between Saluka and Nomura ......................................46
2. The Alleged Lack of Good Faith and Abuse of Rights ...........................................47
3. Saluka’s Lack of Factual Links with The Netherlands............................................49
F. The Tribunal’s Conclusions as to Jurisdiction.............................................................50
V. SALUKA’S CLAIMS UNDER ARTICLE 5 OF THE TREATY ..................................50
A. The Treaty....................................................................................................................50
B. The Parties’ Principal Submissions .............................................................................51
C. The Law.......................................................................................................................52
D. Analysis and Findings..................................................................................................54
E. Conclusion ...................................................................................................................59
VI. SALUKA’S CLAIMS UNDER ARTICLE 3 OF THE TREATY ..............................60
A. The Content of the Czech Republic’s Obligations under Article 3 of the Treaty........60
B. Fair and Equitable Treatment.......................................................................................61
1. Meaning of the Standard..........................................................................................61
Annex 196
3
a) The Parties’ Arguments .......................................................................................61
b) The Tribunal’s Interpretation...............................................................................63
i) The Ordinary Meaning.....................................................................................63
ii) The Context......................................................................................................64
iii) The Object and Purpose of the Treaty .........................................................64
iv) Conclusion ...................................................................................................66
2. Application of the Standard .....................................................................................67
a) The Czech Republic’s Discriminatory Response to the Bad Debt Problem........67
i) Comparable Position of the Big Four Banks regarding the Bad Debt
Problem............................................................................................................68
ii) Differential Treatment of IPB Regarding State Assistance .............................69
iii) Lack of a Reasonable Justification...................................................................70
b) Failure to Ensure a Predictable and Transparent Framework..............................74
i) Nomura’s Expectation that IPB would not be Treated Differently .................74
ii) The Unpredictable Increase of the Provisioning Burden for
Non-Performing Loans ....................................................................................75
iii) Nomura’s Expectation regarding the Legal Framework for the
Enforcement of Loan Security .........................................................................75
c) Refusal to Negotiate in Good Faith .....................................................................76
i) The Developments during the First Half of 2000 ............................................77
(a) The Government’s Role in CSOB’s Acquisition of IPB .........................77
(b) The Government’s Role in IPB’s and Saluka’s/Nomura’s Attempts
to Negotiate a Cooperative Solution ........................................................79
ii) The Tribunal’s Finding ....................................................................................84
(a) The Lack of Even-Handedness ................................................................85
(b) The Lack of Consistency .........................................................................86
(c) The Lack of Transparency .......................................................................87
(d) The Refusal of Adequate Communication...............................................88
d) Provision of Financial Assistance to IPB after Acquisition by CSOB............89
e) Unjust Enrichment of CSOB at the Expense of Saluka...................................92
C. Non-Impairment...........................................................................................................93
1. Meaning of the Standard..........................................................................................93
2. Application of the Standard .....................................................................................94
a) The Facts Underlying the Violations of the “Fair and Equitable
Treatment” Standard (Article 3.1 of the Treaty)..........................................95
b) The Facts Underlying the Deprivation Claim (Article 5 of the Treaty) ......95
c) The Czech Government’s Alleged Triggering of the Second Run
on IPB ..........................................................................................................96
D. Full Security and Protection.........................................................................................98
1. Meaning of the Standard..........................................................................................98
2. Application of the Standard .....................................................................................99
a) The Suspension of Trading in IPB Shares ...........................................................99
b) The Prohibition of Transfers of Saluka’s Shares ...............................................100
c) The Police Searches ...........................................................................................100
E. Conclusion .................................................................................................................100
VII. OTHER MATTERS...................................................................................................102
VIII. DECISIONS...............................................................................................................103
Annex 196
52
250. The Czech Republic denies that it has violated Article 5 of the Treaty. In essence, it
submits that the measures which it resorted to in order to address the IPB situation in the
spring of 2000 and which culminated in the decision by the CNB to put IPB into forced
administration were “permissible regulatory actions” which cannot be considered as
expropriatory.
251. In support of its principal defense, the Czech Republic also avers that each of the
measures cited by Saluka in its attempt to demonstrate that the Czech Republic’s actions were
not genuine regulatory measures were indeed authorised by Czech law.
252. Subsidiarily, the Czech Republic argues that, since Saluka sold its IPB shares back to
Nomura after June 2000 for the same amount as it purchased them, Saluka “has failed to
establish a deprivation of sufficient magnitude to form the basis of an expropriation claim”.
C. The Law
253. The Tribunal agrees with Saluka that the principal, if not the sole, issue which it must
determine in the present chapter of its Award is whether the actions by the Czech Republic
complained of by the Claimant are lawful or unlawful measures.
254. The Tribunal acknowledges that Article 5 of the Treaty in the present case is drafted
very broadly and does not contain any exception for the exercise of regulatory power.
However, in using the concept of deprivation, Article 5 imports into the Treaty the customary
international law notion that a deprivation can be justified if it results from the exercise of
regulatory actions aimed at the maintenance of public order. In interpreting a treaty, account
has to be taken of “any relevant rules of international law applicable in the relations between
the parties”6 – a requirement which the International Court of Justice (“ICJ”) has held
includes relevant rules of general customary international law.7
255. It is now established in international law that States are not liable to pay compensation
to a foreign investor when, in the normal exercise of their regulatory powers, they adopt in a
non-discriminatory manner bona fide regulations that are aimed at the general welfare.
256. Nearly forty-five years ago, the Harvard Draft Convention on the International
Responsibility of States for Injuries to Aliens (“Harvard Draft Convention”),8 which
instrument is relied upon by the Czech Republic, recognised the following categories of noncompensable
takings:
An uncompensated taking of an alien property or a deprivation of the use or
enjoyment of property of an alien which results from the execution of tax laws; from
a general change in the value of currency; from the action of the competent
authorities of the State in the maintenance of public order, health or morality; or from
the valid exercise of belligerent rights or otherwise incidental to the normal operation
of the laws of the State shall not be considered wrongful.
257. As Saluka correctly reminded the Tribunal, the above-quoted passage in the Harvard
Draft Convention is subject to four important exceptions. An uncompensated taking of the
sort referred to shall not be considered unlawful provided that:
Annex 196
53
(a) it is not a clear and discriminatory violation of the law of the State concerned;
(b) it is not the result of a violation of any provision of Articles 6 to 8 [of the
draft Convention];
(c) it is not an unreasonable departure from the principles of justice recognised
by the principal legal systems of the world;
(d) it is not an abuse of the powers specified in this paragraph for the purpose of
depriving an alien of his property.
258. These exceptions do not, in any way, weaken the principle that certain takings or
deprivations are non-compensable. They merely remind the legislator or, indeed, the
adjudicator, that the so-called “police power exception” is not absolute.
259. The Tribunal further recalls that, in an accompanying note to the 1967 OECD Draft
Convention on the Protection of Foreign Property,9 it is provided that measures taken in the
pursuit of a State’s “political, social or economic ends” do not constitute compensable
expropriation.
260. Similarly, the United States Third Restatement of the Law of Foreign Relations in
198710 includes bona fide regulations and “other action of the kind that is commonly accepted
as within the police power of State” in the list of permissible – that is, non-compensable –
regulatory actions.
261. It is clear that the notion of deprivation, as that word is used in the context of Article 5
of the Treaty, is to be understood in the meaning it has acquired in customary international
law.11
262. In the opinion of the Tribunal, the principle that a State does not commit an
expropriation and is thus not liable to pay compensation to a dispossessed alien investor when
it adopts general regulations that are “commonly accepted as within the police power of
States” forms part of customary international law today. There is ample case law in support
of this proposition. As the tribunal in Methanex Corp. v. USA said recently in its final award,
“[i]t is a principle of customary international law that, where economic injury results from a
bona fide regulation within the police powers of a State, compensation is not required”.12
263. That being said, international law has yet to identify in a comprehensive and
definitive fashion precisely what regulations are considered “permissible” and “commonly
accepted” as falling within the police or regulatory power of States and, thus, noncompensable.
In other words, it has yet to draw a bright and easily distinguishable line
between non-compensable regulations on the one hand and, on the other, measures that have
the effect of depriving foreign investors of their investment and are thus unlawful and
compensable in international law.
264. It thus inevitably falls to the adjudicator to determine whether particular conduct by a
state “crosses the line” that separates valid regulatory activity from expropriation. Faced with
the question of when, how and at what point an otherwise valid regulation becomes, in fact
Annex 196
54
and effect, an unlawful expropriation, international tribunals must consider the circumstances
in which the question arises. The context within which an impugned measure is adopted and
applied is critical to the determination of its validity.13
265. In the present case, the Tribunal finds that the Czech Republic has not “crossed that
line” and did not breach Article 5 of the Treaty, since the measures at issue can be justified as
permissible regulatory actions.
D. Analysis and Findings
266. Saluka’s shares in IPB were assets entitled to protection under the Treaty. Pursuant to
Article 5 of the Treaty, the Czech Republic was prohibited from taking any measures
depriving, directly or indirectly, Saluka of its investment in IPB unless one or more of the
cumulative conditions set out in that Article were complied with. If the Tribunal finds that the
Czech Republic has adopted such measures without having complied with one or more of
these conditions, the conclusion will inevitably follow that the Respondent has breached
Article 5 of the Treaty.
267. There can be no doubt, and the Tribunal so finds, that Saluka has been deprived of its
investment in IPB as a result of the imposition of the forced administration of the bank by the
CNB on 16 June 2000.
268. In Part III of the present Award, the Tribunal has reviewed in considerable detail the
facts which led the CNB, on 16 June 2000, to “introduce forced administration” of IPB
pursuant to Section 26(1)(d) of the Czech Banking Act.14
269. A translation of the CNB decision of 16 June 2000 has been produced as an exhibit
before the Tribunal. It sets forth the many reasons which convinced the CNB, as the Czech
banking regulator, to decide that the time had come to impose forced administration of IPB
and appoint an administrator to exercise the forced administration. The decision also refers to
the Czech legislation on which the CNB relied.
270. Rather than attempting to summarise the CNB’s decision, the Tribunal reproduces it
here in extenso, in translation supplied by the Respondent:
Decision
On the basis of the establishment that INVESTINÍ A POŠTOVNÍ BANKA, akciová
spolenost, with its registered office in Praha 1, Senovážné nam. 32, IO
(Identification No.): 45 31 66 19 (the “Bank”) continually fails to maintain payment
ability both in Czech currency and in foreign currencies and, accordingly, fails to
comply with its obligation under Section 14 of Act No. 21/1992 Coll., the Banking
Act, as amended (the “Banking Act”), the Czech National Bank has decided, pursuant
to the provision of Section 26(1)(d), in accordance with the provisions of Section 30,
Section 26(2), Section 26(6) and Section 26(3)(b) and with regard to the provisions of
Section 27(1)(a) and (b) of the Banking Act, as follows:
I. Forced administration shall be introduced in the Bank as of June 16, 2000.
Annex 196
98
unavoidable, as stated by the Deputy Finance Minister, Mr Zelinka, on 9 June 2000 (i.e. on
the Friday before the Monday when the second bank run set in).
481. Furthermore, there is some indication that the Government “sources” deliberately
engineered the circulation of negative information about IPB in order to precipitate IPB’s
failure. Mr Zelinka’s statement of 9 June 2000 may well be interpreted in this sense. Once
forced administration was publicly stated to be unavoidable, that statement became a selffulfilling
prophecy, because the bank run was certain to set in the following Monday. This
conduct of the Government was unjustifiable and unreasonable and contributed in all
probability to the unsustainability of IPB’s situation. The Respondent has provided no
convincing evidence to the contrary.
D. Full Security and Protection
482. The Claimant has argued that the Czech Republic has also violated its obligation
under Article 3.2 of the Treaty which “more particularly” provides that each Contracting
Party shall accord to the investments of investors covered by the Treaty “full security and
protection”.
1. Meaning of the Standard
483. The “full protection and security” standard applies essentially when the foreign
investment has been affected by civil strife and physical violence.54 In the AMT arbitration, it
was held that the host State “must show that it has taken all measures of precaution to protect
the investments of [the investor] in its territory”.55
484. The standard does not imply strict liability of the host State however. The Tecmed
tribunal held that “the guarantee of full protection and security is not absolute and does not
impose strict liability upon the State that grants it”.56 The host State is, however, obliged to
exercise due diligence.57 As the tribunal in Wena, quoting from American Manufacturing and
Trading,58 stated,
The obligation incumbent on the [host State] is an obligation of vigilance, in the sense
that the [host State] shall take all measures necessary to ensure the full enjoyment of
protection and security of its investments and should not be permitted to invoke its
own legislation to detract from any such obligation.59
Accordingly, the standard obliges the host State to adopt all reasonable measures to protect
assets and property from threats or attacks which may target particularly foreigners or certain
groups of foreigners.60 The practice of arbitral tribunals seems to indicate, however, that the
“full security and protection” clause is not meant to cover just any kind of impairment of an
investor’s investment, but to protect more specifically the physical integrity of an investment
against interference by use of force. In light of the following findings, it appears not to be
necessary for the Tribunal to precisely define the scope of the “full security and protection”
clause in this case.
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2. Application of the Standard
485. The Claimant contends that the Czech Republic has failed to accord Saluka’s
investment full protection and security by its oppressive use of public powers, post-forced
administration, with a view to depriving Saluka of any residual economic benefit or use of its
investment and by harassing its officers and employees. The measures complained of by the
Claimant relate more specifically to
(a) the suspension of trading of IPB shares;
(b) the prohibition of transfers of Saluka’s shares; and
(c) the police searches of premises occupied by Nomura and its employees.
The Tribunal will assess these three groups of measures separately.
a) The Suspension of Trading in IPB Shares
486. According to the Claimant, the CSC’s preliminary injunction of 15 June 2000
imposing an immediate suspension of trading in IPB shares as well as the subsequent
successive extensions thereof were unjustified. The Respondent argues that there was nothing
improper with the suspension decisions.
487. Saluka has lodged appeals against the CSC’s suspension decisions. The appeals were
rejected, however, by the competent Presidium of the CSC.
488. On 1 January 2001, the Czech Securities Act was amended to the effect that
shareholders no longer had standing to appeal a CSC’s suspension of trading in the shares
held by the shareholders. Consequently, after 1 January 2001 Saluka was excluded from
challenging suspensions of trading in its IPB shares.
489. The Respondent argues that the amendment to the Czech Securities Act was of
general application and was not specifically targeted against Saluka.
490. Even assuming that the suspension of trading of shares may be State conduct within
the scope of the “full security and protection” clause, the Tribunal, without deciding that
question, finds that this claim of the Claimant is without merit. On this account, the Czech
Republic cannot be said to have failed to provide “full protection and security” to Saluka’s
investment. The reasoning behind the CSC’s suspension decisions cannot be said to have
been totally devoid of legitimate concerns relating to the securities market. The suspensions
of trading in IPB shares were at least justifiable on regulatory grounds. Also, the elimination
of shareholders’ right of appeal does not per se transcend the limits of a legislator’s
discretion. Shareholder’s rights vary greatly in different jurisdictions. The amendment of the
Czech Securities Act cannot be said to be totally unreasonable and unjustifiable by some
rational legal policy.
Annex 196
ANNEX 197
Dept. of State, Bunche Library; date: 31 July 2019
Content type: Book content
Product: Investment Claims [IC]
Series: Oxford International Law Library
Published in print: 01 May 2015
ISBN: 9780198703976
9 General Treatment Standards
From: The Law of Investment Treaties (2nd Edition)
Jeswald W. Salacuse
Subject(s):
Investor Investment BITs (Bilateral Investment Treaties) Specialied treaty frameworks
ational treatment Full protection and security rbitrary (unreasonable) discriminatory
treatment standard Fair and euitable treatment standard Mostfavourednation treatment (MF)
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investments complete protection and security, full protection and security, full leal
protection and security, or simply protection and security. Moreover, some treaties may
articulate specific treatment standards as independent commitments, while others may link
them to or condition them on another standard. For example, while many early US bilateral
investment treaties (BITs) simply reuired host countries to rant investors full protection
and security, the 2005 USUruuay BIT specifies that full protection and security reuires
each party to provide the level of police protection reuired under customary international
law.4 As a result of these differences, the degree of protection afforded individual
investments may vary significantly among treaties. Consequently, persons interpreting
investment (p. 230) treaty provisions should give careful attention to the differing ways
individual treaty texts articulate their protections. At the same time, it should be
emphasized that treatment standards are almost always expressed in general and even
vague terms and thus render the task of applying them to concrete, complex fact situations,
like those that usually arise in investment disputes, even more difficult.
9 Protection and Security
(a) In general
In virtually all investment treaties, contracting parties promise to give some degree of
protection and security to the investors and investments of other contracting parties. The
precise formulation of that promise varies among treaties. For example, the first BIT ever
concluded, the agreement between Germany and Pakistan in 1959, provided that
investments by nationals or companies of either party are to enoy protection and security
in the territory of the other party.5 On the other hand, Article 4(1) of the Germany
Argentina BIT of 1991 states that investments should enoy full legal protection and full
legal security,6 and Article I(2) of the EcuadorEl Salvador BIT of 1994 provides for full
legal protection for the investments of either partys nationals.Article 3 of the China
Qatar BIT of 1999 merely states that the contracting party investments and the activities
associated with those investments shall be accorded fair and equitable treatment and shall
enjoy protection in the territory of the other Contracting Party.8 Despite the generality and
vagueness of these provisions, they do seem to imply that the host state has an obligation to
take measures to protect covered investors and investments from certain negative actions
that may affect them.Beyond this (p. 231) basic observation, treaty provisions on full
protection and security do little to answer three difficult but essential questions:
1. Against whom is the host state to protect covered investors and investments?
2. Against what actions is the host state to protect investors and their investments?
3. Precisely what measures must a host state take in order to meet its treaty
obligations?
To answer these questions, one must consider the historical origins of this standard that has
now become a common feature of investment treaties.
(b) Historical origins of the standard
The origin of the terms full protection and security, constant protection and security, or
simply protection and security appears to lie in the bilateral commercial treaties that many
countries concluded in the nineteenth and early twentieth centuries. One example is the
friendship, commerce, and navigation (FCN) treaties made by the United States during that
period.10
Of the twenty-two commercial treaties concluded by the United States before
1920, fourteen contained reference to special protection and the remaining eight required
full and perfect protection of persons private property.11
As an illustration, Article 3 of the
1850 FCN treaty between the United States and Brunei provided that His Highness the
Sultan engages that such Citizens of the United States of America shall as far as lies within
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his power, within his dominions enjoy full and complete protection and security for
themselves and for any property which they may acquire (emphasis added).12
The bilateral
treaties of other countries also employed this term.Arbitral decisions, judicial decisions, and other forms of international practice have given
meaning to the term protection and security over the years. Indeed, it is only through
jurisprudence that one can fully understand the content of this standard. Most cases
involved actions by third persons, such as mobs, revolutionaries, or insurgents, who had
physically damaged investments covered under the treaty. Injured investors sought
compensation from the host government on the grounds that the government had not taken
sufficient measures to protect the investment or the investor. For example, in the
Sambiaggio case,the (p. 232) Italyenezuela Mixed Claims Commission in 1903 had to
adjudicate whether Venezuela was monetarily liable to Italian nationals for damage
resulting from the acts of revolutionaries operating in Venezuelan territory. Article 4 of the
ItalyVenezuela Treaty of 1861 stated that each states citizens should enjoy the fullest
measure of protection and security of person and property, and should have in this respect
the same rights and privileges accorded to nationals of the territory. The umpire in the case
declared that he accepts the rule that if in any case of reclamation submitted to him it is
alleged and proved that Venezuelan authorities failed to exercise due diligence to prevent
damages from being inflicted by revolutionists, that country should be held responsible.15
He ultimately denied Italys claims that the treaty imposed strict liability.
Probably the most authoritative case interpreting the FCN treaty provisions on protection
and security was a 1989 decision of a chamber of the International Court of Justice (ICJ) in
the ELSI case.In that case, the United States brought a claim against Italy under the US
Italy FCN treaty for injuries incurred by Raytheon, a US company, with respect to its
subsidiary in Sicily. A factory of Raytheons subsidiary in Palermo was taken over by
workers and then requisitioned by the mayor in order to forestall its closure by the investor
for economic reasons. The United States alleged that such actions violated Italys obligation
to give US investors the most constant protection and security, as required by Article V(1)
of the FCN treaty. The United States did not contend, however, that the obligation
constituted a guarantee resulting in strict liability. Instead, it pointed to the wellestablished
aspect of the international standard of treatmentthat States must use due
diligence to prevent wrongful injuries to the person or property of aliens within their
territory. The ICJ Chamber found that the Italian government had taken adequate
measures to protect the investor and its property, stating that [t]he reference in Article V to
the provision of constant protection and security cannot be construed as the giving of a
warranty that property shall never in any circumstances be occupied or disturbed.17
In general, jurisprudence relating to the FCN provisions on protection and security
recognizes that this standard requires host countries to take steps to protect investors
against physical injury to their persons or properties, whether by government agents or
third persons. However, the FCN provision does not make the host state a guarantor of the
safety of the investor or its property. It requires only that the host state exercise due
diligence in carrying out its obligations under the treaty. As one commentator has observed,
the decisions of tribunals and the other sources offer no definition of due diligence, noting:
No doubt the application of this standard will vary according to the circumstances, yet, if
due diligence be taken to denote a fairly high standard of conduct the exception will
overwhelm the rule.A host state satisfies its due diligence obligation when it (p. 233)
takes all the reasonable measures of protection that a well-administered government would
take in a similar situation.13
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(c) Full protection and security in the modern era
With the development of bilateral and other investment treaties since 1960, the inclusion of
provisions granting investors some form of protection and security has become standard. It
can thus be found in countless BITs, NAFTA,20 the Energy Charter Treaty (ECT),21
and the
2009 ASEAN Comprehensive Investment Agreement,22
among others. These provisions
have also been the basis of several investorstate arbitrations, and so arbitral tribunals
have had to interpret and apply them in a new era. In doing so, contemporary tribunals
have relied on the jurisprudence interpreting FCNs to a significant extent but have also
extended the scope of protection in certain instances.
The first such BIT case was Asian Agricultural Products Limited v Sri Lanka (AAPL).23
In
AAPL, an ICSID tribunal considered the claims of a UK investor in shrimp farming in Sri
Lanka which had suffered injuries as a result of the destruction of its facilities by Sri
Lankan security forces during an alleged operation against rebels. The claimant maintained
that the UKSri Lanka BITs provision guaranteeing full protection and security went
beyond the minimum standard of customary international law and imposed an unconditional
obligation of protection on the host country. Therefore, failure to comply with the obligation
entailed strict or absolute liability for the host state once damage to the investors
property was established. In response, Sri Lanka contended that the full protection and
security standard incorporates, rather than supplants, the customary international legal
standard of responsibility requiring due diligence on the part of states and reasonable
justification for the destruction of property, but not (p. 234) imposing strict liability. A
central issue throughout the case was the standard of liability to be applied to the Sri
Lankan security forces.
The tribunal unanimously rejected the UK investors contentions that the full protection
and security standard imposed strict liability on the host state; however, a majority of the
arbitrators did find the Sri Lankan government responsible for the property destruction
under the customary international law standard requiring due diligence protection from
the host state. The tribunal acknowledged that customary international law contemplated a
sliding scale of liability related to the standard of due diligence. This scale would range
from the older subjective criteria that take into account the relatively limited existing
possibilities of local authorities in a given context to an objective standard of vigilance in
assessing the required degree of protection and security with regard to what one should
legitimately expect from a reasonably well-organized modern state with respect to the level
of security afforded to foreign investors.24
Applying this reasoning to the facts of the case,
the tribunal concluded that the Sri Lankan government could reasonably have used other
means than those employed by its troops to exclude suspected rebel elements from the
shrimp farm staff. Further, those other actions would have minimized the risk of death and
destruction in the counter-insurgency operation. The tribunal also found that the failure to
take such precautionary measures was especially significant because such measures fall
within the normal exercise of governmental inherent powers. The tribunal concluded that
Sri Lanka, both through inaction and omission, violated its due diligence obligation which
requires undertaking all possible measures that could be reasonably expected to prevent
the eventual occurrence of killings and property destructions.25
Subsequent cases have found host governments liable for not taking steps to protect an
investors factory from looting by government troops in aire, and for not employing
measures to prevent the seizure of a hotel by disgruntled employees in Egypt. In the case of
American Manufacturing and Trading, Inc v Zaire (AMT),the tribunal rejected aires
defence that it should not be liable for the acts of marauding soldiers who looted the
investors factory on at least two consecutive occasions without any intervention by
government authorities. The tribunal stated that the protection and security treatment
standard constituted an objective obligation which must not be inferior to the minimum
standard of vigilance and of care required by international law.27 It therefore found it
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unnecessary to discuss whether Zaire was bound by an obligation of result or simply an
obligation of conduct, but found it sufficient that Zaire took no measures whatsoever to
ensure the protection and security of the investment in question. Consequently, Zaires
failure to take any protective measures to ensure the security of AMTs investment engaged
its international responsibility. The tribunal stated:(p. 235)
the obligation incumbent upon Zaire is an obligation of vigilance, in the sense that
Zaire as the receiving State of investments made by AMT, an American company,
shall take all measures necessary to ensure the full enjoyment of protection and
security of its investment and should not be permitted to invoke its own legislation
to detract from any such obligation. Zaire must show that it has taken all measure
of precaution to protect the investments of AMT on its territory. It has not done so
(emphasis added).28
A similar result can be found in Wena Hotels Ltd v Arab Republic of Egypt,29
in which an
ICSID tribunal considered a UK investors claim under the UKEgypt BIT. The case
concerned the seizure of a hotel by its employees. Relying solely on the standards
developed in the AAPL and AMT cases, the tribunal found Egypt responsible for the failure
to accord the investment fair and equitable treatment and full protection and security
because it did not take any action to prevent the seizures or to immediately restore control
over the hotel to Wena.
A finding of liability for failure to provide promised protection and security is necessarily
fact driven. It must be based on the details of the threat as well as the governments
response to that threat. The burden of proving the facts that constitute the threat, the
nature and inadequacy of the governments response, and the connection of these factors to
the injury suffered by the investor all rest on the claimants. Failure to carry that burden will
result in a denial of government liability. For example, in the case of Técnicas
Medioambientales Tecmed SA v United Mexican States,a Spanish company that had
invested in a Mexican waste disposal facility brought a claim under the SpainMexico BIT. It
alleged that Mexico had breached its obligation to provide full protection and security
from various social movements, disturbances, and demonstrations against the investors
activities. The investor claimed that Mexican authorities had encouraged the community to
react adversely to the landfill and its operation. The investors also asserted that the
authorities did not act as quickly, efficiently, and thoroughly as they should have to prevent
or terminate the adverse actions of the local population. The tribunal found that the
claimant failed to provide sufficient evidence to establish a causal link between the public
protests and Mexicos inaction or to show that Mexico acted unreasonably under the
circumstances.Like many previous tribunals, the tribunal concluded that the guarantee
of full protection and security is not absolute and does not impose strict liability upon the
State that grants it.32
A lack of evidence led to similar results in Eureko v Poland,which involved the alleged
harassment and intimidation of the investors local representatives, as well as in Noble
Ventures v Romania,which concerned protests and demonstrations by employees.
(p. 236) Traditionally, tribunals have interpreted provisions guaranteeing protection and
security as protecting investors and their investments from physical injury caused by the
actions of host governments, their agents, or third parties. The USUruguay BIT quoted
earlier appears to adopt this position by making explicit that full protection and security
requires each Party to provide the level of police protection required under customary
international law.35 At the beginning of the twenty-first century, a few cases have sought to
expand the terms scope to include protection against allegedly unjustified governmental
actions that injure an investors legal rights but cause no physical injury. The first such case
to take this position was CME Czech Republic v Czech Republic,36
a dispute brought under
the NetherlandsCzech Republic BIT in which the investor claimed that certain acts and
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omissions of the Czech Media Council (a quasi-governmental media regulatory body)
amounted to a violation of the obligation to provide full protection and security. The tribunal
found that the Media Councils conduct was aimed at removing the security and legal
protection from the investors investment and so violated the standard of full protection and
security. The tribunal stated: The host State is obligated to ensure that neither by
amendment of its laws nor by actions of its administrative bodies is the agreed and
approved security and protection of the foreign investors investment withdrawn or
devalued.37
The decision in CME could be seen as a strong precedent for the expansion of the full
protection and security clause to cover non-physical injuries sustained by investors.
However, its precedential force would seem to be weakened by two factors. First, in the
related case of Lauder v Czech Republic,which involved the same parties and the same
set of facts as in CME, the tribunal found no violation of the full protection and security
clause. Second, the CME tribunal did not provide a historical analysis of the concept of full
protection and security, failed to give any clear reason as to why it departed from the
historical interpretation traditionally employed by courts and tribunals, and instead chose
to expand the concept to cover non-physical actions and injuries.Other cases have nonetheless followed the approach of CME. In Azurix v Argentina,a US
investor argued that the limits of full protection and security were not confined to physical
protection but also included the kind of protection described in CME. The investor alleged
that Argentina breached the standard in question by failing to apply the relevant regulatory
framework and the concession (p. 237) agreement applicable to the claimants investment.
Argentina thereby destroyed the security provided to those investments. In response,
Argentina contested the relevance of the AAPL and AMT cases on the grounds that they
involved physical destruction of the investors facilities by the armed forces. As for the
relevance of CME, it pointed out that relying on CME was questionable without referring to
Lauder, where, on the same facts, the tribunal reached the opposite conclusion. As a final
argument, Argentina requested that the tribunal consider that during the period under
review the country was undergoing the worst economic, social, and institutional crisis in its
history.
Relying on AAPL, AMT, Wena Hotels, and Occidental,the tribunal concluded that the
interrelation between the fair and equitable treatment and full protection and security
indicates that full protection and security may be breached even if no physical violence or
damage occurs.42 Focusing on the specific language of the clause in which full protection
and security is granted, the tribunal stated:
The cases referred to above show that full protection and security was understood
to go beyond protection and security ensured by the police. It is not only a matter of
physical security; the stability afforded by a secure investment environment is as
important from an investors point of view. The Tribunal is aware that in recent free
trade agreements signed by the United States, for instance, with Uruguay, full
protection and security is understood to be limited to the level of police protection
required under customary international law. However, when the terms protection
and security are qualified by full and no other adjective or explanation, they
extend, in their ordinary meaning, the content of this standard beyond physical
security.Thus, Azurix seems to suggest that the omission of the words full or fully, which are
included in some investment treaties, restricts the scope of protection to physical security
and protection but that the inclusion of those words expands the scope of protection to
cover non-physical injuries. On the other hand, in the later case of Parkerings-Compangiet
AS v The Republic of Lithuania,44
the tribunal took a different view, stating: It is generally
accepted that the variation of language (p. 238) between the formulation protection and
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full protection and security does not make a difference in the level of protection a host
State is to provide.45
Another later case, also involving Argentina, justified the expansion of full protection and
security to non-physical injuries in a different way. In Siemens v Argentina,46
the investor
initiated arbitration under the GermanArgentina BIT and alleged, inter alia, that Argentina
breached its obligation to accord full protection and security by engaging in conduct that
frustrated the contract. According to Argentina, security implied only physical security.
The investor, however, gave the term a wider meaning, particularly because of the treatys
reference to legal security. Having noted that the definition of investment included
tangible and intangible assets, the tribunal found that the obligation to provide full
protection and security is wider than physical protection and security. It offered the
following reasoning:
It is difficult to understand how the physical security of an intangible asset would be
achieved. In the instant case, security is qualified by legal. In its ordinary
meaning legal security has been defined as the quality of the legal system which
implies certainty in its norms and, consequently, their foreseeable application. It is
clear that in the context of this meaning the Treaty refers to security that is not
physical. In fact, one may question given the qualification of the term security,
whether the Treaty covers physical security at all. Arguably it could be considered
to be included under full protection, but that is not an issue in these
proceedings.47
Based on this textual interpretation of the standard, the tribunal concluded that Argentinas
initiation of the renegotiation of the contract constituted a violation of its obligations under
the BIT because it was done for the sole purpose of reducing its costs, was unsupported by
any declaration of public interest, and affected the legal security of Siemens investment.
Moreover, the qualifying adjective legal was meant to extend the scope of the full
protection and security clause. One may question the tribunals reasoning regarding the
emphasis it placed on the fact that intangible assets are not subject to physical injury.
Merely because some assets are subject to physical injury and others are not does not
necessarily mean that a treatys contracting parties intended to depart from the traditional
definition and scope of full protection and security. One could equally well conclude from
reading the treatys provisions that the contracting parties only intended to protect assets
from physical injury that are capable of physical injury.
Some awards since the CME decision have maintained the more traditional approach to
interpreting full protection and security. In Saluka Investments BV (p. 239) (The
Netherlands) v The Czech Republic, the tribunal determined that the Czech Republic did
not violate the NetherlandsCzech Republic BIT when it took measures to stop trading in
the claimants securities. Under the BIT, investors were promised full security and
protection. In reaching its decision, the tribunal stated: The practice of arbitral tribunals
seems to indicate however that the full protection and security clause is not meant to
cover just any kind of impairment of an investors investment but to protect more
specifically the physical integrity of an investment against interference by the use of
force.48 The tribunals in BG v Argentina,49 PSEG v Turkey,50 Rumeli v Kazakhstan,51
and
Suez, Sociedad General de Aguas de Barcelona SA, and Vivendi Universal SA v The
Argentine Republic52 reached a similar conclusion. Many cases since, however, have found
that full protection and security does extend beyond physical protection.53
In addition to the apparent divergence of views on the scope of the full protection and
security clause, it would seem that the treaty provisions and cases represent two different
views of the nature of full protection security. On the one hand, some, such as the tribunal
in Saluka, view it as part of a minimum standard of international law elaborated in
customary international law. On the other hand, some, such as the tribunal in CME, view it
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as an independent, self-contained treaty standard to be interpreted without reference to the
limitations of customary international law. The NAFTA Free Trade Commission, which is
empowered under the NAFTA treaty to make authoritative interpretations of the treaty, has
sought to clarify the issue by opting for the traditional approach. In 2001, it issued such an
interpretation for the term full protection and security as found in Article 1105(1) of
NAFTA: The concepts of fair and equitable treatment and full protection and security
do not require treatment in addition to or beyond that which is required by the customary
international law minimum standard of treatment of aliens.54
(p. 240) (d) Conclusion
In reviewing the jurisprudence related to the meaning of the term full protection and
security and the variations of the term found in investment treaties, one may conclude the
following:
1. The core element under this standard is an obligation on the part of a contracting
state to exercise due diligence in providing physical protection and security from
injurious acts by government agents or third parties to the investor and its
investment. The standard imposes an objective obligation that must not be less than
the minimum standard of vigilance and care required by international law. Qualifying
words such as constant or full that are found in many treaties might strengthen the
required standard of protection and security by requiring a standard of due
diligence higher than the minimum standard of general international law.
2. The due diligence obligation requires a host state to undertake all measures that
could be reasonably expected to prevent damage to foreign investments. Since due
diligence means, according to the cases and commentators, nothing more nor less
than the reasonable measures of prevention which a well-administered government
could be expected to exercise under similar circumstances, it would seem that a
states lack of resources or the existence of crisis conditions are not defences to a
states obligation to meet this objective standard. A state may breach its obligation by
action, failure to act, omission to act, or by instigation or connivance. Moreover, a
state may not absolve itself of international responsibility arising out of a treaty
violation by invoking its legislation as a defence.
3. The nature and scope of the protection and security standard under a given treaty
depends on its precise wording and its place in the treaty relative to other standards
of investment treatment.
4. Certain arbitral cases indicate that protection may be expanded to cover nonphysical
injuries caused by host states or their instrumentalities. Thus, the host state
may be held responsible for the failure to provide legal security, which is defined by
tribunals as the quality of the legal system and particularly the certainty of its norms
and their foreseeable application. Additionally, the interrelationship of fair and
equitable treatment and full protection and security might allow for full protection
and security to be breached without physical violence or damage; however, the force
and durability of this trend is not yet clear or certain.
(p. 241) 9.4 Fair and Equitable Treatment
(a) Background
Virtually all investment treaties contain promises by the contracting parties to give fair and
equitable treatment to investors and the investments of other contracting parties. Although
the precise formulation of these promises of fair and equitable treatment and the conditions
attached thereto vary considerably among treaties, fair and equitable treatment is a core
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before an investor could invoke international arbitration. Although Maffezini did (p. 283)
not have recourse to the Spanish courts as required by the treaty, he argued that he was
not required to do so because the SpainChile BIT did not contain a similar eighteen-month
requirement and, by virtue of the MFN clause in the SpainArgentina BIT, he was entitled to
avail himself of the lesser requirements in the SpainChile BIT.
Interpreting the broad MFN clause, which provided that in all matters subject to this
agreement treatment shall be no less favourable than that extendedto investors of a third
country, the ICSID tribunal concluded that Maffezini was entitled to avail himself of the
lighter procedural burden included in the SpainChile BIT. Therefore, Maffezini did not
have to pursue his claim for eighteen months in Spanish courts before requesting ICSID
arbitration. Some subsequent cases followed this approach.214
On the other hand, some
tribunals have refused to allow the claimants to import dispute resolution provisions from
other treaties.The difference in the result in these cases can be explained largely by the
fact that the MFN clauses in the latter cases were much narrower in scope than the MFN
clause in the former cases.
Footnotes:
In the ICSID case of Suez, Sociedad General de Aguas de Barcelona SA, and Vivendi
Universal SA v The Argentine Republic, the tribunal defined treatment as follows: The
word treatment is not defined in the treaty text. However, the ordinary meaning of that
term within the context of investment includes the rights and privileges granted and the
obligations and burdens imposed by a Contracting State on investments made by investors
covered by the treaty. Suez, Sociedad General de Aguas de Barcelona SA, and Vivendi
Universal SA v The Argentine Republic, ICSID Case No ARB/O3/19 (Decision on
Jurisdiction) (3 August 2006) ¶ 55.
UNCTAD, Bilateral Investment Treaties 992 Trends in Investment Rulemaking
(2007) 28.
TJ Grierson-Weiller and IA Laird, Standards of Treatment in P Muchlinski et al, The
Oxford Handbook of International Investment Law (OUP, 2008) 262.
Treaty between the United States of America and the Oriental Republic of Uruguay
Concerning the Encouragement and Reciprocal Protection of Investment (4 November
2005), Art 5(2)(b). See also 2012 US Model BIT, Art 5.2(b).
Treaty between the Federal Republic of Germany and Pakistan for the Promotion and
Protection of Investments (25 November 1959).
6
Artikel 4:
(1) Kapitalanlagen von Staatsangehoerigen oder Gesellschaften einer
Vertragspartei geniessen im Hohheitsgebiet der abderen Vertragspartei vollen
rechtlichen Schutz und volle rechtliche Sicherheit. Vertrag zwischen der
Bundesrepublik Deutschland und der Argentinischen Republik über die
Förderung und den gegenseitigen Schutz von Kapitalanlagen (9 April 1991).
ARTICULO IV Proteccin de inversiones:
(2) Cada Parte Contratante, una vez que haya admitido en su territorio
inversiones de inver-sionistas de la otra Parte Contratante, concederá plena
protección legal a tales inversiones y les acordará un tratamiento no menos
favorable que el otorgado a las inversiones de sus propios inversionistas
nacionales o de inversionistas de terceros Estados. Convenio entre el
Gobierno de la Republica del Ecuador y el Gobierno de la Republic de El
215
1
2
3
4
5
7
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Salvador para la Promoción y Protección Reciprocas de Inversiones (16 May
1994).
8
Agreement between the Government of the Peoples Republic of China and the
Government of the State of Qatar Concerning the Encouragement and Reciprocal
Protection of Investments (9 April 1999), Art 3.1.
9
R Dolzer and C Schreuer, Principles of International Investment Law (OUP, 2008) 149.
10
K Vandevelde, The Bilateral Investment Treaty Program of the United States (1988) 21
Corn Intl LJ 203, 204.
11
R Wilson, Property-protection Provisions in United States Commercial Treaties (1951)
45 AJIL 84, 926.
12
Treaty of Friendship, Commerce and Navigation with Brunei (entered into force 11 July
1853) 10 Stat 909; Treaty Series 331.
13
See eg the bilateral treaty between Italy and Venezuela, stating that citizens of each
state should enjoy in the territory of the other the fullest measure of protection and
security of person and property, and should have in this respect the same rights and
privileges accorded to nationals. Quoted in the Sambiaggio case, ItalyVenezuela Mixed
Claims Commission, UN Reports of International Arbitral Awards, vol 10, p 512.
14
ibid.
15
ibid 534.
16
Elettronica Sicula SpA (ELSI) (United States v Italy) (Judgment) (20 July 1989) [1989]
ICJ Rep 15.
17
ibid ¶108, p 65.
18
J Crawford, Brownlies Principles of Public International Law (8th edn, OUP, 2012) 552.
19
On the meaning of due diligence, tribunals and scholars have often referred to the
statement of Professor AV Freeman in his lectures at the Hague Academy of International
Law: The due diligence is nothing more nor less than the reasonable measures of
prevention which a well-administered government could be expected to exercise under
similar circumstances. AV Freeman, Responsibility of States for the Unlawful Acts of Their
Armed Forces (1956) 88 Receuil des Cours 261. See also Asian Agricultural Products Ltd v
Sri Lanka, ICSID Case No ARB/87/3 (Final Award) (27 June 1990) ¶ 170.
20
NAFTA, Art 1105, entitled Minimum Standard of Treatment, provides: 1. Each Party
shall accord to investments of investors of another Party treatment in accordance with
international law, including fair and equitable treatment and full protection and security.
21
ECT, Art 10, entitled Promotion, Protection, and Treatment of Investments, provides in
part in para 1: [s]uch investments shall enjoy the most constant protection and security.
22
Art 11(1), on the Treatment of Investments states: Each member state shall accord to
covered investments of investors of any other member state fair and equitable treatment
and full protection and security. Art 11 (2) further provides: For greater certainty(b) full
protection and security requires each Member State to take such measures as may be
reasonably necessary to ensure the protection and security of covered investments.
23
Asian Agricultural Products Ltd v Sri Lanka, ICSID Case No ARB/87/3 (Final Award) (27
June 1990). The Sri LankaUnited Kingdom Agreement on the Promotion and Protection of
Investments (entered into force 18 December 1980) (1980) 19 ILM 886.
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24
ibid ¶ 170.
ibid ¶ 85(B).
26
American Manufacturing and Trading, Inc v Zaire, ICSID Case No ARB/93/1 (Award) (21
February 1997).
27
ibid ¶ 6.06.
ibid ¶ 6.05.
Wena Hotels Ltd v Arab Republic of Egypt, ICSID Case No ARB/98/4 (Award on Merits)
(8 December 2000).
Técnicas Medioambientales Tecmed SA v United Mexican States, ICSID Case No
ARB(AF)/00/ 2 (Award) (29 May 2003).
31
ibid ¶¶ 176, 177.
ibid ¶ 177.
33
Eureko BV v Republic of Poland, UNCITRAL (Partial Award) (19 August 2005).
Noble Ventures Inc v Romania, ICSID Case No ARB/01/11 (Award) (12 October 2005).
Treaty between the United States of America and the Oriental Republic of Uruguay
Concerning the Encouragement and Reciprocal Protection of Investment (4 November
2005), Art 5(2)(b).
CME Czech Republic BV v Czech Republic, UNCITRAL (Partial Award) (13 September
2001).
ibid ¶ 613.
Lauder v Czech Republic, UNCITRAL (Award) (3 September 2001).
On this point, see Suez, Sociedad General de Aguas de Barcelona SA, and Vivendi
Universal SA v The Argentine Republic, ICSID Case No ARB/03/19 and AWG Group Ltd v
The Argentine Republic, UNCITRAL (Decision on Liability) (30 July 2010) ¶ 177.
Azurix v Argentine Republic, ICSID Case No ARB/01/12 (Award) (14 July 2006).
Occidental Exploration and Production Co v The Republic of Ecuador, LCIA Case No
UN3467 (Final Award) (1 July 2004). The tribunal pointed out the fact that in some BITs fair
and equitable treatment and full protection and security appear as a single standard, in
others as separate protections. Under the BIT in question, the tribunal observed that, since
fair and equitable treatment and full protection and security appeared sequentially, they
constituted different obligations. The tribunal subsequently held:
the Respondent has breached its obligations to accord fair and equitable treatment
under Article II(3)(a) of the Treaty. In the context of this finding the question of
whether in addition there has been a breach of full protection and security under
this Article becomes moot as a treatment that is not fair and equitable automatically
entails an absence of full protection and security of the investment.
ibid ¶ 187.
Azurix v Argentine Republic, ICSID Case No ARB/01/12 (Award) (14 July 2006) ¶ 406.
ibid ¶ 408.
Parkerings-Compangiet AS v The Republic of Lithuania, ICSID Case No ARB/05/08
(Award) (11 September 2007).
25
28
29
30
32
34
35
36
37
38
39
40
41
42
43
44
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45
ibid ¶ 354, citing N Rubins and S Kinsella, International Investment, Political Risk and
Dispute Resolution (Oceana Publications, 2005) to justify this proposition.
46
Siemens v Argentina, ICSID Case No ARB/02/8 (Award) (6 February 2007).
ibid ¶ 303.
48
Saluka Investments BV (The Netherlands) v The Czech Republic, UNCITRAL (17 March
2006) ¶ 484.
49
BG Group plc v Republic of Argentina, UNCITRAL (Award) (24 December 2007) ¶ 326.
50
PSEG Global, Inc, The North American Coal Corp, and Konya Ingin Electrik Üretim ve
Ticaret Ltd Sirketi v Republic of Turkey, ICSID Case No ARB/02/5 (Award) (19 January
2007) ¶¶ 258259.
51
Rumeli Telekom AS and Telsim Mobil Telekomunikasyon Hizmetleri AS v Republic of
Kazakhstan, ICSID Case No ARB/05/16 (Award) (29 July 2008) ¶ 668.
52
Suez, Sociedad General de Aguas de Barcelona SA, and Vivendi Universal SA v The
Argentine Republic, ICSID Case No ARB/03/19 and AWG Group Ltd v The Argentine
Republic, UNCITRAL (Decision on Liability) (30 July 2010) ¶ 179.
53
See eg Unglaube v Republic of Costa Rica, ICSID Case No ARB/08/1 and ARB/09/20
(Award) (16 May 2012) ¶ 281 (rejecting the standard expressed by the tribunal in Saluka);
Total SA v Argentine Republic, ICSID Case No ARB/04/01 (Decision on Liability) (27
December 2010) ¶ 343; Frontier Petroleum Services Ltd v Czech Republic, UNCITRAL
(Final Award) (12 November 2010) ¶ 263; Mohammad Ammar Al-Bahloul v Republic of
Tajikistan, SCC Case No V064/2008 (Partial Award on Jurisdiction and Liability) (2
September 2009) ¶ 246.
54
NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter 11
Provisions (31 July 2001) B(2).
55
Freeman (n 19 above).
56
R Dolzer, Fair and Equitable Treatment: A Key Standard in Investment Treaties (2005)
39 Intl Lawyer 87.
57
Dolzer and Schreuer (n 9 above) 119.
58
UNCTAD, Fair and Equitable Treatment, UNCTAD/ITE/IIT/11 (1999) vol 3, p 26.
59
UNCTAD, International Investment Instruments: A Compendium (1996) vol 1, p 4.
60
ibid vol 1, p 3.
61
The Bogota Agreement, Art 22 included the following provision:
Foreign capital shall receive equitable treatment. The States therefore agree not to
take unjustified, unreasonable or discriminatory measures that would impair the
legally acquired rights or interests of nationals of other countries in the enterprises,
capital, skills, arts or technology they have supplied.
62
This draft, prepared under the leadership of Herman Abs (Director-General of the
Deutsche Bank) and Lord Shawcross (the UK Attorney-General), stipulated in Art 1 that
each party shall at all times ensure fair and equitable treatment to the property of the
nationals of the other Parties. H Abs and L Shawcross, The Proposed Convention to
Protect Foreign Investment: A Round Table: Comment on the Draft by the Authors (1960) 9
J Pub L 119, 11924.
47
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Dept. of State, Bunche Library; date: 12 September 2019
Content type: Book content
Product: Investment Claims [IC]
Series: Oxford International Law Library
Published in print: 01 May 2015
ISBN: 9780198703976
12 Protection Against Expropriation,
Nationalization, and Dispossession
From: The Law of Investment Treaties (2nd Edition)
Jeswald W. Salacuse
Subject(s):
Investor iht to property Expropriation Specialied treaty frameworks BITs (Bilateral
Investment Treaties)
13 Annex 197
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Dept. of State, Bunche Library; date: 12 September 2019
In the Yukos cases, the Russian government, apparently for political motives due to the fact
that Yukos principal shareholder Mikhail hordokovsky was a political opponent of Russian
President Vladimir Putin, caused its taxation authorities to launch a number of tax cases
against Yukos, leading to the freezing of Yukos assets, the rendering of tax claims
amounting to billions of dollars against the company, and ultimately the holding of auctions
of Yukos assets to secure payment of those claims but which allowed state enterprises to
obtain Yukos assets at bargain prices. Reviewing the complex facts of the cases, the
arbitration tribunal concluded: the auction of Y [Yukos main oil production subsidiary]
was not driven by motives of tax collection but by the desire of the State to acuire Yukos
most valuable asset and bankrupt Yukos. In short, it was in effect a devious and calculated
expropriation by Respondent of Y.35 It acknowledged, (p. 325) however, that
Respondent has not explicitly expropriated Yukos or the holdings of its shareholders, but
the measures that Respondent has taken in respect of Yukoshave had an effect
euivalent to nationalization or expropriation,36 an implicit reference to the language of
rticle 13 of the ECT which states that investmentshall not be nationalized, expropriated
or subected to measures having effect euivalent to nationalization or expropriation.
Where a situation presents a clear case of a taking or seizing control of an investors assets,
determining that an expropriation or nationalization has taken place is usually not difficult.
However, a difficulty may arise in determining whether the asset expropriated is a
protected investment under the treaty. It should be noted that treaties do not protect all
investor assets from expropriationonly those that are considered investments under the
relevant treaty. Chapter 7 discusses the meaning of investment as it is used in investment
treaties. Thus, in the Swembalt case, Latvia argued that the ship and the lease of the area
where it was to be docked did not constitute an investment made in accordance with the
laws and regulations of Latvia, as reuired by the treaty, and therefore it was not protected
against expropriation. The tribunal concluded otherwise in deciding in favour of the
investors.
12 Indirect Expropriations, Nationalizations, and
Dispossessions
In the investment climate of the early twenty-first century, direct expropriations happen
infrequently. Far more frequent are indirect expropriations, situations in which host states
invoke their legislative and regulatory powers to enact measures that reduce the benefits
investors derive from their investments but without actually changing or cancelling
investors legal title to their assets or diminishing their control over them. There are various
possible explanations for the shift by host governments from direct expropriations to
regulatory actions that may constitute indirect expropriations. First, host states that need
foreign capital may be reluctant to harm their countries investment climate by taking the
drastic and conspicuous step of openly seizing foreign property. Official acts that seize title
or control of a foreign investors property will attract negative publicity and are likely to do
serious damage to the states reputation as a site for foreign investments. Second, complex
contemporary investment transactions, such as concessions, mineral development
agreements, and long-term economic development contracts, which are based on shared
benefits and risks between the host country and the investor are susceptible to being
altered to the benefit of the host country through its regulatory power. In short, effective
use of regulatory powers allows the host country (p. 326) to have many of the benefits of an
expropriation without actually taking title or seizing control. And third, all host countries
have a legitimate right to regulate investors and investments in their territory, but the
precise boundary between legitimate regulation and acts that violate a Treatys
expropriation provisions is often difficult to determine. Thus, while the Feldman tribunal,
quoted earlier, stated that recognizing a direct expropriation was relatively easy, it also
said, it is much less clear when governmental action that interferes with broadly-defined
35
36
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property rightscrosses the line from valid regulation to a compensable taking, and it is
fair to say that no one has come up with a fully satisfactory means of drawing this line.37
This lack of a clear line between valid regulation and illegal indirect expropriation may lead
governments to use their regulatory power more aggressively against foreign investments
than they would otherwise, when they deem it in the public interest.
Because of these factors, cases alleging indirect expropriations have become increasingly
important in recent years and instances of direct expropriations have become less frequent.
An indirect expropriation leaves the investors title untouched but significantly reduces an
investors ability to utilize or benefit from the investment. A typical feature of indirect
expropriation is that the state denies the very existence of an expropriation and justifies its
actions as a legitimate exercise of its regulatory or police powers, thereby rejecting the
investors claim of compensation.38
In many cases, aggrieved investors will allege that a
governmental action negatively affecting their investment is both an indirect expropriation
and a violation of the fair and equitable treatment standard discussed in Chapter 10. For
example, in arbitral decisions arising from the Argentine economic crisis at the beginning of
the twenty-first century, tribunals found that governmental actions did not constitute an
expropriation but did deny the investor fair and equitable treatment.In determining whether a regulatory action by a host state constitutes an indirect
expropriation, tribunals look primarily to its effect on the investment rather than to the
form of the state action or the intent of the government in making it. Thus, in the Energy
Charter case of Nykomb Synergetics Technology Holding AB v Latvia, the claimant argued
that the Latvian governments refusal to pay a double tariff, as was allegedly promised,
constituted an indirect or creeping expropriation under Article 13(1), asserting that the
denial of such a substantial part of the projects expected income made the enterprise
economically unviable and the investment worthless. In that case, the tribunal said:(p. 327)
regulatory takings may under the circumstances amount to expropriation or the
equivalent of an expropriation. The decisive factor for drawing the border line
towards expropriation must primarily be the degree of possession taking or control
over the enterprise the disputed measures entail. In the present case, there is no
possession taking of Windau or its assets, no interference with the shareholders
rights or with the managements control over and running of the enterpriseapart
from ordinary regulatory provisions laid down in the production license, the off-take
agreement, etc.40
Thus, despite the fact that a regulatory act may have a negative effect on an investment,
expropriation will not be found if the investor retains control of the investment.
As numerous cases have indicated, in evaluating a claim of expropriation it is important to
recognize a states legitimate right to regulate and exercise its police power in the interests
of public welfare. Such actions should not be confused with acts of expropriation. The
American Law nstittes estatement Third o the Foreign elations Law o the nited
States underscores this point when it states that a state is not responsible for loss of
property or for other economic disadvantage resulting from bone fide general taxation,
regulation, forfeiture for crime, or other action that is commonly accepted as within the
police power of states, if it is not discriminatory.41
37
39
41
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Dept. of State, Bunche Library; date: 12 September 2019
33
ibid ¶ 38.
Agreement between the Government of the Kingdom of Sweden and the Government of
the Republic of Latvia on the Promotion and Reciprocal Protection of Investments (10
March 1992), Art 4(1), provides:
(1) Neither Contracting Party shall take any measures depriving, directly or
indirectly, an investor of the other Contracting Party of an investment unless
the following conditions are complied with:
(a) the measures are taken in the public interest and under due process
of law;
(b) the measures are distinct and not discriminatory; and
(c) the measures are accompanied by provisions for the payment of
prompt, adequate and effective compensation, which shall be
transferable without delay in a freely convertible currency.
Hulley Enterprises Ltd (Cyprus) v The Russian Federation, PCA AA 226 (Final Award)
(18 July 2014) ¶ 1037; Yukos Universal Ltd (Isle of Man) v the Russian Federation, PCA AA
227, (Final Award) (18 July 2014) ¶1037; Veteran Petroleum Ltd (Cyprus) v the Russian
Federation, PCA AA 228 (Final Award) (18 July 2014) ¶ 1037 .
ibid ¶ 1580.
Feldman v Mexico, ICSID Case No ARB(AF)/99/1 (Award on Merits) (16 December 2002)
¶ 100.
Dolzer and Schreuer (n 9 above) 92.
eg LG&E v Argentine Republic, ICSID Case No ARB/02/1 (Decision on Liability) (3
October 2006); CMS Gas Transmission Co v The Argentine Republic, ICSID Case No ARB/
01/8 (Award) (12 May 2005); Sempra Energy International v The Argentine Republic, ICSID
Case No ARB/02/16 (Award) (28 September 2007).
Nykomb Synergetics Technology Holding AB v Latvia, SCC 118/2001 (Award) (16
December 2003) ¶ 4.3.1.
American Law Institute, Restatement of the Law (Third), The Foreign Relations Law of
the United States (3rd edn, 1987) vol 1, § 712, Committee g.
Waste Management, Inc v United Mexican States (No 2), ICSID Case No ARB(AF)/00/3
(Final Award) (30 April 2004) ¶¶ 143144.
Pope & Talbot Inc v The Government of Canada, UNCITRAL (Interim Award) (26 June
2000) ¶¶ 96, 104.
44
Metalclad Corp v Mexico, ICSID Case No ARB(AF)/97/1 (Award) (30 August 2000) ¶ 103.
Re Revere Copper and Brass Inc v Overseas Private Investment Corp (Award) (24
August 1978) (1978) 17 ILM 1321.
46
ibid 134853.
Link-Trading Joint Stock Co v Department for Customs Control of the Republic of
Moldova, UNCITRAL (Final Award) (18 April 2002). See also Burlington Resources, Inc v
Republic of Ecuador, ICSID Case No ARB/08/5 (Decision on Liability) (14 December 2012) ¶
393, which found that customary international law limits the power to tax in two ways:
taxes may not be discriminatory and they may not be confiscatory.
34
35
36
37
38
39
40
41
42
43
45
47
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ANNEX 198
Annex 198
Annex 198
Dept. of State, Bunche Library; date: 31 July 2019
See Dolzer and Stevens, Bilateral Investment Treaties (Martinus Nijhoff, 1995), p. 59;
BG Group PLC v Republic of Argentina, Final Award, UNCITRAL, 24 December 2007, IIC
321 (2007), at 275310.
Neer v Mexico, pinion, United StatesMeico eneral Claims Commission, (192) 4
RIAA 0, at 12.
aulsson and etrochilos, Neerly misled (2007) 22 ICSID RevForein Investment
LJ 242, at 257.
Mann, British treaties for the promotion and protection of investments (191) 52 BIL
241, at 244.
See, e.g., Enron Corporation and Ponderosa Assets LP v Argentine Republic, n. 188, at
[258]; Compañia de Aguas del Aconquija SA and Vivendi Universal SA v Argentine Republic,
Award, n. 177, at [7.4.5]. See generally Schreuer and Dolzer, Principles of International
Investment Law, n. 160, pp. 137138.
The content of the international minimum standard is itself open to debate: see
UNCTAD, Fair and Equitable Treatment, Series on Issues in International Investment
Agreements (UN, 1999), available online at http://unctad.org/en/Docs/psiteiitd11v3.en.pdf,
pp. 3940. See also aulsson and etrochilos, Neerly misled (2007) 22 ICSID Rev
Foreign Investment LJ 242.
Compañía de Aguas del Aconquija SA and Vivendi Universal SA v Argentine Republic,
Decision on Annulment, n. 77, at [7.4.7].
Pope & Talbot Inc. v Government of Canada, Award on Damages, UNCITRAL, 31 May
2002, IIC 195 (2002), at [52] and [55]; International Thunderbird Gaming Corporation v The
United Mexican States, Award, n. 206, at [194].
Mondev International Ltd v United States of America, Final Award, ICSID Case No.
ARB(AF)/99/2, IIC 173 (2002).
Ibid., at [116].
Saluka Investments BV v Czech Republic, Partial Award, n. 189, at [292][295]. See
also CMS Gas Transmission Co. v Republic of Argentina, n. 200, at [284]:
While the choice between requiring a higher treaty standard and that of equating it
with the international minimum standard might have relevance in the context of
some disputes, the Tribunal is not persuaded that it is relevant in this case. In fact,
the Treaty standard of fair and equitable treatment and its connection with the
required stability and predictability of the business environment, founded on solemn
legal and contractual commitments, is not different from the international law
minimum standard and its evolution under customary law.
223
UNCTAD, Fair and Equitable Treatment: A Sequel, Series on Issues in International
Investment Agreements II (UN, 2012), available online at http://unctad.org/en/Docs/
unctaddiaeia2011d5_en.pdf, p. 59.
Asian Agricultural Products Ltd (AAPL) v Republic of Sri Lanka, Final Award, n. 14;
American Manufacturing and Trading Inc. v Republic of Zaire, Award, n. 64; Rumeli
Telekom AS and Telsim Mobil Telekomunikasyon Hizmetleri AS v Republic of Kazakhstan,
Award, ICSID Case No. ARB/05/16, IIC 344 (2008). See generally Schreuer, Full protection
and security (2010) 1 J Intl Disp Settlement 353.
225
Asian Agricultural Products Ltd (AAPL) v Republic of Sri Lanka, Final Award, n. 14.
212
213
214
215
216
217
218
219
220
221
222
224
Annex 198
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Dept. of State, Bunche Library; date: 31 July 2019
Pantechniki SA Contractors & Engineers v Republic of Albania, Award, n. 129, at [81]
[84].
American Manufacturing and Trading Inc. v Republic of Zaire, Award, n. 64.
Waguih Elie George Siag and Clorinda Vecchi v Arab Republic of Egypt, Award, ICSID
Case No. ARB/05/15, IIC 374 (2009), at [445][448]; AES Summit Generation Ltd and AESTisza
Erömü Kft v Republic of Hungary, Award, ICSID Case No. ARB/07/22, IIC 455 (2010),
at [13.3.2]; Marion Unglaube and Reinhard Unglaube v Republic of Costa Rica, Award,
ICSID Case Nos ARB/08/1 and ARB/09/20, IIC 554 (2012), at [281]. Other tribunals,
however, have rejected this extension of the standard: see, e.g., Rumeli Telekom AS and
Telsim Mobil Telekomunikasyon Hizmetleri AS v Republic of Kazakhstan, Award, n. 224, at
[668][669]; AWG Group Ltd v Argentine Republic, Decision on Liability, UNCITRAL, 30 July
2010, IIC 443 (2010), at [174][177].
Antoine Goetz and ors v République du Burundi, Award, ICSID Case No. ARB/95/3, IIC
16 (1999), at [125][131].
CME Czech Republic BV (The Netherlands) v Czech Republic, Partial Award, n. 156, at
[613]; National Grid Plc v Argentine Republic, Award, UNCITRAL, 3 November 2008, IIC
361 (2008), at [189]; Azurix Corporation v Argentine Republic, Award, n. 189, at [408].
231
Not all investment treaties use the term arbitrary; some instead refer to
unreasonable or discriminatory measures. As explained by the tribunal in National Grid, n.
230, at 197, the terms are synonymous: It is the view of the Tribunal that the plain
meaning of the terms unreasonable and arbitrary is substantially the same in the sense
of something done capriciously, without reason.
232
Treaty between the United States of America and the Republic of Ecuador Concerning
the Encouragement and Reciprocal Protection of Investment, signed on 27 August 1993,
entered into force on 11 May 1997.
233
Case Concerning Elettronica Sicula SpA (ELSI) (United States of America v Italy),
Judgment, 15 ICJ 76 (1999), ICGJ 95 (1989). See also LG&E Energy Corporation and ors v
Argentine Republic, Decision on Liability, n. 147, at [158]. For a definition based on the
plain meaning of the term arbitrary, see Azurix Corporation v Argentine Republic, Award,
n. 189, at [392] (In its ordinary meaning, arbitrary means derived from mere opinion,
capricious, unrestrained, despotic ).
234
ELSI, at [128].
235
Decision on Jurisdiction and Liability ICSID Case No. ARB/06/18, IIC 424 (2010).
236
Ibid., at [262].
237
Azurix Corporation v Argentine Republic, Award, n. 181, at [393].
238
El Paso Energy International Co. v Argentine Republic, Award, ICSID Case No. ARB/
03/15, IIC 519 (2011), at [319][325].
239
LG&E Energy Corporation and ors v Argentine Republic, n. 147, at [262].
240
Marion Unglaube and Reinhard Unglaube v Republic of Costa Rica, Award, n. 228, at
[263].
241
The Loewen Group Inc. and Raymond L Loewen v United States of America, Award, n.
206, at [127]. The tribunal was considering the judgment of a US trial court. The tribunal
observed that bad faith or malicious intention is not an essential element of unfair and
inequitable treatment, and it is sufficient if there is a lack of due process that offends a
sense of judicial propriety. Although the tribunal found the trial court proceedings to be
226
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228
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ANNEX 202
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The Parties confirm their shared
understanding that:
1. Article 6 (1) [Expropriation and
Compensation] is intended to
reflect customary international law
concerning the obligation of States
with respect to expropriation.
2. An action or a series of actions
by a Party cannot constitute an
expropriation unless it interferes
with a tangible or intangible
property right or property interest
in an investment.
3. Article 6 (1) addresses two
situations. The first is direct
expropriation, where an investment
is nationalized or otherwise directly
expropriated through formal
transfer of title or outright seizure.
4. The second situation addressed
by Article 6 (1) is indirect
expropriation, where an action or
series of actions by a Party has an
The Parties confirm their
shared understanding that:
a) Indirect expropriation
results from a measure or
series of measures of a Party
that have an effect equivalent
to direct expropriation
without formal transfer of
title or outright seizure;
b) The determination of
whether a measure or series
of measures of a Party
constitute an indirect
expropriation requires a
case-by-case, fact-based
inquiry that considers,
among other factors:
(i) The economic impact of
the measure or series of
measures, although the
sole fact that a measure
or series of measures of
a Party has an adverse
effect on the economic
/…
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effect equivalent to direct
expropriation without formal
transfer of title or outright seizure.
(a) The determination of whether
an action or series of actions by a
Party, in a specific fact situation,
constitutes an indirect expropriation,
requires a case-by-case, fact-based
inquiry that considers, among other
factors:
(i) The economic impact of the
government action, although the
fact that an action or series of
actions by a Party has an
adverse effect on the economic
value of an investment, standing
alone, does not establish that an
indirect expropriation has
occurred;
(ii) The extent to which the
government action interferes
with distinct, reasonable
investment-backed expectations;
and
(iii) The character of the
government action.
(b) Except in rare circumstances,
non-discriminatory regulatory
actions by a Party that are designed
and applied to protect legitimate
public welfare objectives, such as
public health, safety, and the
environment, do not constitute
indirect expropriations.
value of an investment
does not establish that
an indirect
expropriation has
occurred;
(ii) The extent to which the
measure or series of
measures interfere
with distinct,
reasonable
investment-backed
expectations; and
(iii) The character of the
measure or series of
measures;
c) Except in rare
circumstances, such as when
a measure or series of
measures are so severe in
the light of their purpose
that they cannot be
reasonably viewed as having
been adopted and applied in
good faith, nondiscriminatory
measures of
a Party that are designed
and applied to protect
legitimate public welfare
objectives, such as health,
safety and the environment,
do not constitute indirect
expropriation.
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1. An action or a series of actions by a Party cannot constitute an
expropriation unless it interferes with a tangible or intangible
property right or property interest in an investment.
2. Expropriation may be either direct or indirect:
(a) Direct expropriation occurs when a State takes an
investor’s property outright, including by nationalisation,
compulsion of law or seizure;
(b) Indirect expropriation occurs when a State takes an
investor’s property in a manner equivalent to direct
expropriation, in that it deprives the investor in substance of
the use of the investor’s property, although the means used
fall short of those specified in subparagraph (a) above.
3. In order to constitute indirect expropriation, the State’s
deprivation of the investor’s property must be:
(a) Either severe or for an indefinite period; and
(b) Disproportionate to the public purpose.
4. A deprivation of property shall be particularly likely to
constitute indirect expropriation where it is either:
(a) Discriminatory in its effect, either as against the particular
investor or against a class of which the investor forms
part; or
(b) In breach of the State’s prior binding written commitment
to the investor, whether by contract, licence, or other legal
document.
5. Except in rare circumstances to which paragraph 4 applies, such
measures taken in the exercise of a State’s regulatory powers as
may be reasonably justified in the protection of the public welfare,
including public health, safety and the environment, shall not
constitute an indirect expropriation.
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Telenor v. Hungary
CME v. Czech Republic
that effectively neutralize the benefit
of the property for the foreign owner
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deprives the
owner of fundamental rights of ownership makes rights
practically useless is sufficiently restrictive to warrant a
conclusion that the property has been takendeprives, in whole or
in significant part, the use or reasonably-to-be-expected economic
benefit of the propertyradically deprives the economical use and
enjoyment of an investment, as if the rights related thereto had
ceased to exist makes any form of exploitation of the property
disappear the property can no longer be put to reasonable
use”
the
affected property must be impaired to such an extent that it must be
seen as ‘taken’
although regulatory measures designed to protect the
environment, health and safety or ensure fair competition frequently
impose regulatory and compliance costs on an investment, these will
not normally reach the threshold of a substantial deprivation
Waste Management v. Mexico
the City’s breaches had the effect of
depriving Acaverde [the claimant’s enterprise] of ‘the reasonably-
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to-be-expected economic benefit’ of the project
sold off in apparently orderly way
the loss of benefits or expectations [under a
contract] is not a sufficient criterion for an expropriation [of an
enterprise]
Pope & Talbot v. Canada
whether the interference is sufficiently restrictive to support a
conclusion that the property has been taken from the owner
Vivendi v. Argentina
IIweight of authority appears to
draw a distinction between only a partial deprivation of value (not
an expropriation) and a complete or near complete deprivation of
value (expropriation) LG&E v. Argentina
in many arbitral decisions, compensation has been denied
when it [the State’s measure] has not affected all or almost all the
investment’s economic valueSempra v. Argentina
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virtually
annihilated CMS v. Argentina
whether the enjoyment of the property has been
effectively neutralized
Glamis Gold v. United States,
the first factor in any expropriation analysis is not met: The
complained measures did not cause a sufficient economic impact to
the Imperial Project to effect an expropriation of the Claimant’s
investmentTotal v. Argentina
has not
shown that the negative economic impact of the Measures has
been such as to deprive its investment of all or substantially all its
value
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Sempra v. Argentina a finding of indirect
expropriation would require that the investor no longer be in
control of its business operation, or that the value of the business
has been virtually annihilated
Sedco v. National Iranian Oil Co.
ITT
Industries v. IranStarrett Housing18
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Biloune v. Ghana
Pope & Talbot v. Canada
Feldman v. Mexico
the regulatory action has not deprived
the claimant of control of his company, interfered directly in the
internal operations of the company or displaced the Claimant as the
controlling shareholder CMS v. Argentina
Methanex v. USA
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Azurix
v. Argentina LG&E v. ArgentinaAES v. Hungary
Tecmed v. Mexicoit is
understood that the measures adopted by a State, whether
regulatory or not, are an indirect de facto expropriation if they are
irreversible and permanent …
SD Myers v. Canada
In this case, the Interim Order and the Final Order were
designed to, and did, curb SDMI’s initiative, but only for a
time. An opportunity was delayed. The Tribunal
concludes that this is not an expropriation case.
Suez v. Argentina
did
not constitute a permanent and substantial deprivation
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there obviously comes a stage at which
an objective observer would conclude that there is no immediate
prospect that the owner will be able to resume the enjoyment of his
property
Nykomb Synergetics v. Latvia
The Tribunal finds that ‘regulatory takings’ may under the
circumstances amount to expropriation or the equivalent of
an expropriation. The decisive factor for drawing the
border line towards expropriation must primarily be the
degree of possession taking or control over the enterprise
the disputed measures entail.
Fireman’s Fund v. Mexico
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[t]he effects of the host State’s measures are
dispositive, not the underlying intent, for determining whether there
is expropriation
SD Myers v. Canada[t]he general
body of precedent usually does not treat regulatory action as
amounting to expropriation
at the real interests involved and the
purpose and effect of the government measure
LG&E v. Argentina
The question remains as to whether one should only take
into account the effects produced by the measure or if one
should consider also the context within which a measure
was adopted and the host State’s purpose. It is this
Tribunal’s opinion that there must be a balance in the
analysis both of the causes and the effects of a measure in
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order that one may qualify a measure as being of an
expropriatory nature.
b. The determination of whether a measure or series of measures of
a Contracting Party constitute indirect expropriation requires a
case-by-case, fact-based inquiry considering:
(i) the economic impact of the measure or series of
measures; however, the sole fact of a measure or series of
measures having adverse effects on the economic value of an
investment does not imply that an indirect expropriation has
occurred;
3. The determination of whether an action or series of actions by a
Members State, in a specific fact situation, constitutes an
expropriation requires a case-by-case, fact-based inquiry that
considers, among other factors:
a) the economic impact of the government action, although
the fact that an action or series of actions by a Member State has
an adverse effect on the economic value of an investment,
standing alone, does not establish that such an expropriation has
occurred;
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one important factor for the court’s assessment [of an
expropriation claim] is whether the individual has some form of
legitimate expectation that his or her rights will not be regulated or
restricted in a certain way
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b) The determination of whether a measure or series of measures of
a Contracting Party constitute indirect expropriation requires a
case-by-case, fact-based inquiry considering:
ii) The scope of the measure or series of measures and their
interference on the reasonable and distinguishable expectations
concerning the investment;
3. The determination of whether an action or series of actions by a
Members State, in a specific fact situation, constitutes an
expropriation requires a case-by-case, fact-based inquiry that
considers, among other factors:
(b) Whether the government action breaches the government’s prior
binding written commitment to the investor whether by contract,
license or other legal document
3(a) The determination of whether an action or series of actions by
a Party, in a specific fact situation, constitutes an indirect
expropriation, requires a case-by-case, fact-based inquiry that
considers, among other factors:
(ii) The extent to which the measure or series of measures
interfere with distinct, reasonable, investment-backed
expectations;
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specific commitments given by the regulating government to the
then putative foreign investor contemplating investment that the
government would refrain from such regulation
Waste Management
v. Mexicoit is not the function of the international
law of expropriation to eliminate the normal commercial risks of a
foreign investor
Continental Casualty v. Argentina
Methanex v. United States
Methanex entered a political economy in which it was
widely known, if not notorious, that governmental
environmental and health protection institutions at the
federal and state level continuously monitored the use
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and impact of chemical compounds and commonly
prohibited or restricted the use of some of those compounds
for environmental and/or health reasons.
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(b) The determination of whether a measure or series of measures of
a Contracting Party constitute an indirect expropriation requires a
case-by-case, fact-based inquiry that considers, among other
factors:
(iii) The character of the measure or series of measures, including
their purpose and rationale;
The determination of whether a measure or series of measures of a
Contracting Party constitute indirect expropriation requires a caseby-
case, fact-based inquiry considering:
the character and intent of the measures or series of measures,
whether they are for bona fide public interest purposes or not and
whether there is a reasonable nexus between them and the
intention to expropriate.
3. The determination of whether an action or series of actions by a
Members State, in a specific fact situation, constitutes an
expropriation requires a case-by-case, fact-based inquiry that
considers, among other factors:
(c) The character of the government action, including its objective
and whether the action is disproportionate to the public purpose
referred to in Article 14(1).
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[r]etreating as an actor in the management of economic
activities, [the State’s] role needs to be affirmed as a
regulator in order to provide an equitable and stable
framework within which markets can develop in a
competitive manner. The regulatory authority of
governments needs to be safeguarded if the State is to
continue to fulfil its essential functions to protect the public
interest in areas like the environment, health and safety,
market integrity and social policies
The persistence of the regulatory powers of the host State
is an essential element of the permanent sovereignty of
each State over its economy…Nothing in the language of
bilateral investment treaties purports to undermine the
permanent sovereignty of States over their economies.
State measures, prima facie a lawful exercise of powers
of governments, may affect foreign interests considerably
without amounting to expropriation. Thus foreign assets
and their use may be subjected to taxation, trade
restrictions involving licences and quotas, or measures of
devaluation. While special facts may alter cases, in
principle such measures are not unlawful and do not
constitute expropriation.
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It has always been recognized that ordinary measures of
taxation, or the imposition of criminal penalties or export
controls do not constitute taking that is compensable.
Legislation creating regulatory regimes in areas such as
antitrust, consumer protection, securities, environmental
protection, planning and land use are more common in
developed States. It is well recognised that interference on
the basis of such legislation does not constitute
compensable taking in situations in which public harm
has already resulted or is anticipatedThese regulatory
takings are regarded as essential to the efficient functioning
of the State Regulatory functions are a matter of
sovereign right of the host State and there could be no
right in international law to compensation or diplomatic
protection in respect of such interference
International authorities have regularly concluded that
no right to compensate arises for reasonable necessary
regulations passed for the protection of public health,
safety, morals or welfare
It is serious business to dispute a State’s claim to
regulation. International law traditionally has granted
States broad competence in the definition and management
of their economies…
Ministers confirm that the
MAI must be consistent with the sovereign responsibility of
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governments to conduct domestic policies. The MAI would
establish mutually beneficial international rules which
would not inhibit the normal non-discriminatory exercise
of regulatory powers by governments and such exercise of
regulatory powers would not amount to expropriation.
A State is not responsible for the loss of property or for
other economic disadvantages resulting from bona fide
taxation, regulation, forfeiture for crime, or other action
of the kind that is commonly accepted as within the police
power of State, if it is not discriminatory, and is not
designed to cause the alien to abandon the property to the
State or sell it at a distress price
An uncompensated taking of a property of an alien or a
deprivation of the use or enjoyment of property of an alien
which results from the execution of tax laws; from a general
change in the value of currency; from the action of the
competent authorities of the State in the maintenance of
public order, health, or morality; or from the valid exercise
of belligerent rights or otherwise incidental to the normal
operation of the laws of the State shall not be considered
wrongful, provided… it is not a clear and discriminatory
violation of the law of the State concerned… and it is not an
unreasonable departure from the principles of justice
recognized by the principal legal systems of the world
…the Article on Expropriation and Compensation is
intended to incorporate into the MAI existing international
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legal norms. The reference… to ‘measures tantamount to
expropriation or nationalisation’ does not establish a
new requirement that Parties pay compensation for losses
which an investor or investment may incur through
regulation, revenue raising and other normal activity in
the public interest undertaken by governments.
…any legislative action or administrative action or
omission attributable to the host government which has the
effect of depriving the holder of a guarantee of his
ownership or control of, or a substantial benefit from, his
investment, with the exception of non-discriminatory
measures of general application which the governments
normally take for the purpose of regulating economic
activity in their territories
Sedco, Inc. v. National Iranian Oil. Co.,
an accepted principle of
international law that a State is not liable for economic injury which
is a consequence of bona fide ‘regulation’ within the accepted
police power of States
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Feldman v. Mexicogovernments
must be free to act in the broader public interest through protection
of the environment, new or modified tax regimes, the granting or
withdrawal of government subsidies, reductions or increases in
tariff levels, imposition of zoning restrictions and the like
reasonable governmental regulation of this type cannot be
achieved if any business that is adversely affected may seek
compensation, and it is safe to say that customary international law
recognizes this
Methanex v. USA
as a matter of general international law, a nondiscriminatory
regulation for a public purpose, which is
enacted in accordance with due process and which affects,
inter alias, a foreign investor or investment is not deemed
expropriatory and compensable unless specific
commitments had been given by the regulating government
to the then putative foreign investor contemplating
investment that the government would refrain from such
regulation
Saluka v. Czech Republic
It is now established in international law that States are
not liable to pay compensation to a foreign investor when, in
the normal exercise of their regulatory powers, they adopt
in a non-discriminatory manner bona fide regulations that
are aimed at the general welfare
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The principle that a State does not commit an
expropriation and is thus not liable to pay compensation to
a dispossessed alien investor when it adopts general
regulations that are ‘commonly accepted as within the
police power of States’ forms part of customary
international law today
Suez v. Argentina
“…States have a legitimate right to exercise their police
powers to protect the public interest and that the doctrine of
police powers has been particularly pertinent in cases of
expropriation where tribunals have had to balance an
investor’s property rights with the legitimate and
reasonable need for the State to regulate.”
Chemtura v. Canada
[The relevant State agency] took measures within its
mandate, in a non-discriminatory manner, motivated by the
increasing awareness of the dangers presented by lindane
for human health and the environment. A measure adopted
under such circumstances is a valid exercise of the State’s
police powers and, as a result, does not constitute an
expropriation
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Except in rare circumstance, non discriminatory
regulatory actions by a Party that are designed and applied
to protect legitimate public welfare objectives, such as
public health, safety, and the environment, do not constitute
indirect expropriations.
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Except in rare circumstances, such as when a measure or
series of measures are so severe in the light of their purpose
that they cannot be reasonably viewed as having been
adopted and applied in good faith, non-discriminatory
measures of a Party that are designed and applied for
public purposes or with objectives such as public health,
safety and environment protection, do not constitute indirect
expropriation
(b) Actions by a Government or Government controlled
bodies, taken as a part of normal business activities, will
not constitute indirect expropriation unless it is prima facie
apparent that it was taken with an intent to create an
adverse impact on the economic value of an investment.
Non-discriminatory measures that the Contracting Parties
take for reasons of public purpose or social interest (which
shall have a meaning compatible with that of ‘public
purpose’) including for reasons of public health, safety, and
environmental protection, which are taken in good faith,
which are not arbitrary and which are not disproportionate
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in light of their purpose, shall not constitute indirect
expropriation.
intended to reflect customary international law concerning the
obligation of States with respect to expropriation
Fireman’s Fund v. Mexico
To distinguish between a compensable expropriation and a
non-compensable regulation by a host State, the following
factors (usually in combination) may be taken into account:
whether the measure is within the recognized police powers
of the host State; the (public) purpose and effect of the
measure; whether the measure is discriminatory; the
proportionality between the means employed and the aim
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sought to be realized; and the bona fide nature of the
measure.
in a manner that would
constitute arbitrary or unjustifiable discrimination between
investments or between investors, or a disguised restriction on
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international trade or investment
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1. Subject to the requirement that such measures are not applied in
a manner which would constitute a means of arbitrary or
unjustifiable discrimination between States where like conditions
prevail, or a disguised restriction on investors and investments,
nothing in this Chapter shall be construed to prevent the adoption
or enforcement by any Party of measures:
(a) Necessary to protect public morals or to maintain public order;
(b) Necessary to protect human, animal or plant life or health, or
the environment;
(c) Necessary to secure compliance with laws and regulations which
are not inconsistent with the provisions of this Chapter;
(d) Necessary to protect national treasures of artistic, historic or
archaeological value; or
(e) Necessary to conserve exhaustible, natural resources if such
measures are made effective in conjunction with restrictions on
domestic production or consumption.
Saluka v. Czech Republic
in a comprehensive and definite fashion
precisely what regulations are considered permissible and
commonly accepted as falling within the police power or regulatory
power of States and thus, non-compensable
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It is serious business to dispute a State’s claim to
regulation. International law traditionally has granted
States broad competence in the definition and management
of their economies, and no State, therefore, is likely to take
lightly a challenge to what it contends is liability-free
behaviour. The venerable innocent-before-proven-guilty
presumption is not one that shapes action and reaction only
among individuals in the criminal law sphere. It has its
equivalents, and rightly so, on the international plane
if the
reasons given are valid and bear some plausible relationship to the
action taken, no attempt may be made to search deeper to see
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whether the State was activated by some illicit motive
an act of State must be
characterized as internationally wrongful if it constitutes a breach
of an international obligation, even if the act does not contravene
the State’s internal law
it appears plausible that measures that are, under
the rules of the main domestic laws, normally considered regulatory
without amounting to expropriation, will not require compensation
under international law
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unreasonable departure from the principles of justice
abuse of powers
Saluka v.
Czech Republic
Faced with the question of when, how and at what point
an otherwise valid regulation becomes, in fact and effect,
an unlawful expropriation, international tribunals must
consider the circumstances in which the question arises.
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The context within which an impugned measure is adopted
and applied is critical to the determination of its validity
Methanex
…the California ban was made for a public purpose, was
non-discriminatory and was accomplished with due process.
From the standpoint of international law, the
Californian ban was a lawful regulation and not an
expropriation
Saluka nondiscriminatory
manner bona fide regulations that are aimed at the
general welfare
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Tecmed v. Mexico
due deference
defining the issues that affect its public policy or the
interests of society as a whole, as well as the actions that will be
implemented to protect such values
Methanex
an intentionally discriminatory regulation
against a foreign investor fulfils a key requirement for establishing
expropriation
Methanex v.USA
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emergence as a serious scientific work from such an
open and informed debate is the best evidence that it was not the
product of a political sham engineered by California
EDF v. Romania,
Sporrong and
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Lönnroth fair balance
between the demands of the general interest of the community and
the requirements of the protection of the individual’s fundamental
rights
a measure must be both
appropriate for achieving its aim and not disproportionate
thereto
an individual and excessive burden
disproportionate
the severity of the
interference, legitimate expectations of the complainant, the
suitability of the interference to reach the public purpose, the
priority of the public purpose and a special public interest to pay
less than full compensation
Tecmed v. Mexico
the Arbitral Tribunal will consider, in order to
determine if they are to be characterized as expropriatory,
whether such actions or measures are proportional to the
public interest presumably protected thereby and to the
protection legally granted to investments, taking into
account that the significance of such impact has a key role
upon deciding the proportionality. There must be a
reasonable relationship of proportionality between the
charge or weight imposed to the foreign investor and the
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aim sought to be realized by any expropriatory measure
Azurix v. Argentina
Tecmed
useful guidance for
purposes of determining whether regulatory actions would be
expropriatory and give rise to compensation LG&E v.
Argentinait can generally be said that the
State has the right to adopt measures having a social or general
welfare purpose. In such a case, the measure must be accepted
without any imposition of liability, except in cases where the
States action is obviously disproportionate to the need being
addressed
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Vivendi v. Argentina II
As to this, we find that the Province’s unfair and
inequitable measures, identified at 7.4 above, which
ultimately led to CAAs [Compañía de Aguas del Aconquija
S.A., a local affiliate of the investor] notice of rescission of
the Concession Agreement on 27 August 1997, struck at the
economic heart of, and crippled, Claimants investment
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Vivendi
abus de droit
Saipem v. Bangladesh
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a nullity on the eye of lawclearly illegal and
without jurisdiction
It is generally acknowledged in international law that a
State exercising a right for a purpose that is different from
that for which that right was created commits an abuse of
rights
détournement de pouvoir
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Olguín v. Paraguay [f]or an
expropriation to occur, there must be actions depriving the
affected party of the property it owns, in such a way that whoever
performs those actions will acquire, directly or indirectly, control,
or at least the fruits of the expropriated property
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Rumeli
it is usually instigated by a
private party for his own benefit, and not that of the State
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Notes
1 Telenor v. Hungary, Award, 13 September 2006, para. 70.
2 CME v. Czech Republic, Partial Award, 13 September 2001, para. 150.
3 GAMI Investments v. Mexico, Final Award, 15 November 2004, para.
126.
4 Waste Management v. Mexico, Final Award, 30 April 2004, para. 159.
5 Ibid., paras. 156–157.
6 Ibid., para. 159. The tribunal then proceeded to examine the question
of whether the contract rights themselves were expropriated. It
dismissed that claim on different grounds.
7 Pope & Talbot v. Canada, Interim Award, 26 June 2000, para. 102.
8 Vivendi v. Argentina II, Award, 20 August 2007, para. 7.5.11.
9 LG&E v. Argentina, Decision on Liability, 3 October 2006, para. 191.
10 Sempra Energy v. Argentina, Award, 28 September 2007, para. 285.
11 CMS v. Argentina, Award, 12 May 2005, para. 262.
12 Glamis Gold, Ltd. v. USA, Award, 8 June 2009, para. 536.
13 Total v. Argentina, Decision on Liability, 27 December 2010, para.
196.
14 In Pope & Talbot v. Canada, the tribunal found that business income
(in that case – based on the ability to sell softwood lumber in the
United States market) was an integral part of the value of the
enterprise. The tribunal decided that the loss of business income did
not result in a “substantial deprivation” of the investor’s enterprise as a
whole and thus did not constitute an expropriation. (Pope & Talbot v.
Canada, Interim Award, 26 June 2000, paras. 98 and 102.)
15 Sempra Energy v. Argentina, Award, 28 September 2007, para. 285.
16 Sedco, Inc. v. National Iranian Oil Company, Interlocutory Award, 28
October 1985, 9 the Iran-United States Claims Tribunal Reports 248,
p. 278.
17 ITT Industries, Inc. v. Iran et al., Award, 26 May 1983, 2 Iran-United
States Claims Tribunal Reports 348, pp. 351–352.
18 Starrett Housing v. Iran, Interlocutory Award No. ITL 32-24-1, 19
December 1983.
19 Biloune v. Ghana, Award on Jurisdiction and Liability, 27 October
1989.
20 Pope & Talbot, Interim Award, 26 June 2000, para. 100.
21 Feldman v. Mexico, Award on Merits, 16 December 2002, para. 41.
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22 CMS v. Argentina, Award, 12 May 2005, para. 263.
23 Methanex v. USA, Final Award, 3 August 2005.
24 Azurix v. Argentina, Award, 14 July 2006.
25 LG&E v. Argentina, Decision on Liability, 3 October 2006.
26 AES v. Hungary, Award, 23 September 2010, paras. 14.2.1–14.3.4.
27 Tecmed v. Mexico, Award, 29 May 2003, para. 116.
28 SD Myers v. Canada, First Partial Award, 13 November 2000, paras.
287–288.
29 Suez et al. v. Argentina, Decision on Liability, 30 July 2010, para. 129.
30 Nykomb v. Latvia, Award, 16 December 2003, para. 4.3.1.
31 Fireman’s Fund v. Mexico, Award, 17 July 2006, para. 176(f).
32 S.D. Myers v. Canada, First Partial Award, 13 November 2000, paras.
281 and 285.
33 LG&E v. Argentina, Decision on Liability, 3 October 2006, paras. 189
and 194.
34 Azurix v. Argentina, Award, 14 July 2006, paras. 316–322.
35 Methanex v. USA, Final Award, 3 August 2005, Part IV, Chapter D,
para. 7.
36 The tribunal in Grand River Enterprises v. USA, when analysing
“legitimate expectations” in the expropriation context, stated that
“[o]rdinarily, reasonable or legitimate expectations of the kind
protected by NAFTA are those that arise through targeted
representations or assurances made explicitly or implicitly by a State
party.” (Award, 12 January 2011, para. 141, emphasis added.)
37 Waste Management v. Mexico, Final Award, 30 April 2004, para. 159.
38 Continental Casualty v. Argentina, Award, 5 September 2008, para.
258.
39 Methanex v. USA, Final Award, 3 August 2005, Part IV, Chapter D,
para. 9.
40 See, for example, Chemtura Corporation v. Canada, Award, 2 August
2010, para. 242; Metalclad v. Mexico, Award, 30 August 2000, para.
103.
41 Ministerial Statement on the Multilateral Agreement on Investment, 28
April 1998, para. 5.
42 Sedco, Inc. v. National Iranian Oil Co., Interlocutory Award No. ITL
55-129-3, 28 October 1985, 9 the Iran-United States Claims Tribunal
Reports 248, p. 275.
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43 Feldman v. Mexico, Award, 16 December 2002, para. 83.
44 Methanex Corporation v. the United States, Final Award, 3 August
2005, part IV, chapter D, para. 7.
45 Saluka v. the Czech Republic, Partial Award, 17 March 2006, para.
255.
46 Ibid., para. 262.
47 Suez et al. v. Argentina, Decision on Liability, 30 July 2010, para. 147.
48 Chemtura v. Canada, Award, 2 August 2010, para. 266.
49 Fireman’s Fund v. Mexico, Award, 17 July 2006, para. 176(j).
50 Commentators have pointed out that in case of a direct expropriation
(for example, for environmental reasons), existence of a general
exception presumably does not exclude payment of compensation
(Newcombe and Paradell, 2009, p. 506).
51 Saluka v. Czech Republic, Partial Award, 17 March 2006, para. 263.
52 Saluka v. Czech Republic, Partial Award, 17 March 2006, para. 264.
53 Methanex v. USA, Final Award, 3 August 2005, Part IV, Chapter D,
paras. 7 and 15.
54 Saluka v. Czech Republic, Partial Award, 17 March 2006, para. 255.
55 Tecmed v. Mexico, Award, 29 May 2003, para. 122.
56 Methanex v. USA, Final Award, 3 August 2005, Part IV, Chapter D,
para. 4.
57 Methanex. v. USA, Final Award, 3 August 2005, Part IV, Chapter D,
para. 101.
58 EDF v. Romania, Award, 8 October 2009, para. 313.
59 Sporrong and Lönnroth v. Sweden, European Court of Human Rights,
Judgment, 23 September 1982, para. 69.
60 James and Others v. United Kingdom, European Court of Human
Rights, Judgment, 21 February 1986, para. 50.
61 Sporrong and Lönnroth v. Sweden, European Court of Human Rights,
Judgment, 23 September 1982, para. 73.
62 Erkner & Hofauer v. Austria, European Court of Human Rights,
Judgment, 23 April 1987, para. 79.
63 Tecmed v. Mexico, Award, 29 May 2003, para. 122.
64 Azurix v. Argentina, Award, 14 July 2006, para. 312.
65 LG&E v. Argentina, Decision on Liability, 3 October 2006, para. 195.
66 Vivendi v. Argentina II, Award, 20 August 2007, para. 7.5.25. For
another example, see Metalclad v. Mexico, Award, 30 August 2000,
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para. 104; Gemplus & Talsud v. Mexico, Award, 16 June 2010, paras.
8–23.
67 Saipem v. Bangladesh, Award, 30 June 2009, para. 160.
68 Canadian Pacific Railway Co. v. Vancouver (City), (2006) 1 S.C.R.
227, as discussed in Schwartz and Bueckert, 2006, pp. 489–490.
69 Olguín v. Paraguay, Award, 26 July 2001, para. 84.
70 See, for example, Tecmed v. Mexico, Award, 29 May 2003, para. 113;
Metalclad v. Mexico, Award, 30 August 2000, para. 103.
71 Rumeli v. Kazakhstan, Award, 29 July 2008, para. 704.
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Volume IX - Annexes 183-202