INVESTMENT POLICY BRIEF
www.southcentre.int

No. 2 ● July 2015

Crisis, Emergency Measures and the Failure of the
ISDS System: The Case of Argentina*
By Federico Lavopa
Professor, University of San Andrés and University of Buenos Aires
1. Introduction
The investor-state dispute settlement (ISDS) system became the object of increasing criticism during the lastyears. Inconsistent decisions, poorly reasoned awards, lackof transparency, parallel proceedings, serious doubts about
arbitrator’s impartiality and the sheer size of the compensations sought by investors and awarded by arbitration
tribunals are just some examples of the flaws that havebeen pointed out by the detractors of the system.1 The dozens of cases that were initiated against Argentina as a result of the outburst of one of its worst economic and financial crises in late 2001 became an often-quoted sad illustration of many of these shortcomings of the ISDS system.
Apart from the tragic consequences entailed by the economic and political crisis which was faced by Argentina, inparticular in 2001/2002, which included a fall in GDP per
capita of 50 percent, an unemployment rate of over 20 percent, a poverty rate of 50 percent, strikes, demonstrations,
violent clashes with the police, dozens of civil casualties
and a succession of 5 presidents in 10 days, Argentina received a flood of claims from foreign investors that werefiled under different ISDS mechanisms and, in particular,
before the International Centre for Settlement of Investment Disputes (ICSID). Indeed, in the period 2003-2007,
claims against Argentina represented a quarter of all thecases initiated within the framework of the ICSID Convention.
These claims before international arbitral tribunals challenged the changes to the economic rules that Argentina
had implemented to contain the effects of perhaps theworst economic cycle of its history. The estimates carriedout at that time –widely quoted by academics and the local
and international media– calculated that, if all the claims
filed by foreign investors were fully addressed, Argentina
would have to face compensations for around 80 billion
dollars, a figure which is equal to 13 percent of Argentina’s
GDP for 2013 (at current prices).
Though Argentina’s experience captured for some time
the attention of a bunch of authors who brought up thepoor response of the ISDS system to the exceptional circumstances that surrounded the case (Waibel, 2007; BurkeWhite, 2008; Kasenetz, 2009; El-Hage, 2012), to myknowledge no study has so far made a systematic and comprehensive assessment of the final outcome of this story.
How successful were the investors that filed cases against
Argentina? How large was the bill that Argentina had to
pay at the end of the day? How did the ISDS system workwhen faced with dozens of cases based on quite similarfacts, arguments and counter-arguments? These are someof the questions that this paper seeks to address.
To that end, the brief will present a brief but comprehensive account of the most important aspects of the Argentine
experience before investment arbitral tribunals in the period 2001-2014. Given the restrictions of space in this publication, this brief will focus on three main characteristics
that, in the author’s opinion, make the Argentinian caseparticularly interesting both for the implications they may
have on the ISDS system and for the experience of otherdeveloping countries which may undergo a similar situation. First, we will have a look at the extraordinary situation that triggered the flood of claims against Argentina –one of the worst political and economic crises of its history– and the sheer size of the compensations that, at least potentially speaking, this country would have had to face if
all those claims had been successful. Second, we will present a general overview of the current status of all the cases
initiated against Argentina, as well as some figures andother elements that will help to assess Argentina’s performance in dealing with these cases. Third, we will analyze
the difficulties encountered by the ISDS system to tackle
the particular circumstances of the Argentinian case. Lastly, we make some final comments.

2. Crisis, emergency measures and multimillion claims
Since 1991, Argentina has embarked on an economic deregulation and liberalization program. Among other issues,
this program included the convertibility of the Argentine
peso and the creation of a currency board to maintain theparity between the peso and the United States dollar, bylimiting the local money supply to the amount of Argentina’s foreign exchange reserves.
This economic and pro-market program was accompanied by a strong emphasis on the attraction of foreign investment that, among other aspects, resulted in the conclu-* The author owes thanks to Gabriel Bottini and Facundo Pérez Aznar for their helpful comments on earlier drafts.

Crisis, Emergency Measures and the Failure of the ISDS System: The Case of Argentina
sion of 58 Bilateral Investment Treaties (hereinafter,
BITs) –55 of which came into effect. It also included amass privatization process of public companies that, atthat time, represented an important part of the domestic economy. The legal framework within which privatizations were carried out, as well as the concession contracts of the different public services, included a seriesof guarantees and benefits for the licensee foreign companies, namely, tariffs calculated in US dollars and converted into pesos at the time of billing, adjustment oftariffs in accordance with the US wholesale inflation,and stabilization mechanisms.
Due to various reasons which go beyond the scope of
this study, but which have been thoroughly analyzed
by a great number of authors2 and –to a greater or lesser extent– by all arbitral tribunals summoned to decideon the cases against Argentina3, this market-oriented
model reached its limits in the late 1990s. Despite thefinancial juggling of the Government in office at thattime to deal with its debt maturity payments, which
included a series of increases in its Stand-By Agreement
line of credit with the International Monetary Fund(IMF) and an extensive renegotiation of its debt, known
as “mega-swap”, and to its desperate efforts to givesigns of “credibility” and fiscal discipline, for example,
through the adoption of the so-called “Zero-Deficit
Law”, tax increases, labor market flexibility, and the socalled “Intangibility Law”4, by the end of the year 2001
the situation became unsustainable.
As a result, the Government took a series of emergency measures aimed at avoiding foreign currency
drain, which included the imposition of limits to foreign currency transfers abroad and to money withdrawals from local banks (“corralito”). The unpopularity of these measures reinforced the discontent accumulated over years of recession and increasing unemployment, poverty and inequality, thus causing strikes, protests and mass demonstrations, which resulted in thedeath of dozens of people and the resignation of thethen president, Fernando de la Rúa.
After a period of unusual political instability, which
involved a succession of resignations and appointmentsof 5 presidents in a period of 10 days and which lasted
until May 2003 (when a new elected president took office), the regulatory framework for the economy and,particularly, that for the public services privatized overthe 1990s were reformed. Among the measures adopted
by the different successive governments to try to offset,
or at least mitigate, the most serious consequences ofthe dramatic economic downturn, the following areparticularly relevant for this study: (i) the imposition ofa “Corralito” & “corralón”, i.e. a temporary bank freeze
and rescheduling of term deposits; (ii) the terminationof peso convertibility and its pegging to the US dollar at
the fixed exchange rate of 1:1 (1 US$ = 4 AR$); (iii) a
default on and the unilateral rescheduling of governmental debt; (iv) the termination of right of licensees ofpublic utilities to adjust tariffs according to US PPI; (v)the “pesification” of tariffs at a rate of AR$ 1 for each
Page 2

US$, as well as the “pesification” of all contracts denominated in dollars and subject to Argentine law; and (vi)
restrictions to transfer funds abroad.
This package of emergency laws implied a considerable
change in the conditions under which foreign investors
and, in particular, public services providers had to run
their business in Argentina. As a consequence, many ofthem decided to resort to the investor-state dispute settlement mechanisms embodied in the dozens of bilateral
investment treaties (BITs) that Argentina had signed in
the 1990s.
The results did not wait long to appear. As can be seenin Figure 1 in the next page, the number of cases filed
against Argentina has soared from 2001 onwards. In total,in the period 2001-2012, exactly 50 cases were filed against
Argentina, 36 out of which have complete public information available. Twenty seven (75%) out of the latter5
were exclusively or mainly oriented to question the package of measures adopted by Argentina to mitigate theeconomic effects of the crisis of 2001/2.6

3. Is the bark worse than the bite? Argentina’s
performance before investment arbitration
tribunals
As pointed out above, a striking characteristic of the Argentinian experience is the amount of requests for compensations made by the companies that sued Argentina toredress the damages purportedly caused to their investments as a result of the alleged failure of Argentina tofulfill its international obligations under the BITs. According to estimates made when the peak of cases following
the crisis was reached, if all investors who sued Argentina
had obtained 100 percent of their claims, the total amountthat the country should have had to bear would have beenat around 80 billion dollars (Burke-White, 2008; Wong,2005).7
This sum would have been practically impossible topay, even if Argentina had not been undergoing a periodof acute economic crisis. To give a clearer idea of the relative importance of such a sum, this figure represented
approximately 13 percent of Argentina’s GDP for 2013(calculated at current prices), a little less than 10 times thefederal education budget for the same year, the double of
all funds allocated by the country to the payment of retirement and pension benefits during 2013, and an amountsimilar to the entirety of the public-sector foreign debt
that Argentina defaulted on during the late 2001 economic
collapse.
The extraordinary sum of the “invoice” that Argentina
should have to pay in case of losing all these cases does
not relate so much to the amount of the compensations
requested in each of these cases but to the sum of all ofthem. Although none of the claims against Argentina involved extraordinary sums of money, at least not if compared to other cases filed under the same system, such as
the Occidental case against Ecuador or, the most recent
case, Exxon against Venezuela, the peculiarity of this caseis that, as most cases stemmed from the same package ofI N V E S T M E N T P O L I C Y B RI E FCrisis, Emergency Measures and the Failure of the ISDS System: The Case of Argentina*Compiled by the author.
measures taken as from 2001, Argentina amassed an
impressive number of cases in a very short period oftime.
Although Argentina’s response to this flood of cases
was varied and it is still early to give out definite figures, it is already possible to conclude that, in general,
arbitration tribunals were prone to render awards infavor of investors. Figure 2 in the next page shows thecase status at the time of concluding this brief of the 27
cases initiated by foreign investors as a result of the
package of emergency economic measures adopted by
Argentina following the crisis of 2001/2.
As can be observed, almost 45 percent of the cases
have received a condemnatory award8, although mostof these cases could still be reversed by annulment proceedings, whereas only 15 percent of the arbitration
proceedings ended up with a final decision completely
in favor of Argentina.9 The remaining 30 percent are
mostly cases which resulted in an agreement between
the parties or which were altogether suspended.10 Only
three of the proceedings (11%) are still awaiting anaward on the merits.11 In this respect, it is worth mentioning that two of these three cases12 correspond toproceedings that already had an award favorable to theclaimant, but which were annulled in its entirety and,
therefore, reinitiated.
This initial approach –eminently negative– to Argentina’s performance before the arbitration tribunals
called upon to decide on the legality of its package ofpost-crisis measures markedly contrasts, however, withthe total amount of compensations Argentina was ulti-

I N V E S T M E N T P OL I C Y B R I E F

mately requested to pay. So far, in only 15 of the 55 cases
historically initiated against Argentina a compensation fora total amount of 1.4 billion dollars (interest and cost free)
was fixed.13 Two of these decisions, Sempra and Enron,
which involved compensations for 235 million dollars,
were fully annulled and, thus, the proceedings were reinitiated. Furthermore, other three cases –EDF International, LG&E and SAUR, whose combined awarded compensations amounted to 233 million dollars– are still underreview by ICSID Annulment Committees, which meansthat they could eventually be rendered null and void. All
in all, of the 80 billion dollars of the possible amount ofcompensations calculated when the peak of cases against
Argentina was reached following the crisis, Argentina has
so far received final rulings involving the payment of 900
million dollars.14
Another interesting fact revealed by the Argentinian
experience is that the total amount of ISDS cases filed in
response to the package of post-crisis measures which
resulted in a condemnatory award were based on the Fair
and Equitable Treatment (FET).15 This should come as no
surprise: as a consequence of the overly broad interpretations given to the FET by arbitration tribunals16, the FET
standard became a natural avenue to channel the claims
filed by investors which, in general, revolved around the“investment climate” and the “legitimate expectations”
created by the investment-friendly regime during the
1990s, and around the change in the rules of the game
which took place after the crisis of 2001/2.
Yet, without doubt, the aspect of the Argentinian experience which stood out the most was the inability of the

Page 3

Crisis, Emergency Measures and the Failure of the ISDS System: The Case of Argentina*Compiled by the author.
ISDS system to properly address a circumstance thatArgentina put forward by way of defense in all the cases: the background of economic and political crash that
affected Argentina in those days, which largely accounts for its post-crisis package of economic measures.
The following section will focus on this final aspect of
the Argentine experience before ISDS mechanisms.

4. The (erratic) reluctance of the ISDS system to sustain Argentina’s plea of necessity
As mentioned above, almost half of the arbitral proceedings initiated against Argentina as a result of the
post-crisis measures concluded in awards that, for one
reason or another, rejected the possibility that the extreme circumstances in which the measures in question
were adopted constituted a sufficient cause for excluding Argentina’s liability. The lack of coherence among
the decisions on this point was probably one of the aspects of the Argentine case which most attracted theattention of the specialized literature (Waibel, 2007;
Reinisch, 2007; Burke-White, 2008; Kasenetz, 2009; ElHage, 2012) and which most contributed to make thecase gain visibility in the international debates on theflaws of the ISDS system.
As a matter of fact, the peculiar characteristics of theArgentinian case make it particularly interesting to test
the “institutional quality” of the ISDS system and, especially, its ability to deliver coherent decisions. As pointed out in the previous sections, a great amount of thecases submitted against Argentina sought to question

Page 4the same regulations passed by the Argentine government–the package of post-crisis measures– on the basis of identical or very similar legal arguments and grounds, mainly
the Fair and Equitable Treatment standard. What is evenmore important for the purposes of this study is that Argentina presented a series of defenses that were virtually
identical in all of these cases, including the plea of thestate of necessity and/or of non-prohibited measures. In
this context, the decisions that were taken then and thosethat are being taken at present by the arbitration tribunals
summoned to address these cases constitute a kind of
quasi-laboratory experiment that allows for a study of thelevels of consistency in the “outputs” delivered by the
ISDS system for very similar –and, in many instances,
practically identical– “inputs”. It will be shown in the next
paragraphs that the results of this experiment were far
from promising.
In general, Argentina adopted a two-pronged legal
strategy. First, it denied that any of its actions amounted
to a violation of the substantive standards of BITs
(indirect expropriation, FET, umbrella clause, etc.), interalia, because those standards do not impede states to takeregulatory measures in order to face a serious economiccrisis. Second, it argued that, even in the case that it was
found to have infringed any of these obligations, its actions should be justified due to the extreme context inwhich they had been carried out. This latter line of argument was typically based on three provisions: (i) the
standard clause found in BITs obliging host states to treat
investors in a non-discriminatory way in case they are

I N V E S T M E N T P O L I C Y B RI E FCrisis, Emergency Measures and the Failure of the ISDS System: The Case of Argentina
compensated for by the losses they suffer owing to war,
armed conflicts or other situations of “national emergency”; (ii) the “non-precluded measures” clause foundin the BITs concluded with the United States; and (iii)the customary rule of “state of necessity”.
Argentina’s line of argument based on nondiscriminatory compensations in cases of emergency
was rejected by all the arbitral tribunals called upon todecide on it.17 In contrast, the arbitral decisions on the
defense arguments based on the other two grounds
mentioned above were much less consistent. Table 1
included below intends to schematically present thedifferences existing in the 14 arbitral awards issued so

far that referred to the arguments put forward by Argentina on the basis of the aforementioned two lines of argument.
The column headed “non-precluded measures” refers
to a clause existing in only some BITs, among them thosesigned by Argentina and the United States, whose Article
XI sets forth that the application of the Treaty “shall notpreclude the application (…) of measures necessary forthe maintenance of public order (…) or the protection of
its own essential security interests”. The varied interpretations adopted by the arbitration tribunals on different aspects of this Article are of paramount importance, since
they were crucial for the total or partial exemption of Ar-

Table 1 – Decisions on Argentina’s defenses under Article XI of US/Argentina BIT and the state of necessity ofgeneral customary law
Non Precluded Measures

ClaimantAward Date

BIT

Customary State of Necessity

NPM≠
customNecessity

Compensation

Essential inter- “onlyest threatened? means”?

State contribution

CMS

12/05/2005

USNO

Restrictive

YES

NO

NO

YES

LG&E

03/10/2006

US

YES

“good faith”

NO

YES

YES

NO

Enron

22/05/2007

USNO

Judicial economy
YES

NO

NO

YES

Sempra28/09/2007

USNO

Judicial economy
YES

NO

NO

YES

Continental

05/09/2008

US

YES

GATT XXNO

Judicialmy

Econo- Judicial
EconomyJudicial
EconomyEl Paso

31/10/2011

US

YES?

“not restrictive”
YES?

Judicialmy

Econo- Judicial
EconomyYES

BG18

24/12/2007

UK

N/A

N/A

N/A

N/A

National Grid

03/11/2008

UK

N/A

N/A

N/A

JudicialmySuez, SGAB &InterAgua
30/07/2010

France/
Spain

N/A

N/A

N/A

Suez, SGAB &Vivendi30/07/2010

France/
Spain

N/A

N/A

Anglian Water
Group
30/07/2010

UK

N/A

Total

27/12/2010

FranceImpregilo

21/06/2011

EDF, SAUR &León
11/06/2012

I N V E S T M E N T P OL I C Y B R I E F

N/A

N/A

Econo- Judicial
Economy

YES

YES

NO

YES

N/A

YES

NO

YES

N/A

N/A

YES

NO

YES

N/A

N/A

N/A

NO

NO

Judicial
Economy

Italy

N/A

N/A

N/A

YES

Judicial
EconomyYES

France

N/A

N/A

N/A

NO

NO

YES

Page 5

Crisis, Emergency Measures and the Failure of the ISDS System: The Case of Argentina
gentina from paying the compensations ordered in the
only two opportunities in which this type of defense
was accepted: LG&E and Continental.
As Table 1 reveals, six of the tribunals summoned tointerpret the “non-precluded measures” clause in thecases against Argentina have so far diverged in threemajor aspects of interpretation19 20 : i) the interaction ofthis clause with the international customary state ofnecessity; ii) the standard of interpretation used for the“necessity test”; and iii) the persistence or not of the
duty to compensate even in those cases in which theclause is applicable.
The first of these aspects refers to different stanceswith respect to the relationship existing between Article
XI and the customary state of necessity. Whereas some
tribunals (CMS, Enron, Sempra and, to a lesser extent,
El Paso) considered that international customary law
should inform the interpretation of Article XI, others(LG&E, Continental) considered that they are two totally different legal concepts, and that one should not be
confused with the other. This difference in criteria
seemed to have settled with the decision adopted by
the Annulment Committees of the CMS and Sempra
cases. Among other aspects, both Committees vehemently pointed out that Article XI and the customarystate of necessity are totally distinct and independent
defenses, and thus should be treated separately.21 However, most recently, the arbitration tribunal called upon
to decide on the El Paso case seems to have included
once again aspects of the customary state of necessity in
its interpretation of Article XI of the Argentine-US
BIT.22 To add to the confusion, this controversial approach was subsequently confirmed by an Annulment
Committee.23
A final aspect in which the arbitral tribunals summoned to interpret Article XI have followed clearly different criteria is the standard used to determine the“necessity” of the measures adopted. In fact, the test
used in CMS, Sempra and Enron was much more restrictive than that used in the decisions taken in LG&E,
Continental and –at least on paper– in El Paso.24 Additionally, as a result of the different interpretations on
the relationship between the aforementioned article andthe customary state of necessity, the tribunals adopted
different views on whether the duty to compensate theinvestor persisted even in those cases in which all theconditions for the application of Article XI were fulfilled.
The third and last defense argument used by Argentina to exclude its liability for the implementation of the
package of post-crisis measures was based on the allegation that those measures had been taken in the context of state of necessity, one of the circumstances that
exclude the wrongfulness of the acts of a State within
the framework of general international law, as reflectedin Art. 25 of the International Law Commission (ILC)
Articles on State Responsibility.
All the tribunals which examined this defense rejectPage 6

ed it, but, as can be observed in Table 1, they arrived at
this conclusion through different ways of reasoning. In
spite of these differences, in all the cases the arbitrators
put themselves in a situation in which –with a greater or
lesser declared deference towards Argentina’s sovereign
powers to decide its own policies– they had to analyze,
ponder and even criticize the economic measures implemented by the country to tackle the crisis and, in somecases, the economic policy followed by the country overlong periods prior to the crisis.
Thus, for example, most decisions on this aspect of Argentina’s defense were taken exclusively or concurrently
based on the fact that, to some extent, Argentina has contributed to the outburst of the crisis. In order to come tothis conclusion, the arbitrators interpreted that the applicable standard would not require Argentina to have“caused” or “created” the crisis. Rather, it would beenough if Argentina’s contribution to it has been
“sufficiently substantial and not merely incidental or peripheral”.25 In this context, they determined that the Argentinian crisis resulted from a combination of both exogenous and endogenous causes, and included, among thelatter, Government actions and omissions which would
have allegedly had a “substantial” impact on the origins
and development of the crisis, such as “excessive public
spending”, “inefficient tax collection”, “delays in responding to the early signs of the crisis”, “insufficient efforts at
developing an export market, and internal political dissension” and “problems inhibiting effective policy making”.26 Given that the conditions specified in Article 25 forthe application of the state of necessity are cumulative, thesole determination that Argentina had contributed to theoutbreak of the crisis was sufficient for these tribunals toreject this defense altogether. Moreover, the findings ofthe arbitrators on these complex macroeconomic matterswere usually based on no more than one or two paragraphs of analysis.
Another common argument used by the arbitration
tribunals to support their rejection of the state of necessity
defense was the determination that the measures adopted
by Argentina were not the “only available means” toavoid the crisis. In this case, the arbitrators found themselves again in the uncomfortable situation of assessing
the pertinence of the hypothetical economic measures that
could have achieved the same result as those adopted by
Argentina, without affecting the interests of foreign investors. Thus, the tribunals referred, for example, to the possibility of “dollarization of the economy”, “granting ofsubsidies to affected population”, “restructuring of its
debt”, and “devaluation without pesification”.27
Without doubt, the fact that a tribunal composed bythree arbitrators –typically, international legal experts
specialized in investment protection law– should base akey part of their awards on an ex-post or counterfactual
assessment of the economic policy implemented by a sovereign State over decades shows the difficulties faced by
the ISDS system to deal with an absolutely exceptionalcase like that of Argentina. Moreover, it may result, asrightly pointed out by the Enron Annulment Committee
I N V E S T M E N T P O L I C Y B RI E FCrisis, Emergency Measures and the Failure of the ISDS System: The Case of Argentina
decision, in the complete substitution of the arbitral
tribunal judgment for the opinion of “expert witnesses”
called upon to counsel the arbitrators.28

5. Some final considerations
Due to a series of particular –and, perhaps, unique–circumstances, since 2001 Argentina has become one of
the main users of the ISDS system. In fact, in spite of
having a very small share in global foreign investment,in the period 2002-2007 Argentina was the object of aquarter of all the cases initiated within the frameworkof the ICSID Convention.
This flood of cases responded mainly to the changes
that took place within the regulatory framework forinternational investments –particularly in sectors related to the provision of public services– as a result of theimplementation of a package of measures aimed attackling one of the worst economic crises of Argentina’s
history. Some studies which have attempted to calculate the total amounts involved in those claims estimated that, if Argentina lost all these cases, it should haveto pay compensations for up to 80 billion dollars.
Over 12 years after the first case questioning Argentina’s package of post-crisis measures was filed, thisstudy intended to provide an assessment of the Argentinian experience.
The first salient conclusion resulting from the data
presented in this brief is that the ISDS system had avery low capacity to adapt to totally exceptional circumstances for which it did not seem to have been designed. Despite the efforts of the Argentinian attorneys
to show that the measures implemented in the postcrisis period were adopted in an emergency context,
being so exceptional as to justify any breach of the substantial clauses of the BITs, few tribunals were prepared to sustain this defense.
This notwithstanding, and having most of these cases already been dealt with, the upcoming scenario forArgentina seems much less drastic than that forecasted
when the peak of cases was reached. While they represent a heavy burden for a developing country like Argentina, so far the compensations actually paid amountto a small portion of the above-mentioned initially estimated sum.
The Argentinian case also represents a worrisome
example of the failure of the ISDS system to ensure coherence and soundness in its decisions. As pointed out
above, although the dozens of cases submitted against
Argentina addressed exactly the same package ofmeasures (the post-crisis emergency laws) and they
had to assess very similar arguments of the different
claimants and a practically identical series of defenses
put forward by the Argentinian Government, the conclusions at which they arrived have shown striking
differences among them. Additionally, some of the decisions have been subject to strong criticism and/or
declared null and void by annulment committees.

I N V E S T M E N T P OL I C Y B R I E FFinally, the experience of Argentina shows the difficulties that arbitration tribunals might encounter when trying to scrutinize the economic policy choices made bygovernments. On top of the sensitiveness of examining
sovereign decisions of States, arbitrators might find themselves in the awkward situation of deciding on highly
technical matters they are clearly ill-equipped to assess.
The case of Argentina thus represents a sad example ofthe urgent need to reconsider and reform the ISDS system.
Yet, the lessons to be drawn from this experience do notseem to lead to clear conclusions as to which direction
should be followed. On the one hand, the system has
proved to be extremely inflexible, which prevented itfrom addressing the exceptional peculiarities of the Argentinian case. On the other hand, however, the wide
margin of discretion available for the arbitral tribunals
resulted in the adoption of inherently poor decisions, andwith high levels of incoherence among them.

End notes:
1 See

e.g. Van Harten (2005; 2010); Franck (2005); Waibel,
Kaushal, Chung and Balchin (2010); Bernasconi-Osterwalder,
Johnson and Marshall (2010); Corporate Europe Observatory(2012); Rosert (2014).
2 See e.g. Arriazu (2003); Costa, Kicillof and Nahón (2004); Damill and Frenkel (2003); O’Connell (2002); Roubini and Setser(2004); Teunissen and Akkerman (2003).
3 A quite complete and detailed account of the facts preceding
and following the crisis can be found, for instance, in Continental
Casualty Company vs. The Argentine Republic, Award, 5 September 2008, ICSID, Case No. ARB/03/9, paras. 100-128.
4 This law set forth that “the Government would not alter termsof deposits in the banking system”.
5 These 27 cases are: AES Corporation, ICSID, Case ARB/02/17;
Aguas Cordobesas S.A., Suez, and Sociedad General de Aguasde Barcelona S.A., ICSID, Case ARB/03/18; Anglian Water
Group (AWG) PLC v. Argentina, UNCITRAL; BG Group Plc v.
Argentina, UNCITRAL; BP America Production Company andothers, ICSID, Case ARB/04/8; Camuzzi International S.A., ICSID, Case ARB/03/2; Camuzzi International S.A., ICSID, Case
ARB/03/7; CMS Gas Transmission Company, ICSID, Case ARB/01/8; Continental Casualty Company, ICSID, Case ARB/03/9;
Daimler Financial Services AG, ICSID, Case ARB/05/1; EDF
International S.A., SAUR International S.A. and León Participaciones Argentinas S.A., ICSID, Case ARB/03/23; El Paso Energy International Company, ICSID, Case ARB/03/15; Enron
Creditors Recovery Corporation (formerly Enron Corporation)
and Ponderosa Assets, L.P., ICSID, Case ARB/01/3; Gas Natural
SDG, S.A., ICSID, Case ARB/03/10; ICS Inspection and Control
Services Limited (United Kingdom) v. The Argentine Republic,
UNCITRAL; Impregilo S.p.A., ICSID, Case ARB/07/17; LG&E
Energy Corp., LG&E Capital Corp. and LG&E International Inc.,ICSID, Case ARB/02/01; Metalpar S.A. and Buen Aire S.A., ICSID, Case ARB/03/5; National Grid v. Argentina, UNCITRAL;
Pan American Energy LLC and BP Argentina Exploration Company, ICSID, Case ARB/03/13; Sempra Energy International,
ICSID, Case ARB/02/16; Suez, Sociedad General de Aguas deBarcelona S.A. and Interagua Servicios Integrales de Agua S.A.,ICSID, Case ARB/03/17; Suez, Sociedad General de Aguas deBarcelona S.A. and Vivendi Universal S.A, ICSID, Case ARB/03/19; Telefónica S.A, ICSID, Case ARB/03/20; Total S.A,ICSID, Case ARB/04/1; Urbaser S.A. and Consorcio de Aguas
Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa, ICSID, Case AR-

Page 7

Crisis, Emergency Measures and the Failure of the ISDS System: The Case of Argentina
B/07/26; and Wintershall Aktiengesellschaft, ICSID, Case
ARB/04/14.
6 Twenty-three of these cases were filed under the ICSID, andthe other four, under UNCITRAL rules. Within the remaining
25% of the cases, three of them dealt with claims filed bybondholders who challenged the debt restructurings carriedout by Argentina in 2005 and 2010. Thus, these cases mightalso be considered as intimately related to the post-crisis tools
implemented by Argentina after the 2001/2 crisis.
7 More conservative estimates, also quoted by Burke-White(2008), calculated that Argentina’s liabilities amounted to 8
billion.
8 These cases are: Anglian Water Group (AWG) PLC v. Argentina, UNCITRAL; BG Group Plc v. Argentina, UNCITRAL;CMS Gas Transmission Company, ICSID, Case ARB/01/8;
Continental Casualty Company, ICSID, Case ARB/03/9; EDF
International S.A., SAUR International S.A. and León Participaciones Argentinas S.A., ICSID, Case ARB/03/23; El Paso
Energy International Company, ICSID, Case ARB/03/15;
Impregilo S.p.A., ICSID, Case ARB/07/17; LG&E Energy
Corp., LG&E Capital Corp. and LG&E International Inc., ICSID, Case ARB/02/01; National Grid v. Argentina, UNCITRAL; Suez, Sociedad General de Aguas de Barcelona S.A.
and Interagua Servicios Integrales de Agua S.A., ICSID, Case
ARB/03/17; and Suez, Sociedad General de Aguas de Barcelona S.A. and Vivendi Universal S.A, ICSID, Case ARB/03/19.
9 These cases are: ICS Inspection and Control Services Limited(United Kingdom) v. The Argentine Republic, UNCITRAL;
Daimler Financial Services AG, ICSID, Case ARB/05/1;
Metalpar S.A. and Buen Aire S.A., ICSID, Case ARB/03/5;
and Wintershall Aktiengesellschaft, ICSID, Case ARB/04/14.
10 These cases are: AES Corporation, ICSID, Case ARB/02/17;
Aguas Cordobesas S.A., Suez, and Sociedad General de Aguasde Barcelona S.A., ICSID, Case ARB/03/18; BP America Production Company and others, ICSID, Case ARB/04/8; Camuzzi International S.A., ICSID, Case ARB/03/2; CamuzziInternational S.A., ICSID, Case ARB/03/7; Gas Natural SDG,
S.A., ICSID, Case ARB/03/10; Pan American Energy LLC and
BP Argentina Exploration Company, ICSID, Case ARB/03/13;
and Telefónica S.A, ICSID, Case ARB/03/20.
11 These cases are: Enron Creditors Recovery Corporation(formerly Enron Corporation) and Ponderosa Assets, L.P.,
ICSID, Case ARB/01/3; Sempra Energy International, ICSID,
Case ARB/02/16; and Urbaser S.A. and Consorcio de Aguas
Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa, ICSID, Case
ARB/07/26.
12 Enron Creditors Recovery Corporation (formerly Enron
Corporation) and Ponderosa Assets, L.P., ICSID, Case ARB/01/3 and Sempra Energy International, ICSID, Case ARB/02/16.
13 These cases are: Azurix Corp., ICSID, Case ARB/01/12; BG
Group Plc v. Argentina, UNCITRAL; CMS Gas Transmission
Company, ICSID, Case ARB/01/8; Compañía de Aguas del
Aconquija S.A. and Vivendi Universal S.A., ICSID, Case ARB/97/3; Continental Casualty Company, ICSID, Case ARB/03/9; EDF International S.A., SAUR International S.A. andLeón Participaciones Argentinas S.A., ICSID, Case ARB/03/23; El Paso Energy International Company, ICSID, Case
ARB/03/15; Enron Creditors Recovery Corporation (formerly
Enron Corporation) and Ponderosa Assets, L.P., ICSID, Case
ARB/01/3; Impregilo S.p.A., ICSID, Case ARB/07/17; LG&E
Energy Corp., LG&E Capital Corp. and LG&E International
Inc., ICSID, Case ARB/02/01; National Grid v. Argentina,
UNCITRAL; SAUR International, ICSID, Case ARB/04/4;
Sempra Energy International, ICSID, Case ARB/02/16; andSiemens A.G., ICSID, Case ARB/02/8. It is worth highlightingthat of these 1.4 billion dollars, 507 million correspond to three

Page 8cases - Azurix, Aguas del Aconquija and Siemens - which were
not related with the package of measures adopted by Argentina
as a result of the crisis.
14 In October 2013, Argentina decided to pay the compensations
fixed by five of these awards, namely, CMS, Continental, Vivendi, Azurix and National Grid (see Ministry of Economy Resolution Nº 598/2013, available at: http://www.infoleg.gob.ar/
infolegInternet/anexos/220000-224999/221161/norma.htm (lastvisited 29 November 2014)).
15 In a minority of these cases, the tribunals also found violationsof other standards, in particular, of the so-called “umbrellaclause” and other standards that usually accompany the FET.
16 See e.g. Metalclad Corporation v. The United Mexican States,Award, 30 August 2000, ICSID, Case No. ARB(AF)/97/1; Técnicas Medioambientales TECMED S.A. v. The United Mexican
States, Award, 29 May 2003, ICSID, Case No. ARB(AF)/00/2; El
Paso Energy International Company v. The Argentine Republic,Award, 31 October 2011, ICSID, Case No. ARB/03/15.
17 Following CMS, all the awards issued so far against Argentina
as a result of the implementation of the package of post-crisis
measures have ruled out the possibility that this type of clausecould be invoked to render lawful a measure that would otherwise result in the violation of some of the relevant standards
provided for under the BITs. In taking such a decision, the arbitrators have stressed that this clause does not refer to the legality
or illegality of the measures, but rather to the characteristics ofthe eventual compensations a host State decides to offer to theinvestors affected by measures adopted in times of war, armed
conflict, revolution, or other types of “national emergency”.
18 Although the customary defence of state of necessity was also
invoked by Argentina in this case, the Tribunal rejected it without entering in any analysis of the different elements set forth in
Article 25 of the ILC Articles on State Responsibility (See BG
Group Plc v. Argentina, Award, UNCITRAL, para. 407.).
19 The treaties concluded by Argentina with Germany and theBelgian-Luxembourg Economic Union (BLEU) also contain clauses similar to Article XI of the Argentine-US BIT, but no case filed
under those treaties relating to Argentine post-crisis measures
has reached the merits phase yet. This explains why of the 14
arbitral awards reviewed only six refer to the analysis of thisclause.
20 It is worth highlighting that there are at least two aspects thatconcentrated much of the discussion on the cases analyzed, andin which the decisions of the tribunals were totally consistent.
First, all the awards rejected the idea that Article XI should be“self-judging” (that is, not subject to judicial review). Second, alltribunals considered that nothing can prevent the said article
from being applied to a context of acute economic crisis.
21 CMS Gas Transmission Company v. Argentine Republic, Annulment Proceeding, Decision of the Ad Hoc Committee on the
Application for Annulment of the Argentine Republic, 25 September 2007, ICSID, Case No. ARB/01/8, paras. 124-5, 130-2.
22 El Paso Energy International Company v. The Argentine Republic, Award, ICSID, Case No. ARB/03/15, paras. 613-615, 624
and 665.
23 El Paso Energy International Company v. The Argentine Republic, Decision of the Ad Hoc Committee on the Application for
Annulment of the Argentine Republic, ICSID, Case No. ARB/03/15, paras. 203, 247-248.
24 In Enron and Sempra the determination of the test was rather“implicit”, since both awards equalled the necessity test under
Article XI to that set forward by Article 25 of the ILC Articles onState Responsibility, which requires that the act that seeks to bejustified be the “only way” for the State to safeguard an essential
interest against a grave and imminent peril.
25 See e.g. CMS Gas Transmission Company, Award, ICSID, Case
ARB/01/8, para. 328.

I N V E S T M E N T P O L I C Y B RI E FCrisis, Emergency Measures and the Failure of the ISDS System: The Case of Argentina
26 See e.g. Suez, Sociedad General de Aguas de Barcelona S.A.

and InterAgua Servicios Integrales del Agua S.A., Decision on
Liability, ICSID, Case No. ARB/03/17, para. 242; Suez, Sociedad General de Aguas de Barcelona S.A. and Vivendi Universal S.A, Decision on Liability, ICSID, Case No. ARB/03/19,
para. 264.
27 See e.g. CMS Gas Transmission Company, Award, ICSID,
Case ARB/01/8, para. 323; Enron Creditors Recovery Corporation (formerly Enron Corporation) and Ponderosa Assets,
L.P., Award, ICSID, Case ARB/01/3, para. 300.
28 Enron Creditors Recovery Corporation (formerly Enron
Corporation) and Ponderosa Assets, L.P., Decision of the Ad
Hoc Committee on the Application for Annulment of the Argentine Republic, ICSID, Case ARB/01/3, para. 377 and 393.

References
Arriazu, Ricardo Héctor (2003). Lecciones de la Crisis
Argentina. Buenos Aires: Editorial El Ateneo.
Bernasconi-Osterwalder, Nathalie, Lise Johnson andFiona Marshall (2010). Arbitrator Independence andImpartiality: Examining the dual role of arbitrator andcounsel. IV IISD Annual Forum for Developing Country Investment Negotiators Background Papers, October. Winnipeg, Manitoba. Available from http://
www.iisd.org/sites/default/files/pdf/2011/
dci_2010_arbitrator_independence.pdf (last visited 29
November 2014).
Burke-White, William W. (2008). The Argentine Financial Crisis: State Liability Under BITs and the Legitimacy of the ICSID System. Asian Journal of WTO and International Health Law and Policy, vol 4.
Corporate Europe Observatory (2012). Chapter 2: Investment treaty disputes: Big business for the arbitration industry, 27 November 2012. Available fromhttp://corporateeurope.org/2012/11/chapter-2investment-treaty-disputes-big-business-arbitrationindustry (last visited 29 November 2014).
Costa, Augusto, Axel Kicillof and Cecilia Nahón (2004).
Las consecuencias económicas del Sr. Lavagna. Dilemasde un país devaluado. Revista Realidad Económica, No.
203.
Damill, Mario and Roberto Frenkel (2003). Argentina:
Macroeconomic Performance and Crisis. Buenos Aires:
CEDES.
Franck, Susan (2005). Legitimacy Crisis in Investment
Treaty Arbitration: Privatizing Public International Law

Chemin du Champ-d’Anier 17
PO Box 228, 1211 Geneva 19

through Inconsistent Decisions. Fordham Law Review, Vol.
73, No. 4 (March).
Guaristi El-Hage, Carlos Javier (2012). How May Tribunals Apply the Customary Necessity Rule to the Argentine Cases? An Analysis of ICSID Decisions with Respect
to the Interaction between Article XI of the US-Argentina
BIT and the Customary Rule of Necessity. Yearbook of International Investment Law & Policy.
Kasenetz, Eric David (2009). Desperate Times Call for
Desperate Measures: The Aftermath of Argentina's State
of Necessity and the Current Fight in the ICSID. George
Washington International Law Review, vol. 41, No. 3.
O’Connell, Arturo (2002). The Recent Crisis of the Argentine
Economy: Some Elements and Background. Buenos Aires:
Universidad de Buenos Aires.
Reinisch, August (2007). Necessity in International Investment Arbitration - An Unnecessary Split of Opinions in
Recent ICSID Cases? Comments on CMS v. Argentina andLG&E v. Argentina, Journal of World Investment and Trade,Vol. 8, No. 2 (August).
Rosert, Diana (2014). The Stakes Are High: A review ofthe financial costs of investment treaty arbitration. International Institute for Sustainable Development (IISD) Research Report, July. Winnipeg, Manitoba. Available fromhttp://www.iisd.org/sites/default/files/publications/st
akes-are-high-review-financial-costs-investment-treatyarbitration.pdf (last visited 29 November 2014).
Roubini, Nouriel and Brad Setser (2004). Bailouts or Bailins? Responding to Financial Crises in Emerging Economies.
Washington: Institute for International Economics.
Teunissen, Jan Joost, and Age Akkerman, Eds. (2003). The
Crisis That Was Not Prevented: Lessons for Argentina, the IMF
and Globalisation. The Hague: FONDAD.
Van Harten, Gus (2005). Private authority and transnational governance: the contours of the international system of investor protection. Review of International Political
Economy, vol. 12, No. 4.
Van Harten, Gus (2010). Five Justifications for Investment
Treaties: A Critical Discussion. Trade, Law and Development, vol.2, No. 1.
Waibel, Michael (2007). Two worlds of necessity in ICSID
arbitration: CMS and LG&E. Leiden Journal of InternationalLaw, vol. 20, No. 3.
Waibel, Michael, Asha Kaushal, Kyo-Hwa Liz Chung andClaire Balchin, eds. (2010). The Backlash against Investment
Arbitration. Alphen ann den Rijn: Kluwer Law International.
Wong, Wailin (2005). Argentina Tsy Attorney: World Bk
Claims Could Reach $80B. Dow Jones International News, 21
January.

Telephone: (4122) 791 8050
Fax: (4122) 798 8531
E-mail: south@southcentre.int
http://www.southcentre.int

I N V E S T M E N T P OL I C Y B R I E FPage 9