Originally from American Review of International Arbitration - ARIA

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I.  INTRODUCTION

The dawn of the 21st century did not augur a bright start to the new millennium for Argentina.  It found itself mired in yet another economic crisis barely a decade after it had recovered from the previous one.   And after it adopted emergency measures to address the crisis, it acquired the dubious honor of being the state with the greatest number of known investment disputes, mostly brought by foreign investors unhappy with these measures.   By 2006, the aggregate amount claimed against Argentina in these disputes was estimated at a staggering U.S. $17 billion, almost the entire budget of the Argentine federal government.

Most of these disputes have been brought under the auspices of the International Centre for the Settlement of Investment Disputes (“ICSID”).  Final arbitral awards have since been handed down by ICSID tribunals in at least four of these cases: CMS,  LG&E,  Enron,  and Sempra  (collectively, the “Quartet of Cases”).  In all of them, the measures taken by Argentina in response to the economic crisis were found to have breached the investment protection commitments it had undertaken to foreign investors.

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Argentina’s unenviable position highlights the dilemma of a state facing an economic crisis, especially in an age when foreign investment has become “the largest single source of external development finance for developing countries.”   The rapid growth in foreign investment in the recent past decades has been encouraged, in part, by the “proliferation” in the number of bilateral investment treaties (“BITs”) entered into by states,  the main purpose of which is for each state party to provide protections to the investments made within its territory by investors from the other state party.

As illustrated by Argentina, a state confronted with an economic crisis will want to resolve the crisis and restore order and stability to its economy by any available means.  At the same time, however, it “will need to take into account [its] BIT obligations in making decisions on palliative measures.”   A state which fails to do so may find itself in breach of its BIT obligations with a consequent obligation to compensate disaffected foreign investors.

This article analyzes whether a plea of necessity can offer a solution to this conundrum in light of the discussions of such a plea by the ICSID tribunals in the Quartet of Cases.  It will focus on the Quartet of Cases because they concern investments in the same industry (natural gas transportation and distribution),  arise from the same factual and legal backgrounds,  and concern claims based on the same BIT – the Bilateral Investment Treaty between the United States and the Argentine Republic Concerning the Reciprocal Encouragement and Protection of Investments that was signed on November 14, 1991, and which entered into force on October 20, 1994 (the “Argentina-U.S. BIT”).

Part II of this article introduces the Quartet of Cases in greater detail.  In particular, Part II will highlight the similarities of, as well as the divergence in, the findings of the ICSID tribunals in these cases.