INVEST-SD: Investment Law and Policy News Bulletin
Tribunal OKs treaty-shopping for better arbitration options in Gas Natural case
By Luke Eric Peterson
July 13, 2005
Another international arbitral tribunal has weighed in on the question as to whether “Most-Favored Nation” treatment offers foreign investors access to more favorable dispute resolution options found in other treaties.
In a jurisdictional decision rendered on June 17, 2005, a tribunal presiding over a claim by Spanish company Gas Natural SDG S.A. against Argentina ruled that the most-favored nation clause of the Spain-Argentina bilateral investment treaty entitled the investor to invoke more favorable dispute resolution provisions found in another
investment treaty signed by Argentina with the United States. (Gas Natural is seeking compensation for losses to its shareholding in Argentine gas firm Buenos Aires Norte (BAN) following measures taken by Argentina during its financial crisis.)
The immediate upshot of the ICSID decision is to permit Gas Natural to ignore a requirement in the Spain-Argentina BIT for investors to have recourse to local courts for a period of 18 months, prior to turning to international arbitration of disputes under the treaty.
The tribunal, consisting of Mr. Henri C. Alvarez, a Canadian lawyer, Dr. Pedro Nikken, a former Judge of the Inter-American Court of Human Rights, and Andreas Lowenfeld, a Professor at New York University,
rejected Argentina’s contention that the MFN clause extended to substantive investment protections, but not to procedural matters.
Lluis Paradell, of the law firm Freshfields Bruckhaus Deringer, represented Gas Natural in the arbitration. He says that the decision is notable because it reaffirms a decision in an earlier ICSID case Maffezini v. Spain. Paradell also notes that the tribunal seems to have
gone further in deeming access to arbitration to be an integral part of the bundle of “substantive” rights offered in an investment treaty. In its reasoning, the tribunal ruled that access to “independent international arbitration is an important - perhaps the most important -
element in investor protection.”
The tribunal did take note of another arbitral decision, Salini v. Jordan, which touched upon the perennially thorny MFN issue - and which reined in the use of the MFN clause in another context. Perhaps more notable, however, was the failure of the Gas Natural tribunal to discuss
a second recent arbitral decision rendered at ICSID in the case of Plama Consortium Limited v. Republic of Bulgaria. The Plama case was decided some time after arguments had been made in the Gas Natural case; however it was published several months before the Gas Natural tribunal issued its decision in June of this year. In the Plama case, an ICSID tribunal rejected an effort by the foreign investor to use an MFN clause to lay claim to better arbitration provisions found in another investment
treaty signed by Bulgaria. Indeed, the tribunal ruled that the MFN clause did not apply to procedural matters because there was no express indication of such scope in the relevant treaty.
By contrast, the Gas Natural tribunal reached what Lluis Paradell characterizes as an opposite reading, when it gave the benefit of the doubt to investors in ruling that “Unless it appears clearly that the state parties to a BIT or the parties to a particular investment agreement settled on a different method for dispute resolution of
disputes that may arise, most-favored-nation provisions in BITs should be understood to be applicable to dispute settlement.”
Apart from the MFN question, the tribunal in the Gas Natural claim also rejected arguments by Argentina which would have denied jurisdiction to hear the case on the grounds that it dealt with non-arbitrable “measures
of general economic policy” and that, as an indirect shareholder in an Argentine gas firm, Gas Natural could not bring claims under the Spain-Argentina BIT.
After rejecting both of these jurisdictional objections, the tribunal paved the way for the claim to be heard on the merits. Whether or not the case will proceed, remains unclear. As was reported in this News Bulletin in March, Gas Natural has agreed to withdraw its claim at ICSID, and is pursuing a negotiated settlement with Argentine authorities, including renegotiation of its contracts. For the moment, however, the ICSID arbitration remains open.
Gas Natural SDG S.A. v. Argentine Republic, Decision of the Tribunal on
Preliminary Questions of Jurisdiction, ICSID Case No. ARB/03/10, June
Published by the International Institute for Sustainable Development