Argentina: The Enforcement Process Of The ICSID Awards: Procedural Issues And Domestic Public Policy

Last Updated: 1 June 2005
Article by Carlos E. Alfaro and Pedro Lorenti

In this paper, we briefly explain the procedure pursuant to which an ICSID award should be enforced in Argentina, and the alternatives it may provide its Government to pursue a defensive strategy beyond the particularities involved in any case.

In recent papers we addressed some of the legal arguments on which the Argentine Government may rely on, in devising its strategy against the enforcement of future ICSID awards that -it is expected- will rule against the country1. The first controversial of said awards has been recently rendered –the "CMS Energy" case, adjudicating compensation rights for US$ 133,2 million-, almost half of the CMS original claim. We will analyze herein only the procedure pursuant to which an ICSID award should be in general enforced in Argentina, beyond the particularities involved in the CMS case (i.e. minority shareholder’s rights, appeal for nullity in tribunal level); which could be applicable to all cases involving an ICSID award.

The matter is of particular relevance for those companies that have filed a case under the BITs provisions but are still doing business in Argentina and therefore are involved in renegotiations of the conditions of their agreements with the Government. The way the cases may be resolved and the defenses that the Government may use against their validity or rapid enforcement will be certainly used by both parties in any renegotiation.

A minority shareholder like CMS may be willing to walk away from a joint venture if it obtains an adequate compensation: a) it may use the award to negotiate an exit with the Government (i.e. selling its participation to the Government for the amount of the award – the Argentine Government is desperately seeking opportunities to acquire assets and services for its recently created energy state company ENARSA) or b) it may also open an opportunity for a locally owned company or investment fund with good political connections to enter into the energy sector at a low price by buying out the CMS participation.

On the other hand, a company that will continue doing business in Argentina, may find that the enforcement process is a long uphill battle with uncertain results.

Judicial enforcement of foreign court rulings and awards.

Argentina is organized as a federal state, integrated by a Federal or National Government and 23 Provinces. Each of the latter has its own judiciary and enacts its own Court procedural laws. Though our analysis focuses on the Federal laws, since they are similar to those currently in forces in the Provinces, our conclusions are also applicable to local provincial laws.

Articles 517 to 519 bis of the National Civil and Commercial Procedural Code –NCCPC- regulate the process to recognize the domestic enforceability of foreign court rulings. They shall: (i) be issued by a competent foreign court, according to the international jurisdiction rules acknowledged by Argentina; (ii) observe the due process rules; (iii) meet all the requirements to be valid and enforceable in its jurisdiction of origin, and all the authentication requirements set forth in Argentine laws, (iv) abide with the public policy provisions of Argentine law; (v) be compatible with Argentine judicial precedents on the subject –Article 517, sections 1º) to 5º)-.

Foreign arbitration awards have to comply with the above requirements, in addition to the prohibition of adjudicating rights that, under Argentine law, cannot be waived by the parties (NCCPC, article 737) – to review the Government arguments on these substantial issues see prior articles2.

The award enforcement shall be requested to the 1st instance court (similar to the U.S. district court) with jurisdiction as to the applicable laws –i.e., Civil, Commercial, Administrative, etc.-. The court shall serve notice to the defendant before adjudicating. This proceeding is named with the latin word "exequatur" –an enforcement order-.

Pursuant to Argentine laws, the "exequatur" process of an ICSID award related to the Government shall be filed with the Federal Administrative Litigation Courts, located in the City of Buenos Aires. The Government shall be summoned to intervene in it and, in answering this request; it may object the ICSID award’s recognition by arguing that it does not fulfill any of the above requirements and introduce the basis of its substantive defenses.

The court ruling, either enforcing or rejecting the award, can be appealed to the Chamber of Appeals (similar to the U.S. circuit court). The latter’s ruling, in turn, can be appealed to the National Supreme Court of Justice by filing an "ordinary" remedy –available above certain amounts involved, for reviewing the factual and legal grounds of the case- or an "extraordinary" remedy –widely available but very restrictive, for reviewing only some constitutional matters present in the case- a substantiation of unconstitutionality issues that the government is construing as explained in our previous articles (see note 1). An adverse ruling of the Supreme Court –or of the lower instances, if not properly appealed- will ban the enforcement of the award.

Should the ICSID awards go through this procedure?

Article 54 of the ICSID Convention states that "(1) Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State …" and that "…(3) Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought".

We have seen that the above mentioned provisions of the NCCPC regulate, precisely, the "execution" of foreign court rulings and arbitration awards. Therefore, such rules shall apply to the enforcement of the ICSID awards, according to Article 54(3) of the ICSID Convention.

This conclusion opens a new question: if, under the NCCPC rules –article 517, section 4º)- Argentine courts are empowered to check the ICSID awards’ compliance with the public policy provisions of Argentine law, does this control contradicts Article 54(1) of the ICSID Convention, in so far as it requests the Contracting States to recognize the awards as "binding"? What if an Argentine court rules that certain award violates a domestic public policy provision and, therefore, denies its binding effects?

International Private Law makes a distinction between acknowledging the "validity" of a foreign court ruling, and "enforcing" it. For example, a divorced person moving into another country, needs only the recognition in the new domicile, of the "validity" of the court ruling that adjudicated her current legal status (granting the ability to marry again, etc.). No enforcement measures are required. But if the divorce lawsuit also entails the liquidation of assets held in common by the former husband and wife, the location of some of said assets in another country will require enforcement measures, for which the aid of the domestic judiciary is necessary.

Theoretically, both the "validity" and the "enforcement" of a foreign court ruling shall be subject to control as to their conformity with domestic public policy rules. Such is the current situation worldwide and there is no major controversy about it in International Private Law. The issues would certainly arise more often in matters of "enforcement", in case domestic judges deny it if they conclude that the foreign court ruling violates those public policy rules.

Pursuant to this distinction, it could be construed that the parties to the ICSID Convention automatically recognize, under Article 54(1), the "validity" –or "binding" effect- of the ICSID awards, thus waiving the right to reject it for domestic public policy matters. In other words, the parties to the ICSID Convention would accept that the ICSID Arbitration Panel’s decision is final and could not be challenged at the local courts. But since Article 54(3) mandates the award’s "enforcement" through local procedural regulations, should the latter request the award’s domestic recognition for "enforcement" purposes –as usually occurs in International Private Law-, we may conclude that the ICSID Convention allows the Country Members to protect their own public policy rules by granting or denying such recognition.

Argentine matters of public policy.

What matters of public policy could be an obstacle to the enforcement of an ICSID award? We may classify them as follows:

(a) Constitutional rules and principles: as stated above, the Argentine Constitution sets forth its own supremacy over the international treaties in articles 27, 31 and 75 sections 22 and 24 –the sole exception being certain international treaties about human rights, expressly deemed to integrate the Constitution-. As a matter of principle, the ICSID Convention is subject to these rules and is subordinated to the Constitution, as any other international treaty. Likewise, are the ICSID’s products, such as the awards.

(b) Law general principles: Article 14, Section 2nd of the Argentine Civil Code instructs the judges to recognize foreign court rulings only if they are compatible with the general principles embodied by the domestic law –though regulating "civil" (i.e. private legal) matters, the Code resembles Montesquieu and refers to the "spirit" of the law -.

(c) Good morals and justice standards: these standards -widely incorporated to Argentine law-, make sometimes reference to ideals of justice and fairness, and some others to social values accepted in certain periods of time.

(d) Emergency law: Though well-known long before, the enactment of the so-called "emergency laws" became a regular practice in Argentina during the 90’s, and grew ever since. Theoretically, they are the State’s ultimate resource to face historical periods of terminal crises. In the Argentine practice, however, they were transmuted into usual legal tools that the administration in office may use to advance high-impact policy measures. The privatization process of State-owned companies during the 1990 decade – which in its moment was revolutionary - was performed under the umbrella of this type of regulations–mainly, laws 23.696 and 23.697 of 1989-. So it was the currency devaluation and the compulsory conversion to "pesos" of U.S. dollars obligations –the so-called "pesificación"- under law 25.561 of 2002 and the Presidential decree 214/2002. It is a common feature of these "emergency laws", that they declare themselves to be "public policy laws" and that, therefore, their provisions are mandatory and prevail over the remaining legislation and the will of the people.

(e) Reform laws: this category is very close to the former one, and makes reference to laws implementing policy decisions deemed of high relevance, due to which the government wishes to provide them with the features of "matters of public policy", mainly their mandatory condition. The best example is law 23.928 of 1992, which regulated the so-called "convertibility" of the Argentine currency and pegged its value to the U.S. dollar’s, at a conversion rate of 1 to 1, finally abrogated by the above mentioned law 25.561 of 2002.

The above "public policy" sets encompass many different legal principles and rules: (a) and (b) give acceptable levels of legal certainty, because they make reference to enacted constitutional clauses and to principles widely analyzed by Argentine legal scholars; (c) has also been thoroughly studied, but its substance is volatile and evolves with the historical changes of the Argentine society; (d) and (e) are the more conflictive, because they rely only on State’s policy decisions and, in practice, have no other justification than the contingent aims of any given administration. As can be seen, (d) and (e) entail a different concept of "matters of public policy", which is no more a collection of founding social and legal principles that are to be enforced, but also a qualification that the government may grant, at its sole discretion, to any policy decisions that it wishes to be mandatory.

Conclusion.

Court procedural laws currently in force, give the Argentine Government the chance to object to the enforcement of an ICSID’s award by arguing that it affects domestic "matters of public policy". If that happens, the discussion will focus on whether or not the 2002 currency devaluation and the subsequent policy measures –i.e. "pesificación", denial of tariff hikes, whether the Government can or not discriminate, etc.-, integrate such category and if the compensations claimed by foreign investors would be against it.

In any case, and despite legal distinctions, the denial of an award’s enforcement requested under Article 54(3) of the ICSID Convention would equal, in practice, to the rejection of its "validity" or "binding" effects granted by Article 54(1): in both situations, the plaintiff’s compensation rights, acknowledged by the ICSID Arbitration Panel, would be disregarded by the Argentine State. The political costs would be the same in both, too.

Perhaps aware of this, the Argentine Government has recently been evaluating the enactment of laws granting the Supreme Court jurisdiction to entirely review the ICSID awards - though no draft has been sent to the Congress yet a commission is in the process of being formed for the purposes of drafting such a law. It should be remembered that the current majority of the Supreme Court -appointed by this Government- seemed to be ideologically inclined to support government intervention in moments of crisis and peril like the ones that Argentina faced in 2001 and in spite of the recent economic recovery, it is still facing. Though their judicial background is impeccable no rulings against the main policies of the Government are likely to be expected, particularly if the consequences could entail the disruption of an economic program that has slowly taken Argentina out of one its most severe economic crisis.

The sense of being cornered in the ICSID arena could foster the Administration (buoyant after the successful renegotiation of the foreign bondholders debt and the agreement with the IMF to postpone its 2005 payment obligations) to make a blatant move, one that would enhance its domestic popularity as a champion in "protecting the well being of its people against the foreign interests". So far the Government has succeeded in its endeavors and its aggressive approach has handsomely paid off. Success is measured in politics in the present tense. Potential negative effects would only be perceived in the long run.

1 "ICSID Arbitration and BITs Challenged by the Argentina Government", December 2005; published at Mondaq.com and "ICSID Energy-Related Arbitration Cases Against Argentina Revisited", February 2004 at Latin America Energy Report (World Trade Executive, Inc.) and ARGENTINA VS. ICSID: Unconstitutionality of the BITs and ICSID jurisdiction - the potential new Government defenses against the enforcement of ICSID arbitral – Issues that may subject the award to the revision of the judiciary published at Mondaq.com on May 19, 2005.

2 See footnote 1

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