The Abaclat Case - Mass Claims Analysis

8/11/2019 The Abaclat Case - Mass Claims Analysis

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Volume 53, Number 2, Summer 2012

Sovereign Debt Restructuring and Mass Claims

Arbitration before the ICSID, The Abaclat Case

Jessica Beess und Chrostin*

Introduction

On August 4, 2011, an arbitral tribunal at the International Centre forSettlement of Investment Disputes (the ICSID) set new precedent for thearbitration world. In Abaclat (and others) v. The Argentine Republic , the Tribu-nal held that it had jurisdiction to hear claims brought by some 60,000Italian nationals against the Republic of Argentina following Argentinasdefault and later partial restructuring of its sovereign debt. This decision isunprecedented in at least two respects. It is the first decision to hold that anarbitral tribunal has the legal authority to hear claims that a sovereigns

default and debt restructuring may have breached a bilateral investmenttreaty (BIT). Second, Abaclat is the first arbitral decision to hold that60,000 Claimants may join in one mass claims arbitration under the institu-tional rules of the ICSID. If the Abaclat decision is followed in the future, itwill likely have significant impact on sovereign debt restructuring, thedrafting of arbitration clauses, and the scope of ICSID jurisdiction over massclaims arbitrations.

This commentary begins with a brief sketch of the circumstances leadingto the Abaclat arbitration and then discusses the claims at issue in the most

recent stage of the arbitration, the jurisdictional phase. The third sectiondiscusses the Abaclat tribunals (The Tribunal) rulings on the jurisdic-tional issues. Finally, the fourth section discusses the potential impact of thecase.

I. Factual Background

In the early 1990s, Argentina restructured its economy to encouragegrowth and to reduce debt and inflation. As part of its overall scheme, Ar-gentina entered into a variety of bilateral investment treaties (BITs), in-

* J.D. Candidate 2013, Harvard Law School.


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506 Harvard International Law Journal / Vol. 53

cluding a treaty with Italy. 1 In May 1990, Italy and Argentina adopted theAgreement between the Argentine Republic and the Republic of Italy onthe Promotion and Protection of Investments (Argentina-Italy BIT),

which came into force in October 1993.2

Additionally, Argentina issuedLaw No. 24,156, the Law on Financial Administration and Control Sys-tems. 3 This law provided the legal foundation for Argentina to issue bondsin order to raise capital for its economic development. In total, Argentinaplaced over USD 186.7 billion in sovereign bonds across domestic and inter-national markets from 1991 through 2001, including 179 bonds that raisedapproximately USD 139.4 billion in international capital markets. 4 Of these179 bonds, the Abaclat Claimants allegedly purchased 83 foreign currencybonds that were listed on various international exchanges and were governedby laws of different jurisdictions. 5

By the late 1990s, however, it became obvious that Argentina was enter-ing a severe economic recession. In December 2001, Argentina defaulted onits debt, announcing the deferral of over USD 100 billion of external bonddebt owed to its domestic and foreign creditors. 6 At the time of Argentinasdefault, an estimated 600,000 Italian nationals owned Argentinean bonds,amounting to approximately USD 13.5 billion. 7 In response, eight majorItalian banks 8 established the Task Force Argentina (TFA) in September2002, in part, for the purpose of representing the interests of Italian bond-holders during settlement negotiations with Argentina. 9

Notwithstanding TFAs efforts to negotiate an alternative settlement inaccordance with the provisions of the 1990 Argentina-Italy BIT, Argentinapublicly announced that it would offer all foreign bondholders a one-timebond exchange option on a take-it-or-leave-it basis. 10 In early 2005, Argen-tina opened the exchange offer on over USD 100 billion in principal andinterest on a variety of bond issuances. According to the UN Committee onTrade and Development, Argentina succeeded in restructuring about USD62 billion. 11

1. According to SICE Foreign Trade Information System, Argentina entered into fifty-seven bilateralinvestment treaties between 1990 and 2000. See SICE Foreign Trade Information System, (2012), http://www.sice.oas.org/ctyindex/ARG/ARGBITs_e.asp.

2. Id.3. Abaclat and Others v. The Argentine Republic , ICSID Case No. ARB/07/5, Decision on Jurisdiction

and Admissibility, 43-44 (Aug. 4, 2011), available at http://italaw.com/documents/AbaclatDecisionon Jurisdiction.pdf [hereinafter Abaclat ].

4. Id. 50.5. Id.6. Id. 52, 56, 58.7. Id. 64.8. The Italian banks are Banca Antonveneta, Banca Intesa, Banca Sella, BNL, Iccrea Banca, Monte dei

Paschi di Siena, San Paolo, and UniCredito. Id. 65.9. Id. (translating from the original Italian by the Tribunal) (original available at http://www.tfargen

tina.it/chisiamo.php.).10. UNCTAD, Sovereign Debt Restructuring and International Investment Agreements, IIA Issues No. 2, 5

(July 2011), http://www.unctad.org/en/docs/webdiaepcb2011d3_en.pdf.11. Id. at 3.


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2012 / Recent Developments 507

However, numerous investors refused to accept Argentinas exchange of-fer. In the wake of the 2005 exchange, these so-called holdouts filed at least158 suits against Argentina in various U.S. courts. 12 Additionally, TFA

sought out and received authorization from roughly 180,000 Italian bond-holders to bring their claims as a group claim 13 before the ICSID. In Sep-tember 2006, TFA filed a Request for Arbitration as provided by theArgentina-Italy BIT. The Secretary-General of the ICSID registered thisgroup claim in February 2007 as Giovanna A Beccara and others v. The Argen-tine Republic , which was subsequently renamed as Abaclat and others v. The

Argentine Republic . Following Argentinas second exchange offer in 2010,which aimed to restructure and cancel defaulted debt obligations, the num-ber of Claimants pursuing the Abaclat arbitration claim decreased to approx-imately 60,000. 14

The first session of the arbitration took place on April 10, 2008. In thissession, the parties agreed to procedural bifurcation, dividing the proceed-ings into two phases the jurisdictional and the merits phase. 15 The follow-ing section outlines the most important issues addressed in the proceduralphase of the arbitration. 16 For purposes of the discussion, jurisdictionshall mean the power of the Tribunal to hear the claim, and admissibilityshall mean that a claim is fit and mature for judicial treatment.

II. Abaclat The Claim

The Abaclat Claimants basic substantive argument was that Argentinassovereign debt restructuring amounted to expropriation and therefore vio-lated the fair and equitable treatment standard established under the Argen-tina-Italy BIT in 1990. Before hearing arguments on the merits, theTribunal first had to address a number of procedural and jurisdictional chal-lenges raised by the Respondent Argentina. In total, the parties agreed that

the Tribunal needed to rule on 11 issues before proceeding to the merits of the dispute:

(1) Does the consent of Argentina to the jurisdiction of the Centerinclude claims presented by multiple Claimants in a single pro-ceeding? If so, are the claims admissible?

12. Id. at 3.13. The term group claim, as used here, holds no particular legal definition and will be used

interchangeably with mass claims and mass proceedings. It merely refers to a claim brought by a largenumber of Claimants appearing together as in Abaclat .

14. Abaclat , ICSID Case No. ARB/07/5, 216.15. Id. 127.16. This piece is solely concerned with the procedural phase of the arbitration, the merits phase has

not commenced as of the date of writing (February 2012).


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(2) Is the Declaration of Consent signed by the individual Claim-ants submitted in this proceeding valid; and what is the role andrelevance of Task Force Argentina (if any) in this proceeding?

(3) Is the submission of substitute annexes to the Request for Ar-bitration permissible? Is it possible to add further Claimants afterthe filing of the claim?(4) Were the Claimants entitled to initiate the ICSID arbitrationin light of the 18-month domestic litigation clause at Article 8(2)of the Argentina-Italy BIT?(5) What are the consequences (if any) of the Most-Favored-Na-tions-Clause (MFN) contained in Article 3(1) of the Argentina-Italy BIT?(6) Does the Tribunal have jurisdiction to hear Claimants claimsfor violation of the MFN provisions contained in Article 3(1) of the Argentina-Italy BIT with reference to the so-called umbrellaclause contained in Article 7(2) of the Argentina-Chile BIT?(7) Are the Claimants claims contract claims or Treaty claims andwhat (if any) are the consequences of this determination?(8) Does the Tribunal have jurisdiction over claims where the rel-evant bond contains a forum selection clause which refers to na-tional courts, but not to the ICSID?(9) Do the bonds in question satisfy the definition of Invest-ment under Article 1(1) of the Argentina-Italy BIT with respectto the provisions on investment in the territory of Argentinaand in compliance with the laws and regulations of Argentina?(10) Without making a determination with respect to any indi-vidual Claimant, does the Tribunal have jurisdiction rationae per-

sonaepursuant to Article 25 of the ICSID Convention and Article1(2) of the Argentina-Italy BIT, and its Additional Protocol, overeach Claimant who is a natural person and who ultimately isfound to have the following characteristics: (i) a natural personwith Italian nationality on September 14, 2006 ( i.e., the date of the filing of the Request for Arbitration) and February 7, 2007(i.e., the date of registration of the Request); (ii) who on eitherdate was not also a national of the Argentine Republic; and (iii)who was not domiciled in the Argentine Republic for more thantwo years prior to making the investment?(11) Without making a determination with respect to any indi-vidual Claimant, does the Tribunal have jurisdiction rationae per-

sonae pursuant to Article 25 of the ICSID Convention and Article

1 of the Argentina-Italy BIT over each Claimant that is a juridical


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person with Italian nationality on September 14, 2006 ( i.e., thedate of the filing of the Request for Arbitration)? 17

Since the most controversial and novel aspects of the arbitration arguablyconcerned issues (1), (2), and (9), the subsequent discussion will focus onthese issues. 18 Issues (1), (2), and (9) raised two main questions. First, giventhat the dispute arose out of a sovereign debt restructuring, did it relate toan investment (jurisdiction ratione materiae19 ), and could it be consideredto arise out of the Argentina-Italy BIT? Second, were mass claims arbitra-tions permissible under the ICSID and BIT framework? According to theTribunal, the answer to both questions was yes. The following section dis-cusses the Tribunals reasoning.

III. Investments and Mass Claims

A. Determining the meaning of investment and whether the Abaclat claims arose out of the Argentina-Italy BIT

Although it was uncontested that the Abaclat arbitration was a legaldispute within the scope of Article 25 of the ICSID Convention, Claimantsand Respondent disagreed on whether the claims submitted to the Tribunalarose out of the rights and obligations contemplated in the Argentina-ItalyBIT or whether they were purely contractual claims arising out of the breachof the bond documents and Claimants related security entitlements. In ad-dressing this question, the Tribunal applied a prima facie standard, askingwhether the facts alleged by the Claimants were potentially sufficient toamount to a breach of the Argentina-Italy BIT. If Claimants merely had acontractual claim, the Tribunal would not have jurisdiction because a BIT isnot intended to provide a substitute for regular contractual remedies. 20

While the Tribunal conceded that Argentinas failure to comply with theterms of the bonds could raise contractual claims, it determined that thesewere not pure contractual issues. Instead, it held that there were separatecontractual claims and claims arising under the Argentina-Italy BIT. Ac-cording to the Tribunal, Argentinas behavior following its default derivesfrom Argentinas exercise of sovereign power. Thus, what Argentina did, itdid based on its sovereign power; it is neither based on nor does it derivefrom any contractual argument or mechanism. 21 Hence, Argentinas unilat-eral modification of its payment obligations towards creditors was an expres-

17. Id. 130.

18. For a summary of the Tribunals rulings on each of the eleven issues, see Abaclat , ICSID Case No.ARB/07/5, 695 710.

19. Jurisdiction ratione materiae refers to the Tribunals jurisdiction over the nature of the case andmust therefore be held present for the Tribunal to hear the case.

20. Abaclat , ICSID Case No. ARB/07/5, 316.21. Id. 323.


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sion of State power, not of contractual rights and obligations. Since theclaims raised in Abaclat were not pure contractual claims, the Tribunal heldthat the claims were covered by the terms of the Argentina-Italy BIT. Addi-

tionally, the Tribunal determined that the claims would establish the Tribu-nals jurisdiction under the BIT so long as the claims actually arose out of aninvestment within the meaning of Article 1 of the Argentina-Italy BITand Article 25(1) of the ICSID Convention. 22

With regard to the latter requirement, Argentina contended that securityentitlements of the type at stake in Abaclat did not constitute investmentswithin the meaning of Article 25 of the ICSID Convention. Argentina ar-gued that a particular economic transaction must meet certain criteria setforth in the Salini case to qualify as an investment. 23 These criteria include

(a) a substantial contribution of the investor, (b) a certain duration, (c) theexistence of an operational risk, (d) a certain regularity of profit, and (e) acontribution to the economic development of the host State. 24 Accordingto Argentina, the Salini factors define the outer limits of the concept of investment for purposes of Article 25(1) of the ICSID Convention. Addi-tionally, Argentina claimed that the investments made by Claimants werenot made within the territory of Argentina as required under Article 1 of the Argentina-Italy BIT because the Claimants were too far removed fromthe actual investment. According to Argentina, this was because the Italianbondholders had purchased bonds from Italian banks that had provided theactual investment in the form of a lump-sum before re-selling the relevantbonds. 25 The Tribunal, however, held that Claimants bonds and securityentitlements fit within the definition of investment under the relevant BIT,which in turn set forth the limits of Argentinas consent to ICSID arbitra-tion. 26 Consequently, the Argentina-Italy BITs definition of investment fitthe meaning of investment under the ICSID rules. In so holding, the Tribu-nal declined to follow the Salini test and instead focused on the intent of BITs and the ICSID.

Although the Tribunal acknowledged the value of the Salini factors indescribing the possible characteristics of investments, the Tribunal foundthat the criteria set forth in Salini should not create a limit on the types of financial transactions that may constitute an investment that neither theICSID Convention nor the Argentina-Italy BIT intended to create. 27 In-stead, the Tribunal developed a double-barreled test. 28 Under this test,the investment must satisfy the respective definitions set forth in the rele-

22. Id. 333.23. Salini Construttori S.p.A. and Italstrade v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision

on Jurisdiction, 51 52 (July 23, 2001) [hereinafter Salini ].24. Abaclat , ICSID Case No. ARB/07/5, 341.25. Id. 341(ii), 373.26. Id. 362 67.27. Id. 364.28. Id. 344.


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vant BIT and the ICSID Convention, but it is not necessary that the defini-tion provided in the BIT fits within the scope of the ICSID Convention. 29The Tribunal reasoned that a particular financial transaction may fall within

the scope of both a BIT and the ICSID Convention, even if the definitions of investment in each instrument differ in scope. In other words, a transac-tion may qualify as an investment under the BIT for purpose [A] and qualifyas an investment under the ICSID rules for a different purpose [B]. It is notnecessary that [A] be one of the purposes listed in the ICSID rules and, viceversa, that [B] be listed in the BIT rules. Such a requirement would contra-vene the spirit of the ICSID to protect investments generally.

In applying this test, the Tribunal noted that the definition of invest-ment provided in Article 1(1) 30 of the Argentina-Italy BIT was broad and

inclusive, and in particular that subsection (c) seemed to explicitly includefinancial instruments such as bonds. Consequently, the Claimants securityentitlements fit the definition of investment under the Argentina-ItalyBIT. Further, given the aim of the ICSID Convention to encourage privateinvestment and to provide parties to an investment with the tools and flexi-bility to specify what kind of investment they want to promote it wouldbe contrary to the policy and values of the ICSID Convention to deny theClaimants protection of their investments that the parties clearly intendedto be within the scope of the Argentina-Italy BIT. 31

Next, the Tribunal turned to the question of whether the investmentswere made in Argentina. The Tribunal rejected the Respondents contentionthat the Claimants were too far removed from the investment to satisfy thiscriterion. According to the Tribunal, the relevant inquiry for determiningthe place where an investment is made is whether the invested funds wereultimately made available to the host state and whether they supported thestates economic development. 32 As there was no doubt here that the fundsgenerated through the issuance of the concerned bonds were ultimatelymade available to the issuing state, the Tribunal concluded that the invest-ment was made in Argentina. 33

Consequently, the Tribunal found that the Claimants bonds and relatedsecurity entitlements satisfied the definition of investment under both theICSID Convention and the Argentina-Italy BIT. Further, the related claimsconnected to the sovereign debt restructuring were not purely contractualand were thus not precluded from ICSID arbitration proceedings.

29. Id. 351.30. For the full text of Article 1(1) of the Argentina-Italy BIT, see Abaclat , ICSID Case No. ARB/07/

5, 352.31. Id. 364.32. Id. 374.33. Id. 378.


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B. Mass Claims under ICSID and the Argentina-Italy BIT

The second controversial issue that the Tribunal addressed was whether

mass claims such as those brought by the approximately 60,000 Claimantsin Abaclat were permissible under the ICSID framework. Three relevant is-sues pertaining to the arbitration of mass claims in a BIT context will beaddressed below: (i) the issue of consent in mass claims, (ii) the silence onthe issue of mass claims in both the ICSID and BIT rules, and (iii) theproblem of guaranteeing the Respondents right to present a full defensewhile allowing mass claims to proceed.

1. Consent in Mass Claims Arbitrations

As a general matter, arbitration is a purely consensual means of disputeresolution. Within the context of BIT arbitration, consent is generally con-sidered to have been given when the ICSID proceedings are initiated, whichin essence amounts to the investors acceptance of the states offer to arbi-trate claims as provided under the relevant BIT. 34 In cases where massclaims are concerned, not every investor individually files a Request for Ar-bitration and therefore consent needs to be established through other means.

In Abaclat , the Task Force Argentina sent a TFA Mandate Package toeach potential Claimant. This package included the TFA Instruction Letter,the Power of Attorney, the TFA Mandate, and additional questionnaires andinstructions. 35 In determining whether the Claimants consent was valid, theTribunal held that it had to find both the existence of a written documentincorporating a valid consent to the ICSID arbitration and evidence that thestatement of consent reflected the Claimants sincere intention. 36 However,the Tribunal noted that it would give due regard to the fact that none of theClaimants themselves had attempted to invoke a claim of invalid consentand because of this, the Tribunal would impose a higher standard of proof than if the mistake or fraud is invoked by the affected party itself. 37

According to the Tribunals findings, the Power of Attorney contained inthe TFA Mandate Package was sufficiently clear and unambiguous to satisfythe requirement of a written document of consent. 38 Additionally, althoughthe TFA Mandate Package required participating Claimants to refrain fromsuing the Italian banks financing the arbitration (who also sold them thebonds) while the arbitral suit was pending, the Tribunal found that theadvantage Claimants gained by participating in the arbitration justified the

34. Abaclat , ICSID Case No. ARB/07/5, 258.

35. Id. 450.36. As a definitional matter, the Tribunal considered that it could find genuine and intended

consent where such consent appeared free from coercion, fraud and/or from any essential mistake. Id. 436.

37. Id. 445.38. Id. 453.


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imposition of certain restrictions. 39 Further, the TFA Mandate Package per-mitted the Claimants to conduct an ICSID arbitration at the expense of theTFAs member banks. 40 This was a particularly compelling benefit, as many

Claimants would not have been in a position to initiate ICSID arbitrationwithout the TFA Mandate. The Tribunal reasoned that the arrangementbetween the banks and the Claimants resembled a risk insurance policy. 41The banks paid for the ICSID arbitration costs (as they would pay an insur-ance premium), and in return they were temporarily protected against therisk of potential lawsuits from the Claimants. As the features and trade-offsof the TFA Mandate Package were abundantly clear and benefitted bothparties, the Tribunal held that there was no fraud, coercion, or mistake pre-sent that would invalidate the parties consent. 42

The Respondents also contended that the Claimants inability to give in-structions and make decisions regarding the conduct of the proceedingsshould vitiate consent. However, the Tribunal found that the TFA MandatePackage was sufficiently clear to support a finding that the Claimants whosigned the mandate understood how their signing would affect their rights.As the Tribunal explained, This question is however not a question of con-sent: Claimants knew what they were doing . . . . 43

Consequently, the Tribunal found that the Claimants validly consented tothe mass claim. None of the Claimants themselves claimed a lack of consentand they were in a position to appreciate the scope and meaning of theircommitment to the ICSID arbitration through the TFA Mandate Package. 44

With regard to Argentinas consent, the Tribunal held that through theArgentina-Italy BIT, in particular Article 8(3), Argentina generally con-sented to ICSID arbitration for disputes falling within the scope of thetreaty. 45 The treaty, however, did not mention mass claims. Consequently,the Tribunal considered whether express consent to mass proceedings wasnecessary or whether general consent to ICSID arbitration was sufficient.

To begin, the Tribunal assumed that it had jurisdiction over each of theindividual claims and reasoned that it would be difficult to justify losing itsjurisdiction simply because the number of Claimants was unusually high. 46Additionally, the claims in Abaclat were brought collectively because of thetype and nature of the investment at issue. Since the Argentina-Italy BITcovers a type of investment that will often require resolution through collec-

39. Id. 458.40. Id.41. Id.42. Id. 466.43. Id. 457.

44. As this stage of the proceeding, in which the Tribunal considered the question of jurisdiction andadmissibility of the claims, the Tribunal refrained from addressing whether each individual claimant hadsatisfied the consent requirement. Instead, the Tribunal introduced the analytical framework for address-ing this question on a case-by-case basis as needed in the merits phase. See id. 466.

45. Id. 467.46. Id. 490.


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tive relief mechanisms and since the ICSID Convention aims at promotingand protecting investments under BIT regimes, it would be contrary to thepurpose of the BIT and to the spirit of the ICSID, to require in addition to

the consent to ICSID arbitration in general, a supplementary express consentto the form of such arbitration. 47 Thus, the Tribunal reasoned that Argen-tinas consent to mass claims would depend on whether such claims werepermissible within the framework of the ICSID Convention, not on whetherArgentina expressly consented to mass proceedings in the Argentina-ItalyBIT.

2. Mass Claims under ICSID

The ICSID rules 48 do not expressly address the question of mass proceed-

ings. Thus, the Tribunal was required to interpret this silence: was it aqualified silence, indicating that mass claims were not allowed, or wasthis an unintended gap, which the Tribunal has the power to fill? 49 Inanswering this question, the Tribunal made a series of inferences based onits findings regarding the purpose and scope of the Argentina-Italy BIT. Itfound 1) the relevant BIT covered investments that are likely to involve alarge number of Claimants if violated; 2) such investments were likely torequire collective relief to provide effective protection of investments; 3)BITs are intended to protect investments they cover in their definition of

investment; 4) the ICSID is intended to promote and protect investmentssuch as those made pursuant to BITs; 5) it would be contrary to the spirit of ICSID to interpret the silence as qualified silence and thus the treatys si-lence on mass claims is a gap, giving the Tribunal the power to step in. 50

According to the Tribunal, Article 44 of the ICSID Convention and Rule19 of the ICSID Arbitration Rules provide the Tribunal with the authorityto make procedural modifications necessary to hear mass claims. Article 44provides: If any question of procedure arises which is not covered by thisSection or the Arbitration Rules or any rules agreed by the parties, the Tri-

bunal shall decide the question.51

In addition, Rule 19 ICSID ArbitrationRules states: The Tribunal shall make the orders required for the conductof the proceeding. 52 Since the Tribunal found that the necessary modifica-tions to hear mass claims concerned only the method of examination and themanner of presentation rather than the substance or the object of the claim,the Tribunal concluded that it had the power to diverge from the usualICSID procedures. 53 Although the Tribunal recognized that the procedural

47. Id.48. Available in English, French and Spanish at http://icsid.worldbank.org/ICSID/ICSID/RulesMain.

jsp49. Abaclat , ICSID Case No. ARB/07/5, 517.50. Id. 518 19.51. Id. 509.52. Id. 510.53. Id. 534 535.


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adaptations would make it difficult for Argentina to respond to each indi-vidual claim, and that each Claimant would likely be unable to present a fullcase, these limits on the rights of both parties were justified in the interest

of overall fairness. Neither party would be put at an unfair disadvantagegiven that all parties procedural rights would be curtailed slightly andgiven that the alternative of conducting 60,000 separate proceedings wouldbe a much bigger challenge. 54

Finally, the Tribunal emphasized that mass proceedings were only accept-able where the claims raised by a high number of claimants were identical orat least sufficiently homogenous. 55 In Abaclat , each Claimants individualclaim arose from the same basic type of financial instrument and found thesame fault with Argentinas post-default behavior. Thus, the Tribunal found

that the claims here were sufficiently homogenous.56

3. Procedure

After determining that it had jurisdiction to hear the mass claim broughtin Abaclat , the Tribunal considered the specific method of examination itshould adopt given the mass aspect of the case. The Tribunal ultimatelydecided to abstain from selecting a method of examination before hearing abasic overview of the merits of the claims. 57 Consequently, it proposed split-ting the merits phase of the proceedings. In the first phase, the Tribunal

will determine the core issues of the dispute.58

In doing so, the Tribunalanticipates that some issues will be of a general nature that affects all Claim-ants equally and thus will only need to be decided once for all Claimants. 59Other issues will be generally applicable, but may require some distinctionamong sub-groups of Claimants for which a sampling procedure may beappropriate. 60 Finally, some issues may yet require a case-by-case analysis. 61For this reason, the Tribunal refrained from determining the precise arbitra-tion procedure until phase one of the merits phase has been completed. Inthe second phase, the Tribunal will determine how to best address each of the issues.

IV. Potential Impact of the Decision

Although Argentina may still seek to have the award annulled after theTribunal issues its ruling on the merits of the case, the Tribunals decisionon the jurisdictional phase recently received a boost in legitimacy from the

54. Id. 536, 545.55. Id. 540.

56. Id. 544.57. Id. 533 37, 668.58. Id. 668.59. Id. 669.60. Id.61. Id.


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ICSID. In September 2011, the Abaclat arbitration was suspended followingArgentinas request to disqualify the two arbitrators who issued the opinionof the Tribunal upholding jurisdiction. 62 Argentinas disqualification re-

quest, however, was rejected by the ICSID in December 2011, and the Tri-bunal was reconstituted in January 2012. 63 These recent developmentsincrease the likelihood that Abaclat will be followed in the future and willhave a significant impact on sovereign debt restructuring, drafting of arbi-tration clauses, and the conduct of mass claims in arbitration for the follow-ing reasons.

First, the Abaclat decision is the first prominent use of arbitration proceed-ings brought pursuant to an investment treaty to challenge a sovereign gov-ernments handling of a default and restructuring. In allowing the claim to

proceed, the Tribunal found that individual investors and creditors couldbring an ICSID suit against a defaulting sovereign and attempt to resolveclaims related to sovereign debt restructurings. This may influence sover-eign behavior in cases of default and change the way nations approach sover-eign debt restructuring in times of economic crisis. Further, it mayinfluence the way BITs are drafted and may inspire countries to write morenarrowly tailored arbitration clauses that explicitly prohibit mass claims orspecify that arbitration of claims related to sovereign debt restructuring isnot available.

Additionally, the decision is noteworthy for its refusal to apply the other-wise widely accepted Salini criteria for determining whether a particularfinancial transaction constitutes an investment. 64 In rejecting the Salinifactors, the Tribunal adopted a broader approach that may expand the typesof claims that can be brought under ICSID jurisdiction. Now, claims may bebased on purely financial instruments bought by far removed investors solong as the claims relate to a sovereigns actions. As a result of this broaderdefinition of investment and the determination that claims resulting fromsovereign debt restructuring may fall within ICSID jurisdiction, it is likelythat more of these claims will be resolved in arbitration rather than in court.

This outcome is made more likely because judgments of internationalarbitral tribunals are generally easier to enforce than judicial decisions of foreign courts. As noted in Part 1, holdout creditors who rejected Argen-tinas initial exchange offering in 2005 have since brought numerous suits

62. The decision of the Tribunal was issued by Professor Pierre Tercier and Professor Albert Jan vanden Berg. Professor Georges Abi-Saab, the third member of the Tribunal, wrote a dissenting opinion andresigned from the Tribunal in October 2011.

63. The current members of the Tribunal are Professors Tercier and van den Berg the two arbitra-tors who decided in favor of upholding jurisdiction and Santiago Torres Bernardez. See ICSID, List of

Pending Cases, Nr. 34, available at http://icsid.worldbank.org/ICSID/FrontServlet?requestType=GenCaseDtlsRH&actionVal=ListPending.

64. Matthew Gearing et al., Abaclat and others V the Argentine Republic , Allen Overy ( Dec. 2011), available at http://www.allenovery.com/AOWEB/AreasOfExpertise/Editorial.aspx?contentTypeID=1&contentSubTypeID=7944&itemID=64707&countryID=18693&aofeID=302&practiceID=40484&prefLangID=410.


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in courts in New York, Germany, Italy, and elsewhere, 65 and some of theseclaims have resulted in multibillion-dollar judgments against Argentina. 66However, sovereign immunity rules make it nearly impossible 67 for

Claimants to enforce their awards because foreign sovereigns assets arelargely protected from seizure. Under the Foreign Sovereign ImmunitiesAct, though, it is easier to attach a foreign countrys assets to enforce anarbitral award than to enforce a foreign judgment. 68 Additionally, arbitra-tion has more favorable rules for enforcing arbitral awards than regular courtprocedures in countries that are signatories to the New York or ICSID Con-ventions. Together with the Tribunals apparent expansion of the definitionof investment, the relative ease of enforcing arbitral judgments suggeststhat foreign investors will choose to bring suit in arbitral proceedings asopposed to foreign courts.

Finally, the Ablacat decision held for the first time that mass claims areadmissible under the rules of the ICSID. If the decision stands, it means thatindividual bondholders will be able to join their claims and bring mass arbi-trations in cases that previously would have fallen by the wayside due to thecosts of arbitrating each individual claim. This development may increasethe number of mass claims in arbitral proceedings and eventually lead arbi-tral institutions to address the question of mass claims expressly in theirprocedural rules.

65. Karen Halverson Cross, Investment Arbitration Panel Upholds Jurisdiction to Hear Mass Bondholder Claims against Argentina, Am. Socy Intl L. Insights, Vol. 15, Iss. 30, p. 1, Nov. 21, 2011 [hereinafter

ASIL], available at http://www.asil.org/pdfs/insights/insight111121.pdf.66. Hilary Burke, World Bank court to hear case on Argentina default , Thomson Reuters News &

Insights , Aug. 10, 2011, available at http://newsandinsight.thomsonreuters.com/Securities/News/2011/08_-_August/World_Bank_court_to_hear_case_on_Argentina_default/.

67. Id. at 1.68. ASIL , supra note 65, at 2.


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The Abaclat Case - Mass Claims Analysis