Understanding the Debate over Necessity: Unanswered Questions and Future Implications of Annulments in the Argentine Gas Cases

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INTRODUCTION

Over the past several years, foreign investors have filed 49 claims with the International Centre for Settlement of Investment Disputes (ICSID) against Argentina. (1) Many of these claims originated from certain restrictive measures undertaken by the Argentine government in response to the nation's economic and financial crisis from 1999 to 2001. (2) Though Argentina claimed the emergency measures were necessary for the maintenance of public order, such measures "resulted in the greatest wave of claims by foreign investors against a single host country in recent history." (3)

Of those claims against Argentina that have been adjudicated, three tribunals awarded damages in excess of $100 million to the investor-claimants, which are among the largest awards granted by an ICSID tribunal. (4) Perhaps even more noteworthy than the amount of damages awarded are the conflicting interpretations of the necessity of Argentina's emergency measures as a response to the economic crisis. (5) In many of the claims against it, Argentina consistently raised the defense that it should be excused from liability for damages to foreign investments because of the "state of necessity" during its economic crisis, (6) otherwise known as a necessity defense. Argentina has argued for a necessity defense in claims brought by investors in many different industries, including infrastructure, manufacturing, and natural resources. (7) However, commentators and practitioners have taken a particular interest in a group of ICSID cases collectively known as the Argentine Gas Cases. (8) Each of the four claims was brought by a foreign corporation investing in Argentina's gas transportation and distribution industry; yet, each of the four tribunals issued a significantly divergent interpretation of the necessity defense claimed by Argentina. (9) While three of the four tribunals' awards share certain commonalities, ultimately finding Argentina liable for treaty violations despite its necessity defense, the fourth tribunal found in favor of Argentina. (10) Attempts at reconciling the different interpretations and conclusions of the awards regarding Argentina's necessity defense leave many questions unanswered. Further complicating matters, two of the three awards levied against Argentina were recently annulled with respect to Argentina's necessity defense. (11)

Awards by tribunals administered under ICSID may be annulled only in limited situations; (12) namely, where a tribunal is improperly constituted, fails to justify its decision, or displays "manifest excess of powers," corruption, or "serious departure from a fundamental rule or procedure." (13) With limited grounds for annulment, both the annulment decisions and awards in the Argentine Gas Cases differed as to the proper interpretation of the necessity defense under both the bilateral investment treaty between Argentina and the United States (the U.S.-Argentina BIT) (14) and under customary international law. (15)

The awards and corresponding annulment decisions issued in the Argentine Gas Cases have significant implications for the security of foreign investments and the legitimacy of international investment law and present policy concerns for states party to bilateral investment treaties. Prior to addressing these concerns, Part I aims to clarify the contextual background for the debate over the necessity defense. It first describes Argentina's political and economic climate and the relevant facts of the Argentine Gas Cases. It then discusses the necessity defense as claimed by Argentina to excuse its failure to comply with certain provisions of the U.S.-Argentina BIT. Part II addresses the different interpretations of the necessity defense provided by the tribunals in the Argentine Gas Cases in addition to those provided by the respective annulment committees that reviewed each case. Having established the context for the debate over the necessity defense, Part HI discusses concerns about the security of investor interests in foreign investment, inconsistencies in the awards and subsequent annulments, and related policy issues for states participating in the bilateral investment treaty system. …