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 for
Settlement of Investment Disputes (the ICSID) set new precedent for the
arbitration world. In Abaclat (and others) v. The Argentine Republic, the Tribu-
nal held that it had jurisdiction to hear claims brought by some 60,000
Italian nationals against the Republic of Argentina following Argentinas
default and later partial restructuring of its sovereign debt. This decision is
unprecedented in at least two respects. It is the first decision to hold that an
arbitral tribunal has the legal authority to hear claims that a sovereigns
default and debt restructuring may have breached a bilateral investment
treaty (BIT). Second, Abaclat is the first arbitral decision to hold that
60,000 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, it
will likely have significant impact on sovereign debt restructuring, the
drafting of arbitration clauses, and the scope of ICSID jurisdiction over mass
claims arbitrations.
This commentary begins with a brief sketch of the circumstances leading
to the Abaclat arbitration and then discusses the claims at issue in the most
recent stage of the arbitration, the jurisdictional phase. The third section
discusses the Abaclat tribunals (The Tribunal) rulings on the jurisdic-
tional issues. Finally, the fourth section discusses the potential impact of the
case.
I. Factual Background
In the early 1990s, Argentina restructured its economy to encourage
growth 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 the
Agreement between the Argentine Republic and the Republic of Italy on
the Promotion and Protection of Investments (Argentina-Italy BIT),
which came into force in October 1993.
2
Additionally, Argentina issued
Law No. 24,156, the Law on Financial Administration and Control Sys-
tems.
3
This law provided the legal foundation for Argentina to issue bonds
in order to raise capital for its economic development. In total, Argentina
placed over USD 186.7 billion in sovereign bonds across domestic and inter-
national markets from 1991 through 2001, including 179 bonds that raised
approximately USD 139.4 billion in international capital markets.
4
Of these
179 bonds, the Abaclat Claimants allegedly purchased 83 foreign currency
bonds that were listed on various international exchanges and were governed
by 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 on
its debt, announcing the deferral of over USD 100 billion of external bond
debt owed to its domestic and foreign creditors.
6
At the time of Argentinas
default, an estimated 600,000 Italian nationals owned Argentinean bonds,
amounting to approximately USD 13.5 billion.
7
In response, eight major
Italian banks
8
established the Task Force Argentina (TFA) in September
2002, 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 in
accordance with the provisions of the 1990 Argentina-Italy BIT, Argentina
publicly announced that it would offer all foreign bondholders a one-time
bond 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 and
interest on a variety of bond issuances. According to the UN Committee on
Trade and Development, Argentina succeeded in restructuring about USD
62 billion.
11
1. According to SICE Foreign Trade Information System, Argentina entered into fifty-seven bilateral
investment 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.
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 least
158 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 the
Argentina-Italy BIT. The Secretary-General of the ICSID registered this
group 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 this
session, 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 procedural
phase of the arbitration.
16
For purposes of the discussion, jurisdiction
shall mean the power of the Tribunal to hear the claim, and admissibility
shall mean that a claim is fit and mature for judicial treatment.
II. Abaclat The Claim
The Abaclat Claimants basic substantive argument was that Argentinas
sovereign 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, the
Tribunal 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 Center
include 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 large
number 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).
(2) Is the Declaration of Consent signed by the individual Claim-
ants submitted in this proceeding valid; and what is the role and
relevance 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 after
the filing of the claim?
(4) Were the Claimants entitled to initiate the ICSID arbitration
in 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 claims
for violation of the MFN provisions contained in Article 3(1) of
the Argentina-Italy BIT with reference to the so-called umbrella
clause contained in Article 7(2) of the Argentina-Chile BIT?
(7) Are the Claimants claims contract claims or Treaty claims and
what (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 respect
to the provisions on investment in the territory of Argentina
and 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-
sonae pursuant to Article 25 of the ICSID Convention and Article
1(2) of the Argentina-Italy BIT, and its Additional Protocol, over
each Claimant who is a natural person and who ultimately is
found to have the following characteristics: (i) a natural person
with 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 either
date was not also a national of the Argentine Republic; and (iii)
who was not domiciled in the Argentine Republic for more than
two 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
person with Italian nationality on September 14, 2006 (i.e., the
date of the filing of the Request for Arbitration)?
17
Since the most controversial and novel aspects of the arbitration arguably
concerned issues (1), (2), and (9), the subsequent discussion will focus on
these issues.
18
Issues (1), (2), and (9) raised two main questions. First, given
that the dispute arose out of a sovereign debt restructuring, did it relate to
an investment (jurisdiction ratione materiae
19
), and could it be considered
to arise out of the Argentina-Italy BIT? Second, were mass claims arbitra-
tions permissible under the ICSID and BIT framework? According to the
Tribunal, 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 legal
dispute within the scope of Article 25 of the ICSID Convention, Claimants
and Respondent disagreed on whether the claims submitted to the Tribunal
arose out of the rights and obligations contemplated in the Argentina-Italy
BIT or whether they were purely contractual claims arising out of the breach
of the bond documents and Claimants related security entitlements. In ad-
dressing this question, the Tribunal applied a prima facie standard, asking
whether the facts alleged by the Claimants were potentially sufficient to
amount to a breach of the Argentina-Italy BIT. If Claimants merely had a
contractual claim, the Tribunal would not have jurisdiction because a BIT is
not intended to provide a substitute for regular contractual remedies.
20
While the Tribunal conceded that Argentinas failure to comply with the
terms of the bonds could raise contractual claims, it determined that these
were not pure contractual issues. Instead, it held that there were separate
contractual claims and claims arising under the Argentina-Italy BIT. Ac-
cording to the Tribunal, Argentinas behavior following its default derives
from Argentinas exercise of sovereign power. Thus, what Argentina did, it
did based on its sovereign power; it is neither based on nor does it derive
from 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, 695710.
19. Jurisdiction ratione materiae refers to the Tribunals jurisdiction over the nature of the case and
must therefore be held present for the Tribunal to hear the case.
21. Id. 323.
sion of State power, not of contractual rights and obligations. Since the
claims raised in Abaclat were not pure contractual claims, the Tribunal held
that 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 an
investment within the meaning of Article 1 of the Argentina-Italy BIT
and Article 25(1) of the ICSID Convention.
22
With regard to the latter requirement, Argentina contended that security
entitlements of the type at stake in Abaclat did not constitute investments
within the meaning of Article 25 of the ICSID Convention. Argentina ar-
gued that a particular economic transaction must meet certain criteria set
forth 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) the
existence of an operational risk, (d) a certain regularity of profit, and (e) a
contribution to the economic development of the host State.
24
According
to 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 were
not made within the territory of Argentina as required under Article 1 of
the Argentina-Italy BIT because the Claimants were too far removed from
the actual investment. According to Argentina, this was because the Italian
bondholders had purchased bonds from Italian banks that had provided the
actual investment in the form of a lump-sum before re-selling the relevant
bonds.
25
The Tribunal, however, held that Claimants bonds and security
entitlements 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 fit
the 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 in
describing the possible characteristics of investments, the Tribunal found
that the criteria set forth in Salini should not create a limit on the types of
financial transactions that may constitute an investment that neither the
ICSID 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, 5152 (July 23, 2001) [hereinafter Salini].
25. Id. 341(ii), 373.
26. Id. 36267.
27. Id. 364.
28. Id. 344.
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.
29
The 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 qualify
as an investment under the ICSID rules for a different purpose [B]. It is not
necessary that [A] be one of the purposes listed in the ICSID rules and, vice
versa, 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 include
financial instruments such as bonds. Consequently, the Claimants security
entitlements fit the definition of investment under the Argentina-Italy
BIT. Further, given the aim of the ICSID Convention to encourage private
investment and to provide parties to an investment with the tools and flexi-
bility to specify what kind of investment they want to promote it would
be contrary to the policy and values of the ICSID Convention to deny the
Claimants protection of their investments that the parties clearly intended
to be within the scope of the Argentina-Italy BIT.
31
Next, the Tribunal turned to the question of whether the investments
were made in Argentina. The Tribunal rejected the Respondents contention
that the Claimants were too far removed from the investment to satisfy this
criterion. According to the Tribunal, the relevant inquiry for determining
the place where an investment is made is whether the invested funds were
ultimately made available to the host state and whether they supported the
states economic development.
32
As there was no doubt here that the funds
generated through the issuance of the concerned bonds were ultimately
made 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 related
security entitlements satisfied the definition of investment under both the
ICSID Convention and the Argentina-Italy BIT. Further, the related claims
connected to the sovereign debt restructuring were not purely contractual
and 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.
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 Claimants
in Abaclat were permissible under the ICSID framework. Three relevant is-
sues pertaining to the arbitration of mass claims in a BIT context will be
addressed below: (i) the issue of consent in mass claims, (ii) the silence on
the issue of mass claims in both the ICSID and BIT rules, and (iii) the
problem of guaranteeing the Respondents right to present a full defense
while allowing mass claims to proceed.
1. Consent in Mass Claims Arbitrations
As a general matter, arbitration is a purely consensual means of dispute
resolution. Within the context of BIT arbitration, consent is generally con-
sidered to have been given when the ICSID proceedings are initiated, which
in essence amounts to the investors acceptance of the states offer to arbi-
trate claims as provided under the relevant BIT.
34
In cases where mass
claims 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 to
each potential Claimant. This package included the TFA Instruction Letter,
the Power of Attorney, the TFA Mandate, and additional questionnaires and
instructions.
35
In determining whether the Claimants consent was valid, the
Tribunal held that it had to find both the existence of a written document
incorporating a valid consent to the ICSID arbitration and evidence that the
statement of consent reflected the Claimants sincere intention.
36
However,
the Tribunal noted that it would give due regard to the fact that none of the
Claimants themselves had attempted to invoke a claim of invalid consent
and 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 in
the TFA Mandate Package was sufficiently clear and unambiguous to satisfy
the requirement of a written document of consent.
38
Additionally, although
the TFA Mandate Package required participating Claimants to refrain from
suing the Italian banks financing the arbitration (who also sold them the
bonds) while the arbitral suit was pending, the Tribunal found that the
advantage Claimants gained by participating in the arbitration justified the
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.
imposition of certain restrictions.
39
Further, the TFA Mandate Package per-
mitted the Claimants to conduct an ICSID arbitration at the expense of the
TFAs member banks.
40
This was a particularly compelling benefit, as many
Claimants would not have been in a position to initiate ICSID arbitration
without the TFA Mandate. The Tribunal reasoned that the arrangement
between the banks and the Claimants resembled a risk insurance policy.
41
The banks paid for the ICSID arbitration costs (as they would pay an insur-
ance premium), and in return they were temporarily protected against the
risk of potential lawsuits from the Claimants. As the features and trade-offs
of the TFA Mandate Package were abundantly clear and benefitted both
parties, 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 proceedings
should vitiate consent. However, the Tribunal found that the TFA Mandate
Package was sufficiently clear to support a finding that the Claimants who
signed 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 to
the mass claim. None of the Claimants themselves claimed a lack of consent
and they were in a position to appreciate the scope and meaning of their
commitment to the ICSID arbitration through the TFA Mandate Package.
44
With regard to Argentinas consent, the Tribunal held that through the
Argentina-Italy BIT, in particular Article 8(3), Argentina generally con-
sented to ICSID arbitration for disputes falling within the scope of the
treaty.
45
The treaty, however, did not mention mass claims. Consequently,
the Tribunal considered whether express consent to mass proceedings was
necessary or whether general consent to ICSID arbitration was sufficient.
To begin, the Tribunal assumed that it had jurisdiction over each of the
individual claims and reasoned that it would be difficult to justify losing its
jurisdiction simply because the number of Claimants was unusually high.
46
Additionally, the claims in Abaclat were brought collectively because of the
type and nature of the investment at issue. Since the Argentina-Italy BIT
covers 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 and
admissibility of the claims, the Tribunal refrained from addressing whether each individual claimant had
satisfied 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.
tive relief mechanisms and since the ICSID Convention aims at promoting
and protecting investments under BIT regimes, it would be contrary to the
purpose 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 consent
to the form of such arbitration.
47
Thus, the Tribunal reasoned that Argen-
tinas consent to mass claims would depend on whether such claims were
permissible within the framework of the ICSID Convention, not on whether
Argentina expressly consented to mass proceedings in the Argentina-Italy
BIT.
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 a
qualified silence, indicating that mass claims were not allowed, or was
this an unintended gap, which the Tribunal has the power to fill?
49
In
answering this question, the Tribunal made a series of inferences based on
its findings regarding the purpose and scope of the Argentina-Italy BIT. It
found 1) the relevant BIT covered investments that are likely to involve a
large number of Claimants if violated; 2) such investments were likely to
require 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 investments
such 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 Rule
19 of the ICSID Arbitration Rules provide the Tribunal with the authority
to make procedural modifications necessary to hear mass claims. Article 44
provides: If any question of procedure arises which is not covered by this
Section or the Arbitration Rules or any rules agreed by the parties, the Tri-
bunal shall decide the question.
51
In addition, Rule 19 ICSID Arbitration
Rules states: The Tribunal shall make the orders required for the conduct
of the proceeding.
52
Since the Tribunal found that the necessary modifica-
tions to hear mass claims concerned only the method of examination and the
manner of presentation rather than the substance or the object of the claim,
the Tribunal concluded that it had the power to diverge from the usual
ICSID 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.
jsp
50. Id. 51819.
51. Id. 509.
52. Id. 510.
53. Id. 534535.
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 full
case, these limits on the rights of both parties were justified in the interest
of overall fairness. Neither party would be put at an unfair disadvantage
given that all parties procedural rights would be curtailed slightly and
given that the alternative of conducting 60,000 separate proceedings would
be 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 or
at least sufficiently homogenous.
55
In Abaclat, each Claimants individual
claim arose from the same basic type of financial instrument and found the
same 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 brought
in Abaclat, the Tribunal considered the specific method of examination it
should adopt given the mass aspect of the case. The Tribunal ultimately
decided to abstain from selecting a method of examination before hearing a
basic 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 Tribunal
anticipates 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.
59
Other issues will be generally applicable, but may require some distinction
among sub-groups of Claimants for which a sampling procedure may be
appropriate.
60
Finally, some issues may yet require a case-by-case analysis.
61
For this reason, the Tribunal refrained from determining the precise arbitra-
tion procedure until phase one of the merits phase has been completed. In
the 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 the
Tribunal issues its ruling on the merits of the case, the Tribunals decision
on the jurisdictional phase recently received a boost in legitimacy from the
54. Id. 536, 545.
55. Id. 540.
56. Id. 544.
57. Id. 53337, 668.
58. Id. 668.
59. Id. 669.
60. Id.
61. Id.
ICSID. In September 2011, the Abaclat arbitration was suspended following
Argentinas request to disqualify the two arbitrators who issued the opinion
of 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 developments
increase the likelihood that Abaclat will be followed in the future and will
have 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 could
bring an ICSID suit against a defaulting sovereign and attempt to resolve
claims 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 may
influence the way BITs are drafted and may inspire countries to write more
narrowly tailored arbitration clauses that explicitly prohibit mass claims or
specify that arbitration of claims related to sovereign debt restructuring is
not available.
Additionally, the decision is noteworthy for its refusal to apply the other-
wise widely accepted Salini criteria for determining whether a particular
financial transaction constitutes an investment.
64
In rejecting the Salini
factors, the Tribunal adopted a broader approach that may expand the types
of claims that can be brought under ICSID jurisdiction. Now, claims may be
based on purely financial instruments bought by far removed investors so
long as the claims relate to a sovereigns actions. As a result of this broader
definition of investment and the determination that claims resulting from
sovereign debt restructuring may fall within ICSID jurisdiction, it is likely
that more of these claims will be resolved in arbitration rather than in court.
This outcome is made more likely because judgments of international
arbitral 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 van
den Berg. Professor Georges Abi-Saab, the third member of the Tribunal, wrote a dissenting opinion and
resigned from the Tribunal in October 2011.
63. The current members of the Tribunal are Professors Tercier and van den Bergthe two arbitra-
tors who decided in favor of upholding jurisdictionand Santiago Torres Bernardez. See ICSID, List of
Pending Cases, Nr. 34, available at http://icsid.worldbank.org/ICSID/FrontServlet?requestType=Gen
CaseDtlsRH&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.
in courts in New York, Germany, Italy, and elsewhere,
65
and some of these
claims have resulted in multibillion-dollar judgments against Argentina.
66
However, sovereign immunity rules make it nearly impossible
67
for
Claimants to enforce their awards because foreign sovereigns assets are
largely protected from seizure. Under the Foreign Sovereign Immunities
Act, though, it is easier to attach a foreign countrys assets to enforce an
arbitral award than to enforce a foreign judgment.
68
Additionally, arbitra-
tion has more favorable rules for enforcing arbitral awards than regular court
procedures in countries that are signatories to the New York or ICSID Con-
ventions. Together with the Tribunals apparent expansion of the definition
of investment, the relative ease of enforcing arbitral judgments suggests
that foreign investors will choose to bring suit in arbitral proceedings as
opposed to foreign courts.
Finally, the Ablacat decision held for the first time that mass claims are
admissible under the rules of the ICSID. If the decision stands, it means that
individual 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 the
costs of arbitrating each individual claim. This development may increase
the number of mass claims in arbitral proceedings and eventually lead arbi-
tral institutions to address the question of mass claims expressly in their
procedural 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. R

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