Tribunal pierces the corporate veil in jurisdictional decision involving Argentina

By Damon Vis-Dunbar
9 January 2009

Two out of three members of an ICSID tribunal have declined jurisdiction in a claim brought by TSA Spectrum de Argentina S.A. (TSA) against the Argentine Republic under the Netherlands-Argentina bilateral investment treaty, having determined that TSA is not covered by the treaty because it is owned by an Argentine citizen.

TSA, an Argentine company that took over Argentina’s newly privatized radio spectrum, is a subsidiary of TSI Spectrum International N.V., a corporation registered in the Netherlands. However, after unraveling the complicated corporate structure that lay behind TSA, the tribunal determined that it was owned by an Argentine citizen, Mr. Jorge Justo Neuss.

It is not unusual for investments to be routed through a third country, in order to benefit from preferential tax regimes, not to mention the extensive BIT portfolios of countries’ like the Netherlands.  Nonetheless, the question facing the tribunal was whether TSA could access the Argentina-Netherlands BIT by virtue of its affiliation with the Dutch incorporated TSI, or whether the tribunal was compelled to peel back the corporate layers until they arrived at the final owner.

In coming to a decision, the tribunal wrestled with the intent of the Article 25(2)(b) of the ICSID Convention, which sets out the Centre’s jurisdictional domain. The article provides two categories of “nationals of another Contracting State”: those that hold foreign citizenship, or company’s under foreign control. Given that TSA did not qualify for the first category—it is a Argentine company owned by an Argentine national¬—the question was whether it met the criteria for the second, i.e., was it a foreign controlled enterprise.

Split tribunal pierces the corporate veil

The award and dissenting opinion are notable for their conflicting views on whether ICSID tribunals are compelled to ‘pierce the corporate veil’ in an effort to determine who, ultimately, controls the investment under dispute.

Two members of the three person tribunal, Judge Hans Danelius and Professor Georges Abi-Saab, sided in favour of “piercing the veil and going for the real control and nationality of the controllers.” Indeed, given that ICSID is intended to settle disputes between foreign investors and host states, the two arbitrators argued that this approach was particularly important “when ultimate control is alleged to be in the hands of nationals of the host State, whose formal nationality is also that of the Claimant corporation.”

In his dissenting opinion, Grant D. Aldonas rejected the notion that either the ICSID Convention or the Argentina-Netherlands BIT moved the tribunal to look beyond where TSA’s parent company was incorporated. “To do so would substitute our judgment for that of the two sovereign states …,” wrote Aldonas, who argued that the BIT was clear in its wording that it protected companies lawfully incorporated in the Netherlands, regardless of the nationality of the owner.

While the majority decision on TSA’s foreign control settled the question of the tribunal’s jurisdiction,  three additional objections to jurisdiction were also raised by Argentina: 1) that TSA relinquished its access to ICSID arbitration under the BIT by signing a concession contract with its own dispute settlement procedures; 2) that TSA did not respect an 18 month period in which the claimant was to seek a settlement through local administrative and judicial remedies; 3) and finally, that TSA employees engaged in corrupt activities in Argentina, and therefore the investment was not made in accordance with Argentine law.

On the first, the tribunal held that the dispute resolution mechanism in the contract did not prevent the claimant from accessing arbitration under the BIT. A distinction could be drawn, said the tribunal, between claims arising out of a breach of the contract and claims arising out a breach of the BIT.

On the second, the tribunal acknowledged that TSA’s claim was premature, but since only three months out of the eighteen month period remained, it concluded that it would be overly formalistic to decline jurisdiction on this ground.

Finally, the tribunal declined to voice an opinion on the corruption charges introduced by Argentina, given that it had already declined jurisdiction over the matter of foreign control.

The award in TSA Spectrum de Argentina S.A. v. Argentina Republic, ICSID Case No. ARB/05/5 is available here: http://ita.law.uvic.ca/documents/TSAAwardEng.pdf

A concurring decision by Professor Georges Abi-Saab is available here: http://ita.law.uvic.ca/documents/TSAAbi-SaabConcurring.pdf

The dissenting opinion of arbitrator Grant D. Aldonas is available here: http://ita.law.uvic.ca/documents/TSADissent.pdf