Continental Casualty v. Argentina

Continental Casualty Co. v. Republic of Argentina, ICSID Case No. ARB/03/9

(Originally published in 2011 in International Investment Law and Sustainable Development: Key cases from 2000–2010; republished on this website on October 18, 2018. Read more here.)

Decisions and award available at


Expropriation, fair and equitable treatment, legitimate expectations, margin of appreciation, necessity defence, reference to other bodies/principles of law, umbrella clause

Key dates

Request for Arbitration: 17 July 2003

Decision on Jurisdiction: 22 February 2006

Award: 5 September 2008

Decision on Preliminary Objection to Application for Annulment: 23 October 2009

Decision on Stay of Enforcement of Award: 23 October 2009

Decision on Annulment: Pending[1]


Prof. Giorgio Sacerdoti (president)

Mr. V. V. Veeder (claimant appointee)

Lic. Michell Nader (respondent appointee)

Forum and applicable procedural rules

International Centre for Settlement of Investment Disputes (ICSID)

ICSID Rules of Procedure for Arbitration Proceedings

Applicable treaty

United States–Argentina Bilateral Investment Treaty (BIT)

Alleged treaty violations

  • Expropriation
  • Fair and equitable treatment
  • Transfers relating to an investment
  • Umbrella clause

Other legal issues raised

  • Interpretation—reference to other bodies/principles of law
  • Margin of appreciation
  • Necessity defence

1.0 Case Summary

1.1 Factual background

This case is one of the more than forty investment treaty arbitrations brought by investors challenging measures taken by Argentina in response to its 2001–2002 financial crisis. In June 1997, prior to the crisis, Continental Casualty (“Continental”), a U.S. company, acquired a 70 per cent shareholding in one of Argentina’s leading providers of workers’ compensation insurance services. In December 2000, Continental increased ownership of its Argentine subsidiary to 99.9995 per cent and the subsidiary’s name was changed to CNA ART.

According to Continental, prior to March 2001, the CNA ART investment portfolio was primarily in assets denominated in Argentine pesos, which were at the time fully convertible to U.S. dollars at a one-to-one exchange rate. In order to hedge the risk of devaluation during the financial crisis, CNA ART’s management decided to invest assets within Argentina in low-risk U.S.-denominated assets. Continental claimed that commencing in December 2001, Argentina enacted a series of decrees and resolutions that destroyed the legal security of the assets held by CNA ART and frustrated CNA ART’s ability to hedge against the risk of the devaluation of the peso. Inter alia, Argentina restricted transfers out of its territory, pesified U.S. dollar deposits, and pesified and defaulted on its debt instruments. Continental claimed that, due to these measures, it suffered losses of US$46,412,000 (paras. 16–19).

1.2 Summary of legal issues and decisions

The Tribunal held that Continental failed entirely in its claims based on freedom of transfer and the umbrella clause (regarding non-contractual obligations). The Tribunal further held that the defence of necessity in the United States–Argentina Bilateral Investment Treaty (BIT) precluded Argentina’s liability for breaching the BIT’s umbrella clause (regarding contractual obligations) and for failing to ensure fair and equitable treatment (other than regarding certain treasury bills). The sole claim on which Continental prevailed was that of breach of fair and equitable treatment regarding the 2004 restructuring of certain treasury bills (known as “LETEs”). For this breach, the Tribunal held Argentina liable to pay compensation of US$2,800,000 plus interest (paras. 304–305).

Both Continental and Argentina have sought annulment of the award; a decision on annulment is pending as of 31 December 2010.

2.0 Select Legal Issues

This case is important in two main respects. First, it is notable for its discussion of umbrella clauses requiring the host state to observe “any obligations it may have entered into with regard to investments.” The Tribunal held that obligations contained in the general law of the host state are not covered by umbrella clauses; rather, to be covered, laws must address a specific business sector and its investors. Moreover, the Tribunal held that obligations contained in a contract entered into regarding the investment may be covered, even if the claimant was not a party to the contract. This contrasts with the finding of the tribunal in Siemens v. Argentina, which held that an umbrella clause did not cover obligations contained in a contract to which the host state was not a party. The Continental Casualty award is also notable for its finding that Argentina qualified for the defence of necessity under Article XI of the BIT, in particular its view that the standard of “necessary” should be based not on the customary law standard set out in Article 25 of the Draft Articles on State Responsibility, but rather on the standard used in World Trade Organization (WTO) law regarding Article XX of the General Agreement on Tariffs and Trade (GATT).

2.1 Accepting Argentina’s defence of necessity

The Tribunal held that the ordinary meaning of Article XI[2] of the BIT indicated that any measure properly taken because it was necessary “for the maintenance of the public order” or for “the protection of essential security interests” would lie outside the scope of the BIT, so that the party taking it would not be in breach of the treaty (para. 164). The Tribunal differentiated Article XI of the BIT from the defence of necessity under customary international law and held that Article XI was not subject to the same strict requirements as the plea of necessity under customary international law (para. 167). The Tribunal noted that the parties disagreed over the application of Article XI, in particular (i) whether the 2001–2002 crisis involved the “maintenance of public order” and/or the protection of Argentina’s “essential security interests,” (ii) whether Article XI was “self- judging,” and (iii) whether the challenged measures were “necessary” in order to maintain the public order and protect the essential security interests of Argentina (para. 169).

The Tribunal held that “maintenance of public order” was intended as a synonym for “public peace,” which could be threatened by insurrections, riots and violent disturbances of the peace. Actions by central government to preserve or restore civil peace, even when due to significant economic and social difficulties, could fall within the scope of Article XI. As to “essential security interests,” the Tribunal recalled that international law was not blind to states’ needs to exercise their sovereignty in the interest of their populations, free from internal as well as external threats to security. Such national interests might include protecting the health, safety and welfare of a state’s people.

The Tribunal held that it was impossible to deny that, inter alia, the near collapse of the domestic economy, the social hardships bringing more than half the population below the poverty line, the real risk of political disturbances, the abrupt resignations of successive presidents, and the resort to emergency legislation, taken together, qualified as a situation where the maintenance of public order and the protection of essential security interests of Argentina were vitally at stake. According to the Tribunal, the protection of essential security interests under Article XI does not require “total collapse” of the country “before responsible national authorities may have recourse to its protection…. There is no point in having such protection if there is nothing left to protect” (para. 180). The Tribunal adds, “Moreover, in the Tribunal’s view, this objective assessment [of the scope of the exception] must contain a significant margin of appreciation for the state applying the particular measure: a time of grave crisis is not a time for nice judgments, particularly when examined by others with the [advantage] of hindsight” (para. 181).

The Tribunal held that, contrary to Argentina’s assertion, Article XI of the BIT was not self-judging (para. 187).

The Tribunal disagreed with the tribunal in Enron v. Argentina that the standard of “necessary” under the BIT was inseparable from the customary law meaning of “necessary.”[3] Rather, the Tribunal held that because the text of Article XI reflected the formulation of Article XX of the GATT, it was more appropriate to refer to WTO case law. With regard to the necessity test under Article XX of the GATT, the Tribunal held that it was well established that “necessary” is not limited to that which is “indispensable,” although it was located on a continuum significantly closer to “indispensable” than merely “making a contribution to.” To determine whether a measure that is not indispensable may nevertheless be “necessary,” one should weigh the relative importance of interests furthered by the measure, the measure’s contribution to realizing the ends pursued, and the impact of the measure on international commerce.

Under WTO law, a measure is not necessary if another treaty-consistent or less inconsistent alternative measure that the concerned member state could reasonably be expected to employ is available. An alternative measure is not “reasonably available” where it is merely theoretical in nature, e.g., where the member state is not capable of taking it or where the measure imposes an undue burden, such as prohibitive costs or technical difficulties. Moreover, a “reasonably available” alternative must be a measure that would preserve the state’s right to achieve its desired level of protection with respect to the objective pursued (paras. 191–195).

The Tribunal assessed each of the challenged measures in light of the principles drawn from WTO law. It noted that it was not called upon to make any political or economic judgment on Argentina’s policies but only to evaluate if the plea of necessity was well-founded (paras. 196–199). The Tribunal concluded that for all but one of the challenged measures, there were no reasonably available alternatives. The one exception was Argentina’s restructuring of certain treasury bills (LETEs) in December 2004. The Tribunal rejected the defence of necessity under Article XI with respect to the restructuring of the LETEs, inter alia, because of the late date in which the swap was offered, when Argentina’s financial conditions were evolving toward normality. The Tribunal held that the same factor meant that Argentina could not avail itself of the alternative defence of necessity in customary international law, either (paras. 220–221).

2.2 Fair and equitable treatment and the issue of non-discriminatory laws of general application

Continental claimed that “a stable legal and business environment” was an essential element of the fair and equitable treatment standard and that as an investor it had a “legitimate expectation” that the convertibility regime of Argentina would not be changed. The Tribunal, however, held that Continental’s situation was significantly different from some of the other investor claims against Argentina regarding measures taken during the financial crisis. In particular, the legal or contractual measures at issue in the present case were addressed either to the generality of Argentina’s public or to a wide range of depositors and subscribers of financial instruments. Moreover, Continental had not relied on the general legislative “assurances” in making its investment in Argentina, since it had entered into that market before these assurances were made.

In light of the above, the Tribunal concluded that Continental could not invoke legitimate expectations regarding the change of the currency convertibility regime, notwithstanding political declarations that convertibility would not be abandoned. As far as the pesification of debt securities contracts being considered contrary to fair and equitable treatment, the Tribunal noted that these measures were general and not discriminatory and moreover the necessity defence under Article XI precluded Argentina’s liability. The Tribunal did find, however, that Argentina had breached fair and equitable treatment with respect to its 2004 restructuring of the LETE treasury bills and, as noted above, the Tribunal also held that, due to the late date of this restructuring, the defence of necessity was not available. The Tribunal held that the terms of the unilateral restructuring were unfair, in particular because they required holders to take substantial losses and to waive all rights, including the protection of the BIT (paras. 249–265).

2.3 Adopting a broad interpretation of the umbrella clause as encompassing a wide array of contractual commitments

The Tribunal noted that arbitral tribunals’ interpretations of umbrella clauses requiring a host state to observe “any obligations it may have entered into with regard to investments” remained inconsistent. It held that to be covered, obligations must address the investments with some degree of specificity, i.e., obligations contained in the general law of the host state would not be covered. The clause may however, cover unilateral commitments arising from the host state’s law regulating a particular business sector and addressed specifically to the foreign investors therein. Provided that the obligations had been entered “with regard” to investments, they might be entered into with persons or entities other than the investor itself, so that a contractual undertaking by Argentina to Continental’s subsidiary CNA ART would not, in principle, be excluded.

The Tribunal held that the legislative assurances relied upon by Continental were not covered by the umbrella clause because they were directed either to Argentina’s general public or to a wide range of depositors and subscribers. Regarding contractual assurances contained in the debt securities, the Tribunal held that such obligations were guaranteed by the umbrella clause, but that liability was precluded by Argentina’s defence of necessity under Article XI. With respect to the LETE treasury bills, the Tribunal held that because it had already found a breach of fair and equitable treatment regarding the bills, it did not need to investigate further whether Argentina’s actions regarding the LETEs also breached the umbrella clause (paras. 287–303).


[1] As of 31 December 2010.

[2]  Article XI states that “[t]his Treaty shall not preclude the application by either Party of measures necessary for the maintenance of public order, the fulfillment of its obligations with respect to the maintenance or the restoration of international peace or security, or the protection of its own essential security interests.”

[3] According to the International Law Commission’s Commentary on the Draft Articles on State Responsibility, paragraph 15, a plea of necessity under customary international law “is excluded if there are other (otherwise lawful) means available, even if they may be more costly or less convenient.”