Continental Casualty Company v. the Argentine Republic: Argentina emerges largely victorious in dispute related to country’s financial crisis

By Damon Vis-Dunbar
September 10, 2008

In an award rendered on September 5, 2008, an arbitral tribunal has dismissed all but one of the claims brought by an American investor, Continental Casualty, against the government of Argentina. Argentina was found liable for damages of US$ 2.8 million plus interest: a fraction of the US$ 112 million sought by the claimant.

The dispute—one of a number that stem from Argentina’s response to its financial crisis—concerned an Illinois-based firm’s investment in an Argentinean insurance company, CNA ART. CNA saw its portfolio of low-risk assets, such as cash accounts, treasury bills and government bonds, plunge in value as financial instruments in U.S. dollars were forcibly converted to pesos and asset transfers out of Argentina were restricted.

In its claim, registered with ICSID in 2003, Continental Casualty charged that Argentina had breached four provisions in the US-Argentina BIT: (i) the requirement to observe contractual obligations; (ii) the requirement to provide compensation following an expropriation; (iii) the requirement to treat an investment fairly and equitably; (iiii) and finally, the requirement to protect the free transfer of assets.

Argentina commenced its defense by portraying the scale of the economic depression that gripped the country in 2001-2002, in which the government says it “faced a terminal situation and had to forcibly change the economic plan of the country as a result of the devaluation of the local currency.” As it has argued in other cases, Argentina maintained that the measures it implemented to rein in the crisis were “proportional to the situation”.

Argentina absolved under the “state of necessity” defense

Argentina’s success in this case drew from invoking a provision in the US-Argentina BIT that takes into account a government’s duty to maintain public order. Article 11 reads:  “This 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 restoration of international peace or security, or the Protection of its own essential security interests.”

Argentina has turned to this provision, as well the “state of necessity” standard under customary international law, in other investment arbitrations that relate to emergency measures enacted during its financial crisis; however, tribunals have differed on whether it absolves Argentina from alleged breaches of its investment treaty obligations.

In this case, the tribunal was persuaded that a severe economic crisis, of the sort experienced by Argentina, qualified as an “essential security interest”. Moreover, the Government’s measures to combat the crisis were, for the most part, deemed “necessary”.

The one exception related to Argentina’s restructuring of treasure bills held by Continental Casualty. For several reasons, including the fact that Argentina’s economy was returning to normality at the time the restructuring took place, the tribunal held that the measure could not be considered necessary. For this act, Argentina was found to have breached the Fair and Equitable Treatment standard of the BIT, for which it is liable for US$ 2.8 million in damages, plus interest.

All other claims by Continental Casualty were dismissed. The Parties were ordered to bear their own legal costs and share the cost of administering the proceedings.

The award is availabe from the ITN website in English and Spanish.

For other recent ITN reporting on awards involving the government of Argentina relating to the country’s financial crisis, see:

Secret $185 Million award against Argentina comes to light in D.C. Court”,
By Luke Eric Peterson, Investment Treaty News, April 1, 2008.
This report describes an award rendered in a dispute between Argentina and the UK energy firm British Gas. In awarding damages of US 185 million, the tribunal rejected Argentina’s “state of necessity” defense.

Argentina liable for breaches of US-Argentina BIT in claim by US gas co. Sempra;
latest award to be rendered in spate of financial crisis claims by foreign investors
”, Investment Treaty News, October 15, 2008.
This report describes an award rendered in a dispute between Argentina and the US gas company, Sempra Energy. The tribunal in this case also rejected Argentina’s “state of necessity” defense.