In an arbitration initiated by U.S.-based Italba Corporation (Italba) against Uruguay, the ICSID<\/span> tribunal declined its subject-matter jurisdiction. In its award of March 22, 2019, the tribunal concluded that Italba lacked ownership or control over the investment in dispute.<\/p>\r\n In 1997, the Uruguayan Ministry of National Defense granted Italian national and permanent U.S. resident Gustavo Alberelli the authorization to commercially provide dedicated wireless digital lines for data transmission. Further, the National Communications Authority DNC allocated to him the exclusive use of stipulated frequencies. Between 1999 and 2000, Alberelli transferred the authorization and frequencies to Trigosul Sociedad An\u00f3nima (Trigosul), a Uruguayan company allegedly acquired by him and his mother, Carmela Caravetta Durante, through Italba between 1996 and 1999.<\/p>\r\n Trigosul allegedly failed to pay its regulatory dues from July to September 2009. Additionally, upon inspection, the Uruguayan Regulatory Unit for Communications Services (URSEC) did not find Trigosul\u2019s premises at its registered address. Hence, it recommended the revocation of Trigosul\u2019s 1997 authorizations and the release of its frequencies. This was implemented in January 2011.<\/p>\r\n Trigosul challenged the URSEC resolution and consequent actions. A Uruguayan court\u2019s finding in October 2014 annulled the revocation of Trigosul\u2019s authorization and granted the company rights to new frequencies. In Trigosul\u2019s view, however, these new frequencies were worthless. Moreover, it considered that the delayed restoration of its rights in 2016 was a breach of Uruguay\u2019s obligation to tender prompt, adequate and effective compensation for its expropriatory acts.<\/p>\r\n Claiming full ownership and control over Trigosul, Italba instituted ICSID proceedings against Uruguay under the Uruguay\u2013United States BIT<\/span> (the BIT). It argued that Trigosul\u2019s licence and associated rights were \u201cinvestments\u201d within the meaning of BIT Article 1, and characterized Uruguay\u2019s actions as expropriatory, discriminatory, and in breach of the FET<\/span> and full protection and security clauses.<\/p>\r\n Italba challenged the independence of Uruguay\u2019s expert, Eugenio Xavier de Mello Ferrand, alleging that he was a partner at a law firm concurrently representing Uruguay in another arbitration at the time. In response, the expert stressed that his firm was structured as an \u201ceconomic interest group\u201d (GIE, in its Spanish acronym), wherein each attorney and his or her clients have individual attorney\u2013client relationships, independent and autonomous from other members of the firm.<\/p>\r\n The tribunal examined the structure of GIEs in Uruguayan law and concluded that, while such entities were formed to develop the economic activity of their members, these members were neither entitled to work jointly nor to seek shared profits. Further, it pointed to the distinct mode of operation of law firms in Latin America, where attorneys share expenses and facilities, but derive no benefit from each other\u2019s work. In this light, the tribunal equated the GIE model of de Mello\u2019s firm to a \u201cbarristers\u2019 chambers in England,\u201d distinguishing it from \u201ca law firm in which the members are in partnership and share profits\u201d (para. 151).<\/p>\r\n Recognizing that there is no automatic disqualification \u201cwhere a member of a barristers\u2019 chambers acts as an arbitrator in a case where another member is acting as counsel\u201d (para. 151), the tribunal denied de Mello\u2019s automatic disqualification as an expert. Additionally, it found Prof. de Mello under no obligation to disclose the ongoing activities undertaken by other members of his firm, due to the independent operations of each member.<\/p>\r\n These findings were corroborated by reference to the IBA Rules on Taking of Evidence in International Arbitration<\/a><\/u>. The rules do not compel experts to furnish details of present or past relationships between the parties and their organizations\u2014instead, the expert\u2019s objectivity must be assessed based on his own economic or personal position.<\/p>\r\n Concluding that Prof. de Mello was not aware of his firm\u2019s engagements with Uruguay and did not derive any benefit from those engagements, the tribunal denied Italba\u2019s request to exclude his report from the record.<\/p>\r\n Italba asserted its ownership over Trigosul on several grounds. First, it argued that through successive transfers, Trigosul\u2019s shares now belonged to Italba. Second, it claimed that, as indicated on the back of the share certificates, they had been endorsed in favour of Italba. Third, Italba asserted that it made investments and negotiations on behalf of Trigosul. Thus, according to Italba, both the formal actions and the economic reality evinced its ownership of Trigosul. Conversely, Uruguay criticized these arguments based on inconsistencies and discrepancies in Italba\u2019s evidence.<\/p>\r\n At the outset, the tribunal noted that Trigosul\u2019s share certificates did not expressly suggest Italba\u2019s ownership\u2014only Ms. Durante\u2019s and Mr. Alberelli\u2019s. Their exclusive shareholding was further confirmed in three folios of the book of minutes of shareholders\u2019 and board of directors\u2019 meetings.<\/p>\r\n It also found that only one of the six available share certificates recorded an endorsement in Italba\u2019s favour. Since this endorsement did not stipulate a place, the validity of the endorsement was checked under the law of Uruguay, where Trigosul was established, registered and operated. However, Uruguayan law compels notification of every endorsement in a registered securities ledger and a record in the company\u2019s stock ledger. The endorsement in question was found to be invalid, since it was both unregistered and unrecorded. The tribunal also noted that this invalid endorsement could not show Trigosul\u2019s intention to transfer its entire shareholding to Italba. Here, taking note of Mr. Alberelli\u2019s experience as a businessman, the tribunal refused to excuse the inconsistencies in Trigosul\u2019s books as his \u201clack of legal knowledge\u201d (para. 209).\u00a0<\/p>\r\n With respect to the economic reality of Trigosul\u2019s ownership, the tribunal followed Prof. de Mello\u2019s reasoning\u2014the doctrine\u2019s relevance was limited to cases where a company\u2019s legal personality was misused to commit fraudulent acts. Additionally, Italba failed to furnish evidence of participation in Trigosul\u2019s shareholder meetings, share in its profits and losses, role in the management of its business, or contributions to its capital. Thus, the tribunal held that Italba did not qualify as Trigosul\u2019s owner under Uruguayan law.<\/p>\r\n The tribunal also assessed Italba\u2019s claims of ownership under the laws of the U.S. state of Florida, where it was incorporated. Florida law requires delivery of the share certificates, intent to transfer the shares, and the acceptance of the shares by the transferee. Citing insufficient evidence on all three counts, the tribunal dismissed Italba\u2019s contentions.<\/p>\r\n Article 1 of the BIT defines \u201cinvestments\u201d as assets owned or controlled by investors. The tribunal acknowledged that this article extends the BIT\u2019s protection to investments merely \u201ccontrolled\u201d by investors. Since the term was not defined in the treaty, the tribunal ascertained its meaning based on the facts of the case.<\/p>\r\n Italba claimed that by making business decisions for Trigosul, contributing to its capital, funding its operations and representing itself to third parties as Trigosul\u2019s owner, it exercised \u201ccontrol\u201d over Trigosul. Upon evaluation of the evidence in this regard, the tribunal found that Italba\u2019s claims were based on inconclusive evidence and inconsistent with documentary evidence filed by its witnesses. As evidence, Italba also alluded to the potential joint ventures it was negotiating, claiming Trigosul as its subsidiary, to realize the full value of its investments in Trigosul. The tribunal found no dispositive value in this fact alone.<\/p>\r\n Thus, dismissing Italba\u2019s claims of ownership and control over Trigosul, the tribunal declined jurisdiction under Article 25 of the ICSID Convention<\/span>. Consequently, Uruguay\u2019s other jurisdictional objections were not evaluated by the tribunal.<\/p>\r\n The tribunal upheld Uruguay\u2019s objections to jurisdiction. Based on both parties\u2019 agreement that the \u201closer pays\u201d principle applied and on the tribunal\u2019s discretion to allocate costs under Article 61(2) of the ICSID Convention, the tribunal directed Italba to bear its own costs and reimburse all of. Uruguay\u2019s costs. Due to insufficient basis, it denied Uruguay\u2019s request for interest on costs.<\/p>\r\n Notes: <\/em>The tribunal was composed of Rodrigo Oreamuno (president, appointed by the parties, Costa Rican national), John Beechey (claimant\u2019s nominee, British national), and Zachary Douglas (respondent\u2019s nominee, Australian national). The award is available at https:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw10439.pdf<\/a><\/u><\/p>\r\n Vishakha Choudhary <\/strong>is an LL.M. Candidate (2019) at the Europa-Institut, University of Saarland (Germany) and a Researcher at the Chair of Prof. Dr. Marc Bungenberg, Director of the Europa-Institut.<\/p>\r\nBackground and claims<\/h3>\r\n
Italba\u2019s challenge to Uruguayan expert rejected<\/h3>\r\n
Italba fails to demonstrate ownership of Trigosul<\/h3>\r\n
Italba did not control Trigosul<\/h3>\r\n
Decision and costs<\/h3>\r\n