Client Alerts

ICSID tribunal rules on landmark Italian bondholder’s case

Volterra Fietta Client Alert
7 September 2011

By its Decision on Jurisdiction and Admissibility dated 4 August 2011, an ICSID tribunal has ruled in favour of thousands of Italian bondholders (the “Claimants”) in an investment treaty arbitration against Argentina (the “Respondent”). The dispute involves the Claimants whose Argentine bonds became worthless when Argentina defaulted in sovereign debt in 2002. The decision in Abaclat and others (Case formerly known as Giovanna a Beccara and Others) vs. Argentine Republic (ICSID Case No. ARB/07/5) relates to the Claimants’ claims for compensatory damages under the Argentina-Italy bilateral investment treaty (“BIT”) in relation to these bonds and related security entitlements.


In the 1990s, following the 1980s debt crisis, Argentina started to restructure its economy in order to encourage growth and reduce debt and inflation. One of the ways chosen by Argentina to restructure its economy was through the issuance of sovereign bonds. From 1991 to 2001, Argentina placed over US$ 186.7 billion in sovereign bonds across domestic and international capital markets. Out of the 179 bonds issued by Argentina, 173 were denominated in foreign currencies while 6 were denominated in Argentine Pesos. The Claimants bought 83 of the 173 foreign currency bonds.

By the late 1990s, Argentina began to suffer a severe economic crisis, causing it to incur additional debts. In 2001, Argentina took various measures in order to lighten its debt but remained largely unsuccessful in doing so. In December 2001, Argentina defaulted by publicly announcing the deferral of over US$100 billion of external bond debts owed to both Argentine and non-Argentine creditors, which included the Claimants.

In January 2002, Argentina declared a public emergency with the passage of the Public Emergency and Reform Law of 2002 (“Emergency Law”). The Emergency Law, inter alia, terminated the parity between the peso and the dollar. This caused a substantial devaluation of the peso and exacerbated the weight of debt in foreign currencies, which led Argentina to envisage the restructuring of its foreign debt. In September 2002, eight major Italian banks (Banca Antonveneta, Banca Intesa, Banca Sella, BNL, Iccrea Banca, Monte dei Paschi di Siena, San Paolo and UniCredito) established Task Force Argentina (“TFA”). The TFA’s main objective was to represent the interests of the Claimants in pursuing a negotiated settlement with Argentina.

The Claimants chose not to participate in Argentina’s debt restructuring offer in 2005. In February 2006, the TFA notified Argentina about its intention to file proceedings before the International Centre for the Settlement of Investment Dispute (“ICSID”) against Argentina. In September 2006, the Request for Arbitration was filed with ICSID on behalf of the Claimants.

In April 2010, the Respondent announced the launch of a new debt restructuring offer. This was again rejected by most Claimants as it contained harsher exchange terms than the 2005 offer. However, some Claimants agreed to the 2010 offer and withdrew from the ICSID arbitration.

The decision

At the jurisdiction stage, the ICSID tribunal had to decide, inter alia, the following:

Whether the legal dispute was directly related to the Claimants’ rights under the BIT or whether they were mere contractual rights arising out of the relevant bond documents;

Whether the bonds and/or the security entitlements could qualify as an investment under Article 25 of the ICSID Convention and the terms of the BIT;

Whether the consent given by the Claimants was valid for the purpose of initiating ICSID arbitration;

Whether the consent of Argentina to ICSID arbitration included sovereign debt restructuring cases and “mass claims”; and

Whether “mass claims” are admissible under the current ICSID framework.

Treaty claim vs. Contract claim

The tribunal found that the claims brought by the Claimants were not purely contractual claims but treaty claims. The facts on which the Claimants based their case related to the acts of Argentina following its public default in December 2001. The Emergency Law had the effect of unilaterally modifying Argentina’s payment obligations, whether arising from the concerned bonds or from other debts. The tribunal decided that such acts derived from Argentina’s exercise of sovereign power.

Bonds and security entitlements qualify as an “investment”

The tribunal held that the Argentine bonds and the related security entitlements qualified as investments under both the terms of the BIT and the ICSID Convention. The tribunal noted that Article 1(1)(c) of the BIT specifically included financial instruments within the definition of investment.
Since the Claimants had paid money for the bonds which were made available to Argentina (which could be used either to repay existing debts of Argentina or general government spending), the tribunal found that the Claimants had made a contribution to Argentina’s economy and therefore also made investments under Article 25(1) of the ICSID Convention.

Consent of the Claimants

Argentina challenged the validity of the role of the TFA and argued that the mandate given by the Claimants to the TFA was not adequate to constitute consent under Article 25(1) of the ICSID Convention. The tribunal stressed on the importance of consent in ICSID arbitration and found that the written power of attorney contained a clear and unambiguous expression of irrevocable consent by the Claimant(s) to initiate ICSID arbitration against Argentina. Moreover, the tribunal found that there was no indication that such consent was achieved on the basis of fraud, coercion or essential mistake.

Consent of Argentina

Argentina argued that it had not consented to ICSID arbitration over a dispute relating to sovereign debt restructuring and taking the form of an unprecedented mass action. The tribunal rejected this argument since Argentina could have, under Article 25(4) of the ICSID Convention, notified the Centre of the class or classes of disputes which it could have excluded from the jurisdiction of the Centre. However, no such notifications were made by Argentina. The tribunal found no reason to exempt sovereign debt restructuring cases from the scope of application of the BIT.

Regarding Argentina’s arguments that it had not consented to mass claims, the tribunal noted that the relevant question was not whether Argentina consented to mass proceedings but whether an ICSID arbitration can be conducted in such a form considering it could require an adaptation and/or modification of certain procedural rules. Accordingly, the tribunal felt that this was an issue of admissibility and not strictly a question of jurisdiction.

Admissibility of “mass claims”

Although multiple claimants have initiated ICSID arbitration in the past, this was the first time in ICSID’s history that “mass claims” had been brought before it. The tribunal found that the mass aspect of the Claimants’ claims did not constitute an impediment to their admissibility. In this connection, the tribunal considered the impact of rejecting the “mass claims” for lack of admissibility and requesting each Claimant to file an individual ICSID claim. The tribunal found that not only would this be cost prohibitive for many Claimants, but it would also be practically impossible for ICSID to deal separately with 60,000 individual arbitrations. As a result, the tribunal concluded that a finding of inadmissibility of the claims could constitute a denial of justice. The Claimants’ claims were therefore admissible.


This is a landmark decision. It establishes, for the first time, jurisdiction over “mass claims” brought by thousands of investors under the BIT in connection with Argentina’s issuance of sovereign bonds and sovereign debt restructuring. This decision has significant implications for sovereign finance and for procedures involving multiple claimants and mass claims.

The tribunal noted that the ICSID Convention contained no reference to collective proceedings as a possible form of arbitration. However, the tribunal was of the opinion that the silence of the ICSID framework regarding collective proceedings should be interpreted as a ‘gap in the system’ and not as a qualified silence categorically prohibiting collective proceedings. The tribunal also felt that the adaptations required (if any) to deal with the collective aspect of the claims were issues which related strictly to the manner of conducting the present proceedings, such as collection of evidence, and did not exceed the powers of the tribunal to decide procedural issues under Article 44 of the ICSID Convention and Rule 19 of the ICSID Arbitration Rules.

Another factor which weighed in favour of allowing the “mass claims” was that the present case related to breaches of the BIT and not the relevant bond contracts. Thus, it was irrelevant for the tribunal to consider whether the Claimants had homogeneous contractual rights to repayment by Argentina of the amount paid for the purchase of the security entitlements.

Another interesting observation made by the tribunal related to the concept of “investment” under the terms of the BIT and Article 25 of the ICSID Convention. In line with the broad aims of the BIT as described in its preamble, the tribunal felt that Article 1(1) of the BIT should not be interpreted restrictively with regard to what kinds of activity qualified as an investment. According to the tribunal, the phrase “obligation … having economic value” in Article 1(1)(c) of the BIT could be understood as referring to an economic value incorporated into a credit title representing a loan. As a result, the relevant Argentine bonds could qualify as investment under the terms of the BIT. With respect to Article 25 of the ICSID Convention, the tribunal felt that the Salini approach should not be strictly followed since it would have the indirect effect of contradicting the ICSID Convention’s aim of encouraging private investments. The tribunal was in no doubt that the funds generated through the bonds issuance process were ultimately made available to Argentina and served to finance Argentina’s economic development.

In this case, Argentina also argued that the tribunal did not have jurisdiction since the bond contracts had specific forum clauses which ousted the tribunal’s jurisdiction. However, the tribunal rejected Argentina’s argument that the forum selection clauses in the relevant bond documents excluded Argentina’s consent to ICSID. In this connection, the tribunal stressed that the present case related to alleged breaches of the BIT and not to contractual rights derived from the bonds and as a result the forum selection clauses did not have any particular impact on consent.