In April, I had the honor to attend a conference on international investor-state arbitration held at the London School of Economics. (Below is a picture of me on the roof of the LSE after the conference. Yes, the weather was as bad as it looks.)
There I had the good luck to meet a law professor from William and Mary named Susan Franck. Susan has done a lot of excellent work, but what struck me the most was the time and effort she’s put into verifying all the “stylized facts” that people believe about investor-state arbitration. A stylized fact is a fact assumed to be true for the purposes of argument. Economists love ‘em. So do politicians. (Frex, the sylized fact that most U.S. federal spending fits the normal conversional definitions of wasteful.) But stylized facts aren’t always actual facts.
One big stylized fact about investor-state arbitration is that governments always lose. It isn’t hard to see where that comes from. By most reasonable standards, international investment law is an ass. Companies can freely renegotiate contracts with governments, but governments cannot renegotiate with companies. There are few outs for contingencies short of foreign invasion, and maybe not even then. On the other side, it isn’t hard to believe that most of the time the governments are wrong (like, you know, these guys) and deserve to lose.
Only they don’t lose most of the time. Susan found that governments won 58% of cases. Investors won 38%, and the remainder were settled. (She also found that the average claim was for $343 million, whereas the average award came to only $10.4 million. Go figure.)
So how’s Argentina doing? Well, not too badly. Of its post-2001 cases, 33 have been decided. Argentina won eight, or 24%. Of those eight, it won five in arbitration. Two were annulled and one was overturned by a U.S. district court. It lost nine (27%) ... but annulment hearings are pending in five of those nine. If you put those five into the net-yet-decided category, Argentina’s win percentage goes up to 32%, against a lose percentage of 16%.
Of course, 32% + 16% = 48%. Argentina settled a remarkable 52% of its post-2001 cases! Of these 16 settlements, five (31%) were in electricity, three (20%) in natural gas production and distribution, two (13%) in water and sewer systems, and an additional two (13%) in telecoms. The final one was the Unisys contract mentioned in an earlier post.
The settlements aren’t public, but we do know a little, thanks to Wikileaks. AES owned several power plants, and dropped its suit once the Argentine federal Congress and the Buenos Aires provincial legislature ratified new rate agreements. Pan-American Energy (a subsidiary of BP) sued at ICSID over the pesification of domestic hydrocarbon contracts and the imposition of an oil-export tax. It dropped its claim after Chubut province agreed to renegotiate its E&D concession, presumably by enough to compensate it for the federal takings. If I may take the risk of presenting my own stylized fact, the other settlements were likely similar: rate hikes or other informal compensation, in exchange for a suspension of the international suits.
The bottom line is that Argentina has not done too badly at ICSID and other arbitrations. Its wins outnumber losses two-to-one, and it settles half its cases, as far as we know without direct compensation. What this implies about the unwillingness of the Fernández administration to pay up in its five unequivocal losses, including one pre-2001 case (for a total liability of $427 million) is left as an exercise for the readers.
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