International Investment Law and the Host State's Power to Handle Economic Crises - Comment on the ICSID Decision LG&E v. Argentina
![handle is hein.kluwer/jia0024 and id is 273 raw text is: Journal of International Arbitration 24(3): 265-286, 2007.
C 2007 Kluwer Law International. Printed in 7e Netherlands.
International Investment Law and the Host State's
Power to Handle Economic Crises
Comment on the ICSID Decision in LG&E v Argentina
Stephan W SCHILL*
Argentina is facing several claims under bilateral investment treaties (BITs) relating to its emergency legislation
passed to tackle its economic crisis in 2001-2002. This article critically analyzes the second ICSID decision
on the merits handed down in this context in LG&E Energy Corp. v. Argentina and compares it to the earlier
award in CMS v. Argentina. While the decisions do not differ substantially as to the interpretation of substan-
tive investment law, they diverge significantly on the concept of necessity. Unlike CMS, LG&E in part
accepted Argentina's plea of necessity. Th7e article argues that the award in LG&E misconstrued the burden of
prooffor limiting elements of necessity, such as the question of Argentinas contribution to the crisis and the
selection of less restrictive means, and questions whether its exclusion of compensation for the investor's material
loss was accurate even if the plea of necessity was operative.
I. INTRODUCTION
The impact of Argentina's emergency legislation, implemented in reaction to the
country's economic crisis in 2001-2002, is one of the most pressing current issues in
international investment law. It forms the object of approximately forty arbitration pro-
ceedings under various bilateral investment treaties (BITs) that the country has entered
into since the early 1990s1 and raises questions about the relationship between interna-
tional investment protection and the state's power to handle economic crises. A first deci-
sion on this issue has already been handed down by an ICSID tribunal in CMS Gas
Transmission Co. v. Argentine Republic in May 2005.2 The tribunal in this case did not accept
Argentina's state of necessity plea as an exemption from substantive obligations under the
United States-Argentina BIT of November 14, 1991.3 The tribunal did not give effect to
* LL.M.; Scholar of the European Recovery Program/Studienstiftung des deutschen Volkes (2006); Hauser
Global Scholar (NewYork University School of Law, 2005/2006); First and Second Legal State Exam (Bavaria, 2001,
2003); LL.M. in European and International Economic Law (Universitit Augsburg, 2002), LL.M. International Legal
Studies (New York University, 2006).
' The United Nations Conference on Trade and Development (UNCTAD) maintains a list of the BITs
entered into by the Argentine Republic, available at <www.unctad.org/Templates/Page.asp?intltemlD=
2344&lang= 1 >.
2 CMS Gas Transmission Co. v. Republic ofArgentina, ICSID Case No.ARB/01/8, May 12,2005,44 I.L.M. 1205
(2005) (all arbitral awards and party submissions referred to in this article are available at <www.invesmrentclaims.com>).
See Stephan Schill, From Calvo to CMS: Burying an International Law Legacy-Argentina's Currency Reform in the Face of
Investment Protection: 71e ICSID Case CMS v. Argentina, 3 ZEITSCHRIFT FUR SCHIEDSVERFAHREN/GERMAN ARB. J.
(SCHIEDSVZ) 285 (2005); Anne van Aaken, Zwischen Scylla und Charybdis: V64lkerrechtlicher Staatsnotstand und Interna-
tionaler Investitionsschutz, 105 ZEITSCHR]Fr FUR VERGLEICHENDE PECHTSWSSENSCHAFT 544 (2006).
3 Treaty between the United States and the Argentine Republic Concerning the Reciprocal Encouragement
and Protection of Investment, November 11, 1991, 31 I.L.M. 124 (1992).
Copyright 2007 by Kluwer Law International. All rights reserved
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International Investment Law and the Host State's Power to Handle Economic Crises - Comment on the ICSID Decision LG&E v. Argentina
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