Republic of Argentina v. Plc

• Decision Date: 21 January 2011
• Docket Number: Civil Action No. 08–485 (RBW).
• Parties: REPUBLIC OF ARGENTINA, Plaintiff,v.BG GROUP PLC, Defendant.
• Court: U.S. District Court — District of Columbia

764 F.Supp.2d 21

REPUBLIC OF ARGENTINA, Plaintiff,

v.BG GROUP PLC, Defendant.

Civil Action No. 08–485 (RBW).

United States District Court, District of Columbia.

Jan. 21, 2011.

Paul Saul Haar, Law Office of Paul Haar, Washington, DC, Gabriel Bottini, Director of International Affairs and Controversies of the Attorney General's Office, Pro Hac, Vice, Fernando Koatz, John P. Gleason, Gleason & Koatz, LLP, New York, NY, for Plaintiff.Paul Laurence Yde, Freshfields Bruckhaus Deringer, LLP, Washington, DC, Alexander A. Yanos, Elliot Friedman, Freshfields Bruckhaus Seringer U.S. LLP, New York, NY, for Defendant.

MEMORANDUM OPINION

REGGIE B. WALTON, District Judge.

Currently before the Court is a cross-motion filed by respondent BG Group PLC (“BG Group”) to confirm an arbitral award (the “Award”) rendered in its favor and against petitioner Republic of Argentina (“Argentina”) under the Federal Arbitration Act, 9 U.S.C. § 207 (2000) (the “FAA”), and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38, available at 1970 WL 104417 (the “New York Convention” or the “Convention”), which was ratified by Congress and codified at 9 U.S.C. §§ 201–08 (2000). Cross–Motion for Recognition and Enforcement of Arbitral Award (the “Resp't's Cross–Mot.”) at 1. Argentina previously moved to vacate the Award under the FAA and the New York Convention, but the Court denied that relief in a memorandum opinion and order issued on June 7, 2010. Republic of Argentina v. BG Group, 715 F.Supp.2d 108, 126 (D.D.C.2010) (Walton, J.). The Court held a hearing on September 28, 2010, as to the merits of the motion currently before the Court, at which time the Court issued an oral ruling granting the cross-motion and informed the parties that it would memorialize its rationale and ruling thereafter. Hearing Transcript (“Tr.”) 48:17–21, Sept. 28, 2010. This memorandum opinion represents the Court's adherence to that promise.

I. Background

Many of the facts germane to the issues confronting the Court in this case have already been set forth in the June 7, 2010 memorandum opinion, but in the interest of providing the factual background necessary to understanding the Court's legal analysis below, those facts will be revisited here.¹ On December 11, 1990, Argentina and the United Kingdom entered into the Agreement for the Promotion and Protection of Investments, Arg.-U.K., Dec. 11, 1990, 1765 U.N.T.S. 33 (“Investment Treaty”), the purpose of which was to promote foreign investment between these two nations. Resp't's Cross–Mot. at 1; Pet'r's Pet. ¶ 13. Similar to other bilateral investment treaties entered into around the same period, the Investment Treaty was designed to ensure foreign investors that they would be treated fairly and equitably, to provide them with “full protection and security,” and to restrict the host country “from expropriating the assets of such investors without just compensation.” Respt't's Cross–Mot. at 1. To address any disputes arising from these investments, Argentina and the United Kingdom agreed to a two-tiered system of dispute resolution in which the dispute could be submitted to a “competent tribunal” of the country “in whose territory the investment was made,” after which the matter could be referred to arbitration under certain conditions, or the dispute could be submitted directly to international arbitration.² Investment Treaty, art. 8(2).

Also as part of its economic reforms, Argentina enacted several measures in an effort “to reduce inflation and the public deficit,” including “privatization of certain state[-]owned companies in many sectors[,] including the gas transportation and distribution industry.” Pet'r's Pet. ¶ 15. As part of these efforts, Argentina divided its gas transportation and distribution industry, Gas del Estado, Sociedad del Estado, into two transportation companies and eight distribution companies. Id. ¶ 18. BG Group, a United Kingdom company, invested in one of the eight gas distribution companies, MetroGAS, through a consortium of investors known as Gas Argentino, S.A. Id. ¶ 20. Eventually, BG Group acquired a 54.67% interest in Gas Argentino, S.A., which in turn owned 70% of MetroGAS. Id. ¶¶ 20–21.

In 2001, after a period of exceptional economic growth, Argentina began to suffer an economic crisis. Pet'r's Pet. at 6–7. In its efforts to respond to this predicament, Argentina enacted an emergency law that took effect on January 6, 2002, which consisted of several measures that, according to BG Group, negatively impacted its investment in MetroGAS. Id.; Respt't's Cross–Mot. at 2. As a result, BG Group initiated international arbitration proceedings on April 25, 2003, under Article 8 of the Investment Treaty, ³ Respt't's Cross–Mot. at 2; Pet'r's Pet. ¶ 6, arguing that Argentina's promulgation of these emergency measures violated Article 5 of the Investment Treaty “by expropriating BG[Group's] ... shareholding in GASA and MetroGas and, alternatively, ... [its] rights under or related to the MetroGAS License,” Award ¶ 85(a), as well as Article 2(2) of Investment Treaty “by failing to provide BG[Group] fair and equitable treatment and protection and security, ... by taking unreasonable and discriminatory measures, [and] by failing to observe obligations entered into with regard to BG[Group's] Investments,” id. ¶ 85(b).

An arbitral panel commenced proceedings in New York and Washington, D.C. beginning in July of 2006. Pet'r's Pet. ¶ 4. On December 24, 2007, the arbitral panel issued a decision in which it rejected BG Group's contention that Argentina breached Section 5 of the Investment Treaty, Award ¶ 269, concluding that there had been no expropriation of BG Group's investment in MetroGAS because “the impact of Argentina's measures [was] not ... permanent on the value of BG[Group's] shareholding in MetroGAS,” and that “MetroGAS'[s] business never halted, continues to operate, and has an asset base which is recovering,” id. ¶ 270. The panel concluded, however, that Argentina breached Article 2(2) of the Investment Treaty by “fundamentally modif[ying] the investment [r]egulatory [f]ramework,” id. ¶ 310, and “unilaterally withdr[a]w[ing] commitments which induced BG [Group] to make its investment in Argentina,” id. ¶ 343.

With regards to assessing the amount of damages owed by Argentina for its breach of Article 2(2), the arbitral panel applied the standard for reparations set forth in Case Concerning the Factory at Charzow (Ger. v. Pol.), 1928 P.C.I.J. (ser. A) No. 17, see Award ¶ 429, which held that a party injured by a “breach of engagement” was entitled to “reparation [that], as far as possible, [would] wipe out all the consequences of the illegal act and reestablish the situation which would, in all probability, have existed if the act had not been committed,” id. ¶ 425. Applied to this case, the arbitral panel concluded that BG Group was entitled to damages equivalent to the fair market value of its “investment in MetroGAS immediately before and after promulgation of the [emergency measures],” id. ¶ 438; see also id. ¶ 443 (calculating damages based on the difference between the fair market value of BG Group's investment prior to enactment of the emergency measures and the value of the investment while the measures were in place). On this point, BG Group presented an expert witness, John Wood–Collins, who concluded that the value of BG Group's investment prior to the enactment of the emergency measures was $239,400,000, while the value of the investment after the measures were implemented was $1,300,000. Id. ¶ 438. Mr. Wood–Collins's position, therefore, was that BG Group was entitled to $238,100,000 in damages. Id.

The arbitral panel rejected Mr. Wood–Collin's figures, concluding that his findings led “to a result [that] is uncertain and speculative.” Id. ¶ 439. The panel then calculated the damages in this case by relying on two transactions involving the sale of shares in MetroGAS and Gas Argentino, S.A. Id. ¶ 443. First, the panel reviewed a transaction that took place after the promulgation of the emergency measures, in which BG Group relinquished part of its interest in MetroGAS (through Gas Argentino, S.A.) in exchange for a debt write-off, and concluded that the value of BG Group's investment at that time was $91,825.244.15. Id. ¶ 440. Second, the panel analyzed a transaction in which the sale of a minority stake in Gas Argentino, S.A., reflected a value of $277,110,730 for BG Group's shares in MetroGAS. Id. ¶¶ 441–42. Considering the difference between these two values, the arbitral panel concluded that the damage to BG Group's investment as a result of Argentina's breach of Article 2(2) was $185,285,485.85. Id. ¶ 443. The arbitral panel also concluded that BG Group was entitled to interest, id. ¶ 467(5), costs for the arbitration, id. ¶ 467(6), and attorneys' fees, id. ¶ 467(7).

On March 21, 2008, Argentina filed in this Court its petition to vacate or modify the Award under 9 U.S.C. §§ 10–11 and Article V(1)(e) of the New York Convention, see Pet'r's Pet. ¶¶ 3–5 (relying on the FAA and New York Convention to vacate or modify the Award), to which BG Group responded with its own motion to have the Award confirmed pursuant to 9 U.S.C. § 9 and Article IV of the Convention, Resp't's Cross–Mot. at 36. On June 7, 2010, this Court issued a memorandum opinion and order denying Argentina's petition to vacate the Award. Republic of Argentina, 715 F.Supp.2d at 126–27. Specifically, the Court rejected Argentina's arguments that “the arbitral panel exceeded its authority under the Investment Treaty,” that “the arbitral panel acted ‘in manifest disregard of the law,’ ” that “there was ‘evident partiality or corruption’ on the part of one of the arbitrators on the panel,” that “the Award was procured through corruption, fraud, or undue means,” and that “the Award is disproportionate, unfair, and...