Repsol may never get paid for YPF

Argentina's delaying tactics are legendary, and collecting from sovereign nations is near impossible

This is the second of two posts explaining the legal battlefield on which Repsol and Argentina are fighting. The first can be found here.

The expropriation by Argentina of the majority of the shares of YPF provoked an immediate response from representatives of Repsol, the Spanish company whose shares were being expropriated, promising resort to international arbitration if acceptable compensation was not paid. International arbitration is certainly an option for Repsol, and investment arbitration plays an important part in securing compensation for mistreated foreign investors. However, the practical realities of contemporary investment arbitration do not work entirely in Repsol’s favour, and the speed of investment arbitration in particular is likely to place significant pressure on Repsol to settle for less compensation than the full market value of its expropriated shares.

Repsol’s ability to take Argentina to arbitration arises from the bilateral investment treaty (BIT) between Spain and Argentina, in Article 10 of which both states agree to arbitrate with any investor from the other state that claims it has been treated in a way that violates the substantive promises included in the BIT. Although arbitration cannot take place without the consent of both parties, such statements in a BIT are now universally accepted as constituting a "standing offer" from the State to arbitrate with any qualifying investor. Consequently, if Repsol invokes the BIT’s arbitration clause, Argentina cannot refuse to arbitrate.

Nonetheless, although Argentina is bound by its offer to arbitrate, the requirement that it must have consented to arbitration means that any conditions on its consent that are included within the Spain-Argentina BIT operate as constraints on Repsol’s ability to commence arbitration.  That is, Repsol can force Argentina to arbitrate, but only on the terms on which Argentina originally offered to arbitrate.

The difficulty this creates for Repsol is that the Spain-Argentina BIT contains provisions that may considerably delay Repsol’s ability to commence arbitration. According to Article 10(1-2) of the BIT, for example, prior to commencing any arbitration Repsol must initially spend a period of at least six months negotiating with Argentina over its alleged violations of the BIT.

Even once this six-month negotiation period has concluded, however, Repsol will still not have a clear right to commence arbitration, as Article 10(2-3) also requires that any claim against Argentina must initially be brought in Argentina’s domestic courts, not in arbitration. Moreover, Repsol must pursue its claim in Argentine courts for at least eighteen months before commencing arbitration, unless the Argentine courts successfully resolve the matter at an earlier date.

As Repsol will have been advised, there are legal arguments through which it can attempt to avoid this 18 month "local courts" requirement, and they would allow Repsol to commence arbitration immediately. However, these arguments are controversial, and have been rejected by as many arbitration tribunals as have accepted them. Consequently, given the time required to constitute an arbitration tribunal, to hold hearings on the question of Repsol’s ability to avoid the "local courts" requirement, and then to receive the decision from the arbitrators, if Repsol chooses to commence an arbitration immediately it risks spending a year or more in arbitration only to be told by the tribunal that it must indeed spend 18 months in Argentine courts – delaying the start of the real arbitration yet further.

Consequently, while it is possible that Repsol will be able to commence arbitration against Argentina this year, it is just as likely that it will not be able to do so until 2014 or even later.

Whatever delays might arise in the course of commencing the arbitration, moreover, the practical reality of investment arbitration is that it is an indisputably slow process, with many arbitrations taking 4-5 years or longer before a decision is delivered. Repsol faces particular difficulties in this respect because, due to the number of investment arbitrations commenced against Argentina after its economic crisis of a decade ago, Argentina has developed a specialized investment arbitration team that is widely recognised as equal in skill to even the best international law firms. Repsol can expect, then, that any arbitration with Argentina will be hard-fought, and consequently time-consuming, risky and expensive.

Moreover, even if Repsol does prevail in the arbitration, and is awarded compensation by the tribunal, further delays will likely ensue before it actually receives any of the money it has won. Argentina has consistently refused to pay previous investment arbitration awards made against it, and although enforcement without Argentina’s consent is certainly possible, this would involve delays of its own.

Repsol have indicated that it is likely to file for arbitration at the International Centre for Settlement of Investment Disputes (ICSID), one of the two options provided in the Spain-Argentina BIT. However, while ICSID is unquestionably the leading investment arbitration forum, its procedural rules create a significant problem for any investor desiring rapid compensation, as the losing party in any ICSID arbitration is allowed to request "annulment" of the original decision. That is, the losing party may request that a second arbitration be held, to determine whether the first arbitration was conducted appropriately. The grounds on which annulment will be given are narrow, but Argentina has been consistent in its use of requests for annulment, and can be expected to request annulment of any award won by Repsol.

A request for annulment will, of course, further delay Repsol's receipt of any compensation for the expropriation of its shares in YPF. Annulment proceedings themselves usually take at least two years, and if the application for annulment is successful the arbitration will have to be held a second time. In addition, if Repsol is successful in the second arbitration, Argentina could also apply for annulment of this second award.

All of the above delays are, of course, merely potential, and Repsol may successfully avoid some or even all of them.  However, regardless of how quickly Repsol secures an award against Argentina, it will still be faced with the enormous difficulty of enforcing an arbitration award against a state that is unwilling to pay voluntarily – and Argentina has yet to pay any investor that has been successful against it in investment arbitration. Just how difficult this will be is well illustrated by the case of Franz Sedelmayer, a German citizen who received an arbitration award against the Russian Federation in 1998.  Sedelmayer was first able to secure partial enforcement of the award in 2006, and he is still pursuing enforcement of the remainder.

None of the above means, of course, that Repsol is wrong to present investment arbitration as an important option should Argentina not offer fair compensation for the expropriated shares of YPF.  However, the usefulness of arbitration as a means of securing compensation must be seen in the context of the delays that it will involve. If YPF was only a minor component of Repsol’s business, then potentially having to wait a decade or more for compensation might be a viable option. Since this is not the case, it should not be surprising if Repsol ultimately decides to accept a significant loss on its expropriated shares rather than pursue investment arbitration – which involves no guarantee of success, but an almost certainty of significant delays.

Former Argentine Secretary of Energy, Daniel Montamat (L), talks to senators during the second day of senate hearings to discuss the bill to expropriate Spanish oil company Repsol's YPF subsidiary. Photograph: Getty Images

Tony Cole is a senior lecturer at Brunel Law School

Garry Knight via Creative Commons
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Why Barack Obama was right to release Chelsea Manning

A Presidential act of mercy is good for Manning, but also for the US.

In early 2010, a young US military intelligence analyst on an army base near Baghdad slipped a Lady Gaga CD into a computer and sang along to the music. In fact, the soldier's apparently upbeat mood hid two facts. 

First, the soldier later known as Chelsea Manning was completely alienated from army culture, and the callous way she believed it treated civilians in Iraq. And second, she was quietly erasing the music on her CDs and replacing it with files holding explosive military data, which she would release to the world via Wikileaks. 

To some, Manning is a free speech hero. To others, she is a traitor. President Barack Obama’s decision to commute her 35-year sentence before leaving office has been blasted as “outrageous” by leading Republican Paul Ryan. Other Republican critics argue Obama is rewarding an act that endangered the lives of soldiers and intelligence operatives while giving ammunition to Russia. 

They have a point. Liberals banging the drum against Russia’s leak offensive during the US election cannot simultaneously argue leaks are inherently good. 

But even if you think Manning was deeply misguided in her use of Lady Gaga CDs, there are strong reasons why we should celebrate her release. 

1. She was not judged on the public interest

Manning was motivated by what she believed to be human rights abuses in Iraq, but her public interest defence has never been tested. 

The leaks were undoubtedly of public interest. As Manning said in the podcast she recorded with Amnesty International: “When we made mistakes, planning operations, innocent people died.” 

Thanks to Manning’s leak, we also know about the Vatican hiding sex abuse scandals in Ireland, plus the UK promising to protect US interests during the Chilcot Inquiry. 

In countries such as Germany, Canada and Denmark, whistle blowers in sensitive areas can use a public interest defence. In the US, however, such a defence does not exist – meaning it is impossible for Manning to legally argue her actions were in the public good. 

2. She was deemed worse than rapists and murderers

Her sentence was out of proportion to her crime. Compare her 35-year sentence to that received by William Millay, a young police officer, also in 2013. Caught in the act of trying to sell classified documents to someone he believed was a Russian intelligence officer, he was given 16 years

According to Amnesty International: “Manning’s sentence was much longer than other members of the military convicted of charges such as murder, rape and war crimes, as well as any others who were convicted of leaking classified materials to the public.”

3. Her time in jail was particularly miserable 

Manning’s conditions in jail do nothing to dispel the idea she has been treated extraordinarily harshly. When initially placed in solitary confinement, she needed permission to do anything in her cell, even walking around to exercise. 

When she requested treatment for her gender dysphoria, the military prison’s initial response was a blanket refusal – despite the fact many civilian prisons accept the idea that trans inmates are entitled to hormones. Manning has attempted suicide several times. She finally received permission to receive gender transition surgery in 2016 after a hunger strike

4. Julian Assange can stop acting like a martyr

Internationally, Manning’s continued incarceration was likely to do more harm than good. She has said she is sorry “for hurting the US”. Her worldwide following has turned her into an icon of US hypocrisy on free speech.

Then there's the fact Wikileaks said its founder Julian Assange would agree to be extradited to the US if Manning was released. Now that Manning is months away from freedom, his excuses for staying in the Equadorian London Embassy to avoid Swedish rape allegations are somewhat feebler.  

As for the President - under whose watch Manning was prosecuted - he may be leaving his office with his legacy in peril, but with one stroke of his pen, he has changed a life. Manning, now 29, could have expected to leave prison in her late 50s. Instead, she'll be free before her 30th birthday. And perhaps the Equadorian ambassador will finally get his room back. 

 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.