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Republic of Argentina v. AWG Group Ltd.

United States District Court, District of Columbia

September 30, 2016

REPUBLIC OF ARGENTINA, Petitioner,
v.
AWG GROUP LTD., Respondent.

          MEMORANDUM OPINION

          BERYL A. HOWELL Chief Judge

         The Republic of Argentina ("Argentina") filed this lawsuit seeking vacatur of an international arbitration award against the country in the amount of $20, 957, 809, plus interest, in favor of the respondent AWG Group Ltd. ("AWG"). Pet. to Vacate Arbitration Award ("Pet."), ECF No. 1. AWG, for its part, seeks confirmation, recognition, and enforcement of that same award. Cross-Pet. for Confirmation, Recognition and Enforcement of Award ("Resp.'s Cross-Pet."), ECF No. 12.[1] Argentina's instant petition is not the only effort by the country to avoid unfavorable arbitration awards arising out of disputes between Argentina and private consortia that contracted with Argentina to provide infrastructure and public services in the country. See, e.g., BG Grp. PLC v. Republic of Argentina, 134 S.Ct. 1198 (2014) (reversing the D.C. Circuit's vacatur of a $185 million dollar arbitration award against Argentina in favor of British firm that was part of consortium with a majority interest in an Argentine entity holding "exclusive license to distribute natural gas in Buenos Aires"); Argentine Republic v. Nat'l Grid PLC, 637 F.3d 365 (D.C. Cir. 2011) (affirming denial of Argentina's petition to vacate a $53 million dollar arbitration award and grant of respondent National Grid's cross-motion to confirm the same).

         The arbitration award at issue in this case arises from a now-terminated thirty-year contract between Argentina and a private consortium, which included AWG, "to operate the water distribution and treatment systems serving the city of Buenos Aires." Resp.'s Mem. in Opp'n Pet. to Vacate Arbitration Award and in Supp. of Cross-Pet. for Confirmation, Recognition and Enforcement of Award ("Resp.'s Mem.") at 1, ECF No. 12.[2] AWG alleges that fewer than ten years into the contract, Argentina altered the investment framework, refused to authorize tariff adjustments, attempted to force a renegotiation of the contract, and ultimately terminated the contract, thereby breaching "Argentina's obligation to grant foreign investments 'fair and equitable treatment'" and "Argentina's obligation to provide foreign investments 'full protection and security'" under the governing bilateral investment treaty between the United Kingdom and Argentina, the Agreement Between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Argentina for the Promotion and Protection of Investments, Arg.-U.K. ("UK-BIT"). Id. at 7-9. The UK-BIT provides for binding international arbitration arising out of an investment, Resp.'s Cross-Pet., Ex. 6 to Decl. of Elliot Friedman ("Friedman Decl."), Agreement Between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Argentina for the Promotion and Protection of Investments, Arg.-U.K., Dec. 11, 1990 ("UK-BIT"), ECF No. 12-7, available at 1765 U.N.T.S. 33, 38, and when the country where the award is made is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention"), codified by reference at 9 U.S.C. §§ 201 et seq., that convention governs enforcement of the award, see New York Convention, arts. I, III.

         In accordance with the terms of the UK-BIT, the parties' dispute was submitted to binding international arbitration before an expert tribunal (the "Tribunal"), which confirmed its jurisdiction, see Pet., Ex. B to Deck of Matthew Slater ("Slater Deck"), AWG Grp. Ltd. v. The Argentine Republic, Decision on Jurisdiction (Aug. 3, 2006) ("Decision on Jurisdiction"), ECF No. 1-5, and after twelve years of proceedings entered a final award in favor of AWG in April 2015. Resp.'s Mem. at 1, 4, 11-12. Argentina now seeks to vacate the Tribunal's award under the Federal Arbitration Act ("FAA"), 9 U.S.C. § 10, arguing that one of the arbitrators acted with "evident partiality, " and that the Tribunal exceeded its powers, Pet. ¶¶ 2-3.[3] For the reasons explained below, Argentina's request to vacate the Tribunal's award is denied and AWG's cross-petition to confirm the award is granted.[4]

         I. BACKGROUND

         Summarized below is the factual and procedural background pertinent to the resolution of the pending motions.[5]

         A. The Concession Contract

         On December 28, 1992, Argentina awarded a concession for the "provi[sion of] water and sewage services to Buenos Aires and surrounding municipalities" to a private consortium, which included AWG, a British corporation. Pet. ¶¶ 5, 13-14; Pet., Ex. C to Slater Decl, AWG Grp. v. The Argentine Republic, Decision on Liability (July 30, 2010) ("Decision on Liability") ¶¶ 1, 33, ECF No. 1-6. Prior to this award, Argentina had declared its public services to be in "a state of emergency" and had taken steps to establish "a regulatory framework to privatize certain public services." Pet. ¶¶ 10-11; Decision on Liability ¶¶ 28-31. Under this scheme, concessionaires would provide services, new capital, and technology, and in turn, "would be entitled to the payment of tariffs." Pet. ¶¶ 11-12; Decision on Liability ¶¶ 30-32. To attract "the necessary long-term private and foreign capital, " the new regulatory framework: (1) pegged the Argentine peso to the United States dollar at a ratio of 1:1; and (2) permitted tariff adjustments "to take account of changing and unexpected circumstances." Resp.'s Mem. at 5-6; Decision on Liability ¶¶ 29, 124. Argentina also entered into more than fifty bilateral investment treaties, including the UK-BIT, [6] through which the countries sought to "encourage cross-border private investment." Resp.'s Mem. at 4; Decision on Liability ¶¶ 29, 124.

         The Buenos Aires water and sewage concession was granted to a consortium comprised of AWG and other foreign and Argentine companies, which together formed and operated as an Argentine company named Aguas Argentinas S.A. ("AASA").[7] Pet. ¶ 13; Decision on Liability ¶¶ 32-33. On April 28, 1993, AASA entered into a thirty-year contract with Argentina (the "Concession Contract"). Pet. ¶ 14; Decision on Liability ¶ 34. In accordance with the requirement in the Concession Contract to provide an "upfront investment to improve and expand the system, " AASA obtained loans from multilateral lending agencies, payable in United States dollars, while AASA had agreed to receive tariff payments in Argentine pesos, which were pegged under the terms of the Concession Contract to the United States dollar at a ratio of 1:1. Pet. ¶ 15; Decision on Liability ¶ 35. The Concession Contract included a termination clause "allowing termination under specified circumstances, including termination for the concessionaire's fault." Pet. ¶ 16; Decision on Liability ¶ 114.

         By 2001, AASA had invested $1.7 billion in the Concession Contract, "yield[ing] substantial improvements in the water distribution and sewage system serving Buenos Aires." Resp.'s Mem. at 6; Decision on Liability ¶¶ 35-36. Around this time, however, Argentina "began to experience significant economic difficulties that would eventually lead to a financial crisis having serious consequences for the country, its people, and its investors, both foreign and national." Decision on Liability ¶ 41; Pet. ¶ 18. "[T]o return stability to the country, " Argentina adopted "a series of policies and measures, " including, in 2002, Emergency Law No. 25, 561. Pet. ¶ 19; Decision on Liability ¶ 44. This measure, inter alia: (1) "abolished the currency board that linked the Argentine peso to the U.S. dollar, which was followed by a significant depreciation of the Argentine peso;" (2) "abolished the adjustment of public service contracts according to the agreed-upon indexations;" and (3) "authorized the Executive branch of the government to renegotiate all public service contracts." Pet. ¶ 19; Decision on Liability ¶ 44. The Emergency Law "also forbade concessionaires from suspending or altering their contractual performance." Resp.'s Mem. at 7; Decision on Liability ¶ 44. These policies and measures, particularly the unpegging of the Argentine peso from the United States dollar, "had a ruinous effect on AASA's cash flows, because AASA's tariffs were calculated in Argentine pesos while its debt obligations were necessarily denominated in U.S. dollars." Resp.'s Mem. at 7; Decision on Liability ¶ 50.

         Starting in March 2002, Argentina and AASA engaged in negotiations "to adjust the terms of the Concession Contract, " but were unable to come to an agreement. Pet. ¶ 20; Decision on Liability ¶¶ 46-47, 49-50. Argentina ignored or rejected AASA's requested "tariff adjustments and modifications to its operation conditions" and, instead, "demanded that AASA provide water and sewage services to areas outside the scope of [the Concession Contract]" and "insisted that AASA continue to comply fully with its investment obligations." Resp.'s Mem. at 7; Decision on Liability ¶¶ 44-51. Argentina also "alerted AASA to several significant performance failures in violation of the Concession Contract." Pet. ¶ 20; Decision on Liability ¶ 52.

         In September 2005, the AASA requested termination of the Concession Contract, which Argentina refused. Resp.'s Mem. at 7; Decision on Liability ¶ 53. Several months later, in March 2006, Argentina terminated the Concession Contract for fault by AASA. Pet. ¶ 21; Decision on Liability ¶ 56.

         B. The Arbitration

         On April 17, 2003, after passage of the Emergency Law, but prior to the termination of the Concession Contract, the foreign investors in AASA requested arbitration against Argentina claiming that Argentina's actions "violate[d] three specific treaty provisions: 1) guarantees against direct and indirect expropriation of their investments; 2) guarantees to accord their investments full protection and security; and 3) guarantees to accord their investments fair and equitable treatment." Decision on Liability ¶¶ 48, 127; see UK-BIT, arts. 2(2), 5.

         Each of the foreign investors (hereinafter "Claimants") invoked Argentina's consent to arbitrate in the bilateral investment treaty governing their investment.[8] Decision on Liability ¶¶ 1-2. Since the other bilateral investment treaties provided for International Centre for Settlement of Investment Disputes ("ICSID") arbitration, Argentina and AWG agreed that the ICSID would also administer AWG's case, subject to the Arbitration Rules of the United Nations Commission on International Trade Rules ("UNCITRAL Rules"), which is a default international arbitration scheme provided for in the UK-BIT. Decision on Liability ¶¶ 2, 4; BIT, art. 8(3). This scheme permitted all of the foreign investors' claims to be arbitrated before the same tribunal. Decision on Liability ¶¶ 2, 4; Pet. ¶ 24.

         The Tribunal, appointed in fall 2003, was comprised of three members. Decision on Liability ¶ 5; Pet. ¶ 24. The Claimants appointed Professor Gabrielle Kaufmann-Kohler; Argentina appointed Professor Pedro Nikken; and, because the parties could not agree on a third arbitrator, ICSID appointed Professor Jeswald W. Salacuse to be the Tribunal President. Decision on Liability ¶¶ 5-6; Pet. ¶ 24. The seat of the arbitration was designated to be Washington, D.C. Pet., Ex. A to Slater Deck, AWG Grp. Ltd. v. The Argentine Republic, Award (Apr. 9, 2015) ("Final Award") at i, ECF No. 1-4; Decision on Liability ¶ 9.

         Over the course of the arbitration, from the time of AWG's request for arbitration in April 2003 to the Tribunal's issuance of the final award twelve years later, in April 2015, the Tribunal issued five decisions. Decision on Liability ¶ 1; Final Award at i. In the first decision, issued on August 3, 2006, the Tribunal rejected Argentina's objections to the Tribunal's jurisdiction to hear the claims. Decision on Jurisdiction ¶ 69. The second decision responded to Argentina's request to remove Professor Kaufmann-Kohler from the Tribunal, because she had served as an arbitrator in a different case, in which the panel had already issued an award against Argentina. Resp.'s Mem. at 14. This challenge was rejected by "the two unchallenged arbitrators (including Argentina's appointee), " in accordance with agreed-upon procedures. Resp.'s Mem. at 14; Resp.'s Cross-Pet, Ex. 16 to Friedman Decl., AWG Grp. v. The Argentine Republic (Oct. 22, 2007) ("First Disqualification Decision") ¶¶ 12, 17, ECF No. 12-17 (citing ICSID Arbitration Rule 9(4)).[9] The third decision responded to a second request from Argentina to remove Professor Kaufmann-Kohler, following her appointment on April 19, 2006, to the Board of Directors of UBS ("UBS Board"), "on grounds that her directorship, and her decision not to disclose it, gave rise to justifiable doubts as to her impartiality and independence, in conflict with the ICSID Convention and the UNCITRAL Rules." Pet. ¶¶ 28-29; Pet., Ex. K to Slater Decl., Challenge to Mrs. Gabrielle Kaufmann Kohler ("Second Disqualification Challenge") at 1-2, ECF No. 1-14. The two unchallenged arbitrators, again, rejected Argentina's claim.[10] Pet., Ex. H to Slater Tied., AWG Grp. Ltd. v. The Argentine Republic (May 12, 2008) ("Second Disqualification Decision") ¶ 26, ECF No. 1-11. In any event, on April 15, 2009, nearly a year after the Second Disqualification Decision, "Professor Kaufmann-Kohler resigned as an independent director [of UBS]" in order "to avoid any possible expression of doubt about her arbitral independence." Resp.'s Mem. at 22; Resp.'s Cross-Pet., Ex. 23 to Friedman Decl., Kaufmann Kohler Leaves UBS Board, Global Arbitration Review, May 1, 2009, at 1, ECF No. 12-24.

         Over a year after Professor Kaufmann-Kohler had resigned from the UBS Board, the Tribunal issued its fourth decision, on July 30, 2010, finding Argentina liable for failing to provide the investments "fair and equitable treatment." Decision on Liability ¶¶ 247-48. Specifically, as described in the Decision on Liability, the Tribunal concluded that "Argentina's actions in refusing to revise the tariff according to the legal framework of the Concession and in pursuing the forced renegotiation of the Concession Contract contrary to that legal framework violated its obligations under the applicable BITs to accord the investments of the Claimants fair and equitable treatment." Id. ¶ 247.[11] The fifth and final Tribunal decision on damages owed by Argentina, known as the "Final Award, " was issued on April 9, 2015, and awarded a total of $404, 539, 050, plus interest, to the Claimants, including $20, 957, 809, plus interest, to AWG. Final Award at 58-62.[12]AWG alleges that Argentina has not yet complied with the award, see Resp.'s Mem. at 3, and Argentina does not dispute this assertion.

         C. Procedural History

         On July 6, 2015, Argentina petitioned to vacate the Tribunal's arbitration award on the grounds that the Tribunal acted with evident partiality, under 9 U.S.C. § 10(a)(2) (authorizing vacatur of arbitration award "where there was evident partiality or corruption in the arbitrators"), and that the Tribunal exceeded its powers by improperly calculating damages and failing to apply international law, under 9 U.S.C. § 10(a)(4) (authorizing vacatur of arbitration award "where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made"). See generally Pet. Less than two months later, on September 1, 2015, AWG filed a cross-petition to confirm the award, pursuant to 9 U.S.C. § 9, and Article IV of the New York Convention. See generally Resp.'s Cross-Pet. Both petitions are ripe for review.

         II. LEGAL STANDARD FOR REVIEW OF CHALLENGED ARBITRATION AWARD

         Review of arbitral awards is "extremely limited, " Kurke v. Oscar Gruss & Son, Inc., 454 F.3d 350, 354 (D.C. Cir. 2006) (quoting Teamsters Local Union No. 61 v. United Parcel Serv., Inc., 272 F.3d 600, 604 (D.C. Cir. 2001)), and is "'not an occasion for de novo review.'" Scandinavian Reins. Co. v. Saint Paul Fire & Marine Ins. Co., 668 F.3d 60, 71 (2d Cir. 2012) (quoting Wallace v. Buttar, 378 F.3d 182, 189 (2d Cir. 2004)). Courts "do not sit to hear claims of factual or legal error by an arbitrator" as they would "in reviewing decisions of lower courts." Kurke, 454 F.3d at 354 (internal citations and quotations omitted). Indeed, the standard of review of arbitral awards is so narrow that courts are "not authorized to reconsider the merits of an award even though the parties may allege that the award rests on errors of fact or on misinterpretation of the contract." United Paperworkers Int'l Union, AFL-CIO v. Misco, Inc., 484 U.S. 29, 36 (1987). While an "arbitrator may not ignore the plain language of the contract. . . [, ] as long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, that a court is convinced he committed serious error does not suffice to overturn his decision." Id. at 38.

         The Supreme Court has explained that this high level of deference is required for arbitration awards because, "[i]f parties could take 'full-bore legal and evidentiary appeals, ' arbitration would become 'merely a prelude to a more cumbersome and time-consuming judicial review process.'" Oxford Health Plans LLC v. Sutter, 133 S.Ct. 2064, 2068 (2013) (quoting Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 588 (2008)). Thus, where the parties have chosen arbitration, they "must now live with that choice." Id. at 2071.

         The fact that the document containing an arbitration agreement is a treaty does not "make[] a critical difference, " since "[a]s a general matter, a treaty is a contract, though between nations." BG Grp. PLC, 134 S.Ct. at 1208. "Consistent with the 'emphatic federal policy in favor of arbitral dispute resolution' recognized by the Supreme Court as 'appl[ying] with special force in the field of international commerce, ' the FAA affords the district court little discretion in refusing or deferring enforcement of foreign arbitral awards . . . ." Belize Soc. Dev. Ltd. v. Gov't of Belize ("Belize Soc. Dev. I"), 668 F.3d 724, 727 (D.C. Cir. 2012) (alteration in original) (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985)).

         III. DISCUSSION

         Argentina urges vacatur of the arbitration award under two provisions of the FAA's § 10. First, due to Professor Kaufmann-Kohler's position on the UBS Board, and her alleged failure to investigate and disclose that position and its potential for conflict, Argentina contends vacatur is warranted under 9 U.S.C. § 10(a)(2). Pet. ¶¶ 2, 43. Second, because the Tribunal allegedly awarded damages outside of the legal boundaries afforded by the UK-BIT and allegedly failed to apply international legal principles as required by the UK-BIT, Argentina argues that vacatur is also warranted under 9 U.S.C. § 10(a)(4). Id. ¶¶ 3, 68. AWG discounts these arguments as "groundless" and contends that the arbitration award must be confirmed because none of the statutory bases for vacatur exist. Resp.'s Mem. at 3. Following review of the statutory framework, Argentina's challenges to the Tribunal's arbitration award are addressed seriatim below.

         A. Statutory Framework

         Both the United States and Argentina are parties to the New York Convention, which applies to arbitral awards made in the territory of a signatory country to the Convention. See New York Convention, art. 1(1)); Belize Soc. Dev. I, 668 F.3d at 731 n.3 ("If the place of the award is 'in the territory of a party to the Convention, all other Convention states are required to recognize and enforce the award, regardless of the citizenship or domicile of the parties to the arbitration.'" (quoting Creighton Ltd. v. Gov't of the State of Qatar, 181 F.3d 118, 121 (D.C. Cir. 1999))). The Supreme Court described the purpose of the New York Convention as to "encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries." Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n.15 (1974). Thus, the Convention "provid[es] for 'the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought.'" Belize Soc. Dev., Ltd. v. Gov't of Belize ("Belize Soc. Dev. II"), 794 F.3d 99, 103 (D.C. Cir. 2015), petition for cert, filed, Dec. 24, 2015 (quoting New York Convention, art. 1(1)). "The basic understanding of the New York Convention is that '[e]ach Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the . . . articles [of the Convention].'" TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928, 934 (D.C. Cir. 2007) (alteration in original) (quoting New York Convention, art. III). '"[T]he critical element is the place of the award: if that place is in the territory of a party to the Convention, all other Convention states are required to recognize and enforce the award, regardless of the citizenship or domicile of the parties to the arbitration.'" Id. (quoting Creighton Ltd., 181 F.3d at 121).

         The New York Convention, which has been codified as chapter 2 of the FAA, 9 U.S.C. §§ 201-08, provides that a party may apply to any court with jurisdiction for confirmation of an arbitration award within three years of when the award is made, id. § 207. The court is required to "confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the [New York] Convention." Id. Article V of the New York Convention sets forth the exclusive grounds for refusal of recognition and enforcement of the award. See TermoRio S.A. E.S.P., 487 F.3d at 935 (noting that courts "may refuse to enforce the award [subject to New York Convention] only on the grounds explicitly set forth in Article V of the Convention." (quoting YusufAhmed Alghanim & Sons v. Toys "R" Us, Inc., 126 F.3d 15, 23 (2d Cir. 1997))). As pertinent here, Article V(1)(e) provides for vacatur of an arbitral award that "has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made, " New York Convention, art. V(1)(e), thereby authorizing parties to employ any grounds provided by domestic law in the jurisdiction where the award was made, "to the extent that" those domestic provisions are "not in conflict with" the New York Convention. 9 U.S.C. § 208. See also Scandinavian Reins. Co., 668 F.3d at 71 (observing that '"FAA and the New York Convention work in tandem, and they have overlapping coverage to the extent that they do not conflict'") (quoting Sole Resort, S.A. de C. V. v. Allure Resorts Mgmt, LLC, 450 F.3d 100, 102 n.1 (2d Cir. 2006)); Yusuf Ahmed Alghanim & Sons., 126 F.3d at 21 ("We read Article V(1)(e) of the [New York] Convention to allow a court in the country under whose law the arbitration was conducted to apply domestic arbitral law, in this case the FAA, to a motion to set aside or vacate that arbitral award.").[13]

         Thus, when, as here, the award is made in the United States, the parties may, through Article V(1)(e), seek vacatur of the arbitration award under the FAA provisions applicable to domestic awards in 9 U.S.C. §§ 10 and 11. See Zeiler v. Deitsch, 500 F.3d 157, 164 (2d Cir. 2007) (finding, where "arbitration took place in the United States" but where significant aspects of the arbitration, including certain parties and the governing law were international, "the awards entered ... are at the same time subject to the FAA provisions governing domestic arbitration awards" and the New York Convention); see also Yusuf Ahmed Alghanim & Sons, 126 F.3d at 23 ("The Convention specifically contemplates that the state in which, or under the law of which, the award is made, will be free to set aside or modify an award in accordance with its domestic arbitral law and its full panoply of express and implied grounds for relief").

         Under the domestic provisions of the FAA, the court must confirm an arbitration award unless there are statutory grounds to vacate, modify, or correct the arbitrators' decision. 9 U.S.C. § 9 ("[A]ny party to the arbitration may apply to the court [in and for the district within which such award was made] for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of [the FAA].").[14] Section 10 of the FAA provides the following four grounds for vacatur of an arbitration decision and award:

(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

9 U.S.C. § 10(a).[15]

         B. Argentina's Claim of Evident Partiality by ...


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