By S.I. Strong
On August 4, 2011, a preliminary award on jurisdiction was rendered in Abaclat (formerly Beccara) v. Argentine Republic, ICSID Case No. Arb/07/5. The nearly 300-page award, which is available here, addresses a number of concerns, such as whether the dispute falls within the scope of the relevant bilateral investment treaty (BIT) and whether the claims are contractual or treaty-based. Many of these issues are not themselves unique, although the individual nuances provide interesting reading. However, the award does break new ground in one important regard. For the first time, a tribunal has stated that a large group of individual claimants – in this case, 60,000 Italian bondholders – can join together to bring a claim in an investment arbitration filed with the International Centre for Settlement of Investment Disputes(ICSID).
Many people’s immediate response might be to classify Abaclat as a class arbitration, based on sheer number of claims asserted, but that would be incorrect for reasons discussed further below. Instead, Abaclat is a sui generis proceeding, the first and thus far only known treaty-based arbitration to address claims of this magnitude. Although the case’s status as an ICSID arbitration can make analogies to class arbitration difficult in some ways, the analyses reflected in this award can shed new light on certain issues that the arbitral community has found difficult to resolve in the context of large-scale contract-based arbitration. The following discussion will briefly review a number of the more interesting issues, although it is impossible to provide a comprehensive analysis in the limited space available.
The dispute arose when a large number of Italian bondholders found their investments had become worthless in the wake of Argentina’s default on approximately $100 billion worth of sovereign debt in 2001. In September of 2002, eight major Italian banks formed l’Associazione per la Tutela degli Investitori in titoli Argentini, or “Task Force Argentina” (TFA), which was organized as an associazione non riconosciuta under Italian law. The TFA subsequently entered into agreements with individual bondholders giving the TFA the ability first to negotiate with Argentina and then to initiate an investment arbitration with ICSID based on the BIT between Argentina and Italy. That arbitration was filed with ICSID in September 2006.
The dispute is still in the preliminary stages, so the award of August 4, 2011, focuses solely on jurisdictional issues. The most important of these, at least for purposes of this discussion, involves the question of whether the arbitral tribunal had the ability to hear what was characterized as “mass” (rather than class) claims. The tribunal analyzed this question in two phases, first considering consent and then addressing admissibility.
Issues involving consent are discussed on pages 166 to 195 of the award. The tribunal began by considering preliminary matters such as the extent to which the tribunal must go to verify the existence of consent, whether this inquiry should include matters involving the formal and substantive validity of consent, and what documents or evidence may be used to demonstrate the requisite consent. See Award dated August 4, 2011, ¶ 431. Although consent is as important in multilateral arbitration as bilateral arbitration, many of these issues have not been discussed at length in class arbitration, possibly because very few class arbitrations have progressed past what is known as the clause construction stage, which is when the arbitrators construe the arbitration agreement(s) to determine whether class proceedings are proper as a matter of contract law. However, it is likely that issues of consent will eventually become more important in class arbitrations, and the Abaclat analysis may prove helpful to future arbitrators.
The tribunal found it relevant that questions regarding consent were not raised by the claimants. See id. ¶ 445. Instead, objections to the nature and quality of claimants’ consent were made by the respondent. This kind of reverse objection can appear in other aspects of mass arbitration and can give rise to some interesting analytical issues. See S.I. Strong, “Enforcing Class Arbitration in the International Sphere: Due Process and Public Policy Concerns,” 30 University of Pennsylvania Journal of International Law 1, 90 (2008). In this case, the tribunal took the view that “the fact that Claimants themselves do not invoke such lack of consent . . . may impose a higher standard of proof than if the mistake or fraud [was] invoked by the affected party itself.” Award dated August 4, 2011, ¶ 445.
The tribunal then considered the scope and nature of the consent found in the documents authorizing the TFA to act. See id. ¶¶ 450-54. Although this analysis may seem analogous to inquiries regarding the scope of authority given to class counsel, the issues were slightly different in Abaclat because the parties were not operating in the shadow of U.S. class action law. Instead of having a relatively standard template from which to work, the tribunal had to consider matters such as the type of information given to the claimants and the scope of the authority vested in the TFAand the attorneys hired to represent the claimants on a more individualized basis. See id. ¶¶ 457-65.
S.I. Strong is currently Associate Professor of Law at the University of Missouri and Senior Fellow at the award-winning Center for the Study of Dispute Resolution, having previously taught law at the University of Cambridge and the University of Oxford in the United Kingdom. Prior to joining the faculty at Missouri, Dr Strong was Counsel specializing in international dispute resolution at Baker & McKenzie LLP and a dual-qualified practitioner (U.S.-England) in the New York and London offices of Weil, Gotshal & Manges LLP. Dr Strong has acted in arbitral proceedings under a wide range of institutional rules and is listed as a neutral on various national and international rosters. Dr Strong is the author of numerous works on international arbitration, including the award-winning article, The Sounds of Silence: Are U.S. Arbitrators Creating Internationally Enforceable Awards When Ordering Class Arbitration in Cases of Contractual Silence or Ambiguity? 30 Michigan Journal of International Law 1017 (2009), as well as the books Research and Practice in International Commercial Arbitration: Sources and Strategies (2009) and Class Arbitration and Collective Arbitration: Mass Claims in the National and International Sphere (forthcoming), both from Oxford University Press. Dr Strong, who is qualified as a lawyer at the New York and Illinois bars and as a solicitor of the Supreme Court of England and Wales, holds a Ph.D. in law from the University of Cambridge, a D.Phil. from the University of Oxford, a J.D. from Duke University, an M.P.W. from the University of Southern California and a B.A. from the University of California.