Daimler Financial Services AG v. Argentine Republic (ICSID Aug. 22, 2012)

Daimler Financial Services, a German investor, embarked on arbitration proceedings against Argentina through the International Centre for Settlement of Investment Disputes (ICSID) recently.  Daimler was attempting to attain compensation for damages the company sustained due to changes Argentina implemented in 2001 in an effort to rein in its currency crisis.  On the 22nd August 2012, the ISCID came to the decision that, as Daimler did not adhere to Article 10 of the Argentina-Germany bilateral investment treaty (BIT) and submit the dispute to the Argentine courts for a requisite period of 18 months, international arbitration cannot be pursued by the investor.

The Argentina-Germany BIT ensures that dispute resolution is first attempted through negotiation before being addressed in the national courts of the country, and lastly, pursued through international arbitration.  Thus, Argentina argued that Daimler jumped the gun and went straight into international arbitration without giving the Argentine courts the requisite time period with the case.  In response, Daimler claimed the “Most Favoured Nation” (MFN) clause in the Argentina-Germany BIT, which allows the investor to import a more favourable dispute resolution provision from the Argentina-Chile BIT.  The German company asserted that they are employing Article 3 from the Argentina-Chile BIT, which states that a dispute may be submitted for resolution in the domestic court or to international arbitration should it not be resolved within six months via negotiation.

This recent decision by the ICSID (click subscriber login to read the article) highlights the inconsistent observance of the MFN provision, the ambiguity of the provision, and the degree to which the interpretation of the provision influences the resulting decision.  In addition to the Daimler Financial Services AG v Argentine Republic decision, three other significant MFN decisions passed recently also emphasize the dichotomy of opinions regarding interpretation of MFN clauses.  While in two of these decisions [Impregilo SpA v Argentine Republic (ICSID Case No. ARB/07/17) and Hochtief AG v Argentina (ICSID Case No. ARB/07/31)] the ICSID ruled in favour of extending MFN provisions to resolve disputes, in the most recent decision (ICS v Argentina, UNCITRAL, 10 February 2012) the tribunal ruled against an MFN clause being extended to dispute resolution provisions.  In light of the issues regarding ambiguity and interpretation in MFN provisions, some states, such as the U.S. and U.K., have attempted to clarify the extent and capacity of such provisions, although as evident from recent rulings, the ICSID decisions on these cases are inconsistent and unpredictable.