Argentina’s Sham Annex VII Arbitration and ITLOS’ Provisional Ruling on the Merits of the ARA Libertad Case

Libertad_1On October 2, 2012, the Ghanaian government detained an Argentinian “warship”, the ARA Libertad, that had been docked at the Ghanaian port of Tema while on a cadet training mission.

As a matter of domestic law, the detention of the ARA Libertad was a routine court action, nothing more than an ex-parte injunction order, duly issued by a Ghanaian civil court, for the purpose of preserving an asset that might be used to pay off a potential judgment against the asset’s owner. The plaintiff in that action, a Cayman Islands investment fund, was attempting to collect on a one billion dollar judgment against the Republic of Argentina — and had decided that one way of doing so would be to seize Argentinian ships had sailed into foreign jurisdictions.

As a matter of international law, however, the detention of the ARA Libertad was not quite so routine. NML Capital, the Cayman Islands investment fund responsible for the proceedings, might have thought it was being clever in targeting Argentina’s ships to collect against the judgment, but using a foreign sovereign’s judicial power to seize another nation’s “warship” — even if that warship is just an unarmed training boat — is not something that is going to go down well, diplomatically speaking.

And after diplomatic measures failed to resolve the dispute, Argentina responded by notifying Ghana, on October 29, 2012, that it was submitting the dispute to arbitration pursuant to Annex VII of the UN Convention on the Law of the Sea. Although both states are parties to UNCLOS, Ghana has not, in accordance with Article 287 of UNCLOS, declared a preferred venue for the settlement of disputes, which means that the forum for dispute resolution between Ghana and Argentina defaulted to UNCLOS’ arbitration procedures, at Annex VII.

As it turns out, this situation worked out very well for Argentina. As a result of its procedural handling of its claims concerning the ARA Libertad, in a mere six weeks of international litigation, Argentina was able to (1) secure the release of its vessel and (2) created a procedural posture which would likely result in the effective termination of any further related judicial proceedings, no matter the venue.

This result is due, in part, to the fact that the submission of a dispute to an Annex VII arbitral tribunal doesn’t actually do anything, other than serve as notice. The institution of proceedings under Annex VII is accomplished by a simple written notification to the opposing party, and once that is accomplished, nothing further happens until the parties decide upon a list of five arbitrators to sit on the panel. When Argentina notified Ghana that it was submitting the dispute to arbitration, Ghana was “supposed” to respond by appointing its own freebie arbitrator within 30 days of receiving the notification. But if Argentina does not thereafter force the matter by submitting a request for the President of ITLOS to make the remaining appointments, then the “arbitral tribunal” would simply never get off the ground.

And that appears to be what happened here.

Two weeks after instituting the Annex VII arbitration, on November 14, 2012, Argentina instituted proceedings before the International Tribunal on the Law of the Sea by requesting that the Tribunal issue a provisional ruling ordering Ghana to release the ARA Libertad. Argentina’s request was made pursuant to Article 290(5) of UNCLOS, which provides that “[p]ending the constitution of an arbitral tribunal to which a dispute is being submitted under this section, any court or tribunal agreed upon by the parties or, failing such agreement within two weeks from the date of the request for provisional measures, the International Tribunal for the Law of the Sea… may prescribe, modify or revoke provisional measures.” Because the request for provisional measures was made in its initiation of the arbitration panel, in the letter to Ghana, Argentina was able to request a provision ruling from ITLOS a mere 14 days after it notified Ghana that it wanted to convene an Annex VII arbitration panel.

Of note, this sort of speedy provisional ruling could not have been requested in a case that was actually before ITLOS on the merits — although 290(1) allows ITLOS to issue provisional measures where it feels they are necessary, it does not explicitly allow a party to request them. Only by initiating an Annex VII arbitral tribunal could Argentina proceed with the request for provisional measures.

Four weeks later, on December 15, 2012, the Tribunal issued an order awarding Argentina all of the relief it requested in its Application for Provisional Measures:

Ghana shall forthwith and unconditionally release the frigate ARA Libertad, shall ensure that the frigate ARA Libertad, its Commander and crew are able to leave the port of Tema and the maritime areas under the jurisdiction of Ghana, and shall ensure that the frigate ARA Libertad is resupplied to that end.

In its Application for Procedural Measures, at paragraph 70, Argentina stated that “[t]o date, Ghana has not appointed a member of the arbitral tribunal and has not reacted to the invitation of Argentina to enter into discussions with it for the purpose of appointing the other members of the Annex VII arbitral tribunal.” This was somewhat premature at the time, as Ghana had until November 29, 2012 before it was required to appoint its own arbitrator, and Argentina had simply proceeded with filing its Request for Provision Measures at its earliest available opportunity.

But, as far as I can ascertain from the available records, Ghana never did get around to appointing an arbitrator. And, thereafter. Argentina never requested that the ITLOS President, pursuant to Article 3(e) of Annex VII, step in to make those appointments on the parties’ behalf. Although, pursuant to Article 3(b) of Annex VII, Argentina did appoint a single arbitrator to be on the arbitral tribunal (it could hardly have avoided doing so), there is no indication that Argentina has taken any further actions with regard to the arbitration panel it instituted. Having received “interim” relief that gave it everything it wanted, the Annex VII arbitral tribunal is now forgotten.

In other words, Argentina “initiated” an arbitration proceeding it did not intend to follow through on. The result is that the Tribunal’s Art. 290(5) provisional measure will, in effect, operate as a decision on the merits, and no further adjudication of this dispute will occur. The arbitral tribunal appears to have been stillborn, and the domestic suit also appears to have been abandoned. On December 19, 2012, the Ghanaian Supreme Court ordered that the ARA Libertad be released, in accordance with the Tribunal’s ruling, and the case was thereafter abandoned. After all, with the ARA Libertad no longer available for attachment, NML Capital had no reason to continue its Ghanaian collection action.

In short, Argentina’s use of procedural maneuvers enabled it to secure a fast-tracked award of its requested relief without any consideration as to the merits of its case. Heck, Argentina didn’t even have to prove that an Annex VII arbitration panel would even have jurisdiction to hear its dispute — it just had to convince the Tribunal that it had met, in the words of Judge Paik, the “rather low threshold of prima facie jurisdiction.”
Not a bad result at all.

At least for Argentina, anyway. The Tribunal’s award of provisional relief in the ARA Libertad case raises serious concerns about the effectiveness of UNCLOS’s dispute resolution procedures, however. Because, having received the provisional relief it requested from the Tribunal, Argentina seems to have the Annex VII arbitration that Argentina initiated seems to have been discarded.

The Tribunal’s judges are not unaware of this problem. In fact, three of the four separate opinions that were issued along with the Tribunal’s order in the ARA Libertad case make direct reference to the judges’ concerns regarding the Order’s lackadaisical approach to the issue of jurisdiction under Article 290(5). After noting their concerns, however, all three of those opinions then promptly fall over themselves in coming up with convoluted explanations for why, despite the significant jurisdictional problems in Argentina’s case, they nevertheless were ultimately in agreement with the Tribunal’s decision to award Argentina its requested relief.

Judge Wolfrum and Judge Cot, in their separate opinion, actually agree with Ghana that an Annex VII arbitral tribunal would not have jurisdiction to hear Argentina’s claims. The Tribunal’s decision to issue provisional relief to Argentina, they argue, would not be consistent with the purposes behind of Article 290, which is to ensure that a meaningful decision on the merits can be reached. As such, “[p]rovisional measures may only be requested and decided in the context of a case submitted on the merits. Provisional measures are meant to protect the object of the litigation in question and, thereby, the integrity of the decision as to the merits.” Granting provisional relief in the ARA Libertad case is troubling, even if it was done to protect Argentina’s own sovereignty, because “[i]t should always be borne in mind that the prescription of provisional measures constitutes an infringement of the sovereign rights of the responding State.”

But despite this acknowledged jurisdictional problem, Wolfrum and Cot don’t let that stand in the way of them concurring with the Tribunal’s ultimate decision:

Although we disagree with the finding of the Tribunal that the arbitral tribunal under Annex VII has jurisdiction in accordance with article 288, paragraph 1, of the Convention, in our view, Ghana is estopped from opposing the proceedings at this phase. … The Tribunal cannot accept the submission of Ghana “to reject the provisional measures filed by Argentina on 14 November 2012”. Ghana is estopped from presenting any objection on the matter, whatever the validity of the arguments presented to that effect.

In other words, according to Wolfrum and Cot, maybe the Tribunal doesn’t have jurisdiction to adjudicate a dispute between two sovereigns — but that’s okay, because, really, this is just a default judgment case, anyway, so there isn’t any real sovereignty violation going on.

Judge Paik, too, thinks that the Tribunal’s jurisdiction in the ARA Libertad case may be a little shake. Like Wolfrum and Cot, Judge Paik’s separate declaration to the Tribunal’s Order acknowledges that provisional rulings should not function as a decision on the merits:

As provisional measures are prescribed without there being any need to prove the conclusive existence of jurisdiction or the validity of claims, a request for measures that would result in virtually resolving the dispute should not be accepted. The Permanent Court of International Justice emphasized this point when it stated that any request ‘designed to obtain an interim judgment in favour of a part of the claim formulated in the Application’ should be dismissed.

Judge Paik ultimately decided that the Tribunal’s cavalier approach to jurisdiction was justified due to the fact that the Art. 290(5) ruling didn’t really give Argentina everything it wanted, it only mostly did:

In the present case, the relief sought by Argentina in the request, which is the unconditional release of the warship ARA Libertad, comes close, in substance, to the principal relief sought in the claims submitted in its Application. However, this fact alone should not preclude the Tribunal from considering the measures sought by Argentina. In addition, the various forms of relief sought by Argentina in its Application instituting the Annex VII arbitration are obviously broader than those sought in the request for provisional measures.

But Judge Paik’s justification for the Tribunal’s award is unsatisfactory. Because Argentina did receive, in substance, all of the relief that it had sought in its Application — as the “obviously broader” “various forms of relief” that Judge Paik makes reference to in his opinion were largely superfluous demands that the arbitral tribunal would not have even had jurisdiction to grant if it wanted to. In fact, I suspect that Argentina was fully aware that no tribunal would ever grant the overreaching demands it made in its original Statement of Claim. Rather, Argentina was fully aware that it would never succeed in having Ghana be ordered to give a “solemn salute” to Argentina’s flag, but it deliberately through the bogus demand into its claims anyway — so that, when it made its play for provisional relief in front of the Tribunal, Argentina could argue that the “provisional” measures it was seeking were not identical to the relief it sought in its Application.

The third separate opinion, from Judge Lucky, echoed all the same concerns as did Wolfrum, Cot, and Paik. Like them, Judge Lucky noted that “[w]hen a party to a dispute seeks the prescription of provisional measures, the Tribunal has to consider whether by granting the Request, it prevents the parties from taking any action that would render the final decision on the merits otiose.” But, in his explanation for why he nevertheless agreed with the Tribunal’s result, Judge Lucky provided perhaps the most honest assessment of the basis of his decision:

I think that international law and the relevant articles in the Convention should be considered as a whole and in these circumstances article 32 can be deemed to include internal waters; not only because it does not explicitly exclude the immunity of warships in internal waters, but because it should be read in congruence with other rules of international law which guarantee such immunity. Therefore, where the law is silent a tribunal ought to take a pragmatic approach and, bearing in mind the circumstances of the case, interpret and construe the law accordingly.

In other words, the Tribunal’s decision to award provisional relief to Argentina was justified for “pragmatic” reasons, and in accordance with well established norms of international law that exist outside of narrow scope of UNCLOS’s subject matter jurisdiction. While the ARA Libertad case undoubtedly put the Tribunal in an uncomfortable position — and I can understand the Tribunal’s reluctance to be complicit in one state’s unprovoked seizure of another nation’s military vessel — in order to avoid that result, the Tribunal arguably engaged in an overly expansive interpretation of its own jurisdiction.

If that is what happened here, then the Tribunal’s order was a short-sighted one. Judges Wolfrum and Cot, in their separate opinion, give warning of the long-term consequences of such an approach:

Any attempt to broaden the jurisdictional power of the Tribunal and that of arbitral tribunals under Annex VII going beyond what is prescribed in article 288 of the Convention is not in keeping with the basic philosophy governing the dispute settlement system of the Convention. It undermines the understanding reached at the Third UN Conference on the Law of the Sea, namely that the dispute settlement system under the Convention will be mandatory but limited as far its scope is concerned.

In the end, however, the true loser in the ARA Libertad case isn’t the Tribunal. It isn’t even NML Capital, the thwarted judgment creditor that kicked off the dispute in the first place — they’ll likely just find a new scheme for how they can get their billion dollars back from Argentina.

The real loser is Ghana.

Ghana didn’t even have a stake in this fight, initially. It was Ghana’s bad luck that NML Capital ultimately decided to use Ghana’s domestic judicial system to try and collect against Argentina. By not finding some judicial excuse to deny NML’s request for an injunction, Ghana’s judiciary dragged the whole state into an international dispute that was never its to fight in the first place. It was Ghanaian tax payers that bore the brunt of the costs, too; the Ghanaian port authority lost a reported $7.6 million as a result of the ARA Libertard proceedings.

But maybe Ghana won’t be totally out of luck — and perhaps the litigation over the ARA Libertad affair isn’t entirely over. As of December 2012, anyway, the Ghanaian Port Authority was considering going after NML Capital to recover its losses.

-Susan

Update, 2-26-13: Looks like Argentina was more serious about this arbitration than it initially appeared. Argentina had requested that the President of ITLOS appoint three arbitrators for the arbitration panel. Presumably, then, Ghana did nominate its own choice of arbitrator, but the parties were unable to decide upon the remaining three. It will be curious to see whether Argentina continues to prosecute this action.

5 thoughts on “Argentina’s Sham Annex VII Arbitration and ITLOS’ Provisional Ruling on the Merits of the ARA Libertad Case

  1. So I’m guessing NML’s navy best not be docking any of it warships in Ghana?

    But seriously, does NML happen to have any top execs who happen to have yachts that happen to call at ports in countries friendly to Ghana?

    You never know when the S.S. Karma’s gonna come sailing over the horizon.

    Of course the true free market solution here is that NML is out the money for being stupid enough to do business with Argentina in the first place and Argentina is unable to find anyone else stupid enough to do business with them in the future.

    So we can be pretty sure that’s not how it’s going to play out.

    unitron

    • I can’t say I’m particularly inclined to be sympathetic to Argentina for suffering the consequences of its default, except when the choice is between Argentina and NML Capital, I’m happy to cheer on Argentina’s legal triumphs.

      NML Capital wasn’t just stupid enough to do business with Argentina — NML Capital bought the debt in 2001, in the midst of Argentina’s meltdown. It’s pretty hard for NML Capital to now claim victim status when they’re the ones who decided to buy courtside tickets into this mess.

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  4. Late news: Ghana’s supreme court sided with Argentina in June, 2013. This led Argentina to work out a diplomatic settlement in the form of a joint statement of the two countries that was announced in September 2013 along with a request for the arbitrators to end the proceedings. The statement largely supported Argentina’s position.

    The decision of the Ghana Supreme Court turned to customary international law, with evidence drawn from the US. The Foreign Sovereign Immunities Act of 1976 specifies certain categories of foreign state property as immune from attachment in spite of general waivers of sovereign immunity over property:

    “2) the property is, or is intended to be, used in connection with military activity and

    A. is of a military character, or
    B. is under the control of a military authority or defense agency.”

    SInce there was no binding Ghanian precedent to the contrary, and since customary law supported Argentina’s immunity of its military vessels from attachment (not to mention a similar position in US law that was ignored by the High Court judge), the Ghanian court ruled:

    “In our view, the learned judge was in fundamental error in holding that, as a result of a contractual provision, he had jurisdiction, through a waiver, to arrest a warship. By this decision, he made new law which had the potential of endangering the peace and security of the Ghanian state. Certioraris should be available to quash this fundamentally erroneous decision of the learned High Court judge.”

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