Should a foreign investor have its assets expropriated (whether directly, or through creeping expropriation or regulatory encroachment), a qualifying investor would have claims for unlawful expropriation and breach of the FET standard under any applicable investment treaties. A map of those treaties to which Argentina is a party can be seen HERE. The main advantage of being able to pursue such an investment treaty claim would be to avoid having to sue the Argentinian authorities in their own courts. In addition, investors may have access to claims in the domestic courts.

Constitutional protection of property rights

Under Argentine law, shares in a private company are constitutionally protected property rights, and can only be expropriated through the enactment of an expropriation law by the National Congress with previous proper compensation and a formal declaration of the public use or utility involved (National Constitution, art. 17).

Expropriations Law No. 21,499

Expropriations Law No. 21,499 further regulates this formal expropriation proceeding. In general terms, after the National Congress enacts the law, the National Executive and the expropriated party must agree on the value and, absent such agreement, an official authority must appraise the property’s value, which must be previously paid or deposited by the National Executive prior to taking possession over the property.

However, this procedure can present some setbacks in certain cases, most notably due to the fact that Expropriations Law No. 21,499 prohibits the payment of compensation in respect of loss of profits—a key compensation concept in the expropriation of profit-making companies.

Official appraisals may therefore widely vary depending on the methodology used to ascertain the present value of the expropriated shares (e.g., in the expropriation of Spanish-owned airline Aerolíneas Argentinas, appraising authorities reached the conclusion that the value was negative due to its current capital-debt structure, and therefore no compensation had to be paid).

Nonetheless, the legal system allows for a judicial procedure to be initiated to discuss the appraisal methodology and assumptions.

Additionally, there are indirect or “creeping” ways nationalization may take place, such as the enactment of legislative or administrative regulations that substantially limit the exercise of the owner’s rights. For these cases, Argentine law grants several remedies that may apply depending on the case.

For instance, the owner may seek to consider such a case as an “abnormal” expropriation and thus go to court to seek to obtain a full expropriation, with payment of the compensation, under the “abnormal” expropriation proceeding regulated by Expropriations Law No. 21,499 and which is similar to the one described above.

Alternatively, the owner may seek annulment of such regulations and full compensation of all losses suffered (including loss of profits) under State Liability Law No. 26,944. In such a case, it would have to demonstrate that such regulations are unconstitutional. In addition, before reaching a court it would have to submit a prior administrative claim according to Administrative Procedures Law No. 19,549.

Finally, if the regulations are not nullified, still the owner may seek compensation under State Liability Law No. 26,944, but without being able to obtain loss of profits and also having to meet a higher evidentiary standard (i.e., having to demonstrate that the regulations imposed a “special sacrifice” over the owner, different than that to the rest of society or similar market players).

Administrative proceedings

Another manner in which nationalization can take place is through the unilateral revocation of licenses, permits or contracts granted to the investor authorizing a specific activity or service (this is especially the case for public utility companies, mostly natural gas and electricity distributors or transporters, as well as telecommunication operators).

In these cases, such decisions must be challenged in a previous administrative procedure, and only once the latter is completed can the expropriated licensee, permittee or contractor submit its challenge in court.

As a final note, in all these cases the National Government must be sued before Federal Courts, which in turn tend to defer in favour of the National Government’s policies and decisions, unless explicit and gross violations to applicable laws took place.

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