The Supreme Court of Justice upheld the supremacy of Bilateral Investment Treaties

The Supreme Court of Justice (“CS”) upheld its original jurisdiction (in accordance with Sections 116 and 117 of the Argentine Constitution) in cases where federal matters are involved. In this particular case, the supremacy of Bilateral Investment Treaties (“BIT´s”) over federal and provincial laws and decrees, according to Section 75 Subsection 22 of the Federal Constitution, was in discussion.

1.    Precedents of the case

Teyma Abengoa S.A. is a Corporation whose paid-up capital is held by ASA Investment, a Swiss Corporation, and Abengoa S.A., a Spanish Corporation. Both are registered before the Public Commerce Registry as foreign companies according to Section 123 of the Corporate Law.

On December 5, 2000, the Tax Authority of the Province of Salta determined a tax debt against Teyma Abengoa S.A. of Argentine Pesos 13,820,000, corresponding to the Gross Revenue Tax (Impuesto a las Actividades Económicas) for the 1997-2000 period, according to Section 15 of the Provincial Tax Code.

Teyma Abengoa S.A. appealed such decision before the Administrative Authority.

On December 19, 2001, Teyma Abengoa S.A. sent a “trigger letter” to the Treasury General Prosecutor stating that an investment dispute under the Spain and Swiss BITs had arisen, commencing the the obligatory 18 month amicable settlement period stated by Section 9 of both BITs (ratified by Federal Laws No. 24,118 and No. 24,099, respectively).

A copy of such notification was sent by Teyma Abengoa S.A. to the Government of the Province of Salta.

Notwithstanding such notification, on March 18, 2002, the Government of Salta rejected the last appeal (“recurso jerárquico”) filed by Teyma Abengoa S.A. and confirmed the tax debt for an amount of Argentine Pesos 11,156,217 as of February 28, 2002.

Teyma Abengoa S.A. filed a claim directly with the CS requesting (i) the recognition of the CS original jurisdiction on the case pursuant to Sections 116 and 117 of the Federal Constitution, (ii) an interim measure preventing the Government of Salta from enforcing the debt under discussion, and (iii) that the Province of Salta should honor and fulfil the amicable settlement proceeding stated in the International Treaties (BITs) ratified by Argentina.

2.    Juridical arguments

Teyma Abengoa S.A. requested the CS original jurisdiction be declared since federal matters were under discussion. These general principle has been recognized by the CS since 1903.

In re: “Campos, Juan vs. Province of Entre Ríos”, of 1936 (“Fallos”, 176:315), the CS set forth the following criteria for the differentiation between federal and local jurisdiction:

a. When a provincial law or decree is objected because it violates the Federal Constitution, Federal Laws, or International Treaties, the jurisdiction falls to the Federal Courts.

b. When a provincial law or decree is objected because it violates other Provincial Laws, the jurisdiction falls to the Local Courts.

c. When a provincial law or decree is objected because it contradicts a Provincial and a Federal Laws the jurisdiction falls in first instance to Local Courts, which decisions may be challenged before the CS by means of the Federal Extraordinary Appeal (Recurso Extraordinario Federal) , according to Section 14 of Law No. 48.

Also, the CS has stated that the nationality or province of residence of the challenging party do not alter the federal character and the CS’s original jurisdiction over cases where federal matters are under discussion and in which a Province is a party, and that claims where the unconstitutionality of provincial laws and decrees are requested are typical federal matters.

In particular, Teyma Abengoa S.A. claimed before the CS (i) the unconstitutionality of Salta´s Provincial Decree No. 362/02, (ii) the recognition of the BITs supremacy over federal and provincial laws and decrees, and (iii) that the Province of Salta should honor the amicable settlement process in course with the Federal Government, according to Section 8 of the Swiss and Spanish BITs and Section 75 Subsection 22 of the Federal Constitution.

The CS acknowledged its original jurisdiction over the case stating that there were no matters involved to be decided by ocal courts (i.e. the objection of the tax under discussion). That is to say, if Teyma Abengoa S.A. had objected the legal basis of the tax debt, the local courts of Salta would have been competent to resolve the case.

Also, the CS issued an interim measure against the Province of Salta to prevent the enforcement of the tax debt, stating that the requisites of Section 230 and 232 of the Federal Procedural Code were met (“fumus boni iuris” and “periculum im mora”).

Although the CS has repeatedly stated that interim measures against Administrative Acts or Resolutions are of restrictive application, it has also been recognized that these principle should not be applied when the local laws and decrees are being objected under a prima facie objective basis.

In this particular case, the CS understood that some presumptions prima facie demonstrating the fumus boni iuris and peculum im mora could be taken from the arguments and facts of the claim.

Finally, the CS (i) declared its original jurisdiction to the case according to Section 116 and 117 from the Federal Constitution, (ii) ordered an interim measure against the Government of Salta to prevent the enforcement of the tax debt, and (iii) asked the Government of Salta to answer the claim filed by Teyma Abengoa S.A. before the CS.

3.    Final considerations

The CS recognized its original jurisdiction (according to Section 116 and 117 of the Federal Constitution) on cases where the discussion is centered over the supremacy of international treaties ratified by Argentina over local laws and decrees (Section 75 Subsection 22 of the Federal Constitution).

BITs ratified by the Argentine Republic grant foreign investors some rights and guarantees. Such “supra-legal” protection would be meaningless if subsequent local laws and decrees were allowed not to honor dispute resolution proceedings set forth by the BITs.

Therefore, since international treaties possess constitutional supremacy provincial governments must refrain from adopting any measures contradicting or related with the issues or conflicts which triggered the application of BITs.