- Administrative Determination; Overseas Private Investment Corp.
- Ponderosa Assets, L.P.
STATE CONTRACTS - LONG-TERM CONTRACTS - LICENSING AGREEMENT - BETWEEN A UNITED STATES INVESTOR AND THE ARGENTINIAN GOVERNMENT
ADMINISTRATIVE DETERMINATION BY U.S. GOVERNMENTAL INSURANCE AGENCY ON EXPROPRIATION CLAIM - QUESTION AS TO WHETHER OR NOT A VALID CONTRACT HAD BEEN CONCLUDED BETWEEN UNITED STATES INVESTOR AND THE ARGENTINIAN GOVERNMENT - REFERENCE TO THE TWO CRITERIA SET OUT IN ART. 2.1.1 UNIDROIT PRINCIPLES
A U.S. investor acquired a 35% interest in a private Argentine gas company. The investor also secured a policy for political risk insurance from the Overseas Private Investment Corp (OPIC), an agency of the U.S. government designed to help U.S. businesses invest overseas. The company was subject to regulation by the government of Argentina. In the licensing agreement issued to the company by Argentina, the company was allowed to raise revenue by charging tariffs that were subject to change every six months based on the U.S. Producer Price Index, and which were to be calculated in U.S. Dollars but paid in Argentine Pesos.
In 2000, in response to a fiscal crisis, Argentina passed a law prohibiting the use of indexes from other countries in adjustment clauses governed by public law, and providing that in contracts governed by public law the exchange rate would be 1 U.S. Dollar = 1 Argentine Peso. As a result of the law, the company’s tariffs were frozen at the January 2000 rate and had to be paid in the amount of Argentine Pesos numerically equivalent (as opposed to being equivalent in value) to the amount calculated using U.S. Dollars.
Investor claimed that its property had been expropriated by the government of Argentina in violation of international law and without adequate compensation. The matter between Argentina and investor was pending before the International Centre for Settlement of Investment Disputes (ICSID) when OPIC issued its Memoranda of Determinations in response to investor’s claim that its policy should be disbursed because of the alleged illegal expropriation.
In making its determination as to whether or not the actions of Argentina constituted a repudiation of the contract between the company and Argentina amounting to an illegal expropriation of investor’s property as defined by the insurance contract, OPIC first looked to whether or not a contract had actually been formed between those two parties. In doing so, OPIC quoted Article 2.1.1 of the UNIDROIT Principles, stating that a contract can be formed “by the acceptance of an offer.” OPIC found that Argentina’s licensing agreement constituted an offer that was duly accepted by the company, thus forming a contract. OPIC also quoted Article 2.1.1, according to which a contract can be formed by “conduct of the parties that is sufficient to show agreement.” OPIC concluded that from 1992 until 2000 the conduct of each of the parties conformed to the terms of the agreement, thus indicating that it was their common intention to be bound by the terms of the licensing agreement.
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