Source: https://www.asil.org/insights/volume/15/issue/10/four-tribunals-apply-icsid-rule-early-ouster-unmeritorious-claims
Timestamp: 2019-04-18 18:27:30+00:00

Document:
Four tribunals composed of leading arbitrators have brought to life an unusual rule adopted by the International Centre for the Settlement of Investment Disputes (âICSIDâ) in 2006 that allows respondent states to seek early dismissal of unmeritorious claims. The first two cases clarified key parts of the rule, although the disputed claims were not dismissed. More recently, two tribunals for the first time dismissed claims in their entirety. The four unanimous decisions are in harmony on key points and set out standards and procedures that are likely to influence future tribunals. They show that the new rule can be an effective device to limit statesâ burdens and expenses in the face of legally dubious claims.
ICSIDâs burgeoning docket has been accompanied by growing criticism of the international investment treaty regime by some states, academics, and non-governmental organizations. Some have complained that respondent states have been unfairly forced to defend against weak or even fabricated claims, perhaps including some brought to induce settlements by embarrassing governments or threatening burdensome and expensive legal proceedings.
(5) [A] party may, no later than 30 days after the constitution of the Tribunal . . . file an objection that a claim is manifestly without legal merit. The party shall specify as precisely as possible the basis for the objection. The Tribunal, after giving the parties the opportunity to present their observations on the objection, shall, at its first session or promptly thereafter, notify the parties of its decision on the objection . . .
(6) If the Tribunal decides . . . that all claims are manifestly without legal merit, it shall render an award to that effect.
The Secretariat is powerless to prevent the initiation of proceedings that . . . are frivolous as to the merits. This had been a source of recurring complaints from some respondent governments. One of the amendments to the ICSID Arbitration Rules made in 2006 was to introduce a procedure, in Rule 41, for the early dismissal by arbitral tribunals of patently unmeritorious claims.
In Brandes Investment Partners, LP v. Venezuela, a second tribunal allowed challenged claims to proceed, while making clear that Rule 41(5) is not limited to challenges on the merits. It can be used to dispute jurisdiction and competence, but not to resolve disputed facts. The language of the rule clearly weighs against consideration of factual issues (âmanifestly without legal meritâ). Moreover, it is difficult to conceive of factual disputes that could be addressed adequately in abbreviated proceedings under Rule 41(5).
In December 2010, a tribunal for the first time dismissed a case under Rule 41(5). Global Trading Resource Corp v. Ukraine offers a thoughtful analysis of the rule likely to influence future panels.
The claimants entered into contracts to supply poultry. For reasons not explained in the award, the Ukrainian parties did not pay for, or take delivery of, most of the poultry, leaving the claimants with substantial losses.  In May 2009, they initiated ICSID arbitration, asserting jurisdiction based on the ICSID Convention and the U.S.-Ukraine Bilateral Investment Treaty (âBITâ).
Ukraine sought dismissal pursuant to Rule 41(5), arguing that the dispute involved an ordinary sales transaction, not an investment as required for jurisdiction under the ICSID Convention and the BIT. The claimants countered that because of the prime ministerâs involvement, the assurances she offered, and other exceptional circumstances, their contracts and expenditures constituted investments.
The Global Trading tribunal upheld Ukraineâs objections, finding the claims manifestly without legal merit. Like many other tribunals, it found that ICSID jurisdiction requires an investment satisfying both Article 25 of the ICSID Convention and any definition of investment under a relevant investment treaty. It found no investment for purposes of Article 25, concluding that âthe purchase and sale contracts entered into by the Claimants were pure commercial transactions and therefore cannot qualify as an investment.â The Tribunal also found no investment for purposes of one element of the BITâs definition of investment, but did not decide whether a second element might apply, given its decision regarding the absence of an investment satisfying Article 25.
The award addressed several significant issues.
â The Challenges Covered. The tribunal agreed with Brandes that Rule 41(5) is not limited to challenges involving the merits, and can be used to dispute jurisdiction and competence. Although the tribunal did not need to rule on the issue, it also agreed with Brandes that factual disputes do not fall within the ruleâs ambit.
â Defining âManifestly.â The tribunal heartily endorsed and applied Trans-Globalâs analysis of âmanifestly,â quoted above.
There is a tension between the need to accord a claimant sufficient opportunity to be heard and Rule 41(5)âs direction that the tribunal rule âat its first session or promptly thereafter.â The panel squared the circle with a busy schedule including âtwo rounds of short and focused written argument, complemented by two rounds of well-focused oral argument completed within one single day at the end of the first formal session.â  The panel was much less concerned with a decision not to dismiss, since the claim then proceeds normally. The respondent state retains all of its rights to contest jurisdiction and merits, and the claim will ultimately succeed or fail following normal proceedings.
be certain that it has considered all of the relevant materials . . . . The present Tribunal accordingly posed itself the question, what other materials might either Party (specifically the Claimants) bring to bear if the question at issue were to be postponed until a later stage in the proceedings? Having posed itself that question, the Tribunal was unable to see what further materials relevant to the question at issue . . . either Party might wish to, or be able to, bring forward at a later stage.
Some may not find this self-evident and instead see the possibility of additional pertinent evidence or arguments as relevant to whether a claim is âmanifestlyâ without merit.
given the potentially decisive nature of an Article 41(5) objection, we would add that, for a tribunal faced with such an objection, it is appropriate that a claimantsâ Request for Arbitration be construed liberally and that, in cases of doubt or uncertainty as to the scope of a claimantâs allegation(s), any such doubt or uncertainty should be resolved in favour of the claimant.
The RSM tribunal was much less sympathetic.
Having regard to itsâ conclusions that Claimants present claims are manifestly without legal merit, and that, it was impermissible for Claimants to advance them in new ICSID proceedings, the Tribunal considers it appropriate that Respondent should be fully indemnified for all of its costs, reasonably incurred or borne, in this proceeding.
The initial cases under Rule 41(5) have set the bar for dismissing a claim fairly high. This is appropriate. As Global Trading emphasized, dismissal under the rule is a serious matter. Both parties should have adequate opportunity to be heard prior to any decision to dismiss.
Now that Rule 41(5) has been fleshed out and produced two dismissals, it may be more attractive to respondent states and their officials, particularly officials fearful of being seen as lax in defending the state. Motions to dismiss under Rule 41(5) thus may become a more frequent part of statesâ defenses in ICSID. If so, future panels will need to carefully design procedures that accomplish the dual objectives of expedition and due process.
John R. Crook, an ASIL Vice-President, teaches international arbitration at George Washington University Law School, and has been an arbitrator on the Eritrea-Ethiopia Claims Commission and under NAFTA. He edits the American Journal of International Lawâs section on contemporary U.S. practice in international law.
 While national legal systems often have procedures like Rule 12(b) of the U.S. Federal Rules of Civil Procedure that enable courts to dismiss legally insufficient cases without the burden and expense of a full trial, the principal international arbitration rules do not have comparable procedures.
 See, e.g., Public Statement on the International Investment Regime (Aug. 31, 2010), available at http://www.osgoode.yorku.ca/public_statement/documents/Public%20Statement.pdf.
 Successful defenses can be very expensive. A 2009 award found that the âClaimant asserted jurisdiction on the basis of a claim to ownership of shares, which the uncontradicted evidence before the Tribunal suggests was false. Such a claim cannot be said to have been made in good faith.â The tribunal awarded the respondent state over four million dollars for its costs of defending the claim. Eur. Cement Inv. & Trade S.A. v. Turkey, ICSID Case No. ARB(AF)/07/2, Award (Aug. 13. 2009), available at http://ita.law.uvic.ca/documents/EuropeCementAward.PDF.
 Antonio R. Parra, The Development of the Regulations and Rules of the International Centre for Settlement of Investment Disputes, 41 INTâL LAW. 47, 56 (2007).
 Trans-Global Petroleum, Inc. v. Jordan, ICSID Case No. ARB/07/25, Decision on the Respondentâs Objection under Rule 41(5) of the ICSID Arbitration Rules (May 12, 2008), available at http://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=viewCase&reqFrom=Home&caseId=C254.
 V. V. Veeder (President), Professor James Crawford SC, and Professor Donald McRae.
 Trans-Global Petroleum, Inc., supra note 6, Â¶ 88.
 Brandes Inv. Partners, LP v. Venezuela, ICSID Case No. ARB/08/3, Decision on the Respondentâs Objection under Rule 41(5) of the ICSID Arbitration Rules (Feb. 2, 2009), available at http://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=showDoc&docId=DC1170_En&caseId=C266.
 Dr. Robert Briner (President),Professor Karl-Heinz BÃ¶ckstiegel, and Professor Brigitte Stern.
 Brandes Inv. Partners, LP, supra note 9, Â¶Â¶ 52-55.
 Global Trading Resource Corp. v. Ukraine, ICSID Case No. ARB/09/11, Award (Dec. 1, 2010), available at http://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=showDoc&docId=DC1771_En&caseId=C660.
 Sir Franklin Berman (President), Professor Emmanuel Gaillard, and Christopher Thomas QC.
 Global Trading Resources Corp, supra note 13, Â¶ 36.
 Treaty Concerning the Encouragement and Reciprocal Protection of Investment, with Annex and Exchange of Letters, U.S.-Ukr., Mar. 4, 1994.
 Global Trading Resource Corp., supra note 13, Â¶ 42.
 J. William Rowley QC (President), Edward Nottingham, and Professor Pierre Tercier.
 RSM Prod. Corp. v. Grenada, ICSID Case No. ARB/10/6 (Dec. 10, 2010), available at http://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=showDoc&docId=DC1792_En&caseId=C980.
 See, e.g., Eur. Cement Inv. & Trade S.A, supra note 4 (ordering an award of over four million dollars in costs and attorneysâ fees).
 Trans-Global Petroleum, Inc., supra note 6, Â¶ 122.
 Global Trading Resource Corp., supra note 13, Â¶ 59.
 RSM Prod. Corp., supra note 27, Â¶ 8.3.4.

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