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ICSID tribunal dismisses claims as manifestly without legal merit
Practical Law Legal Update 2-504-1645 (Approx. 3 pages)
ICSID tribunal dismisses claims as manifestly without legal merit
by PLC Arbitration
| Published on 08 Dec 2010 • International, USA |
In Global Trading Resource Corp and Globex International Inc v Ukraine (ICSID Case ARB/09/11), the tribunal dismissed claims pursuant to Rule 41(5) of the ICSID Arbitration Rules.
In Global Trading Resource Corp and Globex International Inc v Ukraine (ICSID Case ARB/09/11), an ICSID tribunal summarily dismissed claims pursuant to Rule 41(5) of the ICSID Arbitration Rules on the basis that they were manifestly without legal merit.
Rule 41(5), which was introduced in 2006, permits parties to raise preliminary objections on the basis that claims are "manifestly without legal merit", and requires the tribunal to rule on such objections. The tribunal held that the claims (which related to the Ukraine's failure to perform its obligations under poultry sale contracts) did not qualify as an investment for the purposes of Article 25 of the ICSID Convention (which restricts ICSID jurisdiction to disputes arising "directly out of an investment"). The tribunal therefore had no jurisdiction to determine them, and rendered an award stating that the claims were manifestly without legal merit.
This is thought to be the first case in which claims have been dismissed on that basis, and the tribunal's award contains guidance on the procedure and approach that should be adopted when preliminary objections are raised.
Noting that Rule 41(5) contains little in the way of procedural guidance, the tribunal offered the following general guidance:
- Rule 41(5) extended to jurisdictional (as well as substantive) objections (confirming the approach in Brandes Investment Partners LP v Bolivarian Republic of Venezuela (ICSID Case ARB/08/3), discussed in Legal update, Tribunal can consider jurisdiction under ICSID Arbitration Rule 41(5)).
- The appropriate procedure will be determined by the tribunal in each case, but may differ depending on whether the objection is upheld or not.
- Rule 41(5) requires the tribunal to give the parties "the opportunity to present their observations on the objection". It would not be right to dismiss claims summarily without giving the parties "a proper opportunity to be heard, both in writing and orally".
- Giving the parties the right to make written and oral submissions could raise organisational problems because if the tribunal upholds the objection, it is required by Rule 41(5) to render an award to that effect "at its first session or shortly thereafter". In the present case, the parties were allowed two rounds of short and focused written argument and then two rounds of well-focused oral argument completed within a single day at the end of the first formal session. There was then a slight delay between the hearing and the rendering of the award, but that was both inevitable and within the spirit of the Rules.
- There might be rare cases where the tribunal could come to a clear decision on the basis of written submissions only, but such cases are likely to be limited to those where the decision is to reject the objection. (In such a case, the objecting party would retain the right to renew its objections at a later date, so no injustice would be caused.)
- In any case, if a tribunal intends to uphold an objection, it should be certain that it has considered all of the relevant materials before coming to its decision.
- The standard for review is high: the respondent must establish its objection "clearly and obviously, with relative ease and despatch" (applying the test set out in Trans-Global Petroleum Inc v Hashemite Kingdom of Jordan (ICSID Case ARB/07/25), discussed in Legal update, Claims "manifestly without legal merit": ICSID tribunal interprets rule 41(5)).
This is thought to be the first case in which a preliminary objection has been upheld under Rule 41(5). Although the tribunal's award contains helpful guidance on the approach to such applications, it is clear that (in this tribunal's view) the proper approach may depend on whether the tribunal intends to uphold or dismiss the objection. If the objection is to be upheld, then it will be more important to ensure that the parties have been given a full opportunity to put their case, and that the tribunal has considered all relevant material. As the tribunal noted, however, it will not know in advance whether the objection is likely to be upheld (paragraph 32). This suggests that (unless, perhaps, the preliminary objection is clearly without merit) most tribunals will err on the side of caution by extending to the parties a full opportunity for both written and oral submissions.