In RSM Production Corporation v Grenada (ICSID Case No ARB/05/14) (Annulment Proceeding), annulment proceedings were discontinued without any objection. The ad hoc committee ordered the applicant to pay the respondent's costs, despite the fact that no ruling on the merits of the annulment application had been made. It would be inappropriate to require the respondent to bear the costs of an application that the applicant had subsequently abandoned.

The decision serves as a reminder of the potential pitfalls of tactical annulment applications and illustrates that ad hoc committees have the power to ensure that the costs of abandoned applications are borne by the responsible party.

The applicant submitted a request for annulment under Article 52 of the ICSID Convention. The request related to an award of March 2009, in which the tribunal dismissed its claims for damages (for further discussion, see Legal update, ICSID tribunal accepts jurisdiction, rejects investor's breach of contract claim). However, the applicant subsequently refused to make any of the payments on account of costs for which it was responsible under Regulation 14 of the ICSID Administrative and Financial Regulations.

It appeared that the reason for this change of tactic was that the applicant had launched separate arbitration proceedings, the object of which was substantively similar to the annulment proceedings, namely to attack the March 2009 award. (For further discussion of the second arbitration, see Legal update, ICSID: attempt to relitigate was manifestly without legal merit).

The annulment proceedings were stayed by the ad hoc committee on the grounds of failure to pay the fees and the Secretary General of ICSID subsequently moved for the proceedings to be discontinued under Regulation 14(3)(d) (which entitles the Secretary General to move for discontinuance if any proceeding is stayed for non-payment for a consecutive period exceeding six months).

Neither party objected to discontinuance; the principal dispute arose on costs. The respondent applied for an order entitling it to recover all its costs, including legal fees, disbursements and the costs of the proceedings. It argued that the applicant had manipulated and abused the ICSID process, pointing, in particular, to the fact that the applicant had commenced fresh proceedings against Grenada, after which it had effectively abandoned the current proceedings. In the circumstances, although no decision on the merits of the annulment had been made, it would be appropriate to award the respondent its costs.

The committee agreed and made an order in the respondent's favour for all its costs and fees. It had the power to award costs of annulment proceedings under Articles 52(4) and 61 of the ICSID Convention. Although costs orders would not usually be made on the discontinuance of proceedings, the exceptional circumstances of the case justified the costs order. It was not necessary to go so far as to find an abuse of process: citing Piero Foresti and others v The Republic of South Africa ICSID Case No ARB(AF)/07/1 (discussed in Legal update, Costs on discontinuance of ICSID arbitration where no clear winner), the committee observed that claimants in investment arbitrations could not expect to leave respondent states to bear the costs of defending claims that were abandoned. Here, the applicant had effectively abandoned the annulment proceeding, and an award of costs was appropriate.