“Good Faith”, “Abuse of Process” and the Initiation of Investment Treaty Claims

Electronic copy available at: http://ssrn.com/abstract=2175453

Unedited Version Published as “‘Good Faith’, ‘Abuse of Process’ and the Initiation of Investment Treaty Claims”, Journal of International Dispute Settlement, 3 (3

(advance access online)), pp. 1-28

“Good Faith”, “Abuse of Process” and the Initiation of Investment Treaty Claims

Eric De Brabandere*

Abstract ................................................................................................................................................. 1 Introduction ......................................................................................................................................... 2 I. The Increase in Investment Claims under the ICSID Convention: Advantages, Challenges and Criticism ........................................................................................................................................ 3 II. ”Good Faith” and “Abuse of Process” in International Investment Arbitration ................. 5

A. “Good faith” and Investment Treaty Claims ...................................................................... 6 B. ”Abuse of Process” and “Abuse of Rights” ........................................................................ 11

III. The Application of “Good Faith” and “Abuse of Process” by Investment Tribunals ..... 13 A. “Good faith” and Consent to Jurisdiction ......................................................................... 14

1. Corporate (Re)Structuring .................................................................................................... 14 2. “Good Faith” in the Acquisition of the Investment ............................................................. 18

B. “Abuse of Process” and the Admissibility of Claims brought in breach of “good faith” Requirements .................................................................................................................................. 22

1. “Good Faith”, “Abuse of Process”, and Forum Shopping ................................................... 22 2. “Good Faith”, “Abuse of Process”, and the Objective of the Claim ................................... 24

Conclusion .......................................................................................................................................... 27 Abstract The principle of “good faith” in assessing the initiation of investment treaty claims has manifestly become an important rule of international investment arbitration. From a procedural perspective, “good faith” plays a significant role at the jurisdictional stage of international arbitral proceedings, for questions relating to whether the investment was acquired in “good faith” or whether investor’s initiation of a claim is made in “good faith”, in order to avoid an abuse of the arbitral process. Such assessment, procedurally speaking, can be characterized either as a question that goes to the jurisdiction of the arbitral tribunal and thus to the consent to arbitration, or as a question of admissibility of the claim.

This Article will examine the position of the principles of “good faith” and “abuse of process” in the assessment by investment tribunals of their jurisdiction and the admissibility of the claim. In doing so, this Article will show that the application of these principles in international investment arbitration may play an important role in shielding tribunals from abusive submissions, and thus avoiding abuses of the arbitral procedure and the direct access of foreign investors to international arbitration.

Electronic copy available at: http://ssrn.com/abstract=2175453



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Introduction The principle of “good faith”, a well-established principle of general international law, operates at various levels in international investment law and arbitration, but its relevance in assessing the initiation of investment treaty claims manifestly has increased in the past decade. From a substantive perspective, “good faith” often is used to assess the conduct of the host State.1 From a procedural perspective, “good faith” likewise plays a significant role in relation to the conduct of the arbitral proceedings, linked to the obligation to arbitrate fairly2. Besides these uses and applications of “good faith” by tribunals, the principle increasingly is applied at the jurisdictional stage of international arbitral proceedings, namely for questions relating to whether the investment was acquired in “good faith” or whether investor’s initiation of a claim is made in good faith, in order to avoid an abuse of the arbitral process. Such assessment, procedurally speaking, can be characterized either as a question that goes to the jurisdiction of the arbitral tribunal and thus to the consent to arbitration, or as a question of admissibility of the claim.

This Article will examine the position of the principles of “good faith” and “abuse of process” in the assessment by investment tribunals of their jurisdiction and the admissibility of the claim. This Article first aims to systematize the uses and relevance of the principles of “good faith” and “abuse of process” in international investment arbitration, based on the applications of these principles by international investment arbitral tribunals. The aim is not to describe generally the principle of “good faith” in investment law. Rather, this Article will focus on the role played by that principle, and the related notion of “abuse of process”, in international arbitration from a procedural perspective, distinguishing between the jurisdiction of tribunals, and the admissibility of the claim. Secondly, the analysis of the relevant case-law in this Article will show that the application of these principles in international investment arbitration may fulfill an important function in shielding States and tribunals from abusive submissions, and abuses of the arbitral procedure and the direct access of foreign investors to international arbitration. Several arbitral tribunals, in applying these principles, have indeed explicitly referred to the need to prevent an abuse of system of investment arbitration, which is symptomatic of the importance of “good faith” and “abuse of process” in international investment arbitration.

The first section will briefly depict the system of investment arbitration generally, and in particular its increasing success over the past decades and the rising international skepticism on the potential abuses of the direct access to investment arbitration, in order to fully grasp the relevance of “good faith” in assessing the initiation of investment claims. The second section will schematize and analyze the concepts of “good faith” and “abuse or process” in international investment arbitration, and their role in assessing claims before arbitral tribunals. The third section will evaluate and discuss the uses of the principles of “good faith” and “abuse or process”

* Associate Professor of International Law, Grotius Centre for International Legal Studies, Leiden University 1 A. Newcombe and L. Paradell, Law and Practice of Investment Treaties. Standards of Treatment (The Hague: Kluwer Law International 2009), p. 277. 2 See on this: Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (Oxford: Oxford University Press, 2008), p. 162.

by arbitral tribunals, distinguishing between the jurisdiction of the tribunal and the admissibility of the claim. I. The Increase in Investment Claims under the ICSID Convention: Advantages,

Challenges and Criticism Although the ICSID Convention was adopted already in 1966, international investment arbitration under that Convention has only been used on a wide scale since 2002. Before 2002, less than 100 investment disputes were registered, a figure that has since then almost quadrupled.3 In 2011 alone, 46 known new investment arbitration cases were registered, 34 of which were filed with the ICSID or ICSID Additional Facility.4

The increase of investment disputes and the direct access to international investment arbitration however are subjected to growing international skepticism. Indeed, the existence of rights of foreign investors to bring direct claims against States on the international level raises fundamental dilemmas, and is far from gathering universal acceptance.5 In particular the alleged potential abuses of the system by foreign investors have caused certain distrust towards the existing system of direct access to investment arbitration. Especially capital-importing States have shown disagreement with the current system of investment arbitration6, as evidenced inter alia by the denunciation of the ICSID Convention by Bolivia in May 20077, Ecuador in July 20098 and Venezuela in January 2012.9 Venezuela had previously already terminated its Bilateral Investment Treaty [BIT] with the Netherlands in 2008, following the alleged abuse of the Dutch-Venezuela BIT by multinational investors to launch several investment arbitrations against Venezuela, in particular in the energy and oil sectors through the use of Dutch corporate vehicles for purposes of structuring investments in Venezuela10, as will be discussed below. Ecuador had equally prior to its denunciation of the ICSID Convention terminated nine BITs in 2008.11 But the criticism has

3 UNCTAD, Latest Developments in Investor-State Dispute Settlement, IIA Issues Note, 1 (2012), at http://unctad.org/en/PublicationsLibrary/webdiaeia2012d10_en.pdf (last visited 11 June 2012). 4 Ibid.. 5 It is not the purpose of this Article to discuss whether this criticism is well-founded or not. See for a discussion: Lisa Sachs and Karl Sauvant (eds.), The Effect of Treaties on Foreign Direct Investment (Oxford: Oxford University Press, 2009), 732 p. ; UNCTAD, ‘The Role of International Investment Agreements in Attracting Foreign Direct Investment to Developing Countries’, UNCTAD Series on International Investment Policies for Development, UN Doc. Nr. UNCTAD/DIAE/IA/2009/5 (2009), at http://www.unctad.org/en/docs/diaeia20095_en.pdf (last visited 17 September 2011) and UNCTAD, ‘Investor–State Disputes: Prevention and Alternatives to Arbitration’, UNCTAD Series on International Investment Policies for Development, UN Doc. UNCTAD/DIAE/IA/2009/11 (2010), p. 4 et s., at http://www.unctad.org/en/docs/diaeia200911_en.pdf (last visited 17 September 2011) 6 See: Susan D. Franck, ‘The ICSID Effect ? Considering Potential Variations in Arbitration Awards’, 51 Virginia Journal of International Law 977 (2011). 7 ICSID News Release, ‘Bolivia Submits a Notice under Article 71 of the ICSID Convention’, May 16, 2007, at http://icsid.worldbank.org/ICSID/ICSID/ViewNewsReleases.jsp (last visited 15 September 2011). 8 ICSID News Release, ‘Ecuador Submits a Notice under Article 71 of the ICSID Convention’, July 9, 2009, at http://icsid.worldbank.org/ICSID/ICSID/ViewNewsReleases.jsp (last visited 15 September 2011). 9 ICSID News Release, ‘Venezuela Submits a Notice under Article 71 of the ICSID Convention’, January 26, 2012, at http://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=OpenPage&PageType=AnnouncementsFrame&FromPage=Announcements&pageName=Announcement100 (last visited 6 June 2012) 10 See UNCTAD, ‘Denunciation of the ICSID Convention and BITs: Impact on Investor-State Claims’, IIA Issues Note, 2 (December 2010), at http://www.unctad.org/en/docs/webdiaeia20106_en.pdf (last visited 15 September 2011). 11 The BITs had been concluded with Cuba, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Paraguay, Romania and Uruguay. See for a discussion: UNCTAD, ‘Denunciation of the ICSID Convention and

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not been limited to traditional capital-importing States only. Australia for instance has recently officially adopted the position that the practice to incorporate dispute settlement clauses in investment and trade agreements, which provide for direct access to investment arbitration, will be discontinued, essentially because the direct access in fact amounts to a discrimination between foreign and national investors.12

At the same time, over the past years, several States have adhered to the ICSID Convention13, which, despite the criticism, shows that the direct access to investment arbitration is considered an important tool in attracting foreign direct investment. The mere fact that today 148 States have ratified and another 10 have signed by not (yet) ratified the ICSID Convention14 and that the overall majority of the BITs provide for direct investor-State arbitration15 show the efficacy and importance of the system. Arbitration under the ICSID Convention is today beyond doubt the preferred investor-State dispute settlement method.16

The question therefore is not necessarily what alternative system would replace the current system of international investment arbitration, because the rationale underlying the direct access to investment arbitration remains valid today, but rather how the latter can be improved in order to avoid possible abuses of the system. It is suggested here, as the discussed cases will show, that the principles of “good faith” and “abuse of process” are important principles the application of which will shield tribunals from abusive submissions, or at least provide tribunals with the necessary legal tools to dismiss abusive submissions. This is so, not in relation to the assessment of the conduct of the host State, but more importantly in avoiding abuses of the system of direct access to investment arbitration generally. This is clearly evidenced by recent applications of the principle of “good faith” by investment tribunals in assessing the initiation of claims by foreign investors. This Article will first start with an analysis of the concepts of “good faith” and “abuse of process”, and their role in assessing investment treaty claims, before turning the application of “good faith” and “abuse of process” by investment tribunals.

BITs: Impact on Investor-State Claims’, IIA Issues Note, 2 (December 2010), at http://www.unctad.org/en/docs/webdiaeia20106_en.pdf (last visited 15 September 2011). 12 See for a discussion Jürgen Kurtz, ‘The Australian Trade Policy Statement on Investor-State Dispute Settlement ‘, 15 (22) Asil Insights (2 August 2011). 13 See for example ICSID News Release, ‘Cape Verde Signs the ICSID Convention’, December 21, 2010, at http://icsid.worldbank.org/ICSID/ICSID/ViewNewsReleases.jsp (last visited 15 September 2011) and ICSID News Release, ‘Haiti Ratifies the ICSID Convention’, October 29, 2009, at http://icsid.worldbank.org/ICSID/ICSID/ViewNewsReleases.jsp (last visited 15 September 2011). 14 See http://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=ShowHome&pageName=MemberStates_Home (last visited 11 June 2012). 15 See for an empirical analysis of dispute settlement clauses in BITs: Jason Webb Yackee, ‘Conceptual Difficulties in the Empirical Study of Bilateral Investment Treaties, 33 Brooklyn Journal of International Law 405 (2008), pp. 423-433. 16 Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (Oxford: Oxford University Press, 2008), p. 222.

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II. ”Good Faith” and “Abuse of Process” in International Investment Arbitration “Good faith” and “abuse of process” are used at various levels in international investment law, and constitute, generally, important principles in general international law and investment law. As noted by the Tribunal in Phoenix Action Ltd v. Czech Republic17 :

The principle of good faith has long been recognized in public international law, as it is also in all national legal systems. This principle requires parties “to deal honestly and fairly with each other, to represent their motives and purposes truthfully, and to refrain from taking unfair advantage …” This principle governs the relations between States, but also the legal rights and duties of those seeking to assert an international claim under a treaty. Nobody shall abuse the rights granted by treaties, and more generally, every rule of law includes an implied clause that it should not be abused. […]18

Besides the use of the notion of “good faith” in relation to the conduct of the arbitral proceedings19, international investment tribunals have frequently referred to the principle of “good faith” in assessing the conduct of the host State in relation to the investment made by a foreign national20, in particular in relation to the minimum standard of treatment.21 This Article will focus instead on the function of “good faith” from the perspective of the conduct of the foreign investor in initiating international arbitral proceedings, or in acquiring or restructuring investments and consequently gaining access to investment arbitration. “Good faith” and its derived principle “abuse of process”, are indeed more and more being applied in this particular situation, namely to assess the legality of the initiation and submission of a claim by a foreign investor to an international investment tribunal.22

We will here first categorize the various uses of “good faith” in assessing the legality of the initiation of an investment treaty claim. Secondly, this section will address the concept of “abuse of process”, and determine the adequacy and usefulness of that principle in assessing the jurisdiction of an arbitral tribunal and the admissibility of a claim. The precise link between “good faith” and “abuse of process” will also be determined. In doing so, a distinction will be made between “good faith” objections directed at the admissibility of the claim, and those directed at the jurisdiction of the Tribunal. “Jurisdiction” will here be used to denote the question “whether the court or tribunal seized of a case can entertain that case and render a decision that is binding on the parties.”23 Admissibility on the other hand implies, as noted by the International

17 Phoenix Action Ltd v. Czech Republic (ICSID Case No. ARB/06/5, Award, 15 April 2009. 18 Phoenix Action Ltd v. Czech Republic (ICSID Case No. ARB/06/5, Award, 15 April 2009, para. 107 (footnotes omitted). 19 The notion of ‘good faith’ as applied to the conduct of the arbitral proceedings, will not be addressed here. See on this issue: Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (Oxford: Oxford University Press, 2008), p. 162. 20 Ibid., pp. 5-6. See for a recent example Jan Oostergetel and Theodora Laurentius v. The Slovak Republic, UNCITRAL, Final Award, 23 April 2012, paras. 300-303. 21 See Todd Weiler, ‘An Historical Analysis of the Function of the Minimum Standard of Treatment in International Investment law’, in Todd Weiler and Freya Baetens, New Directions in International Economic Law: In Memoriam Thomas Wälde (Leiden/Boston: Martinus Nijhoff Publishers, 2011), pp. 335-381. 22 Some authors have thus noted that there is an ‘emerging principle of abuse of process […] in ISA [investor-state Arbitration]’. See M. Skinner, C.A. Miles, and S. Lutrell, ‘Access and advantage in investor-state arbitration: The law and practice of treaty shopping’, 3 Journal of World Energy Law & Business (2010), 260-285, at 283. See also Paul Michael Blyschak, ‘Access and advantage expanded: Mobil Corporation v Venezuela and other recent arbitration awards on treaty shopping’, 4 Journal of World Energy Law & Business (2011), 32-39. 23 Shabtai Rosenne, ‘International Courts and Tribunals, Jurisdiction and Admissibility of Inter-State Applications’, in Rudiger Wolfrüm (ed.), Max Planck Encyclopedia of Public International Law (Oxford: Oxford University Press, 2012), online edition, para. 2. See also for a similar definition Gerald Fitzmaurice, ‘The Law and Procedure of the International Court of Justice, 1951–4: Questions of Jurisdiction, Competence

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Court of Justice, that “even if the Court has jurisdiction and the facts stated by the applicant State are assumed to be correct, [there are] nonetheless reasons why the Court should not proceed to an examination of the merits.”24 Jurisdiction thus precedes the admissibility of the claim. It is moreover important to point out that the dismissal of a claim based on its inadmissibility is not left to the full discretion of the court or tribunal, but rather is based on legal grounds, other than grounds related to the merits of the case.25 At the outset, it should also be emphasized that despite the fact that neither the ICSID Convention, the ICSID Arbitration Rules, nor the UNCITRAL Arbitration Rules make explicit reference to the concept of “admissibility”, it is generally admitted that the distinction between “jurisdiction” and “admissibility” also applies in investment arbitration26, which is moreover confirmed by various arbitral decisions which we will discuss below. A. “Good faith” and Investment Treaty Claims The recent decision of the Tribunal in Abaclat v. Argentina extensively discussed the role of “good faith” in investment arbitration and proposed a categorization of “good faith” claims.27 According to the Abaclat Tribunal, “good faith” can first be applied to “the context and the way in which the investment was made, and for which the investor seeks protection”, which the Tribunal in Abaclat

and Procedure’, 34 British Year Book of International Law 1(1958), p. 12 and for an overview of the different meanings of ‘jurisdiction’: C. F. Amerasinghe, Jurisdiction of International Tribunals (The Hague: Martinus Nijhoff Publishers, 2003), pp. 50-68. 24 International Court of Justice, Case concerning Oil Platforms [Iran v United States of America], Judgement, (2003) ICJ Rep 161, para. 29. See also Hugh Thirlway, ‘The Law and Procedure of the International Court of Justice 1960-1989 (Par Eleven)’, 71 British Year Book of International Law 71 (2000), pp. 74-75 ; C. F. Amerasinghe, Jurisdiction of International Tribunals (The Hague: Martinus Nijhoff Publishers, 2003), pp. 49 et s. and Cameron A. Miles, ‘Corruption, Jurisdiction and Admissibility in International Investment Claims’, 3 Journal of International Dispute Settlement (2012), p. 6. 25 Gerald Fitzmaurice, ‘The Law and Procedure of the International Court of Justice, 1951–4: Questions of Jurisdiction, Competence and Procedure’, 34 British Year Book of International Law 1(1958), p. 12. See also Shabtai Rosenne, ‘International Courts and Tribunals, Jurisdiction and Admissibility of Inter-State Applications’, in Rudiger Wolfrüm (ed.), Max Planck Encyclopedia of Public International Law (Oxford: Oxford University Press, 2012), online edition, para. 2. 26 Andrew Newcombe, ‘Investor misconduct: Jurisdiction, admissibility or merits?’, in Chester Brown and Kate Miles, Evolution in Investment Treaty Law and Arbitration (Cambridge: Cambridge University Press, 2011), p. 194 and Chester Brown; "Comment: Jurisdiction and Admissibility in International Arbitration", 1 Transnational Dispute Management (2005). See also SGS Société Générale de Surveillance v. Republic of the Philippines, ICSID Case No. ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction, 29 January 2004, para. 171 et s. The Tribunal in Enron v. Argentina however noted that “The distinction between admissibility and jurisdiction does not appear to be necessary in the context of the ICSID Convention, which deals only with jurisdiction and competence.” (Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Decision on Jurisdiction, 14 January 2004, para. 33). 27 Abaclat and others (Case formerly known as Giovanna a Beccara and Others) v. Argentine Republic (ICSID Case No. ARB/07/5), Decision on Jurisdiction and Admissibility, 4 August 2011, paras. 647-649.

termed “material good faith”.28 “Material good faith”, can be tested either “within the context of the examination of the Tribunal’s jurisdiction or within the context of the examination of the legality of the investment”, thus either as a jurisdictional or as a merits-based objection.29 In the first case, the question is whether the investment made in breach of the principle of “good faith” is covered by the consent of the host State. In the second case, the question is whether the investment made is in fact protected by the relevant investment treaty.30

The second category of “good faith” claims, termed “procedural good faith” by the Abaclat Tribunal, concerns the invocation of “good faith” in relation to “the context and the way in which a party, usually the investor, initiates its treaty claim seeking protection for its investment”.31 “Procedural good faith” can first be addressed within the context of jurisdiction, namely if one sees “good faith” claims by a respondent as an element of the consent to jurisdiction. Secondly, “procedural good faith” be addressed within the context of admissibility, namely when the claim as such may rejected although the jurisdictional requirements for the submission of an investment claim were met.32

Although the Abaclat Tribunal’s pronouncement constitutes an interesting categorization of the applications of “good faith” and “abuse of process” in investment arbitration, the terminology used there might be confusing for several reasons. First, “material good faith” and “procedural good faith” may both operate at the jurisdictional level. Secondly there is an obvious overlap between the two first categories of each type of “good faith” claims as defined by the Abaclat Tribunal. Thirdly, even when “good faith” is applied during the merits of the proceedings, outside the context of the assessment of the conduct of the host State, the question very often remains one that is connected to the jurisdiction of the tribunal. Indeed, if a tribunal were for instance to find during the merits phase of the proceedings that the investment was acquired in breach of the principle of “good faith”, as required by the relevant investment treaty, the Tribunal would technically lack jurisdiction because there is no “legal investment” which grants access to international arbitration. The deferral of such assessment to the merits stage of the proceedings, a possibility provided for by Article 41(2) of the ICSID Convention33, may however be necessary because the question is inextricably linked to the merits of the case and is thus not susceptible of being decided at the jurisdictional phase. It remains however technically a jurisdictional question. In this respect, the Plama Tribunal for instance considered that the “Respondent's charges of misrepresentation are not directed specifically at the parties’ agreement to arbitrate found in Article 26 ECT”, and that the question of “misrepresentation by the Claimant does not deprive the Tribunal of jurisdiction in this case”, but noted that the “assertions by the Respondent are serious charges which, the Tribunal will have to examine on the merits”.34 Although the Tribunal chose to treat the claim as one directed at the merits, one could argue that if the Tribunal finds that there is in fact no protected investment under the Energy Charter Treaty [ECT], the Tribunal technically lacks jurisdiction. The Tribunal’s jurisdiction is indeed according to Article 26 of the

28 Ibid., para. 647. 29 Ibid., para. 648 (footnotes omitted). 30 Ibid. 31 Ibid., para. 647. 32 Ibid., para. 649 (footnotes omitted). 33 Article 41(2) ICSID Convention: ‘Any objection by a party to the dispute that that dispute is not within the jurisdiction of the Centre, or for other reasons is not within the competence of the Tribunal, shall be considered by the Tribunal which shall determine whether to deal with it as a preliminary question or to join it to the merits of the dispute.’ 34 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005, paras. 130 and 229.



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ECT preconditioned by the existence of “disputes […] relating to an Investment […], which concern an alleged breach of an obligation of the former under Part III.” Whether or not, because of the “bad faith” behavior of the investor the investment is not protected under the treaty, i.e. there is a valid investment but the behavior of the investor precludes a breach of the substantive protection offered by the treaty, on the contrary is an essentially merits-based question, and falls out of the scope of the present Article.35 Also in the recent case Malicorp v. Egypt36, the Tribunal decided to deal with the “good faith” claim at the stage of the merits. The Respondent argued that the contract between the parties had been entered into on the basis of a forgery, and requested the Tribunal to decline jurisdiction because of a violation of the principle of “good faith”.37 The Tribunal first confirmed that “good faith is one of the fundamental principles of international law and the law of investments”38, and then distinguished between violations of the “good faith” principle in the protection of the investment, and in the acquisition of the investment. In the latter situation “the defect undermines not only the right to invoke the protection of an agreement, but also the investment alleged to have been made by the party seeking protection.”39 The Tribunal characterized the present dispute as belonging to the second category, and, similar to the Tribunal in Abaclat, noted that such claims can be discussed either at the merits or the jurisdictional stage.40 The Tribunal confirmed jurisdiction and decided to address the validity of the claim at the merits stage.41 If however the relevant investment could not, because of the existence of “forgery”,

35 During the pleadings at the merits stage, Bulgaria again presented the claim as a jurisdictional one and advanced that the acquisition of the investment in ‘bad faith’ should lead either to the lack of jurisdiction of the Tribunal, or to the inadmissibility of the claim, if the Tribunal nevertheless found that it had jurisdiction. Bulgaria claimed that since the Claimant acquired control over the investment in violation of Bulgarian law, the Tribunal lacked jurisdiction since there is no investment in the meaning of Article 16 of the ECT. In its decision on the merits, the Tribunal confirmed that it had jurisdiction to entertain the claim, but concluded that the investment could not benefit from the protection offered by the ECT. (Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Award, August 27, 2008, paras. 96 et s.) 36 Malicorp Limited v. Arab Republic of Egypt, ICSID Case No. ARB/08/18, Award, 7 February 2011. 37 Ibid., para. 115. 38 Ibid., para. 116. 39 Ibid. 40 Ibid., paras. 116-117. 41 The Tribunal based its conclusion on the principle of autonomy of the arbitration agreement, the consideration that there is no reason to give “good faith” claims as a possible grounds for invalidity of an investment “priority treatment”, and the need for an in-depth examination of the factual circumstance of the dispute (Ibid., para. 117-10). The Tribunal also noted that ‘According to that principle, defects undermining the validity of the substantive legal relationship, which is the subject of the dispute on the merits, do not automatically undermine the validity of the arbitration agreement. Thus, an arbitral tribunal is competent to decide on the merits even if the main contract was entered into as a result of misrepresentation or corruption. Only defects that go to the consent to arbitrate itself can deprive the tribunal of jurisdiction. In the present case, there is nothing to indicate that the consent to arbitrate, as distinct from the consent to the substantive guarantees in the bilateral Agreement, was obtained by misrepresentation or corruption or even by mistake. The allegations of the Respondent relate to the granting of the Concession. However, it is not the Contract that provides the basis for the right to arbitrate, but the State's offer to arbitrate contained in the Agreement and the investor's acceptance of that offer. The offer to

be characterized as an investment protected under the investment treaty, the tribunal would, here again, have no jurisdiction to entertain the claim.42

Because of the ambiguities resulting from the categorization proposed by the Abaclat Tribunal, we will rather than referring to “material good faith” or “procedural good faith”, categorize “good faith” claims as either being directed at the jurisdiction of the tribunal, even when dealt with at the stage of the merits, or at the admissibility of the claim. Although connected, jurisdictional and admissibility questions are fundamentally different.43 As far as jurisdiction is concerned, BITs may contain an obligation for the investor to make an investment in accordance with the national laws of the host State, which may in turn contain an obligation of “good faith” in, for instance, acquiring the investment. Furthermore, as will be discussed, certain tribunals have added a “good faith” requirement to the notion of investment as contained in Article 25 of the ICSID Convention, thereby paving the way for the dismissal of claims brought about through the “bad faith” acquisition of an investment, despite the absence of such requirement in the laws of the host State. When investments have been acquired in breach of such requirements, or when the claim was initiated without there being an investment at all, the tribunal simply lacks jurisdiction. In respect of admissibility, while the legality or existence of the investment in itself is established and the tribunal in theory has jurisdiction because the relevant jurisdictional requirements have been met, the right to exercise the associated right to bring a claim before an international investment tribunal may be denied by the tribunal. The denial is then based on the consideration that the exercise of that right amounts to an abuse of that right or because the initiation of the claim was made in “bad faith”. The tribunal thus has jurisdiction, but the claimant cannot proceed with its claim. When treated as an issue of admissibility, “good faith” claims very often boil down to “abuse of process” or ”abuse of right” claims, as will be shown in the next section.

The distinction between “jurisdiction” and “admissibility” might seem theoretical, but it has however several important consequences, despite the occasionally unsatisfactory use of both concepts in the practice of arbitral tribunals.44 The first and most important consequence is that if a claim is declared inadmissible, there is no legal obstacle in a resubmission of the claim once the admissibility requirements are met45, provided of course that the inadmissibility of the claim can

arbitrate thereby covers all disputes that might arise in relation to that investment, including its validity.’ (Ibid., para. 117). 42 The Tribunal finally decided that Egypt’s actions did not amount to an expropriation. 43 Tribunals have however sometimes categorized merits-based or jurisdictional arguments as admissibility claims. In Occidental Exploration and Production Company v. The Republic of Ecuador for instance, the Tribunal operating under the UNCITRAL Arbitration Rules under the auspices of the London Court of International Arbitration, was faced with a manifestly meritless claim and noted that ‘a claim of expropriation should normally be considered in the context of the merits of a case. However, it is so evident that there is no expropriation in this case that the Tribunal will deal with this claim as a question of admissibility’. The Tribunal found that the expropriation claim was inadmissible but nevertheless concluded that it had jurisdiction in respect of other claims. and eventually found that Respondent had breached several standards of treatment, including the fair and equitable treatment standard and the national treatment standard. In this case, however, it is clear that the issue was not one relating to the admissibility of the claim, but rather to the merits of the dispute or the jurisdiction of the tribunal. Occidental Exploration and Production Company v. The Republic of Ecuador, LCIA Case No. UN3467, Award, 1 July 2004, paras. 80 and 92. 44 See for a discussion, Jan Paulsson, ‘Jurisdiction and Admissibility’, in Global Reflections on International Law, Commerce and Dispute Resolution: Liber Amicorum in Honour of Robert Briner (Paris: ICC Publishing, 2005), pp. 607 et s. 45 As noted by the Tribunal in SGS v. the Philippines: “Normally a claim which is within jurisdiction but inadmissible (e.g., on grounds of failure to exhaust local remedies) will be dismissed, although this will usually be without prejudice to the right of the claimant to start new proceedings if the obstacle to admissibility has been removed (e.g., through exhaustion of local remedies)” (SGS Société Générale de Surveillance v. Republic of the Philippines, ICSID Case No. ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction, 29 January 2004,



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be cured.46 If on the other hand, an arbitral tribunal establishes that it lacks jurisdiction to hear the case, there is no possibility for the parties to re-submit the claim to the tribunal. In other words, a defect in jurisdiction cannot be cured in relation to that particular dispute and taking into account the facts as they are at the time of the submission of the claim.47 Secondly, determinations of a tribunal in respect of the jurisdiction of the tribunal may be subjected to a challenge of the award, while determinations in respect of the admissibility of the claim, as is the case with determinations in respect of the merits, are usually not subjected to a challenge.48 This principle has been posited principally in respect of review by domestic courts of arbitral decisions in international commercial arbitration.49 It remains of course valid for investment arbitration proceedings conducted outside of the formal ICSID context, for example under the ICSID Additional Facility or the UNCITRAL Arbitration Rules, but the same reasoning can also be applied to ICSID arbitration.50 In view of the limited annulment grounds contained in Article 52 of the ICSID Convention, decisions on admissibility are, even under the ICSID Convention, unlikely to be subjected to annulment, at least as far as the findings of (in)admissibility are concerned, and thus excluding questions of improper constitution of the tribunal, corruption, serious departure from a fundamental rule of procedure, or failure to state the reasons.51 Decisions on jurisdiction on the contrary are without doubt susceptible of annulment under the ICSID Convention, in particular based on an alleged manifest excess of powers.52

It should be emphasized that an arbitral tribunal’s decision in respect of both jurisdiction and admissibility is a final decision binding upon the parties.53 In practice, tribunals will often decide admissibility and jurisdictional issues at the same time, in one single decision, because a tribunal will first have to establish whether it has jurisdiction before engaging in a discussion of the admissibility of the claim. For, if the tribunal lacks jurisdiction, the claim could technically not be admissible or inadmissible. This for example happened in the mentioned SGS v. the Philippines case, in which the Tribunal at the same time confirmed jurisdiction, but declared the case inadmissibility because the contractual dispute settlement forum had not first been seized

para 171). See also loan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, ICSID Case No. ARB/05/20, Decision on Jurisdiction and Admissibility, 24 September 2008, para. 64. 46 C. F. Amerasinghe, Jurisdiction of International Tribunals (The Hague: Martinus Nijhoff Publishers, 2003), p. 243. 47 Ibid. 48 Jan Paulsson, ‘Jurisdiction and Admissibility’, in Global Reflections on International Law, Commerce and Dispute Resolution: Liber Amicorum in Honour of Robert Briner (Paris: ICC Publishing, 2005), p. 601. 49 Ibid. 50 See Andrew Newcombe, ‘Investor misconduct: Jurisdiction, admissibility or merits?’, in Chester Brown and Kate Miles, Evolution in Investment Treaty Law and Arbitration (Cambridge: Cambridge University Press, 2011), p. 193. 51 Article 52(1)(a) and (c)-(e) ICSID Convention. 52 Article 52(1)(b) ICSID Convention. 53 C. F. Amerasinghe, Jurisdiction of International Tribunals (The Hague: Martinus Nijhoff Publishers, 2003), p. 245.

with the claim.54 In this case therefore, the Tribunal made a final and binding decision both on the jurisdiction of the Tribunal and on the admissibility of the claim. As a consequence, in theory, the decision in respect of the jurisdiction could be subjected to an annulment procedure, while the findings in relation to the inadmissibility of the claim could not.

B. ”Abuse of Process” and “Abuse of Rights” “Abuse of process” is a concept that is derived from, and for that reason narrower than the principle of “good faith” in general international law.55 International treaties usually rarely contain provisions on “abuse of rights” or “abuse of process”.56 However, “abuse of process” and more generally ”abuse of rights” or ”abus de droit” are very common concepts in national legal proceedings, in both civil law as common law systems57, and have thus often been considered to constitute principles of law common to all legal systems.58 As famously noted by Hersch Lauterpacht “[t]here is no right however well established, which could not, in some circumstances, be refused recognition on the ground that it has been abused”.59 These principles have equally been referred to by the Permanent Court of International Justice [PCIJ], the International Court of Justice [ICJ]60 and the WTO Appellate Body61, and have therefore been labeled as general principles of international law or as rules of customary international law.62 It is thus beyond doubt that the principles of “abuse of right” and “abuse of process” are applicable in investment law. As was also noted by the Tribunal in Abaclat: “the theory of abuse of rights is an expression of the more general principle of good faith. The principle of good faith is a fundamental principle of international law, as well as investment law. As such, the Tribunal holds that the theory of abuse of rights is, in principle, applicable to ICSID proceedings.”63

54 SGS Société Générale de Surveillance v. Republic of the Philippines, ICSID Case No. ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction, 29 January 2004, paras. 153 et s. 55 See for a discussion : Michael Byers, ‘Abuse of Rights: An Old, Principle, A New Age’, 47 McGill L. J. 389 (2002), pp. 404-410. 56 A notable exception is the United Nations Convention on the Law of the Sea [UNCLOS] (10 December 1982, 1833 UNTS 396), which contains in Article 300, entitled ‘Good faith and abuse of rights’, that ‘States Parties shall fulfill in good faith the obligations assumed under this Convention and shall exercise the rights, jurisdiction and freedoms recognized in this Convention in a manner which would not constitute an abuse of right’. It is interesting to point out that besides the general references to good faith and abuse of rights, the Article equally explicitly targets the abuse of the jurisdiction of courts and tribunals, which have competence to decide disputes in accordance with the provisions of the UNCLOS, as we will discuss later. 57 Yuval Shany, The Competing Jurisdictions of International Courts and Tribunals (Oxford: Oxford University Press, 2003), p. 255. See also Mobil Corporation, Venezuela Holdings BV, Mobil Cerro Negro Holding, Ltd, Mobil Venezolana de Petroleos Holdings, Inc, Mobil Cerro Negro, Ltd, and Mobil Venezolana de Petroleos, Inc v Bolivarian Republic of Venezuela, ICSID Case No ARB/07/27 (Decision on Jurisdiction, 10 June 2010), para. 169. 58 Michael Byers, ‘Abuse of Rights: An Old, Principle, A New Age’, 47 McGill L. J. 389 (2002), 392. 59 Hersch Lauterpacht, The Development of International Law by the International Court (London 1958), p. 164. 60 See for a discussion and references to PCIJ and ICJ case-law in this respect, Yuval Shany, The Competing Jurisdictions of International Courts and Tribunals (Oxford: Oxford University Press, 2003), pp. 255 et s. 61 United States—Import Prohibition of Certain Shrimp and Shrimp Products, Report of the Appellate Body (12 October 1998), WT/DS58/AB/R, para 158. 62 Michael Byers, ‘Abuse of Rights: An Old, Principle, A New Age’, 47 McGill L. J. 389 (2002), 397 ; Yuval Shany, The Competing Jurisdictions of International Courts and Tribunals (Oxford: Oxford University Press, 2003), p. 257 and Robert Kolb, ‘General Principles of Procedural Law’, in Andreas Zimmermann, Christian Tomuschat, Karin Oellers-Frahm, Christian Tams, and Tobias Thienel (eds.), The Statute of the International Court of Justice: A Commentary (Oxford: Oxford University Press, 2006), pp. 831-832. 63 Abaclat and others (Case formerly known as Giovanna a Beccara and Others) v. Argentine Republic (ICSID Case No. ARB/07/5), Decision on Jurisdiction And Admissibility, 4 August 2011, para. 646 (footnotes omitted).



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“Abuse of process” is a particular feature of the broader principle of “abuse of rights”, in that the right claimed is a procedural one. In the Commentary on the Statute of the ICJ the notion has been defined as follows: “abuse of procedure is a special application of the prohibition of abuse of rights, which is a general principle of international law as well as in municipal law. It consists of the use of procedural instruments or rights by one or more parties for purposes that are alien to those for which the procedural rights were established.”64 In its 2004 Report, the International Law Association [ILA] Committee on International Commercial Arbitration, based on several domestic courts’ decisions, described “abuse of process” in a broader way, namely as authorizing the dismissal of a claim

if it is necessary for a court to prevent a misuse of its procedure in the face of unfairness to another party, or to avoid the risk that the administration of justice might be brought into disrepute among right-thinking people. The doctrine rests upon the inherent power of the court to prevent a misuse of its procedures even though a party's conduct may not be inconsistent with the literal application of the procedural rules.65

“Abuse of process” thus implies that although a claimant has a valid procedural right, the claimant cannot exercise that right because the exercise of the right amounts to an abuse of that procedural right. The Tribunal is therefore not in a position effectively to exercise its jurisdiction, and the claim is declared inadmissible. As noted by the Tribunal in Chevron, “abuse of process, estoppel and waiver are all to be qualified as defenses to what may otherwise be a valid claim. They have the effect that a right which existed at a certain time can no longer be relied upon or enforced by the holder of that right. A claimant may therefore pursue its claim unless it is shown to be abusive in the sense of one of these defenses.”66 This can be the case for example if the exercise of that right has as sole intention to cause injury to the other party or if it is used for an entirely different purpose than that for which it exists.67 It follows from this understanding of “abuse of process”, that in case there is no “original” right to file a claim, for example, because the court or tribunal has no jurisdiction, one cannot theoretically consider such action an “abuse of process” or “abuse of right” since there is no (procedural) right that can be abused. The abusive submission of a claim by a foreign investor, while knowing that there is no legal basis to found that claim, should thus be categorized as a breach of the principle of “good faith”, rather than an “abuse of process” or “abuse of right”. We will see however that certain investment tribunals have used the notion of “abuse of process” to denote situations in which the tribunal (obviously) lacked jurisdiction. References to the concepts of “abuse of process” or “abuse of the ICSID

64 Robert Kolb, ‘General Principles of Procedural Law’, in Andreas Zimmermann, Christian Tomuschat, Karin Oellers-Frahm, Christian Tams, and Tobias Thienel (eds.), The Statute of the International Court of Justice: A Commentary (Oxford: Oxford University Press, 2006), pp. 831-832. 65 ILA Committee on International Commercial Arbitration, Interim Report: "Res judicata" and Arbitration (2004), at http://www.ila-hq.org/en/committees/index.cfm/cid/19 (footnotes omitted) 66 Chevron Corporation (USA) and Texaco Petroleum Company (USA) v. The Republic of Ecuador, UNCITRAL, PCA Case No. 34877, Interim Award, 1 December 2008, para. 137. 67 Paul Guggenheim, ‘La validité et la nullité des actes jurisidiques internationaux’, 74 Collected Courses of the Hague Academy of International Law 195 (1949), p. 250 and Yuval Shany, The Competing Jurisdictions of International Courts and Tribunals (Oxford: Oxford University Press, 2003), p. 257.

http://www.ila-hq.org/en/committees/index.cfm/cid/19

system” then are usually made to denote those situations in which an foreign investor has filed a claim to an arbitral tribunal, although there was a manifest lack of jurisdiction. This should then be understood as implying that although one has no right to file a claim, abusively doing so amounts to an abuse of system of investment arbitration.68 In view of the different consequences between dismissing a claim because of lack of jurisdiction and declaring the claim inadmissible, one should clearly distinguish between whether the claim is inadmissible because the filing a claim constitutes an “abuse of right”, and thus amounts to an “abuse of process”, and whether the tribunal simply lacks jurisdiction69 because for example the investment as such was acquired in breach of the principle of “good faith”.

The constitutive instruments of international courts and tribunals generally very rarely provide for the express power of courts and tribunals to asses a claim in order to avoid an abuse of the judicial or arbitral proceedings.70 Several authors have nevertheless considered the power of an international court or tribunal to dismiss a claim to prevent an abuse of process to be an inherent power of judicial institutions.71 The practice of investment tribunals discussed below also provides sufficient evidence that the inadmissibility of a claim because it constitutes an “abuse of process” lies within the power of an arbitral tribunal, even without an express power to do so.

III. The Application of “Good Faith” and “Abuse of Process” by Investment Tribunals

68 Such situations are also explicitly targeted by the adoption of the new rule contained in Article 41(5) of the ICSID Arbitration Rules. Although before the adoption of the new rule, “abuse of process” objections directed at the jurisdiction of the tribunal could (and still can) be raised under Article 41(1) of the ICSID Convention, Article 41(5) now provides for an expedited procedure to dismiss manifestly unmeritorious claims. Such objections can be directed at both the merits of the claim and the jurisdiction of the tribunal. One of the reasons behind the introduction of this new Rule was the necessity to avoid the submission of claims which were made in “bad faith” or constituted an “abuse of process”. See Antonio R. Parra, ‘The Development of the Regulations and Rules of the International Centre for Settlement of Investment Disputes’, 22 (1) ICSID Review—Foreign Investment Law Journal 56 (2007), p. 65 et s. ; Eric De Brabandere, ‘The ICSID Rule on Early Dismissal of Unmeritorious Investment Treaty Claims : Preserving the Integrity of ICSID Arbitration’, 9(1) Manchester Journal of International Economic Law (2012), pp. 23-44 ; Chester Brown and Sergio Puig, ‘The Power of ICSID Tribunals to Dismiss Proceedings Summarily: An Analysis of Rule 41(5) of the ICSID Arbitration Rules’, 10 (2) The Law and Practice of International Courts and Tribunals (2011), pp. 227-259 and Michele Potestà and Marija Sobat, ‘Frivolous Claims in International Adjudication: A Study of ICSID Rule 41(5) and of Procedures of Other Courts and Tribunals to Dismiss Claims Summarily’, 3(1) Journal of International Dispute Settlement (2012), pp. 137-168 69 Such situations would, under the common la terminology be qualified as ‘malicious prosecution’ rather than “abuse of process”. See for a discussion: Tobi Goldoftas, ‘Abuse of Process,’ , 13 Clev.-Marshall L. Rev. 163 (1964), p. 1. 70 One exception is Article 294 (1) of the UNCLOS, which provides that a court or tribunal established under Article 287 of the Convention, in case of an application ‘made in respect of a dispute referred to in article 297 shall determine at the request of a party, or may determine proprio motu, whether the claim constitutes an abuse of legal process or whether prima facie it is well founded. If the court or tribunal determines that the claim constitutes an abuse of legal process or is prima facie unfounded, it shall take no further action in the case’ This Article is the procedural consequence of the material rule on good faith and abuse of rights contained in Article 300 UNCLOS mentioned above. See above note 33. Other statutes of international courts and tribunals, such as the Statute of the ICJ do not provide for such a procedure. 71 See generally Chester Brown, A Common Law of International Adjudication (Oxford: Oxford University Press, 2007), pp. 245-250 ; Chester Brown, ‘The Inherent Powers of International Courts and Tribunals’ (2005) 76 British Yearbook of International Law 195 ; Martins Paparinskis, ‘Inherent Powers of ICSID Tribunals: Broad and Rightly So’, in I. Laird and T. Weiler (eds.), Investment Treaty Arbitration And International Law, Vol. 5 (Huntington: Juris Publishing, 2011), online version available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1876705, p. 16 and Yuval Shany, The Competing Jurisdictions of International Courts and Tribunals (Oxford: Oxford University Press, 2003), pp. 255-260.

http://www.ingentaconnect.com/content/mnp/lape


http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1876705



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Investment tribunals have over the past decade on several occasions dismissed claims that constituted an “abuse of process” or which had been made in breach of the principle of “good faith”. This chapter will first address those cases in which “good faith” claims were assessed in relation to the jurisdiction of the tribunal, and more specifically in relation to the question whether investments made in breach of the “good faith” requirement are covered by the consent of the host State. The second section will address the cases in which “good faith” and “abuse of process” have been used to assess the admissibility of the claim. A. “Good faith” and Consent to Jurisdiction 1. Corporate (Re)Structuring A first series of cases in which the notion of “good faith” has been incremental in assessing the jurisdiction of investment tribunals involve questions of corporate restructuring and access to investment arbitration. In those cases, respondent States have often contended that the creation of corporations (merely) to gain access to investment arbitration amounted to an “abuse of the ICSID system”. Such claims are brought as an assertion that corporate restructuring (only) to gain access to investment arbitration lies outside the limits of the jurisdiction of ICSID as defined in Article 25 of the ICSID Convention and the relevant investment treaty. As a consequence, such investors are not covered by the consent of the host State. Although not always explicitly framed as a “good faith” claim, the implicit reasoning very often boils down to a discussion whether the creation of a corporate structure to gain access to investment arbitration was made in “good faith”, i.e. not only in order to gain access to investment arbitration by “internationalizing” an already existing national investment claim, or to bypass the absence of an investment treaty between the host State and the State of the investor granting direct access to investment arbitration. Indeed, tribunals confronted with this question have been at pains to carefully explain that the creation of foreign corporate vehicles responded to logical economic or strategic purposes, thereby implying that foreign corporate vehicles were not created in breach of the principle of “good faith” or merely in order to gain access to investment arbitration.

In Autopista Concesionada de Venezuela. C.A v. Venezuela72, Tokios Tokelés v. Ukraine73 and Aguas del Tunari v. Bolivia74, Tribunals were confronted with the question whether the creation of foreign corporations was a mere manoeuver in order to gain access to investment arbitration. As mentioned, although the claims were not always explicitly presented as “good faith” claims, the arguments came down to asserting that the creation in “bad faith” of a foreign company to gain access to investment arbitration was not covered by the consent expressed by the States both in signing the ICSID Convention and the applicable BIT. The importance of these cases lies in the fact that the Tribunals explicitly treated such “good faith” arguments as directed at the

72 Autopista Concesionada de Venezuela. C.A v. Bolivarian Republic of Venezuela. ICSID Case ARB/00/5. Decision on Jurisdiction, 27 September 2001. 73 Tokios Tokeles v.Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004. 74 Aguas del Tunari S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent’s Objections to Jurisdiction, 21 October 2005.

jurisdiction of the Centre in accordance with Article 25 ICSID and the consent of the host State.75 The Tribunals essentially analyzed whether the notion of “foreign control” expressed in the BIT lied with the outer limits set by Article 25 of the ICSID Convention76, and did not amount to an abuse of legal personality77 or an “abuse of corporate form or fraud”.78 Tribunals have carefully clarified that the restructuring was not merely done to gain access to international arbitration but had legitimate objectives79, thus implicitly acknowledging that if corporate restructuring has as sole objective to gain access to international arbitration for already existing disputes, this may constitute a breach of the “good faith” principle.

An explicit “good faith” claim was raised and extensively discussed in Mobil v. Venezuela.80 Venezuela argued that Exxon Mobil’s corporate restructuring through the creation of the Dutch holding constituted “an abuse of right” and that, as a consequence, the Tribunal had no jurisdiction under the applicable BIT.81 The claim was based inter alia on the fact that the restructuring took place long after the investments, when “the disputes were not only foreseeable, but […] had actually been identified and notified to Respondent”.82 Venezuela thus contended that “the only purpose of this restructuring was to gain access to ICSID for existing disputes” and that this constituted “an abusive manipulation of the system of international protection under the ICSID Convention and the BITs”.83 The Tribunal noted that the main purpose of the

75 See for instance Ibid., para. 328. 76 See for instance Autopista Concesionada de Venezuela. C.A v. Bolivarian Republic of Venezuela. ICSID Case ARB/00/5. Decision on Jurisdiction, 27 September 2001, para. 144 et s. 77 Tokios Tokeles v.Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004, paras. 52 and 56. 78 Aguas del Tunari S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent’s Objections to Jurisdiction, 21 October 2005, para. 321. 79 In Autopista for instance, the Tribunal rejected the claim for various rather obvious reasons, including that the US based corporation was not just a shell company because it had been created before the signature of the concession agreement and because Venezuela had consented to the transfer of shares (Autopista Concesionada de Venezuela. C.A v. Bolivarian Republic of Venezuela. ICSID Case ARB/00/5. Decision on Jurisdiction, 27 September 2001, para. 122 et s.). In Tokio Tokeles, while noting that the corporate veil can be pierced if one uses “its status […] to perpetrate fraud or engage in malfeasance”, the Tribunal considered in this case that “the Claimant manifestly did not create Tokios Tokelės for the purpose of gaining access to ICSID arbitration under the BIT against Ukraine, as the enterprise was founded six years before the BIT between Ukraine and Lithuania entered into force’ (Tokios Tokeles v.Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004, paras. 55-56). In a powerful dissent the President of the Tribunal, Prosper Weil disagreed with the majority, essentially because in his view the dispute was one related to an investment made in Ukraine by Ukrainian citizens with Ukrainian capital, although channeled through a Lithuanian corporation. This investment, according to Weil, could not benefit from the protection of the ICSID Convention, since it failed to meet the test of jurisdiction in Article 25 of the ICSID Convention (Ibid., Dissenting opinion, para. 24). Weil did not however claim that the situation amounted to an abuse of the ICSID system, nor contravened the ‘good faith’ requirement of acquisition of the investment. Rather, the dissent was based on the absence of the Claimant to meet the minimal jurisdictional requirements of Article 25 of the ICSID Convention. In Aguas del Tunari, the Tribunal considered that “it is not uncommon in practice and - absent a particular limitation – not illegal to locate one’s operation in a jurisdiction perceived to provide a beneficial regulatory and legal environment in terms, for example, of taxation or the substantive law of the jurisdiction, including the availability of a BIT”. The Tribunal in Aguas del Tunari nevertheless noted that it will “bear in mind its duty to protect the integrity of ICSID jurisdiction during the merits phase”. (Aguas del Tunari S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent’s Objections to Jurisdiction, 21 October 2005, paras. 330-331). The case was finally settled between the parties. 80 Mobil Corporation, Venezuela Holdings BV, Mobil Cerro Negro Holding, Ltd, Mobil Venezolana de Petroleos Holdings, Inc, Mobil Cerro Negro, Ltd, and Mobil Venezolana de Petroleos, Inc v Bolivarian Republic of Venezuela, ICSID Case No ARB/07/27, Decision on Jurisdiction, 10 June 2010. 81 Ibid., para. 167. 82 Ibid., para. 188. 83 Ibid.



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restructuring was to “protect Mobil investments from adverse Venezuelan measures in getting access to ICSID arbitration through the Dutch-Venezuela BIT.”84 This choice, according to the Tribunal, was ““logical”, taking into account the double taxation agreements concluded by the Netherlands and the activities that Exxon Mobil already had in that country”.85 The Tribunal further noted that the restructuring of the investments in Venezuela through a Dutch holding in order to protect those investments against breaches of their rights by Venezuela by gaining access to ICSID arbitration through the BIT constituted “a perfectly legitimate goal as far as it concerned future disputes.”86 However, as far as pre-existing disputes were concerned, the Tribunal opined that restructuring investments only in order to gain access to investment arbitration under a BIT would constitute, “an abusive manipulation of the system of international investment protection under the ICSID Convention and the BITs.”87 The Tribunal thus understandably declined jurisdiction for the latter category of disputes, while confirming jurisdiction for disputes in relation to the project at issue raised after the entry into force of the Netherlands-Venezuela BIT.88 In this case, although the notion of “abusive manipulation of the system of international investment protection” was used, the Tribunal decided to decline jurisdiction –arguably rightly so in view of the ratione temporis limitation to the jurisdiction of the Tribunal- instead of declaring that claim inadmissible.

The landmark case Phoenix Action Ltd v. Czech Republic89 equally concerned questions of corporate restructuring, although the facts were very different from the cases mentioned above. In Phoenix, the shares in a Czech company had been transferred from a Czech national to an Israeli company owned by the wife of the Czech national in question. The Tribunal in Phoenix engaged in a broad discussion of the applicability and role of the notion of “good faith” in international investment law. The Tribunal opined that

States cannot be deemed to offer access to the ICSID dispute settlement mechanism to investments not made in good faith. The protection of international investment arbitration cannot be granted if such protection would run contrary to the general principles of international law, among which the principle of good faith is of utmost importance. […]90

In relation to the facts underlying this dispute the Tribunal noted that

[t]he evidence indeed shows that the Claimant made an “investment” not for the purpose of engaging in economic activity, but for the sole purpose of bringing international litigation against the Czech Republic. […] The unique goal of the “investment” was to transform a pre-existing domestic dispute into an international dispute subject to ICSID arbitration under a bilateral investment treaty. This kind of transaction is not a bona fide transaction and cannot be a protected investment under the ICSID system.

84 Ibid., para. 190. 85 Ibid. 86 Ibid., para. 204. 87 Ibid., para. 205. 88 Ibid., para. 206. 89 Phoenix Action Ltd v. Czech Republic (ICSID Case No. ARB/06/5, Award, 15 April 2009. 90 Ibid., para. 106, (footnotes omitted).

[…] All the elements analyzed lead to the same conclusion of an abuse of rights. The abuse here could be called a “détournement de procédure”, consisting in the Claimant’s creation of a legal fiction in order to gain access to an international arbitration procedure to which it was not entitled. [….] The conclusion of the Tribunal is therefore that the Claimant's initiation and pursuit of this arbitration is an abuse of the system of international ICSID investment arbitration. […] It is the duty of the Tribunal not to protect such an abusive manipulation of the system of international investment protection under the ICSID Convention and the BITs.91

The Tribunal therefore declined jurisdiction on the basis that the investment was not a protected investment under the Washington Convention and the Israeli/Czech BIT, and ordered the Claimant to pay both the ICSID costs and the Respondent’s legal fees and expenses.92 In deciding the case, the Tribunal did not apply the principle of “good faith” in relation to Czech laws since the investment was made in accordance with all relevant Czech laws93, but applied the international principle of good faith to the international arbitration mechanism of ICSID. The Tribunal thereby somehow perfected and completed the reasoning in Plama which we will address in the next section:

In the instant case, no question of violation of a national principle of good faith or of international public policy related with corruption or deceitful conduct is at stake. The Tribunal is concerned here with the international principle of good faith as applied to the international arbitration mechanism of ICSID. The Tribunal has to prevent an abuse of the system of international investment protection under the ICSID Convention, in ensuring that only investments that are made in compliance with the international principle of good faith and do not attempt to misuse the system are protected. 94

The Tribunal departed from the so-called “Salini criteria” for determining the existence of an investment, not only by substituting the requirement that an investment should contribute to the development of the host State with the requirement that investments should contribute to the economy of the host State, but more importantly by adding the criteria of “assets invested bona fide”95, a criterion which has however subsequently explicitly been denied by other tribunals.96

The importance of the Phoenix decision lies in its application of the sole international legal principle of “good faith” outside the formal context of the question whether the investment was in accordance with the national laws of the host State. The Tribunal applied “good faith” to the question whether there was an investment (and thus whether the Tribunal had jurisdiction), and distinguished between applying the “good faith” principle at the merits stage: “[h]ere the “bona fide” test is applied to the abusive distortion of the requirements for jurisdiction, but the Tribunal notes that it is not so limited and may also play its role when it comes to the analysis of the substantive protection for investments under international treaties, which is a matter for the merits.”97 By integrating a “good faith” requirement to the existence of an investment, the Phoenix Tribunal emphasized the need to preserve the system of direct access to investment

91 Ibid., paras. 142-144 (footnotes omitted). 92 Ibid., paras. 145-152 (footnotes omitted). 93 This had not been contended by any parties. See Ibid., para. 134. 94 Ibid., para. 113. 95 Ibid., para. 114. 96 See for instance Saba Fakes v. Turkey, ICSID Case No. ARB/07/20, Award of 14 July 2010, para. 112: “the principles of good faith and legality cannot be incorporated into the definition of Article 25(1) of the ICSID Convention without doing violence to the language of the ICSID Convention: an investment might be “legal or “illegal”, made in “good faith” or not, it nonetheless remains an investment. The expressions “legal investment” or “investment made in good faith” are not pleonasms, and the expressions “illegal investment” or “investment made in bad faith” are not oxymorons”. 97 Ibid., paras. 142-144 (footnotes omitted).



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arbitration from abuses.98 “Good faith” here again clearly operates as a safeguard against abusive uses of the ICSID system, as was explicitly recognized by the Phoenix Tribunal.

Although “good faith” claims in relation to corporate restructuring have been analyzed by tribunals essentially as an issue related to the consent of the State, they might have theoretically dealt with the issue as a question of admissibility. Tribunals for instance could have considered whether, although the corporate structure and access to investment arbitration was in conformity both with the relevant investment treaty and the ICSID Convention, the exercise of that right constituted an “abuse of right” and thus that the claim should be declared inadmissible. Such reasoning was to a certain extent implicit in the rejection by the Tribunal in Mobil v. Venezuela of its competence to assess pre-existing disputes, although the Tribunal decided to decline jurisdiction, as discussed above. In Phoenix, the Tribunal explicitly chose to target the illegality of the investment as such, rather than the admissibility of the associated right to file a claim to an investment tribunal. It is however interesting to note that the legal reasoning of the Phoenix Tribunal contains several references to “abuse of rights” and “abuse of the system of international ICSID investment arbitration”99, although there was technically no “right” susceptible of being abused because the Tribunal assessed the “good faith” criterion in relation to the legality of the investment.

Recently, in Pac Rim Cayman LLC v. El Salvador100, the Tribunal analyzed the question of change of corporate nationality as relating to the “admissibility” of the claim. The Tribunal noted that an “abuse of process” may exist if a change of nationality occurs “when the relevant party can see an actual dispute or can foresee a specific future dispute as a very high probability and not merely as a possible controversy.”101 The Tribunal expressly distinguished between the jurisdiction ratione temporis of the Tribunal, and the question of “abuse of process” which “would preclude the exercise of such jurisdiction”102, i.e. the admissibility of the claim. Applied to the facts of the case, the Tribunal finally decided that, because the dispute arose after the change of nationality103, there was no “abuse of process precluding the exercise of the Tribunal’s jurisdiction to determine such claims.”104 2. “Good Faith” in the Acquisition of the Investment A second series of cases relate to the question of “good faith” in the acquisition of the investment. Contrary to the first series of cases in relation to corporate restructuring, Tribunals here have not shied away from explicitly engaging in a discussion of the relevance of “good faith” in the acquisition of investments, not only as part of the national laws of the host State, but occasionally

98 Ibid.,. 99 Ibid. 100 Pac Rim Cayman LLC v. El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent’s Jurisdictional Objections, 1 June 2012. 101 Ibid., para. 2.99. 102 Ibid., para. 2.107 (emphasis added). 103 Ibid., para. 2.109. 104 Ibid., para. 2.100.

as part of applicable principles of international law. In doing so, tribunals have referred on numerous occasions to “abusive submissions” or “abuses of the ICSID System”. The use of the principle of “good faith” to assess the abusive character of the claim and/or the investment in the cases we will discuss next again emphases the high relevance of that principle in the preservation of the integrity of investment arbitration.

The Tribunals in Fraport v. the Philippines 105, Plama v. Bulgaria106 and Inceysa v. El SAlvador107 were confronted to the question whether an investment obtained through a violation of the nationals laws of the host State and the “good faith” principle, is included in the consent of the States granting access to arbitration. While the Tribunals in Fraport and Inceysa decided to tackle the issue at the jurisdictional stage, the Tribunal in Plama108, as noted before, decided to defer the “good faith” claim in relation to the lawful acquisition of the investment to the merits.

The Fraport and Inceysa Tribunals applied the principle of “good faith” as part of the national laws of the host States.109 In Inceysa for instance, the tribunal unambiguously upheld the principle that investments not performed in “good faith” could not benefit from the international protection provided for in BITs.110 The Tribunal’s jurisdiction in Inceysa was predetermined by the requirement of an investment made in accordance with Salvadoran law, and thus “good faith” was applied as one of the criteria of a protected investment under the relevant BIT:

Good faith is a supreme principle, which governs legal relations in all of their aspects and content.[…] El Salvador gave its consent to the jurisdiction of the Centre, presupposing good faith behavior on the part of future investors. […] By falsifying the facts, Inceysa violated the principle of good faith from the time it made its investment and, therefore, it did not make it in accordance with Salvadoran law. Faced with this situation, this Tribunal can only declare its incompetence to hear Inceysa’s complaint, since its investment cannot benefit from the protection of the BIT.111

The Tribunal Plama went further than the previous two decisions, by applying the principle of “good faith” as part of international law: “the investment was obtained by deceitful conduct that is in violation with Bulgarian law. […] The Tribunal finds that Claimant’s conduct is contrary to the principle of good faith which is part not only of Bulgarian law […] but also of international law.”112 The Tribunal thus not only found that the investment violated Bulgarian Law, but also that it had violated the principle of “good faith”, as part of “applicable rules and principles of

105 Fraport AG Frankfurt Airport Services Worldwide v. Philippines, ICSID Case No. ARB/03/25, Award, 16 August 2007. 106 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005. 107 Inceysa Vallisoletana, S.L. V. Republic of El Salvador, ICSID Case No. ARB/03/26, Award, 2 August 2006. 108 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005. 109 In Fraport, the Tribunal did no really engage in an extensive discussion of the requirement of ‘good faith’ in the acquisition of the investment, but noted that ‘the comportment of the foreign investor, as is clear from its own records, was egregious and cannot benefit from presumptions which might ordinarily operate in favor of the investor’ (Fraport AG Frankfurt Airport Services Worldwide v. Philippines, ICSID Case No. ARB/03/25, -Award, 16 August 2007, para. 397); 110 The Tribunal was confronted with the question whether the fraudulent participation by a Spanish company in a public bid in El Salvador in order to contract mechanical inspection services for vehicles, and hence the fraudulent acquirement of an investment, could be used to gain access to investment arbitration under the Spain-El Salvador BIT. The Tribunal analyzed whether the investment obtained by fraud was included in the consent given by El Salvador when signing the BIT, in particular in view of the requirement that the investment should be made ‘in accordance with the laws of the host State’. The Tribunal applied general principles of law including the ‘principle of good faith’. (Inceysa Vallisoletana, S.L. V. Republic of El Salvador, ICSID Case No. ARB/03/26, Award, 2 August 2006, para. 208). 111 Ibid., para. 230 112 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005, paras. 143-144.



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international law.”113 As noted in the previous section, a similar line of reasoning, although applying solely the principle of “good faith” as part of international law, has been held by the Phoenix Tribunal.

Two other cases deserve special consideration. Europe Cement v. Turkey 114 and Cementownia v. Turkey115 involved the same individual who claimed in both cases to be the shareholder of the claimant –either directly or through other corporate vehicles-, although it manifestly was not the case.116 In both cases, the Tribunals found that the Claimant in fact had not made an investment on which the claim could be based, given that the Claimant did not own the shares either of the Claimant or another corporation which held shares in the Claimant Corporation. Comparing the case to Inceysa and Phoenix, the Tribunal in Europe Cement declined jurisdiction, based on the consideration that

In the present case, there was in fact no investment at all, at least at the relevant time, and the lack of good faith is in the assertion of an investment on the basis of documents that according to the evidence presented were not authentic. The 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. If, as in Phoenix, a claim that is based on the purchase of an investment solely for the purpose of commencing litigation is an abuse of process, then surely a claim based on the false assertion of ownership of an investment is equally an abuse of process.117

The Tribunal in Cementownia came to a similar conclusion, but did not explicitly address the question whether the “good faith” claim was directed at the jurisdiction of the Tribunal or at the admissibility of the claim. One can however implicitly derive form the Tribunal’s considerations and conclusion that the Tribunal declined jurisdiction because of the absence of an investment, as understood by the ECT. The Tribunal, besides discussing the absence of “good faith” in the conduct of the proceedings118 confirmed the importance of the “good faith” principle generally also referring to the Phoenix decision. The Tribunal concluded that

[t]he Claimant’s conduct in bringing the instant claim fails to meet the requisite standard of good faith

conduct. The claim is manifestly ill-founded. […]

113 Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Award, August 27, 2008, paras. 138-140. 114 Europe Cement Investment & Trade S.A. v. Turkey, ICSID Case No. ARB(AF)/07/2, Award, 13 August 2009. 115 Cementownia "Nowa Huta" S.A. v. Republic of Turkey, ICSID Case No. ARB(AF)/06/2, Award, 17 September 2009 116 Something which was admitted by the Claimant in the course of the proceedings (Cementownia "Nowa Huta" S.A. v. Republic of Turkey, ICSID Case No. ARB(AF)/06/2, Award, 17 September 2009, para. 158). 117 Europe Cement Investment & Trade S.A. v. Turkey, ICSID Case No. ARB(AF)/07/2, Award, 13 August 2009, para. 175. 118 See Cementownia "Nowa Huta" S.A. v. Republic of Turkey, ICSID Case No. ARB(AF)/06/2, Award, 17 September 2009, para. 158 et s.

[T]he Arbitral Tribunal is of the opinion that the Claimant has intentionally and in bad faith abused the

arbitration; it purported to be an investor when it knew that this was not the case. This constitutes indeed an

abuse of process.119

Both Tribunals thus considered that the filing of a claim was made in “bad faith” and constituted an “abuse of process”. The reference to the latter principle should here again rather be read as denoting an “abuse of the ICSID System” through the filing of a claim although there was manifestly no legal ground on which the Tribunal’s jurisdiction could be based. Indeed, because the Tribunal had decided that it had no jurisdiction, there was by definition no right to file a claim, and thus there could not be an “abuse” of that right. Such finding might however be necessary to grant a monetary compensation to the respondent because of the “bad faith” submission of a treaty claim. The Tribunal ordered Europe Cement to pay the full costs of the Respondent including its share of the costs of the arbitral proceedings.120 The Tribunal in Cementownia ordered the claimant to pay the Respondent's legal fees and expenses and the Respondent's contribution to the costs of the proceedings.121 The Tribunal in Cementownia also decided to issue a declaration that the Claimant has filed a fraudulent claim before ICSID in view of the fact that “such conduct, […] constitutes a manifest abuse of the international institutional arbitration system. A formal declaration in the present Award would therefore constitute a fully justified remedy in order to prevent the Claimant from filing this baseless claim before other international jurisdictions or even before ICSID again.”122

Although several Tribunals have referred to Art. 31 (1) of the VCLT which provides that “a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose”123, the discussed cases show that “good faith” access to investment arbitration goes further than the mere interpretation of a treaty in “good faith”. Indeed adding a “good faith” criterion to the question whether there is an investment is different from the interpretation of a treaty provision in “good faith”. Moreover, while one could argue that in Fraport, Plama and Inceysa, the Tribunals had to establish whether the investments made were in good faith either as a condition under national or international law, and thus could benefit from the protection of the investment treaty, the situation was different in Europe Cement and Cementownia. In those cases, since there was no investment at all, the Tribunals were actually not required to interpret the investment treaty. This is also why the references to “good faith” and “abuse of process” -specifically in the latter two cases- are important. As such, the Tribunals could have merely noted that there was no investment, as contemplated under the relevant investment protection agreement. However, because of the decision of the Claimants in both cases to initiate investment treaty arbitration despite the manifest absence of an “investment”, both Tribunals found it important explicitly to label such claims as “made in bad faith” or “an abuse of process” instead of merely declining jurisdiction based on the absence of an investment. Here again one can see that the principle of “good faith” fulfills an important function in the legal reasoning of tribunals essentially to

119 Ibid., paras. 157-159. 120 Europe Cement Investment & Trade S.A. v. Turkey, ICSID Case No. ARB(AF)/07/2, Award, 13 August 2009, paras. 182-186. 121 Cementownia "Nowa Huta" S.A. v. Republic of Turkey, ICSID Case No. ARB(AF)/06/2, Award, 17 September 2009, para. 179. 122 Ibid., para. 163. 123 See for example: Malicorp Limited v. Arab Republic of Egypt, ICSID Case No. ARB/08/18, Award, 7 February 2011, para. 171, and the other cases cited by the Tribunal.



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strongly condemn such submissions, but also to justify an award of the costs and legal fees to the respondent, and thereby indirectly preventing future abusive submissions by “investors”. B. “Abuse of Process” and the Admissibility of Claims brought in breach of “good faith”

Requirements 1. “Good Faith”, “Abuse of Process”, and Forum Shopping “Abuse of process” has traditionally been used to manage situations of competing jurisdictions between courts and tribunals. This is indeed a question of admissibility rather than jurisdiction, since the issue is not necessarily whether a tribunal has jurisdiction, but rather whether the tribunal which theoretically has jurisdiction should refuse to exercise its jurisdiction over that claim.124 The first two cases we will discuss here have essentially applied to notions of “abuse of process” and “good faith” to the submission of the claim as such, and are therefore highly relevant for having established, at least in Waste Management, that the submission of a claim can in and of itself constitute an “abuse of process”, notwithstanding the jurisdiction of the Tribunal and the right of the claimant to file such a claim.

In Waste Management v. Mexico, conducted under the ICSID Additional Facility, the Respondent had argued that the new submission of the same claim to a different tribunal constituted an “abuse of process”. In the first proceedings125, a Tribunal had declined jurisdiction because the Claimant had failed to respect the requirements laid down by NAFTA Article 1121 (2) (b).126 The Claimant submitted a new claim to a different tribunal after having fulfilled the requirements of NAFTA Article 1121 (2) (b). Although the Tribunal noted that “it is not necessary to decide whether NAFTA Chapter 11 tribunals possess any inherent power to dismiss a claim on grounds of abuse of process, or what circumstances might justify the exercise of any such power”, it confirmed that “it may be inferred that if such a power exists, it would only be for the purpose of protecting the integrity of the Tribunal’s processes or dealing with genuinely vexatious claims.”127 The reference to the need to protect the “integrity of the Tribunal’s processes” again hints at the importance of “good faith” and “abuse of process” in preventing abuses of the system of direct access to investment arbitration. The Tribunal finally rejected the objection, stating inter alia that it “does not consider that, on the evidence available to it, there is any basis for saying that the present claim was brought in bad faith or that it is not a bona fide claim.”128

124 See generally: Yuval Shany, The Competing Jurisdictions of International Courts and Tribunals (Oxford: Oxford University Press, 2003), p. 255 et s. 125 Waste Management, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/98/2, Award, 2 June 2000. 126 The Article provides the obligation to ‘waive their right to initiate or continue before any administrative tribunal or court under the law of any Party, or other dispute settlement procedures, any proceedings with respect to the measure of the disputing Party that is alleged to be a breach’. 127 Ibid., para. 49. 128 Ibid., para. 50.

In Bayindir v. Pakistan129, the Respondent had equally invoked an “abuse of process”, because the Claimant had abandoned its contract claims and initiated proceedings under an investment treaty. Pakistan asserted that there is an “inherent power and duty for an international Tribunal to guard against this kind of abuse of process, and that that has had jurisdictional or at least preliminary objections significance.”130 The Tribunal rejected the objections for various reasons, and noted that “Bayindir’s tactical choice to abandon the Contract Claims at the outset of the jurisdictional hearing and Bayindir’s fundamental choice to pursue the Treaty Claims”, might “have an incidence on the allocation of costs.”131

In Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg, and RSM Production Corporation v. Grenada132 the question of forum shopping was addressed equally from the perspective of admissibility. This case was the fourth case using the new procedure under ICSID Arbitration Rule 41 (5), introduced in 2006, which enables arbitral tribunals to dismiss at an early stage claims that are manifestly without legal merit.133 A brief summary of the facts is necessary to fully understand this complex case because of the multiple proceedings engaged by the Claimant. Under an RSM-Grenada agreement, Grenada was to grant a petroleum exploration licence to RSM within 90 days of the agreement’s effective date. Grenada dismissed RSM’s application for the petroleum license since the application was untimely.134 In 2004, RSM filled a first claim against Grenada, based on the Agreement between RSM and Grenada, which an ICSID Tribunal rejected in 2009.135 The Tribunal in this first dispute, RSM Production Corporation v. Grenada, found that Grenada did not breach any of its contractual obligations towards RSM.136 RSM subsequently filed a request for annulment which was finally discontinued in April 2011, essentially because the Applicant failed to pay the necessary costs for the annulment proceeding to move forward.137

Pending the annulment proceedings, in January 2010, RSM and its three shareholders filed a new claim against Grenada alleging a breach of the US-Grenada BIT by reason of RSM’s dealings with Grenada in relation to the same written petroleum exploration agreement.138 The claim was thus substantially the same as the one brought forward in the first and annulment proceedings.139 In this second case, the Tribunal confirmed that the findings of the (first) Tribunal in RSM Production Corporation v. Grenada were binding upon the parties to the dispute, including RSM’s three shareholders. Re-opening the case would indeed, according to the Tribunal, result in a

129 Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Decision on Jurisdiction, 14 November 2005. 130 Ibid., para. 170. 131 Ibid.. 171-173. 132 Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg, and RSM Production Corporation v. Grenada, ICSID Case No. ARB/10/6 (Dec. 10, 2010). 133 See on this Eric De Brabandere, ‘The ICSID Rule on Early Dismissal of Unmeritorious Investment Treaty Claims : Preserving the Integrity of ICSID Arbitration’, 9(1) Manchester Journal of International Economic Law (2012), pp. 23-44 ; Chester Brown and Sergio Puig, ‘The Power of ICSID Tribunals to Dismiss Proceedings Summarily: An Analysis of Rule 41(5) of the ICSID Arbitration Rules’, 10 (2) The Law and Practice of International Courts and Tribunals (2011), pp. 227-259 and Michele Potestà and Marija Sobat, ‘Frivolous Claims in International Adjudication: A Study of ICSID Rule 41(5) and of Procedures of Other Courts and Tribunals to Dismiss Claims Summarily’, 3(1) Journal of International Dispute Settlement (2012), pp. 137-168. 134 Ibid., para. 1.4.2. 135 RSM Production Corporation v. Grenada, ICSID Case No. ARB/05/14, Award, 13 March 2009. 136 Ibid., para. 503. 137 RSM Production Corporation v. Grenada, ICSID Case No. ARB/05/14, Annulment Proceedings, 28 April 2011, para. 63. 138 Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg, and RSM Production Corporation v. Grenada, ICSID Case No. ARB/10/6 (Dec. 10, 2010), para. 1.4.1. 139 RSM Production Corporation v. Grenada, ICSID Case No. ARB/05/14, Annulment Proceedings, 28 April 2011, para. 63.





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breach of Article 53 of the ICSID Convention.140 The Tribunal found that “the initiation of the present arbitration is thus an improper attempt to circumvent the basic principles set out in Convention Article 53 and the procedures available for revision and rectification of awards provided for in Article 51.”141 Without however explicitly mentioning that the claim amounted to an “abuse of process” the Tribunal nevertheless gave a clear indication that the filing of a new claim was made in “bad faith”. The Tribunal did not derive any specific consequences from this finding, but found that RSM should pay all legal and other costs incurred by Grenada, taking into account “that Claimants present claims are manifestly without legal merit, and that, it was impermissible for Claimants to advance them in new ICSID proceedings.”142 The Tribunal refrained from declaring that the claims was inadmissible, or that the Tribunal lacked jurisdiction, but the inadmissibility of the claim is implicit in the reasoning of the Tribunal since the application of the principle of res judicata in a subsequent litigation is a question of admissibility rather than jurisdiction.

During the annulment proceedings, Grenada understandably submitted that RSM had engaged in a “cynical manipulation of this proceeding” and an “abuse of process” by submitting multiple claims against Granada.143 The Annulment Committee quite surprisingly found that it was “not necessary […] to find that the Applicant has committed an abuse of process in commencing separate proceedings against the Respondent. If the Applicant considers that it has legal rights, it is entitled to seek the vindication of those rights.”144 The Committee nevertheless decided that, since the Tribunal in the second case had finally found that the claim was “manifestly without legal merit”, and that ”bearing in mind the Applicant’s approach to the present proceeding, however, as well as all the relevant facts and circumstances, […] an award of costs to the Respondent is justified.”145 2. “Good Faith”, “Abuse of Process”, and the Objective of the Claim A second series of cases have addressed “abuse of process” claims outside the formal context of forum-shopping and successive submissions. In these cases, “abuse of process” claims were directed at the objective of the initiation of investment arbitration, which was allegedly alien to the reasons behind the creation of this procedural rights. In Rompetrol v. Romania146, the Respondent argued that the claims were inadmissible and constituted an “abuse of process” because they “have been brought for the sole purpose of seeking to place undue pressure on the Romanian Government in order to force it to terminate the

140 Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg, and RSM Production Corporation v. Grenada, ICSID Case No. ARB/10/6 (Dec. 10, 2010), paras. 7.1.5. et s. 141 Ibid., para. 7.3.7. 142 Ibid., para. 8.3.4. 143 RSM Production Corporation v. Grenada, ICSID Case No. ARB/05/14, Annulment Proceedings, 28 April 2011, para. 64. 144 Ibid., para. 65. 145 Ibid., paras. 65 and 68. 146 The Rompetrol Group N.V. v. Romania, (ICSID Case No. ARB/06/3, Decision on Respondent’s Preliminary Objections on Jurisdiction and Admissibility, 18 April 2008.

pending criminal proceedings against Mr. Patriciu and other managers of the Rompetrol group of companies. … The principal remedy that the Claimant is seeking is that the Arbitral Tribunal ‘order Respondent to cease conducting the GPO investigation’”.147 Although the “abuse of process” argument raised by Romania was withdrawn during the pleadings, the Tribunal nevertheless referred the question of admissibility to the discussion on the merits148, but took the opportunity to briefly discuss the concept of “abuse of process” in its decision on jurisdiction. However, the Tribunal dismissed the relevance of questions of “admissibility” to ICSID Arbitration because of the lack of explicit reference to that concept in the Convention:

Marshalled as it is as an objection at this preliminary stage, this is evidently a proposition of a very far-reaching character; it would entail an ICSID tribunal, after having determined conclusively (or at least prima facie) that the parties to an investment dispute had conferred on it by agreement jurisdiction to hear their dispute, deciding nevertheless not to entertain the application to hear the dispute. Given that an ICSID tribunal, under the Washington Convention as interpreted, is bound to exercise a jurisdiction conferred on it, so far-reaching a proposition needs to be backed by some positive authority in the Convention itself, in its negotiating history, or in the case-law under it.149

In Chevron, the Tribunal was faced with a claim that the denial of justice alleged by the Claimants should be declared inadmissible because it is based on a contradiction between Claimants’ allegation and their prior statements and conduct in respect of the alleged improper conduct by the Ecuadorian courts.150 Although the inadmissibility of the claim was not explicitly brought as such by Ecuador, or as a jurisdictional objection, the Tribunal adopted a twofold approach. The Tribunal, noting that it is unclear whether the “abuse of process” claim is a jurisdictional objection or an objection related to the admissibility of the claim151, decided to first deal with the claim at the jurisdictional phase of the proceedings. Although the Tribunal later referred to the “jurisdiction” of the Tribunal, rather than the admissibility of the claim, it implicitly phrased the question as one of admissibility: “[i]n the present case, the question is whether a particular claimant is undeserving of having its claim heard because of the circumstances surrounding that claim.”152 Applied to the facts of the case, the Chevron Tribunal decided that Respondent failed to prove, at this stage of the proceedings, that the “bad faith” behavior of the investor was such as to bar it from submitting a claim before an investment tribunal.153 Referring and adhering to the above quoted considerations of the Tribunal in Rompetrol, the Tribunal in Chevron decided to defer the question to the merits of the phase.154

The notion of “abuse of process” was also discussed by the recent decision of the Tribunal in Abaclat and others v. Argentina155, to which we have referred to above. The case is remarkable in

147 Ibid., para. 111. 148 Ibid., para. 114. The case is still pending at the time of the writing of this Article (January 2011). 149 Ibid., para. 115. 150 Chevron Corporation (USA) and Texaco Petroleum Company (USA) v. The Republic of Ecuador, UNCITRAL, PCA Case No. 34877, Interim Award, 1 December 2008, paras 125 et s. 151 Ibid., para. 137. 152 Ibid., para. 141. The Tribunal also observed that ‘in all legal systems, the doctrines of abuse of rights, estoppel and waiver are subject to a high threshold. Any right leads normally and automatically to a claim for its holder. It is only in very exceptional circumstances that a holder of a right can nevertheless not raise and enforce the resulting claim. The high threshold also results from the seriousness of a charge of bad faith amounting to abuse of process.’ 153 Ibid., para. 144. 154 Ibid., paras. 146-147. In its partial award on the merits, the Tribunal finally concluded that the Respondent failed to show that the Claimants did not have a legitimate interest in instituting proceedings under the relevant BIT (Chevron Corporation (USA) and Texaco Petroleum Company (USA) v. The Republic of Ecuador, UNCITRAL, PCA Case No. 34877 (US/Ecuador BIT), Partial Award on the Merits, 30 March 2010, para. 354). 155 Abaclat and others (Case formerly known as Giovanna a Beccara and Others) v. Argentine Republic (ICSID Case No. ARB/07/5), Decision on Jurisdiction And Admissibility, 4 August 2011.



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several respects, not the least because it is first time that an ICSID Tribunal accepted a “mass claim” suit to be filed under the ICSID Convention, since the claimants consist of some 60,000 individuals.156 A brief explanation of the facts is important to understand the Tribunal’s discussion of “abuse of process”. At one point, eight major Italian banks established the Associazione per la Tutela degli Investitori in Titoli Argentini (Task Force Argentina or TFA) in order to “represent the interests of the Italian bondholders in pursuing a negotiated settlement with Argentina.”157 TFA is as such not a party to the proceedings, for rather obvious reasons since it cannot be considered as an investor, but had been accepted by the Tribunal as the agent of Claimants in its Procedural Order No. 5, and was accepted again as such in the decision on jurisdiction.158 Argentina contented during the pleadings on the jurisdiction of the Tribunal that Claimants’ claims constituted “an unprecedented abuse of the investment treaty regime, brought without legal basis and for a fundamentally illegitimate motive.”159

The Tribunal in Abaclat did not retain Argentina’s submission but nevertheless gave a clear indication of the various uses of “abuse of process” in international law and investment arbitration. As noted above, the Tribunal distinguished between two possible submissions of a breach of the principle of good faith in relation to investment treaty claim, namely the invocation of a breach of the good faith principle in relation to the way in which the investment was made -”material good faith”-, or in relation to the way in which the claim has been initiated - “procedural good faith”.160 In this particular case, Argentina’s submission was based on breaches of both “material” and “procedural good faith”. In respect of the first category, the Tribunal referred the discussion to the merits, but also found that for the purpose of jurisdiction, the investment needed be considered to be made in accordance with the applicable law.161 The Tribunal dismissed the jurisdiction-based objection that Argentina had not consented to ICSID proceedings being conducted as “mass claim” proceedings, since it had found that Argentina’s consent covered the proceedings initiated by the Claimants and that the role played by TFA (which is not a party to the proceedings) in the procedure was not of such a nature as to vitiate the consent of the Claimants.162 The Tribunal thus turned to the question whether the potential “abuse of rights” allegedly committed by TFA would constitute a bar to the admissibility of the case.163 The Tribunal found that “in the present arbitration, the alleged abuse of rights does not concern Claimants’ rights as arising out of the BIT but TFA‘s interests as arising out of Claimants’ pursuit of ICSID proceedings.”164 The Tribunal thus noted that although “the fact that a third

156 Ibid., para. 294. 157 Ibid., paras. 65-66. 158 Ibid., paras. 204 and 699. 159 Ibid., para. 234. Argentina based its submission inter alia on the fact that ‘TFA solicited Claimants’ consents to instituting this arbitration, over which they have no control, by fraud and half-truths with the aim of diverting those customers from claiming against the TFA member banks, while prescription in Italy runs in favor of the TFA member banks’. 160 Ibid., para. 647 (footnotes omitted). 161 Ibid., paras. 652-653. 162 Ibid., paras. 652-653. 163 Ibid., paras. 654-655 164 Ibid., para. 657.

party, such as TFA, may allegedly have taken a certain advantage from the conduct by Claimants of the present ICSID arbitration may be morally condemnable, […] it cannot lead to the inadmissibility of Claimants’ claims to the extent that the rights Claimants intend to seek protection for are rights protected under the BIT, which are not claimed in an abusive manner by Claimants.”165 The Tribunal also noted generally that “for ICSID proceedings to be dismissed based on an abuse of rights, it would be necessary that the abuse concerns the very rights that ICSID proceedings aim to protect, i.e., the investors’ rights under the relevant BIT.”166 Conclusion This Article has categorized current uses of “good faith” and “abuse of process” in investment treaty arbitration, as claims directed at either the jurisdiction of the tribunal, or the admissibility of the original claim. In the first case, “good faith” essentially operates at the level of the assessment of the legality of the acquisition of the investment, since investments need to be made “good faith”, either because “good faith” is part of the national law applicable to the definition of an investment under a BIT, or because “good faith” is a general requirement for an investment or a foreign investor to be qualified as such under Article 25 of the ICSID Convention. In the second case, when “good faith” requirements are treated as a matter directed at the admissibility of the claim, the tribunal in theory has jurisdiction, but because the filing of a claim constitutes an “abuse of process”, the tribunal cannot exercise its jurisdiction. At the same time, the conducted survey of recent practice shows that Tribunals are relatively reluctant to accept the latter type of objections, with the exception of the rather obvious “abuse of process” in Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg, and RSM Production Corporation v. Grenada, which moreover was not explicitly recognized as such by the Arbitral Tribunal. Indeed, declaring a case inadmissible at the jurisdictional level often requires an enquiry into the merits of the dispute, or an in-depth analysis of the facts of the case, which is not always feasible at the jurisdictional phase of the proceedings. Clearly and understandably, tribunals remain generally careful in assessing the behavior of foreign investors. Indeed, and by necessary implication, any finding of a tribunal in relation to the “good faith” requirement in submitting claims before an international investment tribunal involves a subjective assessment of the behavior of the investor, and is difficult for this reason only, unless the ”bad faith” is manifest. This is why several tribunals have decided to refer the question to the merits of the case, also considering that such claims merit in-depths analysis. At the same time however, many of the international standards of investment protection likewise require from a tribunal to assess, in view of the particular facts of the case and the applicable law –in particular the wording used by States in their investment agreement-, the behaviors of both the host state and the foreign investor and there is thus no substantial difference between an application of the principle of “good faith” and other rules of international investment law.

The conducted survey likewise shows that much confusion exists as to the distinction between “good faith” claims that operate at the jurisdictional level and those that operate at the level of the admissibility of the claim. We have shown that the consequences attached to either possibility are very different, and it is thus important for tribunals to be explicit about the procedural basis of the dismissal of a claim. “Abuse of process” has moreover been a recurrent concept in many of the discussed case, but it is clear that various tribunal have attached various meanings to this concept. While in some cases, “abuse of process” was considered in its legal-technical meaning, namely the abuse of a right to file a claim, other tribunals have used the notion to describe more generally the abusive submission of a claim by claimants who either

165 Ibid., paras. 657-658. 166 Ibid., para. 657.



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knew or should have known that the tribunal manifestly lacked jurisdiction, or who have attempted to abuse the instruments granting direct access to investment arbitration.

The analysis has made clear that the role played both by the principles of “good faith” and the derived concept of “abuse of process” is of high relevance in contemporary international investment arbitration. Increasingly, States and arbitral tribunals explicitly resort to these concepts respectively to challenge and assess claims that have been brought by foreign investors in breach of the jurisdictional requirements of investment tribunals, essentially to gain access to investment arbitration. The cases discussed in this Article have undoubtedly shown that the concepts of “good faith” and “abuse of process” can and do play a substantial role in assessing investment treaty claims, and thereby preserving the current system of investment arbitration from abuses. This is clearly evidenced by the numerous references by several arbitral tribunals, to the need to prevent an abuse of system of investment arbitration in applying the principles of “good faith” and “abuse of process”. In view of the increasing use and thus potential abuses of the system, these principles will most probably continue to play an important role to maintain the viability of the current system of investment arbitration. Giving the principles of “good faith” and “abuse of process” a more prominent role may indeed assist in avoiding abuses of the arbitral procedure and the direct access by foreign investors to international arbitration.

Documents

“Good Faith”, “Abuse of Process” and the Initiation of Investment Treaty Claims