Case study :
An ad hoc committee (the “
Resubmission Committee“) has recently
dismissed the claimants’ application to annul a resubmission award issued in September 2016 (and subsequently rectified) in
Victor Pey Casado and President Allende Foundation v Republic of Chile (
ICSID Case No. ARB/98/2), the longest dispute in the history of the International Centre for Settlement of Investment Disputes (“
ICSID“). The award came one month after an UNCITRAL tribunal in a parallel case declined to hear the claimants’ claims, unanimously holding that it lacked jurisdiction. The dispute in
Pey Casado, which arose from the confiscation of assets of two Chilean companies (the “
Companies“) following the
coup d’état led by General Augusto Pinochet in 1973, may have finally come to an end after 22 years of arbitration proceedings. The Resubmission Committee reminded the arbitration community of the limited grounds on which an ICSID award can be annulled and the importance of the
res judicata principle which aims to preclude attempts to re-adjudicate a resolved dispute in the context of ICSID dispute resolution.
Background
First Arbitration Proceedings
The original ICSID proceedings (the “
First Arbitration“) were initiated by Mr Victor Pey Casado and the President Allende Foundation (the “
Claimants“) in 1997 on the basis of the 1994 Spain-Chile bilateral investment treaty (the “
BIT“) and the ICSID Convention (the “
Convention“). In the First Arbitration, the Claimants alleged that Chile (i) unlawfully expropriated their investments in the Companies (in breach of Article 5 of the BIT); and (ii) discriminated against them and denied them justice in connection with the request Mr Casado filed with the Chilean courts in 1995 seeking reparation for the confiscation of the assets (in breach of Article 4 of the BIT). Specifically, the Claimants argued that, whereas they had unsuccessfully attempted to recover compensation in the Chilean national courts, Chile awarded compensation to other individuals for the same expropriation.
In May 2008, the tribunal in the First Arbitration (the “
First Tribunal“) issued an award (the “
First Award“) dismissing the expropriation claim (holding that it was beyond the temporal scope of the BIT) but finding that Chile was in breach of Article 4 of the BIT. The First Tribunal also noted that since expropriation fell outside the scope of the BIT, the allegations and evidence regarding the damage caused by the expropriation were not relevant and could not be relied upon in order to establish the damages caused by the breach of Article 4 of the BIT. Nevertheless, the First Tribunal awarded the Claimants US$10 million in damages.
First Annulment Proceedings
As we discussed in detail in our earlier
blog post on this case, in December 2012, upon Chile’s application, an ad hoc committee (the
“First Committee“) annulled the First Award. The annulment in part relied on limbs (d) and (e) of Article 52(1) of the Convention, having found an annullable error in the process the First Tribunal followed in deciding to award damages. The order to pay US$10 million in damages and the “corresponding paragraphs” in the First Award were therefore annulled (the “
First Annulment Decision“). The First Committee’s failure to delineate clearly the contours of the partial annulment proved to be a source of disagreement at later stages of the proceedings.
Resubmission Arbitration Proceedings
In June 2013, the Claimants filed a new request for arbitration pursuant to Article 52(6) of the Convention, among other things seeking US$150 million in damages for Chile’s alleged breaches of Article 4 of the BIT. Specifically, the Claimants argued that had Article 4 of the BIT not been breached, they would have been able to recover the confiscated property or establish before the First Tribunal that the expropriation was not an instantaneous act in 1975 but rather went on for a number of years (thereby falling within the temporal scope of the BIT).
In September 2016, the tribunal (the “
Resubmission Tribunal“) confirmed that (i) the unanulled findings of the First Tribunal (i.e. that Chile was in breach of Article 4 of the BIT and any further or other claims were rejected) were
res judicata; (ii) it was open for the parties to re-arbitrate the nature of compensation due to the Claimants following the breach of Article 4 of the BIT; and (iii) refused to award any compensation to the Claimants, as they failed to prove any further quantifiable injury caused by the breach of Article 4 of the BIT as found by the First Tribunal (the “
Resubmission Award“). The Resubmission Tribunal therefore left the Claimants without compensation, noting that the finding by the First Tribunal that the Claimants were victims of a denial of justice constitutes in itself a form of satisfaction under international law for Chile’s breach of Article 4 of the BIT.
Resubmission Annulment Proceedings
Claimants’ arguments
In October 2017, the Claimants applied to annul the Resubmission Award (as subsequently rectified) on the following Convention grounds: (i) improper constitution of the tribunal (Article 52(1)(a)); (ii) manifest excess of powers (Article 52(1)(b)); (iii) serious departure from a fundamental rule of procedure (Article 52(1)(d)); and (iv) failure to state the reasons on which the award was based (Article 51(1)(e)).
The Claimants referred to a number of factual circumstances, which could, in their view, justify an annulment of the Resubmission Award on at least one of the above grounds. These circumstances (which will not all be covered in detail in this blog post) included the procedure of appointment of, and dealing with challenges to, the members of the Resubmission Tribunal, as well as various evidential and procedural matters in the Resubmission Annulment Proceedings.
In particular, the Claimants (in reference to annulment grounds under limbs (b), (d) and (e) of Article 52(1) of the Convention) argued that the Resubmission Tribunal (i) incorrectly interpreted the First Annulment Award in that it had disrespected the
res judicata effect of the First Award; (ii) distorted the First Award and the First Annulment Decision in order to serve Chile’s interests; and (iii) presented inconsistent arguments with respect to the consideration of evidence and burden of proof, such that that they cancelled each other out.
Decision of the Resubmission Committee
On 8 January 2020, the Resubmission Committee dismissed the Claimants’ application for annulment of the Resubmission Award (“
Second Annulment Decision“), confirming that none of the circumstances relied upon by the Claimants were sufficient for their application to succeed. While Professor Dr Angelet issued a
concurring opinion disagreeing with the majority’s reasons on the interpretation of the First Annulment Decision, this did not affect the Second Annulment Decision. Below we discuss some of the conclusions reached by the Resubmission Committee in relation to the Claimants’
res judicata arguments.
As a preliminary point, the majority concluded that the Resubmission Tribunal had not in fact reopened the determinations of the First Tribunal in relation to the BIT breaches, i.e. it correctly treated as
res judicata the conclusion that the damages arising out of the breach of Article 4 of the BIT cannot be based on damages caused by expropriation. Further, according to the Resubmission Committee, it was open to the Resubmission Tribunal to disregard evidence relied upon by the Claimants (i.e. as to the damages arising out of expropriation), and to examine whether breaches of Article 4 of the BIT, as a distinct claim, had caused injury and damage.
The majority reiterated that Article 52(1)(b) of the Convention (“
manifest excess of powers“) had a dual requirement: (i) the tribunal must do something in excess of its powers (e.g. determine an issue
de novo that the original tribunal already determined and that had become
res judicata); and (ii) that excess must be sufficiently clear and serious. Given its earlier conclusion that the Resubmission Tribunal respected the
res judicata parts of the First Award, the Resubmission Committee rejected the Claimants’ assertions that the Resubmission Tribunal manifestly exceeded its powers in relation to these circumstances.
The Second Annulment Decision confirmed that Article 52(1)(d) of the Convention (“
serious departure from a fundamental rule of procedure“) involved a four-part test: (i) the procedural rule must be fundamental (such as fair and equitable treatment of the parties, proper allocation of the burden of proof, absence of bias etc.); (ii) the tribunal must have departed from it; (iii) the departure must have been serious; and (iv) the party had not lost its right to object on this ground as a result of failing to promptly raise its objection upon becoming aware of the departure. The Resubmission Committee concluded that it was unable to discern bias and partiality on the part of the Resubmission Tribunal, therefore the Claimants’ argument relating to the alleged distortion of the First Award and the First Annulment Decision to serve Chile’s interests was unsuccessful.
As for Article 51(1)(e) (“
failure to state reasons“) of the Convention, the Resubmission Committee restated that this concerned a failure to state any reasons with respect to all or part of an award, rather than the failure to state correct or convincing reasons. The Resubmission Committee also noted that inconsistencies between different parts of the award did not amount to a lack of reasons, unless the contradiction was of a kind that meant two arguments cancel each other out. The Resubmission Committee came to the conclusion that there was no contradiction in respect of the Resubmission Tribunal’s position regarding the evidence on loss and damages and its analysis as to whether the Claimants met the burden of proof.
Comment
It is well understood that the award of a tribunal constituted under Article 52(6) of the Convention is an award in the terms of Article 52 of the Convention, and can therefore be subject to annulment in the same way. However, those parts of an initial award that have not been annulled and become
res judicata are not part of the award of the resubmission tribunal, and therefore cannot be annulled by a second ad hoc committee. While this may at first sight appear straightforward, the
Pey Casado case illustrates that questions of interpretation of the first annulment decision, in particular whether or not certain parts of the initial award became
res judicata, may result in lengthy and heated disputes. The
Pey Casado case is not the first case where
res judicata arguments have been raised; similar arguments have been made by the parties, for example, in
Amco v Indonesia, and will, no doubt, be raised in future. It is, however, important to bear in mind that, as reiterated by the
Pey Casado case, there are limited grounds on which an ICSID award can be annulled, and the consecutive use of Articles 52(1) and (6) of the Convention cannot be seen as an appeal system.