The tribunal was at pains to emphasize the interim award was final and binding under Article 32 of the UNCITRAL Rules, which means that Chevron could pursue recognition and enforcement of the award in jurisdictions around the world. It could do so offensively by seeking declaratory relief in Ecuador (or elsewhere), or defensively in response to an attempt by the Ecuador plaintiffs to seek enforcement of the Ecuador judgment. Of course, the Interim Award is only binding on Ecuador and Chevron, so it is not clear what a domestic court outside Ecuador would do with an award imposing injunctive relief on Ecuador.

Meanwhile, on Thursday the Second Circuit issued its long-awaited opinion in Chevron v. Naranjo. The Second Circuit’s crucial holding was that New York’s Uniform Foreign Money-Judgments Recognition Act precludes declaratory injunctive relief by a foreign judgment debtor. “There is … no legal basis for the injunction that Chevron seeks, and, on these facts, there will be no such basis until judgment-creditors affirmatively seek to enforce their judgment in a court governed by New York or similar law.”

The Second Circuit had little sympathy for Chevron’s attempt to pursue an antienforcement injunction, particularly given the comity concerns at stake.

“[W]hen a court in one country attempts to preclude the courts of every other nation from ever considering the effect of that foreign judgment, the comity concerns become far greater. In such an instance, the court risks disrespecting the legal system not only of the country in which the judgment was issued, but also those of other countries, who are inherently assumed insufficiently trustworthy to recognize what is asserted to be the extreme incapacity of the legal system from which it emanates. The court presuming to issue such an injunction sets itself up as the definitive international arbiter of the fairness and integrity of the world’s legal systems.”

But at the same time, the Second Circuit emphasized that it expressed “no views on the merits of the parties’ various charges and counter-charges regarding the Ecuadorian legal system and their adversaries’ conduct of this litigation, which may be addressed as relevant in other litigation before the district court or elsewhere.” It also avoided any decision with respect to the underlying RICO claims that Chevron has filed against the Ecuador plaintiffs and their lawyers, focusing simply on the improper procedural device that Chevron sought to employ to enjoin enforcement of the Lago Agrio judgment abroad.

Where does the case go from here? In Ecuador, Chevron has appealed to Ecuador’s highest court to review the case. No word yet as to whether Chevron will seek to have the arbitral tribunal’s Interim Award recognized and enforced in Ecuador. The arbitral tribunal is scheduled to hold hearings on February 11-12 to determine what steps Ecuador is taking to prevent enforcement of the Lago Agrio judgment.

As for the Ecuador plaintiffs’ efforts to enforce the judgment, there is no indication that Chevron will post an appeal bond, which means that the Ecuador plaintiffs are free to pursue enforcement anywhere in the world where Chevron has assets.

It appears that the Ecuador plaintiffs will not seek to have the judgment enforced within the United States. Ecuador Plaintiffs’ lawyer James Tyrrell stated yesterday that “The Ecuadorean plaintiffs are not coming to New York to enforce this judgment.” Given the locus of Chevron’s assets, it is not obvious why the plaintiffs have adopted this strategy, unless they have reason to believe that there is a high probability that the judgment would not be enforced.

There is, of course, the option of pursuing enforcement abroad. If the Invictus Memo is reliable, the Ecuador plaintiffs have identified twenty-seven nations where Chevron has substantial activities, including countries that are friendly with Ecuador, such as Colombia and Venezuela. That memo candidly states the ultimate end game strategy for the Ecuador plaintiffs:

“After approximately seventeen total years of litigation in the United States and Ecuador, the case against Chevron now enters its most critical, multi-faceted, and labor intensive…. With the ultimate goal of effecting and swift and favorable settlement, the strategy of the Plaintiffs’ Team will incorporate the following components: … managing the public relations impact of Chevron’s manipulation of the Cabrera narrative … [and] identifying jurisdictions globally that are most hospitable to an enforcement action.”

PMI contends that the Uruguayan regulations violate several provisions of the Switzerland-Uruguay BIT. Furthermore, PMI is arguing, inter alia, that the intellectual property rights of Abal Hermanos (PMI’s subsidiary in Uruguay) have been infringed as a consequence of the limitations imposed on the right to use its legally protected trademarks.² This is not, however, the only case where this international corporation has launched an arbitration claim against a state as a result of similar plain packaging measures.

In November 2011, Hong Kong-based Philip Morris Asia Limited (PM Asia), which owns Australian affiliate Philip Morris Limited, initiated arbitration proceedings against the Australian government over new legislation on plain packaging of cigarettes. The new Australian law imposes strict limitations on the use of registered trademarks. For instance, it requires cigarettes to be sold in generic olive green packages, without brands or logos. This legislation is expected to come into force in December 2012. ³

As in the claims of PMI against Uruguay, PM Asia is arguing, inter alia, that it has, whether as owner or licensee, rights to use registered and unregistered trademarks. PM Asia claims that the new Australian legislation infringes its intellectual property rights and diminishes the value of its trademarks. Furthermore, it contends there has been a violation of the Australia-Hong Kong BIT. ⁴

At this stage, it is important to distinguish between two different types of trademarks: non-word marks and word marks. Plain packaging of tobacco products involves the prohibition of the use of non-word marks (such as logos, colour schemes and graphics) and the limitation on the use of word marks (brand name).

Several questions arise in relation to these two arbitration claims. One of them is whether these anti-tobacco schemes contravene the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) and the Paris Convention for the Protection of Industrial Property (Paris Convention). In particular, whether plain packaging infringes the right to use trademarks as well as affects the core function of trademarks.

There are strong arguments to suggest that the plain packaging measures adopted by Uruguay and Australia are consistent with their international obligations under the TRIPS Agreement and the Paris Convention. In this sense, it is important to point out that these measures do not impose limitations on the sale of tobacco products but on the use of trademarks related to such products.

The tobacco corporation claims that plain packaging unfairly limits its rights to use its legally protected trade mark. However, the right to use trademarks is not expressly granted by the TRIPS Agreement and the Paris Convention. Trademark owners only have the exclusive right to prevent third parties from using their trademarks without their consent. This is a negative right relating to the ‘exclusion’ of use rather than to the use per se. ⁵ Neither PMI nor PM Asia are claiming protection from an unlawful use of their trademark by a third party.

It can nonetheless be argued that the registration of a trademark provides an inherent right to use it. In this sense, under the TRIPS Agreement, WTO Members may make registrability depend on use.⁶ This argument could therefore be sustained in cases where the WTO Member in question established that the use of a trademark is a compulsory requirement for obtaining its registration.

In addition, it might be argued that plain packaging prevents consumers from distinguishing PMI´s tobacco products from others competitors, thereby affecting the core function of a trademark. ⁷ A trademark would lose its value if it creates the likelihood of confusion with other trademarks. However, the fact that the brand name can be displayed in the package raises doubts as to the strength of this argument.

The outcome of these cases will certainly set a precedent that could be adopted by future arbitral tribunals and national courts deciding disputes arising out of plain packaging schemes. Furthermore, the decisions adopted by the respective tribunals will have significant repercussions on the investment relationships between PMI and the countries in which it operates.

This ‘anti-tobacco movement’ has just begun. In fact, other countries, such as the United Kingdom, Canada and New Zealand, are considering introducing similar measures in their national laws, which will inevitably lead to an increasing wave of investment claims brought by tobacco companies against states.

There are of course further questions that arise in the context. For example, does plain packaging amount to indirect expropriation? Is it possible to strike a balance between the WTO Members’ obligations under the World Health Organisation Convention on Tobacco Control (WHO FCTC) and the intellectual property rights conferred to investors such as PMI? Does plain packaging amount to an unfair and inequitable treatment under the said BITs? Such questions will be examined in upcoming blogs. For now, we open the floor for discussion and invite the readers to comment on what has been discussed in this blog.

By Martin Hunter and Javier García Olmedo

Much to the surprise of many seasoned international arbitration practitioners, the D.C. Circuit vacated a US$ 185.3 million Final Award against Argentina, essentially nullifying a hard-fought, four-and-a-half year arbitration between the parties. The court vacated the Award on the basis that the “arbitral panel rendered a decision . . . without regard to the contracting parties’ agreement establishing a precondition to arbitration,” namely the clause in the Argentina-UK bilateral investment treaty (BIT) requiring claimants to submit disputes to the Argentine courts for 18 months before resorting to arbitration. In the underlying UNCITRAL arbitration, the tribunal had considered whether the dispute was admissible without having been first submitted to the Argentine courts. It ruled that such submission was not essential because it in this case it would have been an exercise in futility: the claimant could not have obtained relief anyway from the Argentine courts, given the Republic’s apparent interference with access to the courts and its punishment of all would-be local court litigants by excluding them from contract renegotiations. The tribunal concluded that in these circumstances, the 18-month provision could not “be construed as an absolute impediment to arbitration,” and therefore deemed BG Group’s arbitration claims admissible.

By contrast, the D.C. Circuit concluded that this entire analysis was misplaced, since in its view the BIT terms—which it analyzed principally by reference to U.S. domestic law on contractual intent to arbitrate, rather than under the Vienna Convention—were clearly designed to require prior recourse to the Argentine courts. The court found that the tribunal had exceeded its powers by permitting direct access to arbitration contrary to that expressed intent. Indeed, the court suggested that under U.S. case law, the tribunal should not have even engaged in an analysis of the feasibility or usefulness of prior resort to the Argentine courts, because as a threshold matter it had no proper authority under the BIT to admit such issues for substantive consideration.

In the most narrow sense, the D.C. Circuit’s decision did not directly repudiate the years of fairly consistent rulings by ICSID and UNCITRAL tribunals with respect to the 18-month local court requirement under similar Argentine BITs. That is because the BG Group tribunal had not relied on the BIT’s most-favored-nation (MFN) clause, upon which prior tribunals had rested their decisions, even though BG Group did argue that point. Nonetheless, the D.C. Circuit’s analysis implicitly suggests that it also might have overturned an MFN-based decision, since by the Court’s logic, the tribunals who rendered those decisions likewise would have had no authority to bypass the BIT parties’ allegedly clear intent to require local court proceedings in all circumstances. If the decision is read in this broader way, it can be seen as impugning the core logic of many prior decisions. This would include Maffezini v. Spain (ICSID Case No. ARB/97/7, 1 September 2000), where the tribunal allowed an Argentine investor to invoke (by way of an MFN clause) the Chile-Spain BIT to avoid the domestic court prerequisite in the Argentina-Spain BIT; Siemens v. Argentina (ICSID Case No. ARB/028, Decision on Jurisdiction, 3 August 2004), where the tribunal permitted a German investor to invoke the Argentina-Chile BIT to proceed directly to arbitration; National Grid plc v. Argentina (UNCITRAL, Decision on Jurisdiction, 20 June 2006), where the tribunal permitted a British investor to invoke a more favorable term in the Argentina-US BIT to avoid 18 months of litigation in the Argentine courts; and several other cases in the same line. Until the D.C. Circuit’s opinion, the jurisprudence appeared to be converging on consensus regarding the 18-month waiting requirement, even though much controversy remained about the broader application of MFN clauses in other, less procedural, contexts.

Now, with one 17-page decision, a national court not only has completely up-ended the result in one major case, but also in the process unsettled what most observers had thought to be a progression towards certainty, predictability and finality with respect to this issue. Much can—and undoubtedly will— be written about the substance of the court’s analysis. But at heart, it serves as a reminder that some degree of uncertainty is inherent in international arbitration in any forum, so long as there is any mechanism for review and challenge of arbitral awards. This is just as true for the “alternative” routes of ad hoc UNCITRAL or non-ICSID institutional arbitration as it is for ICSID arbitration, since all non-ICSID mechanisms allow for national court challenges under the New York Convention, and national courts (once vested of the matter) may be tempted to apply their own national laws, including on core issues such as arbitrability. Arguably, the uncertainty of national court review may be even greater than that of ICSID annulment review, since most national court judges are comparatively unfamiliar with investment treaty jurisprudence and may be less concerned about contributing to the growth of consensus or emerging doctrine. The choice between the two systems, thus, should not be framed as a quest for predictability and finality, but rather as something more fundamental: a decision about which decision-makers will evaluate challenges, and what rules and standard of review they will use in deciding.

By Jean E. Kalicki and Dawn Yamane Hewett

As for the invalidity of the trial “for procedural fraud and violation of the guarantees of due process” it must be said that the record of the trial court reflects that the Defendants have exercised a vigorous and ample defense in the trial—the thousands of pages that bloat the trial have already been mentioned, in addition to this appeal and litigation; insinuating expert witnesses; requestioning and reexamining these same judicial auxiliaries, and to witnesses, visiting each and each one of the formalities given in the first trial. As such, the trial has been public and, from what can be seen, also transparent, with a horrifyingly uncommon temporal duration, and without a doubt, affecting the interests of those that drive the case, as since the action, more than eight years have passed in Ecuador alone; definitely putting into process the proof and the performances—all of them—requested by the parties in the investigative procedures….

Fraud and corruption were also mentioned, of officials, attorneys, and representatives, the issue of which this Court should not make any reference, only to leave emphasized that the same accusations can be found pending before authorities of the United States in the denouncement that has been presented the same here by the Defendant Chevron, under the RICO act, and the Court does not have competence to resolve the conduct of attorneys, expert witnesses, or other government employees or administrators and judicial auxiliaries, if that is the case….

The logical anticipated consequence, in the case of carrying out the request, was that it was impossible to rely on any expert, and resulted in not being able to have expert proof which paralyzed the trial; thus Chevron has acted up until the outer limits of its defense and the Court considers the particularly precarious situation which could doom the administration of justice should it be allowed during the controlling procedural moments and stages of the suit, making it depend on its decision in the advancing of the cases. The deeds made public considered in the judge’s decision at the first instance, and Chevron was condemned to pay trial costs for manifest bad faith, notorious and obvious; so much so that now suffice it to say that the procedural conduct of the defendant, few times seen in the annals of the administrator of Justice in Ecuador, were abusive to the point that, in terms of attitude, that the Court will not even dedicate any more writings to this portion of the decision, it would be an example of disastrous precedent for other litigants.

Following the judgment, plaintiffs’ attorney Pablo Fajardo indicated that Chevron is authorized to request clarifications of the appellate court decision within the next month or so. According to my conversation with plaintiffs’ representative Karen Hinton yesterday, if Chevron wishes to appeal to the Ecuador National Court in Quito, Chevron must post an appeal bond of approximately 10%, or $1.8 billion. Chevron itself contends that the appeal bond could be 100% of the judgment, forcing it “to deposit, with no likelihood of recoupment, billions into the very court system whose corruption and bias … render the Lago Agrio judgment unenforceable.“

Meanwhile Chevron has filed a motion with the Second Circuit this morning asking the Second Circuit to lift the temporary stay on the district court’s antisuit injunction. The Second Circuit’s principal concern that an antisuit injunction was not ripe has been obviated by the Ecuador Appeals Court judgment. “Without such relief, the [plaintiffs] will be able immediately to commence their extortionate plan to harass Chevron through multiplicative, vexatious enforcement proceedings expressly intended to disrupt the operations of Chevron’s affiliates in foreign countries.”

In its motion, Chevron argues that “The Ecuadorian appellate decision … does not purport to explain or even mention the extensive evidence that the Lago Agrio Judgment was ghostwritten by parties other than Judge Zambrano, who had secret access to the LAP’s internal, unfiled work product.” Among other things, Chevron argues that the Ecuadorian appellate judgment ignores (1) the extensive verbatim overlap between the judgment and the LAP’s unfiled “Fusion memo”; (2) the overlap between the judgment and the LAP’s unfiled record summary; (3) the LAP’s internal emails evidencing their plan to draft the judgment; and (4) expert linguistic testimony that the judgment was not written by Judge Zambrano.

Yesterday Chevron has also filed a motion with the UNCITRAL arbitration tribunal in The Hague requesting that panel to order Ecuador to inform the tribunal of the steps it intends to take to comply with the tribunal’s February 2011 order requiring Ecuador to prevent the Lago Agrio judgment from being enforced.

After almost two decades of litigation, the Chevron Ecuador judgment has reached the critical enforcement stage. The $18 billion question is whether the Second Circuit will stay enforcement of the Ecuador judgment, and if not, whether foreign courts will recognize and enforce the Ecuador judgment. Overshadowing it all is an investment arbitration that may require Ecuador to pay Chevron for any damages it has incurred from the enforcement of a judgment in violation of the Ecuador-United States bilateral investment treaty.

While iura novit curia is not widely addressed in investment treaty arbitration jurisprudence, several arbitral tribunals and ICSID annulment committees appear to have accepted that they can render awards based on authorities other than those pleaded by the parties. The 2002 decision of the ad hoc annulment committee in Compagñia de Aguas del Aconquija S.A. and Vivendi Universal v. Argentine Republic, ICSID Case No. ARB/97/3, is typical of these decisions in its summary analysis. The Vivendi committee explained that while the reasoning adopted by the underlying tribunal “came as a surprise to the parties, or at least to some of them . . . this would by no means be unprecedented in judicial decision-making” and was not a basis for annulment. The language in Vivendi was quoted and applied by the ad hoc annulment committee in Helnan International Hotels A/S v. Arab Republic of Egypt, ICSID Case No. ARB/05/19, one of the four annulment decisions published during the summer of 2010. As another example, in Wena Hotels Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, the tribunal exercised its assumed iura novit curia power in utilizing compound interest to calculate damages, despite the fact that neither party argued for compound interest.

Three important limitations on an investment treaty arbitral tribunal’s iura novit curia power have been identified by ICSID ad hoc annulment committees. First, according to the annulment committee in MINE v. Republic of Guinea, ICSID Case No. ARB/84/4, an ICSID tribunal cannot apply legal authorities outside the law applicable to the dispute. Second, and similarly, the annulment committee in Klöckner v. Cameroon, ICSID Case No. ARB/81/2, recognized that an ICSID tribunal cannot, “by formulating its own theory and argument . . . go[] beyond the ‘legal framework’ established by the Claimant and the Respondent,” for example by deciding the case “on the basis of tort while the pleas of the parties were based on contract.”

Finally, in 2006, the ad hoc annulment committee in Mr. Patrick Mitchell v. Democratic Republic of Congo, ICSID Case No. ARB/99/7, held that while tribunals may have iura novit curia powers, they are not required to exercise them. The Mitchell annulment committee wrote that a tribunal “is not, strictly speaking, subject to any obligation to apply a rule of law that has not been adduced; this is but an option….” A similar delineation was recognized by the tribunal in CME Czech Republic B.V. v. Czech Republic, which was heard under the UNCITRAL rules. In CME, the tribunal made clear that it was not “bound to research, find and apply national law which has not been argued or referred to by the parties and has not been identified by the parties and the Tribunal to be essential to the Tribunal’s decision.”

The 2010 annulment decision in Enron Creditors Recovery Corporation and Ponderosa Assets L.P. v. Republic of Argentina, ICSID Case No. ARB/01/3, seems to have derogated from the rule announced in Mitchell, implying (if not clearly stating) a iura novit curia obligation on investment treaty arbitration tribunals. Curiously, the Enron annulment committee paid lip service to the iura novit curia rule announced in Mitchell, writing that “a Tribunal is . . . certainly not required to address arguments that have not been put by the parties.” Nonetheless, the Enron ad hoc committee proceeded to annul the underlying arbitral decision on the ground that the tribunal failed to apply the applicable law, faulting the tribunal for overlooking arguments and facts that were not raised by the parties.

To the extent the Enron annulment committee believed that iura novit curia is not merely a power but an obligation on the tribunal, such a view would not be unprecedented. Judge Lagergren, in his 1979 decision in BP Exploration Co (Libya) Ltd. v. The Government of the Libyan Arab Republic, 53 ILR 297 (1979), a case arising under a concession contract, found that – at least in the context of a sovereign respondent’s default – an arbitrator is “both entitled and compelled to undertake an independent examination of the legal issues deemed relevant by it, and to engage in considerable legal research going beyond the confines of the materials relied upon by the Claimant” (emphasis added).

The Enron decision may also reflect the approach of the ICJ decisions cited in 2009 by the ICSID ad hoc annulment committee in RSM Production Corporation v. Grenada, ICSID Case No. ARB/05/14. In determining that an ICSID annulment committee has iura novit curia powers, the RSM committee relied on the ICJ decisions in Fisheries Jurisdiction and Military and Paramilitary Activities in and against Nicaragua. These ICJ decisions assume that iura novit curia is not only a power held by the ICJ, but an obligation on the court. In Fisheries Jurisdiction, the ICJ wrote that “ [t]he Court . . . as an international judicial organ, is deemed to take judicial notice of international law, and is therefore required . . . to consider on its own initiative all rules of international law which may be relevant to the settlement of the dispute.” In the Nicaragua case, the ICJ cited to the 1927 PCIJ decision in S.S. Lotus in holding that it was “bound” to apply iura novit curia in order to determine whether it had jurisdiction in the absence of an appearance by the respondent State.

While citing these strongly-worded ICJ decisions, the RSM ad hoc committee did not expressly address whether iura novit curia is a power or an obligation of investment treaty arbitration tribunals. Jan Paulsson, in his article on the generation of legal norms in investment treaty arbitration, attempts to connect the dots by citing to Article 38 of the ICJ Statute and Fisheries Jurisdiction to support his argument that tribunals have a iura novit curia obligation. As Paulsson explains, “a tribunal in an investment dispute cannot content itself with inept pleadings, and simply uphold the least implausible of the two.” J. Paulsson, International Arbitration and the Generation of Legal Norms: Treaty Arbitration and International Law, ICCA Congress Series No. 13 (Kluwer, 2007), at 879.

Before concluding, it is worth noting the effect local rules and practices may have on iura novit curia in non-ICSID investment treaty arbitration. For example, in Bogdanov v. Moldova, SCC Case 93/2004, an investment treaty claim heard under the Stockholm Chamber of Commerce rules, the sole arbitrator found that she “remains free, within the borders of the applicable law . . . to give the legal qualifications and determine the legal consequences that it deems appropriate, even if they were not pleaded by the parties.” Applying Swedish arbitral practice, the Bogdanov arbitrator wrote that if iura novit curia is exercised, the parties should be invited to comment on the new legal authorities, lest the parties be “surprise[d] by the consideration of legal issues that were not taken into consideration in the proceedings.” While this “no surprise” rule was not part of the iura novit curia principle stated by the Vivendi annulment committee, it is consistent with with recent decisions of several European courts in the context of commercial arbitration, as well as with the recommendations of the International Law Association in its 2008 paper, Ascertaining the Contents of the Applicable Law in International Commercial Arbitration.

Unfortunately, the investment treaty arbitral decisions expressly or implicitly addressing iura novit curia deal with the issue cursorily, providing little analysis and scant support. The textual basis for an investment treaty arbitral tribunal to exercise iura novit curia powers remains unclear. To this author’s knowledge, it is not specifically provided for in any bilateral investment treaty, although arguably it may fall under the ex aequo et bono or similar provisions included in some treaties. There is no express provision for iura novit curia in the ICSID rules (as opposed to, for example, the LCIA rules). Furthermore, scholarship sheds little light on the basis for iura novit curia in the specific context of investment treaty arbitration. As recently as 2007, Paulsson described iura novit curia in investment treaty arbitration as a “fundamental issue . . . not yet to have been considered in the depth it obviously deserves.” It is fair to conclude that a theoretical or legal framework for an investment treaty arbitral tribunal’s exercise of iura novit curia powers remains undeveloped. Certainly whether those assumed powers rise to the level of obligation is an unresolved question.

The author, David M. Bigge, is an Attorney-Adviser in the United States Department of State, Office of the Legal Adviser, Office of International Claims and Investment Disputes (L/CID). The views in this article are expressed by the author solely in his personal capacity and do not necessarily represent those of the U.S. Government.

Drawing on US Supreme Court decisions on class arbitration, Professor Abi-Saab finds that there is such a fundamental difference between regular bilateral arbitration and mass proceedings that “special consent” is required for mass proceedings and that this consent cannot be deduced from a simple consent to arbitration.  With respect to ICSID practice, he notes that cases of multi-party arbitration have either proceeded with the consent of the parties or without objection from the respondent.  With respect to mass claims processes in international law, he notes that the practice has been to establish a specific process for the mass claims with the consent of the parties and that the only exception to this uniform practice is the United Nations Compensation Commission, which was established by the Security Council under its Chapter VII powers.

Professor Abi-Saab then turns to a subsidiary objection.  Even if in principle Argentina’s consent to arbitration could be interpreted as consent to mass claims, he finds that the Tribunal does not have the power under the ICSID Convention and Arbitration Rules to adopt procedures for dealing with a mass claims proceeding.  He takes issue with the majority’s distinction between a modification to the arbitration rules without party consent (which, according to the majority, a tribunal may not do) and adopting procedures to address the handling of mass claims (which, according to the majority, a tribunal is entitled to do).  In Professor Abi-Saab’s view, the Tribunal has arrogated itself “the power to set aside, in large measure, the existing Rules of Procedure, and replacing them by another set of rules of its own; acting as a legislator, be it for one case.” (para. 208)

With respect to the concept of admissibility, Professor Abi-Saab appears to affirm that it has a role to play in international arbitration.  He notes that “[g]enerically, the admissibility conditions relate to the claim, and whether it is ripe and capable of being examined judicially, as well as to the claimant, and whether he or she is legally empowered to bring the claim to court.” (para. 18), but goes on to state that “none of these conditions has anything to do with the determination of the scope of consent whether to the general or the  special jurisdiction of tribunals”.  He also notes that “regardless of the classification of the objection as a plea to jurisdiction or to admissibility, the result of the non-fulfilment of the requirements should have been the same, the dismissal of the case.” (para. 25).  He thus takes issue with the approach of the majority, which he views as deciding questions of admissibility in its own discretion based on of its own subjective “balancing of interests” (para. 261).

Although the majority’s decision on consent is certainly controversial, it is sound in principle.  Unlike an arbitration clause in a typical commercial contract, offers to arbitrate in investment treaties are open to the world of qualified investors.  The offer to arbitrate is made to investors with investments.  In principle, this offer to the world should be able to be accepted by a multitude of investors.  If there is consent to arbitrate where one shareholder holds 100,000 shares, why is there not equally consent when there are 100,000 shareholders each holding one share?

Professor Abi-Saab is undoubtedly correct that the existence and scope of a Tribunal’s powers go to jurisdiction.  For example, where an investment treaty provides that a tribunal’s remedial powers are limited to the granting of damages, it would be an excess of jurisdiction for the tribunal to order restitution of property or the specific performance of a contract. However, the Dissent is misguided in finding that the Tribunal exceeded its powers in adapting procedures for a mass claim arbitration.  While it is true that the Abaclat proceedings might diverge from the usual ICSID proceedings, the ICSID Arbitration Rules provide a tribunal significant discretion in how proceedings are organized.  While denouncing the majority’s decision as “replacing” (para. 219) the ICSID Arbitration Rules, the Dissent does not provide any specific examples of where the majority’s proposed adaptation to the proceedings would be contrary to the ICSID Arbitration Rules.  In sum, the Dissent appears to equate what happens in the usual ICSID proceedings with what the ICSID Arbitration Rules require.  For example, the ICSID Rules say very little about the mechanics for taking and considering evidence.

The Dissent expresses valid concerns with the procedures the Majority proposes for the simplification of the examination of claims and whether these procedures satisfy due process.   Nevertheless, it is not possible to say ex ante that simplified procedures for the examination of evidence will necessarily breach the Respondent’s due process rights. The Majority states in conclusion that:

 … the Tribunal remains obliged to examine all relevant aspects of the claims relating to Claimants’ rights under the BIT as well as to Respondent’s obligations thereunder subject to the Parties‘ submissions.  Thus, it is the manner in which the Tribunal will conduct such examination which may diverge from usual ICSID proceedings (para. 533).

Due process is not ignored by diverging from “usual ICSID proceedings”.  The form and mechanics of proceedings are, and should be, a function of the claims to be decided and the evidence to be assessed.  As the Majority notes:

Notwithstanding the high number of Claimants involved, the Tribunal must examine not only the elements necessary to determine its jurisdiction (i.e., the nationality of the Claimants, their status of investor and the existence of their investment, etc.), but also those necessary to establish Claimants‘ claims and relating to the merits of the case (i.e., the existence of a breach by Argentina of its obligations under the BIT, the effect of such breach on Claimants‘ investment, etc.). Thus, the high number of Claimants may not serve as an excuse not to examine such elements and adaptations to the procedure may therefore not affect the object of the Tribunal‘s examination. (para. 529).

The task ahead for the Abaclat Tribunal is gargantuan.  Examining all elements of the claims and ensuring that the Respondent is accorded due process will be extremely time consuming.  Even if one may well wonder if an ad hoc Tribunal of three busy arbitrators is the best mechanism to address this kind of dispute, the majority was correct to find that it can hear a mass claim.

This post is written by Andrew Newcombe as a member of the ITA Academic Council.

The event was subject to the Chatham House rules, so my notes below should not be attributed to any particular panelist or audience members. However, in the case of moderator Michael Goldhaber, his views have been publicized in his magazine columns, one of which is referenced below. (Roger intends to blog about his own talk, so I’ll leave him to weigh in further in this space).

In no particular order, here a couple things that caught my ear at the NYU event:

• Until recently, arbitrators had been able to ride in the slipstream of the U.S. Courts, to borrow Michael Goldhaber’s expression. For instance, mere days after a U.S. Judge issued a preliminary injunction against enforcement of an 18 Billion (U.S.) Ecuadorian court judgment, an arbitral tribunal sitting in the Chevron v. Ecuador BIT arbitration issued its own interim measures. However, the U.S. injunction was overturned in September by a U.S. Appeals Court. That means, according to Goldhaber, that the BIT arbitration may have become Chevron’s “first or only line of defense”.

• And, as you may have heard, Chevron’s BIT claims may test the boundaries of available relief in such arbitrations. Based on the evidence of last week’s NYU event, there is a full spectrum of opinion as to the propriety of investment arbitration tribunals ordering states to do (or refrain from doing) certain things. Some advocates and arbitrators are keen to see such tribunals award non-pecuniary forms of relief. Others warn that they threaten to undermine the support of certain states for investment treaty arbitration. While a forthcoming decision on jurisdiction could touch on the available forms of relief, another possible flash-point could arise if Chevron were to ask for more clarity as to the types of actions required of Ecuador pursuant to an earlier (but notably terse) interim measures order.

• Many of the juiciest revelations and allegations in the Chevron-Ecuador saga have stemmed from the use of a U.S. statute (28 U.S.C. § 1782) that permits judicial discovery in the aid of foreign proceedings. Views differ as to whether such court-aided discovery complicates and lengthens arbitral proceedings. However, there was some suggestion last Monday night that the use of that statute will continue to grow – unless the U.S. Supreme Court curtails its availability – and that lawyers might risk a “malpractice” suit if they don’t brief their clients about the statute.

• Apparently, some corporate clients are so keen to avoid any use of U.S. judicial discovery that these companies are negotiating contracts whose arbitration provisions exclude such an option. One wonders if governments will begin to negotiate investment treaties that prohibit (or condone) such a discovery tool.

• Mind you, if a party does plan to use the 1782 statute – and their contract or treaty does not exclude such a possibility – they might want to tell their arbitral tribunal at the earliest possible juncture. Not only will this help to determine whether such evidence is likely to be admitted in the arbitration, it might also help to persuade a Federal Court Judge that the discovery request is not a vain exercise.

• Perhaps most intriguing is the potential for non-parties to an arbitration to use the U.S. statute to procure evidence that might be relevant to a given arbitration. The statute is worded so as to permit “interested persons” to petition a U.S. Federal Court for discovery. To date, a would-be amicus curiae in an international arbitration has not attempted to use this tool to gather evidence. But, watch this space.

Luke Eric Peterson
InvestmentArbitrationReporter.com

Although the Tribunal’s finding that it can hear mass claim has garnered the most interest, various aspects of the Decision have sparked debate.  The Tribunal held that the Claimants’ security entitlements in Argentinean bonds are investments for the purposes of Article 25, ICSID Convention and protected under the Argentina-Italy BIT.  Another controversy arises from the fact that the Decision was issued by the majority of the Tribunal without the simultaneous release of the dissenting opinion. The dissenting opinion, which the Decision states is “Forthcoming”, has yet to be released.

On 15 September 2011, the Argentine Republic filed a request for the disqualification of the majority of the Tribunal (Professors Pierre Tercier (President) and Albert Jan van den Berg), alleging that the two arbitrators could not be relied on to exercise independent judgment.   The disqualification request criticizes the two arbitrators in particularly strident language, arguing that the transmission of the Decision: “(a) without the dissenting opinion of the other arbitrator, (b) without his consent, and (c) without even waiting for a draft of said opinion” together with the majority’s rejection of Argentina’s request for provisional measures “is a manifestation of an absolutely inappropriate conduct” (para. 20).

Although the Decision raises a series of interesting issues (for example, see Sarah Ganz‘s post on the Decision’s treatment of the 18-month litigation requirement in the BIT), in this post I focus on the majority’s distinction between jurisdiction and admissibility, a subject of one of my previous posts.  In its Decision, the majority of the Tribunal (the Tribunal) states that it is appropriate and necessary to distinguish issues relating to jurisdiction and admissibility (para. 248) and that the “guiding thought of the Tribunal for distinguishing issues of jurisdiction from issues of admissibility has been the following cornerstone consideration:

 If there was only one Claimant, what would be the requirements for ICSID’s jurisdiction over its claim? If the issue raised relates to such requirements, it is a matter of jurisdiction. If the issue raised relates to another aspect of the proceedings, which would not apply if there was just one Claimant, then it must be considered a matter of admissibility and not of jurisdiction.” (para. 249)

The Tribunal’s analysis thus takes a two-fold approach.  First, it analyzes the mass claims issue within the context of the Parties’ consent to arbitration (a question of jurisdiction) and second, it analyzes the admissibility of mass claims.

The Decision is perhaps the clearest example of an investment treaty tribunal distinguishing between jurisdiction and admissibility.  The Tribunal highlights at para. 247 that:

 (i)            While a lack of jurisdiction stricto sensu means that the claim cannot at all be brought in front of the body called upon, a lack of admissibility means that the claim was neither fit nor mature for judicial treatment;

(ii)            Whereby a decision refusing a case based on a lack of arbitral jurisdiction is usually subject to review by another body, a decision refusing a case based on a lack of admissibility can usually not be subject to review by another body;

(iii)            Whereby a final refusal based on a lack of jurisdiction will prevent the parties from successfully re-submitting the same claim to the same body, a refusal based on admissibility will, in principle, not prevent the claimant from resubmitting its claim, provided it cures the previous flaw causing the inadmissibility.

With respect to consent, the Tribunal rightly held that if, in principle, it had jurisdiction over one claimant, “it is difficult to conceive why and how the Tribunal could loose such jurisdiction where the number of Claimants outgrows a certain threshold.” Further, it highlighted that “the collective nature of the present proceeding derives primarily from the nature of the investment made.”:

The ICSID Convention aims at promoting and protecting investments, without however further defining the concept of investment and leaving this task to the parties through relevant instruments such as BITs … Thus, where the BIT covers investments, such as bonds, which are susceptible of involving in the context of the same investment a high number of investors, and where such investments require a collective relief in order to provide effective protection to such investment, it would be contrary to the purpose of the BIT and to the spirit of ICSID, to require in addition to the consent to ICSID arbitration in general, a supplementary express consent to the form of such arbitration. In such cases, consent to ICSID arbitration must be considered to cover the form of arbitration necessary to give efficient protection and remedy to the investors and their investments, including arbitration in the form of collective proceedings.  (para. 490).

In conclusion, the Tribunal, rightly held that “the “mass” aspect of proceedings relates to the modalities and implementation of the ICSID proceedings and not to the question whether Respondent consented to ICSID arbitration. Therefore, it relates to the question of admissibility and not to the question of jurisdiction.” (para. 492).

The Tribunal took a purposive approach to the interpretation of the ICSID Convention’s “silence” as to mass claims, holding that it would be “contrary to the purpose of the BIT and to the spirit of ICSID to interpret this silence as a “qualified silence” categorically prohibiting collective proceedings, just because it was not mentioned in the ICSID Convention” (para. 519).

With respect to the adaptations, the Tribunal identified the need to adopt mechanisms to allow a simplified verification of evidentiary materials with respect to each individual claim (para 531) and the manner of the representation of the claimants (paras. 531-532).  In finding that it had the power to adapt procedures to address the “mass claims” aspect of the case, the Tribunal states that adaptations must consider the principle of due process and a must seek a balance between the procedural rights and interests of each party (para. 519).  In assessing that balance the Tribunal considered: (i) under what conditions is it acceptable to change the method of examination from individual to group treatment; (ii) to what extent are Argentina‘s defense rights affected in comparison to 60,000 separate proceedings; and (iii) is it admissible to deprive Claimants of certain procedural rights (para. 539).

Argentina’s had argued that there are strong policy reasons why ICSID is an inappropriate forum to address issues with respect to sovereign debt restructuring.   The Tribunal flatly rejected this argument, rightly stating that “Policy reasons are for States to take into account when negotiating BITs and consenting to ICSID jurisdiction in general, not for the Tribunal to take into account in order to repair an inappropriately negotiated or drafted BIT.”

It its disqualification request, Argentina suggests that the procedural mechanisms set out in the Decision are an unjustifiable limit on Argentina’s right of defence and further evidence of the Tribunal’s alleged lack of independent and impartial judgment (paras. 25 et seq.).   Although Argentina has characterized the majority’s Decision as “egregious” and various Tribunal statements as “shocking” and “absurd”, this hyperbole should seen for what is—a regrettable attempt to appeal a tribunal decision through the guise of a disqualification request.  The majority of the Tribunal’s approach to mass claims is correct in principle and practical, objective and fair-minded in practice.  International arbitration can be an effective and efficient system of dispute resolution because of its ability to adopt flexible procedures to address myriad claims and issues.  The majority’s Decision reflects this approach and will stand the test of time.

As you may recall, the Dallah court – which was comprised of international law heavyweights Lords Collins and Mance, among others – found that on the jurisdictional issue of whether a valid arbitration agreement exists, an enforcing court may review an award de novo. The wisdom of this judgment has been discussed and debated at length by the international arbitration community (including here on this blog). Regardless of what side of the debate you may fall, it is important to be aware of how domestic courts are drawing from and applying Dallah to international arbitration award enforcement/challenges in their own jurisdictions. The Cargill case is a useful example.

The events leading to the Cargill dispute first started in the early 1990s when Cargill Incorporated (Cargill), an American producer of HFCS, together with its Mexican subsidiary distributor, Cargill de Mexica SA de CV (CdM), began positioning its HFCS business to expand in the Mexican market. HFCS is a low cost sugar alternative that is used to sweeten various products, including soft drinks. Per capita, Mexico consumes the second greatest amount of soft drinks in the world. In advance of the NAFTA coming into force in January 1994 and keen to capitalise on Mexico’s demand for soft drinks (and therefore HFCS), Cargill established a division of CdM in the Mexican city of Tula in order to sell HFCS in Mexico. Along these same lines, Cargill also built a new production plant in Nebraska, expanded its HFCS plants in Iowa and Tennessee, and built a new distribution centre in McAllen, Texas at the Mexican border. Cargill planned to manufacture HFCS in the US and then import it into Mexico through its facility at the border, and then distribute it to the Mexican market through CdM’s centre in Tula.

As a result of Cargill’s Mexican efforts, Mexico’s soft drink industry began using HFCS rather than Mexican sugar, thereby negatively affecting Mexico’s domestic sugar industry. Mexico sought to protect its sugar industry by enacting numerous trade barriers which adversely affected the import of HFCS and therefore Cargill and CdM’s business. Mexico’s actions in this regard were the impetus for Cargill initiating arbitration proceedings under the ICSID Additional Facility in 2005; the tribunal found that Mexico’s actions constituted breaches of various provisions of Chapter 11 of the NAFTA.

The tribunal awarded Cargill over $77 million for both damages suffered by CdM in Mexico (“down-stream losses”) and Cargill’s damages in relation to lost sales it would have made to CdM in the US (“up-stream losses”). Mexico challenged the tribunal’s jurisdiction in relation to this latter category of damages because it considered such losses to have occurred outside of Mexico and therefore that they did not relate to an investment in Mexico as required by Chapter 11 of the NAFTA. The tribunal rejected Mexico’s challenge, reasoning that Cargill’s situation had to be viewed ‘holistically’ and that Cargill’s inability to export product to its investment, CdM, was just ‘the other side of the coin’ of the inability of the investment to operate.

Unhappy with this outcome and maintaining its position that the tribunal erred in awarding damages for Cargill’s up-stream losses, Mexico sought to set aside the portion of the award in relation to the up-stream damages (unlike standard ICSID arbitration which is insulated from national law, an award rendered under the ICSID Additional Facility – such as the award here – is subject to any review or appeal provided by the law of the place of the arbitration). Given that Toronto was the seat of the arbitration, Mexico applied to the Ontario Superior Court of Justice pursuant to Article 34(2) of the UNCITRAL Model Law on International Commercial Arbitration (1985) (the “Model Law”). In particular, Mexico relied on Article 34(2)(a)(iii) to argue that the tribunal exceeded its jurisdiction by deciding an issue that was not within the submission of the parties under the provisions of Chapter 11 of the NAFTA.

In considering Mexico’s application, the Superior Court judge first addressed the issue of the standard of review to be applied when reviewing a decision of an expert NAFTA international arbitration tribunal. The Superior Court judge determined, based on Canadian legal authorities, that the relevant standard of review to be applied to issues of jurisdiction is ‘reasonableness’. In any event, the Superior Court judge determined that Mexico’s objection did not go to the jurisdiction of the tribunal but was rather an attack on the merits of the decision. Accordingly, the Superior Court said that investigating the merits of the tribunal’s decision was beyond the scope of its review. The Superior Court judge also rejected Mexico’s argument that the award was not within the range of reasonable outcomes. For these reasons, the Superior Court dismissed Mexico’s application to set aside the award.

Mexico in turn appealed this judgment, thereby raising two issues for the Ontario Court of Appeal to consider: (1) the standard of review to be applied in reviewing a decision of a Chapter 11 NAFTA arbitral panel under Article 34(2)(a)(iii) of the Model Law, and (2) whether the Superior Court judge erred in applying such standard of review.

On appeal, Mexico argued that the Superior Court erred in applying the reasonableness standard to a decision on jurisdiction and that the appropriate standard of review should have been the more onerous ‘correctness standard.’ Canada intervened on appeal and supported Mexico’s position. Cargill agreed with the Superior Court judge that the standard was reasonableness. Additionally, ADR Chambers Canada, the Canadian branch of the larger organisation ADR Chambers International, intervened to submit that domestic administrative law tests do not apply to the review of an international arbitral award, that the test was more nuanced and the grounds for appeal more limited, and that the court could not use the jurisdiction inquiry to effectively review the merits of the arbitral decision.

The Court of Appeal started its analysis by acknowledging that importing and directly applying domestic standards may not be helpful to the process of reviewing international arbitration awards. It then went on to define its objective as determining the appropriate standard of review to apply when considering whether a tribunal exceeded its jurisdiction by deciding on an issue that was not within the submission of the parties as per Chapter 11 of the NAFTA.

Next, the Court looked to Dallah for instruction. First, the Court mentioned the view in Dallah that the tribunal’s finding of jurisdiction had no legal or evidential value and that the court’s role was to reassess the issue itself (citing Lord Mance’s conclusion at paras 30-31). Second, the Court distinguished the Dallah decision by highlighting the fact that in that case the jurisdiction issue did not challenge the content of the award but rather the ability of the tribunal to adjudicate in the first place (thus allowing the court to decide the issue de novo). The Court acknowledged that the instant jurisdictional issue was different in that it concerned whether the award itself complied with the submission to arbitration or contained decisions on issues falling outside of the submission to arbitration.

The Court of Appeal, similar to Judge Collins in Dallah, noted that there was nothing in Article 34(2)(a)(iii) limiting the Court in its task of reviewing the award. The Court then cited Canadian administrative case law providing that administrative bodies must be ‘correct’ in determining questions of jurisdiction. Accordingly, the Court found that the tribunal had to be correct in that its award had to be within the scope of the submission to arbitration and the relevant provisions of the NAFTA. Thus, the Court found that the standard of review was ‘correctness’ – that the tribunal had to be correct in its determination that it had the ability to make the decision it made. That is, a decision which was reasonable was not enough – the tribunal’s decision also had to be correct.

The Court cautioned that in applying the correctness standard, a court should only intervene in cases of true jurisdictional errors (that while there is “powerful presumption” that a tribunal is correct in the context of non-jurisdictional issues, the presumption does not apply to issues of jurisdiction because it would nullify the very purpose of the review authority). Once a court concludes that the tribunal made no error in assuming jurisdiction, there is no further review of the merits of the decision.

Despite applying the correctness standard as suggested by Mexico, the Court of Appeal nonetheless found that the tribunal had acted within its jurisdiction in rendering an award for both Cargill’s up- and down-stream damages. There was therefore no reason to take the analysis any further by looking at the merits of the case, and thus Mexico’s appeal was dismissed.

This case and the Court of Appeal’s reasoning are interesting from a number of perspectives. First and most simply, this is another example of a non-English court (in this case an appellate court) which has looked to Dallah for guidance as to the correct standard to apply when reviewing an international arbitration award. It may well be a testament to the respectability of English Court judgments in the sphere of international law. In any event it is likely indicative of the broad reach of English Court judgments, especially in relation to jurisdictions with Commonwealth ties.

The Cargill case also sheds light on the standard of review to be applied to challenge proceedings pursuant to the Model Law and NAFTA (as opposed to the 1996 Arbitration Act as in Dallah). Of course, it is worth noting that the court in the instant case was, as the national court at the seat of arbitration, the court seised in respect of the challenge proceeding, whereas the English court in Dallah was merely an enforcing court who was passing judgment as to whether the arbitral tribunal seated in another jurisdiction (and governed by a foreign domestic law) had stepped outside its jurisdiction.

Regardless of which side of the Dallah fence you stand, it is and will continue to be interesting to watch how the Dallah legacy unfolds, both at the English and international jurisprudential levels.

At the time of this writing, a freezing request by German businessman Franz Sedelmayer remained under active review at a Swedish government debt enforcement agency.

Mr. Sedelmayer, you may recall, is the bearer of a real collector’s item: a vintage 1998 arbitral award in which the Russian Federation was ordered to pay some $2.35 Million (US) for helping itself to the German businessman’s St. Petersburg-based private security company.

Since 1998, Mr. Sedelmayer has made a second career out of enforcing that arbitral award. By his estimate, he has been involved in more than 70 litigations around the world, trying to identify and seize Russian assets, while defending against various legal actions brought by the Russian authorities against him.

More than one bailiff in Western Europe has broken into a cold sweat when tasked by Mr. Sedelmayer with slapping the handcuffs on Russian government assets. For a long time, the indefatigable German businessman accumulated plenty of anecdotes – including a quixotic bid to seize Russian cosmonaut gear at an international air show – but few liquid assets.

Recently, his luck has started to change, as he has begun to lay hands on certain buildings and real estate in Western Europe.

However, Mr. Sedelmayer’s latest enforcement tactic – seizing Russian funds deposited at arbitration centres and law firms – should occasion some soul-searching amongst proponents of foreign investment protection standards.

If the successful claimant in an investment treaty arbitration is reduced to targeting deposits ponied up in other more recently initiated arbitrations, the entire enterprise takes on the contours of a classic pyramid scheme: with the contributions of later entrants used to pay off earlier participants.

Not only does this enforcement model appear deeply embarrassing for devotees of investment arbitration, its limits are also plainly apparent. Even if a bailiff agrees to seize arbitration deposits, and such a seizure is not quashed by the courts on sovereign immunity grounds, it can only offer succor to those with debts small enough to be satisfied by the deposits used to finance other arbitral proceedings.

If a tiny award against a highly-globalized G8 economy can remain unpaid for more than a decade, what of those seeking larger sums from regimes that tend to stuff their cash into the sofa cushions, rather than scattering it beyond their borders?

One answer that has been bandied about in the Argentine context is for home governments – or all governments with an interest in binding dispute settlement – to bring diplomatic pressure to bear against dilatory debtors. However, this “re-politicization” of the dispute settlement process comes with all of the usual baggage. States expend precious diplomatic capital when they go to battle for investors-creditors on the foreign relations playing field. Sometimes that capital is worth spending. At other times it is not.

Another solution is to expect claimants to bear the cost of enforcement – either by carrying insurance which covers the risk of award-default, or by selling their awards at a discount to vulture funds or organizations specializing in debt-collection. This pathway may be attractive for some, but for bearers of modest awards it may be neither viable nor equitable. (Try explaining to the owner of an expropriated family business, that they should take a haircut after gambling everything and “winning” in arbitration.)

There may be no silver bullets when it comes to dealing with recalcitrant debtor states.

However, the fact that an arbitral award-creditor has been reduced to targeting deposits laid down in other arbitral proceedings strikes me as something of a watershed.

Mr. Sedelmayer’s long struggle – and his increasingly audacious tactics – remind us that it is one thing to erect a system of 3,000+ international investment treaties, but quite another thing to make it work.

As the 15th anniversary of his arbitration victory looms, it is time to take some of the energy devoted to investment treaty rule-making and to re-focus it on the vexing question of enforcement.

Luke Eric Peterson
InvestmentArbitrationReporter.com