December 15, 2009

Joinder of Claims in ICSID Arbitration: What is the Same “Subject Matter”?

Investment law proceduralists will find much room for debate in the recent decision of a divided ICSID Tribunal, denying the application of an American investor to join additional claims in a BIT arbitration against the former Soviet republic of Georgia. (Itera International Energy LLC and Itera Group NV v. Georgia, ICSID Case No. ARB/08/7, Decision on Admissibility of Ancillary Claims, Dec. 4, 2009)

In broadest terms, the dispute involved non-performance by Georgia under agreements for payment of unpaid bills for natural gas that the Claimant had supplied to state-owned entities. Under one agreement, Claimant purchased a 90% interest in a State-owned company, under a privatization plan; partial payment of the gas supply debt was to take the form of forgiveness of taxes owed by the newly-privatized acquired entity. But Georgia reacquired the 90% interest by official decree, giving rise to an expropriation claim by Claimant under the US-Georgia BIT. A second arrangement for part payment of the natural gas debt entailed a commitment by Georgia’s Energy Ministry, through a financial agent called Sistema, to pay Claimant $46 million in quarterly installments over seven years. When that agreement was breached, Claimant commenced a private commercial arbitration in Russia as provided in the agreement. But in its Request for Arbitration in the ICSID case, Claimant reserved the right to bring claims under the BIT relating to non-performance installment payment contract.

Claimant, motivated in part by Georgia’s objection to the jurisdiction of the commercial arbitration tribunal in Moscow, sought in its memorial on the merits in the BIT case to interject Treaty claims concerning non-performance of the installment payment plan. Claimant relied on Article 46 of the ICSID Convention and Article 40 of the ICSID Arbitration Rules, which in similar terms allow the assertion of “additional claims . . . arising directly out of the subject matter of the dispute.” In this case, the majority of the Tribunal took a restrictive view of “subject matter of the dispute,” following the official explanatory comment to ICSID Rule 40, to the effect that the claims must be so related that resolution of the claim first asserted would necessarily require resolution of the claim proposed to be added. Under this standard, the majority reasoned, the two claims were unrelated, even if they arose from the same “subject matter” of natural gas debt payment by Georgia to Claimant, and even if some procedural efficiencies would be achieved by joinder of the claims.

The dissenting panelist, Professor Francisco Orrega Vicuna, would have concluded instead that these were “two concurrent arrangements directed to reach the same objective of making the Claimant whole for the monies owed,” and that the factual connection of the two claims was “close enough as to require their simultaneous adjudication so that settlement of the dispute will be final.”

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