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Lawyers, other representatives, expert(s), tribunal’s secretary

Award

The Parties

1.
The Claimants are Global Trading Resource Corp. ("Global") and Globex International, Inc. ("Globex"), both juridical persons organized under the laws of the United States of America ("United States") and engaged primarily in the exportation of meat and poultry products. The Claimants are represented by Mr. Stanley McDermott III, Ms. Claudia T. Salomon, and Mr. David S. Wenger of the law firm of DLA Piper LLP (US), New York.
2.
The Respondent is Ukraine. It is represented by Mr. John Willems, Mr. Michael Polkinghorne, Ms. Olga Boltenko, and Ms. Nathalie Makowski of the law firm of White & Case LLP, Paris, and by Mr. Serhii Sviriba, Ms. Olena Koltko of the law firm of Magisters, Kyiv.
3.
The Request states that the State Committee of Ukraine of the State Reserve ("the State Reserve") was Ukraine's designated State enterprise responsible for negotiating purchase-and-sale contracts with U.S. poultry exporters during the year 2008, including with the Claimants, and says further that the State Reserve nominated a private company called OOO Alan Trade ("Alan Trade ") to serve as the counterparty for the signature of those contracts. According to the Request Ukraine is liable for the actions of both the State Reserve and Alan Trade.

Registration of the Request

4.
On 21 May 2009 the International Centre for Settlement of Investment Disputes ("ICSID" or the "Centre") received a request for arbitration dated 18 May 2009 (the "Request") filed by Global and Globex ("Claimants") against Ukraine ("Respondent") (collectively, "the Parties").
5.
The Request was filed on the basis of the Treaty between the United States of America and Ukraine Concerning the Encouragement and Reciprocal Protection of Investment, signed on 4 March 1994, which entered into force on 16 November 1996 ("BIT" or "Treaty"). On 28 May 2009 the Centre acknowledged receipt of the Request and transmitted a copy to the Respondent.
6.
On 2 June 2009 the Centre asked the Claimants for clarifications of the Request and received answers on 9 June 2009.
7.
On 11 June 2009 the Acting Secretary-General of ICSID notified the Parties, in accordance with Article 36(3) of the ICSID Convention, of the registration of the Request.
8.
In the Notice of Registration, the Acting Secretary-General invited the Parties, in accordance with Rule 7(d) of the ICSID Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings, to proceed as soon as possible to constitute an arbitral tribunal pursuant to Articles 37-40 of the ICSID Convention.

Constitution of the Tribunal

9.
The Claimants noted in the Request that they did not have an agreement with the Respondent on the constitution of the Tribunal. The Claimants thus proposed a tribunal consisting of three arbitrators, with one arbitrator appointed by each party and the third arbitrator, to serve as the President of the Tribunal, appointed by agreement of the Parties. The Claimants also proposed to appoint their nominated arbitrator within one month of the registration of the Request.
10.
On 17 July 2009 the Claimants informed the Centre that they were appointing Professor Emmanuel Gaillard, a national of France, as arbitrator. Professor Gaillard accepted his appointment on 21 July 2009.
11.
On 3 August 2009 the Claimants advised the Centre of their intention to invoke Article 38 of the ICSID Convention if the Respondent did not appoint an arbitrator by 9 September 2009. On 3 September 2009 the Claimants communicated to the Centre the Parties’ agreement to extend to 10 October 2009 the period for constituting the Tribunal.
12.
On 6 August 2009 the Respondent notified the Centre that it agreed to the number of arbitrators and the method of their appointment proposed by the Claimants in their Request for Arbitration.
13.
On 3 September 2009 the Respondent informed the Centre that it was appointing Mr. Christopher Thomas QC, a national of Canada, as arbitrator. The same day, the Claimants advised the Centre of the Parties’ agreement to extend until 10 October 2009 the time for constituting the Tribunal. Mr. Thomas accepted his appointment on 11 September 2009.
14.
The Parties having failed to constitute the Tribunal by 10 October 2009, the Centre was informed by the Claimants on 15 October 2009 that the Parties were further extending to 23 October 2009 the previously agreed period for constituting the Tribunal.
15.
On 2 December 2009 the Claimants notified the Centre that the Parties had agreed to appoint Sir Franklin Berman QC, a national of the United Kingdom, as the President of the Tribunal and to hold the proceedings in London, United Kingdom. Sir Franklin accepted his appointment on 9 December 2009. The same day, the Acting Secretary-General declared the Tribunal constituted and the proceedings begun. The Acting Secretary-General also notified the Tribunal and the Parties that Ms. Aissatou Diop, Consultant, ICSID, would serve as Secretary of the Tribunal.

Written and Oral Proceedings

16.
On 17 December 2009 the Respondent advised the Tribunal that the Respondent intended to raise an objection under Arbitration Rule 41(5) of the Rules of Procedure for Arbitration Proceedings ("the Arbitration Rules") that the claims in the arbitration were manifestly without jurisdiction and therefore without legal merit.
17.
On 5 January 2010 the Respondent filed the terms of its objection under the provisions of Rule 41(5).
18.
On 3 February 2010 the Tribunal held a preliminary procedural consultation by telephone under Rule 20 to discuss a procedure for the Tribunal’s first session and for the handling of the Respondent’s Rule 41(5) objection. With respect to the latter, it was agreed during the telephone conference that the written phase of the proceedings on the Rule 41(5) objection would consist of two rounds of written argument, followed by an oral phase to be held in conjunction with the first session of the Tribunal. It was also agreed that the first session would be held in London on 8-9 April 2010.
19.
The Claimants submitted their Response to the Respondent’s objection on 15 March 2010. The Respondent filed its Reply on 26 March 2010 and the Claimants their Rejoinder on 9 April 2010, the original deadline of 2 April 2009 having been extended on 30 March 2009 by agreement between the Parties.
20.
On 1 April 2009 the Tribunal held a second preliminary procedural consultation by telephone with the Parties, at which it was agreed to reschedule the first session and Rule 41(5) hearing to 7 July 2010.
21.
On 18 June 2010 the Tribunal held a pre-hearing telephone conference with the Parties to discuss procedural details outlined in an agenda circulated by the Secretary of the Tribunal in advance. The Tribunal’s endorsement of the items on which the Parties had reached agreement and its decisions on the items on which the Parties had been unable to agree were recorded in a letter circulated to participants after the telephone conference.
22.
On 7 July 2010 the Tribunal held its first session followed by the Rule 41(5) hearing in London. Appearing on behalf of the Claimants were Mr. Stanley McDermott III and Ms. Claudia Salomon, and on behalf of the Respondent Mr. John Willems, Ms. Kristen Young, and Mr. Markiyan Kliuchkovskyi.
23.
In advance of the first session, the Secretary of the Tribunal had circulated an agenda and the Parties had submitted a joint statement recording their agreement on most of the agenda items. During the first session, the parties each expressly confirmed that the Tribunal was properly constituted, and that they had no objection to any of its members serving as arbitrator.
24.
These items were duly recorded in the Minutes of the First Session signed by the President and Secretary of the Tribunal and issued on September 1, 2010. The Minutes record in particular that a calendar for the Parties to make further submissions in this proceeding would be left to be discussed after the Tribunal had issued its determination on the Respondent’s Rule 41(5) objection.
25.
During the Rule 41(5) hearing, Mr. McDermott presented the Claimants’ opening statement and rebuttal, and Mr. Willems presented the Respondent’s opening statement and rebuttal.
26.
The first session and Rule 41(5) hearing were audio recorded. In addition, a verbatim transcript was prepared for the Rule 41(5) hearing.
27.
On July 23, 2010, the Parties filed simultaneously their submissions on costs.

Factual Background

28.
The present application is brought by the Respondent, Ukraine, under paragraph (5) of Rule 41 of the Arbitration Rules. Rule 41(5) is a new provision, introduced as part of the amendments that came into effect on 10 April 2006, and thus applies by common consent to these arbitral proceedings, which were commenced by a Request for Arbitration dated 18 May 2009. The application of the Rules in their 2006 version was confirmed by the parties at the first Session of the Tribunal, held on 7 July 2010, immediately before the hearing on the present application.
29.

Rule 41(5) opens the way - in the absence of agreement between the parties on another expedited procedure - to either party1 to apply to the tribunal at a very early stage in the arbitral proceedings to rule that "a claim is manifestly without legal merit." This is, to the Tribunal’s knowledge, only the third occasion on which a decision has had to be taken on an objection under Rule 41(5). The Tribunal is thus particularly conscious of its responsibility to contribute to shaping both an understanding of the Rule itself and of the procedure which ought to be followed under it.

Procedure under Rule 41(5)

33.

On that question, the Tribunal has come to the clear view that, in principle, it would not be right to non-suit a claimant under the ICSID system without having allowed the claimant (and therefore the respondent as well) a proper opportunity to be heard, both in writing and orally. That may raise organizational problems, in the face of the requirement that the Tribunal is to rule on the objection "at its first session or shortly thereafter" (see paragraph 32 above), but the Tribunal was able to resolve them in the present case, given the delays that had been introduced into the proceedings for extraneous reasons, by allowing two rounds of short and focussed written argument, complemented by two rounds of well-focussed oral argument completed within one single day at the end of the first formal session. The cooperation of both parties in making this possible was greatly appreciated. The cost has been a slight delay (which the parties accepted was reasonable) between the hearing and the rendering of this Award. But the Tribunal views that as both inevitable and still within the spirit of the Rules. There may be cases in which a tribunal can come to a clear conclusion on a Rule 41(5) objection, simply on the written submissions, but they will be rare, and the assumption must be that, even then, the decision will be one not to uphold the objection, rather than the converse. That is because, if an objection is not upheld at the Rule 41(5) stage, the rights of the objecting party5 remain intact, as the last sentence of the Rule makes plain: the rejection of an objection under Rule 41(5) at the pre-preliminary stage does not stand in the way of its resurrection later in the normal way as if Rule 41(5) did not exist. The fact that a claim is not ‘manifestly’ without legal merit does not, self-evidently, mean that it may not subsequently be found without sufficient legal merit for a tribunal to uphold it after full argument.

The Propriety of Summary Dismissal

The Standard for Review

The Claims

36.
The Claimants’ case is based upon the following key alleged facts (which for the purposes of this application were not disputed by the Respondent and are taken as true by the Tribunal). The Claimants allege that due to the structure of the Ukrainian poultry market, imports had been severely limited with the result that domestic prices soared to the benefit of domestic poultry producers and to the detriment of the Ukrainian consumer. After her election in December 2007, Yulia V. Tymoshenko became Prime Minister of Ukraine and, the Claimants plead, resolved to deal with the poultry supply issue in order to reduce prices to consumers. On 1 June 2008 the Prime Minister requested the United States Embassy in Kyiv to identify US poultry exporters willing to consider exporting to Ukraine and approximately 6 weeks later, a meeting hosted by the Prime Minister was held between US exporters, a US Embassy official, and Ukrainian officials in Kyiv.
39.
The Request for Arbitration sets out in detail the steps taken by both Claimants to perform their respective purchase and sale contracts, Ukraine's failure to pay for and take delivery of most of the poultry shipped to the designated port, the efforts of the United States Embassy to convince Ukraine to fulfil its contractual obligations to the two exporters, and the resulting losses, including demurrage charges, incurred by the Claimants before they finally disposed of the goods.12
40.

Article I of the Treaty13 defines "investment" as "every kind of investment in the territory of one Party owned or controlled directly or indirectly by nationals or companies of the other Party, such as equity, debt, and service and investment contracts," including "(iii) a claim to money or a claim to performance having economic value and associated with an investment " and "(v) any right conferred by law or contract, and any licenses and permits pursuant to law." The Request for Arbitration sought to enforce "the right to be paid for performance of the contractual obligations"14 and was premised mainly upon Article I(l)(a(v).

The Respondent’s Objection

41.

The essence of the Rule 41(5) objection raised by the Respondent is that the Claimants’ claims, as formulated in the Request for Arbitration and subsequently in the pleadings, represent nothing more than claims to payment under trading contracts, and do not therefore amount, in law, to ‘investments.’ More specifically, Ukraine says that claims arising from trade transactions, involving only the cross-border sale of goods, were deliberately excluded by the Contracting Parties from the definition of "investment" set out in Article I of the U.S.-Ukraine BIT, as supporting evidence for which the Respondent invokes the terms in which the BIT was submitted to the US Congress for approval.15 The Respondent asserts also that these represent purely commercial transactions of a type which falls outside the scope of Article 25(1) of the ICSID Convention defining the jurisdiction of ICSID itself, and thus outside the limits of the jurisdiction of any tribunal set up under the ICSID system.

The Conditions To Bo Met for the Tribunal’s Jurisdiction

44.

Although, no doubt, in the overwhelming majority of cases what the States Parties settled as the definition of ‘investment’ in their bilateral treaty is unarguably inside the boundaries set by the Convention - so that the two-fold test melts, in effect, into one - the generous margin of freedom left under the Convention is not absolute. It does not extend to allowing States Parties (or indeed others) to deem an activity to be an ‘investment’ without regard to whether it meets the meaning of that term as used within the ICSID Convention, and specifically Article 25(1) thereof, properly interpreted according to the applicable rules of international law. Had the drafters of the Convention wished to accord an absolute freedom of that kind, they would have said so, not simply left Article 25 without a formal definition for the term ‘investment.’

46.
Against that background, the Tribunal turns now to an analysis of the two governing treaties, namely the BIT and the ICSID Convention, in the light of the arguments put before it by the parties to the Arbitration. There seems to be no set methodology among ICSID tribunals as to whether the analysis ought to begin with the BIT, which goes to the condition of consent within the meaning of the ICSID Convention, or with the notion of investment under the ICSID Convention. In the present case, it makes no difference where the analysis starts. The Tribunal accordingly finds it convenient to begin with the BIT.

The BIT

Article 25 of the ICSID Convention

54.
It needs no elaboration that the concept of what does - or rather what does not -constitute an ‘investment’ for the purposes of Article 25 of the ICSID Convention has turned out to be one of the most highly contested issues in the development of practice under the Convention. The Claimant invokes the decisions of earlier ICSID tribunals in the RSM Production v. Grenada26, the CSOB v. Slovakia27, and the Biwater Gauff v. Tanzania28 arbitrations, in support of two propositions: that the determination of jurisdiction is fact-specific to each particular case; and that the correct approach to this exercise is a flexible and pragmatic one, which should not properly be tied to a priori distinctive marks defining what makes up an investment. To which the Respondent counterposes the decisions of the Jan de Nul v. Egypt,29 Joy Mining Machinery v. Egypt,30 and Salini v Morocco31 Tribunals, as a reminder that, however pragmatic the examination in individual cases, there is still an outer limit; and that purely commercial transactions, such as contracts for the sale of goods, were never intended to fall within ICSID’s jurisdiction.
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