|Canada's NDP Submission||Non-Disputing Party Submission of Canada dated 14 August 2020|
|CDS||Clearing and Depository Services Inc.|
|CL-[#]||Claimant's legal authority|
|Cl. Mem. or Claimant's Memorial||Claimant's Memorial on Merits and Damages dated 6 October 2019|
|Cl. C-Mem. or Claimant's Counter-Memorial||Claimant's Counter-Memorial on Jurisdiction dated 13 April 2020|
|Cl. Rej. or Claimant's Rejoinder||Claimant's Rejoinder on Jurisdiction dated 31 July 2020|
|Claimant or GCG||Gran Colombia Gold Corp.|
|DoB Objection||Respondent's Denial of Benefits Objection|
|El Cogote's NDP Application||Request for authorization to intervene as a non-disputing party pursuant to ICSID Arbitration Rule 37(2) filed by Asociación Mutual de Mineros "EL COGOTE", dated 5 October 2020|
|GCG Panama||Gran Colombia Gold S.A.|
|Hearing on Jurisdiction||Hearing on jurisdiction held remotely by videoconference from 28 to 29 September 2020|
|ICSID Arbitration Rules||ICSID Rules of Procedure for Arbitration Proceedings in force as of 10 April 2006|
|ICSID Convention||Convention on the Settlement of Investment Disputes Between States and Nationals of Other States dated 18 March 1965|
|ICSID or the Centre||International Centre for Settlement of Investment Disputes|
|Resp. Mem. or Respondent's Memorial||Respondent's Memorial on Jurisdiction dated 2 March 2020|
|Resp. Reply or Respondent's Reply||Respondent's Reply on Jurisdiction dated 1 July 2020|
|Respondent or Colombia||Republic of Colombia|
|Rev. Tr. Day [#] (ENG), [page:line] ([Speaker(s)])||Transcript of the Hearing on Jurisdiction (as revised by the Parties on 29 October 2020|
|Request for Arbitration||Request for Arbitration dated 25 May 2018|
|Request for Bifurcation||Respondent's Request for Bifurcation of 15 November 2019|
|RL-[#]||Respondent's legal authority|
|Tapestry||Tapestry Resources Corp.|
|Treaty or FTA||Free Trade Agreement between Canada and the Republic of Colombia signed on 21 November 2008 and which entered into force on 15 August 2011|
|VCLT||Vienna Convention on the Law of Treaties|
This case concerns a dispute submitted to the International Centre for Settlement of Investment Disputes ("ICSID" or the "Centre") on the basis of the Free Trade Agreement between Canada and the Republic of Colombia signed on 21 November 2008 and which entered into force on 15 August 2011 (the "FTA" or the "Treaty"), and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, which entered into force on 14 October 1966 (the "ICSID Convention").
The Respondent alleges that the Tribunal does not have jurisdiction over the Claimant's claims. Among other jurisdictional objections, the Respondent claims that Colombia has effectively denied the benefits of the FTA to the Claimant pursuant to Article 814(2) of the Treaty (the "DoB Objection"). The Claimant acknowledges that Colombia purported to deny such benefits, by letter of 31 May 2018, but contends that this was improper and without effect. Additionally, the Claimant submits an ancillary claim under ICSID Arbitration Rule 40, alleging that Colombia has breached Article 814(2) of the FTA by means of its unfounded denial of benefits to GCG. The Respondent argues that the Tribunal should reject the Claimant's claim, on the basis that the requirements of Rule 40 are not met.
On 31 October 2018, in accordance with Rule 6(1) of the ICSID Rules of Procedure for Arbitration Proceedings ("ICSID Arbitration Rules"), the Secretary-General notified the Parties that all three arbitrators had accepted their appointments and that the Tribunal was therefore deemed to have been constituted on that date. Mrs. Ana Constanza Conover Blancas, ICSID Legal Counsel, was designated to serve as Secretary of the Tribunal.
On 26 November 2018, the Claimant filed a proposal for disqualification of Ms. Loretta Malintoppi and the proceeding was suspended in accordance with ICSID Arbitration Rule 9(6). On 12 December 2018, the Respondent filed observations on the proposal for disqualification. On 21 December 2018, Ms. Malintoppi furnished explanations in accordance with ICSID Arbitration Rule 9(3). On 4 January 2019, the Claimant filed additional observations on the proposal for disqualification. On 5 February 2019, following the resignation of arbitrator Ms. Loretta Malintoppi, the Secretary-General notified the Parties of the vacancy on the Tribunal.
On 25 April 2019, Ms. Jean E. Kalicki, a national of the United States, accepted her appointment as presiding arbitrator, appointed by the Parties in accordance with ICSID Arbitration Rule 11(1). On the same date, the Tribunal was reconstituted. Its members are: Ms. Jean E. Kalicki, President, appointed by agreement of the Parties; Prof. Bernard Hanotiau, appointed by the Claimant; and Prof. Brigitte Stern, appointed by the Respondent.
Following the first session, on 24 June 2019, the Tribunal issued Procedural Order No. 1 recording the Parties' agreements on procedural matters and the decisions of the Tribunal on disputed issues. Procedural Order No. 1 established, inter alia, that the applicable Arbitration Rules would be those in effect from 10 April 2006, that the procedural languages would be English and Spanish, and that the place of proceeding would be Washington D.C. Procedural Order No. 1 also set out a provisional timetable for the arbitration.
On 31 March 2020, the Claimant submitted an application for the Tribunal to put into place a confidentiality order. On 6 April 2020, the Respondent submitted observations on the Claimant's application. On 8 April 2020, the Claimant submitted a reply to the Respondent's observations of 6 April 2020. On 8 April 2020, the Tribunal issued Procedural Order No. 5 concerning the Claimant's application of 31 March 2020.
On 4 May 2020, following exchanges between the Parties, the Parties filed a request for the Tribunal to decide on production of documents. On 11 May 2020, the Tribunal issued Procedural Order No. 6 concerning production of documents.
Ms. Jean Kalicki President
Prof. Bernard Hanotiau Co-Arbitrator
Prof. Brigitte Stern Co-Arbitrator
Assistant to the President of the Tribunal :
Dr. Joel Dahlquist
ICSID Secretariat :
Ms. Ana Constanza Conover Blancas Secretary of the Tribunal
Ms. Marisela Vázquez Marrero Paralegal
Mr. Dante Herrera Legal Assistant
For Claimant :
Mr. John J. Hay Dentons
Ms. Diora M. Ziyaeva Dentons
Mr. Barton Legum Dentons
Ms. Amanda Fullerton Gran Colombia Gold Corp.
Mr. Alejandro Ramirez Echeverry Gran Colombia Gold Corp.
Mr. Jorge Neher Dentons Cardenas and Cardenas
Administrative and technical support
Ms. Karen Ogle Dentons
For Respondent :
Mr. Camilo Gómez Alzate Agencia Nacional de Defensa Jurídica del Estado
Ms. Ana María Ordoñez Agencia Nacional de Defensa Jurídica del Estado
Ms. Elizabeth Prado Agencia Nacional de Defensa Jurídica del Estado
Mr. Fernando Mantilla-Serrano Latham & Watkins
Mr. John Adam Latham & Watkins
Mr. Diego Romero Latham & Watkins
Ms. Paloma García Guerra Latham & Watkins
Mr. Andrés Esteban Tovar Agencia Nacional de Defensa Jurídica del Estado
Mr. Giovanny Andrés Vega Agencia Nacional de Defensa Jurídica del Estado
Administrative and technical support
Mr. Ignacio Stratta Latham & Watkins
Mr. Christophe Tanguy Latham & Watkins
Non-Disputing Treaty Party :
Ms. Sylvie Tabet Trade Law Bureau, Government of Canada
Ms. Maria Cristina Harris Trade Law Bureau, Government of Canada
Court Reporters :
Ms. Dawn Larson Worldwide Reporting, LLP
Mr. Dante Rinaldi D-R Esteno
Ms. Silvia Colla
Mr. Daniel Giglio
Mr. Charles Roberts
Zoom Operator :
Mr. Jamey Johnson FTI Consulting, Inc.
On 5 October 2020, the Asociación Mutual de Mineros "EL COGOTE" filed an application to intervene as a non-disputing party pursuant to ICSID Arbitration Rule 37(2), Article 831 and Annex 831 of the Treaty (the "El Cogote's NDP Application"). On 13 October 2020, the Parties jointly requested the Tribunal to defer its consideration of El Cogote's NDP Application until after the submission of the Respondent's Counter-Memorial on all issues, should the proceedings continue after the present jurisdictional phase. On 30 October 2020, the Tribunal granted the Parties' joint request to defer the decision on El Cogote's NDP Application, on the basis that several of the factors to be considered under ICSID Arbitration Rule 37(2) would be better understood against the backdrop of both Parties' first-round substantive pleadings.
(a) dismiss Respondent's objection to jurisdiction on the basis of Article 814(2) of the FTA, (b) declare that Respondent breached Article 814(2) through its purporting to deny benefits in circumstances where the requirements of that Article were not met, (c) proceed to hear the merits of the dispute and (d) reserve its decision on costs for determination in the eventual award.1
... declare that the Respondent validly denied the benefits of Chapter Eight of the FTA to the Claimant, and, accordingly, to dismiss GCG's claims for lack of jurisdiction.
... dismiss GCG's claim pursuant to Article 1101 of the FTA, including for lack of jurisdiction.
... order GCG to pay the Republic of Colombia all costs associated with these proceedings, including arbitration costs and all professional fees and disbursement, as well as the fees of the arbitral tribunal, plus interest thereon.2
The Respondent's DoB Objection is based on Article 814(2) of the Treaty, which provides as follows:
Article 814: Denial of Benefits
A Party may deny the benefits of this Chapter to an investor of the other Party that is an enterprise of such Party and to investments of that investor if investors of a non-Party or of the denying Party own or control the enterprise and the enterprise has no substantial business activities in the territory of the Party under whose law it is constituted or organized.
In this regard, the Respondent asserts that the decisions on which the Claimant relies expressly refer to both parties' obligation to cooperate in the provision of evidence. Moreover, the ICSID Rules underline the tribunal's discretion to freely assess the evidence presented by the parties.12
a Management Information Circular of GCG dated 4 May 2018, which identifies six shareholders, each holding between 0,001% and 3.89% of shares in GCG;
an Alternative Monthly Report of GCG dated 5 June 2018, which shows that GCG's shareholding structure remained largely the same between 25 May and 2 July 2018;
publicly available sources demonstrating that the six shareholders identified are nationals or companies incorporated under the laws of the British Virgin Islands, Colombia, Cuba, Italy, the United States of America, and Venezuela, and do not appear to be Canadian nationals; and
reports from the Canadian System for Electronic Disclosure by Insiders which identify other GCG shareholders that are not Canadian.
Moreover, the Respondent submits that, pursuant to Article 814(2) of the FTA, the company not only must have substantial activities, but must locate those substantial activities in the territory where the enterprise is organized.34 In considering the locus of a company's substantial activities, the Respondent contends, it is important to distinguish mining enterprises (which is what GCG publicly contends it is) from investment or holding companies, which were at issue in the cases on which the Claimant relies, and which the Respondent for that reason considers inapposite.35
The Respondent asks the Tribunal to declare that it does not have jurisdiction with regard to the new claim presented for the first time in the Claimant's Counter-Memorial on Jurisdiction, which the Respondent characterizes as a claim regarding Article 1101 of the FTA.39
The Respondent argues that Claimant's new claim must be rejected because: (i) it is not incidental or additional to the claims contained in GCG's Request for Arbitration or its Memorial, but constitutes an entirely new claim; and (ii) it does not meet the requirement of ICSID Arbitration Rule 40, according to which ancillary claims must be within the scope of the consent of the parties and within the jurisdiction of the Centre. Regarding this latter argument, the Respondent submits that GCG may not invoke Article 1101 of the FTA, because Chapter Eleven of the FTA as a whole concerns investments in financial institutions, which does not apply to GCG. Moreover, the Respondent contends, the provisions of Chapter Eleven of the FTA fall outside the categories of claims that investors of a party may submit to arbitration under Section B of Chapter Eight of the Treaty. To adjudicate claims based on Chapter Eleven of the FTA, the Claimant would have to initiate dispute resolution pursuant to Article 1101(2)(b) of the Treaty.40
First, the Claimant asserts that Colombia's consent was perfected prior to its purported denial of benefits and may not be unilaterally withdrawn.42 The Claimant states that Colombia provided advance consent to the submission of claims to arbitration under Article 823 of the FTA on 15 August 2011 (the date of the FTA's entry into force). GCG in turn gave its consent when it submitted its claim to arbitration on 25 May 2018 (i.e., when its Request for Arbitration was received by the ICSID Secretary-General pursuant to Article 822(4) of the Treaty). Accordingly, consent to ICSID arbitration was perfected on 25 May 2018.43 The Claimant also highlights the interplay between Articles 823(2) and 822(4) of the Treaty and Article 25(1) of the ICSID Convention, which provides that once consent has been given, no party may withdraw its consent unilaterally.44 Therefore, since the Respondent purported to deny benefits after consent to ICSID arbitration was perfected, its letter of 31 May 2018 can have no impact on the Tribunal's jurisdiction.45
In this regard, the Claimant also points out that denial of benefits is not included among the conditions to consent set out in Article 821 of the FTA regarding conditions precedent to arbitration and, accordingly, Article 823 of the Treaty does not make the Parties' consent subject to a subsequent denial of benefits.46
Second, the Claimant argues that nothing in the text, the context or the object of the FTA suggests that the denial of benefits clause may have retroactive effects.49 For instance, Article 814(2) contains no wording to the effect that a denial of benefits has retrospective effects. Regarding context, other provisions of the FTA (including ) also deal with adjustment of benefits and the mechanisms in those articles are prospective only.50 The Claimant further refers to the general principle of non-retroactivity of treaty provisions codified in Article 28 of the VCLT (and applied in a number of international proceedings) to conclude that the absence of a stated retroactive effect signals an intent for the treaty to apply prospectively.51
First, regarding the applicable standard, the Claimant refers to the definitions of the terms "investor of a Party" and "investment of an investor of a Party," contained in Article 838 of the FTA, to argue that the definition of the latter term in the FTA's Spanish version shows that ownership concerns direct legal title (not indirect or ultimate beneficial ownership), while control by contrast deals with either direct or indirect authority.63
Moreover, the Claimant refers to the definition of the term "enterprise" in Article 106 of the FTA, as "enterprise" is the object of the verb "own or control" in Article 814(2). It finds that some of the forms of entity mentioned in that definition (e.g., "sole proprietorship") are capable of being owned by a single person. According to the ordinary meaning of the terms, owning an enterprise may encompass a situation where an investor owns all of the corporation's shares, whereas controlling an enterprise implies shareholding or contractual rights which accord a decisive power over the company's future.64 Therefore, the Claimant concludes, "for Colombia to prove that [an] investor of other than Canada 'owns' GCG, it must show that such an investor owns all of Claimant GCG's outstanding shares."65 Accordingly, the Claimant rejects the Respondent's allegation that an investor may own an enterprise even if the investor owns only a part of it.66
In its Counter-Memorial, the Claimant refers to Article 1101 of Chapter Eleven of the Treaty regarding financial services, which incorporates by reference Section B of Chapter Eight (Investment - Settlement Of Disputes Between An Investor And The Host Party) for claims that a Party has breached, inter alia, Article 814 of the FTA regarding denial of benefits.93 The Claimant contends that this reference demonstrates the possibility of bringing a substantive claim under the FTA for alleged breach of Article 814.
The Claimant submits that "out of an abundance of caution," it therefore presents an incidental claim under ICSID Arbitration Rule 40, alleging that Colombia has breached Article 814(2) of the FTA by means of its unfounded denial of benefits to GCG. The Claimant adds that this incidental claim is within the Tribunal's jurisdiction as it arises directly out of the subject matter of the dispute and falls within the scope of the Parties' consent.94
Second, with regard to burden of proof, Canada submits that a claimant must meet its burden of establishing that it satisfies the definition of "investor of a Party" and of "investment of an investor of a Party" under Article 838 of the Treaty. If so, then the burden is on the party wishing to invoke the denial of benefits provision to establish that the conditions to deny benefits are met. A tribunal may take into account all evidence before it to determine whether the conditions to deny benefits under the Treaty are met, including evidence submitted by either disputing party. As to the consequences of a proper invocation of Article 814(2), Canada states that the investor of the other Contracting Party will not be entitled to treaty protection and a tribunal will not have jurisdiction over claims of breach of the treaty obligations.96
With respect to "ownership" or "control" under Article 814(2) of the FTA, Canada notes that neither term is defined in the Treaty. Hence, these terms should be interpreted according to Article 31 of the VCLT. Also, because there is no established definition of those terms under international law, these concepts can derive meaning from domestic corporate law. In Canada's view, ownership of a corporation usually requires at a minimum the ownership of a majority of the voting shares, while control of a corporation is a fact-based inquiry that may extend beyond consideration of share ownership and must be considered on a case-by-case basis.98
The Tribunal begins with the uncontroversial proposition that pursuant to VCLT Article 31(1), Article 814(2) of the FTA – like any other treaty provision – is to be interpreted and applied in accordance with the "ordinary meaning" of its terms, in the "context" in which they occur and in light of the Treaty's "object and purpose."100 But in assessing the terms of any particular treaty provision, it is relevant to consider not only what they say, but equally what they do not say. Here, Article 814 of the FTA is entirely silent with respect to any time frame within which a Contracting Party may invoke its provisions to deny the benefits of the FTA's Chapter Eight (on "Investment") to an enterprise of the other Contracting Party. The only conditions regulating such a denial of benefits are non-temporal in nature, e.g., with respect to Article 814(2), that "investors of a non-Party or of the denying Party own or control the enterprise and the enterprise has no substantial business activities in the territory" where it is constituted or organized.
In these circumstances, the Tribunal would have great difficulty concluding that the FTA implicitly contains an additional (temporal) limitation on the Contracting Parties' exercise of the right they expressly agreed to retain in Article 814, but without stating any such limitation. States are free to grant reciprocal protections to investors through the mechanism of investment treaties, but they are also free to condition such grants on particular qualifying principles. Some such conditions are framed as absolute: for example, that an investor must satisfy stated nationality requirements in order to qualify for treaty benefits. Other conditions may be framed in terms of State discretion, allowing a State Party to choose whether to invoke them, even if the requirements for doing so are met. Article 814 falls in the latter category ("A Party may deny..."): it permits, but does not require, a State Party to invoke its terms with respect to a given investor and its investments. In confirming that the State Parties thus have a choice with respect to denial of benefits, it would have been easy for the Contracting Parties to specify a deadline by which such choice must be made, in order to limit their mutual exercise of discretion. The fact that the Contracting Parties did not do so must be given considerable weight. In general, it is not for arbitral tribunals, in interpreting the text of investment treaties, to read into such texts additional requirements (either on States or on investors) that the State Parties have not chosen to impose.
For these reasons, the Tribunal declines the Claimant's invitation to conclude that the Contracting Parties to the FTA may invoke Article 814(2) to deny benefits to an investor only up until the date the investor files its request for arbitration.102 As Article 814(2) contains no such temporal restriction, investors operating in Canada and Colombia must understand, ex ante, that any protections otherwise offered to them in Chapter Eight of the FTA (which includes both substantive protections and dispute resolution mechanisms) may be subject to their ability to demonstrate that they meet the ownership or control and substantial business activity requirements of that provision. This is little different from understanding, ex ante, that they may eventually be called upon to substantiate their claims of qualifying nationality, or their status as bona fide investors with qualifying investments, or any other core jurisdictional requirements of the Treaty. Moreover, the fact that the FTA effectively conditions Treaty protection on the Article 814(2) requirements – although State Parties may choose whether or not to invoke the conditions in a particular case – does not mean that the Treaty in that respect operates "retroactively," or in contravention of Article 25(1) of the ICSID Convention, as the Claimant contends.103 It simply means that by the terms of the FTA itself, investors are placed on notice in advance, from the time the FTA entered into force, that they may face a risk of not being able to rely on the FTA's protections if they choose not to organize their activities in accordance with the standards set forth in Article 814.104
Finally, while the FTA itself imposes no limitation on when States may invoke Article 814(2), the operative Arbitration Rules may well impose their own limitations. A State's well-grounded denial of benefits has the effect of denying jurisdiction to a claimant seeking to rely on the substantive and dispute resolution provisions of Chapter Eight of the FTA; as such, any objection to jurisdiction must be raised no later than permissible under the applicable Arbitration Rules. In cases governed by the ICSID Convention and Arbitration Rules, the applicable deadline for objecting to jurisdiction on any grounds is the date of a respondent's counter-memorial,105 so that effectively becomes the deadline for any enforceable denial of benefits. In this case, Colombia invoked Article 814(2) much earlier than that – just one day after its receipt of the Claimant's Request for Arbitration – so its invocation was timely under the applicable rules.
It is undisputed that States have the power to agree on the characteristics of investors to whom to extend treaty protection – and provided their agreement is clear, tribunals are obligated to honor that agreement. Here, the agreement between Canada and Colombia, reflected in Article 814(2) of the FTA, is that either State may deny the benefits of FTA Chapter Eight to an enterprise registered in the other State, if two cumulative conditions are met: (a) the enterprise is not owned or controlled by nationals of its home State, and (b) it has no substantial business activities in its home State. An enterprise which is unable to rebut even one of these showings – i.e., because it is neither owned nor controlled by home State nationals, nor has any substantial business activities in its home State – cannot assume entitlement to protection by the FTA. That is because the host State retains the right on that basis to deny it the benefits of the Treaty. The enterprise in such circumstances would only be able to claim Treaty benefits if the host State chooses not to exercise its retained (but discretionary) right to deny benefits under Article 814(2).
At the same time, while the company must have some real, material business activities in its home State, the Treaty contains no limitations on the nature of that business. It certainly does not require that the activities at home be of the same nature as those the company conducts in other jurisdictions. Nothing in the Treaty suggests, for example, that a company engaged overseas in natural resource exploration and development must conduct similar resource exploration or development at home, in order to satisfy the requirement of having substantial business activities there. It is entirely consistent with the Treaty text for such a company to locate coordinating or support functions in its home State, or to use its home State as a hub for investment and financing activities that make possible the operational activities in other places. Either way, the activities in the home State must be examined on their own merits – separate from the activities undertaken in other jurisdictions, including by the company's subsidiaries or affiliates106 – to determine if they are of sufficient reality and materiality as to satisfy the requirement that there be some "substantial business activities" in the country of registration.
Here, that requirement is amply satisfied, on any of the dates possibly relevant for the analysis. With respect to those dates, there has been no suggestion that the nature or substantiality of GCG's activities in Canada changed in any way between 25 May 2018 (the date it filed the Request for Arbitration), 31 May 2018 (the date Colombia invoked Article 814(2) to deny FTA benefits), or 2 July 2018 (the date ICSID registered the case). In these circumstances, the Tribunal sees no need to resolve in the abstract which of these dates might be most critical for evaluating the effectiveness of Colombia's denial of benefits. The important point is that for this entire period, the record reflects, inter alia, the following activities by GCG in Canada:
Core corporate functions in Toronto : corporate finance, fundraising, accounting, shareholder relations, legal, administration and IT support;107
Office space : spending over US$100,000 on rent, utilities and related expenses in 2018;108
Eight full-time employees in Toronto : In 2018, GCG spent over CAD$1.2 million in Canada on compensation and benefits.109
Several bank accounts in Canada : Six bank accounts through which GCG actively conducts its business; in or about May 2018, those six accounts contained more than US$25 million;110
Annual purchases of goods and services in Canada : GCG has spent hundreds of thousands of dollars related to accounting and advisory services, legal services, and shareholder and investor related activities, as well as miscellaneous services such as IT, liability policies and a listing fee for the Toronto Stock Exchange;111 and
Financing activities : GCG has raised more than US$500 million over the last 10 years, in transactions on the Canadian debt and equity markets, in order to support its operations.112
The Tribunal notes as a threshold matter that the Parties differ in their characterization of the Claimant's ancillary claim, with the Claimant framing it as one alleging breach of Article 814(2) of the FTA,113 and the Respondent characterizing it as one brought pursuant to Article 1101 of the FTA.114 The first step in addressing the admissibility of any ancillary claim is a determination of what claim in fact has been submitted.
a. Was Article 814 intended solely to create a defense for the Contracting States (i.e., to deny benefits in certain circumstances), or also to create substantive treaty obligations (i.e., not to deny benefits otherwise), which might be capable of being breached and for which a claim might be brought?
b. To the extent Article 814 might create substantive obligations, what is the applicable standard for breach? For example, is the provision breached any time a State attempts to deny benefits, simply because that attempt is later rejected by a tribunal? Or does the standard incorporate some element of wrongfulness, which distinguishes between a bad faith invocation of Article 814 and a potentially mistaken but good faith invocation, based on the State's contemporaneous understanding or belief about an investor's ownership, control and substantial business activities?
c. For this question, should an analogy be made to the assertion of other jurisdictional objections or merits defenses, which (even if unsuccessful), generally are not considered to give rise to additional substantive treaty breaches, or is a denial of benefits qualitatively different, such that an unfounded denial would be an independent breach of a State's obligations to investors?
d. To the extent any breach were to be found, would it give rise to any claim for relief other than a potential assessment of costs incurred in disputing a denial of benefits, which already may be considered in the context of a holistic costs determination at the end of an arbitration proceeding?
The Tribunal sees no need to engage now in any analysis of any of these questions, which the Parties have not yet briefed in any detail. As discussed during the Hearing on Jurisdiction, the only question properly before the Tribunal at this stage is whether the Claimant's new claim is admissible under Arbitration Rule 40.117 The main purpose of Arbitration Rule 40 is to regulate when new claims may be asserted in the context of an ongoing proceeding, and alternatively when they may need to be pursued (if at all) through the commencement of a separate proceeding.
Arbitration Rule 40(1), entitled "Ancillary Claims," provides as follows:
(1) Except as the parties otherwise agree, a party may present an incidental or additional claim or counter-claim arising directly out of the subject-matter of the dispute, provided that such ancillary claim is within the scope of the consent of the parties and is otherwise within the jurisdiction of the Centre.
(2) An incidental or additional claim shall be presented not later than in the reply and a counter-claim no later than in the counter-memorial, unless the Tribunal, upon justification by the party presenting the ancillary claim and upon considering any objection of the other party, authorizes the presentation of the claim at a later stage in the proceeding.
(3) The Tribunal shall fix a time limit within which the party against which an ancillary claim is presented may file its observations thereon.
The three paragraphs of Rule 40 may be seen as addressing, respectively, the substantive, temporal and procedural requirements of admissibility of an ancillary claim. The Tribunal considers these requirements in turn below.
With regard to the substantive requirements, the admissibility of a new claim is governed by the same regime whether the claim at issue is characterized as an "incidental" or an "additional" claim. Although the two terms are not defined, their plain meaning carries somewhat different connotations, with the word "incidental" generally connoting "something that happens in connection with something else, as a minor consequence of or an accompaniment to the other matter," whereas the word "additional" does not on its own terms necessarily require a connection to an existing event.118 Nonetheless, Arbitration Rule 40 draws no distinction between incidental and additional claims, both of which are deemed to be subsets of a broader concept, denominated as "ancillary claims."119 In both instances, the applicable test is the same.
That test has two components. First, as a threshold matter, a Tribunal must consider under Arbitration Rule 40(1) whether the new claim would "be within the scope of consent of the parties and... otherwise within the jurisdiction of the Centre." The Tribunal does not interpret this language as requiring – nor has either Party in this case suggested it requires – "a mini-trial and decision on all potential jurisdictional objections in order to determine, at the threshold stage, if an ancillary claim even may be admitted for examination."120 Rather, "[i]f the same claim could have been admitted... for further proceedings had it had been included in an original request for arbitration, then [this] threshold admissibility inquiry... is likewise satisfied."121 Simply put, a tribunal may admit an ancillary claim for consideration, while still permitting a respondent to raise jurisdictional objections as part of its observations on that claim.
The second and more immediate requirement for admissibility under Arbitration Rule 40(1) is whether the incidental or additional claim "aris[es] directly out of the subject-matter of the dispute." For this purpose, the Tribunal considers that the subject matter of the dispute cannot be defined strictly by the boundaries of the original legal claims, or the test would become a tautology requiring that any new claims arise directly from prior claims, which by definition any "additional" claim (as distinct from a purely "incidental" claim) could never satisfy. For the test to have any meaning, "the dispute" must be defined as having an objective subject matter that is broader than the original legal claims themselves, so as to allow for the possibility of an "additional" claim that is distinct from the prior claims, but still arises directly out of the same subject matter of the general dispute.
This is entirely consistent with the framing of the unofficial commentary on the original 1968 ICSID Arbitration Rules, which queries whether adjudication of the ancillary claims is necessary to "achieve the final settlement of the dispute," as distinct from the final settlement only of the original claims.122 The commentary envisions that this will occur only where there is a close "factual connection" between the original and ancillary claims, but this does not mean that an ancillary claim cannot involve additional facts – simply that any additional factual inquiry must have a sufficient connection to the matrix of facts already present in the dispute before the tribunal. A factual connection is not the same as an identity of facts.
Applying these principles to the case at hand, the Tribunal considers that there is sufficient linkage between the original claims and the proposed new claim to satisfy the requirements of Arbitration Rule 40(1). The new claim about an allegedly unfounded invocation of the denial of benefits provision has a direct factual connection to the original claims, since the benefit sought to be denied is the ability to pursue redress for the subject matter of the original claims. It would be nonsensical, in these circumstances, to require the new claim to be brought in a separate proceeding.
As for the second requirement of Arbitration Rule 40 – addressing the temporal requirements for asserting an ancillary claim that meets the substantive admissibility requirement set forth in Article 40(1) – Article 40(2) distinguishes between (a) ancillary claims that may be presented as a matter of right ("[a]n incidental or additional claim shall be presented no later than in the reply"), and (b) ancillary claims that may be presented later only with Tribunal authorization ("unless the Tribunal, upon justification by the party presenting the ancillary claim an upon considering any objection of the other party, authorizes the presentation of the claim at a later stage in this proceeding"). There is no dispute that the Claimant's new claim in this case falls into the former category, as it was presented during an initial bifurcated phase of this case to consider one of the Respondent's jurisdictional objections, and well prior to the Claimant's reply on the merits.
Finally, the third provision in Arbitration Rule 40 addresses the procedural implications of a decision to admit an ancillary claim. Rule 40(3) provides that "[t]he Tribunal shall fix a time limit within which the party against which an ancillary claim is presented may file its observations thereon." Taken together with Rule 40(2), which provides claimants the right to file ancillary claims as late as their reply on the merits, the text suggests that an ancillary claim may be permitted even if only one round of responsive briefing still may be afforded in the written stage of the proceeding (i.e., in a respondent's rejoinder memorial). This is consistent with the unofficial commentary to Rule 40, which sets out explicitly that "[n]ormally the written procedure on an ancillary claim is restricted to one 'round,'" although tribunals obviously have discretion to permit additional briefing if they consider this appropriate.123 Be that as it may, because the Claimant in this case pleaded its ancillary claim prior to the Respondent's counter-memorial on the merits, the Respondent will have two opportunities to address the claim, namely in that submission and, after the Claimant responds in its reply on the merits, in its subsequent rejoinder.
For these reasons, the Tribunal considers that the substantive, temporal and procedural requirements of Arbitration Rule 40 have been met. The Tribunal accepts the Claimant's new claim as admissible, without prejudice to the Respondent's ability to challenge that claim, in its forthcoming written submissions, on either jurisdictional or substantive grounds.
(1) the Respondent's request to dismiss the Claimant's claims, on the basis that the Respondent validly denied the benefits of Chapter Eight of the FTA to Claimant pursuant to Article 814(2) of the FTA, is denied;
(2) the Claimant's request to dismiss the Respondent's objection to jurisdiction on the basis of Article 814(2) of the FTA is granted;
(3) the Respondent's request to dismiss the Claimant's new claim for breach of Article 814(2) of the FTA, on the grounds that it does not meet the requirements for an ancillary claim under Arbitration Rule 40, is denied;
(4) the Claimant's request for a declaration that Respondent breached Article 814(2) through its purporting to deny benefits is denied as premature, pending further briefing from the Parties regarding the availability of relief for such a claim; and
(5) the Tribunal reserves decision on the Parties' respective requests for costs, for determination in conjunction with any subsequent such requests at the close of this proceeding.
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