Claim Manifestly without Legal Merit

Depending on the agreed procedural rules or the applicable International Investment Agreement (“IIA”), tribunals in investment arbitration proceedings may have the power to decide on claims manifestly without legal merit and dismiss claims summarily. Special attention is drawn, in this regard, to Rule 41(5) of the 2006 ICSID Arbitration Rules (“ICSID Rule 41(5)”).¹ This will be described in Sections II-IV below. Section V will cover similar mechanisms provided for in rules of other arbitral institutions or set out in IIAs.²

Introduced in 2006 and remaining a unique feature of the ICSID Arbitration Rules until recently,³ 2022 ICSID Rule 41 allows tribunals to decide on preliminary objections alleging claims are “manifestly without legal merit”.⁴ As determined by arbitral tribunals, it is necessary to work within the particular concept required by 2006 ICSID Rule 41(5) with its own terminology, as required by Article 44 of the ICSID Convention. It is for this reason that it serves little purpose in analysing defences under different procedural rules and national procedural laws (such as an application to strike, demurrer, motion to dismiss, etc), when interpreting 2006 ICSID Rule 41(5).⁵

According to the ICSID Secretariat, this provision has been introduced in order to address “any concerns about the limited screening power of the Secretary-General”⁶ prior to registration of requests for arbitration, under Article 36(3) of the ICSID Convention.

Public information available on the ICSID website shows that 2006 ICSID Rule 41(5) has been invoked in 40 proceedings, as of February 2022 (with ten 2006 ICSID Rule 41(5) objections granted in full and four in part).⁷

Rule 45(6) of the 2006 ICSID Additional Facility Rules incorporates the same possibility as ICSID Rules 41(5).⁸

The 2006 ICSID Rule 41(5) will only apply if the parties have not agreed “to another expedited procedure for making preliminary objections”.⁹ 

An objection on the basis of the 2006 ICSID Rule 41(5) should be filed “no later than 30 days after the constitution of the tribunal, and in any event before the first session of the tribunal”.¹⁰ These requirements have been considered by arbitral tribunals to be cumulative.¹¹ 

An extension of this time limit is currently under discussion in the proposed amended version of Rule 41(5).¹²

After the filing of an objection under ICSID Rule 41(5), the tribunal will usually agree on an appropriate procedure.¹³ ICSID Rule 41(5) requires that tribunals should “giv[e] the parties the opportunity to present their observations on the objection.”¹⁴ Some tribunals hearing ICSID Rule 41(5) objections have permitted one or two rounds of written submissions, together with oral arguments by the parties,¹⁵ while others have followed different approaches, through, for instance, doing away with a hearing on the matter.¹⁶ Tribunals must respect due process requirements during ICSID Rule 41(5) proceedings.¹⁷ Some tribunals have noted that they are not limited to the facts asserted in the request for arbitration and should take into account both parties’ submissions.¹⁸ ICSID Article 43(a) of the ICSID Convention has been found to be inapplicable in the context of ICSID Arbitration Rule 41(5).¹⁹

The tribunal has to notify the parties of its decision on the objection “at its first session or promptly thereafter”.²⁰ If the tribunal decides “that all claims are manifestly without legal merit, it shall render an award to that effect”.²¹ The decision of the tribunal “shall be without prejudice to the right of a party to file an objection pursuant to [ICSID Rule 41(1)] or to object, in the course of the proceeding, that a claim lacks legal merit”.²²

ICSID Rule 41(5) does not provide guidance on the allocation of costs regarding ICSID Rule 41(5) proceedings. To the extent a decision on costs is not reserved for a later stage in the proceedings,²³ tribunals have followed different approaches: some tribunals preferred the costs follow the event approach.²⁴ Conversely, others applied the “pay your own way” approach.²⁵ In Ansung v. PRC, the tribunal decided that the respondent state should not bear the reasonable costs for successfully defending the claim at the ICSID Rule 41(5) stage, noting that it need not venture into discussions about trends on allocation of costs in ICSID practice.²⁶

Some ICSID annulment committees have found that ICSID Rule 41(5) also applies mutatis mutandis to annulment proceedings.²⁷ 

According to the tribunal in Trans-Global. v. Jordan (and further jurisprudence in line with Trans-Global. v. Jordan), the word “manifestly” requires a party “to establish its objection clearly and obviously, with relative ease and despatch. The standard is thus set high”.²⁸ The manifest lack of legal merit also implies that neither theoretical debates which posit novel and complex issues of law²⁹ nor a thorough analysis of the underlying facts³⁰ are suited to objections based on ICSID Rule 41(5).

Tribunals have found that ICSID Rule 41(5) is considered to cover all objections to the effect that the proceedings should be discontinued at an early stage because, for whatever reason, the claim can manifestly not be granted by the Tribunal.³¹ Such objections, accordingly, on the basis of tribunals’ decisions, “may go either to jurisdiction or the merits, and must raise a legal impediment, not a factual one.”³² The currently proposed amended version of ICSID Rule 41(5) includes a precision to that effect.³³

Certain tribunals have determined that the facts as pleaded by the claimant should in principle be accepted.³⁴ With regard to disputed facts, some tribunals have found that they would be “in no position to decide disputed facts alleged by either side in a summary procedure”³⁵ and that they need not accept at face value any factual allegations which are (manifestly) incredible, frivolous, vexatious, inaccurate or made in bad faith.³⁶ 

The past years have seen other arbitral institutions (g., CIETAC, HKIAC, SCC, SIAC) also introduce mechanisms to address preliminary objections in arbitral proceedings.³⁷

It has been argued that, as the mechanisms put in place by SIAC draw inspiration from ICSID Rule 41(5),³⁸ guidance for their interpretation may be drawn from ICSID Rule 41(5).³⁹ 

Next to that, some commentators suggest that Article 17(1) UNCITRAL Rules (as revised in 2010) also provides tribunals sufficient authority to deal with claims manifestly without legal merit on an expedited basis.⁴⁰ 

Finally, some international investment agreements have also included mechanisms concerning preliminary objections, notwithstanding ICSID Rule 41(5).⁴¹ For instance, the tribunal in Pac Rim v. El Salvador has found that the parties to the arbitration had agreed to use the CAFTA expedited procedure for preliminary objections, to the exclusion of ICSID Rule 41(5).⁴² Under CAFTA Article 10.20.4, the tribunal must be persuaded that an “award should be made finally dismissing the claimant’s claim at the very outset of the arbitration proceedings”.⁴³ 

Despite a longer time-limit to file the objection, the CAFTA procedure shares various similarities with the ICSID mechanism.⁴⁴ Notably, first, CAFTA’s expedited procedure for preliminary objections is without prejudice to the introduction of further objections in the course of the proceedings.⁴⁵ Second, CAFTA requires tribunals to assume that factual allegations made by the claimant are true,⁴⁶ and while focus must be on allegations as presented in the complaint, clarifications of the said allegations can be warranted.⁴⁷ Finally, CAFTA’s expedited procedure cannot be used to address complex issues of law.⁴⁸

Other international investment agreements have distinguished their procedure from ICSID Rule 41(5).⁴⁹ For instance, the Peru-US TPA⁵⁰ makes a distinction between preliminary objections as to competence and preliminary objections based on Article 10.20.4.⁵¹

Articles

Howes, B.T., Stowell, A. and Choi, W., The Impact of Summary Disposition on International Arbitration: A Quantitative Analysis of ICSID’s Rule 41(5) on Its Tenth Anniversary, Dispute Resolution International, Vol. 13, Issue 1, 2019, pp. 7-41.

Dulac, E. and Lo, A., The 2016 SIAC Rules: New Features, Indian Journal of Arbitration Law, Vol. 5, Issue 2, 2017, pp. 129-149.

Chatterjee, C., A Critical Examination of Rule 41(5) of the ICSID Arbitration Rules, 2006, The Journal of World Investment & Trade, Vol. 1, Issue 3, 2012, pp. 486-501.

De Brabandere, E., The ICSID Rule on Early Dismissal of Unmeritorious Investment Treaty Claims: Preserving the Integrity of ICSID Arbitration, Manchester Journal of International Economic Law, Vol. 9, Issue 1, 2012, pp. 23-44.

Markert, L., Preliminary Objections Pursuant to ICSID Arbitration Rule 41(5) – Soon to Become the Preliminary Objection of Choice?, Transnational Dispute Management, Issue 3, 2012.

Potestà, M. and Sobat, M., Frivolous Claims in International Adjudication: A Study of ICSID Rule 41(5) and of Procedures of Other Courts and Tribunals to Dismiss Claims Summarily, Journal of International Dispute Settlement, Vol. 3, Issue 1, 2012, pp. 137-168.

Puig, S. and Brown, C., The Power of ICSID Tribunals to Dismiss Proceedings Summarily: An Analysis of Rule 41(5) of the ICSID Arbitration Rules, The Law & Practice of International Courts and Tribunals, Vol. 10, Issue 2, 2011, pp. 227-259.

Diop, A., Objection under Rule 41(5) of the ICSID Arbitration Rules, ICSID Review - Foreign Investment Law Journal, Vol. 25, Issue 2, 2010, pp. 312-336.

Parra, A.R., The Development of the Regulations and Rules of the International Centre for Settlement of Investment Disputes, The International Lawyer, Vol. 41, Issue 1, 2007, pp. 47-58.

Antonietti, A., The 2006 Amendments to the ICSID Rules and Regulations and the Additional Facility Rules, ICSID Review - Foreign Investment Law Journal Vol. 21, Issue 2, 2006, pp. 427-448.

Books

Reed, L., Paulsson, J. and Blackaby, N., Guide to ICSID Arbitration, Kluwer Law International, 2010, pp. 144-145.

Schreuer, C., et al., The ICSID Convention: A Commentary, Cambridge University Press, 2nd ed., 2009, pp. 542-544.

Book Chapters

Luttrell, S., Particular Procedures, in Fouret, J., Gerbay, R. and Alvarez, G. (eds.), The ICSID Convention, Regulation and Rules: A Practical Commentary, Edward Elgar, 2019, pp. 1139-1224.

Tibell, A., Too Early to Decide? An Examination of Dispositive Motions in International Arbitration, in Calissendorff, A and Schöldstrom, P. (eds.), Stockholm Arbitration Yearbook 2019, Stockholm Arbitration Yearbook Series, Vol. 1, Kluwer Law International, 2019, pp. 69 - 92.

Yeo, A. and Yen, K.S., Objection of manifest lack of legal merit of claims: Arbitration Rule 41(5), in Legum, B. (ed.), The Investment Treaty Arbitration Review, The Law Reviews, 4th ed., 2019, pp. 58-72.

Costábile, N., Early Dismissal of Unmeritorious Claims and Defences in International Arbitration, in González-Bueno, C. (ed.), 40 under 40: International Arbitration, Dykinson, 2018, pp. 253-266. 

Rosenfeld, F., Early Dismissal of Claims in Investment Arbitration, in Kulick, A. (ed.), Reassertion of Control over the Investment Treaty Regime, Cambridge University Press, 2017, pp. 83-102.

Potestà, M., Preliminary Objections to Dismiss Claims that are Manifestly Without Legal Merit under Rule 41(5) of the ICSID Arbitration Rules, in Baltag, C. (ed.), ICSID Convention after 50 Years: Unsettled Issues, Kluwer Law International, 2016, pp. 249-272.

Parra, A.R., ICSID Arbitration Rule 41(5) Objections, in Kinnear, M., Fischer, G.R. et al. (eds.), Building International Investment Law: The First 50 Years of ICSID, Kluwer Law International, 2015, pp. 593-600.

Gill, J., Applications for the Early Disposition of Claims in Arbitration Proceedings, in Van den Berg, A.J. (ed.), 50 Years of the New York Convention: ICCA International Arbitration Conference, ICCA Congress Series 14, Kluwer Law International, 2009, pp. 513-525.

Miscellaneous 

Shah, A. and Bhattacharya, R., SIAC Rule 29 On Early Dismissal: How Early Is Early?, Kluwer Arbitration Blog, 10 April 2020.

Uchkunova, I., Rule 41(5) of the ICSID Arbitration Rules: The Sleeping Beauty of the ICSID system, Kluwer Arbitration Blog, 27 June 2014.

Willems, J., Summary Dismissal under ICSID Arbitration Rule 41(5) - The Global and RSM Awards, Kluwer Arbitration Blog, 2 February 2011.