A counterclaim is a claim for relief asserted against an opposing party after an original claim has been made. Counterclaims have both defensive and offensive qualities1. The counterclaimant, usually the respondent, seeks to defeat the primary claim (defensive quality) pursuing objectives other than the mere dismissal of the primary claim by filing a counter-claim relating to (“directly connected with” or “arising directly out of”) the subject-matter of the dispute (offensive quality). Initially, counterclaims were perceived to be incompatible with the consensual nature of arbitration agreements in which the parties determine the scope of a dispute and, in case of a compromis, are deprived of the formal qualities of “claimant” and “respondent”.2 Nowadays however, whereas few investment agreements set forth investors’ obligations3 or foresee the possibility to file a counterclaim,4 the majority of Arbitration Rules in the fields of international commercial and investment law contain provisions to that effect.6 The ICSID Convention is the only instrument expressly permitting counterclaims at the treaty level (article 467).
Application of the Convention on the Prevention and Punishment of the Crime of Genocide, Counter-claims, Order of 17 December 1997, I.C.J. Reports 1997, para. 27 (“Whereas it is established that a counter-claim has a dual character in relation to the claim of the other party; whereas a counter-claim is independent of the principal claim in so far as it constitutes a separate "claim", that is to say an autonomous legal act the object of which is to submit a new claim to the Court, and, whereas at the same time, it is linked to the principal claim, in so far as, formulated as a ''counter" claim it reacts to it; whereas the thrust of a counter-claim is thus to widen the original subject-matter of the dispute by pursuing objectives other than the mere dismissal of the claim of the Applicant in the main proceedings - for example, that a finding be made against the Applicant; and, whereas in this respect, the counter-claim is distinguishable from a defence on the merits”).
Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011, paras. 864-872 (“Article 9(4) of the BIT further provides, in respect of the applicable law, that: "The arbitral tribunal shall decide the dispute in accordance with the provisions of this Agreement [the BIT]and the applicable rules and principles of international law..." […] the BIT imposes no obligations on investors, only on contracting States. Therefore, where the BIT does specify that the applicable law is the BIT itself, counterclaims fall outside the tribunal's jurisdiction. Indeed, in order to extend the competence of a tribunal to a State counterclaim, "the arbitration agreement should refer to disputes that can also be brought under domestic law for counterclaims to be within the tribunal's jurisdiction"”); Rusoro Mining Ltd. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/5, Award, 22 August 2016, para. 629 (“the Tribunal finds that it lacks jurisdiction to adjudicate the counter-claim submitted by the Bolivarian Republic against Rusoro.”); Vestey Group Ltd v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/06/4, Award, 15 April 2016, para. 333 (“If this argument is characterized as a counterclaim, it must be deemed inadmissible under Article 46 of the ICSID Convention. Indeed, that provision requires that a counterclaim be ‘within the scope of the consent of the parties and [...] otherwise within the jurisdiction of the Centre.’ The scope of the consent to arbitrate is provided in Article 8 of the BIT. It is limited to ‘[d]isputes between a national or company of one Contracting Party and the other Contracting Party concerning an obligation of the latter under this Agreement in relation to an investment of the former....’ The Respondent’s request to be awarded title over Agroflora’s assets does not concern an obligation of Venezuela under the BIT and thus falls outside the scope of the consent to arbitrate. In the Tribunal’s view, this is a matter to be dealt with by the local courts in application of municipal property law.”).
The Agreement on Promotion, Protection and Guarantee of Investments amongst the Member States of the Organization of the Islamic Conference, 5 June 1981, Art. 9 ( “The investor shall be bound by the laws and regulations in force in the host state and shall refrain from all acts that may disturb public order or morals or that may be prejudicial to the public interest. He is also to refrain from exercising restrictive practices and from trying to achieve gains through unlawful means.”).
COMESA Investment Agreement of 23 May 2007, Art. 28 (“In the event that a dispute between a COMESA investor and a Member State has not been resolved pursuant to good faith efforts in accordance with Article 26, a COMESA investor may submit to arbitration under this Agreement a claim that the Member State in whose territory it has made an investment has breached an obligation under Part Two of this Agreement and that the investment has incurred loss or damage by reason of, or arising out of, that breach by submitting that claim to any one of the following fora at a time […] A Member State against whom a claim is brought by a COMESA investor under this Article may assert as a defence, counterclaim, right of set off or other similar claim, that the COMESA investor bringing the claim has not fulfilled its obligations under this Agreement, including the obligations to comply with all applicable domestic measures or that it has not taken all reasonable steps to mitigate possible damages.”); SADC Model Agreement, 2012, Art. 19 (“19.1 Subject to any other specific directions under this Agreement as to the consequences of a breach of an obligation, where an Investor or its Investment is alleged by a State Party in a dispute settlement proceeding under this Agreement to have failed to comply with its obligations under this Agreement, the tribunal hearing such a dispute shall consider whether this breach, if proven, is materially relevant to the issues before it, and if so, what mitigating or off-setting effects this may have on the merits of a claim or on any damages awarded in the event of such award. 19.2. A Host State may initiate a counterclaim against the Investor before any tribunal established pursuant to this Agreement for damages or other relief resulting from an alleged breach of the Agreement. 19.3. In accordance with its applicable domestic law, the Host State, including political subdivisions and officials thereof, private persons, or private organizations, may initiate a civil action in domestic courts against the Investor or Investment for damages arising from an alleged breach of the obligations set out in this Agreement. 19.4. In accordance with the domestic law of the Home State, the Host State, including political subdivisions and officials thereof, private persons, or private organizations, may initiate a civil action in domestic courts of the Home State against the Investor, where such an action relates to the specific conduct of the Investor, and claims damages arising from an alleged breach of the obligations set out in this Agreement.”); Pan-African Investment Code, 2016 as revised, Art. 43 (“Where an investor or its investment is alleged by a Member State party in a disputes settlement proceeding under this Code to have failed to comply with its obligations under this Code or other relevant rules and principles of domestic and international law, the competent body hearing such a dispute shall consider whether this breach, if proven, is materially relevant to the issues before it, and if so, what mitigating or off-setting effects this may have on the merits of a claim or on any damages awarded in the event of such award. 2. A Member State may initiate a counterclaim against the investor before any competent body dealing with a dispute under this Code for damages or other relief resulting from an alleged breach of the Code.”); Model Text for the Indian Bilateral Investment Treaty, Art. 14.11 (“A Party may initiate a counterclaim against the Investor or Investment for a breach of the obligations set out under Articles 9, 10, 11 and 12 of Chapter III of this Treaty before a tribunal established under this Article and seek as a remedy suitable declaratory relief, enforcement action or monetary compensation. (ii) In assessing the monetary compensation to be paid to a Party under this Article, the tribunal can take into consideration the following: a. whether the breach justifies an award of damages; and b. whether that Party has taken steps to mitigate its losses. (iii) The Parties agree that a counterclaim made in accordance with this Article 14.11 shall not preclude or operate as a res judicata against applicable legal, enforcement or regulatory action in accordance with the Law of the Host State or in any other proceedings before judicial bodies or institutions of the Host State. (iv) An initiation of a counterclaim by a Party shall not be deemed to be a waiver of that Respondent Party’s objection to the tribunal’s jurisdiction over an Investment Dispute”); Supplementary Act A/SA.3/12/08 Adopting Community Rules on Investment and the Modalities for their Implementation with ECOWAS, adopted the 19 December 2008, Appendix 3, Art. 18(5); Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), adopted the 8 May 2018, Ch. 9, Art. 9.12(2); Treaty between the Federal Republic of Germany and the People's Republic of Poland Concerning the Encouragement and Reciprocal Protection of Investments, adopted the 10 November 1989, Art. 6.1 (possibility to bring counter-claim in State-to-State arbitration “against the Contracting Party making payment counterclaims that exist against the investor”).
UNCITRAL Arbitration Rules, 1976, Art. 19(3); UNCITRAL Arbitration Rules, 2010, Art. 21(3); ICC Rules of Arbitration, 2012, Art. 5(5); ICC Arbitration Rules, 2017, Art. 5; London Court of Int'l Arbitration Rules, 1998, Art 2.1(b); LCIA Arbitration Rules, 1998, Art 2.1(b); LCIA Arbitration Rules, 2014, Art 2.1(iii); SCC Arbitration Rules, 1999, Art. 10(3); SCC Arbitration Rules, 2007, Art. 5(1)(iii); SCC Arbitration Rules, 2010, Art. 24(2)(iv); SCC Arbitration Rules, 2017, Art 9(1)(iii); PCA Arbitration Rules, 2012, Art. 21(3); PCA Optional Rules for Arbitration of Disputes Relating to the Environment and/or Natural resources, 2001, Art. 19(3); HKIAC Arbitration Rules, 2008, Article 5.4; HKIAC Arbitration Rules, 2013, Article 5.4; HKIAC Arbitration Rules, 2018, Article 5.3; ACICA Arbitration Rules, 2016, Art 26.3; CIETAC Arbitration Rules, 2015, Article 16; SIAC Arbitration Rules, 2016, Article 4.2; OHADA Arbitration Rules, 2017, Art. 7.
ICSID Convention, Art. 46 (“Except as the parties otherwise agree, the Tribunal shall, if requested by a party, determine any incidental or additional claims or counter-claims arising directly out of the subject-matter of the dispute provided that they are within the scope of the consent of the parties and are otherwise within the jurisdiction of the Centre.”); History of ICSID Convention, ICSID, Vol, II-2, pp. 810-11.
II. Distinction from other related arbitration or litigation techniques
The main distinguishing characteristic of a counterclaim is its potential to result in an additional advantage other than the mere defence on the merits8 (i.e. an action within the original claim deprived of the offensive character). In international commercial arbitration counterclaims are also to be distinguished from set-off claims9.
Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v. Serbia and Montenegro), Counter-claims, Order of 17 December 1997, para. 27 (“whereas the thrust of a counter-claim is thus to widen the original subject-matter of the dispute by pursuing objectives other than the mere dismissal of the claim of the Applicant in the main proceedings - for example, that a finding be made against the Applicant; and, whereas in this respect, the counter-claim is distinguishable from a defence on the merits”).
III. Practice in investment arbitration
The use of counterclaims in investment arbitration has proven more problematic in treaty claims than in contract claims because of the asymmetrical character10 of an investment treaty whose main focus is to protect the investors’ rights. An increasing resort to counterclaims by States evidences the growing demand for recognition of investors’ misconduct based on non-compliance with domestic or international law.11 To some extent, some authors consider that that counterclaims may serve the principles of judicial economy and good administration of justice as well as the principle of equality of the parties.12 On the contrary, some tribunals are of the opinion that counterclaims are not within their jurisdiction.13
Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011, para. 871 (“the BIT imposes no obligations on investors, only on contracting States").
Saluka Investments BV v. The Czech Republic, PCA Case No. 2001-04, Decision on Jurisdiction over the Czech Republic's Counterclaim, 7 May 2004; Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Decision Concerning the Respondent's Counter-Claim, 31 March 2009; Perenco Ecuador Limited v. Republic of Ecuador (Petroecuador), ICSID Case No. ARB/08/6, Interim Decision on the Environmental Counterclaim, 11 August 2015; Burlington Resources, Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on Counterclaims, 7 February 2017. Decisions on Counterclaims, Jus Mundi.
Bjorklund, A., Role of Counterclaims in Rebalancing Investment Law, The Business Law Forum: Balancing Investor Protections, the Environment, and Human Rights, Lewis & Clark law Review (17): 2, 461-480; Ben Hamida, W. L'arbitrage Etat-investisseur cherche son équilibre perdu : Dans quelle mesure l'Etat peut introduire des demandes reconventionnelles contre l'investisseur privé?”, International Law Forum du droit international (7):4, 2005, pp. 261-272. The Islamic Republic of Iran v. The United States of America, IUSCT Case No. B1, Award (Counterclaim) (Award No. ITL No. 83-B1-FT), 9 September 2004, para. 104 (“As to Iran’s argument that it was not necessary to allow official counterclaims since each State Party could bring contractual claims against the other, the Tribunal considers that this does not constitute a persuasive argument in support of the contention that official counterclaims are excluded. In international law, counterclaims are routinely permitted in disputes between two parties able to bring claims against each other because they promote judicial economy and fairness.”); Burlington Resources, Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on Counterclaims, 7 February 2017, paras. 60 (“The Tribunal’s jurisdiction in respect of Ecuador’s counterclaims is not challenged, and rightly so. As noted in PO8, it derives from an agreement entered into by the Parties on 26 May 2011. In this agreement, Burlington and Ecuador expressed their agreement and consent that this arbitration is the "appropriate forum for the final resolution of the Counterclaims arising out of the investments made by Burlington Resources and its affiliates in Blocks 7 and 21, so as to ensure maximum judicial economy and consistency”), 1077 (“Whereas Clause 9 of such agreement records that this arbitration is ‘the appropriate forum for the final resolution of the Counterclaims arising out of investments made by Burlington Resources and its affiliates in Blocks 7 and 21, so as to ensure maximum judicial economy and consistency’, Clause 1(b) extends the binding force and res judicata effects of the present decision as follows: ‘The decision of the Arbitral Tribunal constituted in the Arbitration on the Counterclaims shall be final and binding on the Parties and have full res judicata effect with respect to: (i) Burlington Resources and Ecuador (including its emanations, agencies, instrumentalities, subdivisions and controlled corporations including, without limitation, Petroecuador); and (ii) all affiliates of Burlington Resources, Burlington Oriente and Burlington Resources International, including ConocoPhillips and all of its subsidiaries and affiliates (together, the ConocoPhillips Group) as if such claims had been brought and resolved against them.’”). Application of the Convention on the Prevention and Punishment of the Crime of Genocide, Counter-claims, Order of 17 December 1997, I. C. J. Reports 1997, para. 30 (“Whereas, however, a claim should normally be made before the Court by means of an application instituting proceedings; whereas, although it is permitted for certain types of claim to be set out as incidental proceedings, that is to say, within the context of a case which is already in progress, this is merely in order to ensure better administration of justice, given the specific nature of the claims in question; whereas, as far as counter-claims are concerned, the idea is essentially to achieve a procedural economy whilst enabling the Court to have an overview of the respective claims of the parties and to decide them more consistently; and whereas the admissibility of the counter-claims must necessarily relate to the aims thus pursued and be subject to conditions designed to prevent abuse”); Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v. Uganda), Order - Finding on Counter-claims; fixing of time-limits: Reply and Rejoinder, 29 November 2001, paras. 22 (“Uganda contends that "[this] counter-claim satisfies Article 80, paragraph 1"[…] and […] that "the goal of procedural economy would be served by allowing Uganda's counter-claim [to] be heard together with Congo's claim"; […]whereas in order to demonstrate that "[the] facts at the root of this portion of [its] counter-claims are also of the same nature as many of the so-called facts underpinning Congo's claim", […] whereas it further states that "[t]he events in dispute . . . took place at the same time and on the same territory (i.e., the territory of the Democratic Republic of the Congo)"; and, in support of its contentions concerning legal connection”), 44 (“the Court, having found that the first and second counter-claims submitted by Uganda are directly connected with the subject-matter of the Congo's claims, takes the view that, on the contrary, the sound administration of justice and the interests of procedural economy cal1 for the simultaneous consideration of those counter-claims and the principal claims;”).
Saluka Investments BV v. The Czech Republic, PCA Case No. 2001-04, Decision on Jurisdiction over the Czech Republic's Counterclaim, 7 May 2004, paras. 24 (“The Respondent argues […] the exercise of jurisdiction by the Tribunal over the Respondent’s counterclaim would advance the goals of economy and efficiency in international dispute resolution, since otherwise the Respondent would have to pursue its claim elsewhere.”), 27 (“Policy considerations concerning the alleged advantages of economy and efficiency being best served by allowing the Respondent’s counterclaim are insufficient to override the principle that the scope of the Tribunal’s jurisdiction is determined by the scope of the parties’ consent.”).
Whether investment tribunals can entertain jurisdiction over a State’s counterclaim in proceedings that are initiated under a treaty is contingent upon the treaty’s arbitration clause, the scope of the parties’ consent, and the relationship between the counterclaim and the arbitration claim14 (i.e. the “close connexion”15 test). It was argued, and some tribunals agreed, that the general consent to ICSID arbitration could be ipso facto interpreted as consent to counterclaim16. Other tribunals have disagreed with this interpretation.17 Tribunals’ jurisdiction is more complex when the parties are bound by a mandatory arbitration provision included in a related contract18 or when the treaty contains an umbrella clause.19
Sergei Paushok CJSC Golden East Company v. The Government of Mongolia, UNCITRAL, Award on jurisdiction and liability, 28 April 2011, para. 693 (“In considering whether the Tribunal has jurisdiction to consider the counterclaims, it must therefore decide whether there is a close connection between them and the primary claim from which they arose or whether the counterclaims are matters that are otherwise covered by the general law of Respondent.”).
Saluka Investments B.V. v The Czech Republic, UNCITRAL, Decision on jurisdiction over the Czech Republic’s Counterclaim, para. 61 (“In relation specifically to counterclaims, it is necessary that they must also satisfy those conditions which customarily govern the relationship between a counterclaim and the primary claim to which it is a response. In particular, a legitimate counterclaim must have a close connexion with the primary claim to which it is a response. In this arbitration the primary claim involves Saluka’s investment in the Czech Republic through its shareholding since October 1998 in IPB, and its treatment by the Respondent in circumstances which Saluka claims involve breaches of Articles 3 and 5 of the Treaty.”); Urbaser S.A., Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, ICSID Case No. ARB/07/26, Award, 8 December 2016, para. 1151 (“One of Claimants’ main objections is that Respondent’s Counterclaim has no connection with Claimants’ claims under the BIT. The Tribunal observes that the factual link between the two claims is manifest. Both the principal claim and the claim opposed to it are based on the same investment, or the alleged lack of sufficient investment, in relation to the same Concession. This would be sufficient to adopt jurisdiction over the Counterclaim as well. The legal connection is also established to the extent the Counterclaim is not alleged as a matter based on domestic law only. Respondent argues indeed that Claimants’ failure to provide the necessary investments caused a violation of the fundamental right for access to water, which was the very purpose of the investment agreed upon in the Regulatory Framework and the Concession Contract and embodied in the protection scheme of the BIT. It would be wholly inconsistent to rule on Claimants’ claim in relation to their investment in one sense and to have a separate proceeding where compliance with the commitment for funding may be ruled upon in a different way. Reasonable administration of justice cannot tolerate such a potential inconsistent outcome.”); Sergei Paushok, CJSC Golden East Company and CJSCVostokneftegaz Company v. The Government of Mongolia, Award on Jurisdiction and Liability, 28 April 2011, paras. 687- 699 (“In considering whether the Tribunal has jurisdiction to consider the counterclaims, it must therefore decide whether there is a close connection between them and the primary claim from which they arose or whether the counterclaims are matters that are otherwise covered by the general law of Respondent. […] The Tribunal has no jurisdiction over any of the counterclaims advanced by Respondent.”); Grenada Private Power Limited and WRB Enterprises, Inc. v. Grenada, Award, 19 March 2020, para. 359.
Spyridon Roussalis v Romania, ICSID case ARB/06/1, Award, 7 December 2011, W. Michael Reisman’s Declaration (“I regret that I cannot join my colleagues in that part of our decision which rejects jurisdiction over counterclaims […] so rejected on the ground of absence of consent. I understand the line of their analysis but, in my view, when the States Parties to a BIT contingently consent, inter alia, to ICSID jurisdiction, the consent component of Article 46 of the Washington Convention is ipso facto imported into any ICSID arbitration which an investor then elects to pursue.”); Saluka Investments BV v. The Czech Republic, PCA Case No. 2001-04, Decision on Jurisdiction over the Czech Republic's Counterclaim, 7 May 2004, para. 39 (“The Tribunal agrees that, in principle, the jurisdiction conferred upon it by Article 8, particularly when read with Article 19.3, 19.4 and 21.3 of the UNCITRAL Rules, is in principle wide enough to encompass counterclaims. The language of Article 8, in referring to "All disputes," is wide enough to include disputes giving rise to counterclaims, so long, of course, as other relevant requirements are also met. The need for a dispute, if it is to fall within the Tribunal’s jurisdiction, to be "between one Contracting Party and an investor of the other Contracting Party" carries with it no implication that Article 8 applies only to disputes in which it is an investor which initiates claims.”); Antoine Goetz & Consorts and S.A. Affinange des Métaux v. Republic of Burundi (II), ICSID Case No. ARB/01/2, Award, 21 June 2012, paras. 277-278 (« Mais en concluant le TPI, le Burundi a par là même accepté que les différends qui seraient soumis à arbitrage dans le cadre du CIRDI soient réglés dans les conditions et selon les procédures fixées par la Convention de Washington. Il a notamment accepté que les demandes incidentes, additionnelles ou reconventionnelles présentées en cours d'instance soient examinées par le Tribunal dans les conditions fixées par l'article 46 de la Convention et l'article 40 du Règlement d'arbitrage. En acceptant l'offre contenue dans le TPI, les consorts Goetz ont à leur tour accepté qu'il en soit ainsi. Ce double consentement donne compétence au Tribunal pour connaître des demandes reconventionnelles. »).
Marco Gavazzi and Stefano Gavazzi v. Romania, ICSID Case No. ARB/12/25, Decision on Jurisdiction, Admissibility and Liability, 21 April 2015, para. 154 (“The Tribunal (by a majority), however, does not accept that the right of the Host State to file a free-standing counterclaim in an investment treaty arbitration should be presumed unless expressly excluded by the BIT. The majority considers that it is the letter of the BIT, interpreted under international law, that binds the Parties. Where there is no jurisdiction provided by the wording of the BIT in relation to a counterclaim, no jurisdiction can be inferred merely from the "spirit" of the BIT. For the majority, it is not unusual for parties to be in asymmetrical positions when a dispute relating to a BIT arises. The majority further observes that the counterclaim submitted by the Respondent is an entirely independent claim based upon Romanian law and unrelated to the Claimants' claim based upon breaches of the BIT. Both in form and substance, it is a free-standing counterclaim not operating merely as a defence to the Claimants' claim.”); Karkey Karadeniz Elektrik Uretim A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/13/1, Award, 22 August 2017, para. 1012 (“The Tribunal finds that the text of the BIT is decisive in determining its jurisdiction over the counterclaims. In the present case, however, there is no provision in the BIT that contemplates the possibility of counterclaims.”); Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011, para. 866 (stating that consent should be contained in the relevant BIT).
Saluka Investments B.V. v The Czech Republic, UNCITRAL, Decision on jurisdiction over the Czech Republic’s Counterclaim, paras. 56-57 (“The Tribunal thus cannot in this arbitration entertain a counterclaim based on a dispute arising out of or in connection with, or the alleged breach of, an agreement which both contains its own mandatory arbitration provision and is an agreement which the Tribunal is expressly required to take into account.”).
Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011, paras. 781 (“Applying the umbrella clause in Article 2(6) of the Treaty, the Tribunal has jurisdiction over Claimant's Investment Claim, as well as Respondent's counterclaims, without regard for the dispute resolution clause in the Privatization Agreement.”), 873 (“this absence of consent to have the State’s counterclaim arbitrated cannot be overcome by the application of the umbrella clause in Article 2(6) of the Treaty.”) 875 (“Pursuant to the interpretation rules of Article 31 of the Vienna Convention, the reference in the text of Article 2(6) of the BIT to "any other obligation... with regard to investments of investors" confirms that the host State commits itself to comply with obligations it has entered into with regard to investments of investors. It does not permit that claims be brought about obligations of the investor.”); SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Procedural Order No. 2, 16 October 2002, para. 41 (“It would be inequitable if, by reason of the invocation of ICSID jurisdiction, the Claimant could on the one hand elevate its side of the dispute to international adjudication and, on the other, preclude the Respondent from pursuing its own claim for damages by obtaining a stay of those proceedings for the pendency of the international proceedings, if such international proceedings could not encompass the Respondent’s claim.”); Oxus Gold plc v. Republic of Uzbekistan, the State Committee of Uzbekistan for Geology & Mineral Resources, and Navoi Mining & Metallurgical Kombinat, Final Award, 17 December 2015, para. 958 (“Thus, there are two additional specific hurdles to the Arbitral Tribunal's jurisdiction over this counter-claim: (i) Respondent has not convincingly established that the non-payment of Claimant's debt under this Agreement constitutes more than a mere contractual breach subject to Uzbek law. […] (ii) Through the selection of court proceedings under Uzbek law as dispute resolution mechanism, the Parties have made an express choice for a specific dispute resolution mechanism. More than that, the dispute has effectively been brought before the chosen courts, which have confirmed their jurisdiction […] Respondent has not explained nor substantiated what effect an award covering the SDA counter-claim would have on the enforcement proceedings. In particular, Respondent has not argued that such award would bind the Uzbek courts. […] Under such circumstances, even if the SDA counter-claims would be seen as falling under the scope of Article 8(1) of the BIT, the Arbitral Tribunal considers that the forum selection clause contained in Article 9 of the Special Dividend Agreement constitutes a special agreement between the Parties by which they provided for a specific dispute resolution mechanism. […] Thus, through such special agreement, the Parties must be seen as having excluded their consent to adjudicate disputes arising out of the Special Dividend Agreement through the mechanism provided for in the BIT. In other words, this special dispute resolution clause constitutes a sort of carve-out from a potential jurisdiction under the BIT and deprives the Arbitral Tribunal of any jurisdiction over such counterclaims.”); Gustav F W Hamester GmbH & Co KG v. Republic of Ghana, ICSID Case No. ARB/07/24, Award, 18 June 2010, para. 347 (“The JVA was signed by Hamester and Cocobod, with no implication of the ROG. The ROG was not named as a party, and did not sign the contract. There has been no suggestion that the ROG was intended to be a party thereto […] the Tribunal concludes as follows: (i) Applying the actual words of Article 9(2) of the BIT, the contractual obligations which the Claimant seeks to impose upon the ROG were not "assumed by it". Given that the umbrella clause in this BIT is specifically delimited by reference to obligations that have been "assumed by the State," the Tribunal sees no basis to ignore these words, and to extend the ambit of the provision to contractual obligations assumed by other separate entities. (ii) If the municipal law obligations which were negotiated between the parties to the JVA, and assumed by Cocobod in this case, are to be taken as obligations assumed by the State to Hamester, this would - in effect - completely transform their nature, extent, and governing law. The Tribunal considers that nothing in Article 9(2) of the BIT here would justify this. Put the other way, given the wording of Article 9(2) of this BIT, the Tribunal concludes that the Contracting States did not intend to so transform domestic law contractual obligations concluded by separate entities. (iii) The Tribunal is aware that some tribunals in this area have extended the ambit of "umbrella clauses" to contracts concluded by separate entities, by reference to the international law principles of attribution. The Tribunal notes that this approach was not followed in the decisions cited above, and has been the subject of detailed debate in recent years. Without rehearsing all the arguments at play on this issue, it suffices for the Tribunal to state that even if the international law principles of attribution are applicable in construing the ambit of Article 9(2) of the BIT here, it is clear that Cocobod’s act of concluding the JVA was not attributable to the ROG, whether under Article 5 or Article 8 of the ILC Articles. With regard to Article 5, there is nothing to suggest that the JVA was concluded by Cocobod in the exercise of governmental authority. With regard to Article 8, there is no evidence that the JVA was concluded by Cocobod on the instructions of, or under the direction or control of that State.”).
In practice, States have ascertained counterclaims against investors based on violations of domestic law20 and public international law.21 Within the latter category, States have used a variety of sources against investors, such as multilateral treaties on human rights22, corporate social responsibility standards23, the international principles of good faith,24 or the prohibition of corruption or fraud25.
Oxus Gold plc v. Republic of Uzbekistan, the State Committee of Uzbekistan for Geology & Mineral Resources, and Navoi Mining & Metallurgical Kombinat, Final Award, 17 December 2015; Perenco Ecuador Limited v. The Republic of Ecuador, ICSID Case No. ARB/08/6, Interim decision on the environmental counterclaim, 11 August 2015; Burlington Resources Inc v. Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on counterclaims, 7 February 2017; Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No. ARB/81/1, Award, 20 November 1984, para. 283- 289 (“the Tribunal finds that the statute of limitation relied upon by Claimants […] are not applicable in the instant case. Indeed, these statutes concern recovery of taxes by the Indonesian authorities, but not the obligation of an investor to pay taxes of which he was exempted, where such obligation results from the laws, regulations and decisions related to the investment. […] the Tribunal notes that in the instant case, the revocation of the tax facilities which were attached to the licence, was decided in the BKPM Chairman’s decision of July 9, 1980 […] as a result of the revocation of the licence. Accordingly, since the Tribunal finds that the revocation of the licence was unlawful, as a consequence, the revocation of the tax facilities was unlawful as well. […] Accordingly, the competent authorities could withdraw the facilities, while not withdrawing the licence itself. However, such a separate withdrawal was not decided by the Indonesian authorities in the instant case, and it is not for the Tribunal to separate the measures which were strongly linked one with the other by said authorities. Moreover, a separate revocation of the tax facilities would have been decided without the warnings prescribed […], and in the same procedural conditions as the revocation of the licence, which resulted in lack of due process. To conclude, the counterclaim is to be rejected.”); RSM Production Corporation v. Central African Republic, ICSID Case No. ARB/07/2, Decision on Jurisdiction and Liability, 7 December 2010, para. 253- 259 (« En la forme : le Tribunal ne peut que déclarer recevable la Demande reconventionnelle de la RCA. […] Sur le fond : le Tribunal n'a pu relever aucune faute à la charge de RSM, ni aucun préjudice qu'elle aurait causé à la RCA. Il note par ailleurs que la RCA n'a pas rapporté la preuve d'un tel préjudice pas plus que les éléments qui ont conduit à le chiffrer à 400 850 000 Euros, d'une part, et 2 750 000 Euros, d'autre part. […] En conséquence, le Tribunal rejette la Demande reconventionnelle. »).
Urbaser S.A., Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, ICSID Case No. ARB/07/26, Award, 8 December 2016, paras. 1193 (“On a preliminary level, the Tribunal is reluctant to share Claimants’ principled position that guaranteeing the human right to water is a duty that may be born [sic] solely by the State, and never borne also by private companies like the Claimants. When extended to human rights in general, this would mean that private parties have no commitment or obligation for compliance in relation to human rights, which are on the States’ charge exclusively.”), 1199 (“At this juncture, it is therefore to be admitted that the human right for everyone’s dignity and its right for adequate housing and living conditions are complemented by an obligation on all parts, public and private parties, not to engage in activity aimed at destroying such rights.”).
Urbaser S.A., Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, ICSID Case No. ARB/07/26, Award, 8 December 2016, para. 1195 (“The Tribunal may mention in this respect that international law accepts corporate social responsibility as a standard of crucial importance for companies operating in the field of international commerce. This standard includes commitments to comply with human rights in the framework of those entities’ operations conducted in countries other than the country of their seat or incorporation. In light of this more recent development, it can no longer be admitted that companies operating internationally are immune from becoming subjects of international law.”).
Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines, ICSID Case No. ARB11/12, Award, 10 December 2014, para. 332 (“The Tribunal is also of the view that, even absent the sort of explicit legality requirement that exists here, it would be still be appropriate to consider the legality of the investment. As other tribunals have recognized, there is an increasingly well-established international principle which makes international legal remedies unavailable with respect to illegal investments, at least when such illegality goes to the essence of the investment.”). Gustav F W Hamester GmbH & Co KG v. Republic of Ghana, ICSID Case No. ARB/0724, Award, 18 June 2010, paras. 123-124 (“An investment will not be protected if it has been created in violation of national or international principles of good faith; by way of corruption, fraud, or deceitful conduct; or if its creation itself constitutes a misuse of the system of international investment protection under the ICSID Convention. It will also not be protected if it is made in violation of the host State’s law […] These are general principles that exist independently of specific language to this effect in the Treaty.”).
Gustav F W Hamester GmbH & Co KG v. Republic of Ghana, ICSID Case No. ARB/0724, Award, 18 June 2010, para. 356 (“In any event, it would appear that the counterclaim is based on Hamester’s alleged fraudulent conduct and breach of fiduciary duty in connection with the initiation of and performance under the JVA.”).