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Mme Elise Ruggeri Abonnat

Ph.D candidate - University of Paris II/University of Geneva

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Counterclaims

I. Definition

1.

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 counterclaim relating to (“directly connected with” or “arising directly out of”) the subject-matter of the dispute (offensive quality). 

2.

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.5 The ICSID Convention is the only instrument expressly permitting counterclaims at the treaty level (article 46).6

II. Distinction from other related arbitration or litigation techniques

3.

The main distinguishing characteristic of a counterclaim is its potential to result in an additional advantage other than the mere defence on the merits7 (i.e. an action within the original claim deprived of the offensive character). For instance, a claim for costs does not require a counterclaim.8 In international commercial arbitration counterclaims are also to be distinguished from set-off claims.9

III. Practice in investment arbitration

4.

The use of counterclaims in investment arbitration has proven more problematic in treaty claims than in contract claims because of the asymmetrical character of an investment treaty whose main focus is to protect the investors’ rights.10 Arbitral tribunals showed a new tendency to nuance this approach.11 (See further Human Rights in Investment Arbitration)

5.

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.12 To some extent, some authors consider that counterclaims may serve the principles of judicial economy and good administration of justice as well as the principle of equality of the parties.13 On the contrary, some tribunals are of the opinion that it is not enough to consider that counterclaims fall under its own jurisdiction.14

IV. Jurisdiction and admissibility

6.

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 claim (i.e. the “close connection” test).15

A. Parties' consent

7.

It was argued, and some tribunals agreed, that the general consent to ICSID arbitration could be ipso facto interpreted as consent to counterclaim.16 This entails that the arbitral tribunal has jurisdiction over the primary claim.17 Other tribunals have disagreed with this interpretation.18 Tribunals’ jurisdiction is more complex when the parties are bound by a mandatory arbitration provision included in a related contract19 or when the treaty contains an umbrella clause.20

8.

Tribunals adopted different approaches to admit counterclaims according to the formulations of the arbitration clause:

  1. Broad arbitration clauses: Clauses that provide for arbitration of “all” and “any” disputes related to the investment and/or allow States to submit disputes to arbitration have been found to permit counterclaims.21
  2. Restrictive arbitration clauses: Arbitral tribunals lack jurisdiction to hear counterclaims before a restrictive arbitration clause22 and the mere referral to “any disputes” clause does not confer it the needed jurisdiction.23
  3. Implied consent: Some investment treaties do appear to implicitly grant the respondent a general right to submit counterclaims by excluding from its scope of jurisdiction certain categories of counterclaims.24
9.

For some Tribunals, the determinant factor is not only the material scope of the arbitration clause but rather the reciprocity of the right to file a claim. It means that even if the treaty contains a “broad arbitration clause”, jurisdiction will be dismissed on the ground that only the investor has locus standi to file a claim and/or that the Treaty does not explicitly contemplate the right to file a counterclaim.25

B. The "close connection" test

10.

A counterclaim should have a sufficiently close connection with the primary claim brought by the investor.26 The ICSID Convention and Arbitration Rules require that a counterclaim must arise “directly out of the subject matter of the dispute”.27 Whereas the 2010 UNCITRAL Rules do not mention it,28 the connection requirement has been said to reflect “a general legal principle” required to admit a counterclaim,29 that “customarily govern” the admissibility of a counterclaim.30

11.

While some interpreted the “close connection” test as a condition of admissibility,31 others have analysed it with the consent of the parties, not necessarily distinguishing between jurisdiction and admissibility.32 (See further admissibility, Section II).

12.

Investment tribunals diverge on the applicable standard of connectivity.33 Some tribunals have required a legal connection (i.e., claims arising out of the same legal instrument)34 while other tribunals have analysed this requirement from both a factual and legal perspective and only assessed if the counterclaim arises out of the same subject matter of the dispute.35

V. Merits

13.

In practice, States have ascertained counterclaims against investors based on violations of domestic law,36 including allegation that failure to comply with domestic law constitutes a breach of the provision containing the definition of investment,37 and public international law.38 Within the latter category, States have used a variety of sources against investors, such as multilateral treaties on human rights,39 (see further Human Rights Counterclaims), environmental protection40 (see further Environmental Issues in ISDS), corporate social responsibility standards,41 the international principles of good faith,42 or the prohibition of corruption or fraud.43 States have also ascertained counterclaims for damages.44

13.

Tribunals have been reluctant to accept counterclaims based on breach of domestic law in treaty-based disputes, stating that they can only adjudicate causes of action arising under the applicable investment agreement.45

14.

Similarly, tribunals in treaty-based disputed have been opposed to admitting counterclaims based on breach of contracts concluded with the State when the contract contains its own dispute resolution clause46 or when the parties to the contract are not the same parties to the arbitration.47

Bibliography

Anzilotti, D., La demande reconventionnelle en procédure internationale, J.D.I (Clunet), 1930, pp. 857-877. 

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, pp. 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, 2005, pp. 261-272. 

De Nanteuil, A., Counterclaims in Investment Arbitration: Old Questions, New Answers?, The Law & Practice of International Courts and Tribunals, 2018, pp. 374-392.

Friedman, M. and Popova, I., Can State Counterclaims Salvage Investment Arbitration?, World Arbitration & Mediation Review, 201.

Hoffmann, A. K., Counterclaims, in Kinnear, M., Fischer, G. R., Almeida, J. M., Torres, L. F., Bidegain, M. U. (eds.), Building International Investment Law. The First 50 Years of ICSID, 2016.

Lalive, P. and Halonen, L., On the Availability of Counterclaims in Investment Treaty Arbitration, Czech Yearbook of International Law., 2011.

Mourre, A., The Set-off Paradox in International Arbitration, Arbitration International 24, no 3, 2008. 

Sharpe, J. K., and Jacob, M., Counterclaims and State Claims, in Contemporary and Emerging Issues on the Law of Damages and Valuation in International Investment Arbitration Leiden, The Netherlands: Brill, 2018.

Toral, M. and Schultz, T., The State, A Perpetual Respondent in Investment Arbitration? Some Unorthodox Considerations, in The Backlash Against Investment Arbitration Perceptions and Reality, pp. 577- 602.

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