If a Claimant submits a request for arbitration to the International Centre for Settlement of Investment Disputes (ICSID), according to Article 36(3) of the ICSID Convention, its request will be registered, and the case will proceed unless the Secretary-General finds, on the basis of the information contained in the request, that the dispute is manifestly outside the jurisdiction of ICSID,[1] i.e., the dispute is not between a Contracting State and a national of another Contracting State, the dispute does not arise directly out of an investment, or the parties have not consented in writing to submit the dispute to ICSID.[2]
Imagine that a claimant submits a request for arbitration to ICSID, claiming that the fictional state of Wakanda has expropriated his investment. Obviously, this claim is manifestly outside the jurisdiction of ICSID under Article 36(3) (given that Wakanda is not real and thus not a signatory of the ICSID Convention), and the Secretary-General will refuse to register the request.
However, what happens if the claimant submits a request for arbitration that clears this jurisdictional threshold but is frivolous as to the merits? Or, what if jurisdiction is doubtful but not manifestly lacking? Once the request is registered, will the parties have no choice but to progress through the full, expensive course of proceedings before the frivolous claims can be dismissed?
This note will outline ICSID’s response to these questions in the form of 2006 ICSID Rule 41(5) and its successors.
Rule 41(5) and Rule 41: Procedure
In response to concerns by respondent governments over the Secretary-General’s limited power to prevent frivolous claims,[3] Rule 41(5) was added to the ICSID Arbitration Rules in 2006, to allow a tribunal on an expedited basis at an early stage of the proceeding to dismiss all or part of a claim on the merits.[4] It was one of several Preliminary Objections possible under Rule 41 of the 2006 ICSID Rules.
The text of Rule 41(5) provides:
Unless the parties have agreed to another expedited procedure for making preliminary objections, a party may, no later than 30 days after the constitution of the Tribunal, and in any event before the first session of the Tribunal, file an objection that a claim is manifestly without legal merit. The party shall specify as precisely as possible the basis for the objection. The Tribunal, after giving the parties the opportunity to present their observations on the objection, shall, at its first session or promptly thereafter, notify the parties of its decision on the objection. The decision of the Tribunal shall be without prejudice to the right of a party to file an objection pursuant to paragraph (1) or to object, in the course of the proceeding, that a claim lacks legal merit.[5]
Thus, under Rule 41(5), the objection had to be made no later than 30 days after the constitution of the Tribunal and before the first session of the Tribunal (which was required to take place within 60 days after the Tribunal’s constitution) and both parties were given the opportunity to present their observations on the objection.
The tribunal was then required to notify the parties “at its first session or promptly thereafter” that it had rendered an award stating that the dispute is not within the jurisdiction of the ICSID or that all claims are manifestly without legal merit, or a decision finding otherwise.[6] Such a decision was without prejudice to the right of a party to file any other preliminary objection or to argue subsequently that the claim is without legal merit.[7]
When the ICSID Arbitration Rules were updated in 2022, Rule 41(5) of the 2006 ICSID Rules was also modified, becoming Rule 41 of the 2022 ICSID Rules.
Text was added to the updated Rule 41 to clarify that it covered objections to jurisdiction and to the Tribunal’s competence, in addition to objections to the merits of a claim,[8] stating explicitly that “[t]he objection may relate to the substance of the claim, the jurisdiction of the Centre, or the competence of the Tribunal.”[9]
The updated Rule 41 also features a change in the timeline for filing the objection to no later than 45 days after the constitution of the Tribunal and provides more detail as to the timelines for the procedure, specifying that the Tribunal will render its decision or Award on the objection within 60 days after the later of the constitution of the Tribunal or the last submission on the objection. This appears to be in response to criticisms of the old Rule 41(5) stemming from the delays observed between the filing of objections and the date of the tribunals’ decisions.[10]
Like the original Rule 41(5), a decision by the tribunal under 2022 Rule 41 is also without prejudice to the right of a party to file a preliminary objection or to argue subsequently in the proceeding that a claim is without legal merit.
Rule 41(5) and 41 in Practice
According to the ICSID website, tribunals in 52 cases have applied Article 41(5) of the 2006 ICSID Rules to objections that claims manifestly lack legal merit.[11] The majority of these tribunals[12] have followed the analysis set out in the decision in Trans Global Petroleum Inc. v. Hashemite Kingdom of Jordan, where Rule 41(5) was applied for the first time.[13]
The new Article 41 of the 2022 ICSID Rules has been applied at least two times thus far, the first of which was in the 31 May 2024 decision in Bank of Nova Scotia v. Republic of Peru. The tribunal in this case also relied heavily on the analysis of the Trans Global tribunal,[14] demonstrating that the analysis under Article 41 of the 2022 Rules has not diverged from that of Article 41(5) of the 2006 Rules.
The analysis followed by the Trans-Global tribunal is summarised below:
Trans-Global Petroleum Inc. v. Hashemite Kingdom of Jordan
In this case, the claimant, Trans-Global Petroleum Inc., a US corporation, made three claims against the respondent, Jordan, for alleged breaches of the Jordan-US BIT concerning the claimant’s USD 29 million investment in a petroleum exploration venture in the respondent’s national territory. Jordan responded by submitting an Objection under Rule 41(5) of the ICSID Arbitration Rules, asserting that the claimant’s claims were manifestly without legal merit and should be dismissed by the Tribunal with prejudice, together with an order that the claimant should bear all legal fees and expenses incurred by the respondent.[15]
In its analysis, the tribunal first considered the meaning of the word “manifestly” as it was used in Rule 41(5), including both its ordinary definition and the ways it was used in the ICSID Convention, considering that:
The ordinary meaning of the word requires the respondent to establish its objection clearly and obviously, with relative ease and despatch. The standard is thus set high. Given the nature of investment disputes generally, the Tribunal nonetheless recognises that this exercise may not always be simple, requiring (as in this case) successive rounds of written and oral submissions by the parties, together with questions addressed by the tribunal to those parties. The exercise may thus be complicated; but it should never be difficult.[16]
It also found that the procedure imposed by Article 41(5) confirmed this meaning, as the prescribed time limits are severely truncated, indicating a summary procedure not susceptible to elaborate, lengthy memorials requiring detailed preparation, presentation and deliberations, and because a respondent’s objection under Rule 41(5) may produce an ICSID award finally disposing of the claimant’s claims, with all its attendant legal effects.[17]
Next, the tribunal considered the meaning of the phrase “without legal merit”, noting that the adjective “legal” was clearly used in contradistinction to factual and, thus, that a tribunal is not concerned per se with the factual merits of the claimant’s three claims, though recognising that it is rarely possible to assess the legal merits of any claim without also examining the factual premise upon which the claim is advanced.[18]
The tribunal thus concluded that the word “manifestly” requires the respondent’s Objection to meet the test of clarity, certainty and obviousness discussed above. As regards the words “without legal merit”, the tribunal accepted that, concerning disputed facts relevant to the legal merits of a claimant’s claim, the tribunal need not accept at face value any factual allegation that the tribunal regards as (manifestly) incredible, frivolous, vexatious or inaccurate or made in bad faith; nor need a tribunal accept a legal submission dressed up as a factual allegation. The tribunal did not accept, however, that a tribunal should otherwise weigh the credibility or plausibility of a disputed factual allegation. Lastly, in applying Article 41(5) to the particular case, the Tribunal accepted, of course, that it must apply these two wordings together.[19]
Application to Annulment and Revision Proceedings
Practice has also shown that in addition to during normal proceedings, tribunals have found that Rule 41(5) of the 2006 Rules could be applied to challenge motions for revision[20] and annulment,[21] by virtue of Rule 53 of the 2006 Rules, which provides:
The provisions of these Rules shall apply mutatis mutandis to any procedure relating to the interpretation, revision or annulment of an award and to the decision of the Tribunal or Committee.[22]
Tribunals have not yet tackled this issue regarding the new Rule 41, though it is likely to be found to have a similar effect, given that the new Rule 72 of the 2022 Rules reflects the same idea as that of the old Rule 53:
Except as provided below, these Rules shall apply, with necessary modifications, to any procedure relating to the interpretation, revision or annulment of an Award and to the decision of the Tribunal or Committee.[23]
Conclusion
In conclusion, the application of Rules 41(5) and 41 by the ICSID serves as an essential mechanism for the expeditious dismissal of claims lacking legal merit. By setting a high standard for objections to be deemed “manifestly without legal merit,” these rules ensure that only the most clear-cut and obviously unsubstantiated claims are dismissed at an early stage, thus saving time and resources for the parties. This procedural innovation has not only streamlined ICSID arbitrations but has also set a precedent followed by other arbitral institutions worldwide.
The influence of ICSID’s Rule 41(5) can be seen in the adoption of similar provisions by several prominent arbitral bodies.[24] For instance, the Singapore International Arbitration Centre incorporated comparable measures in 2016,[25] followed by the Stockholm Chamber of Commerce in 2017.[26] That same year, the China International Economic and Trade Arbitration Commission also adopted similar rules,[27] with the Hong Kong International Arbitration Centre following suit in 2018.[28] More recently, the London Court of International Arbitration introduced analogous provisions in 2020.[29]
These adaptations by various arbitral institutions underscore the importance of efficient dispute-resolution mechanisms in the global arbitration landscape. By embracing rules that facilitate the swift elimination of frivolous claims, these institutions have strengthened their commitment to delivering fair and efficient arbitration services, thereby enhancing the overall credibility and effectiveness of international arbitration.
[1] ICSID Convention, Article 36(3); Screening and Registration – ICSID Convention Arbitration (2022 Rules), https://icsid.worldbank.org/procedures/arbitration/convention/screening-registration/2022.
[2] ICSID Convention, Article 25.
[3] A. Parra, The Development of the Regulations and Rules of the International Centre for Settlement of Investment Disputes, ICSID Review – Foreign Investment Law Journal (2007), p. 65.
[4] Possible Improvement of the Framework for ICSID Arbitration, ICSID Background Paper, October 2004, para. 6; A. Parra, The Development of the Regulations and Rules of the International Centre for Settlement of Investment Disputes, ICSID Review – Foreign Investment Law Journal (2007), p. 65.
[5] 2006 ICSID Arbitration Rules, Rule 41(5).
[6] 2006 ICSID Arbitration Rules, Rule 41(5).
[7] 2006 ICSID Arbitration Rules, Rule 41(5).
[8] In Focus: Objections that a Claim Manifestly Lacks Legal Merit (ICSID Convention Arbitration Rule 41.5), ICSID, March 2021.
[9] 2022 ICSID Arbitration Rules, Article 41(1).
[10] I. Uchkunova & O. Temnikov, Rule 41(5) of the ICSID Arbitration Rules: The Sleeping Beauty of the ICSID system, June 2014, https://arbitrationblog.kluwerarbitration.com/2014/06/27/rule-415-of-the-icsid-arbitration-rules-the-sleeping-beauty-of-the-icsid-system/.
[11] Decisions on Manifest Lack of Legal Merit, 2024, https://icsid.worldbank.org/cases/content/tables-of-decisions/manifest-lack-of-legal-merit.
[12] Watkins Holdings S.a.r.l. and others v. Kingdom of Spain, ICSID Case No. ARB/15/44, Decision on the Claimants’ Preliminary Objections Pursuant to ICSID Arbitration Rule 41(5), 22 January 2024; AHG Industry GmbH & Co. KG v. Republic of Iraq, ICSID Case No. ARB/20/21, Award on the Respondent’s Application Under ICSID Rule 41(5), 30 September 2022; Dominion Minerals Corp. v. Republic of Panama, ICSID Case No. ARB/16/13, Decision of the Ad hoc Committee on the Respondent’s Applications for the Stay of Enforcement of the Award and Under Arbitration Rule 41(5), 21 July 2022.
[13] Trans-Global Petroleum, Inc. v. Hashemite Kingdom of Jordan, ICSID Case No. ARB/07/25, Tribunal’s Decision on the Respondent’s Objection Under Rule 41(5) of the ICSID Arbitration Rules, 12 May 2008, para. 72 (“The Tribunal was informed that this was the first occasion on which an ICSID tribunal was faced with an objection under this rule, being newly introduced as from 10th April 2006.”).
[14] Bank of Nova Scotia v. Republic of Peru, ICSID Case No. ARB/22/30, Decision on Respondent’s Rule 41 Application, 31 May 2024, para. 99.
[15] Trans-Global Petroleum, Inc. v. Hashemite Kingdom of Jordan, ICSID Case No. ARB/07/25, Tribunal’s Decision on the Respondent’s Objection Under Rule 41(5) of the ICSID Arbitration Rules, 12 May 2008, paras. 10-16.
[16] Trans-Global Petroleum, Inc. v. Hashemite Kingdom of Jordan, ICSID Case No. ARB/07/25, Tribunal’s Decision on the Respondent’s Objection Under Rule 41(5) of the ICSID Arbitration Rules, 12 May 2008, para. 88.
[17] Trans-Global Petroleum, Inc. v. Hashemite Kingdom of Jordan, ICSID Case No. ARB/07/25, Tribunal’s Decision on the Respondent’s Objection Under Rule 41(5) of the ICSID Arbitration Rules, 12 May 2008, paras. 89-92.
[18] Trans-Global Petroleum, Inc. v. Hashemite Kingdom of Jordan, ICSID Case No. ARB/07/25, Tribunal’s Decision on the Respondent’s Objection Under Rule 41(5) of the ICSID Arbitration Rules, 12 May 2008, para. 97.
[19] Trans-Global Petroleum, Inc. v. Hashemite Kingdom of Jordan, ICSID Case No. ARB/07/25, Tribunal’s Decision on the Respondent’s Objection Under Rule 41(5) of the ICSID Arbitration Rules, 12 May 2008, para. 105.
[20] Watkins Holdings S.a.r.l. and others v. Kingdom of Spain, ICSID Case No. ARB/15/44, Decision on the Claimants’ Preliminary Objections Pursuant to ICSID Arbitration Rule 41(5), 22 January 2024.
[21] Dominion Minerals Corp. v. Republic of Panama, ICSID Case No. ARB/16/13, Decision of the Ad hoc Committee on the Respondent’s Applications for the Stay of Enforcement of the Award and Under Arbitration Rule 41(5), 21 July 2022.
[22] 2006 ICSID Rules, Rule 53.
[23] 2022 ICSID Rules, Rule 72.
[24] D. Roney, Summary Dispositions in International Arbitration – A Procedural Tool with Both Benefits and Risks, December 2020, https://www.sidley.com/en/insights/publications/2020/12/summary-dispositions-in-international-arbitration-a-procedural-tool-with-both-benefits-and-risks.
[25] SIAC Arbitration Rules, Rule 29 (“A party may apply to the Tribunal for the early dismissal of a claim or defence on the basis that: (a) a claim or defence is manifestly without legal merit; or (b) a claim or defence is manifestly outside the jurisdiction of the Tribunal.”).
[26] SCC Arbitration Rules, Article 39 (“A party may request that the Arbitral Tribunal decide one or more issues of fact or law by way of summary procedure, without necessarily taking every procedural step that might otherwise be adopted in the arbitration.”).
[27] CIETAC Investment Arbitration Rules, Article 26 (“A party may apply to the arbitral tribunal for the early dismissal of a claim or counterclaim in whole or in part on the basis that such a claim or a counterclaim is manifestly without legal merit, or is manifestly outside the jurisdiction of the arbitral tribunal.”).
[28] HKIAC Administered Arbitration Rules, Article 43.1 (“The arbitral tribunal shall have the power, at the request of any party and after consulting with all other parties, to decide one or more points of law or fact by way of early determination procedure, on the basis that: (a) such points of law or fact are manifestly without merit; or (b) such points of law or fact are manifestly outside the arbitral tribunal’s jurisdiction; or (c) even if such points of law or fact are submitted by another party and are assumed to be correct, no award could be rendered in favour of that party.”).
[29] LCIA Arbitration Rules, Rule 22.1(viii) (“The Arbitral Tribunal shall have the power, upon the application of any party or (save for sub-paragraph (x) below) upon its own initiative, but in either case only after giving the parties a reasonable opportunity to state their views and upon such terms (as to costs and otherwise) as the Arbitral Tribunal may decide […] to determine that any claim, defence, counterclaim, cross-claim, defence to counterclaim or defence to cross-claim is manifestly outside the jurisdiction of the Arbitral Tribunal, or is inadmissible or manifestly without merit; and where appropriate to issue an order or award to that effect (an ‘Early Determination’)”).