ABUSIVE CONDUCT IN INVESTOR-STATE ARBITRATION: A FOCUS ON FRIVOLOUS CLAIMS

Year 2022, Issue: 68, 487 - 512, 21.06.2022

Üzeyir Karabıyık

Abstract

The structural deficiencies of the investor-state dispute settlement (ISDS) system pave the way for foreign investors’ abusive conduct. As one of the most frequently faced forms of abusive conduct, the use of frivolous claims has become a growing concern. Despite lacking legal merit, frivolous claims can generate damaging consequences for host states. This article first discusses the characteristics of frivolous claims in ISDS practice through examples from arbitral case law. It subsequently examines the existing tools and mechanisms that can be employed to cope with this phenomenon, focusing primarily on early dismissal mechanisms in institutional rules and investment treaties and security for costs. Finally, the efficacy of third-party funding in curtailing frivolous claims is addressed

Keywords

ISDS, investor-state arbitration, frivolous claims, security for costs, third-party funding, early dismissal mechanisms

References

• Brekoulakis S/Rogers C, “Third-Party Financing in ISDS: A Framework for Understanding Practice and Policy”, Academic Forum on ISDS Concept Paper 2019/11, 31 July 2019.
• Chen D L, Can Markets Stimulate Rights? On the Alienability of Legal Claims, 2015, 46 RAND J. of Economics 23, 25, 33.
• Chen T-F, Deterring Frivolous Challenges in Investor-State Dispute Settlement, 8 Contemp. Asia Arb. J. 61, 2015.
• Dodge K/Barnett J/Macedo L/Kulig P, Third-Party Funding and Reform of the ICSID Arbitration Rules, 3/2021, Revista Română De Arbitraj. Gaillard E, Abuse of Process in International Arbitration, ICSID Review, 2017.
• Garcia F J, Third-Party Funding as Exploitation of the Investment Treaty System, 59 B.C. L. Rev. 2911, 2018.
• Guven B/Johnson L, The Policy Implications of Third-Party Funding in Investor-State Dispute Settlement, Columbia Center on Sustainable Investment, CCSI Working Paper, 2019.
• Karabıyık M Ü, Investor Misconduct in International Investment Arbitration: Can the Unclean Hands Doctrine be a Cure?, Year: 12, Issue: 22, July 2021, Law & Justice Review.
• Karabıyık M Ü, Remedying Investor Misconduct in Investor-State Arbitration through Third Party Funding, Volume 1 Issue 2, 15-25, 2021, Indian Review of International Arbitration.
• Markert L, Improving Efficiency in Investment Arbitration, 4 Contemp. Asia Arb. J. 215, 2011.
• Polasek M/Quero C E S, 'Chapter 21: Security for Costs: Overview of ICSID Case Law', in Sherlin Tung, Fabricio Fortese, et al. (eds), Finances in International Arbitration: Liber Amicorum Patricia Shaughnessy, © Kluwer Law International; Kluwer Law International 2019.
• Polonskaya K, Frivolous Claims in the International Investment Regime: How CETA Expands the Range of Frivolous Claims That May Be Curtailed in an Expedient Fashion, 17 Asper Rev. Int'l Bus. & Trade L. 1, 2017. Román B M C, “Third-party Litigation Funding: Investing in Arbitration', Spain Arbitration Review, Volume 2012, Issue 13, Revista del Club Español del Arbitraje, © Club Español del Arbitraje; Wolters Kluwer España 2012.
• Yeo A/Yen K S, Objection of Manifest Lack of Legal Merit of Claims: Arbitration Rule 41(5), The Investment Treaty Arbitration Review, 4th Edition, 2019.
• Brandes Investment Partners, LP v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/08/3, Decision on the Respondent's Objection Under Rule 41(5) of the ICSID Arbitration Rules, 2 February 2009
• Emmis et al. v. Hungary, ICSID Case No. ARB/12/2, Decision on Respondent's Objection Under ICSID Arbitration Rule 41(5), 11 March 2013
• Commerce Group Corp. and San Sebastian Gold Mines, Inc. v. Republic of El Salvador ICSID Case. No. ARB/09/17, Annulment Proceeding, Decision on El Salvador’s Application for Security for Costs, 20 September 2012
• EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic, ICSID Case No. ARB/14/14, Procedural Order No. 3, 23 June 2015
• Global Trading Resources Corp. & Globex International Inc. v. Ukraine, ICSID Case No. ARB/09/11, Award, 1 December 2010
• Lighthouse Corporation Pty Ltd and Lighthouse Corporation Ltd, IBC v. Democratic Republic of Timor-Leste ICSID Case No. ARB/15/2, Procedural Order No. 2, Decision on Respondent’s Application for Provisional Measures, 13 February 2016
• Luis García Armas v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/16/1, Procedural Order No. 8 concerning provisional measures, 20 June 2018
• Manuel García Armas et al. V. Bolivarian Republic of Venezuela, PCA Case No. 2016-08, Procedural Order No. 9, 20 June 2018)
• MOL Hungarian Oil and Gas Company Plc v Republic of Croatia, ICSID Case No. ARB/13/32, Decision on Respondent's Application under ICSID Arbitration Rule 41(5) of the ICSID Arbitration Rules, 2 December 2014
• PNG Sustainable Development Program Ltd. v. Independent State of Papua New Guinea, ICSID Case No. ARB/13/33, Decision on Respondent's Application under ICSID Arbitration Rule 41(5) of the ICSID Arbitration Rules, 28 October 2014
• Pac Rim Cayman LLC v. The Republic of El Salvador, ICSID Case No. ARB/09/12, Decision on The Respondent’s Preliminary Objections Under CAFTA Articles 10.20.4 and 10.20.5, 2 August 2010
• Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg & RSM Production Corp. v. Grenada, ICSID Case No. ARB/10/6, Award, 10 December 2010
• Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3, Award, 6 May 2013 RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on St. Lucia’s Request for Security for Costs, 13 August 2014
• SGS Societe Generale de Surveillance S.A. v. Pakistan, ICSID Case No. ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction, 6 August 2003 South American Silver Limited v. Bolivia, PCA Case No. 2013-15, Procedural Order No.10, 11 January 2016
• Trans-Global Petroleum, Inc. v. Hashemite Kingdom of Jordan, ICSID Case No. ARB/07/25, Decision on the Respondent's Objection Under Rule 41(5) of the ICSID Arbitration Rules, 12 May 2008