Supervisión y Control S.A. v. Republic of Costa Rica,Case No. ARB/12/4
By majority, a tribunal at the International Centre for Settlement of Investment Disputes (ICSID) affirmed its jurisdiction over claims initiated by a Spanish investor against Costa Rica. However, it declared that the claims were not admissible either because of the forum selection clause or because of the investor’s failure to comply with the waiting period requirement under the Costa Rica–Spain bilateral investment treaty (). The tribunal ordered each party to bear its own legal costs and half of the arbitration costs.
Factual background and claims
Supervisión y Control (SyC), incorporated in Spain, and Transal, based in Costa Rica, formed the Riteve consortium to bid in the tender process for a concession to provide vehicle technical inspection (VTI) services in Costa Rica. Riteve was the successful bidder and concluded a concession agreement with Costa Rica in May 2001.
In several instances between 2001 and 2011, the Ministry of Public Works and Transportation of Costa Rica decided not to effect annual increases to the rates for VTI services as allegedly required by the concession agreement. SyC submitted a request for ICSID arbitration on December 21, 2011, claiming that Costa Rica thus violated the fair and equitable treatment () standard, the article on expropriation, the umbrella clause and other provisions of the Costa Rica-Spain BIT, and requested compensation of €261.6 million.
Tribunal affirms jurisdiction over claims under broadly-worded umbrella clause
The tribunal noted that a breach of a contract between a state and a foreign investor does not constitute by itself an international law or treaty violation, but that Article III.2 of the BIT consisted in an umbrella clause, obliging each state to comply with any obligation it has contracted in relation to investment of investors of the other state.
Costa Rica argued that the tribunal did not have jurisdiction over the claims under the umbrella clause given there was no direct contractual relationship between SyC and Costa Rica under the concession agreement. However, the tribunal considered that the wording of Article III.2—establishing that the state shall comply with obligations “related to investments by investors of the other Contracting Party”—was broad enough to cover the obligations of Costa Rica to Riteve, a company controlled by SyC, going beyond the direct contractual relationship. Consequently, the tribunal found jurisdiction over the claims.
Admissibility: tribunal looks at the forum selection clause in Article XI.3
Article XI.3 of the BIT establishes that if the investor submits the dispute to the domestic courts, it may initiate arbitration provided the court has not issued a decision; to initiate arbitration, the investor must adopt the necessary measures to definitively withdraw from the judicial proceeding. The tribunal considered that the provision constitutes a forum selection clause corresponding to a waiver clause.
According to the tribunal, forum selection is an admissibility requirement and it was necessary to determine whether SyC submitted the dispute to a competent court in Costa Rica and, if so, whether it withdrew from the judicial proceeding once the arbitration initiated.
First, the tribunal analyzed the proceeding initiated by Riteve before the Administrative Contentious Court (ACC), which Costa Rica considered to be in violation of the forum selection clause. To determine whether the ACC proceedings related to the dispute submitted to arbitration, the tribunal applied the “fundamental basis of a claim” test. According to this test, the tribunal must analyze whether the ACC and arbitral cases shared the fundamental cause of the claim and sought the same effects. As a second step, the tribunal must analyze whether the ACC claims initiated by Riteve were attributable to SyC.
The tribunal considered that the ACC and arbitral proceedings pursued the same effects: compensation for the losses derived from the conduct or omissions of Costa Rica, alleged to violate national law in the local proceedings and alleged to violate the treaty in the arbitration. As to the second step, considering that Riteve was a corporate vehicle acting according to the interests and instruction of SyC, its majority shareholder, the tribunal concluded that the ACC proceedings initiated by Riteve must be considered filed by SyC.
However, the tribunal noted that Riteve failed to withdraw from the ACC proceedings once SyC initiated arbitration, in breach of Article XI.3. Therefore, the tribunal held that the claims forming part of the ACC proceedings—namely, those arising from the conducts or omissions of Costa Rica related to rates for the VTI service—were inadmissible in the arbitration. It also held that the claims raised by SyC, which do not refer to the adjustment of rates, were in principle admissible if they complied with the other admissibility requirements.
Admissibility: consultation and waiting period requirements under Article XI.1
Article XI.1 of the treaty requires the investor to notify any dispute to the respondent state, including detailed information. Formal court or arbitral proceedings may only be initiated if a friendly settlement is not reached within six months of the notice. The tribunal recalled that proper notice is an element of the state’s consent to arbitration and that the failure to notify implies inadmissibility of the claim given the lack of mandatory prior negotiation.
The tribunal observed that the only claims that were duly notified by SyC were those related to the adjustment of rates for the VTI and the damages derived from Costa Rica’s conduct, which the tribunal had already held inadmissible. It held that the new claims advanced by SyC were also inadmissible, because SyC failed to comply with the Article XI.1 requirement to notify the respondent at least six months before initiating arbitration. Accordingly, the tribunal held that all claims were inadmissible.
Notes: The ICSID tribunal was composed by Claus von Wobeser (president appointed by the chairman of the ICSID Administrative Council, Mexican national), Joseph P. Klock (claimant’s appointee, U.S. national) and Eduardo Silva Romero (respondent’s appointee, Colombian and French national). The award is available in English at http://www.italaw.com/sites/default/files/case-documents/italaw8230.pdf.
Maria Florencia Sarmiento is a teaching and research assistant at the Catholic University of Argentina.