By Elizabeth Whitsitt
April 8, 2010
The hearing on preliminary objections to jurisdiction in the Railroad Development Corporation (RDC) v. Republic of Guatemala arbitration took place from Monday, March 1, 2010 through Wednesday, March 3, 2010.
Consistent with the transparency provisions of CAFTA-DR, the hearing conducted in early March was open to the public, except with respect to issues involving confidential matters. The hearing was broadcast live in a conference room of the World Bank.
In 1997 RDC, through its Guatemalan subsidiary Compania Desarrolladora Ferroviaria, S.A. (FVG), won a public bid and signed a contract with the Guatemalan state-owned railway system, Ferrocarriles de Guatemala (FEGUA). Under the terms of that contract, RDC agreed to resurrect a transit system which required significant refurbishment.
While RDC was somewhat successful in its restoration of Guatemala’s railway system, it began commercial arbitral proceedings in Guatemala in June of 2005. Specifically, RDC asserted that Guatemala had failed to clear squatters from railway properties thus violating provisions of the contract between FVG and FEGUA. A little more than a year later, the Guatemalan government adopted the so-called Lesivo resolution, which declared the contract with FVG injurious to the state.
In July 2007, RDC filed a claim with ICSID claiming breaches of CAFTA-DR and some US $65 million in damages. Specifically, RDC contends that after the adoption of the Lesivo resolution, FEGUA broke its agreement with FVG when it missed trust-fund payments and failed to remove squatters from the railway tracks.
With local and international arbitration proceedings between the parties pending, Guatemala unsuccessfully attempted to challenge the CAFTA-DR tribunal’s jurisdiction in the spring of 2008. At the heart of Guatemala’s jurisdictional challenge was the fact that the local arbitration proceedings had not been discontinued. Guatemala argued that it had only consented to arbitrate CAFTA-DR disputes that were not being decided in other forums.
In rejecting Guatemala’s challenge, the CAFTA-DR tribunal ultimately determined that there was no overlap between the measures underlying the domestic and international arbitration claims. As a result, the tribunal ordered that the proceedings move to a consideration of the merits of RDC’s claims.
In the summer of 2009, approximately one month after RDC filed its written pleadings on the merits of the dispute, Guatemala raised additional jurisdictional objections and asked that its concerns be addressed by the tribunal before continuing with the merits phase of the proceedings.
In a procedural order dated August 24, 2009, the tribunal consented to Guatemala’s request. Proceedings on the merits were suspended pending a decision on Guatemala’s additional jurisdictional objections.
This case is one of four known arbitral proceedings initiated under the Central American – Dominican Republic – United States Free Trade Agreement (CAFTA-DR) in the summer of 2007.*
* Aside from Railroad Development Corporation v. Guatemala, other CAFTA-DR arbitrations include: Pacific Rim Cayman v. El Salvador, Commerce Group Corporation and San Sebastian Gold Mines, Inc. v. El Salvador, and TWC Group .v. Dominican Republic
Previous Related ITN Reporting:
“Tribunal refuses to clarify decision on jurisdiction in Railroad Development Corporation v. Republic of Guatemala,” By Damon Vis-Dunbar, Investment Treaty News, 20 January 2009, available here:
“Guatemala’s objection to jurisdiction dismissed in DR-CAFTA arbitration,” By Damon Vis-Dunbar, Investment Treaty News, 26 November, 2008, available here:
“US railway investor’s claim against Guatemala tests CAFTA transparency provisions,” By Fernando Cabrera Diaz and Luke Eric Peterson, Investment Treaty News, 7 September, 2007, available here: