ICSID tribunal declines jurisdiction: Timor-Leste never consented to ICSID arbitration

Lighthouse Corporation Pty Ltd and Lighthouse Corporation Ltd, IBC v. Democratic Republic of Timor-Leste, ICSID Case No. ARB/15/2

A tribunal at the International Centre for Settlement of Investment Disputes (ICSID) denied its jurisdiction over a case initiated by Lighthouse Corporation Pty Ltd and Lighthouse Corporation Ltd, IBC (Lighthouse) against the Democratic Republic of Timor-Leste. The final award was rendered on December 22, 2017.

Background and claims

The dispute originated in a Fuel Supply Agreement (FSA) comprising three interrelated agreements entered into in October and November 2010. The agreements refer to the Lighthouse Standard Terms and Conditions Applying to the Sale of Goods (Standard Terms) and the Lighthouse Energy – General Terms & Conditions of Supply (General Terms), the relevance and effect of which are disputed by the parties.

Timor-Leste’s jurisdictional objections were three: (1) it had not consented to ICSID arbitration, (2) there had been no “investment” for the purposes of the ICSID Convention or the Timor-Leste Foreign Investment Law (FIL) and (3) the claimants were not a “foreign investor” and did not hold a Special Investment Agreement (SIA) for the purpose of the FIL. Therefore, the tribunal focused on whether Timor-Leste had consented to the jurisdiction of ICSID to arbitrate the dispute through the FSA, the Standard Terms and the FIL.

Consent in the FSA

Lighthouse asserted that the Standard Terms were incorporated by reference into the three agreements forming the FSA. It also relied on the so-called December version of the General Terms, which provided that, if the parties could not settle a dispute amicably, they agreed to submit it to ICSID. Timor-Leste, however, relied on the so-called September and October versions of the General Terms, which state that domestic litigation would be the method of dispute settlement and do not mention ICSID.

The tribunal noted that the references to the Standard Terms were vague and did not express an intent to incorporate the document into the FSA. One of the references, for example, also mentioned information about Timor-Leste’s power generation needs, which were unlikely to have been intended to be incorporated as contractual terms. One of the three agreements mentioned a document that, in turn, referred to the Standard Terms, and the claimants argued that this “double incorporation” served to incorporate the Standard Terms into the FSA—but the tribunal disagreed. The tribunal was also not satisfied that the Standard Terms had even been supplied to Timor-Leste by the time of signing of the first agreement forming the FSA.

The tribunal also found, from an analysis of the General Terms, that there was no common intent to submit to ICSID jurisdiction. It found, instead, that the intent was to resolve disputes through domestic court litigation. The tribunal looked into the conduct of Lighthouse as of October 25, 2011, by which time Lighthouse had alleged that the Standard Terms had been incorporated into the FSA. On that day, Lighthouse’s counsel had sent to Timor-Leste a document entitled “Consent to Arbitration under the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States,” requesting that Timor-Leste execute it. Lighthouse’s counsel did not mention that an ICSID arbitration clause was already allegedly present in the parties’ contractual arrangements. Based on this, it was clear to the tribunal that Lighthouse still did not consider that Timor-Leste had consented to ICSID arbitration.

Consent to ICSID arbitration through the FIL

A “foreign investment” under the Timorese FIL is “an investment made by a ‘foreign investor’ which must be any direct investment made with financial resources, or subject to pecuniary assessment, originating from abroad at the risk and expense of a foreign investor” (para. 311). A “foreign investor” is defined as “any foreign individual or collective person or non-resident Timorese national, that holds a foreign investor’s certificate” (para. 312).

According to Timor-Leste, Lighthouse could not rely on the offer of ICSID arbitration contained in FIL Article 23 because Lighthouse does not hold a foreign investor’s certificate—as Lighthouse itself admitted—and accordingly does not qualify as a “foreign investor.” Also, according to Timor-Leste, the FSA does not constitute a “special investment agreement,” since FIL Article 18(2) requires that SIAs “be authorised by resolution of the Council of Ministers, clearly specifying the special conditions justifying the agreement, together with the special system applicable to the agreement” (para. 316).

The tribunal noted that Lighthouse could offer no evidence of a resolution from the Council of Ministers stating that the FSA was an SIA, and accordingly agreed with Timor-Leste.

Investment within the ambit of Article 25(1) of the ICSID Convention

Timor-Leste’s third jurisdictional objection was that the dispute did not arise directly out of an investment as required by ICSID Convention Article 25. It argued that the meaning of “investment” under the ICSID Convention is objective and excludes ordinary commercial transactions. According to Timor-Leste, the transaction in question was not an investment but rather an exchange of goods and services for payment. For reasons of procedural economy, the tribunal decided not to determine the answer to this question, since it was already established that Timor-Leste had not consented to ICSID arbitration and the outcome of this question would make no difference to the tribunal’s decision.

Decision and costs

The tribunal held that it lacked jurisdiction over the dispute, dismissing any other requests for relief and directing Lighthouse to bear all costs of the arbitration, ordering it to pay USD 273,434.26 to Timor-Leste and another USD 1,300,000 for Timor-Leste’s legal fees and expenses.

Notes: The tribunal was composed of Gabrielle Kaufmann-Kohler (President, jointly appointed by the other arbitrators, Swiss national), Stephen Jagusch (claimants’ appointee, New Zealand national) and Campbell McLachlan (respondent’s appointee, New Zealand national). The award is available at https://www.italaw.com/cases/6377.

Trishna Menon is a final year undergraduate student of Law at the Gujarat National Law University, India.