{"id":420,"date":"2010-01-12T14:19:00","date_gmt":"2010-01-12T19:19:00","guid":{"rendered":"http:\/\/itn.mattrock.ca\/2010\/01\/12\/an-icsid-tribunal-splits-over-whether-to-hear-ancillary-claims-in-dispute-over-unpaid-gas-deliveries\/"},"modified":"2013-01-24T02:53:51","modified_gmt":"2013-01-24T08:53:51","slug":"an-icsid-tribunal-splits-over-whether-to-hear-ancillary-claims-in-dispute-over-unpaid-gas-deliveries","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2010\/01\/12\/an-icsid-tribunal-splits-over-whether-to-hear-ancillary-claims-in-dispute-over-unpaid-gas-deliveries\/","title":{"rendered":"An ICSID Tribunal splits over whether to hear ancillary claims in dispute over unpaid gas deliveries"},"content":{"rendered":"

By Elizabeth Whitsitt<\/strong><\/span><\/p>\n

January 13, 2010<\/strong><\/span><\/p>\n

In a split decision, an ICSID<\/span> tribunal has refused to hear ancillary claims advanced by American company, Itera International Energy LLC (Itera), and its Dutch parent, Itera Group NV (IGNV).<\/span><\/p>\n

Itera and IGNV commenced ICSID arbitral proceedings against Georgia in June 2008, broadly asserting violations of the US-Georgia BIT<\/span> and the Netherlands-Georgia BIT with respect to the claimants\u2019 investment in the chemical fertilizer company JSC Azot.\u00a0 In particular, the claimants asserted that Georgia \u201c\u2026orchestrated the bankruptcy of JSC Azot, a company majority-owned by [the claimants],\u2026 and sold Azot\u2019s assets to a third party.\u201d\u00a0 The claimants acquired Azot as part of a state-sanctioned attempt to restructure debts owed to them by Georgian state-owned entities for unpaid gas deliveries.<\/span><\/p>\n

In their Request for Arbitration, Itera and IGNV also noted their concerns with respect to another debt restructuring arrangement intended to facilitate the further repayment of amounts owed to the claimants for unpaid gas deliveries.\u00a0 Specifically, the claimants noted that arbitration proceedings were already pending before the International Commercial Arbitration Court of the Chamber of Commerce of the Russian Federation (ICAC) with respect to this second debt restructuring arrangement.\u00a0 However, they reserved their rights to introduce additional claims in relation to the latter arrangement \u201cshould their losses not be fully compensated as a result of the ICAC proceedings.\u201d<\/span><\/p>\n

Subsequently, Itera and IGNV attempted to enlarge their case against Georgia in the ICSID proceedings by seeking to admit claims related to the latter debt restructuring scheme.\u00a0 The claimants\u2019 arguments in support of this maneuver were largely focused on issues of procedural efficiency.\u00a0 Observing that \u201c\u2026the various claims currently before the Tribunal [were] inextricably linked\u2026\u201d, the claimants went on to argue that \u201c[a] separation [of the claims] would lead to parallel or consecutive proceedings and\/or give rise to the avoidable risk of conflicting outcomes.\u201d<\/span><\/p>\n

For its part, Georgia alleged that there was \u201cno meaningful factual or legal connection\u201d between the claims.\u00a0 Moreover, Georgia argued that only the tribunal\u2019s dismissal of the claimants\u2019 request for consolidation \u201c\u2026could avoid potentially conflicting decisions [between ICAC and the ICSID Tribunal on the ancillary claims] and serve interests of judicial efficiency and comity.\u201d<\/span><\/p>\n

On December 4, 2009 a majority of the tribunal, composed of Judge Hans Danaelius and Professor Brigitte Stern, sided with Georgia.\u00a0 In so finding, the majority of the tribunal first addressed the parties\u2019 arguments regarding the connectivity between the claims.\u00a0 In particular, the majority recognized that there was a \u201clink\u201d between the claims as both disputes arose out of a common purpose \u2013 to ensure the payment of debts owed to the claimants.\u00a0 In the majority\u2019s view, however, the manner in which those debts were to be repaid involved two separate investments \u2013 a fact distinguishing this case from other ICSID cases* in which new claims had been accepted as \u201cancillary claims.\u201d\u00a0 Accordingly, the tribunal found that \u201c[w]hile the investor is the same [for both claims], it entered into two different types of relationships with Georgia, which in view of the Tribunal, [could not] be analyzed as a single investment.\u201d<\/span><\/p>\n

In addition, the majority addressed both parties\u2019 arguments regarding efficiency.\u00a0 Specifically, the majority clarified that \u201c\u2026efficiency considerations are not in themselves decisive factors for whether or not a new claim shall be accepted as an ancillary claim\u2026\u201d\u00a0 In the majority\u2019s view ancillary claims should be accepted when \u201c\u2026the link between the claims [is] so strong that the examination of one claim cannot be carried out adequately without the other claim being adjudicated at the same time.\u201d\u00a0 Having found no such link in the present case, the two-person tribunal concluded that the conditions set out in the ICSID Convention<\/span> and ICSID Rules regarding ancillary claims had not been satisfied.<\/span><\/p>\n

In direct contrast to the majority, however, the third member of the tribunal, Professor Fancisco Orrego Vicu\u00f1a, would have admitted the ancillary claims in this case.\u00a0 Viewing the test for the admissibility of ancillary claims less strictly, Professor Vicu\u00f1a posited that \u201c[t]he facts do not need to be identical in one and the other dispute.\u00a0 It suffices that they both concern the same business operation, the same investor and the same State party.\u201d<\/span><\/p>\n

Thus, in a two-page dissenting opinion Professor Vicu\u00f1a, the claimants\u2019 nominee to the tribunal, emphasized that Itera\u2019s and IGNV\u2019s claims arose as a result of \u201cmounting unpaid bills for the supply of gas.\u201d\u00a0 Accordingly, in his opinion, the claimants\u2019 investments were \u201c\u2026conceived as mechanisms to\u2026make the Claimant[s] whole for the monies owed.\u201d\u00a0 In that context, the dissenting arbitrator determined that the claims were \u201c\u2026close enough as to require their simultaneous adjudication so that settlement of the dispute [would] be final.\u201d<\/span><\/p>\n

* See CMS Gas Transmission Co. v. Argentina (ICSID Case No. ARB\/01\/8), Decision on Objections to Jurisdiction, 17 July 2003; LG&E Energy Corp. LG&E Capital Corp. and LG&E International, Inc. v. Argentina (ICSID Case No. ARB\/02\/1), Decision on Objections to Jurisdiction, 30 April 2004, Enron Corporation and Ponderosa Assets L.P. v. Argentina (ICSID Case No. ARB\/01\/3), Decision on Jurisdiction (Ancillary Claim), 2 August 2004.<\/span><\/p>\n

Sources:<\/span><\/p>\n

The majority decision and dissenting opinion on Admissibility of Ancillary Claims in Itera International Energy LLC and Itera Group NV v. Georgia is available at:<\/span><\/p>\n

http:\/\/ita.law.uvic.ca\/documents\/Itera-AncillaryClaims.pdf<\/span><\/a><\/p>\n

and<\/span><\/p>\n

http:\/\/ita.law.uvic.ca\/documents\/IteraAncillaryClaims-Dissent.pdf<\/span><\/a><\/p>\n