Raymond Charles Eyre and Montrose Developments (Private) Limited v Democratic Socialist Republic of Sri Lanka - ICSID Case No. ARB/16/25 - Excerpts of the Decision on Annulment - 2 December 2020
Country
Year
2020
Summary
Source: icsid.worldbank.org
TABLE OF CONTENTS
I. INTRODUCTION
II. THE PARTIES
III. PROCEDURAL HISTORY
IV. POSITION OF THE PARTIES
A. THE STANDING ISSUE
(1) The Applicants' Position
(2) The Respondent's Position.
B. THE APPLICANTS' PRIMARY CASE
(1) The Applicants' Position
(2) The Respondent's Position.
C. THE WAIVER ISSUE
(1) The Applicants' Position
(2) The Respondent's Position.
D. THE APPLICANTS' ALTERNATIVE CASE
(1) The Applicants' Position
(2) The Respondent's Position.
V. ANALYSIS OF THE COMMITTEE
A. THE STANDING ISSUE
B. THE WAIVER ISSUE
C. THE PRIMARY CASE
(1) Article 52(1)(b): Manifest excess of power
(2) Whether the alleged defects in the Award constitute a manifest excess of power.
VI. COSTS.
VII. DECISION OF THE COMMITTEE.
I. INTRODUCTION
This annulment proceeding relates to the Award dated 5 March 2020, rendered in ICSID Case No. ARB/16/25 between Mr Raymond Charles Eyre and Montrose Developments (Private) Limited, on the one side, and the Democratic Socialist Republic of Sri Lanka, on the other side (the "Award"). The Award, rendered by a Tribunal composed of Prof. Lucy Reed (President), Prof. Julian DM Lew QC and Prof. Brigitte Stern (the "Tribunal"), dismissed jurisdiction for lack of jurisdiction ratione materiae and ordered the Claimants to pay to the Respondent GBP 338,162.34 for the Respondent's legal and other costs.
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IV. POSITION OF THE PARTIES
24. In their Application for Annulment, the Applicants requested the annulment of the Award under Article 52(1)(b) of the ICSID Convention, arguing that the Tribunal manifestly exceeded its powers by deciding in the Award, as a matter of law and treaty interpretation, that the Montrose Share did not qualify as an investment because the Montrose Land was not an investment itself and therefore Montrose Sri Lanka did not hold a qualifying investment (the "Applicants' Primary Case").
25. During the proceedings regarding the stay of enforcement of the Award, the Respondent contended that Montrose Sri Lanka is not a proper Applicant to the annulment proceedings because it did not challenge the determination in the Award that the Montrose Land was not an investment. The Applicants counter this position (the "Standing Issue").
26. On 25 June 2020, in its Counter-Memorial on Annulment, the Respondent submitted that the Applicants' Primary Case is based on a flawed reading of the Award because the Tribunal did not conclude, as a finding of law, that the Montrose Share was not an investment. The Tribunal's decision was based on a finding of facts.
27. After the Respondent submitted its Counter-Memorial on Annulment, by letter dated
June 2020, the Applicants raised additional grounds for the annulment of the Award and
informed the Committee that "they will develop fully these arguments in their Reply
Memorial."3 As advanced by the Applicants, their alternative case was developed in the
Reply on Annulment, requesting the annulment of the Award based on Article 52(1)(b)
and (e) of the ICSID Convention (the "Applicants' Alternative Case").
28. In the Counter-Memorial on Annulment and the Rejoinder on Annulment, the Respondent contended that the Applicants waived their right and/or are time barred to present additional grounds for annulment not included in the Application (the "Waiver Issue"). The Applicants counter this position.
29. For the sake of clarity and conciseness, in view of the positions raised by the Parties throughout the annulment proceedings, the Committee will present the Parties' positions under the following headings: (A) the Standing Issue, (B) the Applicants' Primary Case, (C) the Waiver Issue, and (D) the Applicants' Alternative Case.
A. THE STANDING ISSUE
(1) The Applicants' Position
30. The Applicants counter the Respondent's position regarding Montrose Sri Lanka's standing as an applicant in the present proceedings. The Applicants remark that they both presented the Annulment and Stay Applications and that they both seek the total annulment of the Award. The Applicants further claim that jurisdictional determinations cannot be partially annulled. Even if a partial annulment were possible, it would impact Montrose's obligations under the Award.
(2) The Respondent's Position
31. The Respondent contends that Montrose Sri Lanka has no standing to appear as an applicant in the present annulment proceedings because in the Application it raised no ground to challenge the determination in the Award that it had no investment protected under the BIT. Therefore, Montrose Sri Lanka must comply with the Award.
B. THE APPLICANTS' PRIMARY CASE
(1) The Applicants' Position
32. The Applicants' Primary Case refers to the conclusion reached by the Tribunal in the Award to the effect that the Montrose Share could only qualify as a protected investment under Article 1 of the BIT and Article 25(1) of the ICSID Convention if Montrose Sri Lanka itself had a protected investment in the Hotel Project or the Montrose Land. According to the Applicants, such interpretation is wrong in law, and the Award must be annulled under Article 52(1)(b) of the ICSID Convention.
33. As to interpreting the ground of "manifest excess of power" set out in Article 52(1)(b) of the ICSID Convention, the Applicants contend that an award may be annulled under this ground where a tribunal fails to exercise a jurisdiction it possesses.7 For an award to be annulled, the error of jurisdiction must be manifest,8 which means that it must be "obvious by itself."9 Manifest excess does not mean, however, that the excess must "leap out of the page on a first reading of the award," given that "[t]he reasoning in a case may be so complex that a degree of inquiry and analysis is required before it is clear precisely what the tribunal has decided."10
34. The Applicants submit that the Respondent errs when it implies that jurisdictional determinations of law and fact cannot be challenged under Article 52(1)(b). To support their position, the Applicants refer to the decision on annulment in Occidental v. Ecuador to argue that "[j]urisdictional excess of powers requires a finding that the tribunal has misconstrued the applicable law (e.g. the law regulating ownership of a protected investment) or has wrongly established the relevant facts (e.g., whether an investor actually controls an investment)." Such excess must be manifest.
35. The Applicants contend that just because another case or cases support a tribunal's approach to the law, it does not follow ipso facto that an award should not be annulled.
36. While the Applicants acknowledge that a certain deference should be paid to a tribunal's findings, such deference is limited and should not substitute the Committee's independent analysis.
(b) The Tribunal manifestly exceeded its powers by declining its jurisdiction ratione materiae under a wrong finding of law
37. For the Applicants, the Tribunal's decision to decline its jurisdiction ratione materiae is based on the incorrect premise that a share in a company can only be considered an investment if that company itself owns an investment. It is the only decision of which the Applicants are aware that adopted such an approach.
38. The Tribunal's approach is contrary to the express wording of the BIT, which in Article 1(a)(ii) provides that an "investment" means "every kind of asset and in particular, though not exclusively [...] shares, stock and debentures of companies or interests in the property of such companies". Article 1(a)(ii) includes no condition that the company in question owns a protected investment itself.
39. The Tribunal's conclusion is also inconsistent with the wording of Article 25(1) of the ICSID Convention. While some tribunals have sought to introduce into Article 25(1) an "inherent meaning" of the word "investment," that test does not require that, where an investment consists of shares in a company, the investor must satisfy the requirements of Article 25(1) not only for the shares but also with respect to any assets the company holds.
40. According to the Applicants, the Tribunal's error is clearly and unambiguously communicated in paragraph 292 of the Award, which states that "the Montrose Share can qualify as a protected investment under the ICSID Convention and BIT only if Montrose itself has a protected investment in the planned Hotel Project on the Montrose Land."17
41. On the other hand, the Applicants object to the Respondent's reading of the Award; namely, that the Tribunal's finding on the Montrose Share and the Montrose Land is a finding of facts, not of law. The Applicants argue that such reading is untenable for two reasons: (i) the jurisdictional objection that Sri Lanka now claims the Tribunal upheld in the Award was never raised in terms; and (ii) even if the objection had been raised, an examination of the relevant part of the Tribunal's reasoning shows that this was not the point being addressed.
42. As to the first point, the Applicants contend that the Respondent wrongfully claims that in the Award, the Tribunal upheld Sri Lanka's jurisdictional objection that the Applicant's claim concerning the Montrose Share was parasitic on their claim for the Montrose Land when applying the Salini test. That is because Sri Lanka never raised such objection in terms. The references pointed out by the Respondent in its Reply on Jurisdiction, in the transcript of the oral hearings, and in its Post-Hearing Brief refer to a different objection: that the Montrose Land was owned by Electro Resorts and that neither Mr Eyre nor Montrose Sri Lanka could bring a claim before the Tribunal because Mr Eyre's indirect rights were parasitic on Montrose Sri Lanka's direct rights on the Montrose Land. Said objection was not addressing the Salini factors -as claimed by the Respondent-, but the question of who owned the Montrose Land.
43. As to the second point, the Applicants argue that even if Sri Lanka objected in the terms it now claims, the terms of the Award make clear that the Tribunal was not upholding such objection. Sri Lanka's submission is that after the Tribunal had considered Mr Eyre's contributions to the Montrose Land and Hotel Project and found them wanting for lack of investment risk, "no independent factual basis existed for the Montrose Share to constitute an `investment' and it fell away for precisely the same reasons."19 If this were the reasoning of the Tribunal, it would have had to consider every individual item that Mr Eyre relied on to establish contribution and investment risk when considering the Montrose Land and Hotel Project and found each of them lacking, so there was "no independent factual basis" remaining for the Montrose Share to stand as an investment.20 The Tribunal, however, did not consider every item in paragraph 296 of the Award, where it listed Mr Eyre's contributions. In the said paragraph, the Tribunal did not refer to Mr Eyre's contributions in "(a) establishing and operating a Sri Lankan company from 2010 onwards, and/or (b) directing that company's activities before Sri Lanka's Land Acquisition Board after the Montrose Land was expropriated."21 For the Applicants, the Tribunal saw no need to examine these contributions because it was operating on the footing that unless that company had an investment of its own in the Montrose Land, the Montrose Share could not constitute an investment.
44. Finally, the Applicants note that Sri Lanka did not even attempt to counter the Applicants' position under their reading of the Award. This omission is tantamount to an admission that, if the Applicants are right in their reading of the Award, the annulment must necessarily follow.
(2) The Respondent's Position
(a) Article 52(1)(b) of the ICSID Convention
45. The Respondent begins by noting that it is "not within the powers of an annulment committee to decide whether it agrees or disagrees with the conclusions of the Tribunal and to substitute its judgment on jurisdictional requirements (including treaty interpretation), the interpretation of the law and/or the assessment of the facts. The committee may only assess whether, in reaching its conclusion, the tribunal manifestly exceeded its powers."24
46. The Respondent defines the contours of Article 52(1)(b) by indicating that fact-findings and the weighing of evidence made by tribunals are outside the scope of review of an ad hoc committee unless the applicant can prove that the errors of fact-finding committed by the tribunal are egregious and irrational.25 Likewise, an alleged wrong application or interpretation of the law is not a ground for annulment unless the misinterpretation or misapplication is so gross or egregious as substantially to amount to a failure to apply the proper law.26 These rules apply to any contention regarding manifest excess of jurisdiction.
47. The erroneous application of law must be distinguished from its non-application. The former does not lead to an excess of power.27 This approach constitutes jurisprudence constante. The contrary approach would constitute a de novo review of the case, which would be inconsistent with the object and purpose of Article 52 of the ICSID Convention and to its drafting history.
48. The Respondent refutes the Applicants' contention that if the Tribunal whose award is under challenge rules in a similar manner as a previous tribunal has ruled on the matter, the possibility of a manifest excess of power is excluded. If a prior tribunal has interpreted or applied a treaty term or concept in a similar manner to that of the Tribunal, it would be virtually impossible to say that the Tribunal has acted in a way that no reasonable person could have acted. To support its position, the Respondent refers to the annulment decisions in Caratube v. Kazakhstan and SGS v. Paraguay.
49. The degree of inquiry required to determine whether a tribunal manifestly exceeded its powers must be analysed on two levels: (i) the level of analysis required to understand the decision; and (ii) once understood, the level of ease with which the excess of power can be detected. In respect of the latter, it should not be necessary to resort to complex argumentation and analysis to find the existence of an excess of power.30 As recognized in SGS v. Paraguay, an excess of power must be manifest and thus must be easily perceived, self-evident, and not the result from extensive interpretation.
50. Finally, the Respondent remarks that the ground for annulment provided for in Article 52(1)(b) must be distinguished from the one set out in Article 52(1)(e). Thus, the Applicants cannot seek to introduce into Article 52(1)(b) an attack on reasoning referring to the failure to state reasons in the award, falling under Article 52(1)(e).32 Yet, as analysed infra,33 the Respondent contends that the Applicants waived their right to invoke Article 52(1)(e), as they did not raise this ground in the Application for Annulment.
(b) The Applicants' reading of the Award is incorrect
51. The Respondent considers that the Applicants' Primary Case is flawed because it constitutes a fundamental misreading of the Award.
52. The Applicants' Primary Case is that the Tribunal committed a manifest excess of power under Article 52(1)(b) of the ICSID Convention by allegedly interpreting Article 1 of the BIT and Article 25(1) of the ICSID Convention at paragraph 306 of the Award as requiring that an investor in shares must establish in law - as a condition precedent- that the assets of the company qualify as an investment.35 For the Respondent, such reading of the Award is wrong. In paragraph 306 of the Award, the Tribunal rejected the claim that the Montrose Share constituted an investment on the facts. It did so because the determination that the Montrose Land was not an investment was outcome determinative of the issue as a matter of fact and not of treaty interpretation.
53. The only issue of treaty interpretation in dispute between the Parties was whether the term "investment" as used in Article 25(1) of the ICSID Convention and Article 1 of the BIT had an inherent meaning.
54. The treaty interpretation case advanced by the Applicants as their Primary Case was not raised by either party before the Tribunal. It is implausible that the Tribunal decided a point of treaty interpretation not argued by the Parties and without allowing them to address it. Consequently, the Respondent declines to engage in an alleged case of treaty interpretation that was never argued or decided by the Tribunal.
55. The Applicants contend that the Tribunal failed to address each contribution relied upon by them, referring to two items omitted from the list contained in paragraph 296 of the Award. That is a complaint regarding the Tribunal's reasoning and demonstrates that the Tribunal was addressing a factual question, not a treaty interpretation question.
56. The scheme of the Award follows the scheme of the Parties' arguments. First, it defined the issue of interpretation regarding the inherent meaning of the term "investment" in paragraphs 293 and 294 of the Award. Then, it applied that treaty interpretation to the Montrose Land and the Montrose Share, as set out in paragraphs 296 to 306 of the Award. The conclusion at paragraph 306 that the Montrose Share did not qualify as an investment since the Montrose Land did not qualify as an investment was an application of the term "investment" to the facts.40 If the Montrose Land did not constitute an investment, there was no basis on which the Montrose Share was capable of being an investment. Indeed, no independent basis was contended for the Montrose Share being an investment.
57. Finally, the Respondent considers that the Applicants miss the point by arguing that during
the arbitration proceedings the Respondent did not use the term "parasitic" in the specific
context of the application of the Salini factors to the issue of whether the Montrose Share
was an investment. The point is that the Respondent specifically refuted the Applicant's
contentions that the inherent meaning of the term "investment" had been satisfied on the
facts. According to the Respondent, if Montrose Sri Lanka did not own the Montrose Land,
the Montrose Share claim would fail as being "parasitic" because if the company had no
assets and hence no investment, the elements of the Salini Test would not be complied
with. The same would apply if the only asset of the company bore no investment risk
The Respondent claims that, in any event, it also separately stated in the arbitration
proceedings that if there was no investment in the Montrose Land, there would be no
investment in the Montrose Share because it was parasitic.
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VII. DECISION OF THE COMMITTEE
164. Based on foregoing, the Committee decides:
(a) The Application for Annulment submitted by the Applicants is dismissed in its entirety.
(b) The Applicants shall bear all fees and expenses incurred by ICSID in connection with this proceeding, including the fees and expenses of the members of the Committee.
(c) The Applicants shall bear £40,000 of Respondent's legal costs and shall bear their own legal costs in connection with this annulment proceeding.
(d) Pursuant to Article 52(5) of the ICSID Convention and ICSID Arbitration Rule 54(3), the stay of enforcement of the Award ordered by the Committee on 16 July 2020 is terminated.
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Footnotes omitted