Tribunal dismisses investor’s claims because of breach of admissibility requirements under the applicable BIT in the ICSID case Supervisión y Control S.A. v. Republic of Costa Rica

On January 18, 2017, the Tribunal in the case of Supervisión y Control S.A. v. Republic of Costa Rica (ICSID Case No. ARB/12/4), through a majority decision, ruled inadmissible all the claims put forth in the arbitration, as a result of an invalid waiver by the Claimant investor and a failure to comply with the notification requirement stipulated in the dispute resolution clause of the Costa Rica – Spain BIT.

Pursuant to Article XI of the Costa Rica – Spain BIT, if a dispute cannot be settled within a six-month amicable period, the investor may submit the dispute to: (a) the competent courts of the Party in whose territory the investment was made; or (b) international arbitration with three possible modalities: arbitration under the ICSID Convention, or arbitration under the ICSID Additional Facility Rules (in case one of the State Parties to the BIT is not a member of the ICSID Convention), or ad hoc arbitration under the UNCITRAL Rules (in case both State Parties are not members of the ICSID Convention). Regarding reference of disputes to courts or to arbitration, Article XI.3 provides the following:

“Once an investor has submitted the dispute to an arbitral tribunal, the award shall be final. If the investor has submitted the dispute to a competent court of the Party in whose territory the investment was made, it may, in addition, resort to the arbitral tribunals referred to in this article, if such national court has not issued a judgment. In the latter case, the investor shall adopt any measures that are required for the purpose of permanently desisting from this court case then underway.”

The Tribunal relied on this clause in dismissing all Claimant’s claims.

Summary of the dispute

In 2012, Supervisión y Control S.A. (hereinafter “Supervision”) filed for arbitration against Costa Rica under the Costa Rica – Spain BIT, regarding an investment through its joint venture subsidiary Riteve, which had a concession for inspecting vehicles and checking their compliance with national emissions regulations in Costa Rica. Claimant alleged that Costa Rica’s Ministry of Public Works failed to implement annual increases to its rates for inspection services under the concession contract, which violated its rights to fair and equitable treatment, full protection and security, national treatment and most favored nation treatment, and consituted measures equivalent to expropriation under the BIT.

According to Costa Rica, the Tribunal did not have jurisdiction to hear Claimant’s claims under the BIT because Supervision (through Riteve) had previously submitted the same dispute to local courts in Costa Rica without adopting the necessary measures to desist definitely from the judicial local proceedings before the court issued a judgment. According to Costa Rica, “the jurisdiction of the Tribunal cannot be based on the presumed consent granted by Costa Rica by the sole fact of having signed the BIT, which is not absolute or unlimited. On the contrary, the BIT provides express conditions that expressly limit the scope of that consent.”

Consequently, Costa Rica alleged that, since Claimant did not withdraw from the local court proceedings, the conditions under which Costa Rica consented to an investment dispute to international arbitration under the BIT were not met, given that: “(i) there was a proceeding before a competent Costa Rican court dealing with the same dispute that is now the subject of this arbitration, with the same fundamental basis; (ii) in both instances, the lawsuits were filed by Claimant; (iii) Claimant failed to take the necessary steps to definitely withdraw from the local instance; and (iv) the local court already issued judgment.”

Supervision alleged that the ICSID Tribunal had jurisdiction to hear the dispute if the facts alleged by Claimant violated one or more provisions of the Costa Rica – Spain BIT, which was the case in this arbitration. Supervision argued that it had not filed any legal action against Costa Rica in domestic courts, offering as evidence the notarial certification showing that Supervision was not involved in any contentious proceeding before Costa Rica’s local courts.

Supervision posited that Riteve and Supervisión were different corporations, since 45% of Riteve’s shares were owned by the Costa Rican corporation Transal S.A., which has no interest in the arbitration. Also, Supervision alleged that the disputes under the arbitration and the local courts were different, since in the domestic court, the claim was an action for the annulment of administrative acts, which are different from the claims for compensation of damages under the Treaty. In addition, Supervision alleged that Article XI of the BIT was not a Fork in the Road Clause, “because the words ‘may in addition’ suggest that it is not a forum selection clause, but rather a clause that permits international arbitration even when the investor has attempted to have a local court hear the dispute.” Consequently, according to Supervision, when it presented its Request for Arbitration, “the decision of the local proceeding had not yet been issued; in addition to the fact that such dispute was filed by a different company, and the claims were different from the claims in this proceeding.”

The Tribunal’s analysis

The Tribunal considered it necessary to clarify the relationship and differences between the notions of jurisdiction and admissibility. The Tribunal indicated that “[w]hile a lack of jurisdiction or a lack of admissibility may lead to the tribunal refusing to hear the case, each refusal is of a different nature and carried different consequences.” The Tribunal explained that an objection to jurisdiction is related “to the ability of a tribunal to hear the case,” while an objection to admissibility “refers to the claim itself, assuming that the Tribunal has jurisdiction.” Consequently, the Tribunal first considered whether it had jurisdiction, and if it had jurisdiction, to consider the admissibility of the claims presented by Claimant.

Jurisdiction of the Tribunal

With regard to Costa Rica’s objection to subject-matter jurisdiction, the Tribunal indicated that the issue was to whether the claims presented by Claimant were treaty violations or mere contractual violations, which would fall outside the scope of the treaty. Article III.2 of the BIT included an umbrella clause, which provided that each Contracting party was obligated to comply with any obligation it has contracted in relation to the investments of investors of the other Contracting Party. Therefore, the Tribunal concluded it had jurisdiction under Article III.2 of the BIT.

Admissibility of the claims

Although the Tribunal concluded that it had jurisdiction over the dispute, it considered all Claimant’s claims inadmissible because of the forum selection clause in Article XI.3 of the BIT.

The Tribunal first explained that to avoid duplication of procedures and claims, with the risk of having contradictory decisions, investment treaties use two methods to limit the selection of dispute resolution mechanism by the investor: (a) the “fork in the road”; and (b) the “waiver.”

With respect to the “fork in the road” method, the Tribunal indicated that it consisted “of obligating the investor to select a dispute resolution mechanism ab initio through an irrevocable option clause (…), which implies that once one of the routes is selected, the possibility of choosing the other is excluded.” With regard to “waiver,” the Tribunal explained that “once the investor chooses international arbitration under the corresponding treaty, it must waive the exercise of any claim before another dispute resolution mechanism, including those already initiated and those it could initiate.” Also, “the disputes in both fora must be identical or have a significant overlap for the forum selection clause to be applicable.”

In the present case, the Tribunal considered that Article XI.3 of the BIT stipulated a waiver provision, given that once international arbitration is initiated, the investor is required to waive or withdraw from the actions already in place or that it could initiate before national courts or an arbitral tribunal.

The Tribunal performed a general analysis of the local proceedings initiated by Riteve before the Administrative Contentious Court against the State and the Public Transportation Council of the Ministry of Public Works and Transportation of Costa Rica. The proceedings were resolved by the Administrative Contentious Court in November 2012, declaring Riteve’s claims invalid. This decision was confirmed by an Appeal Court in August 2013. Then, in December 2013, the Supreme Court rejected Riteve’s cassation appeal by a unanimous vote.

The Tribunal applied the same claims test that has been used by tribunals in various cases, such as the Pantechniki v. Albania case.[1] According to the Tribunal, “[o]ne can consider that the dispute submitted before the national tribunals is the same as the one submitted to arbitration if both of them share the fundamental cause of the claim and seek for the same effects.” The Tribunal concluded that the claims presented by Riteve in the local proceedings were the same as the ones presented before the Tribunal in the arbitration, because the claims were all based on the violation of the Contract and shared the same normative source. The Tribunal added that while the local proceedings were related to nullity claims, they coincided in relation to the compensation claims, since in both situations Claimant sought payment of damages and lost profits.

The second issue that was evaluated by the Tribunal was if the local court proceedings were submitted by the Claimant or another entity. The Tribunal concluded that since Claimant held 55% of Riteve’s shareholding, and that Riteve acted merely as corporate vehicle according to the interests and instructions of the Claimant, it was the same entity. According to the Tribunal, “there is a general presumption that a majority shareholder also controls the company, and this presumption can only be rebutted if there are special elements which create doubts about the owner’s control.”

Consequently, the Tribunal concluded that under the forum selection clause in Article XI.3 of the BIT, all Claimant’s claims arising from the conduct of omissions of Costa Rica related to the establishment of rates for the inspection vehicle services, and the methodology for carrying out were inadmissible since Claimant had already submitted the same claims in local courts and a judgment was rendered.

With respect to another group of claims submitted by Claimant in this arbitration that are related to denial of justice, national treatment, and measures tantamount to expropriation, the Tribunal concluded that such claims did not comply with admissibility requirements under the Treaty either. The Tribunal ruled that Claimant did not include these claims in its Notice of Intent and were not related to the claims presented, and appeared for the first time in the Memorial, which breached Article XI.1 of the BIT, which required detailed information in the Notice of Intent and a previous six-month amicable period.

For all these reasons, the Tribunal concluded that all Claimant’s claims were inadmissible, either because Claimant did not comply with the waiver obligation under the forum selection clause provided in Article XI.3 of the BIT, or because it failed to comply with the notification requirement under Article XI.1 of the BIT.