In 2006, the ICSID Rules were amended to introduce Rule 41(5), which allows a party to raise a preliminary objection that claims brought against it are "manifestly without merit". In two recent cases, for what is thought to be the first time, applications under Rule 41(5) have been upheld, leading to claims against the Ukraine and Grenada being dismissed.

In the first decision, in Global Trading Resource Corpn and Globex International Inc v Ukraine, the tribunal held that poultry sale contracts could not constitute an investment for the purposes of Article 25 of the ICSID Convention, which sets out the jurisdiction requirements for ICSID claims, including the requirement that disputes arise "directly out of an investment". As a result of this jurisdictional defect, the tribunal concluded the claims were manifestly without merit and dismissed them.

In the second decision, in RSM Production Corporation and others v. Grenada, the tribunal ruled that the issues raised by the claims had already been resolved in an earlier arbitration, and that under the doctrine of collateral estoppel it was bound by the findings on those issues by the earlier tribunal. The tribunal found that in order for any of the claims to succeed it would need to re-litigate and decide in the claimants favour conclusions of fact or law already resolved against the claimant by the prior tribunal, which it was not permitted to do, and as a result the new claim was manifestly without legal merit and was therefore dismissed.

From these (and earlier unsuccessful challenges in Trans-global Petroleum Inc v Jordan and Brandes Investment Partners, LP v. Venezuela) a set of principles as to when Rule 41(5) may be satisfied is emerging. The standard is a high one. An objection under Article 41(5):

  • may go either to jurisdiction or the merits;
  • must raise a legal, not a factual, impediment to a claim;
  • must be established clearly and obviously , with relative ease and dispatch;
  • in the face of such an objection, a claimants' Request for Arbitration should be construed liberally, and any doubt or uncertainty as to the scope of allegations should be resolved in favour of the claimant.

Despite the high standard required for success under Rule 41(5), these two successful challenges highlight the possibility that, where a contrived or wholly unmeritorious claim is brought, respondent states may be able to dispose of such a claim relatively quickly under the Rule 41(5) process.

Global Trading Resource Corp. and Globex International, Inc v Ukraine (ICSID Case No. ARB/09/11) RSM Production Corporation and others v. Grenada (ICSID Case No. ARB/10/6)