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New approach to costs in ICSID arbitration?
Practical Law Legal Update 4-500-5019 (Approx. 3 pages)
New approach to costs in ICSID arbitration?
by PLC Arbitration
| Law stated as at 19 Oct 2009 • USA |
An update on EDF (Services) Ltd v Romania (ICSID Case No ARB/05/13), which concerned attribution of state responsibility for bribes.
In EDF (Services) Limited v Romania (ICSID Case No ARB/05/13), an ICSID tribunal considered claims that, in breach of the UK-Romania bilateral investment treaty, the claimant's investment in duty-free businesses at Romanian airports had been terminated as retaliation for its refusal to pay bribes to the Romanian government. The principal interest of the award lies in its treatment of attribution of state responsibility and costs.
The tribunal first considered whether the conduct of state-owned companies could be attributed to Romania. It held that those companies acted under the control and direction of the state within Article 8 of the ILC Draft Articles on State Responsibility and that, therefore, responsibility could be attributed. However, the tribunal went on to hold that the claimant's allegations of bribery were not established to the requisite standard, and dismissed the claims.
When considering whether Romania had breached the fair and equitable treatment standard, the tribunal commented that, not only should the claimant have adduced "clear and convincing" evidence of the alleged request for a bribe, "but also that such request had been made not in the personal interest of the person soliciting the bribe, but on behalf and for the account of the Government authorities in Romania, so as to make the State liable in that respect" (paragraph 232). This passage, if followed by other tribunals, could raise some interesting questions with regard to state responsibility for rogue officials acting in their own interests.
The tribunal's approach to costs is also of interest. It held (by majority) that the investment arbitration tradition of dividing the costs evenly between the party might be changing. In the present case, "and generally", the tribunal preferred to apply the international commercial arbitration method of allocating costs so as to reflect the general principle that the losing party pays. The tribunal referred to the following factors:
- The claims were brought in good faith.
- The parties presented their cases well.
- Although ultimately the loser, the claimant won on the issue of state attribution.
- The respondent's costs were disproportionately higher than the claimant's.
Having regard to those factors, and the general "loser pays" principle, the majority ordered the claimant to contribute USD6 million to the respondent's costs (Arthur W Rovine dissented).
It will be very interesting to see whether the international commercial arbitration approach is applied in future investment treaty arbitrations. As the tribunal noted, it is too early to say whether a new approach is evolving, although the majority's view that the "loser pays" principle should apply "generally" confirms that this is a rapidly developing area.