Tribunal orders bifurcation of Chile’s jurisdictional objections in Pey Casado UNCITRAL claim

A tribunal at the Permanent Court of Arbitration has held that it will bifurcate certain jurisdictional objections raised by the Republic of Chile in the new claim filed by the Pey Casado claimants under the UNCITRAL arbitration rules.

In a ruling of June 27, 2018 which has surfaced only recently, the tribunal found that four jurisdictional objections raised by Chile should be heard in a preliminary phase of the proceedings, while one objection will be joined to the merits.

The tribunal declined, however, to dismiss the case outright or place limits on the parties’ submissions as requested by Chile, instead finding that the case raised ‘complex legal and factual issues’ that needed further hearing.

The claimants filed their UNCITRAL claim in April 2017 under the same Spain-Chile bilateral investment treaty used in their long-running proceedings at ICSID, which relate to the shutdown of the El Clarin newspaper in the 1970s. As we’ve reported (see here), the claimants maintain that the new case focuses on more recent events, in particular a 2008 judgment of a Santiago civil court issued shortly after the original award in the ICSID proceedings.

(The ICSID proceedings, which were commenced in 1998, currently remain in an annulment stage, as the claimants seek to annul the ‘resubmission’ award rendered in 2016.)

Arbitrators in the UNCITRAL case are Bernard Hanotiau (chair), Hélène Ruiz Fabri (claimants’ nominee) and Stephen Drymer (Chile’s nominee). Juan E. Garces represents the claimants with Robert Howse, while Chile is represented by Arnold & Porter.

The central claimant in the cases, Victor Pey Casado, died last week at the age of 103. However, his co-claimant in the two cases, the President Allende Foundation, announced yesterday that the two arbitrations would nevertheless continue.

Chile raises five jurisdictional objections based on alleged overlaps with ICSID case

Chile based its various jurisdictional objections on three underlying contentions: that ICSID proceedings were exclusive, that the same dispute could not be submitted to several arbitral tribunals, and that ICSID awards were final with no appeal.

More particularly, Chile raised five objections against the claimants’ new proceedings. First, the state said, the UNCITRAL tribunal had no jurisdiction to grant the relief requested by the claimants. While, according to Chile, the claimants sought compensation for expropriation, the various ICSID tribunals had already held that the alleged expropriation was outside the temporal scope of the BIT. Chile also questioned the claimants’ argument that the expropriation occurred only later, when Chile allegedly declined to pay compensation. In Chile’s view, the ICSID rulings had already confirmed that a later refusal to pay compensation did not constitute a new expropriation occurring within the treaty’s temporal scope.

Furthermore, under Chile’s first objection, the state maintained that the claimants could not argue before an UNCITRAL tribunal that an ICSID ruling had not been complied with; the ICSID system was exclusive of other dispute resolution mechanisms. In any case, Chile added, the ICSID proceedings had concluded with a res judicata finding that Chile owed no compensation to the claimants (as we’ve detailed).

Similar claims for costs and moral damages had also been definitively addressed in the ICSID proceedings, Chile said.

Second, Chile argued that the claimants had no investment in Chile at the time of the alleged new BIT breaches in 2008. In the state’s view, the claimants’ investment ceased to exist following its expropriation in the 1970s.

Third, Chile said, the claimants could not argue in these proceedings that a failure to comply with an ICSID award constituted another breach of the BIT, since the resubmission tribunal at ICSID had already conclusively determined the consequences of Chile’s BIT breaches found in the original award.

Fourth, Chile took issue with the claimants’ continued allegations in the UNCITRAL proceedings of improper connections between Chile and members of the ICSID tribunal, via their associations with Essex Court Chambers in London. According to the state, these allegations had already been addressed in the annulment and rectification proceedings at ICSID (as we’ve reviewed here), and the UNCITRAL tribunal had no jurisdiction to give a ‘second opinion’ on the issue.

Fifth, the state maintained that the tribunal also had no jurisdiction over the claimants’ more central claims relating to the domestic court process leading up to the 2008 Santiago court ruling, since these had already been presented in the ICSID proceedings.

Claimants see no grounds for bifurcation

For their part, the claimants resisted bifurcation, arguing that the new claims were ‘conceptually distinct’ from the ICSID case, relating to later alleged breaches by Chile. Since Chile had failed to put an end to breaches identified in the original ICSID award, the claimants said, this failure constituted grounds for a new claim. Furthermore, this new claim could not be presented in the ICSID proceedings, the claimants said, since the resubmission tribunal had explicitly confirmed that its jurisdiction covered only the original dispute, not any new claims.

Moreover, the claimants contended that Chile’s alleged concealment of its relationship with Essex Court Chambers and thus with the ICSID tribunal members had prevented the claimants’ access to an ‘impartial international arbitral tribunal’. This was an issue which had ‘not been decided so far’, the claimants said.

Lastly, the claimants argued that Chile’s objections were too closely intertwined with the merits to justify an order for bifurcation.

Tribunal bifurcates four objections, finding that substantial efficiencies could result, but finds one objection too closely connected to merits

In determining the bifurcation request, the tribunal firstly set out four factors that would guide its decision: 1) whether Chile’s jurisdictional objections were substantial, not frivolous; 2) whether bifurcation would lead to substantial cost savings and efficiency; 3) whether the objections were too closely intertwined with merits; and 4) whether bifurcation would preserve the parties’ procedural rights.

The tribunal viewed the first four objections as serious and substantial. In relation to the first objection, the tribunal noted that upholding it would lead to dismissal of the entire case, leading to substantial cost savings. Furthermore, the tribunal saw no great overlap of this objection with the merits in the case, and no concerns of procedural equality since each party would have a full opportunity to present submissions on the objection.

Similarly, upholding the second objection would also dismiss the entire case, and would only involve determination of whether the BIT required that the claimants had an investment in Chile at the time of the alleged breaches.

While the third and fourth objections would not lead to dismissal of the entire case if upheld, the tribunal noted, they would nevertheless decrease the number of claims to be heard on the merits. They would also not involve any implicit ruling on the merits, the tribunal said.

Chile’s fifth objection, meanwhile, was viewed differently. In the tribunal’s view, this objection was too closely connected with the merits to be heard in a preliminary stage, since it would require a decision on whether the denial of justice found by the original ICSID tribunal in relation to the Santiago court proceedings encompassed all of the claimants’ new claims in relation to those proceedings. Making that decision would trespass too closely on the substance of the claimants’ merits case in the current UNCITRAL proceedings, the tribunal said, meaning that this objection could not be bifurcated.

Thus, the proceedings will now continue in a jurisdictional phase, with costs reserved for later determination.