Jordan: ICSID Tribunal Finds Jordan in Violation of Its Investment Treaty Obligations

Jordan: ICSID Tribunal finds Jordan in Violation of its Investment Treaty Obligations

Joanna Dingwall & Hussein Haeri

Reprinted from International Arbitration Law Review Issue 4, 2010

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Jordan

ICSID TRIBUNAL ATA Construction, Industrial and Trading Company has won a landmark decision in its international arbitration case against the Hashemite Kingdom FINDS JORDAN IN of Jordan (ICSID Case No. ARB/08/2). In an Award dated May 18, 2010, VIOLATION OF ITS an arbitral tribunal at the World Bank’s International Centre for Settlement INVESTMENT of Investment Disputes (ICSID) upheld ATA’s claim against Jordan. The tribunal confirmed that Jordan had violated the Turkey-Jordan Bilateral TREATY Investment Treaty, as well as ATA’s legal rights under a contract with a OBLIGATIONS Jordanian State-owned company, and awarded ATA restitution. The background of the dispute relates to a contract between ATA and Awards; Bilateral investment Jordan to build a dike at a site on the Dead Sea. In 1998, ATA had been treaties; Compensation; engaged by the Arab Potash Company (APC), which was owned and Enforcement; International controlled by the Government of Jordan, to construct a dike. Following a commercial arbitration; dispute between ATA and APC, APC commenced an arbitration against International investment ATA in Jordan under their contract, claiming over US$50 million in damages. disputes; Jordan; National ATA responded by submitting a counterclaim against APC. In 2003, this courts commercial arbitration tribunal dismissed APC’s claim and upheld ATA’s counterclaim. APC sought the assistance of the courts of Jordan, by challenging the arbitration award rendered in ATA’s favour before those courts. APC managed to achieve its objective when, in 2006, the Jordanian Court of Appeal annulled ATA’s arbitration award. This judgment was confirmed by Jordan’s Court of Cassation in 2007. In the course of annulling the arbitration award, the Jordanian courts also ruled that the arbitration agreement in the contract between ATA and APC was now extinguished. Following the Jordanian Court of Cassation decision, APC re-launched its contract claim against ATA. Relying on the Jordanian courts’ annulment decision and extinguishment of ATA’s right to arbitrate the dispute, APC brought its claim before those same courts. The case has been ongoing until the decision of the ICSID tribunal of May 18, 2010. The May 2010 Award of the ICSID tribunal held that the Jordanian State, through its courts violated ATA’s basic rights to have its dispute with APC decided by way of arbitration. Specifically, the ICSID tribunal found that the

10 An approach described as sensible by Tomlinson J. at [2] of B v A [2010] EWHC 1626 (Comm). 11 Paragraph 27 of the judgment.

2010 13 Int. A.L.R., Issue 4 © Thomson Reuters (Legal) Limited and Contributors N-34 International Arbitration Law Review

Jordanian courts’ retroactive extinguishment of the arbitration agreement in the contract between ATA and APC constituted a clear violation of the Turkey-Jordan Bilateral Investment Treaty. The ground-breaking award upheld ATA’s claim and ordered the Jordanian courts to cease “immediately and unconditionally” their long-standing interference with ATA’s rights. It ordered that: (i) the ongoing Jordanian court proceedings brought by APC be immediately and unconditionally terminated, with no possibility to conduct further judicial proceedings in Jordan or elsewhere on the substance of the dispute; and (ii) ATA is entitled, if it wishes to bring its claim once more against APC in accordance with the arbitration provisions in its 1998 contract with APC. Consistent with its findings, the tribunal gave no such right to Jordan or APC (which had funded Jordan’s representation in the ICSID proceeding) as against ATA. On temporal grounds, the tribunal declined to exercise jurisdiction over ATA’s claims of expropriation and denial of justice. The tribunal held that the dispute over the annulment of ATA’s arbitration award was “indistinguishable” from the underlying contractual dispute over the collapse of the dike. As the underlying contractual dispute had arisen in 2000, before the entry into force of the Turkey-Jordan Bilateral Investment Treaty in January 2006, the tribunal held it lacked temporal jurisdiction over all claims in connection with the annulment of ATA’s arbitration award (as opposed to the extinguishment of ATA’s arbitration agreement, which had occurred after the entry into force of the Turkey-Jordan Bilateral Investment Treaty). This jurisdictional aspect of the tribunal’s Award is difficult to reconcile with previous decisions such as Jan de Nul v Egypt (ICSID Case No. ARB/04/13) and Chevron v Ecuador (UNCITRAL Arbitration), where the tribunals concluded that the investment treaty disputes before them constituted juridically separate disputes from the underlying commercial disputes that provided the factual context for the treaty disputes. For example, in the Jan de Nul case, the tribunal deemed that the investor’s claims “address the actions of the court system as such, and are thus separate and distinct from the conduct which formed the subject matter of the domestic proceedings”.1 Temporal considerations aside, the ATA Award is significant in at least three respects. First, it shows how the retroactive extinguishment of an arbitration agreement is contrary to the “fair and equitable” treatment standard. Such a retroactive extinguishment was found to be problematic in terms of Jordan’s obligation to recognise valid arbitration agreements under Article II of the New York Convention. This was a different situation to that of Saipem v Bangladesh (ICSID Case No. ARB/05/7)2, which also addressed Article II of the New York Convention. In Saipem, an arbitration agreement was deemed to have been expropriated by local courts’ interference with the arbitral process. By contrast, the Jordinian courts directly extinguished ATA’s arbitration agreement. Second, this is one of the very few modern investment treaty cases that have found a violation by a State of its international obligations by the actions of its courts. Third, it is important in confirming the power of ICSID tribunals to award non-pecuniary remedies to investors. Although investors seldom claim for non-pecuniary remedies in investment treaty cases, the ATA Award suggests that ICSID tribunals have an inherent power to award such remedies where requested in appropriate circumstances. L. Yves Fortier presided over the ICSID tribunal alongside Ahmed El-Kosheri (ATA’s nominee) and W. Michael Reisman (Jordan’s nominee).

1 Jan de Nul N.V. v Arab Republic of Egypt, ICSID Case No. ARB/04/13, Decision on Jurisdiction, June, 16 2006 at para.119; see also Chevron Corporation and Texaco Corporation v Ecuador, UNCITRAL Arbitration, Interim Award, December 1, 2008. 2 Saipem S.P.A. v Peoples Republic of BangladeshICSID Case No. ARB/05/07, Award, June 30, 2009.

Counsel for ATA were Stephen Fietta, Robert Volterra, Joanna Dingwall and Hussein Haeri of Latham & Watkins’ London Public International Law Practice and Ziya Akinci of Akinci Law Office. Counsel for Jordan were Allan Moore, Peter Trooboff, Donald Ridings, Adam Smith and James Smith of Covington & Burling and Rabie' Hamzeh.

Joanna Dingwall Associate, Latham & Watkins'

Hussein Haeri Associate, Latham & Watkins'