REUTERS | Carlos Garcia

Standard Chartered Bank v TANESCO: contractual ICSID case calls finality of ICSID decisions into question

Whilst the International Centre for Settlement of Investment Disputes (ICSID) Convention specifically provides for the revision of a final award in cases of “discovery of some fact of such a nature as decisively to affect the award”, it does not expressly address the question of whether, and on what basis, a tribunal may reconsider and possibly alter a previous decision, such as a decision on jurisdiction, before the final award is issued.

Unsurprisingly, the question of whether or not a tribunal can reconsider its previous decisions has been hotly debated in the past. Until now, tribunals have consistently declined to do so.

The question was famously considered by the tribunal in ConocoPhillips v Venezuela, where the majority of the tribunal rejected Venezuela’s request to reconsider the tribunal’s previous decision on jurisdiction and merits. Venezuela had argued that article 44 of the ICSID Convention or rule 38(2) of the ICSID Arbitration Rules conferred power on the tribunal to reopen its previous decisions.

In spite of a strongly worded dissent by the third arbitrator, the majority held that the decision contained the tribunal’s final holdings on jurisdiction and liability, and was therefore res judicata. It also noted that:

“[t]he overall structure and the detailed provisions of the ICSID Convention were plainly designed to provide for review or actions in respect of decisions of a tribunal only once the Award was rendered. There is no gap to be filled by the power proposed here.”

The majority decision in ConocoPhillips was endorsed subsequently by the tribunal in Perenco v Ecuador, which similarly rejected the state’s request to reconsider its previous decision on jurisdiction and liability.

It therefore came as a surprise when the tribunal in Standard Chartered Bank v TANESCO departed from the majority reasoning in ConocoPhillips and, as the first tribunal in ICSID’s history, revisited and changed an earlier decision it had made.

The case concerned money allegedly owed by TANESCO under a power purchase agreement with Independent Power Tanzania (IPTL). Standard Chartered subsequently acquired IPTL’s debts and its rights under the agreement, and brought the arbitration under the contract’s ICSID clause to recover the payments.

The TANESCO tribunal, comprised of Donald McRae (as presiding arbitrator), Zachary Douglas and Brigitte Stern, held that the notion that all ICSID decisions are res judicata was “at the very least, too broad”. In this respect, the tribunal noted that:

“[a]n essential feature of res judicata is that the judgment in question produces effects on the parties outside the proceedings in which it is granted.”

The tribunal contrasted this view with the fact that decisions of tribunals only have effect within the proceedings until they have been incorporated into the final award. In this respect, the tribunal also observed that if decisions were res judicata before incorporation into the final award, then the requirement of incorporation into the final award under the ICSID Convention would be redundant.

The tribunal further observed that tribunals often make decisions that are not intended to be final, such as decisions on procedural or provisional matters, all of which are subject to being reviewed, reconsidered and revised, notwithstanding the absence of anything in the ICSID Convention authorising this.

The tribunal held that its power to reconsider its previous decisions derived from the provisions of the ICSID Convention which give the tribunal its general powers, including the power to decide “any question of procedure”. Importantly, however, the tribunal then went on to qualify that power. It noted that such a power should not be seen as unlimited. The tribunal acknowledged that decisions made by ICSID tribunals in the course of a case are binding, and it would lead to considerable uncertainty if tribunals were to assert an unconstrained power to reopen any decisions made. Accordingly, it held that:

“[a] decision of an ICSID tribunal cannot be considered to be merely a draft that can be reopened at will.”

On the facts of that specific case, the tribunal found that it was justified in taking this step and reopening its previous decision. The tribunal found that TANESCO had withheld “material facts” and had made misleading submissions which led to the tribunal’s previous decision only to award declaratory relief to the claimant.

In its original decision, the tribunal decided not to award damages to the claimant on the basis that IPTL was facing winding-up proceedings in Tanzania, and an award of damages would encroach on a court-appointed liquidator’s ability to assign priority among the company’s unsecured creditors. However, it emerged subsequently that, unbeknownst to the tribunal, TANESCO and IPTL had in fact settled their dispute months before the tribunal’s decision on jurisdiction and liability, and that therefore the likelihood of a liquidator being appointed for IPTL was remote. In this respect, the tribunal held that:

“[w]here in the course of proceedings a party that disputes its liability under an agreement goes ahead and settles the same claim with a third party on precisely the terms it is disputing under that agreement, then the party has an obligation to disclose that settlement to the tribunal”.

Now in the possession of all the relevant facts, the tribunal changed its decision and awarded the claimant $148 million plus interest.

TANESCO reportedly intends to seek an annulment of the award. At the same time, it remains to be seen whether the approach in TANESCO will be followed by other tribunals, and if so, where they will draw the line. No doubt the award in TANESCO will encourage disappointed parties seeking to challenge unfavourable decisions, and may well lead to more attempts to challenge jurisdiction even after conclusion of the jurisdictional phase.

In the meantime, the question of whether, and on what basis, ICSID tribunals may reconsider their previous decisions is far from settled and is likely to be fiercely debated in numerous cases yet to come.

Kirkland & Ellis Richard Boynton Philipp Kurek

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