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On April 8, 2015, a three-person tribunal at the International Centre for Settlement of Investment Disputes (“ICSID”) took an expansive view of its authority to impose sanctions to enforce a security for costs order.

In RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, the claimant-investor, RSM, failed to comply with the tribunal’s August 20, 2014 order that it post security for costs in the amount of USD 750,000 within 30 days. By e-mail dated December 15, 2014, RSM’s counsel informed the tribunal that it would be unable to meet the demands of the tribunal’s order.

Shortly thereafter, Saint Lucia requested a discontinuation of proceedings under ICSID Arbitration Rule 45. Rule 45, however, typically only allows for a discontinuance where the parties fail to take any steps in the proceeding for a period of six months. Saint Lucia acknowledged that the conditions for a discontinuation under the Rules were not met, but nonetheless requested the discontinuation as necessary to protect the proper administration of justice. Allowing the case to move forward would force Saint Lucia to face the exact risk that the security for costs order was intended to resolve. Saint Lucia alternatively requested that the tribunal suspend the proceedings for six months and, if RSM failed to comply with the security for costs order in that time, the tribunal should discontinue the proceedings under Rule 45.

RSM responded claiming that the tribunal lacked the proper authority to discontinue the proceedings based on a party’s non-compliance with a provisional measure. Citing Rule 34(3), concerning sanctions for non-compliance with an order related to production of evidence, RSM claimed that the tribunal could only take note of the party’s failure to comply while moving forward with the case. RSM also claimed that the tribunal lacked the power to suspend the proceedings because the current circumstances did not meet one of the four situations under the Rules that allow for a suspension. Moreover, RSM argued, if the tribunal were to suspend the proceedings, the tolling for a discontinuation would not begin until the tribunal lifted such suspension.

In its decision on Saint Lucia’s request, the tribunal affirmed its power to sanction non-compliance pursuant to Article 44 sentence 2 of the ICSID Convention, which provides: “If any question of procedure arises which is not covered by this Section or the Arbitration Rules or any rules agreed to by the parties, the Tribunal shall decide the question.” 

The tribunal found that a “question of procedure” included determination of what procedures would apply where a claimant failed to cure its non-compliance with a security for costs order. The tribunal further observed that although the ICSID Convention and the Rules did not provide the tribunal with the power to impose sanctions for non-compliance, it did not preclude the tribunal from imposing such sanctions. Thus, the tribunal concluded that it had discretion to decide how to rectify the situation of a non-compliant investor-claimant.

The tribunal concluded that the only conceivable and logical consequence for RSM’s non-compliance was a sanction that would achieve the objective of the security for costs decision. Specifically, the tribunal decided that the proper sanction would be to vacate the remaining schedule for a period of six months, at which point if RSM had still not deposited the USD 750,000, Saint Lucia could apply for a final award dismissing the case.

Some might argue that the April 8, 2015 decision significantly expands a tribunal’s power to impose sanctions upon a claimant-investor for not complying with a security for costs order. Others might contend, however, that the tribunal gave RSM six additional months to either (i) comply with the security for costs order; or (ii) present compelling arguments why the tribunal should not dismiss its claims. Under the tribunal’s August 20, 2014 security for costs order, RSM’s deadline to post the USD 750,000 was approximately September 19, 2014. RSM now has until approximately October 8, 2015 to post the funds.

Despite the fact that the tribunal couched its actions in terms of “vacatur” of the remaining schedule for six months, its decision might arguably be characterized as only suspending the proceedings and allowing Saint Lucia to move for a discontinuance at the end of that suspension. If in six months this would enable RSM to argue again that it can only be in default of proceedings which are running and not suspended, the question remains: did the tribunal significantly expand its reach to impose sanctions or simply kick the can down the road another six months?

Author

Mark McCrone is a member of the Dispute Resolution Practice Group at Baker McKenzie, in Washington, D.C. Prior to joining Baker & McKenzie, Mr. McCrone worked in Milbank, Tweed, Hadley & McCloy LLP's Washington, D.C. office. Mr. McCrone focuses his practice on international arbitration, commercial litigation and enforcement of judgments and awards. He has represented private parties in complex international commercial disputes, as well as states arbitrating investor-state disputes. He also has considerable experience representing clients in U.S. litigation and cross-border litigation. Mark McCrone can be reached at [email protected] and + 1 202 835 6268.