In a decision dated 2 March 2018 (the “Decision“), the English High Court has set aside parts of an award on jurisdiction (the “Award“) from a London-seated arbitration (the “Arbitration“) concerning claims brought by GPF GP S.a.r.l (“Griffin“) against Poland under the bilateral investment treaty between the Belgium-Luxembourg Economic Union and Poland (the “BIT“).
In so doing, the Court upheld Griffin’s application under section 67 of the 1996 English Arbitration Act (the “Act“), in which Griffin submitted that the Award issued by the tribunal (the “Tribunal“) on 15 February 2017 contained two separate errors as to substantive jurisdiction, namely:
(i) the Tribunal’s determination that it did not have jurisdiction over Griffin’s claims for breach of the Fair and Equitable Treatment (“FET“) standard in the BIT; and
(ii) the Tribunal’s determination, in respect of Griffin’s claims for indirect expropriation, that it had jurisdiction to consider only the effects of one specific allegedly expropriatory event, namely a decision of the Warsaw Court of Appeal, and not all the prior conduct of Poland.
All of Griffin’s claims should now proceed to the liability phase in the Arbitration. Poland has, however, expressly reserved the right to argue the compatibility of the BIT with EU law and any rights it may have in the context of the decision of the Court of Justice of the EU (“CJEU“) in the case of Achmea v Slovakia, which was issued just a few days after this judgment, on 6 March 2018.
Griffin’s claims in the Arbitration concern the alleged expropriation of its rights to a historic site in central Warsaw (the “Property“) which was to be developed commercially under a 2001 Perpetual Usufruct Agreement (the “PUA“). When Griffin made its investment in 2008, demolition work had already begun under a decision and building permit issued by the City of Warsaw in 2005, but Griffin had applied for, and obtained, a recommendation from the monuments conservation official supporting a proposed expansion of the existing development project.
This official subsequently reversed her position. Despite the formal challenges brought by Griffin, actions of the conservation official and the City of Warsaw ultimately culminated in the Warsaw Regional Court terminating the PUA for an alleged failure to develop the Property within the specified time limits. This termination was confirmed by the Warsaw Court of Appeal on 19 December 2014.
In the Arbitration, Griffin has advanced claims: (i) for violation of the FET standard contained in Article 3.1 of the BIT; and (ii) for indirect expropriation in breach of Article 4.1 of the BIT. In support of its indirect expropriation claim, Griffin seeks to rely on the combined effect of both the Warsaw Court of Appeal decision and all the prior conduct of Poland (the “Prior Measures“) that it claims led to the termination of the PUA.
In the Award, the Tribunal found, inter alia:
(i) that it did not have jurisdiction over Griffin’s claims for breach of the FET standard in the BIT; and
(ii) that, so far as Griffin’s claim for indirect expropriation was concerned, its jurisdiction was limited to considering whether the decision of the Warsaw Court of Appeal of 19 December 2014 had effects similar to expropriation, and that it did not have jurisdiction to consider any of the Prior Measures relied upon.
Griffin’s application under section 67 of the 1996 Arbitration Act
Because the arbitral seat is London, Griffin sought to challenge the Tribunal’s decision on jurisdiction in the English Court under section 67 of the Act, on the basis that the Tribunal had erred in both of its findings as to its lack of substantive jurisdiction.
The Court was satisfied from the authorities (including dicta of the Supreme Court in Dallah v Pakistan) that a section 67 application involves a re-hearing, and that it is for the Court to decide afresh whether jurisdiction does or does not exist, unfettered by the reasoning of the arbitrators or indeed the precise manner in which arguments were advanced before the arbitrators. The Court also gave permission, to the extent this was necessary, for Griffin to advance arguments and adduce evidence that had not been put to the Tribunal.
The Court, interpreting the arbitration agreement in the BIT in accordance with international law and the principles of interpretation set out in the 1969 Vienna Convention on the Law of Treaties (the “Vienna Convention“), found that the Tribunal had jurisdiction over all the factual matters, actions, allegations and/or measures relied upon by Griffin in its Statement of Claim in support of its expropriation and FET claims.
The scope of the Tribunal’s jurisdiction is defined by Article 9.1(b) of the BIT, which Griffin divided into a “first clause” and “second clause” as follows (using the originally agreed translation into English – there were some differences raised between the parties on certain aspects of the translation but the Court ultimately considered them immaterial):
“…disputes relating to expropriation, nationalization or any other similar measures affecting investments, and notably the transfer of an investment into public property, placing it under public supervision” (the “first clause“) “as well as any other deprivation or restriction of property rights by state measures that lead to consequences similar to expropriation” (the “second clause“).
The Court held that the Tribunal was wrong to conclude that any claim for creeping expropriation fell within the second clause, considering that it rightly fell within the first. On the Court’s interpretation, the second clause is concerned with measures “other” than expropriation (lesser wrongs) that lead to consequences similar to expropriation, as opposed to being in and of themselves expropriatory. It ruled accordingly that this provision granted jurisdiction to the Tribunal to consider Griffin’s FET claim.
The Court considered that its interpretation of Article 9.1(b) was consistent with the principles set out in the Vienna Convention, namely, that words are to be interpreted in good faith in accordance with their ordinary meaning in their context and in the light of the object and purpose of the BIT, and that all the words used should be given meaning and effect (“effet utile”). It found that the Tribunal’s interpretation, on the other hand, failed to give meaning and effect to the second clause, and all the words therein.
Further, the Court found, contrary to the holding by the Tribunal, that a claim for creeping expropriation was not precluded where there was a specific event in the chain of events that might ultimately be found to be itself a form of direct or indirect expropriation (such as the Court of Appeal decision). The Court considered that its position better reflected international law and was consistent with previous cases such as Siemens v Argentina, Crystallex v Venezuela and Teinver v Argentina. The Court also found that the Tribunal had misapplied the so-called “pro tem” test, the purpose of which is to protect the integrity of the merits phtase whilst making preliminary jurisdictional determinations. The question for the Tribunal to determine was whether “assuming Griffin could establish its factual case was it capable of falling within the Tribunal’s jurisdiction“? It was wrong to assume at the jurisdictional phase that any of the alleged acts would be established to be a form of direct or indirect expropriation at the merits phase “so as to foreclose consideration of all prior acts“.
Accordingly the Court upheld Griffin’s application, and set aside the relevant concluding paragraphs of the Award, replacing them with its own language confirming the Tribunal’s jurisdiction.
While rare, there are other examples of national courts considering the question of a tribunal’s jurisdiction in a treaty case. However, the courts will usually either confirm the tribunal’s ruling of jurisdiction or overturn a finding of jurisdiction. This case appears to be unique in overturning a finding of no jurisdiction and sending the claims back to the same Tribunal. It will be interesting to see how this is dealt with by the Tribunal in the Arbitration.
It bears emphasis that such an outcome would not be possible in ICSID arbitration, where awards are not subject to the supervisory power of any national court, or indeed in non-ICSID arbitration in one of the many other jurisdictions where the courts do not have the power to set aside a tribunal’s finding that it lacks substantive jurisdiction. This accordingly represents another factor to take into account when considering a choice of dispute resolution options under an investment treaty.
For more information, please contact Andrew Cannon, Partner, Naomi Lisney, Senior Associate, Vanessa Naish, Professional Support Consultant, or your usual Herbert Smith Freehills contact.