ICSID Review – Foreign Investment Law Journal Blog Series
Based on the article 'Counterclaims in Investment Arbitration: Towards an Integrated Approach'
By Mees Brenninkmeijer and Fabien Gélinas
It is widely accepted in international adjudication that counterclaims may not exceed the limits of a tribunal’s jurisdiction, while they must at the same time be closely connected to the other party’s claim. In most contexts, these requirements are easily met, and counterclaims are a normal occurrence. In investment treaty arbitration, however, counterclaims are much less common. There, the idea that counterclaims may not exceed the limits of a tribunal’s jurisdiction even if closely connected to the other party’s claim, has led to a problematic construction of the system.
The reason is a strict adherence to jurisdictional limits governed by a narrow concept of consent. Unlike purely contractual arbitration or inter-State dispute settlement, consent in investment arbitration is usually not expressed by both parties in a single instrument. Instead, an offer to arbitrate is most often made by the host State through an investment treaty and later accepted by investors through the initiation of arbitral proceedings. Because these treaties generally impose obligations on the host State but not on investors, States cannot normally bring a counterclaim based on the alleged violation of a treaty obligation.
The question, then, is whether counterclaims can be brought on a different legal basis. Under the currently dominant view, the scope of a tribunal’s jurisdiction remains narrow and is always determined by the provision of the relevant investment treaty. This view emphasizes the foundational role of consent in arbitration. Parties should be free to draw the boundaries of their dispute and they do so by consenting to an arbitration agreement derived from the relevant treaty provision. Arbitrators, meanwhile, derive all their authority from this consent between the parties – an authority they must exercise but can never exceed.
This does not entirely exclude the possibility of counterclaims in investment treaty arbitration. But it does limit that possibility, as it is dependent on the wording of the treaty’s dispute settlement clause. Clauses referring to ‘all disputes arising out of an investment’, for example, establish a strong basis for jurisdiction over non-treaty counterclaims. At the other extreme, States normally cannot bring counterclaims when such clauses are expressed in narrow terms and limit the jurisdictional scope to disputes concerning alleged breaches of the investment treaty’s substantive provisions.
The implication of all this is that in investment treaty arbitration, jurisdiction over counterclaims can be invoked under a sufficiently generic dispute settlement clause in the relevant treaty but on no other basis. In other words, the approach restricts counterclaims to the same jurisdictional basis as the original claims.
This is open to challenge. There is no reason to believe that the jurisdictional basis established for a claim necessarily is the only jurisdictional basis for a counterclaim. What we propose instead, is that the analysis for finding jurisdiction over counterclaims be shifted from a narrow focus on consent to arbitrate a claim under the investment treaty to the parties’ consent to arbitrate a dispute. Under this ‘integrated approach’, what matters is not whether a counterclaim falls within the express contemplation of the treaty’s provision, but whether that counterclaim is part of the same dispute as the initial claim, thereby establishing a tribunal’s incidental jurisdiction.
The key to this approach is a sufficiently close connection between the counterclaim and ‘what is claimed’ within the scope of the proceeding. It essentially comes down to the inherent power of an arbitral tribunal to decide on closely connected counterclaims where parties have consented to jurisdiction over the principal claim. This can broadly be made to rest on a foundation of implied consent but need not be. It may also be viewed as a matter of principle. From the perspective of transnational civil procedure, the right to bring a counterclaim may well form part of procedural fairness. It certainly has the potential to contribute to procedural equality between the parties. The freedom to contract for procedure should be limited to some extent by the integrity of the chosen procedure. If not, arbitration may lose its quasi-judicial nature.
At this point, the dominant view’s strict adherence to treaty-bound jurisdictional limits governed by a narrow concept of consent has led to a problematic construction of investment arbitration law. Arbitrators may appropriately take a broader approach to their own jurisdiction and dispose of every claim that is an integral part of the dispute because of their inherent power to exercise an adjudicative function. Our integrated approach allows arbitral tribunals to hear a wider range of counterclaims, and it may in future provide a partial response to the backlash against international investment law. It is, as such, a modest attempt to influence, ever so slightly, the course of practice.
About the authors: Mees Brenninkmeijer is a Doctor of Civil Law Candidate, McGill University, Canada. Fabien Gélinas is the Sir William C Macdonald Professor of Law, McGill University, Canada.
The opinions expressed in this blog are those of the authors. They do not purport to reflect the opinions or views of ICSID.