ICSID tribunal upholds Panama’s abuse of process objection; Transglobal to pay arbitration costs and most of Panama’s legal expenses

Transglobal Green Energy, LLC and Transglobal Green Panama, S.A. v. Republic of Panama (ICSID Case No. ARB/13/28)

In the proceeding brought by Transglobal Green Energy, LLC (a U.S.-based company) and Transglobal Green Panama S.A. (a Panama-based company) against Panama under the United States–Panama bilateral investment treaty (BIT), an ICSID tribunal accepted Panama’s abuse of process objection. Pointing out that Transglobal abused the international investment treaty system to bring its claims, the tribunal declined jurisdiction and condemned Transglobal to pay all arbitration costs, as well as most of Panama’s legal fees and expenses.

As the tribunal accepted Panama’s request to bifurcate proceedings, the award deals solely with jurisdiction and arbitration costs. In fact, as the tribunal decided on the abuse of process objection, it deemed unnecessary to deliberate on Panama’s remaining objections, which were related to absence of investment, waiver of the right to bring a dispute, most-favoured-nation (MFN) clause and domestic control of the investment.

Relevant Facts I: Bajo de Mina concession and Supreme Court decision

Transglobal’s claims arose out of events that date back to 2005. In May that year, La Mina Hydro-Power Corp. (La Mina), a Panamanian company, entered into a Concession Contract with Panama’s agency for regulation of public utilities (in Spanish, Autoridad Nacional de los Servicios Publicos [ASEP]) to design, build and operate a hydroelectric power plant at Bajo de Mina.

La Mina failed to commence the construction of the power plant within the agreed-upon deadline, so ASEP issued a resolution terminating the Concession Contract. In response, La Mina requested the Supreme Court of Panama to grant injunctive relief against the termination and to review the administrative decision. The Supreme Court denied the request for injunctive relief.

Pending the Supreme Court’s decision on the review of the termination decision, ASEP entered into a concession contract for the same project with another company, Ideal Panama S.A., which proceeded with the construction of the power plant. Later, in November 2010, the Supreme Court decided that La Mina’s contract with ASEP remained in force and ordered the restitution of the concession to La Mina, which was not immediately executed.

Relevant Facts II: Transglobal Green Energy enters the scene

Just over a month after the Supreme Court’s ruling, which remained unimplemented, Mr. Julio Lisac, the owner of La Mina, signed a Memorandum of Understanding (MOU) with Transglobal Green Energy (TGGE). In September 2011, both entered into a Partnership and Transfer Agreement (PTA), which provided for the creation of Transglobal Green Energy Panama (TGGE Panama), a special-purpose company to undertake the hydropower project at Bajo de Mina. Importantly, the PTA had the stated purpose of “individually or jointly look[ing] for and obtaining mechanisms to enable the execution of the November 11, 2011 [sic] Judgment, and enable[ing] the partnership to acquire the concession rights” (para. 85). Shortly thereafter, TGGE Panama was incorporated, with Mr. Lisac and TGGE as sole shareholders. Although TGGE held 70 per cent of shares, the tribunal later found that the voting arrangements and the principle of exclusive execution by Mr. Lisac revealed “Mr. Lisac’s intent to remain in de facto control of TGGE Panama (para. 111).

Mr. Lisac requested the transfer of the Bajo de Mina concession rights to TGGE Panama. Then, on January 2012, before ASEP had decided on the transfer request, the Cabinet Council, a deliberative organ of high-ranking state officials, authorized the administrative rescue (rescate administrativo) of the concession “on grounds of urgent social interest” (para. 69).

ASEP implemented the administrative rescue of the Concession Contract. Since then, Mr. Lisac has initiated several judicial proceedings to recover the concession rights. On September 19, 2013, the Request for Arbitration was filed with ICSID.

Transglobal’s abuse of process

The tribunal begun its analysis of jurisdiction by considering the objection based on abuse of process “because the existence of abuse of process is a threshold issue that would bar the exercise of the Tribunal’s jurisdiction even if jurisdiction existed” (para. 100).

Panama asserted that Transglobal “attempted to create artificial international jurisdiction over a domestic dispute […] by inserting a foreign investor into the ownership of a domestic project, at a time when the project was already embroiled in a domestic dispute” (para. 85). To prove that Mr. Lisac’s dispute with Panama arose before Transglobal’s investment, it listed a number of events, such as ASEP’s 2006 resolution terminating the Concession Contract and the Supreme Court’s 2010 decision. Transglobal did not offer counterarguments to the objection—in fact, it did not submit a counter-memorial on jurisdiction.

Citing Phoenix v. Czech Republic, the tribunal stated that “there is a line of consistent decisions of arbitral tribunals on objections to jurisdiction based on abuse of the investment treaty system” (para. 102). According to this line of cases, transferring a national investment to a foreign company in an attempt to obtain BIT protection to a pre-existing dispute configures abuse of rights and precludes the exercise of jurisdiction.

In determining whether Mr. Lisac had tried to internationalize his domestic dispute with Panama to bring it under BIT protection, the tribunal noted that the enforcement of the 2010 Supreme Court’s ruling took a prominent place in the PTA signed between Mr. Lisac and TGGE. Indeed, the tribunal indicated that assisting in the enforcement of that judgment was the first obligation undertaken by TGGE under the PTA. Additionally, in the tribunal’s view, the voting arrangement under the PTA revealed “Mr. Lisac’s intent to remain in de facto control of TGGE Panama irrespective of the percentage of shares held and at the same time to benefit from the foreign nationality of TGGE for the purpose of pursuing this arbitration” (para. 111).

In its final remarks about the objection, the tribunal observed that procedural developments exposed an “intimate relationship of the ongoing court proceedings in Panama and this proceeding” (para. 113). Transglobal twice requested the suspension of the arbitration based on developments of the ongoing court proceedings in Panama. According to the tribunal, these suspension requests, made while Transglobal awaited the implementation of the 2010 decision, revealed that it was seeking international remedies for a pre-existing domestic dispute.

Arbitration costs and legal expenses

In its reasoning on costs, the tribunal acknowledged that, in cases involving abuse of process, “tribunals have tended to decide that claimants should bear the costs of the proceeding, [but] as regards the attorney’s fees and expenses, the record is mixed” (para. 125). To illustrate this divide, it again quoted Phoenix, in which the claimant was ordered to pay the respondent’s legal fees and expenses, and Renée Rose Levy v. Peru, in which the claimant was ordered to pay a reasonable—in the tribunal’s assessment—contribution to the respondent’s fees and expenses.

The tribunal then sided with Renée Rose Levy, holding that the claimant should bear the costs of proceedings, as well as attorney’s fees and expenses, “provided that the latter are reasonable” (para. 126).

Panama had argued that Transglobal’s conduct throughout the arbitration—failing to provide translations of important documents, submitting discrepant documentary evidence and requesting suspensions while aware that Panama would oppose to them—had unnecessarily complicated Panama’s defense. The tribunal considered that Transglobal had a “cavalier attitude” (para. 126) and, taking into account the overall course of proceedings, concluded that Transglobal should bear Panama’s attorneys’ fees and expenses, exception made to some early requests for shifting the costs and provisional measures relating to security for costs that were rejected.

Panama had also requested that the tribunal, based on its general authority under Article 61(2) of the ICSID Convention, ordered that all remaining funds in the administrative account were given to Panama. The tribunal denied this latter request because it understood “it had no authority to issue such an order” (para. 129).

Notes: The arbitral tribunal was composed of Andrés Rigo Sureda (President appointed by the co-arbitrators, Spanish national), Christoph H. Schreuer (Claimant’s appointee, Austrian national), and Jan Paulsson (Respondent’s appointee, Bahraini, French and Swedish national). The award of June 2, 2016 is available at http://www.italaw.com/sites/default/files/case-documents/italaw7336.pdf.

Inaê Siqueira de Oliveira is a Law student at the Federal University of Rio Grande do Sul, Brazil.