News: Trans-Global Petroleum Inc. v. Hashemite Kingdom of Jordan: First Application of ICSID Arbitration Rule 41(5)
By Elizabeth Whitsitt
25 July 2008
Tribunal considers whether a claim by an U.S. investor against Jordon is “manifestly without legal merit”, and rejects all but one of Jordan’s objections
An ICSID tribunal has ruled on whether to uphold objections filed by the Hashemite Kingdom of Jordan pursuant to Rule 41(5) of the ICSID Arbitration Rules in response to claims made by Trans-Global Petroleum Inc., a U.S. corporation based in Texas The Tribunal’s decision, handed down on 12 May 2008, marks the first time that Rule 41(5) has been considered since its introduction into the ICSID Arbitration Rules in April 2006.
Similar to domestic rules of civil procedure that allow a party to request summary dismissal of frivolous claims prior to trial, Rule 41(5) permits a party to an arbitral proceeding to object (no later than 30 days after the constitution of an arbitral tribunal) to any claim made by an opposing party on the basis that the claim is “manifestly without legal merit.”
In this case, the dispute arises out of the TGPI’s investment of US $29 million in a ten-year petroleum exploration venture in Jordan’s national territory that confirmed the existence of oil deposits in the Dead Sea and Wadi Araba basin. According to TGPI, Jordan commenced a systematic campaign to destroy TGPI’s investment by preventing Trans-Global Petroleum Jordan, Ltd. (TGPJ), a subsidiary of TGPI, from pursuing any further role in the development of those oil deposits.
Specifically, TGPI alleges that after confirming the existence of oil deposits, the Jordanian government removed TGPJ as project operator and «forced» the company to assign 80% of its interest in the project to Porosity Limited, a company that was “accepted and liked” by the Jordanian National Resource Authority. In addition, TGPI asserts that Jordan revoked TGPJ’s contractual customs exemptions, ordered its workers out of Jordan and refused to communicate with TGPJ regarding its remaining investment in the development of the newly-found oil deposits.
In determining whether to uphold the Respondent’s objections under Rule 41(5), the tribunal examined the meaning of the terms “manifestly” and “without legal merit” and found that Rule 41(5) will only apply to a “clear” and “obvious” case in which the claims made are “patently unmeritorious.” Moreover, the tribunal held that while a tribunal should not weigh the credibility of a disputed factual allegation when considering the legal merits of a party’s claim, a tribunal “need not accept at face value any factual allegation which may be regarded as (manifestly) incredible, frivolous, vexatious or inaccurate or made in bad faith; nor need a tribunal accept a legal submission dressed up as a factual allegation.”
Applying the above principles, the Tribunal went on to reject all but one of Jordan’s objections to TGPI’s claims, a result which may signal the difficulty of avoiding arbitration of claims by objecting under Rule 41(5).