Another Rejection of an Investment Treaty Claim for Abuse of Process

An ICSID Tribunal recently dismissed claims against the Republic of Panama on the basis that the claimants had improperly attempted to create “artificial jurisdiction over a pre-existing domestic dispute” by belatedly introducing a foreign investor into the ownership of a domestic project in order to take advantage of the 1982 US-Panama bilateral investment treaty.

The decision was made public on June 2, 2016, and follows on another recent investor-State tribunal decision rejecting Philip Morris International Inc.’s claims against Australia on similar grounds. In that case, the tribunal found that Philip Morris had impermissibly obtained the protection of the investment treaty by restructuring its investment through a new Australian subsidiary after the dispute was foreseeable.

The case against Panama involved a concession for the construction and operation of a hydro-electric power plant to a Panamanian company (La Mina Hydro-Power Corp) owned by a Panamanian national. Panama terminated the concession in December 2006 because the investor allegedly failed to begin construction within the contractual time limits. Some months later, Panama awarded the concession to another Panamanian company (Ideal Panama SA). In the meantime, La Mina challenged the government’s cancellation of its concession rights in Panama courts and in November 2010 won a favorable decision from Panama’s high court ordering restoration of its concession. However, La Mina could not execute the judgment because of the intervening grant of the concession to Ideal and Ideal’s subsequent work on the project.

For the Tribunal, the abuse of the international arbitration process began in December 2010, when La Mina entered into an arrangement with a US company, Transglobal Green Energy, LLC, to establish a project vehicle, Transglobal Green Energy Panama.

Thereafter, TGGE and TGGE Panama submitted a request for arbitration to ICSID, seeking protection under the US-Panama BIT. Panama raised various jurisdictional objections before the ICSID Tribunal, including that the claimants had “manipulated the international investment treaty system in order to create an international dispute over a pre-existing domestic dispute ….”

The Tribunal upheld Panama’s jurisdictional objection, finding an “abuse by Claimants of the investment treaty system ….” According to the Tribunal, the owner of the Panamanian company’s intent had been to “internationalize his domestic dispute with Panama.” The Tribunal noted that the owner had entered into an arrangement with the US company a mere month after Panama’s high court had entered its judgment. The claimants therefore had “inserted TGGE and TGGE Panama into the process of pursuing the execution [of the judgment] at a time when it was clear that there was a problem with its implementation.” In addition to dismissing Claimants’ claim, the Tribunal also ordered the claimants to pay Panama’s attorneys’ fees and expenses, with interest.