Tribunal refuses to clarify decision on jurisdiction in Railroad Development Corporation v. Republic of Guatemala

Anonymous — Tue, 20 Jan 2009 09:41:00 GMT

By Damon Vis-Dunbar
20 January 2009

The tribunal hearing a dispute between the Railroad Development Corporation (RDC) and Guatemala under the Dominican Republic – Central America – United States Free Trade Agreement (DR-CAFTA) has declined to clarify its 17 November 2008 decision on jurisdiction, following a petition by Guatemala.

Guatemala had contested the tribunal’s jurisdiction to hear RDC’s claim—the first investment claim under the 2004 DR-CAFTA—on the grounds that local arbitration proceedings launched by the RDC’s subsidiary in Guatemala were already dealing with the same complaints. (Under DR-CAFTA rules, the RDC waived its right continue proceedings that pertain to the same measures alleged to constitute a breach of DR-CAFTA.)

In accepting jurisdiction, however, the tribunal held that the RDC’s waiver was only “partially defective”. In the tribunal’s view, the RDC had submitted a package of multiple claims, some of which overlapped with local arbitration proceedings, while others concerned measures that occurred after these proceedings had begun. As such, the tribunal decided to proceed by distinguishing between the two: judging the merits only of those claims which were not being handled through local arbitration.

In a subsequent response to the tribunal, Guatemala said that it was “gravely concerned” by the decision, and sought clarification on what claims had been excluded as a result of the partially defective waiver. Guatemala offered that its concern could be assuaged if the tribunal declined jurisdiction in respect to the RDC’s claim of an alleged violation the Minimum Standard of Treatment article in DR-CAFTA. This particular claim, according to Guatemala, contains “impermissible overlap” between the local arbitration proceedings and the DR-CAFTA proceedings.

In a 13 January 2009 decision, Guatemala’s petition has been rejected. The decision on jurisdiction “is not vague or internally inconsistent,” wrote the tribunal. Furthermore, the tribunal considered that it would be “inappropriate” for it to exclude the claim based on Minimum Standard of Treatment before considering its merits, given that the standard is “general and wide ranging.”

The RDC is an American company that deals in railway investment and management. Its dispute with Guatemala relates to an agreement between its Guatemalan subsidiary Compañia Desarrolladora Ferroviaria (FVG) and a state owned-company responsible for managing Guatemala’s railway services. In 2005, FVG initiated arbitration proceedings in Guatemala for alleged breaches of contract. Guatemala subsequently terminated its agreement with FVG, declaring it injurious to the state.

RDC is seeking some $US65 million in lost profits and damages in its DR-CAFTA claim, which is being conducted under the auspices of the International Centre for the Settlement of Investment Disputes (ICSID).

The Decision on Clarification Request of the Decision on Jurisdiction in Railroad Development Corporation and the Republic of Guatemala is available here

Further ITN reporting on Railroad Development Corporation v. the Republic of Guatemala includes:

“Guatemala’s objection to jurisdiction dismissed in DR-CAFTA arbitration”, By Damon Vis-Dunbar, 26 November, 2008, available here

“US railway investor’s claim against Guatemala tests CAFTA transparency provisions”, By Fernando Cabrera Diaz and Luke Eric Peterson, September 7, 2007, available here

Guatemala’s objection to jurisdiction dismissed in DR-CAFTA arbitration

Anonymous — Wed, 26 Nov 2008 10:18:00 GMT

By Damon Vis-Dunbar
26 November 2008

The first investment arbitration to be launched under the Dominican Republic – Central America – United States Free Trade Agreement (DR-CAFTA) is moving forward after the Tribunal dismissed Guatemala’s objection to jurisdiction in November.

The Railroad Development Corporation (RDC), a U.S. company that won a public bid through its subsidiary, Compania Desarrolladora Ferroviara (FVG), to renovate and operate a railway line that had fallen into disuse, is suing the government of Guatemala for some US$65 million in damages and lost profits.

The firms charge that the state-owned company responsible for managing Guatemala’s railway services broke its agreement with FVG when it missed trust-fund payments and failed to remove squatters from the railway tracks. In 2005, FVG launched two local arbitrations in Guatemala in response to the alleged contractual breaches. Soon after, the government of Guatemala introduced the so-called Lesivo Resolution, which declared the contract with FVG injurious to the state.

In July 2007, RDC filed a claim with ICSID claiming breaches of DR-CAFTA. Meanwhile, however, the local arbitration proceedings launched by FVG remain pending.

Guatemala complains of overlapping proceedings

At the root of Guatemala’s objection to the Tribunal’s jurisdiction is the fact that the local arbitration proceedings have not been discontinued. Under DR-CAFTA rules, the RDC “waived any right to initiate or continue ... other dispute settlement procedures” that pertain to the same measures alleged to constitute of breach of DR-CAFTA.

It fell to the Tribunal, therefore, to determine whether the local arbitrations dealt with the same measures as concerned the DR-CAFTA claim.

For its part, the RDC maintained that its DR-CAFTA claim only concerned measures that occurred after the local arbitration proceedings were initiated. Specifically, the RDC said the DR-CAFTA claim begins with the Lesivo Resolution: the resolution introduced in 2006 which declared that FVG’s contract was injurious to the state.

Nonetheless, the Tribunal found that there was some “ambiguity” in terms of the measures that the RDC complained of in its DR-CAFTA arbitration request. The request, for example, referenced the failure to make trust fund payments and remove squatters, which are the same grievances that are the focus of the local arbitration proceedings.

As such, the Tribunal asked if itself whether, “because of this overlap, the entire waiver is defective and affects the whole proceeding before this Tribunal or whether the waiver is only partially defective ...”?

In taking the latter approach, the Tribunal concluded that the RDC DR-CAFTA claim was, in effect, a package of multiple claims, not all of which overlapped with those submitted to local arbitration in Guatemala. Therefore, the RDC’s waiver was deemed to be valid for the claims that referred to the Lesivo Resolution, and the acts that followed.

Having affirmed its jurisdiction, the Tribunal has ordered that the proceedings move to a consideration of the merits of RDC’s claims.

The decision on objection to jurisdiction in Railroad Development Corporation v. Republic of Guatemala, ICSID Case No. ARB/07/23 is available at http://ita.law.uvic.ca/documents/RDC-GuatemalaDecisiononObjectiontoJurisdictionCAFTA.pdf

News and Commentary : Guatemala, jurisdiction

Tribunal refuses to clarify decision on jurisdiction in Railroad Development Corporation v. Republic of Guatemala

Guatemala’s objection to jurisdiction dismissed in DR-CAFTA arbitration