Rule 41(5) of ICSID Arbitration Rules: A Venus Flytrap or A Well-Taken Step Towards Efficiency?
The mechanism under Rule 41(5) of ICSID Arbitration Rules, an innovation for its time, has been adopted by various institutional rules. A recent dispute has brought this rule into the daylight once again, prompting a detailed insight.
Article 41(5) of ICSID Arbitration Rules
Article 41(5) regulates that, absent any contrary agreement by the parties on another expedited procedure for preliminary objections, parties may raise an objection that a claim is “manifestly without legal merit”, no later than 30 days after the constitution of the tribunal, and in any event before the constitution of the first session.
An innovation for its time and an answer to the concerns arising from the limited screening power of the Secretary-General, the rule brought a whole new perspective to the arbitrators’ duty to preserve the efficiency of the proceedings. While other institutional rules only provided for a general obligation imposed upon the arbitral tribunals to “conduct the proceedings so as to avoid unnecessary delay and expense and to provide a fair and efficient process for resolving the parties’ disputes”, the ICSID rule expressly permitted the tribunal the authority to dismiss claims on an expedited basis. While some commentators suggested such authority could also be deduced from the general principle, the tribunals approached the subject cautiously, which is more than reasonable, since without an express authority this could easily lead to a breach of the parties’ right to present their case.
Taking a glance at the procedural aspects of the article, the term “party” indicates that this mechanism is not limited to the respondents, however, in practice it is rarely the claimant who tries to rely on the article.
The scope of the rule will be examined further below, however, to give a quick hint one can say that it englobes objections as to the merits, jurisdictional objections and objections premised on equitable considerations and procedural impediments.
The threshold to meet for an objection under Rule 41(5) is hard to reach. None of the tribunals faced with the question tried to give an exhaustive answer or to define the scope of the rule yet they all agreed on a high threshold under the article.
Tribunals’ Prior Approach to Rule 41(5)
The approach taken by tribunals to the application of Rule 41(5) is illuminated by reference to three cases.
The Trans-Global case, the first case in which the rule was invoked, sheds light on the correct interpretation of the rule that has been followed by many tribunals. Relying on the travaux préparatoires and wording of the article, as well as other ICSID articles containing similar terms, the tribunal concluded that the lack of legal merit needs to be clear and easily perceived, taking into consideration the potential consequences and the close relation to parties’ right to present their case. Regarding the notion of “without legal merit”, the tribunal’s conclusion was that it would be nearly impossible to consider the legal merits of one’s claims while turning a blind eye to the factual aspects. Of course, the tribunal does not need to consider a factual allegation which is clearly unmeritorious or a legal submission dressed up as a factual allegation. Therefore, the “without legal merit” is directed to the legal façade of the claims but does not prevent the tribunal from taking a look at the factual aspects of the case to make such determination.
The Brandes tribunal was only the second tribunal to assess an objection under Rule 41(5). While the tribunal had the opportunity to rely on reasoning in Trans-Global, it faced an unanswered question: “Do jurisdictional objections fall under Rule 41(5)?”. While it is clear that the rule does not expressly mention “jurisdictional objections”, the rule needs to be interpreted taking into account its ratio legis and the mere wording is not enough to draw the line. Since Rule 41(5) aims to protect the parties from the burden of long and costly proceedings, the tribunal concluded that the rule covers all objections leading to the discontinuation of the proceedings at an early stage because the claim cannot be granted by an arbitral tribunal, for any reason. Thus, the jurisdictional objections were deemed to fall within the scope of Rule 41(5).
The RSM tribunal’s reasoning further developed that of the Trans-Global and Brandes decisions tribunals, stating: “for a tribunal faced with such an objection, it is appropriate that a claimant’s Request for Arbitration be construed liberally and that, in cases of doubt or uncertainty as to the scope of a claimant’s allegation(s), any such doubt or uncertainty should be resolved in favour of the claimant”. This reasoning is intuitive, as a tribunal should be slow to dismiss a case without a full hearing except in the most obvious cases where the objecting party has proved that the alleged claims are clear and unarguable.
AFC Investment Solutions S.L. v. Republic of Colombia
In a recent dispute brought under the Spain-Colombia BIT, the ICSID tribunal dismissed the claims of the claimant, accepting the defense raised by the respondent under Rule 41(5) ICSID Arbitration Rules.
By way of a brief overview; AFC owned 80% of the shares of ICF, a Colombian company with the purpose of managing and investing the funds of private savings. When the Colombian inspection authority (SFC) issued a resolution to order the immediate taking of all the assets of the ICF for the mandatory liquidation because of its questionable practices, ICF filed an appeal only to be dismissed. Consequently, AFC submitted a notice of dispute to the Colombian Embassy, to which the latter replied negatively, since the three-year period to bring a claim under the BIT had elapsed. While the Embassy started this period from the day of the issuance of the relevant resolution, AFC argued that the correct approach would be to take into consideration the day of the dismissal of the appeal. Accordingly, AFC, after informing the host state of its intention, submitted the formal Request for Arbitration.
Colombia argued that the expiration of the abovementioned three-year period is covered by Rule 41(5), relying on the Ansung case where the tribunal dismissed the claimant’s claims because the statute of limitations period set in the applicable investment agreement elapsed before the claims were submitted.
AFC pointed out the aim of Rule 41(5) which is to prevent abusive claims. It stated that as an exception to jurisdiction this rule needs to be applied restrictively and that the “manifest” threshold is high, meaning that the alleged defect of the claim needs to be “clear, obvious or flagrant”. As its claims were not manifestly without legal merit and as Colombia’s submission entailed complex questions, AFC requested Colombia’s objection under Rule 41(5) to be rejected.
The arbitral tribunal pointed out remarkable conclusions of prior tribunals: (1) determining whether an objection will be upheld under Rule 41(5) may be complicated but should not be difficult; and (2) even though there exists contrary caselaw, the factual aspects of the dispute may be relevant when assessing jurisdictional objections, especially in the context of Rule 41(5).
Applying these principles, the arbitral tribunal concluded that since the dispute was not really complicated and there was no factual disagreement between the parties the tribunal needed only to interpret the terms of the relevant BIT. In conclusion, the arbitral tribunal accepted Respondent’s objection under Rule 41(5).
It is not hard to see why there would be a line of angry claimants at the doors of ICSID. No party would be delighted to see their claims rejected because they are “manifestly without legal merit”. Such a determination by the arbitral tribunal may also be perceived as a threat to parties’ right to present their case since dismissal of those claims with an award will be binding.
That is why the tribunals are of the view that the threshold under the rule should be high. The term “legal merit” is interpreted in a more liberal manner covering nearly all cases where the tribunal dismisses the claims at an early stage and cannot render an award. Au contraire, the notion “manifestly” is interpreted strictly, and only clear and obvious lack of legal merit is sufficient to justify dismissal.
Also, while the term “legal merit” indicates that the factual aspect of the claims will not be relevant, the arbitral tribunal cannot be forced to take into consideration factual allegations that are completely vexatious and made-up. In addition, this wording cannot be used to cache a legal claim behind the mask of a factual allegation.
To briefly conclude, Rule 41(5) was and still is a necessary implementation. The breach of parties’ right to present their case is not an inherent consequence of the rule and the tribunals’ cautious approach serves as a safety net against such concerns. Various arbitral institutions have adopted similar clauses, this also demonstrates that Rule 41(5) managed to stay afloat despite all the criticism.
To save the parties from burdensome proceedings and to make arbitration efficient again, mechanisms such as Rule 41(5) are crucial.
Keywords: International investment arbitration, Claims manifestly without legal merit, ICSID Arbitration Rules
 Rule 17(1) of the 2013 UNCITRAL Arbitration Rules.
Similar provisions can be found in Rule 22(1) of the 2021 ICC Arbitration Rules, Rule 14 of the 2020 LCIA Arbitration Rules, Rule 23(2) of the 2017 SCC Arbitration Rules.
 Yeo, Alvin/Yen, Koh Swee, Objection of Manifest Lack Of Legal Merit Of Claims: ICSID Arbitration Rule 41(5), the Investment Arbitration Treaty Review, ed. Barton Legum, 6th Edition, 2021, pp. 79-96, p. 80.
 To give an example of this unusual practice; in Elsamex, S.A. v. Republic of Honduras (ICSID Case No. ARB/09/4), the first annulment proceeding during which Rule 41(5) was invoked, Elsamex claimed that the award should be annulled since the claims of Honduras clearly lacked legal merit. The tribunal, relying on rule 52 of ICSID Arbitration Rules, held that Rule 41(5) shall be also applied in the annulment proceedings, however rejected the objection since it failed to meet the required threshold.
 Since its introduction in 2006, the rule has been referred to in 40 cases, but it was upheld only in 7.
* Legal intern, Göksu Law; LL.M. student, Galatasaray University