Arbitration, Litigation & Commercial
An ICSID Claim Against Kuwait Dismissed as Manifestly Without Legal Merit for the Investor’s Failure to Follow Amicable Means
15 February 2020
On 24 October 2017, the Claimant, Almasryia For Operating & Maintaining Touristic Construction Co., LLC (the “Claimant”), a company incorporated under the laws of the Arab Republic of Egypt, submitted a dispute to the International Centre for the Settlement of Investment Disputes (the “ICSID”) against Kuwait under the Egypt-Kuwait BIT and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the “ICSID Convention”).
The dispute relates to property rights over a piece of land located in Al-Khafji city, Kuwait (the “Land”). The Claimant entered into a joint venture investment agreement with Mr. Faisal Bandar Al-Otaibi and Bin Samar Contracting Co. to “develop and construct many touristic hotels, real estate and logistics projects” on the Land. The Claimant allegedly purchased a 5% interest in the Land from Mr. Al-Otaibi in exchange for $20 million dollars in accordance with the joint venture agreement before Mr. Al-Otaibi became the lawful owner of the land. AFTER executing the Agreement, Mr. Al-Otaibi unsuccessfully attempted to acquire the ownership of the Land through legal proceedings inside Kuwait before Courts of Kuwait. The Claimant alleged that Kuwait’s failure to grant Mr. Al-Otaibi a deed of ownership for the Land destroyed its joint venture investment in violation of Kuwait’s obligations under Article 7 (expropriation) of the BIT.
On 3 September 2018, Kuwait filed its Preliminary Objections pursuant to Arbitration Rule 41(5) which provides in material part that:
“Unless the parties have agreed to another expedited procedure for making preliminary objections, a party may, no later than 30 days after the constitution of the Tribunal, and in any event before the first session of the Tribunal, file an objection that a claim is manifestly without legal merit.[....].” [Emphasis added]
Kuwait alleged that the claim is manifestly without legal merit because:
- The Claimant has failed to follow the amicable means of dispute settlement in accordance with Article 10 of the Egypt-Kuwait BIT before submitting the Request for Arbitration to the ICSID; and
- The essential element of the Claimant’s expropriation claim is missing because it has failed to establish its rights to the Land under the local laws of Kuwait.
The decision under discussion concerns these Preliminary Objections. The merits of the Claimant’s allegations against Kuwait are not the subject of the decision.
First, the ICSID Tribunal interpreted the phrase “manifestly without legal merits”. After discussing various ICSID awards on this point, the Tribunal observed that ‘our task will be to determine whether taking the facts as a given, unless they are plainly without foundation, the claims are such that they “manifestly” (i.e. clearly and obviously) lack legal merit.' 
Article 10 of the BIT provides that:
- Disputes which arise between a Contracting State and an investor belonging to the other Contracting State, in relation to an investment in the territory of the first State which returns to the latter, shall be settled, as far as is possible, by amicable means.
- If that dispute cannot be settled within six months of the date on which either of the two parties to the dispute requested an amicable settlement by notifying the other party in writing, then the dispute shall be referred for resolution by one of the following means, to be chosen by the investor who is a party to the dispute.
Regarding the first Preliminary Objection, the ICSID Tribunal observed that (internal foot notes omitted):
'39. The purpose of paragraphs 1 and 2 of Article 10 is to allow the Parties in a dispute to try to reach a solution of the matter before resorting to arbitration. It seeks to prevent a dispute by giving advance notice to a State so that, if possible, a positive solution to the dispute may be achieved. This requirement is an integral part of the State’s consent rather that a negligible formality. However, although the treaty does not force the parties to reach an amicable settlement, the provision does condition resort to arbitration to the fulfillment of certain requirements, among them a notification to the other party in writing. In this Tribunal’s view compliance with the terms of Article 10 should be clear and unequivocal.
'40. The Tribunal concurs with the opinion expressed by other investment tribunals to the extent that:
"The six-month waiting period requirement... is designed precisely to provide the State with an opportunity to redress the dispute before the investor decides to submit the dispute to arbitration... by imposing upon investors an obligation to voice their disagreement at least six months prior to the submission of an investment dispute to arbitration, the Treaty effectively accords host States the right to be informed about the dispute at least six months before it is submitted to arbitration. The purpose of this right is to grant the host State an opportunity to redress the problem before the investor submits the dispute to arbitration... Claimant has deprived the host State of that opportunity. That suffices to defeat jurisdiction."
“[It] constitutes a fundamental requirement … It is not an inconsequential procedural requirement but rather a key component of the legal framework established in the BIT and in many other similar treaties… It amounts to … an essential mechanism … which compels the parties to make a genuine effort to engage in good faith negotiations before resorting to arbitration.”
“The explicit requirements that the parties must seek to engage in consultations and negotiations … and that there be a … waiting period … are accepted by the Tribunal as pre-conditions to submitting the dispute to arbitration … compliance is an essential element of Turkey’s prospective consent to qualify its sovereignty to permit unknown future investors of the other contracting State to claim relief under the terms of the BIT against it in an international forum.”’
The Tribunal, by majority with the Claimant appointed arbitrator dissenting, held that the Claimant’s failure to follow the BIT mandated amicable means of dispute settlement “is a legal impediment which goes to the jurisdiction of the Tribunal.”
Regarding the Claimant’s expropriation claim, the Tribunal, by majority, decided that “it is obvious that an essential element for the Claimant’s expropriation claim is missing, i.e. the existence of property rights in accordance with the laws of Kuwait. Therefore, the legal premise that it owns 5% of the land which was expropriated by the Respondent manifestly lacks legal merit.”
The Tribunal awarded the costs of the arbitration proceedings in total against the Claimant.
This decision is an important reminder of the importance of adhering to binding amicable means of dispute settlement by foreign investors before resorting to arbitration against host states.