ICSID Tribunal Upholds a State’s Right to Investigate Criminality in Arbitral Proceedings

by Latham & Watkins LLP
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An ICSID tribunal has unanimously rejected a claimant’s attempt to temporarily suspend a State-initiated criminal investigation involving two of its witnesses. In Italba Corporation v Uruguay[1] Italba Corporation (Italba) had applied to the tribunal for provisional measures enjoining Uruguay from proceeding with its investigation until after completion of the arbitration, arguing that the State’s conduct undermined the procedural integrity of the arbitral process.

Background

In the course of the arbitration, Italba filed witness statements by Dr Gustavo Alberelli and Mr Luis Herbón, an expert report and its exhibits. Shortly thereafter, an investigation was launched by the state prosecutor into allegations that some of the documents submitted by the claimant had been falsified and forged in contravention of the Uruguayan Penal Code. Mr Herbón was subsequently served with a notice to appear before a criminal court in Montevideo to give evidence, however neither he nor Dr Alberelli were charged or detained in connection with the investigation. Upon becoming aware of the notice, Italba requested that Uruguay terminate the criminal proceedings. After the State refused, Italba filed an application for provisional measures in the arbitration seeking to enjoin the investigation pending resolution of the arbitration.

Italba characterised the investigation as an impermissible attempt by the State to “harass and intimidate” its witnesses which undermined the arbitral process by hindering its ability to present its case. Italba argued there was a real and urgent risk that it’s witnesses may be indicted, arrested and put in pre-trial detention, thereby limiting Italba’s access to its key witnesses ahead of the hearing. An order temporarily preventing Uruguay from proceeding with the investigation was therefore a necessary and proportionate measure to protect Italba’s rights.

Uruguay opposed the application on two grounds. First, it asserted that Italba had failed to establish that the tribunal had prima facie jurisdiction because it had not adduced evidence that it was an ‘investor’ protected by the US-Uruguay bilateral investment treaty. Secondly, even if the tribunal had jurisdiction, the requirements for the grant of provisional measures had not been made out as there was no proper basis for the State to be precluded from exercising its sovereign right of assessing in good faith evidence relevant to the commission of a crime committed in its territory. There was no reason to suspect that the investigation had been conducted in bad faith or that it had been instigated in retaliation against the claimant for having initiated the arbitration. Further, there was no evidence that Italba’s rights had been affected or would be affected as a result of the investigation, particularly as Uruguay had provided guarantees that the investigation, regardless of its course, would not prevent either individual from participating in the preparation or presentation of Italba’s case.

Tribunal’s Decision

The tribunal unanimously dismissed Italba’s request for provisional measures. Although Uruguay’s jurisdictional objection was rejected, the tribunal held that Italba had failed to satisfy the threshold requirements for its application. At the outset, the tribunal noted that as a sovereign state, Uruguay had the right and duty to investigate alleged acts of criminality and that other than in exceptional circumstances, a tribunal did not have “the power to order or recommend the cessation of a criminal investigation”. The tribunal held that a claimant could not therefore have any legitimate expectation that the prosecution of an ICSID arbitration conferred a blanket immunity upon its principals and witnesses from investigation. In this case, the tribunal was not persuaded that there was compelling evidence of a serious risk that the claimant’s rights would suffer irreparable harm as a result of the investigation or that the integrity of the arbitration would be compromised. Neither Dr Alberelli nor Mr Herbón had been arrested or detained and there was no evidence that this would imminently occur, particularly as Uruguay had given undertakings to respect the claimant’s rights in the arbitration in good faith to which the tribunal accepted it would adhere.

Comment

This decision reinforces that tribunals will not interfere with State investigations and prosecutions in the absence of compelling evidence that the integrity of the arbitral process has been, or will be, undermined. In this regard, the provision of State undertakings that investigations will not obstruct the participation of the relevant individuals in the arbitration are likely to be highly persuasive in refusing to grant provisional measures. Further, although the jurisdictional challenge in this case was not successful as Uruguay had previously agreed for its challenge to be determined as part of the final award, the tribunal’s acceptance that it had to be satisfied that it had prima facie jurisdiction over the dispute before granting provisional measures may encourage States to raise jurisdictional objections as a means of resisting applications of this nature.

This post was prepared with the assistance of Malika Sajdik in the London office of Latham & Watkins.

[1] Italba Corporation v Uruguay (ICSID Case No. ARB/16/9)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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