Counterclaims play a significant role in investment arbitration proceedings, allowing  respondent states to assert their own claims against investor-claimants. These  counterclaims provide a means for respondent states to address grievances and seek redress within the same arbitration process. In investment arbitration, counterclaims are  governed by various rules and conventions, such as the International Centre for  Settlement of Investment Disputes (ICSID) Convention and the UNCITRAL Rules.

Several landmark cases have significantly influenced the understanding and application of  counterclaims in investment arbitration. These cases have contributed to the  establishment of principles and requirements for the admissibility of counterclaims in  investment arbitration.

1. Klöckner v Cameroon case (ICSID Case No. ARB/81/2, Award Oct, 21, 1983)

The first ICSID case that analyzed counterclaim jurisdiction as it upheld  jurisdiction where the counterclaim was closely connected to the original claim.

2. Saluka v Czeh Republic (UNCITRAL 1976 Rules, Decision on jurisdiction over the Czech Republic’s Counterclaim May 7, 2004)

The tribunal finds that “all disputes” under Article 8 of the BIT when read with  articles 19.3, 19.4 and 21.3 of the 1976 UNCITRAL Rules permit counterclaims. However, these counterclaims must be closely related (“indivisible from”) to the  investor’s claim and cannot be based on violations of Czech law.

3. Roussalis v. Romania (ICSID Case No. ARB/06/1 , Award Dec, 7, 2011)

The majority of the arbitrators held that the applicable bilateral investment treaty (BIT) only allowed for arbitration of claims brought by investors against the host state, and not for counterclaims by the host state due to lack of consent under the terms of  the treaty.

However, the dissenting opinion by the third arbitrator, Professor W. Michael Reisman argued that the consent component of Art. 46 of the ICSID Convention establishing jurisdiction over the respondent state’s counterclaim,. This dissenting opinion has been influential in subsequent academic literature and arbitral  Awards for example in case Goetz et al. V Burundi (ICSID Case No. ARB/01/2, Award June 21, 2012), where the tribunal reasoned its decision that, by entering into the BIT, Burundi and Belgium were offering to arbitrate disputes under the  ICSID Convention in accordance with the procedure set therein, including Article 46, which concerns counterclaims. By referring the dispute to arbitration, the claimants in turn accepted the terms of the standing offer; it was of no importance that the BIT itself did not contain any provision giving to the tribunal  jurisdiction to hear counterclaims. The tribunal also found that the counterclaim was admissible because it was properly connected to the object of the dispute, as  required under Article 46.

4. In Al-Warraq v Indonesia (UNCITRAL Award Dec. 15, 2015)

The tribunal found that it had jurisdiction to decide on the Respondent’s Counterclaim based on the organization of Islamic Cooperation (OIC) agreement Art. 17 which envisages claims by state party and Art. 9 which “impose a positive obligation on investors to respect the law of the host State as well as public order and morals”, moreover, as the counterclaim was a matter of fact “closely related both to the Investment and the claimant claims”.

Regarding Counterclaims under the ICSID convention

 Article 46 of the ICSID Convention provides that counterclaims may be brought in the same proceedings:” Except as the parties otherwise agree, the Tribunal shall, if requested by a party, determine any incidental or additional claims or counterclaims arising directly out of the  subject-matter of the dispute provided that they are within the scope of the consent of  the parties and are otherwise within the jurisdiction of the Centre“.

This rule requires an ICSID tribunal mandatorily (‘shall’) to determine counterclaims, if the following conditions are satisfied:

• The counterclaim must arise ‘directly out of the subject matter of the dispute
• It must fall within the scope of the parties’ consent;
• It must be within the ICSID jurisdiction.

In addition, the opening clause of Article 46 “except as the parties otherwise agree” allows for the possibility that the parties might expressly opt out of their agreement to hear counterclaims. It has been noted that this clause requires that parties to a dispute explicitly express their will for the tribunal not to entertain counterclaims.

Counterclaims under the UNCITRAL Rules

On one hand according to article 19(3) of the 1976 UNCITRAL Rules, the rules expressly limit counterclaims brought by the respondent state to those arising out of the “same contract“. On the other hand although Art. 21 (3) of the 2010 UNCITRAL RULES did not impose any requirements as Art. 46 of the ICSID Rules, however, it requires that counterclaims jurisdiction be confirmed from other elements of the parties’ agreement.

Conclusion

Counterclaims in investment arbitration serve as an essential mechanism for respondent states to seek redress against Investor-claimants. The evolution of arbitral jurisprudence demonstrates a growing acceptance of counterclaims, provided they meet jurisdictional and substantive requirements. However, the extent to which counterclaims are admitted depends largely on the specific treaty provisions and the applicable arbitration rules. Understanding the nuances of counterclaims is crucial for both investors and states engaged in investment arbitration.