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Should the WTO have rules on frivolous claims in its dispute settlement understanding?

Dispute settlement plays a crucial role both in national and international legal systems. Judicial independence is the key element of the right of individuals and States to defend their interests. However, it is worth mentioning that upon a closer examination of the issue, it becomes clear that there are serious obstacles to providing legal protection for States and individuals. Not only dispute settlement organizations, but also parties to the dispute, can make this process unsatisfactory.

A party seeking to undermine the authority of the other party, or in other ways to discredit it, is common. Bringing a claim in court is one option for adversely influencing the opposite party's reputation. First, any publicity, which the forthcoming trial receives, may be detrimental to the defendant. As soon as the case is in the court, the proceedings become available to the public. Even though the results of the proceeding depend on the court decision, the claims can have a negative impact on attitudes toward the respondent from the beginning of the procedure.

On the other hand, in case of a groundless claim, this may influence not only the defendant, but also the court itself, because respect for and confidence in the judicial authorities are queried. It is important to identify unfounded claims before a trial starts; otherwise, the loss of time and resources impedes the work of the court and the operations of the party, or even the particular economic field as a whole (if the matter concerns global trade, for instance).

Dealing with such cases at the international level is a challenge for the international dispute settlement system. When a dispute concerns international economic and political relations it is never easy for the court to outline the real merits of the case and find an appropriate legal solution.

However, it is important to determine the reasons for bringing such a claim. The claim could be brought without any legal grounds. Thus, a distinction between de minimis and frivolous claims should be made. Both are to be dismissed by a court; however the consequences for the parties are different.

To begin with the de minimis claim, the famous legal maxim is apt: "De minimis non curat lex" which means: "the law does not concern itself with trifles". (1) In the matter at issue there are legal grounds for bringing a case; however, they are so minor that the court should dismiss the claim.

A good example of the principle is Article 101 of the Treaty on the Functioning of the European Union and Article 81 of the Treaty establishing the European Community. (2) Moreover, there was also a European Court of Justice decision in 2012, where the Court ruled:
   Articles 101(1) TFUE and 3(2) of Council Regulation (EC) No 1/2003
   of 16 December 2002 on the implementation of the rules on
   competition laid down in Articles 81 [EC] and 82 [EC] must be
   interpreted as not precluding a national competition authority from
   applying Article 101(1) TFEU to an agreement between undertakings
   that may affect trade between Member States, but that does not
   reach the thresholds specified by the European Commission in its
   notice on agreements of minor importance which do not appreciably
   restrict competition under Article 81(1), [EC] (de minimis),
   provided that that agreement constitutes an appreciable restriction
   of competition within the meaning of that provision. (3)


Therefore, de minimis claims could even be brought to the court unintentionally (without intent to discredit the respondent) and may not necessarily harm the reputation of the parties. What is more, it can assist with the proceeding and clarification of provisions. Yet, the legal nature of the frivolous claims is completely different.

A frivolous claim is "a claim that has no legal basis or merit, especially one brought for an unreasonable purpose such as harassment". (4) Given the preceding definition, some common criteria of the frivolous claim may be outlined. Firstly, the claim has no legal basis, thus no infringements or breaches of contract appear. Secondly, the aim of such a claim is to unreasonably harass, discredit, or disparage the counter-party. The concept of frivolous claims or lawsuits is more widespread in national courts. However, both globalization and the development of international relations have led to the expansion of this term to international dispute settlement systems.

The lack of legal regulation for frivolous claims leads to a number of legal issues, also at the international level. If the matter concerns international economic relations, there is also a possibility that such claims may negatively affect not only the disputing parties (the respondent in particular), but also some third parties who are indirectly involved.

The best way to solve problems arising from the frivolous litigation is via a mechanism of dismissal. For instance, the United States domestic legislation stipulates grounds for dismissal, including "failure to state a claim upon which relief can be granted" (5). However, in most international jurisdictions, the lack of similar rules creates a normative gap. "The need for new procedures allowing tribunals to dispose of frivolous claims on an expedited basis was perceived as crucial considering ..." (6)

As mentioned previously, the sphere of international economic and commercial relations is one of the main areas in which the possibility of frivolous claim is rather high. The primary reason for it is political relations between the states as well as global policy itself. In order to understand the mechanisms of current frivolous litigation regulation, it is important to overview the practice of some international courts.

It would be very logical to begin the discussion with one of the most well-known international courts--the International Court of Justice (ICJ). The Statute of the ICJ has no provision regulating the dismissal procedure of a case based on the lack of legal merit. Certainly, it does not mention the concept of frivolous claims either.

The practice of ICJ has some examples of dismissals in limine litis on the grounds of lack of jurisdiction. One of such examples is the Legality of Use of Force case, in which the preliminary objections stated that "The Court should take a decision to dismiss the case in limine litis, without further entering into the examination of the question of whether the Court has jurisdiction under the circumstances." (7) However, this matter does not concern the lack of legal merit, while the jurisdictional dismissals are not usually linked to frivolous claims. Although there are no any well-known incidents of the ICJ dismissing unfounded claims, there is a Separate Opinion of Judge Fitzmaurice that is worth to be mentioned in this analysis:
   There is another reason also for postulating certain latitude for
   the Court, on grounds of policy or propriety, to decline in limine
   to entertain claims that it might be competent to go into, and
   which might not be open to objection on grounds of straight
   inadmissibility. In the general international legal field there is
   nothing corresponding to the procedures found under most national
   systems of law, for eliminating at a relatively early stage, before
   they reach the court, which would otherwise hear and decide them,
   claims that are considered to be objectionable or not entertainable
   on some a priori ground. (8)


Nevertheless, there are other examples from the international courts that have the provisions on the issue of frivolous claims. It is interesting that, in addition to having a narrower jurisdiction than the ICJ, all of the following courts deal with the areas of law that are more specific than those handled by the ICJ. The example is the International Tribunal for the Law of the Sea (ITLOS).

First of all, it is useful to analyze the provisions of the United Nations Convention on the Law of the Sea (UNCLOS). UNCLOS particularly stipulates the procedure for dismissing frivolous claims. Article 294 determines:
   A court or tribunal ... to which an application is made ... shall,
   or may, determine, at the request of a party that the claim
   constitutes an abuse of the legal process (proprio motu), or that
   the claim is well founded (prima facie). If the court or tribunal
   does determine that the claim is either proprio motu or prima
   facie, it shall take no further action in the case. (9)


The provision also directly specifies that "the prima facie finding is not limited to jurisdiction" (10) and thus may also be applied to the issue of merit, which is at the root of the frivolous claim. In addition, T. Treves clarifies:
   The prima facie finding is all that is necessary to conclude that
   the case should not be continued. ... It would seem that only the
   most blatant cases of abuse and the most evident cases of
   unfoundedness are likely to be stopped by the pre-preliminary
   filter of claims set out in Article 294. Otherwise, bona fide
   disputes might be deprived of hearing in justice. (11)


What's more, it is significant to note that the above-mentioned Article is applicable both to the ITLOS and the ICJ, so it is possible to consider a dismissal on the grounds of merits lack in the ICJ preliminary proceedings, but only in cases, concerning the maritime disputes. However, "there appear to have been no practical applications made under Article 294 by UNCLOS, nor have there been any proprio motu determinations by ITLOS. The provision has been quoted in certain pleadings by disputing parties, but so far, has not been reflected in any of the Tribunal's judgments." (12)

It seems to be of particular interest to the author dispute settlement rules in the field of international economic law. Perhaps the most striking example is the International Center for Settlement of Investment Disputes (ICSID). The ICSID Arbitration Rules, which have a practical application, establish the procedure. The Rule 41(5) provides for the following:
   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. The party shall specify as
   precisely as possible the basis for the objection. The Tribunal,
   after giving the parties the opportunity to present their
   observations on the objection, shall, at its first session or
   promptly thereafter, notify the parties of its decision on the
   objection. (13)


Special attention should be given to several aspects of the Rule. First of all, it is imperative to recognize that the claim must be "manifestly without legal merit," which is a central aspect of identifying a frivolous claim. Secondly, it is crucial that it is the party's duty to prove beyond a reasonable doubt that the claim must be dismissed on the grounds of frivolity. "[Rule 41(5)] has been invoked so far in four instances." (14)

In Trans-Global v Jordan, the respondent stated that "Claimant's claims in several respects are manifestly without legal merit because they allege infringements of non-existent legal rights of the Claimant or non-existent legal obligations of the Respondent. This part of the Respondent's Objection, so far, raises little difficulty of interpretation." (15) In this particular case, the Tribunal issued the following ruling:

The Tribunal accepts that, as regards disputed facts relevant to the legal merits of a claimant's claim, the tribunal need not accept at face value any factual allegation which the tribunal regards as (manifestly) incredible, frivolous, vexatious or inaccurate or made in bad faith; nor need a tribunal accept a legal submission dressed up as a factual allegation. (16)

The case of Brandes v Venezuela is also of particular interest because in this instance, the Tribunal did not accept the objections and determined that "the answers to these questions necessitate the examination of complex legal and factual issues which cannot be resolved in these summary proceedings." (17) Thus, it was impossible to identify the frivolity of the claim, so in order to make a decision, both the summary proceedings and the complex examination were to be carried out. It seems to be a rather common issue when the respondent is unable to provide the Tribunal with enough concrete evidence to substantiate their objections, so the frivolity of the claim can be determined only after the trial.

An example of a case, in which the Tribunal has fully accepted the respondent's objections is that of Global Trading v Ukraine where it was ruled that: "the claims brought in the present arbitration by Global Trading Resource Corp. and Globex International, Inc. against Ukraine are manifestly without legal merit." (18)

The practical importance of Rule 41(5) ultimately lies in the fact that it establishes the process, by which a procedural hearing is substantiated. However, its applicability is still a controversial issue. (19)

Analyzing the application of rules on frivolous claims, it is worth mentioning the M&M Productions, Inc. v Iran case, during which the judge stated that "from the begining of its business ... the Tribunal should have adopted a mechanism sorting out ... frivolous and baseless claims and dealt with them." (20) This particular case was associated with the fact that the United Nations Commission on International Trade Law (UNCITRAL) (the 1976 version) had no provision establishing the procedure for dismissing frivolous claims. Currently, the UNCITRAL (after the amendments of 2010) has a norm, regulating that issue. Article 17 stipulates a provision:
   Subject to these Rules, the arbitral tribunal may conduct the
   arbitration in such manner as it considers appropriate, provided
   that the parties are treated with equality and that at an
   appropriate stage of the proceedings, each party is given a
   reasonable opportunity to present its case. The arbitral tribunal,
   in exercising its discretion, shall conduct the proceedings so as
   to avoid unnecessary delay and expense and to provide a fair and
   efficient process for resolving the parties' dispute. (21)


The formulation of that norm is not as precise as that of Rule 41(5) of the ICSID. However, it determines the main purposes of the dismissal:

1) Avoidance of unnecessary delay and expense;

2) Provision of a fair and efficient process for resolving the parties' dispute.

It is important to understand that each frivolous claim can cause serious time and resource expenditures. However, the UNCITRAL Rule does not clarify the details of such procedure, as the way the ICSID Rule does, so the provision has a more declarative character.

Turning to the World Trade Organization (WTO) Dispute Settlement, it is important to note that, in contrast to the ICSID and other international arbitration tribunals, it deals with State-to-State disputes. Although the WTO "is a place where member governments go to try to sort out the trade problems they face with each other" (22) and its competence is strictly limited to the trade issues (in other words, to the sphere of economics), it still has a direct connection with global politics. Moreover, the fact that both highly-developed and developing states are members of the Organization could lead to serious infringements by way of frivolous claims. The WTO Dispute Settlement practice does not give many examples of frivolous lawsuits. However, this issue is still very important and the possibility of frivolity increases as the number of presented cases rises.

The United States, in the Japan--Measures Affecting Consumer Photographic Film and Paper case, stated that "the non-violation remedy remains an 'exceptional concept' in that it provides a right of redress whether or not a measure conflicts with the GATT." (23) It also provides some statistics:
   After 50 years, there have been only 8 cases (i.e., Ammonium
   Sulphate, Sardines, Uruguayan Recourse, Citrus, Canned Fruit,
   Oilseeds, Semiconductors, and Sugar) in which panels have
   substantively considered Article XXIII:1(b) (24), and in three of
   those cases (i.e., Uruguayan Recourse, Semiconductors, and Sugar)
   the panel applied the "detailed justification" requirement that now
   appears in Article 26.1 of the DSU to dismiss frivolous
   non-violation claims. (25)


An example of a frivolous claim in a WTO lawsuit is that of the United States--Measures Affecting the Cross-Border Supply of Gambling and Betting Services case. "While some U.S. officials view Antigua's lawsuit with the WTO as being without merit and even frivolous, Antigua's Finance Minister Howard Lovell says his country is deadly serious about the damage the American Justice System has done to Antigua's economy." (26) Other examples can be found when the United States declared that a claim against them was frivolous, while the real issue was completely different. As Somesh K. Mathur mentions, "developing countries face at least three major problems as far as the implementation of decisions in the DSP is concerned (RIS, World Trade and Development Report 2003)" (27) and one of them is "substantial export loss to the developing country during the dispute settlement period, but there is hardly any provision for compensation for this loss even when the measure in question is found to be in contravention of the WTO rules or frivolous" (28).

The answer to the question of whether or not there should be rules on frivolous claims in the WTO Dispute Settlement Understanding, is indubitably affirmative. The existence of such rules is important not only for the protection of Respondent-State interests, but also for the whole Dispute Settlement System. The main reasons for this necessity are outlined below.

1. Frivolous claims trivialize the whole system. It makes the procedure senseless and prevents the system from achieving its main purpose--to protect rights and provide remedies.

2. Frivolous claims consume both time and resources. It takes at least 9-12 months to adopt the report.

3. Frivolous claims diminish the system established by the WTO Dispute Settlement.

As Judge Fitzmaurice said:

Evidently, a judgment of the Court, even if not capable of effective legal application, could have other uses. It could afford a moral satisfaction.
   It could act as an assurance to the public opinion of one of the
   parties that something had been done or at least attempted. There
   might also be political uses to which it could be put. Are these
   objects of a kind which a judgment of the Court ought to serve? The
   answer must, I think, be in the negative, if they are the only
   objects which would be served--that is, if the judgment neither
   would, nor could, have any effective sphere of legal application.
   (29)


The Dispute Settlement Body (DSB) should not deal with political issues that may arise concurrently with trade disputes. It should focus only on the legal merit of the claim, which is to be distinguished from all other affairs of the state.

However, the mechanism should not only prohibit frivolous claims and dismiss them, but must also provide the remedies for the respondent. "The panel should be mandated to determine the amount of compensation in all cases where ... countries are found to violate the WTO rules. This will help prevent the initiation of trade-related measures on frivolous grounds." (30) Not only the dismissal, but also the compensation, can prevent the states from bringing frivolous claims. Such compensation should include both the expenses of the respondent for the dispute settlement procedure and any losses that may arise from the claim. It is imperative that the compensation can be adjudged not only under the WTO rules, but also under the Articles on State Responsibility from 2001, which are also applicable to the WTO disputes, (31) as customary international law.

Glen T. Schuyler expressed the interesting idea of: "... set[ting] up a commission to filter out frivolous claims and advance meritorious ones. This system could be modeled on the European Commission on Human Rights, which serves as a screening mechanism for the European Court of Justice," (32) he writes. It seems to be logical to have such a mechanism at the consultational level. However, a precise dismissal procedure should also exist. The two best models of such a mechanism seem to be Article 294 of UNCLOS and Rule 41(5) of the ICSID. Furthermore, a system of remedies and compensations should be introduced as well.

Conclusion

The practice of international courts shows that the issue of frivolous claims is a very controversial one. Although it is a matter of current importance, the number of explicit and precise provisions regulating this field is limited. Taking into account the specific legal nature of the WTO, its increasing importance in the modern international society, and the growing number of disputes settled in its DSB, there is no doubt that the WTO should have rules on frivolous claims in its Dispute Settlement Understanding.

Bibliography

Garner BA (EIC), Black's Law Dictionary (9th ed. West 2011)

Laurenzi JG, 'Antigua-Barbuda Declare Gaming Trade War on U.S.' <http://www.thestkittsnevisobserver.com/2012/12/28/gaming-trade-war. html> accessed 20 June 2014

Kozheurov YaS Mezhdunarodnaya Otvetstvennost za Narushenie "Prava WTO": Sootnoshenie s Obshchim Mezhdunarodnym Pravom // Aktualnye Problemy Mezhdunarodnogo Prava. 2013. No. 10 (35). S. 1334-1340. (YaS Kozheurov 'International responsibility for the violations of WTO Law: Correlation to General International Law' (2013) 10(35), Relevant Issues of International law 1334)

Mathur SK, 'Understanding on Rules and Procedures Governing the Settlement of Disputes: A Developing Countries Perspective' (2006) 11 (2) Lahore J Econ 169

Potesta M and Sobat M, 'Frivolous Claims in International Adjudication: A Study of ICSID Rule 41(5) and of Procedure of the Other Courts and Tribunals to Dismiss Claims Summarily' (2012) 1 J Int'l Disp Settl't 137

Schuyler GT, 'Power to the People: Allowing Private Parties to Raise Claims before the WTO Dispute Resolution System' (1997) 65 Fordham L Rev 2275

Treves T, 'Preliminary Proceedings in the Settlement of Disputes under the United Nations Law of the Sea Convention: Some Observations' // Nisuke Ando, Edward Mcwhinney, Rudiger Wolfrum (eds), Liber Amicorum Judge Shigeru Oda (Kluwer International Law, Hague 2002)

By Yulia Mogutova

Author

Student, Kutafin Moscow State Law University

E-mail: Julia-mogutova@mail.ru

(1) BA Garner (EIC), Black's Law Dictionary (9th ed. West 2011).

(2) See Commission Notice (EC) on agreements of minor importance which do not appreciably restrict competition under Article 81(1) of the Treaty establishing the European Community (de minimis) [2001] OJEU 2001/C 368/07.

(3) Case C-226/11 Expedia Inc. v Autorite de la concurrence and Others [2012] ECJ (Second Chamber) 13 December 2012.

(4) Black's Law Dictionary 739.

(5) Federal Rules of Civil Procedure (1938), Rule 12(b)(6) <http://www.law.cornell. edu/rules/frcp> accessed 20 June 2014.

(6) M Potesta and M Sobat, 'Frivolous Claims in International Adjudication: A Study of ICSID Rule 41(5) and of Procedure of the Other Courts and Tribunals to Dismiss Claims Summarily' (2012) 1 J Int'l Disp Settl't 137, 138.

(7) Legality of Use of Force (Serbia and Montenegro v. Belgium) (Preliminary Objections) [2004] ICJ Rep 279, 293 para 30.

(8) Case concerning the Northern Cameroons (Cameroon v. United Kingdom) (Preliminary Objections) [1963] ICJ Rep 15, 106 (Judge Sir Gerald Fitzmaurice, separate opinion).

(9) United Nations Convention on the Law of the Sea (adopted 10 December 1982, 16 November 1994) 1833 U.N.T.S. 3 (UNCLOS) art 294 (1). Art. 96 (7) of the Rules of the Tribunal (ITLOS) corresponds to this provision.

(10) T Treves, 'Preliminary Proceedings in the Settlement of Disputes under the United Nations Law of the Sea Convention: Some Observations' in Nisuke Ando, Edward Mcwhinney, Rudiger Wolfrum (eds), Liber Amicorum Judge Shigeru Oda (Kluwer International Law, Hague 2002).

(11) Ibid., 752.

(12) Potesta and Sobat (n 6) 145.

(13) ICSID Rules of Procedure for Arbitration Proceedings (ICSID Arbitration Rules), 4 Int'l Tax& Bus. Law. 362 (1986) rule 41(5).

(14) Potesta and Sobat (n 6) 148.

(15) Trans-Global Petroleum, Inc. v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB/07/25, Decision on the Respondent's Objection under Rule 41(5) of the ICSID Arbitration Rules, 95 (12 May 2008).

(16) Ibid., 105.

(17) Brandes Investment Partners, LP v. The Bolivarian Republic of Venezuela, ICSID Case No. ARB/08/3, Decision on the Respondent's Objection under Rule 41(5) of the ICSID Arbitration Rules, 72 (February 02, 2009).

(18) Global Trading Resource Corp. and Globex International, Inc. v. Ukraine, ICSID Case No. ARB/09/11, Award, 57 (1 December 2010).

(19) Potesta and Sobat, (n 6) 149-159.

(20) Potesta and Sobat, (n 6) 164 citing M&M Productions, Inc. v Iran, 6 Iran-US CTR 125, 1984, at 129.

(21) UNCITRAL Arbitration Rules as revised in 2010, Art. 17(1), GA Res 65/22 (6 December 2010).

(22) Understanding the WTO 9 <http://www.wto.org/english/res_e/publications_e/ understanding_wto_e.htm> accessed 20 June 2014.

(23) Japan--Measures Affecting Consumer Photographic Film and Paper--Report of the Panel (31 March 1998) WT/DS44/R, 171.

(24) 1. If any contracting party should consider that any benefit accruing to it directly or indirectly under this Agreement is being nullified or impaired or that the attainment of any objective of the Agreement is being impeded as the result of ... (b) the application by another contracting party of any measure, whether or not it conflicts with the provisions of this Agreement.

(25) Japan--Measures Affecting Consumer Photographic Film and Paper (n 23) 171.

(26) GJ Laurenzi, 'Antigua-Barbuda Declare Gaming Trade War on U.S.' <http://www. thestkittsnevisobserver.com/2012/12/28/gaming-trade-war.html> accessed 20 June 2014.

(27) SK Mathur, 'Understanding on Rules and Procedures Governing the Settlement of Disputes: A Developing Countries Perspective' (2006) 11 (2) Lahore J Econ 169, 174.

(28) ibid., 174.

(29) Case concerning the Northern Cameroons (n 8) 107.

(30) SK Mathur (n 27) 186.

(31) Kozheurov Ya. S. Mezhdunarodnaya Otvetstvennost za Narushenie "Prava WTO": Sootnoshenie s Obshchim Mezhdunarodnym Pravom // Aktualnye Problemy Mezhdunarodnogo Prava, 2013. No. 10 (35). S. 1334-1340, 1137. (YaS Kozheurov 'International responsibility for the violations of WTO Law: Correlation to General International Law' (2013) 10(35) Relevant Issues of International law 1334, 1337).

(32) GT Schuyler, 'Power to the People: Allowing Private Parties to Raise Claims before the WTO Dispute Resolution System' (1997) 65 Fordham L Rev 2275, 2309 <http:// ir.lawnet.fordham.edu/flr/vol65/iss5/9> accessed 20 June 2014.
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