Fouad Alghanim & Sons Co. for General Trading & Contracting, W.L.L. and Fouad Mohammed Thunyan Alghanim v. Hashemite Kingdom of Jordan
ICSID · Investment (ICSID and treaty) · Jordan · 14 Dec 2017
Why it matters
This case is significant for its detailed analysis of the relationship between domestic court decisions and international investment law, particularly the standard for finding a denial of justice or arbitrary treatment. The Tribunal held that a domestic court decision must be 'inexcusable' or 'clearly improper and discreditable' to breach international law, setting a high bar for challenging judicial outcomes. The case also illustrates the importance of exhausting local remedies before resorting to international arbitration, as the Claimants' choice to litigate in Jordanian courts broke the causal link between the initial administrative act and the alleged treaty breach.
Summary
The case concerns a dispute under the Kuwait-Jordan BIT. The Claimants, Kuwaiti investors, held an indirect 66% stake in Umniah Mobile Company (UMC) through Umniah Telecommunications and Technology LLC (UTT). In 2006, UTT sold its UMC shares to Batelco for a substantial profit. In 2008, the Jordanian Income and Sales Tax Department (ISTD) assessed UTT for income tax on the sale, amounting to approximately US$81 million (the Tax Measure). UTT challenged the assessment through Jordanian courts, ultimately losing in the Court of Cassation in 2012. The Claimants then initiated ICSID arbitration, alleging that the Tax Measure was arbitrary, politically motivated, and breached the BIT's protections of fair and equitable treatment, full protection and security, non-discrimination, and the right to liquidate investments. The Respondent objected to jurisdiction, arguing that the dispute was a tax matter excluded under the BIT and that the Claimants had not exhausted local remedies. The Tribunal dismissed all jurisdictional objections, finding that the BIT's tax exclusion did not apply to claims of arbitrary or discriminatory treatment, and that the Claimants had exhausted local remedies. On the merits, the Tribunal examined whether the Tax Measure was arbitrary. It found that while there was evidence of political pressure and media criticism, the ISTD's decision was based on a plausible interpretation of Jordanian tax law, which was subsequently upheld by the Court of Cassation. The Tribunal held that a domestic court decision must be 'inexcusable' or 'clearly improper and discreditable' to constitute a breach of international law. Since the Court of Cassation's decision was not arbitrary or a denial of justice, the Claimants' claims failed. The Tribunal also rejected claims of discrimination, lack of full protection and security, and impairment of liquidation rights. The Claimants were ordered to pay the Respondent's costs, reduced by 20% due to the Respondent's unsuccessful jurisdictional objections. A separate opinion by Arbitrator Fortier disagreed with the majority's assessment of the initial administrative decision, finding it arbitrary, but agreed that the subsequent court decisions cured any breach.
The detail
Parties: Fouad Alghanim & Sons Co. for General Trading & Contracting, W.L.L. and Fouad Mohammed Thunyan Alghanim v. Hashemite Kingdom of Jordan
Case number: ICSID Case No. ARB/13/38
Outcome: The Tribunal dismissed the Claimants' claims on the merits and ordered the Claimants to pay the Respondent US$1,579,793.87 in costs.
Applicable law: Agreement between the Government of the Hashemite Kingdom of Jordan and the Government of the State of Kuwait for the Encouragement and Reciprocal Protection of Investments (BIT); ICSID Convention; Jordanian Income Tax Law No 57 of 1985
Issues in play: The dispute involved the interpretation of Jordanian tax law regarding the taxation of capital gains from the sale of shares, and whether the tax measure violated the BIT's standards of fair and equitable treatment, full protection and security, non-discrimination, and protection against arbitrary measures.
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