The Backlash Against Investment Arbitration
Harvard Law School, 19 April 2008
The Issues Raised by Parallel
Proceedings and Possible Solutions
August Reinisch, Professor of Law,
University of Vienna
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Overview
• Proliferation of international courts and tribunals
• Potential threats ensuing from proliferation
• Inconsistent awards in investment arbitration
– Different degrees of inconsistencies
• Possible solutions
– From institutionalized to pragmatic responses
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The “Proliferation” of International Courts
and Tribunals and Their Increased Activities
• Establishment of new institutions:
– International Tribunal for the Law of the Sea (ITLOS)
– International Criminal Court (ICC)
– International Criminal Tribunal for the Former
Yugoslavia (ICTY)
– International Criminal Tribunal for Rwanda (ICTR)
• Strengthening existing dispute settlement
mechanisms:
– WTO Dispute Settlement Understanding
– ICSID
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Potential Threats of the Proliferation of
Dispute Settlement Mechanisms
• Forum shopping
• Duplication or multiplication of
proceedings
• Divergent outcomes/inconsistent
decisions
• Fragmentation of international law
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Investment Arbitration Boom
• Since the mid-1990s dramatic increase in ICSID,
ICSID Additional Facility as well as UNCITRAL and
other investment arbitration (LCIA, SCC, PCA, ICC,
etc.)
• Driving force: so-called treaty arbitration based on
more than 2500 bilateral investment treaties (BITs),
NAFTA Chapter 11 as well as other investment
chapters of Free Trade Agreements and multilateral
treaties such as the Energy Charter Treaty.
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BIT Overlap
• “86. The Tribunal notes in this respect that the Centre has
made every effort possible to avoid a multiplicity of tribunals
and jurisdictions, but that it is not possible to foreclose
rights that different investors might have under different
arrangements. The Tribunal also notes that, while it might
be desirable to recognize similar rights to domestic and
foreign investors, this is seldom possible in the present
state of international law in this field. Finally, it is not for the
Tribunal to rule on the perspectives of the negotiation
process or on what TGN might do in respect of its
shareholders, as these are matters between Argentina and
TGN or between TGN and its shareholders.”
• CMS v. Argentina, ICSID Case No. ARB/01/8, Decision on
Jurisdiction, July 17, 2003, 42 ILM 788 (2003).
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BIT Shopping
• “It is not uncommon in practice, and – absent a
particular limitation – not illegal to locate one’s
operations in a jurisdiction perceived to provide
a beneficial regulatory and legal environment in
terms, for example, of taxation or the substantive
law of the jurisdiction, including the availability of
a BIT.”
• Aguas del Tunari S.A. v Republic of Bolivia, ICSID Case No.
ARB/02/3, Decision on Jurisdiction, 21 October 2005, para. 330.
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Different Degrees of Inconsistencies
1) Investment tribunals may come to different
conclusions concerning the same or similar
legal issues: SGS cases, Maffezini doctrine
2) Investment tribunals may reach different
results concerning the same or similar facts:
CMS, LG&E, Sempra, Enron v. Argentina, etc.
3) Investment tribunals may come to opposing
results in situations where the same dispute is
litigated both by a subsidiary and its parent:
CME/Lauder v. Czech Republic
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SGS Cases
• Two ICSID tribunals came to opposing conclusions
with regard to the meaning of so-called umbrella
clauses. While the SGS v. Pakistan tribunal held
that via an umbrella clause “breaches of a contract
[are not] automatically “elevated” to the level of
breaches of international law”, the SGS v.
Philippines tribunal found that that an umbrella
clause “makes it a breach of the BIT for the host
State to fail to observe binding commitments.”
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Maffezini doctrine
• In 2000, an ICSID tribunal held that held that a
BIT’s MFN-clause was not limited to substantive
standards of treatment, but extended to
procedural issues and thus permitted an investor
to rely on more favorable (i.e. shorter) waiting
periods before instituting arbitration which were
contained in another BIT of the host State.
Subsequent tribunals either endorsed or
rejected that view.
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CMS, LG&E and others v. Argentina
• Since 2005 ICSID tribunals came to
different conclusions as to whether the
situation prevailing in Argentina in
2001/2002 constituted a “state of
necessity” precluding the wrongfulness of
various BIT violations of Argentina as a
host State to foreign investments.
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CME/Lauder v. Czech Republic
• While the tribunal established pursuant to the
Czech Republic/US BIT, Lauder v. Czech
Republic, hearing the claim of the controlling US
shareholder, found that minor infraction of that
treaty did not lead to the liability of the Czech
Republic, the tribunal established pursuant to
the Czech Republic/Netherlands BIT, CME v.
Czech Republic, hearing the claim of the Dutch
subsidiary, concluded that various BIT standards
had been breached and ultimately found the
Czech Republic liable in the amount of almost
500 Mio. US $.
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Possible Ways to Ensure Uniformity
•
•
•
•
An appellate structure
A preliminary reference system
Consolidation of proceedings
A more liberal use of res judicata and
lis pendens
• Strengthening the de facto case-law
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An Appellate Structure
• Possible Improvements of the Framework for
ICSID Arbitration, discussion paper of the ICSID
Secretariat dated October 26, 2004.
• Genuine Appeal on questions of law – different
from the current form of control through
annulment of awards by special ad hoc
committees pursuant to Article 52 ICSID
Convention.
• Problem: revision of the ICSID Convention
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A Preliminary Reference System
• Blueprint in Article 234 (1) TEC:
“The Court of Justice shall have
jurisdiction to give preliminary rulings
concerning:
– the interpretation of the Treaty;
– the validity and interpretation of acts of
the institutions of the Community […]”
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Consolidation of Proceedings
• Consolidation
• E.g.: Canfor Corporation v. United States of America &
Terminal Forest Products Ltd. v. United States of America,
Consolidated NAFTA Arbitration, UNCITRAL Rules, Decision
on Preliminary Question, 6 June 2006.
Separate tribunals with identical arbitrators
• E.g.: Camuzzi International S.A. v. Argentina, ICSID Case No.
ARB/03/2, & Sempra Energy International v. Argentina, ICSID
Case No. ARB/02/16, Decisions on Jurisdiction, 11 May 2005.
• Enron Corporation and Ponderosa Assets, L.P. v Argentine
Republic, ICSID Case No. ARB/01/3, Award, 22 May 2007
and Sempra Energy International v The Argentine Republic,
ICSID Case No. ARB/02/16, Award, 28 September 2007
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Res judicata and lis pendens
• “There is no doubt that res judicata is a
principle of international law, and even a
general principle of law within the
meaning of Article 38 (1) (c) of the
Statute of the International Court of
Justice.”
• Waste Management v United Mexican States, ICSID Case No.
ARB(AF)/00/3, Mexico’s Preliminary Objection concerning the
Previous Proceedings, 26 June 2002, para. 39.
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Triple Identity Test for res judicata
and lis pendens
• “[T]hree traditional elements for
identification,
• persona, [parties]
• petitum, [object or claimed remedy]
• causa petendi [cause or legal basis].”
• Interpretation of Judgments Nos. 7 & 8 Concerning the Case of the
Factory at Chorzów, 1927 P.C.I.J. (Ser. A) No. 11, at 23 (dissenting
opinion of Judge Anzilotti)
• Trail Smelter (U.S. v. Canada), 3 R.I.A.A. 1905, 1952 (1941)
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Res judicata and lis pendens in
investment cases
• “The issue whether lis pendens and res judicata may be
applicable in a situation such as the instant one has not, as
far as is known, arisen previously. The mere fact that the
arbitrations were initiated under different investment treaties
which were entered into between different states, the Czech
Republic and the United States in the one treaty and the
Czech Republic and the Netherlands in the other, militates
against these legal principles being applicable at all. […]
Identity between a minority shareholder, albeit a controlling
one, and the actual company cannot, in the Court of Appeal's
opinion, be deemed to exist in a case such as the instant one.
This assessment would apply even if one were to allow a
broad determination of the concept of identity.”
• CME v Czech Republic, Svea Court of Appeal, 15 May 2003, Case
No T 8735-01, p. 95, 98.
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Res judicata and lis pendens in
investment cases
• More flexible use of the triple identity test:
• 1) Emphasis on issues and facts of a
dispute over the parties and causes
involved
• 2) Recognition that the corporate
structures of foreign investors merit
special attention
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Identity of Parties
• 1) Piercing the corporate veil
• 2) Economic realities of foreign investment
require a “realistic attitude” and “economic
approach” of arbitral panels
• 3) Inspiration from the ECJ’s “single
economic entity” doctrine
• 4) Common law concept of privity
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Identity of Cause
• Different BITs do not necessarily imply
different causes
• Rather, BITs normally contain almost
identical grounds for claims
• Thus, reliance on identical or similarly
worded provisions in different BITs should
be regarded as identical grounds
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Precedent for a more flexible
identity standard
• “The Parties to this dispute […] are the same
Parties grappling not with two separate disputes
but with what in fact is a single dispute arising
under both Conventions. To find that, in this
case, there is a dispute actually arising under
UNCLOS which is distinct from the dispute that
arose under the CCSBT would be artificial.”
• Southern Bluefin Tuna Case (Australia and New Zealand v. Japan),
Award on Jurisdiction and Admissibility, 4 August 2000, 39 ILM
(2000), 1359, para. 54.
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Identity of facts
• “The [European] Court [of Human Rights]
shall not deal with any application submitted
under Article 34 that is substantially the same
as a matter that has already been examined
by the Court or has already been submitted
to another procedure of international
investigation or settlement and contains no
relevant new information.”
• Article 35 para. 2 (b) ECHR
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Importance of identical facts
• “[T]hat the author’s complaint before the
European Commission was based on the same
events and facts as the communication that was
submitted under the Optional Protocol to the
Covenant, and that it raised substantially the
same issues; accordingly, the Committee is
seized of the ‘same matter’ as the European
Commission.”
• UN Human Rights Commission 452/1991, Glaziou v. France,
18 July 1994.
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Alternative: Discretionary Stay of
Proceedings
• “When the jurisdictions of two unrelated and
independent tribunals extend to the same
dispute, there is no rule of international law
which prevents either tribunal from exercising
jurisdiction. However, in the interest of
international judicial order, either of the tribunals
may, in its discretion and as a matter of comity,
decide to stay the exercise of its jurisdiction
pending a decision by the other tribunal.”
• SPP v Egypt, Decision on Jurisdiction I, 27 November 1985, 3 ICSID
Reports 112, at 129.
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Strengthening the existing
de facto case-law
• “The Tribunal considers that it is not bound by previous
decisions. At the same time, it is of the opinion that it
must pay due consideration to earlier decisions of
international tribunals. It believes that, subject to
compelling contrary grounds, it has a duty to adopt
solutions established in a series of consistent cases. It
also believes that, subject to the specifics of a given
treaty and of the circumstances of the actual case, it has
a duty to seek to contribute to the harmonious
development of investment law and thereby to meet the
legitimate expectations of the community of States and
investors towards certainty of the rule of law.”
• Saipem S.p.A. v. The People's Republic of Bangladesh, ICSID Case
No. ARB/05/07, Decision on Jurisdiction, 21 March 2007, para. 67.
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Predictability and Confidence
• “[C]autious reliance on certain principles
developed in a number of those cases, as
persuasive authority, may advance the
body of law, which in turn may serve
predictability in the interest of both
investors and host States.”
• ADC Affiliate Limited and ADC & ADMC Management Limited v
Republic of Hungary, ICSID Case No. ARB/03/16, Award, 2 October
2006, para. 293.
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