Parallel Proceedings in Investment Arbitration:
A Practitioner’s Perspective
Richard H. Kreindler
Conference on “The Backlash Against Investment Arbitration“
Harvard International Law Society, 19 April 2008
I. The focus of the topic
1. “Practitioner“: Counsel vs Arbitrator vs Judge: differing priorities
2. Practitioner as Counsel for party seeking to:
2.1 Advance or hinder (A) ongoing treaty- or non-treaty arbitration vs
(B) ongoing litigation or prior judgment between same or different parties;
2.2 Advance or hinder (A) ongoing treaty- or non-treaty arbitration vs
(B) another ongoing arbitration or prior award between same or different
parties;
2.3 Advance or hinder (A) ongoing treaty- or non-treaty arbitration or
ongoing litigation vs (B) another litigation or arbitration not yet
commenced between same or different parties.
Richard H. Kreindler - Harvard Law School, 19 April 2008
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Copyright © 2005 Shearman & Sterling LLP. As used herein “Shearman & Sterling” refers to Shearman & Sterling LLP, a limited liability partnership organized under the laws of the State of Delaware.
II. Common Practitioner Issues in “Parallel“ Proceedings
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1. Search for one or more seats and/or rules of arbitration (and
corresponding curial law) where, e.g.:
1.1 Multiple arbitration options exist based on privity or other grounds;
1.2 Parties have not specified single seat and/or rules;
1.3 Possible basis for arbitral jurisdiction at other seat/other rules;
1.4 Possible basis for arbitral jurisdiction despite choice of forum.
2. US federal courts: no consensus on legal framework (stay, dismissal,
anti-suit injunction) for parallel, concurrent proceedings in foreign courts.
Richard H. Kreindler - Harvard Law School, 19 April 2008
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III. Common Practitioner Motives in “Parallel“ Proceedings
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1. Obtain favorable regime, rules, seat from standpoint of jurisdiction
2. Obtain “home advantage” through home seat or home substantive law
3. Influence which mandatory principles of law may apply with respect to
procedure and which local courts at seat may play supervisory role
4. Gain advantage of local standards of arbitrability, public policy
5. Gain advantage of particular compétence-compétence vs lis pendens
(cf. 2006 amendment to Art. 186 of Swiss Private International Law Act)
6. As claimant, formulate claims efficaciously as treaty- or contract-based.
Richard H. Kreindler - Harvard Law School, 19 April 2008
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IV. Conceptual Aspects of „Parallel“ in Investment Disputes
1. When is dispute treaty-based, when contract-based, who decides?
2. When must “local remedies“ be exhausted, when are they exhausted,
and who decides?
3. What is lis pendens/res judicata effect of treaty-based
arbitration/award on litigation? Of non-treaty based litigation/judgment on
treaty-based arbitration? Who decides?
4. Is the issue one of lis pendens or rather competence-competence or
both?
5. Are two parallel matters between different parties even “parallel
proceedings”?
Richard H. Kreindler - Harvard Law School, 19 April 2008
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V. Tactical “Parallel“ Issues in Investment Disputes
1. When is dispute legitimately treaty-based and when contract-based,
and what may be done to enhance/hinder such characterization?
2. How to obtain court or arbitral forum which may enhance/hinder
characterization as treaty- or contract-based?
3. How to obtain forum to enhance/hinder finding that local remedies
must be/have been exhausted?
4. How to obtain forum to enhance/hinder lis pendens/res judicata effect
of treaty-based arbitration/award on litigation, and of non-treaty-based
litigation/judgment on treaty-based arbitration?
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VI. Arbitral “Forum Shopping” in Investment Arbitration
1. Is there contractual privity?
2. Is there private agreement to arbitration?
3. Are there multiple treaty-based options of dispute resolution?
4. Is there agreement to specific seat? to specific arbitral rules?
5. Are there multiple arbitrations with same or different seats and with
same or different sets of rules?
6. Are there parallel agreements to arbitration and local courts with same
or with different seat or venue?
Richard H. Kreindler - Harvard Law School, 19 April 2008
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Copyright © 2005 Shearman & Sterling LLP. As used herein “Shearman & Sterling” refers to Shearman & Sterling LLP, a limited liability partnership organized under the laws of the State of Delaware.
VII. Parallel Proceedings Where Contractual Privity Exists
1. Where contractual privity does exist, there are various possibilities:
1.1 Commence arbitration without agreement to arbitration
1.2 Investor has contractual dispute resolution agreement with state
entity, but commences BIT arbitration against host State itself
1.3 Investor has contractual dispute resolution mechanism with State,
but commences BIT arbitration against State
1.4 Investor has contractual dispute resolution mechanism in contract
with State, but commences BIT (e.g., ICSID) arbitration not only for
treaty-based claims on basis of BIT, but also contract-based claims.
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VIII. Holding Parallel Proceedings in Check
1.1 Statute, convention and case law may empower tribunal or court to
stay/dismiss in deference to valid agreement to other mechanism
1.2 But arguments of lis pendens, abuse of process, res judicata, double
recovery will not necessarily prevail to prevent conflicting outcomes: e.g.,
Lauder/CME, requiring identity of parties, object and cause of action.
1.3 Contractual agreement to local arbitration where both local arbitration
and BIT arbitration commenced: can prior agreement to local arbitration
for “all disputes” be exclusive forum for contract claims?
1.4 Can ICSID tribunal adjudicate both BIT-related claims and contract
claims? Ex: SGS v. Pakistan – held, no jurisdiction over contract claims
which did not also constitute breaches of substantive standards of BIT.
Richard H. Kreindler - Harvard Law School, 19 April 2008
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VIII. Holding Parallel Proceedings in Check (cont’d)
1.5 ICSID tribunals have upheld BIT jurisdiction despite contractual forum
selection: Holiday Inns, Klöckner, Vivendi, Vivendi Annulment.
1.6 Contractual agreement to local court proceedings where both local
arbitration and BIT arbitration commenced: is prior agreement to local
court for “all disputes” exclusive forum for contract claims? Is BIT limited
to breach of international standards (as opposed to contract claims or
other claims under national law)? Ex: SGS v. Philippines – held, BIT
does not override binding choice of forum for contract claims; lex
posterior derogat legi priori applies only to instruments of same legal
character, which BIT and private contract were not.
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IX. Staying Parallel Proceedings Generally
1.1 Precedents for stays by international tribunals: e.g., MOX Plant Case
– UNCLOS tribunal stayed proceedings pending ECJ determination.
1.2 No stay: SGS v. Pakistan: tribunal declined to stay, but implied that
ICSID tribunal can stay pending determination, by other competent
forum, of issue relevant to own decision; held, determination of issues
under private contract, subject to local law/local arbitration, not required
to assess BIT violations related to investment under same contract.
1.3 Stay: Cf. SGS v. Philippines: tribunal stayed, relying on distinction
between jurisdiction and admissibility; held, can assess contract claim to
extent gave rise to BIT claim, but premature until payment claim and
quantum decided by local courts under local law [note also dissent].
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X. Guidelines Resulting from Parallel Experiences
1.1 Each BIT case fact-specific as to (i) relationship between BIT-related
arbitration agreement and local dispute mechanism, (ii) wording of each
clause, (iii) timing of entry into force of BIT versus contract, (iv) existence
of “umbrella clause” or “fork-in-the-road” clause, (v) nature of claims.
1.2 BIT claims usually not subject to local court/arbitration agreed to in
private contract, esp. where BIT entered into force after private contract.
1.3 Where BIT provides solely for ICSID and no fork-in-the-road, possible
argument that “exclusive” private choice of forum with host State not
exclusive: BIT ensures investor choice, including of availing itself of prior
private agreement to local arbitration or litigation.
Richard H. Kreindler - Harvard Law School, 19 April 2008
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X. Guidelines from Parallel Experiences (cont’d)
1.4 Where BIT-based claim brought first to local court/arbitration, local
decision should not divest later BIT-based tribunal of jurisdiction over
same BIT-based claim. But result is: possible conflicting awards on
treaty-based claims and possible tension between public international law
choice-of-rules and law at local seat of arbitration.
1.5 Possible solution to above conflict: a stay, but by whom? SGS v.
Philippines: decision adverse to investor, not able to benefit from
preferential BIT dispute mechanism. Also, indirect affirmation of doctrine
of exhaustion of local remedies.
Richard H. Kreindler - Harvard Law School, 19 April 2008
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X. Guidelines from Parallel Experiences (cont’d)
1.6 Forum shopping unavoidable?: BITs covering “disputes with respect
to investments”: can include treaty- and contract-based claims insofar as
private contract with State is with respect to investments. SGS v.
Pakistan: held, local arbitration agreement in private contract with State
deemed valid for contract claims “which do not also amount to BIT claims”
– decision is only of limited help.
1.7 Imperfect distinctions: SGS v. Philippines – held, claim under private
contract with State subject to private contract’s local choice of forum but
also triggers ICSID “jurisdiction” on basis of BIT “umbrella clause” and
“FET” clause.
Richard H. Kreindler - Harvard Law School, 19 April 2008
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X. Guidelines from Parallel Experiences (cont’d)
1.8 “Elevating” contract claim into BIT claim? No, is more a question of
notion that private contract is performed as to investment which is
covered by BIT. So parsing between contract and treaty must have its
limits, e.g., alleged breach relates to uniquely sovereign acts.
1.9 Concern in SGS v. Pakistan that investor “could always defeat the
State’s invocation of the contractually specified forum”: Yes, but is not
purpose of BIT to provide protective and even preferential treatment, esp.
where State entered into arm’s length BIT after private contracts with
foreign investors?
Richard H. Kreindler - Harvard Law School, 19 April 2008
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X. Guidelines from Parallel Experiences (cont’d)
1.10 Staying BIT-based arbitration is not without dangers: tribunal in SGS
v. Pakistan decided was obligated to affirm jurisdiction over BIT claims
and not stay in deference to local arbitration, despite risk of race to
judgment on overlapping claims. Basis?: determination by local tribunal
of private contract breach would not bind ICSID tribunal as to BIT breach.
1.11 Both ICSID SGS tribunals declined to decide contract claim; thus
neither decision holds that ICSID can be invoked to have private claims
adjudicated under international law before international tribunals divorced
from local law/standards of annulment.
Richard H. Kreindler - Harvard Law School, 19 April 2008
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XI. The Way Forward
1.1 Uncertainty: if stays of ICSID arbitration increase, is ICSID worth it?
1.2 Is upholding of jurisdiction by local authorities to adjudicate contract
claims an unacceptable reaffirmation of exhaustion of local remedies
doctrine, or undermining of preferential treatment in “umbrella clause”?
1.3 Will cross-border anti-suit or anti-arbitration injunctions become more
prevalent? What will disputes in the Latin American sphere bring?
1.4 Will consolidation become more prevalent, assuming party consent
and provision in treaty?: Sempra Energy, Camuzzi, Art. 1126 NAFTA.
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XI. The Way Forward (cont’d)
1.5 Current parallel proceedings uncertainty: says as much about
shortcomings of certain BIT drafting as about decisions based on them.
1.6 Is 2006 amendment to Art. 186 Swiss Private International Law Act
harbinger of greater compétence-compétence autonomy by tribunals to
decide jurisdiction without regard to other proceedings having same
object already pending between same parties, and not to stay?
1.7 Next decade of BIT negotiation and arbitration is crucial to ensuring
that parallel proceedings are neither abusive nor unnecessarily stifled,
and function in proper parameters that have already existed – without
enormous incident or prejudice -- in transnational litigation for decades.
ooOOoo
Richard H. Kreindler - Harvard Law School, 19 April 2008
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