THE FORK IN THE ROAD REVISITED: AN ATTEMPT TO OVERCOME THE CLASH BETWEEN FORMALISTIC AND PRAGMATIC APPROACHES.

Author:Petsche, Markus A.
 
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  1. INTRODUCTION 393 II. THE CONCEPT OF FITR 395 A. Meaning and effect of FITR provisions 395 B. Types of FITR provisions 397 III. ANALYSIS OF THE PROBLEM 398 A. The question: Are the two disputes concerned the same? 398 B. Possible answers 400 IV. FORMALISTIC APPROACHES 402 A. Approach based on the distinction between treaty and contract claims 402 B. Approach based on the triple-identity test 406 1. The origins of the triple-identity test: the lis pendens principle 406 2. The first decision applying the triple-identity test: Benvenuti & Bonfant v.Congo (1980) 407 3. Subsequent decisions endorsing the triple-identity test 408 4. Decisions applying selected elements of the triple-identity test 410 5. Concluding observations 412 V. A PRAGMATIC APPROACH: THE FUNDAMENTAL BASIS TEST 412 A. The forerunner: The Vivendi v. Argentina annulment decision 412 B. Pantechniki v. Albania (2009) 415 C. H&H Enterprises Investments v. Egypt (2014) 418 VI. EVALUATION OF FORMALISTIC AND PRAGMATIC Approaches from the PERSPECTIVE OF TREATY INTERPRETATION 420 A. Preliminary remarks 420 B. Approach based on the distinction between treaty and contract claims 421 C. Triple-identity test 421 D. Pragmatic approach 422 VII. FUNCTIONAL ANALYSIS OF THE FITR 423 A. The functions of FITR provisions 423 B. Conclusions based on functional analysis 425 VIII. CONCLUSION 427 I. INTRODUCTION

    Investor-state dispute resolution provisions contained in investment treaties frequently provide investors with a choice between different fora for the resolution of investment disputes. Those may include the domestic courts of the host State, contractually agreed arbitral or judicial fora, and, of course, treaty-based arbitral tribunals (these will hereinafter also be referred to as "investor-state arbitral tribunals" (1)). For reasons which will be discussed in more detail below, (2) some investor-state dispute resolution clauses contain so-called "fork-in-the-road" ("FITR") provisions, i.e., provisions that exclude, in one way or another, the possibility for an investor to submit one single investment dispute to more than one court or tribunal.

    For many years, FITR provisions have been the sleeping beauty of international investment law. Indeed, until rather recently, arbitral tribunals invariably rejected jurisdictional objections based on FITR clauses. (3) The principal reason for this constant rejection was the rather rigid or "formalistic" analysis of the question of whether the dispute brought before the investor-state arbitral tribunal and the dispute(s) submitted to another court or tribunal are the same. Virtually all tribunals have held that strict identity between the two disputes is necessary in order for a FITR provision to bar the initiation of investor-state arbitration proceedings. While some tribunals have focused on the legal bases of the claims at stake, (4) others have applied the so-called triple-identity test (or rule), requiring identity of parties, causes of action, and relief sought. (5)

    This situation changed completely when, in 2009, the sole arbitrator in Ptmtechniki v. Albania (6) refused to follow the formalistic approach adopted in earlier decisions, opting instead for a more "pragmatic" (7) test focusing on the "fundamental basis" (8) of the claims concerned, their "normative source[s]," (9) and the question of whether the claim brought before the investor-state arbitral tribunal has an "autonomous existence" (10) from the claim submitted to the other court or arbitral tribunal. On the basis of this test, the sole arbitrator declined his jurisdiction, holding that the ICS ID arbitration proceedings in which the claimant alleged violations of various treaty standards had the same fundamental basis as the breach-of-contract claim which it had brought before the Albanian courts. (1)

    Following the decision in Pantechniki v. Albania, three other arbitral tribunals have ruled on FITR objections to jurisdiction. While the tribunals in Toto Costruzioni Generali v. Lebanon (12) and Total v. Argentina (13) followed the traditional formalistic approach, (14) the tribunal in H&H Enterprises Investments v. Egypt (15) adopted the test established in Pantechniki. (16) Pantechniki thus cannot be regarded as an isolated incident. Rather, one has to conclude that two contrasting approaches currently coexist as regards the requirements for the application of FITR clauses.

    The fundamental contrast between these two types of rulings has not received a great deal of attention in the international investment law literature. The most compelling post-Pantechniki discussion of FITR provisions is a 2010 publication authored by Wegen and Markert. (17) These authors have welcomed the more pragmatic approach inherent to the Pantechniki and H&H rulings. (18) However, they have also (and rightly so) pointed out that the fundamental-basis test is vague and that it does not therefore ensure a high degree of legal certainty and predictability (19). They have put forward interesting alternative solutions, primarily in the form of revisions of, and improvements to, the traditional triple-identity test. (20)

    This article seeks to take this analysis one step further. It examines formalistic and pragmatic approaches to the FITR issue, offering a detailed analysis of the relevant case law. It evaluates these conflicting views, both from an interpretive and from a normative point of view, and seeks to overcome the present clash between formalism and pragmatism by means of a functional analysis, i.e., an analysis based on the function or functions performed by FITR provisions. On the basis of this analysis, this article aims to identify solutions that are conducive to the effective performance of those functions.

    This contribution is divided into six main sections (Sections II to VII). Section II discusses the meaning and effects of FITR clauses and reviews the different types of FITR provisions found in investment treaties. Section III analyzes the terms of the FITR problem and provides an overview of possible solutions. Sections IV and V respectively explore two sets of arbitral rulings: those that follow a formalistic approach and those, more recent ones, which adopt a more pragmatic stance. Section VI evaluates each of these approaches from the perspective of treaty interpretation. Section VII offers a functional analysis of the FITR problem.

  2. THE CONCEPT OF FITR

    1. Meaning and effect of FITR provisions

      As has already been explained, FITR provisions are clauses that prohibit an investor from submitting an investment dispute to a particular court or tribunal if he has previously seized another court or tribunal of the same dispute. FITR provisions thus have a preclusive effect and deprive the second court or tribunal seized of its jurisdiction over the relevant dispute. When an investor opts for a particular dispute settlement mechanism available under an investment treaty, he is considered to have "taken the fork in the road," with--in principle--no possibility of subsequently choosing a different path.

      In practice, as is easily understood, FITR provisions are usually relied upon to challenge the jurisdiction of investor-state arbitral tribunals, rather than to object to the jurisdiction of a domestic court or contract-based arbitral tribunal." In a typical scenario, the respondent state argues that initiation by the investor (or by an entity owned or controlled by the investor) of domestic court proceedings or of contractually agreed arbitration proceedings precludes recourse to investor-state arbitration.

      While the preclusive effect of FITR clauses is uncontroversial, the exact scope of this effect may raise interpretive questions. One such question relates to the effect of the discontinuance of the first proceeding by the investor. If, for example, an investor brings proceedings before the domestic courts of the host state and subsequently withdraws his claim, does this mean that the FITR clause no longer prevents him from initiating investor-state arbitration proceedings? Although there appears to be no case law on this particular point, a literal interpretation of typical FITR provisions would suggest that the discontinuance of the first proceeding does not have the effect of resurrecting the right to initiate investor-state arbitration proceedings. (22)

      Another question that may arise concerns so-called unilateral FITR provisions, i.e., provisions that only provide for the preclusive effect that the commencement of court or other proceedings has on the ability of the investor to resort to investor-state arbitration, without expressly dealing with the reverse scenario (i.e., the preclusive effect of the initiation of investor-state arbitration proceedings). Should such FITR clauses be interpreted-by analogy or extension--as preventing litigation or contract-based arbitration once the relevant dispute has been submitted to an investor-state arbitral tribunal? Similar to the issue discussed in the preceding paragraph, this question does not seem to have been decided by any court or arbitral tribunal. Under a literal interpretation of the clauses concerned, however, a negative answer (i.e., a solution precluding reasoning by analogy or extension) would appear to be justified.

    2. Types of FITR provisions

      Treaty practice suggests that there are three main types of FITR provisions. First of all, there are clauses that provide that investors may only resort to investor-state arbitration if they have not previously submitted the dispute to another court or tribunal. The US-Argentina Bilateral Investment Treaty ("BIT") (23) for example, allows investors to bring disputes before an investor-state arbitral tribunal, provided that the investor "has not submitted the dispute for resolution under paragraph 2(a) or (b) [of Art. VII of the treaty]," (24) which provide for the submission of investment disputes "to the courts or administrative tribunals" of the...

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