Restrictive application of “fork-in-the-road clauses”

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unprecedented expansion of jurisdiction over contract claims going beyond the reach of the treaty language.

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present. Firstly, the parties in the local court proceedings must be identical to the parties in the international arbitration proceedings. The claimant and the respondent in the domestic proceedings must be the same with the claimant and the respondent in the international proceedings. Secondly, the dispute before domestic courts must be identical to the dispute before international tribunals. In deciding whether the disputes before domestic courts and international tribunals are identical or not, tribunals heavily rely on the labeling of the claimants. Usually, the dispute before domestic courts would be labeled as contract claims or domestic law claims concerning a breach of contract or domestic laws, while the dispute before international tribunals would be labeled as treaty claims concerning a breach of investment treaty. Thirdly, the dispute must have been submitted to domestic courts before the submission to international arbitration. These three conditions are cumulative. As long as one of them does not satisfy, the fork-in-the-road clause will not be triggered and the investor will not be deprived of right to submit disputes to international arbitration.

The three conditions attached to fork-in-the-road clauses have actually prevented respondent states before international tribunals from using fork-in-the-road clauses as a basis to raise objections to arbitral jurisdiction. In Genin v. Estonia, the tribunal was faced with the question whether the claimant was precluded from access to international arbitration by the operation of the fork-in-the-road clause in the Estonia-United States BIT. The claimant Genin was an American investor. It held a majority share in EIB, a financial bank incorporated under the laws of Estonia. The claim arose from the purchase by EIB of another bank and from the revocation of EIB’s license by the Estonian authorities. EIB filed lawsuits before the Estonian courts. And Genin, the major shareholder of EIB, subsequently instituted an international arbitration proceeding against Estonia. Estonia argued that “by choosing to litigate their disputes with Estonia in the Estonian courts…Claimants have exhausted their right to choose another forum to relitigate those same disputes.” The tribunal, however, was of the view that the identity of the parties and of the disputes was not met and thus the domestic litigation instituted in Estonia should not be an obstacle to international arbitration. The tribunal reasoned that lawsuits undertaken by EIB in Estonia were “not identical to Claimants’ cause of action in the “investment dispute” that they seek to arbitrate in the present proceedings.” The effort by EIB before the Estonian courts “was in effect undertaken on behalf of all the Bank’s shareholders (including minority shareholders), as well as on behalf of its depositors,

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borrowers and employees”, while the “investment dispute” submitted to ICSID arbitration, on the other hand, related to “the losses allegedly suffered by the Claimants alone, arising from what they claim were breaches of the BIT.” The tribunal thus concluded that “although certain aspects of the facts that gave rise to this dispute were also at issue in the Estonian litigation, the “investment dispute” itself was not, and the Claimants should not therefore be barred from using the ICSID arbitration mechanism.” ²⁵⁷ The tribunal in Lauder v. Czech echoed that conclusion in holding that the Czech court proceedings and the present arbitration proceedings involved “different parties”, and dealt with “different disputes”.Therefore, the Lauder tribunal rejected the respondent’s contention that the fork-in-the-road clause contained in the Czech-United States BIT would preclude the tribunal from having jurisdiction.²⁵⁸ Several other tribunals also took this stance. ²⁵⁹

Even if the parties to the domestic proceedings and to the international arbitration proceedings are identical, tribunals would still refuse the application of fork-in-the-road clauses unless the causes of action in two different proceedings are identical. In Middle East Cement v. Egypt, for instance, the claimant’s ship had been seized and auctioned by the Egyptian government. The claimant first filed lawsuits before the Egyptian court challenging the legality of the auction. And subsequently the claimant submitted its claims to international arbitration based on the Egypt-Greece BIT. Egypt argued that the claimant had chosen the domestic remedy and thus had been prevented from submission to international arbitration under the fork-in-the-road clause in the Egypt-Greece BIT. The tribunal rejected this argument in holding that the claims before the Egyptian court and the tribunal were different.

The tribunal reasoned that:

Art. 10.2 of the BIT provides that the investor may submit the investment dispute “either to the competent court of the Contracting Party, or to an international arbitration tribunal.” However, this refers to “such disputes” as are specified in paragraph 1 of Art. 1 , i.e., disputes “between an investor of a Contracting Party and the Other Contracting Party concerning an obligation

257 Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v. Republic of Estonia, ICSID Case No. ARB/99/2, Award, 25 June 2001, paras. 331-333.

258 Ronald S. Lauder v. The Czech Republic, UNCITRAL, Final Award, 3 September 2001, paras. 162-163.

259 CMS Gas Transmission Company v. Argentine Republic, ICSID Case No. ARB/01/8, Decision on Jurisdiction, 17 July 2003, paras. 77-82; Azurix v. Argentina, ICSID Case No. ARB/01/12, Decision on Jurisdiction, 8 December 2003, paras. 88-90; Enron Creditors Recovery Corp. (formerly Enron Corp.) and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Decision on Jurisdiction, 14 January 2004, paras. 97-98.

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of the latter under this Agreement.” The case brought by the Claimant before the Egyptian Courts regarding the alleged nullity of the auction, was not and could not be “concerning” Egypt’s obligations under the BIT, but could only be concerning the validity of the auction under national Egyptian law.

Therefore, Art. 10.2 of the BIT does not exclude the admissibility of Claimant’s objections to the auction of the ship.²⁶⁰

In its decision of CMS v. Argentina case, the tribunal similarly distinguished treaty claims with contract claims held that even if there had been or there currently was a recourse to the local courts for breach of contract, this would not have prevented submission of the treaty claims to arbitration.²⁶¹

The above jurisprudence indicates the high threshold that tribunals have set for the triggering of the fork-in-the-road clause. Tribunals have tended to differentiate between those claims based on the investment treaties (treaty claims) and those having their origin in contracts (contract claims). Even if the underlying facts, including the underlying host state measures and the alleged damage of the investor, are the same, tribunals would still consider that treaty claims and contract claims relate to different “disputes”. Treaty claims before international tribunals and contract claims before domestic courts have been seen as different causes of action or different disputes in that they have different legal ground. In domestic proceedings, no matter civil or administrative proceedings, the legal ground cannot be anything but domestic laws. But in investment arbitration proceedings, the investment treaty between the host state and the home state of the investor must be invoked as the jurisdictional basis. From this formalized perspective, claims before domestic courts and claims before investment tribunals could never be identical. Therefore, after the submission of contract claims to domestic courts, the investor may still submit such contract claims “dressed as” treaty claims to international arbitration. This prevailing interpretation, as can be imagined, would likely cause fork-in-the-road clauses to be applicable in no circumstance since any claim submitted by investors to the local courts could be categorized as domestic law claims while the same claim submitted to the international tribunals could be labeled as treaty claims. Fork-in-the-road clauses would not be an effective tool for host states to prevent investors’ forum-shopping or

260 Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/99/6, Award, 12 April 2002, para. 71.

261 CMS Gas Transmission Company v. Argentine Republic, ICSID Case No. ARB/01/8, Decision of the Tribunal on Objections to Jurisdiction, 17 July 2003, para. 80.

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running multiple proceedings.

Since tribunals have interpreted the fork-in-the-road clause restrictively, namely, the fork-in-the-road clause will be triggered only if the dispute and the parties in domestic proceedings and investment arbitration proceedings are identical. It would be possible for investors to circumvent the application of fork-in-the-road clauses through the following strategies separately or cumulatively. Firstly, the investor itself may initiate investment arbitration proceedings, while the investment (i.e. the local subsidiary company of the investor) files a domestic lawsuit to protect its contract or other domestic legal rights, including those stemming from the investment treaty. The commencing of domestic proceedings by the local subsidiary company of the investor thereby defeats the identity-of-the-parties requirement and thus does not trigger the fork-in-the-road clause. A variation of this strategy is that the domestic claim will be submitted against a sub-national government unit or other State entity, rather than the State itself. ²⁶² Secondly, the investor may dress its domestic law claims in domestic proceedings as treaty claims in investment arbitration proceedings. The cause of action in domestic proceedings will be a breach of contract or domestic law, while the cause of action in investment arbitration proceedings will be a breach of investment treaty obligations. The dressing of domestic law claims (usually contract claims) as treaty claims arising out of the same facts by investors to avoid the limitation of fork-in-the-road clause has frequently arisen before investment tribunals. An investment tribunal will unhesitatingly find jurisdiction if the cause of action in the arbitration proceedings is not the same as those in domestic proceedings. Thirdly, the investor may alter the sequence of domestic lawsuits and investment arbitration proceedings. One can easily imagine situations in which the investor may submit a claim to domestic courts after the submission to investment arbitration. In this way, the investor’s choice of investment arbitration will not be affected, while the possibility of local remedy remains.

According to the tribunals’ restrictive interpretation of fork-in-the-road clauses, a state’s attempt to trigger the fork-in-the-road clause can hardly be successful since the identity of parties and the disputes requires a high threshold to satisfy. Running beneath the restrictive interpretation of fork-in-the-road clauses is the tribunals’

logical basis that international proceedings in principle have primacy over purely

262 UNCTAD, Investor-State Dispute Settlement: A Sequel, UNCTAD Series on Issues in International Investment Agreements II, United Nations Publication, 2014, p. 88.

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domestic proceedings. ²⁶³ It is even argued that to see any utilization of domestic courts as a choice under the fork-in-the-road clause would “put the investor in an intolerable position” since “the investor would have to sit still and endure any form of injustice passively on pain of losing its access to international arbitration”. ²⁶⁴ If so, fork-in-the-road clauses would, losing its meaning and effect, never prevent investors from submitting to investment arbitration after its submission to domestic courts.