ΕΛΛΗΝΙΚΗ ΔΗΜΟΚΡΑΤΙΑ ΕΘΝΙΚΟ ΚΑΙ ΚΑΠΟΔΙΣΤΡΙΑΚΟ ΠΑΝΕΠΙΣΤΗΜΙΟ ΑΘΗΝΩΝ ΝΟΜΙΚΗ ΣΧΟΛΗ ΤΟΜΕΑΣ ΔΙΕΘΝΩΝ ΣΠΟΥΔΩΝ ΠΡΟΓΡΑΜΜΑ ΜΕΤΑΠΤΥΧΙΑΚΩΝ ΣΠΟΥΔΩΝ «ΔΙΕΘΝΕΙΣ ΝΟΜΙΚΕΣ ΣΠΟΥΔΕΣ» ΠΑΝΕΠΙΣΤΗΜΙΑΚΟ ΕΤΟΣ: 2015-2016 ΔΙΠΛΩΜΑΤΙΚΗ ΕΡΓΑΣΙΑ της Νικολέττας Χαλικοπούλου Α.Μ. 827 “Overlap between Investment and Commercial Arbitration” Επιβλέποντες Λέκτορας Αναστάσιος Γουργουρίνης Λέκτορας Γεώργιος Κυριακόπουλος Καθηγήτρια Φωτεινή Παζαρτζή Αθήνα 2016 Νικολέττα Χαλικοπούλου Α.Μ.: 827 “Overlap between Investment and Commercial Arbitration” Copyright © [Νικολέττα Χαλικοπούλου], 2016 Με επιφύλαξη παντός δικαιώµατος. All rights reserved. Απαγορεύεται η αντιγραφή, αποθήκευση και διανοµή της παρούσας εργασίας, εξ ολοκλήρου ή τµήµατος αυτής, για εµπορικό σκοπό. Επιτρέπεται η ανατύπωση, αποθήκευση και διανοµή για σκοπό µη κερδοσκοπικό, εκπαιδευτικής ή ερευνητικής φύσης, υπό την προϋπόθεση να αναφέρεται η πηγή προέλευσης και να διατηρείται το παρόν µήνυµα. Οι απόψεις και θέσεις που περιέχονται σε αυτήν την εργασία εκφράζουν τον συγγραφέα και δεν πρέπει να ερµηνευθεί ότι αντιπροσωπεύουν τις επίσηµες θέσεις του Εθνικού και Καποδιστριακού Πανεπιστηµίου Αθηνών. [2] TABLE OF CONTENTS INTRODUCTION ......................................................................................................................... 4 PART ONE: INVESTMENT AND COMMERCIAL ARBITRATION OVERLAPPING & CONFLICTING ............................................................................................................................. 7 I. Proliferation of dispute settlement mechanisms in international law ........................................... 7 A. The Softwood Lumber case ..................................................................................................... 9 B. The Lauder/CME controversy ............................................................................................... 10 II. Two worlds collide: investment and commercial arbitration .................................................... 12 A. Ratione materiae jurisdiction: do “investments” have a commercial aspect? ...................... 14 B. The hazard of broad dispute resolution clauses in investment treaties ................................. 16 C. Defining the umbrella clause and establishing the overlap of investment and commercial arbitration ................................................................................................................................... 18 PART TWO: INVESTMENT AND COMMERCIAL ARBITRATION OVERLAPPING & IN SEARCH OF SOLUTIONS .................................................................................................. 26 I. Establishment of parallel proceedings ........................................................................................ 28 II. Revisiting the principle of lis pendens ...................................................................................... 31 A. Identity of the parties ............................................................................................................ 35 B. Identical grounds and petitum ............................................................................................... 40 III. Revisiting the principle of res judicata .................................................................................... 44 A. Res judicata in civil law jurisdictions ................................................................................... 47 B. Res judicata in common law jurisdictions ............................................................................ 47 IV. The principle of comity ........................................................................................................... 54 CONCLUSION ............................................................................................................................ 60 BIBLIOGRAPHY ........................................................................................................................ 63 CASE LAW .................................................................................................................................. 67 [3] INTRODUCTION Legal relations have become more complex through the years. The investor request more grounds for protecting their investments by the arbitrary conduct of states and state-entities. Commercial and investment arbitration seem to be the apparent solution. However, this can create certain problems, as the material jurisdiction of both these regimes is broad enough to allow for overlaps, and as a consequence, conflicts between the two. This overlap can be more apparent as in the CME and Lauder cases, where essentially the same dispute was adjudicated under two different BITs, brought by the legal person, CME, on the one hand, and the majority shareholder of that legal person, Mr. Lauder, on the other. The second tribunal concluded that the two cases, even though similar, should be adjudicated separately, because the claimants and the treaties were different. An even more confusing situation, though, can appear, when the jurisdictional overlap is spotted not within the investment regime, but across similar, but still, distinct regimes, namely the commercial and investment ones. Characteristically, the Exxon Mobil v Venezuela case poses as an illustrative example of that overlap. The jurisdictional findings of this case were the triggering point of this particular thesis. The investment tribunal in its 2014 award, it found that the ICC and ICSID awards “concern the liability of different parties under different normative regimes”. In particular, the ICC award was rendered between Exxon Mobil and PDVSA, a fully state-owned company, while the ICSID one was against Venezuela itself. It, also, stated that the investment dispute regarded the breach of an international treaty, and, thus, of international law, while the ICC arbitration was limited to a contractual dispute. Therefore, the investment tribunal chose to simply state that it will consider the ICC award, when necessary, in order to avoid contradictory outcomes. It could be stated from the findings of the investment tribunal, that just the fact that there could be relevant facts that affect both disputes, is a strong indicator of the overlap between the disputes. And in the end that is exactly what the ad hoc annulment committee upheld in order to annul the award partly. In particular, the Committee found that a limitation-of-compensation clause in the contract, was not irrelevant to the investment proceedings, as the tribunal claimed, and cannot simply be ignored. On the contrary, claimant’s investment was “inherently circumscribed” by the [4] contract creating it, and therefore circumscribed by the compensation limitation enclosed therein,1 and thus, proving that the contractual obligations are not irrelevant to the international treaty-based ones. The overlap of the two regimes can be detected in various areas, but mainly to the broad dispute resolution clauses of investment treaties that allow for “all” or “any” disputes to be submitted before treaty tribunals, as well as umbrella clauses, that elevate contractual claims to treaty ones. But even before the substantive and procedural protections that are offered by the two regimes, their overlap lies in the material jurisdiction as well. The notion of the “investment” as well as that of commerciality are broad enough to encompass disputes that can appear before both commercial and investment tribunals, and that exactly triggers the treaty-contract-claims discussion. Specifically, the SGS v Philippines tribunal tried to differentiate between claims that arise from the contract and those that arise from the treaty, and concluded that it should stay its proceedings instead, because distinguishing between the claims was not possible, so it opted to wait for the decision of the contract-based exclusive forum.2 Apart from the broad ratione materiae jurisdiction of the tribunals, the dispute settlement clauses in investment treaties can be broad enough to allow a variety of disputes to be brought before the tribunal, including commercial/contractual ones. For instance, it was found in the Vivendi case that Article 8 of the Argentina-France BIT allows for any dispute to be submitted to arbitration, and it does not limit the competence of the treaty-based tribunal to breaches of the BIT only. This leaves the way open for disputes unrelated to treaty to be brought before the treaty-based tribunal. Lastly, the overlap can be detected positively when umbrella clauses come into play. There are different schools of thought regarding the scope of the clause; for instance, some suggest that it can elevate every contractual claim to a treaty one, thus having a mirror effect, while others require a sovereign act on behalf of the state for its invocation. Regardless, though of the different approaches, what remains evident is that the facts or an award relating to the contract are “relevant” in order to “assess whether there has been a breach of the treaty”.3 Chapter two regards the different possible solution to this problem of the overlapping regime. Different approaches have been suggested, like for instance, the creation of an appeal’s mechanism, or consolidation of the proceedings. The current thesis will focus primarily on three of these                                                                                                                 1 https://www.iareporter.com/articles/analysis-exxon-annulment-committee-chastises-tribunal-on-proper-role-of- domestic-law-in-bit-compensation-determinations/ 2 SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction (29 January 2004), para. 173. (hereinafter SGS v Philippines) 3 Eureko, para. 101. [5] approaches, which according to the author seem more pertinent to tackle the issue. The first two solutions are a more flexible and substantive-based interpretations of the principles of lis pendens and res judicata. So far, a very restrictive approach of the two principles has been applied by international courts and tribunals, which however, does not allow for their application in the modern adjudicatory systems, that is fragmented and is characterized by overlapping specialized jurisdiction. The third solution suggested is the use of the principle of comity. The latter is a principle, the nature of which remains uncertain even today. But as it will show, this uncertainty allows the principle to be flexible enough and to adapt for the needs of the contemporary international legal system. Comity is a principle that initially comes from common law jurisdictions, and its place in international law is ambivalent. It lies in the discretion of the tribunal to decide to defer the case to another court or tribunal that is considered to be more competent to adjudicate the dispute. On the one hand, exactly this discretion is what creates the problems for the use of comity, since no specific rule exists that bounds arbitrators. On the other, however, arbitrators should show deference to another adjudicative body that is more competent to decide the dispute. [6] PART ONE: INVESTMENT AND COMMERCIAL ARBITRATION OVERLAPPING & CONFLICTING What has dominated the international adjudication in the latter part of the twentieth century is the foundation of abundant dispute settlement mechanisms.4 This practice was the “aftermath” of the two World Wars, after which the need for peaceful and non-violent dispute resolutions was urgent.5 As it is eloquently established in Article 33 of the UN Charter the “maintenance of international peace and security” is of the utmost importance, and, therefore, disputing parties need to seek settlement of their differences in any peaceful means of their choice, judicial or not.6 The different newly established tribunals are evidence of innovation on behalf of the states and private actors,7 as well as their willingness to resolve their disputes through objective third parties in a definitive and preclusive manner. The adjudicatory bodies founded run the gamut from the International Court of Justice to the World Trade Organization’s Dispute Settlement Body, to courts and tribunals with specialized jurisdictions8, and to a number of ad hoc tribunals with the authority to hear claims brought directly from a private person. In the case of the international investment regime those tribunals are considered as “hybrids”,9 since they utilize the dispute settlement model of commercial arbitration, but incorporate in it elements of public international law. I. Proliferation of dispute settlement mechanisms in international law The proliferation of international courts and tribunals has allowed various parties to have access to dispute settlement bodies, in plenty of cases for the same issues but under distinct legal grounds.10 In other words, this plethora of adjudicatory bodies has provided parties with the option to resort to different types of courts and tribunals, especially since a lot of those courts and tribunals exercise limited jurisdiction. This issue is exacerbated considering the fact that there exists no hierarchy in the international judicial field.11 There is no equivalent to a national judicial system. Therefore, a                                                                                                                 4Giorgetti, Chiara, ‘Horizontal and Vertical Relationships of International Courts and Tribunals - How Do We Address Their Competing Jurisdiction?’, ICSID Review - Foreign Investment Law Journal, 30 (2015), 98–117, p.1 (hereinafter Giorgetti Chiara). 5 Bjorklund, Andrea K., Private Rights and Public International Law: Why Competition Among International Economic Law Tribunals Is Not Working (Rochester, NY: Social Science Research Network, 29 September 2007) <https://papers.ssrn.com/abstract=1016880> [accessed 9 January 2017], p107. (hereinafter Bjorklund). 6 Charter of the United Nations, Art. 33. (hereinafter UN Charter) 7 Bjorklund, p. 107. 8 For instance, the International Criminal Court for the former Yogoslavia (ICTY). 9 Filip de Ly and Audley Sheppard (RAPPORTEUR), Final Report on Lis Pendens and Arbitration, Seventy-Second International Law Association Conference on International Commercial Arbitration, Toronto, Canada, 4-8 June 2006, ARBITRATION INTERNATIONAL, Vol. 25, No. 1, LCIA (2009), p33. (hereinafter ILA, Lis Pendens) 10 Giorgetti Chiara, p.1. 11 Hobér, Kaj, ‘Res Judicata and Lis Pendens in International Arbitration, 366 Recueil des cours 99 (2013), p259. (hereinafter Hober.) [7] potential disputing party can simply decide to initiate proceedings before multiple international fora, without the latter being able to deny jurisdiction or stay their proceedings based on an established rule of hierarchy or order. The fact that all competent courts and tribunals are apt to adjudicate essentially the same dispute, or different aspects of the same dispute on various legal bases can be an advantage to the parties, exactly because the administration of justice is secured through multiple fora. On the other hand, this abundance of mechanisms leads to fragmentation and duplicative proceedings.12 The reason for that is that the different fora create “divergent clusters and sub-clusters of international jurisprudence”, which entails a threat for the unity of international law.13 Since no hierarchy exists between the adjudicatory bodies, several of them can be competent to arbitrate the same dispute at the same time. As a result, this situation gives way to overlapping jurisdictions.14 Essentially the consequence of those competing jurisdictions is that the parties of the dispute will make use of different fora for the settlement of a dispute, or of other aspects of it. For example, in the Swordfish case, in 2000 Chile was complaining that the EU’s (EC at the time) claiming that the latter’s fishing vessels were involved in excessive taking of swordfish in international waters, endangering the conservation of the highly migratory species, and thus violating the UN Convention on the Law of the Sea (UNCLOS)15. On the other hand, the EC claimed that Chile violated the GATT 1994 by denying access to its ports for the European fishing vessels in order to unload their swordfish. 16Consequently, two different dispute settlement mechanisms were triggered at two different fora by the same parties and for the same dispute. Similarly, in the Mox Plant case, three distinct proceedings were commenced due to a dispute between Ireland and the UK regarding an industrial plant, which allegedly polluted the Irish sea with radioactive waste. The arbitrations were initiated under UNCLOS and under OSPAR, a regional environmental agreement. The third set of proceedings was launched under the jurisdiction of the EU court. The OSPAR tribunal was concerned with issues of disclosure of information, based                                                                                                                 12 Frank Spoorenberg and Jorge E. Viñuales, Conflicting Decisions in International Arbitration, The Law and Practice of International Courts and Tribunals 8, Koninklijke Brill NV, Leiden, (2009) p100, (hereinafter Spoorenberg, Viñuales). As it was observed by Antonio Parra, the Secretary General of ICCA, the different treaties and the proliferation of mechanisms prompts “greater likelihood of different arbitration proceedings being initiated, by covered investors against their host states, in relation to the same or similar issues, events or circumstances.” (Desirability and Feasibility of Consolidation: Introductory Remarks, ICSID Review - Foreign Investment Law Journal, Volume 21, Number 1, Spring 2006). 13 Reinisch, August, ‘The Use and Limits of Res Judicata and Lis Pendens as Procedural Tools to Avoid Conflicting Dispute Settlement Outcomes’, ResearchGate, 3 (2004), 37–77, p38. (hereinafter Reinisch). 14 Hober, p118. 15 International Tribunal for the Law of the Sea, Case concerning the Conservation and Sustainable Exploitation of Swordfish Stocks in the South-Eastern Pacific Ocean (Chile/EC), Order of 20 December 2000 (ITLOS). 16 Chile — Measures affecting the Transit and Importing of Swordfish, case no. WT/DS193/1 [8] on Article 9 of the Convention,17 while UNCLOS with purely environmental claims.18 Within the EU system provisions for all these issues exist. However, what is interesting is that the two tribunals followed completely different paths regarding the concurrent competence of the ECJ. On the one hand the OSPAR tribunal. despite making remarks about the use of Article 31(3)(c) VCLT, decided to interpret the Convention isolated from any other relevant rule of the EU, while on the other hand, the UNCLOS tribunal took cognizance of the European environmental directives and stayed its proceedings in favour of the ECJ’s jurisdiction. As it becomes apparent by those examples, the multiplicity of international settlement mechanisms leads to the fragmentation and duplication of international proceedings.19 Those two concepts are two sides of the same coin; the competence of different tribunals to hear a dispute can bring about both overlapping and divergent powers. Let us be re reminded of two cases that yielded such results. A. The Softwood Lumber case This dispute revolves around softwood lumber and certain Canadian measures, which were considered by the US to constitute subsidies, and the country in juxtaposition adopting countermeasures. This case poses as a characteristic example of different claimants seeking different forms of relief under different legal bases and tribunals, but built on identical facts. Initially, WTO proceedings were commenced by Canada, with the state claiming that the US should revoke its measures. The WTO panel concluded that indeed the US Department of Commerce erred in its judgement that the Canadian measures amounted to subsidies (and thus violating the SCM Agreement), and therefore the adopted measures could not be considered as countermeasures, thus, should be appealed.20 Later on, Canada challenged another decision of another US body, the International Trade Commission, which concluded once again that the imports of softwood lumber from Canada was causing material injury to domestic producers. To be precise, the reason for those conclusions was that Canada and its provincial governments own most of the country’s timber, and as a result the                                                                                                                 17 Dispute Concerning Access to Information Under Article 9 of the OSPAR Convention between Ireland and the United Kingdom of Great Britain and Northern Ireland, Final Award, Decision of 2 July 2003. 18 International Tribunal for the Law of the Sea, The Mox Plant case (Ireland v United Kingdom). 19 Bjorklund, p.116. 20 Panel Report, United States – Preliminary Determinations with Respect to Certain Softwood Lumber Products from Canada, para. 7.59, WT/DS236/R (Sept. 9, 2002). [9] prices to harvest that timber are calculated by the administration, and not through the competition of the marketplace, which can lead to higher prices. As a consequence, the US alleged that the lumber industry is heavily subsidized by the government, and for this reason the state adopted countervailing measures. For this claim as well, the panel found the US not to be in conformity with its international trade obligations.21 In parallel with the first WTO proceedings, Canada also invoked Article 19 of the NAFTA agreement, while three Canadian producers commenced independently arbitration proceedings under Article 11 of the NAFTA in order to challenge the US countervailing measures.22 Even though the claims slightly varied, all claimants invoked a violation of national treatment, of the minimum standard of treatment, and a claim for expropriation. The main basis of their claims was the “Byrd Amendment”, which provided that all antidumping and countervailing duties would be used to compensate the domestic American producers. Obviously, this measure urged the domestic producers to request for the commencement of antidumping and countervailing duties investigations on the one hand, and on the other, those duties were directly payable to them.23 Finally, the US Court of International Trade was called to hear relevant disputes, which concerned the exact same measures, like the “Byrd Amendment”. In the end, Canada and the US reached an agreement to settle their disputes, and the private parties conceded to dismiss their NAFTA arbitrations. In any case, though, what should be learned by this endeavour is how fragmented the dispute settlement system is. B. The Lauder/CME controversy Another illustrative example of such fragmentation and duplication, and in fact under the same legal regime, are the Lauder and CME cases. These cases demonstrate how essentially the same investor can bring identical claims for the exact same facts and issues, under distinct BITs. The result of those disputes was contradicting decisions, which were heavily criticized on their lack of consideration for the related proceedings. The dispute regarded broadcasting rights that were granted by the Czech Republic to a Dutch company (CME), of which Mr. Lauder was the major                                                                                                                 21 Panel Report, United States – Investigation of the International Trade Commission in Softwood Lumber from Canada, WT/DS277/R (March 22, 2004). 22 Canfor Corporation (Can.) v. United States of America, UNCITRAL, Notice of Arbitration and Statement of Claim (May 23, 2002); Terminal Forest Prods. Inc. (Can.) v. United States of America, UNCITRAL, Notice of Arbitration (March 30, 2004); Tembec Inc. (Can.) v. United States of America, UNCITRAL, Notice of Arbitration and Statement of Claim (Dec. 3, 2004). 23 Bjorklund, p. 140. [10]