Derek van Hesteren
Email: d.vanhesteren@gmail.com
Student number: 11971606 Master track: LLM International Trade and Investment Law
Predictability of Fork-in-the-road clauses explored:
An evaluation of approaches to fork-in-the-road clauses through the principle of legalcertainty in the European Convention on Human Rights
Supervisor: Dr. H. E. Kjos Date of submission: 26th July 2019
Abstract
This paper examines investor-state arbitration tribunals’ assessment of the applicability of a fork-in-the-road clause in treaties with investment protection, and seeks to demonstrate the lack of legal certainty for an investor stemming from the assessment. It examines on the one hand, earlier jurisprudence that till date have been cited as representative of various narrow/formalistic methods to determine fork-in-the-road cases. On the other hand, the paper explores developments within the past decade that have paved a new path for fork-in-the-road related cases, namely the ‘new’ broad and more pragmatic approach spurred by the 2009 case Pantechniki v. Albania.
The opposing approaches concurrently existing have thus far gained little attention in academia and treaty drafting practices. To a large extent, the current debate in international investment law places much emphasis on a state’s right to regulate. However, one tends to forget that by protecting an investor’s rights, one is essentially also protecting human rights. With this in mind, and for the purpose of highlighting the importance of drawing attention to the methods of determining the applicability of fork-in-the-road clauses, the paper makes use of the concept of legal certainty within Article 6 of the European Convention on Human Rights (ECHR).
The ambiguity that exists with respect to fork-in-the-road clauses stems from the discretion tribunals have in interpreting the generally open-ended wording of such clauses. The different approaches are further compounded by the absence of binding precedent in investment arbitration. Attempting to offer theory-based solutions to the ambiguity, this contribution explores the possibility of allocating accountability to the state that constitutes the seat of the arbitral tribunal for its failure to guarantee legal certainty as encompassed in Article 6 ECHR. The paper further purports that in light of the lack of uniformity in methods of applying fork-in-the-road clauses that results in a lack of legal certainty for an investor, revising fork-in-the-road clauses may be in order for treaty drafters. Lastly, the paper makes both substantive and practical suggestions towards incorporating a revised version of a fork-in-the-road clause which may alleviate the current ambiguities in support for greater legal certainty.
Table of contents
1. Introduction ... 3
2. Legal Certainty under The European Convention on Human Rights ... 5
3. Fork-in-the-road clauses ... 7
3.1 Applicability of fork-in-the-road clauses (narrow/formalistic approaches) ... 8
3.1.1 The ‘Triple Identity Test’ ... 8
3.1.2 The approach of distinguishing between contractual and treaty claims ... 9
3.2 Developments in the past decade (broad/pragmatic approach) ... 11
4. Developments and Ambiguities explored ... 12
4.1 Ambiguities in the triple identity test ... 12
4.2 Ambiguities in the contractual / treaty approach ... 13
4.3 Ambiguities in the fundamental basis approach and subsequent developments ... 14
4.4 Interim Conclusions ... 16
5. Can Contracting States of the European Convention on Human Rights be held Accountable for Arbitral Awards?... 17
5.1 The Seat theory ... 18
5.2 Connection between the seat theory, the European Convention on Human Rights and Investment Arbitration ... 19
5.3 Interim Conclusions ... 20
6. Suggestions for Revision ... 21
6.1 Substantive suggestions for fork-in-the-road clauses... 22
6.2 Suggestions to incorporate suggested substance in practice... 23
1. INTRODUCTION
During the last decade, criticisms relating to transparency, legitimacy, lack of legal certainty, and ‘one-sidedness’ of investment arbitration have been voiced with growing frequency in both academia and civil society.1 These concerns are arguably at odds with the rule of law
that state parties to the European Convention of Human Rights (ECHR) are treaty-bound to uphold and consequently also possibly at odds with principles stemming from the Convention such as legal certainty.2 As to legal certainty, among the provisions that have been subject to
different interpretations by investor-state arbitration tribunals are fork-in-the-road (FITR) clauses. A FITR clause is often included in dispute resolution clauses in treaties with investment protection as one of the ways in which a host state seeks to limit their consent to arbitration.3 FITR clauses mainly serve to prevent parallel proceedings and with that, to
combat the problems parallel proceedings produce.4 While the exact language of FITR
clauses may vary from treaty to treaty, Article 10 of the Greece-Albania Bilateral Investment Treaty (BIT), can be offered as an example: ‘[…] If such disputes cannot be settled within six months from the date either party requested amicable settlement, the investor or the Contracting Party concerned may submit the dispute either to the competent court of the Contracting Party, or to an international arbitration tribunal’.
A compelling amount of arbitral tribunals have been tasked with determining whether two claims are ‘the same dispute’ so as to enable the application of a FITR clause.5
Nevertheless, the significance of FITR clauses has been said to have laid in ‘hibernation’, as ‘the sleeping beauty of international investment law’.6 Up until the last decade, arbitral
tribunals consistently utilised a narrow, formalistic approach in determining the applicability of FITR clauses.7 To this end, some tribunals employed the ‘triple identity test’ or the
contract/treaty distinction approach. Other tribunals for example, held one limb of the triple identity test to be decisive and / or relied on additional considerations in tandem such as the relief sought and the legal basis relied upon in the initial claim. This practice was deviated from in 2009 when, in the case of Pantechniki v. Albania, sole arbitrator Paulsson rendered an award which followed a new ‘pragmatic approach’, holding a FITR clause to take effect for the first time.9 In his award, Paulsson focused on a ‘fundamental basis test’, and held the decisive
1 Martti Koskenniemi, ‘Its not the Cases, it's the System’ Review Essay on M Sornarajah, Resistance and
Change in the International Law on Foreign Investment' [2017] 18(1) Journal of World Trade and Investment 343-353.
2 Engel and Others v. The Netherlands (1976) No 5100/71 1 53.
3 Christoph Schreuer and others, The Oxford Handbook of International Investment Law (OUP 2008) 830 835. 4 Cf. Bernardo M Cremades and Ignacio Madalena, 'Parallel Proceedings in International Arbitration' [2008]
24(4) Arbitration International 507–540, on a detailed discussion on negative impacts of parallel proceedings and how FITR clauses serve as one method to combat these issues.
5 Ibid.
6 Markus A Petsche, 'The Fork in the road Revisited: An attempt to overcome the clash between formalistic and
pragmatic approaches' [2019] 18(391) Washington University Global Studies Law Review; Gerhard Wegen and Lars Markert, 'Chapter V: Investment Arbitration - Food for Thought on Fork-in-the-Road, A Clause Awakens from its Hibernation' [2010] 2010(1) Austrian Yearbook on International Arbitration 269-292.
7 See section 3 and 4 for analysis of case law.
9 Pantechniki S.A. Contractors & Engineers (Greece) v. The Republic of Albania, ICSID Case No. ARB/07/21,
criteria to be whether a claim had an ‘autonomous existence’ outside the contractual claim, taking into account whether a different ‘normative source’ of the claim exists.10
In the aftermath of this award, some tribunals have adopted Paulsson’s approach, while others have not. Having contrasting approaches towards the applicability of a FITR clause possibly entails a lack of legal certainty for an investor. Legal certainty under the ECHR demands that the laws of a contracting party must be sufficiently foreseeable, certain and precise to enable its subjects to act in accordance with the law in a particular situation.11 While
arbitral tribunals are in themselves not bound by precedents, the author of the present paper considers the argument that nevertheless, contracting states of the ECHR may theoretically be held accountable for lack of legal certainty suffered by investors having had their claims dismissed by tribunals seated within the jurisdiction of these states. Since the investment arbitration system as it stands today12 is not designed to offer legal certainty, the author believes
that due to the lack of sanctions for arbitral tribunals in rendering inconsistent awards, the importance of putting ambiguities of FITR clause determinations in the spotlight is best demonstrated via principles stemming from fair trial rights under the ECHR. In doing so, one may allocate accountability to the state which provides the legal framework for arbitral proceedings, i.e. the tribunal’s seat. It is further suggested that by identifying possible sanctions for a lack of legal certainty in arbitral awards, one ultimately highlights the need for treaty revision.
FITR clauses being in ‘hibernation’ may be due to insufficient consideration placed on the implications for investors – but also states – caused by the divergent approaches to FITR clauses developed in the past decade. Contributions offering detailed analysis of these disparities are limited and in the author’s opinion, the most persuasive ones are those by Petsche and by Wegen and Markert.13 Whereas the 2009 article by Wegen and Markert seeks
to highlight the contentions produced by Pantechniki, Petsche, ten years later, explores the contrasting approaches from a functional perspective. The present paper seeks to take the discussion one step further by highlighting the importance of revising FITR clauses by relying on the concept of legal certainty under the ECHR. The author also offers suggestions for the redrafting of such clauses in future treaties, following a review of proposals set out by scholars in the past. Building upon these suggestions, this paper also offers practical suggestions towards how these substantive suggestions may be incorporated into treaty-drafting practices. Following from the foregoing, the research question that the paper seeks to answer can be formulated as follows: to what extent can jurisprudence by investor-state arbitration tribunals on fork-in-the-road clauses be said to conflict with legal certainty encompassed under Article 6 of the European Convention on Human Rights; and, if so, how can such conflict best be remedied?
In terms of methodology, this contribution sets its framework upon the classical legal research paradigm. From both a normative and interpretative perspective, it evaluates existing
10 Ibid, par 61 62.
11 Kokkinakis v. Greece (1994) No 17/397 2 397, 423.
12 Maria L Marceddu, 'The EU Dispute Settlement: Towards Legal Certainty in an Uneven International
Investment System?' [2016] 1(1) European Investment Law and Arbitration Review Online 33-75.
arbitral awards and developments relating to these awards which resulted in two opposing paths to answering the same question(s) concerning FITR clauses. The jurisprudence under scrutiny is selected from the database Investor-State LawGuide14 on the basis of whether the tribunal in
a case explicitly referred to - or at least - made use of the narrow/formalistic approach developed in the past; and whether or not tribunals after Panthechiki employed Paulsson’s more pragmatic approach to FITR clauses. In addition to identifying developments in the case law, this examination serves to illustrate that divergent approaches are still employed, and that there is currently a lack of legal certainty on the issue. The author also makes use of scholarly contributions relating to the mandate of arbitral tribunals coupled with guidance produced by the Council of Europe in order to substantiate arguments on the possible accountability for a lack of legal certainty under the ECHR for states in which arbitral tribunals are seated. Namely, analysing principles stemming from fair trial rights under the ECHR in order to assess the extent of legal certainty offered against these methods adopted by arbitral tribunals. Consequently, it may also serve as a means to underline possible sanctions for a lack of legal certainty in arbitral awards and therefore ultimately highlight the need for revision. At this point, the author wishes to note the lack of jurisprudence on accountability of host states for enforcing possibly ECHR-incompatible awards. In the absence of said legal jurisprudence, the legal significance of argumentations on ‘seat state’ accountability is somewhat limited. However, in the author’s view and as will be explained below, this accountability is nevertheless theoretically plausible.
The paper is structured as follows. Section 2 delimits the principle of legal certainty underpinned by fair trial rights under Article 6 of the ECHR. Section 3 considers developments in arbitral jurisprudence on methods of assessing the applicability of FITR clauses. In so doing, it compares and contrasts the ‘old’ narrow/formalistic approaches with the ‘new’ broad/pragmatic approach. Section 4 discusses the extent to which developments in arbitral jurisprudence in FITR related cases may be said to be at odds with legal certainty in the context of the ECHR. Section 5 provides and evaluates theoretical legal bases for holding a ‘seat state’ accountable for arbitral awards rendered within their jurisdiction, and in turn highlights the importance of revisiting FITR clause formulations in treaties with investment protection. Section 6 provides suggestions for how to best revise FITR clauses; and finally, general conclusions are offered in section 7.
2. LEGAL CERTAINTY UNDER THE EUROPEAN CONVENTION ON HUMAN RIGHTS
Contrast in methods of determining the applicability of FITR clauses entails a possible conflict with legal certainty under Article 6 ECHR and may hold implications for the ‘seat state’ as will be explored in section 5. To allow us to assess the existence of such conflict, the present section elaborates on the requirement of legal certainty from an ECHR standpoint.
At the outset, it should be noted that state parties to the ECHR have an obligation to respect all stipulated human rights vis-à-vis natural and legal persons on their territory and subject to their jurisdiction.15 In other words, the protections offered by Article 6 apply to
nationals, foreigners and legal persons alike. Therefore, they apply to nationals, foreigners and legal persons, similar to the investment arbitration regime. According to the text of Article 6(1) ECHR, the right to a fair trial concerns civil rights as well as criminal charges: “In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law […].” Among the numerous elements Article 6 are said to encompass, legal certainty is the one most relevant for our case.16 Legal certainty is
also an element inherent to the notion of ‘rule of law’.17
According to the European Court of Human Rights (ECtHR), the ‘rule of law is considered to be part of the “spirit” of the Convention’ and is to underlie all the Convention provisions.18 The link between Article 6 ECHR and the concept of rule of law is evident from
the Venice Commission’s understanding of the core elements of the concept: legality; legal certainty; prohibition of arbitrariness; access to justice; non-discrimination and equality before the law; and respect for human rights.19 Moreover, Article 6 ECHR is said to reflect
the rule of law principle that the judiciary – like any state organ – is accountable under law.20
In the Council of Europe’s Guide to Article 6, it is also noted that legal certainty – as a part of rule of law – is protected through fair trial as a ‘general guarantee’ under the Convention’s procedural requirements.21
As previously mentioned, the rule of law encapsulates legal certainty.22 Legal
certainty entails that the laws of a contracting party must be sufficiently foreseeable, certain and precise to enable its subjects to act in accordance to the law in a particular situation.23
The case of Lupeni v. Romania (2015) provides a clear example of how legal certainty may be a ground for challenge at the ECtHR.24 The case concerned the Italian authorities’
interpretation of the concept ‘ordinary law’ under its Legislative Decree no. 126/1990, and especially how that interpretation resulted in courts of final instance applying diverging substantive laws to cases before them.25 In the words of the ECtHR, ‘depending on the
interpretation given by the courts to the concept of ordinary law, the substantive law applicable to a dispute could thus differ’.26
15 Catan and Others v. the Republic of Moldova and Russia (2012) No 18454/06 1 103.
16 European Court of human rights, 'Right to a fair trial, Civil limb' (Guide on Article 6 of the European
Convention on Human Rights, 30 April 2019) <https://www.echr.coe.int/Documents/Guide_Art_6_ENG.pdf>.
17 Golder v. United Kingdom (1975) No 18 1 par 28-36. 18 Engel (n 2).
19 Venice Commission, 'The Rule of Law Checklist' (Council of Europe, May 2016)
<https://www.venice.coe.int/images/SITE%20IMAGES/Publications/Rule_of_Law_Check_List.pdf>.
20 Simon Chesterman and Merryl Lawry-white, 'An International Rule of Law?' [2008] 56(2) The American
Journal of Comparative Law 331-361.
21 Guide to Article 6 ECHR (n 16).
22 John Mcgarry and Merryl Lawry-white, 'Effecting Legal Certainty under the Human Rights Act' [2015] 16(1)
Judicial Review 66-71.
23 Kokkinakis (n 11).
24 Lupeni Greek Catholic Parish and Others v Romania (2015) No 76943/11 2 3. 25 Ibid.
As will be demonstrated in section 4 below, fork-in-the-road clauses have been subject to various interpretations. It is thus difficult for foreign investors to predict (i) what a respondent state, whose courts were alleged to have adjudicated the investor’s claim, will argue as concerns the applicability of the clause at hand; and (ii) how the tribunal will finally rule and consequently rendering the procedural rights of an investor to arbitrate to be uncertain. The divergence in interpretations might consequently be said to preclude a ‘subject to act in accordance to the law in a particular situation’, due to a lack of foreseeability and thus predictability and legal certainty. With this in mind, the following section explores approaches to determining FITR cases, after which – in section 4 – we assess more deeply whether this jurisprudence, on the whole, might be said to go against the concept of legal certainty under Article 6 ECHR.
3. FORK-IN-THE-ROAD CLAUSES
This section discusses earlier approaches to FITR clauses, whereby a more formalistic/narrow approach to FITR clauses was adopted; after which it considers the new pragmatic approach that was developed in Pantechniki v. Albania in 2009 as well as the extent to which subsequent tribunals have followed it. This serves to show how methods of tribunals determining the applicability of a FITR clause have developed in the past decade, resulting in the adoption of contrasting approaches and thus possible lack of legal certainty because an investor would effectively be rendered unable to predict the legal consequences of their actions due to these opposing approaches.
First, however, we briefly highlight the nature and function of FITR clauses. The concept to which the wording refers reflect the adage ‘[e]lecta una via, non datur recursus ad
alteram’ which translates to ‘when one way has been chosen, no recourse is given to another’.27
As explained in M.C.I. Power Group v. Ecuador (2007), such clause ‘refers to an option, expressed as a right to choose irrevocably between different jurisdictional systems [and] once the choice has been made there is no possibility of resorting to any other option’. The Tribunal further observes that ‘[t]he right to choose once is the essence of the fork-in-the-road rule’. 28
Importantly, FITR provision functions to exclude an investor’s recourse to another jurisdiction once a decision is made on the ‘same dispute’.29 Therefore, FITR clauses are also understood
to have a preclusive effect: if held applicable, it would preclude an investor’s further recourse concerning the same ‘dispute’.30 Closely entwined with the doctrine of lis pendens, a FITR
provision also serves to prevent parallel proceedings and concurrent claims by the same parties.31 The logic behind the treaty insisting on a final choice stems from principles of
27 Aaron X Fellmeth and Maurice Horwitz, Guide to Latin in International Law (Oxford University Press 2009). 28 M.C.I. Power Group L.C. and New Turbine, Inc. v. Republic of Ecuador, ICSID Case No. ARB/03/6, Award
(2007) par 181.
29 Acerislaw llc, ‘Fork in the Road Provision in Investment Arbitration' (Acerislaw.com, 16th February)
<https://www.acerislaw.com/fork-in-the-road-provision-in-investment-arbitration/>.
30 Petsche (n 6). 31 Cremades (n 4).
‘estoppel by election’.32 As previously mentioned, tribunals have often taken different
approaches to the application of FITR provisions. These approaches will be explored in the subsequent sub-sections.
3.1 Applicability of fork-in-the-road clauses (narrow/formalistic approaches)
The author discerns that virtually all tribunals which hear FITR-based claims will be tasked to answer the question of whether the claim brought before the tribunal is the ‘same’ claim brought before a domestic court (or a non-investment tribunal). Jurisprudence suggests that tribunals traditionally adopted a more formalistic approach in answering that question; and this approach would make use of the ‘triple identity test’ and the contract/treaty claims distinction. However, developments in the past decade give a more nuanced picture.
3.1.1 The ‘Triple Identity Test’
Within the realm of investor-state arbitration, it appears that Benvenuti v. Congo (1980) was the first case in which the triple identity test was applied.33 Although it did not directly concern
a determination on the applicability of a FITR clause, but rather the doctrine of lis pendens, a number of tribunals have nevertheless made use of this test for FITR-related cases.34 In this
case, Congo made a jurisdictional objection claiming that domestic proceedings had been initiated, and attempted to rely on the doctrine of lis pendens.35 The Tribunal held that in order
for the it to consider a stay in the proceedings, the domestic proceedings must have ‘identity of the parties, of the subject matter, and of the cause of the suits pending before the two tribunals’.36 On this basis, the Tribunal rejected the jurisdictional objection. Applying a
narrow/formalistic approach to the identities of the parties, it found that the domestic proceedings involved Mr. Bonfant, rather than Benvenuti & Bonfant, the company that initiated the arbitral proceedings.37
We further note that also the doctrine of res judicata is closely entwined with the triple identity test.38 Indeed, according to Martinez-Fragaand Samra, the triple identity test is the one
most frequently employed by judicial bodies when assessing whether a dispute has been previously decided on, whether it be for a determination of lis pendens or res judicata.42
In a more recent decision, Victor Pey Casado v. Chile (2008), the Tribunal explicitly endorsed the triple identity test and elaborated on the three conditions a tribunal should
32 Campbell McLachlan and others, International Investment Arbitration, Substantive Principles (2nd edn,
Oxford University Press 2017) 107.
33 S.A.R.L. Benvenuti & Bonfant v. People's Republic of the Congo, ICSID Case No. ARB/77/2, Award (1980). 34 Petsche (n 6).
35 Benvenuti (n 33). 36 Ibid.
37 Ibid.
38 Case Concerning the Factory at Chorzów (Germany v. Poland) (Merits) PCIJ Rep Series A No 17, par 27. 42 Pedro J Martinez-fraga and Harout J Samra, 'The Role of Precedent in Defining Res Judicata in Investor–State
consider in determining whether a claim has been previously heard elsewhere.43 To the
arbitrators, the test prescribes that the matter brought before the domestic or international forum, must have in essence: (1) the same object, (2) the same cause of action, and (3) the same parties.44 In this case, it was held that the same object requires that the same facts and relief be
present.45 Next, a cause of action (or ‘foundation’ in the case) is different when one’s claim
stem from different sources (i.e. contract vs. treaty). 46 The condition of same parties, by its
ordinary meaning, requires that the parties to the cases be identical.47 If the triple identity test
is satisfied, the FITR will preclude further proceedings as it would suggest that the investor’s claim was heard elsewhere.
From this discussion, the application of the triple-identity-test to FITR clauses may seem rather straightforward. Yet, as will be elaborated upon in section 4, this may not be an accurate picture in practice.
3.1.2 The approach of distinguishing between contractual and treaty claims
Due to a lack of binding precedents, coupled with the fact that the triple identity test originated in the common law system, jurisprudence shows that there are other ways of discerning whether a claim is admissible when faced with a FITR clause. One of these is the method of distinguishing between contractual and treaty claims, and like the triple identity test, it is formalistic in nature.48 This approach was endorsed at an early stage by ad hoc Annulment
Committee in the case of Vivendi v. Argentina (2002). Vivendi entailed an examination of a FITR clause as well as a contractual forum selection clause; however, it did not specify which approach to determination of said clause were more appropriate than others.49 Nevertheless, it
arrived at its decision utilizing a distinction between contract and treaty claims.50
The distinction between contractual and treaty claims is fundamental for tribunals tasked with assessing the applicability of a FITR clause.51 Whereas a contract claim alleges a
breach of the investment contract at hand,52 a treaty claim bases the alleged wrongdoing upon
a violation of treaty standards in the applicable investment protection agreement.53 While
several tribunals have utilized this approach to answer questions not related to FITR clauses, there are at least four awards that did rely on, or at least referred to it in that context.54
43 Victor Pey Casado and President Allende Foundation v. Republic of Chile, ICSID Case No. ARB/98/2,
Award (2008). 44 Ibid. 45 Ibid, para 483. 46 Ibid. 47 Ibid. 48 Petsche (n 6).
49 Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No.
ARB/97/3, Award (2000).
50 Ibid.
51 James Crawford, 'Treaty and Contract in Investment Arbitration' [2008] 24(3) Arbitration International 351–
374.
52 Ibid. 53 Ibid
CMS v. Argentina (2003), was a case which concerned Argentina invoking a FITR
clause within the applicable BIT, after TGN - an affiliated entity to CMS - ensued domestic proceedings against the Argentinian authorities.55 The Tribunal held in favor of CMS,
reasoning that the contractual and treaty claims were distinct, and that contractual claims at the domestic level cannot preclude an investment arbitral tribunal in hearing a treaty claim submission.56 In Enron v. Argentina (2004), the case also concerned Argentina raising
jurisdictional objections on the basis of a FITR clause in the applicable BIT. As TGS is affiliated to Enron, Argentina argued that TGS’s domestic proceedings precluded Enron from the current arbitral proceeding.57 The Tribunal in Enron, held similarly to CMS, that contract
and treaty based claims are distinct and ‘even if there was recourse to local courts’, it would not prevent the tribunal from considering a treaty claim and held the FITR clause in the case to be ineffective.58 In Azurix (2004), Argentina put forth arguments similar to those in CMS
and Enron; namely that ABA’s domestic proceedings precluded Azurix from initiating the arbitral proceeding based on the FITR clause in the applicable BIT.59 The Tribunal in this case
rejected Argentina’s jurisdictional contention relying on - in addition to a distinction between contract and treaty claims - the triple identity test.60
Lastly, the Occidental v. Ecuador (2004) case concerned Occidental bringing at the domestic level a challenge to Ecuador’s rescission of Occidental’s tax reimbursements. While domestic proceedings were undecided, Occidental initiated investor-state arbitration under the applicable BIT.61 The Tribunal in this case applied both the triple identity test and the
distinction between contract and treaty claims, referring to the decision in CMS.62 However, in
Occidental, the Tribunal additionally took account of ‘specific circumstances of the dispute’,
thereby deviating from previous approaches and cases cited by the Tribunal itself.63 It held
their jurisdiction to encompass claims which are ‘to the extent that the nature of the dispute submitted to arbitration is principally, albeit not exclusively, treaty-based…’.64 On this basis,
the Tribunal rejected Ecuador’s jurisdictional objection.65
In sum, the Tribunals in CMS, Enron and Azurix all seem to have come to their decision by utilizing a narrow/formalistic approach to the identity of the parties and held that they were different entities at the domestic level.66 Occidential on the other hand, took into account
additional factors deduced by the Tribunal itself. In light of the aforementioned cases and based on jurisprudence, the contract/treaty approach is generally used where a jurisdictional objection
55 CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Decision on
Objections to Jurisdiction (2003) par 80.
56 Ibid.
57 Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Decision
on Jurisdiction (2004) par 95.
58 Ibid, par 97.
59 Azurix Corp. v. The Argentine Republic, ICSID Case No. ARB/01/12, Decision on Jurisdiction (2003), par 86. 60 Ibid, par 88 89, ABA is a domestic affiliate to Azurix.
61 Occidental Exploration and Production Company v. The Republic of Ecuador, LCIA Case No. UN3467,
Final Award (2004), par 6.
62 Ibid, par 51 52. 63 Ibid, par 57. 64 Ibid. 65 Ibid, par 63.
is made due to a contractual forum selection clause being invoked or an allegation that the contractual claim was heard at the domestic level.67 The extent of predictability and certainty
these decisions brought about will be discussed in section 4. It should be noted already at this point, however, that there is an absence of consistent guidance towards distinguishing a claim between contract or treaty besides academic suggestions made by scholars; and a narrow approach to distinguishing a contract from a treaty claim by focusing on the legal basis invoked at the initial proceeding before another judicial forum.68 Moreover, besides academic guidance
and a distinction of legal bases, the reasoning behind awards rendered remain unclear as to a definite criteria for this approach.
3.2 Developments in the past decade (broad/pragmatic approach)
In 2009, Pantechniki S.A. v. Albania paved way for a deviation from the hitherto standard methods in determining the applicability of a FITR clause. One commentator noted the following after the Pantechniki award was rendered:
‘Until recently, no arbitral tribunal had found an investor’s claim under a BIT to be barred by a fork-in-the-road clause. Previous tribunals have found that for a fork-in-the-road clause to apply, the same dispute between the same parties must have been submitted to the local courts before resort to international arbitration and have drawn clear distinctions between contract and treaty claims. The recent award in Pantechniki however, suggests a different path.’69
Sole arbitrator Paulsson determined that the relevant test to be applied in the case was the one derived from Woodruff and Vivendi, namely ‘whether or not “the fundamental basis of a claim” sought to be brought before the international forum is autonomous of claims to be heard elsewhere’.70 Paulsson further found that simply basing a cause of action on a treaty basis rather
than the contract is simply ‘argument by labelling, not by analysis’.71 Moreover, the key
question was – to Paulsson – whether the ‘normative source’ of the claim entitlement are the same.72 In his assessment of the facts, he held that Pantechniki’s domestic claim was
contractual as it was also treated as such by those proceedings.73 He noted that the claimant
would have obtained the same relief sought before him had the domestic proceedings been a
67 Yuval Shany, 'Contract Claims vs Treaty Claims: Mapping Conflicts between ICSID decisions on
Multisourced Investment Claims' [2005] 99(4) The American Journal of International Law 835-851.
68 Cf. Guido S Tawil, 'The Distinction Between Contract Claims and Treaty Claims: An Overview' [2007] 13(1)
ICCA Congress Series 492-544, where Dr. Tawil set out five criteria to distinguish a contract from a treaty claim in investment arbitration.
69 Lee A Steven, 'Two Roads – Two Tribunals: Recent Fork-in-the-Road Interpretations' (Kluwer Arbitration
Blog, 16th December) <http://arbitrationblog.kluwerarbitration.com/2009/12/16/two-roads-two-tribunals-recent-fork-in-the-road-interpretations/> .
70 Pantechniki (n 9), par 61. 71 Ibid.
72 Ibid, par 62. 73 Ibid, par 66.
success; hence, the claims were found to have the same ‘fundamental basis’.74 Consequently,
the FITR clause in the applicable BIT of the case was held to be effective and precluded the claimant’s further recourse in the case.
This case caused considerable debate in practice but has lacked adequate attention in academia. The methods mentioned above are by no means exhaustive or ‘black and white’. Due to the lack of binding precedents, tribunals commit no wrong by applying the methods mentioned above inadequately or by adapting these methods depending on the circumstances of the case. Yet, this does not rule out accountability of other entities, and with this in mind, the subsequent section will examine more deeply the lack of predictability and therefore the possible lack of legal certainty caused by the divergence in methodology by tribunals as concerns FITR clauses demonstrated above.
4. DEVELOPMENTS AND AMBIGUITIES EXPLORED
As observed by Petche, in many cases, arbitral tribunals have failed to specify which approach towards determining the applicability of FITR clauses they should or will apply.75 Moreover,
he noted that the reasons stated for the rejection of the clause’s applicability often related to at least one partial element of the triple identity test.77 In order to demonstrate the possible lack
of legal certainty and thus possible inadequacy in securing legal certainty which Article 6 ECHR is said to encompass, the current section discusses more closely various ambiguities in the approaches tribunals till date have employed with respect to FITR clauses. These ambiguities concern all the approaches a tribunal may take as discussed in the preceding section.
4.1 Ambiguities in the triple identity test
With regard to the triple identity test, Fraga and Samra observe that:
‘[T]here is in fact virtually no agreement as to how any of the three prongs of that [triple identity] test should be applied in practice. Because of the universal acceptance of the doctrine’s general contours, it is unsettling and deeply problematic that there is so much dissonance concerning the doctrine’s application.’78
To the authors, this lack of uniformity entails varying interpretations stemming from different judicial ‘families’ (civil and common law).79 Moreover, contradictory codifications of such
principles by different jurisdictions renders the triple identity test to be performed in a manner that is either too ‘formalistic or substantive/transactional’.80 Fraga and Samra – upon
74 Ibid, par 67.
75 Petsche (n 6). 77 Ibid.
78 Fraga and Samra (n 42). 79 Ibid.
investigating various codifications of the doctrine of res judicata and with that, the triple identity test; concluded that there is a ‘significant lack of uniformity with respect to each prong of the triple identity test’ and highlighted the need for more consistency in applying the triple identity test.81
In addition to ambiguity as to each of the three elements of the test, some tribunals have employed both the triple identity test and a distinction between contractual and treaty claims in tandem. Other tribunals have applied only selected elements of the triple identity test and held those to be decisive.82 On the one hand, the Tribunals in Olguín v. Paraguay (2000) and
Pan America v. Argentina (2006) held that the decisive factor for the inapplicability of the
FITR clause was the lack of ‘sameness’ in the identity of respondents.83 On the other, the
Tribunals in Lauder v. Czech Republic (2000), LG&E v. Argentina (2001), held the lack of sameness in the identity of claimants to be the decisive factor in considering that a FITR clause did not take effect.84 More recently in Total S.A. v. Argentina (2010), the Tribunal in rejecting
the applicability of the FITR clause in question, relied on a different legal basis being utilised between the domestic and arbitral forum.85 Therefore in some of the cases mentioned above,
the Tribunals held decisively through a formalistic approach, that either the domestic proceedings where the first claim was initiated, entailed a lack of identity in parties and is therefore not the same dispute; or utilised a lack of legal basis to distinguish the proceedings.86
In Pan America, it was held that the FITR clause failed due to a lack of identical cause of action, in addition to a lack of identity (foregoing the object prong).87 The Tribunal in Olguín placed
emphasis on a lack of ‘sameness’ in the two claim’s object in addition to the lack of identity (foregoing the cause of action prong).88 In other words, these two cases either held one prong
of the triple identity test to be decisive or employed only partial elements of the test. The results of these awards mentioned above, leads to ambiguities and unpredictability for an investor.
4.2 Ambiguities in the contractual / treaty approach
As elevated by scholars, ambiguities exist in whether to apply the contract / treaty approach at all within the cases mentioned in section 3.1.2.89 As previously mentioned, a contract / treaty
81 Ibid, the authors conducted research into national civil codes and common law jurisprudence to demonstrate
how each of the three-prong test entails different considerations in different legal ‘families’.
82 Eudoro Armando Olguín v. Republic of Paraguay, ICSID Case No. ARB/98/5, Decision on Jurisdiction
(2000); Ronald S. Lauder v. The Czech Republic, UNCITRAL, Award (2001); LG&E Energy Corp., LG&E
Capital Corp., and LG&E International, Inc v. Argentine Republic, ICSID Case No. ARB/02/1, Decision of the
Arbitral Tribunal on Objections to Jurisdiction (2004).
83 Olguin, (n 82); BP America Production Company, Pan American Sur SRL, Pan American Fueguina, SRL and Pan American Continental SRL v. The Argentine Republic, ICSID Case No. ARB/04/8, Decision on Preliminary
Objection (2006).
84 Lauder, (n 82); LG&E (n 82).
85 Total S.A. v. The Argentine Republic, ICSID Case No. ARB/04/01, Decision on Liability (2010).
86 Lauder (n 82), it was held that none of the proceedings which raised the respondent’s jurisdictional challenge
involved the same parties and that none of them were based on alleged violations of the BIT; In Total (n 85), the Tribunal held that the challenge was based on domestic laws at the domestic level and not on the BIT.
87 Pan America (n 83), par 157. 88 Olguin, (n 82), par 30. 89 Petsche (n 6).
approach is used where a jurisdictional objection is made due to a contractual forum selection clause being invoked or a contractual claim was allegedly heard at the domestic level.90
Curiously, no contractual proceedings were challenged at the domestic level in Enron,
Occidental and CMS; nor did these cases involve analysis of contractual forum selection
clauses.91 Moreover, in Azurix, Occidental and Enron, the application of this approach lacks
clarity; rules and concepts external to the distinction between a contract or treaty claims were also employed.92 For example, Azurix and Occidental made express references to the triple
identity test, whereas Enron relied on the principles developed through the doctrine of lis
pendens.93
Deduced from the foregoing, there exists an absence of adequate guidance or reasoning put forth by these tribunals in why and which exact rule the tribunals applied. The tribunals mixed elements of various approaches (triple identity, lis pendens, contract / treaty approach) by taking partial prongs to the triple identity test and employing a contract / treaty distinction where no contractual proceedings were involved in the initial claim. Moreover, Petsche denoted that ‘this approach does not actually seek to interpret FITR clauses’ but seeks to answer a different question than the applicability of a FITR clause.94 This perhaps explains the
inadequacy in the scope of questions the contract / treaty approach may address and the lack of clarity in decisions rendered under this approach.
4.3 Ambiguities in the fundamental basis approach and subsequent developments
The ‘vague-ness’ of the fundamental basis test was endorsed by the limited scholarship shedding a light on ‘post-Pantechniki’ implications.95 For example, one commentator
acknowledged that ‘the Pantechniki decision has muddied the waters in terms of a clear distinction between “treaty” and “contract” claims’.96 Paulsson’s rejection of the contractual /
treaty approach by his analysis of requiring the ‘same normative source’ – even when aware of the domestic proceedings being contractual in nature - goes against established arbitral jurisprudence such as that of CMS v. Argentina (2003).97 Paulsson in Pantechniki, found that
the claims under the BIT did not have an autonomous existence outside the prior contractual claims.98 Moreover, to reiterate, Paulsson suggested that by simply basing a cause of action
upon a treaty instead of contract would be ‘argument by labelling, not by analysis’.99 To
90 Shany, (n 67).
91 Enron, (n 57), Occidental (n 61); CMS (n 55). 92 Azurix (n 59); Occidental (n 61); Enron (n 57). 93 Ibid.
94 Petsche (n 6).
95 Petsche, Wegen and Markert (n 6).
96 Deborah Ruff, 'Fork-in-the-Road clauses Divergent paths in recent decisions' (Nortonrosefulbright, 1 October
2015) <https://www.nortonrosefulbright.com/en/knowledge/publications/0bd10ad8/fork-in-the-road-clauses#autofootnote2>.
97 Wegen and Markert (n 6), where the authors held CMS v. Argentina to be representative of cases with similar
facts and that Paulsson explicitly rejected the notion held by CMS that contractual and treaty claims are distinct and a contract claim being entertained by a domestic forum would not preclude a treaty claim from being heard.
98 Pantechniki (n 9), par 62. 99 Ibid.
demonstrate the ambiguities in Paulsson’s pragmatic approach and why scholars find this test ‘vague’, recent cases explicitly following his approach are examined below.
In H&H Enterprises v. Egypt (2014), the Tribunal explicitly endorsed Paulsson’s line of reasoning and held a FITR clause to take effect. The claimant in this case argued in line with the reasoning adopted in Toto v. Lebanon (2010) to require a triple identity test to be employed to assess the applicability of the FITR clause in question.100 However, the Tribunal noted that
the BIT in question did not require a triple identity test to be performed and held that it would defeat the purpose of the FITR clause in question if they insisted on employing the triple identity test.101 Moreover, the Tribunal – quoting Pantechniki – stated that whether the
‘fundamental basis’ is the same is the decisive question and this is determined by whether the domestic proceedings, if successful, would render the same relief as that of the Tribunal.102 To
emphasize, the Tribunal related this to the ‘same purported entitlement’ and ‘normative source’ of the two claims, namely that it stemmed from a contract.103 The Tribunal subsequently
decided that the claims initiated at the domestic level shared the same ‘fundamental basis’.104
The line of reasoning in H&H provided that, in determining the ‘fundamental basis’, the Tribunal relied on the relief sought at the domestic level and international level being the same.105 However, Paulsson in Pantechniki held that the ‘fundamental basis’ of a case should
not be determined to be the same by simply holding that the ‘essential basis’ (facts and relief sought) were the same.106 With H&H explicitly following the approach in Pantechniki, there
appears to be a dissonance in how the Tribunal in H&H came to the conclusion that the same ‘fundamental bases’ were deduced based on the same facts and relief sought. In other words, the Tribunal’s analysis contradicts Paulsson’s reasoning where he stated that the facts and relief sought should not be used decisively to determine whether two claims are ‘fundamentally the same’.
More recently in Supervision SA v. Costa Rica (2017), the Tribunal also explicitly referred to the Pantechniki ‘fundamental basis test’.107 The case arrived at its decision to
dismiss the claims based on the domestic proceedings of the claimant having stemmed from the same ‘normative source’ and relief sought were the same (reasoned by utilizing the contract / treaty distinction to support their analysis of the ‘fundamental basis’ of the claim).108 Once
again, this contradicts Paulsson’s explicit rejection of the contract / treaty approach. Moreover, Paulsson rejected the contract / treaty approach by relying on cases he sought to establish the test of ‘fundamental basis’ on (Vivendi and Woodruff).109 However, in both Vivendi and
100 Toto Costruzioni Generali S.p.A. v. The Republic of Lebanon, ICSID Case No. ARB/07/12, Decision on
Jurisdiction (2009), par. 211.
101 H&H Enterprises Investments, Inc. v. Arab Republic of Egypt, ICSID Case No. ARB 09/15, Award (2014),
par 369-375. 102 Ibid. 103 Ibid. 104 Ibid. 105 H&H (n 101). 106 Pantechniki (n 9), par 62.
107 Supervision y Control S.A. v. Republic of Costa Rica, ICSID Case No. ARB/12/4, Final Award (2017), par
308.
108 Ibid, par 315.
Woodruff, the fundamental basis test was used to distinguish the legal bases of the claims at
issue, a method in which Paulsson explicitly rejected, coining it as ‘argument by labelling, not by analysis’.110 Consequently, the criteria sought to be established by Paulsson to identify the
‘fundamental basis’ is far from clear-cut as he pointed out himself that his ‘statement may hardly be said to trace a bright line that permit rapid decision’.111
4.4 Interim Conclusions
With regards to the triple identity test, several observations may be deduced. Firstly, an assessment of a FITR clause based on a triple identity test, could entail a tribunal not having to interpreting the FITR provision itself presumably due to the test being purposed to deal with other doctrines. Secondly, Petsche observes that this test – which originated from a determination of the lis pendens and res judicata doctrines, almost ‘accidentally’ found its way into being used for determining the applicability of a FITR clause.112 This possibly signifies a
lack of consideration in giving sufficient aforethought on how the triple identity test was, is and will be used in FITR determinations. Furthermore, very few tribunals have referred to the triple identity test explicitly, neither has many applied the test in its entirety. Partial elements of the triple identity test were selected as decisive in the decision of some of the cases mentioned above.113 Moreover, not only are arbitral tribunals capable of selecting only partial
elements of the test to be performed, a lack of consensus in each of the three-prong test are also remarkable due to the test being adopted differently across legal ‘families’. This lack of a more predictable approach in the triple identity test itself coupled with awards rendered decisively utilizing only fractional parts of the test, exacerbates legal certainty which is to be ‘secured’ under Article 6 within the national legal order of contracting states, i.e. their national arbitral laws which may affect the arbitral proceeding.
With regards to the contract or treaty claims approach, the main issue underlying this approach is that it serves to distinguish cases where the facts point to a contractual breach being challenged on the domestic level (or other non-investment arbitral tribunals); or when a contractual forum selection clause is involved in the dispute. The test itself seems unsuitable to address all questions concerning FITR clauses, such as where domestic proceedings were initiated to challenge a measure or legislation and contractual obligations were not considered. This limitation to the scope of the contract / treaty approach has also been recognized by academia.114 However, as previously stated, where domestic proceedings did not involve
contractual contentions, the contract / treaty approach was nonetheless employed by certain tribunals. Furthermore, it is unpredictable for an investor in terms of what elements from which approach or test a tribunal will employ. Thus, a lack of legal certainty and predictability.
110 Vivendi (n 49); Woodruff (n 109). 111 Ibid.
112 Petsche (n 6). 113 Ibid.
It has been noted by scholars that the criterion for establishing a ‘fundamental basis’ is ‘so vague that it hardly enhances legal certainty for investors and host states when faced with a potential application of a fork-in-the-road clause’.115 In Pantechniki, Paulsson seemed to have
attempted to overcome the obstacle of tribunals taking a formalistic reading and defeating the purpose of a FITR clause and decided to set his line of reasoning upon a more pragmatic approach. However, cases decided subsequent to Pantechniki, seem to have contradicted his line of reasoning, further contributing to the lack of predictability when it comes to a tribunal’s assessment of a FITR clause via the fundamental basis test. Moreover, in another subsequent case to Pantechniki such as Toto (although the case did not refer to the fundamental basis test), the Tribunal held explicitly – after citing a long line of jurisprudence – that ‘contractual claims arising out of the Contract do not have the same cause of action as Treaty claims’. Consequently, contract claims heard at the domestic level would not preclude further recourse; yet again contradicting Paulsson’s analysis where he noted the need for ‘a[n] autonomous existence outside the prior contractual claims’. 116
Deduced from analysis above, there are currently approaches to dealing with FITR clauses in the investment arbitration regime which stands at contrast with each other. This consequently means that an investor is not afforded with sufficient predictability so as to enable them to foresee the legal consequences of their actions. For example, if one initiated domestic proceedings based on contractual claims, yet also had grievances that may only be addressed by treaty standards, one would not have been able to foresee as to whether their initial claim at the domestic level would have precluded their recourse to arbitration due to contrasting methods that may delivery answers at odds to each other. Moreover, the ability of tribunals to take partial elements of the various tests further contributes to this problem. As will be explored subsequently, a lack of legal certainty in arbitral awards rendered may theoretically entail implications for a ‘seat’ state which is also a contracting state of the ECHR.
5. CAN CONTRACTING STATES OF THE EUROPEAN CONVENTION ON HUMAN RIGHTS BE HELD ACCOUNTABLE FOR ARBITRAL AWARDS?
This paper explores whether a conflict may be said to exist between arbitral tribunals’ divergent approaches to fork-in-the-road clauses on the one hand, and the concept of legal certainty under Article 6 of the ECHR on the other hand. Clearly, arbitral tribunals are not bound by principles stemming from the ECHR themselves, as they are not contracting parties, nor are they states or organs of states.117 Moreover, the lack of adherence to the doctrine of stare decisis proves
to be a hurdle one needs to overcome when attempting to challenge an arbitral tribunal’s discretion in interpreting and applying arbitral rules.
115 McLachlan (n 32), par 4.82. 116 Toto (n 100), para 207.
117 European court of human rights, 'Obligation to respect human rights – Concepts of “jurisdiction” and
imputability' (Guide on Article 1 of the European Convention on Human Rights, 30 April 2019) <https://www.echr.coe.int/Documents/Guide_Art_1_ENG.pdf>.
Jurisprudence thus far has pointed out to the possibility of a refusal to enforce arbitral awards running afoul to the ECHR resulting in state responsibility.118 However, there has been
a lack of jurisprudence that points to state responsibility for enforcing or validating possibly ECHR-incompatible arbitral awards. Nevertheless, if accountability may be imposed for non-enforcement of arbitral awards, the author opines that the vise-versa may also impose accountability if it were incompatible with principles under the ECHR. As the author is attempting to contribute to treaty-drafting practice through evaluating the lack of legal certainty in FITR cases, this section clarifies on the possibility of an ECHR contracting state being held accountable for the lack of adherence to principles set out in the ECHR by arbitral tribunals which are ‘seated’ under their jurisdiction. Consequently, emphasis on revisions should be put on these currently opposing approaches.
This section attempts to answer this question by linking the origins of the mandate of tribunals with the extent of which states regulate arbitration proceedings in their domestic legal order.119 Moreover, to connect this mandate stemming from domestic laws to implications on
the seat state’s obligation to ‘secure’ compliance with the ECHR in their national laws and thereby arbitral awards rendered under their jurisdiction.
5.1 The Seat Theory
Linked to the concept of state sovereignty, states enjoy the inherent right to regulate on all matters within their territory.120 Moreover, developed through state practice, this right of
regulating matters within a state’s territory entails laws being enacted and possible sanctions adopted for proceedings conducted and awards rendered within a state’s territory.121 The laws
in which arbitral proceedings and awards stem their validity from are also known as lex
arbitri.122 Lex arbitri is not necessarily the law governing the substance of the dispute, but is
the law that validates the award rendered; the national laws of the ‘seat’.123 The aforementioned
delimits the seat theory, where arbitral proceedings and awards in ‘territorialised tribunals’ stem their validity from a national legal order and is subject to the jurisdiction of which the arbitration is seated.124 Consequently, at least a part of a tribunal’s mandate stems from national
laws in which ECHR contracting states have an obligation to secure compliance with principles stemming from the ECHR.125
118 Deyan Draguiev, 'State Responsibility for Non-enforcement of Arbitral Awards' [2014] 8(4) World
Arbitration & Mediation Review 577-618.
119 Hege E Kjos, Applicable Law in Investor–State Arbitration, The Interplay Between National and
International Law (Oxford Monographs in International Law 2013) 52.
120 Eli Lauterpacht, 'The World Bank Convention on Settlement of International Investment Disputes' [1968]
Recueil d‘etudes de droit international en hommage 6 Paul Guggenheim 642-664.
121 Kjos (n 119) 27.
122 Frederick A Mann, 'The UNCITRAL Model Law – Lex Facit Arbitrum' [2014] 2(3) Arbitration International
241-261.
123 Ibid; cf. UNCITRAL Art. 31(3): ‘[T]he award shall state its date and the place of arbitration as determined in
accordance with article 20 (I)… [T]he award shall be deemed to have been made at that place.’
124 William W Park, 'Judicial Controls in the Arbitral Process' [1989] 5(3) Arbitration International 230-279; for
a detailed analysis on ‘territorialized’ tribunals; see e.g. Hege E Kjos, supranote 114, 27.
In support of the seat theory, Sapphire International Petroleum Ltd v National Iranian
Oil Co. (1963) held that the decisions rendered in arbitral proceedings, ‘should be subject to
the supervision of a state authority, such as the judicial sovereign of a state’. More specifically, the arbitral proceeding is subject to the national procedural laws of the place where the tribunal is seated (i.e. national arbitration laws).126 This theory is further supported by Wintershall A.G
v. Qatar (1989), where it was held that UNCITRAL Arbitration rules were subject to
mandatory provisions of the Netherlands Arbitration Law. Moreover, a recent case in 2018 conducted under LCIA Rules held that by electing London as the seat for arbitration, the parties have agreed and intended that the arbitration’s award should only be those permitted by the law of England and Wales, regardless of the governing law of the arbitration.127
5.2 Connection between the seat theory, the European Convention on Human Rights and Investment Arbitration
When arbitral proceedings are conducted under arbitral rules which are in support of the seat theory (i.e. UNCITRAL, LCIA), rules stemming from the national laws may affect the arbitral proceeding’s internal procedures and its external relations with the courts of the national legal order.128 Moreover, arbitral proceedings conducted under the auspices of a state – in the
absence of party agreement – could infer rules of procedure from the national legal order (i.e. national arbitration rules).129 Article 1 of the ECHR prescribes an obligation of a contracting
state to ‘secure’ compliance with the Convention, ‘in all matters within their jurisdiction’.130
Moreover, it is noted by the Council of Europe’s guidance, that: “…[e]ven though it is not inconceivable that States will encounter difficulties in securing compliance with the rights guaranteed by the Convention in all parts of their territory, each State Party to the Convention nonetheless remains responsible for events occurring anywhere within its national
territory”.131 The Council of Europe further stated that: ‘[t]he general duty imposed on the
State by Article 1 of the Convention entails and requires the implementation of a national
system capable of securing compliance with the Convention throughout the territory of the State for everyone’. Working along the line of reasoning adopted by Sapphire International v National Iranian Oil Co. (1963) and guidance provided by the Council of Europe. Supervision
by the state to an arbitral tribunal would entail the need for ensuring observance to principles
126 Sapphire Int’l Petroleum Ltd v National Iranian Oil Co., Ad Hoc Case No. 35 I.L.R. 136, Award (1963). 127 Atlas Power Ltd. v. National Transmission and Despatch Co Ltd (2018) EWHC 1052.
128 Milos Novovic, 'International Commercial Arbitration Lecture' (Seat of arbitration, Procedural law (lex
arbitri) and Substantive law, 10 October 2015)
<https://www.uio.no/studier/emner/jus/jus/JUS5852/h15/undervisningsmateriale/3---seat-of-arbitration-procedural-law-(lex-arbitri)-and-substantive-law.pdf>.
129 Ibid; cf. Art 28(2) United Nations Commission on International Trade Law (UNCITRAL) Model Law on
International Commercial Arbitration, 1985, ‘Failing any designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable’; Cf. UNCITRAL Explanatory note by the UNCITRAL secretariat on Art. 28, ‘[W]hen the parties have not designated the applicable law, the arbitral tribunal shall apply the law, i.e. the national law’.
130 Guide on Article 1 ECHR (n 117). 131 Ibid.
stemming from the ECHR within their national laws and ‘jurisdiction’, hence within an arbitral proceeding which is ‘seated’ in a contracting state. Therefore, the author purports that a ‘seat’ state may possibly be held accountable for awards rendered by arbitral tribunals under their jurisdiction which are ECHR incompatible as national laws were part of the arbitral proceedings. As previously stated, a state’s non-compliance with arbitral awards may be ECHR incompatible and may result in state responsibility.132 The author reiterates that the
vice versa may also be plausible, namely that enforcement or validation of arbitral awards may be ECHR incompatible and may theoretically also result in state responsibility when the award rendered fails to ‘secure’ compliance with the Convention. As previously stated, due to the lack of jurisprudence on the matter, this argumentation stems its rationality from theoretical support.
Deduced from the foregoing, this may mean that even if a tribunal is not bound by the principles under the ECHR themselves and therefore imputable for violations of principles stemming thereof, the state which provides validity (lex arbitri) and enforces the award, may possibly incur international responsibility just as non-enforcement with arbitral awards may. The implication(s) mentioned above are directed towards ‘territorialised tribunals’ which adhere to the seat theory and not ‘internationalised tribunals’ (such as the International Centre for Settlement of Investment Disputes).
Immunity from jurisdiction for international organisations has long been upheld by courts, it denotes the theory which stands at odds with the seat theory; known as the delocalization theory.133 Under the latter theory, an ‘internationalised’ tribunal’s mandate stem
from the ‘international legal order’ and has little to no bearing to the national legal order.134
Moreover, jurisprudence has denoted that the immunity of international organisations has long been upheld by courts and has thus ‘remained absolute’; this has also been affirmed by the ECtHR as such.135 Therefore, this contribution notably holds implications for states and arbitral
rules which support the seat theory as they may need to pay attention to possible contentions of FITR clauses with their obligations under Article 1 in conjunction with Article 6 of the ECHR.
5.3 Interim Conclusions
Although investment arbitration does not encompass the principle of binding precedents, large emphasis is put on past practices by tribunals to decide on cases as seen through awards rendered. Case law has established the duty to seek a harmonious development of the law which presumably has as its aim the strengthening of legitimacy and legal certainty.136 The attribution
of an arbitral award to the State may in theory stem from arbitral proceedings which elected
132 Draguiev (n 118). 133 Kjos (n 119), 44. 134 Ibid.
135 Cf. Waite and Kennedy v. Germany (1999) No 30 EHRR 261; Emmanuel Gaillard and Isabelle
Pingel-lenuzza, 'International Organisations and Immunity from Jurisdiction: To Restrict or to Bypass' [2002] 51(1) The International and Comparative Law Quarterly 1-15.
136 Saipem S.p.A. v. The People's Republic of Bangladesh, ICSID Case No. ARB/05/07, Decision on Jurisdiction
