Final Version: 25 July, 2018
The Abuse of Rights Doctrine in the Context
of Parallel Treaty Arbitrations and
Corporate Restructuring
Jakob Schwanitz
Master Thesis
LL.M. International & European Law:
International Trade and Investment Law
Supervisors: Vlasdilav Djanic (PhD), Prof. Dr.
Stephan Schill
Abstract
The abuse of rights doctrine is a widely accepted general principle of international law, which operates for versatile purposes frequently in the realm of investment treaty arbitration. The content and application of the principle has widely been shaped in the past decade through investment tribunals that addressed the legitimacy of an acquired investment or a corporate restructuring for the purpose to gain investment protection. As current investment operations frequently involve multiple legal entities that are
economically related but formally distinct, a rise in procedural relationships has added to the complexity when multiple proceedings can qualify as legitimate and which, if not all, entities are entitled to initiate a claim. The recent cases of Ampal-American Israel
Corporation and others v. Egypt as well as Orascom TMT Investments S.à r.l. v. People's Democratic Republic of Algeria mark the first cases where investment tribunals have used the concept to characterize parallel proceedings as abusive. If investors and states can more precisely identify when corporate restructurings and multiple treaty proceedings should be regarded as abusive, it will support the parties to understand their procedural playing field and address some of the uncertainties that respondent states face. Against this background, this thesis aims to track some of new developments of the abuse of rights principle to address the possible regulation of parallel treaty arbitrations in future investment disputes.
Table of Contents
1. Introduction………... 2. The Abuse of Rights Doctrine in International Law………. 3. The Applicability in Investment Treaty Arbitration………. 4. A Procedural Distinction………... 4.1 Corporate Restructuring……….. 4.2 Parallel Treaty Arbitrations………. 5. The Complexities surrounding Parallel Proceedings………...
5.2 Distinction of Entities………... 5.3 Framework for Coordination……….. 5.4 Lis Pendens and Res Judicata………. 5.5 Abuse of Rights – A Subsidiary Mechanism………….. 6. Implications for Future Investment Disputes……… 7. Treaty Developments……… 8. Conclusion……… 9. Table of International Cases………. 10. Table of International Treaties, Draft Articles and Resolutions………. 11. Bibliography……… 12. Annex I………
1. Introduction
Whether our ideas about rights are rooted in morality or concepts of natural law in a given legal framework, it is the nature of individual understanding of the concept of ‘rights’, which leaves an element of vulnerability to misuse. To determine whether a right is used in an ‘abusive’ manner is not an attempt to answer the question whether a certain right exists, but rather how a right should be used. 1 In the international investment
protection regime, the answers to this question largely depends on the circumstances of each case, in which the abuse of rights doctrine, as a legal concept, can be further refined. One must draw an important distinction, however, between the content of the abuse of rights doctrine in the wake of a nationality change of a group of companies, and between different entities within a corporate group advancing multiple claims in different fora. In a scenario that involves a multinational corporate group, one of the first things a tribunal will examine more closely, is the structure of the group itself and whether a restructuring, including a transfer of assets occurred, which result may prevent the claim to proceed in the first place.2 Thus, any discussion of the legitimacy of a parallel proceeding may be
preceded by the analysis of the legitimacy of a corporate restructuring.3 Therefore, a
discourse about the application in each scenario may contribute to the wider
understanding of the content and application of the doctrine in the system of investment treaty arbitration.
Indeed, the growing number of investor-state disputes have shown that some issues cannot always be solved with classic legal tools, particularly in situations where a violation of a hard and fast rule is not evident,4 but rather the conduct of the corporate
investor that raises questions about the limits of investment protection.5 The demand of a
1 Yuka Fukunaga. ‘Abuse of Process under International Law and Investment Arbitration’, ICSID Review - Foreign Investment Law Journal, 2018 ; Robert Kolb, ‘La bonne foi en droit international public:
contribution à l’étude des principes généraux de droit’ (Presses Universitaires de France 2001) 442–61.
2 Tania Voon, Andrew Mitchell., & James Munro. (2014). ‘Legal Responses to Corporate Manoeuvring in International Investment Arbitration. Journal of International Dispute Settlement, 5(1), 41-6
3 See e.g. Orascom TMT Investments S.à r.l. v. People's Democratic Republic of Algeria, ICSID Case No. ARB/12/35; ; Ampal-American Israel Corporation and others v. Arab Republic of Egypt, ICSID Case No. ARB/12/11
4 Emmanuel Galliard. ‘Abuse of Process in International Arbitration’. ICSID Review. Vol. 32, No. 1 (2017) p. 17-37
5 John Lee. ‘Resolving Concerns of Treaty Shopping in International Investment Arbitration.’ (2015) Journal of International Dispute Settlement, 6(2), 355-379.
subsidiary mechanism to preserve the legitimacy and development of the arbitration system has been prevalent where constructs of multinationality and numerous tranches within the corporation provide separate legal standing to numerous entities, which directly and indirectly have an interest in a single investment in the same host state.6 In
such scenario, the parallel initiation of claims coming from several entities in response to an adverse measure from the same host state in respect to a single investment does not become prima facie illegal, but may be critical for the fairness and equality of the state parties.7After all, state parties are the actors that express their consent for a decentralized
dispute settlement mechanism through investment treaties, which liberate wording may lead investors to seek advantages that can be contrary to what the parties have intended and consented to.8Here, the abuse of rights doctrine finds its significance in identifying when parallel proceedings may be considered legitimate or illegitimate. To draw this line in upcoming disputes, understanding the content and application of the principle will be of relevance for investor and state parties. In order to achieve this, the remaining thesis will begin to elaborate on the legal foundations of the concept in public international law, quasi international judicial bodies and the way in which the abuse of rights doctrine finds its standing in investment treaty arbitration (II-III). In a second step, it looks at the distinct procedural application of the principle in cases involving corporate restructuring and parallel proceedings with the aim to deduce some of its content (IV). For the
purposes of this thesis, parallel proceedings will be limited to cases where claims arise under international investment agreements involving the institution of international tribunals. This will entail addressing the complex regulatory framework to regulate parallel treaty arbitrations, the order in which the doctrine comes into play (V) and the following implications for future investment disputes (VI). Before concluding, some positive treaty law that address the phenomena of corporate restructurings and treaty arbitrations offering possible solutions will be considered (VII).
2. The Abuse of Rights Doctrine in International Law
6 Ibid.
7 Emmanuel Galliard, ‘The Sociology of International Arbitration’ (2015) 31 Arb Intl, 1-17
8 Utku Topcan, Abuse of the Right to Access ICSID Arbitration. ICSID Review - Foreign Investment Law Journal, Volume 29, Issue 3, 1 October 2014, Pages 627–647,
Academics and legal experts have recognized that the origins and contemporary limitations of the abuse of rights principle in international law are grounded in various fields of national legal systems.9 A number of cases in common and civil jurisdictions
reveal various disputes in respect to tort law or property law, where the doctrine was used in response to the social changes of modern industrial society, such as to describe the exercise of a right of one neighbor or landowner vis-à-vis another as ‘ malicious, ‘ anti— socio-economic’ , or contrary to the ‘normal function’ of that right. 10 The interpretation
of the principle goes hand in hand with the underlying perception of what society and drafters perceive as wrong, drawing a close line between subjectivity and objectivity. 11 It
is for this reason, that its applicability as an element of the law varies not only among common and civil law systems, but has also continued to show ambiguity in the realm of international law. This is particularly in situations where the exercise of a right from one state infringes upon the exercise of a right of another state or the arbitrary exercise of a right causing injury to another party.12 The doctrine’s interpretation in international law is
largely connected to the exercise of rights in good faith, because the bona fide exercise of a right is a formative element in the creation of the doctrine and part of its application.13
In general, the exercise of a right in good faith implies ‘the genuine pursuit of an interest, which the right is destined to protect, and which is not calculated to cause any unfair prejudice to the legitimate interests of another party’, whether these interests be secured by treaty or by general international law.14 In this context, the reasonable balance between
parties conflicting interest constitutes the limits of both parties in the exercise of the
9.D.S. Taylor. The Content of the Rule Against the Abuse of Rights in International Law’, 46 Y.B. International Law. Alexandre Kiss, ‘Abuse of Rights’, 7 Encyclopedia of Public International Law (1984).; G
10 Anna di Robilant, ‘Abuse of Rights: The Continental Drug and the Common Law.’ Hasting Law Journal, 2010. Volume 61 Issue 3. Hollywood Silver Fox Farm Ltd. v Emmett, [1936] 2 KB 408
11 Ibid.
12 Kiss ( n 8) ; Michael Byers, ‘Abuse of Rights: An Old Principle, A New Age.’ 47 Mc Gill Law Journal, 2002); United States - Import Prohibition of Certain Shrimp and Shrimp Products, India and others v United States, Report of the Appellate Body, WT/DS58/AB/R, Report No AB-1998-4, Doc No 98-3899, ITL 012
13 A. D'Amato, Good Faith’ in R. Bernhardt, ed., Encyclopedia of Public International Law, vol. 2 (Amsterdam: North-Holland, 1995) at 599; Byers (n 12);)
rights incumbent upon them. 15 Once a certain threshold of a lack of good faith is
surpassed, the abuse of rights doctrine works supplementary of the good faith principle, in way that it constitutes a violation of international law. 16 The logical deduction is that
the ‘abus de droit’ is derived from the principle of ‘good faith’ and for that reason narrower in its application.
In light of international (quasi) judicial bodies, the circumstances that could constitute such a violation under the principle have often been considered in the context of an abuse of process, which is understood to form part of the abuse of rights doctrine relating to procedural aspects.17 Considering that the doctrine falls under the general principles of
international law, an abuse of process may impact the power to exercise jurisdiction of an international court, such as in the case of the International Court of Justice under Article 38(1)(c) of its Statue.18 In fact, an international court, which power to adjudicate a dispute
between the parties has been established by consensus, may refuse to exercise its power to adjudicate if a party uses its right to access to an international judicial body in an ‘abusive way’ . According to the commentary of the ICJ statute, this procedural abuse exists when a party uses rights ‘alien to those for which the procedural rights were established.’ 19
This could be in the all stages of the proceedings, such as presenting of evidence or filing of the claim. For example, in the Right of Passage case, the respondent argued that Portugal’s filing of the claim constituted an abuse of process as it was filed only a few days after the applicant’s declaration under Article 36(2) of the ICJ statue. However, the ICJ rejected this argument:
15 Bin Cheng, ‘General Principles of Law as Applied by International Courts and Tribunals’. Stevens & Sons Limited, 1953) 19-20.
16 Byers (n 12)
17 Fukunaga, (n 1).; e.g. Chevron Corporation and Texaco Petroleum Corporation v Republic of Ecuador (Interim Award) (Ad Hoc Arbitral Tribunal, UNCITRAL Arbitration Rules, 1 December 2008) [137]; Note: Both terms have been used interchangeably and there is no clear distinction
18 United Nations, Statute of the International Court of Justice, 18 April 1946,
19 Andreas Zimmermann, Karin Oellers-Frahm, Christian Tomuschat, and Christian J. Tams The Statue of the International Court of Justice. A Commentary. 2012. Oxford Commentaries on International Law. Second Edition.
‘The Statute does not prescribe any interval between the deposit’ of a declaration under Article 36(2) and the filing of an application, and that any delay in the receipt of the declaration did not deprive the respondent of any right of reciprocity under the provision so as to constitute an abuse of process.’20
In following cases where the doctrine has been brought up, such as from the United Kingdom in the Fisheries Jurisdiction Cases21 or Liechtenstein in the Nottebohm Case22,
the Court did not elaborate on the content of the principle. An indication of the
applicability of the principle arguably comes from the Anglo-Norwegian Fisheries Case, in which the UK challenged Norway when it drew its sea lines according to its own system. In the opinion of the court, the application of the doctrine could be in cases of ‘ manifest abuse’ in relation to conduct by a sovereign state in the sea shore delimitation.23
While Judge Weeranmantry confirmed that the prohibition of ‘ abuse of rights is a well-established area in international law’ 24, overall case law reveals that the circumstances of
a particular case have not required the Court to apply the principle, implying its exceptional character and high threshold in international law. 25
Other international judicial bodies may provide more implications under what
circumstances a claim may be found to be ‘abusive’. Under Article 300 of UNCLOS, one of the few exceptions that mentions the principle in an international treaty26, a court or
tribunal may dismiss a case on the grounds that a treaty obligation is not assumed in good faith and a claim constitutes an abuse of the legal process.27 This provision was used in
the South China Sea Arbitration, where China claimed that the unilateral initiation of the proceedings by the Philippines is an abuse of its procedural rights under Article 300.28
20 Case concerning Right of Passage over Indian Territory (Portugal v India) Preliminary Objections, Judgment (26 November 1957) [1957] ICJ Rep, 147-148
21 Fisheries Jurisdiction Case (United Kingdom v Iceland), [1973] ICJ Rep 1.
22 Nottebohm (Germany v Guatemala), [1955] ICJ Rep 32
23 Anglo Norwegian Fisheries Case (UK v Norway), Judgment December 18, 1951, [1951] ICJ Rep 117
24 Hungary v. Slovakia, Case Concerning the Gabcifkovo-Nagymaros Project [1997] I.C.J. Rep. 7 at para. 22
25 Aerial Incident of 10 August 1999 (Pakistan v India), Jurisdiction, Judgment (21 June 2000) [2000] ICJ Rep 12, para 40
26 Another example is Article 17 of the European Convention on Human Rights (ECHR)
27United Nations Convention on the Law of the Sea. opened for signature 10 December 1982. art 20(1). 28 Republic of the Philippines v People’s Republic of China, PCA Case No 2013-19, Award on
The respondent relied on an existing agreement between China and the Philippines that required disputes about territorial sovereignty to be settled by negotiation. In its award, the tribunal confirmed the ruling in Barbados v. Trinidad and Tobago, in that a unilateral initiation does not automatically constitute an abuse of right, but it does so in the ‘most blatant cases of abuse or harassment’ .29 While refusing to rule on the content of the
doctrine with its award, the tribunal underlined the exceptional nature of the use of the abuse of rights doctrine by international courts and tribunals, reserving it for ‘clearly unfounded and frivolous claims’ in light of the ‘serious consequences resulting from such allegation’.30
3. Applicability in Investment Treaty Arbitration
The applicability of the abuse of rights doctrine as a concept of international law and its pertinence to current transnational legal issues, is particularly relevant in the context of rules governing foreign investment. This is partly due to the increase of bilateral (BIT) and multilateral investment agreements (MIT) that provide an avenue for foreign investors to bring claims before international tribunals through direct rights conferred upon them.31 These rights provided by the investment agreements do not specify the
investor, whether it be a natural or legal person, that it is seeking to protect, but rather provide for general criteria to determine which investor might be granted protection.32
Due to the rather liberal definitions of an ‘investment’ or ‘investor’ , the protection is relatively broad and may extend to several entities of a corporate structure. 33 It is
important to stress, that it has been widely settled in arbitral practice, that the restructuring of a corporation to maximize the benefits and protections of multiple treaties, such as for tax purposes and possibilities to initiate a claim, is a legitimate
29 Ibid Para.128
30 Ibid.; Also see: 61st Plenary Meeting of the UN Conference on the Law of the Sea, 6 April 1976
31 Examples of Multilateral treaties: ICSID Convention, Energy Charter Treaty, NAFTA
32 Yuka Fukunaga, (n 1)
33 For example, Hong Kong-Australia BIT Art. 1(e) defines “investment” as ‘every kind of asset, owned or controlled by investors of one Contracting Party’, which does not define what ownership and control is required, thus could be interpreted to extend protection to intermediary companies; Galliard (n 4)
practice.34 One can observe, however, that investors have increasingly used the
ambiguous wordings of investment treaties to test the extend of the rights granted by initiating claims, including parallel proceedings, which could potentially undermine the fairness and integrity for the settlement of investment disputes. The abuse of rights doctrine has in consequence increasingly been used as a legal tool to address actions of investors that may attempt to abuse the system of direct access to dispute settlement through arbitration. It is therefore important to discuss the legal foundation of the doctrine and how it paves its way into investment disputes.
Generally, investment arbitration is governed and shaped by international investment agreements (IIAs), rulings of international tribunals and general international law. 35 One
of the fundamental features of investment arbitration is that parties enjoy the autonomy to choose the law governing the dispute, which can greatly impact the outcome of the arbitration.36 This party autonomy is, for example, explicitly included in the arbitration
rules of ICSID37 and UNCITRAL38. The request to investment treaty arbitration from an
investor presupposes that there is an applicable agreement between two parties in place, which includes a choice of law provision that will determine the governance of the dispute. Some MITs can include explicitly the applicability of public international law,39
such as the Energy Charter Treaty 40, the Comprehensive Economic Trade and investment
Agreement (CETA)41 as well as the North American Free Trade Agreement (NAFTA)42.
Similarly, BITs often contain clauses automatically including the applicability of 34 Tidewater Inc., Tidewater Investment SRL, Tidewater Caribe, C.A., Twenty Grand Offshore, L.L.C., Point Marine, L.L.C., Twenty Grand Marine Service, L.L.C., Jackson Marine, L.L.C. and Zapata Gulf Marine Operators, L.L.C. v. The Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Jurisdiction, 8 February 2013 (‘Tidewater Decision on Jurisdiction’), para. 184 ; Mobil Cerro Negro Holding, Ltd., Mobil Cerro Negro, Ltd., Mobil Corporation and others v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/07/27). Decision on Jurisdiction. 10 June 2010. ; Aguas del Tunari S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Jurisdiction, 21 October 2005, para. 330.
35 Rudolf Dolzer and Christoph Schreuer. ‘Principles of International Investment Law’. Second Edition. November 2012. Oxford Press
36 Yas et al. Banifatemi. Mapping the future of investment treaty arbitration as a system of law. (2009) Chapter 9. The Law Applicable in Investment Treaty Arbitration
37 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States. Entry Into Force Date:October 14th1966. Art. 42 (1)
38 UNCITRAL Arbitration Rules. Art. 33 (1)
39 See for example, Netherlands - China BIT Article 9, Para. 5
40 Energy Charter Treaty (opened for signature 17 December 1994, entered into force 16 April 1998) (ECT) art 26(6).;
international law rules.43 It is generally accepted that these rules include customary
international law and the performance of the parties obligations under the Vienna Convention, such as Article 31(1) and Article 26, which requires that a treaty must be interpreted and performed in ‘good faith […] and in light of the object and purpose of the treaty’. 44
In cases where BITs includes several sources of law that can be chosen, as presented in CME v. Czech Republic 45, the BIT may also give the tribunal the discretion to apply
numerous sources without given preference and applying exclusively one law system.46
In absence of a provision that provides for the applicability of international law rules, the parties choice of domestic law can incorporate international law rules in the arbitration where the national legal system incorporates international standards of protection. Some authors have even argued that the parties consent for the arbitration to be conducted under the investment agreement implies the applicability of principles of international law, particularly in cases where the applicable law is not consistent with some
fundamental international law rules. 47
One may additionally consider, that international law was generally used as a legal vehicle that imposes obligations upon states and not private entities. This being so, the question was bound to arise as to the extent to which a foreign investor has obligations under the notion of ‘good faith’. The Phoenix tribunal acknowledged that international law governs relationship between states, but ‘also the legal rights and duties of those seeking to assert an international claim under a treaty.’ Apart from this, domestic law can 41 Comprehensive Economic and Trade Agreement (Signed 30 October 2016), entered provisionally into force 21 September 2017 (CETA), art. 8.31, art. 29.17
42 North American Trade Agreement. Entered into force on January 1, 1994, art. 1131
43 View e.g. BITs entered into by Germany, France, Italy, Panama, between Canada and Lebanon, Panama, Philippines, Ukraine, Uruguay, between Netherlands and Mexico
44 Vienna Convention on the Law of Treaties. Article 26. Concluded May 1969.
45 CME Czech Republic B.V. v. The Czech Republic, UNCITRAL. Para. 412.; Netherlands – Czech Republic BIT
46 Netherlands – Czech Republic BIT, Article 8 (6)
47 Fukunaga (n 1); Kate Parlett, ‘Claims under Customary International Law in ICSID Arbitration’ ICSID Review - Foreign Investment Law Journal, Volume 31, Issue 2, 1 May 2016,
See also e.g. Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt, ICSID Case No. ARB/84/3. Award (20 May 1992) para 80.
also function as an equalizer of state and investor obligations. This transformation may take place through an accordance with the laws of the host state clause contained in the BIT or investment contract, which lays out the obligation for the investor to make the investment in accordance with laws of the host State.48 In that case, two different notions
of good faith could intercept, namely, the one in domestic and international law. In practice, violations of the national and international principle of good faith often go hand in hand and arbitrators view both dimensions in their analysis. 49 In absence of the host
state law’ clause, tribunals have suggested that investments in violation of international law principles may not be protected and an obligation to comply with good faith exists independently from the investor’s duty to comply with domestic law.50 For instance, in
Hamester vs. Ghana, although the Germany-Ghana BIT contained a host state law clause, the arbitral tribunal pointed out that investment protection does not extend to created investments that misuse the system of international investment protection under the ICSID Convention, whether it be in violation of domestic or international law.51Other
ICSID arbitrations have included the ‘good faith’ principle in the absence of a host state law clause, specifically to the notion of an investment under Article 25 of the ICSID Convention, thereby opening the possibility to dismiss claims for acquisitions of the investment in lack of good faith.52In summary, the investor has been given rights and obligations conferred by international law that automatically come with limitations - including the exercise of a right contrary to its object and purpose. 53 The good faith
principle, and with it, the abuse of rights doctrine, is therefore widely applicable in that it prohibits the exercise of treaty obligations that is contrary to international law principles.
According to the tribunal in Phoenix vs. Czech Republic, the ‘good faith’ principle requires ‘parties to deal honestly and fairly with each other, to represent their motives and 48 Stephan W. Schill. & Heather, L. Bray. Good Faith Limitations on Protected Investments and
Corporate Structuring. (2015) In Good Faith and International Economic Law. Oxford University Press, pp. Good Faith and International Economic Law, Chapter 5.
49 Phoenix Action, Ltd v Czech Republic, ICSID Case No ARB/06/5, Award. 2009. para 110
50 Schill (48); Gustav F W Hamester GmbH & Co KG v. Republic of Ghana, Award. ICSID Case No. ARB/07/24
51 Ibid.
52 De Brabandere, E., 2012. ‘Good Faith’, ‘Abuse of Process’ and the Initiation of Investment Treaty Claims. Journal of International Dispute Settlement, 3(3), pp.609–636
purposes truthfully, to refrain from taking unfair advantage’ and that ‘every rule of law includes an implied clause that it should not be abused’ .54 Even more clarifying, the
tribunal in Abaclat vs. Argentina confirmed that fundamental principles of international law, such as good faith, are fundamental principles of investment law, and that the abuse of rights doctrine is an ‘expression of the more general principle of good faith’ .55 Such
an abuse is deemed to occur when a party exercises a right in such a manner that its benefit and the counterparty's loss or burden are unjustifiably disproportionate.56 A party
that abuses its rights is deemed to have acted in breach of its good faith obligation and to have exceeded the powers and legitimate interests protected by the law. While various tribunals have taken the stance that the threshold to find an abuse of rights is particularly high and must only occur in exceptional circumstances57, the notion does not imply per
se showing of bad faith conduct on behalf of the investor.58 However, to examine the
content of the doctrine more closely, the following section will describe its application in in the context of a corporate restructuring and in parallel treaty arbitrations.
4. A Procedural Distinction
As the concepts of ‘abuse of rights’ and ‘good faith’ are interconnected, the link as well as the differences that flow from these principles in investment arbitration have
implications on the jurisdiction of the tribunal and admissibility of the claim. Both, jurisdiction and admissibility, are central to adjudicating an international dispute ‘operating as a gateway to the litigation on the merits’.59 The procedural distinction
between the two in the context of the discussed international law principles deserves 54 Phoenix Action, Ltd v Czech Republic, (n 49) para 107; O’Connor, J, ‘Good Faith in International Law’ (Dartmouth Publishing 1991) 118–19;
55Abaclat and others v Argentine Republic, ICSID Case No ARB/07/5, Decision on Jurisdiction and Admissibility. 2011. para 646.
56 Herve, Ascensio. Abuse of Process in International Investment Arbitration. Oxford University Press. 2014; Gaffney, P.John. ‘Abuse of Process Investment Treaty Arbitration. 11 Journal of Investment and Trade (2010), 515.
57 See. e.g. Philip Morris Asia Limited v. The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12. Para. 536. ; Chevron vs. Ecuador (n 17).
58 Ibid.
59 Filippo Fontanelli, F. & Attila Tanzi. ‘Jurisdiction and Admissibility in Investment Arbitration. A View from the Bridge at the Practice.’ (2017) The Law & Practice of International Courts and Tribunals, 16(1), pp.3–20
further consideration, in part because some of the content of the abuse of rights doctrine in investment treaty arbitration can be derived, and partially due to the different
consequences resulting from these concepts in circumstances of a corporate restructuring and parallel proceedings.60 This is of utmost practical importance, because a tribunal that
has declined jurisdiction to hear a specific claim leads for the initiating party to lose the right to resubmit a claim to the same body, whereas a lack of admissibility could be resubmitted providing that the flaws causing the admissibility are cured.61 One must draw
an important distinction, however, between the content of the abuse of rights doctrine in the wake of a nationality change of a group of companies and between different entities within a corporate group advancing multiple claims in different fora. In either case, the contribution to the wider development of the principle, which forms part of this thesis, shall be kept in mind.
4.1 Corporate Restructuring
In matters concerning jurisdiction, which addresses the question whether a tribunal can entertain a case, 62 the obligation of ‘good faith’ can be relevant, inter alia, for the way
the investor acquired the investment or the way in which the investment was made.63
When an investor acquired the investment in breach of the ‘good faith’ obligation, it usually leads for the tribunal to decline jurisdiction. In theory, this would mean that an investor, who has acquired the investment in lack of good faith, did not have the right to access international arbitration, and therefore, he is not able to abuse a right that was nonexistent in the first place. This position can be supported by Europe Cement, where the tribunal had to consider Turkey’s objection that the claim put forward amounted to an abuse of process, because the claimant could not provide solid evidence that his
restructuring after the notice of the potential termination of the concession contract is an investment.64 After establishing that the claim was fraudulently founded, the tribunal
60 Ibid.
61 Abaclat (n 55), para. 247
62 Jan Paulsson ‘Jurisdiction and Admissibility’ Global Reflections on International Law, Commerce and Dispute Resolution, p. 601. 2005. University of Miami Legal Studies Research Paper No. 2010-30.
63 Abaclat. (n 55), para. 647
concluded that there was no investment and it was not required to determine the issue of abuse of rights.65
Drawing from other ICSID tribunals, the notion of ‘abuse of rights’ has nevertheless been used in questions of jurisdiction for situations where there was no investment, indicating that practice may operate differently. An example of this situation is presented by the case Phoenix Action Ltd. v Czech Republic, in which the tribunal declined jurisdiction, because the claimant had created a ‘legal fiction in order to gain access to an international arbitration procedure to which it was not entitled’, and therefore, concluded the claimant had abused his rights. 66 To determine whether an abuse of rights occurred, the tribunal
introduced a bona fide test in regards to the existence of the investment under Article 25 of the ICSID Convention and the BIT. This test included criteria, such as the timing of the investment, the timing of the claim, the true nature of the operation and the substance of the transaction, all of which, played a key role in standings of other arbitral tribunals that analyzed an abuse of rights claim in the wake of a restructuring. 67 In the Phoenix
case, it concluded that all transactions were mainly done inside the family, no economic activity after making the investment took place and the sole motivation of the investment was to initiate arbitration for a pre-existing dispute.68 Interestingly, the Phoenix Tribunal
found that there was no investment under the ICSID Convention and the BIT, but it nevertheless mentioned that the initiation of the claim amounted to an abuse of rights and declined jurisdiction.
To provide further clarification for the application of the abuse of rights principle, procedurally speaking, one may refer to the Abaclat tribunal, which made a unique distinction between ‘material and procedural good faith’ in relation to questions of jurisdiction and admissibility. Material good faith, according to the tribunal, reflects the situation touched upon in Europe Cement, namely, ‘the context and the way in which the
65 Ibid.
66 Phoenix Action, Ltd v Czech Republic, ICSID Case No ARB/06/5, Award. 2009. para 143.
67 Ibid. para. 136; Transglobal Green Energy, LLC and Transglobal Green Energy de Panama, S.A. v. The Republic of Panama, ICSID Case No. ARB/13/28
investment was made, and for which the investor seeks protection’.69 Therefore, an abuse
of rights claim directed at the jurisdiction of the tribunal could concern how an investor made the investment to obtain the right to initiate a claim. In turn, procedural good faith would come into play when the tribunal finds that the jurisdictional requirements of the existence and the legality of the investment are met, and it has the discretion to deny the exercise of the right to bring a claim. In that case, an abuse of rights claim would
encompass ‘the context and the way an investor initiates its treaty claim seeking protection for its investment.’ 70
The good faith categorization of the Abaclat Tribunal might overall provide a clearer picture about the application of the abuse of rights doctrine, but it is far from being without ambiguities. To put this into perspective of the Phoenix case, the tribunal treated the abuse of rights principle as a matter of procedural good faith, because it found the initiation of the claim for a pre-existing dispute abusive. This reasoning suggests that procedural good faith can be addressed either in the context of jurisdiction, when a ‘good faith’ claim is seen as an element of consent to jurisdiction, or one of admissibility in regards to the initiation of the claim.71 In the retrospective of other investment arbitral
tribunals faced with a corporate restructuring, such as in Phillip Morris vs. Australia, the principle is indeed often an admissibility issue.72 To discuss this case in more detail, it is
helpful here to provide a brief factual overview.
In 2009, a task force from Australia’s ministry of health recommended the
implementation of plain packaging measures to remove brands and logos from tobacco packages. During the legislative procedure, tobacco giant Phillip Morris strongly opposed the proposal in anticipation of the potential affect on its Australian subsidiaries. The shares of the Australian subsidiaries were owned by a company affiliate in Switzerland, but no BIT between Australia and Switzerland existed to provide possible investment protection for an upcoming dispute. Consequently, Phillip Morris Asia, with seat in Hong 69 Abaclat, (n 55) para 647.
70 Ibid.
71 De Brabandere (n 52). See also Mobil (n 34), The tribunal declined jurisdiction for preexisting disputes
Kong, acquired the shares of the Australian subsidiaries from the Swiss based company months before the introduction of the plain packaging act, and with it, investment
protection under the Hong Kong- Australia BIT. The restructuring was allegedly done in a group wide re-organization to ‘ reduce cost and improve efficiencies’ 73, unrelated of
Australia’s proposed measures. 74. The respondent challenged the jurisdiction and
admissibility of the claim brought under the applicable BIT alleging an abuse of rights, because the dispute was foreseeable and the sole motivation behind the restructuring was to gain investment protection for this specific dispute.75
In consideration of the facts of the case, at least at first sight, the question before the tribunal arguably is one of material faith, particularly whether the acquisition of shares from the Australians subsidiaries as an attempt to obtain the right to have recourse to arbitration under the Hong Kong-Australia BIT amounts to an abuse of rights. Since only an acquired right to investment arbitration would allow for the investor to initiate a claim, the failure to acquire the right would lead the tribunal to decline jurisdiction.76 This
determination could involve, similarly to Phoenix Action, whether the acquisition of shares by Phillip Morris Asia is a bona fide investment protected under the treaty, and therefore falls within the scope rationae materiae.77 However, the Phillip Morris tribunal
focused less on whether there is a bona fide investment, but instead treated the dispute strictly as a matter of procedural faith, namely, whether the initiating of the claim can be considered abusive. In line with past investment jurisprudence, it drew a distinction between situations where a corporate nationality change occurred in respect to existing disputes and to those that are foreseeable.78 Generally, arbitral case law is undisputedly
clear that it is contrary to the purpose of investment arbitration to initiate a claim in regards to a pre-existing dispute.79 In respect of the latter, the tribunal concluded that it is
legitimate corporate restructuring to be protected by a general future dispute, but it would 73 Philip Morris Asia Limited v. The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12. para. 98 74 Ibid para. 466. 75 Ibid. para. 402 76 Fukunaga, (n 1) 77 Phoenix (n 45) 78 Tidewater (n 34) 79 Ibid ; para 184.
crystallize to an abuse of rights if the restructuring is in light of a high probability that a specific dispute will materialize. 80 Since the plan to implement the plain packaging
measures were never denounced by the Australian government, this specific dispute was evident and foreseeable, and the initiation amounted to an abuse of rights. 81
The Phillip Morris and Phoenix case are part of the greater number of case law that have contributed to the refinement of the abuse of rights doctrine in the context of a corporate restructuring. Both act as representative examples to investment jurisprudence in this matter, as the key indicators for the legitimacy of the nationality change have proven to cover mainly the timing and motivation of the investment. The determination of the critical date will always be dependent on the specific facts of every case and can be complex if the investor faces a ‘creeping violation of its substantive rights’. 82 It is fair to
propose, that the degree of foreseeability will be higher the closer the acquisition of the investment is to a proposed measure or if there is a ‘reasonable prospect’ of a government action interfering with the investor’s rights.83 An abuse will particularly crystallize, when
an investor cannot justify a restructuring independently from the possibility to pursue a claim for a specific dispute, particular from the ‘ business sense’.84 As underlined in
Phoenix, the motivation of a restructuring will generally involve the criteria of the bona fide test in light of the purpose of investment protection, that is to say, to develop economic activity in the host state. 85
In any case, the tribunals analysis will take the ‘good faith’ principle as their point of departure for the determination of jurisdiction and admissibility of an alleged abuse by an investor. This can rather be an uneasy task, because procedural good faith has shown to operate at the jurisdictional level and that of admissibility.86Nevertheless, it does
enlighten the debate when the abuse of rights doctrine is treated as a matter of
80 See Phillip Morris (n 73)
81 Ibid. Para. 555-569
82 Ascensio (n 56)
83 Pac Rim Cayman LLC v. Republic of El Salvador, ICSID Case No. ARB/09/12; See Galliard (n 4)
84 See Phillip Morris, (n 73) para. 575-581
85 See Phoenix (n 45),
jurisdiction. First, this is exemplified in cases where the investor has restructured its corporation for a preexisting dispute, and the action of the initiation qualifies as abusive. This includes situations where an investor disguises a domestic dispute to an international investment dispute. 87 Secondly, a tribunal can decline jurisdiction for transactions or
investments that are manifestly made in bad faith, those involving high level of misconduct and are ill-founded, such as causing excessive delays or fabricating
transactions or documents.88 In both situations, the reasoning to decline these types in the
jurisdictional stage is convincing and clearly stated from the tribunal in Mobil vs
Venezuela, namely, ‘to preserve the system of arbitration from direct abuses in the
jurisdictional phase.’ In contrast, when the critical date, which is considered to be the moment parties have definite opposing views about performance of an obligation under a treaty 89, is after the change of nationality, the tribunal typically has jurisdiction. Under
those circumstances, it is faced with the question whether the dispute was foreseeable for the investor, and if affirmed, would constitute an abuse of his right leading the tribunal with no choice but to render the case inadmissible. In that case, it would also deprive the investor to resubmit the claim.
4.2 Parallel Treaty Arbitrations
The above discussed investment jurisprudence presented the application of the abuse of rights doctrine mainly in cases where an investment was restructured to attract protection of an investment treaty at the time a dispute had already arisen or was foreseeable. If one considers corporate groups that consists of several entities, such as Phillip Morris, it is not illegitimate, and may even be necessary for the successful management of the business, to structure investments through several chains of the corporation in different States. Thus, investments may, depending on their business structure, be protected under multiple treaties that offer arbitration as a dispute resolution mechanism. This situation can give rise to claims arising out of the same underlying dispute under different
87 ST-AD GmbH v. Republic of Bulgaria, UNCITRAL, PCA Case No. 2011-06 para. 423; Phoenix (n 45)
88 Cementownia ‘Nowa Huta’ S.A. v. Republic of Turkey, ICSID Case No. ARB(AF)/06/2, para. 153-163
89 Lao Holdings N.V. v. Lao People's Democratic Republic, ICSID Case No. ARB(AF)/12/6 Para. 83; See Tidewater (n 34). Para. 49
investment agreements, where the tribunal is faced with multiple proceedings within the same legal order. 90 This can provide the claimant investor(s), in theory, several
opportunities in different fora to obtain a recovery, while at the same time with great risks for a state offering investment protection considering that it has to defend multiple claims before different tribunals.91 As mentioned earlier, in a scenario that involves a
multinational corporate group, one of the first things a tribunal will look into more detail, is the structure of the group itself and whether a restructuring occurred. Thus, criteria mentioned in the previous section, including the timing of the claim, the timing of the investment or the nature of the operation could possibly precede any other analysis in the context of parallel treaty arbitration, and therefore, need to be granted its relevance.
If the restructuring does not raise any doubts and the investment(s) and the investor(s) fall under the protection of an investment treaty, the tribunal will proceed to determine the legitimacy of the parallel proceeding and whether it can be coordinated. Since the majority of international investment agreements do not contain specific provisions to coordinate proceedings92, respondent states and tribunals have resorted to the abuse of
rights doctrine as a mechanism to work against claimants trying to maximize their chances of success, not to mention the possible imbalance of both parties in parallel proceedings.93 This international law principle has in the context of parallel proceedings
arising out of an investment treaty almost always been addressed towards the
admissibility of the claim, since the issue before the tribunal is not whether a tribunal has jurisdiction, but whether the tribunal should exercise the jurisdiction it theoretically has.94
The only exceptions to this are the first known cases involving parallel treaty arbitrations, namely CME vs Czech Republic and Lauder vs Czech Republic, in which the Czech Republic alleged that the seeking of the same remedies in different fora under distinct
90 C.L. Lim, Jean Ho, Martin Paparinskis International Investment Law and Arbitration Commentary, Awards and other Materials. April 2018. Page 137
91 Galliard, (n 4)
92 Hanno, Wehland. ‘The Regulation of Parallel Proceedings in Investor-State Disputes.’ ICSID Review - Foreign Investment Law Journal (2016). 31(3), pp.576–596
93 Ibid.
BITs constitutes an abuse of process and precludes the tribunal from jurisdiction to avoid ‘conflicting findings’ 95. The two claimants, CME and Lauder, brought parallel claims in
separate fora under the applicable BITs concluded with the Host State. Meanwhile, the Dutch entity CME was essentially owned and controlled by the same natural person from the parallel running proceeding, Ronald Lauder. The tribunal in Lauder found that the risk of conflicting findings is not evident, because the other arbitration involves ‘different parties and different cause of action’. It assumed jurisdiction on the basis that it was the only forum with jurisdiction to hear the claimants case and rejected the abuse of process argument.96 Similarly, the tribunal in CME treated the parallel proceeding also as a matter
of jurisdiction, and rejected the respondents abuse of process objection based on a similar line of reasoning: ‘Should two different Treaties grant remedies to the respective
claimants deriving from the same facts and circumstances, this does not deprive the claimants of jurisdiction’.97What is noteworthy to mention is that the tribunals
disregarded the overall ownership and control of the entities and reached contradictory findings by rendering an award to CME and not to Lauder.
In a second more recent series of cases, arbitral tribunals facing parallel proceedings have taken the approach to examine whether the claimant’s initiation under the applicable investment treaties constitutes an abuse of rights, and therefore, render the case
(in)admissible.98 For instance, in Ampal vs. Egypt, the tribunal was faced with two treaty
claims of a total of four initiated arbitrations proceedings brought before different fora in relation to the termination of a gas supply contract concluded with a local company called ‘EMG’.99 The investments held in EMG were made by several companies in a horizontal
corporate structure where the ownership composition varied among each entity that enjoyed separate legal standing.100 In such a construct, several tranches of entities having
an interest in the same investment may exist that are not necessarily directed and
95 Ronald S. Lauder v. The Czech Republic, UNCITRAL. September 2001. Final Award. Para. 169; CME (n 51)
96 Ibid. para. 171
97 CME (n 45)
98 See e.g. Orascom (n 3); Ampal (n 3)
99 Ibid.
controlled by the same upstream entities. The Ampal tribunal recognized that the
claimants, US based corporate shareholder ‘Ampal’101 advancing a claim before an ICSID
tribunal under the US-Egypt BIT, and a natural person as well as two subsidiaries of Ampal bringing claims before an UNCITRAL tribunal under the Poland-Egypt BIT were part of the same tranche.102 In the opinion of the arbitral tribunal, parallel proceedings
involving the same facts and identical claims cannot be seen abusive per se, as alleged by Egypt, but it may depend on the assumption of jurisdiction. In other words, it crystallizes to an abuse when the two seized tribunals find jurisdiction for overlapping claims and move toward the merits stage that could bare the risk to grant the claimant a sum that is tantamount to a double recovery. 103 Since the UNCITRAL tribunal in the parallel
running arbitration had already assumed jurisdiction, an abuse had materialized and the case was declared inadmissible. Hence, the tribunal’s reasoning introduces the abuse of rights doctrine as a limitation for the admissibility of claims in regards to the right of multiple shareholders in the same tranche to bring arbitration proceedings in relation to identical facts. However, it does so by putting the ball in the court of the claimant for the opportunity to cure the inadmissibility and pursue the claim either at the UNCITRAL or ICSID tribunal.
The Ampal case shows that the existence of several legal foundations providing for an arbitration clause for various entities of the chain cannot be equated to the right for each entity to make use of the provision. One may view the purpose of investment treaty arbitration analogous to the concept of state responsibility, in which a party that has suffered injury upon a state’s wrongful measure may have the right for to receive full reparation for the injuries suffered. 104 As pointed out from the tribunal in Orascom TMT
Investments vs. Algeria, ‘the whole purpose of investment treaty arbitration is to grant full reparation for the injuries that a qualifying investor may have suffered as a result of a host state’s wrongful measures’. Consequently, if the harm caused by the wrongful measures of the state is made whole for one entity in one arbitration, claims from other 101 Full name: Ampal American Israel Corp
102 Ampal. (n 3)
103 Ibid. Para. 328-332
104 International Law Commission, Draft Articles on Responsibility of States for Internationally Wrongful Acts, November 2001. Chapter II.
entities, dependent on the corporate structure, can become inadmissible and may amount to an abuse of rights. This reasoning stems from the instituted ICSID tribunal in
Orascom, which was faced with parallel arbitrations running before an UNCITRAL Tribunal and the PCA. To further elaborate on this point, one should take into consideration the vertical corporate structure of the investments before the Orascom tribunal as shown below105, with OTA (the locally incorporated company) at the bottom,
followed by Egyptian shareholder Telecom Holding S.A.E (OTH), Italian incorporated company ‘Weather Investments’ , and ‘Weather II’ with seat in Luxembourg.
This vertically integrated corporate structure reveals that the upstream entities, such as Weather II or Weather Investments, owned and directed the downstream entity OTH. Now, if one assumes, hypothetically speaking, that the state measure renders OTA’s value to be worthless, then the shareholding value of OTH will be rendered worthless, and the indirect shareholding value of Weather Investment and Weather II will also be 105 Orascom (n 3). Para. 19
Algeria – Italy BIT
Direct Shareholder Algeria – Egypt BIT)
Protected under the BLEU-BIT
Indirect Shareholder Holding Company
Locally incorporated company in Algeria
without value. 106 Having said that, if OTH, which was the entity that initiated the first
claim, restores its company value through arbitration, then this would automatically restore the shareholding value for entities higher up the chain, thus, making those whole again.107 The next logical step is that the entities higher up the chain pursuing the same
harm in initiating multiple claims before different fora under different BITS may cause an unjust enrichment of an under deserving party, especially for the shareholder that owns and controls the majority of the entities. According to the decision of the Orascom tribunal, this constitutes an abuse of rights. 108 Importantly, the tribunal recognized that
the doctrine has evolved since the controversial Lauder and CME cases, and that the wider factual and legal context needs to be taken account in every case, including each action taken by the parties and the applicable BITs.109 In complex corporate structures,
this can be vital to determine the ownership structures and the control exercised between the various entities. In Orascom, the tribunal’s analysis revealed that the entities were essentially all controlled by the same investor, and the seeking of the same remedial actions for the same harm caused would be alien to those rights granted through investment treaties. 110
5. The Complexities surrounding Parallel Proceedings 5.1 Distinct entities
As underlined by the mentioned case law, parallel treaty arbitrations often involve several
106 Orascom (n 3). Para. 504
107 The shareholders loss would also depend on the diminution value of their shares in OTH and the unpaid dividends from OTA to the shareholders of OTH, OTH up to Wheather Investments
108 OTH claim ( Egypt- Algeria BIT), Wheather Investments ( Italy Algeria BIT), Orascom Belgo-Luxembourg Economic Union (BLEU) – Algeria (BIT)
109 Orascom, (n 3), para. 547
formally distinct, yet economic related entities. 111 Since the development of shareholder
protection in international investment law stemming from the Barcelona Traction case, in which the ICJ drew a legal distinction between the rights of shareholders and the rights of a company in the context of diplomatic protection, shareholders enjoy the possibility to seek recourse independently from a company if a treaty or direct agreement between the investor and the state where the investment is placed does so provide.112 Particularly, in
order to receive protection under a bilateral or multilateral investment treaty, the investor can assert claims under various legal instruments if he fulfills the requirements of that treaty. Generally, he must have the nationality of a state party of the treaty that was concluded with the host state. In addition, states often require foreign investors to make the investment through a locally incorporated company. 113 The investor with foreign
nationality may seek to establish a local company for the purpose of his specific
investment in the host state or he may acquire shares in a company that already exists. 114
In the majority of cases, investors are corporations, which are owned by shareholders, who may even be companies themselves, thus, adding to the line of procedural
relationships.115
If a company established under the law of the host state does not qualify as a foreign investor as such, he can still obtain protection if he fulfills the criteria for ownership and level of control. 116 For example, under Article 1117 of NAFTA, a foreign investor may
submit a claim to arbitration on behalf of the company if the investor owns or controls, directly or indirectly, the affected company. 117 As reflected in Orascom and Ampal, an
indirect investor can be a shareholder that holds shares in an intermediary company, which then can be the immediate shareholder or an indirect investor in the locally incorporated company. The method used by NAFTA is slightly different to the ICSID 111 Wehland, (n 92)
112 Belgium vs. Spain, Barcelona Traction, Light and Power Ltd., Judgement, ICJ Reports 1970 para. 4
113 E.g. Orascom (n 3): OTH founded, and was required to do so, the locally incorporated subsidiary OTA after winning the bidding to build a telecommunications network in Algeria
114 Christoph Schreuer. Shareholder Protection in International Investment Law. Transnational Dispute Settlement. May 2005.
115 Wisner, Gallus, Journal of World Investment and Trade (2004), 927
116 ICSID Convention. Article 25 (2) (b)
Convention where a locally incorporated company can be treated as a foreign company because of its foreign control118. Indeed, several ICSID tribunals have confirmed the
concept of separate claims of shareholders from the locally affected company in an arbitration under the ICSID Convention, providing that all other jurisdictional requirements are met.119
Moreover, bilateral investment treaties (BITs) frequently contain provisions that include shares under the definition of an investment and not require a specific level of ownership to hold standing, thus, direct and indirect investors lie within the scope of consent of ICSID jurisdiction. A typical example is the BIT between the Czech Republic and the United States, which includes such a provision:
‘a company or shares of stock or other interests in a company or interests in the assets thereof;’120
In this sense, the broad wording often allows the shareholder to bring an independent claim in response to actions of the host state that affected the profitability or value of the local company, regardless whether the company is unwilling or unable to bring a claim on its own. 121 In a case where the company appears to be the shareholder, and the
company consists of several chains that are incorporated in third states, the question arises, whether there is a cut-off point which entity can bring a legitimate claim, if not all, in response to the same adverse action of the host state to the locally incorporated
company.122 This has brought challenges for tribunals to determine, inter alia, which
entity of the chain is potentially protected under a particular treaty 123 and the potential
risks for abuses stemming from similar investors, shareholders with differing nationalities
118 ICSID Convention Article 25 (2) (b)
119 Orascom (n 3); Tocan (n 6)
120 Czech Republic–United States BIT, Article I (1)(a)(ii)
121 David Gaukrodger. Investment Treaties and Shareholder Claims: Analysis of Treaty Practice. OECD Working Papers on International Investment. 2014
122 Ibid.
123 Christoph Schreuer. Shareholder Protection in International Investment Law. Transnational Dispute Settlement. May 2005.
and those (non)controlling the company124, to initiate a chain of investment claims under
multiple treaties in multiple fora in relation to the same acts or omissions by the host state. 125
Several investment arbitrations added to this unfeasibility, in finding that foreign majority as well as minority shareholders in a locally incorporated company may submit claims before an investment tribunal. 126 In LANCO vs. Argentina, the respondent argued that
18% capital stock by LANCO in a local consortium does not qualify as an investment that is protected under the BIT. The tribunal rejected this argument and found that a decisive factor whether minority shareholders falls under the definition of an investment under the treaty is the investment agreement itself, which may indicate that the investor has to have majority control or control over the administration.127 Equally categorical, the
ICSID arbitration between Champion Trading vs Egypt entailed a mix of corporate and individual shareholders under the United States Egypt BIT that claimed in response to the same adverse actions affecting the value of the claimant’s investment. For both corporate claimants, that held 20% and 5% of shares in the consortium respectively, the tribunal found jurisdiction. While the claims in the case of Champion vs. Egypt were brought under one arbitration, some tribunals, such as in Lauder, CME or Ampal, decided that minority and majority shareholders can submit distinct claims in the connection of the same events without abusing their rights, thus, adding to the difficulty in situations when different entities within the company bring claims that are parallel and may even be conflicting. 128
124 CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8.First tribunal to recognize that non-controlling minority shareholders are an ‘investment’ under the ICSID Convention and most BITs.
125 Enron Corp. v. Argentine Republic, ICSID Case No. ARB/01/3, Decision on Jurisdiction, 11 ICSID Rep. 273, para. 1 (Jan. 14, 2004). In para. 52, the tribunal recognized that there is the need to ‘establish a cut-off point beyond which claims would not be permissible as they would have only a remote connection to the affected company.’
126 For majority shareholders : Gas Natural SDG S.A. v. Argentine Republic, ICSID Case No. ARB/03/10 9, 34 (2005). ; See for minority: CMS Gas Transmission Co. v. Argentine Republic; Gami Investments, Inc. v. Mexico, UNCITRAL (2004)
127 Lanco vs. Argentina, Decision on Jurisdiction. 1998. Para. 461
128 Camuzzi Int’l S.A. v. Argentine Republic, ICSID (W. Bank) Case No. ARB/03/2 (2005) ; Sempra Energy Int’l v. Argentine Republic, ICSID (W. Bank) Case No. ARB/02/16 (2005)
5.2 Framework for Coordination
The growing number of investment treaty arbitrations have shown that similar facts can give rise to overlapping multiple proceedings from various entities. One of the most fundamental issues of parallel treaty proceedings is that it could cause conflicting findings and an unfair imbalance, between the claimant and respondent, by allowing the claimant to have multiple bites at the cherry in more than one forum. 129 If an investor
brings two sets of proceedings, it typically increases the chances for recovery. It is deemed desirable to reestablish the status quo ante by returning multiple sets of
proceedings into a single set, because failure to do so would threaten procedural fairness between the parties and the legitimacy of the adjudicatory system. 130
The first logical step to achieve this would be to prevent the claim to proceed to the merits stage in the first place, by determining whether the tribunal has jurisdiction to seize the case. As discussed earlier, the respondent may be able to make use of ‘good faith’ limitations or object to the corporate restructuring if a specific dispute was preexisting or foreseeable. Some IIAs also regulate the jurisdiction of the tribunal with the inclusion of a waiver provision, which would prevent the claimant to submit their claims to other forums.131 A procedural tool that can avoid identical parallel claims could
be to consolidate the claims, as exemplified in cases before instituted NAFTA, ICSID and UNCITRAL tribunals, which have not rejected jurisdiction for numerous investors bringing a consolidated claim.132 According to the Abaclat tribunal, there are various
mechanism that can bring claims resulting out of a single action together, such as the nature of the representative or the nature of the claim. For instance, an approved intermediary could claim as a representative on behalf of the larger group of affected
129 Wehland. (n 92); Jamie Shookman. ‘Too Many Forums for Investment Disputes? ICSID Illustrations of Parallel Proceedings and Analysis.’ Journal of International Arbitration, 27(4), pp.361–378.
130 Robin.F. Hansen, ‘Parallel Proceedings in Investor State Treaty Arbitration: Responses for Treaty‐ ‐ Drafters, Arbitrators and Parties. 2010. Modern Law Review’, 73(4), pp.523–550
131 See Nafta Chapter 11, Article 1121 (2)(b), Dominican Republic-Central America-United States Free Trade Agreement, Article Article 26 (2) US-Uruguay BIT
132 Canadian Cattlemen for Free Trade v. United States, NAFTA/UNCITRAL: Tribunal declined jurisdiction only because 109 claimants lacked an “investment” in the United States; Anderson et al. v. Costa Rica, ICSID Case No. ARB(AF)/07/3; Abaclat (n 56)
entities. Having said that, when an IIA does not provide a specific coordination provision, such as a clause for consolidation133 and the forums have jurisdiction over the claims, ‘a
tribunal’s regulatory powers will be significantly circumscribed by the need for party consent in this area’.134 This is problematic for several reasons:
First, while parties to the dispute may have similar economic reasons, they may have diverging preferences when it comes to the protection that different forums have to offer. For instance, the claimants in Ampal offered to consolidate the two treaty
arbitrations before an ICSID tribunal, but Egypt insisted that it would only agree to joint proceedings before the UNCITRAL tribunal. 135
Secondly, the consolidation of claims in a multiple treaty scenario would presuppose that the investors are able to agree on the applicable law and agreement governing the dispute. This requires that the claimant investors must also have the nationality of the chosen treaty and fall under the definition of ‘investment’ and ‘investor’.
Third, there is no hierarchical relationship between treaty fora in the sense that a decision of the superior forum could be binding on the inferior forum. 136 Instead, the
forums in parallel proceedings are fundamentally equivalent, which gives rise to the question whether you could only allow the first initiated proceeding to proceed (lis pendens) or if the first decision by a tribunal could be binding for the other arbitrations (res judicata).
5.3 Lis Pendens and Res Judicata
When identical proceedings lack the framework for cross-border treaty coordination, parties have proposed to move from the use of vertical to horizontal mechanisms that disallow second sets of proceedings for the same dispute.137 These horizontal
133 See for e.g.: Asian Comprehensive Investment Agreement. Entered into force on 24/02/2012, Article 37
134 UNCITRAL Secretariat Note on ‘Concurrent proceedings in international arbitration’ dated 8 April 2016 (UN Doc. A/CN.9/881),; Cairn Energy PLC and Cairn UK Holdings Limited v. The Republic of India (PCA Case No. 2016-7. Para. 112
135 Ampal. (n 3). Para.13
136 Wehland, (n 92)
mechanisms, known as lis pendens and res judicata, are commonly used principles in domestic legal system with the purpose to prevent contracting findings and ensure
coherence in case law. Shifting the focus towards investment treaty arbitration, neither of the tribunals in the Lauder/CME litigations rejected the application of res judicata and lis pendens, however, both pointed out that the possibility for its application depends on the identities of the parties, claims, object and cause of actions, which must be the same. 138
Despite Lauder being the controlling shareholder, the tribunals found neither the parties were identical nor cause of action under the different BITs.
Looking at other jurisprudence, some tribunals have confirmed the applicability for the two principles in the context of investment treaty arbitration without explicitly depending on the triple identity test. For instance, in SPP vs Egypt, the tribunal interpreted the lis pendens principle not to be a mandatory rule, but the competence and discretion for the tribunal to stay the proceedings. 139 This reasoning was adopted in SGS vs. Philippines,
where the ICSID tribunal affirmed a tribunals power to stay the proceedings ‘pending the determination of another competent forum, of an issue relevant to its own decision’. Equally relevant, the Waste Management II tribunal found that res judicata is a general principle of law applicable in arbitration proceedings, however, with the limitation, that an investment tribunal must have already rendered a decision on a specific matter identical to the present dispute. Thus, for example, if the earlier tribunal would have decided on jurisdictional related subjects, res judicata would not be applicable in the merits phase for the later tribunal. 140
Some restraints for the application of the concepts of lis pendens and res judicata have to be considered in the context of proceedings under different treaty arbitration when applying the ‘triple identity’ test.141 Difficulties to apply the principles in disputes under
138 See Lauder, (n 95). Para. 171; Yannaca Small, Katia. Part III Procedural Issues, Ch.25 Parallel Proceedings. Oxford handbook of international investment law. 2008.
139 Souther Pacific Properties (Middle East) Ltd [SPP] vs Egypt (Decision on Jurisdiction), ICSID Case No ARB/84/3. 3 ICSID Rep para. 84
140 Waste Management, Inc. v. United Mexican States (‘Number 2’), ICSID Case No. ARB(AF)/00/3. Para. 28-32
141 August Reinsch. ‘The Use and Limits of Res Judicata and Lis Pendens as Procedural Tools to Avoid Conflicting Dispute Settlement Outcomes’, 3(1) The Law and Practice of International Courts and
