Offprints of THE JOURNAL OF WORLD INVESTMENT & TRADE Travelling the Bit Route Of Waiting Periods, Umbrella Clauses and Forks in the Road Christoph Schreuer Geneva April 2004 Vol. 5 No. 2 Publisher and Editor Jacques Werner Associate Editors James Bacchus Petros C. Mavroidis Thomas Walde Guiguo Wang Editorial Assistant James Boyce Correspondence and Subscriptions All correspondence, including subscriptions, should be addressed to: The Publisher, The Journal of World Investment & Trade P.O. Box 5134, 1211 Geneva 11, Switzerland Tel. (41-22) 310 34 22 Telefax (41-22) 311 45 92 E-mail: wernerp@iprolink.ch Website: www.wernerpubl.com features abstracts, authors' biographies and tables of contents of current and back issues The Journal of World Investment & Trade is published every two months. Annual Subscription: Sfr. 610 or US$ 450 including airmail postage Single copies: Sfr. 110 or US$ 80 For U.S. Subscribers: Periodicals postage paid at Rahway, N.J., u.s.a. 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Introduction In recent years, the majority of cases in investment arbitration have been based on bilateral investment treaties (Bits). These treaties typically provide for investor—State arbitration by making an offer of consent to arbitration to eligible investors. Consent is perfected upon the acceptance of that offer by the investor, often simply through the institution of proceedings.1 The provisions in Bits for investor—State arbitration are by no means uniform. Most of them refer to the International Centre for Settlement of Investment Disputes (Icsid). Often, the Icsid Additional Facility, the United Nations Commission on International Trade Law (uncitral) or other forms of arbitration are offered in the alternative. The Bits also define the parameters for the activities of tribunals in investor-State arbitration. Jurisdiction may be subject to certain procedural requirements. For instance, a claimant may be required to attempt to reach an amicable settlement for a certain period of time. The competence of arbitral tribunals may depend on proceedings in the host State's domestic courts. For instance, the Bit may require the exhaustion of local remedies; or it may require the investor to choose between domestic courts and international arbitration. The subject-matter jurisdiction of tribunals also varies. It may be described narrowly or more widely. For instance, jurisdiction may be limited to claims alleging a violation of the Bit itself or it may extend to investment disputes in general. Three typical Bit clauses relating to the activities of arbitral tribunals in investor—State arbitration will be examined in this article. The first relates to waiting periods that investors must observe before instituting proceedings. The second requires investors to choose between litigation in domestic courts and international arbitration with the effect that once that choice has been made it becomes final. The third relates to clauses in Bits that put undertakings made by host States vis-a-vis investors under the Bits' protective umbrella. * Professor of International Law, University of Vienna, Austria. The author may be contacted at: . 1 For a description of this process, see J. Paulsson, Arbitration Without Privity, 10 Icsid Rev.-F.i.L.J. 232 (1995). This method for establishing jurisdiction was first accepted in Aapl v. Sri Lanka, Award, 27 June 1990, 4 icsid Reports 246, at 250-251. It has since been followed in numerous cases. 232 the journal of world investment & trade II. Waiting Periods Many if not most Bits provide that the investor may resort to international arbitration only after a certain period has elapsed after the occurrence of events giving rise to the dispute. The purpose, often explicitly stated, is to give the parties to the dispute an opportunity to reach a negotiated settlement. Article 11 of the German Model Bit offers a pertinent example: "Article 11 (1) Divergencies concerning investments between a Contracting State and an investor of the other Contracting State should as far as possible be settled amicably between the parties in dispute. (2) If the divergency cannot be setded within six months of the date when it has been raised by one of the parties in dispute, it shall, at the request of the investor of the other Contracting State, be submitted for arbitration. Unless the parties in dispute agree otherwise, the divergency shall be submitted for arbitration under the Convention of 18 March 1965 on the Setdement of Investment Disputes between States and Nationals of Other States." The question arises whether failure to comply with a waiting period is a bar to jurisdiction or whether the waiting period is a procedural requirement that may be dispensed with where appropriate. In particular, where there is no real prospect of reaching a negotiated setdement, one may ask whether it makes sense to insist on the observance of the waiting period. A number of recent decisions by arbitral tribunals have dealt with this question. Before examining these decisions, it is useful to look at a judgment of the International Court of Justice (Icj) that addressed a similar issue in a dispute between States. In the Nicaragua case before the Icj,2 one of the bases for jurisdiction upon which Nicaragua relied was the Treaty of Friendship, Commerce and Navigation between the United States and Nicaragua of 1956. Its Article xxiv(2) contained the following compromissory clause: "Any dispute between the Parties as to the interpretation or application of the present Treaty, not satisfactorily adjusted by diplomacy, shall be submitted to the International Court of Justice, unless the Parties agree to settlement by some other pacific means." The United States argued that an attempt to resolve the dispute by negotiations was a prerequisite for submitting the dispute to the Court. According to the United States, since Nicaragua had never raised the Treaty in its negotiations with the United States, it had failed to satisfy the Treaty's terms for invoking the compromissory clause.3 The Icj rejected this contention. It said: "In the view of the Court, it does not necessarily follow that, because a State has not expressly 2 Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), Judgment (Jurisdiction and Admissibility), 26 November 1984, [1984] Icj Reports 427-429. 3 Ibid., at pp. 427-428. TRAVELLING THE BIT ROUTE 233 referred in negotiations with another State to a particular treaty as having been violated by conduct of that other State, it is debarred from invoking a compromissory clause in that treaty ... It would make no sense to require Nicaragua now to institute fresh proceedings based on the Treaty, which it would be fully entided to do. As the Permanent Court observed, 'the Court cannot allow itself to be hampered by a mere defect of form, the removal of which depends solely on the party concerned' (Certain German Interests in Polish Upper Silesia, Jurisdiction, Judgment No. 6, 1925, P.C.I.J., Series A, No. 6, p. 14)."4 Therefore, the Icj found that it had jurisdiction over claims relating to the Treaty of 1956.5 The relevance of this judgment is limited by the fact that the clause did not specify a period of time during which a diplomatic settlement was to be attempted. However, it supports the proposition that prior negotiations that amount to no more than a formality will not be insisted upon as a prerequisite for jurisdiction. In a number of cases in which waiting periods were invoked by respondents, arbitral tribunals found that the parties had, in fact, complied with them. In Amt v. Zaire, the consent to jurisdiction of the Icsid in the United States—Zaire Bit was subject to the condition: "If the dispute cannot be resolved through consultation and negotiation ..."6 The Tribunal found, as a matter of fact, that Amt had seriously attempted to negotiate without success.7 In Salini v. Morocco, the Italy-Morocco Bit provided for international arbitration "[i]f the disputes cannot be resolved in an amicable manner within six months of the date of the request, presented in writing, ..."8 The Tribunal examined the communications between the parties prior to the Request for Arbitration and came to the conclusion that the requirement of an attempt to reach an amicable settlement within the time frame of six months had been met.9 In Azurix v. Argentina, the applicable Argentina-United States Bit provided that the parties to an investment dispute should initially seek a resolution through consultation and negotiation. Provided that six months had elapsed from the date on which the dispute arose, the investor could seek international arbitration.10 4 Ibid., at pp. 428-429. 5 Ibid., at p. 429. « Amt v. Zaire, Award, 21 February 1997, 36 I.L.M. 1531, at 1545 (1997). 7 Ibid., at p. 1547. See also Tradex v. Albania, Decision on Jurisdiction, 24 December 1996, 14 Icsid Rev.-F.I.L.J. 161, at 174 (1999). In that case, consent to jurisdiction was not based on a Bit but on national legislation. The consent clause in the Albanian law was subject to the condition that the dispute "cannot be settled amicably". The Tribunal noted that Tradex had sent five letters over four months to the competent Albanian Ministry but that none of these was answered or resulted in any relevant action. The Tribunal found these letters to be a sufficient good faith effort to reach an amicable settlement; at pp. 182-184. 8 Salini Costmttori SpA et Itahtrade SpA c/Royaume du Maroc, Decision on Jurisdiction, 23 July 2001, Journal de Droit International 196 (2002), 42 I.L.M. 609 (2003), at 612. ' Ibid., at pp. 613-614. 10 Argentina-United States Bit, Article vn(2), (3); see the text of the Bit on the Website of the Organization of American States at: . 234 THE JOURNAL OF WORLD INVESTMENT & TRADE The Tribunal found that it was "satisfied that the Claimant attempted to resolve the dispute through consultation or negotiation and failed".11 In Cms v. Argentina,12 the Tribunal also had to apply the Argentina—United States Bit. The Respondent objected to the submission of an additional claim after the institution of the arbitral proceedings. One of the jurisdictional arguments in this context concerned the non-compliance with the six-month consultation and negotiation requirement in respect of the additional claim. The Tribunal rejected Argentina's objection, finding that under the IcsiD Arbitration Rules incidental or additional claims dcnot require either a new request for arbitration or a new six-month period for consultation or negotiation.13 These cases demonstrate that the tribunals examined whether the parties had complied with the waiting periods and the attendant obligation to seek a negotiated setdement. In each of the cases above, the tribunals found that they had done so. However, these decisions do not give a clear indication of the tribunals' views of the consequences of non-compliance with that requirement. The mere fact that the waiting period requirements were found to have been satisfied does not mean that they were regarded as a condition for the tribunals' competence. Cases in which the waiting periods had not been observed give a clearer indication of their legal effect. Ethyl Corp. v. Canada,™ a case dealing with the consequences of non-compliance with a waiting period, was not decided under a bit but under Chapter Eleven of the North American Free Trade Agreement (Nafta). Under Article 1118 of the Nafta: "The disputing parties should first attempt to settle a claim through consultation or negotiation." Under Article 1120 of the Nafta, an investor may submit a claim to arbitration "provided that six months have elapsed since the events giving rise to a claim". In the Ethyl case, the Notice of Arbitration was delivered five days after the passage of the incriminated piece of legislation. The Tribunal found, however, that there was no prospect of Canada changing its attitude as a consequence of negotiations.15 The Tribunal said: "The Tribunal has been given no reason to believe that any 'consultation or negotiation' pursuant to Article 1118, which Canada confirms the six-month provision in Article 1120 was designed to encourage, was even possible. It is argued, therefore, that no purpose would be served by any further suspension of Claimant's right to proceed. This rule is analogized to the international law requirement of exhaustion of remedies, which is disregarded when 11 Azurix v. Argentina, Decision on Jurisdiction, 8 December 2003, para. 55; available at: . 20 Ibid., para. 183. 21 Ibid., at para. 185. 22 Ibid., at paras. 181-191. 23 Ibid., para. 187. M Ibid., at paras. 188-189. 236 THE JOURNAL OF WORLD INVESTMENT & TRADE 191. Therefore, the Arbitral Tribunal holds that the requirement of the six-month waiting period in Article vi(3)(a) of the Treaty does not preclude it from having jurisdiction in the present proceedings."25 In Wena Hotels v. Egypt,26 the Egypt—United Kingdom Bit applicable in the case provided for a three-month waiting period for the purpose of reaching an agreement "through pursuit of local remedies, through conciliation or otherwise ..." The Respondent initially objected that Wena had failed to satisfy this procedural requirement, but it subsequently withdrew that objection. The Tribunal accepted the withdrawal, noting that the objection would have served no useful purpose: "As Respondent appropriately noted, even if these procedural objections were granted, they could have been easily rectified and would have had little practical effect other than to delay the proceedings. Accordingly, the Tribunal accepts Respondent's offer to forgo these objections."27 As the Tribunal observed, the procedural objection could easily be rectified in that, by the time a tribunal would be able to deal with an objection to its jurisdiction, the waiting period would have elapsed. Even if the tribunal were to find that the requirement should have been met at the time of the institution of proceedings, the claimant would simply have had to re-institute the proceedings. In Scs v. Pakistan,2* the Tribunal had to apply the Pakistan—Switzerland Bit. That Bit provides for a twelve-month consultation period before permitting the investor to go to icsid arbitration.29 sgs had filed its request for arbitration only two days after notifying Pakistan of the existence of the dispute. Pakistan objected that failure to comply with the twelve-month rule deprived the Tribunal of jurisdiction.30 Sgs argued that waiting periods were not a prerequisite for jurisdiction but procedural rules that may lead to an avoidance of arbitration. It also argued that negotiations would have been futile.31 The Tribunal accepted Claimant's arguments. It said: "184. Tribunals have generally tended to treat consultation periods as directory and procedural rather than as mandatory and jurisdictional in nature. Compliance with such a requirement is, accordingly, not seen as amounting to a condition precedent for the vesting of jurisdiction ... there was little indication of any inclination on the part of either party to enter into negotiations or consultations in respect of the unfolding dispute. Finally, it does not appear consistent with the need for orderly and cost-effective procedure to halt this arbitration at this juncture and require the Claimant first to consult with the Respondent before re-submitting the Claimant's Bit claims to this Tribunal."32 25 Ibid., paras. 190-191. 26 Wena Hotels v. Egypt, Decision on Jurisdiction, 25 May 1999, 41 I.L.M. 881 (2002). "Ibid., at p. 891. 28 SCS v. Pakistan, Decision on Jurisdiction, 6 August 2003, 18 icsid Rev.-F.I.L.J. 307 (2003). 29 Ibid., at para. 80. 30 Ibid., at paras. 79-81. 31 Ibid., at paras. 130 and 131. 32 Ibid., para. 184; footnote omitted. The Tribunal cited the Decision in Ethyl. TRAVELLING THE BIT ROUTE 237 Goetz v, Burundi*3 is the only case in which the Tribunal found that non-compliance with a waiting period constituted a bar to part of the claim. The Belgium—Burundi Bit in its Article 8(2) and (3) contains the following, somewhat unusual, provision: "2. All disputes relating to investments must be the object of written notification, accompanied by a sufficiendy detailed memorandum addressed at the investor's initiative by one of the parties, to the other contracting party. In the first place such a dispute should be amicably setded by an arrangement between the parties to the dispute and, in the absence of such, by negotiation between the contracting parties, at the diplomatic level. 3. If the dispute cannot be setded in the three months following the written notification envisaged in paragraph 2, it is submitted, at the request of the investor concerned, to conciliation or arbitration before the International Centre for the Setdement of Investment Disputes (Icsid)."34 It will be noted that this provision foresees not only the usual process of amicable settlement between the parties to the dispute but also a process of notification and negotiation through diplomatic channels. It is unclear how all this could be achieved in a period of three months. The Tribunal found that the waiting period set out in the Bit had been satisfied with respect to the investor's primary claim35 but not with respect to certain supplementary claims put forward by the Claimant. For the Tribunal, it followed that the supplementary claims were "not in consequence capable of being decided on, and the dispute on which the Tribunal is called to give an award relates exclusively to the [primary claim]".36 At first sight, the exclusion of the supplementary claims by the Goetz Tribunal appears to contradict the consistent line of decisions in Ethyl, Lauder, Wena and Sgs. However, the procedural requirements under the Bit in Goetz went considerably beyond those of the treaties applicable in the other cases. The requirements in Goetz were not restricted to consultations between the parties to the dispute but, additionally, required diplomatic negotiations between the host State and the investor's State of nationality.37 Although the Tribunal did not discuss the issue, the requirement of State-to-State negotiations may explain the significance it accorded to an attempt at amicable settlement as required by the Bit. Another case, Enron v. Argentina?* also involved the Argentina—United States Bit, which provided for a six-month period for consultation between the parties to the dispute. The claims, as originally presented, only related to certain Provinces of 33 Antoine Goetz and others v. Burundi, Award, 10 February 1999, paras. 90-93,15 icsid Rev.-F.I.L.J. 454 (2000). M Ibid., at para. 90. 35 Ibid., at paras. 91 and 92. 36 Ibid., at para. 93. 37 The Tribunal did not discuss that distinction. Nor did it have the benefit of the other decisions quoted above, most of which were decided only after Goetz. 38 Enron Corp. and Ponderosa Assets, L.P. v. Argentina, Decision on Jurisdiction, 14 January 2004; available at: . 238 THE JOURNAL OF WORLD INVESTMENT & TRADE Argentina. Additional claims, substantively identical but relating to other Provinces, were put forward later. The Respondent objected that the six-month period had not been observed with respect to the additional claims.39 The Tribunal found that the dispute related in identical terms to various Provinces.40 The additional claims merely extended the same dispute already registered and did not require a separate procedure. Therefore, in the Tribunal's view, the issue of a waiting period with respect to the additional claims did not arise: "87. The issue concerning the observance of the six-month consultation period becomes therefore moot. If the Argentine Republic had the opportunity to consider negotiations with the investors on the occasion of the first claims, and the claims that followed did not involve any new element, the observance of this requirement is evidently fulfilled. This is particularly so in view of the fact that the Argentine Republic did not take advantage of the possibility of defusing the dispute during that start-up period." Nevertheless, the Tribunal added an obiter dictum in which it voiced its disagreement with the suggestion that the waiting period was merely procedural rather that jurisdictional: "88. The Tribunal wishes to note in this matter, however, that the conclusion reached is not because the six-month negotiation period could be a procedural and not a jurisdictional requirement as has been argued by the Claimants and affirmed by other tribunals. Such requirement is in the view of the Tribunal very much a jurisdictional one. A failure to comply with that requirement would result in a determination of lack of jurisdiction. In the present case, as noted, the requirement was complied with in view of the identical nature and scope of the dispute with the Argentine Provinces; the same holds true if a dispute is ruled to be ancillary or additional to an earlier claim."42 It would seem that the decisive criterion for disregarding the waiting periods in the cases in which the claimants had not complied with them was the evident futility of any negotiations. In each of the cases in which the tribunals affirmed their jurisdiction despite the non-compliance with the requirement to seek a negotiated settlement during a specified period of time, they also expressed their conviction that consultations between the parties could not have reached the desired result. There would be no point in requiring negotiations if negotiations were not likely to lead to a settlement. The Ethyl Tribunal even referred to the analogous rule that where local remedies are to be exhausted this requirement is dispensed with if the futility of local remedies is evident.43 In fact, the term "waiting periods" is something of a misnomer. These are not "cooling off' periods but periods during which the parties are required to take positive steps to seek a resolution that may avert the need for arbitration. This explains why the 39 Ibid., at para. 82. 40 Ibid., at para. 84. « Ibid., para. 87. 42 Ibid., para. 88; footnote omitted. The Tribunal cited Lauder and Ethyl. 43 See especially the Finnish Shipowners case, Finland v. Great Britain, Award, 9 May 1934, Riaa, Vol. Ill, p. 1479; C. F. Amerasinghe, Whither the Local Remedies Rule? 5 Icsid Rev.-F.I.L.J. 292, at 303 et sea. (1990). travelling the bit route 239 provision is not given effect where it is clear from the beginning that there is no chance of reaching a settlement. The question as to whether a mandatory waiting period is jurisdictional or procedural has limited practical significance. While it is conceivable that a tribunal would find that it lacked jurisdiction because the claim was registered prematurely or because no serious attempt at negotiations had been made during the prescribed time, the initiation of arbitral proceedings normally indicates that other, less costly means of settling the dispute have failed or were seen as likely to fail. Further consultation between the parties after the institution of arbitration proceedings remains possible, and many disputes are resolved while proceedings are pending.44 By the time a tribunal is ready to make a decision on jurisdiction, the period prescribed for a negotiated settlement will normally have expired. Strictly speaking, the relevant point in time for determining a tribunal's jurisdiction is the time when proceedings are instituted. However, it would hardly make sense to decline jurisdiction in a situation when the waiting period had passed in the interim. The only consequence of such a finding would be to compel the claimant to start the proceedings anew, which would be a highly uneconomical solution. It follows that waiting periods may be seen as a bar to the tribunal's competence only in extreme circumstances. These would normally involve procedural bad faith such as starting arbitration prematurely in order to put pressure on the opposing party in negotiations. In other cases, the appropriate response appears to be that of the Ethyl Tribunal when it awarded costs against the claimant in respect of the premature proceedings. III. The Fork in the Road The relationship between international arbitration and adjudication by domestic courts may be subject to a variety of provisions in Bits. Some older Bits require the exhaustion of local remedies before international arbitration may be invoked.45 Other Bits merely require that efforts be made in domestic courts to resolve the dispute for a certain period of time.46 Still other Bits grant access to international arbitration, provided no decision has been made at first instance in proceedings in the host State's domestic courts.47 Finally, some Bits are silent on this question.48 A typical clause provides that the investor must choose between the litigation of its claims in the host State's domestic courts or international arbitration and that, once 44 For references to practice, see C. Schreuer, The Icsid Convention: A Commentary, Cambridge University Press, Cambridge, U.k., 2001, p. 811. 45 See, for example, the Ghana-Romania Bit of 1989, Article 4(3). 46 See, for example, the Argentina-Spain Bit, Article x(3)(a). On this provision, see Emilio Augustln Maffezini v. The Kingdom of Spain, Decision on Jurisdiction, 25 January 2000, 16 icsid Rev.-F.i.L.J. 203 (2001). 47 See, for example, the Austria—Macedonia Bit, Article 13(3). 48 See the comments on this fact with regard to the Pakistan—Switzerland Bit in Scs v. Pakistan, supra, footnote 28, at paras. 121, 151 and 176. 240 the journal of world investment & trade made, the choice is final. It is this clause that will be examined here. This type of clause is often referred to as a "fork in the road" provision. It is expressed by the Latin maxim of una via electa non datur recursus ad alteram ("once one road is chosen, there is no recourse to the other"). The Tribunal in Maffezini v. Spain*9 found that such a provision reflected the host State's public policy and, therefore, could not be overridden by the application of a most-favoured-nation (Mfn) clause. The Tribunal said: "... if the parries have agreed to a dispute settlement arrangement which includes the so-called fork in the road, that is, a choice between submission to domestic courts or to international arbitration, and where the choice once made becomes final and irreversible, this stipulation cannot be bypassed by invoking the [Mfn] clause. This conclusion is compelled by the consideration that it would upset the finality of arrangements that many countries deem important as a matter of public policy."50 An example of a fork in the road provision is contained in Article 8(2) of the Argentina—France Bit: "Once an investor has submitted the dispute either to the jurisdictions of the Contracting Party involved or to international arbitration, the choice of one or the other of these procedures shall be final." Under such a provision, the party initiating the proceedings would have to make a choice between pursuing a claim through the host State's domestic courts and through international arbitration such as the Icsid. Once the investor chooses to setde the dispute in the host State's courts and submits the dispute to those courts, it loses the option to resort to arbitration. Clauses of this kind are a common feature in recent Bits, notably those of the United States. A typical example of a fork in the road provision in U.S. Bits is contained in Article vn of the Argentina-United States Bit: "2. ... If the dispute cannot be setded amicably the national or Company concerned may choose to submit the dispute for resolution: (a) to the courts or administrative tribunals of the Party that is a party to the dispute; or (b) in accordance with any applicable, previously agreed dispute-settlement procedures; or (c) in accordance with the terms of paragraph 3. 3.(a) Provided that the national or company concerned has not submitted the dispute for resolution under paragraph 2 (a) or (b)... the national or Company concerned may choose to consent in writing to the submission of the dispute for settlement by binding arbitration ... " Under these provisions, the loss of access to international arbitration applies if the same dispute between the same parties is submitted to the domestic courts or to the 49 Supra, footnote 46. 50 Ibid., at para.- 63. TRAVELLING THE BIT ROUTE 241 administrative tribunals of the host State.51 Therefore, before deciding whether the fork in the road provision applies to bar access to international arbitration, the tribunal must determine whether these conditions have been met. In light of the clear advantages that international arbitration offers to most investors over proceedings in domestic courts, a decision in favour of domestic courts cannot lightly be presumed. Rather, it is likely that investors, if offered the choice, will opt for international arbitration as the preferred instrument of dispute settlement. Therefore, where there is doubt as to the choice an investor has made under a fork in the road clause, a determination diat the investor has chosen international arbitration is more plausible than a determination that the investor has chosen litigation in domestic courts. Situations in which there is doubt about an investor's choice can arise easily. Investors are often drawn into legal disputes of one sort or another in the course of investment activities. Disputes of this kind may involve private law activities such as leases or procurement of raw material. They may also involve public law matters such as government licences or taxation. In the course of disputes of this kind, it will often be necessary for the investor to appear before a court or an administrative tribunal. However, not every appearance before a court or tribunal of the host State will constitute a choice under a fork in the road provision. While such disputes may relate in some way to the investment, they are not necessarily identical to "the dispute" referred to in the Bit's provisions on investor-State dispute setdement. Therefore, the appearance does not necessarily reflect a choice that would preclude international arbitration. Arbitral tribunals have dealt with this issue in a number of recent decisions. In Olguin v. Paraguay,52 the Respondent invoked the fork in the road provision in the Paraguay-Peru Bit. It argued that the IcsiD Tribunal lacked jurisdiction because the Claimant had made a judicial claim before the courts of the Republic of Paraguay. The Tribunal rejected this argument because the domestic proceedings were directed at matters related to but different from those in the IcsiD arbitration. The Tribunal said: "30. There is nothing in the file of the proceedings to demonstrate that Mr. Olguin submitted a judicial claim against the Republic of Paraguay in order to collect payment in fulfilment of the latter's obligations, which he is seeking to collect in the present arbitration case. The application which he apparendy made (proof of which is not conclusive) for a declaratory judgment of bankruptcy and liquidation of a commercial corporation, cannot have the same juridical effect as a claim against the Republic of Paraguay."53 In Compania de Aguas del Aconquija S.A. & Compagnie Generale des Eaux (Vivendi) v. Argentina,5* the Tribunal had to decide whether it had jurisdiction under the 51 IcsiD tribunals have dealt with a similar issue in the context of an invocation of a Us pendens before domestic courts; see Benvenuti & Bonfant v. Congo, Award, 15 August 1980, 1 IcsiD Reports 330, at 340; Amco Asia Corporation and others v. Republic of Indonesia, Decision on Jurisdiction, 25 September 1983, 1 IcsiD Reports 389, at 409 (1993). See also the Award of 20 November 1984 in this case, 1 IcsiD Reports 413, at 453 (1993). 52 EudowA. Olguin v. Republic of Paraguay, Decision on Jurisdiction, 8 August 2000,18 Icstd Rev.-F.I.L.J. 133 (2003). 53 Ibid., para. 30; translation prepared for IcsiD Reports, Vol. 6. 54 Compania de Aguas del Aconquija S.A. & Compagnie Genirale des Eaux (Vivendi) v. Argentine Republic, Award, 21 November 2000, 40 I.L.M. 426 (2001), 5 IcsiD Reports 296. 242 the journal of world investment & trade Argentina-France Bit. The relevant portion of the investor-State dispute settlement clause in that Treaty provides as follows: "1. Any dispute relating to investments, within the meaning of this agreement, between one of the Contracting Parties and an investor of the other Contracting Party shall, as far as possible, be resolved through amicable consultations between both parties to the dispute. 2. If such dispute could not be solved within six months from the time it was started by any of the parties concerned, it shall be submitted, at the request of the investor: - either to the national jurisdictions of the Contracting Party involved in the dispute; - or to international arbitration in accordance with the terms of paragraph 3 below. Once an investor has submitted the dispute either to the jurisdictions of the Contracting Party involved or to international arbitration, the choice of one or the other of these procedures shall be final."55 Article 16.4 of the concession contract between Claimants (Cge) and Tucumán, a Province of Argentina, provided that, for purposes of interpretation and application of that contract, the parties submitted to the exclusive jurisdiction of the Contentious Administrative Tribunals (Cats) of Tucumán. The Claimants never attempted to challenge any of Tucumán's actions in the Cats of Tucumán, arguing that such a challenge would have constituted a choice under the fork in the road provision of the Bit and a waiver of their rights to have recourse to the IcsiD.56 The Tribunal rejected the argument that resort to the domestic courts under these circumstances would have amounted to a choice under the fork in the road provision of the Bit. The Tribunal pointed to the different subject matter in the IcsiD proceedings and any proceedings before the domestic courts: "53. ... the Tribunal holds that Article 16.4 of the Concession Contract does not divest this Tribunal of jurisdiction to hear this case because that provision did not and could not constitute a waiver by Cge of its rights under Article 8 of the Bit to file the pending claims against the Argentine Republic. ... In this case the claims filed by Cge against Respondent are based on violation by the Argentine Republic of the Bit through acts or omissions of that government and acts of the Tucumán authorities that Claimants assert should be attributed to the central government. As formulated, these claims against the Argentine Republic are not subject to the jurisdiction of the contentious administrative tribunals of Tucumán, if only because, ex hypothesi, those claims are not based on the Concession Contract but allege a cause of action under the Bit. 54. Thus, Article 16.4 of the Concession Contract cannot be deemed to prevent the investor from proceeding under the IcsiD Convention against the Argentine Republic on a claim charging the Argentine Republic with a violation of the Argentine-French Bit. 55. By this same analysis, a suit by Claimants against Tucumán in the administrative courts of Tucumán for violation of the terms of the Concession Contract would not have foreclosed Claimant from subsequently seeking a remedy against the Argentine Republic as 55 Paragraph 3 provides for arbitration by the IcsiD or ad hoc arbitration under the Uncitral Rules at the investor's choice. 56 Ibid., at pp. 435—*36, paras. 40 and 42. TRAVELLING THE BIT ROUTE 243 provided in the Bit and IcsiD Convention. That is, submission of claims against Tucuman to the contentious administrative tribunals of Tucumin for breaches of the contract, as Article 16.4 required, would not, contrary to Claimant's position, have been the kind of choice by Claimants of legal action in national jurisdictions (i.e. courts) against the Argentine Republic that constitutes the 'fork in the road' under Article 8 of the Bit, thereby foreclosing future claims under the IcsiD Convention."57 The Tribunal held that under these circumstances it had jurisdiction to hear the claim. In its decision on the merits, however, the Tribunal concluded that it was impossible for it to distinguish violations of the Bit from breaches of the Concession Contract. Therefore, the Claimants had a duty to pursue their rights with respect to such rights against Tucuman in the Cats of Tucumin as required by Article 16.4 of the Concession Contract. In the subsequent annulment proceedings,58 the ad hoc Committee declined to annul the part of the Tribunal's Award dealing with jurisdiction. It found that the Tribunal had rightly held that it had jurisdiction over the claim. But the ad hoc Committee found that the Tribunal had manifesdy exceeded its powers by not examining the merits of the claims for acts of the Tucuman authorities under the Bit. The ad hoc Committee analyzed the Tribunal's treatment of the "fork in the road" clause, which it summarized as follows: "38. ... in the view of the Tribunal, the fork in the road set out in Article 8(2) is limited in its application to claims which explicitly 'allege a cause of action under the Bit' or which '[charge] the Argentine Republic with a violation of the Argentine—French Bit'; 42. Thus, it seems that the Tribunal's conclusion that the fork in the road was never reached in this case is based on an interpretation of Article 8(2) which limits its application exclusively to claims alleging a breach of the Bit, that is, to treaty claims as such."59 The ad hoc Committee criticized the Tribunal's finding on the "fork in the road" provision. It pointed out that under the Bit between Argentina and France the definition of "the dispute" applicable to the "fork in the road" clause is extremely wide: it covers "[a]ny dispute relating to investments". That definition does not require an allegation of a violation of the Bit itself. The ad hoc Committee contrasted this provision with Article 1116 of the Nafta, which requires a claim that a breach of one of the Nafta's substantive provisions has occurred. Under these circumstances, a contract claim brought before the Cats of Tucuman would prima facie fall under the Bit's fork in the road provision.60 57 Ibid., at pp. 438-439. See also at p. 444, para. 81. 58 Compaiiia de Aguas del Aconquija S.A. & Compagnie Ginerale des Eaux (Vivendi) v. Argentine Republic, Decision on Annulment, 3 July 2002, 41 I.L.M. 1135 (2002). 5' Ibid., at pp. 1144 and 1145. «o Ibid., at pp. 1147-1148, para. 55. 244 THE JOURNAL OF WORLD INVESTMENT & TRADE In Vivendi, the discussion of the "fork in the road" provision was somewhat theoretical since the investors had not, in fact, resorted to domestic courts. By contrast, in Genin v. Estonia,61 the Tribunal direcdy addressed the question of whether legal action taken in the host State constituted an exercise of the choice offered by a fork in the road provision. In that case, jurisdiction was based on the Estonia—United States Bit. That treaty contains a fork in the road provision62 which is substantively identical to the one in the Argentina-United States Bit, quoted above. The Claimants, United States nationals, were the principal shareholders of ElB, a financial institutiqn incorporated under the laws of Estonia. The claims arose, principally, from the purchase of a branch of "Social Bank" and from the revocation of Eib's licence by the Estonian authorities. ElB sued the "Social Bank" in a local court for losses from the purchase. ElB also instituted proceedings before the Administrative Court challenging the revocation of the licence.63 Estonia argued that, "by choosing to litigate their disputes with Estonia in the Estonian courts ... Claimants have exhausted their right to choose another forum to relitigate those same disputes."64 The Tribunal found that the lawsuits undertaken by ElB in Estonia did not constitute the choice under the Bit's "fork in the road" provision since they did not relate to the "investment dispute" that was the subject-matter of the IcsiD proceedings. The Tribunal said: "331.... the Tribunal is of the view that the lawsuits in Estonia relating to the purchase by Em of the Koidu branch of Social Bank and to the revocation of Em's license are not identical to Claimants' cause of action in the 'investment dispute' that they seek to arbitrate in the present proceedings. The actions instituted by Em in Estonia regarding the losses suffered by Em due to the alleged misconduct of the Bank of Estonia in connection with the auction of the Koidu branch and regarding the revocation of the Bank's license certainly affected the interests of the Claimants, but this in itself did not make them parties to these proceedings. 332. The distinction between the causes of action brought by Em, in Estonia, and by the Claimants, here, is perhaps best illustrated by the circumstances of Em's recourse to the courts in the matter of its license revocation. The effort by Era to have the Bank of Estonia's decision overturned, and its license restored, was in effect undertaken on behalf of all the Bank's shareholders (including minority shareholders), as well as on behalf of its depositors, borrowers and employees, all of whom were damaged by the cessation of Em's activities. It is quite obvious that this matter had to be litigated in Estonia; there was no other jurisdiction competent to deal with the restoration of the status quo. The 'investment dispute' submitted to IcsiD arbitration, on the other hand, relates to the losses allegedly suffered by the Claimants alone, arising from what they claim were breaches of the Bit. Although certain aspects of the facts that gave rise to this dispute were also at issue in the Estonian litigation, the 'investment dispute' itself was not, and the Claimants should not therefore be barred from using the IcsiD arbitration mechanism. 61 Alex Genin, Eastern Credit Limited, Inc. andA.S. Baltoüv. The Republic ofEstonia, Award, 25 June 2001,17 icsid Rev.-F.I.LJ. 395 (2002). 62 Article vi of the Bit. 63 Genin v. Estonia, supra, footnote 61, at paras. 47 and 58. "Ibid., at para. 321. travelling the bit route 245 333. Estonia also submits that since Article vi(8) of the Bit qualifies Eib as a U.S. 'national or company', its resort to the courts and administrative tribunals of Estonia should preclude the 'parents' from submission of their dispute to an Icsid arbitration. However, as mentioned above, Eib had no choice but to contest the revocation of its license in Estonia, in the interest of all its shareholders, whereas the Claimants submitted to Icsid arbitration an 'investment dispute', as defined by the Bit, seeking compensation for what they claim was a violation of their rights under the Bit."65 This case is the clearest explanation to date of the meaning of a fork in the road clause in a Bit. In order to determine whether the choice under such a clause has been taken, it is necessary to establish not only whether the parties to the two lawsuits are identical but also whether the causes of action in the two proceedings are identical. Only if the claims pursued previously before the domestic courts and administrative tribunals are identical to those subsequendy raised before the Icsid tribunal is it possible to conclude that the fork in the road has been taken with the consequence of excluding the Icsid's jurisdiction. In Lauder v. The Czech Republic,66 jurisdiction was based on the Czech Republic—United States Bit. That treaty contains the following fork in the road clause: "(...) Once the national or company concerned has so consented, either party to the dispute may institute such proceeding provided: (i) the dispute has not been submitted by the national or the company for resolution in accordance with any applicable previously agreed dispute-settlement procedures; and (ii) the national or company concerned has not brought the dispute before the courts of justice or administrative tribunals or agencies of competent jurisdiction of the Party that is a party to the dispute." The Respondent argued that the fork in the road provision precluded the Arbitral Tribunal from exercising jurisdiction on the ground that the same dispute had been submitted to Czech courts and to another arbitral tribunal. The Tribunal rejected this contention, pointing out that the parties and the causes of action in these proceedings both were different. The Tribunal said: "162. The resolution of the investment dispute under the Treaty between Mr. Lauder and the Czech Republic was not brought before any other arbitral tribunal or Czech court before—or after—the present proceedings was initiated. All other arbitration or court proceedings referred to by the Respondent involve different parties, and deal with different disputes. 163. In particular, neither Mr. Lauder nor the Czech Republic is a party to any of the numerous proceedings before the Czech courts ... The Respondent has not alleged—let alone shown—that any of these courts would decide the dispute on the basis of the Treaty."67 In Middle East Cement v. Egypt,68 jurisdiction was based on the Egypt—Greece Bit. The Claimant's ship had been seized and auctioned by the Egyptian authorities. 65 Ibid., paras. 331-333. 66 Supra, footnote 19. 67 Ibid., paras. 162-163. 68 Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic of Egypt, Award, 12 April 2002; available at: . 246 the journal of world investments trade Claimant had resorted to the Egyptian courts alleging the nullity of the auction. The Respondent argued that this amounted to a choice under the fork in the road provision in the Bit. The Tribunal rejected this argument because the dispute before the Egyptian courts and the one before the Tribunal were different. The Tribunal said: "71. The Tribunal notes that Art. 10.2 of the Bit provides that the investor may submit the investment dispute 'either to the competent court of the Contracting Party, or to an international arbitration tribunal.' However, this refers to 'such disputes' as are specified in paragraph 1 of Art. 10, i.e., disputes 'between an investor of a Contracting Party and the Other Contracting Party concerning an obligation of the latter under this Agreement.' The case brought by the Claimant before the Egyptian Courts regarding the alleged nullity of the auction, was not and could not be 'concerning' Egypt's obligations under the Bit, but could only be concerning the validity of the auction under national Egyptian law. Therefore, Art. 10.2 of the Bit does not exclude the admissibility of Claimant's objections to the auction of the ship."69 In Cms v. Argentina,10 the case was brought under the Argentina—United States Bit. The fork in the road clause in that Treaty has been quoted above. Argentina argued that the investor had taken the fork in the road since the local company, Tgn, in which the investor held shares, had appealed a judicial decision to the Federal Supreme Court and had sought other administrative remedies.71 The Tribunal rejected Argentina's contention. It pointed out that any remedies had been taken by the local company Tgn rather than by the foreign investor. Also, the steps taken consisted only of defensive and reactive actions. Most importandy, the subject-matter in the domestic proceedings was not the same as the one in the ICSID arbitration.72 The Tribunal said: "80. Decisions of several Icsid tribunals have held that as contractual claims are different from treaty claims, even if there had been or there currently was a recourse to the local courts for breach of contract, this would not have prevented submission of the treaty claims to arbitration. This Tribunal is persuaded that with even more reason this view applies to the instant dispute, since no submission has been made by Cms to local courts and since, even if Tgn had done so—which is not the case—this would not result in triggering the 'fork in the road' provision against Cms. Both the parties and the causes of action under separate instruments are different."73 Azurix v. Argentina74 was also based on the Argentina—United States Bit. Argentina argued that the Claimant had submitted the dispute to the Argentine courts, since ABA, the local company in which Azurix had invested, had lodged administrative appeals and the dispute between ABA and the Province of Buenos Aires over the termination of their Concession Agreement had been submitted to the Court of Justice of the Province.75 «'Ibid., para. 71. 70 Supra, footnote 12. 71 Ibid., at para. 77. 72 Ibid., at paras. 78-82. 73 Ibid., para. 80; footnote omitted. The Tribunal cited Vivendi, Genin and Olguln. 74 Supra, footnote 11. 75 Ibid., at paras. 37^tl and 86. TRAVELLING THE BIT ROUTE 247 The Tribunal confirmed that the operation of the fork in the road provision would require the identity of the parties and of the object and cause of action in the respective proceedings.76 It pointed to the consistent line of reasoning of previous tribunals, quoting from the award in Cms in particular. The Tribunal stressed the lack of identity of the parties in the case before it: "90. Neither of the parties is a party to the proceedings before the local courts. Even if Azurix had joined ABA as a plaintiff in those courts, there would not be party identity since Argentina is not party to any of those proceedings."77 The Tribunal added- that the administrative appeals had been filed after the submission of the request for arbitration to the IcsiD. Moreover, the body hearing the administrative appeals was not equivalent to an administrative tribunal for purposes of the Bit since it did not have a judicial function.78 Enron v. Argentina19 was yet another case under the Argentina—United States Bit. Argentina objected to the Tribunal's jurisdiction on the ground that Tgs, the local company in which Enron had invested, had applied to various courts in Argentina seeking remedies against the tax measures that were the object of the dispute. The Tribunal rejected this objection, pointing out that both the causes of action and the parties in the respective proceedings were different: "97. This Tribunal is mindful of various decisions of IcsiD Tribunals also discussing this very issue, particularly Compahia de Aguas del Aconquija, Genin, and Olguin. In all these cases the difference between the violation of a contract and the violation of a treaty, as well as the different effects that such violations might entail, have been admitted, not ignoring of course that the violation of a legal rule will always have similar negative effects irrespective of its nature. It has accordingly been held that even if there was recourse to local courts for breach of contract this would not prevent resorting to IcsiD arbitration for violation of treaty rights, or that in any event, as held in Benvenuti & Bonfant, any situation of lis pendens would require identity of the parties. Neither will these considerations be repeated here. 98. The Tribunal notes that in the present case the Claimants have not made submissions before local courts and those made by Tgs are separate and distinct. Moreover, the actions by TGS itself have been mainly in the defensive so as to oppose the tax measures imposed, and the decision to do so has been ordered by EnARGAS, the agency entrusted with the regulation of the gas sector. The conditions for the operation of the principle electa una via or 'fork in the road' are thus simply not present. The Tribunal accordingly dismisses the objection to jurisdiction on this other ground."80 The picture emerging from this consistent case-law is reasonably clear. The fork in the road provision and the consequent loss of access to international arbitration applies only if the same dispute between the same parties has been submitted to domestic courts or administrative tribunals of the host State before the resort to international arbitration. 76 Ibid., at para. 88. 77 Ibid., para. 90. 78 Ibid., at paras. 91 and 92. 79 Supra, footnote 38. 80 Ibid., paras. 97-98. 248 THE JOURNAL OF WORLD INVESTMENT & TRADE Therefore, a determination that the investor has exercised the choice under the fork in the road in favour of the host State's courts or administrative tribunals and that, consequently, there is no access to international arbitration, requires the following findings: — The domestic proceedings must have been instituted prior to the choice of international arbitration. Typically, the decisive date will be the date at which arbitration proceedings are instituted. If by that date the investor has submitted the dispute to domestic courts or tribunals, the provision will apply. If by that date, the investor has not done so, the fork in the road provision will not operate against arbitration. — The dispute before the domestic courts or administrative tribunals must be identical with the dispute in the international proceeding. If the claim before the international tribunal alleges a breach of the Bit, the dispute before the domestic courts or administrative tribunals would also have to concern an alleged breach of a right conferred or created by the Bit. Therefore, if the dispute before the domestic courts or tribunals concerns a different claim, such as a contract claim or an appeal against a decision by a regulatory authority, the fork in the road provision will not apply and the arbitral tribunal will be free to proceed. Complications may arise in cases where several types of claims are brought before the arbitral tribunal—for example, Bit claims and contract claims—and only the contract claims are pending before the domestic courts. — The parties in the domestic proceedings must be identical with the parties in the international proceedings. The host State that is to be the respondent in the international arbitration must be the defendant in the domestic proceedings. The foreign investor that seeks arbitration must be the party that has submitted the dispute for resolution to the courts or administrative tribunals of the host State. The conclusion that the fork in the road provision of the Bit does not apply to every legal action taken in domestic courts that relates to the investment dispute before the international tribunal is reinforced by another consideration that has not attracted the attention of tribunals. Many Bits contain provisions that guarantee investors effective remedies under domestic law. For instance, Article n of the Argentina—United States Bit provides: "6. Each Party shall provide effective means of asserting claims and enforcing rights with respect to investments, investment agreements and investment authorizations."81 These "effective means" include redress through domestic courts or administrative tribunals. It would create an unreasonable dilemma for the investor if it had to choose between the assertion of its rights through these domestic means or through 81 See also Article iv(2) of the same Bit, guaranteeing "a right to prompt review by the appropriate judicial or administrative authorities" in case of expropriation. TRAVELLING THE BIT ROUTE 249 international arbitration. To see any utilization of domestic courts or administrative tribunals as a choice under the fork in the road provision would put the investor in an intolerable position. The investor would have to sit still and endure any form of injustice passively on pain of losing its access to international arbitration. In particular, the investor would have to forego appeals against administrative action that are subject to preclusive time limits under domestic law. In other words, the investor would have no means of asserting its rights until the situation deteriorates to a point where it can be characterized as a violation of the Bit, thus opening the way to international arbitration. Such an interpretation would be in the interests neither of the investor nor of the host State. It follows that legalvaction for Hmited purposes, notably defensive steps to contest administrative action, cannot be tantamount to submitting "the dispute" to the courts or administrative tribunals of the host State. Therefore, the exercise of domestic procedural rights, as guaranteed in BlTs, should not be seen as triggering fork in the road provisions. Any other interpretation would lead to the untenable conclusion that, if the BIT contains a fork in the road provision, guarantees of effective domestic remedies are traps designed to lure an investor into domestic proceedings with the consequence that the door to international arbitration will be closed forever no matter what the outcome of the domestic proceedings may be. IV. Umbrella Clauses The extent of jurisdiction ratione materiae, or subject-matter jurisdiction, that Bits confer upon arbitral tribunals in investor—State disputes is not uniform. Some BlTs cover only disputes relating to an "obligation ... under this agreement".82 In other words, jurisdiction exists only for claims of Bit violations.83 By contrast, other Bits extend the tribunals' jurisdiction to "any dispute relating to investments".84 On the basis of these wider definitions of arbitrable disputes, the majority of tribunals have found that jurisdiction is not restricted to claims asserting violations of the Bits' substantive provisions.85 This issue is important, in particular in the context of jurisdiction over allegations of contract violations by host States. It is generally accepted that not every breach of contract by a State automatically amounts to a violation of international 82 See, for example, Article 9(1) of the Netherlands—Venezuela Bit. 83 See also Article x(l) of the Costa Rica—Paraguay Bit which contains an investor—State dispute settlement clause covering only disputes "respecto a cuestiones reguladas por el presente Acuerdo" ("in respect of questions regulated by the present Agreement"). 84 See, for example, Article 8(1) of the Argentina-France bit. 85 See, for example, Salini v. Morocco, supra, footnote 8, at paras. 59—62; Vivendi, Decision on Annulment, supra, footnote 58, at p. 1147, para. 55; Scs Societi Generate de Surveillance S.A. v. The Republic of the Philippines, Decision on Jurisdiction, 29 January 2004, paras. 130-135; available at: