In the cme case, the tribunal quoted the tribunal in The Mox Plant Case , 29 which stated that:

the application of international law rules on interpretation of treaties to identical or similar provisions of different treaties may not yield the same results, having regard to, inter alia, differences in the respective contexts, objects and purposes, subsequent practice of parties and travaux pr?paratoires. 30

However, some commentators 31 believe that this is an artificial distinction and favour an approach that looks at the underlying nature of the dispute and not its formal classification. This would result in the dispute being considered a single identical dispute based on the same grounds when claims are based on two different treaties but all relating to the same factual background and invoking essentially the same legal theory.

end p.1018

Identity of Parties

The condition ‘same parties’ has been rather narrowly construed by international courts and tribunals. The dominant test that has emerged in practice has been that of ‘virtual identity’ or essentially the same parties. Some international legal scholars advocate deviating from a strict requirement of ‘identical’ parties.

The ILA's 2004 interim report on res judicata noted that: ‘a number of commentators favour an approach that looks at the underlying nature of a dispute and not at its formal classification’. Professor Reinisch advocated an ‘economic approach’ which has already been developed by international arbitral practice and ‘under which strict legal conditions—even between legally distinct corporate entities—which do not reflect the underlying economic realities may be disregarded’. 32 In particular, ICSID tribunals such as the Amco v Indonesia33 and the Klockner v Cameroon34 have also followed ‘an economic approach’ with regard to separate legal personality versus economic unity. They generally take a ‘realistic attitude’ 35 when identifying the party on the investor's side by looking for the actual investor and ‘are unimpressed by the fact that the consent agreement only names a subsidiary’.

Professor Sacerdoti disagreed with this approach in his expert opinion on behalf of CME in the CME v Czech Republic case. 36 He cited the Benvenuti and Bonfant case where the ICSID tribunal refused to find an identity between a shareholder and its company for the purposes of lis pendens (see below). 37 He maintained that the ‘group of companies’ and ‘piercing the corporate veil’ theories ‘ … has been the basis for the extension of the subjective application of an arbitral agreement only when some additional factual element concerning the relationship at issue has also been shown, such as fraud on part of the parent company to avoid being bound by the contract that it made the subsidiary sign; intervening in the negotiations of the deal; taking advantage of the contract … ’. 38

end p.1019

The tribunal in CME v The Czech Republic aligned with the latter view and held that res judicata did not apply to the earlier award made by the tribunal in Lauder v The Czech Republic because, inter alia, the claimants in each arbitration were different (albeit that Mr Lauder was in control of CME). The tribunal stated that:

Only in exceptional cases, in particular in competition law, have tribunals or law courts accepted a concept of a ‘single economic entity’, which allows discounting of the separate legal existences of the shareholder and the company, mostly, to allow the joining of a parent of a subsidiary to an arbitration. Also a ‘company group’ theory is not generally accepted in international arbitration (although promoted by prominent authorities) and there are no precedents of which this Tribunal is aware for its general acceptance. In this arbitration the situation is even less compelling. Mr Lauder, although apparently controlling CME Media Ltd, the Claimant's ultimate parent company, is not the majority shareholder of the company and the cause of action in each proceeding was based on different bilateral investment treaties. This conclusion accords with established international law. 39

(iii) The Applicability of the ILA Recommendations on Res Judicata in Investment Arbitration

The Final Report on Res Judicata and Arbitration and its related Recommendations of the ILA Committee on Commercial Arbitration are intended to apply to commercial arbitration and awards. The Committee was particularly cautious, and rightly so, in deciding not to enter the sphere of public international law and issue guidance on issues of commercial arbitration only. However, given its hybrid character, investment arbitration could benefit to some extent from some of its Recommendations.

The main issues which would be of relevance to investment arbitration and which have been identified by relevant jurisprudence and doctrine as the most controversial are essentially the requirements of res judicata relating to the ‘identity’ criteria (legal order, relief, cause of action, and parties).

The Recommendations do not deal with the ‘same legal order’ requirement since, as mentioned above, the Committee acknowledged the complexity of the issue and the increasing interaction of legal orders and decided not to include it in the requirements of res judicata. It also made it clear that the Recommendations do not directly envisage parallel arbitrations between a BIT dispute and a commercial dispute. However, if the host state is also the party to the contractual relationship, res judicata could apply—when the requirements are met (same legal order, same cause of action). This could cover parallel proceedings in the context of investment treaty/contract claims.

As for the identity of the parties, the Committee acknowledged the important and delicate problems which arise, particularly in relation to groups of companies and BIT arbitrations. In its commentaries it noted that these issues are too complex to

end p.1020

deal with in a report which is focused on res judicata. It considered that a recommendation for an ‘economic approach’ as defined above, which provides that a person not party to an action but controlling (or substantially participating in the control of) the presentation on behalf of a party is bound by the determination of issues decided ‘as though he were a party’, had few chances of an international acceptance. It also considered that piercing the corporate veil raises fundamental issues of international corporate law regarding limited liability of subsidiaries in multinational corporate groups, which go beyond the scope of res judicata. The Committee however, did not exclude any further developments in this field which could be applied in investment arbitration.

Another useful element for investment arbitration is the scope of application of res judicata, which covers partial final awards, final awards (including awards on agreed terms), and awards on jurisdiction.

Finally, the preclusive effects of an arbitral award do not pertain to public policy and therefore they cannot be raised by the tribunal on its own motion, but need to be invoked in the first defence on the merits.

(b) Lis Alibi Pendens

Parallel litigation, when arising between courts of the same legal system, in both civil and common law countries, is viewed generally as a non-acceptable litigation tactic and is subject to rules remedying the situation. Therefore, most of the domestic legal systems, both common and civil law, apply the lis alibi pendens rule which provides that domestic courts cannot accept jurisdiction over a case already pending before another court in the same system. The application of this doctrine varies between the two legal systems: a common law court has discretion whether or not to stay the proceedings on the basis of forum non conveniens, whereas civil law courts will generally apply a first-in-time rule. From the acceptance and application of the principle by domestic systems, it seems then possible that the lis alibi pendens rule meets the conditions for being treated as a general principle of law. 40 However, with regard to cross-boundary parallel litigation, the attitude of domestic legal systems has not been homogeneous and international law does not provide greater clarity either. 41 It is also disputed whether international courts and tribunals have any power to suspend their own proceedings absent express authority. 42

end p.1021

In the context of the CME case, the Czech Republic and the Netherlands, in their Agreed Minutes, considered the issues of parallel proceedings and noted that the question was not addressed under their treaty. The Netherlands took the position that ‘neither written, nor unwritten international law at present deals with this question’ and that an arbitral tribunal is to decide on its own jurisdiction. 43 The reasoning behind the application of lis alibi pendens is very similar to the res judicata and the requirements for its application: identity of the parties, grounds, and relief.

The ILA Committee on Commercial Arbitration, in its report on lis alibi pendens, 44 highlights the difference between lis pendens stricto sensu and case management in achieving the objective of efficiency. For instance, lis pendens stricto sensu would apply when two different arbitral tribunals constituted under the same arbitration agreement are called to decide on the same dispute. When the second arbitral tribunal constituted under the same agreement is called to decide on a different dispute ‘this situation gives rise to case management objective of efficiency and consistency’. The case of concurrent jurisdiction of a supranational tribunal or court raises issues of case management rather than lis pendens, since the cause of action is likely to be different.

(i) Recognition and Application of Lis Alibi Pendens in Investment Arbitration

Investment arbitration has given rise to lis pendens issues as between arbitral tribunals and between tribunals and domestic courts. Its application in this context assumes that arbitral tribunals and domestic courts are fora of equal status since lis pendens does not apply between supranational tribunals and domestic courts.

Some scholars believe that lis pendens has no relevance to international arbitration both because there is no coherent and single international legal system and because the jurisdiction of arbitral tribunals has a consensual basis and is not provided by law as is the case for municipal courts. 45 As for investment arbitration, the

end p.1022

arbitration provisions in two or more treaties are equivalent to contractual arbitration clauses. Professor Sacerdoti noted that ‘it would be contrary to the object and purpose of the BIT at issue to deny an investor on these grounds the right to pursue arbitration in order to seek protection against breaches under the terms of the treaty’. 46

Very few investment arbitration tribunals have expressed an opinion on parallel proceedings and the applicability of the lis pendens principle and none of them has agreed to decline jurisdiction. They have either considered that the requirements of lis pendens were not met or they did not accept the applicability of the principle in investment arbitration.

One of the most well-known cases of parallel proceedings in the context of investment arbitration is the case of the Southern Pacific Properties v Egypt . 47 This was an investment dispute referred to ICC arbitration and subsequently brought before ICSID. It involved a dispute between a Hong Kong-based corporation and Egypt over a cancelled investment project. In this case, a motion requesting the tribunal to decline jurisdiction by reason of the pending of domestic proceedings before the French Cour de Cassation was rejected. Furthermore, the tribunal explicitly stated that it did not consider itself bound by the lis alibi pendens rule: ‘When the jurisdictions of two unrelated and independent tribunals extend to the same dispute, there is no rule of international law which prevents either tribunal from exercising its jurisdiction … ’. 48

Although it did not decline jurisdiction, the SPP tribunal held that international tribunals have an inherent power to exercise comity towards other tribunals engaged in parallel proceedings and suspended its proceedings: 49‘ … in the interest of international judicial order, either of the tribunals may, in its discretion and as a matter of comity, decide to stay the exercise of its jurisdiction pending a decision by the other tribunal’. 50

In contrast, the tribunal in Benvenuti and Bonfant Ltd v Congo , which confronted a similar motion in circumstances analogous to the Pyramids case, did not rule out the potential applicability of the lis alibi pendens rule, but simply expressed the view that in the specific circumstances of the case, the conditions of identity of the parties, cause, and object had not been met. 51

end p.1023

In Azurix v Argentina , the tribunal emphasized the connection it drew between the US-Argentina BIT's fork-in-the-road clause and the lis pendens doctrine. In explaining its reasoning it cited the above mentioned Benevenuti and Bonfant Ltd. v Congo case and said:

In one of the first cases that an ICSID tribunal had to decide on the existence of a pending suit and its relevance to the ICSID proceedings, the tribunal declared that there could only be a case of lis pendens where there was identity of the parties' object and cause of action in the proceedings pending before both tribunals. This line of reasoning has been consistently followed by arbitral tribunals in cases involving claims under BITs. 52

In the CME case, the tribunal stated that:

… Moreover, the fact that one tribunal is competent to resolve the dispute brought before it does not necessarily affect the authority of another tribunal, constituted under a different agreement, to resolve a dispute—even if it were the ‘same’ dispute. 53

(ii) The Applicability of the ILA Recommendations on Lis Alibi Pendens in Investment Arbitration

The ILA Committee on International Commercial Arbitration issued a report accompanied by Recommendations on the application of lis alibi pendens in commercial arbitration in order to assist arbitrators, given the existing uncertainty on this matter. These Recommendations are of direct relevance to investment arbitration and could be used as guidance by investment arbitration tribunals when faced with parallel proceedings.

The arbitral tribunal should proceed to determine its own jurisdiction based on the principle of positive competence-competence, notwithstanding the fact that the issue of jurisdiction might be considered by a state court or another tribunal. However, it should have discretion to stay its own proceedings in appropriate circumstances.

The Committee considered that, when there are two parallel arbitrations raising the same, or substantially the same, issues, the second tribunal should give consideration to case management issues and it would be wrong for it to proceed with the arbitration. In addition, arbitral tribunals should exercise their case management powers even when all the traditional criteria for lis pendens are not met (although exercise them sparingly). However, this should be done upon request by a party and

end p.1024

when there is no material prejudice to the party opposing the request and there is likelihood that the outcome of the other proceedings is material to the outcome of the arbitration in question.

If these recommendations were to apply in the Czech cases, for instance, this would mean that one of the tribunals would have to stay its proceedings since the requirement of identity of issues is not strict—but applies where they are substantially the same (the Committee does not recommend the application of the rigid first-in time rule).

As with res judicata, lis pendens does not pertain to public policy and cannot be raised by an arbitral tribunal on its own motion.

(3) Treaty-based Regulation/Prevention of Parallel Proceedings: Exhaustion of Local Remedies, Fork-in-the-Road, Waiver, and Umbrella Clauses

A considerable number of investment treaties, including regional FTAs and BITs, have provisions which could regulate and/or prevent parallel proceedings, despite the fact that the rationale behind their existence is not this one. These provisions include: exhaustion of local remedies, fork-in-the-road, waiver, umbrella clause, and consolidation of claims. In light of the limited application of the first three—exhaustion of local remedies, fork-in-the-road and waiver, and the particular character of the umbrella clause, this section examines these provisions. As the issue of consolidation of claims aim has a greater impact on parallel proceedings (arguably one of its principal objectives is to prevent conflicting and inconsistent awards), it is examined fully in the next section.

(a) Exhaustion of Local Remedies

The advantages of investor-state dispute settlement for foreign investors are clear: investor-state disputes are resolved by means of mechanisms governed by international standards and procedures and do not rely on standards of the host State and domestic courts which may have a local bias or be subject to the influence of the host government.

end p.1025

Some BITs attempt, however, to limit parallel proceedings by clauses requiring the investor to submit a dispute to arbitration after the dispute has been before the local courts or administrative tribunals. These clauses, however, are very rare and as Professor Schreuer has observed, they are characteristics of older BITs. In addition, arbitral practice confirms that the exhaustion of local remedies is no longer required in investment arbitration. 54

Article 26 of the ICSID Convention permits states to reserve the right to impose the requirement of exhaustion of local remedies, but only one state has done so. 55

Although this requirement is hardly an issue any more, as Professor Schreuer observed, ‘it keeps haunting us in other legal disguises’. One of these disguises is for some BITs to require that ‘efforts be made in domestic courts to resolve the dispute for a certain period of time’. 56 They allow international arbitration, provided no decision has been taken by domestic courts within a certain time. Although these clauses have not proven very effective, caution may be necessary so they do not reintroduce the local remedies rule through the back door.

(b) Fork in the Road

‘Fork-in-the-road’ clauses aim at making irrevocable the choice of the investor (who would otherwise have a generous choice of jurisdictions) 57 and therefore de facto ban parallel proceedings. Not all investment agreements contain such a clause. This clause is often found in BITs concluded by the USA, based on the former US Model BIT.

The clear distinction between contract and treaty claims in order to determine the two types of litigation available for the same investment has an implication on the conditions of application of the fork-in-the-road clause. Investors are often involved in legal disputes which are of a commercial or private law nature and may need to appear before a domestic court or an administrative tribunal. While these disputes may relate somehow to the investment, they are not ‘identical’ to the

end p.1026

investment dispute. This recourse to domestic courts does not necessarily reflect a choice which would preclude international arbitration. The emerging case-law 58 related to the application of the ‘fork-in-the road’ provision is fairly consistent. The requirements for the application of this provision and the loss of access to international arbitration are the same as for res judicata and lis alibi pendens, 59 that is, 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.

Given the complexity of these clauses and their limitations, in practice, they have had very little application so far. As one commentator said, arbitral tribunals have demonstrated a tendency to deprive these clauses of their genuine meaning by never applying them in favour of a state. 60

The Energy Charter Treaty in its Article 26(3)(a) takes a different position with respect to the choice of venue. According to this article, the contracting parties could give their consent to international arbitration despite the fact that an investor has already submitted the dispute to local court proceedings or in accordance with a ‘previously agreed dispute settlement agreement’ (when the parties have included an arbitration clause in their contract for instance). However, the signatory parties can opt out of this alternative by putting themselves on a list in Annex ID of the Treaty. Up to now, 24 states—the majority of the signatories—have made use of this possibility. These states will be subject to a traditional fork-in-the-road provision. 61