International Investment Arbitration and Parallel Proceedings: Focusing on regulation and coordination under national law

Author Name NAKAMURA Tatsuya  (Kokushikan University)
Creation Date/NO. June 2008 08-J-025
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This paper concerns the regulation and coordination of parallel proceedings in international investment arbitration. The paper first focuses on Lauder/CME v. Czech Republic, a recent case of parallel proceedings that resulted in conflicting decisions, and identifies problems raised therein. Then, it examines the legal rules applicable to arbitral proceedings governing parallel proceedings and explores legislative solutions at the international treaty level to regulate and coordinate the parallel proceedings.

Parallel proceedings can be classified in two types. The first type is the "objective consolidation" type in which multiple proceedings, including those alleging breach of investment contract in addition to those charging violation of the investment treaty between the investor's home and host states, are filed between the same investor and the host state. The second type is the "subjective consolidation" type which involves multiple proceedings between more than one party on the investor's side and the host state. This latter type, as exemplified by the Lauder/CME case, typically takes the form of two arbitration proceedings - one initiated by an investor and the other by its subsidiary under the investor's control - seeking compensation for damage resulting from measures or acts of the host government. This type of parallel proceeding would not give rise to the issue of res judicata, but it could create a burden on host states if they are forced to face multiple proceedings based on essentially the same facts, diseconomies associated with the duplication of proceedings, and the possibility of conflicting awards. Thus, from these perspectives it is considered necessary to regulate and coordinate parallel proceedings. The need of such regulation and coordination is recognized internationally. At the moment, however, there exists no dominant view concerning legal rules governing parallel proceedings and no relevant rules are provided in the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). Meanwhile, all arbitral and court precedents concerning parallel proceedings, including those in the Lauder/CME case, dictate that in order for a court or tribunal to prevent the commencement of a second proceeding its subject matter must be identical to that of an earlier proceeding before another court or tribunal. However, with such a stringent requirement, it is difficult to regulate and coordinate parallel proceedings in reality.

In international investment arbitration, which is subject to the application of national law, given this commonality in nature, i.e., the presence of parallel proceedings, it may be considered reasonable to apply the rules regulating concurrent litigations in different jurisdictions to international investment arbitration. However, unlike concurrent litigations it is impossible to fulfill the same-subject-matter requirement in international investment arbitration and no rules exist for consolidating parallel arbitration proceedings. Also, consideration must be given to the need to ensure the remedy of the party's rights. As such, it is difficult to address problems arising from parallel arbitration proceedings by uniformly applying the legal principle that regulates overlapping proceedings. Therefore, it would be more appropriate for an arbitral tribunal to decide on a case by case basis whether or not to stay its proceeding based on the balance of various interests involving the case, thus treating the issue as a matter of procedural authority concerning case management.

In legislative attempts to solve the problem of parallel proceedings, provisions such as a fork-in-the-road clause, a waiver clause, and consolidation provisions that are designed to regulate and coordinate parallel proceedings have been incorporated in the ICSID Convention and some international investment treaties. None of these provisions provide a perfect solution. However, by making modifications to the waiver clause and applying it in combination with the consolidation provisions it would be possible to regulate and coordinate most of the problems arising from parallel proceedings. Such attempts to regulate and coordinate parallel proceedings will result in fewer dispute settlement options for investors seeking the remedy of their rights; thus making it unlikely that concerned countries will work together and take a concerted legislative step to regulate and coordinate parallel proceedings. However, since such regulation and coordination should be based on the universal value of the fundamental principle of procedure and there exists the potential risk of conflicting awards as exemplified by the Lauder/CME case, it is desirable to include provisions for regulating and coordinating parallel proceedings in investment treaties.

This paper also examines whether national law - the Arbitration Act (Act No. 138 of 2003) in case of Japan - is applicable to investment arbitration that concerns the regulation and coordination of parallel proceedings and constitutes a prerequisite to deal with such issues, and whether the resulting arbitral award is subject to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). It is concluded that both national law and the New York Convention are applicable.