CHAPTER 1

INTRODUCTION

In today’s globalised and liberalised world, foreign investment is the lifeblood of an economy. Foreign direct investment boosts sectors by supplying capital, generating jobs, enhancing infrastructure, and increasing trade, among other things. As a result, states seek to defend and encourage foreign direct investment through investment treaties. There are over 2932 bilateral investment treaties in force today, 387 treaties with investment clauses, and a few multilateral and regional investment treaties like the NAFTA and ECT.[1] These investment treaties ensure a certain level of protection for the party states’ investors, as well as the right to use the foreign investment arbitration process to resolve investor-state disputes. Investors should file treaty claims if there is a breach of any protection promised to them. Ad hoc or institutional investment arbitration should be used to settle these issues. Traditional national court lawsuits and overseas commercial arbitration coexist in investment arbitration. The investors choose the forum for the settlement of investment disputes. When an investor files a claim in several tribunals, parallel proceedings are held in those tribunals on the same substantive matters and between the same parties. Parallel proceedings have the potential to undermine the whole procedure by removing the finality of decisions, allowing for treaty shopping and nationality planning, and resulting in contradictory decisions. Due to the proliferation of investment treaties, parties to an investment dispute now have a variety of tribunals to choose from. They can either go to the host state’s domestic court, their home state’s domestic court, or the international investment tribunal, or they can induce their home state to go to foreign bodies like the WTO on their behalf. When there are conflicts about which tribunal to approach and different proceedings are underway at the same time, complications may occur. For example, in an investment arbitration case governed by a bilateral investment treaty (BIT), one party may choose to proceed with litigation in a national court despite the fact that an arbitration case is already underway. In international arbitration, this would be a classic example of a parallel proceeding. In this case, it’s completely conceivable that the national court hearing the second proceeding will decline to exercise jurisdiction due to the parties’ arbitration clause’s special wording. However, this may not necessarily occur, and if it does, the parties may find themselves in parallel legal proceedings. To make matters even more complicated, a domestic court isn’t the only venue where an arbitral tribunal may find overlapping jurisdiction. Instead, a tribunal will easily discover that its jurisdiction overlaps with that of another arbitral tribunal or even international courts. Multiple claims by associated entities based on the same facts raise serious concerns about double recovery and the need for repeat lawsuits. When dealing with the idea of parallel proceedings in investment arbitration, one must reconsider traditional concepts such as waiver, lis pendens, res judicata, and consolidation of proceedings. Furthermore, given India’s active participation in the investment arbitration regime, it is necessary to examine parallel proceedings from an Indian perspective.

STATEMENT OF RESEARCH PROBLEM

The author wants to look into the reasons for parallel proceedings in foreign investment arbitration, the responses to them in various jurisdictions, and what the Indian response should be.

SIGNIFICANCE OF STUDY

As the number of investment agreements has risen, the cases brought to dispute settlement have become increasingly complex too, encompassing multiple contracts and hence multiple parties and issues. This paper examines the most common scenarios in which parallel proceedings in investment arbitration will occur. Parallel hearings between domestic courts and arbitration tribunals, as well as between arbitration tribunals, increase the likelihood of contradictory and conflicting rulings. It is the consequence of certain circumstances and will be explained further. It then considers whether the principles of res judicata and lis pendens apply in investment arbitration and, if so, if they can be used to avoid conflicting awards.

LITERATURE REVIEW

It was necessary to trace the origins and growth of the foreign investment arbitration regime for the purposes of this research. M. Sornarajah, (2004)[2] focuses on the subject of foreign investment protection and the issues that come with it. A study of the evolution of international law for investment protection is conducted, focusing on the shift from state diplomatic protection to treaty-based processes. The ICC Institute of World Business Law’s Dossier on Parallel State and Arbitral Procedures in International Arbitration, published in 2005, is a collection of essays on subjects relating to parallel state and arbitral procedures in international arbitration. In exploring the possible reactions to parallel proceedings, the articles on consolidation of proceedings, lis pendens arbitralis, res judicata, and waivers and estoppels in parallel proceedings were useful. Campbell McLachlan et al, (2007)[3] investigates the core tenets of foreign investment law. The procedural problem of parallel proceedings is also addressed, which was important in shaping the evaluations of parallel proceedings’ effect on parties. Katia Yanaca-Small (2008)[4] gives an overview of the problem of parallel proceedings, the reasons for their occurrence, and how different tribunals have dealt with it. In the book by Robin F. Hansen, (2010)[5] the importance of treaty-based reactions to parallel proceedings is emphasized. Michael D. Goldhaber, (2013)[6] views parallel proceedings from the perspective of investment tribunals exercising control over domestic courts and critiques the same. The UNCITRAL Secretariat Note (2015) discusses the practical concerns of concurrent proceedings and the potential of developing an international instrument to address the problem. Sae Youn Kim & Tae Joon Ahn, (2018)[7] give an overview of the issue of parallel proceedings and the reviews the responses to it. The researcher builds on the study of these books and treatises to analyse and engage with the complex issue of parallel proceedings in international investment arbitration.

research OBJECTIVES

1. To define the scope of parallel proceedings in investment arbitration.

2. To trace its emergence and relevance in investment arbitration

3. To identify the arguments in favour of and against parallel proceedings

4. To discuss responses to parallel proceedings

 5. To ascertain the responses to parallel proceedings with reference to India

hypothesis

Inconsistent and conflicting awards result from the parallel proceedings, which are in violation of basic legal principles such as the rule of law, legal certainty, due process, and fundamental principles of legal procedure.

Parallel proceedings have a negative impact on the respondent party, who is forced to spend more time and money.

RESEARCH QUESTIONS

1. Why are parallel proceedings in investment arbitration such a contentious issue?

2. What are the advantages and disadvantages of starting parallel proceedings?

3. What are the ramifications of parallel investment arbitration proceedings?

4. What are the reactions to the concurrent proceedings?

5. What has India’s experience been with concurrent proceedings?

scope of the study

The scope of this paper shall be limited to the study of treaty text of bilateral and few multilateral investment treaties. The study shall delve into some of the basics surrounding parallel proceedings in international arbitration such as the concept, some of the problems they pose and solutions that arbitral tribunals have adopted to address such problems and also draw an analysis from Indian perspective.

RESEARCH METHODOLOGY

The current study’s research approach is of a doctrinal nature. The scope of the main data analysis was limited to the analysis of bilateral and a few multilateral investment treaty text. Various investment tribunal decisions have also been cited. Scholarly essays, publications, treatises, magazines, and web articles provided secondary data for this dissertation.

SUMMARY OF CHAPTERISATION

CHAPTER I : INTRODUCTION

 This chapter shall contain the introduction, objectives and research questions.

CHAPTER II PARALLEL PROCEEDINGS: AN IMPORTANT ISSUE IN INVESTMENT ARBITRATION

The author would investigate how the phenomenon of parallel proceedings occurred and became a notable problem in investment arbitration to answer the first research question. This includes debates on the development of investment treaty arbitration as a regime, the reasons for it, and the flaws that allowed for numerous parallel claims to be filed.

CHAPTER III : CONSEQUENCES OF PARALLEL PROCEEDINGS

In this chapter, the second and third study questions are addressed by looking into the observed and potential ramifications of parallel proceedings, as well as giving arguments for and against initiating parallel proceedings.

CHAPTER IV : MEASURES TO CONTROL PARALLEL PROCEEDINGS

This chapter will address the fourth study issue by addressing the answers to parallel proceedings claims at various stages of the proceedings using concepts such as lis pendens, res judicata, good faith, consolidations of claims, and so on.

CHAPTER V : INDIAN PERSPECTIVE ON PARALLEL PROCEEDINGS IN INTERNATIONAL INVESTMENT ARBITRATION

In the final chapter, the Indian viewpoint on parallel proceedings will be presented, as well as the country’s experience with the phenomenon. The final chapter makes recommendations for how India can handle parallel proceedings in foreign investment arbitration.

CHAPTER VI: CONCLUSION

CHAPTER II

PARALLEL PROCEEDINGS: AN IMPORTANT ISSUE IN INVESTMENT ARBITRATION

The expansion of investment treaty arbitration as a system:

The transfer of tangible or intangible assets from one nation to another with the goal of generating wealth in that nation under the entire or partial control of the asset owner8 is known as foreign investment. As a result, an investment differs from a typical business transaction such as the buying and selling of products. An investment’s distinctive traits are:[8]

• It lasts for a set amount of time. There isn’t a single sale involved.

• the investor makes a financial or asset contribution;

• The investor, and occasionally the host government, takes on a certain amount of risk, and

• Another common feature is the contribution of investment to the state’s growth, such as through the construction or enhancement of infrastructure or the economy.

As the amount of foreign investment increased, so did the potential for international investment conflicts. A foreign investment dispute is a disagreement between an investor from one nation (home country) and a government from another nation (host country) over an investment in the host nation.[9] For example, a corporation selling oil equipment to a foreign government is not investing in that nation. Any disagreement stemming from this transaction would be a regular business issue rather than an investment issue. However, if that company enters into a production sharing contract with, or obtains a concession or license from, a foreign government, under which it will invest significant sums of money at its own risk over a period of years to explore for, and produce oil and gas from certain geographical areas within the host state, with the expectation of profit, it is investing in the host country. An investment dispute might arise from a disagreement regarding the investor’s transfer of oil equipment to the government as part of the investment package. Similarly, if the transaction is based on an agreement to build a plant to produce oil equipment in the host nation, it may be regarded an investment dispute. Traditionally, these issues were settled by the host state’s internal courts or through diplomatic protection. The foreign investor’s recourse to the host country’s domestic courts inevitably sparked questions about prejudice and discrimination. This was acknowledged by the tribunal in the Maffezini case, which stated, “Traders and investors, like their states of nationality, have traditionally felt that recourse to international arbitration is better than submitting disputes to domestic courts, while host countries have traditionally felt that the protection of domestic courts to be preferable”[10] Although such prejudice may not exist in reality, the idea of prejudice has made domestic courts unappealing to investors. On the other hand, diplomatic protection came with its own set of drawbacks. Diplomatic protection is a method of defending a foreign investor’s rights in dealings with the host country, in which the investor seeks protection and counsel from his home country. Because a private person, whether natural or legal, was not a subject of international law and hence lacked the legal personality to pursue a claim in their own right[11], this was the most common method of resolving foreign investment issues. To seek redress against the host state, the foreign investor needed the assistance of his home country. The significant disadvantage was that the state had the power to defend or deny its national if the state took up the claim of its subject.[12] When deciding whether or not to defend its nationals, the state must consider its political goals.[13] International law imposes no responsibility on the state to pursue the claim, enforce its subject’s rights, or even pay over any damages collected from the respondent State to the claimant. As a result, there was no guarantee that the claimant would get effective diplomatic protection from the home state. Due to these constraints, bilateral investment treaties (BITs) and other international investment agreements (IIAs) have been adopted, as well as institutional forms of investor-State arbitration, such as the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). The prominence of customary law norms and remedies in this industry has dwindled as the international investment arbitration process has evolved.[14] Investment treaties form the bedrock of international investment law. An investment treaty is a pact between countries to provide a framework for encouraging and protecting foreign investment. Investment treaties can be between two governments (bilateral investment treaties, or BITs) or between numerous governments (multilateral investment treaties, or MITs) (multilateral investment treaties or free-trade agreements).[15] Investment treaties specify the requirements that each government must fulfill in relation to foreign investors. These obligations are considerable in scope and include general obligations toward the investment, such as treatment criteria for the investment. To far, roughly 2932 bilateral investment treaties and 387 treaties including investment clauses have been signed across the world.[16] In terms of the extensive protection provided to investors, the accords exhibit a remarkable level of homogeneity. The treaty’s signatories commit to acting in a nondiscriminatory, arbitrary, and reasonable way. Fair and Equitable Treatment, Most Favored Nation Treatment, National Treatment, Full Protection and Security, and Compensation for Property Expropriation are among the articles. If it weren’t for the dispute resolution clause known as investor-state dispute settlement or international investment arbitration, BITs would be toothless. This clause allows foreign corporations that have invested in a sovereign nation under the framework of an investment treaty to file claims against it. The respective government consents in advance to the jurisdiction of an international arbitral body for resolving disputes that may arise concerning the substantive commitments under the dispute resolution provision. These are known as “arbitration without privity” since the treaty is concluded by the government of the nation, yet it allows the investor to initiate arbitration procedures against the host state. There are various distinguishing characteristics of international investment arbitration or investor-state dispute settlement. Foreign investors (including their subsidiaries and owners) can bring claims against the government on their own, and the government is normally barred from doing so under the provisions of the BIT. To decide the investors’ claims against the host government, private arbitrators are appointed on a case-by-case basis. Rather than the host state’s domestic law, the law of the investment treaty is applied.[17]

Investment arbitration hearings are being held concurrently.

Due to the growth of investment treaties, parties to an investment dispute now have a variety of tribunals to choose from. They can either go to the host state’s domestic court, their home state’s domestic court, or the international investment tribunal,or they can encourage their home state to go to international organisations like the WTO on their behalf. When there are conflicts about which tribunal to approach and many actions are underway at the same time, complications will occur. Multiple claims by related entities based on the same facts raise substantial concerns about double recovery and the need for recurrent litigation.

When an investor files a claim in several tribunals, parallel hearings are held in those tribunals on the same substantive issues and between the same parties.[18] Just because the parties are the same or the procedures stem from the same transaction does not make them parallel or contemporaneous. The procedures must be almost similar, but they must be brought before two different courts, tribunals, or entities with adjudicative jurisdiction. As a result, parallel processes may occur between foreign and local courts, as well as investment and commercial arbitration tribunals.[19]

Parallel investment arbitration proceedings may take the following forms:

• the proceedings may be initiated under two or more BITs, resulting in the formation of two or more separate arbitral tribunals;

• the proceedings may be initiated separately by closely related investors for the same dispute under the same BIT;

• the investor may initiate arbitration under the relevant BIT and the domestic courts; • the investor may initiate arbitration under the relevant BIT and the domestic courts;[20] As a result, the author will examine parallel proceedings both horizontally and vertically in this study.

Causes for parallel proceedings

The origins of parallel procedures may be traced back to a conflict over which forum should be used to resolve conflicts between investors and the host state. The following considerations provide for jurisdictional disputes in investment arbitration:

An expanded meaning of the term “investor”:

The majority of BITs safeguard investments, whether they are made directly or indirectly. Nationals, persons, and businesses from one state who invest directly in another are afforded the same level of protection as indirect investors. Indirect investment might be made by forming a corporation in a state where BIT exists that is managed by a non-party investor. The indirect shareholder can then file various claims against the host state through different firms in the group for the same investment and against the same measures. As a result, investors and future claims for the same investment are covered by numerous organizations inside a single corporate structure.[21]

A disagreement emerged in the cases of Lauder v. Czech Republic[22] and CME v. Czech Republic[23] about the functioning of a television station in the Czech Republic. Mr. Ron Lauder was the investor, and he had made an investment in the Czech Republic through CME Czech Republic BV, a Dutch intermediate holding company that he controlled. The investment was said to have been expropriated. Under the 1991 bilateral treaty between the United States and the Czech Republic, Mr. Lauder initiated arbitration proceedings against the Czech Republic. CME, a Dutch investment entity, filed its own arbitration suit under the Dutch–Czech investment treaty at the same time. Under the terms of the relevant treaties, both claims were found to be acceptable. The Lauder tribunal accepted the possibility of contradictory judgements, noting that “damages [may] be concurrently given by more than one court or arbitral tribunal…” The CME panel considered the implications of the parties’ concurrent procedures, but found no impediment to adjudicating the same case.

The expansion of treaty protection to indirect investors creates a new channel for investors to make claims against host nations because no minimum investment is required, nor is it essential to have a controlling share in the transaction. Investors who own a minority stake in a company may also be eligible to file a claim. When deciding on jurisdiction, the tribunal in CMS v Argentina[24] stated that the “concern is not whether there is majority [ownership] or control but rather whether shareholders can claim independently from the corporate entity,” acknowledging that non-controlling minority shareholdings constitute a ‘investment’ for the purposes of the ICSID Convention and most BITs.[25] Because a given firm may have minority owners of several nationalities who might claim independently from the corporate body, the host state may face numerous arbitrations under different BITs in connection to basically the same set of facts.

Claims under treaty contracts that overlap:

BITs create a legal framework for treating and protecting foreign investment and investors, and any claims emerging from the treaty are treated as treaty claims. Contracts between the investor and the host state or entities of the host state, such as concession contracts, are also part of foreign investment. When the rights under the treaty and the contract overlap in terms of how the investment is treated, parallel procedures may ensue. The parties to an investment dispute may qualify as investors and therefore be entitled to pursue arbitration or approach domestic courts on that basis. They may also be parties to investment contracts and therefore be entitled to bring arbitration or approach domestic courts on that basis.[26] It should be emphasized that the causes of action in a treaty violation and a contract violation may differ, and so the processes may not be parallel.

Arbitration under investment treaties is not exclusive in the case of investment disputes.

Investment arbitration was established to give an alternative to the host state’s courts for redress. However, state courts are frequently not excluded from the treaty, leaving the claimant free to seek restitution in those courts.

Principle of Competence-Competence

The competence-competence theory gives the arbitral tribunal the authority to decide on its own jurisdiction. In the case of a conflict between treaty and contract claims, the tribunals might use the theory of competence-competence to exercise jurisdiction. Contractual claims would be settled through commercial arbitration, while treaty claims would be settled through investment arbitration. On the same topic, this might lead to simultaneous processes in commercial and investment arbitration tribunals.

After looking at the criteria that allow parallel processes to occur, it’s time to look at the motives for parties to file parallel claims. Parallel proceedings may be initiated by a party with the intent of delaying the proceedings, causing annoyance, increasing the burden on the opposing party, locating a more favorable forum for adjudication, or hedging bets on the outcome of decisions in multiple tribunals, i.e. the filing of claims in multiple tribunals increases the likelihood of receiving an award in one’s favor.[27]

CHAPTER III

CONSEQUENCES OF PARALLEL PROCEEDINGS

When actions are underway before a domestic court or another arbitral tribunal, and the parties and one or more of the issues are the same or nearly the same as those before the arbitral tribunal in another arbitration or lawsuit, concurrent proceedings might arise. These simultaneous or concurrent processes are widely seen as bad. Concurrent processes are avoided because they increase the likelihood of contradicting rulings, waste resources and cause delays owing to duplication of processes, and have a high potential for harassment or abuse of process.[28] Due to the presence of parallel procedures or a conflicting award, the arbitral award or court decree’s enforcement suffers. Concurrent actions have the most serious effect of contradictory awards and issues with enforceability.[29] When these processes take place in a court system, however, they can be corrected by creative use of national laws.[30]Most countries try to mitigate the negative effects of concurrent awards by using a sequential appeal procedure,[31] or by using res judicata, lis pendens, anti-suit or anti-arbitration injunctions, or consolidation of parties and procedures. National courts devised these remedies, which are now recognized by international tribunals. Because they lie under the state’s sovereign authority, parallel processes within a judicial system can be conclusively handled by using the tools of national law stated above. In investment arbitration, on the other hand, an investor and the host state where the investment was made are involved in parallel procedures. It does neither fall only within the jurisdiction of a national court, nor is it subject to a state’s sovereign adjudication procedure.

Cost escalation and unnecessarily long delays

Duplication of cases causes unnecessarily long delays in the overall investor-state dispute resolution process and drives up expenses to the expense of the parties involved. The parties are obliged to arbitrate or litigate in various forums as a result of the beginning of concurrent actions, which wastes time and money. Another factor exacerbating the effect of parallel processes is that the vast majority of International Investment Arbitrations are brought against capital-importing poorer nations. Only investors are permitted to commence cases under investment treaties, and states are always the respondents. According to a UNCTAD report, the bulk of the 65 known cases of ISDS in 2017 were launched by investors from wealthy nations against emerging and transition economies. This is part of a pattern that has been going on for a long time.[32]As a result, developing nations are compelled to spend precious resources defending against investor claims in various tribunals on the same problems when investors launch concurrent processes to import money. In the Yukos Oil Company case,[33] Russia was forced to pay USD 50 billion, while in the Occidental case,[34] Ecuador was sentenced to pay USD 1.77 billion. These multibillion-dollar wins underscore the stakes in investment treaty arbitration, as well as the potential impact of the expenses and awards made in these arbitrations on the respondent governments’ public finances. The poorer nations that are the target of investment arbitration cases are disproportionately affected by these excessive expenses.

Disputed awards

Initiating parallel actions before numerous courts, each of which may be entitled to judge the matter in a legal manner, may result in inconsistent and contradictory conclusions. When such contradicting awards are made, the parties’ expensive and time-consuming processes are rendered useless and infructuous. The parties may be put under even more stress if they are obliged to re-arbitrate the dispute. Mr. Ronald Lauder owned a majority interest in CME Czech Republic B.V (A Dutch Corporation) in the CME Lauder case,[35] which had invested in the Czech Republic’s television and radio industry by creating a private television station. The Czech Republic asked that the investor’s corporate structure be changed. The Lauder panel found that the Czech Republic had neither illegally interfered with or expropriated Lauder’s investment, whereas the CME panel found that the host state had de facto expropriated it. The rulings on the merits of the cases differed from one another. When considering whether the claims were parallel, the panel reasoned that because both claimants were legally distinct individuals, they were allowed to lodge separate claims. It declined to examine below the corporate veil of CME Netherlands B.V. and into Mr. Lauder’s majority interest.[36] If the tribunal had done so, it may have determined that the parties in both cases were practically the same. In both cases, the problems, cause of action, and parties were practically the same, but the decisions were inconsistent, raising reservations about investment arbitration as a healthy and equitable way of conflict resolution.

Security of the law and finality:

These conclusions in the CME and Lauder instances also demonstrate how concurrent hearings eliminate the possibility of finality of conclusions. The first tribunal’s judgment should have put an end to the dispute, but because efforts to consolidate the two procedures failed[37] and concurrent procedures were underway, the subject was assessed by another tribunal at the same time and a contradictory conclusion was made. In the absence of any way to prevent parallel procedures (e.g., lis pendens, res judicata, anti-arbitration or anti-suit injunctions), another claim under a different investment treaty might conceivably be filed on the same action by the host state. This is against the interests of the parties involved, and it undermines trust in the investor-state arbitration system as a whole. When arbitrators refuse to pierce the corporate veil and enable parties who are practically the same but have distinct legal identities to commence parallel procedures, it demonstrates that investment arbitration as a system has failed to control itself to avoid such arbitrary behavior. When several procedures are filed in different tribunals, the parties violate the norms of good faith and procedural fairness, which can result in conflicting awards or double recovery. As a result, parallel procedures are incompatible with these principles.[38] It is argued that the treaty wording should not allow for the beginning of parallel processes since it violates the fundamental principles of law and fairness. The mere fact that the treaty allows concurrent proceedings passively does not imply that it does so normatively, given the treaty’s enormous negative potential.

Bilateralism is being Undermined:

Bilateralism[39] is a term used to describe the relationship between two is the cornerstone of investment arbitration, which deals with claims originating from bilateral or multilateral investment treaties. The basic goal is to have international arbitral tribunals handle allegations of treaty violations rather than national courts. Parallel procedures undercut this by allowing national courts to assess the arbitral award issued by the treaty’s tribunal and vice versa. Decisions by national courts against investors are frequently characterized as denials of justice and, as a result, as a violation of the investor’s rights to protection. When such a claim is made, the arbitral tribunal must analyze the domestic court’s decision to see if it resulted in the investor being denied justice. If the tribunal finds the decision to be unfair, it may issue an injunction against the court’s implementation of the judgment or instruct the court not to act in a way that harms the investor. Investment arbitration tribunals should not examine a national court’s decision since the state does not consent to such authority being given to a private entity.[40] However, in recent years, the need to restore justice has exploded, resulting in arbitral review of judicial decisions. Despite the fact that the Saipem tribunal claimed to be neither a “control body over the ICC Arbitration, nor an enforcement court, nor a transnational appeal body for local court rulings,” its activities suggested otherwise. The parties’ disagreement had already been resolved through commercial arbitration, with the arbitral ruling being annulled by Bangladeshi courts. The investment tribunal effectively re-examined the national court ruling by considering if the court order violated the investor’s rights. This raises valid concerns regarding the appropriateness of judicial review by an arbitrator. When a state agrees to an investment treaty, it is agreeing to a limited amount of arbitral authority over administrative and judicial activity. The objective was not for the arbitral tribunal to operate as a transnational appellate authority. It might be claimed that all state actions are deemed state actions, and therefore consenting to investment arbitration entails consenting to arbitral examination of all state actions. It is argued that exposing the judgments of sovereign nations’ courts to review by a private tribunal with minimal accountability or transparency, especially in areas affecting the general public, is unethical.

The effects and reason for starting parallel procedures have thus been investigated from three angles[41]:

To begin with, the simultaneous processes result in inconsistencies and contradictions in awards, which are in violation of key legal principles such as the rule of law, legal certainty, due process, and legal procedural fundamentals. Second, parallel processes have a detrimental impact on the respondent party, who is forced to spend more time and money. The claiming party can use its legal rights to contact various forums, enhancing the likelihood of success in at least one of them. The parallel procedure may therefore be a deliberate move by the claimants to increase their chances of winning, but it has disproportionately unfavorable financial and legal consequences for the respondent state. Finally, the impact of parallel procedures on the overall investment arbitration framework was investigated. Investor-state arbitration was intended to provide a pathway to efficient administration of justice, but the numerous issues raised by concurrent enforcement and annulment processes, as well as the practical obstacles of double recovery, undermine its effectiveness. Considering the numerous criticisms and problems raised by concurrent or simultaneous processes, it is reasonable to conclude that they are harmful to investment practice. Concurrent litigation and their effects may potentially erode confidence in investment treaty arbitration.

CHAPTER IV

MEASURES TO CONTROL PARALLEL PROCEEDINGS

In international investment arbitration, parallel processes are becoming more regular.[42] The lack of clarity on the distinction between treaty and contract claims, a broad definition of investment and investor, arbitral tribunals’ tendency to find jurisdiction in cases of treaty and contract violations by acts of state, and the inclusion of an umbrella clause are some of the reasons for the parallel proceeding. The need to create strategies to minimize duplication of procedures is going to be a key concern for investor-state arbitration in the near future, since parallel cases and their accompanying challenges are expected to increase.[43] Parallel processes can be addressed by modifying investment treaty wording, offering instructions to arbitrators on how to read the wording, or having the parties self-regulate their conduct in investment arbitration.[44] The United Nations Commission on International Trade Law (UNCITRAL)[45] released a statement outlining the different options for controlling the disruption generated by concurrent processes. The author will analyze and explain strategies that may be used to prevent parallel proceedings in this chapter, as well as their applicability, benefits, and drawbacks.

Lis pendens and res judicata

When several processes on the same subject are sought, the legal ideas of res judicata and lis pendens prevent the jurisdiction of a second tribunal or court.[46]The main difference between res judicata and lis pendens is that the former prohibits subsequent proceedings only after the first has been completed and a valid judgment or award has been issued, whereas the latter prohibits subsequent proceedings only during the pendency of the first and does not prevent the initiation of new proceedings elsewhere after the first has been completed.[47] The arbitrator can use this remedy to handle simultaneous processes by interpreting and applying these concepts to impose injunctions against simultaneous processes.

The basic notion that an earlier and final determination by a court or arbitration tribunal is decisive in later procedures involving the same subject matter or remedy, the same legal reasons, and the same parties has been characterized as res judicata.[48] The notion of finality, or res judicata, serves two purposes. For starters, it ensures that a ruling or award is judicially final. The award or judgement cannot be overturned or contested in any other court. Second, it avoids contradictory rulings and the defendants having to defend themselves again in the same case. The term for this is ne bis in idem.[49] Lis pendens is a regulation designed to prevent two tribunals from hearing the same case at the same time. Lis pendens precludes further proceedings when a claim is presented in later proceedings while the dispute is already being adjudicated by another court or tribunal.

In the dissenting decision of J. Anzillotti of the International Court of Justice in the Chorzow Factory case, res judicata was recognized as a universal concept of law.[50]

The conventional characteristics of recognizing the case that operates as a res judicata are that it has the same persona, petititum, and causa petendi, according to.In a determined case, if the parties, cause of action, and remedy sought were all the same, it would operate as a binding decision, preventing further action.

Res Judicata and Lis Pendens

Applicability to Investment Arbitration Many tribunals have recognized the international law ideas of res judicata and lis pendens as being applicable to investment arbitration. The panel declared in Benvenuti & Bonfant Srl v People’s Republic of the Congo[51] that lis pendens was acknowledged as a basic rule of law applicable to investment arbitration. The use of lis pendens is, however, optional and subject to the tribunal’s discretion.[52] In the hands of the tribunal, such discretion is appropriate. If made necessary, lis pendens would preclude the tribunal from acquiring jurisdiction if the issue is ongoing in any other court or tribunal, undermining the concept of competence-compentence, which holds that an arbitral tribunal decides on its own jurisdiction.

Conditions for res judicata and lis pendens application:

The notions of res judicata and lis pendens are therefore recognized as relevant to investment arbitration, but certain preconditions must be met before they may be applied to a specific set of procedures.

Triple Identity Test:

To begin, the concurrent procedures must have a commonality of party identification, object, and conduct in order for res judicata or lis pendens to be applied. This is known as the three identity test, which states that two parallel or concurrent procedures must be between the same parties, originate from the same cause of action, and seek the same aim, subject matter, or relief.

For res judicata or lis pendens to apply, the identity of relief or petituim indicates that the same remedy must be sought in the second process, and the identity of grounds indicates that the causa petendi or cause of action in the claims must be similar.[53] In the meanwhile, a state infringement can give rise to a variety of causes of action based on a breach of an investment treaty, a contract between the investor and the state, or an international responsibility. An investor who has made a financial investment in the host state may have signed into a contract with that state, and the state’s actions might violate the contract as well as the treaty’s duties. As a result, the investor might file an investment arbitration claim under the treaty while still pursuing other options.

CHAPTER V:

INDIAN PERSPECTIVE ON INTERNATIONAL INVESTMENT ARBITRATION PARALLEL PROCEEDINGS

When India signed its first investment treaty, the India-UK Bilateral Investment Protection Agreement, in 1994, it began its journey into international investment arbitration. The investor was given the opportunity to launch an investor-state dispute resolution process under the Bilateral Investment Treaty, which guaranteed specific levels of protection for the investment. In 2003, India released a model BIT that was intended to serve as a blueprint for the negotiation of similar accords with other nations. India realized it needed to stimulate foreign investment because it was predominantly a capital-importing economy. As a result, the 2003 model treaty was investor-friendly, including extensive safeguards such as most favored nation, fair and equitable protection, complete protection and security, and protection against expropriation, among others. Following that, India went on a BIT signing binge, negotiating treaties with approximately 83 nations.[54] These treaties were signed based on the concept provided in the model treaty, although there was minimal discussion over the contents of the agreements. Because India had limited negotiation leverage and her principal purpose was to stimulate foreign investment in a liberalized and globalized economy in 1991, the model treaty was frequently signed into force as is.[55]

The Vodafone Case Study

The Indian government attempted to tax a share acquisition transaction between Vodafone and Hutchinson Telecommunications International Limited in 2008. Vodafone had bought all of CGP Investments’ shares in Hutchinson Essar Limited, a Mauritian company that held a controlling position in the company. The assessee was seeking a tax liability of Rs. 12,000 crores, but the Supreme Court of India decided in his favor.[56]The parliament enacted the Finance Act 2012, which included retrospective revisions to Sections 9(1) and 195 of the Indian Income Tax Act, as well as Section 119 of the Indian Finance Act, 2012.[57]Vodafone was rendered responsible to pay the tax on the share purchase agreement as a result of this modification, which retroactively extended tax responsibility.

This is a classic example of parallel proceedings, in which closely linked parties (subsidiaries and parent corporations) have filed different claims for the same cause of action and economic damages. India saw this as a vexatious claim intended to assure the claim’s success in at least one venue. Vodafone, on the other hand, filed the second lawsuit because it was concerned that the India-Netherlands treaty arbitration would fail to establish jurisdiction. The Indian government filed a complaint in the Delhi High Court seeking an anti-arbitration order against the second round of negotiations. Parallel procedures, it said, were an abuse of process. An ex parte temporary measure order was given by the Delhi High Court at first. The court said that it has the authority to impose anti-arbitration injunctions. The conclusion was that only an express provision of law may remove a court’s jurisdiction. In addition, the court determined that similar claims in this instance were not an abuse of process and were not precluded. Multiple claims could not be considered an abuse of process in and of themselves. This is because abuse of process necessitates the application of a procedural right in an atypical, excessive, or abusive manner. If the parallel procedures were oppressive, vexatious, inequitable, or resulted in abuse of process, it would be considered abuse of process. The court also observed that Vodafone had volunteered to merge both claims, indicating that its initiation of concurrent procedures was not oppressive.

In this instance, the Court handled the question of simultaneous proceedings with uncommon maturity and insight. It did not rule out the possibility of several cases being an abuse of process, but added the criterion of proving that the processes were started for unjust gain or as a delay strategy. This ruling has also bolstered the use of anti-arbitration injunctions as a control mechanism in concurrent procedures. This is particularly important since, according to UNCTAD, India is facing 13 ISDS cases, the most of which involve telecommunication license cancellations and tax revisions. Because both issues are the result of the same governmental action, they may result in simultaneous processes.[58]

CHAPTER VI

CONCLUSION

Foreign direct investment has been a cornerstone of economies throughout the world as the globe has grown increasingly globalized. FDI has various advantages for the economy, but it also increases the risk of cross-border conflicts. Investment arbitration tribunals, commercial arbitration, domestic courts, and other venues can be used to resolve these conflicts. The coexistence of established dispute resolution methods and the brave new world of international investment arbitration has resulted in parallel processes.[59]Most of the time, such coexistence is peaceful, but when numerous tribunals are tasked with resolving the same issue involving the same parties and the same cause of action, it can lead to a slew of bad effects. There are a variety of treaty articles, arbitrator interpretations, and party conduct-based procedures available to address the issues that arise from concurrent proceedings. Each of these metrics has its own set of advantages, disadvantages, restrictions, and flaws. A well-balanced use of these procedures has the ability to mitigate the negative consequences of concurrent proceedings.

Anti-arbitration injunctions issued by domestic courts in India are a powerful tool for limiting parallel arbitration. Parallel procedures between domestic courts and investment tribunals can be avoided by including an exhaustion of local remedies clause in the 2016 Model BIT, which India hopes to utilize to rewrite its investment treaties. The prospect of addressing a domestic court and an investment tribunal at the same time is gone since the investor will be compelled to fight the matter in domestic courts for five years before he can approach an investment tribunal. Model BIT 2016 should, in my opinion, include a clause allowing for claim consolidation. Because the consolidation of claims necessitates either an express provision in the treaty or the approval of all parties, including such a clause would eliminate the need for parties to assent. Respondent states in the Vodafone and CME Lauder instances declined to accede to claim consolidation, resulting in parallel processes and all of their repercussions. Parallel procedures might also be avoided by employing the abuse of process theory and anti-arbitration injunctions. In addition, the Model BIT’s inclusion of sections dealing with claim consolidation, res judicata, and lis pendens should be sufficient to govern concurrent procedures.

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REPΟRTS

1. Lise Jοhnsοn, Lisa Sachs And Jeffrey Sachs, ‘The Cοlumbia Center Οn Sustainable Investment (CCSI Pοlicy Paper May 2015)
2. Internatiοnal Law Assοciatiοn, Final Repοrt οn Lis Pendens and Arbitratiοn, (2009 25 Arb. Internatiοnal, pg. 83)
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4. Diana Rοsert, The Stakes Are High: A review οf the financial cοsts οf investment treaty arbitratiοn, Research Repοrt July 2014, The Internatiοnal Institute fοr Sustainable Develοpment (IISD)

ARTICLES

1. Rοbin F. Hansen, Parallel Prοceedings in Investοr-State Treaty Arbitratiοn: Respοnses fοr Treaty-Drafters, Arbitratοrs and Parties, 2010 The Mοdern Law Review, Vοl. 73, Nο. 4 Pg. 523-550 available at https://www.jstοr.οrg/stable/40865464

Michael D. Gοldhaber, The Rise οf Arbitral Pοwer Οver Dοmestic Cοurts, vοl 1 Stanfοrd Jοurnal οf Cοmplex Litigatiοn 373 (2013).

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[2] M. Sornarajah, The International Law On Foreign Investment 6-7 (2nd ed. 2004)

[3] Campbell Mclachlan Qc, Laurence Shore, Matthew Weiniger, International Investment Arbitration: Substantive Principles, 2nd Ed, Oxford University Press, 2007

[4] Katia Yanaca-Small,’Parallel Proceedings’ in Peter Muchlinski and Ors. Ed. The Oxford Handbook of Investment Law, (Oxford University Press 2008)

[5] Robin F. Hansen, Parallel Proceedings in Investor-State Treaty Arbitration: Responses for TreatyDrafters, Arbitrators and Parties, 2010 The Modern Law Review, Vol. 73, No. 4 Pg. 523-550

[6] Michael D. Goldhaber, The Rise of Arbitral Power Over Domestic Courts, vol 1 Stanford Journal of Complex Litigation 373 (2013).

[7] 7 Sae Youn Kim & Tae Joon Ahn, ‘Investment arbitration and parallel proceedings’ The Investment Treaty Arbitration Review,3rd Ed. 67 (2018) 3

[8] Salini et al v. Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, 152 (Jul. 23, 2001), 42 I.L.M. 609 (2003) Para 52

[9] Bishop, Crawford, Reisman, Foreign Investment Disputes, (2005) Cases, Materials and Commentary, (Kluwer Law International 2005) Pg. 9

[10] Maffezini v The Kingdom Of Spain, Decision Of The Tribunal On Objections To Jurisdiction Dated January 25,2000

[11] P.T. Muchlinski, ‘The Status Of The Individual Under The European Convention On Human Rights And Contemporary International Law’, 34 ICQL (1985) 376.

[12] Panevezys-Saldutiskis Case Estonia v. Lithuania, PCIJ Reports Series A/B, No. 76 (1939) 16.

[13] R. Vernon, ‘The Multinationals: No Strings Attached’, 33/ Foreign Policy (1978–9) 121, 126–7

[14]Christina Binder, Ursula Kriebaum, August Reinisch, Stephan Wittich Ed. 2009)

[15] Vikramaditya Khanna and Aditya Singh,’ Current Trends In International Investment Arbitration Litigation’,Vol. 41, No. 3 Pg.41-44 (2015 ABA)

[16]Investment arbitration statistics , UNCTAD ,available at https://Investmentpolicyhubold.Unctad.Org/Iia last accessed 21st May 2019

[17]Lise Johnson, Lisa Sachs And Jeffrey Sachs, ‘The Columbia Center On Sustainable Investment (Ccsi Policy Paper May 2015)

[18]Sae Youn Kim & Tae Joon Ahn, ‘Investment arbitration and parallel proceedings’ The Investment Treaty Arbitration Review,3rd Ed. 67 (2018) Pg. 69

[19]Supra Note.13

[20]Roger P Alfrod, ‘The Convergence Of International Trade And Investment Arbitration’(2014) 53 Santa Clara Law Rev.35, 44

[21]Prof. Hanno Wehland Controlling Chaos in Parallel Proceedings: A Report from the 30th Annual ITA Workshop

[22]Lauder v Czech Republic (award) 9 ICSID rep 62 (UNCITRAL, 2001)

[23]CME Czech Republic BV (The Netherlands) v Czech Republic (partial award) 9 ICSID Rep 121 (UNCITRAL, 2001)

[24]CMS Gas Transmission Company v The Republic Of Argentina ICSID Case No. Arb/01/8, Decision On Objections To Jurisdiction, In 42 Ilm 788 (2003)

[25]Lanco International Inc v Argentina, Preliminary Decision On Jurisdiction, 40 Ilm 457, 463 (2001).

[26]Supra Note 20

[27]Supra Note 19

[28]Gabrielle Kaufmann-Kohler, How to handle parallel proceedings: A practical approach to issues such as competence-competence and anti-suit injunctions, 2008

[29]Daniel W. Rivkin, The impact of parallel and successive proceedings on the enforcement of arbitral awards in Bernardo M Cemades and Julian D.M Lew(Eds.)

[30]Supra Note 23

[31]Dimock v Revere Copper Co 117 U.S. 559

[32] World Investment Report 2018, UNCTAD, Pg 92

[33]Yukos Universal Limited v Russian Federation, Final Award, PCA Case No AA 227, IIC 652 (2014), ICGJ 481 (PCA 2014), 18th July 2014, Permanent Court of Arbitration [PCA]

[34] Occidental Petroleum Corporation and Occidental Exploration and Production Company v. The Republic of Ecuador, ICSID Case No. ARB/06/11

[35]Supra Note 27

[36]CME Czech Republic BV (The Netherlands) v Czech Republic (final award) (UNCITRAL.2003) Para 207

[37]Czech Republic v CME Republic B.V. Svea Court of Appeal 15 May 2003 at Pg.71-73

[38]Supra Note 29

[39]Campbell McLachlan QC, Laurence Shore, Matthew Weiniger, International Investment Arbitration: Substantive Principles, 2nd Ed, Oxford University Press, 2007

[40]Paulsson J, Denial of Justice in International Law (Cambridge University Press 2005)

[41] Supra Note 20

[42]Gus Van Harten, The Boom in Parallel Claims in Investment Treaty Arbitration, IISD 19th Jan 2014

[43]Bernardo M Cremades and David J.A. Cairns, Contact and treaty claims and choice of forum in foreign investment dispute in Bernardo M Cemades and Julian D.M Lew(Eds.),Parallel State and Arbitral Procedures in International Arbitration (Dossiers of the ICC institute of World Business Law 2005)

[44]Supra Note 23

[45]Supra Note 41

[46]Supra Note 21

[47]Supra Note 31

[48]Filip De Ly and Audley Sheppard, ILA Interim Report on Res Judicata and Arbitration, Arbitration International, Volume 25, Issue 1, 1 March 2009, Pages 35–66,

[49]Supra Note 38

[50]  Art. 38(1)(c), Statute of the International Court of Justice, United Nations, 18 April 1946

[51]Benvenuti & Bonfant Srl v People’s Republic of the Congo (Award) 1 ICSID Rep 330, 340 (ICSID, 1980

[52]Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt, ICSID Case No. ARB/84/3

[53]Plama Consortium Ltd v Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005

[54]India United Kingdom Bilateral Investment Protection Agreement, 14th March 1994

[55]Bilateral Investment Treaties (BITs)/Agreements, Department of Economic Affairs

[56]Kshama Loya Modani & Vyapak Desai, India Vs. Vodafone – Tribunal To Rule On Jurisdiction In Multiple Bit Arbitrations

[57]Union of India v Vodafone Group United Kingdom Inc CS(OS) No. 383 of 2017 Del HC, 22 Aug 2017

[58]9UNCTAD, Investment Policy Hub, available at http://investmentpolicyhub.unctad.org/ISDS/CountryCases/96 last accessed 21st May 2019

[59]Art. 15 Draft Indian Model Bilateral Investment Treaty Text, 2016, available at https://mygov.in/ group-issue/draft-indian-model-bilateral-investment-treaty-text/

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