Parallel Proceedings in Investment Arbitration: A Practitioner’s Perspective Richard H. Kreindler Conference on “The Backlash Against Investment Arbitration“ Harvard International Law Society, 19 April 2008

Richard H. Kreindler - Harvard Law School, 19 April 2008 I. The focus of the topic 1. “Practitioner“: Counsel vs Arbitrator vs Judge: differing priorities 2. Practitioner as Counsel for party seeking to: 2.1 Advance or hinder (A) ongoing treaty- or non-treaty arbitration vs (B) ongoing litigation or prior judgment between same or different parties; 2.2 Advance or hinder (A) ongoing treaty- or non-treaty arbitration vs (B) another ongoing arbitration or prior award between same or different parties; 2.3 Advance or hinder (A) ongoing treaty- or non-treaty arbitration or ongoing litigation vs (B) another litigation or arbitration not yet commenced between same or different parties. Richard H. Kreindler - Harvard Law School, 19 April 2008 Copyright © 2005 Shearman & Sterling LLP. As used herein “Shearman & Sterling” refers to Shearman & Sterling LLP, a limited liability partnership organized under the laws of the State of Delaware.

II. Common Practitioner Issues in “Parallel“ Proceedings I 1. Search for one or more seats and/or rules of arbitration (and corresponding curial law) where, e.g.: 1.1 Multiple arbitration options exist based on privity or other grounds; 1.2 Parties have not specified single seat and/or rules; 1.3 Possible basis for arbitral jurisdiction at other seat/other rules; 1.4 Possible basis for arbitral jurisdiction despite choice of forum. 2. US federal courts: no consensus on legal framework (stay, dismissal, anti-suit injunction) for parallel, concurrent proceedings in foreign courts. Richard H. Kreindler - Harvard Law School, 19 April 2008

III. Common Practitioner Motives in “Parallel“ Proceedings I 1. Obtain favorable regime, rules, seat from standpoint of jurisdiction 2. Obtain “home advantage” through home seat or home substantive law 3. Influence which mandatory principles of law may apply with respect to procedure and which local courts at seat may play supervisory role 4. Gain advantage of local standards of arbitrability, public policy 5. Gain advantage of particular compétence-compétence vs lis pendens (cf. 2006 amendment to Art. 186 of Swiss Private International Law Act) 6. As claimant, formulate claims efficaciously as treaty- or contract-based. Richard H. Kreindler - Harvard Law School, 19 April 2008

IV. Conceptual Aspects of „Parallel“ in Investment Disputes 1. When is dispute treaty-based, when contract-based, who decides? 2. When must “local remedies“ be exhausted, when are they exhausted, and who decides? 3. What is lis pendens/res judicata effect of treaty-based arbitration/award on litigation? Of non-treaty based litigation/judgment on treaty-based arbitration? Who decides? 4. Is the issue one of lis pendens or rather competence-competence or both? 5. Are two parallel matters between different parties even “parallel proceedings”? Richard H. Kreindler - Harvard Law School, 19 April 2008

V. Tactical “Parallel“ Issues in Investment Disputes 1. When is dispute legitimately treaty-based and when contract-based, and what may be done to enhance/hinder such characterization? 2. How to obtain court or arbitral forum which may enhance/hinder characterization as treaty- or contract-based? 3. How to obtain forum to enhance/hinder finding that local remedies must be/have been exhausted? 4. How to obtain forum to enhance/hinder lis pendens/res judicata effect of treaty-based arbitration/award on litigation, and of non-treaty-based litigation/judgment on treaty-based arbitration? Richard H. Kreindler - Harvard Law School, 19 April 2008

VI. Arbitral “Forum Shopping” in Investment Arbitration 1. Is there contractual privity? 2. Is there private agreement to arbitration? 3. Are there multiple treaty-based options of dispute resolution? 4. Is there agreement to specific seat? to specific arbitral rules? 5. Are there multiple arbitrations with same or different seats and with same or different sets of rules? 6. Are there parallel agreements to arbitration and local courts with same or with different seat or venue? Richard H. Kreindler - Harvard Law School, 19 April 2008 Copyright © 2005 Shearman & Sterling LLP. As used herein “Shearman & Sterling” refers to Shearman & Sterling LLP, a limited liability partnership organized under the laws of the State of Delaware.

VII. Parallel Proceedings Where Contractual Privity Exists 1. Where contractual privity does exist, there are various possibilities: 1.1 Commence arbitration without agreement to arbitration 1.2 Investor has contractual dispute resolution agreement with state entity, but commences BIT arbitration against host State itself 1.3 Investor has contractual dispute resolution mechanism with State, but commences BIT arbitration against State 1.4 Investor has contractual dispute resolution mechanism in contract with State, but commences BIT (e.g., ICSID) arbitration not only for treaty-based claims on basis of BIT, but also contract-based claims. Richard H. Kreindler - Harvard Law School, 19 April 2008

VIII. Holding Parallel Proceedings in Check 1.1 Statute, convention and case law may empower tribunal or court to stay/dismiss in deference to valid agreement to other mechanism 1.2 But arguments of lis pendens, abuse of process, res judicata, double recovery will not necessarily prevail to prevent conflicting outcomes: e.g., Lauder/CME, requiring identity of parties, object and cause of action. 1.3 Contractual agreement to local arbitration where both local arbitration and BIT arbitration commenced: can prior agreement to local arbitration for “all disputes” be exclusive forum for contract claims? 1.4 Can ICSID tribunal adjudicate both BIT-related claims and contract claims? Ex: SGS v. Pakistan – held, no jurisdiction over contract claims which did not also constitute breaches of substantive standards of BIT. Richard H. Kreindler - Harvard Law School, 19 April 2008

VIII. Holding Parallel Proceedings in Check (cont’d) 1.5 ICSID tribunals have upheld BIT jurisdiction despite contractual forum selection: Holiday Inns, Klöckner, Vivendi, Vivendi Annulment. 1.6 Contractual agreement to local court proceedings where both local arbitration and BIT arbitration commenced: is prior agreement to local court for “all disputes” exclusive forum for contract claims? Is BIT limited to breach of international standards (as opposed to contract claims or other claims under national law)? Ex: SGS v. Philippines – held, BIT does not override binding choice of forum for contract claims; lex posterior derogat legi priori applies only to instruments of same legal character, which BIT and private contract were not. Richard H. Kreindler - Harvard Law School, 19 April 2008

IX. Staying Parallel Proceedings Generally 1.1 Precedents for stays by international tribunals: e.g., MOX Plant Case – UNCLOS tribunal stayed proceedings pending ECJ determination. 1.2 No stay: SGS v. Pakistan: tribunal declined to stay, but implied that ICSID tribunal can stay pending determination, by other competent forum, of issue relevant to own decision; held, determination of issues under private contract, subject to local law/local arbitration, not required to assess BIT violations related to investment under same contract. 1.3 Stay: Cf. SGS v. Philippines: tribunal stayed, relying on distinction between jurisdiction and admissibility; held, can assess contract claim to extent gave rise to BIT claim, but premature until payment claim and quantum decided by local courts under local law [note also dissent]. Richard H. Kreindler - Harvard Law School, 19 April 2008

X. Guidelines Resulting from Parallel Experiences 1.1 Each BIT case fact-specific as to (i) relationship between BIT-related arbitration agreement and local dispute mechanism, (ii) wording of each clause, (iii) timing of entry into force of BIT versus contract, (iv) existence of “umbrella clause” or “fork-in-the-road” clause, (v) nature of claims. 1.2 BIT claims usually not subject to local court/arbitration agreed to in private contract, esp. where BIT entered into force after private contract. 1.3 Where BIT provides solely for ICSID and no fork-in-the-road, possible argument that “exclusive” private choice of forum with host State not exclusive: BIT ensures investor choice, including of availing itself of prior private agreement to local arbitration or litigation. Richard H. Kreindler - Harvard Law School, 19 April 2008

X. Guidelines from Parallel Experiences (cont’d) 1.4 Where BIT-based claim brought first to local court/arbitration, local decision should not divest later BIT-based tribunal of jurisdiction over same BIT-based claim. But result is: possible conflicting awards on treaty-based claims and possible tension between public international law choice-of-rules and law at local seat of arbitration. 1.5 Possible solution to above conflict: a stay, but by whom? SGS v. Philippines: decision adverse to investor, not able to benefit from preferential BIT dispute mechanism. Also, indirect affirmation of doctrine of exhaustion of local remedies. Richard H. Kreindler - Harvard Law School, 19 April 2008

X. Guidelines from Parallel Experiences (cont’d) 1.6 Forum shopping unavoidable?: BITs covering “disputes with respect to investments”: can include treaty- and contract-based claims insofar as private contract with State is with respect to investments. SGS v. Pakistan: held, local arbitration agreement in private contract with State deemed valid for contract claims “which do not also amount to BIT claims” – decision is only of limited help. 1.7 Imperfect distinctions: SGS v. Philippines – held, claim under private contract with State subject to private contract’s local choice of forum but also triggers ICSID “jurisdiction” on basis of BIT “umbrella clause” and “FET” clause. Richard H. Kreindler - Harvard Law School, 19 April 2008

X. Guidelines from Parallel Experiences (cont’d) 1.8 “Elevating” contract claim into BIT claim? No, is more a question of notion that private contract is performed as to investment which is covered by BIT. So parsing between contract and treaty must have its limits, e.g., alleged breach relates to uniquely sovereign acts. 1.9 Concern in SGS v. Pakistan that investor “could always defeat the State’s invocation of the contractually specified forum”: Yes, but is not purpose of BIT to provide protective and even preferential treatment, esp. where State entered into arm’s length BIT after private contracts with foreign investors? Richard H. Kreindler - Harvard Law School, 19 April 2008

X. Guidelines from Parallel Experiences (cont’d) 1.10 Staying BIT-based arbitration is not without dangers: tribunal in SGS v. Pakistan decided was obligated to affirm jurisdiction over BIT claims and not stay in deference to local arbitration, despite risk of race to judgment on overlapping claims. Basis?: determination by local tribunal of private contract breach would not bind ICSID tribunal as to BIT breach. 1.11 Both ICSID SGS tribunals declined to decide contract claim; thus neither decision holds that ICSID can be invoked to have private claims adjudicated under international law before international tribunals divorced from local law/standards of annulment. Richard H. Kreindler - Harvard Law School, 19 April 2008

Richard H. Kreindler - Harvard Law School, 19 April 2008 XI. The Way Forward 1.1 Uncertainty: if stays of ICSID arbitration increase, is ICSID worth it? 1.2 Is upholding of jurisdiction by local authorities to adjudicate contract claims an unacceptable reaffirmation of exhaustion of local remedies doctrine, or undermining of preferential treatment in “umbrella clause”? 1.3 Will cross-border anti-suit or anti-arbitration injunctions become more prevalent? What will disputes in the Latin American sphere bring? 1.4 Will consolidation become more prevalent, assuming party consent and provision in treaty?: Sempra Energy, Camuzzi, Art. 1126 NAFTA. Richard H. Kreindler - Harvard Law School, 19 April 2008

XI. The Way Forward (cont’d) 1.5 Current parallel proceedings uncertainty: says as much about shortcomings of certain BIT drafting as about decisions based on them. 1.6 Is 2006 amendment to Art. 186 Swiss Private International Law Act harbinger of greater compétence-compétence autonomy by tribunals to decide jurisdiction without regard to other proceedings having same object already pending between same parties, and not to stay? 1.7 Next decade of BIT negotiation and arbitration is crucial to ensuring that parallel proceedings are neither abusive nor unnecessarily stifled, and function in proper parameters that have already existed – without enormous incident or prejudice -- in transnational litigation for decades. ooOOoo Richard H. Kreindler - Harvard Law School, 19 April 2008