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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
INTRODUCTION
Parallel proceedings in arbitration are an increasingly common phenomenon. Disputes arising from a single economic transaction, such as a construction project or an investment contract with a state, may involve the same parties or the same issues, but become subject to separate arbitral or court proceedings and lead to conflicting results. This trend has not been limited to proceedings on the merits. Arbitral awards have been subject to parallel and successive enforcement and annulment proceedings as well. The prime examples - the parallel CME and Lauder arbitrations, the enforcement of vacated awards in Chromalloy and Hilmarton, and the simultaneous vacatur and enforcement of the Karaha Bodas award in different jurisdictions - have been controversial and, for some commentators and academics, portend a gathering crisis in the global system of international arbitration. 1
Undoubtedly, the growing phenomenon of parallel and successive proceedings is a result of the growing reliance on international arbitration to resolve a larger and broader scope of disputes than ever before. The numbers of arbitration cases are increasing rapidly each year. 2 The underlying disputes are often more complicated, involving multiple parties and contracts. The international instruments incorporating dispute resolution mechanisms have similarly mushroomed. There are roughly 2000 bilateral investment treaties (BITs) now in force and a growing number of multilateral investment treaties such as NAFTA. 3 Dispute settlement mechanisms have multiplied in every area: supranational institutions, treaty-based tribunals, arbitral institutions[Page269:] and commissions, and ad hoc tribunals. While arbitration has become increasingly popular, the size and importance of the disputes have led to growing procedural complexity, jurisdictional battles, and forum shopping. Whether for good or for ill, parties have increasingly taken their disputes to multiple tribunals and courts, which have overlapping authority to adjudicate, annul and enforce arbitral awards. One result has been conflicting awards and the enforcement of previously annulled awards.
This article examines the impact that parallel and successive proceedings have had on the enforcement of arbitral awards and the availability of effective tools to deal with this phenomenon in the future. First, this article discusses parallel and successive proceedings on the merits. Next, it examines parallel and successive annulment and enforcement proceedings. In its final section, this article reviews the tools available to practitioners, judges, and arbitrators to manage the phenomenon of arbitral awards arising from parallel and successive proceedings and to enhance the enforceability of awards.
PARALLEL AND SUCCESSIVE PROCEEDINGS
Parallel proceedings before arbitral tribunals and national courts can arise in several circumstances. When a dispute involves multiple parties or multiple contracts, the claimant(s) may not be able to bring all the claims or defendants into a single arbitration or court proceeding even though the claims arise from the same legal relationship or factual nexus. The contracts involved may not all have arbitration clauses, may refer disputes to different arbitral institutions, incorporate different rules, or choose different governing laws. It is difficult to join third parties to an arbitration that only governs the parties to the arbitration agreement that created it. Insurance contract claims may be brought against the same insurance company, but under different policies and before different arbitral tribunals. Multi-party disputes, such as in chain sales contracts, may also result in parallel arbitrations.
Disputes over an investment contract often give rise to both contract and treaty claims. These claims frequently may be adjudicated before different tribunals even though they involve virtually the same facts. Multilateral and bilateral investment treaties (BITs) govern the relationship between investors of one signatory state with another signatory state in connection with investments in the territory of the latter. Most such investment treaties guarantee, inter alia, fair and equitable treatment to these investments, [Page270:] treatment for investors and investments as favourable as that accorded to domestic investors and investments, unrestricted transfer of investment and returns, and protection of investments from expropriation except under very limited circumstances, in which prompt, adequate and effective compensation must be given. A breach of the investment agreement may qualify as a breach of the relevant BIT, or possibly several relevant BITs, which creates the possibility of parallel proceedings over essentially the same facts.
Almost all investment treaties provide for international arbitration of disputes arising over compliance with these guarantees. The International Centre for Settlement of Investment Disputes (ICSID), established under the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States (Washington Convention) and sponsored by the International Bank of Development and Reconstruction, is the favoured forum for BIT arbitrations, although many treaties permit ad hoc arbitrations under the UNCITRAL Arbitration Rules and before other arbitration institutions as well. While ICSID has jurisdiction over most BIT disputes, and the host state's consent to that jurisdiction is irrevocable, that jurisdiction is neither exclusive nor compulsory. 4 The investment or development contract will also often contain a forum selection or arbitration clause for disputes arising out of that contract, which may provide for a different arbitral forum or which may select the national court of the host state.
1. The potential impact of parallel and successive proceedings on enforceability
Parallel proceedings may undermine some of the advantages of arbitration. They may delay the resolution of disputes, add to their expense, and invite forum shopping. More significantly, parallel proceedings risk conflicting results, which may undercut the finality and the ease of enforcement of these awards under the New York Convention - a great advantage of arbitration over litigation.
The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), ratified by approximately 140 countries, provides for summary, mutual recognition and enforcement of international commercial arbitral awards by contracting states. The proponent of an award is required only to supply the original, or a certified copy, of the award and the arbitral agreement. The burden of proving the invalidity of[Page271:] the award rests with the party resisting enforcement. The resisting party may raise only the grounds set forth in Art.V of the Convention: (i) absence of a valid arbitration agreement; (ii) lack of a fair opportunity to be heard;
(iii) the award exceeds the submission to arbitration; (iv) improper compositionof the arbitral tribunal or improper arbitral procedure; and (v) the award has not yet become binding or has been stayed. 5 Further, the New York Convention provides that the court may refuse enforcement if the matter is not capable of settlement by arbitration under the law of the country in which enforcement is sought, or if it would be contrary to the public policy of that country. 6
By limiting the defenses to confirmation, the drafters of the New York Convention intended to eliminate wasteful, duplicative litigation following arbitration. The enforcement system prescribed in the Convention also reduces judicial interference in the arbitral process, by preventing courts, absent extraordinary circumstances, from reconsidering an arbitrator's findings of fact or law. Parallel proceedings undermine both goals. Courts confronted by duplicative awards must address the potential for double recovery or, when presented with conflicting arbitral awards, weigh their competing merits. Moreover, parallel post-arbitration proceedings may arise in courts of different nations, which have no legal relationship to one another.
2. Case study regarding parallel proceedings: the CME/ Lauder disputes
The Lauder/CME disputes provide perhaps the most vivid illustration of the issues that arise in multiple proceedings. 7 CME Media Enterprises, B.V. v. velezný, Ronald Lauder v. Czech Republic, CME Czech Republic, B.V. v. Czech Republic, the Swedish Challenge to the CME Czech Republic, B.V. v. Czech Republic Partial Award, and domestic litigation in the Czech Republic all arose from a dispute involving similar facts: the Media Council's actions to change the corporate structure relating to a broadcasting licence issued in 1993 to Central European Television 21 (CET 21). These cases, and the different outcomes that resulted, provoked intense debates among academics and practitioners alike.
Necessarily simplified, the basic facts of the dispute were as follows. CET 21, a Czech Company, had a joint venture, called NTS, with CME Czech Republic
B.V. (CME), a Dutch corporation whose controlling shareholder was an[Page272:]American national, Ambassador Ronald Lauder. This joint venture operated the Czech Republic's first nationwide private television station. The Czech Republic's television and radio regulatory agency, the Media Council, originally approved the direct investment by CME into CET 21, and later NTS. Operating as TV NOVA, NTS was very successful, acquiring 50 percent of the Czech television market and generating tens of millions of dollars in profit annually. In 1996, the Media Council reversed its original approval of the investment and demanded changes to the NTS structure. Under pressure from the Media Council, CME eventually acceded to the demands. The relationship between CME, CET 21 and NTS changed from a joint venture between CME and CET 21 to a contract for services. Dr. Vladimír elezný, the controlling shareholder of CET 21, ran both CET 21 and NTS.
In 1998, the relationship between CME and Dr. elezný began to deteriorate. Dr. elezný, in violation of a contract by which he had sold part of his NTS stake to CME, set up entities to compete with NTS and sought to renegotiate CET 21's financial relationship with CME. In 1999, Dr. elezný successfully solicited a letter from the Czech Media Council, which supported his position that NTS's exclusive relationship with CET 21 was unlawful. Within six months, CET 21 ceased dealing with NTS altogether and began broadcasting TV NOVA using the services of new companies created by Dr. elezný, which effectively destroyed NTS's business. NTS fired Dr. elezný in April 1999.
Four principal proceedings resulted. First, NTS sued CET 21 for unlawful termination of the services contract between them. Next, CME initiated arbitration at the ICC against Dr. elezný for breach of the non-competition provisions of a contract he concluded with CME. Third, on August 19, 1999, Ambassador Lauder, acting in his capacity as an individual investor, commenced an arbitration against the Czech Republic in London under the UNCITRAL Arbitration Rules, alleging breaches of the 1991 bilateral investment treaty between the United States and the Czech and Slovak Federal Republic (the 'Lauder proceedings'). Finally, after the obligatory six-month waiting period had lapsed, CME Czech Republic commenced arbitration on February 22, 2000 against the Czech Republic in Stockholm, also under the UNCITRAL Arbitration Rules, alleging breaches of the 1991 bilateral investment treaty between the Kingdom of The Netherlands and the Czech and Slovak Federal Republic (the 'CME proceedings'). At the time of the[Page273:] second filing, the two BIT claimants made the first of several offers to consolidate the proceedings, and attempted to appoint the same arbitrators for both proceedings. The Czech Republic refused the offer and opposed the attempted appointment of Ambassador Lauder's party-appointed arbitrator to the CME Tribunal.
In the Lauder proceedings, the Tribunal rejected the Czech Republic's various jurisdictional challenges based on the existence of parallel proceedings. It wrote:
"Respondent's recourse to the principle of lis alibi pendens [is] of no use, since all the other court and arbitration proceedings involve different parties and different causes of action… Therefore, no possibility exists that any other court or arbitral tribunal can render a decision similar to or inconsistent with the award which will be issued by this Arbitral Tribunal, i.e., that the Czech Republic breached or did not breach the Treaty, and is or is not liable for damages towards Mr. Lauder."
"Only this Arbitral Tribunal can decide whether the Czech Republic breached the Treaty towards Mr. Lauder, and only the arbitral tribunal in the parallel Stockholm Proceedings can decide whether the Czech Republic breached the Dutch/Czech bilateral investment treaty in relation to CME. As a result, CME has neither a better - nor a worse
- claim in the parallel arbitration proceedings than Mr. Lauder's claim in the present arbitration proceedings. It only has a different claim." 8
The Tribunal acknowledged the potential problem of conflicting awards, as it noted 'that damages [could] be concurrently granted by more than one court or arbitral tribunal'9.
Nevertheless, the Tribunal reasoned that 'the second deciding court or arbitral tribunal could take this fact into consideration when assessing the final damage'10. Further, the Tribunal concluded that the risk of conflicting results posed by the parallel proceedings, as well as the corresponding time, work, and costs, could have been 'greatly reduced' had the Czech Republic agreed to the constitution of identical arbitral tribunals to hear both treaty cases. 11
On the merits, the Lauder Tribunal determined that the Czech Government had acted unlawfully toward Lauder by requiring CEDC (CME's predecessor) [Page274:] and CET 21 to form a joint venture to manage CET 21's broadcasting licence, rather than permitting CEDC to invest directly into CET 21. The Tribunal concluded this action was politically motivated and discriminatory in that it precluded CEDC's direct equity investment in the Czech television company. In the end, however, the Tribunal refused to grant damages, as it concluded that Lauder had failed to establish a causal link between the damages to his investment and the discriminatory treatment. The Lauder Tribunal rejected on the merits the remaining claims, that the Media Council had unlawfully interfered with and expropriated Ambassador Lauder's indirect contractual rights when it forced changes to the NTS joint venture structure.
Ten days after the Lauder Tribunal issued its opinion, the CME Tribunal rendered its judgement, which reached a different result. The Czech Republic had challenged the jurisdiction of the CME Tribunal on lis pendens and res judicata grounds on the basis that: (i) the Lauder proceedings were commenced prior to the CME proceedings; (ii) the proceedings involved the same claims, facts, damages, and virtually identical treaty obligations; (iii) the defendants in the proceedings were identical and, in practice, the claimants were the same; and (iv) the Lauder award was issued prior to the CME award. The CME Tribunal rejected these challenges, holding res judicata and lis pendens were inapplicable because Lauder and CME were 'different claimants [acting] under separate treaties'12. The Tribunal also addressed the possibility of conflicting awards or double recovery:
"The Czech Republic did not agree to consolidate the Treaty proceedings, a request raised by the Claimant (again) during these arbitration proceedings. The Czech Government asserted the right to have each action determined independently and promptly. This has the consequence that there will be two awards on the same subject which may be consistent with each other or may differ. Should two different Treaties grant remedies to the respective claimants deriving from the same facts and circumstances, this does not deprive one of the claimants of jurisdiction, if jurisdiction is granted under the respective Treaty." 13
The Tribunal, however, had agreed to bifurcate the merits and quantum phases and considered that this bifurcation could help avoid potentially duplicative compensation. 14[Page275:]
On the merits, the CME Tribunal concluded that the Czech Republic had violated several articles of the 1991 bilateral investment treaty with the Netherlands. Unlike the Lauder Tribunal, the CME Tribunal concluded that the acts of the Media Council were a de facto expropriation of CME's investment and that the claimant had proved causation. 15
At the quantum phase of the CME proceedings, the issue of double recovery concerning the successful ICC arbitration against Dr. elezný was raised. In its ICC proceeding against Dr. elezný, CME prevailed on its contract claim and was awarded $30 million in damages. CME had sought an award for the entire loss of its investment against Dr. elezný. NTS also had a pending Czech court litigation against CET 21, which technically could have also led to a complete recovery. The CME Tribunal concluded that the Czech Court could consider the CME award in fashioning relief award in the ongoing NTS-CET 21 suit. 16After a quantum phase hearing, the Tribunal ruled in favour of CME, awarding US$ 269,814,000 plus 10 percent simple interest from Feb. 23, 2000 to the date of payment.
While the presence of parallel proceedings contributed a certain procedural complexity to the dispute, its effect on the enforceability of the awards is questionable. The Czech Republic instituted an annulment action with respect to the CME award before the Svea Court of Appeal in Stockholm. Its claims included the Tribunal's alleged lack of jurisdiction as a result of the parallel Lauder proceedings. The Court rejected the res judicata claims and found that the claims involved two different bilateral investment protection treaties, different injuries, and different claimants. The Court also noted that the Czech Republic essentially caused the parallel proceedings by refusing consolidation and had waived its lis pendens claim. 17
The Czech Republic ultimately complied with the award. Meanwhile, CME had initiated enforcement actions for its ICC award against Dr. elezný in the Czech Republic, France, and the United States. Dr. elezný attempted unsuccessfully to annul the award in the Dutch courts. Eventually, Dr. elezný's partners in CET 21 paid the award on his behalf. 18[Page277:]
PARALLEL OR SUCCESSIVE ENFORCEMENT AND ANNULMENT PROCEEDINGS
As a general rule, the responsibilities regarding annulment and enforcement of arbitral awards are clearly divided among the courts of the arbitral seat and enforcement jurisdictions. Annulment against an arbitral award may be sought in the courts of the arbitral seat. Courts in the enforcing jurisdiction will generally follow an annulment ruling and refuse enforcement in accordance with the principle of res judicata.19 Increasingly, arbitral awards are challenged by the losing party in multiple jurisdictions. Whether motivated by a legal strategy to pursue legitimate complaints concerning the validity of the award or simply a desire to frustrate the enforcement of a final and binding arbitral award, these parallel or successive annulment and enforcement proceedings often yield conflicting results and may undermine the efficacy and predictability of the arbitral process.
These parallel and successive annulment and enforcement proceedings are the consequence of the absence of a uniform annulment regime and the flexible international standards for enforcement of arbitral awards under the New York Convention. Annulment is a matter of national law, typically the arbitration seat, except in the unusual circumstances that the parties have designated an arbitration law other than that of the country in which the arbitration is located. 20 No international convention imposes minimum standards for annulment comparable to Art.V of the New York Convention. The UNCITRAL Model Law on International Commercial Arbitration (UNCITRAL Model Law) is an attempt to harmonize nullification standards, but national legislatures are free to introduce additional or different grounds for vacatur, a phenomenon Jan Paulsson has called the 'anathema of local particularities'. 21
The New York Convention permits parallel and successive annulment and enforcement proceedings in two respects. First, Art.V(1) of the New York Convention permits, but does not compel, enforcing authorities to stay its proceedings until an application for annulment pending before a competent court is resolved. 22
Second, the status of annulled awards was left ambiguous under the New York Convention. Art.V(1)(e) provides that recognition and enforcement 'may' be refused if the challenged award was set aside by a competent[Page277:] authority. 23 The import of the permissive language in this provision is not discussed in the 'travaux préparatoires' and has become the subject of much debate. 24 Some commentators have contested the notion that Art.V(1)(e) invests enforcing courts with the discretion to grant or to refuse enforcement of annulled awards. 25 These scholars also argue that, since annulment is a matter governed by the law of the arbitration seat, Art.V(1)(e) cannot be read to permit a legal impossibility: enforcement of an award that no longer exists under that law. 26 On the other hand, several scholars have argued in favour of the permissive language and stated that 'the enforcing court need not refuse enforcement if it is convinced that enforcement would be proper even if the award has been set aside at the place where it was made'. 27 To these commentators, 'annulment will not necessarily uproot an award so as to make it invalid in all places and at all times, but rather may impair its effectiveness depending on where enforcement is sought'. 28 Commentators in favour of the discretionary reading point to the English language of the Convention, which uses the obviously permissive phrase 'may be refused'. 29 Commentators taking the opposite view note that the French language version of the Convention has, instead of the phrase 'may be refused', the arguably more ambiguous phrase 'ne seront refusées... que si... ' . 30
An additional factor favouring the possibility of enforcement of annulled awards is Art.VII of the New York Convention, which provides that courts must enforce a foreign arbitral award notwithstanding the provisions of Art.V, if the domestic law in the enforcing jurisdiction would otherwise provide an independent basis for enforcement. 31 Albert Jan van den Berg has described this provision as the 'More Favourable Right Provision', because it can work only in favour of the party seeking to enforce an award and never in favour of the party opposing enforcement. 32
1. The impact of parallel and successive annulment and enforcement proceedings on enforceability
The permissive approach to parallel and successive annulment and enforcement proceedings prescribed in the New York Convention has real benefits. This flexible regime promotes the finality of arbitration, supports the choice of the parties to submit their dispute to an arbitral forum, and allows a competent enforcing authority to exercise its independent judgement based on the universal standards of recognition and enforcement. An inescapable obligation to refuse enforcement of an annulled award would accord too much[Page278:] power to courts in the arbitral seat. In particular, there is a risk in investment disputes involving sovereign states that national courts dealing with annulment petitions and enforcement requests will seek to balance the rights of parties against sensitive national legislative and regulatory interests.
At the same time, the ambiguity of the enforcement regime undermines important advantages of arbitration such as time and cost-effectiveness, finality and confidentiality. There are, for instance, no precise guidelines for the critically important issues such as double recovery or double jeopardy (ne bis in idem). Enforcement and annulment may simply become a second stage phase of 'procedural wars' between the parties - excessively long, expensive and potential damaging to business reputation. Confidentiality can hardly be preserved in a situation where domestic courts review procedural aspects and often the substance of arbitral proceedings. Multiple annulment and enforcement proceedings may effectively become a reiterative, exhaustive procedural appeal against the outcome of arbitrations, requiring the parties to contest many simultaneous post-arbitration proceedings in competing jurisdictions. Extensive judicial practice in leading pro-arbitration jurisdictions such as the United States, France and Switzerland shows that this possibility is not just a hypothesis.
2. Types of parallel or successive annulment and enforcement proceedings
Under Art.V(1)(e) of the New York Convention, parallel annulment proceedings may potentially be initiated in the arbitral seat and in the state under the law of which that award was made. 33 The meaning of the latter provision has been the topic of some debate. Read literally, the provision could permit an annulment action to be filed in the state supplying the substantive law governing the arbitration, but a more appropriate reading refers only to the procedural law under which the award was made - almost always the law of the seat of the arbitration. Needless to say, the possibility of successive or parallel annulment proceedings risks conflicting results and undermines the finality and enforceability of awards.
Commentators have argued that Art.V(1)(e) is only meant to apply in the unusual circumstance that the parties select a different procedural law than that of the arbitral seat to govern the dispute. 34[Page279:]
Accordingly, many countries have adopted the sensible approach of the UNCITRAL Model Law of International Commercial Arbitration, which provides that courts at the arbitral seat have exclusive jurisdiction to annul arbitral awards. 35 A significant number of countries, however, continue to adhere to the rule of extraterritorial jurisdiction. This principle was deeply rooted in English law before the reforms of 1996. 36 Similarly, India, until the 1996 amendment of its arbitration law, had been a textbook example, required that annulment proceedings be brought in India if Indian substantive law had been applied. 37This principle remains in force in Bangladesh, Saudi Arabia, Tanzania and Kenya. 38 Germany has adopted the strict position of the New York Convention, permitting an award to be set aside by its courts if the award was made in another state but under German procedural law. 39
Even when annulment is restricted to the state supplying the procedural law, parties and courts have occasionally disagreed on the proper forum for annulment action. An example is the Karaha Bodas case, where Indonesia and Switzerland almost simultaneously rendered judgements upholding (in Switzerland) and initially annulling (in Indonesia) an arbitral award issued against an Indonesian state-owned company. 40 Both countries then claimed that the parties chose their procedural law to govern the dispute. However, the Indonesian Supreme Court eventually overruled its lower court decision annulling the award and held that only Switzerland had the authority to do so. In enforcement proceedings (prior to the Indonesian Supreme Court ruling), a U.S. district court decided Swiss law to be the lex arbitri, particularly because the arbitration clause clearly pointed to Swiss law and the Indonesian company conceded the point. 41 Such disputes, however, would remain a risk in instances where the agreement does not specify the lex arbitri.
The New York Convention allows multiple enforcement proceedings to occur in as many countries as there are parties to the New York Convention. Provided there is some link between one of the parties and the enforcing state, recognition can be sought in that state. In Karaha Bodas, the U.S. Court denied a request for an anti-suit injunction against enforcement or annulment actions elsewhere precisely because the New York Convention contains a mechanism for multiple enforcements. As the Court held, [Page280:]
"As the Convention already provides for multiple simultaneous proceedings, it is difficult to envision how court proceedings in Indonesia could amount to an inequitable hardship.Not only did KBC contract to arbitrate its dispute in a foreign country (Switzerland), but it also instituted enforcement proceedings in several countries, including the United States. Indeed, but for Pertamina's initiation of a law suit in Indonesia, or perceived bias there, KBC conceivably might have attempted enforcement there as well." 42
The Court effectively treated the option of multiple enforcement as a procedural guarantee that enforcement would be achieved eventually if the enforcing party remained persistent. In a notorious arbitration against the Russian Federation, the Swiss company Noga has pursued enforcement of an arbitral award against Russia for over ten years in France, the United States, Sweden, Switzerland, and the Netherlands. 43 As discussed below, the possibility of multiple enforcement proceedings is not precluded even where a competent authority has annulled an arbitral award.
As discussed above, Art.V(1)(e) of the New York Convention provides that a court may refuse enforcement of an award that 'has been set aside or suspended by a competent authority of the country in which, or under the law of which, the award was made'. 44 Contradictory results from parallel or successive enforcement and annulment proceedings are already a reality. France has long recognized that a foreign award may be recognized under French domestic law, irrespective of its foreign annulment. In Norsolor, an ICC arbitration led to two pro-enforcement judgements in Austria and France, one partial annulment judgement in Austria, and a final judgement enforcing the annulled award in France. 45 In Hilmarton, after two contradictory awards and multiple judicial proceedings, the parties were left with two conflicting judgements, one enforcing and the other setting aside the first award in France and Switzerland respectively. Subsequently, the French Cour de Cassation set aside the second, arguably the more valid, award to preserve the validity of the first on res judicata grounds. That same award was nevertheless upheld in Switzerland. 46 On the whole, French Courts have shown little hesitation in applying independent standards of enforcement to foreign judgements denying recognition or nullifying arbitral awards. [Page281:]
United States jurisprudence on this matter is far less consistent. In the controversial Chromalloy case, the U.S. District Court for the District of Columbia enforced an arbitral award rendered in Egypt, even though an Egyptian Court had vacated it. 47 In the underlying arbitration, a U.S. corporation, Chromalloy Aeroservices, Inc. (Chromalloy), prevailed against the Air Force of the Arab Republic of Egypt (Egypt) in a dispute arising from a military procurement contract. Shortly after Chromalloy filed to enforce the award before the U.S. District Court, the Egyptian Court annulled the award because it was not 'properly grounded' under Egyptian law.
The U.S. District Court rejected, however, Egypt's subsequent requests for the dismissal of the enforcement petition under Art.V(1)(e) of the New York Convention. The Court concluded that Chromalloy was entitled to a more favourable right of enforcement, pursuant to Art.VII of the New York Convention, under the Federal Arbitration Act. In so holding, the Court denied the res judicata effect of the Egyptian judgement, finding instead that public policy favoured the 'final and binding arbitration of commercial disputes' that recognition of the decision of the Egyptian Court of Appeal would contravene. 48
Chromalloy has prompted vigorous debates amongst academics and practitioners of international arbitration. 49 The failure to accord the Egyptian Court judgement res judicata was particularly controversial since, according to some commentators, there remained no judgement for the U.S. District Court to enforce. 50 I, and others, have written that Chromalloy was a positive development because, among other reasons, the enforcement of awards vacated in their country of origin for reasons not accepted internationally promotes uniformity and predictability in arbitration. 51
Subsequent U.S. cases appear to be shifting away from the reasoning in Chromalloy. In the subsequent Baker Marine (Nig.) Ltd. v. Chevron (Nig.) Ltd. case, the Court of Appeals for the Second Circuit gave effect to the judgement of a Nigerian court, which had vacated two arbitral awards issued in Nigeria against two other Nigerian corporations, Chevron-Nigeria and Chevron Corporation (Chevron) and Danos and Curole Marine Contractors, Inc. (Danos). 52The Court distinguished Chromalloy, perhaps unconvincingly, because it involved a United States citizen who had initially sought confi-[Page282:]rmation of the award in the United States. According to the Second Circuit, recognition of the Nigerian judgement did not conflict with United States public policy towards the enforcement of arbitral awards where the resisting party had not violated their promise to abide by the award by appealing it within Nigeria. 53 In subsequent cases, U.S. courts have similarly focused on the language of the arbitration agreement in refusing to enforce judgements annulled by the courts of the arbitral seat. In Spier, the District Court rejected an attempt by a U.S. citizen to enforce an arbitral award rendered in Italy against an Italian company that was later annulled by an Italian court. The District Court held that under Art.V(1)(e), a U.S. citizen was not entitled to enforce the arbitral award that was overturned in the Italian courts on the ground that the arbitrators exceeded their powers. 54
While United States case law on the enforceability of foreign awards annulled at the arbitral seat remains in flux, United States courts have refused to give effect to annulments issued by other foreign courts. In a recent case, Nicor Int'l Corp.v. El Paso Corp, the U.S. District Court refused to honour a Dominican Republic judgement declaring that the parties had waived their right to arbitration. Instead, relying on ample jurisprudence on pro-arbitration public policy, it proceeded to enforce an arbitral award finding otherwise. 55 Similarly, in Karaha Bodas, the U.S. District Court enforced an arbitral award that had been upheld in Switzerland but set aside in Indonesia because the latter jurisdiction was not competent to annul the award. 56
The Karaha Bodas cases introduced a new dimension to the multiple enforcement and annulment debate: conflicting interim measures of protection issued by national courts of different jurisdictions subsequent to, or in parallel with, arbitral proceedings.
The original dispute arose out of conflicts over contracts between Perusahaan Perambangan Minyak Dan Gas Bumi Negara (Pertamina), an Indonesian state-owned oil Company, and Karaha Bodas Co., LLC, (KBC) for the construction and operation of an electrical power plant in Indonesia. After the government of Indonesia suspended the project, KBC initiated arbitration proceedings in Switzerland, where the Tribunal consolidated the claims under all the contracts and issued a December 2000 arbitral award in favour of KBC. [Page283:]
Pertamina filed an action in the Swiss Supreme Court seeking to annul the arbitral award. Shortly thereafter, KBC filed an enforcement action in the Southern District of Texas to confirm the award. The Swiss Court dismissed Pertamina's appeal, and the District Court issued a judgement in favour of KBC a few months later, which Pertamina appealed. While the appeal was pending, Pertamina filed a second annulment action in Jakarta. KBC sought and obtained a preliminary injunction from the District Court ordering Pertamina to refrain from pursuing the Indonesian action. Nevertheless, the Indonesian District Court, despite the fact that Indonesia was not the seat of the arbitration, set aside the arbitral award and permanently enjoined KBC from enforcing the award, subject to monetary penalties for noncompliance. The Indonesian Court held that it had primary jurisdiction because the parties chose Indonesian substantive and procedural law to govern the arbitration.
In response, KBC applied to the U.S. District Court for a temporary restraining order (TRO) to enjoin Pertamina from pursuing injunctive relief in Indonesia. The TRO was granted. The Jakarta Court subsequently issued a provisional injunction barring KBC from pursuing enforcement of the arbitral award. The U.S. District Court held Pertamina in contempt of the TRO, ordered it to withdraw its application for annulment from the Jakarta Court, and to indemnify KBC for any fines resulting from the orders of the Jakarta Court. Soon thereafter the District Court issued a preliminary injunction enjoining Pertamina from pursuing the Indonesian action, which Pertamina appealed. 57
On June 18, 2003, the Fifth Circuit reversed the District Court's decision, holding that the lower court had abused its discretion in issuing a foreign antisuit injunction. The Fifth Circuit found that the Indonesian proceedings were not 'vexatious or oppressive', since the New York Convention allows for multiple simultaneous proceedings, that the District Court should have respected its limited role under the New York Convention, and that international comity dictated that U.S. courts should avoid interfering with foreign courts' judicial proceedings. 58 Ultimately, the U.S. District Court concluded that the Indonesian court was not competent to rule on annulment and refused to honour the Indonesian judgement. The award in favour of KBC was subsequently affirmed. 59
Following this decision, in 2004 the Indonesian Supreme Court overturned the lower court's decision there. It held that only Switzerland, as the arbitral seat, had the authority to annul the award. This decision is a positive step, and it may be useful in avoiding multiple annulment proceedings in the future. [Page284:]
Undoubtedly, the case provides an interesting example of the kind of procedural tools domestic courts might employ to prevent or, to the contrary, reinforce parallel enforcement and annulment proceedings. However efficient, such tools may confront the parties with many more conflicting obligations at a state level. Besides several awards and annulment and enforcement judgements, the parties might be faced with a flurry of conflicting interim measures imposing financial sanctions.
Conflicting outcomes reached by U.S. courts in the multiple enforcement cases do not necessarily signal a sharp divide in U.S. jurisprudence. The cases discussed demonstrate the flexibility of approach and an effort by
U.S. judges to maintain a fragile balance among international comity, respect for the will of the parties and support for arbitration. As this author has argued elsewhere, 'the narrowness of the public policy exception [relied upon in Chromalloy] indicates a jurisprudential compromise between two guiding but sometimes conflicting principles in the law of recognition and enforcement of foreign judgements: res judicata and fairness to litigants'. 60 This laudable balancing act, however, does not change the fact that, in the worst case scenario, one dispute may lead to several conflicting awards, numerous annulment and enforcement judgements, and countless injunctions. Few will disagree that there is a pressing need to develop and refine legal concepts that would either help prevent or deal with procedural deadlocks caused by multiple proceedings. Some of them - res judicata, lis pendens, and collateral estoppel - have been tested successfully in domestic litigations and international practice. 61 Drawing on this rich experience, the following section will discuss the applicability of these and other procedural devices in the context of multiple arbitral and state proceedings.
MEANS OF PREVENTING OR CONSOLIDATING PARALLEL AND SUCCESSIVE PROCEEDINGS
Cost considerations will generally deter claimants from pursuing parallel arbitration proceedings. There are circumstances, however, when parties will nevertheless pursue multiple parallel proceedings. There may be legitimate reasons for doing so. For example, respondents or issues may go beyond the scope of the arbitration agreement. Of course, a party may also be seeking to frustrate the arbitration process or undermine the ultimate enforceability of the award. This section outlines the tools available to courts and tribunals[Page285:] to prevent parallel and successive proceedings. The first two topics discussed - fork-in-the-road clauses and consolidation, joinder, and intervention - apply only to parallel proceedings at the merits phase. The last topic - comity and the related doctrines of res judicata, lis pendens, and collateral estoppel
- applies to parallel and successive proceedings at both the merits andenforcement/annulment phases.
1. Fork-in-the-road clauses
Many investment agreements contain clauses aimed at preventing multiple and successive proceedings. Such clauses can take the form of either a waiver provision, requiring the investor generally to desist from initiating domestic proceedings with respect to the same measure when it commences treaty arbitration, or a so-called 'fork-in-the-road' clause, which, to a greater or lesser extent, requires the investor to make an irrevocable choice ab initio between the domestic court system and a treaty tribunal for the adjudication of an investment dispute.
A prominent example of a broad waiver clause is Art.1121 of NAFTA, which provides that a
"disputing investor may submit a claim under Art.1116 to arbitration only if… the investor …waives [its] right to initiate or continue before any administrative tribunal or court under the law of any Party, or other dispute settlement procedures, any proceedings with respect to the measure of the disputing Party that is alleged to be a breach referred to in Art.1116, except for proceedings for injunctive, declaratory or other extraordinary relief, not involving the payment of damages, before an administrative tribunal or court under the law of the disputing Party." 62
The majority of the Tribunal in Waste Management I applied this provision to hold that the claims brought before it were inadmissible because Mexican law claims with respect to the same measures had been brought before the Mexican courts and the investor's Art.1121 waiver had not appropriately included such purely Mexican law proceedings. 63 While the majority decision was harshly criticized by the dissent of the late Keith Highet, some observers would argue that the majority decision to interpret Art.1116 of NAFTA as extending to purely domestic proceedings was supported by the[Page286:] language of the provision, which is predicated on the 'measure of the disputing Party' at issue and does not specify the cause of action. As one commentator observed, that text of Art.1121 focuses not on whether the legal basis for the proceedings under NAFTA and domestic law is the same, but on whether the same measure is being challenged. 64
The Ad Hoc Committee in Vivendi also emphasized the importance of the specific wording of a waiver or fork-in-the-road clause. 65While the Committee observed that the fork-in-the-road clause in the French-Argentine BIT would have been triggered by a domestic court claim 'if that claim was coextensive with a dispute relating to investments made under the BIT', it stressed that this conclusion resulted from the specific language of the fork-in-the-road clause in the French-Argentine BIT:
"Art.8 deals generally with disputes relating to investments made under this Agreement between one Contracting Party and an investor of the other Contracting Party. It is those disputes that may be submitted, at the investor's option, either to national or international adjudication. Art.8 does not use a narrower formulation, requiring that the investor's claim allege a breach of the BIT itself. Read literally, the requirements for arbitral jurisdiction in Art.8 do not necessitate that the Claimant allege a breach of the BIT itself: it is sufficient that the dispute relate to an investment made under the BIT. This may be contrasted, for example, with Art.11 of the BIT, which refers to disputes concerning the interpretation or application of this Agreement, or with Art.1116 of the NAFTA, which provides that an investor may submit to arbitration under Chapter 11 'a claim that another Party has breached an obligation under' specified provisions of that Chapter. Consequently, if a claim brought before a national court concerns a 'dispute relating to investments made under this Agreement' within the meaning of Art.8(1), then Art.8(2) will apply." 66
At the same time, the Committee emphasized that under international law 'whether there has been a breach of the BIT and whether there has been a breach of contract are different questions' and that '[e]ach of these claims will be determined by reference to its own proper or applicable law - in the case of the BIT, by international law; in the case of the concession contract, by the proper law of the contract'67.[Page287:]
That distinction between domestic law and international law causes of action has provided a basis for several tribunals established under U.S. BITs to conclude that the fork in the road in those U.S. BITs - which generally define investment dispute as any dispute arising out of or relating to an investment agreement or authorization or an alleged breach of a provision of the BIT - was not taken in the pursuit of purely domestic remedies by the investor in the domestic courts:
In CMS, a case under the U.S.-Argentina BIT, the Tribunal held that '[d]ecisions of several ICSID tribunals have held that as contractual claims are different from treaty claims, even if there had been or there currently was a recourse to the local courts for breach of contract, this would not have prevented submission of the treaty claims to arbitration. […] This Tribunal is persuaded that with even more reason this view applies to the instant dispute, since no submission has been made by CMS to local courts and since, even if TNG had done so (which it did not), this would not result in triggering the "fork-in-the-road" provision against CMS. Both the parties and the causes of action under separate instruments are different'. 68
In Genin, a case under the U.S-Estonia BIT, the Tribunal dismissed the fork-in-the-road objection, noting that claimant's domestic lawsuits in that case were 'not identical to Claimant's cause of action in the "investment dispute" that they seek to arbitrate in the present proceedings, and that [a]lthough certain aspects of the facts that gave rise to this dispute were also at issue in the Estonian litigation, the "investment dispute" itself was not'. 69
The Tribunal in Lauder, a case under the U.S.-Czech BIT, after stating that '[t]he purpose of Art.VI(3)(a) of the Treaty is to avoid a situation where the same investment dispute (the dispute) is brought by the same claimant (the national or the company) against the same respondent (a Party to the Treaty) for resolution before different arbitral tribunals and/or different state courts of the Party to the Treaty that is also a party to the dispute,' noted that '[n]either Mr. Lauder nor the Czech Republic is a party to any of the numerous proceedings before the Czech courts ….' [and] '[t]he Respondent has not alleged - let alone shown - that any of these courts would decide the dispute on the basis of the Treaty.' 70[Page288:]
??One of the most recent instances of application (and detailed discussion) of a 'fork-in-the-road' clause is Occidental, an arbitration instituted by Occidental Exploration and Production Company (OEPC) under the U.S.-Ecuador BIT. 71
When the Ecuadorian tax administration denied OEPC the refund of value added tax (VAT) paid in connection with the importation or local acquisition of goods and services used for the production of oil for export, OEPC challenged the resolutions of the tax administration in the Ecuadorian courts. Under Ecuadorian law, OEPC was legitimately concerned that if it did not do so, Ecuador would argue that it had accepted the validity of the resolutions. 72 In the court proceedings, OEPC made only claims of violations of Ecuadorian tax law. Shortly thereafter, OEPC also instituted arbitral proceedings under the BIT, in which it claimed breaches of provisions of the BIT.
The Tribunal dismissed the fork-in-the-road objection. It held that '[t]o the extent that the nature of the arbitration is principally, albeit not exclusively, treaty-based, the jurisdiction of the arbitral tribunal is correctly invoked'73. Referencing the above cases, the Tribunal reasoned that its conclusion could 'not be taken to mean that the death knell has sounded' for the fork in the road, because '[t]o the extent that a dispute might involve the same parties, object, and cause of action it might be considered as the same dispute and the "fork-in-the-road" mechanism would preclude its submission to concurrent tribunals'74. The Tribunal also added that the choice by the investor must 'be made entirely free and not under any form of duress,' something that had not happened in the instant case. 75 Finally, the Tribunal included in its award requiring Ecuador to refund the VAT to OEPC an order directing OEPC, 'in order clearly to forestall any possible double recovery of VAT by OEPC... to cease and desist from any local court actions' and holding 'that any and all such actions and proceedings shall have no legal effect'76.
A consistent body of law is therefore developing concerning the fork in the road clause, at least in the context of U.S. BITs. At the same time, one can hardly disagree with the Occidental Tribunal's statement that 'what ultimately matters is that every solution must respond to the specific circumstances of the dispute submitted and the nature of such dispute'77. The SGS (Philippines) Tribunal (which included Professor Crawford, who also chaired the Vivendi Ad Hoc Committee) appears to have suggested that such specific circumstances, including the wording of the relevant clause, may often not warrant[Page289:] dismissal of the fork-in-the-road objection on the sole basis of the difference in causes of action, because 'drawing technical distinctions between causes of action arising under the BIT and those arising under the investment agreement is capable of giving rise to overlapping proceedings and jurisdictional uncertainty'. According to that Tribunal, '[i]t may be necessary to draw such distinctions in some cases, but it should be avoided to the extent possible, in the interests of the efficient resolution of investment disputes by the single chosen forum'. 78The Tribunal clearly believed that the distinction had been unnecessarily and incorrectly made in the SGS (Pakistan) case. 79
2. Consolidation, joinder, and intervention
Another category of potential solutions to the phenomenon of parallel proceedings in multiparty and multicontract disputes includes consolidation, joinder, and intervention. Since an arbitration tribunal's authority extends only to the signatories to the arbitration agreement or the parties governed by a treaty, these mechanisms may generally only be used with the parties' consent. If the parties do not agree on joinder, intervention, and consolidation, most institutional rules will not permit it. 80 Likewise, as evidenced by CME and Lauder, the UNCITRAL Rules do not permit consolidation over a party's objection. Art.22(1)(h) of the LCIA Arbitration Rules, however, does not require the permission of both parties to join third parties, provided the third party and at least one of the parties to the dispute consent to the joinder. 81 The parties may opt out of this provision.
Provisions for joinder, consolidation and intervention may be included in the arbitration agreement in advance. Such provisions are currently rare, although that may begin to change for contracts that commonly give rise to parallel proceedings, such as insurance, construction, and state investment contracts. However, joinder, consolidation, and intervention will not resolve truly third-party problems.
In the absence of rules concerning the consolidation of arbitration, national law governs the subject, although it is rarely explicitly addressed. 82 Joining nonparties to an arbitration would likely require analysis under alter ego and agency principles, assignment and other transfer doctrines, as well as assumption and ratification - topics which will not be explored in this article. [Page290:]
3. International comity
Arguably, courts and tribunals may prevent the phenomenon of parallel proceedings as a matter of comity, by exercising their discretion to stay proceedings until the conclusion of related proceedings. International comity is defined in the U.S. as 'recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation'83. '[T]he central precept of comity teaches that, when possible, the decisions of foreign tribunals should be given effect in domestic courts, since recognition fosters international cooperation and encourages reciprocity'84. Well-established in international law, comity is now claiming its place in arbitral decisions. For example, the MOX Plant Tribunal, established under the auspices of the UN Convention on the Law of the Sea (UNCLOS), suspended its consideration of the dispute between Ireland and the United Kingdom due to the parallel proceedings taking place before the European Court of Justice. The MOX Plant dispute concerned discharges into the Irish Sea of certain radioactive wastes produced by, or as a result of the operation of the MOX plant, which is a new reprocessing plant at Sellafield in the United Kingdom. In its efforts to resist the construction of the Plant, Ireland initiated several parallel proceedings before an ad hoc arbitral tribunal established pursuant to Annex VII of the UNCLOS, the International Tribunal on the Law of the Sea, an Arbitral Tribunal established under the OSPAR Convention, the European Court of Justice, and other judicial bodies.
In its Procedural Order No. 3, the UNCLOS Tribunal noted, '…bearing in mind considerations of mutual respect and comity which should prevail between judicial institutions both of which may be called upon to determine rights and obligations as between two States, the Tribunal considers that it would be inappropriate for it to proceed further with hearing the Parties on the merits of the dispute in the absence of a resolution of the problems referred to. Moreover, a procedure that might result in two conflicting decisions on the same issue would not be helpful to the resolution of the dispute between the Parties'. 85
The decision in Southern Bluefin Tuna involved the careful application of a complex treaty dispute resolution regime in a way that may reinforce the concept of comity. There, an Ad Hoc Arbitral Tribunal declined to exercise its jurisdiction over a dispute in deference to another dispute resolution process, even though no competing proceeding was pending and no decision[Page291:] had yet been issued. In that case, an Arbitral Tribunal constituted under Annex VII of the UNCLOS ruled against its jurisdiction to try the merits of a dispute concerning the conservation and management of southern bluefin tuna between Australia and New Zealand on one side, and Japan on the other. 86 The UNCLOS does not permit an ad hoc tribunal to exercise jurisdiction if avenues of dispute settlement under a separate agreement were not exhausted and that agreement did not exclude any further procedure. 87 In that instance, the parties had another treaty in force between them, the 1993 Convention for the Conservation of Southern Bluefin Tuna (CCSBT), which applied to the dispute. Art.16 of the Convention explicitly excluded recourse to the compulsory procedures in the Law of the Sea Convention. The UNCLOS Tribunal recognized that the CCSBT is a lex specialis between the parties and encouraged them to continue to seek to resolve their dispute under the means provided for in the Convention. By reaching its conclusion on jurisdiction, the Tribunal effectively avoided the possibility of the parties instituting parallel proceedings under different treaty regimes.
4. Res judicata and Lis pendens
Two underlying principles of international comity - res judicata and lis pendens - have received more attention in arbitral practice.
The doctrine of res judicata provides that earlier and final adjudication by a court or arbitral tribunal is conclusive - absent a showing of fraud, lack of jurisdiction, or prejudice - in subsequent proceedings involving the same subject matter or relief, the same legal grounds, and the same parties. 88 In the United States, this concept, also referred to as 'claim preclusion,' refers to the effect of an award or judgement in barring a subsequent action between the same parties or their privies that is based upon the same claim as that in the original action. 89 Res judicata functions in a positive way to ensure the finality of judicial decisions and in a negative way, sometimes called ne bis in idem (essentially double jeopardy), to provide judicial economy, protecting defendants from having to defend themselves twice in the same matter, and avoiding potentially divergent decisions in identical cases. 90
In many cases, res judicata will have limited utility to prevent parallel or successive proceedings. Res judicata in international law relates only to the positive effect that the final decision of an international tribunal cannot be appealed, reopened or reargued in further proceedings. It does not apply[Page292:] with regard to proceedings before national courts on the one hand, and international arbitral tribunals on the other hand. International dispute settlement organs are generally not considered to be bound by decisions of national courts or tribunals. 91 In other words, res judicata is often held only to apply to tribunals operating within the same legal order. 92 Further, res judicata only applies to disputes involving the same claims and parties and is unlikely to prevent parallel or successive proceedings in disputes involving state investment contracts, which have treaty and contract components, or multiparty, multicontract disputes.
The general negative attitude towards the applicability of the concept was best demonstrated by the ICSID Tribunal in SGS v. Pakistan. There, the Tribunal held:
"[A]lthough different tribunals constituted under the ICSID system should in general seek to act consistently with each other, in the end it must be for each tribunal to exercise its competence in accordance with the applicable law, which will by definition be different for each BIT and each Respondent State. Moreover there is no doctrine of precedent in international law, if by precedent is meant a rule of the binding effect of a single decision. There is no hierarchy of international tribunals, and even if there were, there is no good reason for allowing the first tribunal in time to resolve issues for all later tribunals." 93
Arbitral tribunals, however, may stay proceedings until a parallel tribunal has had a chance to rule on the matter or an award has been annulled. The procedural order in the MOX Plant arbitration, cited above, is one example of this procedure. Similarly, in SPP v. Egypt, 94 the ICSID Arbitral Tribunal did not exercise jurisdiction until an ICC award previously rendered concerning the same dispute had been annulled. It formally stayed its own proceedings awaiting the eventual annulment of the ICC award. Noting that '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', 95 the Tribunal nevertheless stated that 'in its discretion and as a matter of comity', it could 'stay the exercise of its jurisdiction pending a decision by the other tribunal'. 96[Page293:]
One of the very few arbitral awards that even had reason to address the existence of res judicata in a potentially applicable setting is Waste Management. In 1998, Waste Management, a U.S. waste disposal company, filed claims against Mexico under the ICSID Additional Facility Rules alleging breaches of NAFTA Art.1105 and Art.1110. The notice of arbitration, inter alia, asserted that the State of Guerrero and the municipality of Acapulco granted a 15-year concession to USA Waste's Mexican subsidiary, Acaverde, in 1995 for public waste management services, but failed to comply with payment and other obligations set forth in the concession agreement despite full performance by Acaverde. After a jurisdictional hearing, the Tribunal issued an award on June 2, 2000, dismissing the investor's claim for lack of jurisdiction because Waste Management had failed to submit a valid waiver. 97 Waste Management resubmitted its case in 2000. Following a jurisdictional hearing, the second Tribunal issued a unanimous award on June 26, 2002, rejecting Mexico's objections to the Tribunal's jurisdiction over Waste Management's resubmitted case. 98
In its discussion, the second ICSID Tribunal considered whether the jurisdictional and substantive holdings of the first Tribunal could be accorded res judicata effect. The Tribunal noted that 'at whatever stage of the case it is decided, a decision on a particular point constitutes a res judicata as between the parties to that decision if it is a necessary part of the eventual determination and is dealt with as such by the tribunal'99. Ultimately, the Tribunal declined to apply res judicata under the circumstances; there was no indication in the award of the first Tribunal that it considered any issue pertaining to the merits, let alone that it decided any such issue. 100 The Tribunal noted, however, that, '[i]n reaching this conclusion, [it]... in no way denies the value of the principle of res judicata, nor its potential application in the present proceedings to the extent that any issue already decided between the parties may prove to be relevant at a later stage'101.
A Swiss international Arbitral Tribunal in a confidential ICC arbitration similarly concluded that it is 'settled law by now that an arbitral tribunal sitting in an international arbitration in Switzerland must apply the same rules as would a Swiss court in matters of res judicata'102. Therefore, the Tribunal wrote that 'an arbitral tribunal in Switzerland would be barred from ruling on a dispute if a foreign court had already disposed of it by way of a judgement that may be recognized in Switzerland'. 103 As in Waste Management, however, the Tribunal did not ultimately apply res judicata to the circumstances of the case. [Page294:]
The corollary principle of lis pendens has likewise had little impact on parallel proceedings. According to this rule, it is not permissible to initiate new proceedings if litigation between the same parties involving the same dispute is already pending before another equally competent jurisdiction. 104 The purpose of the lis pendens rule is to prevent conflicting decisions. As an initial matter, scholars have debated the application of this principle to prevent the institution of arbitral proceedings in parallel to ongoing litigation where parties have chosen arbitration over litigation. 105Art.8 of the UNICTRAL Model Law expressly permits arbitration to proceed in parallel with a lawsuit, even if a lawsuit was initiated first. Further, the doctrine is limited to disputes involving the same parties and claims, which reduces its utility in preventing parallel proceedings involving third parties, different legal claims, separate contracts, and state investment disputes, in the same way as res judicata. In the rare instance where there are proceedings involving identical claims and parties before international commercial arbitration tribunals of equal competence, this principle may play a role.
It is too early to predict the future of the doctrines of res judicata and lis pendens in international arbitration. Although they pose a potential procedural means to avoid multiple proceedings, because of the need for identity of parties, claims, and issues, arbitral tribunals have been hesitant to apply them in this context.
5. Collateral estoppel
The doctrine of collateral estoppel, or issue preclusion, may hold a little more promise for addressing the problem of parallel proceedings. Courts that apply collateral estoppel use it to preclude a party from asserting inconsistent positions on arguments or obligations that the party has asserted in pleadings elsewhere. 106 Collateral estoppel is far less established in Europe and in international arbitral practice than it is in the U.S. legal system, where it has been applied to arbitrations on a case-by-case basis, taking account of, inter alia, the procedural adequacy of the arbitration proceeding. 107
United States courts have ruled that signatories to arbitration agreements are collaterally estopped from pursing contract claims against an affiliate of the other signatory in an attempt to circumvent arbitration. 108 Collateral estoppel was effectively applied in at least one enforcement litigation in the United States in which the court precluded respondent from asserting a[Page295:] position inconsistent with the one it took in a preceding arbitration. 109 Jurisprudence on the question of whether issue preclusion also applies in parallel arbitral proceedings is far less clear. In LincolnNational Life Insurance Co. v. Sun Life Assurance Co. of Canada and others, an English court held that a claimant in arbitration may be bound by findings of fact made against it in a prior arbitration brought against another party. 110 The Lincoln Court noted that the 'modern tendency when tackling the problems of serial litigation involving a common issue had been to move away from technical rules towards a broader consideration of what was fair'. 111 In discussing estoppel, the Court concluded 'there is a strong argument for saying that the real considerations should be what is most fair to the parties and will avoid bringing the administration of justice into disrepute'. 112
If broadly adopted, collateral estoppel may help strike a balance that could prevent full scale re-litigation of the issues before different bodies. It would allow arbitrators to refuse to reconsider certain issues that were properly decided by other tribunals. It may be even more instrumental at the stage of enforcement or annulment of arbitral awards when domestic courts may be confronted with inconsistent judgements by sister courts. Nevertheless, it is not clear that the equity-laden view of the English judge in Lincoln can be supported in international arbitration generally, where tribunals must as a rule decide on the basis of law, and not equity, lest their decisions be subject to annulment. 113
CONCLUSION
The foregoing examination suggests that the phenomenon of parallel and successive proceedings, while raising significant issues, has not prevented the enforcement of arbitral awards or led to a breakdown in the global arbitration system. Courts and tribunals have generally successfully navigated the potential challenges presented by multiple arbitral awards or national court proceedings. There is no question, however, that parallel and successive proceedings impose greater expense and delay on parties and necessitate increased involvement of courts in the merits of the arbitral process. Situations involving the worst case scenario - a single dispute leading to several conflicting awards, numerous annulment and enforcement judgements, and countless injunctions - may multiply in the future. [Page296:]
It is unlikely that BITs will be revised in order to minimize the possibility of parallel proceedings. Mitigating these concerns requires pro-active, skillful drafting of arbitration agreements, active case management by tribunals, and the exercise of good sense by all. Concerned parties should consider addressing the potential of parallel proceedings in the negotiation of contracts that commonly give rise to multiple proceedings by providing for consolidation, joinder, and intervention. Arbitration tribunals must recognize that different parties, different legal claims or other issues may often necessitate multiple, parallel proceedings. Tribunals may consider, where appropriate, staying proceedings in the interests of efficiency to allow for the conclusion of the first proceeding, as in the Mox Plant Tribunal, or, where the arbitration clause supports such action, even decline jurisdiction to a more appropriate forum, as in Southern Bluefin Tuna. There are ample judicial tools - res judicata, lis pendens, collateral estoppel, joinder, and consolidation - that may be used to avoid truly duplicative proceedings. Modern arbitration practice has only begun to consider and to exploit these concepts. [Page297:]
1 Charles N. Bower et al., 'The Coming Crisis in the Global Adjudication System', 19 Arbitration International 415 (2003).
2 Id. (noting, for instance, that the International Chamber of Commerce (ICC) International Court of Arbitration received 4,500 arbitration cases between 1991-2001, a thousand more than the prior decade and more than in the first 55 years of the ICC's existence)
3 Id.
4 See Washington Convention, Art.25(1) (providing that ICSID has jurisdiction to entertain 'any legal dispute arising directly out of an investment, between a Contracting State … and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre').
5 New York Convention, Art.V(1).
6 New York Convention, Art.V(3)
7 My firm, Debevoise & Plimpton LLP, represented both Ambassador Lauder and CME in these arbitrations.
8 Ronald Lauderv. The Czech Republic, (Award) Sept. 3, 2001, at Para.171, 177.
9 Id. at Para.172
10 Id
11 Id. at Para.178
12 CMEv. Czech Republic, (Partial Award) Sept. 13, 2001, at Para.302.
13 Id. at Para.412
14 Id. at Para.415
15 Id. at Para.624(2).
16 CME Czech Republic, B.V. v. Czech Republic, (Quantum Award), Mar. 14, 2003, at Para.489.
17 Czech Republicv. CME Czech Republic B.V., Svea Court of Appeal, May 15, 2003 at pp.71-73.
18 Because the CME tribunal had found that a '•elezný factor' had reduced the damages owed by the Czech Republic to CME by $72 million, CME Quantum Award, Para.620, the amount recovered from Dr. •elezný did not duplicate the recovery from the Czech Republic.
19 See, e.g., New York Convention, Art.VI, V(1)(e); European Convention on International Commercial Arbitration (1961), Art.IX.
20 Yusuf Ahmed Alghanim & Sons v. Toys 'R' Us, Inc., 126 F.3d 15, 21 (2d Cir. 1997).
21 Jan Paulsson, The Case for Disregarding Local Standard Annulments under the New York Convention, 99 American Review International Arbitration (1996).
22 Art.VI provides: 'If an application for the setting aside or suspension of the award has been made to a competent authority referred to in Art.V(1)(e), the authority before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security.'
23 Art.V(1)(e) of the New York Conventionreads: '[r]ecognition and enforcement of the award may be refused ... if ...(e) the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.'
24 Peter Sanders, Quo Vadis Arbitration? Sixty Years of Arbitration 77 (1999) (noting that the discretionary language was in the original Dutch proposal, but not addressed at the New York Conference).
25 Id. at 78; Hamid G. Gharavi, The International Effectiveness of the Annulment of an Arbitral Award 89 (2002); Philippe Fouchard, 'Suggestions to Improve the International Efficacy of Arbitral Awards', in Improving the Efficiency of Arbitration Agreements and Awards 607 (Albert J. van den Berg Edn., 1999).
26 Ray Y. Chan, Note, 'The Enforceability of Annulled Foreign Arbitral Awards in the United States: A Critique of Chromalloy', 17 B.U. International Law Journal 141, 186-87 (1999).
27 Domenico D. Di Pietro & Martin Platte, Enforcement of International Arbitral Awards: The New York Convention of 1958, 169 (2001). See also Jan Paulsson, 'Awards Set Aside at the Place of Arbitration', in Enforcing Arbitration Awards under the New York Convention: Experience and Prospects, 24-25 (1999).
28 William Park, Award Enforcement under the New York Convention 112 (2003).
29 See, e.g., 'Chromalloy', 939 F. Supp. at 909; Paulsson, supra footnote 5 at 102.
30 See Schwartz, supra footnote 5 at 133.
31 New York Convention, Art.VII.
32 See van den Berg, supranote 2, at 81. The Court of Appeals of Cologne has explained the raison d'être of the provision as follows: 'The rationale of this provision is to avoid depriving a party who seeks recognition of an award of more favourable possibilities under the national law of the State where enforcement is sought.' Oberlandesgericht of Cologne, June 10, 1976 (F.R. Germ. No.14). Dutch law makes the same provision. See Netherlands Code of Civil Procedure, Art.1076(2). The new German Arbitration Act, effective January 1, 1998, now permits an award to be set aside if the arbitration agreement is invalid. See Art.1061(1).
33 New York Convention, Art.V(1)(e).
34 See Brower, supra footnote 1.
35 See Arts. 1(2) and 34 of the UNCITRAL Model Law on International Commercial Arbitration. U.N. Doc. 40/17.
36 See, e.g., Hicox v. Outhwaite, 3 WLR 297 (1991); C. Reymond, 'Where is an Arbitral Award Made?' LRQ, at p.1 (1992).
37 See, e.g., the jurisprudence of the Indian Supreme Court as summarized in J. Paulsson, 'The New York Convention's Misadeventures in India', 7 Mealey's Int'l Arb. Rep.18 n.6 (1992).
38 For brief analysis of procedural legislation of these and other countries, see Hamid G. Gharavi, The International Effectiveness of the Annulment of an Arbitral Award 17-23 (2002).
39 Albert J. van den Berg, The New York Arbitration Convention of 1958, 27 (1981).
40 Karaha Bodas Co., L.L.C. v. Perusahaan Pertambangan Minyak Dan Gas, 335 F.3d 357 (5th Cir. 2003).
41 Id. at 371.
42 Id. at 368.
43 See Compagnie Noga D'Importation et D'Exportation S.A. v. Russian Federation, 361 F.3d 676 (2d Cir. 2004). For a summary of procedural developments in Noga, see Nancy B. Turck, 'French and US Courts Define Limits of Sovereign Immunity in Execution and Enforcement of Arbitral Awards', 3 Arbitration International 17 (2001).
44 New York Convention, Art.V(1)(e).
45 For a detailed analysis of the French jurisprudence, see Emmanuel Gaillard, 'Enforcement of Awards Set Aside in the Country of Origin: The French Experience', in Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention, 505 ff (Albert J. van den Berg ed. 1999).
46 Eric Schwartz, 'French Supreme Court Renders Final Judgment in the Hilmarton Case', 1 International Arbitration Law Review 45(1997).
47 Chromalloy Aeroservicesv. The Arab Republic of Egypt, 939 F.Supp. 907 (D.D.C.1996).
48 Id. at 913.
49 In 1999, the International Council of Commercial Arbitration published an extensive commentary on this issue, where some leading arbitration practitioners such as Emmanuel Gaillard, Ahmed Al-Kasheri, Jan Paulsson and Philippe Fouchard and this author exchanged comments on the problem of enforcement of nullified awards. See Albert J. van den Berg, (Edn.) Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 433-617 (1999).
50 See Eric Schwartz, 'A Comment on Chromalloy: Hilmarton á l'américaine', Journal of International Arbitration 125 (1997).
51 David W. Rivkin, 'The Enforcement of Awards Nullified in the Country of Origin: The American Experience', in Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 528 (Albert J. van den Berg Edn., 1999); see also Jan Paulsson, 'The Case for Disregarding LSAs (Local Standard Annulments) under the New York Convention', 7 American Review in International Arbitration 99 (1996).
52 Baker Marine (Nig.) Ltd. v. Chevron (Nig.) Ltd, 191 F. 3d 194 (2d Cir. 1999).
53 Id.
54 Spier v. Calzaturificio Tecnica, S.p.A., 77 F. Supp.2d 405, 407 (S.D.N.Y. 1999).
55 Nicor Int'l Corp.v. El Paso Corp., 292 F. Supp.2d 1357, 1375 (S.D. Fla. 2003).
56 Karaha Bodas Co., LLCv. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 264 F. Supp.2d 490, 500 (S.D. Tex. 2003).
57 Karaha Bodas Co.v. Negara, 335 F.3d 357, 360-361 (5th Cir. 2003).
58 Id. at 366-374.
59 Karaha Bodas Co., L.L.C. v.Perusahaan Pertambangan Minyak Dan Gas, 264 F. Supp.2d 490, 500 (S.D. Tex., 2003) aff'd 364 F.3d 274, 309-310 (5th Cir. 2004).
60 David W. Rivkin, 'The Enforcement of Awards Nullified in the Country of Origin: The American Experience', in Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 528 (Albert J. van den Berg Edn., 1999).
61 The International Court of Justice and its predecessor, the Permanent Court of International Justice, have set the standard of res judicata in international jurisprudence. See, e.g., Advisory Opinion No.11, 'Polish Postal Service in Danzig', 1925 P.C.I.J. (ser. B) No.11, at 30; Dissenting Opinion of President Anzilotti, 'Factory at Chorzów (Interpretation of Judgements Nos. 7 & 8)', 1927 P.C.I.J. (ser. A), No.13, at 23.
62 Cf. United States-Chile Free Trade Agreement, Art.110, 10.17(2), requiring waiver 'of any right to initiate or continue before any administrative tribunal or court under the law of either Party, or other dispute settlement procedures, any proceeding with respect to the events alleged to give rise to the claimed breach.'
63 Waste Management, Inc. v. Mexico, Jurisdiction, ICSID Case No. ARB (AF)/98/2, June 2, 2000.
64 W.S. Dodge, AJIL International Decisions, 95 AJIL 186 (2001), at p.189.
65 Compañia De Aguas Del Aconquija S.A.and Vivendi Universal(Formerly Compagnie Générale Des Eaux) v. Argentine Republic, ICSID Case No. Arb/97/3, Decision of the Ad Hoc Committee of July 3, 2002, at 96.
66 Id. at Para.55.
67 Id. at Para.96.
68 CMS Gas Transmission Companyv. The Republic of Argentina, ICSID Case No. ARB/01/8, Decision on Objections to Jurisdiction of July 17, 2003, at Paras.77-82.
69 Alex Genin, Eastern Credit Limited, Inc., and A.S. Baltoil v. The Republic of Estonia, ICSID Case No. ARB/99/2, Award of June 25, 2001, at Paras.331-332.
70 Ronald Lauderv. The Czech Republic, Award of September 3, 2001, at Paras.161, 163. As noted above, my firm represented Ambassador Lauder in this arbitration.
71 OEPCv. Republic of Ecuador, Award of July 1, 2004. Again, in interests of full disclosure, I note my representation of OEPC in this arbitration.
72 In fact, Ecuador has since made that very argument in setting aside proceedings in England, after OEPC withdrew certain Ecuadorian court proceedings in compliance with the award in its favour of the Arbitral Tribunal.
73 Id. at Para.57.
74 Id. at Para.52.
75 Id. at Para.60.
76 Id. at Para.10.
77 Id. at Para.57.
78 SGS Société Générale de Surveillance S.A.v. Republic of the Philippines, Jurisdiction, ICSID Case No. ARB/02/6, 29 January 2004, Para.132(c).
79 The tribunal in that case had stated: 'We recognize that disputes arising from claims grounded on alleged violation of the BIT, and disputes arising from claims based wholly on supposed violations of the PSI Agreement, can both be described as "disputes with respect to investments," the phrase used in Art.9 of the BIT. That phrase, however, while descriptive of the factual subject matter of the disputes, does not relate to the legal basis of the claims, or the cause of action asserted in the claims. In other words, from that description alone, without more, we believe that no implication necessarily arises that both BIT and purely contract claims are intended to be covered by the Contracting Parties in Art.9.' SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision on Objections to Jurisdiction, August 6, 2003, Para.161.
80 Gary Born, International Commercial Arbitration 672-700 (2nd Edn. 2001) (citing the UNCITRAL, ICC, AAA International Rules, as well as other leading institutional rules).
81 LCIA Arbitration Rules, 1 January 1998.
82 See Born, supra footnote 70, at 673. See also Art.1046 of the Netherlands Arbitration Act, consolidation of arbitral proceedings may be granted by an arbitral tribunal upon the request of one of the parties. Netherlands Code of Civil Procedure, 1 December 1986, Art.1041.
83 Societe Nationale Industrielle Aerospatialev. United States District Court for Southern District of Iowa, 482 U.S. 522, 544 n. 27 (1987) (quoting Hiltonv. Guyot, 159 U.S. 113, 163-64, 16 S.Ct. 139, 40 L.Ed. 95 (1895)); see also Banque Libanaise Pour Le Commerce v. Khreich, 915 F.2d 1000, 1004 (5th Cir. 1990).
84 Laker Airways Limitedv. Sabena, Belgian World Airlines, 731 F.2d 909, 937 (D.C.Cir. 1984).
85 MOX Plant (Irelandv. United Kingdom), Order No. 3, 42 I.L.M. 1187.
86 Southern Bluefin Tuna Case (Australia and New Zealand v. Japan), Award on Jurisdiction and Admissibility, 4 August 2000, 39 ILM 1359 (2000).
87 United Nations Convention on the Law of the Sea, Art.281.
88 Hiltonv. Guyot, 159 U.S. 113 (1895).
89 McDonaldv. City of West Branch, 104 S.Ct. 1799 (1984); Parklane HosieryCo. v. Shore, 439 U.S. 322, 326 n.5 (1979).
90 For examples of positive res judicata see Trial Smelter and the Pious Fund case. In Pious Fund, the Tribunal stated that res judicata applied where 'there is not only identity of parties to the suit, but also identity of subject-matter.' Pious Fund of the Californias (U.S.v. Mex.), Hague Ct. Rep.(Scott) 1, at 5 (Perm. Ct. Arb. 1902). In Trail Smelter, the arbitrators stated that 'the sanctity of res judicata that attaches to a final decision of an international tribunal is an essential and settled rule of international law.' Trail Smelter (U.S. v. Canada), 3 R.I.A.A. 1905, at 1950 (1941).
91 Ian Brownlie, Principles of Public International Law 52 (5th Edn. 1998) ('There is no effect of res judicata from the decision of a municipal court so far as an international jurisdiction is concerned [...]'); Bin Cheng, General Principles of Law as Applied by International Courts and Tribunals 337, No.6 (1987) ('a decision of municipal law does not constitute res judicata in international law'). Also the ICSID Tribunal in Amco v. Indonesia put it succinctly, 'an international tribunal is not bound to follow the result of a national court.' See Amco v. Indonesia (Award, Nov. 20, 1984), 1 ICSID Rep.413, 460 (1993), sustained in relevant part, Amco v. Indonesia(Decision on the Application for Annulment, May 16, 1986), 1 ICSID Rep.509, 526-27 (1993).
92 Hans van Houtte, 'Parallel Proceedings before State Courts and Arbitration Tribunals. Is there a Transnational lis alibi pendens-exception in Arbitration or Jurisdiction Conventions?', in Arbitral Tribunals or State Courts. Who Must Defer to Whom?, ASA Special Series 35 No.15 (2001).
93 SGS Société Générale, supra footnote 56, Para.97.
94 SPPv. Egypt, Decision on Jurisdiction II, 14 April 1988, 3 ICSID Reports 131.
95 SPP (ME) Ltd. v. Egypt (First Decision on Jurisdiction, 27 Nov. 1985), 106 I.L.R. 502, 529, Para.84.
96 Id.
97 Waste Management, Inc.v. United Mexican States, Arbitral Award of 2 June 2000, 40 ILM 56, 69-70 (2001); also in 15 ICSID Review-Foreign Investment Law Journal 211 (2000).
98 Waste Management, Inc. v. United Mexican States (ICSID Case No. ARB(AF)/00/3) (available at http://www.state.gov/documents/organization/12244.pdf).
99 Id. at Para.45.
100 Waste Management, Para.46.
101 Id.at Para.47. See Azinianv. United Mexican States, 1 November 1999, 39 ILM 537, at Para.99.
102 A. v. Z., Order No. 5 of 2 April 2002 regarding Claimant's Request for Interim Relief, Para.16 (available at http://www.kluwerarbitration.com/arbitration/arb/home/ipn/ default.asp?ipn=25311).
103 Id. at Para.17.
104 Douglas D. Reichert, 'Problems with Parallel and Duplicate Proceedings: The Litispendence Principle and International Arbitration', 8 Arbitration International 237 (1992).
105 Id.
106 See, e.g., In re Coastal Plains, Inc., 179 F.3d 197, 205 (5th Cir. 1999) (quoting Brandon v. Interfirst Corp., 858 F.2d 266, 268 (5th Cir. 1988)); Ahrens v. Perot Sys. Corp., 205 F.3d 831, 833 (5th Cir. 2000) (holding that plaintiff was judicially estopped from pursuing her discrimination claims because of sworn statements made during the earlier-filed tortious EEOC interference action).
107 See Restatement (Second) of Judgements Para.84(1); Greenblatt v. Drexel Burnham Lambert, Inc., 763 F.2d 1352, 1361 (11th Cir.1985) (holding that when arbitration is properly commenced under the terms of an arbitration clause in a contract, its outcome is determinative as to all contractual rights and liabilities and that courts should use a case-by-case approach to determining the collateral estoppel effects of arbitral findings).
108 See, e.g., Dominiun Austin Partners, L.L.C. v. Emerson, 248 F.3d 720, 728 (8th Cir. 2001) (party estopped from arguing that opposing parties were not bound by arbitration clause where that same party alleged in other lawsuit that those opposing parties were bound by the contract containing the arbitration clause).
109 See, e.g., Karaha Bodas, F.2d at 493 (relying on the resisting party's prior position that the Swiss court must be permitted to rule on the annulment of an award to set a briefing schedule that allowed the Swiss court to do so).
110 The Lincoln National Life Insurance Cov. Sun Life Assurance Co.of Canada and others, Commercial Court (2004) All ER (D) 42.
111 Id. at Para.92.
112 Id.
113 New York Convention, Art.V; Model Law, Art.36.