The “At the Crossroads” clauses (“IFIC”), included in primary investment treaties, “provide that the investor will have to decide between litigation of its claims in the domestic courts of the host state or foreign arbitration and that the selection, once made, is final. ” As a result, fork clauses give the investor an irrevocable choice of forum.
For a long time, the fork in the road clauses have remained dormant in foreign investment law (“IIL”). It was not until 2009 that the sole referee, Jan Paulsson, in the case of Pantechniki v. Albania, declined his jurisdiction for the first time. on the basis of the FITR clause contained in the Albania-Greece BIT. Regarding the application of the FITR clause, Mr. Jan Paulsson focused on the regulatory remedies of the claims involved and on the question of whether the claim brought before the investor-State arbitral tribunal has an “autonomous existence” in relation to the claim. Filed before the other court or arbitral tribunal rather than simply focusing on whether the dispute brought before the investor-state arbitral tribunal and the dispute brought before some other court or tribunal are identical. However, that technique has not been widely accepted, as many other courts have continued to adhere to an inflexible and formalistic interpretation in relation to the application of FITR clauses.
In this article, three recent Chinese cases similar to the application of the FITR clause will be examined. Based on this review, we will discuss why the focus in the FITR clause should be moved from formalism to physicalism.
The origin and the FITR clauses
The growing number of bilateral investment treaties (“BITs”), multilateral investment agreements and other foreign conventions provide cross-border investors with quite a few tools to seek solutions in cases where their rights and investments have been violated through host States. However, when viewed from the attitude of host states, the landscape of investor-state dispute agreements (“ISDS”) is undergoing a significant transformation. Host states increasingly place their measures and policies subject to review through foreign courts, and the jurisdiction of local courts over certain investment disputes arising from foreign direct investment is exercised through those foreign courts.
The endless struggle between investors’ demands for foreign solutions and host states’ insistence on sovereignty eventually gave rise to the FITR clause that can be found today in maximum investment treaties. According to its drafters, this clause, as a compromise solution, serves at least two main objectives: harmonizing other interests around ISDS; and to address considerations of new litigation or parallel proceedings and potentially contradictory results. However, as the following three cases reveal, the FITR clause has particularly deviated from its objectives due to the inflexible and formalistic technique followed by foreign courts.
Three Chinese Involved in the Application of the FITR Clause
On March 26, 2021, a three-member court handed down a judgment in the case of Zhongshan Fucheng v. Federal Republic of Nigeria. In this award, the arbitral tribunal rejected the objection of lack of jurisdiction raised through Nigeria on the basis of the FITR clause. Subsequently, on January 10, 2022, the tribunal, in the case of Wang Jiazhu v. Republic of Finland, ruled against Finland’s jurisdictional objection on the grounds that the FITR clause is not applicable in the existing case. A year later, on February 16, 2023, in the case of Asiaphos Limited and Norwest Chemicals v. People’s Republic of China, the tribunal rendered a majority ruling in favor of China and this ruling, once again, addressed the factor of FITR-meritorious jurisdictional objection.
Despite the other substantial issues addressed in the three China-related investment treaty cases mentioned above, the tribunal in the case faced a not unusual procedural issue, namely the jurisdictional objection based on the FITR. Ultimately, the three courts issued a consistent ruling regarding the effect of the FITR clause. With this in mind, the tribunals’ findings regarding the application and effect of the FITR clause deserve specific attention.
Zhongshan Fucheng c. La Federal Republic of Nigeria
In this case, the dispute considers the unilateral termination through the Nigerian state of Ogun of the Joint Venture Agreement (“JVA”) signed with Zhongfu, a subsidiary of the Chinese company Zhongshan Fucheng (“Zhongshan”). The claimant claimed that Nigeria had thereby violated its obligations under the China-Nigeria BIT (2001) and initiated arbitration. During the arbitration proceedings, Nigeria invoked the FITR clause on the basis that Zhongfu had in the past chosen to initiate legal proceedings in the State Court opposed to Ogun State. As a result, this invocation triggered the application of the FITR clause and thus prohibited Zhongshan from continuing with the foreign arbitration procedure.
In detail, the court relied primarily on the “triple identity tests,” which require the court to determine whether the parties’ claims, course of action, and relief sought are the same, to succeed in its decision. First, the parties are distinct in the sense that neither party, Zhongshan and Nigeria in this arbitration, is a party to the legal proceedings involving Zhongfu, Zhongshan’s subsidiary, and the Nigerian state of Ogun. Secondly, the way forward is different in the sense that the legal procedure is based on the alleged violations of the JVA and domestic law, while this arbitration is based directly on the China-Nigeria BIT (2001). Thirdly, the relief requested is different since in the judicial procedure, Zhongfu seeks declaratory relief and precautionary measures, while in this arbitration, Zhongshan seeks compensation.
Based on the court’s reasoning, the consideration that under the well-established and widely accepted “triple identity tests” can also potentially gain significant merit or even end up being invincible when faced with jurisdictional objections based on the FITR is arguably sustained. raised through the host States. Array One may also believe that initiating legal proceedings against the host state in its own courts, based on the provisions of the BIT, can also be difficult, if not nearly impossible.
Wang Jiazhu v. Republic of Finland
This arbitration led the Claimant to oppose the Republic of Finland and involved the alleged in-depth search of the Claimant’s investment centre, the subsequent detention of the Claimant and the effective appropriation of the Claimant’s investments in Kouvala in Finland.
It should be noted that before the graduation of arbitration, the Claimant first chose to submit the dispute in question to the competent courts of Finland. Starting on June 13, 2013, the plaintiff’s domestic legal proceedings were filed before the District Court, then before the Court of Appeal, and nevertheless reached the Finnish Supreme Court. In this regard, Finland raised jurisdictional objections based on the FITR, arguing that under Article Nine of the China-Finland BIT (2004), a typical clause of the FITR, the Claimant can no longer resort to foreign arbitration.
In the decision on the defendant’s objection of lack of jurisdiction rendered before the Court on June 10, 2022, the Court concluded that the objection of lack of jurisdiction of the Republic had failed and therefore proceeded to read on the merits of the claims raised through the plaintiff. Among this 12-page ruling, one of the key conclusions raised by the Court is that the vital factual basis on which the Claimant relied during the arbitration is its claim of denial of justice. To be more specific, the Claimant claimed that in the decision and judgment relating to its claims for damages to the Finnish national courts, the courts did not provide sufficient reasoning or overlooked key issues. Such acts committed through domestic courts raised issues related to the investor’s fair and equitable remedy during the investment and further gave rise to the claimant’s claim of denial of justice.
Although the Claimant also brought other claims such as coverage and warranty, anti-expropriation coverages that would most likely overlap with the claims raised in the domestic courts, the very nature of the denial of justice claim ultimately allowed her to avoid the application of the FITR clause. Array Because at the time the claim for damages was heard, the alleged miscarriage of justice committed through the national court had not yet occurred. This case was settled on October 24, 2023, but it is an attractive hypothetical question worth investigating. If the Court subsequently decides that the denial of justice claim deserves to be dismissed after considering the merits, would it reexamine the jurisdictional facets of the dispute and invoke the FITR clause? This challenge is insurmountable in practice. Since a tribunal, i. e. a foreign court constituted on the basis of a treaty, is commonly identified as having the force of its own jurisdiction, it has broad discretion to decide whether or not to address the question of jurisdiction on the merits. Once the objection to the jurisdiction of the FITR has been resolved along with the merits, the host State will largely be forced to concern itself with protecting the merits of the case.
Asiaphos Limited and Norwest Chemicals v People’s Republic of China
While the Zhongshan case represents a prevailing view on how to interpret the FITR clause in foreign investment law, the Asiaphos case is a host-state-only example of providing guidance to investors on how to circumvent it.
The dispute in this case considers the mandatory closure, sealing and “exit” of investors’ mines and related mineral rights, as China has pursued a new policy prohibiting mining in and around the nature reserve. The claimants initiated this arbitration primarily alleging that the new state policy had expropriated investors’ investments, which had led to the violation of the Singapore-China BIT (1985). The central issue considers the determination of the scope of the State’s arbitral consent based on Article 13(3) of the BIT “if a dispute over the amount of reimbursement resulting from the expropriation [……] the whole would possibly be submitted to an established foreign court through any of the parties. The FITR clause, in this case, plays a role in the interpretation of the terms “dispute regarding the amount of reimbursement resulting from the expropriation. ”
In order to identify the Court’s competence to hear the dispute not only about the reimbursement resulting from the condemnation but also about the lifestyles and legality of the condemnation, the Claimants argued that those two issues were inseparable and that if the Claimants were obliged to first bring a claim in the court proceedings relating to the eminent domain lifestyles, then you would be barred from resorting to foreign arbitration related to reimbursement because of the FITR clause. Contrary to the claimants’ position, the host state argued that the FITR clause would not be triggered if the internal dispute was properly recorded. In the end, the Court followed the State’s position and clarified that investors may limit their application for relief before the domestic court to the question of the legality of the measure at issue and refer the issue of the appropriate amount of reimbursement to the next arbitration. Minutes. There would then be no threat of triggering the FITR clause and giving rise to contradictory decisions, as the two procedures address other issues.
Inspired by the Court’s reasoning above, investors in other cases would likely use the “claim splitting” tactic, which involves dividing a single cause of action or claim into multiple and suing each in other court proceedings, to avoid without problems activating the FITR. clause and then eat the icing on the cake for a moment. Ultimately, the court would likely conclude that the original objective of the award, that is, to avoid parallel proceedings and the resulting contradictory decisions, are satisfied with the charge of giving finality to the effects of the dispute settlement are arguable.
Final Thought: Shifting Emphasis from Formalism to Essentialism
Overall, the three cases indexed above primarily adhere to the “triple identity verification” technique to determine whether the FITR provisions deserve to be activated. However, before deciding whether such verification deserves to be implemented or not to interpret the FITR clauses, the basic question that remains to be resolved is which regulations deserve to be implemented. Since the FITR clauses are treaty texts, the Vienna Convention on the Law of Treaties (“VCLT”) will effectively apply, Article 31 of which specifies that the objective of the When interpreting the texts of a treaty, it provides a guideline to follow. In this sense, any control carried out through the court must not deviate from the needs regulated by the CVDT. However, it is not difficult to understand the genuine role that FITR clauses play. As illustrated at the beginning of this article and as observed by the ICSID Tribunal in the H case.
Based on the above analysis, the formalist technique illustrated through triple identity checking has significant shortcomings, making the application of the FITR clause almost impossible. It goes without saying that investor-state arbitration is initiated on the basis of a treaty (i. e. a treaty-related claim), while the scenario is different in domestic disputes or arbitrations, where most of them are initiated. solely and directly on the basis of national or contract law (i. e. contracts). If the triple identity check is strictly followed, the foreseeable result is that the FITR clause would enter a latent state, which also constitutes a violation of the interpretative precept of effectiveness.
Returning to the interpretive technique provided in the CVDT, since the meaning of FITR clauses in many BITs is neutral, triple identity verification is implemented as an additional tool to assist the tribunal in determining the application of FITR clauses. , this interpretation technique appears to have had the opposite effect in practice, making it easy for investors to avoid the application of FITR clauses and to have a moment to present their arguments in other forums. Such an interpretation is notoriously contrary to the Object and purpose of the LITR clauses.
In the current era of expanded ISDS and ample resources available to investors, it is therefore of utmost importance to move from a formalistic and inflexible identity check to a substantive global assessment of the parties involved, the legal bases invoked, the objectives pursued. and the underlying foundations. facts or a technique aimed at measurements/injuries. With this transformation, the court will have to go deeper to determine whether the measure, followed through the host State, that gives rise to the investors’ claim or the damage that constitutes the basis of the claim, is the same in both procedures.
For example, if an investor initiates a restitution action in integrum before a domestic court for an alleged expropriation through the host State based on contractual obligations, but then seeks reimbursement in a proceeding before a foreign court based on a BIT, the tribunal is expected to conduct a thorough and thorough investigation. a factual investigation aimed at determining whether in the two cases the measures requested or the damage suffered by the investor are identical, i. e. whether they lead to the commitment to expropriation through the host State. If the resolution is affirmative, the FITR clause will most likely be triggered.
Undoubtedly, the actual case before the court would be much more complicated. However, only when the focus in the FITR clause shifts from formalism to physicalism can the two main objectives of the FITR clause actually be met.
For information, please contact:
Shouzhi An, Partner, Anjie Broad Law
anshouzhi@anjielaw. com
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