Preventing duplicative claims: “Fork-in-the-Road” and “No-

One concern evinced by treaty drafters has been the possibility that investors can seek relief in multiple forums for the same violation. In particular, investors may submit disputes to the domestic courts of the host State and simultaneously, or subsequently, submit the same dispute to international arbitration.

Duplicative claims could require the host country to respond to the same claims more than once, result in contradictory decisions, and in some circumstances even permit double recovery by claimants.

Most IIAs address this potential problem in one of two ways.

The first is by requiring an investor to decide, at the very beginning, whether the dispute will be adjudicated in domestic courts or through international arbitration (“fork-in-the-road” provision). The investor has no recourse to the other forum after it has selected one

of the options. The second approach permits an investor to make a final decision on the venue at a later stage, e.g. after starting proceedings in the host State courts. Once the investor has opted for international arbitration, however, it cannot shift back to domestic courts (“no-U-turn” provisions). While “fork-in-the-road” clauses may discourage recourse to local courts, “no-U-turn” provisions do not have this effect. Each type of clause will be examined in more detail in turn.

“Fork-in-the-road” clauses require investors to choose between domestic courts and international arbitration at the outset.

Once an investor starts domestic proceedings, it loses the right to resort to arbitration, and vice versa. An example of a “fork-in-the-road” provision is Article XIII.3 of the Chile-Indonesia BIT (1999), which provides that:

“Once an investor has submitted the dispute to the competent tribunal of the Contracting Party in whose territory the investment was made or to international arbitration, that election shall be final.” (Emphasis added).

“Fork-in-the-road” clauses may be a disincentive for the investor to use national courts. Indeed, if an investor wishes to preserve its right to resort to international arbitration, it is likely to avoid domestic litigation. This, in turn, is not in the interest of host States; governments normally have a preference to settle the dispute in their own courts.

In practice, however, “fork-in-the-road” clauses have often not prevented investors from seeking relief in two forums. Litis pendens principles suggest that a party will be prevented from seeking relief in a second forum if there is “identity of the parties, object and cause of action in the proceeding pending before two or more tribunals”; i.e. the parties, object and cause of action must be the

same in the two suits.⁷⁷ Domestic proceedings often involve a claim by the investor’s local subsidiary, rather than the investor itself, thereby defeating the identity-of-the-parties requirement. A variation of this problem is that the domestic claim will be submitted against a sub-national government unit or other State entity, rather than the State itself.

Litis pendens also requires identity of the cause of action.

Domestic procedures will usually involve a claim for breach of contract or domestic law, rather than for breach of an investment treaty obligation, thereby defeating the requirement that the cause of action in the two cases be identical. It follows that an international tribunal will be able to hear the case if the causes of action or the formal identity of the parties in the arbitration proceedings are not the same as those of the parties in the domestic courts.⁷⁸

Some States have attempted to address this problem by amending the fork-in-the-road provision. For example, Article 28(3) of the Common Market for Eastern and Southern Africa (COMESA) Investment Agreement (2007) provides:

“If the COMESA investor elects to submit a claim at one of the forums set out in paragraph 1 of this Article, that election shall be definitive and the investor may not thereafter submit a claim relating to the same subject matter or underlying measure to other forums.” (Emphasis added).

77 Azurix Corp. v. Argentina, ICSID Case No. ARB/01/12, Decision on Jurisdiction, 8 December 2003, para. 88, quoting S.A.R.L. Benvenuti &

Bonfant v. Congo, ICSID Case No. ARB/77/2, Award, 8 August 1989, para. 1.14.

78 For a more detailed explanation of cases holding that the “fork-in-the-road” provision had not been triggered in various circumstances, see UNCTAD, 2007a, pp. 30–32.

This provision refers the “subject matter” and the “underlying measure”, which means that the cause of action (contract, national or international law) is irrelevant as long the State conduct at issue is the same. However, even with this particular formulation, a State’s attempt to invoke the “fork-in-the-road” clause may be unsuccessful if the identities of the claimant in the domestic litigation and international arbitration are different.

“No-U-turn”, or “waiver”, clauses take a different approach to prevent duplicative claims. They permit investors to opt for international arbitration after commencing a claim for relief in domestic courts or tribunals. However, if the investor decides to submit a claim regarding the same measure to international arbitration under the ISDS provision of an IIA, then it must abandon its right to pursue local remedies.

Agreements of Canada and the United States have tended to follow this approach.⁷⁹ An illustrative example may be found in the Canada-Jordan BIT (2009):

“Article 26. Conditions Precedent to Submission of a Claim to Arbitration

1. A disputing investor may submit a claim to arbitration under Article 22 (Claim by an Investor of a Party on Its Own Behalf) only if:

[…]

e. the investor and, where the claim is for loss or damage to an interest in an enterprise of the other Party that is a juridical person that the investor owns or controls directly or indirectly, the enterprise waive their right to initiate or continue before any administrative tribunal or court under the law of either Party, or other dispute settlement

79 See, for example, United States Model BIT (2012), Articles 24(1) and 26(2)(b); Canada’s Model BIT (2004), Articles 26(1)(e) and 26(2)(e).

procedures, any proceedings with respect to the measure of the disputing Party that is alleged to be a breach referred to in Article 22, 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.” (Emphasis added).

This approach gives domestic courts the opportunity to redress wrongs before they are raised to the international plane and permits investors to try that venue first. Once the investor decides to seek relief before an international tribunal, however, it may not shift back to domestic courts, except in cases where the investor seeks

“injunctive, declaratory or other extraordinary relief”.⁸⁰

The article above focuses on the measure that is alleged to be in breach, and precludes duplicate proceedings regarding that measure.⁸¹ It also requires that the investor’s investment (i.e. a host-State enterprise owned or controlled by the investor) waive its right to initiate or continue proceedings with respect to the measure at issue. This circumvents the narrow traditional litis pendens requirement of identity of the cause of action and of the parties. In other words, it attempts to preclude a simultaneous international claim by an investor alleging breaches of the IIA, and domestic proceedings by the investor’s subsidiary alleging breaches of a contract or domestic law.

80 The exception is included because the agreement explicitly precludes the tribunal from awarding non-monetary relief.

81 Questions about whether the domestic litigation and international arbitration related to the same measure have arisen in a few cases in the NAFTA context. See Mark Roy Feldman Karpa v. Mexico, ICSID ARB(AF)/99/1, Award, 16 December 2002, paras. 70–84; Waste Management Inc. v. Mexico, ARB(AF)/98/2, Arbitral Award, 2 June 2000, paras. 23–29.