A Modest Proposal for Preventing Multipartite Arbitrations from Being a Burden to the Parties and for Making Them Beneficial to the Parties

By Martinez, Alexis; Pekar, Rostislav | American University Business Law Review, January 3, 2016 | Go to article overview

A Modest Proposal for Preventing Multipartite Arbitrations from Being a Burden to the Parties and for Making Them Beneficial to the Parties


Martinez, Alexis, Pekar, Rostislav, American University Business Law Review


Introduction

The recent increase in so-called "mass" investment treaty claims involving Argentina, the Czech Republic, and Spain put multipartite arbitration in the spotlight. Specifically, considerable attention has been dedicated to whether dozens, if not thousands, of claimants should be permitted to bring their claim in one set of proceedings when a single hostState is involved.

While investment arbitration involving several claimants is common and considered de facto acceptable,1 the question of whether a very high number of claimants can bring their claims together has not been asked or debated until recently. Strikingly, the question of whether such disputes should necessarily be litigated together has not yet been given the same importance.

In this paper, the authors consider arbitral practice in respect of multipartite arbitration, but also dedicate special focus to the factual and legal circumstances that may arise to alter whether it is efficient and fair to continue a multipartite arbitration. We will show that, in certain complex circumstances, this is not always the case.

In doing so, the authors focus on the three common scenarios that give rise to multipartite arbitration: a parent company and an investment vehicle as joint claimants, investors in the same investment as joint claimants, and investors in different investments as joint claimants.

The authors conclude by recommending that, in multipartite proceedings, tribunals consider carefully whether to hold a separate phase during which it will be debated and decided whether, and if so, how, proceedings should be consolidated.

II. Where the Parent Company and the Investment Vehicle Are Joint Claimants

A. Arbitral Practice

This situation commonly arises in circumstance where an investment vehicle brings a claim, together with its parent company, and wishes to invoke the nationality of the latter. This is directly envisaged at Article 25(2)(b) of the International Centre for Settlement of Investment Disputes ("ICSID") Convention, which refers to the possibility that "because of foreign control," the parties to an investment treaty agree to treat a legal person as "a national of another Contracting State for the purposes of this Convention."2 Numerous investment treaties contain such provisions, and these are frequently invoked in ICSID and other types of investment treaty arbitration.

For instance, in MTD Equity v. Chile,3 MTD Equity was the 100% owner of MTD Chile, a company organized under the laws of Chile.4 MTD Chile could therefore avail itself of the nationality of its parent company because such a purpose was directly envisaged in Article 6(2) of the ChileMalaysia bilateral investment treaty.5

As the above example illustrates, it is uncontroversial that, in the presence of adequate treaty language, there are no bars to a parent company and its investment vehicle bringing a claim jointly against the host-State.

B. Practical Considerations

At first glance, no issue could arise from the parent company and the investment vehicle bringing the claim simultaneously. Indeed, one might think it makes little difference whether the parent company, the investment vehicle, or both entities bring the claim.

However, various circumstances may arise in which the investment vehicle does not have the same legal rights as its parent company under investment treaty law. This is particularly the case when considering the right to fair and equitable treatment ("FET"), which is commonly set out in investment treaties.6

A key determinant of the content of the standard is the legitimate expectation of the investor at the time of investment. Broadly defining the standard, the ICSID Tribunal in Técnicas Medioambientales Teemed v. Mexico stated that the FET standard "requires the Contracting Parties to provide to international investments treatment that does not affect the basic expectations that were taken into account by the foreign investor to make the investment. …

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