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Addressing Procedural Abuses in International Investment Arbitration: Challenges and Remedies

Addressing Procedural Abuses in International Investment Arbitration: Challenges and Remedies

The expanding usage of investment treaty arbitrations has caused international arbitration to become more dispersed and complicated. Due to this, international arbitration has become increasingly contentious, with investors frequently learning who the claiming investor is. This gave rise to the idea of "abuse of process," which is not prohibited but may seriously harm people and jeopardize the impartial and systematic settlement of conflicts. Arbitrators must distinguish between simple rules infractions and abuses of procedure, as both may be resolved within the current procedural norms. For international disputes to be settled fairly and in an orderly manner, this issue must be addressed. Three categories of procedural abuse in international arbitration are identified by arbitral case law. The first kind, limited to investment treaty arbitration, consists of plans created to establish jurisdiction under an investment treaty. The definitions of "investor" and "investment" in modern investment treaties and legislation on investment protection are often broad and cover indirect investments made via one or more business entities. The protection of an international investment treaty is also available to an investor who has re-invested in their home state through a subsidiary business formed in a third state, thanks to arbitral case law. In several cases, the tribunals have determined that there was no abuse of process and that the issue was not reasonably foreseeable at the time of the reorganization. The second kind involves applying the doctrine of jurisdiction ratione temporis to a situation in which a claimant's purchase of an investment or restructuring takes place within a short time frame of the dispute with the host State.

International arbitration claims frequently seek to establish a preferred tribunal or venue; but, in an attempt to increase the likelihood of victory, a claimant may abuse the process by starting more than one action. Respondent parties, who can have an arbitration provision demanding the settlement of all disputes by a set of rules, stand to lose the most from this. This is typical in arbitrations about construction, as several claims may be presented to different arbitrations. When an arbitration agreement provides an incentive to influence the arbitral process, the likelihood of arbitral procedures being arbitrarily multiplied abusively increases. When crafting an arbitration provision, this is not necessarily the desired practice.

Shareholders of a locally formed business may sue for damages under an investment treaty involving their home state according to arbitral case law. Investment treaties are reached both bilaterally and multilaterally, and separate arbitral processes under separate treaties are not coordinated. For instance, the investment treaty between France and Kazakhstan and its Dutch subsidiary firm may protect a French business investing in Kazakhstan. Under Article 25(2)(b) of the ICSID Convention, a local firm under foreign ownership may file for investment arbitration against the host nation if it is protected. Nevertheless, as it might lead to unenforceable awards, this is a procedural misuse. In recent times, there has been an attempt by certain parties to manipulate the arbitral process by holding arbitrations for goals other than settling actual disputes—like dodging criminal investigations. Depending on where they are in the corporate hierarchy, shareholders may file more than one arbitration to put as much pressure as possible on the host nation and deplete its resources.

To combat abuse of process in international arbitration, arbitrators might utilize traditional methods such as deducting all expenses from claims made by wrongdoers and using their discretion when determining damages. These instruments, however, are unable to completely handle the novel litigation tactics that parties to international arbitrations have chosen. The Henderson rule, the obligation to focus a dispute, and the theory of lis pendens are three potential remedies for process misuse. When contractual parties have agreed to arbitrate problems, but one party makes use of a national court to decide all or part of its claims, the theory of lis pendens is helpless. Parties must present all arguments or claims about the same issue before the same arbitral tribunal to fulfil their obligation to focus on a dispute. French courts, however, have been reluctant to impose such a responsibility to re-litigate a matter that has already been settled in a previous hearing. The Henderson rule gives a judge the authority to use discretion and consider all relevant circumstances when determining whether a party might have and ought to have brought up a topic or issue in an earlier procedure.

The Henderson v. Henderson decision established that parties must present their whole case to a court of competent jurisdiction when an issue becomes the subject of litigation. Every matter that legitimately falls within the scope of litigation is covered by the plea of res judicata, which also serves as a basis for excluding further arguments in related processes. An arbitral tribunal in Singapore recently applied the Henderson doctrine in an ICC case, preventing the claimant State from requesting an order prohibiting the respondent from trying to enforce an award made against it in 2009 in a different investment treaty arbitration. The International Court of Justice has repeatedly upheld these principles (ICJ). Investment treaty tribunals have sanctioned circumstances when claimant investors have used their procedural rights in a way that compromises the arbitral process by relying on the concepts of abuse of rights and abuse of procedure. New legislative regulations drive the evolution of the notion of abuse of process in international arbitration, highlighting the necessity for arbitrators to take the whole context of a party's actions into account.

By: Vaishnavi Rastogi 

  • Broad definitions in investment treaties enable complex jurisdictional schemes, often leading to procedural abuses.
  • Claimants frequently abuse processes by initiating multiple arbitrations, complicating dispute resolution and increasing costs for respondents.
  • Traditional methods and new doctrines like the Henderson rule and lis pendens are crucial in combating procedural abuses in international arbitration.

BY : Vaishnavi Rastogi

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