In an unpublished ICSID decision last month (the Decision), reported in Global Arbitration Review and Investment Arbitration Reporter, the Arab Republic of Egypt (Egypt) successfully knocked out the majority of claims brought by California-based H&H Enterprises Investments (H&H) by way of jurisdictional arguments based on the “fork-in-the-road” provision contained in the US-Egypt bilateral investment treaty (the BIT).
Fork-in-the-road provisions in BITs generally limit an investor to choosing only one of a number of agreed dispute resolution procedures. For example, if an investor submits its dispute to the local courts, then a fork-in-the-road provision would prevent the investor from also pursuing other dispute resolution procedures under the BIT, such as international arbitration. In the absence of a fork-in-the-road provision, submission of a dispute to local courts will not preclude the investor from pursuing other dispute resolution options.
It is thought that this is only the second BIT claim to be denied jurisdiction on the basis of a fork-in-the-road provision. It serves as a reminder to investors with potential contractual and international law claims to consider carefully the provisions of the relevant BIT before beginning proceedings in any forum.
The dispute concerns a long term management and operation contract concluded in 1989 between H&H and Grand Hotels of Egypt (GHE) regarding the Ain El Sokhna Hotel on the Gulf of Suez in Egypt (the Resort). In October 1993, GHE commenced arbitration against H&H in Cairo under the contract, seeking termination of the contract (the Cairo Arbitration). H&H filed a counterclaim in the Cairo Arbitration. An award was rendered in the Cairo Arbitration and was partly in H&H’s favour. Following the Cairo Arbitration, H&H issued a series of claims before the local courts in Egypt (the Domestic Litigation). At the end of 2001, H&H was evicted from the Resort.
In July 2009, H&H brought ICSID proceedings against Egypt under the US-Egypt BIT, claiming that Egypt had breached various provisions of the BIT, including those concerning fair and equitable treatment, expropriation and full protection and security. H&H also made denial of justice and denial of effective remedies claims in relation to the Domestic Litigation. Egypt objected to the Tribunal’s jurisdiction on various bases, including the fork-in-road provision in the BIT.
Egypt argued that the fork-in-the-road clause was triggered when H&H filed a counterclaim in the Cairo Arbitration and when it filed its claims in the local courts of Egypt. H&H submitted that the fork-in-the-road provision had not been triggered because it claims had been “pursued in the local fora, on the one hand, and the claims pursued in the present arbitration on the other hand do not meet the triple identity test . . . that even though the local proceedings and this arbitration involve the same parties, the causes of action are not the same, as the present arbitration involves treaty claims and not contract claims.” H&H also argued that the relief being sought was different.
In a June 2012 decision on Egypt’s objections to jurisdiction, the Tribunal, comprised of Hamid Gharavi and Veijo Heiskanen and chaired by Bernardo Cremades, rejected most of Egypt’s objections. However, on the issue of the BIT’s fork-in-the-road provision, the Tribunal stated that it was “of the view that the allegations related to the fork-in-the-road clause are closely related to the merits of the case. The Tribunal considers that ruling on this matter requires a more thorough analysis of the claims and the merits of the dispute.” Accordingly, the Tribunal decided to join its decision on the fork-in-the-road objection to its decision on the merits.
Last month’s Decision on the merits found in Egypt’s favour on all of the remaining issues, including in respect of the fork-in-the-road provision. We understand that the Tribunal declined jurisdiction over the majority of H&H’s claims because it considered that the fork-in-the-road provision of the BIT had been triggered by H&H when it submitted its claims with the ‘same fundamental basis‘ to the Cairo Arbitration and the Domestic Litigation.
This Decision is only the second case in the public domain in which a tribunal has declined jurisdiction on the basis of a fork-in-the-road provision. In the 2009 case of Pantechniki SA Contractors & Engineers v Republic of Albania (ICSID Case No ARB/07/21) regarding the Greece-Albania BIT, Jan Paulsson as sole arbitrator found that the investor’s claims were precluded from being heard by an ICSID tribunal because they arose out of the same alleged entitlement to payment for contractual losses that the investor had already brought before the courts in Albania. The relevant test as applied by Paulsson was “whether or not the ‘fundamental basis of a claim’ sought to be brought before the international forum is autonomous of claims to be heard elsewhere. . . [t]he key is to assess whether the same dispute has been submitted to both national and international fora.”
For further information, please contact Craig Tevendale, Partner, Jennifer Hartzler, Associate (New York), or your usual Herbert Smith Freehills contact.