Under a fork-in-the-road clause, an investor is not allowed to pursue a claim in more than one jurisdictional system, those systems usually being ICSID (or another type of international arbitration) and litigation at the national courts of the host state. As such, when an investor brings a claim to a certain jurisdictional system, the investor is barred from bringing the same claim in a different system. Fork-in-the-road clauses are essential for several reasons. Duplicate proceedings are not only a waste of recourses but may also prove an undue advantage to the investor, and complicate the enforcement of the award.
The barring effects of fork-in-the-road clauses can make a substantial difference in the manner an investor-state dispute is decided. So far, investment treaty practice has not crystallised on an approach to interpreting fork-in-the-road clauses. There are two distinct schools of thought in this regard, which are both structured around the criterion of 'sameness' of investor claims, despite it being in a very different manner. These are known as the 'formalistic' and 'pragmatic' approaches, employing the contract-treaty claims test and triple-identity test as opposed to the 'fundamental basis' test, respectively. There has been a progression from examining fork-in-the-road clauses mechanically (under the 'formalistic' approach) to a more relaxed approach found in the 'fundamental basis' test. It is yet inconclusive which method will prevail.
The formalistic tests
Before Pantechniki, no fork-in-the-road clause had been successfully invoked and barred an investor claim under a Bilateral Investment Treaty (BIT) to reach the arbitral tribunal. Legal commentators have attributed this to the formalistic approach tribunals take in such cases. The mechanistic way tribunals have decided whether an investor has already chosen a jurisdictional path or not, appears to have undermined the effectiveness of fork-in-the-road clauses.
These formalistic methods, also known as ‘contract-treaty claims’ test and ‘triple identity test’, compare specific characteristics between the claim brought before the arbitral tribunal and the claim before the national courts of the host state to establish whether the investor has chosen a jurisdictional path. The contract-treaty test is focused on the difference between contract claims and treaty claims. According to this test, the investor’s right to bring a treaty claim before an arbitral tribunal is not affected by bringing a contract claim before local courts because of their different legal nature. However, the test prevents treaty claims being brought both in national courts and international arbitration and vice versa. The triple identity test compares three basic characteristics of the treaty claim and the litigation claim to decide whether the fork-in-the-road clause is triggered: the parties, the object (the requested relief) and the claim itself. If these are different, the investor is deemed not to have chosen a specific jurisdictional path. A typical application of the contract-treaty claims test was CMS Gas Transmission Co. v. Republic of Argentina. The tribunal permitted CMS to bring a treaty claim despite a contract claim disputing the same regulatory changes had been brought in domestic courts by Transportadora de Gas del Norte (TGN), in which CMS owned 30% in shares. Similarly, in Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, while the investor’s right to bring a treaty claim was severed from its ability to bring contractual claims in local courts, the decisive point was the fact that in the local court proceedings, it was TGS, partly owned by Enron - not Enron directly, that was involved.
A new era: the 'fundamental basis' test
Pantechniki S.A. Contractors & Engineers (Greece) v. The Republic of Albania halted a strong trail of decisions and introduced the ground-breaking ‘fundamental basis’ test, that examines the spirit, rather than the title of the claims in question.
In the context of the Albania Republic’s modernisation, Pantechniki, a Greek construction company, contracted with the Albanian Government for the development of roads and bridges. The dispute arose when severe riots caused Pantechniki’s equipment to be destroyed, leading to a $3.8 million claim from the Albanian Government. The Albanian Government proposed significantly lower compensation, and after an alleged instruction, Pantechniki resorted to the Albanian civil claims court. At first instance, the court found that compensating Pantechniki would be against Albanian public policy since the destruction was caused by riots and not a breach of the Greece-Albania bilateral investment treaty. Pantechniki appealed the unfavourable decision to the Albanian Higher Court but withdrew its application and brought a claim under ICSID arbitration instead.
The single-arbitrator tribunal concluded it had no jurisdiction, applying the ‘fundamental basis’ test for the first time and becoming the birthing case where a fork-in-the-road clause was successfully triggered. Under the test, the decisive point was whether the ‘fundamental basis’ of the investor’s claim is autonomous from the local claims at the domestic courts and whether the requested remedies ‘have the same normative source.’ It was also crucial that the investor’s claim is rooted in a treaty and exists independently from a contract. In essence, the tribunal drew upon elements of the formalistic tests, but in a more flexible way. The similarity of the investor’s claims in arbitration and at domestic courts are still compared against their treaty or contract nature. However, the ‘fundamental basis’ test is much more flexible when it comes to matching the identifying characteristics of the claims.
A decade and a year later, international treaty practice does not have a preferred approach regarding fork-in-the-road clauses. In 2012, the tribunal in Toto Costruzioni Generali S.p.A. v. The Republic of Lebanon did not refer at all to Pantechniki. Instead, the tribunal reaffirmed CMS v. Argentina and the formalistic tests. The same year, in Occidental Petroleum Corporation and Occidental Exploration and Production Company v. The Republic of Ecuador, in a factual situation similar to CMS v. Argentina, the tribunal applied both formalistic tests. It reaffirmed the longstanding decision, concluding that it has jurisdiction because the dispute is principally treaty-based. At that stage, Pantechniki was leaning towards becoming an isolated incident, rather than an alternative to the existing tests. However, the most recent developments on the matter seem to have grown closer to the approach of Pantechniki. In 2014, the tribunal in H&H Enterprises Investments, Inc. v. Arab Republic of Egypt rejected the identity test and applied the fundamental basis test, noting the importance of 'the subject matter of the dispute.' A few years later, in 2017, the Tribunal in Supervision y Control S.A. v. Republic of Costa Rica applied both the formalistic tests and the fundamental basis test but concluded that the second was the most suitable.
The decisions to date do not give a clear picture of which test tribunals will follow in the future. At the early years of the decade, Toto Construzioni Generali v. Lebanon and Occidental v. Equador isolated Pantechniki as a one-time incident but this changed in the following years with two consecutive decisions applying the fundamental basis test. The latest decisions of H&H Enterprises Investments v. Egypt and Supervision y Control v. Costa Rica indicate that a fundamental basis test is a distinct approach to interpreting fork-in-the-road clauses, which is as substantial as the well-established formalistic tests. The last two decisions demonstrate the need for a more flexible approach when it comes to interpreting fork-in-the-road clauses. The emphasis on the spirit of the investment claims and domestic claims is what should be the core factor determining whether the fork-in-the-road clause is triggered or not. Naturally, this is not free from pitfalls. The fundamental basis test is indeed broad and heavily dependent on the tribunal’s interpretation of each respective set of facts. Although its initial formulation in Pantechniki is anchored to some formal characteristics of claims, there is room for divergent interpretation, which we might witness in the future.
Tribunals have so far been divided on the matter – it will be interesting to see how they will react to an extra layer of complexity: the asymmetrical fork-in-the-road clauses. The first asymmetrical fork-in-the-road clauses became effective as of the 1st of July 2020, in the United States-Mexico-Canada Agreement and followed a nuanced approach in outlining the jurisdictional paths of investors and states alike. It still is early to conclude their fate, and whether either the formalistic or the fundamental basis approach will be preferred in interpreting them. However, the emergence of asymmetrical fork-in-the-road clauses in itself signifies that the investment market involves significant risk and a need to mitigate it with as much certainty as possible. Consequently, both investors and states, seek to determine to the maximum extent the dispute resolution routes beforehand, in an attempt to avoid the guesswork that incoherent approaches create –such as the approaches we have witnessed regarding fork-in-the-road clauses.
Pantechniki S.A. Contractors & Engineers (Greece) v. The Republic of Albania, ICSID Case No. ARB/07/21
CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8
Toto Costruzioni Generali S.p.A. v. The Republic of Lebanon, ICSID Case No. ARB/07/12
Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3
Supervision y Control S.A. v. Republic of Costa Rica, ICSID Case No. ARB/12/4
H&H Enterprises Investments, Inc. v. Arab Republic of Egypt, ICSID Case No. ARB 09/15
Occidental Petroleum Corporation and Occidental Exploration and Production Company v. The Republic of Ecuador, ICSID Case No. ARB/06/11
Markus A. Petsche 'The Fork in the Road Revisited: An Attempt to Overcome the Clash Between Formalistic and Pragmatic Approaches' Vol 18 Iss 2 Washington University Global Studies Law Review 2019
Mohammad Hassan Sadeghi Moghadam, Shahab Jafari Nedoushan 'The Effect of "Fork in the Road" and on Jurisdiction of Investment Treaty Arbitral Tribunal in Foreign Investment Disputes' Vol 17 Iss 49 Faṣlnāmah-i Pizhūhish-i Huqūq-i ̒Umūmī 2019
Serena Lee, Myron Phua 'Supervisio´n y Control v Costa Rica: Developing the Pantechniki v Albania Standard for ‘Fork in the Road’ Provisions in Investment Treaties' Vol 34(1) ICSID Review 2019
August Reinisch 'The Scope of Investor-State Dispute Settlement in International Investment Agreements' Vol 21(1) Asia Pacific Law Review 2013
Alexander Bedrosyan 'The Asymmetrical Fork-in-the-Road Clause in the USMCA: Helpful and Unique' Kluwer Arbitration Blog, 2018
Special acknowledgement to Dr Mark Osa Igiehon (Fellow, Aberdeen University Centre for Energy Law) for his Seminar 'FITR & PRACTITIONER’S Framework for Disputes Avoidance & Management in Energy Sector Foreign Investments,' delivered in the context of the 'International Arbitration: Energy & Natural Resources' module at University of Aberdeen.