UNCITRAL tribunal denies jurisdiction for a dispute between an Austrian investor and the Slovak Republic because of parallel domestic proceedings
On 4 June 2012, an UNCITRAL arbitral tribunal (the “Tribunal”) constituted to hear the dispute between Austrian investor European American Investment Bank (“EURAM”) and the Slovak Republic delivered its second award on jurisdiction. The award is not yet public, but reports indicate that the Tribunal, seated in Stockholm and applying Swedish law, held that it lacked jurisdiction because EURAM had waived its right to arbitration by commencing parallel proceedings before the domestic courts of the Slovak Republic.
In 2004 the Slovak Government reformed and liberalised the health insurance sector, only to reverse those reforms two years later and instead introduce restrictive amendments, including a ban on the distribution of profits to shareholders of private health insurance companies and a ban on the transfer of insurance portfolios. The ban on the distribution of profits to shareholders was lifted in 2011 after the Slovak courts declared the measures unconstitutional, but not before EURAM commenced arbitration proceedings against the Slovak Republic under the UNCITRAL arbitration rules.
The arbitration was brought in 2009 by EURAM, who owned a 51% stake in a Slovak health insurance company. EURAM claimed that the Slovak Republic had breached its obligations under the 1991 Slovak-Austrian bilateral investment treaty (“the BIT”) when it adopted the reforms to its health insurance laws. EURAM sought compensation for more than €131 million.
The Tribunal’s Partial Award on Jurisdiction of 22 October 2012
In its Partial Award on Jurisdiction, dated 22 October 2012, the Tribunal held that it had jurisdiction over EURAM’s claim that the Slovak Republic breached its right to free transfer of capital under the BIT, but held that it did not have jurisdiction to hear certain other claims raised by EURAM because of the narrow scope of the BIT’s dispute resolution provision.
Article 8 of the BIT limits investor-state arbitration to disputes concerning “the amount or the conditions of payment of a compensation” in the case of expropriation, or the BIT’s “transfer obligations”. Article 8 had been the subject of interpretation in an earlier UNCITRAL arbitration, Austrian Airlines v The Slovak Republic1 (“Austrian Airlines”). The Austrian Airlines tribunal held that Article 8 did not provide jurisdiction for claims other than those mentioned in that provision. The Tribunal in the EURAM case appears to have made a similar finding.
EURAM argued that the BIT’s most favoured nation provision could be used to extend the scope of the BIT, by importing more favourable investor-state arbitration clauses from other bilateral investment treaties entered into by the Slovak Republic, thus enabling EURAM to bring claims beyond those expressly mentioned in Article 8. A similar argument was made by the investor in the Austrian Airlines arbitration and was dismissed by the majority of that tribunal (Charles N. Brower issued a dissenting opinion).2
The Tribunal’s Award on Jurisdiction of 4 June 2014
Before the Tribunal issued its Partial Award on 22 October 2012, the Slovak Republic filed a second set of jurisdictional objections, which the Tribunal agreed to hear in a second phase of jurisdictional arguments.
The Slovak Republic argued that EURAM initiated court proceedings in the Slovak Republic that were predicated on the same facts and legal basis and sought the same relief as in the arbitral proceeding. The Slovak Republic presented expert evidence that under Swedish law a party waives its right to international arbitration by initiating and pursuing litigation in domestic courts. This feature of Swedish law has been raised in at least one other international arbitration.3
EURAM argued in response that the domestic court proceedings were commenced only as a safeguard to prevent a time-bar for domestic proceedings and considered the international arbitration as the primary forum for the resolution of the dispute.
The Slovak Republic retorted that EURAM’s actions in the domestic proceedings indicated the contrary. The Slovak Republic reportedly presented evidence that EURAM opposed the Slovak Republic’s requests for extensions of time in the domestic proceedings, made repeated submissions requesting a judgment on the merits, and requested the domestic court to order disclosure of a 2012 arbitration award4 that found in favour of another health insurance investor.
Reports indicate that the Tribunal rejected EURAM’s arguments and found that EURAM was actively pursuing relief in the Slovak proceedings and that, under Swedish law, EURAM had thus waived its right to international arbitration. Accordingly, the Tribunal found that it lacked jurisdiction to hear the remaining claims brought by EURAM.
The Tribunal’s decision serves as a reminder of the potential consequences of commencing proceedings in domestic courts, as it could bar access to international arbitration. Provisions similar to the one applied by the Tribunal to dismiss EURAM’s case are found in other jurisdictions, including France and England.
International investment agreements (“IIAs”), including bilateral investment treaties, contain provisions of similar effect. Many IIAs contain what are known as fork-in-the-road or no-U-turn provisions. A fork-in-the-road provision allows an investor to pursue international arbitration only if domestic proceedings have not been previously commenced. Of the IIAs that allow a choice between domestic judicial review and international arbitration, 39% contain a fork-in-the-road provision.5 A no-U-turn provision prevents an investor from commencing domestic proceedings once international arbitration has been initiated. The IIA bars the investor from making a “U-turn” back to domestic litigation after it has decided to pursue domestic proceedings to resolve the same dispute. Of the IIAs that allow the investor to choose between domestic judicial review and international arbitration, approximately 11% contain a no-U-turn provision.6
The rationale behind these provisions is to avoid litigating the same dispute in multiple forums, which may result in potentially conflicting awards. For legal certainty and predictability, there is an interest in limiting disputes to one forum.
The EURAM decision confirms the importance of being mindful of procedural requirements when considering domestic proceedings and international arbitration. Whether it’s a provision in the governing law, a provision in a contractual agreement, or a provision in the applicable international investment agreement, an investor’s failure to observe those procedural requirements, whether deliberately or unwittingly, could bar the investor’s access to international arbitration.
(1) Austrian Airlines v The Slovak Republic, UNCITRAL, Award, 9 October 2009.
(2) Austrian Airlines v The Slovak Republic, UNCITRAL, Dissenting opinion of Charles N. Brower, 9 October 2009.
(3) Alucoal v Novokuznetsk Aluminium Plant, Arbitration Rules of the Stockholm Chamber of Commerce, Case no. 022/2001
(4) Achmea B.V. v The Slovak Republic, UNCITRAL, PCA Case No. 2008-13.
(5) OECD, ‘Dispute Settlement Provisions in International Investment Agreements: A Large Sample Survey’ 2012, page 10.
(6) OECD, ‘Dispute Settlement Provisions in International Investment Agreements: A Large Sample Survey’ 2012, page 11.