III. Bifurcation in Commercial Arbitration Involving Joint Ventures
A. Jurisdictional Objections Phase
1. Overview of Typical Issues
Among various issues associated with jurisdictional objections which could be raised by respondents in commercial arbitration, the following three could be considered typical in international joint venture disputes. The first issue is the personal scope of arbitration clause contained in joint venture agreements and/or in its ancillary agreements or, more specifically, the possibility of this clause’s extension to non-signatories. Although such clauses included in a certain agreement would normally be applicable to its formal signatories, sometimes claimants may try to expand its personal scope to other parties by relying upon various theories developed by arbitration tribunals and state courts considering challenges of arbitral awards: the “Group of Companies” Doctrine, the theory of state-owned company being the “instrumentality” of the State, agency theory, equitable estoppel, or the impossibility to dissociate obligations under substantive law from an arbitration clause. One economic reason for these efforts could be the claimant’s desire to involve additional, more affluent respondents, which may have “deeper pockets” to pay an eventual award than the initial counterparty to the joint-venture agreement. In order to increase the amount of possible recovery and to avoid the need to conduct several arbitral proceedings against the same respondent, the claimant may also try to involve on its side additional claimants from the same group of companies. Given many similar claimants’ attempts in the past with varying degrees of success at different seats of arbitration, prospective respondents willing to object against the application of these and other theories in their particular case may certainly try to find inspiration by going through decisions of those national courts which rejected these efforts.
The second typical issue is the material scope of an arbitration clause contained in a joint venture agreement and/or in its ancillary agreements, or more specifically, the possibility of the extension of a clause contained in one agreement to other agreements involving a joint venture itself and/or its participants. This issue could arise in a variety of situations, notably, when several related contracts contained arbitration clauses, whereas subsequent “Amicable Agreement and Quit Claims” subjected disputes to jurisdiction of national courts, when claimant initiated arbitration on the basis of an arbitration clause in a joint venture agreement, and the respondents brought forward in the same proceedings set off claims based on related contracts with different arbitration clauses, or when a joint venture agreement contains an arbitration clause, but a contract complementary to this joint venture agreement does not contain such clause. Among possible reasons of such extension efforts could be a party’s willingness to increase the amount of its possible recovery by involving additional contracts into the same arbitration proceedings, its desire to sort out all existing business relationship problems with the opposite party arising out of numerous contracts in single proceedings and, therefore, avoid multiplication of parallel court and arbitration proceedings with potentially incoherent results, or to prevent the opponent from initiating court proceedings under a contract which does not contain an arbitration clause.
The third typical issue arising already at the jurisdictional stage is allegations of bribery or corruption in general, typically brought forward by respondents. This issue recurrently appears, in particular, in international joint ventures with participation of state-owned entities, notably, in the energy sector or in large-scale infrastructure projects, which frequently involve corruption exposure. In view of this potential exposure, once a foreign participant starts arbitration proceedings against a state-owned entity, this entity may frequently allege that an unscrupulous claimant was chosen for this project over many other qualified candidates because of its bribes to host State officials. Based on these allegations, this entity would claim nullity of the contract giving rise to the dispute, including its arbitration clause.
2. Bifurcability of Typical Issues
The analysis of the preceding three typical issues from the point of view of bifurcation criteria reveals that two of them, namely personal and material scope of arbitration clauses, could be well suited for tackling at separate stages of proceedings. To begin with, because the eventual resolution of these issues could dispose of a substantial portion of a dispute or even of all a dispute, each of them should satisfy the first internal bifurcation criteria. As concerns the material scope of arbitration clauses, once a tribunal rejects claimant’s attempt to involve into arbitration additional non-signatories, the part of dispute associated with these failed respondents could disappear. Moreover, when a tribunal rejects a claimant’s attempts to replace its initial counterparty in a joint venture by another respondent, such as its mother company or, in the case of a state-owned company, the State itself, and for whatever reason no other respondent is designated, this dispute should completely terminate. Similarly, a tribunal’s rejection of a party’s efforts to extend the arbitration clause contained in one agreement to other agreements should naturally lead to the disposal of part of the dispute associated with these agreements.
Both issues should also satisfy the second internal criteria, because neither of them would normally be so intertwined with other phases of the proceedings to make the bifurcation impractical. When dealing with objections against a party’s attempts to extend an arbitration clause to non-signatories, tribunals could primarily focus their attention on the degree of reception of legal theory, relied upon by this party, at the seat of arbitration to prevent the setting aside of future awards by courts in case of its eventual challenge. In case a factual analysis would still be required, it should normally not involve issues related to the case’s merits and would ordinarily be limited to uncovering the nature of relations among various persons on claimant’s or respondent’s side (when “Group of Companies” Doctrine, agency theory, or some other theory is invoked), or to the examination of degree of a state’s involvement in the process of negotiation and execution of arbitration clause being the subject of extension efforts (when a state-owned company is involved). In its turn, when dealing with objections against a party’s efforts to expand the material scope of an arbitration clause, tribunals could primarily focus their attention on its textual analysis, on revealing of common will of parties existing at the time of its negotiation and execution, and/or on identifying interrelations between different contracts which could normally be separated from a case’s merits.
Once two internal bifurcation criteria have been satisfied, tribunals may pass to the application of three external criteria. Out of these criteria, personal and material scope of arbitration clause issues should normally satisfy the second criteria, because an eventual bifurcation of the proceedings to address these issues should not cause prejudice to ether of the parties. On the one side of this equation, a party attempting to extend the arbitration clause to additional respondents and/or contracts would expect benefits in the form of an increased amount of its eventual recovery resting from involving into the proceedings more affluent respondents and/or additional contracts. Thus, in accordance with jurisprudential maxim “he who takes the benefit must bear the burden,” this party should assume the consequences when, following bifurcation of these issues, a tribunal rejects its attempt. Moreover, assuming that its attempt is successful, this party would not only increase the amount of its eventual recovery but could also get from its opponent a compensation of its increased costs resulting from adding a new separate procedural stage. On the other side of the same equation, a party objecting such attempts and requesting bifurcation of these issues should also expect to bear associated costs in case the tribunal grants bifurcation but rules in favor of its opponent.
In its turn, the “substantial seriousness” of reasons involved in the request for bifurcation of issues related to personal and material scope of an arbitration clause largely depends on how exactly these reasons are formulated by the party (its counsel) opposing extension efforts. As many court decisions in various jurisdictions throughout the world associated with challenges of arbitral awards may suggest, the possibility of an eventual departure from express wording of an arbitration clause is rarely a clear-cut solution. Such a departure should rather be seen as a classic illustration of “glass half full/half empty” situation. That is why the satisfaction of this external bifurcation criteria normally should not pose a problem for creative lawyers.
Finally, as concerns the prospects of material reduction of the time and cost of the proceedings, the determination of whether this external criterion is satisfied essentially depends on many factors associated with individual circumstances of a particular case. In any event, this criterion cannot be considered as a mandatory precondition of bifurcation decisions. Thus, even if in a certain case singling out personal and material scope issues do not necessarily lead to procedural economy, this, by itself, should not be considered as an unsurmountable obstacle for their bifurcation, provided that all other internal and external criteria are satisfied.
On the contrary, the application of the same internal and external criteria to the issue of corruption reveals that it is not inherently suitable for bifurcation at the jurisdictional stage. Unlike some past awards, at the present time the independence of the arbitration clause from the agreement in which it is contained seems to be generally admitted (the doctrine of separability). In view of this doctrine as well as an inherent power of the arbitral tribunal to decide on its own competence (the “competence-competence” doctrine), this clause would remain valid even if the tribunal may ultimately find the agreement as null and void because of bribery or corruption in general. Therefore, unless bribery (corruption) is alleged with respect to the arbitration clause itself (which should be seen as rather unusual), the determination of this question as part of jurisdictional objections would not dispose of all or a substantial portion of the dispute. Since the first internal bifurcation criteria would not be satisfied, at this procedural stage an arbitral tribunal could refrain from analyzing whether so intertwined with other phases of the proceedings to make the bifurcation impractical.
At the same time, the issue of corruption (bribery) could potentially become a good candidate for bifurcation of proceedings at their merits stage. It would be a waste of tribunals’ and parties’ time and financial resources to pursue resolution of a dispute clouded by plausible allegations of corruption (bribery) if in the end the claim would anyway be rejected on these grounds or, if not, the resulting final award would be refused enforcement by reasons of its contradiction to public order. The analysis of bifurcability of this issue at the merits stage is presented in the following chapter.
B. Merits Phase
1. Overview of Typical Issues
Although some of these issues could already arise at the jurisdictional objections phase, in addition to allegations of bribery or corruption in general, the following three could be considered as typical at the merits stage of commercial arbitration involving joint ventures. The first such issue is liability. The use of this legal concept by joint venture participants could potentially allow them to convert their frustration resulting from lack of a common project’s expected results into financial resources by imposing on the defaulting party the additional burden to compensate losses caused by violation of its obligations. From this perspective, the issue of liability could be considered as probably the most typical issue of the merits stage, which is likely to arise in virtually every joint venture dispute once claimant successfully overcomes eventual jurisdictional hurdles.
The second issue is the applicable law, that is to say, substantive law applicable to the merits of the dispute. By their very nature, international joint ventures involving participants from different countries as well as a wide variety of contractual, corporate, and regulatory matters are inherently exposed to conflicts of laws situations, going far beyond cases when these participants failed to clearly identify applicable law. Among various challenging questions previously encountered by arbitral tribunals in such situations is the relationship between joint venture agreement and articles of association of a corporate joint venture, the relationship between law governing joint venture agreement and mandatory provisions of local law, as well as the impact on its operations of mandatory provisions local law concerning rent revision, of public laws regulating the issuance and transfer of licensing rights, or the applicability to them of the UNIDROIT Principles of international commercial contracts. Facing these conflict of law situations, each participant would normally try to consider them as an opportunity to turn such controversy to their own advantage by arguing for the application of substantive laws which could bring them favorable material results, notably, as concerns the length of statute of limitations, or availability of certain forms of damages eligible for compensation (notably, punitive damages).
The third issue is qualification of relationship between parties as joint venture and its distinction from adjacent concepts. This issue could arise when one of the parties to an agreement, not involving the creation of a corporate joint venture, asserts the existence of a contractual or joint venture partnership in an effort to share costs or losses which, under the applicable law, in the absence of such joint venture would be attributable to this party. Additionally, this issue could arise when one of the parties to a facility agreement claims that, in reality, the agreement was a joint venture agreement, which, in accordance with applicable national law, constituted a currency transaction connected with the movement of capital requiring a license from the Central Bank of the debtor’s country.
2. Bifurcability of Typical Issues
The analysis of the preceding four typical issues from the point of view of bifurcation criteria reveals that two of the issues, namely liability and applicable law, could be potentially suitable for allocation to a separate procedural stage. To begin, both issues satisfy the first internal criteria. The decision of an arbitral tribunal on liability in favor of the respondent may already terminate the dispute and, therefore, make it unnecessary to further investigate the questions of quantum. Further, even if the dispute is not terminated, a decision by an arbitral tribunal on certain issues of liability may well encourage the parties to reach a settlement on quantum in view of the additional significant costs likely to be involved if the arbitral tribunal itself has to go into the detailed quantification of a claim. Similarly, in case the parties disagree on applicable law, an eventual resolution of this issue could dispose of a substantial portion of a dispute or even of all of a dispute. For example, in cases when under the law chosen by the tribunal as applicable law, the claimant’s claim is time-barred.
The issue of liability should also normally satisfy the second internal criteria. Although in practice, the issues of liability and quantum may, from time to time, prove to be inextricably intertwined, in international commercial arbitration, they are generally considered as separable. The existence of this this traditional liability or quantum dichotomy in the domain of joint venture disputes is confirmed by various awards dividing these issues into two separate procedural stages.
Unlike the issue of liability, the answer to the question of whether the issue of applicable law satisfies the second internal criteria is more nuanced, depending essentially on two factors. The first factor is whether under the circumstances of a particular dispute, the determination of applicable law requires the conduct of an extensive fact-finding process. In some cases, such as with the relationship between articles of association of a corporate joint venture and a joint venture agreement, such determination could be limited to analysis of relevant national law and practice. In this case, the issue of applicable law would clearly not be inextricably intertwined with other procedural stages and, therefore, could be allocated into a separate stage.
Finding an answer in other cases, notably when parties to a contractual joint venture failed to designate applicable law, could be heavily dependent on facts. This would be the case when an arbitral tribunal is facing the task of “interpreting which of the conflicting provisions the parties intended to be applied at the time the contract was concluded,” or when it employs the closest connection test to decide the applicable law. Assuming that in these and similar cases an extensive fact-finding process is required, the second factor comes into play, namely, the stage in the joint venture’s lifecycle out of which the dispute arises. In case it arises out of the joint venture formation stage, the fact-finding process aimed at uncovering the common will of the parties concerning the choice of applicable law at the stage of negotiating joint venture agreement would normally consider the same facts as may be relevant for the resolution of the dispute as a whole. In this case, the issue of applicable law would likely be inextricably intertwined with other issues, thus, making the second internal criteria unsatisfied. On the other hand, assuming that the dispute arises out of subsequent joint venture’s lifecycle stages (operation, modification, including change in the composition of its participants as well as termination), the issue of applicable law would normally involve different set of facts and, therefore, would not be inextricably intertwined with other issues.
Both liability and applicable law issues should also normally satisfy the first external criteria. In view of their upmost importance for the correct resolution of joint venture disputes, putting forward substantially serious reasons justifying the bifurcation of these issues should not normally pose significant problems, especially for creative lawyers. The issue of whether bifurcation of liability could cause prejudice to one of the parties and, therefore, satisfy the second external criteria, is more delicate. According to a widely held belief, claimants may oppose bifurcation of this issue because they sense that they will have a more persuasive case if they can show not only the wrongful conduct of the respondent (basis of liability), but also the harm that this conduct has caused (damages, that is to say, amount of liability). Although these and other similar tactical considerations may certainly be important for parties in a particular case, their eventual inability to benefit from them could hardly constitute the prejudice in the sense of second external criteria, as long as both parties are able to fully present their views on the issue of liability and, thus, enable the tribunal to make a fully informed decision on this issue. In its turn, an early bifurcation of applicable law issue should not prejudice parties but rather benefit both of them. Once the set of applicable substantive rules is clearly defined, the parties would no longer need to make alternative legal arguments under different potentially applicable laws. They could also use this occasion to reassess the soundness of their cases under single applicable law and, thus, prompt settlement discussions.
Furthermore, both liability and applicable law issues should normally satisfy the third external criteria. Assuming that an arbitral tribunal finds on the bifurcated issue of liability in respondent’s favor, this decision would avoid the need of quantum stage and related costs, arising out of voluminous submissions and involvement of valuations experts. Similarly, the early determination of applicable law issue could avoid the need for the parties to involve their experts on several potentially applicable foreign laws or, in case of their conflicting opinions, the eventual need to involve additional “neutral” experts and, correspondingly, to bear associated costs. On the other hand, when in a particular dispute an arbitral tribunal feels that bifurcating liability issue alone or applicable law issue alone would not result in a material reduction of the time and costs and, correspondingly, would not be worth the effort, it may consider combining these two issues for joint bifurcation.
The suitability of bifurcation of bribery and corruption issues would essentially depend on the circumstances of a particular dispute. As it concerns the first internal criteria, while the contracts providing for payments of bribes would be universally considered as null and void, the validity of contracts tainted by bribery (corruption) would have to be determined on the basis of applicable law. From this perspective, finding of a contract providing for the payment of bribe would more likely result in the disposal of a substantial portion of a dispute, or even of all dispute, than finding a contract merely tainted by bribery (corruption). As it concerns the second internal criteria, in view of the required extensive fact-finding process, its satisfaction would primarily depend on the exact timing of bribery (corruption) in relation to the stages of joint venture lifecycle. Assuming that bribes were given to State officials in order to receive a lucrative project at the joint venture’s formation stage, whereas the dispute itself relates to subsequent stages of its existence, shedding light to the factual circumstances of this reprehensible activity would not typically be inextricably intertwined with the merits stage. On the contrary, when bribery (corruption) took place during the same stage, which gave rise to the main dispute, the fact-finding process would likely be considering the same facts as those related to other substantive issues of the case resulting in non-satisfaction of the second internal bifurcation criteria.
The possibility of satisfaction of the first external criteria would depend on the credibility of bribery (corruption) allegations. Because by their very nature, these acts usually happen outside of public view and direct evidence, such as testimony of directly implicated persons, may not always be readily available. Still, in view of past cases, a party’s reliance on an ensemble of indirect evidence as well as on the so-called “red flags” or indicia lists to prove foreign public bribery, would likely convince tribunals in the seriousness of objections. Further, taking into account that both parties may be interested in putting these allegations behind as quickly as possible, their early bifurcation is unlikely to prejudice either of them, resulting in likely satisfaction of the second external criteria. By the same token, it would certainly be a waste of the parties’ (and tribunal’s) precious time and resources to pursue arbitration if, in the end, claims (and counterclaims) would be rejected on the grounds of bribery (corruption). From this perspective, early disposal of credible bribery (corruption) allegations by allocating them into a separate procedural stage would satisfy the third external criteria.
Finally, the qualification of relationship between parties as joint venture would be unlikely suitable for bifurcation. Even if an arbitral tribunal comes to the conclusion that a certain relationship between parties cannot be qualified as joint venture, it will still have to qualify this relationship. It follows that an eventual resolution of this issue normally would not dispose of a substantial portion of a dispute, not even talking about disposal of dispute as a whole, meaning the inability to satisfy the first internal bifurcation criteria.
C. Practical Illustration of Bifurcation Benefits
The potential benefits of bifurcation in commercial arbitration involving joint ventures can be demonstrated by the example of a dispute between Petrec International, Inc. (Petrec), a division of Gulf Petro Trading Company, Inc., a Texas corporation (Gulf Petro), and Nigerian National Petroleum Corporation (NNPC), a Nigerian state-owned company. This dispute has arisen out of a joint venture agreement entered into in June of 1993 by NNPC and Petrec, the object of which was the reclamation and salvaging of petroleum production discarded by NNPC in the course of its daily operations in Nigeria (the “JVA”). Towards this end, in June 1993 the parties formed Petrec (Nigeria) Limited, a corporate joint venture under Nigerian law.
Following the alleged breach of the JVA by NNPC, in November, 1998, Petrec initiated arbitration proceedings against NNPC in accordance with the arbitration clause of the JVA at the Chamber of Commerce and Industry of Geneva (“CCIG”). By agreement of the parties, the tribunal bifurcated the proceedings so that it would initially rule on the principle of the respondent’s liability and later, if necessary, on the amount of damages, which, according to the claimant amounted to some 1.18 billion USD. In July of 2000, the tribunal rendered the Partial Award in favor of Petrec It found, in particular, that Petrec had “locus standi to submit claims” arising out of the JVA, that NNPC “failed to contribute to the realization” of the JVA, and that NNPC failed to fulfill its obligation to invest 650,000 USD in Petrec Nigeria.
At the hearing held in January 2001 for the purpose of determining the quantum of Petrec’s damages, NNPC challenged the tribunal’s jurisdiction and Petrec’s standing by producing a copy of a Texas certificate of incorporation showing that an entity identified as “Petrec International Inc.” had been incorporated in Texas on February 28, 2000, well after execution of the JVA and the filing of the request for arbitration. In October of 2001, the tribunal issued the Final Award, holding that Petrec lacked capacity to maintain its claims against NNPC. The subsequent challenge of this Award by Petrec at the Swiss Federal Supreme Court on public policy grounds, the action brought by Gulf Petro, Petrec and their principals before the US federal courts to confirm and enforce the Partial Award rendered by the tribunal during the liability phase of the arbitration, and the later challenge to the Final Award alleging that it was procured by fraud, bribery, and corruption, were not successful.
Imagining that NNPC would have timely learned that “Petrec International Inc.” was incorporated only in 2000, this discovery could have been suitable for bifurcation as a standalone issue. As it clearly follows from the Final Award, the early resolution of this issue would have already disposed of all of the dispute and, therefore, would have satisfied the first internal criteria. It also follows, from the same award, that the identity of the claimant and its relationship with “Petrec International Inc.,” decided on the basis of Texas law, were not inextricably intertwined n with legal and factual issues associated with an alleged breach of the JVA governed by Nigerian law. Thus, the second internal criteria would also been satisfied. Next, in view of a copy of a Texas certificate of incorporation, presented by the respondent to support its eventual request for bifurcation would likely have been perceived by tribunal as substantially serious, resulting in the satisfaction of the first external criteria. The eventual bifurcation of this issue would not cause prejudice to either of the parties, because its resolution could have avoided the need to go through the rest of the proceedings. Furthermore, for the claimant’s side, this bifurcation could have been particularly beneficial. Once it would have learned about the lack of standing of one of its companies, it could have replaced it with another company of the same group having necessary standing and resubmitted the claim on its behalf not waiting until the procedure would be stopped at the merits stage with all associated costs. Thus, an early bifurcation of the issue of claimant’s standing would have been efficient because its resolution would have permitted the parties to avoid the waste of their resources associated with the continuation of proceedings. It also would have been fair because both parties would have received an opportunity to present their arguments on this point which turned out to be crucial for the outcome of the proceedings.
IV. Bifurcation in Investment Arbitration Involving Joint Ventures
A. Jurisdictional Objections Phase
1. Overview of Typical Issues
Among various issues associated with jurisdictional objections, which could be potentially raised by respondents in investment arbitration, the following four issues could be considered as typical in international joint venture disputes. The first, and probably the most typical, is the existence (or absence) of “investment” within the meaning of applicable investment treaty, and, in case of arbitration under the auspices of the ICSID, also within the meaning of the ICSID Convention, made by joint venture participant in the host State. It could arise when a host State contests the standing (jus standi) of joint venture’s indirect shareholders, or minority shareholders, to bring an investment treaty claim for losses caused to this joint venture itself. In disputes involving contractual joint ventures or partnership joint ventures without legal personality, this issue could also arise when a host State contests the existence of such joint venture asserted by a foreign investor claiming that its share in this alleged joint venture constitutes its “investment” in the territory of a host state.
Following the rapid process of digital transformation of economic and social life, such claims of existence of contractual joint ventures are likely to become more frequent in future investment arbitration disputes involving emerging digital business models, notably, the social network operator model. In this model, the operator of the social network platform runs an Internet platform that allows its users to communicate with each other and share the content created by them with other users. Because the participants of the network share a common goal of its continued successful operation and to achieve this goal combine their individual efforts consisting in the creation of content and its placement on the network, the functioning of the network may be considered as a “common enterprise” between the participants and its operator. In addition to providing a technical basis for the functioning of the network, the operator’s contribution to this enterprise is to create and implement the rules for its functioning, which from the outside may resemble the contract of the participants of a simple partnership. Given that such a “common enterprise” exists without the creation of a new legal entity, from a legal point of view, it can be qualified as a contractual joint venture. Consequently, it may be expected that operators of digital platform willing to rely on investment treaties to protect themselves against the adverse impact of tax and regulatory measures taken by a certain state where the users of their platforms are located, would argue that they made an investment in the territory of this State in the form of a share in such contractual “digital joint venture.”
The second typical issue, which already became a recurrent feature in many investment arbitrations not necessarily involving joint ventures, is distinction between treaty claims and contract claims. It could arise when a joint venture asserts the jurisdiction of an international arbitration tribunal over its contract claims arising out of contract concluded with an entity acting, in its view, as an instrumentality or organ of a host state, whereas another state refers to the contract’s exclusive forum selection clause provisions referring to its domestic courts and, in its view, depriving this tribunal of its jurisdiction or rendering contract claims inadmissible. It could also arise when a foreign joint venture participant claims that violations of a joint venture agreement committed by local participant being an entity empowered with governmental authority pursuant to Article 5 of the International Law Commission’s Articles on the Responsibility of States for Internationally Wrongful Acts (the “ARSIWA”) should be attributable to its host state, whereas another state contests attribution of these actions and, alternatively, denies that purely contractual claims could amount to breaches of applicable bilateral investment treaty.
The third typical issue is allegations of bribery or corruption in general. It could arise when a host state argues that this investor had established its investment by bribing public officials, and, therefore, it was not made “in accordance with law” as required by applicable bilateral investment treaty, which should result in the lack of tribunal’s jurisdiction. This issue could also arise in a dispute initiated by foreign investor on the basis of a contractual clause providing for ICSID arbitration, when respondents argue that this investor committed acts of corruption contrary to the principles of good faith, clean hands and international public policy, and, therefore, could not benefit from this arbitration clause.
The fourth typical issue is standing (or lack thereof) of various joint venture types to bring claims under the ICSID Convention. It could arise when a consortium without legal personality initiate proceedings, and the host State objects, arguing that the use of the term “juridical person” in the definition of “National of another Contracting State” in Article 25(2)(b) of this Convention makes the possession of such personality the mandatory condition for asserting this claim. It could equally arise when a corporate joint venture created and existing under the laws of the host State files claim against this State, arguing that it could be considered as “National of another Contracting State” under Article 25(2)(b) of the ISCID Convention in view of foreign control, whereas the host State objects against the possibility of its recognition in this capacity.
2. Bifurcability of Typical Issues
The analysis of the preceding four typical issues from the point of view of bifurcation criteria reveals that all of them could be potentially suitable for allocation to a separate procedural stage. The issues of the distinction between contract and treaty claims, allegations of bribery or corruption, as well as standing (or lack thereof) of various joint venture types to bring claims under the ICSID Convention would normally satisfy the first internal criteria. Although an arbitral tribunal may not necessarily dispose of all of the dispute by declining its jurisdiction with respect to all claims which, according to the host state should be qualified as contractual claims, even the recognition in this capacity of some of these claims could already dispose of its substantial portion.
As concerns allegations of bribery or corruption in general, investment treaties frequently contain “legality clauses,” expressly requiring that investments are made in accordance with the laws of the host State, included either in their definitions of “investment,” or in their definitions of the treaty’s scope. Moreover, according to some tribunals, even in the absence of such provisions the non-protection of investments created in violation of national or international principles of good faith; by way of corruption, fraud, or deceitful conduct made in violation of the host State’s law are general principles which exist independently of specific language to this effect in an investment treaty. Thus, assuming that in a certain dispute an arbitral tribunal comes to the conclusion about existence of bribery or corruption, this finding should normally result in the absence of “investment” within the meaning of an applicable treaty and, correspondingly, in the absence of consent to arbitrate and, therefore, the lack of the tribunal’s jurisdiction. It follows that bifurcation of these issues could lead to an early disposal of all of the dispute. Similarly, the arbitral tribunal’s determination of the claimant’s lack of standing could also potentially lead to an early disposal of all of the dispute involving the joint venture itself, allowing an unrecognized claimant to re-submit the claim on behalf of the individual joint venture participants.
In its turn, the issue of the existence (or lack) of “investment” should also generally satisfy the first internal criteria, albeit with some notable exceptions, essentially depending on the nature of the supposed “investment.” On the one hand, the tribunal’s conclusion about the lack of shareholder’s standing to bring certain claims on behalf of a corporate joint venture would likely terminate the dispute. On the other hand, the tribunal’s finding that a contractual joint venture does not exist would be unlikely to terminate the dispute, because to justify the existence of investment, the claimant’s diligent lawyers would normally involve several alternative grounds, not limited to its presumed “share” in the alleged joint venture. This conclusion should normally avoid the need of further inquiry into the bifurcability of respondent’s objections related to the absence of joint venture.
The issues of the existence (or lack) of “investment,” distinction between contract and treaty claims, as well as standing (or lack thereof) of various joint venture types to bring claims under the ICSID Convention would normally satisfy the second internal criteria. While establishing whether a certain shareholder has standing to bring claims under the applicable investment treaty, the tribunals could reasonably limit their analysis by focusing on this treaty’s definition of “investment” as well as on an eventual “cut-off” point in the foreign investor’s multilayer corporate structure beyond which it could no longer claim protection offered by such treaty. Likewise, while determining the existence of “share” in a purported contractual joint venture, the tribunal could also focus on the activities of the foreign investor and its local counterparts, rather than on actions of the host state.
Similarly, while making a distinction between contract and treaty claims, tribunals would primarily focus on how claims are framed by the joint venture (its participants), rather than on the host state’s behavior. By the same token, the definition of standing (or lack thereof) of various joint venture types to bring claims under the ICSID Convention would usually focus either on the status of the joint venture as “juridical person” under applicable law or factual inquiry aimed at establishment of “foreign control” over local company, which does not have to involve issues related to the merits of the joint venture’s claim. Because any of the preceding analysis does not mandatorily require extensive fact-finding processes involving the host State’s alleged treaty violations, it could be easily separated from the merits stage.
In its turn, similarly to the treatment of allegations of bribery (corruption) at the merits phase of commercial arbitration, the satisfaction of the second internal criteria by these allegations at the jurisdictional phase of investment arbitration would also depend on the exact timing of these purported acts as well as on the timing of adverse acts of the host state in relation to the stages of the joint venture’s life cycle. In case these acts aimed at receiving a gainful investment opportunity occurred at the joint venture’s formation stage, adverse acts of the host state—at the subsequent stages of its existence, any factual inquires dealing with these allegations should normally not be intrinsically intertwined with the merits stage (assuming that bifurcation of these issues does not dispose of all the dispute). On the other hand, when acts of bribery (corruption) and adverse acts of the host State took place during the same stage of the joint venture’s lifecycle, addressing these two types of acts would likely require tribunals to consider similar sets of facts, likely to be highly contested, eventually resulting in inexpediency of their separation and, therefore, in non-satisfaction of the second internal criteria.
Turning to the first external criteria, similarly to the situation in commercial arbitration, the seriousness of reasons involved in the request for bifurcation of the four preceding typical issues would also essentially depend on how exactly they are presented by the party or its counsel. As concerns the existence (or lack of) investment, in view of numerous arbitral awards recognizing standing of minority and indirect shareholders to bring investment treaty claims for damages caused to company itself, the jurisdictional objections based on the outright denial of this standing are unlikely to be perceived by arbitral tribunals as “substantially serious.” At the same time, host states could possibly have better chances of convincing tribunals of the seriousness of their objections, arguing that in their particular case a foreign shareholder is situated beyond an eventual “cut-off” point in its multilayer corporate structure and could no longer rely on protection offered by such treaty, or that allowing individual shareholders to claim damages caused to its company could amount to the abuse of process because it could result in a double recovery of essentially the same damages in case this company claims them as well in separate proceedings.
As concerns distinction between contract and treaty claims, in view of consistent line of past cases dealing with this issue, future tribunals would be likely to perceive as “serious” objections based on arguments that a general description of “a dispute concerning an investment” in dispute resolution clause, the so called “umbrella clause,” or the most favored nation treatment clause (MFN clause) of applicable investment treaty does not give an arbitral tribunal jurisdiction over contract claims. As concerns bribery and corruption, in view of past awards, for the purposes of their bifurcation decisions future tribunals are likely to perceive as “serious” specific allegations of these acts supported by reference to claimant’s conviction of bribery in foreign court proceedings or to indices appearing on “red flag” lists. As standings/lack of standing issues of various joint venture types to bring claims under the ICSID Convention are concerned, tribunals are likely to perceive this objection as serious assuming that it is supported by references to relevant provisions of law applicable to joint venture’s legal capacity, or in case of supposed foreign control over a local joint venture, by references to specific facts capable, if proven, of establishing such control.
Turning to the second external criteria, an eventual bifurcation of any of four preceding issues could unlikely cause prejudice to either of the parties. It may be reasonably assumed that both would wish to avoid a situation when following lengthy and costly proceedings, the tribunal in the end comes to the conclusion about the lack of its jurisdiction to hear the case. From this perspective, an early determination of these issues could be beneficial for both parties. Although bifurcation of the proceedings would not always necessarily lead to their early termination, claimants could still be compensated for their resulting prolongation by appropriate allocation of costs, ensuring that they get return on their investment. For the same reasons, all four proceeding issues would satisfy the third external criteria because their allocation in a separate stage presents prospects of material reduction of the time and cost of the proceedings. Moreover, in case of an eventual reliance by the host States in their jurisdictional objections on several typical issues, their simultaneous bifurcation could further improve such prospects.
B. Merits Phase
1. Overview of Typical Issues
In addition to allegations of bribery and corruption, which would have to be addressed in an eventual merits phase, unless their bifurcation at jurisdictional objections phase has led to termination of overall proceedings, the issues of liability and applicable law could also be considered as typical for this phase of proceedings involving joint ventures. As concerns liability, investment arbitration tribunals have consistently used this term to designate the duty of the host state to redress harm caused to foreign investors by violation of an applicable investment treaty, and, depending on the wording of this treaty, of an “umbrella clause,” notably, in the form of damages, as well as to draw a distinction between the imposition of such duty in principle and the determination of its exact scope (in case of damages referred to as “quantum”). Despite the difference in terminology, from the substantive point of view, this concept of “liability” is very similar to the concept of “state responsibility” used in the ARSIWA to designate the State’s duty to redress harm caused by act or omission attributable to this State under international law and constituting a breach of its international obligation. Unless an arbitral tribunal imposes such liability (responsibility) on a host State in a given dispute, efforts as well as legal fees, expenses, and investments by a claimant in the process would be in vain. From this perspective, this issue can be considered as typical for any investment arbitration case, which managed to pass jurisdictional objections phase, and international joint venture disputes would be no exception.
While specific matters to be considered in connection with the issue of liability may significantly vary from one dispute to another, in view of the typical use of joint ventures for the realization of large-scale infrastructure projects with the involvement of state-owned participants or the host state itself, attribution would likely be included. This concept denominates the process of determination that a particular conduct of a person can be considered as act of a state which is capable of leading to a state’s responsibility for this conduct. Although sometimes this issue could already arise at the jurisdictional objections phase, it is usually considered as more appropriately joined to and dealt with as part of dispute’s merits. This issue could arise, notably, when a host state opposes a foreign investor’s attempts to attribute to the state certain conduct of its joint venture partner, being a state university, on the basis of Article 5 of the ARSIWA claiming that it was a state budget entity that received funding from the national government and whose rector was appointed by the country’s president and was holding the rank of minister. Simultaneously, the issue could rest on the basis of Articles 5 and 8 of the ARSIWA, asserting, in particular, that its counterparty was “a monopolistic statutory public body with administrative responsibility for controlling and regulating” a certain industry in the state. It could also arise when a host state opposes the attempts of two participants of an unincorporated joint venture to attribute to the state a conduct of the state authority in charge of the project’s implementation, claiming alternatively, that it was either an organ of the state within the meaning of Article 4, an entity that exercised governmental authority within the meaning of Article 5, or acted under the control and direction of the state within the meaning of Article 8 of the ARSIWA.
Similar to the issue of liability, in view of simultaneous exposure of foreign investments to domestic law of the host state, investment agreements as well as to international law, notably, investment treaties, the issue of applicable law may be also be considered as typical in any type of investment arbitration dispute, including disputes involving international joint ventures. Reflecting a wide variety of possible interactions between these three regulatory frameworks, this issue could arise, notably, when an arbitral tribunal needs to establish which applicable law was agreed upon by the parties, or to determine this law in the absence of such agreement. This issue could also arise when an arbitral tribunal needs to define the exact relationship between international and domestic law in a particular dispute.
2. Bifurcability of Typical Issues
The analysis of three preceding typical issues from the point of view of internal and external criteria reveals that the issues of liability and applicable law could be potentially suitable for bifurcation. Both issues would normally satisfy the first internal criteria. As a host state’s liability is concerned, the tribunal’s negative finding could potentially result in the disposal of all foreign investor’s claims. Moreover, even if a decision on liability would not cause an overall disposal of all claims, it could still significantly reduce the overall scope of the dispute, narrow the list of issues to be considered at an eventual quantum stage, or both. Similarly, the tribunal’s determination of applicable law could potentially dispose of a substantial portion of a dispute or even of all disputes, for example, when the claimant’s contractual claim under this law is time-barred and no treaty claims are involved.
The answer to the question whether the issue of liability would satisfy the second internal criteria primarily depends on whether the occurrence of loss or damages is required for establishing the host state’s liability for violation of certain investment protection standard or, in the words of several arbitral tribunals, whether loss or damage are “constituent part of the legal wrong.” While under Article 2 of the ARSIWA “there are two necessary conditions for an internationally wrongful act—conduct attributable to the State under international law and the breach by that conduct of an international obligation of the State,” these two conditions are not always sufficient for such liability. Depending on the nature of this obligation (referred to in the ARSIWA General Commentary as the “primary obligation”), additional elements, for example, the occurrence of damage, may also be required. In the domain of international investment arbitration, this would notably be a primary obligation of the host state on whose territory an insurrection occurs to provide adequate protection to foreign investors, the violation of which would not result in a state’s liability unless the foreign investor actually suffers loss or damage. On the other hand, when the occurrence of loss or damage is not considered as a mandatory element of the host state’s responsibility, in view of the distinction made in the ARSIWA between responsibility itself and the consequences of such responsibility, notably compensation, liability and quantum may be considered as two analytically distinct issues. Notwithstanding this conceptual difference, in practice liability and quantum may still be factually intertwined, which requires investment tribunals to exercise extreme caution while bifurcating liability upon unilateral request of one of the parties, or even upon their joint request.
For its part, the answer to the question of whether the issue of applicable law could satisfy the second internal criteria primarily depends on whether the determination of applicable law requires conducting an extensive fact-finding process. Unlike commercial arbitration, in investment arbitration involving joint ventures, the need of such process would be heavily influenced by the rules under which a certain tribunal operates. When this tribunal operates under the ICSID Convention, and the parties to the dispute have previously failed to agree on the applicable law, the tribunal’s choice of applicable law would essentially be limited to the host state’s law and international law. Since the establishment of a relationship between these two systems should be a predominately legal exercise not requiring an extensive fact-finding process, the questions to be addressed by an ICSID tribunal in its deliberations should not be inextricably intertwined with other phases of the proceedings. On the other hand, when an investment tribunal operates under other rules, providing for a larger degree of discretion in the choice-of-law process, an extensive fact-finding process may be required. In this case, similarly to commercial arbitration, the satisfaction of the second criteria in investment arbitration would also depend on whether the dispute arises out of the joint venture formation stage, or out of the subsequent stages in its lifecycle.
Both the issues of liability and applicable law should normally satisfy the first external criteria. Despite seemingly straightforward theoretical dichotomy between the host state’s primary obligations where the occurrence of damages is required for establishing its lability, and those obligations where it is not required, investment arbitration awards reveal that assigning obligations to one of these categories in practice may be far from being obvious and require an in-depth analysis of complex legal matters. In the same vein, despite numerous arbitral awards dealing with the uneasy relationship between international law and domestic law in the area of investment arbitration, the exact relationship between these two normative orders still remains far from being settled. In view of existing uncertainties, tribunals are likely to perceive as serious well-crafted arguments of parties offering their solutions to these and other unresolved questions.
Next, the issues of liability and applicable law should also satisfy the second external criteria. Analogous to commercial arbitration involving joint ventures, claimants in investment arbitration may also oppose bifurcation for tactical reasons, feeling that they could have greater chances in convincing the tribunal by showing not only the wrongful conduct of the host state (grounds of liability), but also the magnitude of its consequences (quantum of damages). But such potential disadvantages do not amount to prejudice within the meaning of this criteria consisting of potentially longer and more expensive proceedings in case bifurcation of liability does not result in the overall dismissal of claims. On the contrary, the issue of bifurcation of liability could equally benefit both parties. In case a where tribunal finds no grounds for liability, and the claims are dismissed, the parties would avoid the need to go through quantification of damages. In the opposite scenario, when grounds of liability are established, “a separate damages phase would ensure that parties have sufficient opportunity to focus on, and fully develop their damages theories and counterarguments.” In both cases, bifurcation could ensure a free flow of information between parties and arbitral tribunals enabling them to make fully informed decisions. By the same token, an early determination of applicable law could equally benefit both parties, offering them a universal benchmark to critically assess the prospects of their claims (or counterclaims) early in the proceedings and eventually prompt them to commence meaningful settlement discussions.
Finally, similarly to commercial arbitration, bifurcation of liability and applicable law in investment arbitration could offer prospects of material reduction of the time and cost of the proceedings and, therefore, satisfy the third external criteria. As concerns the issue of liability, this would, notably, be the case when a tribunal finds a host state not liable, which leads to the termination of proceedings without the need to go through the potentially lengthy and costly process of damage quantification. Despite these attractive prospects, as well as the subordinated nature of the third external criteria as compared with other bifurcation criteria, in view of the existing practice of investment arbitration tribunals, these criteria could be considered as a major factor in their decisions on whether to bifurcate liability from damages. The analysis of this practice reveals that decisions to bifurcate this issue could be predominantly motivated by perceived complexity of the case, as well as its extraordinary voluminous nature of the case’s record. Another important element considered, in connection with the third factor, is the content of parties’ expert reports on damages. While a not overly complex nature of the expert report submitted by the claimant, based on straightforward methodology for the calculation of damages and lost profits, could be used as a reason against bifurcation of liability, widely diverging views of party-appointed valuation experts and/or complex technical matters involved could speak in favor of such bifurcation. In any event, the disproportionate reliance of tribunals on this external criteria may help explain why bifurcation of liability in investment arbitration may still be perceived as not common, although from the point of view of other criteria, this issue could certainly be worth of bifurcation.
By the same token, although early determination of applicable law could potentially save the participants of the proceedings significant time and effort, and, therefore satisfy third external criteria, in practice this issue would unlikely be singled out into a separate procedural phase. Because the division of merits phase into liability and damages is already atypical, it may be reasonably assumed that in the minds of tribunals, the issue of applicable law as a possible candidate for bifurcation would compete for a possibly single available “bifurcation slot” with the potentially more important issue of liability. From this perspective, it is little surprising that the issue of applicable law in investment arbitration would likely be considered as not worthy of individual bifurcation and would likely be attached as a “makeweight” either for jurisdictional objections and liability issues, or only for liability issues.
Unlike liability and applicable law, the allegations of bribery (corruption) would not likely be suitable for bifurcation at the merits phase of investment arbitration. When these allegations have been brought up by respondent during the jurisdictional objections phase, but the analysis of this issue by an arbitral tribunal has not resulted in the disposal of the case, such disposal at the merits stage based on the same allegations seems even less likely. Thus, this issue would normally not satisfy the first internal bifurcation criteria. On the other hand, when these allegations have not been brought up by respondent during the jurisdictional objections phase, the tribunal may perceive the same allegations brought up during the merits phase as lacking substantial seriousness, precisely because they could have and should have brought by diligent respondent during the previous phase. In such a case, this issue would normally not satisfy the first external criteria. Finally, in case tribunal concludes that allegations of bribery (corruption) brought up for the first time during the merits stage are still substantially serious, it could add them a “makeweight” to liability issue and bifurcate them together, which, in the absence of these allegations it could have been reluctant to do so.
C. Practical Illustration of Bifurcation Benefits
The potential benefits of bifurcation in commercial arbitration involving joint ventures can be demonstrated on the example of a dispute between Metal-Tech Ltd. and the Republic of Uzbekistan considered by an arbitral tribunal under the auspices of the ICSID. This dispute has arisen out of operation of Uzmetal, a joint venture between an Israeli company and two companies owned by the Uzebkistan government to build and operate a modern plant for the production of molybdenum products in Uzbekistan. After several domestic criminal and legal proceedings lead to the bankruptcy and subsequent liquidation of Uzmetal, Metal-Tech initiated arbitration against the Uzbekistan on the basis of Israel-Uzbekistan BIT. The respondent put forward a number of jurisdictional objections, alleging, notably, that the claimant engaged in corruption and made fraudulent and material misrepresentations to gain approval of its investment. Thus, in the respondent’s view, the tribunal lacked jurisdiction over this dispute because the claimant’s investment was made and operated in violation of Uzbek law. In the wake of claimant’s refusal of the respondent’s request to bifurcate the proceedings, the tribunal decided to join the respondent’s objections to jurisdiction and admissibility to the merits on the ground that they were closely related to the merits. At the same time, it bifurcated the proceedings between jurisdiction and liability, on the one hand, and quantum on the other, because, in its view, the damage quantification (if applicable) could be easily heard in isolation from the rest of the case. Following numerous written submissions and various hearings, in the end the tribunal concluded that corruption was established to an extent sufficient to violate Uzbekistan law in connection with the claimant’s investment in Uzbekistan. Since the investment has not been implemented in accordance with the local law, the dispute did not meet the Uzbekistan’s consent requirements set out in the Israel-Uzbekistan BIT and the ICSID Convention Accordingly, the tribunal decided that it lacked jurisdiction over the dispute.
The analysis of the corruption allegations brought forward in this dispute by Uzbekistan leads to the conclusion that, contrary to the tribunal’s assessment, they would have been suitable for bifurcation as a standalone issue at the jurisdictional objections phase. As it concerns the first internal criteria, this award merely confirmed that in investment arbitration, a finding of corruption would normally result in a lack of the tribunal’s jurisdiction and, consequently, lead to an early disposal of the entire dispute. As it concerns the second internal criteria, which in this dispute seems to have been a determinative factor in the tribunal’s decision to examine these allegations together with merits, the analysis of award reveals that they predominantly related to the initial stage of joint-venture’s lifecycle, whereas the dispute itself–to the final stages of its existence. Thus, supposing that the tribunal in this dispute focused on timing of events covered by corruption allegations, it could have found that these allegations were not intrinsically intertwined with the case’s merits and, therefore, could have bifurcated this issue at the jurisdictional objections phase.
Furthermore, in retrospect, the satisfaction of three external bifurcation criteria in this dispute should not have posed any problem. Since the corruption allegations relied on specific “consulting agreements” characterized by the respondent as a sham meant to cover the claimant’s illegal payments to government officials or to persons loosely connection to the government, they naturally have been perceived by arbitral tribunal as serious. Neither did their bifurcation cause any prejudice to either of the parties. On the contrary, an early consideration of these allegations as a standalone issue at the jurisdictional objections phase could have led to an earlier disposal of the dispute without compromising fairness of the proceedings, because both parties had an extensive opportunity to present their very divergent views of this hotly debated topic. Finally, bifurcation of corruption allegations in view of potentially early resolution of this issue could have avoided not only an eventual quantum phase envisaged by the tribunal, but also liability phase, resulting in savings in terms of time and cost of the proceedings.
As compared with the issue of corruption, potential bifurcability of the issues of forgery and fraud would require even greater degree of scrutiny on the part of the arbitral tribunals, which could be illustrated on the example of the ICSID case of Churchill Mining Plc and Planet Mining Pty Ltd v. Republic of Indonesia (Churchill Mining case). This case has arisen out of revocation of the long-term exploitation licenses for the coal exploration project located in the Regency of East Kutai on the island of Kalimantan (the East Kutai Coal Project or EKCP), in which the claimants invested within the framework of cooperation agreements with a local mining company, for supposed violations of forestry regulations and alleged forgery of licenses. During the merits stage of the proceedings, Indonesia filed an application for dismissal of claimants’ claims based on the allegedly forged and fabricated mining licenses, and requested the immediate adjudication of the forgery issue. Even though the tribunal had initially rejected this request, choosing instead to bifurcate proceedings between a liability and a quantum phase, following the respondent’s request for reconsideration it granted this request and decided that “remaining proceedings shall first address document authenticity, which shall cover issues of fact as well as the consequences of a finding of forgery on each claim as a matter of law.” In line with this initial decision, after the hearing on document authenticity was held, the tribunal further confirmed that in the post-hearing briefs the parties “shall address: (i) the factual question whether the impugned documents are authentic or not and (ii) the legal consequences of a finding of forgery.”
More than a year after this hearing was held, the tribunal invited the parties to comment on Minnotte v. Poland, a decision dealing with the consequences of third party fraud, an issue which it considered potentially relevant to its decision. Despite the claimant’s protest, following the parties’ submissions, the tribunal closed the proceedings and rendered an award. Even though the author of the forgery and fraud was not positively identified, in the tribunal’s view, the seriousness, sophistication and scope of the scheme were such that fraud tainted the entirety of the claimants’ investment in the EKCP. Accordingly, referring to the general principles of good faith and the prohibition of abuse of process, the tribunal decided that the claims before it could not benefit from investment protection under the applicable treaties and were, consequently, deemed inadmissible.
Although the claimants’ subsequent application for annulment of the award was unsuccessful, it highlighted several potential problems associated with bifurcation of forgery and fraud issues in investment arbitration cases. First, when considering singling out these issues into a separate procedural stage, arbitral tribunals should pay particular attention to the third external factor, namely the possibility of prejudice resulting from bifurcation, because the satisfaction of all other factors should not normally pose any difficulties. The issues of fraud and forgery should satisfy the first internal criteria, because, following the award in the Churchill Mining case, finding of fraud or forgery could lead to the inadmissibility of claims, and, therefore, could potentially dispose of the entire dispute, assuming that the claimants could not rely on some legal theory to preserve their claims, such as estoppel, acquiescence, legitimate expectations, or unjust enrichment. These issues should also not be closely intertwined with an eventual subsequent stage of the proceedings and, thus, satisfy the second internal criteria, because the forgery and fraud are likely to happen at the initial stage of an investment project, whereas their discovery by the host State leading to an eventual termination of such protect—during the subsequent stage of its implementation. Next, in view of possibility of disposal of all or of a substantial part of a dispute, singling out the issues of fraud and forgery clearly offers prospects of material reduction of the time and cost of the proceedings, leading to satisfaction of the first external criteria. Similarly, credible allegations of fraud or forgery, supported by witness testimony or results of forensic examination would likely be perceived by arbitral tribunals as substantial, resulting in the satisfaction of the second external criteria.
On the other hand, the determination whether bifurcation of fraud or forgery issues in a particular dispute could prejudice parties, primarily, the claimants potentially exposed to inadmissibility of their claims because of commission of these acts, is more delicate. In view of the Churchill Mining case such prejudice could arise, for example, in a situation where a tribunal initially limited the scope of the document authenticity phase to determination whether a forgery was committed, but subsequently added into the equation the issue whether claimants exercised due diligence with respect to alleged fraud or forgery, without giving claimants full opportunity to present additional factual and legal arguments on this particular issue. To address this potential problem, it may be expected that future tribunals would expressly include into the scope of document authenticity phase both the issue whether the documents were forged and/or obtained by fraud and the issue whether there was a lack of diligence on the claimants’ side.
Second, when considering the possibility of prejudice to the parties, the tribunals should assess not only the risk of prejudice resulting from drawing up the initial scope of bifurcated stage in a procedural order, but also from the subsequent implementation of this order. From this perspective, unless both parties agree, the emerging need to add new issues, such as claimants’ potential lack of due diligence into the initial scope of bifurcated stage, and, therefore, to modify the bifurcation’s stablished legal framework should normally lead to revocation of bifurcation decision and transformation of this stage into full merits stage. This would avoid the need of subsequent extension of bifurcation’s scope, potentially affecting parties’ right to be heard and, therefore, undermining the objective of fairness. It may be expected that future tribunals would make the initial scope of their bifurcation decisions broader, covering not only narrowly defined principal issue, but also adjacent issues.
V. Conclusion
The renunciation by arbitral tribunals of their eventual efforts to find an “appropriate balance” between the efficiency of the arbitral proceedings and their fairness combined with the recognition of a secondary importance of prospects of material reduction of the time and cost of the proceedings (third external bifurcation criteria) as compared with other internal and external criteria could result in a wider use of bifurcation in international arbitration involving joint ventures leading to streamlining of resolution of this category of notoriously complicated disputes. Since this shift in the existing approach in all probability would not happen overnight, prospective parties to these disputes, primarily, prospective respondents looking for their effective resolution, may already start looking for candidates for nomination as arbitrators who, in view of their past decisions would likely favor bifurcation. It is reasonable to expect that their quest for “great bifurcators” would be primarily focused on the analysis of previously published decisions. Considering that currently there are markedly less published bifurcation decisions in commercial arbitration as compared to investment arbitration, it may also be expected that arbitrators regularly appearing in investment arbitration would attract greater attention as possible candidates for nomination in complex joint venture disputes where bifurcation of proceedings could significantly facilitate their resolution and increase their efficiency.
