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Interpretation of International Investment Treaties
9781849462686, 9781474201988, 9781782255659

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Tarcisio Gazzini

Table of contents :
contents
List of Abbreviations
TABLE OF CASES
TABLE OF DOCUMENTS
1
Introduction
I. Objectives of the Research
II. Structure and Method of the Research
2
Overview of International Investment Treaties
I. Transnational Legal Environment
II. Failure to Conclude a Multilateral Agreement on Investments Within the OECD
III. World Trade Organisation and Foreign Investment
IV. Regional Economic Integration Agreements
V. Energy Charter Treaty
VI. Bilateral Investment Treaties
3
Main Features of International Investment Treaties
I. Objective and General Content of International Investment Treaties
II. Investment Treaties and State Sovereignty
III. Status of Foreign Investors
IV. Termination of Investment Treaties
V. Interpretation of International Investment Treaties
VI. Principle of Good Faith
4
Ordinary Meaning of the Terms of the Treaty
I. Textual Interpretation
II. Textual Interpretation not a Mechanical Exercise
III. Focus of Textual Interpretation
IV. Vague or Imprecise Provisions (FET and MFN)
V. Generic Terms or Concepts and Evolutionary (or Evolutive) Interpretation of Treaties
VI. Aids to Literal Interpretation (a contrario and expressio unius est exclusio alterius) and Enumerations
VII. Absent Words or Expressions (Silence)
5
Context
I. Role of Context in the Interpretative Process
II. Text of the Treaty (Including Preamble and Annexes)
III. Agreements under Article 31(2)(a)
IV. Instruments under Article 31(2)(b)
6
Object(s) and Purpose(s)
I. Object(s) and Purpose(s) as Part of the Interpretative Process
II. Object(s) and Purpose(s) and the Principle of Effectiveness
III. Object and Purpose to Confirm the Literal-Contextual Interpretation
IV. Object and Purpose to Correct Textual Mistakes or Inaccuracies
V. Object(s) and Purpose(s) as "Tiebreaker"
VI. Object and Purpose Justifying a Departure from the Literal-Contextual Interpretation
7
Subsequent Agreements and Subsequent Practice
I. Meaning of 'Taking into Account' for the Purpose of Article 31(3) VCLT
II. Subsequent Agreements under Article 31(3)(a) VCLT
III. Subsequent Agreements on Interpretation and Amendment of Treaties
IV. Subsequent Practice under Article 31(3)(b) VCLT
V. Subsequent Practice and Acquiescence
8
Other Rules of International Law
I. Systemic Interpretation under Article 31(3)(c) VCLT
II. Distinction Between Systemic Interpretation and Applicable Law
III. Investment Treaties not Applicable to the Parties
IV. Non-investment Rules
9
Special Meaning
I. Special Meaning
10
Supplementary Means
I. Recourse to Supplementary Means
II. Preparatory Work
III. Circumstances of the Conclusion of the Treaty
IV. Other Supplementary Means
11
Plurilingual Treaties
I. Interpretation of Plurilingual International Treaties
II. Interpretation of Plurilingual International Treaties with Equally Authentic Texts
III. Interpretation of Plurilingual International Treaties with Prevailing Authentic Texts
IV. Translation in the Interpretation of Plurilingual Treaties
12
Interpretative Value of Arbitral Decisions
I. Interpretation by Investment Arbitral Tribunals
II. Role and Place of Investment Arbitral Decisions
III. Legal Value of Non-investment Decisions
IV. Annulment Proceedings and Interpretation
13
Interpretative Value of Scholarly Writings
I. Role of Scholarly Writings in the Interpretation of Investment Treaties
II. Scholarly Writings in Investment Arbitration
14
The Role of States in the Interpretation of Investment Treaties
I. Facilitating and Ensuring the Correct Interpretation of Investment Treaties
II. Drafting of Investment Treaties
III. Consultations
IV. Authentic Interpretation
V. Unilateral Statements
VI. Non-disputing State(s) Submissions
15
Conclusions
Bibliography
INDEX

Citation preview

INTERPRETATION OF INTERNATIONAL INVESTMENT TREATIES This book offers a systematic study of the interpretation of investment-related treaties—primarily bilateral investment treaties, the Energy Charter Treaty, Chapter XI NAFTA as well as relevant parts of Free Trade Agreements. The importance of interpretation in international law cannot be overstated and, indeed, most treaty claims adjudicated before investment arbitral tribunals have raised and continue to raise crucial and often complex issues of interpretation. The interpretation of investment treaties is governed by the Vienna Convention on the Law of Treaties (VCLT). The disputes relating to these treaties, however, are very unusual as they place a multinational company (or a natural person) in opposition to a sovereign government. Fundamental questions dealt with in the study include: Are investment treaties a special category of treaty for the purpose of interpretation? How have the rules on interpretation contained in the VCLT been applied in investment disputes? What are the main problems encountered in investment-related disputes? To what extent are the VCLT rules suited to the interpretation of investment treaties? Have tribunals developed new techniques concerning treaty interpretation? Are these techniques consistent with the VCLT? How can problems relating to interpretation be solved or minimised? How creative have arbitral tribunals been in interpreting investment treaties? Are States capable of keeping effective control over interpretation?

ii

Interpretation of International Investment Treaties

Tarcisio Gazzini

OXFORD AND PORTLAND, OREGON 2016

Hart Publishing An imprint of Bloomsbury Publishing Plc Hart Publishing Ltd Kemp House Chawley Park Cumnor Hill Oxford OX2 9PH UK

Bloomsbury Publishing Plc 50 Bedford Square London WC1B 3DP UK

www.hartpub.co.uk www.bloomsbury.com Published in North America (US and Canada) by Hart Publishing c/o International Specialized Book Services 920 NE 58th Avenue, Suite 300 Portland, OR 97213-3786 USA www.isbs.com HART PUBLISHING, the Hart/Stag logo, BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc First published 2016 © Tarcisio Gazzini Tarcisio Gazzini has asserted his right under the Copyright, Designs and Patents Act 1988 to be identified as Author of this work. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. Crown copyright material is reproduced with the permission of the Controller of HMSO and the Queen’s Printer for Scotland. Any European material reproduced from EUR-lex, the official European Communities legislation website, is European Communities copyright. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN: HB: 978-1-84946-268-6 ePDF: 978-1-78225-565-9 ePub: 978-1-78225-566-6 Library of Congress Cataloging-in-Publication Data Names: Gazzini, Tarcisio, author. Title: Interpretation of international investment treaties / Tarcisio Gazzini. Description: Oxford ; Portland, OR : Hart Publishing, 2016. | Includes bibliographical references and index. Identifiers: LCCN 2016024679 (print) | LCCN 2016025228 (ebook) | ISBN 9781849462686 (hardback : alk. paper) | ISBN 9781782255666 (Epub) Subjects: LCSH: Investments, Foreign (International law) | Investments, Foreign—Law and legislation. | Commercial treaties. | International commercial arbitration. Classification: LCC K3830 .G39 2016 (print) | LCC K3830 (ebook) | DDC 346/.092—dc23 LC record available at https://lccn.loc.gov/2016024679 Typeset by Compuscript Ltd, Shannon

To Elena, Pablo and Luisa, for a number of good reasons

vi

CONTENTS

List of Abbreviations�� xi Table of Cases�� xiii Table of Documents�� xxvii

1. Introduction��1 I. Objectives of the Research��1 II. Structure and Method of the Research��11 2. Overview of International Investment Treaties��15 I. Transnational Legal Environment��15 II. Failure to Conclude a Multilateral Agreement on Investments Within the OECD��19 III. World Trade Organisation and Foreign Investment��20 IV. Regional Economic Integration Agreements��22 V. Energy Charter Treaty��29 VI. Bilateral Investment Treaties��31 3. Main Features of International Investment Treaties��34 I. Objective and General Content of International Investment Treaties��34 II. Investment Treaties and State Sovereignty��42 III. Status of Foreign Investors��46 IV. Termination of Investment Treaties��53 V. Interpretation of International Investment Treaties��56 VI. Principle of Good Faith��60 4. Ordinary Meaning of the Terms of the Treaty��64 I. Textual Interpretation��64 II. Textual Interpretation not a Mechanical Exercise��75 III. Focus of Textual Interpretation��79 IV. Vague or Imprecise Provisions (FET and MFN)��91 V. Generic Terms or Concepts and Evolutionary (or Evolutive) Interpretation of Treaties��105 VI. Aids to Literal Interpretation (a contrario and expressio unius est exclusio alterius) and Enumerations��124 VII. Absent Words or Expressions (Silence)��133

viii

Contents

5. Context��141 I. Role of Context in the Interpretative Process��141 II. Text of the Treaty (Including Preamble and Annexes)��144 III. Agreements under Article 31(2)(a)��150 IV. Instruments under Article 31(2)(b)��153 6. Object(s) and Purpose(s)��157 I. Object(s) and Purpose(s) as Part of the Interpretative Process��157 II. Object(s) and Purpose(s) and the Principle of Effectiveness��169 III. Object and Purpose to Confirm the Literal-Contextual Interpretation��175 IV. Object and Purpose to Correct Textual Mistakes or Inaccuracies��177 V. Object(s) and Purpose(s) as ‘Tiebreaker’��178 VI. Object and Purpose Justifying a Departure from the Literal-Contextual Interpretation��179 7. Subsequent Agreements and Subsequent Practice��186 I. Meaning of ‘Taking into Account’ for the Purpose of Article 31(3) VCLT��186 II. Subsequent Agreements under Article 31(3)(a) VCLT��189 III. Subsequent Agreements on Interpretation and Amendment of Treaties��197 IV. Subsequent Practice under Article 31(3)(b) VCLT��200 V. Subsequent Practice and Acquiescence��206 8. Other Rules of International Law��210 I. Systemic Interpretation under Article 31(3)(c) VCLT��210 II. Distinction Between Systemic Interpretation and Applicable Law��221 III. Investment Treaties not Applicable to the Parties ��228 IV. Non-investment Rules��231 9. Special Meaning��240 I. Special Meaning��240 10. Supplementary Means��245 I. Recourse to Supplementary Means��245 II. Preparatory Work��253 III. Circumstances of the Conclusion of the Treaty��261 IV. Other Supplementary Means��264

Contents

ix

11. Plurilingual Treaties��268 I. Interpretation of Plurilingual International Treaties��268 II. Interpretation of Plurilingual International Treaties with Equally Authentic Texts��273 III. Interpretation of Plurilingual International Treaties with Prevailing Authentic Texts��281 IV. Translation in the Interpretation of Plurilingual Treaties��282 12. Interpretative Value of Arbitral Decisions��291 I. Interpretation by Investment Arbitral Tribunals��291 II. Role and Place of Investment Arbitral Decisions��299 III. Legal Value of Non-investment Decisions��307 IV. Annulment Proceedings and Interpretation��311 13. Interpretative Value of Scholarly Writings��318 I. Role of Scholarly Writings in the Interpretation of Investment Treaties��318 II. Scholarly Writings in Investment Arbitration��322 14. The Role of States in the Interpretation of Investment Treaties��328 I. Facilitating and Ensuring the Correct Interpretation of Investment Treaties��328 II. Drafting of Investment Treaties��330 III. Consultations��335 IV. Authentic Interpretation��337 V. Unilateral Statements��341 VI. Non-disputing State(s) Submissions��341 15. Conclusions��346

Bibliography��353 Index��371

x

LIST OF ABBREVIATIONS

Note: Journal titles appear in full in the footnotes. In the bibliography, some titles are abbreviated and a list of those abbreviations (compiled by the author) appears at the end.

ALBA Alternativa Bolivariana para los pueblos de nuestra America ASEAN Association of East Asian Nations AU African Union BIT bilateral investment treaty CAFTA-DR Central America Free Trade Area—Dominican Republic CETA Canada–European Union: Comprehensive Economic and Trade Agreement COMESA Common Market for Eastern and Southern Africa EAC East African Community ECLAC Economic Commission for Latin America and the Caribbean ECOWAS Economic Community of West African States ECT Energy Charter Treaty ECtHR European Court of Human Rights EEC European Energy Charter EFTA European Free Trade Area EIA Environmental Impact Assessment EPA Economic Partnership Agreement EU European Union FCN Friendship, Commerce and Navigation FET fair and equitable treatment FTA free trade agreement FTAA Free Trade Area of the Americas GATS General Agreement on Trade in Services ICCPR International Covenant on Civil and Political Rights ICJ International Court of Justice ICSID International Centre for Settlement of Investment Disputes IEC International Energy Charter ILC International Law Commission IMS international minimum standard MAI Multilateral Agreement on Investment Mercosur Southern Common Market MFN most favoured nation NAFTA North America Free Trade Agreement NT national treatment

xii OECD PCIJ PTIAs REIO SACU SADC SEA TRIMs UNASUR VCLT WTO

List of Abbreviations Organisation for Economic Cooperation and Development Permanent Court of International Justice preferential trade and investment agreements regional economic integration organisation Southern African Customs Union South African Development Community Strategic Environmental Assessment Trade-Related Investment Measures Union de Naciones Suramericanas Vienna Convention on the Law of Treaties World Trade Organisation

TABLE OF CASES

International Arbitration Abaclat v Argentina, ICSID ARB/07/5, Jurisdiction and Admissibility, 28 October 2011��4, 57, 61, 85, 113, 117, 120, 124, 136–39, 159, 163, 164, 174, 209, 262, 263, 292, 306 ADC and ADC & ADMC v Hungary, ICSID/ARB/03/16, Award, 2 October 2006�� 14, 15, 219, 297 ADF Group Inc v United States, ICSID ARB (AF)/00/1, Award, 9 January 2003�� 66, 99, 144, 149, 162, 199 AES v Argentina, ICSID ARB/02/17, Jurisdiction, 26 April 2005�� 47, 291, 293, 300 AES Summit Generation Ltd and AES-Tisza Erömü Kft v Hungary, ICSID ARB/07/22, Annulment, 29 June 2012��315 Aguas del Tunari SA v Bolivia, ICSID ARB/02/3, Jurisdiction, 21 October 2005��11, 12, 46, 53, 57, 62, 65, 70, 125, 126, 158, 201, 241, 249 Air Transport Services Agreement Arbitration (United States v France), Award, 22 December 1963, (1969) 38 ILR 182��205 Al Warraq (Hesham TM) v Indonesia, Final Award, UNCITRAL, Jurisdiction, 21 June 2012; Award, 15 December 2014�� 10, 36, 39, 73, 135, 145, 146, 150, 220, 226, 242, 280 Alapli Elektrik BV v Turkey, ICSID ARB/08/13, Annulment, 10 July 2014��312, 313 Alemanni, Giovanni v Argentina, ICSID ARB/07/8, Jurisdiction and Admissibility, 17 November 2014��75, 139 Alex Genin, Eastern Credit Ltd, Inc and AS Baltoil v Estonia, ICSID ARB/99/2, Award, 25 June 2001��95 Alpha Projektholding GmbH v Ukraine, ICSID ARB/07/16, Award, 8 November 2010�� 57, 60, 116, 153 Alps Finance and Trade AG v Slovak Republic, UNCITRAL, Award, 5 March 2011��57, 175 Ambiente Ufficio SpA v Argentina, ICSID ARB/08/9, Jurisdiction and Admissibility, 2 May 2013��4, 57, 82, 84, 85, 117, 120, 136, 138, 139, 142, 146, 147, 153, 159, 202, 208–10, 215, 217, 218, 249, 269, 283 Amco Asian Corp v Indonesia, Jurisdiction, 25 September 1983 (1992); Annulment, 16 May 1986; Resubmitted Case, 5 June 1990; Annulment, 3 December 1992��34, 46, 62, 63, 131, 312, 313, 315

xiv

Table of Cases

American Manufacturing & Trading, Inc (AMT) v Republic of Zaire, ICSID ARB/93/1, Award of 21 February 1997, (1997) 36 ILM 1531��95, 177 Apotex Holdings Inc and Apotex Inc v United States, ICSID ARB(AF)12/1, First Procedural Order, 29 November 2012; Submission by Mexico, 8 February 2013; Procedural Order, 4 March 2013��194, 343 Asian Agricultural Products Ltd v Sri Lanka, ICSID ARB/87/3, Final Award, 27 June 1990�� 14, 59, 60, 143 ATA Construction, Industrial and Trading Co v Jordan, ICSID ARB/08/2, Award, 18 May 2010��114 Austrian Airlines v Slovak Republic, UNCITRAL, Award, 9 October 2009�� 124, 125, 258, 259 Autopista v Venezuela, ICSID ARB/00/5, Award, 23 September 2003��131 AWG Group Ltd v Argentina, UNCITRAL, Jurisdiction, 3 August 2006��65 Azinian, Robert, Kenneth Davitian and Ellen Baca v Mexico, ICSID ARB (AF)/97/2, Procedural Order 4, 16 June 1999��342 Azurix Corp v Argentina, ICSID ARB/01/12, Annulment, 1 September 2009��6, 15, 46, 62, 93, 95, 99, 130, 131, 218, 219, 237, 238, 247, 253, 308, 311, 313, 314 Bayindir Insaat Turizm Ticaret Ve Sanayi AS v Pakistan, ICSID ARB/03/29, Award, 27 August 2009�� 73, 98, 120–22, 159, 162, 225, 293, 295 Beagle Channel Arbitration (Argentina v Chile), Report and Decision, 18 February 1977 (1977) 52 ILR 93��158 Berschader, Vladimir and Moïse Berschader v Russian Federation, SCC Case No 080/2004, Award, 21 April 2006�� 101, 104, 105, 172, 210, 211, 293, 296, 300 BG Group plc v Argentina, UNCITRAL, Final Award, 24 December 2007��274 Biloune v Ghana Investment Centre and the Government of Ghana, UNCITRAL, Jurisdiction and Liability, 27 October 1989, (1990) 95 ILR 183��226, 227 Biwater Gauff (Tanzania) Ltd v Tanzania, ICSID ARB/05/22, Award, 24 July 2008 �� 86, 96, 99, 114, 120, 122, 123, 202, 236, 237, 320 BP Group Plc v Argentina, UNCITRAL (1976), Final Award, 24 December 2007 ��85 Brandes Investment Partners, LP v Venezuela, ICSID ARB/08/3, Award, 2 August 2011��328 Bureau Veritas, Inspection, Valuation, Assessment and Control, BIVAC BV v Paraguay, ICSID ARB/07/9, Jurisdiction, 29 May 2009��38, 39 Burlington Resources Inc v Ecuador, ICSID ARB/08/5, Provisional Mesures, 29 June 2009��182, 183 Camuzzi International SA v Argentina, ICSID ARB/03/2, Jurisdiction, 11 May 2005��245, 309 Canadian Cattleman for Fair Trade v United States (UNCITRAL) NAFTA, Jurisdiction, 28 January 2008��57, 134, 149, 162, 191, 195, 196, 200, 201, 204, 266, 299, 337

Table of Cases

xv

Canfor Corp v United States, Tembec v United States and Terminal Forest Products Ltd v United States, UNCITRAL (NAFTA), Preliminary Question, 6 June 2006�� 60, 144, 149, 162, 179, 256, 273 Caratube International Oil Co LLP v Kazakhstan, ICSID ARB/08/12, Provisional Measures, 31 July 2009; Award, 5 June 2012; Annulment, 21 February 2014�� 179, 190, 266, 313 CDC Group plc v Seychelles, ICSID ARB/02/14, Annulment, 29 June 2005��293, 316, 320 CEMEX Caracas Investments BV and CEMEX Caracas II Investments BV v Bolivia, ICSID ARB/08/15, Jurisdiction, 30 December 2010��170 Ceskoslovenska Obchodni Banka v Slovak Republic, ICSID ARB/97/4, Jurisdiction, 24 May 1999�� 62, 120, 122, 229 Chemtura v Canada, UNCITRAL, Award, 2 August 2010��295 Chevron Corp and Texaco Petroleum Co v Ecuador, UNCITRAL, PCA Case No 34877, Partial Award on the Merits, 30 March 2010�� 2, 46, 266, 301, 338 Churchill Mining plc v Indonesia, ICSID ARB/12/14 & 12/40, Jurisdiction, 24 February 2014 �� 76, 78, 79, 143, 185, 256, 257, 260, 264, 266, 330 City Oriente Ltd v Ecuador and Empresa Estatal de Petróleos del Ecuador, ICSID ARB/06/21, Provisional Measures, 19 November 2007�� 181, 182, 207, 278 Clayton (William Ralph), William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware Inc v Government of Canada, UNCITRAL, PCA Case No 2009-04, Jurisdiction and Liability, 17 March 2015��187 CMS Gas Transmission Co v Argentina, ICSID ARB/01/8, Award, 12 May 2005�� 17, 38, 46, 98, 99, 116, 127, 237, 313, 314 Compaňia de Aguas del Aconquija SA and Vivendi Universal (formerly Compagnie Générale des Eaux) v Argentina, ICSID ARB/97/3, Annulment, 3 July 2002; Continued Stay of Enforcement of the Award, 4 November 2008�� 47, 80, 95, 149 Consortium RFCC v Morocco, ICSID ARB/00/6, Award, 22 December 2003��15 Consorzio Groupement LESI v Algeria, ICSID Case ARB/03/08, Award, 10 January 2005��38 Continental Casualty Co v Argentina, ICSID ARB/03/9, Award, 5 September 2008; Preliminary Objection to Application for Annulment, 23 October 2009; Annulment, 16 September 2011�� 57, 67, 68, 169, 233, 234, 242, 300, 310, 313 Corn Products International, Inc v Mexico, ICSID ARB (AF)/04/1 (NAFTA), Responsibility, 15 January 2008��50 Daimler Financial Services AG v Argentina, ICSID ARB/05/1, Award, 15 August 2012��4, 61, 62, 83, 109, 192, 208, 262, 297, 298, 301, 303, 339 Desert Line Projects LLC v Yemen, ICSID ARB/05/17, Award, 6 February 2008��135, 213

xvi

Table of Cases

Detroit International Bridge Co v Canada, PCA Case No 2012-25, Confidentiality Order, 27 March 2013; 14 February 2014; Procedural Order 6, 18 March 2014��194, 195, 342 Duke Energy International Peru Investments No 1 Ltd v Peru, ICSID ARB/03/28, Jurisdiction Based on Legal Stability Agreement, Decision of the Ad Hoc Committee, 1 March 2011��294 Eastern Sugar BV (Netherlands) v Czech Republic, SCC Case No 088/2004, Partial Award, 27 March 2007��192 Ecuador v United States, PCA Case No 2012-5, Memorial of the United States, 25 April 2012��2, 338 EDF International SA, SAUR International SA and León Participaciones Argentinas SA v Argentina, ICSID ARB/03/23, Award, 11 June 2012��282, 294 EDF (Services) Ltd v Romania, ICSID ARB/05/13, Award, 8 October 2009��46, 62, 311 Eduardo Vieira SA v Chile, ICSID ARB/04/7, Annulment, 10 December 2010��315 El Paso Energy v Argentina, ICSID ARB/03/15, Jurisdiction, 27 April 2006�� 62, 96, 122, 241, 245, 250, 292, 320, 322 Electrabel SA v Hungary, ICSID ARB/07/19, Award, 25 November 2015��17 Empresas Lucchetti, SA and Lucchetti Peru, SA v Peru, ICSID ARB/03/4, Award, 7 February 2005; Annulment, 5 September 2007��8, 10, 11, 51, 52, 312, 314, 316, 346 Enron Corp and Ponderosa Assets, LP v Argentina, ICSID ARB/01/3 Jurisdiction (Ancillary Claim), 2 August 2004...... 246, 295 Award, 22 May 2007...... 199, 319, 338 Continued Stay of Enforcement, 7 October 2008��80 Ethyl Corp v Canada, UNCITRAL (NAFTA), Jurisdiction, 24 June 1998��62 Eureko BV v Poland (Netherlands/Poland BIT), Partial Award and Dissenting Opinion, 19 August 2005��46, 169 Fedax NV v Venezuela, ICSID ARB/96/3, Jurisdiction, 11 July 1997, (1998) 37 ILM 1378�� 113, 119, 122, 247 Fraport AG Frankfurt Airport Services Worldwide v Philippines, ICSID ARB/03/25, Award, 16 August 2007�� 57, 144, 148, 154, 155, 180, 312 GAMI Investment Inc v Mexico, UNCITRAL, Final Award, 15 November 2004��51 Garanti Koza LLP v Turkmenistan, ICSID ARB/11/20, Jurisdiction, 3 July 2013�� 4, 61, 86, 87, 305 Gas Natural SDG v Argentina, ICSID ARB/03/10, Jurisdiction, 17 June 2005�� 18, 101, 103, 196, 204 GEA Group AG v Ukraine, ICSID ARB/08/16, Award, 31 March 2011��116 Genin v Estonia, ICSID ARB/99/2, Award, 18 June 2001��94 Glamis Gold, Ltd v United States, UNCITRAL, Award, 8 June 2009�� 97, 220, 223, 237, 298 Global Trading Resource Corp and Globex International, Inc v Ukraine, ICSID ARB/09/11, Award, 1 December 2010�� 113, 116, 117, 120, 122 Goetz v Burundi, ICSID ARB/95/3, Award, 10 February 1999��17, 296 Grand River v United States, UNCITRAL, Final Award, 12 January 2011�� 62, 214, 237, 238

Table of Cases

xvii

Gruslin, Philippe v Malaysia, ICSID ARB/99/3, Award, 27 November 2005��192, 339 Hamadi Al Tamimi, Adel A v Sultanate of Oman, ICSID ARB/11/33, Submission of the United States, 22 September 2014..... 298 Award, 3 November 2015��158 Helnan International Hotels A/S v Egypt, ICSID ARB/05/19, Award, 7 June 2008��76, 122 HICEE v Slovak Republic, UNCITRAL, PCA Case No 2009-11, Partial Award, 23 May 2011��8, 61, 156, 158, 186, 189, 205, 245, 247, 264, 265 Hochtief AG v Argentina, ICSID ARB/07/31, Jurisdiction, 24 October 2011��57, 86 Hrvatska Elektroprivreda d.d. v Slovenia, ICSID ARB/05/24, Procedural Decision 4, Treaty Interpretation Issue, 12 June 2009�� 1, 2, 4, 61, 65 ICS Inspection and Control Services Ltd v Argentina, UNCITRAL, PCA Case No 2010-9, Jurisdiction, 10 February 2012�� 62, 83, 129, 231, 307 Impregilo SpA v Argentina, ICSID ARB/07/17, Award, 21 June 2011��83, 85 Impregilo SpA v Pakistan, ICSID ARB/03/3, Jurisdiction, 22 April 2005��15, 225 Inceysa Vallisoletana SL v El Salvador, ICSID ARB/03/26, Award, 2 August 2006��58, 59, 62 Inmaris Perestroika Sailing Maritime Services GmbH v Ukraine, ICSID ARB/08/8, Jurisdiction, 8 March 2010��116 Insaat Turizm Ticaret Ve Sanayi AS v Pakistan, ICSID ARB/03/29, Jurisdiction, 14 November 2005��121 International Thunderbird v Mexico, International Thunderbird Gaming Corp v Mexico, UNCITRAL, Separate Opinion, 1 December 2005��45, 46 Iron Rhine (‘IJzeren Rijn’) Railway (Belgium—Netherlands), Award 24 May 2005��3, 5, 108 Jan de Nul NV and Dredging International NV v Egypt, ICSID ARB/04/13, Award, 6 November 2008�� 67, 109, 120, 122 Joy Mining Machinery Ltd v Egypt, ICSID ARB/03/11, Jurisdiction, 6 August 2004��113, 117, 123 Kardassopoulos, Ioannis v Georgia, ICSID ARB/05/18, Jurisdiction, 6 July 2007�� 135, 176, 177, 215 Kılıç İnşaat İthalat İhracat Sanayi ve Ticaret Anonim Şirketi v Turkmenistan, ICSID ARB/10/01, Annulment, 14 July 2015�� 2, 10, 57, 58, 129, 132, 133, 262, 271, 274, 276, 278, 282, 283, 285, 286, 312 Klöckner Industrie-Anlagen GmbH v Cameroon and Société Camerounaise des Engrais, ICSID ARB/81/2, Annulment, 3 May 1985�� 131, 139, 312, 315, 316 KT Asia Investment Group BV v Kazakhstan, ICSID ARB/09/8, Award, 13 October 2013�� 117, 122, 123, 126, 168, 267 Laguna del Desierto, Award, 21 October 1994, (1999) 113 ILR 1��303 Lemire, Joseph Charles v Ukraine, ICSID ARB/06/18, Jurisdiction and Liability, 14 January 2010��63 LESI SpA et ASTALDI SpA v Algeria, ICSID ARB/05/3, Award, 12 November 2008��73, 122

xviii

Table of Cases

LESI-DIPENTA v Algeria, ICSID ARB/03/08, Award, 10 January 2005��121, 122 Levy, Renée Rose and Gremcitel SA v Peru, ICSID ARB/11/17, Award, 15 January 2015��273 LG&E Energy Corp, LG&E Capital Corp, LG&E International Inc v Argentina, ICSID ARB/02/1, Liability, 3 October 2006��10, 132 Life Insurance Claims, United States v Germany, Award, 18 September 1924 (1924) 7 RIAA 91��125 Loewen Group, Inc and Raymond L Loewen v United States, ICSID ARB(AF)/98/3, Award, 26 June 2003��211 Maffezini, Emilio Agustín v Spain, ICSID ARB/97/7, Jurisdiction, 25 January 2000�� 101, 103, 104, 109, 181, 183, 196, 204, 207, 211, 229, 276–78, 339 Malaysian Historical Salvors SDN BHD v Malaysia, ICSID ARB/05/10, Annulment, 16 April 2009�� 4, 113–15, 119, 122, 247, 248, 251, 316, 317 Malicorp Ltd v Egypt, ICSID ARB/08/18, Award, 7 February 2011��110, 117, 122 Mamidoil Jetoil Greek Petroleum Products Societe SA v Albania, ICSID ARB/11/24, Award, 30 March 2015��93 MCI Power Group LC and New Turbine, Inc v Ecuador, ICSID ARB/03/6, Award, 31 July 2007; Annulment, 19 October 2009�� 104, 115, 119, 132, 297, 312, 313, 316, 327 Merrill & Ring Forestry LP v Canada, UNCITRAL, Award, 31 March 2010��152, 197 Mesa Power Group Llc v Canada, PCA Case No 2012-17, Submission of the United States, 25 July 2014��194 Methanex Corp v United States, UNCITRAL (NAFTA), Final Award, 3 August 2005��12, 48, 56, 62, 66, 126, 134, 170, 188, 191, 192, 194, 195, 197, 198, 219, 226, 232, 233, 245, 246, 248, 292, 304, 310, 329 Micula, Ioan, Viorel Micula, SC European Food SA, SC Starmill SRL and SC Multipack SRL v Romania, ICSID ARB/05/20, Award, 11 December 2013�� 57, 93, 210, 212 Millicom International Operations BV and Sentel GSM SA v Senegal, ICSID ARB/08/20, Jurisdiction, 16 July 2010�� 8, 57, 166, 207 Mitchell, Patrick v Democratic Republic of the Congo, ICSID ARB/99/7, Annulment, 1 November 2006��127, 316 Mobil Corp v Bolivia, ICSID ARB/07/27, Jurisdiction, 10 June 2010��46 Mobil Corp v Canada, ICSID ARB/15/6, Reply of Canada to the Article 1128 submission of the United States, 1 September 2010��191 Mobil Corp, Venezuela Holdings, BV, Mobil Cerro Negro Holding, Ltd, Mobil Venezolana de Petróleos Holdings, Inc, Mobil Cerro Negro, Ltd, and Mobil Venezolana de Petróleos, Inc v Venezuela, ICSID ARB/07/27, Jurisdiction, 10 June 2010��60

Table of Cases

xix

Mondev International Ltd v United States, ICSID ARB (AF)/99/2 (NAFTA), Award, 11 October 2002�� 56, 62, 93, 197, 198, 215, 225, 322, 337 MTD Equity Sdn Bhd & MTD Chile SA v Chile, ICSID ARB/01/7, Annulment, 21 March 2001; Award, 25 May 2004�� 45, 57, 74, 93, 165 Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd Sti v Turkmenistan, ICSID ARB/12/6��2, 133, 286 Murphy Exploration and Production Co International v Ecuador, ICSID ARB/08/4, Jurisdiction, 15 December 2010��335 National Grid plc v Argentina, UNCITRAL, Award, 3 November 2008�� 57, 93, 101, 128, 192, 203 Noble v Romania, ICSID ARB/01/11, Award, 12 October 2005��169, 248, 295 Occidental Exploration and Production Co v Ecuador, UNCITRAL, Final Award, 1 July 2004�� 45, 46, 95, 99, 159, 182, 207, 303, 319 Pan American Energy LLC and BP Argentina Exploration Co v Argentina, ICSID ARB/03/13, Preliminary Objections, 27 July 2006��292, 293 Pantechniki SA Contractors & Engineers (Greece) v Albania, ICSID ARB/07/21, Award, 30 July 2009��118, 121 Parkerings-Compagniet AS v Lithuania, ICSID ARB/05/8, Award, 11 September 2007��44, 92, 115 Perenco Ecuador Ltd v Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador), ICSID ARB/08/6, Provisional Measures, 8 May 2009�� 182–84, 207, 257, 258 Pertulosa Claim, Italo-French Conciliation Commission, Award, 8 March 1951, (1951) 18 ILR 418��10 Petrobart Ltd v Kyrgyz Republic, No 126/2003, SCC (ECT), Award, 29 March 2005��36 Pey Casado and President Allende Foundation v Chile, ICSID ARB/98/2, Award, 8 May 2008�� 119, 122, 182, 207, 259, 294, 295 Phoenix Action Ltd v Czech Republic, ICSID ARB/06/5, Award, 15 April 2009�� 46, 57, 117, 120, 123, 159, 163, 183, 225 Ping An Life Insurance Co Ltd and Ping An Insurance (Group) Co Ltd v Belgium, ICSID ARB/12/29, Award, 30 April 2015��81 Pinson, George v Mexico (1928), 19 October 1928, 5 RIAA 327��215 Plama Consortium Ltd v Bulgaria, ICSID ARB/03/24, Jurisdiction, 8 February 2005�� 47, 49–51, 56, 62, 76, 85, 103, 104, 126, 128, 129, 131, 143, 148, 175, 179, 202, 203, 262, 296, 297 Planet Mining Pty Plc v Indonesia, ICSID ARB/12/14 & 12/40, Jurisdiction, 24 February 2014��66, 67, 78, 79, 87, 88, 146, 303, 318, 319 PNG Sustainable Development Program Ltd v Papua New Guinea, ICSID ARB/13/33, Award, 5 May 2015��62, 302, 303

xx

Table of Cases

Pope & Talbot v Canada, UNCITRAL, Award in Respect of Damages, 31 May 2002�� 197, 255, 256, 296, 319, 322 Postová Banka, AS and Istrokapital SE v Hellenic Republic, ICSID ARB/13/8, Award, 30 April 2015��61, 117 PSEG Global, Inc, North American Coal Corp, and Konya Ingin Electrik Üretim ve Ticaret Ltd Sirketi v Republic of Turkey, ICSID ARB/02/5, Award, 19 January 2007��78 Question whether the re-evaluation of the German Mark in 1961 and 1969 constitutes a case for application of the clause in article 2(e) of Annex IA of the 1953 Agreement on German External Debts (Young case), Arbitral Tribunal for German External Debt, Judgment, 16 May 1980, (2006) XIX UNRIAA 67��254 Quiborax SA, Non Metallic Minerals SA and Allan Fosk Kaplún v Bolivia, ICSID ARB/06/2, Jurisdiction, 27 September 2012�� 117, 118, 120, 182, 207, 241, 260 Railroad Development Corp v Guatemala, ICSID ARB/07/23, Award, 29 June 2012��99 Railway Land Arbitration, In the Matter of, PCA Case No 2012-01, Award, 30 October 2014��3 Renta4 SVSA v Russian Federation, SCC Case No 24/2007, Jurisdiction, 20 March 2009��171, 269, 303 Repsol YPF Ecuador SA v Empresa Estatal Petróleos del Ecuador (Petroecuador), ICSID ARB/01/10, Annulment, 8 January 2007��314 Romak SA v Uzbekistan, UNCITRAL Case No AA280, Award, 26 November 2009��75, 82, 111, 112, 130, 143, 152, 208, 242, 243, 246, 324, 325 Rompetrol Group NV v Romania, ICSID ARB/06/3, Jurisdiction and Admissibility, 18 April 2008�� 66, 135, 152, 153, 226 RosInvest v Russian Federation, SCC Case No V079/2005, Jurisdiction, October 2007��10, 56, 57, 62, 108, 109, 129, 130, 134, 218, 228, 301 RSM Production Corp v Grenada, ICSID ARB/05/14, Award, 13 March 2009��120 RSM Production Corp v Saint Lucia, ICSID ARB/12/10, Request for Security for Costs, 13 August 2014��183, 208, 303 Rumeli Telekom AS and Telsim Mobil Telekomunikasyon Hizmetleri AS v Kazakhstan, ICSID ARB/05/16, Award, 29 July 2008�� 45, 98, 225, 275, 332 Saba Fakes v Turkey, ICSID ARB/07/20, Award, 14 July 2010�� 68, 69, 117, 119, 123, 134, 259, 295 Saipem SpA v Bangladesh, ICSID ARB/05/07, Jurisdiction and Provisional Measures, 21 March 2007��122, 294, 300 Salini Costruttori SpA and Italstrade SpA v Jordan, ICSID ARB/02/13, Jurisdiction, 9 November 2004��56, 101, 202, 271, 304, 324, 325 Salini Costruttori SpA and Italstrade SpA v Morocco, ICSID ARB/00/4, Jurisdiction, 31 July 2001��120, 122, 163

Table of Cases

xxi

Saluka Investments BV v Czech Republic, UNCITRAL, Partial Award, 17 March 2006��34, 46, 56, 57, 62, 66, 93, 94, 96, 126, 145, 148, 165, 166, 211, 213, 304, 322 SD Myers Inc v Canada, UNCITRAL, Partial Award, 13 November 2000�� 95, 195, 196, 204, 222, 224, 296, 321 Sempra Energy International v Argentina, ICSID ARB/02/16, Jurisdiction, 12 September 2005; Award, 28 September 2007�� 17, 61, 199, 241, 245, 251 SGS Société Générale de Surveillance SA v Pakistan, ICSID ARB/01/13, Jurisdiction, 6 August 2003��163, 341 SGS Société Générale de Surveillance SA v Paraguay, ICSID ARB/07/29, Award, 10 February 2012; Annulment, 19 May 2014��4, 38, 312 SGS Société Générale de Surveillance SA v Philippines, ICSID ARB/02/6, Jurisdiction, 29 January 2004�� 165, 231, 292, 294, 313 Siemens v Argentina, ICSID ARB/02/8, Jurisdiction, 3 August 2004��36, 56, 62, 95, 99, 103, 130, 135, 158, 174, 196, 215, 216, 226, 300, 301 Sistem Mühendislik Inşaat Sanayi ve Ticaret AŞ v Kyrgyz Republic, ICSID ARB(AF)/06/1, Jurisdiction, 13 September 2007��133 Sociedad General de Aguas de Barcelona SA v Argentina, ICSID ARB/03/17, Jurisdiction, 16 May 2006��66 Société Générale In respect of DR Energy Holdings Ltd and Empresa Distribuidora de Electricidad del Este, SA v Dominican Republic, UNCITRAL, LCIA Case No UN 7927, Jurisdiction, 19 September 2008��148, 158 Société Ouest Africaine de Bétons Industriels (SOABI) v Senegal, ICSID ARB/82/1, Award, 25 February 1988��60, 63 Soufraki, Hussein Nuaman v United Arab Emirates, ICSID ARB/02/7, Annulment, 5 June 2007��314, 316 Southern Pacific Properties (Middle East) Ltd v Egypt, ICSID ARB/84/3, Jurisdiction, 27 November 1985; Award, 20 May 1992 (1993) 32 ILM 933��46, 131, 222 Spyridon v Romania, Award, Provisional Measures, 22 July 2008; Award, 7 December 2011 �� 36, 181, 296, 323 Suez, Sociedad General de Aguas de Barcelona SA, and InterAguas Servicios Integrales del Agua SA v Argentina, ICSID ARB/03/17, Jurisdiction, 3 August 2006��5, 93, 101, 103, 223, 224, 282 Swisslion DOO Skopje v Former Yugoslav Republic of Macedonia, ICSID ARB/09/16, Award, 6 July 2012��93 Técnicas Medioambientales Tecmed, SA v Mexico, ICSID ARB(AF)/00/2, Award, 29 May 2003��44, 45, 61, 95, 104, 238, 311, 319 Teinver SA, Transportes de Cercanías SA and Autobuses Urbanos del Sur SA v Argentine Republic, ICSID ARB/09/1, Jurisdiction, 21 December 2012��323 Telefónica SA v Argentina, ICSID ARB/03/20, Jurisdiction, 25 May 2006��192, 196, 204

xxii

Table of Cases

Telenor Mobile Communications AS v Hungary, ICSID ARB/04/15, Award, 13 September 2006��104 Tethyan Copper Co Pty Ltd v Pakistan, ICSID ARB/12/1, Provisional Measures, 13 December 2012��207, 208 Tokios Tokelés v Ukraine, ICSID ARB/02/18, Jurisdiction, 29 April 2004��4, 46, 69, 128, 167–69, 179, 207, 303 Total SA v Argentina, ICSID ARB/04/01, Liability, 27 December 2010�� 98, 158, 159, 213, 282, 323 Toto Costruzioni Generali SpA v Lebanon, ICSID ARB/07/12, Jurisdiction, 11 September 2009��122, 230 TSA Spectrum de Argentina SA v Argentina, ICSID ARB/05/5, Award, 19 December 2008��168 Tulip Real Estate and Development Netherlands BV v Turkey, ICSID ARB/11/28, Decision on Bifurcated Jurisdictional Issue, 5 March 2013��296, 300, 308 Tza Yap Shum v Peru, ICSID ARB/07/6, Jurisdiction, 19 June 2009��295 United Parcel Service of America v Canada, UNCITRAL, Award, 24 May 2007��149 Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v Argentina, ICSID ARB/07/26, Jurisdiction, 19 December 2012��78, 85, 162, 163, 172, 306, 307 Vacuum Salt Products Ltd v Ghana, ICSID ARB/92/1, Award, 16 February 1994��159 Waste Management, Inc v Mexico (No 2), ICSID ARB(AF)/00/3, Award, 30 April 2004��94, 134, 232 Wena Hotels Ltd v Egypt, ICSID ARB/98/4, Annulment, 5 February 2002, (2002) 41ILM 933�� 17, 132, 178, 314, 325 Wintershall AG v Argentina, ICSID ARB/04/14, Award, 8 December 2008��39, 66, 77, 100, 101, 104, 169, 174, 176, 229 Yukos Universal Ltd (UK–Isle of Man) v Russian Federation, PCA Case No AA 227, Interim Award on Jurisdiction and Admission, 30 November 2009��71, 90, 91, 162, 245, 248, 272, 293, 295, 297 European Court of Human Rights Feldbrugge v Netherlands (A/99) (1986) 8 EHRR 425��107 Golder v United Kingdom (A/18) (1979–80) 1 EHRR 524��215 James v United Kingdom (A/98) (1986) 8 EHRR 123��238, 311 Mellacher v Austria, Judgment (A/169) (1990) 12 EHRR 391��238, 311 Pressos Compañía Naviera v Belgium (A/332) (1996) 21 EHRR 301��238, 311 European Court of Justice August Töpfer & Co GmbH v Commission of the European Communities (112/77) [1978] ECR 1019��45

Table of Cases

xxiii

International Court of Justice Admission of a State to the United Nations (Charter, Art 4), Advisory Opinion, ICJ Rep 1948, p 57��134 Aegean Sea Continental Shelf (Greece/Turkey), Judgment, ICJ Rep 1978, p 3�� 66, 106, 110, 112, 192 Ambatielos case (Jurisdiction), Judgment, 1July 1952, ICJ Rep 1952, p 28��101, 229 AngloIranian Oil Co Case (Jurisdiction), Judgment, ICJ Rep 1952, p 93��67 Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v Serbia and Montenegro), ICJ Rep 2007, p 43��3 Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Croatia v Serbia), Judgment, 3 February 2015��3 Arbitral Award of 31 July 1989 (Guinea-Bissau v Senegal), Judgment, ICJ Rep 1991, p 53�� 59, 64, 65, 74 Barcelona Traction, Light and Power Company, Limited, Judgment, ICJ Rep 1970, p 3��309 Case Concerning Avena and Other Mexican Nationals (Mexico v United States), Judgment, 31 March 2004, ICJ Rep 2004, p 48��3, 5, 48 Case Concerning Military and Paramilitary Activities in and against Nicaragua, Merits, ICJ Rep 1986, p 14��309 Case Concerning Oil Platforms, Merits, ICJ Rep 2003, p 161��309 Case Concerning the Right of Passage over Indian Territory (Portugal v India), Preliminary Objections, ICJ Rep 1957, p 125��212 Certain Expenses of the United Nations (Art 27, paragraph 2 of the Charter), Advisory Opinion, 20 July 1962, ICJ Rep 1962, p 151��170 Certain Questions of Mutual Assistance in Criminal Matters (Djibouti v France), Judgment, ICJ Rep 2008, p 177��3, 217 Competence of the General Assembly for the Admission of a State to the United Nations, Advisory Opinion, ICJ Rep 1950, p 4��64 Conditions for Admission to the United Nations, Advisory Opinion, ICJ Rep 1948, p 57��129, 241 Delimitation of the Maritime Boundary in the Gulf of Maine Area, Judgment, ICJ Rep 1984, p 246��5 Dispute Regarding Navigational and Related Rights (Costa Rica v Nicaragua), Judgment 13 July 2009, ICJ Rep 2009, p 213�� 3, 106, 107, 108, 130, 170 Elettronica Sicula SpA (ELSI), Judgment, ICJ Rep 1989, p 15��15, 301 Gabcíkovo–Nagymaros Project, Judgment, ICJ Rep 1997, p 7��309 Kasikili/Sedudu Island (Botswana/Namibia), Judgment, 13 December 1999, ICJ Rep 1999 (II), p 1045�� 3, 105, 188, 192, 200, 201, 246, 271 LaGrand (Germany v United States), Judgment, 27 June 2001, ICJ Rep 2001, p 466�� 3, 48, 161, 182, 184, 271, 272, 308, 309 Land, Island and Maritime Frontier Dispute (El Salvador/ Honduras: Nicaragua Intervening), Judgment, ICJ Rep 1992, p 629��346

xxiv

Table of Cases

Legal Consequences of the Construction of a Wall in Occupied Palestinian Territory, Advisory Opinion, 9 July 2004, ICJ Rep 2004, p 174��3 Legality of Use of Force (Serbia and Montenegro v Belgium), Preliminary Objections, Judgment, 15 December 2004, ICJ Rep 2004, p 279��3 Maritime Delimitation and Territorial Questions between Qatar and Bahrain, Jurisdiction and Admissibility, Judgment, ICJ Rep 1995, 6��61, 254 Maritime Dispute (Peru v Chile), Judgment, 27 January 2014��3 Namibia (South West Africa) notwithstanding Security Council Resolution 276 (1970), Advisory Opinion, ICJ Rep 1971, p 16��105, 107, 215 Nuclear Tests (Australia v France), Judgment, ICJ Rep 1974, p 253��60 Oil Platforms (Islamic Republic of Iran v United States), Preliminary Objection, Judgment, 12 December 1996, ICJ Rep 1996, p 803�� 3, 147, 211, 215, 225 Pulp Mills on the River Uruguay, Judgment, ICJ Rep 2010, p 14��211 Request for Interpretation of the Judgment of 15 June 1962 in the Case concerning the Temple of Preah Vihear (Cambodia v Thailand), Provisional Measures, Order of 18 July 2011, ICJ Rep 2011, p 537��48 Sovereignty over Pulau Ligitan and Pulau Sipadan (Indonesia/Malaysia), Judgment, 23 October 2002, ICJ Rep 2002, p 625��3, 5 Territorial Dispute (Libyan Arab Jamahiriya/Chad), Judgment, 3 February 1994, ICJ Rep 1994, p 6�� 3, 6, 65, 250 Western Sahara, Advisory Opinion, ICJ Rep 1975, p 12��241 International Tribunal for Former Yugoslavia Prosecutor v Furundzija, Case IT-95-17/1-T, Judgement, 10 December 1998, (1999) 38 ILM 317��224 International Tribunal for the Law of the Sea Responsibilities and Obligations of States sponsoring Persons and Entities with Respect to Activities in the Area, Advisory Opinion, 1 February 2011, ITLOS Reports 2011, p 10��3 Iran–US Claims Tribunal Case No A/18, 5 Iran—USCTR (1984-I) 251, 6 April 1984��50 Iran v United States, Case No B1 (Counterclaim), Award No ITL 83-B1-FT, 9 September 2004��200 Permanent Court of International Justice Case of Readaptation of the Mavrommatis Jerusalem Concessions, Judgment, 10 October 1927, PCIJ Ser A, No 11��302 Case of SS ‘Wimbledon’, Judgment, 17 August 1923, PCIJ Ser A, No 15��43 Interpretation of the Convention of 1919 concerning Employment of Women during Night, Advisory Opinion, 15 November 1932, PCIJ Ser A/B, No 50��69 Jurisdiction of the Courts of Danzig, Advisory Opinion, 3 March 1928, PCIJ Ser B, No 15��48

Table of Cases

xxv

Legal Status of Eastern Greenland, Judgment, 5 April 1933, PCIJ Ser A/B, No 53��241 Question of Jaworzina, Advisory Opinion, 6 December 1923, PCIJ Ser B, No 8��337 Railway Traffic between Lithuania and Poland, Advisory Opinion, 15 October 1931, PCIJ Series A/B, No 42��84 WTO Appellate Body Canada—Term of Patent Protection, WT/DS170/AB/R, 18 September 2000��133 Chile—Price Band System, WT/DS207/AB/R, WT/DS207/AB/R/Corr.1, 23 September 2002��200 China—Publications and Audiovisual Products, WT/DS363/AB/R, 21 December 2009��107 EC—Approval and Marketing of Biotech Products, WT/DS291/R, 29 September 2006��219 EC—Conditions for the Granting of Tariff Preferences to Developing Countries, Appellate Body Report, WT/DS246/AB/R, 7 April 2004��272 EC—Customs Classification of Certain Computer Equipment, WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R, 5 June 1998��110, 142 EC—Customs Classification of Frozen Boneless Chicken Cuts, WT/DS269/AB/R, 12 September 2005�� 7, 162, 262, 264 EC—Measures Affecting Trade in Large Civil Aircraft (Second Complaint), WT/DS316/AB/R, 18 May 2011��219 EC—Measures Concerning Meat and Meat Products (Hormones), WT/DS26/AB/R, 16 January 1998��65, 134 India—Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS50/AB/R, 19 December 1997��134 Japan—Measures Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, 4 October 1996��3, 77, 200 United States—Countervailing Duties on Certain Corrosion-Resistant Carbon Steel Flats Products from Germany, WT/DS231/AB/R, 28 November 2002��133, 135 United States—Import Prohibition of certain Shrimps and Shrimps Products, WT/DS58/AB/R, 12 December 1998�� 60, 65, 105, 107, 157, 161 United States—Measures Affecting the Cross Border Supply of Gambling and Betting Services, WT/DS285/AB/R, 7 April 2005��3, 200 United States—Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, 20 May 1996��3 Domestic Cases Singapore Government of the Lao People’s Democratic Republic v Sanum Investments Ltd, Judgment, 20 January 2015, High Court of Singapore [2015] SGHC 15��62

xxvi

Table of Cases

United Kingdom Czech Republic v European Media Ventures SA [2007] EWHC 2851 (Comm) [2008] 1 All ER (Comm) 531, [2008] 1 Lloyd’s Rep 186, [2007] 2 CLC 908��10, 127, 165 Ecuador v Occidental Exploitation & Production Co [2005] EWCA Civ 1116, [2006] QB 432, [2006] 2 WLR 70, [2006] 2 All ER 225, [2005] 2 All ER (Comm) 689, [2005] 2 Lloyd’s Rep 707, [2005] 2 CLC 457, (2005) 102(37) LSG 31��49, 165 Procurator Fiscal v Brown (Scotland) [2000] UKPC D3, 5 December 2000��133 United States Paquete Habana, The, 175 US 677 (1900)��327 Sale v Haitian Centers Council, Inc, 509 US 155 (1993)��251

TABLE OF DOCUMENTS

Please note that treaties may have not come into force yet or been terminated. Bilateral Investment Treaties (BITs) Argentina—Italy (1990)��218 Art 1��82 (1)��136, 153 (4)��153 Art 8(2)��217, 218 (3)�� 83, 217, 218, 306 Argentina—Jamaica (1994)��271 Art 7��37 Argentina—Panama (1996)��192, 193, 339 Argentina—Spain (1991)��196, 229, 230 Art IV��229 Art X��78, 162, 229 (2)��172, 174 Argentina—United States (1991)��242, 270, 308 Art II(2)(a)��94, 95 (c)��314 Art XI�� 62, 68, 126, 199, 233, 234, 243, 300, 309, 310 Australia—Indonesia (1995)��270 Art XI��78, 87–89 (2)��88–90, 146 (b)��89, 90 (3)�� 66, 67, 89, 146 (4)��88–90, 146 (a)��88, 90 (b)��90 (5)��146 Austria—Egypt (2001)��271 Austria—India (1999) Art 13(3)��55 Austria—Kazakhstan (2010) Preamble��333 Art 3��333 Austria—Kosovo (2010)��161, 270 Preamble��35

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Table of Documents

Austria—Slovakia (1990) Art 8(1)��259 Belgium and Luxembourg Economic Union—Togo (2009) Art 11(3)��333 Belgium and Luxembourg Economic Union—Albania (1999)��270 Belgium and Luxembourg Economic Union—Colombia (2009) Art I(5)��334 Art VII(4)��235, 236, 334 Belgium and Luxembourg Economic Union—Costa Rica (2002)��270 Belgium and Luxembourg Economic Union—India��(1997) 270 Belgium and Luxembourg Economic Union—Libya (2004) Art 5��336 (3)��333 (4)��336 Belgium and Luxembourg Economic Union—Mexico (1998)��270 Belgium and Luxembourg Economic Union—Paraguay (1992)��271 Belgium and Luxembourg Economic Union—Russian Federation (1989) Art 2��101, 102 Art 4��101, 102 Art 5��101, 102 Art 6��101, 102 Art 10��101, 102 Belgium and Luxembourg Economic Union—Venezuela (1998)��280 Bulgaria—Cyprus (1987)�� 46, 126, 203, 262 Art 3��128, 202, 203 Canada—Benin (2013) Art 34��343 Canada—China (2012) Art 27��343 Canada—Czech Republic (2009) Annex B, Art II(1)��344 Canada—Egypt (1996) 271 Art XVIII(2)��55 Canada—El Salvador (1999) 271 Art XV��54 Canada—Latvia (2009) Art XVII(3)��234, 235 Annex C, Art II(1)(3)��343 Canada—Romania (1996) Art II��331 Art VIII��331 Art XIV��335 Annex B��331 Canada—Serbia (2014) Art 32��343 Canada—South Africa (1995) Art XVIII��54

Table of Documents

xxix

Canada—Tanzania (2013) Art 37��336 Canada—Thailand (1997)��271 Art II.2��95 Art XVIII(2)��55 Canada—Uruguay (1991) Art XV��54 (4)��55 Canada Model BIT (2004)��343 Art 4��105 Art 35(2)��343 Art 52(3)��54 Chile—Croatia (1993)��271 Chile—Malaysia (1988)��57 China—Argentina (1992)��271 Art 3(1)��92 China—Belgium–Luxembourg Economic Union (1984) ��81, 82 China—Belgium–Luxembourg Economic Union (2005) ��81 Art 8(1)��81, 82 Art 10��81 (2)��81, 82 Protocol Art 8��39 China—Germany (2003)��32, 271 Art 1(2)(a)��243 (b)��243 Art 2��32 Art 9(3)��243 Art 10(1)��37 Art 15(2)��54 Protocol��39 Ad Art 2��32 Ad Art 3��32 Ad Art 6��32 Ad Art 9��32 China—Pakistan (1989) Art 3.1��91 China—Philippines (1992) Art 3.1��91 China Model BIT (2003) Art 1(1)��111 Art 3(3)��104 Art 13��54 (2)��55 Columbia—Peru (2007)��336 Art 25(14)(a)��336 Columbian Model BIT (2007) Art VIII��334

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Table of Documents

Croatia—Slovenia (1997)��1 Ecuador—Cuba (1995)��55 Ecuador—Dominican Republic (1998)��55 Ecuador—El Salvador (1994)��55 Ecuador—France (1994)��257 Art 1(1)��257 (3)(ii)��257 Ecuador—Guatemala (2002)��55 Ecuador—Honduras (2000)��55 Ecuador—Nicaragua (2000)��55 Ecuador—Paraguay (1994)��55 Ecuador—Romania (1996)��55 Ecuador—United States (1993)��159 Art II(3)(a)��159 (7)��2, 338 Ecuador—Uruguay (1985)��55 Egypt—India (1997) Art 15(2)��55 Egypt—Japan (1977)��270 Egypt—Nigeria (2000)��271 El Salvador—Nicaragua (1999)��270 Estonia—Israel (1994)��271 Art 2(2)��92 France—Argentina (1991)��270, 282 Art 3��95 France—Egypt (1974) Art II.2��95 France—El Salvador (1978) Art II��95 France—India (1997)��271 Art 4��95 France—Malaysia (1975) Art 11��37 France—Panama (1982)��150 Art 3��150 Art 5��150 (2)��150 France—Peru (1993) Art 3��95 Art 8(3)��273 Art 12��273 France—Romania (1995) Art 3��95 France—South Africa (1995) Art II.2��95 France Model BIT (2006)��95, 257 Art 5��104 Art 11��54

Table of Documents

xxxi

Germany—Argentina (1991)�� 135, 192, 193, 196, 301 Art 10�� 77, 78, 83, 85, 86 (1)��84 (2)��84 (3)��84, 176 (a)��176 (5)��221 Art 11��57 Germany—Nigeria (2000)��150 Art 1��150 Art 3��92, 150 Art 4��150 Art 6��150 Protocol��150, 151 Germany—Philippines (1997) Art 1��148, 154, 155 Art 2��148 Art 11(5)��151, 154 Protocol��154 Art 2��155 Germany Model BIT (2008) Art 1(1)��111 Art 3��104 Art 13��55 Art 14��54 Greece—Romania (1991)��36 Art 9(1)��36 India—Columbia (2009) Art 16��336 Indian Model BIT (2015) �� 32, 40, 41, 47, 99 Ch III��41 Art 3��41 (1)��99, 100 (i)��100 (ii)��100 (iii)��100 Arts 9–12��41 Art 14��41 Art 14.11��332 Art 14.3��41, 47 Art 14.13��16 Art 15��54 Art 24��54 (2)��55 Indonesia—United Kingdom (1976) 1976��256 Art 1��76 Art 2(1)��143, 144

xxxii

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Art 7��78, 143, 260 (1)��143, 144, 266 Indonesia—Zimbabwe (1999)��271 Italy—Algeria (1991)��271 Italy—Cuba (1993) Art 2(2)��92 Art 11��37 Art 14(2)��54 Italy—Jordan (1996)��271 Art 2(3)��92 Art 11��37 Art 13(2)��54 Italy—Lebanon (1997)��271 Art 9(2)��230 Italy—Slovenia (2000) Art 14��178 (2)��178 Japan—Iraq (2012) Art 25��148 Japan—Peru (2008) Art 18(17)��342 Art 28��147 Japan—Sri Lanka (1982) Art 16(2)��54 Japan—Vietnam (2003)��271 Lebanon—Malaysia (1998) Art 12(4)��55 Lithuania—Norway (1992) Art III��92 Mexico—Greece (2000) Art 3(2)��92 Art 16��190 Art 19��37 Netherlands—Bolivia (1992)��70, 71 Art 1(b)(iii)��70, 71 Netherlands—China (1985) Art 9��335 Netherlands—Czech Republic (1991) Art 1��126 Netherlands—Pakistan (1988)��270 Netherlands—Paraguay (1992)��271 Netherlands—Senegal (1979) Art 3��166, 167 Art 4��166, 167 Art 10��166, 167 Netherlands—Serbia (2002) Art 11��191

Table of Documents

xxxiii

Netherlands—Slovak Republic (1991)��265 Art 1��265 (a)��265 Art 13(2)��54 Netherlands—Turkey (1986) Art 1(a)(i)��68, 134 (b)(ii)��124 Norway Model BIT (2007) Art 4(3)��339 Pakistan—Egypt (2000) Art 2(2)��92 Art 10(1)��37 Art 13(1)��54 Peru—Belgium Luxembourg Economic Union (2005) Art 11(2)��50 Philippines—Pakistan (1999) Art I��92 Portugal—India (2000)��271 Russian Federation—Argentina (1998) Art 3(1)��92 Russian Federation—Ethiopia (2000) ��271 Art 3(1)��92 Russian Federation—Spain (1990)��269 Art 6��171, 172 Art 10(1)��171, 172 Russian Federation—United Kingdom (1989) Art 4��129 Art 5��129 Art 6��129 Art 8��129, 130 (1)��228 South Africa—Belgium Luxemburg Economic Union (1998)��33 South Africa—Germany (1995)��33 South Africa—Netherlands (1995)��33 South Africa—Spain (1998)��33 South Africa—Switzerland (1995)��33 Spain—Cuba (1994)��270 Spain—Mexico (2006) Art 4(1)��94 Art 5(1)��311 Spain—Uruguay (1992)��230 Sri Lanka—Singapore (1980)��271 Switzerland—Czech Republic (1990) Art 1(1)(b)��176 Switzerland—Chile (1999)��36 Art 9(2)��36

xxxiv

Table of Documents

Switzerland—China (2009) Art 14(2)��54 Switzerland—Columbia (2007) Art 4(2)��101, 339 Annex��339 Switzerland—Cuba (1996)��271 Art 4(1)��92 Switzerland—Mexico (1995)��271 Switzerland—Pakistan (1997)��270 Art 4(1)��92 Art 11��341 Art 12(1)��54 Switzerland—Philippines (1997)��271 Art IV��92 Switzerland—Serbia and Montenegro (2007) Art 5(2)��339 Switzerland—Uzbekistan (1993)��270 Art 1��111 (2)�� 82, 111, 112, 130, 152, 246 (a)–(e)��82 (c)��111 Thailand—Laos (1990)��271 Turkey—Kazakhstan (1992)��285 Art VII��275 (2)��275, 276 Turkey—Pakistan (1995)��73, 75, 271 Preamble��74, 75, 159 Art II��73 (2)��74 (4)��74 Art VII��162 Turkey—Turkmenistan (1992)��283 Art VII��288 (2)�� 2, 10, 132, 278, 283–89 (a)��285 (b)��285 (c)��283, 285 Ukraine—Lithuania (1994)��128, 169 Art 1(2)��69, 168 (b)��69, 128, 167 (c)��69 United Kingdom—Argentina (1990) Art 3��231 Art 8��231 Art 11��37 United Kingdom—Albania (1994) Art 2(2)��92 Art 11��37

Table of Documents

xxxv

United Kingdom—China (1986) Art 2(2)��92 Art 3��105 United Kingdom—Ecuador (1994)��270 United Kingdom—Egypt (1975) Art 1(a)(iii)��274 Art 8(1)��178, 179, 325 United Kingdom—India (1994)��269 Art 4��105 United Kingdom—Mexico (2006) Art 3��226 Art 17(2)��190, 337 United Kingdom—Nicaragua (1996) Art 3(3)��101 Art 8��101 Art 9��101 United Kingdom—Pakistan (1994) Art 11��37 United Kingdom—Peru (1993)��231 Art 9(2)��231 United Kingdom—Philippines (1980)��321, 322 Art II(2)��321 United Kingdom—Romania (1995) Art 10��37 United Kingdom—Serbia (2002) Art 11��37 United Kingdom—South Africa (1994)��270 United Kingdom—Turkmenistan (1995)��87, 271, 305 Art 3��305, 306 Art 8��87, 305 (1)��86, 87 (2)��86, 87 United Kingdom—United Arab Emirates (1992) Art 2(2)��92 United Kingdom Model BIT (2005)��36, 260 Art 1��110, 130 Art 2(2)��77 Art 3��105 (1)��331 (2)��331 (3)��331 Art 5(1)��77 Art 8��36, 331 Art 9��331 Art 14��54, 55 Art 22��54 United States—Bangladesh (1986) Art II��92

xxxvi

Table of Documents

United States—Congo (1990) Art I(c)��127 United States—Estonia (1994)��270 Art II.3��94 United States—Jamaica (1994)��270 United States—Kazakhstan (1992)��190, 269 Art VI(3)��190 (8)��190 United States—Morocco (1985)��271 Art II.3��94 United States—Mozambique (1998) Art II.3(a)��94 United States—Romania (1992) Art IX��37 United States—Russian Federation (1992) Art II.2(a)��94 United States—Rwanda (2008)��32 Art 28(2)��343 United States—Uruguay (2005)��32 Art 5��226 Art 28(2)��343 Art 35��145 United States—(former Republic of) Zaire (1984) Art IX��177 (a)��177 United States Model BIT (2004)��94, 343 Art 4��105 United States Model BIT (2012)��32, 343 Preamble��34 Art 1��111, 120, 130 Art 16��55 Art 28(2)��193, 343 (c)��343 Art 29(1)��343 (2)��343 (a)–(e)��343 Art 30(3)��192 Art 31��192, 340 Art 35��145 Annex B Art 4(b)��334 Annex I��192 Annex II��192 Annex III��192 Venezuela—Netherlands (1991)��55 Art 3(1)��92 Art 14(2)��55 (3)��55 Yemen—Oman (1998)��135

Table of Documents

xxxvii

Investment and investment-related treaties and instruments (other than BITs) Andean Community, Regime for the Common Treatment of Foreign Capital and Trademarks, Patents, Licensing Agreements and Royalties (Decision of the Commission, 1991)��27 Arab League Investment Agreement (1970)��270 Association of East Asian Nations (ASEAN) Agreement for the Promotion and Protection of Investment of the (1987)��27 Art 1��35 Association of East Asian Nations (ASEAN) Framework Agreement on the ASEAN Investment Area (1998)��27 Association of East Asian Nations (ASEAN) Comprehensive Investment Agreement (2009)�� 25, 26, 27, 270 Art 6��27, 105 Art 12��37 Association of East Asian Nations (ASEAN)—Australia— New Zealand FTA (2009) Investment Chapter, Art 9��333 Australia—Chile FTA (2008) Ch X��26 Australia—Singapore FTA (2003) Art 17(8)��55 Canada—Chile FTA (1996) Ch G, Art 3��105 Art 5��226 Art 20(1)(3)(f)��191 Canada—Honduras FTA (2013) Art 10(1)��344 Canada—Panama FTA (2010) Art 9.28(2)��344 Canada—Peru FTA (2008) Art 804(1)��339 Art 832��344 Art 845(3)��55 Central European Free Trade Agreement (CEFTA) (2006) Art 33��216 China—New Zealand FTA (2008) Art 155��340 Croatia—EFTA States (Agreement between) (2001) Art 30��216 Canada—European Union Comprehensive Economic and Trade Agreement (CETA) (2014)�� 27, 28, 98, 332 Ch X��28 Art X.3��344 Art X.9��332 Art X.27��199 Art X.31��331 Art X.42(3)(a)��200 Common Market for Eastern and South Africa (COMESA) Agreement (1993)��26

xxxviii

Table of Documents

Ch XXVI��26 Art 22��235 Dominican Republic—Central America—United States (CAFTA-DR) (2004)��26 Ch X��26 Art 10.5��226 Art 10.20.2��343 Art 10.20.3��191 Economic Community of West African States (ECOWAS) Treaty (1975) Art 42(2)��41 Economic Community of West African States (ECOWAS) Energy Protocol (2003)��27, 29, 31 Preamble��31 Economic Community of West African States (ECOWAS) Supplementary Act Adopting Community Rules on Investment and the Modalities for its Implementation within ECOWAS (2008)��27, 41 Ch III��41 Art 12��41 (1)��25, 211 (3)��212 Art 13��41 Art 14��41 (1)��239 (2)��41 (4)��41, 333 Energy Charter Treaty (1994) �� 29–31, 37, 55, 72, 73, 90, 151, 154, 159, 160, 176, 177, 179, 191, 220, 248, 270 Pt III��30, 148, 175 Art 1(4)��129 (5)��129 Art 2��35, 151, 159 Art 7(3)��10 Art 10(1)��92, 94 Art 16��30, 37 Art 17��148, 175, 179 (1)��175, 297 Art 19��30 Art 21��162 Art 26��47, 51 (2)��36 (6)��221 Art 27��51 Art 29��191 Art 44��29 Art 45�� 29, 90, 91, 272, 273 (1)��71–73, 91, 176 (2)��91 (a)��91

Table of Documents

xxxix

Art 47��54, 55 Art 48��29, 151 Art 50��270 Annex EM��129 Annex NI��129 Protocol on Energy Efficiency and Related Environmental Aspects��29, 177 European Free Trade Area (EFTA)—Southern African Customs Union (SACU) (2006) Ch IV��28 European Free Trade Association (EFTA) Treaty (2001) Ch IX��26 Art 47��191 Art 59��55 European Union (Treaty Establishing the) (2007)��23 European Union (Treaty on the Functioning of) (2007) Art 206��23 Art 207(1)��23 European Union—East African Community (EPA) Economic Partnership Agreement (2014)��28 European Union, ECOWAS, West African Economic and Monetary Union (UEMOA) Economic Partnership Agreement (2014)��28 Art 3(i)��28 European Union, SADC Economic Partnership Agreement Group (2014)��28 Art 119(3)��28 European Union—SADC Trade Agreement (2009)��272 Art 112��280 International Centre for Settlement Disputes (ICSID) Arbitration Rules��90, 182, 309 r 2(1)��88, 90 r 19��137 r 22��282 r 34��257 (2)��258 r 37(2)��193, 344 r 39�� 181–83, 207, 208, 276–78, 331 r 41(3)��343 International Centre for Settlement Disputes (ICSID) Convention (1965)�� 18, 90, 110, 112, 113, 116–18, 123, 132, 136–39, 146, 152, 153, 164, 168, 169, 176, 207, 209, 243, 248, 251, 260, 262, 263, 270, 277, 293, 309, 317, 329, 349 Preamble��122 Art 25��109–12, 114, 116–18, 122–24, 136–39, 147, 153, 163, 164, 167–69, 241, 249, 251, 324, 348 (1)��63, 113–18, 138–40, 146, 147, 153, 163, 209, 259 (2)(a)��68, 69, 259 (b)��167, 179, 190 (4)��146, 147

xl

Table of Documents

Art 27��16, 81 Art 41��331 Art 42��131, 221 (1)��77, 131, 259 (2)��135 Art 44��2, 137, 138 Art 47�� 181–85, 207, 208, 276–78, 303, 351 Art 49(2)��68 Art 52�� 312, 313, 320, 329 (1)(b)�� 251, 252, 313, 314 (e)��313 Art 53��80 (1)��80, 81 Art 54��80, 81 (1)��80 International Energy Charter Treaty (IEC) (2015)��29 Japan—Indonesia FTA (2007) Investment Chapter, Art 69.16��183 Japan—Mexico EPA (2004)��271 Art 176��55 Art 60��226 MERCOSUR, Colonia Protocol on the Reciprocal Promotion and Protection of Investment (1994) ��27, 56 Art 7��37 North American Free Trade Agreement (NAFTA) Treaty (1994)�� 47, 149, 162, 195, 222, 223, 226, 227, 233, 238, 248, 255, 256, 270, 304, 322 Preamble��222 Ch XI��26, 162, 321 Ch XX��48 Pt IV��94 Art 1��92 Art 102(1)��161, 162 Art 104��222 Art 1101��149 Art 1102��233, 321 (3)��232 Arts 1102–05��149 Art 1105��170, 195, 197, 198, 226, 256, 321, 322 (1)��171, 199 Art 1116��149 Art 1117��149 Art 1128�� 48, 193, 194, 342, 343 Art 1131�� 187, 221, 226, 337 (1)��223 (2)��187, 191 Art 1139��149

Table of Documents

xli

Art 1228��195 Art 1901(3)��149 Art 1902(1)��149, 273 Art 2001(1)��191 Art 2206��270 Organisation for Economic Co-operation and Development (OECD), Comprehensive Investment Agreement concluded within the Draft Convention on the Protection of Foreign Property (1967)��19 Organisation for Economic Co-operation and Development (OECD), Multilateral Agreement on Investment Draft Consolidated Text (MAI) (1998)��19, 120 Organization Islamic Conference (OIC) Investment Agreement (1981)��220, 270, 280 Art 9��36 Art 10(1)��226, 227 Art 16��150 Art 17�� 10, 36, 146, 150, 242 (2)��150 (a)��146, 150 (d)��146 Art 25��10 Pan African Investment Code (2016)��24 Southern African Development Community (SADC) Protocol on Finance and Investment (2005)��27, 270 Art 7��25 Art 14��25, 334 Art 18��22, 24 Art 20��25 Art 28(1)��47 Annex 1��27 United States—Australia FTA��46 Art 1(1)(3)��37 Art 11(5)��226 Art 23(4)��55 United States—Morocco FTA (2004)��226 Ch 10��26 Art 10.4��105 Art 10.5��333 Art 10.19(2)��344 Art 22(6)��55 United States—Oman FTA��158 Art 10.19.2��298, 344 United States—Peru FTA Art 10.20(2)��344 United States—Singapore FTA Art 15.19(2)��344 Art 15.21��77, 191 (2)��337

xlii

Table of Documents

Other treaties and documents African Charter on the Rights and Welfare of the Child (1990) Art 14.2(c)��236 Agreement on Trade-Related Investment Measures (TRIMs) (1994)��22 Basel Convention on the Control of Transboundary Movement of Hazardous Wastes and their Disposal (1989) Art 11��222 Charter for an International Trade Organization (Havana Charter) (1948)��22 Art 12(1)(a)��22 Convention concerning the Protection of the World Cultural and Natural Heritage 1972 (UNESCO)��220 Convention on Environmental Impact in a Transboundary Context (1991) Art 1(vi)��212 UNECE Protocol 2003 Art 2(6)��212 Convention on the Elimination of All Forms of Discrimination against Women (1979) Art 14.2(h)��236 Convention on the Rights of the Child (1989) Art 24.2(c)��236 European Convention on Human Rights (1950)��308 Protocol 1 Art 1��308, 310 General Agreement on Tariffs and Trade (GATT) (1994)�� 22, 142, 226, 233, 308, 310 Art XX�� 22, 45, 234–36, 310 General Agreement on Trade in Services (GATS) (1994)��22 International Court of Arbitration (ICC) Arbitration Rules Art 21��283 (1)��221 International Covenant on Civil and Political Rights (ICCPR) (1966)��220, 227 Art 14(3)��227 International Covenant on Economic, Social and Cultural Rights (ICESCR) (1966) Art 11��237 Art 12��237 International Labour Organization (ILO) Convention 169 (1989)��237 International Labour Organization (ILO) Declaration on Fundamental Principles and Rights of Work (1998)��42 International Law Commission (ILC) Draft Articles on Diplomatic Protection (2006) Art 1��49 Art 17��218 International Law Commission (ILC) Articles on State Responsibility (2001)��234, 323 International Law Commission (ILC) Draft Articles on the Law of Treaties (1966) ��51, 240, 272 Art 27��246 Art 28��246 Art 38��206 Art 69��240 (3)��145 Art 70��240

Table of Documents

xliii

(1)(b)��215 Art 71��240 (2)��254 Art 73��214 Art 75(3)��274 (4)��274 (5)��268 Montevideo Protocol on Trade in Services (1997)��27 South Africa Arbitration Act (1965)��33 Constitution (1996)��33 Protection of Investment Act (2015)��33 Statute of the International Court of Justice (ICJ) (1945)��309 Art 38��299, 300 (1)��318, 350 (a)–(c)��299, 300 (c)��46, 319 (d)�� 267, 300, 318, 319 Art 41�� 161, 182, 184, 309 Statute of the Permanent Court of International Justice (PCIJ) (1920) Art 41��184 United Nations Charter (1945) Art 4��134 Art 102��335 UN Convention against Corruption (2003)��220, 227, 333 UN Convention on Transnational Crime (2000)��227 UN Declaration on the Rights of Indigenous Peoples (2007) ��237 UN General Assembly Resolution 1803 on Permanent Sovereignty over Natural Resources (1962) para 8��43 UNCITRAL Arbitration Rules�� 66, 67, 87, 111, 112, 275 Art 19��282 Art 27(3)��258 Art 35(1)��221 Union of South American Nations (UNASUR) (2008) ��24 Vienna Convention on Consular Relations (1963)��272 Vienna Convention on the Law of Treaties (VCLT) (1969)�� 2–4, 6–11, 13, 38, 51–53, 56–60, 64, 67, 74, 79, 102–04, 113, 118, 140, 155, 159–61, 173, 187, 188, 205, 214, 228–30, 246–49, 265, 266, 272, 274, 275, 283, 290, 299, 309, 312, 316–18, 320, 321, 324, 346, 347, 349, 350 Art 1(2)(a)��2 Art 4��57 Art 8(3)��63

xliv

Table of Documents

Art 10��268 Art 31��6–9, 11, 12, 59, 60, 63, 66, 71, 80, 82, 83, 85, 102, 106, 124, 142, 143, 147, 154, 159, 170, 174, 188, 230–32, 235, 240, 245–53, 256, 257, 260, 265–67, 274, 275, 279–82, 289, 290, 299, 300, 319, 320, 346 (1)��6, 11, 12, 62, 128, 145, 149, 152, 153, 157, 159–61, 163, 166, 175, 179, 180, 188, 210, 213, 214, 231, 241 (2)�� 141–45, 149, 151–53, 210, 213, 214, 228 (a)�� 141, 142, 150–54, 158, 263, 334 (b)��141, 151, 153–56, 158, 205, 231, 265, 334 (3)�� 67, 68, 142, 186–89, 210, 228 (a)��53, 142, 186–98, 201, 289, 316, 342, 350 (a)–(c)��186 (b)�� 53, 140, 142, 186, 196, 197, 200–06, 289, 341, 342 (c)��96, 97, 100, 107, 152, 189, 200, 210–21, 225–27, 231, 232, 236, 238, 239, 301, 308, 319, 333 (4)�� 65, 68, 71, 112, 240–44, 349 Arts 31–33��2, 3, 5, 6, 9–11, 13, 57, 58, 60, 61, 64, 168, 183, 320, 346 Art 32��3, 6–9, 12, 60, 63, 71, 80, 106, 124, 125, 189, 245–54, 260–62, 264–67, 274, 275, 279, 280, 282, 285, 287, 289, 290, 299, 300, 318–20, 346, 350 (b)��82 Art 33�� 12, 60, 268, 269, 271, 273–76, 279, 280, 283, 286, 290, 320, 346 (2)��269, 270 (3)��271, 273, 274 (4)�� 271, 273, 274, 280, 285 Art 34��228 Art 54��43 Art 70(1)��56 Art 84(2)��58 Vienna Convention on the Law of Treaties between States and International Organisations or between International Organisations (1989)��2 World Trade Organisation (WTO) Agreement (1994)��161 Art IX:2��191

1 Introduction I. Objectives of the Research In the complex transnational legal environment in which foreign investments are made, international treaties—including those on the settlement of investmentrelated disputes—play a fundamental role. They are interpreted on a regular basis by national courts and arbitral tribunals as well as by national agencies and departments responsible for their day-to-day application and implementation. The importance of interpretation of treaties, which can be described as ‘the process of determining the meaning of a text’1 and making its application possible,2 is self-evident in any area across international law, including foreign investment law. As pointed out in the context of an investment dispute, the importance [of the rules on interpretation] and their centrality to the stability of the regime of international agreements cannot be overstated, for no matter how much care parties may take in expressing with precision their commitments, the predictability of their commitments depends upon commonly accepted rules of interpretation and, equally important, correct application of those rules by those called upon to construe the commitments in question.3

How interpretation issues may be crucial is confirmed by the following four disputes. In Hrvatska Elektroprivreda v Slovenia, the Tribunal decided to issue an interlocutory decision on the interpretation of a provision of the bilateral investment treaty (BIT) between Croatia and Slovenia, which immediately appeared to

1 Harvard Law School, Draft Convention on the Law of Treaty, Comment to Art 19 (1935/Suppl) 29 American Journal of International Law 938. As observed by T-C Yu, The Interpretation of Treaties (New York: Columbia University Press, 1927) 136, ‘the essence of the principle of interpretation … is to ascertain through all sources of evidence what is the standard agreed upon, namely what is the sense which the contracting parties mutually attached to the terms of the agreement’. See also R Jennings and A Watts, Oppenheim’s International Law, 9th edn (London: Longman, 1991) 1267. 2 As noted by C De Visscher, Problèmes d’interprétation judiciaire en droit international public (Paris: Pedone, 1963) 30, ‘l’interprétation consiste non pas simplement à retrouver la signification primitive d’un instrument juridique mais à lui donner, sous réserve toujours du respect du texte, la signification spécifique que postule son application pratique’. 3 M Reisman, Pac Rim Cayman LLC v EI Salvador, ICSID ARB/09/12, Opinion on the International Legal Interpretation of the Waiver Provision in CAFTA Chapter 10, 22 March 2010, p 13.

2

Introduction

be of paramount importance for the settlement of the dispute.4 The decision was taken in the exercise of the tribunal powers under Article 44 International Centre for Settlement of Investment Disputes (ICSID) Convention and not surprisingly provoked a sharp division within the Tribunal and a strongly worded dissenting opinion. In Kılıç v Turkmenistan and Sehil v Turkmenistan, the Tribunals were confronted with significant differences between the parties on the meaning of Article VII.2 of the BIT between Turkey and Turkmenistan. Both Tribunals decided that it would have been appropriate and more efficient not only to determine at an early stage several questions related to the authentic versions of the treaty, but also to examine separately the meaning and effect of Article VII.2.5 The fourth decision, Ecuador v United States,6 one of the still-rare investment disputes between States, is entirely about the interpretation of a provision contained in the bilateral investment treaty concluded between the two States. Ecuador filed a request for arbitration with a view to obtaining an award on the interpretation of Article II(7) of the BIT between the two countries, which according to Ecuador had been incorrectly interpreted by the arbitral Tribunal in Chevron v Ecuador.7 The present study aims to examine the interpretation of investment treaties from the standpoint of Articles 31–33 Vienna Convention on the Law of Treaties (VCLT).8 Being written agreements concluded between two or more sovereign States and governed by international law, international investment treaties fall squarely within the definition of treaty given in the VCLT.9 Accordingly, the VCLT applies to these treaties in its entirety if the concerned States have ratified it.

4 Hrvatska Elektroprivreda d.d. v Slovenia, ICSID ARB/05/24, Procedural Decision 4, Treaty Interpretation Issue, 12 June 2009, paras 43 ff. 5 Kılıç İnşaat İthalat İhracat Sanayi ve Ticaret Anonim Şirketi v Turkmenistan, ICSID ARB/10/01, Art VII.2 of the Turkey–Turkmenistan Bilateral Investment Treaty, 7 May 2012; Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd Sti v Turkmenistan, ICSID ARB/12/6, Jurisdiction under Art VII (2), 13 February 2015. 6 The decision, which was rendered by majority on 29 September 2012, is not available to the public. See J Hepburn and LE Peterson, ‘US–Ecuador Inter-State Investment Treaty Award Released to Parties: Tribunal Members Part Ways on Key Issues’, International Arbitration Reporter, 30 October 2012. See also Chapter 14, section IV. 7 Chevron Corporation and Texaco Petroleum Company v Ecuador, UNCITRAL, PCA Case No 34877, Partial Award on the Merits, 30 March 2010. 8 Vienna Convention on the Law of Treaties, concluded on 23 May 1969 and entered into force on 27 January 1980 (114 Parties as per 31 December 2015), Arts 31–33, 1155 United Nations Treaty Series 331, at https://treaties.un.org/doc/Publication/UNTS/Volume%201155/volume-1155-I-18232English.pdf. The very same rules on treaty interpretation have been included in the Vienna Convention on the Law of Treaties between States and International Organisations or between International Organisations, concluded on 21 March 1986 (not yet in force), UN Doc A/CONF. 129/15; (1989) 25 International Legal Materials 543. 9 Art 1(2)(a) VCLT.

Objectives of the Research

3

Otherwise, customary international rules on interpretation are to be applied. As maintained by the International Court of Justice (ICJ)10 and virtually all other international tribunals,11 these rules are reflected in the relevant articles of the VCLT. As a result, these articles are conveniently relied upon and applied to all treaties concluded between States regardless of their ratification of the VCLT and even when the treaty to be interpreted predates the VCLT.12 The same applies to 10 See, in particular: Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Croatia v Serbia), Judgment, 3 February 2015, para 138 (with regard to Art 31); Maritime Dispute (Peru v Chile), Judgment, 27 January 2014, para 57 (Arts 31 and 32); Dispute Regarding Navigational and Related Rights (Costa Rica v Nicaragua), Judgment 13 July 2009, ICJ Reports 2009, p 213, para 47 (Arts 31 and 32); Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v Serbia and Montenegro), ICJ Reports 2007, para 160 (Arts 31 and 32); Legality of Use of Force (Serbia and Montenegro v Belgium), Preliminary Objections, Judgment, 15 December 2004, ICJ Reports 2004, p 279, para 100 (Art 31); Legal Consequences of the Construction of a Wall in Occupied Palestinian Territory, Advisory Opinion, 9 July 2004, ICJ Reports 2004, p 174, para 94 (Art 31); Case Concerning Avena and Other Mexican Nationals (Mexico v United States), Judgment, 31 March 2004; ICJ Reports 2004, p 48, para 83 (Arts 31 and 32); Sovereignty over Pulau Ligitan and Pulau Sipadan (Indonesia/Malaysia), Judgment, 23 October 2002, ICJ Reports 2002, p 625, para 37 (Arts 31 and 32); LaGrand (Germany v United States), Judgment, 27 June 2001, ICJ Reports 2001, p 466, para 101 (Art 33(4)); Kasikili/Sedudu Island (Botswana/Namibia), Judgment, 13 December 1999, ICJ Reports 1999 (II), p 1045, para 18 (Art 31); Oil Platforms (Islamic Republic of Iran v United States), Preliminary Objection, Judgment, 12 December 1996, ICJ Reports 1996, p 803, para 23 (Art 31); Territorial Dispute (Libyan Arab Jamahiriya/Chad), Judgment, 3 February 1994, ICJ Reports 1994, p 6, para 41 (Art 31). Literature on treaty interpretation is immense. Amongst the most important works, see MK Yasseen, ‘L’interprétation des traités d’après la Convention de Vienne sur le droit des traités’, (1976-III) 151 Recueil des Cours de l‘Academie de Droit International de la Haye 1; R Kolb, Interprétation et création du droit international. Esquisse d’une herméneutique juridicque moderne pour le droit international public (Bruxelles: Bruylant, 2006); U Linderfalk, On the Interpretation of Treaties. The Modern International Law as Expressed in the 1969 Vienna Convention on the Law of Treaties (Dordrecht: Springer, 2007); I Venzke, How Interpretation Makes International Law. On Semantic Change and Normative Twist (Oxford: OUP, 2012); R Gardiner, Treaty Interpretation, 2nd edn (Oxford: OUP, 2015); A Bianchi, D Peat, M Windsor (eds), Interpretation in International Law (Oxford: OUP, 2015). On interpretation within general studies on the law of treaties, see, in particular, AD McNair, The Law of Treaties (Oxford: Clarendon, 1961); I Sinclair, The Vienna Convention on the Law of Treaties, 2nd edn (Manchester: MUP, 1984); M Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties (Leiden: Nijhoff, 2009); M Fitzmaurice, O Elias, P Merkouris (eds), The Issue of Treaty Interpretation and the Vienna Convention on the Law of Treaties: 30 Years On (The Hague: Kluwer, 2010); O Corten, P Klein (eds), The Vienna Conventions on the Law of Treaties. A Commentary (Oxford: OUP, 2011); E Cannizzaro (ed), The Law of Treaties. Beyond the Vienna Convention (Oxford: OUP, 2011); A Aust, Modern Treaty Law and Practice, 3rd edn (Cambridge: CUP, 2013). 11 See, eg, International Tribunal for the Law of the Sea, Responsibilities and Obligations of States sponsoring Persons and Entities with Respect to Activities in the Area, 1 February 2011, para 57, at http:// www.itlos.org/fileadmin/itlos/documents/cases/case_no_17/17_adv_op_010211_en.pdf (with regard to Arts 31–33 VCLT); In the Arbitration Regarding the Iron Rhine (‘IJzeren Rijn’) Railway (Belgium– Netherlands), 24 May 2005, para 45, at http://www.pca-cpa.org/showpage.asp?pag_id=1155 (Arts 31 and 32); In the Matter of the Railway Land Arbitration, PCA Case No 2012-01, Award, 30 October 2014, para 42, at http://www.pca-cpa.org/showpage.asp?pag_id=1598 (Arts 31 and 32). See also the position of the WTO Appellate Body (United States—Standards for Reformulated and Conventional Gasoline, Report of the Appellate Body, 20 May 1996, WT/DS2/AB/R, p 104); Japan—Measures Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, 4 October 1996, pp 10–12; United States—Measures Affecting the Cross Border Supply of Gambling and Betting Services, WT/DS285/AB/R. In literature, see I Van Damme, Treaty Interpretation by the WTO Appellate Body (Oxford: OUP, 2009). 12 Kasikili/Sedudu Island, above n 10, Judgment, para 18; Certain Questions of Mutual Assistance in Criminal Matters (Djibouti v France), Judgment, ICJ Reports 2008, para 112.

4

Introduction

treaties concluded between States and International Organisations, or between International Organisations. Investment treaties are no exception. Neither investment tribunals nor the parties before them have ever seriously questioned the applicability of these provisions to investment treaties, to the point that the reference to these rules has become something of a clause de style in international arbitral awards.13 As pointed out by an annulment committee, [t]he Convention’s provisions on the interpretation of treaties, embodied in Articles 31 and 32, while contested when adopted, have been accepted by the International Court of Justice and the international community as expressive not only of treaty commitment but of customary international law. The Committee thus considers itself on firm ground in resorting to the customary rules on interpretation of treaties as codified in the Vienna Convention.14

The question is therefore how the VCLT rules of interpretation have been and have to be applied, rather than whether they apply. Yet, in spite of their almost systematic acceptance by investment tribunals, the application of the VCLT rules on interpretation has often proved problematic and provoked sharp divisions within arbitral tribunals which often resulted in the adoption of harsh dissenting opinions by arbitrators.15 Doubts have been expressed in literature not about the applicability of the VCLT, but rather about its adequacy to solve interpretative questions of investment treaties. It has been argued that the VCLT ‘is only of limited use in giving guidance to a tribunal in its interpretative task. Problems arise because the VCLT’s rules of construction are capable of supporting a wide range of potential interpretations.’16 This assessment will be tested in this research against the 13 M Reisman, above n 3, p 13. In SGS Société Générale de Surveillance SA v Paraguay, ICSID ARB/07/29, Award, 10 February 2012, the Tribunal referred to the VCLT in fn 82. 14 Malaysian Historical Salvors SDN BHD v Malaysia, ICSID ARB/05/10, Annulment, 16 April 2009, para 56. An empirical study has revealed that about 40% of the arbitral decisions rendered between 2006 and 2009 expressly referred to the VCLT rules on interpretation, with a significant increase towards the end of the period; see OK Fauchald, ‘The Legal Reasoning of ICSID Tribunals—An Empirical Analysis’ (2008) 19 European Journal of International Law 301, 314. The tendency has been confirmed by A Saldarriaga, ‘Investment Awards and the Rules of Interpretation of the Vienna Convention on the Law of Treaties’ (2013) 28 ICSID Review 197, 204, according to whom two thirds of the selected decisions in the period 2007–2008 contain such a reference. 15 See, eg, P Weil (chairman), dissenting opinion in Tokios Tokelés v Ukraine, ICSID ARB/02/18, Jurisdiction, 29 April 2004; J Paulsson, independent opinion in Hrvatska Elektroprivreda v Slovenia, above n 4; G Abi Saab, dissenting opinion in Abaclat and Others v Argentina, ICSID ARB/07/5, Jurisdiction and Admissibility, 28 October 2011; C Brower, dissenting opinion in Daimler Financial Services AG v Argentina, ICSID ARB/05/1, Award, 15 August 2012; S Torres Bernárdez, dissenting opinion in Ambiente Ufficio SpA and others v Argentina, ICSID ARB/08/9, Jurisdiction and Admissibility, 2 May 2013; L Boisson de Chazournes, dissenting opinion in Garanti Koza LLP v Turkmenistan, ICSID ARB/11/20, Jurisdiction, 3 July 2013. 16 C McLachlan, L Shore and M Weiniger, International Investment Arbitration (Oxford: OUP, 2007) para 3.71. See also M Weiniger, ‘Jurisdiction challenges in BITs Arbitration. Do You Read a BIT by Reading a BIT or by Reading into a BIT?’, in LA Mistelis and JDM Lew, Pervasive Problems of International Arbitration (The Hague: Kluwer, 2006) 235, 254.

Objectives of the Research

5

case law of international tribunals and State practice. While the application of Articles 31–33 to investment treaties will be discussed in the substantive chapters of the book, it is worth recalling here a few crucial points on treaty interpretation under the VCLT. In the first place, the VCLT contains a single set of rules of interpretation.17 Articles 31–33 have definitely settled the debate on the necessity and appropriateness of legally binding rules on treaty interpretation.18 The argument that the principles developed by international tribunals ‘are all correct, but on concrete application they often abrogate each other and frequently appear worthless’19 has been rejected first by the United Nations International Law Commission (ILC) and then, more importantly and equally resoundingly, by the States participating in the Vienna Conference. The massive rejection of the proposal submitted by the United States delegation suggesting the adoption of eight ‘relevant factors’ instead of rules on interpretation leaves no doubt in this respect.20 Whether described as rules,21 principles,22 canons,23 or directives,24 often interchangeably,25

17

R Gardiner, above n 10, Chapter 1. On the debate, see GG Fitzmaurice, ‘The Law and Procedure of the International Court of Justice. Treaty Interpretation and Certain Other Treaty Points’, (1951) 28 British Yearbook of International Law 1, 2–3. 19 JHW Verzijl, Speech before the Royal Netherlands Academy (Mededelingen des Afdeeling Letterkunde, DI, No 2) 144, quoted in MS McDougal, HD Lasswell, JC Miller, Interpretation of International Agreement and World Public Order (New Haven: Nijhoff, 1967) 9. 20 VCLT, Official Document, 149. For a sceptical view, however, see J Klabbers, ‘On Rationalism in Politics: Interpretation of Treaties and the World Trade Organization’ (2005) 74 Nordic Journal of International Law 405; J Klabbers, ‘Virtuous Interpretation? in M Fitzmaurice, O Elias and P Merkouris (eds), above n 10, p 17, 25. 21 The ICJ has often referred to Arts 31–33 as the ‘rules of interpretation’; see, eg, Avena and Other Mexican Nationals, above n 10, para 83; Sovereignty over Pulau, above n 10, paras 37–38. See also In the Arbitration Regarding the Iron Rhine, above n 10, para 45. In literature, see R Gardiner, above n 10, Chapter 1. Interestingly, I Brownlie, Principles of Public International Law, 7th edn (Oxford: OUP, 2008) 339, and J Crawford, Brownlie’s Principles of Public International Law, 8th edn (Oxford: OUP, 2012) 379, refer to rules of interpretation in brackets. 22 See, eg, Suez, Sociedad General de Aguas de Barcelona SA, and InterAguas Servicios Integrales del Agua SA v Argentina, ICSID ARB/03/17, Jurisdiction, 3 August 2006, para 54. See also A Aust, above n 10, p 207. 23 See, eg, M Fitzmaurice and P Merkouris, ‘Canons of Treaty Interpretations: Selected Case Studies from the World Trade Organization and the North American Free Trade Agreement’ in M Fitzmaurice et al (eds), above n 10, p 153. 24 See, eg, F Latty, ‘Les techniques interprétatives du CIRDI’, (2011) Revue Generale de Droit International Public 459, 462, referring to F Ost and M van de Kerchove, Entre la lettre et l’esprit. Les directives d’interprétation en droit (Bruxelles: Bruylant, 1989) 21. 25 It is worth noting that the ICJ has downplayed the distinction between rules and principles. In Delimitation of the Maritime Boundary in the Gulf of Maine Area, Judgment, ICJ Reports 1984, 246, para 79, for instance, it concluded that ‘the association of the terms “rules” and “principles” is no more than the use of a dual expression to convey one and the same idea, since in this context “principles” clearly means principles of law, that is, it also includes rules of international law in whose case the use of the term “principles” may be justified because of their more general and more fundamental character’ (see also para 113). As observed by H Waldock, ‘General Course on Public International Law’, (1962-II) 106 Receuil des Cours 1, 54, 63, the Court has treated customary law and general principles of law as ‘a single corpus of law’. 18

6

Introduction

Articles 31–33 are legally binding for the interpreter. The application of these rules, either as a matter of treaty law or customary international law, is undisputed. International tribunals, most prominently the ICJ, have unambiguously held that a treaty must be interpreted in accordance with these rules.26 The VCLT rules on interpretation are mandatory or permissive in the sense that they require or allow the interpreter to consider certain elements in order to establish the correct meaning of a treaty. More precisely, Article 31 is mandatory as unequivocally corroborated by the consistent use in all its paragraphs of the modal ‘shall’. Article 32, on the other hand, is partly permissive, insofar as the interpreter may have recourse to it to confirm the meaning resulting from the application of Article 31;27 and partly mandatory, in spite of the use of the modal ‘may’, when such recourse is indispensable since Article 31 has led to a meaning that is ambiguous or obscure, or to a result which is manifestly absurd or unreasonable.28 Second, the VCLT rules on interpretation represent a well-formulated compromise29 or the synthesis30 of the main schools of interpretation which, although not necessarily exclusive of one another, competed with each other before the VCLT. The three schools have been introduced as follows: For the ‘intentions’ [of the parties or ‘founding father’] school, the prime, indeed the only legitimate, object is to ascertain and give effect to the intentions, or presumed intentions, of the parties: the approach is therefore to discover what these were, or must be taken to have been. For the ‘meaning of the text’ [or ‘textual’] school, the prime object is to establish what the text means according to the ordinary or apparent signification of its terms: the approach is therefore through the study and analysis of the text. For the ‘aims and objects’ [or ‘teleological’] school, it is the general purpose of the treaty itself that counts, considered to some extent as having, or as having to have, an existence on

26

See, amongst many examples, Sovereignty over Pulau, above n 10, para 37. Territorial Dispute (Libya Arab Jamahiriya/Chad), above n 10, Judgment, para 55, for instance, the Court held that ‘it is not necessary to refer to the travaux préparatoires to elucidate the content of the 1955 Treaty; but, as in precedent cases, it finds it possible by reference to the travaux to confirm its reading of the text’. 28 In Azurix Corp v Argentina, ICSID ARB/01/12, Annulment, 1 September 2009, para 121, the ad hoc Committee held that since interpretation under Art 31(1) had not led to a manifestly absurd or unreasonable result, ‘the Committee is not required to have recourse to the supplementary means under Article 32’ (emphasis added). 29 TW Wälde, ‘Interpreting Investment Treaties: Experiences and Examples’, in C Binder, U Kriebaum, A Reinish and S Wittich (eds), International Investment Law for the 21st Century. Essays in Honour of C Schreuer (Oxford: OUP, 2009), 724, 746. According to M Villiger, above n 10, p 441, Art 31 is a ‘masterpiece of precise drafting’. 30 As noted by R Gardiner, above n 10, p 9, ‘by combining consideration of all relevant elements mandated by the Vienna rules, the resulting interpretation should achieve due respect for the intention of the parties as recorded in the treaty text, taking into account of the treaty’s object and purpose, but without making a wide ranging search for intentions from extraneous sources’. 27 In

Objectives of the Research

7

its own, independent of the original intention of the framers … All three approaches are capable, in a given case, of producing the same result in practice; but equally … they are capable of leading to radically divergent results.31

The VCLT takes a minimalist stand with regard to the co-ordination of the different schools and the relative weight to be attributed the different rules underlying them.32 It clearly privileges the textual school in combination with the teleological school, and relegates the intention of the parties’ school to a minor role. The preference takes the form of the division of labour between Article 31 and Article 32. Indeed, the strongest feature of the VCLT rules of treaty interpretation is the predominant role of the complex general rule embodied in Article 31 and the supplementary role of the means indicated in Article 32. Apart from this clear choice, which will be further elaborated through the analysis of the relevant arbitral decisions, the VCLT rules on interpretation are particularly flexible. As metaphorically pointed out by the ILC, ‘[a]ll the various elements, as they were present in any given case, would be thrown into the crucible, and their interaction would give the legally relevant interpretation’.33 From this perspective, interpretation must be seen as a ‘holistic exercise that should not be mechanically subdivided into rigid components’.34

31 G Fitzmaurice, ‘The Law and Procedure of the International Court of Justice: Treaty Interpretation and Certain Other Treaty Points’, (1951) 28 BYIL 1, 1–2. See also MK Yasseen, above n 10; MS McDougal et al, above n 19; I Sinclair, above n 10; H Thirlway, ‘The Law and Procedure of the International Court of Justice 1960–1989. Part Three’ (1991) 62 BYIL 1 and ‘Supplement, 2006’ (2006) 77 BYIL 1; R Gardiner, above n 10, p 9 and Chapter 2. M Villiger, above n 10, pp 421–42, has identified five methods that have traditionally played a role in the theory of interpretation. In addition to the three indicated in the text, he refers to the contextual or systematic method and the logical method, which ‘favours rational techniques of reasoning and such abstract principles as per analogiam, e contrario, contra proferentem, ejusdem generis and expressio unius est exclusio alterius’. 32 I Van Damme, above n 11, p 215, has pointed out that ‘[t]he success of Article 31 can be explained in part by the limited level of ambition in drafting these principles’. 33 (1966-II)18 YBILC 219–20. 34 EC—Customs Classification of Frozen Boneless Chicken Cuts, WT/DS269/AB/R, 12 September 2005, para 176. According to I Sinclair, above n 10, p 153, ‘[i]nterpretation is a process involving the deployment of analytical and other skills: it cannot be reduced to a few propositions capable of purely automatic application in all circumstances’. S Torres Bernárdez, ‘Interpretation of Treaties by the International Court of Justice following the Adoption of the 1969 Vienna Convention on the Law of Treaties’, in G Hafner (ed), Liber Amicorum: Professor Ignaz Seidl-Hohelveldern in Honour of his 80th Birthday (The Hague: TMC Asser Press, 1998) 721, 726, points out that interpretation is ‘a legal operation which should combine the various permitted elements and means of interpretation as they may be present in the case, while keeping open the interpretation until the very conclusion of the interpretative process’. In the same vein, G Abi Saab, ‘The Appellate Body and treaty Interpretation’, in G Sacerdoti, A Yanovich and J Bohanes (eds), The WTO at Ten. The Contribution of the Dispute Settlement System (Cambridge: CUP, 2006) 453, 459, observes that treaty interpretation is ‘one integrated operation which uses several tools simultaneously to shed light from different angles on the interpreted text; these tools should not be seen as watertight compartments or a series of separate sub-operations but, rather, as connected (even overlapping) and mutually reinforcing parts of a whole, of a continuum or a continuous and multifaceted process that cannot be reduced to a mechanical operation and which partakes as much of art (the art of judgment) as of science (the science of law)’.

8

Introduction

Third, Article 31 is a complex provision expressing a single rule of interpretation. The different elements it contains contribute to elucidating the meaning the contracting parties intended to attach to the treaty at the time of its conclusion, or clarified or elaborated afterwards through subsequent agreements or practice. However, Article 31 is susceptible of being broken down in several elements or principles, keeping in mind that they are ordered as ‘a logical progression’ not creating any hierarchy.35 The main problem with Article 31, as will be confirmed in this study, is that it combines its elements in an elegant and harmonious way by building on the expressions ‘taking into account’ and ‘in the light of ’ as well as by assuming the existence of a literal interpretation consistent with contextual considerations and compatible with the object and purpose of the treaty. It left unanswered the question of how to solve possible conflicts between interpretations based on the various elements. From this perspective, Article 32 VCLT provides only a partial response as supplementary means are not always available to the interpreter, and even where they are, there is a risk that they are of little or no assistance, or merely reproduce the ambiguities or incongruences of the text. Fourth, interpretation is a complex and delicate operation calling for ‘investigation, weighting of evidence, judgment, foresight, and a nice appreciation of a number of factors varying from case to case. No canons of interpretation can be of absolute universal utility in performing such a task.’36 Moreover, the VCLT rules on interpretation are of mandatory application, but do not exclude the use of compatible principles and techniques not expressly mentioned in the VCLT. In Lucchetti v Peru, the ad hoc Committee held that it had to ‘interpret the relevant clause according to general principles of international law, as set out primarily in the VCLT’.37

35 The ILC clearly maintained that ‘[t]he elements of interpretation in the article have in the nature of things to be arranged in some order. But it was considerations of logic, not any obligatory legal hierarchy, which guided the Commission in arriving at the arrangements proposed in the article’, (1966-II) 18 Yearbook of the International Law Commission 220. The ILC view has been quoted with approval by the Tribunal in HICEE v Slovak Republic, UNCITRAL, PCA Case No 2009-11, Partial Award, 23 May 2011, para 135. In Millicom International Operations BV and Sentel GSM SA v Senegal, ICSID ARB/08/20, Jurisdiction, 16 July 2010, para 62, the Tribunal held that ‘the interpretation of the provision according to the principles of the Vienna Convention requires all factors that express and explain the content thereof be taken into account. There is no hierarchy amongst such factors; they combine with each other and complete each other so as to give it the meaning that objectively best corresponds to the solution of the issue posed’. 36 Harvard Law School, Draft Convention on the Law of Treaty, above n 1, p 947, quoted with approval by H Waldock, (1964) 16 YBILC, vol II, p 53. The ILC refers to the ‘principles of logic and good sense’, (1966-II) 19 YBILC 218. More recently, ME Villiger, above n 10, p 439, has observed that ‘Article 31 does not list all possible means of interpretation. In particular, the rational techniques of logical interpretation have not been included’. 37 Empresas Lucchetti, SA and Lucchetti Peru, SA v Peru, ICSID ARB/03/4, Annulment, para 79 (emphasis added).

Objectives of the Research

9

Keeping in mind that interpretation is a logical process,38 rather than a mechanical exercise, the interpreter has several interpretative tools or aids—not expressly mentioned in the VCLT—but nonetheless accepted and widely used in international jurisprudence. These tools or aids often have their roots in Roman law or are borrowed from domestic experiences. They include a contrario arguments, the principle of effectiveness, the principles according to which exceptions are to be interpreted narrowly and other maxims such as expressio unius exclusio alterius and nemo auditor propriam turpilitudem allegans. Resorting to these tools or aids may fortify the interpretation reached on the basis of the relevant elements contained in the VCLT, guide the choice between two or more plausible interpretations,39 or even allow the interpreter to avoid the risk of non liquet if the application of Articles 31–33 does not lead to any interpretation the interpreter is comfortable with. Fifth, the rules of interpretation are far from perfect and it cannot be assumed that they always lead to an irrefutable interpretation. The VCLT admits the possibility that the interpretation reached under Article 31 cannot be accepted and in this case mandates the recourse to the subsidiary means of Article 32, provided that there are any. If, as is often the case with BITs, no supplementary means are available, the interpreter will be in a rather uncomfortable situation. Even when supplementary means are at the disposal of the interpreter, there is no guarantee that after the application of both articles the interpreter will be able to reach a satisfactory conclusion. Quite the contrary, the entire process may leave the meaning of the provision to be interpreted ambiguous or obscure, or lead to a manifestly absurd result. The VCLT does not expressly address this situation. Unavoidably, there is room—and indeed need—for a creative role of judges of arbitrators, who often find a helpful source of inspiration in jurisprudence or scholarly writings. Nonetheless, it would be unjustified to automatically attribute the difficulties we experience in interpreting treaty provisions to real or alleged deficiencies or inadequacy of the rules on interpretation. The reverse is often true. The problem may lie in the drafting of the text as the parties were unable—or unwilling—to unequivocally express their intention through the terms and expressions they have used, to coherently co-ordinate and arrange the different parts of the treaty and to clearly define its objectives and purposes. A treaty may be ill drafted for different reasons. To start with, drafting a treaty, as with any other human exercise, is susceptible to errors and ‘an interpreter is likely to find himself distorting passages if he imagines that their drafting is 38 According to D O’Connell, International Law, 2nd edn (London: Stevens, 1970) 253, ‘[t]he problem of treaty interpretation … is one of ascertaining the logic inherent in the treaty, and pretending that this is what the parties desired’ (italics as in original). P Daillier and A Pellet, Droit international public, 7th edn (Paris: LGDJ, 2002) 260, remind us that interpretation is first and foremost a matter of ‘logic at the service of law’ (‘logique au service du droit’). 39 As pointed out in Lucchetti v Peru, above n 37, Annulment, para 112: ‘[t]reaty interpretation is not an exact science, and it is frequently the case that there is more than one possible interpretation of a disputed provision, sometimes several’.

10

Introduction

stamped with infallibility’.40 In Kılıç v Turkmenistan, for instance, the Tribunal and the dissenting arbitrator described the wording used in the English authentic text of Article VII.2 of the BIT between Turkey and Turkmenistan respectively as ‘grammatically incorrect’41 and ‘undisputedly defective’.42 In Hesham T M Al Warraq v Indonesia, the Tribunal described the use of the term ‘entitled’ in Article 25 of the Organisation Islamic Conference (OIC) Agreement as ‘clumsy and ambiguous’43 and the opening phrase of Article 17 of the same agreement as ‘ambiguously drafted’.44 Besides, the text of a treaty is often based on delicate compromises between the contracting parties, which may be possible only at the cost of using ambiguous or vague terms.45 Ambiguity or vagueness may well be intentional due to the subjectmatter or the commitments the contracting parties were prepared to accept.46 As a result, interpretation may become an unpredictable and frustrating exercise, no matter how good the rules of interpretation or the skills of the interpreter may be.47 Keeping in mind that Articles 31–33 of the VCLT have not satisfactorily settled all questions related to interpretation48 and that they do not ensure an irrefutable interpretation in every case,49 the study addresses the following questions: (1) How have the rules on interpretation contained in the VCLT been applied in investment disputes? 40 Italo-French Conciliation Commission, Pertulosa Claim, 8 March 1951, in (1951) 18 International Law Reports 418. 41 Kılıç v Turkmenistan, above n 5, Jurisdiction, para 9.14. 42 Kılıç v Turkmenistan, above n 5, Dissenting opinion WW Park, para 8. 43 Hesham TM Al Warraq v Indonesia, Final Award, UNCITRAL, Jurisdiction, 21 June 2012, para 72.5. 44 Al Warraq v Indonesia, above n 43, Jurisdiction, para 75. 45 In RosInvest v Russian Federation, SCC Arb V079/2005, Jurisdiction, October 2007, para 110, for instance, the Tribunal found that ‘[t]hough no documents from the negotiation of the BIT have been produced, the Parties including the Claimant agree that the rather complicated wording in Art 8 presented a compromise between the UK’s intention to have a wide arbitration clause and the Soviet intention to have a limited one. If that is so, it is hard to arrive at an interpretation all the same that the clause is so wide as to include all aspects of an expropriation’. 46 In LG&E Energy Corp, LG&E Capital Corp, LG&E International Inc v Argentina, ICSID ARB/02/1, Liability, 3 October 2006, para 213, the respondent hinted that the United States was ‘comfortable with the “strategic ambiguity” of Article XI of the BIT concluded with Argentina’. In Czech Republic v European Media Ventures SA, 5 December 2007, 2007 EWHC 2851 (Comm), the High Court of Justice, Queen’s Commercial Bench, observed that ‘the width of the arbitration clause [of the BIT between Belgium–Luxembourg Economic Union and (then) Czechoslovakia] was left unclear: possibly to the satisfaction of both sides’, available at http://www.bailii.org/ew/cases/EWHC/Comm/2007/2851.html. 47 G Coop, ‘The Energy Charter Treaty. What Lies Ahead?’, in G Coop and C Ribeiro (ed), Investment Protection and The Energy Charter Treaty (Huntington, NY: Juris Publishing, 2008) 319, 325, had pointed out that with regard to Art 7(3) ECT ‘[t]he fact that this ambiguity remained in the final ECT after three years of negotiations suggests that its being permitted to remain was a deliberate choice by the negotiating parties. On this basis, it would seem extremely difficult to predict how an arbitral tribunal would resolve the ambiguity’. 48 M Fitzmaurice, ‘Dynamic (Evolutive) Interpretation’, 21 Hague Yearbook of International Law (2008) 101. 49 R Gardiner, above n 10, p 10.

Structure and Method of the Research

11

(2) What are the main challenges and problems encountered in investmentrelated disputes and are these problems peculiar to this type of dispute? (3) How could the problems related to interpretation of investment treaties be solved or minimised? (4) Have investment tribunals developed new techniques concerning treaty interpretation? (5) To what extent are the VCLT rules suitable to interpret investment treaties? (6) Are States able to keep an effective control over interpretation of investment treaties?

II. Structure and Method of the Research On the basis of the undisputed assumption that the rules on interpretation contained in the VCLT apply to investment treaties,50 either as a matter of treaty law or as customary international law, this study is largely modelled on Articles 31–33 VCLT.51 Keeping in mind that ‘treaty interpretation is an area in which the returns on abstract theorizing are low’,52 it is appropriate to provide in the first two substantive chapters (Chapters 2 and 3) an overview of the main investment treaties and a concise discussion of their specific features. Chapters 4–9 break down Article 31 into six elements or principles, namely the ordinary meaning of the term employed in the treaty; their context; the object and purpose of the treaty; subsequent agreements between the Parties; subsequent practice of the Parties; and any other relevant rules of international treaty or customary law. The first three elements are always present and must be taken into account by the interpreter. The other three elements are incidental and it is the duty of the interpreter to look for them and duly take them into account whenever they are relevant. One exception has been made in relation to the element or principle of good faith contained in the first paragraph of Article 31. Owing to its special and ubiquitous nature, good faith will be briefly discussed in the concluding section of Chapter 3. This approach does not seem to be affected by the different construction placed on Article 31(1) by investment tribunals. In Aguas del Tunari SA v Bolivia, for instance, the Tribunal indicated three core elements of Article 31(1)—namely ‘ordinary meaning of the terms’, ‘their context’ and ‘the object and purpose of the

50

See Chapter 3, Section V. Lucchetti v Peru, above n 37, Annulment, F Berman, dissenting opinion para 5, described—in full agreement with the majority—the application the rules laid down in these articles as an ‘indisputable requirement’. 52 V Lowe, International Law (Oxford: OUP, 2007) 74. 51 In

12

Introduction

treaty’—which the interpreter must take into account in good faith.53 In Methanex Corp v United States, the Tribunal preferred to follow the approach of the United Nations ILC54 and held that Article 31(1) comprises three separate principles, namely the principle of good faith; the principle that a term must be interpreted in accordance with its ordinary meaning; and the principle that a term must be examined in the context of the treaty and in the light of its object and purpose.55 The differences seem more apparent than real. Chapters 4–9 thus examine the single elements or principles that make up Article 31 VCLT and the interpretative techniques that, although not expressly mentioned in this provision, are regularly used by the interpreter. Such an approach will not undermine the understanding that Article 31 contains a single rule combining different elements.56 In this regard, an ICSID tribunal has aptly observed that [i]nterpretation under Article 31 of the Vienna Convention is a process of progressive encirclement where the interpreter starts under the general rule with (1) the ordinary meaning of the terms of the treaty, (2) in their context and (3) in light of the treaty’s object and purpose, and by cycling through this three step inquiry iteratively closes in upon the proper interpretation.57

Chapter 10 addresses the interpretation of investment treaties from the standpoint of the supplementary means of interpretation under Article 32 VCLT. A variety of different supplementary means are available with regard to multilateral treaties and on some occasions they have played a significant role in the interpretation of imprecise or vague treaty provisions. In the case of bilateral treaties, on the contrary, often few traces remain of the negotiating process. Chapter 11 deals with the interpretative issues and problems of multilingual treaties under Article 33 VCLT. Arbitral tribunals have demonstrated an increasing awareness of both the need to consider the different languages normally used in investment treaties, possibly with the indication of one of them as prevailing in case of discrepancies, and of the potential of discussing and comparing the text of the different authentic languages. The remaining three chapters deal with three further important and delicate questions related to treaty interpretation. Chapter 12 examines the role of arbitral

53 In Aguas del Tunari SA v Bolivia, ICSID ARB/02/3, Jurisdiction, 21 October 2005, para 91, the Tribunal indicated these elements as the ‘core elements’ of Art 31. 54 (1966-II) 18 Yearbook of the International Law Commission 221. 55 Methanex Corp v United States, UNCITRAL (NAFTA), Final Award, 3 August 2005, Part II, Chapter B, para 16. 56 (1966-II) 18 Yearbook of the International Law Commission 219–20. The Commission further noted that Art 31 ‘is entitled “General rule of interpretation” in the singular, not “General rules” in the plural, because the Commission desired to emphasize that the process of interpretation is a unity and that the provisions of the article form a single, closely integrated rule’. 57 Aguas del Tunari v Bolivia, Jurisdiction, above n 53, para 91. This position is reminiscent of the encirclement progressif described by M Huber, ‘Commentaire de l’interpretation des traités’ (1952) 44(I) Annuaire de l’Institut de Droit International 198, 200.

Structure and Method of the Research

13

decisions in the interpretation of the investment treaties, with particular attention to their possible intentional or unintentional contribution to the development of the related rules. The discussion takes into due account the hybrid nature of international arbitration in the field of foreign investment as well as the sovereign character of each arbitral tribunal and the absence of any appeal mechanism susceptible to enhance the coherent and orderly interpretation and development of investment rules. Chapter 13 explores the relevance of scholarly writing upon treaty interpretation, especially when arbitral tribunals struggle to find the accurate interpretation of a treaty provision or are unable to reach a satisfactory one. The topic is rendered particularly intriguing by the oscillation of roles between scholars, counsel and arbitrators, which may in certain cases generate dangerous admixtures of functions and responsibilities. On the basis of the findings of the preceding chapters, finally, Chapter 14 discusses, from the standpoint of the law of the treaties, how and to what extent States parties to an investment treaty can facilitate and ensure the proper interpretation of treaties, either jointly or unilaterally. In this regard, once again, the special nature of these treaties will be carefully taken into account. This study adopts a practical approach. It focuses primarily on how arbitral decisions and occasionally domestic courts have interpreted investment treaty provisions, paying special attention to the provisions deprived of a sufficient degree of precision, clarity or completeness. It must be emphasised that the purpose of the decisions scrutinised is not to provide a full treatment of the substantive rules that have been the object of the interpretation process. Discussion on substantive rules will be functional to the examination of the different legal questions related to interpretation, without any pretention to offer any thorough view on substantive issues. This study is not, and does not pretend to offer, a comprehensive review of all arbitral decisions dealing with treaty interpretation, nor does it attempt to compile a digest of the related issues. Rather, it is an attempt to provide critical examination of a sufficiently representative selection of arbitral decisions, in search of elements of reflexion, inspiring interpretative arguments or techniques, or, conversely, misapplications of the VCLT rules on interpretations or unpersuasive interpretative reasoning. In order to ensure a systematic treatment of the different interpretative issues along the lines of Articles 31–33 VCLT, it is often impossible to deal with all aspects of any given decision in a single section or chapter. Instead, for the sake of the orderly presentation of this study, it may be unavoidable to deal with the various questions raised by decisions in the different sections or chapters these questions belong to. It is hoped that the reader’s task will be facilitated by an appropriate use of cross-references. Furthermore, the practice of States and International Organisations occupies a prominent role in the study from at least three perspectives. First, parties to a treaty are increasingly using interpretative declarations or interpretative notes

14

Introduction

to clarify their intention in respect of certain treaty provisions and to prevent or reduce ambiguity. Second, throughout the life of investment treaties, they can adopt authentic interpretation, either directly or through bodies specifically created for this purpose by the treaties themselves, as well as issue unilateral declarations. Third, they offer their interpretation of investment treaties during the proceedings before international tribunals, including non-disputing party submission, as well as in the implementation and application of these treaties within their own jurisdictions by its organs, including domestic tribunals. Finally, throughout the study, international investment treaties are considered in the broader context of the international legal order where they come into contact with a large range of international rules and instruments. As pointed out by a tribunal, [a] BIT is not a self-contained closed legal system limited to provide for substantial material rules of direct applicability, but it has to be envisaged within a wider judicial context in which rules from other sources are integrated through implied incorporation methods, or by direct reference to certain supplementary rules, whether of international character or of domestic nature.58

International decisions in the field of investment and other fields of international law regularly contaminate each other. It has become a common feature of all international tribunals to borrow legal reasoning from each other, even if they are mandated to settle disputes in different areas or between different subjects.59 Investment tribunals are no exception. When interpreting an investment treaty, they have taken into account—without any formal kind of legal obligation— the decisions and experience of other tribunals and on several occasions have referred to the jurisprudence of the Permanent Court of International Justice (PCIJ), the International Court of Justice (ICJ), the Appellate Body of the World Trade Organisation (WTO), and the European Court of Human Rights (ECtHR).60

58

Asian Agricultural Products Ltd v Sri Lanka, ICSID ARB/87/3, Final Award, 27 June 1990, para 21. R Higgins, ‘A Babel of Judicial Voices? Ruminations from the Bench’ (2006) 55 International and Comparative Law Quarterly 791; B Simma, ‘Universality of International Law from the Perspective of a Practitioner’ (2009) 20 European Journal of International Law 282, 282–83. 60 See, eg, ADC and ADC & ADMC v Hungary, ICSID/ARB/03/16, Award, 2 October 2006. 59

2 Overview of International Investment Treaties I. Transnational Legal Environment The legal protection of foreign investment is truly transnational in character from the standpoint of the actors involved, the sources of their rights and obligations, and the settlement of the related disputes. With regard to the actors, international investment law is essentially concerned with the legal relationship between foreign investors and the host State. On the one hand, once admitted within the jurisdiction of the host State, foreign investors have to comply with local legislation, are subject to the regulatory powers of local authorities and are exposed to the risk of expropriation. On the other hand, the host State has to exercise its sovereign powers in accordance with the relevant legal instruments, including the investment treaties it has entered.1 When the host State exercises its sovereign prerogatives, the relationship assumes a markedly unequal nature and it is often necessary to distinguish the acts that can be performed exclusively by States from those which can be performed by both States and foreign investors. For example, a State may breach a contract not only in the context of normal business-like intercourse, but also in the exercise of its sovereign authority (puissance publique). In the latter case, the breach may amount to a violation of international law and even expropriation of the investment.2 The

1 In ADC Affiliate Limited and ADC & ADMC Management Limited v Hungary, ICSID ARB/03/16, Award, 2 October 2006, para 423, the Tribunal held that ‘the basic international law principles [state] that while a sovereign State possesses the inherent right to regulate its domestic affairs, the exercise of such right is not unlimited and must have its boundaries. [T]he rule of law, which includes treaty obligations, provides such boundaries.’ Judge Oda, separate opinion, Elettronica Sicula SpA (ELSI), Judgment, ICJ Reports 1989, p 15, 90, observes that ‘[i]t is a great privilege to be able to engage in business in a country other than one’s own. By being permitted to undertake commercial or manufacturing activities or transactions through businesses incorporated in another country, nationals of a foreign country will obtain further benefits. Yet these local companies, as legal entities of that country, are subject to local laws and regulations; so that foreigners may have to accept a number of restrictions in return for the advantages of doing business through such local companies.’ 2 See, eg, Consortium RFCC v Morocco, ICSID ARB/00/6, Award, 22 December 2003, para 65; Impregilo SpA v Pakistan, ICSID ARB/03/3, Jurisdiction, 22 April 2005, para 260; Azurix v Argentina, above Ch 1, n 28, Award, 14 July 2006, para 315.

16

Overview of Investment Treaties

original intent of the so-called umbrella clauses included in several BITs was precisely ‘to internationalise by substantive and jurisdictional rules disputes about investment contracts threatened by abuse of governmental powers when the government, in its dual role as contract party on one hand and regulator on the other, abused its governmental power to escape from its contractual obligations’.3 Besides, the home State continues to play a significant role in the promotion and protection of foreign investment. In the first place, it negotiates, concludes, modifies and terminates international investment treaties or treaties containing provisions on investment. It may also protect its national investors through diplomatic protection in the absence of or within the limits permitted by the relevant international investment treaties. Even within a sophisticated system of settlement of disputes like the ICSID, diplomatic protection remains available to the home State in case the host State fails to abide by and comply with an arbitral award.4 The home State may also be allowed by the relevant treaties to submit, as nondisputing party, its position regarding the interpretation of the treaty rules relied upon by the applicant through written or oral submissions. Furthermore, the home State could bring a case against the host State, although State–State remains rather uncommon in foreign investment law.5 Second, a plurality of legal instruments, principles and rules belonging to different legal systems apply to foreign investment and mutually interact.6 Rights and obligations in the field of foreign investment law stem from a variety of sources, most prominently international treaties, domestic legislation and State contracts (contracts concluded between foreign investors and the host State).7 As observed by Schreuer, [i]nvestment relationships typically involve domestic law as well as international law. The host State’s domestic law regulates a multitude of technical questions such as admission, licensing, labour relations, tax, foreign exchange and real estate. International law is relevant for such questions as the international minimum standard for the treatment of aliens, protection of foreign owned property, especially against illegal expropriations, interpretation of treaties, especially BITs, State responsibility and, possibly, human rights.8

3 TW Wälde, ‘The “Umbrella” Clause in Investment Arbitration—A Comment on Original Intentions and Recent Cases’ (2005) 6 Journal of World Investment & Trade 183. 4 Art 27 ICSID Convention. See also Art 14.13 (Diplomatic Exchange between the Parties) of the Indian Model BIT. 5 On disputes between States, see M Potestà, ‘State-to-State Dispute Settlement Pursuant to Bilateral Investment Treaties: Is there Potential?’, in N Boschiero et al (eds), International Courts and the Development of International Law. Essays in Honour of T Treves (Vienna: Springer, 2013) 753; A Roberts, ‘State-to-State Investment Treaty Arbitration: A Hybrid Theory of Interdependent Rights and Shared Interpretive Authority’ (2014) 55 Yale Journal of International Law 1. 6 See generally T Gazzini and E De Brabandere (eds), International Investment Law: The Sources of Rights and Obligations (The Hague: Martinus Nijhoff, 2012). 7 See JW Salacuse, The Three Laws of International Investment. National, Contractual, and International Frameworks for Foreign Capital (Oxford: OUP, 2013). 8 C Schreuer, ‘International and Domestic Law in Investment Disputes. The Case of ICSID’, 1 (1996) Austrian Review of International and European Law 89.

Transnational Legal Environment

17

The largely ideological controversy over the role of international law in the field of foreign investment and its relationship with municipal law has nowadays to a large extent faded away and paved the way to a general acceptance that the transnational dimension of the phenomenon makes the application of international law indispensable. It has indeed been pointed out that [w]hether the application of international law is based on the will of the parties or the constitutional system of the host State, or whether one considers it to be a reflection of reality, the actual outcome is the same: the legal relationship arising out of an investment and the law governing the relationship are matters within the international legal order.9

More generally, an ICSID tribunal has held that ‘[w]hile writers and decisions have on occasion tended to consider domestic law and international law as mutually incompatible in their application, this is far from actually being the case. Both have a role to perform in the resolution of the dispute’.10 The concurrent application of national and international law is indeed a prominent feature of the regulation of foreign investment.11 Although the divide between national and international law must be rigorously kept, the rules belonging to the two legal systems continuously and intensely interact with each other. The third remarkable feature of international investment law concerns the settlement of disputes between States and foreign investors. Historically, foreign investors could seek judicial remedy before municipal court or rely on the exercise of diplomatic protection by its national State. Neither remedy provided an adequate safeguard for the foreign investor rights. On the one hand, domestic tribunals were—and still are—not always able to function independently and efficiently. Additionally, domestic regulations and related jurisprudence could be—and still can be—difficult to access or u nderstand.

9 P Weil, ‘The State, the Foreign Investor, and International Law: the no longer stormy Relationship of a Ménage à Trois’, (2000) 15 ICSID Review 410. In Electrabel SA v Hungary, ICSID ARB/07/19, Award, 25 November 2015, para 4.112, the Tribunal placed itself without hesitation in ‘a public international law context and not a national or regional context’. Other authors have pointed out that international investment law is ‘deeply rooted in public international law and based upon a public international law logic’, see below Ch 12, n 70. 10 Sempra Energy International v Argentina, ICSID ARB/02/16, Award, 28 September 2007, para 236, relying on Wena Hotels Limited v Egypt, ICSID ARB/98/4, Annulment, 5 February 2002 (2002) 41 International Legal Materials 933 941; CMS Gas Transmission Company v Argentina, ICSID ARB/01/8, Award, 12 May 2005. 11 In Goetz and others v Burundi, ICSID ARB/95/3, Award, 10 February 1999, para 69, the Tribunal pointed out that ‘[c]ette internationalisation des rapports d’investissement—qu’ils soient contractuels ou non—ne conduit certes pas à une “dénationalisation” radicale des relations juridiques nées de l’investissement étranger, au point que le droit national de l’Etat hôte serait privé de toute pertinence ou application au profit d’un rôle exclusif du droit international. Elle signifie seulement que ces relations relèvent simultanément—en parallèle, pourrait-on dire—de la maîtrise souveraine de l’Etat d’accueil sur son droit national et des engagements internationaux auxquels il a souscrit.’

18

Overview of Investment Treaties

On the other hand, the exercise of diplomatic protection depended on a decision by the concerned government, which could be strongly influenced, if not dictated, by political motivations. Assuming the government was prepared to protect the investor’s interests, it would remain in firm control of the entire process. In order to overcome the shortcomings of traditional remedies, virtually all recent investment treaties, many State contracts and occasionally even national legislation offer the investor access to international arbitral tribunals, which is largely modelled after international commercial arbitration. The advantages of such a remedy have been clearly summarised by an ICSID tribunal, pointing out, with regard to both the ICSID Convention and BITs, that a crucial element—indeed perhaps the most crucial element—has been the provision for independent international arbitration of disputes between investors and host states. The creation of ICSID and the adoption of bilateral investment treaties offered to investors assurances that disputes that might flow from their investments would not be subject to the perceived hazards of delays and political pressures of adjudication in national courts. Correspondingly, the prospect of international arbitration was designed to offer to host states freedom from political pressures by governments of the state of which the investor is a national. The vast majority of bilateral investment treaties, and nearly all the recent ones, provide for independent international arbitration of investor-state disputes, whether pursuant to the ICSID Convention, the ICSID Additional Facility, the UNCITRAL Arbitration Rules, or comparable arrangements, and such provisions are universally regarded—by opponents as well as by proponents—as essential to a regime of protection of foreign direct investment.12

While remaining sovereign and not being formally bound by previous decisions,13 these tribunals strive to contribute to create a predictable legal environment through coherent and uniform decisions. Awards rendered by investment tribunals may nonetheless occasionally diverge and generate legal incertitude. The sovereign nature of each tribunal combined with the lack of any appeal mechanism render the interpretation of these treaties even more crucial and in many respects problematic. Importantly for the purpose of the present study, one of the parties to the dispute, namely the foreign investor, is the main beneficiary of these treaties but remains entirely extraneous to their negotiation, conclusion, amendment and termination. This requires special care on behalf of the interpreter. Conversely, only one of the parties to the treaty appears as a party to the dispute in which the treaty needs to be interpreted. As will be seen throughout this study, the interests of the other party or parties to the treaty may be protected in different ways, including

12 Gas Natural SDG v Argentina, ICSID ARB/03/10, Jurisdiction, 17 June 2005, paras 29 ff (notes omitted). 13 See Chapter 12, section I.

Failure to Conclude a Multilateral Agreement

19

through the possibility foreseen in certain investment treaties to make submissions to the tribunal as non-disputing party.

II. Failure to Conclude a Multilateral Agreement on Investments Within the OECD There currently exists no multilateral treaty on foreign investment comparable in terms of participation in multilateral trade agreements. The most ambitious attempt to conclude such an agreement was conducted by the Organisation for Economic Cooperation and Development (OECD), which in 1995 embarked on negotiations toward the conclusion of a Multilateral Agreement on Investment (MAI). Negotiations led to the adoption of a draft consolidated text, but were eventually abandoned at the end of 1998.14 The attempt failed for various legal and extra-legal reasons. In the first place, the organisation, being composed of developed countries, could hardly be the right forum for the negotiation and conclusion of a truly multilateral agreement. Furthermore, little or no attention was paid during the negotiation to the protection of the environment, as well as labour and human rights standards. This attracted the massive and virulent opposition of non-governmental organisations. The criticism went well beyond non-governmental organisations.15 The negotiations were also negatively affected by both the financial crises, which hit several South Asia countries and the Russian Federation, and the row between the United States and the European Union over extraterritorial application of national legislation and secondary investment boycotts.16

14 OSCE, Multilateral Agreement on Investment Draft Consolidated Text, DAFFE/MAI(98)7/REVI, 22 April 1998, posted at http://www1.oecd.org/daf/mai/pdf/ng/ng987r1e.pdf. See also the Multilateral Agreement on Investment Commentary to the Draft Consolidated Text, DAFFE/MAI(98)8/REVI, 22 April 1998, at http://www1.oecd.org/daf/mai/pdf/ng/ng988r1e.pdf. See also the Resolution of the OECD Council adopted 12 October 1967 and Draft Convention on the Protection of Foreign Property, Text with Notes and Comments, in (1968) 7 International Legal Materials 117. 15 The Trade and Industry Committee of the House of Commons, for instance, wrote ‘We are dissatisfied with the treatment of environmental, labour, health, safety and other standards by the negotiators of the draft MAI at the OECD. The protection of such standards should have been on the negotiators’ agenda from the beginning of their deliberations. Instead, it appears to have been proposed rather late in the day and by means of preambular and footnoted text of doubtful legal weight. We share the view expressed by many that any multilateral agreement on investment must not drive down standards or open the door to the driving down of standards. We recommend that in any future negotiations of a multilateral investment agreement the protection of existing regulatory standards be of central concern’, Third Report, Session 1998–99, at www.publications.parliament.uk/pa/cm199899/ cmselect/cmtrdind/112/11201.htm para 52, footnote omitted. 16 See J Kurtz, ‘General Investment Agreement in the WTO? Lessons from Chapter 11 of NAFTA and the OECD Multilateral Agreement on Investment’, (2002) 23 University of Pennsylvania Journal of International Economic Law 713.

20

Overview of Investment Treaties

Although the record of the negotiations and the draft consolidated text evidence the general agreement on several key issues, a number of insurmountable obstacles emerged during the negotiations. As pointed out by UNCTAD, [t]he main outstanding issues related to the topics of definition of investment, exceptions to national and most-favoured-nation treatment, intellectual property, cultural exception, performance requirements, labour and environmental issues, regulatory takings, and settlement of disputes. These issues are likely to be difficult issues in any other future negotiations, be it at the bilateral, regional or multilateral levels.17

The report prepared by the French National Assembly, which induced the French Government to withdraw from and ultimately derail the negotiations, highlights how far apart the positions of the negotiating parties were. Suffice it to mention that the report recommended the elimination of the mechanism for the settlement of investor-State disputes as well as the suppression (or at the very least a radical revision) of both the provisions on general treatment—which included fair and equitable treatment—and on indirect expropriation.18 These are three of the pillars upon which the legal protection of foreign investment is built, and dismissing them would have deprived the agreement of most of its value.

III. World Trade Organisation and Foreign Investment Even before the collapse of the OECD negotiations, the WTO was indicated as the alternative forum for the negotiations of a multilateral treaty on foreign investment.19 At the 1996 Ministerial Conference in Singapore, a Working Group was established to examine the relationship between trade and investment.20 At the 2001 Doha Ministerial Conference the members recognised the need for ‘a multilateral framework to secure transparent, stable and predictable conditions for long-term cross-border investment, particularly foreign direct investment,

17 UNCTAD, Lessons from the MAI (United Nations: New York, Geneva, 1999), UNCTAD/ITE/IIT/ MISC. 22. See also S Picciotto, ‘Linkages in International Investment Regulation: The Antinomies of the Draft Multilateral Agreement’ (1998) 19 University of Pennsylvania Journal of International Economic Law 731; R Geiger, ‘Towards a Multilateral Agreement on Investment’ (1998) 31 Cornell International Law Journal 467; PT Muchlinski, ‘The Rise and Fall of the Multilateral Agreement on Investment: Where Now?’ (2000) 34 International Lawyer 1033. 18 Rapport (intérimaire) sur l’accord multilatéral sur l’investissement, September 1998, posted at www.gazette.de/Archiv/Gazette-8-November1998/ami0998.htm. 19 See Commission of the European Communities, A Level Playing Field for Direct Investment World-Wide, 1 March 1995, COM(95) 42 final. See also Société française pour le droit international, Un accord multilatéral sur l’investissement: d’un forum de négociation à l’autre? (Paris: Pedone, 1999). 20 Ministerial Declaration, 13 December 1996, para 20, WT/MIN(96)/DEC, at www.wto.org/ english/thewto_e/minist_e/min96_e/wtodec_e.htm.

WTO and Foreign Investment

21

which will contribute to the expansion of trade’.21 In 2004, however, negotiations on trade and investment were abandoned.22 It is submitted that the decision was wise. In the first place, the very idea of concluding a multilateral treaty within the WTO was unrealistic. How could the much larger and heterogeneous WTO membership achieve what had just proved to be impossible for the much smaller and homogenous OECD membership? To realise how wide the division was on key issues it is sufficient to compare the definition of foreign investment submitted by the United States and China before the WTO Working Group on Trade and Investment.23 Furthermore, the co-ordination of a would-be WTO instrument with an existing WTO agreement and non-WTO instruments would have inevitably raised a number of delicate problems from the standpoint of the law of the treaties, regardless of the multilateral or plurilateral nature of the new instrument. Perhaps more importantly, a multilateral (or plurilateral) agreement on investment concluded within the WTO would have hardly provided foreign investors with anything comparable with the legal protection they might enjoy under existing instruments. This is particularly striking in respect of remedies. Effective regulation of foreign investment within the WTO would imply some revolutionary changes as the current intra-State settlement mechanism aims to remove inconsistent measures and has a declared prospective nature.24 These sceptical considerations about the conclusion of a WTO multilateral agreement on investment notwithstanding, WTO rules and related decisions by adjudication bodies can play a significant role in the protection of foreign investment as well in the interpretation of investment agreements. The intense relationship between international trade and foreign investment was recognised in the

21 Ministerial Declaration, 14 November 2001, para 20, WT/MIN(01)/DEC/1, at www.wto.org/ english/thewto_e/minist_e/min01_e/mindecl_e.htm#relationship. 22 Decision of the WTO General Council, 1 August 2004, WT/L/579, 2 August 2004, at www.wto. org/english/tratop_e/dda_e/draft_text_gc_dg_31july04_e.htm. 23 According to the United States (WT/WGTI/W/142, 16 September 2002), ‘investment agreements must have a broad, open-ended definition that includes all types of investment, including portfolio investment. Long-standing US practice is to have the broadest definition of investment, covering both direct and portfolio investment. European bilateral investment treaties also cover all types of investment.’ For China (WT/WGTI/W/159, 15 April 2003), on the other hand, ‘it is obviously inappropriate to incorporate FPI in the definition of investment for a multilateral framework on investment (MFI) given the fact that conditions are yet to be matured in many Members, particularly many developing Members, at present and in the foreseeable future. It is China’s belief that definition in a[n] MFI to be possibly negotiated within the WTO should be limited to foreign direct investment, while foreign portfolio investment, including capital flows of a speculative nature, and debt as well as loans should be excluded.’ 24 SD Amarasinha and J Kokott, ‘Multilateral Investment Rules Revisited’, in P Muchlinski, F Ortino and C Schreuer (eds), The Oxford Handbook of International Investment Law (Oxford: OUP, 2008) 119, fn 114 at 150, point out that ‘before the Cancún Ministerial the United States floated the idea of allowing investor-state dispute settlement for a future WTO investment agreement. Some have (perhaps cynically) noted that this was a deliberate attempt on the part of the United States to kill off the prospect of negotiations.’

22

Overview of Investment Treaties

Havana Charter25 and has become more evident since.26 At the normative level, WTO agreements contribute to the protection of foreign investment, although in a rather limited and fragmented manner. The Agreement on Trade-Related Investment Measures (TRIMs) confirms that both international trade and foreign investment concur to the economic growth of trading partners and recognises that certain investment measures can have trade-restrictive and distorting effects. The agreement applies to investment measures related to trade in goods and does not govern directly foreign investment. Yet, it may have an impact on the protection of foreign investment as investment instruments do not necessarily prohibit all TRIMs which are inconsistent with the TRIMs Agreement, or do not contain any provision on TRIMs altogether.27 The General Agreement on Trade in Services (GATS), in turn, contributes to the protection of foreign investors, especially as far as services are supplied through commercial presence in the territory of the host State. Furthermore, WTO rules and principles, as elucidated by adjudicatory bodies, may provide investment with valuable legal arguments and insights that could assist arbitral tribunals to interpret investment treaties, especially when the provisions contained in the latter are inspired by or modelled after international trade provisions, most prominently Article XX GATT, or use terminology well established in trade agreement and related jurisprudence.28

IV. Regional Economic Integration Agreements The promotion and protection of foreign investment in regional economic integration agreements have become a major feature of the current legal framework governing foreign investment. Regionalism (broadly intended) is indeed imposing itself as a third way alternative to multilateralism and bilateralism. The provisions contained in these agreements are heterogeneous in terms of subject-matter,

25 Art 12(1)(a) of the 1948 Charter for an International Trade Organization contained provisions on the treatment of foreign investment as part of a chapter on economic development, UN Doc ICITO/1/4 (1948), available at www.worldtradelaw.net/misc/havana.pdf. The Charter never entered into force. In a resolution on International Investment for Economic Development adopted in 1955, GATT Contracting Parties encouraged the conclusion of bilateral investment treaties. In literature, see R Dattu, ‘A Journey from Havana to Paris: The Fifty-Year Quest for the Elusive Multilateral Agreement on Investment’ (2000) 24 Fordham International Law Journal 275. 26 See, eg, Art 18 of the SADC Protocol on Finance and Investment, below text n 38. See also OECD, Open Markets Matter: The Benefit of Trade and Investment Liberalisation, Policy Brief, October 1999, available at www.oecd.org/dataoecd/18/51/1948792.pdf. 27 WTO–UNCTAD, Joint Study, Trade-Related Investment Measures and Other Performance Requirements, WTO Doc G/C/W/307, 1 October 2001, at http://docsonline.wto.org/DDFDocuments/t/G/C/ W307.doc. 28 See Chapter 8, section IV.

Regional Economic Integration Agreements

23

objectives, degree of integration and economic development of members.29 This is reflected in the variety of both the substantive provisions on foreign investment they comprise and the remedies they provide for.30 The phenomenon interests all continents, and a large number of regional integration agreements of increasing importance and sophistication are already functioning or under negotiation.31 Three developments need to be singled out. First, following the inclusion in the common commercial policy of foreign direct investment under the Lisbon Treaty,32 the EU is expected to progressively replace existing BITs concluded by member States with third States, with agreements—both investment treaties and free trade agreements (FTAs) including a chapter on investment—concluded between the EU and its members on one side, and third States of other regional organisations on the other. The EU has also concluded, or is currently negotiating, a series of important treaties governing both trade and investment. Several investment treaties and sub-regional FTAs covering investment already exist across Africa. Two ambitious projects are also currently under way. First, the so-called Tripartite Initiative, in particular, may strongly enhance the integration and the development of common programmes between the Common Market for Eastern and Southern Africa (COMESA), the South African Development Community (SADC) and the East African Community (EAC).33 It envisages covering the following areas: (a) market integration to improve the free movement of people, goods and investment; (b) infrastructure development (road, rail, border

29 UNCTAD, International Investment Rules-Making: Stocktaking, Challenges and the Way Ahead (New York, Geneva, 2008) 26, recorded 254 preferential trade and investment agreements (PTIAs) at the end of 2007. At p 31, it further pointed out that ‘agreements may be multilateral, plurilateral, regional, interregional or bilateral. And regardless of the level at which they are negotiated, they may involve investment liberalization, protection, promotion or regulation. They may involve countries at the same or at different levels of economic development. They may address only a few issues or provide for comprehensive economic integration. They may be simple or highly complex. Thus, it has become difficult to speak in any meaningful way of a “typical” IIA.’ 30 For an overview, see UNCTAD, Investment Provisions in Economic Integration Agreements (New York, Geneva, 2006), UNCTAD/ITE/IIT/2005/10, at www.unctad.org/en/docs/iteiit200510ch1_ en.pdf. The WTO maintains an important online database called Regional Trade Agreements Information System (RTA-IS) at http://rtais.wto.org/UI/PublicAllRTAList.aspx. 31 See, in particular, L Trakman and N Ranieri, Regionalism in International Investment Law (New York: OUP, 2013); W Alschner, ‘Regionalism and Overlap in Investment Treaty Law: Towards Consolidation or Contradiction?’ (2014) 17 Journal of International Economic Law 291. 32 The treaty extends the common commercial policy to foreign direct investment (Art 207(1) TFEU) and pursues the progressive abolition of restriction on such investment (Art 206 TFEU). In literature, see, in particular, M Bungenberg, J Griebel and S Hindelang (eds), ‘International Investment Law and EU Law’ (2011) Special Issue European Yearbook of International Economic Law; A Dimopoulos, EU Foreign Investment Law (Oxford: OUP, 2011); F Ortino and P Eeckhout ‘Towards an EU Policy on Foreign Direct Investment’, in A Biondi, P Eeckhout and S Ripley (eds), EU Law after Lisbon (Oxford: OUP, 2012) 312. 33 See Memorandum of Understanding on Inter Regional Cooperation and Integration amongst COMESA, EAC and SADC, 20 October 2008, at www.comesa-eac-sadc-tripartite.org/sites/default/ files/documents/Tripartite-Triparrtite%20MoU%20Signed%20Version.pdf.

24

Overview of Investment Treaties

posts, sea ports, air transport); and (c) industrial development. The potential and significance of the project have been emphasised by the African Development Bank in the following terms: The Tripartite Arrangement, covering 26 countries which constitute 50% of the continent’s population, is a bold initiative aimed at promoting inter-RECs collaboration and trade expansion. It extends the EAC and COMESA regional integration vision to a larger vision of a single REC at an undefined future date, which is in consonance with the long run continental vision of a United States of Africa.34

Second, the African Union (AU) has just finalised a Pan African Investment Code and submitted it to the member States. The initiative originated in the mandate conferred to the Commission of the AU in 2008 ‘to develop a comprehensive investment code for Africa with a view of promoting private sector participation’.35 Moving to the other hemisphere, partly triggered by dissatisfaction with the current legal framework and with the settlement of investment disputes within ICSID, South American States are pursuing the development of sub-regional organisations such as the Bolivarian Alliance for the Americas (Alternativa Bolivariana para los pueblos de nuestra America (ALBA)) and the Union of South American Nations (Union de Naciones Suramericanas (UNASUR)).36 UNASUR, furthermore, is elaborating its own regional Arbitration Centre in alternative to ICSID and other existing fora.37 The increasing role of economic integration agreements can be explained in the first place by the advantages of linking trade and investment. Article 18 of the SADC Protocol on Finance and Investment, for instance, reads: In recognizing the importance of the link between trade and investment, State Parties agree to pursue trade openness and intra-regional industrial policies and to reduce barriers to intra-regional trade in pursuance of the principles of the SADC Protocol on Trade and any other relevant SADC instruments.38

34 African Development Bank, Eastern Africa. Regional Integration Strategy Paper 2011–2015, September 2011, para 6, at www.afdb.org/fileadmin/uploads/afdb/Documents/Policy-Documents/ East%20Africa%20-%20Rev%20RISP%20.pdf. 35 See AU, Closing of the Continental Consultative Meeting for the Review of the Pan African Investment Code (PAIC), 2 December 2015, at www.au.int. 36 UNASUR Constitutive Treaty (adopted 23 May 2008, entered into force 11 March 2011). Current members are Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru, Suriname, Uruguay and Venezuela. 37 See SK Fiezzoni, ‘The Challenge of UNASUR Member Countries to Replace ICSID Arbitration’ (2011) 2 Beijing Law Review 134. 38 As pointed out by E Denters, ‘Preferential Trade and Investment Treaties’, in T Gazzini and E De Brabandere (eds), above n 6, p 49, 66, ‘the objective of promoting investment will be better served in an environment where trade and investment are recognized and treated as mutually reinforcing. Modern business practices demonstrate that investors need markets that can be reached by liberalized trade channel.’ See also M Wu, ‘The Scope and Limits of Trade’s Influence in Shaping the Evolving International Investment Regime’, in Z Douglas, J Pauwelyn and JE Viňuales (eds), The Foundations of International Investment Law (Oxford: OUP, 2014) 169, especially 193–94.

Regional Economic Integration Agreements

25

Economic integration agreements dealing with the promotion and protection of foreign investment are likely to improve the efficiency, coherence and uniformity of foreign investment regimes, although in the short term problems of coordination with surviving BITs may arise. The potential impact of these developments in terms of enhancing the uniformity of the investment regime is evident. Consider, for example, the conclusion of an agreement between the EU, the Economic Community of West African States (ECOWAS) and their respective members. Under the current membership (28 and 16 respectively, including Mauritania), the agreement will be the equivalent of 448 BITs and will provide the same legal protection to eligible investors across the territories of the members of the two organisations. This would also mean that the concerned investors could move and operate in a more optimal way within the territories of the members of the two organisations. Furthermore, regional and sub-regional agreements would reduce, but not completely sacrifice, the flexibility offered by the current predominantly bilateral legal framework. From this perspective, these agreements can still be tailored to the common needs and interests of the organisations and their constituencies. African sub-regional agreements, for instance, offer a number of innovative provisions responding to the need for a better-balanced relationship between foreign investors and the host State in which the protection of the interests of the former do undermine the capacity of the latter to pursue its national policies. Amongst the most promising developments one must mention the provisions (a) imposing upon potential investors the obligation to conduct an environmental and social impact assessment of the project (Article 12(1) ECOWAS Supplementary Act); (b) safeguarding the police space of the host State or introducing specific or general exceptions (Article 14 SADC Protocol on Finance and Investment); (c) allowing the host State to offer preferential treatment to qualifying investments and investors (Article 7 SADC Protocol) or to least developed countries (Article 20 SADC Protocol); and (d) committing foreign investors to principles of corporate responsibility. A tentative taxonomy of different forms the protection of foreign investment can take in relation to regional economic integration organisations would include the following.39 (i) Investment treaties between regional organisations and third States The first and rather infrequent form of involvement of regional organisations in the regulation of foreign investment is the conclusion with third States of agreements for the promotion and protection of the respective investment. An example is the Agreement on Investment of the Framework Agreement on Comprehensive Economic Co-operation concluded on 15 August 2009 between ASEAN and 39 According to UNCTAD, The Rise of Regionalism in International Investment Policymaking: Consolidation or Complexity, IIA Issues Note, No 3, June 2013, in 2013, 110 States were involved in 22 regional negotiations; see http://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=532.

26

Overview of Investment Treaties

China.40 The agreement can be considered as similar to a modern BIT with regard to both the substantive provisions and the settlement of disputes. Another example is the agreement currently under negotiation between the EU and China.41 If negotiations are successful, the agreement will replace existing BITs concluded between the EU members and China.42 (ii) Investment protection in bilateral free trade agreement More common is the inclusion in bilateral FTAs of investment provisions, which are normally collected in a single chapter. Chapter X of the FTA, concluded in 13 July 2008 between Australia and Chile, provides a good example and the provisions contained are comparable with those of BITs, with regard to both substantive and procedural rules.43 (iii) Investment protection in regional economic integration organisations Several economic integration agreements also deal with the regulation of foreign investment between their member States. The majority of these agreements contain a specific chapter on foreign investment, occasionally in combination with trade or services. This is notably the case of the North America Free Trade Agreement (NAFTA, Chapter XI),44 the European Free Trade Area (EFTA, Chapter IX),45 the Central America Free Trade Area—Dominican Republic (CAFTA-DR, Chapter X),46 and COMESA, Chapter XXVI.47

40

At www.asean.org/images/archive/22974.pdf. Commission, Press Release, Brussels, 20 January 2014, at http://europa.eu/rapid/ press-release_IP-14-33_en.htm. 42 All EU members apart from Ireland have concluded a BIT with China. See also the negotiations between the EU and Myanmar, Launching of Negotiations of the Investment Agreement between the Republic of the Union of Myanmar and the European Union, Joint Statement, Nay Pyi Taw, 20 March 2014 at http://trade.ec.europa.eu/doclib/docs/2014/march/tradoc_152269.pdf. No BIT has been concluded between any member of the EU and Myanmar. 43 At http://dfat.gov.au/trade/agreements/aclfta/pages/australia-chile-fta.aspx. The agreement entered into force on 6 March 2009 and replaced the BIT concluded on 9 July 1996. See also Chapter 10 of the FTA between the United States and Morocco, at www.ustr.gov/trade-agreements/free-tradeagreements/morocco-fta/final-text. The Treaty was concluded on 15 June 1004 and entered into force on 1 January 2006. In this case the FTA did not replace the existing BIT, which concluded on 22 July and entered into force on 29 May 1991, but suspended its provisions on the settlement of disputes. 44 At www.nafta-sec-alena.org/en/view.aspx?x=343&mtpiID=142. In literature, see T Weiler (ed), NAFTA Investment Law and Arbitration: Past Issues, Current Practice, Future Prospects (Ardsley: Transnational Publishers, 2004); M Kinnear, AK Bjorklund and J Hannaford, Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter XI (The Hague: Kluwer, 2006). 45 Consolidated version of the Convention establishing the European Free Trade Association, 1 July 2013, at www.efta.int/sites/default/files/documents/legal-texts/efta-convention/Vaduz%20 Convention%20Agreement.pdf. 46 Dominican Republic—Central America—United States Free Trade Agreement (CAFTA-DR), 5 August 2004, at www.ustr.gov/trade-agreements/free-trade-agreements/cafta-dr-dominicanrepublic-central-america-fta/final-text. 47 Signed on 5 November 1993, at http://about.comesa.int/attachments/comesa_treaty_en.pdf. Not in force yet. 41 European

Regional Economic Integration Agreements

27

Other agreements concluded within a regional economic integration organisation (REIO) promote and protect foreign investments through a separate legal instrument. The Comprehensive Investment Agreement concluded within the Association of East Asian Nations (ASEAN),48 which is intended to replace both the 1998 Framework Agreement and the 1987 Agreement for the Promotion and Protection of Investments, is a remarkable example. The members of the Southern Common Market (Mercosur) concluded in 1994 a separate protocol on the protection of their respective investors and investments.49 Protocols on the promotion and protection of foreign investment were also concluded within ECOWAS50 and SADC.51 Occasionally, the protection of foreign investments within economic integration agreements is achieved through binding decisions adopted by competent organs of the intergovernmental organisations. The Commission of the Andean Community, for instance, has adopted a series of decisions on the matter since 1970.52 (iv) Investment protection in agreements between regional economic integration organisations and third States The conclusion of free trade agreements between regional organisations and third States containing an investment chapter is increasingly frequent and important. For example, the EU has been particularly active in the negotiation with third States of a series of ambitious agreements covering, inter alia, foreign investment. The negotiations of an FTA with Canada led to the adoption, on 26 September 2014, of the ‘consolidated text’ of the Comprehensive Economic and Trade

48

Concluded in Cha-am, Thailand, on 26 February 2009, at www.aseansec.org. Colonia Protocol on the Reciprocal Promotion and Protection of Investment within MERCOSUR concluded on 17 January 1994, not yet in force. See also Montevideo Protocol on Trade in Services, 15 December 1997, at www.mercosur.int. 50 Supplementary Act Adopting Community Rules on Investment and the Modalities for its Implementation within ECOWAS, concluded on 19 December 2008, at www.privatesector.ecowas.int/en/ III/Supplementary_Act_Investment.pdf. ECOWAS members also concluded on 19 December 2008 a Protocol on Energy, Doc A/SA.3/12/08, at www.comm.ecowas.int/sec/en/protocoles/WA_EC_ Protocol_English-_DEFINITIF.pdf. 51 Protocol on Finance and Investment, Annex 1 (Co-operation on Investment), concluded on 18 June 2006 and entered into force on 16 April 2010, at www.sadc.int/files/4213/5332/6872/Protocol_ on_Finance__Investment2006.pdf. 52 See Decision 291, Regime for the Common Treatment of Foreign Capital and Trademarks, Patents, Licensing Agreements and Royalties, adopted by the Commission on 21 March 1991 (replacing Decision 220, 11 May 1987 which in turn replaced Decision 24, 21 December 1970), at www. comunidadandina.org/endex.htm. In literature, see W Hummer, ‘Investment Rules in Regional Integration Agreements in Latin America: The Case of the Andean Pact/Andean Community’, in C Binder et al, above Ch 1, n 29, p 561. 49

28

Overview of Investment Treaties

Agreement (CETA),53 whose Chapter X deals with investment. Negotiations are under way with India, Singapore, Japan, the United States, Egypt, Tunisia, Morocco, J ordan, Malaysia, Vietnam and Thailand.54 (v) Investment protection in agreements between regional organisations Investment-related agreements can finally be concluded between FTAs. Negotiators from the EU and the EAC finalised a new comprehensive Economic Partnership Agreement (EPA) between both organisations on 16 October 2014.55 On 30 June 2014 the EU, ECOWAS, the West African Economic and Monetary Union (UEMOA) and their respective members concluded an EPA. On 10 July 2014, the agreement was endorsed by ECOWAS Heads of State and was expected to be ratified rapidly by the parties.56 The agreement is essentially about trade, but includes amongst the aims and objectives ‘the harmonisation of national investment codes leading to the adoption of a single Community investment code’.57 Other negotiations have been conducted between the EU and some but not all the members of another organisation. This occurred, in particular, with regard to the EPA concluded on 15 July 2014 with the SADC EPA Group comprising Botswana, Lesotho, Mozambique, Namibia, South Africa and Swaziland.58 Angola has an option to join the agreement in future.59 The remaining six members of SADC—the Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, Zambia and Zimbabwe—are negotiating EPAs with the EU as part of other regional groups, namely Central Africa or Eastern and Southern Africa.

53 See the consolidated text, which according to the Commission’s website still needs some ‘legal scrubbing’, at http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152806.pdf. 54 For an overview of FTA and other trade negotiations, see the Commission’s website at http:// ec.europa.eu/trade/policy/accessing-markets/investment. See also Commission Communication to the Council of the EU, the European Parliament, the Economic and Social Committee and the Committee of the Regions, Towards a Comprehensive European International Investment Policy, Brussels, 7 July 2010, COM(2010)343 final, at http://trade.ec.europa.eu/doclib/docs/2010/july/tradoc_146307.pdf. For the documents related to the Transatlantic Trade and Investment Partnership between the EU and the United States, see http://ec.europa.eu/trade/policy/in-focus/ttip. 55 For another example, see Chapter IV (Services, Investment, Public Procurement) of the FTA between EFTA and the Southern African Customs Union (SACU), at www.efta.int/media/documents/ legal-texts/free-trade-relations/southern-african-customs-union-SACU/EFTA-SACU%20Free%20 Trade%20Agreement.pdf. 56 European Commission, ‘West African leaders back Economic Partnership Agreement with EU’, Press Release, 11 July 2014, available at http://europa.eu/rapid/press-release_IP-14-827_en.htm. The text of the agreement is available at http://trade.ec.europa.eu/doclib/docs/2015/october/ tradoc_153867.pdf. See, generally, P Kuruk, ‘Investment Issues in the West Africa–European Union Economic Partnership Agreement Negotiations: Is a Harmonised Regional Investment Framework the Answer?’, (2012) 20 African Journal of International and Comparative Law 448. 57 Art 3(i). 58 See http://ec.europa.eu/trade/policy/countries-and-regions/regions/sadc. The text of the agreement is available at http://trade.ec.europa.eu/doclib/docs/2015/october/tradoc_153915.pdf. 59 See Art 119 (3) of the agreement.

Energy Charter Treaty

29

V. Energy Charter Treaty The current international multilateral legal framework in the field of foreign investment is completed by two regional sectoral agreements in the energy sector: the Energy Charter Treaty (ECT) and the ECOWAS Energy Protocol. The ECT is a unique, complex and ambitious multilateral treaty intended to promote long-term co-operation in the energy field and protect the related investments. It is based on complementarities and mutual benefits, as well as on the principles of sustainable development and sovereignty over energy resources.60 It was concluded in 1994 together with a Protocol on Energy Efficiency and Related Environmental Aspects and accompanied by several annexes and decisions, which are integral parts of the Treaty itself.61 It formally entered into force on 16 April 1998, 90 days after the deposit of the 30th ratification as required under Article 44. Article 45, nonetheless, provides for its provisional application with regard to the signatories not availing themselves of the opting-out mechanisms. The ECT has currently 49 States parties (plus the EU and Euratom). This is the equivalent of 1,178 BITs between the States parties. Although the decision taken in 2009 by the Russian Federation not to ratify the ECT has deprived the Treaty from the participation of one of its key actors, the basic principles and rules of the ECT are well rooted62 and have recently been reaffirmed through the signature by over 65 countries and international organisations of a new political declaration, the International Energy Charter (IEC).63 The potential of the expansion eastward must be emphasised for several reasons, including the enormous surplus of natural resources of certain former Soviet Union republics (most prominently Kazakhstan for crude oil and Turkmenistan

60 Concluded on 17 December 1994 upon the political foundations set by the 1991 European Energy Charter (EEC), the ECT entered into force on 16 April 1998; see www.encharter.org/fileadmin/ user_upload/document/EN.pdf. In literature see, in particular TW Wälde, The Energy Charter Treaty. An East-West Gateway for Investment Trade (The Hague: Kluwer, 1996); TW Wälde, ‘Energy Charter Treaty-based Investment Arbitration’ (2004) 5 Journal of World Investment & Trade 373; C Ribeiro (ed), Investment Arbitration and the Energy Charter Treaty (Huntington, NY: Juris Publishing, 2006); A Konoplyanik and TW Wälde, ‘Energy Charter Treaty and its Role in International Energy’, (2006) 24 Journal Energy & Natural Resources Law 523; G Coop and C Ribeiro (eds), above Ch 1, n 47; G Coop, Energy Dispute Resolution: Investment Protection, Transit and the Energy Charter Treaty (Huntington, NY: Juris Publishing, 2011); Y Selivanova, ‘The Energy Charter and the International Energy Governance’ (2012) 3 European Yearbook of International Economic Law 307. 61 Art 48. 62 See EU–Russia Energy Dialogue, Roadmap of the EU–Russia Energy Cooperation until 2050, Progress report, 29 July 2011. 63 At http://www.energycharter.org/process/international-energy-charter-2015.

30

Overview of Investment Treaties

for natural gas) and the equally enormous demand for energy in India, Pakistan and China.64 Extending the constituency of the ECT would offer several important advantages. In practical terms, accession to the ECT would be much quicker than negotiating and concluding BITs with the current member States of the ECT. By acceding to the ECT, Afghanistan—the latest State to ratify it—has immediately ensured an adequate legal protection to its investment relations in the energy sector with 48 States plus the EU and Euratom. By acceding to the ECT, new parties will participate in a well-established multilateral process, of which the ECT constitutes the kernel, and benefit from a consolidated body of arbitral awards. The advantages of the ECT as a large and comprehensive multilateral treaty in terms of uniformity of substantial and procedural rules are quite evident. Participation in the ECT will complement the existing network of agreements between current and new members, or amongst new members. In no way will it affect the protection that foreign investors of the parties to the ECT may enjoy under other agreements, regardless of their date of conclusion.65 The substantive provisions on the protection of foreign investment contained in Part III of the ECT can be considered as the successful synthesis and elaboration of the typical provisions that are normally found in BITs, including fair and equitable treatment, protection and security, expropriation, national treatment and most favoured nation treatment. Moreover, the ECT offers quite an innovative stand with regard to the protection of the environment. Under Article 19, parties shall strive to minimise in an economically efficient manner the harmful environmental impacts of the activities in the energy sector, including through precautionary measures, where appropriate, and taking into account the ‘polluter pays’ principle. Over the years, a remarkable body of arbitral awards has not only clarified and elaborated the meaning of many of these provisions, but also contributed to the consolidation of an important ECT acquis, which certainly represents an invaluable legacy upon which members are expected to further develop a stable and predictable legal framework for energy-related investments. Any future arrangement or agreement related to, replacing or concurring with the ECT would naturally build upon and develop such acquis. Significantly, the Road Map for the Modernisation of the Energy Charter Process, agreed in 2010, clearly

64 The European Commission, ‘On security of energy supply and international cooperation—the EU energy policy engaging with partners beyond our borders’, Brussels, COM(2011) 539 final, http:// eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0539:FIN:EN:PDF, 7 September 2011, has maintained that ‘to maintain its relevance, the Energy Charter Treaty should seek to extend membership towards North Africa and Far East’. See S Zhang, ‘Energy Charter Treaty and China: Member or Bystander?’ (2012) 13 Journal of World Investment & Trade 597; N Yodogawa and AM Peterson, ‘An Opportunity for Progress: China, Central Asia, and the Energy Charter Treaty’, (2013) 8 Texas Journal of Oil, Gas, and Energy Law 111. 65 Art 16 ECT.

Bilateral Investment Treaties

31

maintained that ‘the ECT’s investment provisions should remain untouched in their fundamentals’.66 The principles the ECT is based upon have already crossed the borders of the organisation’s constituency and contaminated the regulation of investment in other areas. In this regard, the Energy Protocol concluded within ECOWAS in 2003 offers a fine example of cross-contamination of international law. The Protocol, which is described in the preamble as the ‘leading internationally accepted basis for the promotion, cooperation, integration and development of energy investment projects and energy trade among sovereign nations’,67 is deliberately inspired by the ECT and several of its substantive provisions reproduce or mirror those of the ECT.

VI. Bilateral Investment Treaties BITs play a prominent role in the protection of foreign investment.68 Historically they have their roots in commercial treaties and later in the treaties of friendship, commerce and navigation. Although essentially concerned with commerce and trade, these treaties often contained some provisions on the protection of aliens and their property.69 It has been argued that some Treaties of Friendship, Commerce and Navigation (FCN) provided a protection comparable in good substance to that currently provided under BITs.70 Modern BITs, however, are entirely dedicated to foreign investment. Their number has rocketed in the last two decades and there are currently 2,281 BITs in force,71 which is roughly equivalent to 12 per cent of the bilateral relationships

66 67

pdf.

At www.encharter.org/fileadmin/user_upload/document/Road_Map_ENG.pdf, p 6. (A/P4/1/03) at www.comm.ecowas.int/sec/en/protocoles/WA_EC_Protocol_English-_DEFINITIF.

68 Literature on bilateral investment treaties is abundant; the following works are of particular interest. On foreign investment treaties see, in particular, R Dolzer and M Stevens, Bilateral Investment Treaties (The Hague: Nijhoff, 1995); G Sacerdoti, ‘Bilateral Treaties and Multilateral Instruments on Investment Protection’ (1997) 269 Recueil des Cours 251; KJ Vandevelde, Bilateral Investment Treaties. History, Policy, and Interpretation (Oxford: OUP, 2010); JW Salacuse, The Law of Investment Treaties (Oxford: OUP, 2010); G Van Harten, ‘Five Justifications for Investment Treaties: A Critical Discussion’ (2010) 2 Trade Law & Development 1; KJ Vandevelde, ‘The Economics of Bilateral Investment Treaties’ (2000) 41 Houston Journal of International Law 469. 69 See KJ Vandevelde, above n 65, Chapter 2; JW Salacuse, above n 65, Chapter 4; J Gimblett and OT Johnson, ‘From Gunboats to BITs: The Evaluation of Modern International Investment Law’ (2010–11) 3 Yearbook on International Investment Law & Policy 649. 70 See, in particular, H Walker Jr, ‘Treaties for the Encouragement and Protection of Foreign Investment: Present United States Practice’ (1965) 5 American Journal of Comparative Law 229; JW Yackee, ‘Conceptual Difficulties in the Empirical Study of Bilateral Investment Treaties’ (2008) 33 Brooklyn Journal of International Law 405, 438 ff. 71 UNCTAD International Agreements database (consulted on 31 December 2015). Keeping a record of BITs is not an easy exercise. The most reliable universal databases are kept by UNCTAD (with available texts) and ICSID. Neither of them, however, is absolutely accurate and up-to-date. National databases, where available, are extremely useful.

32

Overview of Investment Treaties

between the States composing the international community.72 Traditionally concluded between developed and developing countries, BITs have recently been concluded in massive numbers between developing countries.73 BITs between developed countries, on the other hand, remain rather exceptional. Although over the years BITs have become more and more sophisticated,74 their structure has remained similar and common patterns can be detected in respect of several key provisions including those concerning fair and equitable treatment and expropriation.75 On other issues, most importantly the definition, admission and establishment of foreign investment or settlement of disputes, BITs provide for a variety of provisions.76 BITs—and to a smaller extent other international investment treaties—offer great flexibility. The bilateral nature of these treaties not only permits tailoring their provisions in accordance with their specific interests, but also facilitates their conclusion, amendment, revision, renegotiation as well as the adoption of authentic interpretations. During the aborted negotiation within the WTO, for instance, India pointed out that investment protection at present is guaranteed by a host of bilateral investment promotion and protection agreements (BIPPAs) that countries have entered into with other countries. Many governments look upon these bilateral instruments as on the one hand giving policy flexibility for themselves while assuring foreign investors a degree of comfort and safety for their investments.77

It must, however, be emphasised that in recent years the tide has turned. The negotiation and conclusion of these treaties has slowed down78 and several States, including India,79 South Africa, Indonesia, Venezuela and Ecuador, are

72 In order to cover the totality of bilateral relationships between n States it is necessary to conclude a number of bilateral treaties equivalent to: n (n−1) / 2, see E Giraud, ‘Modification et terminaison des traités collectifs’ (1961) 49 Annuaire IDI 1, p 16 ff. 73 According to UNCTAD, treaties between developing countries have now outnumbered those between developed and developing countries, DS 21. 74 One of the most sophisticated Model BITs is that adopted in 2012 by the United States. 75 For R Dolzer and C Schreuer, Principles of International Investment Law, 2nd edn (Oxford: OUP, 2012) 21, ‘[a] comparison of treaties concluded between developing countries does not reveal significant differences with agreements concluded with developed states’. 76 UNCTAD, Admission and Establishment, UNCTAD/ITE/IIT/10 (vol II), 1999; G Sacerdoti, ‘The Admission and Treatment of Foreign Investment under Recent Bilateral Treaties and Regional Treaties’ (2000) 1 JWI 105. 77 WT/WGTI/W/86, 22 June 2000, p 3). As noted by KC Kennedy, ‘A WTO Agreement on Investments: A Solution in Search of a Problem’, (2003) 24 University of Pennsylvania Journal of International Economic Law 77, 183, ‘Bilateral investment agreements offer the flexibility that is not possible under a multilateral framework. BITs can be tailored to fit country-specific needs in a way that is not possible under a multilateral framework.’ States have also enjoyed the flexibility of BITs even within the same treaty. See, eg, the BIT between China and Germany, and in particular Art 2 of the treaty as well as Ad Art 2, Ad Articles 2 and 3, Ad Art 6 and Ad Art 9 of the Protocol. 78 For instance, only two BITs have entered into force with regard to the United States since 1998 (with Uruguay and Rwanda). 79 Indian Model Text of Bilateral Investment Promotion and Protection Agreement (BIPA), at http://finmin.nic.in/the_ministry/dept_eco_affairs/icsection/Indian%20Model%20Text%20BIPA.asp.

Bilateral Investment Treaties

33

increasingly discontent with them, primarily for their unbalanced normative content, the perceived unduly restrictive effects on the host State regulatory powers as well as the shortcomings of the settlement of dispute mechanisms. Some States have denounced, planned to denounce or decided not to renew existing BITs, while others have opted for renegotiation or adopted new Model BITs. In 2013, in particular, South Africa notified its decision to terminate the BITs with Spain (23 June), Luxembourg and Belgium (7 September), Germany (23 October), Switzerland (30 October) and the Netherlands (1 November) in accordance with the relevant termination clauses. The decision to terminate these treaties reflects the disaffection of the Government of South Africa with the current form of BITs, which are perceived as hampering the sustainable development of the country and undermining the government’s capacity to implement its political agenda.80 In parallel with the termination of several BITs, South Africa has recently adopted a new piece of legislation on the promotion and protection of investment.81 In a manner reminiscent of the so-called Calvo doctrine,82 the Act is expressly intended (a) to promote and protect investment in a manner that is consistent with public interest and a balance between the rights and obligations of investors; and (b) to ensure the equal treatment between foreign investors and citizens of the Republic, subject to applicable legislation.83 The Act is firmly anchored to the Constitution, especially with regard to the treatment of investor and the protection of their property. The most important departure from current BITs relates to the settlement of disputes between the host State and foreign investors, as the Act provides exclusively for domestic remedies, namely mediation, adjudication by domestic courts or statutory bodies, or domestic arbitration under the 1965 Arbitration Act. International arbitration is permitted only between States and is not compulsory.

80 In a speech delivered at an UNCTAD event held at the University of The Witwatersrand on 26 July 2012, at www.info.gov.za/speech/DynamicAction?pageid=461&sid=29391&tid=77861, the Minister of Trade and Industry declared that ‘South Africa’s updated approach would aim to achieve an appropriate balance between the rights and obligations of investors, the need to provide adequate protection to foreign investors, while ensuring that constitutional obligations are upheld, and that government retains the policy space to regulate in the public interest’. The move has been welcomed by JE Stiglitz, ‘South Africa Breaks Out’, Project Syndicate, 5 November 2013, at www.project-syndicate. org/commentary/joseph-e--stiglitz-on-the-dangers-of-bilateral-investment-agreements. 81 South African Protection of Investment Act, 2015, at https://www.thedti.gov.za/gazzettes/39514. pdf. 82 On the doctrine, see AS Hershey, ‘The Calvo and Drago Doctrine’ (1907) 1 American Journal of International Law 26; K Lipstein, ‘The Place of the Calvo Clause in International Law’ (1945) 22 British Yearbook of International Law 130; DU Shea, The Calvo Clause: A Problem of Inter-American and International Law and Diplomacy (Minneapolis: University of Minnesota Press, 1955); C Schreuer, ‘Calvo’s Grandchildren: The Return of Local Remedies in Investment Arbitration’ (2005) 4 Law & Practice of International Courts and Tribunals 1; BM Cremades, ‘Resurgence of the Calvo Doctrine in Latin America’ (2006) 7 Business Law International 53. 83 South Africa, Promotion and Protection of Investment Bill, Art 3 (Purpose of the Act).

3 Main Features of International Investment Treaties I. Objective and General Content of International Investment Treaties International investment treaties pursue two main objectives. On the one hand, they aim to stimulate the flow of foreign investment and create a stable and predictable environment for their management; on the other hand, they promote the economic development of the host State and the co-operation between the States concerned.1 The two objectives are intimately related and mutually supportive.2 The preamble of the 2012 United States Model BIT is one of the most comprehensive and sophisticated statement of the objectives of this kind of treaties. It reads: Desiring to promote greater economic cooperation between [the Parties] with respect to investment by nationals and enterprises of one Party in the territory of the other Party; Recognizing that agreement upon the treatment to be accorded such investment will stimulate the flow of private capital and the economic development of the Parties; Agreeing that a stable framework for investment will maximize effective utilization of economic resources and improve living standards; Recognizing the importance of providing effective means of asserting claims and enforcing rights with respect to investment under national law as well as through international arbitration; Desiring to achieve these objectives in a manner consistent with the protection of health, safety, and the environment, and the promotion of consumer protection and internationally recognized labor rights;

1 In Saluka Investments BV v Czech Republic, UNCITRAL, Partial Award, 17 March 2006, para 300, the tribunal noted that ‘[t]he protection of foreign investments is not the sole aim of the Treaty, but rather a necessary element alongside the overall aim of encouraging foreign investment and extending and intensifying the parties’ economic relations’. 2 In Amco Asian Corporation and Others v Indonesia, Jurisdiction, 25 September 1983 (1992) 89 International Law Reports 351, 369, the tribunal pointed out that ‘to protect investments is to protect the general interest of development of the developing countries’.

Objective and General Content

35

Desiring to create conditions favourable for fostering grater investment by investors of one State in the territory of the other State.3

Regional investment agreements also detail their objectives, both from the standpoint of foreign investors and the concerned States, either in their preamble or in the opening provision. Article 1 of the ASEAN Comprehensive Agreement on Investment, which importantly is titled ‘Objective’ and uses the singular to emphasise the uniqueness of the enterprise in spite of the variety of stakeholders, reads: The objective of this Agreement is to create a free and open investment regime in ASEAN in order to achieve the end goal of economic integration under the AEC in accordance with the AEC Blueprint, through the following: (a) progressive liberalisation of the investment regimes of Member States; (b) provision of enhanced protection to investors of all Member States and their investments; (c) improvement of transparency and predictability of investment rules, regulations and procedures conducive to increased investment among Member States; (d) joint promotion of the region as an integrated investment area; and (e) cooperation to create favourable conditions for investment by investors of a Member State in the territory of the other Member States.

The ECT takes a different approach and its preamble indicates 14 objectives, which are summarised in Article 2 (purpose of the Treaty) as follows: ‘This Treaty establishes a legal framework in order to promote long-term cooperation in the energy field, based on complementarities and mutual benefits, in accordance with the objectives and principles of the [European Energy] Charter’.4 However presented, the existence of several objectives is of great relevance for this study as the entire interpretative process aims to establish the intentions of the parties as recorded in the treaty. The weighting and co-ordination of these objectives, therefore, will be considered in different parts of this study. Although formally concluded between two or more States primarily for the benefit of the private investor, the economic development of the host State and the stimulation of the economic relation between the concerned States, investment treaties are manifestly unbalanced. With rare exceptions, they impose obligations exclusively upon the host State and grant rights only to the foreign investor. 3 At www.ustr.gov/assets/Trade_Sectors/Investment/Model_BIT/asset_upload_file847_6897.pdf. Another interesting example is the preamble of the BIT between Austria and Kosovo (2010), which reads: ‘Recalling that foreign direct investments are vital complements to national and international development efforts, as expressed at the UN International Conference on the Financing of Development held in Monterrey, Mexico, in March 2002 (the “Monterrey Consensus”); Recognizing that agreement upon the treatment to be accorded to investors and their investments will contribute to the efficient utilisation of economic resources, the creation of employment opportunities and the improvement of living standards; … Reaffirming the commitments under the 2006 Ministerial declaration of the UN Economic and Social Council of Full Employment and Decent Work, Referring to the international obligations and commitments concerning respect for human rights; Recognizing that investment, as an engine of economic growth, can play a key role in ensuring that economic growth is sustainable; Committed to achieving these objectives in a manner consistent with the protection of health, safety, and the environment, and the promotion of internationally recognised labour standards’. 4 See TW Wälde, above Ch 1, n 29, p 759.

36

Main Features of Investment Treaties

In Spyridon v Romania, the Tribunal candidly admitted that the BIT between Greece and Romania ‘imposes no obligation on investors, only on contracting States’.5 One of the rare provisions imposing obligations upon foreign investors is Article 9 of the OIC Investment Agreement, which reads: The investor shall be bound by the laws and regulations in force in the host state and shall refrain from all acts that may disturb public order or morals or that may be prejudicial to the public interest. He is also to refrain from exercising restrictive practices and from trying to achieve gains through unlawful means.

In Al Warraq v Indonesia, the Tribunal convincingly held that, although foreign investors have always to comply with all applicable domestic laws and regulations, the inclusion of such an obligation in the treaty makes its compliance a matter of treaty law. Thus Article 9 imposes a positive obligation on foreign investors, the violation of which can be the object of a claim or a counter-claim by the host State before an arbitral tribunal, in accordance with the arbitral clause contained in Article 17 of the treaty.6 The logical consequence of the content of these treaties and the truly exceptional imposition of obligation upon foreign investors is the fact that in the arbitral proceedings that they generate, the host State is systematically the respondent in investment arbitration. Either because of the absence in these treaties of obligations incumbent upon the foreign investors, or due to the typical exclusion from the scope of the jurisdictional clauses of the still rare provisions imposing obligations upon foreign investors, resort to international arbitration is reserved to foreign investors. States virtually never appear as applicants in State– investor disputes.7 Certain BITs, such as the BIT between Switzerland and Chile, even expressly provide access to international arbitration exclusively to foreign investors.8 Likewise, Article 26(2) ECT clearly states that only investors can submit a dispute based on the Treaty to any of the listed fora. The possibility of instituting arbitral proceedings is, on the other hand, precluded to the Contracting Parties.9

5 Spyridon v Romania, ICSID ARB/06/01, Award, 7 December 2011, para 871. In Siemens v Argentina, ICSID ARB/02/8, Jurisdiction, 3 August 2004, para 120, the tribunal not surprisingly held that the MFN clause can be invoked only by the foreign investor. 6 Al Warraq v Indonesia, above Ch 1, n 43, Award, 15 December 2014, paras 661 and 663. 7 See, in particular, M Toral and T Schultz, ‘The State, a Perpetual Respondent in Investment Arbitration? Some Unorthodox Considerations’, in M Waibel, A Kaushal, K-HL Chung and C Balchin (eds), The Backlash against Investment Arbitration (The Hague: Kluwer, 2010) 577. See also G Laborde, ‘The Case for Host State Claims in Investment Arbitration’ (2010) 1 Journal of International Dispute Settlement 97; G Van Harten, ‘Arbitral Behaviours in Asymmetrical Adjudication: An Empirical Study of Investment Treaty Arbitration’ (2012) 50 Osgoode Hall Law Journal 211. 8 Art 9(2). Art 9(1) of the BIT between Romania and Greece, in turn, provides for the settlement of ‘[d]isputes between an investor of a Contracting Party and the other Contracting Party concerning an obligation of the latter under this Agreement, in relation to an investment of the former’. In Spyridon Roussalis v Romania, above n 5, Award, para 869, the tribunal held by majority that Art 9(1) ‘undoubtedly limit[s] jurisdiction to claims brought by investors about obligations of the host State. Accordingly, the BIT does not provide for counterclaims to be introduced by the host state in relation to obligations of the investor.’ 9 Petrobart Limited v Kyrgyz Republic, No 126/2003, Stockholm Chamber of Commerce (ECT), Award, 29 March 2005, page 55. See also Art 8 of the United Kingdom Model Treaty (2005).

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The unbalanced character of investment treaties is further amplified by two types of clause that they frequently contain. The first one relates to the relationship and co-ordination of these treaties with other rules applicable to the protection of foreign investors. A large number of investment treaties expressly establish that provisions contained in domestic law or other treaties prevail over the provisions contained in the BIT to the extent they are more favourable to the investor. Article 10(1) of the BIT between Germany and China, for instance, reads: If the legislation of either Contracting Parties or obligations under international law existing at present or established hereafter between the Contracting Parties in addition to this Agreement contain a regulation, whether general or specific, entitling investments by investors of the other Contracting Party to a treatment more favourable than is provided for by this Agreement, such regulation shall to the extent that it is more favourable prevail over this Agreement.

This kind of clause is not peculiar to BITs. Article 16 of the ECT, in particular, indicates that conflicts between provisions contained in the ECT and in other treaties are to be solved by applying the provisions that are more favourable to the investor, regardless of the time the treaties have entered into force. It reads: Where two or more Contracting Parties have entered into a prior international agreement, or enter into a subsequent international agreement, whose terms in either case concern the subject matter of Part III or V of this Treaty, (1) nothing in Part III or V of this Treaty shall be construed to derogate from any provision of such terms of the other agreement or from any right to dispute resolution with respect thereto under that agreement; and (2) nothing in such terms of the other agreement shall be construed to derogate from any provision of Part III or V of this Treaty or from any right to dispute resolution with respect thereto under this Treaty, where any such provision is more favourable to the Investor or Investment.10

The intention of the parties is clearly directed at ensuring the foreign investor the highest level of protection. The more favourable treatment clauses often operate beyond treaty law and can be invoked in respect of any rule of international law, national legislation and even international contracts.11

10 See also Art 12 ASEAN Framework Agreement; Art 7, Colonia Protocol (Mercosur); Art 1(1)(3) FTA United States–Australia. 11 Such an intention emerges plainly from Art 10(1) of the BIT between Pakistan and Egypt, which reads: ‘Where a matter is governed simultaneously by this Agreement and by another international agreement to which both Contracting Parties are parties, or by general principles of International Law, nothing in this Agreement shall prevent either Contracting Party of any of its investors who owns investments in the territory of the other Contracting Party from taking advantage of whichever rules are the more favourable to its/his case.’ For a few more examples, see Art 11 BIT France–Malaysia; Art 11 BIT UK–Serbia; Art 11 BIT UK–Albania; Art 11 BIT UK–Argentina; Art 7 BIT Argentina– Jamaica; Art 10 BIT UK–Romania; Art 11 BIT Italy–Jordan (general international law); Art 11 BIT Italy–Cuba; Art 19 BIT Mexico–Greece; Art 11 BIT UK–Pakistan; Art IX BIT US–Romania.

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Main Features of Investment Treaties

The second type of provision, quite unique to investment treaties, is commonly referred to as an ‘umbrella clause’. The parties assume—as a matter of treaty law—additional substantive or procedural obligations with regard to undertakings contained in instruments extraneous to the treaty.12 An umbrella clause extends the protection of the treaty to legally binding commitments external to the treaty, typically contracts entered into between the foreign investor and the host State. Although the construction of these clauses remains the object of an interesting theoretical debate,13 it is generally accepted that violations of the obligations covered in umbrella clauses may engage the international responsibility of the host State and be adjudicated under the relevant treaty provisions on the settlement of disputes. The wording of these clauses and their location within the treaty may vary significantly, thus calling for a rigorous interpretation in accordance with the VCLT. The interpretation of these clauses has been particularly problematic, especially in relation to the definition of the contracts that may fall into its scope of application.14 As recognised by a tribunal, ‘there is no jurisprudence constante on the effect of umbrella clauses, that the subject is one on which legal opinion is divided, that the relationship between commercial and sovereign acts

12 In Bureau Veritas, Inspection, Valuation, Assessment and Control, BIVAC BV v Paraguay, ICSID ARB/07/9, Jurisdiction, 29 May 2009, para 141, the tribunal held that an umbrella clause ‘establishes an international obligation for the parties to the BIT to observe contractual obligation with respect to investors’. Quoted with approval in SGS v Paraguay, above Ch 1, n 13, Jurisdiction, para 170. In literature, SW Schill, The Multilateralization of International Investment Law (Cambridge: CUP, 2009) 84, points out that umbrella clauses create ‘a separate obligation under the investment treaty in question to observe obligations the host State has assumed in relation to foreign investors, in particular obligations under investor–State contracts’. 13 Compare, for instance, Consorzio Groupement LESI v Algeria, ICSID Case ARB/03/08, 10 January 2005, para 25(ii), where the tribunal held that ‘[c]es clauses ont pour effet de transformer les violations des engagements contractuels de l’Etat en violations de cette disposition du traité et, par là même, de donner compétence au tribunal arbitral mis en place en application du traité pour en connaître’, with CMS v Argentina, above Ch 2, n 10, Annulment, 25 September 2007, para 95(c), where the tribunal maintained that ‘[t]he effect of the umbrella clause is not to transform the obligation which is relied on into something else; the content of the obligation is unaffected, as is its proper law. If this is so, it would appear that the parties to the obligation (ie, the persons bound by it and entitled to rely on it) are likewise not changed by reason of the umbrella clause’. 14 According to R Dolzer and C Schreuer, above Ch 2, n 75, p 174, ‘the survey of the jurisprudence interpreting the umbrella clause indicates that the understanding of the rule remains in a state of flux’. In the same sense, K Yannaca-Small, ‘What about this Umbrella Clause’, in K Yannaca-Small (ed), Arbitration under International Investment Arbitration (New York: OUP, 2010) 479. In literature see, in particular, C Schreuer, ‘Travelling the BIT Route. Of Waiting Period, Umbrella Clauses and Forks in the Road’ (2004) Journal of World Investment & Trade 5, 231; SA Alexandrov, ‘Breaches of Contract and Breaches of Treaty. The Jurisdiction of Treaty-based Arbitration Tribunals to Decide of Contract Claims in SGS v Pakistan and SGS v Philippines’ (2004) Journal of World Investment & Trade 5, 555; TW Wälde, ‘The “Umbrella” Clause in Investment Arbitration—A Comment on Original Intentions and Recent Cases’ (2005) Journal of World Investment & Trade 6, 183; K Yannaca-Small, ‘Interpretation of the Umbrella Clause in Investment Agreements’, OECD Working Papers on International Investment 2006/3, October 2006; S Schill, ‘Enabling Private Ordering: Function, Scope and Effect of Umbrella Clauses in International Investment Treaties’ (2009) 18 Minnesota Journal of International Law 1.

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of government is not free from difficulty, and that each particular clause falls to be interpreted and applied according to its precise wording and in the context it is included in a BIT’.15 In Al Warraq v Indonesia, the Tribunal referred to investment treaties as of ‘inherently asymmetrical character’ without any further elaboration.16 It is argued that these treaties may be described as asymmetrical in three different ways. The first refers to the fact that investment may flow only in one direction with the consequent application of their provisions only to the investors of the exporting party or parties. Far from being inherent to these treaties, such an asymmetry may certainly occur, but is purely incidental, as is demonstrated by the fact that at a later date foreign investment may flow in both directions.17 A second form of asymmetry can be introduced in the treaty by differentiating the content or the application of its substantive and procedural provisions with regard to the parties. Nothing prevents the contracting parties from including in their investment treaties differential provisions designed to better meet their respective—and not necessarily identical—interests and needs.18 This would further enhance the flexibility of these treaties, but remain the outcome of deliberate and free choices of the contracting parties, without anything being inherent. In the decision referred to above, the Tribunal may have had in mind the third form of asymmetry. It relates to the content of investment treaties, which normally ensure foreign investors an increasingly sophisticated legal protection both in terms of normative standards and procedural remedies, without imposing on them any obligation. Yet, the content of these treaties—as that of any treaty in any other field—is freely determined by the contracting parties enjoying a virtually unlimited freedom. Again, there is nothing inherent in the content as such. The substantive and procedural provisions these treaties contain result from negotiations and the deliberate choices—although admittedly not always thoroughly evaluated19—of the contracting parties. It is up to them to include in the treaty obligations for foreign investors and/or the home State, as well as to introduce any remedy in case of non-compliance with these obligations. Needless to say, the capacity of achieving such a result will hinge—as with any other treaty— on the contracting parties’ interests and bargaining power.

15

BIVAC BV v Paraguay, above n 12, para 141. Al Warraq v Indonesia, above Ch 1, n 43, Final Award, para 659. On the potential impact of these treaties on the sovereignty of the host State, see next section. 18 Art 8 of the Protocol to the 2009 BIT between China and the Belgium–Luxembourg Economic Union, for instance, reads in part: ‘It is mutually understood that the People’s Republic of China requires that the investor concerned exhausts the domestic administrative review procedure specified by the laws and regulations of the People’s Republic of China, before submission of the dispute to international arbitration under Art 8, paragraph 2.’ See also the Protocol to the BIT between China and Germany, which provides for a different treatment of the foreign investor of the States parties in respect of both substantive rules and the settlement of disputes. 19 In some cases, the problem is further complicated by the negotiators’ poor understanding of the implications and potential consequences of these treaties. See, eg, the oral evidence given by C Schreuer in Wintershall Aktiengesellschaft v Argentina, ICSID ARB/04/14, Award, 8 December 2008, para 85. 16 17

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Main Features of Investment Treaties

It may be argued that the only inherent form of asymmetry of these treaties is the different nature of the obligations imposed upon the host State and on the foreign investors, if any. The difference is the direct consequence of the different nature of the two actors at the ends of the legal relationship regulated by the treaty: a sovereign State and a foreign investor. The obligations incumbent upon the first relate to the exercise of its sovereign prerogatives, most importantly the standards of treatment and protection. The obligations possibly imposed on the second, on the other hand, concern the conduct of the investor operating within the jurisdiction of a foreign State and are normally directed at protecting public interests, as in the case of the obligations on the environmental impact assessment. The crux of the matter remains how to recalibrate investment treaties and strike a better balance between the different stakeholders. These treaties have attracted a good deal of criticism, primarily with regard to their content, the settlement of dispute, the perceived unduly limitations to the sovereignty and regulatory powers of the host State. Such criticism has triggered a profound reflection on the need for a comprehensive reform of the existing system, and most importantly the mechanisms for the settlement of the related disputes, taking into account and carefully balancing the interests of all stakeholders.20 States—especially in the developing world—have expressed their discontent about current investment treaties and endeavoured to rebalance them and better protect their regulatory powers. The preamble of the new Indian Model BIT aptly illustrates the concern of several States. It reaffirms ‘the right of Parties to regulate Investments in their territories in accordance with their Laws and policy objectives including the right change the conditions applicable to such Investments’ and seeks ‘to align the objectives of Investment with sustainable development and inclusive growth of the Parties’. It is noteworthy to compare it with the preamble of the previous model (2003), which read in part: ‘Recognising that the encouragement and reciprocal protection under International agreement of such investment will be conducive to the stimulation of individual business initiative and will increase prosperity in both States’. The new Indian Model BIT deserves to be singled out for four other main reasons. First, with regard to the protection of foreign investors, it does not include any most-favoured nation (MFN) treatment clause and replaces the broad fair and equitable treatment (FET) standard with a much more stringent standard which imposes upon the parties not to subject the respective investor to measures constituting: (a) denial of justice under international law; (b) un-remedied and

20 See, eg, G Van Harten, Investment Treaty Arbitration and Public Law (Oxford: OUP, 2007); M Waibel et al (eds), above n 7; J Pauwelyn, ‘At the Edge of Chaos? Foreign Investment Law as a Complex Adaptive System, How it Emerged and How it Can be Reformed’ (2014) 29 ICSID Review 372, p 417, who concludes that ‘participants and commentators alike underestimate the feasibility and potential to change or reform foreign investment law in order to address certain pathologies that, through historical evolution, seeped into the system’. See also J Kalicki and A Joubin-Bret, Reshaping the Investor–State Dispute Settlement System (Leiden: Brill-Nijhoff, 2015).

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egregious violations of due process; or (c) manifestly abusive treatment involving continuous, unjustified and outrageous coercion or harassment.21 Second, the Model BIT introduces in Chapter III obligations upon the investor and the home State. Articles 9 to 12, in particular, deal with the obligations of investors relating to corruption, disclosure, taxation and compliance with local legislation. The latter provision is particularly interesting. In addition to reiterate the obligation of foreign investors to comply with all relevant laws—of which a non-comprehensive list is provided—it makes such compliance a matter of treaty law. Third, as far as the settlement of disputes between foreign investors and the host State is concerned, Article 14 imposes upon foreign investors the obligation to exhaust domestic judicial and administrative remedies before initiating arbitral proceedings, with the exception of cases in which pursuing such remedies would be futile.22 Fourth, although resort to international arbitration is expressly reserved to foreign investors, the host State may put forward a counterclaim in relation to alleged breaches of Articles 9 to 12 in order to obtain declaratory relief, enforcement action or monetary compensation.23 Likewise, the ECOWAS Supplementary Act on Foreign Investment24 must be mentioned for the innovative responses to the criticism referred to above. It abandons the practice of including in investment treaties obligations exclusively upon the host State and introduces obligations also for foreign investors and the home State. Chapter III, in particular, contains a comprehensive catalogue of foreign investors’ obligations and duties. Article 12 imposes upon foreign investors the obligation to conduct an environmental and social impact assessment of the potential investment, to duly apply the precautionary principle, and to make the related documents available to the local community. Article 13, in turn, enjoins foreign investors to refrain from getting involved in any corruption practice. Interestingly, a finding by a domestic tribunal that a foreign investor has breached its obligations under Article 13 would terminate the foreign investor’s access to the dispute settlement mechanism provided for in the treaty (Article 14). Under Article 14(2) and (4) investors shall uphold human rights in the workplace and

21

Art 3 (Standard of treatment). 14.3. The following comma provides some additional conditions for submitting a claim to arbitral tribunals. 23 On counterclaims in foreign investment law, see P Lalive and L Halonen, ‘On the Availability of Counterclaims in Investment Treaty Arbitration’ (2011) 2 Czechoslovak Yearbook of International Law 141; A Bjorklund, ‘The Role of Counterclaims in Rebalancing Investment Law’ (2013) 17 Lewis & Clark Law Review 461; AK Hoffmann, ‘Counterclaims in Investment Arbitration’ (2013) 28 ICSID Review 438. 24 Supplementary Act A/SA.3/12/08 Adopting Community Rules on Investment and the Modalities for their Implementation with ECOWAS, at www.ecobiz.ecowas.int/en/pdf/cim-vision-englishversion.pdf, enacted by the ECOWAS Authority on 19 December 2008. It is annexed to the ECOWAS Treaty, of which it constitutes an integral part (Art 42(2)). 22 Art

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Main Features of Investment Treaties

the community in which they are located, and comply with fundamental labour standards as stipulated in the 1998 ILO Declaration on Fundamental Principles and Rights of Work.25

II. Investment Treaties and State Sovereignty Investment treaties have frequently been criticised for protecting the interests of the exporting capital State to the detriment of the importing capital State. They have also been censured for eroding the sovereignty of the host State and unduly affecting its capacity to exercise its sovereign prerogatives. An author has emphasised that these treaties often relate to one-way flows of investment from a developed state to a developing one and noted: There is inequality in the very process of making a treaty between the giver and the receiver … there is an erosion of sovereignty by one party without corresponding erosion in the other party. The erosion of sovereignty is based on the unprovable belief that greater investment flows will take place once the treaty is signed.26

The statement calls for three considerations. First, even when the flow of foreign investment between two countries goes in only one direction, the treaty may be the instrument for the convergence of different interests: on the one hand, the interest of the exporting capital State to ensure an adequate protection to its investors; and, on the other hand, the interest of the receiving capital State to create an environment attractive to foreign investors. The treaty may well not be based on reciprocity, but this does not necessarily mean that it is a bad bargain for the would-be recipient State.27 BITs are ultimately a legal tool believed to contribute to attract foreign investment that could be beneficial for the host State in terms of economic development, employment, infrastructures, know-how and so on. Needless to say this is only one—and not necessarily the most important28—of

25

At www.ilo.org/declaration/thedeclaration/textdeclaration/lang--en/index.htm. Sornarajah, The International Law on Foreign Investment, 3rd edn (Cambridge: CUP, 2010) 188. See also SB Asante, ‘International Law and Investment’, in M Bedjaoui (ed), International Law: Achievements and Prospects (Dordrecht: Martinus Nijhoff, 1991) 667, p 675; JE Alvarez, ‘Remarks’ (1992) 86 American Society of International Law Proceedings 550, p 552; JW Salacuse, ‘BIT by BIT’ (1990) 24 International Lawyer 656, p 663. 27 As pointed out by R Dolzer and C Schreuer, above Ch 2, n 75, p 23, ‘notions of mutuality and reciprocity are not absent from the regime of an investment treaty, but they do not operate in the same manner as in the classical agreement. Instead, they are focused on the mutual benefit of host state and investor and on the complementarity or interest flowing from the long-term commitment of resources by the foreign investor under the territorial sovereignty of the host state’. The asymmetrical or unequal character is by no means peculiar to BITs. Another example is the treaties on military bases and the related status of forces agreement. 28 According to the Economic Commission for Latin America and the Caribbean (ECLAC), for instance, between 2003 and 2005 Brazil accounted for 25% of the total foreign direct investment to Latin America (US$43.3bn of US$172.7bn). Despite its importance as a host country for foreign 26 M

Investment Treaties and State Sovereignty

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the legal instruments for the promotion and protection of foreign investment. Even more importantly, decisions relating to the establishment and management of foreign investment are primarily dictated by non-legal considerations. Second, the concern over the ‘erosion’ or ‘surrendering’ of the host State’s sovereignty must not be exaggerated. To start with, by concluding a treaty a State manifests its sovereignty rather than limiting it.29 In spite of their manifest unbalanced character, their differences in both substantive and procedural rules, and their possible internal asymmetries, however, it is undisputed that BITs are freely concluded and therefore their validity cannot be questioned, unless a party can invoke one of the grounds for invalidity under the law of treaties.30 Since normally BITs do not provide for any pre-establishment right,31 the host State is able to retain control over admission of foreign investment through national legislation or regulations.32 Once the foreign investment is admitted, the host State continues to exercise its sovereign powers, including the regulatory powers, over the foreign investor, provided it does so in accordance with the obligations it accepted by concluding the treaty. Incidentally, many of these obligations may also exist under customary international law and as such be binding regardless of any convention commitment. Although investment treaties are aimed at ensuring foreign investors an unprecedented level of legal protection and normally pave them the way to international arbitration, furthermore, it must be emphasised that State parties remain the ‘the transaction’s exclusive and absolute domini’.33 At any time they can agree on a given interpretation of a treaty or modify it—formally or informally—through subsequent agreements or practice. They can even terminate it unilaterally in accordance with the treaty itself or, when the treaty is silent on the issue, with the law on treaties, or by mutual consent in accordance with Article 54 VCLT. This

investments, however, Brazil is not party to any BIT. See JG Scandiucci Filho, ‘The Brazilian Experience with Bilateral Investment Agreements’, 28–29 June 2007, at www.unctad.org/sections/wcmu/docs/ c2em21p15_en.pdf. 29 That the conclusion of treaties is an attribute of sovereignty, see the judgment of the PCIJ in Case of SS ‘Wimbledon’, Ser A, No 15, p 25. 30 Paragraph 8 of the UN General Assembly Resolution 1803 on Permanent Sovereignty over Natural Resources (14 December 1962) reads: ‘[f]oreign investment agreements freely entered into by or between sovereign States shall be observed in good faith.’ Even an author as critical of BITs as M Sornarajah, above n 26, concedes that ‘these treaties are voluntary, and there is no element of coercion involved in their making’ (p 178, footnote omitted) and that ‘The motive of a state for entering into a treaty does not affect the validity of the treaty. The inequality of the bargaining power of the states is also irrelevant’ (p 188). 31 Notable exceptions are several BITs concluded by the United States, Canada and Japan. 32 See A Newcombe and L Paradell, Law and Practice of Investment Treaties. Standards of Treatment (Alphen aan den Rijn, Kluwer, 2009) 132 ff; P Muchlinski, Multinational Enterprises & the Law, 2nd edn (Oxford: OUP, 2007) 177 ff. 33 The expression has been borrowed from G Arangio-Ruiz, The United Nations Declaration on Friendly Relations and the System of the Sources of International Law (Alphen aan den Rijn: Sijthoff & Noordhoff, 1979) 284–85, esp n 183.

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means that the investor is exposed to the risk of changes in the legal protection he enjoys in the host State due to the joint or unilateral action of the parties to the treaty. It is worth pointing out that foreign investors may lose the protection of the treaty due to the unilateral decision of their own national states to terminate it. Third, for the duration of the investment treaty, the host State is fully entitled to exercise its regulatory powers over foreign investors admitted within its jurisdiction, provided that such an exercise is consistent with its international commitments. From this perspective, investment treaties have been perceived as unduly curtailing the host State’s regulatory powers and exposing it to the risk of arbitral proceedings.34 While the concern is certainly justified, it must be underlined that bona fide regulations within the accepted police powers of the host State do not trigger any obligation to compensate foreign investors, even when they have a detrimental effect upon their business.35 As the Tribunal pointed out in Parkerings v Lithuania: [i]t is each State’s undeniable right and privilege to exercise its sovereign legislative power. A State has the right to enact, modify or cancel a law at its own discretion. Save for the existence of an agreement, in the form of a stabilisation clause or otherwise, there is nothing objectionable about the amendment brought to the regulatory framework existing at the time an investor made its investment. As a matter of fact, any businessman or investor knows that laws will evolve over time. What is prohibited however is for a State to act unfairly, unreasonably or inequitably in the exercise of its legislative power.36

The crux of the matter is to strike a balance between the inherent right and duty of the host State to regulate and the need to protect the interests and rights of foreign investors. Investment treaties play an important role in this respect.37 State practice reveals an increasingly significant recourse to treaty provisions aimed at safeguarding the exercise of regulatory power by the host State through

34 It has recently been declared that ‘[o]ne common issue is the need to clarify the interaction between international investment instruments and domestic investment policy as well as policy in other areas—for example, sustainable development and environmental regulation. Governments must always be concerned about ensuring that there is sufficient policy space for them to engage in reconciling competing interests’, Commonwealth Investment Experts Group Meeting for the African Region, Kampala, Uganda, 20–21 October 2011, at http://secretariat.thecommonwealth.org/files/243514/ FileName/FINALIEGOutcomesSummary%282%29.pdf. 35 In Técnicas Medioambientales Tecmed, SA v Mexico, ICSID ARB (AF)/00/2, Award, 29 May 2003, para 119, for example, the Tribunal held that ‘[t]he principle that the State’s exercise of its sovereign powers within the framework of its police power may cause economic damage to those subject to its powers as administrator without entitling them to any compensation whatsoever is undisputable’. 36 Parkerings-Compagniet AS v Lithuania, ICSID ARB/05/8, Award, 11 September 2007, para 332. 37 See also Principle 9 of the UN Human Rights Council, Guiding Principles on Business and Human Rights: Implementing the UN ‘Protect, Respect and Remedy’ Framework, 16 June 2011, at www.ohchr. org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf, according to which ‘States should maintain adequate domestic policy space to meet their human rights obligations when pursuing business-related policy objectives with other States or business enterprises, for instance through investment treaties or contracts’.

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appropriate preambles, presumptions, substantive provisions, exception clauses— often inspired by Article XX GATT—and police space provisions.38 Yet, several investment tribunals have emphasised that in exercising its regulatory powers the host State must respect the expectations that foreign investors may have legitimately built on the basis of promises, undertakings, declarations and representations made explicitly or implicitly by local authorities in relation to the establishment and management of the investment. The notion of legitimate expectations potentially affects virtually all instances in which foreign investors enter into a contract with public authorities of the host state and are subject to the exercise of public powers by these authorities.39 In Tecmed v Mexico, for instance, the Tribunal considered that the FET standard, in light of the good faith principle established by international law, requires the Contracting Parties to provide to international investments treatment that does not affect the basic expectations that were taken into account by the foreign investor to make the investment. The foreign investor expects the host State to act in a consistent manner, free from ambiguity and totally transparently in its relations with the foreign investor, so that it may know beforehand any and all rules and regulations that will govern its investments, as well as the goals of the relevant policies and administrative practices or directives, to be able to plan its investment and comply with such regulations.40

The finding, which has been quoted with approval by several tribunals,41 emphasises the need to protect the legitimate expectation of the private i nvestor

38 For a few examples, see K Gordon, J Pohl, Environmental Concerns in Investment Agreements: A Survey, OECD Working Papers on International Investment, No 2011/1, May 2011, at www.oecdilibrary.org/finance-and-investment/environmental-concerns-in-internationalinvestmentagreements_5kg9m q7scrjh-en; T Gazzini, ‘States and Foreign Investment: A Law of the Treaties Perspective’, in S Lalani and R Polanco (eds), The Role of the State in Investor–State Arbitration (The Hague: Martinus Nijhoff, 2014) 23. 39 See TW Wälde, Separate Opinion in International Thunderbird v Mexico, International Thunderbird Gaming Corporation v Mexico, UNCITRAL, 1 December 2005, esp paras 27 ff. See also, amongst other decisions, Rumeli Telekom AS and Telsim Mobil Telekomunikasyon Hizmetleri AS v Kazakhstan, ICSID ARB/05/16, Award, 29 July 2008, para 609. For a discussion on the emergence of legitimate expectations as a general principle of law, see in particular R Dolzer, ‘New Foundations of the Law of Expropriation of Alien Property’ (1981) 75 American Journal of International Law 553; E Snodgrass, ‘Protecting Investors’ Legitimate Expectations: Recognizing and Delimiting a General Principle’ (2006) 21 ICSID Review 1; S Fietta, ‘The “Legitimate Expectations” Principle under Art 1105 NAFTA. International Thunderbird Gaming Corporation v Mexico’ (2006) 7 Journal of World Investment & Trade 423; I Tudor, The Fair and Equitable Treatment Standard in International Foreign Investment Law (Oxford: OUP, 2008) esp pp 163–68; KJ Vandevelde, ‘A Unified Theory of Fair and Equitable Treatment’ (2010) 43 New York University Journal of International Law and Politics 43; M Potestà, ‘Legitimate Expectations in Investment Treaty Law: Understanding the Roots and the Limits of a Controversial Concept’ (2013) 28 ICSID Review 88. The notion of legitimate expectation is well rooted in domestic legal systems, where it aims to protect natural and legal persons subjected to the authority of public bodies and in European law: see, eg, August Töpfer & Co GmbH v Commission of the European Communities, 3 May 1978, Case 112/77; SM Stefánsson, ‘Legitimate Expectations in EC/EEA Law, in M Monti et al (eds), Economic Law and Justice in Times of Globalisation (Baden Baden: Nomos, 2007) 628. 40 Tecmed v Mexico, above n 35, Award, para 154. 41 See, in particular, MTD Equity Sdn Bhd & MTD Chile SA v Chile, ICSID ARB/01/7, Award, 25 May 2004, paras 114–15; Occidental Exploration and Production Company v Ecuador, UNCITRAL, Final

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in its dealing with the host State. Intimately related to the principle of good faith,42 the principle of legitimate expectations has been borrowed from domestic administrative law.43 The principle can be said to be common to the generality of States and transposable into a general principle of law in the sense of Article 38(1)(c) of the ICJ Statute. Its application is fully justified by the fact that the ‘two parties in investment disputes are not in an equal position’.44 Thus the principle performs in investment law the same important function that it performs domestically45 and may assist arbitral tribunals at different stages of the interpretative process, as will be further examined later on.

III. Status of Foreign Investors Virtually all substantive rules contained in international investment treaties are meant to protect the foreign investor who, although not formally party to these treaties, is clearly their main beneficiary.46 What makes these treaties truly remarkable, however, is that the investor may be allowed to vindicate violations of the obligations imposed by these treaties not only before the national tribunals of the host State but also—without rare exception47—before international tribunals.48 Award, 1 July 2004, para 185; CMS v Argentina, above Ch 2, n 10, para 279; Eureko BV v Poland, Partial Award and Dissenting Opinion, 19 August 2005, para 235. As observed in Saluka v Czech Republic, Partial Award, above n 1, para 302, ‘the standard of “fair and equitable treatment” is therefore closely tied to the notion of legitimate expectations which is the dominant element of that standard’. 42 Case law is abundant on this point. See Amco v Indonesia, above n 2, Jurisdiction, pp 359 and 385; Mobil Corporation and others v Bolivia, ICSID ARB/07/27, Jurisdiction, 10 June 2010, paras 169 ff; Chevron v Ecuador, above, Ch 1, n 7, Interim Award, paras 125–49 and para 141; Phoenix Action Ltd v Czech Republic, ICSID ARB/06/5, Award, 15 April 2009, para 107; Aguas del Tunari v Bolivia, Jurisdiction, above Ch 1, n 53, para 321; Tokios v Ukraine, above Ch 1, n 15, Jurisdiction, para 56; Azurix v Argentina, above Ch 1, n 28, paras 316–22; EDF (Services) Limited v Romania, ICSID ARB/05/13, Award, 8 October 2009, para 217. 43 M Sornarajah, above n 26, p 341. 44 TW Wälde, separate opinion in International Thunderbird v Mexico, above n 39, para 33. The author has observed ‘over the last years a significant growth in the role and scope of the legitimate expectation principle, from an earlier function as a subsidiary interpretative principle to reinforce a particular interpretative approach chosen, to its current role as a self-standing subcategory and independent basis for a claim under the “fair and equitable standard” as under Art 1105 of the NAFTA’. 45 In Southern Pacific Properties (Middle East) Limited v Egypt, ICSID ARB/84/3, Jurisdiction, 27 November 1985, Award, 20 May 1992 (1993) 32 International Legal Materials 933, paras 82–83, the tribunal held that ‘certain acts of Egyptian officials’ … were ‘cloaked with the mantle of government authority and communicated as such to foreign investors who relied on them in making their investment. Whether legal … or not these acts created expectations protected by established principles of international law’. 46 See M Paparinskis, ‘Analogies and Other Regimes of International Law?, in Z Douglas et al (eds), above Ch 2, n 38, p 73, 81. 47 See, eg, the BIT between Bulgaria and Cyprus, or the FTAA between the United States and Australia. 48 J Paulsson, ‘Arbitration without Privity’ (1995) 10 ICSID Review 232; M Sornarajah, The Settlement of Foreign Investment Disputes (The Hague: Kluwer, 2000); C Schreuer, ‘Consent to Arbitration’, in P Muchlinski et al (eds), above Ch 2, n 24, p 830.

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As a rule and in sharp contrast with human rights law, foreign investors do not need to exhaust domestic remedies before resorting to an international arbitral tribunal.49 As pointed out by a tribunal, the ICSID system has been established on the basis of a reversed rule of exhaustion of local remedies. Under Article 26 of the Convention, for entering into play, exhaustion of local remedies shall be expressly required as a condition of the consent of one party to arbitration under the Convention. Absent this requirement, exhaustion of local remedies cannot be a precondition for an ICSID Tribunal to have jurisdiction.50

This means that States have renounced to the possibility, guaranteed by the exhaustion of domestic remedies requirement, to redress the international wrongful act through its domestic tribunals. It is, however, important to note that some States are reconsidering this approach. The new Indian Model BIT, in particular, reads in part: (i) The Investor or Investment must first submit its claim before the relevant domestic courts or administrative bodies of the Host State for the purpose of pursuing domestic remedies … (ii) If a. after exhausting all judicial and administrative remedies relating to the Measure underlying the claim, no resolution has been reached satisfactory to the Investor or Investment; or b. having diligently pursued domestic remedies, the Investor or Investment has determined and can establish that continued pursuit of domestic relief would be futile because (1) there are no reasonably available domestic legal remedies capable of providing any relief for the dispute concerning the underlying Measure, or (2) that the process for obtaining legal relief provides no reasonable possibility of such relief in a reasonable period of time, the Investor may commence a proceeding under this Article.51

The direct access normally granted to a foreign investor to international arbitral tribunals has prompted a stimulating debate on the legal nature of the rights enjoyed by the investor and the latter’s status in international law. The most enthusiastic position has been taken in Plama v Bulgaria. The Tribunal observed that Article 26 of the Energy Charter Treaty ‘is a very important feature of the ECT which is itself a very significant treaty for investors, marking another step in their transition from objects to subjects of international law’.52 States may be reluctant to share this innovative perspective. The Canadian Government, for example, remains adamantly attached to a traditional vision of international law. It has pointed out that the obligations contained in the NAFTA

49 See, eg, Compaňia de Aguas del Aconquija SA and Vivendi Universal (formerly Compagnie Générale des Eaux) v Argentina, ICSID ARB/97/3, Annulment, 3 July 2002, para 52. 50 AES v Argentina, ICSID ARB/02/17, Jurisdiction, 26 April 2005, para 69. 51 Art 14.3. See also Art 28(1) SADC Protocol on Investment and Finance. 52 Plama Consortium Limited v Bulgaria, ICSID ARB/03/24, Jurisdiction, 8 February 2005, para 141 in fine.

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Treaty, including those on investment, ‘are owed by the Parties to one another and are subject to the dispute settlement procedures in NAFTA Chapter Twenty. They are not owed directly to individual investors. Nor do investors derive any rights from obligations owed to the Party of which they are nationals.’53 According to a more convincing approach, the investor can be seen as a participant in international law, thus overcoming the sterile dichotomy between subjects and objects. The basic assumption behind this approach is that ‘there is no inherent reason why the individual should not be able directly to invoke international law and to be the beneficiary of international law’.54 As early as 1928, the PCIJ held that ‘it cannot be disputed that the very object of any international agreement, according to the intention of the contracting parties, may be the adoption of some definite rules creating individual rights and obligations and enforceable by the national courts’, although this may have required the adoption by the parties of the necessary national legal instruments.55 The ICJ reiterated that an international treaty can create rights in favour of individuals in LaGrand. According to the Court, ‘Article 36 [of the Vienna Convention on Consular Relations] creates individual rights, which, by virtue of Article 1 of the Optional Protocol, may be invoked in this Court by the national State of the detained person’.56 In a subsequent case, the ICJ clarified its position by observing that the individual rights of Mexican nationals under paragraph I(b) of Article 36 or the Vienna Convention [on Consular Relations] are rights which are to be asserted, at any rate in the first place, within the domestic legal system of the United States. Only when that process is completed and local remedies are exhausted would Mexico be entitled to espouse the individual claims of its nationals through the procedure of diplomatic protection.57

It further held that violations of human rights of the individual under Article 36 may entail a violation of the rights of the sending State, and that violations of the rights of the latter may entail a violation of the rights of the individual. In these special circumstances of interdependence

53 Methanex v United States, above Ch 1, n 55, Second Submission of Canada Pursuant to NAFTA Art 1128, 30 April 2001, para 9. 54 R Higgins, Problems & Process: International Law and How We Use It (Oxford: Clarendon, 1994) 54 (emphasis added). See also A Redfern and M Hunter, Law and Practice of International Commercial Arbitration, 6th edn (London: Sweet & Maxwell, 2015) ch 3.XXX 55 Jurisdiction of the Courts of Danzig, Advisory Opinion, PCIJ, Ser B, No 15 (1928) pp 17–18.The Court also noted that Poland could not invoke the non-incorporation of the treaty into Polish law to escape from its international obligations (pp 26–27). On the necessity of a national legal instrument giving effect to the treaty within the jurisdiction of the parties, see D Anzilotti, Cours de droit international public (Paris: Sirey, 1929) 407 ff. 56 LaGrand (Germany v United States), above Ch 1, n 10, Judgment, p 466, para 77. But see the separate opinion by Judge Shi, p 518. The finding has been upheld in Request for Interpretation of the Judgment of 15 June 1962 in the Case concerning the Temple of Preah Vihear (Cambodia v Thailand), Provisional Measures, Order of 18 July 2011, ICJ Reports 2011, 537, para 67. 57 Avena (Mexico v United States), above Ch 1, n 10, Judgment, p 12, para 40.

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of the rights of the State and of individual rights, Mexico may, in submitting a claim in its own name, request the Court to rule on the violation of rights which it claims to have suffered both directly and through the violation of individual rights conferred on Mexican nationals under Article 36, paragraph 1 (b). The duty to exhaust local remedies does not apply to such a request.58

The position of the Court reveals the coexistence of two different and independent legal relationships as the same conduct may violate at once the rights of the individual and those of its national State. The first legal relationship, between the host State and the individual, allows the latter to bring a claim before the tribunals of the former. Once the domestic remedies have been exhausted, the national State may exercise diplomatic protection by ‘espousing’ the individual claim.59 The second, between the host State and the national State, enable the latter to directly file an application before the ICJ concerning alleged violations of its own rights. Against this background, investment treaties amounted to a normative breakthrough as these treaties may pave the way to the direct access by the investor to international tribunals. Two explanations have been suggested to explain the legal position in international investment treaties of the investor and its relationship with both the host State and the home State.60 The treaty creates a legal relationship between the host State and the investor. The former is then the holder of substantive rights and may resort to the remedies available under the treaty regardless of the attitude of the home State. Alternatively, the substantive rules continue to be binding exclusively the contracting Parties (primary obligation), but the procedural obligation is owed directly to the investor. Both alternatives elucidate the real nature of international investment treaties and ultimately lead to the same result. The first explanation, nonetheless, is to be preferred as it realistically describes investment arbitration as ‘a remedy exercisable by an investor by itself and in its own right against the host state’.61 In Corn Products v Mexico, the Tribunal held that [i]n the case of Chapter XI of the NAFTA, the Tribunal considers that the intention of the Parties was to confer substantive rights directly upon investors. That follows from

58 ibid.

59 It is worth recalling that Art 1 of the ILC Draft Arts on Diplomatic Protection, adopted in 2006 and available at http://untreaty.un.org/ilc/texts/instruments/english/commentaries/9_8_2006.pdf, reads: ‘Diplomatic protection consists of the invocation by a State, through diplomatic action or other means of peaceful settlement, of the responsibility of another State for an injury caused by an international wrongful act of that State to a natural or legal person that is a national of the former State with a view to the implementation of such responsibility.’ As explained in the Commentary, para 5, p 26, ‘Draft Art 1 is formulated in such a way as to leave open the question whether the State exercising diplomatic protection does so in its own right or that of its nationals—or both. It views diplomatic protection through the prism of State responsibility and emphasizes that it is a procedure for securing the responsibility of the State for injury to the national flowing from an internationally wrongful act’. 60 Z Douglas, ‘The Hybrid Foundations of Investment Treaty Arbitrations’ (2003) 74 British Yearbook of International Law 151, esp pp 181–84. 61 Plama v Bulgaria, above n 52, para 150. See also UK Court of Appeal (Civil Division), Occidental Exploration & Production Company and The Republic of Ecuador [2005] EWCA Civ 1116, para 18.

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the language used and is confirmed by the fact that Chapter XI confers procedural rights upon them. The notion that Chapter XI conferred upon investors a right, in their own name and for their own benefit, to institute proceedings to enforce rights which were not theirs but were solely the property of the State of their nationality is counterintuitive. What these two rules actually demonstrate is that when a State claimed for a wrong done to its national it was in reality acting on behalf of that national, rather than asserting a right of its own.62

The same position can be found in certain treaties, as in Article 11(2) second sentence of the BIT between Peru and the Belgium–Luxembourg Economic Union, according to which the Contracting Parties have agreed ‘that investors of one of the Contracting Parties are entitled to prevail directly their rights against the other Contracting Party through the arbitration’. The investor is in full control of the management of its claim throughout the entire dispute settlement process, from the first attempt to reach a friendly solution to the payment of compensation, if appropriate, passing through the appointment of the arbitral tribunal and the participation in the arbitral proceedings. As observed, amongst others, by the Tribunal in Corn v Mexico, ‘[t]he State of nationality of the Claimant does not control the conduct of the case’.63 The purpose of the whole exercise is indeed to bring investor–State disputes out of the reach of both the home and the host States. It must, however, be pointed out that neither alternative referred to above replaces the legal relationship between the States parties to the treaty. The treaty continues to impose upon the host State primary obligations owned to the other State(s). Under the first alternative described above, these obligations have an identical content to those owed to the investor, but remain quite independent from them. As such they may be the object of international claims brought by foreign investors or exceptionally by States in accordance with the relevant rules contained in the treaty. Under the second alternative, while the State remains the sole holder of the rights stemming from the treaty, alleged non-compliance with the corresponding obligations may bring about a dispute either between the investor and the host State or between the States concerned. In both ways, international investment treaties provide for two different categories of dispute between different parties. The same facts may generate two independent disputes—the first between the investor and the host State and the second between the States concerned. No question of lis pendens litispendens would arise as the parties to the dispute are different. The independence of the claims brought against the host State by a foreign investor and the home State has been stressed in Plama v Bulgaria, with regard to 62 Corn Products International, Inc v Mexico, ICSID ARB (AF)/04/1 (NAFTA), Responsibility, 15 January 2008, paras 169 and 174. In Case No A/18, 5 Iran–USCTR (1984-I) 251, 261, the Iran– United States Claims Tribunal emphasised that disputes before it ‘involve a private party on one side and a Government or Government-controlled entity on the other, and many involve primarily issues of municipal law and general principles of law. In such cases it is the rights of the claimant, not of his nation, that are to be determined by the Tribunal.’ 63 ibid, para 173.

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Articles 26 and 27 of the ECT Treaty governing, respectively, investor–State and State–State disputes. The Tribunal held that ‘even if (as the Respondent contends), the investor cannot invoke Article 26 at all, it would leave intact its home state’s right, as a Contracting State, to invoke Article 27 against the host state’.64 It further clarified that ‘Article 26 is a very important feature of the ECT; and as a remedy exercisable by an investor by itself and in its own right against the host state, it cannot be equated with Article 27’.65 The independence of the two claims is further confirmed by the fact that the home State is entitled to make a submission to the arbitral tribunal either challenging its jurisdiction with regard to that State’s investors, or to express disagreement on the merits with the position of its own investors. Both actions may have a detrimental impact on the investor case. The home State, however, cannot prevent the litigation between its own investors and the host State. In GAMI Investment Inc v Mexico, for instance, the United States submitted a file challenging the competence of a NAFTA tribunal over a claim brought an American company.66 The very fact that the Tribunal rejected the argument and upheld its competence demonstrates that the investor was complaining about an alleged violation of its own rights and not those of its national State. Moreover, the dispute between the foreign investor and the host State cannot in principle be affected by the filing by the latter of a case against the home State. In Empresas Lucchetti v Peru, the Respondent filed a request for suspension of the proceedings since the same allegations were the subject of a concurrent State-to-State arbitration. The Tribunal held that the conditions for a suspension of the proceedings were not met and rejected the request without any further discussion.67 It is important to stress that tribunals must apply the very same rules of interpretation to disputes between States and investor–State disputes. The fact that in investment arbitration the parties to the treaty and those to the dispute do not coincide is immaterial. The fact that neither the ILC draft article on the law of the treaties, nor the VCLT, includes any provision on treaty establishing individual rights does not affect the application of the VCLT to these treaties. The peculiar nature of disputes between foreign investors and the host State has prompted an author to introduce a distinction, which is particularly relevant from the standpoint of treaty interpretation, between the role tribunals play in those disputes as opposed to the role they play in investment-related disputes between States. It has been argued that unlike international tribunals, investor–state tribunals are typically empowered simply to resolve disputes and not to interpret and apply the relevant treaties as such. Nonetheless, by granting investment

64

Plama v Bulgaria, above n 52, Jurisdiction, para 150.

65 ibid.

66 United States Submission in GAMI Investment Inc v Mexico, available at www.state.gov/ documents/organization/22212.pdf. 67 Empresas Lucchetti, SA and Lucchetti Peru, SA v Peru, ICSID ARB/03/4, Award, 7 February 2005, paras 7 and 9.

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tribunals dispute resolution powers, treaty parties have impliedly delegated some interpretative powers to them, as interpretation (and hence some level of creation) is inherent in the adjudication process.68

The distinction seems rather artificial, as all tribunals meant to settle treatyrelated disputes have to interpret the treaty the very same way, which means in accordance with the VCLT rules of interpretation. Three main arguments clearly point to the identity of the interpretative process in investor–State and State–State disputes. First, no departure from the VCLT rules of interpretation is necessary to deal with disputes between States and investors. Contracting parties have accepted the competence of arbitral tribunals to settle disputes related to alleged violations of the treaty committed by each of them against their respective investors. The logical consequence is that arbitral tribunals must interpret and apply the treaty or, in other words, establish the meaning the contracting parties intended to attach to and recorded in the relevant provisions, in order to determine whether the host State has complied with its treaty obligations. Second, the interpretative process in investor–State disputes cannot be different from that in State–State disputes simply because there is only a set of rules of interpretation in international law. Besides, the reference to some interpretative powers implicitly delegated to investment tribunals appears unnecessary and unjustified, as it would undermine the unity of the interpretative process. Third, admitting for the sake of argument that arbitral tribunals dealing with treaty claims put forward by foreign investors could follow a different interpretative path compared to the case of State–State disputes would unavoidably introduce not only different interpretations, but also create legal uncertainty as to the meaning of the treaty and make its implementation by States problematic. Finally, the creative role arbitral tribunals may play depends on the content of the relevant treaty provision rather than on the nature of the disputing parties. This is not to say that the fact that one of the parties to the dispute is not party to the treaty is irrelevant. Quite the contrary. It makes it more important than ever to meticulously respect the VCLT rules. Being the ‘guardian’ of the proper interpretation of the treaty, the tribunal has a ‘particular duty of caution’ when interpreting these treaties.69 It also makes it even more compelling to establish in a balanced and unbiased manner the intention of both or all parties as recorded in the treaty.

68 A Roberts, ‘Power and Persuasion in Investment Treaty Interpretation: The Dual Role of States’ (2010) 104 American Journal of International Law 179, 189, relying on Z Douglas, The International Law of Investment Claims (Cambridge: CUP, 2009) 3, who has maintained that ‘Investment treaties generally provide that the state/state mechanism covers disputes “concerning the interpretation or application” of a treaty, whereas disputes relating to a specific investment of a specific investor (which may of course give rise to interpretative questions) are encompassed by the investor/state dispute resolution procedure’ (footnotes omitted). 69 F Berman, dissenting opinion in Lucchetti v Peru, above Ch 1, n 5, Annulment, para 9.

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The duty to operate impartially under the VCLT may even induce a tribunal to interpret a treaty contrary to the position of both or all parties to the treaty. In Aqua del Tunari v Bolivia, the Tribunal vindicated the right, although only in theoretical terms, to interpret the treaty in a fully sovereign manner. It emphasised ‘its firm view that it is the Tribunal, and not the contracting parties, that is the arbiter of its jurisdiction’.70 This may appear as a paradox as the tribunal may not interpret the treaty—which essentially means establishing the meaning the parties intended to attach to it—against the view expressly taken by the parties themselves. Three considerations are in order. In the first place, if the relevant treaty provision is open to several interpretations, including the one put forward by the parties to the treaty, it may be assumed that the Tribunal will privilege the latter. In this case, the interpretation defended by the parties to the treaty simply inspires the Tribunal’s choice between the different plausible interpretations. Second, the tribunal is explicitly directed by the VCLT to take into due account the positions on interpretation expressed by the by the parties to the treaty as long as they are relevant for the purpose of the conclusion of a subsequent agreement under Article 31(3)(a) VCLT or as subsequent practice under Article 31(3)(b) VCLT. As will be seen in Chapter 7, section II, the nature of investment arbitration may justify a good deal of flexibility with regard to the form of such an agreement, also considering the lack of any formal requirement under Article 31(3)(a) VCLT. From this perspective, the tribunal adopts the interpretation formally or informally shared by the parties after the conclusion of the treaty. Third, there is no obligation to accept mechanically the convergent interpretation taken by the parties. An essential distinction must be made between interpretation—which in this case would be authentic as it originates from the very subject that could amend the treaty—and consensual modification of the treaty lest the protection of the rights acquired under the treaty by investors is unduly undermined.71 This position is clearly dictated by the need to protect the investor against the possibility of applying retroactively an amendment of the treaty disguised as authoritative interpretation.

IV. Termination of Investment Treaties Investment treaties are definitely peculiar when it comes to duration and termination or withdrawal. In this respect, contracting parties have fully exploited the freedom they enjoy in this respect under the law of treaties and a variety of types

70 71

Aguas del Tunari v Bolivia, Jurisdiction, above Ch 1, n 53, para 263. See below, text accompanying Ch 7, n 53.

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and combination of clauses can be found in these treaties. The related choices are dictated by the need, on the one hand, to ensure investors a predictable and stable legal environment, and, on the other hand, to preserve the sovereignty of States. With regard to duration, a large number of BITs remain in force for an initial period of 10 years after which they continue to be applied indefinitely if not denounced.72 Article 15(2) of the BIT between China and Germany, for instance, reads in part: This Agreement shall remain in force for a period of ten years and shall be extended thereafter for an unlimited period unless denounced in writing through diplomatic channels by either Contracting Party twelve months before its expiration.

A significant number of BITs combine the initial limited duration of the treaty with its tacit extension for additional limited periods of time.73 Article 16(2) of the BIT between Japan and Sri Lanka, for instance, provides in part: The present Agreement … shall remain in force for a period of ten years and shall continue in force thereafter for another period of ten years and so forth, until terminated as provided in paragraph 3 of the present Article.

Other BITs do not contain any time limitation.74 Article 52 (3) of the Canadian BIT Model, for instance, reads in part: This Agreement shall remain in force unless either Party notifies the other Party in writing of its intention to terminate it. The termination of this Agreement shall become effective one year after notice of termination has been received by the other Party.

Virtually all international investment treaties contain a clause allowing the parties to unilaterally terminate or withdraw from the treaty, either at the end of the initial or any subsequent period, or any time in the cases of unlimited duration of the treaty or extension without limitation. As a rule, the right to terminate or withdraw from a treaty must be exercised in accordance with the notice period requirement, which is normally of six or 12 months. What makes international investment treaties a unique category from the point of view of their termination is the provision included in virtually all of them according to which they continue to produce their effects after the date of termination (between the two parties) or withdrawal (between the withdrawing party and the remaining ones) in respect of the investment made before such a date. Examples of this clause can be found in the overwhelming majority of BITs,

72 See Model BITs adopted by the United States (Art 22), the United Kingdom (Art 14), China (Art 13), Germany (Art 14), France (Art 11), and India (Art 24). 73 See, eg, Art 14(2) BIT Switzerland–China; Art 13(1) BIT Pakistan–Egypt; Art 13(2) BIT Netherlands–Slovak Republic; Art 13(2) BIT Italy–Jordan; Art 14(2) BIT Italy–Cuba; Art 12(1) BIT Switzerland–Pakistan. See also Art 47 ECT. 74 See, eg, the BITs concluded by Canada with Uruguay (Art XV), El Salvador (Art XV), South Africa (Art XVIII).

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including those concluded between developing countries.75 The period is normally 10 years,76 15 years,77 20 years,78 and occasionally five years.79 The recent termination by Venezuela of the BIT with the Netherlands provides a useful illustration of the functioning of the termination clause.80 Article 14(2) and (3) of the BIT, which provides for an initial duration of 15 years, reads in part: Unless notice of termination has been given by either Contracting Party at least six months before the date of the expiry of its validity, the present Agreement shall be extended tacitly for periods of ten years, each Contracting Party reserving the right to terminate the Agreement upon notice of at least six months before the date of expiry of the current period of validity. In respect of investments made before the date of the termination of the present Agreement the foregoing Articles thereof shall continue to be effective for a further period of fifteen years from that date.

The treaty entered into force on 1 November 1993 and on 30 April 2008—in the six months before the expiration of the treaty—Venezuela denounced it. Termination was therefore effective on 31 October 2008. In accordance with Article 14(3), however, the treaty continues ‘to be effective’ in respect of investments made before the date of the termination for 15 years as from 1 November 2008. Similar termination clauses have also been included in some FTAs81 and the ECT. According to Article 47 of the ECT, for instance, a member has a right to withdraw any time after five years from the date on which the treaty has entered into force for it by written notification and with a notice period of at least 12 months. The treaty nonetheless continues to apply for a further period of

75 See, eg, the BITs Egypt–India, Art 15(2); Lebanon–Malaysia, Art 12(4). See also India Model Treaty, Art 24(2). 76 See, eg, BIT Austria–India, Art 13(3); Chinese, Model Treaty, Art 13(2). 77 See, eg, the BITs concluded by Canada with Thailand, Art XVIII (2); Uruguay, Art XV(4); and Egypt, Art XVIII(2). 78 See United States Model Treaty, Art 16; United Kingdom Model Treaty, Art 14; German Model Treaty, Art 13. 79 See Art 24(2) Indian Model BIT. 80 Ecuador has denounced nine of its 25 BITs, namely those with Cuba, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Paraguay, Romania and Uruguay. It has also reportedly launched renegotiations with the remaining 16 countries. It has recently been reported in the Official Register No 452, dated 23 October 2008, that the Government of Ecuador has published copies of the formal letters that it has sent to Cuba, El Salvador, Guatemala, Honduras, Nicaragua, Paraguay, Dominican Republic and Uruguay stating its decision to denounce the BITs that it had previously signed with these countries. Ecuador reportedly states that it is in the process of reviewing ‘its legal system and its domestic as well as international policies in the matter of investments’. 81 See, eg, United States–Australia, Art 23(4); Japan–Mexico, Art 176; United States–Morocco, Art 22(6); FTA Canada–Peru, Art 845(3). Other FTAs, however, provide for the termination after a notice period without extending beyond that date the protection granted to foreign investment. See, eg, the FTA between the United States and Morocco (Art 22.6(2)), and between Australia and Singapore (Art 17(8). In the EFTA Treaty, the withdrawal clause is completed by the obligation to agree on appropriate arrangements and equitable cost-sharing relating to the withdrawal (Art 59).

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20 years in respect to investment existing at the date the termination becomes effective.82 Nothing in the VCLT83 or in the law of the treaties in general prevents the contracting parties from agreeing to continue to apply part or all of the treaty provisions in spite of its termination. This is a manifestation of the autonomy of the parties. Unless otherwise specified, the ‘post-termination’ application of the treaty concerns all the provisions of the treaty, including those providing for the settlement of disputes. This means that foreign investors continue to enjoy the substantive protection of the treaty and have access to the remedies provided for in the treaty with regard to investment existing at the time of termination of the treaty. Since the treaty is no longer formally in force, however, it cannot be invoked by the investors of a third country through MFN treatment clauses.84 The termination clauses are clearly intended to create a stable legal framework for the benefit of investors. Contracting parties mutually accept to tie their hands in order to eliminate the risk that their investors lose the protection under the treaty due to the unilateral and possibly unexpected action of the host State or even their own national State. This is particularly important in the case of longterm investment such as infrastructure or oil and energy exploitation projects.

V. Interpretation of International Investment Treaties It must be emphasised that investment treaties have to be interpreted in accordance with the rules of interpretation contained in the VCLT, which reflect customary international law.85 A large majority of investment arbitral tribunals have expressly referred to the VCLT rules on interpretation and most of them have also stressed its mandatory application. In RosInvest v Russian Federation, for instance, the Tribunal held that ‘under the terms of Article 4, the VCLT applies as a matter of legal obligation to the interpretation and application’ of the relevant treaty.86

82 Similarly, the Protocol Colonia provides for a 12- month notice period and the continuing application for a period of 15 years in respect of existing investment. 83 Art 70(1) states that the termination of the treaty releases the parties from any obligation further to perform the treaty unless the treaty otherwise provides. 84 In Siemens v Argentina, above n 5, Jurisdiction, para 99, the tribunal held that ‘[b]enefits available due to an MFN clause last as long as the treaty that grants them is in effect, but they do not become incorporated into the treaty containing the MFN clause’. 85 See, eg, Saluka v Czech Republic, above n 1, para 296; Mondev International Ltd v United States, ICSID ARB(AF)/99/2 (NAFTA), Award, 11 October 2002, para 43; Salini Costruttori SpA and Italstrade SpA v Jordan, ICSID ARB/02/13, Jurisdiction, 9 November 2004, para 75; Plama v Bulgaria, above n 52, Jurisdiction, para 117; Methanex v United States, above Ch 1, n 55, Award, Part II, Chapter B, para 15. See also Art 1 of the resolution adopted by the Institut de droit international on 13 September 2013 (Legal Aspects of Recourse to Arbitration by an Investor against the Authorities of the Host State under Inter-State Treaties). 86 RosInvest v Russian Federation, above Ch 1, n 45, para 38.

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In spite of their qualification as rules,87 general rules,88 principles,89 standard principles,90 methods,91 canons,92 or criteria,93 the interpreter has an obligation to fully apply them, either as a matter of treaty law or customary international law. The hesitation occasionally displayed in arbitral decisions94 and literature95 seems unjustified. When the VCLT is applicable between the States concerned, the arbitral tribunal must interpret the relevant treaty in accordance with Articles 31–33 VCLT.96 It has been noted that the cases in which the VCLT is applicable between the parties are surprisingly rare in practice.97 If correct, this conclusion is indeed surprising, since the VCLT is applicable to the relations between 114 States, although several States which have been involved in several arbitration cases—such as the United States, France, or Venezuela—have not ratified it yet. Given the identity between the rules on interpretation contained in the VCLT and those existing under customary international law,98 however, the question has some statistical interest, but hardly any practical implication.99

87

88

Amongst many examples, see Saluka v Czech Republic, Partial Award, above n 1, para 296. See, eg, Alpha Projektholding GmbH v Ukraine, ICSID ARB/07/16, Award, 8 November 2010, para

221. 89 See, eg, Continental Casualty Company v Argentina, ICSID ARB/03/9, Annulment, 16 September 2011, para 90, Award, para 187. 90 See, eg, Phoenix v Czech Republic, above n 42, para 75; SGS v Paraguay, above Ch 1, n 13, Award, para 90. 91 See, eg, Aguas del Tunari v Bolivia, above Ch 1, n 53, Jurisdiction, para 239. 92 See, eg, Ioan Micula, Viorel Micula, SC European Food SA, SC Starmill SRL and SC Multipack SRL v Romania, ICSID ARB/05/20, Award, 11 December 2013, para 503; Kiliç Ĭnşaat Ĭthalat Ĭhracat Sanayi Ve Ticaret Anonim Şirketi v Turkmenistan, ICSID ARB/10/, Annulment, 14 July 2015, para 7. 93 See, eg, Alps Finance and Trade AG v Slovak Republic, UNCITRAL, Award, 5 March 2011, para 237. 94 The position taken in Abaclat v Argentina, above Ch 1, n 15, para 291, according to which the tribunal ‘takes guidance from the VCLT in particular Art 31 (General rule of interpretation) and 32 (Supplementary means of interpretation)’, is not fortunate and undermines the application of the VCLT rules as a matter of legal obligation. 95 According to A Roberts, above n 68, p 207, the interpretative principles of the VCLT presumptively apply to investment treaties. 96 eg, in Millicom v Senegal, above Ch 1, n 35, Jurisdiction, para 58, the Tribunal held that ‘[t]he answer to the issues posed requires that the Arbitral Tribunal interpret the Accord and the ICSID Convention. It must do so by applying the Vienna Convention on the Law of Treaties of 23 May 1969 to which the two States have acceded: the Netherlands on 9 May 1985, and Senegal on 11 May 1986’. See also Hochtief AG v Argentina, ICSID ARB/07/31, Jurisdiction, 24 October 2011, para 26. In this decision, the Tribunal also noted that Art 11 of the BIT between Germany and Argentina contains an express reference to the VCLT. See also National Grid plc v Argentina, UNCITRAL, Award, 3 November 2008, para 167; Aguas del Tunari v Bolivia, above Ch 1, n 53, Jurisdiction, para 116; Saluka v Czech Republic, Partial Award, above n 1, para 296; Fraport AG Frankfurt Airport Services Worldwide v Philippines, ICSID ARB/03/25, Award, 16 August 2007, para 339; Ambiente v Argentina, above Ch 1, n 15, Admissibility and Jurisdiction, para 130. 97 RosInvest v Russian Federation, above Ch 1, n 45, para 38. 98 In Canadian Cattleman for Fair Trade v United States (UNCITRAL) NAFTA, Jurisdiction, 28 January 2008, para 116, for instance, the Tribunal held that ‘[i]t is … common cause that the VCLT provides the applicable rules of international law governing the interpretation of the NAFTA. 99 In MTD v Chile, above n 41, Annulment, 21 March 2001, fn 69, the ad hoc Committee held that, under Art 4 VCLT and contrary to the finding of the Tribunal, the VCLT was not applicable as such to the BIT between Chile and Malysia because the latter became a party to the Convention in 1994, after the conclusion of the BIT. Nonetheless, given the identity of the VCLT and customary rules, the point was considered as ‘without incidence so far as the Award is concerned’.

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Whether as a matter of treaty law or of customary law, arbitral tribunals must interpret the relevant treaties by applying the rules on interpretation contained in the VCLT lest they expose their decisions, in the context of ICSID arbitration, to a procedure of annulment for manifest excess of power. In the case of an ICSID tribunal, in particular, ‘a failure to apply the rules of interpretation perforce distorts the resulting interpretation of the parties’ agreement and is a species of the application of the wrong law within the meaning of Article 52 of the ICSID Convention’.100 The erroneous application of the VCLT rule of interpretation, on the other hand, does not necessarily amount to a manifest excess of power and is not necessarily sanctioned with the annulment of the relevant part of or the whole decision. Arbitral tribunals have not always displayed great accuracy in dealing with the applicability of the VCLT. In Kılıç v Turkmenistan, for instance, the Tribunal first noted that the VCLT was applicable to Turkmenistan since that State had signed it on 2 February 1996,101 then that Turkey is not a signatory to the VCLT. However, customary international law is part of the applicable law in Turkey. Accordingly, the VCLT is applicable to Turkmenistan. Accordingly, the Tribunal proceeds on the basis that the provisions of the VCLT that reflect customary international law are to be treated as part of the Turkish legal system and are applicable to Turkey.102

These findings are far from convincing and the terminology used (in particular “signatory”) is inaccurate. First, Turkmenistan acceded to the Convention on 4 January 1996.103 The VCLT entered into force with regard to Turkmenistan on 2 February 1996 in accordance with Article 84(2) VCLT. Second, Turkey is not a party to the VCLT since it has not yet acceded to it. Accordingly, the convention is not applicable to the relations between Turkey and Turkmenistan. As far as they reflect customary international law, nonetheless, the provisions of the VCLT— including Articles 31–33—are applicable as customary law as recognised in the decision.104 This is a matter belonging to the relations amongst the subjects of international law and governed by international law. The status of customary law in the Turkish legal system, on the other hand, is immaterial for the purpose of the application of the VCLT to the treaty relations between Turkey and Turkmenistan. Only exceptionally have tribunals deliberately neglected the VCLT. In Inceysa Vallisoletana SL v El Salvador, the Tribunal completely ignored the VCLT articles

100 M Reisman, above Ch 1, n 3, p 14. For a discussion on the role of annulment Committees with regard to interpretation given by tribunals, see Ch 12, section IV. 101 Kılıç v Turkmenistan, above Ch 1, n 5, Art VII.2, para 6.2. 102 ibid, para 6.3 (footnote omitted). 103 According to the UN Treaty Series database, at https://treaties.un.org/pages/ViewDetailsIII. aspx?&src=TREATY&mtdsg_no=XXIII~1&chapter=23&Temp=mtdsg3&lang=en. 104 Kılıç v Turkmenistan, above Ch 1, n 5, Art VII.2, para 6.4.

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on interpretation and offered an original combination of ‘guidelines to determine the scope of consent’, namely the absence of presumption in favour or against jurisdiction, the identification of the will of the parties, and the interpretation according to the principle of good faith.105 The Tribunal then proceeded to interpret the relevant BIT by examining the travaux préparatoires in order to identify the will of the parties. Only then did it turn to the terms of the treaty and concluded: by interpreting in good faith Article III of the Agreement, and by attributing to each of its words the meaning and scope the parties wanted to give them, and according to the will of the contracting States manifested in the travaux préparatoires, it is clear that the only correct interpretation of said article must be in the sense that any investment made against the laws of EI Salvador is outside the protection of the Agreement and, therefore, from the competence of this Arbitral Tribunal.106

Although it may be argued that the outcome of the interpretative process is plausible as the travaux préparatoires and the literal arguments pointed in the same direction and led to what the Tribunal considered as the only correct interpretation, the approach of the Tribunal manifestly departs from the VCLT and remains questionable.107 In another case, an ICSID Tribunal has taken a rather liberal approach with regard to the customary rules on interpretation codified in Art 31 VCLT. Rendering its award in 1991, just a few weeks before the ICJ for the first time accepted that the relevant articles of the VCLT had codified existing law,108 the tribunal upheld the applicability of the rules of interpretation as codified in Art 31 VCLT to settle a dispute involving Sri Lanka, a State that at the relevant time had not ratified the VCLT. Instead of applying the various element of Article 31 VCLT and without providing any explanation, nonetheless, the Tribunal elaborated six ‘rules’ combining some elements of Article 31 VCLT with some means developed in international jurisprudence. This approach is unpersuasive insofar as Article 31 is not applied in their entirety.109 Although the rules developed by the Tribunal in AAPL v Sri Lanka are in good substance compatibile with Article 31, the selection and articulation by tribunals of their own set of interpretative rules should not be encouraged as it may ultimately undermine the logic, uniformity and coherence of the entire interpretative process. The approach taken in AAPL v Sri Lanka has been almost entirely abandoned. Amongst the rare references to the AAPL v Sri Lanka decision in recent awards,

105

Inceysa Vallisoletana SL v El Salvador, Award, 2 August 2006, para 175. ibid, para 203. 107 ibid, paras 190–203. The tribunal finally held that the interpretation was confirmed by ‘a harmonious interpretation’ based on contextual considerations. 108 Arbitral Award of 31 July 1989 (Guinea-Bissau v Senegal), Judgment, ICJ Reports 1991, 53, para 48. 109 Asian Agricultural Products Ltd (AAPL) v Sri Lanka, ICSID ARB/87/3, Award, 27 June 1990, para 40. 106

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it is worth noting that in Alpha v Ukraine, the Tribunal “adhered”110 to the VCLT rules on interpretation and indicated, as additional interpretative tools, some of the principles summarised by the AAPL Tribunal, namely (i) the tribunal should not interpret that which has no need of interpretation; (ii) effect should be given to every provision of an agreement; and (iii) a provision must be interpreted so as to give it meaning rather than so as to deprive it of meaning.111

VI. Principle of Good Faith Before embarking on a full treatment of Articles 31–33, it is appropriate to deal briefly with the good faith requirement which, although expressly mentioned only in Article 31, applies equally to the whole interpretative process, including Articles 32 and 33.112 The principle of good faith is intimately related to the pacta sunt servanda rule113 and has been described as being ‘a general principle of law and general principle of international law’114 as well as ‘a basic principle for interpretation of a treaty’.115 For another tribunal, the principle means that the interpreter must consider the consequences the parties to the treaty must reasonably and legitimately have envisaged when accepting their treaty obligations.116 From this perspective, it has more to do with the creation and performance of legal obligations, whatever their source,117 than with the interpretation of treaties. The real value of the principle of good faith for the purpose of interpretation has been hotly disputed.118 Indeed, while, according to certain authors, good faith ‘is perhaps the

110

Alpha Projektholding GmbH v Ukraine, above n 88, para 70. Para 223. 112 On the principle of good faith across international economic law see, in particular, AD Mitchell, M Sornarajah and T Voon (eds), Good Faith and International Economic Law (Oxford: OUP, 2015). 113 See, in this regard, the position of the ILC (1966-II) 18 Yearbook of the International Law Commission 219. 114 See, eg, Mobil Corporation, Venezuela Holdings, BV, Mobil Cerro Negro Holding, Ltd., Mobil Venezolana de Petróleos Holdings, Inc., Mobil Cerro Negro, Ltd., and Mobil Venezolana de Petróleos, Inc. v Venezuela, ICSID ARB/07/27, Jurisdiction, 10 June 2010, para 175, quoting with approval the WTO Appellate Body decision in United States—Import Prohibition of certain Shrimps and Shrimps Products, WT/DS58/AB/R of 12 December 1998, para 158. 115 See, eg, Canfor Corporation v United States, Tembec et al v United States and Terminal Forest Products Ltd v United States, UNCITRAL (NAFTA), Preliminary Question, 6 June 2006, para 182. 116 Société Ouest Africaine de Bétons Industriels (SOABI) v Senegal, ICSID ARB/82/1, Award, 25 February 1988, para 393. 117 See Nuclear Tests (Australia v France), Judgment, ICJ Reports 1974, 253, para 46. The ICJ also pointed out that ‘[t]rust and confidence are inherent in international co-operation, in particular in an age when this co-operation in many fields is becoming increasingly essential. Just as the very rule of pacta sunt servanda in the law of treaties is based on good faith, so also is the binding character of an international obligation assumed by unilateral declaration’. 118 For a discussion on the relevance of good faith in treaty interpretation, see R Kolb, La bonne foi en droit international public (Paris: PUF, 2009) 260 ff. 111

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only non-controversial canon of interpretation’,119 for others the principle that treaties are to be interpreted in good faith ‘means really nothing at all in strict law’.120 That international investment treaties must be interpreted in good faith has pompously been described as ‘a core principle about which all else revolves’121 or a ‘cardinal injunction of the VCLT’.122 In a recent decision, an ICSID Tribunal held that an interpretation in good faith is not simply interpretation bona fides, as opposed to the absence of mala fides, or a principle providing for the rejection of an interpretation that is abusive or that may result in the abuse of rights. It also means that the interpretation requires elements of reasonableness that go beyond the mere verbal or purely literal analysis.123

In Sempra v Argentina, the Tribunal held that ‘[t]he principle of good faith is thus relied on as the common guiding beacon that will orient the understanding and interpretation of obligations, just as happens under civil codes’.124 Good faith is a ubiquitous and multifaceted principle125 susceptible of application to every international legal relationship.126 With regard to interpretation of treaties by investment arbitral tribunals, which is the main focus of this study, interpreting a treaty in good faith means essentially that arbitrators must follow the path defined in Articles 31–33 with a balanced, unbiased and not preconceived attitude.127 The reference to ‘good faith’ reinforces the duty of tribunals to limit

119 H Lauterpacht, The Development of International Law by the International Court (London: Praeger, 1958) 56. 120 M Sørensen, Manual of Public International Law (London: Macmillan, 1968) 211. 121 Hrvatska Elektroprivreda v Slovenia, above Ch 1, n 4 para 191. In Abaclat v Argentina, above Ch 1, n 15, para 646, the tribunal emphasised that ‘[t]he principle of good faith is a fundamental principle of international law, as well as investment law’ (footnote omitted). 122 S Schwebel, dissenting opinion, Maritime Delimitation and Territorial Questions between Qatar and Bahrain, Jurisdiction and Admissibility, Judgment, ICJ Reports 1995, 6, 39. In HICEE v Slovakia, above Ch 1, n 35, Partial Award, para 136, the majority of the tribunal held that the VCLT ‘consciously placed’ good faith ‘at the very head of the provisions dealing with interpretation’. 123 Potová banka, a.s. and ISTROKAPITAL SE v Hellenic Republic, ICSID ARB/13/8, Award, 30 April 2015, para 67. 124 Sempra v Argentina, above Ch 2, n 10, Award, para 297. See also Tecmed v Mexico, above n 35, Award, para 153. 125 In the dissenting opinion attached to Daimler v Argentina, above Ch 1, n 15, Award, para 7, CN Brower argued that ‘[t]he good faith requirement is meant to encapsulate well-established principles such as effet utile, honesty, fairness and reasonableness in interpreting a treaty, protection of legitimate expectations, avoidance of abuse of rights, and … the fundamental principle of pacta sunt servanda’. In literature, see R Kolb, above n 118. 126 The ILC has noted that ‘[t]he motif of good faith applies throughout international relations’ (1966-II) 18 Yearbook of the International Law Commission Part 2, p 211. 127 See R Kolb, above n 118, p 277 (quoted with approval by J Paulsson, individual opinion, Hrvatska Elektroprivreda v Slovenia, above Ch 1, n 4, para 51). L Boisson de Chazournes, dissenting opinion in Garanti Koza LLP v Turkmenistan, ICSID ARB/11/20, 3 July 2013, para 10 (citations omitted), has observed that ‘the text must always be taken as the starting point. As such, no doctrine of restrictive or extensive interpretation of the text of the treaty should prevail. Interpretation of the text should be based on an “ex ante neutral approach”.’

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themselves to interpretations falling within the bounds of the framework mutually agreed to by the contracting State parties.128 In this regard, in Mondev v United States, the Tribunal unambiguously held that ‘there is no principle either of extensive or restrictive interpretation of jurisdictional provisions in treaties. In the end the question is what the relevant provisions mean, interpreted in accordance with the applicable rules of interpretation of treaties’.129 Another Tribunal confirmed that ‘a balanced interpretation is needed, taking into account both State sovereignty and the State’s responsibility to create an adapted and evolutionary framework for the development of economic activities, and the necessity to protect foreign investment and its continuing flow’.130

128

Daimler v Argentina, above Ch 1, n 15, Award, para 173. Mondev v United States, above n 85, Award, para 43 (footnote omitted). Methanex v United States, above Ch 1, n 55, Partial Award, 7 August 2002, para 105, the relevant NAFTA provision ‘should be interpreted in good faith in accordance with their ordinary meaning (in accordance with Art 31(1) of the Vienna Convention), without any one-sided doctrinal advantage built in to their text to disadvantage procedurally an investor seeking arbitral relief ’. In ICS Inspection and Control Services Limited v Argentina, UNCITRAL, PCA Case No 2010-9, Jurisdiction, para 282, the tribunal held that ‘Any general rule of restrictive treaty interpretation is plainly in conflict with the VCLT and customary international law’. See also Azurix v Argentina, above Ch 1, n 28, para 307; Agua del Tunari v Bolivia, above Ch 1, n 53, Jurisdiction, para 91; Saluka v Czech Republic, Partial Award, above n 1, p 300; Siemens v Argentina, above n 5, Jurisdiction, para 81; EDF v Romania, above n 42, para 173; Plama v Bulgaria, above n 52, Award, 27 August 2008, para 167; RosInvest v Russian Federation, above Ch 1, n 45, para 45. In Grand River v United States, Final Award, 12 January 2011, para 69, the Tribunal held that the terms used in NAFTA such as ‘investment’ should not be construed ‘broadly’ or ‘narrowly’, or in any way other than in accordance with their plain meaning and the normal rules of treaty interpretation as indicated by the Vienna Convention on the Law of Treaties. In Government of the Lao People’s Democratic Republic v Sanum Investments Ltd, Judgment, 20 January 2015, the High Court of Singapore [2015] SGHC 15, para 44, held that ‘[i]t is a truism to say that the purpose of any BIT is to promote investments. But it does not follow from this general proposition that every ambiguity found in such treaties should invariably be resolved in favour of the investor.’ 130 El Paso Energy v Argentina, Case ARB/03/15, Jurisdiction, 27 April 2006, para 70. In AMCO v Indonesia, Jurisdiction, above n 2, p 359, the Tribunal held that ‘a convention to arbitrate is not to be construed restrictively, nor, as a matter of fact, broadly or liberally. It is to be construed in a way which leads to find out and to respect the common will of the parties: such a method is but the application of the fundamental principle pacta sunt servanda’. Two tribunals unconvincingly argued that, with regard to the measures adopted on grounds of necessity under Art XI BIT Argentina–United States that ‘the object and purpose of the Treaty is, as a general proposition, to apply in situations of economic difficulty and hardship that require the protection of the international guaranteed rights of its beneficiaries. To this extent, any interpretation resulting in an escape route from the obligations defined cannot be easily reconciled with that object and purpose. Accordingly, a restrictive interpretation of any such alternative is mandatory’. In Ethyl Corporation v Canada, UNCITRAL (NAFTA), Jurisdiction, 24 June 1998, para 55 (footnotes omitted), the tribunal held that the erstwhile notion that ‘in case of doubt a limitation of sovereignty must be construed restrictively’, has long been displaced by Arts 31 and 32 of the Vienna Convention’. See also CSOB v Slovak Republic, Jurisdiction, 24 May 1999, para 34; Inceysa Vallisoletana, SL v Republic of El Salvador, ICSID Case No ARB/03/26, Award, 2 August 2006, at para 176. More recently, in PNG Sustainable Development Program Ltd v Papua New Guinea, ICSID ARB/13/33, Award, 5 May 2015, para 253, the tribunal firmly found that ‘[j]urisdictional instruments, whether investment contracts, treaties or legislation, must be interpreted objectively and neutrally, and not either expansively or restrictively’. 129

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From this perspective, the interpreter is expected to meticulously consider and weight all elements of the interpretative process according to their logical sequence. In particular, they must be guided by the good faith principle when balancing the various elements contained in Article 31 and when deciding whether resort to Article 32 is appropriate in order to confirm the interpretation reached on the basis of Article 31. A couple of tribunals have associated the good faith requirement with the consequences that a given interpretation may entail or with the performance by the parties of their obligations under the treaty. In Amco v Indonesia, in particular, the Tribunal held that ‘any convention … should be construed in good faith, that is to say by taking into account the consequence of their commitments the parties may be considered as having reasonably and legitimately envisaged’.131 The Tribunal, which elsewhere in the decision engaged in a detailed discussion on the interpretation of Article 25(1) ICSID based on the various elements of Article 31, summarily deals in rapid sequence with three elements of treaty interpretation, namely ordinary meaning, context (Article 8(3)) and good faith. It is submitted that the third element conflates good faith with object and purpose of the provision as well as with the principle of effectiveness.132 For the time being, it may be provisionally held that in spite of some solemn proclamations, the importance of the principle of good faith for the purpose of treaty interpretation must not be exaggerated. It may even be anticipated that rather than being an autonomous principle of interpretation, good faith may assist the interpreter throughout the process and particularly in dealing with the textual analysis of the relevant treaty provision in its context and in considering the object and purpose of both the treaty and the provision to be interpreted. From this perspective, the principle of good faith can hardly prevail over the clear wording of a treaty provision133 or undermine the pursuing of the object and purpose of the treaty. As will be explained later, moreover, using the principle of good faith to link the interpretation of a treaty provision to its consequences or perceived consequences may entail the risk of introducing policy arguments in the interpretative process and induce the arbitral tribunal to consciously or unconsciously overstep its role.

131 Above n 2, Award on Jurisdiction, 25 September 1983, pp 359, 385. Similarly, in SOABI v Senegal, above n 116, Award, para 4.10, the Tribunal found that ‘[a]n arbitration agreement must be given, just as with any other agreement, an interpretation consistent with the principle of good faith. In other words, the interpretation must take into account the consequences which the parties must reasonably and legitimately be considered to have envisaged as flowing form their undertakings’. 132 See Ch 6, n 2. 133 The point was clearly made in Joseph Charles Lemire v Ukraine, ICSID ARB/06/18, Jurisdiction and Liability, 14 January 2010, para 114, with regard to contractual provisions.

4 Ordinary Meaning of the Terms of the Treaty I. Textual Interpretation The textual approach is deeply rooted in international jurisprudence. In 1950, well before the conclusion of the VCLT, the ICJ forcefully held that the first duty of a tribunal which is called upon to interpret and apply the provisions of a treaty, is to endeavour to give effect to them in their natural and ordinary meaning in the context in which they occur. If the relevant words in their natural and ordinary meaning make sense in their context, that is an end of the matter.1

The Court promptly clarified that when the words in their natural and ordinary meaning are ambiguous or lead to an unreasonable result, ‘then, and then only, must the Court, by resort to other methods of interpretation, seek to ascertain what the parties really did mean when they used these words’.2 Building on this basic assumption, the VCLT adopted a more sophisticated approach which takes into account, in a logical sequence, all the elements expressly indicated in Articles 31–33, without ruling out the possibility of resorting to other means and techniques not expressly indicated. Interpretation under the VCLT can be seen as an exercise intended to examine the text as a legal document recording the common intention of the parties as well as unwind the process leading to the conclusion of the treaty and consider the practice related to its application. Being the final outcome of this process and the object of this practice, the text of the

1 Competence of the General Assembly for the Admission of a State to the United Nations, Advisory Opinion, ICJ Reports 1950, p 4 at 8, quoted with approval in Case concerning the Arbitral Award of 31 July 1989 (Guinea-Bissau v Senegal), Judgment, ICJ Reports 1991, p 53, para 48. 2 ibid.

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treaty is normally—but not necessarily always3—the logical starting point of the exercise.4 In the search for the meaning ordinarily attached to a given term or expression, the interpreter may use all the sources that may be appropriate, including not only linguistic, legal or professional dictionary,5 but also official documents related to professional practice and State practice. Should the term have assumed in a peculiar professional field or context a meaning departing from the ‘ordinary’ one, Article 31(4) VCLT, allowing the interpreter to consider a special meaning, may come into play.6 The importance of the text has been emphasised as follows by Reuter: [t]he primacy of the text, especially in international law, is the cardinal rule for any interpretation. It may be that in other legal systems, where the legislative and judicial processes are fully regulated by the authority of the State and not by the free consent of the parties, the courts are deemed competent to make a text say what it does not say or even the opposite of what it says. But such interpretations, which are sometimes described as teleological, are indissociable from the fact that recourse to the courts is mandatory, that the court is obliged to hand down a decision, and that it is moreover controlled by an effective legislature whose action may if necessary check its bolder undertakings.7

The conclusion is even more compelling in the area of foreign investment, where disputes are normally settled through arbitration and there is no appeal

3 If the parties to the treaty have adopted an authoritative interpretation, it might be superfluous and inefficient to undertake a thoroughly textual analysis of the relevant provision. It is also possible, although rather exceptional, as pointed out by I Sinclair, above Ch 1, n 10, p 130, that ‘the object and purpose of the treaty is so overwhelmingly apparent that it must necessarily and from the very outset exercise a determining influence upon the search for the contextual “ordinary meaning”’. As pointed out by V Lowe, above Ch 1, n 52, p 74, ‘most courts … do not draw fine distinctions as to the sequence and purpose for which interpretative aids are applied’. 4 In AWG Group Ltd v Argentina, UNCITRAL, Jurisdiction, 3 August 2006, para 54, the Tribunal reiterated that ‘the text of the treaty is presumed to be the authentic expression of the parties’ intentions. The starting place for any exercise in interpretation is therefore the treaty text itself ’. In Territorial Dispute (Libyan Arab Jamahiriya/Chad), above Ch 1, n 10, Judgment, para 41, the Court confirmed that ‘[i]nterpretation must be based above all upon the text of the treaty’. See also Arbitral Award of 31 July 1989, ICJ Reports 1990, para 48. The ILC, in turn, pointed out that ‘the starting point of interpretation is the elucidation of the meaning of the text, not an investigation ab initio into the intention of the parties’, (1966-II) 18 Yearbook of the International Law Commission 221. In US—Shrimp, above Ch 3, n 114, para 114, the Appellate Body observed that ‘[a] treaty interpreter must begin with, and focus upon, the text of the particular provision to be interpreted’. In EC—Measures Concerning Meat and Meat Products (Hormones), WT/DS26/AB/R, para 181, it further noted that ‘[t]he fundamental rule of treaty interpretation requires a treaty interpreter to read and interpret the words actually used by the agreement under examination, not words the interpreter may feel should have been used’. 5 For an example of use of legal dictionaries, see Aguas del Tunari, above Ch 1, n 53, Jurisdiction, para 232. 6 See below, Ch 9, section I. 7 P Reuter, Introduction of the Law of the Treaties, 2nd English edn (London: Kegan Paul, 1995) para 142. Quoted with approval by J Paulsson, individual opinion, Hrvatska Elektroprivreda d.d. v Slovenia, above Ch 1, n 4, para 48.

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echanism. The importance of the text of the treaty has been stressed by numerm ous investment tribunals. In Methanex v United States, in particular, the Tribunal, relying on the work of the ILC,8 held that ‘the text of the treaty is deemed to be the authentic expression of the intentions of the parties; and its elucidation, rather than wide-ranging searches for the supposed intentions of the parties, is the proper object of interpretation’.9 In a similar vein, in Wintershall v Argentina, the Tribunal pointed out that ‘[t]he carefully-worded formulation of Article 31 [of the VCLT] is based on the view that the text must be presumed to be the authentic expression of the intention of the parties’.10 According to Rompetrol v Romania, [t]he question … is not what the Parties to this bilateral treaty might (or might not) conceivably have intended, but what they actually did, and the evidence for that is the terms of the treaty they concluded. That, so far as the Tribunal can see, is what the Vienna Convention requires.11

Several tribunals have emphasised the predominance or primacy of textual interpretation of a treaty provision and stuck to the ordinary meaning of its terms, even when the outcome could have been surprising. In this regard, it is worth recalling that the ICJ has held that a grammatical (textual) interpretation leading to a ‘result which is legally somewhat surprising’ must be accepted only if there are compelling and decisive grammatical arguments.12 In Planet Mining Pty Plc v Indonesia, for instance, the Tribunal interpreted Article XI(3) of the BIT between Australia and Indonesia as allowing foreign investors to resort to arbitration under UNCITRAL rules only when they cannot resort to ICSID because either or both parties do not accept the jurisdiction of

8

(1966-II) 18 Yearbook of the International Law Commission 223. Methanex v United States, above Ch 1, n 55, Award, Part II, Chapter B, para 22. Similarly, in Saluka v Czech Republic, Partial Award, above Ch 3, n 1, para 241, the Tribunal stressed that ‘the predominant factor which must guide the Tribunal’s exercise of its functions is the terms in which the parties to the Treaty now in question have agreed to establish the Tribunal’s jurisdiction’. In ADF Group Inc v United States, ICSID ARB (AF)/00/1, Award, 9 January 2003, para 47, the Tribunal held that ‘the rules of interpretation found in customary international law … enjoin us to focus first on the actual language of the provision being construed’. In Sociedad General de Aguas de Barcelona SA v Argentina, ICSID ARB/03/17, Jurisdiction, 16 May 2006, para 54, ‘The starting place for any exercise in interpretation is therefore the treaty text itself ’. 10 Wintershall v Argentina, above Ch 3, n 19, Award, para 78. In para 88, the same Tribunal emphasised that ‘[i]n the circumstances, the Tribunal holds that, there is no room for any presumed intention of the Contracting Parties to a bilateral treaty, as an independent basis of interpretation; because this opens up the possibility of an interpreter (often, with the best of intentions) altering the text of the treaty in order to make it conform better with what he (or she) considers to be the treaty’s “true purpose”’. See also the resolution adopted by the Institut de droit international (1952-I) 44 Annuaire de l’Institut de droit international 199. 11 The Rompetrol Group NV v Romania, ICSID ARB/06/3, Jurisdiction and Admissibility, 18 April 2008, paras 107 and 109. 12 Aegean Sea Continental Shelf, Judgment, ICJ Reports 1978 p 3, 22. 9

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ICSID tribunals.13 The Tribunal conceded that interpreting Article XI(3) in the sense that acceptance of ICSID jurisdiction by both parties to the BIT precludes arbitration under UNCITRAL rules is ‘undoubtedly a surprising and unsatisfactory result’. It nonetheless firmly held that this is ‘the result that derives from the text of the Treaty and the Tribunal cannot change the text, especially not in the absence of travaux that would shed a different light on the words’.14 The strong reliance on the text of the treaty, however, does not amount to a profession of faith.15 Textual interpretation is the departing and normally most crucial element of the process of interpretation. Yet, the literal interpretation needs to be double checked against the context in which the treaty terms have been used and against the object(s) and purpose(s) of the treaty and the relevant provision(s). The interpreter must then take into account any of the elements listed in Article 31(3) VCLT, if applicable. Besides, it cannot be excluded that the literal interpretation must be discharged due to an error committed during the drafting of the treaty.16 Equally important, it is possible that other elements or means the interpreter must or may consider under the VCLT rules on interpretation compel a departure from literal interpretation. The departure from the literal meaning must be based on well-founded reasons, not merely on speculation or unverified assumptions. In this respect, it has been stressed that [a]bsent specific circumstances to the contrary, this Tribunal sees no reason to deviate from the ‘ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose’, which is the primary rule of interpretation under Article 31 of the Vienna Convention on the Law of Treaties.17

A scrupulous reading of the text of any given treaty provision might allow the interpreter to reach a straightforward interpretation. In Continental Casualty Company v Argentina, for instance, the annulment Committee, dealing with a preliminary objection made by the investor, had to determine whether, in case of

13 Article XI(3) reads in part: ‘If both Parties are not at the same (sic) time the dispute arises party to the [ICSID] Convention, the dispute may be submitted to such procedures for settlement as may be agreed between the parties to the dispute. If no such procedures have been agreed within a three month period from written notification of the claim, the parties to the dispute shall be bound to submit it to arbitration under the Arbitration Rules of UNCITRAL as then in force’. 14 Planet Mining Pty Ltd v Indonesia, ICSID ARB/12/14 and 12/40, Jurisdiction, 24 February 2014, para 169. 15 Although dated well before the conclusion of the VCLT, the following finding by the ICJ in AngloIranian Oil Co Case (Jurisdiction), Judgment, ICJ Reports 1952 p 93, 104 is still valid today: ‘the Court cannot base itself on a purely grammatical interpretation of the text. It must seek the interpretation which is in harmony with a natural and reasonable way of reading the text, having due regard to the intention of the Government of Iran at the time when it accepted the compulsory jurisdiction of the Court’. 16 See Ch 6, section IV. 17 Jan de Nul NV and Dredging International NV v Egypt, ICSID ARB/04/13, Award, 6 November 2008, para 139.

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rectification in accordance with Article 49(2) ICSID, the deadline to file a request for annulment has to be calculated from the date the award was rendered or that in which it was rectified. In the words of the Committee, [f]or purposes of Article 31(1) of the Vienna Convention, the Committee considers that the plain meaning of Article 49(2) of the ICSID Convention is abundantly clear: where a rectification decision is given under Article 49(2) of the ICSID Convention, the period of time provided for under Article 52(2) of the ICSID Convention runs from the date of the rectification decision, rather than from the date of the original award. The Committee considers that there is nothing in the context or objects and purposes of the ICSID Convention that would require this provision to be understood as having a completely different meaning to what it plainly says.18

Owing to the unequivocal meaning of the text, the Tribunal understandably limited itself to double checking whether any contextual or teleological considerations could point in a different direction. In other words, it tested whether—using the ICJ expression referred to above19—the interpretation based on the ordinary meaning of the terms employed in the relevant provision ‘made sense’ in their context and in the light and purpose of the treaty. Absent any of the elements indicated in Article 31(3) and (4) VCLT, the outcome of the interpretative process can be considered as final. In other cases, the relevant treaty provisions were considered as sufficiently clear to allow the interpreter to establish the ordinary meaning of their terms. In Saba Fakes v Turkey, for instance, the Tribunal rejected the argument put forward by the Respondent that Article 25(2)(a) of the ICSID Convention and Article 1(a)(i) of the Netherlands–Turkey BIT require the nationality of the claimant to be effective. It found that neither provision confines the jurisdiction ratione personae of the Tribunal to disputes involving claimant holding effective nationality of the home State. As pointed out by the Tribunal, Article 25(2)(a) of the ICSID Convention bars jurisdiction only in the case where the claimant holds the nationality of the Respondent State and avoids any reference to the effectiveness of an investor’s

18 Continental v Argentina, above Ch 3, n 89, Preliminary Objection to Application for Annulment, 23 October 2009, paras 25 and 26. Art 49(2) reads: ‘The Tribunal upon the request of a party made within 45 days after the date on which the award was rendered may after notice to the other party decide any question which it had omitted to decide in the award, and shall rectify any clerical, arithmetical or similar error in the award. Its decision shall become part of the award and shall be notified to the parties in the same manner as the award. The periods of time provided for under paragraph (2) of Art 51 and paragraph (2) of Art 52 shall run from the date on which the decision was rendered.’ In the same case, Award, 5 September 2008, para 164, the Tribunal interpreted Art XI of the BIT between United States and Argentina concerning the measures the host State could adopt on grounds of necessity. It found that ‘[t]he ordinary meaning of the language used, together with the object and purpose of the provision (as here highlighted and interpreted under Art 31 of the VCLT) clearly indicates that either party would not be in breach of its BIT obligations if any measure has been properly taken because it was necessary, as far as relevant here, either “for the maintenance of the public order” or for “the protection of essential security interests” of the party adopting such measures.’ 19 Above, text accompanying n 1.

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nationality. The text of Article 25(2)(a) being unambiguous in this respect, the Tribunal rightly refused to import into it extraneous conditions. It concluded: The language of Article 25(2)(a) of the ICSID Convention is clear and does not require any further clarification. Pursuant to the generally accepted rules of treaty interpretation, as codified in Article 31 of the Vienna Convention on the Law of Treaties, the Tribunal is precluded from elaborating any interpretation that would run counter to this clear language, in particular any interpretation that would result in establishing additional limitations to the Centre’s jurisdiction where no such limitations were provided by the Contracting Parties.20

The Tokios Tokelės v Ukraine decision is another good example of literal interpretation, although it is controversial in other regards. The claimant was a company legally established under the laws of Lithuania, although 99 percent of the outstanding shares were held by nationals of Ukraine. In rejecting a challenge to jurisdiction, the Tribunal applied literally Article 1(2)(b) of the BIT between Ukraine and Lithuania, according to which ‘any entity established in the territory of the Republic of Lithuania in conformity with its laws and regulations’ qualifies as a Lithuanian investor. It held that the ordinary meaning of ‘entity’ is ‘[a] thing that has a real existence’. The meaning of ‘establish’ is to ‘[s]et up on a permanent or secure basis; bring into being, found (a … business).’ Thus, according to the ordinary meaning of the terms of the Treaty, the Claimant is an ‘investor’ of Lithuania if it is a thing of real legal existence that was founded on a secure basis in the territory of Lithuania in conformity with its laws and regulations. The Treaty contains no additional requirements for an entity to qualify as an ‘investor’ of Lithuania.21

The Tribunal found that this interpretation was supported by object and purpose of both Article 1(2)(c) and the treaty as a whole. This interpretation of Article 1(2) of the BIT is irreproachable. As conceded by the dissenting arbitrator, the contracting parties to an investment treaty can freely agree on the definition of investor for the purpose of the treaty, on the criteria for the nationality of investors, and on the latitude of their consent to international arbitration.22 In spite of the unanimous agreement on the importance and predominance of the ordinary meaning of the terms used in a treaty, however, literal interpretation often remains an exercise fraught with difficulties. The interpreter is often confronted with treaty provisions whose terms are ambiguous or may bear

20 Saba Fakes v Turkey, ICSID ARB/07/20, Award, 14 July 2010, para 76. The Tribunal’s view is reminiscent of D Anzilotti’s dissenting opinion attached to Interpretation of the Convention of 1919 concerning Employment of Women during Night, Series A/B No 50, p 383, maintaining that when a provision ‘according to the natural meaning of its terms, were really perfectly clear it would be hardly admissible to endeavour to find an interpretation other than that which flows from the natural meaning of its terms’. 21 Tokios v Ukraine, above Ch 1, n 15, Jurisdiction, para 28 (italics as in the original, footnotes omitted). See also Rompetrol v Romania, Jurisdiction, above n 11, para 101. 22 Majority decision, para 39 and dissenting opinion para 12.

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ifferent meanings. The reasons for this may be diverse and include the incapacd ity or unwillingness of the parties to agree on unequivocal terms or to clarify the meaning of the terms used through a more elaborated text, footnotes or additional articles. The decision on jurisdiction in Aguas del Tuner v Bolivia provides a first useful example of the difficulties related to literal interpretation. The Tribunal had to interpret, in the context of a complex corporate structure,23 Article 1(b)(iii) of the BIT between the Netherlands and Bolivia, which includes in the definition of investor ‘legal persons controlled directly or indirectly by nationals of that contracting Party’. In the second objection to the Tribunal’s jurisdiction, the respondent argued that the claimant was not a Bolivian entity controlled by a Dutch company and consequently could not enjoy the protection of the BIT between the Netherlands and Bolivia. It emphasised the use of the past participle ‘controlled’ instead of the adjective ‘control’ to argue that in order to qualify as investor for the purpose of Article 1(b)(iii), the entity needs to exercise actual or effective control or, in other words, to have ‘the power, without the permission of others, to control their own corporate destinies and, accordingly, that of the claimant’.24 This means that only the ultimate controller—in this case Bechtel (United States)—would fall within the scope of Article 1(b)(iii) due to the actual and effective control it exercises over the claimant, either directly or through another entity or other entities. According to the respondent, [t]he word used in the Treaty, ‘controlled’, is a participle i.e., a verb used in adjective form. To say that an object is ‘controlled’ is different from saying that an object is capable of being controlled; an object that is ‘controlled’ is actually controlled. ‘Controlled’ is not a complex or unusual word. To apply the word in this case means that AdT must have been controlled, i.e. commanded, regulated, restrained, or directed, by a Dutch company or companies.25

The claimant, on the other hand, interpreted the phrase ‘controlled directly or indirectly’ as requiring only the legal potential to control the concerned entity. Such an interpretation permits not only the ultimate controller, but also—if appropriate—the intermediate entities under the control of the ultimate controller to qualify as an investor for the purpose of Article 1(b)(iii). According to this line of reasoning, since Aquas del Tunari was controlled indirectly by two Dutch intermediate entities, the investment was protected under the BIT between the Netherlands and Bolivia. The Tribunal first conceded that the use of ‘controlled’ rather than ‘control’ militates in favour of the respondent’s interpretation. After consulting several dictionaries, including legal ones, however, it concluded that the word ‘controlled’

23

A chart of the ownership structure is reproduced in para 318 of the decision. Aquas del Tunari, above Ch 1, n 53, Jurisdiction, para 209 and fn 181. 25 As reproduced in para 228 of the award. 24

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is ambiguous and—like the word ‘control’—is not determinative.26 It then focused on the phrase ‘directly or indirectly’, which in its term modifies—although ‘qualifies’ may have been more accurate—the word ‘controlled’. For the Tribunal, [t]his phrase clearly indicates that one entity may control another entity in one of two ways. An entity that is directly controlled implies that there is no intermediary between the two entities, while an entity that is indirectly controlled implies that there is one or more intermediary entities between the two.27

Since the BIT ‘does not limit the scope of the eligible claimants to only the ‘ultimate controller’, the Tribunal admitted the possibility of simultaneous existence of a direct controller and one or more indirect controllers. The Tribunal then dealt with what it defined as the ‘second prong’ of the respondent’s argument, namely that the control exercised over the claimant was to be effective. For this purpose, it considered several non-textual elements, including the object and purpose of the treaty and the context in which the phrase ‘controlled directly or indirectly’ has been used. From the standpoint of literal interpretation, two observations are in order. The meaning of ‘directly or indirectly’ relates to how such control is exercised. Both parties and the Tribunal agreed that control for the purpose of Article 1(b)(iii) can be exercised with or without any intermediate company. The expression ‘directly or indirectly’ neither implies nor excludes the possibility of multiple controllers. The crux of the matter remains the interpretation of the term ‘controlled’, or which kind of such control must be exercised. The text of the treaty does not allow the interpreter to reach any undisputable interpretation. It may nonetheless be argued that demanding effective control would amount to importing into Article 1(b)(iii) a requirement the parties have not contemplated. The conclusion held by the Tribunal that the Article 1(b)(iii) requires only legal control—as opposed to actual control—can be accepted as a plausible provisional interpretation that needs to be further tested against the remaining elements of Article 31 and possibly Article 32 VCLT.28 In other cases, arbitral tribunals have not fully examined and exploited the potential of literal interpretation, and even disregarded what was arguably the clear ordinary meaning of the terms of a treaty. The following two examples are quite illustrative. The Yukos v Russian Federation case provides an example of underdeveloped or superficial literal analysis. Dealing with the ordinary meaning of the terms used in Article 45(1), the Tribunal pointed out that the phrase ‘to the extent that’ often

26

paras 233 and 234. para 236. In the preceding paragraphs, the Tribunal presented an a contrario argument (see below text accompanying n 256) and rejected the possibility of attributing to the word ‘controlled’ a special meaning for the purpose of Art 31(4) VCLT. 28 See also below, text accompanying n 256 and Ch 7 text accompanying n 60. 27

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means ‘only insofar as what then follows is the case’.29 Instead of carefully examining the meaning of ‘to the extent that’, however, it almost instantly moved to the adjective (or rather the predeterminer) ‘such’, which follows ‘to the extent that’ and precedes ‘provisional application’ in Article 45(1). For the Tribunal ‘such’ clearly refers to ‘this Treaty’.30 To support its conclusion, the Tribunal embarked on a rather unusual exercise. It replaced the words ‘this treaty’ and ‘such provisional application’ by ‘this entire treaty’ and ‘the provisional application of the entire treaty’ and, alternatively, ‘some parts of this treaty’ and ‘the provisional application of some parts of the treaty’. It found that the first option was obviously to be preferred and that partial provisional application of the treaty would be possible only if the contracting parties had explicitly accepted it.31 After holding the all-or-nothing nature of provisional application under Article 45(1), it found that ‘by signing the ECT, the Russian Federation agreed that the Treaty as a whole would be applied provisionally pending its entry into force unless the principle of provisional application itself was inconsistent ‘with its constitution, laws or regulations’.32 For the Tribunal this was not the case. The Tribunal interpretation is not persuasive. There is no doubt that the ordinary meaning of the expression ‘to the extent’ is ‘only insofar as what then follows is the case’, as conceded by the Tribunal, or ‘within the limits’. In other words, ‘to the extent that’ refers to the ‘scope’ or the ‘width’ of provisional application under Article 45(1). This already solid literal argument is enhanced a contrario by the panoply of alternative words or expressions the contracting parties could have used had they intended to introduce an all-or-nothing proposition. These alternatives, which could have been formulated in positive or negative form, include ‘unless’, ‘if ’, ‘where’, ‘except where’, and ‘provided that’. Yet, the Tribunal hastily disposed of the phrase ‘to the extent that’ and read too much on the predeterminer ‘such’. Although it is self-evident that ‘such application’ refers to ‘the application of this Treaty’, two interpretations remain plausible, as admitted by the Tribunal: (a) provisional application of the entire Treaty, or (b) provisional application of either the entire Treaty or part of it, depending of the existence of any inconsistency with domestic law. The conclusion reached by the Tribunal that the former interpretation accords better with the ordinary meaning of ‘this Treaty’ seems unpersuasive. The powerful literal argument supporting the interpretation of the expression ‘to the extent’ in the sense of admitting the possibility of partial provisional application of the ECT can be set aside only for compelling reasons.33 Moreover, the Tribunal’s choice to isolate the phrase ‘such provisional application’ from the rest

29

Above Ch 4, n 89, para 303. paras 304–08. para 311. 32 para 301. 33 See the clear position of the ICJ on this point, below n 285. 30 31

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of the sentence and to consider it separately from the phrase ‘to the extent’ which immediately precedes is questionable. By finding that the question is one of principle, furthermore, the Tribunal deprives the word ‘such’ of any practical significance. By discussing whether the principle of provisional application per se was inconsistent with the signatory’s domestic law, the Tribunal disconnects the limitation clause from the ECT and poses the question in general terms, that is in relation to any international treaties that may apply provisionally to the Russian Federation. Here the Tribunal seems to contradict itself when, after equating ‘such provisional application’ to ‘provisional application of this treaty’, discusses the compatibility of provisional application with the generality of treaties. Finally, the meaning of Article 45(1) would not change if the word ‘such’ is deleted. One could even argue that the word ‘such’ makes sense only if read in conjunction with the phrase ‘to the extent’, thus leading to the conclusion opposite to the one reached by the Tribunal. The second example related to the award in Bayindir v Pakistan. The Tribunal had to interpret the BIT between Turkey and Pakistan in force at the time. The treaty did not contain any express obligation concerning FET, but in its preamble the parties had agreed that ‘FET of investment is desirable in order to maintain a stable framework for investment and maximum effective utilization of economic resources’. The treaty included an MFN treatment clause in Article II, which was applicable at the exclusion of agreements relating to customs unions, regional economic organisation or similar international agreements, and of agreement relating wholly or mainly to taxation. The Tribunal found that [i]t is true that the reference to FET in the preamble together with the absence of a FET clause in the Treaty might suggest that Turkey and Pakistan intended not to include an FET obligation in the Treaty. The Tribunal is, however, not persuaded that this suggestion rules out the possibility of importing an FET obligation through the MFN clause expressly included in the Treaty. The fact that the States parties to the Treaty clearly contemplated the importance of the FET rather suggests the contrary. Indeed, even though it does not establish an operative obligation, the preamble is relevant for the interpretation of the MFN clause in its context and in the light of the Treaty’s object and purpose pursuant to Article 31(1) of the VCLT … The ordinary meaning of the words used in Article II(2) together with the limitations provided in Article II(4) show that the parties to the Treaty did not intend to exclude the importation of a more favourable substantive standard of treatment accorded to investors of third countries. This reading is supported by the preamble’s insistence on FET. It is further supported by the decision of the tribunal in MTD v Chile regarding the application of MFN to import an FET obligation … the ejusdem generis principle that is sometimes viewed as a bar to the operation of the MFN clause with respect to procedural rights does not come into play here and the words of the Treaty are clear.34 34 Bayindir Insaat Turizm Ticaret Ve Sanayi AS v Pakistan, ICSID ARB/03/29, Award, 27 August 2009, paras 155–56. Similar considerations apply to L.E.S.I. SpA et ASTALDI SpA v Algeria, ICSID ARB/05/3, Award, 12 November 2008. Even less convincing is the decision in Al Warraq v Indonesia, above Ch 1, n 43. In this case the Tribunal incorporated the FET via the MFN clause even if the preamble contained no mention to the FET.

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The decision is not convincing. The preamble of the treaty is hortatory and reading it as imposing any substantive obligations such as FET treatment obligation upon the parties would be at odds with the VCLT rules on interpretation. As admitted in the decision on jurisdiction, ‘[d]espite the use of the verb “agree”, it is doubtful that, in the absence of a specific provision in the BIT itself, the sole text of the preamble constitutes a sufficient basis for a self-standing fair and equitable treatment obligation under the BIT’.35 Yet, the text of the preamble is straightforward in the sense that the parties merely shared the view that FET is desirable to enhance the protection enjoyed by the respective investors. The ordinary meaning of the verb ‘to desire’ being unambiguous,36 the text of the preamble clearly militates against not only any substantive obligation related to FET, but also any legal obligation to negotiate its inclusion in the treaty. The Tribunal conflates the question of the interpretation of the preamble with the interpretation and application of the MFN clause. The Tribunal first held that the preamble ‘does not establish any operative obligation’ where the adjective ‘operative’ presumably means ‘substantive’. In spite of this conclusion, the Tribunal described the text as ‘of little assistance’ and downgraded the interpretation of the preamble (not imposing upon the parties any substantive obligations) to a ‘suggestion’.37 It then postulated that such suggestion was not necessarily an obstacle to the importation into the treaty of FET treatment via the MFN clause. Quite the contrary, for the Tribunal, the importance attached to FET by the parties in the preamble militates in favour of the functioning of the MFN clause with regard to FET obligations. In a rather radical change of perspective, the Tribunal moved to the interpretation of the MFN clause in respect of which the preamble was considered as relevant as context and as expression of the object and purpose of the treaty. The Tribunal found that the MFN clause of the treaty between Pakistan and Turkey (Article II(2)) functioned with regard to all substantive standards accorded to investors of third countries—apart from those included in treaties covered in Article II(4). From this, the Tribunal deduced that FET fell within the scope of the MFN clause.38 As a result, the Tribunal turned upside down the clear meaning of the preamble and eventually interpreted it as imposing upon the parties a substantive obligation to treat the respective investors fairly and equitably,39 an obligation the parties had hardly contemplated to include in the treaty, although they may have contemplated

35

Rendered on 14 November 2005, para 230. Arbitral Award of 31 July 1989, Judgment, ICJ Reports 1991, p 53, para 56, the Court made a crucial distinction between the desire expressed by the Parties in the Arbitration Agreement to reach a settlement of the dispute and their actual acceptance of the jurisdiction of the Arbitral Tribunal. 37 para 155. 38 The reference contained in para 158 referring to MTD v Chile, above Ch 3, n 41, Award, para 104 finally, is misplaced as the BIT upon which the investor based its claim in that decision contained an FET clause and the Tribunal was concerned with procedural rights. 39 This is without prejudice to the question of the customary nature of FET obligations. 36 In

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its importance.40 The Tribunal failed to draw the logical consequences of such an interpretation. The purely hortatory nature of the text of the preamble—as demonstrated by the use of the adjective ‘desirable’—reveals the intention of the party not to include in the treaty any substantial obligation on FET.41 Instead, the Tribunal ignored its own finding that the preamble did not establish any ‘operative’ or substantive obligation and used the preamble in the exact opposite sense for the purpose of interpreting the MFN clause, an exercise which prevented the accurate application of the ejusdem generis rule. Since no FET clause is included in the treaty, the MFN clause cannot be invoked to import into the treaty an FET clause contained in other treaties concluded by the respondent. The ILC has clearly explained that according to the ejusdem generis rule ‘a clause conferring MFN rights in respect of a certain matter, or class of matter, can attract the rights conferred by other treaties (or unilateral acts) only in regard to the same matter or class of matter’.42 Since the BIT between Turkey and Pakistan did not confer any right related to FET, no FET rights could be incorporated in the treaty through the MFN clause.

II. Textual Interpretation not a Mechanical Exercise The paramount importance of textual interpretation, however, should not be reduced to a mechanical search of the meaning of the terms used in the treaty or to ‘a sort of lexicographical literalism’.43 Interpretation is rarely amenable to grammatical or lexical postulates. Instead, the interpreter has to work on the basis of presumptions and demonstrate a good deal of flexibility. The basic presumption is that if the same term is used across a treaty or in different treaties, the parties to the treaties intended to attach to it the same meaning.44 Conversely, it is certainly possible, or even likely, that the use of different terms reveals the intention of the parties to attach to them different meanings. As pointed out by a tribunal, ‘terms must be interpreted literally and given practical effect, which excludes redundancy. As the parties to the Treaty referred both to

40 According to the ILC, ‘[t]he effect of the most-favoured-nation process is, by means of the provisions of one treaty, to attract those of another. Unless this process is strictly confined to cases where there is a substantial identity between the subject matter of the two sets of clauses concerned, the result in a number of cases may be to impose upon the granting State obligations it never contemplated. Thus the rule follows clearly from the general principles of treaty interpretation. States cannot be regarded as being bound beyond the obligations they have undertaken’ (1978-II) 30 Yearbook of the International Law Commission Part 2, para 11, p 30 (footnote omitted). 41 See above, section I. 42 (1978-II) 30 Yearbook of the International Law Commission, Part 2, p 31 (emphasis added). 43 Giovanni Alemanni and Others v Argentina, ICSID ARB/07/8, Jurisdiction and Admissibility, 17 November 2014, para 270. 44 See Romak v Uzbekistan, below, text accompanying n 191.

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“divergence” and “dispute”, it must be assumed that they were not giving the same meaning to these two distinct terms’.45 It held: Although the terms ‘divergence’ and ‘dispute’ both require the existence of a disagreement between the parties on specific points and their respective knowledge of such disagreement, there is an important distinction to make between them as they do not imply the same degree of animosity. Indeed, in the case of a divergence, the parties hold different views but without necessarily pursuing the difference in an active manner. On the other hand, in case of a dispute, the difference of views forms the subject of an active exchange between the parties under circumstances which indicate that the parties wish to resolve the difference, be it before a third party or otherwise. Consequently, different views of parties in respect of certain facts and situations become a ‘divergence’ when they are mutually aware of their disagreement. It crystallises as a ‘dispute’ as soon as one of the parties decides to have it solved, whether or not by a third party.46

Nonetheless, the interpreter must be cautious in accepting that the use of two different words or expressions in the same provision or treaty necessarily implies different meanings. It should not be taken for granted that the use of the same word or expression postulates the same meaning throughout a treaty or in different treaties. In Plama v Bulgaria, the Tribunal found that the difference between the terms ‘treatment … accorded to investments’, as appearing in Article 3(1) of the Bulgaria–Cyprus BIT, and ‘treatment … accorded to investors’, as appearing in other BITs, is to be noted. The Tribunal does not attach a particular significance to the use of the different terms, in particular not since Article 3(1) contains the words ‘investments by investors’.47

Whether different terms are to be considered as equivalent has sometimes proved rather arduous. In Churchill Plc v Indonesia, for instance, the Tribunal discussed whether the verb ‘to assent’ used in Article(1) of the BIT between Indonesia and the United Kingdom could be treated as synonymous of ‘to consent’. The Tribunal first found that neither the arguments submitted by the parties nor a review of dictionary definitions allowed a clear difference between the two verbs to be established. It nonetheless concluded that [b]oth ‘consent’ and ‘assent’ are manifestations indicating a willingness to engage in certain conduct or an agreement with a proposed opinion. It is true that ‘consent’ is a term of foundational importance in the area of international dispute settlement. In the ICSID framework, disputing parties are required to ‘consent in writing’ to ICSID arbitration. Accordingly, one might venture to say that, prima facie at least, assent may not suffice to create the jurisdiction of an ICSID tribunal.48

The interpreter must always be vigilant on the different meanings that can be attached to the very same word depending on the specific circumstances of its 45

Helnan International Hotels A/S v Egypt, ICSID ARB/05/19, Award, 7 June 2008, para 52.

47

Plama v Bulgaria, above Ch 3, n 52, Jurisdiction, para 190 (footnote omitted). para 165.

46 ibid. 48

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use.49 The same word may assume different meaning in different provisions of the same treaty or in different treaties. The use of the modal ‘shall’ provides a useful example. In some cases, the modal ‘shall’ obviously indicates the existence of legally binding obligations. This is the case, for instance, of standard FET full security and expropriation provisions, which may read, respectively, as follows: ‘Investment of nationals or companies of each Contracting Party shall at all times be accorded FET and shall enjoy full protection and security in the territory of the other Contracting Party’,50 and ‘Investment of nationals or companies of each Contracting Party shall not be nationalised, expropriated or subject to measures having equivalent effect … except for …’51 The modal ‘shall’ may proscribe any given conduct not only to the parties to the treaty but also to arbitral tribunals, as in the case of Article 42(1) of the ICSID Convention, which reads: The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable.

Another interesting example is the obligation incumbent upon investment tribunals to respect authentic interpretations agreed by the parties to the treaty. The relevant provision may read, for instance, as follows: ‘A decision of the Joint Committee declaring its interpretation of a provision of this Agreement … shall be binding on a tribunal established under this Section, and any award must be consistent with that decision.’52 In other cases, the interpretation of ‘shall’ has been problematic. In Wintershall v Argentina, for instance, the Tribunal dealt with a jurisdictional objection based on Article 10 of the BIT between Argentina and Germany and held: The use of the word ‘shall’ in Article 10(2) (‘[i]f any dispute in terms of the paragraph 1 above could not be settled within the term of six months … it shall be submitted to the Courts of competent jurisdiction of the Contracting Party in whose territory the investment was made’)—is itself indicative of an ‘obligation’—not simply a choice or option. The word ‘shall’ in treaty terminology means that what is provided for is legally binding.53

49 In Japan—Alcoholic Beverages, above Ch 1, n 11, p 21, the WTO Appellate Body held that ‘[t]he concept of “likeness” is a relative one that evokes the image of an accordion. The accordion of “likeness” stretches and squeezes in different places as different provisions of the WTO Agreement are applied. The width of the accordion in any one of those places must be determined by the particular provision in which the term “like” is encountered as well as by the context and the circumstances that prevail in any given case to which that provision may apply.’ 50 Art 2(2) UK Model BIT (2005). 51 ibid, Art 5(1). 52 Art 15.21 of the FTA between the United States and Singapore, below Ch 7, n 6. 53 Wintershall v Argentina, above Ch 3, n 19, Award, para 119. See the text of Art 10 of the BIT between Argentina and Germany below, section III.

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In interpreting Article X of the BIT between Argentina and Spain, which on this point is essentially identical to Article 10 of the BIT between Argentina and Germany, another Tribunal reached a different conclusion in spite of the use of the modal ‘shall’. It found that Article X(2) does not set a mandatory obligation. When stating that ‘the dispute … shall … be submitted to the competent tribunals’ of the Host State, it seems to require that once a dispute had been raised, and the time period for negotiating a settlement had elapsed, the dispute must be brought to court at the initiative of either party. But such an understanding goes too far. What these words mean is enlightened by the provisions of Article X(3). Indeed, based on letter a), recourse to local courts is a requirement for access to international arbitration. But it is not more. The party raising the dispute can also decide not to go before domestic courts and to run the risk that later access to international arbitration might be denied.54

The second interpretation is clearly to be preferred. The use of ‘shall’ in the second paragraph of both provisions may convey the impression of a self-standing legal obligation, but cannot be interpreted in the sense of requiring the parties to start litigating before domestic tribunals. In this case, the modal ‘shall’ has a permissive nature. The reason for this is a logical one. It is self-evident that the parties may if they so wish resort to domestic tribunals once the requirement concerning the friendly settlement of the dispute has been met.55 Such a decision remains at the discretion of the parties and depends on a number of factors related, inter alia, to the evaluation of the litigation risks, costs and benefits, the relationship between the parties to the dispute, and, as far as the investor is concerned, the possible impact of litigation on the business. It is therefore up to the parties to bring the case before a domestic court at the expiry of the six-month period, to allow further negotiation and eventually opt for litigation at a later date, or not to seek any judicial remedy at all. In some cases, the literal interpretation of the meaning of a provision based on ‘shall’ has been inconclusive. The decisions on jurisdiction in two p arallel cases confirm the versatility of the modal ‘shall’. In Churchill Plc v Indonesia, the Tribunal interpreted Article 7 of the BIT between Indonesia and the United Kingdom, according to which the parties ‘shall assent’ to any request on the part of such national or company to submit for conciliation or arbitration to ICSID. In Planet Mining v Indonesia, the Tribunal interpreted Article XI of the BIT between Indonesia and Australia under which each Party ‘shall consent in writing to the submission of the dispute to the Centre within forty-five days of receiving such a request from the investor’.

54 Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v Argentina, ICSID ARB/07/26, Jurisdiction, 19 December 2012, para 108. 55 In this sense, see PSEG Global, Inc, The North American Coal Corporation, and Konya Ingin Electrik Üretim ve Ticaret Limited Sirketi v Republic of Turkey, ICSID ARB/02/5, Award, 19 January 2007, para 161.

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In both cases, the Tribunal pointed out the double function of ‘shall’, which can either indicate that the parties have consented to submit to international arbitration their dispute with their respective investors, or be understood as implying some future action leading to the expression of such consent (or assent). The Tribunal admitted that the literal analysis of the relevant provisions did not reach any definitive conclusion as to the meaning to be attached to the word ‘shall’. In its words: As to the word ‘shall’, it can either imply an obligation (suggesting that the Respondent’s submission to ICSID is mandatory) or refer to a future action (suggesting the contrary). Be this as it may, even if ‘shall’ expresses an obligation of the State to give its consent, the sanction for a failure to do so would not be to supply the missing consent or to deem that constructive consent exists. Hence, whatever the meaning of ‘shall’, it does not advance the analysis.56

The interpreter has then to turn to the other elements of the VCLT rules on interpretation in order to determine the meaning of ‘shall’ and the provision to be interpreted.57

III. Focus of Textual Interpretation As has been seen in the previous sections, it is generally accepted that, as a matter of principle, the textual analysis of the terms used in the treaty is the natural departing point of the interpretative process. This view calls nonetheless for an important qualification. Before undertaking the textual analysis, a preliminary operation is indispensable, as the interpreter has to set the focus of the interpretative effort. The basic unit for the purpose of interpretation is normally—but not necessarily—each single provision of the treaty, although in the case of complex provisions, the interpreter may zoom on some of its paragraphs or sentences as appropriate. Each provision is presumed to be the result of logical decisions and choices made by the contracting parties. The negotiations leading to the adoption of the text of a treaty include the organisation, design and co-ordination of the various treaty provisions with a view to enhancing clarity, coherence and ultimately legal predictability. Each provision can be seen as the final outcome of a drafting

56 Planet Mining v Indonesia, above n 14, para 163. In the same sense, see Churchill Mining Plc v Indonesia, ICSID ARB/12/14 and 12/40, Jurisdiction, 24 February 2014, para 162. In the second decision, the Tribunal held that ‘[i]t is common ground, and rightly so, that the word “shall” implies an obligation. This would suggest that the submission to ICSID on the part of the Respondent is mandatory … On the other hand, “shall” can also be understood as implying a future action. In this sense, the use of the word “shall” does not necessarily imply automaticity in the achievement of the contemplated result.’ 57 See, in particular, Ch 5, text accompanying n 12 ff and n 25, and Ch 10, text accompanying n. 63 ff.

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process which often requires contracting parties to make choices between different options and to restructure the treaty provisions through merging, splitting, insertion or deletion. The materials generated during the process may be relevant for the purpose of Article 32 VCLT and will be dealt with in Chapter 10. For the time being, suffice it to stress that normally each treaty provision is meant to constitute a logical constituent element of the treaty. Indeed, Article 31 VCLT itself is a fine example of the unity of a treaty provision, as clearly indicated in its title. In principle, therefore, the interpreter is expected to focus on a treaty provision and to consider the terms or phrases used in it, keeping in mind its lexical and logical construction. It is unlikely—although it cannot be categorically ruled out—that the relationship existing between two (or more) provisions obliges the interpreter to interpret them jointly. The question arose with regard to Articles 53 and 54 of the ICSID Convention.58 Argentina argued in several cases that the obligation incumbent upon a party to an ICSID dispute under Article 53 of the ICSID Convention to abide and comply with an award is subject to the recourse by the other party to the mechanism established under Article 54 of the ICSID Convention for the recognition and enforcement of award within the jurisdiction of ICSID members. The argument was convincingly rejected in Enron v Argentina.59 The Tribunal held that nothing in the language of these provisions suggests that these two obligations are related, and in particular, that there is nothing in the language to suggest that the obligation in the second sentence of Article 53(1) must be read as being subject to an award creditor invoking enforcement mechanisms established pursuant to the obligation in the first sentence of Article 54(1).60

Quite the contrary, the argument continues, the two obligations imposed in the two provisions are clearly distinct and addressed to different subjects. Under Article 53(1), the parties to the dispute must abide and comply with the award. Under Article 54(1), every member of ICSID—the host State included—must recognise and enforce the award within its territory. The Tribunal then emphasised that Article 54(1) does not state that a party to an award must use the enforcement machinery established pursuant to this provision as a condition of the award being complied with. Nor does it state that a Contracting State or a constituent subdivision or agency that is

58 The relevant part of Art 53(1) reads: ‘The award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention. Each party shall abide by and comply with the terms of the award except to the extent that enforcement shall have been stayed pursuant to the relevant provisions of this Convention.’ The relevant part of Art 53(1) reads: ‘Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State.’ 59 Enron Corporation and Ponderosa Assets, LP v Argentina, ICSID ARB/01/3, Continued Stay of Enforcement of the Award, 7 October 2008. See also Compañiá de Aguas del Aconquija SA and Vivendi Universal SA v Argentina, ICSID ARB/97/3, Continued Stay of Enforcement of the Award, 4 November 2008, paras 34–36. 60 Enron v Argentina, above n 59, para 61.

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an award debtor is entitled to decline to comply with the terms of the award until the enforcement machinery that exists under that Contracting State’s own national law is used by the award creditor.

The already solid literal interpretation of the two provisions upheld by the Tribunal was also supported by a contextual argument based on the fact that Article 27 of the ICSID Convention permits the home State to exercise diplomatic protection when the host State fails to abide and comply with the award. For the Tribunal this indicates that the obligation under Article 53(1) is independent and that failure to comply with it removes the prohibition to exercise diplomatic protection, regardless of any attempts to have the award recognised and enforced under Article 54 of the ICSID Convention. The Tribunal’s interpretation, which was further buttressed by an a contrario argument and teleological considerations, is definitely persuasive.61 It is also possible that the interpreter focuses the literal interpretation on a part of a treaty provision and then zooms out in order to consider contextual elements. In Ping v Belgium, for instance, the Tribunal had to interpret the BIT concluded between China and the Belgium–Luxembourg Economic Union in 2005, which entered into force in 2009 and replaced the BIT concluded in 1984, which entered into force in 1986.62 One of the key questions dealt with by the Tribunal was whether disputes that were notified under the 1986 BIT, but not yet subject to arbitral or judicial proceedings, could fall within the scope of the arbitral clause of the 2009 BIT, which is much broader than that contained in the prior BIT. The Tribunal first held that the crucial provision was Article 8(1) of the 2009 BIT.63 It then proceeded with the literal interpretation of Article 8(1) and found that its plain meaning is clear. For the Tribunal, the expression ‘when a legal dispute arises’ limits the scope of application of Article 8(1) to disputes arising after the entry into force of the BIT. The provisional conclusion based on the literal interpretation was double checked against the context of Article 8(1) and more precisely Article 10(2) and Article 10 as a whole. Article 10 (titled ‘transition’) provides that the 2009 BIT substitutes and replaces the 1986 BIT, but does not offer any indication on whether a dispute notified but not subject to arbitral or judicial proceedings under the latter treaty could be adjudicated under the former treaty. For the Tribunal, therefore, Article 10 has no impact on the literal interpretation of Article 8(1). According to Article 10(2), the 2009 BIT applies to investments made before or after its entry into force, but not disputes or claims concerning investments which were already under judicial or arbitral process before its entry into force.

61 See SA Alexandrov, ‘Enforcement of ICSID Awards: Articles 53 and 54 of the ICSID Convention’, in C Binder et al (eds), above Ch 1, n 29, p 322. 62 Ping An Life Insurance Company, Limited and Ping An Insurance (Group) Company, Limited v Belgium, ICSID Case No ARB/12/29, Award, 30 April 2015. 63 ibid, 212. The Tribunal held that ‘there can be no doubt, that the essential question is one of interpretation of Article 8(1)’.

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These disputes and claims continue to be settled in accordance with the 1984 BIT. Article 10(2) is simply silent on the fate of disputes notified but not subject to arbitral or judicial proceedings under the 1986 BIT. Thus, the Tribunal convincingly dismissed that Article 10(2) provides significant contextual elements for the purpose of interpreting Article 8(1) and possibly inducing it to adjust the textual interpretation. Setting the focus of the interpretation process is particularly important when the provision to be interpreted contains a chapeau, establishes a sequence of procedural steps, includes cross-references, or has a complex structure requiring a clarification of the relationship between the different parts of the provision. Treaty provisions containing a chapeau, as is normally the case of those defining foreign investments in BITs, offer an interesting example. In Romak v Uzbekistan, for instance, the Tribunal had to interprete Art 1(2) of the BIT between Uzbekistan and Switzerland, which is composed of a chapeau according to which the term investment includes every kind of asset and a non-exhaustive list of categories of investments. It convincingly rejected a mechanical interpretation that would include within the scope of Article 1(2) any claim to money regardless of its nature or origin. Yet, it argued that interpreting the categories included in Article 1(2) letters (a)–(e) in disconnection from the intrinsic meaning of the term ‘investment’ used in the chapeau of Article 1(2) would produce a result manifestly absurd or unreasonable.64 Less clear is the observation made by the Tribunal that the outcome of a mechanical application would be ‘contrary to Article 32(b) of the Vienna Convention’. The question is not the alleged inconsistence with Article 32(b)—which allows the interpreter to resort to subsidiary means of interpretation if interpretation under Article 31 leads to a result which is manifestly absurd or unreasonable—but rather the interpretation of the term ‘investment’ in accordance with Article 31. In Ambiente v Argentina, on the other hand, the majority of the Tribunal paid lip service to the importance of the chapeau, but essentially ignored it for all practical purposes. The dissenting arbitrator strongly disagreed and argued that in order to benefit from the protection of the BIT between Argentina and Italy an investment must necessarily satisfy the definition of investment contained in the chapeau of Article 1.65 The chapeau was considered by the Tribunal in Romak v Uzbekistan and by the dissenting arbitrator in Ambiente v Argentina as context or ‘immediate context’, which has been defined as including ‘the grammatical construction of the provision or phrase within which a word is located’66 and may be important ‘to confirm an ordinary meaning if a single contender emerges or to assist in identifying the ordinary meaning if two or more possibilities come forward’.67 This 64

Romak SA v Uzbekistan, UNCITRAL Case No AA280, Award, 26 November 2009, para 184. Torres Bernàrdez, dissenting opinion in Ambiente v Argentina, above Ch 1, n 15, esp paras 279–81. 66 R Gardiner, above Ch 1, n 10, p 199. 67 ibid. 65 S

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position is certainly plausible, but seems to be based on an unduly strict chronological sequence in which contextual considerations necessarily follow the textual analysis. Yet, the so-called immediate context may well come into play at the very beginning of the interpretative process when the interpreter set the focus of its interpretative exercise. This confirms that the various elements included in Article 31 VCLT, far from being sealed compartments, mutually interact with each other and that the sequence sketched in that provision is flexible and functional. The chapeau is part and parcel of the literal analysis aimed at establishing the ordinary meaning of ‘investment’ for the purpose of the treaty. As will be seen later, the term is a generic one, but one bearing its own meaning nonetheless.68 As such, it must be taken into due account by the interpreter while searching for the ordinary meaning of investment under the definition of investment of the BIT. The unity of the provision and the consequent need to take into account from the outset its chapeau is demonstrated by the fact that if the putative investment is not expressly included in the categories listed in the non-comprehensive list, the chapeau remains the only textual element available to the interpreter. Or, putting it differently, the chapeau in this case simply cannot be the context of something that is not there. Treaty provisions involving a sequence of steps equally require a clear focus for their correct interpretation. This is typically the case of the dispute settlement provisions such as those included in several BITs concluded by Argentina prior to 1994.69 In its simplest form, these provisions provide, inter alia, that, in the absence of an agreement between the parties, a dispute can be submitted to international arbitration only after litigating before domestic tribunals for 18 months.70 They have been the object of diverging interpretations and sharp divisions amongst and within arbitral tribunals.71 Consider, for instance, Article 10 of the BIT between Argentina and the Germany, which reads: (1) Any dispute arising between either of the Contracting Parties and the national or company of the other Contracting Party in connection with the investments under the terms of this Agreement shall, if possible, be amicably settled by the parties to the dispute. (2) If any dispute in the terms of paragraph 1 above could not be settled within the term of six months, counted as from the date on which any of the Parties had brought it forth, at the request of any of the parties, it shall be submitted to the courts of competent jurisdiction of the Contracting Party in whose territory the investment was made.

68

See Section V. See the list in Daimler v Argentina, above Ch 1, n 15, Award, Appendix 1, p 123. Art 8(3) BIT between Argentina and Italy. 71 Compare, for instance, Impregilo SpA v Argentina, ICSID ARB/07/17, Award, 21 June 2011 and ICS v Argentina, above Ch 3, n 130, Jurisdiction. 69 70

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(3) The dispute may be submitted to an international arbitral tribunal in any of the following events: (a) At the request of any of the parties in dispute, if no decision on the merits of the case had been reached following eighteen months from the date when the judicial proceeding provided for in paragraph 2 of this Article was initiated, or if the decision had been reached and the dispute between the parties still continued. (b) When both parties in dispute had so agreed.

The first phase of the dispute settlement mechanism is negotiation. Under Article 10(1), the dispute shall, if possible, be amicably settled by the parties. The use of ‘shall’ arguably indicates a self-standing legal obligation to attempt a friendly settlement of the dispute, but not to reach any agreement as confirmed by the qualifier ‘if possible’ or ‘as far as possible’. This would be a typical obligation of means—rather than result—that both parties have to comply with in good faith.72 Complying with the legal obligation to seek a friendly settlement of the dispute, at any rate, is imposed in Article 10(2) for the purpose of submitting the dispute to the competent domestic courts or tribunals. Such an obligation must be complied with in order to move to the second phase, namely litigation or arbitration. It is the use of ‘if ’ at the beginning of paragraph 2—rather than the use of ‘shall’ in paragraph 1—that unequivocally makes the access to domestic tribunals conditional upon the satisfaction of the requirement related to the friendly settlement of the dispute.73 Needless to say, under paragraph 2 the investor has the right—but certainly not the obligation—to submit the dispute to domestic courts. The most problematic paragraph remains Article 10(3). As indicated by the modal ‘may’, the Article 10(3) offers to the parties—which means the foreign investor—the possibility to settle the dispute through international arbitration. It is up to the foreign investor to decide the most appropriate strategy to settle the dispute. One option, entirely at the discretion of the investor, is resorting to international arbitration. But there is no legal obligation in this sense and the investor may decide to continue litigating before domestic tribunals, attempt to resume negotiations, or abandon any attempt to settle the dispute. The analysis of the text of these provisions leads therefore to a comfortable conclusion with regard to the ‘18 months requirement’: a dispute can be submitted to international arbitration only in presence of one of the circumstances defined in Article 10(3), namely no decision on the merits of the case had been reached within eighteen months, nor has a decision been reached since, but dispute between the parties still continues. Only then does the dispute fall within the scope of the (conditional) consent of the host State to international arbitration. In this regard, the parties to the dispute are free to submit the dispute to domestic

72 Ambiente v Argentina, above Ch 1, n 15, Admissibility and Jurisdiction, para 581, relying on Railway Traffic between Lithuania and Poland, Advisory Opinion, 15 October 1931, PCIJ Series A/B, No 42, 116. 73 Ambiente v Argentina, above Ch 1, n 15, Admissibility and Jurisdiction, para 590.

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tribunals and therefore comply with the legal requirements prescribed in these clauses, but have to do so in order to resort to international arbitration.74 The co-existence of a right to litigate before domestic courts, established under domestic law and not affected by the treaty, and a legal requirement, imposed by a treaty in the sense of conditioning access to international arbitration to the exercise of such a right, seems unproblematic.75 Clauses like Article 10 of the BIT between Argentina and Germany are not exhaustion of domestic remedies clauses as they do not require the applicant to obtain a final decision from the domestic tribunals. Rather, they require certain actions to be taken by the putative applicant both in the negotiation and the domestic litigation phases to upgrade the dispute, respectively to domestic litigation and international arbitration. For the purpose of the literal interpretation of these clauses, the view could be safely shared that ‘regardless of the classification of the objection as a plea to jurisdiction or to admissibility, the result of the nonfulfilment of the requirements should have been the same, the dismissal of the case’.76 In other words, the applicant must comply with the requirements related to domestic litigation before submitting the dispute to international arbitration.77 But this is certainly not the end of the exercise, especially considering that these clauses have been described as ‘nonsensical’ and the requirement they contain ‘curious’.78 Even assuming that—as seems to be the case—there are compelling and decisive grammatical arguments, the result obtained on the basis of the analysis of the text of these clauses is a provisional one, which must be double checked against the other elements of the interpretative process.79 For the time being,

74

See S Torres Bernàrdez, dissenting opinion in Ambiente v Argentina, above Ch 1, n 15, para 419. Contra, apparently, Hochtief AG v Argentina, ICSID ARB/07/31, Jurisdiction, 24 October 2011 paras 52 and 53. 76 G Abi Saab, dissenting opinion in Abaclat v Argentina, above Ch 1, n 15, para 25. In Urbaser v Argentina, above n 54, Jurisdiction, para 113, the Tribunal seems to have downplayed the importance of this qualification. 77 In Ambiente v Argentina, above Ch 1, n 15, Admissibility and Jurisdiction, para 589, the Tribunal found without hesitation that ‘to have recourse to domestic courts, the Tribunal is of the opinion that the clear wording of Art 8 paras 2 and 3 of the Argentina–Italy BIT permits of no other conclusion than that the provision sets forth a binding precondition for access to international arbitration’. In Urbaser v Argentina, above n 54, Jurisdiction, para 130, the Tribunal held that ‘the clear wording of the relevant provisions of Article X and the equally lucid suggestion as to its purpose that Respondent has advanced (to which Claimants did not object per se), lead to the conclusion that resort to domestic courts is a precondition to be met before resorting to international’. See also Impregilo v Argentina, Award, above n 70, para 90. In BP Group Plc v Argentina, UNCITRAL (1976), Final Award, 24 December 2007, para 146, the Tribunal held without any reference to or analysis under VCLT Art 31, that ‘as a matter of treaty law investors acting under the Argentina–UK BIT must litigate in the host State’s court for 18 months before they can bring their claims to arbitration’. 78 Plama v Bulgaria, above Ch 3, n 52, Jurisdiction, para 224. 79 As pointed out by S Torres Bernández, ‘Interpretation of Treaties by the International Court of Justice Following the Adoption of the 1969 Vienna Convention on the Law of Treaties’, in G Hafner et al (eds), Liber Amicorum Professor Seidl-Hehenveldern (The Hague: Kluwer, 1998) 721, 728, treaty interpretation ‘is a legal operation which should combine the various permitted elements and means of interpretation as they may be present in the case, while keeping open the interpretation until the very conclusion of the interpretative process’. 75

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however, suffice it to note the importance of the need to interpret provisions that contain a sequence of steps—such as Article 10 of the BIT between Argentina and Germany—as a whole and duly take into account the functional links between its different paragraphs. The interpreter may also be called upon to start the interpretative process with a preliminary operation aimed at establishing the relationship between the various parts of any given provision with a view to focusing on the relevant part or parts, as illustrated in the decision on jurisdiction in Garanti Koza v Turkmenistan with regard to the interpretation of Article 8(1) and (2) of the BIT between the United Kingdom and Turkmenistan, which it is convenient to reproduce here: (1) Disputes between a national or company of one Contracting Party and the other Contracting Party concerning an obligation of the latter under this Agreement in relation to an investment of the former which have not been amicably settled shall, after a period of four [months] from written notification of a claim, be submitted to international arbitration if the national or company concerned so wishes. (2) Where the dispute is referred to international arbitration, the national or company and the Contracting Party concerned in the dispute may agree to refer the dispute either to: (a) the International Centre for the Settlement of Investment Disputes; or (b) the Court of Arbitration of the International Chamber of Commerce; or (c) an international arbitrator or ad hoc arbitration tribunal to be appointed by a special agreement or established under the Arbitration Rules of the UNCITRAL. if after a period of four months from written notification of the claim there is no agreement to one of the above alternative procedures, the dispute shall at the request in writing of the national or company concerned be submitted to arbitration under the Arbitration Rules of the UNCITRAL as then in force. The parties to the dispute may agree in writing to modify these Rules.

The majority decided to deal with the interpretation of the two paragraphs separately. According to the Tribunal, Article 8(1) deals with the contracting parties’ consent to participate in international arbitration and the conditions attached to that consent, whereas Article 8(2) specifies the arbitration systems that may be used if the conditions of Article 8(1) are met. For the Tribunal, Article 8(1) appears ‘to establish unequivocally Turkmenistan’s consent to submit disputes with UK investors to international arbitration’. This is due essentially to the mandatory character of the modal ‘shall’. The Tribunal nonetheless conceded that Article 8(1) does not provide consent to ICSID. Relying on Biwater v Tanzania, it held: The ordinary meaning of Article 8 is thus that Turkmenistan consented in Article 8(1) to submit disputes with a UK investor arising under the UK–Turkmenistan BIT to international arbitration. However, unless Turkmenistan reaches an agreement with such

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an investor to submit a particular dispute to either ICSID or ICC arbitration, Article 8(2) restricts the investor to submitting the dispute to UNCITRAL arbitration.

The route followed by the majority to reach such an interpretation has been sharply criticised in a dissenting opinion, which on this point emphasises the inseparable character of Article 8(1) and (2) since ‘elementary rules of treaty interpretation invite to interpret Article 8 as a whole and not as composed of segmented and fragmented provisions’, where the verb ‘to invite’ is to be read as equivalent to ‘to direct’.80 Accordingly, Article 8(1) contains, subject to the condition of four months of negotiations, consent in principle to international arbitration, and such consent in principle must still be read in light of the further specific conditions governing consent to arbitration by virtue of Article 8(2).

On the basis of the ordinary meaning of Article 8(2) and in particular of the phrase ‘may agree to refer the dispute’, the arbitrator concluded that it is Article 8(2) that governs consent to arbitration. It is through the agreement concluded under Article 8(2) that the parties to the dispute express their consent to arbitration before one of the three institutions listed in that provision. In the absence of such an agreement, the investor may still resort to—and exclusively to—arbitration under UNCITRAL. The dissenting arbitrator’s interpretation is clearly to be preferred. Article 8(1) is not a self-standing provision providing for consent to arbitration. Its ratio legis is merely to fix the precondition for international arbitration.81 It contains no standing offer by the contracting parties simply because the putative arbitral tribunal is not indicated.82 The expression of consent must be established in Article 8(2) which prospected two alternatives: either the parties to the dispute reach an agreement on the referral to one of the three tribunals listed, or the investor can rely on the default option, namely a tribunal established under U NCITRAL rules. The relationship between different paragraphs within the same treaty provision containing cross-references to each other was also important in Planet Mining v Indonesia. The Tribunal had to determine whether in Article XI of the 80 L Boisson de Chazournes, dissenting opinion in Garanti Koza LLP v Turkmenistan, ICSID ARB/11/20, Jurisdiction, 3 July 2013, paras 14 and 16. In para 19 is has convincingly argued that Arts 8(1) and 8(2) are two sides of the same coin. The coin—Art 8—encompasses the provisions governing consent to international arbitration under the UK–Turkmenistan BIT. One side of the coin—Art 8(1)—shows the general precondition(s) under which a foreign investor can initiate international arbitration against the host state; the other side—Art 8(2)—fixes the strict conditions under which the foreign investor can pursue one specific venue of international arbitration (eg ICSID arbitration) rather than another (eg UNCITRAL arbitration). 81 ibid, para 18. 82 Interestingly, the majority accepted that Art 8(1) does not provide any information about what kind of international arbitration the contracting parties have consented to, and therefore considered it indispensable to look at Art 8(2).

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BIT between Australia and Indonesia the parties have expressed their consent to ICSID arbitration.83 The relevant parts of Article XI read as follows: 2. In the event that such a dispute cannot be settled through consultations and negotiations, the investor in question may submit the dispute for settlement: a. …; b. To the International Centre for the Settlement of Investment Disputes (‘the Centre’) … 4. Where a dispute is referred to the Centre pursuant to sub-paragraph 2(b): a. Where that action is taken by an investor of one Party, the other Party shall consent in writing to the submission of the dispute to the Centre within forty-five days of receiving such a request from the investor; or b. If the parties to the dispute cannot agree whether conciliation or arbitration is the more appropriate procedure, the investor affected shall have the right to choose.

The Tribunal first noted the parties’ disagreement on the ‘articulation’ of paragraphs (2) and (4).84 It found without hesitation that under Article XI(2), the investors of each party are entitled to institute ICSID arbitral proceedings and that ‘the right to initiative rests with the foreign investor and there is no limitation placed on this right in this paragraph’.85 It noted, however, that ‘the difficulty in this case arises from the context of paragraph 2 and specifically from paragraph 4’. Since under Article XI(4) the host State shall consent in writing within 45 days, the Tribunal found that consent to arbitration ‘cannot be located in the Treaty itself and … a separate act is needed’.86 After conceding that the modal ‘shall’ can either suggest an obligation or refer to a future action, it held that even assuming that the parties have an obligation to express such consent, the failure to do so means that consent is still lacking.87 For the Tribunal, the written form required under Article XI(4) as well as the fact that according to ICSID Arbitration Rule 2(1) the party requesting arbitration must indicate the date of consent militate in favour of the above interpretation. The Tribunal concluded that the ordinary meaning of Article XI(2) and Article XI(4) taken individually is clear, but their interaction ‘creates some uncertainty’, although it provisionally expressed its preference for interpreting Article XI as not containing the parties’ consent to ICSID proceedings. For the Tribunal, holding otherwise would have reduced Article XI(4)(a) to a mere administrative formality. The Tribunal then turned to what it defined as ‘the context of Article XI(2) and (4)’ and focused on the disjunctive ‘or’ that separates the two

83

Planet Mining v Indonesia, above n 14, Jurisdiction, para 159. para 157. para 159. 86 para 161. 87 para 163. 84 85

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sub-paragraphs of Article XI(4). It held that the disjunctive is not significant. It then continued as follows: Planet argues that the disjunctive ‘or’ shows that if Indonesia fails to provide its consent in writing within the allocated time, then under sub-paragraph (b) the investor has the right to choose between conciliation and arbitration. A review of Australian BITs containing similar dispute settlement clauses shows that Australia always used the term ‘and’ between these two provisions and that the BIT with Indonesia is the only one where the word ‘or’ appears. Hence, the Tribunal believes that the inclusion of ‘or’ is the result of an infelicitous drafting rather than a deliberate choice entailing specific consequences. In any event, Planet’s argument fails since sub-paragraphs (a) and (b) deal with entirely distinct matters.88

The Tribunal finally dismissed the contextual arguments put forward by the applicant with regard to Article XI(3) and Article XI(4), dealing respectively with UNCITRAL arbitration and diplomatic protection. It equally dismissed teleological arguments as the object and purpose of the treaty are neutral and of little assistance for the purpose of interpreting Article XI. It finally held that the interpretation of the ordinary meaning of Article XI(2) and (4) in the light of this context leads to the conclusion that Article XI does not contain the parties’ advance consent to ICSID proceedings. The path followed by the Tribunal seems tortuous and not entirely convincing. It is not clear why the Tribunal first considered Article XI(4) as context of Article XI(2) and then the disjunctive ‘or’—which is located in Article XI(4)—as context of Article XI(2) and (4). It is also difficult to understand how the Tribunal found the ordinary meaning of Article XI(4) clear and only a few paragraphs later described the inclusion of ‘or’ as ‘the result of infelicitous drafting’ and disregarded it on the basis of treaty practice of Australia.89 Finally, it is not evident how the contextual considerations developed by the Tribunal provided the definitive argument in support of the interpretation of Article XI. It is argued that the combined reading of Article XI(2) and (4) could lead to an alternative and perhaps more convincing interpretation of Article XI. The interpreter dealing with paragraphs containing cross-references should carefully set the focus of the interpretative process, especially if the relevant paragraphs are complex or contain infelicitous drafting. In the case of Article XI of the BIT between Australia and Indonesia, the interpreter should have first analysed together the text of paragraphs (2) and (4). As pointed out be the Tribunal, the meaning of Article XI(2) is clear. Under Article XI(2) the investor has the right to submit the dispute inter alia to the Centre for settlement either by conciliation of arbitration (sub-paragraph (b)). The definition of the procedure to settle disputes before the Centre continue in Article XI(4). The structure of paragraph 4 is not an example

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para 168. On subsequent practice, see below Ch 7 section V.

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of clear drafting due to the double use of ‘where’. Since under Article XI(2) only the investor can submit a dispute to the Centre, the first eleven words of subparagraph (b)—‘where that action is taken by an investor of one Party’—are redundant and can be safely removed. The operation is entirely anodyne and serves exclusively to simplify the text, which imposes upon the host State the obligation to consent in writing to the investor’s request within 45 days of receiving such a request. Since Article XI(4) refers to both means for the settlement of investment disputes administered by the Centre—namely arbitration and conciliation—it logically follows that the investor must specify in its request the preferred mechanism. Without such indication, it would be impossible for the host State to express its consent. The host State is expected—if not indeed obliged as suggested by the modal ‘shall’—to express its consent with such a mechanism in accordance with Article XI(4)(a). It is through the acceptance by the host State of the means preferred by the investor that the agreement referred to in Article XI(4) may come into existence. Since there is no guarantee that the host State effectively complies with the obligation to give its consent, Article XI(4)(b) provides for a default procedure by granting the investor the right to choose one of the two means offered by the Centre. Such a right makes sense only if the Centre can effectively administer either of the two means in spite of the failure by the host State to consent under Article XI(4)(a). The disjunctive ‘or’ is not an obstacle to this interpretation. Indeed, the meaning of Article XI would not be different were the sub-paragraphs of Article XI(4) linked with the conjunction ‘and’, or separated by a full stop. From this perspective, the if-clause contained in Article XI(4)(b) introduces an alternative route to confer the Centre the competence to settle the dispute either by conciliation or arbitration, at the choice of the investor. The fact that under ICSID Arbitration Rule 2(1) consent must exist on the day of the filing of a request for arbitration is not an obstacle for the above interpretation. Nothing would prevent the parties to an investment treaty from agreeing that the investor send a request for either arbitration or conciliation to the host State, that the host State has 45 days to consent in writing to the specific mechanism, failure to do which the choice is made by the investor, and that then the request is formally filed at the Centre. The text of Article XI(4)(a) points in this direction as it refers to the request the host State receives ‘from the investor’. This seems compatible with the object and purpose of the treaty as well as the ICSID Convention and Arbitration Rules. The decision on jurisdiction in Yukos v Russian Federation offers another interesting example of the importance for the purpose of interpretation of considering preliminarily the relationship between different parts of a provision. The respondent invoked Article 45 of the ECT to challenge the Tribunal jurisdiction. Article 45 governs the provisional application of the ECT. It is a lengthy and complex provision composed of seven paragraphs totalling more than 500 words. The Tribunal started its analysis with an inquiry on the relationship between the

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first two paragraphs of Article 45. Under the first paragraph, by signing the treaty each party agrees to apply it provisionally to the extent that such provisional application is not inconsistent with its constitution, laws or regulations. Under Article 45(2)(a), any signatory may, when signing, make a declaration that it is not able to accept provisional application. The first question addressed by the Tribunal was precisely whether a declaration under Article 45(2) is indispensable in order to invoke the limitation clause of Article 45(2). Determining whether a declaration under Article 45(2) is necessary to invoke the limitation clause under Article 45(1) is certainly an appropriate departing point to deal with the provisional application of the ECT under Article 45(1). Depending on the answer to this question, the Tribunal will focus the interpretative process on Article 45(1) or, alternatively, on Article 45(1) and (2). The Tribunal convincingly found that ‘nothing in the language of Article 45 suggests that the Limitation Clause in Article 45(1) is dependent on the mandatory making of a declaration under Article 45(2)’.90 The finding is based essentially on two main literal arguments. First, the ordinary meaning of the modal ‘may’—instead of ‘shall’—used in Article 45(2)(a) reveals the permissive nature of Article 45(2) in clear contrast with the mandatory nature of Article 45(1). Second, the word ‘notwithstanding’ which opens Article 45(2)(a) discloses the self-executing—or better self-standing—character of Article 45(1).

IV. Vague or Imprecise Provisions (FET and MFN) International investment treaties often contain provisions that are intentionally or accidentally drafted in vague terms. As a result, the interpreter can hardly rely or can rely only to a limited extent on literal interpretation. This is typically the case of the FET standard—arguably the most important standard in investment law91—and MFN provisions. The overwhelming majority of investment treaties contain an FET clause.92 The text of the clauses almost typically refers to ‘fair and equitable treatment’ although the expressions ‘equitable treatment’93 or ‘equitable and reasonable

90 Yukos Universal Ltd (UK–Isle of Man) v Russian Federation, PCA Case AA 227; Hulley Enterprises Ltd v Russian Federation, PCA Case No AA 226; Veteran Petroleum Ltd v Russian Federation, PCA Case No AA 228, Jurisdiction and Admissibility, para 262. See T Gazzini, Provisional Application of the Energy Charter Treaty: The Yukos Case (2015) 30 ICSID Review 14. 91 C Schreuer, ‘Fair and Equitable Treatment in Arbitral Practice’ (2005) 6 Journal of World Investment & Trade 33. 92 For a systematic classification and a significant numbers of examples of FET clauses, see I Tudor, above Ch 3, n 39, Appendix III, p 246 ff. 93 See, eg, the BITs between China and the Philippines, Art 3.1 and between China and Pakistan, Art 3.1.

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treatment’94 are occasionally used. The FET clause is often combined with a prohibition to adopt ‘arbitrary and discriminatory measures’,95 ‘unreasonable and discriminatory measures’,96 ‘unjustified and discriminatory measures’,97 ‘unreasonable, arbitrary and discriminatory measures’,98 ‘discriminatory measures’,99 or ‘unjustified or discriminatory measures’.100 It has been maintained that ‘because of the differences in its formulation, the proper interpretation of the FET treatment depends on the specific wording of the particular treaty, its context, the object and purpose of the treaty, as well as on negotiating history or other indications of the parties’ intent’.101 Yet, textual differences must not be overestimated. In Parkerings v Lithuania,102 the Tribunal discussed whether the expression ‘equitable and reasonable’ used in Article III of the BIT between Lithuania and Norway was to be interpreted as equivalent to the more commonly used expression ‘fair and equitable’ as maintained by the claimant or as establishing a stricter standard. It found that the two expressions were used interchangeably and do not bear any substantial difference as to the standard foreign investors are entitled to. In its words: [i]f the two phrases are given their plain meaning, it is far from apparent that they should differ in any way. Thus, under this approach, treatment is fair when it is ‘free from bias, fraud or injustice; equitable, legitimate …’; and, by the same token, equitable treatment is that which ‘is characterized by equity or fairness, … fair, just, reasonable.’ The standard of ‘fair and equitable treatment’ has been interpreted broadly by Tribunals and, as a result, a difference of interpretation between the terms ‘fair’ and ‘reasonable’ is insignificant. …Thus the Arbitral Tribunal intends to identically interpret the notion ‘equitable and reasonable’ and the standard ‘fair and equitable’.103 94 See, eg, the BITs between Norway and Lithuania, Art III and between the Philippines and Pakistan, Art I. 95 See, eg, the BITs between the United States and Bangladesh, Art II; Germany and Nigeria, Art 3; the Netherlands and Venezuela, Art 3(1); Mexico and Greece, Art 3(2). 96 See, eg, Energy Charter Treaty, Art 10(1); or the BITs between the United Kingdom and China, Art 2(2); Estonia and Israel, Art 2(2); the United Kingdom and Albania, Art 2(2); China and Argentina, Art 3(1); Pakistan and Egypt, Art 2(2). 97 See, eg, the BITs between Italy and Cuba, Art 2(2); Switzerland and Cuba, Art 4(1); Switzerland and Pakistan, Art 4(1); Italy and Jordan, Art 2(3). 98 See, eg, the BIT between the United Kingdom and the United Arab Emirates, Art 2(2). 99 See, eg, the BITs between the Russian Federation and Argentina, Art 3(1); the Russian Federation and Ethiopia, Art 3(1). 100 See, eg, the BIT between Switzerland and the Philippines, Art IV. 101 K Yannaca-Small, ‘Fair and Equitable Treatment Standard: Recent Developments’, in A Reinisch (ed), Standards of Investment Protection (Oxford: OUP, 2008) 111, 129. 102 Parkerings v Lithuania, above Ch 3, n 36. 103 ibid, paras 276–78, quoting S Vascianne, ‘Fair and Equitable Treatment’ (2000) 70 British Yearbook of International Law 99. Significantly, the definition of FET treatment in Art 1, Part IV of Draft MAI, see above Ch 2, n 14, left open several and presumably identical combinations. It reads: ‘Each contracting party shall accord to investments in its territory of investors of another Contracting Party fair and equitable treatment and full and constant protection and security. In no case shall a Contracting Party accord treatment less favourable than that required by international law. A Party shall not impair by [unreasonably or discriminatory] [unreasonably and discriminatory] measures the operation, management, use, enjoyment or disposal of investments in its territory of investors of another Contracting Party’.

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The Tribunal correctly avoided a rigid and probably abusive application of the principle of effectiveness in the sense that the insertion of the adjective ‘reasonable’ in the traditional expression ‘fair and equitable treatment’ must produce some effects and necessarily affect the substantive obligations incumbent upon the host State.104 Instead, it emphasised the substantive identity of the two—equally vague—expressions. However formulated, the standard remains rather vague and literal arguments hardly provide any indications as to the precise meaning of the standard. Attempts to define the content of the standard by resorting to literal arguments have often resulted in the search for synonyms of little practical utility. In MTD v Chile, for instance, the tribunal stated that ‘[i]n their ordinary meaning, the terms “fair” and “equitable” … mean “just”, “even-handed”, “unbiased”, “legitimate”’.105 As pointed out in Saluka v Czech Republic, ‘the “ordinary meaning” of the “fair and equitable treatment” standard can only be defined by terms of almost equal vagueness’.106 Another Tribunal echoed that [t]o say that ‘fair and equitable’ means ‘ just,’ ‘even-handed,’ ‘unbiased,’ or ‘legitimate,’ as some tribunals have done, is quite frankly to state a tautology. Such formulations are not judicially operational in the sense that they lend themselves to being readily applied to complex, concrete investment fact situations, like those found in the present case.107

Under the circumstances, it has convincingly been held that ‘[a] judgment of what is fair and equitable cannot be reached in abstract; it must depend on the facts of a particular case’.108 The lack of precision, which is sometimes unavoidable,109

104

See Ch 6, section II. MTD v Chile, above Ch 3, n 41, para 113. In Azurix v Argentina, above Ch 1, n 28, Award, para 360, the Tribunal held that ‘[i]t follows from the ordinary meaning of the terms fair and equitable and the purpose and object of the BIT that fair and equitable should be understood to be treatment in an even-handed and just manner, conducive to fostering the promotion of foreign investment’. 106 Saluka v Czech Republic, above Ch 3, n 1, Partial Award, para 297. The Tribunal added that “this is probably [as] far as one can get by looking at the ‘ordinary meaning’ of the terms” of the relevant FET provision. This view has been recently shared in Micula v Romania, above Ch 3, n 92, Final Award, para 504. The Tribunal also found that ‘the plain meaning of these terms … does not provide much assistance’. In Mamidoil Jetoil Greek Petroleum Products Societe SA v Albania, ICSID ARB/11/24, Award, 30 March 2015, para 605, the Tribunal laconically admitted that ‘[l]audable as these efforts are, they add only limited precision and concretization’. 107 Suez v Argentina, above Ch 1, n 22, Liability, 30 July 2010, para 221. In Swisslion DOO Skopje v The Former Yugoslav Republic of Macedonia, ICSID ARB/09/16, Award, 6 July 2012, para 273, the Tribunal held, in a rather circular way, that ‘the standard basically ensures that the foreign investor is not unjustly treated, with due regard to all surrounding circumstances, and that it is a means to guarantee justice to foreign investors’. See also National Grid v Argentina, above Ch 3, n 96, Award, para 168. 108 Mondev International Ltd v United States, above Ch 3, n 85, Award, para 118. 109 ibid, para 127 (footnote omitted). The Tribunal recognised that ‘[i]n the end the question is whether, at an international level and having regard to generally accepted standards of the administration of justice, a tribunal can conclude in the light of all the available facts that the impugned decision was clearly improper and discreditable, with the result that the investment has been subjected to unfair and inequitable treatment. This is admittedly a somewhat open-ended standard, but it may be that in practice no more precise formula can be offered to cover the range of possibilities.’ 105

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may be a virtue rather than a shortcoming.110 The FET standard as it is included in current investment treaties offers the flexibility and adaptability that is needed in the complex and evolving investment legal environment. Investment tribunals have admitted that the standard is flexible and must be applied on a case-by-case basis taking into account all relevant circumstances of each case.111 A good deal of the discussion on FET has revolved around the question whether the standard is an autonomous one, or must be intended as equivalent to the international minimum standard (IMS) existing under customary international law.112 Although a comprehensive treatment of the debate goes beyond the scope of this study,113 it is nonetheless appropriate to examine the relationship between two standards from the standpoint of treaty interpretation. FET provisions are either ‘spelled out without any reference to international standard, possibly as a way of avoiding the divergence surrounding the latter and in order to give it a direct content’,114 or characterised by references to customary international law establishing that FET must be ‘no less than that required by international law’,115 ‘consistent with international law’,116 ‘not inconsistent with the norms and principles of international law’,117 or that parties must comply with FET ‘pursuant to international law’118 or ‘in accordance with the principles

110 R Dolzer, C Schreuer, above Ch 2, n 75, p 148. According to JW Salacuse, above Ch 2, n 7, p 387, ‘the very vagueness and generality [of the FET standard] endow it with a flexibility that will permit it to evolve in the light of experience by investors, host countries, and international arbitral tribunals. At the same time, interpreters of the standard must guard against the danger of subjectivity, bias, and lack of discipline in the interpretation process.’ See also JE Alvarez, The Public International Law Regime Governing International Investment (The Hague: Ail Pocket, 2011) 241. 111 See, eg, Waste Management, Inc v Mexico (No 2), ICSID ARB(AF)/00/3, Award, 30 April 2004, para 99. 112 The existence of IMS as a minimum standard imposed under customary law and ‘detached from the host State’s domestic law’ is undisputed, see Genin v Estonia, ICSID ARB/99/2, Award, 18 June 2001, para 367. 113 The autonomous character of FET has been held, for instance, in Saluka v Czech Republic, Partial Award, above Ch 3, n 1, paras 292–94 and 309. In literature, see, in particular, S Vascianne, above n 102; C Yannaca-Small, Fair and Equitable Treatment Standard in International Investment Law, OECD Working Papers on International Investment, No 2004/3, p 40; C Schreuer, ‘Fair and Equitable Treatment in Arbitral Practice’ (2005) 6 Journal of World Investment & Trade 33; R Dolzer, ‘Fair and Equitable Treatment: A Key Standard in Investment Treaties’ (2005) 39 International Lawyer 87; P Muchlinski, ‘“Caveat Investor?” The Relevance of the Conduct of the Investor under the Fair and Equitable Treatment Standard’ (2007) 55 International & Comparative Law Quarterly 527; J Kalicki and S Medeiros, ‘Fair, Equitable and Ambiguous: What Is Fair and Equitable Treatment in International Investment Law?’ (2007) 22 ICSID Review 24; I Tudor, above Ch 3, n 39; K Yannaca-Small, above n 100; R Kläger, Fair and Equitable Treatment in International Investment Law (Cambridge: CUP, 2013); M Paparinskis, The International Minimum Standard and Fair and Equitable Treatment (Oxford: OUP, 2013). 114 G Sacerdoti, Bilateral Treaties and Multilateral Instruments on Investment Protection (1997) 269 Recueil des Cours 251, 341. 115 See, eg, Art 10(1) ECT. This clause has commonly been used in the BITs concluded by the United States prior to the adoption of the 2004 Model BIT. See, eg, the BITs with Estonia, Art II.3; Argentina, Art II.2(a); Mozambique, Art II.3(a). See also Art 1.1 (General Treatment) included in Part IV of the Multilateral Agreement on Investment Draft Consolidated Text (Investment Protection), DAFFE/MAI(98)7/REV1, 22 April 1998. 116 See, eg, Art II.3, BIT United States–Morocco, 22 July 1985. 117 See, eg, Art II.2 (a) BIT United States–Russian Federation, 17 June 1992 (not in force). 118 See, eg, Art 4(1) BIT Spain–Mexico.

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of international law’.119 In the latter case, it may be argued that the references to international law do not add much to the content of the standard as the interpreter is already located in an international law environment.120 Three main interpretative arguments have been put forward to argue that FET under these clauses is an autonomous standard. First, the very inclusion in an investment treaty of an FET clause would necessarily mean that the FET must be interpreted in the sense of setting a standard independent and higher from IMS, lest it make the clause redundant.121 Second, the inclusion of references to international law have induced some tribunals to recognise the autonomous character of the treaty standard by equating customary international law to a floor below which any interpretation of the treaty would be inadmissible. From this perspective, the standard imposed under international law becomes important for the purpose of interpreting FET obligations and has a direct impact on their substantive content to be attached to the relevant provision since it ensures that ‘at a minimum FET must be equated with the treatment required under international law’.122 In the words of a tribunal, Article II(2)(a) of the BIT between Argentina and the United States permits to interpret fair and equitable treatment and full protection and security as higher standards than required by international law. The purpose of the third sentence … is to set a floor, not a ceiling in order to avoid a possible interpretation of these standards below what is required by international law.123

119 This is the standard normally used by France (see for instance the BITs with Romania, Art 3; Peru, Art 3; India, Art 4; Argentina, Art 3) as well as Canada prior to the adoption of the 2004 Model BIT (see for instance the BITs with Egypt, Art II.2; Thailand, Art II.2; El Salvador, Art II; South Africa, Art II.2). 120 S Montt, State Liability in Investment Arbitration (Oxford: Hart Publishing, 2009) 303–34. 121 In Siemens v Argentina, for instance, the applicant contended that ‘[a]n interpretation that is in accordance with the BIT’s object and purpose would also have to give some independent meaning to the fair and equitable treatment standard. An interpretation that reduces its meaning to standards that are contained already in customary international law would deprive it of any independent meaning and would make the provision redundant’, as reproduced by the Tribunal in the award rendered on 17 January 2007, above Ch 3, n 5, para 284. The applicant relied on an unpublished legal opinion by C Schreuer. In Tecmed v Mexico, above Ch 3, n 35, paras 155–56, the Tribunal held that ‘the scope of the undertaking of FET under Art 4(1) [of the BIT between Spain and Mexico] is that resulting from an autonomous interpretation, taking into account the text of Art 4(1) of the Agreement according to its ordinary meaning (Art 31(1) of the Vienna Convention), or from international law and the good faith principle, on the basis of which the scope of the obligation assumed under the Agreement and the actions related to compliance therewith are to be assessed. If the above were not its intended scope, Art 4(1) of the Agreement would be deprived of any semantic content or practical utility of its own, which would surely be against the intention of the Contracting Parties upon executing and ratifying the Agreement’. 122 Occidental v Ecuador, above Ch 3, n 41, Final Award, para 188 (emphasis added). 123 Azurix v Argentina, Award, above Ch 1, n 28, para 361. Art II(2)(a) reads: ‘Investment shall at all times be accorded fair and equitable treatment, shall enjoy full protection and security and shall in no case be accorded treatment less than required by international law.’ See also American Manufacturing & Trading, Inc (AMT) v Democratic Republic of Congo (ICSID ARB/93/1), Award of 21 February 1997, reprinted in (1997) 36 International Legal Materials 1531. See also SD Myers Inc v Canada, Partial Award, 13 November 2000, para 259; Alex Genin, Eastern Credit Limited, Inc and AS Baltoil v Estonia, ICSID ARB/99/2, Award of 25 June 2001, para 367; Vivendi v Argentina, above n 59, Award, 20 August 2007, para 7.4.7.

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Third, the autonomous character of FET has been deduced from the terminological choice of the parties, which reveals their intention to enhance the protection of their respective investor beyond what is already required under customary international law. According to a leading scholar, ‘[a]s a matter of textual interpretation it seems implausible that a treaty would refer to a well-known concept such as the ‘minimum standard of treatment in customary international law’ by using the expression ‘fair and equitable treatment’.124 The first argument is not convincing and cannot rest on the principle of effectiveness. Far from being redundant, the inclusion in a treaty of a rule already existing in customary international law binds the parties to the said rule as a matter of treaty law, with the important consequences that the remedies available under the treaty, if any, can be resorted to in case of alleged violations. The other two arguments are not compelling. Accepting the IMS as a floor for the defining of FET will not overcome the vagueness of the latter provision or reduce the difficulties inherent in the determination of its content. Besides, as it has been argued, especially vague norms must be interpreted taking into account Article 31(3)(c) VCLT.125 The a contrario argument based on the textual choice of the contracting parties, in turn, provides little assistance when it comes to attaching to FET a precise meaning. The crux of the matter is that the entire question of the existence of two autonomous standards may well be more apparent than real.126 In this regard, a tribunal has persuasively found this discussion to be somewhat futile, as the scope and content of the minimum standard of international law is as little defined as the BITs’ FET standard, and as the true question is to decide what substantive protection is granted to foreign investors through the FET. The issue is not one of comparing two undefined or weakly defined standards; it is to ascertain the content and define the BIT standard of fair and equitable treatment.127

When a treaty provision is drafted in such vague terms, as in the case of FET provisions, the interpreter is faced with a challenging task, as the lexical analysis of the text would probably lead to little more than a search of equally vague synonyms. Contextual and teleological considerations hardly provide any assistance as a wide

124 C Schreuer, ‘Fair and Equitable Treatment in Arbitral Practice’ (2005) 6 Journal of World Investment & Trade 357, 360, quoted with approval in Biwater Gauff (Tanzania) Ltd v Tanzania, ICSID ARB/05/22, Award, 24 July 2008, para 591, in a stronger formulation, taken from the previous edition of the book, which reads: ‘it is inherently implausible that a treaty would use an expression such as “fair and equitable treatment” to denote a well-known concept such as the “minimum standard of treatment in customary international law”. If the parties to a treaty want to refer to customary international law, it must be presumed that they will refer to it as such rather than using a different expression.’ 125 According to R Kläger, above n 2, p 110, ‘vague or general clauses are especially amenable to act as gateways for the integration of arguments based on norms of other sphere of the international legal system’. 126 Saluka v Czech Republic, Partial Award, above Ch 3, n 1, para 291. 127 El Paso v Argentina, above Ch 3, n 131, Award, 31 October 2011, para 335.

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range of interpretations of FET is likely to be consistent with the rest of the treaty and conducive to the achievement of the objects and purposes of the treaty. An author has aptly pointed out that [i]f the ordinary meaning of the terms ‘fair and equitable treatment’ were somewhat unclear, then the tribunal could make reference to the preamble of the treaty to resolve the textual ambiguity. The point is, however, that there is no textual ambiguity in relation to the terms ‘fair and equitable treatment’. The question for the tribunal is rather the substantive content that must be ascribed to that standard of treatment.128

Interpreting a treaty and ascertaining customary international or general principles are normally two different exercises, which have been described by a tribunal as follows: A tribunal confronted with a question of treaty interpretation can, with little input from the parties, provide a legal answer. It has the two necessary elements to do so, namely the language at issue and rules of interpretation. A tribunal confronted with the task of ascertaining custom, on the other hand, has a quite different task because ascertainment of the content of custom involves not only questions of law but also questions of fact, where custom is found in the practice of States regarded as legally required by them. … Ascertaining custom is necessarily a factual inquiry, looking to the actions of States and the motives for and consistency of these actions.129

When called to define the normative content of such a vague provisions as FET, the interpreter is expected to give flesh to the standard by identifying and putting together the normative contents of the relevant concrete principles which are regularly and uniformly applied by tribunals dealing with disputes relating to the relationship between States and private entities, including foreign investors, subject to their jurisdictions. Yet, ‘rules cannot be deduced a priori from the idea of an international standard. They must be hammered out in the practice of Governments and by the familiar process of the development of the law through its application by international tribunals.’130 In the field of foreign investment, characterised primarily by the special legal relationship between sovereign States and private enterprises subject to their jurisdictions, the practice of domestic tribunals and the principles these tribunals have developed are crucial for the interpretation of the FET standard. An approach based on a case-by-case reference to relevant concrete principles composing the FET standard is to be preferred to resorting to Article 31(3)(c) VCLT. The concrete principles contributing to the definition of the substantive content of the FET standard are not any other relevant rules applicable between

128

Z Douglas, above Ch 3, n 68, p 82. Glamis Gold, Ltd v The United States of America, UNCITRAL, Award, 8 June 2009, paras 20 and 607. 130 RY Jennings, ‘State Contracts in International Law’ (1961) 37 British Yearbook of International Law 157, 180–81. 129

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the parties to the treaty, which the interpreter must take into account together with the context. Rather, they fill the empty basket of the FET standard and give it the normative content that is necessary for its implementation and for the settlement of the related disputes. Arbitral tribunals have managed to define the meaning of the ‘general obligation’131 by breaking down FET into several concrete principles. Through a stream of coherent arbitral decisions, they have progressively elaborated a broadly accepted operative standard based on a substantially similar combination of various concrete principles. As pointed out in Total SA v Argentina, ‘tribunals have endeavoured to pinpoint some typical obligations that may be included in the standard, as well as types of conduct that would breach the standard, in order to be guided in their analysis of the issue before them’.132 In a conveniently pragmatic manner, another tribunal has offered a non- exhaustive list of principles that should assist the interpreter in defining the meaning of FET. In the words of the tribunal, [t]he fair and equitable treatment standard encompasses inter alia the following concrete principles: the State must act in a transparent manner; the State is obliged to act in good faith; the State’s conduct cannot be arbitrary, grossly unfair, unjust, idiosyncratic, discriminatory, or lacking in due process; the State must respect procedural propriety and due process. The case law also confirms that to comply with the standard, the State must respect the investor’s reasonable and legitimate expectations.133

These principles, which are heavily influenced by the development of human rights law and are continuously evolving, are finding their way to inclusion in international agreements, as in the case of the Canada–European Union: Comprehensive Economic and Trade Agreement (CETA).134 The task performed by the interpreter in establishing the meaning of the FET provisions is in good substance similar—if not identical—to that required to determine the content of IMS under customary international law. In CMS v Argentina, for instance, the Tribunal held that the Treaty standard of fair and equitable treatment and its connection with the required stability and predictability of the business environment, founded on solemn legal and

131

The expression is borrowed from Bayindir v Pakistan, above n 34, Award, para 176. Total SA v Argentina, ICSID ARB/04/01), Liability, 27 December 2010, para 109. Rumeli v Kazakhstan, above Ch 3, n 39, Award, 29 July 2008, para 609. 134 See below, Ch 14, n 11. 132 133

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contractual commitments, is not different from the international law minimum standard and its evolution under customary law.135

Even tribunals that considered FET as an autonomous standard conceded that the minimum requirement to satisfy [the FET] standard has evolved and the Tribunal considers that its content is substantially similar whether the terms are interpreted in their ordinary meaning, as required by the Vienna Convention, or in accordance with customary international law.136

From this perspective, the FET standard is not a final result but rather the product of a continuous process through which the concrete principles contained in a standard develops and evolves in line with the development of State practice at the national and international level. In Siemens v Argentina the Tribunal considered itself ‘bound to find the meaning of these terms under international law bearing in mind their ordinary meaning, the evolution of international law and the specific context in which they are used’.137 Two further points need to be addressed with regard to the interpretation of FET. If FET and IMS tend to coincide as both are ultimately defined by rules and principles developed in State practice and generally accepted as legally binding, nothing prevents States from either including in the standard of treatment clause some but not all relevant principles; or adding new ones. In both cases, the FET takes an autonomous meaning and does not tend to coincide with IMS. In the first case, contracting parties may agree to bind themselves—as a matter of treaty law—only to the principles indicated in a comprehensive list. The new Indian Model BIT is an interesting example in this sense. Article 3(1), titled ‘Standard of treatment’, reads: Each Party shall not subject Investments of Investors of the other Party to Measures which constitute: (i) Denial of justice under customary international law; (ii) Un-remedied and egregious violations of due process; or

135 CMS v Argentina, above Ch 2, n 10, Award, para 284. In Biwater v Tanzania, above n 123, para 592, the Tribunal held that ‘the actual content of the treaty standard of fair and equitable treatment is not materially different from the content of the minimum standard of treatment in customary international law’. In Occidental v Ecuador, above Ch 3, n 41, Final Award, para 188, the Tribunal found that ‘in the instant case the Treaty standard is not different from that required under international law concerning both the stability and predictability of the legal and business framework of the investment’. In literature, see SW Schill, ‘Fair and Equitable Treatment, the Rule of Law, and Comparative Public Law’, in SW Shill, International Investment Law and Comparative Public Law (Oxford: OUP, 2010) esp 152–54; S Montt, State Liability in Investment Treaty Arbitration (Oxford: Hart Publishing, 2009) 298–310. 136 Azurix v Argentina, Award, above Ch 1, n 28, para 361. 137 Siemens v Argentina, above Ch 3, n 5, Award, para 291. In ADF v United States, above n 9, Award, para 179, the Tribunal held that ‘both customary international law and the minimum standard of treatment of aliens it incorporates, are constantly in a process of development’. Quoted with approval by several tribunals; see, eg, Railroad Development Corporation v Guatemala, ICSID ARB/07/23, Award, 29 June 2012, para 218.

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(iii) Manifestly abusive treatment involving continuous, unjustified and outrageous coercion or harassment.138

It is interesting to note that Article 3(1)(i) pegs denial of justice to international customary international law and evolves accordingly. Article 3(1)(ii) and (iii), on the contrary, do not necessarily coincide with international customary law. The qualifications which accompany these elements of the standard may justify an interpretation giving them a meaning that is narrower than that existing under international customary international law. Other elements of the customary standard of treatment of foreign investment that existed at the time of the conclusion of a treaty adopting a clause like Article 3(1) of the Indian Model BIT or emerged afterwards fall outside the scope of the treaty. While the parties remain obliged to comply with the customary standard in its entirety, they are bound as a matter of treaty law—and accordingly exposed to the risk of arbitral p roceedings—only to the extent indicated in the treaty. This is, however, without prejudice to the application of Article 31(3)(c) VCLT. Conversely, States may agree to include in an investment treaty a standard of protection of foreign investors (which can be titled ‘FET’) elements that are not or not yet part of the customary international standard. This may occur, for instance, through the inclusion in the FET clause of specific obligations concerning transparency, which probably has not yet emerged in customary international law. If the interpretation of FET can be considered a successful story, the interpretation of other vague or imprecise provisions have been more problematic as demonstrated by the diverging interpretations adopted by tribunals on the MFN treatment clauses.139 The most controversial question is whether generally worded MFN treatment clauses operate with regard to all treaty provisions, including those on the settlement of disputes, or only to those having substantive nature. Whereas a comprehensive treatment of these clauses is beyond the purpose of this study, a few elements related to treaty interpretation must be discussed. From this perspective, these clauses can be conveniently divided into three categories.140

138 A footnote further clarifies that for the purpose of Art 3(1)(i) the expression ‘customary international law’ must be intended as only resulting ‘from a general and consistent practice of States that they follow from a sense of legal obligation’. 139 In Wintershall v Argentina, above Ch 3, n 19, Award, para 189, in particular, the Tribunal referred to ‘a welter of inconsistent and confusing dicta of different tribunals’. 140 Literature on MFN clauses in foreign investment law is abundant. See, in particular: O Chukwumerije, ‘Interpreting Most-Favoured-Nation Clauses in Investment Treaty Arbitrations’ (2007) 8 Journal of World Investment & Trade 597; P Acconci, ‘Most-Favoured-Nation Treatment and International Law on Foreign Investment,’ in P Muchlinski et al (eds), above Ch 3, n 24, p 363; A Ziegler, ‘Most-Favoured-Nation (MFN) Treatment,’ in A Reinisch (ed), above n 100, p 59; Z Douglas, ‘MFN Clause in Investment Arbitration: Treaty Arbitration Off the Rails’ (2011) 2 Journal of International Dispute Settlement 97; S Schill, ‘Allocating Adjudicatory Authority: MFN Clauses as a Basis of Jurisdiction—A Reply to Z Douglas’ (2011) 2 Journal of International Dispute Settlement 353; J Maupin, ‘Based Jurisdiction in Investor–State Arbitration: Is there any Hope for a Consistent Approach?’ (2011) 14 Journal of International Economic Law 157; T Cole, ‘The Boundaries of Most Favored Nation Treatment in International Investment Law’ (2012) Michigan Journal of International Law 33, 537. See also the Report of the Study Group on The Most-Favoured-Nation clause of the ILC, contained in the ILC Report to the General Assembly, 63rd Session, ch XII, UN Doc A/66/10 (2011).

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The first category relates to MFN provisions that expressly include or exclude the settlement of disputes in or from their scope of application. In this case, the interpreter must stick to the literal meaning and is able to reach a straightforward conclusion. Article 3(3) of the BIT between the United Kingdom and Nicaragua, for instance, reads: ‘For the avoidance of doubt it is confirmed that the treatment provided for in paragraphs (1) and (2) above shall apply to the provisions of Articles 1 to 11 and 14 of this Agreement’. As Articles 8 and 9 govern, respectively, disputes between investors and the host State, and disputes between the two States, it follows that the MFN clause covers the provisions on the settlement of dispute. Conversely, the Annex to the BIT between Switzerland and Colombia, concluded on 17 June 2006, clarifies that the MFN treatment clause contained in Article 4(2) does not concern mechanisms for the settlement of disputes included in other international agreements.141 The second category is composed of provisions in which the MFN clause must be observed in respect of ‘all matters’ or similar comprehensive expressions. Investment tribunals have generally interpreted these clauses as including the provisions on the settlement of disputes.142 The decision rendered by majority in Berschader v Russia needs to be singled out.143 The Tribunal was called to interpret Article 2 of the BIT Belgium and Luxembourg–Russian Federation, according to which the MFN treatment clause applies ‘to all matters covered by the present treaty and in particular in Articles 4, 5 and 6’ subject to certain exceptions which are immaterial for the purpose of this study.144 The point of disagreement between the parties was whether Article 2 also covers Article 10, which provides for international arbitration. The Tribunal found that the expression ‘all matters covered by the present treaty’ could not be interpreted literally, although its ordinary meaning is clear.145 The finding is based essentially on three arguments. First, Article 2 is hardly relevant with regard to substantive standards other than those included in Articles 4, 5 and 6 of the treaty.146 Second, aware of the ambiguity of Article 2 due to the reference to ‘all matters’, the contracting parties defined the application of Article 2 by indicating ‘in particular’ Articles 4, 5 and 6.147 No explanation is 141

Available at www.lexfind.ch/dtah/64479/FR/0.975.226.3.fr.pdf. in particular, Emilio Agustín Maffezini v Spain, ICSID ARB/97/7, Jurisdiction, 25 January 2000, para 64; Salini v Jordan, above Ch 3, n 85, paras 117–18; Gas Natural v Argentina, above Ch 2, n 12, Jurisdiction, para 31; National Grid v Argentina, above Ch 3, n 96, Jurisdiction, para 83; Suez v Argentina, above Ch 1, n 22, Jurisdiction, para 55, Wintershall v Argentina, above Ch 3, n 19, Award, para 105. In these decisions tribunals have often relied on Ambatielos case (Jurisdiction), Judgment, 1 July 1952, ICJ Reports 1952, p 28. 143 Vladimir Berschader and Moïse Berschader v Russian Federation, SCC Case No 080/2004, Award, 21 April 2006. 144 The Tribunal relied on an English translation of the treaty. The authentic French text reads in the relevant part: ‘dans toutes les matières visées au présent Accord, et plus particulièrement aux articles 4, 5 et 6’. 145 para 185. Surprisingly, in para 193, the Tribunal said that ‘the Contracting parties were aware of the ambiguity of this expression’. 146 para 187 ff. 147 para 193. 142 See,

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given to justify the Tribunal’s interpretation of ‘in particular’. Third, if the intention of the contracting parties was to include the settlement of disputes within the scope of the MFN treatment clause, the best way to achieve such an objective would have been to add the relevant provision (Article 10) to the provisions listed in Article 2.148 The Tribunal then held that the interpretation of Article 2 in accordance with the VCLT is inconclusive as no ordinary meaning can be attributed to this provision, the object and purpose of the treaty are too general and no preparatory works are available. It accordingly focused on the intention of the parties and took the view that an MFN clause encompasses the dispute resolution provisions only if the terms of the treaty clearly and unambiguously so provide. In a rather summary way, it concluded that ‘a reasonable interpretation of the intention of the Contracting Parties in light of the text of the Treaty and other relevant facts shows that it is improbable that the Soviet Contracting Party intended the MFN provision to embrace arbitration issues’.149 It may be argued that none of the three arguments developed by the Tribunal is compelling. The first argument simply misses the point as the crux of the matter is precisely whether Article 2 applies to Article 10. Although Article 10 is not expressly referred to in the MFN clause, nothing inherently prevents it from falling within its scope. The second argument construes ‘in particular’ as an expression introducing an exhaustive list of the provisions covered by Article 2 whereas its ordinary meaning is ‘especially’ in the sense that it indicates one or more particular objects forming part of a previously designated or understood whole. The third argument is correct but far from conclusive. It is equally true that if the contracting parties meant to exclude Article 10 from the MFN treatment clause, they could have simply agreed that Article 2 applies to Article 4, 5 and 6, thus avoiding the alleged ambiguity of the expression ‘in all matters’. More generally, as noted in a powerful separate opinion—which on this point is clearly dissenting—it is unfortunate that the Tribunal refrained from analysing in a balanced way Article 2 in accordance with the VCLT and failed to attribute to its terms their ordinary meaning.150 The literal analysis of Article 2 leads to an interpretation that is both coherent with its context and in harmony with the object and purpose of the treaty: Article 2 covers recourse to dispute settlement. From a methodological point of view, furthermore, the Tribunal committed two other errors. In the first place, assuming for the sake of argument that it was appropriate to look beyond Article 31 VCLT, it is far from clear on what evidence the Tribunal established the (probable) intention of the then Soviet Union.

148

para 202. para 208. 150 The arbitrator noted that ‘[t]here is simply no reason to suppose that—absent some specific treaty language—any given MFN provision should be more or less narrowly defined … Article 2 does not restrict itself to Article 4, 5 and 6; it merely indicates that this non-exhaustive list of substantive obligations are “particularly” covered by the MFN obligation’ (paras 20 and 22). 149

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S econd, the reference to the probable intention of the then Soviet Union is hardly consistent with the VCLT. Even leaving aside the inappropriateness of probable intentions, it is rather surprising that the Tribunal relied on the intention of just one of the contracting parties, without realising that the other contracting party’s intention might have been different. As firmly pointed out by the WTO Appellate Body, what matters is the common intention of all contracting parties, not of one or some of them.151 The third and most problematic category of MFN treatment clauses includes provisions that impose upon the host State the obligation to ensure the investor of the other contracting party a treatment no less favourable to that according to the investor of a third State. These provisions are normally built on the word ‘treatment’ without offering any definition. Some tribunals have acknowledged that, with regard to the question whether the rules governing the settlement of disputes fall within the MFN clause, the ordinary meaning of word ‘treatment’ is unclear152 or undefined.153 Tribunals have reached different conclusions on the literal interpretation of these clauses. According to one view, ‘the term “treatment” is so general that the Tribunal cannot limit its application except as specifically agreed by the parties. In fact, the purpose of the MFN clause is to eliminate the effect of specially negotiated provisions unless they have been excepted’.154 As a result, MFN treatment clauses concern all provisions of the treaty, including those on the settlement of dispute, unless it appears clearly that the contracting parties agreed otherwise.155 According to the opposite view, ‘[i]n the absence of language or context to suggest the contrary, the ordinary meaning of “investments shall be accorded treatment no less favourable than that accorded to investments made by investors of any third State” is that the investor’s substantive rights in respect of the investments are to be treated no less favourably than under a BIT between the host State and a third State, and there is no warrant for construing the above phrase as

151

See below, n 183. Plama v Bulgaria, above Ch 3, n 52, Jurisdiction, para 189. 153 Suez v Argentina, above Ch 1, n 22, Jurisdiction, para 55. The Tribunal nonetheless relied on the expression ‘all matters’ to hold that disputes settlement clauses fell within the scope of the MFN treatment clause. 154 Siemens v Argentina, above Ch 3, n 5, Jurisdiction, para 106. The Tribunal relied on some of the findings of the Tribunal in Maffezini v Spain, above n 141, Jurisdiction, para 54, according to which dispute settlement arrangements since these are ‘inextricably related to the protection of foreign investors’. 155 In Gas Natural v Argentina, above Ch 2, n 12, Jurisdiction, para 49, in particular, the Tribunal held that ‘[u]nless it appears clearly that the state parties to a BIT or the parties to a particular investment agreement settled on a different method for resolution of disputes that may arise, mostfavored-nation provisions in BITs should be understood to be applicable to dispute settlement’. For other examples, see Suez v Argentina, above Ch 1, n 22, Jurisdiction, para 46 ff; Siemens v Argentina above Ch 3, n 5, Jurisdiction, 3 August 2004, para 103. This approach is supported, amongst others, by R Dolzer and C Schreuer, above Ch 2, n 75, p 257; S Schill, The Multilateralization of International Investment Law (Cambridge: CUP, 2009) 174 ff. 152

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importing procedural rights as well.156 Consequently, the application of the MFN treatment clause to the settlement of disputes cannot be presumed: it is necessary that the clause clearly and unambiguously indicates that this was the intention of the parties.157 Interestingly, both interpretations revolve around the concept of specificity, of which Tribunals have different understaning. Both interpretations, however, are plausible. Neither literal arguments nor reliance on the specificity principle seem to be decisive. Not surprisingly, virtually all tribunals have considered several other elements for the purpose of establishing the meaning of MFN clauses as well as to support or confirm their literal interpretation. For the purpose of this section, it must be noted that however unsatisfactory the literal interpretation of certain MFN clauses may be, the VCLT can hardly be held responsible for the uncertainty that still characterises the interpretation of MFN treatment clauses. It is rather the vagueness of these clauses and their poor drafting that are at the origin of the inconsistent case law. Being essentially a matter of interpretation, controversies on MFN clauses may be reduced, if not eliminated, through precise and accurately drafted clauses clearly indicating their scope of application. Presumably in reaction to the Maffezini decision and more generally to the controversial case law on MFN clauses, several States have already elaborated clearer clauses which exclude their application to provisions concerning the settlement of disputes or specific subject matters. Greater clarity can also be obtained in respect of MFN clauses included in existing treaties, where appropriate, through the exchange of letters, the conclusion of protocols, the conclusion of interpretative agreements, or any other manner permitted under the law of treaties. The interpretation problems relating to the application of MFN treatment clauses described above, could easily be avoided.158 This can be achieved, in particular, by: (a) clearly stating whether the provisions on the settlement of disputes fall within the scope of the clause; (b) limiting the functioning of the clause to

156 Telenor Mobile Communications AS v Hungary, ICSID ARB/04/15, Award, 13 September 2006, para 92. In Plama v Bulgaria, above Ch 3, n 52, Jurisdiction, para 223, the Tribunal held that ‘the principle with multiple exceptions as stated by the tribunal in the Maffezini case should instead be a different principle with one, single exception: an MFN provision in a basic treaty does not incorporate by reference dispute settlement provisions in whole or in part set forth in another treaty, unless the MFN provision in the basic treaty leaves no doubt that the Contracting Parties intended to incorporate them’. 157 ibid. See also Telenor v Hungary, above n 155, para 90; Tecmed v Mexico, above Ch 3, n 35, para 119; MCI Power Group LC and New Turbine, Inc v Ecuador, ICSID ARB/03/6, Award, 31 July 2007, para 160; Berschader v Russia, above n 142, Award, para 206; Wintershall v Argentina, above Ch 3, n 19, Award, para 189. This interpretation is supported, in particular, by C McLachlan, L Shore and M Weiniger, above Ch 1, n 16, para 7.168. The authors argued that the MFN treatment clauses must be interpreted strictly. This view has no foundation in the VCLT and is at odds with the balanced interpretation that an investment tribunal must pursue. See also Z Douglas, above Ch 3, 68, 344–62. 158 In this regard, it is rather surprising that several Model BITs still contain a general clause. See, eg, the Model BIT adopted in 2003 by China (Art 3.3), in 2006 by France (Art 5), and in 2008 by Germany (Art 3).

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some specific substantive standards;159 (c) indicating the provisions of the treaty in respect of which the clause can be invoked.160 Illustrative lists or examples, on the other hand, should be resorted to with the greatest caution in treaty drafting as they may be misunderstood and generate uncertainty, as the Berschader v Russia case confirms.161 The above discussion of two prominent examples of vague or imprecise provisions such as FET and certain MFN clauses has evidenced the following points. Owing to their vague drafting, literal analysis of the text cannot be expected to shed much light on the meaning of these provisions and the exercise risks being reduced to a frustrating search for synonymous terms. Contextual and teleological considerations, likewise, are not much more promising as probably several, if not all possible interpretations of these clauses are respectful to or at least consistent with the rest of the treaty and its object and purpose. The interpreter needs therefore to build the meaning of vague provisions by looking at State practice, including the conduct related to or influenced by arbitral decisions.

V. Generic Terms or Concepts and Evolutionary (or Evolutive) Interpretation of Treaties Generic terms relate to or are descriptive of a whole group or class. As such, they are not ‘static’, but by virtue of their nature evolutionary.162 They present two main problems: because of their nature they are difficult to define and are susceptible to change over time. These difficulties are amplified in investment law due to the sovereign and independent character of investment tribunals and the unavoidable risk that they could attach different meanings to generic terms. The interpretation of these terms is based on the presumption that the parties were aware, or at least they should have been aware, that the term they agreed upon was susceptible to change in meaning during the lifetime of the treaty and that they accepted the related risks. As recently held by the ICJ, where the parties have used generic terms in a treaty, the parties necessarily having been aware that the meaning of the terms was likely to evolve over time, and where the treaty 159 This is extensively used in BITs and FTAs. See, eg: BIT United Kingdom–China (Art 3), BIT United Kingdom–India (Art 4); 2004 Canada BIT Model, Art 4; 2004 United States BIT Model, Art 4; ASEAN Comprehensive Investment Agreement, 26 February 2009, Art 6; FTA United States–Morocco, Art 10.4; FTA Canada–Chile, Chapter G, Art 3. 160 See, eg, United Kingdom Model BIT, Art 3. 161 Berschader v Russia, above n 142, Award. 162 Namibia (South West Africa) notwithstanding Security Council Resolution 276 (1970), Advisory Opinion, ICJ Reports 1971, p 16, para 53. In United States—Shrimp, above Ch 3, n 114, para 130, the WTO Appellate Body noted that ‘the generic term “natural resources” in Art XX(g) is not “static” in its content or reference but is rather “by definition, evolutionary”’. As pointed out by R Higgins, Declaration appended to Kasikili/Sedudu, above Ch 1, n 10, Judgment, para 2, a generic term is a ‘known legal term, whose content the parties expected would change through time’.

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has been entered into for a very long period or is ‘of continuing duration’, the parties must be presumed, as a general rule, to have intended those terms to have an evolving meaning.163

Needless to say, it may be difficult for the interpreter to establish the willingness of the contracting parties to use a term whose meaning could evolve. Indeed, it has been pointed out that ‘[i]n most cases parties to a treaty do not explicitly state in it whether they intend to fix for all time the meaning of the terms employed or whether they wish to allow the meaning to evolve. As a result, recourse must be had to presumptions.’164 Dynamic or evolutionary interpretation is not expressly mentioned in Articles 31 and 32 VCLT, but nonetheless hovers over the entire process of interpretation. The interpreter may have to strike a delicate balance between the need to respect the intention of the parties as it has been recorded at the time of the conclusion of the treaty and the need to take into account the normative, societal, technological and linguistic developments that have occurred afterwards. On the one hand, according to the principle of contemporaneity, ‘[t]he terms of a treaty must be interpreted according to the meaning which they possessed, or which would have been attributed to them, and in the light of the current linguistic usage, at the time when the treaty was originally concluded’.165 On the other hand, it would be difficult and will not do the parties a good service to freeze the meaning of the terms to a treaty to the time of its conclusion. The treaty is meant to govern real situations and putting it into a temporal straitjacket by ignoring what has happened since its conclusion may lead to anachronistic interpretations and ultimately frustrate the achievement of the object(s) and purpose(s) of the treaty.166

163 Navigational and Related Rights, above Ch 1, n 10, para 66. In para 70, the Court further pointed out that generic terms ‘must be understood to have the meaning they bear on each occasion on which the Treaty is to be applied, and not necessarily their original meaning’. In Aegean Sea Continental Shelf (Greece/Turkey), Judgment, ICJ Reports 1978, p 3 at 32, para 77, the ICJ held that where a term can be classified as generic, ‘[t]he presumption arises that its meaning was intended to follow the evolution of the law and to correspond with the meaning attached to the expression by the law in force at any given time’. See also Namibia (South West Africa), above n 161; Navigational and Related Rights (Costa Rica v Nicaragua), above Ch 1, n 10. 164 G Guillaume, Declaration appended to Case Concerning the Dispute Regarding Navigational and Related Rights, para 15. I. Venzke, above Ch 1, n 10, p 232, further observes that ‘[t]he necessary presumption … falls only slightly short of assuming that the parties were clairvoyant at the moment of a treaty’s conclusion’. 165 GG Fitzmaurice, (1964-II) 16 Yearbook of the International Law Commission 55. In Wintershall v Argentina, above Ch 3, n 19, Award, para 129, the Tribunal pointed out that the principle of contemporaneity means that ‘the terms of a treaty have to be interpreted according to the meaning they possessed (and in the circumstances prevailing), at the time the treaty was concluded’. On evolutive interpretation, see E Bjorge, The Evolutionary Interpretation of Treaties (Oxford: OUP, 2014). 166 According to J Arato, ‘Subsequent Practice and Evolutive Interpretation: Techniques of Treaty Interpretation over Time and Their Diverse Consequences’ (2010) 9 Law & Practice of International Courts and Tribunals 443, 465, ‘[t]he basis of evolutive interpretation is the idea that parties may conclude a treaty with the intention that it, or some of its provisions, be capable of evolving in meaning over time, in light of certain changes in factual or legal circumstances—ranging from scientific or technical developments to the emergence of new legal regimes’.

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Not surprisingly, evolutionary interpretation remains an elusive and multifaceted topic which is difficult to handle.167 It tends to defy any attempt to place it rigidly into any predetermined rubrics and must be discussed from different perspectives across the entire process of interpretation. Evolutionary interpretation has emerged in the jurisprudence of the ICJ168 and the WTO adjudicatory bodies,169 and found a fertile ground in human rights law.170 As pointed out by the ICJ, there are situations in which the parties’ intent upon conclusion of the treaty was, or may be presumed to have been, to give the terms used—or some of them—a meaning or content capable of evolving, not one fixed once and for all, so as to make allowance for, among other things, developments in international law.171

Evolutionary interpretation has been associated primarily with the interpretation of generic terms and with systemic interpretation under Article 31(3)(c).172 In the former case, the evolutionary interpretation is due and justified by the legal, societal, linguistic evolution of the terms used in the treaty. In the latter case, the meaning to be attached to the terms of the treaty is shaped by the development of extraneous international rules applicable between the parties. While Article 31(3)(c) VCLT will be examined in Chapter 8, it is worth noting in this context that the meaning of the terms of a treaty may evolve though the emergence of new international rules or the evolution or abandonment of existing ones. As pointed out by the ICJ, ‘[a]n international instrument has to be interpreted and applied with the framework of the entire legal system prevailing at the time of interpretation’.173 167 M Fitzmaurice, above Ch 1, n 48, p 101, points out that ‘each and every instance of the a pplication of the dynamic interpretation of treaties has to be treated as a special case and linked to the whole system of a particular treaty and its aims and purposes. The dynamic interpretation of treaties is a useful instrument of interpretation, however, as attractive and useful it appears to be, should be treated responsibly, even if the interpretative body is furthering the treaty’s aims and purposes’. 168 See below, nn 171 and 172. 169 See, in particular, United States—Shrimp, above Ch 3, n 114; China—Publications and Audiovisual Products, WT/DS363/AB/R, 21 December 2009, para 396. 170 Although several human rights provisions have been interpreted in an evolutionary manner, concern has been expressed about the need to respect the limits of the exercise. In the joint dissenting opinion attached to Feldbrugge v Netherlands, Judgment, 29 May 1986, Case 8/1984/80/127, para 24, seven judges maintained that ‘[a]n evolutive interpretation allows variable and changing concepts already contained in the Convention to be construed in the light of modern-day conditions … but it does not allow entirely new concepts or spheres of application to be introduced into the Convention: that is a legislative function that belongs to the member States of the Council of Europe. The desirability of affording proper safeguards for the adjudication of claims in the ever-increasing field of social security is evident. There are, however, limits to evolutive interpretation.’ 171 Navigational and Related Rights, above Ch 1, n 10, para 64. 172 In literature, see, in particular, R Gardiner, above Ch 1, n 10, p 289 ff; F Engelen, Interpretation of Tax Treaties under International Law, Doctoral Series, Erasmus University Rotterdam, Vol 7, 2004, esp p 283 ff; J Pauwelyn, Conflict of Norms in Public International Law. How WTO Law Relates to other Rules of International Law (Cambridge: CUP, 2003) esp 267 ff. 173 Namibia (South West Africa), above n 161, para 53. According to BJ Condon and T Sinha, The Role of Climate Change in Global Economic Governance (Oxford: OUP, 2013) 112, ‘it is the evolution of international environmental law that requires evolutive interpretation of both Article XX(g) and NAFTA Art 1101’. On Art 31(3)(c) VCLT, see below, Ch 8.

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It is important to underline that evolutionary interpretation is meant to give effect to rather than depart from the intention of the parties.174 As emphasised in Arbitration Regarding the Iron Rhine, ‘an evolutive interpretation, which would ensure an application of the treaty that would be effective in terms of its object and purpose, will be preferred to a strict application of the intertemporal rule’.175 From this perspective, evolutionary interpretation is firmly anchored to both the ordinary meaning of the terms—as they may have evolved throughout time—as well as to common intention of the parties. Rather than being a technique or a means of interpretation, it can be considered as the outcome of the interpretative process based on the traditional canons of interpretation.176 However, even if it accepted that ‘[t]he presumed intention is deduced from objective factors which are substantially the same factors on which one should rely when interpreting a treaty according to the general criterion stated in the Vienna Convention’,177 the exercise is not exempt from the risk of distorting or departing from the intention of the parties.178 International investment tribunals have rarely discussed and expressly resorted to dynamic interpretation. In RosInvest v Russian Federation, the applicant invoked dynamic interpretation to expand the jurisdictional clause contained in the BIT between the United Kingdom and the Russian Federation. The Tribunal rejected the argument and held that at least in the present context [dynamic interpretation] cannot be justified under Articles 31 and 32 VCLT that later developments can be found to change the ordinary 174 In Navigational and Related Rights (Costa Rica v Nicaragua), para 64, the ICJ clarified that ‘it is indeed in order to respect the parties’ common intention at the time the treaty was concluded, not to depart from it, that account should be taken of the meaning acquired by the terms in question upon each occasion on which the treaty is to be applied’. 175 Above Ch 1, n 11, para 80. According to R Higgins, ‘Time and the Law’ (1997) 46 International & Comparative Law Quarterly 501, 519, the intention of the parties has to be ‘deduced from the object and the purpose of the agreement’. In this respect it is worth recalling that GG Fitzmaurice, ‘The Law and Procedure of the International Court of Justice 1951–54. Treaty Interpretation and Other Treaty Points’ (1957) 33 British Yearbook of International Law 203, conceded that the treaty may have an ‘emergent purpose’ as ‘[t]he object and purpose is itself not a fixed and static one, but is liable to change or rather to develop as experience is gained in the operation and working of the convention’. E Bjorge, above n 164, p 120, has aptly stressed that ‘evolutionary interpreation is nothing if not tied with the intention of the parties; it must ultimately refer back to the consent of the parties themselves and to their common intention’. 176 See E Bjorge, above n 164, esp pp 140–41. 177 As convincingly argued by P Palchetti, ‘Interpreting “Generic Terms”: Between Respect for the Parties’ Original Intention and the Identification of the Ordinary Meaning’, in N Boschiero, T Scovazzi, C Pitea and C Ragni (eds), International Courts and the Development of International Law: Essays in Honour of T Treves (Vienna: Springer, 2010) 91, 104. 178 As observed by D French, ‘Treaty Interpretation and the Incorporation of Extraneous Legal Rules’ (2006) 55 International & Comparative Law Quarterly 279, 300, ‘while such objectivity might have the obvious benefit of ensuring contemporaneousness, the argument that treaties can be objectively revised may provide the tribunals too much latitude, with too few safeguards, for discretionary decision-making’. P Palchetti, above n 176, p 104, further points out in a balanced way that the risk that the interpreter goes ‘beyond the actual consent of the parties’ and undermines the predictability of the legal commitments the parties intended to assume must not be exaggerated since also sticking to the meaning of the terms at the time of the conclusion of the treaty may imply the same risk. See also J Crawford, State Responsibility. The General Part (Cambridge: CUP, 2014) 246.

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and unambiguous meaning of a treaty provision like Article 8 of the BIT. Since the present context is that of a bilateral treaty, the Tribunal does not have to take up the questions whether other considerations may justify such an interpretation in the context of a long term multilateral convention or human rights.179

It is important to note that the Tribunal ruled out dynamic interpretation because in this specific case it would have meant a departure from the interpretation based on the ordinary meaning in its context and in the light of its object and purpose. The Tribunal also expressed some scepticism over the possibility of an evolutionary approach in interpreting bilateral investment treaties due to the peculiar nature of these treaties which are a reciprocal bargain and do not require the ‘degree of evolutionary adaptation’ that may be justified in interpreting human rights treaties or constituent instruments of international organisations.180 Evolutionary interpretation has been discussed primarily from the standpoint of the changing meaning that can be attached to generic terms throughout the life of a treaty. What seems to have been neglected are the difficulties in establishing the meaning of these terms in the first place. Indeed, the very same day the treaty has entered into force the interpreter may struggle to establish the meaning of generic terms. The difficulties of the exercise may be amplified when interpretation take place at a later stage. At any rate, interpreters must be extremely cautious in resorting to evolutionary arguments and refrain from attaching too much importance to arbitral decisions, unless they have generated jurisprudence constante with the approval or at least the acquiescence of States. As convincingly held by a tribunal, an MFN should not be interpreted in an evolutionary manner solely because some investor–State tribunals have followed, either in toto or in part, the interpretation initiated by one arbitral award which remains highly controversial such as Maffezini v Spain.181 Yet, generic terms are not uncommon in investment treaties. In Jan de Nul NV v Egypt, for instance, the Tribunal rejected the argument put forward by the Respondent that the generic term ‘communications’ is limited to the transmission of information. After stressing the geographic dimension of ‘communications’, it found that dredging a canal may be included in the definition of ‘communications’. In its view, including ‘road of communication’ or ‘transport of persons and goods’ in the meaning of ‘communications’ under Article III(1) is not ‘at odds with the common and ordinary meaning of the term communications’.182 The use of the generic term ‘investment’ offers another interesting and much more controversial example. The question of the interpretation of the term has arisen mainly in two different contexts: BITs and Article 25 of the ICSID

179

RosInvest v Russian Federation, above Ch 1, n 45, Jurisdiction, October 2007, para 121. ibid, para 39. Daimler v Argentina, above Ch 1, n 15, Award, para 267. 182 Jan de Nul v Egypt, above n 17, Jurisdiction, 16 June 2006, paras 100–01. 180

181 See

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onvention. Preliminarily, it must be stressed that the relevant BIT and ICSID C Convention complement each other, but remain two independent treaties that must be applied and interpreted taking into account their specific nature, content and aim. In Malicorp v Egypt,183 the Tribunal emphasised the different, but complementary perspectives of the definition of investment contained in the relevant BIT and Article 25 ICSID. Indeed, on the one hand, the treaty provision defines investment for the purpose of the treaty, thus indicating the scope of application ratione materiae of the treaty as agreed between the parties. In other words, investments falling within this definition enjoy the legal protection of the treaty, both substantial and procedural, including the possibility to file a request for arbitration before ICSID, if applicable. On the other hand, Article 25 of the ICSID Convention sets the limits within which an ICSID tribunal can exercise its jurisdiction. It is a multilateral treaty and Article 25 must be interpreted and applied in an identical manner to all its parties, regardless of the peculiarities of the specific investment treaties the related claims are based upon. Indeed, Article 25 of the ICSID Convention is the expression of the common intention of all its contracting parties. As forcefully explained by the WTO Appellate Body in European Communities—Computer Equipment,184 what matters for the purpose of interpreting a multilateral treaty is the intention shared by all parties and not the intention or legitimate expectations of one or some of them.185 This conclusion is indispensable in order to ensure the uniform application of the multilateral treaty between all its parties. It is therefore appropriate to discuss the interpretation of the generic term ‘investment’ from the standpoint of both investment treaties and Article 25 ICSID as well as their relationship. Most modern investment treaties contain a definition of ‘investment’ which is composed of an introductory sentence or chapeau and a non-comprehensive list of specific categories of investment. The chapeau can refer to the generic term ‘investment’ without specifying any additional requirements,186 or be more sophisticated and provide, for instance, that the investment is made in the territory

183 Malicorp Limited v Egypt, ICSID ARB/08/18, Award, 7 February 2011, para 110. The Tribunal held that ‘[t]he two definitions do not overlap since they come from different perspectives. In the opinion of the Arbitral Tribunal these two aspects are in reality complementary. Indeed, the notion of investment must be understood from the perspective of the objectives sought by the Agreement and the ICSID Convention’. 184 EC—Customs Classification of Certain Computer Equipment—AB-1998-2—Report of the Appellate Body, 5 June 1998, para 84. The Appellate Body held that ‘[t]he purpose of treaty interpretation under Art 31 of the Vienna Convention is to ascertain the common intentions of the parties. These common intentions cannot be ascertained on the basis of the subjective and unilaterally determined “expectations” of one of the parties to a treaty’. 185 It is worth noting that in footnote 163 of award, the Tribunal relied on Aegean Sea Continental Shelf, Judgment, ICJ Reports 1978, p 3, para 57, where the Court discussed the interpretation of unilateral acts of Greece. 186 See, eg, Art 1 of the United Kingdom Model BIT.

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of the host State,187 or satisfy certain ‘characteristics’.188 The interpretative process is significantly different depending on the content of the chapeau. In its simplest form, the chapeau indicates that ‘the term “investments” shall include every kind of assets and particularly’ those indicated in the non-exhaustive list that follows. This is the case, for instance, of Article 1(2) of the BIT between Switzerland and Uzbekistan, which includes under letter (c) of the list: ‘claims to money or to any performance having an economic value’. The meaning of ‘investment’ for the purpose of this provision has been discussed at length in Romak v Uzbekistan by a tribunal established under UNCITRAL rules.189 The decision makes some important findings and raises interesting points of treaty interpretation that deserve to be briefly discussed. First, the Tribunal rejected the position of the claimant according to which the interpretation of the term ‘investment’ for the purpose of the BIT may vary depending on whether the investor prefers to settle the dispute before an ICSID tribunal or an UNCITRAL tribunal, as only the jurisdiction of the former would be conditioned to the satisfaction of an additional explicit requirement, namely that the dispute arises out of an investment (Article 25 of the ICSID Convention). Quite the contrary, it convincingly held that the term ‘investment’ which appears in the introductory paragraph of Article 1 has an intrinsic meaning and that it remains the same regardless of the forum chosen by the claimant. Second, the Tribunal persuasively found that the non-inclusion of a given asset in the clearly not-exhaustive list contained in Article 1(2) does not prevent the qualification of the asset as investment for the purpose of the BIT.190 The text of Article 1(2) unequivocally reflects the contracting parties’ intention to adopt a broad definition of ‘investment’ and to limit themselves to offer some examples. In order to fall within the scope of the treaty, any given asset not expressly listed in Article 1(2) must satisfy the definition of the generic term ‘investment’ in the chapeau. The interpreter must therefore search the ordinary—or inherent—meaning of the term. Third, the Tribunal did not accept the claimant’s view that the role of the interpreter is limited to establishing whether the assets object of the claim fall within one or more of the categories listed in Article 1(2). It found that the mere fact that an asset falls within one of the categories listed in Article 1 ‘does not transform it into an investment’.191 Rather, the term investment ‘has an intrinsic meaning, independent of the categories enumerated in Article 1(2)’.192

187

See, eg, Art 1(1) of the Chinese Model BIT; Art 1(1) German Model BIT. eg, Art 1 of the US Model BIT, which defines investment as ‘every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk’. 189 Romak v Uzbekistan, above n 66. 190 para 180. 191 para 207. 192 para 188. 188 See,

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The Tribunal nonetheless conceded that the contracting parties to an investment treaty ‘are free to deem any kind of asset or economic transaction’—even a one-off sale contract—to constitute an investment for the purpose of the treaty. It is therefore possible to accord to the term ‘investment’ an ‘extraordinary or counterintuitive meaning’, provided that the text of the relevant provision undoubtedly reveals that this was the intention of the contracting parties. In this case, the contracting parties deliberately depart from the meaning normally attached to the term ‘investment’ and agree on a special one for the purpose of the treaty (Article 31(4) VCLT). Although established under UNCITRAL rules, the Romak Tribunal found that ‘[t]here is no basis to suppose that [the term “investment”] had a different meaning in the context of the ICSID Convention than it bears in relation to the BIT’193 and referred to ‘the rule of construction requiring the interpreter to infer that a State party to two or more treaties which employ the same term in the same (or a similar) context intended to give said term the same (or at least a compatible) meaning in all the treaties’.194 It then engaged in a detailed discussion on the definition of investment under Article 25 of the ICSID Convention and ultimately borrowed the elements developed by ICSID tribunals and applied them to Article 1(2) of the BIT. This paved the way to the adoption by the Tribunal of the inherent meaning attached to the term ‘investment’ in ICSID jurisprudence. The Tribunal seems to have elevated to a ‘rule of construction’ what is in reality a presumption that by using the same term in two treaties States intend to attach to it the same (or at least a compatible) meaning. The presumption is nothing more than the logical consequence that the ordinary meanings attached to the same term used in the two treaties coincide. Given the importance of literal interpretation, the presumption is strong yet rebuttable especially when the parties to the treaties do not coincide. The presumption must be dismissed if a special meaning is attached to the term used in one or both of the treaties.195 Yet, the presumption is fortified by the inclusion in the investment treaty of an arbitral clause providing for the settlement of disputes with respect to ‘investments between a Contracting Party and an investor of the other Contracting Party’ by ICSID arbitral tribunals. In the absence of any indication to the contrary, it can be assumed that the parties to the investment treaty intended to attach the same meaning for the purpose of the investment treaty and Article 25 ICSID. Otherwise, the arbitration clause may not function with regard to all investments protected under the treaty. The weight of this argument would be even greater if ICSID is the only forum available to the investor.

193

para 194. para 195. is worth stressing the prudence of the ICJ in Aegean Sea Continental Shelf, Judgment, ICJ Reports 1978, p 3, para 57, the judgment referred to in Romak v Uzbekistan, above n 66. The ICJ doubted that the meaning of same term used in different treaties could ‘differ fundamentally’. 194

195 It

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Ultimately, it is for the interpreter to balance all relevant elements in an attempt to ascertain the real intention of the parties as it has been recorded in the treaty. The interpreter may need to establish whether the contracting parties intended to attach a special meaning to the term investment, with the consequence that certain categories of investment could fall outside the scope of the arbitration clause, or rather to have the same definition of investment for the purpose of both the investment treaty and the ICSID Convention. Whether a given economic activity is covered by the definition provided in an investment treaty must be established on a case-by-case basis.196 Since these requirements may vary from treaty to treaty, it is fully possible that a given economic activity qualify as investment for the purpose of treaty A but not treaty B. Equally important, it follows that only one, both or neither of the definitions of investment provided in treaty A and treaty B may coincide with the definition of investment under Article 25(1) ICSID, which belongs to another (multilateral) treaty and has a different scope, namely setting an objective outer limit to ICSIS jurisdiction. Moving to the definition of investment under Article 25(1) of the ICSID Convention, several awards, starting with Fedax v Venezuela,197 have pointed out that the interpretation of ‘investment’ is crucial in determining whether the claim falls within the jurisdiction of an ICSID tribunal. Indeed, in a number of cases the respondent challenged the qualification of the investment made by the foreign investor as ‘investment’ for the purpose of Article 25(1) ICSID. Most tribunals have reiterated that the interpretation of the term ‘investment’ is governed by the relevant rules of the VCLT.198 Yet, the definition of investment for the purpose of Article 25(1) of the ICSID Convention remains, in the words of some tribunals, highly contested,199 ambiguous,200 or controversial.201 It has also attracted the attention of several scholars and generated sharp divisions.202 196

G Abi-Saab, dissenting opinion in Abaclat v Argentina, above Ch 1, n 15, para 61. Fedax NV v Venezuela, ICSID ARB/96/3, Jurisdiction, 11 July 1997 (1998) 37 International Legal Materials 1378, para 18. 198 In Joy Mining Machinery Limited v Egypt, ICSID ARB/03/11, Jurisdiction, 6 August 2004, however, there is no reference to the VCLT. 199 Global Trading Resource Corp and Globex International, Inc v Ukraine, ICSID ARB/09/11, Award, 1 December 2010, para 54. 200 Malaysian Salvors v Malaysia, above Ch 1, n 14, Annulment, para 57. 201 Abaclat v Argentina, above Ch 1, n 15, para 364. 202 See, in particular, N Rubins, ‘The Notion of “Investment” in International Investment Arbitration’, in N Horn et al (eds), Arbitrating Foreign Investment Disputes (The Hague: Kluwer, 2004) 283; I Fadlallah, ‘La notion d’investissement: vers une restriction à la compétence du CIRDI?’, in G Aksen et al, Liber Amicorum Robert Briner (Paris: ICC Publishing, 2005) 259; A Rigo Sureda, ‘La Noción de Inversión Protegida’, in F Mantilla-Serrano (ed), Arbitraje Internacional: Tensiones Actuales (Santiago Chile: Legis, 2007) 3; S Manciaux, ‘The Notion of Investment: New Controversies’ (2008) 9 Journal of World Investment & Trade 443; D Krishan, ‘A Notion of Investment’, in TJ Grierson Weiler (ed), Investment Treaty Arbitration and International Law (Huntington, NY: Juris Publishing, 2008) 61; Y Andreeva, ‘Salvaging or Sinking the Investment? MHS v Malaysia Revisited’ (2008) 7 The Law and Practice of International Courts and Tribunals 161; P Vargiu, ‘Beyond Hallmarks and Formal Requirements: a “Jurisprudence Constante” on the Notion of Investment in the ICSID Convention’ (2009) 197

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It is well known that the term ‘investment’ in Article 25 was deliberately left undefined.203 Contracting parties were unable to agree upon the definition of investment. The impasse was eventually overcome thanks to a compromise proposed by the United Kingdom. The compromise was based on the use in Article 25 of the generic term ‘investment’ without any definition, and the introduction of the possibility for parties to exclude individually and unilaterally any class of disputes they did not wish to submit to the jurisdiction of the Centre.204 The passage from the Report of the Executive Directors on ICSID according to which ‘[n]o attempt was made to define the term “investment” given the essential requirement of consent by the Parties, and the mechanism through which Contracting Parties can make known in advance, if they so desire, the classes of disputes they would or would not consider submitting to the Centre’205 is not accurate as it disregards the attempts that were made during the negotiations of the convention to define the term ‘investment’. These attempts militate in favour of an autonomous meaning of the term under Article 25. Several distinctions have emerged in the last few years from arbitral decisions and the academic debate on the definition of investment under Article 25(1) of the ICSID Convention. The most immediate one is between a subjective (or deferential) definition and an objective (or restrictive) one. According to the first view, ‘the ICSID Convention leaves the definition of the term investment open to the parties, allowing them to determine its scope and application pursuant to mutual agreement in the relevant BIT’.206 In other words, the definition of investment would be absorbed in the expression of consent as a legal basis for the settlement of disputes before the Centre.207 Accordingly, the meaning of Article 25(1) 10 Journal of World Investment & Trade 754; E Gaillard, ‘Identify or Define? Reflections on the Evolution of the Concept of Investment in ICSID Practice’, in C Binder et al (eds), above Ch 1, n 29, p 403; JD Mortenson, ‘The Meaning of “Investment”: ICSID’s Travaux and the Domain of International Investment Law’ (2010) 51 Houston Journal of International Law 257; K Yannaca-Small, ‘Definition of “Investment”: An Open-ended Search for a Balanced Approach’, in K Yannaca-Small, Arbitration Under International Investment Agreements. A Guide to the Key Issues, (Oxford: OUP, 2010) 243; J Ho, ‘The Meaning of “Investment” in ICSID Arbitration’ (2010) 28 Arbitration International 633; T Cole and AK Vaksha, ‘Power-Conferring Treaties: The Meaning of “Investment” in the ICSID Convention’ (2011) 24 Leiden Journal of International Law 305; JD Mortenson, ‘Quiborax SA et al v Plurinational State of Bolivia: The Uneasy Role of Precedent in Defining Investment’ (2013) 28 ICSID Review 254; C Lévesque, ‘Abaclat and Others v Argentine Republic: The Definition of Investment’ (2012) 27 ICSID Review 247. 203

See, eg, Malaysian Salvors v Malaysia, above Ch 1, n 14, Annulment, para 63. in particular, C Schreuer with L Malintoppi, A Reinisch and A Sinclair, The ICSID Convention. A Commentary, 2nd edn (Cambridge: CUP, 2009) 114–17. See also JD Mortenson, above n 201, pp 289 ff. 205 Report of the Executive Directors on ICSID, 18 March 1965, available at http://icsid.worldbank. org/ICSID/ICSID/RulesMain.jsp, p 44. 206 ATA Construction, Industrial and Trading Company v Jordan, ICSID ARB/08/2, Award, 18 May 2010, para 111. According to the Biwater Tribunal, above n 121, para 312, the term was left intentionally undefined, with the expectation that a definition could be the subject of agreement as between Contracting States. 207 According to A Broches, ‘The Convention on the Settlement of Investment Disputes: Some Observations on Jurisdiction’ (1966) 5 Columbia Journal of Transnational Law 261, 268 ‘[d]uring the 204 See,

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cannot be established without considering the definition in the investment treaties (or the other legal documents) relied upon by the claimant. From this perspective, the interpreter must demonstrate the greater deference to the investment agreements.208 The decision of the ad hoc Committee in Malaysian Salvors v Malaysia epitomises this approach and brings it to its extreme consequences. The Committee found that the Tribunal manifestly exceeded its powers by failing to exercise the jurisdiction with which it was endowed by the terms of the Agreement and the Convention because, inter alia, it failed ‘to take account of and apply the Agreement between Malaysia and the United Kingdom defining “investment” in broad and encompassing terms, but rather limited itself to its analysis of criteria which it found to bear upon the interpretation of Article 25(1) of the ICSID Convention’.209 For the Committee, the travaux préparatoires do not support the imposition of ‘outer limits’ such as those imposed by the Sole Arbitrator in this case … Judicial or arbitral construction going further in interpretation of the meaning of ‘investment’ by the establishment of criteria or hallmarks may or may not be regarded as plausible, but the intentions of the draftsmen of the ICSID Convention, as the travaux show them to have been, lend those criteria (and still less, conditions) scant support.210

Taking a slightly more nuanced approach, other tribunals have attenuated the deference to the freedom enjoyed by the parties by conceding that ‘compelling negotiations several definitions of “investment” were considered and rejected. It was felt in the end that a definition could be dispensed with “given the essential requirement of consent by the parties”. This indicates that the requirement that the dispute must have arisen out of an “investment” may be merged into the requirement of consent to jurisdiction.’ For EC Schlemmer, ‘Investment, Investor, Nationality, and Shareholders’, in P Muchlinksi et al (eds.), above Ch 3, n 24, p 49, at p 63, ‘[i]t was … a deliberate decision not to include a definition of investment in the Treaty, for fear that a concrete meaning would limit its scope and raise unnecessary jurisdictional problems. [T]he definition of “investment” should depend on the parties’ consent in the separate international investment agreements or in international instruments.’ 208 For a rather extreme view, see JD Mortenson, above n 201, p 270, according to whom ‘[w]here consent is founded on a BIT, tribunals simply look at the BIT definition of “investment”’. The cases relied upon by the author seem to provide limited support to such a view. In Parkering v Lithuania, above Ch 3, n 36, paras 249–50, for instance, the Tribunal did not offer any explanation on this point. In MCI Power Group LC and New Turbine, Inc v Ecuador, ICSID ARB/03/6, Award, 31 July 2007, para 159, the Tribunal noted that ‘numerous arbitral precedents confirm the statement in the Report of the Executive Directors of the World Bank that the Convention does not define the term “investments” because it wants to leave the parties free to decide what class of disputes they would submit to the ICSID’. 209 Malaysian Salvors v Malaysia, above Ch 1, n 14, Annulment, para 80(a). 210 ibid, para 69. In literature, the theory has been fully elaborated by JD Mortenson, above n 201, p 318, who maintains that ‘[t]he whole point of the grand bargain is that states are free to decide what kinds of foreign economic enterprise to encourage as a way of developing their domestic economies. ICSID tribunals should not stand in the way.’ He further argues that ‘[g]iven the history of the ICSID Convention and a proper respect for state autonomy, tribunals should treat the definition of “investment” under the Convention as encompassing any plausibly economic activity or asset. The only exceptions to this rule should come where states’ definitions of investment are so disconnected from meaningfully economic activity as to be absurd.’ As a result, the argument goes, ‘tribunal inquiry on the question of “investment” should shift radically toward respecting state commitments and away from sceptical scrutiny of whether any particular form of economic activity should “really” count as an investment.’

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reasons’ may induce a tribunal to disregard the definition contained in the investment treaty. From this perspective, it has been held that it will be appropriate to defer to the State parties’ articulation in the instrument of consent (eg the BIT) of what constitutes an investment. The State parties to a BIT agree to protect certain kinds of economic activity, and when they provide that disputes between investors and States relating to that activity may be resolved through, inter alia, ICSID arbitration, that means that they believe that that activity constitutes an ‘investment’ within the meaning of the ICSID Convention as well. That judgment, by States that are both Parties to the BIT and Contracting States to the ICSID Convention, should be given considerable weight and deference. A tribunal would have to have compelling reasons to disregard such a mutually agreed definition of investment.211

The opposite view is firmly based on the assumption that the ICSID Convention is fully independent from the investment treaty or other legal instrument the claim originates from and its provision must be interpreted accordingly.212 It builds upon the idea that in spite of lack of a definition, the term ‘investment’ used in Article 25 ICSID keeps its autonomous meaning, which must be established in accordance with the VCLT rules of interpretation. As explained by an arbitrator in a dissenting opinion highly critical of the interpretative exercise of the majority of the Tribunal, the term ‘investment’ in … Article 25(1) had at the time of elaboration of the ICSID Convention an objective hard-core or intrinsic ordinary meaning intended by the negotiating States whose component elements have been identified by ICSID decisions and commentators, meaning which cannot be waived even by the agreement of given by parties to a BIT or in another form.213

The generic nature of a term does not mean that it has no meaning or that the meaning is to be determined by reference to other instruments, which incidentally may contain equally generic terms. When confronted with the generic term ‘investment’, for the purpose of Article 25 ICSID—as any other treaty—the interpreter must first seek to establish the ordinary meaning. As has been pointed out, ‘it is not so much the term “investment” in the ICSID Convention than the term “investment” per se that is often considered as having an objective meaning in itself, whether it is mentioned in the ICSID Convention or in a BIT’.214 The lack of a definition in Article 25(1) ICSID certainly reveals the intention of the contracting parties to the ICSID Convention to preserve the largest autonomy 211 Inmaris Perestroika Sailing Maritime Services GmbH and Others v Ukraine, ICSID ARB/08/8, Jurisdiction, 8 March 2010, para 130. See also Alpha v Ukraine, above Ch 3, n 88, para 314. In CMS v Argentina, above Ch 2, n 10, Annulment, para 90, the Committee held that the task of defying ‘investment’ for the purpose of Art 25(1) ICSID ‘was left largely to the terms of the bilateral investment treaties or other instruments on which jurisdiction is based’. 212 In Global Trading v Ukraine, above n 198, para 44, the Tribunal convincingly held that ‘[h]ad the drafters of the Convention wished to accord an absolute freedom of that kind, they would have said so, not simply left Art 25 without a formal definition for the term “investment”’. 213 S Torres Bernàrdez, dissenting opinion, Ambiente v Argentina, above Ch 1, n 15, para 216. 214 GEA Group Aktiengesellschaft v Ukraine, ICSID ARB/08/16, Award, 31 March 2011, para 141.

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of the parties to an investment treaty.215 As pointed out by an arbitrator, however, such autonomy is not unlimited and Article 25(1) sets the outer limit within which a dispute can be settled by an ICSID tribunal. In his words, Article 25(1) ‘leaves much latitude and a wide margin of interpretation and further specification to States in their BITs; but not to the point of rendering it totally vacuous, without any legal effect. In other words, the term has a hard-core that cannot be waived even by agreement of States parties to a BIT’.216 While the proliferation of adjectives qualifying the meaning of the term ‘investment’ is unnecessary, may be counterproductive and generate confusion, the crux of the matter remains to ascertain the ordinary (or inherent, or objective, or intrinsic) meaning of the term. It follows that the fact [t]hat the ICSID Convention does not provide an express definition of investment does not automatically imply that the definition is totally left to the BITs. This is because words have an intrinsic meaning, hence a limited and limiting one, however large and vague it may be (although there is always a penumbra around the limits which provides the margin of interpretation). Without limits, words would be meaningless, because undistinguishable from one another. The intrinsic meaning of a word, which is its ‘ordinary’ meaning, is further specified by the way it is used and the context in which it is used; and if it figures in a treaty, by the object and purpose of the treaty.217

This view is quite convincing being respectful of the independent existence of the ICSID Convention and the other relevant investment treaties. Article 25(1) ICSID belongs to a self-standing treaty and must be interpreted independently from any legal instruments the claim is based upon—including investment treaties.

215 See Joy Mining v Egypt, above n 197, para 42. In Global Trading v Ukraine, above n 198, para 44, the Tribunal referred to ‘a generous margin of freedom’, whereas in Malicorp v Egypt, above n 182, Award, para 109, the Tribunal conceded that Art 25 ICSID leaves the parties ‘maximum freedom’. 216 G Abi-Saab, dissenting opinion in Abaclat v Argentina, above Ch 1, n 15, para 46. In Phoenix v Czech Republic, above Ch 3, n 42, para 82 the Tribunal held that ‘[t]here is nothing like a total discretion, even if the definition developed by ICSID case law is quite broad and encompassing. There are indeed some basic criteria and parties are not free to decide in BITs that anything—like a sale of goods or a dowry for example—is an investment’. 217 G Abi-Saab, dissenting opinion in Abaclat v Argentina, above Ch 1, n 15, para 40. Quoted with approval by S Torres Bernàrdez, dissenting opinion, Ambiente v Argentina, above Ch 1, n 15, Admissibility and Jurisdiction, para 243. In Saba Fakes v Turkey, above n 20, para 108, the Tribunal found that ‘an objective definition of the notion of investment was contemplated within the framework of the ICSID Convention’. Similarly, in Quiborax SA, Non Metallic Minerals SA and Allan Fosk Kaplún v Bolivia, ICSID ARB/06/2, Jurisdiction, 27 September 2012, para 217, the Tribunal held that ‘[w]hether the objective test under the ICSID Convention is independent from and additional to the definition found in the BIT, or whether the same objective test is inherent to the term investment used in the BIT, the Tribunal must in any event review the elements of the objective definition to ascertain the existence of an investment’ (footnotes omitted).’ In the same sense also, KT Asia Investment Group BV v Kazakhstan, ICSID ARB/09/8, Award, 13 October 2013, para 165. In Poštová banka, a.s. and Istrokapital SE v Greece, ICSID ARB/13/8, Award, 9 April 2015, para 287, the Tribunal was not persuaded ‘that a broad definition necessarily means that any and all categories, of any nature whatsoever, may qualify as an “investment”, nor that the only manner in which a category may be excluded as an investment, under a broad-asset based concept, is by express exclusion in the given treaty’.

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S atisfying the definition of investment is part and parcel of the jurisdictional clause contained in Article 25(1) ICSID, which requires the existence of a dispute arising directly out of an investment, between a contracting party and a foreign investor having the nationality of another contracting party. From this perspective, the question of the definition of investment for the purpose of Article 25(1) ICSID must be kept distinct from that of the consent to ICSID arbitration expressed in the investment treaty (or other legal instruments). The first question must be solved within the ICSID Convention in accordance with the VCLT rules on interpretation. Working out a definition of the meaning of investment under Article 25(1) and applying it to the economic activity related to the claim is functional to establishing whether the dispute falls within the jurisdiction of the ICSID Convention as a multilateral treaty. The question of the consent of the host State is a completely different one. Consent may be expressed by the host State through an investment treaty, a piece of legislation, or a contract. There is therefore one unique definition of investment for the purposes of Article 25(1) of the ICSID Convention. It applies invariably to all disputes brought before ICSID regardless of the legal instruments allegedly breached. It results from the ordinary meaning attached to the term ‘investment’, taking into account all other elements prescribed in the VCLT rules of interpretation.218 The generic nature of the term renders the interpretative process more difficult, but the term retains a logical meaning and it is on the basis of such meaning that Article 25(1) of the ICSID Convention functions. This does not prevent ICSID arbitral tribunals from respecting to the fullest possible extent the intention of the parties to an investment treaty, which basically means as long as the definition of investment agreed upon by the parties to the investment treaty is consistent with the ordinary or inherent meaning of the term investment under Article 25 of the ICSID Convention. In the words of a sole arbitrator tribunal, ‘to reject an express definition desired by the two States-party to a treaty seems a step not to be taken without certainty that the Convention compels it’.219 Although the verb ‘to reject’ may be unfortunate, an ICSID tribunal must assess under the ICSID Convention whether an economic activity that qualifies as investment under the investment treaty also falls within the Convention’s definition of investment. The crux of the matter is precisely to establish the ordinary meaning States attach to the generic term ‘investment’. In this regard, examining the text of Article 25(1) of the ICSID Convention is of little assistance as is the reference to definitions provided in dictionaries. The most immediate contribution of literal analysis to the definition of investment for the purpose of Article 25(1) ICSID

218 As pointed out in Quiborax v Bolivia, above n 216, Jurisdiction, para 217, the Contracting States to the ICSID Convention intended to give to the term “investment” an ordinary meaning as opposed to a special meaning. 219 Pantechniki SA Contractors & Engineers (Greece) v Albania, ICSID ARB/07/21, Award, 30 July 2009, para 42.

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concerns the adverb ‘directly’, which qualifies the dispute. In Fedax v Venezuela, the Tribunal convincingly explained that [t]he term ‘directly’ relates in this Article to the ‘dispute’ and not to the ‘investment’. It follows that jurisdiction can exist even in respect of investments that are not direct, so long as the dispute arises directly from such transaction. This interpretation is also consistent with the broad reach that the term ‘investment’ must be given in light of the negotiating history of the Convention.220

While keeping in mind that the term ‘investment’ ‘is a term of art: its ordinary meaning cannot be extended to bring any rights having an economic value within its scope, for otherwise violence would be done to that ordinary meaning, in contradiction to Article 31 VCLT’,221 the interpreter must turn to ‘the same basic economic attributes of an investment derived from the ordinary meaning of that term’.222 In a stream of decisions, arbitral tribunals have attempted to flesh out the meaning of investment through two different methods: either by defining a set of criteria that need to be cumulatively satisfied, or by identifying certain typical characteristics of investments.223 The two distinct approaches have been clearly illustrated in Saba Fakes. On the one hand, [a]ccording to the first approach, while the ICSID Contracting Parties’ freedom to extend ICSID protection to various types of economic operations is limited by an objective notion of what was meant to be protected within the framework of the ICSID Convention, that notion is apprehended through a number of characteristics [which] need not be satisfied cumulatively and any number of elements may suffice to characterize an economic operation as an investment in a given case. Pursuant to this approach, the addition of new characteristics is meant to facilitate the recognition of an investment in a given case, as this approach accepts that an investment be recognized on the basis of some, but not all, of the said characteristics.224

On the other hand, under the second approach, an objective definition of investment must necessarily include a certain number of elements for an operation to qualify as an ‘investment’. [This approach] requires the 220

Fedax v Venezuela, above n 196, para 24. Douglas, above n 428, p 164. According to M Waibel, ‘Opening Pandora’s Box: Sovereign Bonds in International Arbitration’ (2007) 101 American Journal of International Law 711, 730, ‘[m]any commentators mistakenly interpret Article 25’s definitional silence concerning “investment” as legitimating an elastic notion of investment, but the failure to reach consensus cannot be used to adopt a broad notion by default’. 222 Z Douglas, above n 428, p 165. 223 On the methodological method followed by tribunals compare, for instance, Malaysian Salvors v Malaysia, above Ch 1, n 14, Jurisdiction, 17 May 2007, para 101, where the Tribunal referred to a set of indicative elements, with Pey Casado and President Allende Foundation v Chile, ICSID ARB/98/2, Award, 8 May 2008, para 232, where the Tribunal applied a set of criteria which needed to be cumulatively satisfied. In literature, see E Gaillard, above n 201. 224 Saba Fakes v Turkey, above n 20, paras 99 and 100 (footnote omitted). In MCI v Ecuador, above n 279, para 165, the Tribunal found ‘mere examples and not necessarily as elements that are required for its existence’. 221 Z

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constitutive elements to be satisfied cumulatively for an operation to qualify as an investment under the ICSID Convention. However, no unanimous solution has emerged as to the precise number and content of such constitutive elements.225

In spite of the important methodological difference, the outcome of these decisions shows a large convergence, at least on three main characteristics or elements, namely the commitment of capital or other resources, certain duration, and the assumption of risk.226 In Salini v Morocco, the Tribunal found that [t]he doctrine generally considers that investment infers: contributions, a certain duration of performance of the contract and a participation in the risks of the transaction … In reading the Convention’s preamble, one may add the contribution to the economic development of the host State of the investment as an additional condition. In reality, these various elements may be interdependent. Thus, the risks of the transaction may depend on the contributions and the duration of performance of the contract. As a result, these various criteria should be assessed globally even if, for the sake of reasoning, the Tribunal considers them individually here.227

The decision has been extensively relied upon by a large number of subsequent tribunals, although with significant variations, to the point of frequent references to the so-called Salini test as providing indicia,228 benchmarks,229 guidelines,230 features,231 criteria,232 elements,233 factors,234 or distinctive marks.235 Three points need to be emphasised. First, the Tribunal based its conclusion essentially on existing literature.236 Second, contrary to the reading of certain subsequent arbitral tribunals, the Tribunal indicated three elements or criteria, namely contribution, duration and risk. The fourth element—the contribution to the economic development of the host State—is referred to as a mere hypothesis, based on the preamble of the treaty, as clearly demonstrated by the wording used (‘one may add’). Third, the Tribunal considered these elements or criteria as a whole, although for practical reasons it discussed each of them separately. 225

paras 101 and 102. The non-exhaustive list of the characteristics of foreign investment provided in the United States Model BIT, Art 1 (Definitions) feature commitment of capital or other resources, the e xpectation of gain or profit, or the assumption of risk. A virtually identical definition was provided in Draft Consolidated Text of the MAI, DAFFE/MAI(98)7/REV1, 22 April 1998, p 11. The definition was meant to be further developed through an interpretative note. 227 Salini Costruttori SpA and Italstrade SpA v Morocco, ICSID ARB/00/4, Jurisdiction, 31 July 2001, para 52 in fine. 228 See, eg, Global v Ukraine, above n 198, para 43. 229 See, eg, RSM Production Corporation v Grenada, ICSID ARB/05/14, Award, 13 March 2009, para 241; Ceskoslovenska Obchodni Banka v Slovak Republic, ICSID ARB/97/4, Jurisdiction, 24 May 1999, para 64. 230 See, eg, Ambiente v Argentina, above Ch 1, n 15, Admissibility and Jurisdiction, para 481. 231 See, eg, Biwater v Tanzania, above n 123, para 316. 232 See, eg, Phoenix v Czech Republic, above Ch 3, n 42, paras 82–83. 233 See, eg, Quiborax v Bolivia, above n 216, Jurisdiction, para 217; Bayindir v Pakistan, above n 34, Jurisdiction, para 130; Jan de Nul v Egypt, Jurisdiction, above n 17, para 91. 234 See, eg, Abaclat v Argentina, above Ch 1, n 15, para 347(ii). 235 See, eg, S Torres Bernàrdez, dissenting opinion, Ambiente v Argentina, above Ch 1, n 15, para 256. 236 See Ch 13. 226

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With regard to the elements, characteristics or criteria concurring to the definition of the ordinary meaning of investment, contribution, risk and duration seem to have reached general acceptance. The first two criteria were elaborated in L.E.S.I.-DIPENTA v Algeria. The Tribunal held that [t]here cannot be an ‘investment’ unless a party makes contributions having economic value in the country concerned. No doubt this may take the form of primarily financial commitments, but it would be too restrictive an interpretation not to admit other contributions. These contributions can consist of loans, materials, works, services, provided that they have an economic value.237

As far as risk is concerned, the Tribunal pointed out that the purpose and object of the Convention is to protect foreign investment against risk: [t]he requirement (risk) is also understandable, considering the objectives of the Convention. The idea was indeed to offer a special guarantee of jurisdiction for companies wishing to invest in another country. It would be too restrictive to limit its application to contracts that include a random element, as would be the case of insurance contracts, or even in broader terms for certain loan agreements. The risk in question can actually touch any contract involving increased risks for those concerned.238

As pointed out in Bayindir v Pakistan, ‘[t]he element of duration is the paramount factor which distinguishes investments within the scope of the ICSID Convention and ordinary commercial transactions’.239 Although duration is certainly essential to the definition of the ordinary meaning of investment, deciding whether a given economic activity is sufficiently protracted in time remains problematic and unavoidably leaves an extremely wide discretion to tribunals to the point that the utility of such element or criterion has been questioned.240 Even more controversial is the contribution to the economic development of the host State, which has been indicated by several tribunals as an additional criterion, feature, hallmark or element to consider or satisfy when qualifying a foreign

237 L.E.S.I.- DIPENTA v Algeria, ICSID ARB/03/08, Award, 10 January 2005, Part II, para 14(i). The original French text reads ‘[i]l ne peut y avoir d’“investissement” que si une partie fait dans le pays concerné des apports ayant une valeur économique. Sans doute peut-il s’agir au premier chef d’engagements financiers, mais ce serait privilégier une interprétation par trop restrictive que de ne pas admettre d’autres sacrifices. Ces apports peuvent donc consister en prêts, en matériaux, en travaux, en services, pour autant qu’ils aient une valeur économique.’ 238 Part II, para 14(iii). The original French text reads ‘[l]’exigence (du risque) est elle aussi compréhensible, si l’on considère les objectifs poursuivis par la Convention. L’idée était en effet d’offrir une garantie particulière de juridiction aux entreprises désireuses d’investir dans un autre pays. Il serait donc trop restrictif d’en limiter l’application à des contrats comportant un élément aléatoire, comme ce serait le cas de contrats d’assurance, voire de manière plus large pour certains contrats de prêts. Le risque considéré peut toucher en réalité n’importe quel contrat impliquant pour celui qui s’engage des risques accrus.’ 239 Insaat Turizm Ticaret Ve Sanayi AS v Pakistan, ICSID ARB/03/29, Jurisdiction, 14 November 2005, para 132. 240 Pantechniki SA Contractors & Engineers (Greece) v Albania, ICSID ARB/07/21, Award, 30 July 2009, para 43.

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investment.241 It features in earlier decisions where tribunals relied respectively on a single author242 and on the ICSID Convention preamble.243 Since then, several tribunals have shared this view244 and one has even taken a step further by holding that the contribution must be assessed not only in quantitative but also in qualitative terms.245 Other tribunals have declined to treat the contribution to the development of the host State as a constitutive element of the concept of investment, due to its subjective and indefinite nature. They have nevertheless admitted that it is implicitly covered in the three requirements mentioned above.246 With regard to the relationship between the definition of investment contained in investment treaties and in Article 25 ICSID, if it is admitted that the term ‘investment’ has its own autonomous meaning in Article 25 ICSID, it follows that in order to establish its jurisdiction under Article 25 ICSID to adjudicate a treaty claim, an ICSID tribunal must be satisfied that the claim relates to an investment falling within the definition of both the relevant investment treaty and Article 25 ICSID. In other words, only disputes relating to investments falling within both definitions—under the relevant treaty and under Article 25 ICSID—can be settled by an ICSID tribunal. Disputes relating to other investments included only in the definition provided in the investment treaty, on the contrary, remain outside the jurisdiction of ICSID tribunals. The so-called ‘double-keyhole’ approach or ‘double-barrelled’ test was explained in Ceskoslovenska Obchodni Banka, a.s. v Slovak Republic as follows: A two-fold test must therefore be applied in determining whether this Tribunal has the competence to consider the merits of the claim: whether the dispute arises out of an investment within the meaning of the Convention and, if so, whether the dispute relates to an investment as defined in the Parties’ consent to ICSID arbitration, in their reference to the BIT and the pertinent definitions contained in Article 1 of the BIT.247 241 In Fedax v Venezuela, above n 468, para 43, the Tribunal held that a fifth element, namely the regularity of profit and return, concurs in the definition of investment. The argument is not convincing. As pointed out in Biwater v Tanzania, above n 123, para 321, it is fully possible that the investor only anticipates ‘long-term and indirect benefit (eg other profitable opportunities)’. 242 Fedax v Venezuela, above n 196, para 43. 243 Salini v Morocco, above n 226, para 52. It is worth noting that the Tribunal prudently held that this criterion may be added and refrained from qualifying it as an indispensable condition. 244 See, in particular, Jan de Nul v Egypt, above n 17, Jurisdiction, 16 June 2006, para 91; Saipem SpA v Bangladesh, ICSID ARB/05/07, Jurisdiction and Provisional Measures, 21 March 2007, para 99; Bayindir v Pakistan, above n 34, Jurisdiction, para 137; Helnan International Hotels A/S v Egypt, ICSID ARB/05/19, Jurisdiction, 17 October 2006, para 77. 245 Malaysian Salvors v Malaysia, above Ch 1, n 14, Jurisdiction, part IV, Section E. 246 See, in particular, Consortium Groupement L.E.S.I.-DIPENTA v Algeria, ICSID ARB/03/08, Award, 10 January 2005, Part II, para 13(iv); L.E.S.I. SpA et ASTALDI SpA v Algeria, ICSID ARB/05/3, Decision, 12 July 2006, para 72(iv); Pey Casado v Chile, above n 222, Award, 8 May 2008, para 232. In literature, see, amongst others, E Gaillard, above n 201; Z Douglas, above Ch 3, n 68, pp 201–02. 247 Above n 228, para 68. Quoted with approval by several other tribunals, including Jan de Nul, above n 17, Jurisdiction, paras 90–91; Malicorp Limited v Egypt, above n 182, para 107; Toto Costruzioni Generali SpA v Lebanon, ICSID ARB/07/12, Jurisdiction, 11 September 2009, paras 66–68; El Paso v Argentina, above Ch 3, n 131, para 142; and KT Asia v Kazakhstan, above n 216, para 160; Global Trading v Ukraine, above n 198, para 43.

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In Phoenix v Czech Republic, the Tribunal found that it should be noted that BITs, which are bilateral arrangements between two States parties, cannot contradict the definition of the ICSID Convention. In other words, they can confirm the ICSID notion or restrict it, but they cannot expand it in order to have access to ICSID. A definition included in a BIT being based on a test agreed between two States cannot set aside the definition of the ICSID Convention, which is a multilateral agreement. As long as it fits within the ICSID notion, the BIT definition is acceptable, it is not if it falls outside of such definition.248

The Tribunal correctly emphasised the different nature of the investment treaty (bilateral) and the ICSID Convention (multilateral) as well as their independent existence. The Tribunal is less accurate in describing the relationship between the two instruments and in particular between the definitions of investment they contain. The question is not whether the treaty definition can confirm, extend or restrict or set aside the ICSID definition, nor whether the former is acceptable for the latter. The real point is that the economic activities to which the claim relates must satisfy both definitions and that the interpreter must accordingly proceed in interpreting both provisions keeping in mind that they belong to two separate legal instruments. Only if the interpretation of both provisions leads to a positive answer, the claim could be settled—or the treaty provision enforced by using the Tribunal’s terminology—by an ICSID Tribunal. Otherwise, the investor must rely on remedies other than ICSID, if any is available. The meaning of investment under the relevant investment treaty and Article 25 of the ICSID Convention may coincide, as recently maintained in KT Asia v Kazakhstan, where the Tribunal found that ‘[s]ince the BIT does not add further requirements to the inherent meaning of investment as it arises from the objective definition, the decisive test for the existence of an investment is the same under the BIT and the ICSID Convention’.249 The finding is unsurprising as the ordinary meaning of the term ‘investment’ is presumed to be the same in the two treaties, unless there is evidence that the parties to the BIT intended to attach to it a special meaning. It is nonetheless possible that an economic activity qualifies as investment for the purpose of the relevant treaty, but not under Article 25 of the ICSID Convention, or presumably less frequently, vice versa. In Saba Fakes v Turkey, for instance,

248 Phoenix v Czech Republic, above Ch 3, n 42, para 96. An omitted footnote quotes with approval Biwater v Tanzania, above n 123, para 308, holding that ‘Article 25 [ICSID] has an autonomous meaning which cannot be expanded’. In Joy Mining v Egypt, above n 197, para 50, the Tribunal held that ‘[t]he parties to a dispute cannot by contract or treaty define as investment, for the purpose of ICSID jurisdiction, something which does not satisfy the objective requirements of Art 25 of the Convention. Otherwise Art 25 and its reliance on the concept of investment, even if not specifically defined, would be turned into a meaningless provision.’ 249 KT Asia v Kazakhstan, above n 216, para 166. According to the Tribunal, ‘[s]ince the BIT does not add further requirements to the inherent meaning of investment as it arises from the objective definition, the decisive test for the existence of an investment is the same under the BIT and the ICSID Convention’.

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the Tribunal acknowledged that share ownership falls within the definition of investment provided under Article 1(b)(ii) of the BIT between Turkey and the Netherlands, but not necessarily under Article 25 of the ICSID Convention.250 The definitions of investment under the BIT and Article 25 ICSID may not coincide essentially in three cases: (a) the definition of investment in BIT is accompanied by a requirement going beyond the ordinary meaning of the term; (b) the definition in the BIT excludes certain categories of investment that otherwise would have fallen into the definition of investment; and (c) the BIT contains an exhaustive list of assets that are considered as investment, but omits other assets that could have be qualified as investment.

VI. Aids to Literal Interpretation (a contrario and expressio unius est exclusio alterius) and Enumerations In discharging their function of interpreting treaties, tribunals have resorted to several principles, devices, aids or techniques based on logical reasoning, often inspired by Latin maxims. Although not expressly mentioned in Articles 31 and 32 VCLT, these aids are not only undisputedly consistent with these provisions, but also frequently relied on by the parties to disputes and by domestic and international tribunals.251 They may support, clarify, fortify or militate against a given interpretation, as well as assist the interpreter in making a choice between two or more plausible interpretations. These principles are added to the crucible of elements available to the interpreter and introduce further complexity and flexibility. As emphasised by Waldock, [t]he great majority of cases submitted to international adjudication involve the interpretation of treaties, and the jurisprudence of international tribunals is rich in references to principles and maxims of interpretation … They are, for the most part, principles of logic and good sense valuable only as guides to assist in appreciating the meaning which the parties may have intended to attach to the expressions which they employed in a document. Their suitability for use in any given case hinges on a variety of considerations which have first to be appreciated by the interpreter of the document: the particular arrangement of the words and sentences, their relation to each other and to other parts 250 Para 93. In Abaclat v Argentina, above Ch 1, n 15, para 351, the Tribunal held that ‘the “doublebarrelled” test does not mean that … the definition provided by the Contracting Parties in a BIT … has to fit into … the one deriving from the spirit of the ICSID Convention’. 251 In Austrian Airlines v Slovak Republic, UNCITRAL, Award, 9 October 2009, para 128, the Tribunal held that ‘[a]lthough [the expressio unius exclusion alterius principle] is not explicitly mentioned in Articles 31 and 32 of the VCLT, the Tribunal agrees with the Claimant that it may be relevant in the framework of the contextual interpretation of the scope of Article 3(1) of the Treaty’. While discussing the principle of effectiveness, R Gardiner, above Ch 1, n 10, p 70, points out that ‘the Vienna rules do not exclude other compatible interpretative principles and techniques’.

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of the document, the general nature and subject-matter of the document, the circumstances in which it was drawn up, etc. Even when a possible occasion for their application may appear to exist, their application is not automatic but depends on the conviction of the interpreter that it is appropriate in the particular circumstances of the case. In other words, recourse to many of these principles is discretionary rather than obligatory, and the interpretation of documents is to some extent an art, not an exact science.252

These maxims and principles alone can hardly determine the meaning of a treaty provision. Presumably for their complementary nature, they are normally included amongst the supplementary means of interpretation under Article 32.253 It is submitted nonetheless that these principles of logic and good sense may be taken into account by the interpreter throughout the entire interpretative process, starting with the inquiry into the ordinary meaning of the terms used, whenever they may shed light on the meaning of the treaty.254 Amongst these principles, tribunals frequently resort to a contrario arguments. The interpreter would thus inquire what the meaning of a treaty provision would have been had the contracted parties included in it a word or an expression that does not appear in the actual text, or different ones.255 The technique is based on the presumption that the choice not to use any given terms or expressions or different ones was a deliberate one and may reveal the meaning the contracting parties wanted to attach to the provision. The presumption is even stronger when the contracting parties were aware—or could reasonably have been aware—of different terms or different expressions used in other similar legal instruments. The decision on jurisdiction in Aguas del Tunari v Bolivia contains an a contrario argument. The Tribunal had to interpret the past participle ‘controlled’ used in the expression ‘legal persons controlled directly or indirectly’ to define investor of the other contracting party for the purpose of the relevant BIT. It conceded that several meanings can be attributed to the past participle ‘controlled’—as to the noun ‘control’—including actual exercise of actual or effective control (as argued by the respondent) and potential control to be exercised through sufficient ownership of stock in a company. It nonetheless held that had the parties intended to use ‘controlled’ in the sense of implying a degree of active exercise of power or

252 H Waldock, 3rd Report on the Law of Treaties (1964-II) 16 Yearbook of the International Law Commission 54. 253 See, eg, with regard to the expressio unius principle, Austrian Airlines, above n 250, Award, para 131. See R Gardiner, above Ch 1, n 10, pp 356-357. A Aust, above Ch 1, n 10, p 220, while qualifying these maxims as aid to interpretation under the rubric of other supplementary means of interpretation, concedes that ‘most relate to discovering the ordinary meaning’. For a thoroughly treatment of these principles, see R Kolb, above Ch 1, n 10, pp 799–840. 254 In Life Insurance Claims, United States v Germany (1924) 7 Reports of International Arbitral Awards 91, p 111, the Tribunal observed that the maxim expressio unius exclusion alterius was described as ‘a rule of both law and logic and applicable to the construction of treaties as well as municipal statutes and contracts’. 255 Conversely, the interpreter could consider what such meaning would be without such terms or expressions. The technique then overlaps with the principle of effectiveness.

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direction, they would have opted for expressions like ‘managed’ or ‘under direct or indirect control of ’ or ‘subject to the direct or indirect control of ’.256 In another case, the Tribunal held that according to the text of Article 1 of the BIT between the Netherlands and the Czech Republic any legal person constituted under the law of the Netherlands qualifies as an ‘investor’. The Tribunal held that the parties to the Treaty could have included in their agreed definition of ‘investor’ some words which would have served, for example, to exclude wholly-owned subsidiaries of companies constituted under the laws of third States, but they did not do so. The parties having agreed that any legal person constituted under their laws is entitled to invoke the protection of the Treaty, and having so agreed without reference to any question of their relationship to some other third State corporation, it is beyond the powers of this Tribunal to import into the definition of ‘investor’ some requirement relating to such a relationship having the effect of excluding from the Treaty’s protection a company which the language agreed by the parties included within it.257

In interpreting treaty provisions, tribunals have considered a contrario arguments based on comparison with other investment treaties or treaties in other subject matters. In so doing, the interpreter must be very prudent. In Plama v Bulgaria, the Tribunal found that the fact that other treaties (such as NAFTA and the Free Trade Area of the Americas (FTAA)) have not included the provisions on the settlement of disputes in the exhaustive list of the provisions (or subject-matters) covered by the MFN does not necessarily imply that these provisions are included in the BIT Bulgaria–Cyprus.258 The Tribunal noted that ‘in NAFTA and probably in the FTAA the incorporation by reference of the dispute settlement provisions set forth in other BITs is explicitly excluded. Yet, if such language is lacking in an MFN provision, one cannot reason a contrario that the dispute resolution provisions must be deemed to be incorporated’. A contrario arguments were also put forward in relation to non-investment treaties. This has occurred in particular with regard to Article XI of the BIT between Argentina and the United States. One of the arguments used by tribunals to reject the alleged self-judging character of this provision was its wording which, unlike

256

Aguas del Tunari v Bolivia, above Ch 1, n 53, Jurisdiction, para 234. Saluka v Czech Republic, Partial Award, above Ch 3, n 1, para 229. In a similar vein, another Tribunal held that ‘[w]hen the NAFTA Parties did not incorporate a non-discrimination requirement in a provision in which they might have done so, it would be wrong for a tribunal to pretend that they had. Thus, even if Methanex had succeeded in establishing that it had suffered a discrimination for its claim under Article 1102, it would not be admissible for it, as a matter of textual interpretation, to establish a claim under Article 1105’, Methanex v United States, above, Ch 1, n 55, Part IV, Chapter C, para 16. In KT Asia v Kazakhstan, above n 216, para 123, the Tribunal found that ‘[w]hen negotiating this BIT, Kazakhstan could have insisted on a more demanding wording of Article 1(b)(ii) of the BIT. For example, it could have required additional links to the State of incorporation or insisted on the inclusion of a “denial of benefits” clause. It did not. Kazakhstan has therefore accepted that the nationality of Dutch legal persons be determined by their place of incorporation. See also Plama v Bulgaria, above Ch 3, n 52, Jurisdiction, para 148. 258 Plama v Bulgaria, above Ch 3, n 52, Jurisdiction, para 203. 257

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similar provisions in other treaties, does not expressly entitle the host State to adopt the measures ‘which it considers necessary’. As pointed out by a Tribunal, when States intend to create for themselves a right to determine unilaterally the legitimacy of extraordinary measures importing non-compliance with obligations assumed in a treaty, they do so expressly. The examples of [Article XXI] GATT and bilateral investment treaty provisions offered above are eloquent examples. The first does not preclude measures adopted by a party ‘which it considers necessary’ for the protection of its security interests. So too, the US–Russia treaty expressly confirms in a Protocol that the nonprecluded measures clause is self-judging.259

In any case, the interpreter should use a contrario arguments with great caution and resist the temptation to speculate on the often numerous drafting alternatives that the contracting parties could have opted for. Postulating from the existence of an alternative wording, which the parties may or may not have considered, that the wording actually used in the treaty is necessarily different from that of the alternative wording is a risky exercise that could corrupt the whole interpretative process. A domestic tribunal warned that ‘[i]n almost any dispute over interpretation or construction it is possible to postulate a form of words which is clearer or more emphatic; and to argue that the failure to use such words supports a particular construction. That does not usually assist in the task of interpretation’.260 A contrario arguments can also be used in respect to provisions containing exceptions or enumerations. They can displace interpretations that could upset the clear meaning of a treaty provision as it emerges from its textual and contextual analysis in the light of the object and purpose of the treaty. In particular, the interpreter cannot consider as falling within the enumeration a category opposite to one expressly included in it. In Michell v Congo the ad hoc Committee rejected the Tribunal’s interpretation of Article I(c) of the BIT between Congo and the United States, which includes under item (vii) the definition of investment ‘returns which are reinvested’. The Committee held that ‘non-reinvested’ returns cannot be included in the concept of investment and be protected by the Treaty. This a contrario interpretation of one of the items on an enumerative list, even one that is not exhaustive, is fully in keeping with the logic and the spirit of a BIT and is equivalent to an interpretation ‘in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose,’ in accordance with Article 31(1) of the Vienna Convention on the Law of Treaties of 1969.261

That the contracting parties had agreed to qualify the category of investment under item (vii) logically means—a contrario – that ‘returns which are not invested’ fall outside the scope of the treaty. Any other interpretation would be inconsistent

259

CMS v Argentina, above Ch 2, n 10, Award, para 370. Czech Republic v European Media Ventures SA, above Ch 1, n 46, para 39. 261 Patrick Mitchell v Congo, ICSID ARB/99/7, Annulment, 1 November 2006, para 43 (footnote omitted). 260

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with Article 31(1) VCLT and most prominently with the ordinary meaning to be given to the terms used. The same result could have been obtained through the maxim expressio unius est exclusio alterius. Several investment tribunals have relied on the maxim expressio unius est exclusio alterius to interpret treaty provisions. According to a tribunal, the maxim must be understood in the sense that, ‘as a matter of interpretation, specific mention of an item excludes others’.262 As with a contrario reasoning, the maxim must be resorted to with great caution and its mechanical application may induce the interpreter to distorted interpretations. It has been observed that ‘whether the mention of one item or a list of items in a provision really excludes the relevance of other items depends very much on the particular circumstances and cannot be answered in a generalised way’.263 The simplest application of the maxim expressio unius est exclusio alterius consists in avoiding reading into a given provision elements or requirements other than those expressly mentioned in it. Faced with the question whether the applicant had to possess effective nationality in order to bring a claim under the BIT Lithuania–Ukraine, the Tribunal held without hesitation that ‘under the wellestablished presumption expressio unius est exclusio alterius, the state of incorporation, not the nationality of the controlling shareholders or siège social, thus defines ‘investors’ of Lithuania under Article 1(2)(b) of the BIT’.264 The use of the maxim in investment disputes is explained by the frequent inclusion in investment treaties of enumerations, typically for the purpose of defining investment, but also concerning the MFN clause. In Plama v Bulgaria, the Tribunal warned against a mechanical application of the principle expressio unius est exclusio alterius with regard to the question of the inclusion or exclusion of the provisions on the settlement of disputes from the scope of application of the MFN clause contained in Article 3 of the BIT Bulgaria–Cyprus: The second paragraph of Article 3 of the Bulgaria–Cyprus BIT contains an exception to MFN treatment relating to economic communities and unions, a customs union or a free trade area. This may be considered as supporting the view that all other matters, including dispute settlement, fall under the MFN provision of the first paragraph of Article 3 (on the basis of the principle expressio unius est exclusio alterius). However, the fact that the second paragraph refers to ‘privileges’ may be viewed as indicating that MFN treatment should be understood as relating to substantive protection. Hence, it can be argued with equal force that the second paragraph demonstrates that the first paragraph is solely concerned with provisions relating to substantive protection to the exclusion of the procedural provisions relating to dispute settlement.265

262

National Grid v Argentina, above Ch 3, n 96, Jurisdiction, para 82. Schreuer, ‘Diversity and Harmonization of Treaty Interpretation in Investment Arbitration’, in M Fitzmaurice et al (eds), above Ch 1, n 10, p 127, at 135. See also above, text accompanying n 251. 264 Tokios v Ukraine, above Ch 1, n 15, Jurisdiction, para 30. See also above, section IV. 265 Plama v Bulgaria, above Ch 3, n 52, Jurisdiction, Art 3 reads: ‘1. Each Contracting Party shall apply to the investments in its territory by investors of the other Contracting Party a treatment which is not less favourable than that accorded to investments by investors of third states. 2. This treatment 263 C

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As further elaborated in ICS v Argentina, which on this point relies on Plama v Bulgaria, the mere fact that the contracting parties have not expressly excluded a given provision or category of provisions from the scope of the MFN clause does not necessarily lead to an irrefutable interpretation. It may indeed reveal their intention to have the provision or category of provisions within the scope of application of the MFN clause. But the opposite interpretation is also possible if the contracting parties’ understanding was that the MFN clause would never cover this provision or category of provisions. According to the Tribunal, therefore, [t]he exceptions to MFN treatment do not suggest any exclusion of matters relating to international dispute settlement. To the extent that the Contracting Parties may have turned their minds to the question of MFN treatment of international dispute settlement, the Contracting Parties may be taken not to have excluded dispute settlement because they never imagined that it was included in the first place. The Tribunal thus concurs with the Plama tribunal’s conclusion that the deduction may apply with equal force in either direction.266

For the correct application of the maxim, at any rate, it is important to establish whether the list or enumeration is exhaustive or non-exhaustive. The distinction is often clear. Examples of exhaustive enumerations can be found in Annex EM and Annex NI to the ECT, respectively, concerning a positive list of energy materials and products referred to in Article 1(4), and a negative list of economic activities excluded from the scope of application of Article 1(5) ECT.267 Article 8 BIT Russian Federation–United Kingdom, for instance, provides for the settlement of disputes ‘either concerning’ (a) the amount or payment of compensation under Articles 4 or 5 of this Agreement; (b) any other matter consequential upon an act of expropriation in accordance with Article 5 of this Agreement; or (c) the consequences of the non-implementation, or of the incorrect implementation, of Article 6 of this Agreement. In RosInvest v Russian Federation, the Tribunal convincingly held that the list contained in Article 8 is exhaustive and relied—without mentioning it—on the principle expressio unius exclusion alterius to interpret it in the sense that the categories of disputes not mentioned in Article 8 fall outside the jurisdiction of the Tribunal. The Tribunal found that apart from the three precisely defined categories of disputes mentioned in Article 8, no claim can be brought by the foreign investor under that provision.

shall not be applied to the privileges which either Contracting Party accords to investors from third countries in virtue of their participation in economic communities and unions, a customs union or a free trade area.’ See also Kılıç v Turkmenistan, above Ch 1, n 15, Award, 2 July 2013, para 7.3.9. 266

ICS v Argentina, above Ch 3, n 130, Jurisdiction, para 313. an example of an exhaustive list in ICJ jurisprudence, see Conditions for Admission to the United Nations, Advisory Opinion, ICJ Reports 1948, p 57, 62, when the Court held that the natural meaning of the words used in Art 4(1) of the UN Charter ‘leads to the conclusion that these conditions constitute an exhaustive enumeration and are not merely stated by way of guidance or example’. 267 For

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With regard to first category, the Tribunal was unable to see ‘how the reference in the … jurisdictional clause expressly to the amount or payment of compensation under Articles 4 or 5 only can nevertheless be interpreted as a reference also to the earlier sections of Article 5 which deal with expropriation in general and the first two exceptions mentioned in that provision’.268 Firmly basing its argument on the text of Article 8 defining the second category of disputes susceptible to be brought before an arbitral tribunal, it further held that the ordinary meaning in the sense of Article 31 VCLT of the word ‘consequential’ can not be interpreted to include, in addition to the consequences of an expropriation according to Article 5, also the preconditions laid down in Article 5, ie that an act of expropriation occurred and within the conditions specified for a lawful expropriation.269

However, most of the enumerations found in investment treaties, and especially those accompanying the definition of investment, are illustrative as confirmed by the use of the verb ‘to include’ introducing the various items,270 or expressions such as ‘without limitation’,271 ‘not exclusively’272 or ‘particularly’.273 The illustrative character of these enumerations, of course, cannot be understood as admitting any possible kind of asset or investment thus depriving the definition of any meaning. In Romak v Uzbekistan the Tribunal held that the definition of investment in Article 1(2) BIT Uzbekistan–Switzerland was clearly non-exhaustive, as demonstrated by the use of the verb ‘to include’ and of the expression ‘particularly’, but nonetheless not all-encompassing. Regardless to its inclusion in one of the categories expressly indicated in the definition of investment provided in the treaty, an investment must also satisfy the general and independent definition of investment.274 When enumerations contain general references such as ‘other measures’, the eiusdem generis principle may assist the interpreter in deciding whether a nonexpressly mentioned item is capable of coming within the meaning of the list due

268 RosInvest v Russian Federation, above Ch 1, n 45, para 112. In Dispute Regarding Navigational and Related Rights (Costa Rica v Nicaragua), above Ch 1, n 10, para 61, the ICJ held that ‘expressly stating the purpose for which a right may be exercised implies in principle the exclusion of all other purposes and, consequently, imposes the limitation thus defined on the field of application of the right in question—subject to the possibility that the right may be exercisable beyond that scope on separate legal bases’. 269 RosInvest v Russian Federation, above Ch 1, n 45, para 116. 270 Art 1 of the 2012 United States Model BIT. 271 In Siemens v Argentina, above Ch 3, n 5, Jurisdiction, para 137, for instance, the Tribunal held that ‘[t]he specific categories of investment included in the definition [of investment under the BIT between Argentina and Germany] are included as examples rather than with the purpose of excluding those not listed. The drafters were careful to use the words “not exclusively” before listing the categories of “particularly” included investments’. For another example, see Azurix Corp v Argentina, above Ch 1, n 28, Annulment, para 91. 272 Art 1 of the UK Model Treaty. 273 Romak v Uzbekistan, above n 66, para 175. 274 See above, section V.

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to its belonging to a sufficiently homogenous category.275 Likewise, as pointed out in Plama v Bulgaria, the eiusdem generis principle means that ‘when a general word or phrase follows a list of specifics, the general word or phrase will be interpreted to include only items of the same type as those listed’.276 Still in relation to enumerations, Article 42 ICSID deserves to be mentioned due to its importance and the divisions it has caused amongst tribunals and in literature. Two interpretations of Article 42(1) have been held. According to the first, international law can be applied only in case of lacunae in domestic law or in a corrective manner in case the applicable domestic law is inconsistent with international law. Tribunals therefore must first apply domestic law and are prevented from taking any decision directly under international law. In Klöchner v Cameroon, the ad hoc Committee held that Article 42 of the ICSID Convention gives international law a dual role, that is complementary (in the case of a ‘lacuna’ in the law of the State), or corrective, should the State’s law not conform on all points to the principles of international law. In both cases, the arbitrators may have recourse to the ‘principles of international law’ only after having inquired into and established the content of the law of the State party to the dispute (which cannot be reduced to one principle, even a basic one) and after having applied the relevant rules of the State’s law. Article 42(1) therefore clearly does not allow the arbitrator to base his decision solely on the ‘rules’ or ‘principles of international law’.277

According to a second view, conversely, ICSID tribunals are allowed and indeed instructed under Article 42(1) to apply both domestic and international law as they deem appropriate. From this perspective, international law and domestic law are applied autonomously and in conjunction without any a priori condition or hierarchy. According to a tribunal, It is clear from the second sentence of Article 42(1) that both legal orders have a role to play, which role will depend on the nature of the dispute and may vary depending on which element of the dispute is considered. The Annulment Committee in Wena v Egypt considered that ‘The law of the host State can indeed be applied in conjunction with international law if this is justified. So too international law can be applied by itself if the appropriate rule is found in this other ambit’.278

In other words, it has been observed, under Article 42(1) and ‘[d]epending on the circumstances of the case, each ICSID tribunal should have discretion to decide 275 R Gardiner, above Ch 1, n 10, p 358, reminds us that the eiusdem generis principle must be seen as ‘a general interpretative principle which may be applied in approaching a particular material’. 276 Klöckner Industrie-Anlagen GmbH and others v Cameroon and Société Camerounaise des Engrais, ICSID ARB/81/2, Annulment, 3 May 1985, para 189. 277 ibid, para 69. The Committee seems to use ‘rules’ and ‘principles’ interchangeably. See also Amco v Indonesia, ICSID ARB/81/1, Annulment, 16 May 1986, para 20, and Resubmitted Case, 5 June 1990, para 20; Southern Property (Middle East) Limited v Egypt, ICSID ARB/84/3 Award, 20 May 1992, para 80; Autopista v Venezuela, ICSID ARB/00/5, Award, 23 September 2003, para 102. In literature, see WM Reisman, ‘The Regime for Lacunae in the ICSID Choice of Law Provision and the Question of Its Threshold’ (2000) 15 ICSID Review 362. 278 Azurix Corp v Argentina, above Ch 1, n 28, Award, para 66.

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whether any rules of international law are directly applicable, without any requirement of initial scrutiny into the law of the host State’.279 From a literal standpoint, the conjunction ‘and’ clearly points to the application by the ICSID Tribunal of both domestic law and international law, without introducing any sequential order or hierarchy. As pointed out by a Tribunal, ‘“and” means “and”, so that the rules of international law, especially those included in the ICSID Convention and in the Bilateral Treaty as well as those of domestic law are to be applied’.280 This literal argument appears to be powerful indeed. A final question must be mentioned in relation to enumerations or lists, namely the importance of accurate indentation. To immediately realise the possible deleterious consequences from the standpoint of treaty interpretation of superficial drafting, suffice it to compare the English and Russian versions of Article VII(2) of the BIT between Turkey and Turkmenistan. The first version contains a list of institutions before which the foreign investor could bring a claim. The list is followed by a clause concerning the co-ordination between domestic litigation and arbitration. It reads: (a) the International Center for the Settlement of Disputes (ICSID); (b) an ad hoc court of arbitration laid down under the Arbitration Rules of Procedures of the United Nations Commission for International Trade (UNCITRAL); (c) the Court to Arbitration of the Paris International Chamber of Commerce, provided that, if the investor concerned has brought the dispute before the courts of justice of the Party that is a party to the dispute and a final award has not been rendered within one year.

The Russian version, based on an official translation provided to the Tribunal in Kılıç v Turkmenistan, on the other hand, reads: (a) the International Center for the Settlement of Disputes (ICSID); (b) an ad hoc court of arbitration laid down under the Arbitration Rules of Procedures of the United Nations Commission for International Trade (UNCITRAL); (c) the Court to Arbitration of the Paris International Chamber of Commerce, provided that, [if] the investor concerned has brought the dispute before the courts of justice of the Party that is a party to the dispute and a final award has not been rendered within one year.281

The textual meaning of the provision changes radically because of the different indentation. In the first version, the domestic litigation clause applies to (a)–(c) and the foreign investor must comply with it regardless of the arbitral tribunal he

279 E Gaillard and Y Banifatemi, ‘The Meaning of “and” in Art 42(1), Second Sentence, of the Washington Convention: The Role of International Law in the ICSID Choice of Law Process’ (2003) 18 ICSID Review 375, 409. 280 LG&E v Argentina, above Ch 1, n 46, Liability, para 96. For the Wena v Egypt Committee’s position, see above, text accompanying n 550. See also MCI v Ecuador, above n 223, Award, para 218. 281 The term ‘if ’ is in square brackets as it has been removed in a revised translation, see below, Ch 11, section IV.

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intends to resort to. In the second version, on the other hand, it refers at least at first sight only to the Court of Arbitration of the Paris International Chamber of Commerce and does not apply to options (a) and (b).282 The divergence is most probably due to a mistake, which the interpreter could correct with a sufficient degree of confidence by resorting to the object and purpose of the provision as well as the reasonable assumption that it is unlikely that the contracting parties intended to introduce any discrimination amongst the different arbitral tribunals available to foreign investors.283 In Sehil v Turkmenistan, the Tribunal categorically held that ‘it makes no sense for the proviso, however it is understood, to apply only to ICC arbitration and not to ICSID and UNCITRAL arbitration’.284 In this specific case, furthermore, the interpreter could rely on the authentic English version. The example reiterates once more the importance of meticulous drafting of treaty provisions.

VII. Absent Words or Expressions (Silence) It has been observed that ‘[o]ne of the most difficult areas of treaty interpretation is how to cope with silence, or absent terms. If the treaty does not expressly make provision for the matter in issue, must it be assumed that it is not covered?’285 It is argued that the question, which has been extremely important in the recent decisions concerning disputes relating to collective proceedings, has to be answered by a qualified yes. It must generally be assumed, with regard to any treaty, that ‘the parties have included the terms which they wished to include and on which they were able to agree, omitting other terms which they did not wish to include or on which they were not able to agree’.286 This is just an alternative formulation of the principle according to which the text of the treaty is presumed to record the intention of the parties. In this respect, the absence of a term or expression simply means that the terms or the expression are not in principle part of the treaty and that the interpreter must focus on what is in the treaty.287

282 In Kılıç v Turkmenistan, above Ch 1, n 5, para 9.12, the Tribunal has hinted that in Sistem Mühendislik Inşaat Sanayi ve Ticaret AŞ v Kyrgyz Republic, ICSID ARB(AF)/06/1, Jurisdiction (not public), 13 September 2007, considered that the last clause applies only to claims put before the ICC. 283 See below, Ch 6, section IV. 284 Sehil v Turkmenistan, above Ch 1, n 15, Jurisdiction under Art VII(2), 13 February 2015, para 233. 285 R Gardiner, above Ch 1, n 10, p 165. 286 Procurator Fiscal v Brown (Scotland) [2000] UKPC D3, 5 December 2000, at www.bailii.org/uk/ cases/UKPC/2000/D3.html. 287 In Canada—Term of Patent Protection, WT/DS170/AB/R, 18 September 2000, para 78, the WTO Appellate Body held that ‘[s]ometimes the absence of something means simply that it is not there’. On several occasions, the Appellate Body has also found that ‘omission must have some meaning’, see, for instance, United States—Countervailing Duties on Certain Corrosion-Resistant Carbon Steel Flats Products from Germany, WT/DS231/AB/R, 28 November 2002, para 65.

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In line with the jurisprudence of the ICJ288 and the WTO Appellate Body,289 investment tribunals have refused to import into treaties terms or expressions which are not in their text. The importance of adhering to the text was stressed, for instance, in Waste Management v Mexico as the Tribunal held that ‘[w]here a treaty spells out in detail and with precision the requirements for maintaining a claim, there is no room for implying into the treaty additional requirements, whether based on alleged requirements of general international law in the field of diplomatic protection or otherwise’.290 In Saba Fakes v Turkey, the Tribunal pointed out that Article 1(a)(i) of the BIT between the Netherlands and Turkey, the only provision dealing with nationality, is silent on the effectiveness test for nationality. According to the Tribunal, the clear text of Article 1(a)(i) does not allow importing such a test into the treaty. Quite the contrary, the Tribunal held that ‘[h]ad the Contracting Parties intended to set additional limitations as regards jurisdiction ratione personae, no doubt they would have expressly stated such limitations in the text of the BIT’.291

288 In Admission of a State to the United Nations (Charter, Art 4), Advisory Opinion, ICJ Reports 1948, p 57, 63, in particular, the Court held, with regard to the procedure of admission to the United Nations under Art 4 of the Charter that ‘[i]f the authors of the Charter had meant to leave Members free to import into the application of this provision considerations extraneous to the conditions laid down therein, they would undoubtedly have adopted a different wording’. 289 In EC—Measures Concerning Meat and Meat Products (Hormones), 16 January 1998, WT/DS26/ AB/R, para 181, the WTO Appellate Body held that ‘[t]he fundamental rule of treaty interpretation requires a treaty interpreter to read and interpret the words actually used by the agreement under examination, not words the interpreter may feel should have been used.’ In India—Patent Protection for Pharmaceutical and Agricultural Chemical Products, 19 December 1997, WT/DS50/AB/R, para 45, it further pointed out that ‘[t]he principles of treaty interpretation set out in Article 31 of the Vienna Convention … neither require nor condone the imputation into a treaty of words that are not there or the importation into a treaty of concepts that were not intended’. 290 Waste Management v Mexico, above n 110, Award, para 85. 291 Saba Fakes v Turkey, above n 20, Award, para 70. In Canadian Cattlemen v United States, above Ch 3, n 98, Jurisdiction, para 114, the Tribunal found that ‘[h]ad Chapter Eleven been intended to provide national treatment protection to domestic investors selling across borders in integrated markets in the NAFTA free trade area, as Claimants argue, this Tribunal would have expected numerous provisions of Chapter Eleven to be drafted quite differently, as well as to find some express indication of such a significant and unprecedented expansion of the scope of investment protection somewhere in the course of the NAFTA negotiations, or its approval by the NAFTA Parties. But there is none. There is none at all.’ Along the same lines, in Methanex v United States, above Ch 1, n 55, Award, Part IV, Chapter C, para 14, the Tribunal held that ‘when the NAFTA Parties wished to incorporate a norm of non-discrimination, they did so—as one finds in Article 1110(1)(b) which requires that a lawful expropriation must, among other requirements be effected “on a non-discriminatory basis”. But Article 1110(1)(c) makes clear that the NAFTA Parties did not intend to include discrimination in Article 1105(1). Article 1110(1)(c) establishes that another requirement for a lawful expropriation is that it be effected “in accordance with due process of law and Article 1105(1)”. If Article 1105(1) had already included a non-discrimination requirement, there would be no need to insert that requirement in Article 1110(1)(b), for it would already have been included in the incorporation of Article 1105(1)’s due process requirement.’ In RosInvest v Russian Federation, above Ch 1, n 45, para 135, the Tribunal held that ‘[i]n view of the careful drafting of Article 8 and the limiting language therein, it can certainly not be presumed that the Parties “forgot” arbitration when drafting and agreeing on Article 7. Had the Parties intended that the MFN-clauses should also not apply to arbitration, it would indeed have been easy to add a sub-section (c) to that effect in Article 7.

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In Desert Line Projects LLC v Yemen, the respondent argued that the expression ‘accepted, by the host Party, in accordance with its laws and regulations’, which qualifies a foreign investment for the purpose of the BIT between Yemen and Oman, must be interpreted as requiring the issue of a ‘certificate’. The Tribunal rejected the argument by pointing out that [i]f an imperative formality were intended to be required, it would have been appropriate, if not indispensable, to identify the type of document required in each of the two countries and to identify the issuing department, or at least direct the attention of readers of the Treaty—prospective investors—to the proposition that the precise nature of the required certificates is to be determined by ‘specific regulations in force from time to time’.292

In Siemens v Argentina, the Tribunal rejected the respondent’s argument according to which only direct investment falls within the scope of the BIT between Argentina and Germany. After observing that the treaty does not contain any explicit reference to direct or indirect investment as such and emphasising the broad definition of investment offered by the treaty, the Tribunal held that [o]ne of the categories [included in the definition] consists of ‘shares, rights of participation in companies and other types of participation in companies’. The plain meaning of this provision is that shares held by a German shareholder are protected under the Treaty. The Treaty does not require that there be no interposed companies between the investment and the ultimate owner of the company. Therefore, a literal reading of the Treaty does not support the allegation that the definition of investment excludes indirect investments.293

Yet, the interpreter may be called to fill the gaps of the treaty to the extent this is necessary to apply it or to settle a related dispute.294 From this perspective, it is immaterial whether the gap has been intentional or not. An arbitral tribunal, furthermore, may simply have to fill the gaps of the treaty in order to avoid a finding of non liquet. Significantly, under Article 42(2) of the ICSID Convention, ICSID tribunals ‘may not bring in a finding of non liquet on the ground of silence or obscurity of the law’. As noted by the WTO Appellate Body in United States–Carbon Steel, approving the position expressed by the panel, the task of the interpreter is not limited to determining that the text is silent on any given specific issue as the possibility

292 Desert Line Projects LLC v Yemen, ICSID ARB/05/17, Award, 6 February 2008, para 109. Similarly, in Rompetrol, above n 11, para 160, the Tribunal found that ‘[i]t would not … be consistent with the established norms for the interpretation of treaties to read into a given investment protection treaty additional conditions or limitations that could readily have been incorporated into the treaty text had the parties so wished, but were not there’. 293 Siemens v Argentina, above Ch 3, n 5, Jurisdiction, para 137 (footnote omitted). The interpretation has been endorsed by several tribunals since, including Ioannis Kardassopoulos v Georgia, ICSID ARB/05/18, Jurisdiction, 6 July 2007, para 123; Al Warraq v Indonesia, above Ch 1, n 43, Jurisdiction and Admissibility, para 515. 294 According to C-D Ehlermann, ‘Tension between the Dispute Settlement Process and the Diplomatic and Treaty- Making Activities of the WTO’ (2002) 1 World Trade Review 301 at 305, a gap is ‘an issue which is apparently not addressed by the covered agreement, but which had to be decided nevertheless’ (emphasis added).

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of attributing to such a silence a meaning by implication cannot be excluded.295 The possible attribution of a meaning to the treaty silence may overlap with—but must be distinguished from—the use of a contrario arguments for the purpose of interpretation. The former is a technique that allows the interpreter to fill a gap and therefore to overcome a situation in which the relevant treaty provision(s) could not function properly. The latter, in turn, merely offer the interpreter the possibility of making some deductions or extracting some indications from the choice made by the contracting parties when negotiating or concluding the treaty, or possibly in other treaties. The issue of silence played a relevant role in the jurisdictional phase in Abaclat v Argentina and Ambiente v Argentina, with both tribunals delivering their decisions by majority. The first Tribunal first found that Article 25 of the ICSID Convention does not provide for any specific definition of investment and that such silence was intended ‘to leave certain room to further develop this notion’.296 On this point, it opined that security entitlements to Argentinian bonds fall within the definition of investment under Article 25 (in addition to Article 1(1) BIT between Italy and Argentina) and saw no obstacle to establish its jurisdiction on the basis of the respondent’s consent to ICSID arbitration with regard to both individual and collective proceedings. In the Tribunal’s words, where the BIT covers investments, such as bonds, which are susceptible of involving in the context of the same investment a high number of investors, and where such investments require a collective relief in order to provide effective protection to such investment, it would be contrary to the purpose of the BIT and to the spirit of ICSID, to require in addition to the consent to ICSID arbitration in general, a supplementary express consent to the form of such arbitration. In such cases, consent to ICSID arbitration must be considered to cover the form of arbitration necessary to give efficient protection and remedy to the investors and their investments, including arbitration in the form of collective proceedings.297

According to the Tribunal, at this point the question became one of admissibility. It held that since the ICSID Convention contains no reference to collective proceedings as a possible form of arbitration, it was important ‘to interpret this silence’ and more precisely to assess ‘whether this silence should be considered a “qualified silence”, meaning an intended silence indicating that it does not allow for something that is not provided, or whether it is to be considered a “gap”, which was unintended and which the Tribunal has the power to fill’.298 After reiterating twice and almost literally the point made a few paragraphs earlier with regard to consent to mass claims arbitration, it pointed out that the silence of the ICSID framework regarding collective proceedings was not to be interpreted as a ‘qualified silence’, also because at the time of the conclusion of the 295

Above n 287, para 65. Abaclat v Argentina, above Ch 1, n 15, para 347(ii). 297 para 490. 298 para 517. 296

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ICSID Convention collective proceedings were quasi non-existent. Instead, such silence was to be interpreted as a ‘gap’ which the Tribunal was entitled to fill in accordance with Article 44 of the ICSID Convention and Rule 19 of the Arbitration Rules. The majority decision on this point was criticised in a strongly worded dissenting opinion, which emphasised that ‘silence does not have a meaning in itself, unless it is surrounded by—factual or legal—circumstances that impregnate it with a certain meaning’, whereas ‘qualified silence’ is not a term of art. The disserting arbitrator further explained: The elements of fact or factual circumstances that qualify the silence of a jurisdictional title by which a State consents to ICSID arbitration, in the sense of limiting it to normal bilateral (or limited multiparty) arbitration, thus excluding collective mass claims actions or representative proceedings, are simply the great differences between these two types of proceedings.299

He objected to the assumption made by the majority that the aim of the ICSID Convention and the BIT is to afford the maximum protection to foreign investors. He called instead for a more balanced approach that must fully respect the host State’s consent to arbitration. He further inferred from the fact that collective proceedings were far beyond the ‘horizon of foreseeability’ at the time of the conclusion of the treaty that these proceedings did not fall within the acceptance of the contracting State to ICSID jurisdiction. Finally, he emphasised the macroscopic differences between individual or multiple proceedings—in which an individual, detailed and adversarial examination of every claim is possible—and claimant and collective proceedings—which, on the other hand, imply a quantum leap. As a result, ICSID tribunals may settle a mass claims dispute only after establishing consent to this peculiar type of procedure, which is referred to as secondary consent and which was missing in the Abaclat case. The first point made by the Tribunal is incontrovertible: the lack of a definition in the ICSID Convention and the use of a generic term like ‘investment’ means great flexibility. Whether this has been intentional—as apparently maintained by the Tribunal, the unavoidable result of the incapacity of the contracting parties to agree upon a definition—or is simply due to the fact that the parties did not consider this category of investment, as demonstrated by the unsuccessful attempts made during the negotiations300—does not alter the substance. Yet, the flexibility of the notion of investment for the purpose of the ICSID Convention is not unlimited and cannot be stretched beyond the intrinsic or ordinary meaning of the term. The rest is rather questionable, starting with the qualification of security entitlements to Argentinian bonds as investments for the purpose of Article 25 ICSID. The entire decision on the interpretation of the silence in the ICSID Convention 299 300

G Abi-Saab, dissenting opinion in Abaclat v Argentina, above Ch 1, n 15, para 170. See, eg, C Schreuer et al, above n 203.

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hinges on the postulate that the ICSID Convention—as well as the BIT between Italy and Argentina—must provide the holders of bonds with an effective remedy at the international level. Such a postulate cannot be demonstrated for three main reasons. First, there is no legal basis to argue that a foreign investment in general or the type of investment object of the Abaclat claim must be protected at the international level. Second, the aim of both treaties is to strike a balance between the rights and interests of foreign investors and the rights and prerogatives of the host State. Reducing the object and purpose of these treaties to provide the maximum legal protection to foreign investors is not acceptable. Third, and perhaps most importantly, the standing offer made by the host State with regard to arbitration before ICSID tribunals cannot be stretched indefinitely. In defining the limits of the consent given by the host State, the interpreter must extrapolate from the text of the treaty the commitments that States could have reasonably contemplated and the type of exposure to international arbitration they were ready to accept when expressing its consent to the Centre’s jurisdiction. Furthermore, it is worth making two considerations relating to silence and qualified silence from the standpoint of treaty interpretation. First, the argument developed by the majority looks like an a contrario argument based on the assumption that had the parties intended to exclude collective proceedings within the jurisdiction of ICSID tribunals they would have expressly provided accordingly. The argument is improbable if it is accepted that collective proceedings were almost non-existent at the time of the conclusion of the ICSID Convention. Second, the question is not the interpretation of silence or qualified silence, but rather the interpretation of the generic term ‘investment’ under Article 25 of the ICSID Convention. The construction of silence as a gap in the binary choice prospected by the Tribunal is also misleading as it conflates the question of the jurisdiction of the Tribunal, which is to be established on the bases of Article 25 of the ICSID Convention, with the question of admissibility related to procedural issues that may arise if and only if such jurisdiction has been established. Should this be the case, it would be necessary to interpret Article 44 of the ICSID Convention with a view to determining whether this provision provides an adequate basis for the major adaptations of the arbitral procedure that collective proceedings clearly require. In Ambiente v Argentina, the Tribunal discussed whether multiparty proceedings may fall within the scope of Article 25(1) of the ICSID Convention in spite of the fact that the text expressly refers to dispute between a Contracting State and a national of another Contracting State. The Tribunal first specified that the case before it could hardly be classified as one of ‘mass claims’ due to the limited number of claimants (119, subsequently reduced to 90), or as joinder (or consolidation) of proceedings.301 Instead, it decided to treat the case as an original submission of a claim by a plurality of claimants. 301 Ambiente v Argentina, above Ch 1, n 15, Admissibility and Jurisdiction, paras 120–25. The dissenting arbitrator shared both conclusions, S Torres Bernàrdez, dissenting opinion, paras 72–73.

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The Tribunal noted that the silence in Article 25(1) on multiparty proceedings was open to both interpretations put forward by the parties. According to the claimant, the silence was to be understood as not prohibiting multipartite proceedings, whereas the respondent contended that in the absence of an appropriate provision allowing for such proceedings, the express consent of the respondent was indispensable. The Tribunal interpreted Article 25 of the ICSID Convention through a sequence of points. (paras 130–144) It first held that the text of Article 25(1), referring to the claimant in the singular, was not a bar to multipartite claims.302 Here the Tribunal satisfied itself by referring to the Klöchner v Cameroon case. It then jumped, in the second point, to the travaux préparatoires, which were found to be inconclusive. Third, it noted that multipartite claims were well known both in Italy and Argentina at the time the two countries ratified the ICSID Convention and the BIT. Fourth, it pointed out the ICSID case law offers several cases of multiple claimants and therefore the case before the Tribunal, which involved 119 claimants, was neither unprecedented nor comparable to the Abaclat case. Fifth, the Tribunal reviewed ICSID practice and found general acceptance of multiparty arbitration. Finally, it concurred with the Abaclat Tribunal303 that given the absence in the ICSID Convention of a definition of investment, the consent expressed by a State with regard to ICSID jurisdiction also covers the categories of investment included in the definition contained in the relevant BIT which by their very nature are susceptible to attract a large number of investors and therefore require a collective relief. On the basis of all these points, the Tribunal concluded that Nothing has emerged from the preceding legal analysis that would militate in favour of interpreting the ‘silence’ of the ICSID Convention as standing in the way of instituting multi-party proceedings. Quite the contrary, not only are multi-party arbitrations not excluded by the pertinent provisions of ICSID law, but they are perfectly compatible with them. The analysis of the relevant tribunal practice has not suggested any other outcome.304

The decision was sharply criticised by a dissenting arbitrator according to whom in public international law the ‘silence’ of the objective applicable law in no occasion may be interpreted in favour of the existence of jurisdiction. To remedy the legal effects of that ‘silence’ in jurisdictional matters in a given case a manifestation of a specific consent of both parties to the dispute is necessary, in particular of the respondent because claimants’ consent manifests itself by the very act of instituting the proceeding.305

302

See also Alemanni and Others v Argentina, above n 43, para 270. Above Ch 1, text accompanying n 15. para 146. 305 S Torres Bernàrdez, diss op, Ambiente v Argentina, above Ch 1, n 15, para 76. The main reasons of disagreement were summarised in para 81. 303 304

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The concern raised by the dissenting arbitrator about the majority’s reading of silence from the standpoint of jurisdiction is well-founded. He is certainly correct in pointing out that consent—rather than logic—is the source of jurisdiction in international arbitration. The crux of the matter remains the interpretation of Article 25(1) ICSID Convention and ultimately whether this provision covers multipartite arbitration in spite of its clear ordinary meaning of the provision based on the use of the ‘a national’ (singular). From this perspective, the essence of the disagreement between majority and the dissenting arbitration regards whether ICSID members have accepted through subsequent practice under Article 31(3)(b) the competence of the Centre to settle multipartite claims. While the question of subsequent practice will be dealt with below,306 suffice for the time being to note that the ‘silence’ of Article 25(1) as such cannot justify a departure from the literal interpretation, even if it may be argued that too rigid an interpretation would hardly reflect the object and purpose of the Convention. Yet, admitting multipartite arbitration may improve procedural efficiency, enhance consistency of jurisprudence, and ultimately avoid imposing upon the respondent the excessive burden that responding to separate claims would imply. In the absence of other compelling arguments based on the VCLT, nonetheless, the general acceptance of the ICSID membership is indispensable in order to interpret Article 25(1) as encompassing also ‘a plurality of nationals’.307

306

See Ch 7, Section IV. on arguments based on the relevant BIT—such as the last one put forward by the majority—is misplaced as Article 25(1) ICSID needs to be interpreted independently from the investment treaty the claim is based upon. See above section V. 307 Reliance

5 Context I. Role of Context in the Interpretative Process The terms of a treaty must be interpreted in their context, which according to Article 31(2) VCLT comprises, in addition to the whole text of the treaty, any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty and any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty. Article 31(2) prescribes that the interpreter takes into account the context of a given term, expression or provisions. It does not impose any duty to espouse the interpretation that may emerge from contextual considerations. Instead, the interpreter is required to put all relevant contextual considerations into the crucible with a view to integrating them in the comprehensive analysis and balanced assessment of the various elements of the interpretative process. When considering the context of the terms of a treaty, and especially the agreements and the instruments referred to in Article 31(2)(a) and (b), the interpreter positions himself at the time of conclusion of the treaty. The problem is that the expression ‘conclusion of the treaty’ is used inconsistently in the VCLT and remains ambiguous.1 The most convincing view identifies the conclusion of the treaty with the moment in which the text is finally established through its signature by the contracting parties,2 although the term ‘may signify a process rather than a single act’.3 It must nonetheless be noted that Article 31(2) refers to agreements or instruments made ‘in connection with the conclusion of the treaty’, not ‘at the time of the conclusion of the treaty’. This introduces a certain flexibility permitting the interpreter to consider as context instruments made to facilitate the conclusion of the treaty, or to complete the process leading to its entry into force. This may be

1 In literature see EW Vierdag, ‘The Time of the “Conclusion” of a Multilateral Treaty: Art 30 of the Vienna Convention on the Law of Treaties and Related Provisions’ (1988) 59 British Yearbook of International Law 75. 2 F Fitzmaurice, First Report on the Law of Treaties (1956-II) 8 Yearbook of the International Law Commission para 51. 3 R Gardiner, above Ch 1, n 10, p 239.

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the case, for instance, of instruments of ratification that contain elements useful for the interpretation of the treaty. Although interpretation under Article 31 VCLT must be seen as a ‘single combined operation’,4 the conclusion of the treaty serves to logically distinguish the context of the treaty existing at the time of its conclusion from what may happen afterwards, namely subsequent agreements or subsequent practice, respectively under Article 31(3)(a) and (b). The importance of the conclusion of the treaty as a watershed between Article 31(2) and Article 31(3) must be stressed. The neat separation between Article 31(2) and Article 31(3) VCLT is revealed by the expression ‘together with the context’, which characterises the opening sentence of Article 31(3) VCLT. The purpose of analysing the treaty in its context, as required under the first two paragraphs of Article 31, is to establish the content of the international commitments the parties agreed to include in the treaty. From this perspective, the interpreter is concerned with the agreement and the other relevant instruments between the contracting parties made in connection with the conclusion of the treaty.5 Article 31(3)(a) and (b), on the other hand, relates to the possible elaboration and modification of these commitments through agreements made by the parties or their uniform practice after the conclusion of the treaty and throughout the period of application of the treaty up to the time relevant for the purpose of interpretation. At that point, the parties to the treaty do not necessarily coincide with the contracting parties that originally concluded the treaty. In addition to this logical dimension, the distinction between Article 31(2) and Article 31(3) has two practical corollaries. First, unlike the agreements relating to the conclusion of the treaty under Article 31(2)(a), subsequent agreements under Article 31(3)(a) are not necessarily entered into by all parties. Second, when subsequent agreements modify the rights and obligations contained in the original agreement, they normally produce their effects from the date they enter into force. Hence the need to ascertain whether a subsequent agreement is merely declaratory, that is, is intended to clarify the content of the original treaty, or, on the other hand, to alter the parties’ rights and obligations. The question is particularly delicate in the case of investment treaties, due to the fact that foreign investors are extraneous to the negotiation and conclusion of the treaties as well as to their possible subsequent formal or informal modification.6 Contextual considerations are part and parcel of the general rule on interpretation7 and the interpreter must always give them due consideration,

4

Above Ch 1, n 10. European Communities—Custom Classification of Certain Computer Equipment, WT/DS62/ AB/R, 5 June 1998, the Appellate Body held that, contrary to the Panel view, Schedule LXXX must be considered as context for the purpose of interpreting GATT 1994 (para 88), and that ‘while each schedule represents the tariff commitments made by one Member, they represent a common agreement amongst all Members’ (para 109, italics as in the original). 6 See below, Ch 7, section III. 7 S Torres Bernàrdez, dissenting opinion, Ambiente v Argentina, above Ch 1, n 15, para 231. 5 In

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not only when ‘the linguistic interpretation of a given text seems inadequate or the wording thereof is ambiguous’ as held in Asian Agricultural Products Ltd v Sri Lanka.8 With regard to the agreements and instruments referred to in Article 31(2), the ILC clearly took the view that these documents ‘should not be treated as mere evidence to which recourse may be had for the purpose of resolving an ambiguity or obscurity, but as part of the context for the purpose of arriving at the ordinary meaning of the terms of the treaty’.9 Yet, the process of interpretation is essentially based on the analysis and assessment of all elements foreseen in Article 31. When these elements do not point to the same interpretation, tribunals are called to balance the relative weight of each of them. Although literal arguments may normally be more immediate and cogent, nothing prevents a tribunal from departing from them if the context and/ or the object and purpose of the treaty compellingly so require. A tribunal rejected a literal interpretation inconsistent with both the context of the terms of the treaty and its object and purpose. It held that ‘a construction based solely on the “ordinary meaning” of the terms of the list contained in Article 1(2) of the BIT … is inconsistent with the given context and ignores the object and purpose of the BIT’.10 Although an important element contributing to the establishment of the meaning of a provision, however, contextual considerations alone are not frequently decisive. In Plama v Bulgaria, the Tribunal found that [t]he ‘context’ may support the Claimant’s interpretation since the MFN provision is set forth amongst the Treaty’s provisions relating to substantive investment protection. However, the context alone, in light of the other elements of interpretation considered herein, does not persuade the Tribunal that the parties intended such an interpretation.11

In Churchill Mining Plc v Indonesia, the Tribunal found inconclusive the interpretation based on the ordinary meaning of the terms ‘shall assent’ contained in Article 7(1) of the BIT between the United Kingdom and Indonesia.12 It considered the context of the words ‘shall assent’. First, Article 7 provides for ICSID as the only available avenue for international arbitration. Second, Article 7(1) does not contain any indication as to the form of expression of consent the host State could have expressed after the filing by the investor of the request for arbitration. The Tribunal assumed that had the parties intended to require a further expression of consent on behalf of the host State, they would have indicated its form. Third, it also considered Article 2(1) according to which investments of a contracting party must be consistent with the relevant domestic legislation in order to be admitted in the territory of the other party.

8 Asian Agricultural Products Ltd (AAPL) v Sri Lanka, ICSID ARB/87/3, Final Award, 27 June 1990, para 40, Rule (C). 9 (1966-II) 18 Yearbook of the International Law Commission 221. 10 Romak v Uzbekistan, above Ch 4, n 66, Award, para 183 (footnote omitted). 11 Plama v Bulgaria, above Ch 3, n 52, Jurisdiction, para 192. 12 Churchill Mining Plc v Indonesia, above Ch 4, n 56, Jurisdiction, para 171. See above, Ch 4, section III in fine.

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The Tribunal distinguished compliance with Article 2(1) of the BIT and the jurisdiction of the Tribunal under Article 7(1) of the BIT. It found that [t]he plain words of Article 7(1) state that Indonesia ‘shall assent’ to ‘any request’. Article 7(1) contains no link to Article 2(1), nor does Article 2(1) refer to Article 7(1). In these circumstances, the Tribunal cannot accept that Article 7(1) grants Indonesia discretion to assent or not depending on the assessment of the requirements set in Article 2(1). While Indonesia’s objection under Article 2(1) may eventually be well-founded, it is not for Indonesia to make that determination at the level of its assent under Article 7, but for this Tribunal ruling on its jurisdiction.13

The Tribunal concluded that all the three contextual considerations favour the interpretation supported by the claimant in the sense of providing access to international arbitration, but are not decisive as to the meaning of the words ‘shall assent’ or, to use the Tribunal’s words, do not deliver ‘a fatal blow to Indonesia’s interpretation’.14 It then moved to consider the object and purpose of the treaty and eventually, since the meaning of the words ‘shall assent’ still remained unclear or ambiguous, to supplementary means of interpretation.15 Strictly speaking, the first two considerations are not contextual ones. The first one postulates—without providing any explanation—that the mere fact that ICSID is the only arbitration forum available to the claimant is relevant for the purpose of the interpretation of the words ‘shall assent’. The second consideration looks more an a contrario argument than a contextual argument. Only the third consideration is a contextual consideration for the purpose of Article 31(2) VCLT. In this regard, an express link between the two provisions is not indispensable for the purpose of contextual arguments, and indeed there is no mention of such a link in the VCLT. What is sufficient for the purpose of Article 31(2) VCLT is a functional link in the sense that the meaning of a given term or provision can be better understood by considering other elements of the treaty.

II. Text of the Treaty (Including Preamble and Annexes) In accordance with the principle of integration, ‘treaties are to be interpreted as a whole, and particular parts, chapters or sections also as a whole’.16 This is made emphatically clear in Article 31(2), which in the first place reiterates that 13

ibid, para 174. ibid, para 179. See below, Ch 7, section III. 16 G Fitzmaurice, above Ch 4, n 174, p 211. In ADF v United States, above Ch 4, n 9, Award, para 149, the Tribunal pointed out that ‘the specific provisions of a particular Chapter need to be read, not just in relation to each other, but also in the context of the entire structure of NAFTA if a treaty interpreter is to ascertain and understand the real shape and content of the bargain actually struck by the three sovereign Parties’. See also, amongst many examples, Fraport v Philippines, above Ch 3, n 96, Award, para 339; Canfor Corporation v United States, above Ch 3, n 115, Preliminary Question, para 178. 14 15

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the interpreter must consider the treaty in its integrity, including preamble and annexes. According to the ILC, ‘[t]hat the preamble forms part of the treaty for purpose of interpretation is too well settled to require comment, as is also the case with documents which are specifically made annexes to the treaty’.17 The words ‘including the preamble and annexes’ were inserted by the ILC in 1964 ‘only ex abundanti cautela’.18 This is further demonstrated by their temporary deletion in the 1966 Draft Articles (Article 69(3)).19 As a result, the interpreter has to consider the treaty as a whole and while interpreting a given term or provision is directed by Article 31(2) VCLT to look throughout the treaty for contextual arguments that may contribute to elucidate the meaning of such term or provision. It is also undisputed that footnotes, interpretative notes, annexes, and any other instrument attached to the treaty must be considered as context for the purpose of Article 31(2) VCLT. This is often reiterated for the sake of clarity in the treaty itself, as for instance Article 35 of the BIT between the United States and Uruguay.20 In Saluka v Czech Republic, the Tribunal distinguished, for the purpose of determining the meaning of the FET standard between the ‘immediate context’, namely the provision containing the standard and the ‘broader context’, namely the other provisions of the treaty.21 In a more sophisticated fashion, it has been suggested that the context of a phrase may be described as a series of four layers which progressively extent the interpreter’s perspective. The innermost layer is the specific rule to which the phrase belongs, followed by the remainder of the provision within which the rule occurs, then the other provisions of the treaty, and, finally, the other parts of the treaty, and especially preambles, annexes, protocols or appendices.22 For all practical purposes, once having defined the provision or the part of it that needs to be interpreted, the interpreter may consider the rest of the treaty as context. As seen above, the interpreter first identifies the part of the treaty which needs to be interpreted, normally—but not necessarily—one of its provisions.23 Article 31(1) VCLT then requires the interpreter to take into account the context of the terms, phrase or provision to be interpreted, but leaves to the interpreter the delicate task of assessing what contextual considerations, if any, may be relevant for the purpose of interpretation. The interpreter should not take it for granted that each other part of the treaty is relevant for the purpose of interpretation, or postulate that the treaty is always coherent in all its parts. An interesting case of decisive contextual considerations is Al Warraq v Indonesia. The Tribunal had to decide whether the expression ‘the two parties to

17

(1966-II) 18 Yearbook of the International Law Commission 221. H Waldock (1966-II) 18 Yearbook of the International Law Commission 98. 19 (1966-II) 18 Yearbook of the International Law Commission 101. 20 See also Art 35 of the 2012 United States Model Treaty. 21 Saluka v Czech Republic, Partial Award, above Ch 3 n 1, para 298. 22 OK Fauchald, above Ch 1, n 14, p 320. 23 See above, Ch 4, section III. 18

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the disputes’ used in Article 17(2)(a) of the Organisation of Islamic Cooperation, formerly Organization of the Islamic Conference (OIC) Investment Agreement coincides with ‘the parties to the treaty’, as argued by the respondent to deny the Tribunal’s competence with regard to investor–State disputes. Article 17(2)(a) of the OIC Investment Agreement reads: If the two parties to the dispute do not reach an agreement as a result of their resort to conciliation, or if the conciliator is unable to issue his report within the prescribed period, or if the two parties do not accept the solutions proposed therein, then each party has the right to resort to the Arbitration Tribunal for a final decision on the dispute.

After describing as ‘ambiguously drafted’ the opening sentence of Article 17, which refers to ‘disputes’ without specifying the disputing parties, the Tribunal admitted that the text of Article 17(2)(a) does not allow the interpreter to draw any definitive conclusion on whether it covers disputes between foreign investors and the host State. It then considered Article 17(2)(d), imposing upon the parties to the treaty an obligation to implement arbitral decisions ‘no matter whether it be a party to the dispute or not and irrespective of whether the investor against whom the decision was passed is one of its nationals or residents or not, as if it were a final and enforceable decision of its national courts’. It held that the express reference to the implementation of an arbitral decision rendered against foreign investors necessarily implies the competence of an arbitral tribunal to settle disputes between the host State and foreign investors under Article 17(2)(a).24 In Planet Mining v Indonesia, on the other hand, contextual arguments were dismissed. The Tribunal convincingly held that Article XI(3) and Article XI(5) of the BIT between Indonesia and Australia are not relevant for the purpose of determining whether the parties have expressed in Article XI(2) and (4) their consent to settle the dispute before ICSID. As seen above, Article XI(3) excludes access to UNCITRAL arbitration if both parties are members of the ICSID Convention.25 The Tribunal found that however surprising and unsatisfactory this result may be, it has no impact on the question of jurisdiction of the Centre, even if the host State fails to consent to it as required under Article XI(4). Likewise, the Tribunal discarded Article XI(5), requiring the parties to refrain from exercising diplomatic protection once an action has been taken either before a domestic tribunal or the Centre. It rightly noted that such an obligation is triggered when the Centre is seized of the dispute, a question that is independent from the determination of the jurisdiction of the Centre. The sharp division on the relevance of contextual considerations recorded in Ambiente v Argentina is illustrative of the difficulties related to the relevance of the context for the purpose of treaty interpretation. For the majority, the interpreter must give ‘a broad scope of application’ to Article 25(1) of the ICSID Convention, which provides for the jurisdiction of the Centre, as Article 25(4) of the same

24 In 25

Al Warraq v Indonesia, above Ch 1, n 43, Final Award, para 660. Planet Mining v Indonesia, above Ch 4, n 14, paras 169–170. See also above, Ch 4, section I.

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Convention offers the parties the possibility to restrain the Centre’s jurisdiction ratione materiae by limiting their consent to arbitration through international treaties or domestic legislation. According to the Tribunal, the possibility of notification, as laid down in Art 25(4) of the ICSID Convention, and the possibility for States to restrict the Centre’s jurisdiction ratione materiae by limiting their consent to arbitration via their investment legislation and their BITs, work as compensatory mechanisms counter-balancing a wide and possibly even extensive understanding of ‘investment’ in Art 25 (1) of the ICSID Convention.26

This interpretation has been criticised in a sharp dissenting opinion. According to the dissenting arbitrator, Article 25(4) is certainly ‘context’ for the interpretation of terms in Article 25(1), but the actual wording of the former does not convey a broad or narrow intent as to the use of the term ‘investment’ in the latter. There is no cross reference or any other textual or necessary implied indication to that effect in none of these two paragraphs of Article 25 or, for the matter, in any other provision of that Article or of the ICSID Convention. Paragraphs 1 and 4 of Article 25 of the Convention deal with a different subject matters and each is formulated in a self-contained way.27

The criticism must be shared as the argument offered by the Tribunal of a ‘compensatory mechanism’ within Article 25 of the ICSID Convention is not supported by any logical reasoning or by any argument by implication. Although they both contribute to define the competence ratione materiae of the Tribunal, paragraphs (1) and (4) are independent and as such they have to be interpreted. They serve different purposes. The former defines the jurisdiction of ICSID and is the same for all parties to the ICSID Convention, regardless of whether they have availed themselves of the notification mechanism of Article 25(4). The latter, on the other hand, allows each party to exclude, through a typical unilateral act, certain classes of dispute. In other words, the notification under Article 25(4) merely takes away a class or classes of dispute from the jurisdiction of the Centre for the time during which such notification, if any, is in force and without affecting the interpretation of Article 25(1). Titles or descriptive headings of single provisions, like those of parts, sections and chapters, ‘are clearly part of the context for the purpose of interpretation, unless otherwise indicated’.28 As pointed out by the ILC, the title of Article 31 VCLT itself is important as it confirms that the provision expresses a single rule.29 Not in all investment treaties provisions have titles or headings. However, contracting parties may reduce the relevance of titles or headings to a matter of practical convenience, thus effectively depriving them of any significance for the process of interpretation. This is the case, for instance, of Article 28 (Headings) of the BIT Japan–Peru, according to which ‘the headings of the Articles of this Agreement are

26

Ambiente v Argentina, above Ch 1, n 15, Admissibility and Jurisdiction, para 457. S Torres Bernàrdez, dissenting opinion in Ambiente v Argentina, above Ch 1, n 15, para 232. 28 R Gardiner, above Ch 1, n 10, p 201. See Oil Platforms, above Ch 1, n 10, para 147. 29 See above, Ch 1, section I. 27

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inserted for convenience of reference only and shall not affect the interpretation of this Agreement’.30 Arbitral practice on this point is scarce. Some tribunals have relied on titles and headings, at least to confirm the interpretation based on literal arguments. In Plama v Bulgaria, for instance, the Tribunal pointed out that the Respondent’s jurisdictional case here turns on the effect of Articles 17(1) and 26 ECT, interpreted under Article 31(1) of the Vienna Convention. The express terms of Article 17 refer to a denial of the advantages ‘of this Part’, thereby referring to the substantive advantages conferred upon an investor by Part III of the ECT. The language is unambiguous; but it is confirmed by the title to Article 17: ‘Non-Application of Part III in Certain Circumstances’ (emphasis supplied). All authentic texts in the other five languages are to the same effect.31

In Fraport v Philippines, the Tribunal relied inter alia on the title—although it was referred to as the chapeau—of Article 2 of the BIT between Germany and the Philippines (Promotion and Acceptance) to hold that the linguistic difference between the verbs ‘to accept’ and ‘to admit’, which appear respectively in Articles 1 and 2 of the treaty, does not indicate ‘an intentional nuance and hence to be legally significant’.32 The most frequent use of contextual considerations, however, occurs with regard to the preamble or other provisions of the treaty. Considerations relating to the preamble of investment treaties have made regular appearances in international investment awards. Normally, preambles are looked at in order to elucidate the object and purpose of the treaty with a view to confirming the literal interpretation or to reaching a balanced interpretation.33 They nonetheless may also offer contextual elements contributing to the establishment of the meaning of the provision to be interpreted. The importance of preambles for the purpose of interpretation has been stressed by several arbitral tribunals, including that in Société Générale v D ominican Republic, when the Tribunal relied on both the jurisprudence of the ICJ and previous arbitral decisions.34 The same Tribunal, however, seems to have unduly downplayed the importance of preambles, which apparently come into play only when the interpreter is not satisfied or confident about the interpretation based on the literal analysis. According to the Tribunal, [t]he Treaty articles and its Preamble have different roles that should not be confused. Their confluence in the context of treaty interpretation relates to a situation in which the ordinary meaning of the text cannot be clearly established by the pertinent provisions themselves, which is not the case here.35 30

See also Art 25 of the BIT between Japan and Iraq. Plama v Bulgaria, above Ch 3, n 52, Jurisdiction, para 147. Art 17 is the closing provision of Part 3. 32 Fraport v Philippines, above Ch 3, n 96, para 341. 33 See, in particular, Saluka v Czech Republic, Partial Award, above Ch 3, n 1, para 300. 34 Société Générale In respect of DR Energy Holdings Limited and Empresa Distribuidora de Electricidad del Este, SA v Dominican Republic, UNCITRAL, LCIA Case No UN 7927, Jurisdiction, 19 September 2008, para 31. 35 ibid, para 32. 31

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The finding is not entirely convincing for two reasons. First, nothing in Article 31(1) and (2) VCLT relegates preambles to such a limited role. Second, the role distinction is rather artificial and not respectful of the nature of the interpretative process, during which the interpreter is expected to take into account the preamble of the treaty as context of the terms to be interpreted in order to confirm or clarify the literal interpretation, or to operate a choice between two or more plausible interpretations. Probably the most important contextual considerations relate to other provisions the treaty. The more complex the treaty, the more compelling is for the interpreter to carefully consider the context. Not surprisingly, contextual considerations have played a significant role in arbitral decisions related to NAFTA. As observed by a Tribunal, The provision under examination must of course be scrutinized in context; but that context is constituted chiefly by the other relevant provisions of NAFTA. We do not suggest that the general objectives of NAFTA are not useful or relevant. Far from it. Those general objectives may be conceived of as partaking of the nature of lex generalis while a particular detailed provision set in a particular context in the rest of a Chapter or Part of NAFTA functions as lex specialis. The former may frequently cast light on a specific interpretive issue; but it is not to be regarded as overriding and superseding the latter.36

Thus, in line with Article 31(2), in Canadian Cattlemen v United States, the Tribunal took into account Article 1139 for the purpose of interpreting Article 1101 and the term ‘investor of the other Party’ in particular.37 Then, although satisfied with its interpretation, the Tribunal reviewed ‘other relevant provisions of Chapter Eleven and the NAFTA so as to provide the fullest possible context’ for its decision.38 In Canfor v United States, in turn, the Tribunal interpreted the phrase ‘the Party’s antidumping law of countervailing duty law’ in Article 1901(3) NAFTA by resorting to Article 1902(1). It held that the phrase ‘the Party’s antidumping law or countervailing duty law,’ in Article 1901(3), in the Tribunal’s judgment, encompasses a very broad spectrum of matters, a conclusion that is particularly justified by the use of the phrasal preposition ‘with respect to’ in Article 1901(3) and of the non-exhaustive verb ‘include’ in the Article 1902(1) definition that the Tribunal has previously determined to apply to the meaning of that phrase in Article 1901(3).39

36

ADF v United States, above Ch 4, n 9, Award, para 147. Canadian Cattlemen v United States, above Ch 3, n 98, Jurisdiction, paras 118–28. See also United Parcel Service of America Inc v Canada, UNCITRAL (NAFTA), Award, 24 May 2007, para 58 ff. 38 Canadian Cattlemen v United States, above Ch 3, n 98, Jurisdiction, para 128. 39 Canfor Corporation v United States, above Ch 3, n 114, Preliminary Question, para 220. See also United Parcel v Canada, Award, 2007, para 58 ff, where the Tribunal held that Arts 1102–1105 NAFTA are not to be read alone but in the context of the Chapter and the jurisdictional clauses of Arts 1116 and 1117. For another example, see Compañiá de Aguas del Aconquija SA and Vivendi Universal v Argentina, ICSID ARB/97/3, Award, 20 August 2007, para 7.4.4. 37

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In Al Warraq v Indonesia, the Tribunal interpreted Article 17(2)(a) of the OIC Investment Agreement by resorting to contextual arguments based on both other parts of Article 17—as seen above—and also Article 16. In so doing, the Tribunal progressively expanded the context of Article 17(2)(a). Article 16 contains a fork-in-the-road provision, which offers foreign investors the right to resort to the domestic judicial system of the host State or—in alternative—to an arbitral tribunal, the choice between the two being final. For the Tribunal, Article 16 necessarily compels the interpreter to include the arbitral clause of Article 17(2) disputed between the host State and foreign investors. From a different angle, since the clause makes sense only if arbitration is available in alternative to domestic remedies, the interpretation held by the Tribunal is also imposed by the principle of effectiveness. The Tribunal finally fortified its interpretation of Article 17 by comparing its terminology with that used in other provisions of the treaty to distil an a contrario argument. It held: If resort to … arbitration were intended to be confined to State Parties … Article 17 would have made this explicit through the use of the defined expression ‘Contracting Parties’. ‘Investors’ are clearly envisaged, as in clauses 3, 6 and 16 of the OIC Agreement. Accordingly, the Tribunal considers that the expression ‘parties’ in Article 17 includes both states and investors.40

III. Agreements under Article 31(2)(a) As part of the analysis of the context, the interpreter must take into account any agreements made by the parties in connection with the conclusion of the treaty to be interpreted. Although BITs usually consist of a single document, is it not infrequent that ‘the parties … use an exchange of letters, separate protocols or any other suitable instrument to explain, modify or elaborate on certain treaty provisions’.41 Protocols, in particular, are normally integral parts of the treaty. Nigeria and Germany, for instance, concluded a BIT on 28 March 2000 and simultaneously agreed upon a protocol clarifying the meaning of Articles 1, 3, 4 and 6 of the treaty. France and Panama concluded a BIT on 5 November 1982. The same day they exchanged two sets of letters expressly referring to the treaty. Panama declared that it understood the notion of ‘utilité publique’ for the purpose of Article 5(2) of the treaty as including that of ‘intérêt social’ contained in the Constitution of Panama. France in turn clarified its interpretation of Article 3 (FET) as well as of Article 5

40 41

Al Warraq v Indonesia, above Ch 1, n 43, Jurisdiction and Admissibility, para 75.1. JW Salacuse, above Ch 2, n 68, p 127.

Agreements under Article 31(2)(a)

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(expropriation). Both parties sought and formally obtained the agreement of each other’s position.42 Needless to say, multilateral treaties tend to be even more complex. The ECT, which has been described as ‘one of the most impenetrable instruments when it comes to interpretation’,43 is the obvious example. There is no doubt that when interpreting any term or provision contained in the ECT the interpreter must take into account all relevant decisions, understandings and declarations. It must also be noted that decisions and declarations enclosed in the ECT are integral parts of it.44 The question of the possible inclusion of the 1991 EEC is less certain. It has been maintained that the EEC could be taken into account as context for the purpose of interpreting the ECT.45 Three considerations are in order. First, the political nature of the EEC renders its qualification as agreement under Article 31(2) VCLT problematic. Second, the fact that the EEC was concluded in 1991, roughly three years before the negotiation and signature of the ECT, would deprive the connection with the conclusion of the treaty requirement of any meaning. Third, although strictly speaking the EEC can hardly be taken into account as context, it may still be useful in determining the object and purpose of the treaty especially considering the express references to it contained in the preamble and Article 2 of the ECT.46 As observed by the ILC, the agreements and the instruments referred to in Article 31(2) are part of the context, but ‘not necessarily to be considered as an integral part of the treaty: this will depend on the intention of the parties’.47 The best way to express such an intention is to declare it either in the treaty, as occurred in Article 11(5) of the BIT between Germany and the Philippines, or in the agreement itself, as occurred with regard to the protocol to the BIT between Germany and Nigeria. But the fact that the parties did not consider an agreement or an instrument under Article 31(2)(a) and (b) VCLT as integral parts of a treaty does not affect their contextual relevance for the purpose of interpretation. What is crucial is that the agreement or instrument has been agreed upon by the parties, whatever the form and the denomination.48 The connection criterion unavoidably requires a careful assessment by the interpreter and at the same time offers some flexibility. The criterion may probably be stretched to allow the interpreter to consider non-investment 42 The text of the replies by France and Panama read in part, respectively: ‘J’ai l’honneur de vous confirmer l’accord de mon Gouvernement sur ce texte’ and ‘J’ai l’honneur de vous faire part de l’accord de mon Gouvernement sur le contenu de cette lettre’. 43 TW Wälde, above Ch 1, n 29, p 755. 44 Art 48 ECT. 45 TW Wälde, above Ch 1, n 29, p 757. 46 Art 2 reads: ‘This Treaty establishes a legal framework in order to promote long-term cooperation in the energy field, based on complementarities and mutual benefits, in accordance with the objectives and principles of the Charter.’ 47 18 (1966-II) Yearbook of the International Law Commission 221. 48 As pointed out by RK Gardiner, above Ch 1, n 10, p 238, ‘[s]ubstance is … clearly more important than form of classification’.

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a greements c oncluded simultaneously with the treaty to be interpreted and that may elucidate the meaning of the latter’s provisions. This may occur in particular when the investment treaty has been negotiated and concluded alongside a trade agreement. In Romak v Uzbekistan, for instance, the Tribunal considered a trade and co-operation agreement concluded between Uzbekistan and Switzerland while interpreting the definition of investment provided in a BIT concluded on the same day by the two countries. It found in the former treaty a confirmation that the definition in Article 1(2) of the BIT was not all-encompassing and in particular that rights and obligations related to contracts for the sale of goods fall within the scope of the trade and co-operation agreement, apparently in application of the lex specialis principle. It held that [s]hedding more light on the ‘context’ of the list contained in Article 1(2) of the BIT and on the ‘object and purpose’ of the BIT, on the same day the BIT was signed, the Swiss Confederation and the Republic of Uzbekistan also entered into an Agreement on Trade and Economic Cooperation. This treaty specifically regulates the two States’ mutual rights and obligations in relation to contracts for the sale of goods between parties established in the two States (see, particularly, Articles 1, 5.2 and 6). The Arbitral Tribunal is therefore persuaded that the Contracting Parties to the BIT adopted a distinction—also drawn in international practice—between trade and investment, and that a special and discrete treaty was concluded with respect to investment.49

This approach by the Tribunal seems justified by the germane subject-matter of the two agreements. At any rate, the interpreter must be extremely prudent in considering other treaties to avoid distorting the common intention of the parties. The statement made by another Tribunal that admitted ‘the possibility for the contextual interpretation of a provision of a treaty in the light of other provisions of the same treaty, or even of other treaties’50 seems to introduce an unnecessary and dangerous generalisation. In Rompetrol v Romania, the Tribunal clearly and simply rejected the argument that the ICSID Convention could be considered as context of the investment treaty being interpreted. It pointed out that [t]he definition in Article 31(2) mentions the text of the treaty, including its preamble and annexes; any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty; and any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the

49 Romak v Uzbekistan, above Ch 4, n 66, para 182 (footnote omitted). The first sentence is not particularly fortunate as the trade and co-operation agreement can hardly assist in defining the object and purpose of the BIT. 50 Merrill & Ring Forestry LP v Canada, UNCITRAL, Award, 31 March 2010, para 84. In fn 46, the Tribunal refers to an unpublished investor’s expert opinion and in particular to the principle of systemic integration. Here the Tribunal seems to confuse contextual consideration under Art 31(1) and (2) VCLT with the principle of systemic integration as expressed in Art 31(3)(c) VCLT.

Instruments under Article 31(2)(b)

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other parties as an instrument related to the treaty. But none of those elements is apt to cover the ICSID Convention as such.51

The emphasis on the independence of the two treaties is certainly appropriate and the finding sound, at least as a matter of principle. However, it is argued that a flat rejection of the relevance of the ICSID Convention for the purpose of Article 31(1) and (2) may be exaggerated. As seen above while discussing the definition of investment under international investment treaties and Article 25 ICSID,52 the interpreter may consider another treaty if the treaty provision being interpreted is functionally linked to such treaty. In Alpha v Ukraine, the Tribunal seems to have hammered out a balanced approach by founding that when the State party to a BIT agrees to protect certain kinds of economic activity, and when the BIT provides that disputes between investors and States relating to such activity may be resolved through ICSID arbitration, it is appropriate to interpret the BIT as reflecting the State’s understanding that that activity constitutes an ‘investment’ within the meaning of the ICSID Convention as well. That judgment, by States that are both parties to the BIT and Contracting States to the ICSID Convention, is entitled to great deference. A tribunal would have to have very strong reasons to hold that the States’ mutually agreed definition of investment should be set aside.53

From this perspective, the acceptance of ICSID tribunals to settle disputes relating to investment under the treaty can be construed as introducing a strong, yet still rebuttable, presumption in favour of the compatibility of the definition of investment under the treaty and under the ICSID Convention.

IV. Instruments under Article 31(2)(b) Article 31(2) is clear in indicating that the interpreter must take into account the instruments referred to as they are manifestations of the will of all parties. The ILC has stated that a unilateral document can be regarded as forming part of the context only if it was made in connection with the conclusion of the treaty and ‘was accepted in the same manner by the other parties’.54

51 Rompetrol Group NV v Romania, above Ch 4, n 11, para 106. S Torres Bernàrdez, dissenting opinion, Ambiente v Argentina, above Ch 1, n 15, para 301, warns against the risks of implanting in the interpretative process of a BIT considerations related to other treaties. In his words, ‘the general discussion on the concept of “investment” in Art 25(1) of the ICSID Convention [is] alien to the text of the definitions in Art 1(1) and (4) of the BIT between Argentina and Italy. As such, it has no role to play in an interpretation of the wording of these definitions.’ 52 See above, Ch 4, section V. 53 In Alpha v Ukraine, above Ch 3, n 88, para 314 (footnote omitted). It has added that ‘[i]f we broaden the context beyond the definition of Art 31(2) of the VCLT, we may identify contextual agreements based on the relationship between the ICSID Convention and relevant BIT’. 54 (1966-II) 18 Yearbook of the International Law Commission 221.

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The relevance of unilateral instruments for the purpose of Article 31(2)(b) appears to be rather limited in investment treaties. Given the bilateral nature of the majority of these treaties, contracting parties normally find it more convenient to attach to the treaty annexes or protocols—which are often considered as integral parts of the treaty. When the instrument takes the form of a letter and is formally accepted by the other party in the same form, the distinction between an agreement under Article 31(2)(a) and Article 31(2)(b) tends to disappear. Without a formal acceptance by the other party it may be difficult to establish whether an instrument adopted by a party in connection with the conclusion of the treaty has to be taken into account under Article 31(2)(b) VCLT. At any rate, it is always appropriate to keep a written record of the instruments put forward by a party and the reaction of the other parties. It has been argued that the status of the unilateral declarations attached to the ECT is uncertain.55 In this respect it must be pointed out that the contracting parties have taken note of those declarations, which have been enclosed in the treaty and duly published. Taking into account these elements, it is relatively safe to argue that all parties have not only acknowledged, but also consented—through the complete and evident lack of reaction—to those declarations, which can be considered as part of the context for the purpose of Article 31(2)(b) VCLT. At the conclusion of the ECT, for instance, the Russian Federation made a statement on several outstanding interpretative issues which was recorded—but not immediately published—as an official document of the conference.56 The document was read out by the Chairman to the final Plenary Session of the European Energy Charter Conference on 17 December 1994 and also circulated in written form. The contracting parties agreed without objection to the proposals contained in the Russian instrument. The question of the relevance for the purpose of the interpretation of a treaty of an instrument of ratification was discussed in Fraport v Philippines. The Tribunal had to interpret the chapeau of Article 1 of the BIT concluded on 18 April 1997 between Germany and the Philippines, defining the term ‘investment’ as ‘any kind of asset accepted in accordance with the respective laws and regulations of either Contracting State’. The Tribunal held that not only the protocol of the treaty—which under Article 11(5) is an integral part of the treaty—but also the instrument of ratification of the Philippines, which was exchanged with Germany on 10 July 1997 (almost three months after the conclusion of the treaty), could be taken into account as context in accordance with Article 31 VCLT. In a preambular paragraph of the instrument of ratification, the Philippines maintained that ‘the Agreement provides that the investment shall be in the areas allowed by and in accordance with the Constitutions, laws and regulations 55 TW Wälde, above Ch 1, n 29, p 757; JR Weeramantry, Treaty Interpretation in Investment Arbitration (Oxford: OUP, 2012) and T Hai Yen, The Interpretation of Investment Treaties (Leiden: Brill-Nijhoff, 2014) 79. 56 Annex I to document CONF 115 of 6 January 1995.

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of each of the Contracting Parties’. After emphasising the importance of the instrument of ratification as it ‘puts a treaty into effect in accordance with its terms’,57 the Tribunal found that the said instrument—along with Article 2 of the Protocol—‘make … clear beyond peradventure of doubt’ that the parties had in mind explicit constitutional limitations in the Philippines. In so doing the Tribunal rejected the claimant’s interpretation according to which the term ‘accepted’ in Article 1 of the BIT implies the establishment of an acceptance regime and that without such a regime Article 1 cannot be applied. The position of the Tribunal on the interpretative value of the instrument of ratification was firmly criticised by the Annulment Committee. It was pointed out that [t]he scope ratione materiae of the BIT, and the Tribunal‘s jurisdiction, are governed by the provisions of the BIT itself. The provisions of the BIT are controlling, while a preambular paragraph of the Philippines’ Instrument of Ratification is not. An instrument of ratification is a unilateral act by which a State expresses, on the international plane, its consent to be bound by a treaty. It is true that through the exchange of the Instruments of Ratification of the Philippines and Germany, respectively, which occurred on 10 July 1997, the BIT entered into force in accordance with its Article 11. But that fact has no bearing on the scope ratione materiae of the BIT, nor does it provide any basis for attaching any particular importance to one of the two instruments of ratification. The … Philippines’ Instrument of Ratification does not modify the legal effect of the BIT, nor was it established before the Tribunal that such was the intention of the Philippines. It was not formulated as a reservation, something extraordinary in the context of a bilateral treaty, nor as an interpretative declaration intimated to the other Contracting Party to the BIT, Germany, for its acceptance.58

It can be argued that—as lamented by the Annulment Committee—the Tribunal could have better explained the relevance of the instrument of ratification from the standpoint of the VCLT. The position of the Tribunal, however, does not seem inconsistent with Article 31(2)(b) VCLT as the instrument of ratification can be considered as an instrument made by one party in connection with the conclusion of the treaty and as such may be accepted by the other party. In spite of the rather complex wording of Article 31(2)(b) VCLT, this conclusion seems to be supported by the broad understanding shared within the ILC of the expression ‘any agreement or instrument related to the treaty’, which appeared in the draft discussed in 1964, in the sense of including instrument of ratification.59 Yet, the instrument of ratification of a bilateral treaty can be seen at once as a unilateral act aimed at expressing a State’s consent to be bound by a treaty and an instrument

57

Fraport v Philippines, above Ch 3, n 96, Award, para 338. paras 95–98. In para 107, the Committee reiterated that ‘the Philippines’ Instrument of Ratification did not modify the legal effects of the provisions of the BIT which govern the jurisdiction of the Tribunal’. 59 (1964-I) 16 Yearbook of the International Law Commission 313. In the same sense, R Gardiner, above Ch 1, n 10, p 240. 58

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made in connection with the conclusion of the treaty which the other party accepts through exchange, provided no objections are raised. The reasoning could be extended, with extreme prudence, to the explanatory notes and similar documents that sometimes accompany the text of the treaty throughout the ratification process. The importance of the acceptance of these documents by the other party or parties for the purpose of considering them relevant under Article 31(2)(b) was stressed in HICEE v Slovakia. The Tribunal reluctantly considered whether an explanatory note submitted by the Dutch Government to the Parliament during the process of ratification of the BIT with the then Czech and Slovak Republics could be taken into account under Article 31(2)(b). It made clear that this requires the party relying on it to provide sufficient evidence that the content of the note had been duly accepted by the other party. The transmission of the note to the other party and the fact that the latter did not contest the note were not enough. The Tribunal found it inherently unlikely that any such internal document would ever, on its own, qualify for attention under Article 31(2)(b) in the absence of additional circumstances involving its communication by some reasonable formal means to the other contracting party (or parties). Only thus would a tribunal be able to make sense out of the second limb of the sub-paragraph, where it refers to acceptance by the other parties as an instrument related to the treaty.60

60

HICEE v Slovak Republic, above Ch 1, n 35, Partial Award, para 134.

6 Object(s) and Purpose(s) I. Object(s) and Purpose(s) as Part of the Interpretative Process Article 31(1) enjoins the interpreter to consider the object and purpose of the treaty as part of the interpretative process.1 As pointed out by Sinclair, ‘[t]he initial search is for the “ordinary meaning” to be given to the terms of the treaty in their “context”; it is in the light of the object and purpose of the treaty that the initial and preliminary conclusion must be tested and either confirmed or modified’.2 The ‘object and purpose’ of a treaty is a crucial yet still not entirely clear3 element in the interpretative process. Before discussing how investment arbitral tribunals have resorted to the object and purpose of investment treaties in order to interpret any given provision, a few general considerations are in order. First, the interpreter must consider the object and purpose ‘as expressed in the treaty and not the extra textual subjectivities of the parties, whatever the word “subjectivities” may mean’.4 The object and purpose are normally expressed in

1 In Unites States—Shrimp, above Ch 3 n 114, para 114 (footnote omitted), the Appellate Body held that ‘[i]t is in the words constituting that provision, read in their context, that the object and purpose of the state parties to the treaty must first be sought. Where the meaning imparted by the text itself is equivocal or inconclusive, or where confirmation of the correctness of the reading of the text itself is desired, light from the object and purpose of the treaty as a whole may usefully be sought’. 2 I Sinclair, above Ch I, n 10, p 130. According to R Gardiner, above Ch 1, n 10, p 222, ‘finding the ordinary meaning typically requires making a choice between a range of possible meanings. The immediate and more remote context is the next textual guide, with good faith and the treaty’s object and purpose as further aids to this phase of an exercise in interpretation.’ 3 See J Klabbers, ‘Some Problems Regarding the Object and Purpose of Treaties’ (1997) 8 Finnish Yearbook of International Law 138. For M Fitzmaurice, ‘The Practical Working of the Law of Treaties’ in M Evans (ed), International Law, 4th edn (Oxford: OUP, 2014) 166, 182, the expression is ‘vague and ill-defined, making it an unreliable tool for interpretation’. 4 WM Reisman, MH Arsanjani, ‘Interpreting Treaties for the Benefit of Third Parties: The “Salvors’ Doctrine” and the Use of Legislative History in Investment Treaties’ (2010) 104 American Journal of International Law 597, 599.

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the title, the preamble or in one of the first articles.5 Depending on the specific features and history of investment treaties, the range of materials the interpreter can use to infer the object and purpose of the treaty is particularly broad.6 The interpreter may also consider the agreements and instruments forming the context of the treaty under Article 31(2)(a) and (b) VCLT insofar as they may draw light on the object and purpose of the treaty. The importance of the preamble for the understanding of the objects and purposes of treaties from the standpoint of interpretation has been emphasised recently in Hamadi Al Tamimi v Oman. The Tribunal pointed out that the parties to the US–Oman FTA expressed in its preamble the desire to ‘strengthen the development and enforcement of environmental laws and policies, promote sustainable development, and implement this Agreement in a manner consistent with the objectives of environmental protection and conservation’. For the Tribunal this amounted to ‘a further clear indication by the State parties that the Treaty is to be interpreted to give effect to the objectives of environmental protection and conservation’.7 The relevance of preambles, however, should not be overestimated as normally preambles contain broad language mentioning the various private and public interests the treaty is intended to legally protect. In the words of a tribunal, the purpose of bilateral investment treaties can be taken to be the encouragement of investment, on a mutual and reciprocal basis, while balancing the interests of the investors and of the receiving State in that regard; in and of itself, however, that says nothing about where the balance has been drawn in the particular treaty in question. The Tribunal does not therefore find anything in the object and purpose of the present Agreement that would help in any material way to determine the question of interpretation before it.8

At any rate, as pointed out in Société Générale v Dominican Republic, the preamble ‘sets out the general purposes and objectives of the Treaty but … cannot add substantive requirements to the provisions of the Treaty’.9 In Total v Argentina, the

5 In the Beagle Channel Arbitration (Argentina v Chile) (1977) 52 International Law Reports 93, para 19, the arbitral tribunal held that it is generally accepted that preambles ‘may be relevant and important as guides to the manner in which the Treaty should be interpreted, and in order, as it were, to “situate” it in respect of its object and purpose’. Amongst many examples, see Siemens v Argentina, above Ch 3, n 5, Jurisdiction, para 81; see also Aguas del Tunari v Bolivia, above Ch 3, n 53, Jurisdiction, para 216. In literature see R Gardiner, above Ch 1, n 10, pp 216-217. 6 The ILC also points out that the ICJ has deduced the object and purpose of a treaty from the following of highly disparate elements, taken individually or jointly: the title, the preamble, an article placed the beginning of the treaty, a key article, the preparatory work, the overall framework ((2007-II) 59 Yearbook of the International Law Commission 78). 7 Adel A Hamadi Al Tamimi v Sultanate of Oman, ICSID ARB/11/33, Award, 3 November 2015, footnote 777. 8 HICEE v Slovak Republic, above Ch 1, n 35, Partial Award, para 116. 9 Société Générale v Dominican Republic, Jurisdiction, above Ch 5, n 34, para 32.

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Tribunal confirmed that an explicit reference in the preamble of an investment treaty to ‘the desirability of maintaining a stable framework for investments’ cannot as such create independent legal obligations, but may shed light on the object and purpose of the treaty and assist the interpreter in the search for the meaning of its provisions and especially the FET standard.10 In the same vein, in Occidental v Ecuador the tribunal held that the preamble of the treaty between Ecuador and the United States recorded the agreement of the parties that the FET standard is desirable in order to maintain a stable framework for investment and maximum effective utilisation of economic resources. It therefore considered the stability of the legal and business framework as ‘an essential element’ of the FET standard contained in Article II (3)(a) of the BIT.11 It may be argued that also official documents related to the treaty could be used to elucidate or confirm the objects and purposes of the treaty, provided that they have been made available to and met no opposition by the parties. This may be the case, for instance, of an official explanation of the document by the legal service of an organisation, or the official report of organs of an international organisation, such as the Report of ICSID Executive Directors.12 The EEC deserves to be singled out because in spite of being a political declaration it has to be considered when looking for the objects and purposes of the ECT not only due to its importance in the process leading to the conclusion of the ECT but also, and primarily, because of the reference to its objectives operated by Article 2 ECT. Second, the use of the modal ‘shall’ in Article 31(1) VCLT leaves no doubt about the mandatory nature of the examination of the object and purpose, which logically follows the analysis of the ordinary meaning of the terms employed in the treaty. Yet, the suppleness of the drafting of Article 31 must be emphasised. Following the ILC, the contracting parties to the VCLT used an expression as imprecise an expression as ‘in the light of ’, which leaves the interpreter a large degree of discretion. Such discretion will be used depending on how sound the interpreter perceives the textual and contextual interpretation. The more uncertain the interpreter is about such an interpretation, the more reliance will be placed on the examination of the object and purpose of the treaty. Even more intriguing is the determination of ‘object and purpose of a treaty’. Perhaps paradoxically, such a determination itself is a question of interpretation

10

Total SA v Argentina, ICSID ARB/04/01, Liability, 17 October 2010, para 116. Occidental v Ecuador, above Ch 3, n 41, Final Award, para 183. On the interpretation of the preamble of the BIT between Pakistan and Turkey, in Bayindir v Pakistan Tribunal, see above, Ch 4, section I. 12 In Phoenix v Czech Republic, above Ch 3, n 42, para 88, for instance, the Tribunal found in the Executive Directors’ Report the confirmation that the ICSID system was clearly ‘designed to facilitate the settlement of disputes between States and foreign investors’ with a view to ‘stimulating a larger flow of private international capital into those countries which wish to attract it’. See also Vacuum Salt Products Limited v Ghana, ICSID ARB/92/1, Award, 16 February 1994, para 39; as well as G Abi-Saab, dissenting opinion, in Abaclat v Argentina, above Ch 1, n 15; and S Torres Bernàrdez, dissenting opinion, Ambiente v Argentina, above Ch 1, n 15. 11

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that cannot be dealt with but in accordance with the very same relevant elements indicated in the VCLT rules on interpretation. In the context of treaty reservations, the ILC has pointed out that [t]he object and purpose of a treaty is to be determined in good faith, taking account of the terms of the treaty in their context. Recourse may also be had in particular to the title of the treaty, the preparatory work of the treaty and the circumstances of its conclusion and, where appropriate, the subsequent practice agreed upon by the parties.13

This position is to some extent tautological, as admitted by the ILC itself.14 Nevertheless, it is unavoidable and confirms the omnipresence of interpretation. It further corroborates two main features of the VCLT rules on interpretation: the suppleness of the notion of ‘object and purpose’ and the fact that the various elements they contain—far from being sealed compartments to be applied in a rigid sequence—continuously and intensely interact throughout the interpretative process. From this perspective, the preamble is at once part of the context and a key element to determine the object and purpose of the treaty. It may also be argued that subsequent practice is relevant not only for the purpose of the literal interpretation of a given provision, but also from a teleological standpoint. Furthermore, before the VCLT the idea that the object and purpose could evolve throughout the existence of a treaty (so-called emerging purpose) had been put forward in the following terms: [t]he notion of object and purpose is itself not a fixed and static one, but is liable to change, or rather to develop as experience is gained in the operation and working of the convention. At any given moment, the convention is to be interpreted not so much, or not so merely, with reference to what its object was when entered into, but with reference to what that object has since become and now appears to be.15

Third, in spite of the use in Article 31(1) VCLT of the singular ‘object and purpose’, nothing prevents contracting parties from attaching to a treaty more than one object and purpose. Indeed, ‘most treaties have no single, undiluted object and purpose but a variety of differing and possibly conflicting objects and purposes’.16 The tendency to indicate more than one object and purpose of the treaty is increasingly evident in contemporary treaty and particularly plurilateral treaties. The Energy Charter Treaty is the perfect example. It has been observed that [t]he Energy Charter Treaty thus has 14 objectives mentioned in the preamble; the preamble of the 1991 European Energy Charter (which the ECT refers to, accepts, and intends to implement) itself has another 21 (‘recall’ etc) objectives in addition to

13 ILC, Commentary to Guideline 3.1.5.1 (at the time Guideline 3.1.6) of the Guide to Practice on Reservations to Treaties (2007-II) 59 Yearbook of the International Law Commission 77. 14 ibid, 79. 15 GG Fitzmaurice, above Ch 4, n 174, p 208. 16 I Sinclair, above Ch 1, n 10, p 130.

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approximately a further 20 objectives in its title I: Objectives. To this, one needs to add Article 2 of the 1994 ECT (‘Purpose of the Treaty’)—‘promoting long-term cooperation in energy, based on complementarities and mutual benefits’, with another renvoi to the ‘objectives and principles of the Charter’ (ie the 1991 Charter). All in all there might be 50 or so items which would be relevant for the definition of the ‘object and purpose’ under Article 31(1) VCLT.17

Likewise, according to Article 102(1) NAFTA, the objectives of the treaty include: (a) elimination of barriers to trade in, and facilitation of the cross-border movement of, goods and services between the territories of the Parties; (b) promotion of conditions of fair competition in the free trade area; (c) increase substantially investment opportunities in the territories of the Parties; (d) provision of adequate and effective protection and enforcement of intellectual property rights in each Party’s territory; (e) creation of effective procedures for the implementation and application of this Agreement, for its joint administration and for the resolution of disputes; and (f) establishment of a framework for further trilateral, regional and multilateral cooperation to expand and enhance the benefits of this Agreement. BITs, too, are increasingly more and more sophisticated with regard to their objectives and purposes.18 Even in their traditional form, BITs normally contain at least two objectives as they typically aim, on one hand, to promote and protect foreign investment and, on the other hand, to enhance the economic development of the host and its relations with the home States. As noted earlier, all these objectives and purposes guide the interpreter towards a balanced interpretation based in a meticulous and unbiased application of the rules contained in the VCLT. It must be stressed that when the treaty aims to pursue more than one objective, the interpreter must take all of them into account to the extent they are relevant, in a balanced and unbiased manner.19 Fourth, although Article 31(1) VCLT refers to the object and purpose of the treaty as a whole, international tribunals have found it logical to consider also the object and purpose—or objective—of its subdivision or even its single provisions.20 Reference to subdivisions of treaties or single provisions or 17 TW Wälde, above Ch 1, n 29, p 759. This is in line with WTO jurisprudence. In United States—Shrimp, above Ch 3, n 114, para 17, for instance, the Appellate Body held that ‘[m]ost treaties have no single, undiluted object and purpose but rather a variety of different, and possibly conflicting, objects and purposes. This is certainly true of the WTO Agreement. Thus, while the first clause of the preamble to the WTO Agreement calls for the expansion of trade in goods and services, this same clause also recognizes that international trade and economic relations under the WTO Agreement should allow for “optimal use of the world’s resources in accordance with the objective of sustainable development”, and should seek “to protect and preserve the environment”.’ In literature see, in particular, R Gardiner, above Ch 1, n 10, p 216. For a critique, see J Klabbers, ‘On Rationalism in Politics: Interpretation of Treaties and the World Trade Organization’ (2005) 74 Nordic Journal of International Law 405, 414–15. 18 See, eg, the BIT between Austria and Kosovo, above Ch 3, n 3. 19 See also above, Ch 3, section VI. 20 In LaGrand (Germany v United States), above Ch 1, n 10, para 102, the ICJ held that since the object and purpose of Art 41 of the Court’s Statute is to prevent the Court from being hampered in the

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aragraphs, either alone or in combination with the objects and purposes of the p treaty as a whole, are relatively common in investment arbitration.21 In Bayindir v Pakistan, for instance, the Tribunal found, with regard to Article VII of the BIT between Turkey and Pakistan, that [p]ursuant to the general principles of interpretation set forth in Article 31 of the Vienna Convention on the Law of Treaties, and consistently with the practice of previous ICSID tribunals dealing with notice provisions, this Tribunal considers that the real meaning of Article VII of the BIT is to be determined in the light of the object and purpose of that provision.22

In the same vein, in Yukos v Russian Federation the Tribunal referred to the object and purpose of Article 21 ECT and found that States are understandably concerned about possible limitations on their ability to raise revenue. A State’s right to promulgate tax laws and regulations is meaningless unless the State also has the right to collect, administer and enforce its tax laws and regulations. The Russian Federation’s interpretation is consistent with the purpose intended to be served by Article 21 to protect a State’s right to promulgate and enforce its tax laws, and to avoid interference with tax treaties specifically intended to address these issues.23

In Urbaser v Argentina, the Tribunal took into account the settlement of disputes as one of the objectives the treaty aims at through Article X of the BIT between Spain and Argentina. In the Tribunal’s words, any construction of the prescribed terms of the 18 month rule must comport with the language’s context and also needs to be harmonized with the purpose and objective of

exercise of its function of judicial settlement of disputes, ‘[t]he contention that provisional measures indicated under Article 41 might not be binding would be contrary to the object and purpose of that Article’. In EC—Chicken, above Ch 1, n 34, para 238, the Appellate Body observed that it is not necessary ‘to divorce a treaty’s object and purpose from the object and purpose of specific treaty provisions, or vice versa. To the extent that one can speak of the “object and purpose of a treaty provision”, it will be informed by, and will be in consonance with, the object and purpose of the entire treaty of which it is but a component.’ 21 In ADF v United States, above Ch 4, n 9, Award, para 147 (italics as in original, footnote omitted), the Tribunal argued that ‘[t]he object and purpose of the parties to a treaty in agreeing upon any particular paragraph of that treaty are to be found, in the first instance, in the words in fact used by the parties in that paragraph. This is in line with Art 102(1), which states that NAFTA’s objectives are “elaborated more specifically through its principles and rules” such as “national treatment, most-favored nation treatment and transparency”. The provision under examination must of course be scrutinized in context; but that context is constituted chiefly by the other relevant provisions of NAFTA. We do not suggest that the general objectives of NAFTA are not useful or relevant. Far from it. Those general objectives may be conceived of as partaking of the nature of lex generalis while a particular detailed provision set in a particular context in the rest of a Chapter or Part of NAFTA functions as lex specialis. The former may frequently cast light on a specific interpretive issue; but it is not to be regarded as overriding and superseding the latter.’ Quoted with approval in Canfor v United States, above Ch 3, n 115, Preliminary Question, para 178. In Canadian Cattlemen v United States, above Ch 3, n 98, Jurisdiction, paras 160 ff, for instance, the Tribunal considered the object and purpose of both NAFTA and Chapter XI. 22 Bayindir v Pakistan, above Ch 4, n 34, Jurisdiction, para 96. 23 Yukos v Russian Federation, above Ch 4, n 89, Jurisdiction and Admissibility, para 37.

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the clause, as prescribed in Article 31(1) of the Vienna Convention. Even where it is acknowledged that this rule imposes an obligation on the investor, it must still be applied in a way that allows its meaning to prevail so that its intended purpose and objective are preserved and not frustrated. Such obligation cannot be imposed on the investor if it does not serve its purpose in the context of the whole system of access to arbitration provided in Article X.24

Fifth, the essence of the very notion of object and purpose remains precisely the teleological inquiry the interpreter is called upon to conduct as part and parcel of the interpretative process. Article 31(1) calls for a careful assessment of the object(s) and purpose(s) of the treaty and its different elements as well as, if appropriate, an equally careful balancing of their respective weight. The operation aims to extract from the text of the treaty and any other relevant documents what the contracted parties intended to achieve through the conclusion of the treaty. From this perspective, the treaty is the instrument through which the parties solemnly recorded the balance they managed to strike. It is not for the interpreter to reconsider this balance as the operation may distort the deal made by the contracting parties.25 Using the objects and purposes of a treaty or of its relevant provisions in a selective manner or, even worse, deliberately finding in favour of one of the parties to the dispute, any uncertainty resulting from literal and contextual interpretation runs against the obligation to interpret the treaty in good faith. Investment tribunals have not always rigorously considered these objects and purposes. In Abaclat v Argentina, for instance, the majority of the Tribunal rejected the argument that only foreign investments satisfying the so-called Salini test would fall within the scope of Article 25 of the ICSID Convention. It held that [i]f Claimants’ contributions were to fail the Salini test, those contributions—according to the followers of this test—would not qualify as investment under Article 25 ICSID Convention, which would in turn mean that Claimants’ contributions would not be given the procedural protection afforded by the ICSID Convention. The Tribunal finds that such a result would be contradictory to the ICSID Convention’s aim, which is to encourage private investment while giving the Parties the tools to further define what kind of investment they want to promote.26

The dissenting arbitration strongly disagreed and emphasised that ‘the purpose for using the term “investment” in Article 25(1) was thus to set objective outerlimits to the types of disputes that can be treated within the ICSID’.27 He also

24

Urbaser v Argentina, above Ch 4, n 54, Jurisdiction, para 130. ibid, para 147. The Tribunal recalled that ‘Parties to the BIT have made an assessment of the terms that best suited them at the time of the negotiations and most effectively met their needs with respect to an international dispute resolution system that could attach to contentions arising from investments within their national territory’. 26 Abaclat v Argentina, above Ch 1, n 15, para 364. 27 G Abi Saab, dissenting opinion, para 45, quoting with approval SGS Société Générale de Surveillance SA v Pakistan, ICSID ARB/01/13, Jurisdiction, 6 August 2003, para 133, and Phoenix v Czech Republic, above Ch 3, n 42, para 96. 25

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argued that the ‘main object and purpose of the Convention was to encourage the flow of private foreign investment into developing countries, by making available an additional international procedural facility or guarantee that counter-balances the host State’s regulatory authority over investment and economic activities in its territory’. (para 53) It is not clear how and why the Tribunal expanded the meaning of the term ‘investment’ in Article 25 of the ICSID Convention to ‘contribution’. The operation can hardly be understood from the standpoint of both the ordinary meaning of the word ‘investment’ and the object and purpose of the ICSID Convention as well as Article 25 itself. The Convention is clearly intended to meet, inter alia, ‘the need for international co-operation for economic development’, whereas Article 25 aims to set an outer limit applicable to investment made within the jurisdictions of member States. Beyond this limit—set in a multilateral treaty—disputes cannot be settled within the Centre, regardless of the definition of investment contained in the relevant investment treaties, legislation or contracts. The Tribunal seems to postulate that any contribution has to be given ‘the procedural protection afforded by the ICSID Convention’.28 This entirely ignores the third preambular paragraph in which the contracting parties recognised ‘that while such disputes would usually be subject to national legal processes, international methods of settlement may be appropriate in certain cases’. Abaclat v Argentina is also interesting from the standpoint of the competence of the Centre to settle disputes concerning collective proceedings. As seen above, the Tribunal decided by majority that the silence in the ICSID Convention was interpreted as a gap rather than a qualified silence.29 From a teleological standpoint, the Tribunal held that in the light of the absence of a definition of investment in the ICSID Convention, where the BIT covers investments which are susceptible of involving a high number of investors, and where such investments require a collective relief in order to provide effective protection to such investment, it would be contrary to the purpose of the BIT, and to the spirit of ICSID, to require in addition to the consent to ICSID arbitration in general, a supplementary express consent to the form of such arbitration.

This finding was harshly criticised by the dissenting arbitrator too. He censured what he perceived as an interpretation based exclusively upon one of the aims of the treaty, namely to adequately protect foreign investors. He argued that the majority proceeded from ‘a purely subjective, truncated and partial representation of the object and purpose of the ICSID Convention’.30 He further buttressed his position by quoting the following passage for the Executive Directors according to whom, ‘while the broad objective of the Convention is to encourage a larger flow

28

para 364. See above, Ch 4 section VII. 30 G Abi-Saab, dissenting opinion, in Abaclat v Argentina, above Ch 1, n 15, para 157. 29

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of private international investment, the provisions of the Convention maintain a careful balance between the interests of investors and those of host States’.31 In Republic of Ecuador v Occidental Exploitation, the Court of Appeal, relying on one single arbitral decision,32 took the view that the object and purpose of a BIT (including this BIT) is to provide effective protection for investors of one state (here OEPC) in the territory of another state (here Ecuador) and that an important feature of that protection is the availability of recourse to international arbitration as a safeguard for the investor. In these circumstances it is permissible to resolve uncertainties in its interpretation in favour of the investor.33

This view cannot be accepted and indeed has been rejected by the High Court of Justice in Republic of Ecuador v Occidental Exploitation, according to which ‘if the suggestion made in Ecuador v Occidental … that it is permissible to resolve uncertainties in the interpretation of a BIT in favour of an investor, who is not a party to the treaty, is said to amount to a rule of interpretation, the suggestion goes rather further than appears to be justified in international law’.34 The MTD v Argentina award provides another example of biased use of the purposes and objects of a treaty. The Tribunal held that under the BIT, the fair and equitable standard of treatment has to be interpreted in the manner most conducive to fulfill the objective of the BIT to protect investments and create conditions favorable to investments. The Tribunal considers that to include as part of the protections of the BIT those included in Article 3(1) of the Denmark BIT and Article 3(3) and (4) of the Croatia BIT is in consonance with this purpose.35

The Tribunal not only conflated the notions of FET and MFN, as pointed out by the Annulment Committee,36 but also failed to accurately take into account the objects and purposes of the treaty. According to the preamble, the treaty—as in the overwhelming majority of investment treaties—is intended to develop and strengthen economic and industrial co-operation in the long term as well as to protect and stimulate the flow of foreign investments for the economic prosperity of the parties. Instead of taking into account both objects in a balanced manner, the Tribunal arbitrarily proceeded on the undemonstrated assumption that the treaty has to be interpreted in the manner most conducive of one of them, thus distorting the intention of the parties as clearly expressed in the preamble. The correct approach has been outlined in Saluka v Czech Republic. According to the Tribunal: The protection of foreign investments is not the sole aim of the Treaty, but rather a necessary element alongside the overall aim of encouraging foreign investment and 31

Report of the Executive Directors on the Convention, para 13. SGS Société Générale de Surveillance SA v Philippines, ICSID ARB/02/6, Jurisdiction, 29 January 2004, para 116. 33 Court of Appeal, Ecuador v Occidental Exploitation [2007] Lloyd’s Rep 64, para 28. 34 Czech Republic v European Media Ventures SA, above Ch 1, n 46, para 23 in fine. 35 MTD v Chile, above Ch 3, n 99, Award, para 104. 36 ibid, Annulment, para 64. 32

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extending and intensifying the parties’ economic relations. That in turn calls for a balanced approach to the interpretation of the Treaty’s substantive provisions for the protection of investments, since an interpretation which exaggerates the protection to be accorded to foreign investments may serve to dissuade host States from admitting foreign investments and so undermine the overall aim of extending and intensifying the parties’ mutual economic relations.37

Sixth, interpreting a treaty provision in the light of the object of other (unrelated) provisions seems unwarranted under Article 31(1). It is at least questionable, for instance, to consider, for the purpose of interpreting a jurisdictional clause, the object and purpose of provisions such as those regarding full protection and security or MFN treatment. In Millicom v Senegal, the Tribunal had to interpret the arbitral clause contained in Article 10 of the BIT between the Netherlands and Senegal, according to which the host ‘shall assent’ or ‘shall give its consent’.38 It found that ‘[n]othing in the wording leads to the conclusion that such decision could be left up to the discretion of the State’.39 Presumably unsatisfied by this negative literal argument, the Tribunal attempted to fortify its interpretation of Article 10 by pointing out that [t]he spirit of the rule confirms this interpretation. The purpose of a treaty such as that in question is indeed to guarantee efficient and full protection. This purpose is made clear, in particular, by Articles 3 and 4 of the Accord, whose objective is ‘sécurité intégrale’ (‘full security’) (Article 4, paragraph 1). Such objective, however, cannot be truly attained unless investors, the primary beneficiaries of the protection, dispose of legal means enabling them to obtain compliance therewith. To admit the contrary would amount to making the Accord a ‘lex imperfecta’ whose application in the end would be left to the discretion of the State benefiting from the investment, since it could give or refuse its consent as it pleases. This could not have been the intention of the Contracting Parties.40

The conclusion is not entirely convincing. The fact that the treaty in general and Articles 3 and 4 in particular aim to provide efficient and full protection to the investors of the parties does not necessarily imply that the parties have expressed their consent beforehand with regard to any dispute relating to the relevant obligations. Undoubtedly Articles 3, 4 and 10 all contribute to ensure foreign investors an adequate legal protection. However, each of them is independent from each other, imposes different obligations and serves different purposes. One question is to define the substantive obligations the parties have undertaken in the treaty.

37

Saluka v Czech Republic, Partial Award, above Ch 3, n 1, para 300. French version of Article 10 reads: ‘La Partie Contractante sur le territoire de laquelle un ressortissant de l’autre Partie Contractante effectue ou envisage d’effectuer un investissement, devra consentir à toute demande de la part de ce ressortissant en vue de soumettre, pour arbitrage ou conciliation, tout différend pouvant surgir au sujet de cet investissement au Centre institué en vertu de la Convention de Washington du 18 mars 1965 pour le règlement des différends relatifs aux investissements entre Etats et ressortissants d’autres Etats.’ 39 Millicom v Senegal, above Ch 1, n 35, para 63. 40 ibid, para 65. 38 The

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A completely different one is to establish the jurisdiction of the Tribunal with regard to the related disputes. The Tribunal argument is even less persuasive as it rests on two untenable postulates. On the one hand, international treaties must contain legal means for their compliance; and, on the other hand, lacking such legal means the Parties could refuse to comply with the treaty. The Tribunal seems to confuse two questions. The first one relates to compliance by the host State with the obligations imposed in Articles 3 and 4. The host State must comply in good faith with these obligations (pacta sunt servanda) regardless of the legal remedies provided for in the treaty, if any. The second one is the scope of the arbitral clause the parties have consented to in Article 10. Even more problematic is to mix the purposes and objectives of different treaties that may be relevant in any given dispute, especially with regard to the jurisdictional challenges to the competence of ICSID tribunals. In Tokios v Ukraine, the Tribunal fortified the persuasive literal interpretation of Article 1(2)(b) of the BIT between Ukraine and Lithuania by observing that [t]he object and purpose of the Treaty likewise confirm that the control-test should not be used to restrict the scope of ‘investors’ in Article 1(2)(b). The preamble expresses the Contracting Parties’ intent to ‘intensify economic cooperation to the mutual benefit of both States’ and ‘create and maintain favourable conditions for investment of investors of one State in the territory of the other State’.41

The Tribunal explained that the dispute must both fall within the scope of the parties’ consent expressed in the BIT and satisfy the objective requirements set forth in Article 25 ICSID.42 Instead of moving to the second prong of the socalled double key,43 however, it framed the question in terms of the consistency of Article 1(2)(b) of the BIT with Article 25(2)(b) of the ICSID Convention and held that it must respect the consent expressed by the parties in the BIT ‘unless doing so would allow the Convention to be used for purposes for which it clearly was not intended’.44 It eventually concluded that nothing would justify a departure from the clear literal meaning of the BIT provision as Article 25(2)(b) of the ICSID Convention does not set forth a required method for determining corporate nationality and that it is generally accepted that the nationality of a corporation is determined on the basis of its siège social or place of incorporation.45 The President of the Tribunal harshly dissented on this point. For him, the duty of an ICSID Tribunal is to verify whether the dispute falls within the scope first of the Convention and then, if appropriate, of the relevant investment treaty.

41

para 31. On the literal interpretation of Art 1(2)(b), see above, Ch 4, section I. Tokios v Ukraine, above Ch 1, n 15, Jurisdiction, para 19. See above, Ch 4, section IV. 44 para 39. 45 para 42. 42 43

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He strongly emphasises that the Centre was set to settle international investment disputes, or, in other words, ‘disputes between States and foreign investors. It is because of their international character, and with a view to stimulating private international investment, that these disputes may be settled, if the parties so desire, by an international judicial body.’46 Accordingly, [t]o maintain, as the Decision does, that ‘the origin of the capital is not relevant’ and that ‘the only relevant consideration is whether the Claimant is established under the laws of Lithuania runs counter to the object and purpose of the whole ICSID system … What is decisive in our case is the simple, straightforward, objective fact that the dispute before this ICSID Tribunal is not between the Ukrainian State and a foreign investor but between the Ukrainian State and a Ukrainian investor—and to such a relationship and to such a dispute the ICSID Convention was not meant to apply and does not apply.47

The approach of the majority on the point under discussion is difficult to understand. To start with, it is unclear why the interpretation of Article 1(2) of the BIT should be double checked against the ICSID Convention. The two treaties are related but nonetheless independent, as are the interpretations of their provisions. As a result, BIT provisions must be interpreted in accordance with Articles 31–33 VCLT, taking into account, inter alia, the objects and purpose of the BIT and of its component elements. The same applies to the ICSID Convention. A dispute can be settled by an ICSID tribunal only if it satisfies the doublebarrelled test not only ratione materiae but also ratione personae.48 ICSID Tribunals have therefore to ascertain whether the investment in question falls within the definition of the treaty (or other legal instrument) relied upon by the claimant as well as the scope of the ICSID Convention (which does not provide any definition of investment). They are two different exercises and the interpreter must respect the independence of the two treaties. The order in which the tribunal proceeds is left to its discretion.49 With regard to the Convention, the tribunal needs to verify whether the dispute relates to an investment covered by Article 25 ICSID, which must be interpreted in accordance with Articles 31–33 VCLT. From this perspective, what is relevant is to take into account, inter alia, the objects and purposes of the ICSID Convention and

46

Dissenting opinion, P Weil, para 5. opinion, P Weil, paras 19 and 21. The importance of the object and purpose of the whole Convention was emphasised by G Abi-Saab in his concurring opinion in TSA Spectrum de Argentina SA v Argentina, ICSID ARB/05/5, Award, 19 December 2008, para 18. 48 In KT Asia v Kazakhstan, above Ch 4, n 216, para 111, the Tribunal clearly pointed out that it must determine whether the claimant was an investor ‘within the meaning of the ICSID Convention and the BIT’. In para 121 it further added that the ICSID Convention sets objective outer limits to jurisdiction by requiring nationality, but does not indicate any criteria for nationality. As a result, the contracting parties to investment treaty ‘are free to set the parameters of nationality within these outer limits’, para 121 (footnote omitted). 49 But see P Weil, dissenting opinion, in Tokios v Ukraine, above Ch 1, n 15, Jurisdiction, para 5. 47 Dissenting

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Article 25 itself. In this respect, the dissenting arbitrator has put forward a very powerful argument by maintaining that the object and purpose of the ICSID Convention and, by the same token, of the procedures therein provided for are not the settlement of investment disputes between a State and its own nationals. It is only the international investment that the Convention governs, that is to say, an investment implying a transborder flux of capital.50

This position raises delicate questions concerning the piercing of the corporate veil of companies, which goes beyond the purpose of the present study. What must be emphasised here is the need to rigorously keep the interpretation of the BIT and the ICSID Convention neatly distinct. Each treaty has its own objectives and purposes and must be interpreted accordingly. It is also worth noting that in Tokios v Ukraine the problem lies with the interpretation of the ICSID Convention and more precisely with the definition of ‘foreign investor’ for the purpose of Article 25 of the ICSID Convention.

II. Object(s) and Purpose(s) and the Principle of Effectiveness Teleological considerations based on the object(s) and purpose(s) of a treaty or its constituent parties are related to—but must not be identified with—the principle of effectiveness.51 The principle was clearly enunciated by the Tribunal in Wintershall v Argentina: Nothing is better settled as a common canon of interpretation in all systems of law than that a clause must be so interpreted as to give it a meaning rather than so as to deprive it of meaning. This is simply an application of the wider legal principle of effectiveness which requires favouring an interpretation that gives to every treaty provision an ‘effet utile’.52 50

para 19. relationship between object and purpose of the treaty and the principle of effectiveness is evident in Continental v Argentina, above Ch 3, n 89, Jurisdiction, para 80, when the Tribunal pointed out that ‘[d]isregard of the actual treatment of the company representing the investment, by removing it from the BIT coverage would therefore require a restrictive interpretation of the BIT’s terms contrary to its object and purpose. Such an interpretation would moreover render most of its provisions ineffective and useless for investors, especially those that can be defined … as having made a “direct investment” in and through the local company that they have established or acquired.’ According to M Fitzmaurice, P Merkouris, above Ch 1, n 23, p 180, ‘[t]he principle of effectiveness is therefore a form of teleological interpretation and their role in treaty interpretation is very similar’. 52 Wintershall v Argentina, above Ch 3, n 19, Award, para 165 (footnote omitted). In Noble v Romania, ICSID ARB/01/11, Award, 12 October 2005, para 52, the Tribunal held that ‘while it is not permissible, as is too often done regarding BITs, to interpret clauses exclusively in favour of investors, here such an interpretation is justified. Considering, as pointed out above, that any other interpretation would deprive Art II(2)(c) of practical content, reference has necessarily to be made to the principle of effectiveness.’ See also Eureko BV v Poland (Netherlands/Poland BIT), Partial Award, 19 August 2005, para 248. 51 The

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The principle of effectiveness essentially means that any provision is supposed to have intended to have some significance and to achieve some end. Its application is confined to the discharging of any interpretation that would make the provision to be interpreted meaningless.53 It does not appear in Article 31 as contracting parties shared the view expressed by the ILC that it is implicit through the principles of good faith and the ‘object and purpose’ criteria.54 As explained by the ILC, when a treaty is open to two interpretations one of which does and the other does not enable the treaty to have appropriate effects, good faith and the object and purpose of the treaty demand that the former interpretation should be adopted. Properly limited and applied, the maxim does not call for an ‘extensive’ or ‘liberal’ interpretation in the sense of an interpretation going beyond what is expressed or necessarily to be implied in the terms of the treaty. Accordingly, it did not seem to the Commission that there was any need to include a separate provision on this point.55

Thus, the interpreter must presume that all words or expressions used in a treaty contribute to the definition of the rights and obligations of the parties. In other words, the interpretation that gives some significance to these terms or expressions must prevail to any other interpretation that would make them redundant. From this perspective, ‘[i]t is always a useful exercise when the interpretation of a given provision in the context of a whole instrument is in question, to consider what difference it would make if that provision did not figure in the instrument at all’.56 The reasoning applies to a term or an expression used in a treaty provision.57 In CEMEX Caracas Investments BV and CEMEX Caracas II Investments BV v Bolivia, ICSID Case No ARB/08/15, Jurisdiction, 30 December 2010, para 144, the Tribunal held that ‘this principle does not require that a maximum effect be given to a text. It only excludes interpretations which would render the text meaningless, when a meaningful interpretation is possible’. 53 GG Fitzmaurice, ‘Vae Victis or Woe to the Negotiators! Your Treaty or Our “Interpretation” of It?’ (1971) 65 American Journal of International Law 358, p 373, warns that the principle of effectiveness ‘is all too frequently misunderstood as denoting that agreements should always be given their maximum possible effect, whereas its real object is merely … to prevent them failing altogether. This affords a very good pointer to the limits of a doctrine which, if allowed free play, would result in parties finding themselves saddled with obligation they never intended to enter into, in relation to situations they never contemplated, and which often they could not even have anticipated.’ 54 (1966-II) 18 Yearbook of the International Law Commission 219. 55 (1966-II) 18 Yearbook of the International Law Commission 219. In Navigational Rights (Costa Rica–Nicaragua), above Ch 1, n 10, para 61, the ICJ held that if the term ‘commerce’ used in the treaty between Costa Rica and Nicaragua refers to any activity in pursuit of commercial purposes and includes, inter alia, the transport of passengers, tourists among them, as well as of goods is accepted, ‘the result would be to bring within the ambit of “navigation for the purposes of commerce” all, or virtually all, forms of navigation on the river. If that had been the intent of the parties to the Treaty, it would be difficult to see why they went to the trouble of specifying that the right of free navigation was guaranteed “for the purposes of commerce”, given that this language would have had virtually no effect.’ 56 G Fitzmaurice, separate opinion, in Certain Expenses of the United Nations (Art 27, paragraph 2 of the Charter), Advisory Opinion of 20 July 1962, ICJ Reports 1962, 151, 207. It cannot be postulated that a term or an expression contained in a treaty provision must necessarily have an impact on its meaning; see above, Ch 4, section III. 57 As pointed out by Jennings, Second Opinion in Methanex v United States, above Ch 1, n 55, p 4, available at www.naftaclaims.com/disputes_us_methanex.htm, with regard to Art 1105 NAFTA,

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It presumes that the inclusion of the word or the expression was not accidental and may induce the interpreter to prefer one between the two (or more) plausible interpretations. The usefulness of the exercise is magnified when it concerns the relevance of a block of several words, as in the case in Renta4 v Russian Federation. The Tribunal had to interpret Article 10(1) of the BIT between the Russian Federation and Spain, according to which an arbitral tribunal has jurisdiction over ‘[a]ny dispute between one Party and an investor of the other Party related to the amount or method of payment of the compensation due under [A]rticle 6 of this Agreement’.58 The Tribunal held that [t]he plainest proposition to be derived from Article 10(1) is that it allows arbitration with respect to debates (sic) about the amount or method of such compensation as may be due under Article 6. The difficulty begins precisely once one asks: Who determines whether compensation is indeed ‘due’ under Article 6? … The logical progression seems straightforward. Article 6 establishes that there shall be no expropriation unless it is lawful by reference to criteria set out in that Article. Article 10 gives an investor the right to seek arbitration with respect to ‘[a]ny dispute … relating to the amount or method of payment of the compensation due under Article 6’. The Claimants allege expropriation. Russia denies any obligation under this head. There is therefore a dispute as to whether compensation is ‘due’. The force of this simple proposition is buttressed by the open texture of the introductory words: any disputes … relating to.59

The Tribunal pointed out that its conclusion was not in contradiction with the principle of effectiveness with regard to the eight or eleven words that are included in Article 10(1) between ‘related to’ and ‘Article 6’. The finding is not persuasive. It is argued that the Tribunal did not fully appreciate the importance of the inclusion in the arbitral clause of Article 10(1) of the BIT between Spain and the Russian Federation of no less than eleven words between ‘any dispute … related to’ and ‘Article 6’.60 These words would be useless if the parties intended to express their consent to international arbitration with regard to any dispute on the subject matter of Article 6, namely any dispute on nationalisation or expropriation. The main concern relates to the term ‘due’, which arguably does not receive from the Tribunal the attention it may have deserved. Since the ordinary meaning ‘[o]ne clear and elementary rule of interpretation is that words used in the text to be interpreted are to be assumed to have been used for some purpose and intention. It is not to be assumed, without very clear reasons, that 10 words out of 27 are merely otiose so that presumably the article would have had the same meaning if they had been omitted and only the first 17 words remained.’ He also argued that ‘the 10 words being quite clearly intended to qualify in some way the first 17 words’ of Art 1105(1). 58 English translation apparently accepted by the Parties as consistent with the original and equally authentic Russian and Spanish versions. Article 10: ‘Los conflictos entre una de la Partes y un inversor de la otra Parte relativos à la cuantía o a la forma de pago de la indemnizaciones correspondientes en virtud del artículo 6.º del presente Convenio, serán notificados per escrito, incluyendo une información detallada, por el inversor a la Parte en cuyo territorio se realizó la inversión.’ 59 Renta4 SVSA v Russian Federation, SCC No 24/2007, Jurisdiction, 20 March 2009, paras 27 and 28. 60 See above, Ch 4, section IV.

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of ‘due’ is ‘owed’, Article 10(1) can be interpreted as presupposing the existence of a legal obligation upon the host State to pay compensation under Article 6. The expression ‘due under Article 6’ may be read as requiring, instead of a dispute between the parties as to whether the investor is entitled to compensation, a legal right to obtain such compensation based upon either the acceptance of such an obligation by the host State or a binding decision rendered in favour of the investor. Accordingly, the competence of an arbitral tribunal is limited to disputes concerning how much (the amount) is due to the foreign investor or how (the method) compensation is to be paid, rather than whether compensation is due. The express reference in Article 10(1) to the payment of compensation supports this interpretation. From this perspective, the arbitral tribunal’s jurisdiction is confined to disputes in which the host State recognises or has a legal obligation to pay compensation—or in other words compensation is ‘due’.61 The intimate relation between the object and purpose of a treaty or any relevant provision on the one hand, and the principle of effectiveness on the other hand, is illustrated in the position taken by the Tribunal in Urbaser v Argentina, where emphasis was put on the need to interpret Article X(2) of the BIT between Argentina and Spain in a way that at once is respectful of the rationale of that provision and does not deprive the 18-month rule of any legal significance. The Tribunal found that it has to consider the principle of effectiveness as a complementary focus for the interpretation of this provision. Respondent agrees that the system provided by Article X(2) is not to be compared to a simple ‘waiting period’. Any interpretation must entail a formal submission to the domestic courts so that these tribunals may effectively analyse the dispute. In further analysing the provisions of Article X(3)(a), such domestic proceedings must be of a nature to possibly reach a decision on the substance within 18 months. This provision does not require an adjudication to issue. Yet, a party must be granted an opportunity or a chance to have the court reach an adjudicatory phase, otherwise the entire system would be meaningless.62

The decision is also interesting for its further elaboration on Article X(2). The Tribunal held that the 18 months requirement implies that the host State has an obligation to make sure that the administration of justice by its tribunals is efficient enough to make the application of Article X(2) realistic. Such an obligation has been described by the Tribunal as ‘part of the required effectiveness of the

61 This interpretation is in line with the decision in Berschader v Russian Federation, above Ch 4 n 142, Award, para 152, which the Renta4 Tribunal referred to, but decided not to follow. In Berschader v Russian Federation, the Russian Federation appeared as respondent with regard to a claim arising out of the BIT between the Russian Federation and the Belgium–Luxembourg Economic Union. Art 10(1) of this treaty is similar to Art 10(1) of the BIT between the Russian Federation and Spain, apart from a textual discrepancy: it refers to investor–State disputes concerning the amount or mode of compensation to be paid rather than due under the relevant article on expropriation. 62 Urbaser v Argentina, above Ch 4, n 54, para 135, emphasis as in the original, footnote omitted.

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18 month rule’ and ‘based on the acknowledged principle of good faith’.63 After reviewing the different options available in Argentina, it found that requesting the investor to comply with the 18 month requirement would be ‘useless and unfair’.64 The principle of effectiveness is related to but must be distinguished from the so-called futility exception.65 The former may influence the interpretation of a given provision in the sense that the interpreter is expected to discharge any interpretation that would render the provision to be interpreted meaningless. The search therefore concerns the meaning of the provision as expression of the intention of the parties as recorded in the treaty. The so-called futility exception, on the other hand, relates more to the application of the provision than to its interpretation. The principle operates independently from the VCLT rules on interpretation and only after the meaning of the relevant provision has been established. It is meant to avoid the useless application of provisions whose meaning is clear. In this assessment exercise, tribunals may rely on the evidence submitted by the party invoking the futility exception and the opinion of legal experts. It must be stressed that while the interpretation of a given treaty provision must be the same for all Parties, the application of the said provision to a given State may be affected by the futility exception. Being based on the assessment of the efficiency and reliability of the remedies available in each State, the futility exception may induce a tribunal not to apply the treaty provision to one or some, but not necessarily all the parties to the treaty. In other words, the interpretation of a treaty provision contained in a BIT is the same for both (or all) parties, but the futility exception may justify its non-application to just one (or some) of them. Consider the provision discussed above on the requirement imposed in several BITs upon the foreign investor to litigate before a domestic tribunal for 18 months before resorting to international arbitration. The literal meaning of the provision is clear. The purpose is equally undisputed: offering the host State the possibility to settle the dispute domestically and if appropriate to compensate the wrongful doing or take any other measure to redress it. It is only on condition of compliance with the 18-month period clause that the parties to the treaty have exposed themselves to the risk of being brought before an arbitral tribunal. The clause is part and parcel of the mechanism for the settlement of disputes. Not requiring a claimant to satisfy the 18 months requirement would make part of the relevant provision meaningless and distort the general meaning of the whole provision. Yet, it must be admitted that if submitting the dispute to domestic tribunals in accordance with the 18-month period clause would be an entirely useless exercise, the application of the clause would make no advancement of the objective of the relevant provision. In several disputes, arbitral tribunals had to decide whether

63

ibid, para 148 (emphasis added). ibid, para 202. See G D’Agnone, ‘Recourse to the “Futility Exception” within the ICSID System: Reflections on Recent Developments of the Local Remedies Rule’ (2013) 12 Law & Practice of International Courts and Tribunals 343. 64

65

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it was unrealistic to expect domestic tribunals to deliver any decision within 18 months. Some of them found no obstacle in the relevant provision of the treaty for the exercise of their jurisdiction. In Siemens v Argentina, for instance, the Tribunal held that ‘it would be futile to pursue this dispute in the local courts because it is impossible to obtain a decision of the courts within the 18-month period’.66 From this perspective, the interpreter may consider and weigh the detrimental impact that a literal interpretation may have on the parties’ interests. In Abaclat v Argentina, in particular, the Tribunal held that when the opportunity to effective settle the dispute before domestic tribunals within the 18 months is only theoretical, it would be unfair to deprive the investor of its right to resort to international arbitration on the mere disregard of the 18 months requirement. Under the circumstances, disregarding this requirement would not cause any real harm to the host State while not depriving the investor of an important and efficient dispute settlement means.67 In Wintershall v Argentina, the Tribunal emphasised that Article 10 (2) provides for the submission of the dispute to domestic courts but does not require the delivery of any decision within 18 months. Accordingly, the Tribunal rejected the the contention that it was both futile and discriminatory for the applicant to pursue domestic litigation because domestic courts would not have been able to deliver a decision in such timeframe.68 Leaving aside the futility exception and on a more general level, under Article 31 VCLT the interpreter is not expected to make a subjective assessment on the possible consequences of the application of any given provision or to speculate on the implications of the literal interpretation. The role of the interpreter is rather limited to examine the terms of the treaty and to make sure that their literal interpretation is compatible with the objective the contracting parties intended to pursue in accepting them. Yet, the interpreter is certainly not expected to mechanically and uncritically stick to the text of any given provision. Quite the contrary, Article 31 VCLT provides for a more articulated process in which the text is merely the departing point and requires the interpreter to consider, inter alia, the object and purpose of the treaty and the relevant provision. Even when the text of the relevant p rovision is clear and allows only one interpretation, the literal interpretation must be double checked against such object and purpose. Furthermore, the object and purpose may be decisive in making a choice between different plausible interpretations. It cannot be ruled out that the textual interpretation can be discharged in order to permit the relevant provision to function as intended by the contracting parties.

66

Siemens v Argentina, above Ch 3, n 5, Jurisdiction, para 32. Abaclat v Argentina, above Ch 1, n 15, para 583. 68 Wintershall v Argentina, above Ch 3, n 19, para 196. 67

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From this perspective, the relevance of the objects and purposes of a treaty in the interpretative process can be appreciated from four different perspectives. The object(s) and purpose(s) of the treaty: (a) may confirm or at least be consistent with the literal-contextual interpretation; (b) may induce the interpreter to correct a mistake or an inaccuracy in the text of the treaty; (c) may indicate which of the plausible literal-contextual interpretations best reflect the intention of the parties; and (d) may justify a departure from the literal-contextual interpretation.

III. Object and Purpose to Confirm the Literal-Contextual Interpretation Even when the interpreter is confident with the result obtained through literal and contextual interpretation, it is always a useful exercise, indeed a mandatory one under Article 31(1) VCLT, to double check it against the object(s) and purpose(s) of the treaty and the relevant provisions. Given the broadness which normally characterises the object(s) and purpose(s) of investment treaties, most of the time the interpretation based on literal and contextual consideration makes sense with them. Often arbitral tribunals simply mention such compatibility without much elaboration. In Plama v Bulgaria, for instance, the Tribunal found that the text of Article 17(1) ECT clearly permits the parties to the ECT to deny foreign investors, under certain conditions, advantages contained in Part III and only in Part III (in which Article 17 appears).69 The literal argument, based on the text and the title of Article 17(1) ECT70 as well as on an a contrario argument, was considered as consistent with the object and purpose of Article 17(1). The Tribunal convincingly held that the Parties intended to reserve themselves the right to deny advantages under Part III provided that certain conditions were satisfied. Accordingly, This limited exclusion from Part III for a covered investor, dependent on certain specific criteria, requires a procedure to resolve a dispute as to whether that exclusion applies in any particular case; and the object and purpose of the ECT, in the Tribunal’s view, clearly requires Article 26 to be unaffected by the operation of Article 17(1). As already noted above, for a covered investor, Article 26 is a very important feature of the ECT.71

69

Plama v Bulgaria, above Ch 3, n 52, Jurisdiction, paras 147 ff. The title of Art 17 reads ‘Non-Application of Part III in Certain Circumstances’. 71 Plama v Bulgaria, above Ch 3, n 52, Jurisdiction, para 148, the Tribunal noted that ‘it would have been simple to exclude a class of investors completely from the scope of the ECT as a whole’. 70

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In Wintershall v Argentina, the Tribunal pointed out that the object and purpose of neither the treaty nor the relevant treaty provision warrants a departure from the interpretation based on the ordinary meaning of Article 10(3)(a) of the BIT between Argentina and Germany—which requires foreign investors to litigate for 18 months before a domestic court before resorting to international arbitration in order to grant the investor ‘unrestricted direct access to ICSID’.72 The textual interpretation of Article 10(3)(a) is certainly consistent with the object and purpose of the treaty as a whole. The promotion and protection of foreign investment does not postulate the immediate and direct access to an international tribunal and can be achieved in spite of conditions such as those included in Article 10(3)(a). This is further confirmed by the fact that the exhaustion of local remedies, which is likely to make access to international arbitration much harder than Article 10(3), is a condition required in certain investment treaties and it is considered as entirely compatible with the ICSID convention. In Alps v Slovak Republic, the Tribunal held that for the purpose of Article 1(1)(b) of the BIT between Switzerland and the Czech Republic, which requires that in order to benefit from the protection of the treaty a legal entity must have, inter alia, ‘real economic activities’ in the territory of that same Contracting Party, the term ‘real’ must be understood as ‘actual’, ‘effective’, ‘genuine’, ‘verifiable’, ‘visible’ or ‘tangible’. The consequent exclusion of shell companies imposed by this literal interpretation was supported by teleological consideration related to the object and purpose of the treaty. In the Tribunal’s words, [t]he BIT preamble underlines that the purpose pursued by the two Contracting States was intensifying the economic cooperation to the mutual benefit of both States and fostering their economic prosperity. It is illogic to assume that the above goals could be achieved by giving treaty protection or by attracting into the host country ‘shell’ companies which are unable to establish the kind and level of activities that they conduct in their own State. No State is anxious to promise special guarantees, privileges and protections to investors which bring no benefit to its economy.73

In Kardassopoulos v Georgia, the Tribunal found that the text of Article 45(1) is to be interpreted as obliging a State to apply the whole ECT upon signature as if the treaty had formally entered into force. For the Tribunal, such interpretation was fully consistent with the intention of the contracting parties to make the ECT rapidly applicable between signatories and to achieve the broadest possible participation, while accommodating the needs of recalcitrant parties by safeguarding them against the acceptance of commitments inconsistent with their

72 Wintershall v Argentina, above Ch 3, n 19, para 154–55. In para 94, the Tribunal deemed not relevant ‘to consider the Claimant’s contention that the requirement to submit the claim first to local courts is merely a procedural matter that would lead to inefficiency in the proceeding and inequity among the parties, thus defeating the object and purpose of the Treaty’. 73 Alps v Czech Republic, above Ch 3, n 93, para 226.

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domestic law.74 This is clearly confirmed by the preamble of the treaty, which proclaims the intention of the contracting parties ‘[t]o implement and broaden their co-operation as soon as possible by negotiating in good faith an Energy Charter Treaty and Protocols, and desiring to place the commitments contained in that Charter on a secure and binding international legal basis’.75

IV. Object and Purpose to Correct Textual Mistakes or Inaccuracies The object and purpose of the treaty or of its relevant provisions may also allow the interpreter to detect and correct textual errors or inaccuracies. In American Manufacturing v Zaire, the Tribunal had to interpret Article IX (Preservation of rights) of the BIT between the United States and Zaire (now Democratic Republic of the Congo), which reads: This Treaty shall not supersede, prejudice, or otherwise derogate from: (a) laws and regulations, administrative practices or procedures, or adjudicatory decisions of either Party; (b) international legal obligations; or (c) obligations assumed by either Party, including those contained in an investment agreement or an investment authorization, whether extant at the time of entry into force of this Treaty or thereafter, that entitle investments, or associated activities, of nationals or companies of the other Party to treatment more favorable than that accorded by this Treaty in like situations.

The Tribunal rejected without hesitation the respondent interpretation, according to which Article IX and in particular letter (a) domestic legislation cannot be derogated by the treaty. For the Tribunal, The manner in which Article IX of the Treaty is formatted could mislead any reader and could entail an interpretation not in conformity with the object and purpose of the provision in question. Such interpretation would lead to an absurd and unacceptable fact. A careful reading, consistent with the title of the Article, clearly shows that a typographical error has tempted us to join the part of the Article starting with ‘Whether extant …’ to paragraph (c) only, whereas … the end of paragraph (c) concerns points (a), (b) and (c), and has no other object but to preserve the treatments which would remain more favourable than those resulting from the Treaty.76

74

Kardassopoulos v Georgia, above Ch 4, n 292, Jurisdiction, para 214. Italics added. 76 American Manufacturing & Trading, Inc v Zaire, ICSID ARB/93/1, Award, 21 February 1997, para 5.36. 75

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Consider also Article 14(2) of the BIT between Italy and Slovenia and assume, for the sake of argument, that the treaty has been concluded only in Italian.77 Article 14(2), dealing with unilateral denunciation, states that Questo Accordo rimarrà in vigore per un periodo di 10 anni e rimarrà in forza per un ulteriore periodo di 5 anni successivi, a meno che le due Parti Contraenti decidano di denunciarlo non prima di un anno prima della sua data di scadenza.

According to the ordinary meaning of the text, the parties are allowed to denounce the treaty only during the year before the expiry of the relevant period. The literal text and the meaning of the words ‘non prima’ (not before) are unequivocal. Yet, such an interpretation would be contrary and indeed opposite to the object and purpose of Article 14. The temporal clause contained in Article 14(2) is intended to provide a notice period in order to reduce the unpredictability of unilateral denunciation and reduce its impact upon the legal protection of foreign investors. The interpreter should therefore read Article 14(2) as excluding the exercise of the right to unilaterally denounce the treaty in the 12 months before the expiry of the relevant period.

V. Object(s) and Purpose(s) as ‘Tiebreaker’ Resorting to the object and purpose of a provision may be decisive when two or more diverging interpretations are plausible. Wena v Egypt is a case in point.78 The applicant was a company incorporated in the United Kingdom but controlled by nationals of Egypt. The relevant part of Article 8(1) of the BIT between the United Kingdom and Egypt reads: Such a company of one Contracting Party in which before a dispute arise a majority of shares are owned by nationals or companies of the other Contracting Party shall in accordance with Article 25(2)(b) of the [ICSID] Convention be treated for the purpose of the Convention as a company of the other Contracting Party.

In challenging the Tribunal’s jurisdiction, Egypt argued that Article 8(1) reverses the nationality of a company and makes it dependent on control rather than incorporation even in the case of a company controlled by nationals of the host State in the other contracting party. The applicant, on the contrary, maintained

77 As a matter of fact, the treaty has been concluded in Italian, Slovenian and English, the latter language prevailing in case of divergences. The English text of Art 14(2) reads: ‘This Agreement shall remain effective for a period of 10 years and shall remain in force for further periods of 5 years thereafter, unless either of the two Contracting Parties decides to denounce it not later than one year before its expiry date.’ 78 Wena v Egypt, above Ch 2, n 10, Jurisdiction, 25 May 1999 (2002) 41 International Legal Materials 881.

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that Article 8(1) applies exclusively to companies incorporated in the host State but controlled by nationals of the other contracting party. After admitting that both interpretations are plausible and heavily relying on concordant literature, the Tribunal upheld the interpretation submitted by the applicant since provisions like Article 8(1) or Article 25(2)(b) ICSID purports to expand the normal ICSID jurisdiction. The object of these provisions, in other words, was to ensure access to ICSID in the ‘rather common situation’ in which a host government requires foreign investors to channel their investments through a locally incorporated entity.79 This interpretation was approved in Tokios v Ukraine. The majority of the Tribunal found that ‘[t]he use of a control-test to define the nationality of a corporation to restrict the jurisdiction of the Centre would be inconsistent with the object and purpose of Article 25(2)(b)’.80

VI. Object and Purpose Justifying a Departure from the Literal-Contextual Interpretation Much more complex is the case of inconsistencies between the literal interpretation and the object and purpose of the treaty or its provisions. The expression ‘in the light’ used in Article 31(1) VCLT may induce parties to assume that the interpretation based on the text and the context is compatible or can be accommodated to the object(s) and purpose(s) of the treaty. This cannot be taken for granted and the interpreter may realise that the interpretation based on literal and contextual analysis is irreconcilable with the object and purpose of the treaty. Tribunals have taken different views on the possible impact of the object(s) and purpose(s) of a treaty upon literal interpretation of any given provision. At one end of the spectrum, a Tribunal displayed the greatest prudence and held that ‘the objectives of the NAFTA may cast light on a specific interpretive issue but cannot override and supersede a particular provision’.81 Other tribunals have taken a rather bald approach. In Plama, in particular, the Tribunal found that the literal meaning of Article 17 ECT was unambiguous and nonetheless prospected—and eventually rejected—the possibility of a ‘manipulation’ of such meaning in the light of the ECT object and purpose.82 79 ibid, 887–89. In Caratube International Oil Company LLP v Kazakhstan, ICSID ARB/08/12, Award, 5 June 2012, para 335, the Tribunal pointed out that ‘[t]he wording of Article 25(2)(b) is a result of a compromise. This provision was introduced to prevent the exclusion from the ambit of the Convention of situations of foreign investors carrying out their business through a company organised under the laws of the host State’ (footnote omitted). 80 para 46. 81 Canfor v United States, above Ch 3, n 115, Preliminary Question, para 233. In literature, see in particular RK Gardiner, above Ch 1, n 10, pp 215 ff. 82 Plama v Bulgaria, above Ch 3, n 52, Jurisdiction, para 147.

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Both approaches are questionable. The first introduces a rigid hierarchy which is extraneous to Article 31(1) and would put the interpreter in a rather uncomfortable position should it be evident that the literal interpretation runs against the object(s) and purpose(s) of the treaty. However flexible the expression ‘in the light of ’ used in Article 31(1) can be, taking into account in good faith the object(s) and purpose(s) of the treaty means that the literal interpretation, far from being the final outcome of the process, is exposed to corrections based on compelling teleological considerations. The second approach is equally unconvincing. The use of a verb with such a negative connotation as ‘to manipulate’ is certainly not felicitous. More importantly, the argument would have been more linear and persuasive had the Tribunal referred to the need to consider the object(s) and purpose(s) of the treaties and its relevant provisions as well as to weigh them against textual argument in search of the meaning to attach to the relevant terms, without excluding the possibility of a departure from the literal interpretation due to compelling teleological considerations. What a Tribunal should carefully avoid is to resort to a teleological approach to overturn the clear literal meaning of a treaty. It is not for the Tribunal to depart from such meaning in order to accomplish through a teleological interpretation or by resorting to principles of equity or fairness what the contracting parties refrained from accomplishing.83 The interpreter must use the greatest prudence in considering the object and purpose of the treaty. An ICSID tribunal has emphasised the importance for the interpreter not to distort the textual meaning of the treaty as a result of teleological considerations. It found that the parties were anxious to encourage investment, which was the raison d’être of the treaty. But while a treaty should be interpreted in the light of its objects and purposes, it would be a violation of all the canons of interpretation to pretend to use its objects and purposes, which are, by their nature, a deduction on the part of the interpreter, to nullify four explicit provisions. Plainly, as indicated by these four provisions, economic transactions undertaken by a national of one of the parties to the BIT had to meet certain legal requirements of the host state in order to qualify as an ‘investment’ and fall under the Treaty.84

An interesting example of how investment tribunals have dealt with the perceived tension between the text of a treaty provision on the one hand, and the object and purpose of the treaty and the provision on the other hand, is the interpretation

83 In the context of the law applicable to State contract, R Higgins, Problems and Process: International Law and How We Use It, Oxford: Clarendon Press, 1994, p 141, notes that ‘[t]he best way to avoid sole reliance on domestic law is … by having a governing law clause that introduces international law. If, in the bargaining process, the private party has been unable to accomplish this, it seems doubtful that international arbitrators should remedy that which one of the negotiating party was unable to achieve’. 84 Fraport v Philippines, above Ch 3, n 96, para 340. In the annulment decision, para 103, the Committee noted that ‘the Tribunal was certainly aware of the limits of relying on the object and purpose’.

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of Article 47 of the ICSID Convention, as elaborated in Rule 39 of the Arbitration Rules. Under Article 47 ICSID, a tribunal ‘may, if it considers the circumstances so require, recommend any provisional measures which should be taken to preserve the respective interests of either party’ (italics added), whereas under Article 39 of the Arbitral Rules, ‘a party may request that provisional measures for the preservation of its rights be recommended by the Tribunal. The request shall specify the rights to be preserved, the measures the recommendation of which is requested, and the circumstances that require such measures’ (italics added).85 All tribunals that have dealt with this issue have held that under Article 47 of the ICSID Convention, tribunals have been conferred the power to impose upon the parties the adoption of provisional measures. The main argument focused primarily on the text of Rule 39 of the Arbitral Rules in combination with teleological considerations. In the first decision on the issue, the Tribunal acknowledged that Rule 39 uses the verb ‘to recommend’ instead of ‘to order’ which appears in other Rules. It nonetheless doubted that the parties to the treaty ‘meant to create a substantial difference in the effect of these words’. It then held that the authority of an ICSID tribunal to rule on provisional measures is as binding as a final award and accordingly the verbs ‘to recommend’ and ‘to order’ are to be considered as equivalent.86 The argument was then further elaborated by holding that without the power to impose provisional measures a tribunal may be prevented from fully discharging its duties.87 In City Oriente v Ecuador, the Tribunal maintained the focus on Rule 39 and opined that regardless of the semantic discussion, a teleological interpretation of both provisions leads to the conclusion that the provisional measures recommended are necessarily binding. The Tribunal may only order such measures if their adoption is necessary to preserve the rights of the parties and guarantee that the award will fulfill its purpose of providing effective judicial protection.88 Such goals may only be reached if the measures are binding, and they share the exact same binding nature as the final arbitral award. Therefore, it is the Tribunal’s conclusion that the word ‘recommend’ is equal in value to the word ‘order’, 85

For the French and Spanish texts, see below, Ch 11, section II. Maffezini v Spain, above Ch 4, n 141, Procedural Order 2, 28 October 1999, para 9. 87 In Spyridon v Romania, above Ch 3, n 5, Provisional Measures, 22 July 2008, para 21, not public. According to a quote in AFM Maniruzzaman, ‘Interim Measures of Protection in International Investment Arbitration: Challenge to State Sovereignty’, in D Ziyaeva (ed), Interim and Emergency Relief in International Arbitration—International Law Institute Series on International Law, Arbitration and Practice (Huntington, NY: Juris Publishing, 2015) 183, the Tribunal found that ‘[f]rom a substantive point of view, the difference between a recommendation and an order is mainly a question of terminology. Actually, no substantive distinction can be found in the nature of provisional measures granted by a recommendation or an order. Even where named recommendation, a decision on provisional measures is substantially binding because the measures awarded are considered by the Tribunal necessary and urgent for preserving the rights of the requesting party and, in certain cases, allowing the meaningful or economic enforcement of the final award. It is only if provisional measures are effective that they can achieve their purpose with respect to the outcome of the proceedings.’ 88 City Oriente Ltd v Ecuador and Empresa Estatal de Petróleos del Ecuador, ICSID ARB/06/21, Provisional Measures, 19 November 2007, para 52. In the following paragraph, the Tribunal held, in a rather surprising and unconvincing manner, that ‘[i]n any event, whatever the meaning ascribed to such words, a failure to comply with orders given to Respondents by the Tribunal in accordance with Article 47 of the Convention will entail a violation of Article 26 thereof, and engage Respondents’ liability’. 86

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Other tribunals borrowed the teleological considerations offered by the ICJ in LaGrand in relation to the interpretation of Article 41 of the ICJ Statute. According to the ICJ, [i]t follows from the object and purpose of the Statute, as well as from the terms of Article 41 when read in their context, that the power to indicate provisional measures entails that such measures should be binding, inasmuch as the power in question is based on the necessity, when the circumstances cal1 for it, to safeguard, and to avoid prejudice to, the rights of the parties as determined by the final judgment of the Court. The contention that provisional measures indicated under Article 41 might not be binding would be contrary to the object and purpose of that Article.89

Several tribunals, starting with Pey Casado v Chile,90 have shared the reasoning developed by the ICJ with regard to Article 41 of the ICJ Statute and found that it applies to Article 47 ICSID, in spite of the terminological differences of the two provisions. In Perenco v Ecuador, in particular, the Tribunal included in the equation also the term ‘request’, which appears in Rule 39 ICSID and concluded that [t]he parallels between ‘recommend’ in the ICSID Convention and ‘indicate’ in the ICJ Statute are quite clear, suggesting that one cannot rightly assume that a ‘request’ is comparatively weaker than a ‘recommendation’, or that neither is binding.91

The argument further relies on the ICSID Commentary to the Arbitration Rules, according to which Article 47 is based on the principle that once a dispute is submitted to arbitration the parties should not take steps that might aggravate or extend their dispute or prejudice the execution of the award.92 They concluded that provisional measures are particularly or primarily intended to preserve or protect the effectiveness of the decision on the merits and its execution, as well as to prevent a party from unilaterally impairing the rights of the other party.93 The point was further developed in Perenco v Ecuador. The Tribunal held that [i]rrespective of the precise terminology used, the Tribunal’s efforts to effectuate its mandate under a treaty by prevailing on the parties to maintain the status quo in the case before it are binding on the parties pursuant to their obligations under said treaty … In becoming a Party to a treaty such as the ICSID Convention … a State confers upon an arbitral tribunal jurisdiction over certain claims and assumes an obligation to take whatever steps might be necessary to comply with decisions rendered by the tribunal pursuant to the treaty. So long as and to the extent that the arbitration is in progress, both parties are under an international obligation to comply with whatever the tribunal

89

LaGrand, above Ch 1, n 10, para 102. Pey Casado v Chile, above Ch 4, n 222, Provisional Measures, 25 September 2001, paras 19–20. Perenco Ecuador Ltd v Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador), ICSID ARB/08/6, Provisional Measures, 8 May 2009, para 69 in fine. See also Occidental v Ecuador, above Ch 4, n 41, Provisional Measures, para 58; City Oriente Limited v Ecuador, above n 88, para 393; Burlington Resources Inc v Ecuador, ICSID ARB/08/5, Provisional Measures, 29 June 2009, paras 62 ff; Quiborax v Bolivia, above Ch 4, n 216, para 108. 92 para 24. 93 para 26. 90 91

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issues as provisional measures for the purpose of protecting its jurisdiction and its ability, should it so decide, to grant the relief requested. State Parties to the ICSID Convention thus inherently are under an international obligation to comply with provisional measures issued by an ICSID tribunal.94

It is argued that the interpretation of Article 47 in the sense of allowing ICSID tribunals to impose mandatory measures is unconvincing. Leaving aside the questionable focus on Article 39 of the ICSID Arbitral Rules, neither the belief that the parties to the Convention did not intend to create any substantial difference by using ‘to recommend’ instead of ‘to order’, nor the finding that a tribunal can discharge its duties only if empowered to impose provisional measures, is compelling.95 The literal argument against the mandatory character of provisional measures based on the ordinary meaning of ‘to recommend’ as opposed to ‘to order’ is quite solid and can be dismissed only by powerful counter-arguments. The clarity of the text has induced an arbitrator—apparently expressing a solitary opinion—to conclude that ‘[n]o matter how many times it is repeated, an order is not a recommendation. Only in the jurisprudence of an imaginary Wonderland would this make sense’.96 The equivalence of the two verbs is a possible argument but the Tribunal must demonstrate—as opposed to postulate—that the important semantic difference (ordinary meaning) can be discharged due to the importance of other elements of the interpretative process, including the object and purpose of the treaty and of Article 47. Although it is certainly correct to emphasise the importance and the purpose of provisional measures, a tribunal must interpret Article 47 of the ICSID Convention and Rule 39 in accordance with Articles 31–33 VCLT. It is only by carefully considering and balancing all elements of the VCLT rules on interpretation that the interpreter fulfils his tasks. In this case, the major challenge for the 94 Perenco v Ecuador, above n 91, Provisional Measures, paras 66 and 67. In the same vein, in Burlington v Ecuador, above n 91, para 66, the Tribunal held that ‘by ratifying the ICSID Convention, Ecuador has accepted that an ICSID tribunal may order measures on a provisional basis, even in a situation which may entail some interference with sovereign powers and enforcement duties’. For other decisions uphelding the power of ICSID Tribunal to order provisional measures, see below Ch 7, n 72. In Phoenix Action, Ltd v Czech Republic, above Ch 3, n 42, Provisional measures, April 2007, paras 29–30, the Tribunal referred only to its authority of the Tribunal to recommend provisional measures under Art 47 ICSID. 95 Maffezini v Spain, above Ch 4, n 141, Procedural Order, para 9. 96 Dissenting opinion of E Nottingham, in RSM Production Corporation v Saint Lucia, ICSID ARB/12/10, Request for Security for Costs, 13 August 2014, para 16. It is also worth noting that provisions allowing arbitral tribunal to ‘order’ provisional measures are not unknown in investment treaties, see, eg, Art 69.17 of the Investment Chapter of the Agreement between Japan and Indonesia for an Economic Partnership. This kind of provision may offer arbitral tribunals the possibility of developing an a contrario argument. It is also worthwhile to note that Art 8.34: Interim Measures of Protection of CETA (not in force yet) reads: ‘A Tribunal may order an interim measure of protection to preserve the rights of a disputing party or to ensure that the Tribunal’s jurisdiction is made fully effective, including an order to preserve evidence in the possession or control of a disputing party or to protect the Tribunal’s jurisdiction … For the purposes of this Article, an order includes a recommendation’ (italics added).

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Tribunal would have probably been to weight the text, which offers a strong literal argument in favour of the non-mandatory nature of the provisional measures, and teleological consideration related to the function of the tribunal and the effectiveness of the arbitral proceedings, which may call for opposite interpretation. With regard to the relevance of the LaGrand decision, tribunals acknowledged—but almost completely overlooked—the significant differences between the texts of Article 47 of the ICSID Convention and Article 41 of the ICJ Statute. The former consistently and in all authentic languages uses the verb ‘to recommend’, whereas the latter employs, in the English, Spanish and French texts, the verb ‘to indicate’. The importance of the difference must not be underestimated since the use of ‘to recommend’ in Article 47 of the ICSID Convention reflects a deliberate choice made by the contracting parties, which were well aware of the text of Article 41 of the ICJ Statute. Yet, investment tribunals eventually refrained from engaging in a full interpretative process of Article 47 of the ICSID Convention in favour of an uncritical acceptance of the ICJ interpretation of Article 41 of the ICJ Statute.97 Whatever the assessment of the ICJ decision in LaGrand98 and of the subsequent ICJ jurisprudence and reaction by States,99 it is argued that an investment tribunal is certainly entitled to take into account relevant decisions by other international tribunals—including obviously the ICJ—but cannot simply abdicate its responsibility to interpreter and apply the legal instruments its competence is based upon. The risks to deform the intention of the parties to the ICSID Convention, as it was recorded in the text of Article 47, can be avoided only by looking at decisions like a source of inspiration and by rigorously double-checking whether the legal argument developed by the ICJ can be extended to the ICSID system.

97 In Perenco v Ecuador, above n 91, para 68, the Tribunal further emphasised the importance of the decision by a mere (indirect) reference to the comment on the legislative history of Art 41 of the PCIJ Statute made by an author writing in 1943 that the change from the verb ‘to suggest’ to ‘to indicate’ during the negotiations on Art 41 of the PCIJ Statute—then ICJ Statute—‘may have been due to a certain timidity of the draftsmen and … is no less definite than the term “order” would have been, and it would seem to have as much effect’ (MO Hudson, The Permanent Court of International Justice: A Treatise (New York: Macmillan, 1943) p 415, as quoted in T Elias, The International Court of Justice and Some Contemporary Problems (The Hague: Nijhoff, 1983) 78–79). The argument is particularly weak, especially considering that the preparatory work on Art 41 shows ‘deep ambiguity’, see R Kolb, The International Court of Justice (Oxford: Hart Publishing, 2013) 639. 98 According to H Thirlway, ‘The Law and Procedure of the International Court of Justice, 1960– 1989’ (Part Twelve), 72 BYIL (2001) 37, p 126, for instance, the decision in LaGrand that provisional measures are legally binding ‘will perhaps be hailed as a progressive step in the system of international judicial jurisdiction. On the contrary, it is submitted that it could well prove to have been a disaster for that system.’ In literature see also, in particular, C Tams, M Memmecke, ‘The LaGrand Case’ (2002) 51 International & Comparative Law Quarterly 449; J Kammerhofer, ‘The Binding Nature of Provisional Measures of the International Court of Justice—The LaGrand Case’, 16 Leiden Journal of International Law (2003) 67; R Sloane, ‘Measures Necessary to Ensure: The ICJ’s Provisional Measures Order in Avena and Other Mexican Nationals’ (2004) 17 Leiden Journal of International Law 673; R Kolb, ‘Note on the New International Case-Law Concerning the Binding Character of Provisional Measures’ (2005) 74 Nordic Journal of International Law 117. 99 See R Kolb, above n 97, esp pp 638–50.

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Caution must be even greater when the decision relied upon is considered an innovative one, even if the court decides unanimously or with an overwhelming majority.100 With regard to the well-established principle that the parties to the dispute have to abstain from taking any measures susceptible to aggravate the dispute or, if appropriate, to hamper the execution of the award, as stressed in the ICSID Commentary, the principle alone does not postulate the power of an arbitral tribunal to order mandatory provisional measures. The existence of such obligation and the legal nature decision of an ICSID tribunal on provisional measures are two different questions. The parties to a dispute must comply with the obligations stemming from the principle independently from the powers conferred to the tribunal or their exercise.101 These considerations are without prejudice to the possibility of an informal modification of Article 47 ICSID through subsequent practice.102

100 As pointed out by R Kolb, above n 97, p 644, there was prior to 2001 a ‘profound divergence in the views of authoritative commentators’ as to whether provisional measures are binding. 101 In Churchill Mining Plc and Planet Mining Pty Ltd v Indonesia, ICSID ARB/12/14 and 12/40, Provisional Measures, 4 March 2013, para 57, the Tribunal held that ‘[w]hile the request for provisional measures must be denied, the Tribunal reminds the Parties of their general duty, which arises from the principle of good faith, not to take any action that may aggravate the dispute or affect the integrity of the arbitration’. 102 See below, Ch 7, Section V.

7 Subsequent Agreements and Subsequent Practice I. Meaning of ‘Taking into Account’ for the Purpose of Article 31(3) VCLT Under Article 31(3)(a)–(c), the interpreter must take into account the subsequent agreements between the parties regarding the interpretation of the treaty and their subsequent practice in application of the treaty that establishes their agreement on its interpretation, as well as any relevant rules of international law applicable to the parties. A distinction must be introduced from the outset between, on the one hand, subsequent agreements and subsequent practice; and, on the other hand, other rules of international law. The first two subparagraphs are manifestations of the intention of the parties—or at least of the parties as a whole—to interpret the treaty in any given way, either through an agreement or their conduct. These manifestations, which occur after the conclusion of the treaty, must be respected by the interpreter. As pointed out in HICEE v Slovak Republic, the common feature of Article 31(3)(a) and (b) is that both refer to processes that amount to a form of agreement between the treaty parties. In sub-paragraph (a) the agreement is ex hypothesi conscious and express, in sub-paragraph (b) it arises by implication from the parties’ action. A further common feature is that the agreement in both cases is ‘subsequent’, which must in this context mean that it supervenes after the conclusion of the treaty itself.1

The distinction between the first two subparagraphs of Article 31(3) VCLT is a matter of form rather than substance,2 and that there is an ‘evidentiary continuum’

1

HICEE v Slovak Republic, above Ch 1, n 35, Partial Award, para 134. Nolte, ‘Introductory Report for the ILC Study Group on Treaties over Time’, in G Nolte (ed), Treaties and Subsequent Practice (Oxford: OUP, 2013) 169, 173 notes that the ILC did not intend the distinction between Art 31(3)(a) and (b) ‘to denote a difference concerning their possible substantive effects’. 2 G

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between the two as for all practical purposes the crux of the matter remains the existence of an agreement between the parties, whatever form if takes.3 The third subparagraph of Article 31(3) VCLT, conversely, aims to integrate the treaty into the international legal order in a systemic perspective. These rules are presumably binding for a larger group of States and can be taken into account as from the moment the treaty enters into force. Article 31(3) requires that all the three elements—namely subsequent agreements, subsequent practice and any other relevant rule—are taken into account. The expression ‘taking into account’ used in Article 31(3) VCLT lacks precision and does not clearly indicate the role of the three elements in the interpretative process. An investment tribunal has recently distinguished, on the one hand, subsequent agreements reached on the basis of a specific provision contained in the relevant treaty (described as lex specialis)—such as the note on interpretation adopted by the NAFTA FTC under Article 1131(2) NAFTA—and, on the other hand, subsequent agreements reached without such a provision. For the Tribunal, only the agreements of the first category are legally binding for the interpreter. Those falling into the second category, on the other hand, are governed by the VCLT and meant only to be taken into account. In the Tribunal’s words, [u]nder the general rule on interpretation set out in the Vienna Convention, a NAFTA tribunal would only need to ‘take into account’ the subsequent agreement. However, by virtue of NAFTA Article 1131(2), acts of authentic interpretation by the States parties to the Agreement, like the Notes just referred to, are binding and conclusive.4

The distinction is not convincing. It seems to imply that the agreements falling into the first category are governed by the relevant treaty provision in derogation of the VCLT. It would be more accurate to say that provisions such as Article 1131 NAFTA provide specific institutional arrangements for the purpose of reaching a subsequent agreement under Article 31(3)(a) VCLT. Second, since it is undisputed that no particular formality is required for the conclusion of subsequent agreements, there is no reason why the legal effects of an agreement would depend on whether or not it has been concluded on the basis of a specific treaty provision. Third, the Tribunal refrains from explaining the meaning of ‘only taking into account’, although the reader may guess that it is something short of being binding for the interpreter. Again, nothing in Article 31(3) justifies the existence of two legal categories.

3 R Moloo, ‘When Actions Speak Louder Than Words: The Relevance of Subsequent Party Conduct to Treaty Interpretation (2013) 31 Berkeley Journal of International Law 39, 57. See also A Orakhelashvili, ‘Principles of Treaty Interpretation in the NAFTA Arbitral Award on Canadian Cattlemen’ (2009) 26 Journal of International Arbitration 159. 4 William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware Inc v Government of Canada, UNCITRAL, PCA Case No 2009-04, Jurisdiction and Liability, 17 March 2015, para 430 (footnote omitted).

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It is argued that all subsequent agreements between the parties are governed by the VCLT and are legally binding for the interpreter as they amount to the authentic interpretation of any given term, expression or provision. In other words, they disclose what the parties intended to record in the text of the treaty. Since this is precisely the ultimate purpose of interpretation, it follows that the interpreter must respect such an agreement. Whether the relevant treaty contains any provision on subsequent agreements is immaterial: the subsequent agreement is legally binding. This is clearly the position of the ILC, according to whom it is well settled that when an agreement as to the interpretation of a provision is established as having been reached before or at the time of the conclusion of the treaty, it is to be regarded as forming part of the treaty … an agreement as to the interpretation of a provision reached after the conclusion of the treaty represents an authentic interpretation by the parties which must be read into the treaty for purposes of its interpretation.5

The ILC found it appropriate to clarify, with regard to Article 31(3)(a), that, in spite of a certain appearance of conflict with the primacy given to the ordinary meaning, subsequent agreements on the interpretation of the treaty are to be considered ‘on the same level as the “context” and to indicate that an interpretative agreement is to be taken into account as if it were part of the treaty’.6 The last part of the sentence leaves no doubt as to the binding character of subsequent agreements. Importantly, this position has been quoted with approval by the ICJ7 and investment tribunals such as Methanex v United States.8 Since subsequent agreements are part of the treaty, the interpreter must respect them—not only take them into account. Even more, the interpreter is expected to examine them from the very beginning of the interpretative process. When setting the focus of the textual analysis, the interpreter must logically consider the relevant treaty provision alongside subsequent agreements, if any. Indeed, it would be illogical and highly ineffective to establish the ordinary meaning of any given provision under Article 31(1) VCLT and then to start the operation again with regard to the subsequent agreement. This confirms once again the flexibility of Article 31 VCLT. That the interpreter is legally bound to respect any subsequent agreement does not equate to the mechanical adoption under any circumstances of the interpretation contained in the agreement. A more prudent approach would be to put the subsequent agreement in the ‘crucible’ of all elements of the interpretative process. The authentic interpretation shared by the parties in the subsequent agreement is most likely to be upheld by the interpreter. Such conclusion, however, cannot

5

(1966-II) 18 Yearbook of the International Law Commission 221 (emphasis added). (1966-II) 18 Yearbook of the International Law Commission 95. 7 Kasikili/Sedudu Island, above Ch 1, n 10, Judgment, para 49. 8 Methanex v United States, above Ch 1, n 55, Award, Part II, Chapter B, para 19. 6

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be framed in categorical terms, since at least theoretically other considerations— relating in particular to subsequent and more recent practice, the evolution of international rules for the purpose of Article 31(3)(c), or the emergence of rules of jus cogens—may have a decisive impact on the interpretation of the treaty. Being legally binding in this respect, in other words, means that the interpreter must adopt the interpretation that emerges from the analysis of the text of the treaty and of the subsequent agreements, if any, provided that it is consistent with all other elements of the process. If it is not the case, assessing the relative weight of all relevant elements in search of the meaning the parties intended to record in the treaty becomes unavoidable. The conclusion that the interpreter is legally bound to respect subsequent agreements can be safely be extended to subsequent practice.9 The ILC maintained that the subsequent practice of the parties as a whole—and not necessarily all of them—‘constitute[s] objective evidence of the understanding of the parties as to the meaning of the treaty’. Subsequent practice establishes the understanding of the parties regarding the interpretation of a treaty and therefore is to be considered as an ‘authentic means of interpretation alongside interpretative agreements’.10 If the above analysis is correct, it remains to explore why the ILC and the States participating in the Vienna Conference decided to use an expression as vague as ‘taking into account’. The choice of the expression ‘taking into account’ can be explained by the structure of Article 31(3), which also includes ‘any other rule of international law’. Contrary to the first two sub-paragraphs of Article 31(3), Article 31(3)(c) brings into the interpretative process rules extraneous to the treaty. The use of the expression ‘taking into account’ with regard to Article 31(3)(c) VCLT will be discussed later in this chapter (section V).

II. Subsequent Agreements under Article 31(3)(a) VCLT Being the authentic interpretation by the parties, subsequent agreements must be read into the treaty for the purpose of interpretation.11 It must be emphasised that subsequent agreements definitely refer to agreements between the Parties to a 9 According to G Fitzmaurice, ‘The Law and Procedure of the International Court of Justice 1951–4: Treaty Interpretation and Other Treaty Points’ (1958) 33 British Yearbook of International Law 203, 223 maintained that consistent subsequent State practice ‘must come very near to being conclusive as to how the treaty should be interpreted’. 10 (1966-II) 18 Yearbook of the International Law Commission 222. 11 See above, section I. In HICEE v Slovakia, above Ch 1, n 35, Partial Award, para 135, the Tribunal persuasively refused to consider an explanatory note prepared by the Dutch Government in the process of ratification of the treaty for the purpose of Art 31(3)(a) VCLT as it was not issued after the conclusion of the treaty. On the relevance of the explanatory note as supplementary means under Art 32 VCLT see below, Ch 10, section II.

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treaty on the interpretation of the provisions of that specific treaty. In this respect the position of the Tribunal in Caratube International v Kazakhstan is not clear. The Tribunal interpreted Article 25(2)(b) of the ICSID Convention in a dispute on alleged violations of the BIT between the United States and Kazakhstan. Under Article VI(8) of the BIT, any company legally constituted under the legislation of the host State that immediately before the occurrence of the alleged violations was an investment of nationals or companies of the other Party, shall be treated as a national or company of such other Party in accordance with Article 25(2)(b) of the ICSID Convention. The Tribunal held that Article VI (8) of the BIT contains the decision of Kazakhstan and the United States to allow application of Article 25(2)(b) to disputes arising out of the BIT. However, Article VI(8) contains more than that. It spells out conditions of application of Article 25(2)(b) to disputes based on the BIT. In Article VI(8) of the BIT, Kazakhstan and the United States exercise their discretion, as parties to the ICSID Convention, to agree on the Convention’s interpretation or application in a particular area of their bilateral relations. Such agreements are allowed, as long as they do not contradict the meaning of the treaty to which they pertain. The Tribunal is obliged to take any such subsequent agreement between the parties into account, to the same extent as the treaty’s context.12

The characterisation of Article VI(8) of the BIT as subsequent agreement for the purpose of interpreting Article 25(2)(b) of the ICSID Convention is far from being convincing. The parties to the subsequent agreement must coincide with those of the treaty to be interpreted. The party to an investment treaty cannot agree on the interpretation or application of a multilateral treaty—the ICSID Convention—in a particular area of their bilateral relations. Article VI(8) of the BIT and Article 25(2)(b) of the ICSID Convention belong to two related but independent treaties—one multilateral, the other bilateral—and must be interpreted as such. By inserting in the BIT Article VI(8), the United States and Kazakhstan have not agreed on any interpretation of Article 25(2)(b) of the ICSID Convention but simply developed the definition of ‘investor’ for the purpose of the treaty in accordance with Article 25(2)(b) of the ICSID Convention. This occurred at the conclusion of the treaty and there is no trace of subsequent agreements either with regard to the BIT or—even less—to the ICSID Convention. Incidentally, it must be noted that Article VI(8) of the BIT applies to all arbitral proceedings indicated in Article VI(3) of the BIT, namely ICSID, UNCITRAL and any other forum agreed by the parties. The conclusion of subsequent agreements may be expressly foreseen in the treaty, as it is the case of some BITs and FTAs. According to Article 16 BIT Mexico– Greece, for instance, ‘[a]n interpretation jointly formulated by the Contracting Parties of a provision of this Agreement shall be binding on any tribunal established under this Part’.13 Other agreements request the parties to give sympathetic 12 Caratube International Oil Company LLP v Kazakhstan, ICSID ARB/08/12, Award, 5 June 2012, para 333. 13 See also Art 17(2) of the BIT between the United Kingdom and Mexico.

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c onsideration to proposals made by each other,14 or even to endeavour at all times to agree upon the interpretation of the treaty.15 The treaty may also confer the task of interpreting any given treaty provision to a joint committee as in the case of Article 15.21 FTA United States–Singapore, according to which ‘[a] decision of the Joint Committee declaring its interpretation of a provision of this Agreement … shall be binding on a tribunal established under this Section, and any award must be consistent with that decision’.16 Some multilateral treaties bestow the responsibility to adopt binding interpretation on common bodies. A prominent example is Article 1131(2) NAFTA conferring to the Free Trade Commission (FTC), which is composed of a representative for each NAFTA.17 Eacn representative has the power to adopt binding interpretations. The indication in the treaty of a formal mechanism for the adoption of subsequent agreements on the interpretation of a treaty, however, does not exclude the possibility of a subsequent agreement in any other form, as held in Canadian Cattlemen v United States with regard to NAFTA.18 It is equally clear that the silence in the treaty does not prevent the parties from agreeing upon a given interpretation of any provision of the treaty. As pointed out by the United States, ‘Article 31(3)(a) operates whenever there is agreement between the parties regarding the interpretation of a treaty. It applies if there is “any” agreement between the parties. The provision does not require a formal instrument of agreement.’19 In the same vein, Canada maintained that Article 31(3)(a) VCLT ‘does not limit the form of subsequent agreements’.20

14 Art 11 of the BIT between the Netherlands and Serbia, for example, reads: ‘Either Contracting Party may propose to the other Contracting Party that consultations be held on any matter concerning the interpretation or application of the Agreement. The other Contracting Party shall accord sympathetic consideration to the proposal and shall afford adequate opportunity for such consultations.’ 15 See, eg, Art 47 EFTA, which also states that ‘Member States may bring any matter, which concerns the interpretation or application of this Convention before the Council. The Council shall be provided with all information, which might be of use in making possible an in-depth examination of the situation, with a view to finding an acceptable solution. To this end, the Council shall examine all possibilities to maintain the good functioning of the Convention.’ 16 See also Art 20(1)(3)(f) FTA Canada–Chile. 17 ‘North American Free Trade Agreement, 17 December 1992’ (1993) 32 International Legal Materials 612. Under Art 2001(1) NAFTA, the Commission is composed of ‘cabinet-level representatives of the Parties or their designees’. 18 Canadian Cattlemen v United States, above Ch 3, n 98, Jurisdiction, para 185, pointing out that ‘the formal process of interpretation under Article 1131(2) is not the only means available to the NAFTA Parties of reaching a “subsequent agreement”’. See also the Unites States Reply on the Preliminary Issues, 1 May 2007, relying on Methanex v United States, above Ch 1, n 55, Award, Part II, Chapter B, para 20, at http://naftaclaims.com/disputes/usa/CCFT/CCFT-USA-Reply_MemorialPreliminary_Issue.pdf. See also Art 10.20.3 CAFTA-DR. The ECT does not contain any provision on binding interpretation by its organs, but with respect to Art 29 ECT, it accepts as binding the authoritative interpretation adopted by majority by the WTO Ministerial Conference and the General Council under Art IX:2 of the Agreement Establishing the WTO. 19 Methanex v United States, above Ch 1, n 55, Post-Hearing Submission of Respondent United States, 20 July 2001. 20 Mobil v Canada, Reply of Canada to the Article 1128 submission of the United States, 1 September 2010, para 6.

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Keeping in mind the broad autonomy enjoyed by the parties as to the form of subsequent agreements, the crux of the matter is that the interpreter must be satisfied that the relevant instrument(s) are the true expression of the parties’ agreement on the interpretation of the treaty, subsequent agreements may take a variety of forms, including exchange of letters,21 diplomatic notes,22 notes verbales, joint statements, joint decisions,23 agreed minutes24 or any other instruments susceptible to express the agreement of the parties.25 It has even been argued that subsequent agreements do not need to be written and could result from concordant oral declarations,26 although in this case the burden of proof incumbent upon the party invoking such agreements may be particularly arduous. An interesting example of subsequent agreement is the agreement concluded by Argentina and Panama, through an exchange of diplomatic notes, to the effect that the MFN clause contained in the BIT they concluded in 1996 does not extend to dispute resolution clauses.27 Its effects are limited to the treaty object of the agreement and cannot be extended to other treaties. In a dispute concerning the BIT between Argentina and Germany, the Tribunal refused to take into account the agreement between Panama and Argentina. It held that ‘an interpretive declaration issued by a State after a treaty-based interpretive dispute has already arisen cannot be considered as a definitive guide to the State’s original intentions, particularly when the declaration relates to a different treaty’.28 The Tribunal was certainly correct in refusing to consider the agreement between Argentina and Panama, but the reasoning is not entirely convincing. The use of the singular in the reference to ‘State’s original intentions’ is inaccurate, as

21 In Gruslin v Malaysia, ICSID ARB/99/3, Award, 27 November 2005, para 23.4, the Tribunal found that an exchange of letters between Malaysia and the Belgium–Luxembourg Intergovernmental agreement could be regarded as ‘an enduring and authoritative engagement’ of the parties to the agreement. However, the Tribunal was unable to rely on the exchange of letters due to their uncertainty and circularity. 22 See below. 23 See, eg, Art 30(3) 2012 United States Model BIT. Art 31 further states that in the context of a dispute concerning an alleged breach within the scope of an entry set out in Annex I, II, or III, the respondent may request the tribunal to seek the binding interpretation of the parties. 24 See, eg, the minutes agreed by the Netherlands and the Czech Republic on 4–5 April 2002, which were taken into account in Eastern Sugar BV (Netherlands) v Czech Republic, SCC Case No 088/2004, Partial Award, 27 March 2007, paras 195–97. 25 As pointed out in Methanex v United States, above Ch 1, n 55, Award, Part II, Chapter B, para 20, relying on Kasikili/Sedudu, above Ch 1, n 10, Judgment, para 49, ‘it appears that no particular formality is required for there to be an “agreement” under Art 31(3)(a) of the Vienna Convention’. In Telefónica SA v Argentina, ICSID ARB/03/20, Jurisdiction, 25 May 2006, footnote 64, the Tribunal relied on Aegean Sea (Greece v Turkey), above Ch 4, n 162, para 96, to point out that ‘[e]ven a press communiqué of a meeting between representatives of the parties may suffice’ to create a subsequent agreement. 26 See M Yasseen, above Ch 1, n 10, p 45, who relies on P Fauchille, Traité de droit international public, vol I, Part 3 (Paris: Rousseau, 1926) 373–74. See also the United States Post Hearing Submission in Methanex v United States, above Ch 1, n 55, 20 July 2001, p 4, which makes reference to a statement made during the Vienna Conference by the representative of West Germany, UN Conference on the Law of Treaties, 2nd Session, Vienna, 9 April—22 May 1969, Official Records 57, para 65 (6 May 1969). 27 As reported in National Grid v Argentina, above Ch 3, n 96, Jurisdiction, para 85. 28 Daimler v Argentina, above Ch 1, n 55, Award, para 272.

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the interpreter must establish the common intention of the Parties as certified in the subsequent agreement. The exchange of notes is of no importance in the dispute before the Tribunal simply because—not particularly because—it concerns another treaty. It is indeed impossible to assume without any further evidence that the common intentions of the two pairs of States (Argentina and Panama, and Argentina and Germany) were the same. Indeed, the agreement between Argentina and Panama is entirely immaterial from the standpoint of Germany. The events that brought the two States to agree upon any given interpretation— in this case a prior decision based on an interpretation they both considered as inaccurate—are irrelevant. Quite the contrary, it is only logical that States may conclude a subsequent agreement on the interpretation of the treaty precisely because they consider that arbitral tribunals have misinterpreted the treaty. From this perspective, subsequent agreements serve a double purpose: to protect the parties to the treaty against what they perceive as distorted interpretations and to clarify the meaning of the treaty. What matters, therefore, is whether the agreement amounts to the authentic interpretation of the treaty and is the ‘definitive guide’ to the parties’ original intentions. The problem lies rather with the difficult distinction between interpretation and amendment of treaties, especially with regard to the effects of the agreement upon pending disputes. Although the conclusion of a subsequent agreement directly between the parties to a treaty and the adoption of a binding interpretation by a competent joint body are the most obvious applications of Article 31(3)(a), subsequent agreements can be less formal. It may be argued that concordant formal submissions on the interpretation of a treaty provision filed by all parties to a treaty as non-disputing parties could amount to a subsequent agreement. A few investment treaties provide for non-disputing party submission. Under Article 1128 NAFTA, for instance, ‘on written notice to the disputing parties, a Party may make submissions to a Tribunal on a question of interpretation of this Agreement’.29 Article 1128 NAFTA recognises the interest of all members in having the treaty properly interpreted and offers the non-disputing parties the opportunity to express and exchange their views on the interpretation of any given treaty provision. It thus provides an official channel through which the parties can agree upon such interpretation, without taking position on the facts related to the dispute before the tribunal. 29 See also Art 28(2) of the United States Model BIT, which reads: ‘The non-disputing Party may make oral and written submissions to the tribunal regarding the interpretation of this Treaty.’ Rule 37(2) of the ICSID Rules of Arbitration presents some important peculiarities, including the following: ‘(1) Tribunal may (and is not obliged to) allow submissions; (2) submissions can be filed by “a person or entity that is not a party to the dispute” without express reference to the other party or parties to the relevant treaties [such a reference was included in an earlier draft and subsequently abandoned, see ICSID Secretariat, Suggested Changes to the ICSID Rules and Regulations, Working Paper, 12 May 2005]; (3) the scope of application is not limited to questions of interpretation, but includes matters “within the scope of the dispute”; (4) the submission may assist the Tribunal in the determination of factual or legal issues related to the proceedings; and (5) the non-disputing party must have a significant interest in the proceeding.’

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NAFTA members have systematically resorted to Article 1128 and carefully confined their submissions to questions of interpretation as revealed by the disclaimers they always include in these submissions. The disclaimer of Canada, for instance, reads: This submission is not intended to address all interpretative issues that may arise in this proceeding. To the extent that it does not address certain issues, Canada’s silence should not be taken to constitute concurrence or disagreement with the positions advanced by the disputing parties. Canada takes no position on any particular issues of fact or on how the interpretations it submits below apply to the facts of this case.30

NAFTA members have regularly and consistently claimed that their concordant positions on a given interpretation of the treaty, through non-disputingparties’ submissions, constitute a subsequent agreement for the purpose of Article 31(3)(a). In a recent non-disputing party submission, in particular, Mexico has pointed out that the unanimity of opinion of the three NAFTA Parties, as expressed through their Article 1128 submissions, constitutes ‘a subsequent agreement’ between the parties regarding the interpretation of the [NAFTA]. The NAFTA has been negotiated and administered by the NAFTA Parties and their shared views should be considered authoritative on a point of interpretation.31

The absence of a single instrument recording the ‘meeting of the minds’ of the parties does not seem an insurmountable obstacle for considering these submissions as forming an agreement between the parties on the interpretation of the treaty. They are made in written form, recorded by the arbitral tribunal, transmitted to the parties to the dispute as well as to the other parties to the treaty and in principle made available to the public. In good substance, the parties may formally agree to any given interpretation with the clear intent to have the treaty be interpreted accordingly within their own jurisdictions and by arbitral tribunals once their submissions match. Not to take them into account would deprive the interpreter of the authentic indication of the common intention the parties intended to record in the treaty.

30 Methanex v United States, above Ch 1, n 55, Second Submission by Canada, 30 April 2001, paras 3 and 4. The United States and Mexico also regularly use similar disclaimers. They read, respectively, ‘The United States does not, through this submission, take a position on how the following interpretation applies to the facts of this case. No inference should be drawn from the absence of comment on any issue not addressed below’ (Mesa Power Group Llc v Canada, PCA Case 2012-17, Submission of the United States, 25 July 2014, para 1) and ‘Mexico takes no position on the facts of this dispute, and the fact that a legal issue arising in the proceeding is not addressed in this submission should not be taken to constitute Mexico’s concurrence in or disagreement with a position taken by either of the disputing parties’ (Apotex v United States, Submission by Mexico, 8 February 2013, para 2). 31 Submission by Mexico pursuant to Art 1128 NAFTA in Detroit International Bridge Company v Canada, PCA Case 2012-25, 14 February 2014, para 22. The position has been fully endorsed by Canada: Reply of Canada to the NAFTA Article 1128 Submissions by the United States and Mexico, 3 March 2014, esp para 35. See also Response of the United States to Methanex Post Hearing Submission, in Methanex v United States, 27 July 2001, p 5.

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It remains to be seen whether such an agreement may result from the concordant interpretation of any given provision contained in documents filed by the disputing party and the submission of the non-disputing party or parties to the relevant treaty. The argument was forcefully and convincingly put forward by the United States in Methanex v United States with regard to the interpretation of Article 1105 NAFTA before the release of the TFC Note on interpretation. It noted that all three NAFTA Parties ‘have clearly indicated that they are in agreement regarding the proper interpretation of Article 1105(1) and one aspect of Article 1101(1)’.32 The United States offered its interpretation in written statements and oral submissions,33 whereas Canada34 and Mexico35 expressed their explicit agreement through non-disputing party submissions under Article 1228. It may be argued that the non-disputing party submissions by two parties and their formal endorsement by the disputing party can be considered as forming a subsequent agreement for the purpose of Article 31(3)(a). All the parties to the treaty have formally and officially shared the same interpretation. The fact that the position on interpretation of one of the parties—the disputing one—has been expressed within a specific dispute is not an obstacle to this conclusion, provided that it is formulated in clear and general terms. For the sake of clarity, nonetheless, the disputing party may find it appropriate to formally reply to the non-disputing party or parties in order to make the subsequent agreement entirely detached from the current proceedings.36 What is crucial, for all practical purposes, is whether the parties to the treaty have formally shared the same interpretation. This seems to be relatively easy to establish when the concordant views of the parties on the interpretation of a treaty occur almost simultaneously with regard to the same dispute. Again in Methanex v United States, the United States convincingly argued that ‘no principled distinction can be drawn between parallel, separate statements made in diplomatic notes that signify agreement among the parties to a treaty and parallel, separate statements made in written submissions to an arbitral tribunal.37 The question is more delicate when such views have been expressed in documents submitted in different disputes and possibly with significant time intervals between one another. Interestingly, in Canadian Cattlemen v United States, the respondent argued that the combination of its own submission in the current as well as in other disputes, the non-disputing party submission by Mexico also in the current dispute and the statement by Canada in Myers v Canada38 amounted to a subsequent agreement for the purpose of Article 31(3)(a) VCLT.

32

Post Hearing Submission of the United States, 20 July 2001, p 2. See, in particular, Post Hearing Submission of the United States, 20 July 2001. 34 Second Submission of Canada pursuant to NAFTA Article 1128, 30 April 2001. 35 Submission by Mexico pursuant to NAFTA Article 1128, 30 April 2001. 36 See, eg, the Reply by Canada in Detroit International Bridge Company v Canada, above n 31. 37 Response of the United States to Methanex Post Hearing Submission, 27 July 2001, p 5. 38 SD Myers v Canada, above Ch 4, n 122, Canada Counter-Memorial, 5 October 1999, paras 218–52. 33

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The Tribunal rejected the argument. Without providing much explanation, it held that only the statements made or submitted as non-disputing party in the pending proceedings could be considered under Article 31(3)(a). Since Canada did not submit any statement in the pending proceedings, it concluded that no subsequent agreement had been concluded between the parties.39 The finding seems plausible, especially considering that the Canadian document was submitted to the arbitral tribunal in Myers v Canada more than eight years earlier. More generally, it remains to be seen whether the views expressed in different contemporaneous disputes may lead to a subsequent agreement. A tribunal may still be reluctant to do so for two reasons. On the one hand, these views are intended for the different arbitral proceedings, do not cross each other and do not offer the parties to the treaty any opportunity of dialogue. On the other hand, it should not be taken for granted that the views taken by the parties have been consistent and coherent in all disputes in which they have been involved, especially when a significant lapse of time divides those views. The above considerations are without prejudice to the possibility of taking into account subsequent practice for the purpose of Article 31(3)(b) VCLT.40 A different scenario arises when the parties express the concordant position on the interpretation of any given provision during proceedings related to different treaties. In T elefónica v Argentina, a dispute concerning alleged violation of the BIT between Argentina and Spain, the respondent argued that both parties to the treaty had interpreted the MFN clause as not covering procedural provision. They did so, both in the pending cases, Siemens v Argentina and Gas Natural v Argentina, and in Maffezini v Spain. The Tribunal rejected the argument since it found that [t]he distinct, independent positions taken by the two Contracting States as respondents in different arbitral proceedings, moreover not involving the other Contracting State, does not amount to an ‘agreement’, in any one of the manifold forms admitted by international law, between the two parties concerning such an interpretation.41

The finding is persuasive although the Tribunal does not offer any full explanation. In spite of the ambiguous use of the conjunctive adverb ‘moreover’, it must be emphasised that the position taken in proceedings relating to different treaties cannot amount to subsequent agreement, even if the relevant provisions are identical. In the case under discussion, the position taken by Argentina in Siemens v Argentina, which was based on the BIT between Germany and Argentina, is irrelevant for the purpose of establishing a subsequent agreement on the interpretation of the BIT between Spain and Argentina.

39

Canadian Cattlemen v United States, above Ch 3, n 98, Jurisdiction, para 187. See below, section III. 41 Telefónica v Argentina, above n 25, Jurisdiction, para 111. 40

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As noted by the Tribunal these statements are not ‘directed towards each other: they do not evidence therefore an “agreement”, a meeting of their minds or intent’. It remains to be seen whether these statements may amount to subsequent practice for the purpose of Article 31(3)(b) VCLT.42

III. Subsequent Agreements on Interpretation and Amendment of Treaties The problems relating to the distinction between interpretation and amendment, which is already complex in treaty law in general,43 are only magnified when it comes to investment treaties. This has been amply demonstrated by the NAFTA FTC interpretation on Article 1105 NAFTA, which attracted some criticism as it was believed to go beyond interpretation and to modify the treaty and as such could not be binding in pending proceedings.44 According to the Commission, the concepts of ‘fair and equitable treatment’ and ‘full protection and security’ do not require treatment in addition to or beyond what is required by the minimum standard of treatment under customary international law.45 The interpretation was immediately accepted by the m ember States—which stressed that it did not amount to an amendment46—and, not without some initial reluctance,47 by NAFTA tribunals. In Mondev v United States,

42

See below, section III. As pointed out by I Sinclair, above Ch 1, n 10, p 138, ‘[i]t is inevitably difficult, if not impossible, to fix the dividing line between interpretation properly so called and modification effected under the pretext of interpretation’. See also: J-P Cot, ‘La conduite subséquente des parties à un traité’ (1966) 70 Revue générale de droit international public 633; MK Yasseen, above Ch 1, n 31, Chapter IV; H Thirlway, ‘The Law and Procedure of the International Court of Justice. 1960–1989 (Part Three)’ (1991) 62 B ritish Yearbook of International Law 1, p 48 ff. 44 For a sharp critique of the Commission interpretation see Second Opinion of Professor R Jennings in Methanex v United States, above Ch 1, n 55. 45 Free Trade Commission, Notes of Interpretation of Certain Chapter XI Provisions, 31 July 2001, available at www.naftaclaims.org. In literature, compare CC Kirkman, ‘Fair and Equitable Treatment: Methanex v United States and the narrowing Scope of NAFTA Article 1105 (2002–03) 34 Law and Policy in International Business 343; and CH Brower II, ‘Why the FTC Notes of Interpretation Constitute a Partial Amendment of NAFTA Article 1105’ (2006) 46 Virginia Journal of International Law 347. 46 See the following documents submitted in relation to Methanex v United States, above Ch 1, n 55: United States, First Submission re: FTC Statement on Article 1105 (26 Oct 2001) and Second Submission re: FTC Statement on Article 1105 (17 Dec 2001); Canada, Article 1128 Submission re: FTC Statement on Article 1105 (8 Feb 2002); Mexico, Article 1128 Submission re: FTC Statement on Article 1105 (11 Feb 2002) (all documents available at www.naftaclaims.com/disputes_us_methanex.htm). 47 In Pope & Talbot v Canada, UNCITRAL, Award in Respect of Damages, 31 May 2002, para 47, the Tribunal was inclined to consider the Interpretative note as an amendment, but eventually found that the question was moot for the purpose of the decision it was rendering. In Merrill v Canada, above Ch 5, n 50, para 192, the Tribunal admitted that ‘the FTC Interpretation seems in some respect to be closer to an amendment of the treaty, than a strict interpretation’. 43

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for instance, the Tribunal held that the Free Trade Commission’s interpretations constitute ‘the definitive statement of what the parties intended from the source designated by the Treaty as the ultimate and most authoritative source of its meaning, the Parties themselves’.48 In Methanex v United States, the Tribunal held without hesitation that the FTC’s interpretation must … be considered in the light of Article 31(3)(a) VCLT as it constitutes a subsequent agreement between the NAFTA Parties on the interpretation of Article 1105 NAFTA … It follows that any interpretation of Article 1105 should look to the ordinary meaning of the provision in accordance with Article 31(1) VCLT, and also take into account the interpretation of 31st July 2001 pursuant to Article 31(3)(a) VCLT.49

What was controversial was not the legally binding character of the Commission interpretation as such, but rather whether the interpretation of Article 1105 amounted to an amendment of the treaty. In theory the distinction between interpretation and modification is clear. On the one hand, a subsequent agreement under Article 31(3)(a) ‘cannot create a treaty right or obligation, it can only interpret an existing treaty provision’50 whereas ‘the general rule is that interpretations of a treaty provision—whether by the treaty parties or by an international tribunal—are retroactive in effect, since an interpretation does not change the content of a provision, it merely clarifies what the provision always meant’.51 On the other hand, an agreement modifying the rights and obligations of the parties cannot have retroactive effect and does not affect the rules applicable to settling pending disputes or disputes arising out of events that have occurred before the date of the agreement (or its entry into force). It is worthwhile noting that in disputes between States—where the parties to the dispute are also parties to the treaty—the parties themselves may derogate from the non-retroactive principle, at least when no erga omnes or jus cogens rules are involved. In the context of investment disputes, however, since the parties to the treaty and the parties to the dispute do not coincide, there is a need to protect the investor and to ensure that the treaty provides a stable legal and predictable environment. From this perspective, the parties to a treaty may amend it at any time, but the amendment does not affect the settlement of pending disputes or disputes that have arisen before its entry into force. Investment tribunals may therefore be

48 Mondev v United States, above Ch 3, n 85, para 103. In Methanex v United States, above Ch 1, n 55, Award, Part II, Chapter B, para 21, the Tribunal had ‘no difficulty in deciding that the FTC’s Interpretation of 31 July 2001 is properly characterised as a “subsequent agreement” on interpretation falling within the scope of Article 31(3)(a) of the Vienna Convention’. 49 Methanex v United States, above Ch 1, n 55, Award, Part II, Chapter H, para 23. 50 United States Post Hearing Submission in Methanex v United States, above Ch 1, n 55, 20 July 2001, p 3. 51 ibid, paras 4 and 5, relying on M Yasseen, above Ch 1, n 31, p 47. In Application of the Convention on the Prevention and Punishment of the Crime of Genocide, Judgment, ICJ Reports 2007, p 43, para 452, the Court held that its finding in LaGrand on the mandatory nature of provisional measures merely clarified the meaning Article 41 of the Statute had from the outset.

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called on to perform the delicate task of distinguishing subsequent agreements on the interpretation of a treaty from amendments altering the content of the treaty. Agreed interpretations govern all cases—including pending ones— whereas amendments have only prospective effects. Determining whether the interpretation adopted on 31 July 2001 by the FTC was a ‘true interpretation’ or an ‘amendment’ is precisely what the investor requested the Tribunal to do in ADF v United States.52 The Tribunal refused to proceed with such a determination for two reasons. On the one hand, ‘no document purporting to be an amendment has been submitted by either the Respondent or the other NAFTA Parties’. On the other hand, an inquiry into the distinction between an ‘interpretation’ and an ‘amendment’ would tend ‘to degrade and set at naught the binding and overriding character of FTC interpretations’. Neither reason is convincing. The fact that there is no evidence that the FTC or the parties to the treaty expressly intended to amend Article 1105(1) does not necessarily rule out the possibility that as a matter of fact the FTC interpretation does indeed amount to an amendment. It is possible that what is genuinely perceived as an interpretation of a given provision in practice modifies its content. It is also possible that the interpretation is no more than a disguised amendment. In both cases, the investor must have a chance to challenge the application of the interpretation in pending disputes or in disputes arising out of facts that have occurred before the entry into force of the FTC note. A determination by the Tribunal that the interpretation amounts to an amendment would not ‘degrade or set at naught’ the binding nature of FTC interpretation or its authority. It will simply protect the investor from the risk of having the FTC overstepping its competence. Needless to say, the inquiry on the real nature of a FTC interpretation is a delicate operation that tribunals have to carry out with extreme rigour and prudence. Two ICSID Tribunals warned against applying retroactively an agreement between the parties modifying the original content of the relevant treaty provision. This was done in respect of Article XI of the BIT between Argentina and the United States, which the Tribunal refused to consider as a self-judging provision regardless of the alleged contrary common interpretation of the parties. In the Tribunal’s words: [e]ven if this interpretation were shared today by both parties to the Treaty, it would still not result in a change of its terms. States are of course free to amend the Treaty by consenting to another text, but this would not affect rights acquired under the Treaty by investors or other beneficiaries.53

With regard to the temporal dimension, Article X.27 of the CETA provides an interesting innovative element. The Trade Committee may adopt, upon

52

ADF v United States, above Ch 4, n 9, para 177. Enron v Argentina, above Ch 4, n 59, Award, 22 May 2007, para 337; Sempra v Argentina, above Ch 2, n 10, para 385. The statement would have been clearer if it had specified in the first sentence that no change would have resulted ‘for the purpose of this dispute’. 53

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a recommendation by the Committee on Services and Investment under Article X.42(3)(a), binding interpretations of the Agreement. It may also decide that an interpretation shall have binding effect from a specific date. Setting such a date may be a simple and efficient way of preventing any problem or uncertainty on the qualification of the agreement as interpreting or amending the treaty.

IV. Subsequent Practice under Article 31(3)(b) VCLT Under Article 31(3)(b) VCLT, the interpreter must take into account any subsequent practice in the application of the treaty establishing the agreement of the parties regarding its interpretation.54 The essence of subsequent practice in international law has been captured by the WTO Appellate Body as a ‘concordant, common and consistent’ sequence of acts or pronouncements which is sufficient to establish a discernible pattern implying the agreement of the parties [to a treaty] regarding its interpretation. An isolated act is generally not sufficient to establish subsequent practice; it is a sequence of acts establishing the agreement of the parties that is relevant.55

Investment tribunals have shared this position. A NAFTA tribunal, for instance, held that ‘[e]vidence of a sequence of facts and acts that amounts to a practice that is concordant, common and consistent’ is to be considered as ‘subsequent practice’ within the meaning of Article 31(3)(b) VCLT.56 The purpose of the exercise is to ascertain how the party to a treaty has interpreted it in practice.57 Yet, it may be rather difficult not only to provide a list of what may amount to practice for the purpose of Article 31(3)(b),58 but also to quantify the acts necessary to make ‘concordant, common and consistent’ practice and, in the case of a multilateral treaty, how general the practice must be. Under

54 See, in particular, Kasikili/Sedudu Island, above Ch 1, n 10, Judgment, esp paras 49–50. As noted by the ILC in (1966-II) 18 Yearbook of the International Law Commission 221, ‘[t]he importance of such subsequent practice in the application of the treaty, as an element of interpretation, is obvious; for it constitutes objective evidence of the understanding of the parties as to the meaning of the treaty. Recourse to it as a means of interpretation is well-established in the jurisprudence of international tribunals’, quoted with approval in Iran v United States, Case No B1 (Counterclaim), Award No ITL 83-B1-FT, 9 September 2004, para 109. 55 Japan—Alcoholic Beverages, above Ch 1, n 11 para 106. The expression ‘concordant, common and consistent’ was borrowed from I Sinclair, above Ch 1, n 10, p 137. See also Chile—Price Band S ystem, WT/DS207/AB/R, WT/DS207/AB/R/Corr.1, paras 213–14; United States—Gambling, WT/DS285/ AB/R, WT/DS285/AB/R/Corr.1, paras 192–93. In Iran–United States of America, Interlocutory Award No ITL, 83-B1-FT, 9 September 2004, paras 115–16, the Tribunal held that ‘the Parties have engaged in a concordant, common and consistent practice in filing counterclaims to official claims, and this practice reflects an agreement as to the interpretation of Article II, paragraph 2 of the Claims Settlement Declaration’. 56 Canadian Cattlemen v United States, above Ch 3, n 98, Jurisdiction, para 189. The Tribunal mistakenly referred to Art 31(3)(c) VCLT. 57 F Fitzmaurice, above Ch 4, n 174, p 211. 58 R Gardiner, above Ch 1 n 10, p 255.

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the c ircumstances, a good deal of discretion is left to the interpreter who is called to assess the subsequent practice of the parties both in qualitative and quantitative terms. Subsequent agreements and subsequent practice are two contiguous notions and for all practical purposes have the same relevance to the interpretative process. As far as form is concerned, if there are no strict requirements with regard to the form of subsequent agreements, the notion of subsequent practice is obviously even more relaxed.59 In Aguas de Tunari v Bolivia, the Tribunal convincingly held that ‘the coincidence of several statements does not make them a joint statement’,60 although they may be considered as evidence of subsequent practice for the purpose of Article 31(3)(b) VCLT. Similarly, in Canadian Cattlemen v United States, the Tribunal found, without much elaboration, that the sequence of acts and statements before it cannot be considered as forming a subsequent agreement under Article 31(3)(a) VCLT, but nonetheless amounted to subsequent practice under Article 31(3)(b) VCLT.61 Yet, what distinguishes subsequent practice under Article 31(3)(b) from subsequent agreement is the lack of a formal agreement, intended as a single instrument or a series of co-ordinated instruments or acts in which all the parties to a treaty share the same interpretation of the relevant treaty provision. In the case of subsequent practice, conversely, the agreement is implied in the concordant, common and consistent sequence of acts or pronouncement by the parties. The interpreter must therefore detect from such a sequence the progressive emergence between the parties of a common understanding as to the meaning of the relevant treaty provision. If the treaty has a large membership, the practice must be shared by the generality of the parties without the active participation of all of them being necessary.62 Similarly to other areas of international law, subsequent practice under Article 31(3)(b) has not played a prominent role in the interpretation of investment treaties. From the standpoint of Article 31(3)(b), the interpreter is not required to take into account either the treaty practice of the generality of States or the treaty practice of the parties of the treaty to be interpreted with third States and even less that of one of them, however abundant and uniform both might be. This is without prejudice to the relevance of these practices for the purpose of a contrario

59 In Kasikili/Sedudu Island, above Ch 1, n 10, Judgment, para 63, the ICJ pointed out that if the c ertain events cannot constitute ‘subsequent practice’, a fortiori, they cannot have given rise to an ‘agreement between the parties regarding the interpretation of the treaty or the application of its provisions’. 60 Aguas de Tunari v Bolivia, above Ch 1, n 53, Jurisdiction, para 251. 61 Canadian Cattlemen v United States, above Ch 3, n 98, Jurisdiction, para 189. 62 As explained by the ILC in (1966-II) 18 Yearbook of the International Law Commission 222, ‘The text provisionally adopted in 1964 spoke of a practice which “establishes the understanding of all the parties”. By omitting the word “all” the Commission did not intend to change the rule. It considered that the phrase “the understanding of the parties” necessarily means “the parties as a whole”. It omitted the word “all” merely to avoid any possible misconception that every party must individually have engaged in the practice where it suffices that it should have accepted the practice initially referred to the subsequent practice of all States.’

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a rguments or as aids to interpretation, especially when the interpreter has to operate a choice between different plausible interpretations. Yet, investment tribunals have not always correctly understood the notion of subsequent practice. Rather unconvincing is the understanding of subsequent practice under Article 31(3)(b) VCLT demonstrated by the majority in Ambiente v Argentina, where reference is made to the so-called ‘state practice approach’ in the sense that [tribunals] were looking into whether the general inclusion of obligations in ‘very substantial numbers of BITs across the world’ could generate an ‘international consensus’ relevant to the interpretation of Article 25 of the ICSID Convention.63

This position is far from being persuasive both theoretically and practically. Theoretically, it disregards the independence of each treaty as res inter alios acta. Each of them needs to be interpreted taking into due account its specificities. The view taken by the Tribunal also deforms the notion of subsequent practice in the application of a treaty establishing the agreement of the parties, with the general treaty practice of the community of States. Practically, it is based on the idea that an undefined ‘very substantial number of BITs’ generates a rather vague ‘international consensus’, a notion unknown in the law of treaties. This approach implies a departure from the very essence of the notion of subsequent practice under Article 31(3)(b) VCLT, which is built upon the agreement of the parties of a treaty expressed through concordant practice on the interpretation of that treaty. The Tribunal position, it appears, is closer to the question of the evolution of customary rules through the conclusion of a sufficiently consistent and large body of treaties, rather than Article 31(3)(b) VCLT. In Plama v Bulgaria, the Tribunal had to determine whether procedural provisions fall within the scope of the MFN clause included in the BIT between Cyprus and Bulgaria (Article 3). On subsequent practice, it took the following view: It is true that treaties between one of the Contracting Parties and third States may be taken into account for the purpose of clarifying the meaning of a treaty’s text at the time it was entered into. The Claimant has provided a very clear and insightful presentation of Bulgaria’s practice in relation to the conclusion of investment treaties subsequent to the conclusion of the Bulgaria–Cyprus BIT in 1987. In the 1990s, after Bulgaria’s communist regime changed, it began concluding BITs with much more liberal dispute resolution provisions, including resort to ICSID arbitration. However, that practice is not particularly relevant in the present case since subsequent negotiations between Bulgaria and Cyprus indicate that these Contracting Parties did not intend the MFN provision to have the meaning that otherwise might be inferred from Bulgaria’s subsequent treaty practice. Bulgaria and Cyprus negotiated a revision of their BIT in 1998. The negotiations failed

63 Ambiente v Argentina, above Ch 1, n 15, Admissibility and Jurisdiction, para 465. Here the ribunal relies, inter alia, on the finding by the Tribunal in Biwater v Tanzania, above Ch 4, n 123, T para 314 according to which ‘[i]f very substantial numbers of BITs across the world express the definition of “investment” more broadly than the Salini Test, and if this constitutes any type of international consensus, it is difficult to see why the ICSID Convention ought to be read more narrowly’.

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but specifically contemplated a revision of the dispute settlement provisions (see Witness Statement by Christo P Tepavitcharov at paragraph 20 and Exhibit 5 thereto, containing an exchange of notes between Bulgaria and Cyprus). It can be inferred from these negotiations that the Contracting Parties to the BIT themselves did not consider that the MFN provision extends to dispute settlement provisions in other BITs.64

The meaning of the opening sentence is rather obscure. It is not clear how the subsequent practice of Bulgaria with third States could be relevant for the purpose of interpreting the BIT between Bulgaria and Cyprus. The Tribunal seems to confuse the treaty practice of one party with the ‘subsequent practice’ of the parties in the application of the relevant treaty establishing their agreement on the interpretation of that treaty. One thing is to look at what one party may have done in its relationships with other parties; another is to take into account the practice of both or all parties to the treaty in order to establish their possible subsequent agreement on its meaning. With regard to the subsequent practice between Cyprus and Bulgaria, relying on the failed attempt to revise the treaty is a risky exercise since by definition the parties were unable to reach an agreement. It is rather from the exchange of letters that the interpreter may extract the agreement of the parties—as a matter of subsequent practice under Article 31(3)(b) VCLT—on the interpretation of Article 3 of the BIT. The exchange of letters, however, can be read both ways. It could have clarified the meaning of the provision as the parties originally intended. Alternatively, it could be maintained that it indicates that the parties considered a revision of the treaty necessary in order to include in the MFN procedural provisions and, therefore, indirectly agree that the original text was to be interpreted as limiting the scope of the MFN clause to substantive provisions. In National Grid v Argentina, the Tribunal rejected the argument based on subsequent practice, as it was not supplied with sufficient evidence that both parties to the treaty had been engaged in ‘concordant, common and consistent’ sequence of acts or pronouncements. According to the Tribunal, While it is possible to conclude from the UK investment treaty practice contemporaneous with the conclusion of the Treaty that the UK understood the MFN clause to extend to dispute resolution, no definite conclusion can be reached regarding the Argentine Republic’s position at that time. Therefore, the review of the treaty practice of the State parties to the Treaty with regard to their common intent is inconclusive.65

The Tribunal was undoubtedly correct that subsequent practice must be concordant, consistent and common to both parties, but distorted the perspective. Under Article 31(3)(b), in settling a dispute based on a claim contained in the BIT between Argentina and the United Kingdom, the Tribunal must examine how Argentina and the United Kingdom have interpreted their BIT, not the treaties each of them has negotiated and concluded with third States. In this regard,

64 65

Plama v Bulgaria, above Ch 3, n 52, Jurisdiction, para 195. National Grid v Argentina, above Ch 3, n 96, Jurisdiction, para 85.

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Article 31(3)(b) is fully respectful of the basic principle of treaty law that treaties are res inter alios acta and as such their interpretation is not affected by other treaties or the treaty practice of its parties with third States. The reference by the Tribunal to the contemporaneity of the practice relevant for the purpose of Article 31(3)(b), finally, is not persuasive. Such practice is by definition ‘subsequent’ to the conclusion of the treaty and can be spread over the entire life of the treaty. When interpreting a treaty, accordingly, tribunals have to examine the subsequent practice of the parties under Article 31(3)(b) for the period spanning from the conclusion of the treaty to the commission of the alleged violation of the treaty. The crucial time for considering subsequent practice is the time of the commission of the alleged wrongdoing if the rights acquired under the treaty by the foreign investor are to be adequately protected within a stable and predictable legal framework. Another important question is whether the views on the interpretation of investment treaties taken by the parties to them may be included under the rubric of subsequent practice and be considered under Article 31(3)(b) VCLT. In Telefónica v Argentina, for instance, the Tribunal interpreted the BIT between Argentina and Spain. It declared itself unconvinced ‘that positions on interpretation of a treaty provision, expressed by a Contracting State in its defensive brief filed in an international direct arbitration initiated against it by an investor of the other Contracting State, amounts to “practice” of that State’ or that it is relevant ‘in order to ascertain “how the treaty has been interpreted in practice” by the parties thereto’.66 The Tribunal then refused to consider the position on interpretation taken by Spain and Argentina, respectively, in Maffezini v Spain and Siemens v Argentina. For the Tribunal, [t]hese positions, expressed separately by Spain and Argentina in those distinct disputes, indicate their views set forth in those litigations for purposes of arguing as respondents therein. Moreover, these statements, individually and separately made by the Contracting States within such litigation, are not directed towards each other: they do not evidence therefore an ‘agreement’, a meeting of their minds or intent (‘concours de volonté’) as required by the same Art 31(3)(b).67

The position on the relevance of the position taken by States during arbitral proceedings seems over-formalistic. Unlike the case of subsequent agreement, in 66 Telefónica v Argentina, above n 25, para 112. In Gas Natural v Argentina, above Ch 2, n 12, Jurisdiction, footnote 12, the Tribunal similarly held that ‘Argentina’s argument that Spain’s position in the Maffezini case reflects understanding of the Spain–Argentina BIT consistent with that of Argentina in this case. We do not believe, however, that an argument made by a party in the context of an arbitration reflects practice establishing agreement between the parties to a treaty within the meaning of Article 31(3)(b) of the Vienna Convention on the Law of Treaties’. Canadian Cattlemen v United States, above Ch 3, n 98, Jurisdiction, para 186, seems to have accepted that the position expressed by Canada in the Myers case accounts as subsequent practice. In the Counter-Memorial, 5 October 1999, Canada pointed out that national treatment ‘only applies to the investor with respect to its investment in the foreign country’. 67 Telefónica v Argentina, above n 25, Jurisdiction, para 113.

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subsequent practice the intention of the parties or the meeting of their minds is not required, although in bilateral treaties the distinction tends to disappear. Subsequent practice is rather an incremental process based on the concordant, common and consistent interpretation the parties—or the generality of them— give to the treaty in order to implement it or in the context of arbitral proceedings, without necessarily having conscience on the broader implications of such a conduct or its implications being necessary. It can be argued that as a matter of both legal predictability and logic, an arbitral tribunal interpreting the treaty in good faith has to respect the concordant interpretation contained in the relevant statements consistently submitted by all parties to the treaty, provided that (a) such an interpretation is couched in sufficiently clear and general terms; and (b) there are no compelling arguments imposing a different interpretation. As maintained above, this is not to say that the tribunal must necessarily conform itself to the interpretation espoused in these statements, but rather that the statements become part of the interpretative process. Assuming that the parties to a treaty officially, consistently and persistently express identical positions on the interpretation of the very same treaty, no apparent reasons would prevent the interpreter from taking it into account under Article 31(3)(b). Quite the contrary, once satisfied that the parties have officially, consistently and persistently shared the same interpretation of the same treaty, it would be illogical to ignore such practice. The positions expressed during arbitral proceedings are not necessarily the decisive element in the interpretative process, but are part and parcel of it. Taking them into account will enhance the legal predictability and coherence of arbitral decisions. Needless to say, the fact that not all arbitral decisions and related documents are publicly available unavoidably renders the determination of the existence of concordant interpretations made during arbitral proceedings as subsequent practice of the parties more problematic. Moreover, the fact that States may and have put forward contradictory views and interpretations in different proceedings does not undermine the above conclusion. As has been pointed out, there are instances in which respondent States have argued— sometimes successfully—against their own previous positions related to their international commitments.68 This may well remain a defendable good faith litigation strategy. Yet, in this case, State practice would no longer be concordant, common and consistent. As such it must be disqualified for the purpose of Article 31(2)(b) VCLT. Finally, special attention must be paid to keeping the line between subsequent agreements on the interpretation of a treaty on the one hand, and informal modification of a treaty through subsequent practice on the other. Indeed, subsequent practice of the parties may also lead to the modification of the treaty itself.69 Such a possibility is accepted in international law, although at the Vienna Conference it was decided not to include in the VCLT a provision on modification of treaties 68

HICEE v Slovak Republic, above Ch 1, n 35, Partial Award, dissenting opinion, C Brower, para 36. Air Transport Services Agreement Arbitration (United States v France), Award, 22 December 1963, in (1969) 38 International Law Reports 182, 249. 69 See

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through subsequent practice. It is, however, important to note that according to the relevant draft article prepared by the ILC, a treaty may be modified by subsequent practice of the parties in the application of the treaty establishing their agreement to an alteration or extension of its provisions.70 An important difference must be pointed out in respect of subsequent practice in inter-States disputes and subsequent practice in investment disputes. In interStates disputes, the parties to the treaty can share the view that following subsequent practice a given provision must be interpreted and applied in a certain way. As long as there is agreement between the parties, the tribunal does not need to examine subsequent practice or to determine from which moment on the relevant provision has to be interpreted and applied accordingly. The scenario is different in investment arbitration where only one party to the treaty is disputing before the arbitral tribunal. The parties to the treaty can still agree through subsequent practice on a given interpretation of a treaty provision or even its modification. For the purpose of interpreting and applying a provision in the settlement of a dispute, nonetheless, it is indispensable to determine whether subsequent practice had led to the authentic interpretation or to the modification of the said provision at the time of the conduct the foreign investor is complaining about. When dealing with the subsequent practice of the parties to an investment treaty for the purpose of interpretation under Article 31(3)(b) VCLT, the interpreter must keep in mind the fundamental difference between the practice of the parties or the generality of them and the treaty practice of the host State (or of the non-disputing party or parties). From the latter perspective, the interpreter must use the greatest prudence for several reasons, including the complexity of the network of investment treaties (some States have concluded more than 100 treaties), the non-availability of all treaties (in all authentic versions, when applicable), possible discrepancies between various authentic versions, the difficulties in obtaining reliable and up-to-date information on the status of the treaties), the relevance of treaties that have not yet entered into force, and the often significant lapse of time between the conclusion and the entry into force of treaties.

V. Subsequent Practice and Acquiescence The treatment of subsequent practice for the purpose of Article 31(3)(b) VCLT needs to be completed by considering acquiescence by the parties to the treaty— rather than active conduct—as conducive to their common agreement on a given interpretation. This may occur, in particular, when the parties to a treaty fail to react to what may be seen as an evolutive interpretation of investment treaties by arbitral tribunals. The two following examples are illustrative. 70 Art 38, Draft Articles on the Law of Treaties (1966-II) 17 Yearbook of the International Law Commission 236.

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The first example concerns the power of an ICSID tribunal under Article 47 of the ICSID Convention and Rule 39 of the Arbitral Rules to order—as opposed to recommend—provisional measures. In a significant string of decisions spanning over 16 years, arbitral tribunals have consistently held that ICSID tribunals have the power to order provisional measures.71 An ICSID tribunal has recently confirmed this interpretation. It found that: It is true that the ordinary meaning of this provision, especially the terms ‘recommend’ and ‘should be taken’ do not convey the notion of a binding order. The same can be said for the context; other provisions of the ICSID Convention use different language when referring to binding obligations. Similarly, the travaux préparatoires of the ICSID Convention, to the extent relevant as supplementary means of interpretation, show that an earlier draft using the word ‘prescribe’ was then changed to ‘recommend’. Despite this, ICSID tribunals have consistently found that they have the power to make binding orders for provisional measures. The rationale is that these decisions derive their mandatory force from the function of provisional remedies, which is to secure the applicant’s rights while the proceedings are pending. To use the words of the ICJ in LaGrand, ‘the power in question is based on the necessity, when the circumstances call for it, to safeguard, and to avoid prejudice to, the rights of the parties as determined by the final judgment of the Court’. While the wording and the context of Article 41 of the ICJ Statute are not strictly identical to those of the ICSID Convention (‘indicate’ instead of ‘recommend’), the function of the measures is the same.72

The relevant decisions have been discussed elsewhere in relation to the resolution of the tension between literal and teleological interpretations.73 If it is accepted that upholding the mandatory character of provisional measures under Article 47 ICSID is contrary to the clear text of that provision and, in the absence of any other compelling interpretative argument, amount to an evolutive interpretation if not even a dissimulated law-making exercise, it becomes crucial to assess the reaction or lack of reaction by the parties to the ICSID Convention. It must be stressed that arbitral decisions cannot be treated as State practice. They remain the pronouncements of arbitral tribunals which have been mandated by the parties to settle a specific dispute between them and strictly speaking their effects are confined to the parties to the dispute. They may nonetheless influence State practice and trigger their reaction either in support of or against the interpretation taken by the Tribunal. 71

See above, Ch 6, section V. Quiborax v Bolivia, above Ch 4, n 216, Award, paras 578–79. The Tribunal relied on the following decisions: Maffezini v Spain, above Ch 4, n 140, Procedural Order, para 9; Pey Casado v Chile, above Ch 4, n 262, Provisional Measures, paras 17–25; Tokios v Ukraine, above Ch 1, n 15, Procedural Order No 1, 1 July 2003, para 4; Occidental v Ecuador, above Ch 3, n 41, Provisional Measures, 17 August 2007, para 58; City Oriente v Ecuador, above Ch 4, n 88, Provisional Measures, paras 51–53; Perenco v Ecuador, above Ch 6, n 91, Provisional Measures, paras 67–70; Millicom v Senegal, above Ch 1, n 35, Provisional Measures, para 49; Tethyan Copper Company Pty Limited v Pakistan, ICSID ARB/12/1, Provisional Measures, 13 December 2012, para 120. It may be worth noting that not in all decisions does the tribunal effectively order provisional measures. 73 See above, Ch 6, section VI. 72

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Lack of reaction or acquiescence to a consistent and significant body of decisions may amount to State practice and demonstrate the general acceptance by the parties to the treaty of the interpretation that has progressively emerged from the arbitral decisions, even to the point of informal modifying of the treaty through subsequent practice. Acceptance by the disputing investor, on the other hand, is immaterial for the purpose of State practice as States and States only are the masters of the treaty.74 A parallel may be drawn from the impact arbitral decisions may have on the crystallisation or evolution of customary international law. A tribunal has convincingly held that even presuming that relevant principles could be distilled from prior arbitral awards … they cannot be deemed to constitute the expression of a general consensus of the international community, and much less a formal source of international law. Arbitral awards remain mere sources of inspiration, comfort or reference to arbitrators.75

It is the general acceptance or acquiescence by States that in due time may lead to the development of customary law in the sense delineated by the interpretation. Similarly, it is the general acceptance or acquiescence by States that may lead to the evolutive interpretation of a treaty and even its informal modification. From this perspective, two elements are indispensable. On the one hand, a significant number of arbitral tribunals must have shared in a clear and coherent manner the evolutive interpretation. On the other hand, the parties to the relevant treaty must have had ample opportunity to react to the interpretation and contest its inaccuracy, but refrained from doing so. In the case of Article 47 of the ICSID Convention and Rule 39 of the Arbitral Rules both elements seem to be satisfied. The decisions adopted by arbitral tribunals can be considered as having reached the critical mass and found little opposition.76 The decisions were rendered during a period of about 16 years and there is no record of any negative reaction on the interpretation held by the tribunals by any State, nor those appearing as respondents in the proceedings or any other. Although the hybrid and not necessarily public nature of investment arbitration call for the greatest prudence, it may be concluded that a uniform and generally accepted practice has emerged allowing ICSID tribunals to order provisional measures. The second example concerns multiple claimants. In Ambiente v Argentina, the Tribunal referred to 38 cases in which ICSID Tribunals—including under the Additional Facility—have settled claims brought by at least 3 claimants without raising

74 In Tethyan v Pakistan, above n 72, Provisional Measures, 13 December 2012, para 120 (footnote omitted), the Tribunal pointed out that ‘[a]lthough Article 47 of the ICSID Convention and Rule 39 of the Arbitration Rules use the word “recommend”, it is generally recognized that arbitral tribunals are empowered under these provisions to order provisional measures with binding force and that the parties are obliged to comply with such orders and that the parties are obliged to comply with such orders. The Parties to the present arbitration have not contested the binding nature of provisional measures.’ 75 Romak v Uzbekistan, above Ch 4, n 66, para 170. See also Daimler v Argentina, below Ch 12, n 29. 76 Apparently the only two exceptions are Caratube v Kazakhstan, above n 12, Provisional Measures, 31 July 2009, para 76 (with regard to Rule 39) and the dissenting opinion of E Nottingham in RSM Production Corporation v Saint Lucia, above Ch 6, n 96.

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the opposition of the respondent,77 or any party to the ICSID C onvention.78 The Tribunal then reviewed 6 of these cases plus a NAFTA one, without explaining the criteria for such a selection. It deduced from the attitude of both the respondent States and the arbitral tribunals that multi-party arbitration is ‘a generally accepted practice in ICSID arbitration … and that the institution of multi-party proceedings therefore does not require any consent on the part of the respondent Government beyond the general requirements of consent to arbitration’.79 The Tribunal finding was criticised by the dissenting arbitrator, according to whom the selection of the cases discussed by the majority was insufficient to establish such practice, especially considering that in none of these cases the tribunal has admitted multi-party proceedings against the opposition of the respondent.80 The reluctance of the dissenting arbitrator to accept the existence of a subsequent practice permitting multi-party proceedings is fully justified. The number of decisions relied upon by the majority does not seem particularly comfortable, especially since only 4 decisions were rendered under Article 25(1) ICSID. Apart from the quantitative element—and contrary to subsequent practice with regard to mandatory provisional measures—in none of these cases tribunals have expressly upheld the interpretation of Article 25(1) ICSID in the sense of admitting multi-party proceedings and provided a legal explanation. The insistence of the majority on the attitude of respondent States rather than of the ICSID membership as a whole does not enhance the persuasiveness of the decision. Furthermore, as it has been emphasised by another arbitrator, the lack of objections from the respondent State should better be construed as amounting to implied consent with regard to the specific dispute and as such could hardly contribute to the emergence of a general practice.81 Even sharing the majority position on the interpretation of Article 25(1), it is important to note that allowing multipartite proceedings does not mean that there is no limit to the number of claimants that could bring a claim before an ICSID tribunal. Such an interpretation would stretch the interpretation Article 25(1) beyond recognition and be hardly compatible with the objects and purposes of the Convention. In other words, there is a physiological threshold separating multipartite proceedings from so-called ‘mass claims’.82

77 With the exception of the initial opposition of the respondent in Klöchner v Cameron, subsequently withdrew. 78 Ambiente v Argentina, above Ch 1, n 15, paras 135 ff. 79 Ambiente v Argentina, above Ch 1, n 15, para 141. 80 S Torres Bernárdez, diss op, Ambiente v Argentina, above Ch 1, n 15, para 97. 81 G Abi Saab, diss op in Abaclat v Argentina, above Ch 1, n 15, para 175. Quoted with approval by S Torres Bernárdez, diss op, Ambiente v Argentina, above Ch 1, n 15, para 105. The travaux preparatoires seem to confirm a flexible interpretation as during the negotiations mention was made to the possibility of having arbitral proceedings with more than two parties, see C Schreuer et al, above Ch 4, n 203, p. 163, who further stresses that ‘these rules could not be inconsistent with the Convention, but would only implement or supplement it in matters of details’. 82 G Abi Saab, diss. op. in Abaclat v Argentina, above Ch 1, n 15, footnote 36, stressed that the fact that there is no agreement on the exact location of a threshold does not mean that such a threshold does not exist and divides two radically different legal status, as demonstrated, for instance, by the threshold that separates air space from outer-space.

8 Other Rules of International Law I. Systemic Interpretation under Article 31(3)(c) VCLT Under Article 31(3)(c), the interpreter is directed to take into account any relevant rules of international law applicable to the relations between the parties.1 Article 31(3)(c) is meant to enhance the coherence of the international legal order, building on the presumption that treaties are intended to respect all relevant international rules.2 The mandatory character of the operation transpires from the use of the modal ‘shall’ in the chapeau of Article 31(3).3 It is also worth noting that the obligation ‘to take into account’ applies to all elements of Article 31(3), namely subsequent agreements, subsequent practice and any applicable rules; whereas the phrase ‘together with the context’ places all these elements on the same plane as contextual considerations under Article 31(1) and (2).4 In Berschader v Russian Federation, the Tribunal unconvincingly relegated Article 31(3)(c) to a residual role by pointing out that ‘[i]nsofar as the terms of the Treaty are unclear or require interpretation or supplementation, the Vienna Convention requires the Tribunal

1 In Micula v Romania, above Ch 3, n 92, Jurisdiction, para 87, for instance, the Tribunal held that ‘[i]n interpreting the BIT, ie, an instrument between two sovereign States, it may take into account, as directed by Article 31(3)(c) of the Vienna Convention on the Law of Treaties, any relevant rules of international law’. In literature, see P Sands, ‘Treaty, Custom and the Cross-fertilization of International Law (1998) 88 Yale Human Rights & Development Law Journal 85, 95; C McLachlan, ‘The P rinciple of Systemic Integration and Article 31(3)(c) of the Vienna Convention’ (2005) 54 International & Comparative Law Quarterly 279; D French, above Ch 6, n 177; U Linderfalk, ‘Who are “the Parties”? Article 31, Paragraph 3(c) of the Vienna Convention and the “Principle of Systemic Integration” Revisited’ (2008) 55 Netherlands Yearbook of International Law 343; A van Aaken, ‘Defragmentation of Public International Law through Interpretation: A Methodological Proposal’ (2009) 16 Indiana Journal of Global Legal Studies 483; G Orellana Zabalza, The Principle of Systemic Integration: Towards a Coherent International Legal Order (Zürich: Lit Verlag, 2012); P Merkouris, Article 31(3)(c) VCLT and the Principle of Systemic Integration. Normative Shadows in Plato’s Cave (Leiden: Brill Nijhoff, 2015). 2 See, in particular, B Simma and T Kill, ‘Harmonizing Investment Protection and Human Rights: First Steps Towards a Methodology’, in C Binder et al (eds), above Ch 1, n 29, p 678 at 686. 3 As emphasised by S Torres Bernàrdez, dissenting opinion, Ambiente v Argentina, above Ch 1, n 15, para 342. 4 DW Greig, Intertemporality and the Law of Treaties (London: BIICL, 2001) 46; R Gardiner, above Ch 1, n 10, p 298.

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to consider “the relevant rules of international law applicable in relations between the parties”.’5 Article 31(3)(c) essentially performs two main functions in the interpretative process. The first function is to contribute to defining the meaning of any given term or provision. The interpreter has to take into account the relevant extraneous international rules in order (a) to clarify the meaning of a term or provision;6 (b) to inform a choice between two or more possible interpretations;7 or (c) to fill the gap in the treaty to be interpreted. It must be emphasised that resorting to Article 31(3)(c) has no consequences on the jurisdiction of the arbitral tribunal. As pointed out with regard to the competence of the ICJ, ‘principles of customary international law and whatever other treaties the parties to a dispute before the Court may have concluded do not by virtue of Article 31, paragraph (3)(c), become subject to the Court’s jurisdiction’.8 Resorting to other rules of international law may be crucial in interpreting treaty provisions containing references to notions or principles developed in other areas of international law, even more so when the relevant investment treaty does not offer any definition. When the treaty imposes upon the foreign investor the obligation to conduct an environmental and social impact assessment of the potential investment,9 for instance, the interpreter will need to take into account the relevant customary and conventional rules. In Emilio Agustín Maffezini v Spain,10 the Tribunal pointed out that the ‘Environmental Impact Assessment procedure is basic for the adequate protection of the environment and the application of appropriate preventive measures. This is true, not only under Spanish and EEC law, but also increasingly so under international law.’11 The interpreter will then find valuable guidance in the relevant international treaties and in particular those expressly dealing with the obligation to carry out an Environmental Impact Assessment (EIA), and possibly a Strategic Environmental

5

Berschader v Russian Federation, above Ch 4, n 142, Award, para 95. Saluka v Czech Republic, Partial Award, above Ch 3, n 1, para 254, the Tribunal acknowledged that ‘Article 5 of the [BIT between the Netherlands and the Czech Republic] is drafted very broadly and does not contain any exception for the exercise of regulatory power. However, in using the concept of deprivation, Article 5 imports into the Treaty the customary international law notion that a deprivation can be justified if it results from the exercise of regulatory actions aimed at the maintenance of public order.’ 7 In Loewen Group, Inc and Raymond L Loewen v United States, ICSID ARB(AF)/98/3, Award, 26 June 2003, para 226, the Tribunal found that ‘there is no language in those articles, or anywhere in the treaty, which deals with the question of whether nationality must continue to the time of the resolution of the claim. It is the silence in the Treaty that requires the application of customary international law to resolve the question of the need for continuous national identity’. 8 T Buergenthal, separate opinion, Oil Platform, above Ch 1, n 10, para 22. 9 See, for instance, Art 12(1) ECOWAS Supplementary Act. 10 Maffezini v Spain, above Ch 4, n 141, Jurisdiction, para 67. 11 In Pulp Mills on the River Uruguay, Judgment, ICJ Reports 2010, p 14, para 105, the ICJ accepted the existence of ‘a requirement under general international law to undertake an environmental impact assessment where there is a risk that the proposed industrial activity may have a significant adverse impact in a transboundary context, in particular, on a shared resource’. 6 In

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Assessment (SEA), defined respectively as ‘a national procedure for evaluating the likely impact of a proposed activity on the environment’,12 and an ‘evaluation of the likely environmental, including health, effects, which comprises the determination of the scope of an environmental report and its preparation, the carryingout of public participation and consultations, and the taking into account of the environmental report and the results of the public participation and consultations in a plan or programme’.13 The ECOWAS Supplementary Act provides another interesting example. According to Article 12(3), ‘Investors, their investments and the host State authorities shall apply the precautionary principle to their environmental and social impact assessment’.14 It would be difficult to interpret this provision without taking into account the meaning attached to the precautionary principle in environmental law and subsequently in trade law. It may be anticipated that here too Article 31(3)(c) will play a key role and that the interpreter will carefully look at the emergence and evolution of the principle as well as to its application by international tribunals. The second function of taking into account rules extraneous to the treaty under Article 31(3)(c) has systemic character. The interpreter is expected, indeed required, to ensure that the interpretation of any given provision is consistent with the international rights and obligations of the parties stemming from other sources, unless there is evidence that the parties intended to contract out. In other words, there is a presumption that by concluding an investment treaty the parties intended to continue to honour their obligations and enjoy their rights.15 The presumption has been described in the following terms: The Tribunal will interpret each of the various applicable treaties having due regard to the other applicable treaties, assuming that the parties entered into each of those treaties in full awareness of their legal obligations under all of them. In other words, there is no reason to assume that Sweden and Romania had any intent to defeat their obligations under any of the applicable treaties when they entered into each of them and the Tribunal must interpret each treaty—in particular, the BIT—according to that intent of the parties.16

From this systemic perspective, it has been observed that Article 31(3)(c) ‘reflects a “principle of integration” [and] emphasizes both the “unity of international law” 12 Article 1(vi), Convention on EIA in a Transboundary Context (1991), at www.unece.org/env/eia/ about/eia_text.html. 13 Article 2(6), UNECE Protocol on Strategic Environmental Assessment to the Convention on Environmental Impact Assessment in a Transboundary Context (2003), at www.unece.org/env/eia/ about/sea_text.html. 14 See above Ch 2, n 50. 15 In the Case concerning the Right of Passage over Indian Territory (Portugal v India), Preliminary Objections, ICJ Reports 1957, p 125 at 142, the Court held: ‘[i]t is a rule of interpretation that a text emanating from a government must, in principle, be interpreted as producing and as intended to produce effects in accordance with existing law and not in violation of it.’ See also J-M Grossen, Les présomptions en droit international public (Neuchâtel: Delachaux & Niestlé, 1954). 16 Micula v Romania, above Ch 3, n 92, para 326.

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and the sense in which rules should not be considered in isolation of general international law’.17 Investment-related treaties are not an exception. In Saluka v Czech Republic, for instance, it was held that [i]n interpreting a treaty, account has to be taken of ‘any relevant rules of international law applicable in the relations between the parties’—a requirement which the International Court of Justice has held includes relevant rules of general customary international law.18

The need to consider all relevant principles and rules of international law when interpreting investment arbitration was emphasised in Total v Argentina. According to the Tribunal, in order to elucidate the content of the [FET] treatment required by Article 3 in conformity with international law, a tribunal is directed to look not just to the BIT in isolation or the case law of other arbitral tribunals in investment disputes interpreting and applying similarly worded investment protection treaties, but rather to the content of international law more generally. The Tribunal will, therefore, proceed to further interpret the ‘fair and equitable treatment’ standard looking also at general principles and public international law in a non-BIT context.19

Accordingly, ‘the purpose of interpreting by reference to “relevant rules” is, normally, not to defer the provisions being interpreted to the scope and effect of those “relevant rules”, but to clarify the content of the former by referring to the latter’.20 Likewise, extraneous rules taken into account in accordance with Article 31(3)(c) can assist in establishing the meaning of the terms of provision being interpreted, but they cannot overrule these terms.21 The two functions are intimately related and both can play a significant role in avoiding conflicts between obligations contained in the investment treaty and those stemming from other relevant rules. This is particularly evident when the vagueness or incompleteness of investment provisions offer the interpreter a certain degree of flexibility or when there are several plausible interpretations and at least one of them is consistent with the relevant rights and obligations of the parties. As explained by the Special Rapporteur, the use of “taking into account” was preferred to “be subject to” or similar wording in order to avoid a mechanical resort to extraneous rules. “Taking into account” was accordingly considered as appropriate to leave to the interpreter the assessment of the relevance of such rules

17

P Sands, above n 1, p 95. Saluka v Czech Republic, Partial Award, above Ch 3, n 1, para 254 (footnotes omitted). In Desert Line Project, above Ch 4, n 291, para 106, the Tribunal found that ‘general international law … forms the context in which the BIT is called upon to operate’, where context is not used in a technical manner under Art 31(1) and (2) VCLT. 19 Total SA v Argentina, ARB/04/1, Liability, 27 December 2010, paras 126–27. 20 A Orakhelashvili, ‘Restrictive Interpretation of Human Rights Treaties in the Recent Jurisprudence of the European Court of Human Rights’ (2003) 14 European Journal of International Law 537. 21 J Pauwelyn, above Ch 4, n 171, p 254. 18

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upon the interpretation of the treaty, especially considering that often these rules apply to a constituency different from that of the treaty. According to the Special Rapporteur, [t]he term ‘take account of ’ is used rather than ‘be subject to’ or any similar term because, if the rule is formulated as one of interpretation, it seems better, at any rate in subparagraphs(a) and (b), to use words that leave open the results of the interpretation. Where a later rule of customary law emerges or a later agreement is concluded, the question may arise as to how far they ought to be regarded as intended to supersede the treaty in the relations between the parties … If the treaty was intended to create a special regime between the particular parties, they might not intend it to be displaced by the emergence of a new general regime created by treaty or custom.22

From this perspective, the choice to use the expression ‘taking into account’ responds to the need to co-ordinate the treaty to be interpreted with customs or agreements with the same or different constituencies. Whether and to what extent other rules may concur to define the meaning of a treaty provision and possibly justify a choice between different plausible interpretations or even a departure from the interpretation based on Article 31(1) and (2) VCLT requires a careful assessment by the interpreter on a case-by-case basis. An investment tribunal has understood the obligation to ‘take into account’ other rules of international law to require it to respect the Vienna Convention’s rules governing treaty interpretation. However, the Tribunal does not understand this obligation to provide a license to import into NAFTA legal elements from other treaties, or to allow alteration of an interpretation established through the normal interpretive processes of the Vienna Convention. This is a Tribunal of limited jurisdiction; it has no mandate to decide claims based on treaties other than NAFTA.23

It is argued that the paragraph does not accurately reflect the nature and scope of Article 31(3)(c), which does not require the respect of the VCLT rules on treaty interpretation, but is a significant part of them. Indeed, Article 31(3)(c) does not allow any alteration of the ‘normal’ interpretative process under the VCLT; there is only one interpretative process and its qualification as ‘normal’ remains obscure. More importantly, the function of Article 31(3)(c) is not to import into the treaty to be interpreted any legal elements from other treaties, and even less to alter the mandate of the tribunal by allowing it to settle dispute not arising from the treaty to be interpreted. Quite the contrary, Article 31(3)(c) directs the interpreter to

22 H Waldock, 3rd Report (1964-II) 16 Yearbook of the International Law Commission 61. The relevant provision (Art 73—Effect of a later customary rule or of a later agreement on interpretation of a treaty) reads in part: ‘The interpretation at any time of the terms of a treaty under articles 70 and 71 shall take account of: (a) the emergence of any later rule of customary international law affecting the subject-matter of the treaty and binding upon all the parties; (b) any later agreement between all the parties to the treaty and relating to its subject-matter; (c) any subsequent practice in relation to the treaty evidencing the consent of all the parties to an extension or modification of the treaty.’ 23 Grand River v United States, above Ch 3, n 130, Final Award, para 71.

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consider any relevant rules of international law applicable to the relations between the parties with a view to establishing the meaning of the treaty to be interpreted. It is also clear that ‘any legal instrument has to be interpreted and applied within the entire legal system prevailing at the time of the interpretation’,24 whereas ‘rules of international law’ must be intended as any rules binding the parties in the international legal order regardless of its sources. This includes international treaties, customary rules and general principles of law.25 Some tribunals have taken into account customary international law as it stood at the time of the conclusion of the treaty to be interpreted.26 This is far from convincing. The interpreter should consider customary law as prevailing at the time of interpretation or of the alleged violation of the treaty provision. It is indeed at this moment that the treaty provision must be interpreted and applied taking into account the evolution of customary law up to then.27 It is worthwhile noting that, in the context of the work of the ILC on the law of treaties, the precursor of Article 31(3)(c) of the VCLT initially established that a treaty was to be interpreted in the light of the general rules of international law in force at the time of the conclusion of the treaty.28 The temporal qualification was subsequently abandoned. The ILC considered the original draft article as inadequate since it ‘failed to deal with the problem of the effect of an evolution of the law on the interpretation of legal terms in a treaty’.29 Such a dynamic approach is imposed by the continuing evolving character of international law. As pointed out by a tribunal, ‘in applying the Treaty, the Tribunal is bound to find the meaning of these terms under international law bearing in

24 Namibia advisory opinion, above Ch 4, n 172, para 35. See also George Pinson v Mexico (1928) 5 Reports of International Arbitral Awards 327, para 50. 25 Several investment tribunals have held that Art 31(3)(c) VCLT includes customary international law, see, eg, Kardassopoulos v Georgia, above Ch 4, n 292, Jurisdiction, para 208, relying on Oil Platform, above Ch 1, n 10, para 41; Ambiente v Argentina, above Ch 1, n 15, Admissibility and Jurisdiction, para 600. In Golder v United Kingdom (1975) 1 European Court of Human Rights 524, para 35, the Court held without hesitation that the rules referred to in Art 31(3)(c) VCLT include general principles of law and especially generally principles of law recognised by civilised nations. See also Z Douglas, above Ch 3, n 68, p 86. 26 In Siemens v Argentina, above Ch 3, n 5, Award, para 293, for example, the Tribunal found that ‘the question is whether, at the time the Treaty was concluded, customary international law had evolved to a higher standard of treatment’. In Mondev v United States, above Ch 3, n 85, para 125, the Tribunal observed that ‘the term “customary international law” refers to customary international law as it stood no earlier than at the time at which NAFTA came into force.’ Interestingly, in the same paragraph the Tribunal made a clear reference—hardly consistent with the previous finding—to current international law. 27 Customary international law existing at the time of conclusion of the treaty determines whether the relevant provision codifies customary law. Regardless of the answer to this question, both treaty and customary rules continue to evolve and to be exposed to their mutual influence. 28 See Art 70.1(b), H Waldock, Third Report on the Law of Treaties (1964-II) 16 Yearbook of the International Law Commission 52. 29 See (1966-II) 18 Yearbook of the International Law Commission 222. This is also the position of the Institut de droit international; see the resolution adopted in 1975 in (1975) Annuaire de l’Institut de Droit International 537.

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mind their ordinary meaning, the evolution of international law and the specific context in which they are used’.30 The point has been reiterated as follows: Rules of international law subsequent to the treaty to be interpreted may be taken into account especially where the concepts used in the treaty are open or evolving. This is the case, in particular, where: (a) the concept is one which implies taking into account subsequent technical, economic or legal developments; (b) the concept sets up an obligation for further progressive development for the parties; or (c) the concept has a very general nature or is expressed in such general terms that it must take into account changing circumstances.31

Interestingly, some FTAs including protection of foreign investment contain a so-called evolutionary clause whereby the parties undertook to review the agreement, often through a Joint Committee, in order to bring it in line with further developments in international economic relations32 or improve the internal legal framework regarding investments.33 Article 30 FTA Croatia–EFTA States, titled ‘Evolutionary clause’, for instance, reads: 1. The Parties undertake to review the present Agreement in light of further developments in international economic relations, i.a. in the framework of the WTO and to examine in this context, and in the light of any relevant factor, the possibility of further developing and deepening the co-operation under this Agreement and to extend it to areas not covered therein. The Parties may instruct the Joint Committee to examine this possibility and, where appropriate, to make recommendations to them, particularly with a view to opening up negotiations. 2. Agreements resulting from the procedure referred to in paragraph 1 will be subject to ratification or approval by the Parties in accordance with their own procedures.

Strictly speaking, Article 31(3)(c) VCLT refers to—and only to—international rules applicable in the relations between the concerned State(s).34 It has nonetheless been argued that [w]hile lex mercatoria as an expression of international business custom is far from the vision of public international lawyers, the wide reference to ‘international law’ in Article 31(3)(c) and the tripartite nature of investment arbitration including a non-State element does not preclude taking into account non-traditional sources of international law.35

It is at least plausible to argue that it would be over-formalistic to exclude from the process of interpretation lex mercatoria—but also guidelines and codes of 30

Siemens v Argentina, above Ch 3, n 5, Award, para 291. of the Work of the Study Group on the Fragmentation of International Law: Difficulties arising from the Diversification and Expansion of International Law, 2006, at http://legal. un.org/ilc/texts/instruments/english/draft%20articles/1_9_2006.pdf (footnotes omitted). 32 At www.efta.int/content/legal-texts/third-country-relations/croatia/HR-FTA.pdf. 33 See, eg, Art 33 CEFTA at www.cefta2006.com/doc/CETA-Linkovi/Home/eng/CEFTA%202006% 20ANNEX%201.pdf. 34 S Torres Bernàrdez, dissenting opinion, Ambiente v Argentina, above Ch 1, n 15, para 456 confines the applicability of Art 31(3)(c) to ‘positive international law’. 35 TW Wälde, above Ch 1, n 29, p 775. 31 Conclusions

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conduct—merely because they lack legally binding character. Squeezing lex mercatoria—or other non-legally binding instruments—into Article 31(3)(c), nonetheless, would be contrary to the text as well as the object and purpose of this provision and ultimately would stretch it beyond recognition. This is without prejudice to the possibility that the interpreter could take into account lex mercatoria or other non-legally binding instruments at various points of the interpretative process and most prominently when establishing the ordinary meaning of a term, or considering the object and purpose of a treaty or one of its provisions. At any rate, the interpreter finds a clear limit in that the international rules to be taken into account for the purpose of Article 31(3)(c) can only contribute to define the content of the rule being applied by the tribunal and cannot displace it.36 In this regard, establishing where extraneous rules are ‘relevant’ and ‘applicable between the parties’ is crucial. Unfortunately, the terms ‘relevant’ and ‘applicable between the parties’ are not exempt from uncertainty. It would come close to a truism to say that the relevant rules the interpreter must take into account have to belong to the same subject matter as the provision to be interpreted. It can also be easily agreed that the relevant rules must have ‘a certain bearing in interpretation’37 or ‘should be related in some way to the treaty norm being interpreted’.38 It remains, however, that the vagueness of these definitions leaves the interpreter an enormous discretion39 to the extent that ‘almost any rule of international law will be “relevant” when considered with the proper degree of abstraction’.40 In Ambiente v Argentina, the Tribunal considered that extraneous rules need to be “sufficiently comparable” to the provision of the investment treaty to be interpreted.41 The Tribunal had to interpret Article 8(2) and (3) of the BIT between Argentina and Italy, which requires foreign investors to litigate before a domestic tribunal for 18 months before resorting to international arbitration. The Tribunal held by majority that in view of the strong structural parallels between these two types of clauses, the Tribunal does not consider it a far-fetched conclusion to assume that the futility exception to the exhaustion of local remedies rule in the field of diplomatic protection is, in the light of Art 31(3)(c) of the VCLT, also applicable to clauses requiring recourse to domestic courts in international investment law.42

The finding was harshly criticised by a dissenting arbitrator: [t]he Majority Decision is creating out of the blue an exception to the treaty disputeresolutionprovisions of Article 8 of the Argentina–Italy BIT (pacta sunt servanda)

36

P Sands, above n 1, pp 101–02. Certain Questions of Mutual Assistance in Criminal Matters (Djibouti v France), Judgment, ICJ Reports 2008, p 177, para 114. 38 P Sands, above n 1, p 102. 39 D French, above Ch 4, n 178, p 304. 40 B Simma and T Kill, above n 2, p 696. 41 Ambiente v Argentina, Jurisdiction and Admissibility, above Ch 1, n 15, para 601. 42 para 603. 37

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unknown to the Contracting Parties and invoking Article 31(3)(c) of the VCLT in support of that pretending exception, while disregarding that this Article of the Vienna Convention sends back the interpreter to the positive international law applicable in the relations between Argentina and Italy such as the rules governing the jurisdiction of international tribunals, the consent of the parties to the dispute in the first place, and the very system of interpretation of treaties of the Convention based essentially in the textual approach which, in the present case, applied as both conventional and customary international law rules.43

The criticism seems well founded. Article 31(3)(c) VCLT is not used here to clarify the meaning of Article 8(2) and (3) or to ensure that the parties do not unintentionally violate commitments stemming from other sources. Instead, it is used to upset the clear meaning of Article 8(2) and (3).44 Even assuming, for the sake of the argument, that the exhaustion of local remedies rule in the field of diplomatic protection is a relevant customary norm applicable between the parties, it is clear that the intention of the parties expressed through the conclusion of a bilateral treaty and accurately recorded in Article 8(2) and (3) prevails regardless to any possible customary rule binding the parties either in the field of investment law and a fortiori in diplomatic protection law.45 As accurately pointed out by another tribunal: ‘[a]pplicable in the relations between the parties’ must be taken as a reference to rules of international law that condition the performance of the specific rights and obligations stipulated in the treaty—or else it would amount to a general licence to override the treaty terms that would be quite incompatible with the general spirit of the Vienna Convention as a whole.46

Furthermore, the interpreter must never overlook that treaties may be concluded with a view of derogating from customary law otherwise applicable to the parties. 43 para 456. It is worth noting that the dissenting arbitrator pointed out that consent to international arbitration is a rule of international law applicable in the relations between Argentina and Italy which the Tribunal should have taken into account under Art 31(3)(c) VCLT to confirm the ordinary meaning of Art 8(3) in its context and in the light and purpose of the treaty; see S Torres Bernàrdez, dissenting opinion, Ambiente v Argentina, above Ch 1, n 15, Admissibility and Jurisdiction, para 91. 44 Here the Tribunal seems particularly zealous. The ILC Study Group observed that ‘as a general rule, there would be no room to refer to other rules of international law unless the treaty itself gave rise to a problem of interpretation’, p 300. For a more nuanced position see D French, above Ch 4, n 177, p 303, who notes that when the meaning of a provision is clear, there is rarely a need or judicial desire to introduce extraneous materials, but nonetheless recognises a broad role for Art 31(3)(c) VCLT. 45 In this respect, it is quite significant that, as reminded by the dissenting arbitrator in para 45, the reservation of Art 17 of the 2006 ILC draft articles on Diplomatic Protection to the effect that those draft articles ‘do not apply to the extent that they are inconsistent with special rules of international law, such as treaty provisions for the protection of investments’. In Azurix Corp v Argentina, above Ch 1, n 28, Jurisdiction, 8 December 2003, para 72, the Tribunal found that ‘[t]he issues before this Tribunal concern not diplomatic protection under customary international law but the rights of investors, including shareholders, as determined by treaty, namely, under the BIT’. 46 RosInvest v Russian Federation, above Ch 1, n 41, Jurisdiction, para 39. In literature P Sands, above n 1, pp 101–02, has pointed out that under Art 31(3)(c) the treaty being interpreted retains a primary role whereas the customary rule referred to through Art 31(3)(c) plays a secondary rule and cannot displace the provisions of the treaty.

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Such a possibility, which meets only the limit of pre-emptory norms,47 has been clearly evocated by the ad hoc Committee in Azurix v Argentina. After accepting that a treaty may need to be interpreted against the general fabric of customary international law, the Committee emphasised that except where norms of ius cogens are involved, a treaty is capable of modifying the rules of customary international law that would otherwise be applicable as between the States parties to the treaty. Indeed, often the very purpose of a treaty is to effect such a modification. The purpose of investment protection treaties is generally … to augment or modify the customary international law procedures for protection of foreign investors. Hence the starting point in determining the effect of the treaty is the terms of the treaty itself, rather than the principles of customary international law that may or may not be displaced by the treaty provisions.48

Tribunals must carefully consider in good faith whether other international rules applicable between the parties are significant for the implementation of the provision to be interpreted and therefore susceptible to shed some light on the meaning of the provision to interpret. The exercise broadens the perspective of the interpreter, but also implies heavy responsibilities. With regard to the expression ‘between the parties’, when the treaty taken into account in accordance with Article 31(3)(c) is multilateral in character, it is still disputed whether the interpreter has to consider the rules applicable to the relations between all parties to the dispute, or rather to all parties to the treaty the Tribunal need to interpret. In European Communities—Biotech Products, the Panel held that ‘it makes sense to interpret Article 31(3)(c) as requiring consideration of those rules of international law which are applicable in the relations between all parties to the treaty which is being interpreted’.49 This solution has the clear 47 See

Methanex v United States, above Ch 1, n 55, Award, Part IV, C, paras 24–25. Azurix v Argentina, above Ch 1, n 28, Annulment, para 90. In the same vein, in ADC and ADC & ADMC v Hungary, /ARB/03/16, Award, 2 October 2006, para 481, the Tribunal held that ‘there is general authority for the view that a BIT can be considered as a lex specialis whose provisions will prevail over rules of customary international law’. 49 European Communities—Approval and Marketing of Biotech Products, WT/DS291/R, 29 September 2006, para 7.70. See also B McGrady, ‘Fragmentation of International Law or “Systemic Integration” of Treaty Regimes: EC–Biotech Products and the Proper Interpretation of Article 31(3)(c) of the Vienna Convention on the Law of the Treaties’ (2008) 42 Journal of World Trade 589. In European Communities et al—Measures Affecting Trade in Large Civil Aircraft (Second Complaint), WT/DS316/AB/R, 18 May 2011, para 845, the Appellate Body held that ‘An interpretation of “the parties” in Article 31(3)(c) should be guided by the Appellate Body’s statement that “the purpose of treaty interpretation is to establish the common intention of the parties to the Treaty”. This suggests that one must exercise caution in drawing from an international agreement to which not all WTO Members are party. At the same time, we recognize that a proper interpretation of the term “the parties” must also take account of the fact that Article 31(3)(c) of the Vienna Convention is considered an expression of the of the “principle of systemic integration” which, in the words of the ILC, seeks to ensure that international obligations are interpreted by reference to their normative environment in a manner that gives coherence and meaningfulness to the process of legal interpretation. In a multilateral context such as the WTO, when recourse is had to a non-WTO rule for the purposes of interpreting provisions of the WTO agreements, a delicate balance must be struck between, on the one hand, taking due account of an individual WTO Member’s international obligations and, on the other hand, ensuring a consistent and harmonious approach to the interpretation of WTO law among all WTO Members’ (footnotes omitted). 48

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advantage of enhancing the chances of a uniform interpretation of treaties, but in practice may undermine their systemic interpretation and ultimately the coherence of international law, especially when multilateral treaties with a large constituency are concerned. The question who are the parties for the purpose of Article 31(3)(c), however, does not seem to be of great magnitude in the field of foreign investment due to the bilateral nature of most investment treaties and the normally limited and homogenous memberships to investment-related multilateral treaties. It may be anticipated that the question could arise in respect to the ECT, especially in respect to environmental multilateral agreements. As a result, there seems to be a significant potential for systemic interpretation of investment treaty law. Yet, it appears that investment tribunals have not taken a precise position on the issue. In Glamis v United States, the respondent mentioned that UNESCO adopted the World Heritage Convention50 amongst the international instruments recognising the importance of adequately preserving historic and cultural properties.51 The Tribunal limited itself to include a reference to the convention in Section II of the award (factual summary).52 Interestingly, both the respondent and the Tribunal noticed the participation of the United States to the UNESCO Convention but not that of the non-disputing parties. Whatever view is taken as to the meaning of ‘the parties’ in Article 31(3)(c), looking at the rules applicable to only one of the parties to the treaty being interpreted is not accurate. In Al Warraq v Indonesia, the Tribunal took into account the International Covenant on Civil and Political Rights (ICCPR)53 with a view to interpreting the FET standard (unconvincingly) incorporated in the OIC Investment Agreement in a dispute between an investor claiming Saudi Arabian nationality and Indonesia. Although the T ribunal did not expressly refer to Article 31(3)(c)—which had been invoked by the claimant54—it confined itself to noting that Indonesia acceded to the ICCPR on 23 February 2006, but completely neglected the question of the applicability of the treaty to Saudi Arabia, not to mention to all other OIC members.55 Incidentally, Saudi Arabia has not yet ratified the ICCPR. Likewise, the Tribunal also took into account the United Nations Convention against Corruption,56 which was ratified by Saudi Arabia on 29 April 2013 and entered into force for that State 30 days later, well after the commission of the acts allegedly in breach of the OIC Agreement. Since the two treaties were not applicable to the relations between 50 Convention concerning the Protection of the World Cultural and Natural Heritage, General Conference of the UN Educational, Scientific and Cultural Organization, 17th Session, Preamble (16 November 1972). 51 Available at www.state.gov/documents/organization/73686.pdf, p 34. 52 Glamis v United States, above Ch 4, n 128, Award, para 84. 53 (1966) 999 United Nations Treaty Series 171, concluded on 16 December 1966 and entered into force on 23 March 1976 (168 parties). 54 See above, Ch 8, section II. 55 Al Warraq v Indonesia, above Ch 1, n 43, Award, para 562. 56 (2003) 2349 United Nations Treaty Series 41, concluded on 31 October 2003 and entered into force on 14 December 2005 (178 parties).

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Saudi Arabia and Indonesia, reliance on Article 31(3)(c) as a matter of treaty law is misplaced, whatever view is taken on the meaning of ‘the parties’. This is without prejudice to considering the customary rules reflected in the two treaties.57

II. Distinction Between Systemic Interpretation and Applicable Law The obligation imposed upon the tribunal to ‘take into account’ any other rules applicable between the parties, however, risks blurring the distinction between applicable law and interpretation. On one side, Article 31(3)(c) commands the interpreter to take into account any relevant rules of international law applicable to the relations between the parties for the purpose of interpreting a treaty. Such a command is independent of the consent of the parties and limited to international rules. On the other side, the law applicable by an international tribunal refers primarily to the relevant legal rules governing the substantive issues in dispute. These rules are normally agreed upon by the parties and may well belong to both international law and national legal orders.58 Under Article 10(5) BIT Germany– Argentina, for example, arbitral tribunals shall decide ‘on the basis of this treaty, and, as the case may be, other treaties in force between the Contracting Parties, the internal law of the Contracting Party in whose territory the investment was made, including its rules of private international law, and on the general principles of international law’.59 The provisions on applicable law included in multilateral treaties (such as Article 26(6) ECT or Article 1131 NAFTA) and in several BITs pave the way to the application of international law. The application of international law is envisaged—assuming the parties have not agreed otherwise—in disputes brought before ICSID tribunals (Article 42) or left to the discretion of the tribunal (Article 35(1) UNCITRAL Rules or Article 21(1) ICC Rules). Other rules of international law may be invoked and relied upon as legal defence against claims of non-compliance with the investment treaty. It has been argued in the context of WTO litigation that [n]on-WTO rules may be part of the applicable law before a WTO panel and hence offer, in particular, a valid defence against claim of WTO breach. However, they cannot form

57

On the decision of the Tribunal, see also below, section III. the different meanings of applicable law in international commercial arbitration, see A Redfern, M Hunter, N Blackaby, C Partasides, Law and Practice of International Commercial Arbitration, 5th edn (Oxford: OUP, 2009), ch 2. See also Y Banifatemi, ‘The Law Applicable in Investment Treaty Arbitration’, in K Yannaca-Small (ed), Arbitration Under International Investment Agreements: A Guide to the Key Issues (Oxford: OUP, 2010) 191. 59 It may be safely argued that Art 10(5) also includes customary international law. 58 For

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the basis of legal claims, the jurisdiction of WTO panels being limited to claims under WTO covered agreements only.60

The argument may be transposed mutatis mutandis to investment treaties. The host State, in particular, can rely on the provisions of a non-investment treaty to justify a conduct otherwise contrary to the investment treaty. In principle, tribunals are expected to apply international rules in a mutually supportive manner and to strive to conciliate these rules. In this regard, it is worth noting the NAFTA preamble according to which environmental protection and economic development can and should be mutually supportive. From this perspective, three awards deserve to be mentioned. In Myers v Canada, a NAFTA tribunal rejected the argument put forward by the respondent according to which the conduct inconsistent with the BIT with the United States was dictated by the need to comply with a treaty for the protection of the environment which had not been ratified by all NAFTA parties. It found that there was no conflict between the obligation imposed by the Basel Convention61 and NAFTA as Article 11 of the former expressly allows parties to enter into bilateral, multilateral or regional agreements regarding transboundary movement of hazardous wastes and other wastes with parties or non-parties, provided that such agreements do not derogate from the environmental sound management of hazardous wastes and other wastes as required by the Basel Convention. The Tribunal nonetheless further observed that NAFTA Article 104 provides that specific trade obligations set out in the Basel Convention will prevail, on its entry into force for all NAFTA members, over any inconsistent NAFTA obligation ‘provided that where a Party has choice among equally and reasonably available means of complying with such obligations, the Party chooses the alternative that is the least inconsistent with the other provisions of this Agreement’. Accordingly it held that [e]ven if the Basel Convention were to have been ratified by the NAFTA Parties, it should not be presumed that CANADA would have been able to use it to justify the breach of a specific NAFTA provision because … where a party has a choice among equally effective and reasonably available alternatives for complying…with a Basel Convention obligation, it is obliged to choose the alternative that is … least inconsistent … with the NAFTA. If one such alternative were to involve no inconsistency with the Basel Convention, clearly this should be followed.62

The Tribunal thus opted for a narrow definition of conflict and was prepared to consider the defence based on the non-investment treaty only to the strict extent that compliance with both treaties was impossible.

60

J Pauwelyn, above Ch 4, n 171, p 491. Basel Convention on the Control of Transboundary Movement of Hazardous Wastes and Their Disposal, 22 March 1989, available at www.basel.int/text/con-e-rev.doc/. 62 SD Myers v Canada, above Ch 4, n 122, para 215. The same narrow definition of conflict was adopted in Southern Pacific Properties v Egypt (1993) 32 International Legal Materials para 154. 61

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In Glamis v United States, the tribunal paid lip service to documents submitted amicus curiae, which discussed inter alia the right of indigenous peoples, and held that a tribunal should confine its decision to the issues presented by the dispute before it. The Tribunal is aware that the decision in this proceeding has been awaited by private and public entities concerned with environmental regulation, the interests of indigenous peoples, and the tension sometimes seen between private rights in property and the need of the State to regulate the use of property. These issues were extensively argued in this case and considered by the Tribunal. However, given the Tribunal’s holdings, the Tribunal is not required to decide many of the most controversial issues raised in this proceeding. The Tribunal observes that a few awards have made statements not required by the case before it. The Tribunal does not agree with this tendency; it believes that its case-specific mandate and the respect demanded for the difficult task faced squarely by some future tribunal instead argues for it to confine its decision to the issues presented.63

The statement is far from clear, as is the expression ‘the issues presented by the dispute’. The Tribunal did not elaborate on the law applicable to the dispute, presumably on the assumption that Article 1131(1) clearly required it to apply the relevant NAFTA provisions alongside any applicable rules of international law. Instead, it confined itself to apply exclusively NAFTA provisions and failed to carefully examine whether other rules of international law could have been applied to the dispute, including those on the protection of indigenous peoples. The question is not one of unduly expanding the mandate of the tribunal. The jurisdiction of the tribunal is defined exclusively by the jurisdictional provisions contained in NAFTA and the tribunal’s competence is strictly limited to adjudication of violations of NAFTA. Rather, the crux of the matter is the law governing the dispute, which by virtue of Article 1131(1) includes international rules extraneous to NAFTA to the extent these rules are relevant for the settlement of the dispute. In Suez v Argentina, the Tribunal rejected the respondent’s argument that its human rights obligations to assure its population the right to water would prevail over its obligations under the BITs and the existence of the human right to water. The Tribunal found no basis for such a conclusion either in the BITs or international law. It held that Argentina is subject to both international obligations, ie human rights and treaty obligation, and must respect both of them equally. Under the circumstances of these cases, Argentina’s human rights obligations and its investment treaty obligations are not inconsistent, contradictory, or mutually exclusive. Thus, as discussed above, Argentina could have respected both types of obligations. Viewing each treaty as a whole, the Tribunal does not find that any of them excluded the defense of necessity.64

63

Glamis v United States, above Ch 4, n 128, para 8. Ch 4, n 4, Liability, para 262. A Tanzi, ‘Public Interest Concerns in International Investment Arbitration in the Water Services Sector: Problems and Prospects for an Integrated Approach’, in T Treves, F Seatzu, S Trevisanut (eds), Foreign Investment, International Law and Common Concerns (London: Routledge, 2014) 318. 64 Above

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The finding is not entirely convincing. The Tribunal pointed out that the law applicable to the dispute included international law as indicated in the three bilateral investment treaties the claims were based upon.65 It nonetheless seems to conflate the notions of necessity and applicable law. The paragraph reproduced above is indeed part of the discussion on the third of the conditions that need to be met in order to invoke necessity, namely the absence in the investment treaty of a clause excluding necessity. Apart from its weird location, it remains that the paragraph is quite interesting as a matter of applicable law. On the one hand, it reiterates that all international obligations must be complied with as long as they are not inconsistent, contradictory, or mutually exclusive. On the other hand, it left unanswered the question how to solve a conflict due to the impossibility to comply simultaneously with all incumbent obligations. Assuming that, in a case similar to Suez v Argentina, (a) the respondent has an obligation to provide clean and affordable water and (b) a conflict arises between this obligation and treaty obligations relating to investment, the Tribunal must apply both obligations and decide which one prevails, in accordance with the explicit conflict clauses, if any, the traditional lex posteriori and lex specialis principles,66 and possibly the erga omnes character of human rights obligations. From the standpoint of erga omnes obligations, it is submitted that a tribunal may attach decisive importance to the fact that these obligations simultaneously and inseparably satisfy an interest common to all States.67 Non-compliance with these obligations infringes the subjective rights of all States68 and each of them is consequently to be considered an injured party entitled to react on the international plane.69 When the treaty on the protection of foreign investment is subsequent to the rule imposing erga omnes obligations, in particular, it may be argued that the contracting parties ought to be aware that these obligations could not be derogated from without the consent of all parties bound by them (provided that these obligations do not derive from peremptory norms and are therefore not susceptible of derogation).

65 In paras 58 ff, the Tribunal considered the expressions ‘principles of international law’ and ‘general principles of international law’ contained in the three treaties as equivalent to ‘international law’. 66 The possibility that non-investment obligations such as those for the protection of the environment could be invoked by the host State to justify breaches of an investment treaty was admitted, in principle, in SD Myers, Inc v Canada, above Ch 4, n 122, para 215. According to the High Commission for Human Rights, States are encouraged to raise human rights issues, UN Economic and Social Council [ECOSOC], Sub-Commission on the Promotion of Human Rights, Report of the High Commissioner for Human Rights, Human Rights, Trade and Investment, UN Doc E/CN.4/Sub.2/2003/9, 2 July 2003, para 55. 67 See G Arangio-Ruiz, 4th Report on State Responsibility (1989-II) 44 Yearbook of the International Law Commission Part I, p 33 ff. 68 As noted by G Arangio-Ruiz, above n 67, p 43, ‘[a] State can thus be injured by a breach of an erga omnes obligation even if it did not suffer any damage other than the infringement of its right’. In the literature see in particular C Tams, Enforcing Obligations Erga Omnes in International Law (Cambridge: CUP, 2005). 69 See International Tribunal for Former Yugoslavia, Prosecutor v Furundzija, 10 December 1998, in (1999) 38 International Legal Materials 317, para 151.

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In practice, however, it may be difficult for a tribunal to refrain from applying rule A as not falling within the applicable law while simultaneously ‘taking into account’ under Article 31(3)(c) any relevant rule, including rule A. ‘Applying’ a rule and ‘taking into account’ a rule are different exercises, but the distinction may not always be very neat. As a result, tribunals may hover between the limitations on applicable law and the need for taking into account other applicable rules.70 The distinction between systemic interpretation and applicable law tends to be blurred when investment provisions are so broad that the interpreter must construe their meaning on the basis of general principles of law.71 This is notably the case of the FET standard. Arbitral tribunals have tried to give substance to the standard by resorting to general principles of law.72 These principles, which are often intimately related and interact with each other, govern the exercise by the host State’s rights and prerogative in its dealing with foreign investors, including admission, concessions, tax treatment, regulatory powers and expropriation.73 As pointed out by a tribunal the FET standard encompasses several concrete principles, including those related to transparency, good faith, non-arbitrary treatment, due process, procedural propriety and reasonable and legitimate expectations.74 Another tribunal, relying on previous decisions, has identified the following ‘factors’ which correspond in good substance to general principles developed and regularly applied by domestic tribunals across all jurisdictions: the obligation to act transparently and grant due process, to refrain from taking arbitrary or discriminatory measures, from exercising coercion or from frustrating the investor’s reasonable expectations with respect to the legal framework affecting the investment.75

The distinction between systemic interpretation and applicable law tends to fade away entirely when the content of a treaty provision is pegged to the content of customary rule. In this case, customary law is not merely ‘taken into account’, but becomes for all practical purposes the law applicable to the dispute. Article 1005, for instance, operates a renvoi to or incorporates international customary law,76 as 70 In Oil Platforms, above Ch 1, n 10, p 819, R Higgins criticises the Court for invoking the concept of treaty interpretation to displace the applicable law, separate opinion, pp 237–39. 71 In Phoenix v Czech Republic, above Ch 3, n 42, para 77, the Tribunal found that ‘international agreements like the Convention and the BIT have to be analysed with due regard to the requirements of the general principles of law, such as the principle of non-retroactivity or the principle of good faith, also referred to by the Vienna Convention’. 72 C McLachlan, L Shore and M Weiniger, above Ch 1, n 16, para 7.176, point out that ‘[t]he key terms [“fair and equitable treatment” and “full protection and security”] are expressive of “general principles of law common to civilized nations” within the meaning of Article 38(1)(c) of the Statute of the International Court of Justice’. See also R Dolzer and C Schreuer, above Ch 2, n 75, p 119 ff. 73 In Impregilo v Pakistan, above Ch 2, n 12, Jurisdiction, paras 266–70, the Tribunal emphasised that only acts of puissance public (ie activities going beyond that of ordinary contracting parties) may amount to violation of the FET standard contained in the BIT between Italy and Pakistan. 74 Rumeli v Kazakhstan, above Ch 3, n 39, Award, para 609. 75 Bayindir v Pakistan, above Ch 4, n 34, para 178 (footnotes omitted). 76 See Mondev v United States, above Ch 3, n 85, para 125. This was also the position of the United States, ibid, paras 111 ff. See also DM Price, ‘An Overview of the NAFTA Investment Chapter. Substantive Rules and Investor–State Dispute Settlement’ (1993) 27 International Lawyer 727, p 729.

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upheld by the FTC. Such an interpretation is certainly facilitated by the heading of Article 1105 and the agreement between the Member States.77 While the effects of the FTC interpretation are clearly limited to NAFTA members, it is worthwhile noting that the view equating FET with international minimum standard is spreading beyond NAFTA, primarily through BITs78 and FTA agreements79 concluded between NAFTA members and third States. It cannot be ruled out that in due time the correspondence between FET and IMS could be progressively accepted by the generality of States.80 A final point must be made with regard to the rules extraneous to the treaty. Investment tribunals have not the competence to adjudicate upon alleged violations of these rules. As peremptorily held in Biloune v Ghana, ‘while the acts alleged to violate the international human rights of Mr Biloune may be relevant in considering the investment dispute under arbitration, this Tribunal lacks jurisdiction to address, as an independent cause of action, a claim of violation of human rights’.81 It is argued that the limits of an investment tribunal have been trespassed in a recent decision with regard to the interpretation of Article 10(1) of the OIC Investment Agreement, which reads: The host state shall undertake not to adopt or permit the adoption of any measure— itself or through one of its organs, institutions or local authorities—if such a measure may directly or indirectly affect the ownership of the investor’s capital or investment by depriving him totally or partially of his ownership or all or part of his basic rights or the exercise of his authority on the ownership, possession or utilization of his capital, or of his actual control over the Investment, its management, making use out of it, enjoying its utilities, the realization.

The parties sharply disagreed on the meaning of ‘basic rights’. The claimant invoked Article 31(3)(c) VCLT to argue that the basic rights are to be interpreted as including ‘basic international law norms and rights’.82 For the respondent, on 77

See above Ch 7, n 46. See, eg: Art 5, BIT United States–Uruguay, 4 November 2005; Art 3, BIT United Kingdom– Mexico, 12 May 2006 (not in force). 79 See, eg, Art G-05 and Note, FTAA Canada–Chile; Art 11.5, FTAA Australia–United States; Art 60 and Note, Agreement between Japan and Mexico for the Strengthening of the Economic Partnership, 17 September 2004; Art 10.5, Central American Free Trade Agreement, 5 August 2004; Art 10.5, FTAA United States–Morocco, 15 June 2004. 80 Argentina, for instance, has supported the NAFTA interpretation in Siemens v Argentina, above Ch 3, n 5, Award, para 292. 81 Biloune v Ghana Investment Centre and the Government of Ghana, UNCITRAL, Jurisdiction and Liability, 27 October 1989 (1990) 95 International Law Reports 183, p 203. The Tribunal further held that its competence was ‘limited to commercial disputes arising under a contract entered into in the context of Ghana’s Investment Code … the Government agreed to arbitrate only disputes “in respect of ” the foreign investment. Thus other matters—however compelling the claim or wrongful the act— [were] outside this Tribunal’s jurisdiction’. In Methanex v United States, above Ch 1, n 55, Award, Part II, Chapter B, para 5, the Tribunal firmly ruled out that NAFTA Art 1131 could create any jurisdiction on alleged violation of GATT 1994 or WTO in general. More recently, in Rompetrol v Romania, above Ch 4, n 11, Award, para 172(i), the Tribunal made it clear that was ‘not competent to decide issues as to the application of the ECHR within Romania, either to natural persons or to corporate entities’. 82 Al Warraq v Indonesia, above Ch 1, n 43, Award, paras 177 and 284. 78

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the contrary, Article 10(1) specifically refers to ‘basic rights’ in the context of the ‘ownership, possession or utilisation of his capital’, and ‘does not concern the “human rights” of an OIC national in relation to a criminal proceeding’.83 The Tribunal held that Article 10(1) is to be read as referring to ‘basic property rights’ (para 521). Without much explanation, nonetheless, it imported the FET into the treaty via the MFN clause.84 It then superficially discussed the relationship between the FET and the ICCPR (part IV, section 5(ii)), before dealing with the former as if it was an aggregation of human rights provisions contained primarily in the latter. With regard to Article 14(3) ICCPR, in particular, it held that [w]hen ratifying a treaty the State undertakes to honour its obligations under that treaty. This means in the present context its obligations to comply inter alia with the provisions of Article 14(3)(d) in all aspects. When it does not do so, it is the duty of the competent Court or Tribunal to so declare: even though there is no recourse to be had to the implementing agency—the Human Rights Commission—with respect to remedies.85

The Tribunal then embarked on a detailed analysis of relevant provisions of the ICCPR including the presumption of innocence, the conduct of criminal investigation, the service of summonses, the defendant’s rights in trials in absentia (in the latter case in conjunction—but without any explanation—with the UN Convention on Transnational Crime and the UN Convention on corruption). It finally found a series of violations of these rights and equated them to violations of the FET. In the Tribunal’s words, ‘the Claimant did not receive fair and equitable treatment as enshrined in the ICCPR’. The position of the Tribunal is far from convincing insofar as it arrogated itself the right to vindicate violations of the ICCPR. This is clearly outside the mandate of an investment tribunal, as clearly held in Biloune v Ghana.86 One thing is to take into account a human rights treaty to interpret a provision contained in an investment treaty. Provided that the proximity and applicability requirements are satisfied, the first function of Article 31(3)(c) VCLT is indeed to direct the interpreter to consider any extraneous rules in the interpretative process. A human rights treaty can certainly assist the interpreter in the search for an investment treaty provision, especially if the provision has an evident human rights dimension and is drafted in vague terms, as it is normally in the case of FET. As a matter of fact, investment treaties can be assimilated to a large extent into human rights treaties87 and the elements of FET are nothing but the expression and adaptation of human rights standards to foreign investors. But directly applying extraneous 83

ibid, para 285. See above Ch 4, n 34. 85 ibid, para 561. 86 See above text accompanying n 81. 87 JE Alvarez, ‘North American Free Trade Agreement’s Chapter Eleven’ (1997) 28 University of Miami Inter-American Law Review 303 at 307 has described NAFTA as a human rights treaty, although a rather bizarre one. For a quite innovative approach to the issue, see T Weiler, ‘Balancing Human Rights and Investor Protection: Approach for a Different Legal Order’ (2004) 27 Boston College International & Comparative Law Review 429, with an appendix draft treaty provision providing for the settlement of disputes between a national of a party and an investor of another party (Art 3). 84

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rules on the unproved assumption that they correspond to the standard protected in the investment treaty is an entirely different exercise.

III. Investment Treaties not Applicable to the Parties Keeping in mind the fragmentation that still characterises the network of investment treaties, it is not surprising that the question of the legal relevance for the purpose of the interpretation of other investment treaties as well as the related arbitral decisions has been dealt with in several awards. While the legal value of arbitral decisions rendered in disputes relating to other treaties will be considered in Chapter 12, it is appropriate to examine here how tribunals have dealt with investment treaties concluded by the respondent or the non-disputing party with third States, or even concluded by third States. Strictly speaking, the relevant provisions of the VCLT do not expressly request or allow the interpreter to take into account these treaties. Quite the contrary, Article 31(2) and (3) relates to agreements or instruments made in connection with the treaty being interpreted, to subsequent agreements or practice in the application of the treaty being interpreted, or finally to any other rule applicable between the parties to the treaty to be interpreted. The direct or indirect connection with either the treaty being interpreted or the parties thereof is clear. The point have been made in RosInvest, when the Tribunal held that [a]ll of these subsections (a) and (b) of Article 31(2) and (a) to (c) of Article 31(3) require some relation or connection to the treaty to be interpreted, a requirement not fulfilled by earlier or later BITs or other agreements or other practice either of the UK or the Soviet Union or Russia.88

This did not prevent the Tribunal from resorting to an a contrario argument, based on the comparison with other investment treaties concluded by the parties to the treaty to be interpreted with third States, to confirm its interpretation of Article 8(1) of the BIT between the United Kingdom and Russia.89 Another tribunal demonstrated a rigorous approach to treaty interpretation and respect for the fundamental principle that an international treaty remains res inter alios acta proclaimed in Article 34 VCLT. On this point the decision reads: [i]t is contended by the Claimant that Article 10(2) was not a matter of public policy for Argentina, and that this is evidenced by the fact that out of a totality of forty-eight BITs entered into by Argentina with third party States, the Argentina–Germany BIT was one of the very few BITs (in fact one amongst nine) that contained a provision like Article 10(2), the rest of them having provided in the Dispute Settlement Clause direct

88 RosInvest Co UK Ltd v The Russian Federation, SCC Case No V079/2005, Jurisdiction, 1 October 2007, para 119. 89 para 113.

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access to Arbitration. But this is not relevant. The Tribunal is concerned in this case with an interpretation of the text of one particular treaty viz the Bilateral Investment Treaty between the Republic of Argentina and Federal Republic of Germany. It is the text of this treaty that has to be interpreted; and interpreted in the light of the 1969 Vienna Convention, as well as on the principle of contemporanity.90

The point was, however, entirely missed by other tribunals. In Maffezini v Spain, in particular, the Tribunal considered relevant for the purpose of interpreting the BIT between Spain and Argentina the treaty practice of the former State with regard to BITs concluded with third States. Article X of the BIT between Spain and Argentina requires foreign investors to submit the dispute to a domestic tribunal for 18 months before resorting to international arbitration. The claimant invoked the MFN clause under Article IV of the BIT, which reads in part: 1. Each Party shall ensure in its territory fair and equitable treatment to investments made by investors of the other Party. 2. In all matters governed by this Agreement, this treatment shall not be less favorable than that extended by each Party to the investments made in its territory by investors of a third country.91

The Tribunal reproduced in the decision only the second paragraph of Article IV. Instead of proceeding with the interpretation of Article IV as prescribed by the VCLT,92 starting with the ordinary meaning of its terms, it summarily reviewed a couple of decisions, including Ambatielos,93 and made a reference to entirely unrelated BITs, either expressly including within the scope of the MFN clause the provision on the settlement of disputes, or stating that the MFN clause covers ‘all matters subject to the agreement’. It then concluded that although the BIT between Argentina and Spain does not refer expressly to dispute settlement as covered by the MFN clause, ‘there are good reasons to conclude that today dispute settlement arrangements are inextricably related to the protection of foreign investors’.94 The Tribunal further supported its interpretation by examining in detail the practice

90 Wintershall v Argentina, above Ch 3, n 19, Award, para 128. In Ceskoslovenska Obchodni Banka, AS v Slovak Republic, above Ch 4, n 228, para 57, the Tribunal clarified that even when the provision of the treaty being interpreted is ambiguous the interpreter is not at liberty to look at other pari materia treaties to solve the interpretative doubts. In its words, ‘The fact that some such treaties may contain provisions for joint submission of disputes to arbitration does not compel the conclusion that provisions whose wording is at best ambiguous must be interpreted in like manner. Such a construction of the terms of a treaty would be incompatible with the applicable international rules for the interpretation of these types of agreements (Vienna Convention, Art 31(1)’. 91 Unofficial translation. The authentic Spanish text reads: ‘1. Cada Parte garantizará en su territorio un tratamiento justo y equitativo a las inversiones realizadas por inversores de la otra Parte. 2. En todas las materias regidas por el presente Acuerdo, este tratamiento no será menos favorable que el otorgado por cada Parte a las inversiones realizadas en su territorio por inversores de un tercer país.’ 92 Incidentally, Argentina ratified the VCLT on 5 December 1972 and Spain acceded to it on 16 December 1972. 93 For a critical assessment of the Tribunal reading of Ambatielos, see Z Douglas, above Ch 3, n 68, pp 355–56. 94 Maffezini v Spain, above Ch 4, n 141, Jurisdiction, para 54.

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followed by Spain in respect of bilateral investment treaties with more than 20 other countries.95 With the exception of the BIT with Uruguay, all these treaties provide for direct access to international arbitration at the expiry of a period during which the parties seek a friendly settlement. The importance attached by the Tribunal to the treaties concluded by Spain is hardly compatible with the VCLT rules on interpretation since each treaty is and remains res inter alios acta. Even assuming that the texts of all treaties concluded by Spain clearly point to any given interpretation, they have no relevance as such on the interpretation of the BIT between Argentina and Spain. They can at best offer a contrario arguments—as may treaties concluded between third States. Incidentally, it could be argued that in this case an a contrario argument would militate against the interpretation upheld by the Tribunal, as would the principle of effectiveness. What is sure is that the treaty practice of one party to a treaty has no relevance in itself for the interpretation of the BIT between Argentina and Spain. A fortiori, it cannot justify a departure from the clear text of the treaty. These considerations apply also in the case in which the treaty practice of Argentina with third States is identical to that of Spain.96 Even in this case, the interpretation of the BIT between Spain and Argentina is not affected by the treaty practice of each of them with a third State, unless it is proved that the discrepancy is due to a mistake (which is more likely in the case of omission, rather than inclusion, of certain terms or clauses). Under the VCLT rules of interpretation, once again, the interpreter’s primary task is to determine the common intention of the parties as recorded in the treaty, keeping in mind that the treaty is a unique instrument negotiated and concluded to protect the specific interests of the contracting parties. Other tribunals have unconvincingly relied on treaties concluded with a third State by the parties to the treaty being interpreted. In Toto Costruzioni General SpA v Lebanon, the Tribunal followed a rather tortuous and confusing path to interpret Article 9(2) of the BIT between Italy and Lebanon, according to which each party has accepted ‘to observe any other obligation it has assumed with regard to investments in its territory by investors of the other Contracting Party’. Instead of beginning by considering the ordinary meaning of these terms in their context and in the light of the object and purpose of the treaty, as required under Article 31 VCLT, the Tribunal considered it ‘relevant to review the standard wording of similar umbrella clauses in other investment treaties and to consider their interpretation by other Tribunals’.97

95 ibid, para 58. The Tribunal did not distinguish BITs concluded before and after the conclusion of the BIT between Argentina and Spain. 96 For the sake of completeness, it is worth noting that had the Tribunal also examined the treaty practice of Argentina with third States, it would probably have reached a completely different conclusion. 97 Toto Costruzioni v Lebanon, above Ch 4, n 246, para 192 ff.

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Without providing any explanation of this rather extravagant way to proceed, the Tribunal briefly considered the decision in SGS v Philippines—in which the relevant treaty provision was significantly different from the one before the Tribunal—and then referred to umbrella clauses drafted in more general terms, for instance in the BIT between two third countries, namely the United Kingdom and Peru. The Tribunal next briefly described what it considered the four main approaches taken by arbitral tribunals with regard to umbrella clauses. It ultimately espouses the last one, according to which umbrella clauses ‘may form the basis for treaty claims, without transforming contractual claims into treaty claims’.98 It was only then that the Tribunal introduced some considerations on the typical elements of Article 31(1) VCLT (without expressly mentioning it). It emphasised in particular the ‘unqualified commitment’ assumed by the parties in Article 9(2) as well as the reference in the preamble to the importance of contract protection. Other investment treaties may also be taken into account from the standpoint of the principle of effectiveness, but this does not fall within the scope of Article 31(3)(c), nor under the rubric of subsequent practice for the purpose of Article 31(2)(b). In ICS v Argentina, for instance, the Tribunal considered whether the applicant could rely on the MFN clause contained in Article 3 of the BIT concluded on 11 December 1990 between Argentina and the United Kingdom to avoid having to litigate for 18 months before a domestic tribunal before resorting to international arbitration as foreseen in Article 8 of the BIT.99 The Tribunal shared the argument of the respondent and answered in the negative. It noted that Argentina concluded five BITs containing the 18-month clause, even if it had meanwhile concluded three BITs without any such clause. For the Tribunal, if the MFN clause applies to procedural provisions the inclusion of the 18-month requirement would be deprived of any meaning. The argument is plausible and can certainly fortify the interpretation based on the elements indicated in Article 31 VCLT, clarify doubts on the interpretation or even assist the interpreter in making a choice between different interpretations. It remains to be seen whether it alone could be decisive.

IV. Non-investment Rules Article 31(3)(c) requires the interpreter to broaden the perspective and also to take into account during the interpretative process non-investment rules applicable between the parties. The operation is a delicate one as the interpreter must be guided by two competing considerations. On the one hand, a good deal of

98 99

ibid, para 200. ICS v Argentina, above Ch 3, n 130, Jurisdiction, paras 314–16.

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caution is required in order to avoid any departure from the intention specifically expressed by the parties in the investment treaty. As long as the parties have clearly manifested their intention in the investment treaty, the interpreter must carefully stick to the investment treaty, even if other non-investment rules potentially within the scope of Article 31(3)(c) could suggest another interpretation. A tribunal has pointed out that [w]here a treaty spells out in detail and with precision the requirements for maintaining a claim, there is no room for implying into the treaty additional requirements, whether based on alleged requirements of general international law in the field of diplomatic protection or otherwise.100

On the other hand, the interpreter must be aware that, in the absence of contrary indication, there is a presumption that the contracting parties intended to continue to comply with their international commitments stemming from noninvestment rules. In this respect, Article 31(3)(c) serves precisely to enhance the co-ordination of the different obligations incumbent upon States and ultimately to augment the coherence of the international legal system. This is particularly important when the interpreter has to choose between two or more plausible interpretations based on the other elements of Article 31 VCLT. Without embarking on a systematic treatment of how Article 31(3)(c) VCLT has been applied by investment tribunals with regard to the different branches of international law, a few considerations relating to trade law and human rights are in order. Starting with trade law, whether and the extent to which investment tribunals should consider WTO law in interpreting investment treaties has been the object of an interesting debate. Some authors have encouraged investment tribunals to be more proactive in borrowing from trade law experience, and in particular WTO jurisprudence; other have expressed scepticism if not open criticism of the relevance of WTO law for the purpose of interpreting investment treaties.101 Although investment tribunals have been generally rather reluctant to consider WTO law from the standpoint of Article 31(3)(c), the decisions in M ethanex v United States and Continental v Argentina offer two interesting examples. In Methanex v United States, the Tribunal interpreted the terms ‘in like circumstances’ used in Article 1102(3) NAFTA, which relates to national treatment and MFN

100

Waste Management v Mexico, above Ch 4, n 110, Award, para 85. Compare, eg, N DiMascio and J Pauwelyn, ‘Nondiscrimination in Trade and Investment Treaties’ (2008) 102 American Journal of International Law 48; J Kurtz, ‘The Use and Abuse of WTO Law in Investor–State Arbitration: Competition and Its Discontents’ (2009) 20 European Journal of International Law 749; R Howse and E Chalamish, ‘The Use and Abuse of WTO Law in Investor State Arbitration: A Reply to J Kurtz’ (2009) 20 European Journal of International Law 1087; J Alvarez and T Brink, ‘Revisiting the Necessity Defense’ (2010/11) Yearbook on International Investment Law & Policy 315; R Alford, ‘The Convergence of Investment Arbitration and International Trade’ (2013) 12 Santa Clara Journal of International Law 35; T Broude, ‘Investment and Trade: “Lottie and Lisa” of International Economic Law’, in R Echandi and P Sauvé (eds), Prospect of International Investment Law and Policy: World Trade Forum (Cambridge: CUP, 2013), 139; M Wu, ‘The Scope and Limits of Trade’s Influence in Shaping the Evolving International Investment Regime’, in Z Douglas et al, above Ch 2, n 38, p 169, esp p 201 ff. 101

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treatment. The claimant put forward the argument that GATT/WTO decisions provide ‘particularly relevant and useful precedents in determining the scope of “likeness” under Article 1102’.102 The respondent contested the relevance of WTO/GATT decisions by pointing out that ‘the drafters of NAFTA used “like p roducts” when they intended to do so and that the resort to the words “like circumstances” in Article 1102 NAFTA indicates an intention to differentiate between the two terms, just as the objects and purposes of GATT differ from those of Chapter 11 of NAFTA’.103 The Tribunal held that it was not appropriate to interpret Article 1102 NAFTA in the light of WTO rules or jurisprudence. It emphasised that Article 1102 NAFTA did not use the term of art ‘like products’, which plays a crucial role in international trade law. Quite the contrary, the text and the drafters’ intentions, which it manifests, show that trade provisions were not to be transported to investment provisions. Accordingly, the Tribunal holds that Article 1102 is to be read on its own terms and not as if the words ‘any like, directly competitive or substitutable goods’ appeared in it.104

The decisive argument against interpreting Article 1102 NAFTA in the light of WTO law was, for the Tribunal, that the drafters could but did not insert in the former the language use in the latter. Since there were no clear indications that the drafters wished to insert WTO language, the Tribunal concluded that the drafters intended to create a distinct regime and interpret Article 1102 NAFTA accordingly.105 It must be stressed that the Tribunal did not preclude in principle the possibility of taking into account WTO law unless the text of the investment treaty militates against it. Continental v Argentina remains the most important—yet for the time being rather isolated—arbitral investment decision in which the interpretation of an investment provision, namely Article XI of the BIT between Argentina and the United States,106 has been clearly and heavily inspired and influenced by WTO law. After comfortably holding—in line with several other tribunals—that Article XI is not a self-judging provision,107 the Tribunal needed to interpret the term ‘necessary’ used in Article XI of the BIT between Argentina and the United States. The respondent submitted that the term must be interpreted in line with the GATT–WTO case law, according to which ‘necessary’ is not synonymous with ‘indispensable’.108 The claimant, on the other hand, argued that the ordinary

102

Methanex v United States, above Ch 1, n 55, Award, Part IV, Chapter B, para 4. ibid, para 25. 104 ibid, paras 29 and 37. 105 ibid, para 35. 106 It reads: ‘This Treaty shall not preclude the application by either Party of measures necessary for the maintenance of public order, the fulfilment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.’ 107 See T Gazzini, ‘The Interpretation of (Allegedly) Self-Judging Clauses in Bilateral Investment Treaties’, in M Fitzmaurice, O Elias and P Merkouris (eds), The Issue of Treaty Interpretation and the Vienna Convention on the Law of Treaties: 30 Years On (The Hague: Kluwer, 2010) 239. 108 Continental v Argentina, above Ch 3, n 89, Award, para 85. 103

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meaning of ‘necessary’ is that which ‘cannot be dispensed with or done without’, or, in other words, ‘indispensable’.109 In Continental v Argentina, the Tribunal did not feel inhibited by the different wording of Article XI BIT and Article XX GATT. It held that [s]ince the text of Art XI derives from the parallel model clause of the US CN treaties and these treaties in turn reflect the formulation of Art XX of GATT 1947, the Tribunal finds it more appropriate to refer to the GATT and WTO case law which has extensively dealt with the concept and requirements of necessity in the context of economic measures derogating to the obligations contained in GATT, rather than to refer to the requirement of necessity under customary international law.110

Relying on Article XX as interpreted and applied in WTO case law, the Tribunal found that ‘necessary’ is not synonymous with ‘indispensable’ or ‘of absolute necessity’ or ‘inevitable’. It continued by pointing out that the term ‘necessary’ refers to a range of degrees of necessity that could be ordered in a continuum, the poles of which were ‘necessary’ understood as ‘indispensable’ and ‘necessary’ understood as ‘making a contribution to’. After locating ‘necessary’ for the purpose of Article XI of the BIT significantly closer to the pole of ‘indispensable’ it borrowed from the established jurisprudence of the WTO the idea that the necessity test requires a process of weighing and balancing of factors which usually includes the assessment of the following three factors: the relative importance of interests or values furthered by the challenged measures, the contribution of the measure to the realization of the ends pursued by it and the restrictive impact of the measure on international commerce.111

It is argued that the Tribunal argument is at least plausible. The Tribunal was confronted with the need to review the conformity with Article XI of the measures adopted on grounds of necessity by Argentina and the silence of Article XI on any indication or criterion on how these measures need to be tested. Under the circumstances, it could have resorted either to customary international law as codified in the ILC Article on State Responsibility or to the experience in assessing necessity in trade law. Taking a more proactive stand than the Methanex Tribunal and relying on the origins of Article XI of the BIT, it saw no obstacle in borrowing the legal reasoning behind Article XX GATT as construed by the Appellate Body. Any generalisation on the relevance of trade agreements for the purpose of interpreting investment treaties, however, remains unwarranted. Quite the opposite, a case-by-case approach seems unavoidable. Consider, for instance, the following provisions. Article XVII(3) of the BIT between Canada and Latvia is faithfully modelled after Article XX GATT. It reads: Subject to the requirement that such measures are not applied in a manner that would constitute arbitrary or unjustifiable discrimination between investments or between

109

ibid, para 190. para 192 (footnote omitted). 111 para 194. The relevant Appellate Body decisions are referred to in footnote 294. 110

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investors, or a disguised restriction on international trade or investment, nothing in this Agreement shall be construed to prevent a Party from adopting or enforcing measures necessary: (a) to protect human, animal or plant life or health; (b) to ensure compliance with laws and regulations that are not inconsistent with the provisions of this Agreement; or (c) for the conservation of living or non-living exhaustible natural resources.

The perfect textual coincidence reveals the clear intention of the contracting parties to borrow the normative model of Article XX as applied and interpreted in WTO jurisprudence. This is an element the interpreter must carefully keep in mind when interpreting Article XVII(3) of the BIT. In this case, therefore, the interpreter may be expected—if not actually requested—to carefully take into account Article XX GATT as defined in the relevant decisions rendered by the WTO Appellate Body. In the case of Article 22 COMESA, on the other hand, the exercise is more complex as this provision still follows Article XX GATT, but also presents an important departure from it. Article 22 reads: Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between investors where like conditions prevail, or a disguised restriction on investment flows, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any Member State of measures: (a) (b) (c) (d)

designed and applied to protect national security and public morals; designed and applied to protect human, animal or plant life or health; designed and applied to protect the environment; or any other measures as may from time to time be determined by a Member State, subject to approval by the CCIA Committee.112

The interpreter must accordingly consider, one the one hand, the intention of the parties to inspire themselves from Article XX GATT, and, on the other hand, their intention to leave each other a much broader discretion with regard to the adoption of these measures. Their choice to use the terms ‘designed and applied’ instead of ‘necessary’ is of great importance. The interpreter may still take into account Article XX and especially its chapeau, as well as the related decisions, but must meticulously discharge any arguments based on the term ‘necessity’ and replace them with the autonomous interpretation of the terms ‘designed and applied’ in accordance with Article 31 VCLT. Article VII(4) of the BIT between Belgium–Luxembourg and Colombia offers a third example. According to this provision, Nothing in this Agreement shall be construed as to prevent a Contracting Party from adopting, maintaining, or enforcing any measures that it considers appropriate to ensure

112

Art 22 COMESA.

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that an investment activity in its territory is undertaken in accordance with environmental law of the Party.113

It is evident that in this case the clear wording and the equally clear intention of the parties would prevent a tribunal from taking into account Article XX GATT and the relevant decisions. Here there is no resemblance between the two provisions, as Article VII(4) of the BIT does not contain any reference to the necessary character of the measures adopted by the host State. Instead it leaves the judgment on the appropriateness of their adoption to the host State (any measures that it considers), thus reducing the role of investment tribunal to controlling the good faith of that State and making inappropriate any reference to Article XX. Systemic interpretation may play an increasingly significant role also with regard to human rights,114 especially when the investment treaty contains a reference to international human rights instruments. Generally speaking, however, investment tribunals have shown no particular enthusiasm for referring to human rights treaties or customary rules for the purpose of interpreting investment provisions. This may be for three main reasons. First, members of investment tribunals do not necessarily have any specific expertise in human rights law and its increasingly sophisticated case law.115 Second, the normative content of human rights rules is often vague and their legal status disputed. As a result, resorting to Article 31(3)(c) VCLT may be particularly problematic, as in the case of economic, social or cultural rights, which are often programmatic in nature.116 Third, human

113

Emphasis added. literature, see, in particular: JD Fry, ‘International Human Rights Law in Investment Arbitration: Evidence of International Law’s Unity’ (2007) 18 Duke Journal of Comparative & International Law 77; P-M Dupuy, F Francioni and E-U Petersmann (eds), Human Rights in International Investment Law and Arbitration (Oxford: OUP, 2009); U Kriebaum, ‘Human Rights and the Population of the Host State in International Investment Arbitration’ (2009) 10 Journal of World Investment & Trade 653; M Jacob, International Investment Agreements and Human Rights (Duisburg: Institute for Development and Peace, 2010); TG Nelson, ‘Human Rights Law and BIT Protection: Areas of Convergence’ (2011) 12 Journal of World Investment & Trade 27; B Simma and T Kill, above n 2, p 678; C Tomuschat, ‘The European Court of Human Rights and Investment Protection’, in C Binder et al (eds), above Ch 1, n 29, p 636; E de Brabandere, ‘Human Rights Considerations in International Investment Arbitration’, in M Fitzmaurice and P Merkouris (eds), The Interpretation and Application of the European Convention on Human Rights. Legal and Practical Implications (Leiden: Nijhoff, 2012) 183; NJ Calamita, ‘International Human Rights and the Interpretation of International Investment Treaties: Constitutional Considerations’, in F Baetens (ed), Investment Law within International Law. Integrationist Perspectives (Cambridge: CUP, 2013) 164. 115 See S Schill, ‘W(h)ither Fragmentation? On the Literature and Sociology of International Investment Law’ (2011) 22 European Journal of International Law 875, 887–90. 116 The right to water deserves a special mention as several recent investment disputes concerned investment on water distribution and waste water treatment. In Biwater v Tanzania, above Ch 4, n 123, for instance, the respondent could have relied—as pointed out by amici—on several human rights legal instruments as a defence against claims of breaches of the bilateral treaty. Amicus Curiae Submission, 26 April 2007, available at www.ciel.org/Publications/Biwater_Amicus_26March.pdfAmicus. These instruments include the African Charter on the Rights and Welfare of the Child (Art 14.2(c)), the Convention on the Elimination of All Forms of Discrimination Against Women (Art 14.2(h)), and the Convention on the Rights of the Child (Art 24.2(c)). Instead, the host State timidly maintained that it has a moral and perhaps even a legal obligation to provide proper water and sanitation services, 114 In

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rights arguments have not been fully articulated by the party invoking them. The host State, in particular, has on several occasions submitted poorly developed human rights arguments supported by scarce evidence.117 The uncertain status of certain human rights is exemplified by the case of indigenous peoples’ rights. In Grand River v United States, for instance, the respondent and Canada vigorously maintained that the ILO Convention 169 did not codify any customary rules and that its provisions had developed into customary rules. They further pointed out that the claimants had shown ‘neither a widespread or consistent state practice nor opinio juris for the contention that customary international law mandates consultations with indigenous tribes for the types of circumstances present in this case’.118 With regard to the UN Declaration on the Rights of Indigenous Peoples, the United States and Canada reiterated their traditional position that the declaration remains a non-legally binding instrument with only hortatory force and rejected any possibility that it has codified or evolved into customary international law due to inconsistent State practice and lack or opinio juris.119 Nonetheless, it is worthwhile noting that during the hearings the United States reportedly took a less categorical position and recognised that some provisions of the ILO Convention 169 may have acquired a customary status.120 Indeed, the

as reported by the Tribunal, Biwater v Tanzania, above Ch 4, n 123, para 434. See also Committee on Economic, Social and Cultural Rights, General Comment No 15: The Right to Water, see above n 17. In the literature, see in particular P-M. Dupuy, ‘Le Droit à l’Eau, Un Droit International?’, European University Institute Working Paper Law No 2006/06; JE Vinuales, ‘Access to Water in Foreign Investment Disputes’ (2009) 21 Georgetown International Environmental Law Review 733; F Marella, ‘On the Changing Structure of International Investment Law: The Human Right to Water and Arbitration’ (2010) 12 International Community Law Review 335. Because of the vagueness of the right to water, the UN Committee on Economic, Social and Cultural rights enacted comments to clarify the substantive implications of the right to water and some of the state measures necessary to ensure its fulfilment. Committee on Economic, Social and Cultural Rights, the Right to Water (Arts 11 and 12 of the International Covenant on Economic, Social and Cultural Rights), General Comment No 15, UN Doc E/C.12/2002/11 (2002). 117 Often, the inability is not (only) due to human rights law but to the poor and not fully developed way the host States put forth arguments related to human rights; see, eg, Azurix v Argentina, above Ch 1, n 28, paras 254 and 261; Siemens v Argentina 2007, above Ch 3, n 5, para 79; Biwater v Tanzania, above Ch 4, n 123, para 434. In Glamis v United States, above Ch 4, n 128, Award, p 35, the Respondent argued that ‘the principles of cultural preservation reflected in federal and state law are mirrored in international instruments that reflect the “policy” of the international community’. In some cases, the host State has not properly identified and invoked the relevant substantive human rights norms contained in universal and regional legal instruments. In other cases, it has relied on the constitutional standing of human rights treaties in the municipal legal system of the host State and unconvincingly argued that by virtue of this standing these treaties trump investment treaties; see, eg, CMS v Argentina, above Ch 2, n 10, Award, 12 May 2005, para 114. 118 Respondent’s Counter Memorial on the Merits, 22 December 2008, p 139. See also Art 1128 Submission, 22 December 2008, pp 2–4. 119 Above n 118, pp 134–38. See also Observations of the United States with Respect to the Declaration on the Rights of Indigenous Peoples, USUN Press Release No 204(07), 13 September 2007, available at www.un.int/usa/press_releases/20070913_204.html. See also Art 1128 Submission, 22 December 2008, p 4. 120 Grand River v United States, above Ch 3, n 130, Final Award, para 210 in fine.

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rogressive evolution of the key provisions of the convention into customary p international law, with their consequent application to any state, may be expected to become an important question in the future from the standpoint of the relationship between foreign investment and indigenous peoples’ rights. Relying on the scholarly work of one of its members and of the ILA Committee on the Rights of Indigenous Peoples,121 in Grand River v United States, the Tribunal held that ‘it may well be, as the Claimants urged, that there does exist a principle of customary international law requiring governmental authorities to consult indigenous peoples on governmental policies or actions significantly affecting them’.122 Yet, some arbitral awards have been permeable to human rights law. In Azurix v Argentina, for instance, the Tribunal ‘sought guidance in the case law of the European Court of Human Rights, in particular, in the case of James and Others’, where it was held that a measure depriving a person of his property must both pursue a legitimate aim in the public interest and bear ‘a reasonable relationship of proportionality between the means employed and the aim sought to be realized’.123 These references call for three short comments. First, they were normally not expressly made in relation to or mentioned in Article 31(3)(c) VCLT. Second, no attention was paid to the participation of the parties to the investment treaty in the non-investment treaty too. Remarkably, in some cases none of the parties to the investment treaty the arbitral claim was based upon were also party to the non-investment treaty. This is for instance the case of the dispute between Azurix (United States) and Argentina, or the disputes under NAFTA such as Tecmed v Mexico mentioned above. Third, references were made not to the relevant rules contained in the extraneous treaty, but rather to the related case law, as in the case, for instance, of the decisions rendered by the ECtHR. When the parties to the treaty being interpreted are not also parties to the treaty referred to, it is difficult to qualify these references under Article 31(3)(c). The purpose of Article 31(3)(c) is to integrate the treaty being interpreted into the

121 According to the ILA Committee, under international customary law indigenous peoples enjoy a comprehensive set of rights, including the right to participate in national decision-making with respect to decisions that may affect their rights or their ways of life, and the right to be consulted with respect to any project that may affect them as well as the related right that projects suitable to significantly impact on their rights and ways of life are not carried out without their prior, free and informed consent, see Interim Report (2010), at www.ila-hq.org/en/committees/index.cfm/cid/1024, pp 43–51. 122 Final Award, above n 120, para 210. 123 Azurix v Argentina, Award, above Ch 1, n 28, para 311. In Tecmed v Mexico, above Ch 3, n 35, the Tribunal relied on two other cases decided by the ECtHR (Mellacher and Others v Austria, Judgment, 19 December 1989, 48, p 24, and Pressos Compañía Naviera and Others v Belgium, Judgment, 20 November 1995, 38, p 19, to find that ‘[t]here must be a reasonable relationship of proportionality between the charge or weight imposed to the foreign investor and the aim sought to be realized by any expropriatory measure’. In the same paragraph, the Tribunal quoted with approval James v United Kingdom holding that ‘non-nationals are more vulnerable to domestic legislation: unlike nationals, they will generally have played no part in the election or designation of its authors nor have been consulted on its adoption. Secondly, although a taking of property must always be effected in the public interest, different considerations may apply to nationals and non-nationals and there may well be legitimate reason for requiring nationals to bear a greater burden in the public interest than non-nationals.’

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more general network of international commitments of its parties. This is without prejudice to the possibility of both considering the argument developed by tribunals or bodies established by the extraneous treaty, or taking the non-investment rules into account when they are generally considered as reflecting customary international law. In the latter case, it would be important that the interpreter makes clear that the treaty rule is referred to as a matter of convenience and that Article 31(3)(c) functions in respect of the customary rule. Finally, it is worth noting that with the increasing sophistication of investment treaties and the inclusion of human rights provisions, interpreters may be expected to resort more frequently to Article 31(3)(c). Consider for instance a treaty as innovative as the ECOWAS Supplementary Act on Investment, whose Article 14(1) reads: ‘Investors shall uphold human rights in the workplace and the community in which they are located.’ In interpreting this provision, it would be unavoidable to take into account human rights rules applicable between the parties, regardless of their conventional or customary nature.124

124

See above Ch 2, n 50.

9 Special Meaning I. Special Meaning According to Article 31(4) VCLT, a term shall be given special meaning if it is established that both or all parties so intended. The attribution to a term of a special meaning, instead of the ordinary one, was described in 1966 by the ILC as a ‘somehow exceptional case’.1 Indeed, the assessment proved to be correct and cases in which Article 31(4) has been invoked and considered before international tribunals—including investment arbitral tribunals—have remained scarce. It is worth recalling that the draft articles elaborated by the Special rapporteur in 1966 contained a separate article (Draft Article 71) on ‘terms having special meaning’. A government suggested either moving Draft Article 71 between the general rule (Draft Article 69) and the provision on further means of interpretation (Draft Article 70), or merging it with Draft Article 69.2 The ILC adopted the second suggestion. The paragraph on special meaning has thus been incorporated in Article 31 VCLT (Article 69 ILC Draft Articles)3 as it has been considered part and parcel of the general rule of interpretation. The location of the paragraph on special meaning at the end of Article 31 VCLT responds to the need to clarify that whether the parties intended to attach special meaning to a given term has to be determined through the means of interpretation indicated in the general rule as well as the supplementary means. The Special rapporteur emphasised that [t]he establishment of a ‘special meaning’ is not one of the purposes for which article 70 admits recourse to travaux préparatoires, and unless the ‘special meaning’ rule is made part of Article 69, means of interpretation necessary to establish a special meaning may appear to be excluded.4 1

(1966-II) 18 Yearbook of the International Law Commission 222. (1966-II) 18 Yearbook of the International Law Commission 95. to Tsuruoka (1966-I) 18 Yearbook of the International Law Commission Part II, pp 267–68, for instance, ‘The purpose of interpretation was to ascertain which of several ordinary meanings was the one intended or whether a special meaning was given to a term. The idea would be better brought out if paragraph 1 were followed by paragraph 4 and then by the rules according to which the purpose, which was interpretation, was to be achieved’. 4 H Waldock (1966-II) 18 Yearbook of the International Law Commission 100. R Ago (1966-I) 18 Yearbook of the International Law Commission Part II, p 205, raised the question ‘[h]ow could it be 2

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The importance of supplementary means to determine whether the contracting parties intended to give the term a special meaning has been emphasised in El Paso v Argentina. The Tribunal convincingly observed that ‘Article 31(4) must be read in conjunction with Article 32 of the Convention … if the interpretation obtained from the elements listed in Article 31: (a) leaves the meaning of a provision ambiguous or obscure; or (b) leads to a result which is manifestly absurd or unreasonable’.5 The main (if not only) purpose of including in the convention a provision on special meaning was to emphasise that the burden of proof lies on the party invoking the special meaning.6 It is also undisputed that an interpretation attributing a term a special meaning must be supported by ‘special evidence’,7 or more accurately by ‘specific evidence’.8 Given that a term bears special meaning only exceptionally, ‘only decisive proof ’ may lead to the application of Article 31(4) VCLT.9 As pointed out in El Paso v Argentina, in order to justify a departure from the ordinary meaning established under Article 31(1) VCLT, the party invoking a special meaning above reasoning, Argentina, ‘would have to show that both Parties intended to give to the relevant term or terms a special meaning under Article 31(4) of the Vienna Convention on the Law of Treaties’.10 Investment tribunals, like international tribunals in general, have been rather reluctant to apply Article 31(4) VCLT. In the absence of compelling arguments, they have refused to attribute to the terms of a treaty a special—or non-ordinary— meaning. In Quiriborax v Bolivia, for instance, the Tribunal rejected the argument that the Contracting States intended to give to the term ‘investment’ included in Article 25 of the ICSID Convention ‘special meaning’ as opposed to ‘ordinary meaning’.11 In Agua del Tunari v Bolivia, the Tribunal refused to give the term ‘controlled’ a special meaning due to the lack of evidence that this was the intention of the contracting parties. The Tribunal further held that Article 31(4) of the Vienna Convention indicates that a special meaning shall be given to a term if the parties so intended the special meaning. There is no indication in the record that any special meaning for the word ‘controlled’ was intended by these contracting established that the parties intended a term to have a special meaning, unless recourse was had to the further means of interpretation?’ 5

El Paso v Argentina, above Ch 3, n 131, Award, para 607. Permanent Court of International Justice, Legal Status of Eastern Greenland, Permanent Court of International Justice Series A/B, No 53, p 49; ICJ, Western Sahara, Advisory Opinion, ICJ Reports 1975, p 12, para 116. 7 H Waldock (1966-I) 18 Yearbook of the International Law Commission 309. 8 Opinion of JE Alvarez in Sempra v Argentina, above Ch 1, n 10, Jurisdiction, 12 September 2005, para 23. 9 H Waldock, Third Report (1964-II) 16 Yearbook of the International Law Commission 57. In Conditions for Admission, above Ch 4, n 267, p 63, the ICJ held that ‘to warrant an interpretation other than that which ensues from the natural meaning of the words, a decisive reason would be required’. 10 El Paso v Argentina, above Ch 3, n 131, Award, para 585. 11 Quiborax v Bolivia, above Ch 4, n 216, para 212. 6 See

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parties. The Tribunal observes, however, that the negotiators of the Netherlands–Bolivia BIT likely possessed a sophisticated knowledge of business and law. For such persons, the ordinary meaning of a word or phrase also includes the legal meanings given to such words or phrases.12

In Continental v Argentina, the claimant pleaded that ‘public order’ as used in the BIT between Argentina and the United States has a ‘special meaning’, narrower than the ordinary one, since it refers ‘to measures necessary to maintain the public policies, laws and morals that define the country’s society.’13 The Tribunal rejected the argument. It was held that The expression ‘maintenance of public order’ indicates however rather clearly that ‘public order’ is intended as a broad synonym for ‘public peace,’ which can be threatened by actual or potential insurrections, riots and violent disturbances of the peace. This is the ordinary and principal meaning of ‘orden pùblico’ in the Spanish text of the BIT, corresponding to the same meaning in the French legal concept of ‘ordre public’ in public and criminal law.14

In Al Warraq v Indonesia, the respondent argued that the term ‘established’ in the opening phrase of Article 17 of the OIC Agreement has a special meaning and is to be read a requiring that ‘the organ for the settlement of disputes is “established”, not that it be operational or effective’. The Tribunal convincingly rejected this interpretation, which it defined as ‘formalistic’ in favour of a ‘purposive interpretation’. The object and purpose of Article 17 is to provide a dispute mechanism for investment disputes through conciliation or arbitration, pending the establishment of a permanent mechanism. From this perspective, it was held that ‘[a] tribunal that does not physically exist or operate cannot resolve investment disputes, and therefore is not “established” for the purposes of Article 17’ and accordingly conciliation and arbitration were available to foreign investors.15 Generic terms may be expected to raise the issue of special meaning under Article 31(4) VCLT. In Romak v Uzbekistan, the Tribunal pointed out in respect of the interpretation of ‘investment’ for the purpose of the BIT between Switzerland and Uzbekistan that attaching to a term a special meaning (or in the words of the Tribunal ‘an extraordinary and counterintuitive meaning’) is certainly possible provided that the intention of the contracting States is clear. According to the Tribunal, contracting States are free to deem any kind of asset or economic transaction to constitute an investment as subject to treaty protection. Contracting States can even go as far as stipulating that a ‘pure’ one-off sales contract constitutes an investment, even if such a

12 ibid, para 230. This point was not contested by the dissenting arbitrator, see para 27 dissenting opinion. The dissenting arbitrator seems to introduce an a contrario argument instead. 13 Continental v Argentina, above Ch 3, n 89, Award, para 171. 14 ibid, para 174. 15 Al Warraq v Indonesia, above Ch 1, n 43, paras 72.2 and 89.

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transaction would not normally be covered by the ordinary meaning of the term ‘investment’. However, in such cases, the wording of the instrument in question must leave no room for doubt that the intention of the contracting States was to accord to the term ‘investment’ an extraordinary and counterintuitive meaning.16

It is possible that a term takes a special meaning by virtue of another term contained in the treaty and most probably in the same provision. This may occur with regard to the terms ‘investment’ or ‘investor’. An example is provided by Article 1(2)(a) and (b) of the BIT between China and Germany, which includes in the definition of investor, respectively, ‘any juridical person as well as any commercial or other company or association with or without legal personality having its seat in the territory of the Federal Republic of Germany, irrespective of whether or not its activities are directed at profit’ and ‘economic entities, including companies, corporations, associations, partnerships and other organizations, incorporated and constituted under the laws and regulations of and with their seats in the People’s Republic of China, irrespective of whether or not for profit and whether their liabilities are limited or not’. In this case, the inclusion of non-profit activities—which fall outside the ordinary meaning of the term—justifies the attribution of special meaning to the term ‘investor’ for the purpose of the treaty. It is worth noting, however, that the attribution of a special meaning to the term ‘investor’ may deprive the investor of the access to ICSID tribunals. Keeping in mind the contextual considerations developed above with regard to the definition of ‘investment’, this may be considered as an example in which the presumption in favour of the correspondence between the definition of investor under the BIT and the ICSID Convention is rebutted.17 One last point concerns the question whether Article 31(4) VCLT can be invoked not only with regard to a term used in a treaty, but also with regard to a treaty provision as a whole. The question has been considered with regard to Article XI of the BIT between Argentina and the United States in the sense of interpreting this provision—in contrast with all other substantive provisions of the treaty—as selfjudging and accordingly as giving the host State the right to adopt in good faith any measures on grounds of necessity it may deem fit. According to an expert, Article 31(4) VCLT applies also to treaty provisions provided that a departure from the ordinary meaning is supported by clear indications that this was the intention of the parties. He thus concluded that In this case the treaty parties did not indicate that Article XI, unlike all other provisions in their treaty, would be subject to a unique evidentiary burden even though it is clear from the protocol to this treaty that Argentina and the US did focus on the meaning of Article XI in paragraph 6 of the protocol (presumably in response to Argentina’s inquiry), the parties explain how the middle phrase of Article XI (‘the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security’)

16 17

Romak v Uzbekistan, above Ch 4, n 66, para 205. Art 9(3) of the BIT between China and Germany provides for arbitration before ICSID tribunals.

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reflects, at least in part, their obligations under the UN Charter. If the parties saw fit to mention this unexceptional point in the protocol, they certainly would have mentioned any agreement on a ‘special meaning’ to the exceptional effect that this article, unlike all other provisions in this treaty, is self-judging or subject to a ‘good faith’ interpretation.18

Admitting the possibility of attributing special meaning to a whole treaty provision is fully consistent with Article 31(4) VCLT in spite of the use in the latter of ‘term’ (singular). It would indeed be not only over-formalistic, but also contrary to the object of Article 31(4) to exclude from its scope of application groups of terms or even entire provisions.

18

Opinion of JE Alvarez in Sempra v Argentina, above Ch 2, n 10, 12 September 2005, para 23.

10 Supplementary Means I. Recourse to Supplementary Means According to Article 32 of the VCLT, the interpreter may have recourse to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order (a) to confirm the meaning resulting from the application of Article 31, or (b) to determine the meaning when the interpretation according to Article 31 either leaves the meaning ambiguous or obscure, or leads to a result which is manifestly absurd or unreasonable. The supplementary nature of the means indicated in Article 32 is disclosed by the fact that their use is subordinated to various assumptions relating to the outcome of the interpretation based on Article 31.1 Unlike Article 31, Article 32 is not expressly drafted in mandatory terms. The true nature of Article 32, however, can be appreciated only by distinguishing the case in which supplementary means are used to confirm the meaning of any given provision resulting from the interpretation reached on the basis of Article 31, from the case in which they are used to determine such meaning. In the first case, Article 32 leaves the interpreter the possibility—but does not impose upon him the obligation—to resort to supplementary means to confirm the interpretation reached on the basis of Article 31. As pointed out by a tribunal, ‘it is perfectly acceptable to arrive at an appropriate interpretation under Article 31 and stop there’.2 It has also been held that recourse to supplementary means is admitted only in the limited circumstances specified in Article 32 VCLT.3 In practice, however, such recourse is always possible since Article 32 allows the interpreter to consider supplementary means to confirm the interpretation reached on the bases of the general rule.4 Whether it is appropriate to look at the

1 L Sbolci, ‘Supplementary Means of Interpretation’, in E Cannizzaro (ed), above Ch 1, n 10, p 145, 149. 2 HICEE v Slovak Republic, above Ch 1, n 35, Partial Award, para 38. For some more examples, see Camuzzi International SA v Argentina, ICSID ARB/03/2, Jurisdiction, 11 May 2005, para 134, Sempra v Argentina, above Ch 2, n 10, Jurisdiction, para 142; Yukos v Russian Federation, above Ch 4, n 89, Jurisdiction and Admissibility, para 268. 3 Methanex v United States, above Ch 1, n 55, Award, Part II, Chapter B, para 23. 4 El Paso v Argentina, above Ch 4, n 131, Award, para 607.

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supplementary means is ultimately left to the assessment of the interpreter and depends on several elements, including the persuasiveness of the interpretation reached on the basis of Article 31 as well as its consistency with the interpretation adopted in previous relevant decisions.5 In the second case, the interpreter is confronted with one of the situations listed in Article 32 in fine, namely an interpretation under Article 31 that leaves the meaning ambiguous or obscure, or leads to a manifestly absurd or unreasonable result.6 Should this be the case, the interpreter has no choice but to resort to supplementary means and—elaborate/develop on what may be defined as the ‘initial attempts to record the parties’ agreement’.7 From this perspective, considering the supplementary means becomes mandatory as otherwise the Tribunal would be unable to apply the treaty and settle the dispute. The compelling need to have recourse to subsidiary means when the interpretation based upon Article 31 is not satisfactory in the terms of Article 32 VCLT in fine appears in the following paragraph of an arbitral decision: [i]n view of the explicit text of the Treaty and its object and purpose, it is not even necessary to resort to supplementary means of interpretation, such as the preparatory work, a step that would be required only in case of insufficient elements of interpretation in connection with the rule laid down in Article 31 of the Convention.8

Yet, Articles 31 and 32 are not sealed compartments. Quite the contrary, they form two distinct, but intimately related phases of the interpretative process.9 Article 32 offers the interpreter the means to further enhance the interpretation obtained through the application of the general rule. It is also the spare wheel in the interpretative process defined in the VCLT insofar as it assists the interpreter in overcoming an unsatisfactory or unacceptable interpretation based on Article 31. In any case, supplementary means under Article 32 are not relegated

5 In Methanex v United States, above Ch 1, n 55, Award, Part II, Chapter H, para 24, the Tribunal also held that ‘[w]here in the course of time there has been a series of decisions on a given provision by international tribunals seized with the task of interpretation; and there has also been an agreement by treaty parties on interpretation, the likelihood of supplementary means of interpretation contemplated by Article 32 of the Vienna Convention being relevant and material must inevitably decline’. 6 In Romak v Uzbekistan, above Ch 4, n 66, para 184 (footnote omitted), the Tribunal seems to misread the nature and role of Art 32 by holding that ‘a mechanical application of the categories listed in Article 1(2) of the BIT would produce “a result which is manifestly absurd or unreasonable.” Such an outcome is contrary to Article 32 (b) VCLT’. 7 Kasikili/Sedudu Island, above Ch 1, n 10, Judgment, para 46. 8 Enron v Argentina, above Ch 4, n 59, Jurisdiction (Ancillary Claim) 2 August 2004, para 32 (italics added). 9 The ILC has observed, with regard to the then Draft Arts 27 and 28 (the antecedents of Arts 31 and 32 VCLT), that ‘the provisions of Article 28 by no means have the effect of drawing a rigid line between the “supplementary” means of interpretation and the means included in Article 27. The fact that Article 28 admits recourse to the supplementary means for the purpose of “confirming” the meaning resulting from the application of Article 27 establishes a general link between the two articles and maintains the unity of the process of interpretation’ (1966-II) 18 Yearbook of the International Law Commission 220, para 10.

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to an insignificant or occasional role. It has been widely recognised that the VCLT reconciles the primacy of the text with frequent and normal recourse to supplementary means, and especially the travaux préparatoires.10 From a chronological standpoint, supplementary means under Article 32 are to be considered only after exhausting the analysis under Article 31.11 It has been pointed out that ‘the methodology of Article 32 kicks in when the integrated method of Article 31 fails, producing an absurd result, or a stubbornly unclear result and so on’.12 As reiterated in HICEE v Slovak Republic,13 the starting point of the whole interpretative process is and remains Article 31. It is on the basis of the analysis conducted in accordance with Article 31 that a tribunal may find it appropriate or indeed necessary to consider supplementary means under Article 32. In practice, however, the sequence is not as rigid as it might seem.14 The interpreter may be tempted to look at the supplementary means before or during the interpretative process under Article 31 VCLT. It can be argued that nothing in Articles 31 and 32 VCLT, or elsewhere in the convention, expressly prohibits such a possibility.15 The challenge is to respect the priority given by the VCLT to Article 31 while acquiring the information offered by supplementary means on the intention of the contracting parties. It is also likely that both in the written memorial and the oral hearings the parties make references to supplementary means, and in particular to the preparatory works, to support their interpretation of any given provision. The members of the Tribunal will certainly keep these references in mind throughout the interpretative process. In this regard, in Malaysian Historical Salvors v Malaysia it has been pointed out that ‘courts and tribunals interpreting treaties regularly review the travaux préparatoires whenever they are brought to their attention;

10 See on this point R Gardiner, above Ch 1, n 10, pp 348-353. L Sbolci, in E Cannizzaro (ed), above Ch 1, n 10, p 149, further concludes that the VCLT ‘can be construed as an objective method, mitigated by several significant devises’, relying on S Bariatti, L’interpretazione delle convenzioni internazionali di diritto uniforme (Padova: CEDAM, 1986) 185. 11 In Azurix v Argentina, Annulment, above Ch 1, n 28, para 84, the Committee pointed out that Art 32 VCLT demands that the interpreter determine the meaning of the treaty resulting from the application of Art 31 before considering the application of Art 32. 12 WM Reisman and MH Arsanjani, above Ch 6, n 4, p 600. 13 HICEE v Slovak Republic, above Ch 1, n 35, Partial Award, para 118. 14 With regard to disputes between States, E Jiménez de Aréchaga, ‘International Law in the Last Third of a Century’ (1978-I) 159 Recueil des Cours 1, 47, has observed that ‘the State litigant before the Court often examines exhaustively the preparatory work. Naturally, the Court cannot leave without reply the argument based on such examination and has often declared that the travaux préparatoires when examined, confirm or support the view that the Court had independently arrived at on the basis of intrinsic materials’. See, eg, Fedax v Venezuela, above Ch 4, n 196, para 15. 15 See R Gardiner, above Ch 1, n 10, p 393. According to O Dörr, ‘Article 32’ in O Dörr and K Schmalenbach (eds), Vienna Convention on the Law of Treaties. A Commentary (Berlin: Springer, 2012) 571, 581, ‘[n]othing in the rules on interpretation precludes a treaty interpreter to look at the preparatory work in the process of interpretation. What is restricted by the Vienna rules, however, is actually to base a finding on such material at the outset of the process of interpretation’ (emphasis as in the original).

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it is mythological to pretend that they do so only when they first conclude that the term requiring interpretation is ambiguous or obscure’.16 There is nothing surprising or harmful in such behaviour. The VCLT does not and should not prevent the interpreter from acquiring any information in relation to the treaty to be interpreted, its negotiation and its conclusion. Such information can be contained in supplementary means, but also in press or scholarly articles or books. However, it cannot be ruled out that there is a risk that such information may consciously or unconsciously guide the tribunal analysis of the various elements indicated in Article 31 VCLT. It is the interpreter’s duty to strive to go through the various steps of the interpretative process defined in Article 31 without being influenced by the supplementary means and with due respect for the undisputed prominence of the general rule on interpretation. Resort to Article 32 by investment tribunals has so far been rather limited,17 partly due to the fact that preparatory works are available in respect of the ICSID Convention,18 NAFTA19 and ECT, but rarely of BITs.20 Investment tribunals have tended to take a rather prudent approach to preparatory work and confine their use to the confirmation of the interpretation already reached on the basis of Article 31. One tribunal, for instance, has noted that ‘recourse may be had to supplementary means of interpretation, including the preparatory work and the circumstances of its conclusion, only in order to confirm the meaning resulting from the application of the aforementioned methods of interpretation’.21 This is an unduly restrictive understanding of Article 32 as it neglects what is arguably the most important function of supplementary means, namely to determine the

16 Salvors v Malaysia, above Ch 1, n 14, Annulment, para 57. In Yukos v Russian Federation, above Ch 4, n 89, Jurisdiction and Admissibility, para 268, the Tribunal recognised that ‘in practice, tribunals and other treaty interpreters may consider the travaux préparatoires whenever they are pleaded, whether or not the text is ambiguous or obscure or leads to a manifestly absurd or unreasonable result’. In literature see I Sinclair, above Ch 1, n 10, p 142; WM Reisman and MH Arsanjani, above Ch 6, n 4, 597. 17 According to T Hai Yean, The Interpretation of Investment Treaties (The Hague: Nijhoff, 2013) 67, only 12 out of 229 decisions and awards rendered before 2013 have resorted to supplementary means. According to BS Vasani, A Ugale, ‘Travaux Préparatoires and the Legitimacy of Investor–State Arbitration’, in J Kalicki and A Joubin-Bret, above Ch 3, n 20, p 150, 157, since 2008 ‘over 40 ICSID tribunals and annulment committees have referred to the travaux préparatories’. As pointed out by TW Wälde, above Ch 1, n 29, p 777, ‘it is only in the case of the major multilateral treaties—Energy Charter and NAFTA—that an extensive common record of the treaty negotiation and drafting exists, even if generally not comprehensive or exhaustive. Different from the fiction of the quid-pro-quo deal reached in a treaty, BITs tend to be largely copied from earlier practice, primarily from the model of the State pushing for negotiation of a BIT’. 18 The History of the ICSID Convention. Documents Concerning the Origin and Formulation of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (Washington: ICSID, 1968–70, 4 volumes). 19 See below, n 50. 20 In Aguas del Tunari v Bolivia, above Ch 1, n 53, Jurisdiction, para 274, the Tribunal found the travaux préparatoires of little or no assistance. 21 Noble v Romania, above Ch 6, n 52, para 50. See also Methanex v United States, above Ch 1, n 55, Award, Part II, Chapter B, para 22.

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meaning of any given provision should the outcome of the interpretative process under Article 31 leave the meaning ambiguous or obscure, or lead to a result which is manifestly absurd or unreasonable. Still on the sequence of application of Articles 31 and 32, in a recent decision, the majority of an ICSID tribunal, instead of starting the interpretative process by considering the elements indicated in Article 31, reviewed first the preparatory works with a view to providing the background of the adoption of Article 25 of the ICSID Convention and to ‘preparing the ground’ for proper analysis of the term ‘investment’ according to the general rule of interpretation.22 The methodological choice was accompanied by a disclaimer to the effect that the Tribunal had no intention of departing from the VCLT rules on interpretation. The Tribunal further declared that [i]t is through this way of proceeding that the Tribunal will be able to assure itself whether, on the one hand, the criteria of interpretation established by Art 31 of the VCLT lead to a sufficiently clear understanding of the term ‘investment’ in Art 25 of the ICSID Convention that might subsequently be confirmed by referring to the travaux préparatoires or whether, on the other hand, those criteria leave the meaning of the term ‘ambiguous or obscure’ so that refuge is to be taken to the preparatory work and the circumstances of conclusion of the ICSID Convention in order to determine the meaning of the term ‘investment’.23

A dissenting arbitrator stigmatised the atypical approach taken by the Tribunal as being inconsistent with the VCLT and inaccurate too.24 It may be argued, however, that although the text of the treaty is logically and normally the point of departure of the interpretative process, using the preparatory work to provide the relevant background information is not necessarily harmful as long as the reconstruction of the activities leading to the adoption of the text of the treaty contains no inferences or assumptions on the meaning of the treaty. The interpreter must at any rate be aware of the risks of intentionally or unintentionally introducing elements militating in favour of or against any given interpretation. This may amount to a subversion of the order dictated by the VCLT and distort the entire interpretative process. Apart from the sequencing issue, each of the two main functions performed by Article 32 hides some problems. A tribunal may feel comfortable with the interpretation based on Article 31 and still decide to further fortify it through

22 Ambiente v Argentina, above Ch 1, n 15, Admissibility and Jurisdiction, paras 445 ff. In para 445, the Tribunal pointed out that it was ‘well aware that Art 32 of the VCLT only provides for supplementary means of interpretation which thus only come into play if and to the extent that the application of the rules of interpretation codified in Art 31 of the Vienna Convention were to lead to the result that the meaning of the provision in question remains “ambiguous or obscure”. The Tribunal is further aware that such a conclusion cannot be drawn at this stage of the reasoning’. 23 Ambiente v Argentina, above Ch 1, n 15, para 447. 24 S Torres Bernàrdez, dissenting opinion, Ambiente v Argentina, above Ch 1, n 15, paras 210 ff.

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the examination of supplementary means.25 Everything may go smoothly and the supplementary means provide further support for the interpretation obtained after applying Article 31. This may be expected to occur most of the time, as a sufficiently clear text is normally the successful outcome of the efforts made and the documents produced by the contracting parties during the negotiations. But the supplementary means may unexpectedly contradict what the interpreter believed to be the sufficiently clear meaning of the provision. Far from being an innocent and riskless exercise, having recourse to Article 32 to confirm the interpretation under Article 31 may destabilise the entire process and ultimately undermine its outcome. Such a possibility is prospected, without any further elaboration, in El Paso v Argentina, when the Tribunal pointed out that supplementary means of interpretation may be used: —— to establish a special meaning; —— to confirm or invalidate interpretations obtained by applying the elements listed in Article 31; —— to correct results so obtained if they are ambiguous, obscure, manifestly absurd or unreasonable.26

Although the choice of the expression ‘to invalidate’ is not particularly fortunate, it remains that supplementary means may refute the interpretation based on Article 31. Article 32 merely postulates that the ‘clear’ meaning obtained through the application of Article 31 will be confirmed by the recourse to supplementary means.27 It leaves unanswered the question of what happens if the supplementary means do not confirm what was believed to be a sufficiently clear interpretation reached on the basis of Article 31.28 The interpreter would be in a rather uncomfortable position. One the one hand, the contradiction cannot be ignored and must be duly taken into account as required by the principle of good faith. On the other hand, correcting the interpretation based on Article 31 would turn the entire interpretative process upside down and reverse the supplementary nature of the means indicated in Article 32.

25 In Territorial Dispute (Libyan Arab Jamahiriya/Chad), above Ch 1, n 10, Judgment, para 55, the ICJ considered that it was ‘not necessary to refer to the travaux préparatoires to elucidate the content of the 1955 Treaty; but, as in previous cases, it [found] it possible by reference to the travaux to confirm its reading of the text’. 26 El Paso v Argentina, above Ch 3, n 131, Award, para 607 (emphasis added). 27 As pointed out by KJ Vandevelde, ‘Treaty Interpretation from a Negotiator’s Perspective’ (1988) 21 Vanderbilt Journal of Transnational Law 281, 296, the VCLT ‘does allow a court to refer to the negotiating history … even when the treaty text is clear, in order to confirm its interpretation—a rule that borders on the absurd … If a court examines the negotiating history anyway but in fact disconfirms the plain meaning, the court has no basis for following the interpretation that the history reveals.’ 28 See S Schwebel, ‘May Preparatory Work be Used to Correct Rather than Confirm the “Clear” Meaning of a Treaty Provision?’, in J Makarczyk (ed), Theory of International Law at the Threshold of the 21st Century—Essays Skubiszewski (The Hague: Kluwer, 1996) 541.

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Given the clear and undisputed predominant place in the interpretative process of Article 31 and of textual interpretation in particular, it is argued that the interpreter must dismiss the supplementary means conflicting with an otherwise sufficiently clear interpretation based on Article 31. Unavoidably, however, the optional recourse to Article 32 produces the result opposite to that sought by the interpreter as it undermines—rather than confirms—the meaning attached to the treaty under Article 31. The interpreter must be aware of these risks and may be advised to refrain from having recourse to supplementary means when the meaning of the terms of the treaty, interpreted in accordance with the general rule, is sufficiently clear.29 The point was forcefully made by a dissenting judge in a domestic decision in the following terms: ‘[r]eliance on a treaty’s negotiating history (travaux préparatoires) is a disfavored alternative of last resort, appropriate only where the terms of the document are obscure or lead to “manifestly absurd or unreasonable” results’.30 Needless to say, this is perfectly consistent with Article 32 given the permissive nature of the recourse to supplementary means when the interpretation based on Article 31 is sufficiently clear. Indeed, the real value of Article 32 lies in its second function, namely determining the meaning of any given provision whose interpretation under Article 31 remains ambiguous, obscure, manifestly absurd or unreasonable. From this perspective, the interpreter may face two problems. The first problem is to establish when the interpretation reached on the basis of Article 31 falls within one of the categories indicated in Article 31 in fine and therefore considering supplementary means is indispensable. In these circumstances, failure to consider available supplementary means may expose an ICSID decision to annulment due to a manifest excess of power under Article 52(1)(b). In Historical Salvors v Malaysia, the sole arbitrator examined whether the investment object of the claim qualified as foreign investment for the purpose of Article 25.31 After paying lip service to Article 31 of the VCLT he held, essentially on the basis of teleological considerations and the review of the ‘hallmarks of investment’ as they were indicated in the relevant case law, that the investment did not fall within the meaning of Article 25 of the ICSID Convention. What prevented the investment from being brought within the scope of Article 25 for the sole arbitrator was the lack of a significant contribution to the economic development of the host State. Accordingly he declined to exercise jurisdiction. No mention was made to supplementary means or Article 32. The decision was annulled for several reasons, including the failure to take into account the preparatory work of the ICSID Convention. The ad hoc Committee 29

See, eg, Sempra v Argentina, above Ch 2, n 10, Jurisdiction, para 142. J Blackmun, dissenting opinion, in Sale v Haitian Centers Council, Inc., 509 US 155, 194 (1993) (emphasis added). 31 Malaysian Salvors v Malaysia, above Ch 1, n 14, Jurisdiction, section IV, part E. 30

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did not show much concern over the lack of rigour in the application of Article 31 and focused its criticism on the fact that [t]he meaning of the term ‘investment’ may however be regarded as ‘ambiguous or obscure’ under Article 32 of the Vienna Convention and hence justifying resort to the preparatory work of the Convention ‘to determine the meaning’. As the pleadings in the instant case illustrate, there certainly have been marked differences among ICSID tribunals and among commentators on the meaning of ‘investment’ as that term appears in Article 25(1) of the Convention. Thus the provision may be regarded as ambiguous.32

It then held inter alia that the Tribunal ‘failed to take account of the preparatory work of the ICSID Convention and, in particular, reached conclusions not consonant with the travaux in key respects’.33 In spite of the use of the modal ‘may’ with regard to the qualification of the terms as ambiguous or obscure, and of the verb ‘to justify’ referring to the recourse to preparatory work, the Committee confirms that when the interpretation obtained by applying the general rule remains ambiguous, obscure, manifestly absurd or unreasonable, the interpreter has an obligation to have recourse to the supplementary means. Strictly speaking, however, the ambiguity of the terms must result from the interpretative process of the tribunal rather than from the inconsistency of the arbitral decisions or divergences in literature. Such inconsistency and divergences most probably reflect serious difficulties in interpreting the relevant treaty provision. Nonetheless, they do not automatically imply that the interpretation reached by a tribunal cannot be sufficiently clear and recourse to supplementary means is indispensable. It must also be pointed out that what matters for the purpose of a possible annulment under Article 52(1)(b) is the failure to examine the supplementary means when otherwise the tribunal would end up with an ambiguous or obscure meaning, or reach a manifestly absurd or unreasonable result. The crux of the problem remains precisely to determine whether the interpretation is not sufficiently clear and requires the interpreter to move to Article 32. In order to be qualified as ‘ambiguous or obscure’ or ‘manifestly absurd or unreasonable’, a given interpretation must present serious problems or incongruences. This is one of the many assessments the interpreter may be called to make throughout the interpretative process and for which he enjoys certain latitude of discretion. As pointed out in an ICSID case, while there may be unresolved problems in relation to the possibility of multiple proceedings, double recovery and the extent to which minority shareholders should

32 33

ibid, Annulment, para 57. ibid, Annulment, para 80(c).

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be compensated if the local company remains a going concern, this in itself does not make the interpretation of the BIT referred to above ‘ambiguous or obscure’ or ‘manifestly absurd or unreasonable’ within the meaning of Article 32 of the Vienna Convention.34

The threshold remains a functional one. It is necessary to establish when recourse to supplementary means is mandatory rather than optional. This includes the case in which more than one interpretation is plausible under Article 31. Should this be the case, the interpreter has to examine all available supplementary means in search of the interpretation that better reflects the common intention of the parties. The second problem is that there is no guarantee that supplementary means are available and allow the interpreter to reach a satisfactory interpretation. Quite the contrary, it will come as no surprise if the supplementary means of a treaty whose interpretation leads—for instance—to an absurd result are useless.35 Having exhausted the supplementary means, tribunals may seek the interpretation of the parties to the treaty. Some investment treaties even confer the power to tribunals to request a joint interpretation of the parties to the treaties.36 In the absence of a provision in this sense, tribunals may still invite the parties to consider a joint interpretation.

II. Preparatory Work Neither the ILC nor the contracting parties at the Vienna Conference found it appropriate to provide a definition of what can be considered preparatory work for the purpose of Article 32. The category preparatory work resembles an omnibus expression,37 notion (or concept)38 comprising the multitude of documents that have led to the conclusion of a treaty, such as the various drafts prepared during the negotiations, the notes and the diplomatic letters related to the negotiations, the report of the meetings, the official statements or declarations and so on. Yet, the category is not unlimited. In the Young Case, the arbitral tribunal held that preparatory work can normally be invoked and resorted to under Article 32

34

Azurix v Argentina, above Ch 1, n 18, Annulment, para 114. Sinclair, above Ch 1, n 10, p 142, has pointed out that ‘the obscurities of a particular text will often find its origin in the travaux préparatoires themselves’. On preparatory work, see also JD Mortenson, ‘The travaux of travaux: Is the Vienna convention hostile to drafting history?’ (2013)107 American Journal of International Law 780. 36 See below, Ch 14, section VI. 37 AD McNair, above Ch 1, n 10, p 411. 38 L Sbolci, above n 1, pp 152–53. 35 I

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only when set down in writing and publicly available.39 Relying on McNair,40 the tribunal held that41 [a] further prerequisite if material is to be considered as a component of travaux préparatoires is that it was actually accessible and known to all the original parties. Drafts of particular articles, preparatory documents and proceedings of meetings from which one member or some members of the contracting parties were excluded cannot serve as an indication of common intentions and agreed definitions unless all the parties had become familiar with the documents or material by the time the treaty was signed.

An important point is made here: what the interpreter is after is any reliable indications of the common intention of the parties. Indeed, under Article 32 the interpreter may consider all documents and materials which are related to the conclusion of the treaty to be interpreted and indicative of the understanding of the parties.42 That recourse to supplementary means is functional to determining the common intention of the parties emerges clearly in Article 71(2) of the draft prepared by Special Rapporteur Waldock, which reads: Reference may be made to other evidence or indications of the intentions of the parties and, in particular, to the preparatory work of the treaty, the circumstances surrounding its conclusion and the subsequent practice of parties in relation to the treaty, for the purpose of: (a) confirming the meaning of a term resulting from the application of paragraph 1 of article 70; (b) determining the meaning of a term in the application of paragraph 2 of that article; (c) establishing the special meaning of a term in the application of paragraph 3 of that article.43

Such an intention does not necessarily need to be recorded in the same form, the same document or at the same time. Quite the contrary—the interpreter may

39 Arbitral Tribunal for German External Debt, The Question whether the re-evaluation of the erman Mark in 1961 and 1969 constitutes a case for application of the clause in article 2(e) of Annex I A G of the 1953 Agreement on German External Debts, Judgment, 16 May 1980, UNRIAA, Vol XIX (2006) 67, para 34 (available at http://legal.un.org/riaa/cases/vol_XIX/67-145.pdf). 40 AD McNair, above Ch 1, n 10, p 420. 41 Here the Tribunal relied on CC Hyde, International Law, Chiefly As Interpreted and Applied by the United States, vol 2 (Boston: Little, Brown and Company, 1947) 1497–98. The author further clarified that the written form is not always indispensable since ‘oral statements and opinions not recorded in minutes or conference papers can apparently be regarded as a component of travaux préparatoires only in exceptional cases. They can in any event be considered only if made in an official capacity and during the negotiations themselves.’ 42 According to the ILC, (1964-II) 16 Yearbook of the International Law Commission 58, the cogency of preparatory works ‘depends on the extent to which they furnish proof of the common understanding of the parties as to the meaning attached to the terms of the treaty’ (italics as in the original). See also Maritime Delimitation and Territorial Questions between Qatar and Bahrain, Jurisdiction and Admissibility, Judgment, ICJ Reports 1995, p 6, para 41. Note, however, that the assessment by the Court of preparatory works has been sharply criticised by S Schwebel, dissenting opinion, p 27 at 37. 43 (1964-II) 16 Yearbook of the International Law Commission 52. According to the Commentary, ‘Paragraph 2, although it makes special mention of travaux préparatoires, surrounding circumstances

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collect any materials in which the contracting parties have officially and clearly expressed their views in different forms and moments during the negotiations. Needless to say, if the documents were adopted at different moments, the interpreter must carefully double check that the contracting parties that produced the previous documents have not changed their position in the meantime. Preparatory work must be handled with care, especially when a large number of contracting parties negotiate for a long period during which they produce a large number of documents. These documents often record delicate compromises and complex bargains. They may also contain mistakes, inaccuracies and contradictions. It has indeed been observed that ‘[r]ecourse to preparatory work means treading uncertain grounds: its content is not precisely defined nor rigorously certified, and it reveals the shortcomings or possible blunders of the negotiators as well as their reluctance to confront the true difficulties’.44 Additionally, the amount of materials may be hardly manageable. In a NAFTA case, for instance, a State submitted 1,500 pages of documents reflecting over 40 different drafts.45 The exercise is made even harder by the fact that it is often difficult—if not impossible—to establish whether the preparatory works are complete and provide the full legislative history of the relevant treaty provision.46 Needless to say, an accurate record and storage of the preparatory work may be of invaluable help for the understanding of the common intention of the parties. In another NAFTA case, the Tribunal accepted a distinction introduced by the United States between drafts of the negotiated texts that were distributed amongst the contracting parties and internal documents of a party. For the Tribunal, the various drafts of the negotiating texts maintained by Canada and distributed to Mexico and the United States … unquestionably form part of the negotiating history of the NAFTA which may be considered for the purposes of treaty interpretation … The Tribunal accepts the Respondent’s position and considers that the internal m aterials of an individual NAFTA Party established solely for that Party and not communicated

and subsequent practice, permits recourse to any other relevant evidence or indications of the intentions of the parties. Relevant here means relevant to the objective proof of the intentions of the parties regarding the meaning of the terms employed in the treaty’. 44 P Reuter, above Ch 4, n 7, p 15, who has argued that ‘travaux préparatoires may be actively misleading, in various ways’ and provided an accurate series of examples in which travaux préparatoires may induce the interpreter to distort the real intention of the contracting parties. WM Reisman and MH Arsanjani, above Ch 6, n 4, p 602, have further observed that ‘[n]egotiations … involve statements of position that may ultimately prove unsuccessful; statements that are made to set the stage for the next strategic move in the negotiations; statements that are issued just to get them into the record, sometimes only for a domestic constituency, sometimes to placate other departments or factions within governments; trial balloons that are floated to test the reactions of other participants; “non-papers” that purport to clarify issues; heated discussions of matters that are abandoned or superseded; and so on’. 45 Pope & Talbot v Canada, above Ch 7, n 47, Award on Damages, para 38. 46 ibid, para 41, the Tribunal complained that ‘it is almost certain that the documents provided, which included nothing in explication of the various drafts, are not all that exists’.

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to the other Parties during the negotiations of the Agreement do not reflect the common intention of the NAFTA Parties in drafting, adopting, or rejecting a particular provision.47

Obtaining the preparatory work, at any rate, may prove problematic as States may be reluctant to provide them.48 Suffice to mention the difficulties encountered by the Pope & Talbot v Canada Tribunal in its effort to acquire the preparatory work on NAFTA possessed by Canada. After eventually obtaining part of the documents requested, the Tribunal expressed its frustration at the lack of co-operation on the part of Canada, which made the interpretation of Article 1105 particularly arduous.49 More generally, NAFTA States have long refused to make the preparatory work available to the public. Although in 2004 a series of drafts were eventually released, no systematic and comprehensive collection of all relevant documents exists.50 In this regard, it has observed that Unlike the parties to most investment treaties, the NAFTA parties have released the series of texts from which the NAFTA States negotiated their agreement. These are not traditional travaux préparatoires formally prepared by the chairman of the negotiations. Rather, there are draft texts that often show from which Party suggestions for amendment came. They might be used as supplementary means under Article 32 VCLT … In practice, however, the iteration of negotiating texts have not proved particularly helpful in elucidating the intentions of NAFTA negotiators. Rarely is a change accompanied by any explanation for the alteration.51

With regard to BITs, preparatory work is available only occasionally and rarely of great assistance for the interpreter. As for NAFTA, furthermore, it may be difficult to obtain access to them. This has been demonstrated in Churchill Plc v Indonesia. The Tribunal was unable to reach a satisfactory interpretation under Article 31 VCLT of a provision contained in the BIT concluded in 1976 between the United Kingdom and Indonesia and therefore was obliged to have recourse to supplementary means. The Parties were unable to locate the travaux préparatoires of the treaty. The Tribunal accidentally became aware of an unpublished decision on jurisdiction concerning the same treaty in which it had been reported that the

47 Canfor Corporation v United States, above Ch 3, n 115, Procedural Order 5, 28 May 2004, paras 17 and 19, available at www.state.gov/documents/organization/33109.pdf. 48 JW Salacuse, above Ch 2, n 68, p 154 (footnote omitted) has observed that ‘[f]or various reasons obtaining useful negotiating history to assist in interpreting a treaty can be difficult, if not impossible. The recorded negotiating history and preparatory work may be scant or lost, or contracting states may be unwilling to provide the record to litigants, since such material, once released, may be used against the state that released it’. 49 Pope & Talbot v Canada, above Ch 7, n 47, Award on Damages. In para 39, the Tribunal stigmatised the attitude of Canada by pointing out that its failure to provide the documents when requested was ‘unfortunate’ and that forcing the Tribunal to chase after documents ‘not acceptable’. 50 The available drafts are collected at www.naftaclaims.com/commission.html. 51 AK Bjorklund, ‘NAFTA Chapter 11’, in C Brown, Commentaries on Selected Model Investment Treaties (Oxford: OUP, 2013) 465, 520.

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claimant filed the travaux préparatoires kept by the United Kingdom. It informed the parties to the dispute that it intended to request from the United Kingdom a copy of the travaux préparatoires pursuant to Article 34 of the ICSID Arbitration Rules.52 Indonesia objected to such a request. The Tribunal was not obliged to deal with the consequences of such an objection as meanwhile the claimant managed to obtain a copy of the British travaux préparatoires. In another ICSID case, the respondent challenged the Tribunal’s jurisdiction by arguing that the company was not directly controlled by a national of France. The argument was essentially based on the negotiating history of the BIT between Ecuador and France. For the respondent, the deletion of the terms ‘directly or indirectly’, which appeared in the previous draft before ‘controlled’ in the definition of ‘company’ contained in Article 1(3)(ii) and the insertion of the same terms in the definition of ‘investment’ contained in Article 1(1) demonstrate that the parties intended to exclude from the scope of the treaty companies controlled indirectly by the foreign investors. The argument was fortified by the fact that the text of the BIT departed from both contemporaneous treaty practice of France and the French Model BIT. In a first decision on jurisdiction, the Tribunal invited the parties to jointly communicate to the French authorities the Tribunal’s interest in receiving any travaux préparatoires that might shed light on the legislative history of Articles 1(3)(ii) and 1(1).53 More than three years later the Tribunal rejected the respondent’s objection. It focused on the ordinary meaning of Article 1(3)(ii) and held that the term ‘controlled’ encompasses direct and indirect control. Such interpretation was considered consistent with both the context of the terms as well as the object and purpose of the treaty. The Tribunal then refrained from discussing the relevance for the purpose of the interpretation of Article 1(3)(ii) of the various drafts that eventually led to the final text of the provision.54 The interpretation offered by the Tribunal is certainly persuasive and respectful of the supremacy of Article 31 VCLT. While the Tribunal’s decision not to resort to supplementary means is convincing too, one may wonder why the Tribunal did not tackle the interpretation of Article 1(3)(ii) already in the first decision and instead sought to obtain the preparatory work from the non-disputing party. It is probable that the Tribunal was motivated by the desire to ensure the parties to the dispute full equality. As mentioned earlier, they do not coincide

52 Churchill Plc v Indonesia, above Ch 4, n 56, Jurisdiction, paras 208–10. Rule 34 (Evidence: General Principles), reads in part: ‘(2) The Tribunal may, if it deems it necessary at any stage of the proceeding: (a) call upon the parties to produce documents, witnesses and experts; and (b) visit any place connected with the dispute or conduct inquiries there. (3) The parties shall cooperate with the Tribunal in the production of the evidence and in the other measures provided for in paragraph (2). The Tribunal shall take formal note of the failure of a party to comply with its obligations under this paragraph and of any reasons given for such failure’. 53 Perenco v Ecuador, above Ch 6, n 91, Jurisdiction, 30 June 2011, para 94. 54 ibid, Remaining Issues of Jurisdiction and on Liability, 12 September 2014, para 94.

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with the parties to the treaty and foreign investors may find themselves in a disadvantageous position since they were not involved in the negotiations leading to the conclusion of the treaty and they may have no knowledge of or access to the relevant documents. It is not a coincidence that the Tribunal quoted extensively a dissenting arbitrator who has warned that a tribunal can clearly not discount assertions put forward in argument by the Respondent as to the intentions behind the BIT and its negotiation … but it must at the same time treat them with all due caution, in the interests of its overriding duty to treat the parties to the arbitration on a basis of complete equality (since it is also possible that assertions by the Respondent may be incomplete, misleading or even self-serving). In other words, it must be very rarely indeed that an ICSID Tribunal, confronted with a disputed issue of interpretation of a BIT, will accept at its face value the assertions of the Respondent as to its meaning without some sufficient objective evidence to back them up.55

Unequal access to preparatory work may have an impact on fairness and legitimacy.56 It also raises the question whether and how arbitral tribunals may compel a reluctant State to provide the concerned foreign investor with preparatory work that may be important for the interpretation of a given treaty provision. It is interesting to note that in Perenco v Ecuador the Tribunal used completely different wordings. First, it invited the parties to the disputes to jointly communicate to the non-disputing party the Tribunal’s interest in receiving any travaux préparatoires. Subsequently, it pointed out that it had directed the parties to request the disclosure of these documents and fixed a deadline by which they shall be filed.57 A partial answer can be found in some arbitration rules, such as Article 27(3) of the UNCITRAL Arbitration Rules or Article 34(2) of the ICSID Arbitration Rules, according to which tribunals may require the parties to the dispute to produce documents necessary to settle the dispute. It remains to be seen whether tribunals may extend their request to a non-disputing party or parties. The interpreter may extract important indications on the common intention of the party from the legislative history of a treaty provision, and more precisely from the subsequent modifications of its draft texts. While considering the legislative history of any given provision, the interpreter may attach particular attention to the proposal that was put forward and rejected during the negotiations. In this case, the rejection may demonstrate that the proposal did not reflect the common intention of the contracting parties and any interpretative argument based on the proposal must accordingly be discharged. There are several examples of an investment arbitral tribunal convincingly having recourse to the travaux préparatoires. In Austrian Airline v Slovak Republic,

55

F Berman, dissenting opinion, in Lucchetti v Peru, above Ch 1, n 5, Annulment, para 9. See on this point BS Vasani and A Ugale, above n 17, p 161 ff. 57 Perenco v Ecuador, above Ch 6, n 91, Remaining Issues of Jurisdiction and on Liability, para 31. 56

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for instance, the Tribunal had to interpret Article 8(1) of the BIT between Slovakia and Austria, according to which the arbitral clause applies to [a]ny dispute arising out of an investment between a Contracting Party and an investor of the other Contracting Party, concerning the amount or conditions of payment of a compensation pursuant to Article 4 of this Agreement, or the transfer obligations pursuant to Article 5 of this Agreement.

The Tribunal held that the textual meaning of Article 8(1) in its context is clear: the arbitral clause covers only disputes related to the amount or conditions of payment of a compensation for expropriation. Such a conclusion was deemed consistent with the object and purpose of the treaty. Nonetheless, the Tribunal further fortified its conclusion by noting that the original draft of Article 8(1), prepared on 14 April 1988, permitted foreign investors to resort to arbitration for differences ‘regarding an investment’, which means without any limitation. The provision was revised on 14 September 1989 in the sense of limiting access to arbitration to differences ‘regarding an investment concerning the amount or modality of compensation per Article 4 or transfer obligations under Article 5 of this Agreement’. The Tribunal also noted that the second formulation of Article 8(1) was eventually adopted in almost identical terms in the BIT. For the Tribunal, this is ‘a clear confirmation that the scope of arbitration under the Treaty was intended to be restricted to two specific hypotheses, ie, compensation for expropriation and transfer obligations’.58 In Saba Fakes v Turkey, the Tribunal held that Article 25(2)(a) of the ICSID Convention does not exclude from the Centre jurisdiction disputes in which the investor holds the nationality of a contracting party and of a third State (but not of the host State), nor does the case of such double nationality impose an effective nationality test. It fortified its interpretation by referring to a defeated proposal put forward during the negotiations by a delegate from Guatemala suggesting the inclusion of such a test.59 An example of how different terminological choices may shed light on the meaning of a given provision concerns Article 42(1) of the ICSID Convention which in its final form imposes ICSID Tribunals to apply ‘the law of the Contracting State party to the dispute … and such rules of international law as may be applicable’. It has been observed that during the negotiations the conjunction ‘and’ replaced the conjunction ‘or’ which appeared in the original draft.60 The change

58 Austrian Airlines v Slovak Republic, above Ch 4, n 250, Award, para 137. See also paras 105–07. The decision was rendered by majority, but on this point the dissenting arbitrator seems to be in agreement as he admitted that ‘the jurisdictional provisions were specifically negotiated and restricted’, para 8. 59 Saba Fakes v Turkey, above Ch 4, n 20, para 63, fn 44, referring to Supplemental Expert Opinion of Prof Dolzer, para 46) and mentioning Pey Casado v Chile, above Ch 4, n 222, Award, para 241. 60 E Gaillard and Y Banifatemi, above Ch 4, n 279, p 382 ff. The article provides a useful and convincing treatment of the supplementary means relevant for the interpretation of Art 25(1) ICSID Convention. See also the explanation offered by A Broches, reproduced at the end of fn 31 of the article, which reads: ‘The earlier draft of the Convention referred to “national or international law”. The present draft uses ‘and’ so as to avoid the impression that international law would always apply or that it was necessarily a question of alternatives’.

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reflected the intention of the contracting parties to require ICSID Tribunals to apply, in the absence of an agreement between the parties, both the domestic law of the host State and international law.61 Another example, still related to the ICSID Convention, concerns preliminary measures. During the negotiations, the contracting parties adopted a draft referring to the power of ICSID tribunals to ‘prescribe’ such measures. They subsequently replace the verb ‘to prescribe’ with ‘to recommend’, which obviously exclude the mandatory character of these measures.62 This clearly militates against the power of ICSID tribunals to order the adoption of provisional measures. The decision on jurisdiction in Churchill Plc v Indonesia is quite interesting as this is one of the rare cases in which the travaux préparatoires have provided the decisive argument for the interpretation of a treaty provision. The treaty provision in question was Article 7 of the BIT between the United Kingdom and Indonesia, according to which each contracting party ‘shall assent’ to the request for conciliation or arbitration submitted by a national of the other contracting Party. The Tribunal could not determine on the basis of Article 31 VCLT whether the term ‘shall assent’ was be to interpreted as referring to a standing offer to arbitrate by the contracting parties or merely as a promise to consent to arbitration whenever a dispute arose on alleged violations of the treaty. Since the meaning of the terms ‘shall assent’ obtained through textual, contextual and teleological considerations had remained unclear or obscure, the Tribunal moved to supplementary means and the travaux préparatoires in particular.63 The Tribunal first noted that the materials available do not contain any exchange of notes or other documents susceptible of showing the common understanding of the parties. Under the circumstances, the Tribunal construed the intention of the parties through the various drafts proposed during the negotiating process, which was apparently ignited by a British proposal reproducing the wording of the British Model BIT according to which each party ‘hereby consents’. The Tribunal then considered three successive counter-drafts proposed by Indonesia and the related British reactions. The first and third proposals state that the host State ‘shall assent’ to arbitration, the wording ultimately retained in Article 7 of the BIT. Importantly, under the second draft proposed by Indonesia ‘each Contracting Party hereby irrevocably and anticipatory’ [sic] gives its consent to arbitration.

61 See, in particular, the Summary Record of Proceedings, Consultative Meetings of Legal Experts, Geneva, 17–22 July 1964, Document No 29, in History of the ICSID Convention, p 421. 62 See, in particular, Summary Proceedings of the Legal Committee Meeting, 8 December 1964, in History of the ICSID Convention, Vol II, pp 812–15. See also Quiborax v Bolivia, above Ch 4, n 216, Award, para 578. On the legal nature of provisional measures, see above, Ch 6, section VI. 63 Churchill Plc v Indonesia, above Ch 4, n 56, Jurisdiction, para 180. The Tribunal found that ‘the meaning of “shall assent” is unclear or ambiguous. Consequently, it will now review any relevant supplementary means of interpretation pursuant to Art 32 VCLT. In doing so, it will conduct a review of cases and scholarly writings which it had not covered in the first step of the analysis to better focus on the treaty’s intrinsic elements’.

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According to the Tribunal, the second draft demonstrates that Indonesia ‘had no difficulty giving English investors unconditional access to ICSID arbitration’.64 The sequence of draft proposals reveals instead some divergences on the element of reciprocity, conciliation and the right of locally incorporated investment assets under foreign control. On the British side, moreover, negotiators do not appear to have considered the ‘shall assent’ in the first counter-draft to be a step backwards compared to the British Model clause. Nor did they regard the ‘hereby irrevocably and anticipatory [sic] gives its consent’ language of the second counter-draft as a step forward or the return to ‘shall assent’ in the third counter-proposals as a new step back. The materials show that these changes were regarded as indifferent. For the Tribunal, the attitude of Indonesia, as it emerges from the various counter-drafts submitted, combined with the perception on the British side that they do not amount to departures from the initial clause proves the common intention of the parties to make the respective investors a standing offer without any other act of consent being necessary. For the Tribunal, accordingly, the expression ‘shall assent’ was to be treated as equivalent to ‘hereby consents’.65

III. Circumstances of the Conclusion of the Treaty In addition to the preparatory work, Article 32 expressly includes in the broad category of supplementary means the ‘circumstances of the conclusion of the treaty’ without providing any definition. The wording of Article 32 clearly indicates the broadest latitude with regard to the supplementary means the interpreter can have recourse to. The internal distinction between preparatory work, circumstances of the conclusion of the treaty and other supplementary means has little practical significance as the legal value of all of those is identical. While the expression ‘preparatory work’ refers to all official documents which contributed to the successful conclusion of the treaty and to the definition of its content, the expression ‘circumstances of the conclusion of the treaty’ refers to a large and heterogeneous class of elements susceptible to draw some light on the common intention of the contracting parties and ultimately on the meaning they attached to a given provision. These elements range from the relevant policy, vulgarisation or press documents to the historical or political environment in which the treaty has been concluded. It is worth noting that the WTO Appellate Body has taken a very comprehensive approach with regard to circumstances of the conclusion of the treaty. It disagreed with the European Communities that a ‘direct link’ to the treaty text and ‘direct influence’ on the common intentions must be shown for an event, act, or

64 65

ibid, para 225. ibid, para 230.

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instrument to be considered as a ‘circumstance of the conclusion’ of a treaty for the purpose of Article 32 of the Vienna Convention. Instead, it held that an ‘event, act or instrument’ may be relevant as supplementary means of interpretation not only if it has actually influenced a specific aspect of the treaty text in the sense of a relationship of cause and effect; it may also qualify as a ‘circumstance of the conclusion’ when it helps to discern what the common intentions of the parties were at the time of the conclusion with respect to the treaty or specific provision.66

These elements are often by their own nature rather general and can rarely provide decisive argument in favour of any given interpretation. Unsurprisingly, they have been referred to in isolated instances in arbitral awards, mostly to embellish the main legal argument. In Plama v Bulgaria, for instance, the Tribunal, after referring to Article 32, observed that the parties to the present arbitration have not produced preparatory work of the Bulgaria-Cyprus BIT. They did provide some indication of the circumstances surrounding its conclusion. At that time, Bulgaria was under a communist regime that favored bilateral investment treaties with limited protections for foreign investors and with very limited dispute resolution provisions.67

As pointed out by a tribunal, the interpreter may consider, as supplementary means, the circumstances of the conclusion of the BIT, which ‘include the process relating to the negotiation, conclusion and signing of the BIT … as well as events leading up to its ratification’.68 In Daimler v Argentina, the Tribunal took an even broader perspective and recognised that the World Bank Guidelines of 1992 were and are a ‘soft law’ instrument by nature and that they do not purport to shed any direct light on the meaning of the word ‘treatment’ as used in the German–Argentine BIT’s MFN clauses. The Guidelines nevertheless provide an indication of the prevailing view among the community of states during the period contemporaneous to the adoption of the German–Argentine BIT. Neither disputing party has adduced any evidence to suggest that either Argentina or Germany maintained a distinctive definition of treatment in the early 1990s that departed from the basic concept prevailing among the international community of states at that time, as reflected in the Guidelines.69

In the dissenting opinion attached to Abaclat v Argentina, an arbitrator emphasised the institutional context in which the ICSID Convention had been conceived, negotiated and concluded. He argued that [i]t is most significant that the ICSID Convention was elaborated and the Centre established on the initiative and within the framework of the International Bank for

66 EC—Chicken, above Ch 1, n 34, para 289. It further pointed out (para 293) that ‘events, acts, and instruments may form part of the “historical background against which the treaty was negotiated”, even when these circumstances predate the point in time when the treaty is concluded, but continue to influence or reflect the common intentions of the parties at the time of conclusion’. 67 Plama v Bulgaria, above Ch 3, n 52, Jurisdiction, para 196. 68 Kılıç v Turkmenistan, above Ch 1, n 5, para 6.18. 69 Daimler v Argentina, above Ch 1, n 15, Award, para 224.

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Reconstruction and Development; an institution which concentrated its activities since the early Sixties almost exclusively to the second facet of its mandate according to its title, ie the ‘development’ of the less developed countries.70

Reports, commentaries, explanatory notes and so on, which often accompany the conclusion of multilateral treaties, cannot be allocated in any predetermined way to any of the rubrics of the interpretative process. They can vary significantly and their legal value within the process depends on several factors, most prominently their authorship, the involvement in their elaboration of the contracting parties, and their relationship with the treaty. For instance, it makes a difference whether a report has been prepared by the secretariat of the organisation sponsoring the conclusion of the convention, as an internal document or as background document for delegations or the press, or by the organ of an organisation upon a formal request by its plenary body. A case-by-case approach is thus unavoidable. Consider, for instance, the Report of the Executive Directors on the ICSID Convention in the light of the peculiar history of the ICSID Convention. On 18 September 1962, the World Bank Board of Governors requested the Executive Directors to study the possibility of establishing institutional facilities, sponsored by the Bank, for the settlement of investment disputes between States and foreign investors through conciliation and arbitration.71 After holding a series of consultative regional meeting of legal experts designated by member governments, they submitted a report to the Board of Governors. On 14 September 1964, the Board of Governors approved the report and further requested the Executive Directors to formulate the text of a convention taking into account the views of member governments and expected to be acceptable to the latest majority of those.72 Between 23 November and 11 December 1965 a legal committee composed of legal experts appointed by 61 member governments convened in Washington to discuss a preliminary draft convention prepared by the Bank staff. On 11 December 1965, the legal committee adopted by consensus a revised draft. The Executive Directors further revised the draft and on 18 March 1965 adopted it in its final form. The text was transmitted to member governments for signature and ratification. When adopting the final text of the convention, the Executive Directors also approved a report intended to provide member governments with a ‘brief comment on a few principal features of the convention’. It has been argued that the Report of the Executive Directors should be treated as context for the purpose of Article 31(2)(a) VCLT.73 Given the role played by the Executive Directors in the elaboration and negotiation of the Convention, the Report may offer important elements clarifying or supporting any given interpretation. One example needs to be singled out. It has been argued, for

70

G Abi Saab, dissenting opinion, in Abaclat v Argentina, above Ch 1, n 15, para 48. Resolution 174. Resolution 214. 73 B Legum and W Kirtley, ‘The Status of the Report of the Executive Directors on the ICSID onvention’ (2012) ICSID Review 1. C 71 72

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instance, that the Report confirms the view that the contracting parties intended to mandate ICSID tribunals to apply, in the absence of an agreement between the parties, both the domestic law of the host State and international law, without relegating the latter to a residual role.74 The relevant passage of the report reads: ‘the Tribunal must apply the law of the State party to the dispute (unless that law calls for the application of some other law), as well as such rules of international law as may be applicable.’75

IV. Other Supplementary Means Article 32 has intentionally been drafted in very broad terms through a reference to supplementary means, including preparatory work and the circumstances of conclusion of the treaty.76 As pointed out by several tribunals, ‘the category of admissible supplementary means is not a closed one’.77 However broad, the category ‘supplementary means’ is not meant to include anything the interpreter may consider useful for the purpose of interpreting any given provision. The WTO Appellate Body offered a rigorous reading of Article 32. It recognised that Article 32 does not define exhaustively the supplementary means of interpretation and offers the interpreter ‘a certain flexibility in considering relevant supplementary means in a given case so as to assist in ascertaining the common intentions of the parties’.78 Only the materials susceptible to throw some light on the common intention of the parties and presenting a ‘temporal proximity’79 with the conclusion of the treaty should be put under the rubric of supplementary means. Even this broad but scrupulous understanding of Article 32 has been seen with circumspection.80 74

E Gaillard and Y Banifatemi, above Ch 4, n 279, p 388. Report of the Executive Directors on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 18 March 1965, Document No 145, in History of the ICSID Convention, 1082 (emphasis added). 76 According to R Ago (1966-I) 18 Yearbook of the International Law Commission 202, the (future) Vienna Convention should have indicated expressly only preparatory works and circumstances surrounding the conclusion of the treaty as they are ‘the most often used’. 77 See, eg, HICEE v Slovak Republic, above Ch 1, n 35, Partial Award, para 117. The finding has been quoted with approval by several tribunals, including, for example, Churchill Plc v Indonesia, above Ch 4, n 56, para 153. 78 EC—Chicken, above Ch 1, n 34, para 286. In para 305, it added that ‘documents published, events occurring, or practice followed subsequent to the conclusion of the treaty may give an indication of what were, and what were not, the ‘common intentions of the parties’ at the time of the conclusion. The relevance of such documents, events or practice would have to be determined on a case-by-case basis’. 79 ibid, para 293, approving the Panel finding (para 7.344). 80 After reviewing all relevant decisions, I Van Damme, above Ch 1, n 11, p 323, warns that ‘[t]he Appellate Body should be careful not to turn Article 32 into a dumping ground for interpretative argument’. O Dörr, above n 15, p 580, has argued that ‘[a]ny material that was not stricto sensu part of the negotiating process, but played a role because it covers the substance of the treaty and the negotiators were able to refer to it, can thus be introduced into the process of interpretation as “supplementary means”’. 75

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Investment arbitral tribunals have claimed much more latitude under Article 32 than other international tribunals, including the WTO Appellate Body. In HICEE BV v Slovak Republic, the Tribunal held that on the basis of Article 31 the adverb ‘directly’ used in the expression ‘invested directly or through an investor of a third State’ in Article 1(a) of the BIT between the Netherlands and the Slovak Republic could bear two meanings: it may refer to the origin of the investment (directional meaning) or to the connection between the investor and the investment (relational meaning). In order to operate a choice between the two meanings, it turned to Article 32 and examined the relevance of the explanatory notes prepared in the Netherlands during the ratification process of the BIT as well as the concordant position taken by the Slovak Republic in the arbitral proceedings. It held that the explanatory notes and the position taken by the respondent could not be treated either as subsequent agreement for the purpose of Article 31(2)(b), nor as preparatory work under Article 32.81 It nonetheless discussed whether they could still be qualified as supplementary means within the scope of Article 32. The Tribunal stressed two basic facts. On the one hand, through the explanatory notes the Dutch Government expressed formally, publicly and in writing the meaning it attached to Article 1 of the BIT. On the other hand, during the proceedings the Government of Slovakia espoused such a meaning. For the Tribunal such ‘concordance of views’ between the two contracting parties must be treated as ‘highly pertinent circumstances’ when interpreting Article 1 of the BIT if logic, good sense and the principle of good faith embodied in the VCLT are to be respected. It concluded that ‘the Dutch Explanatory Notes, given their terms and context, taken together with the viewpoint adopted in these proceedings by Slovakia, constitutes valid supplementary material which the Tribunal may, and in the circumstances must, take into account’.82 The notes become decisive in the Tribunal decision to favour the respondent’s interpretation, namely that sub-subsidiaries incorporated in the host State do not enjoy the protection of the BIT. The Tribunal decision was criticised by a dissenting arbitrator who was persuaded that the application of Article 31 would have led to the opposite interpretation and that resorting to Article 32 was unnecessary.83 Yet, an obstacle would prevent the application of Article 32: Slovakia “consented” to the Dutch notes during the proceedings with no relation with the conclusion of the treaty. This is probably the reason why the Tribunal preferred to use the terms ‘supplementary material’ rather than ‘supplementary means’ under Article 32. The Tribunal’s position, however, remains interesting for two reasons. First, from the standpoint of Article 32, it admits the relevance as supplementary means of documents expressing ‘converging views’. Second, it emphasises the flexibility of Article 32 and of the 81

HICEE v Slovak Republic, above Ch 1, n 35, Partial Award, paras 134–35. ibid, para 136. 83 CN Brower, dissenting opinion, paras 24 ff. 82

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VCLT generally by introducing the notion of ‘highly pertinent circumstances’ that regardless to the question of their formal inclusion in Article 32 cannot be ignored by the interpreter. It must be stressed, however, that Article 32 is not meant to include everything and some limits must be respected. In Churchill Plc v Indonesia, the Tribunal was struggling to find a satisfactory interpretation of the terms ‘shall assent’ used in Article 7(1) of the BIT between the United Kingdom and Indonesia. It then held that Article 32 VCLT allows recourse to the preparatory work of the treaty and the circumstances surrounding the treaty’s conclusion. It does not give an exhaustive list of admissible materials and the Tribunal thus has latitude to include any element capable of shedding light on the interpretation of ‘shall assent’. Since the Respondent has put most emphasis on doctrinal writings and the Claimant on case law, the Tribunal will address these materials first. Accordingly, the analysis will focus on (i) doctrinal writings, (ii) case law, (iii) the treaty practice of Indonesia and the United Kingdom with third States, and (iv) the preparatory materials regarding the negotiation of the UK–Indonesia BIT.84

This approach stretches Article 32 beyond recognition. The very idea behind Article 32 is to examine the process through which the treaty has been concluded in search of elements showing the common intention of the parties. The exercise is directed either at confirming that the text as interpreted under Article 31 effectively records the common intention of the parties, or at determining the meaning of such a text when it is doubtful that it reflects such intention. It follows that doctrinal writings, case law and the treaty practice of Indonesia and the United Kingdom cannot strictly speaking be considered as supplementary means for the purpose of Article 32, although obviously may be relevant elsewhere in the interpretative process. In a series of recent decisions rendered under the same chairmanship, moreover, it has been held that Article 32 VCLT permits, as supplementary means of interpretation, not only preparatory work and the circumstances of conclusion of the treaty, but indicates by the word ‘including’ that, beyond the two means expressly mentioned, other supplementary means of interpretation may be applied. Article 38 [paragraph 1.d] of the Statute of the International Court of Justice provides that judicial decisions are applicable for the interpretation of public international law as ‘subsidiary means’. Therefore, they must be understood to be also supplementary means of interpretation in the sense of Article 32 VCLT.85

The argument is not entirely convincing as it conflates two distinct issues. On the one hand, Article 32 VCLT concerns the means supplementary to the general rule 84

Churchill Plc v Indonesia, above Ch 4, n 56, paras 181–82. Canadian Cattlemen v United States, above Ch 3, n 98, Jurisdiction, para 50. The same view, cosmetically modified, can be found in Chevron v Ecuador, above Ch 1, n 7, Interim Award, para 121; Caratube International Oil Company LLP v Kazakhstan, ICSID ARB/08/12, Decision Regarding Claimant’s Application for Provisional Measures, 31 July 2009, para 71. 85

Other Supplementary Means

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on interpretation embodied in Article 31 VCLT and available to the interpreter for the purpose of confirming or determining the meaning of a given provision. On the other hand, Article 38(1)(d) of the ICJ Statute indicates the means subsidiary to treaty rules, customary law and general principles of law the Court applies to settle a dispute. Article 32 VCLT does not allow the interpreter to take into account how the treaty has been interpreted by international tribunals. This is, however, without prejudice to the importance of pronouncements by international tribunals for the understanding and application of the treaty, a question that will be addressed in Chapter 12. Quite the contrary, these pronouncements are extremely important throughout the entire interpretative process from its very beginning with the analysis of the ordinary meaning. Furthermore, the interpreter is expected to consider not only investment-related arbitral decisions but also, whenever appropriate, decisions rendered in other fields. Indeed, international tribunals have always done so and will continue to do so. An entirely improbable position is the one taken by a tribunal that relied on a short scholarly reference unsupported by any evidence86 to hold that [p]ursuant to Article 32 of the VCLT, supplementary means of interpretation can be used in particular to confirm the meaning resulting from the application of Article 31. These include treaties which one of the Contracting States entered into with third states if they deal with the same subject matter.87

The discussion on supplementary means was unnecessary since the Tribunal was already satisfied about the interpretation based on Article 31 and merely confirmed such interpretation. Yet, it is worth pointing out that the inclusion of treaties concluded with third States amongst the supplementary means is against the letter and the spirit of Article 32 VCLT. They have nothing to do with the process leading to the conclusion of the treaty to be interpreted and are entirely alien to the search of the common intention of the parties to the treaty being interpreted. Besides, it is not clear how the treaty practice of just one State may be relevant for the interpretation of the BIT before the Tribunal. The risk is that in a subsequent dispute featuring the other party as respondent, another tribunal could consider the treaty practice of the latter and support a completely different interpretation.

86 A Aust, above Ch 1, n 10, p 220. In the decision the reference is to the previous edition (A Aust, Modern Treaty Law and Practice, 2nd edn (Cambridge: CUP, 2007) 248). 87 KT v Kazakhstan, above Ch 4, n 216, para 122.

11 Plurilingual Treaties I. Interpretation of Plurilingual International Treaties The interpretation of investment treaties authenticated in two or more languages has been largely neglected in literature.1 This is rather surprising since the overwhelming majority of these treaties are plurilingual. Although English can be safely considered the lingua franca in this area of law, interpretative problems related to languages have arisen and will continue to arise in international arbitration. The authentication of the text is a procedural step intended to establish it as authentic and definitive. Under Article 10 VCLT, the procedure for the authentication of the text of a treaty is defined in the treaty itself or agreed upon by the contracting parties, or in the absence of such procedure through signature, signature ad referendum or initialling. Authentic texts must be distinguished from ‘official texts’ or ‘official translations’, which in fact are not intended to be authoritative.2 Official texts have been signed by the contracting parties without being accepted as authentic, whereas official translations are prepared by the contracting parties, governments or international organisations. Although the interpreter must use the authentic text or texts of a treaty, ‘official texts’ or ‘official translations’ may be relevant when the examination of an authentic text or texts does not lead to a satisfactory interpretation. As expressly foreseen in an earlier draft Article prepared by the Special rapporteur, when the meaning of a term, as expressed in the authentic text or texts, remains ambiguous or obscure after the application of the relevant principles of interpretation, ‘reference may be made to a text or version which is not authentic in so far as it may throw light on the intentions of the parties with respect to the term in question’.3

1

See, eg, JR Weeramantry, above Ch 5, n 55. (1996-II) 18 Yearbook of the International Law Commission 224. 3 Art 75 (5) of the 3rd Report submitted by H Waldock, (1964-II)16 Yearbook of the International Law Commission 62. Art 75(5) was later abandoned by the ILC and does not appear in Art 33 VCLT. 2

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Although reliance on unofficial translations is to be regarded with circumspection, their use by investment tribunals is not uncommon. In Ambiente v Argentina, for instance, the Tribunal reproduced alongside the authenticated Spanish and Italian texts of the treaty also the unofficial translations provided by the parties to the dispute. The dissenting arbitrator clearly dissociated himself from this approach and emphasised that the use or non-use of any given term in unofficial translation is ‘legally irrelevant’ for the purpose of interpretation.4 As expressly foreseen in Article 33(2), the treaty may provide or the parties to it may agree in any other form, either at the time of the conclusion of the treaty or a later stage, that a text which has not been authenticated could nonetheless be considered authentic. The BIT between the United Kingdom and India, for instance, was authenticated in English, but the parties agreed that ‘[t]here shall be a text of the Agreement in the Hindi language, duly certified by both Governments, which shall be equally authoritative’.5 The BIT between the United States and Kazakhstan, in turn, was authenticated in English and Russian, but the parties agreed that ‘[a] Kazakh language text shall be prepared which shall be considered equally authentic upon an exchange of diplomatic notes confirming its conformity with the English language text’. It is advisable that the contracting parties settle all questions related to the authentic texts of the treaty at the time of its conclusion. Postponing the adoption of an additional authentic text of the treaty to a moment after its conclusion or even its entry into force, especially when equally authoritative, implies several risks, the most obvious of which would be the inability of the parties to elaborate and agree upon, for whatever reason, such a text. The agreement of the parties to the dispute does not elevate a non-authentic text to the rank of authentic text. The interpreter must exercise the greatest vigilance in keeping rigorously distinguished the conduct of the parties to the treaty from the conduct of the parties to the dispute. In Renta4 v Russian Federation, the Tribunal largely ignored the fact that Article 33 is unequivocal in saying that a version of a given treaty can be considered as authentic only if it has been agreed upon by the parties to the treaty. It interpreted the BIT between Spain and the Russian Federation, which has been concluded in two equally authentic texts, namely Russian and Spanish. The Tribunal acknowledged this fact, but nonetheless proceeded on the basis of ‘[q]uotations … taken from the translation into English published in the United Nations Treaty Series’ and pointed out that ‘[b]oth sides have relied on that translation. Neither has argued that either of the two authentic texts differs materially’.6 The decision attracted strong criticism from a dissenting arbitrator who argued that the Award bases its analysis and reasoning exclusively on the English translation of a treaty which, according to its terms, was executed only in the Spanish and Russian 4

Torre Bernàrdez, dissenting opinion, Ambiente v Argentina, above Ch 1, n 15, para 278. Art 16. 6 Renta4 v Russian Federation, above Ch 6, n 59, Jurisdiction, para 4. 5

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languages, each being equally authentic. Conclusions derived from a non-authentic version of an international treaty, however, must be treated with utmost caution. This is all the more so considering that Article 33 of the Vienna Convention provides both a special rule of interpretation where two authentic texts may vary and a rule for when a non-authentic translation can be considered as an authentic text. The Tribunal, however, has discussed neither the Spanish nor the Russian version of the treaty provision in question, nor has it indicated that the English translation could be considered as authentic pursuant to Article 33(2) of the Vienna Convention.7

The disapproval is fully justified. To start with it is questionable to rely on quotations instead of the whole treaty. This may undermine the accurate and complete examination of the context of the terms or provisions to be interpreted. Equally important, a translation published in the UN Treaty Series cannot as such be considered as a text the parties to the treaty have agreed to consider as authentic under Article 33(2) VCLT. Even assuming that the translation was provided to the United Nations by the parties to the treaty, it would remain an ‘official translation’, unless the parties have expressly agreed to consider it as an authentic text in addition to the two texts authenticated at the conclusion of the treaties. When the contracting parties share the same language, needless to say, investment treaties are concluded only in that language;8 often without any express mention of the authentic language being necessary.9 Not unfrequently, the parties agree to have English as the only authentic version of the treaty, even if that language is not the official language of one10 or both of them.11 Investment treaties between states speaking different languages are normally authenticated in two or more languages. There are, for instance, six equally authentic texts of the ECT (English, French, German, Italian, Russian and Spanish),12 and three of NAFTA (English, French and Spanish),13 OIC Investment Agreement (Arab, English and French), SADC Protocol (English, French and Portuguese) and the ICSID Convention (English, French, Spanish). The ASEAN Comprehensive Agreement and the Arab League Investment Agreement have each been authenticated in only one language—English and Arabic respectively. The majority of BITs or bilateral FTAs are authenticated in two, three or, exceptionally, four languages.14 When authenticated in two languages, both texts are as a rule equally authoritative,15 although there are significant 7 CN Brower, dissenting opinion, Renta4 v Russian Federation, above Ch 6, n 59, Jurisdiction, para 14. 8 See, eg, the BITs between the United States and Jamaica, and between Spain and Cuba. 9 See, eg, the BITs between the United Kingdom and South Africa, or between El Salvador and Nicaragua. 10 See, eg, the BITs between Australia and Indonesia. 11 See, eg, the BITs between Egypt and Japan, between the Netherland and Pakistan, or between Switzerland and Uzbekistan. 12 Art 50. Non-authentic Chinese and Arabic texts of the ECT are available at the official website. 13 Art 2206. 14 See, eg, the BITs concluded by the Belgium–Luxembourg Economic Union with India, Albania, Costa Rica and Mexico, or the BIT between Austria and Kosovo. 15 See, eg, the BITs between the United States and Estonia, the United Kingdom and Ecuador, Switzerland and Pakistan, Argentina and the United States, or Argentina and France.

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exceptions.16 A large number of BITs are concluded in three (or exceptionally more) equally authentic languages.17 In a substantial number of them, all languages are equally authentic.18 Perhaps even more frequently, BITs concluded in three authentic languages establish that in case of any divergence of interpretation, one of them will prevail.19 The BIT between Italy and Jordan, for instance, has been authenticated in Arab, Italian and English, and provides that ‘in case of any divergence on the interpretation of this Agreement the English text shall prevail’.20 The interpretation of plurilingual treaties is governed by Article 33 VCLT, which in spite of the paucity of practice can be said to reflect customary international law as held in Salini v Jordan.21 Although plurilingual in expression, the treaty remains a single legal instrument. The conclusion of a treaty in more than one authentic language introduces in the interpretative process an element of comparison. As pointed out by the ILC, having the treaty concluded in two or more authentic languages will unavoidably complicate the task of the interpreter. Nevertheless, this is not necessarily negative. In the words of the ILC, [f]ew plurilingual treaties containing more than one or two articles are without some discrepancy between the texts. The different genius of the languages, the absence of a complete consensus ad idem, or lack of sufficient time to co-ordinate the texts may result in minor or even major discrepancies in the meaning of the texts. In that event the plurality of the texts may be a serious additional source of ambiguity or obscurity in the terms of the treaty. On the other hand, when the meaning of terms is ambiguous or obscure in one language but it is clear and convincing as to the intentions of the parties in another, the plurilingual character of the treaty facilitates interpretation of the text the meaning of which is doubtful.22

16 The BIT between Switzerland and Philippines, for instance, has been authenticated in English and French, the former language prevailing in case of divergence. Other examples are the BITs between Argentina and Jamaica, Sri Lanka and Singapore, Egypt and Nigeria, Indonesia and Zimbabwe, the United Kingdom and Turkmenistan, the Russian Federation and Ethiopia, or Pakistan and Turkey. 17 See, eg, the BITs between Canada and Thailand, China and Vietnam, the United States and Morocco, Belgium–Luxembourg Economic Union and Paraguay, Switzerland and Cuba, Italy and Algeria, or France and India. 18 See, eg, the BITs concluded between Canada and Thailand, Egypt and Bolivia. 19 See, eg, the BITs between China and Argentina, Switzerland and Mexico, Netherlands and Paraguay, Chile and Croatia, Lebanon and Italy, Japan and Vietnam, Estonia and Israel, Austria and Egypt, Thailand and Laos. 20 Italics added. For other examples, see the BIT between China and Germany, the BIT between Portugal and India, or the FTA between Japan and Mexico. 21 Salini v Jordan, above Ch 3, n 85, Jurisdiction, para 75. See also Kılıç v Turkmenistan, above Ch 1, n 5, para 6.4. The ICJ held that Art 33(3) and Art 33(4) are to be considered as reflecting customary international law, respectively in Kasikili/Sedudu, above Ch 1, n 10, Judgment, para 25, and La Grand, above Ch 1, n 10, para 101. In 2013, the ILC reviewed the relevant international jurisprudence and maintained that ‘there are significant indications in the case law that Article 33, in its entirety, indeed reflects customary international law’ (A/68/10) para 6). 22 (1996-II) 18 Yearbook of the International Law Commission 225. According to R Gardiner, above Ch 1, n 10, 414, ‘comparison of authoritative different languages texts of a treaty can play a helpful role in removing uncertainties residing in one or more of them. It can also throw up ambiguities or alternative possibilities which may not arise, or be so readily apparent, if a single language has been used’ (footnote omitted).

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Comparison between the different authentic texts has not been expressly included as an additional principal means of interpretation in ILC draft Articles first and in the VCLT later, due to the concern, already expressed by the Special rapporteur, that such an inclusion could have ‘far-reaching implications by undermining the security of the individual texts’. From this perspective, it was observed that [e]ach language has its own genius, and it is not always possible to express the same idea in identical phraseology or syntax in different languages. It is one thing to admit interaction between two versions when each has been interpreted in accordance with its own genius and a divergence has appeared between them or an ambiguity in one of them. But it is another thing to attribute legal value to a comparison for the purpose of determining the ordinary meaning of the terms in the context of the treaty; for this may encourage attempts to transplant concepts of one language into the interpretation of a text in another language with a resultant distortion of the meaning.23

The VCLT does not expressly request the interpreter to consider all versions if the authentic languages of a given treaty—an obligation which may in some cases be too cumbersome and even counter-productive.24 At least, this is the position of the ICJ, which in LaGrand limited itself to interpreting the French and English authentic texts of the relevant provisions of the Vienna Convention on Consular Relations and not the other equally authentic texts. It remains the fact that examining and comparing the different authentic texts, or some of them may improve the interpretative process and enhance the persuasiveness of its outcome.25 The decision on jurisdiction in Yukos v Russian Federation illustrates how the comparison of different authentic languages may buttress the interpretation of a treaty provision or its terms. The Tribunal considered the relationship between the first two paragraphs of Article 45 ECT. It held that the word ‘notwithstanding’, which opens the second paragraph, discloses the self-standing character of the two provisions—or ‘self-executing’ in the words of the Tribunal. The argument is certainly convincing in the sense of meaning ‘[i]n spite of ’ or ‘without regard to’.26 Yet the Tribunal could have emphasised that the equally authentic French, German, Italian and Spanish versions of the treaty, using respectively ‘nonobstant’, ‘ungeachtet’, ‘fatto salvo’ and ‘no obstante’, clearly point in the same direction. Still in the same decision, the Tribunal interpreted Article 45 ECT as ruling out the possibility of a partial provisional application of the treaty. It has been

23

H Waldock (1966-II) 18 Yearbook of the International Law Commission 100. EU-SADC Trade agreement concluded on 22 January 2009 and not yet in force, has been authenticated in the aberrant number of 22 languages. 25 It has been argued that ‘strictly speaking, according to the letter of the Vienna Convention, the presumption of the equality of the text and the absence of an express directive to compare the text sanction the reliance on any single authentic version for routine interpretation’, M Tabory, Multilingualism in International Law (Alphen aan den Rijn: Sijthoff Noordhoff, 1980) 198. 26 See, eg, EC—Conditions for the Granting of Tariff Preferences to Developing Countries, Appellate Body Report, WT/DS246/AB/R, 7 April 2004, para 90 (footnotes omitted). On this point the Appellate Body upheld the conclusion reached in the Panel Report, para 7.44. 24 The

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argued that the interpretation of Article 45 on this point and more precisely of the terms ‘to the extent that’ is not convincing.27 In the context of Article 33 VCLT, it is worth noting that the Tribunal could have found additional inspiration in the comparison of the other authentic texts. In the French, German and Italian texts, the terms ‘to the extent that’ correspond, respectively, to ‘dans la mesure où’, ‘in dem Masse’, and ‘nei limiti in cui’.

II. Interpretation of Plurilingual International Treaties with Equally Authentic Texts Under Article 33(3), the terms of a treaty are presumed to bear the same meaning in each of its authentic texts. In Canfor v United States, the Tribunal discussed whether there was any difference in the three authentic versions of Article 1902(1) NAFTA with regard to the terms ‘law’, ‘législation sur les droits’ and ‘disposiciones jurídicas’ used, respectively, in the English, French and Spanish texts. After a generic reference to Article 33 VCLT, it concluded that [t]he Tribunal does not believe that there are relevant differences between the English, French and Spanish texts on this point because what is ‘law’, ‘legislation sur les droits’, and ‘disposiciones jurídicas’ in Article 1901(3) is defined in the equally authenticated texts of Article 1902(1). Those definitions do not show differences in language that display any material distinction.28

When two or more literal interpretations, all compatible with the object and purpose of the treaty, can be attached to the terms used in the different authentic texts, the interpreter must adopt the one which is common to all versions. From this perspective, every effort should be made to find the common meaning for the texts as expression of the common intention of the parties. In Levy and Gremcitel SA v Peru, for instance, the Tribunal interpreted Article 8(3) of the BIT between France and Peru, which was concluded in French and Spanish, both being authentic texts.29 After expressly referring to Article 33(4) VCLT,30 the Tribunal confidently found that [t]he Spanish version of the BIT (‘antes del surgimiento de la controversia’) has only one possible meaning, which is ‘before the emergence of the dispute’. By contrast, the French version of the Treaty (‘avant que le différend ne soit soulevé’) could have two meanings, that is, either ‘before the dispute is brought before an international arbitral tribunal’ or

27

See above, Ch 4, section III in fine. Canfor v United States, above Ch 3, n 115, Preliminary Question, paras 217–19 (footnotes omitted). 29 Art 12, last sentence. 30 Renée Rose Levy and Gremcitel SA v Peru, ICSID Case ARB/11/17, Award, 15 January 2015, para 165. 28

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‘before the dispute is raised with the other side’. The Tribunal agrees with the Respondent that the only harmonious interpretation of the two authentic texts is to say that the locally incorporated company must be under foreign control ‘before the dispute is raised with the other side’. Indeed, this understanding coincides with the Spanish wording and with one of the two meanings of the French formula.31

The finding, which applies a legal reasoning based on the search for the common intention of the parties in combination with the presumption that all authentic texts convey the same meaning, is irreproachable. Indeed, it follows a position expressed by the ILC Special rapporteur32 and universally accepted, although it did not find its way through the text of the VCLT.33 When confronted with a difference of meaning between the various authentic texts, the interpreter will deploy ‘every reasonable effort’ to remove it and to ascertain the intention of the parties by recourse to the normal means of interpretation under Articles 31 and 32. The referral back to Articles 31 and 32 VCLT confirms once again that Articles 31, 32 and 33 VCLT, far from being sealed compartments, interact with each other. From this perspective, Article 33 represents ‘a particular application of general principles of interpretation’.34 Needless to say, the exercise risks being complex and frustrating as the problems the interpreter may face when interpreting a treaty concluded in one language are unavoidably amplified in the case of Article 33(4) VCLT. The presumption established in Article 33(3) is, however, rebuttable where ‘the difference in meaning is not removed by reference to Articles 31 and 32’.35 In BG v Argentina, the Tribunal examined whether the investment made by the claimant fell within the definition of investment contained in Article 1(a)(iii) of the BIT between Argentina and the United Kingdom. The English and Spanish authentic versions referred, respectively, to ‘claims to money’ and ‘título de crédito’ (which the Tribunal assimilated to negotiable instrument). After declaring the two expressions ‘semantically irreconcilable’, the Tribunal held that ‘Paragraph 3 of Article 33 directs the interpreter to consider the object and purpose of the treaty’.36 In a short paragraph it found that the adoption of the term ‘título de crédito’ would ‘considerably restrict the scope of coverage of the treaty, discourage “greater investment” and defeat the share aspiration expressed by Argentina and the United Kingdom in executing the treaty’.37 The argument

31

ibid, para 166. The scenario was expressly described in Art 75(3) of the Draft Articles proposed in the 3rd Report by H Waldock, (1964-II) 16 Yearbook of the International Law Commission 62. In Art 75(4) it was further pointed out that ‘[i]f in one authentic text the natural and ordinary meaning of a term is clear and compatible with the objects and purposes of the treaty, whereas in another it is uncertain owing to the obscurity of the term, the meaning of the term in the former text is to be adopted’. 33 See also Kılıç v Turkmenistan, above Ch 1, n 5, para 9.23. 34 A Papaux and R Samson, ‘Article 33’, in O Corten and P Klein (eds), above Ch 1, n 10, 866, 872. 35 BG Group Plc v Argentina, UNCITRAL, Final Award, 24 December 2007, para 132. 36 paras 130 and 132. 37 para 134. 32

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was based on the preamble of the treaty and three decrees adopted by Argentina, which for the Tribunal amounted to the expression of its understanding of the treaty. For the Tribunal, the decrees confirmed that investors in the relevant gas privatisation enjoyed the protection of the treaty even if their investment did not take the form of ‘títulos de crédito’. Comparing different authentic languages remains a delicate exercise requiring a careful assessment on behalf of the interpreter. In Rumeli v Kazakhstan, the Tribunal dealt with textual differences between the arbitral clauses contained in Article VII(2) of the BIT between Turkey and Kazakhstan in the equally authentic versions available, namely Turkish, English and Russian.38 The Tribunal reproduced in the decision what appears to be the English text of Article VII, ‘Settlement of disputes between one Party and investors of the other Party’.39 Article VII provides that if the dispute cannot be settled amicably, the investor may submit it to an ICSID tribunal, a tribunal established under UNCITRAL rules, or the Court of Arbitration of the Paris International Chamber of Commerce. In the text reproduced in the award, only subparagraph (c), concerning the last forum, includes a further condition, namely that ‘if the investor concerned has brought the dispute before the courts of justice of the Party that is a party to the dispute and final award has not been rendered within one year’. The Tribunal interpreted Article VII in the sense that the above condition concerns only the Court of Arbitration of the Paris International Chamber of Commerce and therefore the investor is not obliged to satisfy it in order to submit the dispute to an ICSID arbitration. Without developing any legal argument on the ordinary meaning or on any other element of Article 31 VCLT and without even reproducing the Turkish text, the Tribunal further held that [b]y contrast with the Turkish version, the English and Russian versions of the Treaty do require a prior submission of the dispute to local courts before initiation of arbitration proceedings before ICSID. The Arbitral Tribunal considers therefore that no such requirement had to be fulfilled by Claimants before starting this arbitration.40

The decision presents several problems from the standpoint of Article 33 VCLT. The complete lack or any reference to the VCLT rules on interpretation is rather disappointing. More importantly, the Tribunal completely refrains from applying Article 31 and possibly Article 32 to any of the authentic texts of the treaty, let alone Article 33 VCLT. The Tribunal duty was to rigorously go through the interpretative process, starting by determining the meaning of Article VII(2) in each of the authentic text available. Should any discrepancy have arisen, the Tribunal would then have applied Article 33 and searched for the meaning that

38 The treaty was concluded ‘in two authentic copies each in Turkish, Kazak, English and Russian’, but only the Turkish, English and Russian texts of the treaty were made available to the Tribunal. 39 Rumeli v Kazakhstan, above Ch 3, n 39, Award, para 315. 40 Rumeli v Kazakhstan, above Ch 3, n 39, Award, para 317.

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best reconciles the different texts. During the process, the Tribunal would have probably considered the relevance of the indentation for the purpose of interpretation, and also realised the serious grammatical problems contained in the English text.41 This may have reversed the final outcome of the interpretative process of Article VII(2). Moreover, it must be pointed out that relying on mere numeric considerations may be misleading. In the case under discussion, the Tribunal mechanically found that interpretation based on two authentic texts prevails over a different one based on a third authentic text, without inquiring how persuasive each of the two interpretations was. The interpreter must carefully weigh the persuasiveness of the interpretation it has reached with regard to each authentic text. This means that the possibility of preferring the interpretation of a clear text to that of two ambiguous texts cannot be ruled out. A procedural order issued in Maffezini v Argentina also offers several interesting elements from the standpoint of Article 33 of the VCLT. The Tribunal had to determine whether it had the power to order or merely to recommend provisional measures under Article 47 of the ICSID Convention and ICSID Arbitral Rule 39, both being available in three authentic languages (English, S panish and French). The relevant part of Article 47 reads in the three languages (italics added): le Tribunal peut, s’il estime que les circonstances l’exigent, recommander toutes mesures conservatoires propres à sauvegarder les droits des parties. el Tribunal, si considera que las circunstancias así lo requieren, podrá recomendar la adopción de aquellas medidas provisionales que considere necesarias para salvaguardar los respectivos derechos de las partes. the Tribunal may, if it considers the circumstances so require, recommend any provisional measures which should be taken to preserve the respective interests of either party.

The relevant part of Rule 39 provides that (italics added): Une partie peut … requérir que des mesures provisoires pour la conservation de ses droits soient recommandées par le Tribunal. La requête spécifie les droits devant être préservés, les mesures dont la recommandation est sollicitée et les circonstances qui rendent ces mesures nécessaires. … cualquiera de las partes … puede solicitar que el Tribunal recomiende la adopción de medidas provisionales para la salvaguardia de sus derechos. La solicitud deberá especificar los derechos que se salvaguardarán, las medidas cuya recomendación se pide, y las circunstancias que hacen necesaria la dictación de tales medidas. … a party may request that provisional measures for the preservation of its rights be recommended by the Tribunal. The request shall specify the rights to be preserved, the

41 See, with regard to the identically drafted Art VII(2) of the BIT between Turkey and Turkmenistan, Kılıç v Turkmenistan, above Ch 1, n 5, and Ch 14, section IV.

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measures the recommendation of which is requested, and the circumstances that require such measures.

The Tribunal took into account only the English and Spanish versions and focused on Rule 39. It held that [w]hile there is a semantic difference between the word ‘recommend’ as used in Rule 39 and the word ‘order’ as used elsewhere in the Rules to describe the Tribunal’s ability to require a party to take a certain action, the difference is more apparent than real. It should be noted that the Spanish text of that Rule uses also the word ‘dictación’. The Tribunal does not believe that the parties to the Convention meant to create a substantial difference in the effect of these two words. The Tribunal’s authority to rule on provisional measures is no less binding than that of a final award. Accordingly, for the purposes of this Order, the Tribunal deems the word ‘recommend’ to be of equivalent value as the word ‘order’.42

Confronted with the interpretation for the first time of an issue as important as the mandatory or hortatory character of provisional measures, the Tribunal could have been expected to take into account also the French version of the ICSID Convention. It is also unclear on which basis the Tribunal privileged Rule 39 and substantially ignored Article 47, which Rule 39 is meant to implement. Since the arbitration rules ‘are subject to the Convention’,43 the interpreter must consider first and foremost Article 47 ICSID. The arbitral rules could be used, when appropriate, to confirm, clarify or determine the meaning attached to Article 47 ICSID. Owing to the inexplicable focus on Rule 39, the Tribunal failed to point out the coherent recurrence of the verb ‘to recommend’ in all three authentic languages of Article 47 ICSID. The ordinary meaning of Article 47 ICSID appears therefore quite straightforward. It is also consistent with the object and purpose of the treaty as a whole and of Article 47 ICSID in particular. It cannot be postulated that these objects and purposes, namely ensuring a stable legal framework and an adequate protection of foreign investment, demand that ICSID tribunals have the competence to order the adoption of provisional measures. It is up to the contracting parties to negotiate and agree upon the powers of the tribunals charged to settle the dispute that may arise with regard to compliance with the treaty. Incidentally, it is worth recalling that in the case of Article 47 ICSID, the travaux préparatoires indicate quite clearly that the question of the nature of provisional measures was raised during the negotiation and the proposal to confer tribunals to order their adoption had been defeated.44 Rule 39 could have been considered as part of the context of Article 47 ICSID. Here the Tribunal overlooked the fact that in all authentic texts of Rule 39 a party

42

Maffezini v Argentina, Procedural Order 2, 28 October 1999, para 9. C Schreuer et al, above Ch 4, n 203, p 683. See also above Ch 9 text accompanying n 62. 44 ibid, p 15. 43

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to the dispute may request the Tribunal to recommend the adoption of provisional measures to preserve its rights. Furthermore, under the second sentence of Rule 39, the party requesting provisional measures has to specify, inter alia, the measures the recommendation of which is sought. It is only with regard to indication of the circumstances requiring provisional measures that the three texts present a difference as only the Spanish text makes a reference to ‘la dictación’ of provisional measures, which denotes a mandatory character. It is argued that, in spite of the term ‘dictación’ referred to in the Spanish text, Rule 39 confirms that the Tribunal has been conferred the right only to recommend provisional measures. Deducing from the term ‘dictación’ which appears in one version of Rule 39 the mandatory character of the provisional measures under Article 47 ICSID, therefore, completely distorts the clear meaning of both Article 47 ICSID and Rule 39 itself.45 In spite of the above, the interpretation of Article 47 and Rule 39 offered by the Maffezini tribunal was also adopted by subsequent tribunals without p rovoking any reaction by States parties, a point which will be discussed in the next chapter.46 The decision in Kılıç v Turkmenistan also deserves some attention. The Tribunal had to interpret the jurisdictional clause contained in Article VII.2 of the BIT between Turkey and Turkmenistan. It dealt with a variety of problems relating to plurilingual treaties, starting with the parties’ disagreement on the number of authentic versions of the treaty and the accuracy of translation into English of another authentic version or versions. Given the sharp divergences between the parties and the centrality of Article VII.2, the Tribunal decided to render a preliminary decision on the interpretation of this provision.47 The first problem encountered by the Tribunal was to identify the authentic versions in which the treaty had been concluded. The authentic English version of the BIT provides that the Treaty was to be concluded in two authentic copies in Russian and English. On the other hand, according to the authentic Russian version (translated into English), the treaty was executed in two authentic copies in Turkish, Turkmen, English and Russian. Relying on the Russian version of the treaty, the respondent argued that the treaty had been concluded in four authentic languages, namely English, Russian, Turkish and Turkmen, but was unable to provide any signed copy of the latter two.

45 In City Oriente Ltd v Ecuador and Empresa Estatal de Petróleos del Ecuador, ICSID ARB/06/21, Provisional Measures, 19 November 2007, para 52, for instance, the Tribunal found that the distinction between recommending and ordering ‘is more apparent than it is real, since Rule 39(1) itself, in its Spanish version, mentions the “dictación” [ordering] of the provisional measures, which demonstrates that, as far as the Rules are concerned, such words are used interchangeably’. 46 See below, Ch 12, section IV. 47 Kılıç v Turkmenistan, above Ch 1, n 5, Art VII(2).

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Without any detailed explanation, the Tribunal found the ordinary meaning of the text of the Russian version of the BIT concerning the number of authentic languages ‘ambiguous or obscure’, making recourse to the circumstances of the conclusion of the BIT necessary. It then held that ‘the circumstances surrounding the conclusion of the BIT include its drafting, execution and adoption. As noted above, the evidence points strongly to the fact that it was only signed in its English and Russian language versions.’ It then completed its reasoning by holding that [h]ad the Tribunal concluded that it was unable to remove the difference of meaning in the English and Russian text by the application of Articles 31 and 32, it would have reached the same conclusion based on the application of Article 33(4) on the basis that the identification of only the English and Russian texts as authentic is an approach that ‘best reconciles’ the divergent texts in the Russian and English versions of the BIT.48

The Tribunal’s position is both unpersuasive and surprising. It is unpersuasive because the ordinary meaning may well be ‘ambiguous and obscure’, but this is a simple factual statement. The VCLT directs the interpreter to start with the ordinary meaning and then go through all other elements indicated in Article 31. It is only when the outcome of the application of Article 31 as a whole leaves the meaning ‘ambiguous and obscure’ that the interpreter is expected to move to the supplementary means. The decision is also surprising given that the provision is elementary and its ordinary meaning clear—but different—in both languages. The problem lies with the impossibility of reconciling the two texts. At any rate, the number of authentic versions of the treaty is a moot question given the impossibility of producing the signed copies of two unavailable texts indicated as authentic in the Russian version. With regard to Article 33 and for the sake of the argument, it is worth pointing out that had the respondent been able to produce a signed copy of the Turkish or Turkmen texts, the Tribunal would have faced a difficult question as to whether such copy had to be considered as authentic. Perhaps the indication on the authentic texts contained in the Turkish or Turkmen versions of the treaty could have provided the decisive argument and eventually resolved the discrepancy between the English and the Russian texts. When the differences cannot be removed by applying Articles 31 and 32, the interpreter has to adopt the meaning that best reconciles the texts, having regard to the object and purpose of the treaty. As has been pointed out, ‘this is not a matter of selecting one or several languages that are to be taken as expressing the meaning correctly, but rather that an interpretative outcome is to be found which respects the different languages but extracts from the treaty the best reconciliation of the differences’.49

48 49

ibid, para 7.16. R Gardiner, above Ch 1, n 10, p 442–443.

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In Al Warraq v Indonesia, the Tribunal had to interpret some provisions of the OIC Investment Treaty, which was concluded in English, French and Arabic, all languages being equally authoritative. Without any explanation, the Tribunal noted that the arbitration had been conducted in English and also that the Tribunal and the parties alike had worked in English and to a limited extent in French.50 It was then confronted with a discrepancy between the English version, reading that ‘disputes that may arise shall be entitled through conciliation and arbitration’, and the French one reading ‘les litiges qui pourraient se presenter seront réglée par conciliation ou par voie d’arbitrage’. The Arab version goes in the same direction as the French one. The Tribunal accordingly considered that the term ‘entitled’ should be understood as ‘entitled to resolution’.51 Although it is not clear why the Tribunal preferred the rather unusual expression ‘entitled to resolution’ over the much simpler ‘settled’, the interpretation reconciles at best the different versions of the treaty and is certainly consonant with Article 33(4) VCLT. It is, however, worth pointing out that Article 33 VCLT is of no help when both (or all) authentic texts are ambiguous or obscure, but do not present any difference. It is indeed possible that the same grammatical or lexical problems are identical in both (or all) authentic texts. This is even likely when one or more authentic texts have been translated from the original one. In this case, the solution must be sought in the application of Articles 31 and 32.52 A final point deserving of mention with regard to plurilingual treaties authenticated in equally authentic texts concerns the possible preference the interpreter could give, when confronted with different interpretations based on equally authentic versions, to the interpretation based on the version in which the negotiations were conducted. The ILC before and the contracting parties at the Vienna Conference preferred not to introduce any provision in this regard in order to respect the sacral equality of all authentic texts in plurilingual treaties, absent the different intention of the parties.53 Nothing nonetheless prevents the contracting parties from directing the interpreter to take into account, in case of divergence, the fact that negotiations were conducted in a given language. This does not accord any formal legal supremacy to the relevant text, but simply provides a sort of aid to interpretation that may be particularly useful to settle persisting interpretative divergences, or assist the interpreter in making the necessary choices between different plausible interpretations. An example is the French authentic text of the BIT between the Belgium– Luxembourg Union and Venezuela, which reads: ‘En cas de divergence, compte sera tenu du fait que les négociations ont été conduites en langue française’.54

50

para 72.5. The Tribunal described the English expression as ‘clumsy and ambiguous’.

51 ibid. 52

See this chapter, section IV. See R Gardiner, above Ch 1, n 10, pp 426–429. 54 See also Art 112 EU SADC, according to which, in the event of a contradiction, ‘reference’ shall be made to the language of the negotiations, namely English. 53

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III. Interpretation of Plurilingual International Treaties with Prevailing Authentic Texts Contracting parties may agree that in case of divergence, an authentic text would prevail over the other(s), normally the English one. In this case, it seems logical that the negotiations are conducted in the language indicated as prevailing in case of discrepancies. It seems also equally logical that the interpreter starts the interpretative task and works essentially with this version. However, keeping in mind the presumption that all authentic texts bear the same meaning—which applies also when the parties have indicated a prevailing text—it may be appropriate, or even necessary, during the entire interpretative process to have recourse to the other authentic version(s). Nothing would prevent the interpreter from double checking the interpretation of the prevailing text against the other authentic one(s). Indeed, the operation is to be encouraged when such an interpretation is not entirely persuasive and becomes even necessary when the text of the ‘prevailing’ language is not clear or leaves open the possibility of more than one plausible interpretation. In all these cases, comparing the different authentic texts may serve two purposes. On the one hand, it may confirm any given interpretation of the prevailing text. Similarly to the recourse of supplementary means in order to confirm the interpretation based on Article 31 VCLT, there is a risk that the comparison with other authentic texts contradicts rather than confirms the meaning attached to the prevailing text. This may be unfortunate, but at worst would make the exercise futile, given the predominance of the first text. The second function is far more important as it allows the interpreter to overcome lacunae, uncertainty or ambiguities in the prevailing treaty, as well as to operate a choice between two or more plausible interpretations. In these terms, the comparison between the different authentic versions becomes a constructive exercise in which the interpreter—sua sponte or upon the initiative of the parties— fully exploits all elements susceptible to draw light on the meaning of the treaty, keeping in mind the prevailing nature of one of its texts.55

55 This flexible approach seems to surmount the problem prospected by the ILC in the following terms: ‘The application of provisions giving priority to a particular text in case of divergence may raise a difficult problem as to the exact point in the interpretation at which the provision should be put into operation. Should the ‘master’ text be applied automatically as soon as the slightest difference appears in the wording of the texts? Or should recourse first be had to all, or at any rate some, of the normal means of interpretation in an attempt to reconcile the texts before concluding that there is a case of ‘divergence’?’ (1966-II) 18 Yearbook of the International Law Commission 224.

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IV. Translation in the Interpretation of Plurilingual Treaties Arbitral tribunals are regularly confronted with the interpretation of plurilingual treaties. The parties to the dispute may agree on the language(s) of the arbitration.56 Their choice is dictated by several factors and may not coincide with the language(s) of the treaty the claim is based upon. Indeed, English is often the proceeding language of investment arbitration or one of them, even if it is not the language of the authentic version of the relevant treaty or one of them. This means that the parties and the tribunal often rely on translations. Whatever the arrangements for the language of the proceedings and the related documents, the translation of the authentic version(s) of the treaty requires great caution, even when the parties to the dispute agree on a given translation. The tribunal is bound to respect the authentic versions of the treaty, keeping in mind that the non-disputing party or parties have a clear interest in the accurate translation of the treaty used by tribunals. At any rate, the accurate translation of a treaty provision ‘requires something more than a literal and word-for-word translation of each and every word employed in the text that is being translated’.57 Some investment tribunals have taken a rather relaxed attitude and used non-authentic texts. This is the case, for instance, of the arbitral decisions rendered in English in relation to alleged breaches of the BIT between France and Argentina. The treaty was authenticated in two equally authentic texts, namely French and Spanish. In Total v Argentina, for instance, the Tribunal limited itself to note in a footnote that although French and Spanish were the authentic texts of the treaty, it would use the English translation in which the treaty had been published in the UN Treaty Series.58 In Suez v Argentina, the Tribunal took the same approach.59 In EDF v Argentina, the Tribunal completely overlooked the question of the authentic texts of the treaty to the point that it indicated only Article 31 and 32 VCLT as applicable rules on interpretation.60 As a result, it examined directly the English translation to interpret the relevant treaty provisions, including Article 3 dealing with FET.61

56 See, eg, Rule 22 of the ICSID Arbitration Rules, Art 21 of the ICC Arbitration Rules, or Art 19 of the UNCITRAL Arbitration Rules. 57 Kılıç v Turkmenistan, above Ch 1, n 5, para 8.5. 58 Total v Argentina, above Ch 6, n 10, Jurisdiction, fn 24. 59 Suez v Argentina, Jurisdiction, above Ch 1, n 22, fn 30. 60 EDF International SA, SAUR International SA and León Participaciones Argentinas SA v Argentina, ICSID ARB/03/23, Award, 11 June 2012, paras 892–93. 61 ibid, para 998.

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The text translated for the publication in the UN Treaty Series cannot be treated as an authentic text, unless the parties have so agreed. At best, such translation may be considered as an aid to interpretation and be taken into account only after unsuccessfully going through the whole process indicated in Article 33 VCLT on the basis of the authentic texts. The risks a tribunal inevitably takes in considering an unofficial translation are evident in Ambiente v Argentina. In the unofficial English translation the majority relied upon, the terms ‘obligaciones’ and ‘obbligazioni’—which appear in the equally authoritative Spanish and Italian versions of the BIT—were translated as ‘bonds’. The Tribunal excluded any doubts as to the inclusion of bonds/security entitlement within the scope of the treaty.62 Such an approach was strongly dis approved by a dissenting arbitrator who insisted on the need to carefully consider the authentic versions of the treaty in strict accordance with the VCLT rules of interpretation.63 Two decisions concerning alleged violations by Turkmenistan of the BIT between Turkey and Turkmenistan further illustrate some of the risks and difficulties a tribunal may face in interpreting plurilingual treaties. In both cases, the Tribunal decided to render a preliminary decision on the interpretation of Article VII(2), which contains the arbitral clause. As seen above, in Kılıç v Turkmenistan, the Tribunal determined that only the English and Russian texts are authentic and that the last sentence of Article VII(2) refers to all arbitral fora and not only to ICC arbitration under letter (c).64 Given the composition of the Tribunal, it was necessary to translate the Russian text into English.65 In the first official translation, which was acceptable for both parties to the dispute, Article VII (2) read If the referenced conflicts cannot be settled in this way within six months following the date of the written notification mentioned in paragraph 1, the conflict may be submitted at investors (sic) choice to (a) … (b) … (c) The Court of Arbitration of the Paris International Chamber of Commerce, on the condition that, if the concerned investor submitted the conflict to the court of the Party, that is a Party to the conflict, and a final arbitral award on compensation of damages has not been rendered within one year.

During the proceedings, the respondent submitted a revised translation which deleted the word ‘if ’ from the second line of sub-paragraph (c) since its inclusion 62

Ambiente v Argentina, above Ch 1, n 15, Admissibility and Jurisdiction, paras 417–18. S Torres Bernárdez, dissenting opinion, Ambiente v Argentina, above Ch 1, n 15, para 278. 64 See above Ch 4, n 284. 65 In Kılıç v Turkmenistan, above Ch 1, n 5, para 8.2, the Tribunal noted that ‘[o]ne reason for translating the text of the Russian version of the BIT into English is to enable the non-Russian speaking Tribunal to construe properly the Russian text. Had the Tribunal been composed of Russian speakers, such a translation may not have been required.’ 63

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‘while part of the correct syntax required in Russian to create the conditional, does not operate to create a second or separate conditional, as the original translation into English’. The revised text reads: If the referenced conflicts cannot be settled in this way within six months following the date of the written notification mentioned in paragraph 1, the conflict may be submitted at investor’s choice to (a) … (b) … (c) The Court of Arbitration of the Paris International Chamber of Commerce, on the condition that the concerned investor submitted the conflict to the court of the Party, that is a Party to the conflict, and a final arbitral award on compensation of damages has not been rendered within one year.

The claimant objected to this translation and the Tribunal’s request, based on a suggestion by the respondent, to appoint two qualified translators to provide an English translation of the Russian version of the BIT and possibly the Turkish ficial translation of its English version. On the basis of the available materials and in particular the opinion of an expert on linguistics,66 the Tribunal decided that the revised version of the translation of the Russian version into English (without the word ‘if ’) was the most accurate one.67 It found that the ordinary meaning of Article VII(2) in its context and taking into account the scope and purpose of the treaty was clear in the sense of requiring the submission of the dispute to domestic courts for one year prior to resorting to arbitration. The Tribunal then considered the English version of Article VII(2), which reads: If these desputes (sic) cannot be settled in this way within six months following the date of the written notification mentioned in paragraph 1, the dispute can be submitted, as the investor may choose, to: (a) … (b) … (c) … provided that, if the investor concerned has brought the dispute before the courts of justice of the Party that is a party to the dispute and a final award has not been rendered within one year.

The Tribunal held that the last sentence is grammatically incorrect and that either of the words ‘if ’ or ‘and’ must be removed in order to make it workable. By deleting ‘if ’, the clause would have conditioned the resort to the remedies listed under

66 It is worth noting that the expert’s opinion was phrased in rather prudent terms as she declared that ‘leaving out the “if ” would be preferable to leaving out the “and”, because there is already a bit of text, namely the “provided that”, which is a conditional … just the way “if ” is also a conditional. So this is why I would tend to, I would lean towards a solution towards well-formedness that would leave out the “if ” and retain the “provided that” as the only conditional, and leave in the “and” …’ (para 44). 67 para 8.22.

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letters (a), (b) and (c) to the submission of the dispute before the courts of the host State for one year without a final award being rendered. The removal of ‘and’, on the contrary, would have introduced a double conditional in the sense that the investor is not obliged to submit the dispute to the court of the host State, but if it does so it can resort to international arbitration only if a final award has not been delivered within one year. Thus, depending on the preferred option, recourse to domestic courts would have been optional or mandatory.68 The Tribunal then found—without much discussion—that the interpretation based on Article 31 leaves the meaning of Article VII(2) ambiguous or obscure.69 As a result it had recourse to supplementary means under Article 32, namely (a) the revised translation of the Russian version of the BIT, (b) the authentic text of the BIT concluded between Turkey and Kazakhstan, which contains a substantially identical provision, and (c) the official translation of the English version of the treaty in Turkey’s Official Gazette. For the Tribunal, all these elements militate in favour of mandatory recourse to local courts, as does the authentic Russian version adopted by the Tribunal.70 The Tribunal thus held that the English text of Article VII(2) was to be interpreted—like the Russian counterpart—as requiring the claimant to resort to the domestic courts of the host State before bringing the case before an international arbitral tribunal. It nonetheless added, for the sake of argument, that assuming it was necessary to reconcile the two versions under Article 33(4), the operation would lead to the same conclusion as the Russian version was clear whereas the English one was ambiguous. The Tribunal’s decision is not persuasive. To start with, it is somehow a paradox that the Tribunal considers the Russian version of Article VII(2) to be clear in spite of the fact that it required a substantial intervention. More importantly, it is difficult to understand why the Tribunal was prepared to correct the grammatical problems of the Russian text, but not those of the English text. Both texts present the very same grammatical problems. Additionally, the Tribunal conceded that the linguistic reasoning at the basis of the correction of the Russian text could also be extended to the English one.71 If this discrimination seems unjustified, the decision of the Tribunal to accept the revised version of the Russian text is plausible, but certainly not compulsory. It can in fact be argued that the grammatical problems could have been solved by removing the ‘and’ instead of the ‘if ’. The meaning of Article VII(2) of the Russian version would change radically by making the recourse to domestic courts optional and at the same time condition access to international arbitration to the elapse of one year without the delivery of a domestic award. The comma before ‘if ’—an element that the Tribunal entirely overlooked—seems to support this interpretation.

68

Kılıç v Turkmenistan, above Ch 1, n 5, Art VII.2, para 9.14. ibid, para 9.17. 70 ibid, paras 9.18–9.20. 71 ibid, fn 45. 69

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In Sehil v Turkmenistan, another Tribunal dealt with the very same interpretative issues concerning Article VII(2) of the BIT between Turkey and Turkmenistan, but with a quite different outcome compared to Kılıç v Turkmenistan.72 It confirmed that there were only two authentic texts of the treaty (English and Russian), whereas the Turkish text was simply a translation within the process of ratification, and that the last sentence of Article VII(2) applies to all fora available to foreign investors.73 Contrary to what was previously believed, the Tribunal also pointed out that the Russian text was a translation of the English text and not the other way around. It clarified that [w]hile the fact that the English version is the original version of the BIT does not confer to this version any superiority or prevailing value whatsoever, it is one of the important factors that helped identify the ambiguity of the Russian authentic version, as a translation of the already ambiguous English authentic version.74

As pointed out by the Tribunal, all authentic texts have the same legal value, regardless of whether they are the original version or translations. It is obviously true that it is likely that grammatical and lexical problems that may be found in the original text are also reproduced in the translated text. But it cannot be ruled out that during the translation these problems are consciously or unconsciously solved, making the interpretation of the relevant provision in the translated text clear.75 The Tribunal considered—and the parties agreed—that the English text of Article VII(2) was poorly drafted and presented grammatical errors and typos.76 Article VII(2) can be interpreted literally either as making recourse to a domestic court optional, or obliging the claimant to litigate before a domestic court for one year without obtaining a final award before resorting to international arbitration.77 The Tribunal admitted that neither the arguments put forward by the parties nor the assistance of the linguistics experts managed to overcome the ambiguity of Article VII(2). It is worth noting that the linguistics expert who in Kılıç v Turkmenistan suggested deleting ‘if ’ conceded in the case under discussion that ‘deleting either “if” or “and” would do violence to the text’.78 Not s urprisingly,

72

Sehil v Turkmenistan, above Ch 1, n 5, Jurisdiction under Art VII(2). See above Ch 4, n 284. 74 Sehil v Turkmenistan, above Ch 1, n 5, Jurisdiction under Art VII(2), 13 February 2015, para 221. 75 It is also possible that the clear text in the original text is not properly translated. The translated text would thus present grammatical or lexical problems rendering its interpretation problematic. In this case, Art 33 VCLT applies and may be expected to privilege the clear meaning of the original text over the unclear meaning of the translated one. 76 Sehil v Turkmenistan, above Ch 1, n 5, Jurisdiction under Art VII(2), 13 February 2015, paras 207 and 212. 77 ibid, para 207. 78 ibid, para 213. 73

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given that it was a translation from the English text, the Tribunal found the Russian text equally ambiguous.79 The Tribunal moved then to the context of Article VII(2), which it discussed on the basis of the English text. For the Tribunal the permissive wording of the chapeau of Article VII(2) suggests that the Parties intended to offer their respective investors ‘the possibility to have recourse to international arbitration after the expiration of the six-month cooling-off period’.80 The point was fortified according to the Tribunal by the fact that otherwise the investor would have been required ‘simultaneously to negotiate for six months and go to local courts for a year from the same date’, an interpretation the Tribunal considered not logical.81 The T ribunal concluded that the claimant has two options under Article VII(2): either to directly initiate international arbitral proceedings, or to have recourse to domestic courts prior to initiating international arbitration proceedings, provided that no final decision is rendered within a year. The Tribunal found that the object and purpose of the treaty confirm the above interpretation. It held that the expressed intent of the BIT … is to establish an approach or conditions that are ‘fair and equitable’, and provide a ‘stable framework’ for the investor from the other country. This must mean that where a dispute arises the investor has the opportunity to determine where the dispute should be determined: in the local courts or in international arbitration (and then which form, ICC, ICSID, ad hoc). To require a party to first go to the local courts with the expense and delay that will ensue would be neither ‘fair and equitable’ nor provide a clear and ‘stable framework’.82

The Tribunal reckoned that the interpretation of Article VII(2) in the sense of allowing the claimant to have recourse directly to international arbitration was sufficiently clear and made no express reference to supplementary means under Article 32. Instead, it limited itself to dismissing the additional arguments submitted by the parties, including that based on the Turkish translation of the treaty submitted to the Turkish parliament in the context of ratification due to the inconsistency with the Explanatory Note accompanying it.83

79

ibid, paras 227–32. ibid, para 238. 81 ibid, para 238. 82 ibid, para 243. 83 The part of the Explanatory Note quoted by the Tribunal at para 261 reads: ‘This Article sets forth remedies for [a] dispute which may arise between one Party and the investor of the other Party. In accordance with the stipulated procedure, the dispute shall be primarily resolved by means of negotiation, if not resolved within six months; a right of recourse to international arbitration may be exercised provided that the recourse to local judicial bodies remains open. However, if the investor brought the dispute before the local judicial body and the final decisions was rendered, there is no possibility for recourse to international arbitration, and in case the final decision was not rendered within one year and both Parties are signatories to the following Agreements, the dispute may be taken to the [ICSID] or to an arbitration tribunal which will be constituted in accordance with UNCITRAL Arbitration Rules, or to the Court of Arbitration of the Paris International Chamber of Commerce.’ 80

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The conclusion on the ambiguous and obscure meaning of both the English and Russian texts of Article VII(2) is rather straightforward. The contextual and teleological arguments certainly carry some weight, but none of them seems to prove undisputedly the interpretation supported by the Tribunal. Article VII in particular certainly shows the intention of the Parties to offer the investor the possibility to initiate international arbitral proceedings. The Tribunal seems to overestimate the importance for the purpose of the interpretation of Article VII(2) of the terms ‘the investor may choose’. Arbitral clauses are by definition drafted in permissive terms since imposing an obligation to resort to arbitration would be unconceivable. Furthermore, there is no contextual evidence that such a possibility must be directly available to the investor. Clauses like Article VII(2), which can be found in a significant number of BITs, are precisely meant to restrict the standing offer made by the Parties. With regard to the teleological considerations developed by the Tribunal, conditioning the recourse to international arbitration to a period of litigation before domestic courts provided that no final award is rendered does not necessarily affect the stability of the framework and is entirely independent from and compatible with the fair and equitable treatment standard. Interpreting Article VII(2) as requiring the investor to litigate before a domestic court for one year and only then opening the door of international arbitration may be considered as unsatisfactory, or even inadequate from the standpoint of the investor. It cannot nonetheless be disposed of simply because it does not ensure the investor the optimal level of protection. It may be argued that the Tribunal could have an additional argument that can be described at once as contextual, teleological and a contrario. The structure of Article VII(2) is based on two chronologically combined periods: first an attempt to reach a friendly settlement of the dispute for six months and then, and only then, the settlement of the dispute before a domestic tribunal or an arbitral tribunal. The poorly drafted the text of Article VII(2)—in both authentic languages—does not allow the interpreter to attach to it any precise meaning as to the optional or mandatory nature of resort to domestic litigation and its co-ordination with international arbitration. The very fact that Article VII(2) is structured in two phases may militate against treating domestic litigation as a precondition to international arbitration. Otherwise the contracting Parties could have foreseen three and not two phases: the attempt to conciliate; litigation before domestic tribunals; and possibly international arbitration. All the above arguments contribute to support the interpretation adopted by the Tribunal without nonetheless making it absolutely compelling. Under the circumstances, it is understandable that the Tribunal considered all relevant supplementary means in order to dissipate any possible counter-argument. In this respect, the non-authentic Turkish translation of the treaty and the accompanying note deserve some attention. The Turkish text is pretty clear in the sense of making recourse to the domestic tribunal mandatory, although the translator

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has taken some liberties.84 It is submitted that given the ill-drafted character of Article VII(2) combined with the non-overwhelming strength of contextual and teleological argument, the Turkish text may have a certain weight in the interpretative process. The Explanatory Note, in turn, is certainly not drafted in a masterly fashion but at least the part reproduced by the Tribunal85 does not seem to contradict the Turkish text either. More than the documents in themselves, however, what seems relevant is that the Turkish text is an official version formally submitted to the Parliament which has been duly published in the Official Gazette of a Party and most importantly has been invoked by the other Party to the treaty. Strictly speaking, the publication of the Turkish text by a party and the explicit endorsement by the disputing party in an investment dispute cannot be qualified as a subsequent agreement between the parties regarding the interpretation of the treaty (Article 31(3)(a) VCLT), or subsequent practice of the parties establishing their agreement regarding interpretation (Article 31(3)(b) VCLT). Rather, the Turkish text can be considered as supplementary means under Article 32, or alternatively simply an aid to interpretation not expressly indicated in the VCLT. Nonetheless, the interpreter cannot ignore the convergence of the positions of the parties to the treaty on the interpretation of Article VII(2). When all other principles and means available to the interpreter fail to lead to a sufficiently convincing interpretation of a plurilingual treaty, it may be reasonable to rely on an official and published texts prepared by a party to the BIT to the extent it has been formally shared by the other party during arbitral proceedings.86 Finally, from a methodological point of view, it must be noted that the Tribunal discussed the context of Article VII(2) and the object and purpose of the treaty by using only the English text. It may be argued that, especially when the ordinary meaning of the provision to be interpreted is unclear, the interpreter should continue its analysis under Article 31 VCLT on the basis of both or all authentic texts. Once accepted that all authentic texts—original or translated—have equal legal force it is appropriate, especially when it is evident that the interpretation would be problematic, to consider all of them in their entirety in search of all elements that may assist the interpreter. Apart from the specific questions raised in both cases on Article VII(2) of the BIT between Turkey and Turkmenistan, it is worth stressing four points. First, the importance of ensuring the accuracy and consistency of all authentic texts, starting with a clear indication of the authentic languages and the prevalence of any of them if applicable, cannot be overestimated. Second, the interpreter

84 In the Turkish translation, the sentence relating to ‘recourse to domestic tribunal’ has been moved to the chapeau, while a reference to the sentence ‘in accordance with the procedures and the laws of the host State’ is pretty obvious and does not affect the overall meaning of Article VII(2). 85 Above n 83. 86 Above n 3.

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must apply the VCLT rules on interpretation to the entire treaty in the relevant authentic languages (although not necessarily all of them). In order to discharge this responsibility, the members of arbitral tribunals should ideally master the relevant languages. It they do not, the assistance of legal experts in the relevant language(s) more than that of experts in linguistics may be needed. If, as in the present case, the original text is ambiguous, insisting on their translation may amount to a frustrating exercise. Much more promising is to confer a mandate to a native legal expert who will go through the interpretative process in accordance with Articles 31 and 32 VCLT. The tribunal could then compare the different interpretations through the lenses of Article 33 VCLT. Third, since translation issues are crucial not only for the settlement of the pending dispute, but also for the legal certainty of the relevant provisions, arbitral tribunals may solicit the interpretation of the non-disputing party or parties. Finally, States themselves have a clear interest in sharing a common interpretation of the relevant provision in accordance with the treaty itself or when the latter is silent on this issue with the law of treaties.

12 Interpretative Value of Arbitral Decisions I. Interpretation by Investment Arbitral Tribunals Investment arbitral tribunals have made it abundantly clear that each of them is sovereign and have refused to be legally bound by decisions rendered by other tribunals.1 Indeed, in international investment law—as in public international law

1 See, among many decisions, AES Corp v Argentina, above Ch 3, n 50, Jurisdiction, 26 April 2005, paras 30–31, in which the Tribunal held that ‘[e]ach tribunal remains sovereign and may retain, as it is confirmed by ICSID practice, a different solution for resolving the same problem; but decisions on jurisdiction dealing with the same or very similar issues may at least indicate some lines of reasoning of real interest; this Tribunal may consider them in order to compare its own position with those already adopted by its predecessors and, if it shares the views already expressed by one or more of these tribunals on a specific point of law, it is free to adopt the same solution … precedents may also be rightly considered, at least as a matter of comparison and, if so considered by the Tribunal, of inspiration’. In literature, see in particular: A Reinisch, ‘The Role of Precedent in ICSID Arbitration’ (2008) Austrian Arbitration Yearbook 495; AK Bjorklund, ‘Investment Treaty Arbitral Decisions as Jurisprudence Constante’, in CB Picker et al (eds), International Economic Law: The State and Future of the Discipline (Oxford: Hart, 2008) 266; JP Commission, ‘Precedent in Investment Treaty Arbitration: A Citation Analysis of a Developing Jurisprudence’ (2007) 24 Journal of International Arbitration 129; G Kaufmann-Kohler, ‘Arbitral Precedent: Dream, Necessity or Excuse?’ (2007) 23 Arbitration International 357; C Schreuer and M Weiniger, ‘A Doctrine of Precedent?’, in P Muchlinski et al (eds), above Ch 2, n 24, p 1189; Y Banafatemi (ed), Precedent in International Arbitration (Huntington, NY: Juris Publishing, 2008); C Kessedjian, ‘To Give or Not to Give Precedential Value to Investment Arbitration Awards’, in CA Rogers and RP Alford (eds), The Future of Investment Arbitration (Oxford: OUP, 2009), p 49; J Gill, ‘Is There a Special Role for Precedent in Investment Arbitration?’ (2010) 25 ICSID Review 87; L Reed, ‘The De Facto Precedent Regime in Investment Arbitration: A Case for Proactive Management’ (2010) 25 ICSID Review 95; Z Douglas, ‘Can a Doctrine of Precedent Be Justified in Investment Treaty Arbitration?’ (2010) 25 ICSID Review 104; JR Weeramantry, ‘The Future Role of Past Awards in Investment Arbitration’ (2010) 25 ICSID Review 111; J Paulsson, ‘The Role of Precedent in Investment Arbitration’, in K Yannaca-Small (ed), Arbitration Under International Investment Agreements. A Guide to Key Issues (Oxford: OUP, 2010) 704; AR Sureda, ‘Precedent in Investment Treaty Arbitration’, in C Binder et al (eds), above Ch 1, n 29, p 830; E de Brabandere, ‘Arbitral Decision as a Source of International Investment Law’, in T Gazzini and E de Brabandere (eds), above Ch 2, n 6, p 245; M Paparinskis, ‘Sources of Law and Arbitral Interpretations of Pari Materia Investment Protection Rules’, in OK Fauchald and A Nollkaemper (eds), The Practice of International and National Courts and the (De)Fragmentation of International Law (Oxford: Hart, 2012) 87; E de Brabandere, Investment Treaty Arbitration and Public International Law (Cambridge: CUP, 2015) esp pp 93–98.

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in general—there is no doctrine of stare decisis.2 It would indeed be rather illogical to hold that arbitral tribunals are legally bound by previous decisions when such an obligation does not exist even for permanent international tribunals and most prominently the ICJ. Furthermore, it must not be forgotten that a not insignificant number of investment arbitral decisions are not disclosed to the public.3 Equally important, investment arbitral tribunals have never claimed or arrogated themselves the right to take decisions that could be binding upon future tribunals. In Methanex v United States, the Tribunal, for instance, was very clear on the legal value of the decision it was about to take with regard to the submission of amicus curiae. It held: [t]his Tribunal can set no legal precedent, in general or at all. It has no power to determine for other arbitration Tribunals how to interpret Article 15(1) [of the UNCITRAL Arbitration Rules]; and in a later arbitration, there may be other circumstances leading that tribunal to exercise its discretion differently. For each arbitration, the decision must be made by its tribunal in the particular circumstances of that arbitration only.4

As a matter of fact, nonetheless, investment tribunals have systematically considered and referred to previous decisions of other tribunals. In Abaclat v Argentina, the Tribunal, for instance, shared the generally accepted view that the decisions of ICSID tribunals, like those of other investment dispute settlement mechanisms, are not legally binding precedents. Consequently, the Tribunal does not consider itself bound by previous decisions of other international tribunals. However, the Tribunal is also of the opinion that, subject to the specific provisions of a treaty in question and of the circumstances of the actual case, it should pay due consideration to earlier decisions of international tribunals, where it believes that such consideration is appropriate in the light of the specific factual and legal context of the case and the persuasiveness of the legal reasoning of these earlier decisions.5

2 As recalled by Z Douglas, above Ch 3, n 68, p 105, in discussion of the doctrine of stare decisis one should not forget that common law judges have ‘considerable latitude in deciding whether or not to follow past decisions for several reasons. The first is the indeterminacy of the concept of the ratio decidendi (which is the only part of the past decision that has the potential to “bind” the judge). The second is the significant degree of judicial creativity afforded by the power to distinguish past decisions. The third is that the higher courts have the power to overrule past decisions.’ 3 SGS v Philippines, above Ch 6, n 32, Jurisdiction, fn 30. 4 Methanex v United States, above Ch 1, n 55, Decision on Amici Curiae, 15 January 2001, para 51. 5 Abaclat v Argentina, above Ch 1, n 15, paras 292–93 (footnote omitted and italics added). In El Paso, above Ch 3, n 131, Jurisdiction, para 39, the Tribunal held that ‘ICSID arbitral tribunals are established ad hoc, from case to case, in the framework of the Washington Convention, and the present Tribunal knows of no provision, either in that Convention or in the BIT, establishing an obligation of stare decisis. It is, nonetheless, a reasonable assumption that international arbitral tribunals, notably those established within the ICSID system, will generally take account of the precedents established by other arbitration organs, especially those set by other international tribunals.’ Similarly, in SGS v Philippines, above Ch 6, n 32, Jurisdiction, para 97, the Tribunal found that ‘there is no doctrine of precedent in international law, if by precedent is meant a rule of the binding effect of a single decision’. In Pan American Energy LLC and BP Argentina Exploration Company v

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Although investment tribunals normally examine previous decisions as they are relied upon by the parties during the proceedings, there is no reason to make such examination dependent on the parties’ initiative.6 Investment tribunals have not felt themselves constrained to consider exclusively the decisions relied upon by the parties.7 Moreover, nothing would prevent arbitrators from searching for such elements even in decisions regarding treaties that are not binding for the parties to the dispute. In Berschader v Russian Federation, the respondent argued that the Tribunal was not entailed to consider arbitral decisions related to a treaty—the ICSID Convention—it was not bound to. The Tribunal rejected the objection and held that it was entitled ‘to consider and take into account the conclusions of other arbitral tribunals who have addressed similar issues with respect to similar treaties and identically worded provisions’.8 The obvious reason for carefully considering previous decisions— regardless of any legal obligation in this sense—is the primordial need of any legal system to ensure the greater level of coherence9 and predictability10 as well as an adequate protection of the legitimate expectations of both the host State and

Argentina, ICSID ARB/03/13, Preliminary Objections, 27 July 2006, para 42, the Tribunal held that it is ‘a reasonable assumption that international arbitral tribunals, including those set up within the ICSID, will generally take into account the precedents set by other international tribunals’. See also AES v Argentina, above Ch 3, n 50, Jurisdiction, para 30; Bayindir v Pakistan, above Ch 4, n 34, Jurisdiction, para 76. 6 Contra, see C Kessedjian, above n 1, pp 67–68, according to whom ‘investment arbitrators have no duty to look at previous decisions unless those previous decisions are pleaded by the parties. Indeed, there is no sua sponte role of the arbitrators, unless the issue at stake is one of public policy’. 7 For a recent example, see Yukos v Russian Federation, above Ch 4, n 89, Award, para 1605, where ‘the Tribunal identified certain decisions’, not relied upon by either of the parties, which were relevant for the purpose of settling the dispute. 8 Berschader v Russian Federation, above Ch 4, n 142, Award, para 97. 9 In CDC Group plc v Seychelles, ICSID ARB/02/14, Annulment, 29 June 2005, para 81, the annulment committee held that ‘[i]n construing awards, as in construing statutes and legal instruments generally, one necessarily should construe the language in issue, whenever possible, in a way that results in consistency’. In literature see R Howse and E Chalamish, above Ch 8, n 101, p 1087, according to whom ‘[t]he assumption is that coherence and consistency in investment arbitration—as in any other field of law—is necessary to increase predictability, reduce transaction costs, and maintain or enhance credibility and legitimacy’. 10 On this point, H Lauterpacht, The Development of International Law by the International Court (London: Stevens and Sons, 1958) 14, has eloquently pointed out that the ICJ ‘follows its own decisions for the same reasons for which all courts—whether bound by the doctrine of precedent or not— do so, namely, because such decisions are a repository of legal experience to which it is convenient to adhere; because they embody what the Court has considered in the past to be good law; because respect for decisions given in the past makes for certainty and stability, which are the essence of the orderly administration of justice’. Taking a systemic approach to international investment law, S Schill, above Ch 4, n 154, p 275, has observed that ‘[w]hat is decisive in cases of interpretation in pari materia is that the treaty for interpretation and the third-party treaty form part of a larger framework or system of treaties. The conclusion to be drawn from the practice of international courts and tribunals is therefore that cross-treaty interpretation is accepted and permissible to the extent that the treaties taken into account form part of a common and treaty-overarching system investment’.

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the investor.11 Not differently from any other domestic or international tribunals, ‘tribunals constituted under the ICSID system should in general seek to act consistently with each other’.12 From this perspective, the legal reasoning contained in previous decisions may considerably assist the interpreter in the search for the meaning to attach to a given provision.13 While remaining faithful to the peculiar textual and contextual features of each investment treaty, the interpreter is expected to carefully examine relevant previous decisions and, depending on their persuasiveness, to consider the extension of the reasoning they contain to the treaty to be interpreted.14 Several investment tribunals have stressed the importance of considering previous decisions—in spite of the absence of a legal obligation in this sense and keeping in mind the specificities of each dispute—and of contributing to enhance the consistency and coherence of investment arbitration. Probably the strongest description of the commitment of an investment tribunal was made in 2007 by the Siapem v Bangladesh Tribunal holding that [the Tribunal] must pay due consideration to earlier decisions of international tribunals. It believes that, subject to compelling contrary grounds, it has a duty to adopt solutions established in a series of consistent cases. It also believes that, subject to the specifics of a given treaty and of the circumstances of the actual case, it has a duty to seek to contribute to the harmonious development of investment law and thereby to meet the legitimate expectations of the community of States and investors towards certainty of the rule of law.15

The finding brings the Tribunal very close to a doctrine of legally binding precedent, which is arguably a matter of degree and in any case hardly excludes the possibility of a departure from previous decisions for compelling reasons. The finding has been subsequently softened in a series of consistent decisions, starting with Pey Casado v Chile, in which the Tribunal tient à préciser qu’il n’est pas lié par les décisions et les sentences CIRDI rendues antérieurement. Le présent Tribunal estime toutefois qu’il se doit de prendre en considération

11 In EDF Saur v Argentina, above Ch 11, n 60, Award, para 897, the Tribunal found that ‘[a]lthough not bound by previous decisions of other international tribunals, the Tribunal has given them due consideration with the aim of enhancing consistent interpretation of comparable treaty language as applied to similar fact patterns, thereby promoting the legitimate expectations of both host states and foreign investors’. 12 See, eg, SGS v Philippines, above Ch 6, n 32, Jurisdiction, para 97. For C Kessedjian, above n 1, p 67, arbitrators have an obligation de moyens (best effort) to consider previous decisions. According to G Kaufmann-Kohler, above n 1, p 374, arbitrators have ‘a moral obligation to follow precedents so as to foster a normative environment that is predictable’. 13 In Duke Energy International Peru Investments No 1 Ltd v Peru, ICSID ARB/03/28 (Jurisdiction based on Legal Stability Agreement), Decision of the Ad Hoc Committee, 1 March 2011, para 88, for instance, the Committee pointed out that ‘the decisions of other committees may help to illuminate specific aspects of the interpretative process which the Committee is charged to undertake’. 14 As observed by AR Sureda, above n 1, p 842 (footnote omitted), ‘precedents ignored or accepted without reasoning are missed opportunities’. 15 Saipem v Bangladesh, Jurisdiction, above Ch 4, n 243, para 67. (emphasis added)

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les décisions des tribunaux internationaux et de s’inspirer, en l’absence de justification impérieuse en sens contraire, des solutions résultant d’une jurisprudence arbitrale établie. Tout en tenant compte des particularités du traité applicable et des faits de l’espèce, le Tribunal estime aussi devoir s’efforcer de contribuer au développement harmonieux du droit des investissements et, ce faisant, de satisfaire à l’attente légitime de la communauté des Etats et des investisseurs quant à la prévisibilité du droit en la matière.16

The Tribunal’s view represents a balanced synthesis on the value of precedents, the role and responsibilities of arbitral tribunals, and the overarching interests of the community of States and the investor alike. It has been shared by several other tribunals and can be considered as settled. In Bayindir v Pakistan, for instance, the Tribunal held that unless there are compelling reasons to the contrary, it ought to follow solutions established in a series of consistent cases, comparable to the case at hand, but subject of course to the specifics of a given treaty and of the circumstances of the actual case. By doing so, it will meet its duty to seek to contribute to the harmonious development of investment law and thereby to meet the legitimate expectations of the community of States and investors towards certainty of the rule of law.17

What investment tribunals—as any other international tribunals—must consider and possibly follow, unless imperative reasons dictate otherwise, are not the prior decisions themselves, but rather the legal arguments underpinning them.18 In this sense, an investment tribunal can inspire itself by the legal analysis conducted in previous decisions and borrow their reasoning when and to the extent it is suitable to interpret the treaty before it.19 The interpreter should extract the ratio decidendi 16 Pey Casado v Chile, above Ch 4, n 222, Award, para 119 (8 May 2008). For another example, see Tza Yap Shum v Peru, ICSID ARB/07/6, Jurisdiction, 19 June 2009 (Spanish), para 173. 17 Bayindir v Pakistan, above Ch 4, n 34, Award, para 145. See also Saba Fakes v Turkey, above Ch 4, n 20, para 96; Chemtura v Canada, UNCITRAL, Award, para 109, 2 August 2010. In Noble v Romania, above Ch 6, n 52, Jurisdiction, para 50, the Tribunal held that tribunals ‘should seek to foster the harmonious development of investment law and thereby to meet the legitimate expectations of the community of States and investors towards certainty of the rule of law’. 18 As clearly pointed out by GG Fitzmaurice, ‘Some Problems Regarding the Formal Sources of International Law’, in Symbolae Verzijl (The Hague: Nijhoff, 1958) 153, 172, ‘[w]hen an advocate before an international tribunal cites juridical opinion, he does so because it supports his argument, or for its illustrative value, or because it contains a particularly felicitous or apposite statement of the point involved, and so on. When he cites an arbitral or judicial decision he does so for these reasons also, but there is a difference—for, additionally, he cites it as something which the tribunal cannot ignore, which it is bound to take into consideration and (by implication) which it ought to follow unless the decision can be shown to have been clearly wrong, or distinguishable for the extant case, or in some ways legally or factually inapplicable. Equally the tribunal, while it may well treat juridical opinion as something which is of interest but of no direct authority, and which the tribunal is free to disregard, will not usually feel free to ignore a relevant decision, and will normally feel obliged to treat it as something that must be accepted, or else—for good reasons—rejected, but which must in any event be taken fully into account’. 19 In Yukos v Russian Federation, above Ch 4, n 89, Award, para 1606, for instance, the Tribunal held that ‘[w]hile there is no doctrine of precedent stricto sensu in international arbitration, the Tribunal has found these decisions of assistance in its analysis’. In Enron v Argentina, above Ch 4, n 59, Jurisdiction (Ancillary Claim), para 25, the Tribunal clarified that it did follow the same line of reasoning, not because there might be a compulsory precedent but because ‘the circumstances of the various cases are comparable, and in some respects identical’.

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and be suspicious of obiter dicta.20 From the standpoint of treaty interpretation, the interpreter must carefully compare the relevant treaties and if appropriate search for any elements contained in previous decisions that may draw some light on the interpretation of the treaty to be interpreted.21 The point has forcefully made as follows: [o]ne may even find situations in which, although seized on the basis of another BIT as combined with the pertinent provisions of the ICSID Convention, a tribunal has set a point of law which, in essence, is or will be met in other cases whatever the specificities of each dispute may be. Such precedents may also be rightly considered, at least as a matter of comparison and, if so considered by the Tribunal, of inspiration. The same may be said for the interpretation given by a precedent decision or award to some relevant facts which are basically at the origin of two or several different disputes, keeping carefully in mind the actual specificities still featuring each case.22

It must nonetheless be stressed that tribunals are entitled and indeed have to distance themselves from prior decisions they have not found persuasive. In Pope & Talbot v Canada, for instance, the Tribunal declared that it was unable to share the interpretation put forward in Myers v Canada.23 In Goetz v Burundi, another Tribunal preferred to follow the legal reasoning developed by the dissenting arbitrator in Spyridon v Romania, with regard to the admissibility of counter-claims rather than that adopted by the majority of the Tribunal.24 Considering prior decisions for the purpose of treaty interpretation remains a delicate operation.25 The interpreter must be aware of the risks involved in the operation, especially when the prior decision relates to a claim arising out of a different treaty. He must first identify the decisions that are comparable in terms of subject matter and applicable treaty provisions, and then extract from them the legal reasoning that may be extended to the current dispute. The persuasiveness of the legal reasoning prior decisions are based upon may be strengthened by the degree of consistency of prior decisions. A comprehensive

20 In Renta4 v Russian Federation, above Ch 6, n 59, Jurisdiction, para 91, the Tribunal held that ‘[q]uotations of incidental comments are not entitled to be considered as precedents at all; they are not part of the ratio decidendi and thus are not part of the reasoning by which the arbitrators fulfil their mandate to decide. That is where they exercise personal responsibility. Obiter dicta are commentary. They may be persuasive but are a priori of less weight’. In the dissenting opinion attached to Berschader v Russian Federation, above Ch 4, n 143, Award, para 16, T Weiler criticised the majority reliance on the analysis on the MFN issue in Plama v Bulgaria being an ‘obiter dictum and accordingly not persuasive because the reasoning was not dispositive of the final award’. 21 In Tulip Real Estate and Development Netherlands BV v Turkey, ICSID ARB/11/28, Decision on Bifurcated Jurisdictional Issue, 5 March 2013, para 47, ‘[P]rior decisions may inform [the enquiry on the construction of bilateral investment treaties], but it is for this Tribunal to make its own interpretation of Article 8(2), informed by the rigor and persuasiveness of relevant analysis and statements by decisions of earlier tribunals’. 22 AES v Argentina, above Ch 3, n 50, Jurisdiction, paras 31–32. 23 Pope & Talbot v Canada, above Ch 7, n 47, Award on the Merits of Phase II, fn 108. 24 Goetz v Burundi, Award, above Ch 2, n 11, para 279 (in French). 25 For a detail account on how investment tribunals have relied on prior decisions, see JP Commission, above n 1.

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analysis of all relevant decisions may be too cumbersome, time-consuming and ultimately not indispensable. Instead, the interpreter should make sure that the decisions relied upon are sufficiently representative of how prior tribunals have dealt with a specific subject matter. In the case of a consistent body of arbitral decisions, the interpreter may single out a leading case, in which the legal argument has been fully developed, and then indicate that it has been shared by a significant number of other tribunals.26 When on the other hand jurisprudence is unsettled, the interpreter must be more cautious. Prior decisions continue to be important as they may offer useful elements for the purpose of interpretation. The interpreter, however, is expected to distinguish the different legal arguments and to compare them in order to verify their relative persuasiveness. A uniform and significant series of arbitral decisions may contribute not only to clarify the meaning of any given provisions, but also to build it when these provisions are vague, ambiguous or contain generic terms. The point has been made by several tribunals, including in ADC v Hungary. The Tribunal, according to which [i]t is also true that a number of cases are fact-driven and that the findings in those cases cannot be transposed in and of themselves to other cases. It is further true that a number of cases are based on treaties that differ from the present BIT in certain respects. However, cautious reliance on certain principles developed in a number of those cases, as persuasive authority, may advance the body of law, which in turn may serve predictability in the interest of both investors and host States.27

Persuasive and consistent arbitral decisions may ignite a process of refinement of treaty provisions. This has occurred, for instance, with regard to the FET standard with tribunals progressively hammering out the criteria or elements indispensable to give flesh to the rudimentarily defined standard.28 The process is an incremental one and it is fully possible—if not physiological—that legal uncertainty persists as long as tribunals deliver conflicting decisions. In Daimler v Argentina, the Tribunal held by majority that [a] brief look at the ways in which various investor–State tribunals and States have since resolved the question proves that neither the arbitral community nor more importantly (as public international law is not made primarily by arbitrators) common state

26 For an example, see the endorsement by the Tribunal in Yukos v Russian Federation, above Ch 4, n 89, Jurisdiction and Admissibility, para 442, of the legal reasoning displayed in Palma v Bulgaria with regard to the meaning of Article 17(1) ECT. 27 ADC v Hungary, para 293 (italics added). In MCI Power Group LC and New Turbine Inc v Ecuador, ICSID ARB/03/6, Annulment, 19 October 2009, para 25, the Tribunal held that ‘[a]lthough there is no hierarchy of international tribunals … the Committee considers it appropriate to take those decisions into consideration, because their reasoning and conclusions may provide guidance to the Committee in settling similar issues arising in these annulment proceedings and help to ensure consistency and legal certainty of the ICSID annulment mechanism, thereby contributing to ensuring trust in the ICSID dispute settlement system and predictability for governments and investors’. 28 See above, Ch 4, section IV.

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practice has yet reached a consensus whereby an MFN clause’s reference to ‘treatment in the territory of the host State’ may nowadays be understood as covering the international settlement of disputes.29

From this perspective Tribunals concur to clarify the content of treaty provisions, even in innovative terms in the sense of ‘perceiving that familiar, existing materials form a pattern, when looked at in a right or just novel, perspective, which has not hitherto been fully appreciated’.30 Thus they are certainly important as guides to future decisions31 and may even influence subsequent State practice for the purpose of both informal modifications of the treaty and evolution of customary law. However, they cannot be considered as State practice as they emanate from tribunals that are created or appointed by the parties to the dispute, and act independently from States.32 In Glamis v United States, the Tribunal correctly pointed out that arbitral awards ‘do not constitute State practice and thus cannot create or prove customary international law. They can, however, serve as illustrations of customary international law if they involve an examination of customary international law’.33 Prudence must be even greater in respect of international decisions in the field of foreign investment as they are rendered by tribunals set up to settle specific disputes. What could amount to State practice is the attitude the parties to the treaty take with regard to arbitral decisions. Official views and positions taken by States during arbitral proceedings as well as reactions or lack of reactions to arbitral awards are valuable elements to take into account in order to assess State practice and opinio juris. Arbitral decisions may indeed be scrutinised by States and generate approval, meet acquiescence or attract criticism. This apparently occurs mainly in the context of arbitral proceedings, including through submission by non-disputing parties, although other instruments are available to States to manifest their position with regard to any given interpretation adopted by investment tribunals.

29

Daimler v Argentina, above Ch 1, n 15, Award, para 268. Jennings, ‘What is International Law and How do We Tell It when We see It?’ (1981) 37 Annuaire suisse de droit international 59, 75. 31 CN Brower and JD Brueschke, The Iran–United States Claims Tribunal (The Hague: Nijhoff, 1998) 643. 32 For a recent example, see the Submission of the United States under Art 10.19.2 of the United States–Oman FTA in Al Tamini v Oman, ICSID ARB/11/33, 22 September 2014, para 8, where it is maintained that ‘Arbitral decisions interpreting “autonomous” fair and equitable treatment and full protection and security provisions in other treaties, outside the context of customary international law, do not constitute evidence of the content of the customary international law standard required by Article 10.5 and Annex 10-A. Nor can these decisions serve as precedent for a tribunal determining the content of customary international law.’ 33 Glamis v United States, above Ch 4, n 128, Award, para 605 (footnote omitted). 30 RY

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II. Role and Place of Investment Arbitral Decisions If the relevance and importance of precedents in investment arbitration is undisputed, their role and location in the interpretative process defined in the VCLT are less clear. According to some investment tribunals, the interpreter may have recourse to previous decisions as supplementary means to confirm or determine the meaning of a given provision in accordance with Article 32 VCLT, which undoubtedly contain a non-exhaustive list. For the Canadian Cattlemen v United States Tribunal, in particular, Article 32 VCLT permits, as supplementary means of interpretation, not only preparatory work and circumstances of conclusion of the treaty, but indicates by the word ‘including’ that, beyond these two means expressly mentioned, other supplementary means may be applied. Article 38 [paragraph 1.d] of the Statute of the International Court of Justice provides that judicial decisions are applicable for the interpretation of public international law as ‘subsidiary means’. Therefore, they must be understood to be also supplementary means of interpretation in the sense of Article 32 VCLT.34

This position is not entirely convincing.35 It is certainly true that Article 32 leaves the interpreter quite broad latitude with regard to supplementary means, but these means are relevant insofar as they bear a relation to the conclusion of the treaty or the circumstances surrounding it. Including amongst them arbitral or judicial decisions rendered after the entry into force of the treaty in relation to it or, a fortiori, another treaty, would stretch the notion of supplementary means beyond recognition. At the same time, relegating these decisions to supplementary means is unduly reductive and does not reflect the arbitral practice as tribunals do look at them throughout the interpretative process under Article 31 VCLT. The reference to Article 38 of the Statute of the ICJ does not seem to be accurate. Apart from the significant difference in terminology between the terms ‘supplementary’ and ‘subsidiary’ used, respectively, in Article 38 ICJ Statute and in Article 32 VCLT, the two provisions serve completely different purposes. Article 38 ICJ Statute, in particular, indicates that national and international decisions are material sources the Court may rely upon in order to determine the existence and content of the rules of international law referred to in Article 38(1)(a)–(c), namely treaties, customary law and general principles of law. Not

34 Canadian Cattlemen v United States, above Ch 3, n 98, Jurisdiction, para 50. In literature, the same argument has been put forward by U Linderfalk, above Ch 1, n 10, p 255. 35 See the criticism expressed by M Fitzmaurice and P Merkouris, ‘Canons of Treaty Interpretation: Selected Case Studies from the World Trade Organization and the North American Free Trade Agreement’, in M Fitzmaurice et al (eds), above Ch 1, n 10, 153, pp 228–30.

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s urprisingly, Article 38(1)(d) has been discussed mainly with regard to the possibility of going beyond the determination of existing law and of developing it.36 The reality is that Article 38(1)(d) of the ICJ Statute, dealing with jurisprudence and doctrine as ‘subsidiary means’ for the determination of the rules indicated in paragraphs (a)–(c), is ‘extremely confusing’37 as amply demonstrated by the preparatory work. As has been observed, ‘[o]ne of the reasons for the inescapable fuzziness of the formal sources of law identified in Art 38 is that it was intentionally worded in such a way as to give the World Court sufficient flexibility with a view of avoiding non liquet’.38 Article 32 VCLT, on the other hand, refers to the means available to the interpreter to confirm or determine the meaning of a given term or provision following the interpretation reached under Article 31 VCLT. The scrutiny of previous decisions in search of relevant persuasive legal argument is part and parcel of the interpretative process. This is not just a matter of expediency or comity as apparently held by some tribunals.39 The interpreter is expected to consider previous decisions, regardless of their invocation by the parties, from the very beginning and throughout the entire interpretative process, starting with the literal analysis on the ordinary meaning of the terms to be interpreted.40 In Siemens v Argentina, the Tribunal found it appropriate to refer to an ICJ decision with a view to interpret the term ‘arbitrary’. It held that ‘the definition in ELSI is the most authoritative interpretation of international law and it is

36 See, in particular, M Shahabudden, Precedent and the World Court (Cambridge: CUP, 1999) 76 ff. Writing in 1967, RY Jennings, ‘General Course of International Law’ (1967-II) 121 Receuil des Cours 323, 341–42, observes: ‘[w]hat is meant by subsidiary means for the determination of rules of law? This is a nice question. The difference between making and determining law is one of degree rather than kind, and both judges and writers therefore within limits fashion the law as well as applying it to situations … judicial decision has become so important in the development of international law’. For a full discussion, see R Kolb, above Ch 1, n 10, Section III. 37 A Pellet, ‘Article 38’, in A Zimmermann, K Oellers-Frahm, C Tomuschat and CJ Tams, Commentary to the Statute of the International Court of Justice, 2nd edn (Oxford: OUP, 2012) 853. 38 J Paulsson, ‘International Arbitration and the Generation of Legal Norms: Treaty Arbitration and International Law’, in AJ van den Berg (gen ed), International Arbitration 2006: Back to Basics (The Hague: Kluwer, 2007) 879, 885. In Berschader v Russian Federation, above Ch 4, n 142, Award, para 97, the Tribunal has maintained that previous decisions are ‘frequently referred to as a source of international law for the purpose of interpreting treaties under the Vienna Convention’. The finding is not supported by any explanation and remains rather cryptic, whatever definition of ‘source’ is adopted. 39 Tulip Real Estate v Turkey, above n 21, Decision on Bifurcation, para 45. Interestingly, the Tribunal supports this finding by relying on two prior decisions, namely AES v Argentina, above Ch 3, n 50, Jurisdiction, paras 30–32; Saipem SpA v Bangladesh, Jurisdiction and Provisional Measures, above Ch 4, n 243, para 67. 40 But see Continental v Argentina, above Ch 3, n 89, Award, para 188. The Tribunal clarified that its conclusion on the non-self-judging nature of the recourse to Art XI of the BIT between Argentina and the United States ‘has been reached by the other ICSID arbitral tribunals to which Argentina has submitted the same defense. It has, however, like all other decisions in this Award, first reached its own decisions independently of any such ICSID awards.’

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close to the ordinary meaning of the term emphasizing the wilful disregard of the law’.41 After all, if the interpreter is allowed to look at the definitions provided by linguists in dictionaries why should he be prevented from taking into account the definitions offered by specialists in the context of investment arbitration? In RosInvest v Russian Federation, for instance, the Tribunal admitted that [i]t is not obviously clear how far arbitral decisions on other jurisdictional or MFN clauses in other treaties are of relevance to the Tribunal’s task. This does not however preclude the Tribunal from considering other arbitral decisions and the arguments of the Parties based upon them, to the extent that it may find that they throw any useful light on the issues that arise for decision in this case.42

To the extent it is justified by the substantial similarity of the relevant texts, the interpreter ought to take into account the legal analysis and arguments contained in previous decisions in relation to the context of any given term, expression or provision. In these decisions the interpreter may also find useful indications on the scope and purpose of the whole treaty or its relevant provisions. This is particularly true in the case of BITs, whose scope and purpose are often largely comparable in spite of possible difference in the degree of sophistication. Perhaps even more importantly, the interpreter can find in previous decisions some guidance dealing with the rules applicable between the parties that could inform the interpretation of any given provision under Article 31(3)(c) VCLT. Previous decisions may assist the interpreter by revealing a consistent pattern of interpretation of similar or identical treaty provisions. In this case, the interpreter must carefully evaluate both in quantitative and qualitative terms the value of these decisions. The exercise cannot be reduced to an accounting exercise, which incidentally is exposed to the risk of significant divergences due to subjective evaluation of the relevant decisions.43 Particular attention must be paid to the composition of the various tribunals rendering these decisions, as multiple appointments may induce the interpreter to overestimate the real value of a series of decisions. Equally important is not to 41 Siemens v Argentina, above Ch 3, n 5, Award, para 318. See also Elettronica Sicula S.P.A. (ELSI), Judgment, I.C.J. Reports 1989, p. 15. 42 RosInvest v Russian Federation, Jurisdiction, para 49. The same view was expressed, with some cosmetic changes but without any reference, in Chevron v Ecuador, above Ch 1, n 7, Partial Award on the Merits, 30 March 2010, paras 163–64, when the Tribunal held that ‘it is not evident whether and if so to what extent arbitral awards are of relevance to the Tribunal’s task of interpretation. However, this does not preclude the Tribunal from considering arbitral decisions and the arguments of the Parties based upon them, to the extent that it may find that they shed any useful light on the issues that arise for decision in this case.’ 43 Compare, for instance, the position of the majority of the Tribunal in Daimler v Argentina, above Ch 1, n 15, Award, para 283, holding that there was a ‘dramatic split’ as to the interpretation of the MFN clause contained in the BIT between Germany and Argentina; with that of the dissenting arbitrator, para 23, according to whom relevant decisions almost unanimously pointed at including procedural provisions within the scope of the MFN clause.

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neglect whether the relevant decisions have been rendered with any dissenting view on the relevant point. The interpreter must finally assess the weight of previous decisions against the reaction—or lack of—reaction by States as well as the critical assessment by scholars. When a clear and uniform interpretation has been adopted in a significant series of decisions, the interpreter may be expected to consolidate it and not to depart from it in the absence of cogent reasons relating to the specificities of the current case or elements that were not present or were significantly different at the time the previous decisions had been rendered.44 When such a departure is appropriate, the interpreter would fully discharge its duty to interpret the treaty in good faith by explaining the reasons behind it. Failing to explain such reasons may expose the award to the risk of annulment and where applicable judicial review. As pointed out by a scholar, Tribunals which deviate from established jurisprudence, without an extensive effort at reasoning, distinction and providing full hearing to the parties on their intention to deviate, might be considered as commit severe procedural and material rule breaches that could bring them into the visor of the—limited—procedures for judicial review and annulment.45

The emergence of a ‘common legal opinion’, or jurisprudence constante, through a significant sequence of uniform decisions can require some time, follow an irregular trajectory and unavoidably imply some legal uncertainty. It has been convincingly pointed out that during the process unsound, contradictory or superficial decisions will be eliminated through natural selection, while sound, coherent and thoroughly argued decisions will eventually prevail and inform the settlement of future disputes.46 Investment tribunals have not always scrupulously assessed whether previous decisions amounted to settled jurisprudence and on some occasions they have satisfied themselves with vague references or mentioned one single case or just a few.47 Superficial references to prior decisions do not enhance the stability, coherence and predictability of the system. Although the interpreter cannot be expected to provide a full and detailed analysis of all relevant decisions, what is required is a sufficiently clear indication of the legal argument developed by prior tribunals demonstrating its persuasiveness and general acceptance as well as the suitability to extend it to the current dispute. An example of an unsatisfactory reference to a prior decision is the recent decision in PNG v Papua New Guinea to uphold the power of ICSID tribunals 44 The principle is also well rooted in PCIJ/ICJ jurisprudence. In Case of Readaptation of the Mavrommatis Jerusalem Concessions, 10 October 1927, PCIJ Series A, No 11, p 18, for instance, the PCIJ held that it had ‘no reason to depart from a construction which clearly flows from the previous judgments the reasoning of which it still regards as sound’. 45 T Wälde, ‘The Specific Nature of Investment Arbitration’, in P Kahn and T Wälde (eds), New Aspects of International Investment Law (Leiden: Nijhoff, 2007) 43, 105–06. 46 J Paulsson, above n 38, p 881, observes that ‘there are awards and awards, some destined to become brighter beacons, others to flicker and die near-instant deaths’. 47 For a few examples, see T Hai Yen, above Ch 10, n 17, pp 86–88.

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to order—rather than to recommend—the parties to adopt provisional measures under Article 47 of the ICSID Convention.48 The Tribunal confined itself to repeating three times in a single paragraph that under Article 47 of the ICSID Convention arbitral tribunals have the power not only to recommend, but also to order provisional measures. It did not elaborate any legal argument to support this conclusion. Instead, it relied on one single decision, Occidental v Ecuador, which in turn made a reference to ‘numerous international tribunals’, but expressly indicates only the one appointed in Tokios v Ukraine. What is most disappointing is that neither of the two decisions contains any legal argument in favour of the mandatory character of provisional measures. The first tribunal confined itself to pointing out that [i]t is to be recalled that, according to a well-established principle laid down by the jurisprudence of the ICSID tribunals, provisional measures ‘recommended’ by an ICSID tribunal are legally compulsory; they are in effect ‘ordered’ by the tribunal, and the parties are under a legal obligation to comply with them.49

Four years later, the second tribunal held that although Article 47 of the ICSID Convention uses the word ‘recommend’, the Tribunal is, in fact, empowered to order provisional measures. This has been recognized by numerous international tribunals, among them the ICSID tribunal in the Tokios Tokelés case.50

It is not fortunate that the PNG v Papua New Guinea Tribunal refrained from carefully considering all decisions rendered on provisional measures and assessing the various legal arguments put forward as well as how these decisions and the legal arguments underpinning them have been received in State practice. International tribunals regularly profess their faith to interpret and apply international rules—not to create or change them.51 Although ‘[t]he duty of the Tribunal is to discover and not to create meaning’,52 it is undisputed that international tribunals may or even must be creative when interpreting any given provision.53 The ILC special rapporteur conceded that ‘the existence of a certain

48 PNG Sustainable Development Program Ltd v Papua New Guinea, ICSID ARB/13/33, Provisional Measures, 15 January 2015, para 102. In RSM Production Corporation v Saint Lucia, ICSID ARB/12/10, Request for Security for Costs, 13 August 2014, para 48, the Tribunal held that ‘[t]here is no question, in general, that the Tribunal has the authority to order provisional measures to preserve a Party’s right’. Regrettably, it failed to indicate any legal argument—either directly or through prior decisions—to support the finding. 49 Tokios v Ukraine, above Ch 1, n 15, Jurisdiction, Order 1, 1 July 2003, para 4. 50 Occidental v Ecuador, above Ch 3, n 41, Provisional Measures, para 58. 51 In Laguna del Desierto, Award, 21 October 1994, (1999) 113 International Law Reports 1, 44, the arbitral tribunal held that ‘[i]nterpretation ‘is a judicial function, whose purpose is to determine the precise meaning of a provision, but which cannot change it’. 52 Renta4 v Russian Federation, above Ch 6, n 59, Jurisdiction, para 93. Quoted with approval by several tribunals, including in Daimler v Argentina, above Ch 1, n 15, Award, para 166, and Planet Mining v Indonesia, above Ch 4, n 14, Jurisdiction, para 169. 53 R Kolb, above Ch 1, n 10, p 3, observes that ‘[n]ulle part—insistons bien: nulle part—davantage qu’en droit international, tout acte d’application juridique comporte une grande part créative’.

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obligatory rule does not exclude “a discretionary element” in interpretation’.54 Investment tribunals have normally declined to embark upon any creative development of the provisions they had to interpret, although they did not categorically exclude such a possibility. The Methanex Tribunal, for instance, held that the interpretation of the relevant NAFTA provisions was ‘not an instance of textual ambiguity or lacuna which invites a tribunal even to contemplate making law’.55 Yet, sometimes investment tribunals have no choice but to put some flesh on skinny generic terms—such as foreign investment. In Salini v Jordan, for instance, the Tribunal was confronted with the task of giving concrete meaning to the term ‘investment’. It developed a number of criteria or elements, including ‘a certain duration’. It was then obliged to take the next logical step, namely to quantify such duration. Interestingly, for the identification of duration as a criterion or element for the purpose of the definition of an investment as well for its quantification, the Tribunal relied on the scholarly works of some leading experts. It concluded that ‘the minimal length of time upheld by the doctrine … is from two to five years’. It also found that the length of any given investment is not determined by the initial duration but must take into account its extension, where applicable. The conclusion on the minimum length is obviously arbitrary and is not supported by any compelling legal argument in the sense that the time span could equally have been one to four or three to six years. Yet, in order to discharge its duty to settle the dispute, the tribunal cannot but set some limits. States are apparently comfortable with this and have neither complained nor taken any initiative to eliminate or reduce the discretionary power of an investment tribunal, for instance by including in the definition of investment any duration requirement, or adopting any joint or unilateral declarations on the interpretation of the relevant clauses. Another interesting example concerns the FET clauses, which have been deliberately drafted in vague terms. Through a series of consistent decisions, investment tribunals have progressively given flesh to these clauses and elaborated of a non-comprehensive list of concrete principles that may concur to the definition of the standard.56 As pointed out by a tribunal, FET clauses are ‘susceptible of specification through judicial practice and do in fact have sufficient legal content to allow the case to be decided on the basis of law’.57 Interestingly, these concrete principles—or some of them—may find their way into the text of investment treaties.58 Yet, tribunals should be particularly vigilant not to get embroiled in unnecessary creative exercises. The inherent danger of this is evident in the majority

54

H Waldock, ‘3rd Report on the Law of Treaties’, A/CN.4. 167 and Add 1–3. Methanex v United States, above Ch 1, n 55, Award, Part IV, Chapter C, para 16. See above Ch 4, section IV. 57 Saluka v Czech Republic, Partial Award, above Ch 3, n 1, para 284. 58 See Chapter 14. 55 56

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decision in Garanti v Turkmenistan where the Tribunal, after holding that the parties to the BIT between the United Kingdom and Turkmenistan had not accepted the jurisdiction of ICSID, threw itself into a discussion about whether such a consent could still be imported into the treaty through the MFN clause contained in Article 3. In its words: [t]his Tribunal is well aware that, in embarking on the consideration of whether the MFN clause of a BIT may be used to vary the terms of the investor–state arbitration article of the same BIT, we are venturing into a fiercely contested no-man’s land in international law. The issues of textual interpretation, legal theory, and public policy that this question presents have been ably and exhaustively explored by more than twenty tribunals, and have been expounded in decisions and dissents authored by some of the most eminent authorities on international law and investment arbitration.59

The finding was strongly criticised by the dissenting arbitrator, who emphasised that the role of MFN is not to substitute for lack of consent, but to ensure that once consent has been given, the treaty is applied in the most favourable manner to the foreign investors of the other contracting party or parties as compared to the treatment granted under other treaties to foreign investors of third States.60 It may be argued that the majority has undertaken an inattentive operation based on the false assumption that unsettled jurisprudence on MFN obliged the Tribunal to navigate uncharted waters and find creative solutions.61 Such an assumption brought the majority to conflate two questions that must be kept distinct: the consent to ICSID arbitration and the functioning of the MFN clause. On the one hand, the fundamental principle upon which the settlement of disputes in international law in general and in investment law in particular rests upon is that a tribunal must establish, if necessary sua sponte, that all parties have expressed, one way or another, their consent to its jurisdiction. On the other hand, the MFN clause—assuming there is one—functions independently from the procedural provisions of the treaty. The parties to the treaty must comply with it as long as the treaty is binding and regardless of the remedies available, if any, their nature or the recourse to them by the investor. It is after—and only after— establishing its competence on the basis of the relevant procedural provisions that a tribunal can interpret and apply it. The tribunal conflates the two questions and lets the unsettled jurisprudence on the functioning of the MFN clause upset the sacrosanct principle that no international tribunal is competent unless all concerned parties have agreed, one way or another, to the exercise of its jurisdiction. In this case, therefore, the task before the Tribunal was first to interpret Article 8 of the BIT in order to determine whether it

59

Garanti Koza LLP v Turkmenistan, ICSID ARB/11/20, Jurisdiction, 3 July 2013, para 40. L Boisson de Chazournes, dissenting opinion in Garanti v Turkmenistan, above n 59, Jurisdiction, esp para 61. 61 E de Brabandere, ‘Importing Consent to ICSID Arbitration? A Critical Appraisal of Garanti Koza v Turkmenistan’ (2014) 5(2) Investment Treaty News 12–15. 60

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could exercise its jurisdiction. Having answered in the negative, there was no need to interpret Article 3 of the BIT, containing the MFN. Tribunals must also refrain from engaging in any exercise balancing the interests of the parties, whether to the treaty or to the dispute. Their task is to establish the meaning the parties to the treaty intended to record in its provisions with a view to legally protecting their interests as well as those of the respective investors. It is not for the interpreter either to assess—or still less to correct— the balance struck by the contracting parties at the time of the conclusion of the treaty, or to double-check whether such balance still adequately protects the interests at stake. In Abaclat v Argentina, the majority of the Tribunal held that in order to interpret Article 8(3) of the BIT between Italy and Argentina, which contains the 18 months domestic litigation requirement, it had to determine ‘whether Argentina had been deprived of a fair opportunity to address the dispute within the framework of its own domestic legal system because of Claimants’ disregard of the 18 months litigation requirement’. For the Tribunal, this required ‘weighting of the interests of the Parties’, namely, on the one hand, that of Argentina in being given the opportunity to address the dispute through the framework of its domestic legal system, and, on the other hand, that of the foreign investor in being provided with an efficient dispute resolution mechanism.62 This way of proceeding has been strongly criticised in a dissenting opinion, which reads in part: ‘[b]alancing of interests’, that the majority award arrogates to itself the right to go behind the text (or across the mirror) in order to operate, has already been done, at the appropriate legislative level, by the parties themselves, introducing the requirement in the Treaty, but limiting it to 18 months. And it was reflected or registered in the clear text. It is not open to the Tribunal, which is now called upon to apply it, to put it into question in the name of a rebalancing of interests more to its liking, at the expense of the one agreed by the parties.63

It is for the contracting parties to negotiate and adopt the text of a treaty in accordance with their interests and bargaining power. It is equally for the parties to the treaty to modify it in the event that the balance struck at the time of its conclusion becomes subsequently unsatisfactory and requires some adjustment. The point has been cogently made in Urbaser v Argentina as follows: [a]s far as this Tribunal is concerned, if there is to be any ‘weighing of the interests of the Parties’ to be considered for purposes of interpreting Article X(2) and (3) of the BIT, it is the weighing of interests as negotiated and approved by the Contracting States of the BIT. These Parties to the BIT have made an assessment of the terms that best suited them

62 63

Abaclat v Argentina, above Ch 1, n 15, paras 581–82. G Abi-Saab, dissenting opinion in Abaclat v Argentina, above Ch 1, n 15, para 31.

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at the time of the negotiations and most effectively met their needs with respect to an international dispute resolution system that could attach to contentions arising from investments within their national territory. Perhaps the Contracting States may decide in the future that such a brand of dispute resolution should yield to a change galvanized by a more expansive policy favouring access to arbitration. Decisional-law constructs, however, such as the ‘weighing of the interests’ test cannot merely be imposed as an amendment to treaty language that an Arbitral Tribunal elects to engraft.64

Another tribunal has described in a balanced and rigorous manner the role of tribunals. It rejected a mechanical application of the text of the treaty and admitted that ‘limitations on the excessively strict application of a treaty provision can be implicit and need not be stated expressly’.65 It nonetheless warned that ‘judicially-crafted exceptions’ must be supported by conclusive evidence— including teleological arguments—rather than on policy analysis, especially considering that ‘the same provision may strike some as “nonsensical” and others as genius’.66 It is indeed within these strict limits that tribunals have to discharge their duty.

III. Legal Value of Non-investment Decisions Most of the considerations developed in the previous section with regard to investment decisions can be safely extended to decisions rendered by non-investment tribunals. In a unitarian vision of international law that refuses to consider each of its branches as sealed compartments and instead encourages dialogue and cross-contamination between them, investment tribunals look at the experience of tribunals operating in other areas with a view to borrowing legal reasoning that may draw light on the interpretation of investment treaties. Keeping in mind that ‘[t]here is increasing acknowledgement that a complex web of legal obligations concerning individuals, Governments and investors link human rights, trade and investment’,67 mention should be made of the jurisprudence of the ICJ, the WTO adjudicatory bodies and the ECHR.

64

Urbaser v Argentina, above Ch 4, n 54, Jurisdiction, para 147. ICS v Argentina, above Ch 3, n 130, Jurisdiction, para 265. 66 ibid (footnotes omitted). 67 Commission on Human Rights, Sub-Commission on the Promotion and Protection of Human Rights, ‘Human rights, trade and investment’, Report of the High Commissioner for Human Rights, E/CN.4/Sub.2/2003/9, 2 July 2003, p 7. As noted by R Higgins, ‘The Taking of Property by the State: Recent Developments in International Law’ (1982-III) 176 Recueil des Cours 259, 331, ‘[q]uestions of permanent sovereignty over natural resources, compensation, public interest, concessions, regulatory control, human rights, are all intertwined’. See also M Hirsh, ‘Interactions between Investment and Non-Investment Obligations in International Investment Law’, in C Schreuer et al (eds), above Ch 4, n 203, p 154. 65

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The possibility of borrowing legal reasoning from these tribunals often overlaps with systemic interpretation under Article 31(3)(c) as when a tribunal takes into account any relevant rules applicable between the parties it is also expected to consider how extraneous rules have been interpreted by the competent bodies. This is typically the case of GATT rules and related jurisprudence. Nothing would nevertheless prevent an investment tribunal from considering decisions rendered by other tribunals with regard to a treaty that is not applicable to the parties. In this perspective, the focus of the interpreter is on the legal reasoning developed in the decisions and the scope of the inquiry broader than in the case of Article 31(3)(c). In searching for legal reasoning developed in non-investment decisions that may contribute to the elucidation of the meaning of an investment treaty, the interpreter must carefully double check that differences in the relevant treaties do not render the operation inappropriate. In this sense, in Azurix v Argentina, the Annulment Committee found that relying on Article 1 of Protocol 1 of the ECHR for the purpose of interpreting the BIT between Argentina and the United States in respect to shareholders’ rights is of limited assistance since the investment treaty—unlike the ECHR—confers certain rights directly on shareholders and allows them to bring a claim before arbitral tribunals.68 Needless to say, investment tribunals are not obliged to follow the decisions of other tribunals as such, not even in the case of the ICJ. In Tulip v Turkey, the Tribunal found it unnecessary ‘to engage in an hierarchical analysis of precedent’ and confined itself to ‘accords deference to relevant statements by the ICJ of general principles as to the construction of the terms of a treaty as those principles may apply to the construction of the BIT’.69 The position is balanced and convincing. On the one hand, the Tribunal declared itself open to considering the relevant ICJ decision as a source of guidance and inspiration in interpreting investment treaties.70 On the other hand, it preserved its right to autonomously assess the relevance of these decisions for the pending case as well as their persuasiveness. The attitude of investment tribunals towards ICJ decisions has ranged from uncritical acceptance or extreme deference to polite indifference or respectful irrelevance. On one extreme, several investment tribunals have almost mechanically transplanted the legal reasoning of the ICJ in the LaGrand case, where the Court unanimously held that it had the right to order the parties to

68

Azurix v Argentina, above Ch 1, n 28, Annulment, para 128. Tulip v Turkey, ICSID ARB/11/28, Decision on Bifurcated Jurisdictional Issue, 5 March 2013, para 47. 70 A Pellet, ‘The Case Law of the ICJ in Investment Arbitration’ (2013) 28 ICSID Review 223 has clearly explained the importance for ICSID tribunals to rigorously refer to and rely on ICJ jurisprudence, especially considering that investment law is deeply rooted in public international law and based upon a public international law logic, as put by C Leben, ‘La responsabilité internationale de l’État sur le fondement des traités de promotion et de protection des investissements’ (2004) 50 Annuaire français de droit international 708. 69

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adopt provisional measures.71 The main argument was based on the object and purpose of the Statute of the Court and the context of its Article 41. The Court maintained that interpreting Article 41 as not allowing it to order provisional measures would run against the object and purpose of the Statute. In the words of the Court, [t]he object and purpose of the Statute is to enable the Court to fulfil the functions provided for therein, and, in particular, the basic function of judicial settlement of international disputes by binding decisions in accordance with Article 59 of the Statute. The context in which Article 41 has to be seen within the Statute is to prevent the Court from being hampered in the exercise of its functions because the respective rights of the parties to a dispute before the Court are not preserved.72

It is understandable that investment tribunals tend to refrain from discussing the soundness of the ICJ decision in a dispute between United States and Germany. What is disappointing is that they failed to examine whether the legal argument put forward by the ICJ was persuasive in the context of foreign investment and of the relevant legal instruments, namely investment treaties, the ICSID Convention and the ICSID Arbitration Rules. Even more questionable, the (mis)reliance on the ICJ decision distorted the Tribunal’s attention from a rigorous and thoughtful interpretation of the relevant legal instrument as required under the VCLT. On the other extreme, several investment tribunals have virtually ignored or simply pay lip service to the legal argument developed with regard to shareholders by the ICJ decision in Barcelona Traction.73 In a rather surprising manner, some of them summarily dismissed the relevance of the ICJ views on the ground that the decision related to diplomatic protection.74 Other investment tribunals referred to the ICJ jurisprudence on a variety of subject matters. For example, the finding by several tribunals on the non self-judging character of Article XI of the BIT between the United States and Argentina was supported by reference to the ICJ judgments in the Nicaragua,75 Oil Platforms76 and Gabcikovo-Nagymarov77 cases. In these decisions, the ICJ held that non self-judging provisions comparable to Article XI were subject to substantial review. The record of references to WTO jurisprudence is also mixed. Investment tribunals have demonstrated a different inclination to consider decisions rendered in international trade disputes between States. The approach of a NAFTA

71 Incidentally, it can be noted that the ICJ delivered its decision on the basis of only two of the five authentic languages of the Statute of the Court. 72 LaGrand, above Ch 1, n 10, para 102. See also above Ch 6, section VI. 73 For a critical assessment of this attitude, see Z Douglas, above Ch 3, n 68, pp 108–09. 74 See, eg, Camuzzi v Argentina, above Ch 10, n 2, Jurisdiction, para 141. 75 Case Concerning Military and Paramilitary Activities in and against Nicaragua, Merits, ICJ Reports 1986, p 14. 76 Case Concerning Oil Platforms, Merits, ICJ Reports 2003, p 161. 77 Gabcíkovo—Nagymaros Project, Judgment, ICJ Reports 1997, p 7.

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t ribunal declaring itself ‘open to persuasion based on legal reasoning developed in the GATT and WTO jurisprudence’.78 Such an approach is clearly to be welcomed due to the proximity of investment and trade rules. This is obviously even more evident when the treaty to be interpreted contains both categories of norms as is increasingly the case, or when investment treaties contain references to trade agreements or provisions modelled after provisions included in trade agreements, such as Article XX GATT.79 The decision in Continental v Argentina may be considered as a successful attempt to extend the legal reasoning developed by the WTO Appellate Body in respect to Article XX GATT from which the investment provision to be interpreted (Article XI of the BIT between the United States and Argentina) indirectly derived. Investment tribunals have also sought guidance in the decisions of human rights tribunals, and particularly the European Court of Human Rights, regardless to the applicability of the related convention to the parties to the investment treaty.80 The obvious example is the reference to the ECHR jurisprudence on the right to property protected under Article 1 of Protocol 1 (Protection of property), a provision that can be assimilated with the provisions on expropriation regularly included in investment treaties.81 Indeed, Article 1 of Protocol 1 ECHR reads: [e]very natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.

It explicitly contains two of the four typical conditions for lawful expropriation systematically required in investment treaty provisions, namely public interest and compliance of applicable laws. It also refers to ‘general principles of international law’, which can be safely assumed to include the two remaining conditions, namely non-discrimination and compensation. Given the proximity of the two sets of provisions, the legal reasoning developed by the ECtHR in interpreting and applying Article 1 of Protocol 1 ECHR could be extended to investment arbitration.

78

Methanex v United States, above Ch 1, n 55, Award, Part II, Chapter B, para 6. See above Ch 8, section IV. 80 See this chapter, section I. 81 In literature, see in particular: R Dolzer, ‘Indirect Expropriations: New Developments?’ (2002) 11 New York University Environmental Law Journal 64; J Waincmeyer, ‘Balancing Property Rights and Human Rights in Expropriation’, in P-M Dupuy, F Francioni and E-U Petersmann (eds), Human Rights in International Investment Law and Arbitration (Oxford: OUP, 2009) 275; C Tomuschat, above Ch 8, n 114; M Perkaps, ‘The Concept of Indirect Expropriation in Comparative Public Law. S earching for Light in the Dark’, in SW Schill (ed), International Investment Law and Comparative Public Law (Oxford: OUP, 2010) 107–50. 79

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Indeed, in Tecmed v Mexico, the Tribunal sought guidance in the ECtHR jurisprudence for the purpose of interpreting Article 5(1) of the BIT between Mexico and Spain. It referred to three leading decisions rendered by the ECtHR82 and borrowed their legal argument by holding that ‘there must be a reasonable relationship of proportionality between the charge or weight imposed to the foreign investor and the aim sought to be realized by any expropriatory m easure.’83 Other tribunals have followed the approach taken in Tecmed v Mexico and referred to prior decisions by both the ECtHR and investment tribunals.84 This may be considered as an encouraging example of dialogue between international tribunals. Investment tribunals have benefited from the experience gained by the ECtHR and convincingly transplanted its legal reasoning in their decisions.

IV. Annulment Proceedings and Interpretation The importance of rigorously interpreting treaty provisions in investment arbitration is amplified by the limited mechanism for correcting erroneous interpretations given by ICSID tribunals and the lack of any review at the international level for non-ICSID tribunals.85 The ICSID in-built annulment procedure

82 James and Others v United Kingdom, Judgment, 21 February 1986, 50, pp 19–20; Mellacher and Others v Austria, Judgment, 19 December 1989, 48, p 24; Pressos Compañía Naviera and Others v Belgium, Judgment, 20 November 1995, 38, p 19. In the first decision, pp 19–20 (emphasis added), the ECtHR held that ‘[n]ot only must a measure depriving a person of his property pursue, on the facts as well as in principle, a legitimate aim “in the public interest”, but there must also be a reasonable relationship of proportionality between the means employed and the aim sought to be realised … The requisite balance will not be found if the person concerned has had to bear “an individual and excessive burden” […] The Court considers that a measure must be both appropriate for achieving its aim and not disproportionate thereto.’ 83 para 122. For a full discussion, see G Bücheler, Proportionality in Investor–State Arbitration (Oxford: OUP, 2015) 132 ff. 84 See, in particular, Azurix v Argentina, above Ch 1, n 28, Award, fn 257; EDF v Romania, above Ch 3, n 42, Award, fn 126. 85 A discussion on the need and feasibility of an appellate mechanism in international investment law clearly goes beyond the purpose of this study. Amongst the most interesting works on the topic, see: E Gaillard and Y Banifatemi (eds), Annulment of ICSID Awards (IAI Series in International Arbitration No 1, Huntington, NY: Juris Publishing, 2004); DP Steger, ‘Enhancing the Legitimacy of International Investment Law by Establishing an Appellate Mechanism’, in A De Mestral and C Lévesque (eds), Improving International Investment Agreements (Abingdon: Routledge, 2013) 247; G Van Harten, ‘A Case for an International Investment Court’, 30 June 2008, Society of International Economic Law (SIEL) Inaugural Conference 2008 Paper, available at http://papers.ssrn.com/sol3/ papers.cfm?abstract_id=1153424; S Franck, ‘The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law through Inconsistent Decisions’ (2005) 73 Fordham Law Review 1521; P Pinsolle, ‘“Manifest” Excess of Power and Jurisdictional Review of ICSID Awards’ (2005) 2(2) Transnational Dispute Management; RD Bishop, SM Marchili, Annulment Under the ICSID Convention (Oxford: OUP, 2012); C Knahr, Annulment and its Role in the Context of Conflicting Awards’, in M Waibel et al (eds), above Ch 3, n 7, p 151; W Walsh, ‘Substantive Review of ICSID Awards: Is the Desire for Accuracy Sufficient to Compromise Finality’ (2006) 24 Berkeley Journal of International Law 444.

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is clearly confined to Article 52, which strictly indicates five grounds for the partial or complete annulment by an ad hoc committee of an award rendered by a tribunal. As pointed out by an annulment committee, ‘there is a unanimous agreement that annulment is distinct from appeal’.86 It follows that ‘it is not the role of an annulment committee to verify whether the tribunal’s interpretation of the law or assessment of the facts was correct. As long as the tribunal correctly identified the applicable law, and strove to apply it to the facts that it established, there is no room for annulment’.87 From the outset, ad hoc committees have been adamant in declining to act as an appeal court. One of them held that [a]lthough this Committee expressed earlier some reservations about the way the Tribunal proceeded in its interpretation exercise, it is not itself empowered to act as an appeal body and substitute its own interpretation of the BIT for the one adopted by the Arbitral Tribunal. It is not for the Committee to decide which interpretation is correct. As long as the interpretation arrived at by the Tribunal is a tenable one, it is not open to the Committee to conclude that the Tribunal manifestly exceeded its powers.88

Investment tribunals have generally respected the limits of their mandate under Article 52 of the ICSID Convention89 and displayed a significant degree of leniency with regard to departures or errors in the application of the VCLT rules on interpretation.90 They have operated on the assumption that ‘the annulment 86 SGS Société Générale de Surveillance SA v Paraguay, ICSID ARB/07/29, Annulment, 19 May 2014, para 105. 87 Alapli Elektrik BV v Turkey, ICSID ARB/08/13, Annulment, 10 July 2014, para 234. In MCI Power v Ecuador, Annulment, above n 27, para 24, the Committee further observed that ‘[t]he annulment mechanism is not designed to bring about consistency in the interpretation and application of international investment law.’ 88 Fraport v Philippines, above Ch 3, n 96, Annulment, para 112. Already in 1986, an ad hoc committee held that ‘[t]he law applied by the Tribunal will be examined by the ad hoc Committee, not for the purpose of scrutinizing whether the Tribunal committed errors in the interpretation of the requirements of applicable law or in the ascertainment or evaluation of the relevant facts to which such law has been applied. Such scrutiny is properly the task of a court of appeals, which the ad hoc Committee is not’, Amco v Indonesia, above Ch 3, n 2, Annulment, 16 May, (1986) 1 ICSID Reports 509, para 23. In Kılıç v Turkmenistan, Annulment, para 99, the Tribunal firmly found that ‘just because a more recent non-binding interpretation of an ambiguous provision differs from how that provision has been interpreted earlier does not mean that the early tribunal manifestly exceeded its powers’. 89 On the initial rather aggressive attitude of some ad hoc committees, namely Klöchner and Amco I, see P Rambaud, ‘De la compétence du tribunal CIRDI saisi après une decision d’annullation’ (1988) 34 Annuaire français de droit international 215; WM Reisman, ‘The Breakdown of the Control Mechanism in ICSID Arbitration’ (1989) Duke Law Journal 739; PT Muchlinski, ‘Dispute Settlement under the Washington Convention on the Settlement of Investment Disputes’, in WE Butler, Control over Compliance with International Law (Dordrecht/Boston: Nijhoff, 1991) 175; C Schreuer, ‘Three Generations of ICSID Annulment Proceedings’, in E Gaillard and Y Banifatemi (eds), above n 85, p 33. 90 In Empresas Lucchetti, SA and Lucchetti Peru, SA v Peru, ICSID ARB/03/4 (also known as: Industria Nacional de Alimentos, SA and Indalsa Perú SA v Peru), Annulment, 5 September 2007, para 116, the Committee found that ‘[a]lthough the Tribunal’s interpretation of Article 2 of the BIT, as it appears in the Award, does not reflect all relevant aspects of treaty interpretation according to the Vienna Convention, the Committee has no basis for concluding that the Tribunal disregarded any significant element of the well-known and widely recognised international rules of treaty interpretation. In any event, the Committee, which has also carefully examined all other arguments put forward

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rocedure is not a mechanism to correct alleged errors of fact or law that a tribup nal may have committed, but a limited remedy meant to ensure the fundamental fairness of the arbitration proceeding’.91 As far as the errors committed by tribunals in the interpretative process are concerned, under Article 52 of the ICSID Convention, an award can be annulled essentially on two grounds: excess of power (Article 52(1)(b)) or failure to state the reasons (Article 52(1)(e)). It follows that ad hoc committees cannot be expected either to correct mistakes in the interpretation of any given treaty provisions by tribunals or to resolve inconsistencies or conflicting interpretations between tribunals. In this respect, it has been pointed out that ad hoc committees have ‘no jurisdiction to control the interpretation’ given by tribunals,92 whereas [t]he annulment mechanism is not designed to bring about consistency in the interpretation and application of international investment law. The responsibility for ensuring consistency in the jurisprudence and for building a coherent body of law rests primarily with the investment tribunals. They are assisted in their task by the development of a common legal opinion and the progressive emergence of ‘une jurisprudence constante’.93

In Amco v Indonesia, the ad hoc committee clarified that not every gap or ambiguity in a decision amounts to a failure to state the reasons.94 Rather, Article 52(1)(e) applies when the tribunal offers no reasons on how the decision has been adopted,

by Lucchetti, cannot find that the Tribunal’s reasoning in the Award, although summary and somewhat simplified in relation to the Vienna Convention, constituted an excess—and even less a manifest excess—of the Tribunal’s powers within the meaning of Article 52(1)(b) of the Convention’. 91 Alapli v Turkey, above n 89, Annulment, para 232. On the nature of annulment proceedings, C Schreuer, ‘From ICSID Annulment to Appeal Half Way Down the Slippery Slope’ (2011) 10 The Law and Practice of International Courts and Tribunals 211, 211–12, points out that annulment is designed ‘to provide relief for egregious violations of a few basic principles under exceptional circumstances’ (emphasis added). 92 CMS v Argentina, above Ch 2, n 10, Annulment, para 85. The distinction was emphasised in Azurix v Argentina, above Ch 1, n 28, Annulment, para 82. According to the Tribunal, ‘[i]t is not the Committee’s function to reach its own conclusion on the correct interpretation of the BIT and ICSID Convention in respect to these questions. That is the function of the Tribunal. Here the task of the Committee is confined to determining whether the Tribunal manifestly exceeded its powers in reaching the conclusion that it did’. In Continental v Argentina, above Ch 3, n 89, Annulment, 16 September 2011, para 90, in fine, the ad hoc committee pointed out that ‘erroneous application of principles of treaty interpretation is also in itself an error of law, rather than a manifest excess of powers, at least where the error relates to the substantive issue before the Tribunal for decision, rather than to an issue of the Tribunal‘s jurisdiction’. In Caratube International Oil Company LLP v Kazakhstan, ICSID ARB/08/12, Annulment, 21 February 2014, the ad hoc committee held that for the purpose of annulment, ‘a mere divergence of opinion or of interpretation between the committee and the tribunal is irrelevant. An award should not be annulled if the tribunal’s approach is reasonable or tenable, even if the committee’s opinion diverges from that of the tribunal’. 93 MCI v Ecuador, Annulment, above Ch 4, n 32, para 24, referring to Tribunal in SGS v Philippines, above Ch 6, n 32, Jurisdiction, para 97. 94 Amco v Indonesia, above Ch 3, n 2, para 7.56.

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or reasons which are inconsistent or so weak as to be frivolous.95 While such an approach still leaves the ad hoc committee a large and probably unavoidable degree of discretion with regard to the assessment on the consistency or the weakness of the reasons provided by the tribunal, the crux of the matter remains whether the decision allows the reader to follow the tribunal throughout the interpretative process. What is expected from the tribunal is therefore to display ‘a whole series of steps in the logical chain’96 leading to a coherent and plausible conclusion. As pointed out in Lucchetti v Peru, [t]he Committee is not charged with the task of determining whether one interpretation is ‘better’ than another, or indeed which among several interpretations might be considered the ‘best’ one. The Committee is concerned solely with the process by which the Tribunal moved from its premise to its conclusion.97

In CMS v Argentina, the ad hoc committee held that the Tribunal accepted without properly addressing the literal interpretation of the umbrella clause contained in Article II(2)(c) of the BIT between the United States and Argentina submitted by the claimant, which refers to ‘any obligations it may have entered into with regard to investments’. It further found six ‘major difficulties’ which made it ‘quite unclear how the Tribunal arrived at its conclusion’. It found that there is a significant lacuna in the Award, which makes it impossible for the reader to follow the reasoning on this point. It is not the case that answers to the question raised ‘can be reasonably inferred from the terms used in the decision’; they cannot. Accordingly, the Tribunal’s finding on Article II(2)(c) must be annulled for failure to state reasons.98

With regard to manifest excess of power, after some initial hesitation,99 annulment committees have set a particularly high threshold for sanctioning wrongful interpretations under Article 52(1)(b) of the ICSID Convention. Most of them have emphasised that excess of power for the purpose of annulment under Article 52(1)(b) must be ‘self-evident rather than the product of elaborate interpretations one way or the other. When the latter happens the excess of power is no longer manifest.’100 95 P Lalive, ‘On the Reasoning of International Arbitral Awards’ (2010) 1 Journal of International Dispute Settlement 55, 64, has stressed the arbitrators’ duty to explain the reasons on which their decisions are based ‘in a clear and straightforward manner, so that the parties will be able to understand them’. 96 F Berman, dissenting opinion in Lucchetti v Peru, above Ch 1, n 5, para 14. 97 Lucchetti v Peru, above Ch 1, n 5, para 113. 98 CMS v Argentina, above Ch 2, n 10, Annulment, para 97 (footnote omitted). 99 See, eg, C Schreuer et al, above Ch 4, n 203, p 89. 100 Wena v Egypt, above Ch 2, n 10, Annulment, para 25. In Azurix v Argentina, above Ch 1, n 28, Annulment, para 68, the ad hoc committee held that ‘[t]he expression “manifestly” in Article 52(1)(b) means “obvious” rather than “grave”, and the relevant test is thus whether the excess of power “can be discerned with little effort and without deeper analysis”’, quoting with approval Repsol YPF Ecuador SA v Empresa Estatal Petróleos del Ecuador (Petroecuador), ICSID ARB/01/10, Annulment, 8 January 2007, para 38. In Hussein Nuaman Soufraki v United Arab Emirates, ICSID ARB/02/7, Annulment, 5 June 2007, paras 38 and 40, the ad hoc committee held that ‘the excess of power should at once be textually obvious and substantively serious’.

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It has been pointed out that ad hoc committees may follow two methodological approaches.101 The first approach is based on two steps: first, the determination of an excess of power on behalf of the tribunal, and second, an assessment of whether such excess of power is manifest. In order to annul the tribunal’s decision both thresholds must have been trespassed.102 The second approach, on the contrary, requires a ‘summary examination to ascertain if any alleged excess of power was so egregious as to be manifest’.103 In this case, there is one single threshold and the inquiry whether there was any excess of power becomes immaterial. From this perspective, erroneous interpretation or misapplication of the law do not amount to manifest excess of power, unless the errors are ‘of such nature or degree as to constitute objectively (regardless of the tribunal’s actual or presumed intentions) its effective non-application’.104 The first option is to be preferred for three main reasons. First, under the second option, it is unclear what is meant by ‘summary examination’ and why, given the possible serious consequences of the decision of the committee, such an examination should be summary. Second, the very existence of one single threshold calls for great prudence and a meticulous analysis of the interpretative process developed by the tribunal. The mere fact that the excess of power is qualified as manifest does not necessarily mean that the related determination is straightforward. Such determination remains a subjective one and in spite of the alleged self-evident character of manifest excess of power the threshold—as any threshold—may be problematic as demonstrated by the frequency of decisions by ad hoc committees adopted by majority. Third, and perhaps more importantly, the two-step analysis offers greater accuracy and enhances the effectiveness and legitimacy of the annulment mechanism. Under the two-step approach, the assessment on whether the error made by the tribunal in interpreting any given provision is serious enough to amount to an excess of power confirms that the role of the committee is not to correct any inaccurate interpretation, but rather ‘to bring out the elements that on any analysis must necessarily have formed part of a properly-conducted interpretative process’.105 This is essentially a failure by the tribunal to apply throughout

101 C Schreuer et al, above Ch 4, n 203, p 940. See also AES Summit Generation Limited and AES-Tisza Erömü Kft v Hungary, ICSID ARB/07/22, Annulment, 29 June 2012, para 32. 102 In Klöckner v Cameroon, above Ch 4, n 276, para 4, the Committee held that it should ‘primo decide whether the tribunal has indeed exceeded its jurisdiction in any way whatsoever; and secundo, if it has, determine the extent to which such an excess of power might be characterized as a “manifest” excess of power’. In Sociedad Anónima Eduardo Vieira v Chile, ICSID ARB/04/7, Annulment, 10 December 2010, para 257, the ad hoc committee held that ‘la metodología de las dos fases es la adecuada, pues la extralimitación de facultades es un requisito sine qua non para entrar a examinar si ésta fue manifiesta, y dicha metodología permite un análisis más profundo de lo que constituye una extralimitación, por una parte, y, por la otra, de qué la hace manifiesta’. 103 AES v Hungary, above n 102, Annulment, para 32. 104 Amco v Indonesia, Resubmitted Case, Annulment, 3 December 1992, para 7.19. 105 F Berman, dissenting opinion in Lucchetti v Peru, above Ch 1, n 5, Annulment, para 9.

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the interpretative process the proper law, namely the relevant rules codified in the VCLT.106 This may occur, for instance, when the tribunal fails to take into account a subsequent agreement concluded by the parties as required under Article 31(3)(a). The qualification as manifest of the excess of power relates to the consequences of the excess of power on the interpretative process. There are three possible scenarios. In the first scenario, the excess of power has no impact on the outcome of the interpretative process and accordingly can hardly be qualified as ‘manifest’. An ad hoc committee found that it ‘ought not to sanction an error of interpretation of the Treaty—as awkward as it may be—when, in the absence of such error, the result would have been the same’.107 In the second scenario, the excess of power has an impact on the interpretation of the given provision, but the interpretation upheld by the tribunal remains plausible or tenable. An ad hoc committee not only maintained that as long as the answers given by the tribunal ‘seem tenable and not arbitrary’ the decision does not need to be annulled for manifest excess of power, but also introduced a presumption against annulment in the sense that doubts or uncertainty should be resolved in favorem validates sententiae.108 From this perspective, it is possible that the excess of power has induced the tribunal to espouse an interpretation that, although not fully in accordance with the VCLT rules of interpretation, remains plausible. In this case too, the ‘manifest’ threshold has not been crossed. In other words, should more than one interpretation of a treaty provision be possible, no manifest excess of power can ensue where one of these interpretations has been chosen.109 In the third scenario, when the excess of power has led the tribunal to take an interpretation that upset the meaning of the relevant provision and triggerred certain consequences, the ad hoc committee certifies the manifest character of the excess of power and annuls the decision or the relevant part of it. The line dividing the last two scenarios is not always neat and is ultimately left to the subjective assessment of the member of the committee. The annulment proceedings in Historical Salvors v Malaysia further reveal the difficulties in drawing the line between excess of power (which can be pointed out but cannot be sanctioned) and manifest excess of power (which would

106 As pointed out in Lucchetti v Peru, above Ch 1, n 5, para 98, ‘a failure to apply the proper law may amount to excess of power’. In Soufraki v United Arab Emirates, above n 100, Annulment, para 86, the ad hoc committee held that ‘[m]isinterpretation or misapplication of the proper law may, in particular cases, be so gross or egregious as substantially to amount to failure to apply the proper law’. 107 Patrick Mitchell v Democratic Republic of the Congo, ICSID ARB/99/7, Annulment, 1 November 2006, para 45. 108 Klöckner v Cameroon, Annulment, above Ch 4, n 276, para 52. 109 MCI v Ecuador, above Ch 4, n 156, Annulment, 19 October 2009, para 51. In CDC v Seychelles, above Ch 4, n 156, Annulment, para 41, the ad hoc committee further clarified that, when more than one interpretation is equally possible, ‘there can be no room for a manifest excess of powers, and the tribunal’s determination will be final’.

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trigger the annulment of the relevant part of the award). The ad hoc committee decided by majority that the sole arbitrator tribunal by declining to exercise its jurisdiction manifestly exceeded its powers inter alia on the following two grounds: (a) by limiting itself to take into account only the definition of investment of the ICSID Convention and not also of the relevant BIT; (b) by failing to take into account the preparatory work of the ICSID Convention and eventually adopting an interpretation not consistent with it.110 A dissenting arbitration disagrees on both accounts. He observed that the interpretation the tribunal arrived at was consistent with the VCLT rules of interpretation and that it was appropriate for the tribunal to limit itself to considering the definition of investment for the purpose of the ICSID Convention. He further argued that, even assuming that it erred on either or both points, the tribunal did not commit any manifest excess power.111

110 111

Malaysian Salvors v Malaysia, above Ch 1, n 14, Annulment, para 80. ibid, dissenting opinion, M Shahabuddeen, paras 48 ff.

13 Interpretative Value of Scholarly Writings I. Role of Scholarly Writings in the Interpretation of Investment Treaties Empirical evidence shows that investment tribunals have relied on scholarly writings much more heavily and frequently than other international tribunals, including the ICJ and the WTO Appellate Body.1 This seems to be due at least in part to the vague drafting of certain investment treaties and the generic nature of the terms these treaties often contain, as well as the perceived independence of scholars,2 and the beneficial impact their work may have in terms of transparency and coherence of the whole process of interpretation.3 The conceptual confusion about VCLT rules on interpretation and applicable law under Article 38(1) of the ICJ Statute, which has already been underlined with regard to arbitral decisions,4 has affected the way some investment tribunals have used scholarly writings in the interpretative process. Yet, some tribunals have, on the one hand, qualified scholarly writings as supplementary means for the purpose of Article 32 VCLT, and, on the other hand, referred to them as subsidiary means to determine the rules of law in accordance with Article 38(1)(d) of the ICJ Statute. In Planet Mining v Indonesia, for instance, the Tribunal first referred

1 According to OK Fauchald, above Ch 1, n 6, pp 351–53, in the period 1998–2006, 73 out of 98 decisions referred to scholarly writing for the purpose of interpreting treaty provisions. 2 M Sornarajah, The International Law of Investment, 3rd edn (Cambridge: CUP, 2010) 429, has argued that ‘the opinions of these tribunals have less weight than the view of publicists, as publicists take independent views as to what the law is whereas arbitrators on tribunals are motivated by other considerations such as the settlement of the dispute before them in an amicable or pragmatic fashion’. 3 According to JR Weeramantry, above Ch 5, n 55, p 137, the practice of investment tribunals ‘embodies a more transparent process, gives recognition to deserving academic literature and generally enhances the legitimacy of the adjudicative process’. S Franck, ‘The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law through Inconsistent Decisions’ (2005) 73 Fordham Law Review 1521, 1524, has recommended ‘increasing academic commentaries and analysis of investment treaty rights and enhancing transparency of the arbitration process in order to prevent inconsistencies form occurring’. 4 See above, Chapter 12, section I.

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to scholarly writings as supplementary means of interpretation,5 then held that ‘[d]octrinal writings may indeed provide guidance as to the state of the law (Article 38(1)(d) of the ICJ Statute) and it is self-evident that an opinion grounded on thorough research and rigorous reasoning is more likely to influence the interpretative process than an opinion that is not’.6 This calls for two important considerations. The first consideration relates to the unnecessary and unconvincing reference to Article 38(1)(d) and its association with Article 32 VCLT. Under Article 32 VCLT an arbitral tribunal may—or must—resort to supplementary means only after applying the general rule of interpretation under Article 31 VCLT. The function of supplementary means is limited to either confirming or determining the meaning of the treaty. Supplementary means may then be put in the ‘crucible’ of the elements useful for the purpose of treaty interpretation. Conversely, Article 38(1)(d) refers to scholarly writing as subsidiary means available to the ICJ to determine the law applicable to settle the dispute before the Court. Their function is extremely broad as it relates not only to treaties, but also to customary international law and general principles of law. With regard to treaties, more specifically, scholarly writings may be taken into account with regard to any legal aspects of the concerned treaty, including conclusion, reservations, validity, suspension, termination and so on. However, scholarly writings perform a role similar to the one they have been assigned under Article 38(1)(d) of the ICJ Statute insofar as they may be used in identifying and formulating the rules of international applicable between the parties, which the arbitral tribunal must take into account under Article 31(3)(c) VCLT.7 From this perceptive, scholarly writings may be instrumental, for instance, to single out and elucidate general principles of law as they are commonly used in domestic jurisdictions or as they have emerged in international law. This may occur especially with regard to vague provisions such as FET.8 The second consideration concerns the place of scholarly writings in the interpretative process besides their relevance for the purpose of Article 31(3)(c) VCLT.

5

Planet Mining v Indonesia, above Ch 4, n 14, Jurisdiction, para 173. ibid, para 175. 7 As observed by R Gardiner, above Ch 1, n 10, p 307, ‘since Article 31(3)(c) of the Vienna Convention requires attention to be paid to relevant ‘rules’ of international law, if use of judicial decisions and teaching do lead to identification of such rules, their use must be taken as acceptable in treaty interpretation. Certainly courts and tribunals do make free use of such materials without apparently seeing any need to find a specific justification in the Vienna rules’. 8 In Enron v Argentina, above Ch 3, n 71, Award, para 257 (footnotes omitted), for example, the Tribunal held that ‘[t]he evolution that has taken place is for the most part the outcome of a case by case determination by courts and tribunals, as evidenced among many other investment treaty and NAFTA decisions by the Tecmed, the OEPC and the Pope & Talbot cases. This explains that, like with the international minimum standard, there is a fragmentary and gradual development. Such development however partly hinges on the gradual formulation—both in cases and legal writings—of “general principles of law” (as understood under Article 38(1)(c) of the ICJ Statute) able to guide and “discipline” the evaluation of state conduct under investment treaty standards.’ 6

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The relevant rules of the VCLT do not expressly refer to scholarly writings. This does not mean, however, that they are irrelevant in the interpretative process, quite the contrary. The frequent inclusion of scholarly writings amongst supplementary means under Article 32 VCLT,9 however, is both unwarranted and unduly restrictive. It is unwarranted because, however broad the construction of Article 32 VCLT may be, supplementary means relate essentially to the documents leading to and the circumstances surrounding the conclusion of the treaty. Their importance lay in the light they can shed on the common intention of the parties to the treaty, or in other words, the meaning the contracting parties intended to attach to any given provision. It is unduly restrictive since scholarly writings may assist, inspire and provide guidance to the interpreter throughout the entire interpretative process. Nothing indicates that arbitral tribunals can rely on scholarly writing only when they have recourse to Article 32 VCLT, assuming they are not satisfied with the outcome of the interpretation process under Article 31 VCLT or wish to confirm it. Quite the contrary, investment tribunals may find inspiration and can borrow the reasoning developed in scholarly writing dedicated to the interpretation of any relevant treaty provision, starting with the analysis of the ordinary meaning of its terms and progressively moving to the other elements of Article 31 VCLT and if appropriate Articles 32 and 33 VCLT. From this perspective, scholarly writings are not considered as such, that is as autonomous elements, but always in relation to the various elements relevant for the interpretative process under Articles 31–33 VCLT. Scholarly writing may offer the interpreter definitions,10 analytical summaries of case law,11 confirmation on the legal status of principles,12 or more generally legal arguments useful to establish the meaning of any given treaty provision.

9 OK Fauchald, above Ch 1, n 6, p 351, has observed that ‘[l]egal doctrine is not explicitly referred to as a relevant interpretative argument in the VCLT, but it can be assumed to be covered by Article 32 as a supplementary means of interpretation’. 10 See, eg, in Biwater v Tanzania, above Ch 4, n 123, para 463, the Tribunal used the definition of indirect expropriation elaborated by Y Fortier and SL Drymer, ‘Indirect Expropriation in the Law of International Investment: I know It When I See It, or Caveat Investor? (2004) 19 ICSID Review 293. In CDC Group plc v Seychelles, ICSID ARB/02/14, Annulment, 29 June 2005, para 34, the Committee described the purpose and nature of annulment under Art 52 of the ICSID Convention by borrowing terminology and definition from two scholarly articles written, respectively, by D Caron, ‘Reputation and Reality in the ICSID Annulment Process: Understanding the Distinction between Annulment and Appeal’, in (1992) 7 ICSID Review 21, and CH Schreuer, above Ch 12 n 89. 11 See, eg, in El Paso v Argentina, above Ch 3, n 131, Award, fn 160, referred to the analysis of tribunal practice in C Leben (ed), Le contentieux arbitral international relatif à l’investissement (Louvain-laNeuve: Arthemis, 2006) 163, 173–174. 12 Still in El Paso v Argentina, above Ch 3, n 131, Award, para 238, the Tribunal relied on I Brownlie, Principles of International Law, 4th edn (Oxford: Clarendon, 1990) 523, with regard to the principle that regulatory measures do not amount to indirect expropriation.

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They can be seen as a reservoir of legal reasoning investment tribunals may draw while discharging their interpretative duty. In other words, they are not taken into account as supplementary means, but rather as a learned exercise of applying the relevant rules of the VCLT to the treaty provisions to be interpreted. The potential of scholarly writing for the purpose of treaty interpretation, however, must be exploited in a rigorous and balanced manner. Before relying on scholarly writings, the interpreter must carefully assess their relevance for the treaty provision to be interpreted, their persuasive force, and the reaction they have triggered amongst academic, governmental and business circles. A good example of a questionable and unpersuasive reference to scholarly writing is offered by the interpretation of Article 1105 NAFTA upheld in Myers v Canada.13 The Tribunal heavily relied on an article published in 1981 by FA Mann on the BIT concluded between the UK and the Philippines.14 The author argued that FET contained in Article III(2) of the treaty is a standard independent from and broader than IMS treatment applicable in customary law. He also pointed out that the FET goes much further than the right to MFN and national treatment. In so doing, he seems to conflate two distinct questions: the alleged independence of FET from customary international law (both non-contingent standards), and the relationship between FET on the one hand and MFN and national treatment (NT) on the other hand (the latter two being contingent standards).15 Almost 20 years later, the Tribunal applied Mann’s interpretation of the BIT to Chapter XI NAFTA. It quoted the following passage from the article: it is submitted that the right to fair and equitable treatment goes much further than the right to most-favored-nation and to national treatment … so general a provision is likely to be almost sufficient to cover all conceivable cases, and it may well be that provisions of the Agreements affording substantive protection are not more than examples of specific instances of this overriding duty.16

The Tribunal followed without much explanation both arguments advanced in the article and concluded that FET is not only independent from IMS, but also broader than MFN and NT. On these premises, it held that a violation of Article 1102 NAFTA (national treatment) amounts to a violation of Article 1105 NAFTA (minimum standard of treatment).

13 SD Myers v Canada, above Ch 4, n 122, Partial Award, paras 265–66. In para 267, however, the award recorded the disagreement of a member of the Tribunal. 14 FA Mann, ‘British Treaties for the Promotion and Protection of Investments’ (1981) 52 British Yearbook of International Law 243. 15 On the nature of these standards, see generally OECD, ‘Fair and Equitable Treatment Standard in International Investment Law’, OECD Working Papers on International Investment, 2004/03, at http:// dx.doi.org/10.1787/675702255435. 16 SD Myers v Canada, above Ch 4, n 122, Partial Award, para 265.

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The reference to Mann’s article has been unfortunate for several reasons.17 In the first place, the article was written in 1981 and focuses on the British understanding of FET contained in BITs and the BIT between the United Kingdom and the Philippines in particular. The assimilation of the BIT provisions with the relevant provision of a significantly different treaty such as NAFTA is fraught with difficulties, including the title of Article 1105. Second, the Tribunal ignores the more prudent views expressed by the same author in a treatise—which was published in different editions before and after the article under discussion. In the treatise, the author tends to minimise the difference between FET and the standard required under customary international law.18 Third, the Tribunal admitted that the position expressed in the article has not been shared by no better-identified other ‘modern commentators’. Here the Tribunal refrained from entering a discussion on the persuasiveness of the argument presented in the article and its capacity to resist criticism from other scholars. Finally, nothing in NAFTA—nor in the BIT between the United Kingdom and the Philippines or any other BIT—supports the view linking FET to contingent standards such as MFN and NT.

II. Scholarly Writings in Investment Arbitration The category ‘scholarly writings’ can be construed rather broadly and includes not only research carried out in academia,19 but also within international organisations or learned bodies composed mainly of academics, practitioners and

17 For an accurate discussion, see JC Thomas, ‘Reflections on Article 1105 of NAFTA: History, State Practice and the Influence of Commentators’ (2002) 17 ICSID Review 21, 22–39. The Tribunal reference to the article was sharply criticised by the United States in their Fifth Submission under Art 1128 NAFTA in Pope & Talbot v Canada, above Ch 7, n 47, 1 December 2000, para 7, which reads in part: ‘Reliance on this citation by the panel majority on this point is misplaced. First, Mann’s statement is that of an academic arguing for what he thinks should be the appropriate construction of the terms “fair and equitable treatment” in British investment treaties; it does not purport to be a statement of accepted principles of treaty law, still less of principles so universally accepted by States that they have crystallized into rules of customary international law. Second, Mann provides no support for his construction of the terms in British investment treaties. Third … the drafters of Chapter Eleven specifically excluded Mann’s thesis by selecting language in Article 1105(1) that clearly stated fair and equitable treatment to be a subset of customary international law, not an overarching duty that subsumes all other instances of substantive protection.’ 18 FA Mann, The Legal Aspects of Money, 4th edn (Oxford: Clarendon 1982). Likewise, see the third edition, published in 1971. 19 Academic research aimed at systematising the rules governing any given topic and translated into legal documents are of particular importance. A remarkable example is the Harvard Draft Convention on the International Responsibility of States for Injuries to Aliens, in LB Sohn and RR Baxter, ‘Responsibility of States for Injuries to the Economic Interests of Aliens’ (1961) 55 American Journal of International Law 545, which has been referred to by several investment tribunals, including Mondev v United States, above Ch 3, n 85, para 127; Saluka v Czech Republic, Partial Award, above Ch 3, n 1, para 256. See also the frequent references to the American Law Institute, Third Restatement of the Law (St Paul: American Law Institute, 1999), as in El Paso v Argentina, above Ch 3, n 131, Award, para 238.

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iplomats, such as the ILC, UNCTAD, the OECD, Institut de Droit International or d the International Law Association. The work of the ILC, which is often referred to in investment awards, deserves to be singled out for three main reasons. First, the ILC is a subsidiary organ of the UN General Assembly and its members, who act in their personal capacities, are selected from amongst the most respected professionals in international law and are representative of the main legal traditions. This ensures the highest competence and reputation of the Commission.20 Second, the Commission regularly engages in a dialogue with governments, which primarily takes the form of official comments by governments on the draft articles progressively prepared and refined by the Commission. Third, the work of the Commission has on several occasions served as a reference for international conferences (including the Vienna Conference on the Law of Treaties), or be considered as reflecting to a large extent customary international law (as in the case of the articles on State responsibility). The importance of the ILC work is testified by the frequent reference to the various products delivered by the Commission (including the rapports of special rapporteurs, the debate within the commission and the draft or final articles). In recent decades, the Commission has conducted meticulous research and analysis of State practice, international decisions and literature. However, tribunals must carefully distinguish the codification exercise performed by the Commission, which can be relied upon when dealing with customary international law, from the progressive development of international rules, which on the contrary merely indicates how international law should evolve from the Commission’s standpoint. Another organisation that is particularly active in the examination of the evolution, interpretation and application of investment treaties is UNCTAD. The organisation has produced several useful studies on typical treaty provisions and their interpretation by investment tribunals and scholars alike. Some arbitral tribunals have found in UNCTAD studies reliable and convenient tools to interpret treaty provisions such as MFN.21 Scholarly writings have played and are expected to continue to play an important role in the interpretation of investment treaties in three main fashions. First, they may support the autonomous legal reasoning developed by an arbitral tribunal. In this case, the tribunal applies the relevant rules on treaty interpretation and reaches a satisfactory interpretation of any given treaty provision. Then, it may look not only at previous decisions, but also at scholarly writings to further clarify

20 It has been pointed out by M Wood, ‘Teachings of the Most Highly Qualified Publicists (Article 38, Paragraph 1(d), ICJ Statute’, in Max Planck Encyclopedia of Public International Law (Oxford: OUP, 2010) 783, 785 that ‘the collective product of such learned bodies should be seen as part of the teachings for the purposes of Article 38(1)(d), and may—depending on all the circumstances—carry special weight’. 21 See, eg, Teinver SA, Transportes de Cercanías SA and Autobuses Urbanos del Sur SA v The Argentine Republic, ICSID ARB/09/1, Jurisdiction, 21 December 2012, paras 168–72, Spyridon v Romania, above Ch 3, n 5, Award, para 327; Total v Argentina, above Ch 6, n 10, para 112.

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or fortify its position. As pointed out in Romak v Uzbekistan, ‘legal doctrine, as well as decisions of other tribunals, may be of assistance in illustrating the reasoning of the Arbitral Tribunal’.22 References to scholarly writings remain entirely discretionary and in this regard the VCLT is clearly permissive. When the interpretation upheld by the tribunal reflects that generally accepted in literature, a summary reference to the most authoritative and recent works will suffice. On the other hand, if the tribunal’s interpretation differs from that suggested by the majority or a conspicuous number of authors, the tribunal may find it appropriate to explain the factual or legal reasons justifying such discrepancies. This is especially the case when a party or both parties have relied on and discussed the relevant literature. Finally, when there is no clearly predominant view amongst scholars on the interpretation of any given provision, the tribunal may still consider and assess the legal arguments behind the various interpretations. The exercise may enhance the comprehensiveness and clarity of the tribunal decision, especially when the parties put forward a different view on interpretation based on the relevant literature. Second, international tribunals may borrow the legal reasoning developed in literature in relation to the interpretation of any given provision as long as it is consistent with the rules on interpretation. Thus, the tribunal endorses the reasoning behind the scholarly writings and shares its outcome. In so doing, it must ensure that the interpretative steps taken in the scholarly writings are clearly reproduced or adequately summarised in the decision in order to allow the reader to follow the interpretative process. Such an approach may relate to the entire interpretative process or to some elements of it, for instance, the analysis of the ordinary meaning of the terms used in the treaty. What tribunals should refrain from doing is to limit themselves to referring to the conclusions reached in scholarly writings without going through an appropriate account. Such a shortcut is unlikely to put the reader in a position to understand the reasons behind the tribunal’s decision and expose the latter to the risk of annulment. Whatever the correctness of the interpretation taken in the specific case, the Salini v Jordan decision seems rather unsatisfactory in this respect as the tribunal confined itself to referring to a couple of scholarly writings—however eminent—without providing any indication on how the term ‘investment’ has been interpreted for the purpose of Article 25 of the ICSID Convention. It found that [t]he doctrine generally considers that investment infers: contributions, a certain duration of performance of the contract and a participation in the risks of the transaction (cf commentary by E Gaillard, cited above, p 292). In reading the Convention’s preamble, one may add the contribution to the economic development of the host State of the investment as an additional condition.23

22 23

Romak v Uzbekistan, Award, above Ch 4, n 66, para 190. Salini v Jordan, above Ch 3, n 85, Jurisdiction, para 52 (italics as in the original).

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Abdication has been complete with regard to the duration element of the definition of investment. In this respect, the Tribunal laconically held that ‘time upheld by the doctrine … is from 2 to 5 years’.24 It is somehow surprising that several tribunals referred to the Salini v Jordan decision and the criteria it contains without paying any attention to the fact that on this point the decision entirely relied on scholarly writings.25 Third, scholarly writings can be extremely useful, if not decisive, to assist an arbitral tribunal to choose between two or more equally plausible interpretations. In Wena v Egypt, for instance, the Tribunal conceded that both interpretations of the second sentence of Article 8.1 of the BIT between the United Kingdom and Egypt defended by the parties were plausible. The Tribunal nonetheless preferred the claimant’s interpretation, according to which the purpose of the second sentence of Article 8.1 is to expand the jurisdiction of the Centre when a company incorporated in the host State is controlled by nationals of the home State ‘in accordance with Article 25(2)(b) ICSID’. The Tribunal emphasised the fact that this interpretation is consistent with all scholarly writings cited by both parties and concluded that ‘[i]n the absence of any direct evidence of the Arab Republic of Egypt and the United Kingdom in negotiating Article 8(1), the Tribunal was strongly convinced by this common academic interpretation’.26 The importance of scholarly writings in the interpretation of investment treaties is certified by the numerous references and the heavy reliance on these writings by both the parties to treaty-related investment disputes and arbitral tribunals. The dialogue scholars engage in with investment tribunals must be respectful of their respective roles.27 Tribunals must confine themselves to settling disputes, which obviously requires dealing with all relevant legal issues concerning the interpretation and the application of the treaty, although it would be a fiction to pretend that they do not make law and contribute to its development. In reality, tribunals may be obliged to go and indeed do go beyond what strictly speaking exists in law. This is even more evident in areas like foreign investment law, which is entering adulthood and is characterised by general rules and the use of generic terms. On the other hand, scholars enjoy a ‘dual citizenship’ as their work ‘is not only a scientific but also a legal practice, which participates in the reproduction and

24

ibid, para 54. See above Ch 12, section I. 26 Wena v Egypt, Annulment, Jurisdiction, para 82. 27 In Romak v Uzbekistan, Award, above Ch 4, n 66, para 171, the Tribunal opined that it ‘has not been entrusted, by the Parties or otherwise, with a mission to ensure the coherence or development of “arbitral jurisprudence”. The Arbitral Tribunal’s mission is more mundane, but no less important: to resolve the present dispute between the Parties in a reasoned and persuasive manner, irrespective of the unintended consequences that this Arbitral Tribunal’s analysis might have on future disputes in general. It is for the legal doctrine as reflected in articles and books, and not for arbitrators in their awards, to set forth, promote or criticize general views regarding trends in, and the desired evolution of, investment law.’ 25

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modification of the legal order—its own object of research’.28 They are allowed and indeed expected not only to identify and study existing rules, but also to explore how they should and could evolve to meet the constantly changing needs of society. From this perspective, scholars perform a double function. On the one hand, they ‘give shape and order to the disparate strands that make up international law’.29 They systematise and critically analyse existing rules, they discuss their shortcomings, inadequacies and weaknesses, and eventually assess and prospect in which direction these rules should move. They may even influence State practice and contribute to the evolution of international rules.30 On the other hand, they scrutinise the decisions relating to these rules delivered by international tribunals, weigh their persuasiveness, and contribute to the consolidation of sound and coherent decisions,31 as well as their ‘natural selection’.32 Such a scrutiny is of paramount importance in the case of investment arbitration.33 In both functions, scholarly writing may assist the interpreter and influence the whole interpretative process. In considering scholarly writing, arbitral tribunals may be guided by two main concerns. First, they must be aware that scholars are often consciously or unconsciously conditioned by extra-legal considerations, which may undermine their objectivity and independence. In this respect it has been emphasised that subjective factors enter into any assessment of juristic opinion, that individual writers reflect national and other prejudices, and further, that some publicists see themselves to be propagating new and better views rather than providing a passive appraisal of law.34

28

See K Tuori, Critical Legal Positivism (Aldershot: Ashgate, 2002) 285. M Wood, above n 20, p 783. 30 G Abi-Saab, ‘Les sources du droit international: un essai de déconstruction’, in M Rama-Montaldo (ed), International Law in an Evolving World (Montevideo: Fundación de Cultura Universitaria, 1994) 29, 34, points out that ‘la doctrine peut favoriser en proportion de la force persuasive de ses arguments, le passage des solutions qu’elle préconise [de lex ferenda à lex lata] dans la perception de la communauté juridique internationale’. 31 In MCI Power Group LC and New Turbine Inc v Ecuador, ICSID ARB/03/6, Annulment, 19 October 2009, para 25, the ad hoc committee held that, alongside arbitral decisions ‘commentaries of scholars and practitioners are extensive and undeniably promote the consistent application of investment law’. 32 See above Ch 12 text accompanying n 46. 33 In this regard, Z Douglas, ‘Nothing if Not Critical for Investment Treaty Arbitration: Occidental, Eureko and Methanex’ (2006) 22 Arbitration International 27, has noted that ‘[g]iven the importance of past decisions to the adjudicative process in investment treaty cases, it is critical that the merits and deficiencies of each new award be scrutinized and debated in isolation from the party interests at stake in each particular dispute’. 34 I Brownlie, Principles of Public International Law, 7th edn (Oxford: OUP, 2008) 393. J Crawford, Brownlie’s Principles of International Law, 8th edn (Oxford: OUP, 2012) 43, slightly revised the sentence as follows: ‘subjective factors enter into any assessment of juristic opinion and individual writers will tend to reflect national and other prejudices; further, some publicists see themselves to be propagating new and better views rather than providing a presentation of the existing law, a tendency the more widespread gives increasing specialization’. 29

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Second, in principle, tribunals must carefully limit themselves to resort to scholarly writings that are ‘trustworthy evidence of what the law really is’35 and refrain from relying on them when they amount to ‘speculations of their authors concerning what the law ought to be’.36 The dialogue between tribunals and scholars in investment arbitration is not only particularly intense, but also presents some peculiar features to which some risk can be associated. Probably in no other field of international law is the interchangeability of roles so exacerbated as it is in investment arbitration, where the same person can sit in an arbitral tribunal today, act as counsel tomorrow and act as expert the day after tomorrow. This may ignite potentially perverse cycles. It is possible that a tribunal may refer to the scholarly writings of its members to support its finding or, perhaps more worrying, that scholars cite decisions rendered by tribunals they were part of as authority confirming their own scholarly opinion. The need for self-restraint and transparency is self-evident. When a tribunal refers to the work of one of its members, it is not sufficient to include in the decision a clear reference to the work, but it is also appropriate to indicate whether the position referred to is generally accepted or otherwise to include also different opinions and explain the reasons why those are less persuasive. Moreover, scholars must clearly disclose their participation in arbitral proceedings, especially when they rely on decisions rendered by tribunals they have been members of.37

35 United States Supreme Court, The Paquete Habana, 175 US 677 (1900), Justice Gray, as quoted by M Wood, above n 20, p 783. 36 ibid. 37 See, eg, SA Alexandrov, above Ch 4, n 61, fn 76.

14 The Role of States in the Interpretation of Investment Treaties I. Facilitating and Ensuring the Correct Interpretation of Investment Treaties After examining in the previous chapters the rules on the interpretation of investment treaties—which are binding upon States and tribunals alike—it is appropriate to discuss the role of the States parties to these treaties in facilitating and ensuring that such interpretation is consistent with their common intention as it was recorded in the text of the treaty and possibly evolved since. Preliminarily, however, a few considerations of general character are in order. Investment treaties are concluded between States for the legal protection at the international level of their interests and those of the respective investors. Even if it may be argued that the rules or principles on the interpretation of international treaties and domestic legal instruments, and in particular domestic legislation, are more germane that what may appear at first sight,1 the differences between the legal orders these instruments belong to are macroscopic and must always be carefully kept in mind. States remain the masters of treaties. Being superiorem non recognoscens, they are at once the law makers and the addressees of international rules. Thus they may amend, supplement, suspend and terminate (unilaterally or jointly) any treaties, including investment treaties, they have concluded in accordance with the relevant treaty or the law of the treaties. A fortiori they can agree any time on the interpretation of any treaty provisions with binding effect on arbitral tribunals.

1 In Brandes Investment Partners, LP v Venezuela, ICSID ARB/08/3 (Foreign Investment Law), Award, 2 August 2011, para 35, for example, the Tribunal held that ‘the interpretation of a legal provision and, specifically, in this case, Article 22 of the LPPI, should begin with a purely grammatical analysis; if this initial analysis fails to define clearly the meaning of the provision, it then becomes necessary to examine the context in which it was enacted … Other elements that must be used to interpret with clarity the content of Article 22 are the circumstances in which it was enacted and the goals that it was intended to achieve.’ In literature, see DD Caron, ‘The Interpretation of National Foreign Investment Law as Unilateral Acts Under International Law’, in MH Arsanjani et al (eds), Looking to the Future. Essays on International Law in Honour of WM Reisman (Leiden: Nijhoff, 2010) 649.

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States share the task and the responsibility of interpreting these treaties with tribunals. Tribunals must respect the common intention of the parties, as is presumably reflected in the text of the treaty, although sometimes they may or must construe the meaning of treaty terms or provisions—especially when they are generic, incomplete or vague. Hence the need for a ‘constructive dialogue’ which ‘would promote evolutionary and sustainable treaties interpretations between investment tribunals and treaty parties’.2 The very absence at the international level of an authority capable of overseeing and ultimately correcting misinterpretations of these treaties by international tribunals,3 however, implies that States themselves have to take the measures they deem necessary—unilaterally or jointly—to ensure the correct interpretation and interpretation of these treaties.4 In Methanex v United States, the Tribunal held that [i]f a legislature, having enacted a statute, feels that the courts implementing it have misconstrued the legislature’s intention, it is perfectly proper for the legislature to clarify its intention. In a democratic and representative system in which legislation expresses the will of the people, legislative clarification in this sort of case would appear to be obligatory. The Tribunal sees no reason why the same analysis should not apply to international law.5

With regard to international treaties, the very same subjects bound by the treaties, namely States, provide such clarification. The need to ensure that the correct interpretation of any given treaty provision corresponds to the intention of the parties as expressed in the text of the treaty is further amplified by the ad hoc nature of investment arbitration and the related inherent risk of inconsistencies and incongruences, as well as the lack of an appeal mechanism. It must also be stressed that the introduction of an appeal mechanism would probably reduce, but not entirely eliminate, the need for clarification by the parties to the treaty. Indeed, there is no guarantee that the appellate body would always embrace interpretations that are coherent and that all concerned States consider as persuasive. As already emphasised in other parts of this study, international investment treaties are special treaties in the sense that they are concluded between States and governed by international law, but their principal beneficiaries are the respective investors. From the standpoint of treaty interpretation, the most prominent

2

A Roberts, above Ch 3, n 68, p 193. Apart from the annulment procedure provided in the ICSID Convention, which is limited to the situations listed in Article 52 ICSID, see above Ch 12, section 4. Importantly, the decisions rendered by annulment committees are subjet to no control. 4 See UNCTAD, Interpretation of IIAs: What States Can Do, IIA Issues Note, No 3, December 2011. See also M Ewing-Chow and JJ Losari, ‘Which Is to Be the Master? Extra-Arbitral Interpretative Procedures for IIAs’, in J Kalicki and A Joubin-Bret (eds), above Ch 3, n 20, p 91; T Ishikawa, ‘Keeping Interpretation in Investment Treaty Arbitration “on Track”: The Role of State Parties’, in J Kalicki and A Joubin-Bret (eds), above Ch 3, n 20, p 115. 5 Methanex v United States, above Ch 1, n 55, Award, Part IV, Ch C, para 22. 3

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feature of these treaties is that as a rule disputes are between a State party and a foreign investor. This requires some adjustments compared with arbitration between States—which clearly remains the exception in the field of foreign investment—in which the parties to the dispute are also parties to the treaty. In disputes between States, the parties may put forward and challenge their respective interpretations. Should the parties share the same interpretation of any given term or provision, tribunals may be expected to align themselves with such interpretation, especially in the case of bilateral treaties. In disputes between State and foreign investors, conversely, only one of the parties to the dispute is also party to the relevant treaty. This means that the other party in the case of bilateral treaties or all but one of the parties in the case of multilateral treaties are not disputing before the tribunal and therefore may have no opportunity to put forward its or their interpretation of any given provision through written submission or during the hearings. At the same time, a party that was extraneous to the negotiations and the conclusion of the treaty—the foreign investor—is fully entitled to offer the arbitral tribunal its own interpretation of the treaty. A tribunal has described these two features as follows: [w]hen interpreting the BIT and seeking to assess the common intention of the Contracting States, account must be taken of the special nature of investor-State arbitration, namely that the home State of the investor is not a party to the arbitration. It does not have the opportunity to present its views on the interpretation of ‘its’ treaty nor to produce evidence in support, unlike the host State. This asymmetry inherent in investment treaty arbitration may justify recourse to the Tribunal’s procedural powers under Rules 34 and 37 of the ICSID Arbitration Rules.6

II. Drafting of Investment Treaties Meticulous drafting is probably the most effective measure to reduce as much as possible the risk of misinterpretation of international treaties. Investment treaties are not an exception. Investment tribunals have on several occasions dealt with poorly drafted treaty provisions and experienced serious problems in interpreting them. No matter how good the rules of interpretation or how skilful the arbitrators may be, a treaty which contains grammatical or syntax errors is likely to lead to unpersuasive or even conflicting interpretations. Contracting States have a panoply of legal documents at their disposal— including ad articles, footnotes, protocols, exchanges of letters, declarations, understandings, and annexes—to draft as accurately and coherently as possible the text of the treaty as well as to clarify the meaning of any given provision. For

6

Churchill Plc v Indonesia, above Ch 4, n 56, Jurisdiction, para 150.

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instance, Annex B of the BIT concluded between Canada and Romania (Clarification of Indirect Expropriation) provides a detailed explanation of the parties’ understanding of Article VIII (Expropriation) of the treaty and contains a non- exhaustive list of factors that must be taken into account for the determination, based on case-by-case, fact-based inquiry of whether a measure or series of measures amount to an indirect expropriation. There are several points that contracting parties must also keep in mind in order not only to ensure the highest degree of clarity and coherence of the treaty, but also to anticipate all possible problems that may arise during the interpretative process. First, they must use terms and expressions carefully and consistently as well as provide, when appropriate, precise definitions of them. The definition of ‘investment’ for the purpose of the treaty is of paramount importance. Negotiators should be aware of the implications of the use of generic terms and clearly indicate whether the list of categories of investment that can be normally found in investment treaties is exhaustive or not. Keeping in mind previous arbitral decisions and especially the conflicting ones, States should not hesitate to clarify any issue that may be expected to generate doubts or uncertainty. This may be obtained by inserting in a given provision a sentence intended to dissipate any doubt. The scope of application of MFN clauses offers a good example of how the contracting parties can easily protect themselves against unpersuasive or conflicting arbitral decisions. Investment tribunals have interpreted generally drafted MFN clauses either in the sense of being applicable only to substantive provisions or to the whole treaty, including procedural provisions. The legal uncertainty still surrounding MFN clauses can be eliminated through an unequivocal translation of the common intention of the parties into the treaty. Article 3(3) of the United Kingdom Model BIT, for instance, reads ‘[f]or the avoidance of doubt it is confirmed that the treatment provided for in paragraphs (1) and (2) above shall apply to the provisions of Articles 1 to 11 of this Agreement’. The insertion of this sentence unambiguously extends the application of the MFN clause embodied in Article 3(1) and (2) to the settlement of disputes (Articles 8 and 9).7 Equally important is the choice of terms. As seen above, investment tribunals have interpreted Article 47 of the ICSID Convention and Rule 39 of the ICSID Arbitral Rules—virtually without opposition—in the sense of permitting ICSID tribunals to order provisional measures in spite of the use of the verb ‘to recommend’ in the text. In spite of the general acceptance of this interpretation by tribunals and governments, properly drafted provisions will dissipate any doubts or incertitude, if any. Article X.31 of CETA, for instance, refers to the interim measures the arbitral tribunal may order. It also further clarifies that—obviously—the power of investment tribunals to order such measures includes that of recommending them.8 7 Contracting parties may prefer to put the clarification in a footnote, as for instance, fn 1 to Article II (Establishment, Acquisition and Protection of Investment) of the BIT between Canada and Romania. 8 See above, text accompanying Ch 6, n 96.

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Another example of how States could clarify the meaning of treaty provisions which have proved extremely difficult to interpret and have caused controversy and legal uncertainty relates to counterclaims.9 Any doubt on the admissibility of counterclaims may be dissipated through proper drafting. According to Article 14.11 (Counterclaims by Parties) of the Indian Draft Model BIT, for example, a Party may initiate a counterclaim against the investor or investment for a breach of the substantive obligations imposed on foreign investors under the treaty before a tribunal established under the same article as well as seek as a remedy suitable declaratory relief, enforcement action or monetary compensation. While negotiating and drafting the text of an investment treaty, the representatives of the contracting parties may be guided and inspired by the legal arguments put forward by arbitral tribunals with regard to similar provisions contained in earlier treaties. The legal arguments developed by arbitral tribunals with regard to any given treaty provision can find their way into the text of new treaties, especially when the relevant decisions have clarified or elaborated on the meaning of unclear or vague provisions. Interestingly, some of the ‘concrete principles’ singled out by several tribunals, including for instance Rumeli v Kazakhstan,10 have been incorporated in Article X.9 (Treatment of Investors and of Covered Investments) of CETA, which reads in the relevant part: A Party breaches the obligation of fair and equitable treatment referenced in paragraph 1 where a measure or series of measures constitutes: —— Denial of justice in criminal, civil or administrative proceedings; —— Fundamental breach of due process, including a fundamental breach of transparency, in judicial and administrative proceedings; —— Manifest arbitrariness; —— Targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief; — Abusive treatment of investors, such as coercion, duress and harassment.11

Unlike the decisions of arbitral tribunals, the list in Article X.9 is exhaustive and therefore the instances of violations of FET are limited to the grounds expressly indicated in the treaty. However, the parties to the treaty have agreed on reviewing the content of the obligation through a decision of the Trade Committee on the basis of a recommendation by the Committee on Services. Second, particular attention must be paid to the preamble of the treaty. Clearly defining the object and purpose of the treaty may be expected to facilitate the task of the interpreter. Negotiators should not hesitate to include in the preamble 9 See, in particular, JA Rivas, ‘ICSID Treaty Counterclaims: Case Law and Treaty Evolution?, in JE Kalicki and A Joubin-Bret (eds), above Ch 3, n 20, p 779. 10 See above Ch 4, n 132. 11 Consolidated text of the Canada–European Union Comprehensive Economic and Trade Agreement (CETA), published on 26 September 2014, at http://trade.ec.europa.eu/doclib/docs/2014/ september/tradoc_152806.pdf.

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references to legally binding as well as non-legally binding documents, provided that the contracting parties wish to reiterate their commitments contained in those documents and apply the investment treaty as a vehicle to achieve their objectives. In the preamble of the BIT between Austria and Kazakhstan, for instance, the parties emphasised ‘the necessity for all governments and civil actors alike to adhere to international anti corruption efforts, most notably the UN Convention against Corruption (2003)’.12 The reference may assist the interpreter in the interpretation of the substantive provisions of the treaty, and especially Article 3 (Treatment of Investments), as well as further encouraging him to take into account the convention amongst the rules applicable between the parties under Article 31(3)(c). Third, express mention of non-investment agreements in the substantive provisions of the treaty also may be expected to assist the interpreter in identifying and taking into account any relevant rules applicable to the parties as required under Article 31(3)(c) VCLT. In Article 5(3) of the BIT between the Belgium– Luxembourg Economic Union and Libya, for instance, the parties reaffirmed their commitments under the international environmental agreements they have accepted and undertake to strive ‘to ensure that such commitments are fully recognised and implemented by their domestic laws’. Likewise, Article 14(4) ECOWAS Supplementary Act reads: ‘Investors and investments shall act in accordance with fundamental standards as stipulated in the ILO Declaration on Fundamental Principles and Rights at Work, 1998’.13 The declaration concerns primarily the obligation to respect the principles of freedom of association and the effective recognition of the right to collective bargaining, the elimination of forced or compulsory labour, the abolition of child labour and the elimination of discrimination in respect of employment and occupation. The declaration does not impose the respect of these principles but rather reiterates the obligation to respect them which stems from membership of the organisation.14 Fourth, as investment treaties and free trade agreements containing chapters or parts on the protection of investment are increasingly sophisticated and complex, negotiators may consider resorting to cross-references in order to ensure a consistent and coherent interpretation of the treaty as a whole.15 Cross-references may be

12 United Nations Convention against Corruption, concluded on 31 October 2003, entered into force 14 December 2005, 2349 United Nations Treaty Series 41. Both Austria and Kazakhstan are parties to the convention. 13 See also Art 11(3) of the BIT between Belgium and Togo. 14 See E de Wet, ‘Governance through Promotion and Persuasion: The 1998 ILO Declaration on Fundamental Principles and Rights at Work’ (2008) 9 German Law Journal 1429. 15 See, eg, fn 7 to Art 9 (Expropriation and Compensation) of the Investment Chapter of the Agreement Establishing the ASEAN–Australia–New Zealand Free Trade Agreement, which reads: ‘This Article shall be interpreted in accordance with this Chapter’s Annex on Expropriation and Compensation’; or fn 1 to Art 10.5 (Minimum standard of treatment) of the Investment Chapter of the FTA between Morocco and the United States, which reads: ‘Article 10.5 shall be interpreted in accordance with Annex 10-A’. On the use of cross-references in WTO law, see I Van Damme, above Ch 1, n 11, pp 236–53.

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expected to facilitate the interpreter’s full understanding and appreciation of the context in which any given term or provision needs to be interpreted. Fifth, appropriate drafting is necessary to instruct the interpreter on the degree of deference that contracting parties intended to reserve to themselves with regard to the consistency of domestic legislation and measures with the treaty obligations. Treaty practice offers several examples. Article VII(4) of the BIT between the Belgium–Luxembourg Economic Union and Colombia, for instance, provides for an extremely high level of deference. It reads: [n]othing in this Agreement shall be construed as to prevent a Contracting Party from adopting, maintaining, or enforcing any measures that it considers appropriate to ensure that an investment activity in its territory is undertaken in accordance with environmental law of the Party.16

The text of the provision clearly reveals the intention of the parties to reserve to themselves the right to assess whether the measures to be adopted, maintained or enforced are appropriate to ensure that an investment activity in its territory is undertaken in accordance with the environmental law of the Party. The provision can be considered as self-judging and the control tribunals may exercise over the above measures confined to verifying the good faith of the host State. Likewise, Article 4(b) of Annex B of the United States Model BIT provides that [e]xcept in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations.

In this case, the contracting parties have indicated how to draw the line separating legitimate exercise of regulatory powers and indirect expropriation by introducing a strong, yet rebuttable, presumption against the qualification of the conduct of the host State as amounting to indirect expropriation. Sixth, it may be convenient and not too onerous for contracting parties to prepare an unofficial list of the documents relating to the conclusion of the treaty for the purpose of Articles 31(2)(a) and (b) VCLT. The correct interpretation of a treaty may also be facilitated by systematically collecting the preparatory work and any other relevant documents relating to the process leading to the conclusion

16 Emphasis added. Art I(5) defines ‘environmental legislation’ as any legislation or provision ‘the primary purpose of which is the protection of the environment, or the prevention of a danger to human, animal or plant life or health, through (a) the prevention, abatement or control of the release, discharge, or emission of pollutants or environmental contaminants’. Similarly, Art 14 (Right to regulate) of the SADC Protocol on Finance and Investment reads: ‘Nothing in this Annex shall be construed as preventing a State Party from exercising its right to regulate in the public interest and to adopt, maintain or enforce any measure that it considers appropriate to ensure that investment activity is undertaken in a manner sensitive to health, safety or environmental concerns’ (emphasis added). Other provisions, such as Article VIII of the Colombian Model BIT, available at http://italaw. com/documents/inv_model_bit_colombia.pdf, expressly allow the host State to adopt, maintain and enforcing any environmental measure that it considers appropriate, provided that such measures are proportional to the objectives sought.

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of the treaty. Parties to investment arbitration have occasionally found it difficult to establish the existence of and retrieve a copy of preparatory work.17 Especially when concluding plurilateral treaties, the parties may also consider preparing official guides or commentaries to the treaty. The utility of these documents for the interpreter is given not only by the accuracy of their content, but also by a clear indication on their legal nature in terms of official approval or endorsement by the contracting parties. Finally, the greatest attention must be paid to the most accurate correspondence of the different authentic versions of plurilingual treaties. When English is not one of the authentic languages, it may still be convenient for the contracting parties to agree on an official English translation as future disputes may be settled by using English as the language of the arbitral proceedings. The operation will avoid the production by the parties of English translations which may be expected to present significant divergences, especially when several translations are plausible, as well as to facilitate the task of tribunals, which can rely on a single translation agreed upon by the contracting parties. Moreover, contracting parties should keep the number of authentic languages within reason, and preferably use the United Nations official languages with a view to making registration under Article 102 of the Charter more expeditious.

III. Consultations When concluding an investment treaty, contracting parties may establish a formal channel of consultation to deal with any question of interpretation that could arise during the life of the treaty. Normally, this kind of provision is hortatory in character and requires the parties to give sympathetic consideration to any request for consultations put forward by the other contracting party. So worded, the clause does not impose any obligations to discuss or even less to agree upon any interpretation.18 Provisions on consultation may have general character and cover the entire agreement. According to Article 9 of the BIT between the Netherlands and China, [e]ither Contracting Party may propose to the other Party that consultations be held on any matter concerning interpretation, application and implementation of the Agreement. The other Party shall accord sympathetic consideration to the proposal and shall afford adequate opportunity for such consultations.19 17

See above Ch 10, section I. Murphy Exploration and Production Company International v Ecuador, ICSID ARB/08/4, Jurisdiction, 15 December 2010, para 135, the Tribunal pointed out, with regard to negotiations aimed at reaching a friendly settlement of the dispute, that ‘the obligation to negotiate is an obligation of means, not of results. There is no obligation to reach, but rather to try to reach, an agreement’. 19 Art XIV of the BIT between Canada and Romania (Consultation and Exchange of Information) similarly provides: ‘Either Contracting Party may request consultations on the interpretation or 18 In

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An innovative provision on consultations and the action the parties may take on the basis of their outcome is Article 37 (Consultations and other Actions) of the BIT between Canada and Tanzania concluded in 2013. It reads: (1) A Party may request in writing consultation with the other Party regarding any actual or proposed measure or any other matter that it considers might affect the operation of this Agreement. (2) The consultations under paragraph 1 may address, inter alia, matters relating to: (a) the implementation of this Agreement; (b) the interpretation or application of this Agreement. (3) Further to consultations under this Article, the Parties may take any action as they may decide, including making and adopting rules supplementing the applicable arbitral rules under Section C.20

The contracting parties to investment treaties may also foresee the possibility of holding consultations with regard to specific provisions. This is the case, for instance, with Article 5(4) of the BIT between the Belgium–Luxembourg Economic Union and Libya, which recognises that co-operation between them provides enhanced opportunities to improve environmental protection standards and allows each of them to request expert consultations on any investment matters involving investors of the Contracting Parties and falling under the purpose of Article 5 (Environment). Although obviously nothing would prevent the parties to the treaty to consult each other at any time and on any matter, provisions like the one reproduced above facilitate the process and emphasise the commitment of each party to consider in good faith any request for consultations. Another interesting but still clearly under-used form of consultation is the consultation of draft awards. In this case, the tribunal supplies the parties to the dispute as well as to the non-disputing State party a draft of the decision. This is provided, for instance, in the BIT between Colombia and Peru.21 The idea behind the provision is to test the legal arguments—including those related to the interpretation of the relevant treaty provisions—and offer the arbitral tribunal the possibility to clarify, fortify or correct them as may be appropriate. From the standpoint of the non-disputing party, in particular, the mechanism represents a formal and efficient way to manifest to the tribunal its disagreement on the interpretation of any given provision and to offer what it believes is the proper one.

a pplication of this Agreement. The other Contracting Party shall give sympathetic consideration to the request. Upon request by either Contracting Party, information shall be exchanged on the measures of the other Contracting Party that may have an impact on new investments, investments or returns covered by this Agreement’. See also Art 16 (Consultation on application—interpretation) of the BIT between India and Colombia. 20 21

Section C deals with Settlement of Disputes between an Investor and the Host Party. Art 25(14)(a).

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IV. Authentic Interpretation An efficient way for States to dissipate any legal uncertainty with regard to the content or scope of a treaty provision is the adoption by the parties of a joint interpretation in the form of joint declarations, agreed minutes, protocols, exchanges of notes, or any other suitable form.22 This is obviously an exclusive prerogative of the parties to the treaty.23 As clearly pointed out by the United States, ‘[t]he authentic interpretation of a treaty remains the exclusive province of the States parties themselves that may construct the treaty either expressly or tacitly through subsequent conduct’.24 As a result, ‘an agreement as to the interpretation of a provision reached after the conclusion of a treaty represents an authentic interpretation by the parties that must be read into the treaty for purposes of its interpretation.’25 The bilateral nature of most investment treaties means that States may intervene more effectively than in the case of large multilateral treaties to clarify the content of investment treaties or to preserve the balance struck at the time of the conclusion of the treaty. This may occur typically when a provision contained in an investment treaty appears to be ambiguous, controversial, or has been the object of inconsistent interpretations. Joint interpretations will contribute to clarify the matter and be binding for the parties and tribunals alike. Some BITs expressly foresee the possibility of a joint interpretation. Article 17(2) of the BIT between the United Kingdom and Mexico, for instance, reads: ‘[a]n interpretation jointly formulated and agreed upon by the Contracting Parties with regard to any provision of this Agreement shall be binding on any tribunal established under this section’. Other treaties provide for the adoption of binding interpretation by a joint committee.26 When the treaty is silent on the issue of joint interpretation, nothing prevents a party from seeking the consent of the other party (or parties) on the interpretation of a given provision. It may either submit to the other party (or parties) what it believes to be the accurate interpretation of a given provision, or simply invite it

22

See above Ch 7, section II. Question of Jaworzina, Advisory Opinion of 6 December 1923, Series B, No 8, the PCIJ held that ‘the right of giving an authoritative interpretation of a legal rule belongs solely to the person or body who has power to modify or suppress it’. 24 Canadian Cattlemen v United States, Reply by the United States, above Ch 3, n 98, p 11 (emphasis added, footnotes omitted). In Mondev v United States, the respondent described Art 1131 of NAFTA as ‘a rule designed just so that the parties could assure that what they meant by NAFTA’s terms could be made known whenever there were misinterpretations’, Hearing Transcript (22 May 2002) 670, quoted in the Award, 11 October 2002, para 103. 25 (1966) 18 Yearbook of the International Law Commission. 26 Art 15.21(2) of the FTA between the United States and Singapore, for instance, reads: ‘[a] decision of the Joint Committee declaring its interpretation of a provision of this Agreement under Article 20.1.2 (Joint Committee) shall be binding on a tribunal established under this Section, and any award must be consistent with that decision,’ United States–Singapore Free Trade Agreement, at www.ustr. gov/sites/default/files/uploads/agreements/fta/singapore/asset _upload_file708_4036.pdf. 23 In

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(or them) to discuss the meaning to be attached to such a provision. Owing to the absence of any treaty or customary obligations in this respect, the other party (or parties) would be entirely free as to the reaction to either initiative.27 The various options available include the refusal to express any view. This option was cunningly chosen by the United States with regard to the diplomatic note dated 8 June 2010 issued by Ecuador on the interpretation of Article II(7) of the BIT between the two countries, which—according to Ecuador—was incorrectly interpreted in Chevron v Ecuador.28 Ecuador then filed a request for arbitration with a view to obtaining an award on the interpretation of Article II(7). It has been reported that the Tribunal, by majority, declined to exercise jurisdiction due inter alia to the fact that no legal dispute had arisen between the two States since the United States remained silent.29 From this perspective, the legal claim put forward by Ecuador was not resisted or challenged by the United States. It remains to be seen how the Tribunal would have ruled had the United States contested the interpretation offered by Ecuador. In the event the parties agree on a joint interpretation, an important caveat is nonetheless necessary: since the parties to the treaty and those to the dispute do not coincide, foreign investors must be protected against the retroactive effects of joint declarations or other documents amounting to disadvantageous modifications of the treaty.30 Although the distinction between interpretations and amendments is not always clear,31 foreign investors must be given the possibility to challenge the application of what they perceive as an amendment to the treaty with regard to pending disputes or disputes over facts that have occurred before the adoption of the alleged amendment. It will be for the tribunal to establish whether the parties have merely confirmed their interpretation of a certain provision or altered its meaning. In other words, the tribunal will assess the persuasiveness of the legal argument underpinning the alleged interpretation and its consistency with the relevant rules of interpretation.32 It is somehow surprising that States have been so far rather reluctant to seek joint interpretations, even when they are—or should be—concerned with the legal uncertainty that characterises certain provisions of investment treaties. Such uncertainty is detrimental to the concerned States and foreign investors alike. The latter cannot rely on stable and predictable legal protection, while the former are exposed to the risk of arbitral proceedings with unpredictable outcomes, not to

27 See, in this sense, Ecuador v United States, PCA No 2012–5, Memorial of the United States, 25 April 2012, section II(2). 28 Chevron v Ecuador, UNCITRAL, above Ch 1, n 7, Partial Award on the Merits (30 March 2010). 29 See J Hepburn and LE Peterson, ‘US–Ecuador Inter-State Investment Treaty Award Released to Parties: Tribunal Members Part Ways on Key Issues,’ International Arbitration Reporter, 30 October 2012. The decision, which was rendered on 29 September 2012, is not available to the public. 30 See the position on this point taken by the Tribunal in Enron v Argentina, above text accompanying Ch 7, n 53. 31 On the difficulties to distinguish interpretations from amendments, see above Ch 7, section III. 32 See above Ch 7, section III.

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mention the difficulties that their organs may have in implementing and ensuring compliance with the treaty. After all, it would be relatively easy for States to issue a joint declaration or arrange an exchange of notes on the meaning of a given treaty provision. The initiative may clarify, for instance, whether an MFN clause does cover the procedural provisions contained in the treaty; whether an ambiguously drafted provision can be considered an umbrella clause and, as such, may attract umbrella clauses included in other treaties through a MFN clause; or whether an umbrella clause does apply to certain types of special undertaking. With regard to existing investment treaties, the parties can improve the legal certainty of MFN treatment clauses through the conclusion of any instrument apt to express their common interpretation of the clause contained in any specific treaty. Such an instrument can take any form. Mindful of the uncertainty of the interpretation of MFN treatment clauses and arguably in reaction to the Maffezini v Spain decision,33 several States have tried to dissipate any possible doubt concerning their common intention. An Annex to the BIT recently concluded between Switzerland and Colombia, for instance, reads in part: ‘[f]or greater certainty, it is further understood that the MFN treatment … does not encompass mechanisms for the settlement of investment disputes provided for in other international agreements concluded by the Party concerned’.34 States not availing themselves of this opportunity or unable to reach an agreement on the interpretation of the relevant MFN treatment clause must be aware that they are exposed to the risk of legal uncertainty and even of conflicting interpretations given by different tribunals. Yet, there is no guarantee that the initiative, whatever form it may take, will clarify the meaning of the provision, as demonstrated by the exchange of letters between the Belgium–Luxembourg Economic Union and Malaysia on the interpretation of the terms ‘approved project’. In Gruslin v Malaysia, the Tribunal found that the exchange of letters between the Belgium–Luxembourg Union and Malaysia was a source of confusion rather than clarity.35 Needless to say, States wishing to issue joint interpretations must be not only extremely accurate and meticulous in their drafting, but also ensure the highest degree of consistency and uniformity across their respective investment treaties.

33 See

Daimler v Argentina, above Ch 1, n 15, Award, para 274. 4(2), available at www.admin.ch/ch/f/ff/2006/8081.pdf. See also Art 5(2) of the BIT concluded between Switzerland and Serbia and Montenegro, 7 December 2007, at http://admin.ch/ ch/f/rs/i9/0.975.268.2.fr.pdf; Annex 804.1 of the FTA between Canada and Peru, available at www. international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/Canada-PeruFTA_chapter8en.pdf. Art 4(3) of the 2007 Norway Model BIT, in turn, reads: ‘For greater clarity, treatment referred to in paragraph (1) does not encompass dispute resolution mechanism provided for in this agreement or other International Agreements’. See also the diplomatic notes exchanged between Argentina and Panama to the effect that the MFN clause contained in the BIT they concluded in 1996 does not extend to dispute resolution clauses. 35 Philippe Gruslin v Malaysia, above Ch 7, n 21, para 23.16. 34 Art

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There is a second category of joint interpretations. In contrast with the joint interpretations described above, they are not sought and issued directly by the parties to a treaty, but are requested by a tribunal during the arbitral proceedings. Normally, the request for such joint interpretation originates from a formal demand from the State party to the dispute. Assuming that the parties confine themselves to interpreting—as opposed to introducing changes in—the treaty, the interpretation will be binding for the tribunal which has requested it. An example of these provisions can be found in Article 155 of the FTA between China and New Zealand, according to which: (1) The tribunal shall, on request of the state party, request a joint interpretation of the Parties of any provision of this Agreement that is in issue in a dispute. The Parties shall submit in writing any joint decision declaring their interpretation to the tribunal within 60 days of delivery of the request. (2) A joint decision issued under paragraph 1 by the Parties shall be binding on the tribunal, and any award must be consistent with that joint decision. If the Parties fail to issue such a decision within 60 days, the tribunal shall decide the issue on its own account.36

Similarly to joint interpretation adopted upon the initiative of the parties, the disputing foreign investor must be given the opportunity to challenge the real nature of the document agreed by the parties and argue that it amounts to an amendment of the treaty which can have only prospective effects. It will again be for the tribunal to qualify the document or not as joint interpretation and in the affirmative to decide accordingly. Although the document has been requested by a specific tribunal for the purpose of settling a specific dispute, it remains to be seen whether other tribunals dealing with the interpretation of the same treaty are bound by the joint interpretation given in the context of another dispute. It may be argued that this type of joint interpretation, too, can be treated for all practical purposes as a subsequent agreement between the parties. The subsequent agreement must be made public regardless to the publicity of the Tribunal’s decision. The fact that the joint interpretation has been agreed in the context of an arbitral proceeding does not deprive it from its value for the interpretative process. Moreover, it would be unnecessary, cumbersome and costly for subsequent tribunal to repeat the operation when the parties have already formally agreed on a joint interpretation in a prior dispute concerning the same treaty. The duplication or proliferation of joint interpretations could even be counterproductive if they present incongruences. 36 Art 31 of the United States Model BIT (Interpretation of Annexes), reads: ‘1 Where a respondent asserts as a defense that the measure alleged to be a breach is within the scope of an entry set out in Annex I, II, or III, the tribunal shall, on request of the respondent, request the interpretation of the Parties on the issue. The Parties shall submit in writing any joint decision declaring their interpretation to the tribunal within 90 days of delivery of the request. 2. A joint decision issued under paragraph 1 by the Parties, each acting through its representative designated for purposes of this Article, shall be binding on the tribunal, and any decision or award issued by the tribunal must be consistent with that joint decision. If the Parties fail to issue such a decision within 90 days, the tribunal shall decide the issue’.

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V. Unilateral Statements Instead of seeking a joint interpretation or when it is not possible to agree on such an interpretation, a party to an investment treaty may consider issuing unilateral interpretative declarations. Similar declarations are not unknown in investment treaty practice.37 Although these declarations are not legally binding per se, tribunals could take them into account as elements of State practice for the purpose of establishing any possible agreement between both or all parties on the interpretation of any given provision under Article 31(3)(b) VCLT should the declaration subsequently be matched by an equivalent act of the other party or parties. When no agreement between the parties can be established, the declaration may still have some practical consequences, as tribunals may take it into account when assessing the legitimate expectations of foreign investors. A unilateral declaration would be in good substance ‘a declaration by a State as to its understanding of some matters covered by a treaty or its interpretation of a particular provision. Unlike reservations, declarations merely clarify a State’s position and do not purport to exclude or modify the legal effect of a treaty.’38 This course of action would inevitably involve a risk that the parties would issue conflicting interpretative declarations. Even in this case, it may be argued that unilateral declarations would nonetheless be beneficial since states, investors and tribunals alike would be aware of the inconsistent positions of the parties, as well as the difficulties in predicting any future arbitral pronouncement on this point. Furthermore, the investor would be able to better understand the precise position of the host State with regard to the treaty it relies on and reduce the risk of misunderstandings.

VI. Non-disputing State(s) Submissions An important tool at the disposal of States to ensure that investment treaties are properly interpreted in the context of arbitral proceedings between the host State and foreign investors is the formal submission to the arbitral tribunal by the nondisputing party’s or parties’ views regarding the interpretation of any given treaty

37 See, eg, Note on the Interpretation of Article 11 of the Bilateral Investment Treaty between Switzerland and Pakistan in the light of SGS v Pakistan, above Ch 6, n 27, Jurisdiction, attached to the Letter of the Swiss Secretariat for Economic Affairs to the ICSID Deputy Secretary-General dated 1 October 2003 in Mealey’s International Arbitral Reports, E 3, February 2004. 38 United Nations Office of Legal Affairs, Treaty Handbook, at http://untreaty.un.org/English/ TreatyHandbook/hbframeset.htm.

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provision. States parties to a treaty have a ‘legitimate interest’39 or a ‘systemic interest’40 in the correct interpretation of the treaty. Non-disputing party clauses belong to the North American tradition, although they can be found elsewhere.41 Article 1128 NAFTA (Participation by a Party), in particular, reads: ‘On written notice to the disputing parties, a Party may make submissions to a Tribunal on a question of interpretation of this Agreement’. It gives the two non-disputing Parties the right to submit their views on—and only on—interpretative issues relevant in the dispute and assist the tribunal in searching for the common intention of the parties as recorded in the treaty and possibly evolved afterwards. Tribunals are expected to take into account in good faith the submissions by non-disputing parties and the legal arguments they are based upon, but also to consider their relevance as evidence of State practice and if appropriate as part of a subsequent agreement, for the purpose, respectively, of Article 31(3)(b) and 31(3)(a) VCLT.42 Article 1128 is silent on whether the non-disputing parties are also allowed to attend the hearings. In this regard it has been pointed out that such attendance may be considered as implicit in Article 1128 or even its natural outgrowth since otherwise it would be difficult for the parties to know the interpretative issues at stake and make a submission accordingly.43 In a recent decision, however, a tribunal found that Article 1128 does not grant the non-disputing parties the right to attend the hearings held in camera.44 It may be worth noting that the right to make a submission under Article 1128 NAFTA is limited to non-disputing States. NAFTA Tribunals may nonetheless accept written submissions from a person or entity that is not a disputing party. In this regard, NAFTA FTC has recommended a procedure for such submissions and indicated a non-exhaustive list of criteria tribunals should take into account

39 Meg N Kinnear, ‘Article 1128—Participation by a Party’ in A Bjorklund and JFG Hannaford, Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter 11 (The Hague: Kluwer, 2006) Supplement No 1 p 1128-1 40 M Paparinskis and J Howley, ‘Submission by Non-disputing Party to the Treaty’, in D Euler, M Gehring and M Schrer (eds), Transparency in International Investment Arbitration (Cambridge: CUP, 2015) 196. 41 Art 18(17) of the BIT between Peru and Japan, for instance, reads: ‘The Contracting Party which is not the disputing Party may make submissions to the arbitral tribunal on a question of interpretation of this Agreement, upon written notice to the disputing parties’. 42 See above Ch 7, sections II and IV. 43 JD Delaney and DB Magraw, Procedural Transparency, in P Muchlinski et al (eds), above Ch 2, n 24, p 721, 745. 44 Detroit International Bridge Company v Canada, UNCITRAL, PCA Case No 2012-25, Procedural Order 6, 18 March 2014, para 5. See also Confidentiality Order, 27 March 2013. In Robert Azinian, Kenneth Davitian and Ellen Baca v Mexico, ICSID ARB (AF)/97/2, Procedural Order 4, 16 June 1999, the President of the Tribunal found that nothing in Article 1128 requires NAFTA tribunals to allow the representatives of a non-disputing Party to be ‘physically present’ at the hearings, at http://naftaclaims. com/disputes/mexico/Azinian/AzinianProceduralOrder4.pdf.

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in exercising their discretion.45 Interestingly, when a tribunal allows written submissions from a person or entity that is not a disputing party, it should also set an appropriate date by which the disputing parties may respond in writing to the non-disputing party submission. The 2012 United States (and before it the 2004 Model) as well as the 2004 Canadian Model BITs follow and elaborate on NAFTA Article 1128. Both of them provide for the right in favour of the non-disputing Party to make submissions regarding the interpretation of the relevant treaty provisions. Article 35(2) (Participation by the Non-Disputing Party) of the Canadian Model BIT expressly confers the non-disputing Party the right to attend any hearings, whether or not it makes submissions to the tribunal. Article 28(2) (Conduct of the Arbitration) of the United States Model BIT, in turn, allows the non-disputing party to make both oral and written submissions. Since Article 29(2) (Transparency of Arbitral Proceedings) establishes that the hearings are open to the public there was no need to specifically grant the non-disputing party access to the hearings. It is worth noting, incidentally, that under Article 29(1) the respondent has to promptly transmit to the non-disputing Party the document relating to the arbitration as specified in subparagraphs (a)–(e), whereas submission under Article 28(2) must be made available to the public (letter (c)). Both BITs concluded by the United States since 2004 adhere to the United States Model and allow the non-disputing party to make oral and written submissions.46 Recent treaty practice of Canada on this point is not entirely consistent. While some BITs provide for non-disputing Party submissions, either in the text of the treaty47 or in an annex,48 others merely give tribunals the authority to consider and accept written submissions from a person or entity that is not a disputing party but has a significant interest in the arbitration.49 Several FTAs also contain similar provisions on submission by a non-disputing party or parties, including Article 10.20.2 CAFTA-DR,50 as well as the FTAs 45 Statement of the Free Trade Commission on Non-Disputing Party participation, 7 October 2003, at www.state.gov/documents/organization/38791.pdf. In Apotex Holdings Inc and Apotex Inc v United States, ICSID ARB(AF)12/1, First Procedural Order, 29 November 2012, the Tribunal held that submissions shall adhere to the requirements set forth in the recommendations of the FTC, which are compatible with Art 41(3) of ICSID Arbitration (AF) Rules. See also Procedural Order on the Participation of the Applicant BNM as a Non-Disputing Party; and Procedural Order on the Participation of the Applicant Mr Appleton as a Non-Disputing Party, both adopted on 4 March 2013. 46 See, in particular, Art 28(2) of the BIT with Uruguay; Art 28(2) BIT of the BIT with Rwanda. 47 See, eg, Art 27 of the BIT with China, which reads: ‘The non-disputing Contracting Party shall have the right to attend any hearings held under this Part of this Agreement. Upon written notice to the disputing parties, the non-disputing Contracting Party may make submissions to a Tribunal on a question of interpretation of this Agreement.’ 48 Art II(1)(3) of Annex C to the BIT with Latvia, for instance, reads: ‘On written notice to the disputing parties, the non-disputing Contracting Party may make submissions to a Tribunal on a question of interpretation of this Agreement.’ 49 See, eg, Art 32 of the BIT with Serbia. For another example, see Art 34 of the BIT with Benin. 50 See A Cate, ‘Non-Disputing State Party Participation in Investor-State Arbitration under CAFTA-DR’, Kluwer Arbitration Blog, 1 July 2011, at http://kluwerarbitrationblog.com/2011/07/01/ non-disputing-state-party-participation-in-investor-state-arbitration-under-cafta-dr.

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c oncluded by the United States51 and Canada.52 CETA contains a more sophisticated provision, according to which tribunals ‘shall accept or, after consultation with the disputing parties, may invite, oral or written submissions from the nondisputing Party regarding the interpretation of the Agreement’.53 It further clarifies that tribunals must refrain from drawing any inference from the absence of a submission from the non-disputing Party. Finally, tribunals must ensure that the disputing parties are given a reasonable opportunity to present their observations on a submission by the non-disputing Party. Yet, the overwhelming majority of investment treaties do not provide for participation of the non-disputing party to the arbitral proceedings. Such reluctance seems to be related to the risks States may perceive that non-disputing State submissions may lead to a comeback of diplomatic protection. The risk may be more apparent than real, provided that non-disputing State submissions are confined to matters of treaty interpretation.54 Quite the contrary, submissions by nondisputing party or parties directed at clarifying the meaning of a given provision, without taking sides in the pending proceedings or politicising the dispute, may assist the arbitral tribunal in discharging its responsibilities.55 In ICSID proceedings, the non-contracting party or parties has no right to make submissions to arbitral tribunals. Instead, under Rule 37(2) of the Arbitral Rules as amended in 2006, tribunals may allow a person or entity that is not a party to the dispute (which clearly includes the non-disputing State or States)56 to file a written submission with the Tribunal regarding a matter within the scope of the dispute. Tribunals have to consult the disputing parties but do not need to obtain their consent to allow such submissions. Rule 37(2) further indicates that in exercising its discretionary power with regard to such submissions, tribunals have to consider, inter alia, whether the submission would assist the Tribunal by providing a perspective different from the disputing parties; whether the submission would address a matter within the scope of the dispute, and whether the non-disputing party has a significant interest in the proceeding.

51 Art 10.19.2 FTA with Oman, for example, reads: ‘The non-disputing Party may make oral and written submissions to the tribunal regarding the interpretation of this Agreement.’ For other examples, see Art 10.19(2) FTA with Morocco; Art 15.19(2) FTA with Singapore; or Art 10.20(2) FTA with Peru. 52 See, eg, Art 832 FTA with Peru; Art 9.28(2) FTA with Panama; Art 10(1) FTA with Honduras; or Art 9.28(2). 53 In accordance with Art X(3), non-disputing Party means the European Union where Canada is the respondent. 54 It is worth noting, by way of example, that Annex B, Art II(1) BIT between Canada and the Czech Republic, reads: ‘[u]pon the request of the Tribunal or both disputing parties, the non-disputing Contracting Party may make written submissions to the Tribunal, but only on a question of interpretation of this Agreement’. 55 See G Kaufmann-Kohler, ‘Non-Disputing State Submissions in Investment Arbitration: Resurgence of Diplomatic Protection?’, in L Boisson de Chazournes, MG Kohen and JE Viñuales (eds), Diplomatic and Judicial Means of Dispute Settlement (The Hague: Martinus Nijhoff, 2012) 307. 56 See A Antonietti, ‘The 2006 Amendment in the ICSID Rules and Regulations and the Additional Facility’ (2006) 21 ICSID Review 427, esp 435.

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In spite of the differences amongst the various instruments sketched above, recent treaty practice clearly reveals the increasing importance of the nondisputing party’s or parties’ submissions. These submissions are meant to facilitate the proper interpretation of the relevant treaties through a dialogue between tribunals, the States parties to the treaty, and the disputing foreign investor. They facilitate the exchange, appraisal and sharing of the interpretations supported by each of these actors and their underpinning legal arguments. The importance of these submissions goes well beyond the correct interpretation of the treaty in the pending dispute. From the standpoint of the nondisputing Party or Parties, clauses on non-disputing Party submissions provide an official and efficient channel to convey to the tribunal, the disputing parties and the other non-disputing parties, if any, what is perceived as the proper interpretation of the treaty. The submission may also contain the formal reaction of the concerned States on previous arbitral decisions or similar non-disputing Party submissions dealing with the same subject matter, which can be shared, criticised or elaborated upon. It is also possible that through the dialogue instituted through these submissions, the parties to a treaty reconsider their interpretation and align it with that of the other party or parties, especially when there are several plausible interpretations. From the standpoint of arbitral tribunals, these submissions are valuable for the legal arguments and insights they contain, especially with regard to the objects and purposes of the treaty or its provisions, the subsequent practice of or the subsequent agreements between the parties, and the legislative history of the treaty or its provisions. These legal arguments and insights may assist tribunals through the interpretative process, inspire their interpretative choices, reassure them in respect of any given interpretation, and persuade them to depart from previous decisions rendered by other tribunals. More generally, these submissions may be expected to enhance the legitimacy, stability and predictability of investment arbitration. Their positive impact would be amplified when the clauses on submissions by the non-disputing party or parties are combined with provisions on transparency, including accessibility of documents and public attendance at hearings.

15 Conclusions Interpretation has traditionally been a complex exercise. It would be unrealistic to expect that the application of the VCLT rules on interpretation would solve any interpretative problems and always lead to an uncontroversial conclusion. Treaties—both the treaty to be interpreted and the VCLT itself—are the product of a human intellectual activity and as such are rarely, if ever, perfect. Nonetheless, it can be safely argued that Articles 31–33 VCLT provide the interpreter with a more than satisfactory legal framework based on common sense, logic and legal reasoning. These rules are the expression of a ‘well-formulated compromise’.1 They direct the interpreter to respect the primacy of the general rule and indicate the elements that must or may be part of the interpretative process. They leave a certain flexibility to the interpreter and do not rule out the possibility of including in such process elements or aids not expressly mentioned in Articles 31–33 VCLT. The interpreter has a duty not only to apply the VCLT rules on treaty interpretation—either as a matter of treaty or customary law—but also to apply them in a rigorous manner. This means in the first place that all elements relevant for the purpose of interpretation must be considered in a holistic perspective.2 Yet, there is nothing special in the list of elements in the VCLT rules on treaty interpretation and ‘the items in it are simply the normal tools of treaty interpretation’.3 Applying meticulously the VCLT rules of interpretation is an essential part of the professional responsibility of those involved in the implementation of these treaties and the settlement of the related disputes.4 Within Article 31, the ordinary meaning is only the obvious departing point of the process. The provisional outcome has to be tested against the other elements of Article 31, keeping in mind that Article 31 is a single provision and does not introduce any hierarchy. If appropriate, the process continues through Articles 32 and 33. 1

See TW Wälde, above Ch 1, n 29. S Torres Bernárdez, separate opinion in Land, Island and Maritime Frontier Dispute (El Salvador/ Honduras: Nicaragua Intervening), Judgment, ICJ Reports 1992, 629, para 195, has cogently declared: ‘I do not consider that under such rules a “true” interpretation is provided by applying each of the recognized interpretative principles and elements independently of each other or in a selective way.’ 3 F Berman, dissenting opinion in Lucchetti v Peru, above Ch 1, n 5, Annulment, para 8. 4 The claim made by JR Weeramantry, above Ch 5, n 55, p 207, that ‘it would be too inefficient and burdensome to require tribunals to apply meticulously all Article 31 interpretative elements for each and every interpretation they undertake’ must be regarded with circumspection. 2

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Throughout the process, the interpreter may have to make choices, balance the weight of the various elements, and even take a creative stand, especially when the relevant provisions are vague, incomplete or ambiguous. Yet, all relevant elements of the VCLT rules on interpretation as well as any other aids, maxims or principles that may be appropriate have to be considered in good faith. The delicate balances between private and public rights and interests that investment provisions often require as well as the economic interests they often involve only reinforce the need for a scrupulous application of these rules. Neither the peculiar features of investment treaties or the hybrid nature of State-investor arbitration make the application of the VCLT rules inappropriate or inefficient. The fact that a party to the State-investor dispute is not a party to the treaty while one (or more) party (or parties) to the treaty is (or are) not disputing does not prevent the interpreter from applying the VCLT in the very same way as in intra-States disputes. Quite the contrary, applying the same rules on interpretation to the two categories of dispute follows from logic and ensures the coherence and legal predictability of the whole system. From this perspective, three important positive developments need to be singled out. First, interpretations favouring the State or the investor have been definitely abandoned in favour of a balanced and unbiased interpretation. Second, tribunals have recognised the equality of the parties in disputes between States and investors, which requires extra caution on behalf of the interpreter, especially when it comes to the distinction between interpretation and amendment. Third, there is an increasing attention to provide the non-disputing party or parties adequate opportunities to express their position on the relevant treaty provisions, most importantly through written submissions. Not surprisingly, most of the problems and challenges faced by investment tribunals have concerned vague or imprecise expressions as well as generic terms. In this regard, four types of provision deserve special attention. FET clauses are often drafted so vaguely that the various elements of the interpretative process of the VCLT rules, including literal analysis, are of little assistance. Under the circumstances, the interpreter has no choice but to construct the meaning of the standard by identifying the concrete principles that generally govern the exercise of sovereign prerogatives as they may be relevant in the specific dispute. Through a series of largely coherent decisions, investment tribunals have successfully elaborated a set of concrete principles giving flesh to the standard. Recourse to these principles has found no resistance by States (which is what really matters) and investors alike. It has also facilitated the convergence between the FET standard and the customary international law standard of treatment. Some of these principles have even found their way into the text of recently concluded investment treaties. MFN clauses are often open to different interpretations due to their rather imprecise text. Inspired by different conceptions of the role of specificity, investment tribunals have upheld conflicting interpretations on whether procedural provisions fall within the scope of application of these clauses. If the risk of conflicting

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decisions is inherent in the notion of arbitration given the sovereign character of each tribunal, States parties to the treaty can reduce it by playing a more active role and clarifying, through all means available in the law of the treaties, which interpretation reflects their common intention as recorded in the treaty. Rather surprisingly, States have so far been rather reluctant to clarify the meaning of these clauses. The interpretation of the term ‘investment’, which is obviously crucial in investment disputes, has also systematically occupied investment tribunals. As any generic term, the term ‘investment’ is by its very nature susceptible to evolve and hardly amenable to a neat definition. Several investment tribunals have persuasively upheld the ‘inherent’ meaning of the term, both with regard to investment treaties and Article 25 of the ICSID Convention, although in investment treaties contracting parties could include in (or exclude from) the definition whatever they wish or attach to it a special meaning. In this regard, some tribunals and arbitrators have convincingly stressed the existence of outer limits to the definition of investment for the purpose of Article 25 of the ICSID Convention, which must be respected regardless of the definition of investment contained in the relevant investment treaty. The (in)famous clause included in several BITs concluded by Argentina before 1994 requiring investors to litigate before domestic tribunals before resorting to international arbitration have been the object of controversy. It must be pointed out, however, that the text of the provision is clear and strictly speaking there is no tension between its ordinary meaning and the other relevant elements of the process of interpretation, including teleological considerations and the principle of effectiveness. What is problematic is whether its application may be futile. This has induced some tribunals to assess whether the respondent State may be expected to provide a real chance of settlement of the dispute before its tribunals. The answer may change not only from State to State, but also for the same State at different times. The interpretation of the clause, on the other hand, remains the same for all parties to the treaty. Apart from these four specific examples, the examination of the decisions rendered by investment tribunals on the interpretation of investment treaties reveals several major problems. First, in some cases tribunals have not adequately set the focus of the interpretative process, which is normally—but not necessarily—a treaty provision. This is a delicate yet essential operation allowing the interpreter to define the scope of the literal analysis and consequently its context. It particularly important in the case of provisions containing a chapeau, a sequence of procedural steps or cross-references, as the wrong focus may cause and indeed has caused distorted interpretations on a few occasions. Second, in spite of the frequent and solemn recognition of the importance of the text of the treaty, investment tribunals have not always fully developed all literal arguments that the text could have offered. Some tribunals have refrained from going through a rigorous grammatical and lexical analysis, including a contrario arguments, and rapidly moved to prior decisions and scholarly writings.

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Third, several tribunals have intentionally or unintentionally failed to go through all elements of the interpretative process required under the VCLT. With the exception of recourse to supplementary means to confirm any given interpretation, all the relevant elements required under the VCLT rules of interpretation have to be put into the ‘crucible’5 and carefully examined. Omitting to consider any of them may deprive the interpreter of important indications to establish the meaning of the treaty. Fourth, several investment tribunals have been particularly eager to consider other investment treaties or the treaty practice of the parties to the treaty to be interpreted, not just one of them. The interpreter may certainly develop, with a good deal of prudence, a contrario arguments based on the comparison with other treaties. What is hardly consistent with the VCLT is to draw conclusions from other treaties or the treaty practice with third States. Indeed this would be disrespectful of the res inter alios acta nature of each treaty. The question of the relationship between investment treaties and the ICSID Convention, moreover, has not always been properly understood by investment tribunals, especially as far as the definition of investment is concerned. In this regard, each bilateral or plurilateral investment treaty has to be interpreted independently from the ICSID Convention. From the standpoint of the investment treaty, contracting parties are free to agree on whatever definition of investment they like and can even attribute to the term a special meaning under Article 31(4) VCLT. For the purpose of the ICSID Convention, the meaning of the term investment has to be established on the basis of the common intention of the ICSID members. This is compatible with the rebuttable presumption that the definition of investment in an investment treaty providing for the settlement of disputes in accordance with the ICSID Convention has to be interpreted as permitting recourse to the Centre. Fifth, one of the most distinguishing features of the decisions of investment tribunals dealing with treaty interpretation is the heavy reliance on prior arbitral decisions and scholarly writings. This may be explained by the combination of the abundance of arbitral decisions concerning similar or identical provisions with the vague, undetailed or incomplete nature of several of these provisions. Although not expressly mentioned in the VCLT, both elements can undisputedly contribute to draw light on the meaning of any given treaty provision, especially when the latter are unclear, vague or ambiguous. Tribunals do not rely on prior decisions as such, but on the legal arguments they have developed. This requires a careful analysis of the persuasiveness of these arguments, taking into account the extent to which they have been shared, endorsed or criticised by other tribunals and States alike. In a functional and pragmatic approach, the legal reasoning developed by prior tribunals or in literature may be considered part and parcel of the interpretative process from the very beginning, provided that they

5

See above text accompanying Ch 1, n 33.

350

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are both relevant in the pending dispute and persuasive. Tribunals may borrow the legal reasoning of other tribunals or scholars to develop, support or confirm a given interpretation, or to operate a choice between two or more interpretations. Perhaps paradoxically, arbitral decisions and scholarly writings have often been relegated by investment tribunals to the rank of supplementary means under Article 32 VCLT, in some cases through a rather unconvincing association with subsidiary means for the purpose of Article 38(1) of the ICJ Statute. Sixth, the inaccurate application of the VCLT rules on interpretation has often paved the way to the inclusion in the interpretative process of policy considerations. In some cases, these considerations have been resorted to so as to reinforce any given interpretation, inspire a choice between more than one plausible interpretation, or even displace elements of the process of interpretation. Policy considerations, which must be distinguished from teleological considerations, are extraneous to the VCLT rules and may lure the interpreter to replace the common intention of the parties as recorded in the text of the treaty with its own subjective assessment of the meaning and functioning of the treaty. Yet, none of these problems is peculiar to investment treaties and imposes a reconsideration of the application of the VCLT rules on interpretation to these treaties. Irregular trajectories, selective application of the elements of the interpretative process, different methodologies, unpersuasive arguments and even legal uncertainty may concern any treaty. However, two specular questions relating to the nature of investor–State arbitration require special caution on the part of the interpreter. On the one hand, the investor is not party to the treaty and therefore exposed to the risk of modification of the treaty in accordance with the treaty itself or the law of treaties. Investment treaties can achieve their declared aim of establishing a stable and predictable legal framework only if the investor is protected against attempts by the parties to the treaty to move the post with retroactive effects. On the other hand, the parties to the treaty remain the masters of the treaty and are certainly entitled not only to facilitate but also to ensure its proper interpretation, if possible through authoritative interpretations. The parties to the treaty may agree upon a given interpretation in several ways. If the inclusion of the agreement in a single legal instrument is the optimal form, tribunals must also respect the concordant interpretation of the treaty expressed by the parties in less formal ways. Investment tribunals have not yet taken a clear position on whether subsequent agreements may result from concordant submissions in the same dispute by the disputing and the non-disputing party or parties. Given the lack of any formal requirement under Article 31(3)(a), such a possibility should be admitted, as claimed by NAFTA members. From both perspectives, the challenge for the interpreter is to distinguish authentic interpretations from amendments. Here again, the interpreter must meticulously verify whether the authentic interpretation is consistent with the VCLT rules on interpretation. Should it be the case, the agreement is part

Conclusions

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and parcel of the interpretative process. Otherwise, it must be treated as an amendment and must be given only prospective effects. A final consideration on the role of States is in order. Since most of the problems encountered in the interpretation of investment treaties are largely due to poor drafting, contracting parties must strive not only to be as accurate as possible but also to anticipate problems of interpretation, taking into account the experience of past tribunals. An obvious example is MFN clauses, which can be easily drafted as clearly including or excluding procedural provisions. Once the treaty has entered into force, the parties may still exercise their control over its proper interpretation, adopt joint or unilateral interpretations, as well as engage a dialogue with each other, investors and tribunals. Surprisingly and with significant exceptions, States have generally been rather reluctant to express their support or disaffection with interpretations given by tribunals. Their attitude, nonetheless, deserves close attention even when they abstain from reacting. Indeed, lack of reaction to a significant and consistent series of decisions may amount to acquiescence and even lead to the informal modification of the treaty, as may be the case of the (creative) interpretation of Article 47 of the ICSID Convention in the sense of allowing ICSID tribunals to order provisional measures.

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Bibliography AFDI

Annuaire français de droit international

AI

Arbitration International

AJICL

African Journal of International Comparative Law

AJIL

American Journal of International Law

BYIL

British Yearbook of International Law

CJTL

Columbia Journal of Transnational Law

EJIL

European Journal of International Law

HJIL

Harvard Journal of International Law

ICLQ

International & Comparative Law Quarterly

ICLR

International Community Law Review

IL

International Lawyer

JIA

Journal of International Arbitration

JIDS

Journal of International Dispute Settlement

JIEL

Journal of International Economic Law

JWI

Journal of World Investment

JWI&T

Journal of World Investment & Trade

LJIL

Leiden Journal of International Law

LPICT

Law and Practice of International Courts and Tribunals

RdC

Recueil des Cours

NYUELJ

New York University Environmental Law Journal

NJIL

Nordic Journal of International Law

NYIL

Netherlands Yearbook of International Law

RGDIP

Revue général de droit international public

UPJIEL

University of Pennsylvania Journal of International Economic Law

YJIL

Yale Journal of International Law

369

370

INDEX

A contrario arguments aids to literal interpretation 125–28 relevance of other treaties for purpose of interpretation 228 Absent words see Silence Acquiescence 206–9 Amendments fair and equitable treatment FET 197–98 non-retroactive principle 198–200, 338, 350–51 Annexes 145 Annulment proceedings application of ICSID rules 312–13 excess of power 316–17 failure to state reasons 313–14 limited grounds 311–12 methodology 315–16 threshold for sanction of wrongful decisions 314 Applicable law customary international law 58 systemic interpretation distinguished 221–28 Arbitration applicability of VCLT 57–60 general obligation in Model BIT 41 interpretative value of arbitration decisions annulment proceedings 311–17 consideration of prior legal arguments 295–96 drafting of treaties 332 no doctrine of precedent 291–92 referral to previous decisions in practice 292–95 role and place in interpretative process 299–307 significance of uniform series of decisions 297–98 underlying problems 296–97 key feature of legal environment 17–19 legal value of non-investment decisions 307–11 special status of foreign investors 46–53 specular questions relating to investor-State arbitration 350–51

use of scholarly writings importance 325 meaning and scope 322–23 need for scrutiny 325–27 use in interpretation 323–25 work of ILC 323 Authentic texts adoption by States 337–40 equally authentic texts 273–80 prevailing authentic texts 281 Bilateral investment treaties aids to literal interpretation a contrario arguments 125–28 expressio unius est exclusio alterius 128–29 applicable law 221–23 basic structure 32 consideration of non-investment rules 234–36, 235 consultations 335–36 diminishing role 32–33 general content 36–37 historical importance 31–32 importance of agreements made under Art 31(2)(a) 151–53 interpretation of treaty as a whole 145, 147 non-disputing State submissions 343 objects and purposes confirmation of textual interpretation from objects 176 consideration of subdivisions 161–63 correction of mistakes and inaccuracies 177–78 effectiveness principle 171–73 need for balancing and weighting process 165–69 to resolve plausible diverging interpretations 178–79 several objects and purposes 161 refusal to import terms 134–35 regional economic integration agreements 26 relevance of other treaties for purpose of interpretation 229–31 role of context 143–44

372

Index

special meaning 243 subsequent agreements 190–97 subsequent practice 204–5 supplementary means conclusion of treaties 262–63 other miscellaneous material 266–67 preparatory work 256–57 termination 54–55 textual interpretation importance 66–72 need to set focus for process 81–90 not to be a mechanical search for meaning 77–78 Conclusion of treaties allocation of accompanying material 263–64 bilateral investment treaties 262–63 scope 261 WTO approach 261–62 Consultations 335–36 Content of investment treaties 35–42 Context analysis and assessment of all provisions 143–44 interpretation of treaty as a whole 144–50 objects and purposes 160 VCLT provisions 141–43 Convention on the Settlement of Investment Disputes Article 25 63, 68–9, 110–19, 122–24, 136–40, 146–7, 153, 163–64, 167–69, 178–79, 190, 209, 241, 249, 259, 324–25, 348 Article 26 47 Article 27 16, 81 Article 42 77, 131–32, 136, 259–60 Article 47 180–85, 207–9, 276–78, 302–3, 331 Article 52 58, 252, 312–17 Cross-references cause of distorted interpretation 348 drafting of treaties 333–34 ordinary meaning of terms 82 textual interpretation 89 Customary international law applicability of VCLT 56, 58 duty to apply VCLT rules 346 fair and equitable treatment FET 322, 347 indigenous peoples’ rights 237–38 interpretation of plurilingual treaties 271 interpretative value of arbitration decisions 298 methodology 11 non-investment rules 239 reflected in work of ILC 323 research objectives 3–6 scholarly writings 319, 321

systematic interpretation derogations 218–19 integration principle 215 Diplomatic protection Article 27 of the ICSID Convention 81 contextual arguments 146 exhaustion of local remedies 217–18 imported terms and expressions 134, 232 individual rights created by treaty 48–49 key feature of legal environment 16–18 risks posed by non-disputing State submissions 344 Dispute settlement see Arbitration Drafting of treaties availability of relevant material 330–31 cross-references 333–34 deference to domestic legislation 334 documents to be included 334–35 importance of accurate indentation 132 importance of preambles 332–33 need for meticulous approach 330 non-investment rules 333 points to bear in mind 331–32 principle cause of problems 351 Dynamic interpretation see Evolutionary interpretation Effectiveness principle 169–75 Energy Charter Treaty expressio unius est exclusio alterius 129 general content 37 importance of agreements made under Art 31(2)(a) 151 interpretation of treaty as a whole 148 main objectives 35 overview 29–31 relevance of objects and purposes confirmation of textual interpretation from objects 175–77 to justify departure from literal interpretation 179–80 several objects and purposes 160–61 termination 55–56 textual interpretation need to set focus for process 90–91 superficial analysis 72–73 Equally authentic texts 273–80 Evolutionary interpretation contemporaneity principle 106 elusive and multifaceted topic 107–9 ‘investment’ 110–24 need for caution 109–10 striking a balance 106 systematic interpretation 215–16 Exhaustion of local remedies general obligation in Model BIT 41

Index human rights contrasted 47 positive developments in interpretation 348 Expressio unius est exclusio alterius 128–33 Fair and equitable treatment FET customary international law 322, 347 drafting of treaties 332 importance of agreements made under Art 31(2)(a) 150–51 interpretation and amendment distinguished 197–99 interpretation of treaty as a whole 145 objects and purposes 163–66 positive developments in interpretation 347 reliance on scholarly writings 321–22 replacement by MFN 40 systematic interpretation 227 textual interpretation 73–75, 77 vague or imprecise provisions 91–100 Foreign investors control of dispute settlement 50 direct access to arbitration 47 explanations for legal position 49–50 facilitation of correct interpretation by States 329–30 independence from State claims 50–51 participants in international law 48–49 peculiar nature of disputes with host State 51–52 special status 46–47 Generic terms ‘investment’ 110–24 ordinary meaning of terms 105–6 special meaning 242–43 Good faith general applicability 60 importance 63 meaning and scope 60–62 relationship with State sovereignty 45–46 weighted consideration of all elements of process 63 Human rights general obligation in Model BIT 41 no requirement for exhaustion of local remedies 47 OECD failure to conclude 19 relevance to systematic interpretation 232, 236–39 systematic interpretation 223 ICSID Convention see Convention on the Settlement of Investment Disputes Inaccuracies see Mistakes and inaccuracies Indentation 132 Integration agreements see Regional economic integration agreements

373

Integration principle 212–15 International Court of Justice aids to literal interpretation 130 application of customary international law 3 application of VCLT 6 generic terms 105–7 interpretative value of arbitration decisions 292, 299–301, 308 legitimate expectations 46 non-investment decisions 309 objects and purposes 182 rights in favour of individuals 48 scholarly writings 318–20 subsequent agreements and practice 207 supplementary means 267, 350 textual interpretation 64, 66 International investment treaties see also Plurilingual treaties; Termination of treaties bilateral investment treaties 31–33 circumstances of conclusion allocation of accompanying material 263–64 bilateral investment treaties 262–63 scope 261 WTO approach 261–62 drafting of availability of relevant material 330–31 cross-references 333–34 deference to domestic legislation 334 documents to be included 334–35 importance of accurate indentation 132 importance of preambles 332–33 need for meticulous approach 330 non-investment rules 333 points to bear in mind 331–32 principle cause of problems 351 Energy Charter Treaty 29–31 general content 35–42 main objectives 34–35 multilateral treaties OECD failure to conclude 19–20 WTO as alternative form 20–22 regional economic integration agreements 22–28 relevance of other treaties for purpose of interpretation 228–31 termination 53–56 transnational legal environment arbitration 17–19 plurality of instruments, rules and principles 16–17 State sovereignty 15–16 International Law Commission background to VCLT 5 diplomatic protection 49 effectiveness principle 170 failure to provide individual rights 51

374 good faith approach 12 most favoured nation (MFN) treatment 75 plurilingual treaties 271–72, 281 resort to customary international law 234 scholarly writings 323 starting point for interpretation 65 subsequent agreements and practice 189, 206 value of arbitration decisions 303–4 Interpretation see also Objects and purposes; Ordinary meaning of terms; subsequent agreements; Supplementary means; Systematic interpretation amendment distinguished fair and equitable treatment FET 197–98 non-retroactive principle 198–200 Tribunal refusal to arbitrate 199 applicability of VCLT 56–60 importance of meticulous application of rules 346–47 major problems 348–50 positive developments 347–48 relevance of other treaties 228–31 research objectives 1–11 rules are a ‘well-formulated compromise’ 346 special status of foreign investors 51–53 use of scholarly writings conceptual confusions 318–20 questionable and unpersuasive references 321–22 reliance by investment tribunals 318 supplementary means 320 value to interpreters 320–21 value of arbitration decisions annulment proceedings 311–17 consideration of prior legal arguments 295–96 legal value of non-investment decisions 307–11 no doctrine of precedent 291–92 referral to previous decisions in practice 292–95 role and place in interpretative process 299–307 significance of uniform series of decisions 297–98 underlying problems 296–97 ‘Investment’ absence of definition 135–38 evolutionary interpretation 110–24 expressio unius est exclusio alterius 130 positive developments in interpretation 347–48

Index Jurisprudence constante annulments 313 generic terms 109 interpretative value of arbitration decisions 291, 302 umbrella clauses 38 Legitimate expectations distinction between systemic interpretation and applicable law 225 multilateral treaties 110 principle of interpretation 98 relationship with State sovereignty 45–46 unilateral statements 341 value of arbitral decisions 293–95 Literal interpretation see Textual interpretation Methodology 11–14 Mistakes and inaccuracies see also Annulments correction by reference to objects 177–78 textual interpretation 67–68 Most favoured nation (MFN) treatment adoption of authentic interpretation 339 drafting of treaties 331 expressio unius est exclusio alterius 128–29 objects and purposes 163–66 positive developments in interpretation 347–48 relevance of other treaties for purpose of interpretation 229–31 reliance on scholarly writings 321–22 replacement of EFT 40 subsequent practice 202–3 systematic interpretation 227 textual interpretation 73–75 vague or imprecise provisions 100–105 Multilateral investment treaties legitimate expectations 110 OECD failure to conclude 19–20 WTO as alternative form 20–22 Non-disputing party submissions relevant agreements under Art 31(3)(a) 193–97 State submissions 341–45 Non-investment rules consideration of WTO law 232–37 drafting of treaties 333 VCLT provisions 231–32 Non-retroactive principle 198–200 Objects and purposes confirmation of literal-contextual interpretation 175–77

Index consideration of subdivisions 161–63 correction of mistakes and inaccuracies 177–78 effectiveness principle 169–75 as expressed in preamble 157–59 to justify departure from literal interpretation 179–85 mandatory requirements of VCLT 159 need for balancing and weighting process 163–66 overview 32–35 part of context and key element 160 relevance from five perspectives 175 to resolve plausible diverging interpretations 178–79 several objects and purposes permissible 160–61 VCLT provisions 157 Ordinary meaning of terms aids to literal interpretation a contrario arguments 125–28 expressio unius est exclusio alterius 128–33 maxims and principles 124–25 evolutionary interpretation contemporaneity principle 106 elusive and multifaceted topic 107–9 ‘investment’ 110–24 need for caution 109–10 striking a balance 106 generic terms 105–6 silence multipartite claims 138–40 necessary filling of gaps 135–38 refusal to import terms 134–35 subsequent agreements 140 underlying difficulties 133 textual interpretation checking of literal interpretation 67 confirmation from objects and purposes 175–77 difficulties of literal interpretation 69–71 ‘directly or indirectly’ 69–71 examples 68–69 importance 65–67 meaning 64–65 mistakes and inaccuracies 67–68 need to set focus for process 79–91 not to be a mechanical search for meaning 75–79 objects used to justify departure 179–85 origins 64 superficial analysis 71–75 use of all sources 65 vague or imprecise provisions fair and equitable treatment FET 91–100 most favoured nation (MFN) treatment 100–105

375

Organisation for Economic Cooperation and Development (OECD) failure to conclude multilateral investment treaty 19–20 scholarly writings 323 Plurilingual treaties authentic texts equally authentic texts 273–80 prevailing authentic texts 281 comparison between authentic texts 272–73 importance of agreeing authentic text in advance 269–71 overview 268 translation choice of language 282 choice of text 282–83 examples 283–88 methodology 289–90 teleological considerations 288–89 unofficial translations 269 VCLT provisions 271 Preambles drafting of treaties 332–33 expression of objects and purposes 157–59 interpretation of treaty as a whole 145 Preparatory work see also Travaux préparatoires bilateral investment treaties 256–57 examples 258–61 meaning and scope 253–54 search for intention of parties 254–55 supremacy of Art 31 257–58 unequal access 258–59 Prevailing authentic texts 281 Provisional measures under Article 47 ICSID objects and purposes 180–85 subsequent practice 207–9 plurilingual treaties 276–78 arbitral decisions 302–3 State practice 331 Purposes see Objects and purposes Regional economic integration agreements African initiatives 23–25 different forms of protection agreements between regional organisations 28 bilateral treaties 26 free trade agreements between regional organisations and third/nlStates 27–28 regulation of foreign investments 26–27 treaties between regional organisations and third States 25–26 increasing importance 22–23 Research objectives 1–11

376

Index

Salini test 120, 163, 202 Scholarly writings indigenous peoples’ rights 238 interpretation of investment treaties conceptual confusions 318–20 questionable and unpersuasive references 321–22 reliance by investment tribunals 318 supplementary means 320 value to interpreters 320–21 use in arbitration importance 325 meaning and scope 322–23 need for scrutiny 325–27 use in interpretation 323–25 work of ILC 323 Silence multipartite claims 138–40 necessary filling of gaps 135–38 refusal to import terms 134–35 subsequent agreements 140 underlying difficulties 133 Sovereignty see State sovereignty Special meaning examples 242 generic terms 242–43 importance and purpose 241 reference to other terms 243 with regard to treaty provisions as a whole 243–44 reluctance of tribunals to apply 241–42 VCLT provisions 240 State sovereignty key feature of legal environment 15–16 need to strike balance 44–45 source of criticism 42 three key considerations 42–44 States adoption of authentic interpretation 337–40 consultations 335–36 drafting of treaties availability of relevant material 330–31 cross-references 333–34 deference to domestic legislation 334 documents to be included 334–35 importance of preambles 332–33 need for meticulous approach 330 non-investment rules 333 points to bear in mind 331–32 principle cause of problems 351 value of arbitration decisions 332 facilitation of correct interpretation duty to ensure correct interpretation 329 mastership of treaties 328–29 need for special adjustments 329–30 non-disputing party submissions 341–45 unilateral statements 341

Subsequent agreements interpretation and amendment distinguished fair and equitable treatment FET 197–98 non-retroactive principle 198–200 Tribunal refusal to arbitrate 199 relationship with subsequent practice 201 relevant agreements under Art 31(3)(a) absence of single instrument not fatal 194–95 expressly foreseen 190–91 informal arrangements 193 intention of parties 192–93 joint committee decisions 191 non-disputing party submissions 193–97 obligation to read into treaty 189 relevant agreements 189–89 silence 191 silence 140 ‘taking into account’ under Art 31(3) agreements based on specific provisions 187–88 all elements required 186–87 examination and respect for subsequent agreements 188–89 legally binding effect 189 Subsequent practice acquiescence 206–9 relationship with subsequent agreements 201 relevance under Art 31(3)(b) 200–206 Supplementary means to avoid absurdity 246 conclusion of treaties allocation of accompanying material 263–64 bilateral investment treaties 262–63 scope 261 WTO approach 261–62 to confirm interpretation already reached 245–46 functional threshold 253 other miscellaneous material 264–67 preparatory work bilateral investment treaties 256–57 examples 258–61 meaning and scope 253–54 search for intention of parties 254–55 supremacy of Art 31 257–58 underlying problems 255–56 unequal access 258–59 related processes 246–47 relative importance 251–52 reluctance of tribunals to apply 248–49 scholarly writings 320 underlying problems 249–50 VCLT provisions 245 when applied 247–48

Index Systemic interpretation applicable law distinguished 221–28 ‘between the parties’ 219–21 customary international law derogations 218–19 integration principle 215 evolutionary approach 215–16 exclusion of lex mercatoria 216–17 human rights 232, 236–39 integration principle 212–15 resort to other international law 211–12 ‘sufficiently comparable’ extraneous rules 217–18 VCLT provisions 210–11 Termination of treaties 53–56 Textual interpretation aids to literal interpretation a contrario arguments 125–28 expressio unius est exclusio alterius 128–33 maxims and principles 124–25 checking of literal interpretation 67 difficulties of literal interpretation 69–71 ‘directly or indirectly’ 69–71 examples 68–69 importance 65–67 meaning 64–65 mistakes and inaccuracies 67–68 need to set focus for process 79–91 not to be a mechanical search for meaning 75–79 origins 64 relevance of objects and purposes confirmation of literal interpretation 175–77 to justify departure from literal interpretation 179–85 superficial analysis 71–75 use of all sources 65 Translation choice of language 282 choice of text 282–83 examples 283–88 methodology 289–90 teleological considerations 288–89 Travaux préparatoires equally authentic texts 277 generic terms 115 identification of will of parties 59 no need to refer 6 special meaning 240 subsequent agreements and practice 207 supplementary means 247–51, 252 textual interpretation 67 ‘Umbrella clauses’ 38 UNCTAD 323 Unilateral instruments 153–56

377

Unilateral statements 341 Vague or imprecise provisions fair and equitable treatment FET 91–100 most favoured nation (MFN) treatment 100–105 Vienna Convention on the Law of Treaties (1969) general applicability 56–60 importance of agreements made by parties 150–53 importance of meticulous application of rules 346–47 interpretative value of arbitration decisions 299–300 non-investment rules 231–32 objects and purposes 157 plurilingual treaties 271 relevance of other treaties for purpose of interpretation 228 relevance of unilateral instruments 153–56 relevant agreements under Art 31(3)(a) absence of single instrument not fatal 194–95 expressly foreseen 190–91 informal arrangements 193 intention of parties 192–93 joint committee decisions 191 non-disputing party submissions 193–97 obligation to read into treaty 189 relevant agreements 189–89 silence 191 research objectives 2–11 role of context 141–42, 141–43 scholarly writings 318–20 special meaning 240 special status of foreign investors 53 subsequent practice 200–206 supplementary means 245 systemic interpretation 210–11 ‘taking into account’ of subsequent agreements agreements based on specific provisions 187–88 all elements required 186–87 examination and respect for subsequent agreements 188–89 legally binding effect 189 textual interpretation 64–65 World Trade Organisation (WTO) applicable law 221–22 conclusion of treaties 261–62 consideration of non-investment rules 232–37 forum for multilateral investment treaties 20–22 reliance on scholarly writings 318

378