State-to-state Arbitration based on International Investment Agreements: Scope, Utility and Potential [1st ed.] 9783030500344, 9783030500351

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EYIEL Monographs Studies in European and International Economic Law 10

Angshuman Hazarika

State-to-state Arbitration based on International Investment Agreements Scope, Utility and Potential

European Yearbook of International Economic Law EYIEL Monographs - Studies in European and International Economic Law Volume 10

Seires Editors Marc Bungenberg, Saarbrücken, Germany Christoph Herrmann, Passau, Germany Markus Krajewski, Erlangen, Germany Jörg Philipp Terhechte, Lüneburg, Germany Andreas R. Ziegler, Lausanne, Switzerland

EYIEL Monographs is a subseries of the European Yearbook of International Economic Law (EYIEL). It contains scholarly works in the fields of European and international economic law, in particular WTO law, international investment law, international monetary law, law of regional economic integration, external trade law of the EU and EU internal market law. The series does not include edited volumes. EYIEL Monographs are peer-reviewed by the series editors and external reviewers. More information about this subseries at http://www.springer.com/series/15744

Angshuman Hazarika

State-to-state Arbitration based on International Investment Agreements Scope, Utility and Potential

Angshuman Hazarika Saarland University Saarbrücken, Germany

ISSN 2364-8392 ISSN 2364-8406 (electronic) European Yearbook of International Economic Law ISSN 2524-6658 ISSN 2524-6666 (electronic) EYIEL Monographs - Studies in European and International Economic Law ISBN 978-3-030-50034-4 ISBN 978-3-030-50035-1 (eBook) https://doi.org/10.1007/978-3-030-50035-1 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Preface

A reform proposal for investor-state arbitration has been debated by UNCITRAL Working Group III since 2017 and many options have been considered including state-to-state arbitration. In this background, this book which was originally submitted as a Dissertation for a Doctoral Degree at Saarland University is presented to you. The topic for the work was inspired by the situation that while we had state-tostate arbitration as an option since the first bilateral investment treaty, just a handful of cases had emerged, a curious situation since the world has seen more than 900 investor-state arbitration disputes based on the same treaties. A review of background literature available at that time revealed that while scholars had undertaken a study of state-to-state arbitration based on investment agreements as an option through research papers, a comprehensive study on the scope and potential for state-to-state arbitration covering disputes which could be resolved, the hurdles which could affect its acceptance and suggestions for making it a more attractive option, could still be pursued. It was based on this foundation that the current book which discusses the scope and potential for this little-used option for dispute resolution linked to international investment agreements was written. The book is not meant to be a one-stop guide on the subject but as a textbook that could provide the preliminary information on how state-to-state arbitral proceedings could be undertaken to resolve a wide range of disputes while avoiding potential procedural hurdles that could slow down or hinder in the proceedings. This study would not have been possible without the continued support, encouragement, and guidance of Prof Dr. Marc Bungenberg LLM, Director, EuropaInstitut, who was both my first supervisor for the doctoral degree and supervisor at work during the period of this study. I am forever thankful to him for providing me with the opportunity to work as a part of his team and ensuring that I was able to complete the study within a relatively short time period and also for being available to answer my questions and for the supervision of this work even with his busy schedule. Completing my doctoral degree evaluation process and the publication of this book would not have been possible without the valuable feedback on the dissertation v

vi

Preface

through his evaluation report by Prof. Dr. Torsten Stein. The author is grateful to the Dean of Faculty of Law Saarland University, Prof. Dr. Dr. h.c. Tiziana J. Chiusi and the panel for the Oral Disputation consisting of Prof. Dr. Thomas Giegerich LLM, Prof. Dr. Annette Guckelberger, and Prof. Dr. Nikolaus Marsch, D.I.A.P. who took special effort to ensure that the evaluation process could be completed even with the exceptional background situation of the COVID-19 pandemic. I am also grateful to the series editors of EYIEL who accepted this work for publication as a part of the EYIEL monographs. At the same time, I am thankful to Springer Verlag for publishing the book, Dr. Anja Trautmann LLM for assisting in the entire publication process, and also to my dear friends and colleagues Corina Voda, Geetanjali Sharma, Kalika Mehta, Pieter Van Vaerenbergh, and Andrés Eduardo Alvarado Garzón who reviewed and proof-read the book and provided valuable feedback for improvement. My parents, my brother, and my friends in India as well as in Germany have been forever my pillar of support and I remain indebted to them. I am grateful to my colleagues at the Europa-Institut and at the Chair of Prof. Bungenberg: Anna, Fabian, Afolabi, Bjorn, Pieter, Andrés, Mareike, Jana, Michelle, and Frau Zewe and my ex-colleagues: Nicolas, Lukas, Elisabeth, Stefan, and Anna, who made me smile throughout my stay at the Chair and in Germany. Last but not least, I am thankful to Saarland University, the Europa-Institut, and everyone who has been a part of my journey as a student in Germany which has been a fascinating learning experience. Saarbrücken, Germany April 2020

Angshuman Hazarika

Contents

1

2

Investment Dispute Settlement and the Position of State-to-State Arbitration in Investment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Background to the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Scope of the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 Dispute Settlement Through Arbitration in International Investment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3.1 Origins of Investment Protection . . . . . . . . . . . . . . . . . 1.3.1.1 Investment Protection: Parties to the Debate . . 1.3.1.2 The IIAs as the Backbone of the Current Investment Protection Framework . . . . . . . . . 1.3.2 Dispute Settlement Through Arbitration . . . . . . . . . . . . 1.3.2.1 History of Arbitration in International Dispute Settlement Among States . . . . . . . . . . . . . . . 1.3.2.2 History of Arbitration in IIAs . . . . . . . . . . . . 1.3.2.3 Recent Developments on the Adoption and Signing of IIAs . . . . . . . . . . . . . . . . . . . 1.4 State-to-State Arbitration as a Means of Dispute Settlement Under IIAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4.1 Origins of State-to-State Arbitration in IIAs . . . . . . . . . 1.4.2 State-to-State Arbitration Provisions in Major Model BITs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4.3 State-to-State Arbitration Under Trade and Investment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4.4 State-to-State Arbitration in Energy Charter Treaty . . . . 1.5 Interim Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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1 1 5

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7 8 9

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10 13

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14 17

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18

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19 19

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22

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22 23 23

Framework for State-to-State Arbitration Under the Compromissory Clause in an IIA . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Understanding the Scope of the Powers from the Text of the Treaty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25 25 vii

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2.1.1

2.2

2.3 3

The Requirement of the Existence of a Dispute Between the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1.2 Coverage: ‘Interpretation or Application of This Treaty’ . . . The Functioning of the State-to-State Arbitration Process . . . . . . 2.2.1 Arbitrability as a Key Feature for Arbitration . . . . . . . . . 2.2.2 Principles Related to Jurisdiction of an Arbitral Tribunal . . 2.2.2.1 Separability of the Arbitration Clause . . . . . . . 2.2.2.2 Competence-Competence Principle . . . . . . . . . 2.2.2.3 Challenges to the Jurisdiction of the Tribunal . . 2.2.3 Mutual Consent of State Parties for Arbitration . . . . . . . 2.2.4 Admissibility as a Key Issue for State-to-State Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.5 Additional Key Principles Required To Be Fulfilled . . . . 2.2.5.1 Need for the Exhaustion of Other Remedies Before Acceptance of Disputes by the Tribunal . . . . . . . . . . . . . . . . . . . . . . . . 2.2.5.2 Bar on State-to-State Arbitration and Fork in the Road Clauses for State-to-State Arbitration . . . . . . . . . . . . . . . . . 2.2.6 Applicable Law and Rules for State-to-State Arbitration Under IIAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.6.1 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . 2.2.6.2 Applicable Rules . . . . . . . . . . . . . . . . . . . . . . 2.2.7 Exclusion of Disputes on Certain Subjects from the SSAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.8 Remedies Which Can Be Sought from an SSAT . . . . . . Interim Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Utilisation of State-to-State Arbitration Based on the Compromissory Clause in Practice . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Arbitration as a Means for Treaty Interpretation . . . . . . . . . . . . 3.3 Interpretations by an SSAT . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.1 Claims for Interpretation of the Treaty on Abstract Questions (Purely Interpretative Questions) . . . . . . . . . . 3.3.2 Claims for Interpretation of the Treaty Based on Existing Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 Future Possibilities for Use of Interpretative Powers of an SSAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4.1 Interpretation of an IIA and Determining Coverage of an Investment (Preliminary Ruling and Advanced Ruling Procedures) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4.1.1 Through a Preliminary Ruling Procedure for Existing Disputes . . . . . . . . . . . . . . . . . . . . . .

25 33 35 35 36 37 38 39 39 41 41

42

47 48 49 52 54 55 58 59 59 60 63 63 67 70

71 71

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3.4.1.2

3.5

3.6 3.7 3.8 3.9

3.10

Through an Advanced Ruling Procedure for Investments Yet To Be Made . . . . . . . . . . . . . 3.4.1.3 Comparing the Two Methods . . . . . . . . . . . . . 3.4.1.4 Distinguishing the Preliminary Ruling and Advanced Ruling Procedure . . . . . . . . . . . . . . 3.4.2 Harmonised Interpretation of Multi-Party Investment Treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4.3 Treaty Overlap as a Concern for Interpretation and Use of Harmonised Interpretation for Overlapping IIAs . . . . . 3.4.4 Unwanted Consequence: Maffezini Decision and the Possibility to Use of Interpretations of SSAT Interpretations of Other IIAs by Investor-State Arbitral Tribunals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Arbitration for Deciding Disputes on the Application of the Treaty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5.1 Direct Claims from a State for the Protection of Its Own Rights Under a Treaty . . . . . . . . . . . . . . . . . . . . . . . . . 3.5.2 A Diplomatic Protection Claim Espousing the Claim of Its Nationals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5.3 When the Respondent State in an Investor-State Arbitration Fails to Honour an Award of an ISAT Under an IIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5.4 Declaratory Claims for Determination of Compliance with Its Obligations Under an IIA by the Host State . . . . 3.5.5 Declaratory Claims of Non-breach or Limited Breach by a Host State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Possibility of Mixed Claims on Interpretation and Application of a Treaty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Disputes on Violation of Failure to Comply with Obligations to Consult in Good Faith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Disputes Which May Be Resolved Through State-to-State Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Enhanced Role of State-to-State Arbitration in the Future Based on Disputes Related to the Application of the Treaty or Through Mixed Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9.1 Use of State-to-State Arbitration by States to Pursue Claims on Behalf of Investors in ‘Mass Claims’ . . . . . . . 3.9.2 Other Disputes Under the Compromissory Clause . . . . . 3.9.2.1 SSAT as a Means of Pursuing Human Rights and Environmental Claims . . . . . . . . . . . . . . . 3.9.2.2 Situations Not Covered by the Jurisdiction of an ISAT . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9.2.3 Claims on Behalf of a State-Owned Enterprise . . Interim Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

76 78 79 79 83

85 87 87 89

95 96 97 98 100 103

105 105 107 108 108 110 110

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Contents

Resolution of Procedural Hurdles in Utilising State-to-State Arbitration Under IIAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 The Issue of the ‘Binding’ Nature of Decisions of an SSAT and Its Effect on a Future ISAT . . . . . . . . . . . . . . . . . . . . . . . . 4.2.1 The Current Debate on the Status of SSAT Interpretative Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.1.1 Rejection of SSAT Awards as Subsequent Agreement or Source of Subsequent Practice . . 4.2.1.2 SSAT Awards as Authoritative Interpretations Binding on Future ISATs . . . . . . . . . . . . . . . . 4.2.2 First Solution Option: Acceptance of SSAT Awards as Authoritative Interpretations and Their Acceptance as Soft Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.3 Second Solution Option: Amendment of IIAs as a Path to Provide an Explicit Binding Effect of SSAT Awards on Future ISATs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.4 Third Solution Option: Use of Interpretations from SSATs as Precedents or Jurisprudence Constante . . . . . 4.2.4.1 Hurdles in Use of Precedents in Investment Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.4.2 Countering the Arguments Against the Use of Precedents . . . . . . . . . . . . . . . . . . . . . . 4.2.4.3 The Likely Path Forward . . . . . . . . . . . . . . . . 4.3 A Lack of Provisions in IIAs for Enforcement of SSAT Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.1 Background to the Current Situation . . . . . . . . . . . . . . . 4.3.2 Ensuring the Enforcement of SSAT Awards . . . . . . . . . . 4.3.2.1 Negotiated Settlements and Compensation . . . . 4.3.2.2 Suspension of Concessions and Membership Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.2.3 Enforcement Through Judicial Channels . . . . . 4.3.3 Insight into Possible State Practice for the Implementation of SSAT Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 Legal Challenges to the Decision of an SSAT . . . . . . . . . . . . . . 4.4.1 A Challenge to a Decision Under International Law . . . . 4.4.2 A Challenge to a Decision Under Domestic Law . . . . . . 4.4.3 Preventing Referral of SSAT Awards to ICJ to Impede Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 Parallel Proceedings: State-to-State Arbitration and Other Modes of Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5.1 Investor-State Arbitration and State-to-State Arbitration . 4.5.1.1 Ongoing Cases and Parallel Proceedings of an SSAT and ISAT . . . . . . . . . . . . . . . . . . . . . . .

111 111 112 113 114 115

118

119 121 124 126 127 128 129 130 130 131 132 134 135 135 138 139 140 141 142

Contents

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4.5.1.2

4.6 5

When Decisions Have Already Been Made by an ISAT . . . . . . . . . . . . . . . . . . . . . . . . . 4.5.1.3 Effect on Future ISAT Cases After a Decision Has Been Made by an SSAT . . . . . . . . . . . . . 4.5.2 State-to-State Arbitration and a Court Proceeding . . . . . 4.5.3 Resolving the Conflicts Arising from Parallel Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5.3.1 Lis Pendens and Res Judicata . . . . . . . . . . . . 4.5.3.2 Provisions for Parallel Proceedings Inspired from Other IIAs . . . . . . . . . . . . . . . . . . . . . . 4.5.3.3 Provisions for Parallel Proceedings of Courts and Joint Interpretative Committees . . . . . . . . 4.5.3.4 Good Faith and Abuse of Process as Grounds for Rejection of Claims . . . . . . . . . . . . . . . . . 4.5.3.5 Provision of Claims Against Violation of Obligations Under the Treaty . . . . . . . . . . . . Interim Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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149

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152 154

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155 156

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158

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161

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162

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164 164

Coexistence of State-to-State Arbitration Under IIAs with Other Forums of Dispute Resolution and Treaty Interpretation . . . . . . . . 5.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 Co-existence of State-to-State Arbitration in IIAs and Other International Forums for Resolution of Investment Disputes . . . . 5.2.1 State-to-State Arbitration and the New Multilateral Investment Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.2 State-to-State Arbitration and the Appellate Body for Investment Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.3 State-to-State Arbitration and the CJEU . . . . . . . . . . . . . 5.2.3.1 Existing Situation . . . . . . . . . . . . . . . . . . . . . . 5.2.3.2 Outlook for the Future . . . . . . . . . . . . . . . . . . 5.2.4 State-to-State Arbitration and the ICJ . . . . . . . . . . . . . . . 5.2.5 State-to-State Arbitration and Other Regional Courts . . . 5.2.6 State-to-State Arbitration and the WTO . . . . . . . . . . . . . 5.3 Alternate Modes of Treaty Interpretation and Overlap with State-to-State Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.1 Unilateral Declaration of Interpretation by the States . . . 5.3.2 Interpretation of Treaties Through Investor-State Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.3 Interpretation by Treaty Bodies Formed by State Parties or Joint Interpretative Agreements and Its Relationship with State-to-State Arbitration and Investor-State Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 Interim Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

167 167 167 168 170 172 172 175 177 180 181 181 181 183

184 189

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6

7

Contents

Additional Suggestions for Developing State-to-State Arbitration as an Effective Means of Dispute Resolution . . . . . . . . . . . . . . . . . . 6.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 Resolving Hurdles for Diplomatic Protection Claims . . . . . . . . . 6.3 Clarification on Abstract Interpretation Awards by IIAs and Their Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 Inclusion of Provisions for Time-Bound Resolution of Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 Clarification on Admissibility Requirements for Completion of Pre-arbitration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6 Framing Clear Procedural Rules and Guidelines for State-to-State Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7 Interim Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Court of Justice of the European Union . . . . . . . . . . . . . . . . . . . . . . Permanent Court of International Justice . . . . . . . . . . . . . . . . . . . . . . International Court of Justice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Domestic Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investor-State Arbitration Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . WTO Panel and Appellate Body Reports . . . . . . . . . . . . . . . . . . . . . State-to-State Arbitrations Based on IIAs . . . . . . . . . . . . . . . . . . . . . Other International Courts and Tribunals . . . . . . . . . . . . . . . . . . . . . Arbitral Awards for State-to-State Arbitrations . . . . . . . . . . . . . . . . .

191 191 193 194 195 195 196 197 199

. . . . . . . . . .

203 203 203 204 205 205 207 207 207 207

Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Model BITs, IIAs (Trade/Investment Agreements) and FCN Treaties . . Other Agreements, Conventions, Statutes and Draft or Model Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

209 209

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

231

225

Abbreviations

AANZFTA Art. ASEAN AUSFTA BIPA BIT BIA BLEU CAFTA-DR CARIFORUM CEPA CETA CFIA CIS CJEU COMESA CPTPP DSB DSU ECJ ECT ECtHR ed./eds. EFTA e.g. EPA EU FCN

ASEAN–Australia–New Zealand Free Trade Area Article Association of Southeast Asian Nations Australia–United States Free Trade Agreement, 2005 Bilateral Investment Promotion and Protection Agreement Bilateral investment treaty Bilateral investment agreement Belgium–Luxembourg Economic Union Central American Free Trade Agreement-Dominican Republic The Forum of the Caribbean Group of African, Caribbean and Pacific (ACP) States Comprehensive Economic Partnership Agreement Comprehensive Economic and Trade Agreement Cooperation and Facilitation Investment Agreement Commonwealth of Independent States Court of Justice of the European Union Common Market for Eastern and Southern Africa Comprehensive and Progressive Agreement for TransPacific Partnership Dispute Settlement Body Dispute Settlement Understanding European Court of Justice Energy Charter Treaty European Court of Human Rights Editor/editors European Free Trade Association exempli gratia (for example) Economic partnership agreement European Union Friendship, commerce, and navigation xiii

xiv

FDI FET FTA FTC i.e. ICFA ICJ ICSID ICSID Convention ICSID AF ICFA ICFT IIA IPA ISAT ISDS ITLOS IUSCT LCIA MAI MFN MIA MIC New York Convention NT OECD PCA PCIJ PTA REIO RIAA SADC SCC SME SSAT SSDS TEC TIA TFEU TPP

Abbreviations

Foreign direct investment Fair and equitable treatment Free trade agreement Free Trade Commission id est (that is) Investment Cooperation and Facilitation Agreement International Court of Justice International Centre for Settlement of Investment Disputes Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 1965 ICSID Additional Facility Arbitration Rules Investment Cooperation and Facilitation Agreement Investment Cooperation and Facilitation Treaty International investment agreement Investment protection agreement Investor-state arbitration tribunal Investor-state dispute settlement International Tribunal for the Law of the Sea Iran–United States Claims Tribunal London Court of International Arbitration Multilateral Agreement on Investment Most favoured nation Multilateral investment agreement Multilateral Investment Court Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 National treatment Organisation for Economic Co-operation and Development Permanent Court of Arbitration Permanent Court of International Justice Preferential trade agreement Regional Economic Integration Organization Reports of International Arbitral Awards Southern African Development Community Stockholm Chamber of Commerce Small and medium-sized enterprises State-to-state arbitration tribunal State-to-state dispute settlement Treaty establishing the European Community Trade and investment agreement Treaty on the Functioning of the European Union Trans-Pacific Partnership

Abbreviations

UAE UN UNCITRAL UNCTAD USA UK UNTS VCLT WTO

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United Arab Emirates United Nations United Nations Commission on International Trade Law United Nations Conference on Trade and Development United States of America United Kingdom United Nations Treaty Series Vienna Convention on the Law of Treaties World Trade Organization

Chapter 1

Investment Dispute Settlement and the Position of State-to-State Arbitration in Investment Law

1.1

Background to the Study

Investor-state arbitration has emerged as the ‘most prominent’ method for the resolution of investment disputes.1 Investor-state dispute settlement (ISDS) however makes governments wary2 and investor-state arbitral tribunals (ISAT(s)) have been the subject of public opposition in several countries across the European Union (EU),3 with a legislator even remarking that ‘ISDS as we know it is dead’.4 The discussion and backlash against investor-state arbitration and bilateral investment treaties (BITs) have been fuelled primarily by the unexpected and in many cases ‘overly broad’ interpretation of the rights provided under the investment treaties and jurisdiction by the investor-state arbitral tribunals.5 The problem is aggravated and a feeling of distrust in the system has been created by the interpretation of the same treaty provision in a divergent manner by different investor-state arbitration tribunals.6 A key reason for this divergence in interpretations has been stated to be the lack of guidance on the intention of the state parties while signing the treaty.7

1

Chi (2013), p. 27; Pyka (2016), p. 81. Statement at High Level IIA Conference by Joint Secretary, Department of Economic Affairs, India, 19 July, 2016, https://worldinvestmentforum.unctad.org/wp-content/uploads/2016/07/WIF2016-Statement-India-.pdf (Accessed 24 Mar 2020); Kelsey (2015), p. 333 et seqq.; Roberts (2018), p. 410; Moul (2015), p. 889 et seqq. 3 Chase (2015), p. 218; Kulick (2015), p. 443. See also, European Parliament, Question for written answer E-011275/12, OJ C 321/E, 7.11.2013, p. 202. 4 Vincenti (2015). 5 Clodfelter (2014), p. 188. 6 Franck and Wylie (2015), p. 474 et seqq.; Clodfelter (2014), p. 188. 7 Clodfelter (2014), p. 188. 2

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 A. Hazarika, State-to-state Arbitration based on International Investment Agreements, European Yearbook of International Economic Law 10, https://doi.org/10.1007/978-3-030-50035-1_1

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1 Investment Dispute Settlement and the Position of State-to-State Arbitration in. . .

Globally, a wave of discontentment is being witnessed against the investor-state arbitration mechanism.8 A renewed discussion on the viability of the International Centre for Settlement of Investment Disputes (ICSID) arbitration has been seen in many South American countries including Argentina, Venezuela, Ecuador and Nicaragua which have seen investment arbitration claims against them. The growing number of NAFTA cases has raised concerns in the USA and Canada and the US-South Korea FTA has been put under intense scrutiny owing to this situation.9 USA has severely restricted the possibility for investor-state arbitration in the new USMCA and Canada has withdrawn from investor-state arbitration in the same agreement.10 In addition to resistance by host states against enforcement of ISDS awards,11 investor-state arbitration faces murmurs of legitimacy issues12 which inter alia are: 1. inconsistent decisions of arbitral tribunals which is contrary to the aim of a stable legal environment,13 2. transparency issues,14 3. investment arbitration decisions as posing a hindrance to national sovereignty and the states’ ‘right to regulate’,15 4. non-consideration of variables such as national security interests in investment treaties and decisions,16 5. bias against developing countries as respondents,17 6. a general inference that ‘investment treaty arbitration is used against developing states’,18 and 7. questions on independence and impartiality of arbitrators.19 States have reacted in varied ways and, inter alia it led to the withdrawal of Bolivia, Ecuador, and Venezuela from ICSID,20 unilateral termination of a large 8

UNCITRAL Working Group III (2017a), p. 5 et seqq. Huiping (2008), p. 470. 10 Art. 14.2(4) USMCA. 11 Posner and Walter (2015), p. 381. 12 European Commission (2017b), p. 11 et seqq.; See also, Franck and Wylie (2015), p. 462 et seqq.; Kelsey (2015), p. 329. For a discussion on the issues in detail, see also, Advisory Council on International Affairs (2015), p. 25 et seqq. 13 Gaukrodger (2016b), p. 6; Chi (2013), p. 27; Gazzini (2018), p. 249; Osmanski (2018), p. 662; Howard (2017), p. 27 et seq.; Bottini (2015), p. 466 et seq.; Lazo (2010), p. 593. 14 Osmanski (2018), p. 658; Choudhury (2008), p. 786; Fiezzoni (2011), p. 136. 15 Chi (2013), p. 27; Lubambo (2016), p. 226; Gazzini (2018), p. 249; Muchlinski (2013), p. 437. 16 Gazzini (2018), p. 249; Behn (2015), p. 367. 17 Nunnenkamp (2017), p. 13; Behn (2015), p. 406; For a contrary view see, Franck (2014), p. 60 et seqq. 18 Behn (2015), p. 411. 19 Bottini (2015), p. 469; Choudhury (2008), p. 787; Muchlinski (2013), p. 432; Fiezzoni (2011), p. 135 et seqq. For a contrary view, See, Hufbauer (2016), p. 203 et seqq. 20 Boyrasky (2015), p. 34. 9

1.1 Background to the Study

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number of BITs by India21 and the voluntary withdrawal from investor-state arbitration by New Zealand and Australia while deciding on the scope of the new Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).22 Australia had decided to remove investor-state arbitration clauses from future BITs in 2011,23 but as of now has indicated that it will selectively permit investor-state arbitration based on a treaty-by-treaty approach.24 A similar approach has been taken by Brunei and New Zealand for the CPTPP where they have chosen to withdraw the prior consent for ISDS for their investors in each other’s territory except when separately provided later in a dispute in specific circumstances.25 Another interesting reaction was recently seen when on 8 February 2016, the Indian Government issued a Joint Interpretative Statement (Consolidated Interpretative Statements) for BITs with 25 countries clarifying the interpretation of several terms including ‘investor’, ‘denial of benefits clause’, ‘investment’, ‘exclusion of taxation measures’, ‘fair and equitable treatment’, ‘umbrella clauses’ and ‘investorstate dispute settlement’.26 The criticism of the existing ISDS mechanism has also led to the emergence of new models of IIAs27 which include India’s new model BIT and Brazil’s Cooperation and Facilitation Investment Agreement (CFIAs), with alternative modes of dispute resolution including ombudsman, state-to-state arbitration and dispute prevention procedures.28 Such agreements have already been concluded with Angola,

21 The official list of more than 50 BITs terminated by India in the last few years is available at https://dea.gov.in/bipa (Accessed 24 Mar 2020). 22 For the letter exchange between Australia and New Zealand withdrawing from CPTPP ISDS, See, https://www.mfat.govt.nz/assets/CPTPP/New-Zealand-Australia-ISDS-Trade-Remedies-and-Rela tionship-with-Other-Agreements.pdf (Accessed 24 Mar 2020). For a discussion on nature of withdrawals from and termination of BITs, see, Peinhardt and Welhausen (2016). 23 Chi (2013), p. 27; Trakman (2013), p. 345. 24 Trakman and Musayelyan (2016), p. 196. 25 For the letter exchange between Brunei and New Zealand withdrawing from CPTPP ISDS, See, https://www.mfat.govt.nz/assets/CPTPP/New-Zealand-Brunei-ISDS.pdf (Accessed 24 Mar 2020). 26 Office Memorandum, F. No. 26/07/2013-IC, Joint Interpretative Statement, Government of India, 8 February, 2016. 27 Throughout this book, the term International Investment Agreement(s) (IIA(s)) is used to refer to Bilateral Investment Treaties (BITs), Trade and Investment Agreements (TIAs), Free Trade Agreements with chapters on investment, Cooperation and Investment Facilitation Agreements (CIFAs), Economic Partnership Agreement (EPA), Comprehensive Economic Partnership Agreement (CEPAs), Customs Union Agreements with chapters on Investment protection and other forms of agreements conducted by two states, or by a state and a Regional Economic Integration Organization (REIO), or by two REIOs, to protect investments made by their nationals in the territory of the other country or REIO. The term IIA does not include Multilateral Investment Agreements and Friendship, Commerce and Navigation (FCN) Treaties unless specifically mentioned. The definition used here is similar to the definition of an ‘investment treaty’ provided under Art. 1(2) of the Mauritius Convention, 2014 except for the exclusion of multilateral agreements. 28 Rolland (2017), p. 396 et seqq.; Vidigal and Stevens (2018), p. 487 et seqq.; Brauch (2015), p. 16.

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1 Investment Dispute Settlement and the Position of State-to-State Arbitration in. . .

Chile, Colombia, Malawi, Mexico, Mozambique,29 and India.30 Further, Australia also concluded FTAs with the USA and Malaysia and a protocol on Investment with New Zealand with no investor-state arbitration provisions for investment disputes.31 The AUSFTA, 2004 is considered to be one of the new ventures on the path towards a complete change in the ISDS mechanism. The AUSFTA completely abolishes ISDS and Art. 11.16 AUSFTA only calls for consultations between the states to resolve the dispute with the possibility to develop procedures in the future.32 Last, but not the least, the EU has also declared that it will depart from ISDS based on ad hoc arbitration.33 The aforementioned developments indicate that there has been a global rethink on the continued dependence on investor-state arbitration and the possible alternatives available to the system, which have been discussed across multiple forums.34 Among the proposals for reform include a change in the appointment process for arbitrators, creation of a system of binding precedents and even the creation of a new permanent or stand-alone body for appeals or a new international court system like the Multilateral Investment Court (MIC).35 All these proposed ideas would, however, require wide-spread procedural reforms, which might involve modification of IIAs and treaties.36 Considering the need for a balance between the need for reforms and decreasing the requirement for a radical overhaul, it is proposed to evaluate the alternative of state-to-state arbitration which is already possible within the compromissory clause of current IIAs. A compromissory clause is defined as “a clause in a treaty providing for the submission of a matter or matters to arbitration—to be distinguished from a general treaty of arbitration”.37 Through these clauses, “jurisdiction is granted to an international tribunal over disputes between the parties concerning the interpretation or application of the treaty”.38 The option, for state-to-state arbitration has been in existence for quite some time, but has rarely been used, has now received fresh attention and was also discussed as a possible alternative in the UNCITRAL Working Group III meetings on reform of the ISDS system.39 The idea has however not gathered enough support and experts 29

Vidigal and Stevens (2018), p. 486. Ministry of Foreign Affairs, Brazil. Brazil and India sign Investment Cooperation and Facilitation Agreement. http://www.itamaraty.gov.br/en/press-releases/21268-brazil-and-india-sign-invest ment-cooperation-and-facilitation-agreement (Accessed 24 Mar 2020). 31 Trakman and Musayelyan (2016), p. 200. See also, Protocol-NZ-Australia CERTA; MAFTA. 32 Art. 11.16, AUSFTA, 2004; Huiping (2008), p. 480; See also, Muchlinski (2013), p. 437. 33 European Commission (2018). 34 UNCITRAL Working Group III (2017a), p. 5 et seqq.; Muchlinski (2013), p. 412 et seqq.; Reiner (2013), p. 453; High Level Committee (2017), p. 113. 35 UNCITRAL Working Group III (2018), p. 7 et seqq. 36 UNCITRAL Working Group III (2017b), p. 14 et seq. 37 Grant and Barker (2009), p. 114. 38 Akande (2012); See also, Tanaka (2018), p. 144. 39 Bernasconi-Osterwalder (2016), p. 254; Roberts (2018), p. 412; Bronckers (2015), p. 659; Johnson and Sachs (2016), p. 13; Menon and Issac (2018). 30

1.2 Scope of the Study

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opposed to state-to-state arbitration point to the fate of the EU and its member states’ bilateral trade and investment agreements, which over the years have not seen any state-to-state claim, barring the exceptional ELSI (Italy v. USA)40 dispute in the ICJ based on an old FCN treaty, and a recent request for arbitration by the EU.41 This should however not undermine the fact that states have shown continued reliance on state-to-state arbitration to decide disputes on trade and investment issues including in the WTO where it is one of the possible modes for dispute resolution (Art. 25 DSU).42 The main ground for the decline of state-to-state arbitration, the sole mode of dispute resolution in the first BITs, is that governments initially feared that raising claims on behalf of investors might destabilise relations between the governments themselves.43 In these situations, investor-state arbitration was prescribed as a way to avoid conflicts between states itself by providing the ‘right to correct treaty breaches’ to the investor.44 Consequently, state-to-state dispute settlement has been suggested as a measure of ‘last resort’ in case investor-state arbitration fails and there is a lack of cooperation from the host state, which prevents enforcement of the award.45 This, however, does not undermine the fact that state-to-state arbitration can emerge as an alternative to investor-state arbitration in future agreements or even coexist with it.46

1.2

Scope of the Study

Dispute resolution mechanisms in IIAs are generally limited to negotiation/consultation and arbitration clauses out of which the ISDS clause acquires primary importance as the preferred means of dispute settlement. Several solutions have been proposed to deal with the discontent related to investor-state arbitration, among which some of the most discussed are the adoption of a ‘preliminary rulings system’,47 a greater role for state-to-state engagement in investment dispute

40

ICJ, Elettronica Sicula S.P.A. (ELSI), Judgment, I.C.J. Reports 1989, p. 15. The EU on 20 June, 2019 requested the establishment of an arbitral panel based on the EU-Ukraine Association Agreement, 2014 to deal with an interstate trade dispute between the two parties. Note Verbale, European Union, 20/06/2019. https://trade.ec.europa.eu/doclib/docs/ 2019/june/tradoc_157943.pdf (Accessed 24 Mar 2020). 42 Johnson and Sachs (2016), p. 13. 43 Editorial (2014), p. 966; Chase (2015), p. 221. 44 Shenkman and File (2007), p. 2. 45 Potesta (2013), p. 766; See also, Vandevelde (1992), p. 556. 46 Hindelang (2014), p. 51; Singh and Sharma (2013), p. 101; Titi (2015), p. 287; Wisner and Campbell (2018), p. 17 et seqq. For a conflicting view stating investor-state arbitration has no substitutes, see, Schreuer (2015), p. 888 et seq. 47 Schreuer (2008). 41

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resolution at various stages48 and even a reversal to state pursuit of claims in certain cases.49 An alternative means of dispute settlement present in most IIAs is the compromissory clause which generally includes a possibility of recourse to stateto-state arbitration.50 Actual research on the possibility of using this clause has been limited and there have been a very small number of disputes based on this clause.51 This study targets to be an exploratory guide on the possibilities of state-to-state arbitration under IIAs, and push forward legal research on this option which although available, has not been considered by most states. The present work seeks to look into the possibilities for use of the compromissory clause in the IIAs to resolve a few primary problems which have undermined the support for bilateral and multilateral investment agreements, namely, lack of a uniform interpretation of the provisions of the treaties and a growth of fear on the possibility of misuse of the treaties against the public interest in the absence of state control over their interpretation. If state-to-state arbitration based on IIAs could resolve these issues, then it would minimise the need for radical amendment or replacement of IIAs, since stateto-state arbitration is already possible under most IIAs. Methodology for the Study During this study, the text of close to 200 IIAs was evaluated to identify the different types of compromissory clauses and the issues, which may be covered under them. FTAs with chapters or parts on investment protection have also been included under the scope of the study to cover a wider range of agreements that deal with investment issues since over the years there has been a tendency to include investment chapters in trade agreements.52 In addition to the IIAs and other international treaties, existing academic works dealing inter alia with trade and investment agreements, international arbitration, the law of treaties, diplomatic protection claims, international tribunals and any ancillary issues related to investment agreements and investment protection have been used in this book. Based on the evaluation of the sources mentioned above, this book discusses the possibility for use of the state-to-state arbitration to resolve different types of disputes, the procedural hurdles in utilising the state-to-state arbitration, and the 48

Posner and Walter (2015), p. 381 et seqq. UNCTAD (2003b), p. 4; Posner and Walter (2015), p. 391. 50 Potesta (2015), p. 250; Gallo and Nicola (2015–2016), p. 1137. 51 There are three known disputes based on this clause from BITs and one known dispute on investment issues based on NAFTA Art. 2008. The disputes from BITs which have been mentioned in different parts of this book are: (a) PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Award, 29 September, 2012; (b) Ad-hoc Panel, Italy v. Cuba, Preliminary Award, 15 March, 2006, Final Award, 15 January, 2008 (c) Peru v. Chile, known indirectly owing to its mention in ICSID, Case No. ARB/03/4, Empresas Lucchetti, S.A. and Lucchetti Peru, S.A. v. The Republic of Peru, Award, 7 February, 2005. The NAFTA dispute used in this book is: USA v. Mexico, Cross-Border Trucking Services, Secretariat File No. USA-MEX-98-2008-01, February 6, 2001. 52 Usynin and Gáspár-Szilágyi (2018), p. 288. 49

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limitations imposed by the text of the IIAs on the use of state-to-state arbitration. The book also evaluates the possibility of expanding the use of state-to-state arbitration based on the compromissory clause as a means of ensuring that the investment treaties remain relevant while keeping in consideration the concerns of all the relevant stakeholders. It also looks into the possibility of using state-to-state arbitration as a means for pursuing investor claims by states. Concisely, the current study aims to provide an understanding of the possibilities of using state-to-state arbitration based on the compromissory clause in IIAs to resolve problems with the existing investment dispute resolution system. In other words, it seeks to shed light on the compromissory clause and its inherent possibilities which have been rarely utilised as on the date of this study due to reasons such as the popularity of investor-state arbitration and fear of politicisation of disputes.53 It also evaluates hurdles that might hinder the use of the state-to-state dispute resolution option and prescribe possible solutions to resolve them. Last but not the least, with an eye to the future, it discusses how state-to-state arbitration based on the compromissory clause in IIAs can serve new and specialised functions in the coming years.

1.3

Dispute Settlement Through Arbitration in International Investment Agreements

Treaties have been concluded by governments for centuries as a way of promoting peaceful relations among the countries and the current era of IIAs, primarily as BITs for the protection of investors is no exception.54 The history of IIAs has been shaped by several factors including the law on international corporations, the varying opinions on the role of the state and the principle of state sovereignty in general.55 Arbitration under the IIAs has played a key role as a ‘recognised mechanism’ for the resolution of investment disputes across the world.56 In fact, the effectiveness of ISDS based on arbitration has been considered as the main attraction for investors who rely on the IIAs.57 The following section sheds light on the evolution of investment protection through IIAs with arbitration as a key part of the dispute resolution process.

53 Gazzini (2018), p. 255; Posner and Walter (2015), p. 381 et seqq.; Lubambo (2016), p. 227; Gaukrodger (2016b), p. 6; UNCTAD (2003b), p. 3. 54 Chase (2015), p. 219; See also, Vandevelde (2005), p. 158 et seqq. 55 Jacob (2014). 56 Lubambo (2016), p. 225. 57 Bungenberg et al. (2011), p. 2.

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1.3.1

1 Investment Dispute Settlement and the Position of State-to-State Arbitration in. . .

Origins of Investment Protection

The history of investment protection is quite long but the modern IIAs dealing with the subject originated in the late 1950s.58 Prior to this period, the discussions were dominated by the protection of property rather than investment.59 The exact meaning and scope of the term investment is debated among scholars60 and varied definitions have been put forward to describe it. A definition that possibly covers the various aspects is—“investment is an act of devoting time, effort, or energy to a particular undertaking with the expectation of a worthwhile result. Financially, it is injection of money into an asset/enterprise, with the expectation of an appreciation, dividend, return or interest on the same.”61 The IIAs and different arbitral tribunals have formed their own definitions and standards.62 The main issues which encouraged investors to move forward with foreign investment are: seeking new markets (the desire of the companies to find new buyers for their products), adjustment for the best production costs (cost of production may be lower in a third country), aim to find new strategic assets (strategic assets can mean new technologies, distribution networks or partnerships) and search for greater efficiencies (reorganisation of company structures to deal with structural and economic changes).63 It has been further expressed that the three factors based on which the viability of a foreign investment is judged are: income-yield, the safety of principal, and marketability.64 The importance of foreign investment has been further underlined as playing an important role in the development of countries.65 With the growth of foreign investment, the subject of regulation of foreign investment including that of expropriation came to fore and considering the global debate on this issue, it was rightly asserted that: “[a] part from the use of force, no subject of international law seems to have aroused as much debate – and often strong feelings – as the question of the standard for payment of compensation when foreign property is expropriated.”66 Considering the importance of investments in development, the concepts of agreements for the protection of investments came into being and the protection of investments through IIAs was made possible by way of agreements between the governments of countries to regulate the relationships

58

Lester (2013), p. 2. Vandevelde (2009b), p. 4. 60 Aksen (1978), p. 236; Levy (2015), p. 62 et seq. 61 Agarwal (2016), p. 176. 62 Definitions of investment have been framed inter alia in ICSID, Case No. ARB/00/4, Salini Costruttori SpA and another v. Kingdom of Morocco, Decision on Jurisdiction, 23 July 2001, 42 ILM 609 (2003) 622; ICSID, Case No. ARB/05/22, Biwater Gauff (Tanzania) Ltd v. United Republic of Tanzania, Award, 24 July 2008, para 310 et seqq. 63 Agarwal (2016), p. 176. 64 Kemmerer (1916), p. 1. 65 OECD (2002), p. 5; Lougani and Razin (2001). 66 Schacter (1984), p. 121 quoted in Allee (2010), p. 1. See also, Shan (2005), p. 177. 59

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between investors and host states.67 They are agreements entered into by governments to facilitate investments by investors of those countries68 through encouragement and protection of foreign investments.69 IIAs ‘establish binding rules on investment protections’70 and lay down obligations of the host states towards foreign investors on a wide range of issues such as admission, establishment, operation and access to dispute resolution mechanisms,71 and can be concluded between two states (BITs) or between multiple states (multilateral investment agreements (MIAs)).72 In recent times, these treaties have also been frequently merged with trade agreements to form mixed agreements or trade and investment agreements.73 By signing such agreements, host states make a broad commitment to providing fair treatment to the foreign investor based on principles of international law and certain standards enshrined in the treaties.74 The entire mechanism for protection of investments is covered under the broad discipline of ‘international investment law’ which covers issues such as investment protection, standards of treatment in host states and dispute resolution.75

1.3.1.1

Investment Protection: Parties to the Debate

The investment protection mechanism before the era of modern IIAs was based primarily on customary international law and provided a relatively weaker degree of protection.76 Foreign investment law was mostly considered as a branch of the law related to state responsibility for the protection of aliens.77 The home state of a foreign investor and not the investor himself was the party that could use international forums to seek the protection of the investments.78 The historical parties to disputes in international investment law have traditionally been considered as states.79 Individuals and legal persons were not considered as ‘legal actors’ and it was believed that they are required to approach their governments to move before an international tribunal for the resolution of their grievances and diplomatic protection

67

Dixon and Haslam (2016), p. 1080; Dumberry (2010), p. 679; See also, Bockstiegel (1986), p. 30. Inbavijayan and Jayakumar (2013), p. 34. 69 Khanna and Singh (2015), p. 41. 70 Weiss et al. (2015), p. 4. 71 Dixon and Haslam (2016), p. 1080; Pfaffermayr and Egger (2004), p. 709. 72 Khanna and Singh (2015), p. 41 et seq.; Naon (2000), p. 64 et seq. 73 Lazo (2010), p. 592. 74 Moul (2015), p. 886. 75 Qureshi and Ziegler (2011), p. 490. 76 DiMascio and Pauwelyn (2008), p. 52; Bubb and Rose-Ackerman (2007), p. 293. 77 Doe (2016), p. 3; Bubb and Rose-Ackerman (2007), p. 293; Alford (2000), p. 162. 78 Bubb and Rose-Ackerman (2007), p. 293. 79 Wisner and Campbell (2018), p. 6 et seqq. 68

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was developed as a consequence of this situation.80 Due to this state of affairs, in most cases, foreign investors could only expect protection from their home state for ‘egregious treatment of a foreign investor in breach of the minimum standard of treatment for a foreign investor.’81 This belief has however now been greatly diluted and in most cases, parties to an international dispute are now determined by the treaties which govern the tribunal or the rules under which the tribunal functions.82 Natural persons have been provided with the capacity to act independently and even bring disputes against states through certain new forums such as investor-state arbitration tribunals. The parties to international arbitration are currently divided into two main groups: 1. Private parties which include natural persons and legal entities such as companies formed under private law; 2. State parties which include states, legal entities formed by states under public law and also intergovernmental organisations.83 The capacity of individuals to bring claims against a state is nevertheless based on state consent provided by entering into an IIA containing a dispute resolution provision offering consent to arbitration, by domestic laws, or by entering into an investor-state contract.84 Natural and legal persons are however not subjects of international law in the sense as states which can both create and enjoy rights.85 They can only enjoy the rights conferred upon them.86 A few major international bodies such as the WTO, ITLOS, ICJ continue to foresee the requirement of a state to be a part of the dispute resolution process even when such a state would only be acting on behalf of its national.87

1.3.1.2

The IIAs as the Backbone of the Current Investment Protection Framework

The success of the original investment protection regime with diplomatic protection and customary international law at its centre was limited.88 It was found that the system was not fully reliable and the recognition of the right to protect the

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UNCTAD (2003b), p. 24; Alford (2000), p. 161; Schreuer (2007), p. 345. Bubb and Rose-Ackerman (2007), p. 293. 82 Alford (2000), p. 162. 83 Bockstiegel (1986), p. 22. 84 UNCTAD (2003c), p. 7 et seqq.; Blanchard (2011), p. 423; Tabari (2017), p. 5; Juratowitch (2008), p. 25. 85 Juratowitch (2008), p. 24. 86 Hickey Jr (1997), p. 3. 87 Alford (2000), p. 162. 88 Franck (2014), p. 19; Dumberry (2010), p. 701; Ghouri (2011), p. 190 et seq.; Albornoz (2006), p. 378 et seq.; See also, Escobar (1997), p. 488. 81

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investment was dependent on several factors including the existence of diplomatic relations and the will of the state to pursue a claim while raising the possibility of jeopardising inter-state relations.89 The investor also does not remain in the control of the proceedings.90 The unfavourable experiences of the investors with this mechanism led to the call for depoliticisation through the conclusion of formal agreements between the states.91 In this context, IIAs (particularly BITs) were promoted as means to encourage and promote investments between states by reducing the risk and cost of investment.92 A BIT has been defined as “a reciprocal legal agreement concluded between two sovereign States for the promotion and protection of investments by investors of the one state (home state) in the territory of the other state (host state).”93 A wider and more comprehensive definition of BITs which showcases their characteristics describes them as follows: Bilateral investment treaties (BITs) are agreements between two countries for the reciprocal encouragement, promotion and protection of investments in each other’s territories by companies based in either country. Treaties typically cover the following areas: scope and definition of investment, admission and establishment, national treatment, most-favourednation treatment, fair and equitable treatment, compensation in the event of expropriation or damage to the investment, guarantees of free transfers of funds, and dispute settlement mechanisms, both state-state and investor-state.94

The Max Planck Encyclopaedia of Public International Law has portrayed these treaties as the “the backbone of the modern international framework affording legal protection to aliens (i.e. non-host state nationals) committing capital abroad.”95 While they started as a replacement of the FCN treaties, BITs have evolved as a source of specialised treaty law dealing with investment.96 In a period of uncertainty over the protection of foreign investments, they developed as a method of protection of ‘four central pledges’ by the two governments signing the treaties which still form the backbone of most BITs to date: 1. A promise not to discriminate against the investors of the other country while framing and implementing any laws and treat them at the same level as the investor of any other country or of their own country [Most Favoured Nation (MFN) and National Treatment (NT)];

89

Garnett (2011), p. 486; Happ and Wuschka (2017), p. 119. Billiet (2016), p. 32; Jacob (2014). 91 Schreuer (2007), p. 346; Franck and Wylie (2015), p. 470 et seqq.; Ghouri (2011), p. 191 et seqq. 92 Moul (2015), p. 886; Franck and Wylie (2015), p. 470 et seqq.; Desbordes and Vicard (2009), p. 372 et seq.; Inbavijayan and Jayakumar (2013), p. 37. 93 Jacob (2014). 94 Perrou (2012), p. 131; See also, Dumberry (2010), p. 679; Escobar (1997), p. 489; Franck (2014), p. 21. 95 Jacob (2014); For a similar definition, See, Franck (2007), p. 341. 96 Escobar (1997), p. 488. 90

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2. A guarantee to provide a minimum standard of treatment as guaranteed under international law; 3. Expropriation only for public purposes and in exchange for compensation as guaranteed by the BITs; 4. Free transfer of funds by the investor to a destination outside the country.97 Even with their proliferation, the relationship between the conclusion of BITs and growth in foreign investment is highly debated and far from conclusive.98 Certain scholars have suggested that BITs have indeed led to the growth of investment into developing countries with more investment flowing from developed countries to a developing country, which has a BIT with the developed country.99 Others opine that developing countries may have ignored the risks arising from IIAs while overestimating their benefits.100 Irrespective of the current debate on their effectiveness, after the signing of the first BIT between Germany and Pakistan in 1959, other countries such as France, Italy, and Switzerland immediately followed suit (France with a BIT with Chad in 1960 and Switzerland with Tunisia in 1963 and Italy with the Guinea-Italy BIT in 1964).101 It is thought that the early BITs were signed by western European countries that did not have ‘colonial ties’ or ‘networks’ to protect their investments abroad.102 Among others, a primary purpose of concluding such BITs was to reduce the ‘relative cost of FDI’ between the two countries.103 The first generation of BITs (beginning from 1959 to the late 1960s) is characterised to have focussed on investment protection with the expectation that the investor will adhere to certain standards such as non-discrimination (national

97 Chase (2015), p. 220; See also, Desbordes and Vicard (2009), p. 372 et seqq. The USA considers, procedures “which allow an investor to take a dispute with a Party directly to binding third-party arbitration” as one of the four BIT objectives. On this see, Letter of Submittal for the USA-Grenada BIT, dated May 20, 1986 (https://tcc.export.gov/Trade_Agreements/All_Trade_Agreements/exp_ 005346.asp, Accessed 24 Mar 2020) and Letter of Submittal for the USA-Republic of Congo BIT, dated March 11, 1991 (https://tcc.export.gov/Trade_Agreements/All_Trade_Agreements/exp_ 005885.asp, Accessed 24 Mar 2020). 98 Sauvant and Sachs (2009), pp. liv; Berger et al. (2011), p. 272; Franck (2007), p. 340; See also, Gazzini (2018), p. 249; Bonnitcha (2017), p. 15; Desbordes and Vicard (2009), p. 383. 99 For a study which links BITs with more FDI inflows for developing countries, See, Neumayer and Spess (2005), p. 1582; For other similar studies see, Salacuse and Sullivan (2005), p. 106; Bhasin and Manocha (2016), p. 285; Pfaffermayr and Egger (2004), p. 801; See also, Schreuer (2007), p. 346. For mixed results, See, Gallagher and Birch (2006), p. 969. 100 Yackee (2011), p. 434; Kollamparambil (2016), p. 13; Moul (2015), p. 889 et seqq.; Lubambo (2016), p. 225; Johnson and Sachs (2016), p. 10 et seq.; For a discussion on this issue, See also, Morosini (2016); Alvarez (2009), p. 41 et seqq.; Hallward-Driemeie (2003), p. 22. 101 Vandevelde (2009b), p. 14; Newcombe and Pardell (2009), p. 42; Ginsburg (2005), p. 117 et seqq.; 102 Odumosu (2007), p. 253 et seqq. 103 Bergstrand and Egger (2013), p. 108.

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treatment), minimum standards of treatment and compensation on an act of expropriation.104 The second generation of BITs is witnessed after the signing of the ICSID Convention and inter alia include the Indonesia-Netherlands BIT in 1968 and the Chad-Italy BIT in 1969. They saw the introduction of clauses that provided for ISDS and are sometimes considered as the true start of the modern-day BIT regime.105 The pace of acceptance of BITs was moderate in the 1970s but acquired steam in the 1980s and the 1990s with BITs even being signed among developing countries. Currently, BITs of the third generation with a focus on the right to regulate and sustainable development are commonly being signed.106 At the time of writing, close to 2900 BITs have been concluded and around 2300 are in force.107 Investment agreements have also been executed by quasi-governmental bodies on both sides such as the investment agreements between Taiwanese representations and its counterpart in the other country.108 Alternatively, they may also be executed by a country on one side and a de facto controlling authority on the other side,109 in certain exceptional situations such as when diplomatic recognition of a country is not present (or debated).

1.3.2

Dispute Settlement Through Arbitration

Dispute Resolution provisions are a key component of IIAs and effective dispute resolution mechanisms can play a vital role in encouraging foreign investments.110 In all, many dispute settlement methods are available in IIAs such as consultation, negotiation, and conciliation, dispute resolution through domestic courts, state-tostate arbitration, investor-state arbitration, and dispute resolution through international courts.111 In modern times, two generations of dispute resolution can be distinguished. The first generation led to the formation of international courts with a model of jurisdiction which could deal with classic public international law disputes and has primarily

104

Jacob (2014). Jacob (2014). 106 Nowrot (2016), p. 230 et seqq. 107 Figures as on 15 October 2019 as recorded by UNCTAD Investment Policy Hub. Available at https://investmentpolicy.unctad.org/international-investment-agreements (Accessed 24 Mar 2020). 108 For examples of such IIAs, see, Thailand-Taiwan BIT; Singapore-Taiwan BIT and India-Taiwan BIA, 2018. See also, Wu (2015). 109 See, CEFTA, Signed by the United Nations Interim Administration Mission in Kosovo on behalf of Kosovo in accordance with United Nations Security Council Resolution 1244. 110 Lo (2013), p. 3. 111 Lo (2013), p, 3. 105

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states as parties to the dispute.112 The states were then considered as the unitary actors in international law and they also controlled the entire dispute resolution system from the formation of the courts to the nomination of the adjudicators.113 Classic examples of these courts and tribunals which enjoyed only very limited use by the states include the PCIJ, the ICJ, and the ITLOS.114 The PCA is slightly different because it focussed on arbitration, but it is the precursor to these institutions and was formed as a result of the Hague Conventions. The second generation of dispute resolution which started in the 1960s focussed on the establishment of new tribunals for specific categories of disputes or even for a single dispute only and involved individuals also in addition to states as parties. The growth in popularity for the ‘second generation’ of tribunals was led by BITs, the NAFTA and the ICSID Convention. Other institutions that feature similar characteristics include the IUSCT and the WTO.115

1.3.2.1

History of Arbitration in International Dispute Settlement Among States

Arbitration has been described as “a third-party dispute resolution mechanism resulting – typically in an award binding on the parties to the arbitration.”116 State-to-state arbitration is dependent on the joint will of the parties,117 and it has been defined as: “the settlement of differences between States by judges of their own choice and on the basis of respect for law.”118 It is similar to international court proceedings in the requirement of the consent of the parties, although the point of time at which consent is provided and the scope of the consent may vary considerably.119 An undertaking to arbitrate may result from an agreement to arbitrate before or after a dispute has arisen and is dependent on legal obligations that must be carried out in good faith.120 The state-to-state arbitrations are different from general commercial arbitrations because they may involve political considerations in addition to purely commercial issues.121

112

Born (2012), p. 792; Odumosu (2007), p. 253. Keohane et al. (2000), p. 457. 114 Born (2012), p. 793. 115 Born (2012), p. 793. 116 Hober (2001), p. 20. 117 Caron (1990), p. 109; Finlay (1904), p. 668. 118 Art. 15, Hague I Convention; Art. 37, Hague II Convention; See also, Malintoppi (2006), p. 134. 119 Malintoppi (2006), p. 135 et seq. 120 Preamble, Model Rules on Arbitral Procedure with a general commentary 1958, International Law Commission, Yearbook of the International Law Commission, 1958, vol. II, pp. 83–88. 121 Hober (2004), p. 141. 113

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The exact origins of arbitration are unknown,122 but it has been claimed that arbitration was prevalent for dispute resolution over 2000 years ago.123 In relatively recent times, arbitration was seen as a mode of dispute resolution since around the thirteenth century in England and by the fifteenth century was considered as a mode of dispute resolution which filled the gap between bilateral negotiation and official adjudication.124 A written plan for arbitration to recover the holy land dates back to 1306 AD125 and the use of arbitration as a means of resolving disputes between states is seen in 1623 AD when Emeric Cruce, a French writer, proposed an ‘International court of Arbitration between nations’ in his work Le Nouveau Cynee ou Discours d’Estat.126 Although the work did not acquire much prominence, it was important because the proposed court was to promote international trade and peace, views that were ‘broad and liberal’ for those times.127 Since then many disputes between states have been referred to arbitration including the Saint Croix River Boundary dispute through the Jay Treaty of 1794128 and later the Alabama Claims129 and the Bering Sea Fur Seal Fisheries.130 The Jay Treaty is sometimes considered as the commencement of the modern law of arbitration, which developed and gained further popularity after the Alabama Claims.131 The success of the Alabama Claims Tribunal in which one of the leading powers of the world (the USA) had accepted the jurisdiction of an arbitral tribunal and then agreed to honour the award, laid the ground for widespread acceptance of arbitration as a means of resolution of disputes among the nations.132 In terms of importance for the development of arbitration in international fora, it is regarded “as one which, whether measured by the gravity of the questions at issue or by the enlightened statesmanship which conducted them to a peaceful determination, was justly regarded as the greatest the world had.”133

122

Scruggs (1899), p. 239. Emerson (1970), p. 156; Finlay (1904), p. 660 et seqq.; Fraser (1926), p. 185. For detailed discussion on the issue, see, Westermann (1907), pp. 197–211. 124 Biancalana (2005), p. 348. 125 Fraser (1926), p. 179. 126 Balch (1907), p. 304; Fraser (1926), p. 180. 127 Balch (1907), p. 304. 128 Jay Treaty; See also, Tallman and Tallman (1972), p. 59; Fraser (1926), p. 198 et seqq. 129 Alabama claims of the United States of America against Great Britain Award rendered on 14 September 1872 by the tribunal of arbitration established by Article I of the Treaty of Washington of 8 May 1871, RIAA, Vol. XXIX, pp. 125–134. 130 Award between the United States and the United Kingdom relating to the rights of jurisdiction of United States in the Bering’s sea and the preservation of fur seals, 15 August 1893, RIAA Vol. XXVIII, pp. 263–276. 131 Murphy et al. (2013), p. 40; Hober (2001), p. 34; Nodeh (2003–2004), p. 119; Vidmar (2002), p. 91; Lillich (1963), p. 261 et seqq.; Ralston (1926), p. 488 et seqq. 132 Nodeh (2003–2004), p. 119; Bingham (2005), p. 24 et seqq. 133 Bingham (2005), p. 1. 123

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The importance and need of arbitration was highlighted across the Atlantic about a century later when Benjamin Franklin, one of the founders of the USA reiterated the importance of arbitration as a means of dispute settlement among the nations.134 The push for arbitration135 as a mode of dispute settlement among nations bore fruit and led to the establishment of the Permanent Court of Arbitration (PCA) at Hague through the Convention for the Pacific Settlement of International Disputes of 1899.136 In terms of international disputes, a strong attempt to push for arbitration as a mode for dispute settlement was made in the latter half of the nineteenth century with an emphasis on building public opinion for the promotion of arbitration.137 A discussion also started in the USA for a permanent tribunal of arbitration.138 It can be understood from the accounts that in this period up to the First World War, Europe was in perennial turmoil and all the countries were looking for a peaceful solution to disputes and arbitration was viewed as a possible solution.139 On the other side of the Atlantic, the American countries had recognised the importance of arbitration as a peaceful mode of dispute resolution and signed the General Treaty of Inter-American Arbitration by which they bound themselves to submit ‘all differences of an international character’ between them to arbitration.140 The Hague Conferences played an important role in bringing state-to-state arbitration to the forefront and this culminated in the formation of the PCA.141 The name, however, can be a misnomer as it is not a court in the true sense of having a standing panel of judges or mandatory jurisdiction over any disputes other than those where the parties approach it.142 The PCA has a bigger aim of promoting arbitration as a preferred mode of dispute resolution among the states. The PCA caseload has increased over the recent years owing to growth in commercial and investment arbitration rather than state-to-state arbitration, signifying a gradual change in its character from a first-generation tribunal to a second-generation tribunal.143 After the Second World War, arbitration was explicitly included as one of the prescribed modes for peaceful settlement of disputes among the states when it was included in Art. 33 of the Charter of the UN.144 An implicit limitation to the scope of this Art. 33 was that it was not related to all disputes between states but only those,

134

Balch (1907), p. 308. For instances showing the push for arbitration see, Cook (1894); Davis (1894); Coudert (1913); Edmunds (1897); Finlay (1904), p. 667 et seqq. 136 Hague I Convention; Ralston (1926), p. 489. 137 Boardman (1894), p. 8. 138 Hale (1895), p. 173. 139 Carter (2001), p. 63 et seq. 140 Art. 1, GTIAA. 141 Fraser (1926), p. 207 et seq.; Born (2012), p. 800. 142 Spiermann (2012), p. 50 et seq. 143 Born (2012), p. 799. 144 Art. 33, UN Charter. 135

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which related to international peace and security.145 The UNCLOS reinforced the confidence of states in arbitration as it contained arbitration as one of the modes of the settlement of disputes between the parties.146 As of now, arbitration is a prominent mode for settlement of international disputes between states related to boundary disputes, interpretation of treaties and for violations of international law.147 State-to-state arbitration has been an important part of dispute resolution with more than 200 state-to-state arbitrations based on bilateral treaties being conducted in the period between 1900 and 1970.148 In recent years, state-to-state arbitration has been in the spotlight for important cases such as the Heathrow Airport User Charges arbitration,149 the Eritrea-Ethiopia Arbitration,150 and the South China Sea arbitration.151

1.3.2.2

History of Arbitration in IIAs

The use of arbitration for resolving foreign investment disputes goes back to the period before investor-state arbitration under BITs came into popularity.152 Nonetheless, it may not have been the most preferred mode of dispute resolution at that time, as a court or a judge would have generally preferred the parties to decide the cases privately between themselves owing to the large sums of money involved.153 The later part of the eighteenth century saw a number of ad hoc claims commissions and arbitral tribunals deciding on the status of property owned by foreign nationals. A push towards the principle of equal treatment for aliens and non-intervention in the affairs of the host state were positive developments in this direction. Even though efforts were put forward by the League of Nations, but significant progress on an international legal framework for the protection of rights of investors was not made until the end of the Second World War. After the Second World War, efforts were channelled to systematise the field of international economic law in documents such as the Havana Charter for an International Trade Organization154 145

Bockstiegel (1986), p. 23. Art. 287, UNCLOS. 147 Office of Legal Affairs (1992), p. 55. 148 Born (2012), p. 798. 149 United States-United Kingdom Arbitration concerning Heathrow Airport User Charges (United States-United Kingdom), RIAA, Vol. XXIV, Decision of 30 November 1992 (Revised 18 June 1993), pp. 1–359; For a detailed discussion, see, Witten (1995). 150 Decision regarding delimitation of the border between Eritrea and Ethiopia, RIAA, Vol. XXV, 13 April, 2002, pp. 83–195. 151 PCA Case N 2013–19, In the Matter of the South China Sea Arbitration, Philippines and China, Award of 12 July 2016. 152 Aksen (1978), p. 235. 153 Aksen (1978), p. 235. 154 Havana Charter. 146

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and the Draft Convention on the protection of Foreign Property155 by OECD, but failed to receive international acceptance and did not enter into force. Efforts were also put beyond the Governmental level156 through the Draft Convention on Investments Abroad, 1959,157 which evoked discussions but never came into force. In the meantime, progress was achieved in the field of arbitration through the signing of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards158 and a few years later the Convention on the settlement of investment disputes between States and nationals of other States.159 Among other important developments, in 1974, the UN General Assembly adopted the Charter of Economic Rights and Duties of States.160

1.3.2.3

Recent Developments on the Adoption and Signing of IIAs

The growth of IIAs across the world has promoted research about the provisions included in the IIAs. Many researchers have expressed that IIAs (particularly BITs) show a uniform nature and that the provisions of a BIT are fixed.161 Counterviews, however, point out that in many cases, IIAs are bilateral and negotiations take place on a clause-by-clause basis where significant parts of the IIAs have been negotiated afresh.162 This leads to significant variations in the treaties which are negotiated by the parties. Even the dispute resolution clauses which are considered by some as the single most important clauses in the IIA,163 see relatively minor but important variations across treaties. While some treaties allow direct recourse to international arbitration, others are more conservative and require the use of domestic courts to resolve disputes prior to moving for investor-state arbitration. Another notable difference is whether a particular treaty allows arbitration under the ICSID Convention which is among the most preferred routes for investment dispute resolution.164 The recent years have witnessed the signing of several trade agreements or other agreements containing provisions on investment protection.165 A growing trend among countries is the conclusion of trade agreements with a chapter on investment such as the North America Free Trade Agreement (NAFTA) or a sector-specific

155

Draft Convention on Foreign Property. Jacob (2014). 157 Draft Convention on Investments Abroad, 1959. 158 New York Convention. 159 ICSID Convention. 160 Charter of Economic Rights and Duties of States. 161 Vandevelde (2009b), p. 14; Allee (2010), p. 2; Schill (2011), p. 1095. 162 On this see, Nam (2017), p. 1286 et seqq. 163 Allee (2010), p. 2. 164 Allee (2010), p. 2. 165 Hober (2004), p. 140. 156

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19

agreement like the Energy Charter Treaty (ECT).166 Broadly, in the latter part of the twenty-first century, IIAs have become more complicated documents with a move from simple BITs to trade and investment agreements, an indication of a possible reversal to the old Freedom, Commerce and Navigation (FCN) treaty framework, which contained treaties with a broad scope.167 Other trends include the evolution of specific BIT models prescribed by individual countries and international organisations like the OECD. The two major models of BITs, the American and the European BITs also vary in minor parameters such as liberalisation, minimum standard under international law and focus on the individual.168 BITs have further been modified to include specific provisions or explanations like explicit provisions governing the application of the MFN Clause in dispute resolution clauses inter alia in the UK-Ethiopia BIT of 2009169 and the annexure on the meaning of indirect expropriation in the Canada-Czech Republic BIT of the same year.170

1.4

State-to-State Arbitration as a Means of Dispute Settlement Under IIAs

The two prominent legal means of dispute settlement are arbitration and adjudication.171 Arbitration in IIAs can be either investor-state arbitration or state-to-state arbitration and while both modes can be present in IIAs, the study focusses primarily on state-to-state arbitration.

1.4.1

Origins of State-to-State Arbitration in IIAs

The origins of the compromissory clauses providing for state-to-state arbitration as a means of dispute settlement in modern IIAs lay in the FCN treaties and one of the earliest references to arbitration can be traced to the 1794 Amity, Commerce and Navigation Treaty.172 The FCN treaties were primarily concluded by the USA and were mostly related to commercial matters. The history of FCN treaties dates back to the eighteenth century and the first FCN treaty was concluded in 1778 between the

166

Jacob (2014). Alschner (2013), p. 459. 168 Alschner (2013), p. 457. 169 Art. 8(3), UK-Ethiopia BIT. 170 Annex A, Canada-Czech Republic BIT, 2009. 171 Peters (2003), p. 7; Wood (2017), p. 10. 172 Jay Treaty; See also, Newcombe and Pardell (2009), p. 7; Vandevelde (2010), p. 504. 167

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USA and France.173 This treaty was also the first instance of the appearance of the MFN treatment clause for issues of commerce and navigation.174 The process of signing such treaties continued with inter alia, the USA-Brazil FCN treaty in 1828,175 the USA-Germany FCC treaty in 1923176 and later after the Second World War, the USA-Italy FCN treaty in 1948,177 the USA-Ireland FCN treaty in 1950,178 and the USA-Belgium Friendship, Establishment and Navigation (FEN) treaty in 1961179 to name a few. The FCN treaties saw an expansion into the field of investment protection after the Second World War.180 They acted as a predecessor to modern BITs as they inspired the Draft Convention on Investments Abroad, 1959.181 The FCN treaties themselves remain important on their own as more than 40 FCN treaties are still in force.182 Even amidst the discussion on investment arbitration based on IIAs, FCN treaties can still be used for investment claims as showcased by the ELSI case which was brought before the ICJ based on a breach of an FCN treaty based on the compromissory clause in the treaty.183 The experience from FCN treaties can also be useful for future investment treaty negotiations as they provide insights into the inclusion of multiple subject areas into a single treaty and possibly, incorporation of non-economic matters such as human rights.184 They served as the American alternative to European BIT programs until the 1960s with a much wider area of coverage than BITs including human rights, intellectual property rights, and navigation rights.185 The FCN treaty program was finally abandoned by the USA in 1968 as Europe surged ahead owing to competitive advantages granted by the BITs.186 State-to-state arbitration clauses now seen as the compromissory clause came to be integrated into BITs as a legacy from the FCN treaties, the ‘predecessor of BITs.’187

173

USA-France FCN Treaty, 1778; Alschner (2013), p. 461. Liu (2009), p. 24. 175 USA-Brazil FCN Treaty, 1828. 176 USA-Germany FCC Treaty, 1923. 177 USA-Italy FCN Treaty, 1948. 178 USA-Ireland FCN Treaty, 1950. 179 USA-Belgium FEN Treaty, 1961. 180 Alschner (2013), p. 455. 181 Draft Convention on Investments Abroad, 1959; See also, Nowrot (2017), p. 173. 182 Alschner (2013), p. 457. 183 ICJ, Elettronica Sicula S.P.A. (ELSI), USA v. Italy, Judgment, I.C.J. Reports 1989, p. 15; See also, Vandevelde (2009a), p. 704. 184 Alschner (2013), p. 458. 185 Paust (2015), p. 112. 186 Bonnitcha (2019), p. 638; Alschner (2013), p. 458. 187 Potesta (2015), p. 250; Lubambo (2016), p. 227; Wong (2014), p. 14; See also Vandevelde (2009b), p. 12 et seqq. 174

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21

State-to-state arbitration has been a part of IIAs through compromissory clauses since the first BIT was signed between Germany and Pakistan;188 as of now, all German BITs contain a provision for state-to-state arbitration.189 Such a compromissory clause was also present in the Draft Convention on Investments Abroad, 1959 popularly known as the Hermann-Shawcross Convention.190 A compromissory clause with state-to-state arbitration was the sole mode of third party dispute resolution in certain IIAs until 1984,191 long after the first BIT with investor-state arbitration was concluded in 1968.192 However, the said compromissory clause has rarely attracted attention, a fact which can be attributed to the limited success of the provision and a prevalent view that the clause could only cover institutional issues of interpretation of the BIT or issues related to entry into force and termination.193 At the time of this study, state-to-state arbitration is present in most IIAs (sometimes as an option along with other dispute resolution options such as consultation, negotiation or referral to international courts and tribunals) and is also a dispute resolution option in the WTO.194 In many cases, particularly for countries with several old treaties like Germany or Switzerland, a significant number of investment treaties do not provide for recourse to ISDS and thereby depend on state-to-state arbitration (or litigation) as the sole mode of binding dispute resolution.195 In fact, state-to-state arbitration as a ‘binding’ form of dispute resolution is now seeing a resurgence with support from both states and investors, but as mentioned before, very few cases have emerged.196 Nonetheless, as and when any disputes emerge, state parties to an IIA who have agreed to a compromissory clause with recourse to arbitration, have a legal obligation to carry out the arbitration in good faith.197

188

Salacuse (1990), p. 655. Bungenberg (2016), p. 5. 190 Art. VII (1), Draft Convention on Investments Abroad, 1959. 191 Netherlands-Malta BIT, 1984. 192 Indonesia-Netherlands BIT, 1968 is considered the first BIT which expressly incorporates investor-state arbitration. On this see also, Newcombe and Pardell (2009), p. 44. 193 Lubambo (2016), p. 229; Potesta (2013), p. 754. 194 Art. 25, Dispute Settlement Understanding. 195 32% for Germany and 28% for Switzerland do not contain ISDS provisions, See, Pohl et al. (2012), p. 10. 196 Posner and Walter (2015), p. 381; Lo (2013), p, 9; Lubambo (2017), p. 83. 197 On this, See also, Preamble, Model Rules on Arbitral Procedure with a general commentary 1958, International Law Commission, Yearbook of the International Law Commission, 1958, vol. II, pp. 83–88. 189

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1.4.2

1 Investment Dispute Settlement and the Position of State-to-State Arbitration in. . .

State-to-State Arbitration Provisions in Major Model BITs

A compromissory clause carrying an option for state-to-state arbitration is seen in all the major Model BITs as of March 2020, inter alia, the 2012 US Model BIT, the 2008 German Model BIT, the 2010 Austrian Model BIT, the 2015 Indian Model BIT, the 2015 Brazilian Model CFIA, the 2008 United Kingdom Model BIT, the 2012 South African Development Community (SADC) Model BIT and even the recent 2018 Netherlands Model BIT. This indicates that the states across the globe in different stages of development have continued to support state-to-state arbitration as the preferred mode of resolving disputes even in their most recent Model BITs (2018 in case of the Netherlands), which indicates the likelihood of their inclusion in new BITs which will be signed at least in the coming few years.

1.4.3

State-to-State Arbitration Under Trade and Investment Agreements

Trade and investment are two fundamentally different fields, but interact closely and in many cases, trade and investment agreements are merged.198 Investment chapters are included in many preferential trade agreements (PTAs) which also contain stateto-state dispute settlement mechanisms.199 Among the major recent PTAs which include a chapter on investment, the UK-CARIFORUM EPA, 2019,200 the Indonesia-EFTA CEPA, 2019,201 the EU-Japan EPA, 2018,202 the CPTPP, 2018,203 and the CETA, 2016204 include a provision for state-to-state arbitration which shows support across the globe among countries at different stages of economic development for this mode of dispute resolution.

198

Chase (2015), p. 219. Mitchell and Munro (2013), p. 156. 200 Part III, Chapter 2, UK-CARIFORUM EPA. 201 Art. 11.4, Indonesia-EFTA CEPA. 202 Art. 21.7 EU-Japan EPA. 203 Chapter 28, CPTPP. 204 Art. 29.6, CETA. 199

1.5 Interim Conclusions

1.4.4

23

State-to-State Arbitration in Energy Charter Treaty

The provision for state-to-state arbitration between contracting parties is seen in Art. 27 ECT and extends to all disputes on interpretation or application of the treaty and is not limited only to disputes related to investments.205 It has been described as the main dispute settlement provision of the ECT.206 The ECT carves out exceptions for several subjects which cannot be adjudicated under the state-to-state arbitration provision such as environment and competition.207 Similarly, trade issues are excluded from the clause unless the parties agree.208 The ECT prescribes the Arbitration Rules of UNCITRAL as the default rules209 for state-to-state arbitration. Considering that these rules were initially designed for commercial arbitration, they may not be ideal for state-to-state arbitration.210 The state-to-state arbitration provision in the ECT is expected to come up for use in the future owing to confusion over the applicability of the ECT for intra-EU disputes after the Achmea decision of the CJEU.211

1.5

Interim Conclusions

State-to-state arbitration is the common mechanism included in the compromissory clause of IIAs for third party resolution of disputes between the state parties to IIAs. It has developed from the FCN treaties to the current IIAs with minor variations. While the compromissory clause which provides for state-to-state arbitration has been present in treaties since the early twentieth century, it has not been utilised. With the ongoing discussion on reforms of the ISDS and investor-state arbitration, in particular, state-to-state arbitration has received renewed attention from states and scholars as a possible alternative to ISDS. In light of this debate, it becomes essential to shed light on the history and development of this provision to understand the context under which it was included in IIAs by the state parties and how they attempt to utilise it. The continued inclusion of the possibility of state-to-state arbitration in the IIAs shows its widespread acceptance and sets the foundation for the following chapters of the book which will evaluate how state-to-state arbitration could be applied as a means of dispute resolution and how any hurdles in its acceptance could be resolved.

205

Hober (2010), p. 155 et seq. Walde (1996), p. 439. 207 Walde (1996), p. 439; Art. 6(7) & 19(2), ECT. 208 Art. 28, ECT; See also, Baltag (2018), p. 366. 209 Art. 27(3)(f), ECT. 210 Belyi et al. (2011), p. 391. 211 Baltag (2018), p. 366. 206

Chapter 2

Framework for State-to-State Arbitration Under the Compromissory Clause in an IIA

2.1

Understanding the Scope of the Powers from the Text of the Treaty

The power of an arbitral tribunal to hear different types of disputes and issue binding decisions is governed by provisions of the arbitration agreement, in this case, the IIA.1 The texts of most modern IIAs contain a separate compromissory clause with the possibility of state-to-state arbitration. Such clauses are however far from uniform and different model BITs show variations in the framing of the clause. An overview of compromissory clauses in current model BITs reflect the variations across treaties and also show the latest form of the compromissory clause (see Table 2.1). Even with variations, the compromissory clauses illustrated in Table 2.1 have the following main elements in common:

2.1.1

The Requirement of the Existence of a Dispute Between the Parties

The requirement of the existence of a ‘dispute’ is a common element in the compromissory clauses of all the model agreements listed above. This ‘existence of a dispute’ is a key component of a state-to-state arbitration proceeding, and for the establishment and exercise of jurisdiction of a tribunal.2 The phrase, ‘between the parties’ which accompanies the word ‘dispute’ also clarifies the rationae personae 1 2

Cisar (2010), p. 1507. Macias (2016b), p. 308; Rajput (2018), p. 92; Orecki (2013), p. 14; Cisar (2010), p. 1515.

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 A. Hazarika, State-to-state Arbitration based on International Investment Agreements, European Yearbook of International Economic Law 10, https://doi.org/10.1007/978-3-030-50035-1_2

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Table 2.1 An overview of compromissory clauses present in model BITs which provide for stateto-state arbitration Country USA

Year of model BIT 2012

Germany

2008

India

2015

Austria

2008

Text Art. 37 (1) Subject to paragraph 5, any dispute between the Parties concerning the interpretation or application of this Treaty, that is not resolved through consultations or other diplomatic channels, shall be submitted on the request of either Party to arbitration for a binding decision or award by a tribunal in accordance with applicable rules of international law. In the absence of an agreement by the Parties to the contrary, the UNCITRAL Arbitration Rules shall govern, except as modified by the Parties or this Treaty. Art. 9 (1) Disputes between the Contracting States concerning the interpretation or application of this Treaty should as far as possible be settled by the Governments of the two Contracting States. (2) If a dispute cannot thus be settled, it shall upon the request of either Contracting State be submitted to an arbitral tribunal. ⋮ (5) The arbitral tribunal shall reach its decisions by a majority of votes. Its decisions shall be binding. Each Contracting State shall bear the cost of its own member and of its representatives in the arbitration proceedings; the cost of the chairman and the remaining costs shall be borne in equal parts by the Contracting States. The arbitral tribunal may make a different regulation concerning costs. In all other respects, the arbitral tribunal shall determine its own procedure. Art. 31 31.1 Disputes between the Parties concerning: (i) the interpretation or application of this Treaty, or (ii) whether there has been compliance with obligations to consult in good faith under Articles 30 or 36, should, as far as possible, be settled through consultation or negotiation, which may include the use of non-binding thirdparty mediation or other mechanisms. 31.2 If a dispute between the Parties cannot be settled within six months from the time the dispute arose, it shall upon the request of either Party be submitted to a Tribunal. ⋮ 31.5 The arbitral tribunal shall reach its decision by a majority of votes. Such decision shall be binding on both Parties. Art. 20 Disputes between the Contracting Parties concerning the interpretation or application of this Agreement shall, as far as possible, be settled amicably or through consultations, mediation or conciliation. Art. 21 (1) At the request of either Contracting Party a dispute concerning the interpretation or application of this Agreement may be submitted to an arbitral tribunal for decision not earlier than 60 days after such request has been notified to the other Contracting Party. (continued)

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27

Table 2.1 (continued) Country

Year of model BIT

SADC

2012

United Kingdom

2008

Brazil

2015

Text (2) A Contracting Party may not initiate proceedings under this Part for a dispute regarding the infringement of rights of an investor which that investor has submitted to arbitration under Part One of Chapter Two of this Agreement, unless the other Contracting Party has failed to abide by and comply with the award rendered in that dispute or those proceedings have terminated without resolution by an arbitral tribunal of the investor’s claim. Art. 24 (2) The arbitration award shall be final and binding upon the parties to the dispute. 28 (1) Disputes between the State Parties concerning the interpretation or application of this Agreement should, as far as possible, be settled through the amicable means. The treaty review mechanism in Article 26 shall be used to raise such issues in a regular meeting or through a special ad hoc meeting convened by either State Party for this purpose. (2) If a dispute between the State Parties cannot thus be settled within six months of the initiation of consultations to resolve the dispute, either State Party may request mediation of the dispute, including through recognized institutions or the use of good offices for such purposes. Both State Parties shall cooperate in good faith when one State Party has made such a request. (4) Subject to the provisions of paragraph 28.4, a State Party may submit a claim to arbitration (a) seeking damages for an alleged breach of this Agreement on behalf of an Investor or Investment, or (b) for a matter concerning the interpretation or application of a provision of this Agreement in which it is in dispute with the other State Party. (7) The arbitral tribunal shall reach its decision by a majority of votes. Such decision shall be binding on both State Parties. Art. 9 (1) Disputes between the Contracting Parties concerning the interpretation or application of this Agreement should, if possible, be settled through the diplomatic channel. (2) If a dispute between the Contracting Parties cannot thus be settled, it shall upon the request of either Contracting Party be submitted to an arbitral tribunal. ⋮ (5) The arbitral tribunal shall reach its decision by a majority of votes. Such decision shall be binding on both Contracting Parties. Art. 24 (1) Once the procedure under paragraph 3 of Article 23 has been exhausted and the dispute has not been resolved, either Party may submit the dispute to an ad hoc Arbitral Tribunal, in accordance with the provisions of this Article. Alternatively, the Parties may choose, by mutual agreement, to submit the dispute to a permanent arbitration institution for settlement of investment disputes. Unless the Parties decide otherwise, such institution shall apply the (continued)

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Table 2.1 (continued) Country

The Netherlands

Year of model BIT

2018

Text provisions of this Section. ⋮ (11) The decision of the Arbitral Tribunal shall be final and binding to the Parties, who shall comply with it without delay. Art. 25 (1) Any dispute between the Contracting Parties concerning the interpretation or application of this Agreement, which cannot be settled within a reasonable amount of time by means of diplomatic negotiations, shall, unless the Contracting Parties have otherwise agreed, be submitted, at the request of either Contracting Party, to an arbitral tribunal, composed of three members. Each Contracting Party shall appoint one arbitrator and the two arbitrators thus appointed shall together appoint a third arbitrator as their chairman who is not a national of either Contracting Party and who is a national of a third State that has diplomatic relations with both Contracting Parties. ⋮ (7) The Tribunal shall reach its decision by a majority of votes. Such decision shall be final and binding on the Contracting Parties.

jurisdiction of the SSAT and lays down that the SSAT has been formed for resolution of disputes between the parties of the IIA.3 The disputes for a state-to-state arbitration based on an IIA can emanate both from issues that arise directly between the state parties or from disputes which originated between an investor and the host state and then were elevated to the level of a stateto-state dispute.4 However, the nature of the dispute must be such that it can be resolved using the rules of international law.5 A ‘dispute’ has been defined in the past by the PCIJ in the Mavrommatis case as ‘a disagreement on a point of law or fact, a conflict of legal views or of interests between two persons.’6 The same definition was used by the ICJ in the Case concerning East Timor.7 The ICJ then brought about a definition that is possibly more suitable in case of SSAT disputes in its Advisory opinion on Interpretation of Peace Treaties with Bulgaria, Hungary and Romania. The ICJ in the given Advisory Opinion considers a ‘dispute’ as ‘a situation in which the two sides hold clearly opposite views concerning the question of the performance or non performance of certain treaty obligations.’8 The ICJ clarified in the same

3

Wong (2014), p. 38. UNCTAD (2003b), p. 3. 5 Trevino (2014), p. 212. 6 PCIJ, Mavrommatis Palestine Concessions (Greece v. U.K.), 1924 P.C.I.J. (ser. B) No. 3 (Aug. 30), p. 11, para 19. 7 ICJ, East Timor (Portugal v. Australia), Judgment, I.C.J. Reports 1995, p. 90 at 99. 8 ICJ, Interpretation of Peace Treaties, Advisory Opinion: I.C.J. Reports 1950, p. 65 at 74. 4

2.1 Understanding the Scope of the Powers from the Text of the Treaty

29

Opinion that ‘whether there exists an international dispute is a matter for objective determination’; and, ‘the mere denial of the existence of a dispute does not prove its non-existence.’9 Arbitral tribunals, when faced with the same question, have sought to define it more broadly as seen in the case of Texaco v. Libya, wherein a ‘dispute’ was understood as ‘present divergence of interests and opposition of legal views.’10 Another investor-state arbitral tribunal (ISAT) in the Achmea case stated that ‘the existence of a dispute is readily acknowledged where a claimant submits specific and argued claims, which are denied by a respondent. Hence, for the Tribunal to have jurisdiction, it suffices if it is established that there is a conflict of legal views between the Parties [. . .].’11 This understanding is also reflected in the Switzerland-Sudan BIT of 1974 which replaces the word ‘dispute’ with ‘difference of opinion’ in the compromissory clause.12 The practice of the SSAT dealing with the Ecuador v. USA dispute reveals that an evaluation of the existence of a dispute can be made as per definitions prescribed by the ICJ.13 The current test for the existence of a dispute was recently laid down by the ICJ in the Nuclear Disarmament case.14 The ICJ prescribed that to determine whether a dispute exists or not, it is essential to evaluate the position of the opposition of a claim of one party by the other party,15 the awareness of the existence of the dispute by the respondent before the submission of the dispute for dispute resolution,16 and the existence of the dispute at the time of submission of application for resolution.17 Once it has been found that there is a dispute, it is essential for the SSAT to determine whether or not the dispute is regarding the ‘application’ or ‘interpretation’ of a treaty for it to have jurisdiction. For this purpose, an express indication to the 9

ICJ, Interpretation of Peace Treaties, Advisory Opinion: I.C.J. Reports 1950, p. 65 at 74. Texaco Overseas Petroleum Co. v. Libya, Preliminary Award (1975), 53 ILR 389, 416 (1979); See also, Trevino (2014), p. 201. 11 PCA Case No. 2013-12 (Number 2), Achmea B.V. v. Slovak Republic, UNCITRAL, Award on Jurisdiction and Admissibility of 20 May, 2014, para 168. 12 Art. 10, Switzerland-Sudan BIT, 1974. 13 PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Award, 29 September, 2012, para 212; See also, Blanchard (2011), p. 454. 14 ICJ, Obligations concerning Negotiations relating to Cessation of the Nuclear Arms Race and to Nuclear Disarmament (Marshall Islands v. United Kingdom), Preliminary Objections, Judgment, I.C.J. Reports 2016, p. 833 at 849, para 39 et seqq.; Becker (2017), p. 7; Bonafe (2017), p. 5 et seqq. 15 Test laid down initially in ICJ, South West Africa Cases (Ethiopia v. South Africa; Liberia v. South Africa), Preliminary Objections, Judgment of 21 December 1962: I.C. J. Reports 1962, p. 319 at 328. 16 ICJ, Obligations concerning Negotiations relating to Cessation of the Nuclear Arms Race and to Nuclear Disarmament (Marshall Islands v. United Kingdom), Preliminary Objections, Judgment, I.C.J. Reports 2016, p. 833 at 849, para 41; Bonafe (2017), p. 5 et seqq.; Becker (2017), p. 11. 17 ICJ, Obligations concerning Negotiations relating to Cessation of the Nuclear Arms Race and to Nuclear Disarmament (Marshall Islands v. United Kingdom), Preliminary Objections, Judgment, I.C.J. Reports 2016, p. 833 at 849, para 42 et seqq. 10

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other party that there is a dispute regarding the subject matter of the treaty has been deemed sufficient.18 In the absence of such an explicit indication, a dispute regarding the interpretation or application of an IIA can be found firstly by evaluating if there has been a record of a disagreement on a ‘point of law or fact between the parties’ and secondly if the disagreement is regarding the interpretation or application of the IIA as required under the dispute resolution clause of the IIA.19 Importantly, the other state party must be aware that there is a dispute regarding the subject matter.20 In the absence of a specific exclusion of a situation intended by the parties, the term ‘dispute’ in an IIA should be defined to cover a wide range of situations unless there are other indications from the parties to the treaty.21 This was aptly expressed in the Third Report on the Law of Treaties as: The word — “disputes” according to its natural meaning is apt to cover any dispute which exists between the parties after the coming into force of the treaty.22

The existence of a dispute may be doubted and the treaty party calling for a stateto-state arbitration will have to establish the existence of a dispute.23 The question of the existence of a dispute for consideration in a state-to-state arbitration came up for discussion before an SSAT in the Ecuador v. USA case wherein the tribunal faced the question whether USA’s failure to respond to Ecuador’s communication on the interpretation of the term ‘effective means’ would constitute a dispute.24 Ecuador opined that in the absence of a confirmation or response from USA, a dispute may be considered to exist.25 The United States denied the existence of the dispute and stated that it required parties to ‘put themselves in positive opposition to one another over a concrete case involving a claim of breach under the treaty.’26 Although the majority of the SSAT concurred with the opinion of the United States, the dissenting

18 ICJ, Application of the International Convention on the Elimination of All Forms of Racial Discrimination (Georgia v. Russian Federation), Preliminary Objections, Judgment, I.C.J. Reports 2011, p. 70 at 84, para 30. 19 See also, ICJ, Application of the International Convention on the Elimination of All Forms of Racial Discrimination (Georgia v. Russian Federation), Preliminary Objections, Judgment, I.C.J. Reports 2011, p. 70 at 84, para 31; See also, UNCTAD (2003b), p. 13. 20 ICJ, Application of the International Convention on the Elimination of All Forms of Racial Discrimination (Georgia v. Russian Federation), Preliminary Objections, Judgment, I.C.J. Reports 2011, p. 70 at 84, para 30; Becker (2017), p. 11. 21 UNCTAD (2003b), p. 13 et seq. 22 Waldock (1964), p. 11. 23 Trevino (2014), p. 201. 24 PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Award, 29 September, 2012, para 208 et seqq. 25 PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Award, 29 September, 2012, para 214. 26 PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Award, 29 September, 2012, para 56.

2.1 Understanding the Scope of the Powers from the Text of the Treaty

31

opinion expressed that there was indeed a dispute.27 Also, since the Ecuador v. USA case was a dispute of a ‘technical nature’ relating to the interpretation of a clause of a treaty it is expected to be covered.28 To prevent any similar situation in the future, it is recommendable to include an explicit provision in the treaty or rules for arbitration stating that a refusal to take a position may be considered as a dispute.29 A possible answer to whether a dispute exists may also be seen in the ICJ decision in the Georgia v. Russia case wherein the Court stated that: “the existence of a dispute may be inferred from the failure of a State to respond to a claim in circumstances where a response is called for.”30 This duty to respond may also be found to be a part of the principle of good faith in international law supported by the principle of pacta sunt servanda.31 If it was a possibility to avoid creating a ‘dispute’ which would lead to the jurisdiction of a tribunal by merely remaining silent, then a contracting party may be able to avoid state-to-state arbitration by following this method and prevent access to state-to-state arbitration even for genuine disputes of the other contracting party which would violate the principle of good faith in international relations.32 Considering this situation, it is now accepted that disputes can exist without active opposition by the other party in certain cases.33 The failure to respond or silence of the other party has not been held to be sufficient to determine the absence of a dispute.34 The Headquarters Agreement Advisory Opinion of the ICJ is a situation when the court accepted that a dispute could exist even without a ‘refutation of the position’ by the other party. The ICJ in the said Advisory Opinion stated that: In the view of the Court, where one party to a treaty protests against the behaviour or a decision of another party, and claims that such behaviour or decision constitutes a breach of the treaty, the mere fact that the party accused does not advance any argument to justify its conduct under international law does not prevent the opposing attitudes of the parties from giving rise to a dispute concerning the interpretation or application of the treaty.35

27 PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Award, 29 September, 2012, para 228 and PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Dissenting Opinion of Prof. Raul Emilio Vinuesa, 29 September, 2012, para 217. The view in the dissenting opinion is supported by Expert Opinion of Stephen C. McCaffrey on Jurisdiction (English), 23 May, 2012, para 25; Expert Opinion of C.F. Amerasinghe (English), 23 May, 2012, para 21; Expert Opinion of Prof. Alain Pellet (English), 23 May, 2012, para 6 et seqq. 28 White (1913), p. 213. 29 Bernasconi-Osterwalder (2016), p. 259. 30 ICJ, Application of the International Convention on the Elimination of All Forms of Racial Discrimination (Georgia v. Russian Federation), Preliminary Objections, Judgment, I.C.J. Reports 2011, p. 70 at 84, para 30. 31 Clodfelter (2014), p. 188. 32 Jaime (2014–2015), p. 299 et seqq.; Kulick (2016), p. 138. 33 Lourie (2017), p. 197; Schreuer (2009), p. 961. 34 Schreuer (2009), p. 964. 35 ICJ, Applicability of the Obligation to Arbitrate under Section 21 of the United Nations Headquarters Agreement of 26 June 1947, Advisory Opinion of 26 April, 1988, I.C.J. Reports 1988, p. 12 at 28, para 38.

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Other important considerations that have to be evaluated before determining the existence of a dispute are the legal nature of the dispute and the time of the dispute.36 A dispute may have some political implications, but it is important that the dispute does not have a purely political nature.37 However, it has opined that the term ‘relating to the interpretation of the treaties’ is wide, which in turn would mean that the scope of the dispute settlement clauses may even extend to political disputes.38 Admittedly, it depends on the claimant of how it presents the dispute in legal terms based on the applicable legal rules and remedies.39 The other requirement of jurisdiction rationae temporis is dependent on the text of the treaty on which the state-to-state arbitration is based because many IIAs limit jurisdiction for arbitral tribunals only for disputes which have arisen after the treaty has entered into force or after a particular date specified in the IIA.40 This requirement is however not absolute and there are situations when continuing violations and past violations could be under the ambit, particularly when the IIA explicitly encompasses investments prior to the entry into force of the IIA.41 As a precaution, a broad definition of the term dispute would be recommended if the parties seek to extend the coverage of state-to-state arbitration in resolution of disputes.42 In the Headquarters Agreement case, the ICJ also determined that when a dispute exists on the interpretation or application of a treaty, there might also be a corresponding obligation to ‘respect the obligation to have recourse to arbitration.’43 As such, a mere failure to respond which is in violation of the principle of good faith and pacta sunt servanda, would not be sufficient to exclude the presence of a dispute.44 In these situations, if the other state fails to respond within a reasonable time, the complaining party may be permitted to request the formation of an arbitration tribunal through the default provisions of appointment of arbitrators and commence arbitration proceedings. If the arbitration tribunal finds valid consent

36

Schreuer (2009), p. 965. Lauterpacht (2011), p. 171; See also, Office of Legal Affairs (1992), p. 57; Schreuer (2009), p. 966. For a similar provision on the jurisdiction of the MIC, see, Bungenberg and Reinisch (2018), p. 63. 38 White (1913), p. 218. 39 Schreuer (2009), p. 966; See also, Art. 21, Revised General Act. 40 For an example of an IIA which explicitly excludes disputes arising before a particular date see, Art. 23(2), Austria-Azerbaijan BIT, 2000; For an example of an IIA which explicitly excludes disputes arising prior to its entry into force, See, Art. 11, Austria-Chile BIT, 1997; Art. 9, Netherlands-Chile BIT, 1998; See also, Heiskanen (2018), p. 304; UNCTAD (2003b), p. 14. 41 For IIAs which specify that all investments prior to its entry are covered, see, Art. 12, UK-Ethiopia BIT; Art. 11, Hong Kong-Austria BIT, 1996; Heiskanen (2018), p. 304 et. seqq.; See also, UNCTAD (2003b), p. 60; Obadia (2001), p. 220. 42 Lubambo (2017), p. 85; See also, Gallo and Nicola (2015–2016), p. 1141. 43 ICJ, Applicability of the Obligation to Arbitrate under Section 21 of the United Nations Headquarters Agreement of 26 June 1947, Advisory Opinion of 26 April, 1988, I.C.J. Reports 1988, p. 12 at 26, para 57. 44 Jaime (2014–2015), p. 299 et seqq. 37

2.1 Understanding the Scope of the Powers from the Text of the Treaty

33

and jurisdiction, it may even move forward to pass a default award in the absence of a party who refrains from participating in the proceeding.45 As an alternative solution to this contentious issue of the existence of a dispute, the parties to an IIA may also include a provision similar to the European Convention for the Peaceful Settlement of Disputes, which provides for recourse to the ICJ to determine if there is a ‘dispute’ that satisfies the obligation of the parties under the convention to submit to arbitration.46

2.1.2

Coverage: ‘Interpretation or Application of This Treaty’

State-to-state arbitration is the most commonly prescribed method prescribed for resolution of disputes regarding ‘interpretation’ or ‘application’ of an IIA.47 Most of the IIAs and the include disputes on ‘interpretation or application’ of the treaty within the nature of disputes which could be resolved through state-to-state arbitration.48 Rare exceptions are seen inter alia in: (a) the Moscow Convention (Art. 28) and India-Brazil ICFT (Art. 19.2) which limit disputes to ‘interpretation’ of the Convention, (b) the Malta-Switzerland TIA which limits disputes only to the protection of investments,49 and, (c) the Brazil-Suriname CFIA which limits the scope of arbitration to the determination of compliance of measures by the state parties with their obligations under the CFIA.50 The terms interpretation and application are frequently used with an ‘or’ between them signifying that in many situations both the terms are likely to be relevant together as the scope of both provisions overlaps in many scenarios and questions of interpretation or application are frequently inter-related.51 In fact, ‘the application of a treaty and its effects are deemed elements for the interpretation of treaties.’52 In

45

For a treaty which allows the request for formation of a tribunal in case of failure to respond to request for consultation, See, Art. 11.4(1), Indonesia-EFTA CEPA. For a treaty which explicitly permits arbitration awards on default by a party, See, Clause 9, Annex A, Australia-Uruguay BIT, 2019. 46 Art. 38 (2), European Convention for the Peaceful Settlement of Disputes. 47 Roberts (2010), p. 183; Macias (2016a), p. 643; Simmonds (1987), p. 12. 48 Price (2005), p. 73; Lo (2010), p. 9; Potesta (2013), p. 754; Gallo and Nicola (2015–2016), p. 1137. 49 Art. 4, Malta-Switzerland TIA, 1965. 50 Art. 25(2), Brazil-Suriname CFIA. Similar provisions are also seen in Art. 24 and 25 of the BrazilUAE CFIA. 51 The term ‘and’ is used in rare situations between interpretation/application instead of ‘or’ as seen in Art. 16.2, Japan-UAE BIT, 2018; Art. 3.25, EU-Singapore IPA, 2018; Art. 15.2, Australia-China FTA, 2015; UNCTAD (2003b), p. 14; See also, Etinski (2016), p. 12 et seq.; See also, Lo (2012), p. 8 et seqq. 52 Castillo-Laborde (2008), p. 308.

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certain instances, a theoretical attempt has been made to distinguish between them.53 The commentary to the Harvard Draft Convention on the law of treaties states that ‘interpretation is the process of determining the meaning of a text; application is the process of determining the consequences which, according to the text, should follow in a given situation.’54 A second definition provides that interpretation is ‘the process of establishing the legal character and effects of a consensus achieved by the parties’ while application has been considered as ‘the process of determining the consequences of such an interpretation in a concrete case.’55 Yet another definition provides that ‘treaty interpretation is a process of discovering the proper meaning of treaty terms through various interpreting methods; however, treaty application is a process of identifying the source of law and applying it.’56 Based on these varied definitions seeking to differentiate between interpretation and application, a common factor that can be identified is that while interpretation relates to understanding the meaning of the terms of a treaty, the process of application relates to use of the treaty in a given scenario. In practical situations, the distinction is blurred and disputes on interpretation frequently coexist with situations of application of the treaty and with a situation of application requiring a ‘conscious or subconscious interpretation of the treaty’.57 In fact, on one hand, any dispute on the application of a treaty is linked to an interpretation of the provision, which needs to be applied.58 On the other hand, the ‘subsequent practice in the application’ of a treaty is also one of the factors to be taken into account for the interpretation of a treaty as per Art. 31(3)(b) of the VCLT.59 This indicates that disputes on application would involve interpretation and vice versa. The parties in an arbitration process are free to determine the questions which should be considered by a panel that has been called upon to resolve a dispute.60 The parties can thus frame their questions in a manner which may provide the tribunals with an indication of whether it should make an abstract determination which would be closer to an interpretation of the treaty, or a determination on the compatibility of a particular act with the treaty provisions, which would be a situation more inclined towards application of the treaty.

53

Hosseinnejad (2015), p. 230 et seqq. Committees on Research in International Law (1935), p. 939. 55 Schwarzenberger (1968), p. 7. 56 Lo (2012), p. 9. 57 Committees on Research in International Law (1935), p. 939; Schwarzenberger (1968), p. 8; Linderfalk (2007), p. 165; See also, Gardiner (2015), p. 26 et seqq.; Etinski (2016), p. 12 et seq.; Papadaki (2014), p. 569 et seq. 58 Gallo and Nicola (2015–2016), p. 1138. 59 ILC (2013), p. 11 et seqq. 60 UNCTAD (2003b), p. 39. 54

2.2 The Functioning of the State-to-State Arbitration Process

2.2

35

The Functioning of the State-to-State Arbitration Process

An important step for utilising the compromissory clause under an IIA is the formation of the state-to-state arbitral tribunal. An arbitral tribunal created under international law is based on some instrument of international law such as a treaty, which governs its functioning.61 The formation of the SSAT signals the commencement of the second phase among the three phases of the arbitration process of which the first one is the execution of an agreement to arbitrate, the second relates to the proceedings in front of the arbitrator and the last phase involves the enforcement proceedings.62 The first phase in case of an interstate arbitral process is already completed by the conclusion of an IIA with a compromissory clause calling for state-to-state arbitration and the third phase is largely outside the ambit of this study. The next section discusses the functioning of the arbitral tribunals, which is a part of the second phase and the core focus of this study.

2.2.1

Arbitrability as a Key Feature for Arbitration

The term ‘arbitrability’ is generally used to describe the conditions or requirements that need to be fulfilled to ensure that arbitration goes ahead.63 The term covers several issues which include questions on the existence of an arbitration agreement, the validity of an arbitration agreement and coverage over the dispute under the agreement.64 The parameters to determine arbitrability are often used to highlight the objections to arbitral jurisdiction which can be considered by the courts.65 In the case of international arbitration, it is the responsibility of the arbitral tribunal to determine the arbitrability of a particular dispute based on the law governing the agreement and on arguments raised by the parties.66 An exception to this situation is arbitration under the Model Rules,67 which required the ICJ to decide on the arbitrability of a dispute if a tribunal is not yet formed. As of now, this provision is not expected to come into use since there is greater recognition of the 61

Cisar (2010), p. 1506. Fraenkel (1934), p. 226 et seqq. 63 Baron and Liniger (2003), p. 27; Bermann (2012), p. 10. 64 Rameau (2015), p. 90; Bermann (2012), p. 10. 65 Bermann (2012), p. 12. 66 Hanotiau (1996) p. 393 et seqq.; See also, Art. 1(3), Model Rules on Arbitral Procedure with a general commentary 1958, International Law Commission, Yearbook of the International Law Commission, 1958, vol. II., pp. 83–88; Welser and Molitoris (2012), p. 18 et seqq. 67 Art. 1 (1), Model Rules on Arbitral Procedure with a general commentary 1958, International Law Commission, Yearbook of the International Law Commission, 1958, vol. II., pp. 83–88. 62

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autonomy of the parties and the power of the arbitral tribunal to determine its own competence to decide on a dispute.68

2.2.2

Principles Related to Jurisdiction of an Arbitral Tribunal

Jurisdiction has been defined as the ‘power of a particular forum to hear a case.’69 It is the evaluation of whether the court or tribunal has the authority to decide on a case and render a decision that will be binding on the parties.70 The principle of ‘who decides’ whether an arbitral tribunal has jurisdiction in a given case is contested based on two doctrines—separability and competence-competence.71 Both these principles originate in the parties’ desire to promote arbitration as the mode of dispute resolution.72 In cases of commercial international arbitration, the question of whether an arbitral tribunal has jurisdiction over a dispute is generally determined in three stages. The first stage may involve litigation before a court with a request by one party to refer the dispute to arbitration, the second stage involves the arbitral tribunal determining its own jurisdiction and in the third phase, a court may decide on the jurisdiction of the tribunal in a challenge to the award of the tribunal in a competent court.73 In many cases, the parties may move directly to the second phase where none of them decides to use the first stage. In case of arbitration of state-to-state disputes under IIAs, the jurisdiction of the arbitral tribunal is normally determined in the second stage. This is based on the provisions of the IIAs, as the jurisdiction of an arbitral tribunal is based on the arbitration agreement.74 While evaluating its jurisdiction, the SSAT has to decide on the existence of a dispute and the presence of state consent in addition to determining its subject matter (rationae materiae) and temporal (rationae temporis) jurisdiction.75 It also has to establish the ‘intention of the parties’ to arbitrate a given dispute.76

68

Amerasinghe (2011), p. 30 et seqq.; Amerasinghe (2003), p. 130 et seq. Alarco (2007), p. 204. 70 Proelss (2018), p. 47 et seq. 71 Barcelo III (2003), p. 1116; Lee (1995), p. 421. 72 Cossio (2007), p. 232. 73 Cossio (2007), p. 231; Barcelo III (2003), p. 1118. 74 Nodeh (2003–2004), p. 123. 75 Papadaki (2014), p. 566 et seq. 76 Atkey (1968), p. 122 et seqq. 69

2.2 The Functioning of the State-to-State Arbitration Process

2.2.2.1

37

Separability of the Arbitration Clause

The separability doctrine states that the arbitration agreement can be considered as an agreement separate from the main contract.77 This prevents a situation when due to the finding of nullity of the main contract, the arbitration clause is also affected and hence the obligation to arbitrate would not exist.78 The principle is reflected in domestic laws and is seen as the “who decides” question, holding, in effect, that when parties enter into a main contract and include in it a broadly worded arbitration clause, a court will treat them as having concluded two separate contracts, the main contract, and an arbitration agreement.79 In state-to-state arbitration, instead of a court, the power to examine the validity of the treaty is given to the arbitral tribunal itself.80 The nullity of a compromissory clause of the treaty is an exceptional situation, but if established will mean automatic nullity of the award.81 An arbitral tribunal is provided with the power to determine the validity of the treaty and the arbitration clause for such determination will be considered independent of the treaty.82 A decision about the nullity of the treaty will not mean invalidity of the arbitration clause itself.83 The separability doctrine also allows a challenge to the arbitration clause of the contract.84 This is important to ensure that the arbitration clause on which the consent of the parties related to the arbitration is based can be scrutinised before the entire dispute is referred for arbitration.85 While, in domestic arbitration, this duty would generally be performed by a court, in a state-to-state arbitration, the arbitral tribunal itself is provided with the power to evaluate any objections as to the validity of the clause.86

77

Bermann (2012), p. 22. Cossio (2007), p. 232. 79 Feehilly (2018), p. 355 et seqq.; Barcelo III (2003), p. 1119. 80 Malintoppi (2006), p. 148. 81 Comments on particular articles, Model Rules on Arbitral Procedure with a general commentary 1958, International Law Commission, Yearbook of the International Law Commission, 1958, vol. II, pp. 83–88, para 43; Art. 35 (d), Model Rules on Arbitral Procedure with a general commentary 1958, International Law Commission, Yearbook of the International Law Commission, 1958, vol. II, pp. 83–88. 82 Art. 21 (2), PCA Optional Rules for Arbitrating Disputes between Two States (1992). 83 Art. 21 (2), PCA Optional Rules for Arbitrating Disputes between Two States (1992). 84 Bermann (2012), p. 23. 85 Bermann (2012), p. 23. 86 Art. 21 (1), PCA Optional Rules for Arbitrating Disputes between Two States (1992). 78

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Competence-Competence Principle

The power of the arbitral tribunal to determine its own competence is an established principle in international law.87 The principle of competence-competence has been described as: ‘the power of an arbitral tribunal to decide on its own jurisdiction or, as it is often put, its competence to decide upon its own competence.’88 The competence-competence principle is based on the fundamental principle that parties to a valid arbitral agreement will honour the agreement by choosing arbitration as their mode of dispute resolution and courts will not interfere with the dispute resolution process.89 The arbitral tribunal then has the power to determine its competence to rule on the dispute.90 A state-to-state arbitral tribunal also enjoys the competence to determine its own jurisdiction.91 This principle is recognised in customary international law and it falls on the arbitral tribunal to establish if it has the power to resolve the dispute in terms of the arbitration agreement.92 The state parties, however, exercise control on the arbitration process by laying down the scope of disputes to be resolved and the arbitral tribunal cannot exceed its mandate.93 In case the arbitral tribunal fails to comply with the arbitration agreement, the decision of the arbitral tribunal may be later declared as null and void on review.94

87

Cook (2014), p. 17; Atkey (1968), p. 117. Redfern and Hunter (2004), p. 252. The principle of Kompetenz-Kompetenz is considered to be linked to it, but to prevent misunderstanding, ‘competence-competence’ is used. On this see, Gaillard and Savage (1999), p. 395 et seqq. 89 Cook (2014), p. 17; See also, Lee (1995), p. 423 et seqq. 90 de Chazournes (2005), p. 196. 91 Art. 31.7, Belarus-India BIT, 2018; Clause 6, Annex A, Australia-Uruguay BIT, 2019; Rule 16, Annex 4, ASEAN DSM Protocol, 2010; Art. 9, Model Rules on Arbitral Procedure with a general commentary 1958, International Law Commission, Yearbook of the International Law Commission, 1958, vol. II, pp. 83–88; Art. 73, Hague II Convention; Art. 48, Hague I Convention; Art. 21 (1), PCA Optional Rules for Arbitrating Disputes between Two States (1992); Art. 11, Draft Convention on Arbitral Procedure in United Nations (1955), p. 45; See also, Special Tribunal for Lebanon, Case No. CH/AC/2010/02, Decision on Appeal of Pre-trial Judge’s Order Regarding Jurisdiction and Standing, Appeals Chamber, 10 November, 2010, para 43 et seqq.; Haersolte-van Hof and Koppe (2015), p. 36; Wood (2017), p. 10. 92 Special Tribunal for Lebanon, Case No. CH/AC/2010/02, Decision on Appeal of Pre-trial Judge’s Order Regarding Jurisdiction and Standing, Appeals Chamber, 10 November, 2010, para 43 et seqq.; Haersolte-van Hof and Koppe (2015), p. 36. 93 Simmonds (1987), p. 5; Malintoppi (2006), p. 149. 94 Rajput (2015), p. 598 et seq.; Haersolte-van Hof and Koppe (2015), p. 36; Malintoppi (2006), p. 149. 88

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2.2.2.3

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Challenges to the Jurisdiction of the Tribunal

The jurisdiction of any international tribunal in a dispute between state parties is based on the conferral of powers by ‘the parties in dispute’ and ‘only insofar as the states have accepted it.’95 The jurisdiction of the tribunal is hence restricted by the terms of the agreement between the parties to confer the jurisdiction.96 The jurisdictional clauses in the treaties are closely evaluated by the parties regarding their actual scope and the powers that they provide to the tribunal.97 A challenge to the jurisdiction of a state-to-state arbitral tribunal must generally “be raised not later than in the statement of defence or, with respect to a counter-claim, in the reply to the counter-claim.”98 It can be considered that a challenge to jurisdiction should normally be made on the first hearing and the arbitral tribunal may choose to deal with it as a preliminary question or in some situations even deal with it directly in the final award.99 In any case, a challenge to jurisdiction may delay the proceedings100 and in such cases where its jurisdiction is challenged, it may be an issue that will have to be dealt with by the SSAT.101

2.2.3

Mutual Consent of State Parties for Arbitration

Consent of the states for arbitration is a key consideration for the determination of jurisdiction,102 and no external party can force a state to join arbitration proceedings.103 Consent is required not only for establishment but also for the jurisdiction of the tribunal.104 States are generally free to choose the manner in which they provide the consent to arbitration and no state may be compelled to undertake arbitration or any other form of dispute settlement without its consent.105 A state-to-state

95

Atkey (1968), p. 112. Malintoppi (2006), p. 148. 97 Berman (2004), p. 322. 98 Art. 21 (3), PCA Optional Rules for Arbitrating Disputes between Two States (1992). 99 Rule 16, Annex 4, ASEAN DSM Protocol, 2010. 100 Atkey (1968), p. 139. 101 Lalive (1986), p. 30; Atkey (1968), p. 117. 102 Institute of International Law (1999), para 1; Haersolte-van Hof and Koppe (2015), p. 35; Alarco (2007), p. 202; Atkey (1968), p. 114. 103 Fox (1988), p. 7. 104 Atkey (1968), p. 113; Office of Legal Affairs (1992), p. 55; Nodeh (2003–2004), p. 123 et seq. 105 PCIJ, Status of Eastern Carelia, Advisory Opinion, 1923 P.C.I.J. (ser. B) No. 5 (July 23), p. 27, para 33; ICSID, Case No. ARB/15/21, Menzies Middle East and Ors. v Senegal, Award, 5 August, 2016, para 129 et seqq. (Award available only in French); See also, Office of Legal Affairs (1992), p. 55; Nodeh (2003–2004), p. 123; Danilowicz (1986), p. 250; Fox (1988), p. 7. 96

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arbitration is primarily dependent on the treaty signed by parties as an agreement to arbitrate or on the treaty which establishes the arbitrating institution.106 The consent may be provided at an earlier point prior to submission of a dispute before the tribunal through a treaty, protocol, declaration or any other form of agreement whereby the parties agree to submit the disputes before the tribunal without the need for any further consent of the other party in the future.107 Consent through IIAs has emerged as the leading source of state consent for investor-state arbitration.108 Concerning consent for state-to-state arbitration, the IIAs generally include a ‘compromissory clause’ which as introduced before ‘is a provision in a treaty which provides for the settlement by arbitration of all or part of the disputes which may arise regarding the interpretation or application of that treaty.’109 Certain treaties also contain additional provisions which state the parties ‘prior consent to arbitration’ as seen in the USA-Ecuador BIT.110 Explicit consent through a separate clause only for state-to-state arbitration is also seen in many IIAs conducted by Brazil with Latin American countries.111 However, in certain very rare treaties such as the Brazil-Malawi ICFA,112 or in case of the new South African investment act,113 there is no advance explicit consent for state-to-state arbitration in the form of a compromissory clause or an explicit consent clause. In these cases, it might be essential to obtain consent through a fresh agreement before commencing any arbitral proceedings.114 Additionally, while compromissory clauses may be a common practice in treaties, a state-to-state arbitration may also be commenced between the parties through ad hoc agreement concluded later by the parties,115 which may be in the form of a compromis.

106

Caron (1990), p. 109; PCIJ, Status of Eastern Carelia, Advisory Opinion, 1923 P.C.I.J. (ser. B) No. 5 (July 23), p. 27, para 33; Nodeh (2003–2004), p. 123. 107 Atkey (1968), p. 113; Peters (2003), p. 17. 108 Alarco (2007), p. 203.See also, Wood (2017), p. 10. 109 Nolan and Caivano (2010), p. 884 et seq.; Office of Legal Affairs (1992), p. 57 et seq.; Romano (2007), p. 804; Rameau (2015), p. 84; See also, Papadaki (2014), p. 561 et seq. For discussion on a similar provision in the UNCLOS, see, Proelss (2018), p. 50; Ulgen (2016), p. 20 et seq.; Tams (2009). 110 Art. VII, USA-Ecuador BIT, 1993. 111 Art. 25, Brazil-Suriname CFIA; Art. 25, Brazil-Guyana CIFA; Lubambo (2017), p. 90; Macias (2016a), p. 649. 112 Art. 13, Brazil-Malawi ICFA; Vidigal and Stevens (2018), p. 487 et seq.; Martini (2015); See also, Macias (2016a), p. 649. 113 Section 13(5), Protection of Investment Act, 2015, Act No. 22 of 2015, South Africa; See also, Roberts (2018), p. 417. 114 Vidigal and Stevens (2018), p. 489 et seq. 115 Papadaki (2014), p. 561 et seq.

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Admissibility as a Key Issue for State-to-State Arbitration

The issue of admissibility along with jurisdiction is described as a key preliminary issue that is dealt with by arbitral tribunals.116 The distinction between the two elements is frequently debated and drawing a clear distinction may be tough since the absence of either of them leads to the same result of a tribunal refusing to hear a case.117 While jurisdiction deals with the ‘power of a tribunal to hear a case’, admissibility deals with the power of the tribunal to dismiss a case without considering its merits.118 In simple terms, jurisdiction deals with the ‘competency’ of an arbitral tribunal to deal with a case while admissibility is related to the ‘claim itself.’119 A question of admissibility can normally only be decided after the tribunal has affirmed its jurisdiction.120 As such, admissibility involves a certain degree of discretion of the tribunal to consider whether to decide upon a given case.121 Issues that can be taken into consideration while determining the admissibility of a dispute include ‘abuse of process’ and ‘interest of justice’.122 The grounds of inadmissibility of a dispute encompass absence of legal interest of the plaintiff, the non-joinder of the necessary third parties, mootness of a dispute, extinctive prescription, waiver of claims and certain other grounds such as the ‘clean hands doctrine.’123 An SSAT formed to deal with the interpretation or application of an IIA will have to decide on the admissibility of the dispute before moving ahead with the case. A decision to decline a dispute based on a lack of admissibility may mean that ‘the claim was neither fit nor mature for judicial treatment.’124

2.2.5

Additional Key Principles Required To Be Fulfilled

IIAs may require the fulfilment of additional requirements for acceptance of a dispute by an SSAT. A few prominent possible requirements are listed below.

116

Alarco (2007), p. 226. Proelss (2018), p. 47 et seq. 118 Alarco (2007), p. 227. 119 Sczczudlik (2014), p. 82 et seq. 120 Crawford (2019), p. 667. 121 Rosenfeld (2016b), p. 151; Proelss (2018), p. 47 et seq.; Shany (2013), p. 787. 122 Shany (2013), p. 787. 123 Crawford (2019), p. 671 et seq. 124 Proelss (2018), p. 47 et seq. 117

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2.2.5.1

Need for the Exhaustion of Other Remedies Before Acceptance of Disputes by the Tribunal

The IIAs may frequently contain provisions that call for attempts at using bilateral methods such as negotiation or consultation before resorting to adjudication through a third party based dispute resolution method such as state-to-state arbitration.125 They may also require exhaustion of local remedies, where available. A few of these important provisions are discussed below.

2.2.5.1.1

Exhaustion of Local Remedies

Most IIAs may contain articles which require that an effort is made to resolve a dispute amicably before being referred to an arbitration tribunal.126 Compliance with such clauses is important as non-compliance may be a ground to object to the jurisdiction of the tribunal.127 The need to exhaust local remedies is based on the principle that the “State where the violation occurred should have an opportunity to redress it by its own means, within the framework of its own domestic legal system.”128 In case of a diplomatic protection claim on behalf of its nationals, it may be required that before approaching the state for pursuing claims on its behalf through state-to-state arbitration, the national must have exhausted the domestic remedies available to him.129 This means that an investor may request for diplomatic protection only after the local judicial remedies have been exhausted, even of appealing to the highest courts.130 The burden of proving that the investor has not exhausted all local remedies rests on the respondent state.131 The origins of this principle lay in customary international law which was later codified under the Draft Articles on Diplomatic Protection.132 The known exception to this rule is for claims made by a state for the protection of its own rights.133 There are certain other specific

125

UNCTAD (2003b), p. 15. Alarco (2007), p. 217. 127 Alvarez-Jimenez (2008), p. 446 et. seqq.; Alarco (2007), p. 218. 128 ICJ, Interhandel Case, Judgment of March 21st, 1959: I.C.J. Reports 1959, p. 6, 27. 129 Brownlie (1998), p. 497; Gallo and Nicola (2015–2016), p. 1142; Art. 14, Draft articles on Diplomatic Protection, 2006, See also, ICJ, Interhandel Case, Judgment of March 21st, 1959: I.C.J. Reports 1959, p. 6, 27; ICJ, Elettronica Sicula S.P.A. (ELSI), Judgment, I.C.J. Reports 1989, p. 15, 42; Schreuer (1997), p. 219; Wong (2014), p. 16; Lo (2013), p. 6; Malanczuk (2000), p. 423. 130 Alvarez-Jimenez (2008), p. 444; Schreuer (2005), p. 1 et seq.; Lo (2013), p. 5; On an explicit provision regarding the requirement of exhaustion of domestic remedies, See Section 13(5), Protection of Investment Act, 2015, Act No. 22 of 2015, South Africa. 131 Alvarez-Jimenez (2008), p. 447. 132 Art. 14 (1), Draft articles on Diplomatic Protection, 2006; See also, Enabulele (2012), p. 271 et seqq.; Malanczuk (2000), p. 423. 133 Italy v Cuba, Interim Award, March 15, 2005, para 88 et seqq.; See also, Trevino (2014), p. 209; Lourie (2015), p. 526. 126

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situations under which the requirement to exhaust local remedies may be waived as clarified by the Draft Articles.134 The necessity for the exhaustion of local remedies in a state-to-state arbitration for diplomatic protection based on an IIA was recognised in the Italy v Cuba case,135 wherein Italy had brought claims on behalf of its citizens.136 In the given case, the SSAT had based its decision on the Interhandel137 decision of the ICJ.138 This decision is also consistent with the decision of the ICJ in the ELSI case wherein the Court refused to ignore the principle without the explicit intention of the parties.139 In general, the exhaustion of local remedies is generally required only for diplomatic protection claims140 and may not be required for a purely interpretative claim or when a claim is brought by a state for injuries caused to itself directly.141 The exception to this rule is rare treaties, which explicitly require exhaustion of domestic remedies for all disputes regarding interpretation or application of the treaty.142 In case of mixed disputes which contain both a declaratory claim by a state (regarding the interpretation of a treaty) and a diplomatic protection claim (application of a treaty), the ILC has prescribed under the Draft Articles that exhaustion of local remedies will be required in case the claim is brought ‘preponderantly on the basis of an injury to a national or other person.’143 In another approach, the Italy v. Cuba tribunal had to deal with such a mixed claim and it determined that the exhaustion of local remedies rule applied only for the part which related to the diplomatic protection of the citizens and not for the part which relates to direct claim by the member state of its own rights.144 It is predicted that even if state-to-state arbitration emerges as a mode for dispute resolution under which investors could seek the assistance of their home states, exhaustion of local remedies will be a key element.145

134

Art. 15, Draft articles on Diplomatic Protection, 2006. Italy v Cuba, Interim Award, March 15, 2005, para 89; Prior to this decision, the requirement for exhaustion of local remedies for an international claim was recognised by the ICSID Tribunal in the Waste Management case. On this, see, ICSID, Case No. ARB(AF)/00/3, Waste Management, Inc. v. United Mexican States, Award, 30 April 2004, para 97. 136 Milano (2012), p. 509. 137 ICJ, Interhandel Case, Judgment of March 21st, 1959: I.C.J. Reports 1959, p. 6. 138 Italy v Cuba, Interim Award, March 15, 2005, para 89; Milano (2012), p. 509. 139 ICJ, Elettronica Sicula S.P.A. (ELSI), Judgment, I.C.J. Reports 1989, p. 15, para 50; Milano (2012), p. 509; Sornarajah (1997), p. 135 et seqq. 140 Gallo and Nicola (2015–2016), p. 1142; Broches (1972), p. 372. 141 Vermeer-Künzli (2007), p. 39; Potesta (2013), p. 757; Lourie (2015), p. 516. 142 See, Art. 8, Sweden-Egypt BIT, 1978. 143 Art. 14(3), Draft articles on Diplomatic Protection, 2006. 144 Italy v Cuba, Interim Award, March 15, 2005, para 86–91; In support of this interpretation, see, Vermeer-Künzli (2007), p. 39; See also, Potesta (2013), p. 759; Lourie (2015), p. 521. 145 Chi (2013), p. 27. 135

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The need to exhaust local remedies for claims on behalf of investors has been opposed and it has been argued to be non-compliant with the IIA regime considering that the alternate available remedy in an IIA, i.e. investor-state arbitration does not generally require exhaustion of local remedies unless explicitly specified.146 This view was not accepted by the Italy v. Cuba tribunal, which reiterated the need for the exhaustion of local remedies.147 In fact, as an indication of state practice, the 2012 SADC Model BIT explicitly includes the requirement for exhaustion of local remedies before moving forward for diplomatic protection.148 Alternatively, bypassing the requirement of exhaustion of local remedies clause may be possible through the use of the MFN clause in an IIA to import a (theoretical) highly favourable waiver of exhaustion of domestic remedies provision from another IIA.149 Importing a dispute settlement clause from a third party IIA based on an MFN is highly controversial,150 but not entirely impossible as seen from the creative utilisation of the clause in the EDFI,151 Maffezini152 and the White Industries cases153 and the subsequent need felt by state parties to explicitly prohibit it.154 However, hurdles can be expected based on the fact that the benefit of an MFN provision may not accrue to a State but only to the investors or their investment.155 A few treaties have however removed this hurdle by stating that a state party may also receive these rights when subrogated by the investor.156 This might be particularly

146

Trevino (2014), p. 210. For further discussion on the issue, also see, Lourie (2015), p. 521 et seq. Lourie (2015), p. 521.; For views supporting the existence of the exhaustion of local remedies rule even in the presence of BITs, see, Sornarajah (1997), p. 135 et seqq. 148 Art. 28.4, 2012 SADC Model BIT. 149 On the possibility to use MFN standards to import more favourable state-to-state dispute resolution provisions, see, UNCTAD (2003b), p. 61 et seq. For a discussion on attempts to import favourable procedural provisions, See, The Ambatielos Claim (Greece, United Kingdom of Great Britain and Northern Ireland), 6 March 1956, RIAA, Vol. XII pp. 83–153, 107; ICSID, Case No. ARB/02/8, Siemens A.G. v. The Argentine Republic, Decision on Jurisdiction, 3 August 2004; See also, Figanmeşe (2011), p. 227 et seqq.; Howard (2017), p. 29 et seq.; Moschtaghi (2018), p. 222 et seq. 150 Perez-Aznar (2017), p. 779 et seqq.; Ishikawa (2015b), p. 129; See also, Douglas (2011), p. 107 et seqq. 151 The case saw the import of an umbrella clause which allowed arbitration instead of recourse to domestic courts. On this see, ICSID, Case No. ARB/03/23, EDFI et al. v. Argentina, Award, 11 June 2012 para 928 et seqq. 152 ICSID, Case No. ARB/97/7, Emilio Agustín Maffezini v. Kingdom of Spain, Award, 13 November 2000, ICSID Review 16(1):248–278, para 21. 153 White Industries Australia Ltd. v. India, UNCITRAL, Final Award, 30 November 2011; For views supporting the possibility to import dispute resolution clauses from a third-party treaty through the MFN clauses, See, Noh (2012), p. 310; See also, Alarco (2007), p. 220; Lubambo (2016), p. 239; Schreuer (2008), p. 208. 154 Art. 5(4), Colombia-France BIT, 2014. 155 ILC (2015), para 69. 156 For example, see, Art. 6, Germany-Palestine BIT, 2000; Art. IX(2), Argentina-Canada BIT, 1991; Art. 10(2), Argentina-United Kingdom BIT, 1990. 147

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relevant for diplomatic protection claims wherein the home state has paid out the compensation to its investors and now seeks to claim the same from the host state of the investor through a diplomatic protection claim based on a state-to-state arbitration and it hinges its claims on the subrogated rights. In rare cases, the treaties specify that the MFN principle which applies to investments will also encompass the compromissory clause.157 Whether that means that any SSAT dealing with the investments may also use the MFN clause is however not yet clear in the absence of actual cases. Notwithstanding the rule requiring exhaustion of local remedies can be excluded by states explicitly by entering into a treaty.158 In practice, this is seen in the case of the IUSCT159 and the Eritrea-Ethiopia Claims Commission.160 In the absence of such a treaty, the possibility to waive the exhaustion of local remedies requirement implicitly is debated and is not universally recognised.161 The possibility of an implicit waiver is not accepted since a diplomatic protection claim is a rare and exceptional situation when two member states have been called upon to involve themselves in a process that ideally should have been resolved in investor-state or domestic judicial proceedings.162 State parties who have had to resort to such an exceptional measure based on customary international law principles are unlikely to have sought to implicitly delink state-to-state arbitration from international law based on the IIA.163

2.2.5.1.2

Use of Mandatory Consultation or Other Diplomatic Channels Under the Treaties Before State-to-State Arbitration

The need for recourse to consultations or other means of negotiation before moving forward for binding third party dispute resolution is a common situation in international law.164 In the case of state-to-state arbitration based on IIAs, the requirement

157

For examples of such treaties, see, Art. 3(3), UK-Ethiopia BIT; Art. 3(3), Barbados-Cuba BIT, 1996. On this see also, Gaillard (2005). 158 ICJ, Elettronica Sicula S.P.A. (ELSI), Judgment, I.C.J. Reports 1989, p. 15, 42, para 50; Lo (2013), p. 6; Lubambo (2016), p. 239; Juratowitch (2008), p. 28. 159 Art. II(1), Claims Settlement Declaration. 160 Art. 5(8), Peace Agreement between Eritrea and Ethiopia; Juratowitch (2008), p. 28 et seq. 161 Potesta (2013), p. 760; Lo (2013), p. 6; Also for the principle of Implicit waiver in the Iran-US claims tribunal, see, Puig (2013), p. 209. 162 Potesta (2013), p. 761. 163 On a discussion on the continued linkage with international law even after execution of a treaty see, Cannizzaro and Bonafe (2005), p. 495 et seq. 164 ICJ, Application of the International Convention on the Elimination of All Forms of Racial Discrimination (Georgia v. Russian Federation), Preliminary Objections, Judgment, I.C.J. Reports 2011, p. 70 at 124, para 131 et seqq.; Peters (2003), p. 12; UNCTAD (2003b), p. 58; On the requirements for consultation in WTO Dispute Settlement Process see, Felicano (2001), p. 216; Rosenfeld (2016b), p. 141 et seqq.

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to attempt or pursue consultations or negotiations generally emerges from the text of the IIA and these provisions may be obligatory (indicated by use of words such as ‘shall’ or ‘must’).165 For most IIAs, it is mandatory that before moving forward with state-to-state arbitration, the parties attempt to resolve the dispute through consultation and/or other diplomatic channels.166 When these measures fail, the aggrieved party may move forward to bring a state-to-state arbitration claim.167 The party who will then bring the claim for state-to-state arbitration would in most instances have to show that an attempt was made to resolve the dispute through these means before moving forward for state-to-state arbitration.168 A practical example of such a provision is seen in the 2012 Model US BIT where Art. 37 State-to-state Dispute settlement provides that: any dispute between the Parties concerning the interpretation or application of this Treaty, that is not resolved through consultations or other diplomatic channels, shall be submitted on the request of either Party to arbitration . . .

Similar provisions are included in the US-Uruguay BIT,169 the FTA between Albania and the EFTA States170 and the draft text of the Multilateral Agreement on Investment (MAI).171 In order to prevent conflicts between arbitration and conciliation/consultation proceedings or prevent parallel proceedings, the agreements can also indicate that the dispute must have been attempted to be resolved through conciliation, consultations or diplomatic channels, but must not have been resolved.172 Other IIAs may refer to negotiations instead of consultation as a mandatory procedure but with a similar requirement of negotiations being unsuccessful before moving forward for arbitration.173 The FTA between Albania and EFTA States also provides an example of an exceptional situation when a selection between two modes of dispute resolution is possible before moving for a state-to-state arbitration. It provides an option for

165

For a provision signifying such a mandatory requirement, see, Art. XIV(1), St. Vincent and the Grenadines-Taiwan BIT; Art. 10(1), India-Nepal BIT, 2011; Art. 8(2), Algeria-Serbia BIT. See also, Walde (1996), p. 439. 166 UNCITRAL Working Group III, Possible reform of investor-State dispute settlement (ISDS)— Submission from the Government of Brazil, 11 June 2019, A/CN.9/WG.III/WP.171, p. 3; Johnson and Razbaeva (2014), p. 14; Lubambo (2016), p. 230; Trevino (2014), p. 211. See also, Baltag (2018), p. 367. 167 Hoffmeister and Unuvar (2013), p. 74. 168 Trevino (2014), p. 211. 169 Art. 37, USA-Uruguay BIT, 2005. 170 Art. 33, Albania-EFTA FTA, 2009. 171 Chapter V, C. 1, Draft Multilateral Agreement on Investment. 172 Art. 2(1), Annex: Conciliation and Arbitration, Arab Investment Agreement; Gallo and Nicola (2015–2016), p. 1137; Lo (2013), p. 12. 173 For examples of such IIAs, see, Art. 8(1), China-Turkey BIT, 1990; Art. 8(1), China-Mongolia BIT, 1991.

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resolution of disputes either through the Joint Committee under the treaty or through consultation.174 The consequences of non-completion of a mandatory consultation procedure were seen in Ecuador v. USA case wherein one of the reasons for the failure to find a dispute by the tribunal was the failure of Ecuador to invoke the provision for consultation.175 While there may be a lack of clarity if this is a jurisdictional requirement, it is nevertheless recommended that the procedure is completed by a prospective claimant.176 Provisions limiting the consultation or negotiation period are provided in most IIAs,177 but in the absence of such fixed periods, it must generally not exceed the commonly prescribed time period of 6 months.178

2.2.5.2

Bar on State-to-State Arbitration and Fork in the Road Clauses for State-to-State Arbitration

The ‘fork in the road provisions’ are present in some IIAs and they state that the use of one method of dispute settlement provided in the IIA would preclude the claimant state from using other methods of dispute resolution.179 Actions by an investor may also affect a home state’s ability to recourse to state-to-state arbitration as IIA provisions may restrict the ability of a state to commence a diplomatic protection proceeding through an SSAT if the investor has consented to investor-state arbitration.180 In fact, ongoing ISAT proceedings may prevent recourse to state-to-state arbitration as a whole even for other forms of claims by a state (other than diplomatic

174

Art. 33 (1), Albania-EFTA FTA, 2009. Similar provisions are also seen in Art. 9(1), IsraelMyanmar BIT. 175 PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Award, 29 September, 2012, para 227. 176 On the possibility of rejection of jurisdiction due to failure to fulfil such a requirement for exhausting efforts of diplomatic resolution under an FCN treaty, See, ICJ, Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), Jurisdiction and Admissibility, Judgment, I.C.J. Reports 1984, p. 392, 452–54, para 4 et seqq.; See also, Ishikawa (2015b), p. 143; Charney (1987), p. 856 et seq. 177 An exception with no time period can be seen in the Switzerland-Sudan BIT, 1974 and CanadaGuinea BIT. 178 Baltag (2018), p. 367. For an IIA with an extremely long time period of 12 months for consultations, see Art. 9, Jordan-Syria BIT. For another exceptional situation when arbitration may be commenced merely 60 days after notification of a dispute to the other party, without any mandatory requirement for consultation, mediation or conciliation, See, Art. 21(1), AustriaNigeria BIT. 179 Alarco (2007), p. 216; UNCTAD (2003b), p. 28. 180 See, inter alia, Art. 10(3), Korea-Italy BIT, Art. 13(8), Netherlands-Peru BIT and the UK-Mexico BIT; See also, Sect. 4.5.1.1.1 of this book.

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protection).181 In addition to restrictions for state-to-state arbitration based on the IIA provisions, similar restrictions on diplomatic protection may also be derived from the ICSID Convention,182 the UNCITRAL rules on transparency,183 and rules of arbitral institutions.184 The fork in the road provisions may also be present as a clause which excludes recourse to state-to-state arbitration in case the state has chosen another mode of dispute resolution mentioned in the same agreement for the same dispute.185 In certain cases, recourse to state-to-state dispute settlement under the IIA may be precluded if another mode of dispute settlement has been chosen outside the IIA on the same dispute.186

2.2.6

Applicable Law and Rules for State-to-State Arbitration Under IIAs

Arbitration as a mode of dispute resolution needs to be supported by procedural provisions.187 While compromissory clauses express the consent of the parties to arbitration, they may generally be silent on the procedure for the conduct of the arbitration such as applicable law and rules for the arbitral tribunal.188 While some treaties provide extensive details on the rules of procedure and method, applicable law and the administrative aspects of the tribunal,189 others may require the conclusion of a special agreement (compromis) to clarify these issues.190 The state parties enjoy a great degree of freedom in determining the conduct of arbitration 181

For such a broad clause restricting recourse to state-to-state arbitration as a whole for a dispute under an IIA due to ongoing investor-state arbitration proceedings on the same dispute, see, Art. VII(5), Cuba-Turkey BIT, 1997. 182 On this see, Art. 27(1), ICSID Convention. For a detailed discussion on the subject, See, Sect. 4.5.1.1.1 of this book. See also, Dolzer and Schreuer (2012), p. 234. 183 Art. 5(2), UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration; See also, Polanco (2019), p. 221. 184 Appendix III, Art. 4(2)(ii), SCC Rules, 2017. 185 See Art. 2005(1), NAFTA which allows the party to choose between SSDS under the Chapter 20 or alternatively under the WTO Dispute Settlement Process; On this, see also, UNCTAD (2003b), p. 28; Shany (2013), p. 795. 186 For example of such a provision, See, Art. 2(5), ASEAN-India Dispute Settlement Mechanism Agreement, 2009. 187 Simmonds (1987), p. 3. 188 Papadaki (2014), p. 563 et seq.; Office of Legal Affairs (1992), p. 58. 189 An example of a treaty with detailed coverage on these areas is the AANZFTA Agreement which contains a detailed explanation of the arbitral procedure in Art. 17 of the treaty and has an Annex on Rules of Procedure for Arbitral Tribunal Proceedings. Another such treaty with detailed guidance on rules and a separate Annex on Rules of Procedure for Arbitral Tribunal Proceedings is the MAFTA. 190 Mann (1967), p. 1; Office of Legal Affairs (1992), p. 58.

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proceedings ranging from the selection of applicable law and rules to determining the scope of the award.191 Even then, some compromis or the treaty itself may remain silent on these issues and create situations of confusion, some of which are discussed below.

2.2.6.1

Applicable Law

The conduct of state-to-state arbitration is generally governed by rules of public international law192 (lex arbitri193 and lex causae194), and tribunals have applied international law as the applicable law in the absence of an express choice of law.195 State parties to the agreement are free to determine the laws applicable to state-tostate arbitration and may choose to replace the customary international law governing such practices.196 The generally accepted rule that the law of the seat applies to arbitration is not always true for a state-to-state arbitration owing to the principle of jurisdictional immunity, and the IIA may specify the applicable law even while mentioning a seat of jurisdiction.197 The parties may also decide to modify the applicable customary international law principles governing state-to-state disputes to suit their preferences.198 They may also in rare cases provide explicit powers to the SSAT to decide a dispute ex aequo et bono,199 but a tribunal may not use this principle without explicit authorisation.200 Compromissory clauses in IIAs contain a reference to different sources of applicable law.201 For example, while the 2012 US Model BIT refers to ‘applicable rules of international law’,202 the Australia-Uruguay BIT, 2019 mentions the BIT, other international agreements between the parties and generally recognised

191

Simmonds (1987), p. 5. Steingruber (2012), para 14.85; Haersolte-van Hof and Koppe (2015), p. 34; Hober (2001), p. 98; Malintoppi (2006), p. 136; Caron (1990), p. 111; Edmunds (1897), p. 321; Leben (2010), p. 55 et seq.; UNCTAD (2003b), p. 19; Mann (1967), p. 2 et seq.; Copeland (1999), p. 3075. See also, Art. 12, Draft Convention on Arbitral Procedure in United Nations (1955), p. 48. 193 Merrills (2011), p. 107. 194 Mohebi (1999), p. 105 et seq. 195 Gray and Kingsbury (1992), p. 104. 196 Office of Legal Affairs (1992), p. 62; Nodeh (2003–2004), p. 127; Caron (1990), p. 112; Papadaki (2014), p. 569; Tanaka (2018), p. 117. 197 Mann (1967), p. 2; For a situation when a seat is provided but with a specification for rules, see, Art. 11(5), Qatar-Italy BIT, 2000. 198 Caron (1990), p. 112, 115; Simmonds (1987), p. 11. 199 For IIAs which provides the possibility, see, Art. 11(5), Netherlands-Chile BIT, 1998, Art. 11, Belgium-Indonesia BIT, 1970; See also, Malintoppi (2006), p. 136. 200 Mohebi (1999), p. 112. 201 On this, See also, UNCTAD (2003b), p. 47, 73. 202 Section 37, US-Model BIT, 2012. 192

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principles of international law to the applicable law.203 It is observed that a reference to international law in some form as the applicable law is a common element of the compromissory clause, but there may be other sources of law attached to it which also have to be considered by the SSAT.204 Broadly, these clauses with a reference to ‘international law’ as the applicable law mean that the dispute resolution process would be governed using international law and that a resolution of the dispute must be possible in accordance with international law.205 In any case, these rules of international law must include and comply with the rules of treaty interpretation and application as specified in the VCLT, which are considered to represent customary international law.206 Now, international law does not have a legislative body like countries and the ‘legal norms’ in international law are derived from a number of sources including treaties, judicial decisions and treatises, and articles by scholars.207 As such, there may be confusion regarding the sources which may be taken into consideration by a tribunal that has been called upon to decide a dispute based on ‘relevant rules of international law’ under Art. 31 (3)(c) VCLT.208 Such conflicts may be resolved by the tribunal through a procedural order after consultation with the parties if further clarification is not provided by the IIA itself. The parties to a dispute may choose to modify the law governing the arbitration and could ‘waive their sovereignty’ as it was seen in the case of the IUSCT where the parties agreed that the legal system of a third country: the Netherlands governed certain aspects of the arbitration.209 State-to-state arbitration may also in exceptional situations, be governed by the municipal or domestic law of a state, but only to the extent agreed by the parties.210 In certain situations, agreements may only choose to specify the rules which may govern the arbitration and may remain silent on the applicable law.211 In these cases,

203

Art. 7, Annex A, Australia-Uruguay BIT, 2019. UNCTAD (2003b), p. 73. 205 Trevino (2014), p. 212. 206 UNCTAD (2003b), p. 73; Malanczuk (2000), p. 424. 207 Cisar (2010), p. 1500. 208 See, Art. 11(5), Mexico-France BIT. Also, for a similar provision, See, Art. 18(1), India-Mexico BIT, 2007. On the confusion regarding ‘relevant rules of international law’ see, ICSID AF, Case No. ARB(AF)/16/3, B-Mex LLC and others v United Mexican States, Procedural Order No. 7, 23 November, 2018. 209 Caron (1990), p. 156. 210 For an example of IIAs which permits application of the domestic law of a state, See, Art. 10(6), Qatar-Bosnia and Herzegovina BIT; Art. 12(5), Albania-Netherlands BIT; Art. 12(5), NetherlandsParaguay BIT; Art. 6(5), Netherlands-Bulgaria BIT, 1988; See also, Nodeh (2003–2004), p. 127; Caron (1990), p. 126; See also, Trail smelter case (United States, Canada), 16 April 1938 and 11 March 1941, RIAA, Vol. III, pp. 1905–1982. 211 For example of such IIAs see, Art. 9, Israel-Myanmar BIT; Art. XIV(2), St. Vincent and the Grenadines-Taiwan BIT; See also, Office of Legal Affairs (1992), p. 62. 204

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the rules governing the arbitration are evaluated for guidance on applicable law.212 For instance, the PCA Optional Rules on Arbitration between Two States clarify that in the absence of an agreement between the parties, the disputes would be decided in accordance with international law by applying: (a) International conventions, whether general or particular, establishing rules expressly recognized by the contesting States; (b) International custom, as evidence of a general practice accepted as law; (c) The general principles of law recognized by civilized nations; (d) Judicial and arbitral decisions and the teachings of the most highly qualified publicists of the various nations, as subsidiary means for the determination of rules of law.213

Further, PCA Optional Rules clarify that when no special agreement has been made between the parties or in the absence of a rule applicable to the dispute, the tribunal is required to apply the sources of law specified in Art. 38 of the Statute of the ICJ. Similar provisions on the applicable law to be used in a dispute in the absence of guidance is also provided under the Model Rules.214 Tribunals are also able to generally decide on a case ex aequo et bono if the parties agree.215 The choice of rules, however, does not mean that the guidance on applicable law in the rules will be followed and separate guidance on applicable law can be specified.216 Also, while the choice of a particular forum or institution may indicate a choice of the applicable law, the rule is not absolute and the parties may modify the applicable law through an agreement between them.217 As such, the parties may also in certain cases choose to provide wide discretion on law, rules, and procedure to the tribunal.218 An example can be seen in the case of the Iran-US Claims Tribunal (IUSCT) which functions as a state-to-state arbitration tribunal, but no specific opinion was expressed on the legal system for the state-to-state interpretative disputes.219 In the situation when the parties to a treaty have not made an express choice of law,220 ‘they may be deemed’ to have made an implicit choice for determination of

212

Cordero-Moss and Behn (2014), p. 580; See also, Bungenberg and Reinisch (2018), p. 194. Art. 33(1), PCA Optional Rules for Arbitrating Disputes between Two States (1992). 214 Art. 10, Model Rules on Arbitral Procedure with a general commentary 1958, International Law Commission, Yearbook of the International Law Commission, 1958, vol. II, pp. 83–88. 215 Art. 33(2), PCA Optional Rules for Arbitrating Disputes between Two States (1992). Exceptional situation where disputes can be decided ex aequo et bono by default can be seen in Art. 28, Revised General Act; See also, Office of Legal Affairs (1992), p. 62. 216 For an example of a treaty which provides guidance both on rules and applicable law, See, Art. 25 and 27, Mexico-Belarus BIT. 217 Collier and Lowe (1999), p. 239. 218 See, Art. 17(2)(c), OIC Investment Agreement, which provided the arbitral tribunal complete freedom on determining all matters pertaining to its functioning including applicable law and rules. 219 Cisar (2010), p. 1505. 220 Examples of treaties with no choice of applicable law are inter alia the Germany-Nepal BIT, Malta-Switzerland TIA, 1965 and the Sweden-Egypt BIT, 1978. 213

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the dispute under international law if it relates to claim of protection under a treaty.221 This implicit choice may, however, not be applicable if the parties to an IIA are not recognised as states, as seen in case of certain Taiwanese BITs, where the parties have reserved the rights to determine the terms and conditions later,222 or have provided no indication regarding the applicable law.223 Here, clarification may be required from the parties on the applicable law before the commencement of proceedings.

2.2.6.2

Applicable Rules

The arbitral tribunals must decide the disputes based on the applicable rules for the arbitration and these rules also influence the conduct of the arbitration proceedings.224 The rules governing state-to-state arbitration are (a) determined by the tribunal,225 or (b) provided within the treaty or drafted through an agreement by the parties, or (c) a reference is made to pre-established rules such as the Model Rules, UNCITRAL or PCA Rules.226 The state-to-state arbitration proceedings may also be governed by the rules of a specific institution when the treaty designates an institution such as SCC or the LCIA or even an international tribunal such as the IUSCT.227 This rule is however not absolute, and the state parties enjoy the freedom to determine the rules of procedure228 and may at their discretion specify an institutional venue for arbitration while providing the tribunal with the freedom to determine its procedure,229 or even provide alternative rules.230

221

Hober (2001), p. 210; Mann (1967), p. 2 et seq.; For examples of situations where the states have not made any decision on Applicable Law, see, Canada-Latvia BIT, 2009, India-Bulgaria BIPA, 1998, Qatar-BLEU BIT; See also, Cordero-Moss and Behn (2014), p. 575; Nodeh (2003–2004), p. 129; UNCTAD (2003b), p. 72; See also, Art. 33, PCA Optional Rules for Arbitrating Disputes between Two States (1992). 222 For examples of such BITs, see, Art. 9 (2), Thailand-Taiwan BIT; Art. 10 (b), Singapore-Taiwan BIT and Art. 13(2), India-Taiwan BIT, 2002. 223 Art. 29, India-Taiwan BIA, 2018. 224 Cisar (2010), p. 1507. 225 For IIAs which provide the power to the SSAT see, Art. 15(5), 2008 Ghana Model BIT; Art. 10 (5), 2003 Indian Model BIPA; Art. X(5), Norway-Latvia BIT; Art. 10(5), India-Hungary BIT; See also, Simmonds (1987), p. 10. 226 For IIAs which contain a reference to arbitration rules see, Art. VIII(8), USA-Panama BIT, 1982; Art. 27(3)(f), ECT; Art. 17(3), China-Japan-ROK Trilateral Investment Agreement, 2012; Art. 23, Austria-Kyrgyz Republic BIT; UNCTAD (2003b), p. 40. 227 UNCTAD (2003b), p. 41; See also, Cordero-Moss and Behn (2014), p. 577. 228 Malintoppi (2006), p. 143. 229 For an example of a situation where the PCA at Hague was specified as the venue for the arbitration while permitting the tribunal to determine its own procedures, see, Art. 10 (4) and (5), Qatar-Moldova BIT. 230 For an example of such IIAs which specified PCA to administer the arbitration but the conduct of arbitration will be under UNCITRAL Rules, see, Art. 15(1), Argentina-Qatar BIT; Art. 19, Argentina-UAE BIT; Art. 24(3) Argentina-Japan BIT, 2018.

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The Multilateral Agreement on Investment (‘MAI’) which was not successful stated that it would be governed by the PCA Optional Rules for Arbitrating Disputes between two states and the ‘parties group’ of the MAI was provided with ‘powers to adopt supplemental provisions to ensure the smooth functioning of these rules.’231 A few treaties also prescribe rules of procedure for the conduct of the arbitration such as the Convention for the Pacific Settlement of International Disputes of 1899 and 1909.232 Other agreements, such as the AANZFTA Agreement and the MAFTA also include their own rules of procedure which should be adhered to, unless there is an agreement to the contrary.233 In case no agreement to the choice of rules are provided and the arbitration is scheduled to be undertaken through an arbitral institution, the rules of procedure of the institution are implicitly accepted for the dispute.234 The provisions of many agreements specify rules of arbitral institutions that may be resorted to in case the parties have not agreed to their own procedure.235 The USA-Ecuador BIT included a provision to fall back on rules of the UNCITRAL in the absence of a contrary agreement,236 while the Albania-EFTA FTA provided for fall back to the Optional Rules for Arbitrating Disputes between Two States of the Permanent Court of Arbitration.237 The possibility for conflict exists when no indication on any of the parameters of applicable law, rules, arbitral institution or procedure is provided under the IIA.238 It is also often seen that the tribunal is provided with the power to determine its own procedure with no specification on the rules or applicable law.239 In case no rules are provided, it is generally considered that the tribunal will follow the rules of customary international law.240 Further, in the absence of any alternative provisions, claims based on a violation of treaty provisions are generally dealt with under

231

Chapter V. C. 8, Draft Multilateral Agreement on Investment; See also, Malanczuk (2000), p. 425. 232 Hague I Convention; Hague II Convention. 233 AANZFTA Agreement which contains a detailed explanation of the arbitral procedure in Art. 17 of the treaty and has an Annex on Rules of Procedure for Arbitral Tribunal Proceedings. Another such treaty with detailed guidance on rules and a separate Annex on Rules of Procedure for Arbitral Tribunal Proceedings is the MAFTA. 234 Nodeh (2003–2004), p. 120. 235 For such an agreement, see, Art. 21(2), Austria-Uzbekistan BIT; Nodeh (2003–2004), p. 120. 236 Art. VII(1), USA-Ecuador BIT, 1993. 237 Art. 33 (8), Albania-EFTA FTA, 2009. 238 An example of such an extreme but rare situation is seen in Art. 16, Iraq-Japan BIT; Art. 11, Chile-New Zealand BIT; Art. 13, Japan-Vietnam BIT, 2003, Art. 14, Japan-Oman BIT and Art. 16, Japan-Kazakhstan BIT. See also, UNCTAD (2003b), p. 72. 239 For an example of such IIAs, see, Art. 10, Bangladesh-Thailand BIT, 1988; Art. 10, IndiaLithuania BIT; Art. 10(5), Czech Republic-Saudi Arabia BIT; Art. 10(6), Qatar-Bosnia and Herzegovina BIT. 240 Caron (1990), p. 112.

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international law rules.241 These rules, however, do not remain constant and the provisions of the IIA and the actual situation play a crucial role in the determination of the applicability of the rules.242 In the case of state-to-state arbitrations, a mention of the place of arbitration does not indicate a desire to subject the process to the local rules.243 Considering the situation when guidance on rules or applicable law is missing, as a last resort, the arbitral tribunals also retain the power to determine any procedural issues not determined through any other manner by the parties as a part of its inherent powers.244 However, the state parties may feel that a tribunal may not be able to determine the rules by agreement and a rare situation even saw the possibility for designation of rules of procedure by the President of the ICJ in case there is no agreement by the tribunal on applicable rules.245 In many situations there may still be confusion on the applicable rules for arbitration, hence the tribunal generally organises a meeting with the parties before the actual proceedings to clarify any issues regarding procedural rules.246 In exceptional cases, a separate joint body may be specified by the parties within the treaty to ‘supplement the rules for arbitral dispute settlement between the Parties’.247

2.2.7

Exclusion of Disputes on Certain Subjects from the SSAT

IIAs may contain explicit provisions on the exclusion of disputes on certain specific subjects from the purview of the SSAT through a specific mention of the excluded subjects.248 A typical example of such a clause can be seen in the US-Mongolia BIT, 1994249 which provides that: Art. VIII: The provisions of Article VI and VII shall not apply to a dispute arising (a) under the export credit, guarantee or insurance programs of the Export-Import Bank of the United States or (b) under other official credit, guarantee or insurance arrangements pursuant to which the Parties have agreed to other means of settling disputes.

241

Cordero-Moss and Behn (2014), p. 576. Celik (2012–2013), p. 53. 243 Caron (1990), p. 138. For an example of an IIA where only the place of arbitration is mentioned while providing the freedom to the arbitral tribunal to determine the procedure, see, Art. 9 (4) and (5), Mongolia-Qatar BIT, 2007. See also, Art. 11(5), Qatar-Italy BIT for application of particular rules while specifying the place of arbitration. 244 Copeland (1999), p. 3076. See also, Art. 13, Draft Convention on Arbitral Procedure in United Nations (1955), p. 52. 245 On this see, Art. 14(4), Colombia-Turkey BIT; Art. 10(5), Turkey-Cambodia BIT. 246 Malintoppi (2006), p. 143. 247 Art. 13.4, India-Brazil ICFT. 248 UNCTAD (2003b), p. 67. For an example, see, Art. 25(3), Brazil-Suriname CFIA. 249 US-Mongolia BIT, 1994; On this, see also, Vandevelde (2009a), p. 724. 242

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In these situations, the disputes arising from the specified exempted situations are frequently covered under another agreement, which may also provide for state-tostate arbitration to resolve the disputes. In the case of the example of the aforementioned US-Mongolia BIT, 1994, this can be seen in the Investment Incentive Agreement between the USA and Mongolia which covers certain issues exempted through the above-mentioned clause in the BIT.250 A new variation of the provisions exempting certain issues is seen in the CanadaBurkina Faso BIT where certain decisions of the government have been specifically excluded.251 Similar provisions are present in the Annex to the Belarus-India BIT, 2018 which explicitly excludes SSAT review for decisions made in the interest of security considerations.252 Exceptions are also present in the state-to-state arbitration clause of the ECT.253 The US-Rwanda BIT and the 2012 US Model BIT also exclude disputes related to labour and environment from the state-to-state dispute settlement clause.254 Even the EU has excluded certain areas such as central bank decisions from the scope of the new EU-Singapore IPA, 2018.255 The presence of provisions specifying that certain subjects be excluded from the jurisdiction of the SSAT would prevent the SSAT from exercising jurisdiction on these subjects.256 Beyond the subjects covered by the explicit exclusion of disputes, certain other issues such as denial of justice claims arising from action of state courts related to contractual violation by the state may be outside the coverage of the interpretation or application of the IIA in the absence of umbrella clauses in an IIA while still being covered under the wider umbrella of diplomatic protection.257

2.2.8

Remedies Which Can Be Sought from an SSAT

Generally, arbitration allows for a very broad range of remedies and the power of tribunals to provide relief is codified in agreements based on which they are established258 or in the statutes or rules governing the arbitration.259 The IIAs generally do not contain the exact nature of the remedies which can be sought

250

Art. 6, Investment Incentive Agreement between USA and Mongolia, 1990. Annex V, Exclusions from Dispute Settlement, Canada-Burkina Faso BIT. 252 Annex: Security Exceptions, Belarus-India BIT, 2018. 253 Art. 27 ECT; See also, Walde (1996), p. 439. 254 Art. 37(5), US-Rwanda BIT; Art. 37(5), 2012 US Model BIT. 255 Art. 4.7, EU-Singapore IPA, 2018. 256 UNCTAD (2003b), p. 29; D’Amato (1997), p. 234. 257 Vinuesa (2002), p. 528. 258 Gray (1987), p. 11. 259 Hoellering (1985), p. 516. 251

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from an SSAT or can be provided by an SSAT.260 The parties to an IIA may, however, choose to bar the SSAT from providing a certain remedy such as compensation by including a provision indicating the same in the IIA itself.261 In the absence of a restriction in the IIA, the parties are free to request for a specific type of relief from the tribunal.262 The parties may determine by an agreement the nature of the award which may be issued by an arbitral tribunal and in exceptional cases may decide to limit the tribunal to establish a violation only based on the facts presented before it.263 However, as of now, in the absence of explicit provisions in the IIAs, the SSATs enjoy wide discretion in determining the scope of the award,264 but may be required to explain the legal basis and considerations behind the award,265 or the reasons for the award.266 The MAI which was under negotiation in the OECD was an example of a rare situation where an IIA specified in detail the remedies which could be provided under the Agreement.267 Since IIAs specifying the actual remedies which can be granted are rare, the MAI and its negotiations serve as a window to the remedies which could be expected from an SSAT formed under an IIA. By combining the remedies provided under the few known IIAs with such provisions, the MAI, and the existing literature, a broad idea can be formed about the relief which may be provided by such an SSAT. The common reliefs which have been granted in the past by SSATs (in other types of disputes) and which have also been stated in the IIAs and the MAI are: 1. A declaration that a party is in violation of its obligations under a treaty;268 2. A requirement for a party to change its behaviour to conform with its obligations under law;269 3. An order for payment of damages or compensation;270

260

UNCTAD (2003b), p. 49; A few rare IIAs which specify the exact nature of reliefs which may granted are: Austria-Kyrgyz Republic BIT, Austria-Tajikistan BIT, 2010, Austria-Yemen BIT. 261 Art. 19.2, India-Brazil ICFT. 262 On this, See also, Clause 2, Annex A, Australia-Uruguay BIT, 2019. 263 UNCTAD (2003b), p. 23 and 39. 264 UNCTAD (2003b), p. 49. 265 See, Art. 13(9), Netherlands-China BIT, 1985. 266 For an example of a treaty which requires the tribunal to explain the reasons for its award, See, Art. 12(6) China-Tanzania BIT. 267 Chapter V, C. 6. c., Draft Multilateral Agreement on Investment. 268 Section 1(6), Annex on the Settlement of Disputes, Mexico-Italy BIT; Gray (1987), p. 17; See also, Chapter V, C. 6. c. i., Draft Multilateral Agreement on Investment; Art. 25(1) (a), AustriaUzbekistan BIT. 269 Gray (1987), p. 17; See also, Chapter V, C. 6. c. ii., Draft Multilateral Agreement on Investment; Art. 25(1) (b), Austria-Uzbekistan BIT. 270 Gray (1987), p. 19; See also, Chapter V, C. 6. c. iii., Draft Multilateral Agreement on Investment 8; Art. 25(1) (c), Austria-Uzbekistan BIT; Lubambo (2016), p. 240.

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4. Any other form of relief which has been consented by the party against whom the award is issued (even restitution in kind to the investor).271 Other less common awards that may be made by an SSAT under an IIA include restitution in kind directly to the investor272 and recommendation for a state to comply with an ISAT award (in case of an SSAT proceeding based on non-enforcement of an ISAT award).273 Certain tribunals also have the power to issue an injunction or interim measures, but practice suggests that such a power has to be explicitly granted to the tribunal.274 The defunct MAI explicitly provided the tribunal with the power to ‘recommend’ provisional measures which should be taken to prevent prejudice to the parties to a dispute.275 The PCA Optional Rules for arbitrating disputes between two states also permit the grant of interim measures of protection276 and interim awards.277 Similar powers are also provided under the Model Rules to the arbitral tribunal278 or to the ICJ and the arbitral tribunal under the Revised General Act.279 An SSAT while passing a declaratory award may declare a measure to be not in conformity with the treaty,280 but does not have the power to order withdrawal or change of the measure.281 The party whose measure violates the principles of international law as declared by the arbitral tribunal may, however, be required to ‘grant equitable satisfaction’ to the injured party.282 It has been presumed at least by the USA that when an SSAT passes an award declaring domestic legislation not to be compliant with the IIA provisions, the legislation may need to be amended or interpreted in a manner that does not violate the IIA obligations of the state party.283 This is not an extraordinary conclusion considering that generally, international law obligations of a party to a treaty prevail over domestic law.284

271

Gray (1987), p. 12; See also, Chapter V, C. 6. c. iv., Draft Multilateral Agreement on Investment; Art. 24(1) (d), Austria-Kyrgyz Republic BIT; Art. 25(1) (d), Austria-Uzbekistan BIT. 272 Art. 24(1)(c), Austria-Tajikistan BIT, 2010. 273 Section 1(6), Annex on the Settlement of Disputes, Mexico-Italy BIT; Art. 34 (8), 2012 US Model BIT. 274 Gray (1987), p. 12. 275 Chapter V, C. 6. b., Draft Multilateral Agreement on Investment. 276 Art. 26, PCA Optional Rules for Arbitrating Disputes between Two States (1992). 277 Art. 32 (1), PCA Optional Rules for Arbitrating Disputes between Two States (1992). 278 Art. 20, Model Rules on Arbitral Procedure with a general commentary 1958, International Law Commission, Yearbook of the International Law Commission, 1958, vol. II, pp. 83–88. 279 Art. 33, Revised General Act. 280 Lubambo (2017), p. 91. 281 Lubambo (2017), p. 91. 282 Art. 32, Revised General Act. 283 Crook (2012), p. 143 et seqq.; See also, Bungenberg and Reinisch (2018), p. 141 et seqq. 284 ICJ, Applicability of the Obligation to Arbitrate under Section 21 of the United Nations Headquarters Agreement of 26 June 1947, Advisory Opinion of 26 April, 1988, I.C.J. Reports 1988, p. 12 at 26, para 57.

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Lastly, beyond the resolution of the dispute through the award, an SSAT may also suggest an amicable resolution between the parties285 or decide on the costs of the proceeding, if such a power is provided to the tribunal under the rules governing the arbitration or under the IIA itself.286 Certain IIAs also permit the parties to continue negotiations for a ‘mutually agreed solution’ even with ongoing state-to-state arbitration proceedings and if the parties succeed in such a solution, the state-to-state arbitration proceedings may be terminated.287

2.3

Interim Conclusions

The compromissory clause prescribing state-to-state arbitration as a means of dispute settlement among the states is present in most IIAs between the countries but has been rarely used with investor-state arbitration occupying centre stage as the preferred mode of dispute settlement. State-to-state arbitration has come into the discussion with three recent disputes which showed the possible utility of the clause. While it was considered that these clauses are largely similar, the current evaluation has revealed that there are significant variations particularly in relation to applicable law and rules for arbitration. In certain extreme circumstances, the provisions for applicable rules and laws were even absent. This indicates that states may have to rely on the arbitral tribunals to determine the appropriate procedure and rules which may affect the dispute resolution process. The limited number of disputes which have been brought before arbitral tribunals based on these clauses have also revealed that states need to comply with the prescribed procedure for dispute resolution to ensure that the disputes are not rejected for technical reasons. The disputes regarding the interpretation or application of disputes between the state parties can cover a wide range of disputes, but disputes can also be explicitly excluded from the scope of the dispute resolution provision. The diplomatic protection claims have to fulfil the nationality criteria and be backed by the exhaustion of local remedies. The relief which can be granted by an SSAT acting under the compromissory clause is not provided in most IIAs. An idea of the possible reliefs which can be claimed can be known from the provisions of the MAI, state practice and certain very rare IIAs which contain such a list of potential remedies. Importantly, it has also revealed the need for a re-evaluation of the compromissory clauses and necessary modifications to ensure that they could be used without any hurdles.

285

A rare provision providing explicit power of the tribunal to suggest amicable resolution at any stage is seen in Art. 11(5), Netherlands-Chile BIT, 1998. 286 For an IIA which allows the SSAT to make a decision regarding costs, see inter alia, Art. 10(10), Portugal-Qatar BIT; See also, Art. 23, Lebanon-Austria BIT. Alternatively, for an IIA which explicitly divides the costs without providing a power to the tribunal to decide on it, See, Art. 16 (5) Iraq-Japan BIT. 287 For such a provision, see, Art. 3.19, EU-Vietnam Investment Agreement.

Chapter 3

Utilisation of State-to-State Arbitration Based on the Compromissory Clause in Practice

3.1

Background

State-to-state arbitration has been available as a mode for dispute resolution since the first BIT and is present in almost all IIAs to date.1 The discussion on state-to-state arbitration based on IIAs has been minimal in recent years owing to the popularity of investor-state arbitration.2 This section seeks to provide an overview of the possible scope and operation of the state-to-state arbitration clause in IIAs which governments have been reluctant to use owing to a lack of clarity on these issues.3 The scope of the rationae materiae (subject matter) jurisdiction of the SSAT dealing with ‘interpretation’ and/or ‘application’ of an IIA as laid down under the compromissory clause of an IIA is very wide.4 The terms, ‘interpretation’ and/or

1

The state-to-state arbitration provision is very rarely not present as seen inter alia in the case of the Austria-Kazakhstan BIT; UAE-Montenegro BIT. The IIA Mapping project of UNCTAD as on 24 March 2020 states that 17 out of 2577 mapped treaties do not have a state-to-state arbitration provision (Information available on https://investmentpolicy.unctad.org/international-investmentagreements/iia-mapping, Accessed 24 Mar 2020). On this also see, Potesta (2013), p. 753; Potesta (2015), p. 250; Lourie (2015), p. 512. 2 Lubambo (2016), p. 226. 3 Gaukrodger (2016b), p. 7. 4 Peters (1991), p. 111; Subcommittee on Unfair Trade Policies and Measures (2015), p. 1190; Polanco (2019), p. 267; Lo (2013), p. 12; UNCTAD (2003b), p. 14, 66; Charney (1987), p. 883 et seqq.; See also, Cannizzaro and Bonafe (2005), p. 494 et seq.; For a comment on the board coverage of a similar clause in the ECT, see, Baltag (2018), p. 366. The powers of an international tribunal to deal with the interpretation or application of the so called ‘standard compromissory clauses’ was discussed in the ICJ Advisory Opinion on Applicability of the Obligation to Arbitrate under Section 21 of the United Nations Headquarters Agreement. In the given case, there was no dispute about the interpretation of the treaty, but about the application of the treaty. The ICJ has also determined the wide jurisdiction of the arbitral tribunals in © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 A. Hazarika, State-to-state Arbitration based on International Investment Agreements, European Yearbook of International Economic Law 10, https://doi.org/10.1007/978-3-030-50035-1_3

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‘application’ have been considered as ‘an all encompassing formulation that mostly relates to issues or actions after the agreement has entered into force between the contracting parties.’5 For a dispute resolution proceeding, issues of both interpretation or application of a treaty may be involved.6 The state parties are however free to provide the arbitral tribunal with a very specific mandate to deal with certain issues or even provide it with a very high degree of freedom to deal with wide-ranging issues.7 An exact understanding of the types of disputes which can be dealt with under the compromissory clause is difficult considering the variations in these clauses of the different IIAs.8 As of 31 December 2019, four prominent cases of state-to-state arbitration based on IIAs are known. While Ecuador v. USA aimed at seeking an interpretation of the treaty, Peru v. Chile comprised of an attempt to stop an ongoing investor-state arbitration and Italy v. Cuba sought to protect the rights of the investors through state-to-state arbitration.9 The last dispute, USA v. Mexico,10 dealt with a declaratory decision regarding the violation of the NAFTA by the USA through its actions.11 This varied use of the provision compared to the general use of investor-state arbitration to claim monetary damages raises the question about the actual scenarios when state-to-state arbitration under IIAs could be used. The following sections discuss the scope of power and jurisdiction of the SSATs under these situations.

3.2

Arbitration as a Means for Treaty Interpretation

Interpretation has been defined as the ‘determination of the meanings of particular provisions of an agreement in concrete or proposed situations.’12 The issue of treaty interpretation in most cases involves the determination of the ordinary meaning of the terms used in the treaty and putting them into context with the ‘treaty’s object and purpose’.13 The state parties to a treaty are free to agree to submit to an external body ICJ, Interpretation of Peace Treaties, Advisory Opinion, I.C.J. Reports 1950, p. 65 at 73 et seqq. and ICJ, Ambatielos case (merits: obligation to arbitrate), Judgment of May 19th, 1953: I.C.J. Reports 1953, p. 10. 5 UNCTAD (2003b), p. 14; For further discussion on this wide mandate distinguishing it from investor-state arbitration, see, Roberts (2010), p. 189. 6 Lo (2012), p. 9. 7 UNCTAD (2003b), p. 40. 8 UNCTAD (2003b), p. 4. 9 Recanati (2014), p. 436; See also, Gazzini (2018), p. 255. 10 USA v. Mexico, Cross-Border Trucking Services, Secretariat File No. USA-MEX-98-2008-01, February 6, 2001. 11 Hindelang (2014), p. 81. 12 UNCTAD (2003b), p. 14. 13 Berman (2004), p. 321.

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such as an external ad hoc or permanent tribunal for the interpretation of a treaty.14 A claim for the ‘interpretation of the treaty’ can be brought by state parties to a treaty15 and they can be used as an effective tool by states to provide greater clarity on the disputed issues related to investment protection.16 State parties may also choose to move forward for dispute resolution in case they do not agree with the interpretation or application of the treaty by other parties as they have designated the SSAT as the final interpreter.17 Lawmaking through interpretation by law-applying organs such as judges and officials is an important feature of public international law.18 This becomes essential since the words and the sentences which form a treaty can carry more than one meaning.19 Courts and arbitral tribunals play a key role in the interpretation of treaties.20 For instance, the ICJ is designated as the ‘appropriate authority’ for ‘authoritative interpretation’ of several multilateral agreements including the Paris Convention for the Protection of Intellectual Property,21 the Berne Convention for protection of Literary and Artistic Works,22 the Universal Copyright Convention23 and the Patent Co-operation treaty,24 which through their texts state that disputes regarding ‘interpretation of the treaties’ may be referred to the ICJ.25 In investment law, similar provisions are seen in the ICSID Convention wherein the ICJ has been designated under Art. 64 of the convention as the appropriate authority for resolving disputes on its interpretation and application.26 The text of these treaties indicates that the provision transferring powers of authoritative interpretation to the ICJ under these treaties is similar to the provision seen in the IIAs. Even without its mention in recent treaties, the use of arbitration for the interpretation of treaties has been prevalent even without the explicit inclusion of the term in the treaties for its use. Art. 16 of the Hague Convention for the Pacific Settlement of International Disputes (Hague I)27 states that: In questions of a legal nature, and especially in the interpretation or application of International Conventions, arbitration is recognized by the Signatory Powers as the most effective,

14 Methymaki and Tzanakopoulos (2016), p. 159 et seqq.; Committees on Research in International Law (1935), p. 975 et seqq. 15 Lubambo (2017), p. 83. 16 Johnson and Razbaeva (2014), p. 1. 17 Vandevelde (2017), p. 531. 18 Methymaki and Tzanakopoulos (2016), p. 159 et seqq.; Berner (2016), p. 850. 19 Berner (2016), p. 850. 20 Hernandez (2015), p. 167; Lauterpacht (1935), p. 549; Morse (1960), p. 38. 21 Art. 28, Paris Convention. 22 Art. 33, Berne Convention. 23 Art. XV, UCC. 24 Art. 59, PCT. 25 Foltea (2012), p. 143 et. seqq.; Zamora (2001), p. 269; Pickert (1976), p. 217. 26 Art. 64, ICSID Convention; Gaukrodger (2016b), p. 14. 27 Hague I Convention.

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This view was reinforced through the Hague Convention for the Pacific Settlement of Disputes 190728 wherein Art. 38 stated that: In questions of a legal nature, and especially in the interpretation or application of International Conventions, arbitration is recognized by the Contracting Powers as the most effective, and, at the same time, the most equitable means of settling disputes which diplomacy has failed to settle. Consequently, it would be desirable that, in disputes about the above-mentioned questions, the Contracting Powers should, if the case arose, have recourse to arbitration, in so far as circumstances permit.

Regional agreements also promote the use of arbitration as a binding mode for interpretation of treaties as seen in the General Treaty of Inter-American arbitration.29 Similar provisions prescribing arbitration as the preferred mode of interpretation of treaties were included in the Covenant of the League of Nations.30 The Commentary to the Harvard Draft Convention on the Law of the Treaties states that ‘the recognition of the value of arbitration’. . .has not ‘been confined to declarations and resolution’ and has been prominent through its acceptance as the preferred mode of resolution of disputes regarding treaty interpretation in many cases starting from the mixed commissions under the Jay Treaty.31 Currently, arbitration has emerged as one of the most common methods to resolve disputes regarding the interpretation of a treaty. Among prominent multilateral treaties, it is included as an option for treaty interpretation inter alia in the MARPOL 1973/1978, the Basel Convention, the Energy Charter Treaty (ECT) and the Convention on International Trade in Endangered Species of Wild Fauna and Flora.32 Generally, the interpretation of a treaty by an arbitral tribunal is: (1) . . .binding only on those parties to the treaty who were also parties, original or intervening, to the case before the tribunal or the court, and (2) such an interpretation is conclusive only with respect to the particular case submitted for decision.33

Considering its widespread prevalence and utility, state-to-state arbitration has been included as one of the preferred modes for treaty interpretation to ‘achieve uniform interpretation and application of the BITs’.34 In actual practice, the use of state-to-state arbitration as a mode of IIA interpretation first came to light when 28

Hague II Convention. Art. 1, GTIAA. 30 Art. 13, Covenant of the League of Nations. 31 Committees on Research in International Law (1935), p. 974. 32 Only provision in Art. 10, MARPOL; One of the alternatives in Art. 20, Basel Convention; Art. XVIII, CITES; Art. 27 ECT. 33 Committees on Research in International Law (1935), p. 975. 34 Macias (2016a), p. 643; Kaufmann-Kohler (2006), p. 76. 29

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Ecuador initiated state-to-state arbitration against the USA to seek a binding interpretation of a BIT, in what some scholars consider an attempt to undermine or nullify a partial award of an investor-state arbitration tribunal.35 Similar attempts by Peru terminated prematurely.36

3.3

Interpretations by an SSAT

The IIAs prescribe many different modes of interpretation of treaties which include interpretation through bilateral consultations or diplomatic channels, joint interpretative statements and state-to-state arbitration.37 The contracting parties as the ‘masters of the treaty’ had sought to maintain a degree of control on how the treaty would be interpreted which led them to include state-to-state arbitration as a medium for dispute resolution for both abstract and concrete treaty interpretation claims and disputes on the application of the treaty.38 As such state parties may resort to state-tostate arbitration to obtain the interpretations of IIAs through SSATs in case they cannot agree on an interpretation between themselves.39 As of date IIAs, have been largely interpreted by ISATs,40 owing to a large number of ISAT proceedings. Based on existing literature, provisions of the IIAs reviewed and past cases, it can be inferred that SSATs can issue interpretations in the following situations:

3.3.1

Claims for Interpretation of the Treaty on Abstract Questions (Purely Interpretative Questions)

A question for an interpretative decision (also called an ‘abstract interpretation claim’) may be raised before an SSAT for interpretation of a specific treaty clause based on which a dispute has not yet arisen in practice but may arise in the future.41 These questions may be raised without any allegation of a breach42 and may not be 35

Brower and Blanchard (2014a), p. 694. Potesta (2015), p. 250. 37 An example of an IIA which provides all these modes of interpretations is the India-Mexico BIT, 2007. 38 Kulick (2016), p. 143; Comella (2014), p. 21. 39 Hindelang (2014), p. 81. 40 Roberts (2014), p. 52 et seqq. 41 Polanco (2019), p. 268; Lourie (2015), p. 513; Macias (2016b), p. 308; Kulick (2016), p. 135; Gaukrodger (2016b), p. 8; Gallo and Nicola (2015–2016), p. 1137 et seq.; For an indirect mention of the possibility, See, Kaufmann-Kohler (2006), p. 76. For a contrary view, See, Rosenfeld (2016a), p. 339. 42 PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Expert Opinion of Prof. Alain Pellet (English), 23 May, 2012, para 16; PCA Case No. 2012-5, Republic of Ecuador 36

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related to any particular situation43 and maybe connected with the compliance or non-compliance by the state with standards that it had committed to, or due to lowering of standards against the mutual understanding of the states.44 In certain situations, these questions may also be open-ended or extremely broad.45 A possible example of such a situation when an abstract claim may be put forward is when a state party to an IIA brings about a new legislation which the other state party feels is ‘in violation of the relevant standards contained in the IIA’ and it seeks to have an interpretation of the legality of the provision without any actual impact on its citizens yet.46 Another example of such an abstract question is the possibility to review the ‘proposed measure of a state’ which ‘would be inconsistent’ with the obligations of the agreement.47 States may raise such claims based on the commitments made by the other state while signing the IIA to perform or refrain from performing certain acts.48 Interpretation can be carried out without linkage to a concrete situation.49 A state may seek such an opinion even when none of its own nationals is affected.50 The possibility of an interpretative claim on abstract questions has arisen in the past. The ICJ has stated that it has the power to deal with abstract questions,51 and has done so in the Case Concerning the River San Juan52 and in Rights of Nationals of the United States in Morocco.53 Before this, the PCIJ has opined that it has the power to provide interpretations of the treaty in case of purely interpretative (abstract) questions.54 An arbitral tribunal has handled purely interpretative claims in the case—

v. United States of America, Expert Opinion of Stephen C. McCaffrey (English), 23 May, 2012, para 40; Potesta (2015), p. 254 et seqq. 43 PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Expert Opinion of C.F. Amerasinghe (English), 23 May, 2012, para 25 et seq.; Gallo and Nicola (2015–2016), p. 1138. 44 UNCTAD (2003b), p. 6; Parra (1997), p. 339. 45 Gaukrodger (2016b), p. 18. 46 Potesta (2013), p. 755; UNCTAD (2003b), p. 6; Brazilian investment agreements including the Brazil-Mexico Agreement, 2015 and the Brazil-Peru Economic and Trade Expansion Agreement, 2016 contain provisions which allow for an interpretative award without any affected investor. On this see, Lubambo (2017), p. 91. 47 Art. 2004 NAFTA. See also, Art. 2006 (1) NAFTA. 48 UNCTAD (2003b), p. 6. 49 Castillo-Laborde (2008), p. 314. 50 Trevino (2014), p. 204. 51 ICJ, Admission of a State to the United Nations (Charter, Art. 4), Advisory Opinion: I.C.J. Reports 1948, p. 57, 61. 52 ICJ, Dispute regarding Navigational and Related Rights (Costa Rica v. Nicaragua), Judgment, I.C.J. Reports 2009, p. 213, 240, paras. 57–70. 53 ICJ, Case concerning rights of nationals of the United States of America in Morocco, Judgment of August 27th, 1952: I.C.J. Reports 1952, p. 176, 179. 54 PCIJ, German Interests in Polish Upper Silesia (Germ. v. Pol.), 1926 P.C.I.J. (ser. A) No. 7 (May 25), p. 18–19—“There seems to be no reason why States should not be able to ask the Court to give

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Question of the reevaluation of the German Mark.55 The Economic Court of the Commonwealth of Independent States which has already dealt with interpretation claim of an IIA can deal with abstract questions.56 It is expected that SSATs may be performing abstract interpretations as one of their primary functions since investorstate arbitration is commonly utilised for other violations of the IIAs.57 For disputes that are connected with the interpretation of a treaty, both in an investor-state arbitration tribunal58 and the ICJ,59 some authors consider it to be essential that the question has to have practical relevance and must not be a purely theoretical question.60 They also consider that this limitation may also exist in case an interpretation of an abstract claim is sought from an SSAT, where the tribunal may state that an ‘actual disagreement’ may be required for a dispute to exist and a hypothetical situation may not be sufficient.61 This is contrary to the understanding that international courts can ‘resolve merely interpretative questions’,62 and it is essential to note that interpretation of principles of international law has in many times involved answering critical questions not directly related to an already existing situation such as the Boundary Wall Advisory opinion issued by the ICJ.63 In certain cases, it may be true that adjudication on pure interpretative claims may lead to the SSAT performing an advisory function as is done by international courts who issue advisory opinions and such powers have not been explicitly provided to the SSAT.64 The main debate in such a situation is, would there be a ‘dispute’ between the parties which would provide jurisdiction to the SSAT over the interpretative claim,65 or in its absence, without an express mention in the IIA, what conditions would need to be fulfilled for a pure interpretative claim to be considered by an SSAT.66

an abstract interpretation of a treaty; rather would it appear that this is one of the most important functions which it can fulfil”; See also, Committees on Research in International Law (1935), p. 939. 55 The 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 I A of the 1953 Agreement on German External Debts, 16 May 1980, RIAA, Vol. XIX, pp. 67–145, 84 et seqq.; See also, Trevino (2014), p. 204 for a detailed study on abstract treaty interpretation. 56 Klucka (2020), mn. 6.1.2. 57 UNCTAD (2003b), p. 75. 58 Schreuer (2001), p. 102. 59 Kolb (2013), p. 428. 60 On this debate see, Macias (2016a), p. 643 et seqq.; Roberts (2014), p. 55 et seqq. 61 Schreuer (2009), p. 961; Potesta (2013), p. 756. 62 Lubambo (2017), p. 84. See also, Castillo-Laborde (2008), p. 314. 63 ICJ, Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory, Advisory Opinion, I.C.J. Reports 2004, p. 136. 64 PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Tomuschat, Christian, Opinion issued on “The Construction of Article VII of the Bilateral Investment Treaty between the United States and Ecuador”, Ecuador v. USA, 24 April, 2012, para 22 et seq.; Mayr and MayrSinger (2016), p. 427 et seqq.; Kulick (2016), p. 135. 65 Kulick (2016), p. 137. 66 Gaukrodger (2016b), p. 8; UNCTAD (2003b), p. 6 et seq.

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It is proposed that the answer would be in the affirmative since state-to-state arbitration has been included as one of the modes to achieve uniform interpretation and application of the investment treaties and to fulfil this requirement SSATs may be required to perform interpretative functions.67 This would also require SSATs established under the IIAs to consider questions arising from the commitments made under the treaties and a concrete factual situation does not need to arise.68 States seem to have foreseen such a possibility and have chosen not to exclude it since in the alternative they also incorporated provisions to explicitly bar it in certain situations where they believe that arbitral tribunals must not deal with a particular abstract question.69 The Ecuador v. USA case had raised interesting questions on the exact scope of the state-to-state dispute resolution clause, which has been called to be the ‘standard compromissory clause’.70 In the said case, Ecuador raised questions on the interpretation of a provision of the BIT. However, there was no actual argument by Ecuador regarding a violation of the BIT by the USA or a misapplication of the treaty.71 The USA opined that purely interpretative questions could not be considered for decisions by the tribunal.72 Among the issues discussed by the parties and the tribunal was whether a purely interpretative jurisdiction exists for the tribunal. Broadly, the question, therefore, relates to whether the role of the arbitral tribunal in the state-tostate arbitration was limited to dealing with actual disputes related to violation of the treaty or if the SSAT tribunal can play the role of an interpreting authority for abstract questions in the matter. The dispute between the countries was linked to the interpretation of certain provisions of the BIT by the ISAT in the Texaco v. Ecuador case.73 While Ecuador did not agree with the interpretation provided by the investor-state arbitration tribunal, it sent a request to the USA conveying its interpretation and enquiring if, the USA accepted the same. The USA remained silent on the question. Later, Ecuador referred the dispute to an SSAT.74 At first sight, the approach taken by Ecuador may be deemed to be faulty because mere non-communication by the USA about its interpretation in response to Ecuador’s letter cannot always be construed as acceptance since silence is not always equated to acquiescence in international 67

Kaufmann-Kohler (2006), p. 76; See also, Hindelang (2014), p. 81. UNCTAD (2003b), p. 6; Comella (2014), p. 21; Lourie (2017), p. 143 et seqq. 69 For a situation when a ‘proposed measure’ has been removed from the scope of review by an arbitral tribunal, See, Art. 20.6(1) CAFTA-DR. 70 Recanati (2014), p. 436. 71 PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Award, 29 September, 2012, para 198. 72 Rosenfeld (2016a), p. 335. 73 PCA Case No. 2007-2: Chevron Corporation and Texaco Petroleum Company v. The Republic of Ecuador, Referred to in PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Award, 29 September, 2012, para 40. 74 PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Award, 29 September, 2012, para 98; Akande (2012). 68

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law.75 However, from an alternative approach, the silence of the USA may also be considered as inaction and holding opposing views which would lead to the existence of a dispute. Unfortunately, a definitive answer remains absent since the tribunal in the aforementioned case did not answer the question directly but found a lack of jurisdiction due to an absence of a dispute in the eyes of the tribunal.76 In case of a BIT claim for interpretation, as there are only two state parties to a dispute, both parties will be bound by the decision of the tribunal regarding the interpretation of the provision.77 The binding nature of the interpretation only relates to the specific provisions of the treaty interpreted by the tribunal.78 The state parties retain the power to ask an arbitral tribunal to give an abstract interpretation of a treaty for a different provision.79 The use of arbitral tribunals and international courts for purely interpretative claims may not be limited to claims based on IIA provisions.80 It may also lead to a situation when a state-to-state arbitration is used to indirectly challenge the decision of an ISAT by attempting to use a possible conflicting decision of an SSAT in an annulment proceeding or during the enforcement of the awards of an ISAT.81 It has nevertheless been clarified that while an abstract interpretation award may not affect an existing ISAT award, future ISATs are ‘likely to consider itself bound’ by a prior SSAT decision.82 While such a provision for interpretation may be useful for a state seeking clarification of provisions of the IIA, it might also involve the risk that the SSAT delivers a decision which can be against the position of a state, thereby jeopardising its position.83

3.3.2

Claims for Interpretation of the Treaty Based on Existing Disputes

The interpretation of a clause in an IIA can also be sought through an SSAT when it is related to a specific dispute between the state parties, in a proceeding which is

75 Kopela (2010), p. 134. For a general discussion on the issue of silence as acceptance, see also: US District Court for the District of South Dakota, McGlone v. Lacey, 288 F. Supp. 662 (D.S.D. 1968), September 12, 1968. 76 PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Award, 29 September, 2012, para 208 et seqq. 77 Cisar (2010), p. 1514. 78 On this issue, see discussion in, Bungenberg and Reinisch (2018), p. 196. 79 Committees on Research in International Law (1935), p. 939. 80 Trevino (2014), p. 205. 81 Trevino (2014), p. 206. 82 Schreuer (1997), p. 211 et seqq. 83 Alschner (2015), p. 331.

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called a ‘concrete interpretation claim.’84 In practice, it may also act as a medium for host states to seek clarification on a term just before a possible investor-state arbitration dispute is expected to occur and influence the outcome of the investorstate dispute.85 A concrete interpretation claim may be put forward (a) before an investor-state dispute commences, (b) after an investor-state dispute has been decided, or (c) may be pursued in parallel to an investor-state dispute.86 A successful claim for interpretation of the IIA which is of an ‘authoritative character’ can be helpful in a future ISAT claim if a state-to-state arbitral award is considered as highly persuasive or binding for a future ISAT dealing on the same issue.87 In the first situation, the proceedings are initiated by a state when it considers that the interpretation may come into question in the future in an investor-state arbitration and since in some cases, the IIAs provide a time frame for state-to-state arbitration, it may result in an award even before an investor-state arbitration starts and thus can potentially influence the investor-state arbitration.88 A state-to-state arbitration may be a preferred option for host states when they seek to ensure that the treaty is interpreted in a manner that reflects the intention of the parties.89 It may also be a strategy used by the states in collaboration with the investors to first obtain a favourable interpretation through state-to-state arbitration and then commence investor-state arbitration proceedings based on the state-to-state arbitration award.90 The state party acting on behalf of the investors may seek an interpretation of a treaty provision or enquire if a particular measure is compatible with the treaty and the award of the SSAT (if it is favourable) could then aid the investors in upcoming claims.91 In the second situation, the state-to-state arbitration proceedings may be commenced with an aim to challenge the finality of the investor-state arbitration award and also to influence future annulment or enforcement proceedings.92 Such a situation occurred when Kyrgyzstan used the interpretative decisions issued by the CIS Economic Court in ‘set aside’ proceedings before a domestic court.93 In the future, it may be expected that parties to a treaty use state-to-state arbitration to

84

Kulick (2016), p. 139; Rosenfeld (2016a), p. 333; See also, Macias (2016b), p. 308. Lubambo (2016), p. 229; Kulick (2016), p. 139. 86 Kulick (2016), p. 139 et. seqq. 87 Jacobs (2015), p. 45; Gaukrodger (2016b), p. 10; Comella (2014), p. 21; See also, Oellers-Frahm (2012), p. 93. 88 Kulick (2016), p. 140. IIAs may provide for fixed time period for completion of state-to-state arbitration, for examples on this, see, Art. 9(5), Israel-Myanmar BIT; Art. 9(5), Israel-Azerbaijan BIT. 89 Lubambo (2017), p. 85. 90 Posner and Walter (2015), p. 391. 91 Gallo and Nicola (2015–2016), p. 1141. 92 Kulick (2016), p. 140. 93 Ivanov and Manassyan (2016), p. 444. 85

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request interpretations for situations where they consider that a prior ISAT has passed an ‘inappropriate interpretation.’94 In the third and final situation, the primary aim of a state-to-state arbitration proceeding is to influence an ongoing investor-state arbitration proceeding and possibly, future enforcement in case the investor-state arbitration comes to different conclusions than the state-to-state arbitration.95 In exceptional situations, a declaratory award through a state-to-state arbitration proceeding may also be sought to push forward an investor-state arbitration which was stalled owing to a lack of common understanding on the interpretation of a provision of the treaty.96 The interpretations may be issued by the SSATs to ensure an acceptable interpretation of the treaty provision which would help in carrying an investor-state arbitration forward.97 An example of how exactly a concrete interpretation claim could be used by the state parties is elucidated in the Switzerland-Sudan BIT, 1974 wherein the state parties specified that in case of a dispute regarding the meaning of the term ‘substantial interest’ used in the treaty, linked to the nationality of companies behind an investment, they will refer the dispute to the SSAT under the treaty.98 The question to be referred relates to substantial control over corporations to ensure that nationals of a country are not able to use the corporate veil of a company established in the other party to claim protection under the IIA with its own country. The SSAT has to determine in such a potential case whether, a national of the home state (in effect fulfilment of nationality requirements) has a substantial interest in a company, for the particular company to qualify for the protection of its investments under the treaty in the other state (host state). The main difference between abstract and concrete interpretation claims discussed above is that while abstract interpretations govern the future application of the treaty and may be binding on other parties related to the issue discussed,99 concrete interpretations may be binding only on the parties to the dispute on the issue discussed by the interpreting tribunal.100 As such, concrete interpretations may not have binding authority over other parties or disputes and for future tribunals based on the same IIA, but it will have a highly persuasive effect.101

94

Hindelang (2014), p. 70. Kulick (2016), p. 141 et. seqq. 96 Posner and Walter (2015), p. 388. 97 Lubambo (2017), p. 85. 98 See, Exchange of letters between Switzerland and Sudan on the same date as the signing of the BIT (17 February, 1974) which are attached to the treaty and are an integral part of the BIT as per Art. 11 of the Switzerland-Sudan BIT, 1974. 99 Oellers-Frahm (2012), p. 93. 100 Rosenfeld (2016a), p. 333; Jacobs (2015), p. 45. 101 Roberts (2014), p. 62 et seqq.; Jacobs (2015), p. 45; Alschner (2015), p. 330. 95

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Future Possibilities for Use of Interpretative Powers of an SSAT

The growth of ISDS has been fuelled by a strong belief that an independent forum with a focus on neutral dispute settlement allows for the growth of investment and limited available evidence supports this belief.102 It is, therefore, unlikely that stateto-state arbitration or any other similar alternative mode for dispute resolution would replace it completely. The states may be highly wary of stepping into the shoes of investors for every claim and risking their own relations. However, SSATs are expected to be entrusted with crucial responsibilities in the interpretation of IIAs before ISAT proceedings, on a path to seek greater uniformity in ISAT decisions arising from the same situation. In these cases, SSATs can have a key role since the interpretation of the applicable BITs can involve developmental concerns and the right to regulate for countries that must be kept in mind by an SSAT.103 SSAT can act as a way for states to have a greater say in the interpretation of treaties as they would now have an opportunity to present their views on the acceptable interpretation of the treaty before the tribunal while balancing their investment treaty commitments and broader policy goals.104 State-to-state arbitration has been recommended by certain scholars as a potential way to resolve the inconsistencies of treaty interpretation through ISDS and provide greater predictability to all interested parties.105 Adjudication of the disputes regarding interpretation of the treaty through an SSAT rather than through a negotiation would also provide a more level playing field to smaller states, as powerful states may dominate negotiations in certain situations.106 State-to-state arbitration may thus emerge as a medium to overcome the shortcomings of investor-state arbitration while promoting investment policies.107 The following situations show the possible use of the interpretative powers of an SSAT formed under an IIA in the future:

102

Brower and Blanchard (2014b), p. 50. UNCTAD (2003b), p. 64. 104 Gaukrodger (2016b), p. 16; Lubambo (2016), p. 241. 105 Gaukrodger (2016b), p. 6. 106 Gaukrodger (2016b), p. 16. 107 Lubambo (2016), p. 242; Wisner and Campbell (2018), p. 17 et seqq. 103

3.4 Future Possibilities for Use of Interpretative Powers of an SSAT

3.4.1

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Interpretation of an IIA and Determining Coverage of an Investment (Preliminary Ruling and Advanced Ruling Procedures)

The interpretation or understanding of the coverage of an IIA and specifically if an investment is covered under a particular IIA would enable the parties to understand their rights and obligations.108 Implementation of the suggestions under this sub-section would possibly require an amendment of the IIA between the countries through an opt-in Convention (in a mode similar to the Mauritius Convention)109 or a prior agreement between the parties before the state-to-state arbitration in the form of a Compromis or a similar document, thereby explicitly providing the power of providing binding interpretations to the SSAT. The possibility of a ruling can be seen in two ways:

3.4.1.1

Through a Preliminary Ruling Procedure for Existing Disputes

A preliminary ruling procedure has been defined as a system where “a court refers a decision on a specific issue arising in pending proceedings to a different court, normally with a view to having a provision of law interpreted by the latter court. The proceedings before the court seeking the ruling are normally suspended pending the determination by the other court, and such ruling will usually bind the court requesting it, which will then incorporate it into its overall resolution of the dispute before it.”110 The use of a referral procedure for interpretation is commonly prevalent in the European Union and is ‘based on the close cooperation between national courts and the CJEU.’111 It is also present in similar formats in various other regional courts across the globe.112 This could serve as a model for a preliminary rulings system in investment arbitration wherein ISATs could refer questions on interpretation or application of the treaty to an SSAT where there is a possibility for divergence from an existing line of decisions by previous ISATs.113 The ISAT

108

Celik (2012–2013), p. 57. For a discussion on the procedure of an Opt-in Convention, See, Kaufmann-Kohler and Potesta (2016), p. 97. For a discussion on possibility of consensual amendment of IIAs to provide jurisdiction to a dispute resolution forum, see, Bungenberg and Reinisch (2018), p. 64. 110 Kaufmann-Kohler and Potesta (2016), p. 48. 111 Art. 267 TFEU; See also, Schreuer (2008), p. 211. 112 See Art. XIV, CCJ Agreement; Art. 34, EAC Agreement governing the East African Court of Justice; Art. 30, COMESA Agreement governing the COMESA Court of Justice; Art. 32, ACJ Treaty; For a discussion on preliminary reference and advisory procedure in arbitration, See, Butler (2015), p. 379 et seq. 113 Discussions on a Preliminary Ruling Mechanism for investor-state arbitration has been made inter alia in: UNCITRAL Working Group III (2018), p. 9; Hindelang (2014), p. 70; Tams (2007), 109

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dealing with the dispute would put the proceedings on hold until the SSAT rules on the dispute and once the award is received, it would move to decide the investor-state arbitration dispute based on the award.114 A system of preliminary rulings has been considered to be ‘very successful to ward off inconsistency and fragmentation.’115 A possibility for a referral or to request states to form an SSAT for adjudication of interpretative disputes and jurisdictional questions through a system of preliminary rulings before they are determined by an ISAT could help reduce public opposition to decisions from ISATs.116 As the public would be aware of the position of the states on the issue through their filings to the SSAT before the actual ISAT proceeding, it could prevent future unfavourable reactions to the ultimate ISAT award and prevent states from ignoring responsibility.117 It would also help in building consistency and coherency of decisions in investor-state arbitration.118 A few examples of referral of questions can already be seen in IIAs. The first example is a procedure for referral of a treaty provision for interpretation by a third institution which has been formed by the state parties in the Korea-New Zealand FTA, which provides the possibility for referral of a dispute to a Joint Commission and the decision of this Joint Commission will be binding on the tribunal.119 The second example is an equivalent mechanism present in the Russian Regulation on Entering into International Treaties on the Encouragement and Mutual Protection of Investments (‘Russian Regulation’) under which the tribunal may refer issues for interpretation to the state party and must wait for an interpretation of the state parties which is binding on the tribunal.120 Even though it has been suggested that such a preliminary rulings system would need the establishment of a permanent body,121 it appears from practice that such a system for interpretative decisions on referred questions can also be implemented through the establishment of an ad hoc body.122 A few instances of a similar body

p. 249; Potesta (2015), p. 271 et seqq.; Del-Gligor (2017), p. 391 et seqq.; Schreuer (2008), p. 211; Jacobs (2015), p. 45; Schreuer (2013), p. 400; Reinisch (2010), p. 118. 114 Law Commission of India (2015), para. 5.8.3; Del-Gligor (2017), p. 442 et seqq.; Schreuer (2008), p. 211. A requirement to temporarily halt the proceedings is seen in the preliminary ruling procedure of international courts. On this see, Guidelines on a Reference for Preliminary Ruling of the East African Court of Justice, Available at http://eacj.org//wp-content/uploads/2012/08/Guide lines-Reference-for-Preliminary-Ruling.pdf (Accessed 24 Mar 2020); See also, Art. 33, ACJ Treaty. 115 Schreuer (2010), p. 150 et seq. 116 Gaukrodger (2016b), p. 16. 117 On the inferences which could be derived from state submission, See, Alvarez (2009), p. 47. 118 Schreuer (2008), p. 209. 119 Art. 10.25, KNZFTA; See also, Titi (2017), p. 39. 120 See, Art. 49 of Decree of the Government of the Russian Federation of September 30, 2016 No. 992; See also, Titi (2017), p. 40. 121 Schreuer (2008), p. 211; Schreuer (2013), p. 400; Schreuer and Melendez (2018), p. 6. 122 On this see also, Kaufmann-Kohler (2006), p. 77.

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based on ad hoc mechanisms are already present in certain IIAs.123 In these IIA, the SSATs serve as a ‘filter mechanism’ for ISDS, allowing state parties to intervene in sensitive issues.124 The filter mechanism is explained as: One mechanism for reserving to the parties the right to determine the merits of certain claims and defences raised in ISDS is the inclusion of filter mechanisms, which specify that certain types of claims and defenses must first be routed to designated state officials or a treatyestablished body for a binding determination.125

The filter mechanisms require that ISATs under certain IIAs dealing with specified issues such as financial and tax matters must wait for a decision by the parties or an SSAT or an equivalent mechanism formed by the parties before ISATs move forward with the claim.126 The filter mechanisms are seen amongst others in the NAFTA (Art. 1415), Canada-Costa Rica BIT, 1998 (Clause I, Annex II) and Canada-China BIT, 2012 (Art. 20(2)). A proposal for such a filter mechanism was also discussed in the UNCITRAL Working Group III deliberations.127 Although the state parties play a primary role in the functioning of the ‘filter mechanism’, in many cases, it contains a possibility for a referral to an SSAT for a decision on the question when the state parties to the treaty fail to come to a common decision.128 The decision of the SSAT in those situations is binding on the ISAT which referred the question.129 It may be highlighted here that an SSAT decision while acting as a filter mechanism is binding only for the particular case and not on all other future tribunals.130 Considering the situations above, SSATs may also be designated to be the interpreting authority under a system similar to the preliminary ruling procedure wherein they can act as a part of a mechanism wherein they decide on certain disputes to clarify issues before being dealt with by the ISAT.131 The SSAT can be marked by the signatories of a treaty as the treaty interpreting authority with the introduction of a possibility for referral of a dispute to the SSAT by an ISAT acting in an investor-state arbitration. It is based on the specific role assigned to the SSAT under the treaty, as the dispute resolution authority for disputes over the

123

Art. 1415, NAFTA; Clause I, Annex II, Canada-Costa Rica BIT; Art. 20(2), Canada-China BIT, 2012. 124 Titi (2017), p. 43. 125 Johnson et al. (2016), p. 44. 126 Titi (2017), p. 43; Roberts (2013), p. 82; See also, Johnson et al. (2016), p. 45; See also, UNCTAD (2007), p. 128; UNCITRAL Working Group III (2018), p. 8. 127 UNCITRAL (2018), p. 15. 128 See, Art. 20(2), Canada-China BIT, 2012; See also, Titi (2017), p. 44. 129 For such provisions, See Art. 20(2)(c), Canada-China BIT, 2012 and Art. 22(4) of the CanadaHong Kong BIT; See also, Polanco (2019), p. 117. On the binding nature of the SSAT decision for the ISAT see, Kidane (2016), p. 161. 130 Titi (2017), p. 43. 131 For a discussion on preliminary rulings for an ISAT, see, Schreuer and Melendez (2018), p. 6.

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interpretation of a treaty.132 The referral mechanism also supports the desired function of state-to-state arbitration to make investor-state arbitration more effective.133 This contrasts from the role of the ISAT, which performs functions as the dispute resolution authority for disputes between an investor and a host state on issues regarding the protection of treaty rights and investment.134 The functioning of the preliminary rulings system could be based on a procedure where the ISAT dealing with a dispute requests a submission from the state parties on their understanding about the interpretation of the disputed treaty provision(s) on either a request by the respondent state or on its own account. Such a request for inputs on interpretation from the state parties would not be unique and a possibility for such inputs is already contemplated in certain investment treaties.135 In the proposed procedure, after the tribunal grants the request to seek inputs or issues a request for inputs on its own, the procedure could be controlled in two ways: (a) direct control by the state parties or, (b) control by the ISAT. Under the first path, on receiving the permission of the tribunal to commence the procedure, the host state which is also a party to the investor-state dispute will send its interpretation or understanding on the issue to the home state of the investor and ask for its opinion. The home state has to then provide a reply within a specified time period stating its agreement or disagreement. In case the home state disagrees, the two state parties can start the state-to-state dispute settlement procedure provided in the IIA and have to reach an agreement through negotiation, conciliation or other diplomatic channels or refer the dispute to an SSAT which would have to decide within a fixed time period. The determination of the SSAT would then bind both the states and the ISAT related to the dispute. Under the second path, the ISAT will itself send a request to the home state of the investor, to submit to the tribunal regarding its understanding of the interpretation in relation to the issue under consideration. This can be made in the form of a non-disputing party submission.136 The non-disputing party submission will then be evaluated by the ISAT along with the submission by the disputing state party (the host state) and if it finds a major variation between an interpretation of the treaty in both the submissions, it may send a request to commence a procedure for a common interpretation by both state parties, but with a fixed time limit for submission. The state parties will then be free to use any procedures to come to a common interpretation. However, they will likely use the state-to-state dispute settlement procedure or a similar mechanism present in the treaties to resolve the dispute. In case states use

132

Kulick (2016), p. 147 et. seqq. Lubambo (2017), p. 85. 134 Kulick (2016), p. 148. 135 For examples, see, Art. 41, Canada-Jordan BIT; Art. 23(3), Canada-Serbia BIT; Art. 25(3), Canada-Benin BIT; Art. 10.25, KNZFTA; Art. 40(2), ASEAN Comprehensive Investment Agreement, 2009. 136 A possibility for a non-disputing party submission is seen in many IIAs, inter alia Art. 22, Canada-Benin BIT; Art. 39, Canada-Jordan BIT. 133

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an SSAT to finally resolve the dispute, the award of the SSAT would then bind both the states and the ISAT called upon to adjudicate the dispute. In order to introduce the preliminary ruling procedure, a clause will have to be included in the IIA specifically binding the ISAT which referred the dispute to the result of the state-to-state dispute settlement process and the treaty will also ideally provide a fixed time period for conclusion of the state-to-state dispute settlement proceedings by the state parties so as not to delay the ISAT proceedings.137 State-tostate disputes can be resolved very rapidly if the state parties want, as can be seen through the 75-day period for urgent rulings in the new EU-Singapore IPA, 2018.138 The possibility for such a mechanism for preliminary rulings and the clause on the binding force of decisions on the ISATs may be introduced as an optional amendment to BITs through a Multilateral Agreement which amends the bilateral treaties in case of express consent by both state parties.139 A body for preliminary rulings would not require an amendment of Art. 53 of the ICSID Convention as it is not an appeal mechanism that affects the finality of ICSID awards.140 The establishment of such a body would, in turn, require the drafting of strict rules governing the circumstances of referral and agreement of the binding effect of the issued interpretations.141 The decisions of such an SSAT may also possibly be used by future ISATs as precedents with a persuasive value on issues of law and promote consistent decisions from ISATs who may be encouraged to follow the interpretation of law except under exceptional situations.142 The main differentiating factor between this prescribed mechanism and the filter mechanisms already present under the IIAs is that this new mechanism may be used for all disputes as opposed to the limited coverage of the current mechanism to certain subjects such as financial services143 or particular issues in annexures.144 It also provides for binding periods for resolution of the interstate dispute which in turn may expedite the ISAT proceeding.145

137

For a treaties with binding time period for replying to such a joint interpretation request, see, Art. 40(2), ASEAN Comprehensive Investment Agreement, 2009; Art. 10.25, KNZFTA; Art. 41, Canada-Jordan BIT. 138 Art. 3.32, EU-Singapore IPA, 2018. 139 For discussion on inter partes amendments, See, Bungenberg and Reinisch (2018), p. 66 et seqq. See also, Chaudhri (1984), p. 23. 140 Schreuer (2008), p. 212; Schreuer and Melendez (2018), p. 6; Schreuer (2013), p. 401. 141 Schreuer (2008), p. 212. 142 Howard (2017), p. 47 et seq. 143 See, Art. 25, Canada-Benin BIT. 144 See, Art. 41, Canada-Jordan BIT. 145 Binding time periods for resolution of state-to-state disputes are already seen in a number of IIAs including, inter alia Turkey-Gambia BIT, 2013 and the Israel-Azerbaijan BIT.

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Through an Advanced Ruling Procedure for Investments Yet To Be Made

The exact coverage of a particular transaction as an investment under the ICSID Convention or an IIA may not be clear and may lead to a dispute later when investorstate arbitration is sought on the issue.146 Under an advanced ruling procedure, investors could ask for advice about the legality of their proposed investment and its coverage under the investment protection provisions in an IIA before they act or invest in a particular country.147 Two possible modes are proposed for this mechanism. In the proposed first mode, the investor may approach its home state and request the state to seek a clarification from the country where it seeks to invest (host state) on if the investment that he wants to make will be covered as an ‘investment’ under the IIA between both the countries. This may lead to two reactions: 1. the home state may refuse to consider the investor’s request in which case the investor will have no further recourse 2. the home state may decide to consider the investor’s request and agree that it will be an investment under its IIA with the host state and forwards a query to the host state asking if it agrees with the same interpretation After the host state receives the request, it may consider the request and reply to the home state regarding its own interpretation about the coverage of the proposed investment under the IIA. If they both agree about its coverage, the states may issue a joint interpretation or exchange letters about their agreement regarding the common interpretation. In case they do not agree about the interpretation, the states may commence the dispute resolution proceedings under the compromissory clause of the IIA and ultimately refer the dispute to an SSAT formed by the states to decide on the question. A decision of the SSAT would be binding on the states as provided in the IIA and if the SSAT declares the ‘investment’ as covered under the provisions of the IIA, then the host state may not oppose the coverage of the investment in a future ISAT formed to decide on issues regarding the investment. As a part of a second and more complicated mode, the ‘advanced ruling’ can be based on a system similar to the power to provide advisory opinions vested in the Caribbean Court of Justice (CCJ) wherein the Court has the ‘exclusive jurisdiction to deliver advisory opinions concerning the interpretation and application of the Treaty.’148 The scope of advisory opinion under the above-mentioned clause for the CCJ is quite limited (interpretation and application of the ‘particular’ Treaty) in contrast to the wide powers of advisory opinion of the ICJ,149 and hence could be

146

Delaume (1983), p. 795. For a brief mention on the possibility of such a system, see, Butler (2015), p. 379 et seq. 148 Art. XIII, CCJ Agreement. 149 See Art. 65(1), Statute of the ICJ which states: “The Court may give an advisory opinion on any legal question. . .” 147

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used for very specific purposes and not as a blunt instrument subject to misuse by the parties. A practice of providing the power to provide advisory opinions with a very limited scope is not an exceptional situation150 and can also be replicated for an SSAT. In order to utilise this advanced ruling procedure, it would be required to follow the same steps as the first method above regarding a request by an investor to the home state and the communication between the home state and the host state. However, the only difference here would be that in case the two states do not agree on the coverage of the particular investment under the IIA, they would request an advisory opinion from an SSAT rather than a declaratory decision, but with the advisory opinion retaining the ‘authoritative character’ of a declaratory decision.151 For this purpose, an SSAT under an IIA could be provided jurisdiction on the basis of a slightly amended compromissory clause in IIAs which would state that disputes covering interpretation or application of a treaty may also be decided by it through an ‘advisory opinion’. This would require the insertion of a possibility of an ‘advisory opinion’ by an SSAT through an amendment in the treaties, which can be made by the parties through bilateral agreements or through a plurilateral document like the Mauritius Convention. Issuing an advisory opinion is not expected to be a major hurdle since an SSAT already has wide powers vested on it to adjudicate on any dispute arising from substantive or procedural matters in an IIA and the SSAT may also be requested to determine the coverage of particular investors or an investment under the treaty based on these same powers albeit in the form of an advisory opinion.152 In fact, arbitral tribunals have been provided with the power to issue advisory opinions in the past.153 Considering that the decision of an SSAT is binding on them,154 the state parties to a treaty will not be able to challenge the rationae materiae jurisdiction of a future ISAT dealing with a dispute on the particular ‘investment’ which has already been determined to be covered under the treaty by the SSAT through an advisory opinion.155 To increase the effectiveness of the system, the parties may choose to make interpretations through such advisory opinions binding on the parties and

150

A similar provision providing a limited scope of an advisory opinion is seen in Chapter IV, Art. 46 and 47, Statute of the Court of the Eurasian Economic Union. 151 On this, See also, Oellers-Frahm (2012), p. 93. 152 UNCTAD (2003b), p. 56. 153 On this, See the Badinter Commission formed under the ‘Statement by an extraordinary EPC Ministerial Meeting concerning Yugoslavia’ issued on 27 August, 1991, published in 91/252 (Declaration), European Political Cooperation Documentation Bulletin, Vol. 7-1991, European University Institute, Florence, 1994, p. 389 et seq. See also, Fitzmaurice (2010); Oellers-Frahm (2012), p. 85 et seq. 154 Institut de droit international (2013), para 19. 155 On the power of an SSAT to determine coverage as an investment, See, UNCTAD (2003b), p. 56; The SSAT may not be able to directly issue an advisory opinion owing to lack of an explicit power provided in the treaties. For a detailed discussion on possibility of advisory opinions from arbitral tribunals, see, Sohn (1983), p. 188 et seq.

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future ISATs through the inclusion of a specific clause stating the same in the treaty.156

3.4.1.3

Comparing the Two Methods

The difference between both the methods discussed above is that while the first method may possibly function based on the existing system, the second method would most likely require an amendment of the treaties. However, both methods are likely to be equally effective in achieving the goal of obtaining an interpretation. The second method is, however, likely to be more clear regarding its purpose and utility when adopted, but such adoption may require some time owing to the need for treaty amendments. The advanced ruling procedures proposed above are not unique in international economic law and a similar procedure for ‘advance rulings’ is seen in the EU FTAs. These FTAs provide a possibility for advanced rulings in their ‘Customs and Trade Facilitation’ chapters through which the customs authorities of the countries may issue ‘advance rulings’ which may relate to ‘tariff classification or on any other matter as the Parties may agree upon.’157 The use of arbitration to determine coverage of a subject under a particular treaty is also prescribed under the General Agreement on Trade in Services.158 These examples show that inclusion of such procedures for clarification of IIA (particularly BIT) provisions is plausible, subject to the will of the nations as BITs are considered to be ‘subject to renegotiation and replacement with relative ease’,159 compared to a modification of a multilateral document such as the ICSID Convention.160 It is also essential that the decision regarding the coverage of investment is taken by an SSAT or a similar body because the decision has to ‘be binding’ on the state parties or otherwise it may be raised later in an ISAT proceeding. A possible shortcoming of this mechanism is that it may not be very useful in the case of IIAs where investors have arbitration under the ICSID Convention as the sole mode of investor-state dispute resolution under the IIA since the investment has to fulfil the ‘double barrel test’.161 This would mean that mere coverage as an ‘investment’ under the IIA would not necessarily ensure that the

156

Advisory opinions of the ICJ are not considered binding, on this See, Mayr and Mayr-Singer (2016), p. 429 et seqq.; For a clause which provides explicit binding force to the interpretation of a treaty or international convention by an International Court based on a voluntary consultation by a State Party see, Art. 24, Statute of the Central American Court of Justice, 1992. 157 See Art. 4.9, Chapter 4, EUVFTA; Art. 6.5, Chapter 6, EUSINGFTA; Art. 6.6, Chapter 6, EUROKFTA; Art. 4.7, Chapter 4 EU-Japan EPA. 158 Such a provision is seen in Art. XXII(3), GATS. 159 Coe Jr (2007), p. 457; See also, Howard (2017), p. 32 et seq. 160 Schreuer (2013), p. 400. 161 ICSID, Case No. ARB/04/6, Oko Pankki Oyj and Ors. v Estonia, Award, 19 November 2007, para 201 et seqq.; Malik (2009), p. 4.

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investment is considered as covered for protection under the ICSID arbitration proceedings.

3.4.1.4

Distinguishing the Preliminary Ruling and Advanced Ruling Procedure

Even though both the preliminary ruling procedure and the advanced ruling procedure mentioned above aim to provide stability and consistency in the decision-making process, there is a fundamental difference between them. While the preliminary ruling procedure depends on an ISAT to refer a dispute to refer the dispute to an SSAT, the advanced ruling procedure depends on the will of the state parties to obtain a binding interpretation of an issue directly from an SSAT even before the investment has been made. As such they deal with two different stages— prior and post investment dispute resolution and could be utilised at different stages of the lifecycle of an investment.

3.4.2

Harmonised Interpretation of Multi-Party Investment Treaties

A multilateral investment treaty has been proposed as a solution to the global web of multiple BITs, customary international law provisions and tests created by investment arbitration tribunals.162 The possibility of such a treaty has been supported by several authors and it has been stated ‘as, an ideal solution to address many of the problems in foreign investment law.’163 They broadly opine that ‘a global treaty would enable the harmonisation of investment rules, ensuring a greater level of consistency and coherence. Eliminating the need for BITs would also contribute to combating the recent trends in foreign investment law towards treaty, forum and nationality shopping.’164 A discussion on such a multi-party investment agreement was made in the past through the proposal for drafting a new Multilateral Investment Agreement (MAI) which unfortunately was unsuccessful.165 However, smaller multi-party investment treaties exist, inter alia the Convention for the Protection of the Rights of the Investor of 1997 which has CIS states as its parties (‘Moscow Convention’), OIC Investment Agreement and the ASEAN Comprehensive

162

Butler (2013), p. 626; Katz (2016), p. 181 et seqq.; See also, Schreuer (2013), p. 399. Subedi (2008), p. 196. For further supporting views, See, Price (1997), p. 494; Lee (2018), p. 33 et seq.; For views opposing such a treaty, See, Alvarez (2009), p. 79 et seq. 164 Butler (2013), p. 626. 165 Malanczuk (2000), p. 417; See also, Coe Jr (2007), p. 456. 163

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Investment Agreement. The interpretation of such multilateral treaties would give rise to more complicated questions than with a bilateral treaty.166 Considering the circumstances, based on the example of the existing Moscow Convention, it was expected that such multilateral investment treaties would possibly have a provision for state parties to create a specialised tribunal or court to decide on the interpretation of the treaties.167 However, it can be derived from the ASEAN Comprehensive Investment Agreement and the proposed MAI that disputes on interpretation and application of a multilateral treaty can also be resolved through an SSAT or an ad hoc panel after completion of the requisite consultation, conciliation or mediation requirements.168 This possibility for interpretation of a multilateral treaty through an SSAT is discussed in detail below. Interpretation of a Multilateral Treaty Through an SSAT While arbitration has been accepted as a key method for interpretation of a multilateral treaty,169 the path for an SSAT (such as the one suggested under the MAI) to interpret the multilateral treaty may not be smooth owing to the possibility of formation of multiple SSATs at the request of multiple states who seek an interpretation of the treaty.170 Multiple SSATs may also be formed when multiple states related to an investor seek to extend diplomatic protection regarding the same investment (e.g. one state for the company and another state for the shareholders).171 To prevent such situations, a future multilateral investment agreement may provide for the establishment of a common SSAT,172 when more than one state party to the treaty requests for the establishment of an SSAT for a similar issue.173 Although such a provision for a merger may be a novelty for state-to-state arbitration in IIAs, they are already seen in case of investor-state arbitration proceedings under the NAFTA and similar provisions have also been included for investor-state arbitration proceedings inter alia in the 2004 Canadian Model BIT, the India-Mexico BIT,

166

Hambro (1953), p. 237. The Economic Court of the Commonwealth of Independent States has dealt with interpretation of the Moscow Convention under Art. 28 of the Convention; Also see, Gaukrodger (2016b), p. 18. 168 Chapter V, C. 1, Draft Multilateral Agreement on Investment; Malanczuk (2000), p. 423. In the ASEAN Comprehensive Investment Agreement, 2009, the dispute resolution proceedings are undertaken through Art. 4 and 5, 2004 ASEAN DSM Protocol. 169 Sohn (1983), p. 176 et seqq. 170 Such a possibility can be seen under Art. 8, ASEAN-India Dispute Settlement Mechanism Agreement, 2009 which permits formation of multiple arbitration tribunals for resolution of disputes among state parties regarding the ASEAN-India Investment Agreement, 2014. 171 Reinisch (2004), p. 76; For a discussion on possibility of claims by the state of the shareholders, see, Broches (1972), p. 379. 172 On this, See also, Institute of International Law (1999), para 4. 173 For rare IIAs which contain such a provision, See, Art. 43(1), CEFTA; Art. 33 (2), AlbaniaEFTA FTA, 2009; Art. 9(1), Chapter 17, AANZFTA Agreement. For an extremely rare occurrence when an IIA explicitly bars formation of two SSATs on the same dispute, see, Art. VII(8), IndiaTurkey BIT, 1998. 167

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2007, and the US-Rwanda BIT.174 Among other prominent dispute resolution forums, a possibility of the merger of panels deciding on the same issue is present in the WTO.175 The second option which can allow for the participation of multiple state parties is through a system of participation of third party states in SSAT proceedings.176 The third-party submissions may indicate ‘a common understanding of treaty provisions’ and may even be considered as a de facto authoritative interpretation by the parties in case the opinion submitted by the state parties match.177 As of now, most non-disputing state parties are unable to express their view regarding the interpretation of a provision in the absence of an explicit provision in the treaty, which leaves non-party submissions mostly to the discretion of the arbitral tribunal.178 The IIAs may, however, lay down the explicit possibility for third party submissions in a stateto-state arbitration to cover this shortcoming through amicus curiae briefs or similar submissions.179 The NAFTA and the CAFTA-DR contain an example for a provision of this nature and allow a third state party to join as a complaining party in a matter where it considers that it has a substantial interest.180 As an added incentive to take part in disputes and prevent a party from raising a similar dispute again separately in the future, it has been explicitly clarified that a third party that does not join as a complaining party will not be able to raise the issue again for dispute settlement ‘in the absence of a significant change in economic or commercial circumstances.’181 NAFTA is not the only IIA, which has foreseen such a situation, and third state party participation is also possible under the ASEAN-India Investment Agreement, 2014.182 The matter came up in the discussions about MAI and it was suggested in these negotiations that other third member states to the MAI will have the opportunity to present views before the panel in a state-to-state arbitration proceeding (based on the MAI) between two member states.183 Also, while this 174

Art. 15, India-Mexico BIT, 2007, Art. 33, US-Rwanda BIT; Art. 1126 NAFTA; Art. 32, 2004 Canadian Model BIT; See also, Hanotiau (2005); Crivellaro (2005), p. 103 et seqq. 175 Art. 9, Dispute Settlement Understanding. 176 For a discussion on the possibility of such interventions, see, Wood (2017), p. 7. 177 Alschner (2015), p. 327. 178 Pyka (2016), p. 82. 179 For an example of an explicit inclusion of a clause providing permissibility for Amicus Curiae submissions, see, Art. 43(2), CEFTA; Art. 28.11, 2012 SADC Model BIT; The possibility for submissions by a third state in a Panel proceeding can be seen through Art. 11 of the 2004 ASEAN DSM Protocol which governs the ASEAN Comprehensive Investment Agreement, 2009; See also, Franck (2005), p. 1617. 180 Art. 2008(3) NAFTA; Art. 20.6(3) CAFTA-DR. 181 Art. 2008(4) NAFTA; Art. 20.6(4) CAFTA-DR; See also, Canela (1993), p. 9. 182 Art, 19, ASEAN-India Investment Agreement, 2014 refers to resolution of disputes between state parties under the ASEAN-India Dispute Settlement Mechanism Agreement, 2009 which provides for Third State Party participation under Art. 8. 183 Small (1997), p. 497.

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practice may be novel for state-to-state arbitration, in many IIAs, third states which are not a party to the dispute but party to an IIA are now explicitly allowed to make submissions in an investor-state arbitration proceeding concerning the interpretation of certain multiparty IIAs.184 In the absence of such provisions, the tribunal may on its own account call for third party submissions from non-participating state parties and these submissions may be considered as an interpretative tool under the Art. 31 (3) VCLT by the tribunal.185 An SSAT award would not have the same status in a multi-party investment treaty as it has in a BIT as it would not reflect the will of all the parties.186 In these cases, the effect of the award on third parties to a treaty has to be explicitly specified in the treaty,187 and in case the treaty provides, the decision of an SSAT may also bind all the contracting parties.188 If the treaty does not provide any guidance, it is generally considered that the award will be binding on the disputing parties only.189 In the presence of requisite provisions, the SSATs may indirectly support a harmonised interpretation of the treaty owing to the possibility of intervention by the other state parties to the treaty in state-to-state arbitration proceedings relating to interpretation or application of the treaty.190 In cases where there is no explicit provision permitting intervention by non-disputing parties, the tribunal may on its own account permit intervention by another state after consultation with the disputing parties and the determination of the tribunal in such a scenario will be binding on both the disputing state parties and the intervening state.191 In cases when these other state parties to the treaty also intervene in the proceedings; they may also become bound by the findings of the tribunal including any decision on the interpretation of the treaty by the tribunal subject to the rules of the treaties or of the arbitration tribunal.192 Lastly, in circumstances where other state parties to the IIA do not get involved in a dispute, the filings before the SSAT by the state parties who were a part of the dispute may reflect the subsequent practice of the state parties and may be used as

184

See Art. 8.38(2) CETA, Art. 10.20, CAFTA-DR; Art. 1128, NAFTA. See also, Onwuamaegbu (2009), p. 80. On its use in the NAFTA, see, Dumberry (2002), p. 78. 185 ICSID AF, Case No. ARB(AF)/16/3, B-Mex LLC and others v United Mexican States, Procedural Order No. 7, 23 November, 2018, para 5 et seqq.; See also, Wood (2017), p. 7. 186 Kulick (2016), p. 150. 187 UNCTAD (2003b), p. 74. 188 For such a treaty provision where the decision of the SSAT binds the ‘Contracting Parties’ instead of the disputing parties, see, Art. 10(4), ECO IA. 189 The binding effect of the award only on the disputing parties has been explicitly specified in Art. 17(5), China-Japan-ROK Trilateral Investment Agreement, 2012. 190 Art. 36, Revised General Act; Art. 84, Hague II Convention; See also, Institute of International Law (1999), para 7 et seqq. 191 Institute of International Law (1999), para 7 et seqq. 192 Art. 25.3, Dispute Settlement Understanding; Art. 37 (2), Revised General Act; Art. 84, Hague II Convention; Art. 56, Hague I Convention. A similar provision is found in Art. 63, Statute of the International Court of Justice, and in Art. XVIII(3), CCJ Agreement; See also, Hambro (1953), p. 240 et seqq.

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supplementary means of interpretation of the treaty.193 It must be considered here that even if the third states fail to participate in the proceedings, de facto an award by an SSAT would affect the future application of the treaty and will thereby affect the non-participating state parties also.194

3.4.3

Treaty Overlap as a Concern for Interpretation and Use of Harmonised Interpretation for Overlapping IIAs

It is expected that existing IIAs between states will be harmonised or terminated when a new treaty covering the same issues is signed. In practice, the situation can be seen in the EU where on the EU signing an IIA with a third country, all existing member state IIAs with that same third country had to be terminated.195 This ideal situation has not been reflected in practice and even when an existing IIA was supplemented with regional investment treaties or a trade agreement with a chapter on investment (e.g. SADC Protocol on Finance and Investment, Indonesia-Australia BIT and AANZFTA Agreement), the original IIA remained in force and now both the IIAs coexist.196 Even if the old IIAs are terminated, the sunset clauses in the treaties may mean that their protection remains in place for past investments.197 Considering these situations, the possibility of overlapping investment protection agreements with inconsistencies is a distinct possibility and when this occurs, a harmonious interpretation of both the treaties may be required.198 Overlapping trade and investment treaties are a relatively common occurrence and its example can be seen in the TPP negotiations where all TPP parties had at least one PTA with another TPP party.199 The state parties to an IIA may also be bound by commitments under the WTO agreements which have to be interpreted if they have

193

Report of the International Law Commission Sixty-fifth session (6 May–7 June and 8 July– 9 August 2013), UN Doc. A/68/10, p. 16. 194 Oellers-Frahm (2012), p. 93. 195 Bungenberg (2012), p. 13. 196 Alschner (2014), p. 274 et seqq. For examples of actual situations of coexistence between two different investment agreements see, UNCTAD evaluation of the ASEAN Comprehensive Investment Agreement, 2009 at https://investmentpolicy.unctad.org/international-investment-agree ments/treaties/treaties-with-investment-provisions/3273/asean-comprehensive-investment-agree ment-2009- (Accessed 24 Mar 2020); See also, UNCTAD evaluation of the SADC Protocol on Finance and Investment, 2006, https://investmentpolicy.unctad.org/international-investment-agree ments/treaties/treaties-with-investment-provisions/3383/sadc-investment-protocol (Accessed 24 Mar 2020); Crockett (2015), p. 447. 197 Rolland (2017), p. 399 et seqq.; Peinhardt and Welhausen (2016), p. 572. 198 Crockett (2015), p. 448; UNCTAD (2003b), p. 5; Alschner (2014), p. 275 et seqq.; Hepburn (2016), p. 2 et seqq.; A possibility for overlap and inconsistency was deemed to be possible and a method for resolution of the same was seen in Art. 34, Belarus-India BIT, 2018. 199 Mitchell and Munro (2013), p. 157.

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been explicitly referred to under the IIA.200 Additionally, an interpretation of the terms in another ‘parallel regional treaty’ could possibly be dragged into the IIA interpretation process by an SSAT which has been formed under an IIA.201 The basis of this argument is Art. 31(3)(c) of the VCLT which states that ‘any relevant rules of international law applicable in the relations between the parties’ shall be taken into account when interpreting a treaty term,’202 or when the treaty states that the tribunal should use ‘applicable rules and principles of international law’.203 Alternatively, the SSAT could also justify its reliance on other agreements based on clauses such as “the arbitral tribunal shall decide on the basis of respect for the law including particularly the present Agreement and other relevant agreements existing between the two Contracting Parties”204 to rely on other agreements while deciding on the dispute if it is permitted according to the provisions of the IIA based on which it has been formed.205 It also raises questions as to which norms would prevail in case of conflicting norms of the treaties.206 The other possibility which arises is of inconsistency due to conflicting decisions from two or more dispute resolution forums formed under two or more different but overlapping agreements entered into by the states, which might affect the stability of the dispute resolution process.207 This situation is a distinct possibility owing to the search for the most favourable dispute resolution mechanism by parties.208 As such, treaties have included provisions that aim to prevent conflicts like the inclusion of a clause that calls for the selection of one forum to exclusion of all other forums209 and undertaking to avoid parallel disputes in more than one forum.210 In certain

200

Art. 6, Argentina-Japan BIT, 2018. Alschner (2014), p. 296 et seqq.; See also, Borgen (2005), p. 606 et seqq. 202 Alschner (2014), p. 296 et seqq.; For a practical situation when this issue is discussed, see, ICSID AF, Case No. ARB(AF)/16/3, B-Mex LLC and others v United Mexican States, Procedural Order No. 7, 23 November, 2018. For a discussion on investment agreements as Customary International Law or General Principles of Law, see, Salacuse and Sullivan (2005), p. 112 et seqq. 203 For such a treaty provision, See, Art. 9(4), Mauritius-Egypt BIT; See also, Hepburn (2016), p. 3. 204 Such a treaty provision is seen in Art. 8(5), Egypt-Cyprus BIT. Similar clauses can also be seen inter alia in Art. 11(5), Mexico-France BIT; Art. 12(5), Netherlands-Nigeria BIT. 205 See also, Etinski (2016), p. 12 et seq.; For a discussion on such a possibility also in investor-state arbitration based on similar clauses governing ISATs, see, Crockett (2015), p. 447. 206 Mitchell and Munro (2013), p. 158; See also, Borgen (2005), p. 575 et seqq.; Kurtz (2014). 207 Houde and Yannaca-Small (2004), p. 4; Hober (2005), p. 246; Mitchell and Munro (2013), p. 166; Gallo and Nicola (2015–2016), p. 1140; Franck (2005), p. 1545 et seqq. For further discussion on parallel claims from multiple investment treaties through an ISAT, see, Cremades and Madalena (2008), p. 538. Such a situation may also occur when states seek to enforce their rights through multiple treaties through multiple SSATs or other dispute resolution forums provided in the treaties. 208 Houde and Yannaca-Small (2004), p. 4. 209 See, Art. 2(5), ASEAN-India Dispute Settlement Mechanism Agreement, 2009; Art. 20.5, MAFTA; Art. 5(1), Chapter 17, AANZFTA Agreement; Chapter V, C. 1. c., Draft Multilateral Agreement on Investment. 210 Art. 326 (5), EU-Central America Association Agreement. 201

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exceptional cases, parties may also undertake not to use the dispute resolution procedure based on the compromissory clause in the multilateral treaty if the dispute could be resolved through the overlapping bilateral treaty between the two disputing state parties.211 Considering these possibilities, a joint interpretation mechanism involving both the new and old treaties or parallel treaties on the same subject has been proposed by the UNCTAD, which has expressed that such interpretation may be effective if ‘joint interpretations by the parties (or their joint bodies) are binding on tribunals.’212 Since the possibility for formation of an SSAT for treaty interpretation is present in most IIAs (both old and new),213 an SSAT (as ‘a common body’) which has its roots both in the new and old treaties can act as a mechanism for interpretation of the treaties. This common body will have to be formed through a separate agreement between the parties. However, this common body may face hurdles in navigating issues like applicable law for disputes, which may be different under the two treaties and state parties would need to agree on the applicable law and other rules for the tribunal through an agreement before the formation of the SSAT.214

3.4.4

Unwanted Consequence: Maffezini Decision and the Possibility to Use of Interpretations of SSAT Interpretations of Other IIAs by Investor-State Arbitral Tribunals

The utilisation of the MFN clause in an IIA to borrow substance and procedure from other IIAs is already prevalent in investor-state arbitration as reflected by the Maffezini case.215 The MFN principle was also used to invoke stronger protections based in other IIAs in the Impreglio case,216 and have also been utilised to import favourable dispute resolution clauses.217 Given this line of decisions which depend on the MFN clauses of an IIA to import the more favourable provisions of another IIA, it might emerge as an unwanted consequence in the future, that in case of the presence of an identical clause in two IIAs signed by a host country, ISATs might seek to import a previously issued interpretation by an SSAT of the provision of one

211

On this, see, Art. 30(3), CEFTA. UNCTAD (2017), p. 9. 213 On the presence of state-to-state dispute settlement mechanism in almost all agreements, See, Houde and Yannaca-Small (2004), p. 10. 214 Hepburn (2016), p. 5 et seqq. 215 ICSID Case No. ARB/97/7, Emilio Agustín Maffezini v. The Kingdom of Spain, Award, 13 November, 2000; Coe Jr. (2007), p. 456. 216 ICSID Case No. ARB/07/17, Impregilo S.p.A. v. Argentine Republic, Award, June 21, 2011, para 101. 217 ICSID Case No. ARB/02/8, Siemens A.G. v. Argentine Republic, Decision on Jurisdiction, August 3, 2004; Schreuer (2008), p. 208. 212

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IIA for the other IIA. To further strengthen the argument, an ISAT in at least one known dispute has considered that “the interpretation of a bilateral treaty between two parties in connection with the text of another treaty between different parties will normally be the same, unless the parties express a different intention in accordance with international law.218 This occurrence of import of interpretations is expected to be exceptional but not impossible considering that an ISAT has already referred to another IIA concluded by a country to understand the scope of a similar dispute resolution clause which was included in the IIA under dispute.219 The possibility for utilisation of the interpretation of a clause of one IIA for another IIA was seen in the case: National Grid v. Argentina when the interpretation of a clause (coincidentally, the MFN clause itself) of the Argentina-Panama BIT was agreed in the past through an exchange of diplomatic notes between the two states and Argentina sought to import the same agreed interpretation for a dispute based on the Argentina-UK BIT.220 In such cases, when interpretations are sought to be borrowed from another IIA, the question which may arise is when does a difference in language in the other IIA mean that the interpretation can no longer be used.221 In practice, a uniform interpretation of all investment treaties by arbitral tribunals may not be realistic. An example which reflects this is the interpretation of the UNCITRAL Model Law by courts in different countries; which even though was ‘transplanted’ into the national laws of different countries as a measure to harmonise arbitration law resulted in different interpretations by judges in the different countries even though they followed the same system of law, i.e. common law.222 The process of harmonising the texts of the legal documents such as the IIAs through mechanisms like SSAT interpretations may only serve as the beginning of the process and it will require inputs from judges and arbitrators who play a key role in interpreting the treaties.223 Any proposal for building a uniform system of interpretation for key provisions like the meaning of ‘investment’ or an ‘investor’ which can be suitable for all circumstances and all IIAs, through any mechanism, whether based on precedents or otherwise is highly unrealistic owing to the different circumstances governing the drafting history and background of the IIAs even for identical treaties.224 In the alternative, a system where an interpretation made by an SSAT for the particular IIA regarding the specific conditions is later used for uniform interpretation of the IIA by different ISATs formed to deal with disputes arising from the same background conditions is more likely to be acceptable. 218

ICSID, Case No. ARB/01/3, Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, Decision on Jurisdiction, 14 January 2004, para 47. 219 ICSID, Case No. ARB/10/1, Kilic v. Turkmenistan, Decision on Art. VII.2 of The TurkeyTurkmenistan Bilateral Investment Treaty, 7 May 2012, para 9.18 et seqq.; Mbengue (2016), p. 395. 220 National Grid Plc. v. Argentine Republic, UNCITRAL Arbitration, Decision on Jurisdiction, 20 June 2006, para 85; See also, Titi (2017), p. 42. 221 Coe Jr (2007), p. 456. 222 Arvind (2010), p. 81. 223 Arvind (2010), p. 87. 224 See, CME Czech Republic B.V. v. Czech Republic, UNCITRAL, Final Award, 14 March, 2003 and Ronald S. Lauder v. Czech Republic, UNCITRAL, Final Award, 3 September, 2001.

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Arbitration for Deciding Disputes on the Application of the Treaty

The term ‘application of the treaty’ which is present as a standard compromissory clause in many treaties has been rarely discussed.225 It has been defined as the determination of ‘the extent to which the actions or measures taken or proposed by the contracting parties comply with the terms of an agreement, its object and purpose.’226 It is understood from the VCLT that the actual scope of coverage of the term ‘application of treaties’ at least extends to the implementation of the treaty, non-retroactivity of treaties, the territorial scope of the treaties and application of successive treaties to the same subject matter.227 Other covered situations may include “disputes arising from one state’s non-enforcement of a final award; or disputes when one state purports to denounce the treaty”.228 The provision for resolution of disputes on the application of the treaty can be utilised in a varied number of ways by both the treaty parties.229 Among others, disputes on the application of the treaty can emerge from abstract application claims, claims for failure to enforce ISAT awards and diplomatic protection claims. The current section focusses on the meaning of this term and issues that can potentially be resolved by state-to-state arbitration under this provision.

3.5.1

Direct Claims from a State for the Protection of Its Own Rights Under a Treaty

IIAs can create ‘state-to-state rights and obligations’230 and the state parties to an IIA are able to bring about claims based on a ‘direct injury to the state’s rights.’231 Through these claims, the state party may claim that a specific measure of the other party is either in breach of the IIA,232 or is inconsistent with its obligations and/or the

An exception to the use of the word ‘application’ is seen in the Art. 11, Belgium-Indonesia BIT, 1970 and Art. VIII(1), Denmark-Indonesia BIT, 1968, where the word ‘implementation’ is used instead of ‘application’. 226 UNCTAD (2003b), p. 14. 227 Part III, Section 2: Application of treaties, VCLT; Linderfalk (2007), p. 165. 228 PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Opinion With Respect To Jurisdiction In The Interstate Arbitration Initiated By Ecuador Against The United States, W. Michael Reisman, April 24, 2012, para 30; Orecki (2013), p. 17. 229 Steingruber (2012), para 14.86. 230 Roberts (2010), p. 203. 231 Polanco (2019), p. 267; Dolzer and Schreuer (2012), p. 234; Macias (2016b), p. 309; Gaukrodger (2016b), p. 9. 232 An example can be seen in Art. 24(1) and 25 of the Brazil-UAE CFIA. 225

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other party has failed to carry out its obligations.233 A practical example of a claim for the protection of a state’s rights under a treaty from a direct breach is the Italy v Cuba case wherein Italy brought a symbolic claim for EUR 1 alleging violation of its rights by Cuba.234 It was amongst the first cases to recognise the possibility of a declaratory claim along with a diplomatic protection claim.235 A ‘declaratory claim’ seeks an affirmation that the other party has violated the IIA236 or that a certain measure or legislation is not compliant with the IIA.237 It, however, does not attempt to determine whether a particular investor has been affected by a treaty provision or seek damages.238 A declaratory claim may also be initiated to find the correct interpretation of a treaty provision thereby making it similar to an interpretation claim in certain cases.239 A successful declaratory SSAT claim may also be used to commence future investor-state arbitration proceedings based on the interpretation provided by the SSAT.240 Declaratory claims have been considered as an indirect method of obtaining an advisory opinion.241 A claim for failure to comply with the obligations under an IIA against a home state may also arise from a prima facie failure to comply with an obligation under a treaty such as the obligation not to provide diplomatic protection until the host state (award/judgment debtor) has failed to comply with an award or a court decision in favour of an investor belonging to the home state.242 A premature diplomatic protection claim or international claim may expose the home state to state-to-state arbitration proceedings against itself. A claim for a violation of the treaty provisions may be frequently linked with other claims and in these cases, a diplomatic protection claim will also have an element of violation against a state’s treaty-based rights.243 Claims regarding whether a state may terminate an IIA may also fall under this category.244 Broadly, these claims are referred to as mixed claims and they involve both an injury to a state and also to its national.245 The possibility of claims by a state has been clarified by

233

An explicit mention of a possibility for such a claim is provided under Art. 15.2 of the Australia-China FTA, 2015. 234 Italy v Cuba, Final Award, January 15, 2008, para 222; Milano (2012), p. 502. 235 Lourie (2015), p. 515; Lubambo (2016), p. 239. 236 Gallo and Nicola (2015–2016), p. 1138. 237 An explicit mention of a possibility for such a claim is provided under Art. 15.2 (a) of the Australia-China FTA, 2015; Gaukrodger (2016b), p. 10; Lourie (2017), p. 24; Lubambo (2017), p. 84; Fox (1988), p. 9. 238 Lubambo (2017), p. 84. 239 Lubambo (2017), p. 84. 240 Posner and Walter (2015), p. 391. 241 Oellers-Frahm (2012), p. 93. 242 Art. 30.1 and 31.1, Belarus-India BIT, 2018. 243 Lourie (2015), p. 532. 244 Wong (2014), p. 37. 245 Vermeer-Künzli (2007), p. 39.

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the ICJ in the Barcelona Traction Case wherein it stated that “whether claims are made on behalf of the State’s national or on behalf of the State itself, they are always a claim of the state.”246 In these situations, tribunals may separate the claims like in the Italy v. Cuba case.247 Different rules may then be applied for considering the separated claims.248 As such, the conditions for diplomatic protection will only apply to the second part of the claim which is made on behalf of the national.249

3.5.2

A Diplomatic Protection Claim Espousing the Claim of Its Nationals

Diplomatic protection can be pursued for the protection of the rights of its nationals by a home state250 and the possibility is covered under the term ‘application of the treaty’ as a ‘concrete application claim’.251 The possibility for a diplomatic protection claim may arise from a violation of an investment agreement covered under an IIA or through a violation of the IIA itself.252 An elementary principle of international law,253 ‘diplomatic protection’ has been explained as: “. . .resort to diplomatic action or other means of peaceful settlement by a State adopting, in its own right, the cause of its national in respect of an injury to that national arising from an internationally wrongful act of another State.”254 It has further been defined under the Draft Articles on Diplomatic Protection as: “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 internationally 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.”255 From the definitions, it is clear that a claim for diplomatic protection may only be brought forward by a state and hence a diplomatic protection claim may not be possible under the compromissory clause of IIAs entered into by parties that are not states.256

246

Broches (1995), p. 214. Lourie (2015), p. 538. 248 Lourie (2015), p. 540. 249 Vermeer-Künzli (2007), p. 39. 250 Dolzer and Schreuer (2012), p. 233; Juratowitch (2008), p. 121. 251 Alschner (2015), p. 325 et seq.; Lourie (2015), p. 512; Kulick (2016), p. 132; Potesta (2013), p. 756; Gaukrodger (2016b), p. 9. 252 Vandevelde (1992), p. 538. 253 Lillich (1975), p. 360. 254 Berman (2007), p. 68; For a discussion on this subject, See, Lourie (2015), p. 511. 255 Art. 1, Draft articles on Diplomatic Protection, 2006. 256 On this, see information on Taiwanese BITs which have been entered into by governmental agencies in Sect. 1.3.1.2 of this book. 247

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State-to-state arbitration based on an IIA is one of the various forms of diplomatic protection that can be pursued by a state.257 The possibility of state-to-state arbitration based on an IIA compromissory clause to bring claims covered under diplomatic protection was put into practice in the Italy v Cuba case.258 The right to pursue a diplomatic protection claim by a state on behalf of its national is based on customary international law259 and is retained even on the conclusion of an IIA unless there is a specific provision in the IIA or other treaties signed by the state which prevents it.260 It is based on the submission of claims of an investor by his home state on its own name.261 An investor may approach a state with a request for diplomatic protection or may subrogate its rights to claim to its host state for a claim,262 but the state has no obligation to provide diplomatic protection and a decision for pursuing this method of dispute resolution is completely discretionary for the home state which also controls the process.263 Also, the investor cannot waive the right to pursue diplomatic protection on behalf of a state.264 Diplomatic protection was the ‘first instrument’ available for the protection of foreign investors.265 The basis of this principle is reflected in the famous statement by the Swiss International Lawyer, Emer de Vattel that an injury to a citizen is an injury to the state,266 which effectively meant that any injury to a citizen in the territory of another state, it also meant that the state was indirectly injured.267 This was a significant situation since, until the early nineteenth century, disputes were settled through purely diplomatic or military means,268 and judicial methods became popular only in the twentieth century.269 These situations served as a precursor to the development of the law on diplomatic protection which was later covered by the PCIJ and the ICJ. The PCIJ while

257

Hindelang (2014), p. 81; Recanati (2014), p. 425. The various forms of diplomatic protection include, inter alia, consular action, negotiation, mediation, reprisals and economic pressures. On this, see, Supreme Court of Appeal, South Africa, Van Zyl v Government of RSA, [2007] SCA 109 (RSA), para 1. See also, Art. 10(6), Germany-Palestine BIT, 2000. 258 Milano (2012), p. 503; Trevino (2014), p. 206. 259 Alvarez-Jimenez (2008), p. 438; UNCTAD (2003b), p. 52. 260 ICJ, Ahmadou Sadio Diallo (Republic of Guinea v. Democratic Republic of the Congo), Preliminary Objections, Judgment, I.C.J. Reports 2007, p. 582, 615, para 90; Lo (2013), p. 5; Berman (2007), p. 71; UNCTAD (2003b), p. 5; Schreuer (2007), p. 357. 261 Schreuer (2015), p. 882. 262 See, Art. 10(6), Germany-Palestine BIT, 2000. 263 Rolland (2017), p. 395; Vannieuwenhuyse (2009), p. 121; Wong (2014), p. 16; Schreuer (2007), p. 345; UNCTAD (2003b), p. 52; Ghouri (2011), p. 191 et seq. 264 Broches (1972), p. 374; Albornoz (2006), p. 399. 265 Alvarez-Jimenez (2008), p. 439. 266 De Vattel (1867), p. 161. 267 Albornoz (2006), p. 378; Pyka (2016), p. 82; Alvarez-Jimenez (2008), p. 438; Juratowitch (2008), p. 12. 268 Bruno (1997). 269 Pyka (2016), p. 82.

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deciding on the Mavrommatis Palestine Concessions Case270 clarified the scope of diplomatic protection by stating that: It is an elementary principle of international law that a state is entitled to protect its subjects, when injured by acts contrary to international law committed by another state, from whom they have been unable to obtain satisfaction through the ordinary channels. By taking up the case of one of its subjects and by resorting to diplomatic action or international judicial proceedings on his behalf, a state is in reality asserting its own rights - its right to ensure, in the person of its subjects, respect for the rules of international law. The question, therefore, whether the present dispute originates in an injury to a private interest, which in point of fact is the case in many international disputes, is irrelevant from this standpoint. Once a state has taken up a case on behalf of one of its subjects before an international tribunal, in the eyes of the latter the state is sole claimant.

The designation of the individual as an object of the claim with the state taking over the reins of the claim is not accepted by all legal scholars and the object theory accepted by the PCIJ does not enjoy universal support.271 Certain scholars have challenged the principle of diplomatic protection itself and suggest that it is not an effective principle for the protection of individual rights.272 In fact, diplomatic protection has been described as a ‘source of irritation and discord’273 and an ‘inherently unreliable and discretionary process’.274 This opposition has not discouraged states from undertaking diplomatic protection claims in the recent past (ELSI, Barcelona Traction, Diallo, Italy v. Cuba) and the inclusion of state-to-state arbitration in IIAs which could be used for diplomatic protection, show that objections to diplomatic protection have limited practical support. Rules for a Diplomatic Protection Claim The rules for the broader principle of diplomatic protection have however almost remained the same even with the advent of the IIAs.275 The diplomatic protection claims through state-to-state arbitration are considered a part of concrete application claims.276 A diplomatic protection claim also fulfils the requirement of a ‘dispute’ as per the terms of the BITs.277 Broadly, the ‘two pillars’ of diplomatic protection278 are: 1. the nationality of the claim—the injured individual who is making a claim must be a national of the claimant state;279 and 270

PCIJ, Mavrommatis Palestine Concessions (Greece v. U.K.), 1924 P.C.I.J. (ser. B) No. 3 (Aug. 30) p. 12, para 22. 271 Bruno (1997). 272 Bruno (1997). 273 Schreuer (2015), p. 881. 274 Wong (2014), p. 9; Juratowitch (2008), p. 13; See also, Schreuer (2015), p. 883. 275 Parlett (2007), p. 535; For a slightly contradictory view, see Lourie (2015), p. 520. 276 Kulick (2016), p. 132. 277 Lourie (2015), p. 513. 278 Recanati (2014), p. 440; Bruno (1997); Lourie (2015), p. 515. 279 Dolzer and Schreuer (2012), p. 232; Schreuer (1996), p. 397.

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2. the exhaustion of local remedies.280 The scope of the two pillars in itself is much debated. The second pillar and its essential nature for diplomatic protection have already been discussed in the previous chapter. Exhaustion of local remedies is a preliminary condition for certain SSAT claims.281 These fundamental rules of diplomatic protection have now been codified under the Draft Articles on Diplomatic protection (‘Draft Articles’)282 which state that: 1. There must be ‘an injury caused by an internationally wrongful act’ of a state ‘to a natural or legal person that is a national of’ a state which is willing to exercise diplomatic protection.283 2. Only the state of nationality of the investor can exercise the diplomatic protection claim (exception stateless persons). In case of dual nationality and the possibility of a claim against one of the states of which the investor is also a national, the state exercising diplomatic protection must be the state of predominant nationality ‘both at the date of injury and at the date of the official presentation of the claim.’284 3. Barring a few exceptions, the investor must have been ‘a person who was a national of that State continuously from the date of injury to the date of the official presentation of the claim.’285 The nationality of the investor is a key component to evaluate the possibility of a diplomatic protection claim.286 The nationality rules under the Draft Articles can vary from the definition of nationality prescribed under the IIAs, the ICSID Convention and rule of nationality prescribed by the ICJ in the Barcelona Traction case.287 The ICJ had famously ruled in the Barcelona Traction case that the nationality of a company is of the jurisdiction where the said company is incorporated and has its registered office.288 Subsequently, the latest jurisprudence from the ICJ in the field of diplomatic protection is stated in the Diallo case289 and the ELSI case.290 The ICJ has generally accepted the formal connection principle of

280

Milano (2012), p. 503; Kulick (2016), p. 132; Lubambo (2016), p. 227; Schreuer (2007), p. 345. On this see, Sect. 2.2.5.1.1 of this book. 282 Draft articles on Diplomatic Protection, 2006. 283 Art. 1, Draft articles on Diplomatic Protection, 2006. 284 Art. 2, 3, 7 and 8, Draft articles on Diplomatic Protection, 2006. 285 Art. 5, Draft articles on Diplomatic Protection, 2006. 286 Lubambo (2016), p. 227. 287 ICJ, Barcelona Traction, Light and Power Company, Limited, Judgment, I.C.J. Reports 1970, p. 3. See also, Perez (2012), p. 456; Trevino (2014), p. 207; Lourie (2015), p. 516. 288 ICJ, Barcelona Traction, Light and Power Company, Limited, Judgment, I.C.J. Reports 1970, p. 3, 42, para 70. 289 ICJ, Ahmadou Sadio Diallo (Republic of Guinea v. Democratic Republic of the Congo), Preliminary Objections, Judgment, I.C.J. Reports 2007, p. 582. 290 ICJ, Elettronica Sicula S.P.A. (ELSI), Judgment, I.C.J. Reports 1989, p. 15. 281

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nationality, through incorporation in case of companies (barring the deviation in the Nottebohm case where it used a genuine link test) and this remains the customary international law on the subject.291 The claims for diplomatic protection are also available for corporations, for shareholders and for other legal persons in addition to individuals subject to fulfilment of the conditions provided in the Draft Articles.292 The ICJ has also discussed the issue of nationality of corporations in the Barcelona Traction case through which it rejected the possibility of granting diplomatic protection as a general rule.293 It has also clarified in the Diallo case that diplomatic protection can be granted only to corporations by the state of incorporation barring a few exceptions.294 As of now, the issue of nationality can be dealt with through the rules framed under Art. 9 of the Draft Articles295 which also supports the place of incorporation theory of the ICJ.296 A situation of potential conflict can be seen in practice in the Italy v Cuba case wherein the tribunal rejected the claim on behalf of two companies—Crystal Vetro SA and Pastas y Salsas Que Chevere on the grounds that they did not have Italian nationality as they were formed under laws of third countries (Panama and Costa Rica), a decision based on the place of incorporation criteria.297 This position of the Tribunal was opposed in the dissenting opinion of arbitrator Prof. Atilla Tanzi who expressed that Art. 1 of the Italy-Cuba BIT did not contain any explicit criterion for determination of ‘nationality’ as considered by the tribunal.298 The ground for dissent by Prof. Tanzi enjoys a certain degree of support from other scholars who consider that in case of a special agreement (including an IIA), the grounds for diplomatic protection may vary from the strict principle of nationality as prescribed in the Barcelona Traction and Italy v Cuba cases.299 In judicial decisions, a similar possibility was already seen in the ELSI case wherein the US claim was allowed by the ICJ based on the provisions of the Italy-United States FCN treaty even though the corporations were on paper Italian corporations, but with

291

Bruno (1997); Duggard (2009), para 34; Lourie (2015), p. 516. Art. 9, 11 and 13, Draft articles on Diplomatic Protection, 2006; See also, Bottini (2008), p. 564 et seq.; ICJ, Barcelona Traction, Light and Power Company, Limited, Judgment, I.C.J. Reports 1970, p. 3, 47, para 90. 293 Bruno (1997). 294 ICJ, Ahmadou Sadio Diallo (Republic of Guinea v. Democratic Republic of the Congo), Preliminary Objections, Judgment, I.C.J. Reports 2007, p. 582, 605, para 61; Alvarez-Jimenez (2008), p. 452 et seqq. 295 Art. 9, Draft articles on Diplomatic Protection, 2006. 296 Gerlich (2015), p. 90 et seqq. For further support on using the incorporation theory for determining nationality for claims under IIAs, see, Inbavijayan and Jayakumar (2013), p. 38 et seqq. 297 Italy v Cuba, Final Award, January 15, 2008, para 200–211. See also, Milano (2012), p. 505 et seq.; Trevino (2014), p. 208. 298 Italy v Cuba, Dissenting Opinion of Prof. Antilla Tanzi, para 31 et seqq.; See also, Lourie (2015), p. 518. 299 Trevino (2014), p. 208. 292

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100% shareholding by US corporations.300 This may be the correct opinion considering that state parties have also expressed that they may have a specific understanding regarding the nationality of investors covered by a treaty, which does not comply with the strict nationality criteria under Barcelona Traction and Italy v Cuba cases.301 Considering this background, a deviation from the strict nationality principle as laid down under the Draft Articles or customary international law is possible in state-to-state arbitration cases if the IIA adopts an alternative criterion.302 Beyond the Italy v Cuba case discussed above, the possibility for a state pursuing claims for an investor in a state-to-state tribunal is a part of the claims procedure for the IUSCT.303 Similar provisions were available in the case of the American Turkish Claims Settlement of 1937304 and through Art. 27 ICSID Convention.305 In practice, the United States even maintains a possibility for it to espouse claims on behalf of one of its nationals subject to the fulfilment of certain criteria.306 State-to-state arbitration may also emerge as a preferred mode for pursuing investor claims which require immediate resolution since certain IIAs may prescribe a strict time limit for conclusion of state-to-state arbitration, like the 6 months prescribed in the Canada-Jordan BIT or the 10 months in the USA-Ecuador BIT, 1993, which may be much faster than an investor-state arbitration claim.307 The 2012 SADC Model BIT even explicitly mentions the possibility of pursuing claims on behalf of an investor for a violation of the treaty.308 Such claims, however, have to be preceded by the exhaustion of local remedies.309 Diplomatic protection may not be favoured by investors as they have no control over the proceedings and also no right to claim any compensation, even if its home state is successful in the proceedings.310 It still remains important as diplomatic protection through SSAT may be the sole compulsory means of dispute resolution for protection of investor rights in certain IIAs.311 It may also be the only recourse for investors in situations where investor-state arbitration exists as an option, but it 300

ICJ, Elettronica Sicula S.P.A. (ELSI), Judgment, I.C.J. Reports 1989, p. 15, 81. See, Exchange of letters between Switzerland and Sudan on the same date as the signing of the Switzerland-Sudan BIT, 1974 (17 February, 1974) which are attached to the treaty and are an integral part of the BIT as per Art. 11 of the BIT. See also, Clause 3, Annex to Art. 10 para 2, UAE-Mexico BIT. 302 Trevino (2014), p. 208; Lourie (2015), p. 519; Polanco (2019), p. 255. 303 Art. III (3), Claims Settlement Declaration. 304 Caron (1990), p. 135. 305 Gaukrodger (2016b), p. 9. 306 US Department of State, Bilateral Investments, Other Bilateral Claims and Arbitrations, https:// www.state.gov/bilateral-investments-other-bilateral-claims-and-arbitrations/ (Accessed 24 Mar 2020). 307 Art. 48(7), Canada-Jordan BIT; Art. VII, USA-Ecuador BIT, 1993. 308 Seatzu and Vargiu (2015), p. 13. 309 Art. 28.4, 2012 SADC Model BIT. 310 Pyka (2016), p. 82; Juratowitch (2008), p. 14. 311 Office of Legal Affairs (1992), p. 55; Juratowitch (2008), p. 27. 301

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does not cover the full range of disputes which may arise under the treaty.312 Nevertheless, the return to diplomatic protection is an issue that may require more discussion since state-to-state arbitration is likely to promote repoliticisation of the system of claims for damages to foreign investors which was depoliticised owing to the prevalence of the ISDS mechanism.313 Governments will likely be increasingly drawn in for both interpretative disputes and diplomatic protection claims.314

3.5.3

When the Respondent State in an Investor-State Arbitration Fails to Honour an Award of an ISAT Under an IIA

Investors may face problems in enforcing an ISAT award, particularly if there is a lack of assets outside the host state or if the host state does not cooperate.315 In these situations, there is a possibility for resolution of claims regarding failure to enforce final awards by a state through an SSAT under the provisions of ‘application of the treaty’.316 The proceeding can be triggered only by the home state of the investor in case of failure by the host state to comply with the award.317 It can be viewed either as a diplomatic protection claim or an international claim.318 The ICSID Convention also foresees the possibility of a diplomatic protection claim in case the host state fails to comply with the decision of an ISAT award.319 This right for diplomatic protection under the ICSID Convention stays dormant from the acceptance of consent by the investor until the failure of the host state to enforce the award.320 The possibility to use state-to-state arbitration to pursue a claim against a state in case it fails to comply with an investor-state arbitration award can be derived from Art. 27(1) ICSID Convention and also the text of certain IIAs and Model BITs.321 Art. 34 (8) of the 2012 US Model BIT provides that: 312

Juratowitch (2008), p. 27. Titi (2017), p. 45; See also, Gaukrodger (2016b), p. 17. 314 Gaukrodger (2016b), p. 17. 315 Posner and Walter (2015), p. 384. 316 Lo (2013), p. 25; Kulick (2016), p. 131; See also, Wong (2014), p. 37; Gaukrodger (2016b), p. 9; Schreuer (2007), p. 347. For a situation where it was not clarified whether non-enforcement falls within interpretation or application, see, Ecuador v. USA, Opinion With Respect To Jurisdiction In The Interstate Arbitration Initiated By Ecuador Against The United States, W. Michael Reisman, April 24, 2012, para 30. 317 Polanco (2019), p. 200. 318 Lo (2013), p. 25; Juratowitch (2008), p. 33. 319 Shihata (1984), p. 2; Schreuer (2007), p. 347; Delaume (1983), p. 801 et seq.; Huseynli (2017), p. 65. 320 Huseynli (2017), p. 65. 321 On this see, Art. 10(6), Germany-Palestine BIT, 2000. See also, Berman (2007), p. 71; Lo (2013), p. 25; Posner and Walter (2015), p. 387; Gerlich (2015), p. 92; Perez (2012), p. 466. 313

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If the respondent fails to abide by or comply with a final award, on delivery of a request by the non-disputing Party, a tribunal shall be established under Article 37 [State-State Dispute Settlement]. Without prejudice to other remedies available under applicable rules of international law, the requesting Party may seek in such proceedings: a. a determination that the failure to abide by or comply with the final award is inconsistent with the obligations of this Treaty; and b. a recommendation that the respondent abide by or comply with the final award.

Even in the absence of an explicit treaty provision, the right to protect an investor in case of non-enforcement of an award will still exist as a right derived from customary international law.322 The process of a diplomatic protection claim for a non-enforcement of an award can move ahead on the fulfilment of the two conditions provided to exercise diplomatic protection as stated above (exhaustion of local remedies and fulfilment of nationality requirement).323 The nationality requirement is determined on the same grounds as a normal diplomatic protection claim unless there are specific provisions in the treaty or fulfilment of conditions specified in Art. 11 of the Draft Articles on diplomatic protection which would support an exception.324 Even then, for ICSID claims, as an exception to normal non-enforcement claims, the nationality of the investor should be considered according to Art. 25 of the ICSID Convention.325 While it is not essential that the exhaustion of local remedies rule must be complied with before moving for a diplomatic protection claim in case of an ICSID non-enforcement claim, an attempt for enforcement under Art. 54 of the Convention may be required before this claim.326

3.5.4

Declaratory Claims for Determination of Compliance with Its Obligations Under an IIA by the Host State

Under certain IIAs, the home state of an investor may resort to state-to-state arbitration to seek a determination by the SSAT on whether the host state is in compliance with the IIA,327 or more specifically, whether a measure by the host state which affects an investor belonging to the home state complies with the obligations of the host state under the IIA.328 In addition to adjudicating a breach of an IIA by the host state, the SSAT may also be requested to decide on the quantum of damages

322

Gerlich (2015), p. 90; Juratowitch (2008), p. 33. On this see, Gerlich (2015), p. 90; Huseynli (2017), p. 65. 324 Perez (2012), p. 457 et seqq. 325 Gerlich (2015), p. 91. 326 Gerlich (2015), p. 91; See also Perez (2012), p. 460 et seq. 327 Art. 19.2, India-Brazil ICFT. 328 Art. 25(2), Brazil-Suriname CFIA; Macias (2016b), p. 310. 323

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which have been suffered by an investor due to the breach by the host state.329 The findings on damages may also be followed by an award for payment of compensation for the damages suffered, which has to be transferred to the investors.330 A determination of any breach would bind the state parties who would be under an obligation to remedy the breach without delay.331 A key difference of a declaratory claim under this provision is that the IIA itself clarifies the obligations which have to be fulfilled prior to commencement of a dispute under this provision and these are different from the requirements of a diplomatic protection claim. For instance, under the Brazil-Suriname CFIA, the only requirement for commencement of a declaratory claim through a state-to-state arbitration is that the dispute should not have been resolved by the dispute prevention procedure referred to in the IIA.332

3.5.5

Declaratory Claims of Non-breach or Limited Breach by a Host State

It has been suggested that host states could also approach an SSAT with a claim for a declaration of a non-breach or a limited breach.333 This requirement may arise when the host state desires to prevent future investor-state claims against any action undertaken by it against covered investments. The host state attempts to minimise investor-state arbitration through a pre-emptive state-to-state arbitration award which would lay down whether it violated any provision of the IIA through its specific conduct or decision in question.334 Such decisions by a host state which affect investors include promulgation of a new statute affecting investor rights.335 A declaratory claim for breach or non-breach may also be sought by a home state if a claim is brought in connection with a violation related to one or more investors belonging to the state.336 A declaratory decision specifying non-violation or limited violation of the protections enjoyed by an investor would help the host state in two main situations. Firstly, it would be binding on the home state of the investor which would now not be able to provide diplomatic protection to the investor (if the tribunal does not find a violation) and secondly, it would at least be highly persuasive for any future ISAT

329

Art. 25(13), Brazil-Suriname CFIA. Art. 25(13)(b), Brazil-Suriname CFIA. 331 Art. 25(11), Brazil-Suriname CFIA. 332 Art. 25(11), Brazil-Suriname CFIA. 333 Lubambo (2016), p. 237; Naon (2000), p. 70; Lubambo (2017), p. 86. 334 Lubambo (2017), p. 86. Such a request could possibly be made under provisions such as Art. 19.2, India-Brazil ICFT. 335 Lourie (2015), p. 514; Lubambo (2017), p. 86. 336 Lourie (2015), p. 514. 330

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formed to decide on claims by investors affected by the decision of the host state which was previously evaluated by the SSAT.337 It has even been suggested that future investor-state arbitration proceedings may even be precluded if no violation was found in the state-to-state arbitration case on the same issue.338 In any event, if a violation is found, it may open the possibility of a claim for damages through investor-state arbitration with reliance on the state-to-state arbitration award which has already found the presence of a violation.339 An example of use by a state, the possibility to use a request for a declaratory claim for a determination of the violation of a treaty is the US-Mexico NAFTA Trucking Case where a NAFTA Chapter 20 arbitration panel found that “U.S. blanket refusal to review and consider for approval any Mexican-owned carrier applications for authority to provide cross-border trucking services was and remains a breach of the U.S. obligations under Annex I (reservations for existing measures and liberalization commitments), Article 1202 (national treatment for cross-border services), and Article 1203 (most-favored-nation treatment for crossborder services) of NAFTA.”340 The panel also issued a recommendation to the USA instructing it to take appropriate steps to comply with its obligations under the NAFTA. Since the USA did not comply with the recommendations even after the decision, a Mexican trucking institution Cámara Nacional del Autotransporte de Carga commenced investor-state arbitration proceedings against the USA based on this decision.341 No recent updates have been published about this case and the UNCTAD considers that it has been discontinued.342

3.6

Possibility of Mixed Claims on Interpretation and Application of a Treaty

The claims for interpretative disputes which relate to the abstract interpretation of treaty provisions should generally not overlap with diplomatic protection claims on behalf of investors.343 While the former deals with ‘interpretation of treaties’, the

337

Lubambo (2017), p. 86 et seqq.; Comella (2014), p. 21. Roberts (2014), p. 67. 339 Roberts (2014), p. 67. 340 USA v. Mexico, Cross-Border Trucking Services, Secretariat File No. USA-MEX-98-2008-01, February 6, 2001, para 295. 341 Notice of Arbitration, CANACAR v. USA, April 2, 2009. Available for download at https://www. italaw.com/sites/default/files/case-documents/italaw8676.pdf (Accessed 24 Mar 2020). 342 CANACAR v. USA, Available at https://investmentpolicy.unctad.org/investment-dispute-settle ment/cases/348/canacar-v-usa (Accessed 24 Mar 2020). 343 Trevino (2014), p. 210. 338

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latter is concerned with an application of the treaty.344 Nonetheless, in practice, distinguishing between the two types of disputes (interpretation/or application) may not be always possible and claims of interpretation may involve issues regarding application and vice versa.345 These claims may then be referred to as mixed claims on interpretation and application of a treaty which may then involve issues of direct interests of a state and as well as diplomatic protection claims.346 The term mixed claims here should not be compared to the mixed claims commission which was named so because they composed of arbitrators nominated by multiple states.347 In mixed claims, differences regarding ‘interpretation’ of a treaty frequently arise from instances of ‘application’ of a treaty and may involve both the host state and investors.348 A mixed claim regarding interpretation and application can be seen when an SSAT is deciding on compliance of regulatory barriers imposed by a state on the entry of investors with its obligations under an IIA.349 In certain cases, they may also relate to commitments for protection from situations of violence or disturbances.350 The claims may even extend to the challenge of domestic legislation in a state party, but the suitability of determining such a dispute through an SSAT must be determined by the tribunal itself.351 In practice, such a situation of a mixed claim occurred in the ELSI case wherein the USA tried to present the dispute as a claim of the violation of the FCN treaty while the Court considered it to be a hidden diplomatic protection claim on behalf of its nationals.352 The USA may have used the option to portray it as an interpretative dispute to bypass the evaluation of local remedies requirement which would have been vital for a purely diplomatic protection claim on behalf of its nationals,353 and the possibility for the use of a similar route by other countries ruled out. The ICJ has tried to prevent these hidden claims and has required the exhaustion of domestic remedies when the real interests in the cases relate to the protection of interests of investors.354 The exemption from accessing domestic remedies is only available in case of direct claims by a state and the determination on whether an exception would

344

Trevino (2014), p. 210. Hernandez (2015), p. 176; Kulick (2016), p. 130; UNCTAD (2003b), p. 14. 346 Okawa (2014), p. 502. 347 Murphy et al. (2013), p. 40. 348 Committees on Research in International Law (1935), p. 939. 349 Posner and Walter (2015), p. 392. 350 UNCTAD (2003b), p. 5. 351 Malanczuk (2000), p. 423. 352 ICJ, Elettronica Sicula S.P.A. (ELSI), Judgment, I.C.J. Reports 1989, p. 15, 43, para 52; Trevino (2014), p. 210. 353 ICJ, Elettronica Sicula S.P.A. (ELSI), Judgment, I.C.J. Reports 1989, p. 15, 42, para 51. 354 ICJ, Interhandel Case, Judgment of March 21st, 1959: I.C.J. Reports 1959, p. 6, 28 et seq.; Okawa (2014), p. 502. 345

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be available has to be made by the tribunals based on the specific facts of the particular case by looking into the ‘preponderant’ element of the case.355

3.7

Disputes on Violation of Failure to Comply with Obligations to Consult in Good Faith

The good faith requirement has been generally discussed by ISATs as a part of different provisions of the BITs or the ICSID Convention as a measure of preventing abuse of the system or in conjunction with principles such as estoppel, equity, and legitimate expectations.356 In addition, an independent good faith violation claim has been considered to be a possibility in investment arbitration.357 In the 2015 Indian Model BIT, a unique provision has been introduced where the obligation to consult arising from the compromissory clause in an IIA has been linked with the good faith requirement and allows for dispute settlement through an arbitral tribunal in case there is a dispute as to ‘whether there has been compliance with obligations to consult in good faith under Articles 30 or 36’.358 Similar provisions have been included in practice in the recent Belarus-India BIT, 2018,359 and the India-Taiwan BIA, 2018.360 The Art. 30 and 36 of the 2015 Indian Model BIT deal with disputes regarding the interpretation or application of the treaty and period of meetings between the parties on the revision of the treaty respectively. A reading of the provisions together (Art. 30.2 and 36) shows the possibility of the emergence of a new kind of dispute which has to be resolved by an SSAT. A dispute on compliance with ‘obligations to consult in good faith’361 has been explicitly differentiated from a dispute on ‘interpretation or application’362 of the treaty. Under this model BIT, a separate dispute can be present on whether the ‘obligation to consult in good faith’ explicitly mentioned in the two pre-determined situations of Art. 30 and 36 have been complied with. The ‘obligation to consult in good faith’ is a principle present in many other international law treaties, but has been rarely included in an IIA.363 It is found in Art. 4.3 of the WTO DSU which states that:

355

ILC (2004), p. 72 et seqq. Ziegler and Baumgartner (2015), p. 16 et seq. 357 Ziegler and Baumgartner (2015), p. 16 et seq. 358 Art. 31.1, 2015 Indian Model BIT; Obligation to consult arising from a compromissory clause in an IIA has been identified in ICSID, Case No. ARB/07/25, Trans-Global Petroleum, Inc. v. Jordan, Tribunal’s decision on the Respondent’s Objection under Rule 41(5) of the ICSID Arbitration Rules, 12 May 2008, para. 118. 359 Art. 31.1, Belarus-India BIT, 2018. 360 Art. 29.1(b), India-Taiwan BIA, 2018. 361 Art. 31.1 (ii), 2015 Indian Model BIT. 362 Art. 31.1 (i), 2015 Indian Model BIT. 363 Among other IIAs which contain a rare reference to an obligation to consult in good faith include Japan-Vietnam BIT, 2003 and Iraq-Japan BIT. 356

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If a request for consultations is made pursuant to a covered agreement, the Member to which the request is made shall, unless otherwise mutually agreed, reply to the request within 10 days after the date of its receipt and shall enter into consultations in good faith within a period of no more than 30 days after the date of receipt of the request, with a view to reaching a mutually satisfactory solution.364

It has also been found in C169—Indigenous and Tribal Peoples Convention, 1989,365 as an embedded principle in the Rio Declaration366 and as a common legal norm in countries such as Japan and the United States.367 The principle has come up for consideration before the ICJ in the Pulp Mills on the River Uruguay case368 and before the WTO Panel in the European Communities—Regime for the Importation, Sale and Distribution of Bananas.369 Good faith has been considered as a fundamental principle in international law based on the doctrine of pacta sunt servanda and compliance with good faith obligations is essential for States under international law in exercising their rights and obligations.370 The exact parameters which have to be fulfilled in consultation proceedings to meet this threshold are not yet clear. In any case, factors such as consideration for legitimate interests of the other party, willingness to reach an agreement and compromise, reasonableness, sincerity, consideration of alternative opinions and fairness are expected to be discussed.371 In international environmental law, where the duty to consult is often present, it is frequently found to be associated with the duty to negotiate which differs slightly from it on the ground that negotiations are expected to be longer and end in an agreement.372 The scope of the obligation to consult in good faith came up for discussion in the Lake Lanoux arbitration wherein the tribunal while deciding on an inter-country river dispute stated that “consultations and negotiations between the two States must be genuine, must comply with the rules of good faith and must not be mere formalities.”373 Before the WTO, the issue of good faith in consultations has been discussed by the WTO Panel in EC—Regime for the Importation, Sale, and Distribution of Bananas. The panel while considering that consultations must be conducted in good faith stated that a panel would not evaluate the nuances of the consultation process conducted by the parties: 364

Art. 4.3, Dispute Settlement Understanding. Art. 6(2), Indigenous and Tribal Peoples Convention, 1989; See also, Sergent (1998), p. 482. 366 Rio Declaration, Principle 19; See also, Craik (2008), p. 80. 367 Hill (2001), p. 51. 368 ICJ, Pulp Mills on the River Uruguay (Argentina v. Uruguay), Judgment, I.C.J. Reports 2010, p. 14. 369 WTO, European Communities—Regime for the Importation, Sale and Distribution of Bananas, Report of the Panel, WT/DS27/R/ECU, 22 May 1997. 370 Sergent (1998), p. 481; Rose-Ackerman and Billa (2007), p. 9. 371 Hutchison (2006), p. 141 et seqq. 372 Hutchison (2006), p. 135. 373 Lake Lanoux Arbitration (France v. Spain), Award, November 16, 1957, para 1. 365

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disputing parties should consult in good faith and attempt to reach such a solution. Consultations are, however, a matter reserved for the parties. The DSB is not involved; no panel is involved; and the consultations are held in the absence of the Secretariat. In these circumstances, we are not in a position to evaluate the consultation process in order to determine if it functioned in a particular way. While a mutually agreed solution is to be preferred, in some cases it is not possible for parties to agree upon one. In those cases, it is our view that the function of a panel is only to ascertain that consultations, if required, were in fact held or, at least, requested374

This decision of the WTO Panel on the issue may not be a correct reference point for an SSAT deciding on the obligation to consult in good faith in an IIA since the WTO Panel has no ‘mandate’ to decide on the subject of ‘adequacy of the consultation process’ while the SSAT has been formed only for this very specific purpose. In simple terms, the mandate of an SSAT and the WTO Panel is quite different and the SSAT has an additional burden to evaluate the requirement to consult in good faith has been adequately fulfilled under the variety of situations mentioned in the IIA itself,375 which the WTO Panel does not have.376 In any case, the inclusion of the requirement to consult in good faith may be an innovation to prevent situations like the Ecuador v. USA dispute377 where the USA failed to respond to a communication from Ecuador and such a situation may be seen as a failure to consult in good faith if it was a part of the consultation in a dispute resolution process.378 Interestingly, the tribunal in that dispute observed that a failure to consult in response to a request by a state party, in the presence of such an obligation in the treaty, might indeed be a violation of the treaty.379

374

WTO, European Communities—Regime for the Importation, Sale and Distribution of Bananas, Report of the Panel, WT/DS27/R/ECU, 22 May 1997, para 7.19. 375 For an illustration of the list of specific situations, See, Art. 36, 2015 Indian Model BIT; Art. 35, India-Taiwan BIA, 2018. 376 The WTO Panel in the Korea—Taxes on Alcoholic Beverages, Report of the Panel has stated that: “10.19 . . . .. We do not wish to imply that we consider consultations unimportant. Quite the contrary, consultations are a critical and integral part of the DSU. But, we have no mandate to investigate the adequacy of the consultation process that took place between the parties and we decline to do so in the present case.” WTO, Korea—Taxes on Alcoholic Beverages, WT/DS75/R WT/DS84/R, 17 September, 1998. 377 PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Award, 29 September, 2012. 378 On this, See also, Jaime (2014–2015), p. 299 et seqq. 379 PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Award, 29 September, 2012, para 225.

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Other Disputes Which May Be Resolved Through State-to-State Arbitration

The state-to-state arbitration provision in an IIA can encompass other situations that may not seem to be directly covered under interpretation and/or application of a treaty.380 It is not generally possible to design the IIAs in a manner that every possible dispute could be explicitly covered or excluded.381 Based on their wide coverage, innovative uses of the compromissory clauses in IIA have been suggested including even to resolve issues such as disputes regarding state territorial claims.382 While the actual practical usage of the clause for such situations is not immediately expected, treaties may certainly contain other exceptional clauses such as the BrazilEthiopia ICFA and the Brazil-Suriname CFIA which allow for claims of compensation and transfer of the compensation to the affected investors which is not normally seen in a normal diplomatic protection scenario.383 The Italy-Cuba BIT has raised the possibility of an interesting situation wherein investor-state arbitration has to be conducted with control exercised by the states.384 The provisions of the treaty require the state parties to form the tribunal and thereby control the process.385 It is rare but not completely impossible that state-to-state arbitration is the sole mode of dispute resolution in certain conditions.386 When this occurs, investor claims can be expected to be closely regulated by the states who will seek to control the process. The new EU-Singapore Investment Protection Agreement (IPA) has introduced expedited processing of disputes with the possibility for decisions within 75 days. This is expected to open gates for proceedings through state-to-state arbitration instead of investor-state arbitration when fast decisions are required.387 Additionally, another situation that can arise is of an SSAT issuing a ‘jurisdictional ruling’ which is practically similar to a treaty interpretation claim.388 In this claim, an SSAT could be asked to interpret a treaty provision that would be dealing with the jurisdiction of an ISAT, like a need to exhaust local remedies before commencing ISAT proceedings.389 Additionally, a state-to-state arbitration proceeding may also be used to challenge the jurisdiction of an ISAT stating that the dispute considers questions of ‘interpretation or application’ of the treaty and hence the 380

Lubambo (2017), p. 84. UNCTAD (2003b), p. 6. 382 Tzeng (2016), p. 466 et seqq. 383 Art. 24(13)(c), Brazil-Ethiopia ICFA and Art. 25(13)(c), Brazil-Suriname CFIA; Lubambo (2016), p. 240. 384 Wong (2014), p. 34. 385 Art. 9 and 10, Italy-Cuba BIT, 1993. 386 Lubambo (2016), p. 241. 387 Art. 3.32, EU-Singapore IPA, 2018. 388 Gaukrodger (2016b), p. 13. 389 Gaukrodger (2016b), p. 8. 381

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SSAT is the correct forum for the dispute.390 This possible claim which decides on the right of access to a dispute resolution proceeding for an investor without providing the investor with a right to be heard may not be tenable under basic legal principles and should be discouraged.391 In exceptional circumstances, states may also choose to withdraw consent to ISDS in the future in which state-to-state arbitration would be the primary mode of dispute settlement available under the IIAs and would be used to raise claims regarding violation of treaty obligations.392 Claims could also be raised regarding the entry into force or termination of an IIA,393 which may in practical cases arise due to withdrawal of consent for arbitration by the home state after the investment has been made in the home state pre-empting a possible future investor claim.394 The compromissory clause does not become inapplicable because of suspension or termination of the treaty and is severable from the main treaty to deal with claims relating to non-consensual termination or suspension of the treaty.395 This explains that a challenge to a treaty does not mean that the compromissory clause is terminated but is ready for utilisation. This view regarding survivability of the dispute resolution mechanism was also partly accepted by the ICJ in the Appeal relating to the Jurisdiction of the ICAO Council (India v. Pakistan) wherein the ICJ rejected India’s contention that a unilateral termination of the treaty would also result in an invalidity of the jurisdiction clause.396 A plausible but extraordinary situation for a state-to-state arbitration has also been proposed wherein the investor assigns the right to claim damages under an investment treaty to its home state acting directly or through a state agency in exchange for an indemnity or compensation paid by its home state or home state agencies.397 A treaty provision that could lead to such a claim is seen in at least one known IIA.398 Last, but not the least, in very exceptional conditions, an SSAT may also be called upon to interpret or clarify its own award by a party to a state-to-state arbitration,

390

Schreuer (2007), p. 350. Schreuer (2007), p. 352. 392 Johnson et al. (2018), p. 9. 393 On the use of the Compromissory clause for resolution of disputes regarding termination of a treaty, see, ICJ, Appeal Relating to the Jurisdiction of the ICAO Council, Judgment, I.C.J. Reports 1972, p. 46, 64, para 32. See also, Ecuador v. USA, Opinion With Respect To Jurisdiction In The Interstate Arbitration Initiated By Ecuador Against The United States, W. Michael Reisman, April 24, 2012, para 30; Cannizzaro and Bonafe (2005), p. 487. 394 Lubambo (2016), p. 229; UNCTAD (2003b), p. 59. 395 Kolb (2009), p. 423. 396 ICJ, Appeal Relating to the Jurisdiction of the ICAO Council, Judgment, I.C.J. Reports 1972, p. 46, 64, para 32. 397 Naon (2000), p. 69. 398 Art. 10(5), Germany-Botswana BIT. 391

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particularly if the IIA or the applicable rules permit this possibility.399 The parties also may have disputes regarding the execution of the decisions.400 In these instances, except when there is an agreement between the parties regarding these issues or an alternative prescribed under the arbitration rules or the IIA, these requests are normally referred to the arbitral tribunal which issued the decision.401

3.9

The Enhanced Role of State-to-State Arbitration in the Future Based on Disputes Related to the Application of the Treaty or Through Mixed Claims

The power of the SSAT to decide on disputes related to the application of the treaty can be utilised to potentially resolve disputes described below.

3.9.1

Use of State-to-State Arbitration by States to Pursue Claims on Behalf of Investors in ‘Mass Claims’

State-to-state arbitration may be used as a potential means of raising investor claims even in the presence of investor-state arbitration mechanism.402 It can be used as an effective way to merge multiple investor-state arbitration proceedings dealing with the same issue,403 thereby resolving complicated subjects such as ‘mass claims’. Additionally, state-to-state arbitration may also be used if it is perceived that the investors may face problems when the host state refuses to cooperate, enforce awards or participate in the investor-state arbitration process.404 In these circumstances, home states can bring claims for investors under the principle of diplomatic 399

On the possibility for request to an SSAT for interpretation of an award see, Art. 11 (5), FranceLatvia BIT; See also, Art. 9(7), Switzerland-Qatar BIT; On the possibility to seek a clarification see, Art. 10(6), Hong Kong-Austria BIT, 1996. 400 On the possibility to seek interpretations or clarifications, see, Art. 11 (5), France-Latvia BIT; Art. 12(5), China-BLEU BIT, 1984 and Art. 10(6), Hong Kong-Austria BIT, 1996. 401 Art. 82, Hague II Convention; Art. XLVII, Pact of Bogota; Only interpretation requests: Art. 33 (1), Model Rules on Arbitral Procedure with a general commentary 1958, International Law Commission, Yearbook of the International Law Commission, 1958, vol. II, pp. 83–88; Art. 35 (1), PCA Optional Rules for Arbitrating Disputes between Two States (1992); Office of Legal Affairs (1992), p. 65; Malintoppi (2006), p. 160. 402 Posner and Walter (2015), p. 391. For such a treaty which explicitly provides the possibility for pursuing claims of investors even in the presence of ISDS, see, Art. 28.3, 2012 SADC Model BIT. 403 Heiskanen (2016), p. 614; Sczczudlik (2014), p. 98; Kaufmann-Kohler (2006), p. 77; Price (2005), p. 74. 404 Posner and Walter (2015), p. 384; UNCTAD (2003b), p. 59.

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protection.405 These claims could also be made when the investor is not willing to confront the host state himself due to business reasons or when the state decides to pursue claims on behalf of several small investors coming together, like in the Iran v. Cuba case.406 Alternatively, if permitted, the state may choose to pursue selective claims on behalf of a small investor who is unable to pursue the claim itself, like in the IUSCT.407 In most situations, these claims will have to be preceded by the exhaustion of local remedies requirement.408 The exception to this rule is the situation when there is ‘no meaningful domestic remedy’ which can be pursued or when there is an agreement between the state parties regarding an exemption of the requirement.409 The main grounds for opposition to state-to-state dispute resolution, as the preferred mode under these situations, is as follows: Firstly, it is feared that the dispute resolution process will become repoliticised as it would now directly involve diplomatic relations between states and weaker investors (small and medium-sized enterprises (SMEs)) would no longer be able to bring about disputes as states may decline to put their diplomatic relations on the line for smaller claims.410 Secondly, it is presumed that the voice of private stakeholders and investors would largely be muffled and they would not object to violations by their own governments in fear of losing favour and would only seek to complain about violations by other governments.411 This might lead to a deterioration of the investment climate in a country as domestic players would no longer oppose the decisions of the government which can be harmful to the entire business environment. Thirdly, state-to-state arbitration might lead to duplication of proceedings with investor-state arbitration unless all parties to the disputes have agreed to the consolidation.412 Last but not the least, the lack of a mechanism for direct compensation to the aggrieved investor is perceived as a limitation.413 The claims particularly relating to politicisation are debated.414 Judicious use of diplomatic protection claims would not ‘significantly interfere’ with ISDS procedures.415 The key here is that diplomatic protection should be limited to the very specific claim scenarios as stated above or in exceptional conditions, which involve

405

Gaukrodger (2016b), p. 9. Posner and Walter (2015), p. 392; Gallo and Nicola (2015–2016), p. 1140; Gaukrodger (2016b), p. 9; Juratowitch (2008), p. 32. 407 Lubambo (2016), p. 229. 408 Chi (2013), p. 27. 409 Juratowitch (2008), p. 33. 410 Lubambo (2017), p. 84; Bernasconi-Osterwalder (2016), p. 255; Lubambo (2016), p. 229; Bronckers (2015), p. 659 et. seqq.; Moul (2015), p. 888. 411 Bronckers (2015), p. 660. 412 Kaufmann-Kohler (2006), p. 77. 413 European Parliament, Question for written answer E-011275/12, OJ C 321/E, 7.11.2013, p. 202. 414 Lubambo (2016), p. 230. 415 Gaukrodger (2016b), p. 10. 406

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national security.416 State-to-state arbitration is also more likely to be a better mode for dispute settlement when the end result sought is a removal of regulatory barriers rather than other remedies such as damages.417 Last but not the least, the issue of transfer of compensation or restitution in kind to the investor is also being resolved with new agreements such as the Brazilian CIFAs and Austrian BITs.418 There are also certain special situations when there is no mode of dispute resolution available to investors419 or when state-to-state arbitration is the sole mode of binding international dispute resolution available to investors. For instance, the old Bangladesh-Thailand BIT, 1988420 and the new Brazilian CFIAs include SSDS but excludes ISDS.421 The South African Protection of Investment Act, 2015 also contains provisions for state-to-state arbitration as the sole mode of international arbitration.422 Furthermore, even when not explicitly stated in the treaties or domestic law, there may be situations when de facto it has been indicated by the host state that does not intend to honour an ISAT claim. In such cases, investors may do well seek to exhaust domestic remedies and seek diplomatic protection.423 When this occurs, the investor will have to depend on the home state for pushing forward its claims.424 However, it is understood that even in the presence of state-to-state arbitration as an option, investor-state arbitration is still considered as a suitable mode for resolution of disputes between investors and host states and home states will not pursue all claims on behalf of an investor.425

3.9.2

Other Disputes Under the Compromissory Clause

There exists a potential to pursue a greater variety of claims through state-to-state arbitration under the compromissory clauses which exist in the present IIAs as discussed before, extending beyond the traditional claims for interpretation and

416

Roberts (2014), p. 50; Gaukrodger (2016b), p. 10; See also, Wisner and Campbell (2018), p. 18 et seq. 417 Posner and Walter (2015), p. 392. 418 Art. 24(13)(c), Brazil-Ethiopia ICFA and Art. 25(13)(c) Brazil-Suriname CFIA; Art. 24, AustriaKyrgyz Republic BIT; Art. 24(1)(c), Austria-Tajikistan BIT, 2010. 419 For an example of an old FCN treaty under which investors had no specified mode of dispute resolution, see, Liberia-Switzerland FCN Treaty. 420 Bangladesh-Thailand BIT, 1988. 421 Example, See Brazil-UAE CFIA; See also, Macias (2016a), p. 648 et seqq.; Morosini (2016), p. 61; Gaukrodger (2016b), p. 7. 422 Section 13(5), Protection of Investment Act, 2015, Act No. 22 of 2015, South Africa; See also, Gazzini (2018), p. 254. 423 Juratowitch (2008), p. 33. 424 On this see, UNCTAD (2003b), p. 65 et seqq. 425 On this see, European Parliament, Question for written answer E-011275/12, OJ C 321/E, 7.11.2013, p. 202.

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diplomatic protection. The use of state-to-state arbitration for these situations would possibly not require any amendments or changes to the existing system based on the fact that the scope of the compromissory clauses is determined to be quite wide.

3.9.2.1

SSAT as a Means of Pursuing Human Rights and Environmental Claims

SSATs could also be used to raise claims regarding human rights and environmental law issues as broader claims on interpretation and application of the treaty.426 This is based on the fact that the arbitral tribunals while deciding on issues of application of the treaty must keep in consideration the principles and/or rules of international law depending on the provisions of the IIA under which it was formed.427 As principles of international law are also expected to include broader principles of human rights law, the arbitral tribunal may use this to protect the rights of the investor.428 Such protection may be significant in conditions when there is no corresponding remedy under international law for the protection of the human rights of the investor, but a right under international law has been violated.429 In these circumstances, diplomatic protection is available as a residual remedy for the state willing to protect the rights of the investor.430 The states may be required to exercise their discretion before exercising these claims considering the fact that alternative remedies may be available for the investor.431 In any case, after the release of the Hague Rules on Business and Human Rights Arbitration which can also be used by states,432 arbitration for resolution of disputes concerning human rights particularly arising from business transactions is now an accepted possibility.

3.9.2.2

Situations Not Covered by the Jurisdiction of an ISAT

In certain situations, recourse to state-to-state arbitration through the home state is necessary owing to a failure to resolve the dispute through investor-state arbitration,433 or when the ICSID Secretary-General or a tribunal decides that it does not have jurisdiction to decide on a dispute.434 Inter alia, the need for diplomatic claims

426

UNCTAD (2003b), p. 56. Liberti (2009), p. 587. 428 Juratowitch (2008), p. 29; Liberti (2009), p. 587. 429 ILC (2000), para 31; Juratowitch (2008), p. 29. 430 Juratowitch (2008), p. 29. See also, UNCTAD (2003b), p. 52. 431 Juratowitch (2008), p. 34. 432 CILC, The Hague Rules on Business and Human Rights Arbitration, December, 2019. 433 UNCTAD (2003b), p. 59. 434 Art. 8(4), Guyana-Switzerland BIT; Art. 9(5), Bosnia and Herzegovina-India BIT; Polanco (2019), p. 267. 427

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through an SSAT may emerge when a particular venture or business is deemed not to be covered under the definition of ‘investment’ by an ISAT which may then decline jurisdiction over the case.435 The definition of ‘investment’ under Art. 25 (1) of the ICSID Convention is crucial since ‘jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment’.436 While no specific definition of an ‘investment’ is present under the ICSID Convention, parties have been provided with the option to notify which disputes they may wish to submit to the jurisdiction of the centre.437 As a result, parties have chosen to include specific definitions in investment treaties or the ISATs have formed their own parameters to determine the existence of an investment thereby raising the possibility for the exclusion of some investments.438 An ISAT may also decline jurisdiction when it does not find the consent of the host state,439 or in case of a terminated IIA, when the protection for an investment through the sunset clause has expired.440 Now, in the above-mentioned conditions, if an investment tribunal determines that a particular venture is not covered under the definition of ‘investment’, then the investor has the option to resort to diplomatic protection through its home state to pursue its claim.441 A restriction on raising a claim through diplomatic protection in the aforementioned circumstances based on any restrictions based on Art. 27 (1) ICSID or similar clauses is not likely to arise because the ISAT had found that it had no jurisdiction and did not decide on the merits of the claim.442 In the future, it has been recommended that certain issues such as sovereign debt must be excluded from investor-state arbitration and must be brought solely under state-to-state arbitration owing to widespread implications for an entire country.443 ISDS has also been specifically excluded in certain scenarios such as tobacco control measures444 and recourse to SSAT may be the available alternative for investments related to this sector unless this also has been explicitly excluded under state-to-state arbitration.445 State-to-state arbitration can play a greater role in these situations as the sole binding mode of dispute resolution when recourse to ISAT is not possible. 435

UNCTAD (2003b), p. 59; Juratowitch (2008), p. 30 et seq. Art. 25(1), ICSID Convention. 437 Art. 25(4), ICSID Convention. 438 Schreuer (1996), p. 355 et seqq.; Juratowitch (2008), p. 31; See also ICSID Case No. ARB/00/4, ICSID, Case No. ARB/00/4, Salini Costruttori SpA and another v. Kingdom of Morocco, Decision on Jurisdiction, 23 July 2001, 42 ILM 609 (2003) 622. 439 On the necessity of ‘consent’ for an ISAT, see, Potesta (2011), p. 151. 440 Rolland (2017), p. 399 et seqq.; For a discussion on the duration of protection of investment under ‘sunset clauses’, see, Titi (2016), p. 434 et seqq. 441 For an IIA which explicitly provides this, see, Art. 11(5)(b), Netherlands-Chile BIT, 1998; See also, Juratowitch (2008), p. 31 et seq. 442 On this See Sect. 4.5.1.1 and 4.5.1.2 of this book; See also, Juratowitch (2008), p. 32. 443 Norton (2012), p. 313 et seq. 444 Art. 22, Chapter 8, SAFTA; Art. 29.5 CPTPP. 445 A recourse to state-to-state arbitration is also prohibited for tobacco control measures under Art. 13(2), Singapore-Kazakhstan BIT, 2018. 436

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Claims on Behalf of a State-Owned Enterprise

An SSAT may be the suitable forum for the resolution of disputes arising from the investment by a State-Owned Enterprise (SOE) in another country which has been rejected by an ICSID tribunal owing to it being determined as a dispute being brought by an entity ‘acting as an agent for the government or is discharging an essentially governmental function’.446 Such disputes cannot be dealt with by an ICSID tribunal as a ‘state’ cannot qualify as an investor under Art. 25(1) ICSID Convention.447 The SOE may then rely on the home state of the SOE to resolve the dispute through the SSDS clause which may result in the formation of an SSAT.

3.10

Interim Conclusions

The scope of disputes which could be resolved through state-to-state arbitration under the compromissory clause of IIAs is very wide. The claims regarding application of a treaty can cover direct claims of violation of treaty rights of a state or also diplomatic protection claims by a state on behalf of its nationals. State-to-state arbitration could be used to resolve disputes between the parties to a treaty and can also be used by the states to bring claims on behalf of investors as their host state. It can play an important role as an alternative mode for dispute resolution in IIAs particularly for small investors who are unable to commence investor-state arbitration proceedings themselves. In exceptional situations, diplomatic protection claims may be the sole dispute resolution method available to an investor. The clause for interpretation of disputes can cover both abstract interpretation claims and claims based on already existing disputes. State-to-state arbitration is the sole mode for dispute resolution in certain cases which are not covered by investor-state arbitration. A few additional possibilities have been proposed for the use of state-to-state arbitration. These include the possibility of a preliminary rulings system, an advanced ruling procedure, a system for harmonised interpretation of multilateral investment treaties and a system for harmonised interpretation of overlapping IIAs.

446

See, ICSID, Case No. ARB/97/4, Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, Decision of the Tribunal on Objections to Jurisdiction, 24 May, 1999, para 17; Feldman (2016), p. 33 et seq.; See also, Feldman (2012), p. 616 et seqq. 447 Feldman (2016), p. 34; ICSID, Case No. ARB/97/7, Emilio Agustín Maffezini v Kingdom of Spain, Decision on Jurisdiction, 25 January 2000, para. 74.

Chapter 4

Resolution of Procedural Hurdles in Utilising State-to-State Arbitration Under IIAs

4.1

Background

The existing system of investor-state arbitration has been opposed by a number of parties including heads of states, academics, and the general public.1 Owing to the shortcomings,2 it has become essential to evaluate the possibility of using state-tostate arbitration as an alternative.3 State-to-state arbitration is not presented here as a direct replacement for investor-state arbitration, but rather as an option which could co-exist with investor-state arbitration and can be more effective in certain situations.4 In fact, the co-existence of multiple dispute settlement mechanisms for the resolution of investment disputes is an idea that has already received attention.5 SSATs have been entrusted a key role in the investment agreement framework as disputes regarding the interpretation and application of the treaties itself which form the backbone of the system has been sought to be resolved through state-to-state arbitration.6 State-to-state arbitration has traditionally served as an effective means of dispute settlement in international law.7 The acceptance of state-to-state arbitration as an alternative in investment law has been hindered by procedural hurdles as discussed in this chapter and recommendations have been made to deal with them.

1

Franck (2014), p. 15 et seqq.; Schultz and Dupont (2014), p. 1147. Gazzini (2018), p. 255. 3 Lubambo (2017), p. 82 et seqq. 4 Lazo (2015), p. 436; Posner and Walter (2015), p. 381; Lubambo (2016), p. 230; Lubambo (2017), p. 87. 5 Schill and Vidigal (2018), p. 17 et seqq. 6 Cheng (2007), p. 1023. 7 Malintoppi (2006), p. 162. 2

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 A. Hazarika, State-to-state Arbitration based on International Investment Agreements, European Yearbook of International Economic Law 10, https://doi.org/10.1007/978-3-030-50035-1_4

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The Issue of the ‘Binding’ Nature of Decisions of an SSAT and Its Effect on a Future ISAT

An arbitral award is the outcome of the arbitration and is the final determination of the dispute between the parties.8 Any award by an arbitral tribunal needs to be executed to complete the dispute resolution process.9 The effectiveness of the enforcement system is essential to ensure respect for the dispute resolution mechanism as without an effective enforcement mechanism states would not resort to it.10 Under normal circumstances, the states when referring their disputes for state-tostate arbitration accept that the award would be ‘binding’ and a definitive settlement for the given dispute.11 The states also undertake to take steps to carry out the award.12 The binding nature of the decision which in addition to the treaty also emerges from public international law means that the dispute is definitively resolved with regards to the parties.13 The legal effect of the awards “result from the applicable rules of procedure or from the general public international law principles of state responsibility.”14 While it is generally known that awards by an SSAT will be legally binding on the parties to the dispute,15 of specific concern is the fact that an exact clarity on the consequence of this binding nature of ‘interpretative awards’ by SSATs on future ISATs is missing.16 The issue is further complicated by the fact that an IIA may provide that an SSAT award is binding without specifying who the award is targeted at beyond the parties to the dispute.17 The problem may have arisen from the issue

8

Cisar and Halla (2012), p. 25; Malintoppi (2006), p. 158. Cisar and Halla (2012), p. 26. 10 O’Connell (1990), p. 897. 11 Office of Legal Affairs (1992), p. 55; Nodeh (2003–2004), p. 125; See also, Art. 81, Hague II Convention; Art. 32 (2), PCA Optional Rules for Arbitrating Disputes between Two States (1992); Chapter V, C. 6. f, Draft Multilateral Agreement on Investment; Art. 30 and 32, Model Rules on Arbitral Procedure with a general commentary 1958, International Law Commission, Yearbook of the International Law Commission, 1958, vol. II, pp. 83–88; Haersolte-van Hof and Koppe (2015), p. 39. 12 For an explicit declaration of this undertaking see, Art. VIII(2), Denmark-Indonesia BIT, 1968; See also, Fox (1988), p. 8; UNCTAD (2003b), p. 21; For a historical declaration of the existence of this principle in international law, See, Dumas (1911), p. 936 et seqq. See also, Art. 26, Draft Convention on Arbitral Procedure in United Nations (1955), p. 91. 13 Cisar and Halla (2012), p. 26 et seqq. 14 Bungenberg and Reinisch (2018), p. 143. 15 UNCTAD (2003b), p. 48 et seq.; See also, Art. 26, Draft Convention on Arbitral Procedure in United Nations (1955), p. 90. 16 Potesta (2015), p. 266; Macias (2016b), p. 311; UNCTAD (2003b), p. 74; Bungenberg and Reinisch (2018), p. 72; Gaukrodger (2016b), p. 14, 17; See also, Annex 2, No. 7 and 14, Draft Multilateral Agreement on Investment; Potesta (2013), p. 762. 17 See, Art. 24(4), Argentina-Japan BIT, 2018; Art. 6(5), Netherlands-Bulgaria BIT, 1988; Art. 23 (5) Israel-Japan BIT. 9

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that while the compromissory clauses may have originated from the BITs which did not provide for investor-state arbitration, they were not modified when they were included in IIAs with the possibility for investor-state arbitration and the consequent possibility for formation of a second arbitral tribunal.18 At first sight, based on the presence of an explicit provision in the IIAs which allows the state to form an SSAT to decide on the interpretation of a treaty, the possibilities for the use of the provision must have been considered by the states when signing the treaty and they agreed to be bound by it even after understanding the consequences.19 Considering this, the ‘binding’ nature of the awards has been understood as their interpretation being de facto binding on the states and future ISATs by commentators.20 Even then, explicit text conveying this understanding from the state parties is absent, except in a few treaties and with regards to the specific situations.21 This absence of an express mention of a state-to-state arbitration award as a binding source of interpretation under IIAs for ISATs may be considered as a hurdle to the use of SSATs as an interpretative source. Under ideal conditions, interpretation through an SSAT could ensure more consistent decisions from ISATs if they followed the decision of the SSAT.22

4.2.1

The Current Debate on the Status of SSAT Interpretative Awards

The status of SSAT awards as a source of law can be based on their status as subsequent agreement, subsequent practice or as an authoritative or authentic interpretation of the treaty. This conclusion stems from an evaluation of SSAT awards as discussed below.

18 For near identical compromissory clauses for state-to-state arbitration in BITs with investorstate arbitration and without investor-state arbitration, See Art. X, Netherlands-Malta BIT, 1984 (without investor-state arbitration) and Art. 11, Netherlands-Yemen BIT, 1985 (with investor-state arbitration). Similarly, See, Art. 8, Switzerland-South Korea BIT, 1971, Art. 11, SwitzerlandUganda BIT, 1971 and Art. 10, Switzerland-Sudan BIT, 1974 (without investor-state arbitration) and Art. 9, Switzerland-Turkey BIT, 1988 (with investor-state arbitration). 19 Based on the principle of effective interpretation which states that an interpretation of a treaty should give meaning to the text, On this see, Ishikawa (2015a), p. 274 et seqq. 20 On this and opposing views, see, Sect. 4.2.1 of this book. See also, Potesta (2015), p. 267; Lourie (2017), p. 201 et seq.; See also, Oellers-Frahm (2012), p. 93; Kulick (2015), p. 455 et seqq. 21 Art. 20(2)(c), Canada-China BIT, 2012, Art. 22(4) Canada-Hong Kong BIT; See also, Kidane (2016), p. 161; Comella (2014), p. 21; Rosenfeld (2016a), p. 340. 22 PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Expert Opinion of C.F. Amerasinghe (English), 23 May, 2012, para 28 et seq.; Lubambo (2017), p. 88.

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4 Resolution of Procedural Hurdles in Utilising State-to-State Arbitration Under. . .

Rejection of SSAT Awards as Subsequent Agreement or Source of Subsequent Practice

A subsequent agreement has been defined as “an agreement between the parties, reached after the conclusion of a treaty, regarding the interpretation of the treaty or the application of its provisions.”23 Subsequent practice, on the other hand, is defined as “conduct in the application of a treaty, after its conclusion, which establishes the agreement of the parties regarding the interpretation of the treaty.”24 Subsequent agreement and subsequent practice must be considered as ‘authentic means of interpretation’ and must be taken into account by tribunals while dealing with disputes and interpreting the text of the agreements.25 The ICJ has recognised the importance of subsequent agreement or practice by the parties in the interpretation of a treaty26 and in the Kasikili/Sedudu Island case stated that subsequent interpretative agreements “must be read into the treaty for purposes of its interpretation”.27 In fact, subsequent agreements between parties on the interpretation of an IIA is considered as an ‘authentic interpretation’28 and should bind all future ISATs deciding disputes based on the IIA.29 For an interpretation to be considered as a subsequent agreement, it is essential that both parties must agree upon the interpretation.30 The use of the decision of a tribunal to understand the correct interpretation of a treaty is not unheard of and there have been numerous decisions of the ICJ and its predecessor the PCIJ to decide on the interpretation of treaties.31 Further, the possibility to accept binding interpretations from a body established by the treaty is present as evident in the binding nature of the interpretations by the NAFTA Free Trade Commission.32 Concerning SSATs, it has been clarified by the ILC that the

23

ILC (2013), p. 31. ILC (2013), p. 31; Johnson and Razbaeva (2014), p. 4. 25 ILC (2013), p. 20; Johnson and Razbaeva (2014), p. 3; Preamble, Joint Interpretative Declaration between India and Colombia regarding the Agreement for the Promotion and Protection of Investments between India and Colombia executed on 4 October, 2018. 26 Titi (2017), p. 39. 27 ICJ, Kasikili/Sedudu Island (Botswana v. Namibia), ICJ Reports 1999, p. 1045, 1075, paras. 49 et seq., quoting ILC, Draft Articles on the Law of Treaties with Commentaries, Yearbook of the International Law Commission 18 (1966), Vol. 2, 187 (221). See also, Berner (2016), p. 865. 28 Lubambo (2016), p. 231. The ILC does not use the terms “authentic interpretation” or “authoritative interpretation” since these concepts are often understood to mean a necessarily conclusive, or binding, agreement between the parties regarding the interpretation of a treaty. ILC (2013), p. 23. 29 Broches (1995), p. 218. 30 Clodfelter (2014), p. 188. 31 Hambro (1953), p. 235. 32 ILC (2013), p. 23; Kaufmann-Kohler (2011), p. 176; Gaukrodger (2016a), p. 10; Titi (2017), p. 39; Johnson and Razbaeva (2014), p. 5. 24

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decision of the SSAT itself cannot be a ‘subsequent agreement’ between the parties as it is not issued by the state parties themselves.33 Even though an interpretation by an SSAT is not considered as a subsequent agreement by the parties, it will have to be read into the treaty for the purposes of its interpretation by any future ISAT dealing with disputes relating to the provision interpreted by the SSAT.34 With regards to consideration of an SSAT decision as subsequent practice, it has been determined that any SSAT decision does not show subsequent practice since a decision of a dispute settlement body is not accepted as subsequent practice35 but as ‘other conduct’ which may ‘be relevant when assessing the subsequent practice of parties to a treaty.’36 Based on this assessment, SSAT awards cannot be deemed to be subsequent agreement or subsequent practice which must be taken into account by an ISAT. The filings made before an SSAT or even an ISAT by state parties may still be taken as the subsequent practice of the parties, or even as ‘subsequent practice establishing agreement of the parties’ if treaty parties have a common position, which may be persuasive.37

4.2.1.2

SSAT Awards as Authoritative Interpretations Binding on Future ISATs

The term “‘interpretation’ means determination or clarification of the meaning of a disputed treaty provision and not the creation of a new meaning.”38 Interpretations, in general, can be categorised as ‘authentic interpretations’ and ‘authoritative interpretations’. The power of interpretation of treaties is generally vested on the state parties and they can agree to an ‘authentic interpretation.’39 Issuance of an authentic interpretation is defined as a ‘situation where the law-maker itself authoritatively ‘interprets’ own norms by defining (through a later law) what a provision means.’40 An authentic interpretation issued by the parties is binding on future dispute resolution bodies deciding on the treaty.41 33

ILC (2013), p. 23. Wehland (2013), p. 15; Clodfelter (2014), p. 188. 35 ILC (2013), p. 45. 36 ILC (2013), p. 41. 37 PCA Case No. 2016-3, Resolute Forest Products Inc. v. Canada, Second Submission of the United States of America, 20 April 2020, para. 5; PCA Case No. 2016-3, Resolute Forest Products Inc. v. Canada, Second Submission of the United Mexican States, 23 April 2020, para. 14; Sharpe (2014), p. 194; ILC (2013), p. 35; See also. Puig and Kinnear (2010), p. 260. Also for further discussion on the issue: Submissions for arbitration may also demonstrate subsequent agreement, See, Moloo (2013), p. 73. 38 Trevino (2014), p. 233. 39 Berner (2016), p. 845; See also, Hernandez (2015), p. 173. 40 Kammerhofer (2008), p. 171. 41 Berner (2016), p. 876. 34

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The second form of interpretation, termed as ‘authoritative interpretation’ refers to a situation when the state parties provide their consent for interpretation through a third party acting on delegated authority.42 This power of authoritative interpretation of a treaty by a body (including by an arbitrator) which has been entrusted with this responsibility by the state parties themselves, has already been recognised by the PCIJ.43 The authoritative interpretation of an international treaty can be issued when authorised by the parties inter alia by the ICJ, certain international organisations and international arbitral tribunals.44 Nevertheless, an award or a decision by a tribunal established for interpretation does not reflect the will of the parties and is independent from the states which established the tribunal.45 The interpretation of an IIA by an SSAT is considered as an ‘authoritative interpretation’ based on a voluntary mechanism created by the parties.46 The interpretation of a treaty through arbitration as a source of ‘authoritative interpretation’ is permitted under international law and can be binding on the parties.47 The widespread use of the interpretative powers of a state-to-state arbitral tribunal is observed in the case of the IUSCT which has a special category of interpretative awards.48 The power of the IUSCT to provide interpretations is based on a clause that is similar to what is found in IIAs: Art. VI (4) of the Claims Settlement Declaration. This clause reads as follows: Any question concerning the interpretation or application of this Agreement shall be decided by the Tribunal upon the request of either Iran or the United States.

The effect of the interpretative decisions by the IUSCT is still up for debate but it is known that the awards helped shaped the action of the parties to the proceedings before the tribunal. This is evident from the example of Interpretative Case No. A/2 when Iran withdrew more than 1300 claims after the Tribunal decided in that it has no jurisdiction over Iranian Government claims against US nationals.49

42

Hernandez (2015), p. 174 et seqq.; Kammerhofer (2008), p. 172. PCIJ, Question of Jaworzina, Advisory Opinion, 1923 P.C.I.J. (ser. B) No. 8 (Dec. 6), p. 37 et. seqq.; See also, Johnstone (1991), p. 380 et seqq.; For a contrary view on authoritative interpretation by SSATs, see, Rosenfeld (2016a), p. 334. 44 Zamora (2001), p. 268; See also, Titi (2017), p. 39; For a contrary view, See, Rosenfeld (2016a), p. 339. 45 Cisar (2010), p. 1514. 46 Wouters and Vidal (2006), p. 8; Kulick (2015), p. 456 et seqq.; Price (2005), p. 74; Wehland (2013), p. 15; Gaukrodger (2016b), p. 13; Johnstone (1991), p. 380 et seqq.; For a contrary view, See, Rosenfeld (2016a), p. 339. 47 ILC (1964), para 34, 66; Van Damme (2010), p. 611; Committees on Research in International Law (1935), p. 976; For a contrary view, particularly for Commercial arbitration and ISATs see, Zamora (2001), p. 272. 48 On this see, Cisar (2010), p. 1505. 49 IUSCT, Full Tribunal, Request for interpretation: Jurisdiction of the Tribunal with respect to claims by the Islamic Republic of Iran against nationals of the United States of America, Case No. A/2, Filed January 26, 1982, Published in 1-Iran.U.S.C.T.R. p. 101; Shamsasei (1992), p. 81. 43

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State parties may indeed decide to accept interpretations of an SSAT designated by them to interpret a treaty as binding on them.50 This understanding of the binding nature of the interpretations by an SSAT is supported by the text of the IIAs (based on the inclusion of the compromissory clause) which shows that the parties while signing the IIA had trusted state-to-state arbitration as a mode for treaty interpretation.51 By doing so, the state parties would have considered that it would be able to solve disputes with at least some form of ‘binding nature.’52 In fact, the compromissory clauses were included in the treaties precisely for a situation when the state parties are unable to come to a mutually agreeable interpretation of the treaty provision themselves.53 The text of the IIAs through the use of the words ‘binding decision’ or award may indicate that such a decision is binding, but the real meaning of such a binding ‘interpretation’ decision and if it could indeed define the rights and obligations of the treaty parties for all future situations is unknown.54 The opinion supported by the ‘principal architect’55 of the ICSID Convention is that interpretations of an IIA by an SSAT formed for the purpose of interpreting the IIA would be binding on all future ISATs deciding on the issue, but would not affect past disputes.56 According to this view, the declaratory award issued by an SSAT would be binding on future ISATs and would enjoy a similar status as an agreement entered into between the parties.57 Also, if an interpretation by an SSAT is indeed considered to be an authoritative interpretation, such an interpretation may bind future ISATs based on the same treaty.58 An authoritative interpretation of the treaty is strictly limited to ‘clarification of existing rules’ and an interpretation may not act as an amendment.59 If an ISAT considers that an SSAT award is more of an amendment it may refrain from considering the award in a case as it may be ultra vires of the power of the SSAT.60

50

Committees on Research in International Law (1935), p. 976. Kulick (2015), p. 452 et seq. 52 Bungenberg and Reinisch (2018), p. 72; Orecki (2013), p. 14; Trevino (2014), p. 221; Lubambo (2017), p. 86; Comella (2014), p. 20 et seqq. On the fact that states normally refrain from handing over power of decision making to third parties without explicit reason, see, Gent (2013), p. 69 et seqq. 53 Kulick (2015), p. 456 et seqq.; Committees on Research in International Law (1935), p. 976. 54 Trevino (2014), p. 212. 55 Feldman (2016), p. 27. 56 Broches (1972), p. 377; Broches (1995), p. 218; See also, Schwebel (1995), p. ix; Parra (2016). For supporting views, See, Bungenberg and Reinisch (2018), p. 72; Orecki (2013), p. 20; Comella (2014), p. 21. 57 Broches (1995), p. 218; Institut de droit international (2013), para 19; Alschner (2015), p. 326 et seq.; See also, Kulick (2015), p. 456 et seqq.; Kulick (2016), p. 151. 58 Rosenfeld (2016a), p. 338 et seq. 59 Berner (2016), p. 875; Gazzini (2008), p. 178; Ewing-Chow and Losari (2015), p. 110 et seq. See also, Bungenberg and Reinisch (2018), p. 122 et seqq. 60 Lourie (2017), p. 212. 51

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4.2.2

4 Resolution of Procedural Hurdles in Utilising State-to-State Arbitration Under. . .

First Solution Option: Acceptance of SSAT Awards as Authoritative Interpretations and Their Acceptance as Soft Law

The conflicting interpretations of IIAs issued by governments and ISATs for similar treaty provisions and facts threaten to create uncertainty and consistency problems in the interpretation of the treaty provisions.61 Based on the understanding that unpredictable results may emerge from the broad interpretations by ISATs,62 the use of interpretations from an SSAT directly as a source of law by the tribunals by considering them as binding or highly persuasive authoritative interpretations is considered as a path to achieve arbitral certainty.63 A decision of an SSAT on the interpretation of a particular treaty provision may create a responsibility on the parties to comply with the new interpretation prospectively in their future dealings.64 Since an SSAT interpretative award is an authoritative determination of the treaty provisions, ISATs should take them into account in future proceedings under Art. 31 VCLT which governs the principles of treaty interpretation under customary international law as codified by the VCLT.65 Using awards as persuasive guidance can be viewed as a ‘soft law’ approach with an intention to develop future state practice by portraying the SSAT decision as the correct approach.66 States have provided the interpretative authority to SSATs in case they cannot agree on an interpretation themselves.67 By agreeing to cede their interpretative authority to an arbitral tribunal,68 the parties at the very least want to bring about clarity on treaty terms and such an intention shows that they attach some value to the interpretation of the treaty by the SSAT which can at least possibly guide future interpreters and at the very least maybe understood as highly persuasive69 and must be considered by an ISAT.70 61

Howard (2017), p. 33 et seq.; Lubambo (2016), p. 236; Gaukrodger (2016b), p. 12; Schreuer (2008), p. 207. 62 UNCTAD (2017a), p. 5; See also, Gorywoda (2017). 63 Lubambo (2017), p. 88; Also, the PCIJ has indirectly accepted the authoritative interpretations issued by a delegated institution authorised for this purpose. On this see, PCIJ, Question of Jaworzina, Advisory Opinion, 1923 P.C.I.J. (ser. B) No. 8 (Dec. 6), p. 37 et. seqq.; See also, Committees on Research in International Law (1935), p. 969; Gazzini (2008), p. 178; See also, Gaukrodger (2016b), p. 12. 64 Trevino (2014), p. 212; Comella (2014), p. 21. See also, Oellers-Frahm (2012), p. 92 et seqq. 65 Price (2005), p. 74; Wehland (2013), p. 15; UNCTAD (2003b), p. 23; See also, Van Damme (2010), p. 619 et seqq. 66 Cohen (2013), p. 1032. 67 Hindelang (2014), p. 81. 68 Kulick (2015), p. 456 et seq.; Trevino (2014), p. 221; Johnstone (1991), p. 380 et seqq. 69 Lubambo (2017), p. 86; Kulick (2016), p. 142. On the possibility of including an explicit provision to consider them as highly persuasive, see, Hansen (2010), p. 548 et seq.; See also, the principle of effective interpretation at, Ishikawa (2015a), p. 274 et seqq. 70 Berner (2016), p. 872; Trevino (2014), p. 229.

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In case a view is taken that an SSAT award is a non-binding interpretation, the award could be evaluated for its persuasiveness through factors such as expertise of interpreters, reasonableness, clarity of interpretation, quality of reasoning, consistency of the interpretation and timing of the interpretation.71 Considering that the award is based on an express ‘jurisdictional clause to interpret the treaty’, it must at the very least be considered highly persuasive’ by the ISAT,72 possibly below a joint interpretative agreement but above a past ISAT award.73 Without such an effect, the practical effect of an SSAT award would not be fulfilled.74 In fact, a binding SSAT interpretation may have important consequences when several ISATs are deciding on the same dispute.75 The ISATs, however, enjoy great discretion on how they consider the SSAT awards for implementation in actual cases.76 In the absence of a unanimous ground, a prior decision by any legal body like an SSAT which interprets the treaty can be considered as ‘a fact’ and the amount of importance which would be given to it by a future ISAT depends on the actors such as lawyers, judges, diplomats and political leaders who will be reading it.77 In practice, an SSAT proceeding may have been included as a path for states to regulate unwanted interpretations by ISATs.78 It is therefore recommended that future ISATs interpreting a provision from a treaty, which has already been interpreted by an SSAT, follow the prior interpretation in the interest of consistent application of law which is a part of legal certainty, a key element for the rule of law.79

4.2.3

Second Solution Option: Amendment of IIAs as a Path to Provide an Explicit Binding Effect of SSAT Awards on Future ISATs

A second path of resolution for the problem of a lack of binding force for ISATs can be an amendment of the treaties which expressly state that the decision of an SSAT formed for interpreting the IIA, before the commencement of investor-state arbitration proceeding dealing with the same dispute, would be binding on the future ISAT.

71

Gaukrodger (2016a), p. 14. Jacobs (2015), p. 44 et seq.; Lubambo (2017), p. 86; In case, the award of an SSAT is considered as an authoritative interpretation, it may even be considered as a ‘subsequent agreement’ between the parties which may be binding for future interpretations of the treaty under the VCLT, On this see Rosenfeld (2016a), p. 338. 73 Gaukrodger (2016b), p. 14. 74 Polanco (2019), p. 264. 75 Lubambo (2016), p. 236. 76 Lourie (2017), p. 212. 77 Cohen (2013), p. 1034. 78 Hindelang (2014), p. 70. 79 Venice Commission, Rule of Law Checklist, Council of Europe, 2016, p. 26. 72

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Explicit clauses designating such a binding effect of SSAT awards on ISATs for limited situations are already present in certain IIAs.80 An amendment signifying the binding effect of interpretative SSAT awards for later ISATs can be inserted across all the existing IIAs of the states which support this development through an international convention.81 This procedure has already been put into practice in Art. 1(1) of the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration which applied the provisions of the convention to arbitrations based on IIAs concluded before 1 April 2014 while the Convention itself was opened for signature on 17 March 2015. Alternatively, at a bilateral level, states may resolve this issue through a later explicit declaration stating the authoritative nature of the interpretation of the treaty by an SSAT for ISATs, which would then be binding on future ISATs even in the absence of an explicit provision for the same in the original IIA.82 Since no specific format or formality is required for the formation of a ‘subsequent agreement’83 and since such an agreement does not need to be of the same form as the initial treaty,84 a later ‘protocol’ or similar document can be signed between the states whereby they explicitly agree to follow the decision of an SSAT established by them to interpret the treaty as ‘subsequent agreement’ between themselves.85 This would mean that the parties agree that the decision of such a tribunal may be considered to have the same status as a mutual agreement between the parties, in which case it should be binding.86 State parties have already used the principle of subsequent agreement to lay down that decisions by state parties through special bodies (like NAFTA Commission) will be binding on an ISAT and they may also lay down similar binding powers for decisions of SSATs.87

80 Art. 20(2)(a), Canada-China BIT, 2012, Art. 22(3), Canada-Hong Kong BIT; Titi (2017), p. 44. See also, Kidane (2016), p. 161. 81 Chase (2015), p. 226. 82 ILC (2013), p. 22. 83 Linderfalk (2007), p. 162. 84 Gaukrodger (2016a), p. 7; Johnson and Razbaeva (2014), p. 3. 85 On the possibility of parties agreeing to a specific meaning, see, Lubambo (2016), p. 231; Roberts (2010), p. 201; See, Rosenfeld (2016a), p. 340. 86 Broches (1995), p. 218; Wehland (2013), p. 15; Johnson and Razbaeva (2014), p. 5; See also, Ewing-Chow and Losari (2015), p. 101 et seqq. 87 For use of a ‘subsequent agreement’ to set the binding nature of interpretations by parties on ISAT see, Joint Interpretative Notes on the Agreement between the Government of the Republic of India and the Government of the People’s Republic of Bangladesh for the Promotion and Protection of Investments, 2017, p. 7. For explicit binding nature of SSAT decisions on ISATs see, Art. 20(2) (c), Canada-China BIT, 2012 and Art. 22(4) of the Canada-Hong Kong BIT.

4.2 The Issue of the ‘Binding’ Nature of Decisions of an SSAT and Its Effect on a. . .

4.2.4

121

Third Solution Option: Use of Interpretations from SSATs as Precedents or Jurisprudence Constante

The use of precedents from a particular tribunal is dependent on the design of the tribunal and the intention of the states to provide interpretative authority to the tribunal.88 The judicial bodies and arbitration tribunals are free to interpret treaties and no particular interpretation should be expected.89 As such SSATs may be an option for states to try and obtain a more favourable interpretation of the treaties, one which they were not able to get during their treaty negotiations.90 The states pushing for interpretation through an SSAT may wish to send out a signal that in the future the treaty may be interpreted in a manner similar to what is decided by the SSAT and hence, the other party must modify their actions accordingly.91 Thus, it may have a ‘potentially precedential effect.’92 In general, judicial decisions from any tribunal construing international law are not considered law themselves and may generally not bind any future parties.93 This is also reflected in the domestic law of common law countries where the authority to issue precedents is not present for all courts and every opinion or judgment is not considered as binding.94 In other words, the states must have intended to provide the tribunal with an authority to interpret which can be seen from the background documents and discussions behind the formation of the tribunal.95 This is true for tribunals such as the WTO AB, European Court of Human Rights (ECtHR) and CJEU.96 However, decisions from certain bodies such as the WTO AB may not have a status of a binding precedent as provided in their governing documents and will not bind a dispute resolution body outside the framework such as an ISAT, but may merely have persuasive effects.97 Beyond tribunals, precedents can be derived from many other ‘international actors’ such as the UNGA and the UNSC in exceptional situations.98

88

Cohen (2015), p. 272. PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Tomuschat, Christian, Opinion issued on “The Construction of Article VII of the Bilateral Investment Treaty between the United States and Ecuador”, Ecuador v. USA, 24 April, 2012, para 29. 90 Cohen (2015), p. 269. 91 Cohen (2015), p. 269; Comella (2014), p. 21. 92 Johnson and Sachs (2014), p. 249. 93 Cohen (2013), p. 1027. 94 Kolse-Patil (2010), p. 40 et seqq. 95 See, Hernandez (2015), p. 180; See also, Cohen (2015), p. 272; Comella (2014), p. 21. 96 Cohen (2013), p. 1031; Van Damme (2010), p. 605 et seqq.; WTO, Japan—Taxes on Alcoholic Beverages, Appellate Body Report, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, 4 October 1996, p. 14; Art. 19, Treaty on European Union, OJ C 326, 26.10.2012, p. 13; Szabdos (2015), p. 127; See also, Bjorge (2011), p. 6 et seqq. 97 Cremades and Madalena (2008), p. 526. 98 Cohen (2015), p. 277. 89

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In the case of SSATs, the tribunal is formed on the basis of dispute resolution provision of the IIA and an explicit status of precedence of the interpretation by the SSAT for future ISATs is not normally provided for in the IIAs. As such, the use of precedents from SSATs as a binding source of law for investor-state arbitrations is generally not viewed as a likely development.99 However, there is a general tendency to respect old arbitration awards regarding treaty interpretation through ‘something closely resembling’ the doctrine of stare decisis.100 It must be understood that SSAT decisions are not an exception to the possibility for citation and decisions from state-to-state arbitral tribunals from the past such as the 1837 Caroline Incident are regarded as extremely important to date.101 The use of awards from state-to-state interpretative tribunals as precedents may also be considered similar to the widely prevalent practice of informal use of decisions from courts or tribunals with expertise on a particular issue as de facto precedents.102 In fact, there is a widely prevalent practice across international tribunals to cite awards from other tribunals and courts and arbitrators are not prevented from seeking guidance from old awards.103 Precedents can be used in various forms, its strongest form creating a presumption that the prior interpretation is the rule, while in its weakest form creating merely an argument which must be answered.104 A strong form of precedent is their use as stare decisis.105 A system that is based on ‘stare decisis’ needs to have a clear demarcation on when decisions would be considered as persuasive or binding.106 In the absence of this demarcation, a system of precedence will not function correctly.107 While ‘stare decisis’ may indeed increase consistency and predictability, possibilities still exist for variance in future cases under certain circumstances.108 The existence of a system of stare decisis in the investment arbitration based on IIAs has been rejected by both authors and ISATs.109 Additionally, even for a multilateral treaty, interpretation based on stare decisis effect has been described as at best

99

Bjorklund (2008), p. 270. Committees on Research in International Law (1935), p. 975. 101 Rothwell (2005), p. 339. 102 Cate (2013), p. 442. For a proposal on use of precedents from an international dispute resolution mechanism, see, Bungenberg and Reinisch (2018), p. 196. 103 Hober (2004), p. 157. 104 Cohen (2013), p. 1035. 105 Dobbins (2010), p. 1460 et seqq. 106 Bjorklund (2008), p. 271. See also, UK, Constitutional Reform Act 2005, Explanatory Notes, Section 41, para 162 et seqq. 107 Bintliff (2001), p. 83 et seqq.; Shatz and Petrossian (2013), p. 16. 108 Bjorklund (2008), p. 272. 109 ICSID, Case No. ARB/03/15, El Paso Energy International Co. v. Argentine Republic, Decision on Jurisdiction, 27 April 2006, para 39; ICSID, Case No. ARB/81/1, Amco Asia and others v. Republic of Indonesia, Annulment Decision, 16 May 1986, para 44, 1 ICSID Rep. 509, 521 (1993); See also, Commission JP (2007), p. 132; Sheppard (2005), p. 222; Reinisch (2010), p. 124 et seqq. 100

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‘intriguing’ and doubts have been expressed whether such an interpretation can hold good owing to different legal systems of the states.110 But in state-to-state arbitration itself, the decisions of tribunals generally reflect the views provided in the older arbitration awards which are frequently cited as persuasive precedents.111 In light of the lack of unanimity on the consideration of an interpretative award by a state-to-state arbitral tribunal as binding precedent, their use as stare decisis may not be accepted and the interpretations from the state-to-state arbitral tribunal may instead be a part of an effort to form persuasive authority of de facto precedents112 or practice of jurisprudence constante.113 Under this system, decisions of other courts or tribunals are regarded as ‘persuasive to the extent they are well reasoned.’114 Such a principle is not novel in international law and among others is seen in the WTO.115 Additionally, it must be kept in mind that IIAs may contain different provisions and evaluating them based on binding precedents may not be possible.116 Based on this assessment, jurisprudence constante based on SSAT awards which have already been used by other ISATs has been considered as a more realistic option as it provides future arbitrators with the much-needed flexibility to deviate from the precedents in exceptional situations.117 It has been described as ‘the progressive acceptance of certain precedents through a process of influence by judicial decisions that have elaborated on particular questions’.118 A slow process of development of jurisprudence constante can be expected from the discussion of arbitrators and publicists if awards are available publicly.119 The emergence of jurisprudence constante can act as a way to build a ‘continuous stream of investment jurisprudence’ and also create a better understanding of the key principles of investment treaties.120 It is characterised by a development of ‘persisting jurisprudence that secures unification and stability of judicial activity.’121 In other words,

110

Blackmore (2003), p. 501. Guillaume (2011), p. 15. 112 For discussion on use of de facto precedents, see, See also, Bungenberg and Reinisch (2018), p. 102. 113 Commission JP (2007), p. 132; Reinisch (2010), p. 125 et seq.; Bjorklund (2008), p. 272; See also, Cate (2013), p. 438; Reinisch (2016a), p. 303 et seq.; Chatinakrob (2018), p. 198; For a rare instance when persuasive precedent has been sought to be differentiated from jurisprudence constante, See, Karton (2014), p. 21. 114 Bjorklund (2008), p. 272. 115 Van Damme (2010), p. 614. 116 Bungenberg and Titi (2015), p. 1512. 117 Cate (2013), p. 445; Bungenberg and Titi (2015), p. 1509 et seq.; Guillaume (2011), p. 23; For a contrary view, See, Douglas (2010), p. 107 et seqq.; Schill (2011), p. 1100 et seqq. 118 Bungenberg and Titi (2015), p. 1509. 119 Bjorklund (2008), p. 275. 120 Kidane (2017), p. 139; Reinisch (2016a), p. 302 et seq. 121 Bjorklund (2008), p. 265. 111

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jurisprudence constante will likely lead to both ‘law development’ and ‘law harmonisation.’122

4.2.4.1

Hurdles in Use of Precedents in Investment Arbitration

One of the main arguments which are raised against the use of decisions of arbitral tribunals is the fact that they decide on disputes which are based on different IIAs.123 This question is buttressed by a second argument that since the tribunals are themselves independent and established on an ad hoc basis, it was impossible to create consistent jurisprudence based on them.124

4.2.4.1.1

Treaty-Based Limitations

Although at first sight, many IIA provisions may appear identical, some variation between different IIAs may exist which means that there might be a hindrance in developing a common interpretation.125 The use of the decisions from past arbitral tribunals without regard to the variance in treaty provisions and thoroughly considering the counterarguments, merely to maintain consistency and follow past precedents may not be a welcome development.126 Additionally, the provisions of the ICSID Convention indicate that there is no doctrine of precedent in investment arbitration.127

4.2.4.1.2

The Lack of a Clear Line of Precedents

It has been argued that the decisions of the arbitral tribunals can follow past decisions, but there is no clear designation of ‘arbitral jurisprudence’.128 This can be viewed as a chicken and egg problem since one of the main reasons why the past tribunals have not interpreted IIA provisions in a similar manner is because they did not have to follow binding precedents.129 For investment arbitration, the lack of a clear line of precedents has also meant that tribunals now decide to choose decisions

122

Chatinakrob (2018), p. 190; Bjorklund (2008), p. 273. ICSID, Case No. ARB/03/16, ADC v. Hungary, Award, 2 October 2006, para 293. 124 Kolse-Patil (2010), p. 45. 125 Cate (2013), p. 425; Chen (2019), p. 55. 126 Chen (2019), p. 83 et seqq. 127 See Art. 53, ICSID Convention, See also, Chen (2019), p. 54. 128 Bentolila (2018). 129 Celik (2012–2013), p. 52. 123

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from previous cases to suit their own situation, thereby undermining the whole plan of promoting certainty.130 In terms of using state-to-state arbitration awards, a system of jurisprudence constante may take time to emerge since such a system depends on a long line of case laws on the issue which might mean that new principles laid down in SSAT awards do not immediately reflect in ISAT awards.

4.2.4.1.3

Lack of Authority to Form Law

The acceptance of arbitral precedents for future decisions faces a major hurdle since the arbitrators who were behind the decisions did not have the power to form law which is given only to parliaments, selected executive bodies (delegated lawmaking) and the higher courts (in common law countries).131 These law-making bodies are generally covered by the principles of transparency, accountability and a selection process behind the lawmakers.132 Arbitrators cannot be directly attributed to being having similar characteristics. The decisions of the ICJ, national arbitral tribunals or international arbitral tribunals do not explicitly create binding precedent.133 The creation of binding norms by arbitral tribunals is not accepted and the application of the provisions of every IIA can vary and the text may not provide an answer to every question.134 A mechanical interpretation of the position may not always be possible and even identically worded treaties may result in different conclusions from similar cases.135 The arbitrators enjoy a certain degree of discretion in the interpretation of the treaties and variations may emerge for several reasons including the legal system, procedural law and exact facts and background of the case in question.136 The absence of an authority to form law also relies upon the argument that the decisions in a particular case are limited to the provisions of the IIA applicable to the case and this principle of creating ‘a treaty-overarching framework for international investment law’ has been referred to as ‘multilateralization.’137 Establishing a new precedential system is not a likely alternative.138 Even the possibility of establishing an appellate body to create harmonious interpretation is not considered as a ‘viable option.’139

130

Celik (2012–2013), p. 57. Bentolila (2018). 132 For an example, please see, Part Six of the TFEU. 133 Zamora (2001), p. 268. 134 Bjorklund (2008), p. 270. 135 Bentolila (2018). 136 Roberts (2013), p. 77. 137 Schill (2010), p. 82. 138 Bjorklund (2008), p. 271. 139 Bjorklund (2008), p. 270. 131

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4.2.4.1.4

The Lack of Access to Decisions

The decisions of international courts and tribunals have started ‘creating basic source material for international law.’140 Now, in addition to the decisions from the ICJ and PCIJ, the lawyers also evaluate decisions from other international tribunals ‘for additional guidance’ particularly for issues such as interpretation of treaties and ‘obscure questions’ in international law.141 A problem remains on the accessibility of jurisprudence of a large number of international tribunals which limits their usage to a great extent.142 Even for decisions of an SSAT to function as a source of treaty interpretation or precedents for the ISATs, they will have to be accessible to the ISATs which currently is possible only through transmission by state parties to the dispute or when it is ultimately published by the tribunal with the consent of the state parties. Broadly speaking, it is essential that at first a framework must be put into place for precedents to be accessible before using them in investment arbitration.143 Measures to promote transparency for state-to-state arbitration which mandate the release of awards can aid the dissemination of awards.

4.2.4.2

Countering the Arguments Against the Use of Precedents

The arguments against the use of precedents seem to ignore that there is already ‘an informal, but powerful system of precedents’ that closely guides the actions of arbitrators based on prior published awards.144 It emerges that the informal system through ISATs has developed as a field that is largely harmonised due to the growth of arbitration as a specialised professional field.145 The harmonisation has occurred due to the prevalence of a common international convention on investment law, globally recognised treaties on arbitration and wide acceptance of a few prominent arbitral institutions and their rules.146 The arbitrators and lawyers who are involved in investment arbitrations belong to a closed professional community where they often alternate between positions as arbitrators and lawyers representing the parties.147 International arbitration has thus developed a combination of both the common law and the civil law doctrines where a closed community has inadvertently created a greatly harmonised system supported by favourable conditions.148

140

Alford (2000), p. 160. Alford (2000), p. 161. 142 Alford (2000), p. 161. 143 Chen (2019), p. 92 et seq. 144 Cheng (2007), p. 1016. 145 Bentolila (2018). 146 Bentolila (2018). 147 On this see, Langford et al. (2017), p. 301–332. 148 Schill (2012), p. 295 et seqq. 141

4.2 The Issue of the ‘Binding’ Nature of Decisions of an SSAT and Its Effect on a. . .

4.2.4.3

127

The Likely Path Forward

At the time when this study was undertaken, no system of binding precedents exists in international investment law.149 This has not dissuaded states and experts from discussing the possibility of introduction of such a system of precedents in investment law.150 The ideal system for implementation of a system of precedents in stateto-state arbitration and investor-state arbitration based on IIAs would be the creation of at least a de facto hierarchy of the adjudicative bodies.151 In the absence of a clear hierarchical tribunal mechanism152 based on treaties with a clear designation of the status of the tribunals and their powers, it is unlikely that a precedential system might emerge in international investment law where ISATs will follow the decisions of SSATs as binding precedent.153 In such a situation, the key element which needs to be kept in mind is that “a precedent’s force derives solely from the desirability of the rule reflected in it. Neither its status as the opinion of some body nor its internal reasoning have any independent effect.”154 Hence, if desirable interpretations emerge from an SSAT, it is likely that they will be followed by future ISATs. The use of past decisions as precedents provides much-needed clarity in the legal framework which investors and other decision-makers desire.155 Precedents promote the idea that reasonable expectations must be protected,156 and lawyers and judges invoke it regularly even with its lack of formal role in international law.157 To promote a system of consistent decision, an unofficial system of precedents has also developed in the WTO though there is no existence of such a system under the treaty.158 In the case of investor-state arbitration, even in the absence of a binding force on ISATs, an SSAT decision would at the very minimum place a ‘burden of prior interpretation’ on a future ISAT.159 This in practice would mean that the future ISAT may decide to not follow an SSAT decision but it would have to at least evaluate the SSAT decision and provide reasons for deviation failing which its own interpretation may appear to be arbitrary and contrary to the principle of legal stability.160 In fact,

149

Bungenberg and Titi (2015), p. 1506; Kolse-Patil (2010), p. 38. UNCITRAL Working Group III (2018), p. 8 et seq. 151 Gal-Or (2008), p. 61. 152 Cheng (2007), p. 1030; Mitchell and Munro (2013), p. 175; Bungenberg and Titi (2015), p. 1514. 153 Lew (2005), p. 311. For a similar conclusion on the issue relating to use of ICJ interpretations of the ICSID Convention by ICSID ISATs, see, Vannieuwenhuyse (2009), p. 123 et seq. 154 Cohen (2015), p. 272. 155 Cheng (2007), p. 1047. 156 Cohen (2015), p. 283. 157 Cohen (2013), p. 1027. 158 Mitchell and Munro (2013), p. 175. 159 Cohen (2015), p. 282. 160 On this, See also, Jacob (2012), p. 51. 150

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the success of courts such as the CJEU and the ECtHR has been attributed to the use of precedents in a tactical manner.161 The ISATs have also shown increasing acceptability to consider past decisions even when they understand that they were not bound by past decisions.162 As of now, ISATs provide ‘an evolving but fragmented body of precedents’163 which is at least persuasive in nature with some sort of authoritative value.164 Given the need to prevent conflict with areas of international law and domestic law, the possibility to use SSATs for interpretation of treaties should not be ignored.165 There is even the possibility of consolidating investment jurisprudence.166 Given the large number of reported investment awards, it is not impossible to expect the formation of a dedicated reporting system that could highlight well-reasoned awards.167 Even then, it must be understood that arbitration awards generally decide disputes based on the very specific facts and circumstances in a case and hence a system of precedents that seeks to harmonise the mechanism may not be completely suitable.168

4.3

A Lack of Provisions in IIAs for Enforcement of SSAT Decisions

The states are bound to enforce arbitral awards in good faith to ensure that a treaty retains its effectiveness in line with the principle of pacta sunt servanda.169 The states which have agreed to resolve a dispute through arbitration also agree to enforce the award of the tribunal without delay except under exceptional circumstances like an agreement to the contrary.170 Most IIAs do not specify the mode of enforcement of SSAT awards.171 Certain rare treaties may specify the mode of 161

Cohen (2013), p. 1038. ICSID, Case No. ARB/04/13, Jan de Nul N.V., Dredging International N.V. v. Arab Republic of Egypt, Decision on Jurisdiction, 16 June 2006, para 64; Commission JP (2007), p. 147. 163 de Chazournes and McGarry (2014), p. 887. 164 Kolse-Patil (2010), p. 56. 165 de Chazournes and McGarry (2014), p. 885. 166 Commission JP (2007), p. 142. 167 See also, Commission JP (2007), p. 157. 168 Lew (2005), p. 311. 169 Fox (1988), p. 7; Crook (1989), p. 305; Reinhold (2013), p. 46 et seq.; Nodeh (2003–2004), p. 135; Hober (2004), p. 149; Edmunds (1897), p. 322. 170 Nodeh (2003–2004), p. 126 et seqq.; See also, Art. 32, PCA Optional Rules for Arbitrating Disputes between Two States (1992); Art. 30, Model Rules on Arbitral Procedure with a general commentary 1958, International Law Commission, Yearbook of the International Law Commission, 1958, vol. II, pp. 83–88; Art. 37, Hague II Convention; Fox (1988), p. 8; See also, Bungenberg and Reinisch (2018), p. 141 et seqq. 171 UNCTAD (2003b), p. 50. 162

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enforcement or implementation of the award such as the requirement of informing the opposite party to the dispute about the measures which have been taken to implement the award.172 Historically, states have honoured arbitration awards.173 Non-compliance with an award will constitute an internationally wrongful act on part of the state174 and also a violation of its treaty obligations.175 There is however no specific legal sanction under treaties unless specified in the treaties and the sole force behind the award is the interest of maintaining good international relations.176 No third state has any power to enforce the award.177 Even then, governments fear that their non-compliance may be reciprocated through non-compliance by other states in the future.178

4.3.1

Background to the Current Situation

The enforcement of decisions of an SSAT formed under an IIA is an area which in the absence of an actual enforceable state-to-state arbitration award based on an IIA is not clear. Refusal to comply with an award of an SSAT may be a breach of an international legal obligation,179 but in normal situations, little can be done except political and diplomatic pressure to enforce a state-to-state award if a state is not willing to implement it.180 In most awards, states are left to decide how to comply with the award.181 The problem emerges from the fact that while a state is under the obligation under good faith to enforce an award, sometimes even through a change in legislation, there may be political and domestic legal hurdles behind such enforcement.182

172

Art. 34 (2), Albania-EFTA FTA, 2009; See also, Office of Legal Affairs (1992), p. 65. Gent (2013), p. 68; Cisar and Halla (2012), p. 25; Malintoppi (2006), p. 159; For a historical declaration of the existence of this principle in international law, See, Dumas (1911), p. 936 et seqq. 174 Haersolte-van Hof and Koppe (2015), p. 39; See also, Art. 2, Articles on Responsibility of States for Internationally Wrongful Acts; UNCTAD (2003b), p. 21; 175 Perez (2012), p. 471 et seqq. 176 Gent (2013), p. 68; Fox (1988), p. 7; Edmunds (1897), p. 322; UNCTAD (2003b), p. 11; Atkey (1968), p. 139. 177 Fox (1988), p. 29. 178 Keohane et al. (2000), p. 476. 179 Nodeh (2003–2004), p. 135. 180 Basaran (2015), p. 508; See also, Nodeh (2003–2004), p. 130 et seqq.; A now defunct mechanism for dealing with non compliance with arbitration awards was seen in Art. 13 and 16 of the Covenant of the League of Nations. 181 Fox (1988), p. 9; UNCTAD (2003b), p. 75. 182 Fox (1988), p. 9; de Chazournes and Angelini (2012), p. 6; Reinhold (2013), p. 60 et seqq. 173

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Ensuring the Enforcement of SSAT Awards

The parties to a dispute may form strategies in advance to deal with the outcome of an SSAT award to prevent unwelcome situations.183 These strategies must be designed to ensure time-bound and effective enforcement of awards.184 International law permits ‘self-help’ measures consisting of diplomatic protests, countermeasures,185 economic sanctions (such as the seizure of property) and retorsions and reprisals.186 States may also take the support of other states187 and of regional agreements such as the American Treaty on Pacific Settlement (Pact of Bogota), 1948 which provides for measures in case of failure to enforce an arbitral award by its members.188 In many IIAs, the consequence of an inability to enforce an SSAT award (such as the possibility to receive compensation) due to non-compliance with the obligations by the party against whom enforcement is sought is specified in agreement itself.189 An international court may also be provided with the power to adjudicate on issues of non-compliance.190 Alternatively, the prominent techniques which can be implemented to ensure enforcement are as follows:

4.3.2.1

Negotiated Settlements and Compensation

A recognition of the problem regarding the enforcement of ‘binding’ decisions of an SSAT was seen in the Canada-China BIT of 2012.191 Art. 15(8) of the BIT stated that: The decision of the arbitral tribunal shall be final and binding on both Contracting Parties. The Contracting Parties shall, if necessary, within 60 days of the decision of an arbitral tribunal, meet and decide on the manner in which to resolve their dispute. That decision shall normally implement the decision of the arbitral tribunal.

The process of negotiated settlement as seen in this BIT allows the parties to exercise a degree of control over the enforcement process and can be a preferable 183

Gaukrodger (2016b), p. 14, 18; UNCTAD (2003b), p. 21; Seifi (1992), p. 49. For IIAs which provides examples of a clause prescribing alternatives for failure to enforce SSAT awards in a time bound manner, see, Art. 38(9), Canada-Nigeria BIT, 2014; Art. XIV(7), St. Vincent and the Grenadines-Taiwan BIT. 185 Art. 22, Articles on Responsibility of States for Internationally Wrongful Acts. 186 O’Connell (1990), p. 927 et seqq.; Nodeh (2003–2004), p. 130 et seqq. 187 O’Connell (1990), p. 931 et seqq. 188 Art. L, Pact of Bogota; O’Connell (1990), p. 935. 189 UNCTAD (2003b), p. 75. 190 Art. 2(11), Annex: Conciliation and Arbitration, Arab Investment Agreement. 191 Canada-China BIT, 2012; A similar procedure is seen in Art. 39(9), Canada-Burkina Faso BIT. A variation of this procedure is seen in Art. XV(7), Canada-Latvia BIT, 2009 without explicit mention of the final and binding nature of the decision in the same clause. 184

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option to ensure smooth compliance with the decision.192 The same BIT193 discussed above also provides that in case the parties are unable to decide on how to enforce an award, ‘. . . the Contracting Party bringing the dispute shall be entitled to receive compensation of equivalent value to the arbitral tribunal’s award.’ In the wider context, the possibility to receive compensation in case of non-enforcement may encourage prompt enforcement of decisions.194

4.3.2.2

Suspension of Concessions and Membership Rights

The unsuccessful MAI provided for a wide range of options to deal with non-compliance of an award including: suspension of the application of obligations under the agreement towards the defaulting party, suspension of ‘the non-complying Party’s right to participate in decisions of the Parties Group’ and also the formation of a tribunal to determine the compliance with an award.195 Similar procedures allowing for the establishment of a separate tribunal to review compliance and suspend benefits are also seen in the MAFTA.196 Several other treaties also allow the suspension of benefits in cases of non-compliance with awards such as the Hong Kong-UAE BIT,197 Canada-Nigeria BIT,198 St. Vincent and the Grenadines-Taiwan BIT,199 Additional Protocol to the Framework Agreement of the Pacific Alliance,200 the AANZFTA Agreement201 and the Albania-EFTA FTA.202 The suspension of benefits by a large trading partner may act as an ‘attractive tool’ to deal with situations of non-enforcement of arbitral awards.203 The establishment of a separate tribunal to review non-compliance is not a common procedure and in many treaties, the disputes regarding non-implementation of an award may also be referred back to the original arbitral panel which issued the award.204 In exceptional circumstances, 192

UNCTAD (2003b), p. 21 and 50. Canada-China BIT, 2012, Similar provisions are also seen in, Art. 39(9), Canada-Burkina Faso BIT; Art. 9(9), Hong Kong-UAE BIT, 2019. 194 A possibility to receive compensation in case of non-implementation of the SSAT awards is also seen in Art. XV(7), Canada-Latvia BIT, 2009, Art. XIV(2), St. Vincent and the GrenadinesTaiwan BIT. 195 Chapter V, C. 9, Draft Multilateral Agreement on Investment; For a discussion on the background for inclusion of these procedures, See, Small (1997), p. 498. 196 Art. 20.15, 20.16, MAFTA. 197 Art. 9(9), Hong Kong-UAE BIT, 2019. 198 Art. 38(9), Canada-Nigeria BIT, 2014. 199 Art. XIV(2), St. Vincent and the Grenadines-Taiwan BIT. 200 Art. 17.20 and 17.22, Additional Protocol to the Framework Agreement of the Pacific Alliance, 2014; Lubambo (2016), p. 241. 201 Art. 17, Chapter 17, AANZFTA Agreement. 202 Art. 34 (2), Albania-EFTA FTA, 2009. 203 Posner and Walter (2015), p. 386 et seq.; See also, UNCTAD (2003b), p. 54. 204 Art. 34 (4), Albania-EFTA FTA, 2009; Art. 11(13) and Art. 16, AANZFTA Agreement. 193

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to provide rapid resolution, the state party which brought the claim may also be provided with the power to unilaterally suspend benefits of equivalent value as the award.205 As a measure of caution, it must be kept in consideration that certain measures prescribed under the MAI and other treaties, particularly the measure of suspension of benefits under different agreements may be in violation of other agreements to which the states may be a party to.206 In these situations, a new dispute regarding the correct level of suspensions in response to non-compliance could emerge which might require further determination.207

4.3.2.3

Enforcement Through Judicial Channels

Considering the broad problem of a lack of effective measures to enforce the decisions, it is surprising that probably the most prevalent manner of enforcing arbitral awards, i.e., through enforcement over the assets of the defaulting party via courts is largely ignored.208 While there is no international practice on the subject, such a possibility is present in a few IIAs which explicitly permit the enforcement of pecuniary awards in the courts of either contracting party over assets of the defaulting party in case of non-compliance with the awards.209 In the case of multilateral investment agreements, all states parties may be entrusted with the responsibility of enforcement of the awards arising from an agreement of which the state is a party.210 An enforcement proceeding in courts may, however, result in the possibility of a claim of sovereign immunity by the states.211 State immunity is based on the principle that it may not be subject to the law of another country without its approval.212 The signing of an arbitration clause is considered as a waiver of this

205

See Art. XV(7), Canada-Latvia BIT, 2009. Considering such a possibility, Art. 16(5) of the 2004 ASEAN DSM Protocol which governs the ASEAN Comprehensive Investment Agreement, 2009, prohibits suspension of concessions if prohibited by certain other agreements prohibit such suspension. See also, Malanczuk (2000), p. 428. 207 Considering such a possibility, Art. 16(7) of the 2004 ASEAN DSM Protocol which governs the ASEAN Comprehensive Investment Agreement, 2009 provides for referral of dispute back to the original panel or formation of a new arbitration tribunal to resolve the dispute; See also, UNCTAD (2003b), p. 21. 208 It is presumed that this is the result of the fact that awards under international law cannot be compared to domestic arbitration awards which can be enforced by local courts. On this see, Mann (1967), p. 3. For a discussion on the possibility, see, O’Connell (1990), p. 917 et seqq. 209 On this see, Art. 26, Austria-Kyrgyz Republic BIT; Art. 26, Austria-Tajikistan BIT, 2010; Art. 24, Austria-Yemen BIT. 210 See, Art. 17(2)(d), OIC Investment Agreement. 211 Saunder and Salomon (2007), p. 476; O’Connell (1990), p. 914 et seqq. 212 Hober (2004), p. 143. 206

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immunity.213 The enforcement of any award at the municipal courts depends upon the waiver of the immunities of the state parties to an arbitration.214 There is an acceptance of the fact that a mere waiver of state immunity for the jurisdiction of an international tribunal does not mean an automatic waiver of immunity against the execution of an award arising for the dispute.215 Even then, over time, the claim of immunity by a state party has considerably weakened with the acceptance of the fact that by agreeing to arbitration through a clause in an international contract, the states have agreed to the proceedings and ultimately the enforcement of the award.216 The claim that an act of a state is a force majeure is also not generally accepted.217 The state practice on the subject has shown a gradual shift towards a situation where a restrictive theory of immunity is more prevalent in relation to assets against which enforcement can be allowed.218 Actual guidance on the situation is available from the practice of enforcement of awards of the IUSCT. In the case of the IUSCT, the modified UNCITRAL Rules which were adopted by the tribunal does not provide for any distinction for enforcement based on whether the awards emerged from a state-to-state award or an investor-state award.219 It is thus a recommended option to include in the IIA, the explicit possibility of enforcement of the awards against assets of a state in case of non-compliance.220 To ensure that minimum hurdles, provisions may also be included in the treaty prohibiting any requirement of domestic official approvals or exequatur procedure.221 Last but not the least, it is also possible that SSAT awards of a pecuniary nature may even be enforced as ICSID awards (only in the parties to the IIA) to guarantee enforcement if such provisions are present in the IIA,222 thereby minimising the possibility for state immunity claims.223 Alternatively, they may also be explicitly designated as a judicial decision of the national court of the enforcing state to ensure smooth enforceability.224

213

Delaume (1983), p. 786 et seq.; Hober (2004), p. 144. Caron (1990), p. 113; Saunder and Salomon (2007), p. 469 et seqq. 215 Bjorklund (2009). 216 Bockstiegel (1986), p. 27; See also, Delaume (1983), p. 800 et seq; Delaume (1981), p. 788 et seqq. 217 Bockstiegel (1986), p. 27. 218 Bjorklund (2009). 219 Basaran (2015), p. 533; Herz (1995–1996), p. 248 et seqq. 220 Bjorklund (2009). 221 On the possibility to include a clause to bypass official approvals and exequatur for enforcement of an arbitral award, See, Art. 41, ACJ Treaty. 222 On the enforceability of such qualified ICSID awards only in the state parties to the agreement, See, Bungenberg and Reinisch (2018), p. 151 et. seqq. 223 On an IIA which allowed the enforcement of pecuniary SSAT awards as an ICSID Award, see, Art. 22, Austria-Azerbaijan BIT, 2000. 224 For an IIA which uses this option, See, Art. 17(2)(d), OIC Investment Agreement. 214

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Insight into Possible State Practice for the Implementation of SSAT Decisions

In the absence of an actual award of an SSAT which had to be enforced, actual information from state parties is scarce on how they plan to enforce SSAT awards. A rare insight into the planned actions of a state party is seen in case of USA where the then Director of the State Department’s Office of Investment Affairs provided an answer on the planned enforcement mechanism for an SSAT award from an IIA (US-Rwanda BIT) in reply to a US senate question.225 The response first clarified that Art. 3–10226 of the BIT and provisions linked to these articles by creating qualifications or exceptions to them are self-executing but without conferring a private right of action, while all remaining articles are non-selfexecuting.227 The term self-executing means that “a treaty may be enforced in the courts without prior legislation by Congress”228 and ‘without a right of private action’ means that private parties may generally not maintain an action in a court based on the provision.229 As per the response, the US plans to deal with the various possible forms of SSAT awards in the following ways:230 1. In case there is a decision declaring a US state law as inconsistent, the US Government may initiate legal action against the state to ensure that law is compliant with the self-executing provisions of the BIT; 2. In case the SSAT determines that a federal law is inconsistent, the self-executing provisions of the BIT would prevail over the provisions of the statute if it pre-dates the BIT; 3. In case the SSAT determines that the laws are inconsistent with non-self-executing provisions such as Art. 11 of the BIT, the US Government will bring about legislation or interpret the statute in a manner consistent with the arbitral decision; 4. If money damages are awarded, funds for an award could be sought from appropriated funds or the Judgment fund. It was clarified that SSAT awards “will not be directly enforceable in US Courts by private parties.”231 The approach also presumes that the US courts will not prevent enforcement of the awards to enable the executive branch to comply with

225

Crook (2012), p. 143 et seqq. Art. 3 to 10 of the US-Rwanda BIT deal with the following areas: National Treatment, MostFavored-Nation Treatment, Minimum Standard of Treatment, Expropriation and Compensation, Transfers, Performance Requirements, Senior Management and Boards of Directors and Publication of Laws and Decisions Respecting Investment. 227 Crook (2012), p. 143. 228 Vázquez (1995), p. 695. 229 Vázquez (1995), p. 719 et seq. 230 Crook (2012), p. 143. 231 Crook (2012), p. 143. 226

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its obligations.232 The discussion highlighted the concern that bringing about new legislation to implement an award regarding a non-self-executing article may not always be immediately possible.233

4.4

Legal Challenges to the Decision of an SSAT

A possibility to challenge an award of an SSAT affects the finality of awards and may considerably delay its enforcement thereby reducing the effectiveness and attractiveness of the system.234 The juridical scrutiny of a normal arbitral award is considered necessary, particularly at the time of enforcement, as the enforcing judge can hardly overlook any issues of glaring deficiencies in basic procedural formalities and fairness without compromising the public policy at the place of enforcement.235 These principles may not apply directly to state-to-state arbitration as it is not subject to national arbitration law.236 As such it is essential to evaluate the possible situations under which the award of an SSAT may be challenged and the possible outcome of such challenges.

4.4.1

A Challenge to a Decision Under International Law

The state-to-state arbitral proceedings are not governed by a general framework for supervision or institutional support.237 The decisions of an arbitral tribunal in a stateto-state arbitration based on an IIA is usually stated to be final and without appeal.238 The possibility for appeal against an award of a state-to-state arbitration which was made by a Tribunal of the Permanent Court of International Arbitration was restricted through Art. 81 of the 1907 Hague Convention for Pacific Settlement of International Disputes.239 The word ‘without appeal’ means that the award is final and binding upon the parties unless there has been an agreement to the contrary between the parties, which allows for an appeal or modification of the award.240 Avoiding the possibility for a review of an award and maintaining the finality of an

232

Crook (2012), p. 143 et seqq. Crook (2012), p. 144. 234 Cisar and Halla (2012), p. 26 et seq.; UNCTAD (2003b), p. 21; Wood (2017), p. 10. 235 Abedian (2011), p. 590. 236 Haersolte-van Hof and Koppe (2015), p. 43 et seq. 237 Haersolte-van Hof and Koppe (2015), p. 35. 238 Office of Legal Affairs (1992), p. 55; Cremades and Madalena (2008), p. 539. 239 Art. 81, Hague II Convention reads as: The Award, duly pronounced and notified to the agents of the parties, settles the dispute definitively and without appeal. 240 Office of Legal Affairs (1992), p. 55; Nodeh (2003–2004), p. 125. 233

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award ensures its effectiveness and similar clauses may be included in IIAs to explicitly prevent any future scrutiny.241 Even though the award is final, it may still be subject to interpretation242 and three distinct ‘remedies’ which are discussed below: challenge or appeal (before a court or tribunal), revision of the award, or a claim for nullity.243 For the first remedy, the state parties to a dispute may consent to provide explicit jurisdiction to a court or a tribunal to exercise supervisory jurisdiction.244 In the absence of such consent, there is no ‘judicial system’ with a vertical hierarchy in international law through which a court would have jurisdiction to scrutinise a stateto-state arbitral award.245 Recourse to appeal may also be explicitly barred by the IIAs.246 An exceptional situation when recourse to an appeals mechanism is available for a state-to-state arbitration is in case of arbitrations under the Olivos Protocol wherein appeals may be made against awards of the ad hoc arbitration court to the Permanent Review Tribunal.247 In practice, the ICJ has also been used as a forum for appeals as discussed below.248 The second remedy of revision of an award may be permitted for a limited period on certain limited grounds subject to the agreement of the parties or according to the rules governing the arbitral procedure.249 Revision is normally limited to the correction of errors by the tribunal or for consideration of new facts that can affect the award.250 As a third remedy, states also reserve the rights under customary international law to declare an award as a ‘nullity’ if the tribunals fail to conform to the basic parameters of fairness such as the absence of corruption or if the tribunal exceeds its authority.251 The term ‘the award shall be final and binding upon the parties’ does 241

Cisar and Halla (2012), p. 26 et seq. For an IIA which includes a clause preventing explicit future review see, Art. 17(2)(d), OIC Investment Agreement. For a clause which states that the decision of the Arbitral Tribunal would be ‘unappealable’ see, Art. 38, ACJ Treaty. 242 Wood (2017), p. 10. 243 Seifi (1992), p. 48. See also, Art. 29, 30 and 31 of the Draft Convention on Arbitral Procedure in United Nations (1955), p. 105 et seqq. 244 This possibility is seen in Art. 13, Annex A, COMESA Investment Agreement; See also, Haersolte-van Hof and Koppe (2015), p. 35; Cisar and Halla (2012), p. 27 et seqq. 245 Special Tribunal for Lebanon, Case No. CH/AC/2010/02, Decision on Appeal of Pre-trial Judge’s Order Regarding Jurisdiction and Standing, Appeals Chamber, 10 November, 2010, para 40 et seqq. 246 For an example of an IIA which specifically bars appeal from state-to-state arbitration awards for disputes regarding its application, See, Art. 2(8), Annex: Conciliation and Arbitration, Arab Investment Agreement. 247 Art. 17(1), Olivos Protocol. 248 On this, See also, Rosenne (2007), p. 145 et seqq. 249 Art. 83, Hague II Convention; Art. 55, Hague I Convention; Art. 38, Model Rules on Arbitral Procedure with a general commentary 1958, International Law Commission, Yearbook of the International Law Commission, 1958, vol. II, pp. 83–88; Cisar and Halla (2012), p. 29. 250 Seifi (1992), p. 48. 251 Haersolte-van Hof and Koppe (2015), p. 35; Caron (1990), p. 112; Copeland (1999), p. 3076.

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not preclude the right of the parties to challenge the award through a declaration of nullity.252 A nullification of an award would mean that there would not be ‘a valid award to enforce’.253 The main grounds on which the validity of an award can be challenged can be found in the Model Rules and are a part of customary international law.254 They are as follows: a. That the tribunal has exceeded its powers; b. That there was corruption on the part of a member of the tribunal; c. That there has been a failure to state the reasons for the award or a serious departure from a fundamental rule of procedure; d. That the undertaking to arbitrate or the compromis is a nullity.255

The MAI provided for five very specific grounds on which nullification may be sought and they included the first four grounds stated in the Model Rules plus the ground that the tribunal was not properly constituted.256 The MAI excluded the last ground (Art. 35 (d)) of the Model Rules. The draft MAI also proposed that an award of an SSAT could be subject to nullification proceedings before a tribunal formed under the same agreement especially for the nullification proceedings.257 In the absence of a clear provision in international law except in the Model Rules,258 the exact forum where the claims for nullity would be put forward depends on the agreement of the parties.259 In case the Model Rules are not included and the parties cannot agree to a common forum for a decision on the validity of the award, they may move ahead and form a new arbitral tribunal to deal with the issue,260 but when even this is not possible, the parties may deal with the situation diplomatically.261 The other alternatives subject to the consent of the parties may be calling

252

Seifi (1992), p. 42 et seqq.; Caron (1990), p. 112. Copeland (1999), p. 3076. 254 Haersolte-van Hof and Koppe (2015), p. 40; See also, Malintoppi (2006), p. 159. 255 Art. 35, Model Rules on Arbitral Procedure with a general commentary 1958, International Law Commission, Yearbook of the International Law Commission, 1958, vol. II, pp. 83–88; The grounds provided under the model rules have also been considered by Tanaka (2018), p. 120. 256 Chapter V, C. 7. a., Draft Multilateral Agreement on Investment; The same grounds for nullification as the MAI have also been provided under Art. 25(1), Austria-Uzbekistan BIT; See also, Malanczuk (2000), p. 425. 257 Chapter V, C. 7, Draft Multilateral Agreement on Investment; For a background on inclusion of nullification measures in the MAI, See, Small (1997), p. 498. 258 Art. 36, Model Rules on Arbitral Procedure with a general commentary 1958, International Law Commission, Yearbook of the International Law Commission, 1958, vol. II, pp. 83–88; See also, Oellers-Frahm (2019), para 16 et seqq. 259 Haersolte-van Hof and Koppe (2015), p. 40; Merrills (2017), p. 122; Seifi (1992), p. 49 et seq.; Tzeng (2017). 260 A procedure for formation of a new tribunal for nullification claims is seen in Art. 25(2), AustriaUzbekistan BIT. 261 Merrills (2017), p. 122; Haersolte-van Hof and Koppe (2015), p. 41. 253

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upon the original tribunal or referral to the ICJ.262 In case all these possibilities fail, the dispute may not be resolved.263 In general practice, most claims of nullity are ‘handled diplomatically’ and states are generally not able to challenge an award, a situation which is considered a weakness of state-to-state arbitration.264 For disputes which have included the Model Rules as a part of the arbitration agreement, the decision of the Arbitral Tribunal may be challenged before the ICJ within a specified time period (normally 6 months, for certain exceptional situations up to 10 years), if the parties within 3 months do not agree on forming a tribunal for the same purpose.265 The possibility for a challenge to a decision of a state-to-state tribunal before the ICJ by mutual agreement without referring to the model rules was visible in the case of Honduras v. Nicaragua (Arbitral Award Case), which was based on a separate agreement and the compulsory jurisdiction of the court.266 Such a referral is also possible solely based on the compulsory jurisdiction of the court267 under Art. 36 (2) of the Statute of the ICJ as seen in Guinea-Bissau v. Senegal (Arbitral Award of 31 July 1989 Case) decided by the court.268 The ICJ found the arbitral award valid in both these cases.269

4.4.2

A Challenge to a Decision Under Domestic Law

A challenge to a decision of an SSAT is generally not possible under national law and state-to-state arbitration could be subjected to domestic law only through an explicit agreement of the parties.270 This principle would also apply to an SSAT proceeding based on an IIA as seen from the decision of the UK Court of Appeal in the Ecuador v Occidental Exploration & Production Co case wherein the judges affirmed that: We would agree that it is highly probable that courts could not exercise jurisdiction over an inter-state arbitration under article VII (because it would not be based on an agreement to

262

Oellers-Frahm (2019), para 17 et seqq.; See also, Art. 31, Draft Convention on Arbitral Procedure in United Nations (1955), p. 110. 263 Haersolte-van Hof and Koppe (2015), p. 42. 264 Merrills (2017), p. 122. 265 Art. 36 (2), Model Rules on Arbitral Procedure with a general commentary 1958, International Law Commission, Yearbook of the International Law Commission, 1958, vol. II, pp. 83–88. 266 ICJ, Case concerning the Arbitral Award made by the King of Spain on 23 December 1906, Judgment of 18 November 1960: I.C. J. Reports 1960, p. 192, 194. 267 ICJ, Arbitral Award of 31 July 1989, Judgment, I.C.J. Reports 1991, p. 53, 55. 268 Statute of the ICJ. 269 ICJ, Case concerning the Arbitral Award made by the King of Spain on 23 December 1906, Judgment of 18 November 1960: I.C. J. Reports 1960, p. 192, 217; ICJ, Arbitral Award of 31 July 1989, Judgment, I.C.J. Reports 1991, p. 53, 76. 270 Haersolte-van Hof and Koppe (2015), p. 46; See also, Seifi (1992), p. 49 et seq.

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arbitrate within the meaning of the Arbitration Act 1996 or of the New York Convention and/or because of section 9(2) of the State Immunity Act 1978).271

The arbitral tribunal, process and the award are not governed by the law of the seat of the jurisdiction as arbitrations between states ‘are outside the jurisdiction of the territorial sovereign.’272 Even then, it is recommended that the state parties in an SSAT and the state where the seat of the arbitral tribunal is located should sign a tripartite agreement excluding the jurisdiction of the courts of the country,273 but any such discussion can be expected to be academic since an actual challenge to an SSAT award in a domestic court would be an exceptional event.

4.4.3

Preventing Referral of SSAT Awards to ICJ to Impede Enforcement

The Honduras v. Nicaragua (Arbitral Award Case)274 and the Guinea-Bissau v. Senegal (Arbitral Award of 31 July 1989 Case)275 keeps the theoretical possibility open that an award by an SSAT could be subject to review by the ICJ.276 States may attempt to minimise such a possibility by including an explicit provision in the treaty that no appeals are possible against an award of an SSAT formed under the treaty.277 While this may minimise attempts to seek recourse to the ICJ, it may not eliminate it completely since there is a view that states cannot renounce their right to contest future awards on the ground of nullity.278 Further, the ICJ has clarified that it does not decide on an application for appeal or revision against an arbitral award, but merely seeks to determine if the arbitral award is a nullity.279 While it is doubtful if all awards from SSATs formed under IIAs could be directly brought before the ICJ in the absence of explicit or implicit consent from the parties

271

United Kingdom, Court of Appeal, Republic of Ecuador v. Occidental Exploration and Production Co, 9 September 2005, [2005] EWCA Civ 1116; See also, Haersolte-van Hof and Koppe (2015), p. 46. 272 Mann (1967), p. 2. 273 Haersolte-van Hof and Koppe (2015), p. 46. 274 ICJ, Case concerning the Arbitral Award made by the King of Spain on 23 December 1906, Judgment of 18 November 1960: I.C. J. Reports 1960, p. 192, 194. 275 ICJ, Arbitral Award of 31 July 1989, Judgment, I.C.J. Reports 1991, p. 53. 276 Reisman (1996), p. 386. 277 Such a provision is seen in Art. 2(8), Annex: Conciliation and Arbitration, Arab Investment Agreement. 278 ICJ, Case concerning the Arbitral Award made by the King of Spain on 23 December 1906, Judgment of 18 November 1960, Dissenting Opinion of Judge Urrutia Holguin, I.C. J. Reports 1960, p. 221, 222. 279 ICJ, Arbitral Award of 31 July 1989, Judgment, I.C.J. Reports 1991, p. 53, 62.

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to the award,280 states may also choose to safeguard themselves from any possible recourse to the ICJ after an SSAT award by explicitly including a mechanism for review of nullity within the IIA. This would be particularly relevant and useful for all states which have included a reservation in their Declaration submitted under Art. 36 (2) of the Statute of the ICJ that they would not accept the compulsory jurisdiction of the ICJ for “disputes in regard to which the parties to the dispute have agreed or shall agree to have recourse to some other method or methods of settlement.”281 The ICJ has evaluated the existence of an alternative dispute resolution mechanism before accepting jurisdiction in the case of Maritime Delimitation in the Indian Ocean (Somalia v. Kenya) due to the presence of such a reservation and it is expected to do so in the future.282 It is opined that in case the ICJ finds a mechanism for review of nullity claims within the treaty itself, it may not find jurisdiction in any attempt by a state of recourse to the ICJ due to the aforementioned reservation. Mechanisms for reviewing nullity of SSAT awards through an internal tribunal formed under the same treaty were already foreseen in the Austria-Uzbekistan BIT and the draft MAI.283 Alternatively, state parties in future IIAs may also provide for recourse to an external body for nullity claims like the proposed MIC or a similar world court competent to deal with issues relating to investments and IIAs and it would be a relevant option since such a body will have specialised expertise on the subject.

4.5

Parallel Proceedings: State-to-State Arbitration and Other Modes of Dispute Resolution

Parallel proceedings may emerge between two different arbitral tribunals (ISAT and SSAT) in international law and also between a court and an arbitration tribunal.284 The situations of overlap for an SSAT based on an IIA and the consequences of such situations are discussed below.

280

On this, See, ICJ, Arbitral Award of 31 July 1989, Judgment, Declaration of Judge Mbaye, I.C.J. Reports 1991, p. 53, 80. 281 See, Declarations recognizing the jurisdiction of the Court as compulsory: India, 18 September 1974, https://www.icj-cij.org/en/declarations/in (Accessed 24 Mar 2020). Similar reservations are seen in declarations by many other prominent users of IIAs inter alia Australia, Austria, Belgium, Canada, Germany, Italy, Japan, Kenya, Pakistan, United Kingdom. 282 See, ICJ, Maritime Delimitation in the Indian Ocean (Somalia v. Kenya), Preliminary Objections, Judgment, I.C.J. Reports 2017, p. 3, 16 et seqq. 283 Chapter V, C. 7, Draft Multilateral Agreement on Investment; Art. 25(2), AustriaUzbekistan BIT. 284 Janecková (2017), p. 291.

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Investor-State Arbitration and State-to-State Arbitration

Investor-state arbitration is the popular mode for resolving disputed based on IIAs and as of 31 December 2019, there were more than 1023 known investor-state arbitration disputes.285 The possibility of conflict between state-to-state arbitration and investor-state arbitration emerged from the time that they were included together in the IIAs owing to the overlap in subject matter jurisdiction.286 In the absence of any specific rules governing the coordination of proceedings between SSATs and ISATs, a potential for conflict of jurisdiction and decisions between the two dispute resolution modes can arise in case of parallel or subsequent proceedings.287 The possibility for such conflicts is quite high since most IIAs are silent on their interrelationship288 and there are no customary international law rules on the issue.289 Disputes may emerge on the same issue across different forums with different parties290 and there may be potential situations of overlap where conflicting awards can be issued on matters such as treaty interpretation and investor claims on the different forums.291 Parallel ISAT and SSAT proceedings also introduce a political element to the dispute.292 These potential situations of conflict between state-to-state arbitration and investor-state arbitration can be influenced by a few important factors, namely: 1. Nature of the claim (i.e. abstract interpretation claim, diplomatic protection claim or other application claims); 2. The party making the claim (home state or host state); 3. Applicable arbitration rules (if Art. 27 of the ICSID arbitration or similar rule in the IIA applies); 4. The time when the claim was made (prior or after investor-state arbitration claim). Keeping these factors in mind, the interrelationship between investor-state arbitration and state-to-state arbitration claims are evaluated based on the nature of disputes in three situations: (1) possible parallel proceedings, (2) when decisions have been made by an ISAT before an SSAT proceeding, and (3) in case ISAT proceedings are started after a decision by an SSAT. 285

UNCTAD, ISDS Navigator: 1023 known investment treaty cases as on 31 December, 2019. Available at: https://investmentpolicy.unctad.org/investment-dispute-settlement (Accessed 24 Mar 2020). 286 Price (2005), p. 74; Trevino (2014), p. 212. 287 Reinisch (2004), p. 42; Gallo and Nicola (2015–2016), p. 1141 et seqq.; Potesta (2013), p. 761; Price (2005), p. 74 et seq.; Kaufmann-Kohler (2006), p. 76. 288 Macias (2016a), p. 643; Wong (2014), p. 19 and 29; See also, Kulick (2016), p. 143. 289 Lo (2013), p. 4. 290 Howard (2017), p. 28 et seq. 291 Wehland (2013), p. 15; Trevino (2014), p. 213; Cremades and Madalena (2008), p. 537; See also Potesta (2013), p. 761. In addition to possibility of an overlap between SSAT and ISAT/courts, there is also a possibility for overlap of ISATs with WTO dispute resolution, On this see, Allen and Soave (2014), p. 4 et seqq.; Price (2005), p. 76. 292 Titi (2015), p. 285.

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Ongoing Cases and Parallel Proceedings of an SSAT and ISAT

Parallel proceedings can arise between two different parties in two different forums but may involve the same subject matter in parallel ISAT and SSAT proceedings based on the same IIA.293 While parallel proceedings are possible for all types of disputes described below, they are considered undesirable.294 A parallel proceeding between an SSAT and an ISAT can be dealt with in the following ways:

4.5.1.1.1

Diplomatic Protection Claims by a Home State on Behalf of Investors

The possibility for a parallel diplomatic protection claim by a home state on behalf of the investors through an SSAT when an investor-state arbitration is planned or underway depends largely on the availability of specific rules in the IIA governing such situations295 or in the alternative, the applicability of the ICSID Convention and time of the claim.296 In case the arbitration is covered by the ICSID Convention, it will be governed by Art. 27(1) of the ICSID Convention297 which provides that: No Contracting State shall give diplomatic protection, or bring an international claim, in respect of a dispute which one of its nationals and another Contracting State shall have consented to submit or shall have submitted to arbitration under this Convention, unless such other Contracting State shall have failed to abide by and comply with the award rendered in such dispute.

This effectively means that in case the affected investor has, (a) consented to arbitration under the ICSID Convention,298 or (b) has already submitted a dispute to ISAT, then the option for seeking diplomatic protection through his home state, or the home state bringing an international claim,299 would have ended until the host state fails to comply with an award of the ISAT.300 The consent to arbitration is generally considered to be granted when a notice for arbitration is sent by the investor to the host state.301 In case an investor has not consented to arbitration, its

293

Cremades and Madalena (2008), p. 523. Polanco (2019), p. 268. 295 UNCTAD (2003b), p. 67. 296 Potesta (2013), p. 763. 297 Vannieuwenhuyse (2009), p. 119; Wong (2014), p. 11; On this, see also, Art. 10(6) GermanyPalestine BIT, 2000. 298 Lalive (1980), p. 144. 299 Amerasinghe (2009), p. 447. 300 Shihata (1984), p. 2; Schreuer (1996), p. 397; Trevino (2014), p. 214; See also, Wong (2014), p. 30; Potesta (2013), p. 764; Pyka (2016), p. 83; Juratowitch (2008), p. 15; Schreuer (2007), p. 351; Schreuer (2015), p. 882; Escobar (1997), p. 492; See also, Steingruber (2012), para 14.87. 301 Lubambo (2016), p. 237; Crivellaro (2005), p. 88. 294

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option to request for diplomatic protection remains open, subject to compliance with the exhaustion of local remedies requirement.302 There is no requirement of exhaustion of an international remedy (investor-state arbitration claim) before pursuing a diplomatic protection claim.303 While diplomatic protection and international claim are mentioned as two different in the Article, it has been clarified that “bringing an international claim is a typical element of diplomatic protection.”304 The home state may select a variety of methods for diplomatic protection including resort to state-to-state arbitration or diplomacy.305 In case a proceeding is brought before an SSAT after the ISAT proceedings have already started, in a possible breach of Art. 27 of the ICSID Convention, then the SSAT is expected to ‘decline jurisdiction.’306 Also, in these situations when a home state tries to bring a diplomatic protection claim as a state-to state arbitration proceeding while violating Art. 27 ICSID Convention, the ISAT already dealing with the dispute is not affected in any manner and does not have to stay its proceedings.307 The existence of a customary international law rule or consistent state practice regarding the need to refrain from diplomatic protection during an ongoing investorstate arbitration proceeding is doubtful.308 As a result, the requirements of Art. 27 ICSID Convention do not apply directly to non-ICSID cases.309 This makes the inter-relationship between a state-to-state arbitration for a diplomatic claim and an investor-state arbitration ‘uncertain’.310 In the case of non-ICSID investor-state arbitrations, the requirement to refrain from diplomatic protection claims through state-to-state arbitration while an investor-state arbitration is in progress is derived from the text of the IIA.311 Non-ICSID arbitration rules (like ICC or DIS) generally do not contain any explicit provisions which are similar to Art. 27 ICSID Convention.312 Hence, unless the states to an IIA are parties to the ICSID Convention or have an IIA with a similar clause, there seems to be no restriction on a home state to pursue diplomatic

302

Gallo and Nicola (2015–2016), p. 1144; Broches (1995), p. 214; See also, Wong (2014), p. 26; Schreuer (1997), p. 219; Macias (2016b), p. 310 et seq. 303 Juratowitch (2008), p. 34. 304 Schreuer (1997), p. 211. 305 Perez (2012), p. 462 and 465; See also, Supreme Court of Appeal, South Africa, Van Zyl v Government of RSA, [2007] SCA 109 (RSA), para 1. 306 Potesta (2013), p. 764; Trevino (2014), p. 215; Schreuer (2007), p. 347 et. seqq. 307 ICSID, Case No. ARB/00/5, Autopista Concesionada De Venezuela, C.A. v. Bolivarian Republic of Venezuela, Decision on Jurisdiction, 27 September 2001, para 140; Potesta (2013), p. 764; Trevino (2014), p. 216. 308 Trevino (2014), p. 218; See also, Wong (2014), p. 33; Kulick (2016), p. 133; Juratowitch (2008), p. 22. 309 Wong (2014), p. 33; Potesta (2013), p. 765. 310 Potesta (2013), p. 765. 311 Potesta (2013), p. 764; Trevino (2014), p. 217; Pyka (2016), p. 83. 312 Trevino (2014), p. 217.

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protection claims even when an investor-state arbitration is underway.313 The Draft Articles on Diplomatic Protection in Art. 17 indicate that the articles permitting diplomatic protection “do not apply to the extent that they are inconsistent with the special rules of international law, such as treaty provisions for the protection of investments.”314 This provision clarifies that the inapplicability of the diplomatic protection clauses only extends to the point they conflict with a clause in the relevant IIA and in their absence, they continue to apply, thereby enabling proceedings from the home state for diplomatic protection.315 The Italy v Cuba SSAT does not seem to agree with this understanding and accepts the existence of the principle in Art. 27 of the ICSID Convention ‘by analogy’ and this may be an innovative way to tackle the issue in future disputes in the absence of alternatives in a treaty.316 As of now, it seems that states have realised the existence of the loophole and the potential for conflict between the two modes of dispute resolution and a clause which is similar to Art. 27 ICSID Convention is visible in a range of new documents like the Singapore-Turkey FTA and it reads as: Neither Party shall give diplomatic protection, or bring an international claim, in respect of a dispute which one of its investors and the other Party shall have consented to submit or have submitted to arbitration under this Section, unless such other Party has failed to abide by and comply with the award rendered in such dispute. Diplomatic protection, for the purposes of this paragraph, shall not include informal diplomatic exchanges for the sole purpose of facilitating a settlement of the dispute.317

A few BITs (less than 10% of the BITs evaluated in a particular survey) had provisions similar to Art. 27 ICSID Convention, including the Korea-Italy BIT, Netherlands-Peru BIT and the UK-Mexico BIT.318 In the aforementioned survey, out of the 8 Model BITs out of 35, which did contain a provision similar to Art. 27 ICSID Convention, 4 Model BITs prohibited state-to-state arbitration during the time an investor-state arbitration proceeding is underway while the other 4 prohibited it during ICSID arbitration.319 The inclusion of a restriction on diplomatic protection clause in the BITs is however not uniform, even for BITs of the same state and when they were signed within an interval of around 1 year as seen below: Italy-Egypt BIT (Signed on 02/03/1989): Art. 9(3)

313

Macias (2016b), p. 311; ICSID, Case No. ARB/98/7, Banro American Resources, Inc. and Société Aurifère du Kivu et du Maniema S.A.R.L. v. Democratic Republic of the Congo, Award of the Tribunal, 1 September 2000, para 18, Excerpts (2002) ICSID Review—FILJ 17(2):382–392. 314 Art. 17, Draft articles on Diplomatic Protection, 2006. 315 ILC (2006), p. 52. 316 Italy v Cuba, Interim Award, March 15, 2005, para 65 (‘pas I’application de ce principe par analogie’). 317 Art. 12.19 (2), Singapore-Turkey FTA, 2015; See also, Art. 14.6, SAFTA. 318 Trevino (2014), p. 217. 319 Trevino (2014), p. 217.

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Neither Contracting State shall pursue through diplomatic channels any matter referred to arbitration until the proceedings have terminated and a Contracting State has failed to abide by, or to comply with the award rendered by the Arbitral Tribunal.

Italy-Bangladesh BIT (Signed on 20/03/1990): Art. 9 (3) Both Contracting Parties shall refrain from negotiating through diplomatic channels any matter relating to any arbitration procedure or judicial procedures that may have been instituted until these procedures have been concluded, and one of the Contracting Parties has failed to comply with the ruling of the arbitration tribunal or the judgement of the court of law within the terms prescribed by ruling or the judgement, or any other terms that may derive from international or internal law applicable to the case at issue.

The unsuccessful MAI also contained a provision similar to Art. 27 of the ICSID Convention which provides that: A Contracting Party may not initiate proceedings under this Article for a dispute which its investor has submitted, or consented to submit, to arbitration under Article D, unless the other Contracting Party has failed to abide by and comply with the award rendered in that dispute or those proceedings have terminated without resolution by an arbitral tribunal of the investor’s claim.320

The scope of this provision is limited only to parallel diplomatic protection claims at the time of an existing investor-state arbitration based on the same dispute and does not prevent other parallel state-to-state arbitration proceedings brought in for other interpretation or application issues related to the treaty.321 Clauses which almost replicate Art. 27(1) ICSID Convention are also seen in the CETA,322 the 2010 Austrian Model BIT,323 the Netherlands-Chile BIT,324 the ASEAN-India Investment Agreement, 2014,325 the Austria-Macedonia BIT326 and the Korea-Turkey Investment Agreement.327 Even with Art. 27 of the ICSID Convention, a possibility for parallel proceedings can arise through collusive action between the home state and the investor.328 The home state can bring diplomatic protection claims just before its own national begins investor-state arbitration proceedings intending to fulfil the requirement that the investor must not have consented to investor-state arbitration or started investorstate arbitration proceedings.329 In these cases, the investor-state arbitration proceeding will not be affected but the diplomatic protection claims must generally be

320

Chapter V, C. 1. b., Draft Multilateral Agreement on Investment. Malanczuk (2000), p. 436. 322 Art. 8.42(1), CETA. 323 Art. 21(2), 2010 Austrian Model BIT. On this also see, Reinisch (2013b), p. 46. 324 Art. 8(5), Netherlands-Chile BIT, 1998. 325 Art. 20(29), ASEAN-India Investment Agreement, 2014. 326 Art. 19(2), Austria-Macedonia BIT. 327 Art. 1.17(9), Korea-Turkey BIT, 2015. 328 Wong (2014), p. 34. 329 Wong (2014), p. 19. 321

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rejected by the SSAT.330 This result is derived from the provisions of Art. 26 ICSID Convention which reads as: Consent of the parties to arbitration under this Convention shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy.331

Hence, when the investor chooses to pursue an investor-state arbitration claim under the ICSID Convention, it decides to forego the ability to pursue any other mode of claim including through diplomatic protection.332 The diplomatic protection proceedings will be barred as soon as consent for investor-state arbitration is provided irrespective of whether the state-to-state arbitration proceedings have already started.333 Further, the home state may also not claim a subrogated right to appear in an investor-state arbitration proceeding on behalf of an investor in an effort to change the nature of the proceedings.334 The Banro American case335 provides an insight into dealing with such claims through an application of Art. 26 and 27 of the ICSID Convention, although the mode of application of the provisions appears to be stretched.336 In the given case, the investor requested for Canadian diplomatic protection (Canada is not a party to the ICSID Convention), while at the same time sought to commence investor-state arbitration under the ICSID Convention through the USA subsidiary of the investor. The ISAT rejected such a possibility and stated that the investor cannot pursue claims through two methods even if the state providing diplomatic protection was not a party to the ICSID Convention. The ISAT highlighted the grounds of international public policy and public international law behind its decision. Future ISATs may consider such diplomatic protection claims as an unwanted intervention in the arbitral process and deal with them accordingly.337 This priority provided to investor-state arbitration through the provisions of the ICSID Convention may not be applicable for all situations as state parties may sometimes decide to preclude ISATs from accepting jurisdiction in case of any dispute which is being dealt with by an SSAT or was dealt with by an SSAT.338 The states may also seek to protect their limited rights to push forward claims through the use of state-to-state arbitration by including a treaty provision that allows state-tostate arbitration proceedings even in the presence of an explicit clause preventing 330

Broches (1972), p. 376; Schreuer (2007), p. 349 et. seqq. See also, Schreuer (1996), p. 457. 332 Schreuer (2007), p. 351. 333 Juratowitch (2008), p. 16; For a detailed discussion on the issue, See, Crivellaro (2005), p. 90 et seqq. 334 Schreuer et al. (2013), p. 187. 335 ICSID, Case No. ARB/98/7, Banro American Resources, Inc. and Société Aurifère du Kivu et du Maniema S.A.R.L. v. Democratic Republic of the Congo, Award of the Tribunal, 1 September 2000, para 19, Excerpts (2002) ICSID Review—FILJ 17(2):382–392. 336 Wong (2014), p. 21. 337 Pyka (2016), p. 85; See also, Schreuer (2007), p. 350. 338 Art. 13.4(ii), Belarus-India BIT, 2018. 331

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diplomatic protection when an ISAT proceeding is underway under the ICSID Convention or otherwise. Such a provision is seen in the USA-Cameroon BIT which provides that “Recourse to the procedures set forth in this Article is not precluded, however. . .. . . or an issue exists related to a dispute submitted to the Center but not argued or decided.”339 Additionally, the resort to domestic court remedies by an investor also does not affect the right of a home state to provide diplomatic protection.340

4.5.1.1.2

Interpretative Claims and Investor-State Arbitration Proceedings

In case an ISAT is faced with a dispute on interpreting a part of the IIA which is already being decided by an SSAT, the ISAT should ideally put its proceedings on hold till the SSAT comes out with its decision on the matter.341 In exceptional cases, the ISAT may be required to decline jurisdiction on a matter being dealt with an SSAT, when explicitly provided for in the treaty.342 The reason that an SSAT ought to be provided with the power to interpret the treaty is because it is the parties to the treaty who are using their power to determine their rights and obligations arising from the treaty through the SSAT.343 The power of an arbitral tribunal to stay proceedings is an inherent power of a tribunal.344 When it resumes proceedings after the SSAT award, the ISAT must seek to follow the award of the SSAT except in case of unavoidable circumstances.345 In the second situation when an ISAT is dealing with a dispute and an SSAT has been called upon later to interpret the same treaty clause, there is no obligation on the ISAT to put its proceedings on hold. This was illustrated in the Peru v Chile case wherein the ISAT continued its proceedings despite the state-to-state arbitration proceedings started by Peru.346 The ISAT may in some instances consider it an unwanted intervention.347 The ISATs may also choose to put their proceedings on hold till the SSAT decides on a particular issue if it considers the future award of the

339

Art. VIII (9), USA-Cameroon BIT; For non-ICSID Arbitration see, Art. VIII (9), USA-Haiti BIT. 340 Juratowitch (2008), p. 21. 341 Trevino (2014), p. 226; Macias (2016b), p. 311; For further discussion on the power of an arbitral tribunal to stay proceedings if it considers the other arbitration to have a persuasive effect see, Hober (2005), p. 256. 342 Art. 13.4(ii), Belarus-India BIT, 2018. 343 Trevino (2014), p. 226. 344 D’Agostino and Jones (2007), p. 236. 345 Wehland (2013), p. 15; Kulick (2016), p. 151; See also, Gazzini (2008), p. 178; Lubambo (2017), p. 86; Price (2005), p. 74; Comella (2014), p. 21. 346 Wong (2014), p. 23; Schreuer (2007), p. 351. 347 Gaukrodger (2016b), p. 14.

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SSAT as relevant.348 If the ISAT does stay proceedings, it may resume the proceedings after an award has been made by the SSAT. In these cases, the ISAT should endeavour to follow the award of the SSAT unless it is incompatible with the intended meaning or treaty text.349 The ISAT is the ultimate decision making authority on the compatibility of the interpretation by the SSAT with the requirements of the dispute being dealt by it, and would not be bound by the award of the SSAT.350 The act of a state to commence SSAT proceedings for abstract interpretation wherein ISAT proceedings are ongoing in the same case is not covered by any restriction in the treaties itself such as the Art. 27 ICSID which restricts diplomatic protection claims under the ICSID Convention.351 The ICSID Art. 27 only prohibits diplomatic protection claims through SSAT when an ISAT claim is ongoing and does not bar other claims for interpretation or application of the treaty.352 The SSATs may deal with such claims by rejecting them or declining jurisdiction to prevent ‘abus de droit’.353 This issue may also be resolved through the inclusion of a clause in an IIA which specifically bars all forms of state-to-state arbitration claims (both claims on interpretation and application) on a particular dispute until it is under consideration by an ISAT.354 In the alternative, in extreme circumstances when both state parties to a BIT feel that there is an urgent need for interpretation of a particular BIT provision through an SSAT, they may seek permission from the ISAT dealing with the case to commence state-to-state proceedings and request it to put its proceedings on hold in the meantime.355 Communication from state parties to ISATs is not an unheard-of phenomenon for instances when there is a dispute regarding the interpretation.356

4.5.1.1.3

Host State Interpretative Claims After Commencement of ISAT Proceedings

Proceedings brought by host states to influence ongoing ISAT proceedings are a distinct possibility.357 There are no provisions in most IIAs or in the ICSID 348

Law Commission of India (2015), para 5.8.3; Trevino (2014), p. 228; Lourie (2017), p. 209; For a contrary view stating that putting the proceedings on hold might not be permitted, See, Schreuer (2007), p. 351. 349 Lubambo (2017), p. 86; Trevino (2014), p. 229. 350 Kulick (2016), p. 151; See also, Trevino (2014), p. 229. 351 Broches (1972), p. 376; Kaufmann-Kohler (2006), p. 76 et seq.; Broches (1972), p. 376; Potesta (2013), p. 761 et seq. 352 Malanczuk (2000), p. 436; Potesta (2013), p. 761 et seq. 353 Kaufmann-Kohler (2006), p. 76; Vicuna (2005), p. 214; Hober (2005), p. 251. 354 Art. VI(7), USA-Turkey BIT; Art. 12(8), Uzbekistan-Turkey BIT, 2017. 355 Gaukrodger (2016b), p. 14. 356 ICSID, Case No. ARB/01/13, SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan; ICSID, Case No. ARB/02/3, Aguas del Tunari v Bolivia, Decision on Respondent’s Objections to Jurisdiction, 21 October 2005, para 258 et. seqq. 357 Wehland (2013), p. 15; Price (2005), p. 74; Comella (2014), p. 21.

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Convention which bar a host state from bringing SSAT claims against the home state for an interpretative dispute or otherwise when an investor-state arbitration is ongoing.358 The action of the ISAT in the Luchetti v. Peru case indicates that the ISAT is not under an obligation to suspend the investor-state arbitration proceedings when a state-to--state arbitration is initiated by the host state after the investor-state arbitration proceedings have started.359 In fact, such an act to commence state-to-state arbitration proceedings has been regarded as an ‘abus de droit’ under which the ISAT may reject any request for staying proceedings.360 The interpretation of the ISAT should be the final decision in the cases commenced before the state-to-state arbitration and should not be affected by the new state-to-state arbitration proceedings.361 The SSAT may choose to put its proceedings on hold till the investor-state arbitration proceeding is over.362 When the proceedings resume, the award of the SSAT will not be binding on the ISATs which decided before the SSAT award was rendered but on future ISATs.363 In any case, if the SSAT does not stop the proceedings and a state-to-state arbitration award is rendered at an early stage of the investor-state arbitration proceeding, the award may be considered at least persuasive for the ISAT but in no way binding.364 The misuse of the possibility of bringing interpretative claims by host states to influence ISAT proceedings will be minimised if the ISATs do not stay their own proceedings when host states initiate SSAT proceedings.365

4.5.1.2

When Decisions Have Already Been Made by an ISAT

An SSAT may have to decide on issues which have already been adjudicated by an ISAT and these disputes may be dealt in the following manner:

4.5.1.2.1

Claims Regarding the Interpretation of a Treaty

An ISAT may deal with a dispute on the interpretation of a treaty as a part of the claim brought forward by an investor. Irrespective of the power of an ISAT to deal with the interpretation of a treaty in case of an investor’s claim, a state party to an IIA

358

Titi (2015), p. 287; Wong (2014), p. 18 and 23; Lubambo (2017), p. 83. ICSID, Case No. ARB/03/4, Empresas Lucchetti, S.A. and Lucchetti Peru, S.A. v. The Republic of Peru, Award, 7 February 2005, para 9; Schreuer (2007), p. 348 et. seqq.; Lourie (2017), p. 209. 360 Vicuna (2005), p. 214. 361 Malanczuk (2000), p. 436; See also, Kulick (2016), p. 149. 362 Kulick (2016), p. 151. 363 Broches (1972), p. 377; Kulick (2016), p. 152; Schreuer (1997), p. 211 et seqq. 364 Kulick (2016), p. 142. 365 Wehland (2013), p. 15. 359

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may also request for the formation of an SSAT to deal with an abstract treaty interpretation claim. When an ISAT has already issued an award, a conflict may emerge with the SSAT when the ISAT award is sought to be countered through a decision of an SSAT based on the IIA. It was seen in practice in a case when Ecuador made an effort to use a state-to-state arbitration tribunal to obtain a binding interpretation to contradict the award made by an ISAT deciding on the basis of the same treaty.366 To prevent such a situation, the accepted principle is that the interpretation of the treaty by an ISAT is binding for a given dispute if it was made prior to an SSAT decision on the same subject.367 The ICSID Convention also precludes any proceedings which have been brought merely to avoid, obstruct or prevent implementation of an ISAT award under the convention.368 If the claim does not affect the past ISAT award, there is no restriction on bringing an interpretative claim by the home state or the host state through an SSAT on any issue which may have been decided by an ISAT.369 For future ISATs deciding on disputes based on the same IIA, the interpretation issued by the SSAT would be binding or at least highly persuasive.370 This argument regarding the possibility of the impact of an SSAT interpretation on a past ISAT decision is not accepted by most authors who consider that only on-going and future disputes might be affected. Non-adherence to this condition may affect the principle of res judicata.371 On the other hand, the principle of non-retroactivity relates to the creation of new law only and does not affect the interpretation of existing law.372 Using an interpretation for retroactive effect depends on the will of the parties.373

4.5.1.2.2

Diplomatic Claims by a Home State on Behalf of Investors

A diplomatic claim by a home state after an investor-state arbitration has already taken place depends on the applicability of the ICSID Convention to the parties. For parties covered by the ICSID Convention or a provision similar to Art. 27 ICSID Convention, like Art. 18 (8) of the UK-Mexico BIT as mentioned above, it would be possible for a home state to bring a diplomatic protection claim through an SSAT only if the ‘other Contracting State shall have failed to abide by and comply with the

366

Brower and Blanchard (2014a), p. 768. Broches (1995), p. 218; Macias (2016b), p. 312; See also, Houde and Yannaca-Small (2004), p. 13. 368 Macias (2016b), p. 312. 369 Wong (2014), p. 11 and 18. 370 Broches (1995), p. 218; Institut de droit international (2013), para 19; Kulick (2015), p. 456 et seqq.; Roberts (2014), p. 62. 371 Roberts (2014), p. 29; Berner (2016), p. 873. 372 Berner (2016), p. 871. 373 Berner (2016), p. 873. 367

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award rendered in such dispute’374 thereby limiting it to be a procedure to secure enforcement of the award instead of creating a fresh action.375 Also, no diplomatic protection claim through SSAT can be brought about in disputes where an ISAT covered by the ICSID Convention has already rejected a claim on merits.376 The option to provide diplomatic protection to an investor is available again for the home state in case the host state fails to comply with an award.377 This would effectively mean that after an award has been made by an ICSID ISAT on an issue, a diplomatic protection claim could emerge ‘exclusively for the purpose of its implementation.’378 A restriction on a diplomatic protection claim through state-to-state arbitration is not present when the ISAT declines jurisdiction over a claim in the first place.379 Also, certain IIAs clearly state that in case the ISAT failed to provide a resolution of the investor claim, then the possibility for a state-to-state arbitration may re-emerge.380 In the case of non-ICSID arbitration, there is no express prohibition on pursuing a diplomatic claim by a home state for an investor whose investor-state arbitration claim was rejected unless there is an express prohibition in the IIA or the rules of the arbitration.381 However, a claim of this type brought after a previous unfavourable ISAT award may be considered as an ‘abuse of process’ by the home state.382 Further, a diplomatic protection claim through an SSAT after a successful investor-state arbitration claim should be explicitly prohibited383 and is unlikely to be successful as it would lead to a double enrichment of the investor.384 It is also against the principle of good faith and doctrine of clean hands which are considered a part of international arbitration.385

4.5.1.2.3

SSAT Awards to Create Hindrance in the Enforcement of ISAT Awards

An interpretative award by an SSAT could be indirectly used to confront an ISAT award in an annulment proceeding, enforcement proceeding or even in a plea to set

374

Art. 27 (1), ICSID Convention. Schreuer (1997), p. 222; See also, Steingruber (2012), para 14.87. 376 Juratowitch (2008), p. 15; Schreuer (1997), p. 223; Perez (2012), p. 467. 377 Broches (1995), p. 214; Juratowitch (2008), p. 15; See also, Art. 10(6), Germany-Palestine BIT, 2000. 378 Schreuer (1997), p. 223. 379 Schreuer (1997), p. 218; Juratowitch (2008), p. 32; UNCTAD (2003b), p. 59. 380 See Art. 17 (2), Libya-Austria BIT; Art. 19(2), Austria-Macedonia BIT. 381 Trevino (2014), p. 215. 382 Macias (2016b), p. 311. 383 Gallo and Nicola (2015–2016), p. 1143; Macias (2016b), p. 311. 384 Lubambo (2016), p. 237. 385 Kaldunski (2011), p. 122 et seq. 375

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aside an ISAT award.386 This may have been a thought in the background for the Ecuador v. USA case wherein a favourable interpretative award would probably have been used to confront the ISAT award.387 In practice, Kyrgyzstan utilised the interpretative decisions issued by the CIS Economic Court in set aside proceedings before Russian Courts and the courts set aside the earlier ISAT awards based on inter alia the interpretative decisions.388 In circumstances where the SSAT awards have been obtained through an abuse of process with a mere aim to derail the ISAT proceedings and decision, they may be considered nullum by the annulment committee or courts where enforcement is sought.389

4.5.1.3

Effect on Future ISAT Cases After a Decision Has Been Made by an SSAT

In situations when an SSAT has already decided on a particular situation arising from an IIA, an ISAT formed under the same treaty to deal with the same issue may proceed as under.

4.5.1.3.1

Investor-State Arbitration After an SSAT Diplomatic Claim Award

Even after an SSAT has decided on a diplomatic protection claim by the home state, the investor retains a theoretical right to pursue a claim for through investor-state arbitration.390 The award of the SSAT on the diplomatic protection claim would also not act as a res judicata for the investor-state arbitration claim as the parties would be different.391 This unwanted situation may be dealt with by a future ISAT as an abuse of process scenario or under the principle of estoppel.392 State parties also may deal with this issue through an explicit provision in the treaty that bars ISATs from dealing with a dispute (including a diplomatic protection claim) already dealt with by an SSAT.393

386

Titi (2015), p. 286; Macias (2016a), p. 645; Kulick (2016), p. 139; See also, Trevino (2014), p. 229. 387 Gaukrodger (2016b), p. 22. 388 Ivanov and Manassyan (2016), p. 444; Korobeinikov (2017), p. 283. 389 Kulick (2016), p. 152. 390 Trevino (2014), p. 215. 391 Schreuer (2007), p. 347 et. seqq.; Trevino (2014), p. 215. 392 Reinhold (2013), p. 53; Juratowitch (2008), p. 34; Price (2005), p. 76; Sheppard (2005), p. 224 et seqq.; See also, Gaillard (2017), p. 17 et seqq. 393 Examples can be seen in Art. 13.4(ii), Belarus-India BIT, 2018 and in Art. 10, Chile-New Zealand BIT.

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4.5.1.3.2

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Effects of an Interpretative Award

In case an ISAT has to decide on the same issues on which an interpretative award has been passed by an SSAT, the ISAT may ideally follow the interpretation of the SSAT on the matter unless there are exceptional conditions that force it to come to a different conclusion.394 The interpretations issued by an SSAT based on a declaratory award are generally argued to be binding on future ISATs deciding on disputes based on the same IIA.395 The ISAT, however, remains the final authority to determine the applicability of an interpretation of an SSAT in the case before it.396 It has also been suggested that a decision of an SSAT on an interpretation of an IIA through a declaratory decision would not affect a prior decision of an ISAT even though it is binding on future ISATs.397 Where an award has been issued by an arbitral tribunal before the other proceeding has commenced, the latter tribunal must recognise the binding or persuasive nature of the award of the first tribunal which would lead it to decline jurisdiction or follow the previous award unless there are strong situations not to follow the award, so as to prevent possible conflicting decisions.398 ISATs may also in certain cases be required to refrain from dealing with issues which were already dealt with by SSATs in the past to prevent conflicts.399 The courts may face a conflict in the enforcement of an ISAT award when an SSAT award emerges after the conclusion of the ISAT proceedings. When this occurs, the ISAT award which was issued prior to the issuance of the interpretative award should not be affected by any annulment or setting aside proceedings since the ISAT applied the law correctly based on its understanding prior to the SSAT award.400 The use of this approach to recognise SSAT awards as a binding source of law is however not without pitfalls and the possibility for use of awards from SSATs to challenge the finality of ISAT awards401 and for creating uncertainty about the finality of an ISDS award has been considered.402 An opposing interpretative award from an SSAT could be used to interfere with awards already issued by an ISAT in annulment, setting aside or enforcement proceedings.403 A challenge to an

394

Potesta (2013), p. 762; Kulick (2015), p. 456 et seqq.; See also, Broches (1995), p. 218; Lubambo (2017), p. 86; Price (2005), p. 74. 395 Broches (1995), p. 218; Comella (2014), p. 21. 396 Trevino (2014), p. 226. 397 Broches (1995), p. 218; Schreuer (1997), p. 211 et seqq. 398 Hober (2005), p. 248. 399 Art. 13.4(ii), Belarus-India BIT, 2018. 400 Lourie (2017), p. 211. 401 Wong (2014), p. 12. 402 Gaukrodger (2016b), p. 13. 403 Gaukrodger (2016b), p. 13; For practical usage of an interpretative decision to challenge an ISAT award see, Ivanov and Manassyan (2016), p. 444.

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ISAT award can inter alia be also brought about based on a jurisdictional ruling which questions the decision on jurisdiction made by an ISAT.404 The possibility to challenge an ISAT award based on an SSAT award increases in case of a non-ICSID award since ICSID awards can only be challenged in the annulment proceedings while non-ICSID awards can be opposed during multiple enforcement attempts.405 An SSAT may be called upon to decide on a dispute which is already under consideration by an ISAT and potentially delay or complicate existing ISDS proceedings.406 The state parties may be involved in proceedings that require them to make submissions on a number of issues if they become exposed to multiple state-tostate arbitration claims.407 These claims can delay proceedings owing to the longtime taken to arrive on decisions in certain government surroundings.

4.5.2

State-to-State Arbitration and a Court Proceeding

The relationship of international courts and tribunals with national courts is a complex issue. There are many situations where the national courts will work with an international court or a tribunal to deal with issues such as treaty interpretation such as the CJEU with courts from members states of the EU, while in other cases, the national courts are required to ‘divest’ their jurisdiction in favour of international courts or tribunals such as the IUSCT.408 In recent times, an additional recourse has been found for the issue where an international court has been provided with complementary jurisdiction wherein it exercises jurisdiction only on the failure of the national courts to deal with the issue.409 The recognition of this principle also underlined the fact that recourse to diplomatic protection by the persons is generally possible only in cases where a satisfactory remedy could not be found through the domestic court system.410 In most cases, diplomatic protection claims require exhaustion of local remedies requirement, which generally means that the investor would have completed proceedings in domestic courts before a diplomatic protection claim on his behalf by the home state.411 Interpretative claims through an SSAT, on the other hand, do not require exhaustion of other remedies and may be commenced with ongoing proceedings in domestic courts.

404

Gaukrodger (2016b), p. 13. Gaukrodger (2016b), p. 13. 406 Gaukrodger (2016b), p. 13. 407 Gaukrodger (2016b), p. 15. 408 Alford (2000), p. 161. 409 Alford (2000), p. 162. 410 Jacob (2014). 411 Art. 14, Draft articles on Diplomatic Protection, 2006; Lo (2013), p. 6. 405

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Nevertheless, the possibility for a state-to-state arbitration proceeding and a court proceeding is a rare (and still a theoretical) possibility,412 and may arise in countries where domestic courts apply the standards provided in IIAs in their proceedings.413 The following situations show how the parallel proceedings may arise: 1. A court proceeding is ongoing in the host state based on an IIA and a state-to-state arbitration tribunal is formed for a dispute arising out of the same IIA; 2. A state-to-state arbitration proceeding is ongoing on a dispute based on an IIA while the investor starts domestic court proceedings in the host state based on the same IIA There are no direct rules to deal with these parallel proceedings. However, it is clear that the international dispute settlement tribunals are not bound by the decisions of any domestic court.414 It is expected that these possible parallel claims will remain theoretical considering that states are expected to exercise restraint before commencing any claims at the state-to-state level and hence would generally consider all circumstances when they have decided to take an important step such as state-tostate arbitration.415 In any case, even in the extreme circumstance that a domestic court proceeding is pending when a state-to-state arbitration commences, international law prevails over domestic law416 and the supremacy of an international tribunal’s jurisdiction over domestic court jurisdiction is generally accepted and the international tribunal is not affected by the domestic court proceedings and is also not bound by its decisions.417 The domestic court, on the other hand, has to consider the parallel proceedings before an international arbitral tribunal before deciding on a dispute.418

4.5.3

Resolving the Conflicts Arising from Parallel Proceedings

The resolution of conflicts between two tribunals or forums that deal on the same issue is essential as it would prevent adjudication of the same dispute by two

412

Lo (2013), p. 15; See also, Cremades and Madalena (2008), p. 508; Atai (2011), p. 144. Hamida (2009), p. 72 et seqq. 414 Ly and Sheppard (2004), p. 19; Crivellaro (2005), p. 93 et seqq. 415 Juratowitch (2008), p. 34. 416 ICJ, Applicability of the Obligation to Arbitrate under Section 21 of the United Nations Headquarters Agreement of 26 June 1947, Advisory Opinion of 26 April, 1988, I.C.J. Reports 1988, p. 12, para 57. 417 Nový (2017), p. 541; Crivellaro (2005), p. 95 et seqq.; See also, ICSID, Case No. ARB/81/1, Amco Asia Corporation and others v. Republic of Indonesia, Award, 20 November 1984, para 177. 418 Nový (2017), p. 542. 413

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different tribunals and possible conflicting decisions.419 An innovative solution such as the use of same arbitrators in the second arbitration has been used for resolution of parallel proceedings in the past, but they only relate to the same nature of parallel proceedings (two parallel SSAT or two parallel ISAT proceedings), but not an SSAT and an ISAT proceeding.420 The primary resolution for solving the problems arising from parallel proceedings and attempted misuse of SSAT to interfere with ISDS proceedings is the enactment of appropriate rules governing such situations through agreements between governments.421 Provisions which clearly stipulate that an SSAT award would not affect an already running ISAT proceeding would discourage proceedings brought about to impede ISAT claims.422 Alternatively, they may also specify that an ISAT should not accept any issues being dealt with currently or in the past by an SSAT.423 It would be preferable that the provisions stipulate that selection of one dispute resolution mechanism explicitly preclude recourse to another mechanism for the same dispute.424 In the absence of such rules for resolving the conflict arising from parallel proceedings in the treaties, several other methods as discussed below may be looked into as possible ideas for resolving the conflicts.425

4.5.3.1

Lis Pendens and Res Judicata

The principle of ‘lis pendens’ which means ongoing proceedings is found in international law,426 but does not apply in strict terms to parallel investor-state arbitration and state-to-state arbitration proceedings under the same treaty because the primary condition of having the same parties in both the disputes is not fulfilled.427 While the home state and host state are parties in a state-to-state arbitration, an individual investor and the host state are parties in an investor-state arbitration.428 There might still be an overlap on the legal grounds for the proceedings (subject matter of the dispute) as a breach of the substantive treaty obligations such as national treatment, MFN and minimum standards of treatment 419

Mitchell and Munro (2013), p. 166; See also, Potesta (2015), p. 264 et seqq. For an innovative solution regarding appointment of same arbitrators in parallel proceedings based on the same factual backgrounds see, Art. 9(3), Chapter 17, AANZFTA Agreement; Crivellaro (2005), p. 89; D’Agostino and Jones (2007), p. 237. 421 Bernasconi-Osterwalder (2016), p. 260; Gallo and Nicola (2015–2016), p. 1142; Macias (2016a), p. 647; Gaukrodger (2016b), p. 14. 422 Gaukrodger (2016b), p. 14. 423 Art. 13.4(ii), Belarus-India BIT, 2018. 424 UNCTAD (2003b), p. 15. For an example, see, Art. VII(5), Cuba-Turkey BIT, 1997. 425 Cremades and Madalena (2008), p. 509. 426 Reinisch (2004), p. 48 et seq. 427 Lo (2013), p. 15; Cremades and Madalena (2008), p. 509; For a contrary view which suggests Lis pendens may be applicable, see, Juratowitch (2008), p. 34. 428 Lubambo (2017), p. 83. 420

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which are generally resolved through investor-state arbitration but may also be considered under the ‘general scope of interpretation or application of an IIA’ which are in turn covered under state-to-state arbitration.429 However, these would not be enough for the claim of the lis pendens defence whose existence itself in international arbitration is debated.430 An alternative evaluation of the principle of lis pendens was made by the PCIJ wherein it determined that for the condition to be fulfilled, ‘two identical actions’ must be ‘pending at the same time before courts of the same character’ between the ‘same parties’.431 These conditions are unlikely to be fulfilled between the SSAT and the ISAT proceedings. In this situation, the arbitral tribunal through the Kompetenz-Kompetenz principle is the crucial judge to determine whether it should continue the proceedings when it knows that there is an ongoing court or arbitration proceeding on the same dispute.432 Res judicata refers to the principle under which a defence can be raised that the issue was decided conclusively in an earlier proceeding and must not be reopened.433 It is a common law principle that is recognised in international law and the existence of a similar principle in international arbitration is also generally accepted.434 The conditions for the application of the principle of res judicata in international law have been enumerated by the International Law Association (ILA) as: Proceedings must: (i) have been conducted before courts or tribunals in the international legal order; (ii) involve the same relief; (iii) involve the same grounds; and (iv) be between the same parties435

A bare reading of these conditions clarifies that the last condition cannot be fulfilled by investor-state arbitration and state-to-state arbitration disputes which will always involve a different party, which might lead to most claims being rejected.436 In this situation, res judicata may probably not be the right path to resolve a conflict due to the uncertain relationship between the two arbitral

429

Lo (2013), p. 16. Nový (2017), p. 541; Lew (2005), p. 311; Cremades and Madalena (2008), p. 509 et seq. See also, Gaillard (2017), p. 12; Kim and Ahn (2018), p. 74. 431 PCIJ, German Interests in Polish Upper Silesia (Germ. v. Pol.), 1925 P.C.I.J. (ser. A) No. 6 (Aug. 25), para 54–55. See also, Oellers-Frahm (2001), p. 77. 432 Cremades and Madalena (2008), p. 515, 533 and 539. 433 Martinez-Fraga and Samra (2012), p. 420. 434 Berner (2016), p. 873; Reinisch (2004), p. 44 et seq.; Ly and Sheppard (2004), p. 18 et. seqq.; Martinez-Fraga and Samra (2012), p. 420; See also, Gunes (2015); Cremades and Madalena (2008), p. 520. For an explicit recognition of the principle in Arbitral Rules, see, Section 9, Annex, Collection of detailed rules of arbitral procedure, in United Nations (1955), p. 250 et seq. 435 Ly and Sheppard (2004), p. 19; A ‘triple identity test’ is also prescribed which excludes the element of ‘same relief’, but it also leads to the same conclusion. On this see, Martinez-Fraga and Samra (2012), p. 420. 436 Cremades and Madalena (2008), p. 522 and 538. For a partly contrary view on Res judicata with only one common party see, Sheppard (2005), p. 220; See also, Lew (2005), p. 312. 430

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tribunals.437 The principle of res judicata can still be used to prevent a new ISAT proceeding between two parties after an SSAT has issued an award which contradicts an old ISAT award between the same parties.438

4.5.3.2

Provisions for Parallel Proceedings Inspired from Other IIAs

The need for regulating parallel ISAT and SSAT proceedings has been under discussion439 and now measures have been introduced in a small number of recent IIAs. These measures which can be replicated as a path to prevent parallel proceedings can be divided into two broad groups:

4.5.3.2.1

Consolidation of Proceedings

The explicit possibility of consolidation of ISAT and SSAT proceedings has now been proposed as a prospect through a novel provision seen in the Morocco-Nigeria BIT, 2016.440 Under this provision, any disputing party to parallel SSAT or ISAT proceedings dealing with: (a) A common question of law or fact, and (b) Arising out of the same events or circumstances may request for consolidation. The provision is very broad and does not distinguish between the parties whether they are states or investors.441 The decision on appointing the arbitrators, determining the procedure, and consolidation and deciding on whether the consolidation should be permitted rests upon the ‘Joint Committee’ formed under the given BIT.442 Although it is a very novel and welcome development, it can be expected that some initial teething problems might emerge particularly due to the complicated drafting of a few important articles.443 However,

437

Lo (2013), p. 24; Cremades and Madalena (2008), p. 523. For a discussion on exceptional situations, where the courts or tribunals have sought to ignore the different identity of parties in the interest of justice, See, Reinisch (2004), p. 51 et seqq. 438 Gazzini (2008), p. 178. 439 Cremades and Madalena (2008), p. 532. 440 Art. 29, Morocco-Nigeria BIT, 2016. 441 See Art. 29(1), Morocco Nigeria BIT, 2016. 442 See Art. 29(2) and Art. 4, Morocco-Nigeria BIT, 2016. 443 For example, see Art. 28(7) of the Morocco-Nigeria BIT, 2016 which states that: “It shall not be permitted to submit a dispute to an Arbitral Tribunal pursuant to the provisions of this Article, if the same dispute was submitted to another Arbitral Tribunal which is still under hearing by that Tribunal save where there is consolidation.” As per this provision, submission of a state-to-state arbitration dispute on the same issue should not be possible if there is an existing ongoing arbitration, but interestingly it provides that this might be a possibility where there is consolidation. Now, when a state-to-state arbitration claim on the same dispute cannot be filed to begin with, it

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parties may consent to a consolidation of proceedings through an extraordinary agreement between them and when concluded, such an agreement may aid in consistent decisions.444

4.5.3.2.2

Temporary (or Permanent) Restriction and Temporary Stay on Proceedings

As discussed above, a temporary restriction on the initiation of state-to-state arbitration proceedings due to ongoing ISAT proceedings through clauses similar to Art. 27(1) ICSID Convention is now seen in a few IIAs. This restriction may become permanent if the award by the ISAT is enforced or the dispute is resolved by the ISAT.445 There may also be a temporary bar on submitting state-to-state arbitration proceedings of any nature (not merely diplomatic protection) related to a particular dispute when the same dispute is already under consideration in ongoing proceedings before an ISAT based on IIA provisions.446 In very rare cases, there may also be a permanent bar on submitting a dispute to an SSAT once it has been submitted to any other arbitral tribunal (fork in the road clause).447 As a new development, IIAs also now have started to include clauses for a temporary stay on investor-state arbitration proceedings to coordinate parallel proceedings. For example, the Canada-China BIT, 2012 and Canada-Hong Kong BIT explicitly state that the ISAT proceedings would not move ahead if an SSAT proceeding has been commenced as a part of the ‘filter mechanism’ present in the given treaties. They also explicitly state the decision of the SSAT in these cases would be binding on the ISAT.448 Among other possibilities, a few US FTAs (NAFTA, US-Chile FTA, Central American FTA) present an interesting option of a division of claims between stateto-state arbitration and investor-state arbitration.449 Under these agreements claims

would be interesting to know, how it could be foreseen that a consolidation may be required. On a bare reading of all the provisions of the treaty taken together, as of now prima facie, the only possible situation when a situation for consolidation may emerge is when a state-to-state arbitration precedes an investor-state arbitration claim on the same dispute. 444 Hansen (2010), p. 548. 445 On this see, Schreuer (1997), p. 222. 446 For such a provision which prohibits state-to-state arbitration proceedings on the same dispute temporarily, See, Art. VIII(8), Turkey-Turkmenistan BIT; Art. X(9), Qatar-Turkey BIT; Art. 9 (6) Qatar-Montenegro BIT, 2009, Art. 9(7), Mongolia-Qatar BIT, 2007; Art. 11(6), QatarMacedonia BIT, 2011. 447 For such a provision which prohibits state-to-state arbitration proceedings on the same dispute permanently, See, Art. 15(6), Argentina-Qatar BIT. On how this provision may be argued in practice with a view to bypass the restriction see, Lubambo (2017), p. 83. 448 Art. 20(2)(a), Canada-China BIT, 2012; Art. 22(3), Canada-Hong Kong BIT; See also, Titi (2017), p. 44. See also, Kidane (2016), p. 161. 449 Price (2005), p. 75.

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on subjects such as National Treatment (NT), MFN and Fair and Equitable Treatment (FET) relating to the financial services sector can only be brought through SSAT,450 while expropriation may be dealt through an investor-state arbitration proceeding.451 This significantly reduces the possibility of parallel disputes since the disputes have a specified forum depending on their subject. Considering all the situations, it can be summarised that: 1. Parallel proceedings may emerge by the commencement of both investor-state arbitration and state-to-state arbitration proceedings in any sequence 2. A fork in the road clause which binds only an investor to select one remedy may not be completely effective in preventing a home state claim considering that the commitment from the investor may not bind the home state.452 Based on the assessment of the current provisions and their shortcomings, two clauses are suggested for inclusion in future IIAs to prevent (1) the investor, (2) home state of the investor, and (3) the host state, from commencing any form of parallel state-to-state arbitration or investor-state arbitration proceeding during another ongoing proceeding to the other type. First, it is recommended that a clause similar to one seen in the new TurkeyCambodia BIT can be included to prevent state-to-state arbitration proceedings during ongoing investor-state arbitration. The particular clause reads as follows: A dispute shall not be submitted to an international arbitration tribunal under the provisions of this Article, if a dispute on the same matter has been brought before another international arbitration tribunal under the provisions of Article 9 and is still before the tribunal. This will not impair the engagement in direct and meaningful negotiations between both Contracting Parties.453

States may choose to keep room for exceptional situations without affecting the effectiveness of the clause by providing a possibility for recourse to state-to-state arbitration concerning very limited issues, which have not been dealt or argued through investor-state arbitration.454 The key feature of this provision is that it refers directly to the dispute in question as the key factor to determine the permissibility of a proceeding, thereby minimising the possibility for a parallel proceeding based on grounds such as separate parties. Second, it is recommended that a new clause may be included in future IIAs to prevent ISATs from accepting claims on disputes which are already under

450

Art. 1414 NAFTA; Art. 12.17, US-Chile FTA, 2003; Art 12.18, CAFTA-DR; Price (2005), p. 75. 451 Art. 1401(2) NAFTA; Art. 12.1(2) US-Chile FTA, 2003; Art 12.1(2)(b), CAFTA-DR. 452 For a discussion on fork in the road clauses in investor-state arbitration see, Crivellaro (2005), p. 96. 453 Art. 10(8), Turkey-Cambodia BIT. Article 9 here refers to Investor state arbitration. Similar provision is also seen in Art. VII(8), Cuba-Turkey BIT, 1997. 454 For an example, See, Art. VIII(7) USA-Senegal BIT.

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adjudication by an SSAT. A proposed form of such a clause which has already been seen in the Belarus-India BIT, 2018455 may read as follows: No investor shall be able to commence an investor state arbitration proceeding in respect of a dispute which is a subject of an ongoing state-to-state arbitration under this treaty. This will not prevent the investor from commencing investor state arbitration proceedings under this treaty after the termination or completion of the state-to-state arbitration, in case no diplomatic protection claim was raised by the home state of the investor on his behalf in relation to the dispute in question.

While this clause acts as a bar to parallel ISAT and SSAT proceedings, it also protects the interests of an investor to recover his claims in case his home state refrains from doing so. Hence, it balances the interests of procedural integrity while ensuring that there is no effect on the rights of the investor sought to be protected through an IIA.

4.5.3.3

Provisions for Parallel Proceedings of Courts and Joint Interpretative Committees

To deal with any possible overlap between treaty interpretation bodies and ISATs, a group of recent investment agreements contains explicit provisions regarding coordination of ISAT proceedings and ongoing state-to-state interpretative procedures. These provisions are seen in the Korea-New Zealand FTA and also in the Russian Regulation.456 While the Korea-New Zealand FTA provides 60 days to the Joint Commission formed under the treaty for interpretation of a treaty provision before permitting the ISAT to decide on its own,457 the Russian Regulation states that ISAT proceedings cannot be commenced or if they have already commenced, must be put on hold till the state parties have decided on the interpretation of the treaty.458 The aforementioned examples which provide for coordination between ISATs and treaty bodies may also be replicated for state-to-state arbitration and the treaty bodies as seen in the Israel-Myanmar BIT and the Israel-Azerbaijan BITs. These IIAs allow recourse to the Joint Committee or Bilateral Commission before the stateto-state arbitration process for a definite period of time and allow state-to-state arbitration proceedings only after the expiry of a 6 month time period for the conduct of these proceedings.459 Similar provisions may also be included in future IIAs if they provide powers to both SSATs and treaty-based interpretative bodies for interpretation of the IIA.

455

Art. 13.4(ii), Belarus-India BIT, 2018. Titi (2017), p. 40. 457 Art. 10.25(2), KNZFTA. 458 See Art. 49 of Decree of the Government of the Russian Federation of September 30, 2016 No. 992; See also, Titi (2017), p. 40. 459 Art. 9(1), Israel-Myanmar BIT; Art. 9(1), Israel-Azerbaijan BIT. 456

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With regards to parallel state-to-state arbitration proceedings and domestic court proceedings under an IIA, it may be recommended that provisions similar to the ones suggested above for coordination between ISATs and SSATs may be included in the IIAs. This suggestion is based on the understanding that the option for recourse to domestic courts under IIAs is generally included as an alternative to investor-state arbitration for the investor,460 or rarely as an exclusive mode of binding ISDS,461 and not as an alternative for state-to-state arbitration between state parties. Notably, these provisions may only be required for the IIAs which provide recourse to domestic courts for enforcement of the protection standards under the agreement or for countries where domestic courts accept claims under IIAs.462 While parallel domestic court and SSAT proceedings based on the same IIA may be a remote possibility, certain states may have foreseen the possibility and have included a clause that seeks to bar diplomatic protection or international claims by a home state during ongoing domestic court proceedings and vice versa.463 As suggested above, this clause mirrors a provision included for preventing parallel state-to-state arbitration and investor-state arbitration proceedings.

4.5.3.4

Good Faith and Abuse of Process as Grounds for Rejection of Claims

Good faith is a fundamental principle under public international law which is also included in the process of treaty interpretation under the VCLT (Art. 31(3)).464 The ISATs and the SSATs may use the universally accepted principles of abuse of process and good faith to resolve any situation when an SSAT or an ISAT has been called about to accept jurisdiction in a dispute to undermine another parallel proceeding.465 The concept of an international public policy has also been proposed based on the need to prevent abuse of process but is debatable.466 The principle of ‘abuse of rights’ relates to a State’s use ‘of its right in an arbitrary manner in such a way as to inflict upon another State an injury which

460

For example, See, Art. 8 (2), Korea-Mauritania BIT; Art. 11(2), Romania-Kazakhstan BIT, 2010. 461 For example, See, Art. 13(2), China-New Zealand BIT, 1988. 462 For examples of an IIA which does not provide for recourse to domestic courts see, KazakhstanNetherlands BIT, 2002; Countries where IIAs standards have been used to provide protection by domestic courts include Venezuela and Argentina. On this see, Hamida (2009), p. 73 et seqq. 463 See, Art. 10, Chile-New Zealand BIT; Art. 25(13)(b) Brazil-UAE CFIA. 464 Reinhold (2013), p. 61 et seqq.; Ly and Sheppard (2004), p. 22; Lo (2013), p. 18; Petrochilos (2016), p. 311 et seq.; Georgilas (2016), p. 321; Sanja (2012), p. 208. 465 Kulick (2016), p. 149; Lo (2013), p. 17; Sheppard (2005), p. 236. 466 Hober (2005), p. 260 et seqq.; For a discussion on the uncertainty on the existence of an international public policy in arbitration, See, Petrochilos (2016), p. 311 et seq.

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cannot be justified by legitimate considerations of its own advantage’.467 It can take place when: i. a State exercises its right in such a way as to hinder another State enjoying its own rights; ii. a State exercises a right for an end which it was not intended for (improper purposes); iii. arbitrary exercise of a right causing injury to another party.468

The utility for good faith to resolve parallel proceeding situation emerges from the fact that it is a principle present in international law, contract law and domestic law of most countries and hence applies generally to all forms of dispute resolution including state-to-state arbitration and investor-state arbitration.469 The principle of good faith can be used to regulate parallel proceedings through its recognition by the applicable SSAT or ISAT which has been called upon to deal with the same dispute in a second later proceeding. If a state-to-state arbitration proceeding (which is a second proceeding) is started for a dispute after the initiation of an investor-state arbitration proceeding, the SSAT should put the proceedings in hold based on the good faith principle till the investor-state arbitration proceedings are over and then decide on whether to continue the proceedings if any issue was not resolved in the preceding proceeding.470 In case of diplomatic protection claims, it must be evaluated if multiple parties are being represented by the state in the state-tostate arbitration proceeding (which is the second proceeding). In such a situation, state-to-state arbitration may be continued if the investor-state arbitration which has already been initiated does not cover the claims of all the parties.471 It must be noted here that the rule of good faith supported by the principle of estoppel may be used by an arbitral tribunal to put a proceeding on hold if no alternatives are available such as Art. 27 ICSID Convention or a similar provision in the IIA in question.472 In the alternative when a state-to-state arbitration has been commenced for a diplomatic protection claim, the later investor-state arbitration claim by the same investor for the same violation of rights may be suspended based on the good faith principle till the SSAT has decided on the claim.473 This may not be applicable if there are other investors who are not covered by the diplomatic protection claim and they may be allowed to proceed with their investor-state arbitration claim.474 The principle of good faith prohibits the abuse of rights.475 The principle of ‘abuse of process’ is also closely related to ‘abuse of rights’ and has been defined as

467

Gaillard (2017), p. 17 et seqq. Reinhold (2013), p. 49. 469 Peters (2003), p. 12; Lo (2013), p. 20; Reinhold (2013), p. 41. 470 Lo (2013), p. 19. 471 Lo (2013), p. 19. 472 Price (2005), p. 76; Juratowitch (2008), p. 34; On the close relation between estoppel and good faith, see, Sanja (2012), p. 215 et seqq.; Reinhold (2013), p. 53. 473 Lo (2013), p. 21. 474 Lo (2013), p. 21. 475 Reinhold (2013), p. 49. 468

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an application of the ‘abuse of rights principle,’ and ‘consists of the use of procedural instruments or rights by one or more parties for purposes that are alien to those for which the procedural rights were established’.476 The abuse of process doctrine works in a similar manner and suggests that the inherent power of a court or an arbitral tribunal allows it refuse jurisdiction to prevent an abuse of process if it is necessary to ‘prevent unfairness to another party’ or if it brings disrepute to the process of administration of justice.477 It has been considered as an abuse of process to bring about claims against a host state in multiple proceedings to multiply the chances for a favourable award.478 Both these processes mentioned above are recognised in international law479 and must be considered as measures of last resort and is based on discretionary powers of the tribunal.480

4.5.3.5

Provision of Claims Against Violation of Obligations Under the Treaty

A recent innovation seen in the Belarus-India BIT, 2018 is the inclusion of a specific provision that allows for recourse to dispute resolution provisions (including stateto-state arbitration) by the host state, in case the home state of the investor fails to respect its obligations under the BIT. This includes an obligation on the home state to not commence diplomatic protection claims or other international claims until the host state fails to comply with an award.481 This provision acts as a disincentive for the home state to commence any proceedings to influence the ISAT proceedings by an investor since the home state understands that it may be found in violation of its obligations. Inclusion of similar provisions in IIAs may reduce collusive and frivolous action by home states in the form of parallel state-to-state arbitration (diplomatic protection claim or otherwise) and allow the smooth conduct of ISDS proceedings.

4.6

Interim Conclusions

The utilisation of interpretative decisions from SSATs as binding interpretations for future ISATs may face significant hurdles owing to the lack of an explicit declaration of the binding nature of the awards. State parties may choose to resolve this issue through explicit inclusion of a provision in their IIAs recognising the binding nature

476

Gaillard (2017), p. 17 et seqq. Sanja (2012), p. 209 et seqq.; Sheppard (2005), p. 236. 478 Gaillard (2017), p. 8. 479 Gaillard (2017), p. 18. 480 Sheppard (2005), p. 236 et seq. 481 See, Art. 31.1, Belarus-India BIT, 2018. 477

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of awards for future ISATs. Use of SSAT awards as authoritative interpretations or precedents would be acceptable only to a limited degree. While an SSAT award is final, there are still limited possibilities for annulment of the awards, which may affect the enforcement of the awards. To resolve this problem, States should include explicit provisions in their IIAs to regulate enforcement and annulment proceedings. Parallel proceedings between SSATs and other dispute resolution forums such as ISATs and domestic courts may be regulated through amendment of the treaties for the inclusion of specific provisions to resolve such situations.

Chapter 5

Coexistence of State-to-State Arbitration Under IIAs with Other Forums of Dispute Resolution and Treaty Interpretation

5.1

Background

State-to-state arbitration is not the sole mode of dispute resolution for resolution of interstate disputes arising from IIAs. States may also be a party to other international treaties and agreements through which they agree to submit the jurisdiction of other forums to resolve disputes between themselves. In many situations, the scope of jurisdiction between these forums may overlap. This chapter discusses the alternative forums for resolution of disputes regarding interpretation or application of IIAs and their co-existence with state-to-state arbitration.

5.2

Co-existence of State-to-State Arbitration in IIAs and Other International Forums for Resolution of Investment Disputes

State-to-state arbitration coexists with many other international forums that can also be possibly used for resolution of disputes which are covered under the ambit of state-to-state arbitration. The co-existence of state-to-state arbitration with these forums is highlighted below.

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 A. Hazarika, State-to-state Arbitration based on International Investment Agreements, European Yearbook of International Economic Law 10, https://doi.org/10.1007/978-3-030-50035-1_5

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5.2.1

5 Coexistence of State-to-State Arbitration Under IIAs with Other Forums of. . .

State-to-State Arbitration and the New Multilateral Investment Court

The new multilateral investment court (MIC) system proposed by the European Commission1 could potentially coexist with an SSAT system with minor modifications. Such an MIC proceeding may run parallel to state-to-state proceedings and the decisions of an SSAT interpreting the provisions would also probably be binding on an MIC.2 There is no system of existing rules regarding the coordination of proceedings between an SSAT formed under the IIAs and an international tribunal (or an MIC) formed under IIAs.3 The existing system calls for the interpretation of the treaties by the new tribunal (for recent EU investment agreements) under customary rules of interpretation of public international law, as codified in the VCLT.4 It also calls for the final decisions on any interpretation to be made by a Committee, and the Committee may potentially be substituted with an SSAT empowered with treaty interpretation powers to provide greater stability and reliability as a Committee may consist of representatives of the member states which may lead to a hidden growth of political factors behind interpretations. While it has been suggested that the MIC be made competent for state-to-state disputes,5 it is unlikely to be implemented based on the existing practice of both the EU and its member states who have put forward the possibility of resolution of investor-state disputes through the MIC but have retained the option for state-to-state arbitration for disputes regarding the interpretation or application of a treaty.6 Additionally, this may not be completely practical as it would require replacement of a compromissory clause which has gained worldwide acceptance, in favour of an untested system. The specific situation of selection between IIAs and international courts is particularly interesting since a few IIAs including the first known BIT (the Germany-Pakistan BIT, 1959) had included recourse to a court (the ICJ) as an option 1 Council of the European Union, Negotiating directives for a Convention establishing a multilateral court for the settlement of investment disputes, 12981/17 ADD 1 DCL 1, Brussels, 20 March 2018; Art. 3.12, EU-Singapore IPA, 2018; See also, Alvarado Garzon (2019), p. 478. 2 See also, Bungenberg and Reinisch (2018), p. 72. 3 Gallo and Nicola (2015–2016), p. 1136. 4 Art. 3.13, EU-Singapore IPA, 2018. 5 Bungenberg and Reinisch (2018), p. 73; Brown (2017), p. 689; Kaufmann-Kohler and Potesta (2016), p. 67; European Union (2019), p. 6. 6 New Investment Tribunal for Investor state disputes under: Art. 3.9, EU-Singapore Investment Agreement, 2018; Art 3.38, EU-Vietnam Investment Agreement; Art. and Art. 8.27, CETA and Multilateral Investment Court under Art. 15, 2018 Netherlands Model BIT. However possibility for state-to-state arbitration for resolution of state-to-state disputes have been retained under all these agreements as seen under: Art. 3.28, EU-Singapore Investment Agreement, 2018; Art 3.5, EU-Vietnam Investment Agreement; Art. and Art. 29.6, CETA; Art. 25, 2018 Netherlands Model BIT.

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but later IIAs have moved away from courts in favour of state-to-state arbitration and this practice continues till date. A desire for greater control over proceedings by parties has been put forward as a key reason for the growth of state-to-state arbitration.7 There is even a fleeting opinion that the designation of a state party as a defendant in a court is not a preferred option for states.8 Considering that states have been unwilling to appear before the ICJ as seen from the shift to state-to-state arbitration in compromissory clauses of IIAs, it is highly doubtful that they will agree to appear before another international court. In light of this background, it is likely that a state-to-state arbitration tribunal and the new Multilateral Investment Court (MIC) may coexist but will continue to perform completely different functions. While the MIC (when it comes into existence) will deal with investor claims against the state, the SSAT will deal only with issues of interpretation and application of the treaty between two member states. In actual practice, the recent treaties which contain provisions for a MIC or an appeals mechanism have not provided them with the jurisdiction to deal with state-to-state disputes. Considering that the provisions for state-to-state arbitration coexist in IIAs with MIC and/or Appeals mechanism provisions, it is most likely that the drafters of the IIAs had agreed to the continued relevance of state-to-state arbitration in these treaties, even in presence of a future MIC. There is a glimmer of hope for a possibility of resolution of inter-state disputes based on an IIA, also through an MIC or a similar court since the Australia-Uruguay BIT, 2019 has made a rare mention of the possibility of use of international tribunals as an alternative to an SSAT for resolution of disputes between the state parties.9 Even then, at present, considering that such provisions for use of permanent bodies have not received widespread acceptance, an ad-hoc state-to-state arbitral tribunal for the interpretation of the treaties would still retain a key role as the interpreting authority for disputes regarding interpretation and application of the treaty.10 State parties may, however, choose a ‘permanent arbitration institution’ instead of a purely ad-hoc arbitral tribunal, but in any case, continue with the path of arbitration rather than adjudication by judges.11 This in no way closes down the possibility for a future MIC from also accepting jurisdiction for claims regarding interpretation and application of IIAs, if state parties could come to an agreement for the same. In the past, state parties had included an option to agree to provide jurisdiction to the Arab Investment Court for interstate disputes based on IIAs between them even when the IIA may originally have provided recourse to arbitration or another international court.12 A similar agreement may be possible for recourse to the MIC in the future, but till the time such a system

7

Murphy et al. (2013), p. 43; Schill (2015), p. 4. Chase (2015), p. 226. 9 Art. 13(2) Australia-Uruguay BIT, 2019. 10 Posner and Walter (2015), p. 393. 11 Art. 19.1, India-Brazil ICFT. 12 Art. 30, Arab Investment Agreement. 8

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comes into existence, questions regarding parallel proceedings and hierarchy of the MIC, or the position of an investor-state arbitration appeals mechanism in comparison to the SSAT, need to be clarified through explicit provisions in the future treaties and ideally through a plurilateral amending treaty for the few existing agreements which have already been signed and provide recourse to an MIC.

5.2.2

State-to-State Arbitration and the Appellate Body for Investment Disputes

The establishment of an appellate body for international arbitration disputes has been an ongoing discussion,13 but stated to be difficult owing to technical, procedural and political issues but it has been proposed for some time, albeit with occasional oppositions.14 Even then, there is an agreement that several problems that have arisen out of the ‘perceived lack of consistency within international investment arbitration decisions’ need to be resolved.15 A major reason for this inconsistency is perceived to be the ‘failure’ of a tribunal to ‘properly interpret the words of a treaty’.16 Subsequently, any manner of establishing consistency in the decisions of the tribunals and interpretation of treaties could be welcome, including through an appellate mechanism.17 The appellate body could solve the problem of non-harmonious interpretation of the text by multiple arbitral tribunals through the development of a ‘general set of principles’ which could build consistent case law even in the face of difference of exact text of the agreements.18 At present no such appellate mechanism exists even in ICSID where awards may go through an annulment procedure.19 The role of the new appellate body and a state-to-state arbitral tribunal is expected to be separate and the functions will in most situations not overlap.20 While an appellate body will come into play after the decision of an investor-state arbitration

13

Bungenberg and Reinisch (2018), p. 95 et seqq. Reinisch (2016b), p. 20; Franck (2005), p. 1617 et seqq.; Bottini (2015), p. 466 et seqq.; Appleton (2013), p. 24; Calamita (2017), p. 604 et seq.; Moul (2015), p. 914; For Opposition to an Appellate Body, See, Nilsson and Englesson (2013), p. 576 et seqq. 15 Hober (2015), p. 63 et seq.; Appleton (2013), p. 23; Bottini (2015), p. 466 et seqq.; Franck (2005), p. 1606 et seqq. 16 Appleton (2013), p. 25. 17 Celik (2012–2013), p. 57; Cremades and Madalena (2008), p. 538; D’Agostino and Jones (2007), p. 238 et seq. For a discussion on the issues to be considered before formation of an Appellate mechanism, see, Feldman (2017), p. 534 et seqq. 18 Bouwhuis (2016). 19 Cate (2013), p. 426. 20 For a contrary opinion, Kulick (2016), p. 150. 14

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proceeding has been declared, a state-to-state arbitration is more likely to occur prior to investor-state arbitration to deal with disputes on the interpretation of treaties.21 The SSAT may perform certain functions similar to an appellate court such as clarifying legal questions to prevent them from being introduced again in another ISAT and leading to possible conflicting decisions.22 There still exists a small possibility for overlap between the ambit of both forums, particularly if a state had tried to initiate a state-to-state arbitration before or during an investor-state arbitration proceeding on the same dispute. In these cases, the rules on parallel proceedings are expected to apply and the SSAT is expected to consider the appellate body proceedings as an investor-state arbitration proceeding and vice versa and act accordingly. An appeal mechanism will be used by the investors or the host states who have been involved in an investor-state arbitration against an ISAT award, while a stateto-state arbitration will only be used between two states who are party to the BIT.23 The text of the existing treaties which deal with an appellate court is silent on a possibility of appeals against SSAT decisions in the new appeals tribunal. They only cover the possibility of a multilateral investment court dealing with investor-state disputes. The Appellate Tribunal prescribed in the text of the CETA, EU-Singapore IPA and EU-Vietnam IPA does not cover appeals proceedings for the state-to-state dispute settlement process within the given treaties. There is no clarity on the area as to whether the SSAT decisions should be binding on the appellate body or vice versa. The state parties will have to include appropriate provisions in an agreement indicating whether the SSAT decisions would be binding on the appellate body, in which case it should also be able to review if the ISAT complied with the SSAT decision in its award.24 The proposed appellate investment tribunal is also unlikely to affect the role of the state-to-state arbitral tribunals as the sole authority to deal with disputes on the interpretation of treaties owing to the standard text of the treaties, which provide it as the sole mode of dispute resolution for these issues. This appellate body may occupy a more prominent role in case of a multi-party investment treaty as it would reflect the will of all the parties instead of just two parties as seen in an SSAT based on an IIA. There may also be situations when an investor has tried to use investor-state arbitration and the appellate body to seek damages from a host state, fails, and then seeks the help of the home state to move for diplomatic protection through an SSAT. This situation is not possible in case of an ICSID arbitration, as the ISAT decision

21 An appeal is only foreseen against an ISAT decision in the appellate mechanism, on this, see, See also, Bungenberg and Reinisch (2018), p. 190; For an example of the proposed functioning of the Appeal Tribunal, See, Art. 3.10, EU-Singapore Investment Agreement, 2018. 22 Gaukrodger (2016b), p. 12. 23 Based on the known Appeal Mechanisms proposed in Art. 28(10), 2012 US Model BIT and Art. 8.28 CETA; See also, Calamita (2017), p. 586 et seqq. 24 Bungenberg and Reinisch (2018), p. 73.

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would be the final binding decision.25 In the case of a non-ICSID arbitration, the SSAT may evaluate the decisions of the ISAT and the appellate body while ensuring that there is no abuse of process. In any event, the need for an appellate mechanism for investor-state arbitration has been supported26 and state-to-state arbitration can also perform this role in the future in a proposed international appeals mechanism (if ever considered). The possibility of using arbitration as an appeals mechanism is already seen in the WTO where arbitration can be initiated as an appeal against a panel report.27 For investorstate arbitration, in such a mechanism, the home state of the investor may have the sole right to determine whether a potentially adverse decision under ISDS must be appealed to the new appeals court/tribunal, where the home state itself will pursue the claim against the host state. The need for whether an appeal is justified in a given case may be determined by the state to prevent frivolous appeals. An appellate body or an appeals procedure, however, appears unrealistic in ICSID proceedings because of the possible violation of Art. 53(1) of the ICSID Convention which would either need to be amended or ‘circumvented.’28

5.2.3

State-to-State Arbitration and the CJEU

5.2.3.1

Existing Situation

The CJEU as the sole interpreting authority for European law has sought to protect its jurisdiction from other incompatible dispute resolution mechanisms.29 The CJEU has exclusive jurisdiction to deal with any arbitration clause concluded by the EU as seen in Art. 272 TFEU which includes international agreements with third countries and international organisations.30 It also has jurisdiction on disputes between member states on the subject matter of the EU treaties.31 In light of this background, the possibility for use of an SSAT by the EU or a member state for the interpretation of an IIA, particularly, an intra-EU BIT appears to be a matter of debate.

25

Broches (1995), p. 218. Chase (2015), p. 227; For opposition to an appellate mechanism, See, Andelic (2014). 27 Weiniger and Sewlikar (2018). 28 Schreuer (2008), p. 209; Schreuer (2013), p. 400. 29 Gáspár-Szilágyi (2018), p. 360 et seq. 30 Art. 272 TFEU: The Court of Justice of the European Union shall have jurisdiction to give judgment pursuant to any arbitration clause contained in a contract concluded by or on behalf of the Union, whether that contract be governed by public or private law. See also, Herrmann (2014), p. 579. 31 Art. 273 TFEU: The Court of Justice shall have jurisdiction in any dispute between Member States which relates to the subject matter of the Treaties if the dispute is submitted to it under a special agreement between the parties. 26

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While adjudicating investment disputes, ISATs regularly tackle issues of domestic constitutional law32 and even European Law and an SSAT performing a similar role is expected to deal with similar issues. The problem arises because the case-law of the CJEU states that an international agreement entered into by the EU or its member states cannot affect the autonomy of the EU legal order.33 Such a problem was identified by the CJEU in the Achmea case34 concerning ISATs based on intraEU BITs and they were found to be incompatible with the EU legal system as they were found to have no power to be a part of the preliminary ruling procedure which is often used by the member state courts.35 The legal system based on ISATs was found to be lacking full effectiveness although they might have had to deal with interpretation and application of EU law.36 With the judgment, the legality of the investor-state arbitration clause in more than 200 intra-EU BITs is itself in question.37 A similar problem may arise for SSATs and their coexistence with the CJEU and the role of the SSATs as treaty interpreting bodies may be deemed incompatible with EU law.38 It is unknown whether only intra-EU BITs would be affected or even extra-EU BITs with an EU member state as a party could be affected.39 Although generally, states cannot cite internal laws as impediments to fulfilment of their obligations under international law,40 the unique status of European Union Law can present different hurdles. The CJEU could determine that its monopoly as the sole interpreting authority of EU law could be affected if the SSAT could rule on issues that are covered by the exclusive jurisdiction of the CJEU.41 While not impossible it is unlikely, since, the CJEU has indicated in Opinion 2/15 that a state-to-state dispute resolution system “is not liable to remove disputes from the jurisdiction of the courts of the Member States or of the European Union” and is hence distinguishable from investor-state arbitration.42 Since the CJEU has recognised that “an international agreement providing for the creation of a court responsible for the interpretation of its provisions. . .is not, in

32

de Chazournes and McGarry (2014), p. 863. Cimiotta (2018), p. 339. 34 CJEU, Case C-284/16, Slowakische Republik (Slovak Republic) v Achmea BV, ECLI:EU: C:2018:158. 35 Gáspár-Szilágyi (2018), p. 361. 36 Cimiotta (2018), p. 340. 37 Hess (2018), p. 9; Cimiotta (2018), p. 338; Deutsches Aktieninstitut (2018), p. 2; For a contrary view stating that intra-EU BITs are not affected by the Achmea decision, see ICSID, Case No. ARB/13/27, Marfin Investment Group Holdings S.A. and others v. Republic of Cyprus, Award, 26 July 2018, para 594 et seqq.; Nagy (2018), p. 996. 38 Cimiotta (2018), p. 340; Herrmann (2014), p. 574; See also, Lavranos (2013), p. 139 et seqq. 39 Cimiotta (2018), p. 342. 40 de Chazournes and McGarry (2014), p. 863. 41 Schill (2013), p. 385; See also, Lavranos (2013), p. 139. 42 CJEU, Opinion 2/15, ECLI:EU:C:2017:376, para 300. 33

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principle, incompatible with European Union law,”43 while still maintaining that it has not examined the state-to-state dispute resolution provision with regards to compatibility with the autonomy of EU law,44 it can be considered that formation of an SSAT in an investment agreement particularly between the EU and a non-EU member is still an issue which has to be finally decided by the CJEU.45 Nevertheless, the Court has recognised that “the competence of the European Union in the field of international relations and its capacity to conclude international agreements necessarily entail the power to submit itself to the decisions of a court which is created or designated by such agreements as regards the interpretation and application of their provisions”,46 thereby indicating a possibility for inclusion of such provisions in new EU investment agreements which are concluded by the European Commission and ultimately the possibility of formation of an SSAT based on such agreements.47 In actual scenario, the possibility for the formation of an SSAT based on an intraEU BIT is relatively thin because the flow of investments within the EU is a part of the EU internal market law and hence comes within the jurisdiction of the CJEU.48 The member states and the European Commission have shared competence to deal with such issues and member states would not be able to exercise their powers to form an SSAT under an intra-EU BIT without violating EU law or alternatively without informing and consulting with the European Commission.49 The Commission which has repeatedly asked the EU members states to terminate the intra-EU BITs is unlikely to accept such a request.50 While few extra-EU BITs signed by member states continue to remain in force,51 a state-to-state arbitration based on an old EU member state IIA with a third country is also unlikely considering the concerns which have been put forward by the CJEU regarding interpretation of both the agreement and EU law by an ISAT, by classifying it as “a body which is not part of the judicial system of the EU is provided for by an agreement which was

43

CJEU, Opinion 1/09, ECLI:EU:C:2011:123, para 74. CJEU, Opinion 2/15, ECLI:EU:C:2017:376, para 301. 45 CJEU, Opinion 2/15, ECLI:EU:C:2017:376, para 300; See also, European Commission (2017a), p. 2 et seqq. 46 CJEU, Opinion 1/09, ECLI:EU:C:2011:123, para 74; See also, CJEU, Case C-284/16, Slowakische Republik (Slovak Republic) v Achmea BV, ECLI:EU:C:2018:158, para 57; See also, CJEU, Opinion 2/15, ECLI:EU:C:2017:376, para 299; ECJ, Opinion 1/91, ECLI:EU:C:1991:490, para 39 et seq. 47 On the issue of the CJEU considering that an external court which issues decisions on interpretation or application of an international agreement which is an integral part of the Community legal order could be compatible with EU law, see, ECJ, Opinion 1/91, ECLI:EU:C:1991:490, para 39. 48 Hess (2018), p. 9 et seqq., See also, CJEU, Case C-284/16, Slowakische Republik (Slovak Republic) v Achmea BV, ECLI:EU:C:2018:158, para 58; Lavranos (2013), p. 139 et seqq. 49 Weiss and Kaupa (2014), p. 13; Munari and Cellerino (2018), p. 87; European Commission (2018); See also, ECJ, C-459/03—Commission v. Ireland, ECLI:EU:C:2006:345, para 182. 50 Borovikov et al. (2018), p. 176; See also, European Commission (2018). 51 Borovikov et al. (2018), p. 173. 44

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concluded not by the EU but by Member States”52 is equally valid for an SSAT formed through an old member state IIA with a third country.53 The Commission, in any case, continues to maintain that there is no effect of the Achmea judgment on IIAs with third countries.54 This is in line with its pre-Achmea assessment that the Commission will be able to conclude IIAs with third countries (non-EU) with both investor-state arbitration and state-to-state arbitration clauses and interstate disputes may emerge from these IIAs.55

5.2.3.2

Outlook for the Future

The possibility of an overlap between the powers of the CJEU and an SSAT exists, particularly if the SSAT is called upon to decide on issues of EU law.56 These claims based on an intra-EU BIT are however unlikely considering the probable violation of EU law by the EU member state which chooses this path, which is a more serious risk, thereby encouraging them to avoid this option.57 Even then it is not entirely impossible considering that EU member states have sought the assistance of an SSAT to decide on the interpretation and application of a treaty in the recent past58 and also for a border dispute.59 The ‘Declaration’ by the EU member states after the Achmea judgment of the CJEU about the plan to terminate all intra-EU BITs has however meant that state-to-state arbitration disputes based on the intra-EU BITs will be a very rare prospect.60 It is understood that compromissory clauses providing for state-to-state arbitration will be included in future EU investment agreements based on the Communication from the Commission: ‘Towards a comprehensive European International

52

CJEU, Case C-284/16, Slowakische Republik (Slovak Republic) v Achmea BV, ECLI:EU: C:2018:158, para 58. 53 On the possible effects of the Achmea judgment on extra EU BITs see, Ankersmit (2018), p. 6; Gáspár-Szilágyi (2018), p. 367 et. seqq.; Niemelä (2018). 54 European Commission (2018). 55 Reinisch (2013a), p. 182. 56 See, Gáspár-Szilágyi (2018), p. 366; Lavranos (2013), p. 139 et seqq. 57 Munari and Cellerino (2018), p. 87; Lavranos (2013), p. 139 et seqq. 58 PCA, Award in the Arbitration regarding the Iron Rhine (“IJzeren Rijn”) Railway between the Kingdom of Belgium and the Kingdom of the Netherlands, Decision of 24 May 2005, RIAA, Vol. XXVII, pp. 35–125. 59 PCA, Award in the Arbitration between Croatia and Slovenia, PCA Case No. 2012-04, 29 June, 2017. 60 European Commission, Declaration of the Member States of 15 January 2019 on the legal consequences of the Achmea judgment and on investment protection, https://ec.europa.eu/info/ publications/190117-bilateral-investment-treaties_en (Accessed 24 Mar 2020).

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Investment Policy’ of 2010.61 Based on Opinion 2/15, the Commission has also expressed that it has “exclusive competence with regard to the state-to-state dispute settlement mechanism in relation to investment protection.”62 The Commission can thus use its competence to include the possibility of state-to-state arbitration in the IIAs to be signed by the EU if they are drafted in line with the CJEUs criteria in Opinion 1/91 and later decisions particularly Opinion 1/1763 wherein the CJEU expressed that an external court could be compatible with the EU legal system if it is formed in a way wherein it does not affect the CJEU’s monopoly over the interpretation of EU law,64 and complies with the EU legal order.65 In fact, the CJEU has already determined that the EU may in certain situations validly enter into agreements where it is subject to decisions of bodies outside the EU framework such as the WTO DSB.66 The CJEU reiterated this opinion in the recent Opinion 1/17 wherein it has expressed that an external dispute resolution body formed based on international agreements signed by the EU may be compatible with EU law.67 The Opinion 1/17 has laid down the parameters for an external tribunal to be compatible with the EU legal order. According to the CJEU, the tribunal should not: 1. have “any power to interpret or apply EU law other than the power to interpret and apply the provisions of that agreement having regard to the rules and principles of international law applicable between the Parties” 2. the agreement establishing the tribunals should “not structure the powers of those tribunals in such a way that, while not themselves engaging in the interpretation or application of rules of EU law other than those of that agreement, they may issue awards which have the effect of preventing the EU institutions from operating in accordance with the EU constitutional framework.”68 Based on these requirements and to prevent the potential conflict between the CJEU and an SSAT, it must be explicitly provided that the SSAT should not

61 Communication from the Commission, Towards a comprehensive European international investment policy, Brussels, 7.7.2010, COM(2010)343 final, p. 9; See also, Herrmann (2014), p. 571; Reinisch (2013a), p. 182. 62 European Commission, Proposal for a COUNCIL DECISION on the conclusion of the Free Trade Agreement between the European Union and the Republic of Singapore, Brussels, 18.4.2018, COM (2018) 196 final 2018/0093 (NLE), p. 4. 63 CJEU, Opinion 1/17, ECLI:EU:C:2019:341; CJEU, Opinion 2/15, ECLI:EU:C:2017:376, para 302 et seqq., See also, ECJ, C-459/03—Commission v. Ireland, ECLI:EU:C:2006:345; CJEU, Opinion 1/09, ECLI:EU:C:2011:123; See also, Gallo and Nicola (2015–2016), p. 1146. 64 ECJ, Opinion 1/91, para 39, ECLI:EU:C:1991:490; See also, Bungenberg and Reinisch (2018), p. 113; Schill (2013), p. 385 et. seqq.; See also, Gáspár-Szilágyi (2018), p. 362. 65 CJEU, Opinion 1/17, ECLI:EU:C:2019:341, para 112. 66 CJEU, Opinion 2/15, ECLI:EU:C:2017:376, para 299; See also, Bungenberg and Reinisch (2018), p. 113; Hess (2018), p. 16 et seqq. For other situations where the court deemed an external dispute resolution mechanism to be incompatible, Nagy (2018), p. 1004 et seqq. 67 CJEU, Opinion 1/17, ECLI:EU:C:2019:341, para 106. 68 CJEU, Opinion 1/17, ECLI:EU:C:2019:341, para 119.

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interpret or apply EU law in a dispute.69 It is also suggested that a useful step in the path to ensuring compatibility for an SSAT procedure could also be an internal EU procedure to determine party status as seen in the Berne Convention70 and the Energy Charter Treaty71 which would ensure that the SSAT would not have to deal with EU law issues such as the distribution of competences and responsibility for damages between the member states.72 Under exceptional situations when EU law issues cannot be avoided by an SSAT, it may be possible to follow the path shown in the Brexit Agreement under which an option was included that in case of issues which involve EU law, the SSAT may refer the question to the CJEU to give a ruling on the question and the ruling of the CJEU would be binding on the SSAT.73 This would enable the SSAT to resolve the dispute related to the IIA, while possibly minimising controversies which arose in the past like in the Iron Rhine case where the SSAT determined that the member states will have to refer the disputes on EU law to the CJEU on their own account through Art. 239 TEC (Art. 273 TFEU).74 Last but not the least, as a precaution and to prevent any unwanted overlaps, it may be specified in the rules of the SSAT or within the future IIAs that the SSAT would not be able to apply EU law as the applicable substantive law.75

5.2.4

State-to-State Arbitration and the ICJ

The ICJ and an SSAT may have an overlap in jurisdiction since ICJ was included in a few IIAs as the dispute resolution authority for disputes regarding interpretation or application of the treaty in addition to state-to-state arbitration.76 In addition to these disputes under the compromissory clauses of IIAs, the ICJ also has the jurisdiction to ‘accept all legal disputes’ regarding the ‘the interpretation of a treaty’ under the

69

Bungenberg and Reinisch (2018), p. 113 et seqq.; See also, Herrmann (2014), p. 582. Available in German-UBEREINKOMMEN zum Schutz des Rheins gegen chemische Verunreinigung, Anhang B, Nr. 8, OJ L 240, 19.9.77, p. 44. 71 Statement submitted by the European Communities to the Secretariat of the Energy Charter pursuant to Art. 26(3)(b)(ii) of the Energy Charter Treaty, OJ L 69, 9.3.98, p. 115. 72 Schill (2013), p. 389; See also, Gallo and Nicola (2015–2016), p. 1147; See also, Herrmann (2014), p. 583 et seqq. 73 On this see, Art. 174, Draft Withdrawal Agreement of the UK from EU; See also, Herrmann (2014), p. 582 et seq. 74 PCA, Award in the Arbitration regarding the Iron Rhine (“Ijzeren Rijn”) Railway between the Kingdom of Belgium and the Kingdom of the Netherlands, Decision of 24 May 2005, RIAA, Vol. XXVII, pp. 35–125, para 103; See also, Djeffal (2011), p. 572 et seqq. 75 For a discussion on this see, Bungenberg and Reinisch (2018), p. 113 et seqq. 76 Art. 11, Germany-Pakistan BIT, 1959; Art. VIII, USA-Panama BIT, 1982. 70

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provisions of Art. 36(2)(a) of the Statute of the ICJ, if the state parties so declare.77 A similar provision was also present in Art. 26 of the Statute of the PCIJ.78 For a dispute to be brought before the ICJ on its compulsory jurisdiction under Art. 36(2) of its Statute, both the parties to an IIA would have had to file declarations accepting its jurisdiction.79 In practice, the ICJ has been provided with declarations by many countries to resolve disputes regarding interpretation of a treaty and it may be called upon to decide upon any disputes arising from IIAs between them, particularly if they do not contain alternative dispute resolution provisions for the same purpose. For instance, a potential dispute may originate the LiberiaSwitzerland FCN Treaty of 1963, which does not contain any alternative dispute resolution provision, but both countries have submitted declarations to ICJ accepting its compulsory jurisdiction under Art. 36(2) of its Statute for interpretation of treaties.80 The ICJ may also have jurisdiction on a dispute based on regional agreements that contain a clause conferring jurisdiction on the ICJ.81 Art. XXXI of the Pact of Bogota provides jurisdiction ‘compulsory ipso facto without the necessity of any special agreement. . . ..in all disputes of a juridical nature that arise among’ the members on: ‘a) The interpretation of a treaty; b) Any question of international law; c) The existence of any fact which, if established, would constitute the breach of an international obligation; d) The nature or extent of the reparation to be made for the breach of an international obligation.’82 A similar provision is also present in Art. 1 of the European Convention for the Peaceful Settlement of Disputes. It was initially presumed that disputes would predominantly originate from the compulsory jurisdiction based on the declarations under Art. 36(2) of the Statute of the ICJ,83 but over the years it has emerged that jurisdiction based on compromissory clauses is an important source,84 including for disputes based on FCN treaties such as Nicaragua,85 and Italy (ELSI).86 Based on the compromissory clause under Art. 64 of the ICSID Convention, an SSAT and the ICJ may both be possible forums for a diplomatic protection claim arising from a failure to enforce an ICSID ISAT

77 Statute of the International Court of Justice; See also, Charney (1987), p. 855; See also, Etinski (2016), p. 9 et seq.; Papadaki (2014), p. 561 et seq.; Nolan and Caivano (2010), p. 887. 78 Statute of PCIJ. 79 Perez (2012), p. 475. 80 See, Declarations of Liberia and Switzerland under Art. 36(2) of ICJ Statute dated 20 March 1952 and 28 July 1948 respectively at https://www.icj-cij.org/en/declarations (Accessed 24 Mar 2020). 81 Perez (2012), p. 475. 82 Pact of Bogota. 83 Charney (1987), p. 855. 84 Charney (1987), p. 855 et seq. 85 ICJ, Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), Jurisdiction and Admissibility, Judgment, I.C.J. Reports 1984, p. 392, 428. 86 ICJ, Elettronica Sicula S.P.A. (ELSI), Judgment, I.C.J. Reports 1989, p. 15.

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award.87 This role of the ICJ is based on Art. 64 of the ICSID Convention.88 In practice, the parallel or latter claims on the same dispute when raised before two forums (SSAT and an international court), may be attempted to be tackled through a request for termination of proceedings in the forum approached later through principles of abus de droit, lis pendens, res judicata, or good faith, as discussed in the previous chapter. It must however be noted that the possibility of a claim through the ICJ may be broader than the diplomatic protection claim against non-enforceability under Art. 27 of the ICSID Convention or under a related provision in a BIT as under Art. 64 ICSID Convention, any state party (instead of only the investor’s home state under Art. 27 ICSID Convention) may bring about a claim regarding non-compliance of the convention by another state party owing to its failure to enforce an ICSID ISAT award.89 The ICJ will then issue a declaratory decision through which it may find the state in violation of Art. 53 of the ICSID Convention.90 While the ICJ may be the appropriate forum for resolving disputes on interpretation or application of the ICSID Convention, if the relevant IIA on which the investor-state arbitration proceedings was based explicitly excluded the ICJ as a forum for interpretation and application of the IIA in its compromissory clause, then an SSAT may be the sole appropriate forum for the resolution of a dispute of non-enforcement of ISAT awards arising in relation to that IIA.91 Although, either the ICJ or state-to-state arbitration could be selected as a mode of dispute resolution in certain situations, state-to-state arbitration provides greater flexibility to the parties in issues such as the setting of specialised rules or when they wish to set strict time limits for proceedings.92 Other factors that may lead to a preference for state-to-state arbitration are control on the transparency of proceedings, the ability to select arbitrators and the ability to determine limits on third party participation.93

87 Schreuer (1997), p. 217; Perez (2012), p. 467; Delaume (1983), p. 801 et seq.; Huseynli (2017), p. 65. 88 Joubin-Bret, ASIL Proc, 2012/106, p. 132; Schreuer (2007), p. 348; UNCTAD (2003b), p. 58; Delaume (1983), p. 802. 89 Broches (1972), p. 379 et seq.; Gerlich (2015), p. 92. For a contrary view, See Vannieuwenhuyse (2009), p. 120. 90 Broches (1972), p. 379 et seq. See also, Perez (2012), p. 469. 91 For an IIA which explicitly prevents referral of disputes to the ICJ under Art. 64 of the ICSID Convention, see, Art. 10(4), Turkey-Gambia BIT, 2013; Art. 10(4) Turkey-Pakistan BIT, 2012; See also, Mizushima (2015), p. 289 et seqq.; 92 Malintoppi (2006), p. 136 et seqq. 93 Gray and Kingsbury (1992), p. 109 et seqq.; Malintoppi (2006), p. 140 et seqq.

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State-to-State Arbitration and Other Regional Courts

Regional courts established under treaties may have exclusive jurisdiction on certain issues covered under the treaties or the statutes of the court and may hence their jurisdiction may overlap with the SSATs. The jurisdiction may be limited only to agreements on investment as seen in the Arab Investment Agreement 94 or very wide like the Agreement Establishing the Caribbean Court of Justice which states that: Subject to the Treaty, the Court shall have exclusive jurisdiction to hear and deliver judgment on: (a) disputes between Contracting Parties to this Agreement (b) disputes between any Contracting Parties to this Agreement and the Community;. . .95

Similarly, the Treaty Creating the Court of Justice of the Andean Community provides that: Member Countries shall not submit any dispute that may arise from the application of provisions comprising the legal system of the Andean Community to any court, arbitration system or proceeding whatsoever except for those stipulated in this Treaty.96

Similar provisions are also present in the case of the East African Court of Justice97 and the Central American Court of Justice.98 The states to an IIA may also provide exclusive authority to a regional judicial authority to resolve disputes between them as seen in the Convention for the Protection of the Rights of the Investor of 1997, which provides such exclusive powers to the Economic Court of the Commonwealth of Independent States.99 This indicates that in the future, the possibility of establishing SSATs may have to be evaluated in line with the commitments of states in their regional agreements particularly if both the state parties are party to the same regional agreement. In case of such an overlap, parties may select any one mode of dispute resolution by mutual agreement to the exclusion of the other forum.100 This fork in the road provision should ideally be included in the treaties to prevent any conflicts as seen for instance in the Arab Investment Agreement. This agreement provides that an option for recourse to the Arab Investment Court will only be possible when the parties fail to resort to arbitration or the arbitral panel fails to issue an award within the prescribed period.101

94

Art. 30, Arab Investment Agreement. Art. XII, CCJ Agreement. 96 Art. 42, Protocol of Cochabamba. 97 Art. 38, EAC Agreement. 98 Art. 22, Statute of the Central American Court of Justice, 1992. See also, Rivas, Encuentro, 1999/ 49, p. 110 et seqq. 99 Art. 28, Moscow Convention. 100 An example can be seen in Art. 133 (3), Japan-India CEPA, 2011 which states that once a request for establishment of an arbitral tribunal is made, this mode of dispute resolution will be used to the exclusion of any other procedure for that particular dispute. 101 Art. 27, Arab Investment Agreement. 95

5.3 Alternate Modes of Treaty Interpretation and Overlap with State-to-State. . .

5.2.6

181

State-to-State Arbitration and the WTO

Disputes relating to interpretation or application of IIAs may in certain situations overlap with situations, which may also potentially be referred to the WTO since it deals with the promotion of trade and economic activity.102 The disputes are not identical and will not likely be covered under the principle of res judicata since the facts and causes are not the same because they arise from different agreements.103 Potential disputes may also arise regarding the protection of investments under the IIAs and the Agreement on Trade Related Investment Measures (TRIMS).104 It will depend upon the parties to select the most relevant forum in case of such disputes, but parties may choose to prevent recourse to state-to-state arbitration in case of selection of WTO dispute resolution and vice versa through an explicit provision in the treaties.105 In any case, countries may already internally pre-determine the priority to be given to the different possible methods of dispute resolution available to resolve a particular dispute and the forum which would be chosen for a situation.106

5.3

Alternate Modes of Treaty Interpretation and Overlap with State-to-State Arbitration

The state parties may choose alternative modes for interpretation of the treaties which can also be interpreted by SSATs.107 The interrelationship between these alternate modes of treaty interpretation and an SSAT is discussed below.

5.3.1

Unilateral Declaration of Interpretation by the States

In most cases, the resolution of disputes regarding interpretation is proposed through negotiations or consultations.108 The legal basis for the unilateral interpretation of an investment treaty by a state is uncertain. However, a few state parties have sought to 102

Subcommittee on Unfair Trade Policies and Measures (2015), p. 1197. Subcommittee on Unfair Trade Policies and Measures (2015), p. 1197. 104 Pfaff (2007), p. 313 et seqq. 105 An example can be seen in Art. 11.1 (2) Indonesia-EFTA CEPA which states that once a selection of WTO Dispute resolution or arbitration is made, this mode of dispute resolution will be used to the exclusion of other procedure for that particular dispute. Similar provision also seen in Art. 5.4, Armenia-Singapore TISaIA, 2019. 106 Subcommittee on Unfair Trade Policies and Measures (2015), p. 1198. 107 Lubambo (2017), p. 84. 108 See, Art. 31.1, 2015 Indian Model BIT. 103

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express their views by issuing unilateral statements, communications (letters) or interpretations.109 In the SGS v. Pakistan case, a party to the BIT: Switzerland, expressed its disagreement with the interpretation of Art. 11 of the BIT by the ISAT after an award was issued.110 The statements of the tribunal in the Aguas del Tunari v. Bolivia case may provide an indication of the status of such unilateral interpretations. The tribunal found that a unilateral letter from the Netherlands government containing its ‘interpretation’ may only be relevant as a supplementary means of interpretation under Art. 32 of the VCLT and does not reflect a ‘subsequent practice. . .which establishes an agreement of the parties’ under Art. 31 of the VCLT.111 In any case, unilateral conduct by the states may show the formation of a subsequent practice by a state on a particular topic that may be used in the interpretation of a treaty.112 Additionally, unilateral declarations by a state may also support a state to show the subsequent practice of both parties regarding a common understanding of the treaty, if there is a silence by the opposite party regarding the unilateral views of a party.113 It is opined that documents such as interpretative statements are required to be taken into account by an ISAT while interpreting a treaty and deciding a dispute.114 States have tried to strengthen this view by including an explicit provision for the same in IIAs, wherein individual views of one state party may be taken into consideration in the absence of a counterview.115 As of now, it appears that ISATs consider unilateral interpretation as an ‘interpretative tool’ under the VCLT and places value on unilateral interpretation since it is known that at least one ISAT has specifically requested state parties to an IIA for their interpretation of an IIA provision.116 Since states cannot give an authoritative meaning to the treaty terms themselves,117 unilateral interpretations may generally be considered as lower than an SSAT decision which is an authoritative interpretation of a treaty. A problem however arises when state parties to treaty present different interpretations under non-disputing party submissions. In that case, the dispute between the state parties may have to be resolved under the state-to-state dispute settlement 109

Schreuer (2007), p. 349 et. seqq.; See also, Titi (2017), p. 41. ICSID, SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13. Communication from the Swiss Government published in Sarkinovic (2012), p. 338 et seq. 111 ICSID, Aguas del Tunari v Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent’s Objections to Jurisdiction, October 21, 2005, para 258 et. seqq. 112 Johnson and Razbaeva (2014), p. 5. 113 ILC (2013), p. 35; Johnson and Razbaeva (2014), p. 5. 114 High Level Committee (2017), p.112 115 Art. 23.3, India-Taiwan BIA, 2018; Art. 24.3, Belarus-India BIT, 2018. 116 ICSID AF, Case No. ARB(AF)/16/3, B-Mex LLC and others v United Mexican States, Procedural Order No. 7, 23 November, 2018, para 5 et seqq. 117 UNCTAD (2011), p. 7. 110

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provision of the treaty and the ISAT may have to wait till a decision in such proceedings emerge.118

5.3.2

Interpretation of Treaties Through Investor-State Arbitration

The inter-relationship between state-to-state arbitration and ISATs has been very rarely studied.119 While it had been sought to create a division between the scope of the two dispute resolution methods by ear-marking state-to-state dispute settlement for treaty interpretation/application and investor-state arbitration for resolution of claims regarding treaty violation,120 it is now agreed that both dispute resolution methods overlap on subject matter jurisdiction (rationae materiae).121 Questions dealt with commonly in investor-state arbitration such as the meaning of ‘investment’, standards of treatment, expropriation, and violation of treaty obligations may also be dealt with by SSATs when deciding on questions of interpretation or application of the treaty creating a potential overlap between their powers.122 On the other hand, ISATs regularly adjudicate issues of interpretation or application IIAs as a part of their dispute resolution process.123 There is no customary international law principle governing their relationship and there is no need to exhaust one mode of dispute resolution to pursue the other (barring situations when it is provided in a treaty signed by the parties).124 The only minor difference which may affect treaty interpretation powers under the two different modes is that while SSATs have been explicitly given the power to interpret treaties through the compromissory clause, an investor-state arbitration clause does not refer to a possibility for abstract treaty interpretation through that medium.125

118

Law Commission of India (2015), para. 5.8.3. Wong (2014), p. 8. 120 PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Opinion With Respect To Jurisdiction In The Interstate Arbitration Initiated By Ecuador Against The United States, W. Michael Reisman, April 24, 2012, para 23 et seq. 121 Brown (2017), p. 689; Roberts (2014), p. 11 et seq.; Lourie (2017), p.147; Alschner (2015), p. 325 et seq.; Lubambo (2017), p. 84; Orecki (2013), p. 5; For a contrary view see, Vicuna (2005), p. 214; Schreuer (2007), p. 346. For a discussion of an explicit situation when there is no overlap between the state-to-state dispute resolution provision of a treaty and the power of an ISAT, See relation between ICSID Convention—Art. 25 and 64 as discussed in UNCTAD (2003b), p. 58. 122 Kulick (2016), p. 143; UNCTAD (2003b), p. 56. 123 Vandevelde (1992), p. 538; Calamita (2017), p. 586 et seq.; Kulick (2015), p. 451 et seq. For an explicit recognition of this situation in treaties, See, Art. 7(1), Sweden-Yugoslavia BIT, 1978 and Sweden-Malaysia BIT. 124 Lo (2013), p. 14; Lubambo (2016), p. 228. 125 Kulick (2016), p. 146. 119

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Precedents from the investor-state arbitration have played an important role in the interpretation of treaties and in shaping the negotiation of new investment treaties.126 In fact, investor-state arbitration has emerged as the most preferred dispute resolution method and arbitrators from ISATs have emerged as the primary interpreters of investment treaties.127 The disputes dealt with by ISATs have also diversified and now include a wide range of investments including intangible investments.128 ISATs, particularly in ICSID arbitration, has developed a large ‘corpus of precedents’ and it has even been referred to as ‘emergence of case law’ or ‘jurisprudence’ and a system of persuasive precedent.129 The importance of ISAT awards in shaping investment law has been such that prior decisions and awards are now considered as highly reminiscent of the stare decisis system in common law.130 Lastly, state-to-state arbitration can act as a means for increasing the effectiveness of investor-state arbitration by providing clarification on treaty provisions through a declaratory decision which may assist in taking an investor-state arbitration proceeding forward.131 These situations show that state-to-state arbitration and investorstate arbitration clauses in a treaty are complementary to each other and state-to-state arbitration is not a subsidiary to investor-state arbitration.132

5.3.3

Interpretation by Treaty Bodies Formed by State Parties or Joint Interpretative Agreements and Its Relationship with State-to-State Arbitration and Investor-State Arbitration

State parties may choose to issue joint declarations themselves which are held to be binding on future ISATs.133 However, in certain cases, instead of interpreting an IIA themselves or through an SSAT, the State parties to IIAs have entrusted certain ‘nonjudicial’ bodies such as the NAFTA Free Trade Commission (FTC) with the power of issuing binding interpretations of the treaties.134 These bodies have an overlap

126

Cate (2013), p. 423. Chi (2013), p. 27; See also, Cate (2013), p. 423. 128 Posner and Walter (2015), p. 382. 129 Commission JP (2007), p. 130, 136; See also, Reinisch (2016a), p. 302 et seqq. 130 Commission JP (2007), p. 132. 131 Lubambo (2017), p. 85. 132 Lubambo (2016), p. 228. 133 Kaufmann-Kohler (2011), p. 176; UNCTAD (2003a), p. 31; Schreuer (2007), p. 349 et. seqq.; Johnson and Razbaeva (2014), p. 6; Pyka (2016), p. 83. 134 Gaukrodger (2016a), p. 10; Potesta (2013), p. 762; See also, Titi (2017), p. 39; Rosenfeld (2016a), p. 334; Puig and Kinnear (2010), p. 258. For a discussion on non-acceptance of NAFTA Joint Commission interpretation by a tribunal see, Trevino (2014), p. 222. 127

5.3 Alternate Modes of Treaty Interpretation and Overlap with State-to-State. . .

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with state-to-state arbitration on the power to decide on issues regarding the interpretation or application of an IIA.135 The formal interpretation of a treaty by the parties is considered to ‘have the same force, effect, and duration’ as the original treaty.136 In the case of the NAFTA and the US Model BIT of 2004, a decision of the FTC and a joint declaration by the parties respectively have been considered to be binding on future ISATs under Art. 31(3) (c) of the VCLT.137 As such a joint interpretation of a treaty is generally binding on any tribunal and an SSAT deciding on the interpretation of a treaty would generally have to accept a meaning that has been adopted by the parties through agreement.138 The practice of formation of a committee or a commission by the parties to issue interpretations which are binding on an arbitral tribunal has been imported by the EU (as seen in Art. 3.13—EU-Singapore Investment Agreement) and certain other countries such as Korea and New Zealand (Art. 10.25—KNZFTA) into their recent investment agreements.139 With the growth in the complexity of treaties and higher interests in a stable interpretation, joint interpretative agreements are likely to play an increasingly important role in controlling ‘expansive judicial interpretation of the agreements’.140 The argument for considering joint interpretations as binding interpretations of the IIA originates in the ‘derivative rights’ model of ‘investor rights.’141 According to this model, the treaties grant legal rights to states only and during a process of issuance of joint interpretations, the states can issue undisputed interpretations as they are acting within their power of setting down their rights and obligations.142 This follows the general rule that an interpretative declaration which has been agreed by both parties in a bilateral treaty is an authentic interpretation of the treaty.143 Interpretative declarations by their very purpose are meant to clarify the meaning of the treaty but not modify or exclude its legal effects.144 The possibility to issue authoritative interpretations through a body with representatives of the state parties is seen in Art. IX: 2 of the WTO Agreement which empowers the Ministerial Conference and the General Council to ‘adopt’ interpretations of the WTO Agreement and the Multilateral Trade Agreements.145 Such an

135

Art. 22.1(4)(c), EU-Japan EPA. Committees on Research in International Law (1935), p. 969. 137 Potesta (2013), p. 762; Schill (2016), p. 323. 138 On this see, Art. 4.1(4)(f), EU-Singapore IPA, 2018; Kulick (2015), p. 455; Moloo (2013), p. 74; Comella (2014), p. 23; See also, UNCTAD (2003b), p. 55; See also, Ewing-Chow and Losari (2015), p. 111 et seqq. 139 Titi (2017), p. 40. 140 Lubambo (2016), p. 227; Gaukrodger (2016a), p. 14. 141 Trevino (2014), p. 223. 142 Trevino (2014), p. 224. 143 Shqarri (2015), p. 99. 144 United Nations (2012), p. 16. 145 Art. IX:2, WTO Agreement; See also, Krajewski (2001), p. 21; Van Damme (2010), p. 611; Gazzini (2008), p. 173. 136

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authoritative interpretation would be binding on the Appellate Body and would have an effect similar to an ‘amendment’ or ‘understanding’ on WTO law.146 However, it cannot be an actual amendment and an authoritative interpretation can only ‘clarify the meaning.’147 In fact, the distinction has been made clear by states while drafting treaties by including a provision for a joint interpretation while also including a separate procedure for amendment.148 The joint interpretations in certain situations have been issued without an explicit treaty provision for the same as seen in case of CME v. Czech Republic wherein the state parties (Czech Republic and the Netherlands) issued a document called ‘Agreed Minutes’ although there was no explicit provision for such a document and it is relevant that even then, it was taken into account by the ISAT while issuing its final award.149 India and Bangladesh, on the other hand, issued Joint Interpretative Notes on the India-Bangladesh BIPA, 2009 by ‘taking into account the power of the Contracting Parties to provide clarification on the object and purpose of the Agreement’ and recalling the customary international requirement that ‘that any interpretation of the Agreement take into account the Contracting Parties’ subsequent statements and practice reflecting their shared understanding of the meaning of that Agreement’.150 In case a provision for a joint interpretative agreement is not present in the treaty, these agreements are governed by the general principles of international law.151 There is some support to the argument that these new interpretative agreements will have to be taken into consideration by future ISATs as a subsequent agreement between the parties even in the absence of explicit provisions.152 As a subsequent agreement, an interpretative agreement has to be considered by the tribunals, but it would not be binding on them.153 In WTO law, a similar situation can occur when states issue a non-binding statement on interpretation.154 Although such an interpretation is not an authoritative interpretation and not legally binding, it will be considered as ‘subsequent practice of the parties’ under Art. 31(2) VCLT and would be taken into account by the Appellate Body. This does not affect the power of the WTO parties to issue an authoritative interpretation through the Ministerial Conference and the General Council as discussed above.155 Similarly, joint interpretative agreements may be binding or

146

See also, Krajewski (2001), p. 21; Berner (2016), p. 871. Van Damme (2010), p. 612. 148 See, Art. 20(19) and Art. 26, ASEAN-India Investment Agreement, 2014. 149 Schreuer (2007), p. 353. 150 Preamble, Joint Interpretative Notes on the Agreement between the Government of the Republic of India and the Government of the People’s Republic of Bangladesh for the Promotion and Protection of Investments, 2017. 151 Gaukrodger (2016a), p. 14. 152 Ewing-Chow and Losari (2015), p. 101. 153 Feldman (2017), p. 541. 154 Krajewski (2001), p. 22. 155 Art. 3(9), Dispute Settlement Understanding; Art IX:2, WTO Agreement; Van den Bossche and Zdouc (2013), p. 139. 147

5.3 Alternate Modes of Treaty Interpretation and Overlap with State-to-State. . .

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non-binding depending on the circumstances governing their issuance such as the time of their issuance.156 It must be noted here that an interpretation issued by a joint agreement between the parties through a treaty body has been argued to have equal status with an interpretation issued by a declaratory decision of an SSAT since both are authoritative interpretations.157 This originates from the fact that an SSAT has the power to issue the authoritative interpretation in case the parties cannot agree amicably.158 This situation has however led to a debate on the status of an SSAT award. According to the first opinion, an interpretation issued by an SSAT should also be deemed to be binding, if such a status is awarded to a joint interpretative statement.159 In fact, such a binding status of interpretations by an agreement of the parties or through an SSAT was originally prescribed by the drafters of the ICSID Convention.160 There is however an opposing view on the issue and strong resistance to the acceptance of the joint interpretations themselves as binding and not all joint interpretations have been accepted by future ISATs.161 The provision for issuance of a joint interpretative statement was used by the Czech Republic and the Netherlands who had issued ‘agreed minutes’ on the interpretation of the treaty.162 The tribunal in the CME v Czech Republic Case considered the minutes but did not consider them as binding.163 In such a situation, if the presumption that a joint agreement has a similar status as an SSAT decision continues, then the status of the minutes would indicate that an SSAT decision also only has the status of persuasive evidence, which has to be considered.164 While evaluating the two opinions, it is key to understand that a joint interpretative agreement and an SSAT award are different regarding their source, as a joint interpretative agreement is issued directly by the parties while the SSAT award is a third party decision.165 Therefore, it is more likely, that interpretative statements by the state parties themselves should normally bind a tribunal, as they are

156

Gaukrodger (2016b), p. 12; For its effect on ongoing proceedings, See also, Schreuer (2007), p. 353. 157 Broches (1972), p. 377; Broches (1995), p. 214; Trevino (2014), p. 221. 158 Hindelang (2014), p. 70 and 81. 159 Kulick (2015), p. 456 et seq.; Gallo and Nicola (2015–2016), p. 1144; Kulick (2016), p. 148; See also Broches (1995), p. 218. 160 Broches (1972), p. 377; Broches (1995), p. 218. 161 Gaukrodger (2016a), p. 7; Trevino (2014), p. 221. 162 Titi (2017), p. 41; See also, Trevino (2014), p. 222. 163 CME Czech Republic BV v The Czech Republic, UNCITRAL, Final Award (14 March 2003), para 89; Agreed minutes have been considered to within the ambit of binding international acts by Switzerland although they rank lower on the hierarchy then a Treaty or an Agreement, on this, see, Directorate of International Law (2015), p. 45. 164 Trevino (2014), p. 222. 165 Gaukrodger (2016b), p. 12.

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interpretations by the treaty parties themselves.166 Conversely, the binding force of the SSAT award would depend on the nature of the award (e.g. diplomatic protection claim, abstract interpretation, etc.) and if it could cover the particular dispute being dealt with by the ISAT. If these requirements are not fulfilled, then an SSAT award is not relevant and would not aid dispute settlement for the ISAT. Based on these fundamental distinctions, a direct comparison of the degree of their binding nature is not possible. The existence of these treaty interpretation bodies and the explicit binding nature of their decisions or joint declarations have prompted suggestions that only their decisions should be considered as binding and a similar status should not be accorded to an interpretative decision by an SSAT.167 This position is doubtful and state parties are free to decide on any mode for interpretation of a treaty through an agreement between them and this includes mediation, conciliation, recourse to good offices, arbitration and judicial settlement and they can all be binding when agreed by the parties.168 It has been clarified that other forms of subsequent agreement or practice (other than a joint interpretation) regarding interpretation or application of a treaty by the parties, may also be considered as an authoritative interpretation of the treaty, which has to be taken into consideration by ISATs.169 In any case, arbitral jurisprudence is a key source of guidance for the interpretation of treaties supplementing the guidance provided by the state parties through the treaties.170 The exact impact of the renewed discussion on state-to-state arbitration on the popularity of a joint interpretative agreement is not certain with opposing views on whether the possibility of an SSAT interpreting an IIA would encourage states to enter into joint interpretative agreements or refrain from them and prefer the arbitral option.171 A state-to-state arbitration commenced to deal with a topic on which a joint interpretative agreement was executed prior to the formation of the tribunal, would have to take the agreement into account.172 Conversely, a joint interpretative agreement which is contrary to an SSAT interpretative award and issued after the award may create further problems, and the interpretative agreement may then be a de facto amendment, which would mean that it would only be valid for future cases.173

166

Gaukrodger (2016a), p. 9. Rosenfeld (2016a), p. 339. 168 Feldman (2017), p. 541 et seq.; See also, Committees on Research in International Law (1935), p. 975 et seqq. 169 Art. 24.2, Belarus-India BIT, 2018. 170 Schill (2011), p. 1103. 171 Gaukrodger (2016b), p. 13. 172 Office Memorandum, F. No. 26/07/2013-IC, Joint Interpretative Statement, Government of India, 8 February, 2016, p. 9. 173 Gaukrodger (2016b), p. 18. 167

5.4 Interim Conclusions

189

In any case, an interpretation by an SSAT which is issued as a final award is considered as an authoritative determination of the treaty provisions and has to be at least taken into account by future ISATs under Art. 31 VCLT.174 Even so, a prior decision of a treaty body like a joint committee on the interpretation of a treaty, ideally issued prior to the commencement of arbitral proceedings,175 would in most cases also bind an SSAT which will have to follow such an interpretation.176

5.4

Interim Conclusions

The states have an option to access several forums in addition to state-to-state arbitration to resolve disputes between themselves on interpretation and application of IIA and in many cases, these forums may have overlapping jurisdiction. Regarding the proposed MIC and Appeals mechanism, no existing overlap which could affect them significantly was found. Even then, there may be a need for the development of rules for the coexistence of these mechanisms. It is crucial to include specific provisions in the treaty that would determine the priority of the forum or exclude other forums when one of them is selected. An inter-relationship between the CJEU and state-to-state arbitration is particularly complicated owing to the special legal structure of the EU and any future SSAT would have to comply with the guidelines laid down through decisions of the CJEU. A possibility for conflict may also be resolved through a clear hierarchy of the forums and SSATs would generally have to follow any interpretations provided by the state parties to the treaties themselves. In the future state-to-state arbitration may coexist with proposed bodies such as the MIC if adequate guidelines are laid down for the same, or such interstate disputes may be resolved by the MIC or a similar future tribunal if the state parties agree.

174

Wehland (2013), p. 15; Price (2005), p. 74. See also, Wouters and Vidal (2006), p. 8. High Level Committee (2017), p. 112. 176 For an explicit declaration of this situation in state practice, see, Art. 4.1(4)(f), EU-Singapore IPA, 2018; Art. 22.1(5)(e), EU-Japan EPA. 175

Chapter 6

Additional Suggestions for Developing State-to-State Arbitration as an Effective Means of Dispute Resolution

6.1

Background

The utilisation of traditional state-to-state arbitration for investment protection like the Mavrommatis case has not been generally seen in the twenty-first century.1 These disputes generally involved claims of individuals based on diplomatic protection and were not always in practice a dispute between the two mentioned states.2 As of now, with the emergence of investor-state arbitration as the preferred mode of pursuing claims under IIAs, state-to-state arbitration has been considered a remote development with ISDS being promoted as a method to prevent tarnishing of relations between two countries since they do not have to pursue claims on behalf of their citizens.3 Even then, with states such as Australia preferring to refrain from including provisions on ISDS in their IIAs, the EU moving away from ad hoc arbitral tribunals for investor-state arbitration4 and the reluctance of states to conclude new IIAs,5 there is suddenly a greater interest in state-to-state arbitration.6 Other factors, which are creating a greater role for state-to-state engagements, include problems in enforcement of ISAT awards and requests from investors for support from their home states, an indicator that diplomatic protection is not yet completely out of

1

Caron (1990), p. 151. Caron (1990), p. 151. 3 Carvalho (2015), p. 15; See also, Juratowitch (2008), p. 11; Schreuer (2007), p. 345 et seqq. 4 European Commission, Communication, A Balanced and Progressive Trade Policy to Harness Globalisation, COM(2017) 492 final, 13.9.2017, p. 4. 5 Gazzini (2018), p. 249. 6 Kulick (2015), p. 445; Gallo and Nicola (2015–2016), p. 1139; Potesta (2013), p. 767. 2

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 A. Hazarika, State-to-state Arbitration based on International Investment Agreements, European Yearbook of International Economic Law 10, https://doi.org/10.1007/978-3-030-50035-1_6

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6 Additional Suggestions for Developing State-to-State Arbitration as an. . .

place.7 While investor-state arbitration based on an IIA may be the predominant mode of investment dispute resolution, it may not have an answer or be suitable for all disputes, thereby ensuring the need to discuss the possibility of protection through a state.8 With the aforementioned factors developing as practical hurdles for investor-state arbitration, SSAT must be retained as an important tool in the bigger toolbox to resolve investment disputes which can be used when required.9 The process of state-to-state arbitration may likely minimise inconsistent and unpredictable decisions,10 but it also has inherent loopholes such as the possibility for larger corporations to dominate the push for dispute resolution from their home governments or the lack of control over the dispute resolution process for the investor.11 State-to-state arbitration is not in itself flawless,12 and a system of checks and balances will have to be developed to ensure it functions in a desired manner. Issues such as transparency of proceedings continue to be relevant both for investorstate arbitration and state-to-state arbitration13 and this already been recognised in a few recent IIAs with provisions transparency for SSATs.14 Even though it is not perfect, state-to-state arbitration however still has a key position in securing the rights of investors as a claim by a state is likely to be taken more seriously by the defendant state. This may be critical particularly for the protection of rights of small investors who might otherwise face issues regarding their claims or may not have resources to pursue a claim themselves.15 From the state’s perspective, it may be a path to exercise greater control over dispute resolution proceedings which can affect public policy and in certain cases the entire country.16 To achieve greater acceptability of state-to-state arbitration as an option for dispute resolution it is recommended that the issues mentioned above be resolved by the state parties in addition to the procedural hurdles in the earlier Chap. 4 of the book.

7

Parlett (2007), p. 535; Posner and Walter (2015), p. 381. Hindelang (2014), p. 51; Juratowitch (2008), p. 35. 9 Gallo and Nicola (2015–2016), p. 1136 et seq.; Posner and Walter (2015), p. 393. 10 Johnson et al. (2018), p. 9. 11 Editorial (2014), p. 965 et seq. 12 For a brief overview of historical improper awards in state-to-state arbitration see, Clarke (1907), p. 361 et seqq. 13 Macias (2016a), p. 637. 14 See Art. 3.43(2), EU-Singapore IPA, 2018; Art. 37(4), Uruguay-USA BIT, 2005; Art. 37(4), US-Rwanda BIT; See also, UNCTAD (2007), p. 128. 15 Wilske (2012), p. 168 et seqq.; Juratowitch (2008), p. 33; Small (1997), p. 498. 16 Babu and Anuradha (2018), p. 142. 8

6.2 Resolving Hurdles for Diplomatic Protection Claims

6.2

193

Resolving Hurdles for Diplomatic Protection Claims

With the inclusion of state-to-state arbitration as the sole mode of compulsory dispute resolution in recent IIAs signed by prominent economies such as USA, Canada, Brazil and Australia, state-to-state arbitration can be expected to be used for diplomatic protection claims in the future. This possibility for use of state-to-state arbitration for diplomatic protection claims is however hindered by (a) the lack of internal procedures in home states through which investors could submit their claims for diplomatic protection, and (b) by the lack of mechanisms for transfer of compensation recovered through diplomatic protection claims to the investor. This problem is particularly acute for small and medium enterprises of state parties who do not provide for investor-state arbitration in their IIAs as they frequently used this procedure.17 In the absence of a dedicated procedure for consideration of their claims, they may not be able to access diplomatic protection,18 and thereby may be left without any method for international dispute resolution. To ensure that investors have a clear path to access diplomatic protection from their home state, it is essential that states promulgate internal laws or develop operating procedures for the regulation of diplomatic protection claims. These laws or procedures should cover: 1. Procedure for selection of claims which would be pursued by the home state as a diplomatic protection claim under an IIA; 2. Framework for the transfer of compensation received in case of a successful diplomatic protection claim from the host state to the affected investors Concerning the first issue, a system based on administrative law could be set up which would allow governments to screen claims to pursue under state-to-state arbitration.19 Such a system must, however, be backed by clear legislation and well-designed procedure enabling companies to submit claims for consideration by the government to pursue in the future.20 Claims arising from a single dispute should be dealt together and all interested investors must be provided with an opportunity to participate. The claims can also arise from a combination of small investor claims merged into one single claim. To minimise any allegations of favouritism or corruption, the procedure for selection of claims should be as transparent as possible without harming state interests and the final decision should be entrusted to a panel of investment law and foreign relation experts.

17

Lodrant and Cernat (2017), p. 185; Gebert (2017), p. 306. Caplan (2009), p. 301. 19 Lubambo (2016), p. 229; For suggestion about a similar system to require explicit permission for commencing investor-state arbitration from a home state, when it refuses to exercise diplomatic protection, see, Wisner and Campbell (2018), p. 19 et seqq. 20 An example of a system which allows filtering of private party claims before they are taken up by a state can be seen in Chapter XI, Olivos Protocol. 18

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6 Additional Suggestions for Developing State-to-State Arbitration as an. . .

SMEs must be provided with support by the home states to be able to bring forward their claims before the domestic procedure for consideration of disputes to be taken up by the state, as they may not have adequate resources to obtain services of legal professionals themselves. Without such support, state-to-state arbitration would not serve the interests of SMEs who are a key group of investors, and this would reduce the utility of state-to-state arbitration as an alternative to investor-state arbitration. Concerning the second question of transfer of compensation, home states may enter into an internal agreement with the investor wherein they specify the percentage share of compensation that the investor would receive in case the claim is successful. To ensure that the resources of the home state are not being utilised to pursue frivolous claims, the investor or investors who bring forward a dispute must undertake to compensate the state for all costs which arise from the legal procedure of the diplomatic protection claim.

6.3

Clarification on Abstract Interpretation Awards by IIAs and Their Effect

The scope of the term ‘interpretation’ mentioned in the compromissory clause in IIAs has not been clarified which has led to a debate on whether an abstract interpretation of a treaty provision for a future hypothetical situation is possible. This is particularly relevant for deciding on questions of nationality or type of investments for investors who desire such clarity for structuring their future investments. The future IIAs should include explicit provisions clarifying whether the state parties have provided SSATs with the power to undertake abstract interpretation of the terms of the treaty for situations, which have not yet arisen. The SSATs must be explicitly competent to deal with specific questions regarding interpretation of the treaty concerning planned future legislation or a proposed future investment plan. The effect of such abstract interpretations on the treaty interpretation bodies such as joint committees and ISATs should also be provided along with the circumstances when a deviation from the interpretation may be permissible. Concisely, the status and precedential value of an abstract interpretation must be clarified. A power to interpret a proposed measure (i.e. a situation that has yet not arisen) has already been provided to an SSAT in IIAs in the past.21 Based on this, in case the parties to an IIA wish to provide similar powers to an SSAT in the future, a possible clause which may be included in IIAs is: An arbitral tribunal formed by the state parties to resolve disputes relating to interpretation or application of the treaty would be competent to issue binding interpretations on the treaty provisions with regards to specific questions put forward by the states parties arising from a

21

See, Art. 2004 and Art. 2006(1) NAFTA; Art. 31.2 USMCA; Art. 20.2 CAFTA-DR.

6.5 Clarification on Admissibility Requirements for Completion of Pre-arbitration. . .

195

potential future situation. Such a decision regarding a particular situation would bind any future investor-state arbitral tribunal formed to resolve disputes under this treaty or the joint committee formed for interpretation of this treaty.

6.4

Inclusion of Provisions for Time-Bound Resolution of Disputes

A major hurdle for acceptance of state-to-state arbitration is the perceived notion that it can take a long time to complete in comparison to investor-state arbitration. This myth needs to be dispelled considering that it has been confirmed that on average state-to-state arbitration proceedings took 2.5 years for completion,22 while investorstate arbitration proceedings took significantly more time, i.e. greater than 3.5 years on an average.23 Bearing in mind that arbitral tribunals have generally complied with time limits imposed by states in state-to-state arbitration,24 states may specify time limits for completion of proceedings to make state-to-state arbitration an attractive option for dispute resolution in the IIAs. Certain IIAs already contain time limits ranging from 120 days after the establishment of the tribunal in the EU-Vietnam IPA,25 to 12 months after the appointment of the Chairman in the Mauritius-Egypt BIT.26 This suggests that state parties choose a time limit based on their individual assessment regarding their potential to deal with state-to-state arbitration and they may continue to do so in the future while ensuring that the proceedings are completed in a reasonable time period.

6.5

Clarification on Admissibility Requirements for Completion of Pre-arbitration Procedures

The requirement of completion of mandatory consultation or negotiation period before commencement of proceedings may significantly delay the proceedings. The proceedings may be further hindered when: (a) the opposing party refuses to recognise the existence of a dispute and fails to respond to a notification from the party raising the dispute as seen in the Ecuador v. USA dispute above,27 or (b) the IIA does not contain a fixed time period for completion of pre-arbitration 22

PCA (2018), p. 2. ISDS Academic Forum - Working Group 2 (2018); Hope (2019), p. 37; ICSID Secretariat (2018), p. 901. 24 PCA (2018), p. 3. 25 Art. 3.1, EU-Vietnam Investment Agreement. 26 Art. 9(6), Mauritius-Egypt BIT. 27 See, Sect. 2.1.1. 23

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procedures,28 or (c) no instructions are provided on the methods which may be followed in the attempt to resolve the dispute prior to state-to-state arbitration.29 To resolve any confusion on the adequateness of attempts for dispute resolution before recourse to arbitration is made, clear instructions should be provided on the methods, which can be followed to resolve the dispute such as conciliation or negotiation. Specific time periods should also be specified for completion of the pre-arbitration proceedings and in addition to the possibility of appointment of arbitrators in case of default by parties, arbitral tribunals should be permitted to issue awards in case of default by parties.30 This will ensure that state parties do not attempt to frustrate a dispute settlement proceeding by refusing to reply to notice for pre-arbitration proceedings (consultation or negotiation) or during the arbitration itself. State parties could include explicit provisions in the treaties wherein they clarify that a failure to respond to a request for consultation or a similar pre-arbitration proceeding may enable commencement of binding dispute resolution proceedings.31 Alternatively, parties may also choose to include a failure to consult in good faith itself as a specific violation of the treaty which could also be dealt with in the stateto-state arbitration proceedings.32

6.6

Framing Clear Procedural Rules and Guidelines for State-to-State Arbitration

A number of the IIAs including recent agreements do not contain a reference to arbitration rules or provide guidelines on the conduct of the proceedings. These IIAs generally specify that the tribunal will determine its procedure.33 This is inconsistent with the promotion of state-to-state arbitration as a stable and transparent mode of dispute resolution which can be an alternative to investor-state arbitration. Even when certain IIAs contain rules for the conduct of state-to-state arbitration, they may not deal with concerns such as transparency, disclosure of confidential information, or amicus curiae submissions.

28

See, Switzerland-Sudan BIT, 1974 and Canada-Guinea BIT. See, Art. 11(1), Germany-Nepal BIT, which calls for a possible resolution of the dispute before arbitration but provides no guidance on procedure. 30 For such a provision, See, Clause 9, Annex A, Australia-Uruguay BIT, 2019. 31 For such a provision, See, Art. 5.5(5), Armenia-Singapore TISaIA, 2019; Art. 11.4(1), IndonesiaEFTA CEPA. 32 Art. 31.1, Belarus-India BIT, 2018; Art. 29.1(b), India-Taiwan BIA, 2018. 33 See Recent IIAs, UAE-Nigeria BIT, 2016; UAE-Mexico BIT. 29

6.7 Interim Conclusion

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Considering that, there is a desire for transparency and procedural stability in arbitration proceedings conducted by SSAT under IIAs;34 it may be recommended that future IIAs include detailed rules which deal with these issues in state-to-state arbitration proceedings as seen in the COMESA Investment Agreement35 or the CETA,36 or contain a reference to detailed rules agreed in a separate agreement by the parties as seen in the India-ASEAN Investment Agreement.37 States may continue to refer to pre-drafted rules issued by international organisations such as the UNCITRAL Rules or the PCA Optional Rules for Arbitrating Disputes between Two States.38 When these pre-drafted rules do not contain rules on certain issues such as transparency, disclosure of confidential information by the parties or amicus curiae submissions, an agreement may be made by the parties to supplement these rules or if that is not possible, it may be dealt through a procedural order issued by the tribunal at the beginning of the proceedings. A further option to ensure that the rules for state-to-state arbitration can be updated when required according to the prevailing situation is for the treaty to include a reference to a joint body formed by the parties to the treaty which could ‘supplement the rules’ for arbitration between the treaty parties when required.39

6.7

Interim Conclusion

The changes prescribed in this chapter such as the creation of a domestic procedure for diplomatic protection claims, clarifying the status of abstract interpretations, time limits for dispute resolution and framing detailed rules for state-to-state arbitration, are meant to cover the existing loopholes in the process for the conduct of state-tostate arbitration under IIAs beyond the problems and solutions already stated earlier in the book. Implementation of these steps may require amendment of the IIAs and in some cases framing of domestic laws by the state parties. These procedures may take some time and dedicated efforts by the states. However, if these proposals are accepted in the future along with other recommendations in this book, they are likely to promote state-to-state arbitration under IIAs as a viable alternative.

34 See, Chapter 5, Armenia-Singapore TISaIA, 2019; Art. 25, Brazil-UAE CFIA; Clause 11, Appendix II, 2004 ASEAN DSM Protocol; Annex 29-A, CETA. 35 Annex A, COMESA Investment Agreement. 36 Annex 29-A, CETA. 37 Art. 19, ASEAN-India Investment Agreement, 2014. 38 For an example, See, Art. 24, Argentina-Japan BIT, 2018; Art. 31, Belarus-India BIT, 2018. 39 For an example, see, Art. 13.4 India-Brazil ICFT.

Chapter 7

Conclusion

The compromissory clause in IIAs which provide recourse to state-to-state arbitration had remained unutilised until a recent line of four cases (Ecuador v. USA, Peru v. Chile, Italy v. Cuba and Mexico v. USA) in close proximity suddenly rejuvenated academic discussion and state interest on the issue. This has come at an opportune time with the ongoing debate on the reform of investor-state arbitration process and search for alternatives for the same. While state-to-state arbitration may indeed be a path to tackle issues such as the indiscriminate use of investor-state arbitration provisions by large multinational corporations to challenge public policy-based decisions and conflicting decisions from different ISATs in the same circumstances, state-to-state arbitration also has inherent issues such as the threat of repoliticisation of disputes and a lack of direct control over the process by the affected investors. Certain common problems are shared by state-to-state arbitration and investor-state arbitration such as a lack of transparency. These issues have been sought to be resolved for investor-state arbitration, but steps need to be taken for similar problems in state-to-state arbitration as well in order to improve its acceptability. Admittedly a few new IIAs include provisions to deal with the aforementioned concerns; more steps need to be taken in this direction. In any case, state-to-state arbitration based on the existing IIAs may not be the single magic pill to resolve all ills of IIAs and may form a part of a wider range of dispute resolution methods in an IIA. The discussion on state-to-state arbitration as a means for interstate dispute resolution is linked with its coexistence and compatibility with the existing web of international courts and tribunals. A review of this issue under this study reveals that state-to-state arbitration has an important position among them and in most cases, there is no overlap between the powers of the different forums. Additionally, for state-to-state arbitration to be accepted within the current framework of dispute resolution process in IIAs, there is a need to understand the various situations where it could be used and the role that it could play within the different modes of © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 A. Hazarika, State-to-state Arbitration based on International Investment Agreements, European Yearbook of International Economic Law 10, https://doi.org/10.1007/978-3-030-50035-1_7

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7 Conclusion

dispute resolutions which are available in an IIA (inter alia investor-state arbitration, negotiation, consultation, etc.). The current work focussed on this area by proposing and discussing the various situations as of date under which an SSAT based on the compromissory clause in IIAs could be formed and used. The ideas discussed are not exhaustive and many more innovative uses of the clause may arise in the future. The true potential of state-to-state arbitration lies beyond merely acting as an alternative for investor-state arbitration. State-to-state arbitration has reincarnated in new forms such as filter mechanisms and can be designed to take more innovative roles in the future such as functioning as a part of a preliminary ruling mechanism or as a mechanism for advanced rulings. In addition to this, SSATs may coexist with the planned multilateral investment court or a possible appeals mechanism as they deal with different forms of disputes (investor-state disputes for the MIC/Appeals Mechanism, and interstate dispute resolution for the SSAT). A limited role for stateto-state arbitration also exists as the sole mode for dispute resolution in exceptional situations where, (1) treaties do not provide an alternative mode or, (2) to deal with situations related to compliance with commitments made by states under treaties or, (3) for cases rejected for a lack of admissibility by ISATs. Nevertheless, the acceptance of state-to-state arbitration as an alternative faces obstacles through concerns of parallel proceedings with investor-state arbitration and courts, conflicting awards resulting from separate state-to-state arbitration and investor-state arbitration on the same dispute, a possibility of legal challenges to delay enforcement and a lack of clarity on the effect of a state-to-state arbitration award for future ISATs. The book dealt with these hurdles by providing solutions inspired by existing treaties, academic literature or with new solutions for the future or through a combination of all of them wherever possible. If an attempt is made to use state-to-state arbitration to deal with shortcomings of investor-state arbitration or other forms of dispute resolution within IIAs, it will require support from the state parties to the treaty as they are the sole authority who can invoke this provision. This support cannot be predicted and decisions to pursue claims or permission is generally taken on a case by case basis by the host state. As such state-to-state arbitration will most likely remain as an option for investors and host states, but will not fully replace the other modes of dispute settlement found in IIAs. In any case, the knowledge about an alternative option, i.e., recourse to stateto-state arbitration under the compromissory clause of IIAs is expected to benefit all interested parties including those now solely depending on investor-state arbitration to protect their interests. This is particularly important given the changing legal and political situations arising from events such as denunciation of the ICSID Convention or refusal of states to enforce investor-state arbitration awards. The growth of state-to-state arbitration in the future depends on the interest of states who are the masters of the treaties. If states are willing to make necessary treaty amendments to resolve the technical issues in state-to-state arbitration, then it may accept a bigger role in the future. Viewing state-to-state arbitration as the second-best alternative, on the other hand, might mean that the legal debate on its improvement receives lesser attention. This can be seen in practice in the form of the

7 Conclusion

201

ongoing process on reform of the ISDS system whereas state-to-state dispute settlement has not received any comparable attention. States are recommended to undertake necessary changes for updating the compromissory clause providing recourse to state-to-state arbitration since provisions to handle most issues could more easily be included at the treaty drafting stage rather than when an actual dispute arises and the parties may not have the best relations which might make negotiating such issues perilous. Based on the discussion on problems and solutions made throughout the book, it may be proposed that a model compromissory clause for interstate disputes in a future IIA would also deal with the following key issues: clarification on the scope of an interpretative award by the SSAT, indication on whether abstract interpretations are permitted, exclusion of other dispute resolution provisions, multi-party participation, regulation of parallel proceedings with investor-state arbitration and nullification. Preferably, the clause should also refer to rules for the conduct of the proceedings and could also include provisions on transparency, applicable law, third party submissions, and enforcement. It may be expected that with the need for protection of investments remaining a persistent concern in a changing and politically volatile global business environment, IIAs will continually be executed by states, albeit with a variance in form or content. Considering that disputes between the state parties to these IIAs remain a distinct possibility, compromissory clauses are also expected to be included in such future IIAs. It is because of this situation, unless state parties move over to a completely different mechanism in the future, a functional and well-drafted compromissory clause will be a critical part of any future IIA.

Cases

Court of Justice of the European Union 1. CJEU, Case C-284/16, Slowakische Republik (Slovak Republic) v Achmea BV, ECLI:EU:C:2018:158 2. CJEU, Opinion 1/09, ECLI:EU:C:2011:123 3. CJEU, Opinion 1/17, ECLI:EU:C:2019:341 4. CJEU, Opinion 2/15, ECLI:EU:C:2017:376 5. ECJ, Case C-459/03, Commission v. Ireland, ECLI:EU:C:2006:345 6. ECJ, Opinion 1/91, ECLI:EU:C:1991:490

Permanent Court of International Justice 1. PCIJ, German Interests in Polish Upper Silesia (Germ. v. Pol.), 1926 P.C.I.J. (ser. A) No. 7 (May 25). 2. PCIJ, German Interests in Polish Upper Silesia (Germ. v. Pol.), 1925 P.C.I.J. (ser. A) No. 6 (Aug. 25). 3. PCIJ, Mavrommatis Palestine Concessions (Greece v. U.K.), 1924 P.C.I.J. (ser. B) No. 3 (Aug. 30). 4. PCIJ, Question of Jaworzina, Advisory Opinion, 1923 P.C.I.J. (ser. B) No. 8 (Dec. 6). 5. PCIJ, Status of Eastern Carelia, Advisory Opinion, 1923 P.C.I.J. (ser. B) No. 5 (July 23).

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 A. Hazarika, State-to-state Arbitration based on International Investment Agreements, European Yearbook of International Economic Law 10, https://doi.org/10.1007/978-3-030-50035-1

203

204

Cases

International Court of Justice 1. ICJ, Admission of a State to the United Nations (Charter, Art. 4), Advisory Opinion: I.C.J. Reports 1948, p. 57. 2. ICJ, Ahmadou Sadio Diallo (Republic of Guinea v. Democratic Republic of the Congo), Preliminary Objections, Judgment, I.C.J. Reports 2007, p. 582. 3. ICJ, Ambatielos case (merits: obligation to arbitrate), Judgment of May 19th, 1953: I.C.J. Reports 1953, p. 10. 4. ICJ, Appeal Relating to the Jurisdiction of the ICAO Council, Judgment, I.C.J. Reports 1972, p. 46. 5. ICJ, Applicability of the Obligation to Arbitrate under Section 21 of the United Nations Headquarters Agreement of 26 June 1947, Advisory Opinion of 26 April 1988, I.C.J. Reports 1988, p. 12. 6. ICJ, Application of the International Convention on the Elimination of All Forms of Racial Discrimination (Georgia v. Russian Federation), Preliminary Objections, Judgment, I.C.J. Reports 2011, p. 70. 7. ICJ, Arbitral Award of 31 July 1989, Judgment, I.C.J. Reports 1991, p. 53. 8. ICJ, Barcelona Traction, Light and Power Company, Limited, Judgment, I.C.J. Reports 1970, p. 3. 9. ICJ, Case concerning rights of nationals of the United States of America in Morocco, Judgment of August 27th, 1952: I.C.J. Reports 1952, p. 176. 10. ICJ, Case concerning the Arbitral Award made by the King of Spain on 23 December 1906, Judgment of 18 November 1960: I.C. J. Reports 1960, p. 192. 11. ICJ, Dispute regarding Navigational and Related Rights (Costa Rica v. Nicaragua), Judgment, I.C.J. Reports 2009, p. 213. 12. ICJ, East Timor (Portugal v. Australia), Judgment, I.C.J. Reports 1995, p. 90. 13. ICJ, Elettronica Sicula S.P.A. (ELSI), Judgment, I.C.J. Reports 1989, p. 15. 14. ICJ, Interhandel Case, Judgment of March 21st, 1959: I.C.J. Reports 1959, p. 6. 15. ICJ, Interpretation of Peace Treaties, Advisory Opinion: I.C.J. Reports 1950, p. 65. 16. ICJ, Kasikili/Sedudu Island (Botswana v. Namibia), ICJ Reports 1999, p. 1045. 17. ICJ, Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory, Advisory Opinion, I.C.J. Reports 2004, p. 136. 18. ICJ, Maritime Delimitation in the Indian Ocean (Somalia v. Kenya), Preliminary Objections, Judgment, I.C.J. Reports 2017, p. 3. 19. ICJ, Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), Jurisdiction and Admissibility, Judgment, I.C.J. Reports 1984, p. 392. 20. ICJ, Obligations concerning Negotiations relating to Cessation of the Nuclear Arms Race and to Nuclear Disarmament (Marshall Islands v. United Kingdom), Preliminary Objections, Judgment, I.C.J. Reports 2016, p. 833. 21. ICJ, Pulp Mills on the River Uruguay (Argentina v. Uruguay), Judgment, I.C.J. Reports 2010, p. 14.

Cases

205

22. ICJ, South West Africa Cases (Ethiopia v. South Africa; Liberia v. South Africa), Preliminary Objections, Judgment of 21 December 1962: I.C. J. Reports 1962, p. 319.

Domestic Courts 1. South Africa, Supreme Court of Appeal, Van Zyl v. Government of RSA, [2007] SCA 109 (RSA). 2. US District Court for the District of South Dakota, McGlone v. Lacey, 288 F. Supp. 662 (D.S.D. 1968), September 12, 1968. 3. United Kingdom, Court of Appeal, Republic of Ecuador v. Occidental Exploration and Production Co, 9 September 2005, [2005] EWCA Civ 1116.

Investor-State Arbitration Cases 1. ICSID AF, Case No. ARB(AF)/16/3, B-Mex LLC and others v United Mexican States, Procedural Order No. 7, 23 November 2018. 2. ICSID, Case No. ARB(AF)/00/3, Waste Management, Inc. v. United Mexican States, Award, 30 April 2004. 3. ICSID, Case No. ARB/00/4, Salini Costruttori SpA and another v. Kingdom of Morocco, Decision on Jurisdiction, 23 July 2001, 42 ILM 609 (2003). 4. ICSID, Case No. ARB/00/5, Autopista Concesionada De Venezuela, C.A. v. Bolivarian Republic of Venezuela, Decision on Jurisdiction, 27 September 2001. 5. ICSID, Case No. ARB/01/13, SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan. 6. ICSID, Case No. ARB/01/3, Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, Decision on Jurisdiction, 14 January 2004. 7. ICSID, Case No. ARB/02/3, Aguas del Tunari v Bolivia, Decision on Respondent’s Objections to Jurisdiction, 21 October 2005. 8. ICSID, Case No. ARB/02/8, Siemens A.G. v. The Argentine Republic, Decision on Jurisdiction, 3 August 2004. 9. ICSID, Case No. ARB/03/15, El Paso Energy International Co. v. Argentine Republic, Decision on Jurisdiction, 27 April 2006. 10. ICSID, Case No. ARB/03/16, ADC v. Hungary, Award, 2 October 2006. 11. ICSID, Case No. ARB/03/23, EDFI et al. v. Argentina, Award, 11 June 2012. 12. ICSID, Case No. ARB/03/4, Empresas Lucchetti, S.A. and Lucchetti Peru, S.A. v. The Republic of Peru, Award, 7 February 2005. 13. ICSID, Case No. ARB/04/13, Jan de Nul N.V., Dredging International N.V. v. Arab Republic of Egypt, Decision on Jurisdiction, 16 June 2006. 14. ICSID, Case No. ARB/04/6, Oko Pankki Oyj and Ors. v Estonia, Award, 19 November 2007.

206

Cases

15. ICSID, Case No. ARB/05/22, Biwater Gauff (Tanzania) Ltd v. United Republic of Tanzania, Award, 24 July 2008. 16. ICSID, Case No. ARB/07/17, Impregilo S.p.A. v. Argentine Republic, Award, 21 June 2011. 17. ICSID, Case No. ARB/10/1, Kilic v. Turkmenistan, Decision on Art. VII.2 of The Turkey-Turkmenistan Bilateral Investment Treaty, 7 May 2012. 18. ICSID, Case No. ARB/13/27, Marfin Investment Group Holdings S.A. and others v. Republic of Cyprus, Award, 26 July 2018. 19. ICSID, Case No. ARB/81/1, Amco Asia and others v. Republic of Indonesia, Annulment Decision, 16 May 1986, 1 ICSID Rep. 509 (1993). 20. ICSID, Case No. ARB/81/1, Amco Asia Corporation and others v. Republic of Indonesia, Award, 20 November 1984. 21. ICSID, Case No. ARB/94/2, Tradex v. Albania, Decision on Jurisdiction, 24 December 1996. 22. ICSID, Case No. ARB/97/4, Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, Decision of the Tribunal on Objections to Jurisdiction, 24 May 1999. 23. ICSID, Case No. ARB/97/7, Emilio Agustín Maffezini v. Kingdom of Spain, Award, 13 November 2000. 24. ICSID, Case No. ARB/97/7, Emilio Agustín Maffezini v Kingdom of Spain, Decision on Jurisdiction, 25 January 2000. 25. ICSID, Case No. ARB/98/7, Banro American Resources, Inc. and Société Aurifère du Kivu et du Maniema S.A.R.L. v. Democratic Republic of the Congo, Award of the Tribunal, 1 September 2000, published as Excerpts (2002) ICSID Review-FILJ 17(2):382–392 26. ICSID, Case No. ARB/15/21, Menzies Middle East and Ors. v Senegal, Award, 5 August 2016 (Award available only in French). 27. ICSID, Case No. ARB/07/25, Trans-Global Petroleum, Inc. v. Jordan, Tribunal’s decision on the Respondent’s Objection under Rule 41(5) of the ICSID Arbitration Rules, 12 May 2008. 28. PCA Case No. 2007-2: Chevron Corporation and Texaco Petroleum Company v. The Republic of Ecuador. 29. PCA Case No. 2013-12 (Number 2), Achmea B.V. v. Slovak Republic, UNCITRAL, Award on Jurisdiction and Admissibility, 20 May 2014. 30. PCA Case No. 2016-3, Resolute Forest Products Inc. v. Canada. 31. National Grid Plc. v. Argentine Republic, UNCITRAL Arbitration, Decision on Jurisdiction, 20 June 2006. 32. Ronald S. Lauder v. Czech Republic, UNCITRAL, Final Award, 3 September 2001. 33. Texaco Overseas Petroleum Co. v. Libya, Preliminary Award (1975), 53 ILR 389 (1979). 34. White Industries Australia Ltd. v. India, UNCITRAL, Final Award, 30 November 2011. 35. CME Czech Republic B.V. v. Czech Republic, UNCITRAL, Final Award, 14 March 2003.

Cases

207

WTO Panel and Appellate Body Reports 1. WTO, European Communities—Regime for the Importation, Sale and Distribution of Bananas, Report of the Panel, WT/DS27/R/ECU, 22 May 1997 2. WTO, Japan—Taxes on Alcoholic Beverages, Appellate Body Report, WT/DS8/ AB/R, WT/DS10/AB/R, WT/DS11/AB/R, 4 October 1996 3. WTO, Korea—Taxes on Alcoholic Beverages, Report of the Panel, WT/DS75/R WT/DS84/R, 17 September 1998

State-to-State Arbitrations Based on IIAs 1. Italy v. Cuba, Preliminary Award, 15 March 2006, Final Award, 15 January 2008. 2. PCA Case No. 2012-5, Republic of Ecuador v. United States of America, Award, 29 September 2012. 3. Peru v. Chile (Indirectly known). 4. USA v. Mexico, Cross-Border Trucking Services, Secretariat File No. USA-MEX-98-2008-01, Final Report of the Panel, 6 February 2001.

Other International Courts and Tribunals 1. IUSCT, Full Tribunal, Request for interpretation: Jurisdiction of the Tribunal with respect to claims by the Islamic Republic of Iran against nationals of the United States of America, Case No. A/2, Filed January 26, 1982, Published in 1-Iran.U.S.C.T.R. p. 101. 2. Special Tribunal for Lebanon, Case No. CH/AC/2010/02, Decision on Appeal of Pre-trial Judge’s Order Regarding Jurisdiction and Standing, Appeals Chamber, 10 November 2010.

Arbitral Awards for State-to-State Arbitrations 1. Alabama claims of the United States of America against Great Britain Award rendered on 14 September 1872 by the tribunal of arbitration established by Article I of the Treaty of Washington of 8 May 1871, RIAA, Vol. XXIX, pp. 125–134. 2. Award between the United States and the United Kingdom relating to the rights of jurisdiction of United States in the Bering’s sea and the preservation of fur seals, 15 August 1893, RIAA Vol. XXVIII, pp. 263–276. 3. Decision regarding delimitation of the border between Eritrea and Ethiopia, RIAA, Vol. XXV, 13 April 2002, pp. 83–195.

208

Cases

4. Lake Lanoux Arbitration (France v. Spain), Award, November 16, 1957, 24 I.L.R. 101. 5. PCA Case No. 2013-19, In the Matter of the South China Sea Arbitration, Philippines and China, Award of 12 July 2016. 6. PCA Case No. 2012-04, Award in the Arbitration between Croatia and Slovenia 29 June 2017. 7. PCA, Award in the Arbitration regarding the Iron Rhine (“IJzeren Rijn”) Railway between the Kingdom of Belgium and the Kingdom of the Netherlands, Decision of 24 May 2005, RIAA, Vol. XXVII, pp. 35–125. 8. The Ambatielos Claim (Greece, United Kingdom of Great Britain and Northern Ireland), 6 March 1956, RIAA, Vol. XII pp. 83–153, 107. 9. The 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 I A of the 1953 Agreement on German External Debts, 16 May 1980, RIAA, Vol. XIX, pp. 67–145. 10. Trail smelter case (United States, Canada), 16 April 1938 and 11 March 1941, RIAA, Vol. III, pp. 1905–1982. 11. United States-United Kingdom Arbitration concerning Heathrow Airport User Charges (United States-United Kingdom), RIAA, Vol. XXIV, Decision of 30 November 1992 (Revised 18 June 1993), pp. 1–359.

Agreements

Model BITs, IIAs (Trade/Investment Agreements) and FCN Treaties

1. 2. 3.

4. 5. 6.

7.

8.

9.

Name of the IIA North American Free Trade Agreement Malaysia-Australia Free Trade Agreement Protocol on Investment to the New Zealand-Australia Closer Economic Relations Trade Agreement Australia-US FTA Comprehensive and Progressive Agreement for Trans-Pacific Partnership Treaty between the United States of America and Grenada Concerning the Reciprocal Encouragement and Protection of Investment Treaty between the Government of the United States of America and the Government of The People’s Republic of the Congo Concerning the Reciprocal Encouragement and Protection of Investment Agreement between the Thailand Trade and Economic Office in Taipei and the Taipei Economic and Trade Office in Thailand for the Promotion and Protection of Investments Agreement between the Industrial Development & Investment Center in Taipei and the Economic Development Board in Singapore

Year of signature 1992 2012 2011

Referred to as NAFTA MAFTA Protocol-NZ-Australia CERTA, 2011

2004 2018

AUSFTA CPTPP

1986

USA-Grenada BIT

1990

USA-Republic of Congo BIT

1991

Thailand-Taiwan BIT

1990

Singapore-Taiwan BIT

(continued) © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 A. Hazarika, State-to-state Arbitration based on International Investment Agreements, European Yearbook of International Economic Law 10, https://doi.org/10.1007/978-3-030-50035-1

209

210

Agreements

Name of the IIA

10.

11. 12.

13.

14.

15.

16. 17.

18.

19.

20.

21.

22.

23.

on the Promotion & Protection of Investments Bilateral Investment Agreement between the India Taipei Association in Taipei and the Taipei Economic and Cultural Center in India The Central European Free Trade Agreement Agreement between the India Taipei Association in Taipei and the Taipei Economic and Cultural Center in New Delhi on the Promotion and Protection of Investments Treaty of Amity, Commerce, and Navigation, Between His Britannic Majesty and The United States of America, 8 Stat. 166 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Federal Democratic Republic of Ethiopia for the Promotion and Protection of Investments Agreement between Canada and the Czech Republic for the Promotion and Protection of Investments Treaty of Amity and Commerce Between the United States and France, 8 Stat. 12 Treaty of peace, friendship, commerce and navigation between the United States and Brazil, 8 Stat. 390 Germany and United States of America— Treaty of Friendship, Commerce and Consular Relations, 44 Stat. 2132 Treaty of friendship, commerce and navigation between the United States of America and the Italian Republic, 63 Stat. 2255 Treaty of Friendship, Commerce and Navigation, with Protocol, between Ireland and the United States of America, 206 UNTS 269 Treaty of Friendship, Establishment and Navigation between the Kingdom of Belgium and the United States of America, 480 UNTS 149 Agreement between the Government of the Kingdom of the Netherlands and the Government of Malta concerning the Encouragement and Reciprocal Protection of Investments Agreement on Economic Cooperation between the Government of the Kingdom of

Year of signature

Referred to as

2018

India-Taiwan BIA, 2018

2006

CEFTA

2002

India-Taiwan BIT, 2002

1794

Jay Treaty

2009

UK-Ethiopia BIT

2009

Canada-Czech Republic BIT, 2009

1778

USA-France FCN Treaty, 1778 USA-Brazil FCN Treaty, 1828

1828

1923

USA-Germany FCC Treaty, 1923

1948

USA-Italy FCN Treaty, 1948

1950

USA-Ireland FCN Treaty, 1950

1961

USA-Belgium FEN Treaty, 1961

1984

Netherlands-Malta BIT, 1984

1968

Indonesia-Netherlands BIT, 1968 (continued)

Agreements

Name of the IIA

24.

25.

26.

27.

28.

29.

30.

31.

32.

33.

The Netherlands and the Government of The Republic of Indonesia Agreement between Australia and the Oriental Republic of Uruguay on the Promotion and Protection of Investments 2012 U.S. Model Bilateral Investment Treaty as available at https://ustr.gov/sites/ default/files/BIT%20text%20for%20ACIEP %20Meeting.pdf on 2 January 2020 German Model Treaty—2008 as available at Dolzer/Schreuer, Principles of International Investment Law, 2nd ed., 2012, p. 363 Draft, Agreement for the Promotion and Protection of Investment, Austria, 2010 as available at https://pca-cpa.org/wp-content/ uploads/sites/6/2016/11/AgreementBetween-the-Republic-of-Austria-and-the_____-for-the-Promotion-and-Protection-ofInvestments-2010.pdf on 2 January 2020 Model Text for the Indian Bilateral Investment Treaty as available at https://dea.gov. in/sites/default/files/ModelTextIndia_BIT_ 0.pdf on 2 January 2020 Cooperation and Facilitation Investment Agreement, Brazil as available at https:// investmentpolicy.unctad.org/internationalinvestment-agreements/treaty-files/4786/ download on 2 January 2020 Model Text—Agreement-for the promotion and protection of Investments, United Kingdom as available at https:// investmentpolicy.unctad.org/internationalinvestment-agreements/treaty-files/2847/ download on 2 January 2020 SADC Model Bilateral Investment Treaty Template, 2012 as available at SADC, SADC Model Bilateral Investment Treaty Template with Commentary, 2012, p. 4 Netherlands Model Investment Agreement, 2018 as available at https://www. rijksoverheid.nl/binaries/rijksoverheid/ documenten/publicaties/2018/10/26/ modeltekst-voor-bilateraleinvesteringsakkoorden/modeltekst-voorbilaterale-investeringsakkoorden.pdf on 2 January 2020 EPA between the CARIFORUM States, of the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part

211 Year of signature

Referred to as

2019

Australia-Uruguay BIT, 2019

–

2012 US Model BIT

–

2008 German Model BIT

–

2010 Austrian Model BIT

–

2015 Indian Model BIT

–

2015 Brazilian Model CFIA

–

2008 United Kingdom Model BIT

–

2012 SADC Model BIT

–

2018 Netherlands Model BIT

2019

UK-CARIFORUM EPA

(continued)

212

34. 35.

36. 37.

38.

39.

40.

41.

42.

43.

44.

45.

46.

47.

Agreements

Name of the IIA CEPA between the Republic of Indonesia and the EFTA States Comprehensive Economic and Trade Agreement between Canada, of the one part, and the European Union and its Member States, of the other part, OJ L 11, 14.1.2017, p. 23 Energy Charter Treaty, 2080 UNTS 95 Agreement between the Swiss Confederation and the Democratic Republic of the Sudan concerning the Encouragement and Reciprocal Protection of Investments Agreement between the Government of the Republic of Austria and the Government of the Republic of Azerbaijan for the Promotion and Protection of Investments Agreement between the Republic of Chile and the Republic of Austria for the Promotion and Reciprocal Protection of Investments Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Republic of Chile Agreement between the Government of Hong Kong and the Government of the Republic of Austria for the Promotion and Protection of Investments Agreement between Malta and the Swiss Confederation on Trade, Protection of Investments and Technical Cooperation Cooperation and Facilitation Investment Agreement between the Federative Republic of Brazil and the Republic of Suriname Cooperation and Facilitation Investment Agreement between the Federative Republic of Brazil and the United Arab Emirates Free Trade Agreement between the Government of Australia and the Government of the People’s Republic of China Agreement between Japan and the United Arab Emirates for the Promotion and Protection of Investment Investment Protection Agreement between the European Union and its Member States, of The One Part, and the Republic of Singapore, of the Other Part

Year of signature 2018

Referred to as Indonesia-EFTA CEPA

2016

CETA

1994 1974

ECT Switzerland-Sudan BIT, 1974

2000

Austria-Azerbaijan BIT, 2000

1997

Austria-Chile BIT, 1997

1998

Netherlands-Chile BIT, 1998

1996

Hong Kong-Austria BIT, 1996

1965

Malta-Switzerland TIA, 1965

2018

Brazil-Suriname CFIA

2019

Brazil-UAE CFIA

2015

Australia-China FTA, 2015

2018

Japan-UAE BIT, 2018

2018

EU-Singapore IPA, 2018

(continued)

Agreements

48. 49.

50. 51.

52.

53.

54.

55.

56.

57.

58.

59.

Name of the IIA Treaty between the Republic of Belarus and the Republic of India on Investments Treaty between the United States of America and the Republic of Ecuador concerning the Encouragement and Reciprocal Protection of Investment Free Trade Agreement between the Republic of Albania and the EFTA States Cooperation and Investment Facilitation Agreement between the Federative Republic of Brazil and the Co-operative Republic of Guyana Investment Cooperation and Facilitation Agreement between the Federative Republic of Brazil and the Republic of Malawi Agreement between the Government of Sweden and the Government of the Arab Republic of Egypt on the Mutual Protection of Investments Acuerdo Entre el Gobierno de La Republica De Colombia Y el Gobierno de La Republica Francesa Sobre El Fomento y Proteccion Reciprocos de Inversiones (Title in Spanish) Agreement between the Government of the Federal Republic of Germany and the Palestine Liberation Organization for the benefit of the Palestinian Authority concerning the Encouragement and Reciprocal Protection of Investments Agreement between the Government of Canada and the Government of the Republic of Argentina for the Promotion and Protection of Investment Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Argentina for the Promotion and Protection of Investments Agreement between the Government of Barbados and the Republic of Cuba for the Promotion and Protection of Investment Agreement between the Government of the Republic of China (Taiwan) and the Government of Saint Vincent and Grenadines for the Reciprocal Promotion and Protection of Investments

213 Year of signature 2018

Referred to as Belarus-India BIT, 2018

1993

USA-Ecuador BIT, 1993

2009

Albania-EFTA FTA, 2009

2018

Brazil-Guyana CIFA

2015

Brazil-Malawi ICFA

1978

Sweden-Egypt BIT, 1978

2014

Colombia-France BIT, 2014

2000

Germany-Palestine BIT, 2000

1991

Argentina-Canada BIT, 1991

1990

Argentina-United Kingdom BIT, 1990

1996

Barbados-Cuba BIT, 1996

2009

St. Vincent and the Grenadines-Taiwan BIT

(continued)

214

60.

61.

62. 63.

64.

65.

66.

67.

68.

69.

70.

71.

Agreements

Name of the IIA Agreement between the Government of India and the Government of Nepal for the Promotion and Protection of Investment Agreement between the Government of the Republic of Serbia and the People’s Democratic Republic of Algeria on the Reciprocal Promotion and Protection of Investments Unified Agreement for the Investment of Arab Capital in the Arab States Agreement between the People’s Republic of Serbia and the Republic of Turkey concerning the Reciprocal Promotion and Protection of Investments Agreement between the Government of the People’s Republic of China and the Government of the Mongolian People’s Republic concerning the Encouragement and Reciprocal Protection of Investments Agreement between the Government of the State of Israel and the Government of the Republic of the Union of Myanmar of the Reciprocal Promotion and Protection of Investments Agreement for the Promotion and Reciprocal Protection of Investments between Canada and the Republic of Guinea Agreement on the Encouragement and Protection of Investments between the Hashemite Kingdom of Jordan and the Government of the Syrian Arab Republic Agreement for the Promotion and Protection of Investment between the Republic of Austria and the Federal Republic of Nigeria Agreement between the Government of the Republic of Korea and the Government of the Republic of Italy concerning the Encouragement and the Reciprocal Protection of Investments Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Republic of Peru Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the United Mexican States for the Promotion and Reciprocal Protection of Investments

Year of signature 2011

Referred to as India-Nepal BIT, 2011

2012

Algeria-Serbia BIT

1980

Arab Investment Agreement

1990

China-Turkey BIT, 1990

1991

China-Mongolia BIT, 1991

2014

Israel-Myanmar BIT

2015

Canada-Guinea BIT

2001

Jordan-Syria BIT

2013

Austria-Nigeria BIT

1989

Korea-Italy BIT

1994

Netherlands-Peru BIT

2006

UK-Mexico BIT

(continued)

Agreements

72.

73.

74.

75.

76.

77.

78.

79.

80.

81.

82.

83.

84.

Name of the IIA Agreement Between the Republic of Turkey and the Republic of Cuba Concerning the Reciprocal Promotion and Protection of Investments Agreement establishing the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) Agreement between the Republic of Austria and the Republic of Uzbekistan for the Promotion and Protection of Investments Agreement between Japan and the Republic of Iraq for the Promotion and Protection of Investment Agreement between the Government of New Zealand and the Government of the Republic of Chile the Promotion and Protection of Investment Agreement between Japan and the Socialist Republic of Vietnam for the Liberalization, Promotion and Protection of Investment Agreement between Japan and the Sultanate of Oman for the Reciprocal Promotion and Protection of Investment Agreement between Japan and the Republic of Kazakhstan for the Promotion and Protection of Investment Agreement between the Government of the Republic of France and the Government of the United Mexican States on the Reciprocal Promotion and Protection of Investments Agreement between the Government of the United Mexican States and the Government of the Republic of India on the Reciprocal Promotion and Protection of Investments Agreement concerning the Reciprocal Promotion and Protection of Investments Between Bosnia and Herzegovina and the Government of the State Qatar Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Republic of Albania Agreement between the Kingdom of the Netherlands and the Republic of Paraguay on encouragement and reciprocal protection of investments

215 Year of signature 1997

Referred to as Cuba-Turkey BIT, 1997

2008

AANZFTA Agreement

2000

Austria-Uzbekistan BIT

2012

Iraq-Japan BIT

1999

Chile-New Zealand BIT

2003

Japan-Vietnam BIT, 2003

2015

Japan-Oman BIT

2014

Japan-Kazakhstan BIT

1998

Mexico-France BIT

2007

India-Mexico BIT, 2007

1998

Qatar-Bosnia and Herzegovina BIT

1994

Albania-Netherlands BIT

1992

Netherlands-Paraguay BIT

(continued)

216

85.

86.

87.

88.

89.

90.

91.

92.

93.

94.

95.

96.

Agreements

Name of the IIA Agreement between the Government of the Kingdom of the Netherlands and the Government of the People’s Republic of Bulgaria on mutual encouragement and protection of investments (with annex and exchange of letters) Agreement between the Government of the United Mexican States and the Government of the Republic of Belarus on the Promotion and Reciprocal Protection of Investments The Agreement on Promotion, Protection and Guarantee of Investments among Member States of the Organization of the Islamic Conference Treaty between the Federal Republic of Germany and the Kingdom of Nepal concerning the Encouragement and Reciprocal Protection of Investments Agreement between the Government of Canada and the Government of the Republic of Latvia for the Promotion and Protection of Investment Agreement between the Government of the Republic of India and the Government of the Republic of Bulgaria for the Promotion and Protection of Investments Agreement between the BelgiumLuxembourg Economic Union and the Government of the State of Qatar on the Reciprocal Promotion and Protection of Investments 2008 Ghana Model BIT as available at https://investmentpolicy.unctad.org/interna tional-investment-agreements/treaty-files/ 2866/download on 2 January 2020 Indian Model Text of BIPA, 2003 as available at https://www.italaw.com/sites/default/ files/archive/ita1026.pdf on 2 January 2020 Agreement between the Government of the Kingdom of Norway and the Government of the Republic of Latvia on the mutual promotion and protection of investments Agreement between the Republic of Hungary and the Republic of India for the Promotion and Protection of Investments Treaty between the Government of the United States of America and the Republic of Panama Concerning the Treatment and Protection of Investment

Year of signature 1988

Referred to as Netherlands-Bulgaria BIT, 1988

2008

Mexico-Belarus BIT

1981

OIC Investment Agreement

1986

Germany-Nepal BIT

2009

Canada-Latvia BIT, 2009

1998

India-Bulgaria BIPA, 1998

2007

Qatar-BLEU BIT

–

2008 Ghana Model BIT

–

2003 Indian Model BIPA

1992

Norway-Latvia BIT

2003

India-Hungary BIT

1982

USA-Panama BIT, 1982

(continued)

Agreements

97.

98.

99.

100.

101.

102.

103.

104.

105.

106.

107.

108.

Name of the IIA Agreement among the Government of Japan, the Government of the Republic of Korea and the Government of the People’s Republic of China for the Promotion, Facilitation and Protection of Investment Agreement for the Promotion and Protection of Investment between the Government of the Republic of Austria and the Government of the Kyrgyz Republic Agreement between the Government of the Republic of Moldova and the Government of the State of Qatar for the Reciprocal Promotion and Protection of Investments The Reciprocal Promotion and Protection of Investments between the Argentine Republic and the State of Qatar Agreement for the Reciprocal Promotion and Protection of Investments between the Argentine Republic and the United Arab Emirates Agreement between the Argentine Republic and Japan for the Promotion and Protection of Investment Agreement among the Government of the Kingdom of Thailand and the Government of the People’s Republic of Bangladesh for the Promotion of the Investment of Capital and for the Protection of Investments Agreement between the Government of the Republic of India and the Government of the Republic of Lithuania for the Promotion and Protection of Investments Agreement between the Czech Republic and the Kingdom of Saudi Arabia for the Encouragement and Reciprocal Protection of Investment Agreement between the Government of Mongolia and the Government of the State of Qatar for the Reciprocal Promotion and Protection of Investments Agreement between the Government of the Italian Republic and the Government of the State of Qatar for the Reciprocal Promotion and Protection of Investments Agreement between the Government of the Republic of Colombia and the Government of the Republic of Turkey concerning the Reciprocal Promotion and Protection of Investments

217 Year of signature 2012

Referred to as China-Japan-ROK Trilateral Investment Agreement, 2012

2016

Austria-Kyrgyz Republic BIT

2012

Qatar-Moldova BIT

2016

Argentina-Qatar BIT

2018

Argentina-UAE BIT

2018

Argentina-Japan BIT, 2018

1988

Bangladesh-Thailand BIT, 1988

2011

India-Lithuania BIT

2009

Czech Republic-Saudi Arabia BIT

2007

Mongolia-Qatar BIT, 2007

2000

Qatar-Italy BIT

2014

Colombia-Turkey BIT

(continued)

218

109.

110.

111.

112.

113.

114.

115.

116.

117.

118.

119.

120.

Agreements

Name of the IIA Agreement between the Government of the Republic of Colombia and the Government of the Kingdom of Cambodia on the Reciprocal Promotion and Protection of Investments Treaty between the United States of America and Mongolia Concerning the Encouragement and Reciprocal Protection of Investment Investment Incentive Agreement between the Government of the USA and the Government of the Mongolian People’s Republic Agreement between the Government of Canada and the Government of Burkina Faso for the Promotion and Protection of Investments Treaty between the Government of the United States of America and the Government of the Republic of Rwanda Concerning the Encouragement and Reciprocal Protection of Investment Agreement for the Promotion and Protection of Investment between the Republic of Austria and the Republic of Tajikistan Agreement between the Republic of Austria and the Republic of Yemen for the Promotion and Protection of Investments Agreement on Reciprocal Encouragement and Protection of Investments Between the People’s Republic of China and the Kingdom of the Netherlands Agreement between the Government of the People’s Republic of China and the Government of the United Republic of Tanzania Concerning the Promotion and Reciprocal Protection of Investments Agreement between the Government of the Italian Republic and the Government of the United Mexican States for the Promotion and Mutual Protection of Investments Agreement between the Government of the Portuguese Republic and the Government of the State of Qatar on the Reciprocal Promotion and Protection of Investments Agreement between the Lebanese Republic and the Republic of Austria on the Reciprocal Promotion and Protection of Investments

Year of signature 2018

Referred to as Turkey-Cambodia BIT

1994

US-Mongolia BIT, 1994

1990

2015

Investment Incentive Agreement between USA and Mongolia, 1990 Canada-Burkina Faso BIT

2008

US-Rwanda BIT

2010

Austria-Tajikistan BIT, 2010

2003

Austria-Yemen BIT

1985

Netherlands-China BIT, 1985

2013

China-Tanzania BIT

1999

Mexico-Italy BIT

2009

Portugal-Qatar BIT

2001

Lebanon-Austria BIT

(continued)

Agreements

121.

122.

123.

124.

125.

126. 127.

128.

129.

130.

131.

132.

Name of the IIA EU-Vietnam Investment Protection Agreement (Text as published by the Commission at https://trade.ec.europa.eu/doclib/press/ index.cfm?id¼1437 as on 2 January 2020) Agreement for the Promotion and Reciprocal Protection of Investment between the Government of the Republic of Austria and the Government of the Republic of Kazakhstan Agreement between the Government of Montenegro and the Government of the United Arab Emirates on the Promotion and Reciprocal Protection of Investments Free Trade Agreement between Central America, the Dominican Republic and the United States of America Agreement between the Government of the State of Israel and the Government of the Republic of Azerbaijan on the Reciprocal Promotion and Protection of Investments Free Trade Agreement between New Zealand and the Republic of Korea Agreement between the Government of the Republic of Korea and the Government of the Islamic Republic of Mauritania for the Promotion and Protection of Investments Agreement between the Government of Romania and the Government of the Republic of Kazakhstan on the Promotion and Reciprocal Protection of Investments Agreement between the Government of Canada and the Government of the Republic of Costa Rica for the Promotion and Protection of Investments Agreement Between the Government of Canada and the Government of the People’s Republic of China for the Promotion and Reciprocal Protection of Investments Agreement Between the Government of Canada and the Government of the Hong Kong Special Administrative Region of the People’s Republic of China for the Promotion and Protection of Investments Agreement between Canada and the Hashemite Kingdom of Jordan for the Promotion and Protection of Investments

219 Year of signature 2019

Referred to as EU-Vietnam Investment Agreement

2010

Austria-Kazakhstan BIT

2012

UAE-Montenegro BIT

2004

CAFTA-DR

2007

Israel-Azerbaijan BIT

2015

KNZFTA

2004

Korea-Mauritania BIT

2010

Romania-Kazakhstan BIT, 2010

1998

Canada-Costa Rica BIT

2012

Canada-China BIT, 2012

2016

Canada-Hong Kong BIT

2009

Canada-Jordan BIT

(continued)

220

133.

134.

135. 136.

137.

138.

139.

140.

141. 142.

143.

144.

145.

Agreements

Name of the IIA Agreement between Canada and the Republic of Serbia for the Promotion and Protection of Investments Agreement Between the Government of Canada and the Government of the Republic of Benin for the Promotion and Reciprocal Protection of Investments ASEAN Comprehensive Investment Agreement Agreement Between the Government of the Republic of Turkey and the Government of the Republic of the Gambia concerning the Reciprocal Promotion and Protection of Investments EU-Vietnam Free Trade Agreement (Text as published by the Commission at https:// trade.ec.europa.eu/doclib/press/index.cfm? id¼1437 as on 2 January 2020) Free Trade Agreement Between the European Union and the Republic of Singapore, OJ L 294, 14.11.2019, p. 3 Free Trade Agreement between the European Union and its Member States, of the one part, and the Republic of Korea, of the other part, OJ L 127, 14.5.2011, p. 6 Agreement between the European Union and Japan for an Economic Partnership (Text as published by the Commission at https:// trade.ec.europa.eu/doclib/press/index.cfm? id¼1684 as on 2 January 2020) Convention on the Protection of the Rights of the Investor Agreement on Investment under the Framework Agreement on Comprehensive Economic Cooperation between the Association of Southeast Asian Nations and the Republic of India Agreement Between the Republic of Turkey and the Republic of India Concerning the Reciprocal Promotion and Protection of Investments 2004 Canadian Bilateral Investment Treaty as available at https://www.italaw.com/docu ments/Canadian2004-FIPA-model-en.pdf on 2 January 2020 Agreement on Promotion and Protection of Investments among Economic Cooperation Organization (ECO) Member States

Year of signature 2014

Referred to as Canada-Serbia BIT

2013

Canada-Benin BIT

2009 2013

ASEAN Comprehensive Investment Agreement, 2009 Turkey-Gambia BIT, 2013

2019

EUVFTA

2018

EUSINGFTA

2011

EUROKFTA

2018

EU-Japan EPA

1997

Moscow Convention

2014

ASEAN-India Investment Agreement, 2014

1998

India-Turkey BIT, 1998

2004

2004 Canadian Model BIT

2005

ECO IA

(continued)

Agreements

146.

147. 148.

149.

150.

151.

152.

153.

154.

155.

156.

157.

Name of the IIA Agreement between the Government of the Republic of Mauritius and the Government of the Arab Republic of Egypt on the Reciprocal Promotion and Protection of Investments Investment Agreement For the COMESA Common Investment Area Agreement between the Arab Republic of Egypt and the Republic of Cyprus for the Promotion and Reciprocal Protection of Investments Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Federal Republic of Nigeria Agreement between the Kingdom of Belgium and the Republic of Indonesia on the Encouragement and Reciprocal Protection of Investments Agreement between the Government of Denmark and the Government of the Republic of Indonesia Concerning the Encouragement and the Reciprocal Protection of Investments Agreement between the Government of the United Arab Emirates and the Government of the United Mexican States for the Promotion and Reciprocal Protection of Investments Agreement between the Federative Republic of Brazil and the Federal Democratic Republic of Ethiopia on Investment Cooperation and Facilitation Tra Il Governo Della Repubblica Italiana E Il Governo Della Repubblica Di Cuba Sulla Promozione E Protezione Degli Investimenti (Title in Italian) Treaty between the Federal Republic of Germany and the Republic of Botswana concerning the Encouragement and Reciprocal Protection of Investments Accord Entre Le Gouvernement De La Republique Francaise Et Le Gouvernement De La Republique De Lettonie Sur L’encouragement Et La Protection Reciproques Des Lnvestissements (Ensemble Un Echange De Lettres) (Title in French) Agreement between the Swiss Federal Council and the Government of the State of Qatar on the Promotion and Reciprocal Protection of Investments

221 Year of signature 2014

2007

Referred to as Mauritius-Egypt BIT

1998

COMESA Investment Agreement Egypt-Cyprus BIT

1992

Netherlands-Nigeria BIT

1970

Belgium-Indonesia BIT, 1970

1968

Denmark-Indonesia BIT, 1968

2016

UAE-Mexico BIT

2018

Brazil-Ethiopia ICFA

1993

Italy-Cuba BIT, 1993

2000

Germany-Botswana BIT

1992

France-Latvia BIT

2001

Switzerland-Qatar BIT

(continued)

222

158.

159.

160.

161.

162. 163.

164.

165.

166.

167.

168.

169.

170.

Agreements

Name of the IIA Agreement between the Government of The People’s Republic of China and the BelgianLuxembourg Economic Union on the Reciprocal Promotion and Protection of Investments Treaty of Friendship and of Commerce between the Swiss Confederation and the Republic of Liberia Agreement between the Swiss Confederation and the Republic of Guyana on the Promotion and Reciprocal Protection of Investments Agreement between Bosnia and Herzegovina and the Republic of India for the Promotion and Protection of Investments Singapore-Australia Free Trade Agreement Agreement between the Government of the Republic of Kazakhstan and the Government of the Republic of Singapore on the Promotion and Mutual Protection of Investments Agreement between the State of Israel and Japan for the Liberalization, Promotion and Protection of Investment Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Yemen Arab Republic Agreement between the Government of the Republic of Korea and the Government of the Swiss Confederation concerning the Encouragement and Reciprocal Protection of Investments Agreement between the Swiss Confederation and the Republic of Uganda Concerning the Encouragement and Reciprocal Protection of Investments Agreement between the Swiss Confederation and the Republic of Turkey on the Reciprocal Promotion and Protection of Investments Agreement between Canada and the Federal Republic of Nigeria for the Promotion and Protection of Investments Agreement between the Government of the Hong Kong Special Administrative Region of the People’s Republic of China and the

Year of signature 1984

Referred to as China-BLEU BIT, 1984

1963

Liberia-Switzerland FCN Treaty

2005

Guyana-Switzerland BIT

2006

Bosnia and Herzegovina-India BIT

2003 2018

SAFTA Singapore-Kazakhstan BIT

2017

Israel-Japan BIT

1985

Netherlands-Yemen BIT, 1985

1971

Switzerland-South Korea BIT, 1971

1971

Switzerland-Uganda BIT, 1971

1988

Switzerland-Turkey BIT, 1988

2014

Canada-Nigeria BIT, 2014

2019

Hong Kong-UAE BIT, 2019

(continued)

Agreements

Name of the IIA

171. 172.

173.

174.

175.

176.

177.

178.

179.

180.

181.

182.

Government of the United Arab Emirates for the Promotion and Reciprocal Protection of Investments Singapore-Turkey Free Trade Agreement Agreement between the Republic of Austria and the Republic of Macedonia on the Promotion and Protection of Investments Agreement on Investment under the Framework Agreement Establishing a Free Trade Area Between the Republic of Korea and the Republic of Turkey Treaty between the United States of America and the Republic of Cameroon Concerning the Reciprocal Encouragement and Protection of Investment Treaty between the United States of America and the Republic of Haiti Concerning the Reciprocal Encouragement and Protection of Investment Treaty between the United States of America and the Republic of Turkey Concerning the Reciprocal Encouragement and Protection of Investments Agreement between the Government of the Republic of Uzbekistan and the Government of the Republic of Turkey concerning the Reciprocal Promotion and Protection of Investments Agreement between the Republic of Austria and the Great Socialist People’s Libyan Arab Jamahiriya for the Promotion and Protection of Investments Reciprocal Investment Promotion and Protection Agreement between the Government of the Kingdom of Morocco and the Government of the Federal Republic of Nigeria Agreement between the Republic of Turkey and Turkmenistan concerning the Reciprocal Promotion and Protection of Investments Agreement between the Government of the State of Qatar and the Government of The Republic of Turkey Concerning the Reciprocal Promotion and Protection of Investments Agreement between the Government of Montenegro and the Government of the State of Qatar for the Reciprocal Promotion and Protection of Investments

223 Year of signature

Referred to as

2015 2001

Singapore-Turkey FTA, 2015 Austria-Macedonia BIT

2015

Korea-Turkey BIT, 2015

1986

USA-Cameroon BIT

1983

USA-Haiti BIT

1985

USA-Turkey BIT

2017

Uzbekistan-Turkey BIT, 2017

2002

Libya-Austria BIT

2016

Morocco-Nigeria BIT, 2016

1992

Turkey-Turkmenistan BIT

2001

Qatar-Turkey BIT

2009

Qatar-Montenegro BIT

(continued)

224

183.

184. 185.

186.

187.

188.

189.

190.

191.

192.

193.

194.

195.

Agreements

Name of the IIA Agreement between the Government of the Republic of Macedonia and the Government of the State of Qatar for the Reciprocal Promotion and Protection of Investments United States-Chile Free Trade Agreement Treaty between the Government of the United States of America and the Government of the Republic of Senegal Concerning the Reciprocal Encouragement and Protection of Investment Agreement on encouragement and reciprocal protection of investments between the Republic of Kazakhstan and the Kingdom of the Netherlands Treaty between the Federal Republic of Germany and Pakistan for the Promotion and Protection of Investments Agreement between the Government of the Republic of Turkey and the Government of the Islamic Republic of Pakistan Concerning the Reciprocal Promotion and protection of Investments Comprehensive Economic Partnership Agreement between Japan and the Republic of India Agreement on Trade in Services and Investment between the Republic of Armenia and the Republic of Singapore Agreement between the Government of Sweden and the Government of the Socialist Federal Republic of Yugoslavia on the mutual protection of investments Agreement between the Government of Sweden and the Government of Malaysia concerning the mutual protection of investments Agreement between the Government of the Federal Republic of Nigeria and the Government of the United Arab Emirates for the Reciprocal Promotion and Protection of Investments Investment Cooperation and Facilitation Treaty between the Federative Republic of Brazil and the Republic of India Agreement between the United States of America, the United Mexican States, and Canada

Year of signature 2011

Referred to as Qatar-Macedonia BIT

2003 1983

US-Chile FTA, 2003 USA-Senegal BIT

2002

Kazakhstan-Netherlands BIT, 2002

1959

Germany-Pakistan BIT, 1959

2012

Turkey-Pakistan BIT, 2012

2011

Japan-India CEPA, 2011

2019

Armenia-Singapore TISaIA, 2019

1978

Sweden-Yugoslavia BIT, 1978

1979

Sweden-Malaysia BIT

2016

UAE-Nigeria BIT, 2016

2020

India-Brazil ICFT

2019

USMCA

Agreements

225

Other Agreements, Conventions, Statutes and Draft or Model Agreements

1.

2.

3.

4.

5. 6. 7.

Name of the agreement United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (Mauritius Convention), 2014 Association Agreement between the European Union and its Member States, of the one part, and Ukraine, of the other part Convention for the Pacific Settlement of International Disputes of 1899 The Hague Convention for the Pacific Settlement of International Disputes of 1907 General Treaty of InterAmerican Arbitration, 1929 Charter of the United Nations, 1945 Havana Charter for an International Trade Organization, 1948

8.

Draft Convention on the protection of Foreign Property, 1967

9.

Draft Convention on Investments Abroad, 1959

10.

Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958

Citation UN Treaty Registration, I-54749

Referred to as Mauritius Convention, 2014

OJ L 161, 29.5.2014, p. 3

EU-Ukraine Association Agreement, 2014

1 AJIL 103 (1907)

Hague I Convention

2 AJIL Supp. 43 (1908)

Hague II Convention

49 Stat. 3152

GTIAA

59 Stat. 1031

UN Charter

United Nations Conference on Trade and Employment held at Havana, Cuba from November 21, 1947, to March 24, 1948, Final Act and Related Documents, E/CONF.2/78, United Nations publication, Sales No. 1948.II. D.4 OECD Council Resolution No. C(67) 102 dated 16 October 1967. Published through The International Lawyer (1968), 2(2):331–353 Abs, Hermann and Hartley, Shawcross, Draft Convention on Investments Abroad. In: The proposed convention to protect private foreign investment: a round table, Journal of Public Law (presently Emory Law Journal) (1960), 9:115– 124 330 UNTS 38

Havana Charter

Draft Convention on Foreign Property

Draft Convention on Investments Abroad, 1959

New York Convention

(continued)

226

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

Agreements Name of the agreement Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, 1965 Charter of Economic Rights and Duties of States, 1974

Understanding on Rules and Procedures Governing the Settlement of Disputes, Marrakesh Agreement Establishing the World Trade Organization, Annex 2 Revised General Act for the Pacific Settlement of International Disputes, 1949 European Convention for the Peaceful Settlement of Disputes, 1957 2010 Protocol to the ASEAN Charter on Dispute Settlement Mechanisms Draft Articles on Diplomatic Protection, 2006

Declaration of the Government of the Democratic and Popular Republic of Algeria Concerning the Settlement of Claims by the Government of the United States of America and the Government of the Islamic Republic of Iran (Claims Settlement Declaration), 19 January 1981 Agreement between the Government of the State of Eritrea and the Government of the Federal Democratic Republic of Ethiopia, 12 December 2000 Draft Consolidated Text of the Multilateral Agreement on Investment, 22 April 1998

Citation 575 UNTS 159

Referred to as ICSID Convention

Resolution adopted by the General Assembly 3281 (XXIX). Charter of Economic Rights and Duties of States on 12 December 1974, UN Doc No. A/RES/29/3281 1869 UNTS 401

Charter of Economic Rights and Duties of States

71 UNTS 101

Revised General Act

320 UNTS 244

European Convention for the Peaceful Settlement of Disputes ASEAN DSM Protocol, 2010

–

Dispute Settlement Understanding

Official Records of the General Assembly, Sixty-first Session, Supplement No. 10 (A/61/10) 20 ILM 223, 230 (1981)

Draft Articles on Diplomatic Protection, 2006

UN Doc. A /55/686-S/2000/ 1183

Peace Agreement between Eritrea and Ethiopia

OECD Document No. DAFFE/MAI(98)7/REV1

Draft Multilateral Agreement on Investment

Claims Settlement Declaration

(continued)

Agreements

21.

22.

23.

24. 25. 26. 27.

28.

29.

30.

31.

32.

33.

34.

Name of the agreement Agreement on Dispute Settlement Mechanism Under the Framework Agreement on Comprehensive Economic Cooperation Between the Republic of India and the Association of Southeast Asian Nations, 2009 Paris Convention for the Protection of Industrial Property, 1883 as amended on September 28, 1979 Berne Convention for the Protection of Literary and Artistic Works, 1886 as amended on September 28, 1979 Universal Copyright Convention, 1952 Patent Cooperation Treaty as modified on October 3, 2001 Covenant of the League of Nations, 1919 International Convention for the Prevention of Pollution from Ships, 1973 Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal, 1989 Convention on International Trade in Endangered Species of Wild Fauna and Flora, 1973 Agreement Establishing the Caribbean Court of Justice, 2001 Treaty for the Establishment of the East African Community, 1999 Treaty Establishing the Common Market for Eastern and Southern Africa, 1993 Treaty Creating the Court of Justice of the Andean Community, 1996 Statute of the International Court of Justice, 1945

227 Citation –

Referred to as ASEAN-India Dispute settlement Mechanism Agreement, 2009

828 UNTS 305

Paris Convention

828 UNTS 223

Berne Convention

943 UNTS 178

UCC

9 I.L.M. 978 (1970)

PCT

13 AJIL Supp. 128 (1919) 1340 UNTS 18

Covenant of the League of Nations MARPOL

1673 UNTS 126

Basel Convention

993 UNTS 243

CITES

First Schedule of the Caribbean Court of Justice Act, 2004, Antigua and Barbuda, Act No.10 of 2004 –

CCJ Agreement

–

COMESA Agreement

–

ACJ Treaty

39 AJIL Supp. 215 (1945)

Statute of the ICJ

EAC Agreement

(continued)

228

35.

36.

37. 38.

39.

40. 41.

42. 43.

44. 45. 46.

47.

48.

49.

Agreements Name of the agreement Statute of the Court of the Eurasian Economic Union, Annex 2 to the Treaty on the Eurasian Economic Union, 2014 Statute of the Central American Court of Justice, 1992

Citation –

Referred to as Statute of the Court of the Eurasian Economic Union

–

General Agreement on Trade in Services, 1994 ASEAN Protocol on Enhanced Dispute Settlement Mechanism, 2004 Agreement establishing an Association between the European Union and its Member States, on the one hand, and Central America on the other Vienna Convention on the Law of Treaties, 1969 Convention concerning Indigenous and Tribal Peoples in Independent Countries (ILO No. 169), 1989 Rio Declaration on Environment and Development, 1992 American Treaty on Pacific Settlement (Pact of Bogota), 1948 Treaty on European Union

1869 UNTS 183

Statute of the Central American Court of Justice, 1992 GATS

Treaty on the Functioning of the European Union Responsibility of States for Internationally Wrongful Acts, 2001, UN General Assembly Resolution 56/83, 28 January 2002 Additional Protocol to the Framework Agreement of the Pacific Alliance, 2014 Protocol of Olivos for Dispute Settlement in MERCOSUR, 2002 Agreement on the withdrawal of the United Kingdom of Great Britain and Northern

–

2004 ASEAN DSM Protocol

OJ L 346, 15.12.2012, p. 3

EU-Central America Association Agreement

1155 UNTS 331

VCLT

28 ILM 1382 (1989)

Indigenous and Tribal Peoples Convention, 1989

31 ILM 874 (1992)

Rio Declaration

30 UNTS 84

Pact of Bogota

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Treaty on European Union TFEU

OJ C 326, 26.10.2012, p. 47 UN Doc No. A/RES/56/83

Articles on Responsibility of States for Internationally Wrongful Acts

–

Additional Protocol to the Framework Agreement of the Pacific Alliance, 2014 Olivos Protocol

42 ILM 2 (2003)

–

Draft Withdrawal Agreement of the UK from EU (continued)

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50. 51.

52.

53.

229

Name of the agreement

Citation

Referred to as

Ireland from the European Union and the European Atomic Energy Community, Presented to Parliament pursuant to Section 1 of the European Union (Withdrawal) Act (No. 2) 2019 and Section 13 of the European Union (Withdrawal) Act 2018, 19 October 2019 Statute of the Permanent Court of International Justice, 1920 Protocol of Cochabamba Amending the Treaty Creating the Court of Justice, 1996 WTO Agreement: Marrakesh Agreement Establishing the World Trade Organization, 1994 United Nations Convention on the Law of the Sea, 1982

17 AJIL Supp. 115 (1923)

Statute of PCIJ

–

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1867 UNTS 154

WTO Agreement

1833 UNTS 397

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