IMPORTED CONSENT: AN ELEPHANT IN THE ROOM

marzo 26, 2017 COLVYAP 0 Comments



Fuente: deviantart.net


Por: Alejandro Castellanos Mier

The Bilateral Investment treaties have been a significant development of the public international law, particularly from the diplomatic protection realm, since they embody the very core of the  Arbitral Investment Law: protection standards granted to foreign investors on behalf of the host state in which an investment is made. In other words, the objective pursued by the signature  and enforcement of BIT´s is to assure that  foreign investors are  not subject to a less favorable treatment in regard to the national investors.

In first instance, on the basis of the foregoing , for an investor to be covered by the BIT protection standards, for which the host state of the investment is entitled to, he has to be legally deemed  as one in terms of the Agreement. That is to say, basic legal  requirements such as nationality, and  business/ commercial activities falling  within the definition of investment set forth on the BIT, has to be complied. Nationality is, in first place, the vehicle for the enforcement of international law[1]

In regard to the first mentioned requirement it must be taken into account that nationality is not determined by international law but by the state, who is the entity coated with authority to enact laws that concern the nationality of its citizens. As has been acknowledged by international tribunals rationale, nationality is accepted to be, in principle, within the scope of internal jurisdiction[2] in first place. As putted forward by the tribunal in Soufraki V. UAE:

 “It is accepted in international law that nationality is within the domestic jurisdiction of the State, which settles, by its own legislation, the rules relating to the acquisition (and loss) of its nationality. Article 1(3) of the BIT reflects this rule. But it is no less accepted that when, in international arbitral or judicial proceedings, the nationality of a person is challenged, the international tribunal is competent to pass upon that challenge. It will accord great weight to the nationality law of the State in question and to the interpretation and application of that law by its authorities. But it will in the end decide for itself whether, on the facts and law before it, the person whose nationality is at issue was or was not a national of the State in question and when, and what follows from that finding. Where, as in the instant case, the jurisdiction of an international tribunal turns on an issue of nationality, the international tribunal is empowered, indeed bound, to decide that issue.[3]

However, internal legislation of states does not override the incidence of international law standards, for in accordance with international law state´s decisions on nationality for municipal purposes are not spontaneously conclusive or definitive for international law purposes. Referring to municipal law is insufficient for a Tribunal to determine the nationality criteria, there is more needed than the sole recognition by a state[4]

Consequently, international investment tribunals are not expected to inquiry a sovereign act of state, such as the nationality recognition but to analyze whether or not said act is entitled to produce effects in international law, since it is a generally recognized rule of international law that nationality is, lastly, defined by international law and not by municipal law per se[5]. In this vein, international tribunals are entitled to review the nationality issue in accordance to state domestic legislation, on one hand, for states municipal law are raised to international law sphere at the moment contracting parties chose to make it the applicable law to an eventual international law controversy[6]. In other words, the applicable law to any dispute between a national of a contracting party that holds an investment in the other contracting party’s territory is the Bilateral Investment Treaty. Thus, when the international Agreement does a renvoi to municipal law, it automatically becomes part of the applicable law to the dispute. For this reason, the Tribunal may use it and apply it as it would use and apply any other disposition of the treaty

On the other hand, from the international law perspective, jurisprudential practice has established that the nationality effects recognition by international law would only happen if such nationality is an effective one[7]. As provided by the ICJ, the principle of the effectiveness of nationality contains a juridical link based on a social fact of connection, an effective solidarity of existence, of interests and feelings united to a reciprocity of rights and duties[8]For an instance, in the Nottebohm case,  the ICJ stated:

“The naturalization of Nottebohm was an act performed by Liechtenstein in the exercise of its domestic jurisdiction. The question to be decided is whether that act has the international effect here under consideration¨[9]

Likewise, in second instance, the subject business and commercial activities have to fall within the definition of investment set forth by the pertinent agreement, for him to be considered as an ¨Investor¨ under the BIT. Practically, this means that the investor  owns an investment in the territory of one contracting party in accordance with the laws and regulations of the latter and, as provided above, that it is a national of the other contracting party.

The ¨investment¨ definition may vary from one BIT to another, but generally speaking the term investment usually can compromise: Movable and immovable property as well as other property rights, shares of companies or any form of participation in a company, claims to money or to any performance under contract having a financial value associated with an investment, intellectual property rights, such as patents, industrial designs, technical processes, know-how, trade secrets, trade names and goodwill associated with an investment, any right conferred by laws or under contract and any licenses and permits pursuant to laws, including concession to search for, extract, cultivate or exploit natural resources.

These two legal requirements have direct relation with the Tribunal competence, because the tribunal has jurisdiction according to the law governing the dispute. Accordingly, if one of them fails to be proven the legal consequence that would follow is the tribunal´s lack of jurisdiction, the claim will result to be inadmissible and it would not even proceed to review the merits stage.

Now, moving on into the real object and purpose of this essay, let’s assume for a moment that the investor does fulfill both ¨nationality¨ and ¨investment¨ criteria. In this sense, he would be subject to the protection standards set forth on Bilateral Investment treaties. Although, there are multiple significant protection standards that investor could recourse to when having a possible litigation against the host state such as: fair and equitable treatment, direct or indirect expropriation criteria, fork in the road clause, umbrella clause,  this essay will focus on a particularly problematic clause, in terms of  the investor protection and more favorable treatment: the MFN clause and its relationship it has with the arbitral agreement. Putted into another way, whether an arbitral agreement concluded within a third treaty ( signed  between another party and the same host state) can be, or not, incorporated or imported from a third BIT to the basic in virtue of the MFN operation. 

As a matter of facts, the MFN Clause answers to the very core of investment arbitration ( the protection with which foreign investments have to count with when investing in a host state) inasmuch as each contracting party  accord, within its own territory, to investments made by investors of the other contracting party, to the income activities  related to such investments and to other matters regulated by the Agreement ( Depending, off course, on how the particular MFNC has been drafted and the wording it implements on a BIT ), a treatment that is no less favorable than that accorded to its own investors or investors from third party countries.  In this fashion, the MFNC operates to incorporate provisions of a third treaties that have not been drafted in the basic treaty in first place.  In the scenario where more favorable treatment is granted through the provisions of a  third treaty, the more favorable provision can be claimed by the basic-treaty-investor through the MFNC established on the basic treaty.

Both the ICJ and the ILC have expressed their understanding of the functioning and effect of the MFN Clause. The ICJ rationale behind the Rights of Nationals Of the United States of America in Morocco Case putted forward that the effect of MFNC was that the more favorable treatment is extended IPSO IURE. This fact is preceded by the courts conclusion that, in the case, The United States acquired by virtue of the most-favored-nation clauses, civil and criminal consular jurisdiction in all cases in which the United States nationals were defendants[10]. Consequently, in that case the MFN allowed to automatically vest the USA defendants with civil and consular jurisdiction, USA did not had to claim against Morocco in order for  the court to grant such jurisdiction.

Much like the ICJ, the ILC supports the court´s perspective through the Article 9  (1) of the ILC Draft Articles on MFN Clauses  providing that ¨the beneficiary State acquires, for itself or for the benefit of persons or things in a determined relationship with it¨[11] the more favorable treatment accorded to third states or their nationals. This Article, all along with the rest of ILC Draft Articles related provisions, establishd that the effect and the functioning of the MFNC is to empower the beneficiary of the clause to acquire the more favorable treatment,  for the beneficiary does not only has a claim to any more favorable right, but tittle to such more favorable treatment[12]. So much so that the ILC Commentary clarifies that ¨the Effect of the Most-favoured-nation process is, by means of the provisions of one treaty, to attract those of another¨[13]. Article 20 of the Draft Articles asserts that ¨The rights of the beneficiary state, for itself or for the benefit of persons or things in a determined relationship with it, to most favored nation treatment… arises at the moment when the relevant treatment is extended by the granting state to third State or to persons or things in the same relationship with with that third State¨[14] As a result, being the MFN a mechanism of automatic extension, the beneficiary under the basic treaty can rely on the more favorable treatment ipso iure without any additional act of transformation[15]

About  concerning the import of consent within a third treaty arbitral agreement through the MFN operation, it must be taken into account  whether the MFN clause applies to a more favorable jurisdictional treatment, that an investor from a third BIT  is granted with. This issue is not, unfortunately, subject to a general standard but to a case-by-case analysis, because, the way in which the MFN clause is worded may vary from treaty to treaty. Nevertheless, most of the time said clause refers, in one way or another, to the word ¨treatment¨. In this sense, even in spite of the existence of consistent doctrine and jurisprudence over the inapplicability of the MFN Clause to the arbitral agreement, which will be put forward, this essay intends to conclude that whenever the parties to a  treaty drafted the MFN Clause in such a way that it can be broadly construed, the ¨treatment¨ standard is understood to cover the consent of the host state to arbitration under a third BIT, even though, to many, we could be standing before a procedural provision  that authorize jurisdictional mandate.

In the core of a  negative-counter argument the MFNC interpretation, on one hand, and the Arbitral Agreement interpretation, on the other, plays a decisive role on whether its operation allows to import the consent set forth on a third treaty, an accurate interpretation that establishes up to what point the ¨treatment¨ standard can be considered as an implied consent to arbitration. Accordingly, bearing in mind the special nature of the Arbitral Agreement[16], under this standpoint is possible to assert that this interpretation encompasses VCLT Article 32 provision[17],  for it can be applied when a treaty clause is necessary to confirm its meaning, serving as possible aid to interpretation[18], although the use of supplementary interpretation is always a discretionary aid.  Also because it is reasonable that the host state, which is responsible for drafting the clause, should not be allowed to rely on the ambiguity of the clause, resulting from its drafting.

For instance, the principles of interpretation that are usually applied to arbitration agreements are the same as the general principles usually applied to contracts[19]. In accordance with international law arbitration decisions, a dispute settlement provision, in particular arbitration agreements, should be interpreted restrictively[20]. Wherefore, the Agreement should be ¨strictly¨ construed because the task conferred to the arbitrators should be confined to follow the clearly expressed intentions of the parties[21]. As stated by Douglas in regard to arbitral tribunals approach to the MFN operation on this matter ¨A MFNC in the basic treaty does not incorporate by reference provisions relating to the jurisdiction of the arbitral tribunal, in whole or in part, set forth in a third investment treaty, unless there is an unequivocal provision to that effect in the basic investment treaty¨[22] . This legal doctrine seems to be consistently repeated by Chukwumerije, as presented on Nartnirun Jungam book ¨MFN Clause and BIT Dispute Settlement: A Host State`s Implied Consent to Arbitration by Reference¨[23], and further ratified by investment arbitration jurisprudence. Whereas the first asserts that “ Consent to arbitration determines the applicability of the MFN clause to jurisdiction. Such a consent must be specific and unambiguous¨, the tribunal on Plama Consortium V. Bulgaria, in harmony with  Berschander V. Russia tribunal rationale[24], asserted that:

“A clear and unambiguous agreement of the parties to arbitrate was still required. Thus, it rejected the Claimants contention that such an agreement could be reached through incorporation by reference in the absence of the parties’ clear and unambiguous intent. In other words, the broad MFNC alone would not fulfill the clear and unambiguous requirement for jurisdiction purposes.”[25]

Thus, under the negative-counter perspective, it is possible to conclude that unless the pertinent treaty provisions particularly specifies  on a clear and unambiguous way that the MFNC applies to dispute settlement provision it shall not be invoked to broaden the state consent to international arbitration.
Nevertheless, even if said negative argument does transmit a logical reasoning is not imperative nor definitive in terms of treaty interpretation. As has been said before, the legal ground from which a restrictive approach derives from (Article 32 of the Vienna Convention on Law of Treaties) is a subsidiary and discretionary aid of interpretation. In other words, treaty provisions are not Prima facie construed according to Article 32 of the VCLT, but under the light of Article 31 which applies to any treaty provision irrespectively of their nature. Arbitrators are not allowed to interpret the intention of the parties beyond to what is set forth by the terms of the Agreement. Hence, if after analyzing the treaty wording in relation to the ordinary meaning of the words is necessary to confirm its meaning, Article 32 subsidiary applicability shall be utilized.


Here are some examples of BIT MFN clauses wording:

ARTICLE 3 UK-ARGENTINA BIT
    1)    Neither contracting party shall in its territory subject investments or returns of investors of contracting parties  to treatment less favorable than that with which it accords to investments of its own or investments and investors from third parties
     2)    Neither party shall in its territory subject investors from other Contracting Party, as regards their management, maintenance, use, employment or disposal of their investments, to treatment less favorable than that with which it accords to its own investors or investors of third state parties. 

Article  7:  ARGENTINA-SPAIN  BIT. MORE FAVOURABLE TERMS
1.) Where a matter is governed by this Agreement and also by another inter national agreement to which both Parties are a party or by general international law, the Parties and their investors shall be subject to whichever terms are more favourable.
 2.) Where one Party, on the basis of specific laws, regulations, provisions or contracts, has applied to investors of the other Party terms more advantageous than those provided for in this Agreement, such investors shall be accorded the more favourable treatment

Article 3 ARGENTINA-GERMANY BIT (1991)  (1) Neither Contracting Party shall subject investments in its territory by or with the participation of nationals or companies of the other Contracting Party to treatment less favourable than it accords to investments of its own nationals or companies or to investments of nationals or companies of any third State. (2) Neither Contracting Party shall subject nationals or companies of the other Contracting Party, as regards their activity in connection with investments in its temtory, to treatment less favourable than it accords to its own nationals or companies or to nationals or companies of any third State. (3) Such treatment shall not include privileges which may be extended by either Contracting Party to nationals or companies of third States on account of its membership in a customs or economic union, common market or free trade area. (4) The treatment under this article shall not extend to privileges accorded by a Contracting Party to nationals or companies of a third State by virtue of an agreement for the avoidance of double taxation or other tax agreements

As shown, parties accord a broad standard of ¨treatment¨ no less favorable . Therefore, The MFN Clause and National treatment ( where applicable)  protection granted through  treatment on behalf of the host state seems to apply to the investment and activities related to the latter, as specified on the previous clauses and many others  on the proliferation of BIT´s. When this is the case, what the clause shows when referring to most favorable ¨treatment¨, to ¨activities related to such investments¨ or ¨other matters regulated by the agreement¨ is that parties, having the possibility to do so, did not exclude the dispute settlement provision from the scope and application of the MFNC.  Hereinafter, international tribunals first approach towards an MFNC shall be made through the ordinary meaning of the clause wording, as stressed  by the world bank ICSID jurisdiction in cases such as National Grind V. Argentina and Simiens V. Argentina,  respectively[26]. This is because the ordinary meaning of the words reflects what the parties intent[27]. So much so, that Tribunals shall rely on the actual wording of the text more than the intention of it[28].

Consequently, when standing before a broadly drafted clause that does not distinguish between the matters that constitute an object of the ¨treatment¨, it can be understood that the clause covers ¨all aspects¨ of the investments. That is to say that ¨treatment¨ refers to the entire relationship between the host state and the comparator.  In this fashion, if the MFNC is construed under VCLT Article 32 and a further restrictive interpretation in first instance, a tribunal would be then tending to consider a special meaning of the word ¨treatment¨ that goes beyond its ordinary meaning of the word.

Firstly, when a clause happens to be drafted in a similar way to the ones mentioned before, particularly to the Argentina-Spain BIT, it   would be reasonable for a Tribunal to find that the contracting parties have agreed to treat investments covered by the basic treaty equally to the investments made by investors from any third country ¨in all matters¨ governed by the BIT. This interpretation is particularly conductive with the  rationale used by the Suez V. Argentina Case Tribunal  in which the dispute settlement provisions between a host state and foreign investors undoubtedly constituted ¨a matter¨ governed by the BIT, a matter that was not among the explicit exceptions to the MFNC. The tribunal established that:

¨The use of the extension ¨in all matters¨ when coupled with a list of specific exceptions that does not include dispute settlement provision, leaves no doubt that dispute settlement is covered by the Most-Favored-Nation Clause¨[29]

 In effect, when parties do not include dispute settlement provision within a list of specific exceptions, it is possible to conclude that it was not their intention to distinguish the dispute settlement provision from other provisions set forth on the Agreement. In this sense, if the parties did not distinguish the provision there is no point for the Tribunal to do so. Consequently, when dispute settlement provision is put on the very same level of all those matters governed by the Agreement the argument that the dispute settlement provision ( arbitral agreement) or the MFNC should be interpreted ¨strictly¨ and differently from other clauses in the BIT is override. For this reason,  the Suez tribunal, relying on the Maffezzni case, rejected the Plama case Tribunal´s view that an arbitration Agreement must be clear and unambiguous, especially if it was incorporated by reference to a provision in a different treaty[30]
  
Secondly, besides considering the ¨in all matters governed by the Agreement paired with a list of specific exceptions¨ standard set forth on the MFNC, it is advisable to analyze and understand the ¨Treatment¨  and ¨investor¨ standard perse, since they have, by themselves, a direct relationship with a foreign investor right to recourse to arbitration ( dispute settlement provision). In spite that in many BITs the word ¨treatment¨ is incorporated within the MFN and National Treatment clause without any particular definition, the fact that said word is not defined does not add any interpretational difficulty to the tribunal´s labor. Insofar as the ¨treatment¨ provision has to be interpreted Under Article 31 of the VCLT general rule of interpretation, its ordinary meaning within the context of investment, as asserted by  the Suez V. Argentina Tribunal, shows that the  word covers ¨the rights and privileges granted and the obligations and burdens imposed by a Contracting State on investments made by investors covered by the treaty¨[31]. In this vein, the word ¨treatment¨ is sufficiently broad to encompass more favorable procedural and jurisdictional requirement.

Moreover, the Suez Tribunal gave a particular value to the word ¨investor¨ for its significance put forward a direct and strong incidence on the right to arbitration. The Tribunal found that said right was covered by the MFN Clause as the it is very much related to investor’s management, maintenance, use, enjoyment, or disposal of their investments. Being particularly related to the ¨maintenance¨ of an investment,  because the term inevitably includes the protection of the latter[32]

 Bearing  the legal-conceptual dynamic in mind, it is also important to understand the practical consequences of the inclusion, or not, of the dispute settlement provision within the MFNC scope. When granting direct access to international arbitration to third or national investors in contrary to a dispute settlement provision accorded on a basic treaty, if a host state does not give consent, investors choices to exercise the right to arbitration are inferior compared to those of their counterparts protected by other BITs, since a different treatment  exists on the investment maintenance where an investor may choose between adjudicating bodies another cannot.  If this is the case, the ones that can choose between adjudicating bodies are treated  more favorably in regard to their management, maintenance, use, employment, or disposal of their investments. Accordingly, it would be non-sense if the affected investor could not invoke the basic treaty MFNC  in order for him to have a more favorable treatment.

Finally concerning the substantive v. procedural argument, in order to clarify whether the origin of the Arbitral Agreement nature falls on a substantive ground or a procedural one it is vital for us to acknowledge what is the arbitral Agreement and what is its exact purpose. 

On one hand, the will of the parties when drafting an Arbitral Clause is nothing but the intention to have access to a private jurisdiction in order for an eventual contract, commercial, administrative or other sort of  dispute be  solved under the applicable law and procedures that said parties accord to. The access to international courts and to administrative tribunals in all degrees of jurisdiction is, therefore, an area in which the arbitral agreements are applied[33]. Consequently, the practical manifestation of both the MFNC and the Arbitral Agreement is nothing but to serve as an instrument to allocate adjudicatory authority. In this sense, the right to access to an international tribunal granted by the host state to a third country  investor, does not have any difference with the access to domestic courts or other dispute settlement mechanism, whether domestic or international, whether in a permanent court of before an adhoc tribunal.[34]

When consenting to arbitration vis-a vis investors from one state but not doing so with an investor from another country, the host state ends setting up two different court systems. Accordingly, what can be understood as a jurisdictional mandate is ultimately a question of accessing to  justice. Thus, a question of substantive investment protection.[35]  This reasoning  is conductive with the Ambatielos Case by the Commission of Arbitration, in which the adjudicative body asserted that:

¨The admnisitration of justice is closely related to the protection of the rights of traders. Therefore to the ejusdem Generis Rule.¨ [36]

On the other hand, even if the arbitration agreement  jurisdictional mandate is deemed to have a procedural nature ( which is perfectly possible) it is necessary to take into account that the basic purpose or sine- qua- non of the MFNC is to fight discriminatory treatment based on nationality, and, as a matter of facts, discrimination can not be alleged to occur only  under a mere substantive protection context, but it also can happen within the dispute settlement procedure realm. Hence, the MFNC has be equally applicable to both substantive and procedural matters, when it comes down to discrimination or a less favorable treatment.







[1] European Convention on Nationality,Pg.1150.
[2] Tunis and Morocco Decrees. p. 24.
[3]  Soufraki v. UAE, para 55.
[4] Cfr. Nottebohm, Canevaro, among others
[5]  Hague Convention on Certain Questions Relating to the Conflict of Nationality Laws, art.1
[6] Tunis and Morocco Decrees. p. 24.
[7] Nottebohm Case (pg.23): “According to the practice of States, to arbitral and judicial decisions and to the opinions of writers, nationality is a legal bond having as its basis a social fact of attachment, a genuine connection of existence, interests and sentiments, together with the existence of reciprocal rights and duties. It may be said to constitute the juridical expression of the fact that the individual upon whom it is conferred, either directly by the law or as a result of an act by the authorities, is in fact more closely connected with the population of the State conferring nationality than with that of any other State”.
[8] Nottebohm Case, p. 22
[9] Anne Peters, p. 624 (citing Johannes M. Chen).
[10] Rights of Nationals of the United States of America in Morocco (France v United States), Judgment, 27 August 1952, ICJ Reports 1952, 176, at 190 (emphasis added).
[11] ILC Draft Articles on MFN Clauses. Arts 9(2), 10(1) and (2), 11, 12, and 13 of the.
[12]  ILC Draft Articles on MFN Clauses. Arts 9(2), 10(1) and (2), 11, 12, and 13 of the
[13] ILC Report of the 30th Session (n 20), at 30, para 11.
[14] ILC Draft Articles on MFN Clauses. Arts 20

[15]  Renta v Russia, para 77 (observing that ‘[t]he third-party treaty is incorporated by reference into the basic treaty without any additional act of transformation’)
[16] It is said that the arbitral agreement does have a very special nature, in comparison to other treaty clauses, due to the fact that an arbitral Agreement is the consequence or derives from the consent of states and the subsequent consent given by the state from which a foreign investor is national from. Therefore, the consent cannot be ¨broadly¨ construed as any other treaty clause, but strictly construed because is a clause product of a really, really careful negotiation. As explained by Nartnirun Jungam on ¨ MFN Clause and BIT Dispute Settlement: A Host State`s Implied Consent to Arbitration by Reference¨ At p. 486.
[17] Vienna Convention on Law of Treaties 1969. Article 32  ¨Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31 : (a) Leaves the meaning ambiguous or obscure; or (b) Leads to a result which is manifestly absurd or unreasonable.¨
[18] Anthony Aust, para 248.
[19] Emmanuel Gaillard, p. 226-33
[20] ICC Award No. 4392 (1983), Yugoslavia Company V. German Company , 110 J.D.I 901 (1983), and obvservations by Y. Derains.
[21] French Domestic Arbitration, CA Paris, Mar. 11. 1986.
[22] Douglas. p. 344
[23] Nartnirun Jungam. p 486.
[24] Berschander V. Russia. P.  179-181.
[25]  Plama case. p. 198.
[26] National Grid V. Argentina. Par. 80 & Siemens A.G v. Argentina, par. 41
[27] Vienna Convention on the Law of Treaties arts. 31, 32. Mark E. Villiger, at 426
[28] Zachary Douglas, at 48.
[29] Suez et al. v. Argentina. Para 65
[30] Suez et al. v. Argentina. Para 59-66.
[31] Suez v. Argentina. Para 55.
[32] Suez v. Argentina. para 57
[33] ILC MFN Draft Articles, Article 4.
[34] Zachary Douglas, MFNC. At 104.
[35] Kevin Lim, at 136
[36] United Nations, Reports of International Arbitral Awards, 1963. p.107