THE IMPACT OF THE MAFFEZINI DECISION
ON THE INTERPRETATION OF MFN CLAUSES
IN INVESTMENT TREATIES
İnci Ataman Figanmeşe
*Abstract
The Maffezini decision is the first decision, in the realm of investment treaty arbitration, which deals with the question of whether the effect of most favored nation (MFN) clauses, embedded in investment treaties, extends to dispute resolution clauses in the same treaties. In the Maffezini case, the ICSID tribunal had to decide whether the investor, who by invoking the MFN clause of the basic treaty to bypass the waiting period which was provided by the same treaty, was to be allowed to do so. The ICSID tribunal’s decision to this question contained a finding which stated that: “dispute settlement arrangements are inextricably related to the protection of foreign investors.” Relying on this finding of the Maffezini tribunal, many investors, who sought access to arbitration, brought cases before arbitral tribunals with the expectation that, although the applicable basic treaty did not provide for arbitration, the MFN clause in the same treaty would enable them to sue the host State before an arbitral tribunal. However, ICSID tribunals have not as of yet inferred consent to arbitration where there was no explicit consent in the basic investment treaty. ICSID tribunals have followed the logic of the finding of the Maffezini case only in cases where investors sought to bypass minor procedural conditions, such as waiting periods for submitting a dispute to arbitration. Yet, in the RosInvest decision, which is a relatively new decision by a Stockholm Chamber of Commerce tribunal, a more favorable dispute resolution clause of a third party treaty was imported to enable the investor to resort to arbitration where the State parties to the basic investment treaty did not expressly consent to arbitration. This decision which already has attracted support, overrides the Maffezini decision, and thus seems to be the vanguard of a new episode in interpreting MFN clauses embedded in investment treaties.
Öz
Devletler arasında akdedilmiş bir yatırım teşvik sözleşmesinde yer alan en ziyade müsaadeyi mazhar millet kaydının, aynı sözleşemede yer alan uyuşmazlık çözümüne ilişkin hükümler üzerinde de etkisinin olup olmadığı sorusunun ele alındığı ilk yatırım tahkimi davası, Maffezini davasıdır. Maffezini kararı, yatırım teşvik sözleşmesinde yer alan ‘‘uyuşmazlık çözümüne ilişkin düzenlemelerin yatırımcıların korunması konusu ile ayrılmaz biçimde bağlı olduğu’’, bu nedenle de aynı sözlşemede yer alan en ziyade müsaadeyi mazhar millet kaydının, uyuşmalıkların çözümü hakkındaki düzenlemeleri de kapsadığına ilişkin açık bir ifadeyi içeremiyor olması halinde dahi, bu kaydın etki alanının uyuşmazlık çözümü hakkındaki düzenlemeleri de kapsayacağı yolunda bir ifade içermektedir. Maffezini kararının içerdiği bu ifadeden güç alan birçok yatırımcı, ev sahibi devleti tahkim yoluyla dava edebilecekleri ümidiyle, tâbi oldukları devletle ev sahibi devlet arasındaki yatırım teşvik sözleşmesinin uyuşmazlıkların çözümü için tahkim yolunu öngörmemesine rağmen bu sözleşmelerin içerdiği en ziyade müsaadeyi mazhar millet kaydına istinaden, tahkime başvurdurlar. Ne var ki, bugüne dek ICSID tahkimine konu davaların hiç birinde en ziyade müsaaadeyi mazhar millet kayıtlarına böylesine geniş bir etki tanınmamış olup, sadece tahkime başvurma konusunda öngörülmüş bekleme sürelerinin aşılabilmesi bakımından etki tanınmıştır. Buna mukabil, Stockholm Ticaret Odası Tahkim Merkezi tarafından verilmiş bir karar olan RosINvest kararında, ilgili yatırım teşvik sözleşmesinde tahkim yoluyla çözümüne müsaade edilmemiş olan bir mesele hakkında, aynı sözleşmede yer alan en ziyade müsaadeyi mazhar millet kaydına istinaden, ev sahibi devletin başka bir üçüncü devletle akdetmiş olduğu yatırım sözleşmesinde yer alan ve ilgili mesele hakkında tahkime müracaat olanağı tanıyan hüküm ithal edilmek suretiyle, yatırımcıya, ev sahibi devleti tahkim yoluyla dava etme imkânı tanınmıştır. Böylelikle, Maffezini kararının getirdiği anlayışın da ötesine geçen bir anlayış içeren RosINvest kararı, en ziyade müsaadeyi mazhar millet kayıtlarının geniş bir biçimde yorumlandığının görüleceği yeni bir dönemin habercisi olduğu izlenimini uyandırmaktadır.
Keywords: Arbitration, Consent to Arbitrate, Dispute Resolution
Mechanism, Dispute Resolution, Clause, Investment Treaty, Maffezini Decision, Most Favored Nation Clause, Plama Decision, RosInvest Decision, Siemens Decision, Waiting Period
Anahtar Kelimeler: Bekleme Süresi, Maffezini Kararı, RosINvest Kararı,
Plama Kararı, Siemens Kararı Uyuşmazlık Giderme Mekanizması, Tahkim, Tahkim İradesi, Yatırım Teşvik ve Koruma Sözleşmesi
INTRODUCTION
The most-favored-nation (MFN) standard of treatment is one of the seven classic standards1 evolved in treaties of commerce and navigation,2 and has
been used as boilerplate in almost all commerce and navigation treaties. Today in the realm of commerce, the granting of an MFN treatment has been “multilaterilized” with the GATT,3 and it forms one of the “pillars” of the WTO
trading system.4
In the realm of investment, the MFN clause has been “borrowed5” from
treaties of commerce, and constitutes “a core element of international investment agreements.”6 However, because the MFN clauses were initially
contained in treaties of commerce, embedding these clauses in investment treaties caused them to function differently than they did in commerce treaties. First, until recent times the MFN clauses embedded in investment treaties played, in comparison to the central role of the MFN clauses in commerce treaties, “a relatively little role.”7 Moreover, the scope of an MFN clause in an investment treaty does not overlap with the scope of an MFN clause in a commerce treaty. Whereas discriminatory measures to trade in goods usually8 apply at the border of a country, in the case of an investment, discriminatory
1 According to Schwarzenberger and Brown, the seven standards of treatment are: The
Most Favored-Nation Standard, The National Standard, The Standard of Identical Treatment, The Open Door Standard, The Standard of Equitable Treatment, The Minimum Standard of International Law and The Standard of Preferential Treatment.
Georg Schwarzenberger and Edward Duncan Brown, AMANUAL OF INTERNATIONAL
LAW 87-88 (6th ed., Stevens, London, 1976).
2 Id. at 87.
3 Alfred Verdoss and Bruno Simma, UNIVERSELLES VÖLKERRECHT [UNIVERSAL
INTERNATIONAL LAW] §. 763 (3rd ed., Duncker & Humblot,Berlin 1984).
4 See, e.g. European Communities – Conditions for the Granting of Tariff Preferences to
Developing Countries, ARB-2004-1/17 (Sep. 20, 2004), available at http:// docsonline.wto.org:80/DDFDocuments/t/WT/DS/246-14.doc (last visited Dec. 4, 2011).
5 Alejandro Faya Rodriguez, The MFN Clause in International Investment Agreements,
25 J.INT’L ARB. 71, 89 (2008).
6 UNCTAD, Most Favored-Nation Treatment, UNCTAD Series on International
Investment Agreements, UNCTAD/ITE/IIT/10, Vol. III, (1999) at 1.
7 Jürgen Kurtz, The MFN Standard and Foreign Investment: An Uneasy Fit?, 5 J.
WORLD INV.&TRADE 861, 866 (2004).
8 Although discriminatory measures, in the realm of commerce, usually apply at the
border, the MFN treatment obligation of the WTO is not restricted to measures applied at the border; it also includes internal taxes and internal regulation affecting the sale,
distribution and use of goods as well. Peter van den Bossche, THE LAW AND POLICY OF
THE WORLD TRADE ORGANIZATION 310 (Cambridge University Press, Cambridge,
measures may be applied both at the border, in form of pre-admission restrictions, but also after the entry of the investment into the host State.9 Thus,
the scope of an MFN clause in an investment treaty is much broader than the scope of an MFN clause in a commerce treaty.10
Despite the fact that the scope of MFN clauses in investment treaties can be very broad, most debates related to MFN clauses since the Maffezini decision,11
which was rendered in 2000, have concentrated primarily on the settlement of disputes.12 In the Maffezini decision, by virtue of an MFN clause, the claimant
investor was allowed to benefit from a more advantageous dispute settlement procedure provided in a BIT of a third country.
Since the Maffezini decision, many cases have been brought before arbitral tribunals by investors who, by virtue of the MFN clauses between their home and host States, sought more advantageous treatment for the settlement of disputes. However, it soon turned out that arbitral tribunals did not always allow investors, by virtue of MFN clauses, to benefit from the more advantageous dispute settlement mechanisms of other third party BITs. All these developments triggered a debate on the interpretation of MFN clauses embedded in investment treaties. The question at heart of this debate is whether an MFN clause embedded in an investment treaty can extend its effect on the dispute settlement clauses of the same treaty. Trying to clarify if, and to what extent, MFN clauses in investment treaties can serve as foundation of jurisdiction of arbitral tribunals, this article will explore the recent debate on the interpretation of MFN clauses.
I. THE RELATIONSHIP BETWEEN MFN CLAUSES AND DISPUTE SETTLEMENT CLAUSES
An MFN clause, embedded in a treaty (basic treaty) on foreign investment, requires each signatory state to grant the investors and investments of its
9 Kurtz, supra note 7, at 867-868.
10 Id. at 868.
11 Emilio Augustin Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7,
Decision on Jurisdiction, 16 ICSID REV. FILJ 212 (2001)[hereinafter “Maffezini”],
available at http://www.worldbank.org/icsid/cases/emilio_DecisionJurisdiction.pdf (last
visited Dec. 4, 2011).
12 “… all discussions have focused on treaty shopping, that is, borrowing from third
treaties (the treaties from where a benefit is extended), or derogating provisions of basic treaties by reason of third treaties. The cases have not been about actual adverse consequences of not extending to a foreign investor a better treatment actually offered to others (the very purpose of the MFNC).” Rodriguez, supra note 5, at 90.
counterpart, treatment which is no less favorable than the treatment granted13 to
investors and investments of other countries. This definition, however, still leaves unanswered the question of whether an MFN provision entitles an investor only to invoke ‘‘substantial provisions’’ from a third part treaty, or whether an MFN clause entitles an investor to invoke ‘‘dispute settlement provisions’’ of third party treaties as well.
In the Maffezini case, which was the first case in which an ICSID tribunal had to decide about the relationship between MFN clauses and dispute settlement, the tribunal referred to the principle of ejusdem generis, which can play an important role in discerning the scope of the MFN clause. In order to explain this principle, it seems best to refer to the explanation on this principle given in the OECD report on “Most Favored Nation Treatment in International Investment Law.” This report defines MFN as a standard which has to be interpreted according the principle of ejusdem generis,’ which means that an MFN clause can be capable of attracting “more favorable treatment available in other treaties only in regards of the same ‘subject matter’ the ‘same category of matter’ or the same ‘class of matter.’”14 Accordingly, an MFN clause in a BIT
can attract the more favorable treatment provided in another treaty only if it (the MFN clause) extends to the category of treatment accorded in the other treaty. In other words, for an investor to be able to benefit from a more favorable dispute settlement provision in a treaty which the host state concluded with a state other than his home state, the scope of the MFN clause in the treaty between his home state and host State must extend to the settlement of disputes. However, in the area of foreign investment, the text of clauses which provide for MFN treatment usually do not explicitly speak of whether the scope of the MFN treatment extends (covers) to issues related to the resolution of disputes. As was observed by the tribunal in the Salini v. Jordan case,15 BIT
provisions including MFN clauses vary.16 While the MFN clauses of some
treaties “provide expressly that the most-favored nation treatment extends to the
13 “The alleged more favorable treatment to investors or investments of third countries
may be granted by virtue of a treaty, legislation and an agreement between the investor and host state or even by mere practice.” Draft Articles on Most-Favored Nation
Clauses, 2 Y.B.INT’L L.COMM’N 25 (1978).
14 This definition has been repeated in the work of the OECD on International
Investment Law. See Marie-France Houde, Most Favored Nation Treatment, in INTERNATIONAL INVESTMENT:ACHANGING LANDSCAPE 127 (OECD Publishing, 2005).
15 Salini Costruttori S.p.A. and Italstrade S.p.A. v. Hashemite Kingdom of Jordan,
ICSID Case No. ARB/02/13, Decision on Jurisdiction, 20 ICSID REV. FILJ 148
(2005)[hereinafter “Salini Decision”].
provisions relating to settlement of disputes,”17 the MFN clause in other treaties
do “not contain such a provision, but refer to ‘all rights’ contained in the agreement, or to ‘all matters’’ subject to the agreement.”18 According to some
commentators, the MFN clauses in BITs can, with respect to the applicability of the MFN treatment to issues concerning the settlement of disputes, be categorized under four groups: those that expressly provide that they cover issues concerning the resolution of disputes, those that do not provide expressly that the MFN treatment extends to the provisions relating to settlement of disputes but contain broad wording, those which do enumerate which issues are covered by MFN treatment and do not mention dispute settlement in that enumeration and finally those that explicitly exclude the issues concerning the settlement of disputes from the scope of the clause.19
II. THE MAFFEZINI CASE
In the Maffezini case, which was a case brought before an ICSID tribunal, the investor was a national of Argentina, and the host State was Spain. The investment treaty between Spain and Argentina provided for an 18-month waiting period – which meant that the investor was not able to refer the dispute between herself and the host State to arbitration before the waiting period ended. In order to bypass the waiting period provided in the investment treaty between Spain and Argentina, the investor invoked the MFN clause embedded in the same treaty and asserted that she was receiving less favorable treatment than investors of other countries received.
The most favored nation clause provided in Article IV of the investment treaty between Argentina and Spain reads as follows:
“In ‘all matters subject to this Agreement,’ this treatment shall not be less favorable than that extended by each Party to the investments made in its territory by investors of a third country.”20
17 “This is the case with some investment treaties concluded by the United Kingdom.”
Id.
18 Id., para 117.
19 Scott Vesel, Clearing a Path Through a Tangled Jurisprudence; Most
Favored-Nation Clauses and Dispute Settlement Provisions in Bilateral Investment Treaties, 32
YALE J.INT’L LAW 125, 184 (2007); Okezie Chukwumerje, Interpreting
Most-Favored-Nation Clauses in Investment Arbitrations, 8J.WORLD INV.&TRADE 597, 610 (2007);
see also Pınar Baklacı, En Çok Gözetilen Ulus Kaydı ve Uyuşmazlık Çözüm Yollarına İlişkin Kurallar [Most-Favored-Nation Clause and Rules for Dispute Resolution Methods], 5 ULUSLARARASI HUKUK VE POLITIKA [INTERNATIONAL LAW AND POLITICS]
59, 66 (2009).
Whereas the investment treaty between Spain and Argentina provided for a waiting period21 of 18 months as a prerequisite to initiating procedures before
arbitral tribunals, the investment treaty between Spain and Chile did not provide for such a waiting period. The investment treaty between Spain and Chile allowed investors to resort directly to arbitration without first having to exhaust domestic remedies or a specified waiting period. The claimant in the Maffezini case wanted, by virtue of the MFN clause in the Argentina-Spain investment treaty, to import the more favorable arbitration clause of the investment treaty between Spain and Chile.
Thus the ICSID tribunal had to interpret an MFN clause, which spoke of granting MFN treatment to “all matters subject to the treaty.”22 The question
which the tribunal had to deal with was whether the term “all matters” in the MFN clause was to be understood as a reference to only substantive matters or whether it was to be understood as a reference to procedural matters as well.
To answer this question, an early case of the Commission of Arbitration of the Ambatielos case,23 provided some background for the Maffezini tribunal. The Ambatielos case dealt with similar questions to those in the Maffezini case. In the Ambatielos case, the claimant contested that “Ambatielos had not been treated in the English courts according to the standards applied to British subjects and foreigners who enjoyed a most favored nation treatment under treaties in force.24 The tribunal of the Ambatielos case, which was faced with the
question of whether the application of an MFN clause referring to “all matters relating to commerce and navigation” could cover the “administration of justice,” decided that indeed, the MFN clause covered administration of justice as well.25
21 Art. X 3 (a) of the Argentina-Spain BIT required that claimants, before resorting to
arbitration, should initiate proceedings in domestic courts and allow those proceedings to continue for 18 months. The ICSID tribunal did not classify this provision as a requirement for the exhaustion of domestic remedies. See Maffezini decision, supra note 11, para. 28.
22See supra text accompanying notes 20-21.
23 Ambatielos Arbitration (Greece v. United Kingdom of Great Britain and Northern
Ireland.), 12 Reports of International Arbitral Awards. 83 (Comm’n of Arb. 1956) [hereinafter Ambatielos Decision] available at http//unitreaty.un.org/cod/riaa/cases/ vol_XII/83-153_Ambatielos.pdf (Last visited, Dec.11, 2011).
24 Id., para. 49.
25 “It is true that the ‘administration of justice,’ when viewed in isolation, is a
subject-matter other than ‘commerce and navigation,’ but this is not necessarily so when it is viewed in connection with the protection of the rights of traders. Protection of the rights of traders naturally finds a place among the matters dealt with by treaties of commerce and navigation. Therefore it cannot be said that the administration of justice, in so far as
In the Ambatielos case, the MFN clause dealt with “all matters relating to commerce and navigation” whereas in the Maffezini case it dealt “with all matters subject to this Agreement.”26 Except for this difference, the questions
which came up in both cases were alike, thus the ICSID tribunal, in citing the
Ambatielos case, decided in the Maffezini case that the MFN clause in the
investment treaty between Spain and Argentina extended to the provisions for the settlement of disputes.27 The ICSID tribunal deducted this solution from the
wording of the Spain-Argentina treaty which spoke of “all matters subject to the treaty.”28 The ICSID tribunal rationalized its decision also by stating that:
Notwithstanding the fact that the basic treaty containing the clause does not refer expressly to dispute settlement as covered by the most favored nation clause, the Tribunal considers that there are good reasons to conclude that today dispute settlement arrangements are ‘‘inextricably related’’ to the protection of foreign investors, as they are also related to the protection of rights of traders under treaties of commerce.29
It should, however, not be overlooked that the Maffezini case provided facts which made it easy for even the tribunal to decide in favor of the claimant. Probably the most important fact that made it easier, if not dispositive, for the tribunal to decide, was that in this case the roles of developed and undeveloped countries were “reversed.”30 The claimant was a national of a developing
country (an Argentinean investor) and the host country was a developed country (Spain). We can add to the role reversal two other pieces of information: that “at the time of negotiations (of the investment treaty between Spain and Argentina) while Argentina sought to require some form of prior exhaustion of local
it is concerned with the protection of these rights, must necessarily be excluded from the field of application of the most-favored-nation clause, when the latter includes “all matters relating to commerce and navigation.” Id. at p.107.
26 Rudolf Dolzer and Terry Myers, After Tecmed: Most Favored-Nation Clauses in
Investment Protection Agreements, 19 ICSIDREVIEW FILJ 49, 51 (2004).
27 “If a third-party treaty contains provisions for the settlement of disputes that are more
favorable to the protection of the investor’s rights and interests than those in the basic treaty, such provisions may be extended to the beneficiary of the most favored nation clause as they are fully compatible with the ejusdem generic principle. Of course, the third-party treaty has to relate to the same subject matter as the basic treaty…” Maffezini Decision, supra note 11, at para. 56. It should be noted that after reaching this general conclusion, the tribunal enlisted taking ‘public policy’ in consideration certain exceptions in which its general conclusion would not apply. For these exceptions, see id., para. 62-63.
28 See supra text accompanying notes 20-21.
29 Maffezini Decision, supra note 11, at para. 54.
remedies, Spain supported the policy of a “direct right of submission to arbitration”31 and that “Argentina later abandoned its prior policy which
resulted in long waiting periods and thus accepted “clauses providing for the direct submission of disputes to arbitration.”32
In the Maffezini decision, the tribunal gave a positive answer to the question of whether MFN clauses cover issues concerning dispute settlement at all. However, it should not be overlooked that in the Maffezini decision, the ICSID tribunal did not deduce ‘consent’ to arbitrate. The parties to the investment treaty between Argentina and Spain had already given their consent to arbitration. Even if in this case the ICSID tribunal were to deny jurisdiction, Maffezini could have nevertheless referred the dispute to ICSID arbitration after the 18-month waiting period. In other words, except to quicken the process, the
Maffezini decision did not provide a new remedy for the claimant.
III. THE AFTERMATH OF THE MAFFEZINI CASE
The Maffezini decision explicitly described the dispute settlement provisions as “inextricably related” to the protection of investment treaties.33 The reactions
to the outcome of the Maffezini case have been wide-ranging; not only have commentators written articles about the decision, either welcoming or criticizing it, but the decision has caused reactions in the practice as well.
The Maffezini decision made an impact on subsequent events. This impact is to be seen both in the remodeling of investment treaties and in investment arbitration decisions, which when it comes to questions related to the effect of MFN clauses of investment treaties on dispute resolution mechanisms, consistently refer to the Maffezini decision.
A. The Impact of the Maffezini Case for Negotiators of InvestmentTreaties
After Maffezini, negotiators of investment treaties began to design MFN clauses to take the Maffezini decision into consideration. For example, the negotiators of the US-Central America Free Trade Agreement (CAFTA)34
31 Id.
32 Id.
33 See supra text accompanying note 30.
34 Current state parties to CAFTA are the US, Costa Rica, El Salvador, Guatemala,
Honduras, Nicaragua, Dominican Republic, available at http://www.ustr.gov/trade-agreements/free-trade-agreements/cafta-dr-dominican-republic (last visited Dec. 11, 2011).
attached an interpretation footnote35 to the CAFTA draft text which explicitly
referred to the Maffezini decision.36 This footnote, which was attached to the
draft text, was deleted in the final text of the Agreement,37 but still the wording
of the MFN clause of the Agreement reflects the reaction of the negotiators to the Maffezini decision. The Most Favored Nation Clause in the Investment Chapter of the final text38 of CAFTA is written in such a way that it expressly
limits its scope to matters ‘‘with respect to the establishment, acquisition, expansion, management, conduct operation, and sale or other disposition of investments (Art. 10.4).’’ Thus, the effect of the MFN clause of the CAFTA cannot be extended to issues concerning dispute resolution.
35 Considering the comments made after the Maffezini decision, it is not surprising that
negotiators to the CAFTA text became more cautious in designing an MFN clause, thus finding it necessary to attach a footnote to the draft text. For instance, a comment on the Maffezini decision by Dolzer and Myers reads as follows:
…it would be theoretically possible…that a comprehensive investment protection would be achieved, if a country enters into an agreement comprising of a single paragraph with the following content: The Contracting Parties each guarantee, that in questions related to the investment protection treaties, their nationals are not treated less favorable than nationals of third countries.
Dolzer and Myers, supra note 27, at 52, fn 13.
36 The footnote which was attached to the CAFTA draft text provides as follows: “…
The Parties note the recent decision of the arbitral tribunal in Maffezini (Arg.) v. Kingdom of Spain, which found an unusually broad most-favored-nation clause in an Argentina-Spain agreement to encompass international dispute resolution procedures… By contrast, the Most-Favored-Nation Treatment Article of this Agreement expressly limited its scope to matters ‘with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments.’ The parties share the understanding and intent that this clause does not encompass international dispute resolution mechanisms …”. See Draft CAFTA Treaty, available
at http//www. asil.org/ilib0703.cfm#t1 (last visited Dec. 11, 2011).
37 The Parties agreed that the deleted footnote referring to the Maffezini decision should
still be included in the negotiation history of the Agreement in order to display the negotiators viewing of the MFN clause and the Maffezini decision, See, e.g. Houde,
supra note 14, at 132.
38 See United States-Dominican Republic-Central America Free Trade Agreement
(CAFTA), Aug. 5, 2004, available at
http://www.ustr.gov/trade-agreements/free-trade-agreements/cafta-dr-dominican-republic-central-america-fta/final-text (last visited Dec. 4, 2011).
B. The Impact of the Maffezini Decision on Other ICSID Tribunals
After the Maffezini decision, many other arbitral tribunals have been faced with the question of whether jurisdiction could be based on MFN clauses.39 The
conclusion of the Maffezini decision enabled claimants (investors) to invoke the MFN clause of the applicable investment treaty and import favorable procedural clauses of other investment treaties. However, through research, up until now, no ICSID tribunal dealing with the effect of MFN clauses on dispute resolution mechanisms has invoked MFN clauses to establish jurisdiction. ICSID tribunals have invoked MFN clauses only to bypass less important procedural requirements, such as bypassing a waiting period to bring cases to arbitration. Cases such as Siemens, Gas Natural and Suez are examples of cases in which ICSID tribunals decided that the MFN clauses of the relevant BITs allowed them to import more favorable clauses of other investment treaties. These three cases were similar to the Maffezini case, in that the claimants sought to bypass a waiting period to bring cases to arbitration. Unlike these three cases, in which ICSID tribunals decided to follow the logic of the Maffezini decision, some other cases (Salini, Plama, Telenor) were not about bypassing a less important procedural requirement but about a procedural matter which was more substantial, namely the host State’s consent to arbitrate. In none of these cases did the appointed ICSID tribunal decide that the host State’s consent to arbitrate could be deemed to exist by virtue of an MFN clause.
For instance, in the Plama v. Bulgaria case, the ICSID tribunal concluded that “the MFN clause of the [affected] Bulgaria-Cyprus BIT (Bilateral Investment Treaty) cannot be interpreted as providing consent to submit a dispute . . . to ICSID arbitration and that the Claimant cannot rely on dispute settlement provisions in other BITs to which Bulgaria is a contracting Party in
39 Some cases other than the Maffezini case involving the effect of MFN clauses are:
Tecmed v. Mexico, ICSID Case No. ARB (AF)/00/2, Award of 29 May 2003, 43 I LM. 133 (2004) [hereinafter “Tecmed”]; Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Decision on Jurisdiction, 44 ILM 137 (2005)[hereinafter “Siemens Decision”]; Salini Decision, supra note 15; Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction of 8 February 2005), 44 ILM 721 (2005)[hereinafter “Plama Decision”]; Gas Natural SDG v. Argentina, ICSID Case No. ARB/03/10, Decision on the Tribunal on Preimanary Questions on Jurisdiction of Jun. 17, 2005 [hereinafter “Gas Natural”]; Suez, Sociedad General de Aguas de Barcelona S.A., and InterAguas Servicios Integrales del Agua S.A v. Argentina Republic, ICSID Case No. ARB/03/17, Decision on Jurisdiction of May 16, 2006 [hereinafter “Suez”]; Telenor Mobile Communications A.S. v. Republic of Hungary, ICSID Case No. ART 04/15, Award of 13 September 2006 [hereinafter “Telenor”];Vladimir Bershader and Moise Berschader v. The Russian Federation, SCC Case No. 080/2005, Award of 21 April 2006; RosInvest Co. U.K. v. Russia, SCC Case No. Arb. V079/2005, Decision of Jurisdiction of October 2007 [hereinafter "RosInvest].
the present case.”40 In fact, the wording of the MFN clause41 of the investment
treaty between Bulgaria and Cyprus, which the claimant of the Plama v.
Bulgaria case attempted to invoke, was similar42 to the wording of the MFN
clause invoked in the Siemens case.43 However, while in the Siemens case the
ICSID tribunal found the MFN clause of the applicable investment treaty to be broad enough to import favorable clauses of other investment treaties,44 in the Plama case, the ICSID tribunal found that the MFN clause was not sufficient
clear and unambiguous to allow the importation of the arbitration clause of another treaty.45 The two different decisions in the Siemens and Plama cases
seem to demonstrate opposite approaches to MFN clauses. In these two cases, similar MFN clauses had been invoked; in both of these cases the tribunals had to decide about the relationship between MFN clauses and dispute settlement. However, in these cases the issues at stake were different aspects of dispute settlement.46
In the Siemens case, the investor, like the investor in the Maffezini case, sought to bypass a waiting period for bringing cases to arbitration; the applicable MFN clause47 was less explicitly broad in comparison to the applicable MFN clause of the Maffezini case. However, the ICSID tribunal still
40 Plama Decision, supra note 39, at para. 227.
41 The applicable MFN clause of the Plama v. Bulgaria case provided that “[e]ach
Contracting Party shall apply to the investments in its territory by investors of the other Contracting Party a treatment which is not less favorable than that accorded to investments by investors of third states.”
42 Vesel, supra note 19, at 174.
43 See Siemens Decision, supra note 39.
44 Id, para 105-108.
45 Plama Decision, supra note 39, para. 223.
46 Rodriguez, supra note 5, at 96; Chukwumerije, supra note 19, at 643.
47 In fact there were three clauses in the relevant Germany-Argentina BIT that refer to
MFN treatment: The Articles 3(1), Article 3(2) and Article 4(4):
Article 3 (1): None of the Contracting Parties shall accord in its territory to the
investments of nationals or companies of the other Contracting Party or to investments in which they hold shares, a less favorable treatment than the treatment granted to the investments of its own nationals or companies or to the investments of nationals or companies of third States;
Article 3(2): None of the Contracting Parties shall accord in its territory to nationals
or companies of the other Contracting Party a less favorable treatment of activities related to investments than granted to its own nationals and companies or to the nationals and companies of third States;
Article 4 (4): The nationals or companies of each Contracting Party shall enjoy in
the territory of the other Contracting Party the treatment of the most favored nation in all matters covered in this Article.
found that the MFN clause “was textually broad enough to enable investors to import more favorable dispute settlement clauses of third party treaties.”48 On
the other hand, in the Plama case, the investment treaty between Bulgaria-Cyprus was concluded in a period when Bulgaria was still under Communist rule and, unlike the basic investment treaty applied to the Siemens case, the basic investment treaty of the Plama case did not allow the investors to resort to international arbitration for the settlement of disputes. The only situation in which the basic investment treaty to the Plama case allowed investors to commence arbitration against a host State was where a domestic court decided that expropriation had occurred with the purpose being to only decide the amount of compensation due to the claimant.
In the Plama case, the issue at stake was basically related to the consent to arbitrate, which is the fundamental requirement of arbitration. However, in the
Siemens case, where the issue at stake was the waiver of a less fundamental
procedural requirement, namely the waiting period, “there was no doubt about the host State’s consent to ICSID jurisdiction.”49 The ICSID tribunal found the MFN clause of the basic investment treaty to the Siemens case to be broad enough to bypass the waiting period provided in the same treaty. Yet the ICSID tribunal found that the similar MFN clause of the basic treaty to the Plama case was not sufficient to incorporate an arbitration clause of another investment treaty. It appears that the ICSID tribunal held the threshold to be much higher for importing an arbitration clause of a third party investment treaty to a basic treaty, where there is no consent to arbitrate, than the threshold for bypassing a less substantial procedural requirement like the waiting period. The ICSID tribunal reasoned its decision in the Plama case by pointing out that the consent of parties to arbitrate is the basic prerequisite for arbitration.50 Therefore, the
incorporation of the arbitration clause of another treaty can only be permitted if the intention of the parties to the BIT clearly and unambiguously demonstrates their willingness to make the arbitration clause of the other treaty part of their own treaty.51
48 The arbitral tribunal in Maffezini noted that Spain had used the expression “all
matters subject to this Agreement” only in the investment treaty to which Argentina is a party. In all of its other investment treaties, Spain had used the expression “this treatment.” The Maffezini tribunal commented that the latter was “of course a narrower
formulation.” The Tribunal concured that the formulation was narrower but it
considered that the term “treatment” and the phrase “activities related to the investments” were sufficiently wide to include settlement of disputes. Id., para 103.
49 Vesel, supra note 19, at 177.
50 Plama Decision, supra note 39, para. 198.
All other ICSID tribunals after Maffezini, dealing with the relationship between MFN clauses and dispute settlement mechanisms, seem to have followed the same rationale.52 All ICSID cases after Maffezini, which involved
broadly-worded MFN clauses and dealt with the relationship of these MFN clauses and dispute settlement in terms of bypassing waiting periods, have extended the effect of the MFN clauses to dispute settlement. On the other hand, neither of the ICSID tribunals which had to decide whether an MFN clause could be sufficient to deduce consent to arbitration have answered this question positively. The outcome of these ICSID cases is to be welcomed.53
IV. A NON-ICSID CASE CONFRONTING THE APPROACH
TAKEN BY ICSID TRIBUNALS: START OF A NEW EPISODE?
In a recent non-ICSID case, the arbitral tribunal rendered a decision which confronts the up-to-date approach taken by ICSID tribunals. This case is the
RosInvest Co v. Russia,54 which was a case brought before a Stockholm
Chamber of Commerce (SCC) tribunal. In this case, in which an investor from the United Kingdom initiated proceedings against the Russian Federation, the investment treaty the investor relied on was the investment treaty between the United Kingdom and the Soviet Union. However, the arbitration clause of this investment treaty was limited to disputes arising out of the amount of compensation for expropriation55 but did not cover disputes arising out of issues
52 Rodriguez, by making closer analysis of the ICSID cases involving the relationship
between the MFN clauses and dispute settlement has categorized the cases according to the issue at stake:
...(b) Maffezini, Siemens, Gas natural and Suez were about a less fundamental procedural requirement; a mere preliminary step for accesing arbitration;
(c) by contrast, Salini, Plama and Telenor Mobile dealt with core matters (basically an extension of jurisdiction) which could easily have been categorized as “public policy provisions” following Maffezini. In all these cases a radical effect was intended by the claimant; in the words of Plama, to replace the dispute resolution clause in the basic treaty in toto by a dispute resolution mechanism from a third treaty.
Rodriguez, supra note 5, at 96.
53 Cf., Stephan W. Shill, Multilateralizing Investment Treaties Through
Most-Favored-Nation Clauses, 27 BERKELEY J. INT’L LAW 497, 555-556 (2009)(advocating the
application of MFN clauses in openly worded BITs to derive jurisdiction for arbitration
tribunals); Christoph Shreuer, et al, THE ICSID CONVENTION 248 (2 ed., University
Press, Cambridge, 2009).
54 RosInvest Co. (U.K. v. Russia), Arb. V07/2005, Award on Jurisdiction (SCC 2007).
55 According to such an arbitration clause, an arbitral tribunal can have jurisdiction only
if the domestic courts of the host State have already decided that an expropriation has occured. In such a case, the arbitral tribunals invoking the arbitration clause of the
of occurrence and validity of expropriations. Thus, by invoking the MFN clause embedded in this treaty, the investor asserted that the more favorable arbitration clause of an investment treaty between the Soviet Union and a third party State, namely the investment treaty between the Soviet Union and Denmark should be applied. Whereas the arbitration clause between the Soviet Union and the United Kingdom did not cover disputes on the occurrence and validity of expropriations, the arbitration clause of the investment treaty between the Soviet Union and Denmark covered these latter issues as well.
The SCC tribunal, in its decision on jurisdiction in RosInvest, pointed out that:
If the effect [of MFN clauses] is generally accepted in the context of substantive protection, the Tribunal sees no reason not to accept it in the context of procedural clauses such as arbitration clauses. Quite in the contrary, it could be argued that, if it (the MFN clause) applies to substantive protection, then it should apply even more to ‘‘only’’ procedural protection.56
Saying this, the SCC tribunal of the RosINvest case imported the more favorable arbitration clause of the investment treaty between the Soviet Union and Denmark and asserted jurisdiction over the case.
The RosInvest case, which according to UNCTAD appears “to be the first award where a tribunal has employed the MFN clause to extend its jurisdiction to categories of claims excluded by the jurisdiction clause of the applicable BIT”57 is of significant importance. Indeed, the RosInvest decision seems to be
the vanguard of a new episode in interpreting MFN clauses embedded in investment treaties. After all, there is also some legal literature providing support to the approach taken in the RosInvest decision. For instance in his renown commentary on the ICSID Convention, Schreuer, by referring to the
RosInvest decision, and pointing out that “the meaning of an MFN clause is that
whoever is entitled to rely on it be granted rights accruing from a third party treaty even if these rights clearly go beyond the basic treaty” advocates the
underlying investment treaty can hold jurisdiction over disputes as to the amount of compensation.
56 RosInvest Decision, para. 132.
57 United Nations Conference on Trade and Development, Latest Developments in
Investor-State Dispute Settlement, IIA Monitor No.1 (2008) International Investment Agreements, UNCTAD/WEB(ITE/IIA/2008/3, at 6, available at http://www.unctad.org/ en/docs/iteiia20083_en.pdf (last visited Dec. 4, 2011).
application of MFN clauses “even in situations where the basic treaty refrains from granting consent to arbitration.”58
CONCLUSION
By pointing out that MFN clauses are ‘inextricably related’ to dispute resolution clauses of investment treaties, and thus confirming that investors may invoke more favorable dispute settlement provisions of other treaties, the
Maffezini case opened a new episode in the application of MFN clauses.
However, for about a nine-year period which lasted until the RosInvest case, the application of MFN clauses for importing more favorable dispute resolution clauses had been limited to only bypassing minor procedural issues like waiting periods. During this period, it was unheard of for an arbitral tribunal to invoke an MFN clause to take jurisdiction over a dispute for which the consent to arbitration in the basic treaty was missing.
A more recent episode seems to have been opened with the RosInvest case, in which an SCC tribunal, by means of an MFN clause, allowed, in a case for which the basic treaty did not provide consent to arbitration, to import a more favorable dispute resolution clause of a third party treaty. Thus, the RosInvest decision basically overrides the explicit intention of the signatory States to the investment treaty.
Through finding support from legal literature, it is highly probable that many arbitral tribunals will keep on interpreting MFN clauses as broadly as the SCC tribunal did in the RosInvest case. Because of that case, many other States, although not having given consent to arbitration, may have to face the unpleasant surprise of having their initial intent undermined and thus finding themselves as respondents in arbitration proceedings in which the arbitral tribunal asserted jurisdiction by virtue of an MFN clause.
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