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R u d o lf Dolzer and C hristoph Schreuer, 2012

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Second E dition published in 2012
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 Summary o f Contents

Foreword to the Second Edition xiii

Table o f Cases xiv
Table o f Treaties, Conventions, Resolutions, and Rides xxix
List o f Abbreviations xxxv

I. History, Sources, and Nature of International Investment Law 1

1. The history o f international investment law 1
2 . The sources of international investment law 12
3. The nature of international investment law 19

II. Interpretation and Application o f Investment Treaties 28

1. Interpreting investment treaties 28
2 . Application of investment treaties in time 36

III. Investors and Investments 44

1 . Investors 44
2. Investments 60

IV. Investment Contracts 79

1 . Types of investments contracts 79
2 . Applicable law 81
3. Stabilization clauses ' 82
4. Renegotiation/adaptation 85

V. Admission and Establishment 87

1 . The move towards economic liberalism 87
2 . Treaty models of admission 88
3. Performance requirements 90
4. Non-compliance by investor with host state law and
international public policy 92

VI. Expropriation 98
1 . The right to expropriate 98
2 . The three branches of the law 99
3. The legality of the expropriation 99
4. Direct and indirecr expropriation 101
5. Expropriation of contractual rights 126

VII. Standards of Protection 130

1 , Fair and equitable treatment 130
2. Full protection and security 160
vi Summary o f Contents

3. The umbrella clause 166

4. Access to justice, fair procedure, and denial of justice 178
5. Emergency, necessity, armed conflicts, and force majeure 182
6. Preservation of rights 190
7. Arbitrary or discriminatory measures 191
8. National treatment 198
9. Most-favoured-nation treatment 206
10. Transfer of funds 212

VIII. State Responsibility and Attribution 216

1 . Organs, provinces, and municipalities 216
2. State entities 219
3. Party status for constituent subdivisions or agencies
under the ICSID Convention 227

IX. Political Risk Insurance 228

X. Settling Investment Disputes 232

1 . State v state disputes 232
2. Investor v state disputes 235

Annexes ICSID Convention 313

The Energy Charter Treaty (excerpts) 329
North American Free Tirade Agreement (Chapter Eleven) 341
Chinese Model B IT (2003) 358
German Model Treaty (2008) 363
UK Model B IT (2005) 370
US Model B IT (2012) 377
Index 407
 Contents

Foreword to the Second Edition xiii

Table o f Cases xiv
Table o f Treaties, Conventions, Resolutions, aiid Rides xxix
List o f Abbreviations xxxv

I. History, Sources, and Nature of International Investment Law 1

1 . The history of international investment law 1
(a) Early developments 1
(b) The emergence of an international minimum standard 3
(c) Developments after the Second World War 4
(d). The evolution of investment protection treaties 6
(e) The quest for a multilateral framework 8
(f) Recent developments 11
2 . The sources of international investment law 12
(a) The ICSID Convention 13
(b) Bilateral investment treaties 13
(c) Sectoral and regional treaties: the Energy Charter
Treaty and NAFTA 15
(d) Customary international law 17
(e) General principles of law 18
(f) Unilateral statements 18
(g) Case law 19
3. The nature of international investment law 19
(a) Investment law and trade law 19
(b) Balancing duties and benefits 20
(c) The investor’s perspective: a long-term risk 21
(d) The host state’s perspective: attracting foreign investment 22
(e) International investment law and sovereign regulation 24
(f) International investment law and good governance 24
(g) Obligations for investors 25

II. Interpretation and Application of investment Treaties 28

1 . Interpreting investment treaties 28
(a) Methods of treaty interpretation 28
(b) Travauxpreparatoires 31
(c) Interpretative statements 31
(d) The authority o f ‘precedents1 33
(e) Towards a greater uniformity of interpretation 35
2. Application of investment treaties in time 36
(a) Inter-temporal application of treaties in general 36
(b) Different inter-temporal rules for jurisdiction and substance 36
 Contents

(c) The date relevant to determine jurisdiction

(d) Relevant dates under the ICSID Convention
(e) Inter-temporal rules in other treaties

III. Investors and Investments

1. Investors
(a) Private foreign investors
(b) Nationality of individuals
(c) Nationality of corporations
(d) Article 25 (2 ) (b) of the ICSID Convention: agreement
to treat a local company as a foreign national because of
foreign control
(e) Nationality planning
(f) Denial of benefits
(g) Shareholders as investors
2. Investments
(a) Terminology and concept
(fa) Investments as complex, interrelated operations
(c) Definitions in investment protection treaties
(d) ‘Investment’ in Article 25 of the ICSID Convention
(e) Case law
(f) Towards a new synthesis?
(g) Investment ‘in the territory of the host state5

IV. Investment Contracts

1 . Types of investments contracts
2. Applicable law
3. Stabilization clauses
4. Renegotiation/adaptation

V. Admission and Establishment

1 . The move towards economic liberalism
2 . Treaty models of admission
3. Performance requirements
4. Non-compliance by investor with host state law and
international public policy

VI. Expropriation
1 . The right to expropriate
2 . The three branches of the law
3. The legality of the expropriation
4. Direct and indirect expropriation
(a) Broad formulae: their substance and evolution
(b) Judicial and arbitral practice: some illustrative cases
(c) Efrect or intention?
(d) Legitimate expectations
(e) Control and expropriation
 Contents ix

(f) Partial expropriation 119

(g) General regulatory measures 120
(h) Duration of a measure 124
(i) Creeping expropriation 125
5. Expropriation of contractual rights 126

VII. Standards of Protection 130

1 . Fair and equitable treatment 130
(a) History of the concept 130
(b) Heterogeneity of treaty language 132
(c) Nature and function 132
(d) Fair and equitable treatment and customary international law 134
(e) The evolution of the fair and equitable treatment standard 139
(f) Methodological issues 141
(g) Attempts to define fair and equitable treatment 142
(h) Specific applications of the fair and equitable
treatment standard 145
aa. Stability and the protection of the investor’s legitimate
expectations 145
bb. Transparency 149
cc. Compliance with contractual obligations 152
dd. Procedural propriety and due process 154
ee. Good faith 156
ff. Freedom from coercion and harassment 159
(i) Conclusion 160
2 . Full protection and security 160
(a) Concept 160
(b) Standard of liability 161
(c) Protection against physical violence and harassment 162
(d) Legal protection 163
(e) Relationship to customary international law 166
3. The umbrella clause 166
(a) Meaning and origin 166
(b) Effective application of umbrella clauses 169
(c) Restrictive application of umbrella clauses 171
(d) Umbrella clauses and privity of contract 175
(e) Umbrella clauses and unilateral acts 177
4. Access to justice, fair procedure, and denial of justice 178
5. Emergency, necessity, armed conflicts, and force majeure 182
(a) Customary international law: civil violence, military action 183
(b) The ILC Articles on State Responsibility 183
aa. Necessity 184
bb. Force majeure 187
(c) Treaty law 188
6 . Preservation of rights 190
7. Arbitrary or discriminatory measures 191
X Contents

(a) Arbitrary measures 191

aa. The meaning of arbitrary 191
bb. Adverse intention 193
cc. Relationship to fair and equitable treatment and to
customary international law 194
(b) Discriminatory measures 195
aa. The basis of comparison 196
bb. Discriminatory intent 197
8 . National treatment 198
(a) General meaning 198
(b) Application 199
aa. The basis of comparison: ‘like’ 199
bb. The existence of a differentiation 200
cc. Is there a justification for the differentiation? 202
dd. The relevance of discriminatory intent 203
(c) The relevance of WTO case law 204
9. Most-favoured-nation treatment 206
(a) Introduction 206
(b) Variations of MFN clauses 207
(c) Method of interpretation 208
(d) Invoking substantive rights 209
(e) Current state of the law 211
10. Transfer of Hinds 212

VIII. State Responsibility and Attribution 216

1. Organs, provinces, and municipalities 216
(a) State organs 217
(b) Provinces and municipalities 218
2. State entities 219
(a) The role of state entities 219
(b) Structure, function, and control 221
(c) Judicial practice on attribution 222
(d) State responsibility for failure to protect 226
3. Party status for constituent subdivisions or agencies under
the ICSID Convention 227

IX. Political Risk Insurance 228

X. Settling Investment Disputes 232

1 . State v state disputes 232
(a) Diplomatic protection 232
(b) Direct disputes between states 234
2 . Investor v state disputes 235
(a) The limited usefulness of domestic courts 235
(b) Arbitration and conciliation 236
(c) Arbitration institutions and regimes 238
aa. ICSID 238
bb. ICSID Additional Facility 240
 Contents xi

cc. Non-ICSID investment arbitration 241

i. The International Chamber of Commerce 242
ii. The London Court of International Arbitration 242
iii. The UNCITRAL Rules 243
iv. The Iran-United States Claims Tribunal 243
v. The Permanent Court of Arbitration 244
(d) The subject matter of the dispute (jurisdiction ratiane materiae) 245
aa. The dispute 245
bb. The legal nature of the dispute 245
cc. The directness of the dispute in relation to the investment 246
dd. The investment 248
(e) The parties to the dispute (jurisdiction ratione personae) 249
aa. The host state 249
bb. The investor 250
cc. The investor’s nationality 252
dd. The significance of the Additional Facility 253
(f) Consent to arbitration 254
aa. Consent by direct agreement 254
bb. Consent through host state legislation 256
cc. Consent through bilateral investment treaties 257
dd. Consent through multilateral treaties 259
ee. The scope of consent 260
flf. The interpretation of consent 262
(g) Conditions for the institution of proceedings 264
aa. The requirement to resort to domestic courts 264
bb. The fork in the road 267
cc. An attempt at amicable settlement 268
(h) The applicability of MFN clauses to dispute settlement 270
(i) The selection of domestic courts in contracts 275
(j) Procedure 278
aa. Arbitration Rules 278
bb. Institution of proceedings 279
cc. The tribunal and its composition 279
dd. Provisional measures 281
ee. Summary procedure 283
if. Written and oral procedure 284
gg. The award 286
hh. Transparency 286
(k) Applicable law 288
(1) Remedies 293
aa. Restitution and satisfaction 293
bb. Damages for an illegal act 294
cc. Compensation for expropriation 296
dd. Interest 297
(m) Costs 298
(n) Challenge and review of decisions 300
aa. Review in non-ICSID arbitration 300
xii Contents

bb. Annulment under the ICSID Convention 301

i. Excess of powers 304
ix. Serious departure from a fundamental rule of procedure 306
iii. Failure to state reasons 307
cc. Supplementation and rectification under the ICSID Convention 308
dd. Interpretation under the ICSID Convention 309
ee. Revision under the ICSID Convention 309
(o) Enforcement of awards 310

Annexes ICSID Convention 313

The Energy Charier Treaty (excerpts) 329
North American Free Trade Agreement (Chapter Eleven) 341
Chinese Model B IT (2003) 358
German Model Treaty (2008) 363
UK Model B IT (2005) 370
US ModeI B IT (2012) 377
Index 407
 Foreiuord to the Second Edition

Investment arbitration continues to expand and to occupy more and more arbitra­
tors, lawyers, teachers and researchers. Looking at the state of. international law
in general, and of international economic law in particular, investment law has over
the past decade become the most dynamic field.
W ith an impressive number of new awards issued since the first edition in 2008,
it has become useful and necessary to prepare this new edition. We have revised
all chapters. Some parts were reorganised, in particular the introductory section.
O ther chapters had to be entirely rewritten in the light of the fast pace of relevant
jurisprudence and its new directions.
Given the favourable response of our readers to die first edition, we have
continued to adhere to our style of presentation, seeking to combine the advantages
of a Continental analytical study with those of a common-iaw case-centred ap­
proach.
In Vienna, Jane Alice Hofbauer has carefully compiled the Table of Cases for the
new edition. In Bonn, Doris Gassen has, again, successfully organised the texting o f
the manuscript.
Rudolf Dolzer
Bonn
Christoph Schreuer
Vienna
 Table of Cases

Note: bold page numbers refer to discussions of a case in the text, lean page
references refer to cases in footnotes.

I N T E R N A T IO N A L A R B IT R A T IO N S

AAPL v Sri Lanka, Award, 27 June 1990, 4 ICSID Reports 250; 6 ICSID Review-FILJ
(1991) 526; 30 ILM (1991) 577..................................................28, 58, 161, 162, 183, 217, 291,
2 9 5 ,2 9 7 -8 , 300
Abaciat et al. v Argentina
Decision on Jurisdiction, 4 August 2011 ......................................................................... 34, 72-3, 251
Decision on Challenge, 21 December 2011 ...................................................................................... 280
ADC v Hungary, Award, 2 October 2006, 15 ICSID Reporrs 539 ..................................... 33, 48, 99,
1 2 2 -3 , 259, 262, 285, 291, 294, 296, 298, 300
ADF v United States, Award, 9 January 2003, 6 ICSID Reports 470; 18 ICSID
Review-FILJ (2003) 195 ............................................32, 134, 136, 140, 201, 202, 204, 209, 219
Adriano Gardella v Cote d’Ivoire, Award, 29 August 1977, 1 ICSID
Reports 287 .............................................................................................................................. 292, 299
AES Corporation v Argentina, Decision on Jurisdiction, 26 April 2005, 12 ICSID
Reports 3 1 2 ....................................................... 3 3 -4 , 48, 5?, 67, 246, 248, 263, 265, 269, 2 7 6 -7
AES v Hungary, Award, 23 September 2010 ..............117, 146, 148, 156, 162, 165, 191, 193, 299
AFT v Slovakia, Award, 5 March 2 0 1 1 .......................................................................... 30, 39, 269, 300
AGIP v Congo, Award, 30 November 1979, 1 ICSID Reports 309............................83-4, 245, 281,
283, 288, 300
Aguas Argentinas et al. v Argentina see Suez, Sociedad General de Aguas de Barcelona SA,
and Vivendi Universal SA v Argentina and AW G Group Ltd. v Argentina
Aguas del Tunari, SA v Bolivia, Decision on Jurisdiction, 21 Ocrober 2005, 20 ICSID
Review-FILJ (2005) 450 ............................28, 29, 30, 31, 32, 50, 52, 53 64, 95, 264, 276, 287
Aguas Provinciales de Santa Fe et al. v Argentina see Suez, Sociedad General de Aguas
de Barcelona SA, and InterAguas Servicios Integrates del Agua SA v Argentina
Aguaytia v Peru, Award, 11 December 200 8 ......................................................................... ................. 92
Aiasdair Ross Anderson v Costa Rica, Award, 19 May 2 0 1 0 .......................................................93, 281
Alcoa Minerals v Jamaica, Kaiser Bauxite v Jamaica, Reynolds v Jamaica see Kaiser
Bauxite v Jamaica
Alpha v Ukraine, Award, 8 November 2010 .................................18, 49, 70, 71, 104, 111, 148, 153,
217, 224, 247, 261 ,3 0 0
Ambatielos Claim (Greece v United Kingdom), Award, 6 March 1956, XII RLAA 83 .................ISO
Amco v Indonesia
Decision on Jurisdiction, 25 September 1983, 1 ICSID Reports 389; 23 ILM
(1984) 3 5 1 ............................................................................................ 30, 33, 39, 40, 255, 264, 280
Decision on Provisional Measures, 9 December 1983, 1 ICSID Reports 4 1 0 ............................281
Award, 20 November 1984, 1 ICSID Reports 4 1 3 ............................................... 30, 217, 226, 292
Decision on Annulment, 16 May 1986, 1 ICSID Reports 509 ........................ 33, 265, 292, 302,
304, 305, 306, 307, 308
Resubmitted Case: Decision on Jurisdiction, 10 May 1988, 1 ICSID Reports 543;
3 ICSID Review-FILJ (1988) 166 ........................ .............................................................. 247, 308
Resubmitted Case: Award, 5 June 1990, 1 ICSID Reports 569 .................................292, 295, 299
 Table o f Cases xv

Resubm itted Case: Interim Order N o, 1, 2 M arch 1991, 9 ICSID Reports 5 9 ...........................302
Resubm itted Case: Decision on A nnulm ent, 3 December 1992, 9 ICSID Reports 9 ................ 306
American Bell v Iran, Award, 19 Sepcember 1986, 12 Iran-U S C T R (1986) 170............................ 220
Aminoil v Kuwait, Award, 24 March 1982, 21 ILM (1982) 9 7 6 .......................................................... 84
Amoco International Finance Corp. v Iran, Partial Award, 14 July 1987, 15 Iran-U SCTR
(1987) 1 8 9 ................................................................................................................................ 82, 84, 127
A M T v Zaire, Award, 21 February 1997, 5 ICSID Reports 14; 36 ILM
(1997) 1531 ...........................................................................................................................57, 162, 285
A M T O v Ukraine, Award, 26 M arch 200 8 ................ 55-6, 160, 171, 175, 176,·225, 245, 260, 269
Anderson v Costa Rica see Alasdair Ross Anderson v Costa Rica
Antoine Goetz and others see Goetz v Burundi
ARA M CO v Saudi Arabia, Award, 23 August 1958, 27 ILR (1963) 117................................... 82, 173
Archer Daniels v Mexico, Award, 21 November 2 0 0 7 ...........................................................................207
Asian Agricultural Products Ltd see AAPL v Sri Lanka
ATA v Jordan
Award, 18 May 2010 .................................................................................................... 42, 245, 247, 294
Decision on Interpretation, 7 M arch 2 0 1 1 ..................................................................................282, 309
Atlantic T riton v Guinea, Award, 21 April 1986, 3 ICSID Reports 13 ................................... 298, 299
Austrian Airlines v Slovakia, Final Award, 9 O ctober 2 0 0 9 .................................30, 34, 264, 272, 274
Autopista v Venezuela
Decision on Jurisdiction, 27 September 2001, 6 ICSID Reports 419; 16 ICSID
Review-FILJ (2001) 469 .........................................................................................41, 47, 52, 53, 234
Award, 23 September 2003, 10 ICSID Reports 3 0 9 ............................................ 292, 295, 298, 299
A W G Group Ltd. v Argentina see Suez, Sociedad General de Aguas de Barcelona SA,
and Vivendi Universal SA v Argentina and A W G Group Ltd. v Argentina
Azinian v Mexico, Award, 1 N ovem ber 1999, 5 ICSID Reports 272; 14 ICSID
Review-FILJ (1999) 538; 39 ILM (2000) 537 ..................... 146, 154, 179, 181, 217, 250, 299
Azpetrol v Azerbaijan, Award, 8 September 2 0 0 9 .............................................................................81, 288
Azurix v Argentina
Decision on Provisional Measures, 6 August 2 0 0 3 ....................................................................281, 282
Decision on Jurisdiction, 8 December 2003, 10 ICSID Reports 416; 43 ILM
(2004) 2 6 2 ................................................................................................... 57, 59, 263, 267, 269, 276
Award, 14 July 2006, 14 ICSID Reports 3 7 4 .............................33, 114, 117, 118, 122, 123, 124,
125, 127, 128, 133, 137, 138, 140, 142, 158, 161, 164, 175,
176-7, 191, 192, 195, 285, 293, 295, 296, 298, 299
Decision on C ontinued Stay o f Enforcement, 28 December 2007, 47 ILM
(2008) 4 4 8 .............................................................................................................................................. 302
Decision on Annulm ent, 1 September 2009 ............................................ 33, 59, 304, 305, 306, 308

Banro v Congo, Award, 1 September 2000, excerpts in 17 ICSID Review-FILJ

(2002) 380 ......................................................................................................................................53, 234
Bayindir v Pakistan
Decision on Jurisdiction, 14 November 2005 ........................................................33, 34, 39, 64, 67,
127, 128, 148, 157, 2 1 0 -1 1 , 248, 269, 276, 282
Procedural O rder No. 4, Docum ent Production, 27 November 2 0 0 6 ........................................... 285
Award, 27 August 2009 ........................................42, 113, 137, 142, 145, 146, 148, 153, 156, 159,
178, 199, 203, 206, 207, 2 1 1, 217, 222, 225, 277, 281, 282, 291
Bayview v Mexico, Award, 19 June 2007 ................................................................................................... 77
BE C hattin (USA) v Mexico, 23 July 1927, IV RLAA 2 8 2 ................................................................... 181
Benvenuti & Bonfanc v Congo, Award, 15 August 1980, 1 ICSID Reports 335...........285, 292, 299
Berschader v Russia, Award, 21 April 2 0 0 6 .............................................................................. 59, 269, 272
BG Group v Argentina, Final Award, 24 December 200 7 ........................................... 29, 59, 146, 148,
165, 176, 195, 197, 277, 291, 298, 300
xvi Table o f Cases

Biloune v Ghana
Award on Jurisdiction, 27 October 1989, 95 ILR (1995) 184 ....................................113, 125, 297
Award on Damages and Costs, 30 June 1990, 95 ILR (1995) 211 ............................................... 108
Biwater Gauff v Tanzania
Procedural O rder No, 1, 31 March 2006, 22 ICSID Review-FILJ (2007) 1 5 5 ...........................281
Procedural Order No. 2, 23 May 2006 .............................................................................................. 285
Procedural Order N q. 3, 29 September 2006, 22 ICSID Review-FILJ (2007) 181;
46 ILM (2007) 15 ....................................................................................................................283, 287
Procedural Order No. 5, 2 February 2007, 22 ICSID Review-FILJ (2007) 217;
46 ILM (2007) 576 ...........................................................................................................................287
Award, 24 July 2 0 0 8 .................................. 39, 67-70,109-10, 134, 138, 142, 145, 153, 165, 195,
214, 256, 269, 277, 287, 294
Bogdanov v Moldova, Award, 22 September 2005, 15 ICSID Reports 4 9 ......................................... 59
BP v Libya see British Petroleum
Braudes v Venezuela
Decision under Arbitration Rule 41(5), 2 February 2 0 0 9 ................................................................ 283
Award, 2 August 2011 ................................................................................................. 33, 257, 263, 299
Brown Case see US v Great Britain (Brown Case)
British Petroleum v Libya, 10 October 1973, 53 ILR (1979) 297...................................................... 288
Bureau Veritas v Paraguay, Award, 29 May 2009...................................................................................129
Burlington Resources v Ecuador, Decision on Jurisdiction, 2 June 2010 ................................ 34, 80-1,
153, 245, 270, 277, 282

Cable Television v St. ICitts and Nevis, Award, 13 January 1997, 5 ICSID Reports 108;
13 ICSID Review-FILJ (1998) 328 ............................................................. 41, 225, 250, 264, 299
Camuzzi v Argentina, Decision on Jurisdiction, 11 May 2005 ...................................... 28, 57, 58, 59,
246, 248, 252, 263, 276
Canadian Cattlemen v United States, Award on Jurisdiction, 28 January 2008................................. 77
Canevaro Case, Award, 3 May 1912, XI RLAA 397 .............................................................................233
Canfor v United States, Tembec et al. v United States, Terminal Forest Products v
United States, Order of the Consolidation Tribunal, 7 September 2 0 0 5 ..................................252
Casado v Chile see Victor Pey Casado v Chile
C D C v Seychelles
Award, 17 December 2003, 11 ICSID Reports 211......................................................................... 300
Decision on Continued Stay, 14 July 2004 .......................................................................................302
Decision on Annulment, 29 June 2005, 11 ICSID Reports 237 ................ 300, 302-3, 304, 305,
306, 307, 308
CDSE v Costa Rica see -Santa Elena v Costa Rica
Cementownia v Turkey, Award, 17 September 2 0 0 9 ..................................... 18, 53 -4 , 281, 295, 299
CEMEX v Venezuela, Decision on Jurisdiction, 30 December 2010....... 18, 59, 254, 257, 263, 264
Ceskoslovenska Obechodni Banka A.S. see CSOB v Slovakia
Champion Trading v Egypt
Decision on Jurisdiction, 21 October 2003, 10 ICSID Reports 400; 19 ICSID
Review-FILJ (2004) 275 .................................................................... 46-7, 50, 59, 251, 268, 285
Award, 27 October 2006 .....................................................................................................................300
Chemtura v Canada, Award, 2 August 201 0 .................... 33, 34, 136, 138, 156, 157, 209, 243, 300
Chevron and Texaco v Ecuador
Interim Award, 1 December 2008 ........................................................................ 33, 37, 38, 41, 261
Partial Award, 30 March 2 0 1 0 ......................................................................................................18, 182
Final Award, 31 August 2011............................................................................................................... 243
CM E v Czech Republic
Partial Award, 13 September 2001, 9 ICSID Reports 121 .......57, 108, 112, 113, 127, 133, 148,
164, 193-4
Award, 14 March 2003, 9 ICSID Reports 264 ............................................ 32, 2 1 1 , 243, 265, 298
 Table o f Cases xvii

CMS v Argentina
Decision on Jurisdiction, 17 July 2003, 7 ICSID Reports 494; 42 ILM
(2003) 7 8 S .............................. .'.................................... 18, 58, 59, 217, 2 4 7 -8 , 263, 268, 269, 276
Award, 12 May 2005, 14 ICSID Reports 158; 44 ILM (2005) 1205 ............................ 29, 84, 113,
117, 133, 137, 138, 139, 147, 158, 174, 176, 177, 184-6, 192, 194, 197, 29 2 -3
Decision on C ontinued Stay of Enforcement, 1 September 2006 .................................................. 302
Decision on Annulment, 25 September 2007, 14 ICSID Reports 251; 46 ILM
(2007) 1136..............................................................................59, 177, 178, 189-90, 302, 305, 307
Commerce Group v El Salvador, Award, 14 March 2011 ..................................... ..............................267
Com pam a de Aguas del Aconquija SA and Vivendi Universal SA v Argentina see Vivendi
v Argentina
Com pam a del Desarrollo de Santa Elena SA v Costa Rica see Santa Elena v Costa Rica
Consortium RFCC see RFC C v Morocco
Consorzio Groupem ent LESI - Dipenta d Republique Algerienne see LESI - D ipenta
v Algeria
Continental Casualty v Argentina
Decision on Jurisdiction, 22 February 2 0 0 6 ............................................... 29, 57, 59, 246, 248, 269
Award, 5 September 2 0 0 8 ................. ........................... 121, 132, 137, 148, 149, 176, 178, 189-90,
212, 213, 214, 298
Decision on Annulm ent, 16 September 2 0 1 1 ............. ..................................................................... 90
Corn Products v Mexico
O rder of die Consolidation Tribunal, 20 May 2005, 21 ICSID Review-FILJ
(2006) 3 6 4 ........................................................................................................................................... 252
Decision on Responsibility, 15 January 2 0 0 8 ................................................ 109, 201, 203, 205 207
CSOB v Slovakia
Procedural O rder No. 2, 9 September 1998...................................................................................... 282
Procedural O rder No, 3, 5 November 1998...................................................................................... 282
Procedural O rder N o. 4, 11 January 1 9 9 9 ........................................................................................
Decision on Jurisdiction, 24 May 1999, 5 ICSID Reports 335; 14 ICSID Review-FILJ
(1999) 2 5 1 ............................................ 39, 44, 61, 68, 77, 219, 246, 247, 2 5 0 -1 , 255, 263 264
Procedural O rder No. 5, 1 March 2 0 0 0 ............................................................................................. 282
Decision on Further and Partial Objection to Jurisdiction, 1 December 2000,
5 ICSID Reports 358; 15 ICSID Review-FILJ (2000) 5 4 4 ............................................... 255
Award, 29 December 2004, 13 ICSID Reports 181 .......................................................163, 288

Delagoa Bay Claim (UK v Portugal), Award, 24 July 1875, XXVIII RIAA 1 5 7 ............................
Desert Line v Yemen, Award, 6 February 2008, 48 ILM (2009) 82 ....................... 94-5, 159-60 295
Dual Nationality, Case N o. A/18, Decision, 6 April 1984, 5 Iran-USCTR (1984) 252;
23 ILM (1984) 489 .................................................................................................................................... ...47
Duke Energy v Ecuador, Award, 18 August 2008 ....................... 34, 80, 138, 146, 149, 153-4, 159,
171, 176, 179, 193, 195, 254, 264, 288
Duke Energy v Peru
Decision on Jurisdiction, 1 February 2006, 15 ICSID
Reports 108 ...........................................................................................42, 61, 247, 255, 282, 285 293
Award, 18 August 2008, 15 ICSID Reports 146 ...............................................................83, 292 299
Decision on A nnulm ent, 1 March 2011..................................................................... 42, 255, 305 308

Eastern Sugar v Czech Republic, Partial Award, 27 March 2007 ..................... 32, 163, 197, 293 298
EDF v Romania
Procedural O rder No. 2, 30 M ay 2 0 0 8 ................................................................................................ 281
Award, 8 O ctober 2009 .......... .’........... ..................141, 146, 148-9, 153, 160, 175, 193, 225, 300
El Paso v Argentina
Decision on Jurisdiction, 27 April 2006, 21 ICSID Review-FILJ (2006) 4 8 8 ................ 30, 33, 34,
39, 58, 172-3, 245, 2 4 6 ,2 4 8 ,2 6 4 ,2 6 9 ,2 7 7
Award, 31 O ctober 2011 ....................................59, 133, 137, 138, 141, 142, 148, 149, 158, 166,
xviii Table o f Cases

Emilio Agustin Maffezini see MafFezini v Spain

Empresa Electrica del Ecuador v Ecuador, Award, 2 June 2 0 0 9 .............................................................55
Empresas Lucchetti SA and Lucchetti Peru see Lucchetti v Peru
EnCana v Ecuador, Award, 3 February 2006, 12 ICSID Reports 427; 45 ILM
(2006) 655; 138 ILR (2010) 2 4 9 ..............................................................33, 39, 59, 119, 225, 265
Enron v Argentina
Decision on Jurisdiction, 14 January 2004, 11 ICSID Reports 2 7 3 .......................... 33, 58, 59, 61,
219, 247, 263, 2 6 7 -8 , 270, 276, 294
Decision on Jurisdiction (Ancillary Claim), 2 August 2004, 11 ICSID
Reports 295 ........................................................ Γ............................................................ 28, 33, 58, 59
Award, 22 May 2007 ..................................39, 117, 134, 137, 146, 148, 158, 176, 177, 185, 194,
196-7, 293, 298, 299
Decision on Second Request to Lift Stay o f Enforcement, 20 May 2009 ..................................... 302
Decision on Annulment, 30 July 2010 ........................ 58, 176, 177, 189—90, 276, 302, 305, 306
Ethyl Corp. v Canada, Decision on Jurisdiction, 24 June 1998, 7 ICSID
Reports 12; 38 ILM (1999) 708 .............................................................................................. 264, 269
Eureko v Poland, Partial Award, 19 August 2005, 12 ICSID Reports 3 3 5 ..................................28, 30,
34, 119, 127, 140, 147-8, 162-3, 170, 172, 2 1 7 ,2 6 4 , 276, 300
Europe Cement v Turkey, Award, 13 August 2009 .............................................................294, 295, 299

Fabiani case (France v Venezuela), Award of 1896, V M oore’s International

Arbitrations (1898) 4878 ....................................................................................................................182
Fakes v Turkey, Award, 14 July 2 0 1 0 ................................................................. 34, 46, 71, 73, 281, 299
Fedax v Venezuela, Decision on Jurisdiction, 11 June 1997, 5 ICSID Reports 186;
37 ILM (1998) 1378 ........................................................................................................ 66, 76-7, 246
Feldman v Mexico
Decision on Jurisdiction, 6 December 2000, 7 ICSID Reports 327; 40 ILM
(2001) 615; 126 ILR (2005) 9 .............................................................................................................46
Award, 16 December 2002, 7 ICSID Reports 341; 18 ICSID Review-FILJ
(2003) 488; 126 ILR (2005) 2 6 ................. 33, 117, 120, 146, 179, 196, 197, 200, 2 03-4, 250
Fireman’s Fund v Mexico, Award, 17 July 2 0 0 6 ........................................................................... 109, 215
Foremost Teheran v Iran, Award, 11 April 1986, 10 Iran-U SC T R (1986) 228 .............................220
Foresti et al. v South Africa, Award, 4 August 2 0 1 0 ...............................................................................251
Fraport v Philippines
Award, 16 August 2007 .......................................................................................28, 30, 89, 93, 96, 276
Decision on Annulment, 23 December 2 0 1 0 ....................18, 29, 30, 96, 247, 302, 304, 306, 307
Frontier Petroleum v Czech Republic, Final Award, 12 November 2010.... 146, 156, 157, 163, 244
Funnekotter v Zimbabwe, Award, 22 April 2009, 48 ILM (2009) 764; 138
ILR (2010) 410 ...................................................................................................... 101, 183, 298, 300

GAMI v Mexico, Award, 15 November 2004, 13 ICSID Reports 147; 44

ILM (2005) 545 ........................................................................ 58, 59, 140, 145-6, 153, 201, 202
Gas Natural v Argentina, Decision on Jurisdiction, 17 June 2005, 14 ICSID
Reports 284 ..............................................................33, 57, 58, 64, 246, 248, 266, 267, 271, 272
GEA v Ukraine, Award, 31 March 2 0 1 1 ........................................................................................... 72, 165
Generation Ukraine v Ukraine, Award, 16 September 2003, 10 ICSID
Reports 240; 44 ILM (2005) 404 ...................................... 37, 41, 55, 62, 124, 125, 258-9, 265,
269, 280, 299, 300
Genin v Estonia, Award, 25 June 2001, 6 ICSID Reports 241; 17 ICSID
Review-FILJ (2002) 395 .......... 41, 57, 58, 133, 142, 156, 158, 192, 195, 196, 204, 220, 267
Glamis Gold v United States, Award, 8 June 2009, 48 ILM (2009) 1038 ..........................136, 140-1
Global Trading v Ukraine, Award, 1 December 2 0 1 0 ........................................................... 73, 283, 284
 Table o f Cases xix

Goetz v Burundi
Decision on Liability, 2 September 1998, 6 ICSID Reports 5 .............................. 57, 251, 285, 294
Award, 10 February 1999, 6 ICSID Reports 5; 15 ICSID Review-FILJ
(2000) 457 ................................................................... 39, 107, 112, 113, 250, 270, 289, 290, 294
G rand River Enterprises v United States, Award, 12 January
2011 .................................................................................. 32, 33, 77, 119, 136, 144, 156, 200, 299
Gruslin v Malaysia, Award, 27 November 2000, 5 ICSID Reports 4 8 4 ............................................ 250
Grynberg v Grenada see RSM Production et al. v Grenada

Hamester v Ghana, Award, 18 June 2 0 1 0 ................................ 93, 153, 175, 221, 224, 250, 277, 281
Heirs o f the D ue de Guise, Decision No. 107, 15 September 1951, XIII RIAA 1 5 4 .....................219
H elnan v Egypt
Decision on Jurisdiction, 17 October 2006 ............................................................. 42, 225, 245, 248
Award, 3 July 2 0 0 8 ............................................................................................................2 65-6, 276, 277
Decision on A nnulm ent, 14 June 2010................................................................... 266, 277, 304, 306
H IC E E v Slovakia, Partial Award, 23 May 201 1 ........................................ ................................29, 53, 59
H im purna v Indonesia, Interim Award o f 26 September 1999 and Final Award of
16 O ctober 1999, XXV Yearbook o f Commercial Arbitration (2000) 109 ............................. 179
H ochtief v Argentina, Decision on Jurisdiction, 24 October 2 0 1 1 ...................... 58, 212, 271, 27 4 -5
Holiday Inns v Morocco, Decision on Jurisdiction, 12 M ay 1974, 1 ICSID
Reports 6 4 5.................................................................................................................... 39, 41, 247, 255
Hrvatska Elektroprivreda v Slovenia, Decision on Treat)' Interpretation Issue,
12 June 2009 .............................................................................................................................. 28 -9 , 30
Hussein N uam an Soufraki v United Arab Emirates see Soufraki

IBM v Ecuador, Decision on Jurisdiction, 22 December 2003, 13 ICSID Reports 105................ 265
ICS Inspection v Argentina, Award, 10 February 2 0 1 2 ................................................................ 267, 271
Impregilo v Argentina, Award, 21 June 2 0 1 1 ........ 57, 133, 138, 148, 185, 189, 271, 274, 276, 298
Impregilo v Pakistan, Decision on Jurisdiction, 22 April 2005, 12 ICSID
Reports 2 4 5............................. 36, 37, 42, 47, 127, 128, 153, 175-6, 194, 2101, 225, 245, 276
IN A Corp. v Iran, Award, 12 August 1985, 8 Iran-U S C T R (1985) 3 7 3 .............................................. 5
Inceysa v El Salvador, Award, 2 August 2 0 0 6 ...........................................64, 95- 6, 257, 263, 276, 300
Inmaris v Ukraine
Decision on Jurisdiction, 8 March 2 0 1 0 .................................................................................................70
Award, 1 M arch 2 0 1 2 .............................................................................................................................. 127
Island o f Palmas, Award, 4 April 1928, II RIAA. 8 2 9 ...............................................................................36
Italy v Cuba, Award, 15 January 2008 .............................................................................................233, 235

Jaiapa Railroad and Power Co. v Mexico, 1948 (American—Mexican Claims Commission), 8
W hitem an Digest of International Law (1976) 908 .................................................................... 128
James M. Saghi, Michael R. Saghi, and Allan J. Saghi v Iran, Award, 12 January 1987,
14 Iran-U S C T R (1988) 3 ....................... ...........................................................................................124
Jan de N ul v Egypt
Decision on Jurisdiction, 16 June 2006, 15 ICSID Reports 4 0 6 ....................33, 43, 67, 225, 246,
248, 263, 277
Award, 6 November 2008, 15 ICSID Reports 4 3 7 .....................37, 146, 154, 156, 159, 161, 221
Joy M ining v Egypt, Award on Jurisdiction, 6 August 2004, 13 ICSID Reports 123;
19 ICSID Review-FILJ (2004) 486; 44 ILM (2005) 73 ..................................... 61, 67, 247, 248

Kaiser Bauxite v Jamaica, Decision on Jurisdiction, 6 July 1975, 1 ICSID Reports 298;
114 ILR (1999) 144..................... '.................................................................................... 252, 285, 288
Kardassopoulos v Georgia, Decision on Jurisdiction, 6 July 2007........................... 28, 29, 42, 59, 95,
149, 218, 262
XX Table o f Cases

Klockner v Cameroon
Award, 21 October 1983, 2 ICSID Reports 9 ............................................ 40, 51, 52, 255, 292, 299
Decision on Annulment. 3 May 1985, 2 ICSID Reports 95; 1 ICSID Review-FILJ
(1986) ..................................................................................292, 302, 303, 304, 305’ 306, 307, 308

Lanco v Argentina, Decision on Jurisdiction, 8 December 1998, 5 ICSID Reports 369;

40 ILM (2001) 457 ........................................................................................................... 58, 265, 275
Lauder v Czech Republic, Award, 3 September 2001, 9 ICSID Reports 6 6 ......................29, 59, 108,
139, 164, 192, 195, 196, 197, 201, 243, 267, 269
Lemire v Ukraine
Decision on Jurisdiction and Liability, 14 January 2 0 1 0 .............................44, 133, 137, 141, 145,
148, 193, 194, 196, 2 4 7 ,2 5 4 ,2 9 5
Award, 28 March 2 0 1 1 ....................................................................................................... ......... 3 ,1 4 8
Lena Goldfields v The Soviet Union (1930), 36 Cornell Law Quarterly (1950) 31 ... ............2, 82
LESI & Astaldi v Algeria
Decision on Jurisdiction, 12 July 2006 .......................................................................... .... 77, 93, 277
Award, 12 November 2 0 0 8 ........................................................................................ 113 162, 221, 225
LESI - Dipenta v Algeria, Award, 10 January 2005, 15 ICSID Reports 7; 19 ICSID
Review-FILJ (2004) 426 ........................................................................... 47, 64, 71 223, 225, 269
LETCO v Liberia
Decision on Jurisdiction, 24 October 1984, 2 ICSID Reports 3 4 9 ........................... 39, 40, 51, 52
Award, 31 March 1986, 2 ICSID Reports 346 ...................................... 33, 84, 285 292, 295, 299
LFH Neer & Pauline Neer v Mexico see Neer v Mexico
LG&E v Argentina
Decision on Jurisdiction, 30 April 2004, 11 ICSID Reports 4 l4 ; 21 ICSID
Review-FILJ (2006) 155 ................................................................................. 58, 248, 268, 269, 276
Decision on Liability, 3 October 2006, 21 ICSID Review-FILJ (2006) 203; 46 ILM
(2007) 40 ............................ 18, 58, 118, 123, 124-5, 133, 140, 146, 148, 158, 171, 177, 184,
185-7, 193, 195, 197, 291, 293
Award, 25 July 2007 ............................................................................................................. 294, 295, 296
Libananco v Turkey, Award, 2 September 2011 ................................................................................... 298
Liberian Eastern Timber Corporation [LETCO] see LETCO v Liberia
Link-Trading v Moldova, Award, 18 April 2002, 13 ICSID Reports 1 4 ............................................. 49
LIAMCO v Libya, Award, 12 April 1977, 20 ILM (1981) 1; 62 ILR (1982) 141 .................. 84, 288
Loewen v U nited States
Decision on Jurisdiction, 9 January 2001, 7 ICSID Reports 425; 128 ILR
(2006) 3 3 9 ....................................................................................................................................217, 264
Award, 26 June 2003, 7 ICSID Repoits 442; 42 ILM (2003) 811; 128 ILR
(2006) 3 5 9 .................................................................... 32, 136, 144, 155, 158, 179, 180, 181, 265
Lucchetti v Peru
Award on Jurisdiction, 7 February 2005, 12 ICSID Reports 219; 19 ICSID
Review-FILJ (2004) 359 ................................................................................................ 4 2-3, 234, 245
Decision on Annulment, 5 September 2007 ..............................................................................306, 307

Maffezini v Spain
Procedural O rder No. 2, 28 October 1999, 5 ICSID Reports 393; 16 ICSID
Review-FILJ (2001) 207 ...........................................................................................................281, 283
Decision on Jurisdiction, 25 January 2000, 5 ICSID Reports 396; 16 ICSID
Review-FILJ (2001) 212; 40 ILM (2001) 1129 ....................................42, 57, 2 2 3 -4 , 245, 246,
250, 266, 267, 271
Award, 13 November 2000, 5 ICSID Reports 419; 16 ICSID Review-FILJ
(2001) 248 ............................................................................................................... 151, 290, 298, 299
 Table o f Cases xxi

Malaysian Historical Salvors v Malaysia

Award, 17 May 2 0 0 7 ...................!............................................................................28, 67, 70, 248, 287
Decision on Annulm ent, 16 April 2009, 48 ILM (2009) 1086..............................................31, 6 8 -9
Malicorp v Egypt, Award, 7 April 2011 ...................................................................................................... 72
M aritim e International Nominees Establishment [MINE] see M IN E v Guinea
M artini Case (Italy v Venezuela), Award, 3 May 1930, II RIAA 974; 25 AjIL (1931)
554................................................................... ............................................................................. 233, 294
M arvin Feldman see Feldman v Mexico
M C I v Ecuador
Award, 31 July 2 0 0 7 .............................................................................................................. 134, 194, 217
Decision on Annulment, 19 October 2 0 0 9 ......................................................................................... 30S
Merrill & Ring Forestry v Canada, Award, 31 March 2010 ............ 18, 91, 110, 139, 140, 1-4-1, 198
Metalclad v Mexico, Award, 30 August 2000, 5 ICSID Reports 212; 16 ICSID
Review-FILJ (2001) 168 ........ 107, 112, 113, 116, 117, 147, 150, 154-5, 219, 268, 295, 298
M etalpar v Argentina, Award, 6 June 2 0 0 8 .....................................................................................197, 214
M ethanes v U nited States
Decision on Amici Curiae, 15 January 2001 ...................................................................................... 287
First Partial Award: Decision on Jurisdiction, 7 August 2002, 7 ICSID Reports 239 .30, 246, 264
Award, 3 August 2005, 44 ILM (2005) 1345 .......................................... 28, 31, 32, 116, 121, 136,
196,
Micula v Romania, Decision on Jurisdiction and Admissibility, 24 September 2008,
48 ILM (2009) 51 ............................................................................................ 37, 45, 46, 51-2, 294
MidAmerican Energy Holdings Com pany v O PIC , M em orandum of Determinations,
1 N ovem ber 199 9 .................................................................................................................................230
M iddle East Cem ent Shipping v Egypt, Award, 12 April 2002, 7 ICSID Reports 178;
18 ICSID Review-FILJ (2003) 6 0 2 ............................108-9, 112, 113, 119, 155, 267, 298, 299
Mihaly v Sri Lanka, Award, 15 M arch 2002, 6 ICSID Reports 310; 17 ICSID
Review-FILJ (2002) 1 4 2 ........................................................................................................... ...62, 68
Millicom v Senegal, Decision on Jurisdiction, 16 July 201 0 ........29, 51, 52, 54, 254, 258, 164, 282
M IN E v Guinea
Award, 6 January 1988, 4 ICSID Reports 6 1 ................................................................... 255, 282, 299
Interim Order No. 1 on Guinea’s Application for Stay of Enforcement of die Award,
12 August 1988, 4 ICSID Reports 111 ................................................................................ 3 0 2 ,3 1 2
Decision on Annulm ent, 22 December 1989, 4 ICSID Reports 79 ............................84, 288, 302,
303, 304, 305, 306, 30 7 ,3 0 8
Mitchell v Congo
Decision on the Stay of Enforcement, 30 November 2004, 20 ICSID Review-FILJ
(2005) 5 8 7 ............................................................................................................................................. 302
Decision on Annulment, 1 November 2006 ........................ 61, 67, 248, 299, 302, 304, 305, 307
M obil v Venezuela, Decision on Jurisdiction, 10 June 2010 .................................. 18, 44, 49, 54, 59,
254, 2 5 6 -7 , 263, 264
M ondev v U nited States, Award, 11 October 2002, 6 ICSID Reports 192; 42 ILM
(2003) 8 5 ............................................. 32, 37, 38, 134, 136, 139, 140, 141, 144, 146, 152, 158,
166, 179, 180, 194, 219, 264
M T D v Chile
Award, 25 May 2004, 12 ICSID Reports 6; 44 ILM (2005) 91 .....................................28, 29, 137,
142, 143, 1 4 4 ,1 5 1 -2 , 194, 210, 269, 2 9 5 -6 , 298, 299
Decision on Continued Stay of Enforcement, 1 June 2005, 13 ICSID Reports 493;
20 ICSID Review-FILJ (2005) 6 1 5 .................................................................................................. 302
Decision on Annulm ent, 21 March 2007, 13 ICSID Reports 5 0 0 ................... 143, 152, 302, 305
M urphy v Ecuador, Award, 15 December 201 0 ..................................................................................... 270
Myers SD see SD Myers v Canada
xxii Table o f Cases

National Grid v Argentina

Decision on Jurisdiction, 20 June 2006 .........................39, 57, 208, 209, 246, 248, 267, 271, 276
Award, 3 Novem ber 2008 ............................................ 57, 137, 146, 148, 159, 161, 163, 189, 191,
197, 291, 2 9 8 ,3 0 0
National O il Co v Libyan Sun Oil, Award, 31 May 1985, 29 ILM (1990) 565 .............................188
Neer v Mexico, Opinion, 15 October 1926, IV RJAA 60; 21 AJIL
(1927) 555....................................................................................................................3, 6, 139-4 1 , 192
Noble Energy v Ecuador, Decision on Jurisdiction, 5 March 2008 .................................... 34, 59, 177,
246, 250, 252, 254
Noble A^entures v Romania, Award, 12 October 2 0 0 5 .............................. 29, 30, 133, 139, 152, 154,
162, 163, 166, 168, 169, 175, 178, 192, 194, 195, 221, 2 2 4 -5 , 285
N orwecrian Shipowners’ Claims Arbitration (Norway v USA), Award,
1 3 October 1922, I R IA A 3 0 7 ............................................................ 102, 112, 115, 137, 128, 244
Nycomb v Latvia, Award, 16 December 2003, 11 ICSID Reports 158................................... 196, 217,
225, 265, 294, 296

Occidental v Ecuador, Award, 1 July 2004, 12 ICSID Reports 59; 138 ILR
(2010) 3 5 ...................................... 117, 137, 138, 146, 158, 161, 192, 194, 195, 196, 197, 200,
204, 205, 243, 268, 269, 293
Occidental Petroleum Corp. and Occidental Exploration and Production Company
v Ecuador
Decision on Provisional Measures, 17 August 2 0 0 7 ........................................................ 281, 283, 294
Decision on Jurisdiction, 9 September 2008 ...................................................................................... 269
O EPC v Ecuador see Occidental Petroleum Corp. and Occidental Exploration and Production
Company v Ecuador
OKO Pankki v Estonia, Award, 19 November 2007................ 38, 41, 137, 149, 218, 247, 298, 300
Olguin v Paraguay
Decision on Jurisdiction, 8 August 2000, 6 ICSID Reports 156; IS ICSID
Review-FILJ 133 .........................................................................................................................2 6 7 ,2 8 0
Award, 26 July 2001, 6 ICSID Reports 1 6 4 ........................................................ 44, 46, 78, 250, 280

Pac Rim v El Salvador, Decision on Preliminary Objections, 2 August 2 0 1 0 ...................................254

Pan America v Αι-gentina, Decision on Preliminary Objections, 27 July
2006....................................................... 33, 41, 55, 56, 57, 172-3, 246, 248, 252, 264, 268, 269
Pantechniki v Albania, Award, 30 July 2 0 0 9 ............................................................................69, 162, 268
Parkerings v Lithuania, Award, 11 September 2 0 0 7 ...... 57, 132, 148, 149, 153, 165, 179, 207, 277
Patrick Mitchell see Mitchell v Congo
Paushok v Mongolia, Award, 28 April 2 0 1 1 ....................................................................................145, \4g
Perenco v Ecuador, Decision on Jurisdiction, 30 June 2011 ........................................31, 49, 220, 246
Petrobart v The Kyrgyz Republic, Award, 29 M arch 2005, 13 ICSID
Reports 387..................................................................................................55, 64, 155, 178, 268, 295
Pey Casad° v Chile see Victor Pey Casado v Chile
Phelps Dodge Corp v Iran, Award, 19 M arch 1986, 10 Iran-U S C T R (1986) 121 ............... 114, 124
Phillips Petroleum v Iran, Award, 29 June 1989, 21 Iran-U S C T R (1989) 7 9 ..............114, 127, 220
Phoenix v Czech Republic, Award, 15 April 2009 .............................................. 18, 53, 58, 72, 75, 299
Pinson v Mexico, Decision, 19 October 1928, λλ ΙΙ]Α Α 3 2 7 ................................................................183
Plama v Bulgaria
Decision on Jurisdiction, 8 February 2005, 13 ICSID Reports 272; 44 ILM
(2005) 7 2 1 ............................................................................. 28, 30, 34, 55, 64, 208-9, 266, 272-3
Award, 27 August 2008 .................. 55, 9 2 -3 , 114, 133, 141, 148, 171, 177, 192, 195, 282, 299
Pope Talbot v Canada
Interim Award, 26 June 2000, 7 ICSID Reports 69; 122 ILR (2002) 316......................... 117, 122
Ruling on Claim o f Crown Privilege, 6 September 2000, 7 ICSID Reports 9 9 .......................... 285
Award on Merits, 10 April 2001, 7 IC SID Reports 102; 122 ILR (2002) 352 ................ 140, 159,
196. 204, 209-10
 Table o f Cases xxiii

Award in Respect o f Damages, 31 May 2002, 7 ICSID Reports 148; 41 ILM

(2002) 1347; 126 ILR (2005) 131............................................................. 136, 140, 159, 192, 298
PSEG v Turkey
Decision on Jurisdiction, 4 June 2004, 11 ICSID Reports 434; 44 ILM (2005) 4 6 5 ................. 62,
64, 247
Award, 19 January 2 0 0 7 ........................................................ 62, 117, 132, 133, 148, 158, 161, 194,
295, 297, 298, 300

Railroad Developm ent Corp. v Guatemala

Decision on Provisional Measures, 15 October 2008 ...................................................................... 281
Decision on Jurisdiction, 17 November 2 0 0 8 .................................................................................... 267
Second Decision on Jurisdiction, 18 May 2010 ........................................................... 37, 42, 95, 245
Renta4 v Russia, Award on Preliminary Objections, 20 March 2009 ...................................... 209, 274
Repsol v Ecuador, Decision on Annulment, 8 January 2007 ............................................250, 302, 304
Revere Copper v O PIC , Award, 24 August 1978, 17 ILM (1978) 1321; 56 ILR
(1980) 2 5 8 ......................................................................................................... 18, 105, 113, 116, 231
RFCC v Morocco
Decision on Jurisdiction, 16 July 2001 ................................................................................................ 225
Award, 22 December 2003, 20 ICSID Review-FILJ (2005) 391 ............................... 113, 128, 153
Robert Azinian and odiers v Mexico see Azinian v Mexico
Robert E. Brown (U nited States) v Canada see US v Great Britain (Brown Case)
Romak v Uzbekistan, Award, 26 November 2009 ................................................................29, 33, 73—4
Rom petrol v Romania, Decision on Jurisdiction, 18 April 2008 .................................................... 39, 48
Ronald S. Lauder see Lauder v Czech Republic
Roslnvest v Russia
Award on Jurisdiction, October 2007.................................................................................209, 258, 273
Final Award, 12 September 2 0 1 0 .........................................................................33, 59, 217, 274, 299
RSM Production et al. v Grenada, Award, 10 December 2 0 1 0 .............. 18, 159, 283, 284, 300, 309
RSM Production v Grenada, Award, 13 March 2009 ..................................................28, 69, 247, 299
Rudloff Case, Decision on Merits, American-Venezuelan Mixed Claims
Commission 1903-1905, IX RIAA 244........................................................................................... 127
Ruler of Qatar v International Marine Oil Company, Award, June 1953, 20
ILR (1957) 5 3 4 .......................................................................................................................................82
Rumeli v Kazakhstan
Award, 29 July 2 0 0 8 .............................. 18, 44, 93, 120, 125, 133, 137, 138, 145, 153, 156, 165,
1 9 4 ,2 5 1 ,2 5 4 ,2 7 7 ,2 8 5 ,2 9 8 ,3 0 0
Decision on Annulm ent, 25 March 2010................................................................ 302, 304, 307, 308
Russian Indem nity Case, 11 November 1912, XI RIAA 431 ..................................................... 184, 244

Saba Fakes v Turkey see Fakes v Turkey

Saipem v Bangladesh
Decision on Jurisdiction, 21 March 2007, 22 ICSID Review-FILJ
(2007) 100............................................. ............. 33, 34, 44, 61, 67, 246, 247, 248, 262, 277, 282
Award, 30 June 2009, 48 ILM (2009) 999 ........................................................... 217, 235, 265, 291
Salini v Jordan
Decision on Jurisdiction, 29 November 2004, 14 ICSID Reports 306;
20 ICSID Review-FILJ (2005) 205; 44 ILM (2005) 573....................28, 37, 42, 167, 272, 276
Award, 31 January 2006, 14 ICSID Reports 343............................................................ 173, 280, 299
Salini v Morocco, Decision on Jurisdiction, 23 July 2001, 6 ICSID Reports 400;
42 ILM (2003) 609 ......................................... ...............64-5, 66, 94, 2 23-4, 248, 260, 269, 275
Saluka v Czech Republic, Partial Award, 17 March 2006, 15 ICSID
Reports 2 7 4 ...................................................... 28, 29, 48, 64, 121, 134, 137, 138, 144, 149, 157,
162, 194, 196, 243, 244
x x iv Table o f Cases

Santa Elena v Cosra Rica, Award, 17 February 2000, 5 ICSID Reports 157;
15 ICSID Review-FILJ (2000) 169; 39 ILM (2000) 1317............................ 113, 122, 125, 255,
293, 297, 298, 299
Saudi Arabia v Arabian-American Oil Company (ARAMCO) see ARAMCO v Saudi .Arabia
Scimitar v Bangladesh, Award, 5 April 1994, 5 ICSID Reports 4 ....................................................... 300
SD Myers v Canada
First Partial Award, 13 November 2000, 8 ICSID Reports 18: 40 ILM
(2001) 1408................ 115, 121, 124, 133, 138, 144, 194, 196, 197, 198, 200, 202, 203, 204
Award on Damages, 21 O ctober 2002, 8 ICSID Reports 124; 126
ILR (2005) 167 ..........................................................................................................................146, 295
Sea-Land Sendee Inc v Iran, Award, 20 June 1984, 6 Iran-U S C T R 149 ........................................ 114
SEDCO v N IO C, Award, 24 October 1985, 9 Iran-U S C T R 249 ....................................................120
Sedelmayer v Prussia, Award, 7 July 1998....................................................................................................59
Semos v Mali, Award, 25 February 2003, 10 ICSID Reports 116...................................................... 294
Sempra v Argentina
Decision on Jurisdiction, 11 May 2005..................................... 28, 58, 59, 246, 248, 252, 276, 302
Award, 28 September 2007 ............................18, 117-8, 132, 133, 137, 148, 149, 156, 165, 174,
176, 183, 185, 189, 194, 196, 293, 298
Decision on Continued Stay of Enforcement, 5 March 2009 .........................................................302
Decision on Termination of Stay of Enforcement, 7 August 2009, 48 ILM (2009) 1451 ........ 302
Decision on Annulment, 29 June 2010, 49 ILM (2010) 1445.......................... 190, 302, 304, 305
SGS v Pakistan
Procedural Order No. 2, 16 October 2002, 8 ICSID Reports 388 .....................................281, 282
Decision on Jurisdiction, 6 August 2003, 8 ICSID Reports 406; 42 ILM
(2003) 1290......................... 30, 32, 39, 41, 67, 76, 169, 171, 172-3, 236, 248, 261, 269, 276
SGS v Paraguay
Decision on Jurisdiction, 12 February 2 0 1 0 .................................................... 34, 152, 171, 261, 276
Award, 10 February 2012.........................................................................................................................171
SGS v Philippines, Decision on Jurisdiction, 29 January 2004, 8 ICSID Reports 518; 42
ILM (2003) 1285................ 30, 34, 37 -8 , 42, 76 ,' 129, 152, 169-70, 172, 178, 261, 264, 276
Siag v Egypt
Decision on Jurisdiction, 11 April 2007, 46 ILM (2007) 8 6 3 ...........................................................47
Award, 1 June 2 0 0 9 .................................................................. 47, 145, 155, 191, 235, 295, 298, 300
Siemens v Argentina
Decision on Jurisdiction, 3 August 2004, 12 ICSID Reports 174; 44 ILM
(2005) 138.........................................................2 8 -9 , 59, 246, 263, 266, 267, 268, 271, 274, 276
Award, 6 February 2007, 14 ICSID Reports 5 1 8 .......................... 114, 126, 127-8, 158, 164, 171,
173, 176, 192, 195, 197, 203, 289, 294, 296
SOABI v Senegal
Decision on Jurisdiction, 1 August 1984, 2 ICSID Reports 1 7 5 .............................. 40, 47, 52, 255
Award, 25 February 1988, 2 ICSID Reports 190; 6 ICSID Review-FILJ
(1991) 125 ...................................................................................................... 247, 255, 264, 292, 299
Societe d’Exploitation des Mines d ’O r de Sadiola SA [Semos] see Semos v Mali
Societe Generale v Dominican Republic, Decision on Jurisdiction,
19 September 2 0 0 8 .......................................................................................................30, 54, 59, 70-1, 104
Societe Ouest Africaine de Betons Industries see SOABI v Senegal
Soufraki v United Arab Emirates
Award, 7 July 2004, 12 ICSID Reports 158 .................................................................. 45 -6 , 250, 300
Decision on Annulment, 5 June 200 7 ...................................................................... 302, 304, 305, 307
Southern Pacific Properties (Middle East) Ltd. v Egypt see SPP v Egypt
Spanish Zone of Morocco Claim, 1 May 1925, II RLAA 6 1 5 ...............................................................183
SPP v Egypt
Decision on Jurisdiction I, 27 November 1985, 3 ICSID Reports 101 ............................... 256, 257
Decision on Jurisdiction II, 14 April 1988, 3 ICSID Reports 131 .................... 237, 256, 263, 264
Award, 20 May 1992, 3 ICSID Reports 189; 8 ICSID Review-FILJ
 Table o f Cases xxv
Scarrett Housing Corp. v Iran, Interlocutory Award, 19 December 1983,
4 Iran-USCTR (1983) 122 .................................................................................................................... 114
Suez, Sociedad General de Aguas de Barcelona SA, and InterAguas Servicios Integrales
del Agua SA v Argentina
Order in Response to a Petition for Participation as Amicus Curiae, 17 M arch 200 6 .................287
Decision on Jurisdiction, 16 May 2006........... 30, 33, 34, 57, 245, 246, 248, 264, 267, 271, 276
Suez, Sociedad General de Aguas de Barcelona SA, and Vivendi Universal SA v
Argentina and AW G Group Ltd, v Argentina
O rder in Response to a Petition for Transparency and Participation as Amicus Curiae,
19 May 2005, 21 ICSID Review-FILJ (2006) 342 ....................................................................... 287
Decision on Jurisdiction, 3 August 2006 .......................................................................... 251, 267, 271
Award, 30 July 2010 ......................................................34, 110, 133, 148, 161, 162, 165, 184, 185

Tanzania Electric v Independent Power Tanzania, Award, 12 July 2001.

8 ICSID Reports 226 .......................................................................................................227, 250, 282
T EC M ED v Mexico, Award, 29 May 2003, 10 ICSID Reports 134; 19 ICSID
Review-FILJ (2004) 158; 43 ILM (2004) 133 ................................. 37, 42, 112, 114, 116, 120,
123, 124, 125, 137, 142-3, 151, 155, 156, 158, 159,
162, 163, 181, 295, 298
Tecnicas Medioambientales Teemed SA see T EC M ED v Mexico
Telenor v Hungary, Award, 13 September 2006, 21 ICSID Reviewr-FILJ
(2006) 60 3 ..’.............................................................................113-4, 120, 251, 262, 273, 277, 300
Texaco v Libya
Preliminary Award, 27 November 1975, 53 ILR (1979) 389 ...................................... 173, 217, 245
Award, 19 January 1977, 17 ILM (1978) 3; 53 ILR (1979) 422 ................................... 84, 288, 294
TO PCO /CA LIA STIC v Libya see Texaco v Libya
T hunderbird v Mexico, Award, 26 January 2006 .................................... 116-17, 136, 140, 156, 201,
203, 205, 267, 300
Tippetts, Abbett, McCarthy, Stratton v TAMS-AFFA Consulting Eng’rs of Iran, Award,
22 June 1984, 6 Iran-USCTR (1984) 219...................................................................113, 114, 124
Toldos Tokeles v Ukraine
Procedural Order No. 1, 1 July 2003, 11 ICSID Reports 310 .......................................................283
Decision on Jurisdiction, 29 April 2004, 11 ICSID Reports 313; 20 ICSID
Review-FILJ (2005) 205 ................28, 44, 48, 64, 78, 94, 127, 219, 245, 247, 261, 269, 282
Award, 26 July 2 0 0 7 ................................................................................................... 118, 160, 181, 293
Too v Greater Modesto Insurance Associates, Award, 29 December 1989,
23 Iran-U S C T R (1989) 378..............................................................................................................120
Total v Argentina
Decision on Jurisdiction, 25 August 2006 ............................................................................. 49, 59, 276
Decision on Liability, 27 December 2010 ........................................ 18-9, 133, 134, 137, 141, 142,
148, 149, 159, 163, 185, 268
T oto v Lebanon, Decision on Jurisdiction, 11 September 2 0 0 9 .............................. 42, 154, 156, 172,
225, 258, 268, 277
Tradex v Albania
Decision on Jurisdiction, 24 December 1996, 5 ICSID Reports 47; 14 ICSID
Review FILJ (1999) 161....................................................... 1 36, 39, 40, 256, 257, 262, 264, 268
Award, 29 April 1999, 5 ICSID Reports 70; 14 ICSID Review' FILJ
(1999) 197......................................... ........................................................44, 78, 126, 217, 262, 299
Trans-Global Petroleum v Jordan, Decision under Arbitration Rule 41(5), 12 May 200 8 .............2S3
TSA Spectrum v Argentina, Award, 19 December 2008, 48 ILM (2009) 4 9 6 ......................... 39, 2 / 6
Tza Yap Shum v Peru, Decision on Jurisdiction, 19 June 2009 ................................. 34, 45, 59, 206 ,
207- 8, 262, 272
XXVI
Table o f Cases

US v Great Britain (Brown Case), Award, 23 N ovem ber 1923, VI RIAA 1 2 0 .................................182
United Parcel Service v Canada _ _
Decision o f the Tribunal on Petitions for Intervention and Participation as A n n a Curiae,
17 O ctober 2001....................................................................................................................................287
Decision on Jurisdiction, 22 N ovem ber 2002, 7 ICSID Reports 288................................... 133, 136
T -l g] Decision Relating to Canada’s Claim of Cabinet Privilege, 8 O ctober 2 0 0 4 ............... 285
Award! 24 May 2007, 46 ILM (2007) 9 2 2 ......................................................32, 199, 202, 206, 209
UPS V Canada see United Parcel Service v Canada

Vacuum Salt v Ghana

Decision on Provisional Measures, 14 June 1993, 4 ICSID Reports 3 2 3 ............................ 281, 282
Award February 1994, 4 ICSID Reports 329; 9 ICSID Review FILJ (1994) 7 2 ...................40,
52, 281, 282, 299
Victor Pey Casado v Chile
Decision on Provisional Measures, 25 September 2001, 6 ICSID Reports 375;
“16 ICSID Review-FILJ (2001) 603 ............................................................................... 281, 282, 283
Award, 8 May 2008 ................................................................................................................. 45, 245, 268
Decision on Stay of Enforcement, 5 May 2 0 1 0 ...................................................................................302
Vivendi v Argentina
\w ard 21 November 2000, 5 ICSID Reports 299; 16 ICSID Review-FILJ (2001) 643;
40 ILM (2001) 426 ........................................................................................... 2 18-9, 227, 267, 275
Decision on die Challenge to the President o f the Committee, 3 October 2001,
6 ICSID Reports 330; 17 ICSID Review-FILJ (2002) 1 6 8 .................................................... 280-1
Decision on Annulment, 3 July 2002, 6 ICSID Reports 340; 19 ICSID
Review-FILJ (2004) 89; 41 ILM (2002) 1135 .................................................... 57, 58, 174, 220,
26 0 -1 , 276, 299, 302, 303, 3 0 4 -5 , 306, 30 7 -8
Decision on Supplementation and Rectification of A nnulm ent Decision, 28 May 2003,
8 ICSID Reports 489; 19 ICSID Review-FILJ (2004) 139......................................................... 300
Resubmitted Case: Decision on Jurisdiction, 14 November 2005 ....................33, 38, 40, 57, 251,
267, 271, 308
R e su b m it^ Case; Award, 20 August 2 0 0 7 .................................28, 109, 137, 140, 149, 156, 158,
164-5, 276, 298, 299
Resubmitted Case: Decision on Stay of Enforcement, 4 November 2008 ...................................302
Resubmitted Case: Decision on A nnulm ent, 10 August 2 0 1 0 .......................................302, 304, 307

Waste Management v Mexico

Award 2 June 2000, 5 ICSID Repons 445; 15 ICSID Review FILJ (2000) 2 1 4 ....................... 267
Final Award, 30 April 2004, 11 IC SID Reports 361; 43 ILM (2004) 967 ............................18, 32,
59, 119, 129, 136, 139, 144, 153, 156-7, 178,
179, 194, 225, 23 0 ,2 6 5
W ena Hotels v Egypt
Decision on Jurisdiction, 29 June 1999, 6 ICSID Reports 7 4 ........................................................... 48
Award 8 December 2000, 6 ICSID Reports 89; 41 ILM (2002) 8 9 6 ..................................44, 113,
124, 127, 161, 162, 181, 2 2 6 -7 , 291, 295, 298, 300
Decision on Annulment, 5 February 2002, 6 ICSID
Reports 129................................................................................. 44, 293, 302, 304, 3 05-6, 307, 308
Decision on Interpretation, 31 O ctober 2005, 15 ICSID Reports 71...................................124, 309
Wintershallv Argentina, Award, 8 December 2008 .................................................... 34, 267, 270, 271
Wintershsl! v Q atar>Partial Award, 5 February 1988, 28 ILM (1989) 7 9 5 ...................................... 225
World Duty Free v Kenya, Award, 4 O ctober 2006, 46 ILM (2007) 339.....................33, 96-7, 255,
2 8 1 ,2 8 7 ,2 9 9

Yaun°- Chi O0 v Myanmar, Award, 31 March 2003, 8 ICSID Reports 463; 42

ττ M (2003) 811....................................................................................................... 4 1 , 4 4 , 4 9 , 6 4 , 265
 Table o f Cases xxvii

Zhinvali v Georgia, Award, 24 January 2003, 10 ICSID Reports 6 ...........................................257, 263

Ziat, Ben Kiran, Award, 29 December 1924, II RIAA 7 2 9 ..................................................................183

E U R O P E A N C O U R T O F H U M A N R IG H T S

Fogarty v United Kingdom, Judgment, 21 November 2001, E C H R 2 001-X I................................ 180

James v United Kingdom, Judgment, 21 February 1986, E C H R Series A, No. 9 8 ....................3, 123
M cElhinney v Ireland, Judgment, 21 November 2001, E C H R 2001-XI .....................................180
Sporrong & Lonnroth v Sweden, Judgment, 23 September 1982, E C H R Series A.
No. 5 2 ......................................................................................................................................106-7, 114

P C IJ A N D IC J

Ambatielos Ciaim (Greece v United Kingdom), Merits: Obligation to Arbitrate,

1953 ICJ Reports 10, 19 May 1953................................................................................................. 179
Application of the Convention on the Prevention and Punishment of the Crime of
Genocide (Croatia v Serbia), Preliminary Objections, 2008 ICJ Reports 412,
18 November 2 0 0 8 ................................................................................................................................ 39
Arrest W arrant of 11 April 2000 (Democratic Republic of the Congo v Belgium),
Judgment, 2002 ICJ Reports 3, 14 February 2002.......................................................................... 38
Asylum Case, Judgment, 1950 ICJ Reports 395, 27 November 1950................................................192
Barcelona Traction, Light and Power Company, Limited, (Belgium v Spain), Judgment,
1970 ICJ Reports 3, 5 February 1970.......................................................... 11, 45, 56, 219, 232-3
Certain German Interests in Polish Upper Silesia, Judgment, PCIJ Series A, N o. 7,
25 May 1925 ..............................................................................................................................102, 127
Certain Property (Liechtenstein v Germany), Preliminary Objections, 2005 ICJ
Reports 6, 10 February 2005..............................................................................................................245
Diallo Case (Guinea v D R Congo), Preliminary Objections, 2007 ICJ Reports 582,
24 May 2 0 0 7 ...............................................................................................................................45, 5 6 -7
Diplomatic and Consular Staff in Tehran (US v Iran), Judgment, 19S0 ICJ
Reports 3, 24 May 198 0 .................................................................................................................... 183
East Tim or, Judgment, 1995 ICJ Reports 90, 30 June 1995................................................................245
Elettronica Sicula S.p.A. (ELSI) (US v Italy), Judgment, 1989 ICJ Reports 15,
20 July 1 9 8 9 ..................................................................................... 140, 161, 163-4, 166, 192, 233
Factory at Chorzow, Judgment, PCIJ Series A, No. 17, 13 September 1928..........................101, 128,
294-5, 296
Gabcikovo-Nagymaros Project, Judgment, 1997 ICJ Reports 7, 25 September 1997............184, 186
Genocide, Application o f the Convention on the Prevention and Punishment of the
Crime o f (Bosnia and Herzegovina v Yugoslavia), Preliminary Objections, 1996 ICJ
Reports 595. 11 July 19 9 6 ................................................................................................................... 39
Interpretation of the Peace Treaties with Bulgaria, Hungary and Romania (first phase),
Advisory Opinion, 1950 ICJ Reports 65, 30 March 1950 ..........................................................245
Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory
(Israel Security Wall Case), Advisoiy Opinion, 2004 ICJ Reports 136, 9 July 2004..............184
Legal Status o f Eastern Greenland (Denmark v Norway), Judgm ent, PCIJ Series A/B,
No. 53, 5 April 1 9 3 3 ............................................................................................................................ 18
Lockerbie, Questions of Interpretation and Application of the 1971 Montreal Convention
Arising from the Aerial Incident at (Libyan Arab Jamahiriya v United States of
America), Preliminary Objections, 1998 ICJ Reports 115, 27 February 1998 ......................... 38
Mavrommatis Palestine Concessions, Judgment, PCIJ Series A, No. 2, 30 August 1924........ 39, 232
Military and Paramilitary Activities in 'and against Nicaragua (Nicaragua v
United States o f America), Judgment (Jurisdiction and Admissibility'), 1984 ICJ
Reports 392, 26 November 1984....................................................
xxviii Table o f Cases

N ottebohm Case (Liechtenstein v Guatemala), Judgm ent, 1955 ICJ Reports 4,

6 April 1955 .............................................................................................................................45, 46, 47
Nuclear Tests Cases (Australia/New Zealand v France), Judgment, 1974 ICJ
Reports 253, 20 December 1 9 7 4 ........................................................................................................ 18
Oscar C hinn Case (UK v Belgium), Judgment. PCIJ Series A/B, No. 63,
12 December 1934 ........................................................................................ 104—5, 115, 146, 202—3
Racial Discrimination, Application of die International Convention on the Elimination
o f all forms of (Georgia v Russia), Preliminary Objections, 2011 ICJ Reports,
I April 2011...........................................................................................................................................269
Serbian Loans, Judgment, PCIJ Series A, No. 20, 12 July 1929.............................................. 82, 167-8
Societe Commerciale de Belgique, Judgment, PCIJ Series A/B, No. 78, 15 June 1939................. 184
W im bledon (France v Germany), Judgm ent, PCIJ Series A, No. 1, 17 August 1923.......................20

W T O D IS P U T E S E T T L E M E N T B O D Y

Japan— Taxes on Alcoholic Beverages II, W T /D S 8,-10,-11/AB/R, 4 October 1 9 9 6 ......................199

United Scates-Import Prohibition of Certain Shrimp and Shrimp Products, Report
o f the Appellate Body, W T/DS58/A B/R, 12 O ctober 1998, 38 ILM (1999) 121................. 195

N A T IO N A L C A S E S

AIG Capital Partners Inc. and Another v Republic of Kazakhstan (National Bank of
Kazakhstan Intervening), High Court, Q ueen’s Bench Division
(Commercial Court), 20 October 2005, [2005] E W H C 2239 (Comm),
I I ICSID Reports 118; 129 ILR (2007) 5 8 9 ................................................................................. 311
Andrus v Allard, 444 U.S. (1979) 51, 65; 100 S.Ct. Rep. 318 (1979)..............................................112
Attorney-General v Mobil Oil N Z Ltd., New Zealand, High Court, 1 July 1987,
4 ICSID Reports 117; 2 ICSID Review-FILJ (1987) 4 9 7 ...........................................................288
Banco Nacional de Cuba v Sabbatino, 376 U.S. 398, 3 ILM (1964) 381; 35 ILR
(1967) 2 ................................................................................................................................................. 236
Benvenuti & Bonfant v Congo
Tribunal de grande instance, Paris, 13 January 1981, 2 ICSID Reports 368; 65 ILR
(1984) 9 L ........................................... ' ...........' .....................................................................................311
C our d ’appel, Paris, 26 June 1981, 2 ICSID Reports 369; 65 ILR (1984) 8 8 .............................311
Chilean Copper Case, Landgericht Hamburg, 22 January 1973, 13 March 1974,
12 ILM (1973) 251; 13 ILM (1974) 1115 .....................................................................................236
LETCO v Liberia
District Court, S,D.N.Y., 5 September and 12 December 1986, 2 ICSID Reports 383
and 2 ICSID Reports 385; 89 ILR (1992) 3 5 5 .................................................................. ...........311
US D istrict Court for die D istrict of Columbia, 16 April 1987, 2 ICSID
Reports 390; 89 ILR (1992) 355 ...................................................................................................... 311
Mexico v Metalclad Corp., Supreme Court of British Columbia, 2 M ay 2001,
5 ICSID Reports 2 3 6 ........ ........................................................................................ 32, 136, 150, 241
SOABI v Senegal
Cour d ’appel, Paris, 5 December 1989, 2 ICSID Reports 337 ...................................................... 311
Cour de cassation, 11 June 1991, 2 ICSID Reports 341; 113 ILR (1998) 4 4 0 .......................... 311
 Table o f Treaties, Conventions,
Resolutions■, and Rules

Abs-Shawcross Draft Convention on Bolivia—Netherlands B IT ,.......,,....................... 50

Investment Abroad 1959......... 8, 102, 131 Arc 1(b).............................................................50
Art 1 ............................................................... 131 Bolivia—Switzerland B IT .................................... 51
Algiers Declaration 1981 .......................243, 244 Bulgaria-Cyprus B I T ............................. 209, 272
Argentina-France B IT ....................49, 137, 246, A it 3 (1 ).......................................................... 272
267, 275 Bulgaria-Finland BIT...................................... 272
A n 3 ..................................................... 137, 138 Canadian Model B IT ...................................... 136
Art 8 (2 )..........................................................267 A it 5 .............................................................. 136
Argentina-Germany B IT ................. 47, 49, 114, Chad-Italy BIT 1969........................................... 7
127, 164, 266 Chile-Croatia B I T ...........................................210
Art 1(c), (d)...................................................212 Art 3(3), ( 4 ) ..................................................210
Art 4 (2 )..........................................................128 Chile—Denm ark B IT ....................................... 210
Arc 7 (2 )..........................................................173 A rt 3 (1 ).......................................................... 210
Art 10(2)....................................................... 266 Chile—Malaysia B I T ...................... 143, 151, 210
A rgentina-Italy B IT ........................................ 251 Chile-Peru B IT ..........................................42, 234
Argentina—Panama B IT .................................. 208 Chile-Spain B IT .............................................. 271
Argentina—Spain B I T .............41, 42, 246, 271, Chile-U nited States FTA 2 0 0 3 .....................136
290, 291 A it 1 0 .4 .........................................................136
Art 11(2)........................................................... 41 Chile-U nited States FTA 2 0 0 4 ....................... 35
Art 4 (1 )..........................................................151 Art 10.19(10)..................................................35
Arc 10(5).......................................................290 China—Hungary BIT 1991.............................262
Argentina—United States BIT 1991 ........ 55, 58, Art 10(1)....................................................... 262
63, 118, 130, 174, 176, 185, 189, 197, Comprehensive Im port Supervision Services
213, 218, 261, 268, 276, 277, 296 Agreement (C ISS)...................................170
Pream ble............................................................ 147 Art 1 2 ............................................................ 170
Art 1(2)............................................................. 55 Convention Establishing the Multilateral
Art 11(2)............................................... 130, 137 Investment Guarantee Agency 1985
Art 11(2) (c)............................................. 176-78 (M IGA)....................................'50, 131, 256
Art M l ) .............................................. 123, 296 A n 11 (a) (ii)...................................................230
Art V II......... ................................................. 261 Art 1 2 ............................................................131
Arc X I...........................................186, 189, 190 Art 12(d).............................................. 131, 229
Art X III..........................................................218 Art 13 (a) (ii).....................................................50
ASEAN Agreement for the Promotion and Art 13(a)(iii).................................................... 44
Protection of Art 1 5 ............................................................229
Investments 1987...................................... 49 Convention on die Pacific Settlement of
Art 1(2)............................................................. 49 International Disputes 1907 ................. 244
Australia-Egypt Treaty on the Promotion and Convention on die Settlement of Investment
Protection of Investments 200 1 ..............92 Disputes between States and Nationals o f
A n 5 .................................................................92 O ther States 1965
Austria—Jordan B IT ............................................55 (ICSID C onvention)........... 9, 11, 13, 15,
Art 1 0 ...............................................................55 16, 28, 30, 31, 38-41, 4 5-7, 50-55, 57,
Austria—Kazakhstan B IT ................................. 270 61, 62, 65-74, 78, 134, 227, 233, 234,
Belgium—Burundi B I T ....................................290 236-40, 245-53, 256, 259, 260, 263-65,
Belgium—Czech Republic B IT ......................... 49 277, 278, 280-83, 286, 288, 291, 298,
Belgium/Luxembourg-Egypt B IT ............41, 43 299, 301-7, 309, 310, 312
Art 1 2 ...................Γ..........................................41 Pream ble....................................... 75.
xxx Table o f Treaties, Conventions, Resolutions, and Rules

Para 7 .......................................................... ....239 Convention on the Recognition and

A rt 5 ........................................................... 279 Enforcement of Foreign Arbitral Awards
Arts 1 2 - 1 6 ................................................ 279 1958 (New York C onvention)....... 241,
A rt 14(1).................................................... 280...........................................3 0 1 ,3 1 0
Art 25 ................... 39, 48, 61, 6 5-76, 227, An V 301, 310
248, 249, 252, 263, 284, 304 Czech Republic—Netherlands B IT .32, 48
Art 25(1)40, 227, 238, 245, 250, 253, 263 A it 1(b) (ii) 48
Art 25(2)(a).......................................... 40, 46 Denm ark-Russia B IT 273
A rt'2 5 (2 )(b )...................40, 5 0-2, 57, 253 Dom inican Republic-Central Am erica-U nited
Art 2 5 (3 ).......................................... 227, 250 States Free Trade Agreement 2004
Art 2 5 (4 )............................................... 65, 78 (CAFTA)...........28, 35, 95, 245, 259, 267
Art 2 6 ........................................ 4 0 ,2 6 4 ,2 6 5 Art 1 0 .1 7 259
Art 2 7 ........................................ 40, 239, 312 A it 1 0 .1 8 267
Art 27(1).......................................... 233, 234 Art 10.20(10) 35
Art 27(2)....................................................234 Draft Convention on the International
Arts 2 8 - 3 5 ................................................ 237 Responsibility of States for Injuries to
Art 36(1). (2) ........................................... 279 Aliens 1 9 6 1 103
Art 36(3).......................................... 2 7 9 ,2 8 3 A it 10(3)(a) 103
Art 3 7 (2 )(b )..............................................279 .Art 12(a) 192
Art 38 ...............................................239, 279 D rago-Porter Convention 1907........... 2
A rt 3 9 ........................................................ 279 Ecuador-Franee B IT 3 1 ,4 9
Art 40(1), ( 2 ) ........................................... 280 Ecuador—United States B IT .... 146, 195, 205, 270
Art 41 ........................... 239, 279, 282, 284 EFTA States—United Mexican
Art 4 2 ....................81, 263, 288, 28 9 ,2 9 1 States FTA 2 0 0 0 ......................... ..............64
Art 4 2 (1 )......... ...................... 290, 292, 299 Art 4 5 ...............................................................64
Art 4 3 (a)......... ..........................................285 Egypt-Greece B I T ............................... ........... 109
...................................40, 278 ........... 109
Art 4 5 .............. ................................ 2 3 9 ,2 8 5 E gypt-U nited States B I T ................... ..............50
Art 4 7 .............. .....................................28 1 -3 A it 1(b)..............................................................50
Art 48 (3 )......... .......................284, 307, 308 El Salvador-Netherlands B IT ........................ 261
Art 48 (5 )......... ..........................................287 ........... 261
Arts 4 9 - 5 2 ..... ..........................................239 Energy Charter Treaty 1994 (E C T )..........5, 15,
Art 49(1)......... ................................ 286, 301 28, 40, 4 1 ,4 5 , 48, 53, 54, 57, < 62, 64, 76,
A rt 49(2)......... ..........................................308 93, 102, 127, 132, 167, 176, 182, 218,
Arts 50, 5 1 ..... ..........................................309 220, 254, 259, 260, 262, 267, 268, 272,

Art 52(1).................................303, 305, 308 Art 1(6)............................................... 41, 62, 64

Art 52(1 ) (b )............................................. 305 Art l(6)(b)....................................................... 57
Art 52(1)(e)...............................................307 Art 1(6)( f) ...................................................... 127
Art 52(2)................................................... 301 Art 1(7)(a) (i)................................ ................... 44
Art 52(3)................................................... 303 Art 1(7)(a)(ii)...................................................48

Art 52(6)............... ....................................308 Art 10(1)—( 4 ) .............. ....................................15

Art 5 3 ................... ................. 239, 300, 310 Art 10(1).....................................132, 167, 176
Art 5 4 ................... ....... 2 3 9 ,3 0 1 ,3 1 0 .3 1 2 A it 10(7)...................... ................................. 270
Art 5 5 ................... Art 1 3 ............................................................ 296
Art 56(1), ( 3 ) ...........................................280 Art 13(1)...................... ................................. 296
Arts 57, 5 8 ........... ....................................280 Art 17(1)...................... ............................ 55, 56
A it 61(2)...................................................299 Art 2 2 ..................................................... 15, 220
Art 6 4 ................... ....................................234 A it 2 3 .......................... ....................................15
Art 6 8 ................... ...................................... 39 Art 23(1)...................... ................................ 218
Art 7 1 ................... ......................3 9 ,4 1 , 938 Art 2 6 ............................................1 5 ,2 7 2 .2 8 9
A rt 7 2 ......... ......... ............................... 3 9 ,4 1 Art 26(1 )...................... .......................... 76, 262
 Table o f Treaties, Conventions, Resolutions, and Rules xxxi
A it 2 6 (2 )....................................................... 268 A it I I I ............................................................ 167
Art 26(3)(a).................................................. 259 Hungary-Norway B IT ....................................273
Art 26(3)(b)(i).............................................. 267 A r tlV ( l) ........................................................273
Art 2 6 (4 )....................................................... 260 ICSID Additional Facility Rules 1978.......... 16,
Art 2 6 (7 )...................................................40, 51 17, 240, 241, 253, 259, 260,
Annex I D ...........................................................267 278, 300, 310
Equator Principles 2 0 0 3 ....................................26 Art 2 .............................................................. 240
E stonia-U nited States B IT ............................... 58 Art 5 4 ............................................................ 288
Art I(a)(ii).........................................................58 ICSID Administrative and Financial
Art II(3)(b )....................................................158 Regulations............................. 278, 287, 298
European Community—African, Caribbean, Regs 22, 2 3 ................................................... 287
and Pacific States Treaty 2000 ICSID Arbitration R u les............... 40, 278, 284,
(Cotonou A greem ent)..............................25 286, 287, 308
Art 9 (3 )............................................................ 25 Rule 1(3)........................................................279
European Convention for the Protection of Rule 2 .................................................. ..........279
H um an Rights and Fundamental Freedoms Rule 6(2)........................................................280
1950 Rules 8, 9 ...................................................... 280
First Additional Protocol, Art 1 ....... ',...106, 107 Rule 1 5 ..........................................................286
France-Argentina B IT .....................................260 Rule 16(1) ..................................................... 286
Art 8 .............................................................. 260 Rule 2 7 .......................................................... 306
Ai-c 1 1 ............................................................260 Rule 3 2 ..........................................................287
France-Tunisia Treaty 1 9 7 2 ..............................7 Rules 3 3 - 3 5 ..................................................285
French Model B IT ..................................102, 135 Rule 34(3)..................................................... 285
Art 6 (2 )..........................................................102 Rule 37(2)..................................................... 287
General Agreement on Trade in Sendees Rule 3 9 .......................................................... 281
1995 (GATS)............................................. 88 Rule 39(6)..................................................... 281
Art X IV ............................................................ 88 Rule 4 1 ..........................................................284
General Agreement on Tariffs and Trade Rule 41 (5)............................................ 283, 284
1994 (G A T T )............. 196, 201, 205, 207 Rule 41(6)..................................................... 284
Art 1............................................................... 207 Rules 42, 4 3 ..................................................285
Art I I I ............................................................201 Rules 44, 4 5 ..................................................286
Art X X ............................................................. 88 Rule 48(4)..................................................... 287
German Adodel BIT 2 0 0 8 .............89, 102, 167, Rule 4 9 ..........................................................308
188, 208 Rules 50, 5 1 ..................................................309
A it 2 (1 )............................................................ 89 Rule 55(3)..................................................... 308
A it 3 .............................................................. 207 ICSID Institution R ules..................................278
Art 4 (2 )..........................................................102 Rule 2 ............................................................ 279
Art 4(3), (4 )..................................................188 ICSID Model Clauses..................................... 254
Art 8 (2 )......... ................................................167 ILC Articles on Responsibility of
Germany-Argentina BIT 1 9 9 1 .................... 163 States for Internationally
Ait 4 (1 )..........................................................163 Wrongful Acts 2 0 0 1 ................ 36, 38, 125,
Germ any-Pakistan BIT 1959....................6 , 167 142, 181, 183, 184, 190, 216, 217, 221,
Art 1 1 .................................................................7 222, 224, 225, 249, 293
Germany-Philippines B IT ......................... 92, 96 Art 4 ..................................2 1 6 ,2 1 7 , 2 2 1 ,2 2 4
A it 1(1)............................................................ 92 Art 4 (1 ).................................................181, 249
Germ any-Poland B IT .....................................190 Art 5 ..................................................... 221, 225
Greece-Egypt B I T ...........................................155 Art 7 ..................................................... 217, 218
Havanna Charter for an International Art 8 ...............................................................222
Trade Organization 1948......................131 A it 1 3 .............................................................. 36
Art 11(2)....................................................... 131 Art 15 ............................................ 38, 125, 142
H ong Kong-France Agreement for the Art 23 ...................................................183, 187
Reciprocal Promotion and Protection of Art 24 ...................................................183, 184
Investments 1995....................................167 Art 25 ...................................183-86, 189, 190
xxxii Table o f Treaties, Conventions, Resolutions, and Rules

Art 2 7 .............................................................186 A n 1(2) ( b ) ...................................................... 48

A rt 3 1 .............................................................294 London Court of International Arbitration
Art 34 .............................................................293 Rules 1998............................................... 242
Art 36 .............................................................294 M exico-Spain B IT ........................ 151, 155. 159
ILC D raft Articles on Diplomatic Art 4 (1 )....... .................................................. 159
Protection 2006 .................................... ..232 M oldova-U nited States B IT .............................49
ILC General Assembly Model Exploration and Production Sharing
Resolution 61/35 ..................................... 232 Agreement of the Sheikdom of
IM F’s Articles o f Agreement..................213, 214 Qatar 1994..................................................85
Art VII, Section 3 (b )................................... 213 Art 31 .................................. ............................85
A rt V III.......................................................... 213 Art 3 4 .1 2 .........................................................85
Art VIII, Section 2 .......................................213 N etherlands-Czech Republic B IT ................ 211
Art XIV, Section 2 .......................................213 Art 3 (5 )..........................................................211
Art X X X (d)................................................... 213 N etherlands-Poland B IT ....................... 148, 170
IM F-W orld Bank Guidelines on the Treatm ent Art 3 .5 ........................................................... 170
of Foreign Direct Investment 1 9 9 2 .....296 Netherlands-Senegal B IT ............................... 258
Guideline IV(3)............................................ 296 Netherlands-Turkey B IT ................................. 46
International Chamber of Comm erce (ICC) Netherlands—Venezuela B IT .............49, 54, 257
Arbitration Rules 2 0 1 2 ..................241, 242 Art 1(b)............................................................ 49
Art 6(3), ( 5 ) ........- ....................................... 241 N orth American Free Trade Agreement 1994
Art 7 (2 2 )(3 ).................................................. 241 (NAFTA) ..........................5, 6, 14-17, 24,
Art 1 9 .............................................................241 28, 31, 32, 37, 38, 45, 55, 57,
Art 21 (1), (2 )................................................289 62, 77, 91, 102, 108, 116, 119,
Art 22 (4 )........................................................241 132, 136, 137, 139, 141, 144-46,
Art 23 .............................................................242 150, 153, 157, 166, 167, 179,
Art 33 .............................................................242 194, 196, 198-206, 209, 215,
International Court of Justice Statute (ICJ)— 240, 254, 259, 261, 267, 287-89
Art 38(1)(c)......................................................18 Art 1 0 2 ............................................................ 16
Art 41 ............................................................ 283 Art 102(1) ..................................................... 150
Iran—Switzerland B IT ......................................... 50 Art 2 0 1 ............................................................ 44
Iran-U nited States Amity Treaty Ch 11....................... 15, 16, 31, 77, 150, 151
1955........................ ............ ............ 127, 131 Section A (Arts 1101-1114)........................ 16
Art IV-2 ......................................................... 127 Art 1101(1)....................................... 76, 246
Israel—Czech Republic B IT ................................53 Art 1102 ........ 196, 198-201, 203-5, 210
Italy—C uba B IT .................................................235 Art 1102(1).............................................. 198
Italy—Jordan B IT ..................................... 167, 272 Art 1102(3).............................................. 204
Art 2 (4 ).......................................................... 167 Art 1103 .................................209, 210, 270
Italy-M orocco B I T ................................... 94, 260 Art 1105 ......... 16, 32, 135-38, 140, 141,
Art 1(1).............................................................94 144, 150-56, 179, 195, 209, 210
Art S ...............................................................260 Art 1105(1)................ 132, 136, 140, 152,
Italy—Pakistan B I T ..................................175, 225 153, 157, 166, 179
Italy—UAE B I T ................................................... 45 Art 1 1 0 6 ..................................................... 91
Japan—Bangladesh Treaty Concerning the Art 1110 ............... 16, 107, 109, 121, 296
Promotion and Protection of Art 1110(2) .............................................. 296
Investment 1998 ........................................90 Art 1 1 1 3 ..................................................... 55
Art 2 (2 )............................................................ 90 Section B (Arts 1115-1138)............... 16, 289
Japan—Pakistan BIT 1998 .............................. 258 Art 1116 ...................................37, 260, 261
Art 10(2) ................................ .......................258 Ai-t 1 1 1 7 ..................................................... 57
Jay Treaty between Great Britain and the Arts 1 1 1 8 -1 1 2 0 ...................................... 268
US 1794.................................................... 243 Art 1120 ............................................ 16, 259
Lisbon Treaty 2009............................................ 11 Art 1121 ...................................................267
Lithuania-Sweden B I T ..................................... 50 Art 1122 ...................................................259
Lithuania—Ukraine B IT .............................. 48, 94 A n 1126 ..........................................251, 252
 Table o f Treaties, Conventions, Resolutions, and Rules xxxlii
Art 1 1 2 8 ..................................................... 17 Art 11 ............................................................. 171
Art 1 1 3 1 ..........................................151,289 Switzerland-Philippines B I T .................. 37, 261
Art 1131(1)................................................ 17 Art I I ..................................................................37
Art 1131(2) ................................................ 32 Art V III(2 ).....................................................261
Art 1132(2)..............................................136 Switzerland—Tunisia T reaty 1961...................... Ί
Section C (Art 1139).....................................16 Switzerland-United States Treaty 1850............1
Art 1139 ....................................... 57, 62, 77 Art 2 (3 )............................................................... l
Ch 14............................................................. 109 Treaty on the Functioning o f die European
Ch 18............................................................. 150 U n io n ...........................................................36
Ch 20 ................................................................17 Art 267 (ex Art 234 T E C ) ...........................36
Art 2 001(1)................................................ 32 U kraine-D enm ark BIT 1 9 9 2 ...........................63
Art 2004 ..................................................... 17 Art 1(1).............................................................63
O E C D Declaration on International and Ukraine—United States B IT .............................. 41
Multinational Enterprises 19 7 6 .....26, 200 Art X II(3)......................................................... 41
O E C D Draft Convention on die Protection UNCITRAL Arbitration Rules 1976......15, 73,
of Foreign Property 1962......................8, 9 108, 2 4 0 -4 4 , 258-60, 278, 287,
O E C D D raft Convention on the Protection 289, 293, 299
of Foreign Property 19 6 7 ............102, 131, Art 1 7 ............................................................ 241
135,190 Art 17(1).................................................. .,.,.241
Art 1 .............................................................. 131 Art 23(1 )........................................................241
A r t S ...............................................................190 Art 28(3)........................................................241
O E C D D raft for a Multilateral Agreement on Art 35 ............................................................ 288
Investment 199S ........................10, 11, 102 Art 35(1)...............................................289, 293
O E C D Draft Negotiating Text for a Art 35(3)....,............................................ .....289
Multilateral Agreement on Investment UNCITRAL Model Law on International
1998........................................................... 131 Commercial Arbitration 1985 .... 243, 301
O E C D Guidelines for Multinational Arts 34, 3 6 .................................................... 301
Corporations 1978 (Revised 2000)........ 26 UNCITRAL Notes on Organizing Arbitral
Pakistan—Australia B IT ....................................210 Proceedings 1 9 9 6 ....................................243
P akistan-China B IT ........................................ 210 U NESCO Convention on the Protection and
Pakistan-Franee B IT ....................................... 210 Promotion of the Diversity of Cultural
Pakiscan-Netherlands B I T .............................210 Expressions............................................... 202
Pakistan—Sweden B I T ....................................... 49 Art 20 ............................................................ 202
Pakistan-Switzerland B I T ..............32, 171, 210 U nited Kingdom -Argentina BIT 1990 .......208
Paldstan-Turkey B IT ...................................... 211 Art 3 (2 )..........................................................208
Pakistan-United Kingdom B IT .....................210 United Kingdom -Egypt B I T ........................ 227
Paraguay—Peru B IT ............................................46 Art 2 (2 )..........................................................227
Philippines-Switzerland B IT ......................... 170 United Kingdom Model BIT 2005 .............102,
Art X (2 ).........................................................170 166, 270
Poland-U nited Kingdom B IT ......................... 48 Pream ble............................................................ ,,29
Protocol to the Treaty between Germany and Art 2 (2)..........................................................166
Bosnia & Herzegovina 2001 .................. 92 Art 3 (3 )..........................................................208
Para 3(c)........................................................... 92 Ait 5 (1 )..........................................................102
Roman ia-Sweden B I T ...................................... 51 U nited Kingdom—Russia B IT ........................ 273
Art 7 (3 )..................................................... 51, 52 United Kingdom -Tanzania B I T .................. 269
Singapore-USA FTA 2 0 0 4 ............................... 35 United N ations Convention on the Law
Art 15.19(10)..................................................35 of the Sea 1982—
Spain-Argentina BIT 1991 ............................208 Art 290 ..........................................................283
Art IV (2)....................................................... 208 United Nations Convention on Jurisdictional
Spain-El Salvador B IT ............................... 95, 96 Immunities of States and their Property
Sri Lanka-U nited Kingdom B IT .................. 291 2004..........................................................j l i
Switzerland-Pakistan B I T ..............................261 United Nations Draft Code of Conduct on
Art 9 .............................................................. 261 Transnational Corporations 1983 ........ 26,
Swinerland-Paraeuav BIT..............................171 102,131
xxxiv Table o f Treaties, Conventions, Resolutions, and Rules

U nited Nations General Assembly A rt 3 (1 ).............................................................89

Resolution 59/38 ..................................... 311 Art 4 ................................................................. 89
U nited Nations General Assembly Resolution A rt 5 (1 ).......................................................... 135
6 5 /2 2 ................................................243, 278 Art 5 (2 ).................................................135, 137
U nited N ations General Assembly Resolution A it 5(2)(a)............................................ 154, 178
N o 1803, 14 December 1 9 6 2 ............4, 79 Art 6 ( l ) ( d ) .................................................... 100
Para 8 .................................................................. 4 A rt 8 .......................................................... 89, 91
U nited Nations General Assembly Resolution Art 9 ................................................................. 89
N o 3281, 12 December 1 9 7 4 ........... 4, 79 Art l4 (5 )(b )..................................................188
U nited Nations Millennium Declaration Art 1 7 ....... ....................................................... 55
2 0 0 0 ..............................................................23 A it 2 0 ............................................................ 215
P ream ble...............................................................23 A it 28 (1 0 )....................................................... 35
U nited States-Cameroon BIT 198 6 ............... 90 Art 3 0 (3 ).......................................................... 32
Art II, Section 6 ............................................. 90 A rt 3 4 ...............................................................35
U nited States-Canada B IT ................................90 Annex B .........................................................102
U nited States-Chile FTA 2 0 0 3 ....................... 63 Annex B, Para 4 ........................................... 115
A rt 1 0 .2 7 .........................................................63 Annex II, Schedule.........................................89
U nited States-Czech Republic B I T ..............196 U nited States-Nicaragua Treaty Concerning the
U nited States-Ecuador BIT.............. 80, 81, 293 Encouragement and Reciprocal Protection
U nited States-Estonia B IT ............................. 220 of Investments 1995..................................92
A rt 112(b)...................................................... 220 A rt V II(l)(b )................................................... 92
U nited States-France Treaty on Friendship, U nited States—Romania B I T ................ 169, 175
Commerce and Navigation 1796..............1 Art 11(2) (c)........................................... 169, 175
U nited States-FRG Treaty of Friendship, United States—Ukraine B IT ............................258
Commerce and Navigation U nited States-Zaire BIT 1 9 8 4 ......................162
1954................................................. 130, 131 U ruguay-U nited States BIT 2 0 0 4 ................136
A rt 1(1)...........................................................130 Art 5 ...............................................................136
U nited States Model BIT 1981....................... 14 Annex E ................................................................35
U nited States Model BIT 1994.....................198 Vienna Convention on the Law o f Treaties
Art II 1...........................................................198 1969............................ 17, 2 8 ,3 7 , 2 0 8 ,2 2 0
U nited States Model BIT 2 0 0 4 ............... 36, 89, Art 2 7 ............................................................ 220
91, 100, 114, 136, 137, Art 28 ........................................................36, 37
178, 188,198, 215 Art 31 ...................28, 29, 65, 132, 150, 169,
Art 2(3)............................................................36 171, 172, 175, 209
A rt 3 ....................................................... 89, 198 A it 31(1)................................................... 28, 29
Art 3(1)............................................................89 A rt 31 (2 )..........................................................29
Art 4 ................................................................ 89 Art 31 (2 )(b )....................................................30
Art 5(2)......................................................... 137 Art 31(3)(c)..................................................... 17
Art 5(2)(a).....................................................178 Art 32 .................................... 29, 31, 208, 209
Art 5(4)......................................................... 188 Washington Consensus 198 9 ...............5, 25, 87
Art 6(1)......................................................... 102 W ashington Convention, see Convention on the
Art 6( l) ( d ) ................................................... 100 Settlement of Investment Disputes between
A it 8 ......................................................... 89,91 States and Nationals of O ther States 1965
Art 9 ................................................................ 89 (ICSID Convention)
Art 14(2)......................................................... 89 W orld Bank and IM F Guidelines on the
Art I4 (5 )(b )................................................. 188 T reatm ent of Foreign Direct Investment
Art 2 0 ........................................................... 215 1992 ................................... 5, 26, 102, 131
Annex B ........................................................ 102 P ream ble............................................................ 5
Annex B, Para 4 .......................................... 115 Section I I I ..................................................... 131
Annex II, Schedule........................................ 89 W T O Agreement on Trade Related Investment
United States Model BIT 2 0 1 2 ......................32, Measures 1994 (T R IM s)................. 10, 91,
35, 48, 55, 89, 91, 114, 9 2 ,1 9 0
136, 137, 154, 178, 198, 215 W T O General Council Decision on the Doha
Art 3 .......................................................89, 198 Agenda W ork Program 2004 .................. 10
 List of Abbreviations

AF Additional Facility
AJIL American Journal of International Law
ASIL Proceedings Proceedings of the American Society of International Law
ASEAN Association of Southeast Asian Nations
BIT Bilateral Investment Treaty
BLEU Belgo-Luxembourg Economic Union
BOO Build, Operate and Own
BOT Build, Operate and Transfer
BYIL British Year Book of International Law
CAFTA Central American Free Trade Agreement
CIETAC China International Economic and Trade Arbitration
Commission
DCF Discounted Cash Flow
DR Congo Democratic Republic of the Congo
ECHR European Court of Human Rights
ECT Energy Charter Treaty
EFTA European Free Trade Association
EU European Union
FCN Friendship, Commerce, and Navigation
FET Fair and Equitable Treatment
FIC Foreign Investment Commission
FSIA Foreign Sovereign Immunities Act
FTA Free Trade Agreement
FTC Free Trade Commission
GA General Assembly
GATS General Agreement on Trade in Services
GATT General Agreement on Tariffs and Trade
HRLJ Human Rights Law Journal
ICC International Chamber of Commerce
ICJ International Court of Justice
ICJ Rep International Court of Justice Reports
ICLQ International & Comparative Law Quarterly
ICSID International Centre for Settlement of Investment Disputes
xxxvi List of Abbreviations

ICSID Convention Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (March 1965)
ICSID Review-FILJ ICSID Review Foreign Investment Law Journal
ILC International Law Commission
ILM International Legal Materials
ILR . International Law Reports
IMF International Monetary Fund
Int. Lawyer The International Lawyer
Iran-USCTR (or IUSCTR) Iran-US Claims Tribunal Reports
JAA Joint Activity Agreement
JWIT Journal of World Investmen t & Trade
LCIA London Court of International Arbitration
LIBOR London Interbank Offered Rate
MAI Multilateral Agreement on Investment
MFN Most-Favoured-Nation
MIGA Multilateral Investment Guarantee Agency
NAFTA North American Free Trade Agreement
NGO Non-Governmental Organization
OECD Organization for Economic Cooperation and Development
OPIC Overseas Private Investment Corporation
PCA Permanent Court of Arbitration
PCIJ Permanent Court of International Justice
PCIJ Rep Permanent Court of International Justice Reports
Receuil Receuil des Cours de ΓAcademic de droit international
(Collected Courses of the Hague Academy of International Law)
RIAA Reports of International Arbitral Awards
Stockholm Int Arb Rev Stockholm International Arbitration Review
TDM Transnational Dispute Management
TRIMS Trade Related Investment Measures
UN United Nations
UNESCO United Nations Educational, Scientific, and Cultural
Organization
UNCITRAL United Nations Commission on International Trade Law
UNCTAD United Nations Conference on Trade and Development
UNTS United Nations Treat)' Series
US United States of America
VAT Value Added Tax
VCLT Vienna Convention on the Law of Treaties
WTO World Trade Organization
Yearbook Commercial Arbitration
 I
History, Sources, and Nature of
International Investment Law

1 , T he history o f international investment law

(a) Early developments

As early as 1796, John Adams, after having negotiated for the United Stares the first
Treaty on Friendship, Commerce and Navigation with France, emphatically high­
lighted the protection of alien property by the rules of international law:
There is no principle of the law of nations more firmly established than that which entitles
the property of strangers within the jurisdiction of another country in friendship with their
own to the protection of its sovereign by all efforts in his power.1
Until the Communist Revolution in Russia in 1917 neither state practice nor the
commentators of international law had reason to pay special attention to rules
protecting foreign investment. Treaty practice in the nineteenth century protected
alien property not on the basis of an autonomous standard, but by reference to the
domestic laws of the host state. An illustration is found in Article 2(3) of the Treaty
between Switzerland and the United States of 1850:
In case of... expropriation for purposes of public utility, die citizens of one of the two
countries, residing or established in the other, shall be placed on an equal footing with the
citizens of the country in which they reside in respect to indemnities for damages they may
have sustained.2
The implicit assumption was that each state would in its national laws protect
private property and that the extension of the domestic scheme of protection would
lead to sufficient guarantees for the alien investor.
In a famous study first published in 1868, the Argentine jurist Carlos Calvo for
the first time presented a new perspective of this paradigm and asserted that the
international rule should in effect be understood as allowing the host state to reduce
protection of alien property whilst also reducing the guarantees for property held by
nationals.·3 Calvo’s view would have left room for all the vagaries of domestic law,

1 Cited in J B Moore, A Digest o f International Law, vol 4 (1906) .5.

2 Cited in R Wilson, United States Commercial Treaties and International Law (I960) 111.
3 See Carlos Calvo, Derecho International Tcorico y Pmctico de Europa y America (1868); Charles
Calvo, Le droit international— theorie etpratiqu-e, vol 3 (1896) 138.
2 History, Sources, and Nature o f International Investment Law

allowing both strong guarantees, but also a complete lack of protection. In addition,
the Calvo doctrine is based on the view that foreigners must assert their rights
before domestic courts and that they have no right of diplomatic protection by their
home state or access to international tribunals. Calvo’s theoiy was conceived against
the background of gunboat diplomacy by capital-exporting countries and other
practices through which these countries imposed their view of international law on
foreign governments. In 1907, the Drago-Porter Convention was adopted to
prevent the use of force for the collection of debt, and Calvo’s radical attack on
the protection of foreign citizens lost some of its justification.
O n the international level, the Calvo doctrine remained at the margins of the
debate, and die dominant position was that a state was bound by rules of inter­
national law, separate from national law. Elihu Root stated the prevalent position in
1910:
There is a standard of justice, very simple, veiy fundamental, and of such general acceptance
by all civilized countries as to form a part of the international law of the world. The
condition upon which any country is entitled to measure the justice due from it to an
alien by the justice which it accords to its own citizens is that its system of law and
administration shall conform to this general standard. If any country’s system of law and
administration does not conform to that standard, although the people of the country may
be content or compelled to live under it, no other country can be compelled to accept it as
furnishing a satisfactory measure of treatment to its citizens.4
Nevertheless, the conceptual reorientation proposed by Calvo was revived on a
practical level in a dramatic fashion after the Russian Revolution in 1917: the Soviet
Union expropriated national enterprises without compensation and justified its
uncompensated expropriation of alien property by relying on die national treat­
m ent standard. The ensuing dispute led, inter alia, to the Lena Goldfields Arbitra­
tion of 1930 in which case the tribunal required the Soviet Union to pay
compensation to the alien claimant, based upon the concept of unjust enrichment.5
In subsequent decades, a further attack upon the traditional standard of inter­
national law was mounted in 1938 by Mexico after the nationalization of US
interests in the Mexican agrarian and oil business. This dispute led to a frank
diplomatic exchange in which US Secretary o f State Cordell Hull wrote a famous
letter to his Mexican counterpart. In this letter he spelled out that the rules of
international law allowed expropriation of foreign property, but required ‘prompt,
adequate and effective compensation ’.6 The Mexican position echoed the Calvo
doctrine and also foreshadowed harsh disputes between industrialized and develop­
ing countries in later decades of post-decolonization.

4 E Root, ‘The Basis ofProtection to Citizens Residing Abroad’ (1910) 4A JIL 517, 528.
5 For an analysis of the Lena Golfields Arbitration (1930), see, inter alia, V V Veeder, ‘The Lena
Goldfields Arbitration: The Historical Roocs of Three Ideas’ (1998) 47 ICLQ 747; die text of the
award is published as an appendix to A Nussbaum, ‘The Arbitration between the Lena Goldfields, Ltd
and the Soviet Government’ (1950—51) 31 IC L Q 42.
6 See for the correspondence G Hackworth, Digest o f International Law, vol 3 (1942), vol 5 (1943).
 The history o f international investment law 3

(b) T he emergence o f an international m inim um standard

The Calvo doctrine, the Russian Revolution, and die Mexican position notwith­
standing, what had emerged from the various international disputes about the
status of aliens in general (not just in regard to foreign investment) was a wide­
spread sense that the alien is protected against unacceptable measures of the host
state by rules of international law which are independent of those of the host state.
The sum of these rules eventually came to be known as the international minimum
standard .7 The fundamental reasons that prompted the evolution and recognition
of these rules are reflected in general terms in a relatively modem decision of the
European Court of Human Rights:
Especially as regards a talcing of property effected in the context of a social reform, there may
well be good grounds for drawing a distinction between nationals ana non-nationals as far as
compensation is concerned. To begin with, non-nationals are more vulnerable to domestic
legislation: unlike nationals, they will generally have played no part in the election or
designation of its authors nor have been consulted on its adoption. Secondly, although a
talcing of property must always be effected in the public interest, different considerations
may apply to nationals and non-nationals and there may well be legitimate reason for
requiring nationals to bear a greater burden in the public interest than non-nationals.8
The minimum standard as it emerged historically concerned the status of the alien
in general, applying to such diverse areas as procedural rights in criminal law, rights
before tribunals in general, rights in matters of civil law, and rights in regard to
private property held by the foreigner. An early leading case on the subject matter,
Neer v Mexico decided in 1926, was concerned with the duty of the host state
Mexico to investigate appropriately the circumstances of the unaccounted death of
a US national.9 W hen the claim of the widow o f the US national for compensation
for failure to do so was brought before a Mixed Claims Commission, the following
statement was issued by the Commission in regard to the circumstances under
which a host state would be liable for a violation of the minimum standard:
the treatment of an alien, in order to constitute an international delinquency, should
amount to an outrage, to bad faith, to willful neglect of duty, or to an insufficiency of
governmental action so far short of international standards that every reasonable and
impartial man would readily recognize its insufficiency.10
This statement of the standard did not relate to matters of property of the alien, and
was issued when matters of foreign investment and related issues such as economic
growth, development, good governance, and an investment-friendly climate were

7 See H Roth, The M inim um Standard o f International Law Applied to Aliens (1949); E Borchard,
The Diplomatic Protection o f Citizens Abroad (1915).
8 See E C tH R , James & others v UK,, Judgment, 21 February 1986, para 63; see also Lemire v
Ukraine, Award, 28 M arch 2011, para 57.
5 L F H Neer & Paidine Neer v United Mexican States, Γν RIAA 60 (1951).
10 At pp 61- 2 .
4 History, Sources, and Nature o f International Investment Law

not yet high on the international agenda. Yet this case has resurfaced in decisions of
investment tribunals in the past decade. 11

(c) Develop merits after the Second W orld W ar

The period between 1945 and 1990 saw major confrontations between the growing
number of newly independent developing countries, on die one hand, and capital-
exporting states, on the other, about the status of customary law governing foreign
investment. These were often prompted by ideological positions, by an insistence
on strict notions of sovereignty (‘Permanent Sovereignty over Natural Resources’) ,12
and by the call for economic decolonization, supported by an economic doctrine
calling for independence from centres of colonialism. The new battleground chosen
by developing states was now the United Nations General Assembly where they
soon held and still hold the majority of votes. In 1962, half a century ago, an early
confrontation ended with a compromise: GA Resolution 1803 stated that in the
case of expropriation, ‘appropriate compensation’ would have to be paid, thus
explicitly confirming neither the Hull rule nor the Calvo doctrine. Remarkably, a
consensus existed then that foreign investment agreements concluded by a govern­
ment must be observed in good faith .13
The developing states decided to take the battle further and brought it to a
culmination in 1974, again in the United Nations General Assembly. Encouraged
by the success of the oil-producing countries in boycotting Western states and
sharp oil price increases, as well as by the then prevailing spirit of economic
independence in Latin America, several resolutions were passed which called for a
‘New International Economic Order’. One of its cornerstones was the apparent
abolition of rules of international law governing the expropriation of alien property
and their replacement by domestic rules as determined by national authorities:
Each State has the right:... (c) To nationalize, expropriate or transfer ownership of foreign
property, in which case appropriate compensation should be paid by the State adopting such
measures, taking into account its relevant laws and regulations and all circumstances that the
State considers pertinent. In any case where the question of compensation gives rise to a
controversy, it shall be settled under the domestic law of the nationalizing State and by its
tribunals, unless it is freely and mutually agreed by all States concerned that other peaceful
means be sought on the basis of the sovereign equality of States and in accordance with the
principle of free choice of means.14

11 See pp 6 , 139-41.
12 See R Dolzer, ‘Permanent Sovereignty over Natural Resources ana Economic Decolonization’
(1986) 7 Human Rights L ] 217; K Gess, 'Permanent Sovereignty over Natural Resources: An Analytical
Review o f the U nited Nations Declaration and its Genesis' (1964) 13 IC L Q 398; S M Schwebel, ‘The
Story of the U N ’s Declaration on Permanent Sovereignty over Natural Resources’ (1963) 49 American
Bar Association journal 463; C Brower a n d ] Tepe, T h e Charter of Economic Rights and Duties of
States: A Reflection or Rejection of International Law?’ (1975) 9 I n t’l Lawyer 295.
13 ‘Foreign investment agreements freely entered into by or between sovereign States shall be
observed in good faith’; see U N GA Res 1803 (14 December 1962) para 8 .
14 UN GA Res 3281 (12 December 1974) (‘Charter of Economic Rights and Duties of States’).
 The history o f international investment law 5

O f course, this period of confrontation led to insecurity about the customary

international rules governing foreign investment. 15 This phase lasted essentially
until around 1990. At that time it became clear that, together with the end of the
Soviet Union, the Socialist view of property had collapsed and that the call for
economic independence had brought a major financial crisis, rather than more
welfare upon the people of Latin America. From diat time onwards, Latin Ameri­
can states started to conclude bilateral investment treaties the spirit of which was at
odds with die Calvo doctrine, and the annual calls for ‘permanent sovereignty’ in
the U N General Assembly came to an end .16
At the same time, international financial institutions revised their position on the
role of private investment. The so-called Washington Consensus, 17 with its new
emphasis on the private sector in the process of development, summarized the now
dominant approach to development and its concomitant positive view of private
foreign investment. In 1992, the new approach crystallized in the Preamble of the
W orld Bank’s Guidelines on the Treatment of Foreign Direct Investment. It
recognizes:
that a greater flow of foreign direct investment brings substantial benefits to bear on the
world economy and on the economies of developing countries in particular, in terms of
improving the long term efficiency of the host country through greater competition, transfer
of capital, technology and managerial skills and enhancement of market access and in terms
of die expansion of international trade.18
W ithin this new climate of international economic relations, the fight of previous
decades against customary rules protecting foreign investment had abruptly become
anachronistic and obsolete. The tide had turned, and the new theme for capital-
importing states was not to oppose classical customary law, but instead to attract
additional foreign investment by granting more protection to foreign investment
than required by traditional customary law, now on the basis of treaties. Five
decades after it was formulated, the Hull rule became a standard element of
hundreds of new bilateral investment treaties (BITs) as well as multilateral agree­
ments, such as the Energy Charter Treaty (ECT) adopted in 1994 or the North
American Free Trade Agreement (NAFTA) in which Mexico decided to join the
United States and Canada, also in 1994. Developing countries started to conclude
investment treaties among themselves, and the characteristics of these treaties did
not significantly deviate from those concluded with developed states.19

15 See IN A Corp v Iran, 8 Iran-U S C T R 373, 386 (1985).

16 See T Walde, Ά Requiem for die “New International Economic O rder”— The Rise and Fail of
Paradigms in International Economic Law and a Post-Mortem with Timeless Significance’ in
G H aiher, G Loibl. A Rest, L Sucharipa-Belirmann, and K Zemanek (eds), Liber Amicorum Professor
Ignaz Seidl-Hohenveldern (1998) 771.
^ See p 87.
18 W orld Bank Group, ‘Guidelines on the T reatm ent of Foreign Direct Investment’, Legal
Framework fo r the Treatment o f Foreign Investment: Volume II: Guidelines (1992) 35—44.
19 See U N C T A D , Bilateral Investment Treaties 1995—2006: Trends in Investment Rulemaking
(2007).
6 History, Sources, and Nature o f International Investment Law

Ever since the early 1990s, the focus in practice has shifted to the negotiation of
new treaties on foreign investment, to their understanding and interpretation. The
elucidation of the state of customary law is no longer a central concern of academic
commentators. However, die relevant issues have certainly not disappeared. For
instance, in the context of NAFTA, the three states parties decided that the
standards of ‘fair and equitable treatment’ and of ‘full protection and security5
must be understood to require host states to observe customary law and not more
demanding autonomous treaty-based standards.20 In consequence, nearly forgotten
arbitral decisions—mainly the Neer case of 1926—were now unearthed. The
importance of this award for the current state of customaiy law governing foreign
investment has led to a debate on whether an old arbitral ruling addressing the duty
to prosecute nationals suspected of a crime against a foreigner is the appropriate
vantage point from which contemporary rules governing foreign investment should
be developed.

(d) T he evolution o f investm ent protection treaties

The roots of modern treaty rules on foreign investment can be traced back to 1778
when the United States and France concluded their first commercial treaty,
followed in the nineteenth century by treaties between the United States and
their European allies and subsequendy the new Latin American states.21 These
early treaties mainly addressed trade issues, but also contained rules requiring
compensation in case of expropriation. After 1919, the United States negotiated
a series of agreements on friendship, commerce, and navigation (FCN), followed by
another series of treaties between 1945 and 1966.22
Rules on investment were never prominent or distinct in these FCN treaties,
even though the pre-1945 treaties contained not just compensation clauses, but
also provisions on the right to establish certain types of business in the partner state.
After 1945, trade matters were regulated in separate treaties, and FCN treaties
contained more detail on foreign investment.23
The era of modern investment treaties began in 1959 when Germany and
Pakistan adopted a bilateral agreement which entered into force in 1962. Germany
had decided to launch a programme for a series of bilateral treaties to protect its
companies’ foreign investments made in accordance with the laws of the host state.
Soon after Germany had launched its programme and successfully negotiated its

20 See pp 136 et seq.

21 See R Wilson, United States Commercial Treaties and International Law (I960) 2.
22 See K J Vandevelde, ‘The Bilateral Investment Program of the U nited States’ (19S8) 21 Cornell
Int'l 1 /2 0 1 , 207-8.
23 J W Salacuse, ‘Towards a Global Treaty on Foreign Investment: The Search for a Grand Bargain’
in N H orn (ed), Arbitrating Foreign Investment Disputes (2004) 51, 56; K J Vandevelde, T h e Bilateral
Investment Program of the U nited States’ (1988) 21 Cornell I n t’l LJ 203.
 The history o f international investment law 7

first treaties, other European states followed suit: Switzerland concluded its first
such treaty in 1961,24 France in 1972.25
As to dispute setdement, the early treaties did not provide for direct investor-
state dispute settlement procedures, but for the submission of disputes to the
International Court of Justice or ad hoc state-to-state arbitration .26 Starting with
the treaty between Chad and Italy of 1969, BITs began offering arbitration
between host states and foreign investors.
In 1977, the US State Department launched an initiative for the United States to
join the European practice of the past two decades and to conclude agreements
which were meant to address issues of foreign investment only, mainly to protect
investments of nationals abroad .27 Following a short period of political hesitation in
view of the issue of exporting jobs by way of promoting foreign investment, and a
shift of responsibility from the State Department to the United States Trade
Representative during that period, the United States, between 1982 and 2011,
concluded 47 bilateral treaties, mainly with developing states.28
A similarly significant trend was the evolution of BIT practice by Asian states.
China concluded 130 treaties between 1982 and 2011.29 India concluded its first
BIT in 1994, had entered into 26 BITs by 1999, and in 201 1 was a party to 83
such treaties. Japan has also decided to join the practice of other Organisation for
Economic Co-operation and Development (OECD) countries and in 2011 had
concluded 16 investment agreements.
At the same time, more and more developing states have negotiated BITs among
themselves, altogether more than 770. In the period between 2003 and 2006, these
treaties outnumbered those between developed and developing states.30

24 Treaty between Switzerland and Tunisia of 2 December 1961; see N H uu-tru, ‘Le reseau suisse
d’accords biiateraux d’encouragement et de protection des investissements’ (1988) 92 Revue Generate
de Droit International Public 577.
25 Treaty between France and Tunisia o f 30 June 1972; see P Juillard, ‘Le reseau francais des
conventions bilaterales d ’investissement: a la recherche d ’un droit perdu?’ (1987) 13 Droit et Pratique
du Commerce International 9.
26 See eg Art 11 o f the Bilateral Investment Treaty concluded between G erm any and Pakistan on
25 Novem ber 1959, U N TS (1963) 24.
27 For an historical appraisal o f the US BIT Program, see K J Vandevelde, ‘T he BIT Program:
A Fifteen-Year Appraisal’, A SIL Proceedings (1992) 532.
28 The authors wish to thank the Secretariat of U N C T A D for the m ost recent statistics for BITs.
As to BIT practice of the United States, see K J Vandevelde, United States Investment Treaties: Policy
and Practice (1992); K J Vandevelde, ‘A Brief History of International Investment Agreem ents’ (2005)
University o f California Davis J I n t i I & Pol’y 157; S M Schwebel, ‘The U nited States 2004 Model
Bilareral Investm ent Treaty: An Exercise in the Regressive Development o f International Law’ in
G Aksen, K H Bockstiegel, M J Mustill, P M Patocchi, and A M Whitesell (eds), Liber Amiconim in
Honour o f Robert Briner— Ghbal Reflections on International Law, Commerce and Dispute Resolution
(2005) 815; K Gugdeon, ‘United States Bilateral Investment Treaties (1986) 4 I n t’l Tax and Business
Law 105; W Dodge, ‘Investor-State Dispute Settlement Between Developed Countries: Reflections on
the Australia— U nited States Free Trade Agreement’ (2006) 39 Vanderbilt J I n t ’l L 1.
29 O n the evolution of China’s attitude towards foreign investment, see D Chow, The Legal System
o f the People’s Republic o f China in a Nutshell (2003) 374 et seq.
30 See U N C T A D , Bilateral Investment Treaties 1995—2006: Trends in Investment Rulemaking
(2007) 18. Foreign investment of multinational companies based in emerging markets flowing to
developed states has risen sharply in the past decade, b ut the volumes flowing to other developing states
8 History, Sources, and, Nature o f International Investment Law

One way to explain this trend is that countries with emerging markets increas­
ingly see themselves as potential exporters of investments and wish to protect their
nationals through investment agreements, While this explanation is correct, these
treaties do illustrate the broader point that home states of investors are generally
inclined to conclude treaties with guarantees and mechanisms going beyond the
rules of customary law and that the underlying concern is not peculiar to traditional
Western liberal states with outgoing foreign investment. The general point seems to
be that home states of investors, whatever their historical background, consider
specially negotiated rules desirable. A comparison of treaties concluded between
developing countries does not reveal significant differences to agreements con­
cluded with developed states.

(e) The quest for a multilateral framework

In 1957, Hermann Josef Abs, a prominent German banker, called for a ‘Magna
Charta for the Protection of Foreign Property ’31 in the form of a global treaty. Such
a treaty was meant to establish not just specific standards of protection, but also a
permanent arbitral tribunal charged with the application of the treaty and with the
power to lay down economic sanctions against violating states, including non­
signatories. When it soon became apparent that the time was not ripe for such a
grand approach, Abs opted for a more modest multilateral initiative,32 together
with Sir Hartley Shawcross. These efforts finally culminated in the Abs-Shawcross
Draft, which, together with other contributions such as a Swiss draft,33 in 1962 led
in turn to the first effort of the OECD, the forum of the capital-exporting
countries, to prepare a multilateral treaty .34 A second such draft was presented in
1967. However, these first efforts to create a multilateral framework remained
unsuccessful, mainly due to the fact that the Convention was intended to be
applicable not only to OECD member states but to all countries, and that the
OECD efforts fell into a period of great divisions between capital-importing
and capital-exporting countries concerning the content of recognized principles
of foreign investment law.35 Eventually, the OECD contented itself with merely
recommending the draft as a model for the conclusion of bilateral investment

have reached a higher level: see J Santiso, ‘The Emergence of Latin M ultinationals’, Deutsche Bank
Research, 7 March 2007.
31 Speech given at the International Industrial Development Conference (San Francisco, 15 October
1957), reprinted in Recht der Internationalen Wirtschaft (1957) 229.
32 Drafts o f a ‘Convention on Investments Abroad’, reprinted in Recht der Internationalen
Wirtschaft (1959) 150-1,
33 Partly reprinted in Recht der Internationalen Wirtschaft (1959) 151·
34 See G A van Hecke, ‘Le projet de convention de 1’O C D E sur la protection des biens etrangers’
(1964) 68 Revue generate de droit international public 641.
35 Indeed, the Resolution of the Council of the O E C D on the Draft Convention states that ‘[the
Convention] embodies recognized principles relating to die protection of foreign property combined
with rules to render more effective the application o f diese principles’. For die divide between
developed and developing countries in die context of the discussion on a ‘New International Economic
Order’, see p 4.
 The history o f international investment law 9

treaties by its member states.36 This laid the groundwork for the future investment
regime characterized by the lack of a universal treaty and the dominance of bilateral
treaties.
In 1961, two years after the era of bilateral treaties had begun, the World Bank
took the lead to address the emerging international legal framework of foreign
investment, pointing to its mandate and to the link between economic develop­
ment, international cooperation, and the role of private international investment.
The debates then underway in the OECD, in preparation o f the 1962 Draft
Convention on the Protection of Foreign Property and also in the United Nations
on the rules on foreign investment generally, indicated diat the state of opinion
regarding customary law was deeply divided and that the prospect of reaching a
global consensus on the substance of investment rules was minimal.
In the W orld Bank, it was the then General Counsel, Aron Broches, who
initiated and drove the debates on the possible scope of international consensus.
Given the controversies within the United Nations, Broches properly concluded
that for the time being the best contribution the Bank could make was to develop
effective procedures for the impartial settlement of disputes, without attempting to
seek agreement on substantive standards. This approach seemed artificial since logic
would dictate that any system of dispute settlement would have to be based on a set
of substantive rules which could be applied. But Broches argued that, from a
pragmatic point of view, such an axiomatic approach was neither necessary nor
productive.
At first sight, the Broches concept (‘procedure before substance5) seemed to be a
limited and modest one. However, he designed what was to become, in 1965, the
Convention on the Settlement of Investment Disputes between States and Nation­
als of Other States (ICSID Convention) establishing the International Centre
for Settlement of Investment Disputes (ICSID). In retrospect, it is clear that
the creation of ICSID amounted to the boldest innovative step in the modern
history of international cooperation concerning the role and protection of foreign
investment.
The success of this concept became apparent when the ICSID Convention
quicldy entered into force in 1966 and especially when in subsequent decades
more and more investment treaties, bilateral and multilateral, referred to ICSID as a
forum for dispute settlement. From the point of view of member states, one major
advantage of the system was that investment disputes would become ‘depoliticized5
in the sense that they avoided confrontation between home state and host state.37
For two decades ICSID’s caseload remained quite modest. However, by the 1990s
ICSID had become the main forum for the settlement of investment disputes, and
Broches’ vision had become a reality.

36 See R Dolzer and M Stevens, Bilateral Investment Treaties (1995) 2,

37 See also I Shihata. ‘Towards a Greater Depolidcization of Investment Disputes: the Roies of
ICSID and M IG A’ in The World Bank in a Changing World (1991) 309.
10 History, Sources, a?id Nature o f International Investment Law

Following its earlier efforts in the 1960s towards the creation of a multilateral
investment treaty,38 the O ECD in 1995 decided to launch a new initiative in this
direction. These negotiations took place from 1995 to 1998 and built, to a
considerable extent, on the substance o f existing bilateral treaties. The last draft
for a Multilateral Agreement on Investment (MAI) dated 22 April 1998 39 indicates
major areas of consensus and some points of disagreement. Although the draft
shows that the negotiations had indeed progressed to a considerable extent, the
discussions were halted in 1998. Several unrelated reasons had led to the break­
down .40 The United States had never stood fully behind the initiative: domestic
political support necessary for ratification seemed uncertain; in addition, the level
of protection for foreign investment appeared unsatisfactory due to a number of
compromises. In Europe, France decided in the latter stage of the negotiations that
an agreement might not be compatible with its desire to protect French culture
(‘exception cidturelle). NGOs argued diat the debates within the OECD had been
held without sufficient public information and input. Also, from the beginning,
there was a debate as to whether die OECD, representing mainly capital-exporting
countries, was the proper forum to negotiate a treaty meant to serve as a global
instrument. In the end, diese different aspects converged to undermine and halt
support for the negotiations within the OECD.
In a partially overlapping effort, the World Trade Organization (WTO) had
already placed the issue of a multilateral investment treaty on its agenda during a
meeting in Singapore in 1996, in the middle of the OECD negotiations. The
W T O Agreement of 1994 had embodied a first step of the trade organization into
the field of foreign investment: the so-called TRIMS Agreement41 was to regulate
those aspects of foreign investment which led to direct negative consequences for a
liberalized trade regime. In particular, this Agreement regulates issues of so-called
performance requirements imposed by the host state upon foreign investors and
aims at reducing or eliminating laws which require that local products are
used in the production process by foreign investors (local content requirements).
The further development of the emerging investment agenda of the W T O was
addressed but not decided in 1996. In 2004, six years after the end of the OECD
initiative, the efforts within the W TO to include investment issues generally into
the Organization’s mandate also came to a halt.42

38 See p 8 .
39 Available at <htrp://wwwl.oecd.org/daf/mai>.
40 See generally the different contributions to (1998) 31(3) Cornell I n t’l L J (symposium edition).
See also Societe francaise de droit international (ed), Un accord multilateral sur I ’investissement: d u n
forum de negotiation a I autre? (1999); U NCTAD, Lessonsfrom the MAI-— U N C TAD Series on Issues in
International Investment Agreements (1999); E C Nieuwenhuys and M M T A Brus (eds), Multilateral
Regulation o f Investment (2001).
41 Agreement on Trade Related Investment Measures (TRIMS). See generally T Brewer and
S Young, ‘Investment Issues at the W T O ; The Architecture of Rules and the Settlement of Disputes’
(1998) 1 J In t’l Economic L 457; M Koulen, ‘Foreign Investment in the W T O ’ in E C Nieuwenhuys
and M M T A Brus (eds), Multilateral Regulation o f Investment (2001) 181-203.
42 See Decision of the W T O General Council of 1 August 2004 on the D oha Agenda W ork
Program (available at <hrrp.7/www.wto.org>).
 The history o f international investment laiv 11

Even though deveJoping countries had negotiated more than a thousand treaties,
they were not prepared to accept a W TO-based multilateral investment treaty,
arguing that such a multilateral scheme might unduly narrow their regulatory space
and that the effect of such a treaty would need to be studied in greater detail. Brazil
and India in particular took this position. The support of the United States for a
multilateral treaty was again limited, for reasons similar to those in 1998 within the
OECD.
At present, a comprehensive multilateral solution to investment issues is not in
sight. It remains to be seen whether the international community will continue to
develop its patchwork approach to foreign investment or whether the advantages of
more global homogeneity will eventually be accepted.

(f) Recent developm ents

Until the early 1990s international investment law had not produced any signifi­
cant case law.43 In the meantime this situation has changed dramatically. Both in
the framework of the ICSID Convention and beyond there is a veritable flood of
cases that has produced and continues to produce an ever-growing case law in the
field. To a large extent this dramatic increase of activity before arbitral tribunals was
the direct consequence o f the availability of investor-state arbitration on the basis of
a rapidly growing number of BITs. Inevitably, the large number of decisions
produced by differently composed tribunals has led to concerns about consistency
and coherence.44
The success o f the system o f investment arbitration has also led to weariness and
criticism in some quarters. Some countries have found themselves in the role of
respondents more often than others and perceive the need to defend themselves
repeatedly against claims by foreign investors as a serious burden. At the same time
there is criticism that investment law in general and investment arbitration in
particular restricts the freedom of states to take regulatory action. Therefore,
enthusiasm for the current system is by no means undivided.
Under the Treaty o f Lisbon, in 2009 die European Union assumed exclusive
competence for foreign direct investment. This has far-reaching potential conse­
quences for the BITs to which member states of the EU are parties. Since roughly
half of all BITs worldwide have at least one EU member state as a party, the future
policy of the EU on investment is likely to have global repercussions. Both BITs

43 In 1970, the International Court o f Justice had drawn attention to the slow evolution of
investment law, discussing relevant rules on diplomatic protection:
Considering the im portant developments of die last half-century, die growth o f foreign invest­
ments and the expansion o f international activities of corporations, in particular of holding
companies, which are often multinational, and considering the way in which the economic
interests o f states have proliferated, it may at first sight appear surprising that die evolution of
die law has n ot gone further and that no generally accepted rules in die m atter have crystallized on
die international plane. (ICJ, Case Concerning the Barcelona Traction, Light and Power Company,
Ltd, Judgm ent o f 5 February7 1970, ICJ Reports (1970) 3, 47)
4/1 See R Dolzer, ‘Perspectives for Investment Arbitration: Consistency as a Policy Goal?’ (2012) 3
Transnational Dispute Management.
12 Histoty, Sources, and Nature o f International Investment Law

between EU member states (intra-EU BITs) and BITs of EU members with non-
EU members (extra-EU BITs) will be affected.
W ith regard to intra-EU BITs, the European Commission wants all of these
terminated. Some member states are strictly opposed to these plans while others
have started terminating BITs with other EU members.
W ith regard to BITs with non-EU member states, the Commission wishes
gradually to replace these by new treaties to be negotiated by the Commission on
behalf of the EU. At the time of writing, negotiations are underway between the
Commission and Canada, India, and Singapore.

2 . The sources o f international investment law

Foreign investment law consists of general international law, of standards more

specific to international economic lawr, and of distinct rules peculiar to the protection
of investment. In addition, the law of the host state plays an important role.
Depending upon the circumstances of an individual case, the interplay between
relevant domestic rules of die host state and applicable rules of international law
may become central to the analysis of a case.45 The domestic rules on nationality may
determine jurisdiction in a particular case. Other areas of domestic law that
may become relevant in a particular case include property law, commercial law,
labour law, zoning law, and tax law to name just a few.
N ot only is the distinction between international law and domestic law becom­
ing blurred by the modern regime of foreign investment law,46 but also the classical
separation between public and private law, as emphasized especially in continental
European legal orders, cannot be accommodated in neat categories in this field.
The broader question whether international economic law allows for a useful
distinction between private law and public law is particularly acute in foreign
investment law. The rules governing contracts between an investor and a host
state draw on both private and public law. In fact, these rules establish a link
between domestic law and public international law. To a certain extent, the rules of
domestic law are being confronted and superseded by rules of public international
law, and in relevant international cases, the decision of arbitrators will turn on their
understanding of domestic law, possibly accompanied by a process of review of
domestic law under the international standards contained in treaties and in general
international law.
W hat follows is a general survey of die most important sources of international
investment law. More detailed discussion of the issues arising from these sources
can be found in die relevant chapters of this book.

45 For more derail see pp 288-93.

See F Orrego Vicuna, O f Contracts and Treaties in the Global M arket’ (2004) 8 M ax Planck
Yearbook o f United Nations Law 341.
 The sources o f international investment law 13

(a) The IC SID Convention

The Convention on the Settlement of Investment Dispute between States and
Nationals of other States is a multilateral treaty. It provides a procedural framework
for dispute settlement between host states and foreign investors through concili­
ation or arbitration .47 The Convention does not contain substantive standards of
protection for investments. Also, participation in the ICSID Convention does not
amount to consent to arbitration. The process whereby consent to arbitration
under die ICSID Convention is given by the host state and by the investor is
described at pp 254-264,

(b) Bilateral investment treaties

BITs are the most important source of contemporary international investment law.
Some countries, such as Germany, Switzerland, and China, have concluded well
over 100 BITs with other countries; and it is estimated that close to 3,000 BITs are
in existence worldwide.
BITs provide guarantees for the investments of investors from one of the
contracting states in the other contracting state. Traditionally, BITs are relatively
short with no more than 12 to 14 articles. They typically consist of three parts.
The first part offers definitions, especially of the concepts o f ‘investment’ and
‘investor’.48
The second part consists of substantive standards for the protection of invest­
ments and investors. Typically these contain: a provision on admission of invest­
ments; a guarantee of fair and equitable treatment (FET); a guarantee of full
protection and security; a guarantee against arbitrary and discriminatory treatment;
a guarantee of national treatment and a guarantee of most-favoured-nation treat­
ment (MFN clause); guarantees in case of expropriation; and guarantees concerning
the free transfer of payments. These various standards and guarantees are described
in some detail in Chapters V, VI, and VII. The third part deals with dispute
settlement. Most BITs contain two separate provisions on dispute settlement. One
provides for arbitration in the event of disputes between the host state and foreign
investors (investor-state arbitration). Most BITs contain advance consent of the
two states to international arbitration with investors from the other state party
either before an ICSID tribunal or through some other form of arbitration. The
other provision on dispute settlement in BITs provides for arbitration between the
two states parties to the treaty (state-state arbitration). Whereas investor-state
arbitration under BITs is very common, state-state arbitration has remained rare.
The role of BITs in dispute settlement is described at pp 257-259.
The classical BIT of the past decades has addressed only issues of foreign
investment. More recently there is a trend to negotiate provisions on foreign

4/ For details see pp 238 et seq.

48 See p 47 et seq and pp 62 et seq.
14 History, Sources, and Nature o f International Investment Law

investment in the context of wider agreements, called free trade agreements (FTAs).
As the name indicates, these FTAs also address trade issues. This trend seems to
have started with the agreement between Canada and the United States in 1989,
which formed the basis for the NAFTA concluded in 1994 between these two states
and Mexico, W ith the recent tendency to conclude bilateral or regional trade
agreements in addition to the global rules of the W TO , states have been inclined
to conclude broad agreements on economic cooperation regionally or bilaterally,
instead of agreements specifically aimed at matters of trade or foreign investment.
The number of these FTAs also covering rules on foreign investment has increased
in recent years.49 The European Commission is negotiating FTAs with third
countries, containing provisions on trade as well as on investment.
At times, it has been argued that some BITs are negotiated in haste and without
detailed consideration of their implications. Typically, capital-exporting states have
formulated a model treaty for their own purpose ,50 and have presented this
informal document to capital-importing states at the beginning of negotiations as
a basis for the subsequent negotiations. However, developing states have gradually
developed their own preferences for a certain scheme of treaties, sometimes with
their own model draft. Also, treaties have been negotiated between developing
countries.
As more and more treaties have been concluded, and as the international
discussion on the nature and the details of these treaties has progressed, including
the contours and substance of individual clauses, any argument to the effect that
host states have de facto accepted investment obligations without proper knowledge
of their scope and significance will become less convincing. Investment treaties are
today seen as admission tickets to international investment markets.51 Their
limiting impact on the sovereignty of the host state, controversial as it may be in
the individual case, is in this sense a necessary corollary to the objective of creating
an investment-friendly climate .52

49 See generally U N C TA D , World Investment Report (2010) 82.

50 M ost capital-exporting countries have drawn up their own model investment agreements. Also,
the Asian-African Legal Consultative Com m ittee produced a model treaty for its members in 1984,
with two variants. See Asian-African Legal Consultative Committee: Models for Bilateral Agreements
on Prom otion and Protection of Investments, reprinted in 23 ILM 237 (1984). Meanwhile, some
developing countries have adopted dieir own national versions. From time to time, model treaties are
revised to reflect the changing circumstances and priorities. The U nited States, for instance, presented a
new model treaty in 2012. T he first US M odel Treaty was adopted in 1981. See K J Vandevelde, ‘The
BIT Program: A Fifteen-Year Appraisal’, A SIL Proceedings (1992) 532, 536. Obviously, model treaties
have no binding force in themselves. U nder certain circumstances, their content may become relevant
for the interpretation of treaties. Eg, a state may be unable to rely on a certain traditional interpretation
o f a clause in a treaty if that clause departs from the model treaty and if the interpretation of the
treaty preferred by the state is the one also offered in the model treaty. However, the point resists
generalization, particularly because the negotiating history of BITs is not usually available to tribunals.
51 See pp 20, 22.
32 R Dolzer, ‘The Impact of International Investment Treaties on Domestic Administrative Law’
(2005) 37 N Y U J I n t’l L & Pol 953.
 The sources o f international investment law 15

(c) Sectoral and regional treaties: the Energy Charter

Treaty and N A FT A
The first multilateral treaty containing substantive rules on foreign investment is of
a sectoral nature and not meant for universal membership. The ECT of 199453
essentially grew out of die desire of European states to cooperate closely with Russia
and the new states in Eastern Europe and Central Asia in exploring and developing
the energy sector, which is of crucial political, economic, and financial importance
for both sides. Membership was open to all states committed to the establishment
of closer cooperation and an appropriate international legal framework in the
energy sector.
The scope of the ECT is not limited to investments but covers a wide range of
issues such as trade, transit, energy efficiency, and dispute settlement. The chapter
on investment is mostly patterned along the lines of bilateral investment treaties
concluded by the member states of the European Union. Its substantive standards
are similar to those contained in BITs.54 However, the Treaty also contains some
innovative features, such as special provisions concerning state entities and sub­
national authorities ,55 and a ‘best-efforts’ clause concerning non-discrimination in
the pre-establishment phase ,56 coupled with an expression of intent to transform it
into a legally binding obligation in the future .57
The Treaty entered into force in 1998. So far, 51 states and the European Union
have ratified the Treaty. Russia has signed, but currently does not intend to become
a party .58 Under the Treaty, investors have the right to bring a suit before ICSID,
before an arbitral tribunal established under the UNCITRAL arbitration rules,
before the Arbitration Institute of the Stockholm Chamber of Commerce, or before
the courts or administrative tribunals of the respondent state.59 Thirty investment
disputes were initiated between 2001 and 2 0 1 1 under the framework of the ECT.
The NAFTA between Canada, Mexico, and the United States (1994)60
addresses matters of both trade and investment. The Treaty aims at the free
movement and liberalization of goods, services, people, and investment.
Chapter Eleven of the NAFTA specifically addresses the treatment of investments.

53 The text o f die E C T can be found at 34 ILM 360 (1995). See generally C Ribeiro (ed),
Investment Arbitration and the Energy Charter Treaty (2006); T Walde, ‘Investment Arbitration
under the Energy Charter Treaty: An Overview of Selected Key Issues based on Recent Litigation
Experience1 in N H orn (ed), Arbitrating Foreign Investment Disputes (2004) 193; R Happ, ‘Dispute
Settlement under the Energy Charter Treaty’ (2002) 45 German Yearbook o f l n t ’l L 331; T Waelde,
‘International Energy Law: An Introduction to M odern Concepts, Context, Policy and Players’ in J P
Schneider and C Theobald, Handbuch zum Recht der Energieivirtschafi (2003) 1129.
54 EC T, Art 10(1) and (3).
5:> E CT, Arts 22 and 23.
56 E C T, Art 10(2).
57 ECT, A rt 10(4).
58 O n 20 August 2009 Russia officially informed die Depositor)' of the E C T that it did not intend
to become a partv.
59 ECT, Art 26.
60 The text of the NAFTA can be found at 32 ILM 605 (1993).
16 History, Sources, and Nature of International Investment Law

The objective enunciated in Article 102 is to increase substantially investment

opportunities in the territories of the parties.61
The trade provisions in the NAFTA are largely built on the rules of the W TO , of
which all three NAFTA countries are members. Chapter Eleven on investment
amounted to a bold and innovative scheme inasmuch as it tied Mexico as a
developing country to its two northern developed neighbours against a history
replete with conflict, especially in investment matters .62 In substance, Chapter
Eleven builds upon the treaty practice of the United States, including the treaty
with Canada concluded in 1989.
The tripartite structure of Chapter Eleven contains substantive obligations in
Section A (Arts 1101 to 1114), rules on dispute settlement in Section B (Arts 1115
to 1138), and a number of definitions in Section C (Art 1139).
The substantive obligations cover traditional issues such as national treatment,
M FN treatment, performance requirements, the selection of senior management
and board of directors, transfers, and possible denial of benefits to investors owned
or controlled by investors of non-NAFTA states. In practice, the rules on expropri­
ation (Art 1110) and on the ‘M inimum Standard of Treatment’ (Art 1105) have
received most attention and have led to a number of legal disputes and public
controversies.
Dispute settlement is governed by Section B of Chapter Eleven. Under Article
1120 an investor may bring a suit against the host state under the ICSID Conven­
tion. But this provision is operative only if both the home state and the host state
have ratified the ICSID Convention. In fact, only the United States— and not
Canada or Mexico— is party to the ICSID Convention. A second choice is to
submit the dispute to arbitration under the ICSID Additional Facility Rules of
1978 which do not require that both states are ICSID parties— only that one of the
two states is a party. Therefore, the Additional Facility is available if the United
States is either the respondent or the claimant’s home state. The Additional Facility
follows rules different from ICSID regarding the applicable law (no reference to the
law of the host state), annulment (no annulment under ICSID rules, but review by

61 See M Kinnear, A Bjorldund, and J Hannaford, Investment Disputes under N A FTA (2006);
T Weiler (ed), N AFTA Investment Law and. Arbitration: Past Issues, Current Practice, Future Prospects
(2004); C Brower, ‘NAFTA’s Investment Chapter: Initial Thoughts about Second-Generation Rights’
(2003) 36 Vanderbilt J Transn’l L 1533; C Brower, ‘Structure, Legitimacy and NAFTA’s Investment
Chapter’ (2003) 36 Vanderbilt J Transn’l L 37; G Aguilar Alvarez and W Park, T h e New Face of
Investment Arbitration: NAFTA Chapter 1Γ (2003) 28 Yale JIL 365; B Legum, ‘The Innovation of
Investor-State Arbitration under N A FTA ’ (2002) 43 Harvard I n t’l LJ 531; D A Gantz, 'Potential
Conflicts between Investor Rights and Environmental Regulation under NAFTA’s Chapter 11’ (2001)
33 George Washington International Law Review 651; C Brower, ‘Investor-State Disputes under
NAFTA: The Empire Strikes Back’ (2001) 40 Columbia J Transn’l L 43; H C Alvarez, ‘Arbitration
under the N orth American Free Trade Agreement’ (2000) 16 Arbitration International 393; F Ortino,
‘NAFTA— Fifteen Years Later’ (2009) 3 Transnational Dispute Management. P Dumberry, The
M inim um Standard and Fair and Equitable Treatment under International Law: Examining 15 Years
o f NAFTA Chapter 11 (2012); A Ingelson, L Mitchell, and C Viney, ‘NAFTA Takings U pdate’ (2012)
5 J World Energy>L & Bus 1.
62 W ith regard to Mexico and NAFTA, see J Preston and S Dillon, Opening Mexico: The M aking of
Democracy (2005).
 The sources o f international investment law 17

domestic courts), and enforcement (no enforcement under ICSID rules).

The third possibility open to the investor is to have the arbitration governed fay
the UNCITRAL Arbitration Rules.
The right of the investor to file a suit against the host state under Section B is
limited to breaches of the rules contained in Section A. The governing law is limited
to the NAFTA itself and to applicable rules of international law (Art 1131(1)).
As regards rules in other parts of the Agreement, such as those on transparency,
only the member states may bring them before an arbitral tribunal' (Chapter 20, Art
2004). The member states also have the right to make a submission on a question o f
interpretation if they are not a party to a dispute (Art 1128).
From a broader perspective of international economic law, the most remarkable
feature of the dispute resolution scheme contained in the NAFTA lies in the fact
that while it addresses matters of both trade and investment, it contains separate
rules on dispute resolution and, in accordance with the practice of previous decades,
recognizes the right to bring a suit for an investor but not for a trader. This dualism
now seems to be entrenched in state practice, some divergences and concerns
notwithstanding.

(d.) Custom ary international law

AMiough international investment law is dominated by treaties, customary inter­
national law still plays an important role. The treaty-based rules have to be
understood and interpreted, like all treaties, in the context of the general rules of
international law. Article 31 (3 ) (c) of the Vienna Convention on the Law of Treaties
provides that together widi the Treaty’s context ‘any relevant rules of international
law applicable in the relations between the parties’ shall be taken into account.
Customary international law remains highly relevant for the practice of invest­
ment arbitration. Rules on attribution and other areas of state responsibility as well
as rules on damages illustrate the point. Other relevant areas of customary inter­
national law are the rules on expropriation, on denial of justice, and on the
nationality of investors.
In fact, the growing case law in the area of foreign investment has led to a
situation in which some general rules of international law find their major practical
expression in foreign investment law. The consequence is that a full contemporary
understanding of these rules requires knowledge of dieir interpretation and appli­
cation in foreign investment law cases.
A basic doctrinal issue that has arisen pertains to the impact of the large number
of bilateral investment treaties on the evolution of customaiy law.63 This linkage
between customaiy law and treaty law has been at the forefront of comments which
have addressed the state of customary law regarding expropriation and compen­
sation of foreign property .64

63 See also pp 134-9.

64 See eg S Schwebel, ‘The Reshaping of the International Law o f Foreign Investment by Concord­
ant Bilateral Investment Treaties’ in S Charnovicz, D P Steger, and P van den Bossche (eds), Law in the
Service o f Human Dignity— Essays in Honour o f Florentino Feliciano (2005) 241.
18 History, Sources, and Nature o f International Investment Law

(e) General principles o f law

General principles of law in the sense of Article 38(l)(c) of the Statute of the
International Court of Justice have received increasing attention in recent prac­
tice.65 General principles o f law will acquire importance in the context of invest­
ment rules especially in the case of lacunae in the text of treaties and in the
interpretation of individual terms and phrases.
Examples of general principles relied upon by tribunals include good faith ,66
nemo auditurpropriam turpitudinem allegansp7 estoppel,68 onus probandi,^ and the
right to be heard .70

(f) Unilateral statements

The legal effect of unilateral statements and the conditions under which these may
be considered binding have played a prominent role in some cases, especially in
the context of the guarantee of fair and equitable treatment (FET). Here, the
principle of good faith is closely tied to the operation of the principle of estoppel.
The International Court of Justice and its predecessor have recognized that unilat­
eral declarations will be binding if the circumstances and the wording of the
statement are such that the addressees are entided to rely on them .71 The Inter­
national Law Commission has adopted Guiding Principles applicable to unilateral
declarations of states capable of creating legal obligations.72
This situation may also arise in the relationship between the host state and the
foreign investor.73 Arbitral tribunals have so held on the basis of the principle of
good faith .74 In Waste Management v Mexico, the Tribunal found that in applying
the FET standard, ‘it is relevant that the treatment is in breach of representations
made by die host State which were reasonably relied on by the claimant’.75
In Total v Argentina!6 the Tribunal said:

65 Generally see Merrill & Ring v Canada, Award, 31 M arch 2010, para 187.
66 Sempra v Argentina, Award, 28 September 2007, paras 290-9 (annulled on other grounds);
Phoenix v Czech Republic, Award, 15 April 2009, para 142; Cementownia v Turkey, Award, 17
September 2009, paras 138—48. See also p .156.
67 Rumeli v Kazakhstan, Award, 29 July 2008, paras 310, 323.
6S Chevron v Ecuador, Partial Award, 30 March 2010, paras 334 et seq; Gtynberg v Grenada, Award,
10 December 2010, paras 7.1.1 et seq.
69 Alpha v Ukraine, Award, 8 November 2010, paras 236, 237.
70 Fraport v Philippines, Decision on A nnulment, 23 December 2010, paras 197—208, 218-47-
71 See Legal Status o f Eastern Greenland (Denmark v Norway), 5 April 1933, PCIJ, Series A/B, N o
53, 22, 69; ICJ. Nuclear Tests Cases (Australia/NewZealandv France), 20 December 1974, ICJ Reports
(1974) 2 5 3 ,2 6 8 .
72 A/CN.4/L.703.
73 See W M Reisman and Μ H Arsanjani, ‘The Question o f Unilateral Governmental Statements
as Applicable Law in Investment Disputes’ (2004) 19 LCSID Review-FILJ 328.
74 Revere Copper v OPIC, Award, 24 August 1978, 56 ILR (1980) 258, 271.
75 Waste Management v Mexico, Final Award, 30 April 2004, para 98; see also CM S v Argentina,
Decision on Jurisdiction, 17 July 2003, paras 27, 33; LG & E v Argentina, Aw'ard, 3 October 2006, para
133; M obil v Venezuela, Decision on Jurisdiction, 10 June 2010, paras 86-141; Cemex v Venezuela,
Decision on Jurisdiction, 30 December 2010, paras 80-139.
76 Total v Argentina. Decision on Liability, 27 December 2010.
 The nature o f international investment law 19
Under international law, unilateral acts, statements and conduct by States may be the
source of legal obligations which the intended beneficiaries or addressees, or possibly any
member of the international community, can invoke. The legal basis of that binding
character appears to be only in part related to the concept of legitimate expectations—
being rather akin to the principle o f‘estoppel’. Both concepts may lead to the same result,
namely, that of rendering the content of a unilateral declaration binding on the State that is
issuing it.77

(g) Case law

As explained below ,78 tribunals are not bound by previous cases, but do examine
and refer to them, frequently.

3. T h e nature o f international investm ent law

(a) Investm ent law and trade law

Over time, the principles governing foreign investment have developed their own
distinct features within the broader realm o f international economic law. Today,
it remains a matter of semantics whether it is appropriate to speak of the
existence of a separate category of ‘principles of foreign investment law’, given
their strong links to international economic law in general. But there is no doubt
that the international law of foreign investment has become a specialized area of
the legal profession and that special courses are offered on the subject in univer­
sities worldwide. The common usage and parlance in the terminology of inter­
national law has always been to single out and to designate distinct fields, such
as the ‘laws of war’, or the ‘law of the sea’, whenever the body of rules in any
one area has become extensive and dense enough to justify special attention
and study.
The nature of investments makes it inevitable that the nature, structure, and
purpose of foreign investment law stands out as structurally distinct in the broader
realm of international law, especially in comparison to trade. In terms of legal
methodology, the difference between the two fields calls for caution in assuming
commonalities between foreign investment law and trade law. Whenever an
analogy is proposed, or a solution is transferred from one area to the other, it
must be examined in detail whether their different nature is amenable to an
assumption of commonality. Often, a concept which appears to be in common
turns out to have different shades and characteristics upon more detailed analysis,
taking into account the peculiar business nature of long-term foreign investment
projects.79

77 At para 131. Footnote omitted,

78 pp 33-34. 79 See pp 204-6.
20 History, Sources, and Nature o f International Investment Laiv

(b) Balancing duties and benefits

There have been speculations relating to the reciprocity of obligations in invest­
ment treaties, to the quid pro quo underlying these treaties, and to the mutual
benefits arising from them. All these concerns relate to a common underlying
theme which suggests that treaties on foreign investment in their traditional and
current version place obligations solely on the host state without equal commit­
ments on the part of the foreign investor.
Such concerns reflect the assumption that all types of treaties are necessarily
based upon a similar structure and upon a pattern of reciprocity and mutuality
which must be reflected in the terms of the treaty itself. However, the very nature of
the law of aliens, being at the origin of foreign investment law, indicates that the
raison d ’etre of this field of law does not reflect the traditional themes of reciprocity
and mutuality, but instead sets accepted standards for the unilateral conduct of the
host state. The context and nature of a foreign investment reveals a structural
setting which does not correspond to a transaction or to an agreement in which
privileges are exchanged on a mutual basis by w o parties. Notions of mutuality and
reciprocity are not absent from the regime of an investment treaty, but they do not
operate in the same manner as in a classical agreement. Instead, they are focused on
the mutual benefits of host state and investor and 011 the complementarity of
interests flowing from the long-term commitment of resources by the foreign
investor under the territorial sovereignty of the host state.
In an investment treaty, die host state deliberately renounces an element of its
sovereignty in return for a new opportunity: the chance better to attract new foreign
investments which it would not have acquired in the absence of a treaty. It is true
that this quid pro quo underlying the choice on the part of the host state is based on
a policy judgement the nature of which escapes precise evaluation. It is based upon
assumptions about the effect of the treaty which are uncertain .80 As with every
treaty,81 the acceptance of an investment treaty by a state and the determination
of the desirable type and extent of obligations contained in it represent an exercise
of the sovereign power to be made freely by each state in light of its circumstances
and preferences.
Once the sovereign has committed itself to a treaty, the balancing of interests and
aspirations is no longer subject to a unilateral decision. After the investment treaty
is concluded, the investor is entitled to rely on the scheme accepted in the treaty by
the host state as long as the treaty remains in force.

80 See p 22.
81 See the statement made by the Perm anent Court of International Justice in the Wimbledon case:
The Court declines to see in the conclusion of any Treaty by which a State undertakes to
perform or refrain from performing a particular act an abandonm ent of its sovereignty. No
doubt any convention creating an obligation of this kind places a restriction upon the
exercise of the sovereign rights o f die State, in the sense that it requires them to be exercised
in a certain way. But the right of entering into international engagements is an attribute
of State sovereignty. (Wimbledon (France v Germany), 17 August 1923- PCIJ, Series A,
No 1, 25)
 The nature o f international investment law 21

Investment treaties do not pit the interests and benefits of the host state against
those of the investor. Instead, the motivation underlying such treaties assumes that
the parties share a joint purpose. In this sense, it would be alien to the nature of an
investment treaty to conrrast the interests of the host state and of the foreign
investor as opposed to each other. The mode and spirit of investment treaties is to
understand the two interests as mutually compatible and reinforcing, held together
by the joint purpose of implementing investments consistent with the business plan
of the investor and the legal order of the host state.

(c) The investor’s perspective: a long-term risk

Making a foreign investment is different in nature from engaging in a trade
transaction. Whereas a trade deal typically consists of a one-time exchange of
goods and money, the decision to invest in a foreign country initiates a long­
term relationship between the investor and the host country. Often, the business
plan of the investor is to sink substantial resources into the project at the outset of
the investment, with the expectation of recouping this amount plus an acceptable
rate of return during the subsequent period of investment, sometimes running up
to 30 years or more.
A key feature in the design of such a foreign investment is to lay out in advance
the risks inherent in such a long-term relationship, bodi from a business perspective
and from the legal point of view. This involves identifying a business concept and a
legal structure which is suitable to the implementation of the project in general, and
minimizes risks which may arise during the period of the investment. In many
cases, this task is essential for the investor as the money sunk into the project at
the outset typically cannot be used subsequendy at another location, because the
machinery and installations of the project are specifically designed and tied to the
particularities of the project and its location.
The dynamics in the relationship between the host state and the investor differ in
nature before and after the investment has been made. Larger projects are typically
not made under the general laws of the host country; instead, the host state and the
foreign investor negotiate a deal— an investment agreement— which may adapt the
general legal regime of the host country to the project-specific needs and prefer­
ences of both sides. During these negotiations, the investor will try to seek legal and
other guarantees necessary in view of the nature and the length of the project.
Considerations will include bilateral or multilateral treaties concluded by the host
state which will provide guarantees on the level of international law. Depending on
the project, the investor may be in the driver’s seat during these negotiations if die
host state is keen to attract the investor.
The investor will normally bear the commercial risks inherent in possible
changes in the market of the project, for example new competitors, price volatilities,
exchange rates, or changes affecting the financial setting. In certain transactions,
provisions will be made for adaptation or renegotiation in the event of a change
in the economic and financial context of the project. The political risks, that is,
the risks inherent in a future intervention of the host state in the legal design of the
22 History, Sources, and Nature o f International Investment Law

project, will typically be addressed during these initial negotiations. Unless these
risks are appropriately addressed in an applicable investment treaty, the investor
may ask for protection on a num ber of points, such as the applicable law, the tax
regime, provisions dealing with inflation, a duty of the host state to buy a certain
volume of the product (especially in the field of energy production), the future
pricing o f the investor’s product, or customs regulation for materials needed for the
product, and, especially, an agreement on future dispute settlement. Such rights
may be included in an investment contract between the investor and the host state.
Once these negotiations are concluded and the investor’s resources are sunk into
the project, the dynamics of influence and power tend to shift in favour of the host
state. The central political risk which henceforth arises for the foreign investor lies
in a change of position of the host government that would alter the balance of
burdens, risks, and benefits which the two sides laid down when they negotiated
the deal and which formed the basis of the investor’s business plan and the
legitimate expectations embodied in this plan. Such a change of position on the
part of the host country becomes more likely with every subsequent change of
government in the host state during the period of the investment.

(d) T he host state’s perspective: attracting foreign investm ent

It is reasonable to assume that the object and purpose of investment treaties is
closely tied to the desirability of foreign investments, to the benefits for the host
state and for the investor, to the conditions necessary for the promotion of foreign
investment, and to the removal of obstacles which may stand in the way of allowing
and channelling more foreign investment into the host states. Thus, the purpose of
investment treaties is to address the typical risks of a long-term investment project,
and thereby to provide stability and predictability in the sense of an investment-
friendly climate.
Under the rules of customary international law, no state is under an obligation to
admit foreign investment in its territory, generally or in any particular segment of
its economy. While the right to exclude and to regulate foreign investment is an
expression of state sovereignty, the power to conclude treaties with other states will
also be seen as flowing from the same concept.
Once it has admitted a foreign investment, a host state is subject to a minimum
standard of customary international law .82 Modern treaties on foreign investment
go beyond this minimum standard in the scope of obligations a host state owes
towards a foreign investor. W hether such treaties in general, or any particular
version of them, are beneficial to the host state, remains a matter for each state to
decide. In particular, each state will weigh, or at least has the power to weigh, the
economic and financial benefits of a treaty-based promotion of foreign investments
against the consequences of being bound to the standards of protection laid down
in the treaty. None of these benefits and consequences is open to a qualitatively or

82 See E Root, T h e Basis o f Protection to Citizens Residing Abroad’ (1910) AAJIL 517, 528— see
pp 134—8.
 The nature o f international investment law 23

quantitatively objective assessment. Each state will exercise its sovereign prerogative
in determining its preferences and priorities when it decides whether to conclude an
investment treaty.
There is an ongoing debate over the impact foreign investment treaties have on
the promotion of foreign investment and its geographic distribution. Empirical
evidence pointing to an increase in foreign investment in a state which has been
directly caused by the conclusion of new treaties remains scant, even though recent
studies suggest that a positive effect will flow from such a treaty .83 Legal security in
a host country for an investment project is one of several factors that will influence
an investment decision, but the driving parameters are determined not by legal but
by economic considerations, Therefore, an argument that die international legal
dimension will in itself prompt an increased flow of foreign investment would be
unrealistic. O n the other hand, globalization has led to relatively accurate real-time
information about economic and legal matters around the globe, and the lack of
legal stability surrounding a potential investment in a particular country may
prevent a positive decision on the part of the investor. The perception of a sufficient
degree of legal stability for a project, and for the investment climate in a state
generally, will be one of several factors in making a decision about new foreign
investment, but will not by itself serve as the decisive incentive for potential foreign
investors.84 Moreover, the perceived risk of investing in a particular country will
determine the profit margin required by the investor. High-risk investments may
well be undertaken but will require a higher rate of return for the investor.
Another major advantage of treaties for the protection of investments, and of
investment arbitration in particular, is that investment disputes become ‘depoliti­
cized’. This means that they distance the dispute from the home state of the
investor and thus avoid confrontation, at least directly, between home state and
host state .85 In other words, the dispute is removed from the political inter-state
arena and moved into the judicial arena of investment arbitration. From the
perspective of a host state, facing an investor before an international tribunal may

83 See eg E Neumayer and L Spess, ‘Do Bilateral Investment Treaties Increase Foreign Direct
Investment to Developing Countries?’ (2005) 33 World Development 1567; Z Elkins, A Guzman, and
B Simmons, ‘Com peting for Capital: The Diffusion of Bilateral Investment Treaties, 1960-2000’,
Berkeley Program in Law and Economics, Annual Papers (2006); M Halhvard-Driemeyer, ‘Do
Bilateral Investment Treaties Attract Foreign Investment?’, W orld Bank Policy Research W orking
Paper N o 3121; K Sauvant and L Sachs (eds), The Effect o f Treaties on Foreign Direct Investment (2009).
84 In 2006, the O E C D adopted a Policy Framework for Investment, with a focus on ten policy
areas which will determine die degree to which a country is investment friendly (investment p o l ic y ,
investment prom otion and facilitation, trade policy, competition policy, tax policy, corporate gov­
ernance, policies for promoting responsible business conduct, hum an resource development, infra­
structure and financial sendees development, public governance). See O E C D , Policy Framework for
Investment, available at <http://w w w .oecd.O rg/dataoecd/l/31/3667l400.pdf>. This Framework is
also designed to promote the goals of the M illennium Declaration of the U nited Nations (see
Preamble p 7).
85 See C Schreuer, ‘Investment Protection and International Relations’ in A Reinisch and
U Kriebaum (eds), The Law o f International Relations— Liber Amicomm Hanspeter Neuhold (2007)
345.
24 History, Sources, and Nature o f International Investment Law

be the lesser evil compared to being exposed to the pressure of a powerful state or
the European Commission.

(e) International investment law and sovereign regulation

Conceptually, one may ask today whether the operation of the international law of
foreign investment amounts to a body of international rules of administrative law
governing the relationship of the foreign investor and the host state .86 It is evident
that the rules on foreign investment may reach far into segments of domestic law
which would traditionally have belonged to the 'domaine reserve' of each host
country. This evolving characteristic feature of foreign investment lav/ has led to
concerns not just about the preservation of national sovereignty, but also about the
democratic legitimacy of the process by which foreign investment law is developed
and applied. Indeed, these concerns have not only been voiced by developing
countries as recipients of foreign investments; with equal force, this linkage has
been observed and criticized by segments of civil society in developed countries and
in the United States after it had become a member of NAFTA and a respondent in
a number of NAFTA cases.
A traditional understanding of the concept of sovereignty detached from current
international economic realities may lead to the view that the international rules on
foreign investment reach or even cross the lines of what is considered acceptable.87
The rules on foreign investment touch upon domestic regulations as diverse as
labour law, the organization of the judiciary, administrative principles, environ­
mental law, health law, and, of course, rules governing property.
Rules of modern trade law also affect domestic matters, but the impact on
domestic law and, thus, potential concern for national sovereignty, is more severe
when rules of investment law are applied. At the same time, economic literature has
emphasized that openness of an economic system to foreign competition is among
the factors that contribute to economic growth and to good governance in general.
Thus, investment law embodies and represents the nature and the effects of
economic globalization, with the potential advantage of economic efficiency and
of higher living standards coupled with a reduced legal power of the national
authorities to regulate such areas which have an impact upon foreign investment.88

(f) International investm ent law and good governance

The concept of good governance has increasingly influenced the international
development agenda.89 Earlier periods of development practice after 1945 had

80 See S Schiil. International Investment Lain and Comparative Public Law (2010).
8/ In response co these concerns the United States has decided to opt for a treaty that spells out
definitions in great detail, so as to render arbitral decisions more predictable and to reduce the power of
arbitrators.
88 O n die power of the host state to control multinational enterprises in general, see C Wallace, The
Multinational Enterprise and Legal Control— Host State Sovereignty in an Era o f Economic Globalization
(20 0 2 ).
89 See p-enerallv R Dolzer, M Herdegen, and B Vogel, Good Governance (2007).
 The nature o f international investment law 25

focused first on the significance of important individual projects and then on the
role of macroeconomic policies. The new thinking, along with empirical studies,
highlights the fact that all projects and policies depend in their implementation
and, indeed, in their conception and formulation, on a functioning state, in
particular on functioning institutions.
As a consequence, the concept of good governance has moved to the centre of
international aid and poverty-reduction policies. The first coherent formulation of
the concept seems to be contained in a World Bank report written on the
development challenges for sub-Saharan Africa in 19 8 9 .90 No single definition
has subsequently been adopted, but the core elements have been expressed in
working documents by the World Bank91 and the International Monetaiy
Fund .92 In the treaty between the European Community and African, Caribbean,
and Pacific States as adopted in 2000, the so-called Cotonou Agreement, the
wording is as follows:
In th e co n tex t o f a p o litical an d in stitu tio n a l e n v iro n m e n t th a t u p h o ld s h u m a n rights,
dem o cratic principles a n d th e rule o f law, go o d governance is th e tra n s p a re n t an d a c c o u n t­
able m a n a g e m e n t o f h u m a n , n atu ral, eco n o m ic a n d financial resources for th e p u rp o ses o f
equitab le a n d su stain ab le d evelopm ent. It entails clear d ecisio n -m altin g p ro ced u res a t the
level o f p u b lic au th o rities, tra n sp a re n t a n d acco u n tab le in stitu tio n s, th e p rim a c y o f law in
the m a n a g e m e n t a n d d istrib u tio n o f resources a n d capacity b u ild in g fo r elab o ratin g a n d
im p le m e n tin g m easures aim in g in particu lar a t p rev en tin g a n d c o m b a tin g c o rru p tio n .93

The origin of the concept of good governance falls into the same period as the
formulation of the Washington Consensus94 and the beginning of the wave of
investment treaties of the 1990s. The common core of the policies embodied in
investment treaties, in the Washington Consensus, and in the principle of good
governance lies in the recognition that institutional effectiveness, the rule of law,
and an appropriate degree of stability and predictability of policies form the
governmental framework for domestic economic growth and also for the willing­
ness of foreign investors to enter the domestic market. Thus, investment treaties
provide for external constraints and disciplines which foster and reinforce values
similar to the principle of good governance with its emphasis on domestic insti­
tutions and policies.

(g) Obligations for investors

BITs give guarantees to investors but do not normally address obligations of
investors, although some BITs provide that investments, in order to be protected,
must be in accordance with host state law.

90 W orld Bank, Sub-Saharan Africa: From Crisis to Sustainable Growth (1989).

91 See W orld Bank, Governance: The World B ank’s Experience (1994) 12; compare also S Killinger,
The World. B a n k’s Non-Political Mandate (2003).
92 See IMF, Good, Governance— The IM F ’s Role (1997).
93 Article 9(3); the substantive paragraph remained unchanged during the 2005 revision. See also
P Hilpold, ‘EU Development Cooperation at a Crossroad: The Cotonou Agreement of 23 June 2000
and the Principle of G ood Governance’ (2002) 7 European Foreign Affairs Review 53.
,S p p n n S R~7
26 History, Sources, and Nature o f International Investment Law

O n various levels, discussion has turned to the coverage by investment treaties of

certain claims, including counterclaims, of the host state or obligations of the
foreign investor to observe certain human rights or environmental or labour
standards. Such innovations to BIT practice have indeed been proposed .95 They
would be in line with the objectives of earlier ideas pursued in the United Nations
for a Code of Conduct for Transnational Corporations as well as with the more
recent concepts and resolutions on corporate responsibility, as they are also in part
implied in the OECD Guidelines for Multinational Enterprises adopted in 1976
and last updated in 2 0 1 1 , together with other efforts to promote voluntary
initiatives for standards of corporate social responsibility.96
W ithin the UN these efforts to agree on non-binding rules broke down together
with the failure to negotiate a multilateral treaty on foreign investment. An attempt
to draw up a code of conduct on transnational corporations was made between
1977 and 1992, but was then abandoned .97
The O ECD Guidelines, which are part of die broader OECD Declaration on
International Investment and Multinational Enterprises, constitute non-binding
recommendations to multinational enterprises in areas such as employment,
human rights, environment, fighting bribery, science and technology, competition,
taxation, information disclosure, and consumer interests. W ithin the administra­
tion of the adhering governments, so-called National Contact Points are charged
with promotion of the Guidelines and handling inquiries about their application.
All O ECD member countries as well as nine non-member states have so far
adhered to the OECD Guidelines.
In 2003, a group of international banks launched an initiative for a framework
addressing environmental and social risks in project financing.98 The so-called
‘Equator Principles’ are intended to apply to all project financings with total
project capital costs over US $ 1 0 million and require, inter alia, social and environ­
mental assessment procedures and consultation, disclosure, and monitoring mech­
anisms. For the applicable standards, the principles refer to various World Bank
and IFC guidelines. Over 76 financial institutions have so far adopted the Equator
Principles.
An effort to approach investment issues from the vantage point of human rights
was made in the U N after 2000; the aim wras to find a consensus on norms

95 See eg H Mann, K von Moltke, A Cosbey, and L E Peterson, ‘USD Model International
Agreement on Investment for Sustainable Developm ent’ (2005) available at <http://www.iisd.org>;
U Kriebaum, ‘Privatizing H um an Rights: T he Interface between International Investment Protection
and H um an Rights’ in A Reinisch and U Kriebaum (eds), The Law o f International Relations— Liber
Amicorum Hanspeter Neuhold (2007) 165.
96 For a survey, see U N C T A D , World Investment Report (2011) 111. See also A Heinemann,
‘Business Enterprises in Public International Law’ in U Fastenradi etal (eds), From Bilateralism to
Community Interest: Essays in Honour o f fudge B rum Simma (2011) 718.
97 See Draft U N Code o f C onduct on Transnational Corporation, reprinted in 23 ILM 626
(1984).
98 See S Kass an d ] McCarroll, ‘T he Revised Equator Principles’ (2006) New YorkLf, 1 September;
A Hardenbrook, ‘The Equator Principles: T he Private Financial Sector’s A ttem pt at Environmental
Responsibility’ (2007) 40 V anderbiltf Transn'l L 197.
 The nature o f international investment law 27

addressing responsibilities of transnational corporations," and the U N named a

Special Representative for human rights and transnational corporations and other
business entities in 2005, tasked with ‘identifying and clarifying standards of
corporate responsibility and accountability with regard to human rights’. In
2 0 1 1 , the Special Representative prepared a Report on ‘Guiding Principles on
Business and Human Rights: Implementing the UN Protect, Respect and Remedy
Framework’.
W hether or not the object and purpose of investment treaties— the increased
flow of foreign investment— would be promoted or hindered by an extension of the
subject matters of the treaties, and a corresponding new design of their nature, will
have to be a necessary part of the future discussion on the usefulness of BITs in
their traditional scope.

99 See D W eissbrodt and M Kruger, ‘Norm s on die Responsibilities of Transnational Corporations

and O ther Business. Enterprises with Regard to H um an Rights’ (2003) 97 AJIL 901.
 II
Interpretation and Application
of Investment Treaties

1. Interpreting investment treaties

As explained above (see Chapter 1.2), investment law is shaped by a variety of

treaties. In addition to bilateral treaties, mostly bilateral investment treaties (BITs),
there are regional treaties such as the N orth American Free Trade Agreement
(NAFTA), the Dominican Republic—Central America—United States Free Trade
Agreement (CAFTA), and the Energy Charter Treaty (ECT). The Convention on
the Setdement of Investment Disputes between States and Nationals of Other
States (ICSID Convention), a multilateral treaty, is also frequently interpreted and
applied.
The interpretation of these treaties takes place mostly by ad hoc tribunals, the
composition of which varies from case to case. This makes it considerably more
difficult to develop a consistent case law than in a permanent judicial institution.

(a) M ethods o f treaty interpretation

Most tribunals start by invoking Article 31 of the Vienna Convention on the Law
of Treaties1 (VCLT) when interpreting treaties.2 For instance, the Tribunal in
Siemens v Argentina stated:

1 VCLT, Art 31(1) provides: A treaty shall be interpreted in good faith in accordance with the
ordinary meaning to be given to the terms of die treat}' in their context and in the light of its object and
purpose.’
2 SzeAA PL v Sri Lanka, Award, 27 June 1990, paras 38-42; Tokios Tokeles v Ukraine, Decision on
Jurisdiction, 29 April 2004, para 27; M T D v Chile, Award, 25 May 2004. para 112; Enron v Argentina,
Decision on Jurisdiction (Ancillary Claim), 2 August 2004, para 32; Salmi v Jordan, Decision on
Jurisdiction, 29 November 2004, para 75; Plama v Bulgaria, Decision on Jurisdiction. 8 February
2005, paras 117, 147-65; Sempra Energy Inti v Argentina, Decision on Jurisdiction, 11 May 2005, para
141; Camuzzi v Argentina, Decision on Jurisdiction, 11 May 2005, para 133; Methanex v United
States, Award, 3 August 2005, Part II, Ch B, paras 15-23, Part IV, Ch B, para 29; Eureko v Poland,
Partial Award, 19 August 2005, para 247; Aguas del Tunari, SA v Bolivia, Decision on Jurisdiction, 21
October 2005, paras 88—93, 226, 230, 239; Saluka v Czech Republic, Partial Award, 17 March 2006,
paras 296-9; Malaysian Historical Salvors vMalaysia, Award. 17 May 2007, paras 65-8; Kardassopoulos
v Georgia, Decision on Jurisdiction, 6 July 2007, paras 176-88, 206-8; Vivendi v Argentina, Resub­
mitted Case: Award, 20 August 2007, paras 7.4.2-7.4.4; Fraport v Philippines, Award, 16 August
2007, paras 339-42; R SM Production v Grenada, Award, 13 March 2009, paras 380-90; Hrvatska
Elektroprivreda v Slovenia, Decision on Treat)7 Interpretation Issue, 12 June 2009, paras 151-2,
 Interpreting investment treaties 29
80. B oth parties have based their argum ents 011 the in terp retatio n o f th e T re a ty in accordance
w ith Article 31 (1) o f the V ien n a C o n v e n tio n . T h is Article provides th a t a treaty be ‘in te rp re te d
in good faith in accordance w ith the o rdinary m ean in g to be given to d ie term s o f th e treaty in
th eir c o n tex t a n d in th e light o f its object an d p u rp o se.’ T h e T rib u n a l w ill adhere to these rules
o f in terp retatio n in considering th e d isp u ted provisions or die T r e a ty ,. . ,3

At times, tribunals will also refer to the supplementary means of interpretation

contained in Article 32 of the VCLT .4 The Tribunal in Noble Ventures v Romania ,5
after referring to the general rule of interpretation in Article 31 of the VCLT, said:
recourse m ay b e h a d to su p p le m e n ta ry m ean s o f in te rp re ta tio n , in c lu d in g the p re p a ra to ry
w o rk a n d th e circu m stances o f its co n clu sio n , only in o rd er to c o n firm th e m e a n in g
resu ltin g fro m th e ap p licatio n o f th e a fo re m e n tio n e d m eth o d s o f in te rp re ta tio n ,6

A treaty’s object and purpose is among the primary guides for interpretation listed in
Article 31 of the VCLT. In investment treaties, the object and purpose is often sought
in their preambles. These preambles highlight the positive role of foreign investment
in general and the nexus between an investment-friendly climate and the flow of
foreign investment in particular/' A typical contemporary version of a preamble reads:
T h e G o v e rn m e n t o f X a n d th e G o v e rn m e n t o f Y; desiring to create favourable c o n d itio n s
fo r g reater in v e s tm e n t by nationals a n d com panies o f on e S tate in th e territory o f the o th e r
State; reco g n isin g th a t th e en co u ra g e m e n t a n d reciprocal p ro te c tio n u n d e r in te rn a tio n a l
ag reem en t o f su ch in v estm en ts will be conducive to th e stim u la tio n o f in d iv id u al business
initiative a n d w ill increase p ro sp erity in b o th States; have agreed as follow s:8

Tribunals have frequently interpreted investment treaties in light of their

object and purpose, often by looking at their preambles.9 This has led to an

157-65, 171—94; Romak v Uzbekistan, Award, 26 November 2009, paras 173-97; Millicom v Senegal,
Decision on Jurisdiction, 16 July 2010, paras 58, 70-4; Fraport v Philippines, Decision on Annulm ent,
23 December 2010, paras 73 -5 , 93-113; H IC E E v Slovakia, Partial Award, 23 May 2011, paras
47—93, 110-47 (see also the Dissenting O pinion of Judge Brower).
3 Siemens v Argentina, Decision on Jurisdiction, 3 August 2004, para 80.
4 VCLT, Art 32 dealing w ith supplementary means of interpretation provides:
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 die application of article 31, or to determine the meaning when the
interpretation according to article 31:
(a) leaves the m eaning ambiguous or obscure; or
(b) leads to a result which is manifestly absurd or unreasonable.

5 Noble Vetitures v Romania, Award, 12 October 2005.

6 At para 50.
7 R Dolzer and M Stevens, Bilateral Investment Treaties (1995) 20-5·
8 See preamble to die UK Aiodel BIT.
9 Lauder v Czech Republic, Award, 3 September 2001, para 292; M T D v Chile, Award, 25 M ay
2004, paras 104, 105; Siemens v Argentina, Decision on Jurisdiction, 3 August 2004, para 81; CM S v
Argentina, Award, 12 M ay 2005, para 274; Noble Ventures v Romania. Award, 12 October 2005, para
52; Aguas del Tunari, SA v Bolivia, Decision on Jurisdiction, 21 October 2005, paras 153, 240-1, 247;
Continental Casualty Company v Argentina, Decision on Jurisdiction, 22 February 2006, para 80;
Saluka v Czech Republic, Partial Award, 17 M arch 2006, para 299; Kardassopoulos v Georgia, Decision
on jurisdiction, 6 July 2007, paras 178-81; BG Group v Argentina, Final Award, 24 December 2007,
30 Interpretation and Application o f Investment Treaties

interpretation that is favourable to the investor; 10 but this development has also
attracted criticism. In particular, one tribunal warned against over-extending the
method of looking at object and purpose . 11
Closely related to object and purpose is the issue of restrictive or effective
interpretation of treaties. This has arisen, in particular, in the context of interpret­
ing treaty provisions governing the jurisdiction of tribunals. Some tribunals seem to
have favoured a restrictive interpretation of treaty provisions that led to a limitation
of state sovereignty.12 Others have rejected a restrictive interpretation, at times
favouring an interpretation that gives foil effect to the rights of investors. 13 Most
tribunals have distanced themselves from either approach and have advocated a
balanced approach to interpretation .14
A closer look at some o f these decisions would indicate that die professed
preference of tribunals for one or the other method of interpretation should not
necessarily be taken at face value. A tribunal’s avowed predilection for a particular
approach to interpretation is not always reflected in its actual decision.15 Ultim­
ately, what matters is what the tribunal does, not what it says it is doing.
The terms of a treaty are to be interpreted in their context. Under Article
31 (2) (b) of die VCLT, context includes ‘any instrument which was made by one
or more parties in connexion with the conclusion of the treaty and accepted
by the other parties as an instrument related to the treaty’. In Fraport v Philippines16
the Tribunal interpreted the BIT between Germany and the Philippines with the
help of die Philippines’ Instrument of Ratification which was exchanged with
Germany . 17

paras 132-4; Societe Generate v Dominican Republic, Decision on Jurisdiction, 19 September 2008,
paras 21 29, 31—3, 103; Hrvatska Elektroprivreda v Slovenia, Decision on Treaty Interpretation Issue,
12 June 2009, paras 177-9; Austrian Airlines v Slovakia, Final Award, 9 October 2009, paras 101 —4;
A F T v Slovakia, Award, 5 March 2011, paras 236-7.
10 N ote diat the Tribunal in Amco v Indonesia, in interpreting the ICSID Convention, pointed out
that investment protection was also in the longer-term interest o f host states: 'to protect investments is
to protect the general interest of development and of developing countries’ (Decision on Jurisdiction,
25 September 1983, para 23). See also Award, 20 November 1984, para 249.
11 Plama v Bulgaria, Decision on Jurisdiction, 8 February 2005, para 193.
12 SGS v Pakistan, Decision on Jurisdiction, 6 August 2003, para 171; Noble Ventures v Romania,
Award, 12 October 2005, para 55.
13 Methanex v United States, Preliminary Award on Jurisdiction, 7 August 2002, paras 103-5; Aguas
del Tunari, SA v Bolivia, Decision on Jurisdiction, 21 October 2005, para 91; SGS v Philippines,
Decision on Jurisdiction, 29 January 2004, para 116; Eureko v Poland, Partial Award, 19 August 2005,
para 248; Suez, Sociedad General de Aguas de Barcelona SA, and InterAguas Servicios Integrates delAgua
£4 v Argentina, Decision on Jurisdiction, 16 May 2006, paras 59, 64.
14 See pp 2 63-4.
15 See eg Noble Ventures v Romania, Award, 12 October 2005, where the Tribunal, after subscrib­
ing to a ‘restrictive interpretation (at para 55), gives full effect to an umbrella clause (at paras 56-62).
By contrast, in E l Paso Energy v Argentina, Decision on Jurisdiction, 27 April 2006, the Tribunal
expresses a preference for a ‘balanced interpretation’ (at para 70) but then proceeds to interpret an
umbrella clause very restrictively (at paras 70-86).
16 Fraport v Philippines, Award, 16 August 2007.
17 At paras 337-43- Inexplicably, the Decision on A nnulm ent in this case criticizes the Tribunal’s
use o f the Instrum ent of Ratification. See Fraport v Philippines, Decision on Annulm ent, 23 December
2010, paras 98, 99, 107.
 Interpreting investment treaties 31

(b) Travaux preparatories

Article 32 of the VCLT treats the travaux preparatoires (preparatory work) to a
treaty only as a supplementary means of interpretation. In practice, resort to
tnivaux preparatoires seems to be determined primarily by their availability. In the
Malaysian Historical Salvors case the ad hoc Committee stated:
co u rts a n d trib u n a ls in te rp re tin g treaties regularly review th e travauxpreparatoires w h en ev e r
th ey are b ro u g h t to th eir atte n tio n ; it is m ythological to p re te n d th a t th ey do so o n ly w h e n
th ey first co n c lu d e th a t th e te rm req u irin g in te rp re ta tio n is a m b ig u o u s o r o b sc u re .18

The drafting history of the ICSID Convention is documented in detail, readily

available and easily accessible through an analytical index . 19 As a consequence,
ICSID tribunals frequently have resort to its travaux preparatoires. By contrast, the
negotiating history of BITs is typically not, or only poorly, documented. Therefore,
tribunals do not usually have the possibility of relying on the travaux preparatoires
even if they are minded to do so.20
The position with NAFTA occupies the middle ground. For a number of years
the documents illustrating the negotiating history were not publicly available. This
led to complaints about inequality of arms between a respondent state which had
access to the materials and a claimant investor who did not. In July 2004 the
NAFTA Free Trade Commission announced the release of the negotiating history
of Chapter Eleven of the NAFTA dealing with investment.21
The Tribunal in Methanex v United States11 stressed the limited relevance of die
negotiating history of the NAFTA in light of Article 32 of the VCLT:
p u rsu a n t to A rticle 3 2 , recourse m ay be h a d to su p p le m e n ta ry m ean s o f in te rp re ta tio n o n ly
in th e lim ite d circu m stances th ere specified. O th e r th a n th at, th e approach o f th e V ie n n a
C o n v e n tio n is th a t th e tex t o f th e treaty is d eem ed to be the a u th e n tic expression o f th e
in ten tio n s o f th e parties; an d its elu cid atio n , ra th e r th a n w id e-ra n g in g searches fo r the
su p p o sed in te n tio n s o f th e parties, is th e p ro p e r o b ject o f in te rp re ta tio n .23

(c) Interpretative statements

Unilateral assertions of the disputing state party, on the meaning of a treaty
provision, made in the process of ongoing proceedings are of limited value. Such

18 Malaysian Historical Salvors v Malaysia, Decision on Annulm ent, 16 April 2009, para 57.
19 History o f the ICSID Convention: Documents Concerning die Origin and the Formulation of
the Convention on the Settlement of Investment Disputes between States and Nationals of O ther
States, W ashington, D C 1968, reprinted 2001.
20 StzA g u a sd el Tunari, 5/1 v Bolivia, Decision on Jurisdiction, 21 O ctober 2005, para 274, where
the Tribunal deplored the lack of insight to be gained from the sparse material provided by the parties.
In Perenco v Ecuador, Decision on Jurisdiction, 30 June 2011, paras 92—5 the Tribunal asked the
parties to try to obtain the travaux preparatoires to the France-Ecuador BIT on a particular point.
21 The documents are published at <http://www.naftaclaims.com/commission.htm>. It is unclear
whedier the available documentation covers all existing documents.
22 Methanex Corp v United. States, Award, 3 August 2005.
23 At Part II, C h B, para 22. Footnote omitted.
32 Interpretation and Application o f Investment Treaties

statements are likely to be perceived as self-serving and determined by a desire to

influence the tribunal’s decision in favour of the state offering the interpretation.
In one case24 a tribunal sought information from the investor’s home state on
certain aspects of a BIT’s interpretation; however, it did not find the information
thus obtained to be of help .23
In another case26 the government of the claimant’s nationality (Switzerland)
took the unusual step of writing to ICSID to complain about an interpretation
given by an ICSID tribunal. The Swiss Government in a letter to ICSID’s Deputy
Secretary-General also stated that the Swiss authorities were unsure why the
Tribunal had not found it necessary to inquire about their view of the meaning
of the provision in the Pakistan-Switzerland BIT.2/
Some treaties provide for a consultation mechanism concerning their interpret­
ation or application. The BIT between the Czech Republic and the Netherlands
contains such a provision, and the two states parties have issued a joint, non­
binding statement which has been taken into account by tribunals .28 The NAFTA
has a mechanism whereby the Free Trade Commission (FTC)— a body composed
of representatives of the three states parties— can adopt binding interpretations of
the treaty.29 The FTC made use of this method in July 2001 in interpreting the
concepts of ‘fair and equitable treatment’ and ‘full protection and security’ under
Article 1105 of the NAFTA .30 NAFTA tribunals have accepted this interpretation
as binding .31
BITs do not normally have institutional mechanisms to obtain audientic inter­
pretations of their meaning, but the US Model BIT of 2012 provides a mechanism
similar to the one in the NAFTA:
Article 30(3)
A jo in t decision o f th e P arties, each a ctin g th ro u g h its rep re sen tativ e d esig n ated for p urposes
o f this A rticle, declaring th eir in te rp re ta tio n o f a p ro v isio n o f th is T re a ty shall be b in d in g o n

2q Aguas del Tunari v Bolivia, Decision on Jurisdiction, 21 October 2005.

Ac paras 47, 249-63.
26 SGS v Pakistan, Decision on Jurisdiction, 6 August 2003, 8 ICSID Reports 406.
27 See S A Alexandrov, ‘Breaches of Contract and Breaches of Treaty’ (2004) 5 J World Investment
& Trade 555, 570-1; E Gaillard, ‘Investment Treaty Arbitration and Jurisdiction Over Contract
Claims— The SGS Cases Considered’ in T W eiler (ed), International Investment Laiv arid Arbitration
(2005) 325, 341-2.
28 CM E v Czech Republic, Final Award, 14 March 2003, paras 87—93, 437, 504; Eastern Sugar v
Czech Republic, Partial Award, 27 M arch 2007, paras 193-7.
29 NAFTA, Art 2001(1): ‘T he Parties hereby establish the Free T rade Commission, comprising
cabinet-level representatives of the Parties or their designees.’ NAFTA, Art 1131(2): ‘An interpretation
by the Commission of a provision of this Agreement shall be binding on a Tribunal established under
this Section.5
30 FTC Note o f Interpretation ot 31 July 2001.
31 See Mondev v United· States, Award, 11 O ctober 2002, paras 100 et seq; United Parcel Sendee v
Canada, Award, 22 November 2002, para 97; A D F v. United- States, Award, 9 January 2003, paras
175-8; Loewen v United States, Award, 26 June 2003, paras 124-8; Waste Management v Mexico,
Award, 30 April 2004, paras 90-1; Methanex v United States, Award, 3 August 2005, Part II, Ch H,
para 23; Grand River Enterprises v United States, Award, 12 January 2011, paras 175-6. See also Mexico
v Metalclad, Judgment. Supreme Court of British Columbia, 2 M ay 2001, 5 ICSID Reports 236, paras
61-5.
 Interpreting investment treaties 33
a trib u n a l, an d an y decision o r aw ard issued by a trib u n al m u st be co n sisten t w ith th a t jo in t
d ecision.

This method may be efficient, but has a serious drawback. States may strive to issue
official interpretations to influence proceedings to which they are parties. However,
a mechanism whereby a party to a dispute is able to influence the outcome of j udicial
proceedings— by issuing an official interpretation to the detriment of the other
party—is incompatible with principles of fair procedure and is hence undesirable.

(d) T he authority o f ‘precedents’

Reliance on past decisions is a typical feature of any orderly decision process.
Drawing on the experience of past decision-makers plays an important role in
securing the necessary uniformity and stability of the law. A coherent case law
strengthens the predictability of decisions and enhances their authority.
In investment arbitration, each tribunal is constituted ad hoc for the particular
case; therefore, it is more difficult to develop a consistent case law than in an
international court such as the International Court of Justice or European Court of
Hum an Rights. Yet, tribunals do rely on previous decisions by other tribunals
whenever they are able. Discussion of previous cases and of the interpretations
adopted in them is a regular feature in almost every decision.32 At the same time, it
is also well established diat tribunals in investment arbitration are not bound by
previous decisions of other tribunals.
Despite their reliance on case law, tribunals have repeatedly pointed out that they
are not bound by previous cases.33 In AES v Argentine?* the Tribunal entered into
an extensive discussion of the value of previous decisions as ‘precedents’. It said:

•°2 See eg Arnco v Indonesia, Decision on Annulm ent, 16 May 1986, para 44; LETC O v Liberia,
Award, 31 M arch 1986, 2 ICSID Reports 346, 352; Feldman v'Mexico, Award, 16 December 2002,
para 107; Enron v Argentina, Decision on Jurisdiction, 14 January 2004, para 40; Enron v Argentina,
Decision on Jurisdiction (Ancillary Claim), 2 August 2004, para 25; A ES v Argentina, Decision on
Jurisdiction, 26 April 2005, paras 17-33; Gas Natural v Argentina, Decision on Jurisdiction, 17 June
2005, paras 3 6 -51; Bayindir v Pakistan, Decision on Jurisdiction, 14 November 2005, para 76;
Vivendi v Argentina, Decision on Jurisdiction, 14 November 2005, para 94; EnCana vEcuador, Award,
3 February 2006, para 189; E l Paso v Argentina, Decision on Jurisdiction, 27 April 2006, para 39; Suez
v Argentina, Decision on Jurisdiction, 16 May 2006, paras 26. 31, 60-5; ]an de N td v Egypt, Decision
on Jurisdiction, 16 June 2006, paras 63, 64; Azurix v Argentina, Award, 14 July 2006, para 391; Pan
American v Argentina, Decision on Preliminary Objections, 27 July 2006, para 42; A D C v Hungary,
Award, 2 O ctober 2006, para 293; World Duty Free v Kenya, Award, 4 October 2006, para 16; Saipern
v Bangladesh, Decision on Jurisdiction, 21 March 2007, para 67; Chevron & Texaco v Ecuador, Interim
Award, 1 December 2008, paras 119—24; Azurix v Argentina, Decision on Annulment, 1 September
2009, paras 3 75-7; Chemtura v Canada., Award, 2 August 2010, paras 108, 109; Roslnvest v Russia,
Final Award, 12 September 2010, paras 281-6; Grand. River Enterprises v United States, Award, 12 January
2011, paras 61, 70; Brandes v Venezuela, Award, 2 August 2011, para 31.
33 Amco vIndonesia, Decision on Jurisdiction, 25 September 1983, 1 ICSID Reports 395; Amco v
Indonesia, Decision on Annulment, 16 May 1986, para 44; LETC O v Liberia, Award, 31 March 1986,
para 352; Feldman v Mexico, Award, 16 December 2002, para 107; Enron v Argentina, Decision on
jurisdiction (Ancillary Claim), 2 August 2004, para 25; Gas Natural v Argentina, Decision on
Jurisdiction, 17 June 2005, paras 36—52; Romak v Uzbekistan, Award, 26 November 2009, paras
170-1.
34 A E S Corp v Argentina., Decision on Jurisdiction, 26 April 2005, paras 17-33.
34 Interpretation and Application o f Investment Treaties

each decision or award delivered by an ICSID Tribunal is only binding on the parties to the
dispute settled by this decision or award. There is so far no rule of precedent in general
international law; nor is there any within the specific ICSID system.. .35
But the Tribunal also pointed to die value of previous decisions:
Each tribunal remains sovereign and may retain, as it is confirmed by ICSID practice, a
different solution for resolving the same problem; but decisions on jurisdiction dealing with
the same or very similar issues may at least indicate some lines of reasoning of real interest;
this Tribunal may consider them in order to compare its own position with those already
adopted by its predecessors and, if it shares the views already expressed by one or more of
these tribunals on a specific point of law, it is free to adopt the same solution.36
Having made these general points, the Tribunal proceeded to examine and rely on
previous decisions by other tribunals .37
The Tribunal in Saipem v Bangladesh38 saw it as its duty to contribute to a
harmonious development of the law. It stated:
The Tribunal considers that it is not bound by previous decisions. At the same time, it is of
the opinion that it must pay due consideration to earlier decisions of international tribunals.
It believes that, subject to compelling contrary grounds, it has a duty to adopt solutions
established in a series of consistent cases. It also believes that, subject to the specifics of a
given treaty and of the circumstances of the actual case, it has a duty to seek to contribute to
the harmonious development of investment law and thereby to meet the legitimate expect­
ations of the community of States and investors towards certainty of the rule of law.39
In some cases tribunals have not followed earlier decisions. At times they have
simply adopted a different solution without distancing themselves from the earlier
decision. At other times, they have referred to an earlier decision and pointed out
that diey were unconvinced by the reasoning of the previous tribunal and that,
therefore, their decision has departed from the one previously adopted .40

35 A t para 23. Footnote omitted.

36 At para 30.
37 At paras 5 1 -9 , 70, 73, 86, 89, 95-7. See also Bayindir v Pakistan, Decision on Jurisdiction, 14
November 2005, para 76: ‘The Tribunal agrees that it is not bound by earlier decisions, but will
certainly carefully consider such decisions whenever appropriate’ (referring to A E S Corp v Argentina]·,
Abaclat v Argentina, Decision on Jurisdiction, 4 August 2011, paras 2 92-3.
38 Saipem v Bangladesh, Decision on Jurisdiction, 21 M atch 2007.
35 A t para 67. Footnotes omitted. O ther tribunals have adopted the same or a similar formula:
Noble E nergy v Ecuador, Decision on Jurisdiction, 5 M arch 2008, para 50; Duke Energy v Ecuador,
Award, 18 August 2008, paras 116-17; Austrian Airlines v Slovakia, Final Award, 9 October 2009,
paras 83-4; Burliiigton v Ecuador, Decision on Jurisdiction, 2 June 2010, paras 99-100; Fakes v
Turkey, Award, 14 July 2010, para 96; Suez v Argentina, Decision on Liability, 30 July 2010, para 182;
Chemtura v Canada, Award, 2 August 2010, paras 108—9.
40 See eg SGS v Philippines, Decision on Jurisdiction, 29 January 2004, para 97; Eureka v Poland,
Partial Award, 19 August 2005, paras 256-8; E l Paso Energ)> v Argentina, Decision on Jurisdiction, 27
April 2006, paras 76-7; Suez, Sociedad General de Aguas d,e Barcelona SA, and InterAguas Servicios
Integrales delAgua SA v Argentina, Decision on Jurisdiction, 16 May 2006, para 64; Plama v Bulgaria,
Decision on Jurisdiction, 8 February 2005, paras 2 16-21; Wintershall v Argentina, Award, 8 December
2008, paras 178, 194; Tza Yap Shum vPeru, Decision on Jurisdiction, 19 June 2009, para 173; SGS v
Paraguay, Decision on Jurisdiction, 12 February 2010, paras 41—2.
 Interpreting investment treaties 35

(e) Towards a greater u n ifo rm ity o f interpretation

The divergence of interpretations on certain issues has caused some concern and led
to suggestions for improving the consistency of decisions. One perceived solution is
the creation of an appeals mechanism that would open the possibility for reviewing
decisions thereby increasing the chances of a consistent case law .41 A number of
US treaties foresee this possibility in the form of an appellate body or similar
mechanism .42 The US Model BIT of 2012 contains the following provision in
Article 28(10):
In the event that an appellate mechanism for reviewing awards rendered by investor-State
dispute settlement tribunals is developed in the future under other institutional arrange­
ments, the Parties shall consider whether awards rendered under Article 34 should be
subject to that appellate mechanism.
It is doubtful whether separate appellate bodies established under different treaties
would contribute to a coherent case law. A harmonizing effect will be achieved only
if the institutional mechanism applies to all, or at least many, treaties. The idea
of a multilateral appeals mechanism is reflected in the Dominican Republic—
CAFTA-United States Free Trade Agreement (FTA)43 as well as in US FTAs
with Singapore44 and Chile.45
ICSID at one point floated a draft that foresaw the creation of an appeals facility
at ICSID 46 but the idea was dropped as premature.
An appeals facility is not necessarily die best mechanism for achieving coherence
and consistency in the interpretation of investment treaties. Appeal presupposes a
decision being attacked for an alleged flaw in order for it to be repaired. Rather than
tiy to fix the damage after the fact through an appeal, it is more economical and
effective to address it preventively before it occurs.
A method for securing coherence and consistency that has been remarkably
successful is to allow preliminary rulings while the original proceedings are still
pending .47 Under such a system, a tribunal would suspend proceedings and request
a ruling on a question of law from a body established for that purpose. This

41 See K P Sauvant and M Chiswick-Patterson (eds), Appeals Mechanism in International Invest­

m ent Disputes (2008).
42 Uruguay-US BIT, 25 October 2004, Annex E, 44 ILM 268, 296 (2005). Generally see
B Legum, ‘The Introduction of an Appellate Mechanism: The US Trade Act o f 2002’ in E Gaillard
and Y Banifatemi (eds), Annulment· o f IC SID Awards (2004) 289.
43 Dominican Republic-Central America—United States Free Trade Agreement, 5 August 2004,
A rt 10.20(10).
44 Singapore-US FTA, 1 January 2004, Art 15.19(10).
45 Chile-US FTA, 1 January 2004, Art 10,19(10),
46 ICSID Discussion Paper, ‘Possible Improvements of the Framework for ICSID Arbitration’,
22 October 2004.
47 G Kaufmann-Kohler, ‘Annulm ent of ICSID Awards in Contract and Treaty Arbitrations: Are
there Differences?’ in E Gaillard and Y Banifatemi (eds), Annulm ent o f ICSID Awards (2004) 289. See
also G Kaufmann-Kohler, ‘In Search of Transparency and Consistency: ICSID Reform Proposal’
(2005) 2(5) T D M 8; C Schreuer, ‘Preliminary Rulings in Investment A rbitration’ in K P Sauvant and
M Chiswick-Patterson {eds), Appeals Mechanism in International Investment Disputes (2008) 207.
36 Interpretation and Application o f Investment Treaties

procedure has been very successful in die framework of the European Union to
secure the uniform application of EU law by domestic courts .48

2. A pplication o f in vestm en t treaties in tim e

(a) Inter-tem p o ral application of treaties in general

In principle, treaties apply only in relation to acts or events that occurred after their
entry into force. This rule is expressed in Article 28 of the VCLT:
A rticle 28 N o n -R e tro a c tiv ity o f T re a tie s
U nless a d ifferen t in te n tio n appeal's fro m th e treaty o r is otherw ise established, its provisions
d o n o t b in d a part}7 in relatio n to an y act o r fact w h ich cook place o r a n y situ a tio n w hich
ceased to exist before th e date of th e e n try in to force o f th e treat}7 w ith respect to th a t
party."*9

This means that the substantive law in force at the time an act was performed is to
be applied as the standard for the act’s legality. This principle is also reflected in the
International Law Commission’s Articles on State Responsibility:
A rticle 13 In te rn a tio n a l O b lig a tio n in F o rc e fo r a S ta te
A n act o f a State does n o t c o n stitu te a breach o f an in te rn a tio n a l o b lig a tio n unless th e Srare
is b o u n d by th e ob lig atio n in q u estio n a t th e rim e the act o ccu rs.50

International practice has also adhered to this principle .51 The Tribunal in
Impregilo v Pakistan52 said:
Im p reg ilo co m plains o f a n u m b e r o f acts fo r w h ich P ak istan is said to be responsible. T h e
legality o f such acts m u s t be d e te rm in e d , in each case, acco rd in g to th e law applicable a t the
rim e o f th e ir p e rfo rm an ce.53

(b) Different inter-temporal rules for jurisdiction and substance

Issues of jurisdiction and of substantive law are often subject to different inter­
temporal rules. A provision on dispute setdement in a treaty that refers to any
dispute arising from an investment extends to disputes relating to events that took
place prior to the treaty’s entry into force. This does not mean that the treaty’s

48 It is contained in Art 267 (ex Art 234 TEC) o f the Treat)7on the Functioning o f the European
Union.
49 Arricle 2(3) or the United States Mode! BIT of 2012 echoes this provision.
50 International Law Commission (ILC), Articles on State Responsibility, 2001. See J Crawford,
The International Law Commission s Articles on State Responsibility (2002) 131.
51 Island o f Palmas case, II RIAA 829 at 845 (1949); Tradex v Albania, Decision on Jurisdiction,
24 December 1996, 5 ICSID Reports 47, 66.
52 Impregilo v Pakistan, Decision on Jurisdiction, 22 April 2005.
53 At para 311.
 Application o f investment treaties in time 3/

substantive rules are applicable to these events. Tribunals have applied different
inter-temporal rules to jurisdictional clauses and to substantive provisions in
treaties.54 In SGS v Philippines5:5 the Tribunal distinguished the application ratione
temporis of the BIT’s jurisdictional provisions from the application of the BIT’s
substantive standards. It said:
A cco rd in g to A rticle II o f d ie BIT. it applies to investm ents ‘m ade w h e th e r p rio r to o r after
th e e n try in to force o f th e A g re e m e n t. Article II does not. how ever, give the su b stan tiv e
p ro v isio n s o f th e B IT an y retrospective effect. T he norm al p rin cip le sta te d in Article 28 o f
th e V ienna C onvention o n the Law o f Treaties a p p lie s . . . It m ay be n o te d th a t in in te r­
n a tio n a l p ractice a ra th e r d ifferent ap p ro ach is tak en to the a p p licatio n o f treaties to
p ro ced u ral or ju risd ictio n al clauses th an to substantive o b ligations.56

This means that a tribunal may have to apply different legal rules applicable at
different times depending on when the acts in question occurred. These rules may
be contained in customary international law57 or in a treaty that has since been
terminated .58
But the applicability of substantive law may have jurisdictional implications. I f
under the terms of a treaty, consent to arbitration is limited to claims alleging a
violation of that treaty, the date of the treaty’s entry into force is also the date from
which acts and events are covered by the consent.59 Put differently, under such a
consent clause the entry into force of die substantive law also determines the
tribunal’s jurisdiction ratione temporis since the tribunal may only hear claims for
violation of that law. A tribunal that is competent only for alleged violations of the
treaty itself will not have jurisdiction over acts that occurred before the treaty’s
entry into force even if those acts were illegal under customary international law.60
For instance, under the NAFTA, the scope of consent to arbitration is limited to
claims arising from alleged breaches of the NAFTA .61
In some cases tribunals have found that the acts in question were of a continuing
character, that is, that they may have started before the treaty’s entry into force but
persisted thereafter.62 The failure to pay sums due under a contract is an example of

54 Salini v Jordan, Decision on Jurisdiction, 29 November 2004, paras 176, 177; Impregilo v
Pakistan, Decision on Jurisdiction, 22 April 2005, para 309; Micula v Romania, Decision on Jurisdic­
tion and Admissibility, 24 September 2008, paras 150-7.
53 SG S v Philippines, Decision on Jurisdiction. 29 January 2004.
56 A t paras 166, 167.
57 Chevron v Ecuador, Interim Award, 1 December 2008, paras 199, 201, 208-9.
58 Jan dx N u l v Egypt, Award, 6 November 2008, paras 132-41.
59 TECMiED v Mexico, Award, 29 May 2003, paras 63-8; SGS v Philippines, Decision on
Jurisdiction, 29 January 2004, paras 166-8.
60 In Generation ijkraine v Ukraine, Award, 16 September 2003, paras 11.2, 11.3, 17.1 the
Tribunal found that under the terms of the applicable BIT it was competent only for disputes arising
from alleged breaches of the BIT itself. Therefore, there was no jurisdiction with regard to an
expropriation that had occurred before the BIT’s entry into force.
61 NAFTA, Art 1116.
62 Mondev v United· States, Award, 11 October 2002, paras 58, 69, 70, 73; TECMED v Mexico,
Award, 29 May 2003, paras 63-8; SGS v Philippines, Decision on Jurisdiction, 29 January 2004, para
167; Impregilo v Pakistan, Decision on Jurisdiction, 22 April 2005, paras 312-13; Railroad- Develop­
ment Coip v Guatemala, Second Decision on Jurisdiction, 18 May 2010, paras 114-38.
38 Interpretation and Application o f Investment Treaties

a continuing breach.63 In Mondev v United States64 the dispute had already arisen
before the entry into force of the NAPTA. It was beyond doubt that the NAFTA is
not retrospective in effect. The Tribunal found that acts committed prior to the
Treaty’s entry into force might continue in effect after that date. It stated:
an act, initially committed before NAPTA entered into force, might in certain circum­
stances continue to be of relevance after NAFTA’s entry into force, thereby becoming
subject to NAFTA obligations----Thus events or conduct prior to the entry into force of an
obligation for the respondent State may be relevant in determining whether the State has
subsequently committed a breach of the obligation. But it must still be possible to point to
conduct of the State after that date which is itself a breach... .65
Inter-temporal issues also arise when die alleged breach occurs not through one but
through a series of acts or omissions that may be spread over time .66 Such a
composite act will be deemed to have taken place at the point of completion,
that is, when the last action or omission occurred .67 A possible example would be a
continuing denial of justice .68

(c) T he date relevant to determ ine jurisdiction

It is an accepted principle of international adjudication that, in die absence of treaty
provisions to the contrary, the relevant date for purposes of jurisdiction is the date
of the institution of proceedings.69 The Tribunal in Vivendi I I 70 said:
it is generally recognized that the determination of whether a party has standing in an
international judicial forum, for purposes of jurisdiction to institute proceedings, is made by
reference to the date on which such proceedings are deemed to have been instituted. ICSID
Tribunals have consistendy applied this Rule/ 1
Tribunals have applied this principle in a number of contexts. For instance, they
have determined that for purposes of jurisdiction the decisive date for participation
in die ICSID Convention, of the host state and of the investor’s state of nationality,

63 SGS v Philippines, Decision on Jurisdiction, 29 January 2004, para 167.

6‘1 Mondev v United States, Award, 11 October 2002.
65 At paras 58, 70. See farther Chevron v Ecuador, Interim Award, 1 December 2008, paras
271-84.
66 For detailed discussion see S A Alexandrov, 'The “Baby Boom ” of Treaty-Based Arbitrations and
the Jurisdiction of ICSID Tribunals: Shareholders as “Investors” and Jurisdiction Ratione Temporis
(2005) 4 Laiu and Practice o f l n t ’l Courts and Tribunals 19, 52—6.
67 See ILC, Articles on State Responsibility, 2001, Art 15. See J Crawford, The International Law
Commission ’s Articles on State Responsibility (2002) 141. See also Commentaries (7) and (8) at p 143.
68 OKO Pankki v Estonia, Award, 19 November 2007, paras 194-6, 284; Chevron v Ecuador,
Interim Award, 1 December 2008, paras 285-301.
69 ICJ, Case Concerning Questions o f Interpretation and Application o f the 1971 Montreal Convention
Arising from the Aerial Incident at Lockerbie (Libyan Arab famahmiriya v United States o f America),
Preliminary Objections, Judgment, 27 February 1998 ICJ Reports (1998) 115, para 37; Case
Concerning the Arrest "Warrant o f 11 A pril 2000 (Democratic Republic o f the Congo v Belgium),
Judgment, 14 February 2002 ICJ Reports (2002) 1, paras 26 et seq.
70 Vivendi v Argentina (Vivendi I I) , Decision on Jurisdiction, 14 November 2005.
71 Ar para 60.
 Application o f investment treaties in time 39

is the date of the institution of arbitration proceedings.72 The same principle

applies to the entry into force of BITs73 and of other treaties relevant to jurisdic­
tion .74 Similarly, the sale of the investment or the assignment of the claim after the
institution of proceedings did not affect the claimant’s standing 75
This principle has been mitigated by the practice of accepting jurisdiction in
situations in which the requirements had not been fully satisfied at the time of
instituting proceedings but had been met subsequently.76 Where these require­
ments concerned specified consultation periods to reach an amicable settlement or
an attempt to seek redress before the domestic courts, tribunals have found that it
makes no sense to decline jurisdiction in instances where the procedural require-
ments have been met in the meantime and the claimant would have been able to
resubmit the claim immediately.77

(d) Relevant dates under the ICSID Convention

The ICSID Convention entered into force on 14 October 1966, 30 days after the
deposit of the twentieth ratification. It enters into force for individual states 30 days
after the respective instrument of ratification has been deposited .78 In cases where a
state denounces the Convention, the denunciation takes effect six months after the
receipt of a notice to that effect by the World Bank.79
Article 25 of the ICSID Convention relates to several dates that are critical to
jurisdiction. The host state must be a party to the Convention on the date the
proceedings are instituted. The same applies to the state of the investor’s national­
ity: it must also be a party to the Convention at the time proceedings are instituted.

72 See Holiday Inns v Morocco, P Lalive, T h e First “W orld Bank” Arbitration (Holiday Inns v
Morocco)— Some Legal Problems’ (1980) 51 BYBIL 123, 142—6; Amco v Indonesia, Decision on
Jurisdiction, 25 September 1983, 1 ICSID Reports 403; LETCO v Liberia, Decision on Jurisdiction,
24 O ctober 1984, 2 ICSID Reports 351; Rompetrol v Romania, Decision on Jurisdiction, 18 April
2008, para 79.
73 Tradex v Albania, Decision on Jurisdiction, 24 December 1996, 5 ICSID Reports 58; Goetz v
Burundi, Award, 10 February 1999, para 72.
74 Bayindir v Pakistan, Decision on Jurisdiction, 14 November 2005, para 178.
75 CSOB v Slovakia, Decision on Jurisdiction, 24 M ay 1999, para 31; E l Paso Energy v Argentina,
Decision on Jurisdiction, 27 April 2006, paras 117-36; National Grid v Argentina, Decision on
Jurisdiction, 20 June 2006, paras 117-19; Enron v Argentina, Award, 22 May 2007, paras 196-8,
396, See also EnCana v Ecuador, Award, 3 February 2006, paras 123-32.
76 For practice in the PCIJ and ICJ, see: Mavrommatis Palestine Concessions Case, Judgm ent N o 2,
30 August 1924, PCIJ, Series A, N o 2, 34; Application o f the Convention on the Prevention and
Punishment o f the Crime o f Genocide (Bosnia and- Herzegovina v Yugoslavia), Preliminary Objections,
Judgm ent, 11 July 1996, ICJ Reports (1996-11) 614, para 26; Application o f the Convention on the
Prevention a n d Punishment o f the Crime o f Genocide (Croatia v Serbia), Preliminary Objections,
Judgm ent, 18 Novem ber 2008, ICJ Reports (2008) 441-43, paras 85, 87, 89.
77 SGS v Pakistan, Decision on Jurisdiction, 6 August 2003, para 184; Bayindir v Pakistan,
Decision on Jurisdiction, 14 Novem ber 2005, paras 88-103; Biwater G auff v Tanzania, Award,
24 July 2008, para 343; TSA Spectrum v Argentina, Award, 19 December 2008, para 112; A F T v
Slovakia, Award, 5 M arch 2011, para 204.
78 ICSID Convention, Art 68.
79 ICSID Convention, Art 71. Under Art 72 the denunciation does not affect the rights and
obligations arising out o f consent to ICSID ’s jurisdiction given before the notice of denunciation is
received.
40 Interpretation and Application o f Investment Treaties

The temporal requirements for the investor’s nationality are somewhat complex.
For natural persons, under Article 25(2)(a), there are two requirements relating
to two different dates: the investor must have the nationality of a state party to
the Convention both on the date of consent and on the date the request for
arbitration is registered. In addition, the investor must not have the host state’s
nationality on eidier date. The latter provision refers, in particular, to dual or
multiple nationals. As a practical matter, the date of consent and the date of the
institution of proceedings will often coincide or, at least, be very close. This is so
whenever consent is based on a general offer in a treaty or in the host state’s
domestic legislation, which the investor simply accepts through the institution of
proceedings.
For juridical persons, under Article 25(2)(b) the nationality requirement relates
to only one date, the date of consent. O n that date the juridical person must have
the nationality of a party to the Convention other than the host state. In practical
terms, the date of consent will also usually be that of the date of institution of
proceedings.
As explained below in more detail,80 under Article 25 (2) (b) of the Convention,
the host state and the investor may agree to treat a locally incorporated company as
a foreign investor because of its foreign control. That provision refers to the date of
consent as the relevant date for the nationality of the host state but is silent on the
date of foreign control. Tribunals have generally also favoured the date of consent
for purposes of control but have, at the same time, looked at subsequent changes up
to the time of the institution of proceedings.81 Some BITs and the ECT sensibly
provide that the foreign control must exist before the dispute arises.82
The date of the consent to ICSID ’s jurisdiction is important for several reasons.
Consent must exist at the time the proceedings are instituted 83 and, as explained
above, the investor’s nationality requirements must be met on the date of consent.
Once consent is given it becomes irrevocable, that is, it can no longer be
withdrawn unilaterally.8/1 Other remedies become unavailable, in principle, from
the date of consent and diplomatic protection is no longer permitted .85 In addition,
the Arbitration Rules in force at the time of consent will apply unless the parties
agree otherwise.86
The time of consent is the date by which both parties have agreed to arbitration.
If the consent clause is contained in an offer by one party, its acceptance by the
other party will determine the time of consent. If the host state makes a general
offer to consent to arbitration in its legislation or in a treaty, the time of consent is

so Chapter III. 1(d).

81 Amco v Indonesia, Decision on jurisdiction, 25 September 1983, 1 ICSID Reports 394; Klockner
v Cameroon, Award, 21 October 1983, 2 ICSID Reports 15; SO A B I v Senegal, Decision on Jurisdic­
tion, 1 August 1984, 2 ICSID Reports 183; L E TC O v Liberia, Decision on Jurisdiction, 24 October
1984, 2 ICSID Reports 349. 351; Vacuum Salt v Ghana, Award, 16 February 1994, paras 35—54;
Vivendi v Argentina (Vivendi II), Decision on Jurisdiction, 14 Novem ber 2005, paras 21, 4 2 -4 , 65,
95-7.
82 See ECT, Arc 26(7).
83 Tradex v Albania, Decision on Jurisdiction, 24 December 1996, 5 ICSID Reports 47, 57-8.
8“ Article 25(1), last sentence. S5 Articles 26 and 27. 86 Article 44.
 Application o f investment treaties in time 41

determined by the investor’s acceptance of the offer. This offer may be accepted
simply by initiating the arbitration.
It is possible diat consent to arbitration is expressed before other conditions for
the jurisdiction of a tribunal are met. For instance, the parties may give their
consent to ICSID arbitration before the Convention’s ratification by the host state
or by the investor’s home state. In that case, the date of consent will be the date on
which all the conditions have been met. If the host state or the investor’s home state
ratifies the Convention after the signature of a consent agreement, the time of
consent will be the entry into force of the Convention for the respective state.87
The ICSID Convention provides for the withdrawal of states parties subject to a
time limit. Under Article 71 of the ICSID Convention, a contracting state may
denounce the Convention by written notice. Such denunciation takes effect six
months after receipt of the notice. Under Article 72 of the Convention, the
denunciation does not affect rights or obligations arising out of consent to ICSID ’s
jurisdiction given before the notice of denunciation, This provision has led to a
lively debate as to whether the reference to consent in Article 72 means a perfected
consent agreement or a mere offer of consent.88 So far, three states— Bolivia,
Ecuador, and Venezuela— have withdrawn from the Convention ,89

(e) Inter-temporal rules in other treaties

Treaties containing consent to arbitration often contain specific provisions deter­
mining their temporal application. Many BITs provide that they shall be applicable
to all investments whether made before or after their entry into force.90 In other
words, they also protect existing investments.91 This should not lead to the
conclusion that treaties not containing a clause of this type will only apply to
‘new’ investments.92 But a provision that extends the treaty’s protection to existing

87 See Holiday Inns v Morocco, Decision on Jurisdiction, 12 May 1974; Lalive, P, 'T he First “W orld
Bank” Arbitration {Holiday Inns v Morocco)— Some Legal Problems’ (1980) 51 BYBIL 123, 142, 143,
146; Cable T V v St Kitts and Nevis, Award, 13 January 1997, paras 2.18, 4.09, 5.24; Autopista v
Venezuela, Decision on Jurisdiction, 27 September 2001, paras 90, 91; Generation Ukraine v Ukraine,
Award, 16 September 2003, paras 12.4-12.8.
88 See C Schreuer, ‘Denunciation of the ICSID Convention and Consent to Arbitration5 in
M Waibel, A Kaushal, Kyo-Hwa Liz Chung, and C Balchin (eds), The Backlash against Investment
Arbitration: Perceptions and Reality (2010) 353 and the authorities cited therein.
89 O n 2 May 2007, the depositary received written notice of Bolivia’s denunciation of the
Convention which took effect on 3 November 2007. On 6 July 2009, the depositary received written
notice of Ecuador’s denunciation of the Convention which took effect on 7 January 2010. O n
24 January 2012, the depositary received written notice of Venezuela’s denunciation of the Conven­
tion which took effect on 25 July 2012.
90 Argentina-Spain BIT, Art 11(2); Belgium and Luxemburg-Eeypt BIT, Art 12; Ukraine-US BIT,
Art XII(3). See also ECT, Art 1(6).
91 See Genin v Estonia, Award, 25 June 2001, para 326; SGS v Pakistan, Decision on jurisdiction,
6 August 2003, para 153; Generation Ukraine v Ukraine, Award, 16 September 2003, para 11.1; Par,
American Energy v Argentina, Decision on Preliminary Objections, 27 July 2006, para 211; OKO
Pankki v Estonia, Award, 19 November 2007, paras 184-6; Chevron & Texaco v Ecuador, Interim
Award, 1 December 200S, paras 151-89.
92 See Yaung Chi Oo v Myanmar, Award, 31 March 2003, paras 69-75.
42 Interpretation and Application o f Investment Treaties

investments does not mean that acts committed before the treaty’s entry into force
are covered by its substantive provisions.93
Many BITs limit consent to arbitration to disputes arising after their entry into
force.94 For instance, die Argentina-Spain BIT, after stating that it shall also apply
to investments made before its entry into force, provides:
However, this agreement shall not apply to disputes or claims originating before its entry
into force.
In a number of cases tribunals have grappled with the question of the time at which
the dispute had arisen.95 In Maffezini v Spain96 the respondent challenged the
Tribunal’s jurisdiction alleging that the dispute originated before the entry into
force of the Argentina-Spain BIT. The Tribunal found that the even ts on which the
parties disagreed began years before the BIT’s entry into force; but this did not
mean diat a legal dispute existed at the tim e .97 The Tribunal said:
there tends to be a natural sequence of events that leads to a dispute. It begins with the
expression of a disagreement and the statement of a difference of views. In time these events
acquire a precise legal meaning through the formulation of legal claims, their discussion and
eventual rejection or lack of response by the other party. The conflict of legal views and
interests will only be present in the latter stage, even though the underlying facts predate
them.98
O n that basis, the Tribunal reached the conclusion that the dispute in its technical
and legal sense had begun to take shape after the BIT’s entry into force. It followed
that the Tribunal was competent to consider the dispute.
The time of the dispute is not identical to the time of the events leading to the
dispute .99 Normally, die allegedly illegal acts will occur some time before the
dispute. Therefore, the exclusion of disputes occurring before the treaty’s entry
into force should not be read as excluding jurisdiction over events occurring before
that date.
In Lucchetti v Pent100 the BIT between Chile and Peru provided that it
would not apply to disputes that arose prior to its entry into force. A series of
administrative measures by local authorities had denied or withdrawn construction

93 See TECMED v Mexico, Award, 29 May 2003, paras 53-68; SGS v Philippines, Decision on
Jurisdiction, 29 January 2004, para 166; Kardassopoulos v Georgia, Decision on Jurisdiction, 6 July
2007, paras 253-5; Bayindir v Pakistan, Award, 27 August 2009, paras 131, 132.
94 The Tribunal in Salini v Jordan, Decision on Jurisdiction, 29 November 2004, para 170 found
that the phrase ‘any dispute which may arise’ only covered disputes that had arisen after the BIT’s entry
into force. See also Impregilo v Pakistan, Decision on Jurisdiction, 22 April 2005, paras 297-304.
95 Helnan v Egypt, Decision on Jurisdiction, 17 October 2006, paras 33-57; Toto v Lebanon,
Decision on Jurisdiction, 11 September 2009, paras 88—90; ^4734 v Jordan, Award, 18 May 2010, paras
9 8 -1 0 9 ,1 1 5 -2 0 .
96 Maffezini v Spain, Decision on Jurisdiction, 25 January 2000, paras 90-8.
97 At paras 91-8.
98 At para 96.
99 Duke Energy v Peru, Decision on Jurisdiction, 1 February 2006, paras 146-50, Decision on
Annulm ent, 1 March 2011, paras 111-13, 170-82; Railroad Development Corp. v Guatemala, Second
Decision on Jurisdiction, 18 May 2010, paras 126-38.
100 Lucchetti v Peru, Award, 7 February 2005.
 Application o f investment treaties in time 43

and operating licences from the investors. The investors had successfully challenged
the earlier administrative acts through court proceedings that took place entirely
before the BIT’s entry into force. A few days after die BIT’s entry into force, the
municipality issued further adverse decrees. The Tribunal found that the dispute
had already arisen before the BIT’s entry into force and declined jurisdiction . 101
In fan de N id v Egypt1®2 the BIT between BLEU 103 and Egypt also provided that
it would not apply to disputes that had arisen prior to its entry into force. A dispute
already existed when, in 2002, the BIT replaced an earlier BIT of 1977. At that
time the dispute was pending before the Administrative Court of Ismai'lia which
eventually rendered an adverse decision in 2003, approximately one year after the
new BIT’s entry into force. The Tribunal accepted the claimants’ contention that
the dispute before it was different from the one that had been brought before the
Egyptian court:
while the dispute which gave rise to the proceedings before the Egyptian courts and
authorities related to questions of contract interpretation and of Egyptian law, the dispute
before this ICSID Tribunal deals with alleged violations of the two BITs.. .104
This conclusion was confirmed by the fact that the court decision was a major
element of the complaint. According to the Tribunal:
The intervention of a new actor, the Ismai'lia Court, appears here as a decisive factor to
determine whether the dispute is a new dispute. As the Claimants’ case is directly based on
the alleged wrongdoing of the Ismai'lia Court, the Tribunal considers that the original
dispute has (re)crystallized into a new dispute when the Ismai'lia Court rendered its
decision.105
It followed that the Tribunal had jurisdiction over the claim.

101 At paras 4 8 -5 9 . See also J Gaffney, ‘Jurisdiction ratione temporis of ICSID Tribunals: Lucchetti
and Jan De N u l Considered’ (2006) 5 Transnational Dispute Management.
102 Jan de N u l v Egypt, Decision on Jurisdiction, 16 June 2006.
103 Belgo-Luxembourg Economic Union.
104 A t para 117.
105 At para 128.
 Ill
Investors and Investments

1. Investors

(a) Private foreign Investors

International investment law is designed to promote and protect the activities of
private foreign investors. This does not necessarily exclude the protection of
government-controlled entities as long as they act in a commercial rather than in
a governmental capacity. 1 W hether non-profit organizations may be regarded as
investors is less clear and will depend on the nature of their activities.2
Investors are either individuals (natural persons) or companies (juridical per­
sons). In the majority of cases die investor is a company but at times individuals also
act as investors.3 The foreignness of the investment is determined by the investor’s
nationality .4 The origin of the investment, in particular of the capital, is not
decisive for the question of the existence of a foreign investment.5
The investor’s nationality determines from which treaties it may benefit.6 If the
investor wishes to rely on a bilateral investment treaty (BIT), it must show that it
has the nationality of one of the two states parties. If the investor wishes to rely on a

1 CSOB v Slovakia, Decision on Jurisdiction, 24 May 1999, paras 16-27; Rumeli Telekom v
Kazakhstan, Award, 29 July 2008, paras 324-9. See A Broches, ‘T he Convention on the Settlement
of Investment Disputes between States and Nationals of O ther States’ (1972-11) 136 Recueil des Cours
331 at 354—5-
2 The MIGA Convention in Art 13(a)(iii) requires that an eligible investor operates on a commer­
cial basis. The Argentina-Germany BIT includes legal persons ‘whether or n ot organized for pecuniar}·7
gain’. Generally, see N Gallus and L E Peterson, ‘Internationa] Investm ent Treaty protection of
N G O s’ (2006) 22 Arbitration International 527.
3 For this reason it is most appropriate to refer to investors in general not as ‘she’ or ‘he’ but as ‘it’.
4 See A Sinclair, ‘The Substance of Nationality Requirements in Investment Treat)7 Arbitration’
(2005) 20 ICSID Review-FILJ 357; R Wisner and R Gallus, ‘Nationality Requirements in Investor-
State Arbitration’ (2004) 5 / World Investment & Trade 927.
5 Tradex v Albania, Award, 29 April 1999, paras 108-11; Olguin v Paraguay, Award, 26 July 2001,
para 66, footnote 9; Wena Hotels v Egypt, Award, 8 December 2000, para 126; Wena Hotels v Egypt,
Decision on Annulm ent, 5 February 2002, paras 54, 55; To/tios Tokeles v Ukraine, Decision on
Jurisdiction, 29 April 2004, paras 74-82; Saipem v Bangladesh, Decision on Jurisdiction, 21 March
2007, para 106; Lemire v Ukraine, Decision on Jurisdiction and Liability, 14 January 2010, paras
56-9; M obil v Venezuela, Decision on Jurisdiction, 10 June 2010, para 198. Bur see Yaung Chi Oo v
Myanmar, Award, 31 M arch 2003, paras 43—5.
6 Exceptionally, die status of foreign investor may be extended to perm anent residents. See
NAFTA, Art 201; ECT, Art l(7)(a)(i). Some treaties require domicile or economic activity in the
state concerned in addition to nationality.
 Investors 45

regional treaty, such as the North American Free Trade Agreement (NAFTA) or
the Energy Charter Treaty (ECT), it must show that it has the nationality of one of
the states parties to the treaty. If the investor wishes to rely on the Convention on
the Settlement of Investment Disputes between States and Nationals of Other
States (ICSID Convention) it must show that it has the nationality of one of the
states parties to the ICSID Convention.
The investor’s nationality is relevant for two purposes. The substantive standards
guaranteed in a treaty will only apply to the respective nationals.7 In addition, the
jurisdiction of an international tribunal is determined, inter alia, by the claimant’s
nationality .8 In particular, if the host state’s consent to jurisdiction is given through
a treaty, it will only apply to nationals of a state that is a party to the treaty.
Traditionally, international practice on nationality issues has been shaped to a
large extent by cases involving diplomatic protection of individuals and companies
by their states of nationality .9 It is sometimes questioned whether the principles
developed in that context can simply be transferred to situations where the investor
has direct access to international arbitration . 10 Applicable treaties as well as arbitral
practice on investor protection have developed in a way that differs in several
respects from the principles governing diplomatic protection.

(b) N ationality o f individuals

An individual’s nationality is determined primarily by the law of the country whose
nationality is at issue. 11 A certificate of nationality, issued by the competent
authorities of a state, is strong evidence for the existence of the nationality of that
state but is not necessarily conclusive.12
In Soufraki v UAE,li die claimant had produced several Italian certificates of
nationality. The Tribunal found that the claimant had lost that nationality as a
consequence of the acquisition of Canadian nationality, a fact that was evidendy
unknown to the Italian authorities. As a Canadian national he was unable to rely on
the BIT between Italy and the UAE. Also, ICSID jurisdiction was unavailable since
Canada is not a party to the ICSID Convention. The Tribunal said:

7 O n the issue o f rights conferred upon private investors through treaties, see O Spiermann,
‘Individual Rights, State Interests and the Power to Waive ICSID Jurisdiction under Bilateral Invest­
m ent Treaties'’ (2004) 20 Arbitration International 179, 183 et seq.
8 See pp 252-3.
9 See eg Nottebohm Case (Liechtenstein v Guatemala), ICJ Reports (1955) 4; Case Concerning the
Barcelona Traction, Light and Poiuer Company, Limited (Belgium v Spain), ICJ Reports (1970) 4. In die
Diallo case (Guinea v Democratic Republic o f Congo), Judgm ent, 24 May 2007, the ICJ confirmed, at
para 61, that ‘only the State of nationality may exercise diplomaticprotection on behalf of the company
when its riglu;Tare injured by a wrongful act of another State .
10 M Hirsch, The Arbitration Mechanism of the International Centre for the Settlement o f Investment
Disputes (1993) 76—7.
11 Pey Casado v Chile, Award, 8 M ay 2008, paras 254-60.
12 Micula v Romania, Decision on Jurisdiction, 24 September 2008, paras 70-106; Tza Yap Shinn v
Peru, Decision on Jurisdiction, 19 June 2009, paras 42-77.
13 Soufraki v United Arab Emirates, Award, 7 July 2004.
46 Investors and Investments

I t is accep ted in in tern atio n a l law th a t n a tio n a lity is w ith in th e d o m e s tic ju ris d ic tio n o f th e
S tate, w hich settles, by its ow n legislation, th e rules relatin g to th e a c q u isitio n (an d loss) o f
its n a tio n a lity . . . . B ut it is n o less acce p te d th a t w h en , in in te rn a tio n a l a rb itra l o r ju d icial
proceedings, th e n atio n ality o f a p e rso n is challenged, th e in te rn a tio n a l trib u n a l is c o m p e ­
te n t to pass u p o n th a t c h a lle n g e ----- W h e re , as in th e in s ta n t case, th e ju ris d ic tio n o f
an in te rn a tio n a l tribunal tu rn s o n an issue o f n atio n ality , th e in te rn a tio n a l trib u n a l is
em p o w ered , in d eed b o u n d , to decide th a t issue.1'*

Having found that the claimant did not have Italian nationality as a matter of
Italian law, the Tribunal did not find it necessary to deal with the respondent’s
contention that, in the absence of a genuine link, that nationality would have been
ineffective.15
In Olgirin v Paraguay,16 the claimant relied on the BIT between Paraguay and
Peru. The respondent objected that Olguin, in addition to his Peruvian nationality,
also had US nationality and that he resided in the United States. The Tribunal
found that the claimant held dual nationality and that both nationalities were
effective. The fact that he had Peruvian nationality was enough, in the Tribunal’s
view, to afford him the protection o f the BIT . 17
Tribunals have generally been unimpressed by arguments concerning the effect­
iveness of a nationality. In Micula v Romania 18 the Tribunal said:
N otteb o h m c a n n o t be read to allow or req u ire th a t a S tate d isreg ard an in d iv id u a l’s single
n a tio n ality o n th e basis o f th e fact th a t th is in d iv id u al has n o t re sid e d in th e c o u n try o f his
n atio n ality fo r a period o f rim e .19

In Fakes v Turkey20 the claimant held both Dutch and Jordanian nationalities and
sought to rely on the BIT between the Netherlands and Turkey. The Tribunal
rejected the respondent’s argument concerning die lack of effectiveness of the
Dutch nationality. The Tribunal found the rules concerning a ‘genuine link’ as
developed in the context of diplomatic protection inapplicable. But the Tribunal
left open the possibility of applying an effective nationality test in exceptional
circumstances such as a nationality of convenience or a nationality passed on over
several generations without any ties to the country in question .21
Nationals of the host state are generally excluded from international protection
even if they also hold the nationality of another state. The ICSID Convention, in
Article 25 (2) (a), explicitly excludes dual nationals if one of their nationalities is that
of the host state.
In Champion Trading v Eg)pt,22 three of the individual claimants had dual US
and Egyptian nationality. The Tribunal was unimpressed by the argument that the

14 At para 55. 15 A t paxas 4 2 -6 .

16 Olguin v Paraguay, Award, 26 July 2001. 17 At paras 60 -2 .
18 MicuLi v Romania, Decision on Jurisdiction and Admissibility, 24 September 2008.
19 At para 103.
20 Fakes i> Turkey, Award, 14 July 2010.
21 A t pp 54—81.
22 Champion Trading v Egypt, Decision on Jurisdiction, 21 O ctober 2003.
 Investors 47

Egyptian nationality was not effective.23 It found that the ICSID Convention had a
clear and specific rule to the effect that any person who also has the nationality of
the host state is excluded from bringing a claim under the Convention .24
On the other hand, a NAFTA tribunal found in Feldman v Mexico25 that the
claimant, being a citizen of the United States only, had standing despite the fact
that he had his permanent residence in die host state.26 According to the Tribunal:
u n d er general in te rn a tio n a l law, citizenship ra th e r th an residence o r a n y o th e r geographic
affiliation is th e m ain c o n n e c tin g factor b etw een a S tate a n d an in d iv id u al.27

In Siag v Egypt,28 the claimants’ Italian nationality was uncontested. The Tribunal
found that diey had lost dieir previous Egyptian nationality as a matter of Egyptian
law and held that the claimants’ historic and continuing residence and operation of
business interests in Egypt were irrelevant. Since the claimants were not dual
nationals, there was no room for a test of dominant or effective nationality .29

(c) Nationality o f corporations

Nationality normally presupposes legal personality. Therefore, unincorporated
entities and groupings will not, in general, enjoy legal protection ,30 although a
treaty may provide otherwise.31
Corporate nationality is considerably more complex than that of individuals.
Legal systems and treaties use a variety of criteria to determine whether a juridical
person is a national or an investor of a particular state. Sometimes the same treaty
adopts separate definitions of corporate nationality for each party.
The most commonly used criteria for corporate nationality are incorporation or
the main seat o f the business {‘siege social)".
A cco rd in g to in te rn a tio n a l law an d practice, th ere are differen t possible criteria to d ete rm in e
a juridical p erso n ’s n atio n ality . T h e m o st w idely used is th e place o f in c o rp o ra tio n or
registered office. A ltern atively, the place o f th e central a d m in istratio n o r effective seat m ay
also be tak en in to co n sid eratio n .32

23 The claimants relied upon the Nottebohm Case (Liechtenstein v Guatemala), ICJ Reports (1955) 4
and upon a leading case before the Iran-U S Claims Tribunal: Decision in Case No A /1 8 Concerning the
Question o f Jurisdiction over Claims o f Iversons with D ual Nationality, 5 Iran—US C T R 252 (1984 I),
reprinted in 23 ILM 489 (1984),
24 At section 3.4.1.
25 Feldman v Mexico, Decision on Jurisdiction, 6 December 2000.
26 At paras 24-37.
27 At para 30. See also the Award in the same case, 16 December 2002, para 48.
28 Siagv Egypt, Decision on Jurisdiction, 11 April 2007.
29 At paras 195-201.
30 Consorzio Groupement L ESI— Dipenta v Republique Algerienne, Award, 10 January 2005, paras
37-41; Impregilo v Pakistan, Decision on Jurisdiction, 22 April 2005, paras 131-9.
31 Eg the Argentina-Germany BIT in its definition o f ‘national’ refers to ‘any legal person and any
commercial or other company or association with or without legal personality’.
32 Autopista v Venezuela, Decision on Jurisdiction, 27 September 2001, para 107. See also SO A BI v
Senegal, Decision on Jurisdiction, 1 August 1984, para 29.
48 Investors and Investments

Many treaties follow one or the other of these criteria. The EC T’s definition of
‘investor’ includes a company or other organization organized in accordance with
the law applicable in that Contracting Party ’.33 The BIT between Poland and the
United Kingdom describes corporate investors as ‘any corporations, firms, organisa­
tions and associations incorporated or constituted under the law in force in that
Contracting Party.. . The US Model BIT of 2012 describes an ‘enterprise of a
Party’ as ‘an enterprise constituted or organized under the law of a Party
In cases in which the relevant treaties provide for incorporation as the relevant
criterion, tribunals have refused to pierce the corporate veil in order to look at the
nationality of the company’s owners.34 In Tokios Tokeles v Ukraine?5 the claimant
was a business enterprise established under the laws of Lithuania; however, nation­
als of the Ukraine owned 99 per cent of its shares. Article 1(2 ) (b) of the Lithuania-
Ukraine BIT defines the term ‘investor’, with respect to Lithuania, as ‘any entity
established in the territoiy of the Republic of Lithuania in conformity with its laws
and regulations’. The respondent argued that the claimant was not a genuine entity
of Lithuania because it was owned and controlled by Ukrainian nationals. Never­
theless, the majority of the Tribunal concluded that the claimant was an ‘investor’
of Lithuania under the BIT and a ‘national of another Contracting State’ under
Article 25 of the ICSID Convention .36
In Saluka v Czech Republic3 f the claimant was a legal person incorporated under
the laws of the Netherlands. The respondent objected that Saluka was merely a shell
company controlled by its Japanese owners. In accordance with the Czech-Nether-
lands BIT, the definition of ‘investor’ in Article 1 (b) (ii) includes ‘legal persons
constituted under the laws of [the Netherlands] ’.38 The Tribunal stated that:
[ir] has so m e sy m p a th y fo r th e a rg u m e n t th a t a co m p an y w h ich has n o real co n n ectio n w ith
a State p arty to a B IT , a n d w h ich is in reality a m ere shell co m p an y controlled by a n o th er
co m p an y w h ich is n o t c o n s titu te d u n d e r th e laws o f th a t S tate, sh o u ld n o t be en titled to
invoke th e provisions o f th a t treaty .39

Nevertheless, it found that the claimant was a Dutch company:

T h e T rib u n al can n o t in effect im pose u p o n the parties a d efin itio n o f ‘investor o th er th a n
th a t w h ich the}" them selves agreed. T h a t agreed d efin itio n re q u ire d only th at the claim ant-
in v esto r sh o u ld be c o n s titu te d u n d e r th e laws o f (in th e p re se n t case) T h e N etherlands, a n d
it is n o t o p en to the T rib u n a l to ad d o th e r req u irem en ts w h ich th e parties could them selves
have ad d e d b u t w h ich th e y o m itte d to a d d ,40

33 E C T .A rt l(7)(a)(ii).
34 A D C v Hungary, Award, 2 October 2006, paras 332-62; Rompetrol v Romania, Decision on
Jurisdiction, 18 April 2008, paras 71, 75-110.
35 Tokios Tokeles v Ukraine. Decision on Jurisdiction, 29 April 2004. See also Wen a Hotels v Egypt,
Decision on Jurisdiction, 29 June 1999, 6 ICSID Reports 74, 79-84.
3o At paras 21—71. The decision was accompanied by a forcefully worded dissenting opinion by the
T ribunal’s President.
■, / Saluka v Czech Republic, Partial Award, 17 March 2006.
38 At paras 1, 73, 183-6, 197.
-,9 At para 240.
40 At para 241. See also A E S Corp v Argentina, Decision on Jurisdiction, 26 April 2005, paras
 Investors 49

Other treaties refer to the entity’s seat or principal seat of business. For instance, the
Argentina-Germany BIT refers to ‘company’ as a legal person ‘having its seat in the
territory of one of the Contracting Parties’.
Some treaties combine incorporation with seat.41 Article 1(2) of the ASEAN
Agreement42 provides:
T h e term ‘c o m p a n y o f a C o n tra c tin g P arty shall m ean a c o rp o ra tio n ) p artn ersh ip o r
b u sin ess association, in c o rp o ra te d or c o n s titu te d u n d e r the laws in force in th e territo ry o f
an y C o n tra c tin g p a rty w h erein th e place o f effective m an a g e m e n t is situ ated .

This provision was applied in Yaung Chi Oo v Myanmar,43 in which the claimant
was incorporated in Singapore, which was a party to the agreement. The Tribunal
examined additionally whether it was also effectively managed from Singapore.44
Some treaties go beyond formal requirements such as incorporation or seat: they
require a bond of economic substance between the corporate investor and the state
whose nationality it claims.45 Such an economic bond may consist of effective
control over the corporation by nationals of the state. Alternatively, it may consist of
genuine economic activity of the company in the state.
Under some treaties a controlling interest of nationals in a company is sufficient
to establish corporate nationality .46 In the BIT between the Netherlands and
Venezuela the definition of ‘nationals’ in Article 1(b) covers not just legal persons
incorporated in the respective state but, alternatively, legal persons not so incorpor­
ated but ‘controlled, directly or indirectly’ by nationals of that state. In Mobil v
Venezuela;4/ the investment had been made by the Dutch holding company
through its 100 per cent-owned subsidiaries in the United States and the Bahamas.
The respondent contended that the Dutch company did not, in fact, exercise
genuine control over its subsidiaries. The Tribunal rejected this argument, stating:
In th e p re se n t case, V en ezuela H o ld in g s (N etherlands) ow ns 10 0 % o f the share capital o f its
tw o A m erican su b sid iaries, w hich in tu rn ow n 100% o f th e share capital o f th e tw o B aham as
subsidiaries. T h u s th e share capital o f V enezuela H o ld in g s (N eth erla n d s) in those su bsid­
iaries m akes it p o ssible fo r it to exercise co n tro l on th em . T h e T rib u n a l does n o t have to
co n sid er w h e th e r o r n o t such co n tro l w as exercised in fact.48

41 Eg the BITs between Belgium and the Czech Republic, the BIT between Pakistan and Sweden,
and the BIT between Argentina and France. See Total v Argentina, Decision on Jurisdiction, 25 August
2006, para 57; Alpha v Ukraine, Award, 8 November 2010, paras 4 5 -5 5 , 333-45.
a·2 ASEAN Agreement for the Promotion and Protection of Investments, 15 December 1987, 27
ILM 612 (1987).
43 Yaung Chi Oo v Myanmar, Award, 31 March 2003.
4"* At paras 46-5 2 .
4:3 See generally P Acconci, 'Determ ining the Internationally Relevant Link between a State and a
Corporate Investor’ (2004) 5 J World Investment & Trade 139.
40 Eg the BIT between Moldova and die United States. See Link-Trading v Moldova, Award, 18
April 2002, para 54; See also die BIT between Ecuador and France, Perenco v Ecuador, Decision on
Jurisdiction, 30 June 2011, para 49-
4/ M obil v Venezuela, Decision on Jurisdiction, 10 June 2010.
,’ 8 At para 160. T he Tribunal relied on a protocol to the BIT which listed percentage of capital
ownership as a relevant criterion for control.
50 Investors and Investments

Some treaties combine seat with ‘a predominant interest of an investor’.49 The BIT
between Iran and Switzerland combines all the above elements and grants investor
status to a legal entity if it is established under the law of the state in question and
has its seat there, provided it also has real economic activities in that country.
Alternatively, the same BIT grants investor status to a legal entity not incorporated
in that state if it is effectively controlled by natural or juridical persons of the state.
The Multilateral Investment Guarantee Agency (MIGA) Convention requires
incorporation and seat or, alternatively, control. Under Article 13(a)(ii), a juridical
person will qualify as an 'eligible investor’ if:
such ju rid ical person is in c o rp o ra te d a n d has its p rin c ip a l place o f business in a m e m b e r or
th e m a jo rity o f its capital is o w n e d by a m e m b e r o r m em b ers o r n ationals thereof, p rovided
th a t su c h m e m b e r is n o t th e h o st c o u n try in any o f rhe above cases.

In Champion Trading v Egypt,50 the Tribunal applied the BIT between Egypt and
the United States. That Treaty, in its Article 1(b), requires incorporation and
control by nationals:
(b) ‘c o m p a n y o f a Party’ m ean s a c o m p a n y d u ly in c o rp o ra te d , c o n s titu te d or otherw ise duly
organized u n d e r the applicable laws a n d reg u latio n s o f a P arty o r its political subdivisions in
w h ich (i) n a tu ra l persons w h o are n atio n als o f such P a r t y . .. have a su b stan tial interest.

The corporate claimant was incorporated in the United States but was owned by
live individuals most of whom were dual Egyptian and US nationals. The Tribunal
found that it had jurisdiction over the corporation since the BIT did not exclude
dual nationals as controlling shareholders.51
In Aguas del Tunari v Bolivia52 the claimant was a legal person constituted under
Bolivian law. It relied on the definition o f ‘national’ in Article 1 (b) of the Bolivia-
Netherlands BIT which included legal persons incorporated in the host state but
controlled by nationals of the other state. Aguas del Tunari argued that it was
controlled by Dutch corporations. Bolivia objected, arguing that these Dutch
corporations were, in turn, controlled by a US corporation. The Tribunal found
that the controlling Dutch companies were more than just corporate shells set up to
obtain jurisdiction over the dispute before it. Therefore, it found that the BIT’s
nationality requirements were fulfilled.53

(d) Article 25(2)(b) o f the IC SID Convention: agreement to treat a local

com pany as a foreign national because o f foreign control
Host states often require that investments are made through locally incorporated
companies. Normally, these local companies will not qualify as foreign investors
and will hence not enjoy the ICSID Convention’s protection. But the Convention

49 Eg che BIT between Lithuania and Sweden.

'° Champion Trading v Egypt, Decision on Jurisdiction, 21 October 2003.
51 At section 3.4.2.
32 Agtuu del Tunari v Bolivia, Decision on Jurisdiction, 21 October 2005.
53 Ac paras 206—323.
 Investors 51

contains a specific provision to address the phenomenon of investments made

through corporations registered in the host state. Article 25 (2) (b) of the ICSID
Convention deals with juridical persons incorporated in the host state but
controlled by nationals of another state. These may be treated as foreign nationals
on the basis of an agreement.
The relevant part of Article 25 (2) (b) of the ICSID Convention provides:
‘N a tio n al o f a n o th e r C o n tra c tin g S tate3 m e a n s :, . . an y ju rid ica l p e rso n w h ich h a d th e
n atio n ality o f th e C o n tra c tin g S tate p a rty to th e d isp u te o n th a t d ate a n d w hich, because
o f foreign co n tro l, th e parries have agreed sh o u ld be treated as a n a tio n a l o f a n o th e r
C o n tra c tin g S tate fo r th e purposes o f this C o n v e n tio n .

The application of Article 25 (2) (b) requires an agreement between the host state
and the investor. Such an agreement may be contained in a contract between
the host state and the investor regulating the investment. Tribunals have been
flexible on the form of the required agreement: the insertion of an ICSID arbitra­
tion clause in a contract was accepted as implying an agreement to treat the local
company as a foreign national since, to hold otherwise, would have resulted in the
ICSID clause being meaningless.54
Most contemporary investment arbitrations are instituted not on die basis of
consent given in a contract between the host state and the investor but on the basis
of an offer of consent contained in a treaty .55 In that situation there is often no
opportunity for the parties to agree to treat a particular locally incorporated
company as a foreign national. Therefore, some treaties provide in general terms
that companies constituted in one state but controlled by nationals of the
other state shall be treated as nationals of die other state for the purposes of Article
25(2)(b).5u The proviso in a treaty diat a local company, because of foreign control,
will be treated as a national of another contracting state is part of the terms of the
offer of consent to jurisdiction made by the host state. W hen die offer to submit
disputes to ICSID is accepted by the investor, that proviso becomes pait of the
consent agreement between the parties to the dispute.
In Micula v Romania57 the relevant BIT between Romania and Sweden provided
in Article 7(3):
3. F o r th e p u rp o se o f th is A rticle a n d A rticle 25 (2) (b) o f the said W a s h in g to n C o n v e n tio n ,
an y legal p erso n w h ich is c o n s titu te d in accordance w ith th e legislation o f o n e C o n tra c ­
tin g P arty a n d w h ich , before a d isp u te arises, is co n tro lle d by an in v esto r o f the o th e r
C o n tra c tin g Part)'·, shall be tre a te d as a legal p erso n o f th e o th e r C o n tra c tin g Part}7.

54 Klockner v Cameroon, Award, 21 October 1983, 2 ICSID Reports 16; LETC O v Liberia,
Decision on Jurisdiction, 24 October 1984, 2 ICSID Reports 349-53; Millicom v Senegal, Decision
on Jurisdiction, 16 July 2010, paras 110-14.
55 See Chapter X.2(f).
56 See eg ECT, Art 26(7). See also R Dolzer and M Stevens, Bilateral Investment Treaties (1995)
142.
57 Micula v Romania, Decision on Jurisdiction and Admissibility, 24 September 2008.
52 Investors and Investments

The three corporate claimants in that case were incorporated in Romania but were
controlled by Swedish nationals. It followed that under Article 25 (2) (b) of the
ICSID Convention and Article 7(3) of the BIT the corporate claimants were to be
treated as Swedish nationals .- 8
The agreement under Article 25 (2) (b) must be supported by actual foreign
control;59 the agreement alone is not enough. Control would have to be exercised
by a national of a state that is a party to the ICSID Convention .60
In Vacuum Salt v GhanaGl the claimant was incorporated in Ghana. Although
the agreement between the parties contained an ICSID clause and the Tribunal
accepted that the ICSID clause implied an agreement to treat the claimant as a
foreign national, the Tribunal found that it had to examine the existence of foreign
control as a separate requirement:
the parties’ agreement to treat C la im a n t as a foreign national ‘because o f foreign control’
does n o t ipso ju re confer jurisdiction. T he reference in Article 2 5 (2)(b) to ‘foreign
control’ necessarily sets an objective C onvention lim it beyond which IC SID jurisdiction
cannot exist.. ,62

An examination of the facts revealed that there was no foreign control; therefore the
Tribunal declined jurisdiction .63
Control over a juridical person is not a simple phenomenon. Participation in the
company’s capital stock or share ownership is not the only indicator of control. The
existence of foreign control is a complex question requiring the examination of
several factors such as equity participation, voting rights, and management.64

(e) N ationality planning

The foregoing sections make it clear that a prudent investor may organize its
investment in a way that affords maximum protection under existing treaties.
Usually this will be done through the establishment of a company in a state that
has favourable treaty relations with the host state and accepts incorporation as a
basis for corporate nationality. That company will then be used as a conduit for the
investment. Nationality planning or ‘treaty shopping’ is not illegal or unethical as
such, but practice demonstrates that there are limits to it. In addition, states may
regard corporate structuring for the purpose of obtaining advantages from treaties
as undesirable and take appropriate measures against it.

58 At paras 107-16.
59 Klockner v Cameroon, Award, 21 October 1983, 2 ICSID Reports 15-16; SO ABI v Senegal,
Decision on Jurisdiction, 1 August 1984, paras 28-46; LETC O v Liberia, Decision on Jurisdiction, 24
October 1984, 2 ICSID Reports 352; Autopista v Venezuela, Decision on Jurisdiction, 27 September
2001, paras 105-34; Millicom v Senegal, Decision on Jurisdiction, 16 July 2010, para 109.
1,0 SO A BI v Senegal, Decision on Jurisdiction, 1 August 1984, paras 32-3.
61 Vacuum Salt v Ghana, Award, 16 February' 1994.
62 At para 36.
63 At paras 35—55-
6q Vacuum Salt at paras 43-53. For a detailed discussion o f control, see Aguas del Tunari v Bolivia,
Decision on Jurisdiction, 21 O ctober 2005, paras 225-48, 264-323.
 Investors 53

In Aguas del Tunari v Bolivia6d the Tribunal accepted die ‘migration’ of the
controlling company from one country to another.66 The respondent asserted that
the strategic changes in the corporate structure in order to obtain the protection of a
BIT amounted to fraud and abuse of corporate form. The Tribunal rejected this
contention:
It is n o t u n c o m m o n in practice, a n d — -absent a p articu lar lim itation·— n o t illegal to locate
o n e ’s o p e ra tio n s in a ju risd ictio n perceived to provide a b e n e fic ia l. reg u lato ry a n d legal
e n v iro n m e n t in term s, fo r exam ples, o f taxation o r the su b stan tiv e law o f th e ju risd ictio n ,
in c lu d in g th e availability o f a B I T ___ T h e language o f th e d efin itio n o f n a tio n a l in m a n y
B IT s evidences th at such n atio n al ro u tin g o f in v estm en ts is en tirely in k eep in g w ith th e
p u rp o se o f th e in stru m e n ts a n d th e m o tiv atio n s o f th e state parties.67

N ot every attempt at nationality planning will succeed. In Banro v Congo,68 a

transfer of ownership of an investment was carried out from a company registered
in a non-ICSID party, Canada, to an affiliate company in the United States, a party
to the ICSID Convention. The transfer was made after the dispute had arisen and
only days before instituting arbitration proceedings. This served the obvious
purpose of obtaining access to ICSID and the Tribunal refused to accept jurisdic­
tion under these circumstances.69
In Phoenix v Czech Republic/0 there was originally a dispute between the Czech
state and a Czech investor. Most of the incriminated events had already occurred
and the dispute was in full swing when the Czech investor tried to acquire a
seemingly convenient nationality by selling the investment to an Israeli company,
Phoenix, which he had established especially for that purpose. Shortly after die
transfer, the company commenced ICSID arbitration, relying on the BIT between
Israel and the Czech Republic. The Tribunal found that the claim constituted an
abusive attempt to obtain access to the system of investment protection under the
ICSID Convention. The claimant had made an investment not for the purpose of
engaging in economic activity but for the sole purpose of bringing international
litigation against the Czech Republic .71
In Cementownia v Turkey/1 the claimant was a Polish company that claimed to
have acquired shares in two Turkish companies. The alleged share transfers took
place just 12 days before Turkey terminated concession agreements thereby, it was
argued, violating its treaty obligations under the ECT. The Tribunal found that the

65 Aguas del Tunari v Bolivia, Decision on Jurisdiction, 21 October 2005.

66 A t paras 160-80.
6/ At paras 330, 332. See also H1CEE v Slovakia, Partial Award, 23 May 2011, para 103.
68 Banro v Congo, Award, 1 September 2000, excerpts in (2002) 17 ICSID Revieiv-FILJ 380.
69 But see Autopista v Venezuela, Decision on Jurisdiction, 27 September 2001, paras 80-140. In
that case the respondent state had consented to the transfer o f die shares from Mexican to US nationals.
Mexico is not a party to the ICSID Convention.
70 Phoenix v Czech Republic, Award, 15 April 2009.
/I A t paras 142-5.
72 Cemetitownia v Turkey, Award, 17 September 2009.
54 Investors and Investments

entire share transaction between the Turkish company and the Polish claimant was
fabricated and never actually took place .73 The Tribunal added:
E v en i f th e y d id occur, the share transfers w o u ld n o t have b een bona fid e transactions, b u t
ra th e r a tte m p ts (in the face o f g o v e rn m e n t m easures d a tin g b ack so m e years a b o u t to
cu lm in a te in th e concessions’ term in a tio n ) to fabricate in te rn a tio n a l ju risd ictio n w here
n o n e sh o u ld exist.74

In Mobil v Venezuela,73 the investments had been made by Exxon Mobil through
holding companies in Delaware and the Bahamas. After certain difficulties had
arisen with the new Venezuelan Government over royalties and income tax/ 6
Exxon Mobil restructured its investment by interposing a Dutch holding company.
Mobil informed the Venezuelan Government of this step and the government did
not raise any objection. As a consequence of the restructuring, the Delaware and
Bahamian companies became 100 per cent-owned subsidiaries of the Dutch
company .77 After Mobil had completed its restructuring, Venezuela took national­
ization measures. Thereupon Mobil instituted ICSID arbitration relying on the
BIT between the Netherlands and Venezuela. Despite Venezuela’s protestations,
the Tribunal found that this form of corporate structuring was permissible. In the
Tribunal’s view:
2 0 4 . . . . th e aim o f the restru ctu rin g o f th e ir in v estm en ts in V enezuela th ro u g h a D u tc h
h o ld in g was to p ro tect those in v estm en ts against breaches o f th e ir rights by th e V enezuelan
au th o rities by gaining access to IC S ID a rb itra tio n th ro u g h th e B IT . T h e T rib u n a l considers
th a t th is was a perfectly legitim ate goal as far as it co n cern ed fu tu re disputes.

2 0 5 . W ith respect to pre-existing disputes, th e situ a tio n is d ifferen t a n d th e T rib u n a l

con sid ers th a t to restructure in v estm en ts o n ly in o rd er to g ain ju risd ic tio n u n d e r a B IT
for su c h disp u tes w o u ld co n stitu te, to take th e w o rd s o f th e P h o e n ix T rib u n a l, ‘an abusive
m a n ip u la tio n o f th e system o f in te rn a tio n a l in v e stm e n t p ro te c tio n u n d e r th e IC S ID
C o n v e n tio n a n d th e B IT s’.

It appears from these cases that prospective planning within the framework of
existing treaties will be accepted by tribunals .78 ‘Prospective’ means that die
corporate arrangements must have been in place before the facts that led to the
dispute occurred79 or, in any event, before the dispute arose. W hat appears to
be impossible is to create a remedy for existing grievances, in particular after a
dispute has arisen, by arranging for a desirable nationality.

73 At para 156.
74 A t para 117.
75 M obil v Venezuela, Decision on Jurisdiction, 10 June 2010.
7G At paras 200, 201.
77 At paras 187—92. Under the BIT between the Netherlands and Venezuela not only companies
incorporated in the Netherlands but also companies controlled by D utch incorporated companies are
deemed to be nationals of the Netherlands.
78 See also Millicom v Senegal, Decision on Jurisdiction, 16 July 2010, para 84.
79 Societe Generate v Dominican Republic, Decision on Jurisdiction, 19 September 2008, paras
109-10.
 Investors 55

(f) D en ial o f benefits

States have devised methods to counteract strategies that seek the protection of
particular treaties by acquiring a favourable nationality. One such method is to
require a bond of economic substance between the corporation and the state. This
method has been described above.80 Anodier method is the insertion of a so-called
‘denial of benefits’ clause into the treaty that provides consent to jurisdiction.
Under such a clause, states reserve the right to deny the benefits of the treaty to a
company incorporated in a state but with no economic connection to that state.
The economic connection would consist in substantial business activities in the
state of incorporation or ownership or control by a national of a state party to the
treaty. Article 17(1) of the ECT provides:
E ach C o n tra c tin g P arty reserves th e rig h t to d en y th e advantages o f this P a rt to:
(1) a legal e n tity if citizens or n ationals o f a th ird sta te ow n o r c o n tro l such en tity a n d i f th a t
e n tity has n o su b sta n tia l business activities in th e A rea o f th e C o n tra c tin g P arty in w h ic h it is
o rganized.

Other treaties, including BITs, contain similar provisions.81

Tribunals have addressed this type of clause in a number of cases.82 In Pla?na v
Bulgaria,83 the claimant was incorporated in Cyprus. After the arbitration proceed­
ings had been instituted, Bulgaria sent a letter to ICSID purporting to exercise its
right under the EC T’s denial of benefits clause. Bulgaria argued that Plama had no
substantial business activities in Cyprus and was controlled by nationals of states
not parties to the ECT. The Tribunal found that the denial of benefits clause was
drafted in permissive terms and did not operate automatically but required the
actual exercise of the host state’s right.84 The exercise of that right could only be
made prospectively and not retroactively after die investment had been made .85
In A M T O v Ukraine86 the claimant was incorporated in Lama, a party to the
ECT. Ukraine objected to the Tribunal’s jurisdiction based on Article 17(1) of the
ECT. The Tribunal noted that the concept o f a ‘third state’ under that provision
meant a state that was not a contracting party to the E C T .87 The burden of proof
relating to the requirements of Article 17(1) of the ECT lay with the respondent
invoking it. In view of the Tribunal’s finding that AM TO had a substantial

80 A t p 49.
81 See NAFTA, A it 1113; Argentina-United Stares BIT, Art 1(2); US Model BIT o f 2012, Arr 17;
Austria-Jordan BIT, A rt 10.
82 Generation Ukraine v Ukraine, Award, 16 September 2003, paras 15.1-15.9; Petrobart v Kyrgyz
Republic, Award, 29 March 2005, (2005) 3 Stockholm Int'lA rb Rev 45, 64; Pan American v Argentina,
Decision on Jurisdiction, 27 July 2006, paras 204, 221.
83 Plama v Bulgaria, Decision on Jurisdiction, 8 February 2005. See also Plama v Bulgaria, Award,
27 August 2008, paras 77-95.
84 At paras 152-8.
85 At paras 159-65. This conclusion has been criticized; A Sinclair, ‘The Substance of Nationality
Requirements in Investm ent Treat}’ A rbitration’ (2005) 20 ICSID Review-FILJ 357, 385. See also
Empresa Electrica del Ecuador v Ecuador, Award, 2 June 2009, para 71.
86 A M T O v Ukraine, Award, 26 March 2008.
8/ At para 62.
56 Investors and Investments

business activity in Latvia, there was no need to make a determination on owner­

ship and control.8S The Tribunal stated with respect to the requirement of
‘substantial business activities’ under Article 17(1) of the ECT:
th e p u rp o se o f .Article 17(1) is to exclude fro m E C T p ro te c tio n investors w hich have
a d o p te d a n atio n ality o f convenience. A ccordingly, ‘su b stan tial5 in this co n tex t m eans ‘of
su b stan ce, a n d n o t m erely o f fo rm ’. I t does n o t m ean ‘large’, an d th e m ateriality n o t the
m a g n itu d e o f the business activity is the decisive qu estio n . In th e p resen t case, rhe T rib u n al
is satisfied th a t the C la im a n t has substantial business activity in Latvia, o n the basis o f its
in v e s tm e n t related activities c o n d u c te d from prem ises in Latvia, a n d involving th e em ploy­
m e n t o f a sm all b u t p e rm a n e n t staff.89

(g) Shareholders as investors

Investments often take place through die acquisition of shares in a company that
has a nationality different from that of the investor. Can a shareholder pursue
claims for damage done to the company? In particular, is it possible for the
shareholder to proceed on the basis of its own nationality even if the company
does not meet the nationality requirements under the relevant treaty ?90
In the Barcelona Traction case91 the International Court of Justice (ICJ) held that
Belgium, the state of nationality of the majority shareholders of a company
incorporated in Canada, was unable to pursue claims against Spain for damage
caused to the company .92 The ICJ acknowledged that its decision was based on
customaiy international law and that treaties may provide otherwise.93 In addition,
the ICJ recognized that the exclusion of shareholders’ rights against a host state
inflicting damage on a company would not necessarily apply if the company in
question was incorporated in the host state .94
In the Diallo case95 the ICJ held that the state of nationality of the shareholder
(Guinea) was unable to exercise diplomatic protection against the state in which the
company was incorporated (Democratic Republic of Congo). The ICJ noted that
in contemporary international law the protection of shareholders is governed by

88 At paras 67-70.
89 At para 69.
90 For detailed treatment, see S A Alexandrov, ‘The “Baby Boom” of Treaty-Based Arbitrations and
the Jurisdiction of ICSID Tribunals: Shareholders as “Investors” and Jurisdiction Ratione Temporis
(2005) 4 Law and Practice o f International Conns and Tribunals 19; C Schreuer, ‘Shareholder
Protection in International Investment Law’ in Festschrift fu r Christicra Tomuschat (2006) 601.
91 Barcelona Traction, Light and. Power Co, L td (Belgium v Spain), Judgm ent, 5 February 1970, ICJ
Reports (1970) 4.
92 See IA Laird, A Com m unity of Destiny— The Barcelona Traction Case and the Development of
Shareholder Rights to Bring Investment Claims’ in T Weiler (ed), International Investment Law and
Arbitration: Leading Casesfrom the ICSID, NAFTA, Bilateral Treaties and. Customaiy International Law
(2005) 77-96.
93 At paras 89-90.
94 At para 92. See also Pan American v Argentina, Decision on Preliminary Objections, 27 July
2006, paras 215-16.
95 Diallo case (Guinea v Democratic Republic o f Congo), Judgm ent, 24 May 2007, ICJ Reports
(2007) 582.
 Investors 5/

bilateral and multilateral treaties and by contracts between states and foreign
investors. However, a ‘protection by substitution’, in favour of the shareholder
rather than the company, is not discernible under customary international law.96
The issue of shareholder protection is particularly acute where, as is often the
case, investments are made through companies incorporated in the host state and
the local company is the immediate investor. Many states require a locally incorpor­
ate d company as a precondition for the investment.
Under the conditions of Article 25(2)(b) of the ICSID Convention and provi­
sions in some BITs, the local company might qualify as a foreign investor because
of its foreign control. These provisions are discussed above.97 A slightly different
method is used by the NAFTA: an investor that owns or controls a company
registered in another state party may submit a claim to arbitration on behalf of
that company .98 W hat diese provisions have in common is that they require
control over the company in question. In other words, they do not offer comfort
to minority shareholders.
Most investment treaties offer a solution that gives independent standing to
shareholders: the treaties include shareholding or participation in a company in
their definitions of ‘investment’.99 In this way it is not the locally incorporated
company that is treated as a foreign investor; rather, the participation in the
company becomes the investment. Even though the local company may be unable
to pursue the claim internationally, the foreign shareholder in the company may
pursue the claim in its own name. Put differently, even if the local company is not
endowed with investor status, the investor’s participation therein is seen as the
investment. The shareholder may then pursue claims for adverse action by the host
state against the company that affects its value and profitability. Arbitral practice
illustrating this point is extensive.100

96 A t paras 88-9 0 .
97 See pp 50—2.
98 NAFTA, A rt 1117 provides in relevant pait: ‘An investor o f a Parry, on behalf o f an enterprise of
another Party that is a juridical person that the investor owns or controls directly or indirectly, may
submit to arbitration under this Section a claim that the other Party' has breached an obligation. . . ’
99 See R Dolzer and M Stevens, Bilateral Investment Treaties (1995) 27-8. See also NAFTA, A t
1139; E C T, Art l(6)(b).
100 See eg Goetz v Burundi, Decision of 2 September 1998; Maffezini. v Spain, Decision on
Jurisdiction, 25 January 2000; Compama de Aguas del Aconquija, & CGE v Argentina (the Vivendi
case), Decision on Annulm ent, 3 July 2002; Azurix v Argentina, Decision on Jurisdiction, 8 December
2003; A/WT v Zaire, Award, 21 February 1997; Genin v Estonia, Award, 25 June 2001; CM E v Czech
Republic, Partial Award, 13 September 2001; Camuzzi v Argentina, Decision on Jurisdiction, 11 May
2005, paras 12, 7 8 -8 2 , 140-2; Gas Natural v Argentina, Decision on Jurisdiction, 17 June 2005, paras
32-5, 50—I; A E S Coip v Argentina, Decision on Jurisdiction, 26 April 2005, paras 85—9; Compama de
Aguas del Aconquija, PA & Vivendi Universal PA v Argentina (Vivendi II), Decision on Jurisdiction, 14
November 2005, paras 88—94; Continental Casualty v Argentina, Decision on Jurisdiction, 22 February
2006, paras 51-4, 7 6-89; Suez, Sociedad General de Aguas de Barcelona SA, and Inter Aguas Servicios
Integrales del Agua SA v Argentina, Decision on Jurisdiction, 16 May 2006, paras 46-51; National Grid
v Argentina, Decision on Jurisdiction, 20 June 2006, paras 147-58, 165, Award, 3 November 2008,
para 126; Pan American v Argentina, Decision on Preliminary Objections, 27 July 2006, paras 209-22;
Parkerings v Lithuania, Award, 11 September 2007, paras 250—4; Impregilo v Argentina, Award, 21
June 2011, paras 110-40, 2 3 8-46, 271.
58 Investors and Investments

In Genin v Estonia,101 die claimants, US nationals, were the principal sharehold­

ers of EIB, a financial institution incorporated under the law of Estonia. The BIT
between Estonia and the United States in its definition of ‘investment’ includes ‘a
company or shares of stock or odier interests in a company or interests in the assets
thereof’. The Tribunal rejected the respondent’s argument that the claim did not
relate to an ‘investment’ as understood in die BIT:
T h e te rm ‘in v e s tm e n t’ as d e fin ed in A rticle I(a)(ii) o f d ie B IT clearly em b races th e
in v e stm e n t o f C laim an ts in E IB . T h e tra n sa c tio n a t issue in th e p re se n t case, n a m e ly
th e C la im a n ts ’ ow nership in te re st in E IB , is a n in v e s tm e n t in ‘shares o f sto c k or
o th e r in te re sts in a co m p a n y ’ th a t w as ‘o w n e d or c o n tro lle d , directly o r in d ire c tly ’ by
C la im a n ts .102

Minority shareholders, too, have been accepted as claimants and have been granted
protection under respective treaties.103 In CMS v Argentina}®* the claimant owned
29.42 per cent of TGN, a company incorporated in Argentina. The definition of
‘investment’ in die Argentina-US BIT includes ‘a company or shares of stock or
other interests in a company or interests in the assets thereof’. Argentina argued
that CMS, as a minority shareholder in TG N , could not claim for any indirect
damage resulting from its participation in the Argentinian company .105 The
Tribunal rejected this argument.106 It said:
T h e T rib u n a l therefore finds no b ar in cu rre n t in te rn a tio n a l law to the c o n c e p t o f allow ing
claim s b y shareholders in d e p e n d e n d y fro m those o f th e c o rp o ra tio n c o n cern ed , n o t even if
those shareholders are m in o rity or n o n -c o n tro llin g sh a reh o ld ers.107. . . T h e re is in d e e d no
req u ire m e n t th a t an in v estm en t, in o rd er to qualify, m u st necessarily be m ad e by sh a reh o ld ­
ers c o n tro llin g a com pany or o w n in g th e m ajority o f its sh a res.108

This practice has also been extended to indirect shareholding through an intermedi­
ate company ,109 and the same technique has been employed where the affected

101 Genin v Estonia, Award, 25 June 2001.

102 At para 324.
103 See eg AAPL v Sri Lanka, Award, 27 June 1990; LAN C O v Argentina, Decision on Jurisdiction,
8 December 1998; Compama de Aguas del Aconquija & CGE v Argentina (the Vivendi case), Decision
on Annulm ent, 3 July 2002; CMS v Argentina, Decision on Jurisdiction, 17 July 2003; Champion
Trading v Egypt, Decision on Jurisdiction, 21 October 2003; LG & E Energy v Argentina, Decision on
Jurisdiction, 30 April 2004, paras 50-63, Decision on Liability, 3 October 2006, paras 78-9; G A M Iv
Mexico, Award, 15 November 2004; Sempra Energy v Argentina, Decision on Jurisdiction, 11 May
2005, paras 92-4; El Paso Energy v Argentina, Decision on Jurisdiction, 27 April 2006, para 138;
Phoenix v Czech Republic, Award, 15 April 2009, paras 121-3; H ochtief v Argentina, Decision on
Jurisdiction, 24 October 2011, paras 112-19.
104 CMS v Argentina, Decision on Jurisdiction, 17 July 2003.
105 At paras 36, 37.
106 At paras 47-65.
107 At para 48.
108 At para 51. To the same effect, see Enron v Argentina, Decision on Jurisdiction, 14 January
2004, paras 39, 44, 49, Decision on jurisdiction (Ancillary Claim), 2 August 2004, paras 21, 22,
29, 39.
109 See Enron v Argentina, Decision on Jurisdiction, 14 January 2004, paras 41—57, Decision on
Annulment, 30 July 2010, paras 115-27; Canmzzi v Argentina, Decision on Jurisdiction, 11 May
2005, para 9; Gas Natural v Argentina, Decision on Jurisdiction, 17 June 2005, paras 9, 10, 32-5;
 Investors 59

company was incorporated in a state other than the host state .110 The situation is
made somewhat complicated by die fact that some treaties exclude certain forms of
indirect investments either explicitly or by implication .111
Shareholder protection is not restricted to ownership in shares; it extends to the
assets of the company. Adverse action by the host state in violation of treaty
guarantees affecting die company’s economic position, and hence the value of
shares, gives rise to rights by the shareholders.112 In GAM I v Mexico,113 the
claimant, a US-registered corporation, held a 14.18 per cent equity interest in
GAMI, a Mexican-registered corporation. Mexico had expropriated a number of
mills belonging to GAMI. In the Tribunal’s view;
T h e fact th a t a h o st S tate does n o t explicitly in terfere w ith share o w n ersh ip is n o t
d e c isiv e .. . . G A M T s sh a re h o ld in g w as never ex p ro p ria te d as such. GAMI c o n te n d s th a t
M ex ico ’s c o n d u c t im p aire d th e value o f its sh a re h o ld in g to such a n e x ten t th a t it m u st be
d eem ed ta n ta m o u n t to e x p ro p ria tio n .114

On the other hand, some tribunals have pointed out that the rights of foreign
investors do not go beyond what could be derived from the shareholding . 115
It follows that on the basis of treaty provisions listing participation in companies
as a form of investment, shareholding in a company enjoys protection. Thus, even
if the affected company does not meet the nationality requirements under the
relevant treaty there will be a remedy if the shareholder does so. This is particularly
relevant where, as is frequently the case, the company has the nationality of the host
state and does not qualify as a foreign investor. In this situation, the company in

Kardassopoidas v Georgia, Decision on jurisdiction, 6 July 2007, paras 121-4; Noble Energy v Ecuador,
Decision on Jurisdiction, 5 M arch 2008, paras 7 0-83; Societe Generate v Dominican Republic, Decision
on Jurisdiction, 19 September 2008, paras 37, 4 5-52, 113-21; Cemex v Venezuela, Decision on
Jurisdiction, 30 December 2010, paras 141-58.
1,0 Sedelmayer v Russia, Award, 7 July 1998, Ch 2.1.1-2.1.5; Lauder v Czech Republic, Award, 3
September 2001; Waste Management v Mexico, Award, 30 April 2004; Siemens v Argentina, Decision
on Jurisdiction, 3 August 2004, paras 122-44; EnCana v Ecuador, Award, 3 February 2006, paras
115-22; Tza Yap Shum v Peru, Decision on Jurisdiction, 19 June 2009, paras 91-111; M obil v
Venezuela, Decision on Jurisdiction, 10 June 2010, paras 162—6.
111 Berschader v Russia, Award, 21 April 2006, paras 121-50; H ICEE v Slovakia, Partial Award, 23
May 2011, paras 4 8 -1 0 4 , 114-15, 128-33, 146-7.
112 CM S v Argentina, Decision on Jurisdiction, 17 July 2003, paras 59, 6 6 -9 , Decision on
Annulment, 25 September 2007, paras 58-76; A zurix v Argentina, Decision on Jurisdiction, 8
December 2003, paras 69, 73, Decision on Annulm ent, 1 September 2009, paras 57-62, 76-80,
86-130; Enron v Argentina, Decision on Jurisdiction, 14 January 2004, paras 35, 43 -9 , 58-60,
Decision on Jurisdiction (Ancillary Claim), 2 August 2004, paras 17, 34-5; Siemens v Argentina,
Decision on Jurisdiction, 3 August 2004, paras 125, 136-50; G A M I v Mexico, Award, 15 November
2004, paras 2 6-33; Camuzzi v Argentina, Decision on Jurisdiction, 11 May 2005, paras 45-67;
Sempra Energy v Argentina, Decision on Jurisdiction, 11 May 2005, paras 73-9; Continental Casualty v
Argentina, Decision on Jurisdiction, 22 February 2006, para 79; Bogdanov v Moldova, Award, 22
September 2005, para 5.1; Total v Argentina, Decision on Jurisdiction, 25 August 2006, para 74;
Roslnvest v Russia, Final Award, 12 September 2010, paras 605—9, 625.
513 G A M I v Mexico, Award, 15 November 2004.
114 At paras 33, 35.
115 EG Group v Argentina, Final Award, 24 December 2007, para 214 (this UN C ITRA L Award
was vacated on different grounds by the US Court of Appeals for the D C District on 17 January 2012);
El Paso v Argentina, Award, 31 O ctober 2011, paras 149-214.
60 Investors and Investments

question is not treated as the investor but as the investment. This protection
extends not only to ownership in the shares but also to the assets of the company.
This generous extension of rights to shareholders can lead to some novel issues.
For instance, practical problems can arise where claims are pursued in parallel,
especially by different shareholders or groups of shareholders. In addition, the
affected company itself may pursue certain remedies while a group of its sharehold-'
ers may pursue different ones. The situation becomes even more complex where
indirect shareholding through intermediaries is combined with minority sharehold­
ing. In such a case, shareholders and companies at different levels may pursue
conflicting or competing litigation strategies that may be difficult to reconcile and
coordinate.

2. Investm ents

(a) Terminology and concept

Economic science often assumes that a direct investment involves (a) the transfer of
funds, (b) a longer term project, (c) the purpose of regular income, (d) the
participation of the person transferring the funds, at least to some extent, in the
management of the project, and (e) a business risk. These elements distinguish
foreign direct investment from a portfolio investment (no element of personal
management), from an ordinary transaction for purposes of sale of a good or a
service (no management, no continuous flow of income), and from a short-term
financial transaction .116
In legal terms, investment regimes need to define their scope ratione materiae.
Contemporary treaties do not, as a rule, reflect the classical formula ‘property,
rights, and interests’ found in traditional friendship, commerce, and navigation
(FCN) treaties, in treaties to settle claims after hostilities, or in human rights
documents.11/- Instead, they are built on the modern term ‘investment’. 118 This
usage is now fully accepted, even though the phrase ‘property, rights and interests’
had to a considerable extent acquired a distinct legal meaning and the term
‘investment’ has its origin in economic terminology and needed to be understood
and defined as a legal concept when first used in investment agreements.
The reasons the drafters of investment treaties switched from ‘property, rights,
and interests’ to ‘investment’ is tied to the purpose of such treaties; they were not
meant to cover all types of ‘property, rights, and interests’. While usage of the term
‘investment’ is convenient, it also presents the challenge of defining the term to

116 R Dolzer, ‘The N otion of Investment in Recent Practice’ in S Charnovitz, D P Steger, and P van
den Bosche (eds), Law in the Service o f Human Dignity: Essays in Honour ofFlorentino Feliciano (2005)
261, 263; N Rubins, ‘The N otion o f “Investment” in Internadonal Investment Arbitration’ in N H orn
(ed), Arbitrating Foreign Investment Disputes (2004) 283.
11 / See R Dolzer, Eigentum, EntcignungundEntschcidigungimgeltenden Volkerrecbt (1985) 157-63;
R Lillich and B Weston, International Claims: Their Settlement by Lump Sum Agreements (1975) 180.
u s jn treaties: ‘investissements’; in Spanish treaties: ‘inversiones’; in German treaties:
‘Kapitalanlagen’; in Austrian treaties: ‘Investitionen’.
 Investments 61

make it legally manageable and operational, both for purposes of clauses which
define the coverage of a BIT and also for the consent of parties to submit their
disputes to arbitration.
In practice, two conceptual approaches have been developed to give legal
meaning to the term. Bilateral and multilateral treaties have included specific
elaborate definitions, usually at the beginning of the operative parts of the agree­
ment. The second approach is based on the usage of the term in regular economic
parlance and leaves the interpretation and application to the practice of states and
tribunals.
The complexity of the current debate on the term ‘investment’ arises out of
its simple, non-defined use in the jurisdictional clause of the ICSID Convention
(Art 25). One approach to the interpretation of ‘investment’ in Article 25 will
orient itself to the definitions in investment treaties, the other to its understanding
in the economic literature. In effect, the latter approach requires two separate
examinations (‘a double keyhole approach’): one under the BIT, the other under
Article 25.
A review of the use of the term in treaty practice and in economic discourse
establishes that the two approaches may lead to different results in individual cases,
but also that variants of the two versions may turn out to yield very similar or
identical outcomes. The divergence in the conceptual premises has so far been
resolved neither by arbitral jurisprudence nor by academic commentary. However,
it appears that a synthesis of the different strands of interpretation may emerge.

(b) Investments as complex, interrelated operations

Tribunals have repeatedly emphasized that an investment typically consists of
several interrelated economic activities each of which should not be viewed in
isolation. The tribunal in CSOB v Slovakia119 stated:
A n in v estm en t is freq u e n tly a rath er com plex o p eratio n , com posed o f various in terrelated
tran sactio n s, each ele m e n t o f w h ich , sta n d in g alone, m ig h t n o t in all cases qualify as an
in v estm en t. H en ce , a d isp u te th a t is b ro u g h t before die C e n tre m u s t be d e em ed to arise
directly o u t o f an in v e s tm e n t even w h e n it is based o n a tran sactio n w h ich , sta n d in g alone,
w o u ld n o t qualify as an in v e s tm e n t u n d e r th e C o n v e n tio n , p ro v id ed th a t th e p articular
tran sactio n fo rm s an in teg ral p a rt o f an overall o p eratio n th a t qualifies as an in v e s tm e n t.120

Whether costs arising in the course of unsuccessful negotiations for a contract

amount to an investment depends upon the circumstances. In the absence of a
specific applicable treaty clause, current understanding is that when the negoti­
ations do not lead to a contract and no other type of investment is made, the

119 CSOB v Slovakia, Decision on Jurisdiction, 24 May 1999.

120 At para 72. See further Enron v Argentina, 14 January 2004, para 70; Joy M ining v Egypt, Award,
6 August 2004, para 54: M itchell v Congo, Decision on A nnulm ent, 1 November 2006, para 38; Duke
Energy v Peru, Decision on Jurisdiction, 1 February 2006, para 92; Saipem v Bangladesh, Decision on
Jurisdiction, 21 M arch 2007, paras 110, 114.
62 Investors and Investments

potential investor is not in a position to raise a claim under a BIT. The applicability
of the BIT presupposes the existence of an investment. In the leading case, Mihaly v
Sri Lanka, the majority o f the Tribunal concluded: ‘The Tribunal is consequently
unable to accept, as a valid denomination of “investment”, the unilateral or internal
characterization of certain expenditures by die Claimant in preparation for a project
of investment.’121
The Mihaly v Sri Lanka Tribunal even went as far as stating, in an obiter dictum,
that the existence o f a duty, on die part of the host state, to negotiate in good faith
would not be covered by the notion of investment. 122

(c) Definitions in investment protection treaties

Multilateral treaties typically define the term ‘investment’ and provide for ICSID
jurisdiction. Examples are die NAFTA, which defines ‘investment’ in Article
1139123 or the ECT with its definition in Article 1 section 6 . 124 Similarly, the
draft of a Multilateral Agreement on Investments125 contained a definition along

121 Mihaly v Sri Lanka, 15 March 2002, para 61. See further Generation Ukraine v Ukraine, Award,
16 September 2003, para 18.9; PSEG v Turkey, Decision on Jurisdiction, 4 June 2004, paras 67-105,
Award, 19 January 2007, para 304.
122 At para 51.
123 NAFTA, Art 1139 reads: investm ent means:
(a) an enterprise; (b) an equity security o f an enterprise; (c) a debt security o f an enterprise (i)
Avhere the enterprise is an affiliate o f the investor, or (ii) where the original m aturity of the debt
security is at ieast three years, but does not include a debt security, regardless of original
maturity, of a state enterprise; (d) a loan to an enterprise (i) where the enterprise is an affiliate
of die investor, or (ii) where the original maturity of the loan is at least three years, but does not
include a loan, regardless of original maturity, to a state enterprise; (e) an interest in an
enterprise that entides the owner to share in income or profits of the enterprise; (f) an interest
in an enterprise that entities the owner to share in the assets of that enterprise on dissolution,
other than a debt security or a loan excluded from subparagraph (c) or (d); (g) real estate or
other property, tangible or intangible, acquired in the expectation or used for the purpose of
economic benefit or other business purposes; and (h) interests arising from the commitment of
capital or odier resources in the territory of a Party to economic activity in such territory, such
as under (i) contracts involving the presence of an investor’s property in die territoiy o f the
Party, including turnkey or construction contracts, or concessions, or (ii) contracts where
remuneration depends substantially on die production, revenues or profits o f an enterprise;
but investment does not mean, (i) claims to money that arise solely from (i) commercial
contracts for the sale ofgoods or services by a national or enterprise in the territoiy of a Party to
an enterprise in the territory of another Party, or (ii) die extension of credit in connection with
a commercial transaction, such as trade financing, other than a loan covered by subparagraph
(d); or (j) any other claims to money, diat do not involve the lands o f interests set out in
subparagraphs (a) dirough (h).

124 ECT, Art 1(6) reads:

‘Investment’ means eveiy idnd o f asset, owned or controlled directly or indirectly by an
Investor and includes: (a) tangible and intangible, and movable and immovable, property,
and any property rights such as leases, mortgages, liens, and pledges; (b) a company or
business enterprise, or shares, stock, or other forms of equity participation in a company or
business enterprise, and bonds and other debt of a company or business enterprise; (c) claims
to money and claims to performance pursuant to contract having an economic value and
associated with an Investment; (d) Intellectual Property; (e) Returns; (f) any right conferred
by law or contract or by virtue of any licences and permits granted pursuant to law to
.mr!=rrak'p anv Economic Activity in the Energy Sector,
 Investments 63

the conventional lines of BITs together with an ‘interpretative note’, which would
have had a limiting effect. 126
Most bilateral treaties contain a general phrase defining investment (such as ‘all
assets’) and several groups of illustrative categories. No special problems in inter­
preting such a clause will arise if the investment in question is covered by one of the
illustrative categories. An example for this approach is found in the BIT between
Argentina and the United States:
‘in v e s tm e n t’ m ean s every k in d o f in v e stm e n t in th e territo ry o f o n e P arty o w n ed or
co n tro lle d directly o r in d ire ctly by n atio n als o r co m p an ies o f th e o th e r P arty, such as equity,
d eb t, a n d service a n d in v e s tm e n t contracts; a n d includes w ith o u t lim ita tio n : tan g ib le a n d
in tan g ib le p ro p erty , in c lu d in g rights, such as m ortgages, liens an d pledges; a co m p an y or
shares o f sto ck o r o th e r in terests in a c o m p a n y o r interests in the assets thereof; a claim to
m o n e y o r a claim to p erfo rm an ce h av in g eco n o m ic value a n d directly related to an invest­
m e n t; in tellectu al p ro p e rty w h ic h includes, in te r alia, rights relatin g to; literary a n d artistic
w orks, in c lu d in g s o u n d recordings, in v en tio n s in all fields o f h u m a n endeavor, industrial
designs, se m ic o n d u c to r m ask w orks, trad e secrets, kn o w -h o w , a n d confidential business
in fo rm a tio n , a n d trad em ark s, service m arks, a n d trad e nam es; an d any rig h t co n ferred b y
law o r co n tra c t, a n d an y licenses an d p e rm its p u rsu a n t to law;

Other treaties are worded more in line with economic usage. For instance, the BIT
between the Ukraine and Denmark (1992) focuses on the purpose of establishing
lasting economic relations: ‘For the purpose of this Agreement, the term “invest­
ment” shall mean every kind of asset connected with economic activities acquired
for the purpose of establishing lasting economic relations.. . ’127
The agreement between the United States and Chile (2003) relies— in a special,
at first sight circular, way— on the term ‘characteristics of an investment’, referring
alternatively to commitment of resources, expectation of profit, or assumption of
risk:
In v e stm e n t m ean s every asset th a t an in v esto r ow ns or co n tro ls, directly or indirectly, th at
has th e characteristics o f an in v estm en t, in clu d in g such characteristics as th e c o m m itm e n t o f
capital o r o th e r resources, th e ex p ectatio n o f gain o r pro fit, o r the assu m p tio n o f risk .128

126 T he draft consolidated texts provided for a broad definition of the term ‘investm ent’ ('Ever)'
kind o f asset owned or controlled, directly or indirectly, by an investor’), followed by an illustrative list
including claims to money, claims to performance, or intellectual property rights. However, it was
foreseen that ‘an interpretative note will be required to indicate that, in order to qualify as an
investment under the MAI, an asset must have the characteristics of an investment, such as the
com m itm ent o f capital or other resources, the expectation of gain or profit, or the assumption of risk’.
See R Dolzer, ‘The N otion of Investment in Recent Practice’ in S Charnovitz, D P Steger, and P van
den Bosche (eds), Law in the Service o f Human Dignity: Essays in Honour o f Florentine Feliciano (2005)
2 6 1 ,2 6 5 -6 .
127 Agreement Concerning the Promotion and Reciprocal Protection o f Investments concluded
between the Kingdom o f Denm ark and the Ukraine on 23 October 1992, Art 1(1).
128 Free Trade Agreement between the Government of the U nited States of America and the
Government o f the Republic o f Chile, .Ait 10.27, 6 June 2003 (available at <http://www.ustr.gov7
Trade_Agreements/BilareraI/ChiIe_FTA/Final_Texts/Section_Index.htmI>).
64 Investors mid Investments

The Free Trade Agreement between the European Free Trade Association (EFTA)
and Mexico (2 0 0 0 ) emphasizes the exercise by the investor of effective influence on
management, thus implicitly distinguishing portfolio investment:
For the purpose o f this Section, investm ent m ade in accordance w ith the laws and regula­
tions o f the Parries means direct investm ent, w hich is defined as investm ent for the purpose
o f establishing lasting econom ic relations w ith an undertaking such as, in particular, invest­
m ents w hich give the possibility o f exercising an effective influence on the m anagem ent
thereof.129

In practice, the terms ‘rights conferred by contracts’ or ‘rights granted by the

general laws’ will often be part of the definition in investment agreements. The
matter becomes more complicated if the definition itself contains a reference to
the term ‘investment’ (eg ‘a claim to money related to an “investment”1), as is the
case in the US-Chile BIT or in a clause contained in the EC T .130 In such
circumstances, recourse to a general concept of ‘investment’ may be necessary.
Special issues may arise if the definition of an investment in treaties refers to
rights governed by the domestic laws of the host state. This is especially so if the
treaty recognizes as investments contractual rights or other rights granted under
national law. In such situations, the existence of an investment will depend upon an
examination of the relevant national law. For instance, an ICSID tribunal may have
to rule on the validity of a contract under the national laws of the host state or may
have to consider which rights are granted, or not granted, to the investor under
domestic law. In the individual case, the international tribunal will take into
account the understanding of the law by the organs of the host state and may
defer to this understanding. But the final ruling falls to the international tribunal.
BITs frequently include the formula ‘in accordance with host state law’ or similar
formulae in their definitions of the term ‘investment. Host states argued that this
meant that the concept o f ‘investment’, and hence the reach of protection under the
treaty, had to be determined by reference to their own domestic law. Tribunals have
rejected this approach. They have held that reference to a host state’s domestic law
concerns not the definition of the term ‘investment’ but solely the legality of the
investment. 131 The tribunal in Salini v Morocco152 stated in this respect:

129 Free Trade Agreement between the EFTA States and die U nited Mexican States, Art 45, 27
November 2000 (available at <http.7/secretariat.efta.int>).
See in diis respect Petrobart v Kyrgistan, Award, 29 March 2005 and the discussion of die ECT,
Art 1(6) (claims to money and claims to performance pursuant to contract having an economic value
and associated with an investment3).
131 Tokios Tokeles v Ukraine, Decision on Jurisdiction, 29 April 2004, paras 83 et seq; PSEG v
Turkey, Decision on Jurisdiction, 4 June 2004, paras 109, 116-20; Yaung Chi Oo v Myanmar, Award,
31 March 2003, paras 53-62; LESI— Dipenta v Algeria, Award, 10 January 2005, para 24(iii); Plama v
Bulgaria, Decision on Jurisdiction, 8 February 2005, paras 126-31; Gas Natural v Argentina, Decision
on Jurisdiction, 17 June 2005, paras 33, 34; Aguas del Tunari v Bolivia, Decision on Jurisdiction, 21
October 2005, paras 139-55; Bayindir vPakistan, Decision on Jurisdiction, 14 November 2005, paras
105-10; Saluka v Czech Republic, Partial Award, 17 March 2006, paras 183, 202-21; Inceysa v El
Salvador, Award, 2 August 2006, paras 190-207.
132 Salini v Morocco, Decision on Jurisdiction, 23 July 2003.
 Investments 65

T h is p ro v isio n [the req u ired com pliance w ith the laws a n d regulations o f th e h o st state]
refers to th e valid ity o f th e in v estm en t and n o t to its d efin itio n . M o re specifically, it seeks to
p rev en t th e Bilateral T reaty from p ro tectin g investm ents th a t sh o u ld n o t be p ro te c te d
because th ey w o u ld be illegal.133

(d) ‘Investm ent5 in Article 25 of the ICSID Convention

The current wide-ranging debate on ‘investment’ does not arise out of the defin­
itions in investment treaties, but out of the search for the proper understanding of
the non-defined term found in the ICSID Convention. As Article 25 of the
Convention serves as the jurisdictional gateway for access to ICSID, the under­
standing of an investment has increasingly been at the forefront of jurisdictional
arguments and tribunals have had to set forth their views in decisions on jurisdic­
tion. In disputes arising outside ICSID, the point does not normally arise in the
same way.
The method of interpreting ‘investment’ must follow Article 31 of the Vienna
Convention on the Law of Treaties. As regards the ‘ordinary meaning as the
starting point, academic commentary and arbitral jurisprudence have focused
in the initial phase on economic terminology, but have more recently looked
to the understanding of the term in the broad treaty practice of states. The more
treaties were concluded based on the same (or similar) definition by an increasing
number of states, the more natural it became to rely on this contemporary legal
practice, and the more artificial it appeared to turn to an amorphous understanding
of the term in traditional economic literature.
This view is supported by a careRil review of the travauxpreparatoires which has
established that the ICSID negotiations did not base their approach on any
particular traditional (economic or legal) etymology. Indeed, the Report of the
Executive Directors, which is frequently cited on this point by arbitral tribunals,
summarized the negotiations by way of concluding that the negotiating parties
deliberately refrained from adopting any (legal or economic) definition so as to
leave room for an understanding by the parties:
N o a tte m p t was m ad e to define th e term ‘in v estm en t’ given th e essential re q u ire m e n t o f
co n sen t b y th e p arties, a n d the m echanism th ro u g h w h ich C o n tra c tin g States can m ake
k n o w n in advance, if th ey so desire, th e classes o f disputes w h ich th ey w o u ld or w o u ld n o t
co n sid er s u b m ittin g to th e C e n tre (Article 2 5 (4 )).134

As is evident from the history of the Convention, several rounds of discussions

focused on efforts to delimit the term. However, the majority was not in favour of
setting a minimum duration of investment, such as three or five years, or a
minimum financial commitment. Also, there is no evidence in the record to the
effect that parties or tribunals should turn to the term as employed in economic
terminology; instead, what was to determine the content of the term ‘investment’

133 A t para 46. 134 1 ICSID Reports 28, para 27.

66 Investors and Investments

was the manner in which the states and the parties to a dispute understood the
concept.

(e) Case law

In its initial phase of the evolving case law, Fedax v Venezuela135 had a major
influence on the understanding o f ‘investment’. The Tribunal ruled that Article 25
provided a broad framework of ‘investment’ and also that the BIT in question
(similar to other agreements) gave a very broad meaning to the term, concluding
that die promissory notes held by the claimant were covered. In a separate step, the
Tribunal went on to examine whether the dispute concerned an ‘ordinary com­
mercial transaction’ and therefore would not be protected. In this context, relying
on academic commentary, the Tribunal turned to the ‘criteria approach’ and listed
five criteria (‘the basic features of an investment’) which it applied as follows to the
promissory notes die claimant had acquired:
T h e basic features o f an in v estm en t have b een d escrib ed as in v o lv in g a certain d u ra tio n , a
certain regularity o f p ro fit a n d re tu rn , assu m p tio n o f risk, a su b stan tial c o m m itm e n t a n d a
significance fo r die h o st S tate’s d ev elo p m en t. T h e d u ra tio n o f th e in v e stm e n t in this case
m eers th e re q u ire m e n t o f th e L aw as to co n tracts n e e d in g to e x te n d b e y o n d th e fiscal year in
w h ich th ey are m ade. T h e reg u larity o f p ro fit a n d re tu rn is also m e t by th e sc h ed u lin g o f
in terest p ay m en ts th ro u g h a p erio d o f several years. T h e a m o u n t o f capital c o m m itte d is also
relatively su b stantial. R isk is also involved as has b e e n explained. A n d m o s t im p o rtan tly ,
th ere is clearly a significant relatio n sh ip b etw een th e tra n sa c tio n a n d th e d e v e lo p m e n t o f th e
h o st State, as specifically req u ire d u n d e r th e L aw fo r issuing th e p e r tin e n t financial
in stru m en t. I t follow s th at, given the particu lar facts o f th e case, th e tra n sa c tio n m eets the
basic features o f an in v e stm e n t.136

Among the five points in this approach, four (substantial commitment, a certain
duration, assumption of risk, and a significance for the host state’s development)
came to be widely accepted, while regularity of profit was subsequently seldom
considered relevant.
The four criteria were clearly set forth in Salini v Morocco137 in 200 1 and, thus,
out of the legacy of the Fedax decision, the approach arose that would become
known as the ‘Salini criteria’ for investment. The four criteria were now folded into
the understanding of an ‘investment’ within the meaning of Article 25, apparendy
as cumulative mandatory requirements. The criteria had their origin in the manner
in which ‘investment’ was understood in economic terminology. Thus, economic
parlance was transformed into a legal definition which relied on the existence of
objective criteria inherent in a project.
An early case in which an ICSID tribunal emphasized that party autonomy finds
limits in the general understanding of an ‘investment’ and denied its jurisdiction

135 Fedax v Venezuela, Decision on Jurisdiction, 11 July 1997, paras 21—33.

1d6 At para 43.
l3/ Salini v Morocco, Decision on Jurisdiction, 23 July 2001, para 56.
 Investments 67

was Joy M ining v Egypt,l3d· In that case, the Tribunal found that the dispute
essentially concerned the question whether the claimant was entided to die release
of a bank guarantee that depended upon adequate performance of equipment
supplied by the claimant. The Tribunal examined whether such a bank guarantee
was to be characterized as an ‘investment’ or as an ‘ordinary feature of a sales
contract’. 139 It found that ‘it would really go far beyond the concept of an invest­
ment, even if broadly defined’140 to characterize the guarantee—-a contingent
liability— as an investment. As for Article 25 of the ICSID Convention, the
Tribunal emphasized ‘that there is a limit to die freedom with which the parties
may define an investment if they wish to engage the jurisdiction of ICSID tribu­
nals’. 141 The Award notes that in 1999 ICSID refused to register a request for
arbitration of a dispute arising out of a supply contract for the sale of goods.142 The
Tribunal recognized that the guarantee was given in the context of a contract with
the state, which also provided for a number of sendees such as engineering, stocking
of parts, duties of supervision, training, and technical services. 143 However, die
decision does not attach significance to these elements in its analysis of an
investment.
In subsequent rulings, a series of arbitral decisions cited and accepted the Salini
approach which, for a while, appeared to be firmly accepted .144 A degree of
divergence from this line became apparent in Malaysian Historical Salvors v Malay­
sia,,145 when the Tribunal argued that die Salini criteria should be considered not
so much for their mere existence, but for the intensity of their presence (‘their
quality’).
The first digression from the Salini approach came in Biwater G auffv Tanza­
nia,,146 The case involved a water project to which the claimant had contributed
more than USS 1 million, plus personnel and know-how. The respondent’s main
argument to deny the existence of an investment was that the project was not
reasonably profitable. The Tribunal assumed, not surprisingly, diat an investment
was present.

138 Joy M ining v Egypt, Award, 6 August 2004, para 63. See also Aditcbell v Congo, Decision on
Annulm ent, 1 Novem ber 2006, paras 39-40, annulling the underlying Award for failure to state
reasons in the context o f the qualification of a legal consulting firm as an investment under die ICSID
Convention.
,3y At para 44.
140 At para 45.
141 A t para 49.
U2 A t para 52.
143 At para 55.
144 SGS v Pakistan, Decision on Jurisdiction, 6 August 2003, para 133, footnote 113; A ES
Corporation v Argentina, Decision on Jurisdiction, 26 April 2005, para 88; Bayindir v Pakistan,
Decision on Jurisdiction, 14 November 2005, paras 130-8; Jan de N u l v Egypt, Decision on
Jurisdiction, 16 June 2006, paras 90-6; Saipem v Bangladesh, Decision on Jurisdiction, 21 March
2007, paras 99-106.
145 Malaysian Historical Salvors v Malaysia, Award, 17 May 2007.
146 Biwater Gaujj v Tanzania, Award, 24 July 2008, paras 323 et seq.
68 Investors and Investments

The Award’s reasoning amounts to a frontal attack 011 the Salini approach, even
though the consequences are not drawn in an equally clear manner . 147 The Biwater
Gaujf Tribunal’s criticism of the Salini Award rests on two points: that the text of
Article 25 of the ICSID Convention contains no reference to the Salini criteria, 148
and that the negotiating history clearly establishes that the definition of ‘invest­
m ent’ was intentionally left open .149 On this basis, the Tribunal concluded that
ICSID tribunals had no authority to impose their own view of appropriate fixed
criteria applicable to all cases.
The Biwater Gaujf Tribunal further elaborated that the Salini approach in effect
may arbitrarily exclude certain types of project from protection by ICSID, that this
may run counter to individual agreements among investors and host states, and that
the Salini approach is inconsistent with the developing broad consensus reflected in
bilateral investment treaties and their definitions of ‘investment’. Moreover, the
argument was considered untenable that only ‘special and privileged arrangements’
were envisaged to fall under the Convention, given that the term ‘investment’ was
intentionally left undefined .150
In view of these considerations, the Biwater Gaujf Tribunal opted for ‘a more
flexible and pragmatic approach’, which ‘takes into account the features identified
in Salini, but along with all the circumstances of the case’. 151 It was not so much
this conclusion— aiming at a compromise between party autonomy and the Salini
approach— as the reasoning of the Tribunal which amounted to an attack on the
conceptual foundations of the Salini approach and its progeny.
A second, harder strike against the Salini concept came with the Annulment
Decision in Malaysian Historical Salvors v Malaysia.152 This time, the critique of
Salini was more direct and elaborate, and the Salini-bzstd Award was now desig­
nated ‘a gross error that gave rise to a manifest failure to exercise jurisdiction’. In an
unprecedented Annulment Decision, a sizeable line of arbitral jurisprudence was to
be discarded as manifestly in error.
In a first step, the Decision on Annulment concluded that, under the BIT, the
claimant’s contract had to be considered as an ‘investment’, a point left open in the
Award. The Annulment Committee started its discussion of Article 25 with its view
of the ordinary meaning of investment, being ‘the commitment of money or other
assets for the purpose of providing a return’, noting that the term ‘investment’ is

147 At para 317, the Tribunal suggests that its approach followed a series of other Awards; this
reading seems to stretch earlier jurisprudence. As early as 2002, one Award had determined that ‘the
definition was left to be worked out in the subsequent practice of States, thereby preserving its integrity
and flexibility and allowing for future progressive development of international law on the topic of
investm ent’ (Alihaly v Sri Lanka, Award, 15 M arch 2002, para 33); see also CSOB v Slovakia, Decision
on Jurisdiction, 24 May 1999, para 90.
148 At para 312.
μ!9 At para 313.
130 At para 315.
At para 316.
l°2 Malaysian Historical Salvors v Malaysia, Decision on A nnulm ent, 16 April 2009. The Decision
came out of a divided ad hoc committee.
 Investments 69

unqualified in Article 25.153 Next, the Committee turned to the travauxprepar-

atoires of Article 25 in considerable detail. The result was that the history nowhere
points to the Salini criteria. The outer limits of the term ‘investment’ considered in
the travaux were that simple sales and transient commercial transactions fell outside
the scope of the Convention. W ithin these boundaries, the parties were free to
submit whatever dispute they wished to be decided . 154 The Salini position is
characterized as unduly narrowing the circumstances under which parties could
have recourse to ICSID 153 and as running the ‘risk of crippling the institution ’. 156
Since the decisions in Biwater Gauff’and the Malaysian Historical Salvors annul­
ment, jurisprudence has not yet settled. As shown below, some tribunals now
adhere, in different versions, to the new reasoning based on party autonomy.
Others continue to rely on the Salini approach, albeit in a modified manner,
mostly without discussion of the reasons given in Buvater Gauff and the Malaysia
case.
An award that clearly supports party autonomy in the definition o f ‘investment’
was rendered in Pantechniki v Albania,157 In this case, the claimant had won a bid
in an international tender for works on bridges and roads. W hen a dispute arose
concerning these works, the respondent submitted that no ‘investment’ within the
meaning o f Article 25 of the ICSID Convention had been made by the claimant.
Similar to the decision in the Historical Salvors annulment, the Tribunal con­
sidered that the Salini criteria were not found in the Convention and that they
introduced elements of subjective judgement and led to unpredictability .158 Cases
which at first sight are not covered under Article 25 might nevertheless be
submitted to ICSID by the parties for good reasons. 159 The Tribunal left open
the circumstances under which a project might not be called an ‘investment’, given
that it was clear that the claimant had made an investment. ‘For ICSID arbitral
tribunals to reject an express definition desired by two States-party to a treaty seems
a step not to be taken without the certainty that the Convention compels it .’160
RSM v Grenada161 considered that the Salini criteria (‘certain objective elem­
ents’) may serve only as flexible benchmarks. An agreement to express a commit­
ment to apply for an oil and gas agreement was considered to amount to ‘a readily
recognizable investment’, given that the claimant had agreed to supply resources for
carrying out exploration. This was so even though exploration had not yet begun;
the Tribunal looked to the envisaged overall project and not only to the pre­
exploration phase. 162 Specifically in regard to Article 25 of the ICSID Convention,
the Tribunal stated that ‘certain objective elements’ (which it did not specify) were
required for ICSID jurisdiction, but that the parties’ agreement on ICSID as the
forum for dispute settlement would be viewed as a presumption in favour of the
existence of an investment.

133 At para 57. 154 At para 72. 155 At para 62. 156 At para 73.
1:>/ Pantechniki v Albania, Award, 30 July 2 0 09. 158 At para 43. 155 At para 44.
1ϋ0 At para 42. 161 R SM v Grenada, Award, 13 March 2009. 162 At para 255-
70 Investors and Investments

Alpha v Ukraine163 ruled that the definition in a BIT was entitled, in the context
of Article 25, to ‘great deference’164 and should be set aside only in the presence of
highly persuasive reasons. The Tribunal had earlier found that an investment is an
asset ‘for which “an investor of one Contracting Party” caused money or effort to be
expended and from which a return or profit is expected in the territory of the other
Party ’. 165
Inmaris v Ukraine166 is based on similar reasoning. The case concerned several
contracts for the financing, repair, and operation of a windjammer sail training
ship.
Under the wording of the applicable BIT, these contracts fell under the defin­
ition of ‘investment’. However, the respondent argued that the claimant’s activity
had not led to a significant contribution to Ukraine’s development.
This Tribunal, too, pointed out that the ICSID Convention contains no
definition along the lines of the Salini criteria. It was ‘not persuaded to improve
such a mandatory definition through case law where the Contracting States to the
ICSID Convention chose not to specify one ’.167 The Tribunal underlined the role
of party autonomy:
in m o st cases— in clu d in g , in th e T rib u n a T s view , th is o n e— it w ill be ap p ro p ria te to defer to
th e S tate’s p a rtie s’ articu latio n in th e in s tru m e n t o f c o n s e n t (e.g. th e B IT ) o f w h a t
c o n stitu tes an in v estm en t. T h e S tate parties to a B I T agree to p ro te c t certain k in d s o f
eco n o m ic activity, an d w h e n th e y p ro v id e th a t d isp u tes b e tw e e n investors an d States relating
to th a t activity m ay be resolved th ro u g h , in ter alia, IC S ID arb itra tio n , th a t m eans th a t th ey
believe th a t th a t activity c o n stitu te s an ‘in v e s tm e n t’ w ith in th e m e a n in g o f th e IC S ID
C o n v e n tio n as well. T h a t ju d g m e n t, by States th a t are b o th P arties to th e B IT a n d
C o n tra c tin g S tates to th e IC S ID C o n v e n tio n , sh o u ld be given considerable w eight a n d
deference. A trib u n a l w o u ld have to have c o m p e llin g reasons to disregard su c h a m u tu ally
agreed d e fin itio n o f in v e stm e n t.168

In the Tribunal’s view, the Salini criteria may be useful to identify ‘investments’ in
BIT or contract practice which would define the term so broadly that the provision
deviated from any reasonable definition .169 In the case presented by the claimant,
no aberration of this kind was found.
W ith regard to other tribunals which, in principle, continue to look to the Salini
approach in spite of die rulings in Biwater and M H S, most have modified the
original concept by way of eliminating the requirement of a contribution to the
host state’s development. Sociite Generale v Dominican Republic170 relied on general
rules of treaty interpretation and concluded diat the protections of the BIT are
those listed specifically in the operative part of its text; provisions in the preamble
(such as those on the transfer of capital and technology) only spell out the overall
objective of the treaty, without influencing the applicable provision on ‘invest­
ment’. In this view, the issue of the specific contribution of an investment does not

163 Alpha v Ukraine, Award, 8 N ovem ber 2010. 164 At para 314.
165 Ar para. 3 0 8. 166 Inmaris v Ukraine, Decision on Jurisdiction, 8 March 2010.
167 At para 129. 168 At para 130. 169 At para 131.
170 Societe Generale v Dominican Republic, Award, 19 September 2008.
 Investments 71

arise in determining the existence of an ‘investment’.171 Therefore, the transfer of a

company for a nominal price of US$2 was not excluded from the sphere of rights
covered, given the relevance of other factors of the transaction, such as the market
value. 172 Also, the complexity of the organizational structure on the part of a
claimant has no bearing on the right to be protected under a BIT as long as no
illegality is involved. 173
According to Fakes v Turkey, 174 the requirement of a contribution to the
economic development of the host state is not covered by the wording of Article
25- It is to be considered only as an expected consequence of an investment,
uncertain at the time of the investment. 175 The Tribunal added that the ordinary
meaning of ‘investment’ also does not pertain to matters of its legality or good
faidi. 176 The Tribunal ruled that the term ‘investment’ had an objective meaning
with three criteria only (contribution, duration, risk) .177 The Award based its view
of ‘investment’ on its understanding of the ordinary meaning, as also used in the
context of the education of a child .178
In Alpha v Ukraine179 the investor had agreed, in a number of contracts, to spend
more than US$3 million on the renovation and improvement of a hotel and to
assist in its promotion. In return, the investor acquired die right to a share of the
regular income of the hotel.
The Tribunal considered that loans may qualify as investments, 180 as did the
complex business arrangements as a whole. Also, the Award stated that the
economic activities took place in the Ukraine, although the flow of the investor’s
money was mainly outside the Ukraine . 181 Minor errors in the documents submit­
ted by the claimants to Ukraine would not make the investment unlawful. 182
The conclusion was diat the claimant had an investment under the applicable
BIT, as the claimant had ‘a claim to money’ and had acquired an ‘asset’.
The Tribunal found that an investment is an asset ‘for which an “investor of one
Contracting Party” caused money or effort to be expended and from which a return
or profit is expected in the territory of the other Part)''’.183
W ith regard to the ICSID Convention, the Tribunal emphasized that a contri­
bution to a host state’s development should not be seen as a definitional element of
an investment, as its identification by the Tribunal implied second-guessing the
assessments that prompted the claimant’s investment. 184 More generally, as stated
above, the decision of two states underlying the definition of an ‘investment’ in a
BIT was entitled to deference and should only be set aside based on very strong
grounds.185 In addition, the claimant’s project also satisfied the Salini criteria.186

171 A t paras 32 et seq. 172 At para 36. 173 At para 47.

]7q Fakes v Turkey, Award, 10 July, 20 10. 175 At para 111, 176 At para 112.
177 Following Lesi-Dipenta v Algeria, Award, 10 January 2005, para II.13(iv).
178 A t para 110.
179 Alpha v Ukraine, Award, S November 2010.
180 A t para 273. 181 At para 279. 182 At para 297. 183 At para 308.
184 At para 312. 185 At para 314. 186 A t paras 317 et seq.
72 Investors and Investments

The high-water mark for the autonomous approach, with a requirement of six
criteria, came with Phoenix v Czech Republic15/ in which commitment, duration,
and risk were examined. A contribution to the development of the state was not
required, given that it would be impossible to ascertain; 188 instead, a contribution
to the economy would suffice and such a contribution should be presumed
(rebuttably) in the presence of the three first factors. However, in the Tribunal’s
view, for an investment to benefit from ICSID, it must also be made in accordance
with the laws of the host state and, finally, the assets had to be invested bona
fide. 189
GEA v Ukraine190 concerned a conversion contract in which the claimant agreed
to provide fuel for conversion and also to assist with the delivery of logistics, pay for
freight, resolve custom’s matters, and supply materials. The applicable BIT implied
that only such operations would be covered which by their nature had to be
considered as ‘investments’. The Tribunal did not elaborate on the ‘nature of an
investment’, but was satisfied that an investment existed under the BIT in the
circumstances of the case.191 Also, immoveable property held by the investor
formed an integral part of the contract and fell under the BIT.
As regards Article 25 of the ICSID Convention, the Tribunal inquired whether
the claimant had made a contribution (delivery of materials), lasting a sufficient
time (three years), and had undertaken a risk (market risk, credit risk, political risk).
The Tribunal ruled that these three criteria were met; a link to the development of
the state was not discussed. In contrast to the actual investment, the Tribunal
denied that a settlement agreement, an ICC Award, or a repayment agreement
pertaining to relations between an investor and a host state could be seen as an
investment. 192
The Tribunal reached its conclusions on the view that it did not have to take an
independent position on the definition of an ‘investment’ inasmuch as it assumed
that all approaches led to the same conclusion . 193
A different line of reasoning is set forth in Abaclat v Argentina.194 The Tribunal
in this instance drew on the analysis in Madicorp v Egypt195 and distinguished
between the contribution made by an investor, reflected in Article 25 of the ICSID
Convention, and the rights and values deriving from that contribution, set out in
the definition of ‘investment’ in a BIT; values are only protected if generated by a
specific contribution, contributions only if they generate a certain value. 196
In pursuit of these premises, the Abaclat Tribunal concluded that an investment
has to fit into the BIT definition and into the scheme of Article 25 of the ICSID
Convention . 197 The Tribunal added that the silence of Article 25 on the definition
of an investment was intended to leave a certain amount of room for the parties
further to develop the concept of investment. 198 Article 25 was meant to encourage

1S/ Phoenix v Czech Republic, Award, 15 April 2009· 188 At para 85.
189 At para 114. 190 GEA v Ukraine, Award, 31 March 2011.
195 At para 150. 191 A t paras 157 et seq. 193 At para 143.
194 Abaclat v Argentina, Decision on Jurisdiction, 4 August 2011.
193 Malicorp v Egypt, Award, 7 April 2011, paras 109 et seq.
196 Abaclat at para 350. 19/ At para 351. 198 At para 347.
 Investments 73

foreign investments, thereby giving the parties ‘the tools to further define what kind
of investment they want to promote’. The Salini criteria were never included in the
ICSID Convention, ‘while being controversial and having been applied by tribu­
nals in varying manners and degrees. . . \ 199
Following its distinction between rights and values, on the one hand, and
contributions, on the other hand, the Tribunal considered that the purchase o f
security entitlements by the claimants qualified as an investment, because these
entitlements were covered by BITs and amounted to a contribution .200 As the
funds were listed and protected as values under the BIT, they qualified as an
‘investment’ even though they were not linked to a particular enterprise or oper­
ation; the forum selection clauses had no bearing on this result. Also, the Tribunal
ruled that the investments were made in Argentina where die funds were used .201
The borderline between an ordinary commercial transaction and an ‘investment
was addressed in Global Trading v Ukraine.201 The case had to address the sale of
chicken by a US firm to a Ukraine state entity. The claimant pointed to the special
circumstances under which the sales agreements were concluded. The Prime
Minister of the Ukraine had requested the US Embassy to identify suitable US
poultry exporters with the aim of reducing soaring domestic prices for poultry in
the Ukraine, and the resulting poultry and purchase import programme had the
purpose of promoting the economic development of the Ukraine; the state under­
took to honour its contractual commitments.
The Tribunal started out from the premise that Article 25 of the ICSID
Convention is of an autonomous nature, separate from the rules of a BIT. The
ruling considered that the weight of authority was in favour of this view,203 limiting
the freedom of states to define the cases to be accepted by ICSID; ‘Had the drafters
of the Convention wished to accord an absolute freedom of that kind, they would
have said so, not simply left Art. 25 without a formal definition for the term
‘‘investment”.’204 Thus, the Tribunal was not prepared to consider the argument
that the lack of a definition indicated the will of the drafters to leave the matter to
subsequent practice. As regards the argument by the claimants regarding the
circumstances behind the sale programme, the Tribunal gave short shrift to the
claimants’ position; it considered that each contract was of limited duration on a
commercial basis, and ruled, abruptly, that the claim was ‘manifestly without
merit’.205
The distinction between a sale and an investment was also central to the decision
in Romak v Uzbekistan206 which concerned deliveries of wheat over a period of five
months. The Tribunal, sitting under the rules of UNCITRAL (not ICSID),
considered that the word ‘investment’ in a BIT must have a meaning of its own.
In support, the Tribunal (surprisingly) referred to the illustrative, non-exliaustive

199 A t para 3 64 . 200 At para 365· 201 At para 374.

202 Global Trading v Ukraine, Award, 1 December 2010.
203 At para 43.
204 At para 44.
205 O n certainty of law, see Saba Fakes v Turkey, Award, 10 July 2010, p 32.
206 Romak v Uzbekistan, Award, 26 November 2009.
74 Investors and Investments

definition in die applicable BIT 207 and also to the conclusion of a trade agreement
on the same day the BIT was signed.
To identify the autonomous meaning of ‘investment, the Award turned to
Black’s Law Dictionary,208 but subsequently decided to require three criteria;
contribution, duration, and risk. In this context, the Tribunal assumed that the
term ‘investment’ should be presumed to have the same meaning in the context of
ICSID and outside ICSID .209 At the same time, the Tribunal assumed that parties
are free to define an ‘investment’ in any way they wish.210 In the end, the Award
examined the diree criteria and ruled that the wheat sales satisfied none of them.

(f) Towards a new synthesis?

The evolving jurisprudence moves in meandering directions and does not follow a
uniform approach. The main dividing line concerns the question whether the term
‘investment’ as found (but not defined) in Article 25 of the ICSID Convention
must be understood on an autonomous basis (‘the self-contained approach’), or
whether it must be construed to refer to its understanding by the parties to the
dispute in each particular case (‘die party-defined approach’). Both approaches
have been articulated in different variations. In particular, the Salini criteria were
sometimes referred to as mandatory, sometimes as illustrative. The party-based
approach was sometimes phrased as leaving full freedom to the parties, sometimes
as restricted within reasonable boundaries.
The negotiating history of the ICSID Convention speaks in favour of a party-
defined approach. From this viewpoint, there is no justification of criteria beyond
the terms of the Convention or the BIT. The concrete terms by which an ‘invest­
m ent’ is understood are those laid down by the parties, be it in a BIT or in a special
agreement between the host state and the investor, and no further interpretative
search for the proper meaning o f the term is required. In general, die relevant
segments found in the definition of BITs, being phrased in a wide manner, have so
far not raised any particular problems. Exceptionally, difficulties arise when defin­
itions of the term ‘investment’ use that same term.
The self-contained approach is confronted with the need to go beyond the
understanding of the parties and find support for its interpretation outside the
understanding of the drafters of the ICSID Convention. Beyond a non-explained,
strictly intuitive conception, tribunals following this line chose to rely on their view
of ‘investment’ either in everyday language— such as the phrase ‘investment in
children’— or in definitions found in dictionaries— such as Black’s Law Dictionary.
Inasmuch as tribunals following the self-contained version aim to set out specific
manageable criteria to delineate the contours of an ‘investment’, the task remained
for these tribunals to derive, directly or indirecdy, such criteria from their preferred
definition.

20/ Ar para 188.

20S '[T]h.e comm itm ent of funds or other assets w ith the purpose to receive a profit’ (at para 177).
209 Ac para 194. 210 A t para 205.
 Investments 75

Based on such definitions, or simply on intuition, these tribunals have set forth
their criteria for an ‘investment’. The number of criteria so established has varied
in arbitral practice between three, four, and six. All these tribunals included the
following three factors: a contribution by the investor, duration, and risk. Other
tribunals have added to these three criteria a contribution to the development of the
host state, while regularity of profit was included only occasionally. In Phoenix v
Czech Republic, the Tribunal ruled that legality of the investment and good faith
also must be present to satisfy the conditions for the existence of an investment.
The most controversial criterion has been the need for a contribution to the
development of the host state, with support mainly being drawn from the reference
in ICSID’s preamble to ‘the development of the host State’. Other tribunals have
focused on such a contribution because, in their view, there is a close nexus between
the presence of a contribution and development: the investor’s contribution
generates, according to this view, the rights and values protected in the definition
of the BIT.
All variants of the autonomous understanding of investment find it difficult to
support dieir position by reference to the negotiating history or to the text of Article
25. It has been pointed out that the examination of a contribution to the develop­
ment of the host state will depend on a subjective assessment; this view is supported
by the (uncontroversial) position that each state has the sovereign right to decide
which foreign investments will foster the development of its economy and will
accordingly admit and regulate such investments. As long as the investment is
lawful, under the host state’s laws, there is no room for an investment tribunal to
deny protections under a BIT with the argument that the host state’s development
stands in the way.
The criterion of risk has also turned out to be of limited value in the character­
ization of an ‘investment’. Practically every business deal which extends beyond the
day of its conclusion will in some way involve circumstances that endanger the
certainty that bodi sides are able and willing to comply with what was agreed. In
other words, the existence of a ‘duration’ for an investment will, in practice, imply
the existence of a risk, and the operational significance of ‘risk’ and ‘duration’
practically coincides.
Inasmuch as these considerations point to ‘commitment of risk’ and ‘duration’ as
the ultimate acceptable differentiating criteria embodied in the Salini formula, the
definition of an investment will boil down to distinguishing an ‘investment’ from a
one-off deal in the form of a trade transaction (or sale), widi no component of
duration.
The remaining point is to differentiate between ‘trade’ and ‘investment’; more
precisely between an ‘investment’ and a one-time ordinary commercial action
consisting of a one-off deal. At this point, the systematic analysis coincides with
the travaux confirming that a one-time sale will not be considered as an ‘invest­
ment’, without any other definitional requirement. Moreover, the ordinary mean­
ing o f ‘investment’ refers to an economic transaction which is different from a trade
transaction, both from the viewpoint of general usage and from the vantage point of
76 Investors and Investments

international legal terminology. Trade and investment have for a long time been
considered to be separate in international practice and in legal terminology.
Practice illustrates that issues other than the distinction of trade may arise in the
definition of investment: for instance as regards a bank guarantee, articles bought
by a foreign tourist, land acquired by way of inheritance, or the building of a church
by a foreign organization or other matters. For such issues, die Salini criteria
understood as benchmarks may indicate the proper solution. At the same time,
the party-based approach may be limited in such cases in light of the ‘nature of an
investment’, in line with the travaux of Article 25 of the ICSID Convention .211
Tribunals may have to decide this matter without recourse to an abstract definition
in light of the circumstances of each case.
Inasmuch as the will of the parties will properly be considered as the primary
guidepost, deference to this will is appropriate and the ‘nature of an investment’ will
operate as a corrective only in cases of a manifest departure from the ordinary
understanding of Investment’ by the parties.
In summary, the current state of the art indicates that neither a strict insistence
_ l_ : _ ___ ____ ____________ - Δ ___________________ 1_________ I ____________ 1. _________1_______ _ L _ 1.1 . f „ „
o n u u jc c u v c ciiLCiia iiu i a s u ic u y paj.Ly-ua.bcu a.ppiua.u.1 ma.v aiw ays uc iuiLa.uj.c iur
the general delineation of an investment. Instead, a survey of possible factual
settings and existing case law appears to indicate that a combination of the flexible
versions of the two approaches will best serve as the proper framework. As a result,
an ‘investment’ within the meaning of Article 25 will exist when the parties to a
BIT or an agreement between host state and investor have agreed to treat the
project as an ‘investment’, provided that the use of that term does not stand in
obvious contrast to its general understanding.

(g) Investm ent ‘in the territory o f the host state’

Some treaties refer to investments ‘in the territory’ of die host state .212 At times
respondents have argued that this requirement has not been met, since the would-
be investor has not established a significant physical presence in the host state. The
problem has arisen in cases involving financial instruments, such as loans, and in
cases involving pre-shipment inspection services.213
In Fedax v Venezuela the investor had merely acquired promissory notes issued
by the host country. The Tribunal rejected the respondent’s argument that the
claimant had not invested ‘in the territory’ of Venezuela:
"While it is true that in some kinds o f investm ents . . . such as the acquisition, o f interests in
imm ovable property, com panies and the like, a transfer o f funds or value will be made into

211 See History o f the Convention, vol II. pp 952, 972, statements of A Broches.
2.2 The E CT in Art 26(1) refers to investments ‘in the Area’ of a contracting party. NAFTA, Art
1101(1) speaks of ‘investments in the territory’.
2.3 In cases involving inspection sendees, tribunals have found that diere had, in fact, been ‘an
injection o f funds into the territory' of the host state and that ‘a substantial and non-severable aspect of
the overall service was provided in [the host state]’ (SGS v Pakistan, Decision on Jurisdiction, 6 August
2003, para 136; SGS v Philippines, Decision on Jurisdiction, 29 January 2004, paras 99-112).
 Investments 77
the territory o f the host country, this does n o t necessarily happen in a n um ber o f types o f
investments, particularly those o f a financial nature. It is a standard feature o f m any
international financial transactions that the funds involved are n o t physically transferred
to the territory o f the beneficiary, b u t are p u t at its disposal elsewhere.214

Unlike cases involving the acquisition of financial instruments, tribunals have taken
a restrictive approach in cases in which a physical business was in question. In
Canadian Cattlemen v United States,215 the Canadian claimants were engaged in
the beef and cattle business and brought their claim against the United States
because of alleged discrimination against them in the US market. All the investors’
investments were on Canadian territory, and the dispute concerned the conditions
set by the United States for cross-border trade applicable to the claimants.
The Tribunal ruled that the NAFTA protected only investments made in the
territory of another state, that is, foreign investment. The Tribunal carefully
reviewed the structure of the NAFTA and various relevant specific provisions; the
lack of specific language in the NAFTA regarding the territory o f the investment
did not stand in the way of its conclusion.
In Bayvieiu v Mexico,216 the claimants, US nationals, operated a business in
Texas involving farms and irrigation facilities in Texas. For this business, the
claimants depended upon water carried by the Rio Bravo/Rio Grande River
which originates in Mexico. W hen Mexico took action which affected die flow
of water, the claimants submitted their case under Chapter Eleven of the
NAFTA. The water rights which the claimants held in Texas were granted by the
State of Texas, and Mexico was allegedly obliged to provide certain water rights to
Texas following a 1969 ruling of a Texas court.
The Tribunal considered that the NAFTA only covers investments made by a
national of one party in the territoiy of another NAFTA party, primarily regulated
by the legal order of the foreign state. PI ere, the investment was made by US
citizens on the territoiy of the United States,217 and under Mexican law the
claimants held no rights to water on Mexican territory .218 The NAFTA Tribunal
therefore found that it had no jurisdiction for the claim.
In Grand River v United States the concept o f ‘investment’ laid down in Article
1139 of the NAFTA was at issue;220 different from most BITs, the definition relies
on the term ‘enterprise’ and is not worded in an open-ended manner.
The claimants’ cigarette business centred on the manufacture of cigarettes in
Canada and the export of the products to the United States. Similar to the decisions
in Bayview and Cattlemen, the Tribunal ruled that in such a setting the claimants’

214 Fedax v Venezuela, Decision on Jurisdiction. 11 July 1997, para 41. T o the same effect: CSOB v
Slovakia, Decision on Jurisdiction, 24 May 1999, paras 77, 78. See further L E SI & ASTALD 1 v Algeria,
Decision on Jurisdiction, 12 July 2006, para 73.
2,5 Canadian Cattlemen v United States, Award on Jurisdiction, 28 January 2008.
216 Bayvieiu v Mexico, Award, 19 June 2007.
217 At para 113.
2,8 At para 116.
219 Grand River v United- States, Award, 11 January 2011.
220 For the text see Appendix, p 355·
78 Investors and Investments

business was not considered as an ‘investment’ in the United States. The claimants
also failed in their argument that they had established a business according to the
Seneca Nation of Indians Business Code within the territory of the Seneca Nations
Reservations in the State of New York, in accordance with traditional custom and
practice as determined by the tribal elders.
Article 25(4) of the ICSID Convention gives contracting states the possibility of
notifying the Centre of classes o f disputes that they would or would not consider
submitting to ICSID’s jurisdiction. Such notifications are rare221 and serve infor­
mation purposes only and neither restrict nor expand ICSID’s jurisdiction ratione
materiae.
The decisive criterion for the foreignness of an investment is the nationality of
the investor. An investment is foreign if it is owned or controlled by a foreign
investor. There is no additional requirement o f foreignness for the investment in
terms of the origin of capital.222

221 A list of notifications under A rt 25(4) is available at <http://www.worIdbank.org/icsid/pubs/

icsid-8/icsid-8-d.htm>.
222 Tradex vAlbania, Award, 29 April 1999, paras 105, 108-11; Olgidn v Paraguay, Award, 26 July
2001, para 66, footnote 9; Tokios Tokeles v Ukraine, D ecision on Jurisdiction, 29 April 2004, para 80.
 IV
Investment Contracts

1. T ypes o f investm en t contracts

Large-scale investments may last for decades. They involve interests of the investor,
as well as the public interests of the host state. General legislation of the host
country may not sufficiently address the nature of the project and the kind of
interests concerned. The legal setting of an investment may need to be adjusted to
its specifics and complexities by way of an investment contract. The investment
contract will also reflect the bargaining power of both sides under the circumstances
of the individual project. Therefore, investors and host states often negotiate
investment agreements. N ot surprisingly, no general pattern applicable to all
situations has emerged in practice. Even within individual sectors of the economy,
typical agreements have evolved significantly over the past decades.
In practice, especially the legal regime of oil and gas projects by multinational
companies has been determined in large part by investment agreements.1 In the
decades before 1945, these agreements (concessions) typically covered large areas of
land, transferred title of the oil reserves to the investor, and did not contain an
obligation of the investor to explore or produce oil. Under these agreements the
host country would receive a bonus for the concession as such and royalties for
barrels actually produced.
A second generation of agreements emerged in the 1960s and 1970s. These
reflected the new power of oil-producing countries, their desire to control their
resources,2 and their aspiration to develop the necessary skills and technologies
within their own borders. Often, state-owned companies were set up for the
purpose of concluding and supervising agreements with foreign investors.3 Areas
with potential reserves were more restricted and closely defined, and the title to oil

1 See R D Bishop, ‘International Arbitration of Petroleum Disputes: The Development of a Lex

Petroled? (1998) 23 Yearbook o f Commercial Arbitration 1131; E Smith, J Dzienkowski, O Anderson,
G Conine, J Lowe, and B Kramer, International Petroleum Transactions (2003); D Johnston, Inter­
national Petroleum Fiscal Systems and Production Sharing Contracts (1994); A El-Kosheri and T Riad,
‘The Law Governing New Generation of Petroleum Agreements: Changes in the Arbitral Process’
(1986) 1 LCSLD Review-FILJ 257; A Alkholy, ‘Arbitration in Energy D isputes’ (2000) 2 J Arab
Arbitration 46; A El-Kosheri, ‘Le Regime juridique cree par les accords de participation dans le
domaine petrolier’ (1975) 147 Collected Courses o f the Hague Academy o f International Law 219.
2 O n the concept o f ‘perm anent sovereignty over national resources’ and U N GA Res Nos 1803
(14 December 1962) and 3281 (12 December 1974), see p 4.
3 See pp 219 et seq.
80 Investment Contracts

and gas remained with the host country. The risks inherent in a failure to find
suitable oil or gas were shifted to the foreign investor who was, however, allowed to
recover exploration costs in cases where commercially usable reserves were found.
Once oil or gas was produced, the product was divided between the two parties to
the investment agreement under a negotiated formula, often subject to a gradual
decrease of the rights of the investor. These arrangements were set out in so-called
production-sharing or profit-sharing agreements. Increasingly, host countries
tended to restrict the role of the foreign investor to the provision of technical
expertise and services. Remarkably, however, exploration remained in the hands of
the investor at its own risk. While this type of agreement seems preferable at first
sight for the host country, especially if non-exporting, it also places the burden of
financing on the host country and therefore has not been relied upon by all
countries.
Beyond the area of energy exploration and production, projects creating utilities
and infrastructure blossomed, especially in the early 1990s, in the era of privatiza­
tion. Typical arrangements often relied on the concept o f ‘build, operate, and own’
(BOO), placing all major benefits and risks on the investor. Sometimes, the entire
project was to be transferred to the host country after a certain period (build,
operate, transfer (BOT)). Joint venture arrangements with companies of the host
state have their own advantages for the foreign investor, but they have sometimes
also led to disappointments. Projects for construction alone usually follow a special
pattern .4
Beyond the allocation of rights, tasks, risks, and responsibilities, investment
contracts had to lay down the ground rules on which the parties agreed. These
rules included, in particular, the law applicable to the project and the choice of a
forum for dispute resolution. Specific provisions were often included concerning
force majeure, good faidi, and changed circumstances. From a legal perspective, the
most complex and difficult questions often concerned the inclusion of clauses
regulating the conduct of the parties in the event of political changes in the host
country and in the event of changes in the economic equilibrium between the host
state and the investor.
Occasionally, tribunals have had to define the term ‘investment agreement’. In
Duke Energy v Ecuador5 the Tribunal very narrowly held that such an agreement
must be entered into by the host state and the foreign investor, and not by a state-
owned entity or a local company established by the investor.6 In Burlington v
Ecuadorf the Tribunal had to answer the question whether an agreement between
the host state and a subsidiary of the claimant incorporated in a third state
amounted to an Investment agreement’ between die host state and the claimant.
The case concerned tax matters covered by the US-Ecuador BIT only if they arose
under an ‘investment agreement’ between the host state and a national of the other

H See in general M Sornarajah, The Settlement o f Foreign Investment Disputes (2000) 31-46.
3 Duke Energy v Ecuador, Award, 18 August 2008.
6 At paras 1S2 et seq.
7 Burlington v Ecuador, Award, 2 June 2010.
 Applicable law 81

party. In a split decision, following earlier jurisprudence, the Tribunal found diat
such an agreement was not an ‘investment agreement within the meaning of the
US-Ecuador BIT .8

2. Applicable law

For both the state and the investor, the determination of the law applicable to the
contract and the agreement on dispute resolution are often considered the most
sensitive legal issues.9 The host state will view both areas from the vantage point of
protecting its national sovereignty. The investor’s priority will be the choice of a
legal order that provides a stable and predictable legal environment and of a forum
for dispute resolution that will preclude bias or political influence against the
investor.
Depending upon the bargaining power and the negotiating skill of the parties, a
number of possible choices have emerged for the applicable law . 10 These range
from a mere reference to the law of the host state to an exclusive choice of the rules
of international law. Between these extremes, general principles of law, usage in the
industry, and, more seldom, rules of natural justice or equity have been chosen.
Often, a combination of national law and international rules as applicable law has
been negotiated as a compromise.
The matter will also be determined by the position of international law in the
domestic order of the host state. If international law is applicable, on the basis of the
constitution of the host state or of legislative measures, the investor will obviously
find it less difficult to accept a reference to domestic law alone. However, such rules
in a constitution or legislative provisions are subject to unilateral change on the part
of the host country without a right to object on the part of the investor.
Choice of law clauses may be in need of interpretation in various ways. The
meaning o f clauses referring to general principles of law or to the usage of trade may
not be self-evident in light of the circumstances of each case. The reference to the
rules or principles of international law itself may raise issues of interpretation, as will
be seen in the context of the understanding of Article 42 of the Convention on the
Settlement of Investment Disputes between States and Nationals of Other States
(ICSID Convention ) .11
Any reference in a choice of law clause to two different legal orders or principles
will, in the event of conflict or diversity between them, pose the question of the
hierarchy or selection of the legal order for the individual issue concerned. A simple

8 At para 234.
9 See pp 288 et seq.
10 The decision in Azpetrol v Azerbaijan, Award, 8 September 2009, paras 4 9-66, deals more with
English contract law— being die law chosen by die parties— than with international rules. Investment
tribunals do not hesitate to apply rules of a domestic legal order (of the host state or of third parties),
even though they sit as international tribunals and may not have previously acquired special expertise in
the domestic law to be applied.
n See pp 2 8 8 -9 .
82 Investment Contracts

reference to domestic law will, in itself, raise the question whether an international
tribunal would, in view of its own legal basis and in light of the rules of inter­
national law applicable to aliens and foreign companies, invariably consider inter­
national rules irrelevant. 12
The Permanent Court of International Justice, in the Serbian Loans case., pointed
to the requirement that every contract must have a basis in a national legal order.13
In light of that statement, tribunals have seen no reason to address the role of
general rules of international law governing aliens. 14

3. Stabilization clauses

Investment agreements are negotiated by the investor and the host state to allow for
special rules,between the two parties, separate from die general legislation of the
host state. In principle, it will be the intention of both sides to create a legal
framework that will last from the beginning to the end of their common project.
For the investor, a key concern will invariably be to safeguard the stability of the
agreement. Applicable treaties between the host state and the investor’s home state
may provide for rules desiged to ensure or to promote stable contractual relations
for their citizens— such as umbrella clauses— or a provision on fair and equitable
treatment. However, such rules will not always be in place,15 or they may not be as
specific as desired by die investor. Against this background, an ongoing practice of
including a stabilization clause in state-investor agreements has developed.16 No
single specific wording of such clauses has emerged and different types, with
different functions and scope, have been drafted. In consequence, the significance
and interpretation of each such clause will have to be assessed in light of its specific
wording.
It is not surprising that investors have sought to negotiate stabilization clauses in
particular with those states whose political and legal regime has in the past been
subject to frequent changes or volatility. Governments of such states may have
reason to agree to such clauses because they wish to attract foreign investment and
because stability serves as an instrument to facilitate this goal. 17 For the host

12 See p 288-93.
13 PCIJ, Judgm ent N o 14, Series A, N o 20, 41: ‘Any contract which is not a contract between
States in their capacity as subjects of international law is based on die municipal law o f some country.’
14 See Delagoa Bay Claim (U K v Portugal), Award, 24 July 1875, 28 RIAA 157; Lena Goldfields v
Soviet Utiion (1930), (1950) 36 Cornell L Q 31, 42·, Aramco v Saudi Arabia (1958) 27 ILR (1963) 117
and, on the relationship of international law with domestic law, Ruler o f Qatar v International Marine
Oil Company (1953) 20 ILR 534.
15 For recent practice, see P Cameron, International Energy Investment Law: The Pursuit o f Stability
(2010) 233 et seq.
16 Amoco International Finance v Iran, 15 Iran—US C T R 189, 239 (1987), observed diat die term
‘stabilization clause’ normally refers to ‘contract language which freezes the provisions of a national
system o f law chosen as the law of the contract as to the date of die contract in order to prevent the
application to the contract of any future alterations of this system’.
17 See also A Faruque, ‘Validity and Efficienq7 of Stabilization Clauses: Legal Protection vs
Fundamental Value’ (2006) 23 J In t’l Arbitration 317, 335.
 Stabilization clauses 83

country, a stabilization clause may be more attractive than a treaty, which requires
lengthy international negotiations and ratification processes. Some states have
introduced specific legislation which authorizes the executive branch to conclude
a special contract stabilizing die actual agreement (‘Legal Stability Agreement’
(LSA)).IS
A stabilization clause in the strongest sense would require the host state not to
alter its general legal regime for the area addressed in the clause. Typically, however,
the investor’s concern will be limited to the stability of the individual agreement it
has concluded with the host state. Thus, stabilization in the form of an intangibility
clause19 will provide that changes in the law of the host state will not apply to the
investment contract. It is not uncommon for the contract to limit the scope of
the stabilization clause to specific areas such as tax law.20 Another version consists
of so-called freezing clauses. These will incorporate into the agreement, as die
applicable law, the law of the host state as it stands at a specified time, such as the
law valid when the contract enters into force.21
A doctrinal issue that arises for stabilization clauses in general is whether they will
bind the host state or whether the sovereignty of the state will operate to allow a
change of the stabilization clause itself. No international tribunal has ruled that a
stabilization clause is invalid or will have no legal effect.
In AGIP v Congo,22 the Tribunal had to deal with a stabilization clause that
ensured that changes in domestic law by the Congo would not affect certain parts of
the contract (pertaining to the nature of the protected company) with
AGIP. When, later on, the Congo nationalized the company, the Tribunal exam­
ined the compatibility of the nationalization decree with the stabilization clause
from the viewpoint of international law (to which die contract explicitly referred).
The Tribunal ruled:
These stabilization clauses, which were freely entered into by the Government, do not affecr
the principle of its legislative and regulatory sovereignty since it retains both with respect to
those, whether nationals of foreigners, with whom the Government has not entered into
such undertakings, and that, in the present case, they are limited to rendering the modifica­
tions to the legislative regulatory provisions provided for the Agreement, unopposable to the
other contracting party.
... It suffices to concentrate the examination of the compatibility of the nationalization
with international law on the stabilization clauses. It is indeed in connection with these
clauses that the principles of international law are used to complete the rules of Congolese
law. The reference made to international law suffices to demonstrate the nationalization

18 In D uke Energy v Pent, Award, 18 August 2008, the Tribunal had to interpret such an LSA; see
also Cameron, n 15, 246 et seq on LSAs.
19 Sometimes also called an inviolability clause; for examples see Cameron, n 15, 74.
20 For examples, see Cameron, n 15, 70.
21 In D uke Energy v Peru, Award, 18 August 2008, die Tribunal found that not only the text but
also its interpretation was frozen.
22 A G IP v Congo, Award, 30 November 1979.
84 Investment Contracts

carried out in the present case. It follows that the G overnm ent is obliged to compensate
A G IP for the damage suffered by it as a result o f the n a tio n a liza tio n .. ,23

In LETCO v Liberia?4 the Tribunal explained:

This clause, com m only referred to as a ‘Stabilization Clause1, is com m only found in long­
term developm ent contracts and . . . is m eant to avoid the arbitrary actions of the contracting
government. This clause m ust be respected, especially in this type o f agreement. Otherwise,
the contracting State may easily avoid its contractual obligations by legislation.23

In Aminoil v Kuwait, 2b the Tribunal concluded that a typical stabilization clause

should not be presumed to imply that a state lost the right to expropriate a contract
running for a period of 60 years. The Tribunal came to die conclusion that the
main effect of a stabilization clause would lie in the calculation of the amount of
compensation, provoking a sharp dissent from Arbitrator Fitzmaurice.
The ruling in Amoco International Finance v Iran2'' follows the Amino il-gztttxn to
a considerable extent, but with a different Anew on this point in the Concurring
Opinion of Judge Brower. The majority in the Amoco case also took the view that a
typical stabilization clause in a contract should not be understood as a renunciation
on the part of the host state of its right to expropriate a concession.
None of the cases discussed here had to apply an umbrella clause in an invest­
ment treaty, which is designed to protect an investor against violation of a
contractual arrangement.
The premise of diis jurisprudence (mostly not articulated) is the recognition that
a state has the power to bind itself, from the viewpoint of an international tribunal,
and that respect for the principle pacta sunt servanda as well as the principle of good
faith will stand in the way of an attempt to ignore the contractual bond. Tribunals
have differed in their views whether a violation of the stabilization clause will
require specific performance of the contract28 or whether the aggrieved party has
a right to be compensated for its loss.29
Special questions will arise when a stabilization clause is included in a contract
between an entity created by the state, such as a national company, and a foreign
investor. Here, it will be relevant whether the national company has been given the
power to bind the state or whether the foreign investor may rely on such a
commitment on other grounds such as good faith; tribunals have not yet clarified
the point.
In the oil and gas industry, it is not infrequent that stabilization is achieved by
means other than a stabilization clause in the conventional sense. One technique
here is that investment agreements provide that the national oil company, being the

23 Ac paras 86—S.
24 LETC O v Liberia, Award, 31 March 1989.
2:1 2 ICSID Reports 368. See also M IN E v Guinea, Decision on A nnulm ent, 22 December 1989,
paras 6.33, 6.36; CM S v Argentina, Award, 12 M ay 2005, para 151.
26 Am inoil v Kuwait, Award, 24 M arch 1982.
-■ Amoco International Finance v Iran, Award. 14 July 1987.
28 TOPCO v Libya, Award, 19 January 1977.
29 LIAM CO v Libya, Award, 12 April 1977, w ith an explicit recognition of pacta sunt servanda.
 Renegotiation!adaptation 85

investor’s contractual partner, will pay the tax for the foreign investor and that this
will also be so in the event of a future change of domestic tax law.

4. R enegotiation/adaptation

As an alternative to preserving the sanctity and stability of a contract, the more

recent trend has been to agree on a renegotiation clause. Such a clause may focus on
economic equilibrium rather than on legal stability .30 The following clause was, for
instance, adopted in 1994 in the Model Exploration and Production Sharing
Agreement of the Sheikdom of Qatar:
Art. 34.12 Equilibrium of the A greem ent
W hereas the financial position o f the C ontractor has been based, under the Agreem ent, on
the laws and regulations in force at the Effective Date, it is agreed that, if any future law,
decree or regulation afreets C ontractor’s financial position, and in particular if the customs
duties exceed. . . percent during rhe term o f the A greem ent, both parries shall enter into
negotiations, in good faith, in order to reach an equitable solution that m aintains rhe
econom ic equilibrium o f this Agreem ent. Failing to reach agreem ent on such equitable
solution, the m atter m ay be referred by either Parry to arbitration pursuant to Article 3 1.31

Difficulties will arise if the circumstances triggering the right to renegotiate, usually
on the part of the investor, are not described in sufficient detail in the investment
contract. Beyond the triggering clause, the parties have various choices for structur­
ing the actual process of appropriate renegotiation. Adaptation of a contract based
on automatically applicable criteria is rarely foreseen. Typically, renegotiation
clauses rely on criteria that leave room for negotiation. Sometimes no criteria for
the process of renegotiation are included.
Obviously, renegotiation clauses provide for more flexibility than a stabilization
clause, but their practicability and usefulness are questionable. The concept of an
‘economic equilibrium’ remains to be defined in legal terms. Moreover, a duty to

30 See aiso R Geiger, 'Unilateral Change of Economic Developments Agreements’ (1974) 23 ICLQ
73; M Sornarajah, ‘Supremacy o f the Renegotiations Clause in International Contracts’ (1988) 5 J I n ti
Arb 113; W Peter, Arbitration and Renegotiation o f International Investment Agreements (1995) 240;
A Kolo and T Walde, ‘Renegotiation and Contract Adaptation in International Investment Projects’
(2000) 1 J World Investment & Trade 5, 7; T Waelde and G Ndi, “ 'Stabilizing International Invest­
m ent C om m itm ents”; International Law versus Contract Integration’ (1996) 31 Texas I n t’l LJ 228;
J Salacuse, ‘Renegotiating International Business Transactions: The Continuing Struggle of Life
Against Form ’ (2001) 35 Int'l Lawyer 1507, 1519; J Gotanda, ‘“International Commercial Arbitra­
tion: Renegotiation and Adaptation Clauses in Investment Contracts”, Revisited’ (2003) 36 Vanderbilt
j Transn’l L 1461; K Berger, ‘Renegotiation and Adaptation in International Investment Contracts:
The Role of Contracts Drafters and Arbitrators’ (2003) 36 VanderbiltJ Transn’l L 1347, 1361; S Kroll,
‘The Renegotiation and Adaptation in Investment Contracts’ in N H orn, Arbitrating Foreign Invest­
ment Disputes (2004).
',1 The clause is reprinted in P Bernardini, ‘The Renegotiation of Investment Contracts’ (1998) 13
ICSID Review-FILJ A l l , 4 l 6; for similar clauses and their significance, see also K Berger, ‘Renegoti­
ation and A daptation o f International Investment Contracts: The Role of Contract Drafters and
Arbitrators' (2003) 36 V anderbiltf Transn’l L 1347.
86 Investment Contracts

renegotiate relies on the continued goodwill of both parties during a dispute.

Therefore, the clause may not prove helpful in the context of a dispute. Thus, it
is far from clear whether a duty to renegotiate will serve die practical needs of a
long-term investment. If the clause should fail to produce useful results, the search
for effective mechanisms for stabilization will continue.
 V
Admission and Establishment

1. T h e m ove towards econ om ic liberalism

In the late 1980s there was a growing international consensus that economic
liberalism promised more growth and innovation than economic protectionism
within closed national or regional borders. A now famous paper by ] Williamson
provided a list o f conditions for successful economic growth, which eventually
came to be known as the ‘Washington Consensus ’.1 The 1980s were considered,
from a development perspective, as the ‘lost decade’ in Latin America and Africa,
which led to more poverty, economic stagnation, and fiscal disorder, mainly due to
inward-looking, non-competitive economic policies and a lack of domestic reforms.
The comparison of empirical economic data, more than ideological factors,
between countries with growth (mainly in Asia) and stagnant regions pointed to
economic liberalization and domestic reforms as the main driving forces of growth.
The lack of support for Third W orld countries by the Soviet Union and its eventual
collapse lent further support to this movement. Ultimately, the retreat o f ‘bureau­
crats in business’ and the move towards privatization were prompted in developing
countries by the reality of insufficient services for the population, by fiscal disorder,
and by the compelling need for foreign capital and technology.
The Washington Consensus has had a strong influence on international eco­
nomic policies, even though it has also become clear that economic reforms need to
be complemented by social and environmental policies. In current practice, the
Washington Consensus is reinforced by acute competition among capital-
importing states for foreign investment. Nevertheless, national policies are far
from uniform in this area, and even liberal countries, such as the United States,
have by no means totally opened up their economies. More recently, the global
trends in national policy developments do not point in one direction. Whereas
most states (mainly in Asia and Africa) have, since 2000, introduced measures with
the aim of liberalizing the regime of foreign investment, others (mainly in Latin
America) have adopted new regulations and restrictions.2

1 Originally the ‘Consensus’ was nothing more than a research paper by John Williamson at the
Washington-based Peterson Institute for International Economics; for its history, see J Williamson,
‘From Reform Agenda to Damaged Brand Name— A Short History of the W ashington Consensus and
Suggestions for W hat to do N ext’ (2003) Finance & Development 10.
2 For details, see U N C T A D , World. Investment Report (2011) 94.
88 Admission anaI Establishment

From the perspective of general international law, states are in no way compelled
to admit foreign investment.3 The economic dimension of territorial sovereignty
continues to confer the right on each government to decide whether to close the
national economy to foreign investors or whether to open it up, fully or with respect
to certain sectors. This includes the right to determine the modalities for admission
and establishment of foreign investors. Among the national considerations speaking
against full liberalization are the concerns of weak domestic industries being
‘crowded out’, and the social effects of rapid economic change. In addition, there
are moral, health, and environmental concerns and a growing agenda of national
security.4 Also, views differ as to whedier it is useful to conclude treaties providing
for guarantees towards liberalization or whether the flexibility inherent in domestic
legislation subject to continuous review may provide more benefits for the national
economy of the host state. In any event, governments negotiating investment
treaties must be aware that binding commitments on admission and establishment
create lasting obligations, even when economic circumstances have changed.
According to general usage, the right of ‘admission’ of foreign investment has
been distinguished from die right of ‘establishment’.' P Juillard uses the terms
‘freedom of investment’ and ‘freedom of establishment’.6 Generally speaking, the
right of ‘admission’ concerns the right of entry of the Investment in principle,
whereas the right of ‘establishment’ pertains to the conditions under which the
investor is allowed to carry out its business during the period of the investment. For
an investor with a short-term business, the right of ‘establishment’ will be of less
importance than for one who needs to rely on a longer business presence in the host
state.
Typical issues of admission concern the definition of relevant economic sectors
and geographic regions, the requirement of registration or of a licence, and the
legal structure of an admissible investment (eg the type and seat of corporation,
joint venture, restrictions of ownership). In contrast, the right of establishment
is concerned with issues such as expansion of the investment, payment of taxes,
or transfer of funds. An overlap may exist in important areas such as capital or
performance requirements. The distinction between ‘admission’ and ‘establish­
ment’ may be important for treaties that allow for the right of ‘admission’ but
contain no regulation concerning ‘establishment’.

2. T reaty m odels o f adm ission

The policy decision of the host state whether or not to grant a right of admission is
fundamental for all parties to investment treaties. On this point, there are basic

3 See D Carreau and P Juillard, Droit international economique (2003) 361.

4 See also GATS, Αιτ XIV; and GATT, Art XX.
5 I Shihata, ‘Recent Trends Relating to Entry of Foreign Direct Investm ent’ (1994) 9 ICSID
Review-FILJ A l .
6 P Juillard, ‘Freedom of Establishment, Freedom of Capital Movements, and Freedom of Invest­
m ent’ (2000) 15 ICSID Review-FILJ 322.
 Treat)! models o f admission 89

differences in the regulatory approach of existing investment treaties .7 Treaties

concluded by European countries do not grant a right of admission but limit
themselves to standards and guarantees for those investments which the host state
has unilaterally decided to admit. A typical clause of this land reads: ‘Each
Contracting State shall in its territory promote as far as possible investments by
investors of the other Contracting State and admit such investments in accordance
with its legislation.’8
An admission clause of this type means that the host state is under no obligation
to revise its domestic laws of admission after ratification of die bilateral investment
treaty (BIT). A possible consequence may be that nationals of die other party
receive treatment less favourable under these laws than nationals of third states.
Also, the host state retains the freedom to revise its laws on admission after the
investment treaty has entered into force.
The United States, followed by Canada and Japan, have pursued a different
admission policy than European states in negotiating investment treaties. They
have negotiated treaty provisions which, to some extent, grant market access.
Under these provisions, a right of admission, albeit limited in scope, is typically
based on a national treatment clause. For instance, the 2004 and 2012 US Model
BITs provide in their respective Articles 3 section 1 : ‘Each Party shall accord to
investors of the other Party treatment no less favorable than that it accords, in like
circumstances, to its own investors with respect to the establishment, acquisition,
expansion, management, conduct, operation, and sale or other disposition of
investments in its territoiy.’
A rule on exceptions is laid down in Article 14 section 2 of the US Model BITs:
Articles 3 [National Treatment!, 4 [Most-Favoured-Nation Treatmentl, 8 [Per­
formance Requirements], and 9 [Senior Management and Boards of Directors] do
not apply to any measure that a Party adopts or maintains with respect to sectors,
subsectors, or activities, as set out in its Schedule to .Annex II.’
But in practice no state will grant unlimited access to foreign investments. Two
approaches are available in principle for treaties containing a right of admission.
One approach is to identify all sectors that are open to the investors of the other
party (positive list). The other is to identify all sectors that are closed (negative list).
Exceptions may apply both to certain categories of investors and of investments.
Some treaties provide that exceptions to be made in the future— that is, after the
treaty’s entry into force— must not have the effect of placing the nationals of the
odier state in a less favourable position. However, other treaties specifically allow
the adoption of measures that are more restrictive than those existing at the time of
the signature of the treaty.
The most common technique to grant a right of admission is to rely on the
standard of national treatment and on a most-favoured-nation clause. The principle

7 See T Pollan, Legal Framework fo r the Admission o fF D I (2006).

8 G erm an Model Treaty of 2005, Art 2(1). O n the clause ‘accepted in accordance with the
respective laws and regulations of either Contracting State’, see Fraport v Philippines, Award, 16
August 2007, para 335 (subsequently annulled on different grounds).
90 Admission and Establishment

of national treatment is simply extended to admission, combined with positive or

negative lists, and with the most-favoured-nation rule.
In the context of the traditional European treaties, the application of the most­
favoured-nation rule will raise the question whether its operation extends to issues
of admission. This will depend primarily on the wording of the specific most­
favoured-nation rule of each treaty. Some treaties specifically address the point
by way o f extending the most-favoured-nation rule to questions of admission .9
Concerning the right of establishment, it would seem that die principles of national
treatment and of the most-favoured-nation rules, as contained in each treaty, will
apply, regardless of the existence of a right of admission, as long as the investment
has been properly made.
Treaties may refer to admission under the domestic laws of the host state, which
may provide requirements for admission. For treaties with no right of admission for
the foreign investor, the local laws of the host state will apply, and schemes of
notification, registration, and various types of approval mechanisms, including
case-by-case screening, may have to be observed in accordance with the specific
laws of each host state. If the treaty provides for a right of admission and the
domestic rules are inconsistent with this right, an international tribunal will decide
on the basis of the international obligation of the host state. Tribunals have had to
address the consequences of non-compliance with admission regulations and the
right of the investor to invoke a dispute settlement provision.10

3. Perform ance requirem ents

Obligations imposed by the host state on the investor to conduct its business in a
prescribed manner (‘performance requirements’) have mainly been prohibited in
BITs concluded by the United States and Canada. These clauses are directed
against practices—such as the compulsion to use local materials, the duty to export
a certain amount of products, and the obligation to hire local personnel— which
may be imposed on foreign investors. These practices are deemed undesirable, since
they are inconsistent with the principle of liberal markets. A typical older clause to
this effect is found in the treaty between the United States and Cameroon:
Neither Party shall impose performance requirements as a condition of establishment,
expansion or maintenance of investments owned by nationals or companies of the other
Party, which require or enforce commitments to export goods produced, or which specify
that goods or services must be purchased locally, or which impose any other similar
requirements.11

9 See Treaty between Japan and Bangladesh Concerning the Prom otion and Protection o f Invest­
m ent concluded on 10 November 1998. Art 2(2).
10 See pp 92-7.
11 US-Cameroon BIT (1986), Art II section 6.
 Performance requirements 91

The 2004 and 2012 US Model BITs address die issue in more detail:
Neither Party may, in connection with the establishment, acquisition, expansion, manage­
ment, conduct, operation, or sale or other disposition of an investment of an investor of a
Party or of a non-Party in its territory, impose or enforce any requirement or enforce any
commitment or undertaking: (a) to export a given level or percentage of goods or services;
(b) to achieve a given level or percentage of domestic content; (c) to purchase, use, or accord
a preference to goods produced in its territory, or to purchase goods from persons in its
territory; (d) to relate in any way the volume or value of imports to the volume or value of
exports or to the amount of foreign exchange inflows associated with such investment; (e) to
restrict sales of goods or services in its territory that such investment produces or supplies by
relating such sales in any way to the volume or value of its exports or foreign exchange
earnings; (f) to transfer a particular technology, a production process, or other proprietary
knowledge to a person in its territory; or (g) to supply exclusively from the territory of the
Party the goods that such investment produces or the services that it supplies to a specific
regional market or to the world market__ 12
More recently, variations of the clause have appeared and more states have included
provisions on performance requirements. Also, Article 1106 of the N orth American
Free Trade Agreement (NAFTA) contains a list of prohibited performance require­
ments similar to the US Model BITs .13
Despite the distinction between trade and investment, performance require­
ments were also addressed in the context of the W orld Trade Organization
(WTO) in 1994 in the framework o f die Agreement on Trade Related Investment
Measures (TRIMs) which contains, in its Annex, an illustrative list of prohibited
performance requirements:
1. TRIMs that are inconsistent with the obligation of national treatment... include
those... which require: (a) the purchase or use by an enterprise of products of domestic

12 See the 2004 and 2012 US Model BITs, Art 8,

13 NAFTA, Art 1106 reads;
1. N o Party m ay impose or enforce any of the following requirements, or enforce any
com m itm ent or undertaking, in connection with the establishment, acquisition, expansion,
management, conduct or operation of an investment of an investor of a Party or of a non-
Party in its territory: (a) to export a given level or percentage of goods or sendees; (b) to
achieve a given level or percentage of domestic content; (c) to purchase, use or accord a
preference to goods produced or services provided in its territory, or to purchase goods or
services from persons in its territory; (d) to relate in any way the volume or value of imports
to the volume or value o f exports or to the am ount o f foreign exchange inflows associated
with such Investment; (e) to restrict sales of goods or services in its territory that such
investment produces or provides by relating such sales in any way to the volume or value of
its exports or foreign exchange earnings; ( f ) to transfer technology, a production process or
other proprietary knowledge to a person in its territory, except when the requirement is
imposed or the com m itm ent or undertaking is enforced by a court, administrative tribunal
or com petition authority to remedy an alleged violation of competition laws or to act in a
m anner not inconsistent with other provisions of this Agreement; or (g) to act as the
exclusive supplier o f the goods it produces or services it provides to a specific region or world
m arket___
O n the understanding o f these provisions, see M errill& R in g v Canada, Award, 31 March 2010, paras
111 et seq (requirement o f advertisement for the export o f logs not a restriction on the export of logs,
because of a lack o f sufficient connection with export itself).
92 Admission and Establishment

origin or from any domestic source, w hether specified in terms o f particular products, in
terms o f volum e or value o f products, or in terms of a proportion o f volum e or value o f its
local production; or (b) that an enterprise’s purchases or use o f im ported products be lim ited
to an am ount related to the volum e or value o f local products that it exports.
2. T R IM s that are inconsistent w ith the obligation o f general elim ination o f quantitative
restrictions. . . include those which . . . restrict: (a) the im portation by an enterprise of
products used in or related to its local production, generally or to an am ount related to
the volum e or value o f local production that it exports; (b) the im portation by an enterprise
of products used in or related to its local production by restricting its access το foreign
exchange to an am ount related to the foreign exchange inflows attributable to the enterprise;
or (c) the exportation or sale for export by an enterprise o f products, w hether specified in
terms o f particular products, in term s o f volum e or value o f products, or in terms o f a
proportion o f volume or value o f its local production.

Issues of competing jurisdiction and of consistency would arise if such measures

were to be challenged both before the W TO dispute settlement system and before a
tribunal with its jurisdictional basis in a BIT .14 Furthermore, the admissibility of
performance requirements applying only to foreign investors remains to be clarified
under the standard of national treatment.
W ith regard to the hiring and presence of non-local personnel to manage a
foreign investment in the host country, a few treaties contain language to the effect
diat applications by such persons will receive ‘sympathetic consideration ’15 or that
quotas or numerical restrictions will not be allowed in that context. 16 As regards
appointment of top personnel by the investor, some treaties recognize this freedom,
subject, however, to the laws of the host state .17

4. N o n -com p lian ce by investor w ith h ost state law

and international public p olicy

Many investment treaties provide that they cover investments made ‘in accordance
with the laws’ of the host state. For example, Article 1(1) of the German-Philip-
pines BIT reads: ‘the term “investment” shall mean any kind of asset accepted in
accordance with the respective laws and regulations of either Contracting State
Sometimes, die requirement of compliance of the investment with domestic laws
is part of the definition of ‘investment’; sometimes it is found in other parts of the
treaty .18 In Plama v Bulgaria, the Tribunal pointed to an obligation of the investor

^ An investor would presumably have a right to invoke the TRIM s Agreement before an invest­
m ent tribunal if both states parties concerned are members of the W T O . This would be beyond doubt
if a BIT refers to other existing international obligations that could be invoked by the investor.
15 See Protocol to the Treat}' between Germany and Bosnia & Herzegovina concluded on 18
October 2001, para 3(c). See also on this point U N C TA D , Bilateral Investment Treaties 1995—2005:
Trends in Investment Rulemaking, Draft (2006) 129 et seq.
16 See Art VTI(l)(b) of the Treat]- between the U nited States and Nicaragua concerning the
Encouragement and Reciprocal Protection of Investments, signed on 1 July 1995.
17 See Treaty between Australia and Egypt on the Promotion and Protection of Investments of
3 May 2001, Ait 5.
18 See U Kriebaum, Illegal Investments’ (2010) Austrian Yearbook on In t’lArbitration 307; C Knahr,
‘Investments “in accordance with host state law” ’ (2007) 5 Transnational Dispute Management.
 Non-compliance by investor 93

to act in good faith, especially for the purposes of state approval of the
investment,19
The rules on admission may create obligations for the host state. At the same
time, they may limit the right of the investor to invoke the dispute settlement clause
of a treaty in cases where the investor ignores the rules on admission. Whenever a
clause ‘in accordance with the laws of the host state’ is contained in a treaty, it may
be understood to imply that investments made in violation of national laws are not
covered by the treaty. Therefore, the words ‘in accordance with the laws’ relate not
just to die laws on admission and establishment but also to other rules of the
domestic legal order, including those relating to corruption. As a result, investments
made in violation of domestic rules may be outside the substantive guarantees
contained in the relevant agreement, depending upon the nature and gravity of the
violation .20
In Plama v Bulgaria,11 the claimant had misrepresented his role as investor to the
host state in a privatization agreement, leading the government to believe that the
claimant had substantial assets; in reality, the claimant had very limited resources
and managerial capacity.22 The Tribunal found that the claimant’s conduct
amounted to deliberate concealment and to fraud. While die Energy Charter
Treaty (ECT), being the applicable treaty, does not contain a clause requiring
conformity with the laws of the host state, the Tribunal pointed to the rule of law as
a fundamental aim of the ECT and to the principle of good faith emanating from
Bulgarian law and international law. O n this basis, the Tribunal denied the
claimant the right
D to invoke the substantive rights
D of the ECT .23
Alasdair Ross Anderson v Costa Rica2q concerned the claimants’ deposits in Costa
Rica in a fund run as a criminal Ponzi scheme in which incoming funds were not
used as investments but as payments to other depositors and the fund manager.
While the claimants diemselves had not committed a crime, they had failed to
exercise the kind of due diligence which a reasonable investor would have under­
taken to ensure compliance with local laws.25 As the applicable BIT required such
compliance, the Tribunal declined jurisdiction.
In Hamester v Ghana,26 the Tribunal stated that an investment will not be
protected if it has been created in violation of the national or international
principles of good faith or of the host state’s law, independent of the language of
the BIT .27 This rule applies to conduct at the time of the initiation of the invest­
ment, not to subsequent performance.28

19 Plama v Bulgaria, Award. 27 August 2008, para 144.

20 According ro Rumeli v Kazakhstan, Award, 29 July 2008, para 319, protection of a BIT will be
denied only in cases o f a breach of fundamental legal principles of the host country (following LESI v
Algeria, Decision on Jurisdiction, 12 July 2006, para 73)·
25 Plama v Bulgaria, Award, 27 August 2008.
22 At para 133.
23 A t para 146.
24 Alasdair Ross Anderson v Costa Rica, Award, 19 May 2010.
23 At para 58.
26 Hamester v Ghana, Award, 18 June 2010.
27 At paras 123, 124.
28 At para 127. The Tribunal followed Fraport v Philippines, Award, 16 August 2007, para 344.
94 Admission M id Establishment

Beyond the substantive scope of a treaty, the issue was bound to arise whether an
‘in accordance with host state law’ clause will also affect the right of an investor to
invoke a provision on dispute settlement. In Salini v M orocco^ Article 1 ( 1 ) of die
applicable BIT defined the term ‘investment’ as ‘all categories of assets invested.. .
in accordance with the laws and regulations of the aforementioned party’. The
Tribunal rejected the argument advanced by the respondent whereby Article 1 (1)
referred to the law of die host state for the definition of ‘investment’. In the view of
the Tribunal, the provision referred to the validity of the investment and not to its
definition. It found that such a provision ‘seeks to prevent the Bilateral Treaty from
protecting investments that should not be protected, particularly because they
would be illegal’.30 No infringement of the laws or regulations of the host state
had been established in the case.
The applicable BIT in the Tokios Tokeles31 case also defined the term ‘invest­
ment’ as ‘every kind of asset invested by an investor of one Contracting Party in the
territory of the other Contracting Party in accordance with the laws and regulations
of the latter’. The respondent state argued that the name under which the claimant
had registered its local subsidy did not correspond to a recognized legal form under
Ukrainian law and that it had identified errors in the documents provided by the
investor, including the absence of necessary signatures or notarizations. For the
Tribunal, these irregularities did not affect the protection of the investment under
the bilateral treaty: relying on the decision in Salmi v Morocco, the arbitrators found
that the purpose of such provisions was merely ‘to prevent the Bilateral Treaty from
protecting investments that should not be protected, particularly because they
would be illegal’.32 Noting that the object and purpose of investment treaties is
to provide broad protection for investors and their investment33 and that the
governmental authorities of the respondent had registered the claimant’s subsidiary
as a valid enterprise, the Tribunal concluded:
Even if we were able to confirm the Respondent’s allegations, which would require a
searching examination of minute details of administrative procedures in Ukrainian law, to
exclude an investment on the basis of such minor errors would be inconsistent with the
object and purpose of the Treaty. In our view, the Respondent’s registration of each of the
Claimant’s investments indicates that the ‘investment’ in question was made in accordance
widi the laws and regulations of Ukraine.34
In Desert Line v Y e m e n i the Tribunal emphasized that a host state which has for
some time tolerated a legal situation is thereafter precluded from insisting later,
against the investor, that die situation was unlawful from the beginning .36

29 Salini v Morocco, Decision on Jurisdiction, 23 July 2001.

30 At para 46.
31 Tokios Tokeles v Ukraine, Decision on Jurisdiction, 29 April 2004.
32 At para 84.
33 At para 85.
34 At para 86.
35 Desert Line v Yemen, Award, 6 February 2008.
36 At paras 97-123.
 Non-compliance by investor 95

In Railroad Development v Guatemala,37 arising under the rules of the Central

America Free Trade Agreement (CAFTA), the claimant’s investment in the railroad
business was not acquired in accordance with the provisions of local law, but the
government was aware of the situation and did not object for many years; as in
the Desert Li}ie case, the Tribunal ruled that principles of fairness precluded the
respondent from raising an objection to the Tribunal’s jurisdiction .38
In Kirdassopoulos v Georgia, 3 9 die host state argued that the Joint Venture
Agreement with the claimant was void ab initio because the state entities which
had signed had acted ultra vires. The Tribunal found several reasons why the claim
submitted was nevertheless protected under the BIT. Primarily, the Tribunal
pointed to assurances given to the investor.40
In Aguas del Tunari v Bolivia, 41 the Tribunal had to interpret a BIT which
provided that each party would promote cooperation through the protection of
investments ‘within the framework of its law and regulation’ and that investments
would be admitted by each party ‘subject to its right to exercise powers conferred by
its laws or regulations’. The respondent did not allege any fraud, but argued that
these clauses subjected the dispute to the domestic tribunals. The Tribunal found
that the first clause only referred to the state’s duty to promote cooperation. W ith
regard to the admission clause, the Tribunal also interpreted its scope in a limited
manner and tried to explain its position in light of the object and purpose of the
treaty as follows:
The Tribunal notes that the reference specifically subjects the State’s duty to admit invest­
ments not to the laws and regulations of Bolivia, but rather to the ‘right to exercise powers’
conferred by such laws or regulations. The Tribunal finds this language significant as it
implies an act at the time of admittance in accordance with the laws or regulations in force at
that time.42
The first case in which a tribunal denied jurisdiction on the basis that a violation of
the ‘in accordance with the laws’ clause had occurred was Inceysa Vallisoletana v El
Salvador43 The Tribunal had to apply the BIT between Spain and El Salvador,
which did not refer to compliance with national laws in the definition of invest­
ment but in the provisions on admission and protection.
The Tribunal found that in the bidding process that led to award of the
concession, the claimant had presented false information on its financial status,
about the experience and ability of its administrator, and about the identity and
experience of a strategic partner supporting the claimant’s bid. The Tribunal
referred to the principle of good faith, to international public policy, and to the
rule that no one should benefit from his own wrongdoing. The Tribunal ruled that

37 Railroad Development Coip v Guatemala, Decision on Jurisdiction, 18 May 2010.

38 At paras 145 ec seq.
39 Kardassopoulos v Georgia, Decision on Jurisdiction, 6 July 2007.
40 At paras 171-94.
41 Aguas del Tunari v Bolivia, Decision on Jurisdiction, 21 October 2005.
42 A t para 147.
43 Inceysa Vallisoletana v E l Salvador, Award, 2 August 2006.
96 Admission and Establishment

El Salvador had given its consent to jurisdiction by the International Centre for
Settlement of Investment Disputes (ICSID) on the condition that the claimant
would act in accordance with the law:
In conclusion, rhe T ribunal considers that, because Inceysa’s investm ent was made in a
m anner that was dearly illegal, it is not included w ithin rhe scope o f consent expressed by
Spain and the Republic o f El Salvador in the B IT and, consequently, the disputes arising
from it are not subject to the jurisdiction o f the Centre, Therefore, this Arbitral Tribunal
declares itself incom petent to hear the dispute brought before it.4'1

The Tribunal found that these considerations applied not only to the consent given
under a treaty but also to the jurisdictional rules contained in domestic legislation.
In Fraport v Philippines, 4 5 the Tribunal applied the BIT between Germany and
the Philippines which defines ‘investment as assets ‘accepted In accordance with
the respective laws and regulations of either Contracting State5. In addition, the
treaty’s provision on admission refers to ‘investments in accordance with its Consti­
tution, laws and regulations’.
Legislation in the Philippines contained restrictions on shareholding and man­
agement by foreigners in public utility enterprises. The Tribunal found that
Fraport had sought to circumvent this legislation by way of secret shareholder
agreements. It concluded that, in view of the investor’s conscious violation of the
host state’s law, it had no jurisdiction:
Fraport knowingly and intentionally circum vented the A D L [that is, domestic legislation]
by means o f secret shareholder agreements. As a consequence, it cannot claim to have made
an investm ent ‘in accordance w ith law’. N o r can it claim th at high officials o f the Respond­
ent subsequently waived the legal requirem ents and validated Fraport’s investment, for the
R espondent’s officials could not have know n o f the violation. Because there is no ‘invest­
m ent in accordance w ith law’, the T ribunal lacks jurisdiction ratione m ateriae.4b

The Fraport Award was annulled, on 23 December 2010, on the ground that the
right to be heard had not been properly observed.47
Outside the context of a treaty, in an arbitration based exclusively on a contract
between the investor and the host state, the Tribunal in World. Duty Free v Kenya^
had to decide whether acts of bribery during negotiation of the contract prevented
the claimant from complaining about violations of the contract by the respondent
state. The Tribunal emphatically found that this was the case. As bribery was
contrary to the international public order of most states and to the applicable
national laws and regulations, the contract was void and the investor could not
complain of violations of die contract on the part of the host state:

44 At para 257.
^ Fraport v Philippines, Award, 16 August 2007.
At para 401.
4/ Fraport v Philippines, Decision on Annulment, 23 December 2010, paras 218 et seq.
*8 World Duty Free v Kenya, Award, 4 October 2006.
 Non-compliance by investor 97
In light o f dom estic laws and international conventions relating to corruption, and in light
of the decisions taken in this m atter by courts and arbitral tribunals, th is T ribunal is
convinced that bribery is contrary to the international public policy o f m ost, if n o t all,
States or, to use another formula, to transnational public policy. T h u s, claims based on
contracts o f corruption or on contracts obtained by corruption cannot b e upheld by this
A rbitral T ribunal.49

49 At para 157.
 VI
Expropriation

The rules of international law governing the expropriation of alien property have
long been of central concern to foreigners in general and to foreign investors in
particular. Expropriation is the most severe form of interference with property. All
expectations of the investor are destroyed if the investment is taken without
adequate compensation.
O n the level of customary international law, the minimum standard for the
protection of aliens came to place limitations on the territorial sovereignty of the
host state and to protect alien property. O n the level of treaty law, all modem
agreements on foreign investment contain specific provisions covering precondi­
tions for and consequences of expropriation.

1. T h e right to expropriate

Consistent with the notion of territorial sovereignty, the classical rules of inter­
national law have accepted the host state’s right to expropriate alien property in
principle. Indeed, state practice has considered this right to be so fundamental
that even modem investment treaties (often entitled agreements ‘for the promotion
and protection of foreign investment’) respect this position. Treaty law typically
addresses only the conditions and consequences of an expropriation, leaving the
right to expropriate as such unaffected. 1
Even clauses in agreements between the host state and the investor that freeze the
applicable law for the period of the agreement (‘stabilization clauses’)2 will not
necessarily stand in the way of a lawful expropriation. The position is less clear if
such an agreement explicitly excludes the right to expropriate. Except in extreme
circumstances, an international tribunal will probably interpret such a clause in a
literal manner. In practice, however, such far-reaching provisions have played no
significant role.

1 Some states (eg Ecuador, Peru) have in the past provided in dicir constitutions that their
contractual agreements with foreign investors may not be changed by a unilateral act. But they have
not gone as far as excluding the right to expropriate. Article 249 o f die Constitution of Ecuador (1998)
provided for all contracts relating to public sendees: ‘The agreed contractual conditions cannot be
modified unilaterally by law or odier measures.’ Article 62 of the 1993 Peruvian Constitution states:
‘Through contracr-laws, the State can establish guarantees and grant assurances. They may not be
amended legislatively.’
2 See pp 82 et seq.
 The legality o f the expropriation 99

2. T h e three branches o f the law

Beyond the right of the host state to expropriate, international law on expropriation
has developed diree branches, which regulate the scope and conditions of the
exercise of this power. The first one defines the interests that will be protected.
This facet has not traditionally been in the forefront of academic and practical
discussions but has received some prominence more recently. Most contemporary
treaties, in their provisions dealing with expropriation, refer to ‘investments’.
Similarly, the jurisdiction of arbitral tribunals is typically restricted to disputes
arising from ‘investments’. Therefore, it is ‘investments’ as defined in these treaties
that are protected .3
The second branch concerns the definition of an expropriation. While this
matter raises no questions in cases of a formal expropriation, the issue may acquire
a high degree o f complexity when the host state interferes with the rights of the
foreign owner without a formal taking of tide. Indeed, in the practice of the past
three decades, most cases relating to expropriation have turned on the controversy
of whether or not a ‘taking’ had actually occurred. Matters of public health, the
environment, or general changes in the regulatory system may prompt a state to
regulate foreign investments. This has led to claims against the state on die basis
that a regulatory taking or indirect expropriation has occurred. The elements of
indirect expropriation are discussed below.4
The third branch of the law on expropriation relates to the conditions under
which a state may expropriate alien property. The classical requirements for
lawful expropriation are a public purpose, non-discrimination, as well as prompt,
adequate, and effective compensation. In practice, the requirement of compen­
sation has turned out to be the most controversial aspect. This issue is discussed in
the next section.

3. T h e legality o f the expropriation

It is today generally accepted that the legality of a measure of expropriation is

conditioned on three (or four) requirements. These requirements are contained in
most treaties. They are also seen to be part of customary international law. These
requirements must be fulfilled cumulatively:
9 The measure must serve a public purpose. Given the broad meaning o f ‘public
purpose’, it is not surprising that this requirement has rarely been questioned
by the foreign investor. However, tribunals did address the significance of the
term and its limits in some cases.5

3 For die concept of an investment, see pp 60 et seq. See further p 248.

4 See pp 101 et seq.
3 See eg A D C v Hungary, Award, 2 October 2006, paras 429-33.
100 Expropriation

» The measure must not be arbitrary and discriminatory within the generally
accepted meaning of the terms.
9 Some treaties explicitly require that the procedure of expropriation must
follow principles of due process.6 Due process is an expression of the min­
imum standard under customary international law and of the requirement of
fair and equitable treatment. Therefore, it is not clear whether such a clause, in
the context of the rule on expropriation, adds an independent requirement for
the legality of the expropriation.
• The expropriatoiy measure must be accompanied by prompt, adequate, and
effective compensation. Adequate compensation is generally understood today
to be equivalent to the market value of the expropriated investment.
O f these requirements for the legality of an expropriation, the measure of compen­
sation has been by far the most controversial. In the period between roughly I960
and 1990, the rules of customaiy law on compensation were at the centre of the
debate on expropriation. They were discussed in the broader context of economic
decolonization, the notion of Penns-iienr Sovereignty over Ns.turs.1 Resources 5 snd
of the call for a new international economic order. Today, these fierce debates are
over and nearly all expropriation cases before tribunals follow die treaty-based
standard of compensation in accordance with the fair market value. In the termin­
ology of the earlier decades this means ‘full’ or ‘adequate’ compensation. However,
this does not mean that the amount of compensation is easy to determine.
Especially in cases of foreign enterprises operating on the basis of complex con­
tractual agreements, the task of valuation requires close cooperation of valuation
experts and the legal profession.
Various methods may be employed to determine market value. The discounted
cash flow method will often be a relevant yardstick, rather than book value or
replacement value, in the case of a going concern that has already produced income.
Before the point of reaching profitability, the liquidation value will be the more
appropriate measure.7
A traditional issue that has never been entirely resolved concerns the conse­
quences of an illegal expropriation. In the case of an indirect expropriation,
illegality will be the rule, since there will be no compensation .
According to one school of thought, the measure of damages for an illegal
expropriation is no different from compensation for a lawful taking. The better
view is that an illegal expropriation will fall under the general rules of state
responsibility, while this is not so in the case of a lawful expropriation accompanied
by compensation. In the case of an illegal act the damages should, as far as possible,
restore the situation that 'would have existed had the illegal act not been committed.
By contrast, compensation for a lawful expropriation should represent die market
value at the time of the taking. The result of these two methods can be markedly

6 See eg die 2004 and 2012 US Model BITs, Art 6(1)(d).

' See pp 296-7.
 Direct and indirect expropriation 101

different.8 The difference will mainly concern the amount of lost profits. The issue
of compensation and damages is discussed in more detail in Chapter X on the
settlement of investment disputes.9
The requirement of ‘prompt’ compensation means ‘without undue delay’.10 The
requirement of ‘effective’ compensation means that payment is to be made in a
convertible currency .11

4. D irect and indirect expropriation

The difference between a direct or formal expropriation and an indirect expropri­

ation turns on whether the legal title of the owner is affected by the measure in
question. Today direct expropriations have become rare.12 States are reluctant to
jeopardize their investment climate by taking the drastic and conspicuous step of an
open taking of foreign property. An official act that takes die tide of the foreign
investor’s property will attract negative publicity and is likely to do lasting damage
to the state’s reputation as a venue for foreign investments.
As a consequence, indirect expropriations have gained in importance. An indir­
ect expropriation leaves the investor’s tide untouched but deprives him of the
possibility of utilizing the investment in a meaningful way. A typical feature of an
indirect expropriation is that the state will deny the existence of an expropriation
and will not contemplate the payment of compensation.

(a) Broad formulae: their substance and evolution

The contours of the definition of an indirect expropriation are not precisely drawn.
An increasing number of arbitral cases and a growing body of literature on the
subject have shed some light on the issue but the debate goes on . 13 In some recent
decisions by the International Centre for Settlement of Investment Disputes
(ICSID), tribunals have interpreted the concept of indirect expropriation narrowly
and have preferred to find a violation of the standard of fair and equitable
treatment. 14
The concept of indirect expropriation as such was clearly recognized in the early
case law of arbitral tribunals and of the Permanent Court of International Justice

8 See eg D W Bowett, ‘Stare Contracts with Aliens: Contemporary Developments on Com pen­
sation for Term ination or Breach’ (1988) 59 BYIL 47; Case Concerning the Factory at Chorzow, 1928,
PCIJ, Series A, N o 17, 47. For a full discussion, see I Marboe, ‘Com pensation and Damages in
International Law, The Limits of “Fair Market Value” ’ (2006) 7 J World Investment & Trade 723.
9 See pp 294 -7 .
10 R Dolzer and M Stevens, Bilateral Investment Treaties (1995) 112.
11 Dolzer and Stevens, n i l .
12 But see Funnekotter v Zimbabwe, Award, 22 April 2009.
13 See Y Fortier and S L Drymer, ‘Indirect Expropriation in the Law o f International Investment:
I Know It W hen I See It, or Caveat Investor’ (2004) 19 ICSID Review-FILJ 293.
See pp 117 et seq.
102 Expropriation

(PCIJ) in the 1920s and 1930s.15 Today it is generally accepted that certain types of
measures affecting foreign property will be considered an expropriation, and require
compensation, even though the owner retains the formal title. W hat was and
remains contentious is drawing the line between non-compensable regulatory and
other governmental activity and measures amounting to indirect, compensable
expropriation. The issue is of equal importance to the host state, which may wish
to broaden the range of non-compensable activities, and to the foreign investor, who
will argue in favour of a broad understanding of the concept of indirect takings.
Bilateral and multilateral treaties and draft treaties typically contain a reference to
indirect expropriation or to measures tantamount to expropriation. The Abs-
Shawcross Draft Convention on Investment Abroad (1959) referred to measures
against nationals of another Party to deprive them directly or indirectly of their
property’. Essentially, the same wording appears in the 1967 Organisation for
Economic Co-operation and Development (OECD) Draft Convention on the
Protection of Foreign Property. The Draft United Nations Code of Conduct on
Transnational Corporations referred to ‘[a]ny such talcing of property whether
direct or indirect’. The 1992 W orld Bank Guidelines on die Treatment of Foreign
Direct Investment speaks of expropriation or ‘measures which have similar effects’.
Similarly, the 1998 OECD Draft for a Multilateral Agreement on Investment refers
to ‘measures having equivalent effect’. Another variation is contained in the North
American Free Trade Agreement (NAFTA) of 1992, which speaks of ‘a measure
tantamount to nationalization or expropriation’. The 1994 Energy Charter Treaty
similarly refers to ‘a measure or measures having effect equivalent to nationalization
or expropriation’.
Most current bilateral investment treaties contain similar language. The current
French Model Treaty states: ‘Neither Contracting Party shall take any measures of
expropriation or nationalization or any other measures having die effect of dispos­
session, direct or indirect, of nationals or companies of the other Contracting Party
of their investments.’16 According to the German Model Treaty ‘[i]nvestments by
investors of either Contracting State shall not directly or indirecdy be expropriated,
nationalized or subjected to any other measure the effects of which would be
tantamount to expropriation or nationalization ’. 17 The Model Treaty used by the
United Kingdom provides that ‘[ijnvestments of nationals or companies of either
Contracting Party shall not be nationalized, expropriated or subjected to measures
having effect equivalent to nationalization or expropriation ’.18
The 2004 and 2012 US Kiodel BITs approach the issue in greater detail. After
stating in Article 6(1) that ‘[njeither Party may expropriate or nationalize a covered
investment either directly or indirecdy through measures equivalent to expropri­
ation or nationalization ’, 19 a special Annex B entitled ‘Expropriation’ adds:

1:3 See Norwegian Shipowners’ Claims, IR IA A 307 (1922); Case Concerning Certain Gennan Interests
in Polish Upper Silesia, 1926, PCIJ, Series A, N o 7, 3.
1(5 French Model Treaty. Art 6(2). 17 German Model Treaty, Art 4(2).
!S UK Model Treaty, Art 5(1). 19 See US Model BITs, A it6 ( l) .
 Direct and indirect expropriation 103

(a) The determination of whether an action or series of actions by a Party, in a specific fact
situation, constitutes an indirect expropriation, requires a case-by-case, fact-based
inquiry that considers, among other factors: (i) the economic impact of the government
action, although the fact that an action or series of actions by a Party has an adverse
effect on the economic value of an investment, standing alone, does not establish that an
indirect expropriation has occurred; (ii) the extent to which the government action
interferes with distinct, reasonable investment-backed expectations; and (iii) the char­
acter of the government action.
(b) Except in rare circumstances, non-discriminatory regulatory actions by a Party that are
designed and applied to protect legitimate public welfare objectives, such as public
health, safety, and the environment, do not constitute indirect expropriations.20
Among the broader formulae proposed in general studies and drafts, some have
received special attention in the decisions of arbitral tribunals and in academic
writings. Harvard Professors Sohn and Baxter included in dieir 1961 Draft Con­
vention on the International Responsibility of States for Injuries to Aliens, a version
that is elaborate and contains specific categories of indirect takings:
A taking of property includes not only an outright taking of property but also any such
unreasonable interference with the use, enjoyment, or disposal of property as to justify an
inference that the owner thereof will not be able to use, enjoy, or dispose of the property
within a reasonable period of time after the inception of such interference.21
The 1986 Restatement (Third) o f the Foreign Relations Law o f the United States
(§ 7 1 2 ) is much shorter and in its text only speaks of a ‘taking’. Comment (g) refers
to actions ‘that have the effect of “talcing” the property, in whole or in large part,
outright or in stages (“creeping expropriation”)’.
A United Nations Conference on Trade and Development (UNCTAD) study,
prepared in 2 0 0 0 , uses different language and considers that ‘measures short of
physical takings may amount to takings in that they result in the effective loss of
management, use or control, or a significant depreciation of the value, of the assets
of a foreign investor’.22
In an early influential article Gordon Christie reviewed the then existing case law
and pointed to certain recognized groups and categories of indirect takings, widiout
an attempt to present a general formula.23 Judge Rosalyn Higgins, in her 1982
Hague Lectures, questioned the usefulness of a distinction between non-compen-
sable bona fide governmental regulation and ‘taking’ for a public purpose:
Is this distinction intellectually viable? Is not the State in both cases (that is, either by a
taking for a public purpose, or by regulating) purporting to act in the common good? And in
each case has the owner of the property not suffered loss? Under international law standards,

20 2004 and 2012 US Model BITs, Annex B, para 4.

■ ' L B Sohn and R R Baxter, ‘Responsibility of States for Injuries to the Economic Interests of
M e n s’ (1961) 55 AJIL 545, 553 (Art 10(3)(a)).
22 U N C TA D , Series on Issues in International Investment Agreements: 'Taking o f Property’ (2000) 4.
2o G C Christie, ‘W hat Constitutes a Talcing of Property under International Law?’ (1962) 38
BYBIL 307.
104 Expropriation

a regulation that am ounted (by virtue o f its scope and effect) to a taking, would need to be
‘for a public purpose’ (in the sense o f a general, rather than for a private, interest). Arid just
com pensation w ould be due.24

It has been argued elsewhere that the international law of expropriation has
essentially grown out of, and mirrored, parallel domestic laws.25 As a consequence
of this linkage, it appears plausible that measures that are, under the rules of key
domestic laws, normally considered regulatory without requiring compensation,
will not require compensation under international law either.
The importance of the effect of a measure for the question of whether an
expropriation has occurred was highlighted by Reisman and Sloane:
tribunals have increasingly accepted that expropriation m ust be analyzed in consequential
rather than in formal terms. W h at m atters is the effect o f governm ental conduct— whether
malfeasance, misfeasance, or nonfeasance, or some com bination o f the three— on foreign
property rights or control over an investm ent, n o t w hether the state promulgates a formal
decree or otherwise expressly proclaims its intent to expropriate. For purposes o f state
responsibility and the obligation to make adequate reparation, international law does not
distinguish indirect from direct expropriations.26 [Footnotes om itted]

In recent jurisprudence, the formula most often found is that an expropriation will
be assumed in the event of a ‘substantial deprivation’ of an investment.27
The oscillating understanding of this approach may be illustrated in light of
relevant jurisprudence.

(b) Judicial and arbitral practice: some illustrative cases

Cases decided by tribunals demonstrate the variety of scenarios in which the
question of indirect expropriation may arise. Tribunals have had to adapt their
focus of inquiry to these different circumstances; consequently, an emphasis on
different aspects of the law should not necessarily be construed as an expression of
inconsistency. Often, the facts of a case simply highlight only one specific factor
and neglect of other possible factors does not result from oversight but from
irrelevance to the specific circumstances. A short survey of cases may serve to
demonstrate the diversity of factual bases and of die reasoning of tribunals.
The Oscar Chinn case28 concerned the interests of a British shipping company in
the Congo. In the aftermath of the economic crisis of 1929, the Belgian Govern­
ment intervened in the shipping trade on the Congo River by reducing the prices
charged by M r Chinn’s only competitor, the partly state-owned company

2i* R Higgins, ‘The Talcing o f Property by the State: Recent Developments in International Law’
(1982-III) 176 Recueil des Cours 259, 331.
25 R Dolzer, ‘Indirect Expropriation of Alien Property’ (1986) 1 ICSID Review-FILJ 41.
26 W M Reisman and R D Sloane, ‘Indirect Expropriation and its Valuation in the BIT Generation’
(2003) 74 BYBIL 115, 121.
27 See eg Societe Generals v Dominican Republic, Award, 19 September 2008, para 64; Alpha
Projectholding v Ukraine, Award, 8 November 2010, para 408.
28 Oscar Chinn Case { U K v Belgium), 12 December 1934, PCIJ, Series A/B, N o 63, 4.
 Direct and indirect expropriation 105

UNATRA. The government had also granted corresponding subsidies to UNA-

TRA in order to keep the transport system on the Congo River viable. This made
Oscan Chinn’s business economically unsustainable. The PCIJ concluded thar
there was no taking. It said:
T h e C o u r t. . . is unable to see in his [M r C h in n ’s] original position— w hich was character­
ized by the possession o f customers and the possibility o f m aking a profit— anything in the
nature o f a genuine vested right. Favourable business conditions and good-w ill are transient
circumstances, subject to inevitable changes:. . . N o enterprise . . . can escape from the
chances and hazards resulting from general econom ic conditions.29

The arbitration in Revere Copper v OPIC 30 concerned a dispute arising from the
insurance by die US Overseas Private Investment Corporation (O PIC )31 of an
investment made by the US claimant in Jamaica. Revere Copper had made
substantial investments in the Jamaican bauxite mining sector. An agreement
concluded in 1967 between RJA, the investor’s local subsidiary, and the Jamaican
Government fixed the taxes and royalties to be paid by RJA for a period of 25 years
and provided that no further taxes or financial burdens would be imposed on RJA
by the Jamaican authorities. However, in 1972, the newly elected Jamaican
Government announced far-reaching reform of the bauxite sector and, in 1974,
increased the revenues to be paid by RJA so drastically that RJA ceased operating in
1975.
Revere Copper then sought recovery under its OPIC insurance contract, alleging
that the measures adopted by the Jamaican Government amounted to an expropri­
ation of Revere’s investment. The General Terms and Conditions o f the OPIC
contract defined ‘expropriatory action’, inter alia, as: ‘any action w hich.. . for a
period of one year directly results in preventing... the Foreign Enterprise from
exercising effective control over the use or disposition of substantial portion of its
property or from constructing the project or operating the same.’ Although there
had been no direct interference with Revere’s physical property, the majority of the
Tribunal found that the repudiation of the guarantees given to Revere amounted to
an action that had resulted in preventing the foreign enterprise from exercising
effective control over the use or disposition of a substantial portion of its property:
O P IC argues th at RJA still has all the rights and property that it had before the events o f
1974: it is in possession o f the plant and other facilities; it has its M in in g Lease; it can
operate as it did before. T his may be true in a formal sense b u t . .. we do n o t regard RJA’s
‘control' o f the use and operation o f its properties as any longer ‘effective’ in view o f the
destruction by G overnm ent actions o f its contract rights.32

The Arbitral Tribunal came to this conclusion by emphasizing that ‘control in a

large industrial enterprise. . . is exercised by a continuous stream of decisions’33 and

29 At 27. 30 Revere Copper v OPIC, Award, 24 August 1978.

31 O n investment insurance and O PIC, see pp 228 et seq.
32 Revere Copper v OPIC, 291-2.
33 At 292.
106 Expropriation

that without the repudiated agreement between RJA and Jamaica, ‘[tjhere is no way
in which rational decisions can be made 1.34
Sponong & Lonnroth v Sweden35 is the leading case for the jurisprudence of the
European Court o f H um an Rights (ECtHR) on matters regarding the protection of
private property .36 The case was brought before die Court by two Swedish citizens
whose properties had been subject to long-term expropriation permits granted by
the Swedish Government to the local authorities of the city of Stockholm. The
permits, issued in 1956 and 1971, only authorized the city of Stockholm to do so if
it deemed it necessary for the achievement of a projected urban construction
scheme. The expropriation permits lasted 23 and eight years, respectively, but
the local authorities never exercised their power of formal expropriation. Certain
constraints with regard to construction and renovation of the properties were
imposed upon the owners. In 1979, the city of Stockholm renounced its construc­
tion plans and the expropriation permits were no longer extended.
The affected owners argued that die measures adopted by the Swedish Govern­
ment constituted a violation of Article 1 of the First Additional Protocol to the
European Convention for the Protection o f Human Rights and Fundamental
Freedoms (ECHR ),37 as they had been hindered from selling their properties at
an acceptable price and from undertaking necessary renovations during the exist­
ence o f the expropriation permits.
The Court ruled that the applicants had not been formally deprived of their
possessions. The Court acknowledged that £[i]n the absence o f formal expropri­
ation, that is to say a transfer o f ownership, the Court considers that it must look
behind the appearances and investigate the realities of the situation complained of!
and rhat ‘it has to be ascertained whether that situation amounted to a de facto
expropriation, as was argued by the applicants’.38
But the majority also found that there had been no indirect expropriation in the
case before it:
although the right in question lost some of its substance, it did not disappear. The effects of
the measures involved are not such that they can be assimilated to a deprivation of
possessions. The Court observes in this connection that the applicants could continue to
utilise their possessions and that, although it became more difficult to sell properties in

34 Ar 292.
35 E C tH R , Sponong & Lonnroth v Sweden, 23 September 1982, Series A, 52.
36 M ore generally on the practice o f the EC tH R , see A Van Rijn, ‘Right to the Peaceful Enjoyment
o f O n e’s Possessions (Article 1 of Protocol N o 1)’ in P van Dijk, G J H van Hoof, A van Rijn, and
L Zwaak (eds), Theory and Practice o f the European Convention on H uman Rights (2006) 863-93.
37 Article 1 reads:
(1) Ever}' natural or legal person is entitled to the peaceful enjoyment o f his possessions. No
one shall be deprived o f his possessions except in die public interest and subject to the
conditions provided for by law and by the general principles of international law. (2) The
preceding provisions shall not, however, in any way impair die right of a State to enforce
such laws as it deems necessary to control the use o f property in accordance with the general
interest or to secure the paym ent o f taxes or other contributions or penalties.
38 Sponong & Lonnroth v Sweden, para 63.
 Direct and indirect expropriation 107
Stockholm affected by expropriation permits and prohibitions on construction, the possi­
bility of selling subsisted.39
The Court also held that the second paragraph of Article 1 had no relevance because
the measures were designed to lead to an expropriation and not meant to limit or
control the use of the properties.40
The Court then turned to the first sentence of the first paragraph of Article 1 and
found that for the purposes of this provision ‘the Court must determine whether a
fair balance was struck between the demands of the general interest of the commu­
nity and the requirements of the protection of the individual’s fundamental
rights’.41
While recognizing that the contracting states ‘should enjoy a wide margin of
appreciation in order to implement their town-planning policy’,42 the Court held
that the inflexibility of the Swedish legislation, which excluded the possibility of
seeking a reduction of the time limits or claiming compensation, failed to strike a
fair balance between the requirements of the general interest and die protection of
the right of property and therefore amounted to a violation of Article 1 of the First
Additional Protocol.43
The reasoning of the Court demonstrates that each treaty-based provision has to
be read and understood in context and that analogies to provisions in other treaties
or to rules of customary law may therefore not be appropriate. The tripartite
structure of Article 1 of the First Additional Protocol to the ECHR is peculiar to
this particular treaty.44
In Goetz v Burundi, 4 5 an ICSID tribunal had to rule on the revocation, by the
host state, of a free-zone status accorded to a foreign investor. Although there had
been no formal taking of property, the Tribunal had no difficulty in finding that the
government’s actions constituted a measure having effect similar to expropriation:
Since... the revocation of the Minister for Industry and Commerce of the free zone
certificate forced them to halt all activities... which deprived their investments of all utility
and deprived the claimant investors of the benefit which they could have expected from their
investments, the disputed decision can be regarded as a ‘measure having similar effect’ to a
measure depriving of or restricting property within the meaning of Article 4 of the Invest­
ment T reaty.46
In Metalclad v Mexico,47 a US company had been granted a permit for the
development and operation of a hazardous waste landfill by the Mexican Federal
Government. Subsequently, the local municipal authorities refused to grant the
necessary construction permit and the regional government declared die land in
question a national area for the protection of cacti. The Arbitral Tribunal found
a violation of Article 1110 of the NAFTA, which provides that ‘[n]o Party may

39 Atpara63. ΐ0 Atpara64. 41 Atpara69. 42 Atpara69. 43 Ar para 73.

44 See also p 29.
43 Goetz v Burundi, Award, 10 February 1999.
46 At para 124.
47 Metalclad Corp v Mexico, Award, 30 August 2000.
108 Expropriation

directly or indirecdy nationalize or expropriate an investment of an investor of

another Party in its territoiy or take a measure tantamount to nationalization or
expropriation of such an investment’. An oft-repeated passage in the Tribunal’s
Award reads:
T hus, expropriation under N A FT A includes n o t only open, deliberate and acknowledged
takings o f property, such as outright seizure or formal or obligatory transfer o f title in favour
o f the host State, but also covert or incidental interference w ith the use o f property which
has the effect of depriving the owner, in whole or in significant part, o f the use or reasonably-
to-be-expected economic benefit o f properry even if not necessarily to the obvious benefit of
the host State.48

In the arbitration proceeding under die UNCITRAL Rules in CME v Czech

Expublic?3 the Tribunal had to rule on the interference by the Czech Media
Council with the contract rights of the claimant’s subsidiary CNTS. In particular,
the Czech authorities had made it possible for the investor’s local partner to cancel
the contract that formed the basis for the claimant’s investment in the Czech
Republic. The Tribunal rejected the respondent’s argument that ‘the Media
Council’s actions did not deprive die claimant of its worth, as there has been no
physical taking of the property by the State’. In the Tribunal’s view, this was
irrelevant:
T h e M edia C ouncil’s actions and omissions, as described above, caused the destruction
o f C N T S ’ operations, leaving C N T S as a com pany w ith assets, b u t w ithout business.. . .
W h at was touched and indeed destroyed was the C laim ant’s and its predecessor’s invest­
m en t as protected by the Treaty, W h at was destroyed was the comm ercial value o f rhe
in v estm e n t. . . by reason o f coercion exerted by the M edia C o u n c il. . ? °
T he expropriation claim is sustained despite the fact that the M edia C ouncil did not
expropriate C M E by express measures o f expropriation. D e facto expropriations or indirect
expropriations, i.e. measures th at do n o t involve an overt taking b u t that effectively
neutralize the benefit o f the property' o f the foreign owner, are subject to expropriation
claims. T his is undisputed under international law.51

The ICSID Award in Middle East Cement Shipping v Egypt?2 concerned the
revocation of a free-zone licence through the prohibition on the import of cement
into Egyptian territory. The prohibition resulted in a paralysis of the investor’s
business, which essentially consisted of importing, storing, and dispatching cement
within Egypt. The Arbitral Tribunal found that the import prohibition resulted in
an indirect taldng of the claimant’s investment:

‘,s Ar para 103; referring ro Biloune v Ghana, Award on Damages and Cosrs, 30 June 1990, 95 ILR
(1995) 184 at para 108.
'l9 C M E v Czech Republic, Partial Award. 13 September 2001.
50 At para 591.
51 At para 604. The award in the parallel case, in Lauder v Czech Republic, Award, 3 September
2001, assumes, without authority, that a finding of an expropriation would have to benefit the host
state or any other person or entity related thereto (para 203).
52 M iddle East Cement Shipping v Egypt, Award, 12 April 2002.
 Direct and indirect expropriation 109
W hen measures are taken by a Stare the effect o f w hich is to deprive the investor o f the use
and benefit o f his investm ent even though he may retain nom inal ow nership o f the
respective rights being the investm ent, the measures are often referred to as a ‘creeping’ or
‘indirect' expropriation or, as in the BIT, as measures ‘the effect o f w hich is tantam ount to
expropriation.5As a m atter o f fact, the investor is deprived by such measures or parts o f the
value o f his investm ent. T his is the case here, and, therefore, it is the T rib u n a l’s view that
such a taking am ounted to an expropriation w ithin the m eaning o f Art. 4 o f the B IT and
that, accordingly, R espondent is liable to pay com pensation therefor.53

An expropriation claim under Chapter Fourteen of the NAFTA, devoted to cross-

border investment in financial services, was adjudged in Fireman’s Fund v Mexico?4
This Chapter allows an expropriation claim under Article 1110, but does not allow
claims pertaining to a violation of the minimum standard or the rule on national
treatment. The US claimant submitted that its investment in a Mexican financial
institution was expropriated by a series of actions by the Mexican Government.55
The bank in which the claimant had invested was in a delicate financial situation,
and the claimant argued that the Mexican Government had taken steps which
permanently deprived it of the value of the investment. The Tribunal briefly
summarized the state of the law of expropriation ,56 but eventually considered
that the actual cause of the problems faced by die investor was that its investment
had been risky and that the business risks involved had materialized. The Tribunal
found that Mexico had discriminated against the investor and had possibly acted in
an unfair manner, but had no jurisdiction in these respects under the NAFTA’s
rules on financial services.
Vivendi v Arge?ttina (resubmitted )57 concerned a concession for a water and
sewage business. The claimants alleged that Argentina had unilaterally modified
tariffs, used its oversight power to pepper the claimants with unjustified accus­
ations, used the media to generate hostility towards die claimants, incited the
claimants’ customers not to pay, and forced the claimants to renegotiate the
concession.
The Tribunal agreed that Argentina’s measures went beyond partial depriv­
ation,58 left the concession without value, and held that they amounted to creeping
expropriation. The Tribunal rejected Argentina’s defence that the claimants’ con­
trol of their physical assets excluded an expropriation.59 It pointed to the effects of
Argentina’s destructive acts60 and emphasized that the pursuit of a public purpose
did not immunize a governmental measure from a claim of expropriation.61
Biwater Gaujfv Tanzania62 concerned a claim for expropriation surrounding the
peculiar circumstances of the termination of a lease in the water and sewage

At para 107. 54 Fireman s Fund v Mexico. Award, 17 July 2006,

5:1 At para 185.
Xl At paras 176 et seq, cited with approval in Corn Products v Mexico, Award, 15 January 2008,
para 87.
5/ Vivendi v Argentina, Award, 20 August 2007.
58 At para 7.5.11. yj At para 7.5.18. 60 At para 7.5.20.
61 At para 7,5.21. 62 Biwater G auffv Tanzania, Award, 24 July 2008.
110 Expropriation

industry. The Tribunal confirmed that the contract was an investment,63 that an
expropriation claim must be determined in light of the effect (not necessarily of an
economic nature ),64 and recognized that all relevant acts of a government affecting
the property must be considered on a cumulative basis.65
An exercise of puissance publique was necessary, but not a denial of justice .66
According to this decision, an indirect expropriation has to be assumed in cases of a
substantial deprivation of rights for at least a meaningful period of time’.67
In the event, the Tribunal found that the formal termination of the lease by
Tanzania was of an ordinary contractual nature and could not, therefore, amount to
an expropriation. In contrast, a series of acts preceding the termination did violate
the treaty rule on expropriation: an inflammatory press conference by a minister,
the withdrawal of VAT exemption, the forceful occupation of the claimants’
facilities, usurpation of the claimants’ management rights, and deportation of
senior staff amounted to an indirect expropriation. In light of the arbitral jurispru­
dence examined, the Tribunal found that occupation and seizure, takeover of
management, and deportation of management personnel in themselves led to this
conclusion.
In the end, however, the claimants received no compensation; the company had
significant liabilities, its contract was about to be terminated, and a willing buyer
would not have paid to acquire the company.
In Meirill & Ring Forestry v Canada,,68 the Tribunal ruled on the claim of a US
investor which considered that the Canadian Log Export Control Regime affected
its business to export timber from Canada to the United States so intensely that an
indirect expropriation had to be assumed.
The Tribunal did not allow the claim .69 It considered that the type of interest
asserted by the claimant could not be considered an investment, given that die
Canadian regime, while regulating the export business, did not prohibit it, and did
not interfere with the contract. Also, the investor had no right to sell the product in
the United States for a specific price.
Moreover, the interference with the business did not reach the level of a
‘substantial deprivation’ inasmuch as the claimant remained in control of its
business and also continued to operate at a significant profit. The control regime
in question was deemed to be in accordance with the rules of the forestry sector
worldwide.
Suez v Argentina70 concerned Argentina’s treatment of the claimant’s right to
operate, for 30 years, a water and sewage system and to receive corresponding
revenue based on a tariff regime for that period. The claimant submitted that
regulatory measures by Argentina, and also its refusal to adjust the tariffs, amounted

63 At para 453. 64 At para 455. 65 At para 456.

66 At para 45 8 . 67 At para 463.
68 M enill & Ring Forestry v Canada, Award, 31 March 2010.
69 At paras 139 et seq.
/0 Suez v Argentina, Award, 30 July 2010.
 Direct and indirect expropriation 111

t0 aii expropriation. On both counts, the Tribunal rejected the claim, pointing to
the claimant’s ongoing control of its operations.71
As regards the regulatory measures in particular, the Tribunal relied on the
opaque concept of an ‘overt taking ’72 which, in its view, did not exist despite a
series of measures affecting the right to withdraw cash from bank accounts, new
taxes, currency measures resulting in depreciation of the local peso, and the
abandonment of an index-based scheme of tariff adjustment.73 In principle at
least, the Tribunal recognized that an examination of a taking must be targeted
at the effects, not at the intention, of a measure.74 In general, an indirect expropri­
ation presupposed ‘a substantial, permanent deprivation of the Claimant’s invest­
ments or the enjoyment of those investments’ economic benefits’.
The termination of the underlying concession contract by Argentina was, under
the circumstances, deemed contractual in nature and did not involve the exercise of
Argentina’s sovereign power; as a consequence, the measure was not expropriatory
in nature .75
In Alpha v Ukraine/6 the Austrian claimant had entered into a Joint Activity
Agreement (JAA) with a state enterprise in regard to a hotel in the Ukraine. The
hotel was originally held by the state-owned enterprise. After the claimant had
entered into the JAA, the state-owned enterprise was transformed, in 2001, into a
state-owned Open Joint Stock Company not subject to privatization. The claim­
ant’s argument that it lost its rights in the process of transformation was rejected by
the Tribunal.77
In 2004, regular payments due to the claimant under the JAA were stopped by
the Stock Company, amidst political and criminal turmoil. It turned out that the
state had, for non-political reasons, caused the Stock Company to halt payments to
the claimant for an indefinite period;78 here, the Tribunal questioned whether any
distinction between ‘sovereign’ and ‘commercial’ actions is relevant to the question
whether Ukraine’s actions expropriated the claimant’s investment.
As a result of non-payment after 2004, the economic value of the rights held by
the claimant was largely wiped out. The Tribunal concluded that the state’s actions
amounted to an indirect expropriation. The decision accurately illustrates that the
issue of non-payment of debt resists generalization; depending upon the circum­
stances, non-payment may amount to expropriation.
In order to assess the current state of the law, it is prudent not just to operate
with broader formulae such as ‘unreasonable interference’, ‘measures having die
effect of an expropriation’, or ‘measures which substantially deprive the owner of
the use of the property’. More specific topics that will help to elucidate and
concretize diese broad formulae are expressed in the distinction between the effect

/! At paras 117 et seq. 72 At para 125.

73 The Tribunal explained that its position was based on the legitimate right o f a state to regulate its
affairs: an additional defence of Argentina invoking police powers was not recognized (para 146)
inasmuch as it would be duplicative.
/4 At para 122. 7:1 At para 143.
/6 Alpha v Ukraine, Award, 8 November 2010.
7/ At paras 101 et seq. 78 At para 412,
112 Expropriation

and purpose of a measure, in reference to die role of die intent of a government,

consideration of the issue of legitimate expectations of the investor, control over the
investment, the need for regulatory measures, and the duration of a measure. These
issues are discussed explicitly in some decisions, although they are not necessarily
the key to a fully homogeneous theory that does justice to all existing arbitral
decisions. But they will assist in a better understanding of individual decisions and
general trends.
Not surprisingly, significant lacunae and open issues remain in the law governing
indirect expropriation. Domestic courts have grappled with the same issues for far
longer. Despite the benefit of constitutional texts and the homogeneity of their
national legal systems, they have been unable to resolve all problems. Sometimes
these courts have stated that broad formulae will not be helpfiil as guidelines for
judicial reasoning.79

(c) Effect or intention?

The effect of the measure upon the economic benefit and value as well as upon the
control over the investment is the key question when it comes to deciding whether
an indirect expropriation has taken place. Whenever this effect is substantial and
lasts for a significant period of time, it will be assumed prima facie that a talcing of
the property has occurred .80
Tribunals have accordingly based their decisions on economic considerations.
Indirect expropriation was seen to exist if the measure constituted a deprivation of
the economic use and enjoyment, ‘as if the rights related thereto— such as the
income or benefits. .. had ceased to exist’,81 or when ‘the use or enjoyment of
benefits related thereto is exacted or interfered with to a similar extent’.82 Other
formulae and phrases have also been used .83

79 See eg Andrus v Allard, 44 4 US 51, 65; 100 S C t 318 (1979):

There is no abstract or fixed point at which judicial intervention under the Takings Clause
becomes appropriate. Formulas and factors have been developed in a variety of settings. See
Penn Central, above, at 123-8.
Resolution o f each case, however, ultimately calls as m uch for the exercise of judgm ent as
for the application of logic.
80 See eg Norwegian Shipowners’ Claims, I RIAA 307 (1922): Goetz v Burundi, Award, 10 February
1999; Middle East Cement v Egypt, Award. 12 April 2002; Metalclad Cotp v Mexico, Award, 30 August
2000; CM E v Czech Republic, Partial Award, 13 September 2001.
81 TECMED v Mexico, Award, 29 May 2003, para 115-
S2 At para 116.
83 See Y Fortier and S L Drymer, ‘Indirect Expropriation in the Law o f International Investment:
I Know It W hen I See It, or Caveat Investor (2004) 19 ICSID Review-FILJ 293, 305;
die required level of interference with such rights— has been variously described as: (1)
unreasonable; (2) an interference that renders rights so useless that they must be deemed to have
been expropriated, (3) an interference that deprives the investor of fundam ental rights o f
ownership·, (4) an interference that makes rights practically useless·, (5) an interference
sufficiently restrictive to warrant a conclusion that the property' has been ‘taken’; (6) an
interference that deprives, in whole or in significant part, die use or reasonably-to-be-expected
economic benefit ot the property; (7) an interference that radically deprives the economical use
and enjoyment of an investment, as if the rights related thereto had ceased to exist; (8) an
 Direct and indirect expropriation 113

In RFCC v Morocco,8q the Tribunal stated that an indirect expropriation exists in

cases where the measures have ‘substantial effects of an intensity that reduces and/or
removes the legitimate benefits related with the use of the rights targeted by the
m easure to an extent th a t they render their further possession useless’.85
Other decisions have in various wording and degrees also emphasized the effect
of the measure.86 The Iribunal in CMS v Argentina8'' found that no indirect
e x p ro p ria tio n had occurred when Argentina unilaterally suspended a previously
agreed tariff adjustment scheme for the gas transport sector in the context of its
economic and financial crisis. The US company CMS had argued, inter alia, that
the suspension of the tariff adjustment formula amounted to an indirect expropri­
ation of its investment in the Argentine gas transport sector. The Tribunal rejected
this argument even though it admitted that the measures h a d an important effect
on die claimant’s business:
The essential question is therefore to establish w hether the enjoym ent o f the property has
been effectively neutralized. T he standard that a num ber o f tribunals have applied in recent
cases w here indirect expropriation has been contended is that o f substantial deprivation.. . .
the investor is in control o f the investm ent; the G overnm ent does not m anage the day-to-
day operations o f the company; and the investor has full ownership an d control o f the
investm ent.88

In Telenor v Hungary,^ the investor held a telecom concession which was affected by
a special levy on all telecommunications service providers. The Tribunal held that in
order to constitute an expropriation, the conduct complained of must have a major
adverse impact on the economic value of the investment.90 The Tribunal said:
the interference w ith the investor’s rights m ust be such as substantially to deprive the
investor o f the econom ic value, use or enjoym ent o f its investm ent.91 .. . In considering
w hether measures taken by governm ent constitute expropriation the determ inative factors
are the intensity and duration o f the economic deprivation suffered by the investor as the
result o f them .92

interference that makes any form ofexploitation o f the property disappear. . . ; (9) an interfer­
ence such that the property can no longer be put to reasonable use.
84 RFCC v Morocco, Award, 22 December 2003.
85 At para 69 (original in French: ‘avoir des efifets substantiels d’une intensite certaine qui reduisent
et/ou font disparaitre Ies benefices legitimement attendus de I’exploitadon des droits objets de ladite
mesure a un point tel qu’ils rendent la detention de ces droits inutile’)· See also LESI v Algeria, Award.
12 November 2008, para 132: Bayindir v Pakistan, Award, 27 August 2009, para 459.
86 Tippetts, Abbett, McCarthy, Stratton v TAMS-AFFA Consulting Eng ’rs o f Iran·, Biloune v Ghana,
Award on Jurisdiction, 27 O ctober 1989; Metalclad Coip v Mexico, Award, 30 August 2000; Wena v
Egypt, Award on Merits, 8 December 2000; Santa Elena v Costa Rica, Award, 17 February 2000; CM E
v Czech Republic, Partial Award, 13 September 2001; Middle East Cement v Eg)pt, Award, 12 April
2002; Goetz v Burundi, Award, 10 February 1999.
87 CM S v Argentina, Award, 12 May 2005.
BS A t paras 262. 263. See also Revere Copper v OPIC, 56 ILR (1980) 258 and the cases discussed by
G H Aldrich, ‘W hat Constitutes a Compensable Taking of Property? The Decisions of die Iran-
U nited States Claims T ribunal’ (1994) 88 AJIL 585.
89 Telenor v Hungary, Award, 13 September 2006.
90 A t para 64. 95 At para 65.
92 A t para 70. Footnote omitted.
114 Expropriation

In the event, the Tribunal found that the special levy amounted to a very limited sum
and fell below the threshold of the standard defining an indirect expropriation.93
In a number of cases tribunals have pointed out that what mattered for an
indirect expropriation was only the effect of the measure and that any intention to
expropriate was not decisive.94 In Teemed v Mexico, 9 3 the Tribunal found that
there had been an indirect expropriation. After explaining the concept of indirect
or de facto expropriation, the Tribunal stated: ‘The government’s intention is
less im portant than the effects o f the measures on the owner of the assets or on
the benefits arising from such assets affected by the measures; and the form of the
deprivation measure is less important than its actual effects.’96
In Siemens v Argentina?7 the Tribunal found support in the applicable BIT for
its finding that what mattered for the existence of an expropriation was the effect of
the measures and not the government’s intention. The Argentina-Germany BIT,
like m any other BITs, refers to indirect expropriation in terms of a ‘measure the
effects of which would be tantam ount to expropriation’. The Tribunal said: ‘The
Treaty refers to measures that have the effect of an expropriation; it does not refer to
die intent of the State to expropriate.’98
A-Uthority for die ‘sole effect doctrine’ also comes from the practice of the Iran-
US Claims Tribunal. In Stanett Housing v Iran,99 the Tribunal said:
it is recognized in international law that measures taken by a State can interfere with
property rights to such an extent that these rights are rendered so useless that they must
be deemed to have been expropriated, even though the State does not purport to have
e x p ro p ria te d them and the legal title to the property formally remains with the original
ownei. 100
O ther decisions display a more differentiated approach. They take into account the
context of the measure, including the purpose pursued by the host state. Sea-Land
S e r v ic e Inc v Iran 101 seems to fall into this category. Upon review of the case law,
Fortier 102 has concluded that an approach balancing different factors seems to be
dominant. This is certainly true for the jurisprudence of the E C tH R . 103 Also, the
2004 and 2 01 2 US Model BITs, in their description of indirect expropriation, refer

93 At para 79.
94 See alsoAzurix v Argentina, Award, 14 July 2006, para 309.
95 Teemed vMexico, Award, 29 May 2003, cited in Plama v Bulgaria, Award, 27 August 2008, para
192.
96 At para 116 citing the decisions o f the Iran-U S Claims T ribunal in Tippetts and Phelps Dodge.
Footnote omitted.
97 Siemens v Argentina, Award, 6 February 2007.
98 At para 270.
99 Starrett Housing Co/p v Iran, Iran-U S Claims Tribunal, 19 D ecem ber 1983, cited in Plama v
Bulgaria, Award. 27 August 2008, para 191.
i°° At 154. See also Tippetts, Abbett, McCarthy, Stratton v TAM S-AFFA Consulting Engineers of
Iran, Iran-U S Claims Tribunal, 22 June 1984, 225-6; Phillips Petroleum Co v Iran, Iran-U S Claims
Tribunal, 29 June 1989, para 97-
101 Sea-Land Service Inc v Iran, 6 Iran-U S C T R 149, 166 (1984).
Y Fortier and S L Drymer, ‘Indirect Expropriation in the Law o f International Investment:
I K n o w It W hen I See It, or ‘Caveat Investor (2004) 19 IC SID Review-FILJ 293.
503 See ECtHR, Sponong & Lonnroth v Sweden, 23 September 1982.
 Direct and indirect expropriation 115

not only to the economic impact of the government action but also to the objective
of protecting legitimate public welfare objectives.104 W hat is uncontroversial is that
the mere post-facto explanation by the host state of its intention will in itself carry
no decisive weight. 105
Indeed, a number of tribunals have pointed out that a proper analysis of an
expropriation claim must go beyond the technical consideration of the formalities
and ‘look at the real interests involved and the purpose and effect of the government
measure’. 106

(d) Legitimate expectations

An issue that is not novel as such but has more recently received increasing
attention, is the existence of legitimate expectations on the part of the investor.
This theme has also found expression in various forms in domestic laws. In fact, it is
arguable whether the concept of legitimate expectations is part of the general
principles of law. Legitimate expectations play a key role in the interpretation of
the fair and equitable treatment standard ;107 but diey have also entered the law
governing indirect expropriations.
The general nature of the concept of legitimate expectations makes it difficult to
draw mechanical conclusions from it. But it may be employed usefully in a number
of settings. Legitimate expectations may be created not only by explicit undertak­
ings on the part of the host state in contracts but also by undertakings of a more
general nature. In particular, the legal framework provided by the host state will be
an important source of expectations on the part of the investor. W hat matters for
the investor’s expectations is the state of the law of the host country at the time of
the investment. To the extent that the state of the law was transparent and did not
violate minimum standards, an investor will hardly be able to convince a tribunal
that the proper application of that law led to an expropriation. This position is
consistent with the power of the host state to accept and define the rights acquired
by the investor at the time of the investment. 108
Not every change in the host state’s legal system affecting foreign property will
violate legitimate expectations. No such violation will occur if the change remains
within the boundaries of normal adjustments customaiy in the host state and
accepted in other states. Such changes are predictable for a prudent investor at

104 US Model BITs 2004 and 2012, Annex B, para 4.

105 See Norwegian Shipowners' Claims, I RIAA. 307 (1922); R Doizer, ‘Indirect Expropriations:
New Developments?’ (2003) 11 N Y U Environmental LJ 64, 91.
106 S D Myers v Canada, First Partial Award, 13 November 2000, para 285.
I0/ See pp 145 et seq.
,os See eg Oscar Chinn v Belgium, 12 December 1934, PCIJ, Series A/B, N o 63, 84:
Kir Chinn, a British subject, when, in 1929, he entered the river transport business, could
not have been ignorant o f the existence of the competition which he would encounter on the
part o f Unatra, which had been established since 1925, of the m agnitude of the capital
invested in th at Com pany, o f the connection it had with the Colonial and Belgian
Governments, and o f the predom inant role reserved to the latter with regard to the fixing
and application of transport rates.
116 Expropriation

the time of the investment. For instance, the Tribunal in Methanex v United
States109 found that certain new environmental regulations in California should
have been foreseeable for the Canadian investor.
Tribunals have relied on the legitimate expectations of investors in a number of
cases relating to indirect expropriation. In Revere Copper v O PIC ,110 the host state
had given explicit contractual assurances not to increase taxes and royalties. The
Tribunal said:
W e regard these principles as particularly applicable where the question is, as here, whether
actions taken by a governm ent contrary to and dam aging to the econom ic interests o f aliens
are in conflict with undertakings and assurances given in good faith to such aliens as an
inducem ent to their m aking die investm ents affected by the action.111

In Metalclad v Mexico,112 the investor had acted in reliance on assurances to the

effect that he had all necessary permits. Nevertheless, the project was roiled by the
refusal of the municipality to grant a construction permit. The Tribunal put great
emphasis on the expectations created by the government’s assurances:
These measures, taken together w ith the representations o f the M exican federal government,
0 11 w hich M etalclad relied, and the absence o f a timely, orderly or substantive basis for the
denial by the M unicipality o f the local construction perm it, am o u n t to an indirect expropri­
ation.113

In a similar way, in Teemed v Mexico114 the Tribunal, in determining that die

investment had been expropriated, found that:
upon m aking its investm ent, the C laim ant had legitim ate reasons to believe that the
operation o f the Landfill w ould extend over the long te rm ,. . . the C laim ant’s expectation
was th at o f a long-term investm ent relying on the recovery o f its investm ent and the
estim ated return through the operation o f the Landfill during its entire useful life.115

In Thunderbird v Mexico,110 the Tribunal gave a general definition of legitimate

expectations:
Having considered recent investm ent case law and the good faith principle o f international
custom ary law, the concept o f legitim ate expectations’ relates, w ithin the context of the
N A FT A framework, to a situation where a C ontracting Party’s conduct creates reasonable
and justifiable expectations on the part o f an investor (or investm ent) to act in reliance on
said conduct, such that a failure by the N A FT A Party to h onour those expectations could
cause the investor (or investm ent) to suffer dam ages.117

109 Methanex v United States, Award, 3 August 2005; see also Thunderbird v Mexico. Award, 26
January 2006.
n ° Reve-,r Copper v OPIC, Award, 24 August 1978.
111 At 271.
112 Metalclad v Mexico, Award, 30 August 2000.
113 At para 107.
114 Teemed v Mexico, Award, 29 May 2003.
115 At para 149,
116 Thunderbird v Mexico, Award, 26 January 2006.
n / At para 147. Footnote omitted.
 Direct and indirect expropriation 117

On the basis of this definition, the Tribunal reached the conclusion that the
investor’s continued operation of gaming facilities in Mexico was not based on a
legitimate expectation . 118
In Azurix v Argentina,UC) the Tribunal discussed the issue of legitimate expect­
ations at some length . 120 It held that expectations ‘are not necessarily based on a
contract but on assurances explicit or implicit, or on representations made by the
State which the investor took into account in making the investment’. 121
On that basis it found that Argentina had created ‘reasonable expectations’ that it
had not lived up to . 122 Remarkably, however, the Tribunal held that no indirect
expropriation had taken place, since the investor had continued to exercise control
over the investment. 123

(e) C ontrol and expropriation

It is not unusual in situations involving allegations of indirect expropriation that the
investor retains control of its enterprise but the investment loses its economic
viability. The overall investment may survive, but important rights that determine
its profitability may be extinguished.
A number of Awards suggest that continued control of an enterprise by die
investor strongly militates against a finding that an indirect expropriation has
occurred. The requirement of total or substantial deprivation 124 has led these
tribunals to deny the existence of an expropriation where the investor retained
control over the overall investment even though it had been deprived of specific
rights. 125
As to the relationship be w een expropriation and the standard of fair and
equitable treatment, it was stated in Sempra v Argentina126 that:
fair and equitable tre a tm e n t., .ensures that even where there is no clear justification for
m aking a finding o f expropriation, as in the present case, there is still a standard which
serves the purpose o f justice and can o f itself redress damage that is unlawful and th at would
otherwise pass unattended. W hether this result is achieved by the application o f one or
several standards is a determ ination to be made in the light o f the facts o f each dispute. W hat
counts is that in the end the stability o f the law and the observance o f legal obligations are

118 A t para 208.

119 A zurix v Argentina, Award, 14 July 2006.
120 At paras 316-22.
121 At para 318.
122 See paras 316 et seq.
123 At para 322.
124 Pope & Talbot v Canada, Award, 26 June 2000, para 102; Metalclad v Mexico, Award, 30
August 2000, para 103; CM S v Argentina, Award, 12 May 2005, para 262.
125 Feldman v Mexico, Award, 16 December 2002, paras 142, 152; Occidental v Ecuador, Award,
1 July 2004, para 89; CMS v Argentina, Award, 12 May 2005, paras 263, 264; Enron v Argentina,
Award, 22 May 2007, para 245; PSEG v Turkey, Award, 19 January 2007, para 278; Sempra v
Argentina, Award, 28 September 2007, para 285; AES' v Hungary. Award, 23 September 2010, para
14.3.2.
126 Sempra v Argentina, Award, 28 September 2007, para 300.
118 Expropriation

assured, thereby safeguarding die very object and purpose of the protection sought by the
treaty.
The Tribunal in Tokios Tokelis v Ukraine127 explained that:
one can reasonably infer that a diminution of 5% of the investment's value will not be
enough for a finding of expropriation, while a diminution of 95% would likely be sufficient.
Azurix v Argentina128 concerned breaches of a water concession by a province of
Argentina. The Tribunal, although finding other breaches of the BIT, including
fair and equitable treatment, denied the existence of an indirect expropriation, since
the investor had retained control over the enterprise:
the impact on the investment attributable to the Province’s actions was not to the extent
required to find that, in the aggregate, these actions amounted to an expropriation; Azurix
did not lose the attributes of ownership, at all times continued to control ABA and its
ownership of 90% of the shares was unaffected. No doubt the management of ABA was
affected by the Province’s actions, but not sufficiently for the Tribunal to find that Azurix’s
investment was expropriated.129
Similarly, in LG&E v Argentina13®the host state had violated the terms of conces­
sions for the distribution of gas. The Tribunal, although finding diat other
standards had been violated, denied the existence of an expropriation in view of
the investor’s continuing control:
Ownership or enjoyment can be said to be ‘neutralized’ where a party no longer is in control
of the investment, or where it cannot direct the day-to-day operations of die investment....
Interference with the investment's ability to carry on its business is not satisfied where the
investment continues to operate, even if profits are diminished.131
Control is obviously an important aspect in the analysis of a taking. However, the
continued exercise of control by the investor in itself is not necessarily the sole
criterion. The issue becomes obvious when a host state substantially deprives the
investor of the value of the investment leaving the investor widi control of an entity
that amounts to not much more than a shell of the former investment.
This illustrates the significance of a test which includes criteria other than
control, such as economic use and benefit. Any attempt to define an indirect
expropriation on the basis of one factor alone will not lead to a satisfactory result
in all cases. In particular, an approach that looks exclusively at control over die
overall investment is unable to contemplate the expropriation of specific rights
enjoyed by the investor.

127 Tokios Tokel-es v Ukraine, Award, 26 July 2007, para 120.

!2S Azurix v Argentina, Award, 14 July 2006.
129 At para 322.
130 LG&E v Argentina, Decision on Liability, 3 October 2006.
131 At paras 188, 191. Footnotes omitted.
 Direct and indirect expropriation 119

(f) Partial expropriation

Some tribunals have accepted the possibility of an expropriation of particular rights
that formed part of an overall business operation without looking at the issue of
control over the entire investment.132 In Middle East Cement v Egypt,135 the
investor had, inter alia, obtained an import licence for cement and had operated
a ship. Egypt subsequently took measures that prevented the investor from operat­
ing its licence and seized and auctioned the ship. The investor raised a series of
claims in respect of which it alleged expropriation. These included but went beyond
the import licence and ownership of the ship. The Tribunal looked at these claims
separately and determined in respect of each whether an expropriation had taken
place. It found that the licence qualified as an investment and that the measures
that prevented the exercise of the rights under it amounted to an expropriation .134
The Tribunal examined separately whether an expropriation of the ship had
occurred and gave an affirmative answer.135 Several other claims of expropriation
in respect of other rights were also examined but denied for a variety of reasons.136
Therefore, Middle East Cement demonstrates that it is possible separately to expro­
priate specific rights enjoyed by the investor regardless of control over the overall
investment.
In Eureko v Poland,137 the investor had acquired a minority share in a privatized
insurance company. A related agreement granted the investor die right to acquire
further shares thereby gaining majority control of the company. The right to
acquire the additional shares was subsequently withdrawn by the state. The original
investment remained unaffected. The Tribunal found that the right to acquire
further shares constituted ‘assets’, which were separately capable of expropri­
ation .138 It follows from this decision that even where control over the basic
investment remains unaffected, the taking of specific rights related to the basic
investment may amount to an expropriation .139
In Grand River v United States140 the Tribunal suggested that under the rules of
the NAFTA, only an expropriation of the investment as a whole will fall under the
rules of the T reaty. This view of the NAFTA (and the law of expropriation in general)
is too narrow; indeed, it appears from the case law discussed in the decision 141 that
the Tribunal may have failed to distinguish between the questions of the definition of
a taking and the extent to which an investment may have been expropriated.

132 Waste Management v Mexico, Award, 30 April 2004, paras 141, 147; EjiCana v Ecuador, Award,
3 February 2006, paras 172-83. For an extensive discussion, see U Kriebaum, ‘Partial Expropriation’
(2007) 8 J World Investment & Trade 69.
133 M iddle East Cement v Egypt, Award, 12 April 2002.
134 At paras 101, 105, 107, 127.
135 A t paras 138, 144.
136 At paras 152-6, 163-5.
13/ Eureko vPoland, Partial Award, 19 August 2005.
138 At paras 239-41.
139 See U Kriebaum, 'Partial Expropriation’ (2007) 8 J World Investment & Trade 69.
140 Grand River v United States, Award, 12 January 2011, para 146.
141 At paras 148 et seq.
120 Expropriation

(g) G eneral regulatory measures

A question of prime importance, both for the host state and for the foreign investor,
is the role of the general regulatory' measures of the host country under the rules of
indirect expropriation.142 Emphasis on the host state’s sovereignty supports the
argument that the investor should not expect compensation for a measure of
general application. Indeed, one way to identify a taking may be to clarify whether
the measure in question was taken in the exercise of functions that are generally
considered part of a government’s powers to regulate the general welfare. 143 This
approach calls for a comparison of domestic legal orders. 1^4
In the United States, governmental regulatory powers are referred to as ‘police
power’. While it is debatable whether the term ‘police power’ is appropriate in the
modern regulatory context, some investment tribunals have relied on this term , 145
as did the US Restatement o f Foreign Relations Law.iq6
The Iran-US Claims Tribunal ruled in Too v Greater Modesto Insurance
Associates:147
A state is not responsible for loss o f property or for other econom ic disadvantage resulting
from bona fide general taxation or any other action th at is com m only accepted as w ithin the
police power of States, provided it is not discrim inatory and is not designed to cause the
alien to abandon the property to the State or to sell it at a distress price.

In Feldman v Mexico}48 the Tribunal stated the position as follows:

the ways in which governm ental authorities m ay force a com pany out o f business, or
significantly reduce the econom ic benefits o f its business, are many. In the past, confiscatory
taxation, denial o f access to infrastructure or necessary raw materials, im position o f unrea­
sonable regulatory regimes, am ong others, have been considered to be expropriatoiy actions.
A t the same time, governm ents m ust be free to act in the broader public interest through
protection o f the environm ent, new or m odified tax regimes, the granting or withdrawal of
governm ent subsidies, reductions or increases in tariff levels, im position o f zoning restric­
tions and the like. Reasonable governm ental regulation o f this type cannot be achieved if any
business that is adversely affected may seek com pensation, and it is safe to say that customaiy
international law recognizes th is.149

142 O n expropriatoiy acts by the judiciary, see Rurneli v Kazakhstan, Award, 29 July 2008, para 702.
l4·’ This was the approach taken in Telenor v Hungary, Award, 13 September 2006, para 78.
iVi R Dolzer, ‘Indirect Expropriation of Alien Property’ (1986) 1 ICSID Review-FILJ 41.
145 See eg TECMED v Mexico, Award, 29 May 2003, paras 115, 119.
u6 American Law Institute, Restatement (Third) o f the Foreign Relations Law o f the United States,
Vol 1 (1987), § 712, Com m ent (g):
a state is not responsible for loss of property or for other economic disadvantage resulting
from bona fide general taxation, regulation, forfeiture for crime, or other action of the kind
that is commonly accepted as within the police power of the states, if n ot discriminatory.
U/ Too v Greater Modesto Insurance Associates, 23 Iran-U S C T R 378; see also SEDCO v NIOC,
9 Iran-U S C T R 249, 275.
1<iS Feldman v Mexico, Award, 16 December 2002.
149 At para 103.
 Direct and indirect expropriation 121

Similarly, the Tribunal in SD Myers v Canada150 held:

The general body of precedent usually does nor treat regulatory action as am ounting to
expropriation. Regulator)7 conduct by public authorities is unlikely to be the subject o f
legitimate com plaint under Article 1110 o f the NAFTA, although the T ribunal does n o t
rule o u t that possibility.151

In Methanex v United States} 52 the Arbitral Tribunal found that a Californian ban
of the gasoline additive MTBE did not constitute an expropriation because the
measure was adopted for a public purpose, was not discriminatory, and because no
specific commitments had been given to the foreign investor:
In the T ribunal’s view, M ethanex is correct that an intentionally discrim inatory regulation
against a foreign investor fulfils a key requirem ent for establishing expropriation. B ut as a
m atter o f general international law, a non-discrim inatory regulation for a public purpose,
which is enacted in accordance w ith due process and, w hich affects, in ter alios, a foreign
investor or investm ent is not deem ed expropriatory and com pensable unless specific
commitments had been given by the regulating government to the then putative foreign
investor contemplating investment that the government would refrain from such regulation.153

Similarly, in Saluka v Czech Republic} 54 the Tribunal said:

In the opinion o f the T ribunal, the principle that a State does not com m it an expropriation
and is thus not liable to pay com pensation to a dispossessed alien investor w hen it adopts
general regulations that are ‘com m only accepted as w ithin the police power o f States’ forms
part o f custom ary international law today. T here is ample case law in support o f this
proposition.155

The Award in Continental Casualty) v Argentina}'-"6 refers to:

lim itations to the use o f property in the public interest that fall w ithin typical governm ent
regulations o f property entailing mostly inevitable lim itations im posed in order to ensure the
rights o f others or o f the general public (being ultim ately beneficial also to the property
affected). These restrictions do n o t impede the basic, typical use o f a given asset and do not
impose an unreasonable burden on the owner as com pared w ith other similar situated
property owners. These restrictions are not therefore considered a form o f expropriation and
do n o t require indem nification, provided however that they do n o t affect property in an
intolerable, discrim inatory or disproportionate m anner,157 [Footnotes om itted]

The references to general regulations and to non-discrimination suggest that the

tribunals were influenced by the concept of national treatment. But the rules on
foreign investment are not based on the principle of national treatment. General

150 SD Myers v Canada, First Partial Award, 13 November 2000.

151 At para 281.
132 Methanex v United States, Award, 3 August 2005.
1,3 At Part IV, Ch D, p 4, para 7.
154 Saluka v Czech Republic, Partial Award, 17 March 2006,
l3' At para 262, citing Methanex v United States.
136 Continental Casualty v Argentina, Award, 5 September 2008.
15/ At para 276.
122 Expropriation

regulatory rules and the measures based on them are subject to the same standards
of protection that have been developed for all other instances. In the words of the
decision o f Pope & Talbot v Canada, !a gaping loophole’ would otherwise exist in
the operation of the rules protecting foreigners.158
In Santa Elena v Costa Rica,159 the Tribunal found that the fact that measures
were taken for the purpose of environmental protection did not affect their nature
as an expropriation. Therefore, the obligation to pay compensation remained. The
Tribunal said:
Expropriatory environmental measures—no matter how laudable and beneficial to society
as a whole·—are in this respect, similar to any other expropriatory measures that a state may
take in order to implement its policies: where property is expropriated, even for environ­
mental purposes, whether domestic or international, the state’s obligation to pay compen­
sation remains.160
In A D C v Hungary,161 the claimants argued that their investment in an airport
project was expropriated by measures which deprived them of their rights to
operate two airport terminals and to benefit from associated future business
opportunities. The Tribunal accepted the claim of indirect expropriation and
rejected Hungary’s argument based on its right to regulate. In the view of the
Tribunal:
The Tribunal cannot accept the Respondent’s position that the actions taken by it against
the Claimants were merely an exercise of its rights under international law to regulate its
domestic economic and legal affairs. It is the Tribunal’s understanding of the basic
international law principles that while a sovereign State possesses the inherent right to
regulate its domestic affairs, the exercise of such right is not unlimited and must have its
boundaries. As rightly pointed out by the Claimants, the rule of law, which includes treaty
obligations, provides such boundaries. Therefore, when a State enters into a bilateral
investment treaty like the one in this case, it becomes bound by it and the investment-
protection obligations it undertook therein must be honored rather than be ignored by a
later argument of the State’s right to regulate.
The related point made by the Respondent that by investing in a host State, the investor
assumes the ‘risk’ associated with the State’s regulatory regime is equally unacceptable to the
Tribunal. It is one thing to say that an investor shall conduct its business in compliance with
the host State’s domestic laws and regulations. It is quite another to imply that the investor
must also be ready to accept whatever the host State decides to do to it. In the present case,
had the Claimants ever envisaged the risk of any possible depriving measures, the Tribunal
believes that they took that risk with the legitimate and reasonable expectation that they
would receive fair treatment and just compensation and not otherwise.162

138 Pope & Talbot v Canada, Interim Award, 26 June 2000, para 99; see also A D C v Hungary,
Award, 2 O ctober 2006, paras 423, 424.
159 Santa Elena v Costa Rica, Award, 17 February 2000.
160 A t para 72. The Tribunal in Azurix quotes this passage at para 309: Azurix Corp v The Argentine
Republic, Award, 14 July 2006.
161 A D C v Hungary, Award, 2 October 2006.
162 At paras 423, 424.
 Direct and indirect expropriation 123

In addition, the Tribunal made the rare finding that the host state had failed to
demonstrate that its measures were in the public interest163 and that, moreover, the
taking had not taken place under due process of law. 164
Recent decisions have sought to find a balance between die host state’s right to
act in the public interest and protection of die investor’s rights, 163 The Tribunal in
Azurix 166 held that die issue was whether legitimate measures serving a public
purpose should give rise to a compensation claim. It found the criterion of bona
fide regulation within the accepted police powers of the state insufficient and
contradictor};'.167 In regard to that argument, the Tribunal said:
According to it, the BIT would require that investments not be expropriated except for a
public purpose and that there be compensation if such expropriation takes place and, at the
same time, regulatory measures that may be tantamount to expropriation would not give rise
to a claim for compensation if taken for a public purpose.168
The Azurix Tribunal approvingly quoted the EC tH R , 169 which had found that in
addition to a legitimate aim in the public interest there had to be ‘a reasonable
relationship of proportionality between the means employed and the aim sought to
be realized’. This proportionality would be lacking if the person concerned ‘bears
an individual and excessive burden ’.170
The Tribunal in LG&E v Argentina171 adopted a similar balancing test:
In order to establish whether State measures constitute expropriation under Article IV(1) of
the Bilateral Treaty, the Tribunal must balance two competing interests: the degree of the
measure’s interference with the right of ownership and the power of the State to adopt its
policies..., With respect to the power of the State to adopt its policies, it can generally be
said that the State has the right to adopt measures having a social or general welfare purpose.
In such a case, the measure must be accepted without any imposition of liability, except in
cases where the State’s action is obviously disproportionate to the need being addressed. The
proportionality to be used when making use of this right was recognized in Teemed, which
observed that ‘whether such actions or measures are proportional to the public interest
presumably protected thereby and the protection legally granted to investments, taking into
account that the significance of such impact, has a key role upon deciding the proportion­
ality.’172 [Footnote omitted]

163 See para 433.

At paras 434 et seq.
165 For a proposal to balance investor and host state rights that goes beyond current arbitral
pracdce, see U Kriebaum, ‘Regulator)· Takings: Balancing the Interests of the Investor and the State’
(2007) 8 J World Investment & Trade 717.
166 Azurix v Argentina, Award, 14 July 2006.
167 At paras 310, 311.
168 At para 311.
169 James v United Kingdom, Judgm ent of 21 February 1986, paras 50 and 63.
1/0 Azurix at para 311.
1/1 LG & E v Argentina, Decision on Liability, 3 October 2006.
172 At paras 189, 195.
124 Expropriation

(li) Duration of a measure

The duration of a governmental measure affecting the interests of a foreign investor
is important for the assessment of whether an expropriation has occurred , 1'·'3 The
Iran-US Claims Tribunal has ruled diat the appointment of a temporary manager
by the host state against the will of the foreign investor will constitute a taking if the
consequential deprivation is not ‘merely ephemeral’. 174
Investment tribunals have also laid emphasis on the duration of die measure in
question . 175 In SD Myers v Canada} 1’6 die Tribunal said:
An expropriation usually amounts to a lasting removal of the ability of an owner to make use
of its economic rights although ir may be that, in some contexts and circumstances, it would
be appropriate to view a deprivation as amounting to an expropriation, even if it were partial
or temporary.1/7
In the event, the Tribunal found that the measure had lasted for 18 months only
and that this limited effect did not amount to an expropriation .178
In Wena Hotels v Egypt,179 the Tribunal found diat the seizure of the investor’s
hotel lasting for nearly a year· was not ‘ephemeral’ but amounted to an expropri­
ation .180 In its subsequent Decision on Interpretation 181 the Wena Tribunal said:
It is true that the Original Tribunal did not explicitly state that such expropriation totally
and permanently deprived Wena of its fundamental rights of ownership. However, in
assessing the weight of the actions described above, there was no doubt in the Tribunal’s
mind that the deprivation of Wena’s fundamental rights of ownership was so profound that
the expropriation was indeed a total and permanent one.IS2
LG&E v Argentina also ruled that the duration of the measure had to be taken into
account. 583 The Tribunal found that, as a rule, only an interference that is
permanent will lead to an expropriation:
Similarly, one must consider the duration of the measure as it relates to the degree of
interference with the investor’s ownership rights. Generally, the expropriation must be ,

1/3 See G C Christie, ‘W hat Constitutes a Taking of Property under International Law?’ (1962} ;
BYBIL 307; J Wagner, ‘International Investment, Expropriation and Environmental Protection';;:;
(1999) 29 Golden Gate University L Rev 465; W M Reisman and R D Sloane, ‘Indirect Expropriation,
and its Valuation in the BIT G eneration’ (2003) 74 BYBIL 115.
1/4 See Tippetts, Abbett, McCarthy, Stratton v TAMS-AFFA Consulting Eng'rs o f Iran, 6 Iran-U&s:
C T R 219, 225 (1984); Phelps Dodge Corp v Iran, 10 Iran—US C T R 121 (1986); James M Sughi-
Michael R Saghi, and Allan J Saghi v Iran, 14 Iran-U S C T R 3 (1988).
5/5 TECMED v Mexico, Award, 29 May 2003, para 116; Generation Ukraine v Ukraine, Award, 16
September 2003, para 20.32; A zurix v Argentina, Award, 14 July 2006, para 313; ‘How much drm-*is
needed must be judged by the specific circumstances of each case.’
1/6 S D Myers v Canada, First Partial Award, 13 November 2000.
177 At para 283.
173 Ac para 287.
179 Wena Hotels v Egypt, Award, 8 December 2000.
180 A t para 99.
]S1 Wena Hotels v Egypt, Decision on Interpretation, 31 October 2005.
182 At para 120.
^ ™ T iahilitv, 3 October 2006.
 Direct and indirect expropriation 125

permanent, char is to say,, it cannot have a temporary nature, unless the investment’s
successful development depends on the realization of certain activities at specific moments
that may not endure variations.184
The Tribunal concluded:
Thus, the effect of the Argentine State’s actions has not been permanent on the value of the
Claimants’ shares, and Claimants’ investment has not ceased to exist. Without a permanent,
severe deprivation of LG&E’s rights with regard to its investment, or almost complete
deprivation of the value of LG&E’s investment, die Tribunal concludes that these circum­
stances do not constitute expropriation.1®5

(i) Creeping expropriation

The rules on protection of foreign investments must not be circumvented by way of
splitting a measure amounting to an indirect expropriation into a series of cumula­
tive steps which, taken together, have the same effect on the foreign owner.
Therefore, it has long been accepced that an expropriation may occur outright or
in stages’. 186 Thus, die term ‘creeping expropriation’ describes a taking through a
series of acts . 187 A study by UNCTAD referred in this context to ca slow and
incremental encroachment on one or more of the ownership rights of a foreign
investor that diminishes the value of its investment5.188
Practice has recognized the phenomenon of creeping expropriation on a number
of occasions. 189 The Tribunal in Generation Ukraine v Ukraine190 explained
creeping expropriation as follows:
Creeping expropriation is a form of indirect expropriation with a distinctive temporal
quality in the sense that it encapsulates the situation whereby a series of acts attributable
to the State over a period of time culminate in the expropriator}' taking of such property----
A plea of creeping expropriation must proceed on the basis that the investment existed at a
particular point in time and that subsequent acts attributable to the State have eroded the
investor’s rights to its investment to an extent that is violative of the relevant international
standard of protection against expropriation.191

184 At para 193.

!85 At para 200. ^ ;
3se See American Law Institute, Restatement (Third) o f the Foreign Rektions Law o f the Unitea States,^
•Vol 1 (1987), § 712; G C Christie, ‘W hat Constitutes a Taking of Property under International Law?
11962) 38 SYBIL 307.
187 The term ‘creeping expropriation’ has also occasionally been used interchangeably with the term
'indirect expropriation’.
d 88 U NCTA D, Series on Issues in International Investment Agreements: Taking o f Property (2000)
1 1 - 12.

189 See also Biloune v Ghana, 95 ILR (1994) 184, 209; TECMED vMexico, Award, 29 M ay 2003,
,para 144; cf 'also Art 15 of the ILC Articles on State Responsibility in J Crawford, The International
Law Commission’s Articles on State Responsibility (2002) 141; Santa Elena v Costa Rica, Award, 1/
February 2000, para 76; Azurix v Argentina, Award, 14 July 2006, para 313.
5,0 Generation Ukraine v Ukraine, Award, 16 September 2003; also Rumeli v Kazakhstan, Award,
29 July 2008.
126 Expropriation

The decision in Tradex v Albania 192 emphasized the cumulative effect of the
measures in question:
While the... Award has come to the conclusion that none of die single decisions and events
alleged by Tradex to constitute an expropriation can indeed be qualified by die Tribunal as
expropriation, it might still be possible that, and the Tribunal, therefore, has ro examine and
evaluate hereafter whether the combination of the decisions and events can be qualified
as expropriation of Tradex’ foreign investment in a long, step-by-step process by Albania.193
In Siemens v Argentina,194 the host state had taken a series of adverse measures,
including postponements and suspensions of the investor’s profitable activities,
fruitless renegotiations, and ultimately cancellation of the project. The Tribunal
found that this had amounted to an expropriation and described creeping expropri­
ation in the following terms:
By definition, creeping expropriation refers to a process, to steps that eventually have the
effect of an expropriation. If the process stops before it reaches that point, then expropri­
ation would not occur. This does not necessarily mean that no adverse effects would have
occurred. Obviously, each step must have an adverse effect but by itself may not be
significant or considered an illegal act. The last step in a creeping expropriation that tilts
the balance is similar to the straw that breaks the camel’s back. The preceding straws may
not have had a perceptible effect but are part of the process that led to the break.195
Professor Reisman and R D Sloane have righdy pointed out that the issue must
sometimes be seen in retrospect:
Discrete acts, analyzed in isolation rather than in the context of the overall flow of events,
may, whether legal or not in themselves, seem innocuous vis-a-vis a potential expropriation.
Some may not be expropriator)^ in themselves. Only, in retrospect will it become evident
that those acts comprised part of an accretion of deleterious acts and omissions, which in the
aggregate expropriated the foreign investor’s property rights.... Because of their gradual
and cumulative nature, creeping expropriations also render it problematic, perhaps even
arbitrary, to identify a single interference (or failure to act where a duty requires it) as the
‘moment of expropriation’.196

5. Expropriation o f contractual rights

‘The taking away or destruction of rights acquired, transmitted, and defined by a

contract is as much a wrong, entitling the sufferer to redress, as the taking away or
destruction of tangible properry.’ This principle, stared in 1903 by a member of the

192 Tradex v Albania, Award, 29 April 1999.

193 At para 191.
194 Siemens v Argentina, Award, 6 February 2007.
195 At para 263.
196 W M Reisman and R D Sloane, ‘Indirect Expropriation and its Valuation in the BIT
Generation’ (2003) 74 BYBIL 115, 123-5.
 Expropriation o f contractual rights 127

■jjS -V enezuela Mixed Claims Commission in die Rudlojf case, 197 was followed in
1922 by the Permanent Court of Arbitration in the Norwegian Shipowners case198
and also by the PCIJ in 1926 in the Chorzow Factory case.199 Cases decided in
i n v e s t m e n t arbitrations 200 and by the Iran-US Claims Tribunal 201 have confirmed

this position.
In Amoco International Finance Corp v Iran the Iran-US Claims Tribunal held
that expropriation may extend to any right that can be the object of a commercial
transaction.202 The Arbitral Tribunal in Tokios Tokeles v Ukraine stated that all
business operations associated with the physical property of the investors are
covered by the term ‘investment5, including contractual rights .203
In the modern investment context, many investment decisions are accompanied
and protected by specific investment agreements with the host state, often covering
matters such as taxation, customs regulations, the right and duty to sell at a certain
price to the host state, or pricing issues. These agreements form the legal and
financial foundations of the investment, and the business decisions based upon
them may collapse in their absence. Thus, it is understandable that practically all
investment treaties state that contracts are covered by the term ‘investment ’.204 In
turn, provisions dealing with expropriation in these treaties refer to ‘investments’. It
follows that contracts are protected against expropriation. The Tribunal in Siemens
v Argentina,205 applying the BIT between Argentina and Germany, said:

397 American—Venezuelan Mixed Claims Commission, R udlaff Case, Decision on Merits, IX RIAA
244, 250 (1959).
198 Permanent C ourt o f Arbitration, Norwegian Shipowners’ Claim (Norway v United States), 13
October 1922, I RIAA 307 (1948), The arbitrators held that by requisitioning ships that were to be
built for Norwegian citizens, the US Government also expropriated the underlying construction
contracts.
199 Case Concerning Certain German Interests in Polish Upper Silesia, 1926, PCIJ, Series A, N o 7, 3.
200 See SPP v Egypt, Award, 20 May 1992, paras 164—7; Wena Hotels v Egypt, Award, 8 December
2000, para 98; CM E v Czech Republic, Partial Award, 13 September 2001, para 591; Impregilo v
Pakistan, Decision on Jurisdiction, 22 April 2005, para 274; Eureko v Poland, Partial Award, 19 August
2005. para 241; Bayindir v Pakistan, Decision on Jurisdiction, 14 Novem ber 2005, para255; A zurix v
Argentina, Award, 14 July 2006, para 314; Inmaris v Ukraine, Decision on Jurisdiction, 8 March 2010,
para 66; contracts may lead to ‘a claim of money’ even if the agreement is fictions.
201 Article IV-2 o f the Treaty o f Amity between Iran and die USA (1955) protects not only
‘property’ but also ‘interests in property’. According to the tribunal in Phillips Petroleum Company v
Iran, the term ‘interest in property’ was ‘included at the insistence of the U nited States for the stated
purpose o f ensuring that contract rights in the petroleum industry would be protected by the treaty in
the same way as would the older type of property represented by a petroleum concession’ (see Phillips
Petroleum Company v Iran, Award, 29 June 1989, para 105).
202 Amoco International Finance Corp v Iran, Award, 14 July 1987, para 108.
203 Tokios Tokeles v Ukraine, Decision on Jurisdiction, 29 April 2004, paras 92-3.
204 See eg Energy Charter Treaty, Art l( 6 )( f ): ‘any right conferred by law or contract’. See also
NAFTA, Art 1139. See R Dolzer and M Stevens, Bilateral Investment Treaties (1994); G Sacerdoti,
'Bilateral Treaties and Multilateral Instruments on Investment Protection’ (1997) 269 Collected.
Courses o f the Hague Academy o f International Law 251, 381; R Higgins, ‘The Taking o f Property by
the State: Recent Developments in International Lawr’ (1982-III) 176 Collected Courses o f the Hague
Academy o f International Law 263, 271; U N C TA D , Series on Issues in International Investment
Agreements: 'Taking o f Property’ (2000) 36,
205 Siemens v Argentina, Award, 6 February 2007.
 128 Expropriation

The Contract falls under the definition o f‘investments’ under the Treaty and Article 4(2)
refers to expropriation or nationalization of investments. Therefore, the State parties
recognized that an investment in terms of the Treaty may be expropriated. There is nothing
unusual in this regard. There is a long judicial practice that recognizes that expropriation is
not limited to tangible property.206
N ot every failure by a government to perform a contract amounts to an expropri­
ation even if the violation leads to a loss of rights under the contract. A simple
breach of contract at the hands of the state is not an expropriation .207 Tribunals
have found that the determining factor is whether the state acted in an official,
governmental capacity.208
In die Jalapa Railroad case before the American Mexican Claims Commission
(1948),209 the decisive issue was whether the nullification of a contractual clause by
the Mexican Government was ‘effected arbitrarily by means of a governmental
power illegal under international law’. In Consortium RFCC v Morocco, the Tribu­
nal differentiated between the mere exercise of a right and an action by the host
state ‘in a public capacity’ and placed emphasis on whether a law or a governmental
decree had been passed or a judgment executed.210
Other tribunals have held similarly that mere breaches of contract or defects in
its performance would not amount to an expropriation. W hat was needed was an
act of public authority .211 In Siemens v Argentina212 the Tribunal, in the course of
its discussion of expropriation, found that a state party to a contract would breach
the applicable treaty only if its behaviour went beyond that which an ordinary
contracting party could adopt.213 The Tribunal said:
for the State to incur international responsibility it must act as such, it must use its public
authority. The actions of the State have to be based on its ‘superior governmental power’. It
is not a matter of being disappointed in the performance of the State in the execution of a
contract but rather of interference in the contract execution through governmental
action,214

206 At para 267. The Tribunal relied on die Nonvegian Shipoivners and Chorzow Factory cases.
20/ For detailed discussion, see S M Schwebel, O n W hether the Breach by a State of a Contract
with an Alien is a Breach of International Law’ in International Law at the Time o f its Codification,
Essays in Honour o f Roberto Ago, I II i 1987) 401.
208 See also die American Law Institute, Restatement (Third) o f the Foreign Relations Law o f the
United States, Vol 2 (1986), p 201: ‘a state is responsible for such a repudiation or breach o n ly . . . if it is
akin to an expropriation in that the contract is repudiated or breached for governmental radier than
commercial reasons.’
209 American-Mexican Claims Commission, Jalapa Railroad and Power Co, 8 W hitem an Digest of
International Law (1976) 908-9.
210 RFCC v Morocco, Award, 22 December 2003, paras 60-2, 6 5-9, 85-9.
211 Impregilo v Pakistan, Decision on Jurisdiction, 22 April 2005, para 281; Bayindir v Pakistan,
Decision on Jurisdiction, 14 Novem ber 2005, para 257; A zurix v Argentina, Award, 14 July 2006,
para 315.
212 Siemens v Argentina, Award, 6 February 2007.
213 At para 248.
214 At para 253.
 Expropriation o f contractual rights 129

In particular, tribunals have held that failure to pay a debt under a contract does not
amount to an expropriation .215 Waste Management v Mexico216 concerned a
concession for waste disposal. The Tribunal found that the mere non-payment
by the city of Acapulco of amounts due under die concession agreement did not
amount to an expropriation .217 It found that the state’s failure to pay bills, did not
amount to an ‘outright repudiation of the transaction’ and did not purport to
terminate the contact. Only a decree or executive act or an exercise of legislative
public authority could amount to an expropriation:
T he mere non-perform ance o f a contractual obligation is n o t to be equated w ith a taking o f
property, nor (unless accom panied by other elements) is it tan tam o u n t to expropriation.
Any private party can tail to perform its contracts, whereas nationalization a n d expropriation
are inherently governm ental acts.218 . . .
T he T ribunal concludes that it is one thing to expropriate a right u n d e r a contract
and another to fail to comply w ith the contract. N on-com pliance by a governm ent
with contractual obligations is not the same thing as, or equivalent or tan ta m o u n t to, an
expropriation.219

While these considerations are clearly helpful, they do not exhaust the subject.
Indeed, the Waste Management tribunal itself recognized, without elaboration, that
‘one could envisage conduct tantamount to an expropriation which consisted of
acts and omissions not specifically or exclusively governmental’.220 An analysis that
is consistent with the approach generally valid for all acts of expropriation would
not focus exclusively on the existence of formal governmental acts or the purported
intentions of the government but would also contemplate other relevant factors.221

21' SGS v Philippines, Decision on Jurisdiction, 29 January 2004, para 161.

216 Waste Management v Mexico, Award, 30 April 2004.
217 At paras 159-74.
21 s At para 174.
219 At para 175. Also Bureau Veritas v Paraguay, Award, 29 M ay 2009.
220 Ar para 175.
221 See Alpha v Ukraine, Award, 8 Novem ber 2010, para 412; see further p 230.
 VII
Standards of Protection

1. Fair and equitable treatm ent1

Most bilateral investment treaties (BITs) and other investment treaties provide for
fair and equitable treatment (FET) of foreign investments.2 For instance, the BIT
between Argentina and the United States in Article 11(2) a) states: ‘Investment shall
at all times be accorded fair and equitable treatment
Today, diis concept is the most frequently invoked standard in investment
disputes. It is also the standard with the highest practical relevance: the majority
of successful claims pursued in international arbitration are based on a violation of
the FET standard. It is only since 2000 that investment tribunals have started
giving content to the meaning of the standard. They have since applied it to a broad
range of circumstances. The evolution of this jurisprudence is traced in some detail
below.

(a) History o f the concept

The concept of FET is not new and has appeared in international documents for
some time. Some of these documents were non-binding, others entered into force
as multilateral or bilateral treaties.3 The origin of the clause seems to date back to
the treaty practice of the United States in the period of treaties on friendship,
commerce, and navigation (FCN ).4 For instance, Article I section 1 of the 1954
Treaty between Germany and the United States reads: ‘Each Party shall at all times

1 This section draws on the two articles by C Schreuer, ‘Fair and Equitable T reatm ent in Arbitral
Practice’ (2005) 6 J World Investment & Trade 357-86 and R Dolzer, ‘Fair and Equitable Treatment:
A Key Standard in Investment Treaties’ (2005) 39 International law yer 87.
2 R Dolzer and M Stevens, Bilateral Investment Treaties (1995) 58; S Vasciannie, ‘The Fair and
Equitable Treatm ent Standard in International Investment Law and Practice’ (1999) 70 B Y B Il 99,
113-14; I Tudor, The Fair and Equitable Treatment Standard in International Law o f Foreign Invest­
ment (2008); K Yannaca-Small, ‘Fair and Equitable T reatm ent Standard’ in K Yannaca-Small (ed),
Arbitration under International Investment Agreements (2010) 385; S W Schill, ‘Fair and Equitable
T reatment, the Rule of Law, and Comparative Public Law’ in S W Schill (ed), International Investment
Law and Comparative Public Law (2010) 151; A Diehl, The Core Standard o f International Investment
Protection: Fair and Equitable Treatment (2012).
3 See especially UNCTAD Series on issues in international investment agreements, ‘Fair and
Equitable Treatm ent’ (1999) 3—4, 7 -9 , 2 5-8, 31-2; S Vasciannie, ‘The Fair and Equitable Treatment
Standard in International Investment Law and Practice’ (1999) 70 BYBIL 99, 100-11, 107-19.
4 See R R Wilson, United States Commercial Treaties and International Law (1960) 113, 120.
 Fair and equitable treatment 131

accord fair and equitable treatment to the nationals and companies of the other
Party and to their property, enterprises and other interests.’5
A reference to a ‘just and equitable treatment’ standard appeared in Article 11 (2 )
of the Havanna Charter for an International Trade Organization of 1948.6
The Abs-Shawcross Draft Convention on Investment Abroad of 1959 in its
Article I referred to ‘fair and equitable treatment to the property of the nationals
of die other Parties’,7 and the subsequent Organisation for Economic Co-operation
and Development (OECD) Draft Convention on the Protection of Foreign
Property of 1967 in its Article 1 contained similar language.8
Also, the draft for a United Nations Code of Conduct on Transnational Corpor­
ations in its 1983 version provided that transnational corporations should receive
fair and equitable treatment .9 The Guidelines on the Treatment of Foreign Direct
Investment adopted by the Development Committee of the Board of Governors of
the International Monetary Fund (IMF) and the World Bank in 1992 in their
Section III dealing with ‘Treatment’ provided that ‘2. Each State will extend to
investments established in its territory by nationals of any other State fair and
equitable treatment according to the standards recommended in these Guidelines’.10
The OECD Draft Negotiating Text for a Multilateral Agreement on Investment
(MAI) of 1998 contained the following text in its section on investment protection:
1.1. Each Contracting Party shall accord to investments in its territory of investors of
another Contracting Party fair and equitable treatment and full and constant protection and
security. In no case shall a Contracting Party accord treatment less favourable than that
required by international law.11
The concept of FET has also entered into a number of multilateral treaties currently
in force. For instance, the Convention Establishing the Multilateral Investment
Guarantee Agency of 1985 requires the availability of fair and equitable treatment
as a precondition for extending insurance cover. Article 12 dealing with ‘Eligible
Investments’ provides in part:
(d) In guaranteeing an investment, the Agency shall satisfy itself as to:... (iv) the investment
conditions in the host country, including the availability of fair and equitable treatment and
legal protection for the investment.12

5 Treaty of Friendship, Commerce and Navigation, 29 October 1954, US-FRG, 273 U N T S 4.

See also Treaty of Amity, Econom ic Relations, and Consular Rights, 15 August 1955, US-Iran, 284
U N TS 110, 114.
6 U N C TA D , International Investment Instruments: A Compendium, vol I (1996) 4. The Havana
Charter never entered into force.
/ U N C TA D , International Investment Instruments: A Compendium, vol V (2001) 395. The Draft
Convention represented a private initiative by H Abs and Lord Shawcross.
8 O E C D Draft Convention on die Protection of Foreign Properry (1967), 7 ILM 117, 119
(1968).
9 U N C TA D , International Investment Instruments: A Compendium, vol I (1996) 172.
10 ‘Guidelines on the T reatm ent of Foreign Direct Investment’ (1992) 7 ICSID Review-FILJ
297, 300.
11 U N C T A D , International Investment Instruments: A Compendium, vol IV (2001) 148.
12 U N C T A D , International Investment Instruments: A Compendium, vol I (1996) 219.
132 Standards o f Protection

The North American Free Trade Agreement (NAFTA) of 1992 contains the FET
principle in its Article 1105, paragraph l . 13 This provision is discussed in more
detail below.
The Energy Charter Treaty (ECT) of 1994 contains elaborate language around
the requirement of FET in its Article 10(1):
(1) Each C ontracting Part)7shall, in accordance with the provisions o f this Treaty, encourage
and create stable, equitable, favourable and transparent conditions for Investors o f other
C ontracting Parties to make investm ents in its area. Such conditions shall include a
com m itm ent to accord at all times to Investments o f Investors o f other C ontracting Parties
fair and equitable treatm ent.14

(b) Heterogeneity of treaty language

Generalizations about the standard of fair and equitable treatment should be
treated with caution. As with other standard clauses in investment treaties, no
single frozen version exists. Indeed, the variations in this area are quite significant.15
T V _ ... .......... _ . Γ _ 1 ______ 1____ L - ________________ ,___ J _________ I ______ ____ : _ L Λ _1 _ o t _ C .1
.every type m uau.se nas tu uc n iic ip ic ic u . in acL.uiua.iiLc w iu i m iiL ic ui cne
Vienna Convention on the Law of Treaties (VCLT), duly talcing into account its
context and, as appropriate, its history. The discussion on die different types of
linkage to customary law is a good example of diese variations.16
Some treaties refer to ‘equitable and reasonable’ rather than ‘fair and equitable’.
This variation does not appear to reflect a difference in meaning .17

(c) Nature and function

Essentially, the purpose of the clause as used in BIT practice is to fill gaps, which
may be left by the more specific standards, in order to obtain the level of investor
protection intended by the treaties.18 The operation of FET clauses in investment
treaties is reminiscent of codes in civil law countries which set forth a number of
specific rules and complement these with a general clause of good faith as an
overarching principle which fills gaps and informs die understanding of specific
clauses. Indeed, the substance of the standard of fair and equitable treatment
overlaps with the meaning of good faith in its broader setting, including the related
notions of venire contrafactum proprium and estoppel. In practice the FET standard
may offer redress where the facts do not support a claim for expropriation . 19

13 32 ILM 639 (1993).

14 34 ILM 381, 389 (1995).
13 See R Dolzer and M Stevens, Bilateral Investment Treaties (1995) 58; G Sacerdori, 'Bilateral
Treaties and Multilateral Instruments on Investment Protection5 (1997) 269 Recueil des Cours 251,
344.
16 See pp 134 et seq.
17 Rarkerings v Lithuania, Award, 11 September 2007, paras 271-8.
15 Sempra v Argentina, Award, 28 September 2007, para 297.
19 PSEG v Turkey, Award, 19 January 2007, para 238; Continental Casualty v Argentina, Award,
5 September 2008, para 254.
 fa ir and equitable treatment 133

Does FET contain two standards, namely 'fair' and ‘equitable’, with independ­
ent meanings for each concept? While it would not be impossible to argue along
those lines, no evidence of practice seems to point in that direction. The general
assumption appeal's to be that ‘fair and equitable’ must be considered to represent a
single, unified standard.
At times it has been suggested that the FET standard is merely an overarching
principle that embraces the other standards of treatment typically found in invest­
ment treaties/ 0 While it is undeniable that there is a certain degree of interaction
and overlap widi other standards, it is widely accepted that FET is an autonomous
standard .21 In the majority of cases tribunals have distinguished FET from other
standards and have examined separately whether there has been a violation of the
respective standards .22 There is no doubt that the FET standard is meant as a rule
of international law and is not determined by the laws of the host state. Tribunals
have repeatedly emphasized the independence of the FET standard from die
national treatment standard .23 The FET standard may be violated even if the
foreign investor receives the same treatment as investors of the host state’s nation­
ality. For the same reason, an investor may have been treated unfairly and inequit­
ably even if it is unable to benefit from a most-favoured-nation (MFN) clause
because it cannot show that investors of other nationalities have received better
treatment.24
Some tribunals have pointed to the vagueness and lack of definition of the FET
standard 25 and the European Parliament has deplored the use of vague language in
this context.26 In fact, the lack of precision may be a virtue rather than a shortcom­
ing. In actual practice it is impossible to anticipate in the abstract the range
of possible types of infringements upon the investor’s legal position. The principle
of FET allows for independent and objective third party determination of this type

20 Noble Ventures Inc v Romania, Award, 12 October 2005, para 182: Lemire v Ukraine, Decision
on Jurisdiction and Liability, 14 January 2010, paras 259, 385; Impregilo v Argentina, Award, 21 June
2011, paras 333—4.
21 I T udor, The Fair and Equitable Treatment Standard· in International Law o f Foreign Investment
(2008) 182-202; C Schreuer, ‘Fair and Equitable Treatm ent (FET): Interactions with O ther Stand­
ards3 in G Coop and C Ribeiro (eds), Investment Protection and the Energy Charter Treaty (2008) 63.
22 A zurix v Argentina, Award, 14 July 2006, paras 407-8; LG & E vArgentina, Decision on Liability,
3 October 2006, paras 162, 163; PSEG v Turkey, Award, 19 January' 2007, paras 258-9: Plama v
Bulgaria, Award, 27 August 2008, paras 161-3, 183-4; E l Paso v Argentina, Award, 31 October 2011,
paras 228-31.
23 Genin v Estonia, Award, 25 June 2001, para 367; SD Myers v Canada, First Partial Award,
13 November 2000, para 259; CM E v Czech Republic, Partial Award, 13 September 2001, para 611;
UPS v Canada, Decision on Jurisdiction, 22 November 2002, para 80; E l Paso v Argentina, Award,
31 October 2011, para 337.
~'t K Yannaca-Small, ‘Fair and Equitable Treatm ent Standard’ in K Yannaca-Small (ed), Arbitration
under International Investment Agreements (2010) 385.
2~
J CM S v Argentina, Award, 12 May 2005, para 273; Sempra v Argentina, Award, 28 September
2007, para 296; Rumeli v Kazakhstan, Award, 29 July 2008, para 610; Suez v Argentina, Decision on
Liability, 30 July 2010, paras 196, 202; Total v Argentina, Decision on Liability, 27 December 2010,
paras 106-9. See also P Juillard, "L’evoludon des sources du droit des investissements’ (1994) 250
Recueil des Cours 9, 133.
26 European Parliament Resolution o f 6 April 2011 on the Future European International Invest­
ment Policy, preamble, para G.
134 Standards o f Protection

o f behaviour on the basis o f a flexible standard .27 Therefore, it is not devoid of

independent legal content. Like other broad principles of law, it is susceptible to
specification through judicial practice. As Prosper Weil wrote in 2000:
The standard of ‘fair and equitable treatment is certainly no less operative than was the
standard of ‘due process of law’, and it will be for future practice, jurisprudence and
commentary to impart specific content to it.28
Stephan Schill has pointed out that ‘fair and equitable treatment can be understood
as embodying the rule of law as a standard that the legal systems of host states have
to embrace in their treatment of foreign investors’.29
Although ‘fair and equitable’ may be reminiscent of the extralegal concepts of
fairness and equity, it should not be confused with decisions ex aequo et bono30 The
Tribunal in A D F Group pointed out that the requirement to accord fair and
equitable treatment does not allow a tribunal to adopt its own idiosyncratic
standard but ‘must be disciplined by being based upon state practice and judicial
or arbitral case law or other sources of customary or general international law’.31

(d) Fair and equitable treatment and customary international law

Considerable debate has surrounded the question of whether the FET standard
merely reflects the international minimum standard, as contained in customary
international law, or offers an autonomous standard that is additional to general
international law. As a matter of textual interpretation it seems implausible that a
treaty would refer to a well-known concept such as the ‘minimum standard of
treatment in customaiy international law’ by using the expression ‘fair and equit­
able treatment’. If die parties to a treaty want to refer to customary international
law, one would assume that they would refer to it as such rather than using a
different expression.02
A number of commentators have expressed the view that FET constitutes an
independent treaty standard that goes beyond a mere restatement of customary
international law.33 Prominent among the supporters of an independent concept of

27 S Vasciannie, ‘The Fair and Equitable Treatment Standard in International Investment Law and
Practice’ (1999) 70 SYBIL 99, 100, 104, 145.
28 P Weil, ‘T he State, die Foreign Investor, and International Law: The N o Longer Stormy
Relationship o f a Menage A Trais (2000) 15 ICSID Review-FILJ 401, 415.
29 S W Schill, ‘Fair and Equitable Treatm ent, the Rule o f Law, and Comparative Public Law’ in
S W Schill (ed), International Investment Law and Comparative Public Law (2010) 151.
30 See C Schreuer, ‘Decisions Ex Aequo et Bono under the ICSID Convention’ (1996) 11 ICSID
Review-FILJ 37.
31 A D F v United States, Award, 9 January 2003, para 184. See also Mondev v United States, Award,
11 October 2002, para 119; Saluka v Czech Republic, Partial Award, 17 M arch 2006, paras 282-4;
Enron v Argentina, Award, 22 May 2007, paras 256—7; M C I v Ecuador, Award, 31 July 2007, para
370; Total v Argentina, Decision on Liability, 27 December 2010, paras 108-9.
32 Biwater G aujfv Tanzania, Award, 24 July 2008, para 591.
33 R Dolzer and M Stevens, Bilateral Investment Treaties (1995) 60; P T Muchlinski, Multinational
Enterprises and the Law (1999) 626; U N C TA D Series on issues in international investment agree­
ments, ‘Fair and Equitable T reatm ent’ (1999) 13, 17, 37—40, 53, 61; S Vasciannie, ‘The Fair and
 Fair and equitable ti'eatment 135

fair and equitable treatment is F A Mann. Writing about British BITs in 1981 he
said:
It is submitted that nothing is gained by introducing the conception of a minimum standard
and, more than this, it is positively misleading to introduce it. The terms ‘fair and equitable
treatment’ envisage conduct which goes far beyond the minimum standard and afford
protection to a greater extent and according to a much more objective standard than any
previously employed form of words. A tribunal would not be concerned with a minimum,
maximum or average standard. It will have to decide whether in all circumstances die
conduct in issue is fair and equitable or unfair and inequitable. No standard defined by other
words is likely to be material. The terms are to be understood and applied independently
and autonomously.34
On the other hand, the Notes and Comments to the O ECD Draft Convention on
the Protection of Foreign Property of 1967 indicate that the FET standard is set by
customary international law.35 Similarly, the European Parliament in a resolution
adopted in 201 1 stated that in investment agreements to be concluded by the EU,
fair and equitable treatment should be ‘defined on the basis of the level of treatment
established by international customary law’.36
To a certain degree this debate depends on the exact wording of the treaty clauses
providing for FET. Upon closer examination these provide in varying degrees for
linkage with customary international law. Some treaties simply prescribe ‘fair and
equitable treatment’ without reference to customary international law; German,
Dutch, Swedish, and Swiss BITs generally follow this pattern.
Other clauses dealing with FET treat the standard as an element of the general
rules of international law; the United States37 and Canada have followed this
approach. Also, Article 1105 of the NAFTA treats FET as part of international law.
Some treaties state that FET is to be afforded ‘in accordance with international
law’. The French Model Treaty provides that the states parties ‘shall extend fair and
equitable treatment in accordance with the principles of International Law’. Some

Equitable T reatm ent Standard in International Investment Law and Practice’ (1999) 70 BYBIL 99,
104-5, 139-44; I Tudor, The Fair m id Equitable Treatment Standard in International Law o f Foreign
Investment (2008) 54-6 8 .
34 F A M ann, ‘British Treaties for the Promotion and Protection of Investments’ (1981) 52 BYBIL
241, 244.
35 7 ILM 118, 120 (1968), See also a comment by the Swiss Foreign Office o f 1979 in (1980) 36
Annuaire suisse de droit international 178.
36 European Parliament Resolution of 6 April 2011 on the Future European International Invest­
m ent Policy, para 19.
37 The US State D epartm ent explained its position in 1992 in terms o f the FET standard being a
guide to interpretation, as embodying US policy and as replicating European practice, and in 2000 as
being based on standards found in customary international law. See J J Coe, ‘Fair and Equitable
Treatm ent under NA FTA’s Investment Chapter’, ASIL Proceedings (2002), 17-19. The US Model
BIT of 2012 prescribes, in Art 5, para 1, that each parry7‘shall accord to covered investments treatm ent
in accordance with customary international law, including fair and equitable treatm ent and full
protection and security’, adding in para 2 that this rule ‘prescribes the customary international law
m inim um standard o f treatm ent o f aliens as the m inimum standard o f treatment to be afforded to
covered investments’, and that the concept of fair and equitable treatm ent does not require additional
protection and does nor create additional substantive rights.
136 Standards o f Protection

treaties state that fair and equitable treatment must in no case provide for less
protection than the rules of international law. Yet another version lists fair and
equitable treatment in addition to the rules of international law.
By far the most intensive discussion on the relationship of the FET standard to
customary international law took place in the context of Article 1105(1} of the
NAFTA .38 That provision, including its title, reads as follows:
Article 1105: M inim um Standard o f T re a tm e n t
1. Each Party shall accord to investm ents o f investors o f another Party treatm ent in
accordance with international law, including fair and equitable treatm ent and fuli protection
and security,39

This provision has been the subject of an official interpretation by the NAFTA Free
Trade Commission (FTC), a body composed of representatives of the three states
parties with the power to adopt binding interpretations .40 The FTC interpretation
states that Article 1105(1) reflects the customaiy international law minimum
standard and does not require treatment in addition to or beyond that which is
required by customaiy international lavv.4^ NAFTA tribunals have accepted the
FTC interpretation .42 In addition, subsequent BIT practice of the United States43
and of Canada44 has followed the FTC interpretation. The US Model BITs of

38 s ee especially C N Brower, C H Brower, and J K Sharpe, ‘The Com ing Crisis in die Global
Adjudication System’ (2003) 19 Arbitration International 415, 428; P Dum berry, ‘The Q uest to
Define “Fair and Equitable T reatm ent” for Investors under International Law, The Case o f the
NAFTA Chapter 11 Pope & Talbot Awards’ (2002) 3 J World Investment 657; P G Foy and R J
C Deane, ‘Foreign Investment Protection under Investment Treaties: Recent Developments under
Chapter 11 of the N orth American Free Trade Agreement’ (2001) 16 IC SID Review-FILJ 299;
] C Thomas, ‘Reflections on Article 1105 or NAFTA: History, State Practice and the Influence of
Com m entators’ (2002) 17 ICSID Rc-vieiu-FlLJ 21; K Yannaca-Small, ‘Fair and Equitable Treatment
Standard’ in K Yannaca-Small (ed), Arbitration under International Investment Agreements (2010)
387-93.
39 N orth American Free Trade Agreement, 8—17 December 1992, 32 ILM 605, 639 (1993)
(entered into force 1 January 1994).
40 NAFTA, Art 1152(2).
41 FTC N ote of Interpretation of 31 July 2001:
M inim um Standard of Treatm ent in Accordance with International Law: 1. Article 1105
(1) prescribes the customary international law minim um standard of treatm ent of aliens as
the minimum standard of treatm ent to be afforded to investments of investors of anodier
Part)·. 2. The concepts o f ‘fair and equitable treatm ent’ and ‘full protection and security’ do
not require treatment in addition to or beyond that which is required by the customary
international law m inim um standard of treatment of aliens. 3. A determ ination that there
has been a breach of another provision of the NAFTA, or of a separate international
agreement, does not establish that there has been a breach of Article 1105(1).
i'2 Pope & Talbot v Canada, Award on Damages, 31 May 2002, paras 17-69; Mondev v United
States, Award, 11 October 2002, paras 100 et seq; UPS v Canada, Decision on Jurisdiction,
22 November 2002, para 97; A D F v United- States, Award, 9 January 2003, paras 175—8; Loewen v
United States, Award, 26 June 2003, paras 124—8; Waste Management v Mexico, Final Award, 30 April
2004, paras 90-1; Methanex v United States, Award, 3 August 2005, Part IV. C'h C, paras 17-24;
Thunderbird v Mexico, Award, 26 January 2006, paras 192, 193; Glarnis Gold v United States, Award. 8
June 2009, para 599; Chemtura v Canada, Award, 2 August 2010, para 121; Grand R iver Enterprises v
United States, Award, 12 January 2011, paras 173-6. See also Metalclad Corp v Mexico, Review by
British Columbia Supreme Court, 2 May 2001, 5 ICSID Reports (2002) 238, paras 61-5.
‘ τ tp τ τ-------„ „ r t t o f ? n n 4. A rt 5.
 Fair and equitable treatment 137

2004 and of 2012, in their respective Articles 5 (2 ), state that FET prescribes the
customary international law minimum standard of treatment and that it does not
require treatment in addition to or beyond that required by that standard.
The authorin' of this practice, developed in the NAFTA context, is of limited
relevance for the interpretation of odier treaties because the NAFTA has features
not shared by other treaties: Article 1105 refers to the ‘M inimum Standard of
Treatment’ in its title. It also refers to ‘international law, including fair and
equitable treatment’. In addition, it was the object of a binding interpretation by
an authorized treaty body for the purposes of that treaty.
In contrast to the NAFTA practice, arbitral tribunals applying other treaties not
containing statements about the relationship ofFET to customary international law
have tended to interpret the relevant provisions autonomously on the basis of their
respective wording .45 Some of these tribunals have, however, insisted that FET is
not different from the international minimum standard required by international
law.46
In Azurix v Argentina,A~ the Tribunal had to interpret Article 11(2) of the
Argentina-US BIT guaranteeing FET and full protection and security. The provi­
sion adds that investments shall ‘in no case be accorded treatment less than that
required by international law’. According to the Tribunal:
T he clause, as drafted, permits to interpret fair and equitable treatm ent an d full protection
and security as higher standards dian required by international law. T h e purpose o f the th ird
sentence is to set a floor, n o t a ceiling, in order to avoid a possible interpretation o f these
standards below w hat is required by international law.48

In Vivendi v Argentina?® the applicable BIT provided for ‘fair and equitable
treatment according to the principles of international law’. The Tribunal found
that there was no basis for the view that FET was limited to the international
minimum standard and that such an interpretation would run counter to the text’s
ordinary meaning .50 The Tribunal said:
Article 3 refers to fair and equitable treatm ent in conform ity w ith the principles o f inter­
national law, and n o t to the minimum, standard o f tre a tm e n t.. . . T he T ribunal sees no basis
for equating principles o f international law with the m inim um standard o f treatm ent. First,

45 Teemed v Mexico, Award, 29 May 2003, paras 155, 156; M T D v Chile, Award, 25 May 2004,
paras 110-12; Occidental v Ecuador, Award, 1 July 2004, paras 188-90; Saluka v Czech Republic,
Partial Award, 17 March 2006, paras 286-95; Enron v Argentina, Award, 22 May 2007, para 258;
Sempra v Argentina, Award, 28 September 2007, para 302; OKO Pankki v Estonia, Award, 19
November 2007, paras 217-30; Continental Casualty v Argentina, Award, 5 September 2008, para
254; National Grid v Argentina, Award, 3 November 2008, paras 167-73; Bayindir v Pakistan, Award,
27 August 2009, para 164; Total v Argentina, Decision on Liability, 27 December 2010, paras 125-7.
46 Occidental v Ecuador, Award, 1 July 2004, paras 189, 190; CM S v Argentina, Award, 12 May-
2005, paras 2 8 2 -4 ; Rumeli v Kazakhstan, Award, 29 July 2008, para 611; El Paso v Argentina, Award,
31 October 2011, paras 3 31-7; Lem ire v Ukraine, Decision on Jurisdiction and Responsibility, 14
January 2010, paras 247-55.
A zurix v Argentina, Award, 14 July 2006.
At para 361,
'l9 Vivendi v Argentina, Award, 20 August 2007.
50 At para 745.
138 Standards o f Protection

the reference to principles of international law supports a broader reading that invites
consideration of a wider range of international law principles than the minimum standard
alone, Second, the wording of Article 3 requires that die fair and equitable treatment
conform to the principles of international law, but the requirement for conformity can just
as readily set a floor as a ceiling on the Treaty’s fair and equitable treatment standard.31
There are growing doubts about the relevance of this whole debate .52 Tribunals
have indicated that the difference between the treaty standard of FET and the
customary minimum standard when applied to the specific facts of a case, may well
be more apparent than real’.53 The Tribunal in E l Paso54 pointed out that the
discussion was somewhat futile since the content of the international minimum
standard is ‘as little defined as the BIT’s FET standard ’.55
Depending on the specific wording of a particular treaty, it may overlap with or
even be identical to the minimum standard required by international law. The fact
that the host state has breached a rule of international law may be evidence of a
violation of the fair and equitable standard ,56 but this is not the only conceivable
form of breach.
The emphasis on linkages between FET and customary international law is
unlikely to restrain the evolution of the FET standard. O n die contrary, this may
have the effect of accelerating the development of customary law through the
rapidly expanding practice on FET clauses in treaties.57 The Tribunal in Chemtura
v Canada58 said in this respect:
the Tribunal notes that it is not disputed that the scope of Article 1105 of NAFTA must be
determined by reference to customary international law. Such determination cannot over­
look the evolution of customary international law, nor the impact of BITs on this evolu­
tion. ... [I]n determining the standard of treatment set by Article 1105 of NAFTA, the
Tribunal has taken into account the evolution of international customary law as a result inter
alia of the conclusion of numerous BITs providing for fair and equitable treatment.59

5! At paras 7.4.6, 7.4.7. Emphasis in original; footnote omitted.

52 See S W Schill, ‘Fair and Equitable Treatm ent, the Rule o f Law, and Comparative Public Law’ in
S W Schill (ed), International Investment Law and Comparative Public Law (2010) 152-4.
53 Saluka v Czech Republic, Partial Award, 17 M arch 2006, para 291. See also Azurix v Argentina,
Award, 14 July 2006, para 361, 364; Occidental v Ecuador, Award, 1 July 2004, para 190; CM S v
Argentina, Award, 12 May 2005, paras 282-4; Biwater G auff v Tanzania, Award, 24 July 2008, para
592; Rumeli v Kazakhstan, Award, 29 July 2008, para 611; D uke Energy v Ecuador, Award, IS August
2008, paras 332-7; Impregilo v Argentina, Award, 21 June 2011, paras 287-9.
54 E l Paso v Argentina, Award, 31 October 2011.
55 Ar para 335·
56 See SD Myers v Canada, First Partial Award, 13 N ovem ber 2000, para 264: ‘the fact that a host
Party has breached a rule o f international law that is specifically designed to protect investors will tend
to weigh heavily in favour of finding a breach of Article 1105·’
5/ R Dolzer and A von Walter, ‘Fair and Equitable T reatm ent and Customary Law— Lines of
Jurisprudence’ in F Ordno, L Liberri, A Sheppard, and H W arner (eds), Investment Treaty Law:
Current Issues (2007) 99; I Tudor, The Fair and Equitable Treatment Standard in International Law o f
Foreign Investment (2008) 83—5.
5S Chemtura v Canada, Award, 2 August 2010.
59 At paras 121, 236.
 Fair and equitable treatment 139

The Tribunal in Merrill & Ring went one step further and stated that FET had
become part of customary international law:
A requirement that aliens be treated fairly and equitably in relation to business, trade and
investment is the outcome of diis changing reality and as such it has become sufficiently part
of widespread and consistent practice so as to demonstrate that it is reflected today in
customary international law as opinio j u r i s t

(e) T he evolution o f the fair and equitable treatment standard

Obviously, the standard of FET is a broad one, and its meaning will depend on the
specific circumstances of the case at issue.61 The Tribunal in Mondev v United
States pointed out that ‘[a] judgment of what is fair and equitable cannot be reached
in the abstract; it must depend on the facts of the particular case’.62 Similarly, the
Tribunal in Waste Management v Mexico noted that ‘the standard is to some extent
a flexible one which must be adapted to the circumstances of each case’.63
NAFTA tribunals have been inclined to see the standard against a historical-
evolutionary background. Other tribunals have dealt with it more directly from a
contemporary perspective.64 The historical starting point for a discussion on the
standard of treatment for foreigners is often seen in the Neer case of 1926.65 The
case did not concern an investment but the murder of a US citizen in Mexico. The
charge was that the Mexican authorities had shown a lack of diligence in investi­
gating and prosecuting the crime. The Commission said:
the treatment of an alien, in order to constitute an international delinquency, should
amount to an outrage, to bad faith, to wilful neglect of duty, or to an insufficiency of
governmental action so far short of international standards that eveiy reasonable and
impartial man would readily recognize its insufficiency.66
The Commission found that the facts did not show such a lack of diligence as
would render Mexico liable and dismissed die claim.

60 M errill & Ring Forestry v Canada, Award, 31 March 2010, para 210.
6] See eg G Sacerdoti, ‘Bilateral Treaties and Multilateral Instruments on Investment Protection’
(1997) 269 Recueildes Cours 251, 346; U N C TA D Series on issues in international investment treaties,
‘Fair and Equitable T reatm ent’ (1999) 22.
62 Mondev v United States, Award, 11 October 2002, para 118.
63 Waste Management v Mexico, Final Award, 30 April 2004, para 99. See also Lauder v Czech
Republic, Award, 3 September 2001, para 292; CM S v Argentina, Award, 12 M ay 2005, para 273;
Noble Ventures v Romania, Award, 12 O ctober 2005, para 181. See also P T M uchlinski, Multinational
Enterprises and the Law (1999) 625.
64 R Dolzer and A von Walter, ‘Fair and Equitable T reatm ent and Custom ary Law— Lines o f
Jurisprudence’ in F O rtino, L Liberti, A Sheppard, and H W arner (eds), Investment Treaty Law:
Current Issues (2007) 99.
65 Neer v Mexico, Opinion, US-M exico General Claims Commission, 15 O ctober 1926 (1927) 21
AJIL 555; IV RIAA 60 -2 . See P G Foy and R J C Deane, ‘Foreign Investment Protection under
Investment Treaties: Recent Developments under Chapter 11 of the N orth American Free Trade
Agreement’ (2001) 16 IC SID Review-FILJ 299, 314; J C Thomas, ‘Reflections on Article 1105 of
NAFTA: History, State Practice and the Influence o f Com mentators’ (2002) 17 ICSID Review-FILJ
21, 29—32; J Paulsson and G Petrochilos, 1Neer Ay Misled?’ (2007) 22 ICSID Review-FILJ 242.
66 At 556.
140 Standards o f Protection

Another frequently cited case is ELSI (United States v Italy)67 decided by a

Chamber of the International Court of justice (ICJ). While the relevant treaty in
that case prohibits ‘arbitrary’ action, this tenet may also shed light on the FET
standard. The case concerned the temporary requisitioning by the mayor of
Palermo of an industrial plant belonging to an Italian company owned by US
shareholders. The ICJ stated:
Arbitrariness is not so much something opposed to a rule of law, as something opposed to
the rule of law.... It is a wilful disregard of due process of law, an act which shocks, or at
least surprises, a sense of judicial propriety.68
The Court found that die requisition order did not violate that standard.
Subsequent tribunals have specifically distanced themselves from the very high
threshold for a violation of international law formulated in Neer. They have
repeatedly embraced die less stringent standard of the ELSI case and have empha­
sized that they were dealing with an evolving concept.69 AD F v United States70
concerned domestic contents requirements in respect of government procurement
for a construction project. In interpreting Article 1105 of the NAtTA, the "Tribu­
nal agreed:
that the customary international law referred to in Article 1105(1) is not ‘frozen in time’ and
that the minimum standard of treatment does evolve... . [W]hat customary international
law projects is not a static photograph of the minimum standard of treatment of aliens as it
stood in 1927 when the Award in the Neer case was rendered. For both customary
international law and the minimum standard of treatment of aliens it incorporates, are
constantly in a process of development.71
Against this background it is surprising that in 2009 a NAFTA tribunal reverted to
the Neer standard. In Glamis Gold''2 the Tribunal took the Neer decision as
‘establishing’ the international minimum standard. It found that the burden of
proof for any change of customary international law lay with the claimant, a burden
that it had been unable to discharge. It followed that die fundamentals of the Neer
standard still apply today / '3

6/ Elettronica Sicula SpA (ELSI) (US v Italy), ICJ Reports (1989) 15.
68 At para 128. For a detailed discussion of the E LSI case in relation to the FET standard, see
S Vasciannie, ‘The Fair and Equitable T reatm ent Standard in International Investment Law and
Practice’ (1999) 70 BYBIL 99, 134-7.
69 Pope dr Talbot v Canada. Award on Merits, 10 April 2001. para 118; Pope & Talbot v Canada,
Award on Damages, 31 May 2002, paras 63, 64; Mondev v United States, Award, 11 October 2002,
paras 116, 123, 125, 127; GAM I v Mexico, Award, 15 November 2004, para 95; Eureko v Poland,
Partial Award, 19 August 2005, para 234; Thunderbird v Mexico, Award, 26 January 2006, para 194;
A zurix v Argentina, Award, 14 July 2006, paras 365-8; LG & E v Argentina, Decision on Liability, 3
O ctober 2006, para 123; Vivendi v Argentina, Award, 20 August 2007, para 7.4.7, note 325; Merrill O'
Ring Forestry v Canada, Award, 31 M arch 2010, paras 195—213.
70 A D F Group Inc v United States, Award, 9 January 2003.
71 At para 179.
/2 Glamis Gold v United States, Award, 8 June 2009.
/3 A t paras 598-627.
 Fair and equitable treatment 141

Mercifully the Glamis Gold Tribunal restricted its finding to Article 1105 of the
NAFTA and noted that its view did not extend to other treaty clauses on FET .74
The Tribunal did not explain why a terse award rendered in 1926 dealing with a
murder case should establish the standard for contemporary investment law. N or
does it explain why Neer should be authoritative while the practice of contemporary
investment tribunals is not .75
A subsequent NAFTA tribunal, in Merrill & Ring,; clearly distanced itself from
an undifferentiated reliance on Neer·.
the Tribunal finds that the applicable minimum standard of treatment of investors is found
in customary international law and that, except for cases of safety and due process, today’s
minimum standard is broader than that denned in the Neer case and its progeny.76
In recent years there are indications of an approach by tribunals that stresses
the need for states to maintain a regulatory space.77 Tribunals have stressed
that ‘the host State’s right to regulate domestic matters in the public interest has
to be taken into consideration’ and that a balance between the investor’s rights
and the host state’s public interests has to be established.78 The Tribunal in Lernire
v Ukraine79 said:
The protection of the legitimate expectations must be balanced with the need to maintain a
reasonable degree of regulatory flexibility on the part of the host State in order to respond to
changing circumstances in the public interest.80

(f) Methodological issues

A central methodological issue for the resolution of these questions concerns the
process of reasoning by which fact-specific conclusions are drawn from the standard
in individual cases. One line of reasoning derives a definition of the essential
elements of the standard on the basis of abstract reasoning. A second approach
resists an attempt at a broader definition and will decide ad hoc whether certain
conduct satisfies the requirements of the standard.81 Yet a third approach attempts
primarily to base its decisions on previous decisions and will build upon relevant
precedents to identify typical situations in which the standard has been applied.
Obviously the latter approach was not available to the first tribunals which applied
the standard. The next two sections will explore the first and the third approaches.

74 At paras 606-10.
75 For a criticism o f Glamis Gold, see Judge S M Schwebel, ‘Is Neer Far from Fair and Equitable?’
(2011) 27 Arbitration International 555.
/6 Merrill & Ring Forestry v Canada, Award, 31 March 2010, para 213.
77 See pp 148-9.
78 Total v Argentina, Decision on Liability1, 27 December 2010, paras 123—4, 162, 309, 333, 429.
See also Plama v Bulgaria, Award, 27 August 2008, para 177; E D F v Romania, Award, 8 October
2009, para 299; El Paso v Argentina, Award, 31 October 2011, para 358.
79 Lemire v Ukraine, Decision on Jurisdiction and Liability, 14 January 2010.
80 At para 500. See also para 273-
81 Mondev v United States, Award, 11 October 2002, para 118.
142 Standards o f Protection

A rule of law approach to the concept of FET would have to concentrate on a

comparative analysis of domestic legal systems and of international legal regimes.82
In examining the state’s behaviour for compliance with the FET standard some
tribunals have not only looked at individual acts but have also looked at the overall
cumulative impact of the measures. The Tribunal in El Paso adopted the concept
of a composite act from Article 15 of the International Law Commission’s Articles
on State Responsibility and said:
Although they may be seen in isolation as reasonable measures to cope with a difficult
economic situation, the measures examined can be viewed as cumulative steps which
individually do not qualify as violations of FET, as pointed out earlier by the Tribunal,
but which amount to a violation if their cumulative effect is considered.... A creeping
violation of the FET standard could thus be described as a process extending over time
and comprising a succession or an accumulation of measures which, taken separately, would
not breach that standard but, when taken together, do lead to such a result.S3

(g) Attem pts to define fair and equitable treatment

In a number of cases the tribunals have tried to give a more specific meaning to the
FET standard by formulating general definitions or descriptions.84
Genin v Estonia85 concerned the withdrawal of a banking licence. The Tribunal
stated that acts violating the fair and equitable standard:
would include acts showing a wilful neglect of duty, an insufficiency of action falling far
below international standards, or even subjective bad faith.86
The most comprehensive definition, most often cited, was set out in Teemed, 87
which concerned the withdrawal of a licence for a landfill for hazardous waste. The
Tribunal found that it had to interpret the concept of FET autonomously taking
into account its text according to its ordinary meaning, international law, and the
good faith principle. The intention behind the concept was to strengthen the
security and trust of foreign investors thereby maximizing the use of economic
resources. This goal was expressed in die preamble .88 The Tribunal defined FET
in the following terms:

82 S W Schill, ‘Fair and Equitable Treatm ent, die Rule o f Law, and Comparative Public Law’ in
S W Schill (ed), International Investment Law and Comparative Public Law (2010) 154-6.
83 ElPaso vArgentina, Award, 31 October 2011, paras 510-19 at 515, 518. Emphasis in original.
See also Bayindir v Pakistan, Award, 27 August 2009, paras 181, 380—1.
84 Tribunals have made frequent use of diese definitions in subsequent cases. At times they have
presented surveys of such definitions: Biwater G auff v Tanzania,, Award, 24 July 2008, paras 596-60;
Total v Argentina, Decision on Liability, 27 December 2010, para 110; El Paso v Argentina, Award,
31 October 2011, paras 341-7.
85 Genin v Estonia, Award, 25 June 2001 (2002) 17 ICSID Review-FILJ 395.
8(5 At para 367. Footnote omitted. Since there were ample grounds for the action taken by the
Estonian authorities, the Tribunal did not find that a violation of the FET standard had occurred.
87 Teemed v Mexico, Award, 29 May 2003.
88 At paras 155, 156. See ska A zurix v Argentina, Award, 14 July 2006, para 360; M T D v Chile,
Award, 25 May 2004, paras 112, 113.
 Fair and eqtdtable treatment 143

The Arbitral Tribunal considers that this provision of the Agreement, in light of the good
faith principle established by international law, requires the Contracting Parties to provide
to international investments treatment that does not affect the basic expectations that were
taken into account by the foreign investor to make the investment. The foreign investor
expects the host State to act in a consistent manner, free from ambiguity and totally
transparently in its relations with the foreign investor, so that it may know beforehand
any and all rules and regulations that will govern its investments, as well as the goals of the
relevant policies and administrative practices or directives, to be able to plan its investment
and comply widi such regulations----The foreign investor also expects the host State to act
consistently, i.e. without arbitrarily revoking any preexisting decisions or permits issued by
the State that were relied upon by the investor to assume its commitments as well as to plan
and launch its commercial and business activities. The investor also expects the State to use
the legal instruments that govern the actions of the investor or the investment in conformity
with the function usually assigned to such instruments, and not to deprive the investor of its
investment without die required compensation.89
M TD v Chile90 concerned a foreign investment contract signed on behalf of
Chile for the construction of a large planned community which failed because it
turned out to be inconsistent with zoning regulations. The Tribunal applied a
provision in the BIT between Chile and Malaysia requiring that ‘Investments of
investors of either Contracting Party shall at all time be accorded fair and equitable
treatment’.91 In doing so, the Tribunal agreed with a legal opinion by Judge
Schwebel that fair and equitable treatment encompassed such fundamental stand­
ards as good faith, due process, non-discrimination, and proportionality. The
Tribunal relied on the standard as defined in Teemed.92 It emphasized a duty to
adopt proactive behaviour in favour of the investor, and stated:
fair and equitable treatment should be understood to be treatment in an even-handed and
just manner, conducive to fostering the promotion of foreign investment. Its terms are
framed as a pro-active statement—‘to promote’, ‘to create’, ‘to stimulate’—rather than
prescriptions for a passive behavior of the State or avoidance of prejudicial conduct to the
investors.93
On the basis of this standard, the Tribunal found that the FET standard had been
violated by Chile.
The ad hoc Committee in M T D v Chile94 upheld the Award but criticized its
reliance on the Teemed standard:
the TECMED Tribunal’s apparent reliance on the foreign investor’s expectations as the
source of die host State’s obligations (such as the obligation to compensate for expropri­
ation) is questionable, The obligations of the host State towards foreign investors derive

89 At para 154.
90 M T D v Chile, Award, 25 May 2004; the ad hoc Committee upheld the decision, see Decision on
Annulment, 21 M arch 2007.
91 At para 107.
92 At paras 114—15.
93 At para 113.
94 M T D v Chile, Decision on Annulment, 21 March 2007.
144 Standards o f Protection

from the terms of the applicable investment treaty and not from any set of expectations
investors may have or claim to have.95
In Saluka v Czech Republic96 an ailing bank in which die claimants had invested was
taken over by a competitor that had received financial assistance from the state for
the purpose of the takeover. By contrast, the bank had not received similar aid
when the claimants attempted to negotiate the conditions to maintain the viability
of the bank. The Tribunal found that there was a violation of FET and described
the requirements of the FET standard in terms of consistency, transparency, and
reasonableness:
A foreign investor whose interests are protected under die Treaty is entided to expect that
the [host state] will not act in a way that is manifestly inconsistent, non-transparent,
unreasonable (i.e. unrelated to some rational policy·)., or discriminatory (i.e. based on
unjustifiable distinctions).97
The NAFTA case, Waste Management v M exico ^ arose from a failed concession for
the disposal of waste that involved a number of grievances, including the munici­
pality’s failure to pay its bills, failure to honour exclusivity of sendees, difficulties
with a line of credit agreement, and proceedings before the Mexican courts. The
Tribunal summarized its position on die FET standard in Article 1105 of the
NAFTA in the following terms:
the minimum standard of treatment of fair and equitable treatment is infringed by conduct
attributable to the State and harmful to the claimant if the conduct is arbitrary, grossly
unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or
racial prejudice, or involves a lack of due process leading to an outcome which offends
judicial propriety—as might be the case with a manifest failure of natural justice in judicial
proceedings or a complete lack of transparency and candour in an administrative process. In
applying this standard it is relevant that the treatment is in breach of representations made
by the host State which were reasonably relied on by the claimant."
Discrimination against foreigners has been regarded as an important indicator of
failure to grant fair and equitable treatment . 100 Awards have also included the
standard o f ‘improper and discreditable’101 or ‘unreasonable conduct’, 102 or have
referred to international or comparative standards . 103

95 At para 67.
96 Saluka v Czech Republic, Partial Award, 17 M arch 2006.
9/ A t para 309.
98 Waste Management v Mexico, Final Award, 30 April 2004.
99 At para 98. O n the facts of the particular case, the Tribunal found that this standard had not
been violated. At para 140.
100 Loewen v United States, Award, 26 June 2003, para 135; Waste Management v Mexico, Final
Award, 30 April 2004, para 98; M T D v Chile, Award, 25 May 2004, para 109. But see Grand River v
United States, Award, 12 January 2011, para 209.
50! Mondev v United States, Award, 11 O ctober 2002, para 127; Loewen v United States, Award,
26 June 2003, para 133 (in reference to Aiondev).
102 Saluka v Czech Republic, Partial Award, 17 M arch 2006, para 309.
103 SD Myers v Canada, First Partial Award, 13 Novem ber 2000, para 264.
 Fair arid equitable treatment 145

(h) Specific applications of the fair and equitable treatm ent standard
Broad definitions or descriptions are not the only way to gauge the meaning o f an
elusive concept such as F E T . Another method is to identify typical factual situ­
ations to which this principle has been applied.104 An examination of the practice
of tribunals demonstrates that several principles can be identified which are
embraced by the standard of fair and equitable treatment. The cases discussed
below clearly speak to the central role of stability, transparency, and the investor’s
legitimate expectations for the current understanding of the FET standard. O ther
contexts in which the standard has been applied concern compliance widi contract­
ual obligations, procedural propriety and due process, acting in good faith, and
freedom from coercion and harassment. 105

aa. Stability a n d the protection o f the investors legitimate expectations

The investor’s legitimate expectations are based on the host state’s legal framework
and on any undertakings and representations made explicitly or implicitly by the
host state .106 The legal framework on which the investor is entitled to refy consists
of legislation and treaties, assurances contained in decrees, licences, and similar
executive statements, as well as contractual undertakings. Specific representations
play a central role in the creation of legitimate expectations. Undertakings and
representations made explicitly or implicitly by the host state are the strongest basis
for legitimate expectations. A reversal of assurances by the host state that have led to
legitimate expectations will violate the principle of fair and equitable treatment. 107
Tribunals have emphasized that the legitimate expectations of the investor will
be grounded in the legal order of the host state as it stands at the time the investor
acquires the investment. 108 GAJvII v Mexico ruled categorically: ‘NAFTA arbitra­
tions have no mandate to evaluate laws and regulations that predate the decision of

104 See also K Yannaca-Small, ‘Fair and Equitable Treatm ent Standard’ in K Yannaca-Smail (ed),
Arbitration under International Investment Agreements (2010) 393-407; S W Schill, ‘Fair and Equitable
Treatment, the Rule of Law, and Comparative Public Law’ in S W Schill (ed), International Investment
Law and Comparative Public Law (2010) 159-70.
105 For decisions adopting similar categories for the analysis of the FET standard, see: Biwater Ganfj
v Tanzania, Awrard, 24 July 2008, para 602; Rwneli v Kazakhstan, Award, 29 July 2008, para 609; Stag
v Egypt, Award, 1 June 2009, para 450; Bayindir v Pakistan, Award, 27 August 2009, para 178; Lemire
v Ukraine, Decision on Jurisdiction and Liability, 14 January 2010, para 284; Paushok v Mongolia,
Award, 28 April 2011, para 253.
106 por earjy discussions of the relevance o f the concept of legitimate expectations in foreign
investment law, see R Dolzer, ‘New Foundations of the Law of Expropriation of Alien Property’
(1981) 75 AJIL 553; G Burdeau, ‘Droit international et contrats d’ Etat’ (1982) Annuairefrancaise de
droit international 454, 470.
10/1 See also W M Reisman and M FI Arsanjani, ‘The Question of Unilateral Governmental
Statements as Applicable Law in Investment Disputes’ (2004) 19 ICSID Review-FILJ 328; S Vascian­
nie, ‘The Fair and Equitable Treatm ent Standard in International Investment Law and Practice’ (1999)
70 BYBIL 99, 146-7; T W Walde, ‘Energy Charter Treaty-based Investment Arbitration’ (2004) 5
J World.· Investment 387.
108 C Schreuer and U Kriebaum, ‘At W hat Tim e M ust Legitimate Expectations Exist?’ in J W erner
and A H Ali (eds), A Liber Amicorum: Thomas Walde. Laiv Beyond. Conventional Thought (2009) 265·
146 Standards o f Protection

a foreign investor to invest.’109 Numerous tribunals have stressed that the legal
framework as it existed at the time of making the investment was decisive for any
legitimate expectations.110 In National Grid v Argentina111 die Tribunal said;
this standard protects the reasonable expectations of the investor at the time it made the
investment and which were based on representations, commitments or specific conditions
offered by the State concerned. Thus, treatment by the Stare shoidd ‘not affect the basic
expectations diat were taken into account by the foreign investor to make the investment.11^
In SD Myers v Canada, the Tribunal made the same point when it stated that the
parties acted on the basis of the law as it appeared to exist at the time of the
investments. 113 Also, Feldman v Mexico reflects the same principle by explaining
that a regulation had existed at all times relevant to the investor and that no dejure
change had been made .114 And in Mondev v United States a claim was rejected 011
the basis that a rule on immunity diat was lawful before the NAFTA entered into
force could not thereafter be considered to be arbitrary or discriminatory .115
These decisions are consistent with the right of the host state to determine its
own legal and economic order, subject to the international minimum standard. At
the same time, they recognize the investor’s concern for planning and stability
based on that order at the time of the investment. Whereas the prudent investor
will, in light of these rulings, carefully examine the laws before investing, the host
state must at all times be aware that its legal order forms the basis of legitimate
expectations which must be taken into account in future reforms.
These considerations indicate that while the principle of legitimate expectations
inherent in FET has an objective core, its application will depend upon the
expectations nurtured and fostered by the local laws as they stand specifically at
the time of the investment.
In Occidental v Ecuador116 the claim was directed at the inconsistent practice of
the respondent’s authorities in reimbursing value added tax (VAT) paid on pur­
chases in connection with the claimant’s activities. The claimant relied on the
provision in the Ecuador-US BIT guaranteeing fair and equitable treatment. The

105 G AAil v Mexico, Award, 15 Novem ber 2004, para 93.

110 Azinian v Mexico, Award, 1 Novem ber 1999, paras 95-7; Mondev v United States, Award,
12 October 2002, para 156; Feldman v Mexico, Award, 16 December 2002, para 128; LG&E v
Argentina., Decision on Liability, 3 O ctober 2006, para 130; Enron v Argentina, Award, 22 May 2007,
para 262; BG v Argentina, Final Award, 24 December 2007, paras 297-8; D uke Energy v Ecuador,
Award, 18 August 2008, paras 340, 365; Jan de N id v Egypt, Award, 6 N ovem ber 2008, para 265;
Bayindir v Pakistan, Award, 27 August 2009, paras 190, 191; ED F v Romania, Award, 8 October
2009, para 219; AES v Hungary, Award, 23 September 2010, paras 9.3.8-9.3.18; Frontier Petroleum v
Czech Republic, Final Award, 12 Novem ber 2010, paras 287, 468.
111 National Grid- v Argentina, Award, 3 November 2008.
112 At para 173. Footnote omitted.
113 SD Myers v Canada, Second Partial Award, 21 October 2002.
114 Feldman v Mexico, Award, 16 December 2002, para 128.
113 Mondev v United States, Award, 12 October 2002, para 156; see also A zinian v Mexico, Award,
1 November 1999, paras 95—7; Oscar Chinn Case {U K v Belgium), 12 December 1934, PCIJ, Series A/B,
N o 63, para 184.
116 Occidental v Ecuador, Award, 1 July 2004.
 Fair and equitable treatment 147

T ribunal noted that the framework under which the investor had been operating
had been changed in an important manner and that the clarifications sought by the
investor had evoked a wholly unsatisfactory and thoroughly vague answer. ‘The tax
Jaw was changed without providing any clarity about its meaning and extent and
the practice and regulations were also inconsistent with such changes.’117
After quoting from Metalclad and Teemed, the Tribunal reached the conclusion
that the requirements, as described in these cases, were not met in the case before
it, 118 The Tribunal said:
The relevant question for international law in this discussion is not whether there is an
obligation to refund VAT, which is the point on which the parties have argued most
intensely, but rather whether the legal and business framework meets the requirements of
stability and predictability under international law. It was earlier concluded that there is
not a VAT refund obligation under international law,... but there is certainly an obliga­
tion not to alter the legal and business environment in which the investment has been
made. In this case it is the latter question that triggers a treatment that is not fair and
equitable.119
In CMS v Argentina120 the respondent had given guarantees for price adjustments
for the transportation of natural gas in legislation, regulations, and under a licence.
Subsequendy, an emergency law and other laws and regulations first suspended
and then terminated these guarantees. The Tribunal referred to the preamble of the
Argentina-US BIT and said:
There can be no doubt, therefore, that a stable legal and business environment is an essential
element of fair and equitable treatment.... The measures that are complained of did in fact
entirely transform and alter the legal and business environment under which the investment
was made.... It has also been established that the guarantees given in this connection under
the legal framework and its various components were crucial for the investment decision..,.
In addition to the specific terms of die Treaty, the significant number of treaties, both
bilateral and multilateral, that have dealt with this standard also unequivocally shows that
fair and equitable treatment is inseparable from stability and predictability. Many arbitral
decisions and scholarly writings point in the same direction.121
The Tribunal found that Argentina’s actions had breached the FET standard.
Eureko v Poland 122 concerned a share purchase agreement between the investor
and the Polish state under which the investor acquired a minority participation in a
Polish company. A related agreement guaranteed to the investor the right to acquire
further shares that would have given it control over the company. Subsequendy,
Poland changed its privatization policy and withdrew' its consent to the acquisition of
further shares by the investor. The Tribunal found it abundantly clear that Eureko
had been treated unfairly and inequitably by Poland. The organs of the respondent

517 A t para 184. 118 At paras 185, 186. 119 At para 191.
120 CM S v Argentina, Award, 12 May 2005.
121 At paras 274-6. Footnote omitted.
122 Eureko v Poland, Partial Award, 19 August 2005.
148 Standards o f Protection

state had consciously and overdy breached Eureko’s basic expectations.123 Therefore,
the Tribunal had no hesitation in concluding that the FET standard of the Nether-
lands-Poland BIT had been violated by the respondent.124
Odier tribunals have similarly found that the FET principle involved the govern­
ment’s obligation not to frustrate the investor’s legitimate expectations by arbitrarily
changing the legal framework under which the investment had been made.125
According to one view, the investor’s legitimate expectations will be seriously reduced
if there is general instability in the political conditions of the countiy concerned.126
Legitimate expectations are not subjective hopes and perceptions; rather, they
must be based on objectively verifiable facts. Expectations are protected only if
they are legitimate and reasonable in the circumstances. The Tribunal in Suez v
Argentina12/ said:
one must not look single-niindedly at the Claimants’ subjective expectations. The Tribunal
must rather examine them from an objective and reasonable point of view.128
More recently tribunals have increasingly emphasized that the requirement of
stability is not absolute and does not affect the state’s right to exercise its sovereign
power to legislate and to adapt its legal system to changing circumstances.129 What
matters is whether measures exceed normal regulatory powers and fundamentally
modify the regulatory framework for die investment beyond an acceptable margin
of change. 130 In other words, ‘changes to general legislation, in the absence of
specific stabilization promises to the foreign investor, reflect a legitimate exercise of
the host state’s governmental powers that are not prevented by a BIT’s fair and
equitable treatment standard ’. 131 The Tribunal in EDF v Romania132 stated in this
respect:

123 At paras 231, 232.

124 At para 234.
125 CM E v Czech Republic, Partial Award, 13 September 2001, para 611; Bayindir v Pakistan,
Decision on Jurisdiction, 14 November 2005, paras 231-2: L G & E v Argentina, Decision on Liability,
3 October 2006, para 131; PSEG v Turkey, Award, 19 January 2007, paras 240-56; Enron v Argentina,
Award, 22 May 2007, paras 260—2; Sempra v Argentina, Award, 28 September 2007, paras 300, 303;
National Grid v Argentina, Award, 3 November 2008, paras 178—9; Alpha v Ukraine, Award,
8 Novem ber 2010, para 420; Lemire v Ukraine, Decision on Jurisdiction and Liability, 14 January
2010, para 267; Award, 28 March 2011, paras 68-73.
126 Bayindir v Pakistan, Award, 27 August 2009, paras 192-7. See also U Kriebaum, 'The
Relevance of Economic and Political Conditions for the Protection under Investment Treaties’
(2011) 10 Law and Practice o f International Courts and Tribunals 383.
12/ Suez v Argentina, Decision on Liability, 30 July 2010.
12S At para 209.
129 Parkerings v Lithuania, Award, 11 September 2007, paras 327—38; B G Group vArgentina, Final
Award, 24 December 2007, paras 292-310; Pla?na v Bulgaria, Award, 27 August 2008, para 219;
Continental Casualty v Argentina, Award, 5 September 2008, paras 258—61 \A E S v Himgaiy, Award, 23
September 2010, paras 9.3.27-9.3.35; Paushok vMongolia, Award, 28 April 2011. para 302; Impregilo
v Argentina, Award, 21 June 2011, paras 290-1; E l Paso v Argentina, Award, 31 O ctober 2011, paras
3 44-52, 365-74.
130 E l Paso v Argentina, Awrard, 31 October 2011, para 402.
131 Total v Argentina, Decision on Liability, 27 December 2010, para 164. See also paras 113-24,
309, 312, 429.
132 E D F v Romania, Award, 8 October 2009.
 Fair and equitable treatment 149

'I'lie idea that legitimate expectations, and therefore FET, imply the stability of the legal and
business framework, may not be correct if stated in an overly-broad and unqualified
formulation. The FET might then mean the virtual freezing of the legal regulation of
e c o n o m i c activities, in contrast with the State’s normal regulatory power and the evolution­

ary character of economic life. Except where specific promises or representations are made
ky the Stare to the investor, die latter may not rely on a bilateral investment treaty as a kind
of insurance policy against the risk of any changes in the host State’s legal and economic
fram ew ork. Such expectation w o u ld be neither legitimate nor reasonable.133

In deciding between die investor’s right to stability and the state’s right to regulate,
some tribunals have weighed the investor’s legitimate expectations against the
state’s duty to act in the public interest.134
Particularly important in the creation of legitimate expectations are specific
assurances and representations made by the host state in order to induce investors
to make investments.135 But even here some tribunals have found that mere
political statements were not capable of creating reasonable expectations . 136

bb. Transparency
Transparency is closely related to protection of the investor’s legitimate expect­
ations. Transparency means diat the legal framework for the investor’s operations is
readily apparent and that any decisions affecting the investor can be traced to that
legal framework .137
There is authority to the effect that transparency and the investor’s legitimate
expectations are protected even without a treaty guarantee of FET. In SPP v
Egypt138 the respondent contended that certain acts of Egyptian officials, upon
which the claimants relied, were null and void because they were in conflict with
the inalienable nature of the public domain and because they were not taken
pursuant to the procedures prescribed by Egyptian law. The Tribunal rejected
this argument and emphasized that the investor was entitled to rely on the official
representations of the government:

133 At para 217.

134 Saluka v Czech Republic, Partial Award, 17 March 2006, para 306; Total v Argentina, Decision
on Liability, 27 December 2010, paras 123, 309. For an instance where a tribunal found misuse o f
regulatory powers, see Vivendi v Argentina, Award, 20 August 2007, para 7.4.24.
135 Kardassopoulos v Georgia, Decision on Jurisdiction, 6 July 2007, para 191; Parkerings v
Lithuania, Award, 11 September 2007, para 331; Sempra v Argentina, Award, 28 September 2007,
paras 298, 299; OKO Pankki v Estonia, Award, 19 November 2007, paras 2 4 7 -8 , 263; Duke Energy v
Ecuador, Award, 18 August 2008, paras 359-64; Continental Casualty v Argentina, Award, 5 Septem­
ber 2008, paras 258-61; Total v Argentina, Decision on Liability, 27 December 2010, paras 119-20,
309.
536 Continental Casualty v Argentina, Award., 5 September 2008, para 261 (i); E l Paso v Argentina,
Award, 31 October 2011. paras 375-9, 392-5.
1;’7 U N C TA D Series on issues in international investment agreements, ‘Fair and Equitable Treat­
m ent’ (1999) 51; S W Schill, ‘Fair and Equitable Treatment, the Rule ofLaw, and Comparative Public
Law’ in S W Schill (ed), International Investment Law and Comparative Public Law (2010) 168-9.
138 SPP v Egypt, Award, 20 May 1992.
150 Standards o f Protection

It is possible that under Egyptian law certain acts of Egyptian officials including even
Presidential Decree No. 475, may be considered legally nonexistent or null and void or
susceptible to invalidation. However, these acts were cloaked with the mantle of Govern­
ment authority and communicated as such to foreign investors who relied on them in
making their investments.... Whether legal under Egyptian law or not, the acts in question
were the acts of Egyptian authorities, including the highest executive authority of the
Government. These acts, which are now alleged to have been in violation of the Egyptian
municipal legal system, created expectations protected by established principles of inter­
national law.139
In Metalclad, v Mexico140 the issue of transparency played a central role. The Federal
Government of Mexico and the state government had issued construction and
operating permits for the investor’s landfill project. The investor was assured that it
had all the permits it needed, but the municipality refused to grant a construction
permit. The claimant complained about a lack of transparency surrounding the
process. In interpreting Article 1105 of the NAFTA, the Tribunal said:
Prominent in the statement of principles and rules that introduces the Agreement is the
reference to ‘transparency5 {NAFTA Article 102(1)). The Tribunal understands this to
include the idea that all relevant legal requirements for the purpose of initiating, completing
and successfully operating investments made, or intended to be made, under the Agreement
should be capable of being readily known to all affected investors of another Party. There
should be no room for doubt or uncertainty on such matters. Once the authorities of the
central government of any Party (whose international responsibility in such matters has been
identified in the preceding section) become aware of any scope for misunderstanding or
confusion in this connection, it is their duty to ensure that the correct position is prompdy
determined and clearly stated so that investors can proceed with all appropriate expedition in
the confident belief that they are acting in accordance with ail relevant laws.141
The Tribunal held that the investor was entitled to rely on the representations of
the federal officials.142 It concluded that the acts of the state and the municipality
were in violation of die FET standard under Article 1105 of the NAFTA. In the
view of the Tribunal:
Mexico failed to ensure a transparent and predictable framework for Metalclad’s business
planning and investment. The totality of these circumstances demonstrates a lack of orderly
process and timely disposition in relation to an investor of a Party acting in die expectation
that it would be treated fairly and justly in accordance with the NAFTA.143

139 At paras 82, 83.

140 ^letalclad v Mexico, Award, 30 August 2000. See also T Weiler, ‘G ood Faith and Regulatory
Transparency: The Story o f Metalclad v Mexico’ in T Weiler (ed), International Investment Law and
Arbitration: Leading Cases (2005) 701.
141 Ac para 76.
1ΐ2 At para 89.
143 At para 99. The Award was set aside in part by the Supreme Court o f British Columbia on
grounds that are peculiar to the NAFTA: the court found that the Tribunal had improperly based its
award on transparency even though that principle is not contained in Chapter Eleven but in
Chapter Eighteen of the NAFTA: see Mexico v Metalclad, Review by British Columbia Supreme
Court, 2 May 2001, 5 ICSID Reports 238, paras 57-76. The court’s decision appears incorrect for two
reasons: first, under Art 31 of the VCLT, a treat}- term m ust be interpreted in its context which
 Fair and equitable treatment 151

In Maffezini v Spain 144 one of the complaints concerned a ‘loan’ that had been
transferred by a government institution from the investor’s personal account
without his consent. The Tribunal found that the lack of transparency associated
with the loan transaction was incompatible with fair and equitable treatment. It
said:
the lack of transparency with which this loan transaction was conducted is incompatible
with Spain’s commitment to ensure the investor a fair and equitable treatment in accordance
with Article 4(1) of the same treaty. Accordingly, the Tribunal finds that, with regard to this
contention, the Claimant has substantiated his claim and is entitled to compensation., ,145
In Teemed v Mexico,146 the dispute concerned the replacement of an unlimited
licence by a licence of limited duration for the operation of a landfill. The Tribunal
applied a provision in the BIT between Mexico and Spain guaranteeing fair and
equitable treatment. The Tribunal found that this provision required transparency
and protection o f the investor’s basic expectations. 147 The Tribunal explained that:
the Claimant was entitled to expect that die government’s actions would be free from any
ambiguity that might affect the early assessment made by the foreign investor of its real legal
situation or the situation affecting its investment and the actions the investor should take to
act accordingly.148
In consequence, die Tribunal concluded that the investor’s fair expectations were
frustrated by the contradiction and uncertainty in Mexico’s behaviour which was:
characterized by its ambiguity and uncertainty which are prejudicial to the investor in terms
of its advance assessment of the legal situation surrounding its investment and the planning
of its business activity and its adjustment to preserve its rights.149
In M TD v Chile150 the respondent had signed an investment contract for the
construction of a large planned community with the country’s Foreign Investment
Commission (FIC) but the project failed because it turned out to be inconsistent
with zoning regulations. The Tribunal found that the guarantee of FET in the BIT
between Chile and Malaysia had been violated by what it described as ‘the
inconsistency of action between two arms of the same Government vis-a-vis die
same investor’.151 It went on to state that while it was the investor’s duty to inform
itself of the country’s law and policy in principle:
Chile also has an obligation to act coherently and apply its policies consistently, independ­
ently of how diligent an investor is. Under international law (the law that this Tribunal has
to apply to a dispute under the BIT), the State of Chile needs to be considered by the

includes the treaty’s entire texr; secondly, Art 1131 o f the NAFTA, dealing with governing iaw, directs
that a NAFTA Chapter Eleven tribunal is to decide the dispute ‘in accordance with this Agreement [ie
the NAFTA— not just its Chapter Eleven] and applicable rules of international law’.
144 Maffezini. v Spain, Award on the Merits, 13 November 2000.
145 At para 83.
1-iS Teemed v Mexico, Award, 29 May 2003.
1h7 S eep 143. 148 At para 167. 149 At para 172.
130 M T D v Chile, Award, 25 May 2004. 151 At para 163.
152 Standards o f Protection

Tribunal as a unit. .. .The Tribunal is satisfied, based on the evidence presented to it, that
approval of an investment by the FIC for a project that is against the urban poliq^ of the
Government is a breach of die obligation to treat an investor fairly and equitably.152

cc, Compliance w ith contractual obligations

Closely related to the issue of protection of the investor’s legitimate expectations is
the question to what extent this protection extends to observance of obligations
arising from contracts. Contractual agreements are the classical instrument in most,
if not all, legal systems for the creation of legal stability and predictability. There­
fore, pacta sunt servanda would seem to be an obvious application of the stability
requirement that is so prominent in the FET standard. The connection between
this aspect of FET and the umbrella clause153 is evident.
In a number of cases dealing with the protection of the investors’ legitimate
expectations, these expectations were actually based on contractual arrangements
with the host state. But it does not follow that every breach of a contractual
obligation by a host siate or one of its entities automatically amounts to a violation
of the FET standard.
Some tribunals seemed to hold the view that failure to observe contractual
obligations on the part of a government would be contrary to the FET standard.154
The Tribunal in Mondev 155 found it clear that the protection of Article 1105(1) of
the NAFTA extended to contract claims. The Tribunal said:
a governmental prerogative to violate investment contracts would appear to be inconsistent
with the principles embodied in Article 1105 and with contemporary standards of national
and international law concerning governmental liability for contractual performance.156
Similarly, in SGS v Paraguay,157 a case involving unpaid invoices for pre-shipment
inspections, the Tribunal spoke of a ‘baseline expectation of contractual compli­
ance’. It noted that:
a Stare’s non-payment under a contract is, in the view of the Tribunal, capable of giving rise
to a breach of a fair and equitable treatment requirement, such as, perhaps, where the non­
payment amounts to a repudiation of the contract, frustration of its economic purpose, or
substantial deprivation of its value.158
Most tribunals have adopted a more restrictive approach. They have found that a
simple breach of contract by a state would not trigger a violation of the FET

152 A t paras 165, 166. Chile’s attem pt to have the Award annulled was unsuccessful: M T D v Chile,
Decision on Annulment, 21 March 2007.
153 See Section 3.
154 Tentatively: SGS v Philippines, Decision on Jurisdiction, 29 January 2004, para 162; Noble
Ventures v Romania, Award, 12 October 2005. para 182; SGS v Paraguay, Decision on Jurisdiction,
12 February 2010, paras 144-51.
155 Mondev v United States, Award, 11 O ctober 2002.
136 At para 134.
1S7 SGS v Paraguay, Decision on Jurisdiction, 12 February 2010.
llS A t para 146.
 Fair and equitable treatment 153

standard.159 Rather, ‘a breach of FET requires conduct in the exercise of sovereign

powers’.160 However, a termination of die contract, brought about through the
employment of sovereign prerogative, would lead to a violation of the FET
standard.161 The same would apply to government interference with a contract
between an investor and a state entity . 162
In Consortium RFCC v Morocco163 the dispute had arisen from a contract for the
construction of a motorway. The Tribunal held that only measures taken by
Morocco in its sovereign capacity were capable of breaching the FET standard.
A violation of contractual obligations that could have been committed by an
ordinary contract partner would not rise to the level of a violation of the FET
standard .164
A simple failure to pay sums due under a contract is not a sovereign act and may
not amount to a breach of the treaty-based FET standard . 165 In Waste Manage­
ment,166 the Tribunal described transparency and reliance as elements of the FET
standard contained in Article 1105(1) of the NAFTA. One of the claims concerned
the failure of the city of Acapulco to make payments under a concession agree'
ment .267 The Tribunal did not find that this amounted to a violation of FET:
even the persistent non-payment of debts by a municipality is not to be equated with a
violation of Article 1105, provided that it does not amount to an outright and unjustified
repudiation of the transaction and provided that some remedy is open to the creditor to
address the problem.168
Impregilo v Pakistan concerned a contract for the construction of hydroelectric
power facilities. The Tribunal found that a simple breach of contract did not
amount to a breach of the FET standard. Responsibility under the treaty would
only be caused by a misuse of public power. 169
In Duke Energy v Ecuador110 the claimant relied on power-purchase agreements
between its local subsidiary and a state entity. The Tribunal pointed out that a
violation of a contract does not as such amount to a violation of the treaty standard
of fair and equitable treatment:

159 Parkerings v Lithuania, Award, 11 September 2007, paras 344—5; E D F v Romania, Award,
8 October 2009, paras 238-60; Burlington v Ecuador, Award, 2 June 2010, para 204; Hamester v
Ghana, Award, 18 June 2010, paras 332-8.
160 Bayindir v Pakistan, Award, 27 August 2009, para 377. See also para 180.
161 Rimieli v Kazakhstan, Award, 29 July 2008, para 615.
162 Alpha v Ukraine, Award, 8 November 2010, para 422.
163 p p Q C v Morocco, Award, 22 December 2003.
At paras 33-4.
165 Biwater G auffv Tanzania, Award, 24 July 2008, para 636. See further p 129.
l6'6 Waste Management v Mexico, Final Award, 30 April 2004.
167 At paras 108-17.
,uS At para 115. This part of the decision is cited with approval in G AAil v Mexico, Award,
15 November 2004, para 101.
169 ]mp regjl0 v Pakistan, Decision on Jurisdiction, 22 April 2005, paras 266-70; Award, 21 June
2011, paras 293-310.
1/0 Duke Energy v Ecuador, Award, 18 August 2008.
154 Standards o f Protection

Establishing a treaty breach is a different exercise from showing a contract breach. Subject to
the particular question of the umbrella clause, in order to prove a treaty breach, the
Claimants must establish a violation different in nature from a contract breach, in other
words a violation which the State commits in the exercise of its sovereign power.175
Practice demonstrates that the view diat a simple breach of contract is insufficient
to amount to a breach of the FET standard is clearly prevalent. But this seemingly
simple test leads to further questions. The distinction between sovereign and
commercial acts, which is accepted in the field of state immunity, is of unclear
validity in the area of state responsibility.172 Also, even if the underlying relation­
ship and the breach are clearly commercial, the motives of a government for a
certain act may still be governmental.

dd. Procedural propriety a n d due process

Fair procedure is an elementary requirement of die rule of law and a vital element of
FET. It includes die traditional international law concept of denial of justice .173
Unlike other aspects o f investment protection, it is generally accepted that a claim
for denial of justice is conditioned on a prior exhaustion of local remedies. 174
The US Model BIT o f 2 0 1 2 specifically clarifies that the FET standard covers
protection from denial of justice and guarantees due process. Article 5 (2)(a)
provides that:
‘fair and equitable treatment’ includes the obligation not to deny justice in criminal, civil, or
administrative adjudicatory proceedings in accordance with the principle of due process
embodied in the principal legal systems of the world...
Tribunals have held in a number of cases that lack of a fair procedure, or serious
procedural shortcomings, were important elements in finding a violation of the
FET standard. Most of these cases relate to the right to be heard in judicial οι-
administrative proceedings.
In Metalclad v Mexico175 the municipality had refused to grant a construction
permit. The Tribunal found that there had been a violation of the FET guarantee in
Article 1105 of the NAFTA. An element in this finding was lack of procedural
propriety, specifically a failure to hear the investor:

171 At para 345- See also paras 3 4 2 ^ , 354.

172 Noble Ventures v Romania, Award, 12 October 2005, para 82.
173 For a general description of denial of justice, see Azinian v Mexico, Award, 1 November 1999,
paras 102, 103:
A denial o f justice could be pleaded if the relevant courts refuse to entertain a suit, if they
subject it to undue delay, or if they administer justice in a seriously inadequate way___
There is a fourth type of denial of justice, namely the clear and malicious misapplication of
die law. This type o f wrong doubdess overlaps with the notion o f ‘pretence o f form’ to mask
a \dolation of international law.
Generally on denial of justice, see J Paulsson, Denial of Justice in Intel-national Law (2005).
174 Jan de N td v Egypt, Award, 6 November 2008, paras 255-61; Toto v Lebanon, Decision on
Jurisdiction, 11 September 2009, para 164.
175 Metalclad v Mexico, Award, 30 August 2000.
 Fair and equitable treatment 155

the permit was denied at a meeting of the Municipal Town Council o f which
M o re o v e r,
Metalclad received no notice, to which it received no invitation, and at which it was given no
opportunity to appear,176
In Teemed v Mexico,177 the dispute arose from revocation of a licence for the
operation of a landfill and involved a provision in the BIT between Mexico and
Spain guaranteeing fair and equitable treatment according to international law. The
Tribunal found that this standard had been violated, inter alia, because the environ­
mental regulatory authority had failed to notify the claimant of its intentions,
thereby depriving the claimant of the opportunity to express its position .178
In Middle East Cement v Egypt™ one of the complaints concerned the seizure
and auction of the claimant’s ship and the lack of proper notification of the auction
to the owner. The Tribunal applied provisions promising FET and full protection
and security in the BIT between Greece and Egypt. It found that a matter as
important as the seizure and auctioning of a ship belonging to the claimant should
have been notified by direct communication. Therefore, it found that the proced­
ure applied did not meet the requirements of the FET and full protection and
security standards. 180
Loewen v United States181 concerned the propriety of proceedings in the Missis­
sippi state courts against a Canadian undertaker. The trial exhibited a gross absence
of due process and of protection of the investor from prejudice on account of his
nationality, and the Tribunal found that the conduct of the trial was so flawed that
it constituted a miscarriage of justice. 182 W ith regard to Article 1105 of the
NAFTA, the Tribunal also recognized the significance of due process:
Manifest injustice in the sense of a lack of due process leading to an outcome which offends
a sense of judicial propriety is enough., ,383
The whole trial and its resultanr verdict were clearly improper and discreditable and
cannot be squared with minimum standards of international law and fair and equitable
treatment.184
Some cases concern the frustration by a state of judgments rendered by its own
domestic courts.185 In Siag v Egypt186 the claimants had obtained a series of judicial
rulings in their favour by Egyptian courts but the government failed to comply with
these rulings. The Tribunal found that Egypt’s actions constituted a denial of
justice and a violation of the FET standard.
In a number of cases the claimants had complained about the length of judicial
proceedings in domestic courts which had in some cases taken many years. The
tribunals, while critical of delays, did not find that these amounted to a violation of

1/6 At para 91. 177 Teemed v Mexico, Award, 29 May 2003.

178 Ar para 162. 179 M iddle East. Cement v Egypt, Award, 12 April 2002.
180 At para 143. 131 Loewen v United States, Award, 26 June 2003, 42 ILM 811 (2003).
182 At para 54. 183 At para 132. 184 At para 137.
185 Petrobart v Kyrgyz Republic, Award, 29 March 2005, 13 ICSID Reports 464-5.
ls6 Siag vEgypt, Award, 1 June 2009, paras 451-5.
156 Standards o f Protection

the FET standard.18"' They cited special circumstances relating to the complexity of
the issues188 or to the political situation in the country concerned .189
Denial of justice is traditionally associated with the administration of justice by
domestic courts190 but investment tribunals have accepted that the procedural
guarantees inherent in the FET standard extend to the activities of the host state’s
administrative authorities.191 O n the other hand, die requirement to afford fair
procedure on the basis of the FET standard does not extend to a state entity’s
management of its contractual relationship with the investor. 192
In Thunderbird v Mexico133 the Tribunal held that the standards of due process
and procedural fairness applicable in administrative proceedings are lower than in a
judicial process. In the particular case it found no violation of the FET standard,
explaining that the claimant had been given full opportunity to be heard and to
present evidence and that the proceedings were subject to judicial review by the
courts. 19'1

ee. Good fa ith

As explained above, good faith is a broad principle that is one of the foundations of
international law in general and of foreign investment law in particular.195 Arbitral
tribunals have confirmed that good faith is inherent in FET .196 It is ‘the common
guiding beacon’ to the obligation under BITs; it is ‘at the heart of the concept of
FET’, and ‘permeates the whole approach’ to investor protection .197 The Tribunal
in Teemed}^ interpreting a BIT provision on FET, said:
The Arbitral Tribunal finds that the commitment of fair and equitable treatment... is an
expression and part of the bona fide principle recognized in international law .. .199
The FET standard in general, and the obligation to act in good faith in particular,
include die obligation not to inflict damage upon an investment purposefully.200
The Tribunal in Waste Management1^ found that the obligation to act in good
faith was a basic obligation under the FET standard as contained in Article 1105 of

187 Frontier Petroleum v Czech Republic, Final Award, 12 November 2010, paras 289-96, 334.
iss j an pjui v Award, 6 November 2008, paras 202—i.
189 Toto v Lebanon, Decision on Jurisdiction, 11 September 2009, para 165-
190 Grand River Enterprises v United States, Award, 12 January 2011, paras 222—36.
191 Rumeli vKazakhstan, 29 July 2008, para 623; Chemtura v Canada, Award, 2 August 2010, paras
211-24; A E S v Hungary1, Award, 23 September 2010, paras 9.3.36-9.3.73.
192 Bayindir v Pakistan, Award, 27 August 2009, paras 343-8.
193 Thunderbird v Mexico, Award, 26 January 2006.
194 A t paras 197—201.
195 See pp 18, 132, 142 et seq.
196 Genin v Estonia, Award, 25 June 2001, para 367; A cts that would violate this minimum
standard [of fair and equitable treatment] would include . . . subjective bad faith.’
19/ Sempra v Argentina, Award, 28 September 2007, paras 297-99.
198 Teemed v Mexico, Award, 29 May 2003.
199 At para 153, quoting I Brownlie, Principles o f Public International Law (1989) 19.
200 Vivendi v Argentina, Award, 20 August 2007, para 7.4.39.
201 Waste Management v Mexico, Final Award, 30 April 2004.
 Fair and equitable treatment 157

the NAFTA. In particular, a deliberate conspiracy by government authorities to

defeat the investment would violate this principle:
The Tribunal has no doubt that a deliberate conspiracy—that is to say. a conscious
combination of various agencies of government without justification to defeat the purposes
of an investment agreement—-would constitute a breach of Article 1105(1). A basic obliga­
tion of the State under Article 1105(1) is to act in good faith and form, and not deliberately
to set out to destroy or frustrate the investment by improper means/ 02
In Bayindir v Pakistan203 the investor claimed that its expulsion was based on local
favouritism and on bad faith, since the reasons given by the government did not
correspond to its actual motivation .204 The Tribunal in its Decision on Jurisdiction
found that ‘the allegedly unfair motives of expulsion, if proven, are capable of
founding a fair and equitable treatment claim under the BIT ’.20:5
In Saluka v Czech Republic206 the Tribunal also gave a central role to the
requirement of good faith in .its description of FET:
A foreign investor protected by the Treaty may in any case properly expect that the Czech
Republic implements its policies bona fide by conduct that is, as far as it affects the investors’
investment, reasonably justifiable by public policies and that such conduct does not
manifestly violate the requirements of consistency, transparency, even-handedness and
non-discrimination.207
In Chemtura v Canada!208 the claimants had complained about a special review of
their product, claiming that the investigation had been in bad faith. The Tribunal,
after examining the circumstances in some detail, concluded that the special review
had been launched out of legitimate regulatory concerns and in accordance with
Canada’s international commitments.
In Frontier Petroleum v Czech Republic209 the Tribunal gave the following
description of violations of the good faith principle:
Bad faith action by the host state includes the use of legal instruments for purposes other
than those for which they were created. It also includes a conspiracy by state organs to inflict
damage upon or to defeat the investment, the termination of the investment for reasons
other than the one put forth by the government, and expulsion of an investment based on
local favouritism. Reliance by a government on its internal structures to excuse non-
compliance with contractual obligations would also be contrary to good faith.210
It follows from these authorities that action in bad faith against the investor would
be a violation of FET. Bad faith action by the host state includes the use of legal

202 At para 138.

203 Bayindir v Pakistan, Decision on Jurisdiction, 14 November 2005.
204 At paras 242, 243.
205 A t para 250.
206 Saluka v Czech Republic, Partial Award, 17 March 2006.
20/ At para 307.
208 Chemtura v Canada, Award, 2 August 2010, paras 143-8, 158, 184.
209 frontier Petroleum v Czech Republic, Final Award, 12 November 2010.
210 A t para 300. Footnotes omitted.
158 Standards o f Protection

instruments for purposes other than those for which they were created. It also
includes a conspiracy by state organs to inflict damage upon or to defeat the
investment.
A related but different question is whether ever)'- violation of the standard of FET
requires bad faith. Put differently, is it a valid defence for the host state to argue
that, although its actions may have caused harm to the investor, those actions were
bona, fide and hence could not have violated the FET standard? Arbitral practice
clearly indicates that the FET standard may be violated, even if no mala fides is
involved.211 For instance, the Tribunal in Mondev 212 said:
To the modem eye, what is unfair or inequitable need not equate with the outrageous or the
egregious. In particular, a State may treat foreign investment unfairly and inequitably
without necessarily acting in bad faith,213
The Award in Occidental214 expresses the same idea. In the context of transparency
and consistency as part of the FET standard the Tribunal said:
this is an objective requirement that does not depend on whether the Respondent has
proceeded in good faith or not.215
In CMS v Argentina?·16 the Tribunal, after finding that FET was inseparable from
stability and predictability, stated:
The Tribunal believes rhis is an objective requirement unrelated to whether the Respondent
has had any deliberate intention or bad faith in adopting the measures in question. Of
course, such intention and bad faith can aggravate the situation but are not an essential
element of the standard.217
Similarly, the Tribunal in El Paso v Argentina-18 said diat ‘a violation can be found
even if there is a mere objective disregard of the rights enjoyed by the investor under
the FET standard, and that such a violation does not require subjective bad faith on
the part of the State’.219
O ther tribunals have consistently adopted the same approach .220

211 T h e only contrary indication would be a dictum in Genin v Estonia, Award, 25 June 2001, para
371: ‘any procedural irregularity that may have been present would have to amount to bad faith, a
willful disregard of due process of law' or an extreme insufficiency of action. ’ However, this passage does
not relate to fair and equitable treatm ent but to the standard of arbitrary and discriminatory measures
in Art II (3) (b) of the Estonia-US BIT.
212 M ondev v United. States, Award, 11 October 2002.
213 A t para 116.
214 Occidental v Ecuador, Award, 1 July 2004.
215 A t para 186.
216 C M S v Argentina, Award, 12 May 2005.
217 A t para 280. This passage was quoted approvingly in Vivendi v Argentina, Award, 20 August
2007, para 7.4.12.
21s E l Paso v Argentina, Award, 31 October 2011.
219 A t para 372.
220 Teemed v Mexico, Award, 29 May 2003, para 153; Loewen v United. States, Award, 26 June
2003, para 132; Azurix v Argentina, Award, 14 July 2006, para 372; LG& E v Argentina, Decision on
Liability·, 3 October 2006, para 129; PSEG v Turkey, Award, 19 January 2007, paras 245-6; Siemens v
Argentina, Award, 6 February 2007, para 299; Enron v Argentina, Award, 22 May 2007, para 263;
 Fair' and equitable treatment 159

Freedom, fiv m coercion a n d harassment

The FET standard also applies in situations of coercion and harassment directed
at the investor. In Pope & Talbot v Canadallx SLD, a government regulatory
authority, had launched a Verification review’ against the investor that was con­
frontational and aggressive. The Tribunal held that this investigation was ‘more like
combat than cooperative regulation’.222 It found that these actions by the regula­
tor}'' authority were ‘threats and misrepresentation’, ‘burdensome and confronta­
tional’, and hence a violation of the FET standard .223
In Teemed v Mexico, 22q an unlimited licence for the operation of a landfill had
been replaced by a licence of limited duration. The Tribunal applied a provision in
the BIT between Mexico and Spain guaranteeing FET according to international
law. The Tribunal found that die denial of the permit’s renewal was designed to
force the investor to relocate to another site, bearing the costs and risks of a new
business. The Tribunal said:
Under such circumstances, such pressure involves forms of coercion that may be considered
inconsistent with the fair and equitable treatment to be given to international investments
under Article 4(1) of the Agreement and objectionable from the perspective of international
law.225
In Total v Argentina226 the investor had been forced to accept conditions much less
favourable that originally agreed, including an arrangement under which it had to
surrender receivables in exchange for shares. The Tribunal stated:
This scheme must be considered as a kind of forced, inequitable, debt-for-equity swap, not
due to unfavourable market conditions or a company’s crisis (as is usually the premise of
such swaps in the private market), but due to governmental policy and conduct by
Argentina. As such, in the view of the Tribunal it represents a clear breach of the fair and
equitable treatment obligation of the BIT for which Argentina is liable to pay damages.227
Desert Line v Yemen 228 concerned contracts for the construction of asphalt roads.
A dispute between the parties involved armed threats and arrest of some the
investor’s personnel. Local arbitration resulted in an award of certain sums to the
claimant who was, however, subsequently forced to accept a much reduced amount
in a settlement agreement. The Tribunal found that the settlement agreement had
been imposed upon the claimant under physical and financial duress. It said:

Duke Energy v Ecuador, Award, 18 August 2008. para 341; National Grid v Argentina, Award,
3 November 2008, para 173; Jan de N u l v Egypt, Award, 6 Novem ber 2008, para 185; Bayindir v
Pakistan, Award, 27 August 2009, para 181; R S M v Grenada, Award, 10 December 2010, para 7.2.24.
221 Pope dr Talbot v Canada, Award on Merits, 10 April 2001, paras 156-81,
222 At para 181.
223 Pope & Talbot v Canada, Award on Damages, 31 May 2002, paras 67-9.
224 Teemed v Mexico, Award, 29 May 2003.
22:> Ar para 163. Footnote omitted.
226 Total v Argentina, Decision on Liability, 27 December 2010.
227 At para 338.
228 Desen Line v Yemen, Award, 6 February 2008, paras 151-94.
160 Standards o f Protection

the subjection of the Claimants employees, family members, and equipment to arrest and
armed interference, as well as the subsequent peremptory ‘advice5 that it was ‘in [his]
interest’ to accept that the amount awarded be amputated by half, falls well short of
minimum standards of international law and cannot be the result of an authentic fair and
equitable negotiation.229
In the resulting award, die Tribunal took the unusual step of awarding not onlv
damages for the violation of the FET standard but additionally awarded moral
damages in die amount of US$ 1 million.
In a number of cases tribunals have found that the investors’ allegations were not
proven. These include complaints of a campaign to punish the investor for
publishing material critical to the regime,230 of aggressive tax inspections,231 and
generally of coercion and harassment.232

(i) Conclusion
As demonstrated above, tribunals have applied the FET standard to a number of
typical fact situations and have now developed considerable case law in this area.
The categories outlined above by no means exhaust the possibilities of the FET
standard. W ith the progression of arbitral practice, tribunals are likely to develop
these categories furdier and to add new ones.
Meeting the investor’s central legitimate concerns of legal consistency, stability,
and predictability remains a major, but not the only, ingredient of an investment-
friendly climate in which the host state in turn can reasonably expect to attract
foreign investment. Thus, no inconsistency between the interests of the host state
and those of the investor in regard to the creation of a stable legal framework of the
host state will be diagnosed. Built upon this joint perspective of host state and
investor which informs the agreement laid down in an investment treaty, the
standard of fair and equitable treatment will nevertheless not be understood to
amount to a stabilization clause but will leave a measure of governmental space for
regulation. Presumably, the degree of freedom generally considered appropriate in
domestic legal orders will not be affected. Nevertheless, it is true that in effect the
standard will narrow the discretionary space available to the host state. But it is also
true, in principle, that this specific sort of limitation is indeed necessary to attract
foreign investment and to make it viable in practice.

2. Full protection and security

(a) Concept
At first sight, the traditional notion of ‘full protection and security’ is amorphous
and not readily amenable to operational applicability. However, as is the case for

229 A t para 179.

230 Tokios Tokeles v Ukraine, Award, 26 July 2007, paras 123, 137.
231 A M TO v Ukraine, Award, 26 March 2008, para 96.
 Full protection and security 161

other standards contained in BITs, arbitral jurisprudence has gradually refined the
understanding of the term. This is true both in light of the specificity of the
particular wording of various treaty clauses providing protection and in regard to
die particular issues falling under this concept.
Treaty practice has relied on different formulations and patterns. Whereas the
traditional version (found in a series of US FCN treaties going back to the
nineteenth century )233 relies on the classical version of a guarantee which provides
for ‘full protection and security’, other treaties have deleted the word ‘full1. Another
v a r ia tio n ensures ‘protection in accordance with fair and equitable treatment’.
A simple approach is restricted to the granting o f ‘protection’ (and not ‘security’),
and yet another wording relies on the promise o f ‘legal security’. Other phrases and
combinations will also be found.
These different wordings have to be applied chiefly to three different settings. In
a number of earlier cases, the acts which had harmed the foreign interest were those
of insurgents or rioting groups. In a second group of cases, the governmental police
authorities or military units were involved. Thirdly, more recent cases have ad­
dressed governmental regulatory acts which disturb the legal stability surrounding
the investor’s business.
The breadth of die clause raises issues of delimitation in relation to die scope of
other treaty clauses, for instance fair and equitable treatment or the umbrella clause.
Especially when it comes to protection against the application of laws affecting
the security and protection of the investment, the standard may acquire special
importance if the treaty does not contain other clauses with a broad scope.
Some tribunals have equated the standards of full protection and security with
fair and equitable treatment .234 Other tribunals have found that the two standards
were separate .235

(b) Standard o f liability

There is broad consensus that the standard does not provide absolute protection
against physical or legal infringement. In terms of the law of state responsibility, the
host state is not placed under an obligation of strict liability to prevent such
violations. Rather, it is generally accepted that the host state will have to exercise
‘due diligence’ and will have to take such measures to protect the foreign invest­
ment as are reasonable under the circumstances.236

233 See R W ilson, The International Law Standard in Treaties o f the United States (1952) 92-3;
K Vandevelde. ‘The Bilateral Investm ent Treaty Programme of the United States’ (1988) 21 Cornell
In t’l L] 203, 204.
23'* Wena Hotels v Egypt, Award, 8 December 2000, paras 84—95; Occidental v Ecuador, Award,
1 July 2004, para 187; PSEG v Turkey, Award, 19 January 2007, paras 257-9; National Grid v
Argentina, Award, 3 Novem ber 2008, paras 187, 189.
205 National Grid· v Argentina, Award, 3 November 2008, paras 187-90; Jan d eN u l vEgypt, Award,
6 November 2008, para 269; A zurix v Argentina, Award, 14 July 2006, para 407. The analysis in Suez
v Argentina, Decision on Liability, 30 July 2010, paras 165-7 on this point is ambivalent.
236 R Dolzer and M Stevens, Bilateral Investment Treaties (1995) 61; see Elettronica Simla SpA
(ELSI) (US vitaly), ICJ Reports (1989) 15, para 108; AAPL v Sri. Lanka, Award, 27 June 1990, para
162 Standards o f Protection

At the same time, the standard would be eviscerated and downgraded to

a meaningless requirement if it were assumed— as was the case in LESI v
Algeria237— that it accords no more protection than clauses on national treatment
or most-favoured-nation treatment. Lack of resources to take appropriate action
will not serve as an excuse for the host state .238 Whenever state organs themselves
act in violation of the standard, or significandy contribute to such action, no issues
of attribution or due diligence will arise because the state will then be held directly
responsible.
The standard will not be violated if a state exercises its right to legislate and
regulate and thereby takes reasonable measures under the circumstances.239 Recog­
nition of a state’s police power will not in itself lead to different conclusions; the
existence of this power is consumed in the sovereign right to regulate, within the
boundaries of international law, and does not in itself justify more far-reaching
measures affecting the rights of the investor.240

(c) Protection against physical violence and harassment

The duty to grant physical protection and security may operate in relation to
encroachment by state organs or in relation to private acts. Violence by state organs
was under review in AAPL v Sri Lanka,241 a case in which security forces had
destroyed the investment in the course of a counter-insurgency operation. The
Tribunal reviewed all circumstances and held that these actions were unwarranted
and excessive.
In Wena Hotels v Egypt242 the Tribunal found Egypt liable under the standard
because employees of a state entity had seized the hotel in question and because the
police authorities had been aware of the seizure and had not acted to protect the
investor before or after the invasive action.
In A hdT v Zaire 245 the host country was held liable under a protection and
security clause in the applicable BIT after incidents of looting by elements of the
armed forces.
In Eureko v Poland,244 there was an allegation of harassment of the investor’s
senior representatives. The Tribunal found that there was no violation of the
standard since there was no evidence that the state had authored or instigated

53; TECMED v Mexico, Award, 29 May 2003, para 177; Noble Ventures v Romania, Award,
12 O ctober 2005, para 164; Saluka v Czech Republic, Partial Award, 17 March 2006, para 484;
Suez v Argentina, Decision on Liability, 30 July 2010, para 158.
237 L E SI v Algeria, Award, 12 November 2008, para 174; the BIT applicable to that case required
‘protection et securite constantes, pleines et entieres.
238 B ut see the differentiated analysis in Pantechniki v Albania, Award, 30 July 20G9, paras 71-84.
239 A E S v Hungary, Award, 23 September 2010, para 13.3.2.
240 See Suez v Argentina, Decision on Liability, 30 July 2010, paras 148-50.
241 AAPL v Sri Lanka, Award, 27 June 1990, paras 45 et seq, 78 et seq.
242 Wena Hotels v Egypt, Award, 8 December 2000, para 84.
243 A M T v Zaire, Award, 21 February 1997, paras 6.02 et seq. See also Saluka v Czech Republic,
Partial Award, 17 March 2006, para 483.
244 Eureko v Poland, Partial Award, 19 August 2005, paras 236-7.
 Full protection and security 163

these acts. However, the position might have been different had such actions
occurred repeatedly without protective measures on the part of the state.
Other cases have concerned private violence.245 In the ELSI case,246 a Chamber
of the ICJ applied a provision in an FCN treaty that granted ‘the most constant
protection and security’. One charge by the claimants was that the Italian author­
ities had allowed workers to occupy the factory. The Court found that the response
of the Italian authorities had been adequate under the circumstances.247 The Court
stated that ‘The reference in Article V to the provision of “constant protection and
security” cannot be construed as the giving of a warranty that property shall never
in any circumstances be occupied or disturbed ’.248
In Teemed v Mexico,249 the claimant alleged that the Mexican authorities had not
acted efficiently against ‘social, demonstrations’ and disturbances at the site of the
landfill under dispute. The Tribunal applied a treaty provision guaranteeing ‘full
protection and security to the investments. . . in accordance with International
Law’. It found that there was not sufficient evidence to prove that the Mexican
authorities had encouraged, fostered, or contributed to die actions in question and
that there was no evidence that the authorities had not reacted reasonably .250
Similarly, Noble Ventures v Romania251 involved demonstrations and protests by
employees. The relevant treaty provision stipulated that the ‘Investment shall. ..
enjoy full protection and security’. The Tribunal rejected the claim, finding that it
was difficult to identify any specific failure on the part of Romania to exercise due
diligence in protecting the claimant.252

(d) Legal protection

There is also authority to the effect that the principle of full protection and security
reaches beyond physical violence and requires legal protection for the investor.253
Some treaties explicitly provide for ‘full protection and legal security’.254 However,
case law supports the view that the usual formula of ‘full protection and security’
also provides protection against infringements of the investor’s rights.
In the ELSI case,255 the guarantee o f ‘the most constant protection and security’
was also the basis for a complaint concerning die time taken (16 months) for
a decision on an appeal against an order requisitioning the factory. The ICJ’s

2,15 See also Eastern Sugar v Czech Republic, Partial Award, 27 March 2007, para 203.
- iG Elettronica Sicula SpA (ELSI) (US v Italy), ICJ Reports (1989) 15.
247 At paras 105-8.
248 At para 108.
249 YECMED v Mexico, Award, 29 May 2003.
2:>0 At paras 175-7.
251 Noble Ventures Inc v Romania, Award, 12 October 2005.
252 At paras 164—6.
253 See CSOB v Slovakia, Award, 29 December 2004, para 170; Natiorial Grid v Argentina, Award,
3 Novem ber 2008, paras 187—90; Frontier Petroleum v Czech Republic, Final Award, 12 November
2010, paras 260-73; Total v Argentina, Decision on Liability, 27 December 2010, para 343.
254 See eg Art 4(1) o f the Germany-Argentina BIT of 9 April 1991 (plena protection y seguridad
juridicd).
164 Standards o f Protection

Chamber examined this argument and found that the time taken, though
undoubtedly long, did not violate the treaty standard in view of other procedural
safeguards under Italian law.256
In CME v Czech Republic,257 a regulatory authority had created a legal situation
that enabled the investor’s local partner to terminate the contract on which the
investment depended. The Tribunal said that ‘The host State is obligated to ensure
that neither by amendment of its laws nor by actions of its administrative bodies is
the agreed and approved security and protection of the foreign investor’s invest­
ment withdrawn or devalued’.2?8
The tribunal in Lauder v Czech Republic, however, denied a violation of the
standard on the basis of the same facts. It reached the result that the only duty of the
host state under the ‘protection and security’ clause had been to grant the investor
access to its judicial system.259
In Azurix v Argentina,260 the Tribunal confirmed that ‘full protection and
security may be breached even if no physical violence or damage occurs’:261
T he cases referred to above show th at full protection and security was understood to go
beyond protection and security ensured by the police. It is n o t only a m atter o f physical
security; the stability afforded by a secure investm ent environm ent is as im portant from an
investor's point of view. T he tribunal is aware that in recent free trade agreements signed by
the U nited States, for instance, w ith U ruguay, full protection and security is understood to
be lim ited to the level o f police protection required under custom ary international law.
However, when the terms ‘protection and security’ are qualified by ‘full’ and no other
adjective or explanation, they extend, in their ordinary meaning, the content o f this standard
beyond physical security.262

In Siemens v Argentina 263 the Tribunal derived additional authority for the
proposition that ‘full protection and security’ goes beyond physical security and
extends to legal protection from the fact that the applicable BIT’s definition of
investment also applied to intangible assets:
As a general m atter and based on the definition o f investm ent, which includes tangible and
intangible assets, the T ribunal considers that the obligation to provide frill protection and
security is wider than ‘physical’ protection and security. It is difficult to understand how the
physical security of an intangible asset w ould be achieved.264

In Vivendi v Argentina,265 the Tribunal had to apply a clause requiring ‘full

protection and security in accordance with the principle of fair and equitable

256 At para 109.

257 CME v Czech Republic, Partial Award, 13 September 2001. para 613.
258 At para 613.
2?9 Lauder v Czech Republic, Award, 3 September 2001, para 314.
260 Azurix v Argentina, Award, 14 July 2006.
261 At para 406.
262 At para 408.
263 Siemens v Argentina, Award, 6 February 2007.
264 At para 303.
265 Vivendi v Argentina, Award, 20 August 2007.
 Full protection and security 165

treatment’. The Tribunal found that the scope of such a provision is not limited to
safeguarding ‘physical possession or the legally protected terms of the operation of
the investment’.266
Sempra v Argentina167 recognized that the standard has traditionally developed in
the context of physical protection of the investment, but that exceptionally a
broader interpretation would be possible.
The investor may also have to take active measures to protect the investment,
In GEA v Ukraine,26& the claimant argued that the host state should have
initiated proceedings to inquire into a theft of the claimant’s property. The
Tribunal rejected the claim because the claimant itself had not brought a criminal
complaint.
Biwater Gaujf v Tanzania269 confirmed that the guarantee of ‘full security’
extends to actions both of the host state and of third parties.2'"0 Due diligence is
not observed in the case of failure ‘to take reasonable, precautionary and preventive
action’ to protect an investment.271 Full protection implies ‘a State’s guarantee to
stability in a secure environment, both physical, commercial and legal’.272
Some tribunals have denied the applicability of this standard to legal protection.
According to Suez v Argentina275 the concept of ‘full protection and security’
would not cover issues of legal security. The Tribunal assumed, as did Rumeli v
Kazakhstan274 diat the traditional interpretation given to this term stands in the
way of an understanding that would extend to a broader construction; without
further explanation, the Suez Tribunal also stated that this view is supported by a
textual method of interpretation .275
In this context it is doubtful whether it is useful to distinguish ‘full protection
and security’ from ‘protection and security’ and to assume that the absence of the
word ‘full’ means that the standard must be given a narrower meaning which
extends to physical security only .2/6
The Tribunal in Parkerings v Lithuania2''7 ruled that ‘full protection and
security’ not only requires the prevention of damage, but also requires the host
state ‘to restore the previous situation’ and ‘to punish the author of the injury’.

266 At para 7-4.15. Cited approvingly in A E S v Hungary, Award, 23 September 2010, para 13.3.2,
267 Sempra v Argentina, Award, 28 September 2007, para 323.
268 GEA v Ukraine, Award, 31 March 2011, para 247.
269 Biwater G a u jf v Tanzania, Award, 24 July 2008.
2/0 At para 730.
2/1 At para 725.
272 At para 729.
273 Suez v Argentina, Decision on Liability, 30 July 2010, paras 158-73.
2/‘1 Rumeli v Kazakhstan, Award, 29 July 2008, para 668. See also BG Group v Argentina, Final
Award, 24 December 2007, paras 323-8.
2/5 At para 171.
276 See Parkerings v Lithuania, Award, 11 September 2007, para 354. But see also the discussion in
Suez v Argentina, Decision on Liability, 30 July 2010, paras 161 et seq, in particular para 169.
2// Parkerings v Lithuania, Award, 11 September 2007, para 355.
166 Standards o f Protection

(e) Relationship to customary international law

Some treaty provisions on protection and security tie the standard to general
international law (‘full protection and security in accordance with international
law’), parallel to the practice on fair and equitable treatment. Other treaties refer to
protection and security and to treatment in accordance with international law as
separate standards, suggesting that the two are not identical.
The question remains whether an unqualified reference to ‘full protection and
security’ provides an autonomous treaty standard or merely serves to incorporate
customary law. To clarify the issue for purposes of die NAFTA, the three parties
have stated in a Note of Interpretation that die provision on full protection and
security in Article 1105(1) embodies customary law,278 as they also did in regard to
fair and equitable treatment. In other words, the NAFTA parties assume that the
standard reflects those requirements embodied in the concept of the minimum
standard on the level of general international law as applied to aliens.279
In the ELSI case, the ICJ suggested that the standard ‘may go further’ than
general international law,280 even though the clause in the relevant treaty contained
a reference to international law (‘full protection and security required by inter­
national law’). By contrast, some tribunals have expressed the view that this
standard is no more than the traditional obligation to protect aliens under custom­
ary international law.281

3. T h e um brella clause

(a) M eaning and origin

An umbrella clause is a provision in an investment protection treaty that guarantees
the observance of obligations assumed by the host state vis-a-vis the investor. These
clauses are referred to as ‘umbrella clauses’ because they bring contractual and
other commitments under the treaty’s protective umbrella. At times they are also
referred to as ‘observance of undertakings clauses’.282 The most contentious issue
in relation to clauses of this kind is whether, and in what circumstances, they
place contracts between the host state and the investor under the treaty’s protec­
tion. A typical umbrella clause in a contemporary version is Article 2(2) of the
British Model Treaty: ‘Each Contracting Party shall observe any obligation it may

27S NAFTA Free Trade Commission, Interprerative N ore of 31 July 2001, cited in Mondev v
United States, Award, 11 October 2002, para 101.
279 See pp 136 et seq.
280 Elettronica Sictda SpA (ELSI) (US v Italy), ICJ Reports (1989) 15, para 111.
281 Noble Ventures v Romania, Award, 12 October 2005, para 164; E l Paso v Argentina, Award,
31 October 2011, para 522.
282 For a general overview, see K Yannaca-Smali, ‘W hat About This “Umbrella Clause’” in
K Yannaca-Small (ed), Arbitration Under International Investment Agreements (2010) 479.
 The umbrella clause 167

h a v e e n t e r e d i n t o w i t h r e g a r d t o in v e s tm e n ts o f n a ti o n a ls o r c o m p a n i e s o f th e o t h e r
Party.’
C o n tra c tin g
The German Model Treaty contains a similar clause in Article 8(2). Many, but
by no means all, BITs contain clauses of this type. The ECT offers such a clause in
Article 10(1),2S3 but the NAFTA does not contain an umbrella clause.
The wording of umbrella clauses in investment treaties is not uniform. A general
discussion must allow for the variation in language of these clauses and the resulting
diiferences in interpretation. Some treaties follow the British model quoted above,
whereas other treaties use more detailed wording. The investment protection treaty-
concluded between France and tdong Kong in 1995 states in Article III:
■Without prejudice to the provisions o f this A greem ent, each C ontracting Party shall observe
any particular obligation it m ay have entered into w ith regard to investm ents o f investors o f
the other C ontracting Party, including provisions m ore favourable than those of this
Agreement.

A provision that addresses the future legal order of the host state is not an umbrella
clause properly speaking:
Each contracting Party shall create and m aintain in its territory a legal fram ework apt to
guarantee to investors the continuity o f legal treatm ent, including the com pliance, in good
faith, o f ail undertakings assum ed w ith regard to each specific investor.284

Umbrella clauses are by no means of recent vintage .285 The BIT between Germany
and Pakistan of 1959— the first modern investment treaty— already contained a
clause of the same kind as the curren t German Model Treaty. In 1959, the German
Government informed the German Parliament about the effect of an umbrella
clause: ‘The violation of such an obligation [of an investment agreement] accord­
ingly will also amount to a violation of the international legal obligation contained
in the present Treaty .’286
The historical-legal context in which the origin of the clause must be assessed
pertains to the post-1945 controversies about the status of investment agreements
as contracts subject to the domestic laws of the host state or, alternatively, as
undertakings on the level of international law .287 In 1929, the PCIJ ruled in the
Serbian Loans case that ‘[a]ny contract which is not a contract between States in

283 E CT. Art 10(1), last sentence: ‘Each Contracting Party shall observe any obligation it has
entered into w ith an Investor or an Investment of an Investor of any other Contracting Party.’
284 β|-ρ k etween Italy and Jordan, Art 2(4). See Salmi v Jordan, Decision on Jurisdiction,
29 November 2004, para 126.
283 For discussion on the origin of the clause, see A Sinclair, ‘ “The Origins of the Umbrella Clause”:
The International Law o f Investment Protection’ (2004) 4 Arbitration International 411.
286 Translation by the authors. For the original German text, see J Alenfeld, Die Investitionsforder-
ungsvertrdge der Bundesrepublik Deutschland (1971) 97, note 180.
2S/ See eg F A M ann, ‘State Contracts and State Responsibility’ (1960) 54 AJIL 572; R Jennings,
‘State Contracts in International Law’ (1961) 37 BYBIL 156; S Schwebel, ‘International Protection of
Contractual Agreements’ (1959) A SIL Proceedings 273; A Verdross, ‘Protection of Private Property
under Quasi-International Agreements’ (1959) Ned.erlands Tijdscbrijt. voor Interriationaal Recbt 355;
C Hyde, ‘Economic Development Agreements’ (1962-1) 105 Receuil des Cours de lAcademie de droit
international 267.
168 Standards o f Protection

their capacity as subjects of international law is based on the municipal law of some
country ’.288
Contract claims may be put under the protection of a treaty and be referred to
international adjudication. This point is made in Oppenheim’s International Law
in the following words:
It is doubtful whether a breach by a stare of its contractual obligations with aliens constitutes
per se a breach of an international obligation, unless there is some such additional element as
denial of justice, or expropriation, or breach of rreaty, in which case it is that additional
element which will constitute the basis for the state’s international responsibility. However,
either by virtue of a term in the contract itself o r of an agreement between the state and the
alien, or by virtue of an agreement between the state allegedly in breach of its contractual
obligations and the state of which the alien is a national, disputes as to compliance with the
terms of contracts may be referred to an internationally composed tribunal, applying, at least
in part, international law.239
After 1945, projects for large-scale foreign investments prompted the question
whether guarantees given under the domestic law of the host siate provided
sufficient legal stability to justify the required expenditures for such projects.
Umbrella clauses were seen as a bridge between private contractual arrangements,
the domestic law of the host state, and public international law allowing for more
investor security. One effect of these clauses is to blur the distinction between
investment arbitration and commercial arbitration.
An umbrella clause in a rreaty protects a contract that an investor has entered
into with the host state and is an expression of the maxim pacta sunt servanda. It
follows that in the presence of an umbrella clause a breach by the host country of an
investment contract with the foreign investor constitutes a violation of the treaty
and can be raised in international arbitration.
Until 2003, the umbrella clause received little attention in academic discussion
or arbitral practice, aithough it was often reflected in treaties. Those few authors
who drew attention to the clause essentially shared the German view of the purpose
of the clause as a means to elevate violations of investment contracts to the level of
international law.290 However, this phase of unanimity came to an end with the

2SS Judgm ent, No 14, PCIJ, Series A, N o 20, 41; see also Noble Ventures v Romania, Award,
12 O ctober 2005, para 53; ‘T he T ribunal recalls the well established rule of general international law
that in normal circumstances per se a breach of a contract by die Stare does not give rise to direct
international responsibility on the p an o f the State.’
- S9 R Jennings and A W atts, Oppenheim’s International Law, 9th edn (1996), vol 1, 927. Footnotes
omitted.
290 See eg P Weil, ‘Problemes relatifs aux contracs passes entre un Etat et un particulier’ (1969) 128
Recueil des Cours de I'Academie de droit international 130; F A M ann, ‘British Treaties for the
Prom otion and Protection of Investm ents’ (1981) BYBIL 241, 246: R D olzer a n d M Stevens, Bilateral
Investment Treaties (1995) 81; I Shihata, ‘Applicable Law in International Arbitration: S p e c if ic Aspects
in Case o f the Involvement of State Parties’ in I Shihata and D W olfensohn (eds), The World Bank in a
Changing World. Selected Essays and Lectures, vol II (1995) 601; more recently, see C Schreuer,
‘Travelling the BIT-Route— O f W aiting Periods, Umbrella Clauses and Forks in the Road’ (2004)
5 ] World Investment and Trade 231, 250.
 The umbrella clause 169

arbitral decision in SGS v Pakistan in 2003291 which departed fundamentally from

the conventional understanding of the clause. Ever since this ruling, the purpose,
meaning, and scope of the clause have caused controversy and given rise to
disturbingly divergent lines of jurisprudence.

(b) Effective application of umbrella clauses

One line of decisions gives full effect to umbrella clauses. This practice is best
represented by Noble Ventures v Romaniai292 where the Tribunal had to interpret
and apply the following clause in Article 11(2) (c) of the BIT between the United
States and Romania: ‘Each party shall observe any obligation it may have entered
into with regard to investments.’ The US claimant in this case argued, inter alia,
that Romania had breached the umbrella clause by failing to abide by its contractual
obligation to renegotiate the debts of a formerly state-owned company acquired by
the investor. The Tribunal insisted on the specificity of each umbrella clause,
distinguishing earlier cases on this basis. The ruling emphasized that the wording
obviously referred to investment contracts.293 Consistent with Article 31 of die
VCLT, it emphasized the object and purpose of investment treaties.294 In the view
of the Tribunal:
w o States m ay include in a bilateral investm ent treaty a provision to the effect that, in the
interest o f achieving the objects and goals o f the treaty, the host State m ay incur inter­
national responsibility by reason o f a breach o f its contractual obligations towards the private
investor o f the other Party, the breach o f contract being thus ‘internationalized’, i.e.
assimilated to a breach o f the treaty.295
. . . [I]n including Art. 11(2) (c) in the BIT, the Parties had as their aim to equate
contractual obligations governed by m unicipal law to international treaty obligations as
established in the BIT.
By reason therefore o f the inclusion o f Art. 11(2) (c) in the BIT, the T ribunal therefore
considers the C laim ant’s claims o f breach o f contract on the basis that any such breach
constitutes a breach o f the B IT .296

In the event, the Tribunal found that Romania had not violated its contractual
obligation, and the Tribunal left open the question whether the wide scope of an
umbrella clause has to be narrowed in some wray.297
The Noble Ventures Tribunal was not the first to accord a broad or full scope to
the clause. In SGS v Philippines,298 the Tribunal, in its Decision on Jurisdiction,

291 SG S v Pakistan, Decision on Jurisdiction, 6 August 2003.

292 Noble Ventures v Romania, Award, 12 October 2005.
293 At para 51.
294 At para 52.
295 At para 64. See also at para 85: ‘where the acts of a governmental agency are to be attributed to
the Stare for the purposes o f applying an umbrella clause, such as Art. II(2)(c) of riie BIT, breaches of a
contract into which the State has entered are capable of constituting a breach of international law by
virtue o f the breach o f the umbrella c la u s e Emphasis in original.
296 At paras 61, 62.
297 At para 61.
29S SG S v Philippines, Decision on Jurisdiction, 29 January 2004.
170 Standards o f Protection

also ruled that in the presence of an umbrella clause in the Philippines-Swiss BIT, a
violation of an investment agreement will lead to a violation of the investment
treaty: ‘Article X(2 ) [the umbrella clause] means what it says.’299 The Tribunal
stated:
Article X(2) makes it a breach o f the B IT for the host State to fail to observe binding
com m itm ents, including contractual com m itm ents, w hich it has assum ed w ith regard to
specific investments. B ut it does n o t convert the issue o f the extent or content o f such
obligations into an issue o f international law. T h a t issue (in the present case, the issue o f how
m uch is payable for services provided under the CISS Agreem ent) is still governed by the
investm ent agreem ent.300

However, SGS v Philippines did not cany this approach to its logical conclusion.
Instead the Tribunal assumed that, due to the existence of a forum selection clause
in favour of the courts of the host state, the Philippine courts were to rule on the
obligations contained in the investment contract.301
In Eureko v Poland302 the Tribunal had to rule on the umbrella clause in Article
3.5 of the treat}'· between the Nedierlands and Poland. The Tribunal considered the
ordinary meaning, the context of the clause, and the maxim of effet utile. It
concluded that breaches by Poland of its obligations under the contracts could be
breaches of the BIT’s umbrella clause, even if they did not violate the BIT’s other
standards.303 The Tribunal said:
T he plain meaning— the ‘ordinary m eaning’— o f a provision prescribing drat a State ‘shall
observe any obligation it m ay have entered in to ’ w ith regard to certain foreign investm ent is
not obscure. T he phrase, ‘shall observe’ is im perative and categorical. A n y ’ obligations is
capacious; it means n o t only obligations o f a certain type, b u t ‘any’-—that is to say, all—
obligations entered into w ith regard to investm ents o f investors o f the other C ontracting
P a rty .. . . T h e context o f Article 3.5 [the um brella clause] is a T reaty whose object and
purpose is ‘the encouragem ent and reciprocal protection o f investm ent’, a treaty which
contains specific provisions designed to accom plish that end, o f w hich Article 3.5 is one. It is
a cardinal rule of the interpretation o f treaties th at each and every operative clause o f a treaty
is to be interpreted as m eaningful rather than m eaningless.304

In the event, the Tribunal found that Poland had violated its obligations arising
from a privatization scheme vis-a-vis the investor.

299 Ar para 119.

300 A t para 128. Emphasis in original.
301 A t para 155:
T he Philippine courts are available to hear SGS’s contract claim. U ntil the question of the
scope or extent of the Respondent’s obligation to pay is clarified— whether by agreement
between the parties or by proceedings in the Philippine courts as provided for in Article 12
of the CISS Agreement— a decision by this T ribunal on SGS’s claim to payment would be
premature.
For a critical review, see C Schreuer, ‘Calvo’s Grandchildren; The Return of Local Remedies in
Investment Arbitration’ (2004) Law & Practice o f I n t ’l Courts and Tribunals 1,1 1 .
302 Eureko v Poland, Partial Award, 19 August 2005; for a critical review, see Z Douglas, ‘Nothing if
not Critical for Investment Treat}'· Arbitration: Occidental, Eureko and Methanex (2006) 22 Arbitration
International 27.
303 At para 250. 304 At paras 246, 248.
 The umbrella clause 171

In SGS v Paraguay the claim was for unpaid bills under a contract between the
investor and the state for the pre-shipment inspection of goods. The BIT between
S w itz e r la n d and Paraguay provided in Article 11 that ‘[ejither Contracting Party
shall constantly guarantee the observance of the commitments it has entered into
with respect to the investments of the investors of the other Contracting Party’. The
T r i b u n a l rejected a restrictive interpretation of this umbrella clause based either on
the nature of the contract or on the nature of its breach. It said:
Article 11 does not exclude commercial contracts o f the State from its scope. Likewise,
Article 11 does n o t state that its constant guarantee o f observance o f such com m itm ents may
be breached only through actions that a comm ercial counterparty cannot take, through
abuses o f state power, or through exertions o f undue governm ent influence.305
. . . Article 11 requires the ‘observance’ o f com m itm ents. Also as a m atter o f the ordinary
m eaning o f the term , a failure to m eet one’s obligations under a contract is clearly a failure
to ‘observe’ one’s com m itm ents. T here is nothing in Article 11 that states or implies that a
governm ent will only fail to observe its com m itm ents if it abuses its sovereign authority.306

In a number of other decisions tribunals similarly gave full effect to umbrella

clauses and confirmed that, by virtue of such a clause, failure by the host state to
meet obligations assumed in relation to investments amounted to a breach of the
treaty .307

(c) Restrictive application o f umbrella clauses

In a series o f other cases tribunals have imposed various limitations on the applica­
tion of the umbrella clause.308 In SGS v Pakistan309 the Swiss claimant had
concluded a contract with Pakistan on pre-shipment inspection services with a
forum selection clause for Pakistani courts. W hen Pakistan unilaterally terminated
the contract, the claimant started proceedings at the International Centre for
Settlement of Investment Disputes (ICSID) under the BIT between Pakistan and
Switzerland. The BIT contained the following clause: ‘Either Contracting Party
shall constantly guarantee the observance of the commitments it has entered into
with respect to the investments of the investors of the other Contracting Party.’
The Tribunal found that the proper mode of interpretation was a res trictive one
{in dubio mitius).310 The Tribunal made no reference to the modes of interpret­
ation laid down in Article 31 of the VCLT which does not in its wording embrace

305 SGS v Paraguay, Decision on Jurisdiction, 12 February 2010, para 168.

306 SG S v Paraguay, Award, 10 February 2012, para 91.
307 LG & E v Argentina, Decision on Liability, 3 October 2006, paras 164—75; Siemens v Argentina,
Award, 6 February 2007, paras 196-206; Plama v Bulgaria, Award, 27 Augusc 2008, paras 185-7;
Duke Energy v Ecuador, Award, 18 Augusc 2008, paras 314-25; A M T O v Ukraine, Award, 26 March
2008, paras 109-12.
308 For a critical evaluation, see S W Schill, ‘Umbrella Clauses as Public Lawr Concepts in
Comparative Perspective’ in S W Schill (ed), International Investment Law and Comparative Public
Laiu (2010) 317.
309 s g s v Pakistan^ Decision on Jurisdiction, 6 August 2003.
350 At para 171.
172 Standards o f Protection

this maxim. In light of this interpretative approach, the Tribunal concluded that
any other understanding would have a far-reaching impact on the sovereignty of the
host state which could not be presumed in the absence of a clear expression of a
corresponding will by the parties.311
The Tribunal presented four arguments in support of this position. First, the
conventional view would also cover non-contractual obligations arising under the
laws of the host state, including the smallest types of commitment, and would lead
to a flood of lawsuits before international tribunals .312 Secondly, the conventional
view would make other guarantees contained in investment treaties superfluous
because even a violation of a small obligation would allow a lawsuit.313 Thirdly the
Tribunal considered that the location of the umbrella clause not in die substantive
guarantees but towards the end of the treaty spoke against a far-reaching obliga­
tion .314 And, fourthly, it pointed out diat the forum selection in investment
agreements would, under die conventional view, not be binding for die investor
whereas die host state would be bound to honour such clauses.315 The Tribunal did
not refer to the distinction between ‘commercial acts’ and ‘sovereign acts’.
The Tribunal denied that its position would deprive an umbrella clause of its
meaning. It pointed out that the clause would be relevant in die context of
implementation of the investment treaty 111 the domestic legal order or if the host
state failed to participate in international proceedings to which it had agreed
earlier.316
This decision was widely criticized.317 The sharpest criticism came from the
Tribunal in SGS v Philippines318 but commentators also pointed to weaknesses of
the decision.319 The most vulnerable aspect of the decision is the lack of any
attempt to ground the method of interpretation in the accepted canons embodied
in Article 31 of the VCLT.
For a while it seemed as though SGS v Pakistan would remain an isolated
decision. But the decision has also found a measure of support.320 In 2006, two
nearly identical decisions— in El Paso v Argentina321 and in Pan America v

311 At paras 167) 168. 312 Ar paras 166, 168. 313 At para 168.
314 Ar para 169. 315 At para 168. 316 At para 172.
3i 7 Governm ent of Switzerland took the unusual step of expressing its disapproval and concern
over die decision in a letter o f 1 October 2003 to the D eputy Secretary-General of ICSID.
3,8 SGS v Philippines, Decision on Jurisdiction, 29 January 2004, para 125: 'Noc only are the
reasons given by the Tribunal in SGS v Pakistan unconvincing: the Tribunal failed to give any clear
meaning co the “umbrella clause”.’ See also Eureko v Poland, Partial Award, 19 August 2005, para 257.
319 S A Alexandrov, ‘Breaches of Contract and Breaches of Treaty, The Jurisdiction of Treaty-based
Arbitration Tribunals to Decide Breach of Contract Claims in SGS v Pakistan and SGS v Philippines'
(2004) 5 J World Investment and. Trade 555, 569; C Schreuer ‘Travelling die BIT-Route— O fW aiting
Periods, Umbrella Clauses and Forks in the Road’ (2004) J World Investment and Trade 231, 253;
T Walde, ‘The “Umbrella Clause” in Investment Arbitration— A C om m ent on Original Intentions
and Recent Cases’ (2005) 6 J World Investment and- Trade 183, 225; E Gaillard, La jurisprudence du
C IRD I (2004) 834.'
320 See eg Toto Costruzioni Generali v Lebanon, Decision on Jurisdiction, 11 September 2009, paras
187-202.
321 El Paso Energ}! v Argentina, Decision on Jurisdiction, 27 April 2006.
 The umbrella clause 173

Argentina322— explicitly supported the first ana second arguments set out in SGS v
Pakistan (flood of lawsuits, overreach because of wider scope than other treaty
guarantees).323 But unlike SGS v Pakistan, the Tribunals then introduced the
distinction between the state as a merchant and the state as a sovereign. It
concluded, with a broad brush, that investment arbitration will cover only disputes
concerning investment agreements or state contracts in which the state is involved
‘as a sovereign’ but not mere commercial contracts.324 The Tribunal in E l Paso
sought to establish a balance between the interests of the host state and those of the
investor:
This T ribunal considers that a balanced interpretation is needed, talcing into account both
State sovereignty and the State’s responsibility to create an adapted and evolutionary
framework for the developm ent o f econom ic activities, and the necessity to protect foreign
investm ent and its continuing flow.325

Thus, the decisions in El Paso and in Pan. American did not restrict the scope of the
umbrella clause as drastically as SGS v Pakistan. They accept that obligations in
investment agreements are covered by the clause to die extent that they bind the
state in its sovereign capacity. Essentially, the two decisions seem to echo the
French concept of contrat administmtif? 26
The distinction between different types of investment agreement was subse­
quently rejected in the Award in Siemens v Argentina?27 where the Tribunal stated
that:
T he T ribunal does n o t subscribe to the view o f the R espondent that investm ent agreem ents
should be distinguished from concession agreements o f an adm inistrative nature. Such
distinction has no basis in Article 7(2) o f the T reaty w hich refers to ‘any obligations’, or
in the definition o f ‘investm ent’ in the Treaty. Any agreem ent related to an investm ent that
qualifies as such under the Treaty would be part o f the obligations covered under the
um brella clause.328

Another approach to limiting the effect of the umbrella clause does not look at the
nature of the affected contract but at the nature or magnitude of its violation. The

322 Pan America/BP v Argentina, Decision on Preliminary Objections, 27 Juiy 2006; two out of the
three arbitrators were the same as in the Ε ί Paso decision.
323 See E l Paso Energy v Argentina, Decision on Jurisdiction, 27 April 2006, paras 7 2 -4 ; Pan
America/BP v Argentina, Decision on Preliminary Objections, 27 July 2006, paras 101—3.
32“ See El Paso Energy v Argentina, Decision on Jurisdiction, 27 April 2006, paras 77 et seq; Pan
America/BP v Argentina, Decision on Preliminary Objections, 27 July 2006, para 108; in Salini v
Jordan, Award, 31 January 2006, para 155, the Tribunal had stated, in categorical terms: O n ly the
State, in die exercise o f its sovereign authority, and not as a contracting party, has assumed obligations
under the bilateral agreement.’
325 El Paso Energy v Argentina, Decision on Jurisdiction, 27 April 2006, para 70.
326 position is contrary to the position taken by arbitrator Ren e-Jean Dupuy in Texaco v Libya,
53 ILR (1979) 389, para 72 who had held that die theory of administrative contracts had no place in
international law. See also A R A M CO v Saudi Arabia, 27 ILR (1963) 117, 164.
32/ Siemens v Argentina, Award, 6 February 2007.
328 At para 206.
174 Standards o f Protection

Tribunal in CMS v Argentina referred to the distinction between governmental and

commercial actions and the significance of the interference with the contract:
the tribunal believes the R espondent is correct in arguing that n o t all contract breaches result
in breaches o f the treaty. T he standard o f protection o f the treaty will be engaged only when
there is a specific breach o f treaty rights and obligations or a violation o f contract rights
protected under the treaty. Purely com m ercial aspects o f a contract m ight n o t be protected
by the treaty in some situations, b u t the protection is likely to be available w hen there is
significant interference by governm ents or public agencies w ith the rights o f the investor.329

Similarly, in Sempra v Argentina330 the Tribunal held that ordinary commercial

breaches of a contract would not violate the umbrella clause in the Argentina-US
BIT. Only a breach in die exercise of a sovereign state function or power but not
the conduct of an ordinary contract party could effect a breach. In the particular
case, die Tribunal found that the sweeping changes that Argentina had introduced
were not ordinary contractual breaches but had been brought about in exercise of
the state’s public function. Therefore, it concluded that breaches of the obligations
in question had resulted in a breach of the umbrella clause.331
An examination of the current strands of jurisprudence shows clearly conflicting
positions. The survey of the jurisprudence interpreting the umbrella clause indi­
cates that the understanding of the rule remains in a state of flux. However, a
terminological observation and a comment on the discussion of the substance of the
clause are appropriate at this stage. The terminological point concerns the distinc­
tion between ‘treaty claims’ and ‘contract claims’, introduced by the Vivendi
Annulment Committee and subsequently often relied upon by tribunals.332
While die simplicity of the distinction may have seemed helpful for analytical
purposes at the outset, die current position of jurisprudence on the umbrella clause
suggests diat the contrasting of ‘treaty claims’ and ‘contract claims’ does not
facilitate an understanding of the scope of the clause. The crucial point lies in
recognition that certain (or all) types of violations of contracts between the state and
the investor will, in the presence of an umbrella clause, amount to a violation of die
investment treaty.
States entering into an investment treaty are free to fashion the scope of the
treaty and the guarantees granted therein. If the parties choose to extend the scope
of the agreement beyond the confines of the classical understanding of an invest­
ment treaty and also cover, to some extent, operations previously deemed ‘com­
mercial’ or ‘contractual’ in nature, conventional terminology cannot stand in the

329 CMS v Argentina, Award, 12 May 2005, para 299.

330 Sempra v Argentina, Award, 28 September 2007.
331 At paras 305-14.
332 Vivendi v Argentina, Decision on A nnulm ent, 3 July 2002, paras 98, 101:
In a case where the essential basis o f a claim brought before an international tribunal is a
breach o f contract, the tribunal will give effect to any valid choice of forum clause in the
contract.. . . O n the other hand, where the fundamental basis o f the claim is a treaty laying
down an independent standard by which the conduct o f the parties is to be judged, the
existence of an exclusive jurisdiction clause in a contract between the claimant and the
respondent state cannot operate as a bar to the application of the rreaty standard.
 The umbrella clause 175

way of the parties’ intentions. For this reason, any attempt to define the scope of the
umbrella clause by reference to abstract concepts such as ‘sovereign acts’, ‘commer­
cial acts’, or ‘contrats administratifs will carry no methodological power of persua­
sion when it comes to interpreting and applying the clause. Ultimately, no
justification exists for ignoring or revising the canons of interpretation laid down
in Article 31 of the VCLT. References to conventional terminological distinctions
or to categories of a specific domestic legal, order have no place within this canon.

(d) Umbrella clauses and privity of contract

In principle, contracts to which an umbrella clause is to apply would be between
the disputing parties, that is, a state and a foreign investor. But in some cases the
disputing parties and the parties to the contract on which the investor relies for the
purposes of the umbrella clause are not identical. O n the host state’s side, the party
to the contract may be a state entity or a territorial subdivision radier than the state
itself. O n the investor’s side, the party to the contract may not be die foreign
investor itself but its subsidiary in the host state. In these situations, the question
arises whether an umbrella clause will protect a contract that is not directly between
the host state and die investor.333
Noble Ventures v Romania 334 concerned a contract between the claimant and the
Romanian ‘State Ownership Fund’, a separate legal entity. The Tribunal reached
the conclusion that the contractual conduct of the Fund had to be attributed to the
Romanian Government in view of the grant of governmental power to the Fund.
The Tribunal found that, for the purposes of attribution, the distinction between
commercial acts and sovereign acts had no relevance.335 It followed that the
umbrella clause was applicable to the contract. The Tribunal said:
where the acts o f a governm ental agency are to be attributed to the State for the purposes o f
applying an um brella clause, such as Art. II(2)(c) o f the BIT, breaches o f a contract into
which the State has entered are capable o f constituting a breach o f international law by virtue
o f the breach o f the um brella c la u s e ? ^

In a series of other decisions, tribunals found that the umbrella clause was inapplic­
able where the state had not contracted in its own name .337 In Impregilo v
Pakistan?^* the contracts had been concluded not with Pakistan directly but
with the Pakistan Water and Power Development Authority. The claimant wanted
to benefit from an umbrella clause in a third country BIT byway of an M FN clause
contained in die BIT between Italy and Pakistan. The Tribunal found that

333 s ee N Q aIlUSj ‘An Umbrella just for Two? BIT Obligations Observance Clauses and die Pardes
to a C ontract’ (2008) 24 Arbitration International 157.
33<1 Noble Ventures v Romania, Award, 12 October 2005.
335 At para 82.
°36 At para 85. Emphasis in original.
337 A zurix v Argentina, Award, 14 July 2006, paras 52, 384; AJvITO v Ukraine, Award, 26 March
2008, paras 109-12; E D F v Romania, Award, 8 October 2009, paras 317, 318; Hamester v Ghana,
Award, 18 June 2010, paras 339-50.
^38 l mp regil0 v Pakistan, Decision on Jurisdiction, 22 April 2005.
176 Standards o f Protection

contracts concluded by a separate entity of Paldstan would not be protected by an

umbrella clause,339 A similar problem arises on the investor’s side when it operates
through a local company that enters into a contract. The question then arises
whether the foreign investor may rely on the umbrella clause in relation to a
contract to which it is not a party. The ECT in Article 10(1) gives an affirmative
answer to this question by referring to ‘any obligations it has entered into with an
Investor or an Investment o f an Investor .34°
Most BITs do not contain a clarification of this kind. The practice of tribunals is
divided on whether foreign investors are entitled to protection under umbrella
clauses for claims arising from the contracts of their local subsidiaries. Some
tribunals have allowed claims of this nature.
In Continental Casualty v Argentina}1'11 the investor’s local subsidiary, CNA, had
entered into a number of contracts with Argentina. The claimant invoked the
umbrella clause in respect of these contracts342 and the Tribunal left no doubt that
the umbrella clause covered contracts concluded by the investor’s subsidiary. The
Tribunal stated, with respect to obligations covered by the umbrella clause in
Article 11(2) (c) of the Argentina-US BIT:
provided that these obligations have been entered ‘w ith regard’ to investm ents, they may
have been entered w ith persons or entities other than foreign investors themselves, so that an
undertaking by the host State w ith a subsidiary such as C N A is not in principle excluded.343

Other tribunals have similarly extended the effect of umbrella clauses to contracts
entered into by local subsidiaries of the foreign investors.344
In another group of cases, tribunals have concluded that successful invocation of
the umbrella clause requires that die contract is directly with the foreign investor
and not with its local subsidiary.345 In Azurix v Argentina,346 a concession agree­
ment had been concluded between a province of Argentina and the subsidiary of
Azurix ABA. The Tribunal recalled that Azurix and the respondent had no
contractual relationship: the obligations undertaken in the concession contract

339 para 223.

340 Emphasis added. The Reader’s Guide to the E CT offers die following explanation: ‘This
provision covers any contract that a host country has concluded widi a subsidiary of die foreign
investor in the host country, or a contract between the host country and the parent company of the
subsidiary.’ See also A M T O v Ukraine, Award, 26 March 2008, para 110.
341 Continental Casualty v Argentina, Award, 5 September 2008.
342 A t para 288.
3,113 A t para 297. See also para 98.
344 CMS v Argentina, Award. 12 May 2005, paras 296-303; Enron v Argentina, Award, 22 May
2007, paras 269-77. The ad hoc Committee declined to annul this part o f the Award: Decision on
Annulm ent, 30 July 2010, paras 317-46; Sempra v Argentina, Award, 28 September 2007, paras 308-
14; Duke Energy v Ecuador, Award, 18 August 2008, paras 314—25.
345 Siemens v Argentina, Award, 6 February 2007, paras 204—6; BG Group v Argentina, Final
Award, 24 December 2007, paras 206-15, 361-6; E l Paso v Argentina, Award, 31 October 2011, paras
531-8.
3^6 v Argentina, Award, 14 July 2006,
 The ■
.umbrella clause 177

were undertaken by the province, not Argentina, in favour of ABA, not Azurix.347
The Tribunal said:
there is no undertaking to be honored by A rg en tin a to Azurix other than the obligations
under the BIT. Even if for a rg u m e n t’s sake, it would be possible un d er Article II(2)(c) [the
um brella clause] to hold A rg e n tin a responsible for the alleged breaches o f the Concession
Agreem ent by the Province, it was ABA and not Azurix w hich w as the party to this
A greem ent.348

In CMS v Argentina, the claimant was a minority shareholder in a local company

TGN. The Tribunal had allowed the application of the umbrella clause with
respect to a licence obtained by T G N .349 In proceedings for the Award’s annul­
ment, the ad hoc Committee noted that under Argentinian law the obligations of
Argentina under the licence were obligations to TG N , not to CMS .350 The
Commitree annulled the part of the Award dealing with the umbrella clause for
failure to state reasons. In ■the Committee’s view it was ‘quite unclear how the
Tribunal arrived at its conclusion that CMS could enforce the obligations of
Argentina to T G N ’.351

(e) Umbrella clauses and unilateral acts

In the discussion of umbrella clauses, attention is mostly centred on contracts
between the host state and the investor. However, states may assume obligations
not only by way of contracts but also through unilateral declarations such as
legislation and executive acts.352 Case law indicates that umbrella clauses are not
restricted to contractual obligations but are capable of protecting obligations of the
host state assumed unilaterally through legislation or executive acts.353
Tribunals have recognized, in principle, that umbrella clauses in which states
undertake to observe obligations with regard to investments cover unilateral
undertakings.35‘! LG&E v Argentina?^ involved an umbrella clause referring to
the observance of ‘any obligation it may have entered into with regard to invest­
ments’.356 The case concerned the abrogation of rights granted to investors under a
Gas Law and its implementing regulations. The Tribunal found that this legislation
contained ‘obligations’ in the sense of the umbrella clause:

347 At para 52. 348 At para 384.

3'19 CMS v Argentina, Award, 12 May 2005, paras 296-303·
350 CMS v Argentina, Decision on Annulment, 25 September 2007.
351 At para 96.
352 W M Reisman and Μ H Arsanjani, ‘The Question of Unilateral Governmental Statements as
Applicable Law in Investment Disputes’ (2004) 19 ICSID Review-FILJ 328.
353 See M C Griton Salias, ‘Do Umbrella Clauses Apply to Unilateral Undertakings?’ in C Binder,
U Kriebaum, A Reinisch, and S W ittich (eds), International Investment Law fo r the 21st Century (2009)
490.
354 Enron v Argentina, Award, 22 May 2007, paras 269-77; see also Decision on Annulm ent,
30 July 2010, paras 317-46; Noble Energy v Ecuador, Decision on jurisdiction, 5 March 2008, paras
154-7; Plama v Bulgaria, Award, 27 August 2008, paras 185-7.
335 LG& E v Argentina, Decision on Liability, 3 October 2006, paras 169-75.
356 gpp betw-een Argentina and the U nited States, A n 11(2)(c).
178 Standards o f Protection

T h e se laws a n d regulations b ecam e ob lig atio n s w ith in th e m e a n in g o f A rticle 11(2) (c), by

v irtu e o f ta rg e tin g foreign investors a n d ap p ly in g specifically to th e ir in v estm en ts, th a t gave
rise to liab ility u n d e r th e u m b re lla clause.337

Some tribunals have read limitations into the clauses on the basis of the specific
wording of umbrella clauses. A reference to obligations with regard to ‘specific
investments’ was seen to exclude general legal obligations arising from legislative
measures.358 Other tribunals have found that the words ‘entered into’ contained in
an umbrella clause could only be read as restricting the clause to contractual
undertakings .359 In Noble Ventures v Romania 360 the Tribunal said:
T h e e m p lo y m e n t o f th e n o tio n ‘en tered in to ’ in d icates th a t specific c o m m itm e n ts are
referred to a n d n o t g eneral c o m m itm e n ts, fo r exam ple by w ay o f legislative acts. T h is is
also th e reason w h y A rt. 11(2) (c) w o u ld be very m u c h an e m p ty base unless u n d e rsto o d as
referrin g to c o n tra c ts.361

4. A ccess to justice, fair procedure, and denial o f justice

The 2004 and 2012 US Model BITs in Article 5 (2) (a) state that the FET standard
includes the obligation ‘not to deny justice in criminal, civil, or administrative
adjudicatory proceedings in accordance with die principle of due process embodied
in the principal legal systems of the world’. It would appear that even without such
a specific reference, these principles are still covered, at least in part, by the
requirement of full protection and security362 and by the rule on fair and equitable
treatment .363 Also, it is plausible to assume that the US approach refers to the
relevant rules of customary law.
The standard will cover proceedings before the courts of the host state. However,
depending on the wording of the treaty, it may also find application in the conduct
of a party during arbitration proceedings, in particular if a party ignores a previous
agreement to arbitrate .364 Generally, the principle of denial of justice applies to
actions of all branches of a government.365 An international tribunal will decide

357 A t para 175.

3,8 SG S v Philippines, Decision on Jurisdiction, 29 January 2004, para 121.
359 C M S v Argentina, Decision on Annulm ent, 25 September 2007, para 95(a) and (b). See also
Continental Casualty v Argentina, Award, 5 September 2008, paras 297-303.
360 M b fe Ventures v Romania, Award, 12 O ctober 2005.
361 A t para 51.
362 See pp 160 et seq.
363 See pp 130 et seq.
36i* In Waste Management v Mexico, Final Award, 30 April 2004, paras 118-40, one issue was that a
Mexican city refused to advance funds to cover the cost of local arbitration and the claimant then
withdrew the case. The Tribunal ruled that the refusal o f payment did not am ount to a wrongful act.
365 g ee Petrobart v Kyrgyz Republic, Award, 29 M arch 2005, pp 75— 7. This case involved the
improper intervention o f die government in judicial proceedings. Due process and procedural fairness
are not required for strictly internal governmental matters; see Bayindir v Pakistan, Award, 27 August
2009, paras 338 et seq.
 Access to justice, fair procedure, and denial o f justice 179

independently whether the principle has been respected and will in this respect not
t- {,e bound by the position of a domestic court.366
The principles of access to justice, fair procedure, and the prohibition of
denial of justice relate to three stages of the judicial process: the right to bring a
; claim, the right of both parties to fair treatment during the proceedings, and the
right to an appropriate decision at the end of the process and its enforcement. In
Azinian v Mexico,367 the Tribunal summarized these criteria in the following terms:
v A denial of justice could be pleaded if the relevant courts refuse to entertain a suit, if they
s u b je c t it to undue delay, or if they administer justice in a seriously inadequate way....
7 There is a fourth type of denial of justice, namely the clear and malicious misapplication of
the law.368
The principles of international law that apply during all phases set forth a broad
\ framework which national rules have to respect. Essentially, these principles operate
; as the expression of an international standard that requires the establishment of a
decent and civilized system of justice as reflected in accepted international and
national practice. Thus, die concept of the minimum standard of international
law369 has a substantive and a procedural side. So far, most issues of procedural
propriety have in practice been reviewed under the standard of fair and equitable
treatment, as discussed above.370
In Duke Energy v Ecuador,371 the Tribunal considered that die duty to provide
effective access to justice ‘seeks to implement and form part of the more general
guarantee against denial of justice ’,372 The case was brought by an investor who had
concluded an arbitration agreement with a local Peruvian company subject to local
law. In arbitration proceedings initiated by the investor in this local setting,
the local arbitral tribunal had upheld a jurisdictional objection by the state, and
the claimant did not challenge this award. The Tribunal did not agree with the
claimant that Peru’s conduct had failed to provide effective means to assert a
claim.373

366 gee pelghnan v Mexico, Award, 16 December 2002, para 140; Himpurna v Indonesia, XXV
ICCA YB Commercial Arbitration 109, 181. Tribunals have not yet spelled out in detaii under what
circumstances the misapplication of domestic law may lead to international responsibility; see Waste
Management v Mexico, Award, 30 April 2004, paras 129 et seq. As to the decision of lower courts, it is
widely assumed that their rulings will not be considered to am ount to an internationally wrongful act as
long as a reasonable opportunity exists for the foreigner for appropriate review; see Ambatielos Claim,
ICJ Reports (1953) 10; Loewen v United States, Award, 26 June 2003, para 154,
3(57 Azinian v Mexico, Award, 1 November 1999.
368 A t paras 102, 103. See also Mondev v United States, Award, 11 October 2002, paras 126-7;
Parkerings v Lithuania, Award, 11 September 2007, para 317.
3(59 See p 3.
3/0 See pp 154-6,
371 Duke Energy v Ecuador, Award, 18 August 2008, para 391.
372 A t para 391.
373 At paras 390-403.
180 Standards o f Protection

As the major studies on the subject by Freeman ,374 de Visscher,·3''5 and Pauls-
son 376 show, the application of the relevant principles is rather fact-specific, but the
principles as such have been generally recognized. In the broadest terms, the
concept of a procedural minimum standard was expressed in the Avibatielos case:
T h e foreigner shall enjoy full freedom to appear before the courts for the protection or
defence o f his rights, w hether as plaintiff or defendant; to bring any action provided or
authorised by law; to deliver any pleading by way o f defence, set off or counterclaim; to
engage Counsel; to adduce evidence, w hether docum entary or oral or o f any other kind; to
apply for bail; to lodge appeals and, in short, to use the C ourts hilly and to avail him self of
any procedural remedies or guarantees provided by the law o f the land in order that justice
m ay be adm inistered on a footing o f equality w ith nationals o f the country.377

In principle, a host state is under an obligation to establish a judicial system that

allows the effective exercise of the substantive rights granted to foreign investors.
This does not necessarily mean that all governmental actions must be subject to
judicial review. In particular, the concept of state immunity has traditionally
operated in most countries to prevent lawsuits against the government in various
areas. W ithin NAFTA, the Tribunal in Mondev had to decide whether the Massa­
chusetts Tort Claims Act violated Article 1105(1) of the NAFTA inasmuch as the
Act granted immunity for intentional torts to public employers that were not
organized as independent corporate entities .378 The Canadian claimant, which
had done business with a Boston public authority falling under the rule of
immunity, argued before a NAFTA tribunal that the rule on full protection and
security in Article 1105 of the NAFTA should be interpreted so as to render
unlawful the Massachusetts rules on state immunity when applied to the Boston
audiority. The Tribunal disagreed, pointing out that there may be sound reasons to
protect a public employer from private lawsuits.
Even on the level of human rights, the ECtHR has accepted that granting
immunity to a government is permitted provided that the very essence of the
right is not impaired, diat the law on immunity pursues a legitimate aim, and that
there is a reasonable relationship of proportionality between the means employed
and the aim sought to be achieved.379
The situation will be different if the law on immunity or its application amounts
to discrimination against the foreign investor.380 Also, any conduct ignoring an
agreement to arbitrate and any undue interference with the ordinary proceedings of

374 ^ γ Freeman, The International Responsibility of States fo r Denial o f Justice (1938).

373 Q-, Vjsscherj ‘Le Deni de justice en droit international’ (1935) 54 Collected Courses o f the
Hague Academy o f International Laiv 370.
i7b J Paulsson, Denial o f Justice in International Law (2005).
377 Ambatielos Claim, 6 March 1956 (Greece v UK) 23 ILR 306, 325,
378 Mondev v United States, Award, 11 November 2002, paras 139-56.
3/9 Fogarty v United Kingdom, 21 November 2001, 34 E C H R (2002) 12. In another case decided
on the same day, the C ourt upheld an Irish law granting immunity to foreign states: McElhinney v
Ireland, ECHR, 21 November 2001.
38° gee Q j ^ Visscher, ‘Le Deni de justice en droit international’ (1935) 54 Collected Courses o f the
Hague Academy o f International Law 370, 396; j Paulsson, Denial o f Justice in International Law (2005)
147 et seq; Loewen v United States, Award, 26 June 2003, 42 ILM 811 (2003), para 135.
 Access to justice, fair procedure, and denial o f justice 181

an arbitral tribunal will be seen as unlawful.381 Moreover, whenever a foreign

investor has been subject to a seriously unlawful act, the local authorities are
required to take appropriate measures to ensure that justice is done .382
There is no doubt that actions of courts are attributable to the state .383 The
Chattin decision of the Mexican-US Claims Commission (1927) summarized the
duty of courts to conduct fair proceedings as follows:
Irreg u larity o f court proceedings is proven w ith reference to absence o f proper investigations,
insufficiency- o f confrontations, w ithholding from the accused th e opportunity to know ail
or the charges brought against him. undue delay o f the proceedings, m aking the hearings in
open court a m ere form ality, and a continued absence of seriousness on the part o f the
C ourt.384

In Tokios Tokeles v Ukraine,385 the Tribunal found that a ‘failure to comply with
the elementary principles of justice in the conduct of criminal proceedings, when
directed towards an investor in the operation of his investment, may be a breach, or
an element in a breach, of an investment treat}''5.
Procedural irregularity played an important role in Loeiven v United States.386
The Tribunal held that the conduct of the domestic trial in the proceedings against
Loewen had been disgraceful and that the judge in Mississippi had failed to protect
Loewen against flagrant appeals to prejudice.387 According to the Tribunal, the trial
as a whole did not satisfy the minimum standards of international law,388 exposing
the defendant to ‘manifest injustice in the sense of a lack of due process leading to
an outcome which offends a sense of judicial propriety5.·389 Moreover, in the view of
the Tribunal, the staggering amount of punitive damages awarded to the claimants
by the Mississippi jury indicated that the jury was ‘swayed by prejudice, passion or
sympathy 5.390
As to retroactive application of laws, J Paulsson has rightly pointed out that,
depending on the circumstances of the case, this may be seen as unlawful.391 In

381 J Paulsson, Denial o f Justice in International Law (2005) 149.

382 See eg Wena Hotels v Egypt, Award, 8 December 2000, para 84; Teemed v Mexico., Award,
29 May 2003, para 177.
383 Article 4(1) o f the ILC’s Articles on State Responsibility provides·.
The conduct of any State organ shall be considered an act of that State under international
law, whether the organ exercises legislative, executive, judicial or any other functions,
whatever position it holds in the organization of the State, and whatever its character as
an organ of the central government or of a territorial unit of the State.
See J Crawford, The International Law Commission s Articles on State Responsibility: Introduction, Text
and Commentaries (2002) 94.
384 BE Chattin (USA v Mexico), 23 July 1927, IV RIAA 282, 295 (1951).
385 Tokios Tokeles v Ukraine, Award, 26 July 2007, para 133.
386 Loewen v United States, Award, 26 June 2003.
38/ At para 53.
388 At para 121.
389 At para 132; see also Azinian v Mexico, Award, 1 November 1999, para 99.
s90 para 105.
391 j Paulsson, Denial of 'justice in International Law (2005) 199-200: ‘Surprising departures from
settled patterns o f reasoning or outcomes, or the sudden emergence of a full-blown rule where none
had existed, m ust be viewed with the greatest scepticism if their effect is to disadvantage a foreigner.’
182 Standards o f Protection

principle, die correct position seems to be that the laws of the host state, as they
stood at the time of the initial investment, will serve as the proper benchmark .392
Concerning the outcome o f a case before a local court, it is clear that an
investment tribunal will not act as an appeals mechanism and will not decide
whether the court was in error or whether one view of the law or the other would be
preferable. Nevertheless, a line will have to be drawn between an ordinary error and
a gross miscarriage of justice, which may no longer be considered as an exercise of
the rule of law. This line will be crossed especially when it is impossible for a third
party to recognize how an impartial judge could have reached the result in question.
Proof of bad faidi may be relevant, but is not required in such a case.393
In Chevron v Ecuador,394 the claimant extensively argued, with reference to case
law, that Ecuadorian courts had delayed local proceedings with the result that the
case was dormant for 14 years.395 The Tribunal examined the issue in light of die
treaty-based requirement for the host to provide ‘effective means of asserting claims
and enforcing rights’, a clause found, for example, in some US treaties and in the
ECT.
The Tribunal found that this provision is to be understood as lex specialis vis-a-
vis for the rule on denial of justice,396 even though the close link between the
two standards was recognized. Claims for undue delay, for interference by the
government with the judicial process, but also for manifestly unjust decisions fall
under the treaty clause,397 and individual claims have to be examined in light of
all circumstances.398 Given the specificity of the case, the Tribunal had no difficulty
in finding a violation of the clause. Moreover, the Tribunal found that the clause,
being different from the rule on denial of justice, did not require exhaustion of local
remedies.399

5. Em ergency, necessity, arm ed conflicts, aηά. force majeure

The legal rules applicable to extraordinary events and periods of economic and
social disorder are of direct interest both to the host state and to the foreign
investor. The host state’s concern is to retain sufficient legal flexibility in dealing
with extraordinary situations without incurring any liability towards the foreign
investor. The investor and its home state will be aware diat during a longer

392 See pp 145-6.

393 But see also Paulsson, Denial o f Justice in International Law (2005), 202, citing
D P O ’Connnell, International Law, 2nd edn (1970) 948: ‘Bad faith and not judicial error seems to
be at the heart of the matter, and bad faith may be indicated by an unreasonable departure from the
rules of evidence and procedure.’ O n denial of justice based on collusion between the local partner of a
foreign investor and the local judiciary, see France v Venezuela (Fabiani case), Award of 1898, Moore's
International Arbitrations, p 4878; collusion among branches of government with the judiciary are also
considered to am ount to denial of justice, see United States v Great Britain (Brown case), 23 November
1923, V IR IA A 120.
394 Chevron v Ecuador, Award, 30 M arch 2010.
395 At paras 171 et seq. 396 At para 242 . 397 At para 248.
398 A t para 249. 399 A t paras 276 et seq.
 Emergency, necessity, armed conflicts, and force majeure 183

investment project, extraordinary situations may arise and that one of the purposes
of the legal framework created by an investment treaty will be precisely to protect
the investment during such difficult periods. The relevant international rules will
operate and will be applied on their own, independent of domestic provisions
dealing with extraordinary periods.400

(a) Customary international law: civil violence, military action

Under customary international law, the theme of possible or inevitable damage to
the alien during periods of serious disorder and of the possible scope of protection
by the host state has long occupied arbitral tribunals. Many of these cases were
decided before 1930 and concerned the consequences of unrest in Central and
Latin American countries upon foreign property in line with force majeure. The
basic result emerging from these cases is summarized in the principle of non­
responsibility of the host state for extraordinary events of social strife and disorder
which lead to physical action against the asset of a foreign investor.401 However,
this principle is qualified by a duty of the host state to exercise due diligence, that is,
to use the police and military forces to protect the interests of the alien to the extent
feasible and practicable under the circumstances, both before the event and while it
unfolds.402 It has been assumed that a claimant has the burden of showing that the
host state was negligent, and also that no claim will be accepted if die host state can
demonstrate that foreigners have received the same treatment as nationals of the
host state .403
In AAPL v Sri Lanka ,404 Sri Lanka was found liable for an attack conducted by
its military forces against the investor’s staff and facilities in the context of anti-
terrorist activities. In the view of the Tribunal, the governmental authorities should
have undertaken precautionary measures in order to resolve the situation peacefully
before launching an armed attack against the investor’s facilities.405

(b) T he ILC Articles on State Responsibility

Situations beyond the control of the host state are addressed in the ILC Articles on
State Responsibility under the headings force majeure (Art 23), ‘distress’ (Art 24),
and ‘necessity’ (Art 25).

400 See eg Funnekotter v Zimbabwe, Award, 22 April 2009, para 103; Sempra v Argentina, Award,
28 September 2007, para 257, generally explained that the solutions for periods of crisis cannot be
undertaken by unilateral measures.
401 See eg Spanish Zone o f Morocco Claim (1924) II RIAA 615, 642; Pinson v United Mexican States
(1928) V RIAA 327, 419 (1952); generally I Brownlie, Principles o f Public International Law, 7th edn
(2008) 466.
402 O n the duty o f the host state to take reasonable precautionary and coercive action, see eg Ziat,
Ben Kir an (1924) II RIAA 730 (1949); Pinson v United Mexican States (1928) V RIAA 327 (1952); see
also the Iranian Hostage Case, ICJ Reports (1980) 3, 29 (Iran failed to control m ilitant groups and
approved o f its acts).
403 A D McNair, International Laiv Opinions, vol II (1956) 245.
404 AAPL v Sri Lanka, Award, 27 June 1990, paras 72-86. ^ At para 85.
184 Standards o f Protection

It is widely accepted that the ILC Articles reflect customaiy international law.406
Force majeure covers situations and events beyond the control of a state that make it
objectively impossible for that state to perform its obligations. Under Article 24 of
the ILC Articles, the wrongfulness of an act cis precluded, if the author of the act in
question has no other reasonable way, in a situation of distress, of saving the
author’s life or the lives of other persons entrusted to the author’s care’. Only in
the rarest of circumstances will rfiis rule apply in the context of an investment
treaty. Necessity is not denned in Article 25, but is treated by way of identifying its
limits.
The common element of these concepts is that they allow a state to act in a
manner that is not in conformity with existing obligations of customary, or even
treaty, law. By their very nature, they are therefore of exceptional character in the
general setting of the international legal order; their application must take their
derogatory effect into account and must therefore place strict limitations on their
negative impact on the operation of accepted international norms. This is of special
importance when an investment treaty is affected which is meant to provide for
long-term legal stability.

aa,. Necessity
The rule of necessity, as laid down in Article 25 of the ILC Articles, can be relevant
to die subject matter of an investment treaty:
1. Necessity may not be invoked by a state as a ground for precluding the wrongfulness of
an act not in conformity with an international obligation of that state unless the act:
(a) is the only means for the state to safeguard an essential interest against a grave and
imminent peril; and (b) does not seriously impair an essential interest of die state or
states towards which the obligation exists, or of the international community as a whole.
2. In any case, necessity may not be invoked by a state as a ground for precluding
wrongfulness if:
(a) the international obligation in question excludes the possibility of invoicing neces­
sity; or (b) the state has contributed to the situation of necessity.
As an exception to existing international obligations, tribunals have construed the
rule narrowly and have refused to rely solely on the judgement of the host country
in the absence of a clause allowing for self-judegment.407
In CMS v Argentina,40^ the respondent had pleaded the defence of necessity, but
the Tribunal found that the conditions for its applications wrere not met:

4i06 See ICJ, Israel Security Wall Case, Advisor}·' O pinion, 43 ILM 1009 (2004), para 140:
Gabcikovo-Nagymaros Project. ICJ Reports (1997) 7, 63, para 102; see also Russian Indemnity Case,
11 RIAA 431 (1912); Societe Commerciale de Belgique, 1939, PCIJ, Series A/B, No 78, 160.
907 Gabcikovo-Nagymaros Project, ICJ Reports (1997) 7, 63, para 51; CMS v Argentina, Award,
12 May 2005, para 317; LG & E v Argentina, Decision on Liability, 3 October 2006, paras 207-14;
Suez v Argentina, Decision on Liability, 30 July 2010, paras 235-43.
408 CMS v Argentina. Award, 12 May 2005.
 Emergency, necessity, armed conflicts, and force majeure 185
the T ribunal is persuaded thar die situation was difficult enough to justify die governm ent
taking action to prevent a worsening oi: the situation and the danger o f total econom ic
collapse.'*09.. .
A different issue, however, is w hether the measures adopted were ‘the only way’ for the
State to safeguard the interests. This is indeed debatable.. . . T he International Law C om ­
m ission’s com m ent to the effect that the plea o f necessity is ‘excluded if there are other
(otherwise lawful) means available, even if they may be m ore costly or less convenient,’ is
persuasive in assisting this T ribunal in concluding that the measures adopted were n o t the
only steps available.410, . .
T he second lim it is the requirem ent for the State not to have contributed, to the situation
o f necessity.. . . T he issue, however, is w hether the contribution to the crisis by A rgentina
has or has n o t been sufficiently substantial. The Tribunal, when reviewing the circumstances
o f the present dispute, m ust conclude that this was the case. T he crisis was n ot o f the m aking o f
one particular adm inistration and found its roots in the earlier crisis o f the 1980s and evolving
governm ental policies o f the 1990s that reached a zenidi in 2002 and thereafter. Therefore,
the T ribunal observes that governm ent policies and their shortcom ings significantly contrib­
uted to the crisis and the emergency and while exogenous factors did fuel additional difficul­
ties they do not exem pt the R espondent from its responsibility in the m atter.415

Therefore, the Tribunal considered that an economic crisis may give rise to a plea of
necessity in principle. But it found that two requirements for a finding of necessity
were not met in the particular case: the measures taken by Argentina were not the
only way to cope with the situation and Argentina itself had contributed to the
situation .4-12 The Tribunal also found that the ‘emergency’ clause in the Argentina-
US Treaty was not applicable.413 In general, such an emergency clause should not
be construed in a manner that places die investor in a less favourable legal situation
than that accorded under customary law.
A year after the CMS ruling, a different view was adopted in LG&E v Argen­
tina41q in which the Tribunal accepted the respondent’s plea of necessity for
a limited period. This finding was based on the emergency clause of the
US-Argentina BIT supported by an analysis of Article 25 of the ILC Articles.
The Tribunal said:

409 At para 322. 410 At paras 323—4.

411 At paras 3 2 8 -9 ; Enron v Argentina, Award, 22 May 2007, paras 294 et seq and Sempra v
Argentina, Award, 28 September 2007, paras 333 et seq, essentially based dieir decisions on the
reasoning o f CM S v Argentina. In die context of its financial crisis, Argentina argued that its measures
were necessary to protect the hum an rights of its citizens. However, the Tribunals saw no conflict
between the rights of foreign investor and hum an rights of nationals; see eg Suez v Argentina, Decision
on Liability, 30 July 2010, para 240.
412 In the same sense: Total v Argentina, Decision on Liability, 27 December 2010, paras 220—4,
345, 482-4; Impregilo v Argentina, Award, 21 June 2011, paras 344-59.
413 At paras 353-78.
41 ’ LG & E v Argentina, Decision on Liability', 3 October 2006. For a discussion o f the differences
between the CM S and LG & E rulings, see A Reinisch, ‘Necessity in International Investment Arbitra­
tion— An Unnecessary Split of Opinions in Recent ICSID Cases? Comments on CM S v. Argentina
and LG & E v Argentina (2007) 8 J World Investment & Trade 191.
186 Standards o f Protection

I n th e ju d g m e n t o f th e T rib u n a l, fro m 1 D ece m b e r 2 0 0 1 u n til 2 6 A pril 2 0 0 3 , A rg en tin a

w as in a p e rio d o f crisis d u rin g w h ic h it was necessary to en a c t m easures to m a in ta in p u b lic
o rd er a n d p ro te c t its essential se cu rity interests.415 . . .
E v id en ce has been p u t before th e T rib u n a l th a t th e c o n d itio n s as o f D e c e m b e r 2001
c o n s titu te d th e hig h est degree o f p u b lic d isorder a n d th re a te n e d A rg e n tin a ’s essential
secu rity in terests. T h is was n o t m erely a p erio d o f ‘e c o n o m ic p ro b le m s’ or ‘business cycle
flu c tu a tio n ’ as C laim ants d esc rib e d ___ E xtrem ely severe crises in th e econom ic, political and
social sectors reached their apex a n d converged in D ece m b e r 2 0 0 1 , th reaten in g to tal collapse
o f th e G o v e rn m e n t an d the A rg en tin e State.416. . .
A State m ay have several responses at its disposal to m a in ta in public order o r p ro tect its
essential security interests. I n this sense, it is recognized th a t A rg en tin a’s suspension o f the
calculation o f tariffs in U .S. dollars a n d th e P P I ad ju stm e n t o f tariffs was a legitim ate w ay o f
p ro tectin g its social an d eco n o m ic system .417

Both the CMS and the LG&E decisions assumed that die situation in Argentina
affected, or possibly affected, an essential interest within the meaning of Article 25 of
the ILC Articles.418 But, contrary to the CMS ruling, the Tribunal in LG&E
accepted the argument advanced by the respondent that the measures adopted by
Argentina had been the ‘only means’ available. In addition, the arbitrators in LG&E
found that Argentina had not substantially contributed to the state of emergency.419
Consequently, in the view of the Tribunal, Argentina was exempted from liability
under the emergency clause of the applicable BIT, as well as under general inter­
national law ,420 for the period between December 2001 and April 2003.
If the conditions of necessity have been met, the further question arises whether
the host state has to resume performance of its obligations as soon as the situation of
emergency ceases to exist and whether it has to compensate the foreign investor for
the damage that arose from the suspension of its duties. Because there is no reason
for the host state to benefit from the necessity and for die investor to bear the
consequences, the answer to both questions will be affirmative.421
Thus, in CMS v Argentina, the Tribunal found that £[e]ven if the plea of
necessity were accepted, compliance with the obligation would reemerge as soon

415 At para 226. 416 A t para 231. 417 At para 239.

418 See para 319 of CMS and paras 2 5 1 -7 of LG&E.
419 See LG & E at para 257: ‘There is no serious evidence in the record that Argentina contributed to
the crisis resulting in the state o f necessity.’
420 At para 258:
W hile this analysis concerning Article 25 of the Draft Articles on State Responsibility alone
does n o t establish Argentina's defense, it supports the T ribunal’s analysis with regard to the
m eaning of Article XI’s requirem ent that the measures implemented by Argentina had to
have been necessary eidier for the maintenance o f public order or the protection of its own
essential security interests.
421 See also J Crawford, The International Law Commission's Articles on State Responsibility: Intro­
duction, Text and Commentaries (2002) 189-90. Article 27 of the ILC Articles states:
The invocation of a circumstance precluding wrongfulness in accordance with this
Chapter is without prejudice to: (a) compliance widi the obligation in question, if and to
the extent that the circumstances precluding wrongfulness no longer exists; (b) the question
of compensation for any material loss caused by the act in question.
See also Case Concernin'! the Gabcikovo-Naevmaros Project, ICT Reports (1997) 7, 63, Daras 48, 101.
 Emergency, necessity, armed conflicts, and force majeure 187

as the circumstance precluding wrongfuiness no longer existed’422 and that it was

the duty of the Tribunal to determine the compensation due.423 In LG&E v Argen­
tina, however, the Tribunal explicitly excluded the measures adopted by Argentina
during the period of necessity from the calculation of damages, arguing that the
damage suffered during the state of necessity should be borne by the investor.
In the view of the Tribunal, Argentina could only be held liable for those measures
it had adopted before and after the occurrence of the state of necessity .424

bb. Force m ajeure

Whenever a state finds itself in a situation that makes it impossible to perform an
obligation, the principle of force majeure may apply. Article 23 of the ILC Articles
on State Responsibility, expresses the rule as follows:
1. T h e w ro n g fu in ess o f an act o f a S tate n o t in c o n fo rm ity w ith an in te rn a tio n a l o b lig atio n
o f th at S tate is p reclu d ed if th e act is d u e to force m ajeure, th a t is th e occurrence o f an
irresistible force o r o f an unfo reseen event, b e y o n d th e co n tro l o f th e S tate, m a k in g it
m aterially im possible in th e circum stances to p e rfo rm th e obligation.
2. P aragraph 1 does n o t ap p ly if:
(a) th e situ a tio n o f force majeure is d u e, eith er alone or in c o m b in a tio n w ith o th e r factors,
to th e c o n d u c t o f th e S tate in v o k in g it; o r
(b) th e S tate has assu m ed th e risk o f th a t situ a tio n occurring.

It has rightly been noted that the principle of force majeure may be viewed as
a general principle of law .425 However, this does not mean that only one
version of the principle exists in practice. Indeed, various versions have been
included in oil and gas contracts 426 and the interpretation of a contractual
force majeure clause will primarily turn on the specific language of the clause
chosen by the parties .427
In state practice, the principle has been understood in a narrow sense, often in
regard to movement of aircraft out of control and action taken by rebels in periods
of civil strife and war.428 It is generally accepted that for the existence o £force
majeure it is not sufficient that performance becomes more difficult.429 Lack of
funds, insolvency, or other forms of political and economic crises will not amount
to force m ajeure.^

422 CMS v Argentina, Award, 12 May 2005, para 328, 423 At paras 383-94.
424 LG & E v Argentina, Decision on Liability, 3 October 2006, paras 260-6.
^ J Crawford, The International Law Commission's Articles on State Responsibility (2002) 173.
426 D Bishop, J Crawford, and M Reisman, Foreign Investment Disputes (2004) 267 et seq.
42/ If the author o f the act still has a choice, b ut no other reasonable way to save hum an life, the
principle of distress will apply; see J Crawford, The International Laiv Commission s Articles on State
Responsibility: Introduction, Text and Commentaries (2002) 174,
428 See the cases cited in the Yearbook o f the IL C (1978), vol II, Part One, paras 261 et seq.
429 J Crawford, The International Law Commission s Articles on State Responsibility: Introduction,
Text and Commentaries (2002) 171; see also Bin Cheng, General Principles o f Law as Applied by
International Tribunals (1987), 69; R Boed, ‘State of Necessity as a Justification for Internationally
W rongful C onduct’ (2006) 3 Yale Human Rights and Development L I 1.
430 r - ------ c. 1 -----
188 Standards o f Protection

The consequences of acts by the home state of the investor, which lead directly to
the difficulties, will also not fall under the principle.431 In National Oil Co v Libyan
Sun Oil,452 the Tribunal ruled that the US respondent company could not invoke
the clause and excuse its non-performance in Libya even though the US Govern­
ment had issued an order that US passports would no longer be valid for travel to
Libya. The Tribunal considered that the company should have hired non-US
personnel.

(c) T re a ty law
For the drafters of investment treaties, the issue was whether these principles of
customary law should be accepted as such or whether they should be modified in
light of the object and purpose of the treaty. In practice, the choice was essentially
to accept the principles. In a number of treaties concluded by European countries,
the parties decided not to include any provision on extraordinary events and
periods, thus tacitly accepting the applicability of die rules of customary law. US
treaty practice has been more inclined to address the issue explicidy, essentially
restating existing customary law instead of revising or modifying customary rules.
A special issue to be considered in the interpretation of a treaty provision on
periods of emergency concerns the general object and purpose of a BIT to provide
protection for the foreign investor. It has to be assumed that any provision of a BIT,
including one on emergency, does not in effect lead to a level of protection lower
than the one guaranteed by the general rules of general international law, in
particular customary law. Whereas it is correct that parties to a BIT may, if they
wish, stipulate that they agree to a lower level, an interpretation leading to such a
reduction of protection will be appropriate only in the presence of clear wording
which dictates such an extraordinary intention of the parties.
W hat most European and US treaties have in common is to require MFN
treatment and national treatment when it comes to compensation schemes adopted
voluntarily by the host state to deal with the consequences of an emergency.
A typical clause of diis type reads:
Investors o f either C ontracting State whose investm ents suffer losses in the territory o f the
other Contracting State owing to war or other arm ed conflict, revolution, a state o f national
emergency, or revolt, shall be accorded treatm ent no less favourable by such other C on­
tracting State than that which the latter C ontracting State accords to its own investors as
regards restitution, indem nification, com pensation or other valuable consideration. Such
payments shall be freely transferable. Investors o f either C ontracting State shall enjoy most­
favoured-nation treatm ent in the territory of the other C ontracting State in respect o f the
matters provided for in this Article.433

431 Crawford, n 429, 173 . 432 National Oil Co v Libyan Sun Oil, Award, 31 May 1985·
433 See the German Model BIT, Art 4(3) and (4). Article 5(4) o f the 2004 and 2012 TJS Model
BITs reads:
Notwithstanding Article 14 [Non-Conforming Measures] (5)(b) [subsidies and grains],
each Part)·' shall accord to investors of the other Part}’, and to covered investments, non-
discriminatory treatm ent with respect to measures it adopts or maintains relating to losses
suffered by investments in its territoiy' owing to armed conflict or civil strife.
 Emergency, necessity, armed conflicts, and force majeure 189

Article XI of the BIT between Argentina and the United States provides;
This Treaty shall n o t preclude the application by either Party o f m easures necessary for the
m aintenance o f public order, the fulfillment o f its obligations w ith respect to the m ain ten ­
ance or restoration o f international peace or security, or the Protection o f its own essential
security interests.

The role of customary law in the interpretation of Article XI of this BIT has been
prominent in cases 111 the wake of Argentina’s measures after its economic crisis
around 2002. The wording of this provision raised the question whether Article XI
incorporated the customary rule of necessity or should be considered as an autono­
mous standard which, in effect, was meant to lower the standard embodied in
customary law. The point was decided in different ways by different tribunals,
followed by requests for annulment from both sides. Alas, the annulment commit­
tees also approached die issue with different methods and results. From a systemic
perspective of coherence and. predictability, this jurisprudence obviously did not
reach a respectable result.
Among die tribunals addressing the issues, CMS, Sempra, and Enron concluded
that Article XI is to be interpreted in a manner which reflects the customary
standard of necessity.
The CMS ad hoc Committee434 assumed that Article XI is to be seen as a free­
standing provision which is not the same as the necessity rule under customary
international law as codified in Article 25 of the ILC Articles. Moreover, the ad hoc
Committee held that Article XI is a threshold requirement: if it applies, the BIT’s
substantive provisions do not apply.435 Nevertheless, the ad hoc Committee did
not annul the Award on this ground.
The ruling of the Committee may be subject to criticism. In laying down the
proper understanding of Article XI (instead of deciding on the Award’s annul­
ment), it went beyond the proper role of an annulment committee. Also, the ad hoc
Committee’s position is difficult to reconcile with the understanding of the United
States at the time of the BIT’s ratification— that the clause was meant to reflect the
standard of customary law. More importantly, the Decision in effect establishes a
treaty standard, by way of its interpretation, that provides less protection to the
investor than customary law.
The subsequent Award in Continental Casualtyi36 did not take a position on the
relationship between Article XI and customary law, but at the same time relied on
the ruling of the CMS Annulment Committee. The Continental Tribunal con­
cluded that measures addressing emergency situations will be justified as long as

Clauses of this kind are not meant to exclude compensation, but to broaden the rights of investors
during the relevant periods; see eg National Grid v Argentina, Award, 3 November 2008, para 253;
Impregilo v Argentina, Award, 21 June 2011, paras 337-43. More generally, see C Schreuer, ‘The
Protection o f Investments in Armed Conflicts’ (2012) 3 Transnational Dispute Management.
434 CM S v Argentina, Decision on Annulm ent, 25 September 2007.
4-1' At paras 128—36.
q36 Continental Casualty v Argentina, Award, 5 September 2008.
190 Standards o f Protection

they are ‘appropriate’, ‘reasonable5, and ‘proportional’.437 Obviously, these criteria

signifi candy depan from the strict rules on necessity accepted in general inter­
national law. Similarly, the Tribunal in El Paso v Argentina4^ held that Article XI
of the BIT is lex specialis in relation to Article 25 of the ILC Articles and emphasized
the difference of the defences based on the two provisions.'’39
Subsequent Annulment Committees went in different directions. The decision
of the Enron Annulment Committee440 criticized the CMS Annulment reasoning
for acting in the way of an appeals court,441 but nevertheless also annulled the
Enron Award because the latter had relied on the understanding of an economist in
its application of the rule of necessity.442 The ad hoc Committee in Sempra v
Argentina:i43 followed the CMS Committee in its interpretation of Article XI but,
unlike the CMS Committee, concluded that the Tribunal’s understanding of
Article XI as embodying the customary principle of necessity amounted to a reason
for annulment.444
The Annulment Committee in Continental Casualty445 took a less expansive
view of the role of the annulment process and considered that the taking into
account of rules of the W orld Trade Organization (WTO) into Article XI of the
BIT did not provide a reason for annulment.446

6. Preservation o f rights

The object and purpose of investment agreements is to improve the investment

climate and not to derogate from such rights of the investor that are granted in
other treaties447 or in the domestic legislation of the host country. As early as 1967,
the OECD Draft Convention provided:
W here a m atter is covered b o th by the provisions o f this C onvention and any other
international agreement, n othing in this C onvention shall prevent a national o f one Party
who holds property in the territory o f another Party from benefiting by the provisions that
are m ost favorable to him .448

A classical formulation in a BIT along these lines is found in the treaty between
Germany and Poland:

437 At paras 219, 227.

438 E l Paso v Argentina, Award, 31 October 2011.
439 A t paras 552-5.
440 Enron v Argentina, Decision on Annulment, 30 July 2010.
441 At para 405.
442 A t para 393.
443 Sempra v Argentina, Decision on Annulment, 29 June 2010.
444 See paras 186-219.
445 Continental Casualty v Argentina, Decision on Annulm ent, 16 September 2011.
446 At para 133.
447 An example may be found in the TRIMs Agreement of the W T O and its rules on performance
requirements.
448 Article 8 O ECD Draft Convention on the Protection of Foreign Property, 7 ILM 117 (1968).
 Arbitrary or discriminatory measures 191

If the statutory rules o f either C ontracting Party or an international undertaking w hich m ay

exist, or m ay be established in the future between the C ontracting Parties, provide for a
general or special regulation by virtue o f which investm ents by investors o f the other
Contracting Party w ould benefit o f a treatm ent more favourable than provided for by this
Treaty, said regulation shall supersede die present T reaty to the extent it is m ore favourable.

The clause reflects the general rule that investment treaties are meant to improve
the investment climate and not to reduce rights and privileges that the investor
otherwise enjoys.

7. Arbitrary or discrim inatory m easures

The prohibition of arbitrary treatment belongs to the classical standards contained

in investment treaties.449 By definition, every state oriented at the rule of law will
outlaw arbitrary action, and foreign investors properly expect that host states will
follow this standard. In treaty practice, the rule against arbitrariness is often
combined with the prohibition of discrimination (‘shall not impair investments
by arbitrary or discriminatory measures’). The separate listing of the two stand­
ards— typically separated by the word ‘or’— suggests that each must be accorded its
own significance and scope.450

(a) Arbitrary measures

aa. The meaning o f arbitrary
Some treaties do not use the term ‘arbitrary’ but refer to ‘unjustified or discrimin­
atory action’ or to ‘unreasonable or discriminatory action’. It would be difficult to
identify a difference between ‘arbitral}'·’ and ‘unjustified’ or ‘unreasonable action’,
and presumably the terms are interchangeable. The Tribunal in National Grid v
Argentina,451 said in response to an argument by the claimant that the two concepts
were different:
It is the view o f the T ribunal that the plain m eaning o f the term s ‘unreasonable’ and
‘arbitrary’ is substantially the same in the sense o f som ething done capriciously, w ithout
reason.452

As to the meaning of ‘arbitral}-'’ and its application to a specific case, different

approaches have been employed. One reading of the clause simply refers to the
ordinary meaning and seeks to extrapolate this meaning from general legal dictionaries.

449 See V Heiskanen, ‘Arbitrary and Unreasonable λ'ίεο5ΐΐΓε5’ in A Reinisch (ed), Standards o f
Investment Protection (2008) 87; CSchreuer, ‘Protection against Arbitrary or Discriminatory Measures’
in C A Rogers and R P Alford (eds), The Future o f Investment Arbitration (2009) 183.
450 In this sense: A zurix v Argentina, Award, 14 July 2006, para 391; Siag v Egypt, Award, 1 June
2009, para 457; A E S v Hungary, Award, 23 September 2010, para 10.3.2.
451 National Grid v Argentina, Award, 3 November 2008.
452 At para 197.
192 Standards o f Protection

For instance, the Tribunal in Lauder v Czech Republic and subsequent decisions
have consulted Black’s Law Dictionary according to which ‘arbitrary5 means
‘depending on individual discretion’ or refers to action ‘founded on prejudice
or preference rather than on reason of fact’.433
Another approach is to contrast the notion of an ‘arbitrary action’ with the
concept of the rule of law. In an oft-quoted passage of die ELSI case, the ICJ had to
apply the standard (‘shall not be subjected to arbitrary or discriminatory measures’)
and found that Arbitrariness is not so much something opposed to a rule of law, as
something opposed to the rule of law . .. It is a wilful disregard of due process of
law, an act which shocks, or at least surprises, a sense of judicial propriety’.454
This formula is reminiscent of the wording used in the 1920s in the Neer
decision describing the international minimum standard.455 The Genin decision
quoted the ELSI passages and explained the standard in similar terms in the context
of an alleged procedural illegality.456 The Tribunal in Pope & Talbot contrasted the
ELSI formula with the Neer wording and noted in regard to the decision of the ICJ:
T h e form ulation leaves o u t any requirem ent that every reasonable and im partial person be
dissatisfied and perhaps perm its a bit less injury to the psyche o f the observer, who need no
longer be outraged, b u t only surprised by w hat the governm ent has done.457

The decision in Noble Ventures v Romania458 used yet another method by estab­
lishing a comparative standard. It pointed out, in the context of a judicial reorgan­
ization of a steel mill business, that arbitrariness was excluded because proceedings
of the kind in question ‘are provided in all legal systems and for much the same
reasons’. The specific situation of the mill ‘would have justified the initiation of
comparable proceedings in most other countries’. In addition, the proceedings were
conducted ‘in accordance with the law of Romania and not against it’.

453 Lauder v Czech Republic, Award, 3 September 2001, para 221, cited with approval in Occidental
v Ecuador, Award, 1 July 2004, para 162 and in CM S v Argentina, Award, 12 May 2005, para 291;
A zurix v Argentina, Award, 14 July 2006, para 392. See also Siemens v Argentina, Award, 6 February
2007, para 318; Plama v Bulgaria, Award, 27 August 2008, para 184; E l Paso v Argentina, Award,
31 O ctober 2011, para 319.
454 ICJ, Case ConcerningElettronica Sicula {ELSI), 20 July 1989, ICJ Reports (1989) 15, 76. For a
similar approach, see ICJ, Asylum Case, 20 November 1950, ICJ Reports (1950) 266, 284.
455 LF H Neer & Pauline Neer v United. Mexican States, IV RIAA 60; (1926) AJIL 555: ‘[T h e
treatm ent of an alien, in order to constitute an international delinquency, should am ount to an
outrage, to bad faith, to willful neglect of duty, or to an insufficiency of governmental action so far
short o f international standards diat every reasonable and impartial m an would readily recognize its
insufficiency.’
456 Genin v Estonia, Award, 25 June 2001, para 371: A ny procedural irregularity that may have
been present would have to am ount to bad faith, a wilful disregard of due process of law or an extreme
insufficiency of action.’
457 Pope & Talbot v Canada, Award on Damages, 31 May 2002, para 64. To the same effect: Azurix
v Argentina, Award, 14 July 2006, para 392.
438 Noble Ventures v Romania, Award, 12 October 2005, para 178. See for a similar view L B Sohn
and R R Baxter, ‘Draft Convention on die International Responsibility o f States for Injuries to Aliens,
A rt 12(a)’ (1961) 55 AJIL 545.
 Arbitrary or discriminatory measures 193

In L G & E v A r g e n t i n a ^ the Tribunal adopted the following general description

of arbitrary measures:
measures that affect the investments o f nationals o f die other Party w ithout engaging in a
rational decision-m aking process. Such process would include a consideration o f the effect o f
a m easure on foreign investments and a balance o f the interests o f the State with any b urden
imposed on such investm ents.460

Contractual breaches are not sufficient to violate the standard. The Tribunal in
Duke Energy v Ecuador held that ‘contractual breaches do not amount, in them­
selves, to arbitrary conduct .461 On the other hand, a state’s use of its governmental
powers to interfere with contract rights may, depending 011 die circumstances, be
arbitrary.462
Some tribunals have accepted the following categories of measures as arbitrary;
(a) a measure that inflicts damage on the investor without serving any apparent
legitimate purpose;
(b) a measure that is not based on legal standards but 011 discretion, prejudice, or
personal preference;
(c) a measure taken for reasons that are different from those put forward by the
decision maker;
(d) a measure taken in wilful disregard of due process and proper procedure.463
The Tribunal in AES v H im garf64 found that reasonableness had to be analysed
with the help of two elements— die existence of a rational policy and the reason­
ableness of the act in question:
There are w o elem ents that require to be analyzed to determ ine w hether a state’s act was
unreasonable: the existence o f a rational policy; and the reasonableness o f the act o f the state
in relation to the policy. A rational policy is taken by a state following a logical (good sense)
explanation and w ith the aim of addressing a public interest m atter. Nevertheless, a rational
policy is n o t enough to justify all the measures taken by a state in its name. A challenged
measure m ust also be reasonable. T h at is, there needs to be an appropriate co rre la tio n
b etw een the state’s public policy objective and the measure adopted to achieve it. T his has to
do w ith the nature o f the measure and the way it is im plem ented.465

bb. Adverse intention

The relevance of an adverse intention on the part of the host state is not entirely
clear. In CME v Czech Republic,466 the Tribunal found that the clause was violated in

459 LG & E v Argentina, Decision on Liability, 3 October 2006.

460 At para 158.
461 Duke Energy v Ecuador, Award, 18 August 2008, para 381.
462 A E S v Hungary, Award, 23 September 2010, paras 10.3.12-10.3.13.
ί63 E D F v Romania, Award, 8 October 2009, para 303; Lemire v Ukraine, Decision on Jurisdiction
and Liability, 14 January 2010, para 262.
46h A ES v Hungary, Award, 23 September 2010.
465 At paras 10.3.7-10.3.9.
194 Standards o f Protection

light of the clear intention of the respondent to deprive CME of its contractual
rights. In Enron v Argentine^7 the Tribunal denied the existence of arbitrariness
since the measures adopted were what the Government believed and understood
was the best response to the unfolding crisis’,468 By contrast, in Occidental v
Ecuador,469 the Tribunal determined that the standard was violated £to some extent5
not because of certain impugned actions but because of the very confusion and lack
of clarity that resulted in some form of arbitrariness, even if not intended’.470

cc. Relationship to fa ir a n d equitable treatm ent a n d to customary

international law
Given the nature and the breadth of the concept of arbitrariness, it is not surprising
that it has been said that any arbitrary action will also violate the standard of fair and
equitable treatment.471 The matter has surfaced especially under the NAPTA
which contains a clause on fair and equitable treatment (Art 1105),472 but no
explicit prohibition of arbitrary treatment. Tribunals established under NAFTA
have considered that arbitrary treatment also violates the requirement of fair and
equitable treatm ent473 The tendency to merge the two standards can also be found
in the application of bilateral treaties.474
Despite this tendency, there are weighty arguments in favour of treating the two
standards as conceptually different. There is no good reason why treaty drafters
would use two different terms when they mean one and the same thing. Equally, it
is difficult to see why one standard should be part of the other when the text of the
treaties lists them side by side as two standards without indicating that one is merely
an emanation of the other. O f course, there may be considerable overlap and one
particular set of facts may violate both the FET standard and the rule against
arbitrary or discriminatory treatment 475
A number of tribunals have, in fact, examined compliance with the standards
of fair and equitable treatment and unreasonable or discriminatory treatment

467 Enron v Argentina, Award, 22 May 2007.

468 Ac para 281. See also Sempra v Argentina, Award, 28 September 2007, para 318.
469 Occidental v Ecuador, Award, 1 July 2004.
470 Ac para 163.
471 S Vascannie, ‘The Fair and Equitable T reatm ent Standard in International Investment Law and
Practice’ (1999) 70 BYBIL 133.
4/2 See pp 136 et seq.
473 See eg SD Myers v Canada, First Partial Award, 13 November 2000, para 263; Mondev v United
States, Award, 11 October 2002, para 127; Waste Management v Mexico, Final Award, 30 April 2004,
para 98.
474 See CM S v Argentina, Award, 12 May 2005, para 290; Impregilo v Pakistan, Decision on
Jurisdiction, 22 April 2005, paras 264 et seq; M T D v Chile, Award, 25 May 2004, para 196; Noble
Ventures v Romania, Award, 12 October 2005, para 182; Saluka v Czech Republic, Partial Award,
17 M arch 2006, para 460; PSEG v Turkey, Award, 19 January 2007, para 261; M C Iv Ecuador, Award,
31 July 2007, paras 366-7, 371; Rumeli v Kazakhstan, Award, 29 July 2008, paras 679-81; Lemire v
Ukraine, Decision on Liability, 14 January 2010, paras 259, 356-7, 418.
475 Lemire v Ukraine, Decision on Liability, 14 January 2010, para 259.
 Arbitrary or discriminatory measures 195

separately.476 Although there is often no explicit discussion of the relationship of

the two concepts, their sequential and separate treatment in awards indicates that
the tribunals regarded them as distinct standards.
The Tribunal in Duke Energy v Ecuado/i77 had to interpret a provision in the
Ecuador-US BIT that afforded protection against impairment by arbitrary or
discriminatory measures. The respondent argued that this was part of the FET
standard; however, the Tribunal disagreed and said:
In view o f the structure o f the provisions o f the B IT , the T rib u n a l has difficulty following
Ecuador’s argum ent that there is only one concept o f fair and equitable treatm ent which
encompasses a non-im pairm ent notion. T h e T rib u n a l will thus malce a separate determ in­
ation to decide w hether the contested measures were arb itrary ., .47S

As with all broad standards in BITs, the relationship of the ride to customary
international law may be raised. The traditional understanding of the customary
minimum standard seems to have covered actions deemed arbitrary.479 It would
follow that the treaty standard against arbitrariness is also covered by customary
international law.480

(b) D iscrim inatory measures

Discrimination can take a number of forms. It can be based on race, religion,
political affiliation, disability, and a number of other criteria. In the context of the
treatment of foreign investment, the most frequent problem is discrimination on
the basis o f nationality. Consequently, most of the practice dealing with discrimin­
ation focuses on nationality. In fact, discrimination on the basis of nationality is
addressed in investment treaties by way of two specific standards; national treat­
ment and M FN treatment. These standards are dealt with in separate sections of
this chapter.481 But this does not mean that the issue of discrimination is necessar­
ily restricted to nationality.

476 See Occidental v Ecuador, Award, 1 July 2004, paras 159-66; Lauder v Czech Republic, Award,
3 September 2001, paras 214-88; Genin v Estonia, Award, 25 June 2001, paras 368-71; Noble
Ventures v Romania, Award, 1] October 2005, paras 175-80; Azurix v Argentina, Award, 14 July
2006, paras 385—93; LG & E vArgentina, Decision on Liability, 3 October 2006, paras 162-3; Siemens
v Argentina, Award, 6 February 2007, paras 310-21; BG Group v Argentina, Final Award, 24
December 2007, para 342; Biwater G auff v Tanzania, Award, 24 July 2008, paras 586-676; Plama
v Bulgaria, Award, 27 August 2008, para 184.
47/ Duke Energy v Ecuador, Award, 18 August 2008, paras 367-83.
478 At para 377.
479 See A Verdross, ‘Les regies internationales concernant le traitement des etrangers’ (193 l-III) 37
Collected Courses o f the Plague Academy o f International Law 323, 358-9; Restatement (Third) o f the
Foreign Relations Law o f the United States, vol 2 (1986) 196-7.
480 j-egaj-Js jj-jg understanding of die concept in the W T O , see United States—Import Prohibition
of Certain Shrimp and Shrimp Products, Report of the Appellate Body, W T/DS58/A B/R, 12 October
1998, 38 ILM 121 (1999).
481 See Sections 8 and 9.
196 Standards o f Protection

Under general international law there is no general obligation to treat all aliens
equally and to treat them as favourably as nationals. But such an obligation may be
established by treaty .482
A finding of discrimination is independent of a violation of domestic law. In fact,
domestic law may be the cause of a violation of the international standard. In
Lauder v Czech Republic483 the applicable BIT offered protection against ‘arbitrary
and discriminatory measures’. The Tribunal said:
For a measure to be discriminatory, it does not need to violate dom estic law, since domestic
law can contain a provision that is discrim inatory towards foreign investm ent, or can lack a
provision prohibiting the discrim ination o f foreign investm ent .484

Practice dealing with discrimination has concentrated on two key issues. One
concerns the basis of comparison for the alleged discrimination; the other concerns
the question whether discriminatory intent is a requirement for a finding of
discrimination or whether the fact of unequal treatment is sufficient.

aa. The basis of comparison

The basis of comparison is a crucial question in applying provisions dealing with
non-discrimination. If the investor is entitled to non-discrimination, what group
must be looked at for comparison? Only businesses engaged in exactly the same
activity? Also businesses engaged in similar activity? Or businesses engaged in any
economic activity?485
In some cases the issue of the basis of comparison did not arise since the tribunals
were able to pinpoint unjustifiable differential treatment among businesses within
the same area of activity.486 In Occidental v EcuadojA&7 the Tribunal rejected a
narrow comparison that would have looked only at the same economic sector or
activity.488 In Enron v Argentina*^ the Tribunal, looked at the question whether
there had been ‘any capricious, irrational or absurd differentiation’ in the treatment
of different sectors of the economy .490

482 Genin v Estonia, Award, 25 June 2001, para 368.

483 Lauder v Czech Republic, Award, 3 September 2001.
484 At para 220.
4sj NAFTA tribunals have dealt with a similar question in a num ber of cases when interpreting the
provision of Art 1102 of the NAFTA on national treatment. See SD Myers v Canada, Award on
Liability, 13 November 2000, para 250; Pope and Talbot v Canada, Award on the Merits, 10 April
2001, paras 4 5 -63, 68-9, 78; Methanex v United States, Award, 3 August 2005, Part IV, Ch B, paras
17-19, 25-37; Feldman v Mexico, Award, 16 December 2002, para 171.
486 Nycomb v Latvia, Award, 16 December 2003, Stockholm In t’l Arb Rev 2005; 1, p 53, sec 4.3.2
at p 99; Saluka v Czech Republic, Partial Award, 17 M arch 2006, paras 313-47, 466; Lemire v Ukraine,
Decision on Jurisdiction and Liability, 14 January 2010, paras 384-5.
487 Occidental v Ecuador, Award, 1 July 2004.
4ss paras 167-76. The Tribunal added that it found the practice concerning ‘like products
developed within G A T T/W T O not specifically pertinent, paras 174—6.
489 Enron v Argentina, Award, 22 May 2007.
490 At para 282. See also Sempra v Argentina, Award, 28 September 2007, para 319.
 Arbitrary or discriminatory measures 197

In a number of cases tribunals found that it was not possible to compare different
sectors of the economy and to establish discrimination on that basis.491 The
Tribunal in BG Group v Argentina found that gas distributors and other public
service providers, such as electricity distributors, were not in like circumstances.492
In El Paso v Argentina493 the claimant had complained about differences in
treatment between the hydrocarbons sector and the banking sector. The Tribunal
stated:
It is this T rib u n al’s view that a differential treatm en t based on the existence o f a different
factual and legal situation does not breach the B IT ’s standard. H ere the T ribunal is in line
with the approach o f other tribunals already cited and finds itself in agreem ent with the
tribunal in Enron, which found no discrim ination between the different sectors o f the
economy, although they were indeed treated differently, as there was no ‘capricious,
irrational or absurd differentiation in the treatm ent accorded to the C laim ant as com pared
to other entities or sectors . 1494

bb. Discriminatory intent

Tribunals generally favour an objective approach that looks at the consequences of a
particular measure and not at discriminatory intent.495 The Tribunal in Siemens v
Argentina496 said:
The T ribunal concurs that intent is n o t decisive or essential for a finding o f discrim ination,
and that the im pact o f the measure on the investm ent w ould be the determ ining factor to
ascertain w hether it had resulted in non-discrim inatory treatm ent .497

However, there are cases that indicate that discriminatory intent is not irrelevant. In
some cases the tribunals also looked at the question whether measures had been
taken in view of the investors’ foreign nationality.498 In LG&E v Argentina499 the
Tribunal held that either discriminatory intent or discriminatory effect would
suffice. In the end it relied on the effect of the acts in question. The Tribunal said:
In the context o f investm ent treaties, and the obligation thereunder n o t to discrim inate
against foreign investors, a measure is considered discriminatory if the in te n t o f the m easure
is to discrim inate or if the measure has a discriminatory effect. 500

491 CM S v Argentina, Award, 12 May 2005, para 293; Metalpar v Argentina, Award, 6 June 2008,
paras 161-4; National Grid v Argentina, Award, 3 November 2008, paras 201-2; E l Paso v Argentina,
Award, 31 October 2011, paras 309-15.
492 B G Group v Argentina, Final Award, 24 December 2007, para 357.
493 E l Paso v Argentina, Award, 31 October 2011, paras 305-16.
494 At para 315. Footnote omitted.
495 Myers v Canada, Award on Liability, 13 November 2000, paras 252—4; Feldman v Mexico,
Award, 16 December 2002, para 184; Occidental v Ecuador, Award, 1 July 2004, para 177; Eastern
Sugar v Czech Republic, Partial Award, 27 March 2007, para 338.
‘l96 Siemens v Argentina, Award, 6 February 2007.
497 At para 321.
493 Lauder v Czech Republic, Award, 3 September 2001, para 231. InM ethanexv United States, Award,
3 August 2005, the Tribunal’s position on this point is unclear. See Part IV, Ch B, paras 1 and 12.
499 LG & E v Argentina, Decision on Liability, 3 October 2006.
300 At para 146. Footnote omitted.
198 Standards o f Protection

8. N a tio n a l treatm ent

(a) General meaning

Clauses on national treatment belong to the core and the standard repertoire -of
BITs. They are meant to provide a level playing field between the foreign investor
and the local competitor. In their typical version in European BITs, the clauses
state that the foreign investor and its investments are ‘accorded treatment no less
favourable than that which the host state accords to its own investors’.501 H ence,
the purpose of the clause is to oblige a host state to make no negative differentiation
between foreign and national investors when enacting and applying its rules and
regulations and thus to promote the position of the foreign investor to the level
accorded to nationals. The application of the clause presupposes some type of
‘treatment’ by the host state; the relevant determination will look at the substance
of the issue and not to the formal side.502
This purpose differs fundamentally from the concept o f ‘national treatment’ as it
became known a few decades ago, especially as part of the proposed ‘New Inter­
national Economic Order ’.503 That concept was intended to limit, as far as
possible, any rights a foreign investor could derive from international law. The
possibility that national law could actually be less protective for the foreign investor
than the general rules of international law is anticipated in the current BITs by the
words ‘no less favourable’, thus recognizing that other rules may be more favour­
able. Hence, a positive differentiation remains possible and will even be obligatory
where the general standards of international law are higher than the ones applying
to nationals.504
In BITs concluded by European states, the wording of the clause has essentially
remained the same in past decades. US treaties traditionally specify that the clause
will apply when ‘like situations’505 exist. In recent years there was a change in US
practice from the term ‘in like situations’ to ‘in like circumstances’.506 This may
indicate that for the US Government there are nuances between these two versions
that deserve attention .507

501 For a review of different national treatm ent clauses in BITs, see R Dolzer and M Stevens,
Bilateral Investment Treaties (1995) 63—5 ·
502 A broad understanding of ‘treatm ent’ is also found in M errill & Ring v Canada, Award,
31 M arch 2010 and in SD Myers v Canada, Award, 13 November 2000, para 254.
503 See p 4.
504 See R E Vinuesa, ‘National Treatm ent, Principle’ in R W olfrum (edj, Encyclopedia o f Public
International Law, vol VII (2012) 486.
50:1 See die 1994 US Model Treat}', Art II. 1 reprinted in U N C T A D (ed), International Investment
Instruments: A Compendium, vol III (1996) 195.
506 See the 2004 and 2012 US Model BITs, A rt 3.
507 NAFTA, Art 1102 also refers to ‘like circumstances’. Article 1102(1) reads:
Each Part}7shall accord to investors o f another Part}- treatment no less favourable than that
it accords, in like circumstances, to its own investors with respect to the establishment,
acquisition, expansion, management, conduct, operation, and sale or other disposition of
investments.
 National treatment 199

All national treatment clauses apply once a business is established (post-entry

national treatment). This covers both regulatory and contractual matters .508 Some
i n v e s tm e n t treaties, especially those concluded by the United States and Canada,
also include provisions concerning a right of access to a national market on the basis
of national treatment (pre-entry national treatment ).509
The relative homogeneity of the clauses in BIT practice may explain why it has
been said that the standard may be easier to apply than other standards. That
assumption, however, seems misleading. As a matter of legal drafting technique,
while the basic clause is generally the same, the practical implications differ due to
more or less wide-ranging exemptions of certain business sectors. More import­
antly, even the basic guarantees contained in the standard itself have not yet been
clarified.
It is generally agreed that the application of the clause is fact-specific.510 As in the
context of fair and equitable treatment,511 such a statement cautions that the
standard resists abstract definitions and that no hard-and-fast approach to inter­
preting the clause will be found. The reason will be seen immediately when the
major components of the rule are considered.

(b) Application
Three steps o f analysis will be necessary to determine whether the standard has been
respected. First, it has to be determined whether the foreign investor and the
domestic investor are placed in a comparable setting or, in US terminology, in ‘a
like situation’ or in ‘like circumstances’. Secondly, it has to be determined whether
the treatment accorded to the foreign investor is at least as favourable as the
treatment accorded to domestic investors.512 Thirdly, in the case of treatment
that is less favourable, it must be determined whether the differentiation was
justified. Behind these seemingly simple parameters of the clause, lie complex issues
that are not answered completely by existing case law. At all levels, the full factual
and legal context of the relevant issues will have to be taken into account.

aa. The basis o f comparison: ‘like1

The first step in an application of the rule to a case concerns the comparison of the
foreign investor with the domestic investor. Is it necessary to identify a domestic
investor who is in exactly the same business, or is it sufficient to point to an investor

308 Bayindir v Pakistan, Award, 27 Augusc 2009, para 388.

509 See p 89.
310 The Appellate Body o f the W T O has observed that die ‘concept of “likeness” is a relative one
that evokes the image o f an accordion’:Japan— Taxes on Alcoholic Beverages II, W T /D S8, - 1 0 ,-1 1/AB/
R (4 October 1996) H .l.(a).
511 See pp 133—4, 139.
512 UPS v Canada, Award, 24 May 2007, para 83 distinguishes three distinct elements of a review
of a national treatm ent claim under Art 1102 of die NAFTA: (a) treatm ent in the areas listed in Art
1102, (b) like circumstances with local investors and investments, and (c) less favourable treatment.
200 Standards o f Protection

who is not in the same line of business but in the same economic sector? How do
we define ‘business’ and ‘sector’ in this context?
The measuring stick with which to compare the activities of national investors to
those of a foreign claimant remains controversial. In Feldman v Mexico, ‘in like
circumstances’ was interpreted to refer to the same business, that is, the exporting of
cigarettes.513 By contrast, the Tribunal in Occidental v Ecuador referred to local
producers in general, ‘and this cannot be done by addressing exclusively the sector
in which that particular activity is undertaken ’.514
Generally, tribunals have been cautious not to construe the basis of comparison
for the applicability of the national treatment standard too narrowly. Consistent
with the purpose of the rule, conditions such as ‘like situations’ or ‘like circum­
stances’ should be interpreted broadly in order to open the way for a full review of
the measure under the national treatment clause. In general, there seems to be
agreement that the overall legal context in which a measure is placed will also have
to be considered when ‘like circumstances’ are identified and when die identity or
difference of treatment is examined. In the context of the NAFTA, the SD Myers
decision515 ruled that the legal context of Chapter Eleven requires considering the
NAPTA framework as a whole. The Tribunal said:
T he T ribunal considers that the interpretation o f the phrase ‘like circumstances’ in Article
1 1 0 2 m ust take into account the general principles that emerge from the legal context o f the
NAFTA, including both its concern w ith the environm ent and the need to avoid trade
distortions that are n o t justified by environm ental concerns. T he assessment o f ‘like
circumstances’ m ust also take into account circumstances that w ould justify governmental
regulations that treat them differently in order to protect the public interest. T he concept o f
‘like circumstances’ invites an exam ination o f w hether a non-national investor com plaining
of less favourable treatm ent is in the same ‘sector’ as the national investor. T he T ribunal
takes the view that the word ‘sector’ has a wide connotation that includes the concepts of
‘economic sector’ and ‘business sector ’ .516

Whedier a violation of this standard has in fact occurred will be decided by

answering the ensuing questions, namely whether a differentiation has taken place
and, if so, whether this was done without justification. Tribunals have also examined
whether ‘like circumstances’ existed in light of the question whether the compared
entities were subject to ‘like legal requirements’ in their regulatory treatment.517

bb. The existence o f a differentiation

W ith regard to the existence of a differentiation, several questions arise.
Does a violation of the standard only occur on the basis of nationality-based

513 Feldman v Mexico, Award, 16 December 2002, para 171.

514 Occidental v Ecuador, Award, 1 July 2004, para 173.
515 SD Myers v Canada, Firsc Partial Award, 13 November 2000,
516 At para 250. The Tribunal also looked ar the O E C D principles on foreign investment as
reflected in the O E C D Declaration on International and M ultinational Enterprises o f 1976 to define ‘a
like situation’. The 1993 review' of that Declaration pointed to die ‘same sector’, at para 248.
517 See Grand- River Enterprises v United States, Award, 12 January 2011, para 166.
 National treatment 201

differentiations? W hat is the significance of a differentiation that is not nationality-

based but is still not justifiable on rational grounds? Is it necessary in this context to
distinguish between de jure and de facto discrimination? The relevance of targeting
foreign nationals (as opposed to nationals) was highlighted in Corn Products v
Mexico:Dl8
W hile the existence o f an intention to discrim inate is not a requirem ent for a breach o f
Article 1102 (and both parties seemed to accept that it was not a requirem ent), where such
an intention is shown, that is sufficient to satisfy the third requirem ent [treatm ent less
favourable, see para 117]. But the T ribunal w ould add that, even if an intention to
discrim inate had n o t been shown, the fact that the adverse effects o f the tax were felt
exclusively by the H FC S producers and suppliers, all o f them foreign-owned, to the benefit
of the sugar producers, the m ajority o f w hich were M exican-owned, w ould be sufficient to
establish that the third requirem ent o f less favourable treatm ent’ was satisfied .519

Also, the social policy behind a governmental measure will have no bearing on die
question:
T he problem w ith this argum ent is that it confuses the nature o f the m easure taken w ith the
motive for which it was taken. T he T ribunal does not doubt either th at there was a crisis in
the Mexican sugar industry, or that the m otive for im posing the H F C S tax was to address
that crisis. T h at does not alter the fact that the nature o f the m easure w hich Mexico took was
one w hich treated producers o f H FC S in a markedly less favourable way than M exican
producers o f sugar. D iscrim ination does not cease to be discrim ination, nor to attract the
international liability stem m ing therefrom, because it is undertaken to achieve a laudable
goal or because the achievem ent o f that goal can be described as necessary . 520

According to Lauder v Czech Republic, a discriminatory measure is simply one

that fails to provide national treatment.521 The Tribunal, however, simply states
this position without considering an alternative view .522 The Thunderbird, Award
correcdy states that a violation of the national treatment standard under die
NAFTA does not require die claimant to show separately that the less favourable
treatment was motivated by nationality. The fact of less favourable treatment will
be sufficient.523
Concerning the distinction between de jure and de facto differentiations, the
tribunal in AD F v United States seemingly would have accepted the latter as well,
had respective evidence been shown by the claimant.324 A purely incidental
differentiation resulting from misguided policy decisions does not suffice to show
differential treatment .325

51S Com Products v Mexico, Decision on Responsibility, 15 January 2008.

519 At para 138.
520 Ar para 142.
521 Lauder v Czech Republic, Award, 3 September 2001, para 220.
522 See eg GATT 1994, Art III, which distinguishes between national treatment and discrimin­
ation.
323 Thunderbird v Mexico, Award, 26 January 2006, para 177.
■>2h A D F Group Inc. v United States, Award, 9 January 2003, para 157. Also Com Products v Mexico,
Award. 15 January 2008, para 115.
525 G A M I v Mexico, Award, 15 November 2004, para 114.
202 Standards o f Protection

cc. Is there a justification for the differentiation?

The third component of the clause pertains to the justification of a differentiating
measure. Although most investment treaties do not explicitly say so, it is widely-
accepted that differentiations are justifiable if rational grounds are shown .526
However, a precise definition of these grounds has remained elusive.
In regard to the circumstances under which different treatment is allowed under
the NAFTA, SD Myers v Canada stated that the ‘assessment of “like circumstances”
must also take into account circumstances that would justify governmental regula­
tions that treat them differently in order to protect the public interest’.527 In GAMI
v Mexico, the Tribunal found the solvency of an important local industry, in this
case sugar, to be a legitimate policy goal and underlined that the relevant measures
were not geared towards die foreign investor.528 In A D F v United States, a NAFTA
tribunal found no violation of the national treatment standard, as a US requirement
to use locally produced steel for government projects applied equally to both
national and foreign contractors.529
The issue may arise whether, and under what circumstances, labour laws may
play a role in establishing the case for a violation of national treatment. Addition­
ally, the issue of special treatment of domestic entities based on cultural policies
may arise,530 for instance by way of subsidies for audio-visual culture. Since the
entry into force of the UNESCO Convention on the Protection and Promotion of
the Diversity of Cultural Expressions, one question is whether such a differenti­
ation is allowed or should even be promoted .531
In SD Myers v Canada, the Tribunal seems to have assumed diat subsidies are
allowed to promote national policies.532 The Oscar Chinn case, decided by the
PCIJ almost 80 years ago, also dealt with measures by a host state to support its
transport industry. In a majority decision, the Court upheld the legality of the

526 See R Dolzer, ‘Generalldauseln in Investitionsschutzvertragen’ in Negotiating fo r Peace, Liber

Amicorum Tono Eitel (2003) 291, 296—305.
527 SD Myers v Canada, First Partial Award, 13 November 2000, para 250.
528 GAM I v Mexico, Award, 15 November 2004, paras 114—15.
529 A D F Group Inc. v United States, Award, 9 January 2003, paras 156-8.
530 See UPS v Canada, Award, 24 M ay 2007, para 156.
531 The Convention was adopted on 20 October 2005 and entered into force on 18 March 2007.
While it is widely seen to contain provisions for ‘cultural exceptions’ to existing international rules,
especially in the field o f trade, it is unclear whether Art 20 of the Convention will be able to resolve all
existing doubts. Article 20 of the U N E SC O Convention reads:
(1) Parties recognize that they shall perform in good faidi their obligations under this
Convention and all other treaties to which they are parties. Accordingly, w ithout subordin­
ating this Convention to any odier treaty, (a) they shall foster mutual supportiveness
between this Convention and the odier treaties to which they are parties; and (b) when
interpreting and applying the other treaties to which they are parties or when entering into
other international obligations, Parties shall take into account die relevant provisions of this
Convention. (2) N othing in this Convention shall be interpreted as modifying rights and
obligations of the Parties under any other treaties to which diey are parties.
532 SD Myers v Canada, First Partial Award, 13 November 2000, para 255: ‘CANADA’S right to
source all government requirements and to grant subsidies to the Canadian industry are but two
examples of legitimate alternative measures.’
 National treatment 203

Belgian measures despite a treaty that provided for ‘competitive equality’.533

Today, the special legal context of a BIT and the relevant treaty in the Oscar
Chinn case may have to be examined in a contemporary context in order to
determine the persuasive power of that precedent.534
In Thunderbird v Mexico, the Tribunal held in an obiter dictum that no claim to
national treatment could be made when the conduct of the investor was illegal
according to national law, in this case gambling, even if that national law was not
uniformly enforced.535 Hence, no ‘equality in injustice’ can be claimed by a foreign
investor under this standard.
National policies in favour of the domestic public interest can, under certain
circumstances, constitute a rational ground for according less than national treat­
ment. However, which specific grounds may be argued in this regard is unclear.
One factor in deciding this question might be whether die policy in the specific case
is lawful under other relevant rules of international law.

dd. The relevance o f discriminator)) intent

Concerning a requirement of intent on the part of the host government to favour
the national, the Tribunal in SD Myers v Canada seems to focus on the practical
impact rather than on intent .536 In the context of the impact, the decision asks
whether the host state could have achieved its goal using alternative measures that
would have had a less restrictive impact on the foreign investor.537
The Tribunal in Siemens v Argentina538 was even more explicit:
The Tribunal concurs that intent is not decisive or essential for a finding of discrimination,
and that the impact of the measure on the investment would be the determining factor to
ascertain whether it had resulted in non-discriminatory treatment.539
The Tribunals in Feldman v Mexico,540 Bayindir v Pakistan?41 and Corn Products v
Mexico542 accepted the same position.

533 T he Oscar Chinn Case [U K vBelgiuni), 12 December 1934, PCIJ, Series A/B, N o 63.
534 See, for one position, T Weiler, ‘Saving Oscar Chinn: N on-Discrim ination in International
Investment Law’ in N H o rn (ed), Arbitrating Foreign Investment Disputes: Procedural and Substantive
Legal Aspects (2004) 159-92.
535 Thunderbird v Mexico, Award, 26 January 2006, para 183.
536 SD Myers v Canada, First Partial Award, 13 November 2000, para 254:
Intent is im portant, but protectionist intent is not necessarily decisive on its own, T he
existence o f an intent to favour nationals over non-nationals would n ot give rise to a breach
of [Article] 1102 o f the NAFTA if the measure in question were to produce no adverse
effect on the non-national complainant. T he word ‘treatment’ suggests that practical impact
is required to produce a breach of Article 1102, not merely a motive or intent that is in
violation of Chapter 11.
537 At para 255.
538 Siemens v Argentina, Award, 6 February 2007.
539 At para 321.
5“*° Feldman v Mexico, Award, 16 December 2002, para 181.
541 Bayindir v Pakistan, Award, 27 August 2009, para 309.
342 See p 201.
204 Standards o f Protection

O n the other hand, the Tribunal in Genin seemed to require discriminatory-

intent as a necessary prerequisite for a finding of discrimination .543 The Methanex
decision also includes language that may be understood to require evidence of
intent to discriminate,5"14
As regards the need to establish nationality-based discrimination, the Feldman
ruling suggests that in view of the practical difficulty of producing evidence of this
kind it is sufficient to produce proof of discrimination and not necessary to show
discrimination based on nationality .545 The burden of proof to show any discrim­
ination at all, however, remains with the claimant.546

(c) T he relevance of W T O ease law

The significance of W T O law and its jurisprudence for the interpretation of BITs
has been the subject of some debate .547 Earlier NAFTA decisions in SD Myers,548
Pope 0" Talbot,-q9 and Feldman550 seemed to assume that the relevant W TO
jurisprudence was indeed suitable to guide NAFTA tribunals. Meanwhile, the tide
seems to have turned against considering W TO jurisprudence in the interpretation
and application of a BIT. This is important because the jurisprudence of the WTO
requires the government making a differentiation to bear the burden of proof for the

5'i3 Genin v Estonia, Award, 25 June 2001, para 369.

s*4 Methanex v Vnited States, Final Award, 3 August 2005, Part IV, Ch B, para 12:
In order to sustain its claim under Article 1102(3), Methanex m ust demonstrate, cumula­
tively, that California intended to favour domestic investors by discriminating against
foreign investors and that Methanex and the domestic investor supposedly being favored
by California are in like circumstances.
But in para 1 of the same chapter the Tribunal says; ‘an affirmative finding under NAFTA Article
1 102 . . . does not require the demonstration of the malign intent alleged by Methanex . . . ’
5,115 Feldman v Mexico, Award, 16 December 2002, para 181:
It is clear that the concept of national treatm ent as embodied in NAFTA and similar
agreements is designed to prevent discrimination on the basis of nationality, or ‘by reason of
nationality’. (US Statement o f Administrative Action, Article 1102.) However, it is not self-
evident, as the Respondent argues, that any departure from national treatment m ust be
explicitly shown to be a result of the investor’s nationality. There is no such language in
Article 1102. Rather, Article 1102 by its terms suggests that it is sufficient to show less
favorable treatm ent for the foreign investor than for domestic investors in like circum­
stances___For practical as well as legal reasons, die Tribunal is prepared to assume that the
differential treatm ent is a result of die Claim ant’s nationality’, at least in die absence of any
evidence to die contrary.
See also Occidental v Ecuador, Award, 1 July 2004, para 177 (focusing on die ‘result o f the policy
enacted’).
346 A D F Group Inc. v United States, Award, 9 January 2003, paras 156-7.
54/ For concept of like products’ in "WTO law, see J B Goco, ‘Non-Discrim ination, “Likeness”,
and Market Definition in W orld Trade Organization Jurisprudence’ (2006) 40(2) J World. Trade 315-
Generally, on possible linkages between investment law and W T O law, see also G Verhoosel, ‘The Use
o f Investor-State Arbitration under Bilateral Investment Treaties to Seek Relief for Breaches o f W TO
Law’ (2003) 6 J I n t’l Economic I 493.
,vjs Mygys v Canada, First Partial Award, 13 November 2000, paras 244—7.
5'19 Tope & Talbot v Canada, Award on Merits, 10 April 2001, paras 45-63, 68-9.
550 Feldman v Mexico, Award, 16 December 2002, para 165.
 National treatment 205

legitimacy of liie policy.351 It is at least open to question whether such an approach is

appropriate in the context of BITs.
An initial blow to the original approach came in 2004 when the Tribunal in
Occidental v Ecuador rejected the argument that W T O jurisprudence should be
applied to a BIT between Ecuador and the United States.552 The Tribunal
observed that while the W T O is concerned with ‘like products’, the BIT addressed
‘like situations’ and added that W TO policies concerning competitive and substi­
tutable goods could not be treated in the same way as the BIT policies concerning
‘like situations’? 53
The second strike, even more severe than the first, came in August 2005 with the
Methanex ruling and its detailed clause-by-ciau.se analysis of the various parts of the
NAFTA as compared to the language used in W TO law.554 The Tribunal.pointed
out that the NAFTA rules use different language in different parts. In part, the
language is the same as that used in the W TO , but not so in Chapter Eleven. The
conclusion in Methanex was that the NAFTA parties were aware of the difference in
language, and that in Chapter Eleven of the NAFTA, concerning foreign invest­
ment, the parties deliberately referred to ‘like circumstances’ as opposed to ‘like
goods’. Thus, the Methanex Tribunal ruled that ‘like circumstances’ in the context
of a foreign investment cannot be considered to be identical with the concept of
‘like goods’ and that, therefore, the NAFTA investment provisions had to be
interpreted autonomously, independent from trade law considerations .555 Never­
theless, Corn Products v Mexico556 suggests that the determination of a ‘like
product’ under the rules of the General Agreement on Tariffs and Trade
(GATT) and the investment provision of Article 1 102 of the NAFTA are closely
linked.
The Thunderbird Award of January 2006 states diat the burden o f proof to show
less favourable treatment— at least prima facie— remains with die claimant.557 This
position is directly opposed to the above-mentioned development in W T O law,
which calls for a shift of the burden of proof to the government in cases of

551 C f D Regan, ‘Further Thoughts on the Role o f P.egulatory Purpose under Article III of die
General Agreement on Tariffs and Trade’ (2003) 37(4) J World Trade 737, 752; for a critical appraisal
of this approach, see] Pauwelyn, ‘Evidence, Proof and Persuasion in W T O Dispute Settlement— \X4io
Bears the Burdenr’ (1998) 1 J I n t ’l Economic L 227.
552 Occidental v Ecuador, Award, 1 July 2004,
553 At para 176. In the particular case, the Tribunal found that the purpose of national treatment
was rather the opposite of that under G A T T/W T O :
it [the national treatment] is to avoid exporters being placed at a disadvantage in foreign
markets because o f the indirect taxes paid in the country of origin, while in G A T T /W T O
the purpose is to avoid im ported products being affected by a distortion of competition with
similar domestic products because of taxes and other regulations in the country of destin­
ation.
554 Methanex v United States, Award, 3, August 2005, Part IV, Ch B, paras 30-5.
555 At paras 35, 37.
556 Corn Products v Mexico, Award. 15 January 2008, para 122.
■357 Thunderbird vMexico, Award, 26 January 2006, paras 176-8. But see also the Separate Opinion
by Arbitrator W alde (para 2).
206 Sta?idards o f Protection

differentiation. The divergence in the objectives and the normative structures of

trade law and investment law was also highlighted in Bayindir v Pakistan.55S
If this trend of divergence between trade and investment law continues, the
discussion will sharpen whether this dual approach to national treatment in
international economic law needs to be revisited and whedier, one way or another,
the concepts should be merged. From the point of view of legal clarity and
predictability, such a revision would be helpful. However, given the current
divergent wordings of W T O law and investment law,559 it cannot be assumed
that investment tribunals or die W T O dispute settlement bodies will change
direction so as to allow for a homogeneous jurisprudence. Thus, the more practical
question is whether governments will wish to revisit the m o legal regimes and
decide whether the different wordings reflect different underlying policies that
deserve to be protected separately. If governments consider that it would be
preferable to establish a single regime, a mechanism would also have to be created
that would ensure consistency o f jurisprudence in trade and in investment cases.
For die time being, investors, traders, and governments will have to live with the
dual system.

9. M ost-favoured-nation treatm ent

(a) Introduction
MFN clauses have formed part of international economic treaties for centuries.560
MFN treatment is not required under customary law. The simple goal of MFN
clauses in treaties is to ensure that the relevant parties treat each other in a manner
at least as favourable as they treat third parties. The normal effect of an M FN clause
in a BIT is to widen the rights of the investor.5(31 As a relative standard, an MFN
clause depends for its reach and scope on die conduct of the particular state. The
clause may not have any practical significance if die state concerned fails to grant
any relevant benefit to a third party. However, as soon as the state does confer a
relevant benefit, it is automatically extended to the beneficiary of the M FN clause.
The clause will operate, in principle, in relation to all matters that fall within the
scope of the treaty containing the MFN rule. Put differendy, rations materiae, it
operates according to the requirement of sameness, the ejusdem generis principle, and
the precise benefit granted will depend upon the right granted to the third state.
Thus, considerations similar to those relevant to determine ‘like circumstances’ for

558 Bayindir v Pakistan, Award, 27 August 2009, para 389.

559 See also UPS v Canada, Award, 24 May 2007, para 61, dealing with the difference between the
rules on state organs and state enterprises in the NAFTA and in the W T O .
5S0 G Schwarzenberger, International Law as Applied by International Courts and Tribunals, 3rd edn
(1957) 243; O ECD , International Investment Law: A Changing Landscape (2005) 129. On the
difference between M FN treatm ent and the general rule on non-discrimination in public international
law, see U N C TA D , AIost-Favored-Nation Treatment (2010) 23.
561 Tza Yap Shum vP em , Decision on jurisdiction, 19 June 2009, para 196.
 Most-favonred-nation treatment 207

the purposes of national treatment will come into play.562 In addition, issues of
justification for differential treatment may arise.563
The traditional significance of the M FN rule in economic treaties has led to its
inclusion in most investment treaties. In the realm of international trade law, the
clause, as laid down in Article I of the GATT, is considered one of the cornerstones
of the entire regime.56"* In trade law, the clause grants benefits wherever the parties
have not previously agreed to liberalize their relations in the same way as that in a
treaty with a third state.
In the context of modern investment treaties, die almost mechanical application
of the M FN principle, accepted in trade law, does not operate in a similarly
straightforward manner. The reason is that investment treaties contain the results
of negotiations covering distinct substantive areas. W hen the M FN rule is applied
in such a context in a mechanical manner, the effect may be to replace the
negotiated substance of the treaty rather than to add an element of cooperation.
Under such circumstances, the question arises whether and to what extent the
M FN rule is meant to alter arrangements specifically made by the parties to the
treaty. A literal application of an M FN clause may indeed have the effect of
transferring a regime into the treaty in an area that the parties specifically negotiated
and that they regulated in the treaty in a manner distinct from the substance of the
referenced treaty. It remains an open issue whether the M FN rule should be
understood in such a manner or whether die intention of the parties as laid
down in the text on the substantive guarantees in the treaty will place limits on
the operation of an M FN rule.
So far, most cases involving the M FN rule have concerned situations in which
benefits granted in treaties with third states were invoked. The situation is less
complex, and more comparable to the issues in die trade area, when parties to an
investment treaty do not refer to a treaty with a third part}' but simply argue that
nationals of third parties are treated de facto in a more favourable manner.

(b) Variations o f M F N clauses

As with other standards in investment treaties, different types and versions have
been adopted in treaty practice and each clause must be interpreted and applied 011
its own terms.565 A classical approach can be found in Article 3 of the German

562 O n ‘like circumstances’ in the context of contractual matters, see Bayindir v Pakistan, Award,
27 August 2009, para 388; on procurement issues, see Parkerings v Lithuania, Award, 11 September
2007, paras 377-430; on ‘like circumstances’ in the NAFTA, see Archer Daniels v Mexico, Award,
21 November 2007, paras 197-204; Corn Products v Mexico, Decision on Responsibility, 15 January
2008, paras 120 et seq; on the difference in the operation of an M FN clause in an investment treaty
and in trade law, see U N C T A D , Most-Favored-Nation Treatment (2010) 29 et seq.
5G3 See Parkerings v Lithuania, Award, 11 September 2007, paras 368 et seq.
564 See J Jackson, W Davies, and A Sykes, Legal Problems o f International Economic Relations, 5th
edn (2008).
5t>5 ‘Each M FN clause is a world in itself, which demands an individualised interpretation to
determine its scope o f application’; Tza Yap Shum v Pern, Decision on Jurisdiction, 19 June 2009,
208 Standards o f Protection

Model Treaty, which combines die M FN standard with the national treatment
standard:
(1) N either C ontracting Stare shall subject investm ents in its territory owned or controlled
by investors o f the other C ontracting State to treatm ent less favourable than it accords to
investm ents o f its own investors or to investments o f investors o f any third State.
(2) N either C ontracting State shall subject investors o f the other C ontracting State, as
regards their activity in connection w ith investm ents in its territoiy, to treatm ent less
favourable than it accords to its own investors or to investors o f any third State.

Other versions do not refer to the same ‘treatment’, but to ‘all matters subject to
this agreement’: I n all matters subject to this Agreement, this treatment shall be no
less favourable than that extended by each Party to the investments made in its
territory by investors of a third country .’-66
Against the background of evolving jurisprudence, some more recent treaties
explicitly refer in their M FN clauses to specific articles in the treaty in order
clearly to designate the areas to which the clause is meant to apply. The United
Kingdom
D 3
for instance,3 I-105 'n c n m* e rrearie<;
~~ ^
re fe rr e d t~n snhiect
J
a re a s such
.......... ~
as
—

‘management, maintenance, use, enjoyment or disposal’ to which the MFN

clause applies.567 Other parties have attempted to interpret the clause restrict-
ively in a retrospective manner: Argentina and Panama have exchanged diplo­
matic notes in which they state that the M FN clause in their existing BIT does
not extend to dispute resolution clauses, and that ‘this has always been their
intention ’.568 The United Kingdom has in some of its recent treaties spelled out
the scope of the M FN clause ‘for the avoidance of doubt ’.569 It will depend on
the circumstances of the case whether the existence of such clarifying notes or
phrases may contribute to elucidating the meaning of a BIT.

(c) Method of interpretation

The rules of interpretation laid down in the VCLT will also apply to an MFN
clause.570 Thus, the primary task is to identify the ordinary meaning of the clause in
its context and in light of the object and purpose of the treaty. As to supplementary
means of interpretation (Art 32 VCLT), it is rare that a tribunal has before it
relevant parts of the travaux preparatoires. However, the Tribunal in Plama v
Bulgaria ruled that direct negotiations between the two parties to the relevant

para 198; in the event, the Tribunal pointed to the dispute settlement clause which allowed to expand
jurisdiction beyond matters of expropriation only ‘if the pardes so agree’.
566 See eg Art IV(2) of the Spain-Argentina BIT of 3 October 1991.
56/ See Art 3(2) of die BIT between the UK and Argentina of 11 December 1990.
5bS See National Grid v Argentina, Decision on Jurisdiction, 20 June 2006, para 85.
569 See also Art 3(3) of die UK Model BIT.
370 See eg National Grid v Argentina. Decision on Jurisdiction, 20 June 2006, para 80.
 Most-favoured-nation treatment 209

BIT, subsequent to its entry into force, with a view to concluding a new BIT were
suitable indirectly to clarify the meaning of the original BIT .5 71
A particular issue of interpretation has arisen in an effort to focus on the
intention of the parties. One approach would focus on identifying this intention
by way of pointing to the substantive matter (as opposed to the M FN rule)
negotiated by the parties as reflected in the text, based on the argument that
consideration of this text will establish the real and specific will of the parties.
Attractive as this reasoning may appear at first sight, it will ultimately not be
convincing. This is so because a focus on the parties’ intention 572 cannot ignore the
indisputable fact that the parties have included in the treaty both the negotiated
substantive matter and also the MFN rule; there is no justification for deriving the
parties’ intention from one of these two elements alone.
Different conclusions have been drawn from provisions that exclude the applic­
ability of M FN clauses from certain areas (customs unions, free trade areas,
economic communities). Under the principle expressio unius est exclusio alterins,
this could mean that the M FN clause is meant to operate in all other areas,
including jurisdictional matters. This was the position adopted in National Grid
v Argentina?75 O n the other hand, the Plama Tribunal pointed to language in a
different paragraph, also addressing the M FN rule, in which the word ‘privileges’
appears. The Plama Tribunal assumed that the term ‘privilege’ only covered
substantive protection and cannot be understood to extend to the jurisdictional
rights of an investor.574

(d) Invoking substantive rights

For the scope ratione materiae of the rule, it is useful to distinguish between its
applicability to substantive treaty guarantees and to matters of dispute settlement;
but the normative value of this distinction is controversial.575 The following
observations cover substantive rights, whereas dispute settlement is discussed
below.576
In Pope & Talbot v Canada?·'1 the Tribunal relied on the M FN clause contained
in Article 1103 of the NAFTA in order to underpin its argument that the FET

571 Plama v Bulgaria, Decision on Jurisdiction, 8 February 2005, para 395.

572 Notably, Arts 31 and 32 of the VCLT do not contain a reference to the intention of the parties
to the treaty.
5/3 National Grid v Argentina, Decision on Jurisdiction, 20 June 2006. para 82.
5/4 Plama v Bulgaria, Decision on Jurisdiction, 8 February 2005, para 191.
5/5 See Roslnvest v Russia, Award on Jurisdiction, October 2007, paras 131-2; Renta 4 v Russia,
Award on Preliminary Objections, 20 March 2009, paras 99-100.
576 See pp 270-5- O n measures which may trigger M FN , see U N C T A D , Most-Favored-Nation
Treatment (2010) 28.
5/7 Pope & Talbot v Canada, Award on Merits, 10 April 2001, para 117. The award was issued
before the authoritative interpretation of NAFTA, Art 1105 by the NAFTA FTC; see p 136. C f also
the discussions in A D F Group Inc v United Stares, Award, 9 January 2003, paras 193-8; UPS v Canada,
Award, 24 May 2007, paras 182—4; Chemtura v Canada, Award. 2 August 2010, paras 231-7·
210 Standards o f Protection

standard of Article 1105 of die NAFTA could not be considered as providing less
protection than other free-standing FET clauses:
T h is stare o f affairs w o u ld surely r u n afoul o f A rticles 1 1 0 2 a n d 1103, w h ic h gave every
N A F T A investor a n d in v e stm e n t th e rig h t to n atio n al a n d m o st-fav o red n a tio n tre a tm e n t.
N A F T A investors an d in v estm en ts th a t w o u ld be d e n ie d access to th e fairness elem en ts
u n tra m m e le d by th e ‘egregious’ c o n d u c t th re sh o ld th a t C a n a d a w o u ld graft o n to A rticle
11 0 5 w o u ld sim ply tu r n to A rticles 110 2 a n d 1103 fo r relief.

In M T D v Chile, 5 7 S the M FN clause was combined with the obligation to accord

fair and equitable treatment in the same provision of the applicable BIT between
Chile and Malaysia.579 In the Tribunal’s view, this clause allowed for the invoca­
tion of other substantive obligations contained in other BITs concluded by Chile
with Denmark and Croatia, namely the obligation to award permits subsequent to
approval of an investment and to Rilfilment of contractual obligations:
T h e q u e stio n for the T rib u n a l is w h e th e r th e p ro v isio n s o f th e C ro atia B IT a n d th e
D e n m a rk B IT w h ich deal w ith th e o b lig atio n to aw ard p e rm its su b s e q u e n t to approval o f
an in v e stm e n t and to fu lfillm en t o f co n tractu al o b ligations, respectively, can be considered
to be p a rt o f fair a n d eq u itab le tr e a tm e n t.. . . T h e T rib u n a l has co n c lu d e d th at, u n d e r th e
B IT , th e fair a n d eq u itab le sta n d a rd o f tre a tm e n t has to be in te rp re te d in th e m a n n e r m o st
co n d u civ e to fulfill th e objective o f th e B IT to p ro te c t in v e stm e n ts a n d create co n d itio n s
favorable to investm ents. T h e T rib u n a l considers th a t to in clu d e as p a r t o f th e p ro tectio n s o f
th e B IT those in clu d ed in A rticle 3 (1) o f th e D e n m a rk B IT a n d A rticle 3 (3 ) a n d (4) o f the
C ro a tia B IT is in co n so n an ce w ith this p urpose. T h e T rib u n a l is fu rth e r convinced o f this
co n clu sio n by the fact th a t th e exclusions in th e M F N clause relate to tax tre a tm e n t a n d
regional cooperation, m atters alien to th e B IT b u t th a t, because o f th e general n a tu re o f th e
M F N clause, the C o n tra c tin g P arties co nsidered it p r u d e n t to exclude. A contrario sensu,
o th e r m atters th at can be co n stru e d to be p a rt o f th e fair a n d eq u itab le tre a tm e n t o f investors
w o u ld be covered by th e clause.5s0

In Bayindir v Pakistan?81 the Arbitral Tribunal found that an M FN clause would

permit the invocation of an FET clause contained in another BIT:
N e ith e r in its R eply n o r at th e jurisdictional h earin g , d id P ak istan d isp u te B ayindir’s
assertion th a t the in v estm en t treaties w h ich P ak istan has c o n clu d ed w ith F rance, th e
N e th erlan d s, C h in a, th e U n ite d K in g d o m , A ustralia, a n d S w itzerland c o n tain s an explicit
fair a n d equitable tre a tm e n t c la u s e . . . U n d e r these circu m stan ces a n d fo r th e p urposes o f

57s p j y d v chile, Award, 25 May 2004, paras 103-4.

579 ‘Investments made by investors of either Contracting Party in the territory of the other
Contracting Party shall receive treatment which is fair and equitable, and not less favourable than
that accorded to investments made by investors of any third State.’
d so ^ paj-as 103-4. In Impregilo v Pakistarz, Decision on Jurisdiction, 22 April 2005, 12 ICSID

Reports 245, para 223, the claimant attempted to invoke an umbrella clause contained in another BIT
concluded by the respondent by relying on the M FN clause of the applicable BIT. However, the
Tribunal did not find it necessary to rule on the issue because the contracts relied upon by the claimant
had not been directly concluded by the respondent state.
58:1 Bayindir v Pakistan, Decision on Jurisdiction, 14 November 2005.
 Most-favoured-nation treatment 211

assessing ju risd ic tio n , d ie T rib u n a l considers, p rim a facie, th a t P ak istan is b o u n d to treat

in v estm en ts o f T u rk is h n a tio n als ‘fairly an d e q u itab ly .’382

M FN clauses have also been invoked in the context of defining the standard of
compensation in expropriation cases. In CME v Czech Republic,583 the applicable
BIT provided for ‘just compensation’ representing the ‘genuine value of the invest­
ment affected’. In its award, the Tribunal also relied on the M FN clauses in order
to rule that the compensation should represent the ‘fair market value1 of the
investment:
T h e d e te rm in a tio n o f c o m p e n sa tio n u n d e r th e T re a ty b etw een th e N e th e rla n d s and. the
C zech R e p u b lic o n basis o f th e ‘fair m ark et value’ finds s u p p o rt in th e ‘m o st favored n a tio n ’
p ro v isio n o f A rt. 3 (5 ) o f th e T r e a ty .. , . T h e bilateral in v e stm e n t treaties betw een th e U nited.
States o f A m erica a n d th e C z ech R e p u b lic provides th a t c o m p e n sa tio n shall be equivalent to
th e fair m a rk e t v alu e o f d ie ex p ro p riated in v estm en t im m ed iately before th e expro p riato ry
actio n w as tak en .. . T h e C z ech R e p u b lic therefore is ob lig ated to provide n o less th a n ‘fair
m ark et v alu e’ to C la im a n t in respect o f its in v estm en t, sh o u ld (in c o n tra st to this T rib u n a l’s
o p in io n ) ‘ju st c o m p e n s a tio n ’ rep re sen tin g th e ‘g en u in e v alu e’ be in te rp re te d to be less th a n
‘fair m a rk e t v a lu e .’58'*

(e) Current state o f the law

While it is important to consider the reasoning of the tribunals and their methodo­
logical approach, it is equally or more significant to focus on the holdings of the
decisions.585 The weight of authority clearly supports the view that an MFN rule
grants a claimant the right to benefit from substantive guarantees contained in third
treaties. The cases so far decided do not address in detail the question whether and
to what extent any limits exist for the application of the rule to such substantive
guarantees.
The larger group of cases deals with the applicability of M FN clauses not to
substantive guarantees but to dispute settlement. That issue is discussed in
Chapter X on dispute settlement.586 As can be seen there, practice in that field is
less straightforward and to some extent divided.
O n this basis, it is too early to conclude in broader terms in which direction the
jurisprudence may evolve in regard to the effect of an M FN clause for the
invocation of another treaty. One view would be that so far no tribunal has
permitted the invocation of the clause in a manner that would have led to ‘regime
change’ in regard to the basic treaty containing die clause. This would mean that an
M FN clause will operate only to the extent that the provision in the other treaty is
compatible in principle with the scheme negotiated by the parties in the basic treaty

582 At paras 231-2. See also Bayindir v Pakistan, Award, 27 August 2009, paras 163-7.
583 CM E v Czech Republic, FinaJ Award, 14 March 2003.
5Sii Ac para 500.
58-"’ In Bayindir v Pakistan, Decision on Jurisdiction, 14 November 2005, paras 201 et seq, the
Tribunal discussed de facro discrimination, but, in spite of the decision’s wording, focused on the
requirement o f national treatm ent rather than the M FN rule.
586 See pp 270 -5 .
212 Standards o f Protection

and departs from it only in a detail consistent with that broader scheme. This view
would have to explain under what circumstances the two treaties are seen to be
‘compatible in principle1. A different view would adopt a literal interpretation that
would extend the operation of the MFN clause to all areas of other treaties,
regardless of any comparison or judgement on compatibility. Even under this
view, the ejusdem generis rule would apply.
In Hochtief v Argentina,587 the Tribunal addressed attempts to distinguish
procedural and substantive rights and found that there was no basis for such a
distinction in the context of the M FN rule in investment treaties:
This is clear if one considers die case o f a claim to m oney or to performance having an
econom ic value, both o f which are stipulated by Article 1 (c) o f the A rgentina-Germ any BIT
to be w ithin rhe definition o f an investm ent, or o f intellectual property rights, addressed in
Article 1 (d). The argum ent that aldiough a State could not cancel such claims or intellectual
property rights w ithout violating the BIT, it could cancel the right to pursue the claims or
enforce the intellectual property rights through litigation or arbitration w ithout violating the
BIT is nonsensical. It is nonsensical because the right to enforcem ent is an essential
com ponent o f the property rights themselves, and n o t a wholly distinct right . r)88

As to the limits of the M FN rule, the Tribunal assumed that the rule is not
intended to ‘create wholly new rights where none otherwise existed’ in the BIT;
the reason given is that the M FN rule refers to a standard and not to the extent of
rights of third parties.589 The Tribunal did not elaborate or explain how this
position is anchored in an M FN rule that is not in any way qualified.

10. T ransfer o f funds

Conditions for the transfer of funds by investors into the host state and out of the
host state are of key concern for both the investor and the host state. The investor
will typically need to import funds into the host state to start a production facility
or to expand its business. Repatriation of capital, including profits, into the home
country or a third country will often be the major business purpose of the invest­
ment. In the words of Continental Casualty v Argentina,590 the right of transfer ‘is
fundamental to the freedom to make a foreign investment and an essential element
of the promotional role of BITs’.
The host state will want to administer its currency and its foreign reserves. Large
currency transfers into and out of the country need to be monitored and controlled
in order to protect national policies. Experience has shown that sudden short-term
capital inflows, and especially capital flight, may lead to instability in the domestic
financial markets.

38/ Hochtief v Argentina, Decision on Jurisdiction, 24 O ctober 2011.

588 At para 67.
589 At para 81.
590 Continental Casualty v Argentina·, Award, 5 September 2008, para 239.
 Transfer o f funds 213

Thus, the interests of the foreign investor and those of the host state in the
admissibility of foreign transfers will often diverge. Therefore, investment treaties
invariably cover this subject. Separate types of restrictions are found in the IM F’s
Articles of Agreement, in rules adopted in the OECD, and in the GATT regime.591
The modalities of regulation in treaties vary considerably, and no single pattern is
dominant. Monetary and financial policies, the volume of the domestic capital
market, historical experience, and the simple bargaining power of the parties will
influence the outcome of treaty negotiations. The types of transfer covered by the
transfer clause in the Argentina-US BIT of 1991 were under consideration in
Continental Casualty v Argentina,592 The Tribunal ruled that only ‘transfers. ..
essential for, or typical to the making, controlling, maintenance, disposition of
investments’ are covered, in contrast to a mere ‘change of type, location and
currency of part of an investor’s existing investment, namely a part of the freely
disposable funds, held short term at its banks’.593
All treaty schemes are negotiated against the background of the host state’s
‘monetary sovereignty’. This means that the host state has ‘the exclusive right to
determine its own monetary unit, to give the unit legal meaning, to fix the exchange
rate and to regulate, restrict or prohibit the conversion and transfer of foreign
exchange’.594 The rules of the IMF, which have been accepted in principle by 184
states, do not allow restrictions by the member states of so-called ‘current transac­
tions ’.595 This leaves them die power to regulate the inflow and outflow o f ‘capital
transactions’ as opposed to ‘current transactions’.596

591 O n the overlap with BITs and the legal consequences, see R Dolzer, ‘Transfer of Funds:
Investment Rules and dieir Relationship to other International Agreements’ in International Monetary
and Financial La.iv (2010) 533.
592 Continental Casualty v Argentina, Award, 5 September 2008, paras 241 et seq.
593 At paras 240, 241.
594 R Dolzer and M Stevens, Bilateral Investment Treaties (1995) 85.
595 Article VIII of the IM F’s Articles of Agreement states:
. . . Section 2. Avoidance of restrictions on current payments: (a) Subject to die provisions
o f Article VII, Section 3(b) and Article XTV, Section 2, no m ember shall, w ithout die
approval of the Fund, impose restrictions on the making of payments and transfers for
current international transactions, (b) Exchange contracts which involve the currency o f any
member and which are contrary to the exchange control regulations of diat member
m aintained or imposed consistently with this Agreement shall be unenforceable in the
territories of any member. In addition, members may, by mutual accord, cooperate in
measures for the purpose of making the exchange control regulations of either member
more effective, provided that such measures and regulations are consistent with this
Agreement.
596 Article XXX(d) o f the IM F’s Articles of Agreement defines payments for current transactions in
the following terms:
Payments for current transactions means payments which are not for the purpose of
transferring capital, and include, w ithout limitation: (1) all payments due in connection
with foreign trade, other current business, including sendees, and normal short-term
banking and credit facilities; (2) payments due as interests on loans and as net income
from odier investments; (3) payments of moderate amount for amortization of loans or for
depreciation o f direct investments; and (4) moderate remittances for family living expenses.
The Fund may, after consultation with die members concerned, determine whether certain
specific transactions are to be considered current transactions or capital transactions.
214 Standards o f Protection

Rules on transfer deal with the investor’s right to make transfers, the types of
payment covered by diis right, with convertibility and exchange rates, and with
limitations on the freedom of transfer.597 In relation to the applicable IMF Rules,
the Tribunal in Continental Casualty v Argentina:598 properly considered that the
BIT provisions on transfer are more liberal and will have to be considered as lex
specialis.
A major point of divergence between treaties relates to the question whether the
right to transfer funds concerns only the transfer out of the host countiy or whether
it covers inward transfers as well.599 Most treaties cover both directions, but some
treaties only address the duty of the host state to guarantee the right to transfer
investments and returns abroad, dius referring only to outward payments. If
transfers are allowed in general terms, such as ‘in relation to investments’, both
directions of transfer are covered.
Practically no treaty grants an absolute right to make transfers to investors. Some
treaties state that the rights guaranteed to die investor exist only ‘subject to the
laws’ of the host state. For the investor, such a restriction substantially reduces
the value of the right to transfer, especially since die national laws of the host state
may be revised in the future as the host state deems appropriate.
The right to transfer is sometimes limited to certain types of transfer. Often, the
principal rules guarantee the right of free transfer ‘of payments resulting from
investment activities’, or they permit all transfers ‘related to an investment’ or ‘in
connection with an investment’.600 In other treaties, the right to make transfers is
not generalized. Types of payment covered by the transfer clause are often indicated
in specific categories; sometimes in an exhaustive manner, sometimes in an illus­
trative manner. Such categories may refer to profits, interest, dividends, other
current income, funds necessary to finance an investment, proceeds of liquidation,
payments under a contract, management fees, royalties, or other items. Often,
returns, loan payments, liquidation proceeds, or payments from licences and
royalties are guaranteed free transfer, whereas qualifications of this right may be
found for the transfer of salaries.
Most treaties state that the investor has the right to carry out the transfer in a
freely convertible currency, that the transfer takes place at die official rate of
exchange of the host state on the date of the transfer, and that the transfer will be
authorized ‘without delay’, ‘without undue delay’, or that the procedures are carried
out ‘expeditiously’.601 It remains the investor’s responsibility to comply with the
established procedure to obtain the necessary audiorizations.602

597 Measures by the host state which affect the opportunity to earn profits will not be deemed to
violate the provision on the right of transfer. See Biwater G aujf v Tanzania, Award, 24 July 2008,
para 735.
598 At paras 243—4.
x" U N C TA D , Bilateral Investment Treaties 19.95—2006: Trends in Investment Rulemaking (2007)
57 et seq.
600 R Dolzer and M Stevens, Bilateral Investment Treaties (1995) 87—8.
601 Sometimes a specific time limit is mentioned, such as one month, diree months, or four
months.
602 Metalpar v Argentina, Award, 6 June 2008, paras 176-9.
 Tmnsfer offimds 215

Today a liberalization of financial markets is considered advantageous for the

investor and for the host state. But the experience o f host states, during periods
of financial disorder, indicates that in those times the government may need the
power to place restrictions on the right to transfer.
Three approaches can be found in recent treaty practice to allow such restric­
tions .603 Some treaties are based on the view that the short-term withdrawal of
funds by the investor is undesirable under all circumstances and therefore only
allow transfer out of the host country one year after the capital has entered the
territory. A second approach is to place restrictions on the right to transfer during
periods of severe balance-of-payments crises, external financial difficulties, or other
exceptional circumstances affecting monetary policies or the exchange rate. A third
approach, more recently favoured by Canada, the United States, and Japan,
specifically concerns the right to restrict the freedom to provide financial services
during extraordinaiy periods, preserving the right of the host and the home state to
maintain ‘the safety, soundness, integrity or financial responsibility of financial
institutions ’.604 Clauses of this kind will be especially important in the context of
treaties that cover the right to provide financial services. However, this approach
may in the future also receive more attention in all treaties covering the right to
transfer funds.

603 U N C TA D , Bilateral Investment Treaties 1995—2006: Trends in Investment Rulemaking (2007)

62 et seq.
604 See Art 20 (Financial Sendees) of the 2004 and 2012 US Model BITs:
1. Notw ithstanding any other provision of this Treaty, a Party shall not be prevented from
adopting or maintaining measures relating to financial services for prudential reasons,
including for the protection of investors, depositors, policy holders, or persons to whom a
fiduciary duty is owed by a financial services supplier, or to ensure the integrity and stability
o f the financial system. It is understood that the term ‘prudential reasons’ includes the
maintenance o f the safety, soundness, integrity, or financial responsibility of individual
financial institu tio n s. . . .
O n the N AFTA Rules, see Fireman’s Fund v Mexico, Award, 17 July 2006, paras 156 et seq.
 7111
State Responsibility and Attribution

1. O rgans, provinces, and m unicipalities

Under customaiy international law, a state is responsible for all its organs. Similarly
the state is responsible for its territorial units such as provinces and municipalities.
This principle of attribution follows from the concept of the unity of the state
and applies to organs at all levels and regardless of the position of the organ in
the state’s administrative organization. Therefore, lower level officials may incur the
state’s responsibility in the same way as the highest representatives of the state.
The state’s responsibility extends to all branches of the government, that is, to die
executive, the legislature, and to the judiciary.
This principle of attribution is set out in the International Law Commission’s
(ILC’s) Articles on State Responsibility 1 in the following terms:
Article 4 C onduct o f organs o f a State
1. T h e conduct o f any State organ shall be considered an act o f that State under inter­
national law, w hether the organ exercises legislative, executive, judicial or any other
functions, whatever position it holds in the organization o f the State, and whatever its
character as an organ o f the central governm ent or o f a territorial u n it o f the State.
2 . A n organ includes any person or entity which has that status in accordance w ith the
internal law o f the State .2

The Commentary to the ILC’s Articles adds the following explanation:

(6 ) T hus the reference to a State organ in article 4 is intended in the m ost general sense. It is
not lim ited to the organs o f the central governm ent, to officials at a high level or to persons
w ith responsibility for the external relations o f the State. It extends to organs o f government
o f whatever kind or classification, exercising whatever functions, and at whatever level in the
hierarchy, including those at provincial or even local level. N o distinction is m ade for this
purpose between legislative, executive or judicial organs .3

1 Articles on Responsibility of States for Internationally W rongful Acts adopted by the International
Law Commission at its 53rd session in 2001.
2 j Crawford, The International Law Commission’s Articles on State Responsibility (2002) .94.
3 Crawford, n 2, p 95.
 Organs, provinces, and municipalities 217

(a) State organs

The practice of investment tribunals has followed die principle o f responsibility for
all state organs and has applied it to the relationship of states with foreign investors.
The tribunal in CMS v Argentina4 said:
In so far as the international liability of Argentina under the Treaty is concerned, it also does
not matter whether some actions were taken by the judiciary and others by an administrative
agency, the executive or the legislative branch of the State. Article 4 of the Articles on State
Responsibility adopted by the International Law Commission is abundantly clear on this
point.5
More specifically, tribunals have held that actions by a variety of state organs were
attributable to the state. These included action by a government minister,6 the
armed forces and police,7 the state treasury,8 the legislature,9 and the courts. 10 In
M C I Power v Ecuador,11 the Tribunal looked to a combination o f the institutional
structure, the composition, and the functions when determining that a public-
sector agency (Institute Ecuatoriana de Electrificacion) was a state organ. On the
other hand, tribunals have refused to find that actions by private persons were
attributable to the state.12
Acts of a state’s organs will be attributed to that state even if they are contrary to
law and even if they are in violation of instructions. Put differently, a state cannot
plead that the actions of its organs were ultra vires. The ILC Articles on State
Responsibility say in this respect:
Article 7 Excess of authority or contravention of instructions
The conduct of an organ of a State or of a person or entity empowered to exercise elements
of the governmental authority shall be considered an act of the State under international law
if the organ, person or entity acts in that capacity, even if it exceeds its authority or
contravenes instructions.

4 CM S v Argentina, Decision on Jurisdiction, 17 July 2003.

5 At para 108. See also Loewen v United States, Decision on Jurisdiction, 9 January' 2001, para 70;
Alpha v Ukraine, Award, 8 November 2010, paras 399—403.
6 Texaco v Libya, Preliminary Award, 27 November 1975, para 23.
7 See Amco v Indonesia, Award, 20 November 1984, paras 155, 170-2; AAPL v Sri Lanka, Award,
27 June 1990.
8 Eureko v Poland, Partial Award, 19 August 2005, paras 115-34.
9 Nycomb v Latvia, Award, 16 December 2003, Stockholm Int’l Arb Rev 2005:1, sec 4.2 at p 93.
10 Arnco v Indonesia, Award, 20 November 1984, para 150\ Azintan v Mexico, Award, 1 November
1999, paras 97-103; Loewen v United· States, Decision on Jurisdiction, 9 January 2001, paras 47-60;
Saipem v Bangladesh, Award, 30 June 2009, paras 188-90; Roslnvest v Russia, Final Award, 12
September 2010, paras 602-3.
11 M C I Power v Ecuador, Award, 31 July 2007, para 225.
12 Tradex v Albania, Award, 29 April 1999, paras 136, 147, 165, 169, 175, 198. The Tribunal
found diat the occupation o f a farm, which was part of a foreign investment, by villagers could not be
attributed to Albania. In Bayindir v Pakistan, Award, 27 August 2009, para 119 the Tribunal decided
that the relevant entity was not a state organ because it had separate personality and the acts in question
were those of a part)·' to a contract.
218 State Responsibility and Attribution

This principle has been accepted in arbitral practice. In SPP v Egypt,15 die respond­
ent contended that certain acts of Egyptian officials, upon which the claimants
relied, were null and void because they were in conflict widi the inalienable nature
of the public domain and because they were not taken pursuant to the procedures
prescribed by Egyptian law. The Tribunal rejected this argument and emphasized
that the investor was entided to rely on the official representations of the
government:
Whether legal under Egyptian law or not, the acts in question were the acts of Egyptian
authorities, including the highest executive authority of the Government. These acts, which
are now alleged to have been in violation of the Egyptian municipal legal system, created
expectations protected by established principles of international law.14
In Kardassopoidos v Georgia,15 the claimant had received several representations
from the host state to the effect that a concession was valid and that its investment
was in accordance with local law. Before the Tribunal, Georgia argued diat die
concessions had been awarded in breach of Georgian law and were void ab initio.
The Tribunal, relying on Article 7 of the ILC Articles and on SPP v Eg)pt, ruled
that the representations were attributable to Georgia and that the claimant had a
corresponding legitimate expectation and the host was estopped from arguing
before a tribunal that the concession was void ab initio.

(b) Provinces and municipalities

The same principles of attribution apply to die acts of territorial units of states, such
as provinces and municipalities. Some treaties for the protection of investments
specifically state that they apply to the political subdivisions of the parties.16 The
Energy Charter Treaty (ECT) in Article 23(1) contains a provision on the obser­
vance of the treaty by sub-national authorities:
Each Contracting Party is fully responsible under this Treaty for the observance of all
provisions of the Treaty, and shall take such reasonable measures as may be available to it to
ensure such observance by regional and local governments and authorities within its Area.
This provision restates rather than amends the traditional rule of attribution.
Investment tribunals have consistently applied the rule diat the central govern­
ment is responsible for the acts of its territorial units. The Tribunal in Vivendi P 7
said in this respect:
it is well established that actions of a political subdivision of federal state, such as the
Province of Tucuman in the federal state of the Argentine Republic, are attributable to the

13 SPP v Egypt, Award, 20 May 1992.

14 At para 83·
15 Kardassopoulos v Georgia, Decision on Jurisdiction, 6 July 2007, paras 185—94. See also ORO
Pankki v Estonia, Award, 19 N ovem ber 2007, para 274.
16 T he Argendna-US BIT, Art XIII provides: ‘This Treaty shall apply to the political subdivisions of
the Parties.’
17 Vivendi v Argentina, Award, 21 November 2000.
 State entities 219

central government. It is equally clear that the internal constitutional structure of.a country
cannot alter these obligations.18
Tribunals have applied this rule to provinces,19 constituent stares,20 and municipalities.21

2. State entities

(a) T he role o f state entities

In a number of countries, policy issues and operational matters concerning foreign
investments are not handled by the central government. Instead, state entities have
been created for the purpose of dealing with foreign investors (or with all investors).
The position widiin the hierarchy of the government and the degree of legal
independence of these entities vary. The reasons for the establishment of these
separate entities are primarily specialization and efficiency.22
The existence of these separate national entities in the field of foreign investment
must be reconciled with the international principle of the unity of the state. This
has raised issues of attribution of acts of these entities to die state, which are not
restricted to the field of foreign investment. Domestic classifications will not be
decisive in this context. These issues form part of general international law, and
they play a significant role in matters of state responsibility. In the field of foreign
investment, matters of attribution have most often come up on the side of the
respondent when a state argues that acts by state entities cannot be attributed to the
state. However, the issue may also be relevant for a claimant whom a respondent
considers as a state entity radier than a national of another state .23
In principle, state entities are separate and their acts will not be attributed to the
state. However, several exceptions qualify this principle: the separation will not be
respected if the corporate veil has been created as a means for fraud and evasion.24
Also, conduct will be attributed to the state in cases where the corporation exercises

18 At para 49. Footnores omitted. In the same sense: A D F v United States, Award, 9 January 2003,
para 166.
19 Enron v Argentina, Decision on Jurisdiction. 14 January 2004, para 32. See also die case of Heirs
o f the Due de Guise, 15 September 1951, XIII RIAA 150, 161, in which the F ranco-Italian Conciliation
Commission held that die Italian state was responsible for the conduct of Sicily even though Sicily
enjoyed a status o f autonom y in Italian law.
20 Mondev v United States, Award, 11 O ctober 2002, para 67.
Metalclad v Mexico, Award, 30 August 2000, para 73; Tokios Tokeles v Ukraine, Decision on
Jurisdiction, 29 April 2004, para 102.
~ See, generally, L Schicho, State Entities in International Investment Law (2012); Organisation for
Economic Co-operation and Development (O EC D ), Public Sector Modernisation: Changing Organisa­
tional Structures, O E C D Policy Brief (2004).
~3 In CSOB v Slovak Republic, Decision on Jurisdiction, 24 May 1999, paras 15 et seq, the legal
status o f the claimant as a foreign private party (as opposed to a state agency) was in dispute. See at
pp 250-1.
^ See International C ourt of Justice, Barcelona Traction Case, Judgm ent, 5 February 1970, ICJ
Reports (1970) 3, 39, paras 56-8.
220 State Responsibility and Attribution

public power.25 Another exception concerns a situation of ownership by the state

where control is exercised in order ‘to achieve a particular result’.26
In general, matters of state responsibility, including attribution, are regulated in
customary international law. Exceptionally, there are provisions in treaties diat
provide for the responsibility of states for action of their entities.27 In Genin v
Estonia,28 this principle was reflected in a specific provision of the bilateral invest­
ment treaty (BIT). The Tribunal said:
The Bank of Estonia is an agency of a Contracting State. The Estonian central bank is a
‘state agency’, as denned by the BIT, which stipulates in Article II 2(b) that ‘Each Party shall
ensure that any stare enterprise that it maintains or establishes acts in a manner diat is not
inconsistent with the Party’s obligations under this Treaty wherever such enterprise exercises
any regulatory administrative or other governmental authority that the Party has delegated
to it, such as the power to expropriate, grant licenses----’ The Republic of Estonia is
therefore the appropriate Respondent to a complaint relating to the conduct of the Bank of
Estonia.29
Matters of attribution governed by general international law include the question
whether contracts or other acts undertaken by state entities are binding for the state
that created those entities .30 Questions have also arisen as to whether commitments
undertaken by state entities can be considered to amount to jurisdictional consent

25 See eg Phillips Petroleum v Iran, 21 Iran-U S C T R 79 (1989).

26 SeeJ Crawford, The International Law Commission’s Articles on State Responsibility (2002) 113,
para 6; also Foremost Teheran v Iran, 10 Iran-U S C T R 288 (1986); American Bell v Iran, 12 Iran-US
C T R 170 (1986).
27 ECT, Art 22 provides for special legal obligations o f each stare in regard to activities on the part
of state enterprises:
(1) Each Contracting Part}' shall ensure rhat any state enterprise which it maintains or
establishes shall conduct its activities in relation to the sale or provision o f goods and services
in its Area in a manner consistent with the Contracting Party’s obligations under Part III of
this Treaty. (2) N o Contracting Party shall encourage or require such a state enterprise to
conduct its activities in its Area in a manner inconsistent widi the Contracting Party’s
obligations under other provisions o f this Treaty. (3) Each Contracting Party shall ensure
diat if it establishes or maintains an entity and entrusts the entity with regulator)7, adminis­
trative or other governmental authority, such entity shall exercise that authority in a manner
consistent with the Contracting Party’s obligations under this Treaty. (4) N o Contracting
Party shall encourage or require any entity to which it grants exclusive or special privileges to
conduct its activities in its Area in a m anner inconsistent with the Contracting Party’s
obligations under diis Treaty.
If is reasonable to assume that under certain circumstances these obligations o f the host state go beyond
die requirements under customary law.
28 Genin v Estonia, Award, 25 June 2001.
29 At para 327.
30 This area of the law is closely connected w ith the view that a state cannot invoke provisions of
domestic law as a defence against the violation of an international obligation (see Vienna Convention
on the Law of Treaties, Art 27). See also in this respect, the decision o f the ad hoc Committee in
Vivendi v Argentina, Decision on Annulm ent, 3 July 2002, at para 101-7 (emphasizing the distinction
between issues of attribution and responsibility in view of the unclear reasoning of the first Vivendi
decision). In Perenco v Ecuador, Decision on Jurisdiction, 30 June 2011, paras 182-219 a contractual
clause was to be applied which defined the parries to the contract as ‘the Ecuadoran State, t h r o u g h
Petroecuador, and the Contractor’. The Tribunal concluded that Petroecuador had a separate legal
personality, but diis did not mean diat Petroecuador became a party to that contract.
 State entities 221

on the part of the state itself, and also whether actions taken by those entities must
be attributed to the stare when it comes to liability for violation of treaty rights and
relevant rights of the investor under general international law. Considerations of
state unity also arise when die state entity is the respondent and measures by the
state affect the relationship between the foreign investor and the state entity.

(b) Structure, function, and control

The relevant rules of attribution ,31 as found in general international law, are
reflected in the ILC’s Articles on State Responsibility.32 The Articles differentiate
between conduct by organs of the state (see Art 4, quoted above) and other entities,
which are empowered to exercise elements of governmental authority, in Article 5.
That Article provides:
Article 5 Conduct of persons or entities exercising elements of governmental authority
The conduct of a person or entity which is not an organ of the State under Article 4 but
which is empowered by the law of that State to exercise elements of the governmental
authority shall be considered an act of the State under international law, provided the person
or entity is acting in that capacity in the particular instance.
Whereas Article 4 refers to attribution on the basis of structure, Article 5 refers to
attribution on the basis of function. Recent jurisprudence of the International
Centre for Settlement of Investment Disputes (ICSID) reflects this terminology
referring to a ‘structural test’ (corresponding to the rule in Art 4) and a ‘functional
test’ (along the lines of Art 5).33
Article 5 of the ILC’s Articles covers the exercise o f governmental authority by
entities that do not fall into the category of ‘organs of state’. The key term is
‘governmental authority’, and relevant cases will often turn on the meaning of this
concept. The Commentary to the ILC’s Articles adds the following explanation:
If it is to be regarded as an act of the State for purposes of international responsibility, the
conduct of an entity must accordingly concern governmental activity and not odier private
or commercial activity in which the entity may engage. Thus, for example, the conduct of a
railway company to which certain police powers have been granted will be regarded as an act
of the State under international law if it concerns the exercise of those powers, but not if it
concerns other activities (e.g. the sale of tickets or the purchase of rolling-stock).34

31 O n the development o f the law, see K H Boclcstiegel, ‘Arbitration and State Enterprises’ (1985)
1 Arbitration International 195.
32 See eg Noble Ventures v Romania, Award. 12 October 2005, para 69.
33 For a different understanding of these terms, see LESI v Algeria, Award, 12 November 2008,
paras 106 et seq.
J Crawford, The International Law Commission's Articles on State Responsibility (2002) 101. In
LESI v Algeria, Award, 12 Novem ber 2008, the Tribunal examined, in paras 102 et seq, not just
whether the entity in question exercised governmental functions and whether the act in question was of
a governmental nature, but also whether the act was to be attributed in view of the specific complaint
under the relevant standard of protection. O n the need to consider (a) not only the powers of the entity
in general, but (b) also the specific act in question, see Jan de N u l v Egypt, Award, 6 November 2008,
paras 163-71 and Hamester v Ghana, Award, 18 June 2010, paras 202 et seq.
222 State Responsibility and Attribution

For the purpose of determining what is ‘governmental’, the ILC Commentary

proposes to rely on the particular society and its traditions .35 An alternative
approach would be to focus on a comparative standard and to consider, from an
objective point of view, what is normally regarded as ‘governmental audiority 1 in a
contemporary setting. The formal designation in the particular domestic legal
system should not be decisive. However, the manner in which the entity is
empowered by the state, the content of the powers conferred, and the links between
the entity and the state organs must be considered in the context of each case.
In addition to structure and function, the ILC Articles also use the criterion of
state control over the entity. Article 8 of the Articles provides:
Article 8 Conduct directed or controlled by a State
The conduct of a person or group of persons shall be considered an act of a State under
international law if the person or group of persons is in fact acting on the instructions of, or
under die direction and control of, that State in carrying out the conduct.
The Commentary to the ILC Articles explains that ‘w here. . . the State was using its
ownership interest in or control of a corporation specifically in order to achieve a
particular result, the conduct in question has been attributed to the State’.36
Therefore, attribution to the state of conduct under the ‘direction or control’ of
the state requires not only that the entity is generally controlled by the state but that
the individual operation in question was effectively controlled and diat the act was a
genuine part of that operation.
Key terms of the Articles were drafted with a broad brush in general terms,
leaving their application to tribunals addressing specific factual settings. Thus,
simple reference to the text of the Articles cannot replace an appropriate analysis
and explanation of the manner in which the specific setting of the case has to be
understood in light of the Articles. In specific cases, the text of the Articles may have
to serve as the starting point rather then the end of the reasoning.
It has been pointed out that the levels of control required for attribution under
Article 8 in the context of an investment dispute may differ from the standard
applied in odier areas of international law, such as in the laws on armed interven­
tion or international criminal responsibility.37

(c) Judicial practice on attribution

In practice, tribunals have often used a combination of the criteria of structure,
function, and control.38

^ J Crawford, The International Law Commission's Articles on State Responsibility (2002).

36 Crawford, n 35, pp 112-13.
37 See Bayindir v Pakistan, Award, 27 August 2009, para 130.
38 For a detaiied oven'iew of tribunal practice, see J Crawford, ‘Investment Arbitration and the ILC
fwirli A D oen dix)’ (2010) 25 ICSID Review 127.
 State entities 223

This was particularly so where entities exercised diverse functions. In Maffezini v

Spain ,39 the Tribunal made some general remarks about the different principles
to be applied in deciding on attribution. It considered structure, function, and
control:
The question whether or not SODIGA is a State entity must be examined first from a formal
or structural point of view. Here a finding that the entity is owned by the State, directly or
indirectly, gives rise to a rebuttable presumption that it is a State entity. The same result will
obtain if an entity is controlled by the State, directly or indirectly. A similar presumption
arises if an entity's purpose or objectives is the carrying out of functions which are
governmental in nature or which are otherwise normally reserved to the State, or which
by their nature are not usually carried out by private businesses or individuals.40
The Maffezini Tribunal examined various activities of a state entity, including
giving advice to the investor and transfer of funds from the personal account of the
investor by the entity. The Tribunal considered the advisory part as commercial
and the transfer of funds as an exercise of public functions.41 The Tribunal said:
In dealing with these questions, die Tribunal must again rely on the functional test, that is,
it must establish whether specific acts or omissions are essentially commercial rather than
governmental in nature or, conversely, whether their nature is essentially governmental
rather than commercial. Commercial acts cannot be attributed to the Spanish State, while
governmental acts should be so attributed.42
In Salini v Morocco,43 the Tribunal ruled on the status of a Moroccan company
(ADM) entrusted with the construction, maintenance, and operation of highways
and major communication routes. The Tribunal considered, on the structural side,
that ADM was a commercial company, incorporated as a limited liability company
with its own legal personality. The state held 89 per cent of the stock of the
company. The Board of Directors included, as President of ADM, the Minister
of Infrastructure and a number of officials who depended upon the Minister of
Economy and Finance. Thus, de facto, the state controlled and managed
ADM. O n the functional side, the Tribunal noted that the tasks of ADM, that
is, the building of highways and communication routes, were matters of the state .44
The Tribunal said:

39 Maffezini v Spain, Decision on Jurisdiction, 25 January 2000. For a detailed analysis, see
A Cohen Smutny, ‘State Responsibility and Attribution. W hen Is a State Responsible for the Acts of
State Enterprises? Emilio Agustin Maffezini v The Kingdom o f Spain in T Weiler (ed), International
Investment Law and Arbitration (2005) 17.
40 At para 77.
41 Giving advice to a foreign investor regarding the cost of a project was deemed commercial, given
chat other commercial entities provide the same service. Advice on environmental legislation also did
not give rise to state responsibility. However, the state entity was seen to carry out a governmental
function when it transferred funds from the investor’s account by way of granting a loan, not
authorized by the investor, to a Spanish entity.
42 At para 52.
43 Salmi v Morocco, Decision on Jurisdiction, 23 July 2001, paras 31 et seq.
44 At para 33. See also LESI/Dipenta v Algeria, Award, 10 January 2005.
224 State Responsibility and Attribution

ADM being, borh from a structural and functional point of view, a body distinguishable
from the State only by virtue of its legal status, the Tribunal... concludes that the Italian
companies have shown that ADM is a State company, acting in the name of the Kingdom of
Morocco.45
The Tribunal in Noble Ventures v Romania,46 had to consider the status of two
Romanian endues, possessing legal personality, that were entrusted with the task of
implementing a privatization programme under the control of the government.
The two agencies exercised the state’s rights in shareholder meetings, undertook
measures to prepare for privatization, and sold shares held by the government. The
Board o f the agencies was appointed and dismissed by the Prime Minister and it
included ex officio the President of the Romanian Development Agency.
In the Tribunal’s view, the agencies could not be considered state organs within
the meaning of Article 4 o f the ILC Articles, since they were separate legal entities.
However, the decision concludes that the two agencies ‘acted as the empowered
public institution under die Privatization Law’.47 Therefore:
the Tribunal concludes that SOF and APAPS were entitled by law ro represent the
Respondent and did so in all of their actions as well as omissions. The acts allegedly in
violation of the BIT are therefore attributable to the Respondent for the purposes of
assessment under the BIT.48
In contrast to Maffezini, Noble Ventures rejected the position that governmental
and commercial conduct is to be distinguished for purposes of attribution. The
Tribunal stated:
in the context of responsibility, it is difficult to see why commercial acts, so called acta iure
gestionis, should by definition not be attributable while governmental acts, so called acta iure
imperii, should be attributable. The ILC-Draft does not maintain or support such a
distinction. Apari from the facr that there is no reason why one should not regard
commercial acts as being in principle also attributable, it is difficult to define whether a
particular act is governmental. There is a widespread consensus in international law, as in
particular expressed in the discussions in the ILC regarding attribution, that there is no
common understanding in international law of what constitutes a governmental or public
act.49
However, this position differs from the ILC Articles. They assume that attribution,
regardless of the nature of the act, applies only widi respect to state organs.50 Noble

45 At para 35.
46 Noble Ventures v Romania, Award, 12 October 2005, paras 69 et seq.
47 At para 79.
48 Ar para 80. Another example of an emit}' exercising governmental functions is a state Board set
up in Ghana, widi the mission of regulating the export and marketing of cocoa, promoting production
and cultivation, and undertaking research for improving the quality of cocoa. See Hamester v Ghana,
Award, 18 June 2010, para 189.
49 At para 82.
50 J Crawford, The International Law Commission's Anicles on State Responsibility (2002) 96. In this
r™ff· Afaha v Ukraine, Award, 8 Novem ber 2010, para 402.
 State entities 225

Ventures extends this position beyond state organs to separate state agencies, based
on the assumption that it is difficult to define a governmental act’.
Impregilo v Pakistan7’1 did not address an issue of state responsibility for conduct
violating a rule of international law but responsibility of a state for breach of a
municipal law contract. The Tribunal distinguished between governmental acts, in
this case violations of the BIT, and simple breaches of contract. It said:
a clear distinction exists between the responsibility o f a State for the c onduct o f an entity th at
violates international law (e.g. a breach o f Treaty), and the responsibility o f a State for die
conduct o f an entity that breaches a m unicipal law contract (i.e. Im pregilo’s C ontract
Claims ) . 32

On this basis, the Tribunal found that its jurisdiction did not extend to mere
breach of a contract to which an entity other than the state was a named party .53
In Toto v LebanonJjA the Tribunal had to rule on the attribution of die acts of a
Lebanese entity (CEPG) which undertook public works projects entrusted to it by
the Ministry of Public Works and Projects. The funding of CEPG came from the
state and the ton management of CEPG was appointed by the Council of Minis­
ters. A second entity (CDR), the successor of CEPG, acted as an agent of the state,
as a consultant to the Ministry and the legislative branch, and all its plans and
projects were subject to approval by die Council of Ministers. The Tribunal found
that both CEPG and CDR exercised governmental authority in the sense or Article
5 of the ILC Articles.
Other decisions similarly look at a combination of structure, function, and
control in order to determine the attribution of actions of state entities to the
state.55 In strict theory, the presence of any one of the possible criteria (status as
state organ, governmental function, control) would suffice to establish attribution.
In practice, tribunals have not followed the strict separation of these categories but
have typically looked at them in conjunction.
Generally, the practice of tribunals is consistent with the position that delegating
the state’s activities to separate entities will not permit avoidance of responsibility
for breach of a treaty.

51 Impregilo v Pakistan, Decision on Jurisdiction, 22 April 2005.

52 At para 210.
53 In support o f its decision, the Tribunal cited RFCC v Morocco, Decision on Jurisdiction, 16 July
2001, para 68 and Cable Television o f Nevis v Federation o f St Kitts and Nevis, Award, 13 January 1997,
para 2 .2 2 .
Toto v Lebanon, Decision on Jurisdiction, 11 September 2009, paras 51 et seq.
55 Wintershall v Qatar, Partial Award, 5 February 1988, 28 ILM 795, 811 et seq; Nycomb v Latvia,
Award, 16 December 2003, sec 4.2; Waste Management v Mexico, Award, 30 April 2004, para 75;
LESI-Dipenta v Algeria, Award, 10 January 2005, para 19; EnCana Corp v Ecuador, Award, 3 February
2006, para 154; Jan de N u l v Egypt, Decision on Jurisdiction, 16 June 2006, paras 83—9; Helnan v
Egypt. Decision on Jurisdiction, 17 October 2006, paras 91-3; A M T O v Ukraine, Award, 26 March
2008, paras 31, 101-2; L E SI v Algeria, Award, 12 November 2008, paras 102-16; Bayindir v Pakistan,
Award, 27 August 2009, paras 111-30; ED F v Romania, Award, 8 October 2009, paras 185~214,
226 State Responsibility and Attribution

(d) State responsibility for failure to protect

In addition to these forms of attribution, a state may be liable as a consequence of
acts of entities if it was under an obligation to protect die investor from adverse
action but failed to do so. In this situation, state responsibility does not arise from
attribution but as a consequence of an independent obligation to protect the
investor. This obligation may arise either as part of the international minimum
standard under customary international law or on the basis of an obligation
contained in a BIT or odier treaty. Under customary international law, as well as
under investment treaties, host states are under an obligation to protect investors
against illegal interference. In BITs this standard is eidier described as hill protec­
tion and security56 or is seen as part of the fair and equitable treatment standard .57
The duty to protect is not directed specifically at state entities; it also includes
protection against the acts of private persons within the limits of due diligence. But
in view of the supervision and control exercised by the state over state entities, as
well as of the knowledge of their planned and actual activities, there is a heightened
duty to protect the investor against adverse actions of such entities.
In Amco v Indonesia?* PT Wisma took over the hotel that was the investment
by force, with the assistance of members of the Indonesian armed forces. In the
Tribunal’s view, the fact that PT Wisma had a close relationship with the army did
not make its acts attributable to Indonesia. But the assistance and lack of protection
by the army/police in connection with the act of illegal self-help committed by PT
Wisma was an international wrong for which the Republic bore responsibility. In
that respect:
T h e T rib u n a l finds th a t alth o u g h it is p ro v en th a t a close relatio n sh ip exists betw een P T
W is m a a n d In k o p ad , a n d b etw een th e la tte r a n d the arm ed fo rc e s . . . this fact in itself does
n o t a ttrib u te the acts o f P T W is m a or its leadership to the G o v e rn m e n t o f In d o n e s ia .. . .
I t is a generally accepted rule o f in te rn a tio n a l law, clearly stated in in tern atio n a l awards
an d ju d g m e n ts an d generally accep ted in th e litera tu re, th a t a S tate has a d u ty to p ro tect
aliens a n d th e ir in v estm en t against u nlaw ful acts c o m m itte d by som e o f its c itiz e n s .. . .
. . . [T ]h e acts o f P T W i s m a . . . w ere illegal self-help a n d th e assistance to these acts given
to P T W is m a and lack o f p ro te c tio n afforded to P T A m co, a foreign in v esto r in In d o n esia by
th e arm y /p o lice was an in te rn a tio n a l w ro n g a ttrib u ta b le to th e R e p u b lic .59

In Wena Hotels v Egypt,60 agents of EH C had taken over the investment by force,
EHC had the status of a public sector company and its sole shareholder was Egypt.
The shareholder assembly was chaired by the Minister of Tourism who appointed
one half of die Directors of the company, nominated its Chairman, and had the
power to dismiss members of the Board. Moreover, ECH operated within broad
policy guidelines issued by the government and EH C ’s money was treated as
‘public money by the government. Despite these findings relating to structure,

56 See pp 160 et seq. 5/ See pp 130 et seq.

58 Amco v Indonesia, Award, 20 November 1984.
59 At paras 162, 172, and 178.
60 Wena Hotels v Egypt, Award, 8 December 2000.
 Party status for constituent subdivisions or agencies 227

function, and control,61 the Tribunal preferred to base its decision on Egypt’s
failure to protect the investment:
T h e T rib u n a l agrees w ith W e n a th a t E gypt vioiared its o b lig atio n u n d e r A rticle 2 (2 ) o f the
IP P A [the B IT ] to accord W e n a ’s in v estm en t ‘fair a n d eq u itab le tre a tm e n t’ a n d ‘full
p ro tectio n a n d secu rity .’ A lth o u g h it is n o t clear th a t E gyptian officials o th e r th a n officials
o f E H C directly p articip ated in th e A pril 1, 1991 seizures, th ere is su b sta n tia l evidence th a t
E gypt w as aw are o f E H C ’s in te n tio n s to seize the hotels a n d to o k n o actions to p re v e n t
E H C fro m d o in g so.62

3. Party status for constituent subdivisions or

agencies under the IC SID C on ven tion

The Convention on the Settlement of Investment Disputes between States and

Nationals of Other States (ICSID Convention) in Article 25(1) and (3) foresees the
possibility that a constituent subdivision or agency of a state may become a party to
arbitration proceedings provided it has been designated to ICSID and if the consent of
that entity has been approved by the state.63 Litde use has been made of this
provision.64 Its procedural aspects are described in Chapter X on dispute setdement.65
The possibility of designating territorial subdivisions and entities and making
them parties to proceedings does not affect the attribution of their actions to the
central government.66 The jurisdictional nature of Article 25 makes it clear that the
rule addresses the determination of jurisdiction ratione personae,67 Article 25(1)
does not set forth any principle of attribution to the state, but merely opens the
possibility for the host state to delegate party status to its territorial subdivision or
entity for jurisdictional and procedural purposes.
The question whether a particular constituent subdivision or entity is eligible for
this purpose is left to the relevant domestic law. The consequence of a designation is
that the entity itself may become a party to ICSID proceedings if a dispute arises
out of a relationship between the investor and the legal entity, provided that the
entity has consented to ICSID jurisdiction and the state has approved the consent
by the entity .68

61 At paras 65—9. 62 At para 84.

63 Article 25(1) o f the ICSID Convention, after the reference to the contracting state part)' to the
proceedings, adds in parentheses, ‘(or any constituent subdivision or agency of a Contracting State
designated to the Centre by that State)’. Article 25(3) provides: ‘Consent by a constituent subdivision
or agency o f a Contracting State shall require the approval of that State unless that State notifies the
Centre that no such approval is required.’
64 A num ber o f states have made designations that are listed on IC SID ’s website at <http://icsid.
worldbank.org/ICSID/Index.jsp>. See also Tanzania Electric v Independent Power Tanzania, Award,
12 July 2001. para 13.
65 See pp 249-50.
66 Vivendi v Argentina, Award, 21 November 2000, paras 46-9.
67 C Schreuer et al, The ICSID Convention: A Commentary (2009), Art 25, paras 230 et seq.
68 For details, see Schreuer, n 67, paras 230 et seq and 903 et sec].
 IX
Political Risk Insurance

The risk for the investor inherent in major investment projects has led to the
evolution of a market for investment insurance schemes.1 The first phase of
insurance programmes commenced in the 1950s and was entirely dominated by
insurers run by national governments, which sought to promote the outgoing
investments of their nationals. In the United States, the Agency for International
Development carried out the task until the Overseas Private Investment Corpor­
ation (OPIC) took over in 1971, In rhe early 1970s, private insurers entered the
market, beginning with Lloyd’s in London and the American International Group
(AIG) in New York. In 1985 the member srates of the World Bank decided to
establish an international organization, the Multilateral Investment Guarantee
Agency (MIGA), for the same purpose. The Inter Arab Development Bank is
charged primarily with underwriting investment insurance on the regional level.2
The purpose of national programmes is tied to the promotion of the national
economy. Often, protection is granted only to national companies and their
projects in countries friendly to the investor’s home country. Covered risks are
usually expropriation, non-convertibility of currency, and political violence. OPIC,
for instance, covers matters of expropriation, non-convertibility, and losses due to
war, revolution, insurrection, and civil strife.3
Some of the national programmes are subsidized, such as the German one, while
others such as OPIC in the United States purport to act without a burden to the
taxpayer. The creation of the MIGA was prompted, according to its Preamble, by
the recognition ‘that the flow of foreign investment to developing countries would
be facilitated and further encouraged by alleviating concerns related to non­
commercial risks.’
Private companies entered the investment insurance market on the assumption
of higher efficiency and an acceptable margin of profit. In its original context and
design, the private programmes emerged as extensions of traditional forms of
marine insurance.
Private insurers seek to diversify their own risk by schemes of mutual cooper­
ation with other companies and also by leveraging their operations by reliance on
reinsurers. They have the advantage, vis-a-vis the public sector, of being able to

1 According to a report published in 2009, only 14 per cent of die total global flow of foreign direct
investment is covered by insurance, see MIGA Report, World Investment and- Political Risk (2009) 34.
2 See I Shihata, ‘Regional Investm ent Insurance Project’ (1972) 6 J World Trade Law 185.
3 See USC § 2194.
 Political Risk Insurance 229

tailor their products ro the needs of the individual company insured. They can price
and accept or reject risk based on commercial considerations and are able to act
speedily and flexibly. According to an agreement among private insurers (Water­
borne Agreement), they exclude nuclear risks, but will otherwise underwrite war
risk on a controlled basis as part of a political risk account and now routinely insure
against terrorism, although this risk is often supported by government-backed
reinsurance. Private insurers do not in practice cover the risk of currency devalu­
ation or depreciation.
The strongest difference between private and public insurers concerns the time
horizon of die insurance offered: whereas the public sector has been prepared to
offer coverage for up to 20 years, private companies typically limit their risk by
offering protection for much shorter periods. While some private market political
risk insurers offer coverage for up to 15 years, others limit themselves to much
shorter periods, sometimes only for diree years, subject to renewal.
The existence, side by side, of these actors presents a unique panorama of
competitive and complementary services by the private sector, national governmen­
tal agencies, and international actors. Expectations held previously that the activ­
ities of the private sector might obviate or crowd out die need for die service of
public institutions turned out to be unrealistic, at least over the past decades. Some
government agencies, notably OPIC, seek to cooperate with the private sector and
not just to compete with it. The result is often coinsurance and reinsurance.
To some extent, governmental insurance programmes reflect foreign policy goals
of the government especially as regards eligibility of projects, Also, major types of
investment risks have remained so difficult to assess in mathematical terms or so
risk prone that private insurers have decided not to cover them. Thus, national
insurance agencies work in a hybrid manner, reflecting principles of prudent private
risk management but also governmental characteristics.
As for competition between domestic insurers, private and public, and MIGA,
they differ in their willingness to accept various types of risk and offer different races
for different packages of insurance. Altogether, overlapping elements exist among
the policies and activities of the different insurers, and the divergences are explained
by die different goals and institutional settings. The various existing regimes diverge
in part in regard to the types of investment covered. Exports are covered by MIGA
if they contribute significantly to a specific investment.4 Activities of the host state
when acting as a purchaser, supplier, manager, and creditor are excluded from
coverage by O PIC .5 MIGA is only prepared to insure an investment that satisfies
its understanding of economic soundness and has received host countiy approval.6
The rules of MIGA do not, however, require specific standards of protection
of foreign investment in the host countiy. This is because MIGA only insures

4 ‘Com m entary on the Convention Establishing the Multilateral Investment Guarantee Agency’
(1986) 1 IC SID Review-FILJ 193, 201.
3 See Art 4.03(b) o f the O P IC Contract of Insurance Against Inconvertibility, Expropriation,
Political Violence (Form 234 K G T 12—85, 2nd rev), reprinted in R D Bishop, j Crawford, and
W M Reisman, Foreign Investment Disputes (2005) 517, 519.
6 See Convention Establishing die Multilateral Investment Guarantee Agency, Arts 12(d) and 15-
230 Political Risk Insurance

risk in ‘MIGA member countries where there is a bilateral agreement between

MIGA and the host government.
It has been the general practice o f government insurers to conclude agreements
with host countries that provide for subrogation. This means that the investor’s
rights against the host country are assigned to the insurer upon payment under the
insurance contract. Some countries, such as Germany, include clauses to this effect
in bilateral investment treaties (BITs), whereas others, such as the United States,
conclude specific agreements for this purpose. In Germany, governmental insur­
ance will only be granted for investments in countries that have concluded a BIT
with Germany or in which a similar degree of legal security exists.
W ith regard to the types of risk covered, these are similar to those addressed in
BITs. Beyond the protection of assets, most programmes offer protection against
non-compliance with contracts. Also, the risks of currency inconvertibility and
restrictions on currency transfer are covered. O f course, all schemes provide for
protection against direct and indirect expropriation, and some government in­
surers, for example OPIC, and most private insurers also cover cases of business
interruption. Remarkably, the MIGA Convention in Chapter III, Article 11 (a)(ii)
specifically provides diat no loss is covered arising from ‘non-discriminatory meas­
ures of general application which governments normally take for the purpose of
regulating economic activity in their territories’. Risks of war and civil disturbance
are generally covered. OPIC (and most other government insurers and the larger
private sector underwriters) will not cover projects that violate international envir­
onmental standards, create unreasonable health risks, or fail to respect human
rights, in particular workers’ rights.7
Concerning protection of non-compliance with contracts, repudiation or breach
is covered by MIGA if the holder of the guarantee does not have access to a judicial
and arbitral forum or die decision of such a forum is not rendered within a
reasonable period as defined by MIGA, or such a decision is not enforced.8 Non­
payment o f an obligation under an arbitral award may constitute an expropriation
as understood in international law and as covered by an insurance contract, even if
the host country considers that it is not able to pay the amount due under the
arbitral award .9
Disputes have arisen between insured investors and the insurer when the two
sides have disagreed on the interpretation or application of the insurance contract.
Typically, such disputes are resolved through arbitration provided for in the
insurance contracts. Often, die resulting decisions deal with legal issues that appear

7 See generally M Perry, ‘A Model for Efficient Aid: The Case for Political Risk Insurance Activities
of the Overseas Private Investment Corporation’ (1996) 36 Virginia J I n t’l L 511; see USC 22, §§ 2199
et seq.
8 See M IG A Convention, Ch III, Art 11 (a)(ii).
9 See eg MidAmerican Energy Holdings Company v OPIC, citing die Restatement (Third) o f Foreign
Relations Law (1999), § 712, cm t h and the Harvard Draft Convention on the Internationa! Responsi­
bility o f Stares for Injuries to Aliens; an excerpt of the case is reprinted In D Bishop, J Crawford, and
M Reisman, Foreign Investment Disputes (2005) 563 et seq. But see also the position that non-payment
of debts will not amount to an expropriation (Waste Management), p 129.
 Political Risk Insurance 231

similar to those that arise in the relationship between the host state and the investor
in the context of a BIT. For instance, the investor may claim that its treatment by
the host state amounts to an indirect expropriation as covered by an insurance
contract.
In a number of disputes, tribunals set up under insurance contracts have
addressed legal issues of expropriation, currency inconvertibility, breaches of con­
tract, the consequences of political violence, and attribution. Some decisions of
these tribunals set up under insurance contracts have been relied upon in disputes
between investors and states. 10 The authority of arbitral awards rendered under
insurance contracts to disputes between states and foreign investors will depend,
not least, on whether the provisions in insurance contracts and the standards of
protection in treaties and customary international law are the same.

10 The Award in Revere Copper v OPIC, Award, 24 August 1978, 56 ILR (1980) 258. is often cited
in the context of defining an indirect expropriation.
 X
Settling Investment Disputes

1. State v state disputes

(a) Diplom atic protection

Under traditional international law investors did not have direct access to inter­
national remedies to pursue claims against foreign states for violation of their rights.
They depended on diplomatic protection by their home states. A state exercising
diplomatic protection espouses the claim of its national against another state and
pursues it in its own name .1 The Permanent Court of International Justice (PCIJ)
explained in the Mavrommatis Palestine Concessions case:
It is an elem entary principle o f international law that a State is entitled to protect its subjects,
w hen injured by acts contrary to international law com m itted by another State, from whom
they have been unable to obtain satisfaction through the ordinary channels. By taking up the
case o f one o f its subjects and by resorting to diplom atic action or international judicial
proceedings on his behalf, a State is in reality asserting its own rights-—its right to ensure, in
the person o f its subjects, respect for the rules o f international law .2

Diplomatic protection is subject to several conditions. The investor, whether it is

an individual or a corporation, must be a national of the protecting state. This bond
of nationality must have existed continuously from the time of the injury until the
claim is presented or, according to some, until the claim is settled. In addition, the
investor must have exhausted the local remedies in the state that has allegedly
committed the violation.
The usefulness of diplomatic protection is limited. The investor has no right to
diplomatic protection but depends on the political discretion of its government.
The government may refuse to take up the claim, it may discontinue diplomatic
protection at any time, and it may even waive the national’s claim or agree to a
reduced settlement. In other words, the investor is never in control of the process.
As the International Court of Justice (ICJ) said in the Barcelona Traction case:3

1 The International Law Commission adopted D raft Articles on Diplomatic Protection in 2006.
See Official Records of the General Assembly, 6 1st Session, Supplement N o 10 (A/61/10). The
Genera] Assembly took note of the draft articles in Res 61/35.
2 Mavrommatis Palestine Concessions Case, PCIJ, Series A, No 2 , 12.
3 Barcelona Traction, Light and Power Co, Ltd (Belgium v Spain), judgm ent, 5 February 1970, ICJ
Reports (1970) 44.
 State v state disputes 233

79, Tlie State m ust be viewed as the sole judge to decide w hether its protection will be
granted, to w hat extent it is granted, and w hen it will cease. It retains in this respect a
discretionary power the exercise o f which may be determ ined by considerations o f a political
or other nature, unrelated to the particular case. Since the claim o f the State is n o t identical
with that o f the individual or corporate person whose cause is espoused, the State enjoys
complete freedom o f action.

Diplomatic protection on behalf of investors also carries important disadvantages

for the states concerned .4 It can seriously disrupt their international relations,
leading to protracted disputes. Developing countries resent pressure from capital-
exporting countries whether it is exercised bilaterally or in multilateral fora such as
international lending institutions. Diplomatic protection in investment disputes by
capital-exporting countries against developing countries has been a frequent-source
of irritation for the latter.
Some countries have gone as far as challenging the permissibility of diplomatic
protection. Under the so-called Calvo Doctrine, Latin American countries have
sought to exclude any special rights for foreigners.5 This has led them to reject
diplomatic protection as an undesirable or even impermissible interference in their
internal affairs or to limit it to cases of denial of justice.
Where the investor’s state of nationality' decides to exercise diplomatic protec­
tion, the primary method of dispute settlement is negotiation. If negotiations prove
fruitless, the protecting state may resort to international adjudication, including the
ICJ. Examples of cases involving the protection of investors brought to the ICJ are
the Barcelona Traction case and the E L SIcase.6 Diplomatic protection may also lead
to arbitration between the two states.7 Nearly all bilateral investment treaties (BITs)
contain arbitration clauses for the settlement of disputes arising from their applica­
tion between the contracting states. The arbitration clauses are often supplemented
by provisions that require consultations and negotiations.
Alternatively, states may resort to unfriendly measures or countermeasures
(reprisals). This right is limited by the prohibition of the use of force. Therefore,
armed force against a host state is not a permissible means of protecting the rights of
foreign investors.
As will be described below, in many cases investors have been granted direct
access to effective means of international dispute settlement. As a consequence,
investment disputes between states have become rare. In many situations investors
no longer depend on the diplomatic protection by their home states.
The right to exercise diplomatic protection may be curtailed by treaty provisions.
The Convention on the Settlement of Investment Disputes be w een States and
Nationals of Other States (ICSID Convention) provides in Article 27(1) that,

4 I Shihata, ‘Towards a Greater Depoliticization of Investment Disputes: the Roles of ICSID and
M IGA’ in I Shihata, The World Bank in a Changing World (1991) 309.
5 See D Shea, The Calvo Clause (1955). -
6 Case Concerning the Elettronica Sicula SpA (ELSI) (US v Italy), Judgment, 20 July 1989, ICJ
Reports (1989) 15.
' See eg the M artini Case, Award, 3 May 1930, 2 RIAA 974; Cancvaro Case, Award, 3 May 1912,
11 RIAA 397: Italy v Cuba, Award, 15 January 2008.
234 Settling Investment Disputes

where consent to investor-state arbitration under the Convention exists, a contract­

ing state may not give diplomatic protection or bring an international claim.
However, under Article 27 (2) this does not exclude informal diplomatic exchanges
for the sole purpose of facilitating setdement of the dispute. In the course of the
Convention’s drafting, the exclusion of diplomatic protection was explained, inter
alia, in terms of the removal of the dispute from the realm of politics and diplomacy
into the realm of law.8 The guarantee against diplomatic protection may constitute
a strong incentive for host states to consent to investor-state arbitration. Any
violation of the prohibition to exercise diplomatic protection under Article 27(1)
of the ICSID Convention would not affect the jurisdiction of the ICSID tribunal.9
Even under the ICSID Convention, the right to diplomatic protection continues
to exist in favour of an investor who has prevailed in investor-state arbitration if the
host state fails to comply with the award. Until recently, diplomatic protection to
secure compliance with awards appears to have played litde, if any, practical role.
Article 64 of the ICSID Convention provides that a dispute between parties to
the Convention concerning its interpretation or application is to be referred to the
ICJ unless it can be settled by negotiation or the states concerned agree on another
method of setdement. The context of this provision and its drafting histoiy make it
clear that this procedure is not to be used to interfere in investor-state dispute
settlement proceedings.10

(b) Direct disputes betw een states

Apart from the espousal of a particular investor’s claim, a dispute may arise between
states simply as a consequence of a general violation of international law, in
particular of a treaty protecting investments.
BITs typically contain two clauses on dispute settlement: one offers arbitration
between the host state and an investor; another provides for arbitration between die
contracting parties to the treaty. During the ICSID Convention’s drafting there
seemed to be consensus that inter-state arbitration should neither interfere in
investor-state cases nor affect the finality of ICSID awards.11
In Lucchetti v Peru, the investor had initiated arbitration against the host state
under a BIT. Thereupon the respondent state initiated inter-state proceedings
under the BIT against Chile, the investor’s home state, and sought a suspension
of the investor-state proceedings. Peru argued that interpretative priority should be
given to the state-state proceedings. The Tribunal in the investor-state proceedings
declined the request for the suspension of proceedings12 and Peru did not subse­
quently pursue the inter-state proceedings.

s Histoiy o f the Convention, vol II, Part 1, pp 242, 273, 303, 372, 464.
9 Banro American v Congo, Award, 1 September 2000, paras 18, 19; Autopista v Venezuela,
Decision on Jurisdiction, 27 September 2001, paras 75, 140.
10 See especially the Report of the Executive Directors to the Convention, para 45.
11 History o f the Convention, vol II, pp 65-6, 273, 274, 349, 350, 433, 435, 527-8, 576-7.
12 Lucchetti v Peru, Award on Jurisdiction, 7 February 2005, paras 7, 9.
 Investor v state disputes 235

In a case brought under the BIT between Italy and Cuba , 13 Italy relied on the
clause for the settlement of disputes between the two contracting states. Italy
presented two types of claim: one category was based on the diplomatic protection
of its nationals; the other concerned Italy’s own rights under the BIT. The Tribunal
held that die exhaustion of local remedies was required for the claims based on
diplomatic protection but not for Italy’s pursuit of its own rights. The several claims
failed for a variety of jurisdictional and merits-related reasons.

2. Investor v state disputes

(a) The limited usefulness of domestic courts

In the absence of an agreement to the contrary, an investment dispute between a
state and a foreign investor would normally have to be setded by the host state’s
courts. Conflict of laws rules will normally point to these courts since the dispute is
likely to have die closest connection to the state in which the investment is made.
From the investor’s perspective, this is not an attractive solution. Rightly or
wrongly, the investor will fear a lack of impartiality from the courts of the state
against which it wishes to pursue its claim. In many countries, an independent
judiciary cannot be taken for granted and executive interventions in court proceed­
ings or a sense of judicial loyalty to the forum state are likely to influence die
outcome. This is particularly so where large amounts o f money are involved.
N ot infrequently, legislation is the cause of complaints by investors. Domestic
courts will often be bound to apply the local law even if it is at odds with
international legal rules protecting die rights of investors. In fact, in some countries
the relevant treaties may not even be part of the domestic legal order. At times,
domestic courts may be the perpetrators of the alleged violation of investor rights . 14
Even where courts decide in the investor’s favour, the executive may ignore their
decisions.15 In all these situations domestic courts cannot offer an effective remedy
to foreign investors.
The courts of the investor’s home countiy and of third states are usually not a
viable alternative. In most cases they lack territorial jurisdiction over investments
taking place in another-state. An agreement on forum selection for investment
disputes in a state other than the host state is unlikely to be accepted by the latter.
The only exception is loan contracts which are often subject to the jurisdiction and
the law of a major financial centre.
An additional obstacle to using domestic courts outside the host state would be
rules of state immunity. Host states dealing with foreign investors will frequently
act in the exercise of sovereign powers (jure imperii) rather than in a commercial
capacity {jure gestionis). Therefore, even in countries which follow a doctrine of

13 Italy v Cuba, Award, 15 January 2008.

14 Saipan v Bangladesh, Award, 30 June 2009.
15 Stag v Egypt, Award, 1 June 2009, paras 436, 448, 4 53-6.
236 Settling Investment Disputes

restrictive immunity, lawsuits against foreign states arising from investment

disputes are likely to fail.16 An explicit waiver of immunity is possible but will be
difficult to obtain.
In addition to sovereign immunity, other judicial doctrines are likely to stand in
the way of lawsuits in domestic courts. The act-of-state doctrine enjoins courts
from examining the legality of official acts of foreign states in their own territory.
For instance, the US Supreme Court has stated that it would not examine the
validity of a taking of property by a foreign government in its territory even if its
illegality under international law is alleged. 17 Further obstacles to lawsuits against
host states in domestic courts of other states would be related doctrines of non­
justiciability, political questions, and lack of a close connection to the local legal
system .18
It is mainly for these reasons that alternative methods have been created for the
settlement of disputes between states and foreign investors. They consist primarily
of granting the foreign investor direct access to arbitration with the host state.

(b) A rbitration and conciliation

The gaps left by the traditional methods of dispute settlement (diplomatic protec­
tion and action in domestic courts) has led to the idea of offering investors direct
access to effective international procedures, especially arbitration. This carries
advantages for both the investor and the host state. The advantage for the investor
is obvious: it gains access to an effective international remedy. The advantage to the
host state is twofold: by offering an international procedure for dispute settlement it
improves its investment climate and is likely to attract more foreign investment.
Also, by consenting to international arbitration the host state shields itself against
other processes, notably diplomatic protection.
In addition, arbitration is usually more efficient than litigation through regular
courts. It offers the parties the opportunity to select arbitrators who enjoy their
confidence and who have the necessary expertise in the field. Moreover, the private
nature of arbitration, assuring the confidentiality of proceedings, is often valued by
parties to major economic development projects. But confidentiality has also come
under attack, leading to calls for more transparency.19
In the vast majority of cases the method chosen for the international settlement
of investor-state disputes is arbitration. A second method is conciliation. Concili­
ation is flexible and relatively informal. It is designed to assist die parties in reaching
an agreed settlement. It takes place before a conciliation commission that examines
the facts and prepares a report that suggests a solution but is not binding on the
parties. The ICSID Convention treats conciliation and arbitration as equivalent

16 See SGS v Pakistan, Decision on Jurisdiction, 6 August 2003. paras 20-5 for a description of
proceedings before the courts of Switzerland.
17 Banco National de Cuba v Sabbatino, 376 US 398, 3 ILM 381 (1964).
18 Chilean Copper Case, Landgericht Hamburg, 22 January 1973, 13 March 1974.
19 See below pp 286-S,
 Investor v state disputes 237

alternatives.20 But conciliation is rarely used, whereas there is frequent resort to

arbitration. The reason is evidendy that conciliation leaves the final word with the
disputing parties. Occasionally, a conciliation procedure is a necessary prerequisite
for arbitration.
Some dispute setdement clauses offer both arbitration and conciliation by either
mentioning both or by referring to the ICSID Convention without further specifi­
cation. In a situation of this kind, the choice between rhe two mediods is with the
party initiating proceedings. In SPP v Egjpt,21 jurisdicrion was based on domestic
legislation which provided for the settlement of disputes ‘within the framework of
the [ICSID] Convention’. Egypt argued that this phrase was insufficient to express
consent to arbitration since it did not refer expressly to arbitration. The Tribunal
rejected this argument:
N o w h ere . . . does the [ICSID] C onvention say diat consent to the C en tre’s jurisdiction
m ust specify w hether die consent is for purposes o f arbitration or conciliation. O nce consent
has been given ‘to the jurisdiction o f the C entre’, the C onvention a n d its im plem enting
regulations afford the m eans for m aking the choice betw een the two m ethods o f dispute
settlem ent. T h e C onvention leaves diat choice to the party instituting th e proceedings,22

In contrast to conciliation, arbitration is more formal and adversarial. Most

importantly, it leads to a binding decision based on law. This is the reason why
claimants prefer arbitration over conciliation. In most cases it seems wiser to direct
the necessary effort and expense to proceedings that lead to a binding decision.
The existence of an effective system of dispute settlement is likely to have an
effect even without its actual use. The mere availability of an effective remedy will
influence the behaviour of parties to potential disputes. It is likely to have a
restraining influence on investors as well as on host states. Both sides will try to
avoid actions that might involve them in arbitration that they are likely to lose. In
addition, the parties’ willingness to settle a dispute amicably will be strengthened by
the existence of an arbitration clause.
Investment arbitration uses a mechanism originally developed for the settlement
of commercial disputes between private parties. The main characteristics of
commercial disputes are often also present in investor-state arbitrations. But
the application of international law rules governing the conduct of the state
means that investor-state arbitration has its own distinctive features. In some
respects investment arbitration performs the function of judicial review of adminis­
trative acts. This situation finds expression in the fact that states have negotiated
the ICSID Convention as a distinct set of rules for investment disputes. At the same
time, mechanisms that have been devised primarily for classical commercial dis­
putes between two private entities are also used for the settlement of investment
disputes.

20 The ICSID Convention deals with conciliation in Arts 28-35.

21 SPP v Egypt, Decision on Jurisdiction II, 14 April 1988.
238 Settling Investment Disputes

(c) Arbitration institutions and regimes

Arbitration between a host state and a foreign investor may take place in the
framework of a variety of institutions or rules. If arbitration is not supported by a
particular arbitration institution, it is referred to as ad hoc arbitration. Ad hoc
arbitration requires an arbitration agreement that regulates a number of issues.
These include selection of arbitrators, applicable law, and a large number of
procedural questions. A number of institutions, such as UNCITRAL, have
developed standard rides that may be incorporated into the parties’ agreement.

aa. ICSID
The majority of cases are brought under the Convention on the Settlement
of Investment Disputes between States and Nationals of Other States.23 The
Convention was drafted in the framework of the W orld Bank, was adopted on
18 March 1965 in Washington DC, and entered into force on 14 October 1966. It
created the International Centre for Settlement of Investment Disputes which is
why the Convention is commonly referred to as die ICSID Convention. Some­
times it is also referred to as the Washington Convention. By summer 2012, 148
states were parties to the Convention .24
The aim of the ICSID Convention, as expressed in its Preamble, is to promote
economic development through the creation of a favourable investment climate.
ICSID provides a system of dispute settlement that is designed exclusively for
investor-state disputes. It offers standard clauses for use by the parties, detailed rules
of procedure, and institutional support.25 The institutional support extends not
only to the selection of arbitrators but also to the conduct of arbitration proceed­
ings: for instance, each tribunal is assisted by a legal secretary who is a staff member
of ICSID; venues for hearings are arranged by ICSID; and all financial arrange­
ments surrounding the arbitration are administered by ICSID. The Secretary-
General of ICSID exercises a screening power over requests for arbitration and
will refuse to register a request that is manifestly outside ICSID’s jurisdiction.
The jurisdiction of ICSID requires an investment dispute of a legal nature
between a state party to the Convention and a national of another state that is
also a party to the Convention. In addition, the two parties to die dispute (the host
state and the investor) must have consented to ICSID’s jurisdiction .26 Participation

23 575 U NTS 159; 4 ILM 524 (1965).

2 Three states have terminated their participation by denouncing the ICSID Convention in
accordance with its Art 71: Bolivia on 2 May 2007; Ecuador on 6 July 2009; and Venezuela on
24 January 2012.
25 For a concise overview, see L Reed, J Paulsson, and N Blackaby, Guide to ICSID Arbitration
(2004). For a more detailed exposition, see C Schreuer, L M alintoppi, A Reinisch, and A Sinclair, The
ICSID Convention: A Commentary, 2nd edn (2009).
26 ICSID Convention, Art 25(1) provides in relevant part:
The jurisdiction of die Centre shall extend to any legal dispute arising directly out of an
investment, between a Contracting State (or any constituent subdivision or agency of a
 Investor v state disputes 239

in the ICSID Convention is not sufficient to establish jurisdiction since it does not
amount to consent to jurisdiction .27
Proceedings under the ICSID Convention are self-contained. This means that
they are independent of the intervention of any outside bodies. In particular,
domestic courts have no power to stay, to compel, or to otherwise influence
ICSID proceedings. N or do domestic courts have the power to set aside or
otherwise review ICSID awards.
ICSID proceedings are not threatened by the non-cooperation of a party. If one
of the parties fails to act, the proceedings will not be stalled. The Convention
provides a watertight system against the frustration of proceedings by a recalcitrant
party: arbitrators not appointed by the parties will be appointed by the Centre ;28
the decision on whether there is jurisdiction in a particular case is with the
tribunal:29 non-submission of memorials or non-appearance at hearings by a
party will not stall the proceedings;30 and non-cooperation by a party will not
affect the award’s binding force and enforceability.
ICSID Awards are binding and final and not subject to review except under
the narrow conditions provided by die Convention itself (Arts 49-52). Non-
compliance with an Award by a state would be a breach of the Convention and
would lead to a revival of the right to diplomatic protection by the investor’s state
of nationality (Arts 53 and 27). The Convention provides its own system of
enforcement: awards are recognized as final in all states parties to the Conven­
tion. Pecuniary obligations arising from Awards are to be enforced in the same
way as final judgments of the local courts in all states parties to the Convention
(Art 54).
ICSID had a slow start— the Convention entered into force in 1966 but the first
case was not registered until 1972. The 1970s and 1980s saw steady but only
intermittent action; one or two cases per year were typical for that period. Since the
mid-1990s there has been a dramatic increase in activity. In 1995 there were four
ICSID arbitrations pending and in summer 2012 about 150 cases were pending .31
During 2011 the Secretary-General registered 33 new cases.

Contracting State designated to the Centre by that State) and a national of another
Contracting State, which the parties to the dispute consent in writing to subm it to the
Centre.
27 ICSID Convention, Preamble, para?:
Declaring th at no Contracting State shall by the mere fact of its ratification, acceptance or
approval o f this Convention and w ithout its consent be deemed to be under any obligation
to subm it any particular dispute to conciliation or arbitration. . .
28 Article 38.
29 Article 41.
30 Article 45.
35 For detailed information on pending cases, see <http://www.worldbank.org/icsid/cases/pending.
htm >.
240 Settling Investment Disputes

bb. ICSID Additional Facility

In 1978 the Administrative Council of ICSID created the Additional Facility.32 It
is open to parties that submit to its jurisdiction in certain cases that are outside
ICSID’s jurisdiction. The most important situation involves cases in which only-
one side is either a party the ICSID Convention or a national of a party to the
ICSID Convention. Additional categories include cases which do not directly arise
from an investment and fact-finding.33
The practical relevance of die Additional Facility lies in cases where either the
host state or the investor’s home state is not a party to the ICSID Convention. This
has become especially important in the context of the North American Free Trade
Agreement (NAFTA) since only the United States has ratified the ICSID Conven­
tion but Canada and Mexico have not .34 Article 1 120 of die NAFTA offers consent
to arbitration alternatively under the ICSID Convention, the Additional Facility,
and the UNCITRAL A'bitration Rules. Many cases under the NAFTA are con­
ducted under the Additional Facility. Additional Facility proceedings receive insti­
tutional support from ICSID in a similar way to proceedings under the ICSID
Convention.
Arbitration under the Additional Facility is not governed by the ICSID Con­
vention but by separate Additional Facility Rules. This means, in particular, that
the ICSID Convention’s provisions on the recognition and enforcement of awards
are not applicable to awards rendered under the Additional Facility. Rather, the

32 The Additional Facility Rules are available from ICSID ’s homepage at <http://www.worIdbank.
org/icsid/facility/fatility.htm>. The Additional Facility, Rules together with four schedules are also
reproduced in 1 ICSID Reports 213—80. Generally on the Additional Facility, see A Broches, ‘The
“Additional Facility” of the International Centre for Setdement of Investment Disputes (ICSID)’
(1979) 4 Yearbook Commercial Arbitration 373; P Toriello, ‘T he Additional Facility of the Inter­
national Centre for Settlement of Investment Disputes’ (1978—79) 4 Italian Yearbook o fln t'l L 59;
C Schreuer et al, The ICSID Convention: A Commentary, 2nd edn (2009), Art 6 , para 25; Art 11, para
15; Art 25, paras 9-13, 30-4, 87, 202-10, 300-1, 409, 4 43-6, 457-63, 623; Art 26, paras 22, 113,
179, 180; Art 36, paras 7, 47, 61; Art 42, paras 142. 275; Art 43, para 3; Art 47, para 7; Art 52, para 5;
Art 53, paras 5-9; Art 54, paras 12-22; Art 62, paras 7-10.
33 T he Additional Facility Rules, Art 2 provides:
T he Secretariat of die Centre is hereby authorized to administer, subject to and in
accordance with these Rules, proceedings between a State (or a constituent subdivision or
agency o f a State) and a national of another State, falling within the following categories:
(a) conciliation and arbitration proceedings for the settlem ent o f legal disputes arising
directly out of an investment which are not within the jurisdiction of the Centre because
either the State party to the dispute or the State whose national is a party' to the dispute is
not a Contracting State;
(b) conciliation and arbitration proceedings for die settlement oi legal disputes which are
not within the jurisdiction of the Centre because they do not arise directly out or an
investment, provided that either the State party to the dispute or the State whose national is
a party to the dispute is a Contracting State; and
(c) fact-finding proceedings.
3<i T he N orth American Free Trade Agreement (NAFTA), 32 ILM 605 (1993), was ratified by
Canada, Mexico, and the U nited States. See pp 15-17.
 Investor v state disputes 241

Convention on the Recognition and Enforcement of Foreign Arbitral Award of

1958 (die New York Convention) applies. Also, awards rendered under the
Additional Facility, unlike ICSID awards, are not exempt from the scrutiny of
and setting aside by competent national courts.35

cc. Non-ICSID investment arbitration

ICSID has become the main forum for the settlement of disputes between a foreign
investor and the host state. However, ICSID is not the only institution for foreign
investment arbitration. N ot all states have become parties to the ICSID Conven­
tion. Moreover, it is not unusual for BITs to leave the investor with a choice
between ICSID and other types of arbitration. Despite clear differences between
classical commercial arbitration and investment arbitration, institutions dealing
primarily with commercial arbitration such as the International Chamber of
Commerce (ICC) or the London Court of International Arbitration (LCIA), do
not exclude investor-state arbitration. This includes also the Regional Arbitration
Centres in Frankfurt, Vienna, Cairo, Kuala Lumpur, and Hong Kong, or the China
International Economic and Trade Arbitration Commission (CIETAC). In current
practice, such arbitrations are most commonly conducted under the UNCITRAL
Arbitration Rules of 1976 (revised in 2010) and under the ICC Arbitration Rules of
1998 (revised in 2011).
As to the procedural law applicable in fora other than ICSID, the clear tendency
is to reduce or eliminate the role of the domestic arbitration law at the place of
arbitration and instead to develop and apply rules designed specifically for inter­
national proceedings.36
All procedures have in common that the parties can control the composition of
the tribunal and the law applicable in the proceedings. Other common elements
include the power of tribunals to decide on dieir own competence,37 the tribunal’s
power to determine the rules of procedure in the absence of a choice by the
parties,38 and the principle of confidentiality.39 Basic procedural requirements are
set forth in broad terms. For instance, the ICC Rules state that a tribunal ‘shall act
irairly and impartially and ensure that each party has a reasonable opportunity to
present its case’.40 Some variations exist in regard to document production, the
taking of evidence, ethical standards for arbitrators and counsel, and the cost

33 See United Mexican States v Metalclad Corp, Supreme Court of British Columbia, 2 May 2001,
5 ICSID Reports 236.
36 Compare G Sauser-Hall’s Reports for the Institut de D roit International, Annnaire de I’lnstitut de
Droit International, vol 44 I, 4 69-592 (1952), vol 48 II, 264-361 (1958), with the contributions in
‘Pervasive Problems in International A rbitration’, LA Mistelis and JD M Lew eds, 2006, especially
H Alvarez, A utonom y of International Arbitration Process’, pp 119 et seq.
3/ See eg U NCITRAL Rules, Art 23 sec 1; IC C Rules, Art 6 secs 3 and 5.
nS U N C ITRA L Rules, Art 17; IC C Rules, Art 19.
39 U N C ITRA L Rules, Art 28 sec 3; IC C Rules, Art 22(3).
40 IC C Arbitration Rules, Art 22 sec 4; see also UNCITRAL Rules, Art 17 sec 1 (‘parties are treated
with equality and that at an appropriate stage o f the proceedings each party is given a reasonable
opportunity o f presenting its case’).
242 Settling Investment Disputes

structure .41 O f course, the laws of the seat of arbitration will also differ. Given the
freedom of arbitrators to determine the procedure, a major difference often lies less
with the written rules than with the personal background and experience of the
arbitrator, especially in regard to their familiarity with the principles of common
law and civil law.

i. The; International Chamber of Commerce

The most established international arbitral institution is the ICC ,42 which has its
seat in Paris and has been in existence since 1923. Its current rules date from 2012.
Its most distinctive feature is the administrative assistance and guidance provided
by the so-called ‘International Court of Arbitration’. Despite its name, this is an
administrative body made up of representatives from different countries. Similar to
the ‘Permanent Court of Arbitration ’ 43 the ICC Court only provides technical
assistance and a list of arbitrators, but will not itself render a judgment or award.
The Court will appoint the arbitrator(s) unless the parties agree otheiwise.
A special feature in ICC proceedings are the ‘Terms of Reference’ which the
arbitrators will usually draw up once they receive the files of die case from the
ICC Secretariat44 Generally speaking, these terms provide for a short character­
ization of the case, including a summary of the claims and, especially, a list of the
issues to be decided. While these Terms are helpful for the parties and the
tribunal in their focus on the relevant issues, the Terms reflect the impression
of the Tribunal at an early stage, and the issues may evolve substantially during
the proceedings.
Another peculiar feature concerns the manner in which an ICC tribunal reaches
its final award. Once the tribunal has agreed on a draft, this document is forwarded
to the ICC Court of Arbitration, and the Court will check the formalities, ensuring
that all relevant matters are covered and that there are no obvious mathematical
errors or misprints in the draft.45 However, responsibility for the final substance of
the award remains with the tribunal and not with the Court.

ii. The London Court of International Arbitration

The London Court of International Arbitration (LCIA)46 has existed since 1986, as
a successor to the London Chamber of Arbitration established in 1892. Regardless
of the nationalities of the parties, the LCIA is designed to deal with disputes arising
out of commercial transactions, including investor-state disputes. The ‘Arbitration
Court’ includes practitioners from all the major trading countries. The current
Rules were adopted in 1998. If requested, the Court will also apply the UNCI-
TRAL Rules or act as an appointing authority.

41 See Alvarez, n 36, pp 124 et seq.

42 <http://www.iccwbo.org/court/arbicration/id4l99/index.html>.
43 See p 244.
44 ICC Rules, Art 23.
45 ICC Rules, Art 33.
46 por d e f ie d information, see <http://wvvw.lcia.org/>.
 Investor v state disputes 243

iii. The UNCITRAL Rules

The UNCITRAL Rules of Arbitration, revised in 2010 ,47 differ fundamentally
from the previously described settings. They are rules only and do not establish a
machinery to administer proceedings in a particular case. It is up to the parties to
provide an administrative framework for a case, and they may create an ad hoc
tribunal anywhere in the world. Alternatively, the UNCITRAL Rules may be
applied by an existing institution such as ICSID or the LCIA .48
The UNCITRAL Rules are considered to reflect a modern, universally estab­
lished set of international arbitration rules. The 43 Articles essentially address all
matters that may arise in international proceedings, from the notice of arbitration
to the appointment of arbitrators, interim measures, the rules governing the
proceedings, and the form and effect of an award including the decision on costs.
UNCITRAL has also influenced the development of international arbitration by
way of a proposal for national legislation called the UNCITRAL Model Law on
International Commercial Arbitration (1985) and a corresponding proposal on
international conciliation (2002). The useful UNCITRAL Notes on Organizing
Arbitral Proceedings (1996)49 list and describe issues which will come up in
international arbitrations. The 19 points cover matters such as decision-making,
agreement on rules, language, place of arbitration, form of communications,
confidentiality, evidence, and rules on hearings and on the award.

iv. The Iran—U nited States Claims Tribunal

Starting with the Jay Treaty* in 179450 between Great Britain and the United
States, states have often set up arbitral tribunals and mixed commissions51 in order
to resolve claims arising out of specific wars, revolutions, civil strife, or other major
events affecting foreign nationals. The Iran-United States Claims Tribunal was
established in 1981 by the Algiers Declaration for the resolution of claims of both
US and Iranian nationals and companies arising out of events during the Iranian

47 For the text o f the revised U N C ITRA L Arbitration Rules adopted by GA Res 65/22, see <h ttp ://
wvw.uncirral.org/pdf/englisli/ texts/ arbitranon/arb-rules-revised/arb-rules-revised-2010-e.pdf>,
48 See OEPC v Ecuador, Award, 1 July 2004, arbitrated at the LCIA; CM E v Czech Republic, Award,
14 March 2003, arbitrated at Stockholm; Saluka v Czech Republic, Partial Award, 17 March 2006,
arbitrated in Geneva; l,auder v Czech Republic, Award, 3 September 2001, arbitrated in London; see on
the Czech cases G Sacerdoti, 'Investm ent A rbitration Under ICSID and UN C ITRA L Rules: Pre­
requisites, Applicable Laws Review of Awards’ (2004) 19 ICSID Review-FILJ 1, In some cases
proceedings under the U N C ITRA L Rules are administered by the PCA. See Chevron and Texaco v
Ecuador, Final Award, 31 August 2011. T he UNCITRAL Rules are also used in proceedings under the
NAFTA. See Chemtura v Canada, Award, 2 August 2010. The U N Compensation Commission set up
to deal with damages caused by Iraq was also guided by die U NCITRAL Rules. T he Iran-U S Claims
Tribunal operates under modified UN C ITRA L Rules.
49 For the text o f the Notes, see <http://www.uncitral.org/pdf/engiish/texts/arbitration/arb-notes/
arb-notes-e.pdf>.
30 See K S Ziegler, ‘Jay Treat)· (1794)’ in R W olfrum (ed), M ax Planck Encyclopedia o f Public
International Law, vol VI (1997) 449.
51 See R Dolzer, ‘Mixed Claims Commissions’ in R W olfrum (ed), M ax Planck Encyclopedia o f
Public International Law, vol VII (2012) 295.
244 Settling Investment Disputes

Revolution. The Algiers Declaration described the law applicable as: ‘such choice of
law rules and principles of commercial and international law as the Tribunal
determines to be applicable, taking into account relevant usages of trade, contract
provisions and changed circumstances.’
Since its inception, the Tribunal, which is seated in The Hague, has addressed
general issues of international law relating to foreign investment, such as matters of
expropriation, state responsibility, nationality, and international arbitral procedure.
The jurisprudence of the Tribunal has made valuable contributions to the
clarification and evolution of international law in general and investment law in
particular, with its decisions often cited by other tribunals and commentators. It is a
remarkable achievement by a machinery set up to deal effectively with sensitive
legal matters arising between two states with radically different political and legal
values.
The Tribunal has srill not concluded its work after more than 30 years and has
not yet ruled on all key claims of the Iranian Government. But the Tribunal has
decided the vast majority of the 3,800 claims filed, often involving complex factual
and legal matters.

v. The Permanent Court of Arbitration

The Permanent Court of Arbitration (PCA) has its seat in The Hague. It was
initially established in 1899 by the Hague Peace Conference which adopted the
Convention on Pacific Settlement of International Disputes. In 1907 the Second
Peace Conference decided to retain the Court .32
The PCA is not, strictly speaking, a court. It only administers or facilitates
arbitration, conciliation, and fact-finding. The parties to proceedings may be states,
private parties, and international organizations. It may address disputes both under
public international law and private international law. Cases pertaining to foreign
investment also fall within its wide range of activities. The PCA’s Secretariat— the
International Bureau— may register a case, provide legal support to tribunals,
process documents, and conduct communications between parties, as well as
provide legal research and organize meetings and hearings. The Bureau also
maintains a list of arbitrators who may be chosen by the parties to a dispute. The
current procedural rules of the PCA are based on the 1976 UNCITRAL Rules. The
Secretary-General of the Bureau may seive as appointing authority in UNCITRAL
arbitrations or may be requested to designate an appointing authority, and may rule
on the challenge of an arbitrator.53

02 For details, see N Ando, ‘Permanent Court of A rbitration’ in R W olfrum (ed), M ax Planck
Encyclopedia o f Public International Law, vol VIII (2012) 251 -
53 In the past, arbitrations before the Court have included famous cases such as Russian Indemnity
Arbination (1912) and the Norwegian Shipowners Claims Arbitration (1922). After decades with a low
profile, the services of the PCA have more recently been in increasing demand. From a political point of
view, the arbitration Commissions for disputes between Ethiopia and Eritrea have recently been most
visible. Cases such as Saluka v Czech Republic, Partial Award, 17 March 2006, or Frontier Petroleum v
Czech Republic, Final Award, 12 November 2010, are more im portant in the present context.
 Investor v state disputes 245

(d) The subject m atter of the dispute (jurisdiction ratione rnateriae)

The existence of a legal dispute concerning an investment is a jurisdictional
requirement in investment arbitration. If proceedings are to be conducted under
the ICSID Convention, the test is that there is a ‘legal dispute arising directly out of
an investment’ (Art 25(1)). Each of these elements, the existence of a dispute, die
legal nature of the dispute, the directness of the dispute, and the existence of an
investment, may raise jurisdictional questions.

aa. The dispute

The ICJ has defined a dispute as ‘a disagreement on a point of law or fact,
a conflict of legal views or interests between parties’.54 In another case, the ICJ
referred to ‘a situation in which the two sides held clearly opposite views concerning
the question of the performance or non-performance of certain treaty obliga­
tions’.55 The Tribunal in Texaco v Libya referred to a ‘present divergence of
interests and opposition of legal views’.'56 ICSID tribunals have adopted similar
definitions of ‘disputes’.57
In RD C v Guatemala?9, jurisdiction depended, inter alia, on whether the dispute
had broken out before or after the entry into force of the Dominican Republic-
Central America-United States Free Trade Agreement (CAFTA). The Tribunal
defined the concept of a dispute ‘as a conflict of views on points of law or fact which
requires sufficient communication between the parties for each to know the other’s
views and oppose them ’.59 On that basis it found that the dispute had crystallized
after CAFTA had entered into force and hence affirmed its jurisdiction.

bb. The legal nature o f the dispute

Disputes are legal if they ‘concern the existence or scope of a legal right or
obligation, or the nature or extent of the reparation to be made for breach of a

5i) See Case Concerning East Timor, ICJ Reports (1995) 89, 99 and the references to earlier cases
cited dierein.
33 Interpretation o f the Peace Treaties with Bulgaria, Hungary and Romania (first phase), ICJ Reports
(1950) 65, 74; Case Concerning Certain Property (Liechtenstein v Gemiany), ICJ Reports (2005)· paras
20-7.
56 Texaco Overseas Petroleum Company and· California Asiatic Oil Company v Libyan Arab Republic,
Preliminary Award, 27 November 1975, 53 ILR 389, 416.
57 A G IP v Congo, Award, 30 November 1979, 1 ICSID Reports 306, paras 38-42; Maffezini v
Spain, Decision on Jurisdiction, 25 January 2000, 40 ILM 1129 (2001), paras 93-8; Tokios Tokeles v
Ukraine, Decision on Jurisdiction, 29 April 2004, paras 106, 107; Lucchetti v Peru, Award, 7 February
2005, para 48; Impregilo v Pakistan, Decision on Jurisdiction, 22 April 2005, paras 302. 303; E l Paso
Energy/ Intl. Co v Argentina, Decision on Jurisdiction, 27 April 2006, para 61; Suez, Sociedad General de
Aguas de Barcelona SA, and InterAguas Servicios Integrales del Agua SA v Argentina, Decision on
Jurisdiction, 16 May 2006, para 29; Hein an v Egypt, Decision on Jurisdiction, 17 October 2006,
para 52; A M T O v IJkraine, Award, 26 March 2008; Victor Pey Casado v Chile, Award, 8 May 2008,
paras 4 4 0 -7 ; A T A v Jordan, Award, 18 May 2010, paras 98-109, 115-20; Burlington Resources v
Ecuador, Decision on Jurisdiction, 2 June 2010, paras 254-340.
58 Railroad Development Co;p (RDC) v Guatemala, Second Decision on Jurisdiction, 18 May 2010.
59 At paras 129, 126-38.
246 Settling Investment Disputes

iegal obligation’.60 Respondents have sometimes argued that a tribunal lacked

jurisdiction because the dispute before it was not legal but rather of a political or
economic nature. Tribunals have invariably rejected these arguments since the
claims had been presented in legal terms. In Sttez v Argentina the Tribunal found
that the claimant had made legal claims:
A legal dispute, in the ordinary meaning of the term, is a disagreement about legal rights or
obligations__ In the present case, the Claimants clearly base their case on legal rights which
they allege have been granted to them under the bilateral investment treaties that Argentina
has concluded with France and Spain. In their written pleadings and oral arguments, the
Claimants have consistently presented their case in legal terms----the dispute as presented
by the Claimants is iegal in nature.61
Other tribunals have adopted similar descriptions of legal disputes and have
rejected attempts to contest their jurisdiction on the ground that the disputes
before them were political or economic.62

cc. The directness o f the dispute in relation to the investment

The element of directness applies to the dispute in relation to the investment.63 It
does not relate to the investment as such. In Fedax v Venezuela, the respondent
argued that the disputed transaction·—debt instruments issued by the Republic of
Venezuela—was not a ‘direct foreign investment’ and therefore could not qualify as
an investment under the ICSID Convention. The Tribunal rejected this argument.
It pointed out diat:
jurisdiction can exist even in respect of investments that are not direct, so long as the dispute
arises direcdy from such transaction.64
An investment operation typically involves a number of ancillary transactions and
legal contacts. They include financing, die lease of property, purchase of various

60 Report of the Executive Directors ro the ICSID Convention, para 26, 1 ICSID Reports 28.
61 Suez, Socicdad General de Aguas de Barcelona SA, and Inter Aguas Servkios Integrates delAgua SA v
Argentina, Decision on Jurisdiction, 16 M ay 2006, paras 34—7 at 37.
62 See CSOB v Slovakia, Decision on Jurisdiction, 24 M ay 1999, para 61; M affezini v Spain,
Decision on Jurisdiction, 25 January 2000, paras 94—8; Gas N atural SDG, SA v Argentina, Decision on
Jurisdiction, 17 June 2005, paras 2 0-3; Camuzzi v Argentina, Decision on Jurisdiction, 11 May 2005,
para 55; AES Corp v Argentina, Decision on Jurisdiction, 26 April 2005, paras 40—7; Sempra Energy
Inti v Argentina, Decision on Jurisdiction, 11 May 2005, paras 67, 68; Continental Casualty Company v
Argentina, Decision on Jurisdiction, 22 February 2006, para 67; E l Paso Energy In ti Co v Argentina,
Decision on Jurisdiction, 27 Aprii 2006, paras 47—62; Jan de N u l et al v Egypt, Decision on
Jurisdiction, 16 June 2006, para 74; National Grid pic i> Argentina, Decision on Jurisdiction,
20 June 2006, paras 142, 143, 160; Pan American v Argentina, Decision on Preliminary Objections,
27 July 2006, paras 71-91; Saipem v Bangladesh, Decision on Jurisdiction, 21 M arch 2007, paras 93-7;
Noble Energy v Ecuador, Decision on Jurisdiction, 5 March 2008, paras 121-3; Perenco i> Ecuador,
Decision on Jurisdiction, 30 June 2011, paras 132—47.
63 The NAFTA, Art 1101(1) refers to measures ‘relating to’ investors or investments. O n the
interpretation of this term, see Methanex v United States, Decision on Jurisdiction, 7 August 2002,
paras' 127-47.
64 Fedax v Venezuela, Decision on Jurisdiction, 11 June 1997, para 24. See also Siemens v Argentina,
Decision on Jurisdiction, 3 August 2004, para 150.
 Investor v state disputes 2 47

goods, marketing of produced goods, and tax liabilities. In economic terms, these
transactions and contacts are all more or less linked to the investment. But whether
these peripheral activities arise directly out of an investment for purposes of
ICSID’s jurisdiction may be subject to doubt and has to be decided on a case-by-
case basis.63
In CSOB v Slovakia the claimant had granted a loan to a Slovak collection
company that was secured by a guarantee of the Slovak Ministry of Finance. W hen
the Slovak collection company defaulted in its payment, CSOB instituted ICSID
proceedings against Slovakia. Slovakia argued that the claims against it did not arise
directly out o f the loan and were, therefore, outside the Tribunal’s jurisdiction. The
Tribunal rejected this argument:
An investment is frequently a rather complex operation, composed of various interrelated
transactions, each element of which, standing alone, might not in all cases qualify as an
investment. Hence, a dispute that is brought before the Centre must be deemed to arise
directly out of an investment even when it is based on a transaction which, standing alone,
would not qualify as an investment under the Convention, provided that the particular
transaction forms an integral part of an overall operation that qualifies as an investment.66
The Tribunal added that the Slovak Republic’s obligation was closely related to die
loan made by CSOB. The loan, in turn, was part of the overall operation of
consolidating CSOB and developing its banking activity in the Slovak Republic.
Therefore, the dispute arose directly out of the investment. Odier. tribunals have
endorsed the idea of the general unity of the investment operation.67
In a number of cases Argentina argued that the measures it had taken were of a
general nature, were designed to serve the national welfare, and were not specifically
directed to the particular investor’s operation. Therefore, in Argentina’s view, the
dispute concerning these measures did not arise directly out of the investment. The
Tribunal in CMS v Argentina did not accept this argument. It stated:
the Tribunal concludes on this point that it does not have jurisdiction over measures of
general economic polity adopted by the Republic of Argentina and cannot pass judgment on
whether they are right or wrong. The Tribunal also concludes, however, that it has
jurisdiction to examine whether specific measures affecting the Claimant’s investment or

65 For examples, see Holiday Inns v Morocco, as summarized in C Schreuer et al, The ICSID
Convention: A Commentary, 2nd edn (2009), Art 25, para 95; SO A BI v Senegal, Award, 25 February
1988, paras 8.01-8.23; Amco v Indonesia, Resubmitted Case: Decision on Jurisdiction, 10 May 1988,
1 ICSID Reports 543, 562-5; Tokios Tokeles v Ukraine, Decision on Jurisdiction, 29 April 2004, paras
87-93; Lemire v Ukraine, Decision on Jurisdiction and Liability, 14 January 2010, paras 9 2 - 8 ·, Alpha v
Ukraine, Award, 8 Novem ber 2010, paras 250-3.
66 CSOB v Slovakia, Decision on Jurisdiction, 24 May 1999, para 72.
67 Enron v Argentina, Decision on Jurisdiction, 14 January 2004, paras 58-60, 70; PSEG v Turkey,
Decision on Jurisdiction, 4 June 2004, paras 106-24; Joy M ining v Egypt, Award on Jurisdiction,
6 August 2004, para 54; Duke Energy v Peru, Decision on Jurisdiction, 1 February 2006, paras 92, 100
etseq; Saipem v Bangladesh, Decision on Jurisdiction, 21 lYtarch 2007, paras 110, 114; OKO Pankki v
Estonia, Award, 19 November 2007, paras 204, 208; R SM Production v Grenada, Award, 13 Aiarch
2009, paras 255 et seq; A T A Construction v Jordan, Award, 18 May 2010, paras 96, 97; Alpha
Projektholding v Ukraine, Award, 8 November 2010, para 272; Fraport v Philippines, Decision on
Annulment, 23 D ecember 2010, para 113. See further pp 61-2.
248 Settling Investment Disputes

measures of general economic policy having a direct bearing on such investment have been
adopted in violation of legally binding commitments made to the investor in treaties,
legislation or contracts.158
O ther tribunals have followed this line of argum ent.69 It follows that a host state
cannot rely on the general policy nature o f measures taken by it if these measures
had a concrete effect on the investm ent and violated specific com mitm ents and
obligations. These com m itm ents may arise from legislation, a contract, or a
treaty.70

dd. The investment

T he existence of an investment is a cornerstone o f IC S ID ’s jurisdiction. Yet, the
ICSID Convention offers no definition of the term ‘investm ent’. Nevertheless,
some tribunals have assumed that an ‘investm ent’ will be defined in objective terms
which cannot be substituted by agreement of the parties. T he relevant issues have
been discussed in the chapter on investments.71 For the purposes o f Article 25, as
discussed above,72 many tribunals have adopted a list of descriptors that they regard
as typical for investments.73 These include:

®a substantial com m itm ent;

8 a certain duration;
®an element o f risk; and
®significance for the host state’s development.

68 CMS v Argentina, Decision on Jurisdiction, 17 July 2003, para 33-

69 LGdrE v Argentina, Decision on Jurisdiction, 30 April 2004, para 67; A E S Corporation v
Argentina, Decision on jurisdiction, 26 April 2005, paras 56, 57; Sempra Energy International v
Argentina, Decision on Jurisdiction, 11 May 2005, para 71; Carnuzzi Inti SA v Argentina, Decision
on Jurisdiction, 11 May 2005, paras 56 et seq; Gas Natural SDG, SA v Argentina, Decision on
Jurisdicrion, 17 June 2005, paras 37—40; Continental Casualty Company v Argentina, Decision on
Jurisdiction, 22 February 2006, para 74; Suez, Sociedad General de Aguas de Barcelona SA, and
InterAguas Sewicios Integrates delAgna SA v Argentina, Decision on Jurisdiction, 16 May 2006, paras
27-30; El Paso Energy/ Inti Co v Argentina, Decision on Jurisdiction, 27 April 2006, paras 89-100;
National Grid pic v Argentina, Decision on Jurisdiction. 20 June 2006, paras 123-41; Pan American v
Argentina, Decision on Preliminary Objections, 27 July 2006, paras 55-70.
70 See furrher pp 115, 120 et seq (expropriation).
71 See Chapter III.2.
/2 See pp 65-74.
73 Salini Costmttori SpA et Italstrade SpA v Morocco, Decision on Jurisdiction, 23 July 2001, para
53; SGS v Pakistan, Decision on Jurisdicrion, 6 August 2003, para 133 footnote 113; Joy Mining
Machinery L td v Egypt, Award on Jurisdiction, 6 August 2004, paras 53, 57, 62; AES Corporation v
Argentina, Decision on Jurisdiction, 26 April 2005, para 88; Bayindir Insaat Turizm Ticaret Ve Sanayi
v Pakistan, Decision on Jurisdiction, 14 November 2005, paras 130-8; Jan de N id et al v Egypt,
Decision on Jurisdiction, 16 June 2006, paras 90-6; Helnan v Egypt, Decision on Jurisdiction,
17 October 2006, para 77; M itchell v D R Congo, Decision on Annulm ent, 1 November 2006, paras
23-48; Saipem v Bangladesh, Decision on Jurisdicrion, 21 March 2007, paras 99-102, 109-11;
Malaysian Historical Salvors v Malaysia, Award, 17 May 2007, paras 44. 4 8-148, Decision on
Annulment, 16 April 2009, paras 57-81.
 Investor v state disputes 249

(e) l l i e parties to the dispute (jurisdiction rationepersonae)

Investment arbitration is mixed in the sense that it involves a sovereign state (the
host state), on one side, and a private foreign investor, on the other.

act. The host state

ICSID’s jurisdiction extends to contracting states, that is, parties to the ICSID
Convention. Whether a particular state has ratified the Convention is evident from
the List of Contracting States and Other Signatories of the Convention maintained
by the Centre. It is available on the Centre’s website.74
The cridcal time for the status of a state as a contracting state is the date o f the
registration of die request for arbitration by the Secretary-General oflCSID , A state
may give its consent to submit to the Centre’s jurisdiction before becoming
a contracting state; but this consent becomes effective only once the state satisfies
the requirements of a contracting state. A state that is not a contracting state of the
Convention, at die time of a request for arbitration, will not be subject to the
Centre’s jurisdiction even if it has given its consent to jurisdiction.
The host state may deal with foreign investors either through a central state
organ, such as a government ministry, or through a separate entity. This may be a
territorial entity such as a province or municipality ;75 it may also be a specialized
government agency such as an investment board or a privatization agency. Acts in
violation of international law will be attributed to the central government even if
they were committed by a sub-entity of the host state. Under the international law
of state responsibility, the state is responsible for all its organs including those of a
territorial unit as well as for state entities exercising elements of governmental
authority.76
The ICSID Convention contains a provision that makes it possible for a sub­
entity of the host state to appear in proceedings. Article 25, after referring to the
contracting state, adds in parentheses ‘or any constituent subdivision or agency of a
Contracting State designated to the Centre [ie ICSID] by that State’, The term
‘constituent subdivisions’ includes any territorial entity below the level of the state,
such as a province, a state, or a municipality. The term ‘agency’ refers to an entity of
the host state. W hat matters are the functions rather than the legal structure o f the

7- <http://w w w.worldbank.org/icsid/constace/c-stares-en.litm>.
75 For details, see Chapter VIII.2.
76 See the Articles on Responsibility of States for Internationally W rongful Acts adopted by the
International Law Commission (ILC) in 2001, Art 4(1):
The conduct o f any State organ shall be considered an act o f that State under international
law, whether the organ exercises legislative, executive, judicial or any other functions,
whatever position it holds in the organization of the State, and whatever its character as
an organ o f the central government or of a territorial unit of the State.
(J Crawford, The International Law Commission's A nkles on State Responsibility (2002) 94). See furdier
pp 216 et seq, o f this title.
250 Settling Investment Disputes

entity. Whether it is government-owned and whether it has separate legal person­

ality are of secondary importance. W hat is relevant is that it performs public
functions on behalf of the contracting state.
The Convention requires that the constituent subdivision or agency be desig­
nated to ICSID. Designation assures an investor that the particular agency or entity
with which it is dealing has been properly authorized by the state. Nevertheless,
Article 25(3) of the ICSID Convention requires additionally that the constituent
subdivision or agency’s consent to die Centre’s jurisdiction be approved by the state
to which it belongs. ICSID maintains a public register of designated subdivisions
and agencies of states77 but relatively few countries have made designations under
this provision. Constituent subdivisions or agencies have played a limited role in
ICSID practice.78
In Cable Television v St Kitts and Nevis,79 the claimant had entered into a
contract with die Nevis Island Administration (NLA) containing consent to
ICSID arbitration. The Tribunal found that the NIA was a constituent subdivision
of the Federation of St Kitts and Nevis, a sovereign state, and a party to the ICSID
Convention. But NIA had not been designated to ICSID as a constituent subdiv­
ision or agency in accordance with Article 25(1) of the ICSID Convention. Nor
had its consent been approved by the Federation in accordance with Article 25(3).
In turn, the Federation was not a party to die contract containing consent to
ICSID’s jurisdiction. The Tribunal found that it had no jurisdiction.80

bb. The investor

In most instances investors are juridical persons, that is, corporations. At times,
individuals also appear as claimants in investment arbitration.81
Investment arbitration is designed for the protection of private investors. The
ICSID Convention’s Preamble speaks specifically of the role of private inter­
national investment. This would indicate that the investor must be a private
individual or corporation. But state-owned corporations and state entities may be
accepted as investors if diey act in a private commercial capacity.
In CSOB v Slovakia, the respondent contested the Tribunal’s competence
arguing that the claimant, a bank, was a state agency of the Czech Republic rather
than an independent commercial entity and that it was discharging essentially
governmental activities. The Tribunal rejected this contention. It held that access

/7 Designations by Contracting States Regarding C onstituent Subdivisions or Agencies (Art 25(1)

and (3) o f the Convention): see <http://wvvW.woridbank.org/icsid/pubs/icsid-8/icsid-8-c.htm>.
78 But see Tanzania Electric v Independent Power Tanzania. Award, 12 July 2001, para 13; Repsol v
Petroeciiador, Decision on Annulment, S January 2007; Noble Energγ v Ecuador, Decision on Jurisdic­
tion, 5 March 2008. para 6.
79 Cable Television v St Kitts and Nevis, Award, 13 January 1997.
80 See also Hamester v Ghana, Award, 18 June 2010, paras 27, 62, where the Secretary-General of
ICSID refused to register a Request for Arbitration against an undesignated state agency.
81 See eg Robert Azinian and others v Mexico·, Feldman v Mexico·, Antoine Goetz and others v Burundi·,
Grusl'm v Malaysia·, Emilio Augustin M affezini v Spain·, Olguin v Paraguay, Hussein Niuiman Soufraki v
United Arab Emirates.
 Investor v state disputes 251

to arbitration did not depend upon whether the company was partially or wholly
owned by the government. The decisive test was whether die company was
discharging essentially governmental functions. CSOB’s banking activities had to
be judged by their nature and not by their purpose and, hence, were commercial.82
It has always been beyond doubt that arbitral proceedings are open to more than
one claimant in one and the same case. The practice under the ICSID Convention
shows numerous proceedings with more than one party on the claimants’ side.83
One and the same case may even involve several BITs and may be conducted under
more than one set of procedural rules.84
InAbaclatetal v Argentina^ a group of more than 180,000 Italian bondholders,
later reduced to about 60,000, instituted arbitration proceedings against Argentina
for failing to honour government bonds. The Tribunal noted diat this was not a
class action since each investor had individually consented to the arbitration.
Argentina’s offer of consent, given through its BIT widi Italy, included claims
presented by multiple claimants in a single proceeding. The Tribunal, alluding to
the fact that the BIT’s definition of investment covered bonds, said:
where the BIT covers investments which are susceptible of involving a high number of
investors, and where such investments require a collective relief in order to provide effective
protection to such investment, it would be contrary to the purpose of the BIT, and to the
spirit of ICSID, to require in addition to the consent to ICSID arbitration in general, a
supplementary express consent to the form of such arbitration.86
The Tribunal also rejected Argentina’s objections to the admissibility of the
proceeding. Any adaptations of the standard procedure under the ICSID Conven­
tion that may become necessary were within the Tribunal’s powers. The claims
were sufficiently homogeneous for the claimants to be treated as a group and to
justify a simplification of the procedure.
Sometimes claimants start separate proceedings that are closely related because
they arise from the same set of facts. Some arbitration systems, such as Article 1126

82 CSOB v Slovakia, Decision on Jurisdiction, 24 May 1999, paras 15-27. See aiso Telenor v
Hungary, Award, 13 September 2006, para 16: the fact that Telenor was 75 percent owned by the state
of Norway did not give rise to jurisdictional difficulties. See also Ritmeli Telekom v Kazakhstan. Award,
29 July 2008, paras 325—8: the Tribunal found that the extent of any control over die claimants by the
Turkish Government and the possibility that the proceeds of any award might be remitted to the
Turldsh Treasury did not deprive the claimants of their status as commercial entities.
So See eg Antoine Goetz and others v Republic o f Burundi. Award, 2 September 1998, paras 84—9;
Champion Trading Company, Ameritrade International, Inc, fames T Wahba, John B Wahba, Timothy
T Wahba v Egypt, Decision on Jurisdiction, 21 October 2003, para 1; Foresti etal v South Africa,
Award, 4 August 2010, para 1. r ._.·.
84 See Suez, Sociedad General de Aguas de Barcelona SA, and Vivendi Universal SA u, Argentina.'
(ICSID) and A W G Group L td v Argentina (UNCITRAL), Decision on Jurisdiction. 3 Aupust 2006,
paras 1-4, 7.
85 Abaclat eta l v Argentina, Decision on Jurisdiction. 4 August 2011, paras 216, z94-S . 80 -92, , '
506-51. The case had previously been known by the name a Beccara v Argentina.
86 At para 518. ' ' 1 S
 Settling Investment Disputes

of die NAFTA, foresee the consolidation of closely related proceedings.87 Consoli­

dation of separate proceedings may also simply be based on an agreement of the
parties.88 Exceptionally, claims arising from the same overall transaction between
the same parties but subject to several jurisdictional instruments may call for
consolidation.89 Another possible method to coordinate separate claims that are
closely related because they arise from the same set of facts consists in the creation
of tribunals that are formally separate but are identically composed .90

cc. The investor’s nationality

The investor’s nationality is relevant for several purposes. In order to gain access to
dispute settlement under the ICSID Convention, there is a positive as well as a
negative nationality requirement: an investor is required to be a ‘national of another
Contracting State’, that is, of a state that is a party to the ICSID Convention. Also,
the investor must not be a national of the host state (Art 25).
If the investor relies on a jurisdictional clause in a treaty he or she must also have
the nationality of one of the states parties to the treaty. In the case of arbitration
based on a BIT, the host state must be one of the parties to the BIT and the investor
must demonstrate that it is a national of the other party.
In the case of natural persons (individuals) the nationality of the contracting state
to the ICSID Convention must exist at two separate dates: an individual investor
has to be a national of a contracting state at the time the parties consent to submit
to the Centre’s jurisdiction and also on the date the request for arbitration or
conciliation is registered by the Centre. In addition, the individual investor must
not be a national of the host state on these two dates.
An individual’s nationality 91 is determined primarily by the domestic legislation
of the state whose nationality is claimed. A certificate of nationality is strong
evidence but not conclusive proof of nationality.
An investor’s nationality has to be objectively determined irrespective of an
agreement between the host state and the investor. An agreement between a host
state and an investor may specifically state the investor’s nationality. Such an
agreement creates a presumption but may not be conclusive. In particular, it cannot
create a nationality that does not objectively exist.
Investors who hold the nationality of the host state are barred from bringing
claims before the Centre. The purpose of ICSID is to encourage the settlement of
disputes that involve states and private foreign investors. This also applies to

S/ See Canforv United States, Tembeceta.lv United States, Tenninal Forest Products v United States,
Order of die Consolidation Tribunal, 7 September 2005; Corn Products v Mexico, Archer Daniels
M idland and Tate & Lyle v Mexico, O rder of the Consolidation Tribunal, 20 May 2005.
ss Pan American v Argentina, Decision on Preliminary Objections, 27 July 2006, paras 1-4, 7.
89 Noble En erg)' v Ecuador, Decision on Jurisdiction, 5 March 2008. paras 186-207.
90 See Alcoa Minerals v Jamaica, Kaiser Bauxite v Jamaica, Reynolds v Jamaica, Camuzzi v Argentina,
Decision on Jurisdiction, 11 May 2005, para 4; Sempra Energy Inti v Argentina, Decision on
Jurisdiction, 11 May 2005, para 5.
91 For more detailed treatm ent of the nationality of individual investors, see Chapter III. 1(b).
 Investor v state disputes 253

investors with dual nationality if one of the two nationalities is that of the host state
even if it is not the effective one.
A juridical person (company) must have the nationality of a state party to the
ICSID Convention only on the day the parties consented to submit to ICSID’s
jurisdiction, juridical persons will qualify as nationals of contracting states through
their place of incorporation or seat of business.92
An agreement on the nationality of the investor between the host state and a
corporate investor constitutes strong evidence that the nationality requirement has
been fulfilled. Such an agreement will carry great weight, but it cannot create a
nationality that does not exist.
A juridical person may, however, possess the host state’s nationality and still
qualify as a national oir another contracting state under an exception contained in
Article 25(2)(b).93
The prevalence of investment arbitration based on treaties has led to a decline in
the importance of this possibility for locally incorporated companies that are under
foreign control to institute ICSID arbitration. Many of these treaties include
shareholding or participation in companies in their definitions of investment.
This allows the foreign shareholders in the locally incorporated company to pursue
the claim internationally .94

dd. The significance of the Additional Facility

As set out above, under Article 25(1) of the ICSID Convention the host state and
the investor’s state of nationality must be contracting states. If one or the other of
these states is not a party to the Convention, the requirements rationepersonae are
not fulfilled and there is no jurisdiction.
If only one of the two states is a party to the ICSID Convention, the Additional
Facility95 offers a method of dispute setdement. The Additional Facility enables a
non-contracting state or a national of a non-contracting state to the ICSID
Convention to participate in dispute settlement proceedings administered by
ICSID, Under the Additional Facility either die host state or the state of the
investor’s nationality must be a contracting party to the Convention. If neither
state is a party to the ICSID Convention not even the Additional Facility is
available. If both states are parties to the Convention, the parties must use the
procedure under the Convention and may not use the Additional Facility. Also,
there must be a separate submission to dispute settlement under the Additional
Facility.

For more detailed treatment of the nationality of corporate investors, including the element of
control, see Chapter III. 1(c).
For more detailed treatment of the application of Article 25(2)(b) of the ICSID Convention, see
Chapter III. 1(d).
94 For more detailed treatment, see Chapter III. 1(g).
95 For a description o f the Additional Facility, see Section 2(c).
254 Settling Investment Disputes

( f ) C onsent to arbitration
Like any form o f arbitration, investment arbitration is always based on an agree­
ment. Consent to arbitration by the host state and by the investor is an indispens­
able requirement for a tribunal's jurisdiction. Participation in treaties plays an
important role for the jurisdiction of tribunals but cannot, by itself, establish
jurisdiction. Both parties must have expressed their consent.
In practice, consent is given in one of three ways: first, a consent clause may he
included in a direct agreement between the parties. Dispute settlement clauses
providing for investor-state arbitration are common in contracts between states and
foreign investors.
A second technique to give consent to arbitration is a provision in the national
legislation of the host state. Such a provision offers arbitration to foreign investors
in general terms. Many capital-importing countries have adopted such provisions.
Since consent to arbitration is always based on an agreement between the parties,
the mere existence of such a provision in national legislation will not suffice. But the
investor may accept the offer in writing at any time while die legislation is in effect,
and the acceptance may also be made simply by instituting proceedings.
The third method to give consent to arbitration is dirough a treaty between the
host state and the investor’s state of nationality. Most BITs contain clauses offering
arbitration to the nationals of one state party to the treaty against the other state
party to the treaty. The same method is employed by a number of regional
multilateral treaties such as the NAFTA and the Energy Charter Treaty (ECT).
Offers of consent contained in treaties must also be perfected by an acceptance on
the part of the investor.
In some cases claimants relied on several instruments to establish consent.
Jurisdiction was said to exist on the basis of a contract as well as on a treaty 96 or
on the basis of legislation and a treaty.9/

aa. Consent by direct agreement

An agreement between the parties recording consent to arbitration may be achieved
through a compromissory clause in an investment agreement between the host state
and the investor submitting future disputes arising from the investment operation
to arbitration .98 It is equally possible to submit a dispute that has already arisen

96 Noble Energ)' v Ecuador, Decision on Jurisdiction, 5 M arch 2008, paras 22, 23, 150, 178; Duke
Energy v Ecuador. Award, 18 August 2008, paras 99, 102, 111—89; Lemire v Ukraine, Decision on
Jurisdiction and Liability, 14 January 2010, para 60; Millicom v Senegal, Decision on Jurisdiction,
16 July 2010, para 26.
9"'' Rumeli v Kazakhstan, Award, 29 July 2008, paras 162, 165, 220—2; M obil v Venezuela, Decision
on Jurisdiction, 10 June 2010, para 24; Pac Rim v El Salvador, Decision on Preliminary Objections,
2 August 2010, paras 21-3, 242, 253; CEM EX v Venezuela, Decision on Jurisdiction, 30 December
2010, para 59.
9S ICSID has developed a set o f Model Clauses to facilitate the drafting o f consent clauses in
investment contracts. See ICSID M odel Clauses, Doc ICSID /5/R ev 2 o f 1993. Reproduced in
 Investor v state disputes 255

between the parties through consent expressed in a compromis. Therefore, consent

may be given with respect to existing or future disputes."
The agreement on consent between die parties need not be recorded in a single
instrument. An investment application made by the investor may provide for
arbitration. If the application is approved by the competent authority of the host
state there is consent to arbitration by both parties. 100
The parties are free to delimit their consent to arbitration by defining it in
general terms, by excluding certain types of disputes, or by listing the questions
they are submitting to arbitration. In practice, broad inclusive consent clauses are
die norm. Consent clauses contained in investment agreements typically refer to
‘any dispute’ or to ‘all disputes’ under the respective agreements. 101
Investment operations sometimes involve complex arrangements expressed in a
number of successive agreements. Arbitration clauses may be contained in some of
these agreements but not in others. The question arises whether the consent to
arbitration extends to the entire operation or is confined to die specific agreements
containing the arbitration clauses.
Tribunals have generally taken a broad view of expressions of consent of this
kind. The arbitration clauses were not applied narrowly to the specific document
containing them but were read in the context of the parties’ overall relationship.
The interrelated contracts were seen as representing the legal framework for one
investment operation. Therefore, arbitration clauses contained in some, though not
all, of the different contracts were interpreted as applying to the entire operation .102
In Duke Energy v Peril the investor had concluded several successive contracts
with Peru in relation to the same investment. Only one of die contracts contained a
clause whereby the parties consented to ICSID arbitration. The Tribunal applied
the principle of the ‘unity of the investment’103 as developed, in particular, in
CSOB v Slovakia.104 At the same time it held that the claimant would have to
substantiate its claims by reference to the contract containing the arbitration clause.
The other contracts would be taken into consideration for the purpose of inter­
preting and applying that contract.105

4 ICSID Reports 3 5 /. Available at <http://icsid.woridbank.org/ICSID/StaticFiles/modeI-dauses-en/

main-eng.htm>.
99 Agreements to submit existing disputes to arbitration are rare. But see M IN E v Guinea, Award,
6 January 1988, 4 ICSID Reports 61, 67; Compania del Desarrollo de Santa Elena SA v Costa Rica,
Award, 17 February 2000, para 26.
100 Amco v Indonesia, Decision on Jurisdiction, 25 September 1983. paras 10, 25.
101 See eg World Duty Free v Kenya, Award. 4 October 2006, para 6.
102 See Holiday Inns v Morocco, Decision on Jurisdiction, 12 May 1974; P Lalive, ‘The First “W orld
Bank” Arbitration (Holiday Inns v Morocco)— Some Legal Problems’ (1980) 51 BYIL 123, 156-9;
Klockner v Cameroon, Award, 21 October 1983, 2 ICSID Reports 9, 13, 65-9; SO ABI v Senegal,
Decision on Jurisdiction, 1 August 1984, paras 47-58; Award, 25 February 1988, paras 4.01—4.52.
103 See Chapter 111.2(b).
104 CSOB v Slovakia, Decision on Jurisdiction, 24 May 1999, paras 72, 74-5, 80, 82, See also in
the same case, Decision on Further and Partial Objection to Jurisdiction, 1 December 2000, para 28.
105 Duke Energy v Peru, Decision on Jurisdiction, 1 February 2006, paras 119-34; Decision on
Annulment, 1 March 2011, paras 145-60.
256 Settling Investment Disputes

bb. Consent through host state legislation

The hose state may offer consent to arbitration to foreign investors in general terms.
However, not every reference to investment arbitration in national legislation
amounts to consent to jurisdiction. Therefore, the respective provisions in national
laws must be studied carefully.
Some national investment laws provide unequivocally for dispute settlement by
international arbitration. For instance, Article 8 (2 ) of the Albanian Law on Foreign
Investment of 1993 states in part:
the foreign investor m ay subm it the dispute for resolution and the Republic o f Albania
hereby consents to the subm ission thereof, to the International Centre for Setdem ent o f
Investm ent D isputes . 106

Other provisions are less explicit but still indicate that they express die state’s
consent to international arbitration. National laws may state that ‘the investors may
submit the dispute to, or that the dispute ‘shall be settled’ by, international
arbitration.
Other references in national legislation to investment arbitration may not
amount to consent. Some provisions make it clear that further action by the host
state is required to establish consent. This would be the case where die law in
question provides that the parties ‘may agree’ to settle investment disputes through
arbitration .107
Some provisions may be unclear and lead to a dispute as to whether the host state
has given its consent.10S The Venezuelan Investment Law of 1999 contains an
Article 22 which, translated, reads:
D isputes arising between an international investor whose country o f origin has in effect with
Venezuela a treaty or agreem ent on the prom otion and protection o f investments, or
disputes to which are applicable the provision o f the C onvention Establishing the M ultilat­
eral Investm ent G uarantee Agency (O M G I—M IG A) or the C onvention on the Settlement
o f Investm ent D isputes betw een States and N ational o f other States (ICSID ), shall be
subm itted to international arbitration according to the terms o f the respective treaty or
agreement, if it so provides, w ithout prejudice to the possibility o f m aking use, when
appropriate, o f the dispute resolution means provided for under the Venezuelan legislation
in effect.

In Mobil v Venezuela, the claimants sought to rely on this clause to establish

ICSID’s jurisdiction. The Tribunal undertook a detailed analysis of this text. It
noted that the provision contrasted with clear expressions of consent in some of
Venezuela’s BITs. The Tribunal reached the conclusion that an intention of
Venezuela to offer consent to ICSID’s jurisdiction on the basis of this ambiguous

106 See Trndex v Albania, Decision on Jurisdiction, 24 December 1996, 5 ICSID Reports 47, 54.
10/ Biwater G auffv Tanzania, Award, 24 Juiv 2008, paras 326-37.
508 See SPP v Egypt, Decision on Jurisdiction I, 27 November 1985, paras 70-8; Decision on
Jurisdiction II, 14 April 1988, paras 53-117.
 Investor v state disputes 257

clause could not be established.109 Other tribunals interpreting Article 22 of the

Venezuelan Investment Law reached the same result. 110
A legislative provision containing consent to arbitration is merely an offer by the
state to investors. In order to perfect an arbitration agreement, that offer must be
accepted by the investor. The investor may accept the offer simply by instituting
arbitration . 111 The host state may repeal its offer at any time unilaterally as long
as it has not been accepted. Therefore, an investor would be well advised to accept
the offer of consent to arbitration through a written communication as early as
possible.112
The investor’s acceptance of consent can be given only to the extent of the offer
made in the legislation. But it is entirely possible for the investor’s acceptance to be
narrower than the offer and to extend only to certain matters or only to a particular
investment operation.
Some offers of consent to arbitration in national laws are quite broad and refer to
disputes concerning foreign investment in general terms .113 Others delimit the
questions covered by consent clauses. This may include the requirement that the
dispute must be in respect of an approved enterprise. Other references to inter­
national arbitration relate only to the application and interpretation of the piece of
legislation in question . 114
The host state’s offer of consent contained in its legislation may be subject to
certain conditions, time limits, or formalities. In a number of investment laws, the
investor’s consent is linked to the process of obtaining an investment authoriza­
tion .115 Other investment laws require that die investor must accept the offer of
consent to arbitration widiin certain time limits.

cc. Consent through bilateral investment treaties

Most investment arbitration cases in recent years have been based on jurisdiction
established through BITs. The basic mechanism is the same as in the case of
national legislation: the states parties to the BIT offer consent to arbitration to
investors who are nationals of the other contracting party. The arbitration agree­
ment is perfected through the acceptance of that offer by an eligible investor.

109 M obil v Venezuela, Decision on Jurisdiction, 10 June 2010, paras 67—140. The Tribunal found
that it had jurisdiction on the basis of the BIT between the Netherlands and Venezuela, at paras
142-206.
110 CEM EX v Venezuela, Decision on Jurisdiction. 30 December 2010, paras 63-139; Brand.es v
Venezuela, Award, 2 August 2011, paras 79-118.
111 Tradex v Albania, Decision on Jurisdiction, 24 December 1996, 5 ICSID Reports 47, 63;
Zhinvali v Georgia, Award, 24 January 2003, para 342.
112 SPP v Egypt, Decision on Jurisdiction I, 27 November 1985. para 40.
113 Inceysa v E l Salvador, Award, 2 .August 2006, para 331.
m See the consent clause in SPP v Egypt, Decision on Jurisdiction I, 27 November 1985, para 70.
115 In Inceysa v El Salvador, Award, 2 August 2006, at paras 331-4, the Tribunal found that the
investor was unable to avail itself of an ICSID consent clause in the host state’s Investment Law because
the investment did n ot m eet the requirement of legality. See pp 95-6.
258 Settling Investment Disputes

The vast majority of BITs contain clauses referring to investment arbitration .116
Most investor-state dispute settlement clauses in BITs offer unequivocal consent to
arbitration. This will be the case where the treaty states that each contracting party
‘hereby consents’ or where the dispute ‘shall be submitted’ to arbitration . 117
N ot all references to investor-state arbitration in BITs necessarily constitute
binding offers of consent by the host state. Some clauses in BITs referring to
arbitration are phrased in terms of an undertaking by the host state to give consent
in the future. For instance, states may promise to accede to a demand by an investor
to submit to arbitration by stating that the host state ‘shall consent’ to arbitration in
the event of a dispute.118 In Millicom v Senegal, the BIT provided that the state
concerned ‘devra consentir (‘shall assent’) to a dispute’s submission to ICSID
arbitration. Senegal objected on the ground that this did not amount to consent
but that under this formula the state retained discretionary power to give or
withhold consent. The Tribunal rejected this objection and found that the treaty
provision amounted to ‘a unilateral offer and a commitment by Senegal to submit
itself to ICSID jurisdiction ’.119
Some references to arbitration in BITs merely provide that the host state will give
sympathetic consideration to a request for dispute settlement through arbitration.
A clause of this kind does not amount to consent by the host state. Also, some BITs
merely envisage a future agreement between the host state and the investor
containing consent to arbitration.
Many dispute settlement clauses in BITs offer several alternatives. These may
include the domestic courts of the host state, procedures agreed to by the parties to
the dispute, ICSID arbitration, ICC arbitration, and ad hoc arbitration often under
the UNCITRAL Rules. The precise legal effect of such clauses depends upon their
wording. Some of these composite settlement clauses require subsequent agreement
by the disputing parties to select one of these procedures. Others contain the state’s
advance consent to all of them, thereby giving the party that initiates arbitration a
choice. Some BITs offering several methods of settlement specifically state that the
choice between them lies with the investor.
A provision on consent to arbitration in a BIT is merely an offer by the respective
states that requires acceptance by the other party. That offer may be accepted by a
national of the other state party to the BIT.
It is established practice that an investor may accept an offer of consent
contained in a BIT by instituting ICSID proceedings. 120 The Tribunal in Gener­
ation Ukraine v Ukraine said:
ir is firmly established that an investor can accept a State’s offer o f IC SID arbitration
contained in a bilateral investm ent treaty by instituting IC SID proceedings. There is

116 See R Dolzer and M Stevens, Bilateral Investment Treaties (1995) 129 et seq; K J Vandevelde,
Bilateral Investment Treaties (2010) 433 et seq.
117 Roslnvest v Russia, Award on Jurisdiction, 1 October 2007, paras 56-75.
118 See Japan-Paidstan BIT of 1998, Art 10(2).
119 Millicom v Senegal, Decision on Jurisdiction, 16 July 2010, paras 56, 61-6.
120 <;ee eg v Lebanoni Decision on Jurisdiction, 11 September 2009, para 94.
 Investor v state disputes 259
nothing in the B IT to suggest that the investor m ust com m unicate its consent in a different
form directly to the S tate;. . . It follows that the C laim ant validly consented to IC S ID
arbitration by filing its N otice o f A rbitration at the IC SID C entre . 1 2 1

In the case of arbitration clauses contained in treaties, a withdrawal of an offer of

consent before its acceptance would be more difficult than in the case of national
legislation. An offer of arbitration in a treaty remains valid notwithstanding an
attempt to terminate it, unless there is a basis for the termination under the law of
treaties. Nevertheless, early acceptance is advisable. Once the arbitration agreement
is perfected through the acceptance of the offer contained in the treaty, it remains in
existence even if the states parties to the BIT agree to amend or terminate the treaty.
In a number of cases investors had, in fact, accepted offers of consent contained in
BITs prior to the institution of proceedings. 122
Some BITs contain inducements to investors to give their consent. Submission
to arbitration may be made a condition for admission of investments in the host
state and may form part of the licensing process. BITs may provide specifically that
their benefits will extend only to investors that have consented to arbitration,

dd, Consent through multilateral treaties

A number of multilateral treaties also offer consent to arbitration. The ICSID
Convention is not one of these treaties. The Convention offers a detailed frame­
work for the settlement of investment disputes but requires separate consent by the
host state and by die foreign investor. The last paragraph of the Preamble to the
Convention makes this quite clear by stating:
no C ontracting State shall by the mere fact o f its ratification, acceptance or approval o f this
C onvention and w ithout its consent be deemed to be under any obligation to subm it any
particular dispute to conciliation or arbitration;

In contrast, a number of regional treaties do offer consent to arbitration. Article

1122 of the NAPTA 123 provides in relevant part:
1. Each Party consents to the subm ission o f a claim to arbitration in accordance w ith the
procedures set out in this Agreement.

Article 1120 of the NAFTA specifies that an investor may submit a claim to
arbitration under the ICSID Convention, the ICSID Additional Facility Rules,
or the UNCITRAL Arbitration Rules.
The EC T 124 also provides consent to investment arbitration. Article 26(3) (a)
provides in relevant part:

121 Generation Ukraine v Ukraine, Award, 16 September 2003, paras 12.2, 12.3.
122 See eg A D C v Hungary, Award, 2 October 2006, para 363.
123 N orth American Free Trade Agreement, December 1992, 32 ILM 605 (1993). T he CAPTA,
Art 10.17 contains a similar clause.
124 34 ILM 360, 399 (1995).
260 Settling Investment Disputes

each C o n tra c tin g P arty h ereb y gives its unconditional consent to rhe submission o f a dispute
to in te rn a tio n a l arbitration or conciliation in accordance w ith this Article.

Under the ECT, the investor may submit the dispute to arbitration under the
ICSID Convention, the ICSID Additional Facility Rules, the UNCITRAL Arbi­
tration Rules, or the Arbitration Institute of die Stockholm Chamber of Com­
merce.125 Here, too, the institution of proceedings constitutes the investor’s
acceptance of the offer of consent.126

ee. The scope o f consent

The scope of consent to arbitration offered in treaties varies. Many BITs in their
consent clauses contain phrases such as ‘all disputes concerning investments’ or ‘any
legal dispute concerning an investment’. These provisions do not restrict a tribu­
nal’s jurisdiction to claims arising from die BIT’s substantive standards. By their
own terms, these consent clauses encompass disputes that go beyond the interpret­
ation and application of the BIT itself and would include disputes that arise from a
contract in connection with the investment.
In Salini v Morocco, Article 8 of the applicable BIT defined ICSID’s jurisdiction
in terms of ‘[tjous les differends ou divergences.. . concernant un investisse-
m ent ’.127 The Tribunal noted that the terms of this provision were veiy general
and included not only a claim for violation of die BIT but also a claim based on
contract: ‘Article 8 obliges the State to respect the jurisdictional choice arising by
reason of breaches of the bilateral Agreement and of any breach of a contract which
binds it directly.’128
In Compαιτία de Aguas del Aconquija, SA & Vivendi Universal129 Article 8 of
the BIT between France and Argentina, applicable in that case, offered consent
for ‘fajnv dispute relating to investments’. In its discussion of the BIT’s fork-in-the-
road clause, the ad hoc Committee said:
Article 8 deals generally with disputes ‘relating to investm ents made under this Agreement
betw een one C ontracting Party and an investor o f the other C ontracting Party’. It is those
disputes w hich m ay be subm itted, at the investor’s option, either to national or international
adjudication. Article 8 does n o t use a narrow er form ulation, requiring that the investor’s
claim allege a breach o f the B IT itself. Read literally, the requirem ents for arbitral jurisdic­
tion in Article 8 do n o t necessitate that the C laim ant allege a breach o f the BIT itself: it is
sufficient that the dispute relate to an investm ent m ade under the BIT. T his may be
contrasted, for example, w ith Article 1 1 o f the B IT [dealing with state-state dispute
settlem ent], which refers to disputes ‘concerning the interpretation or application o f this
A greem ent3, or with Article 1116 o f the NAFTA, w hich provides that an investor may

125 ECT, A n 26(4).

126 AM TO v Ukraine, Award. 26 March 2008, paras 44 -7 .
I2/ Italy-Morocco BIT, Art S.
128 Salmi v Morocco, Decision on Jurisdiction, 23 July 2001 , Journal de Droit International 196
(2002), 6 ICSID Reports 400, para 61.
129 Compafiia de Aguas delAconquija, SA & Vivendi Universal v Argentina, Decision on Annulment,
3 July 2002.
 Investor v state disputes 261

subm it to arbitration under C hapter 11 ‘a claim that another Parry has breached an
obligation under 3 specified provisions o f that C hapter . 130

The Tribunal in SGS v Pakistan reached a different conclusion. Article 9 o f die

applicable BIT between Switzerland and Pakistan referred to ‘disputes with respect
to investments’. The Tribunal found that the phrase was merely descriptive of
the factual subject matter of the disputes and did not relate to the legal basis of the
claims or cause of action asserted in the claims. The Tribunal said: ‘from that
description alone, without more, we believe that no implication necessarily arises
that both BIT and purely contract claims are intended to be covered by the
Contracting Parties in Article 9 / 131
Therefore, the Tribunal held that it had no jurisdiction with respect to contract
claims which did not also constitute breaches of the substantive standards of the
BIT . 132
That decision has attracted some criticism .133 In SGS v Philippines,13^ Article
YIII(2) of the Switzerland-Philippines BIT offered consent to arbitration for
‘disputes with respect to investments5. The Tribunal found diat the clause in
question was entirely general allowing for the submission of all investment disputes.
Therefore, the Tribunal found that the term included a dispute arising from an
investment contract.135
Other BIT clauses offering consent to arbitration do not refer to investment
disputes in general terms but circumscribe the types of dispute that are submitted to
arbitration. A provision that is typical for US BITs is contained in Article VII o f the
Argentina-US BIT of 1991. It offers consent for investment disputes, which are
defined as follows:
a dispute between a Party and a narional or com pany o f the other Party arising our o f or
relating to (a) an investm ent agreement between diat Party and such narional or com pany;
(b) an investm ent authorization granted by that Party’s foreign investm ent authority (if any
such authorization exists) to such national or company; or (c) an alleged breach o f any right
conferred or created by this Treaty w ith respect to an investm ent.

A narrower offer of consent to arbitration in BITs covers only violations o f the

BIT’s substantive standards. For instance, the BIT between El Salvador and the
Netherlands contains a submission to arbitration in Article 9 only for ‘disputes
which arise within the scope of this agreement between one Contracting Party and
an investor of the other Contracting Party concerning an investment’.
Similarly, under Article 1116 of the NAFTA the scope of the consent to
arbitration is limited to claims arising from alleged breaches of the NAFTA itself.

130 At para 55.

131 SGS v Pakistan, Decision on Jurisdiction, 6 August 2003, para 161.
132 SGS v Pakistan, Decision on Jurisdiction, 6 August 2003. para 161.
13:3 See also Tokios Tokeles v Ukraine, Decision on Jurisdiction, 29 April 2004, para 52.
1·'’4 SGS v Philippines, Decision on Jurisdiction, 29 January 2004.
533 At paras 131-5. In the same sense: Chevron & Texaco v Ecuador, Interim Award, 1 December
2008, paras 203, 209-11; SGS v Paraguay, Decision on Jurisdiction, 12 February 2010, paras 129,
183; Alpha v Ukraine, Award, 8 November 2010, para 243.
262 Settling Investment Disputes

Also, under Article 26(1) of the ECT the scope of the consent is limited to claims
arising from alleged breaches of the ECT itself.136
An umbrella clause in the BIT should extend the jurisdiction of tribunals to
violations of contracts even if the consent to arbitration is restricted to claims arisingD
from breaches of the treaty.13/ If it is true that under the operation of an umbrella
clause, violations of a contract relating to the investment become treaty violations,
it would follow that even a provision in a BIT merely offering consent to arbitration
for violations of the BIT extends to contract violations covered by the umbrella
clause.
The subject matter of some expressions of consent to arbitration is narrowly
confined. Typical examples of narrow clauses of this kind are expressions of consent
that are limited to disputes relating to expropriations138 or to the amount of
compensation for expropriations. 139 For instance, the China-Hungary BIT of
1991 provides in Article 1 0 ( 1):
A n y d isp u te betw een eith er C o n tra c tin g S tate an d th e investor o f th e o th er C o n tractin g
S tate co n cern in g th e a m o u n t o f c o m p e n sa tio n for ex p ro p riatio n m ay be su b m itte d to an
arb itral tribunal.

Some national laws also offer consent only in respect of narrowly circumscribed
issues. In Tradex v Albania the consent expressed in the Albanian Law on Foreign
Investment was limited in the following terms:
if th e d isp u te arises o u t o f or relates to ex p ro p riatio n , co m p en satio n fo r expropriation, or
d isc rim in atio n a n d also fo r th e transfers in accordance w ith A rticle 7 . . .l40

After a detailed examination of the facts, the Tribunal found that the claimant had
not been able to prove that an expropriation had occurred.141

ff. The interpretation o f consent

Where consent is based on a treaty it would seem obvious to apply principles of
treaty interpretation .142 Reliance on domestic law principles of interpretation
appears attractive where consent is based on a clause in domestic legislation. But
it must be kept in mind that the perfected consent is neither a treaty nor simply a
provision of domestic law, but an agreement between the host state and the foreign
investor.

136 Kardassopotilos v Georgia, Decision on Jurisdiction, 6 July 2007, paras 249-51.

137 O n umbrella clauses, see Chapter VII.3.
138 Saipem v Bangladesh, Decision on Jurisdiction, 21 March 2007, paras 116, 129-33; Award,
30 June 2009, paras 120-32.
139 Telenor v Hungary, Award, 13 September 2006, paras 18(2), 25, 57, 81-3; A D C v Hungary,
Award, 2 October 2006, paras 12, 445; Tza Yap Shinn v Peru, Decision on Jurisdiction, 19 June 2009,
paras 129-88.
140 Tradex v Albania, Decision on Jurisdiction, 24 December 1996, 5 ICSID Reports 47, 54—5-
141 Tradex v Albania, Award, 29 April 1999, paras 132—205.
142 For a general discussion of treaty interpretation in the context o f investment law, see
Chapter II. 1.
 Investor v state disputes 263

In CSOB v Slovakia consent to arbitration was based on a contract between the

parties that referred to a BIT. Although the BIT had never entered into force, the
Tribunal concluded that the parties, by referring to the BIT, had intended to
incorporate the arbitration clause in the BIT into their contract. W ith respect to the
interpretation of the consent agreement, the Tribunal had no doubt that it was
governed by international law:
The question of whether the parties have effectively expressed their consent to ICSID
jurisdiction is not to be answered by reference to national law. It is governed by international
law as set out in Article 25(1) of the ICSID Convention.143
Tribunals have also held more generally that questions of jurisdiction are not
subject to the law applicable to the merits of the case. Rather, questions of
jurisdiction are governed by their own system which is defined by the instruments
determining jurisdiction . 144 In the words of the Tribunal in CMS v Argentina·.
Article 42 [of the ICSID Convention] 14=1 is mainly designed for the resolution of disputes on
the merits and, as such, it is in principle independent from the decision on jurisdiction,
governed solely by Article 25 of the [ICSID] Convention and those other provisions of the
consent instrument which might be applicable, in the instant case the Treaty provisions.146
The host state’s domestic law is relevant to jurisdiction if the consent to arbitration
is based on a provision in its legislation.147 In M obil v Venezuela, the claimant relied
on an ambiguous clause in Venezuela’s Investment Law that referred to the ICSID
Convention .148 The Tribunal said:
Legislation and more generally unilateral acts by which a State consents to ICSID jurisdic­
tion must be considered as standing offers to foreign investors under the ICSID Conven­
tion. Those unilateral acts must accordingly be interpreted according to the ICSID
Convention itself and to the rules of international law governing unilateral declarations of
States.149
In a number of cases the respondents argued that an expression of consent to
arbitration should be construed restrictively. Most tribunals have rejected this
argument. Some tribunals seemed to lean more towards an extensive interpretation

143 CSOB v Slovakia, Decision on Jurisdiction, 24 May 1999, para 35.

144 Azurix v Argentina, Decision on Jurisdiction, 8 December 2003, paras 48 -5 0 ; Enron v
Argentina, Decision on Jurisdiction, 14 January 2004, para 38; Siemens v Argentina, Decision on
Jurisdiction, 3 August 2004, paras 29-31; Camuzzi v Argentina, Decision on Jurisdiction, 11 May
2005, paras 15-17, 57; A ES Coip v Argentina, Decision on Jurisdiction, 26 April 2005, paras 34-9;
Ian de N u l NV, Dredging In ti N V v Egypt, Decision on Jurisdiction, 16 June 2006, paras 65-8.
145 Article 42 o f the ICSID Convention deals with the law applicable to the dispute.
146 CM S v Argentina, Decision on Jurisdiction, 17 July 2003, para 88.
14/ SPP v Egypt, Decision on Jurisdiction II, 14 April 1988, paras 55-61; Inceysa v E l Salvador,
Award, 2 August 2006, paras 131, 222-64; Zhinvali v Georgia, Award, 24 January 2003, paras 229,
339, 340.
148 See p 256.
149 M obil v Venezuela, Decision on Jurisdiction, 10 June 2010, para 85. See also CEM EX v
Venezuela, Decision on Jurisdiction, 30 December 2010, para 79; Brandes v Venezuela, Award,
2 August 2011, para 36.
264 Settling Investment Disputes

of consent clauses150 but the majority of tribunals have subscribed to a balanced

approach that accepts neither a restrictive nor an expansive approach to the
interpretation of consent clauses. 151
In SPP v Egypt, the argument of the restrictive interpretation of jurisdictional
instruments was raised in relation to an arbitration clause in national legislation.
The Tribunal found that there was no presumption of jurisdiction and that
jurisdiction only existed insofar as consent thereto had been given by the parties.
Equally, there was no presumption against the conferment of jurisdiction with
respect to a sovereign state. After referring to a number of international judgments
and awards, the Tribunal said:
T hus, jurisdictional instrum ents are to be interpreted neither restricdveiy nor expansively,
b ut rather objectively and in good faith, and jurisdiction will be im m d to exist if— but only
if— the force o f the arguments m ilitating in favor o f it is preponderant . 1 52

(g) Conditions for the institution o f proceedings

aa. The requirement to resort to domestic courts
Under traditional international law, before an international claim on behalf
of an investor may be put forward in international proceedings, the investor
must have exhausted the domestic remedies offered by the host state’s legal
system. But it is well established that, where consent has been given to
investor-state arbitration, there is generally no need to exhaust local remedies.
One of the purposes of investor-state arbitration is to avoid die vagaries of
proceedings in the host state’s courts. Article 26 of die ICSID Convention speci­
fically excludes die requirement to exhaust remedies ‘unless odierwise stated’.153

150 SGS v Philippines, Decision on Jurisdiction, 29 January 2004, para 116; Eureko v Poland, Partial
Award, 19 August 2005, para 248; Tradex v Albania, Decision on Jurisdiction. 24 December 1996,
para 68; Millicom v Senegal, Decision on Jurisdiction, 16 July 2010, para 98.
151 Amco v Indonesia, Decision on Jurisdiction. 25 September 1983, paras 12-24; SO ABI v Senegal,
Award, 25 February 1988, paras 4.08—4.10; Cable T V v St Kitts and Nevis, Award, 13 January 1997,
para 6.27; CSOB v Slovakia, Decision on Jurisdiction, 24 May 1999, para 34; Ethyl Corp v Canada,
Decision on Jurisdiction, 24 June 1998, para. 55; Loewen v United States, Decision on Competence
and Jurisdicrion, 9 January 2001, para 51; Methanex v United States, Preliminary Award on Jurisdic­
tion, 7 August 2002, paras 103-5; Mondev Inti Ltd v United States, Award, 11 October 2002, paras 42,
43; Aguas del Tunari, SA v Bolivia, Decision on Jurisdiction, 21 October 2005, para 91; E l Paso Energy
In ti Co v Argentina, Decision on Jurisdiction, 27 April 2006, paras 68-70; Suez, Sociedad General de
Aguas de Barcelona SA, and InterAguas Servicios Integrates del Agua SA v Argentina, Decision on
Jurisdiction, 16 May 2006, paras 59, 64; Pan American v Argentina, Decision on Preliminary
Objections, 27 July 2006, paras 97-9; Duke Energy v Ecuador, Award, 18 August 2008, paras 129—
30; Austrian Airlines v Slovakia, Final Award, 9 October 2009, paras 119-21; M obil v Venezuela,
Decision on Jurisdiction, 10 June 2010, paras 112-19; CEM EX v Venezuela, Decision on Jurisdiction,
30 December 2010, paras 104 et seq.
132 SPP v Egypt, Decision on Jurisdiction, 14 April 1988, para 63.
153 Article 26 of the ICSID Convention provides:
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. A Contracting
State may require the exhaustion of local administrative or judicial remedies as a condition
of its consent to arbitration under this Convention.
 Investor v state disputes 265

ICSID 154 and non-ICSID tribunals1' 3 have confirmed thar rhe claimants were
entided to institute international arbitration directly without first exhausting die
remedies offered by local courts.
It is open to a host state to make the exhaustion of local remedies a condition of
its consent to arbitration. In fact, some BITs offering consent require the exhaus­
tion of local remedies. But clauses of this kind are rare and are found mosdy in older
BITs. In the absence of such a proviso, the investor does not need to exhaust local
remedies before starting an international arbitration. The Tribunal in Generation
Ukraine v Ukraine stated:
13.4 T he first sentence o f Article 26 secures rhe exclusivity o f a reference to IC SID
arbitration vis-a-vis any other remedy. A logical consequence of this exclusivity is the waiver
by C ontracting States to the IC S ID C onvention o f the remedies rule, so th at the investor is
nor compelled to pursue remedies in rhe respondent State’s dom estic courts or tribunals
before the institution o f IC SID proceedings. This waiver is im plicit in the second sentence
of Article 26, w hich nevertheless allows C ontracting States to reserve its right to insist upon
the prior exhaustion o f local remedies as a condition o f its consent . 156

In some cases tribunals have required an attempt to obtain redress in domestic

courts, not as a matter of jurisdiction or admissibility, but as part of the evidence
that the relevant standard of international law had indeed been violated. The
Tribunal in Waste Management described this phenomenon in die following
terms: ‘in this context the notion of exhaustion of local remedies is incorporated
into the substantive standard and is not only a procedural prerequisite to an
international claim .’157
In a similar vein, the Tribunal in Generation Ukraine v Ukraine said:
the failure to seek redress from national authorities disqualifies the international claim, not
because there is a requirem ent o f exhaustion o f local remedies but because the very reality o f
conduct tan tam o u n t to expropriation is doubtful in the absence o f a reasonable— n o t
necessarily exhaustive— effort by the investor to obtain correction . 158

Therefore, under this dieoiy an attempt to seek redress in the domestic courts
would be required to demonstrate that a substantive standard, such as protection
against uncompensated expropriation or fair and equitable treatment, has indeed
been violated.
This theory has been severely criticized. In Helnan v Egypt, the Tribunal relied
on the above passage from Generation Ukraine. It found that the claimant’s failure

15q Amco v Indonesia, Decision on Annulment, 16 May 1986, para 63; Lanco v Argentina, Decision
on Jurisdiction, 8 December 1998, para 39; IB M v Ecuador, Decision on Jurisdiction, 22 December
2003, paras 7 7 -8 4; A E S v Argentina, Decision on Jurisdiction, 26 April 2005, paras 69, 70; Saipcm v
Bangladesh, Award. 30 June 2009, paras 174-84.
1:15 CM E v Czech Republic, Final Award, 14 λ-larch 2003, para 412: Yaung Chi Oo v Myanmar,
Award, 31 March 2003, para 40; Nycomb v Latvia, Award, 16 December 2003, sec 2.4. But see Loewen
v United States, Award, 26 June 2003, paras 142-217.
156 Generation Ukraine, Inc v Ukraine, Award, 16 September 2003, para 13.4.
157 Waste Management v Mexico, Award, 30 April 2004, para 97. Footnote omitted.
158 Generation Ukraine, Inc v Ukraine, Award, 16 September 2003, para 20.30. See also EnCana v
Ecuador, Award, 3 February 2006, para 194.
266 Settling Investment Disputes

to challenge a key ministerial decision in the Egyptian administrative courts meant

that there was no violation of the BIT’s standards of protection . 159 This particular
finding was subsequendy annulled. The ad hoc Committee noted:
A requirement to pursue local court remedies would have the effect of disentitling a claimant
from pursuing its direct treaty claim for failure by the executive to afford fair and equitable
treatment, even where the decision was taken at the highest level of government within
the host State.... Such a consequence would be contrary to the express provisions of
Article 26 . . .l6°
Some BITs provide that before an investor can bring a dispute before an inter­
national tribunal he or she must seek resolution before the host state’s domestic
courts for a certain period, often 18 mondis. The investor may proceed to
international arbitration if the domestic proceedings do not result in the dispute’s
setdement during that period or if the dispute persists after the domestic decision.
For instance, the Argentina-Germany BIT provides in Article 10(2) that any
investment dispute shall first be submitted to the host state’s competent tribunals.
The provision continues:
(3) The dispute may be submitted to an international arbitration tribunal in any of the
following circumstances:
(a) at the request of one of the parties to the dispute if no decision on the merits of the claim
has been rendered after the expiration of a period of eighteen months from die date in
which the court proceedings referred to in para. 2 of this Article have been initiated, or if
such decision has been rendered, but the dispute between the parties persist;
Tribunals have held that this was not an application of the exhaustion of local
remedies rule . 161 The usefulness of such a requirement is questionable: it creates a
considerable burden to the party seeking arbitration with little chance of advancing
the setdement of die dispute. A substantive decision by the domestic courts in a
complex investment dispute is unlikely within 18 months, certainly if one includes
the possibility of appeals. Even if such a decision is rendered, the dispute is likely to
persist if the investor is dissatisfied with die decision’s outcome. Therefore, arbitra­
tion remains an option after the expiry of the 18-month period. It follows that the
most likely effect of a clause of this kind is delay and additional cost, since it is
unlikely that the dispute will be resolved before the domestic courts within that
time frame. One tribunal called a provision of this kind ‘nonsensical from a
practical point of view’.162
In actual practice, investors were often able to avoid the application of such a ride
by invoking most-favoured-nation (MFN) clauses in the same BITs which allowed

159 H elm n v Egypt, Award, 3 July 2008, para 148.

loo pjeinan v Egypt, Decision on Annulm ent, 14 June 2010, paras 4 3 -5 7 at para 53.
161 M affezini v Spain, Decision on Jurisdiction, 25 January 2000, para 28; Siemens v Argentina,
Decision on Jurisdiction, 3 August 2004, para 104; Gas Natural SDG, 5/4 v Argentina, Decision on
Jurisdiction, 17 June 2005, para 30.
162 Plama v Bulgaria, Decision on Jurisdiction, 8 February 2005, para 224.
 Investor v state disputes 267

them to rely 011 other BITs of the host state that did not contain that require­
ment .163

bb. The fork in the road

Another way in which BITs sometimes refer to domestic courts is a so-called
fork-in-the-road provision. Such a clause provides that the investor must choose
between the litigation of its claims in the host state’s domestic courts or through
international arbitration and that the choice, once made, is final. 164 For instance,
Article 8 (2 ) of die Argentina-France BIT provides:
Once an investor has submitted the dispute either to the jurisdictions of the Contracting
Party involved or to international arbitration, the choice of one or the other of these
procedures shall be final.
Similarly, under the ECT consent of the states parties listed in Annex ID does not
apply where die investor has previously submitted the dispute to the host state’s
courts.165
Investors are often drawn into local legal disputes of one sort or another in the
course of investment activities. However, not every appearance before a court or
tribunal of the host state will constitute a choice under a fork-in-the-road provision.
While such disputes may relate in some way to the investment, they are not
necessarily identical to the dispute before the international tribunal. Therefore,
the appearance before a domestic court does not necessarily reflect a choice that
would preclude international arbitration. Tribunals have held that the loss of access
to international arbitration under a fork-in-the-road clause applies only if the same
dispute involving the same cause of action between the same parties has been
submitted to the domestic courts of the host state . 166 Only rarely did tribunals find

163 Maffezini v Spain, Decision on Jurisdiction. 25 January 2000, paras 54-64; Siemens v Argentina,
Decision on Jurisdiction, 3 August 2004, paras 32-110; Gas Natural SDG, SA v Argentina, Decision
on Jurisdiction, 17 June 2005, paras 24-49; Suez, Sociedad General de Aguas de Barcelona SA, and
InterAguas Servicios Integrates delAgua 5/1 v Argentina, Decision on Jurisdiction, 16 May 2006, paras
52-66; National Grid pic v Argentina, Decision on Jurisdiction, 20 June 2006, paras 80-93; Suez,
Sociedad General de Aguas de Barcelona SA, and Vivendi Universal &4 v Argentina a n d A W G Group Ltd v
Argentina, Decision on Jurisdiction, 3 August 2006, paras' 52-68, But see Wintershall v Argentina,
Award, 8 December 2008, paras 158-97; ICS Inspection v Argentina, Award, 10 February 2012, paras
243-327.
164 T he NAFTA, in Art 1121, does not, strictly speaking, contain a fork-in-the-road provision.
However, it requires, as a condition of consent to arbitration, that the claimant submits a waiver of the
right to initiate or continue before domestic judiciaries any proceedings with respect to the measures
taken by the respondent that are alleged to be in breach of the NAFTA. See Waste Management v
Mexico, Award, 2 June 2000; Thunderbird v Mexico, Award, 26 January 2006, paras 111-18. The
CAFTA contains a similar provision in Art 10.18. See Railroad Development v Guatemala, Decision on
Jurisdiction, 17 Novem ber 2008; Commerce Group v El Salvador, Award, 14 March 2011.
165 See ECT, Art 26(3)(b)(i).
166 Olginn v Paraguay, Decision on Jurisdiction, 8 August 2000, para 30; Vivendi v Argentina,
Award, 21 November 2000, paras 53-5; Decision on Annulment, 3 July 2002, paras 36—43, 53-5;
Genin v Estonia, Award, 25 June 2001, paras 321, 330—3; Lauder v Czech Republic, Final Award, 3
September 2001, paras 156-66; Middle East Cement v Egypt, Award, 12 April 2002, paras 70-3;
Azurix v Argentina, Decision on Jurisdiction, 8 December 2003, paras 37-41, 86-92; Enron v
268 Settling Investment Disputes

that the fundamental basis of die claim before them was the same as before the
domestic courts107
CMS v Argentina16* addressed the fork-in-the-road provision in the Argentina-
US BIT. Argentina
Ο
areued
o
chat the investor had taken the fork in the road since the
local company, TGN, in which the investor held shares, had appealed a judicial
decision to the Federal Supreme C ourt and had sought other administrative
remedies.169
The Tribunal rejected Argentina’s contention. It pointed out that the appeal had
been taken by the local company T G N rather than by the foreign investor. Also,
the steps taken consisted only of defensive and reactive actions. Most importantly,
the subject matter in the domestic proceedings was not the same as the one in the
ICSID arbitration. T G N ’s claims concerned the contractual arrangements under a
licence while those of CMS concerned treaty rights.1''0 The Tribunal said:
80. Decisions of several IC SID tribunals have held that as contractual claims are different
from treaty claims, even if there had been or there currently was a recourse to die local courts
for breach o f contract, this would not have prevented subm ission o f the treaty claims to
arbitration. This Tribunal is persuaded that w ith even m ore reason this view applies to the
instant dispute, since no subm ission has been m ade by CM S to local courts and since, even
if T G N had done so-—which is not the case—, this w ould not result in triggering the ‘fork
in die road’ provision against CM S. Both the parties and the causes o f action under separate
instrum ents are different.

cc. An attempt at amicable settlement

A common condition in treaties providing for investor-state arbitration is that an
amicable settlement must first be attempted through consultations or negotiations.
This requirement is subject to certain time limits ranging from 3 to 12 months. If
no settlement is reached within diat period the claimant may proceed to arbitra­
tion. A typical waiting period under BITs wrould be six months. The NAFTA (Arts
111 8 —2 0 ) also prescribes a waiting period of six months after the events giving rise
to the claim ,171 Article 2 6 (2 ) of the ECT offers consent to arbitration if the dispute
cannot be setded within three months from the date on which either party
requested amicable settlement. 172 National legislation offering consent to arbitra­
tion may similarly provide for waiting periods.173

Argentina, Decision on Jurisdiction, 14 January 2004, paras 95-8; Occidental v Ecuador, Award, 1 July
2004, paras 37-63; LG&E v Argentina, Decision on jurisdiction, 30 April 2004, paras 75, 76;
Champion Trading v Egypt, Decision on Jurisdiction, 21 O ctober 2003, sec 3.4.3; Pan American v
Argentina, Decision on Preliminary Objections, 27 July 2006, paras 155-7; Toto v Lebanon, Decision
on jurisdiction, 11 September 2009, paras 203-17; Victor Pey Casado v Chile, Award, 8 May 2008,
paras 467-98; Total v Argentina, Decision on Liability, 27 December 2010, paras 442—3.
lb7 Pantechniki v Albania, Award, 30 July 2009, paras 53-67.
168 CM S v Argentina, Decision on Jurisdiction, 17 July 2003, paras 77—82.
169 A t para 77.
1/0 At paras 78-82.
171 Metalclad v Mexico, Award, 30 August 2000, paras 64-9.
1/2 Petrobart v Kyrgyz Republic, Award, 29 M arch 2005, sec V III.7.
-.................. ...... ~ ·· τ -■--ί:--:-" ί /ι n„™ mkpr S in.STD Reoorts 47) 60—1.
 Investor v state disputes 269

The reaction of tribunals to these provisions requiring an attempt at amicable

settlement before the institution of arbitration has not been uniform .174 In the
majority of cases the tribunals found that the claimants had complied with
these waiting periods before proceeding to arbitration .173 In other cases the tribu­
nals found that non-compliance with the waiting periods did not affect their
jurisdiction .176
In Biwater Gaujf v T a n za n ia the UK-Tanzania BIT provided for a six-month
period for settlement. There had been attempts to resolve the dispute but the six-
m onth period had not yet elapsed when the Request for Arbitration was filed. The
Tribunal held that this did not preclude it from proceeding. It said:
diis six-month period is procedural and director)7 in nature, rather than jurisdictional and
mandatory. Its underlying purpose is to facilitate opportunities for amicable settlement. Its
purpose is not to impede or obstruct arbitration proceedings, where such settlement is not
possible. Non-compliance with the six month period, therefore, does not preclude this
Arbitral Tribunal from proceeding. If it did so, the provision would have curious effects,
including:
- preventing the prosecution of a claim, and forcing the claimant to do nothing until six
months have elapsed, even where further negotiations are obviously futile, or setdement
obviously impossible for any reason:
- forcing the claimant to recommence an arbitration started too soon, even if the six-month
period has elapsed by the time the Arbitral Tribunal considers the matter,177

174 For the practice o f the ICJ see Military and Pararnilitaiy Activities in and- against Nicaragua
(Nicaragua v United States), Judgm ent (Jurisdiction and Admissibility), 26 November 1984, ICJ
Reports (1984) 4 2 7 -9 and Case Concerning Application o f the International Convention on the E lim in­
ation o f all fonns o f Racial Discrimination (Georgia v Russia), Judgment, 1 April 2011, paras 115-84.
1/5 Salini v Morocco, Decision on Jurisdiction, 23 July 2001, paras 15-23; CM S v Argentina,
Decision on Jurisdiction, 17 July 2003, paras 121-3; Generation Ukraine v Ukraine, Award, Ιό Sep­
tember 2003, paras 14.1—14.6; Azurix v Argentina, Decision on Jurisdiction, 8 December 2003. para
55; Tokios Tokeles v Ukraine, Decision on Jurisdiction, 29 April 2004, paras 101-7; LG & E v
Argentina, Decision on Jurisdiction, 30 April 2004. para 80; M T D v Chile, Award, 25 May 2004,
para 96; Occidental v Ecuador, Award, 1 July 2004, para 7; Siemens v Argentina, Decision on
Jurisdiction, 3 August 2004, paras 163-73; LESI—D IPEN TA v Algerie, Award, 10 January 2005,
paras 32. 33; A E S Corp v Argentina, Decision on Jurisdiction. 26 April 2005, paras 62-71; Continental
Casualty v Argentina, Decision on Jurisdiction, 22 February 2006, para 6; Berschader v Russia, Award,
21 April 2006, paras 98-104; E l Paso v Argentina, Decision on Jurisdiction, 27 April 2006, para 3S;
Pan American v Argentina, Decision on Preliminary Objections, 27 July 2006, paras 39, 41; A M T O v
Ukraine, Award, 26 M arch 2008, paras 50, 53, 57-8; Occidental v Ecuador, Decision on Jurisdiction,
9 September 2008, paras 9 0-5; A F T v Slovakia, Award, 5 March 2011, paras 200-12.
176 In Ethyl Corp v Canada, Decision on Jurisdiction, 24 June 1998, paras 76-88, the Tribunal
dismissed the objection based on die six-month provision since further negotiations would have been
pointless. In Lauder v Czech Republic, Final Award, 3 September 2001, para 187, the Tribunal found
that die waiting period o f six months was not a jurisdictional provision. In SGS v Pakistan, Decision on
Jurisdiction, 6 August 2003, para 184, the Tribunal found that die waiting period was procedural
rather than jurisdictional and that negotiations would have been futile. Similarly in Bayindir v Pakistan,
Decision on Jurisdiction, 14 NoArember 2005, paras 88-103, the Tribunal found diat a requirement to
give notice o f the dispute for die purpose of reaching a negotiated settlement was not a precondition for
jurisdiction.
!// Biwater G o o ff v Tanzania, Award, 24 July 2008, paras 338-50 at 343.
270 Settling Investment Disputes

Other tribunals have reached the opposite conclusion .178 In Burlington Resources v
Ecuador, the BIT between Ecuador and the United States provided for consultation
and negotiation in the event o f a dispute. ICSID arbitration would become
available six months after the dispute had arisen. The Tribunal found that the
claimant had only informed the respondent of the dispute with its submission of
the dispute to ICSID arbitration. It followed that the claim was inadmissible:
by imposing upon investors an obligation to voice their disagreement at least six months
prior to the submission of an investment dispute to arbitration, the Treaty effectively
accords host States the right to be informed about the dispute at least six months before
it is submitted to arbitration. The purpose of this right is to grant the host State an
opportunity to redress the problem before the investor submits the dispute to arbitration.
In this case, Claimant has deprived the host State of that opportunity. That suffices to
defeat jurisdiction.179
It would seem that the decisive question is whether there was a promising oppor­
tunity for a settlement. There is little point in declining jurisdiction and sending the
parties back to the negotiating table if negotiations are obviously futile. Even if the
institution of arbitration was premature, the waiting period will often have expired
by the time the tribunal is ready to make a decision on jurisdicrion. Under these
circumstances, declining jurisdiction and compelling the claimant to start the
proceedings anew would be uneconomical. An alternative way to deal with non-
compliance with a waiting period is a suspension of proceedings to allow additional
time for negotiations if these appear promising.

(h) T h e applicability o f M F N clauses to dispute settlement

An M FN clause contained in a treaty will extend the better treatment granted to a
third state or its nationals to a beneficiary of the treaty .180 Most BITs and some
other treaties for die protection of investments181 contain M FN clauses. Some of
these M FN clauses will specify to which parts of the treaty they apply. For instance,
the M FN clause may specify that it includes, or that it excludes, dispute settle­
ment.182 But most M FN clauses are worded in a general way and typically refer
only to the treatment of investments. 183
This has led to die question of whether the effect of M FN clauses extends to the
provisions on dispute settlement in these treaties. Put differently, is it possible to

1/8 Goetz v Burundi, Award, 10 February 1999, paras 90-3; Enron v Argentina, Decision on
Jurisdiction, 14 January 2004, para 88; Wintershall v Argentina, Award, 8 December 2008, paras
133-57; M w phy v Ecuador, Award, 15 December 2010, paras 90-157.
1/9 Burlington Resources v Ecuador, Decision on Jurisdicrion, 2 June 2010, paras 312 -1 8 , 332-40 at
para 315. Emphasis in original.
180 See also R Dolzer and T Myers, ‘After Teemed: Most-Favored-Nadon Clauses in Investment
Protection Agreements’ (2004) 19 ICSID Review-FILJ 49.
JSI See NAFTA, Art 1103; ECT, Art 10(7),
182 T he UK Model BIT confirms ‘for the avoidance of doubt’ that M FN treatm ent applies to a list
o f Articles diat include the settlement of investor-state disputes. The BIT between Austria and
Kazakhstan specifically includes dispute settlement in its M F N clause.
183 Generally on MFN clauses, see Chapter VII.9.
 Investor v state disputes 271

avoid die conditions and limitations attached to consent to arbitration in a treaty by

relying on an M FN clause in the treaty provided the respondent state has entered
into a treaty with a third state that contains a consent clause without these
conditions and limitations? O r even more radically, if the treaty containing the
M FN clause does not offer consent to arbitration, is it possible to rely on consent to
arbi tration in a treaty of the respondent state with a third party?
In Maffezini v Spain184 the consent clause in the Argentina-Spain BIT required
resort to the host state’s domestic courts for 18 months before the institution of
arbitration. That BIT contained the following M FN clause: Ίη 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.’
O n the basis of that clause, the Argentinian claimant relied on the Chile-Spain
BIT which does not contain the requirement to seek redress in the host state’s
courts for 18 months. The Tribunal undertook a detailed analysis of the applicabil­
ity of M FN clauses to dispute settlement arrangements185 and concluded:
the most favored nation clause included in the Argentine-Spain BIT embraces the dispute
setdement provisions of this treaty,... the Tribunal concludes that Claimant had the right
to submit the instant dispute to arbitration without first accessing the Spanish courts.186
At the same time, the Aiajfezini Tribunal warned against exaggerated expectations
attached to the operation of M FN clauses and distinguished between the legitimate
extension of rights and benefits and disruptive treaty-shopping .187 In particular,
the M FN clause should not override public policy considerations that the
contracting parties had in mind as fundamental conditions for their acceptance
of the agreement. 188
Subsequent decisions dealing with the application of M FN clauses to the require­
ment to seek a setdement in domestic courts for 18 months have mostly adopted
the same solution .189 The tribunals confirmed that the claimants were entitled to
rely on the M FN clause in the applicable treaty to invoke die more favourable
dispute setdement clause of another treaty that did not contain the 18-month
rule. 190 At the same time these tribunals expressed their conviction that arbitration
was an important part of the protection of foreign investors and that M FN clauses

184 M affezini v Spain, Decision on Jurisdiction, 25 January 2000.

185 At paras 3 8 -6 4 .
186 A t para 64.
187 A t para 63.
188 A t para 62.
189 For notable exceptions, see WintenbalL v Argentina, Award, 8 December 2008, paras 158-97;
ICS Inspection v Argentina, Award, 10 February 2012, paxas 243-327.
190 Siemens v Argentina, Decision on Jurisdiction, 3 August 2004, paras 94—110; Gas Natural SDG,
SA v Argentina, Decision on Jurisdiction, 17 June 2005, paras 24-31, 41-9; Suez, Sociedad General de
Aguas de Barcelona SA, and- Inter Aguas Servicios Integrates del Agua 5/1 v Argentina, Decision on
Jurisdiction, 16 M ay 2006, paras 52-66; National Grid pic v Argentina, Decision on Jurisdiction, 20
June 2006, paras 53—94; Suez, Sociedad General de Aguas de Barcelona SA, and Vivendi Universal 5/1 v
Argentina and A W G Group L td v Argentina, Decision on Jurisdiction, 3 August 2006. paras 52-68;
Impregilo v Argentina, Award, 21 June 2011, paras 51-109; H ochtief v Argentina, Decision on
Jurisdiction, 24 O ctober 2011.
272 Settling Investment Disputes

should apply to dispute setdement. For instance the Tribunal in Gas Natural
v Argentina said:
assurance of independent international arbitration is an important—perhaps the most
important—element in investor protection. Unless it appears clearly that the state parties
to a BIT or the parties to a particular investment agreement settled on a different method for
resolution of disputes that may arise, most-favored-nation provisions in BITs should be
understood to be applicable to dispute settlement.191
Another group of cases demonstrates a more sceptical attitude towards the applic­
ability of MFN clauses to dispute settlement. Most of these cases did not concern
procedural obstacles to the institution of arbitration proceedings but the scope of
the consent clauses in question . 192
In Salini v Jordan193 the dispute was whether the consent to arbitration con­
tained in the Italy-jordan BIT extended to contract claims as well as to treaty
claims. The MFN clause in that treaty provides:
Both Contracting Parties, within the bounds of their own territory, shall grant investments
effected by, and the income accruing to, investors of the other Contracting Party, no less
favourable treatment than that accorded to investments effected by, and income accruing to,
its own nationals or investors of Third States.
The Tribunal refused to apply the AdFN clause to the question of whether it had
jurisdiction over contract claims. It seemed to proceed from a presumption against
the application of a generally worded M FN clause to dispute settlement and
concluded that the M FN clause 'does not apply insofar as dispute settlement
clauses are concerned ’.194
In Plama v Bulgaria193 the Tribunal had found that it had jurisdiction on the
basis of Article 26 of die E C T .196 The claimant had additionally attempted to base
the Tribunal’s jurisdiction on the BIT between Bulgaria and Cyprus. That BIT
does not provide for investor-state arbitration. But it contains the following MFN
clause in its Article 3(1): ‘Each Contracting Party shall apply to die investments in
its territory by investors of the other Contracting Party a treatment which is not less
favourable than that accorded to investments by investors of third states.’
The claimant had sought to use this M FN clause to avail itself of the Bulgaria-
Finland BIT in order to establish ICSID’s jurisdiction. Therefore, reliance on the
M FN clause was not merely directed at overcoming a procedural obstacle but was
an attempt to create a jurisdiction that would not have otherwise existed.
The Tribunal concluded that the M FN clause could not be interpreted as
providing consent to submit a dispute to ICSID arbitration ,197 It said:

191 Cm Natural SDG, SA v Argentina, Decision on Jurisdiction, 17 June 2005, para 49.
192 In addition to the cases discussed below, see Berschader v Russia, Award, 21 April 2006, paras
159-208; Tza Yap Shum v Peru, Decision on Jurisdiction, 19 June 2009, paras 189-220; Austrian
Airlines v Slovakia, F ind Award, 9 October 2009, paras 109-40.
193 Salini v Jordan, Decision on Jurisdiction, 29 November 2004.
19“ At para 119.
195 Plama v Bulgaria, Decision on Jurisdiction, 8 February 2005.
196 At para 179. 197 At paras 183, 184, 227.
 Investor v state disputes 273
an MFN provision in a basic treaty does not incorporate by reference dispute settlement
provisions in whole or in part set forth in another treaty, unless the MFN provision in the
basic treaty leaves no doubt that the Contracting Parties intended to incorporate them .198
In Telenor v Hungary199 the clause in the BIT between Hungary and Norway,
offering consent to investor-state arbitration, was limited to compensation or other
consequences of expropriation. Here, the claimant sought to rely on the M FN
clause in the BIT to benefit from wider dispute resolution provisions in BITs
between Hungary and other countries. The MFN clause in Article IV( 1) of the BIT
provided:
Investments made by Investors of one Contracting Party in the territory of the other
Contracting Party, as also the returns therefrom, shall be accorded treatment no less
favourable than that accorded to investments made by Investors of any third State,
The Tribunal endorsed the solution adopted in Plama. It found that the term,
‘treatment’ contained in the M FN clause referred to substantive but not to
procedural rights. Deciding otherwise would lead to undesirable treaty-shopping
creating uncertainty and instability. Also, the jurisdiction of an arbitral tribunal as
determined by a BIT was not to be inferentially extended by an M FN clause since
Hungary and Norway had made a deliberate choice to limit arbitration .200 It said:
The Tribunal therefore concludes that in the present case the MFN clause cannot be used to
extend the Tribunal’s jurisdiction to categories of claim other than expropriation, for this
would subvert the common intention of Hungary and Norway in entering into the BIT in
question.201
A possible exception to this pattern is RosInvest v Russia.202 In that case the UK-
Russia BIT offered consent to jurisdiction over the amount of compensation in the
event of an expropriation. On the basis of an M FN clause in that treaty, the
Tribunal applied a dispute setdement provision in the Denmark-Russia BIT which
covered any dispute in connection with an investment. The Tribunal noted that
the very character of an M FN clause is that protection not accepted in one treaty is
widened by transferring the protection accorded in another treaty .203 But the
Tribunal’s conclusion was limited to finding that the M FN clause enabled it to
decide whether there had, in fact, been a valid expropriation.
The two sets of cases may be distinguishable on factual grounds. Most of the
cases in which the tribunals accepted the applicability of the M FN clauses to
dispute setdement concerned procedural obstacles. Most of the cases in which
the effect o f the M FN clauses was denied concerned attempts to extend the scope
of jurisdiction substantively to issues not covered by the arbitration clauses in the
basic treaties. Nevertheless, there is substantial contradiction in the reasoning of

198 At para 223.

199 Telenor v Hungary. Award, 13 September 2006.
200 At paras 90-7.
201 At para 100.
202 Roslnvest v Russia, Award on Jurisdiction, October 2007, paras 124-39.
203 At para 131.
274 Settling Investment Disputes

the tribunals. In particular, both groups of tribunals made broad statements as to

the applicability, or otherwise, of MFN clauses to dispute settlement in general.
These broad statements are impossible to reconcile.
The widespread disagreement on this point is further illustrated by the fact that
decisions dealing with the effect of M FN clauses are not infrequently accompanied
by carefully drafted dissenting opinions. This applies both to decisions permitting
the use of MFN clauses in connection with dispute settlement204 and to decisions
disallowing their use.205
The acceptance of M FN clauses for the purposes of attracting substantive
standards from other treaties206 but their rejection when it comes to dispute
settlement, leads to a paradoxical situation. The importation of additional substan­
tive standards of protection by way of an M FN clause inevitably has effects on the
jurisdiction of tribunals. This is particularly evident where the jurisdiction of a
tribunal is limited to violations of the treaty. If the basic treaty does not contain an
umbrella clause or a guarantee of fair and equitable treatment, the applicability of
these standards by way of an M FN clause will also widen the jurisdiction of a
tribunal. The effect is that certain jurisdictional limitations in clauses dealing widi
dispute settlement can be overcome with the help of an AliFN clause while others
cannot.
A further open question is the effect of a successful invocation of an M FN clause.
Does the MFN clause attract only those provisions of the third party treaty that are
beneficial to the party invoking it? Or does it lead to the substitution of the basic
treaty by the third party treaty including those provisions that are less beneficial?
For instance, if the M FN clause is used to avoid a requirement to resort to domestic
courts for a certain period of time, would a fork-in-the-road clause in the third party
treaty, that is not contained in the basic treaty, become applicable?
The Tribunal in Siemens v Argentina took the view that the party invoicing the
MFN clause could pick and choose. It noted that:
a benefit by the operation of an MFN clause does not carry with it the acceptance of all the
terms of the treaty which provides for such benefit whether or not they are considered
beneficial to the party making the claim;207
... its application will be related only to the benefits that the treaty of reference may grant
and to the extent that benefits are perceived to be such.208
The Tribunal in Hochtief v Argentina reached a different result. It found that the
claimant could not use an M FN clause to avoid the requirement to litigate hi domesdc
courts for 18 mondis widiout at the same time being subject to a fork-in-the-road

204 Impregilo v Argentina, Award, 21 June 2011, paras 51—109 (Diss O p B Stern); Hochtief v
Argentina, Decision on Jurisdiction, 24 October 2011 (Diss O p C Thomas).
203 Renta4 v Russia, Award on Preliminary Objections, 20 March 2009, paras 68—120 (Sep Op
C Brower); Austrian Airlines v Slovakia, Final Award, 9 October 2009, paras 109-40 (Sep Op
C Brower).
206 See pp 209 et seq.
207 Siemens v Argentina, Decision on Jurisdiction, 3 August 2004, para 109.
208 At para 120, See also Roslnvest v Russia, Final Award, 12 September 2010, paras 269-71.
 Investor v state disputes 275

provision in the third party treaty. The Tribunal said: ‘The MFN provision does not
permit die selective picking of components from each set of conditions, so as to
manufacture a synthetic set of conditions to which no State’s nationals would be
entided.’209

(i) T he selection o f dom estic courts in contracts

Contracts between host states and foreign investors frequently contain forum
selection clauses that refer disputes arising from the application of these contracts
to the host states’ domestic courts. W hen disputes in connection with the invest­
ments arose, investors would invoke the provisions of treaties, usually BITs,
granting them access to international arbitration. In turn, the host states would
rely on the forum selection clauses in the contracts arguing that the investors had
waived their right to international arbitration.
The arbitral tribunals confronted with these arguments have taken a differenti-
ated attitude .210 Compania de Aguas del Aconquija, SA & Compagnie Generale des
Eaux v Argentine Republic (the Vivendi I case)211 involved a concession contract
between the French investor and a province of Argentina. The contract contained a
forum selection that referred disputes arising from the contract to the jurisdiction of
the province’s courts. The investor, seeking to bring its claim before an inter­
national tribunal rather than before a domestic court, relied on the BIT between
Argentina and France to establish the jurisdiction of ICSID. Argentina challenged
the ICSID Tribunal’s jurisdiction by relying on the forum selection clause in the
concession contract.
The ICSID Tribunal distinguished between claims based on the BIT and
claims based on the concession contract. The forum selection clause in the conces­
sion contract did not affect the claimant’s right to go to international arbitration
to pursue violations of the BIT .212 Nevertheless, the Tribunal found that all of
the claims were closely linked to the performance of the concession contract
and that it was impossible to separate the two types of claim. Therefore, resort
to ICSID arbitration should be open to the claimants only after they had failed
in their pursuit of the claims before the domestic courts. The Tribunal added
that the need to resort to domestic courts was not based on a requirement to
ejchaust local remedies but was based on the concession contract’s forum selection
clause.213

209 H ochtief v Argentina, Decision on Jurisdiction.. 24 October 2011, para 98.

210 In some cases tribunals denied the existence of forum selection, on the basis that domestic courts
had jurisdiction in any event under domestic law and that this jurisdiction was not subject to
agreement or waiver: L A N C O v Argentina, Decision on Jurisdiction, 8 December 1998, para 26;
Salini v Morocco, Decision on Jurisdiction. 23 July 2001, paras 25-7.
2,1 Compania de Aguas del Aconquija, SA & Compagnie Generale des Eaux v Argentina, Award,
21 N ovem ber 2000.
212 At paras 53, 54.
213 Award, paras 7 7 -8 1 .
276 Settling Investment Disputes

The Award was partly annulled .214 The ad hoc Committee, which had to decide
on the request for annulment of the Award, found that the Tribunal had manifestly
exceeded its powers by not examining the merits of some of the claims before it.
The Committee ruled that a particular investment dispute may at the same time
involve issues of the interpretation and application of a treaty and of a contract. - 15
O n the relation between breach of treaty and breach of contract, the ad hoc
Committee pointed out that these related to independent standards:
A state may breach a treat)' without breaching a contract, and vice versa ... whether there has
been a breach of the BIT and whether there has been a breach of contract are different
questions..., [Tjhe existence of an exclusive jurisdiction clause in a contract between the
claimant and the respondent state or one of its subdivisions cannot operate as a bar to
the application of the treaty standard,,,. A state cannot rely on an exclusive jurisdiction
clause in a contract to avoid the characterisation of its conduct as internationally unlawful
under a treaty.216
The tribunals have since followed the distinction between contract claims, which
are subject to contractual forum selection clauses, and treaty claims, which are
unaffected by such clauses. Under this consistent practice the treaty-based jurisdic­
tion of international arbitral tribunals to decide on violations of these treaties is not
affected by domestic forum selection clauses in contracts. The contractual selection
of domestic courts is restricted to violations of the respective contracts.217
For instance, in AES v Argentina,218 the jurisdiction of the international tribunal
was based on an offer of consent, accepted by the investor, in the BIT between
Argentina and the United States. Argentina relied on forum selection clauses

214 Campania de Aguas del Aconquija, & i & Vivendi Universal v Argentina·, Decision on Annulment,
3 July 2002.
21:1 Decision on Annulm ent, paras 60, 72, 76.
216 Decision on Annulm ent, paras 95, 96, 101, 103.
217 CMS v Argentina, Decision on Jurisdiction, 17 J uly 2003, paras 70-6; SGS v Pakistan, Decision
on Jurisdicrion, 6 August 2003, paras 43-74, 147-73; A zurix v Argentina, Decision on Jurisdiction,
8 December 2003, paras 2 6-36, 75-9; Enron v Argentina, Decision on Jurisdiction, 14 January 2004,
paras 89-94; SGS v Philippines, Decision on Jurisdicrion, 29 January 2004. paras 136-55, 160-3;
LG & E v Argentina, Decision on Jurisdiction, 30 April 2004, paras 58-62; Siemens v Argentina,
Decision on Jurisdiction, 3 August 2004, paras 174-83; Salini v Jordan, Decision on Jurisdiction,
29 November 2004, paras 92-6; Impregilo v Pakistan, Decision on Jurisdiction, 22 April 2005, paras
286-9; Camuzzi Inti SA v Argentina, Decision on Jurisdiction, 11 May 2005, paras 105-19; Sempra
Energi International v Argentina, Decision on Jurisdicrion, 11 May 2005, paras 116-28; Eureko v
Poland, Partial Award, 19 August 2005, paras 81, 89, 92-1 \ A·, Aguas del Tunari, SA v Bolivia, Decision
on Jurisdiction, 21 October 2005, paras 94-123; Bayindir v Pakistan, Decision on jurisdiction, 14
November 2005, paras 139-67; Suez, Sociedad General de Aguas de Barcelona SA, and InterAguas
Servicios Integrales delAgua. SA v Bolivia, Decision on Jurisdiction, 16 May 2006, paras 41-5; National
Grid pic v Argentina, Decision on Jurisdiction, 20 June 2006, paras 167-70; fnceysa v E l Salvador,
Award, 2 August 2006, paras 43, 212-17; Total v Argentina, Decision on Jurisdiction, 25 August
2006, paras 82-5; Fraport v Philippines, Award, 16 August 2007, paras 388-91; Vivendi v Argentina,
Resubmitted Case; Award, 20 August 2007, paras 7.3.1-7.3.11; Helnan v Egypt, Award, 3 July 2008,
paras 102-3; 7X4 Spectrum v Argentina, Award, 19 December 2008, paras 42—66; Enron v Argentina,
Decision on Annulm ent, 30 July 2010, paras 128-50; Impregilo v Argentina, Award, 21 June 2011,
paras 141—89; SGS v Paraguay, Decision on Jurisdiction, 12 February 2010, paras 173-85; Award, 10
Fe’b niary 2012, paras 75, 96-109.
21B AES Carp v Argentina, Decision on Jurisdiction, 26 April 2005.
 Investor v state disputes 277

contained in concession contracts and objected to ICSID’s jurisdiction. The

Tribunal rejected Argentina’s argument. It said:
the Entities concerned have consented to a forum selection clause electing A dm inistrative
Argentine law and exclusive jurisdiction o f Argentine adm inistrative tribunals in th e
concession contracts and related documents. But this exclusivity only plays w ithin
the Argentinean legal order, for m atters in relation w ith the execution o f these concession
contracts. The}? do not preclude AES from exercising its rights as resulting, w ithin the
international legal order from two international treaties, namely the U S-A rgentina BIT and
the IC SID Convention.
In other terms, the present T ribunal has jurisdiction over any alleged breach by Argentina
o f its obligations under the US-Argentina B IT ,219

The distinction between contract claims and treaty claims has appeared in many
investment arbitrations.220 The respondent’s objection that the case only involves
contract claims and the claimant’s insistence that treaty rights are involved, have
become routine features of many cases. As it turns out, the distinction between
treaty claims and contract claims is not always easy. A particular course of action by
the host state may well constitute a breach of contract and a violation of inter­
national. law. The two categories are not mutually exclusive. Rather, two different
standards have to be applied to determine whether one or the other or both have
been violated.
The situation is made even more complex by the fact that some treaties offer
jurisdiction for any investment dispute, which would include contract claims, while
other treaties restrict jurisdiction to alleged violations of the treaty. The jurisdiction
of a treaty-based tribunal is not necessarily restricted to violations of the treaty’s
substantive provisions. A tribunal’s jurisdiction is not determined by its establish­
ment through a treaty but by the wording of the clause governing its jurisdiction.
In addition, umbrella clauses will convert contract breaches into treaty breaches,
although this point is not undisputed .22'1
The separate treatment of contract claims and treaty claims leads to situations
where the claimant may be compelled to pursue part of its claim through national
procedures and another part through international procedures. This has undesir­
able consequences. The need to dissect cases into contract claims and treaty claims
to be dealt with by separate fora requires claim splitting and has the potential of

219 At paras 93, 94.

220 See eg E l Paso v Argentina, Decision on Jurisdiction, 27 April 2006, paras 63-5; Jan de N u l v
Egypt, Decision on Jurisdiction. 16 June 2006, paras 79-82; LESI & Astaldi v Algeria, Decision on
jurisdiction, 12 July 2006, para 84; Telenor v Hungary, Award, 13 September 2006, paras 32, 50,
47(1), 50: Saipem v Bangladesh, Decision on jurisdiction, 21 M arch 2007, paras 139-42; Parkermgs v
Lit/mania, Award, 11 September 2007, paras 257. 260-6, 289, 317, 345; B G Group v Argentina, Final
Award, 24 December 2007, paras 177-85; Heinan v Egypt, Award, 3 July 2008, paras 102, 107;
Biwater G aujf v Tanzania, Award, 24 July 2008, paras 468-75; Rumeli v Kazakhstan, Award, 29 July
2008, para 330; Bayindir v Pakistan, Award, 27 August 2009, paras 133-9, 197, 367-75; Toto v
Lebanon, Decision on Jurisdiction, 11 September 2009, paras 95-130; Burlington Resources vEcuador,
Decision on Jurisdiction, 2 June 2010, paras 76-81; Heinan vEgypt, Decision on Annulm ent, 14 June
2010, paras 58-66; Harnester v Ghana, Award, 18 June 2010, paras 325-31.
221 See Chapter VIL3.
278 Settling Investment Disputes

leading to parallel proceedings. This is uneconomical and contrary to the goal of

reaching final and comprehensive resolutions of disputes.
Even worse, the separation of types of claim arising from the same set of facts can
lead to retaliatory proceedings. A host state, threatened by a treaty claim before an
international tribunal, may start domestic proceedings in order to counteract and
frustrate the international proceedings. In this way, the host state can exert pressure
on the investor to settle or withdraw the treat)7 claim. Alternatively, die host state
can use the domestic proceedings to recoup the money awarded in the international
award through an action for breach of contract against the investor. Put differently,
allowing the host state to pursue contract claims arising from the same dispute in its
own domestic forum can undermine the procedural protection granted to the
foreign investor in the BIT.

(j) Procedure
aa. Arbitration Rules
Arbitration requires a comprehensive body of procedural rides. In investment
arbitration die most commonly applied set of rules are those provided in die
ICSID Convention and in the ICSID Arbitration Rules. In addition, ICSID offers
a set of Institution Rules as well as Administrative and Financial Regulations. The
Regulations and Rules are adopted by ICSID’s Administrative Council. The latest
amendment to the ICSID Regulations and Rules came into effect on 10 April
2006.222
Article 44 of the ICSID Convention provides that arbitration proceeding are to
be conducted in accordance with the Convention and, except as the parties
otherwise agree, in accordance with the Arbitration Rules in effect on the date on
which die parties consented to arbitration. Any question of procedure not covered
in diis manner is ro be decided by the tribunal. Therefore, ICSID proceedings are
self-contained and denationalized—•that is, they are independent of any national
law including the law of the tribunal’s seat. Domestic courts do not have the power
to intervene.
Non-ICSID arbitration is governed by other sets of rules. Proceedings under the
Additional Facility are subject to the Arbitration (Additional Facility) Rules.223
Proceedings under the auspices of other arbitration institutions are subject to die
respective rules provided by these institutions. For ad hoc arbitration, the parties
frequently select the UNCITRAL Arbitration Rules.224 Non-ICSID proceedings
are not insulated from national law. For the sake of convenience, this chapter
focuses on ICSID procedure.

222 gee <http://icsid.worldbank.org/ICSID/ICSID/RuIesM ain.jsp>.

223 See <http.7/icsid. worldbank.org/ICSID/ICSID/AdditionalFacilityRules.jsp>.
224 The original UNCITRAL Arbitration Rules were adopted in 1976, 15 ILM 701 (1976).
A revised version was adopted by U N GA Res 65/22 in 2010.
 Investor v state disputes 279

bb. Institution o f proceedings

ICSID proceedings are initiated by a request for arbitration directed to the Secre­
tary-General of ICSID .225 The request may be submitted by either the investor or
the host state. In practice, the investor is nearly always the claimant. The request
must be drafted in one of ICSID’s official languages (English, French, and Spanish)
and a non-refundable lodging fee of US$25,000 is payable at the time of the
request. After the constitution of the tribunal, an administrative fee of US$32,000
is payable per year.
The request for arbitration must contain information concerning the dispute,
the parties, and the jurisdictional requirements, including the basis of consent.226
The Secretary-General will register the request unless he finds that the dispute is
manifestly outside the Centre’s jurisdiction .227 Registration is often preceded by
correspondence with both parties and a call by ICSID for further clarifications.
Once the request is registered, the Secretary-General will notify the parties in
writing.

cc. The tribunal and its composition

Tribunals are nearly always composed of three arbitrators. Sole arbitrators are
relatively rare. Under the standard procedure for the appointment of arbitrators
at ICSID, each party appoints one arbitrator and the third, who is the tribunal’s
president, is appointed by agreement of the parties.228 A different mode of
appointment may be agreed by the parties.229 Sometimes the two party-appointed
arbitrators are charged with appointment of the tribunal’s president.
If the tribunal is not constituted after 90 days, either party may request the
Chairman of the Administrative Council230 to make any outstanding appoint­
ments .231 In doing so, the Chairman will consult with the parties as far as possible.
The purpose of this provision is to avoid a stalemate if one party is uncooperative.
The Chairman is bound to make this appointment from the Panel of Arbitrators
kept by ICSID .232 Arbitrators thus appointed must not be nationals of the state
party to the dispute or co-nationals of the investor party to the dispute.
In the case of party-appointed arbitrators, national arbitrators are also ex­
cluded .233 But this prohibition would not apply if each individual member of the
tribunal is appointed by agreement of the parties. The idea behind this rule is to
guarantee maximum objectivity of the arbitrators.

22:1 Article 36(1). 226 Article 36(2); Institution Rule 2.

227 Article 36(3). 228 Article 37(2)(b). 229 Arbitration Rule 2.
230 Under Art 5 o f the Convention, the President of the International Bank for Reconstruction and
Development is ex officio Chairman of ICSID ’s Administrative Council.
231 Article 38.
232 Article 40(1). Articles 12-16 of the Convention establish a Panel of Arbitrators to be m ain­
tained by the Centre.
233 This effect is achieved through A it 39 and Arbitration Rule 1 (3).
280 Settling Investment Disputes

Arbitrators muse be of high moral character, have recognized competence in the

fields of law, commerce, industry, or finance, and may be relied upon to exercise
independent judgement.234 In addition, arbitrators must be independent of the
parties. Each arbitrator must sign a declaration providing details of any relation­
ships with the parties.235 A conflict of interest is a bar to appointment and may lead
to the arbitrator’s disqualification.
In.the case of death, incapacity, or resignation of an arbitrator, the resulting
vacancy will be filled by the same method that was applied for the original
appointment.236
A party may propose disqualification of an arbitrator on the ground that the
arbitrator manifestly lacks the qualities required for his or her appointment .237
Proposals for disqualification typically involve allegations of a conflict of interest
or other lack of independent judgement,238 although non-compliance with the
nationality requirements under the Convention is another possible ground .239
The decision on a proposal to disqualify is made by the unchallenged members
of the tribunal. If the unchallenged members do not agree, die decision is made by
the Chairman of the Administrative Council who also decides if a sole arbitrator or
a majority of the arbitrators is challenged.240
In Compania de Aguas del Aconquija, SA & Vivendi Universal v Argentina241 the
President of the ad hoc Committee 242 had disclosed that a partner of his law firm
was giving legal advice to the claimant. The respondent’s proposal to disqualify him
was unsuccessful. The members of the Committee found particularly relevant that:
(a) the relationship was immediately and fully disclosed; (b) there had never been
a personal lawyer-client relationship; (c) the work in question had nothing to do
with the case before the Committee and (d) only concerned a specific transaction;
and (e) the relationship was about to come to an end .243 The ad hoc Committee
stated:
the m ere existence o f some professional relationship w ith a party is not an autom atic basis
for disq ualification of an a rb itra to r or C om m ittee m em ber. All the circumstances need to be

234 Articles 14(1) and 40(2). 235 Arbitration Rule 6(2).

236 Article 56(1); Arbitration Rule 8. Exceptionally under Art 56(3) in the case of a resignation by a
party-appointed arbitrator without the consent of the tribunal, the resulting vacancy is to be filled by
the Chairman.
237 Article 57.
238 See Amco v Indonesia, Decision on Jurisdiction, 25 September 19S3: die challenge is reported by
W M Tupman, ‘Challenge and Disqualification of Arbitrators in International Commercial Arbitra­
tion’ (1989) 38 IC L Q 2 6 ,4 4-5; Generation Ukraine, Inc v Ukraine, Award, 16 September 2003, paras
4 .8-4.18; Salini v Jordan, Award, 31 January 2006, paras 5, 9.
239 Olgidn v Paraguay, Decision on Jurisdiction, 8 August 2000, paras 12-13; Award, 26 July
2001, paras 15-16.
240 Article 58; A rbitration Rule 9. See Abaclat e ta l v Argentina, Decision on Challenge,
21 D ecem ber 2011.
Compania de Aguas del Aconqtdja, SA & Vivendi Universal v Argentina, Decision on the
Challenge to the President of the Committee, 3 October 2001.
2,2 Under Art 52 of the Convention an award may be annulled under certain circumstances by an
ad hoc committee. See pp 301 et seq.
2ii3 At para 26.
 Investor v state disputes 281

considered in order ro determ ine whether the relationship is significant enough to justify
entertaining reasonable doubts as to the capacity o f the arbitrator o r m em ber to render a
decision freely and independently .244

dd. Provisional measures

Under the ICSID Convention the tribunal has the possibility o f talcing provisional
measures.245 The purpose of provisional measures is to induce behaviour by the
parties that is conducive to a successful conduct of the proceedings. The measures
have to be taken at a time when the outcome of a dispute is still uncertain. In fact,
provisional measures are often requested before the tribunal has made a decision on
jurisdiction. Therefore, the tribunal has to strike a careful balance between the
urgency of a request for provisional measures and the need not to prejudge the case.
Tribunals have held that they have the power to take provisional measures on the
basis of their prima facie evaluation o f jurisdiction and that this is without prejudice
to a subsequent determination of jurisdiction .246
The guiding principles for the indication of provisional measures are urgency
and necessity. For instance, it may be necessary to induce the parties to cooperate in
the proceedings and to furnish all relevant evidence; it may be necessary to take
early measures to secure compliance with an eventual award; it may be necessary to
stop the parties from resorting to self-help or seeking relief through other remedies;
and it may be necessary to prevent a general aggravation o f the situation through
unilateral action.
Parties to proceedings have requested provisional measures in a number of
situations. In some cases, tribunals have used provisional measures to secure access
to evidence essential to the proceedings;247 in other cases, parties have unsuccess­
fully requested provisional measures directed at the posting of financial guarantees
to secure recovery of the cost of the proceedings.248 Yet another situation involved
allegations of ‘hostile propaganda' or adverse publications.249

244 At para 27.

245 Article 47; Arbitration Rule 39. U nder Arbitration Rule 39(6) provisional measures by domestic
courts are possible in ICSID proceedings only in the unlikely event that the parties have so agreed in
their consent agreement.
246 Casado v Chile, Decision on Provisional Measures, 25 September 2001, paras 5-14; SG S v
Pakistan, Procedural O rder N o 2, 16 October 2002, 8 ICSID Reports 388. 391-2-, A zurix vArgentina,
Decision on Provisional Measures, 6 August 2003, paras 29-31; Biwater G auffv Tanzania, Procedural
O rder N o 1, 31 March 2006, paras 32, 47, 70; Occidental v Ecuador, Decision on Provisional
Measures, 17 August 2007, para 55.
247 AG1P v Congo, Award, 30 November 1979, paras 7-9; Vacuum Salt v Ghana, Decision on
Provisional Measures, 14 June 1993; Award, 16 February 1994, paras 13-22; Biwater G auff v
Tanzania., Procedural Order N o 1, 31 March 2006’, paras 16, 20, 45 -6 , 56, 77—81, 84-8; Railroad.
Development Corp v Guatemala, Decision on Provisional Measures, 15 O ctober 2008; Fakes v Turkey,
Award, 14 July 2010, para 13.
248 Maffezini v Spain, Procedural O rder N o 2, 28 October 1999; Casado v Chile, Decision on
Provisional Measures, 25 September 2001, paras 78-89; Bayindir v Pakistan, Award, 27 August 2009,
para 55; Cememownia v Turkey, Award, 17 September 2009, paras 34, 36; Anderson v Costa Rica,
Award, 19 May 2010, para 9; Hamester v Ghana, Award, 18 June 2010, paras 15, 17-
249 Amco v Indonesia, Decision on Provisional Measures, 9 December 1983; World. Dury Free v
Kenya, Award, 4 O ctober 2006, para 16; ED F v Romania, Procedural O rder N n 2.. 30 Mav ?nnR
282 Settling Investment Disputes

The most important category of provisional measures involves requests to order

the termination or suspension o f related domestic proceedings.250 In SGS v
Pakistan251 the Supreme Court of Pakistan had granted a motion by the respond­
ent that the claimant be permanently enjoined from taking any steps to participate
in the ICSID proceedings. The claimant requested provisional measures from the
ICSID tribunal. One request was to the effect that die respondent should immedi­
ately withdraw from all proceedings in the courts of Pakistan relating in any way to
the ICSID arbitration and cause these proceedings to be discontinued .252
The Tribunal noted that under Article 41 of the ICSID Convention the tribunal
is the judge of its own competence. It pointed out that the Supreme Court
judgment, although final under the law of Pakistan, did not bind the Tribunal as
a matter of international law. The Tribunal said:
T h e rig h t to seek access to in te rn a tio n a l a d ju d ic a tio n m u st be respected a n d can n o t be
co n strain ed b y a n o rd er o f a n a tio n a l co u rt. N o r can a S tate p lead its in tern al law in defence
o f an act th a t is in c o n siste n t w ith its in te rn a tio n a l o b ligations. O th erw ise, a C o n tra c tin g
S tate could im pede access to IC S ID a rb itra tio n b y o p e ra tio n o f its ow n law .253

On that basis the Tribunal issued the following provisional measure:

th e T rib u n a l reco m m en d s th a t th e G o v e rn m e n t o f P ak istan n o t take a n y step to in itiate a
c o m p la in t for c o n te m p t [o f co u rt]. I t re c o m m e n d s fu rth e r that, in th e ev en t th a t an y o th er
p arty , in clu d in g th e S u p re m e C o u r t o f P ak istan sua sponte, w ere to in itiate a co m p lain t, the
G o v e rn m e n t o f P ak istan take all necessary steps to in fo rm th e C o u rt o f th e c u rre n t stan d in g
o f this pro ceed in g a n d o f th e fact th a t this T rib u n a l m u st discharge its d u ty to determ in e
w h e th e r it has th e ju risd ic tio n to co n sid er th e in te rn a tio n a l claim o n the m erits. T h e
G o v e rn m e n t o f P akistan sh o u ld e n su re th a t i f c o n te m p t proceedings are in itiated b y any
party, such proceedings n o t be a cted u p o n .254

The wording and drafting histoiy o f the ICSID Convention would suggest diat a
decision for provisional measures under Article 47 is not binding but merely a

250 M IN E v Guinea, Award, 6 January 1988,4 ICSID Reports 61, at 69, 77; Vacuum Salt v Ghana,
Decision on Provisional Measures, 14 June 1993; Award, 16 February 1994, paras 13-22; CSOB v
Slovakia, Procedural Order N o 2, 9 September 1998, Procedural O rder No 3, 5 November 1998,
Procedural Order No 4, 11 January 1999, Procedural O rder No 5, 1 M arch 2000; Tanzania Electric v
Independent Power Tanzania, Award, 12 July 2001, paras 26, 29; Casado v Chile, Decision on
Provisional Measures, 25 September 2001, paras 28-66; A zurix v Argentina, Decision on Provisional
Measures, 6 August 2003; Tokios Tokel.es v Ukraine, Decision on Jurisdiction, 29 April 2004, paras 11,
12; Bayindir v Pakistan, Decision on Jurisdiction, 14 November 2005, para 46; Award, 27 August
2009, paras 52-66, 487, 488; Duke Energy v Peru, Decision on Jurisdiction, 1 February 2006, paras
15-18; Saipem v Bangladesh, Decision on Jurisdiction, 21 March 2007, paras 162-85; Plama v
Bulgaria, Award, 27 August 2008, paras 23-6; Burlington v Ecuador, Decision on Jurisdiction,
2 Jane 2010, paras 65—75; Millicom v Senegal, Decision on Jurisdiction, 16 July 2010, paras 29-31,
33-5, 37;A T A v Jordan, Decision on Interpretation, 7 March 2011, paras 10-12, 46.
251 SGS v Pakistan, Procedural O rder N o 2, 16 O ctober 2002.
2,2 A t p 392.
253 At p 393. Footnote omitted,
254 At p 397.
 Investor v state disptttes 283

recommendation .255 Nevertheless, tribunals have come to the conclusion that

decisions on provisional measures are binding upon the parties.256 In Maffezini v
Spain, the Tribunal compared the word ‘recommend’ used in connection with
provisional measures, to the word ‘order’ used elsewhere in the Arbitration Rules. It
said:
T h e T rib u n a l does n o t believe th a t th e parties to the C o n v e n tio n m e a n t to create a
su b stan tial d ifference in th e effect o f these tw o w ords. T h e T rib u n a l’s a u th o rity to rule o n
p rovisional m easures is n o less b in d in g th a n th a t o f a final aw ard. A ccordingly, fo r th e
p u rp o ses o f th is O rd e r, th e T rib u n a l deem s the w o rd ‘re c o m m e n d ’ to be o f eq u iv alen t value
as th e w o rd ‘o rd e r.’257

Apart from the question of binding force, non-compliance with provisional meas­
ures will be taken into account by the tribunal when making the award .258

ee. Summary procedure

Under ICSID Arbitration Rule 41(5), introduced in 2006, a party may within 30
days of the tribunal’s constitution object on the ground diat the claim is manifestly
without merit. This gives the tribunal die possibility of dismissing an evidently
unmeritorious case expeditiously and at an early stage.
For an objection under Rule 41(5) to be successful, the lack of merit must be
manifest. The Tribunal in Trans-Global- Petroleum v Jordan found that the ordinary
meaning of the word ‘manifestly’ required the respondent to ‘establish its objection
clearly and obviously, with relative ease and despatch’.259
The Secretary-General’s screening power before registering a request for arbitra­
tion under Article 36(3) is restricted to jurisdiction and does not extend to the
merits. The summary procedure under Rule 4 l (5) fills this gap but is not limited to
challenges on the merits. It can also be used to dispute jurisdiction .260 The
Tribunal in Brandes v Venezuela said:
T h ere exist n o objective reasons w h y th e in te n t n o t to b u rd e n the parties w ith a possibly
lo n g a n d co stly p ro ceed in g w h en d ealing w ith such u n m e rito rio u s claim s sh o u ld be lim ite d
to an e v alu atio n o f th e m erits o f th e case a n d sh o u ld n o t also englobe an ex a m in a tio n o f th e
ju risd ictio n al basis o n w h ich the trib u n a l’s pow ers to d ecid e th e case rest.261

255 Article 47: ‘the Tribunal m ay. . . recommend any provisional measures’. By contrast, under Art
4 l o f its Statute, the ICJ may ‘indicate’ provisional measures. U nder A rt 290 of the U nited Nations
Convention on the Law of the Sea the court or tribunal may 'prescribe’ provisional measures.
256 Casado v Chile, Decision on Provisional Measures, 25 September 2001, paras 17—23; Tokios
Tokeles v Ukraine, Procedural O rder No 1, 1 July 2003, para 4; Biwater G aujf v Tanzania, Procedural
Order N o 2, 31 M arch 2006, paras 87 -8 , 97-8, 104-6; Occidental v Ecuador, Decision on Provisional
Measures, 17 August 2007, para 58.
257 M affezini v Spain, Procedural O rder N o 2, 28 October 1999, para 9.
258 See A G IP v Congo, Award, 30 November 1979, para 42.
259 Trans-Global Petroleum v Jordan, Decision under Arbitration Rule 41(5), 12 M ay 2008,
para 88.
260 Global Trading v Ukraine, Award, 1 December 2010, paras 30-1; R SM v Grenada, Award,
10 December 2010, para 6.1.1.
261 Brandes v Venezuela, Decision under Arbitration Rule 41(5), 2 February 2009, para 52.
284 Settling Investment Disputes

At the same time there appears to be agreement that the objection must be based on
a question of law and not of fact.262
In Global Trading v Ukraine the Tribunal found that the activities undedving
the dispute ‘are pure commercial transactions that cannot on any interpretation be
considered to constitute “investments” within the meaning of Article 25 of the
ICSID Convention ’.263 It therefore held that the claims put forward were mani­
festly without legal merit under Rule 41 (5) and rendered an award to that effect.
Despite its summary nature, this expedited procedure requires that both parties
be properly heard both in writing and orally. A decision upholding an objection
results in an award which, under Article 48(3) ol the ICSID Convention, must deal
with every question submitted to the tribunal and must contain a full statement of

ff. Written and oral procedure

Procedural questions are typically addressed at the tribunal’s first session with the
parties. The questions include representation of the parties, the place and language
of proceedings, die number and sequence of the pleadings, a calendar with time
limits for the submission of pleadings, and the date of hearings, records of hearings,
and producdon of evidence.
Typically proceedings involve a written phase followed by an oral one. The
written phase is opened by a memorial of the claimant followed by a counter-
memorial of the respondent. In most cases there is another round of written
exchanges termed reply and rejoinder. A memorial must contain a statement of
the facts, a statement of the law, and the party’s submissions. A counter-memorial
also must address the facts and legal arguments and make submissions.264 In
addition, the parties often submit voluminous supporting documentation.
If the respondent raises objections to the tribunal’s jurisdiction, the proceedings
on the merits are suspended. Such an objection is to be submitted not later than at
the time the counter-memorial is due. Typically, the proceedings are then bifur­
cated, that is, the jurisdictional question is heard first, followed, if the tribunal finds
that it has jurisdiction, by a resumption of the proceedings on the merits. Alterna­
tively, the tribunal may decide to join the jurisdictional question to die merits. In
most cases the procedure dealing with jurisdiction also consists of a written and an
oral phase.265
If the tribunal decides that the dispute is not within the jurisdiction of the Centre
or outside its competence, or that all claims are manifestly without legal merit, it
will render an award to that effect266 and the proceedings are closed. Otherwise, the
tribunal will resume the proceedings on the merits.

2d2 %racles v Venezuela, n 261 paras 56-61; Global Trading v Ukraine, Award, 1 December 2010,
para 31; R SM v Grenada, Award, 10 December 2010, para 6.1.1.
- 63 Global Trading v Ukraine, Award, 1 December 2010, para 57.
264 Arbitration Rule 31.
265 Article 41; Arbitration Rule 41.
2 66 Arbitration Rule 41(6).
 Investor v state disputes 285

The oral phase consists of a hearing in the presence of the tribunal, its officers,
and the parties and dieir representatives. In addition to the parties, the tribunal may
hear witnesses and experts. Most hearings are closed to the public / 67
The evidence presented by the parties to the tribunal consists of documents,
witness testimony, and expert opinions .268 The tribunal has discretion in deciding
on die relevance,269 credibility,270 and admissibility271 of evidence. The tribunal
may call upon the parties to produce further evidence.272 In a number of cases
tribunals have issued orders for the production of documents and have developed
criteria for their materiality, relevance, and specificity.273
Default— that is, non-participation of an uncooperative party—will not stall the
proceedings. If one party fails to present its case, the other party may request
the tribunal to proceed and render an award. Before doing so, the tribunal will give the
non-appearing party another chance to cooperate. The appearing party’s assertions will
not be accepted simply because the other party does not cooperate and hence does not
contest them. Rather, the tribunal has to examine all questions and decide whether the
appearing party’s submissions are well founded in fact and in law.274
Default by a party puts an extra burden on the tribunal and also on the cooper­
ating party. The tribunal must examine the cooperating party’s submissions on its
own motion. The cooperating party may be called upon to prove assertions which
might otherwise be accepted as uncontested. Default has occurred in only relatively
few cases.273 In some cases, the respondent states did not cooperate initially but
appeared at a later stage in the proceedings.276
The parties may at any time agree to settle or otherwise discontinue the case.
A settlement may be incorporated into an award if the parties so request and submit
their settlement in writing .2''7 Alternatively, a party may unilaterally request

267 O n transparent', see pp 286-8.

268 Arbitration Rules 33-5.
269 See Aguas del Tunari, SA v Bolivia, Decision on Jurisdiction, 21 O ctober 2005, para 25.
270 See A D C v Hungary, Award, 2 October 2006, para 257; Rumeli Telekom v Kazakhstan, Award,
29 July 2008, paras 442-8.
2/1 Methanex v United States, Award, 3 August 2005, Part II, Ch I, paras 1—60.
272 Article 43(a).
273 Pope & Talbot v Canada, Ruling on Claim of Crown Privilege, 6 September 2000, 7 IC SID
Reports 99; UPS v Canada, Tribunal Decision Relating to Canada’s Claim of Cabinet Privilege,
8 October 2004; CSOB v Slovakia, Award, 29 December 2004, para 9; Noble Ventures v Romania,
Award, 12 October 2005, paras 19, 20; Aguas del Tunari v Bolivia, Decision on Jurisdiction,
21 October 2005, paras 24—8, 324-7; Duke Energy v Peru, Decision on Jurisdiction, 1 February
2006, para 19; Biwater Gauff (Tanzania) L td v Tanzania, Procedural O rder N o 2, 24 May 2006;
Azurix v Argentina, Award, 14 July 2006, paras 22-7, 29, 31; A D C v Hungary, Award, 2 O ctober
2006, paras 30, 33-7; Champion Trading v Egypt, Decision on Jurisdiction, 21 October 2003, paras
1 5 ,1 7 —23; Bayindir v Pakistan, Procedural Order No 4, D ocum ent Production, 27 Novem ber 2006.
2/4 Article 45; Arbitration Rules 34(3), 42.
2/5 Kaiser Bauxite v Jamaica, Decision on Jurisdiction, 6 July 1975, 1 ICSID Reports 299,
paras 5-10; LETC O v Liberia, Award, 31 March 1986, 2 ICSID Reports 346, pp 354—7; Goetz v
Burundi, Decision, 2 September 1998, 6 ICSID Reports 5, paras 33-57.
2/6 Benvenuti & Bonfant v Congo, Award, 15 August 1980, paras 1.7-1.12, 1.17-1.34; A M T v
Zaire, Award, 21 February 1997, paras 2.01-3.01.
2// Arbitration Rule 43.
286 Settling Investment Disputes

discontinuance of the proceedings, which the tribunal will grant if the other party
does not object.278 In addition, the proceedings will be discontinued if bodi parties
fail to take any steps for six consecutive months .279

gg. The award

After the pleadings of the parties are completed, the tribunal deliberates on the
award. Only the members of the tribunal take part in the deliberations and their
substance remains secret.280
Awards are rendered in writing and are signed by the members of the tribunal.
Most awards are rendered unanimously, but majority decisions are possible.281
A member o f the tribunal may attach a dissenting opinion or a declaration.
Awards must deal widi all questions submitted to the tribunal and contain a full
statement of reasons. Under the ICSID Convention, an award finally disposes of all
questions before the tribunal. A failure to deal with all questions, or serious
shortcomings in the reasoning, may lead to a charge of excess of powers or failure
to state the reasons, both of which are grounds for annulment .282
The award is dispatched promptly to the parties. The date of the award is not the
date of signature by the arbitrators but the date of dispatch to the parties.283 This is
important for the exact determination of the time limits for any post-award
remedies.284
Awards are final and binding; they are subject to review only under limited
circumstances.285 The binding force o f awards is limited to the parties. It does
not extend to other cases before different tribunals and does not create
binding precedents. Tribunals have emphasized on many occasions that they
are not bound by previous decisions. At the same time they have also stated
that they will take due account of previous cases when making their decisions.286
In fact, parties routinely rely on earlier decisions of other international tribunals
and of international courts, and tribunals frequently refer to and rely on earlier
decisions.

hh. Transparency
Confidentiality is traditionally considered one of the major advantages of inter­
national commercial arbitration between private parties. But in investment arbitra­
tion the presence of issues of public interest have increasingly led to demands for
more openness and transparency. Two issues are typically discussed under the
heading of transparency: access to information and third party participation.

273 Arbitration Rule 44. 279 Arbitration Rule 45. 2S0 Arbitration Rule 15.
281 Arbitration Rule 16(1) provides that all decisions of the tribunal may be rendered by majority
vote.
232 See pp 3 04, 307. 283 Article 49(1). 284 See pp 301, 309.
283 See pp 300 et seq. 286 See pp 33-4.
 Investor v state disputes 287

The Secretary-General of ICSID is under an obligation to publish information

about the existence and progress of pending cases.287 This is achieved primarily
through the Centre’s website at <http://icsid.worldbank.org/ICSID/Index.jsp>.
Awards are not published automatically. ICSID will publish awards only with
the consent of both parties,288 but under an amendment to the Arbitration Rules
i n tr o d u c e d in 2006 the Centre is now under an obligation to publish excerpts of
the legal reasoning of each award.289 The parties are free to release awards and other
decisions for publication unless otherwise agreed. Most ICSID awards have been
published in one way or another but there are some awards and other decisions that
have remained unpublished. Non-ICSID awards are published sporadically. It is
impossible to discover how many non-ICSID arbitrations have taken place since
there is no central register of these proceedings.
The situation with respect to documents relating to pending arbitration pro­
ceedings is complex.290 The parties are not prohibited from publishing their
pleadings, but they may come to an understanding to refrain from doing so. The
parties are free to agree on total or partial publication of documents relating to a
proceeding.291
Most hearings are closed to the public. In principle, only the members o f the
tribunal, officers of the tribunal, the parties and their representatives, and witnesses
while giving testimony may attend. But under a rule introduced in 2006, the
tribunal may, unless a party objects and after consultation with the Secretary-
General of ICSID, allow other persons to attend all or part of the hearings.292 Some
investment treaties provide that investor-state arbitration hearings shall be open to
the public.
In some cases ICSID tribunals have permitted the submission of amicus curiae
briefs by non-disputing parties.293 Under a procedure introduced in 2006 the
tribunal may, after consulting the parties, allow an entity that is not a party to
file a written submission regarding a matter within the scope of the dispute .294
Non-ICSID tribunals operating in the framework of the NAFTA under the
UNCITRAL Rules, have allowed third parties to make written submissions.295 In

287 Administrative and Financial Regulations 22 and 23.

288 Article 48(5).
289 Arbitration Rule 48(4).
290 For detailed discussion, see Biwater G aiijfv Tanzania, Procedural Order No 3, 29 September
2006 and Procedural Order No 5, 2 February 2007. See also World Duty Free v Kenya, Award,
4 October 2006, para 16.
291 See Malaysian Historical Salvors v Malaysia, Award, 17 May 2007, para 32.
292 Arbitration Rule 32.
~93 See Aguas Argentinas et al v Argentina, Order in Response to a Petition for Transparency and
Participation as Amicus Curiae, 19 May 2005; Methanex v United States, Award, 3 August 2005, Part
II, Ch C, paras 2 6 -3 0 ; Aguas del Tunari, 5/1 v Bolivia, Decision on Jurisdiction, 21 October 2005,
paras 15—18, Appendix III; Aguas Provincial.es de Santa Fe et al v Argentina, Order in Response to a
Petition for Participation as Amicus Curiae, 17 March 2006.
294 Arbitration Rule 37(2). For an application of this procedure, see eg Biwater G aujf v Tanzania,
Award, 24 July 2008, paras 356-92.
295 Methanex v United States (UNCITRAL), Decision on Amici Curiae, 15 January 2001; United
Parcel Services v Canada (UNCITRAL), Decision of the Tribunal on Petitions for Intervention and
Participation asA?nici Curiae, 17 October 2001.
288 Settling Investment Disputes

October 2003 rhe NAFTA Free Trade Commission issued a statement regarding
the participation of non-disputing parties.29b

(k) .Applicable law

Foreign investments are regulated by international as well as national rules. There
is a considerable body of substantive international law protecting foreign investors.
It consists of treaty law, contained mostly in BITs, but also multilateral treaties
such as the NAFTA and the ECT. But there is also a good deal of customary
international law that remains relevant. This customary international law in­
cludes various aspects of state responsibility and such issues as denial of justice,
the law on expropriation, and rules relating to the nationality of individuals and
corporations.
Investments are typically complex operations involving numerous transactions of
different kinds. Many of these transactions will take place under the local law and
will have their closest connection to the host state’s legal system. The relevant
legislation rcicitCS to commercial law, company Liw5 administrative law', labour law,
tax law, foreign exchange regulations, real estate law, and many other areas of the
host state’s legal system. At the same time, the application of international law gives
the investor assurance that the international minimum standard will be observed.
The parties to the dispute, that is the host state and the investor, may agree on
the governing law. Some contracts governing investments simply refer to the host
state’s domestic law.297 The choice of the law of the investor’s home country or of
the law of a third state is rare but not unheard of.-98 In the majority of cases,
agreements between the parries on applicable law include international law as well
as host state law .299
Some treaties and other international documents providing for arbitration refer
to the parties’ agreement on choice of law.300 Some of the relevant treaties contain
their own choice of law clauses in case there is no agreement on applicable law
between the parties. For instance, Article 42 of the ICSID Convention refers
primarily to any agreement on choice of law that the parties may have reached.

296 NAFTA Free Trade Commission Statement on Non-D isputing Party Participation, 7 October
2003, 44 ILM 796 (2005).
297 See eg Attorney-General v M obil O ilN Z Ltd, New Zealand, High Court, 1 July 1987, 4 ICSID
Reports 117, 123; M IN E v Guinea, Decision on Annulment, 22 December 1989, para 6.31·
298 See eg SPP v Egypt, Award, 20 May 1992, para 225. The choice of English law to the exclusion
of Egyptian law turned out to be decisive for the computation of interest. Azpetro I v Azerbaijan, Award,
8 September 2009, paras 49-65.
299 See the Deeds of Concession concluded between Libya and two LIS companies between 1955
and 1968 in Texaco v Libya, Award, 19 January 1977, 53 ILR 389, at 404. See also LIAM CO v Libya,
Award, 12 April 1977, 62 ILR 141, at 172; British Petroleum v Libya, 10 October 1973, 53 ILR 297, at
303; A G IP v Congo, Award, 30 November 1979, para 18; Kaiser Bauxite v Jamaica, Decision on
Jurisdiction, 6 July 1975, para 12; CSOB v Slovakia, Award, 29 December 2004, paras 58-63; Duke
Energy v Ecuador, Award, 18 August 2008, paras 190—7.
3ou JCSID Convention, Art 42; ICSID Additional Facility Rules, Art 54. See also UNCITRAL
Arbitration Rules, Art 35.
 Investor v state disputes 289

In th e ab se n ce o f su ch a n agreement, it p ro v id es fo r d ie a p p lic a tio n o f d ie h o s t

sta te ’s la w a n d in te rn a tio n a l law:

Article 42
(1) The Tribunal shall decide a dispute in accordance with such rules of law as may be
agreed by the parties. In the absence of such agreement, the Tribunal shall apply die law of
the Contracting State party to the dispute (including its rules on the conflict of laws) and
such rules of international law as may be applicable.
Both the UNCITRAL Rules (Art 35(1)) and the ICC Rules (Art 21(1)) state that a
tribunal will apply the law designated by the parties. If there is no choice of law
clause, the UNCITRAL Rules refer to ‘the law which it determines to be appropri­
ate’ and to ‘any usage of trade applicable to the transaction’ which the tribunal shall
take into account (Art 35(3)). For ICC proceedings, its Rules provide in such a case
that the Tribunal ‘shall apply the rules of law which it determines to be appropriate’
(Art 21(1)) and that the Tribunal ‘shall take account of die provisions of the
contract, if any, between the parties and of any relevant trade usages’ (Art 21(2)).
Many of the treaty provisions that offer investor-state arbitration, such as the
NAFTA, die ECT, and some BITs, also contain provisions on applicable law. By
taking up the offer of arbitration, the investor also accepts the choice of law clause
contained in the treaty’s dispute setdement provision. In this way, the treaty’s
provision on applicable law becomes part of the arbitration agreement. In other
words, the clause on applicable law in the treaty becomes a choice of law agreed by
the parties to the arbitration .301
Some clauses in treaties governing the applicable law in investment disputes refer
exclusively to international law. For instance, Chapter 11 , Section B of the
NAFTA, dealing with the settlement of investor-state disputes, refers only to
international law including the NAFTA itself:
Article 1131: Governing law
1, A Tribunal established under this Section shall decide the issues in dispute in accordance
with this Agreement and applicable rules of international law.302
Similarly, the ECT’s provision on investor-state dispute setdement provides:
Article 26 Setdement of disputes between an investor and a contracting party

(6 ) A tribunal established under paragraph (4) shall decide the issues in dispute in accord­
ance with this Treaty and applicable rules and principles of international law.303

301 A R Parra, ‘Provisions on the Setdement of Investment Disputes in M odern Investment Laws,
Bilateral Investment Treaties and Multilateral Instruments on Investm ent’ (1997) 12 ICSID Review-
FILJ 287, 332; P Peters, ‘Dispute Settlement Arrangements in Investment Treaties’ (1991) 22
Netherlands Yearbook of I n t! L 91, 147-8 (1991); I F I Shihata and A R Parra, ‘The Experience of
the International Centre for Settlement of Investment Disputes’ (1999) 14 ICSID Review-FILJ 299,
336. See also the analysis in Antoine Goetz v Burundi, Award, 10 February 1999, para 94 and in
Siemens v Argentina, Award, 6 February 2007, para 76.
302 32 ILM 605, 645 (1993).
303 34 ILM 360, 400 (1995).
290 Settling Investment Disputes

A number of BITs also merely refer to international law including the substantive
rules of the BIT itself.304
Other BITs, in provisions dealing with applicable lawr, combine the host state’s
domestic law with international law. A frequently used formula lists: (a) the host
state’s law; (b) the BIT itself as well as other treaties; (c) any contract relating to the
investment; and (d) general international law. In Antoine Goetz v Burundi305 the
relevant Belgium-Burundi BIT contained a provision on applicable law of this type.
The Tribunal found that it had to apply a combination of domestic law and
international law.306 The Tribunal made the following general statement:
a com plem entary relationship m ust be allowed to prevail. T h a t the T ribunal m ust apply
Burundian law is beyond doubt, since this last is also cited in the first place by the relevant
provision o f the Belgium -B urundi investm ent treaty. As regards international law, its
application is obligatory for tw o reasons. First, because, according to the indications
furnished to the T ribunal by the claimants, B urundian law seems to incorporate inter­
national Jaw and thus to render it directly applicable;. . . F urtherm ore, because the Republic
of B urundi is bound by the international law obligations w hich it freely assumed under the
T reaty for the protection o f in v estm en ts.. .30/

The Tribunal then stated that an application of international law and of domestic
law might lead to different results. The Tribunal first undertook an analysis of the
dispute from the perspective of die law of Burundi. This analysis led to the
conclusion that under the law of Burundi the actions in question were legal.308
The Tribunal then examined the same issue from the perspective of international
law, in particular in light of the BIT. This examination led to the result that the
legality of the measures taken by Burundi depended on the payment of adequate
and effective compensation which was still outstanding .309
A slightly different provision on applicable law that combines host state law and
international law may be found in the BIT between Argentina and Spain:
T he Arbitral T ribunal shall decide the dispute in accordance w ith the provisions o f this
Agreem ent, the term s o f other A greem ents concluded betw een the parties, the law o f the
C ontracting Party in whose territory the investm ent was made, including its rules on
conflict o f laws, and general principles o f international law'.3 1 0

That treaty provision was applicable in Maffezini v Spain311 where the subject of
the dispute was the construction of a chemical plant. The Tribunal did not enter
into a theoretical discussion on the law applicable to the case before it; it applied

304 For a detailed list of examples, see E Gailkrd and Y Banifatemi, ‘The M eaning of “and” in
Article 42(1), Second Sentence, o f the W ashington Convention: T he Role of International Law in the
ICSID Choice of Law Process’ (2003) 18 ICSID Review-FILJ 37’5, 377.
305 Antoine Goetz v Burundi, Award, 10 February 1999.
306 At para 95·
307 At para 98.
308 At paras 100-19.
309 paras 120-33.
310 Argentina-Spain BIT, Art 10(5).
311 Maffezini v Spam, Award, 13 Novem ber 2000.
 Investor v state disputes 291

international law to some questions and host state law to other questions. For
instance, on the issue of whether Spain was responsible for the actions of a state
entity the Tribunal relied on the international law of state responsibility for the
question of attribution 312 and on the Spanish Law on Public Administration and
Common Administrative Procedure to elucidate the structure and functions of the
entity .313 Having reached an affirmative reply on attribution, it then applied the
BIT .314 O n the issue of an environmental impact assessment, the Tribunal applied
international law,315 Spanish legislation,316 a European Community directive,31'·'
and the BIT .318 To the question of whether a contract had been perfected between
the investor and the state entity, the Tribunal applied the Spanish Civil Code
and the Spanish Commercial Code together with authoritative commentaries.319
On the issue of a statute of limitation under Spanish legislation, the Tribunal found
that it did not apply to claims filed under the ICSID Convention .320
N ot all BITs contain provisions on applicable law. Where jurisdiction is based
on a BIT that does not contain a provision on governing law, tribunals have
sometimes construed such a choice from the BIT’s invocation.
In AAPL v Sri Lanka ,321 jurisdiction was based on the BIT between Sri Lanka
and the United Kingdom. This BIT did not contain a provision on applicable law.
The Tribunal found that by arguing their case on the basis of the BIT, the parties
had expressed their choice of the BIT as the applicable law as ‘both Parties acted in
a manner that demonstrates their mutual agreement to consider the provisions of
the Sri Lanka/UK Bilateral Investment Treaty as being the primary source of the
applicable legal rides’.322
The Tribunal in AAPL v Sri Lanka went on to state that the BIT was not a closed
legal system but had to be seen in a wider juridical context. This wider juridical
context, as well as the parties’ submissions, led it to apply customary international
law as well as domestic law.323 Other tribunals have similarly found that in cases
involving disputes under BITs the primary source of law had to be the BIT itself
and other rules of international law.324
In the absence of an agreement on the governing law, Article 42 of the ICSID
Convention provides that the tribunal apply host state law and applicable rules of
international law. Most tribunals applying this provision examined the issues before

312 A t paras 50, 52, 57, 77, 83. 3,3 At paras 4 7 -9 . 314 At para 83.
3,5 A t para 67. 316 At paras 68, 69. 31/ A t para 69.
0,8 A t para 71. ;i19 At paras 89, 90.
320 At paras 92, 93. For a similar methodology on applicable law, see also B G Group v Argentina,
Final Award, 24 December 2007, paras 89-103; National Grid v Argentina, Award, 3 November 2008,
paras 81-90.
321 AAPL v Sri Lanka, Award, 27 June 1990.
322 At para 20.
323 At paras 18-24.
324 Wena Hotels v Egypt, Award, 8 December 2000, paras 78, 79; A D C v Hungary, Award,
2 October 2006, paras 288-91; LG & E v Argentina, Decision on Liability, 3 October 2006, paras
85, 97-8; Saipem v Bangladesh, Award, 30 June 2009, para 99; Bayindir v Pakistan, Award, 27 August
2009, paras 109, 110.
292 Settling Investment Disputes

them under both systems oi law .325 In some cases the tribunals were simply content
to find that both systems of law reached the same result.326
A widely held theory on die relationship of international law to host state law
under the second sentence of Article 42(1) is the doctrine of the supplemental and
corrective function of international law vis-a-vis domestic law.327 The ad hoc
Committee in Amco v Indonesia described this doctrine as follows:
Article 42(1) o f the Convention authorizes an IC SID tribunal to apply rules o f international
law only to fill up lacunae in the applicable dom estic law and to ensure precedence to
international law norm s where the rules o f the applicable dom estic law are in collision with
such norm s .328

It is questionable whether this doctrine accurately reflects reality. Tribunals have

given international law more than a mere ancillary or subsidiary role. The Tribunal
in the resubmitted case of Amco v Indonesia called this a distinction without a
difference;
4-0. T his T ribunal notes that Article 42(1) refers to the application o f host-state law and
international law. If there are no relevant host-state laws on a particular m atter, a search
m ust be made for the relevant international laws. And, w here there are applicable host-state
laws, they m ust be checked against international laws, w hich will prevail in case of conflict.
T hus international law is fully applicable and to classify its role as ‘only 3 ‘supplem ental and
corrective 1 seems a distinction w ith o u t a difference .329

Under the residual rule of Article 42(1) of the ICSID Convention both legal
systems, that is international law and host state law, have a role to play.330 In
CMS v Argentina the Tribunal said:
there is here a close interaction betw een the legislation and the regulations governing the gas
privatization, the License and international law, as em bodied both in the Treaty and in

323 But see SO ABI v Senegal, Award, 25 February 1988, paras 5.02 et seq where the Tribunal
restricted itself to the application of Senegalese law.
326 Adriano Gardella v Cote d'Ivoire, Award, 29 August 1977, para 4.3; Benvenuti & Bonfant v
Congo, Award, 15 August 1980, para 4.64; Kloekner v Cameroon, Award, 21 O ctober 1983, 2 ICSID
Reports 9, at p 63; Amco v Indonesia, Award, 20 November 1984, paras 147-8, 188, 201, 245-50,
2 6 5 -8 , 281; Duke Energy v Peru, Award, 18 August 2008, paras 144—61; Aguaytia v Peru, Award,
11 December 2008, paras 71-4.
i2/ Kloekner v Cameroon, Decision on Annulment, 3 May 1985, para 69; LETC O v Liberia, Award,
33 March 1986, 2 ICSID Reports 343, at 358-9;^7Βγο v I ndonesia, Resubmitted Case: Award, 5 June
1990, para 38; SPP v Egypt, Award, 20 May 1992, para 84; Autopista v Venezuela, Award, 23 September
2003, paras 101-5.
328 Amco v Indonesia, Decision on Annulment, 16 May 1986, para 20.
329 Amco v Indonesia, Resubmitted Case: Award, 5 June 1990, para 40.
3·', ° See E Gaillard and Y Banifatemi, ‘The Meaning of '‘and” in Article 42(1), Second Sentence, of
the W ashington Convention: The Role of International Law in the ICSID Choice of Law Process’
(2003) 18 ICSID Review-FILJ 375, 403-11; R Dolzer, ‘Contem porary Law of Foreign Investment:
Revisiting die Status of International Law’ in C Binder, U Kriebaum, A Reinisch, and S W ittich (eds),
International Investment Law for the 21st Century (2009) 818; Z Douglas, The International Law of
investment Claims (2009) 39-133.
 Investor v state disputes 293
custom ary international law. All o f these rules are inseparable an d will, to the extent
justified, be applied by the T rib u n al .331

It is only where there is a conflict between the host state’s law and international law
that a tribunal has to make a decision o n precedence. The Tribunal in LG&E v
Argentina emphasized that ultimately international law is controlling: ‘International
law overrides domestic law when there is a contradiction since a State cannot justify
non-compliance of its international obligations by asserting die provisions of its
domestic law .’332
In non-ICSID arbitration between investors and host states, tribunals also apply a
combination of international law and host state law. The UNCITRAL Arbitration
Rules refer the tribunal to the law designated by the parties. In the absence of a choice
of law, the tribunal is to apply the law which it determines to be appropriate.333
In Occidental v Ecuador the arbitration was conducted under the UNCITRAL
Rules of 1976. The Tribunal listed a mix of sources of law under host state law and
under international law:
T he dispute in die present case is related to various sources o f applicable law. Il is first related
to the C o n tra c t. . . ; it is next related to Ecuadorian tax legislation; this is followed by specific
Decisions adopted by the A ndean C om m unity and issues that arise under the law o f the
W T O . In particular the dispute is related to the rights and obligations o f the parties under
the Treat)* [ie the U S-Ecuador BIT] and international law .334

Therefore, in most cases the applicable substantive law in investment arbitration

combines international law and host state law. This is so whether or not the parties
have made a choice of law that combines international law with host state law. In
the majority of cases tribunals have, in fact, applied both systems of law. Where
there was a contradiction between die two, international law had to prevail. It is left
to the tribunals to identify the various issues before them to which international law
or host state law is to apply.

(1) Rem edies

aa. Restitution a n d satisfaction
Under the international lav/ of state responsibility, reparation for a wrongful act
takes the form of restitution, compensation, or satisfaction.335 In investment

331 CM S v Argentina, Award, 12 May 2005, para 117. See also Wena v Egypt, Decision on
Annulm ent, 5 February 2002, paras 37-4-0; Azurix v Argentina, Award. 14 July 2006, para 67;
LG& E v Argentina, Decision on Liability, 3 October 2006, paras 82-99; Enron v Argentina, Award,
22 May 2007, paras 2 0 3 -9 ; Tokios Tokeles v Ukraine, Award, 26 July 2007, paras 138-45; Sempra v
Argentina, Award, 28 September 2007, paras 231—40.
3·’2 LG & E v Argentina, Decision on Liability, 3 October 2006, para 94. See also CDSE v Costa Rica,
Award, 17 February 2000, paras 64, 65; Duke Energy v Peru, Decision on Jurisdiction, 1 February
2006, para 162.
333 U N CITRA L Arbitration Rules 2010, Art 35(1).
33“ Occidental vEcuador, Final Award, 1 July 2004, para 93. See also Eastern Sugar v Czech Republic,
Partial Award, 27 M arch 2007, paras 191-7.
335 Articles on Responsibility of States for Internationally Wrongful Acts adopted by die ILC in 2001,
Art 34. J Crawford, The International Law Commission's Ankles on State Responsibility (2002) 211.
294 Settling Investment Disputes

arbitration, die remedy nearly always consists of monetary compensation. Satisfac­

tion plays a subordinate role in investment law .336 Restitution in kind or specific
performance is ordered infrequently .337 This is not due to any inherent limitation
on tribunals but the consequence of the situations in which most disputes arise and
the way in which the claims are put forward. In a number o f cases, tribunals did in
fact order restitution 338 or affirmed their power to do s o .d39
In Enron v Argentina the claimants requested that the Tribunal declare certain
taxes unlawful and issue a permanent injunction against their collection.340 Argen­
tina argued that the Tribunal did not have the power to order injunctive relief.
In Argentina’s view, the Tribunal could only establish whether there had been
an illegal expropriation and determine the corresponding compensation .341 The
Tribunal found that it had the power to order specific performance:
An exam ination o f the powers o f international courts and tribunals to order measures
concerning perform ance or injunction and o f the ample practice that is available in this
respect, leaves this T ribunal in no do u b t about the fact that these powers are indeed
available .342

bb. Damages fo r an illegal act

The calculation of monetary reparation can be a complex undertaking, often
requiring the involvement of valuation experts .343 If an illegal act has been
committed, the guiding principle is that reparation must, as far as possible, restore
the situation that would have existed had the illegal act not been committed .344 In
the Chorzow Factory Case, the PCIJ expressed this principle in the following words:
T he essential principle contained in the actual notion o f an illegal act — a principle which
seems to be established by international practice and in particular by the decisions o f arbitral

336 Biwater Gaujf v Tanzania, Award, 24 July 2008, paras 4 6 5 -7 , S07; Europe Cement v Turkey,
Award, 13 August 2009, paras 146-8, 176, 181.
337 See C Schreuer, ‘Non-Pecuniary Remedies in ICSID Arbitration’ (2004) 20 Arbitration
International 325·
338 M artini Case (Italy v Venezuela), Award, 3 May 1930, 25 A fIL 554 (1931), at 585; Texaco
Overseas Petroleum Company and California Asiatic Oil Company v Government o f the Libyan Arab
Republic, Award on die Merits, 19 January 1977, 53 ILR 389, at 497-511; Antoine Goetz and others v
Republic o f Burundi, Award, 2 September 1998 and 10 February 1999, paras 132-3; Semos v Mali,
Award, 25 February 2003, 10 ICSID Reports 116, 129; A D C v Htmgaty, Award, 2 October 2006,
para 523; Siemens v Argentina, Award, 6 February 2007, para 403(5); A T A v Jordan, Award, 18 May
2010, paras 129-32.
339 N yComy v Latvia, Award, 16 December 2003, sec 5.1; Micula v Romania, Decision on
Jurisdiction and Admissibility, 24 September 2008, paras 158-68. But see LG & E v Argentina,
Award, 25 July 2007, paras 84—7; Occidental v Ecuador, Decision on Provisional Measures, 17 August
2007, paras 66-86.
3"i0 Enron v Argentina, Decision on Jurisdiction, 14 January 2004, para 77·
341 A t para 76.
3h1 A t para 79.
343 For a concise overview, see I Marboe, ‘Compensation and Damages in International Law, The
Limits o f “Fair Market Value’” (2006) 7 J World Investment & Trade 723.
344 Ajticles on Responsibility of States for Internationally W rongful Acts adopted by die ILC in
2001, Arts 31, 36.
 Investor v state disputes 295

trib u n a ls— is th a t re p a ra tio n m u st, as far as possible, w ipe o u t all th e co n seq u en ces o f th e
illegal act a n d re-estab lish th e situ a tio n w h ich w ould, in all p ro b ab ility , have existed if th a t
act h ad n o t b een c o m m itte d .345

Under diis principle, damages for a violation of international law have to reflect the
damage actually suffered by the victim. In other words, the victim’s actual situation
has to be compared with the one that would have prevailed had the act not been
committed. Therefore, punitive or moral damages will not usually be granted .346
This subjective method includes any consequential damage but also incidental
benefits arising as a consequence of the illegal act. According to the Tribunal in
Petrobart v Kyrgyz Republic.
in so far as it appears th a t P e tro b a rt has suffered dam age as a resu lt o f th e R e p u b lic ’s breaches
o f th e T reaty , P e tro b a rt shall so far as possible be placed financially in th e p o sitio n in w h ich
it w o u ld have f o u n d itself, h a d the breaches n o t o ccu rred .3,7

One method for calculating damages would be to look at the replacement value of
property that has been taken or destroyed. This presupposes that the equipment in
question is actually replaceable. Another method is to look at the actual losses, that
is, the amount invested as well as costs and expenses incurred by the investor.348
If the illegal act results in deprivation of income, damages may have to include
lost profits .349 Lost profits will be awarded only if they are not speculative, that is,
in cases where the investment has a record of profitability or there are other clear
indicators of future profits .350 Also a risk element has to be factored into any
calculation of future profits. In addition, care must be taken to avoid double
counting. This may occur if actual expenses are combined with expected future
profits.
Tribunals have also taken negligent behaviour by the investors into account
when calculating damages due to them. In M T D v Chile the Tribunal found that
the investors had made decisions that unnecessarily increased dieir risks and for
which they bore responsibility. It followed that the damages due were to be
appropriately reduced:

345 Case Concerning the Factoiy at Chorzovj, Merits, 1928, PCIJ, Series A, N o 17, p 47.
346 Stag v Egypt, Award, 1 June 2009, paras 544—8; Europe Cement v Turkey, Award, 13 August
2009, paras 177—81; Cementownia v Turkey, Award, 17 September 2009, paras 164—72; Lemire v
Ukraine, Decision on Jurisdiction and Liability, 14 January 2010, paras 426-86. But see Desert Line v
Yemen, Award, 6 February 2008, paras 284-91.
34' Petrobart v Kyrgyz Republic, Award, 29 M arch 2005, V III.7, in Stockholm In t’l Arb Rev 2005:3,
45 at 84. See also M T D v Chile, Award, 25 May 2004, para 238,
3,8 Metalclad v Mexico, Award, 30 August 2000, para 122; A zurix v Argentina, Award, 14 July
2006, para 425.
349 See eg Amco v Indonesia, Resubmitted Case: Award, 5 June 1990, paras 163-284; L E TC O v
Liberia, Award, 31 M arch 1986, 2 ICSID Reports 346, at 373-7.
350 AAPL v Sri Lanka, Award, 27 June 1990, paras 105-8; SPP v Egypt, Award, 20 M ay 1992, paras
186-9; Metalclad Corp v United Mexican States, Award, 30 August 2000, paras 120-2; Wena Hotels
L td v Arab Republic o f Egypt, Award, 8 December 2000, paras 123-4; SD Myers v Canada, Award on
Damages, 21 O ctober 2002, paras 173 et seq; Teemed, v United. Mexican States, Award, 29 May 2003,
para 186; Autopista v Venezuela, Award, 23 September 2003, paras 351-65; PSEG v Turkey, Award,
19 January 2007, paras 310-15; LG&E v Argentina, Award, 25 July 2007, paras 88-91.
296 Settling Investment Disputes

T h e T rib u n a l considers th e re fo re t h a t t h e c la i m a n t s S-J0U- - par,. _·

suffered a n d th e T rib u n a l e stim ates th a t sh a re to b e 5 O /0 a fte r d e d u c t] Vii . .· (, ' ^ ·
value o f th e ir in v e s tm e n t. . ,331

Events subsequent to the illegal act may affect the damage cauSed ^
taken into account.352 Ail information available at the time of the a,, _ .;;
reflected in the calculation; this may include consequential damage 0r a
of damage. A subsequent increase in the value of the investment will φ ϊΐ * ·
relevant. In AD C v Hungary the Tribunal, after noting that ^ /.
investment had risen very considerably after tie ate o tie illegal vHpropria^’
said:
th e ap p licatio n o f th e Cborzow Factory s ta n d a rd re q u ire s th a t th e d a te o f vnlU:Uio5 ^ j*
th e d ate o f th e A w ard a n d n o t th e d a te o f e x p r o p r ia tio n sin ce th is is w h a t . _
th e C laim an ts in the sam e p o sitio n as i f th e e x p ro p ria tio n la d n o t b e e n , ,

cc. Compensation fo r expropriation

The calculation of compensation for a lawful expropriation , duA..·.;
standards.354 Compensation is one o f the requirements ior a leg..; ,· pn'-LViV:·....
together with a public purpose, non-discrimination, and iair prc·- ‘Ίϋ:'..
BITs and other treaties for the protection of investments contain ihis Kquiii-
m ent .356 These treaties often refer to adequate’ or ‘appropriate’ compensation. The
W orld Bank Guidelines on the Treatm ent of Foreign Diiect Invej u
C o m p e n s a tio n w ill b e d e e m e d ‘a d e q u a te ’ if it is b a s e d o n th e fair m a rk e t ^alue d th"
asset as su c h value is d e te rm in e d im m e d ia te ly b efo re th e tu n e at w h ic h me taking a w **
or th e decision to cake th e asset becam e p u b lic ly k n o w n .

Many of the treaties dealing with compensation for expropriation al,o refer lo-the
expropriated investment’s fair market value.358 For instance, the Argcmiaa-OS BIT
provides:
C o m p e n sa tio n shall be eq u iv alen t to the fait m a rk e t value o f the e ,p ro p ti,,e c l i,
im m ed iately before th e ra p ro p ria ro ty a ctio n w as tak en or b ecam e »
earlier;359

351 M T D v Chile. Award, 25 May 2004, para 243; A zurix v Argentina, Award, i . i , iu
425 et seq.
352 Siemens v Argentina, Award, 6 February 2007, paras 352, 353, 360.
3:0 A D C v Hungary, Award, 2 October 2006, para 497. _; ΐ;·
35*i For decisions clearly distinguishing between compensation for expropriation and iUuwom f;sr ,in s
illegal act, see Nycornb v Latvia, Award, 16 December 2003, sec 5.1; M T D v CIn«< . ^u u i, .!‘ .vjjy .
2004, para 238; A D C v Hungary, Award, 2 O ctober 2006, paras 481, 483; Siemens νΛ ψ ηώ ω . ,'Wt.j
6 February 2007, paras 349-52; LG & E v Argentina, Award, 25 July 2007, paras 2v- (
350 See pp 99-101.
356 n a FTA, Art 1110: ECT, A n 13-
357 Guideline IV (3). 31 ILM 1379, at 1382.
358 NAFTA, A rt 1110(2); ECT, A n 13(1).
359 Argenrina-US BIT, A rt IV(1).
 Investor v state disputes 297

^Is have frequently relied on the fair market value as the appropriate
T n ^ rd for compensation .360
reas damages for an illegal act look at the victim’s subjective position,
j^sation for expropriation, as expressed in the investment’s fair market value,
standard that looks at the amount that a willing buyer would normally
lS ‘Ui a willing seller in a free transaction, at arm’s length. On the other hand, a
F11-'' .L t v alue will often be a fiction, especially where a market for large and complex
.p-jients does not exist. Therefore, market value is often determined on the basis
■Π'" u f u t u r e prospects or earning capacity of the investment.
0 m o st frequendy used method for determining market value is the dis-
A cash flow· (DCF) method which looks at the projected likely income
!' U r e d by the investment in the future. The underlying assumption is that this is
stan d a rd for the price that a hypothetical buyer would be willing to pay. Under
jr - ^ e th o d , an estimate is made of cash flows that may be expected in the future,
in o rd er to calculate the present value of future cash flows, a discount factor has to
in order to take account of the time value of money and o f risk. Past data
be a p p ^ e<^
relevant but not necessarily decisive for the determination of future prospects.
O th e r ‘value drivers’ may also be indicative of future cash flows. Risk may be
influenced by macroeconomic factors or political crises but also by the specific risk
b o r n e b y die investment.
I f th e investment has not yet produced income or is unlikely to produce further
'n c o x n e in the future, the appropriate method for valuation may be the liquidation
value· T his is the price at which the remaining assets could be sold under conditions
of liquidation. This method usually yields a much lower value than valuation on the
basis o f a going concern.
'j'foe valuation date in the case of expropriations should be the date immediately
b e f o re the fact of the expropriation became publicly known. This is designed to avoid
any in f lu e n c e of the impending expropriation on the investment’s market value.

dd. Interest
A n a w ard of damages or compensation normally includes interest.361 Interest is a
sum paid or payable as compensation for the temporary withholding of money. If
the investor had to take out a loan as a consequence of the deprivation, interest is
d e s i g n e d to cover the cost of the loan. If no loan was taken, interest may reflect the
lost e a r n in g capacity of the money in question.
I n t e r e s t is due from the date at which the principal amount was due. In the case
o f d a m a g e s , this is normally the date of the wrongful act.362 In AAPL v Sri Lanka
th e Tribunal stated that:

360 5ee eg Biloune v Ghana, Award on Jurisdiction and Liability, 27 October 1989, 95 ILR 184, at
2 1 1 ; SPP v Egypt, Award, 20 May 1992, para 197; Compania delDesarrollo de Santa Elena SA v Costa
Rica, Award, 17 February 2000, para 70.
361 Generally, seej Ύ Gotanda, Awarding Interest in International Arbitration’ (1996) 90A JIL 40.
362 in some cases this date may be difficult to determine. See PSEG v Turkey, Award, 19 January
„„ __ 5 / i o 1
298 Settling Investment Disputes

the case-law elaborated by international arbitral tribunals strongly suggests that in assessing
the liability due for losses incurred the interest becomes an integral part of the compensation
itself, and should run consequently from the date when the State’s international responsi­
bility became engaged363
In the case of compensation, interest is normally due from the date of the expropri­
ation, although that date may be difficult to determine with indirect or creeping
expropriations. The appropriate date will be the day when the investor definitely
lost control over the investment.
The rate of interest may be calculated on the basis of the legal interest rate in an
applicable legal system or on an inter-bank rate such as die London Interbank
Offered Rate (LIBOR).364
The practice of tribunals shows a trend towards compounding interest, that is,
interest is capitalized at certain intervals and will then itself bear interest. While
some tribunals have rejected compound interest,363 it has been accepted in the
majority of recent decisions.366

(m) Costs
The costs of major investment arbitrations can be considerable and may run into
millions of dollars for complex cases.367 The costs consist of three elements: the
charges for the use of the facilities and expenses of ICSID 368 or other arbitration
institution, the fees and expenses of the arbitrators, and die expenses incurred by

363 AAPL v Sri Lanka, Award, 27 June 1990, para 114. See also SPP v Egypt, Award, 20 May 1992,
para 234; Metalclad Corp v United Mexican States, Award, 30 Augusc 2000, para 12S.
364 PSEG v Turkey, Award, 19 January 2007, para 348; Sempra v Argentina, Award, 28 September
2007, paras 483-6; Rumeli Telekom v Kazakhstan, Award, 29 July 2008, para 818; National Grid v
Argentina, Award, 3 November 2008, para 291; Siag v Egypt, Award, 1 June 2009, paras 594—8.
365 CM E v Czech Republic, Final Award, 14 M arch 2003, paras 642—7; Autopista v Venezuela,
Award, 23 September 2003, paras 393—7; Eastern Sugar v Czech Republic, Partial Award, 27 March.
2007, para 374; Duke Energy v Ecuador, Award, 18 August 2008, para 473.
366 Atlantic Triton v Guinea, Award, 21 April 1986, 3 ICSID Reports 13, at 33, 43; Companiadel
Desarrollo de Santa Elena SA v Costa Rica, Award, 17 February 2000, paras 104, 105; Metalclad v
Mexico, Award, 30 August 2000, para 128; M affezini v Spain, Award, 13 November 2000, para 96;
Wena Hotels v Egypt, Award, 8 December 2000, para 129; M iddle East Cement v Egypt, Award, 12 April
2002, para 174; Pope & Talbot v Canada, Award in Respect o f Damages, 31 May 2002, para 90;
Teemed v United Mexican States, Award, 29 May 2003, para 196; M T D v Chile, Award, 25 May 2004,
para 253(4); Azurix v Argentina, Award, 14 July 2006. paras 439-40; A D C v Hungary, Award,
2 October 2006, para 522; PSEG v Turkey, Award, 19 January 2007, para 348; Enron v Argentina,
Award, 22 May, 2007, paras 451-2; Compama de Aguas del Aconquija, SA & Vivendi Universal v
Argentina, Award, 20 August 2007, paras 9.1.1-9.2.8; BG Group v Argentina, Final Award,
24 December 2007, paras 456-7; Sempra v Argentina, Award, 28 September 2007, paras 483-6; OKO
Pankki v Estonia, Award, 19 November 2007, paras 343-56; Continental Casualty v Argentina, Award,
5 September 2008, paras 306-16; Funnekotter v Zimbabwe, Award, 22 April 2009, paras 141-6; Siag
v Egypt, Award, 1 June 2009, paras 594—8; Impregilo v Argentina, Award, 21 June 2011, paras 382-4.
367 Eg in PSEG v Turkey, the total am ount of costs claimed was U S$20,851,636.62. See Award,
19 January 2007, para 352. The Award in Libananco v Turkey, 2 September 2011, paras 558-9, seems
to have set a record with combined costs for both parties at USS60 million.
36s The details are set out in ICSID ’s Administrative and Financial Regulations at <http://www.
worldbank.org/icsid/basicdoc/partC.htm> as well as in a Schedule of Fees at <http://www.worldbank.
org/icsid/schedule/fees.pdfsee>.
 Investor v state disputes 299

the parties in connection with the proceedings. O f these three categories, the third,
consisting mainly of the costs for legal representation, is typically by far the largest.
The ICSID Convention in Article 61(2) leaves it to the tribunal’s discretion by
whom these costs are to be paid, unless the parties agree otherwise. Other arbitra­
tion rules may provide differently. For instance, the UNCITRAL Arbitration Rules
state that the costs of arbitration shall in principle be borne by the unsuccessful
party .369 But in a particular case, both parties may be partly successful.
The practice o f tribunals on the attribution of costs is far from uniform. In many
cases the tribunals found that the fees and expenses of the Centre and of the
arbitrators were to be shared equally and that each party had to bear its own
expenses.370 In some cases the tribunals awarded costs as a sanction for the
improper conduct of one of the parties. This has been the case where the tribunal
found that the claim had been frivolous or fraudulent or that there had been
dilatory or otherwise improper conduct.371 In LETCO v Liberia the Tribunal
awarded the full costs of the arbitration to the claimants including their own
expenses. The Tribunal said:
This decision is based largely on Liberia’s procedural bad faith. Not only did Liberia fail
to partake in these arbitral proceedings, contrary to its contractual agreement, but it has
also undertaken judicial proceedings in Liberia in order to nullify the results of this
arbitration.372
More recendy tribunals have shown a growing inclination to adopt the principle
that costs follow the event. An award of costs against the losing party may be total

369 Article 42 (1).

370 See eg Adriano Gardella v Ivory Coast, Award, 29 August 1977, para 4.12; Klockner v Cameroon,
Award, 21 October 1983, 2 ICSID Reports 9 at 77; Atlantic Triton v Guinea, Award, 21 April 1986,
3 ICSID Reports 17 at 42, 44; SOABI v Senegal, Award, 25 February 1988, para 12.05; Amco v
Indonesia, Resubm itted Case: Award, 5 June 1990, paras 285-91; Vacuum Salt v Ghana, Award,
16 February 1994, paras 56-60; Cable T V v St Kitts and Nevis, Award, 13 January 1997, paras 8.04—
8.06; Tradex v Albania, Award, 29 April 1999, paras 206-7; Robert Azinian and others v Mexico,
Award, 1 Novem ber 1999, paras 125-7; CDSE v Costa Rica, Award, 17 February 2000, para 109;
M affezini v Spain, Award, 13 November 2000, paras 98-9; M iddle East Cement v Egypt, Award,
12 April 2002, para 176; Compama de Aguas del Aconqidja, SA & Vivendi Universal v Argentina,
Decision on A nnulm ent, 3 July 2002, paras 117-18; Autopista v Venezuela, Award, 23 September
2003, para 425; M T D v Chile, Award, 25 May 2004, para 252; Salini v Jordan, Award, 31 January
2006, paras 101-4; World Duty Free v Kenya, Award, 4 October 2006, paras 189-91; Mitchell v Congo,
Decision on A nnulm ent, 1 November 2006, para 67; Enron v Argentina, Award, 22 May 2007, para
453; Duke Energj<v Peru, Award, 18 August 2008, paras 4-94-500; RSMProduction v Grenada, Award,
13 M arch 2009, paras 487-99; Roslnvest v Russia, Final Award, 12 September 2010, para 701; A ES
Sum m it v Hungary, Award, 23 September 2010, para 15.3.3; Grand River Enterprises v United States,
Award, 12 January· 2011, paras 239-47; Brandes v Venezuela, Award, 2 August 2011, para 120.
371 Benvenuti & BonJa m v Congo, Award, 15 August 1980, paras 4.127-4,129; M IN E v Guinea,
Award, 6 January' 1988, 4 ICSID Reports 61, at 77; Generation Ukraine, Inc v Ukraine, Award,
16 September 2003, para 24.2; A zurix v Argentina, Award, 14 July 2006, para 441; Compama de Aguas
del Aconqidja, SA & Vivendi Universal v Argentina, Award, 20 August 2007, paras 10,2.2-10.2.6;
Plama v Bidgaria, Award, 27 August 2008, paras 321-2; Phoenix v Czech Republic, Award, 15 April
2009, paras 151—2; Europe Cement v Turkey, Award, 13 August 2009, paras 185—6; Cementownia v
Turkey, Award, 17 September 2009, paras 177-8; Fakes v Turkey, Award, 14 July 2010, paras 153-4.
372 LE TC O v Liberia, Award, 31 March 1986, 2 ICSID Reports 370, at 378.
300 Settling Investment Disputes

or, more frequently, may cover a certain proportion of the overall costs.373 In AD C
v Hungary the claimant prevailed with its claim for illegal expropriation and other
BIT violations. O n the issue of costs, the Tribunal said:
it can be seen from pre\do us awaxds th at IC SID arbitrators do in practice award costs in
favour o f the successful party and som etim es in large s u m s . . . In the present case, the
T ribunal can find no reason to depart from the starting p oint that the successful party
should receive reim bursem ent from the unsuccessful parry.. . . W ere the Claim ants nor to be
reim bursed their c o sts. . . it could n o t be said that they were being made w hole .374

(n) Challenge and review o f decisions

Awards are final and not subject to any appeals procedures .375 It is only under very
limited circumstances that a review of awards is possible. Two potentially conflict­
ing principles are at work in the process of review of a judicial decision: the
principle of finality and the principle of correctness. Finality selves the purpose
of efficiency in terms of an expeditious and economical setdement of disputes.
Correctness is an elusive goal that takes time and effort and may involve several
layers of control, a phenomenon that is well known from appeals in domestic court
procedure. In arbitration, the principle of finality is typically given more weight
than the principle of correctness.

aa. Review in non-ICSID arbitration

In non-ICSID arbitration, including arbitration under the Additional Facility, the
normal way to challenge an award is through national courts. This is done in the
courts of the country in which the tribunal has its seat or by the courts charged with
the task of enforcing the award.

373 A G IP v Congo, Award, 30 N ovem ber 1979, 1 ICSID Reports 309. at 329; AAPL v Sri Lanka,
Award, 27 June 1990, para 116; SPP v Egypt, Award, 20 May 1992, paras 205-11; Scimitar v
Bangladesh, Award, 5 April 1994, paras 30—2; Wena Hotels v Egypt, Award, 8 December 2000, para
130; Compama de Aguas del Aconquija, SA dr Vivendi Universal v Argentina, Decision on Supplemen­
tation and Rectification of Annulm ent Decision, 28 M ay 2003, paras 43-4; Generation Ukraine, Inc v
Ukraine, Award, 16 September 2003, para 24.1; C D C v Seychelles, Award, 17 December 2003, para
63; Soufraki v United Arab Emirates, Award, 7 July 2004, para 85; CDC v Seychelles, Decision on
Annulm ent, 29 June 2005, paras 88-90; Eureko v Poland·, Partial Award, 19 August 2005, para 261;
Thunderbird v Mexico, Award, 26 January 2006, paras 210-21; Inceysa v El Salvador, Award, 2 August
2006, para 338; Telenor v Hungary, Award, 13 September 2006, paras 104—8; A D C v Hungary, Award.
2 O ctober 2006, paras 525—42; Champion Trading v Egypt, Award, 27 October 2006, paras 165-78;
PSEG v Turkey, Award, 19 January 2007, paras 352-3; OKO Pankki v Estonia, Award, 19 November
2007, paras 368-75; BG Group v Argentina, Final Award, 24 December 2007, paras 458-66; Rumeli
Telekom v Kazakhstan, Award, 29 July 2008, para 819; National Grid v Argentina, Award, 3 November
2008, para 295; Funnekotter vZimbabwe, Award, 22 April 2009, para 147; Siag vEgypt, Award, 1 June
2009, paras 599-630; E D F v Romania, Award, 8 O ctober 2009, paras 321-9; Chemtura v Canada,
Award, 2 August 2010, paras 272-3; Alpha v Ukraine, Award, 8 November 2010, para 516; RSM
Production v Grenada, Award, 10 December 2010, paras 8 .3 .4 -8 .3 .6 ;/IF 7 'v Slovakia, Award, 5 March
2011, paras 260-70.
3/4 A D C v Hungary, Award, 2 October 2006, paras 531, 533.
375 See ICSID Convention, Art 53.
 Investor v state disputes 301

The New York Convention on the Recognition and Enforcement of F o re ig n

Arbitral Awards of 19 5 8 370 in its Article V lists a number of grounds on the basis o f
which recognition and enforcement of a non-national arbitral award may be refused
at die request of a party. The UNCITRAL Model Law on International Commer­
cial Arbitration of 1985 foresees a limited number of grounds for the setting aside
or non-recognition of an international commercial award by a domestic court,
which are based on Article V of the New York Convention .3/7 In many countries,
national arbitration laws, including the rules on setting aside arbitral awards, are
modelled on the UNCITRAL Model Law.
The most important grounds for the setting aside of awards under these laws are
the invalidity of the arbitration agreement, lack of proper notice o f the arbitration
proceedings, a decision in the award beyond the scope of the submission to
arbitration, improper composition of die tribunal, a subject matter not capable of
settlement by arbitration under the law of the state in question, and an award that is
in conflict with the public policy of that state. Proceedings for setting aside awards
in non-ICSID investment arbitration have taken place in a number of cases.378

bb. Annulment under the ICSID Convention

ICSID awards are not subject to annulment or any other form of scrutiny by
domestic courts. Rather, the ICSID Convention offers its own self-contained
system for review. Under this procedure, an ad hoc committee may annul an
award upon the request of a party. An ad hoc committee consists of three persons,
appointed by the Chairman of ICSID’s Administrative Council.379 The request for
annulment must come from one of the parties to the arbitration and has to be
submitted within 120 days of the award’s dispatch to the parties.380 There is no ex
officio annulment. Typically, a party requesting annulment hopes for a decision that
is more favourable to it after annulment.
Only awards are subject to annulment; there is no annulment in respect of
other decisions, such as decisions upholding jurisdiction or decisions on pro­
visional measures, except if they are subsequently incorporated into the award.
A decision by a tribunal declining jurisdiction is an award and therefore subject to
annulment. Requests for partial annulment and annulment of parts of awards are
possible.
Under Article 52(5) of the ICSID Convention, an ad hoc committee may stay
the enforcement of the award while annulment proceedings are pending .381 Before
the constitution of an ad hoc committee the stay will be automatic if it is requested
in the application for annulment. Some ad hoc committees have required a bank

376 330 LINTS 38 (1959).

377 UNCITRAL. Model Law, Arts 34 and 36, 24 ILM 1302, 1311-13 (1985).
3/8 For a list of decisions on challenges of investment awards in national courts, see <http://italaw .
com/annuIment_j udicialreview.htm?.
3/9 The President o f the W orld Bank holds this office ex officio.
38° Articles 52(2) and 49(1).
381 Arbitration Rule 54.
302 Settling Investment Disputes

guarantee or similar security from the award debtor for the eventual payment of the
award as a condition for the stay of enforcement. The guarantee will be operative if
annulment is rejected and the award becomes enforceable.382 Other ad hoc
committees have declined to order such a security.383
Annulment is different from an appeal.38"* Annulment is concerned only with
the legitimacy of the process of the decision but not with its substantive correctness.
Appeal is concerned with both. Appeal may result in the replacement of the
decision by a new decision, whereas annulment merely removes the original
decision without replacing it. Therefore, an ad hoc committee acting under the
ICSID Convention does not have die power to render its own decision on the
merits. After annulment, the dispute can be resubmitted to a new tribunal. ICSID
ad hoc committees dealing with requests for annulment in previous cases have
stressed die distinction between annulment and appeal.385
The ad hoc Committee in CDC v Seychelles described the function of annulment
in the following terms:
This m echanism protecting against errors that threaten the fundam ental fairness o f the
arbitral process (but n o t against incorrect decisions) arises from the IC SID C onvention’s
drafters’ desire that Awards be final and binding, which is an expression o f ‘custom ary law
based on the concepts o f p a cta s u n t servanda and res ju d ic a ta ,’ and is in keeping w ith the
object and purpose o f the C onvention. Parties use IC SID arbitration (at least in part)

3S2 Amco v Indonesia, Decision on Annulm ent, 16 May 1986, paras 8-9; Amco v Indonesia,
Resubmitted Case, Interim O rder N o 1, 2 March 1991, para 19; Wena v Egypt, Decision on
Annulment, 5 February 2002, paras 5-6; C D C v Seychelles, Decision on Continued Stay, 14 July
2004, Decision on Annulm ent, 29 June 2005, para 16; Repsol v Ecuador, Decision on Annulment,
8 January 2007, paras 8, 12; Compama de Aguas del Aconquija, SA & Vivendi Universal v Argentina,
Decision on Stay of Enforcement, 4 November 2008; Sempra v Argentina, Decision on Continued
Stay o f Enforcement, 5 March 2009; Decision on Term ination of Stay of Enforcement, 7 August
2009.
383 M IN E v Guinea, Interim O rder N o 1 on Guinea’s Application for Stay of Enforcement of the
Award, 12 August 1988, 4 ICSID Reports 111; Mitchell v Congo, Decision on die Stay o f Enforce­
ment, 30 November 2004; M T D v Chile, Decision on Continued Stay of Enforcement, 1 June 2005;
CMS v Argentina, Decision on C ontinued Stay of Enforcement, 1 September 2006; Azurix v
Argentina, Decision on C ontinued Stay of Enforcement, 28 December 2007; Enron v Argentina,
Decision on Second Request to Lift Stay of Enforcement, 20 May 2009; Rumeli v Kazakhstan,
Decision on Annulment, 25 M arch 2010, paras 10-24; Victor Pey Casado v Chile, Decision on Stay
of Enforcement, 5 May 2010.
384 See especially D D Caron, ‘Reputation and Reality in the ICSID Annulm ent Process: Under­
standing the Distinction Between Annulm ent and Appeal’ (1992) 7 ICSID Review-FILJ 21.
385 Kloekner v Cameroon, Decision on Annulm ent, 3 May 1985, paras 83, 118, 120, 178; Amco v
Indonesia, Decision on Annulm ent, 16 May 1986, paras 43, 110; M IN E v Guinea, Decision on
Annulment, 22 December 1989, paras 4.04, 5.08, 6.55; Wena v Egypt, Decision on Annulment,
5 February 2002, para 18; Compama de Aguas del Aconquija, SA & Vivendi Universal v Argentina,
Decision on Annulment, 3 July 2002, para 62; CDC v Seychelles, Decision on Annulm ent, 29 June
2005, paras 35, 36; Mitchell v Congo, Decision on Annulm ent, 1 November 2006, para 19; Soufraki- v
UAE, Decision on Annulm ent, 5 June 2007, paras 20, 24; Repsol v Petroecuador, Decision on
Annulment, 8 January 2007, para 38; M T D v Chile, Decision on Annulment, 21 M arch 2007. para
31; CM S v Argentina, Decision on Annulment, 25 September 2007, paras 43, 44, 135, 136, 158;
Rumeli v Kazakhstan, Decision on Annulm ent, 25 March 2010, para 70; Sempra v Argentina, Decision
on Annulment, 29 June 2010, paras 73, 74; Enron v Argentina, Decision on Annulment, 30 July 2010,
paras 63-5; Vivendi I I v Argentina, Decision on Annulm ent, 10 August 2010, para 247; Fraport v
Philippines, Decision on A nnulm ent, 23 December 2010, para 76.
 Investor υ state disputes 303
because they wish a m ore efficient way o f resolving disputes than is possible in a national
court system w ith its various levels o f trial and appeal, or even in non-IC S ID Convention
arbitrations (which m ay be subject to national courts’ review under local laws and whose
enforcem ent may also be subject to defenses available under, for example, the N ew York
C onvention).380

The grounds for annulment under the ICSID Convention are listed exhaustively in
Article 52(1):
(a) that the Tribunal was not propedy constituted;
(b) that the Tribunal has manifestly exceeded its powers;
(c) that there was corruption on the part of a member of the Tribunal;
(d) that there has been a serious departure from a fundamental rule of proced­
ure; or
(e) that the award has failed to state the reasons on which it is based.
Annulment is restricted to these five grounds. Any request for annulment must be
brought under one or several of these grounds and an ad hoc committee may not
annul on other grounds. Also, a party may not present new arguments on fact or
law that it failed to put forward in the original arbitral proceeding. Therefore,
Article 52 of the ICSID Convention offers a review process limited to a few
fundamental standards of a mostly procedural nature.
Under Article 52(3) of the ICSID Convention an ad hoc committee has the
authority to annul the award. Therefore, an ad hoc committee has discretion and is
not under an obligation to annul if it finds that there is a ground for annulment
listed in Article 52(1). An ad hoc committee has to decide whether die fault is
sufficiently grave to warrant annulment, especially whether it has made a material
difference to the position of one of the parties.387 The ad hoc Committee in
Vivendi said:
it appears to be established that an a d hoc com m ittee has a certain measure o f discretion as to
w hether to annul an award, even if an annullable error is found. Article 52(3) provides that a
com m ittee ‘shall have the authority to annul the award or any part th ere o f’, and this has
been interpreted as giving com m ittees some flexibility in determ ining w hedier annulm ent
is appropriate in the circumstances. A m ong other things, it is necessary for an a d hoc
com m ittee to consider the significance o f the error relative to the legal rights o f the
parties,388

Only diree of the grounds for annulment listed above have played a role in practice:
excess of powers, serious departure from a fundamental ride of procedure, and

386 C D C v Seychelles, Decision on Annulm ent, 29 June 2005, para 36. Footnotes omitted.
3s, M IN E v Guinea, Decision on Annulment, 22 December 1989, paras 4.09—4.10; C D C v
Seychelles, Decision on Annulment, 29 June 2005, paras 37, 65. But see the earlier decision to the
contrary in Klockner v Cameroon, Decision on Annulment, 3 May 1985, paras 80, 116, 151, 179.
3S8 Compania de Aguas del Aconquija, SA & Vivendi Universal v Argentina, Decision on Annulment,
3 July 2002, para 66. Footnote omitted. See also at paras 63, 86.
304 Settling Investment Disputes

failure to state reasons. Parties requesting annulment have almost invariably-

claimed the presence of more than one of these defects justifying annulment.389

i. Excess of powers
An excess of powers occurs where the tribunal deviates from the parties’ agreement
to arbitrate. This would be the case if a tribunal makes a decision on the merits
although it does not have jurisdiction or if it exceeds its jurisdiction. Jurisdiction is
determined by Article 25 of the Convention. The requirements listed there must be
met; otherwise there is no jurisdiction. This would be the case if there is no legal
dispute arising directly out of an investment. Similarly, if the nationality require­
ments under the ICSID Convention are not met, there is no jurisdiction and a
decision on the merits would be an excess of powers. Absence of valid consent to
arbitration would also mean that there is no jurisdiction and an award on the merits
would be an excess of powers.
A i excess of powers must be manifest in order to constitute a ground for
annulment. Manifest means that the excess of powers must be obvious.390
In Mitchell v Congo the request for annulment argued that the Tribunal had
committed a manifest excess of powers by assuming jurisdiction although the
dispute had not arisen from an investment. The ad hoc Committee held that a
contribution to the host state’s economic development was an indispensable
element of the concept of an investment under the ICSID Convention. The ad
hoc Committee found that there was no indication that the claimant’s business— a
legal counselling firm— had made such a contribution. It followed for the ad hoc
Committee that there was no investment in the sense of Article 25 of the ICSID
Convention and that the Tribunal had consequently committed a manifest excess
of powers by assuming jurisdiction.391
Failure to exercise an existing jurisdiction also constitutes an excess of powers. In
Vivendi392 die ad hoc Committee said:

389 Klockner v Cameroon, Decision on Annulm ent, 3 May 1985, para 166; Amco v Indonesia,
Decision on Annulm ent, 16 May 1986, paras 4, 84; M IN E v Guinea, Decision on Annulment,
22 December 1989, para 6.97; CD C v Seychelles, Decision on Annulm ent, 29 June 2005, para 38;
Rumeli v I-Camkhstan, Decision on Annulment, 25 March 2010, para 3; Heinan v Egypt, Decision on
Annulm ent, 14 June 2010, para 8; Sempra v Argentina, Decision on Annulm ent, 29 June 2010, para
43; Compama de Aguas del Aconquija, SA & Vivendi Universal v Argentina, Decision on Annulment,
10 August 2010, paras 2, 17.
390 Kiijckng·)· y Cameroon, Decision on Annulm ent, 3 M ay 1985, 2 ICSID Reports 95, at paras 17,
52(e); Wena v Egypt, Decision on Annulm ent, 5 February 2002, 6 ICSID Reports 129, at para 25;
CDC v Seychelles, Decision on Annulm ent, 29 June 2005, paras 41, 42; M itchell v Congo, Decision on
Annulm ent. 1 November 2006, para 20; Repsol v Petroecuador, Decision on Annulm ent, 8 January
2007, para 36; Soufi-aki v UAE, Decision on Annulm ent, 5 June 2007, para 40; Azurix v Argentina,
Decision on Annulment, 1 September 2009, paras 63-70; Sempra v Argentina, Decision on Annul­
m ent, 29 June 2010, paras 211-19; Fraport v Philippines, Decision on Annulment, 23 December
2010, paras 39-45, 112.
391 Mitchell v Congo, Decision on Annulment, 1 November 2006, paras 23-48.
392 Compama de Aguas del Aconquija, SA & Vivendi Universal v Argentina, Decision on Annulm ent,
3 July 2002.
 Investor v state disputes 305
It is serried, and. neither party disputes, that an IC SID tribunal com m its an excess o f powers
n o t only if it exercises a jurisdiction w hich it does not h a v e . , , b u t also if it fails to exercise a
jurisdiction w hich it possesses.. .393

The Tribunal had not decided certain claims that were before it but had referred the
claimants to the domestic courts. The ad hoc Committee found that the Tribunal
had thereby committed an excess of powers:
In the C om m ittee’s view, it is not open to an IC SID tribunal having-jurisdiction under a
B IT in respect o f a claim based upon a substantive provision o f th a t BIT, to dismiss
the claim on the ground that it could or should have been dealt w ith by a national
c o u r t.. . . [T]he C om m ittee concludes that the Tribunal exceeded its powers in the sense
o f Article 52 (l)(b ), in th at the T ribunal, having jurisdiction over the T u cu m an claims, failed
to decide those claims.394

Article 52(1) of the ICSID Convention does not, in express terms, provide for
annulment for failure to apply the proper law. But the provisions on applicable law
are an essential element of the parties’ agreement to arbitrate. Therefore, the
application of a law other than that agreed to by the parries may constitute an
excess of powers and can be a valid ground for annulment. O n the other hand, an
error in the application of the proper law, even if it leads to an incorrect decision,
is not a ground for annulment. Ad hoc committees, although recognizing this
distinction in principle, have grappled with the dividing line between non-applica-
tion and erroneous application of the proper law.395
In Wena v Eg)pt, the proper law was host state law and applicable rules of
international law. In the annulment proceedings Egypt argued that the Tribunal,
by awarding interest at the rate of nine per cent, compounded quarterly, had failed
to apply the proper law since such a calculation of interest was contrary to Egyptian
law. The ad hoc Committee rejected this argument. It found that under the BIT
compensation had to amount to the market value of the investment expropriated.
This had to be read as including a determination of appropriate interest. The ad hoc
Committee said:
53. T h e option the T ribunal took was in the view of this C om m ittee w ithin the T ribunal's
power. International law and IC SID practice, unlike the Egyptian Civil Code, offer a variety

393 At para 86.

394 At paras 102, 115.
3ib Kloekner v Cameroon, Decision on Annulm ent, 3 May 1985, paras 59-61; Amco v Indonesia,
Decision on Annulm ent. 16 May 1986, paras 21-8; M IN E v Guinea, Decision on Annulm ent,
22 December 1989, paras 5.02-—5.04; Wena v Egypt, Decision on Annulm ent, 5 February 2002,
paras 26-53; CD C v Seychelles, Decision on Annulm ent, 29 June 2005, para 46; Mitchell v Congo,
Decision on Annulm ent, 1 November 2006, paras 55-7; M T D v Chile, Decision on Annulment, 21
M arch 2007, paras 44-8, 58-77; Soufraki v UAE, Decision on Annulm ent, 5 June 2007, paras 8 5 -
102; C M S v Argentina, Decision on Annulm ent, 25 September 2007, paras 128-36; Azurix v
Argentina, Decision on Annulm ent, 1 September 2009, paras 46-8, 1.31-77, 314-29; Sempra v
Argentina, Decision on Annulm ent, 29 June 2010, paras 186-210; Enron v Argentina, Decision on
Annulm ent, 30 July 2010, paras 218-20, 377-405; Duke Energy Inti v Peru, Decision on Annulm ent,
1 M arch 2011, para 212.
306 Settling Investment Disputes

of alternatives that are com patible w ith those objectives. These alternatives include the
com pounding of interest in some cases.396

ii. Serious departure from a fundamental rule of procedure

Under the ICSID Convention, a violation of a rule of procedure is a ground for
annulment only if the departure from the rule was serious and the rule concerned is
fundamental. The seriousness of the departure requires that it is more than minimal
and that it must have had a material effect on a party. A minor and inconsequential
breach of a rule of procedure is no ground for annulment. A rule is fundamental
only if it affects the fairness of the proceedings.397
An example for a fundamental rule of procedure is the right to be heard.398 In
several cases involving the charge of a violation of the right to be heard, a party
complained that the award was based on a theory that had not been discussed by
the parties before the tribunal. Ad hoc committees have rejected the idea diat
tribunals, in drafting their awards, are restricted to die arguments presented to them
by the parties.399 In Klockner v Cameroon the ad hoc Committee said:
arbitrators must be free to rely on argum ents w hich strike them as the best ones, even if
those arguments were n o t developed by the parties (although they could have been). Even if
it is generally desirable for arbitrators to avoid basing their decision on an argum ent that has
n o t been discussed by the parties, it obviously does not follow that they therefore com m it a
‘serious departure from a fundam ental rule o f procedure.’400

O ther instances of invocations of fundamental rules of procedure concerned

impartiality and equal treatment of the parties401 and issues of evidence.402
A party that is aware of a violation of a rule of procedure by the tribunal must
react immediately by stating its objection and by demanding compliance. Under
Arbitration Rule 27 failure to do so will be interpreted as a waiver to object at a later
stage. If a party has failed to protest against a perceived procedural irregularity
before the tribunal, it cannot subsequently claim in annulment proceedings

396 Wena v Egypt, Decision on Annulment, 5 February 2002, para 53. Footnote omitted.
397 Klockner v Cameroon, Decision on Annulment, 3 May 1985, paras 82bis—113; M IN E v Guinea,
Decision on Annulment, 22 December 1989. paras 5.05—5.06; Wena v Egypt, Decision on Annul­
m ent, 5 February 2002, paras 56-8; CDC v Seychelles, Decision on Annulm ent, 29 June 2005, paras
48, 49; Azurix v Argentina, Decision on Annulm ent, 1 September 2009, paras 4 9 -5 2 , 234; Enron v
Argentina. Decision on Annulm ent, 30 July 2010, paras 70, 71.
398 M IN E v Guinea, Decision on Annulm ent, 22 December 1989, para 5.06; Amco v Indonesia,
Resubm itted Case: Decision on Annulment, 3 December 1992, paras 9.05—9.10; Wena v Egypt,
Decision on Annulment, 5 February 2002, para 57; Lucchetti v Pent (sub nom Industria Nacional de
Alimentos), Decision on Annulment, 5 September 2007, para 122; Helnan v jEgypt, Decision on
Annulm ent, 14 June 2010, para 38; Fraport v Philippines, Decision on Annulm ent, 23 December
2010, paras 127-33, 144-247.
399 Wena v Egypt, Decision on Annulment, 5 February 2002, paras 66-70; Compania de Aguas del
Aconquija, 5,4 & Vivendi Universal v Argentina, Decision on Annulment, 3 July 2002, paras 82-5.
400 Klockner v Cameroon, Decision on Annulment, 3 May 1985, para 91.
401 Klockner, n 400, paras 93—113; Amco v Indonesia, Decision on Annulment, 16 May 1986, paras
30, 32, 36, 88, 122-3; CDC v Seychelles, Decision on Annulment, 29 June 2005, paras 51-5.
402 Azurix v Argentina, Decision on Annulment, 1 September 2009, paras 207-39.
 Investor v state disputes 307

that this irregularity constituted a serious departure from a fundamental rule of

procedure.403

iii. Failure to state reasons

The purpose o f a statement of reasons is to explain to the reader of the award,
especially to the parties, how and why the tribunal reached its decision. Article
48(3) of the ICSID Convention contains a clear obligation to state reasons for the
award. Therefore, a total absence of reasons is extremely unlikely, but requests
for annulment have repeatedly alleged the absence of reasons on particular points.
In addition, complaints have been directed at insufficient and inadequate reasons,
contradictory reasons, or a failure to deal with every question before the tribunal.
If reasons on a particular point are missing, an ad hoc committee may recon­
struct the omitted reasons. Therefore, an award will not be annulled if the reasons
for a decision, though not stated explicitly, are readily apparent to the ad hoc
committee. Implicit reasoning is sufficient as long as it can be inferred reasonably
from the terms and conclusions of the award.404
Insufficiency and inadequacy of reasons have been invoked repeatedly. This is a
particularly subjective criterion and ad hoc committees have stated that reasons had
to be ‘sufficiendy relevant’, ‘appropriate’, and ‘to allow the parties to understand the
Tribunal’s decision’.405 The ad hoc Committee in Vivendi said in this respect:
annulm ent under Article 52(1)(e) should only occur in a clear case. This entails two
conditions: first, the failure to state reasons m ust leave the decision on a particular p o in t
essentially lacking in any expressed rationale; and second, that p oint m ust itself be necessary
to the tribunal’s decision.406

403 Kldckner v Cameroon, Decision on Annulment, 3 May 1985, para 88; CDC v Seychelles,
Decision on Annulm ent, 29 June 2005, paras 51-3; Fraport v Philippines, Decision on Annulm ent,
23 December 2010, paras 204—8, 233-4.
404 Amco v Indonesia, Decision on Annulment, 16 May 1986, para 58; M IN E v Guinea, Decision
on Annulm ent, 22 December 1989, paras 6.103-6.104; Wena v Egypt, Decision on A nnulm ent,
5 February 2002, paras 81-3, 93, 98, 106; Compama de Aguas del Aconquija, SA & Vivendi Universal v
Argentina, Decision on Annulment, 3 July 2002, paras 87—91; C D C v Seychelles, Decision on
Annulment, 29 June 2005, paras 81, 87; Soufraki v UAE, Decision on Annulm ent, 5 June 2007,
para 24; CM S v Argentina, Decision on Annulment, 25 September 2007, paras 125-7; Rumeli v
Kazakhstan, Decision on Annulment, 25 M arch 2010, paras 83, 138; Compama de Aguas del
Aconquija, SA & Vivendi Universal v Argentina, Decision on Annulm ent, 10 August 2010, para 248;
Fraport v Philippines, Decision on Annulment, 23 December 2010, paras 264-6. But see an earlier
decision to the contrary: Kldckner v Cameroon, Decision on Annulm ent, 3 May 1985, para 144.
405 Kldckner v Cameroon, Decision on Annulment, 3 May 1985, paras 117-20; Amco v Indonesia,
Decision on Annulm ent, 16 May 1986, paras 38-43; M IN E v Guinea, Decision on A nnulm ent,
22 December 1989, paras 5.08-5.09; Wena v Egypt, Decision on Annulm ent, 5 February 2002, paras
75-83; C D C v Seychelles, Decision on Annulment, 29 June 2005, paras 66—71, 75; Mitchell v Congo,
Decision on Annulm ent, 1 November 2006, paras 21, 39-41, 46, 65; Soufraki v UAE, Decision on
Annulment, 5 June 2007, paras 121-34; Lucchetti v Peru {sub nom Industria National de Alimentos),
Decision on A nnulm ent, 5 September 2007, paras 126-30; CM S v Argentina, Decision on A nnul­
ment, 25 September 2007, paras 86-98, 125-7; Fraport v Philippines, Decision on Annulm ent,
23 December 2010, paras 248-80.
4ϋή Compama de Aguas del Aconquija, SA & Vivendi Universal v Argentina, Decision on A nnulm ent,
3 July 2002, para 65.
308 Settling Investment Disputes

It is also accepted that contradictor/ reasons may amount to a failure to state

reasons since they will not enable the reader to understand the tribunal’s motives.
Genuinely contradictory reasons would cancel each other out.407
The tribunal’s obligation to deal with eveiy question submitted to it is contained
in Article 48(3) of the ICSID Convention. Failure to deal with every question is not
listed as a separate ground for annulment but ad hoc committees have found that it
is covered by failure to state reasons.408 But this obligation does not mean that the
tribunal has to address every single argument put forward by a party; only a crucial
or decisive argument would be a ‘question' in this context. An argument is decisive
if its acceptance would have affected the tribunal’s decision.
A decision by an ad hoc committee upholding a request for annulment for any of
the grounds listed in Article 52(1) invalidates the original award, but it does not
replace it with a new decision on the merits. Under Article 52(6) of the ICSID
Convention, if the awrard is annulled, the dispute is to be submitted to a new
tribunal at the request of either party. If the award is partially annulled, only the
annulled portion of the award falls to be re-litigated while the unannulled part
remains res judicata.409
Any determinations of fact and law made by the ad hoc committee are not
binding on the tribunal hearing the resubmitted case. Only the annulment of the
awrard but not the reasoning accompanying it is binding.410 In addition, in die
resubmitted case the parties may not introduce new claims that they did not present
to the first tribunal.411

cc. Supplementation a,nd rectification under the ICSID Convention

Under Article 49(2) of the ICSID Convention, the tribunal may upon the request
of a party decide any question it had omitted to decide in the award and shall rectify
technical errors in the award.412 This gives the tribunal the possibility of correcting

40/ Kloekner v Cameroon, Decision on Annulment. 3 May 1985, para 116; Amco v Indonesia,
Decision on Annulment, 16 May 1986, para 97; M IN E v Guinea, Decision on Annulment,
22 December 1989. para 6.105; Compama de Aguas del Aconquija, SA & Vivendi Universal v Argentina,
Decision on Annulment, 3 July 2002, paras 64, 65, 72; CDC v Seychelles, Decision on Annulment,
29 June 2005, paras 77—86; A zurix v Argentina, Decision on Annulment, 1 September 2009, paras
364—6; Duke Energy Inti v Peru, Decision on Annulment, 1 March 2011, para 166.
40S Kloekner v Cameroon, Decision on Annulm ent, 3 May 1985, para 115; Amco v Indonesia,
Decision on Annulm ent, 16 May 1986, para 32; M IN E v Guinea, Decision on Annulment,
22 December 1989, para 5.13; Wena v Egypt, Decision on Annulment, 5 February 2002, paras
102-10; Azurix v Argentina, Decision on Annulm ent, 1 September 2009, paras 240-6; M C I v
Ecuador, Decision on Annulm ent, 19 October 2009, paras 66-9; Rumeli v Kazakhstan, Decision on
Annulm ent, 25 March 2010, para 84.
'l09 Arbitration Rule 55(3). Amco v Indonesia, Resubmitted Case; Decision on Jurisdiction, 10 May
1988, 1 ICSID Reports 543, at 545—61; Compama de Aguas del Aconquija, SA & Vivendi Universal SA
v Argentina, Resubmitted Case: Decision on Jurisdiction, 14 November 2005, paras 30—1.
410 Amco v Indonesia, Resubmitted Case: Decision on Jurisdiction, 10 May 1988, 1 ICSID Reports
543, at 552.
4l! Amco, n 410, at 560-1, 566-7.
41- Arbitration Rule 49.
 Investor v state disputes 309

inadvertent omissions and minor technical errors. This remedy is not designed
for substantive amendments of the award. The request has to be made within
45 days.

dd. Interpretation under the ICSID Convention

In die case of a dispute between the parties concerning the meaning or scope of an
award, either party may request an interpretation under Article 50 of the ICSID
Convention/113 There is no time limit for such a request. If possible, the original
tribunal is to decide upon the request and, if this is not possible, a new tribunal will
be constituted for the purpose. Once the interpretation has been given, the award
will be binding as interpreted.
The purpose of an interpretation is to clarify points that were decided in the
award and not to decide new points.41"1 In addition, the dispute on the award’s
interpretation must have some practical relevance to the award’s implementa­
tion.415 The Tribunal in Λ ΤΑ v Jordan summarized the function o f a decision on
interpretation as follows;
(1) there must be a dispute between the parties over ‘the meaning or scope’ of the award;
(2) the purpose of the application must be to obtain a true interpretation of the award, rather
than to reopen the matter; and
(3) rhe requested interpretation ‘must have some practical relevance to the Award’s imple­
mentation’.416

ee. Revision under the ICSID Convention

If decisive new facts come to light after the award has been rendered, a party may, in
accordance with Article 51 of the ICSID Convention, request the award’s revi­
sion."117 The new facts must have been unknown to the applicant at the time the
award was rendered.418 A request for revision must be made within 90 days of
discovery of the new facts and within three years of the award being rendered. If
possible, the original tribunal is to decide upon the request. If this is not possible, a
new tribunal will be constituted for this purpose.
The new facts must be capable of affecting the award decisively, that is, they
would have led to a different decision had they been known to the tribunal. The
request for revision must come from one of the parties. The tribunal may not revise
the award on its own initiative. The award will be binding as revised.

413 Arbitration Rules 50 and 51.

^14 Wena v Egypt, Decision on Interpretation. 31 October 2005 , paras 103 - 7 , 127 - 31 , 133 , 138 .
415 Wena v Egypt, n 414 , paras 81 . 87 .
4,6 A T A v Jordan, Decision on Interpretation, 7 March 201.1, para 35 .
41' Arbitration Rules 50 and 51 .
418 R S M v Grenada, Award, 10 December 2010 , paras 7 . 1. 15- 7 . 1 .3 0 .
310 Settling Investment Disputes

(o) Enforcement of awards

Arbitral awards are binding upon the parties and create an obligation to comply
with them. Except for the limited possibilities for review described in the preceding
chapter, they are final. Article 53 of the ICSID Convention specifically provides for
the finality of awards. The issues decided in awards are also resjudicata. This means
that the parties may not seek another remedy before another tribunal or in a
domestic court.
The enforcement of non-ICSID awards, including Additional Facility awards, is
subject to the national law of the place of enforcement and to the New York
Convention on the Recognition and Enforcement of Foreign Arbitral Awards.419
Article V of that Convention lists a number of grounds on which recognition and
enforcement may be refused. The most important of these grounds are the invalid­
ity of die arbitration agreement, lack of proper notice of the arbitration proceed­
ings, a decision in die award outside the submission to arbitration, improper
composition of the tribunal, an award that is not yet binding or has been set
aside, a subject matter not capable of settlement by arbitration under die law of the
state in which enforcement is sought, and an award that is in conflict with the
public policy of that state.
The regime for the enforcement of ICSID awards is different. Under Article 54
of the ICSID Convention awards are to be recognized as binding and dieir
pecuniary obligations are to be enforced in the same way as final domestic
judgments in all states parties to the Convention. The obligation to recognize an
award extends to any type of obligation under it. By contrast, die obligation to
enforce is limited to pecuniary obligations under the award.
Recognition and enforcement may be sought not only in the host state or in the
investor’s state of nationality, but in any state that is a party to the ICSID
Convention. The prevailing party may select a state where enforcement seems
most promising. This choice is likely to be determined by the availability of suitable
assets.
The procedure for die enforcement of ICSID awards is governed by the law on
the execution of judgments in each country. Contracting states are to designate a
competent court or authority for this purpose .420
The party seeking recognition and enforcement must furnish a copy of the award
certified by the Secretary-General of ICSID. If a stay of enforcement is in force, the
duty to enforce is suspended. A stay of enforcement may be granted while
proceedings for the interpretation, revision, or annulment are in progress.
There is no review of ICSID awards by domestic courts in the course of
proceedings for recognition and enforcement. Therefore, the domestic court or
authority may not examine whether the ICSID tribunal had jurisdiction, whether it

419 330 UNTS 38; 7 ILM 1046 (1968).

**20 See Designations of Courts or O ther Authorities Com petent for the Recognition and Enforce­
m ent of Awards Rendered Pursuant to the Convention at <http://www.worldbank.org/icsid/pubs/
icsid-8/icsid-8-e.htm>.
 Investor v state disputes 311

adhered to the proper procedure, or whether the award is substantively correct. It

may not even examine whether the award is in conformity with the forum state’s
ordrepublic (public policy). The domestic court or authority is limited to verifying
that the award is authentic.
Proceedings for the recognition and enforcement of ICSID awards may be
initiated in several states simultaneously. This may be necessary to secure their res
judicata effect. If enforcement is sought in more than one state, appropriate steps
must be taken to prevent double or multiple recovery.
Under Article 55 of the ICSID Convention, the obligation to enforce pecuniaiy
obligations arising from ICSID awards does not affect any immunity from execu­
tion that states enjoy. State immunity is regulated by customary international law.
A number of states have passed legislation in this field.421 A United Nations
Convention dealing with state immunity is not yet in force.422
For purposes of state immunity from execution, a distinction is usually made
between commercial and non-commercial property. Execution is permitted against
commercial property but not against property serving official or governmental
functions. The exact dividing line between the two types of property is not always
easy to draw .423 In particular, there is some uncertainty as to whether a public
purpose of the property is the only decisive criterion for immunity from execution.
Diplomatic property, including embassy accounts424 as well as accounts held by
national central banks,425 enjoys special protection from execution. A waiver of
immunity from execution may be possible but will be difficult to obtain from a host
state. Occasionally, domestic rules on state immunity from execution actually place
limits on the possibility of agreeing on waivers.
Some national rules on immunity from execution display special features. The
US Foreign Sovereign Immunities Act of 1976 (FSIA) provides for an exception to
state immunity from execution in respect of a foreign state’s property in the United
States used for commercial activity- in the United States only if that property is or
was used for the commercial activity upon which the claim is based.426 Another
exception to immunity from execution under the same Act concerns commercial
property which was taken in violation of international law or which was exchanged

421 U nited States: Foreign Sovereign Immunities Act (FSIA) 1976, 28 USC §§ 1330, 1602-11, 15
ILM 1388 (1976), as amended in 1988, 28 ILM 396 (1989) and in 1996/7,'36 ILM 759 (1997);
U nited Kingdom; State Im m unity Act (SLA.) 1978, 17 ILM 1123 (1978); Australia: Foreign States
Immunities Act 1985, 25 ILM 715 (1986).
422 U nited N ations Convention on Jurisdictional Immunities of States and their Property, 2004,
Adopted by the General Assembly of the U nited Nations on 2 December 2004. See GA Res 59/38,
annex, Official Records of the General Assembly, 59th Session, Supplement N o 49 (A/59/49).
423 LETC O v Liberia, D istrict Court, SDNY, 5 September and 12 December 1986; Benvenuti &
Bonfant v Congo, Tribunal de grande instance, Paris, 13 January 1981, Cour d ’appel, Paris, 26 June
1981; SO A B I v Senegal, Cour d’appel, Paris, 5 December 1989, Cour de cassation, 11 June 1991.
424 L E TC O v Liberia, US District Court for die District of Columbia, 16 April 1987.
42:> A IG Capital Partners Inc and another v Republic o f Kazakhstan (National Bank o f Kazakhstan
Intervening), High Court, Q ueen’s Bench Division (Commercial Court), 20 October 2005 [2005]
E W H C 2239 (Comm), 11 ICSID Reports 118.
426 FSIA, 28 U S C § 1610(a)(2).
312 Settling Investment Disputes

for such property ,427 Also under the FSLA_3 there is a special exception to state
immunity from execution for die purposes of executing arbitral awards.428
State immunity from execution is merely a procedural bar to the award’s
enforcement but does not affect the obligation of the state to comply with it.
Therefore, successful reliance on state immunity does not alter the fact that non-
compliance with an award is a breach of the ICSID Convention. The ad hoc
Committee in M IN E v Guinea noted in this respect that:
It should be clearly u n d ersto o d . . . that State im m unity may well afford a legal defense to
forcible execurion, b u t it provides neither argum ent nor excuse for failing to comply with an
award. In fact, the issue o f State im m unity from forcible execution o f an award will typically
arise if the State part}- refuses to comply w ith its treaty obligations. Non-com pliance by a
State constitutes a violation by that State o f its international obligations and will attract its
own sanctions .429

Under Article 27 of the ICSID Convention the right of diplomatic protection will
revive in the event of non-compliance with the award. Therefore, diplomatic
protection is an alternative and supplement to the judicial enforcement of awards
under Article 54. In particular, diplomatic protection will be available if enforce­
ment is unsuccessful because of the award debtor state’s immunity from execution.
But diplomatic protection may be exercised only by the aggrieved investor’s state of
nationality.

27 FSIA, 28 USC § 1610(a)(3).

28 FSIA. 28 USC § 1610(a)(6).
29 M IN E v Guinea, Inrerim Order N o 1 on G uinea’s Application for Stay of Enforcement of die
Award, 12 August 1988. para 25.
 ANNEXES

Convention on the Settlement of Investment Disputes

Between States and Nationals of Other States
(ICSID Convention)

Preamble

The Contracting States

C o n sid erin g the need for international cooperation for econom ic developm ent, and the
role o f private international investm ent therein;
B earing in m ind the possibility that from rime to tim e disputes m ay arise in connection
w idi such investm ent between C ontracting States and nationals o f other C ontracting States;
R ecognizing that while such disputes w ould usually be subject to national legal processes,
international m ethods o f settlem ent m ay be appropriate in certain cases;
A ttac h in g particular im portance to the availability o f facilities for international concili­
ation or arbitration to which C ontracting States and nationals o f other C ontracting States
m ay subm it such disputes if they so desire;
D esirin g to establish such facilities under the auspices o f the International Bank for
R econstruction and Developm ent;
R ecognizing that m utual consent by the parties to subm it such disputes to conciliation or
to arbitration through such facilities constitutes a binding agreem ent w hich requires in
particular that due consideration be given to any recom m endation o f conciliators, and that
ail}' arbitral award be com plied with; and
D eclaring th at no C ontracting State shall by the m ere fact o f its ratification, acceptance
or approval o f this C onvention and w ithout its consent be deem ed to be under any
obligation to subm it any particular dispute to conciliation or arbitration,
H ave agreed as follows:

Chapter I International Centre for Settlem ent o f Investm ent D isputes

Section 1
E stablishm ent and O rganization
Article 1
(1) T here is hereby established the International Centre for Settlem ent o f Investm ent
D isputes (hereinafter called the Centre).
(2 ) T h e purpose o f the C entre shall be to provide facilities for conciliation and arbitration
o f investm ent disputes between C ontracting States and nationals o f other C ontracting
States in accordance w ith the provisions o f this C onvention.
314 Annexes

A rticle 2
T he seat o f the Centre shall be at the principal office o f the International Bank for
R econstruction and Developm ent (hereinafter called the Bank). T h e seat m ay be moved
to another place by decision o f the A dm inistrative Council adopted by a m ajority o f two-
thirds o f its members.

A rticle 3
T he C entre shall have an Adm inistrative Council and a Secretariat and shall m aintain a
Panel o f Conciliators and a Panel o f Arbitrators.

Section 2
T h e A dm inistrative C ouncil
A rticle 4
(1) T he A dm inistrative Council shall be com posed o f one representative o f each C ontract­
ing State. An alternate m ay act as representative in case o f his principal’s absence from a
m eeting or inability to act.
(2) In the absence o f a contrary designation, each governor and alternate governor o f the
Bank appointed by a C ontracting State shall be ex officio its representative and its
alternate respectively.

A rticle 5
T h e President o f the Bank shall be ex officio C hairm an o f the Adm inistrative Council
(hereinafter called the Chairm an) b u t shall have no vote. D uring his absence or inability
to act and during any vacancy in the office o f President o f the Bank, the person for the time
being acting as President shall act as C hairm an o f the Adm inistrative Council.

A rticle 6
( 1 ) W ith o u t prejudice to the powers and functions vested in it by other provisions o f this
C onvention, the Adm inistrative Council shall:
(a) adopt the administrative and financial regulations o f the Centre;
(b) adopt the rules o f procedure for the institution o f conciliation and arbitration
proceedings;
(c) adopt the rules o f procedure for conciliation and arbitration proceedings (herein­
after called the Conciliation Rules and the A rbitration Rules);
(d) approve arrangements w ith the Bank for the use o f the Bank’s administrative
facilities and services;
(e) determ ine the conditions o f service o f the Secretary-General and o f any D eputy
Secretary-General;
(f) adopt the annual budget o f revenues and expenditures o f the Centre;
(g) approve the annual report on the operation o f the Centre.
T he decisions referred to in sub-paragraphs (a), (b), (c) and (f) above shall be adopted by a
majority" o f two-thirds o f the m em bers o f the Adm inistrative Council.
(2) T he Administrative C ouncil may appoint such com m ittees as it considers necessary.
(3) T he Adm inistrative Council shall also exercise such other powers and perform such
other functions as it shall determ ine to be necessary' for the im plem entation o f the
provisions o f this Convention.
 ICSID Convention 315
A rticle 7
(1) T he A dm inistrative Council shall hold an annual m eeting and such other m eetings as
m ay be determ ined by the Council, or convened by the C hairm an, or convened by the
Secretary-General at the request o f n o t less than five m em bers o f the Council.
(2 ) Each m em ber o f the Adm inistrative Council shall have one vote and, except as
otherwise herein provided, all m atters before the C ouncil shall be decided by a m ajority
o f the votes cast.
(3) A quorum for any m eeting o f die Administrative Council shall be a majority o f its members.
(4) T he Adm inistrative Council may establish, by a m ajority o f two-thirds o f its m em bers, a
procedure whereby the C hairm an may seek a vote o f the C ouncil w ithout convening a
m eeting o f the Council. T he vote shall be considered valid only if the m ajority o f die
m em bers o f the C ouncil cast their votes w ithin the tim e lim it fixed by the said procedure.

A rticle 8
M em bers o f the Adm inistrative Council and the C hairm an shall serve w ith o u t rem uner­
ation from the Centre.

Section 3
The Secretariat
A rticle 9
T h e Secretariat shall consist o f a Secretary-General, one or more D eputy Secretaries-General
and staff.

Article 10
( 1 ) T h e Secretary-General and any D eputy Secretary-General shall be elected by the
Adm inistrative C ouncil by a m ajority o f tw o-thirds o f its m em bers up o n the n o m in ­
ation o f the C hairm an for a term o f service n o t exceeding six years and shall be eligible
for re-election. After consulting the m em bers o f the Adm inistrative C ouncil, the
Chairm an shall propose one or m ore candidates for each such office.
(2 ) T h e offices o f Secretary-General and D eputy Secretary-General shall be incom patible
w ith the exercise o f any political function. N either the Secretary-General nor any
D eputy Secretary-General m ay hold any other em ploym ent or engage in any other
occupation except w ith the approval o f the Adm inistrative Council.
(3) D u rin g the Secretary-General’s absence or inability to act, and during any vacancy o f
the office o f Secretary-General, the D ep u ty Secretary-General shall act as Secretary-
General. I f there shall be m ore than one D eputy Secretary-General, the A dm inistrative
Council shall dererm ine in advance the order in w hich they shall act as Secretary-
General.

A rticle 11
T he Secretary-General shall be the legal representative and the principal officer o f the C entre
and shall be responsible for its adm inistration, including the appointm ent o f staff, in
accordance w ith the provisions o f this C onvention and the rules adopted by the A dm inis­
trative Council. H e shall perform the function o f registrar and shall have the pow er to
authenticate arbitral awards rendered pursuant to this C onvention, and to certify copies
thereof.
316 Annexes

S e c tio n 4
T h e P a n e ls
Article 12
T he Panel o f Conciliators and the Panel o f A rbitrators shall each consist o f qualified persons,
designated as hereinafter provided, who are willing to serve thereon.

Article 13
( 1 ) Each C ontracting State may designate to each Panel four persons w ho may b ut need not
be its nationals.
(2) T he Chairm an may designate ten persons to each Panel. T he persons so designated to a
Panel shall each have a different nationality.

Article 14
( 1 ) Persons designated to serve on the Panels shall be persons o f high moral character and
recognized competence in the fields o f law, com m erce, industry or finance, who may be
relied upon to exercise independent judgm ent. C om petence in the field o f law shall be
o f particular im portance in the case o f persons on the Panel o f Arbitrators.
(2 ) T he Chairm an, in designating persons to serve on the Panels, shall in addition pay due
regard to the im portance o f assuring representation on the Panels o f the principal legal
systems of the world and o f the m ain form s o f econom ic activity.

Article 15
( 1 ) Panel m embers shall serve for renewable periods o f six years.
(2) In case o f death or resignation o f a m em ber o f a Panel, the authority which designated
the m em ber shall have the right to designate another person to serve for the remainder
o f that m em ber’s term.
(3) Panel m embers shall continue in office u n til their successors have been designated.

Article 1 6
(1) A person may serve on both Panels.
(2 ) I f a person shall have been designated to serve on the same Panel by m ore than one
C ontracting State, or by one or m ore C on tractin g States and the Chairm an, he shall be
deem ed to have been designated by the au thority w hich first designated him or, if one
such authority is the State o f w hich he is a national, by that State.
(3) All designations shall be notified to the Secretary-G eneral and shall take effect from the
date on which the notification is received.

S e c tio n 5
F in a n c in g th e C e n tr e
Article 17
If the expenditure o f the C entre cannot be m et o u t o f charges for the use o f its facilities, or
out o f other receipts, the excess shall be bo rn e by C ontracting States w hich are members of
the Bank in proportion to their respective subscriptions to the capital stock o f the Bank, and
by C ontracting States w hich are n o t m em bers o f the Bank in accordance w ith rules adopted
by the Adm inistrative Council.
 ICSID Convention 317
Section 6
Status, Im m unities and Privileges
Article 18
T he C entre shall have full international legal personality, T he legal capacity o f the C entre
shall include the capacity:
(a) to contract;
(b) to acquire and dispose o f movable and im m ovable properly;
(c) to institute legal proceedings.

Article 19
T o enable the C entre to fulfil its functions, it shall enjoy in the territories o f each
C ontracting State the im m unities and privileges set forth in this Section,

Article 20
T he Centre, its property and assets shall enjoy im m unity from all legal process, except w hen
the C entre waives this im m unity.

Article 21
T he C hairm an, the m em bers o f the Adm inistrative C ouncil, persons acting as conciliators
or arbitrators or m em bers o f a C om m ittee appointed pursuant to paragraph (3) o f Article
5 2 , and the officers and employees o f the Secretariat
(a) shall enjoy im m unity from legal process w ith respect to acts perform ed by them in
the exercise o f their functions, except w hen the C entre waives this im m unity;
(b) n o t being local nationals, shall enjoy the same im m unities from im m igration
restrictions, alien registration requirem ents and national service obligations, th e
same facilities as regards exchange restrictions and the same treatm ent in respect
of travelling facilities as are accorded by C ontracting States to the representatives,
officials and employees o f comparable rank o f other C ontracting States.

Article 22
T he provisions o f Article 21 shall apply to persons appearing in proceedings under this
C onvention as parties, agents, counsel, advocates, witnesses or experts; provided, however,
that sub-paragraph (b) thereof shall apply only in connection w ith their travel to and from ,
and their stay at, the place where the proceedings are held.

Article 23
(1) T h e archives o f the C entre shall be inviolable, wherever they m ay be.
(2 ) W ith regard to its official com m unications, the C entre shall be accorded by each
C ontracting State treatm ent not less favourable than that accorded to other in te r­
national organizations.

Article 2 4
(1) T he Centre, its assets, property and incom e, and its operations and transactions
authorized by this C onvention shall be exem pt from all taxation and customs duties.
T he C entre shall also be exem pt from liability for the collection or paym ent o f any taxes
or custom s duties.
(2 ) Except in the case o f local nationals, no tax shall be levied on or in respect o f expense
allowances paid by the Centre to the Chairm an or m em bers o f the A dm inistrative
Council, or on or in respect o f salaries, expense allowances or other em olum ents paid by
the Centre to officials or employees o f the Secretariat.
318 Annexes

(3) N o tax shall be levied on or in respect o f fees or expense allowances received by persons
acting as conciliators, or arbitrators, or m em bers o f a C om m ittee appointed pursuant to
paragraph (3) o f Article 52, in proceedings under this C onvention, if die sole jurisdic­
tional basis for such tax is the location o f the C entre or the place where such proceedings
are conducted or the place where such fees or allowances are paid.

Chapter II Jurisdiction o f the Centre

A rticle 2 5
(1) T he jurisdiction o f the C entre shall extend to any legal dispute arising directly out o f an
investm ent, between a C ontracting State (or any constituent subdivision or agency o f a
Contracting State designated to the C entre by th at State) and a national o f another
Contracting State, which the parties to the dispute consent in w riting to subm it to the
Centre. W hen the parties have given their consent, no party m ay w ithdraw its consent
unilaterally.
(2 ) “National of another C ontracting State” means:
(a) any natural person who had the nationality o f a C ontracting State other than the
State party to the dispute on the date on w hich the parties consented to subm it
such dispute to conciliation or arbitration as well as on the date on wiiich the
request was registered pursuant to paragraph (3) o f Article 28 or paragraph (3) of
Article 36, b u t does n o t include any person w ho on either date also had the
nationality o f the C ontracting State party to the dispute; and
(b) any juridical person w hich h ad the nationality o f a C ontracting State other than the
State party to the dispute on the date on w hich the parties consented to subm it
such dispute to conciliation or arbitration and any juridical person which had the
nationality o f the C ontracting State party to the dispute on that date and which,
because o f foreign control, the parties have agreed should be treated as a national of
another C ontracting State for the purposes o f this Convention.
(3) Consent by a constituent subdivision or agency o f a C ontracting State shall require the
approval o f that State unless that State notifies the C entre th at no such approval is
required.
(4) Any Contracting State may, at the tim e o f ratification, acceptance or approval o f this
Convention or at any tim e thereafter, notify the C entre o f the class or classes o f disputes
which it w ould or w ould n o t consider subm itting to the jurisdiction o f the Centre. The
Secretary-General shall forthw ith transm it such notification to all C ontracting States.
Such notification shall not constitute the consent required by paragraph (1).

A rticle 2 6
Consent o f the parties to arbitration under this C onvention shall, unless otherwise stated, be
deem ed consent to such arbitration to the exclusion o f any other remedy. A Contracting
State may require the exhaustion o f local adm inistrative or judicial remedies as a condition
o f its consent to arbitration under this C onvention.

A rticle 2 7
(1) N o Contracting State shall give diplom atic protection, or bring an international claim,
in respect of a dispute which one o f its nationals and another C ontracting State shall
have consented to subm it or shall have subm itted to arbitration under this Convention,
 ICSID Convention 319

unless such other C ontracting State shall have failed to abide by and com ply w ith the
award rendered in such dispute.
(2) D iplom atic protection, for the purposes o f paragraph (1), shall n o t include informal
diplom atic exchanges for die sole purpose o f facilitating a settlem ent o f the dispute.

Chapter III C onciliation

S e c tio n 1
R e q u e st fo r C o n c ilia tio n
A rticle 2 8
( 1 ) A ny C ontracting State or any national o f a C ontracting State w ishing to institute
conciliation proceedings shall address a request to th at effect in w riting to the Secre­
tary-General who shall send a copy o f the request to the other party.
(2 ) T h e request shall contain inform ation concerning the issues in dispute, the identity o f
the parties and their consent to conciliation in accordance w ith the rules o f procedure
for the institution o f conciliation and arbitration proceedings.
(3) T he Secretary-General shall register the request unless he finds, on the basis o f the
inform ation contained in the request, th at the dispute is m anifestly outside the
jurisdiction o f the C entre. H e shall forthw ith notify the parties o f registration or refusal
to register.

S ectio n 2
C o n s titu tio n o f d ie C o n c ilia tio n C o m m is s io n
A rticle 2 9
( 1 ) T he Conciliation C om m ission (hereinafter called the C om m ission) shall be constituted
as soon as possible after registration o f a request pursuant to Article 28.
(2) (a) T he C om m ission shall consist o f a sole conciliator or any uneven n um ber o f
conciliators appointed as the parties shall agree.
(b) W here the parries do not agree upon the num ber o f conciliators and the m ethod o f
their appointm ent, the Com m ission shall consist o f three conciliators, one concili­
ator appointed by each party and the third, who shall be the president o f the
Com m ission, appointed by agreem ent o f the parties.

A rticle 3 0
If the C om m ission shall n o t have been constituted w ithin 90 days after notice o f registration
o f the request has been dispatched by the Secretary-General in accordance w ith paragraph
(3) o f Article 28, or such other period as the parties may agree, the C hairm an shall, at the
request o f either party and after consult-ing b o th parties as far as possible, appoint die
conciliator or conciliators n o t yet appointed.

A rticle 3 1
(1) Conciliators m ay be appointed from outside the Panel o f Conciliators, except in the
case o f appointm ents by the C hairm an pursuant to Article 30.
(2) Conciliators appointed from outside the Panel of Conciliators shall possess the qualities
stated in paragraph ( 1 ) o f Article 14.
320 Annexes

S ectio n 3
C o n c ilia tio n P ro c eed in g s
Article 32
( 1 ) T he Com m ission shall be the judge o f its own competence.
(2 ) Any objection by a part}- to the dispute that that dispute is not w ithin the jurisdiction o f
the Centre, or for other reasons is not w ithin the com petence o f die Com m ission, shall
. be considered by the Com m ission w hich shall determ ine w hether to deal w ith it as a
preliminary question or to join it to the m erits o f the dispute.

Article 33
Any conciliation proceeding shall be conducted in accordance w ith the provisions o f this
Section and, except as the paities otherwise agree, in accordance w ith the Conciliation Rules
in effect on the date on w hich the parties consented to conciliation. If any question of
procedure arises w hich is not covered by this Section or the Conciliation Rules or any rules
agreed by the parties, the Com m ission shall decide the question.

Article 34
( 1 ) It shall be the duty o f the Commission to clarify the issues in dispute between the parties
and to endeavour to bring about agreement between them upon m utually acceptable
terms. To that end, die Commission may at any stage o f the proceedings and from time to
time recom m end terms o f settlement to the parties. T he parties shall cooperate in good
faith with the Com mission in order to enable the Com m ission to carry out its functions,
and shall give their m ost serious consideration to its recommendations.
(2) I f the parties reach agreement, the C om m ission shall draw up a report noting the issues
in dispute and recording that the parties have reached agreement. If, at any stage o f the
proceedings, it appears to the Com m ission that there is no likelihood o f agreement
between the parties, it shall close the proceedings and shall draw up a report noting the
subm ission o f the dispute and recording the failure o f the parties to reach agreement. If
one party fails to appear or participate in the proceedings, the Com m ission shall close
the proceedings and shall draw up a report noting that party’s failure to appear or
participate.

Article 35
Except as the parties to the dispute shall otherwise agree, neither party to a conciliation
proceeding shall be entitled in any other proceeding, w hether before arbitrators or in a court
o f law or otherwise, to invoke or rely on any views expressed or statem ents or admissions or
offers o f settlem ent m ade by the other party in the conciliation proceedings, or the report or
any recom m endations m ade by the Com mission.

C hapter IV A rbitration

S ectio n 1
R e q u e st fo r A rb itra tio n
Article 3 6
(1) Any C ontracting State or any national o f a C ontracting State wishing to institute
arbitration proceedings shall address a request to that effect in w riting to the Secre­
tary-General who shall send a copy o f the request to the other party.
 ICSID Convention 321
(2) T he request shall contain inform ation concerning m e issues in dispute, the id entity o f
the parties and their consent to arbitration in accordance with th e rules o f procedure for
the institution o f conciliation and arbitration proceedings.
(3) T he Secretary-General shall register the request unless he finds, on the basis o f the
inform ation contained in the request, th at the dispute is manifestly outside the
jurisdiction o f the Centre. H e shall forthw ith notify the parties o f registration or refusal
to register.

Section 2
C onstitu tio n o f th e T ribm ial
Article 3 7
( 1 ) T he Ai'bitral T ribunal (hereinafter called the T ribunal) shall be constituted as soon as
possible after registration of a request pursuant to Article 36.
(2 ) (a) T he T ribunal shall consist o f a sole arbitrator or any uneven num ber o f arbitrators
appointed as the parties shall agree.
(b) W here the parties do not agree upon the num ber o f arbitrators an d the m eth o d o f
their appointm ent, the T ribunal shall consist o f three arbitrators, one arbitrator
appointed by each party and the third, who shall be the president o f the T ribunal,
appointed by agreem ent o f the parties.

Article 38
I f the T ribunal shall not have been constituted w ithin 90 days after notice o f registration o f
the request has been dispatched by the Secretary-General in accordance w ith paragraph (3)
o f Article 36, or such other period as the parties may agree, the C hairm an shall, at the
request o f either party and after consulting both parties as far as possible, appoint the
arbitrator or arbitrators n o t yet appointed. Arbitrators appointed by the C hairm an pursuant
to this Article shall not be nationals o f the C ontracting State party to the dispute or o f the
C ontracting State whose national is a party to the dispute,

Article 3 9
T h e m ajority o f the arbitrators shall be nationals o f States other than the C ontracting State
party to the dispute and the C ontracting State whose national is a party to the dispute;
provided, however, th at the foregoing provisions o f this Article shall not apply if the sole
arbitrator or each individual m em ber o f the T ribunal has been appointed by agreem ent o f
the parties.

Article 40
(1) Arbitrators may be appointed from outside the Panel o f Arbitrators, except in the case of
appointm ents by the C hairm an pursuant to Article 38.
(2) Arbitrators appointed from outside the Panel o f Arbitrators shall possess the qualities
stated in paragraph ( 1 ) o f Article 14.

Section 3
P o w ers a n d F u n c tio n s o f th e T r ib u n a l
Article 41
( 1 ) T he T ribunal shah be the judge o f its own competence.
322 Annexes

(2 ) Any objection by a party to the dispute that that dispute is n o t w ithin the jurisdiction of
the C entre, or for other reasons is n o t w ithin the com petence o f the T ribunal, shall be
considered by the T ribunal which shall determ ine w hether to deal w ith it as a prelim in­
ary question or to join it to the m erits o f the dispute.

A rticle 4 2
( 1 ) T he T ribunal shall decide a dispute in accordance w ith such rules o f law as may be
agreed by the parties. In the absence o f such agreement, the T ribunal shall apply the law
o f the C ontracting State party to the dispute (including its rules on the conflict o f laws)
and such rules o f international law as may be applicable.
(2 ) T he T ribunal may not bring in a Ending o f non liquet on the ground o f silence or
obscurity o f the law.
(3 ) T he provisions o f paragraphs ( 1 ) and (2 ) shall not prejudice the power o f the Tribunal
to decide a dispute ex aequo et bono if the parties so agree.

A n k le 43
Except as the parties otherwise agree, the T ribunal may, if it deems it necessary at any stage
o f the proceedings,
(a) call upon the parties to produce docum ents or other evidence, and
(b) visit the scene connected w ith the dispute, and conduct such inquiries there as it
may deem appropriate.

A rticle 4 4
Any arbitration proceeding shall be conducted in accordance w ith the provisions o f this
Section and, except as the parties otherwise agree, in accordance w ith the A rbitration Rules
in effect on the date on w hich the parties consented to arbitration. If any question of
procedure arises which is n o t covered by this Section or die A rbitration Rules or any rules
agreed by the parties, the T ribunal shall decide the question.

A rticle 4 5
( 1 ) Failure o f a party to appear or to present his case shall n o t be deem ed an admission of
the other party’s assertions.
(2) I f a party fails to appear or to present his case at any stage o f the proceedings the other
party m ay request the T ribunal to deal w ith the questions subm itted to it and to render
an award. Before rendering an award, the T ribunal shall notify, and grant a period of
grace to, the party failing to appear or to present its case, unless it is satisfied that that
party does not intend to do so.

A rticle 4 6
Except as the parties otherwise agree, the T ribunal shall, if requested by a part)7, determine
any incidental or additional claims or counterclaim s arising directly out o f the subject-matter
of the dispute provided that they are w ithin the scope o f the consent o f the parties and are
otherwise within the jurisdiction o f the Centre.

A rticle 4 7
Except as the parties otherwise agree, the T ribunal may, if it considers that the c irc u m stan c e s
so require, recom mend any provisional measures w hich should be taken to preserve the
respective rights of either part}7.
 ICSID Convention 323
S ectio n 4
T h e A w a rd
A rticle 4 8
( 1 ) T h e T ribunal shall decide questions by a m ajority o f the votes o f all its members.
(2 ) T he award o f the T ribunal shall be in w riting and shall be signed by the m em bers o f the
T ribunal who voted for it.
(3) T he award shall deal w ith every question subm itted to the T ribunal; and shall state the
reasons upon w hich it is based.
(4) Any m em ber o f the T ribunal may attach his individual opinion to the award, w hether
he dissents from the m ajority or not, or a statem ent o f his dissent,
(5) T h e C entre shall not publish the award w ithout the consent o f the parties.

A rticle 4 9
( 1 ) T he Secretary-General shall prom ptly dispatch certified copies o f the award to the
parties. T he award shall be deem ed to have been rendered on the date on w hich the
certified copies were dispatched.
(2 ) T he T ribunal upon the request o f a party m ade w ithin 45 days after the date on w hich
the award was rendered m ay after notice to the other party decide any question which it
had om itted to decide in the award, and shall rectify any clerical, arithm etical or similar
error in the award, Its decision shall become part o f the award and shall be notified to
the parties in the same m anner as the award. T he periods o f tim e provided for under
paragraph (2) o f Article 51 and paragraph (2) o f Article 52 shall run from the date on
which the decision was rendered.

S ectio n 5
I n te rp r e ta tio n , R ev isio n a n d A n n u lm e n t o f d ie A w a rd
A rticle 5 0
(1) I f any dispute shall arise betw een the parties as to the m eaning or scope o f an award,
either party m ay request interpretation o f the award by an application in w riting
addressed to the Secretary-General.
(2) T he request shall, if possible, be subm itted to the T ribunal which rendered the award. If
this shall n o t be possible, a new T ribunal shall be constituted in accordance w ith
Section 2 o f this C hapter. T he T ribunal may, if it considers that the circumstances so
require, stay enforcem ent o f the award pending its decision.

A rticle 51
(1) E ither party m ay request revision o f the award by an application in w riting addressed to
the Secretary-General on the ground o f discovery o f some fact o f such a nature as
decisively to affect the award, provided that w hen the award was rendered th at fact was
unknow n to the T ribunal and to the applicant and that the applicant’s ignorance o f that
fact was n o t due to negligence.
(2 ) T he application shall be m ade w ithin 90 days after the discoveiy o f such fact and in any
event w ithin three years after the date on w hich the award was rendered.
(3) T he request shall, if possible, be subm itted to the T ribunal w hich rendered the award.
If this shall not be possible, a new T ribunal shall be constituted in accordance with
Section 2 o f this Chapter.
324 Annexes

(4) T he T ribunal may. if it considers th at the circumstances so require, stay enforcem ent of
the award pending its decision, If the applicant requests a stay o f enforcem ent o f the
award in his application, enforcem ent shall be stayed provisionally until the T ribunal
rules on such request.

A rticle 5 2
(1) E ither part)· may request annulm ent o f the award by an application in w riting addressed
to the Secretary-General on one or more o f the following grounds:
(a) that the T ribunal was not properly constituted;
(b) that the T ribunal has m anifestly exceeded its powers;
(c) th at there was corruption on the part o f a m em ber o f the T ribunal;
(d) that there has been a serious departure from a fundam ental rule o f procedure; or
(e) that the award has failed to state the reasons on w hich it is based.
(2) T he application shall be m ade w ithin 120 days after the date on which the award was
rendered except that w hen annulm ent is requested on the ground o f corruption such
application shall be made w ithin 1 2 0 days after discovery o f the corruption and in any
event w ithin three years after the date on w hich the award was rendered.
(3) O n receipt o f the request the C hairm an shall forthw ith appoint from the Panel o f
A rbitrators an ad hoc C om m ittee or three persons. N one o f the m em bers of the
C om m ittee shall have been a m em ber o f the T ribunal w hich rendered the award,
shall be o f the same nationality as any such m em ber, shall be a national o f the State
party to the dispute or o f the State whose national is a part }7 to the dispute, shall have
been designated to the Panel o f Arbitrators by either o f those States, or shall have acted
as a conciliator in the same dispute. T he C om m ittee shall have the authority to annul
the award or any part thereof on any o f the grounds set forth in paragraph ( 1 ).
(4) T h e provisions of Articles 41—45, 48, 49, 53 and 54, and o f Chapters VI and V II shall
apply mu-tatis m utandis to proceedings before the C om m ittee.
(5) T he Com m ittee may, if it considers that the circumstances so require, stay enforcement
o f the award pending its decision. I f the applicant requests a stay o f enforcem ent o f the
award in his application, enforcem ent shall be stayed provisionally until the C om m ittee
rules on such request.
(6 ) I f the award is annulled the dispute shall, at the requesr o f either party, be subm itted to
a new T ribunal constituted in accordance w ith Section 2 o f this Chapter,

Section 6
R ecognition and E nforcem ent o f th e A w ard
A rticle 5 3
(1) T he award shall be binding on the parties and shall not be subject to any appeal or to
any other remedy except those provided for in this C onvention. Each party shall abide
by and comply with the term s o f the award except to the extent th at enforcem ent shall
have been stayed pursuant to the relevant provisions o f this C onvention.
(2) For the purposes o f this Section, “award” shall include any decision interpreting,
revising or annulling such award pursuant to Articles 50, 51 or 52.

A rticle 5 4
(1) Each C ontracting State shall recognize an award rendered pursuant to this Convention
as binding and enforce the pecuniar }7 obligations im posed by that award w ithin its
territories as if it were a final judgm ent o f a court in that State. A C ontracting State with
 ICSID Convention 325
a federal constitution may enforce such an award in or through its federal courts an d
m ay provide that such courts shall treat the award as if it were a final judgm ent o f the
courts o f a constituent state.
(2 ) A parw seeking recognition or enforcem ent in the territories o f a C ontracting State shall
furnish to a com petent court or other authority which such State shall have designated
for this purpose a copy o f the award certified by the Secretary-General, Each C o n trac t­
ing State shall notify the Secretary-General o f the designation o f the com petent court or
other authority for this purpose and o f any subsequent change in such designation.
(3) Execution o f the award shall be governed by the laws concerning the execution o f
judgm ents in force in the State in whose territories such execution is sought.

Article 55
N o th in g in Article 54 shall be construed as derogating from the law in force in any
C ontracting State relating to im m unity o f that State or o f any foreign State from execution.

C hapter V Replacement and Disqualification

o f Conciliators and Arbitrators

Article 5 6
( 1 ) After a C om m ission or a T rib u n al has been constituted and proceedings have begun, its
com position shall rem ain unchanged; provided, however, that if a conciliator or an
arbitrator should die, become incapacitated, or resign, the resulting vacancy shall be
filled in accordance with the provisions o f Section 2 o f C hapter III or Section 2 o f
C hapter IV.
(2 ) A m em ber o f a C om m ission or T ribunal shall continue to serve in that capacity
notw ithstanding that he shall have ceased to be a m em ber o f the Panel.
(3) If a conciliator or arbitrator appointed by a party shall have resigned w ithout the
consent o f the Com m ission or T ribunal of which he was a m em ber, the C hairm an
shall appoint a person from the appropriate Panel to fill the resulting vacancy,

Article 5 7
A party may propose to a Com m ission or T ribunal the disqualification o f any o f its m em bers
on account o f any fact indicating a m anifest lack o f the qualities required by paragraph ( 1 ) o f
Article 14. A party to arbitration proceedings may, in addition, propose the disqualification
o f an arbitrator on the ground that he was ineligible for appointm ent to the T ribunal under
Section 2 o f C hapter IV.

Article 58
T he decision on any proposal to disqualify a conciliator or arbitrator shall be taken by the
other m em bers o f the Com m ission or T ribunal as the case may be, provided that where
those m em bers are equally divided, or in the case o f a proposal to disqualify a sole conciliator
or arbitrator, or a m ajority o f the conciliators or arbitrators, the Chairm an shall take th at
decision. I f it is decided that the proposal is well-founded the conciliator or arbitrator to
w hom the decision relates shall be replaced in accordance with the provisions o f Section 2 o f
C hapter III or Section 2 o f C hapter IV,
326 Annexes

Chapter VI Cost of Proceedings

A rticle 5 9
T he charges payable by the parties for the use o f the facilities o f the C entre shall be
determ ined by the Secretary-General in accordance w ith the regulations adopted by the
Adm inistrative Council.

A rticle 6 0
(1) Each C om m ission and each T ribunal shall determ ine the fees and expenses o f its
mem bers w ithin limits established from tim e to tim e by the A dm inistrative Council
and after consultation w idi the Secretary-General.
(2) N oth in g in paragraph (1) o f this Article shall preclude the parries from agreeing in
advance w ith the Com m ission or T ribunal concerned u p o n the fees and expenses of its
members.

A rticle 61
(1) In the case o f conciliation proceedings the fees and expenses o f m em bers o f the
Com m ission as well as the charges for the use o f the facilities o f the Centre, shall be
borne equally by the parties. Each party shall bear any other expenses it incurs in
connection w ith the proceedings.
(2 ) In the case o f arbitration proceedings the T ribunal shall, except as the parties otherwise
agree, assess the expenses incurred by the parties in connection w ith the proceedings,
and shall decide how and by w hom those expenses, the fees and expenses o f the
mem bers o f the T ribunal and the charges for the use o f the facilities o f the Centre
shall be paid. Such decision shall form part o f the award.

C h ap ter V II Place o f Proceedings

A n k le 62
Conciliation and arbitration proceedings shall be held at the seat o f the C entre except as
hereinafter provided.

A rticle 63
Conciliation and arbitration proceedings may be held, if the parties so agree,
(a) at the seat o f the Perm anent C ourt o f A rbitration or o f any other appropriate
institution, w hether private or public, w ith w hich the C entre m ay make arrange­
m ents for that purpose; or
(b) at any other place approved by the Com m ission or T ribunal after consultation with
the Secretary-General.

C h ap ter V III D isputes betw een C o n tra ctin g States

A rticle 6 4
Any dispute arising between C ontracting States concerning the interpretation or application
of this C onvention which is not settled by negotiation shall be referred to the International
C ourt o f Justice by the application o f any party to such dispute, unless the States concerned
agree to another m ethod o f settlement.
 ICSID Convention 327

C h ap ter IX A m en d m en t

A rticle 6 5
Any C ontracting State m ay propose am endm ent o f this Convention. T he text o f a proposed
am endm ent shall be com m unicated to the Secretary-General n o t less than 90 days prior to
che m eeting o f the Adm inistrative Council at which such am endm ent is to be considered
and shall forthw ith be transm itted by him to all the members o f the Adm inistrative Council.

A rticle 6 6
( 1 ) If the Adm inistrative C ouncil shall so decide by a m ajority o f tw o-thirds o f its m em bers,
the proposed am endm ent shall be circulated to all C ontracting States for ratification,
acceptance or approval. Each am endm ent shall enter into force 30 days after dispatch by
the depositary o f this Convention o f a notification to C ontracting States that all
C ontracting States have ratified, accepted or approved the am endm ent.
(2 ) N o am endm ent shall affect the rights and obligations under this C onvention o f any
C ontracting State or o f any o f its constituent subdivisions or agencies, or o f any national
of such State arising out o f consent to the jurisdiction o f the C entre given before the
date o f entry into force o f the am endm ent.

C h a p te r X F inal Provisions

A rticle 6 7
This C onvention shall be open for signature on behalf o f States m em bers o f the Bank. It
shall also be open for signature on behalf o f any other State w hich is a party to die Statute o f
the International C o u rt o f Justice and which the Adm inistrative C ouncil, by a vote o f two-
thirds o f its m em bers, shall have invited to sign the Convention.
A rticle 6 8
( 1 ) T his C onvention shall be subject to ratification, acceptance or approval by the signatory
States in accordance w ith their respective constitutional procedures,
(2 ) This C onvention shall enter into force 30 days after the date o f deposit o f the tw entieth
instrum ent o f ratification, acceptance or approval. It shall enter into force for each State
w hich subsequently deposits its instrum ent o f ratification, acceptance or approval 30
days after the date o f such deposit.

A rticle 6 9
Each C ontracting State shall take such legislative or other measures as may be necessary for
m aking the provisions o f this C onvention effective in its territories.

A rticle 7 0
This C onvention shall apply to all territories for whose international relations a C ontracting
State is responsible, except those w hich are excluded by such State by w ritten notice to die
depositary o f this C onvention either at the tim e o f ratification, acceptance or approval or
subsequently.

A rticle 71
Any C ontracting State may denounce this C onvention by w ritten notice to the depositary o f
this C onvention. T he denunciation shall take effect six m onths after receipt o f such notice.
328 Annexes

Article 72
N otice by a Contracting State pursuant to Articles 70 or 71 shall not affect the rights or
obligations under this Convention o f that State or o f any o f its constituent subdivisions or
agencies or o f any national o f that State arising out o f consent to the jurisdiction o f the
C entre given by one o f them before such notice was received by the depositary.

Article 73
Instrum ents o f ratification, acceptance or approval o f this C onvention and o f am endm ents
thereto shall be deposited w ith the Bank which shall act as the depositary o f this Conven­
tion. T he depositary shall transm it certified copies o f this C onvention to States m em bers o f
the Bank and to any other State invited to sign die C onvention.

Articlc 74
T he depositary shall register this C onvention w ith the Secretariat of the U nited N ations in
accordance w ith Article 1 0 2 o f the C harter o f the U nited N ations and the Regulations
thereunder adopted by the General Assembly.

Article 75
T he depositary shall notify all signatory States o f the following:
(a) signatures in accordance w ith Article 67;
(b) deposits o f instrum ents o f ratification, acceptance and approval in accordance with
Ardcle 73;
(c) the date on which this C onvention enters into force in accordance w ith Article 68;
(d) exclusions from territorial application pursuant to Article 70;
(e) the date on which any am endm ent o f this C onvention enters into force in accord­
ance w ith Article 6 6 ; and
(f) denunciations in accordance w ith Article 71.

D O N E at W ashington, in the English, French and Spanish languages, all three texts being
equally authentic, in a single copy which shall remain deposited in the archives o f the
International Bank for R econstruction and D evelopm ent, w hich has indicated by its
signature below its agreem ent to fulfil the functions w ith w hich it is charged under this
Convention.
 The Energy Charter Treaty (excerpts)
P ar t I
D efin itio n s a n d P urpose
Article 1
D efinitions
As used in this Treaty:
( 1 ) “Charter” means the European Energy Charter adopted in the Concluding D ocum en t o f the
Hague Conference on the European Energy Charter signed at The Hague on 17 December
1991; signature o f the Concluding D ocum ent is considered to be signature o f the Charter,
(2) “C ontracting Party” means a state or Regional Econom ic Integration O rganization
which has consented to be bound by this T reaty and for which the T reaty is in force,
(3) “Regional Econom ic Integration O rganization” means an organization constituted by
states to w hich die}? have transferred competence over certain m atters a num ber o f
which are governed by this Treaty, including the authority to take decisions binding on
them in respect o f those matters.
(4) “Energy M aterials and Products”, based on the H arm onized System o f the C ustom s
Co-operation C ouncil and the C om bined N om enclature o f die European C o m m u ­
nities, m eans the items included in Annex EM.
(5) “E conom ic Activity in the Energy Sector” means an econom ic activity concerning the
exploration, extraction, refining, production, storage, land transport, transmission,
distribution, trade, m arketing, or sale o f Energy Materials and Products except those
included in Annex N I, or concerning the distribution o f heat to m ultiple prem ises . 1
(6 ) “Investm ent” means every kind o f asset, owned or controlled directly or indirectly by an
Investor and includes :2
(a) tangible and intangible, and movable and immovable, property, and any property
rights such as leases, mortgages, liens, and pledges;
(b) a com pany or business enterprise, or shares, stock, or other forms o f equity
participation in a company or business enterprise, and bonds and other debt o f a
com pany or business enterprise;
(c) claims to m oney and claims to perform ance pursuant to contract having an
econom ic value and associated w ith an Investment;
(d) Intellectual Property";
(e) Returns;
(f) any right conferred by law or contract or by virtue o f any licences and perm its
granted pursuant to law to undertake any Economic Activity in the Energy Sector,
A change in the form in which assets are invested does not affect their character as
investm ents and the term “Investm ent” includes all investments, w hether existing at or
made after the later o f the date o f entry into force of this T reaty for the Contracting Party

1 See Final Act o f the European Energy Charter Conference, Understandings, n, 2. with respectto
Article 1 (5), p. 25.
- See Final Act o f the European Energy Charter Conference, Understandings, n. 3. with respectto
Article 1(6), p. 26; Final Act of the European Energy Charter Conference, Declarations, n. l.w ith
respect to Article 1(6), d, 30: and note 22. n. S4.
330 Annexes

o f the Investor m aking the investm ent and that for the Contracting Party in the Area o f
w hich the investment is m ade (hereinafter referred to as the “Effective D ate”) provided that
the T reaty shall only apply to m atters affecting such investments after the Effective Date.
“Investm ent” refers to any investm ent associated w ith an E conom ic Activity in the
E nergy Sector and to investm ents or classes o f investm ents designated by a Contracting
Party in its Area as “C harter efficiency projects” and so notified to the Secretariat.
(7) “Investor” means:
(a) w ith respect to a C ontracting Party:
(i) a natural person having the citizenship or nationality o f or w ho is perm anently
residing in th at C ontracting Party in accordance w ith its applicable law;
(ii) a company or other organization organized in accordance w ith the law
applicable in that C ontracting Party ;3
(b) w ith respect to a “th ird state”, a natural person, com pany or other organization
w hich fulfils, m utatis m utandis, the conditions specified in subparagraph (a) for a
C ontracting Party.
( 8 ) “M ake Investm ents” or “M aking o f Investm ents” m eans establishing new Investments,
acquiring all or part o f existing Investm ents or m oving into different fields o f Invest­
m en t activity .4
(9) “R eturns” means the am ounts derived from or associated w ith an Investm ent, irrespect­
ive o f the form in w hich they are paid, including profits, dividends, interest, capital
gains, royalty payments, m anagem ent, technical assistance or other fees and payments
in kind.
(10) “A rea” means w ith respect to a state that is a C ontracting Party:
(a) the territory under its sovereignty, it being understood th at territory includes land,
internal waters and the territorial sea; and
(b) subject to and in accordance w ith the international law o f the sea: the sea, sea-bed
and its subsoil w ith regard to w hich th a t C ontracting Party exercises sovereign
rights and jurisdiction.
W ith respect to a Regional Econom ic Integration Organization which is a Contracting
Party, Area means the Areas o f the m em ber states o f such Organization, under the
provisions contained in the agreement establishing that Organization.
( 1 1 ) (a) “G A T T ” means “G A T T 1947” or “G A T T 1994”, or both o f them where both
are applicable.
(b) “G A T T 1947” m eans the General A greem ent on Tariffs and Trade, dated 30
O ctober 1947, annexed to the Final Act A dopted at the Conclusion o f the Second
Session o f the Preparatory C om m ittee o f the U nited N ations Conference on
T rade and E m ploym ent, as subsequently rectified, am ended or modified.
(c) “G A T T 1994” m eans die General A greem ent on Tariffs and T rade as specified in
A nnex 1 A o f the A greem ent Establishing the W orld T rade Organization, as
subsequently rectified, am ended or modified. A party to the Agreem ent Estab­
lishing the W orld T rade Organization is considered to be a party to G A TT 1994.
(d) “Related Instrum ents” means, as appropriate:

3 See Decisions with respect to the Energ)7 Charter Treaty (Annex 2 to the Final Act of the
European Energy' Charter Conference), n. 5. with Respect to Articles 24(4)(a) and 25, p. 137; note
38, p. 70; and note 39, p. 71.
4 See Final Act of die European Energ}' Charter Conference, Understandings, n. 4. with respect to
Article 1 (8), p. 26.
 The Energy Charter Treaty (excerpts) 331

(i) agreements, arrangements or other iegal instrum ents, including decisions,

declarations and understandings, concluded under the auspices o f G A T T
1947 as subsequently rectified, am ended or modified; or
(ii) the Agreem ent Establishing the W orld Trade O rganization including its
Annex 1 (except G A T T 1994), its Annexes 2, 3 and 4, and the decisions,
declarations and understandings related thereto, as subsequently rectified,
am ended or modified.
(12) “Intellectual Property” includes copyrights and related rights, trademarks, geograph­
ical indications, industrial designs, patents, layout designs o f integrated circuits and
the protection o f undisclosed inform ation .5
(13) (a) “Energy C harter Protocol” or "Protocol” means a treaty, the negotiation o f w hich
is authorized and the text of w hich is adopted by the Charter Conference, which is
entered into by two or m ore C ontracting Parties in order to com plem ent,
supplem ent, extend or amplify the provisions o f this T reaty w ith respect to any
specific sector or category o f activity w ithin the scope o f this Treaty, or to areas o f
co-operation pursuant to T itle III o f the Charter.
(b) “Energy C harter D eclaration” or “D eclaration” means a non-binding instrum ent,
the negotiation o f w hich is authorized and the text o f w hich is approved by the
C harter Conference, which is entered into by two or m ore C ontracting Parties to
com plem ent or supplem ent the provisions o f this Treaty.
(14) “Freely Convertible C urrency” means a currency which is widely traded in inter­
national foreign exchange markets and widely used in international transactions.

Article 2
P u rp o s e O f T h e T re a ty
T his T reaty establishes a legal framework in order to prom ote long-term cooperation in the
energy field, based on complem entarities and m utual benefits, in accordance w ith the
objectives and principles o f the Charter.

P a r t III
Investment Promotion and Protection
A rticle 1 0
P ro m o tio n , P ro te c tio n a n d T re a tm e n t o f In v e stm e n ts6
(1) Each C ontracting Party shall, in accordance w ith the provisions o f this Treaty, encour­
age and create stable, equitable, favourable and transparent conditions for Investors o f
other C ontracting Parties to make Investments in its Area. Such conditions shall
include a com m itm ent to accord at all times to Investments o f Investors o f other
C ontracting Parties fair and equitable treatm ent. Such Investm ents shall also enjoy
the m ost constant protection and security and no Contracting Party shall in any way
im pair by unreasonable or discrim inatory measures their m anagem ent, m aintenance,
use, enjoym ent or disposal, In no case shall such Investments be accorded treatm ent less

? See Final Acr o f the European Energy Charter Conference, Understandings, n, 5. with respect to
Article 1(12). p. 27.
6 See Final Acr of the European Energy Charter Conference, Understandings, n. 9. with respect to
Articles 9, 10 and Pair V, p. 27 and Declarations, n. 4. with respect to Article 10, p. 31.
332 Annexes

favourable than that required by international law, including treaty obligations .'7 Each
C ontracting Party shall observe any obligations it has entered into w ith an Investor or
an Investm ent o f an Investor o f any other C ontracting Party .8
(2) Each C ontracting Party shall endeavour to accord to Investors o f other C ontracting
Parties, as regards the M aking o f Investm ents m its Area, the T reatm ent described in
paragraph (3).
(3) For the purposes o f this Article, “T reatm en t” m eans treatm ent accorded by a Contract-
■ ing Party w hich is no less favourable than that which it accords to its own Investors or to
Investors o f any other C ontracting Party or any third state, whichever is the most
favourable.
(4) A supplem entary treaty shall, subject to conditions to be laid dow n therein, oblige each
party thereto to accord to Investors o f other parties, as regards the M aking o f Invest­
m ents in its Area, the T reatm ent described in paragraph (3). T h at treaty shall be open
for signature by the states and Regional E conom ic Integration O rganizations which
have signed or acceded to this Treaty. N egotiations towards the supplem entary treaty
shall com m ence not later than 1 January 1995, w ith a view to concluding it by 1
January 1998.9
(5) Each C ontracting Party shall, as regards the M aking o f Investm ents in its Area,
endeavour to:
(a) lim it to the m inim um the exceptions to the T reatm en t described in paragraph (3);
(b) progressively remove existing restrictions affecting Investors o f other Contracting
Parties.
(6 ) (a) A Contracting Party may, as regards the M aking o f Investments in its Area, at any time
declare voluntarily to the Charter Conference, through the Secretariat, its intention
not to introduce new exceptions to the Treatm ent described in paragraph (3).
(b) A C ontracting Party may, furtherm ore, at any tim e m ake a voluntary com m itm ent
to accord to Investors o f other C ontracting Parties, as regards the M aking of
Investments in some or all E conom ic Activities in the Energy Sector in its Area,
the T reatm ent described in paragraph(3). Such com m itm ents shall be notified to
the Secretariat and listed in A nnex V C and shall be binding under this Treaty.
(7) Each C ontracting Party shall accord to Investm ents in its Area o f Investors o f other
C ontracting Parties, and their related activities including m anagem ent, maintenance,
use, enjoym ent or disposal, treatm ent no less favourable than that which it accords to
Investments of its own Investors or o f the Investors o f any other C ontracting Part )7 or
any third state and their related activities including m anagem ent, m aintenance, use,
enjoym ent or disposal, whichever is the m ost favourable . 10
( 8 ) T he modalities o f application o f paragraph (7) in relation to program m es under which a
C ontracting Party provides grants or other financial assistance, or enters into contracts,
for energy technolog)· research and developm ent, shall be reserved for the supplemen-

'' See Final Act of the European Energy Charter Conference, Understandings, n. 17. with respect to
Articles 26 and 27, p. 28 and Chairman’s Statement at Adoption Session on 17 December 1994, p. 157.
8 See Article 26(3)(c), p. 73; Article 27(2), p. 75 and Annex 1A, p. 98.
9 See Final Act of the European Energy Charter Conference, Understandings, n. 10. with respect
to Article 10(4), p. 27; η. 11 with respect to Articles 10(4) and 29(6), p. 28; Final Act of the European
Energy Charter Conference, Declarations, n, 1. with respect to Article 1(6), p. 30 and Chairman’s
Statement at Adoption Session on 17 December 1994, p. 157.
10 See Decisions with respect to the Energy Charter Treaty (Annex 2 to the Final Act of the
European Energy Charter Conference), n. 2. with respect to Article 10(7), p. 135; Article 32(1), p. 79
and Annex T pp, 113 and 126.
 The Energ)! Charter Treaty (excerpts) 333
tary treaty described in paragraph (4). Each C ontracting Party shall through the
Secretariat keep the Charter Conference inform ed o f the m odalities it applies to the
program m es described in this paragraph.
(9) Each state or Regional Econom ic Integration O rganization w hich signs or accedes to
this T reat;/ shall, on the date it signs the Treaty or deposits its instrum ent o f accession,
subm it to the Secretariat a report sum m arizing all laws, regulations or other m easures
relevant to;
(a) exceptions to paragraph (2 ); or
(b) the program m es referred to in paragraph ( 8 ).
A C ontracting Party shall keep its report up to date by prom ptly subm itting am end­
m ents to the Secretariat. T he C harter Conference shall review these reports periodic­
ally.
In respect o f subparagraph (a) the report may designate parts o f the energ)- sector in
which a C ontracting Party accords to Investors o f other C ontracting Parties the
T reatm ent described in paragraph (3).
In respect o f subparagraph (b) the review by the Charter Conference may consider the
effects o f such programmes on com petition and Investm ents.
(10) N otw ithstanding any other provision o f this Article, the treatm ent described in
paragraphs (3) and (7) shall n o t apply to the protection o f Intellectual Property;
instead, the treatm ent shall be as specified in the corresponding provisions o f the
applicable international agreements for the protection o f Intellectual Property rights to
w hich the respective C ontracting Parties are parties.
(1 1 ) For the purposes o f Article 26, the application by a C ontracting Party o f a trade-related
investm ent measure as described in Article 5(1) and (2) to an Investm ent o f an
Investor o f another C ontracting Party existing at the tim e o f such application shall,
subject to Article 5(3) and (4), be considered a breach o f an obligation o f the form er
C ontracting Party under this P art . 11
(12) Each C ontracting Party shall ensure that its dom estic law provides effective m eans for
the assertion of claims and the enforcement o f rights w ith respect to Investm ents,
investm ent agreements, and investm ent authorizations.

A rticle 11
Key Personnel
( 1 ) A C ontracting Party shall, subject to its laws and regulations relating to the entry, stay
and w ork o f natural persons, examine in good faith requests by Investors o f another
C ontracting Party, and key personnel who are em ployed by such Investors or by
Investm ents o f such Investors, to enter and remain temporarily in its Area to engage in
activities connected with the m aking or the developm ent, m anagem ent, m aintenance,
use, enjoym ent or disposal o f relevant Investments, including the provision o f advice
or key technical services.
(2 ) A C ontracting Party shall perm it Investors of another C ontracting Party w hich have
Investm ents in its Area, and Investm ents o f such Investors, to employ any key person
of the Investor’s or the Investm ent’s choice regardless o f nationality and citizenship
provided that such key person has been perm itted to enter, stay and work in the Area
o f the form er C ontracting Party and that the em ploym ent concerned conforms to the
terms, conditions and tim e limits o f the permission granted to such key person.

11 See Final Act of the European Energy Charter Conference, Declarations, n. 2, with respect to
Articles 5 and 10(11), p. 30.
334 Annexes

A rticle 12
C o m p e n s a tio n fo r L osses
(1) Except where Article 13 applies, an Investor o f any C ontracting Party which suffers a
loss w ith respect to any Investm ent in the Area o f another C ontracting Patty owing to
war or other armed conflict, state o f national emergency, civil disturbance, or other
similar event in that Area, shall be accorded by the latter C ontracting Party, as regards
restitution, indem nification, com pensation or other settlem ent, treatm ent which is the
m ost favourable o f that w hich that C ontracting Party accords to any other Investor,
w hether its own Investor, the Investor o f any other C ontracting Party, or the Investor o f
any third state.
(2) W ith o u t prejudice to paragraph (1), an Investor o f a C o ntracting Party w hich, in any o f
the situations referred to in th a t paragraph, suffers a loss in the Area o f another
C ontracting Party resulting from
(a) requisitioning o f its Investm ent or p art thereof by the latter’s forces or authorities;
or
(b) destruction o f its Investm ent or p art thereof by the latter’s forces or authorities,
which was not required by the necessity o f the situation, shall be accorded
restitution or com pensation w hich in eidier case shall be prom pt, adequate and
effective.

A rticle 13
E x p ro p ria tio n
(1) Investments o f Investors o f a C ontracting Party in the A rea o f any other C ontracting
Party shall n o t be nationalized, expropriated or subjected to a measure or measures
having effect equivalent to nationalization or expropriation (hereinafter referred to as
“Expropriation”) except where such Expropriation is:
(a) for a purpose w hich is in the public interest;
(b) n o t discriminatory;
(c) carried o u t under due process o f law; and
(d) accom panied by the paym ent o f prom pt, adequate and effective compensation.
Such com pensation shall am o u n t to the fair m arket value o f the Investm ent expropri­
ated at the tim e immediately before the Expropriation or im pending E xpropriation
became know n in such a way as to affect the value o f the Investm ent (hereinafter
referred to as the “V aluation D ate”).
Such fair m arket value shall at the request o f the Investor be expressed in a Freely
Convertible Currency on the basis o f the m arket rate o f exchange existing for that
currency on the Valuation D ate. C om pensation shall also include interest at a com ­
mercial rate established on a m arket basis from the date o f Expropriation until the date
o f payment.
(2) T he Investor affected shall have a right to pro m p t review, under the law o f the
C ontracting Party m aking the Expropriation, by a judicial or other com petent and
independent authority o f that C ontracting Party, o f its case, o f the valuation o f its
Investment, and o f the paym ent o f com pensation, in accordance w ith the principles set
out in paragraph ( 1 ).
(3) For the avoidance o f doubt, E xpropriation shall include situations where a Contracting
Party expropriates the assets o f a com pany or enterprise in its Area in w hich an Investor
o f any other C ontracting Party has an Investm ent, including through the ownership o f
shares.
 The Energy Charter Treaty (excerpts) 335

A rticle 14
T ransfers Related to Investm ents 12
(1) Each C ontracting Party shall w ith respect to Investm ents in its A rea o f Investors o f any
other C ontracting Part}'· guarantee the freedom o f transfer into and o u t o f its Area,
including the transfer of:
(a) the initial capital plus any additional capital for the m aintenance and developm ent
o f an Investm ent;
(b) Returns;
(c) paym ents under a contract, including am ortization o f principal and accrued
interest paym ents pursuant to a loan agreement;
(d) unspent earningsi 13 and other rem uneration o f personnel engaged from abroad in
connection w ith that Investment;
(e) proceeds from the sale or liquidation o f all or any part o f an Investm ent;
(f) paym ents arising out o f the settlem ent o f a dispute;
(g) paym ents o f com pensation pursuant to Articles 1 2 and 13.
(2 ) Transfers under paragraph ( 1 ) shall be effected w ithout delay and (except in case o f a
R eturn in kind) in a Freely Convertible C urrency . 14
(3) Transfers shall be m ade at the m arket rate o f exchange existing on the date o f transfer
w ith respect to spot transactions in the currency to be transferred. In the absence o f a
m arket for foreign exchange, the rate to be used will be the m ost recent rate applied to
inward investm ents or the m ost recent exchange rate for conversion o f currencies into
Special D raw ing Rights, whichever is m ore favourable to the Investor.
(4) N otw ithstanding paragraphs ( 1 ) to (3), a C ontracting Party m ay protect the rights o f
creditors, or ensure compliance w ith laws on the issuing, trading and dealing in
securities and the satisfaction o f judgem ents in civil, adm inistrative and criminal
adjudicatory proceedings, through the equitable, non- discrim inatory, and good faith
application o f its laws and regulations.
(5) N otw ithstanding paragraph (2), C ontracting Parties which are states th at were constitu­
ent parts o f the form er U nion o f Soviet Socialist Republics may provide in agreements
concluded between them that transfers o f payments shall be made in the currencies o f
such C ontracting Parties, provided that such agreements do n o t treat Investm ents in
their Areas o f Investors o f other C ontracting Parties less favourably than either Invest­
m ents o f Investors o f the C ontracting Parties w hich have entered into such agreements
or Investm ents o f Investors o f any third state . 15
(6 ) N otw ithstanding subparagraph (l)(b), a C ontracting Party may restrict the transfer o f a
Return in kind in circumstances where the C ontracting Party is perm itted under Article
29(2)(a) or die G A T T and Related Instrum ents to restrict or prohibit the exportation or
the sale for export o f the product constituting the R eturn in kind; provided that a
C ontracting Party shall perm it transfers o f Returns in kind to be effected as authorized
or specified in an investm ent agreement, investm ent authorization, or other w ritten

12 See Decisions with respect to the Energy Charter Treat}7 (Annex 2 to the Final Act of the
European Energy Charter Conference), n. 3. with respect to Article 14, p. 135.
13 See Article 32(1), p. 79 and Annex T, pp. 113 and 127.
1,1 See Decisions with respect to the Energy Charter Treaty (Annex 2 to the Final Act of
theEuropean Energy Charter Conference), n. 4. with respect to Article 14 (2), p. 136.
13 See Final Act of the European Energy Charter Conference, Understandings, n. 12. withrespect to
Article 14(5), p. 28.
336 Annexes

agreement between the C ontracting Party and either an Investor o f another Contracting
Party or its Investment.

Article 15
Subrogation
(1) I f a Contracting Party or its designated agency (hereinafter referred to as the “Indem ni­
fying Part}’”) makes a paym ent under an indem nity or guarantee given in respect o f an
Investm ent o f an Investor (hereinafter referred to as the “Party Indem nified”) in the
Area o f another C ontracting Party (hereinafter referred to as the “H ost Part)·'”), the H ost
Party shall recognize:
(a) the assignment to the Indem nifying Party of all the rights and claims in respect o f
such Investment; and
(b) the right o f the Indem nifying Party to exercise all such rights and enforce such
claims by virtue o f subrogation.
(2) T he Indem nifying Party shall be entitled in all circumstances to:
(a) the same treatm ent in respect o f the rights and claims acquired by it by virtue o f the
assignment referred to in paragraph ( 1 ); and
(b) the same paym ents due pursuant to those rights and claims, as the Party7 Indem ni­
fied was entitled ro receive by virtue o f this T reat )7 in respect of the Investm ent
concerned.
(3) In any proceeding under Article 26, a C ontracting Party shall n o t assert as a defence,
counterclaim , right o f set-off or for any other reason, th at indem nification or other
com pensation for all or part o f the alleged damages has been received or will be received
pursuant to an insurance or guarantee contract.

Article 16
R elation to o th er A greem ents 16
W here two or m ore C ontracting Parties have entered into a prior international agreement,
or enter into a subsequent international agreem ent, whose term s in either case concern the
subject m atter o f Part III or V o f diis Treaty7,
(1) n odiing in Part III or V o f this T reaty shall be construed ro derogate from any provision
o f such terms o f the other agreem ent or from any right to dispute resolution with
respect thereto under that agreem ent; and
(2 ) nothing in such terms o f the other agreem ent shall be construed to derogate from any
provision o f Part III or V o f this T reaty or from any right to dispute resolution with
respect thereto under this T reaty,
where any such provision is m ore favourable to the Investor or Investm ent.

Article 17
N o n-A pplication o f P a rt III in C e rta in C ircum stances
Each C ontracting Party reserves the right to deny the advantages o f this Parr to:
( 1 ) a legal entity if citizens or nationals o f a th ird state ow n or control such entity and if that
entity’ has no substantial business activities in the Area o f the C ontracting Party in
w hich it is organized; or

16 See Decisions with respect to the Energy Charter Treat}7 (Annex 2 to the Final Act of
theEuropean Energy Charter Conference), n. 1. with respect to the Treaty as a whole, p. 135 and
n. 3. with respect to Article 14, p. 135.
 The Energ)> Charter Treaty (excerpts) 337
(2 ) an Investment, if die denying C ontracting Party establishes that such Investment is an
Investment of an Investor o f a third state with or as to which the denying Contracting Party:
(a) does n o t m aintain a diplom atic relationship; or
(b) adopts or m aintains measures that:
(i) prohibit transactions with Investors o f that state; or
(ii) w ould be violated or circumvented if the benefits o f this P art were accorded to
Investors o f that state or to their Investments.

P a rt V

D isp u te S e ttle m e n t17

Article 2 6
Settlem ent o f D isputes betw een an Investor and a C o n trac tin g Party18
(1) Disputes between a C ontracting Party and an Investor o f an o th er C ontracting Party
relating to an Investm ent of the latter in the Area o f the former, w hich concern an alleged
breach o f an obligation o f the form er under Part III shall, if possible, be settled amicably.
(2) If such disputes can not be settled according to the provisions o f paragraph (1) w ithin a
period o f diree m onths from the date on which either party to die dispute requested
amicable settlement, the Investor party to die dispute may choose to subm it it for resolution:
(a) to the courts or administrative tribunals o f the C ontracting Party party to the
dispute 19
(b) in accordance with any applicable, previously agreed dispute setdem ent procedure; or
(c) in accordance w ith the following paragraphs o f this Article.
(3) (a) Subject only to subparagraphs (b) and (c), each C ontracting Party hereby gives its
unconditional consent to the subm ission o f a dispute to international arbitration or
conciliation in accordance w ith the provisions o f this Article.
(b) (i) T h e C ontracting Parties listed in Annex ID do n o t give such unconditional
consent where the Investor has previously subm itted the dispute under sub-
paragraph (2 ) (a) or (b).
(ii) For the sake o f transparency, each Contracting Party th at is listed in A nnex ID
shall provide a w ritten statem ent o f its policies, practices and conditions in this
regard to the Secretariat no later than the date o f the deposit o f its instrum ent
o f ratification, acceptance or approval in accordance w ith Article 39 or the
deposit o f its instrum ent o f accession in accordance w ith Article 41.
(c) A C ontracting Party listed in A nnex IA does not give such unconditional consent
w ith respect to a dispute arising under the last sentence o f Article 10(1).
(4) In the event that an Investor chooses to subm it the dispute for resolution un d er
subparagraph (2)(c), the Investor shall further provide its consent in w riting for the
dispute to be subm itted to:

1/ See Decisions widi respect to the Energy Charter Treaty (Annex 2 to the Final Act of theEuropean
Energ}·’ Charter Conference), n. 1. with respect to die Treaty as a whole, p. 135 and FinalAct of the
European Energ}7Charter Conference, Understandings, n. 9. with respect to Articles 9.10 and Part V, p. 27.
18 See Final Act o f die European Energy Charter Conference, Understandings, n. 17- withrespect to
Articles 26 and 27, p. 28.
1') See Final Act o f the European Energy Charter Conference, Understandings, n. 16. withrespect to
Article 26(2)(a), p. 28.
338 Annexes

(a) (i) T h e International C entre for Settlem ent o f Investm ent D isputes, established
pursuant to the C onvention on the Settlem ent o f Investm ent D isputes be­
tw een States and N ationals o f other States opened for signature at W ashing­
ton, 18 M arch 1965 (hereinafter referred to as the “IC SID C onvention”), if
the C ontracting Party o f the Investor and the C ontracting Party party to the
dispute are both parties to the IC S ID Convention; or
(ii) T h e International Centre for Settlem ent o f Investm ent Disputes, established
pursuant to the C onvention referred to in subparagraph (a) (i), under the rules
governing the Additional Facility for the A dm inistration o f Proceedings by the
Secretariat o f the Centre (hereinafter referred to as the “Additional Facility
R ules”), if the C ontracting Party o f the Investor or the C ontracting Party party
to the dispute, b u t n o t both, is a party to the IC S ID C onvention;
(b) a sole arbitrator or ad hoc arbitration tribunal established under the A rbitration
Rules o f the U nited N ations Com m ission on International Trade Law (hereinafter
referred to as “U N C IT R A L ”); or
(c) an arbitral proceeding under the A rbitration Institute o f the Stockholm C ham ber o f
Com merce.
(5) (a) The consent given in paragraph (3) together w ith the written consent o f the Investor
given pursuant to paragraph (4) shall be considered to satisfy the requirem ent for:
(i) w ritten consent o f the parties to a dispute for purposes o f Chapter II o f the
IC SID C onvention and for purposes o f the A dditional Facility Rules;
(ii) an “agreement in w riting” for purposes o f article II o f the U nited N ations
C onvention on the Recognition and Enforcem ent o f Foreign Arbitral Awards,
done at N ew York, 10 Ju n e 1958 (hereinafter referred to as the “N ew York
C onvention”); and
(iii) “the parties to a contract [to] have agreed in w riting” for the purposes o f article
1 o f the U N C IT R A L A rbitration Rules.
(b) Any arbitration under this Article shall at the request o f any party to the dispute be
held in a state that is a part)- to the N ew York Convention. Claims subm itted to
arbitration hereunder shall be considered to arise out o f a commercial relationship
or transaction for the purposes o f article I o f that Convention.
(6 ) A tribunal established under paragraph (4) shall decide the issues in dispute in
accordance w idi this Treaty and applicable rules and principles o f international law.
(7) An Investor other than a natural person which has the nationality o f a C ontracting Party
party to the dispute on the date o f the consent in w riting referred to in paragraph (4)
and which, before a dispute between it and th at C ontracting Party arises, is controlled
by Investors o f another C ontracting Party, shall for the purpose o f article 25 (2) (b) o f the
IC SID C onvention be treated as a “national o f another C ontracting State” and shall for
the purpose o f article 1(6 ) o f the A dditional Facility Rules be treated as a “national o f
another State”.
(8 ) T he awards o f arbitration, w hich m ay include an award o f interest, shall be final and
binding upon the parties to the dispute. A n award o f arbitration concerning a
measure o f a sub-national governm ent or authority o f the disputing C ontracting
Party shall provide that the C ontracting Party m ay pay m onetary damages in lieu o f
any other remedy granted. Each C ontracting Party shall carry out w ithout delay any
such award and shall make provision for the effective enforcem ent in its Area o f such
awards.
 The Energy Charter Treaty (excerpts) 339

Ankle 27
S e ttle m e n t o f D isp u te s b etw e e n C o n tra c tin g P a rtie s20
(1) C ontracting Parties shall endeavour to settle disputes concerning the application or
interpretation o f this T reaty through diplom atic channels,
(2) If a dispute has n o t been settled in accordance with paragraph (1) w ithin a reasonable
period o f time, either party thereto may, except as otherwise provided in this T reaty or
agreed in w riting by the C ontracting Parties, and except as concerns the application or
interpretation o f Article 6 or Article 19 or, for C ontracting Parties listed in Annex IA,
the last sentence o f Article 10(1), upon w ritten notice to the other party to the dispute
subm it the m atter to an ad hoc tribunal under this Article.
(3) Such an ad hoc arbitral tribunal shall be constituted, as follows:
(a) T he C ontracting Party instituting the proceedings shall appoint one m em ber o f the
tribunal and inform the other C ontracting Party to the dispute o f its appointm ent
w ithin 30 days o f receipt of the notice referred to in paragraph (2) by the other
C ontracting Party;
(b) W ith in 60 days o f the receipt o f the w ritten notice referred to in paragraph (2), the
other C ontracting Party party to the dispute shall appoint one m ember. I f the
appointm ent is not m ade w ithin the tim e lim it prescribed, the C ontracting Party-
having instituted the proceedings may, w ithin 90 days o f the receipt o f the w ritten
notice referred to in paragraph (2 ), request that the appointm ent be m ade in
accordance w ith subparagraph (d);
(c) A third m em ber, w ho may not be a national or citizen o f a C ontracting Party party
to the dispute, shall be appointed by the C ontracting Parties parties to the dispute.
T h at m em ber shall be the President o f the tribunal. If, w ithin 150 days o f the
receipt o f the notice referred to in paragraph (2 ), the C ontracting Parties are unable
to agree on the appointm ent o f a third m em ber, that appointm ent shall be made, in
accordance w ith subparagraph (d), at the request o f either C ontracting Party
subm itted w ithin 180 days o f the receipt o f that notice;
(d) A ppointm ents requested, to be made in accordance w ith this paragraph shall be
made by the Secretary-General o f the Perm anent C o u rt o f International A rbitra­
tion w ithin 30 days o f the receipt o f a request to do so. I f the Secretary-General is
prevented from discharging this task, the appointm ents shall be made by the First
Secretary o f the Bureau. If the latter, in turn, is prevented from discharging this
task, the appointm ents shall be m ade by the m ost senior D eputy;
(e) A ppointm ents m ade in accordance w ith subparagraphs (a) to (d) shall be m ade
w ith regard to the qualifications and experience, particularly in matters covered by
this Treaty, o f the m em bers to be appointed;
(f) In the absence o f an agreement to the contrary betw een the C ontracting Parties,
the A rbitration Rules o f U N C IT R A L shall govern, except to the extent m odified
by the C ontracting Parties parties to the dispute or by the arbitrators. T h e tribunal
shall take its decisions by a m ajority vote o f its members;
(g) T he tribunal shall decide the dispute in accordance w ith this T reaty and applicable
rules and principles o f international lawr;
(h) T he arbitral award shall be final and binding upon the C ontracting Parties parties
to the dispute;

~° See Final Acr of the European Energy Charter Conference, Understandings, n. 17. withrespect to
Articles 26 and 27, p. 28 and Article 28, p. 76.
340 Annexes

(i) W here, in m aking an award, a tribunal finds that a m easure o f a regional or local
governm ent or authority within the Area o f a C ontracting Party listed in Part I of
A nnex P is not in conform ity with this Treaty, either party to the dispute may
invoke the provisions o f Part II o f Annex P;
(j) The expenses o f the tribunal, including the rem uneration o f its members, shall be
borne in equal shares by the C ontracting Parties parties to the dispute. T he tribunal
may, however, at its discretion direct that a higher proportion o f the costs be paid
by one o f the Contracting Parties parries to the dispute;
(k) Unless the Contracting Parties parries to the dispute agree otherwise, the tribunal
shall sit in T he Hague, and use the premises and facilities o f the Perm anent Court
of Arbitration;
(1) A copy o f the award shall be deposited w ith the Secretariat w hich shall make it
generally available.

Article 28
N on-A pplication o f Article 27 to C ertain D isputes
A dispute between C ontracting Parties w ith respect to the application or interpretation of
Article 5 or 29 shall n o t be settled under Article 27 unless the C ontracting Parties parties to
the dispute so agree.
Nortli American Free Trade Agreement (Chapter Eleven)
Section A - Investm ent
Article 1101
Scope and Coverage
1 . This C hapter applies to measures adopted or m aintained by a Party relating to:
(a) investors o f another Party;
(b) investm ents o f investors o f another Party in the territory o f the Party; and
(c) w ith respect to Articles 1106 and 1114, all investm ents in the territoiy o f the Party,
2. A Part)'- has die right to perform exclusively the econom ic activities set out in A nnex III
and to refuse to perm it the establishm ent o f investm ent in such activities,
3. T his C hapter does not apply to measures adopted or m aintained by a Party to the extent
that they are covered by C hapter Fourteen (Financial Services).
4. N o th in g in this C hapter shall be construed to prevent a Party from providing a sendee or
perform ing a function such as law enforcem ent, correctional services, incom e security or
insurance, social security or insurance, social welfare, public education, public training,
health, and child care, in a m anner that is not inconsistent w ith this Chapter.

Article 1102
N atio n al T rea tm e n t
1 . Each Party shall accord to investors o f another Party treatm ent no less favorable th an that
it accords, in like circumstances, to its own investors w ith respect to the establishm ent,
acquisition, expansion, m anagem ent, conduct, operation, and sale or other disposition o f
investm ents.
2 . Each Party shall accord to investm ents o f investors o f another Party treatm ent no less-
favorable th an that it accords, in like circumstances, to investm ents o f its own investors
w ith respect to the establishm ent, acquisition, expansion, m anagem ent, conduct, oper­
ation, and sale or other disposition o f investments.
3. T he treatm ent accorded by a Party under paragraphs 1 and 2 m eans, with respect to a
state or province, treatm ent no less favorable than the m ost favorable treatm ent
accorded, in like circumstances, by that state or province to investors, and to investm ents
o f investors, o f the Party" o f w hich it forms a part.
4. For greater certainty, no Party may:
(a) im pose on an investor o f another Party a requirem ent th at a m inim um level o f
equity in an enterprise in the territory o f the Party be held by its nationals, other
th an nom inal qualifying shares for directors or incorporators o f corporations; or
(b) require an investor o f another Party, by reason o f its nationality, to sell or otherwise
dispose o f an investm ent in the territory o f the Party.

Article 1103
M ost-F avored-N ation T rea tm e n t
1. Each Party shall accord to investors o f another Party treatm ent no less favorable than that
it accords, in like circumstances, to investors o f any other Party or o f a non-Parry w ith
respect to the establishm ent, acquisition, expansion, m anagem ent, conduct, operation,
and sale or other disposition o f investm ents.
342 Annexes

2. Each Party shall accord to investm ents o f investors o f another Party treatm ent no less
favorable than that it accords, in like circumstances, to investm ents o f investors o f any
other Party or o f a non-Party w ith respect to the establishm ent, acquisition, expansion,
m anagem ent, conduct, operation, and sale or other disposition o f investments.

A rticle 1 1 0 4
S tandard o f T rea tm e n t
Each Party shall accord to investors o f another Party and to investm ents o f investors o f
another Party the better o f the treatm ent required by Articles 1 102 and 1103.

A rticle 1 1 0 5
M in im u m S tandard o f T rea tm e n t
1. Each Party shall accord to investm ents o f investors o f another Party treatm ent in
accordance with international law, including fair and equitable treatm ent and full
protection and security.
2 . W ith o u t prejudice to paragraph 1 and notw ithstanding Article 1108(7)(b), each Party
shall accord to investors o f another Party, and to investments o f investors o f another
Party, non-discrim inatory treatm ent w ith respect to measures it adopts or m aintains
relating to losses suffered by investm ents in its territory owing to arm ed conflict or civil
strife.
3. Paragraph 2 does not apply to existing measures relating to subsidies or grants that w ould
be inconsistent with Article 1102 b u t for Article 1108(7)(b).

A rticle 1 1 0 6
Perform ance R equirem ents
1. N o Party may impose or enforce any o f the following requirem ents, or enforce any
com m itm ent or undertaking, in connection w ith the establishment, acquisition, expan­
sion, management, conduct or operation o f an investm ent o f an investor o f a Party or of
a non-Party in its territory:
(a) to export a given level or percentage o f goods or sendees;
(b) to achieve a given level or percentage o f dom estic content;
(c) to purchase, use or accord a preference to goods produced or sendees provided in its
territory, or to purchase goods or services from persons in its territory;
(d) to relate in any way the volume or value o f im ports to the volume or value o f exports
or to the am ount o f foreign exchange inflows associated with such investment;
(e) to restrict sales o f goods or services in its territory that such investm ent produces or
provides by relating such sales in any way to the volume or value o f its exports or
foreign exchange earnings;
(f) to transfer technology, a production process or other proprietary knowledge to a
person in its territory, except w hen the requirem ent is im posed or the com m itm ent
or undertaking is enforced by a court, administrative tribunal or com petition
authority to remedy an alleged violation o f com petition laws or to act in a m anner
n o t inconsistent w ith other provisions o f this Agreement; or
(g) to act as the exclusive supplier o f the goods it produces or services it provides to a
specific region or world market.
2. A m easure that requires an investm ent to use a technology to m eet generally applicable
health, safety or environm ental requirements shall not be construed to be inconsistent
w ith paragraph 1(f). For greater certainty, Articles 1102 and 1103 apply to the measure.
 North American Free Trade Agreement (Chapter 11) 343

3. N o Party m ay condition the receipt or continued receipt o f an advantage, in connection

w ith an investm ent in its territory o f an investor o f a Party or o f a non-Party, on
compliance w ith any o f the following requirem ents:
(a) to achieve a given level or percentage o f dom estic content;
(b) to purchase, use or accord a preference to goods produced in its territory, or to
purchase goods from producers in its territory;
(c) to relate in any way the volum e or value o f im ports to the volum e or value o f exports
or to the am ount o f foreign exchange inflows associated w ith such investm ent; or
(d) to restrict sales o f goods or services in its territory th at such investm ent produces or
provides by relating such sales in any way to the volum e or value o f its exports or
foreign exchange earnings.
4. N o th in g in paragraph 3 shall be construed to prevent a Party from conditioning the
receipt or continued receipt o f an advantage, in connection w ith an investm ent in its
territory o f an investor o f a Party or o f a non-Party7, on com pliance w ith a requirem ent to
locate production, provide a service, train or em ploy workers, construct or expand
particular facilities, or cariy o u t research and developm ent, in its territory.
5. Paragraphs 1 and 3 do not apply to any requirem ent ocher than the requirem ents set o u t
in those paragraphs.
6 . Provided th at such measures are not applied in an arbitrary or unjustifiable m anner, or
do n o t constitute a disguised restriction on international trade or investm ent, noth in g in
paragraph 1(b) or (c) or 3(a) or (b) shall be construed to prevent any Party from adopting
or m aintaining measures, including environm ental measures:
(a) necessary to secure compliance w ith laws and regulations that are n o t inconsistent
w ith the provisions o f this Agreement;
(b) necessary to protect hum an, anim al or plant life or health; or
(c) necessary for the conservation o f living or non-living exhaustible natural resources.

Anicle 1107
S e n io r M a n a g e m e n t a n d B o a rd s o f D ire c to rs
1, N o Party m ay require th at an enterprise o f that Party that is an investm ent o f an investor
o f another Party appoint to senior m anagem ent positions individuals o f any particular
nationality7.
2. A Party m ay require th at a m ajority o f the board o f directors, or any com m ittee thereof,
o f an enterprise o f that Party that is an investm ent o f an investor o f another Party, be o f a
particular nationality, or resident in the territory o f the Party, provided th at the
requirem ent does not m aterially impair the ability o f th e investor to exercise control
over its investm ent.

Article 1108
Reservations an d E xceptions
1. Articles 1102, 1103, 1106 and 1107 do not apply to:
(a) any existing non-conform ing measure that is m aintained by
(i) a Parry7 at the federal level, as set out in its Schedule to A nnex I or III,
(ii) a state or province, for two years after the date o f entry into force o f this
Agreem ent, and thereafter as set out by a Party in its Schedule to A nnex I in
accordance w ith paragraph 2 , or
(iii) a local governm ent;
(b) the continuation or prom pt renewal o f any non-conform ing measure referred to in
subparagraph (a); or
344 Annexes

(c) an am endm ent to any non-conform ing measure referred to in subparagraph (a) to the
extent diat the am endm ent does not decrease die conformity o f die measure, as it
existed immediately before the am endm ent, with Articles 1102. 1103, 1106 and 1107.
2 . Each Parry may set out in its Schedule to A nnex I, w ithin two years o f the date o f entry
into force o f this Agreement, any existing nonconform ing measure m aintained by a state
or province, not including a local governm ent,
3. Articles 1102, 1103, 1106 and 1107 do not apply to any measure that a Party adopts or
m aintains w ith respect to sectors, subsectors or activities, as set out in its Schedule to
Annex II.
4. N o Party may, under any measure adopted after the date o f entry into force o f this
Agreement and covered by its Schedule to A nnex II, require an investor o f another Party,
by reason o f its nationality, to sell or otherwise dispose o f an investm ent existing at the
time the measure becomes effective.
5. Articles 1102 and 1103 do not apply to any measure that is an exception to, or
derogation from, the obligations under Aurticle 1703 (Intellectual Property N ational
Treatm ent) as specifically provided for in that Article.
6. Article 1103 does not apply to treatm ent accorded by a Party pursuant to agreements, or
with respect to sectors, set out in its Schedule to Annex IV.
7. Articles 1102, 1103 and 1107 do n o t apply to;
(a) procurem ent by a Party or a state enterprise; or
(b) subsidies or grants provided by a Party or a state enterprise, including governm ent
supported loans, guarantees and insurance.
8. T he provisions of:
(a) Article 1106(1)(a)5 (b) and (c), and (3)(a) and (b) do not apply to qualification
requirem ents for goods or services w ith respect to export prom otion and foreign aid
programs;
(b) Article 1106(1)(b), (c), (f) and (g), and (3)(a) and (b) do not apply to procurem ent
by a Party or a state enterprise; and
(c) Article 1 106(3)(a) and (b) do not apply to requirem ents im posed by an im porting
Party relating to the content o f goods necessary to qualify for preferential tariffs or
preferential quotas.

Article 1109
T ransfers
1 . Each Party shall perm it all transfers relating to an investm ent o f an investor o f another
Party in the territory o f the Party to be m ade freely and w ith o u t delay. Such transfers
include:
(a) profits, dividends, interest, capital gains, royalty paym ents, m anagem ent fees,
technical assistance and other fees, returns in kind and other am ounts derived
from the investment;
(b) proceeds from the sale o f all or any part o f the investm ent or from the partial or
complete liquidation o f the investm ent;
(c) paym ents m ade under a contract entered into by the investor, or its investment,
including payments made pursuant to a loan agreement;
(d) paym ents made pursuant to Article 1110; and
(e) payments arising under Section B.
2 . Each Party shall perm it transfers to be m ade in a freely usable currency at the m arket rate
o f exchange prevailing on the date o f transfer w ith respect to spot transactions in the
currency to be transferred.
 North American Free Trade Agreement (Chapter 11) 345
3. N o Party m ay require its investors to transfer, or penalize its investors that fail to transfer,
the incom e, earnings, profits or other am ounts derived from , or attributable to, invest­
m ents in the territory of another Party.
4. N otw ithstanding paragraphs 1 and 2, a Party may prevent a transfer through the
equitable, non-discrim inatory and good faith application o f its laws relating to:
(a) bankruptcy, insolvency or the protection o f the rights o f creditors;
(b) issuing, trading or dealing in securities;
(c) crim inal or penal offenses;
(d) reports o f transfers o f currency or other m onetary instrum ents; or
(e) ensuring the satisfaction o f judgm ents in adjudicatory proceedings.
5. Paragraph 3 shall n o t be construed to prevent a Party from im posing any measure
through die equitable, non-discrim inator}' and good faith application of its laws relating
to the m atters set out in subparagraphs (a) through (e) o f paragraph 4.
6 . N o tw ithstanding paragraph 1 , a Party m ay restrict transfers o f returns in kind in
circum stances where it could otherwise restrict such transfers under this A greem ent,
including as set o u t in paragraph 4.

Article 1110
E xpropriation a n d C om pensation
1 . N o Party m ay directly or indirectly nationalize or expropriate an investm ent o f an
investor o f another Party in its territory or take a measure tantam ount to nationalization
or expropriation o f such an investm ent (“expropriation”), except:
(a) for a public purpose;
(b) on a non-discrim inatory basis;
(c) in accordance w ith due process o f law and Article 1105(1); and
(d) on paym ent o f com pensation in accordance w ith paragraphs 2 through 6 ,
2. C om pensation shall be equivalent to the fair m arket value o f the expropriated investm ent
im m ediately before the expropriation took place (“date o f expropriation”), and shall not
reflect any change in value occurring because the intended expropriation had becom e
know n earlier. V aluation criteria shall include going concern value, asset value including
declared tax value o f tangible property, and other criteria, as appropriate, to determ ine
fair m arket value.
3. C om pensation shall be paid w ithout delay and be fully realizable.
4. If paym ent is made in a G 7 currency, com pensation shall include interest at a com m er­
cially reasonable rate for that currency from the date o f expropriation until the date o f
actual paym ent.
5. I f a Party elects to pay in a currency other than a G 7 currency, the am ount paid on the
date o f paym ent, if converted into a G 7 c u rre n q ? at the m arket rate o f exchange
prevailing on that date, shall be no less than if the am ount of com pensation owed on
the date o f expropriation had been converted into that G 7 currency at the m arket rate o f
exchange prevailing on that date, and interest had accrued at a commercially reasonable
rate for that G 7 currency from the date o f expropriation until the date of paym ent.
6 . O n paym ent, com pensation shall be freely transferable as provided in Article 1109.
7. T his Article does n o t apply to the issuance o f com pulsory licenses granted in relation to
intellectual property rights, or to the revocation, lim itation or creation o f intellectual
property rights, to the extent that such issuance, revocation, lim itation or creation is
consistent w ith C hapter Seventeen (Intellectual Property).
8 . For purposes of this Article and for greater certainty, a non-discrim inatory measure o f
general application shall n o t be considered a measure tantam ount to an expropriation o f
346 Annexes

a debt security or loan covered by this C hapter solely on the ground th at the measure
imposes costs on the debtor th at cause it to default on the debt.

Article 1111
Special F o rm a litie s a n d I n fo rm a tio n R e q u ire m e n ts
1. N o th in g in Article 1102 shall be construed, to prevent a Party from adopting or
m aintaining a measure that prescribes special formalities in connection w ith the estab­
lishm ent o f investments by investors o f another Party, such as a requirem ent that
investors be residents o f the Party or that investm ents be legally constituted under the
laws o r regulations o f the Party, provided th at such formalities do n o t materially impair
the protections afforded by a Party to investors o f another Party and investm ents of
investors o f another Party pursuant to this Chapter.
2. N otw ithstanding Articles 1102 or 1103, a Party may require an investor o f another
Party7, or its investment in its territory, to provide routine inform ation concerning that
investm ent solely for inform ational or statistical purposes. T he Party shall protect such
business information that is confidential from any disclosure that w ould prejudice the
com petitive position o f the investor or the investm ent. N oth in g in this paragraph shall
be construed to prevent a Part }7 from otherwise obtaining or disclosing inform ation in
connection with the equitable and good faith application o f its law.

Article 1112
R e la tio n to O th e r C h a p te rs
1. In the event of any inconsistency between this C hapter and another Chapter, the other
C hapter shall prevail to the extent o f the inconsistency.
2. A requirem ent by a Party7 that a service provider o f another Party post a bond or other
form o f financial security7 as a condition o f providing a service into its territory does not
o f itself make this C hapter applicable to the provision o f that crossborder service. This
C hapter applies to that Party’s treatm ent o f the posted bond or financial security.

Article 1113
D e n ia l o f B enefits
1. A Party may deny the benefits o f this C hapter to an investor o f another Party that is an
enterprise of such Party and to investm ents o f such investor if investors o f a non-Party
own or control the enterprise and the denying Party:
(a) does not m aintain diplom atic relations w ith the non-Party; or
(b) adopts or maintains measures w ith respect to the non-Party 7 that prohibit transac­
tions widi the enterprise or that w ould be violated or circum vented if the benefits of
this Chapter were accorded to the enterprise or to its investments.
2. Subject to prior notification and consultation in accordance w ith Articles 1803 (Notifi­
cation and Provision o f Inform ation) and 2006 (Consultations), a Party may deny the
benefits of this C hapter to an investor o f another Party that is an enterprise o f such Party
and to investments of such investors if investors o f a non-Party own or control the
enterprise and the enterprise has no substantial business activities in the territory of the
Part }7 under whose law it is constituted or organized.

Article 1114
E nvironm ental M easures
1. N o th in g in this Chapter shall be construed to prevent a Part )7 from adopting, m aintain­
ing or enforcing any measure otherwise consistent with this C hapter that it considers
 North American Free Trade Agreement (Chapter 11) 347
appropriate to ensure that investm ent activity in its territory is undertaken in a m anner
sensitive to environm ental concerns.
2 . T h e Parties recognize th a t it is inappropriate to encourage investm ent by relaxing
dom estic health, safety or environm ental measures. Accordingly, a Party should not
waive or otherwise derogate from, or offer to waive or otherw ise derogate from , such
m easures as an encouragem ent for the establishm ent, acquisition, expansion or retention
in its territory o f an investm ent o f an investor. I f a Party considers that another Party has
offered such an encouragem ent, it m ay request consultations w ith the other Party and
the two Parties shall consult w ith a view to avoiding any such encouragem ent.

S e ctio n B
S e td e m e n t o f D isp u te s b e tw e e n a P a rty a n d an In v e sto r
o f A n o th e r P a r ty
Article 1115
P u rp o s e
W ith o u t prejudice to the rights and obligations o f the Parties under C hapter T w enty
(Institutional A rrangem ents and D ispute Settlem ent Procedures), this Section establishes
a m echanism for the settlem ent o f investm ent disputes that assures both equal treatm ent
am ong investors o f the Parties in accordance w ith the principle o f international reciprocity
and due process before an im partial tribunal.

Article 1116
C la im b y a n In v e sto r o f a P a r ty o n Its O w n B e h a lf
1. A n investor o f a Party m ay subm it to arbitration under this Section a claim that another
Party has breached an obligation under:
(a) Section A or Article 1503(2) (State Enterprises), or
(b) Article 1502(3)(a) (M onopolies and State Enterprises) w here the m onopoly has
acted in a m anner inconsistent w ith the Party’s obligations under Section A,
and that the investor has incurred loss or damage by reason of, or arising out of, that
breach.
2. An investor m ay n o t make a claim if m ore than three years have elapsed from the date on
w hich the investor first acquired, or should have first acquired, knowledge o f the alleged
breach and knowledge that the investor has incurred loss or damage.

Article 1117
C la im b y a n In v e sto r o f a P a r ty o n B e h a lf o f a n E n te rp rise
1. A n investor o f a Party, on behalf o f an enterprise o f another Party that is a juridical
person that the investor owns or controls direcdy or indirectly, m ay subm it to arbitration
under this Section a claim th at the other Party has breached an obligation under:
(a) Section A or Article 1503(2) (State Enterprises), or
(b) Article 1502(3)(a) (Monopolies and State Enterprises) where the m onopoly has acted
in a m anner inconsistent with the Party’s obligations under Section A, and that the
enterprise has incurred loss or damage by reason of, or arising out of, that breach.
2. An investor may n o t make a claim on behalf o f an enterprise described in paragraph 1 if
m ore than three years have elapsed from the date on w hich the enterprise first acquired,
or should have first acquired, knowledge o f the alleged breach and knowledge that the
enterprise has incurred loss or damage.
348 Annexes

'■). W here an investor m akes a claim under this Article and the investor or a noncontrollino-
&
investor in the enterprise makes a claim under Article 1116 arising o u t oir the same events
that gave rise to the claim under this Article, and two or more o f the claims are subm itted
to arbitration under Article 1 1 2 0 , the claims should be heard together by a T ribunal
established under Article 1126, unless the T ribunal finds that the interests of a disputing
part}- would be prejudiced thereby.
4. An investm ent m ay n o t make a claim under this Section.

Article 1118
Settlem ent o f a C laim th ro u g h C onsultation and N egotiation
T he disputing- parties should first attem pt to settle a claim through consultation or
negotiation,

Article 1119
N otice o f In te n t to Subm it a C laim to A rbitration
T he disputing investor shall deliver to the disputing Party w ritten notice of its intention to
subm it a claim to arbitration at least 90 days before the claim is subm itted, which notice
shall specify:
(a) the name and address o f the disputing investor and, where a claim is made under
Article 1117, the nam e and address o f the enterprise;
(b) the provisions o f this Agreem ent alleged to have been breached and any other
relevant provisions;
(c) the issues and the factual basis for the claim; and
(d) the relief sought an d the approxim ate am ount o f damages claimed.

Article 1120
Subm ission o f a C laim to A rbitration
1 . Except as provided in A nnex 1120,1, and provided that six m onths have elapsed since
the events giving rise to a claim, a disputing investor may subm it the claim to arbitration
under:
(a) the ICSID C onvention, provided that both the disputing Party and the Party of the
investor are parties to the Convention;
(b) the Additional Facility Rules o f IC SID , provided that either the disputing Party or
the Party o f the investor, b u t not both, is a party to the IC SID Convention; or
(c) the U N C IT R A L A rbitration Rules.
2 . T he applicable arbitration rules shall govern the arbitration except to the extent modified
by this Section.

Article 1121
C onditions P recedent to Subm ission o f a C laim to A rbitration
1 . A disputing investor m ay subm it a claim under Article 1116 to arbitration only if:
(a) the investor consents to arbitration in accordance w ith the procedures set out in this
Agreement; and
(b) the investor and, where the claim is for loss or damage to an interest in an enterprise
o f another Party7 th at is a juridical person that the investor owns or controls directly
or indirectly, the enterprise, waive their right to initiate or continue before any
administrative tribunal or court under the law o f any Party, or other dispute
settlem ent procedures, any proceedings with respect ro rhe measure o f the disputing
Part)' that is alleged to be a breach referred to in Article 1116, except for proceedings
 North American Free Trade Agt'eement (Chapter 11) 349
for injunctive, declaratory or odier extraordinary relief, not involving the paym ent
o f damages, before an administrative tribunal or court under the law o f the disputing
Party.
2. A disputing investor m ay subm it a claim under Article 1117 to arbitration only if b oth
the investor and the enterprise;
(a) consent to arbitration in accordance with the procedures set out in this Agreement;
and
(b) waive their right to initiate or continue before any adm inistrative tribunal or court
under the law o f any Party', or other dispute settlem ent procedures, any proceedings
w ith respect to the measure o f the disputing Party' th at is alleged to be a breach
referred to in Article 1117, except for proceedings for injunctive, declaratory or
other extraordinaiy relief, n o t involving the paym ent o f damages, before an adm inis­
trative tribunal or court under the law o f the disputing Party.
3. A consent and waiver required by this Article shall be in writing, shall be delivered to the
disputing Party- and shall be included in the submission o f a claim to arbitration.
4. O nly where a disputing Party has deprived a disputing investor o f control o f an
enterprise:
(a) a waiver from the enterprise under paragraph 1 (b) or 2 (b) shall n o t be required; and
(b) Annex 1 120.1(b) shall not apply.

Article 1122
C on sen t to A rbitration
1 . Each Part}' consents to the subm ission o f a claim to arbitration in accordance w ith the
procedures set o u t in this Agreem ent.
2 . T h e consent given by paragraph 1 and the subm ission by a disputing investor o f a claim
to arbitration shall satisfy the requirem ent of:
(a) C hapter II o f the IC SID C onvention (Jurisdiction o f the Centre) and the Additional
Facility Rules for w ritten consent o f the parties;
(b) Article II o f the N ew York C onvention for an agreem ent in writing; and
(c) Article I o f the InterA m erican C onvention for an agreement.

Article 1123
N u m b e r o f A rbitrators an d M eth o d o f A p p o in tm en t
E xcept in respect o f a T ribunal established under Article 1126, and unless the disputing
parties otherwise agree, the T ribunal shall comprise three arbitrators, one arbitrator ap­
pointed by each o f the disputing parties and the third, who shall be the presiding arbitrator,
appointed by agreem ent o f the disputing parties.

Article 1124
C o n stitu tio n o f a T rib u n a l W h e n a Part}?· Fails to A p p o in t an A rb itrato r o r the
D isp u tin g Parties are U nable to Agree on a Presiding A rbitrator
1 . T h e Secretary-General shall serve as appointing authority for an arbitration under this
Section.
2 . If a T ribunal, other than a T ribunal established under Article 1126, has n o t been
constituted w ithin 90 days from the dare that a claim is subm itted to arbitration, the
Secretary-General, on the request o f either disputing party, shall appoint, in his discre­
tion, the arbitrator or arbitrators n o t yet appointed, except that the presiding arbitrator
shall be appointed in accordance w ith paragraph 3.
350 Annexes

3. T he Secretary-General shall appoint the presiding arbitrator from the roster o f presiding
arbitrators referred to in paragraph 4, provided that the presiding arbitrator shall n o t be a
national o f the disputing Party or a national o f the Party o f the disputing investor. In the
event that no such presiding arbitrator is available to serve, the Secretary-General shall
appoint, from the IC SID Panel o f Arbitrators, a presiding arbitrator who is not a national
of an )7 o f the Parties.
4. O n the date o f entry into force o f this Agreem ent, the Parties shall establish, and
thereafter maintain, a roster o f 45 presiding arbitrators m eeting the qualifications o f
the Convention and rules referred to in Article 1120 and experienced in international
law and investment matters. T he roster m em bers shall be appointed by consensus and
w ithout regard to nationality.

Article 1125
A greem ent to A p p o in tm e n t o f A rbitrators
For purposes o f Article 39 o f the IC SID C onvention and Article 7 o f Schedule C to the
ICSID Additional Facility Rules, and w ithout prejudice to an objection to an arbitrator
based on Article 1124(3) or on a ground other than nationality:
(a) the disputing Party agrees to the appointm ent o f each individual m em ber o f a
T ribunal established under the IC SID C onvention or the IC S ID A dditional Facility
Rules;
(b) a disputing investor referred to in Article 1116 m ay subm it a claim to arbitration, or
continue a claim, under the IC S ID C onvention or the IC SID A dditional Facility
Rules, only on condition that the disputing investor agrees in writing to the
appointm ent o f each individual m em ber o f the Tribunal; and
(c) a disputing investor referred to in Article 1117(1) m ay subm it a claim to arbitration,
or continue a claim, under the IC SID C onvention or the IC5!ID Additional Facility
Rules, only on condition that the disputing investor and the enterprise agree in
writing to the appointm ent o f each individual m em ber o f the Tribunal.

Article 1126
C onsolidation
1. A Tribunal established under this Article shall be established under the U N C ITR A L
A rbitration Rules and shall conduct its proceedings in accordance w ith those Rules,
except as modified by this Section.
2 . W here a Tribunal established under this Article is satisfied that claims have been
subm itted to arbitration under Article 1120 that have a question o f law or fact in
com m on, the Tribunal may, in the interests o f fair and efficient resolution o f the claims,
and after hearing the disputing parties, by order:
(a) assume jurisdiction over, and hear and determ ine together, all or part o f the claims;
or
(b) assume jurisdiction over, and hear and determ ine one or more o f the claims, the
determination o f which it believes w ould assist in the resolution of the others.
3. A disputing party that seeks an order under paragraph 2 shall request the Secretary-
General to establish a T ribunal and shall specify in the request;
(a) the name o f the disputing Party or disputing investors against which the order is
sought;
(b) the nature o f the order sought; and
(c) the grounds on which the order is sought.
 North American Free Trade Agreement (Chapter 11) 351
4. T h e disputing party shall deliver ro the disputing Party o r disputing investors against
w hich the order is sought a copy o f die request.
5. W ith in 60 days o f receipt o f the request, the Secretary-General shall establish a
T ribunal com prising three arbitrators, T h e Secretary-General shall appoint the presid­
ing arbitrator from the roster referred to in Article 1124(4). In the event that no such
presiding arbitrator is available to serve, the Secretary-General shall appoint, from the
IC S ID Panel o f A rbitrators, a presiding arbitrator who is n o t a national o f any o f the
Parties. T he Secretary-General shall appoint the two other m em bers from the roster
referred to in Article 1124(4), and to the extent not available from th at roster, from the
IC S ID Panel o f Arbitrators, and ro the extent not available from th at Panel, in die
discretion o f the Secretary- General. O ne m em ber shall be a national o f the disputing
Party and one m em ber shall be a national o f a Party o f the disputing investors.
6 . W here a T ribunal has been established under this Article, a disputing investor that has
subm itted a claim to arbitration under Article 111 6 or 1117 and th at has n o t been nam ed
in a request m ade under paragraph 3 m ay m ake a w ritten request to the T ribunal th at it
be included in an order m ade under paragraph 2 , and shall specify in the request:
(a) the nam e and address o f the disputing investor;
(b) the nature o f the order sought; and
(c) the grounds on w hich the order is sought.
7. A disputing investor referred to in paragraph 6 shall deliver a copy o f its request to the
disputing parties nam ed in a request m ade under paragraph 3.
8 . A T ribunal established under Article 1120 shall n o t have jurisdiction to decide a claim,
or a p art o f a claim, over w hich a T ribunal established under this Article has assumed
jurisdiction.
9. O n application o f a disputing party, a T ribunal established under this Article, pending
its decision under paragraph 2 , m ay order th a t the proceedings o f a T ribunal established
under Article 1120 be stayed, unless the latter T ribunal has already adjourned its
proceedings.
10. A disputing Party shall deliver to the Secretariat, w ithin 15 days o f receipt by the
disputing Party, a copy of:
(a) a request for arbitration made under paragraph ( 1 ) o f Article 36 o f the IC SID
Convention;
(b) a notice o f arbitration made under Article 2 o f Schedule C o f the IC SID Additional
Facility Rules; or
(c) a notice o f arbitration given under the U N C IT R A L A rbitration Rules.
11. A disputing Party shall deliver to the Secretariat a copy o f a request made under
paragraph 3:
(a) w ithin 1 5 days o f receipt o f the request, in the case o f a request m ade by a disputing
investor;
(b) w ithin 15 days o f m aking the request, in the case o f a request made by the
disputing Party.
12. A disputing Party shall deliver to the Secretariat a copy o f a request made under
paragraph 6 w ithin 15 days o f receipt o f the request.
13. T he Secretariat shall m aintain a public register o f the docum ents referred to in
paragraphs 1 0 , 1 1 and 1 2 .

Article 1127
N otice
A disputing Party shall deliver to the other Parties:
352 Annexes

(a) written notice o f a claim that has been subm itted to arbitration no later than 30
days after the date that the claim is subm itted; and
(b) copies o f all pleadings filed in the arbitration.

Article 1128
P articip atio n by a P arty
O n w ritten notice to the disputing parties, a Part)'· may make submissions to a T ribunal on a
question o f interpretation o f this Agreem ent.

Article 1129
D ocum ents
1. A Party shall be entitled to receive from the disputing Party, at the cost o f the requesting
Part)- a copy of;
(a) the evidence that has been tendered to the T ribunal; and
(b) the written argum ent o f the disputing parties.
2. A P a ry receiving inform ation pursuant to paragraph 1 shall treat the inform ation as if it
were a disputing Party.

Article 1130
P lace o f A rb itra tio n
Unless the disputing parties agree otherwise, a T ribunal shall hold an arbitration in the
territory o f a Party that is a party to the N ew York C onvention, selected in accordance with:
(a) the ICSID A dditional Facility Rules if the arbitration is under those Rules or the
ICSID Convention; or
(b) the U N C ITR A L A rbitration Rules if the arbitration is under those Rules.

Article 1131
G overning Law
1, A T ribunal established under this Section shall decide the issues in dispute in accordance
w ith this Agreement and applicable rules o f international law.
2. A n interpretation by the Com m ission o f a provision o f this A greem ent shall be binding
on a T ribunal established under this Section.

Article 1132
In terp re ta tio n o f Annexes
1. W here a disputing Party asserts as a defense that the m easure alleged to be a breach is
w ithin the scope o f a reservation or exception set o u t in Annex I, Annex II, Annex III or
Annex IV, on request o f the disputing Party, the T ribunal shall request the interpretation
o f the Com m ission on the issue. T h e Com m ission, w ithin 60 days o f delivery o f the
request, shall subm it in w riting its interpretation to the T ribunal.
2. Further to Article 1131(2), a C om m ission interpretation subm itted under paragraph 1
shall be binding on the T ribunal, I f the Com m ission fails to subm it an interpretation
w ithin 60 days, the T ribunal shall decide the issue.

Article 1133
E xpert Reports
W ith o u t prejudice to the appointm ent or other kinds o f experts where authorized by the
applicable arbitration rules, a T ribunal, at the request o f a disputing party or, unless the
disputing parties disapprove, on its own initiative, may appoint one or more experts to
report to it in w riting on any factual issue concerning environm ental, health, safety or other
 North American Free Trade Agreement (Chapter 11) 353

scientific m atters raised by a disputing p a rr/ in a proceeding, subject to such terms and
conditions as the disputing parties may agree,

Article 1134
Interim Measures of Protection
A T ribunal m ay order an interim measure o f protection to preserve the rights o f a disputing
party, or to ensure that the T ribunal’s jurisdiction is made fully effective, including an order
to preserve evidence in the possession or control o f a disputing p arty or to protect the
T rib u n al’s jurisdiction. A T ribunal may not order attachm ent or enjoin the application of
the m easure alleged to constitute a breach referred to in Article 1 1 1 6 o r Γ 1 17. For purposes
o f this paragraph, an order includes a recom m endation.

Article 1135
Final Award
1 . W here a T ribunal makes a final award against a Party, the T ribunal may award,
separately or in com bination, only:
(a) m onetary damages and any applicable interest;
(b) restitution o f property, in w hich case the award shall provide that the disputing
Party m ay pay m onetary damages and any applicable interest in lieu o f restitution.
A tribunal may also award costs in accordance w ith the applicable arbitration rules.
2. Subject to paragraph 1, w here a claim is made under Article 1117(1):
(a) an award o f restitution o f property shall provide that restitution be made to the
enterprise;
(b) an award o f m onetary damages and any applicable interest shall provide that the
sum be paid to the enterprise; and
(c) the award shall provide that it is made w ithout prejudice to any right that any person
may have in the relief under applicable dom estic law.
3. A T ribunal may not order a Party to pay punitive damages.

Article 1136
Finality 7 an d E nforcem ent o f an A w ard
1 . An award made by a T ribunal shall have no binding force except betw een the disputing
parties and in respect o f the particular case.
2 . Subject to paragraph 3 and the applicable review procedure for an interim award, a
disputing party shall abide by and comply with an award without delay.
3. A disputing party may not seek enforcem ent o f a final award until:
(a) in the case o f a final award m ade under the IC SID C onvention
(i) 1 2 0 days have elapsed from the date the award was rendered and no disputing
party has requested revision or annulm ent o f the award, or
(ii) revision or annulm ent proceedings have been completed; and
(b) in the case o f a final award under the IC SID A dditional Facility Rules or the
U N C IT R A L A rbitration Rules
(i) three m onths have elapsed from the date the award w?as rendered and no
disputing party has com m enced a proceeding to revise, set aside or annul the
award, or
(ii) a court has dismissed or allowed an application to revise, set aside or annul the
award and there is no further appeal.
4. Each Party shall provide for the enforcem ent of an award in its territory7.
354 Annexes

5. If a disputing Party fails to abide by or com ply w ith a final award, the Com m ission, on
delivery o f a request by a Party whose investor was a party to the arbitration, shall
establish a panel under Article 2008 (Request for an Arbitral Panel). T he requesting
Party m ay seek in such proceedings:
(a) a determ ination th at the failure to abide by or com ply w ith the final award is
inconsistent w ith the obligations o f this A greem ent; and
(b) a recom m endation th at the Party abide by or com ply w ith the final award.
6 . A disputing investor m ay seek enforcem ent o f an arbitration award under the IC SID
Convention, the N ew York C onvention or the InterA m erican C onvention regardless o f
w hether proceedings have been taken under paragraph 5.
7. A claim that is subm itted to arbitration under this Section shall be considered to arise out
of a commercial relationship or transaction for purposes o f Article I o f the N ew York
Convention and Article I o f the InterAm erican C onvention.

Article 1137
G e n e ra l
Time when a Claim is Submitted to Arbitration
1. A claim is subm itted to arbitration under this Section when:
(a) the request for arbitration under paragraph ( 1 ) o f Article 36 o f die IC SID Conven­
tion has been received by the Secretary-General;
(b) the notice o f arbitration under Article 2 o f Schedule C o f the IC SID Additional
Facility Rules has been received by the Secretary- General; or
(c) the notice o f arbitration given under the U N C IT R A L A rbitration Rules is received
by the disputing Party.

Sewice of Documents
2. Deliver}7 o f notice and other docum ents on a Party shall be m ade to the place nam ed for
that Part }7 in Annex 1137.2.

Receipts under Insurance or Guarantee Contracts

3. In an arbitration under this Section, a Party shall n o t assert, as a defense, counterclaim,
right o f setoff- or otherwise, that the disputing investor has received or will receive,
pursuant to an insurance or guarantee contract, indem nification or other com pensation
for all or part o f its alleged damages.

Publication of an Award
4. Annex 1137.4 applies to the Parties specified in th at Annex w ith respect to publication o f
an award.

Article 1138
Exclusions
1 . W ith o u t prejudice to the applicability or non-applicability o f the dispute settlem ent
provisions o f this Section or o f C hapter T w enty (Institutional Arrangem ents and
D ispute Settlement Procedures) to other actions taken by a Party pursuant to Article
2102 (National Security), a decision by a Party to prohibit or restrict the acquisition of
an investm ent in its territory by an investor o f another Party, or its investm ent, pursuant
to that Article shall n o t be subject to such provisions.
2 , T he dispute settlem ent provisions o f this Section and o f C hapter T w enty shall n o t apply
to the matters referred to in Annex 1138.2.
 North American Free Trade Agreement (Chapter 11) 355
Section C - D efinitions
Article 1139
D efinitions
For purposes o f this Chapter:
disp u tin g investor m eans an investor that makes a claim under Section B;
disp u tin g parties m eans the disputing investor and the disputing Party;
disp u tin g p arty m eans the disputing investor or the disputing Party;
disputing P arty means a Party against w hich a claim is made u n d e r Section B;
enterprise m eans an “enterprise” as defined in Article 201 (Definitions o f General
Application), and a branch o f an enterprise;
enterprise o f a P a rty m eans an enterprise constituted or organized under the law o f a
Party, and a branch located in the territory o f a Party and carrying out business activities
there.
equity o r debt securities includes voting and non-voting shares, bonds, convertible
debentures, stock options an d warrants;
G 7 C urrency m eans the currency o f Canada, France, Germ any, Italy, Japan, the U nited
K ingdom o f G reat Britain and N orthern Ireland or the U nited States;
IC S ID means the International C entre for Settlem ent o f Investm ent Disputes;
IC S ID C onv en tio n m eans the Convention on the Settlement of Investment Disputes
between States and Nationals of other States, done at W ashington, M arch IS, 1965;
InterA m erican C o nvention means the InterAm erican C onvention on International
C om m ercial A rbitration, done at Panama, January 30, 1975;
investm ent means:
(a) an enterprise;
(b) an equity security o f an enterprise;
(c) a debt security o f an enterprise
(i) where the enterprise is an affiliate o f the investor, or
(ii) where the original m aturity o f the debt security is at least three years, b u t does
n ot include a debt security, regardless o f original m aturity, o f a state enterprise;
(d) a loan to an enterprise
(i) where the enterprise is an affiliate o f the investor, or
(ii) where the original m aturity o f the loan is at least three years,
but does n o t include a loan, regardless o f original m aturity, to a state enterprise;
(e) an interest in an enterprise that entitles the owner to share in incom e or profits o f the
enterprise;
(f) an interest in an enterprise that entitles the owner to share in the assets o f diat
enterprise on dissolution, other than a debt security or a loan excluded from
subparagraph (c) or (d);
(g) real estate or other property, tangible or intangible, acquired in the expectation or
used for the purpose o f econom ic benefit or other business purposes; and
(h) interests arising from the com m itm ent o f capital or other resources in the territoiy o f
a Party to econom ic activity in such territory, such as under
(i) contracts involving the presence o f an investor’s property in the territory o f the
Party, including turnkey or construction contracts, or concessions, or
(ii) contracts where rem uneration depends substantially on the production, rev­
enues or profits o f an enterprise;
b u t investm ent does n o t mean,
(i) claims to m oney th at arise solely from
356 Annexes

(i) commercial contracts for the sale o f goods or services by a national or enterprise
in the territory o f a Party to an enterprise in the territory o f another Party, or
(ii) the extension o f credit in connection with a commercial transaction, such as
trade financing, other than a loan covered by subparagraph (d); or
(j) any other claims to m oney,
that do not involve the kinds o f interests set out in subparagraphs (a) through (h);

investm ent o f an investor o f a P arty means an investm ent owned or controlled directly
or indirectly by an investor o f such Party;
investor o f a P arty means a Party or state enterprise thereof, or a nation al or an enterprise
o f such Party, that seeks to make, is m aking or has made an investment;
investor o f a n o n -P a rty m eans an investor other than an investor o f a Party, that seeks to
make, is m aking or has made an investm ent;
N e w Y ork C onvention means the United Nations Convention on the Recognition and
Enforcement o f Foreign Arbitral Awards, done at N ew York, June 1 0 , 1958;
Secretary-G enerai means the Secretary-General o f ICSID ;
transfers means transfers and international payments;
T ribunal means an arbitration tribunal established under Article 1120 or 1126; and
U N C IT R A L A rbitration Rules means the arbitration rules o f the u n ite d Nations
Com m ission on International T rade Law, approved by the U n ited N ations General Assem­
bly on D ecem ber 15, 1976.

A n n e x 1 1 2 0 .1
Subm ission o f a C laim to A rbitration M exico
W ith respect to the subm ission o f a claim to arbitration:
(a) an investor ol another Party m ay not allege that Mexico has breached an obligation
under:
(i) Section A or Article 1503(2) (State Enterprises), or
(ii) Article 1502(3)(a) (M onopolies and State Enterprises) where the m onopoly has
acted in a m anner inconsistent w ith the Party's obligations under Section A,
both in an arbitration under diis Section and in proceedings before a Mexican
court or adm inistrative tribunal; and
(b) where an enterprise o f M exico that is a juridical person that an investor o f another
Party owns or controls directly or indirecdy alleges in proceedings before a Mexican
court or adm inistrative tribunal that Mexico has breached an obligation under:
(i) Section A or Article 1503(2) (State Enterprises), or
(ii) Article 1502(3)(a) (M onopolies and State Enterprises) where the m onopoly has
acted in a m anner inconsistent w ith the Party’s obligations under Section A,
the investor m ay not allege the breach in an arbitration under this Section.

A n n e x 1 1 3 7 .2
Service o f D ocum ents on a P arty U n d e r Section B
E ach Party shall set out in this A nnex and publish in its official journal by January 1 , 1994,
the place for delivery o f notice and other docum ents under this Section.

A n n e x 1 1 3 7 .4
P ublicatio n o f an A w ard C anada
W h ere Canada is the disputing Party, either C anada or a disputing investor that is a party to
the arbitration may make an award public.
 North American Free Trade Agreement (Chapter 11) 3 57

Mexico

W here Mexico is the disputing Party, the applicable arbitration rules apply to the publica­
tion o f an award.

U nited States

W here the U nited States is the disputing Party, either the U nited States or a disputing
investor that is a party to the arbitration m ay make an award public.

Annex 1138.2
Exclusions from D ispute S etd em en t C anada
A decision by C anada following a review under the Investm ent C anada A ct, w ith respect to
w hether or n o t to perm it an acquisition that is subject to review, shall n o t be subject to th e
dispute settlem ent provisions o f Section B or o f C hapter T w enty (Institutional A rrange­
m ents and D ispute Settlem ent Procedures),

Mexico

A decision by the N ational Com m ission on Foreign Investm ent (“C om ision N acional de
Inversiones Extranjeras”) following a review pursuant to Annex page IM 4 , w ith respect to
w hether or n o t to perm it an acquisition that is subject to review, shall n o t be subject to the
dispute settlem ent provisions o f Section B or o f C hapter T w enty (Institutional A rrange­
m ents and D ispute Settlem ent Procedures).
 Agreement Between the Government of the People’s
Republic of China and the Government of [... ] on
the Promotion and Protection of Investments
T he G overnm ent o f the People’s Republic o f C hina and the G overnm ent o f (hereinafter
referred to as the Contracting Parties),
Intending to create favorable conditions for investm ent by investors o f one C ontracting
Party in the territory of the other C ontracting Party;
Recognizing that the reciprocal encouragem ent, prom otion and protection o f such
investm ent will be conducive to stim ulating business initiative o f the investors and will
increase prosperity in both States;
Desiring to intensify the cooperation o f both States on the basis o f equality and m utual
benefits;
Have agreed as follows:

Article 1
D efinitions
For the purpose o f this Agreem ent,
1 . T he term “investm ent” means every kind o f asset invested by investors o f one C ontract­
ing Party in accordance w ith the laws and regulations o f the other C ontracting Party in
the territory of the latter, and in particularly, though n o t exclusively, includes:
(a) m ovable and imm ovable property and other property rights such as mortgages,
pledges and similar rights;
(b) shares, debentures, stock an d any other kind o f participation in companies;
(c) claims to money or to any other perform ance having an econom ic value associated
w ith an investment;
(d) intellectual property rights, in particularly copyrights, patents, trademarks, trade­
names, technical process, know -how and good-will;
(e) business concessions conferred by law or under contract perm itted by law, including
concessions to search for, cultivate, extract or exploit natural resources.
Any change in the form in w hich assets are invested does not affect their character as
investm ents provided that such change is in accordance w ith the laws and regulations o f
the Contracting Part )7 in whose territory the investm ent has been made.
2 . T he term “investor” means,
(a) natural persons w ho have nationality o f either C ontracting Party in accordance with
the laws o f that C ontracting Part)7;
(b) legal entities, including companies, associations, partnerships and other organiza­
tions, incorporated or constituted under the laws and regulations o f either C on­
tracting Party and have their seats in that C ontracting Party.
3. T h e term “return” means the am ounts yielded from investm ents, including profits,
dividends, interests, capital gains, royalties, fees and other legitimate income.

Article 2
P ro m o tio n and P rotection o f Investm ent
1. Each Contracting Party shall encourage investors o f the other C ontracting Part )7 ro make
; " ' “ r r m <“n r' in ire r e r r i t n r v and adm it such investm ents in accordance w ith its laws and
 Chinese Model B IT (2003) 359
Investm ents o f the investors o f either C ontracting Party shall enjoy the constant protec­
tion and security in the territory o f the other C ontracting Party.
W ith o u t prejudice to its laws and regulations, neither C ontracting Party shall talce any
unreasonable or discriminatory measures against the management, maintenance, use,
enjoym ent and disposal o f the investments by the investors o f the other Contracting Party.
Subject to its laws and regulations, one C ontracting Party shall provide assistance in and
facilities for obtaining visas and working perm it to nationals o f the other C ontracting
Party engaging in activities associated w ith investm ents made in the territory o f th at
C ontracting Party.

Article 3
T rea tm e n t o f Investm ent
Investm ents o f investors o f each C ontracting Party shall all the time be accorded fair and
equitable treatm ent in the territory o f the other C ontracting Party.
W ith o u t prejudice to its laws and regulations, each C ontracting Party shall accord to
investm ents and activities associated w ith such investm ents by the investors o f the other
C ontracting Party treatm ent n o t less favorable than th at accorded to the investm ents and
associated activities by its own investors.
N eith er C ontracting Party shall subject investments and activities associated w ith such
investm ents by the investors o f the other C ontracting Party to treatm ent less favorable
th an th at accorded to the investm ents and associated activities by the investors o f any
th ird State.
T h e provisions o f Paragraphs 3 o f this Article shall not be construed so as to oblige one
C ontracting Party to extend to the investors o f the other C ontracting Party the benefit o f
any treatm ent, preference or privilege by virtue of:
(a) any custom s union, free trade zone, econom ic union and any international agree­
m ent resulting in such unions, or similar institutions;
(b) any international agreem ent or arrangem ent relating wholly or m ainly to taxation;
(c) any arrangem ents for facilitating small scale frontier trade in border areas.

Article 4
Expropriation
N eith er C ontracting Party shall expropriate, nationalize or talce other similar measures
(hereinafter referred to as “expropriation”) against the investm ents o f the investors o f the
other C ontracting Party in its territory, unless the following conditions are met:
(a) for the public interests;
(b) under dom estic legal procedure;
(c) w ith o u t discrim ination;
(d) against com pensation.
T h e com pensation m entioned in Paragraph 1 o f this Article shall be equivalent to the
value o f the expropriated investm ents imm ediately before the expropriation is taken or
the im pending expropriation becomes public knowledge, whichever is earlier. T h e value
shall be determ ined in accordance w ith generally recognized principles o f valuation. T he
com pensation shall include interest at a norm al commercial rate from the date of
expropriation until the date o f payment. T he com pensation shall also be m ade w ithout
delay, be effectively realizable and freely transferable.
360 Annexes

Article j
C om pensation for D am ages and Losses
Investors o f one Contracting Party whose investm ents in the territory o f the other C on­
tracting Party suffer losses owing to war, a state o f national emergency,insurrection, riot or
other similar events in the territory o f the latter C ontracting Party, shall be accorded by the
latter C ontracting Party treatm ent, as regards restitution, indem nification, compensation
and other settlements no less favorable than that accorded to the investors o f its own or any
third State, whichever is m ore favorable to the investor concerned.

Article 6
T ransfers
1. Each C ontracting Party shall, subject to its laws and regulations, guarantee to the
investors o f the other C ontracting Party the transfer of their investments and returns
held in its territory, including:
(a) profits, dividends, interests and other legitim ate income;
(b) proceeds obtained from the total or partial sale or liquidation o f investments;
(c) paym ents made pursuant to a loan agreem ent in connection w ith investments;
(d) royalties m relation to the m atters m Paragraph 1 (d) o f Article 1;
(e) paym ents of technical assistance or technical service fee, m anagem ent fee;
(f) paym ents in connection w ith contracting projects;
(g) earnings o f nationals o f die other C ontracting Party who work in connection with
an investm ent in its territory.
2. N oth in g in Paragraph 1 o f this Article shall affect the free transfer o f com pensation paid
under Article 4 and 5 o f this Agreement.
3. T he transfer m entioned above shall be made in a freely convertible currency and at the
prevailing m arket rate o f exchange applicable w ithin the C ontracting Party accepting the
investm ents and on the date o f transfer.

Article 7
S ubrogation
I f one C ontracting Party or its designated agency makes a paym ent to its investors under a
guarantee or a contract o f insurance against non-com m ercial risks it has accorded in respect
o f an investm ent made in the territory o f the other C ontracting Party, the latter Contracting
Party shall recognize:
(a) the assignment, w hether under the law’ or pursuant to a legal transaction in the
form er C ontracting Part}7, o f an}7 rights or claims by the investors to the former
C ontracting Party or to its designated agency, as well as,
(b) th at the form er C ontracting Party or its designated agency is entitled by virtue of
subrogation to exercise the rights and enforce the claims o f that investor and assume
the obligations related to the investm ent to the same extent as the investor.

Article 8
S etd em en t o f D isputes betw een C on tractin g Parties
1. Any dispute between the C ontracting Parties concerning the interpretation or applica­
tion o f this A greem ent shall, as far as possible, be settled w ith consultation through
diplom atic channel.
2. If a dispute cannot thus be settled w ithin six m onths, it shall, upon the request o f either
C ontracting Part}7, be subm itted to an ad hoc arbitral tribunal.
3. Such tribunal comprises o f three arbitrators. W ithin two m onths o f the receipt of the
w ritten notice reauestine arbitration, each C ontracting Part}7 shall appoint one arbitra­
 Chinese Model B IT (2003) 361

tor. Those two arbitrators shall, w ithin further two m onths, together select a national o f a
third State having diplom atic relations w ith both C ontracting Parties as C hairm an o f the
arbitral tribunal.
4. If the arbitral tribunal has not been constituted w ithin four m onths from the receipt of
the w ritten notice requesting arbitration, either C ontracting Part}7may, in the absence of
any other agreement, invite the President o f the International C ourt o f Justice to make
any necessary appointm ents. If the President is a national o f either C ontracting Party or
is otherwise prevented from discharging the said functions, the M em ber o f the Inter­
national C o u rt o f justice next in seniority who is not a national o f either C ontracting
Party or is not otherwise prevented from discharging the said functions shall be invited to
make such necessary appointm ents,
5. T he arbitral tribunal shall determine its own procedure. T he arbitral tribunal shall reach
its award in accordance w ith the provisions o f this Agreem ent and the principles of
international law recognized by both C ontracting Parties,
6. T he arbitral tribunal shall reach its award by a majority o f votes. Such award shall be final
and binding upon both C ontracting Parties. T he arbitral tribunal shall, u p o n the request
o f either C ontracting Party, explain the reasons o f its award,
7. Each C ontracting Party shall bear the costs o f its appointed arbitrator and o f irs
representation in arbitral proceedings. T he relevant costs o f the C hairm an and tribunal
shall be borne in equal parts by the C ontracting Parties.

Article 9
Setdem ent of Disputes between Investors and One C ontracting Party
1. Any legal dispute betw een an investor o f one C ontracting Party and the other C ontract­
ing Party in connection w ith an investm ent in the territory o f the other C ontracting
Party shall, as far as possible, be settled amicably through negotiations between the
parties to the dispute,
2 . If the dispute cannot be settled through negotiations w ithin six m onths from the date it
has been raised by either party to the dispute, it shall be subm itted by the choice o f the
investor:
(a) to the com petent court o f the Contracting Party that is a party to the dispute;
(b) to International C enter for Settlem ent o f Investm ent D isputes (ICSID ) under the
C onvention on the Settlem ent o f D isputes between States and N ationals o f O ther
States, done at W ashington on M arch 18,1965, provided that the C ontracting Party
involved in the dispute may require the investor concerned to go through the
dom estic adm inistrative review procedures specified by the laws and regulations of
th at C ontracting Party before the subm ission to the IC SID .
O nce the investor has subm itted the dispute to the com petent court o f the C ontracting
Party concerned or to the IC SID , the choice of one o f the two procedures shall be final.
3. T he arbitration award shall be based on the law o f the C ontracting Party to the dispute
including its rules on the conflict o f laws, the provisions o f this A greem ent as well as the
universally accepted principles o f international law.
4. T he arbitration award shall be final and binding upon both parties to the dispute. Both
C ontracting Parties shall com m it themselves to the enforcem ent o f the award.

Anicle 10
O th e r O bligations
1. If the legislatio n o f either Contracting Party or international obligadons existing at present or
established hereafter between the Contracting Parties result in a position entiding invest-
362 Annexes

merits by investors o f the other Contracting Party to a treatm ent more favorable than is
provided for by the Agreement, such position shall not be affected by this Agreement.
2. Each C ontracting Party shall observe any com m itm ents it m ay have entered into with
the investors o f the other C ontracting Party as regards to their investm ents.

Article 11
A p p lic a tio n

This Agreem ent shall apply to investm ent m ade prior to or after its entry into force by
investors o f one C ontracting Party in the territory o f the other C ontracting Party in
accordance w ith the laws and regulations o f the C ontracting Party concerned, b u t not
apply to the dispute arose before its entry into force.

Article 12
C o n s u lta tio n s

1. T he representatives o f the C ontracting Parties shall hold m eetings from tim e to tim e for
the purpose of:
(a) reviewing the im plem entation o f this Agreem ent;
(b) exchanging legal inform ation and investm ent opportunities;
(c) resolving disputes arising o u t o f investm ents;
(d) forwarding proposals on prom otion o f investm ent;
(e) studying other issues in connection w ith investm ent.
2. W here either C ontracting Party requests consultation on any m atter o f Paragraph 1 of
this Article, the other C ontracting Party shall give prom pt response and the consultation
be held alternatively in Beijing and

Article 13
E n try in to Force, D u ra tio n and T erm in atio n
1. This Agreem ent shall enter into force on the first day o f the following m onth after the
date on w hich both C ontracting Parties have notified each other in w riting that dieir
respective internal legal procedures necessary therefor have been fulfilled and remain in
force for a period o f ten years.
2. This Agreem ent shall continue to be in force unless either C ontracting Party has given a
w ritten notice to the other C ontracting Party to term inate this Agreem ent one year
before the expiration o f the initial ten year period or at any tim e thereafter.
3. W ith respect to investm ents m ade prior to the date o f term ination o f this Agreem ent, the
provisions o f Article 1 to 12 shall continue to be effective for a further period o f ten years
from such date o f term ination.
4. This Agreem ent m ay be am ended by w ritten agreem ent betw een the C ontracting
Parties. Any am endm ent shall enter into force under the same procedures required for
entry into force o f the present Agreement.

IN W ITN E SS W H E R E O F the undersigned, duly authorized thereto by respective Gov­

ernments, have signed diis Agreem ent.
D one in duplicate aton, in the Chinese, and English languages, all texts being equally
authentic. In case o f divergent interpretation, the English text shall prevail.

For the G overnm ent o f For the G overnm ent of

T he People’s Republic o f C hina
 Treaty between the Federal Republic of Germany and
[... ] concerning the Encouragement and Reciprocal
Protection of Investments
T he Federal Republic o f Germany
and

desiring to intensify econom ic co-operation between the two States,

intending to create favourable conditions for investm ents by investors o f either State in
the territory o f the other State,
recognizing that the encouragem ent and contractual protection o f such investm ents are
apt to stim ulate private business initiative and to increase the prosperity o f bodi nations,
have agreed as follows:

Article 1
D efinitions
W ith in the m eaning o f this Treaty,
1. the term “investm ents” comprises every Idnd o f asset w hich is directly or indirectly
invested by investors of one Contracting State in the territory o f the other C ontracting
State. T h e investm ents include in particular:
(a) movable an d im m ovable property as well as any other rights in rem, such as
mortgages, liens and pledges;
(b) shares o f companies and other kinds of interest in companies;
(c) claims to m oney w hich has been used to create an econom ic value or claims to any
perform ance having an econom ic value;
(d) intellectual property rights, in particular copyrights and related rights, patents,
utility-m odel patents, industrial designs, trademarks, plant variety rights;
(e) trade-names, trade and business secrets, technical processes, know-how, and good-will;
( f ) business concessions under public law, including concessions to search for, extract
or exploit natural resources;
any alteration o f the form in which assets are invested shall not affect their classification
as investm ent. In the case o f indirect investments, in principle only those indirect
investm ents shall be covered w hich the investor realizes via a com pany situated in the
other C ontracting State;

2 . the term “returns” means the am ounts yielded by an investm ent for a definite period,
such as profit, dividends, interest, royalties or fees;
3. the term “investor” means
(a) in respect o f the Federal Republic o f Germany:
- any natural person who is a Germ an w ithin the m eaning o f the Basic Law o f the
Federal Republic o f G erm any or a national o f a M em ber State o f the E uropean
U nion or o f the European Econom ic Area who, w ithin the context o f freedom of
establishm ent pursuant to Article 43 o f the E C Treaty, is established in the
Federal Republic o f Germany;
364 Annexes

- any juridical person and any commercial or other com pany or association with or
w ithout legal personality which is founded pursuant to the law o f the Federal
Republic o f G erm any or die law o f a M em ber State o f the European U nion or the
European E conom ic Area and is organized pursuant to the law o f the Federal
Republic o f G erm any, registered in a public register in the Federal Republic of
Germ any or enjoys freedom o f establishm ent as an agency or perm anent estab­
lishm ent in G erm any pursuant to Articles 43 and 48 o f the E C Treaty;
w hich in the context o f entrepreneurial activity' is the owner, possessor or
shareholder o f an investm ent in the territory o f die other Contracting State,
irrespective o f w hether or not the activity is directed at profit;
(b) in respect o f ......................................................................................... :

4, the term “territory” refers to the area o f each C ontracting State including the exclusive
econom ic zone and the continental shelf insofar as international law allows the C on­
tracting State concerned to exercise sovereign rights or jurisdiction in these areas.

A rticle 2
A dm ission and protection o f investm ents
(1) Each C ontracting State shall in its territory prom ote as far as possible investments by
investors o f the other C ontracting State and adm it such investm ents in accordance with
its legislation,
(2) Each Contracting State shall in its territory in every case accord investm ents by investors
of the other C ontracting State fair and equitable treatm ent as well as full protection
under this Treaty.
(3) N either C ontracting State shall in its territory im pair by arbitrary or discriminatory
measures the activity o f investors o f the other C ontracting State with regard to invest­
m ents, such as in particular the m anagem ent, m aintenance, use, enjoym ent or disposal
o f such investm ents. T his provision shall be w idiout prejudice to Article 7 (3).
(4) Returns from an investm ent, as well as returns from reinvested returns, shall enjoy the
same protection as the original investment.

Article 3
N a tio n a l an d m ost-favoured-nation trea tm e n t
(1) N eith er C ontracting State shall in its territory subject investm ents owned or con­
trolled by investors o f the other C ontracting State to treatm ent less favourable than
it accords to investm ents o f its own investors or to investm ents o f investors o f any
th ird Stare.
(2) N either Contracting State shall in its territory subject investors o f the other Contracting
State, as regards their activity in connection with investments, to treatm ent less favourable
than it accords to its own investors or to investors o f any third State. T he following shall,
in particular, be deemed treatm ent less favourable within the meaning o f this Article:
1, different treatm ent in the event o f restrictions on the procurem ent o f raw or
auxiliary materials, o f energy and fuels, and o f all types o f means o f production
and operation;
 German Model Treaty (2008) 365
2 . different treatm ent in the event o f im pedim ents to the sale o f products at h om e and
abroad; and
3 . other measures o f similar effect.
Measures that have to be taken for reasons o f public security an d order shall n o t be
deem ed treatm ent less favourable w ithin the m eaning o f this Article.
(3) Such treatm ent shall not relate to privileges which either C ontracting State accords to
investors o f third States on account o f its m em bership of, or association w ith, a custom s
or econom ic union, a com m on m arket or a free trade area.
(4) T he treatm ent granted under this Article shall not relate to advantages w hich either
C ontracting State accords to investors o f third States by virtue o f an agreem ent for the
avoidance o f double taxation in the field o f taxes on incom e and assets or other
agreements regarding m atters o f taxation.
(5) This Article shall not oblige a Contracting State to extend to investors resident in the
territory o f the other C ontracting State tax privileges, tax exem ptions and tax reductions
w hich according to its tax laws are granted only to investors resident in its territory.
(6) T he C ontracting States shall w ithin the framework o f their national legislation give
sym pathetic consideration to applications for the entry and sojourn o f persons o f either
C ontracting State who wish to enter the territoiy o f the other C ontracting State in
connection w ith an investm ent; the same shall apply to em ployed persons o f either
C ontracting State who in connection w ith an investm ent wish to enter the territory o f
the other C ontracting State and sojourn there to talce up em ploym ent. W here neces­
sary, applications for w ork permits shall also be given sym pathetic consideration.
(7) N otw ithstanding any bilateral or multilateral agreements w hich are binding on both
C ontracting States, the investors o f the C ontracting States are free to select the m eans o f
transport for the international transportation o f persons and o f capital goods directly
related to an investm ent w ithin the m eaning o f this Treaty. T ransport companies o f the
C ontracting States shall not be discrim inated against thereby.

Article 4
C om pensation in case o f expropriation
(1) Investm ents by investors o f either Contracting State shall enjoy full protection and
security in the territory o f the other Contracting State.
(2) Investm ents by investors o f either Contracting State m ay not directly or indirectly be
expropriated, nationalized or subjected to any other m easure the effects o f which w ould
be tantam ount to expropriation or nationalization in the territory o f the other C o n ­
tracting State except for the public benefit and against com pensation, Such com pen­
sation m u st be equivalent to the value o f the expropriated investm ent im m ediately
before the date on which the actual or threatened expropriation, nationalization or
other m easure became publicly known. T he com pensation m ust be paid w ithout delay
and shall carry the usual bank interest until the tim e o f paym ent; it m ust be effectively
realizable and freely transferable. Provision m ust have been m ade in an appropriate
m anner at or prior to the tim e o f expropriation, nationalization or other m easure for the
determ ination and paym ent o f such compensation. T he legality o f any such expropri­
ation, nationalization or other measure and the am ount o f com pensation m ust be
subject to review by due process o f law.
(3) Investors of either Contracting State whose investments suffer losses in the territoiy o f
the other Contracting State owing to war or odier armed conflict, revolution, a state o f
national emergency', or revolt, shall be accorded treatm ent no less favourable by such
other C ontracting State than that State accords to its own investors as regards restitution,
366 Annexes

indem nification, com pensation or other valuable consideration. Such payments m ust be
freely transferable.
(4) Investors o f either C ontracting State shall enjoy m ost-favoured-nation treatm ent in the
territory o f the other C ontracting State in respect o f the m atters provided for in the
present Article.

Article 5
F re e tra n sfe r
(1) Each C ontracting State shall guarantee to investors o f the other C ontracting State the
free transfer o f paym ents in connection w ith an investm ent, in particular
1. the principal and additional am ounts to m aintain or increase the investm ent;
2 . the returns;
3 - the repaym ent o f loans;
4. the proceeds from the liquidation or the sale o f the whole or any part of the investment;
5. the com pensation provided for in Article 4.
(2) Transfers under Article 4 (2) or (3), under the present Article or Article 6, shall be m ade
w ithout delay at die m arket rate o f exchange applicable on the day o f the transfer. A
transfer shall be deem ed to have been m ade w ith o u t delay if made w ithin such period as
is norm ally required for die com pletion o f transfer formalities. T h e period shall
com m ence w ith the subm ission o f the corresponding application, where such an
application is necessary, or the notification o f the intended transfer, and m ust in no
circumstances exceed two m onths.
(3) Should it n o t be possible to ascertain a m arket rate pursuant to paragraph (2), the cross
rate obtained from those rates w hich w ould be applied by the International M onetary
F u n d on the date o f paym ent for conversions o f the currencies concerned into Special
D raw ing Rights shall apply.

Article 6
S ubrogation
If either C ontracting State makes paym ent to any o f its investors under a guarantee it has
assum ed in respect o f an investm ent in the territory o f the other C ontracting State, the latter
C ontracting State shall, w ith o u t prejudice to the rights o f the form er C ontracting State
under Article 9, recognize the assignm ent, w hether under a law or pursuant to a legal
transaction, o f any right or claim from such investors to the form er C ontracting State.
Furtherm ore, the latter C ontracting State shall recognize the subrogation o f that C ontract­
ing State to any such right or claim (assigned claim), w hich rhat C ontracting State shall be
entitled to assert to the same extent as its predecessor in title. As regards the transfer o f
paym ents on the basis o f such assignm ent, Article 4 (1) and (2) and Article 5 shall apply
m utatis m utandis.
Article 7
O th e r provisions
(1) I f the legislation o f either C ontracting State or international obligations existing at
present or established hereafter betw een the C ontracting States in addition to this
Treat}'· contain any provisions, w hether general or specific, entitling investm ents by
investors o f the other C ontracting State to a treatm ent m ore favourable than is provided
for by this Treaty, such provisions shall prevail over this T reaty to the extent that they
are m ore favourable.
(2) Each C ontracting State shall fulfil any other obligations it may have entered into w ith
regard to investm ents in its territory by investors o f the other C ontracting State.
 German Model. Treaty (2008) 367
(3) W ith regard to the treatm ent o f incom e and assets for the purpose o f taxation,
precedence shall be given to the application o f the agreements in force at the tim e
between the Federal Republic o f G erm any a n d . . . for the avoidance o f double taxation
in the field o f taxes on incom e and assets.
Article 8
S cope o f ap p lic a tio n
T his T reaty shall also apply to investm ents m ade prior to its entry into force by investors o f
either C ontracting State in the territory o f the other C ontracting State consistent w ith the
latter’s legislation.

Article 9
S e ttle m e n t o f d isp u tes b etw e e n th e C o n tr a c tin g S tates
(1) Disputes between the C ontracting States concerning the interpretation or application o f
this Treaty should as far as possible be settled by the G overnm ents o f the two
C ontracting States.
(2) If a dispute cannot thus be settled, it shall upon the request o f either C ontracting State
be subm itted to an arbitral tribunal.
(3) T he arbitral tribunal shall be constituted for each case as follows: each C ontracting State
shall appoint one m em ber, and these two m em bers shall agree upon a national o f a third
State as their chairm an to be appointed by the G overnm ents o f the two C ontracting
States. T he m em bers shall be appointed w ithin two m onths, and the chairm an w ithin
three m onths, from the date on which either C ontracting State has inform ed the other
C ontracting State that it wants to subm it the dispute to an arbitral tribunal.
(4) If the periods specified in paragraph (3) have not been observed, either C ontracting
State may, in the absence o f any other relevant agreement, invite the President o f die
International C ourt o f Justice to make the necessary appointm ents, If the President is a
national o f either C ontracting State or if he is otherwise prevented from discharging the
said function, the Vice-President should make the necessary appointm ents. I f the Vice-
President is a national o f either C ontracting State or if he, too, is prevented from
discharging the said function, the M em ber o f the C ourt next in seniority who is n o t a
national o f either C ontracting State should make the n e c e s sa ry appointm ents.
(5) T he arbitral tribunal shall reach its decisions by a m ajority o f votes. Its decisions shall be
binding. Each C ontracting State shall bear the cost o f its ow n m em ber and o f its
representatives in the arbitration proceedings; the cost o f the chairm an and the
rem aining costs shall be borne in equal parts by the C ontracting States. T he arbitral
tribunal may m ake a different regulation concerning costs. In all other respects, die
arbitral tribunal shall determ ine its own procedure.

Article 10
S e td e m e n t o f d isp u te s b etw een a C o n tr a c tin g
S ta te a n d a n in v e sto r o f th e o th e r C o n tr a c tin g S ta te
(1) Disputes concerning investments between a C ontracting State and an investor o f the
other C ontracting State should as far as possible be settled amicably betw een the parries
to the dispute. T o help them reach an amicable settlem ent, the parties to the dispute
also have the option o f agreeing to institute conciliation proceedings under the C o n ­
vention on the Settlem ent o f Investm ent Disputes between States and N ationals o f
O ther States o f 18 M arch 1965 (ICSID).
(2) I f the dispute cannot be settled w ithin six m onths o f the date on w hich it was raised by
one o f the parries to the dispute, it shall, at the request o f the investor o f the other
368 Annexes

C ontracting State, be subm itted to arbitration. T he two Contracting Stares hereby

declare that they unreservedly and bindingly consent to the dispute being subm itted to
one o f the following dispute settlem ent m echanism s o f the investor s choosing:
1. arbitration under the auspices o f the International Centre for Settlem ent o f Invest­
m ent Disputes pursuant to the C onvention on the Settlem ent o f Investm ent
D isputes between States and Nationals o f O th er States o f 18 M arch 1965
(ICSID ), provided both C ontracting States are m em bers o f this C onvention, or
2. arbitration under the auspices o f the International C entre for Settlem ent o f Invest­
m ent Disputes pursuant to the C onvention on the Settlem ent o f Investm ent
D isputes between States and N ationals o f O th er States o f 18 M arch 1965
(ICSID ) in accordance w ith the Rules on the A dditional Facility for the A dm inis­
tration o f Proceedings by the Secretariat o f the Centre, where the personal or factual
preconditions for proceedings pursuant to figure 1 do not apply, but at least one
C ontracting State is a m em ber o f the C onvention referred to therein, or
3 . an individual arbitrator or an ad-hoc arbitral tribunal w hich is established in
accordance w ith the rules o f the U nited N ations Com m ission on International
T rade Law (U N CITRA L) as in force at the com m encem ent o f the proceedings, or
4. an arbitral tribunal which is established pursuant to the D ispute Resolution Rules of
the International C ham ber o f Com m erce (ICC), the L ondon C ourt o f International
A rbitration (LCIA) or the A rbitration Institute o f the Stockholm C ham ber o f
Com m erce, or
5. any other form o f dispute settlem ent agreed by the parties to the dispute.
(3) T he award shall be binding and shall not be subject to any appeal or remedy other than
those provided for in the C onvention or arbitral rules on which the arbitral proceedings
chosen by the investor are based. T h e award shall be enforced by the C ontracting States
as a final and absolute ruling under dom estic law.
(4) A rbitration proceedings pursuant to this Article shall take place at the request o f one o f
the parties to the dispute in a State w hich is a C ontracting Party to the U nited N ations
C onvention on the Recognition and Enforcem ent o f Foreign Arbitral Awards o f 10
June 1958.
(5) D uring arbitration proceedings or the enforcem ent o f an award, the C ontracting State
involved in the dispute shall not raise the objection that the investor o f the other
C ontracting State has received com pensation under an insurance contract in respect of
all or part o f the damage.
Article 11
Relations between the Contracting States
T his T reat }7 shall be in force irrespective o f w hether or not diplom atic or consular relations
exist between the C ontracting States.

Article 12
Registration clause
Registration of this T reaty w ith the Secretariat o f the U nited N ations, in accordance w ith
Article 102 o f the U nited N ations Charter, shall be initiated imm ediately following its entry
into force by the C ontracting State in which the signing took place. T he other C ontracting
State shall be informed o f registration, and o f the U N registration num ber, as soon as this
has been confirm ed by the Secretariat o f the U nited Nations.
 German Model Treaty (2008) 369
Article 13
Entry into force, duration and notice of termination
( 1 ) T his T reat )7 shall be subject to ratification; the instrum ents of ratification shall be
exchanged as soon as possible.
(2 ) T his T reaty shall enter into force on the first day of the second m o n th following th e
exchange o f the instrum ents o f ratification. It shall rem ain in force for a period o f ten
years and shall continue in force thereafter for an unlim ited period unless denounced in
w riting through diplom atic channels by either C ontracting State twelve m onths before
its expiration. After the expity o f the period o f ten years this T reaty may be denounced
at any tim e by either C ontracting State giving twelve m o n th s’ notice.
(3) In respect o f investments made prior to the date o f term ination o f this Treaty, the
provisions o f the above Articles shall continue to be effective for a further period o f
tw enty years from the date o f term ination o f this Treaty.

D o n e in on in duplicate in the G erm an and ............................................................ . . .

languages, both texts being equally authentic.
For the For
Federal Republic o f G erm an y .......................................................................................................
Draft Agreement Between the Government of the United
Kingdom of Great Britain and Northern Ireland
and the Government of [... ] for the Promotion
and Protection of Investments
T he G overnm ent o f the U nited K ingdom o f G reat Britain and N o rth ern Ireland and the
G overnm ent o f________;
D esiring to create favourable conditions for greater investm ent by nationals and com ­
panies o f one State in the territory o f the other State;
Recognising that the encouragem ent and reciprocal protection under international
agreem ent o f such investm ents will be conducive to the stim ulation o f individual business
initiative and will increase prosperity in both States;
H ave agreed as follows:

Article 1
D efinitions
For the purposes o f this Agreement:
(a) “investm ent” means every kind o f asset and in particular, though n o t exclusively,
includes:
(i) movable and im m ovable property and any other property rights such as mortgages,
liens or pledges;
(ii) shares in and stock and debentures o f a com pany and any other form o f participa­
tion in a company;
(iii) claims to m oney or to any perform ance under contract having a financial value;
(iv) intellectual property rights, goodwill, technical processes and knowhow;
(v) business concessions conferred by law or under contract, including concessions to
search for, cultivate, extract or exploit natural resources.
A change in the form in w hich assets are invested does not affect their character as
investm ents and the term “investm ent” includes all investments, w hether made before
or after the date o f entry into force o f this Agreement;
(b) “returns” means the am ounts yielded by an investm ent and in particular, though not
exclusively, includes profit, interest, capital gains, dividends, royalties and fees;
(c) “nationals” means;
(i) in respect o f the U nited Kingdom : physical persons deriving their status as U nited
Kingdom nationals from the law in force in the U nited Kingdom ;
(ii) in respect of :________ ;
(d) “com panies” means:
(i) in respect o f the U nited Kingdom: corporations, firms and associations incorpor­
ated or constituted under the law in force in any part o f the U nited Kingdom or in
any territory to w hich this Agreem ent is extended in accordance w ith the provisions
o f Article 12 ;
(ii) in respect of________:.________ ;
 U K Model B IT (2005) 371
(e) “territoiy” means:
(i) in respect o f the U nited Kingdom : Great Britain and N o rth ern Ireland, including
the territorial sea and m aritim e area situated beyond the territorial sea o f the U nited
K ingdom which has been or m ight in the future be designated under the national
law o f the U nited Kingdom in accordance w ith international law as an area w ithin
w hich the U nited Kingdom may exercise rights w ith regard to the sea-bed and
subsoil and the natural resources and any territory to which this A greem ent is
extended in accordance w ith the provisions o f Article 12;
(ii) in respect o f________:________ ,

Article 2
P ro m o tio n a n d P ro te c tio n o f I n v e s tm e n t
( 1 ) Each C ontracting Party shall encourage and create favourable conditions for nationals
or companies o f the other C ontracting Party to invest capital in its territoiy, and,
subject to its right to exercise powers conferred by its laws, shall adm it such capital.
(2) Investm ents o f nationals or companies o f each C ontracting Party shall at all times be
accorded fair and equitable treatm ent and shall enjoy full protection and security in the
territory o f the other C ontracting Party. N either C ontracting Party shall in any way
im pair by unreasonable or discrim inatory measures the m anagem ent, m aintenance, use.
enjoym ent or disposal o f investm ents in its territory o f nationals or com panies o f the
other C ontracting Party. Each C ontracting Party shall observe any obligation it may
have entered into w ith regard to investm ents o f nationals or companies o f the other
C ontracting Party.

Article 3
N a tio n a l T re a tm e n t a n d M o s t-fa v o u re d -n a tio n P ro v isio n s
( 1 ) N either C ontracting Party shall in its territory subject investm ents or returns o f
nationals or companies o f the other C ontracting Party to treatm ent less favourable
than that w hich it accords to investm ents or returns o f its ow n nationals or com panies
or to investm ents or returns o f nationals or companies o f any third Stare.
(2) N either C ontracting Party shall in its territory subject nationals or com panies o f the
other C ontracting Party, as regards their m anagem ent, m aintenance, use, enjoym ent or
disposal o f their investm ents, to treatm ent less favourable th at th at which it accords to
its own nationals or companies or to nationals or com panies o f any th ird State.
(3) For the avoidance o f do u b t it is confirm ed th at the treatm ent provided for in paragraphs
(1) and (2) above shall apply to the provisions o f Articles 1 to 11 o f this Agreem ent.

Article 4
C o m p e n s a tio n fo r Losses
(1) N ationals or companies o f one C ontracting Party whose investm ents in the territoiy o f
the other C ontracting Party suffer losses owing to war or other armed conflict, revolu­
tion, a state o f national emergency, revolt, insurrection or riot in the territory o f the
latter C ontracting Party shall be accorded by the latter C ontracting Party treatm ent, as
regards restitution, indem nification, com pensation or other settlem ent, no less favour­
able that that which the latter C ontracting Party accords to its own nationals or
companies or to nationals or companies o f any third State. Resulting paym ents shall
be freely transferable.
(2) W ith o u t prejudice to paragraph ( 1 ) o f this Article, nationals or companies o f one
C ontracting Party who in any o f the situations referred to in that paragraph suffer
losses in the territoiy o f the other C ontracting Party resulting from:
372 Annexes

(a) requisitioning o f their property by its forces or authorities, or

(b) destruction o f their property 1 by its forces or authorities, w hich was n o t caused
in com bat action or was n o t required by the necessity o f the situation, shall be
accorded restitution or adequate com pensation. R esulting paym ents shall be
freely transferable.
Article 5
E xpropriation
( 1 ) Investments of nationals or companies o f either C ontracting Party shall not be nation­
alised, expropriated or subjected to measures having effect equivalent to nationalisation
or expropriation (hereinafter referred to as “expropriation”) in the territory of the other
Contracting Part }7 except for a public purpose related to the internal needs of that Party
on a non-discrim ina- tory basis and against prom pt, adequate and effective com pen­
sation. Such com pensation shall am ount to the genuine value o f the investm ent
expropriated im m ediately before the expropriation or before the im pending expro­
priation became public knowledge, whichever is the earlier, shall include interest at a
norm al commercial rate until the date o f paym ent, shall be m ade w ithout delay, be
effectively realizable and be freely transferable. T h e national or com pany affected shall
have a right, under the law of the C ontracting Party m aking the expropriation, to
prom pt review, by a judicial or other independent authority o f th at Party7, o f his or its
case and o f the valuation o f his or its investm ent in accordance w ith the principles set
out in this paragraph.
(2 ) W here a Contracting Party expropriates the assets o f a company which is incorporated or
constituted under the law in force in any part o f its ow n territory, and in which nationals
or companies o f the odier C ontracting Part}7 own shares, it shall ensure that the provisions
of paragraph (1) o f this Article are applied to the extent necessary to guarantee prom pt,
adequate and effective compensation in respect of their investm ent to such nationals or
companies of the other Contracting Party wrho are owners of those shares.

Article 6
R epatriation o f Investm ent an d R eturns
Each Contracting Party shall in respect o f investm ents guarantee to nationals or companies
o f the other C ontracting Party the unrestricted transfer o f their investm ents and returns.
Transfers shall be effected w ithout delay in the convertible currency in which the capital was
originally invested or in any other convertible currency agreed by the investor and the
Contracting Party concerned. Unless otherwise agreed by the investor transfers’ shall be
made at the rate o f exchange applicable on the date of transfer pursuant to the exchange
regulations in force.

Article 7
Exceptions
T he provisions o f this A greem ent relative to the grant o f treatm ent n o t less favourable than
that accorded to the nationals or companies of either C ontracting Party or o f any third State
shall not be construed so as to oblige one C ontracting Party to extend to the nationals or
companies o f the other the benefit o f any treatm ent, preference or privilege resulting from:
(a) any existing or future customs union or similar international agreem ent to w hich either
o f the C ontracting Parties is or may becom e a part}7; or
( d) any international agreem ent or arrangem ent relating wholly or m ainly to taxation or any
domestic legislation relating wholly or m ainly to taxation.
 UK Model B IT (2005) 373
(c) any requirem ents o f E uropean C om m unity law resulting from the U nited K ingdom 's
m em bership o f the E uropean U nion prohibiting, restricting or lim iting the m ovem ent
o f capital to or from any third country.

A n k l e 8 [Preferred]
Reference to International Centre for Settlement of Investm ent Disputes
( 1 ) Each C ontracting Party hereby consents to subm it to the International C entre for the
Settlem ent o f Investm ent Disputes (hereinafter referred to as “the C en tre”) for settle­
m en t by conciliation or arbitration under the Convention on the Settlem ent of Invest­
m en t D isputes betw een States and Nationals o f O ther States opened for signature at
W ashington D C on 18 M arch 1965 any legal dispute arising betw een that C ontracting
Part}' and a national or company o f the other C ontracting Part }7 concerning an invest­
m en t o f the latter in the territoiy o f the former.
(2) A com pany which is incorporated or constituted under the law in force in the territory
o f one C ontracting Part }7 an d in which before such a dispute arises the m ajority of shares
are ow ned by nationals or companies o f the other C ontracting Part }7 shall in accordance
w ith Article 25 (2) (b) o f the C onvention be treated for the purposes o f the C onvention
as a com pany o f the other C ontracting Party.
(3 ) I f any such dispute should arise and agreement cannot be reached w ithin three m onths
betw een the parties to this dispute through pursuit o f local remedies or otherwise, then,
if the national or com pany affected also consents in w riting to subm it the dispute to the
C entre for settlem ent by conciliation or arbitration under the C onvention, either party
m ay institute proceedings by addressing a request to that effect to the Secretary-General
o f the C entre as provided in Articles 28 and 36 o f the C onvention. In the event o f
disagreem ent as to w hether conciliation or arbitration is the m ore appropriate p ro ­
cedure the national or com pany affected shall have the right to choose. T he C ontracting
Party w hich is a party to the dispute shall not raise as an objection at any stage o f the
proceedings or enforcem ent o f an award the fact that the national or company which is
the other part }7 to the dispute has received in pursuance o f an insurance contract an
indem nity in respect o f some or all o f his or its losses.
(4) N either C ontracting Part )7 shall pursue through the diplom atic channel any dispute
referred to the C entre unless:
(a) the Secretary-General o f the Centre, or a conciliation comm ission or an arbitral
tribunal constituted by it, decides that the dispute is not w ithin the jurisdiction or
the Centre; or
(b) the other C ontracting Part )7 shall fail to abide by or to comply w ith any awrard
rendered by an arbitral tribunal.

A rticle 8 [Alternative]
S etd em en t o f D isputes betw een an Investor an d a H o st State
(1) D isputes between a national or com pany o f one C ontracting Party and the other
C ontracting Part )7 concerning an obligation o f the latter under this Agreem ent in
relation to an investm ent o f the form er which have n o t been amicably settled shall,
after a period o f three m onths from written notification o f a claim, be subm itted to
international arbitration if the national or company concerned so wishes.
(2) W here the dispute is referred to international arbitration, the national or company and
the C ontracting Part )7 concerned in die dispute may agree to refer the dispute either to:
(a) the International C entre for the Settlem ent of Investm ent Disputes (having regard
to the provisions, w here applicable, o f the C onvention on the Settlem ent o f
374 Annexes

Investm ent Disputes betw een States and N ationals o f other States, opened for
signature at W ashington D C on 18 M arch 1965 and the A dditional Facility for the
A dm inistration o f C onciliation, A rbitration and Fact-Finding Proceedings); or
(b) the C ourt o f A rbitration o f the International C ham ber o f Com m erce; or
(c) an international arbitrator or ad hoc arbitration tribunal to be appointed by a
special agreement or established un d er the A rbitration Rules o f the U nited N ations
C om m ission on International T rade Lav/.
If after a period o f three m onths from w ritten notification o f the claim there is no
agreement to one o f the above alternative procedures, the dispute shall at the request in
writing o f the national or com pany concerned be subm itted to arbitration under the
A rbitration Rules o f the U nited N ations Com m ission on International T rade Law as
then in force. T he parties to the dispute may agree in w riting to m odify these Rules.

Article 9
D isp u te s b e tw e e n th e C o n tra c tin g P a rtie s
(1) D isputes between the C ontracting Parties concerning the interpretation or application
o f this Agreem ent should, if possible, be settled through the diplom atic channel.
(2) I f a dispute between the C ontracting Parties cannot thus be settled, it shall u p o n the
request o f either C ontracting Party be subm itted to an arbitral tribunal.
(3) Such an arbitral tribunal shall be constituted for each individual case in the following
way. W ith in two m onths o f the receipt o f the request for arbitration, each C ontracting
Party shall appoint one m em ber o f the tribunal. Those two m em bers shall dien select a
national o f a third State w ho on approval by the two C ontracting Parties shall be
appointed C hairm an o f the tribunal. T h e C hairm an shall be appointed w ithin two
m onths from the date o f appointm ent o f the other two members.
(4) If within the periods specified in paragraph (3) o f this Article the necessary appoint­
ments have not been made, either C ontracting Party may, in the absence o f any other
agreement, invite the President o f the International C ourt o f Justice to make any
necessary appointm ents. If the President is a national o f either C ontracting Party or if
he is otherwise prevented from discharging the said function, the Vice-President shall be
invited to make the necessary appointm ents. If the Vice-President is a national o f either
C ontracting Party or if he too is prevented from discharging the said function, the
M em ber o f the International C ourt o f Justice next in seniority who is not a national of
either C ontracting Party shall be invited to make the necessary appointm ents.
(5) T he arbitral tribunal shall reach its decision by a m ajority o f votes. Such decision shall
be binding on both C ontracting Parties. Each C ontracting Party shall bear the cost o f its
own m em ber o f the tribunal and o f its representation in the arbitral proceedings; the
cost o f the Chairm an and the rem aining costs shall be borne in equal parts by the
C ontracting Parties. T he tribunal may, however, in its decision direct that a higher
proportion o f costs shall be borne by one o f the two C ontracting Parties, and this award
shall be binding on both C ontracting Parties. T he tribunal shall determ ine its own
procedure.

Article 10
S u b ro g a tio n
(1) If one Contracting Party or its designated Agenq^ (‘‘the first C ontracting Party”) makes
a paym ent under an indem nity given in respect o f an investm ent in the territory o f the
other C ontracting Party (“the second Contracting Party”), the second Contracting
Parrv shall recognise:
 U K Model B IT (2005) 375
(a) the assignm ent to the first C ontracting Party by law or by legal transaction o f all the
rights and claims o f the party indem nified; and
(b) that the first C ontracting Party is entitled to exercise such rights an d enforce such
claims by virtue o f subrogation, to the same extent as the party indem nified.
(2 ) T he first C ontracting Party shall be entitled in all circumstances to the same treatm ent
in respect of:
(a) the rights and claims acquired by it by virtue o f the assignm ent, and
(b) any paym ents received in pursuance o f those rights and claims, as the party
indem nified was entitled to receive by virtue o f this A greem ent in respect o f the
investm ent concerned and its related returns.
(3) Any paym ents received in non-convertible currency by the first C ontracting Party in
pursuance o f the rights and claims acquired shall be freely available to the first
C ontracting Party for the purpose o f m eeting any expenditure incurred in the territory
o f the second C ontracting Party,

Article 11
A p p lic a tio n o f o th e r R ules
If the provisions o f law o f either C ontracting Party or obligations under international law
existing at present or established hereafter betw een the C ontracting Parries in addition to the
present A greem ent contain rules, w hether general or specific, entitling investm ents by
nationals or com panies o f die other C ontracting Party to a treatm ent m ore favourable
than is provided for by the present Agreem ent, such rules shall to the extent th a t they are
more favourable prevail over the present Agreem ent,

Article 12
T e rr ito ria l E x te n sio n
A t the tim e o f [signature] [entry into force] [ratification] o f this A greem ent, or at any tim e
thereafter, the provisions o f this A greem ent m ay be extended to such territories for whose
international relations the G overnm ent o f the U nited Kingdom are responsible as m ay be
agreed betw een dre C ontracting Parties in an Exchange o f N otes.

Article 13
E n try in to F orce
[This A greem ent shall enter into force on the day o f________signature.]
or
[Each C ontracting Party shall notify the other in w riting o f the com pletion o f the
constitutional form alities required in its territory for the entry into force o f this Agreem ent.
T his A greem ent shall enter into force on the date o f the latter of the two notifications.]
or
[The Agreem ent shall be ratified and shall enter into force on the exchange o f In stru ­
m ents o f Ratification.]

Article 14
D u ra tio n and T erm ination
T his Agreem ent shall rem ain in force for a period o f ten years. T hereafter it shall continue in
force until the expiration o f twelve m onths from the date on w hich either C ontracting Party
shall have given w ritten notice o f term ination to the other. Provided that in respect o f
investm ents m ade whilst the A greem ent is in force, its provisions shall continue in effect
376 Annexes

w ith respect to such investm ents for a period o f tw enty years after the date o f term ination
and w ithout prejudice to the application thereafter o f die rules o f general international law.
In witness w hereof the undersigned, duly authorised thereto by their respective Govern­
ments, have signed this Agreement.
D one in duplicate at this da)' o f________200_ [in the English a n d . ..
languages, both texts being equally authoritative],
For rhe G overnm ent o f For the G overnm ent of
the U nited Kingdom o f Great Britain and :
N orthern Ireland:
Treaty Between the Government of the United States of
America and the Government of [Country] Concerning
the Encouragement and Reciprocal Protection of
Investment
T h e G overnm ent o f the U nited States o f America and the G overnm ent o f [Country]
(hereinafter the “Parties”);
D esiring to prom ote greater econom ic cooperation between them w ith respect to invest­
m ent by nationals and enterprises o f one Party in the territory o f the other Party;
Recognizing that agreem ent on the treatm ent to be accorded such investm ent will
stim ulate the flow o f private capital and the econom ic developm ent o f the Parties;
A greeing that a stable fram ework for investm ent will maximize effective utilization o f
econom ic resources and im prove living standards;
Recognizing the im portance o f providing effective means o f asserting claims and enforcing
rights w ith respect to investm ent under national law as well as through international
arbitration;
D esiring to achieve these objectives in a m anner consistent with the protection o f health,
safety, and the environm ent, and the prom otion o f internationally recognized labor rights;
H a v in g resolved to conclude a Treaty concerning the encouragem ent and reciprocal
protection o f investm ent:
Have agreed as follows:

Section A
A n ic le 1
D efinitions
F or purposes o f this Treaty:
“central level o f g overnm ent” means:
(a) for the U nited States, the federal level of government; and
(b) for [Country], [____ ].
“C en tre” means the International C entre for Settlem ent o f Investm ent D isputes
(“IC S ID ”) established by the IC SID Convention.
“claim ant” means an investor o f a Party that is a party to an investm ent dispute with the
other Party.
“covered investm ent” means, w ith respect to a Party, an investm ent in its territory o f an
investor o f the other Party' in existence as o f the date o f entry into force o f this Treaty or
established, acquired, or expanded thereafter.
“d isputing p arties” means the claim ant and the respondent.
“disputing p arty ” m eans either the claimant or the respondent.
“enterprise” means any entity constituted or organized under applicable law, w hether or
n ot for profit, and w hether privately or governmentally owned or controlled, including a
378 Annexes

corporation, trust, partnership, sole proprietorship, joint venture, association, or similar

organization; and a branch o f an enterprise.
“enterprise o f a Party” means an enterprise constituted or organized under the law o f a
Party, and a branch located in the territory o f a Party and carrying o u t business activities
there.
“existing”σ
means in effect on the date o f entrv■/ into force o f this Treaty.
“ freely usable currency3’ means “freely usable currency” as determ ined by the Inter­
national M onetary Fund under its Articles o f Agreement.
“ G A TS” m eans the GeneralAgree7?ient on Trade in Sendees, contained in Annex IB to the
W T O Agreement.
“governm ent procurem ent” means the process by which a governm ent obtains the use o f
or acquires goods or sendees, or any com bination thereof, for governm ental purposes and
n o t w ith a view to commercial sale or resale, or use in the production or supply o f goods or
services for commercial sale or resale.
“IC SID A dditional Facility Rules” means the Rules Governing the Additional Facility for
the Administration of Proceedings by the Secretariat o f the International Centrefor Settlement of
Investment Disputes.
“IC S ID C onvention” m eans the Convention on the Settlement o f Investment Disputes
between States and Nationals o f Other States, done at W ashington, M arch 18, 1965.
[“Inter-A m erican C onvention” means the Inter-American Convention on International
Commercial Arbitration, done at Panam a, January 30, 1975.]
“investm ent” means every asset that an investor owns or controls, directly or indirectly,
that has the characteristics o f an investm ent, including such characteristics as the com m it­
m ent o f capital or other resources, the expectation o f gain or profit, or the assum ption o f
risk. Forms that an investm ent m ay take include;
(a) an enterprise;
(b) shares, stock, and other forms o f equity participation in an enterprise;
(c) bonds, debentures, other debt instrum ents, and loans ; 1
(d) futures, options, and other derivatives;
(e) turnkey, construction, m anagem ent, production, concession, revenue-sharing, and
other similar contracts;
(f) intellectual property rights;
(g) licenses, authorizations, perm its, and similar rights conferred pursuant to domestic
law;2, 3 and
(h) other tangible or intangible, movable or imm ovable property, and related property
rights, such as leases, mortgages, liens, and pledges.

1 Some forms of debt, such as bonds, debentures, and long-term notes, are more likely to have
the characteristics of an investment, while other forms of debt, such as claims to payment that are
immediately due and result from die sale of goods or services, are less likely to have such
characteristics.
2 W hether a particular type of license, authorization, permit, or similar instrument (including a
concession, to the extent that it has the nature of such an instrument) has the characteristics of an
investment depends on such factors as the nature and extent of the rights that the holder has under the
law of the Party. Among the licenses, authorizations, permits, and similar instruments that do not have
the characteristics of an investment are those that do not create any rights protected under domestic
law. For greater certainty, the foregoing is withour prejudice to whether any asset associated with the
license, authorization, permit, or similar instrum ent has the characteristics of an investment.
3 The term “investment” does not include an order or judgm ent entered in a judicial or adminis­
trative action.
 US Model B IT (2012) 379
“Investm ent agreem ent” means a w ritten agreem ent 4 between a national authority 5 o f a
Party and a covered investm ent or an investor o f the other Party, on w hich the covered
investm ent or the investor relies in establishing or acquiring a covered investm ent other than
the w ritten agreem ent itself, that grants rights to the covered investm ent or investor:
(a) w ith respect to natural resources that a national authority controls, such as for
their exploration, extraction, refining, transportation, distribution, or sale:
(b) to supply services to the public on behalf o f the Party, such as power generation or
distribution, water treatm ent or distribution, or telecom m unications; or
(c) to undertake infrastructure projects, such as the construction o f roads, bridges,
canals, dams, or pipelines, th at are not for the exclusive or predom inant use and
benefit o f the government.

“investm ent auth o rizatio n ” 6 means an authorization that the foreign investm ent author­
ity o f a Party grants to a covered investm ent or an investor o f the other Party.
“investor o f a n o n -P a rty ” means, w ith respect to a Party, an investor that attem pts to
make, is making, or has m ade an investm ent in the territory o f that Party, th at is n o t an
investor o f either Party.
“investor o f a P a rty ” means a Party or state enterprise thereof, or a national or an
enterprise o f a Party, that attem pts to make, is making, or has m ade an investm ent in the
territory o f the other Party; provided, however, that a natural person who is a dual national
shall be deem ed to be exclusively a national o f the State o f his or her d om inant and effective
nationality.
“m easure” includes any law, regulation, procedure, requirem ent, or practice.
“n ational” means:
(a) for the U nited States, a natural person who is a national o f the U nited States as
defined in T itle III o f the Im m igration and N ationality Act; and
(b) for [Country], [____ ].

“N ew Y ork C o n v en tio n ” means the United Nations Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, done at N ew York, June 10, 1958.
“n o n -d isp u tin g P a rty ” m eans the Party that is not a party to an investm ent dispute,
“person” means a natural person or an enterprise.
“person o f a P a rty ” means a national or an enterprise o f a Party.
“p rotected in fo rm atio n ” means confidential business inform ation or inform ation that is
privileged or otherwise protected from disclosure under a Party’s law.
“regional level o f governm ent” means:
(a) for the U nited States, a state o f the U nited States, the D istrict o f C olum bia, or
Puerto Rico; and
(b) for [Country], [____ ].

4 “W ritten agreement” refers to an agreement in writing, executed by both parties, whether in a

single instrum ent or in multiple instruments, that creates an exchange of rights and obligations,
binding on both parties under the law applicable under Article 30[Governing Law](2). For greater
cerrainty. (a) a unilateral act of an administrative or judicial authority, such as a permit, license, or
authorization issued by a Part}’ solely in its regulatory capacity, or a decree, order, or judgment,
standing alone; and (b) an administrative or judicial consent decree or order, shall not be considered a
written agreement.
3 For purposes o f this definition, “national authority” means (a) for the United States, an authority
at the central ievei o f government: and (b) for [Country], [ ].
5 For greater certainty, actions taken by a Party to enforce laws of general application, such as
competition laws, are not encompassed within this definition.
380 Annexes

“respondent” means the Party that is a party to an investment dispute,

“Secretary-General” means the Secretary-General of ICSID.
“state enterprise” m eans an enterprise owned, or controlled through ownership interests,
by a Party.
“territory” means:
(a) w ith respect to die U nited States,
(i) the customs territory o f the U nited States, which includes the 50 states, the
D istrict o f Colum bia, and Puerto Rico;
(ii) the foreign trade zones located in the U nited States and Puerto Rico.
(b) with respect to [Country,] [____ ].
(c) with respect to each Part)·7, the territorial sea and any area beyond the territorial sea
o f the Party w ithin which, in accordance with custom aiy international law7 as
reflected in the U nited N ations C onvention on the Law o f the Sea, the Party may
exercise sovereign rights or jurisdiction.

“T R IP S A greem ent” means the Agreement on Trade-Related Aspects o f Intellectual Property

Rights,
ώ J
contained in Annex 1C to the W T O A Ogreem ent/'
“UNCITRAL Arbitration Rules” means the arbitration rules o f the U nited N ations
Com m ission on International T rade Law.
“WTO Agreement” means the Marrakesh Agreement Establishing the World Trade
Organization, done on April 15, 1994.
Article 2
Scope and Coverage
1 . This Treaty applies to measures adopted or m aintained by a Party relating to:
(a) investors o f the other Party;
(b) covered investments; and
(c) w ith respect to Articles 8 [Performance R equirem ents], 12 [Investm ent and Environ­
m ent] , and 13 [Investm ent and Labor], all investm ents in the territory o f the Party.
2 . A Party’s obligations under Section A shall apply:
(a) to a state enterprise or other person when it exercises any regulatory, administrative,
or other governm ental authority delegated to it by th at Part }7; 8 and
(b) to the political subdivisions o f that Party.
3. For greater certainty, this T reaty does not bind either Party in relation to any act or fact
that took place or any situation that ceased to exist before the date o f entry into force of
this Treaty.

Article 3
National Treatment
1 . Each Party shall accord to investors o f the other Party treatm ent no less favorable than
that it accords, in like circumstances, to its own investors w ith respect to the establish­
m ent, acquisition, expansion, m anagem ent, conduct, operation, and sale or other
disposition o f investm ents in its territory.

7 For greater certainty, ‘‘TRIPS Agreement” includes any waiver in force between the Parties of any
provision of the TRIPS Agreement granted by W T O Members in accordance with the W T O
Agreement.
8 For greater certainty, government authority that has been delegated includes a legislative grant,
and a government order, directive or other action Transferring to the state enterprise or other person, or
authorizing die exercise by the state enterprise or other person of, governmental authority.
 US Model B IT (2012) 381
2. Each Parry shall accord to covered investm ents treatm ent no less favorable than th at it
accords, in like circumstances, to investments in its territory o f its own investors w ith
respect to the establishm ent, acquisition, expansion, m anagem ent, conduct, operation,
and sale or other disposition o f investments.
3. T h e treatm ent to be accorded by a Party under paragraphs 1 and 2 m eans, w ith respect to
a regional level o f government, treatm ent no less favorable than the treatm ent accorded,
in like circumstances, by that regional level o f governm ent to natural persons resident in
and enterprises constituted under the laws o f other regional levels o f governm ent o f the
Part)r o f which it forms a part, and to their respective investments.'

Article 4
M ost-F avored-N ation T rea tm e n t
1. Each Party shall accord to investors o f the other Party treatm ent no less favorable than
th at it accords, in like circumstances, to investors o f any non-Party w ith respect to the
establishm ent, acquisition, expansion, m anagem ent, conduct, operation, and sale or
other dispositio n o f investm ents in its territory.
2. Each Party shall accord to covered investm ents treatm ent no less favorable than th at it
accords, in like circumstances, to investm ents in its territory o f investors o f any n on-
Party w ith respect to the establishm ent, acquisition, expansion, m anagem ent, conduct,
operation, and sale or other disposition o f investments.

Article 5
M in im u m S tandard o f T rea tm e n t 9
1. Each Party shall accord to covered investm ents treatm ent in accordance w ith custom ary
international law, including fair and equitable treatm ent and full protection and security.
2. For greater certainty, paragraph 1 prescribes the custom ary international law m inim um
standard o f treatm ent o f aliens as the m inim um standard o f treatm ent to be afforded to
covered investm ents. T he concepts o f “fair and equitable treatm ent” and "full protection
an d security” do not require treatm ent in addition to or beyond that which is required by
th at standard, and do not create additional substantive rights. T he obligation in para­
graph 1 to provide:
(a) “fair and equitable treatm ent” includes the obligation not to deny justice in
crim inal, civil, or administrative adjudicatory proceedings in accordance w ith the
principle o f due process embodied in the principal legal systems o f the world; and
(b) “full protection and security” requires each Party to provide the level o f police
protection required under customary international law.
3. A determ ination that there has been a breach o f another provision o f this Treaty, or o f a
separate international agreement, does n o t establish that there has been a breach o f this
Article.
4. N otw ithstanding Article 14 [N on-C onform ing M easures](5)(b) [subsidies and grants],
each Party shall accord to investors o f the other Party, and to covered investments, no n -
discriminator}'· treatm ent w ith respect to measures it adopts or m aintains relating to
losses suffered by investm ents in its territory owing to armed conflict or civil strife.
5. N otw ithstanding paragraph 4, if an investor o f a Party, in the situations referred to in
paragraph 4, suffers a loss in the territory o f the other Party resulting from:
(a) requisitioning o f its covered investm ent or part thereof by the latter’s forces or
authorities; or

9 Article 5 [M inim um Standard of Treatment] shall be interpreted in accordance with Annex A.

382 Annexes

(b) destruction of its covered investm ent or part thereof by the latter’s forces or
authorities, which was not required by the necessity o f the situation,
the latter Party shall provide the investor restitution, com pensation, or both, as appropri­
ate, for such loss. Any com pensation shall be prom pt, adequate, and effective in accord­
ance w ith Article 6 [Expropriation and Com pensation] (2) through (4), mutatis mutandis.
6 . Paragraph 4 does not apply to existing measures relating to subsidies or grants that w ould
be inconsistent with Article 3 [National T reatm ent] b u t for Auricle 14 [N on-C onform ­
ing M easures](5)(b) [subsidies and grants].

Article 6
E x p ro p ria tio n a n d C o m p e n s a tio n 10
1 . N either Party may expropriate or nationalize a covered investm ent either directly or
indirecdy through measures equivalent to expropriation or nationalization (“expropri­
ation”), except:
(a) for a public purpose;
(b) in a non-discrim inatory m anner;
(c) o n payment of prom pt, adequate, and effective com pensation; and
(d) in accordance with due process of law and Article 5 [Minimum Standard of
Treatment] (1) through (3).
2. T he compensation referred to in paragraph 1 (c) shall:
(a) be paid without delay;
(b) be equivalent to the fair market value of the expropriated investment immediately
before the expropriation took place (“die date of expropriation”);
(c) n o t reflect any change in value occurring because the intended expropriation had
becom e known earlier; and
(d) be fully realizable and freely transferable.
3- If the fair market value is denom inated in a freely usable currency, the com pensation
referred to in paragraph 1 (c) shall be no less than the fair m arker value on the date of
expropriation, plus interest at a commercially reasonable rate for that currency, accrued
from the date of expropriation until the date o f paym ent.
4. If the fair market value is denominated in a currency that is not freely usable, the
compensation referred to in paragraph 1(c) - converted into the currency of payment at
the market rare of exchange prevailing on the date of payment - shall be no less than:
(a) the fair market value on the date o f expropriation, converted into a freely usable
currency at the m arket rate o f exchange prevailing on that date, plus
(b) interest, at a commercially reasonable rate for that freely usable currency, accrued
from the date o f expropriation until the date o f paym ent.
5. T his Article does not apply to the issuance o f com pulsory licenses granted in relation to
intellectual property rights in accordance w ith the TR IPS Agreem ent, or to the revoca­
tion, limitation, or creation o f intellectual property rights, to the extent that such
issuance, revocation, lim itation, or creation is consistent w ith the TR IPS Agreement.

Article 7
T ransfers
1 . Each Party shall perm it all transfers relating to a covered investm ent to be made freely
and w ithout delay into and o u t o f its territory. Such transfers include:

10 Article 6 [Expropriation] shall be interpreted in accordance with Annexes A and B.

 US Model B IT (2012) 383
(a) contributions to capital;
(b) profits, dividends, capital gains, and proceeds from the sale o f all or any part o f the
covered investm ent or from the partial or complete liquidation o f the covered
investm ent;
(c) interest, royalty paym ents, m anagem ent fees, and technical assistance and odier fees;
(d) paym ents m ade under a contract, including a loan agreement;
(e) paym ents m ade pursuant to Article 5 [M inim um Standard o f Treatm ent] (4) and (5)
and Article 6 [Expropriation and C om pensation]; and
(f) paym ents arising out o f a dispute.
2. Each Party shall perm it transfers relating to a covered investm ent to be made in a freely
usable currency at the m arket rate o f exchange prevailing at the tim e o f transfer.
3. Each Party shall perm it returns in kind relating to a covered investm ent to be m ade as
authorized or specified in a w ritten agreem ent between the Party and a covered invest­
m ent or an investor o f the other Party.
4. N otw ithstanding paragraphs 1 through 3, a Party m ay prevent a transfer through the
equitable, non-discrim inatory, and good faith application o f its laws relating to;
(a) bankruptcy, insolvency, or the protection o f the rights o f creditors;
(b) issuing, trading, or dealing in securities, futures, options, or derivatives;
(c) crim inal or penal offenses;
(d) financial reporting or record keeping o f transfers w hen necessary to assist law
enforcem ent or financial regulatory authorities; or
(e) ensuring com pliance w ith orders or judgm ents in judicial or administrative p ro ­
ceedings.

A rticle 8
P e rfo rm a n c e R e q u ire m e n ts
1. N either Party may, in connection w ith the establishm ent, acquisition, expansion,
m anagem ent, conduct, operation, or sale or other disposition o f an investm ent o f an
investor o f a Party or o f a non-Party in its territory, impose or enforce any requirem ent or
enforce any com m itm ent or undertaking : 1 1
(a) to export a given level or percentage o f goods or services;
(b) to achieve a given level or percentage o f dom estic content;
(c) to purchase, use, or accord a preference to goods produced in its territory, or to
purchase goods from persons in its territory;
(d) to relate in any way the volume or value o f im ports to the volum e or value o f exports
or to the am ount o f foreign exchange inflows associated w ith such investm ent;
(e) to restrict sales o f goods or services in its territory that such investm ent produces or
supplies by relating such sales in any way to the volum e or value o f its exports or
foreign exchange earnings;
(f) to transfer a particular technology, a production process, or other proprietary
knowledge to a person in its territory;
(g) to supply exclusively from the territory o f the Party the goods that such investm ent
produces or the services that it supplies to a specific regional m arket or to the world
m arket; or

11 For greater certainty, a condition for the receipt or continued receipt of an advantage referred to
in paragraph 2 does not constitute a “commitment or undertaking” for die purposes of paragraph 1.
384 Annexes

(li) (i) ro purchase, use, or accord a preference to, in irs territory, technology o f the Party
or o f persons o f the Party12; or
(ii) that prevents the purchase or use of, or the according o f a preference to, in its
territory, particular technology,
so as to afford protection on the basis of nationality ro its own investors or invest­
m ents o r to technology o f the Party or o f persons o f the Party-.
2. N either Party m ay condition the receipt or continued receipt o f an advantage, in
connection w ith the establishm ent, acquisition, expansion, m anagem ent, conduct,
operation, or sale or other disposition o f an investm ent in its territory of an investor of
a Party or o f a non-Party, on compliance w ith any requirem ent:
(a) to achieve a given level or percentage o f dom estic content;
(b) to purchase, use, or accord a preference to goods produced in its territoiy, or to
purchase goods from persons in its territory;
(c) to relate in any way the volum e or value o f im ports to the volum e or val ue o f exports
or to the am ount o f foreign exchange inflows associated w ith such investm ent; or
(d) to restrict sales o f goods or services in its territory that such investm ent produces or
supplies by relating such sales in any way to the volume or value o f its exports or
foreign exchange earnings.
3. (a) N othing in paragraph 2 shall be construed to prevent a Party from conditioning the
receipt or continued receipt o f an advantage, in connection w ith an investm ent in its
territoiy o f an investor o f a Part}' or o f a non-Party, on compliance with a requirem ent
to locate production, supply a service, train or employ workers, construct or expand
particular facilities, or cany out research and development, in its territory.
(b) Paragraphs 1 (f) and (h) do n o t apply;
(i) when a Party authorizes use o f an intellectual property right in accordance w ith
Article 31 o f the TRIPS Agreem ent, or to measures requiring the disclosure o f
proprietary inform ation that fall w ithin the scope of, and are consistent with,
Ajticle 39 o f the TR IPS Agreem ent; or
(ii) w hen the requirem ent is im posed or the com m itm ent or undertaking is
enforced by a court, adm inistrative tribunal, or com petition authority to
rem edy a practice determ ined after judicial or administrative process to be
anticom petitive under die Party’s com petition laws .13
(c) Provided that such measures are n o t applied in an arbitrary or unjustifiable manner,
and provided that such measures do not constitute a disguised restriction on
international trade or investm ent, paragraphs 1 (b), (c), (f), and (h), and 2 (a) and
(b), shall not be construed to prevent a Party from adopting or m aintaining
measures, including environm ental measures:
(i) necessary to secure compliance w ith laws and regulations th at are not inconsist­
ent w ith this Treaty;
(ii) necessary to protect hum an, animal, or plant life or health; or
(iii) related to the conservation o f living or non-living exhaustible natural resources.

12 For purposes of this Article, the term “technolog)’ of the Part)7or of persons of the Party” includes
technolog)' that is owned by the Part)' or persons o f the Part}’, and technology for which the Party
holds, or persons of the Pam ' hold, an exclusive license.
13 T he Parties recognize that a patent does not necessarily confer m arket power.
 US Model B IT (2012) 385

(d) Paragraphs 1 (a), (b), and (c). and 2 (a) and (b), do not apply to qualification
requirem ents for goods or sendees with respect to export p rom otion and foreign
aid programs.
(e) Paragraphs 1(b), (c), (fj, (g), and (h), and 2(a) and (b), do n o t apply to governm ent
procurem ent.
(f) Paragraphs 2(a) and (b) do not apply to requirem ents im posed by an im porting
Party relating to the content o f goods necessary to qualify for preferential tariffs or
preferential quotas.
4. For greater certainty, paragraphs 1 and 2 do not apply to any com m itm ent, undertaking,
or requirem ent other than those set out in those paragraphs.
5. T his Article does n o t preclude enforcem ent o f any com m itm ent, undertaking, or
requirem ent between private parties, where a Party did not im pose or require the
com m itm ent, undertaking, or requirement.

Article 9
Senior M anagem ent and Boards o f D irectors
1. N either Party m ay require th at an enterprise o f that Party that is a covered investm ent
appoint to senior m anagem ent positions natural persons o f any particular nationality.
2. A Party may require that a m ajority of the board o f directors, or any com m ittee thereof,
o f an enterprise o f that Party that is a covered investm ent, be o f a particular nationality,
or resident in the territory o f the Party, provided that the requirem ent does not
m aterially im pair the ability o f the investor to exercise control over its investm ent.

Article 10
Publication o f Laws and D ecisions Respecting Investm ent
1 , Each Party shall ensure that its:
(a) laws, regulations, procedures, and administrative rulings o f general application; and
(b) adjudicatory decisions
respecting any m atter covered by this Treaty are prom ptly published or otherwise made
publicly available.
2. For purposes o f this Article, “administrative ruling o f general application” means an
adm inistrative ruling or interpretation that applies to all persons and fact situations that
fall generally w ithin its am bit and that establishes a norm o f conduct b u t does not
include:
(a) a determ ination or ruling made in an administrative or quasi-judicial proceeding
th a t applies to a particular covered investm ent or investor o f the other Party in a
specific case; or
(b) a ruling that adjudicates with respect to a particular act or practice.

Article 11
T ransparency
1 . T he Parties agree to consult periodically on ways to improve the transparency practices
set out in this Article, Article 10 and Article 29.
2. Publication
T o the extent possible, each Party shall:
(a) publish in advance any measure referred to in Article 10(l)(a) that it proposes to
adopt; and
386 Annexes

(b) provide interested persons and the odier Party a reasonable opportunity' to com m ent
on such proposed measures.
3 . W ith respect to proposed regulations o f general application o f its central level o f
governm ent respecdng any m atter covered by this T reaty that are published in accord­
ance w ith paragraph 2(a), each Party:
(a) shall publish die proposed regulations in a single official journal o f national circula­
tion and shall encourage their distribution through additional outlets;
(b) should in most cases publish the proposed regulations n o t less than 60 days before
the date public com m ents are due;
(c) shall include in the publication an explanation o f the purpose o f and rationale for
the proposed regulations; and
(d) shall, at the time it adopts final regulations, address significant, substantive com ­
m ents received during the com m ent period and explain substantive revisions that it
made to the proposed regulations in its official journal or in a prom inent location on
a government Internet site.
4. W ith respect to regulations o f general application that are adopted by its central level o f
governm ent respecting any m atter covered by this Treaty, each Party:
(a) shall publish the regulations in a single official journal o f national circulation and
shall encourage their distribution through additional outlets; and
(b) shall include in the publication an explanation o f the purpose o f and rationale for
the regulations.
5. Provision o f Inform ation
(a) O n request of the other Party, a Party shall prom ptly provide inform ation and
respond to questions pertaining to any actual or proposed measure that the request­
ing Party considers m ight m aterially affect the operation o f this Treaty or otherwise
substantially affect its interests under this Treaty.
(b) Any request or inform ation under this paragraph shall be provided to the other Party
through the relevant contact points.
(c) A ny information provided under this paragraph shall be w ithout prejudice as to
w hether the measure is consistent with this Treaty.
6. Administrative Proceedings
W ith a view to adm inistering in a consistent, im partial, and reasonable m anner all
measures referred to in Article 10(1)(a), each Party shall ensure that in its administrative
proceedings applying such measures to particular covered investm ents or investors o f the
other Party in specific cases:
(a) wherever possible, covered investm ents or investors o f the other Party that are
directly affected by a proceeding are provided reasonable notice, in accordance
w ith domestic procedures, w hen a proceeding is initiated, including a description
o f the nature o f the proceeding, a statem ent o f the legal authority under which the
proceeding is initiated, and a general description o f any issues in controversy;
(b) such persons are afforded a reasonable opportunity to present facts and argum ents in
support of their positions prior to any final administrative action, when time, the
nature o f the proceeding, and the public interest perm it; and
(c) its procedures are in accordance writh dom estic law.
7. Review and Appeal
(a) Each Party shall establish or m aintain judicial, quasi-judicial, or administrative
tribunals or procedures for the purpose o f the prom pt review and, where warranted,
correction of final administrative actions regarding m atters covered by this Treaty.
 US Model B IT (2012) 387
Such tribunals shall be impartial and independent o f the office or authority en­
trusted w ith administrative enforcem ent and shall n o t have any substantial interest
in the outcom e o f the matter.
(b) Each Party shall ensure that, in any such tribunals or procedures, the parties to the
proceeding are provided w ith the right to:
(i) a reasonable opportunity to support or defend their respective positions; and
(ii) a decision based on the evidence and subm issions o f record or, where required
by dom estic law, the record com piled by the administrative authority.
(c) Each Party shall ensure, subject to appeal or further review as provided in its
dom estic law, that such decisions shall be im plem ented by, and shall govern the
practice of, the offices or authorities w ith respect to the adm inistrative action at
issue.
8 . Standards-Setting
(a) Each Party shall allow persons o f the other Party to participate in the developm ent o f
standards and technical regulations by its central governm ent bodies . 14 Each Part}7
shall allow persons o f the other Party to participate in the developm ent o f these
measures, and the developm ent o f conform ity assessment procedures by its central
governm ent bodies, on terms no less favorable than those it accords to its own persons.
(b) Each Party shall recom m end that non-governm ental standardizing bodies in its
territory allow persons o f the other Party to participate in the developm ent o f
standards by those bodies. Each Party shall recom m end that non-governm ental
standardizing bodies in its territory allow7 persons o f the other Party to participate in
the developm ent o f these standards, and the developm ent o f conform ity assessment
procedures by those bodies, on terms no less favorable than those they accord to
persons o f the Party,
(c) Subparagraphs 8 (a) and 8 (b) do n o t apply to:
(i) sanitary and phytosanitary measures as defined in Annex A o f the W orld Trade
O rganization (W T O ) Agreem ent on the Application o f Sanitary and Phytosa­
nitary Measures; or
(ii) purchasing specifications prepared by a governm ental body for its production
or consum ption requirem ents.
(d) For purposes o f subparagraphs 8 (a) and 8 (b), “central governm ent body”, “stand­
ards”, “technical regulations” and “conform ity assessment procedures” have the
meanings assigned to those terms in A nnex 1 o f the W T O Agreem ent on Technical
Barriers to Trade. Consistent w ith Annex 1, the three latter term s do not include
standards, technical regulations or conform ity assessment procedures 'for die supply
o f a service.

A rticle 12
Investm ent and E nvironm ent
1. T he Parties recognize that their respective environm ental laws and policies, and m ulti­
lateral environm ental agreements to which they are both party, play an im portant role in
protecting the environm ent.
2 . T he Parties recognize that it is inappropriate to encourage investm ent by weakening or
reducing the protections afforded in dom estic environm ental laws. Accordingly, each

14 A Party may satisfy this obligation by, for example, providing interested persons a reasonable
opportunity to provide comments on the measure ir proposes to develop and taking those comments
into account in the development of the measure.
388 Annexes,

Part)7 shall ensure m ar it does n o t waive or otherwise derogate from or offer to waive or
otherwise derogate from its environm ental laws 15 in a m anner that weakens or reduces
the protections afforded in those laws, or fail to effectively enforce those laws through a
sustained or recurring course o f action or inaction, as an encouragem ent for the establish­
m ent, acquisition, expansion, or retention o f an investm ent in its territory.
3. T he Parties recognize that each Part}·’ retains the right to exercise discretion w ith respect
to regulatory, compliance, investigator}7, and prosecutorial m atters, and to make deci­
sions regarding the allocation of resources to enforcem ent w ith respect to other environ­
m ental m atters determ ined to have higher priorities. Accordingly, the Parties understand
that a Part }7 is in compliance w ith paragraph 2 where a course o f action or inaction
reflects a reasonable exercise o f such discretion, or results from a bona fide decision
regarding the allocation o f resources.
4. For purposes o f this Article, “environm ental law” means each Party’s statutes or regula­
tions , 16 or provisions thereof, the prim ary purpose of which is the protection o f the
environm ent, or the prevention o f a danger to hum an, animal, or plant life or health,
through the:
(a) prevention, abatem ent, or control o f the release, discharge, or emission o f pollutants
or environm ental contam inants;
(b) control o f environm entally hazardous or toxic chemicals, substances, materials, and
wastes, and the dissem ination o f inform ation related thereto; or
(c) protection or conservation o f wild flora or fauna, including endangered species, their
habitat, and specially protected natural areas,
in the Party’s territory, b u t does not include any statute or regulation, or provision
thereof, directly related to worker safety or health.
5. N oth in g in this T reat }7 shall be construed to prevent a Part }7 from adopting, maintaining,
or enforcing any measure otherwise consistent w ith this Treat }7 that it considers appro­
priate to ensure th at investm ent activity in its territory is undertaken in a m anner
sensitive to environm ental concerns.
6 . A Part }7 may make a written request for consultations w ith the other P air )7 regarding any
m atter arising under this Article. T he other Part }7 shall respond to a request for
consultations w ithin thirty days o f receipt o f such request. Thereafter, the Parties shall
consult and endeavor to reach a m utually satisfactory resolution.
7. T he Parties confirm that each Party may, as appropriate, provide opportunities for public
participation regarding any m atter arising under this Article.

Article 13
Investm ent an d Labor
1. T he Parties reaffirm their respective obligations as m em bers o f the International Labor
Organization (“IL O ’") and their com m itm ents under the ILO Declaration on Fundamen­
tal Principles and Rights at Work and its Follow-Up.

13 Paragraph 2 shall not apply where a Part}’ waives or derogates from an environmental law
pursuant to a provision in law providing for waivers or derogations.
16 For die United Stares, “statutes or regulations” for die purposes of this Article means an act of die
United States Congress or regulations promulgated pursuant to an act of the U nited States Congress
that is enforceable by action of the central level of government.
 US Model B IT (2012) 389
2. T he Parties recognize th at it is inappropriate to encourage investm ent by w eak e n in g or
reducing the protections afforded in domestic labor laws. Accordingly, each Party shall
ensure that it does n o t waive or otherwise derogate from or offer to waive or otherwise
derogate from its labor laws where the waiver or derogation w ould be inconsistent w ith
the labor rights referred to in subparagraphs (a) through (e) o f paragraph 3 , or fail to
effectively enforce its labor laws through a sustained or recurring course o f action or
inaction, as an encouragem ent for the establishm ent, acquisition, expansion, or retention
o f an investm ent in its territoiy.
3. For purposes o f this Article, “labor laws” means each Party’s statutes or regulations , 1 7 or
provisions thereof, that are directly related to the following:
(a) freedom o f association:
(b) the effective recognition o f the right to collective bargaining;
(c) the elim ination o f all forms o f forced or com pulsory labor;
(d) the effective abolition o f child labor and a prohibition on the w orst form s o f child
labor;
(e) the elim ination o f discrim ination in respect o f em ploym ent and occupation; and
(f) acceptable conditions o f w ork with respect to m inim um wages, hours o f work, and
occupational safety and health.
4. A Party m ay make a w ritten request for consultations w ith the other Party regarding any
m atter arising under this Article. T he other Party shall respond to a request for
consultations w ithin thirty days o f receipt o f such request. Thereafter, the Parties shall
consult and endeavor to reach a mutually satisfactory resolution.
5. T he Parties confirm that each Party may, as appropriate, provide opportunities for public
participation regarding any m atter arising under this Article.

Article 14
N o n -C o n fo rm in g M easures
1. Articles 3 [National T reatm ent], 4 [M ost-Favored-N ation T reatm ent], 8 [Performance
R equirem ents], and 9 [Senior M anagem ent and Boards o f Directors] do n o t apply to:
(a) any existing non-conform ing measure that is m aintained by a Party at:
(i) the central level o f government, as set o u t by th at Party in its Schedule to
A nnex I or A nnex III,
(ii) a regional level o f governm ent, as set out by that Party in its Schedule to Annex
I or Annex III, or
(iii) a local level o f governm ent;
(b) the continuation or prom pt renewal o f any non-conform ing measure referred to in
subparagraph (a); or
(c) an am endm ent to any non-conform ing measure referred to in subparagraph (a) to
the extent that the am endm ent does not decrease the conform ity o f the measure, as
it existed im m ediately before the am endm ent, w ith Article 3 [N ational T reatm ent],
4 [M ost-Favored-N ation Treatm ent], 8 [Performance Requirem ents], or 9 [Senior
M anagem ent and Boards o f Directors].
2. Articles 3 [National T reatm ent], 4 [M ost-Favored-N ation T reatm ent], 8 [Performance
Requirem ents], and 9 [Senior M anagem ent and Boards o f Directors] do not apply to any

1■' For the United States, “statutes or regulations” for purposes of this Article means an act of the
U nited States Congress or regulations promulgated pursuant ro an act of the U nited States Congress
that is enforceable by action of the central level of government.
390 Annexes

measure that a Party adopts or m aintains w ith respect to sectors, subsectors, or activities,
as set out in its Schedule to Annex II.
3. N either Party may, under any measure adopted after the date o f entry into force o f this
T reaty and. covered by its Schedule to Annex II, require an investor o f the other Party, by
reason o f its nationality, to sell or otherwise dispose o f an investm ent existing at the tim e
the m easure becomes effective.
4. Articles 3 [National T reatm ent] and 4 [M ost-Favored-N ation T reatm ent] do not apply
to any measure covered by an exception to, or derogation from , the obligations under
Article 3 or 4 o f the T R IPS Agreem ent, as specifically provided in those Articles and in
Article 5 o f the TRIPS Agreem ent.
5. Articles 3 [National T reatm ent], 4 [M ost-Favored-N ation T reatm ent], and 9 [Senior
M anagem ent and Boards o f Directors] do n o t apply to:
(a) governm ent procurem ent; or
(b) subsidies or grants provided by a Party, including governm ent-supported loans,
guarantees, and insurance.

A rticle 1 5
Special Form alities an d Info rm atio n R equirem ents
1. N o th in g in Article 3 [National T reatm ent] shall be construed to prevent a Party from
adopting or m aintaining a measure th at prescribes special formalities in connection w ith
covered investments, such as a requirem ent th at investors be residents o f the Party or that
covered investments be legally constituted under the laws or regulations o f the Party,
provided that such formalities do not materially im pair the protections afforded by a
Party to investors of the other Party and covered investm ents pursuant to this Treaty.
2. N otw ithstanding Articles 3 [National T reatm ent] and 4 [M ost-Favored-N ation T reat­
m ent], a Party may require an investor o f the other Party or its covered investm ent to
provide inform ation concerning th at investm ent solely for inform ational or statistical
purposes. T he Party shall protect any confidential business inform ation from any
disclosure that would prejudice the com petitive position o f the investor or the covered
investm ent. N othing in this paragraph shall be construed to prevent a Party from
otherwise obtaining or disclosing inform ation in connection w ith the equitable and
good faith application o f its law.

Article 1 6
N o n -D ero g atio n
T his T reaty shall not derogate from any o f the following that entitle an investor o f a Party or
a covered investm ent to treatm ent m ore favorable than that accorded by this Treaty:
1 . laws or regulations, administrative practices or procedures, or adm inistrative or adjudi­
catory decisions o f a Party;
UJ to

. international legal obligations o f a Party; or

. obligations assumed by a Party, including those contained in an investm ent authoriza­
tion or an investment agreement.

Article 1 7
D enial o f Benefits
1. A P art5/ may deny the benefits o f this T reaty to an investor o f the other Party that is an
enterprise o f such other Party and to investm ents o f that investor if persons o f a non-
Party own or control the enterprise and the denying Party:
(a) does not m aintain diplom atic relations w ith the non-Party-; or
 US Model B IT (2012) 391
(b) adopts or m aintains measures w ith respect to the non-Party or a person o f the
nonParty that prohibit transactions w ith the enterprise or that w ould be violated or
circum vented if the benefits o f this T reaty were accorded to the enterprise or to its
investments,
2. A Party may deny the benefits o f this T reaty to an investor o f die other Party that is an
enterprise o f such other Party and to investm ents o f that investor if the enterprise has no
substantial business activities in the territory o f the other Party" and persons o f a non-
Party, or o f the denying Party, own or control the enterprise.

Article 18
Essential Security
N o th in g in this Treaty 7 shall be construed:
1 , to require a Party to furnish or allow access to any inform ation the disclosure o f w hich it
determines to be contrary to its essential security interests; or
2. to preclude a Part )7 from applying measures th at it considers necessary for the fulfillment
o f its obligations w ith respect to the m aintenance or restoration o f international peace or
security, or the protection o f its ow n essential security interests.

Article 1 9
D isc lo su re o f In fo r m a tio n
N o th in g in diis T reaty shall be construed to require a Party to furnish or allow access to
confidential inform ation the disclosure o f w hich w ould impede law enforcem ent or other­
wise be contrary to the public interest, or which w ould prejudice the legitim ate commercial
interests o f particular enterprises, public or private.

Article 2 0
F in an cial Services
1 . N otw ithstanding any other provision o f this T reaty, a Party shall n o t be prevented from
adopting or m aintaining measures relating to financial services for prudential reasons,
including for the protection o f investors, depositors, policy holders, or persons to whom
a fiduciary duty is owed by a financial services supplier, or to ensure the integrity and
stability o f the financial system . 18 W here such measures do not conform w ith the
provisions o f this T reaty, they shall not be used as a m eans o f avoiding the Party’s
com m itm ents or obligations under this Treaty.
2 . (a) N othing in this T reaty applies to non-discrim inatory measures o f general applica­
tion taken by any public entity in pursuit o f m onetary and related credit policies or
exchange rate policies. T his paragraph shall n o t affect a Party’s obligations under
Article 7 [Transfers] or Article 8 [Performance Requirem ents ] . 19
(b) For purposes o f this paragraph, “public entity” means a central bank or m onetary
authority o f a Party7.
3. W here a claim ant subm its a claim to arbitration under Section B [Investor-State D ispute
Settlem ent], and th e respondent invokes paragraph 1 or 2 as a defense, the following
provisions shall apply:

18 It is understood diac the term '‘prudential reasons” includes the maintenance of the safety,
soundness, integrity, or financial responsibility of individual financial institutions, as well as the
maintenance o f the safer}7 and financial and operational integrity of payment and clearing systems.
19 For greater certainty, measures of general application taken in pursuit of monetary and related
credit policies or exchange rate policies do not include measures that expressly nullify or amend
contractual provisions that specify the currency of denomination or the rate of exchange of currencies.
392 Annexes

(a) T he respondent shall, w ithin 120 days o f the date the claim is subm itted to
arbitration under Section B, subm it in w riting to the com petent financial author­
ities20 of both Parties a request for a joint determ ination on the issue o f w hether and
to w hat extent paragraph 1 or 2 is a valid defense to the claim. T he respondent shall
prom ptly provide the tribunal, if constituted, a copy o f such request. T he arbitration
may proceed w ith respect to the claim only as provided in subparagraph (d).
(b). T he com petent financial authorities o f both Parries shall make themselves available
for consultations w ith each other and shall attem pt in good faith to make a
determ ination as described in subparagraph (a). Any such determ ination shall be
transm itted prom ptly to the disputing parties and, if constituted, to the tribunal.
T he determ ination shall be binding on the tribunal.
(c) If the com petent financial authorities o f both Parties, w ithin 120 days o f the date by
which they have both received the respondent’s written request for a joint determ in­
ation under subparagraph (a), have not m ade a determ ination as described in that
subparagraph, the tribunal shall decide the issue or issues left unresolved by the
com petent financial authorities. T he provisions o f Section B shall apply, except as
m odified by this subparagraph,
(i) In the appointm ent o f ail arbitrators not yet appointed to the tribunal, each
disputing party shall take appropriate steps to ensure that the tribunal has
expertise or experience in financial services law' or practice. T he expertise of
particular candidates w ith respect to the particular sector o f financial services in
which the dispute arises shall be taken into account in the appointm ent of the
presiding arbitrator.
(ii) If, before the respondent subm its the request for a joint determ ination in
conform ance w ith subparagraph (a), the presiding arbitrator has been ap­
pointed pursuant to Article 27(3), such arbitrator shall be replaced on the
request o f either disputing party and the tribunal shall be reconstituted
consistent w ith subparagraph (c)(i). If, w ithin 30 days o f the date the arbitra­
tion proceedings are resum ed under subparagraph (d), the disputing parties
have n o t agreed on the appointm ent o f a new presiding arbitrator, the Secre­
tary-General, on the request o f a disputing party, shall appoint the presiding
arbitrator consistent w ith subparagraph (c)(i).
(iii) T he tribunal shall draw no inference regarding the application o f paragraph 1
or 2 from the fact that the com petent financial authorities have not made a
determ ination as described in subparagraph (a).
(iv) T he non-disputing Party may make oral and w ritten submissions to the
tribunal regarding the issue o f w hether and to w hat extent paragraph 1 or 2
is a valid defense to the claim. Unless it makes such a submission, the non-
disputing Party shall be presum ed, for purposes o f the arbitration, to take a
position on paragraph 1 or 2 not inconsistent with that o f the respondent.
(d) T he arbitration referred to in subparagraph (a) may proceed w ith respect to the claim:
(i) 1 0 days after the date the com petent financial authorities’ joint determination has
been received by both the disputing parties and, if constituted, the tribunal; or

20 For purposes of this Article, “comperent financial authorities” means, for the U nited States, the
Departm enr of die Treasury for banking arid other financial services, and the Office of the United
States Trade Representative, in coordination with the Departm ent of Commerce and other agencies,
for insurance; and for [Country], [ ].
 US Model B IT (2012) 393
(ii) 1 0 days after die expiration o f the 1 2 0 -day period provided to the com petent
financial authorities in subparagraph (c).
(e) O n the request o f the respondent m ade w ithin 30 days after the expiration o f the
1 2 0 -day period for a joint determ ination referred to in subparagraph (c), or, if the
tribunal has n o t been constituted as o f the expiration o f the 1 2 0 -day period, w ithin
30 days after the tribunal is constituted, the tribunal shall address and decide die
issue or issues left unresolved by the com petent financial authorities as referred to in
subparagraph (c) prior to deciding the m erits o f the claim for w hich paragraph lo r 2
has been invoked by the respondent as a defense. Failure o f th e respondent to m ake
such a request is w ithout prejudice to the right o f the respondent to invoke
paragraph 1 or 2 as a defense at any appropriate phase o f th e arbitration.
4. W here a dispute arises under Section C and the com petent financial authorities o f one
Party provide w ritten notice to the com petent financial authorities o f the other Part }7 that
the dispute involves financial services, Section C shall apply except as m odified by this
paragraph and paragraph 5 .
(a) T he com petent financial authorities o f both Parties shall m ake themselves available
for consultations w ith each other regarding the dispute, a n d shall have 180 days
from the date such notice is received to transm it a report o n their consultations to
the Parties. A Party m ay subm it the dispute to arbitration tinder Section C only after
the expiration o f that 180-day period.
(b) E ither Party m ay make any such report available to a tribunal constituted un d er
Section C to decide the dispute referred to in this paragraph or a similar dispute, or
to a tribunal constituted under Section B to decide a claim arising out o f the same
events or circumstances that gave rise to the dispute under Section C.
5. W here a Party subm its a dispute involving financial services to arbitration under Section
C in conform ance w ith paragraph 4, and on the request o f either Party w ithin 30 days o f
the date the dispute is subm itted to arbitration, each Party shall, in the a ppointm ent o f
all arbitrators n o t yet appointed, take appropriate steps to ensure that the tribunal has
expertise or experience in financial services law7 or practice. T h e expertise o f particular
candidates w ith respect to financial services shall be taken into account in the a p p o in t­
m ent o f die presiding arbitrator.
6 . N otw ithstanding Article 11 (2)-(4) [Transparency - Publication], each Party, to the
extent practicable,
(a) shall publish in advance any regulations o f general application relating to financial
sendees that it proposes to adopt and the purpose o f the regulation;
(b) shall provide interested persons and the other Party a reasonable op p o rtu n ity to
com m ent on such proposed regulations; and
(c) should at the tim e it adopts final regulations, address in w riting significant su b stan ­
tive com m ents received from interested persons w ith respect to the proposed
regulations.
7. T he term s “financial service” or “financial services” shall have the same m eaning as in
subparagraph 5(a) o f the Annex on Financial Sendees o f the GATS.
8. For greater certainty, nothing in this Treaty shall be construed to prevent the adoption or
enforcem ent by a party o f measures relating to investors o f the other Party, or covered
investm ents, in financial institutions th at are necessary to secure compliance w ith laws or
regulations that are not inconsistent w ith this Treaty, including those related to the
prevention o f deceptive and fraudulent practices or that deal w ith the effects o f a default
on financial sendees contracts, subject to the requirem ent that such measures are not
applied in a m anner w hich w ould constitute a means o f arbitrary or unjustifiable
394 Annexes

discrim ination between countries w here like conditions prevail, or a disguised restriction
on investm ent in financial institutions.

A rticle 21
T a x a tio n
1. Except as provided in this Article, nothing in Section A shall impose obligations w ith
respect to taxation measures.
2. Article 6 [Expropriation] shall apply to all taxation measures, except that a claim ant that
asserts th at a taxation m easure involves an expropriation m ay subm it a claim to arbitra­
tion under Section B only if:
(a) the claimant has first referred to the com petent tax authorities 21 o f both Parties in
w riting the issue o f w hether chat taxation measure involves an expropriation; and
(b) w ithin 180 days after the date o f such referral, the com petent tax authorities o f both
Parties fail to agree th at the taxation m easure is not an expropriation.
3. Subject to paragraph 4, Article 8 [Performance Requirem ents] (2) through (4) shall
apply to ail taxation measures.
4. N oth in g in this Treaty shall affect the rights and obligations o f either Party under any tax
convention. In the event o f any inconsistency betw een this T reaty and any such
convention, that convention shall prevail to the extent o f the inconsistency. In the
case o f a tax convention between the Parties, the com petent authorities under that
convention shall have sole responsibility for determ ining w hether any inconsistency
exists between this T reaty and th at convention.

Article 22
E n try in to F orce, D u r a tio n , a n d T e rm in a tio n
1 . This T reaty shall enter into force thirty days after the date the Parties exchange
instrum ents of ratification. It shall rem ain in force for a period o f ten years and shall
continue in force thereafter unless term inated in accordance w ith paragraph 2 .
2 . A Party may term inate this T reaty at the end o f the initial ten-year period or at any time
thereafter by giving one year’s w ritten notice to die other Party.
3. For ten years from the date o f term ination, all other Articles shall continue to apply to
covered investments established or acquired prior to the date o f term ination, except
insofar as those Articles extend to the establishm ent or acquisition o f covered invest­
ments.

S ectio n B
Article 23
C o n s u lta tio n a n d N e g o tia tio n
In the event of an investm ent dispute, the claim ant and the respondent should initially seek
to resolve the dispute dirough considtation and negotiation, w hich may include the use o f
nonbinding, third-party procedures.

21 For die purposes of diis Article, the “competent tax authorities” means:
(a) for the United States, the Assistant Secretary of the Treasury (Tax Policy^), Departm ent of the
Treasury; and
(b) for [Country] , [ ].
 US Model B IT (2012) 395
Article 24
S u b m iss io n o f a C la im to A r b itra tio n
1. In the event th at a disputing party considers that an investm ent dispute cannot be settled
by consultation and negotiation:
(a) the claim ant, on its own behalf, m ay subm it to arbitration under this Section a claim
(i) th at the respondent has breached
(A) an obligation under Articles 3 through 10,
(B) an investm ent authorization, or
(C) an investm ent agreement;
and
(ii) th at the claim ant has incurred loss or damage by reason of, or arising o u t of, that
breach; and
(b) the claim ant, on b ehalf o f an enterprise o f the respondent that is a juridical person
that the claim ant owns or controls directly or indirectly, m ay subm it to arbitration
under this Section a claim
(i) th at the respondent has breached
(A) an obligation under Articles 3 through 10,
(B) an investm ent authorization, or
(C) an investm ent agreement;
and
(ii) th a t the enterprise has incurred loss or damage by reason of, or arising out of,
th a t breach,
provided that a claim ant m ay subm it pursuant to subparagraph (a)(i)(C) or (b)(i)(C) a
claim for breach o f an investm ent agreem ent only if the subject m atter o f the claim and
the claimed damages directly relate to the covered investm ent that was established or
acquired, or sought to be established or acquired, in reliance on the relevant investm ent
agreement.
2. A t least 90 days before subm itting any claim to arbitration under this Section, a claim ant
shall deli\rer to the respondent a w ritten notice o f its intention to subm it the claim to
arbitration (“notice o f in te n t”). T he notice shall specif)”
(a) the nam e and address o f the claim ant and, where a claim is subm itted on behalf o f
an enterprise, the name, address, and place o f incorporation o f the enterprise;
(b) for each claim, the provision of this Treaty, investm ent authorization, or investm ent
agreem ent alleged to have been breached and any other relevant provisions;
(c) the legal an d factual basis for each claim; and
(d) the relief sought and the approxim ate am ount o f damages claimed.
3. Provided that six m onths have elapsed since the events giving rise to the claim, a claim ant
may subm it a claim referred to in paragraph 1 :
(a) under the IC SID C onvention and the IC SID Rules o f Procedure for A rbitration
Proceedings, provided that both the respondent and the non-disputing Party are
parties to the IC S ID C onvention;
(b) under the IC SID A dditional Facility Rules, provided diat either the respondent or
the non-disputing Party is a party to the IC SID Convention;
(c) under the U N C IT R A L A rbitration Rules; or
(d) if the claim ant and respondent agree, to any other arbitration institution or under
any other arbitration rules.
4. A claim shall be deem ed subm itted to arbitration under this Section w hen the claim ant’s
notice o f or request for arbitration (“notice o f arbitration”):
396 Annexes

(a) referred to in paragraph 1 o f Article 36 of the IC SID C onvention is received by the

Secretary-General;
(b) referred to in Article 2 of Schedule C or the IC SID A dditional Facility Rules is
received by the Secretary-General;
(c) referred to in Article 3 o f the U N C IT R A L A rbitration Rules, together w ith the
statem ent of claim referred to in Article 20 o f the U N C IT R A L A rbitration Rules,
are received by the respondent; or
(d) referred to under any arbitral institution or arbitral rules selected under paragraph 3
(d) is received by the respondent.
A claim asserted by the claim ant for the first tim e after such notice o f arbitration is
subm itted shall be deem ed subm itted to arbitration under this Section on the date o f its
receipt under the applicable arbitral rules.
5. T he arbitration rules applicable under paragraph 3, and in effect on the date the claim or
claims were subm itted to arbitration under this Section, shall govern the arbitration
except to the extent m odified by this Treaty.
6. T he claimant shall provide w ith the notice o f arbitration:
(a) the name o f the arbitrator that the claimant appoints; or
(b) the claimant’s w ritten consent for the Secretary-General to appoint that arbitrator.

A rticle 2 5
C o n sen t o f Each Party to A rbitration
1. Each Party consents to the subm ission o f a claim to arbitration under this Section in
accordance w ith this Treaty.
2. T he consent under paragraph 1 and the submission o f a claim to arbitration under this
Section shall satisfy the requirem ents of:
(a) Chapter II o f the IC SID C onvention (Jurisdiction o f the Centre) and the IC SID
Additional Facility Rules for w ritten consent o f the parties to the dispute; [and]
(b) Article II of the N ew York Convention, for an “agreem ent in w riting[.”] [;” and
(c) Article I o f the Inter-Am erican C onvention for an “agreem ent.”]

A rticle 2 6
C onditions and Lim itations on C onsent o f Each P arty
1. N o claim may be subm itted to arbitration under this Section if m ore than three years
have elapsed from the date on which the claimant first acquired, or should have first
acquired, knowledge o f the breach alleged under Article 24(1) and knowledge that the
claim ant (for claims brought u nder Ai'ticle 24(1) (a)) or the enterprise (for claims brought
under Article 24(l)(b)) has incurred loss or damage.
2. N o claim may be subm itted to arbitration under this Section unless:
(a) the claimant consents in w riting to arbitration in accordance w ith the procedures set
out in this Treaty; and
(b) the notice o f arbitration is accompanied,
(i) for claims subm itted to arbitration under Article 24(I)(a), by the claim ants
written waiver, and
(ii) for claims subm itted to arbitration under Article 2 4 (1)(b), by the claim ant’s
and the enterprise’s w ritten waivers
o f any right to initiate or continue before any adm inistrative tribunal or court under
the law of either Party, or other dispute settlem ent procedures, any proceeding with
respect to any measure alleged to constitute a breach referred to in Article 24.
 US Model B IT (2012) 397
3. N otw ithstanding paragraph 2(b), rhe claimant (for claims b ro u g h t under Article 24(1)
(a)) an d the claimant or the enterprise (for claims brought un d er Article 24(1 )(b)) may
initiate or continue an action that seeks interim injunctive relief a n d does not involve the
paym ent o f m onetary damages before a judicial or adm inistrative tribunal o f die
respondent, provided that the action is brought for the sole purpose o f preserving the
claim ant’s or the enterprise’s rights and interests during the pendency o f the arbitration.

Arti.de 2 7
Selection o f A rbitrators
1 . Unless the disputing parties odierwise agree, the tribunal shall com prise three arbitrators,
one arbitrator appointed by each o f the disputing parties and the third, who shall be the
presiding arbitrator, appointed by agreement o f the disputing parties.
2 . T h e Secretary-General shall serve as appointing authority for an arbitration under this
Section.
3. Subject to Article 20(3), if a tribunal has not been constituted w ith in 75 days from the
date th a t a claim is subm itted to arbitration under this Section, the Secretary-General, on
the request o f a disputing party, shall appoint, in his or her discretion, the arbitrator or
arbitrators n o t yet appointed.
4. For purposes o f Article 39 o f the ICSID Convention and Article 7 o f Schedule C to the
IC S ID Additional Facility Rules, and w ithout prejudice to an objection to an arbitrator
on a ground other than nationality:
(a) the respondent agrees to the appointm ent o f each individual m em ber o f a tribunal
established under the ICSID Convention or the IC SID A dditional Facility Rules;
(b) a claim ant referred to in Article 24(l)(a) m ay subm it a claim to arbitration under
this Section, or continue a claim, under the IC S ID C onvention or the IC S ID
A dditional Facility Rules, only on condition th at the claim ant agrees in w riting to
the appointm ent o f each individual m em ber o f the tribunal; and
(c) a claim ant referred to in Article 24(l)(b) m ay su b m it a claim to arbitration under
this Section, or continue a claim, under the IC S ID C onvention or the IC SID
A dditional Facility Rules, only on condition that the claim ant and the enterprise
agree in w riting to the appointm ent o f each individual m em ber o f the tribunal.

Article 2 8
C onduct o f the A rbitration
1 . T he disputing parties may agree on the legal place o f any arbitration under the arbitral
rules applicable under Article 24(3). If the disputing parties fail to reach agreement, the
tribunal shall determine the place in accordance w ith the applicable arbitral rules,
provided that the place shall be in the territory o f a State that is a part)'- to the N ew
York C onvention.
2. T he non-disputing Party may make oral and w ritten subm issions to the tribunal
regarding the interpretation o f this Treaty.
3. T he tribunal shall have the authority to accept and consider am icus curiae subm issions
from a person or entity that is not a disputing party.
4. W ith o u t prejudice to a tribunal’s authority to address other objections as a prelim inary
question, a tribunal shall address and decide as a prelim inary question any objection by
the respondent that, as a m atter o f law, a claim subm itted is not a claim for w hich an
award in favor o f the claimant may be made under Article 34,
(a) Such objection shall be subm itted to the tribunal as soon as possible after the
tribunal is constituted, and in no event later than the date the tribunal fixes for
398 Annexes

the respondent to subm it its counter-m em orial (or, in the case o f an am endm ent to
the notice o f arbitration, the date the tribunal fixes for the respondent to subm it its
response to the am endm ent).
(b) O n receipt of an objection under this paragraph, the tribunal shall suspend any
proceedings on the merits, establish a schedule for considering the objection consist­
ent w ith any schedule it has established for considering any other prelim inary
question, and issue a decision or award on the objection, stating the grounds therefor.
(c) In deciding an objection under this paragraph, the tribunal shall assume to be true
claim ant’s factual allegations in support o f any claim in the notice o f arbitration (or
any am endm ent thereof) and, in disputes brought under the U N C IT R A L A rbitra­
tion Rules, the statem ent o f claim referred to in Article 20 o f the U N C IT R A L
A rbitration Rules. T h e tribunal m ay also consider any relevant facts not in dispute.
(d) T he respondent does not waive any objection as to com petence or any argum ent on
the m erits merely because the respondent did or did n o t raise an objection under
this paragraph or m ake use o f the expedited procedure set out in paragraph 5.
5. In the event that the respondent so requests w ithin 45 days after the tribunal is
constituted, the tribunal shall decide on an expedited basis an objection under paragraph
4 and any objection th at the dispute is n o t w ith in the tribunal’s competence. T h e
tribunal shall suspend any proceedings on the m erits and issue a decision or award on the
objection(s), stating the grounds therefor, no later th an 150 days after the date o f the
request. However, if a disputing party requests a hearing, the tribunal may take an
additional 30 days to issue the decision or award. Regardless o f w hether a hearing is
requested, a tribunal may, on a show ing o f extraordinary cause, delay issuing its decision
or award by an additional brief period, which m ay n o t exceed 30 days.
6. W h en it decides a respondent’s objection under paragraph 4 or 5, the tribunal may, if
w arranted, award to the prevailing disputing party reasonable costs and attorney’s fees
incurred in subm itting or opposing the objection. In determ ining w hether such an award
is warranted, the tribunal shall consider w hether either the claim ant’s claim or the
respondent’s objection was frivolous, and shall provide the disputing parties a reasonable
opportunity to com m ent.
7· A respondent may not assert as a defense, counterclaim, right o f set-off, or for any other
reason that the claimant has received or will receive indem nification or other compensation
for all or part o f the alleged damages pursuant to an insurance or guarantee contract.
8. A tribunal may order an interim measure o f protection to preserve the rights o f a
disputing party, or to ensure th at the tribunal’s jurisdiction is m ade hilly effective,
including an order to preserve evidence in the possession or control o f a disputing
party or to protect the tribunal’s jurisdiction. A tribunal m ay not order attachm ent or
enjoin the application o f a measure alleged to constitute a breach referred to in Article
24. For purposes of this paragraph, an order includes a recom m endation.
9. (a) In any arbitration conducted under this Section, at the request o f a disputing party,
a tribunal shall, before issuing a decision or award on liability, transm it its proposed
decision or award to the disputing parties and to the non-disputing Party. W ith in
60 days after the tribunal transmits its proposed decision or award, the disputing
parties may subm it w ritten com m ents to the tribunal concerning any aspect o f its
proposed decision or award. T h e tribunal shall consider any such com m ents and
issue its decision or award not later than 45 days after the expiration o f the 60-day
com m ent period.
(b) Subparagraph (a) shall not apply in any arbitration conducted pursuant to this
Section for w hich an appeal has been made available pursuant to paragraph 10.
 US Model B IT (2012) 399
10. In the event th at an appellate m echanism for reviewing awards rendered by investor-
State dispute settlem ent tribunals is developed in the future under other institutional
arrangem ents, the Parties shall consider w hether awards rendered under Article 34
should be subject to that appellate m echanism . T h e Parties shall strive to ensure that
any such appellate m echanism they consider adopting provides for transparency o f
proceedings similar to the transparency provisions established in Article 29.

A n k le 2 9
T ransparency o f A rbitral Proceedings
1. Subject to paragraphs 2 and 4, the respondent shall, after receiving the following
docum ents, prom ptly transm it diem to die non-disputing Party and make them avail­
able to the public:
(a) the notice o f intent;
(b) the notice o f arbitration;
(c) pleadings, memorials, and briefs subm itted to the tribunal by a disputing party and
any w ritten subm issions subm itted pursuant to Article 28(2) [N on-D isputing Party
subm issions] and (3) [Amicus Submissions] and Article 33 [Consolidation];
(d) m inutes or transcripts o f hearings o f the tribunal, where available; and
(e) orders, awards, and decisions o f the tribunal.
2 . T h e tribunal shall conduct hearings open to the public and shall determ ine, in consult­
ation w ith the disputing parties, the appropriate logistical arrangements. However, any
disputing party that intends to use inform ation designated as protected inform ation in a
hearing shall so advise the tribunal. T h e tribunal shall m ake appropriate arrangements to
protect the inform ation from disclosure.
3. N o th in g in this Section requires a respondent to disclose protected inform ation or to
furnish or allow access to inform ation that it m ay w ithhold in accordance w ith Article 18
[Essential Security Article] or Article 19 [Disclosure o f Inform ation Article].
4. A ny protected inform ation that is subm itted to the tribunal shall be protected from
disclosure in accordance w ith the following procedures:
(a) Subject to subparagraph (d), neither the disputing parties n or the tribunal shall
disclose to the non-disputing Party or to the public any protected inform ation
w here the disputing party th at provided the inform ation clearly designates it in
accordance w ith subparagraph (b);
(b) A ny disputing party claiming that certain information constitutes protected information
shall clearly designate the information at the tim e it is subm itted to the tribunal;
(c) A disputing party shall, at the tim e it subm its a docum ent containing inform ation
claimed to be protected inform ation, subm it a redacted version o f the docum ent
th at does n o t contain the inform ation. O nly the redacted version shall be provided
to the non-disputing Parry and made public in accordance w ith paragraph 1; and
(d) T he tribunal shall decide any objection regarding the designation o f inform ation
claim ed to be protected inform ation. I f the tribunal determ ines th at such infor­
m ation was n o t properly designated, the disputing party th at subm itted the infor­
m ation may (i) w ithdraw all or part o f its subm ission containing such inform ation,
or (ii) agree to resubm it complete and redacted docum ents w ith corrected designa­
tions in accordance w ith the tribunal’s determ ination and subparagraph (c). In
either case, the other disputing party shall, whenever necessary, resubm it complete
an d redacted docum ents w hich either remove the inform ation withdraw n under (i)
by the disputing party that first subm itted the inform ation or redesignate the
400 Annexes

inform ation consistent with the designation under (ii) o f the disputing party that
first subm itted the inform ation.
5. N othing in this Section requires a respondent to w ithhold from the public inform ation
required to be disclosed by its laws.

A rticle 3 0
Governing Law
1. Subject to paragraph 3, when a claim is subm itted under Article 24(1 )(a)(i)(A) or Article
24(l)(b)(i)(A ), the tribunal shall decide the issues in dispute in accordance w ith this
Treaty and applicable rules o f international law.
2. Subject to paragraph 3 and the other terms o f this Section, w hen a claim is subm itted
under Article 24(l)(a)(i)(B) or (C), o r Article 2 4 (l)(b )(i)(B ) or (C), the tribunal shall
apply:
(a) the rules o f law specified in the pertin en t investm ent authorization or investm ent
agreement, or as the disputing parries m ay otherw ise agree; or
(b) if the rules o f law have n o t been specified or otherw ise agreed:
(i) the law o f the respondent, including its rules o n the conflict o f laws ;22 and
(ii) such rules o f international law as m ay be applicable.
3. A joint decision o f the Parties, each acting through its representative designated for
purposes o f this Article, declaring their interpretation o f a provision o f this T reaty shall
be binding on a tribunal, and any decision or aw ard issued by a tribunal m ust be
consistent w ith that joint decision.

A rticle 31
In terp re ta tio n o f A nnexes
1. W here a respondent asserts as a defense that the measure alleged to be a breach is w ithin
the scope o f an entry7 set out in A nnex I, II, or III. the trib u n a l shall, on request o f the
respondent, request the interpretation o f the Parties on the issue. T h e Parties shall
subm it in w riting any joint decision declaring their in terp retatio n to the tribunal within
90 days o f delivery o f the request.
2. A joint decision issued under paragraph 1 by the Parties, each acting through its
representative designated for purposes o f diis A rticle, shall be bin d in g on the tribunal,
and any decision or award issued by the tribunal m u st be consistent w ith that joint
decision. I f the Parties fail to issue such a decision wdthin 90 days, the tribunal shall
decide the issue.

A rticle 3 2
E xpert R eports
W ith o u t prejudice to the appointm ent o f o ther kinds o f experts w here authorized by the
applicable arbitration rules, a tribunal, at the request o f a d isp u tin g party or, unless the
disputing parties disapprove, on its ow n initiative, m ay a p p o in t one or m ore experts to
report to it in writing on any factual issue concerning env iro n m en tal, health, safety, or other
scientific m atters raised by a disputing p arty in a proceeding, subject to such term s and
conditions as the disputing parties m ay agree.

22 The “law of the respondent” means the law that a dom estic court or tribunal of proper
jurisdiction would apply in the same case.
 US Model B IT (2012) 401
A rticle 3 3
Consolidation
1 . W here two or m ore claims have been subm itted separately to arbitration under A rticle
24(1) and the claims have a question o f law or fact in com m on and arise o u t of the sam e
events or circumstances, any disputing part }7 may seek a consolidation order in accord­
ance w ith the agreemen t o f all the disputing parries sought to be covered by the order or
the term s o f paragraphs 2 through 1 0 .
2 . A disputing part }7 that seeks a consolidation order under this Article shall deliver, in
writing, a request to the Secretary-General and to all the disputing parties sought to be
covered by the order and shall specify in the request:
(a) the names and addresses o f all the disputing parties sought to be covered by the
order;
(b) the nature o f the order sought; and
(c) the grounds on which the order is sought.
3. Unless the Secretary-General finds w ithin 30 days after receiving a request under
paragraph 2 that the request is manifestly unfounded, a tribunal shall be established
under this Article.
4. Unless all the disputing parties sought to be covered by the order otherwise agree, a
tribunal established under this Article shall comprise three arbitrators:
(a) one arbitrator appointed by agreement o f the claimants;
(b) one arbitrator appointed by the respondent; and
(c) the presiding arbitrator appointed by the Secretary-General, provided, however, th at
the presiding arbitrator shall not be a national o f either Part}7.
5. If, w ithin 60 days after the Secretary-General receives a request made under paragraph 2,
the respondent fails or the claimants fail to appoint an arbitrator in accordance w ith
paragraph 4, the Secretary-General, on the request o f any disputing part}’ sought to be
covered by the order, shall appoint the arbitrator or arbitrators not yet appointed. If the
respondent fails to appoint an arbitrator, the Secretary-General shall appoint a national
o f the disputing Part}7, and if the claimants fail to appoint an arbitrator, the Secretary-
General shall appoint a national o f the nondisputing Part}7.
6 . W here a tribunal established under this Article is satisfied that two or more claims that
have been subm itted to arbitration under Article 24(1) have a question o f law or fact in
com m on, and arise out o f the same events or circumstances, the tribunal may, in the
interest o f fair and efficient resolution o f the claims, and after hearing the disputing
parties, by order:
(a) assume jurisdiction over, and hear and determ ine together, all or part o f the claims;
(b) assume jurisdiction over, and hear and determ ine one or m ore o f the claims, the
determ ination o f which it believes w ould assist in the resolution o f the others; or
(c) instruct a tribunal previously established under Article 27 [Selection o f Arbitrators]
to assume jurisdiction over, and hear and determ ine together, all or part o f the
claims, provided that
(i) that tribunal, at the request o f any claimant n o t previously a disputing part }7
before that tribunal, shall be reconstituted w ith its original members, except
that the arbitrator for the claimants shall be appointed p ursuant to paragraphs 4
(a) and 5; and
(ii) that tribunal shall decide w hether any prior hearing shall be repeated,
7. W here a tribunal has been established under this Article, a claim ant that has subm itted a
claim to arbitration under .Article 24(1) and that has not been nam ed in a request m ade
402 Annexes

under paragraph 2 m ay m ake a w ritten request to the tribunal th at it be included in any

order m ade under paragraph 6 , and shall specify in the request:
(a) the nam e and address o f the claimant;
(b) the nature o f the order sought; and
(c) the grounds on w hich the order is sought.
The claim ant shall deliver a copy o f its request to the Secretary-General.
8. A tribunal established under this Article shall conduct its proceedings in accordance
with the U N C IT R A L A rbitration Rules, except as m odified by this Section.
9. A tribunal established under Article 27 [Selection o f Arbitrators] shall n o t have
jurisdiction to decide a claim, or a part o f a claim, over w hich a tribunal established
or instructed under this Article has assum ed jurisdiction.
10. O n application o f a disputing party, a tribunal established under this Article, pending
its decision under paragraph 6 , m ay order th at the proceedings o f a tribunal established
under Article 27 [Selection o f Arbitrators] be stayed, unless the latter tribunal has
already adjourned its proceedings.

Article 34
A w ard s
1. W here a tribunal makes a final award against a respondent, the tribunal m ay award,
separately or in com bination, only:
(a) m onetary damages and any applicable interest; and
(b) restitution o f property, in w hich case the award shall provide th at the respondent
m ay pay m onetaiy damages and any applicable interest in lieu o f restitution.
A tribunal m ay also award costs and attorney’s fees in accordance w ith this T reaty and
the applicable arbitration rules.
2. Subject to paragraph 1, where a claim is subm itted to arbitration under Article 24(l)(b):
(a) an award o f restitution o f property shall provide that restitution be m ade to the
enterprise;
(b) an award o f m onetary damages and any applicable interest shall provide that the
sum be paid to the enterprise; and
(c) the award shall provide that it is m ade w ithout prejudice to any right that any
person may have in the relief under applicable dom estic law.
3. A tribunal m ay not award punitive damages.
4. An award made by a tribunal shall have no binding force except betw een the disputing
parties and in respect o f the particular case.
5. Subject to paragraph 6 and the applicable review procedure for an interim award, a
disputing party shall abide by and com ply w ith an award w ithout delay.
6 . A disputing party may n o t seek enforcem ent o f a final award until;
(a) in the case o f a final award made under the IC S ID C onvention,
(i) 1 2 0 days have elapsed from the date the award was rendered and no disputing
party has requested revision or annulm ent o f the award; or
(ii) revision or annulm ent proceedings have been completed; and
(b) in die case o f a final award under the IC S ID A dditional Facility Rules, the
U N C ITR A L A rbitration Rules, or the rules selected pursuant to Article 24(3)(d),
(i) 90 days have elapsed from the date the award was rendered and no disputing
party has com m enced a proceeding to revise, set aside, or annul the award; or
(ii) a court has dismissed or allowed an application to revise, set aside, or annul the
award and there is no further appeal.
 US Model B IT (2012) 403
7. Each Party shall provide for the enforcem ent o f an award in its territory.
8 . I f the respondent fails to abide by or com ply w idi a final award, on deliver )7 o f a request
by the non-disputing Party, a tribunal shall be established under Article 37 [State-State
D ispute Settlem ent]. W ith o u t prejudice to other remedies available under applicable
rules o f international law, the requesting Party m ay seek in such proceedings:
(a) a determ ination that the failure to abide by or com ply with the final award is
inconsistent w ith the obligations o f this Treaty; and
(b) a recom m endation that the respondent abide by or com ply w ith the final award.
9. A disputing party m ay seek enforcem ent o f an arbitration award under the IC SID
C onvention or the N ew York C onvention [or the Inter-A m erican Convention] regard­
less o f w hether proceedings have been taken under paragraph 8 .
10. A claim th at is subm itted to arbitration under this Section shall be considered to arise
o u t o f a comm ercial relationship or transaction for purposes o f Article I o f the N ew
York C onvention [and Article I o f die Inter-Am erican Convention].

A rticle 3 5
A nnexes and F ootnotes
T h e Annexes and footnotes shall form an integral part o f this Treaty.

A rticle 3 6
Service o f D ocum ents
D elivery o f notice and other docum ents on a Party shall be m ade to the place nam ed for that
Party in A nnex C.

Section C
A rticle 3 7
S tate-State D ispute Settlem ent
1. Subject to paragraph 5, any dispute between the Parties concerning the interpretation or
application o f this Treaty, that is not resolved through consultations or other diplomatic
channels, shall be subm itted on the request o f either Party to arbitration for a binding
decision or award by a tribunal in accordance w ith applicable rules o f international law.
In the absence o f an agreement by the Parties to the contrary, the U N C ITR A L
A rbitration Rules shall govern, except as modified by the Parties or this Treaty.
2. Unless the Parties otherwise agree, the tribunal shall comprise three arbitrators, one
arbitrator appointed by each Party and the third, who shall be the presiding arbitrator,
appointed by agreement o f the Parties. If a tribunal has n o t been constituted w ithin 75
days from the date that a claim is subm itted to arbitration under this Section, the
Secretary-General, on the request o f either Party, shall appoint, in his or her discretion,
the arbitrator or arbitrators not yet appointed.
3. Expenses incurred by the arbitrators, and other costs o f the proceedings, shall be paid
for equally by the Parties. However, the tribunal may, in its discretion, direct that a
higher proportion o f the costs be paid by one o f the Parties.
4. Articles 28(3) [Amicus Curiae Submissions], 29 [Investor-State T ransparency], 30(1)
and (3) [Governing Law], and 31 [Interpretation o f Annexes] shall apply m utatis
m u ta n d is to arbitrations under this Article.
5. Paragraphs 1 through 4 shall not apply to a m atter arising under Article 12 or Article 13.

IN W IT N E S S W H E R E O F , the respective plenipotentiaries have signed this Treat}7.

404 Annexes

D O N E in duplicate at [city] this [number] day o f [m onth, year], in the English and
[foreign] languages, each text being equally authentic.

FO R T H E G O V E R N M E N T OF F O R T H E G O V E R N M E N T OF
T H E U N IT E D STATES O F AM ERICA : [Country]:

Annex A
Customary International Law

T he Parties confirm their shared understanding that ''custom ary international law” generally
and as specifically referenced in Article 5 [M inim um Standard o f Treatm ent] and A nnex B
[Expropriation] results from a general and consistent practice o f States that they follow from
a sense o f legal obligation. W ith regard to Article 5 [M inim um Standard o f T reatm ent], the
custom ary international law m inim um standard o f treatm ent o f aliens refers to all customary
international law principles th at protect the econom ic rights and interests o f aliens.

Annex B
Expropriation

T h e Parties confirm their shared understanding that:

1. Article 6 [Expropriation and Com pensation] (1) is intended to reflect custom ary inter­
national law concerning the obligation o f States w ith respect to expropriation.
2. An action or a series o f actions by a Party cannot constitute an expropriation unless it
interferes with a tangible or intangible property right or property interest in an investment.
3. Article 6 [Expropriation an d C om pensation] ( 1 ) addresses two situations. T he first is
direct expropriation, where an investm ent is nationalized or otherwise directly expropri­
ated through form al transfer o f title or outright seizure.
4. T h e second situation addressed by Article 6 [Expropriation and Com pensation] ( 1 ) is
indirect expropriation, w here an action or series o f actions by a Party has an effect
equivalent to direct expropriation w ithout formal transfer o f title or outright seizure.
(a) T he determ ination o f w hether an action or series o f actions by a Party, in a specific
fact situation, constitutes an indirect expropriation, requires a case-by- case, fact-
based inquiry' th at considers, am ong other factors:
(i) the econom ic im pact o f the governm ent action, although the fact that an
action or series o f actions by a Party has an adverse effect on the econom ic value
of an investm ent, standing alone, does n o t establish that an indirect expropri­
ation has occurred;
(ii) the extent to w hich the governm ent action interferes w ith distinct, reasonable
investment-backed, expectations; and
(iii) the character o f the governm ent action.
(b) Except in rare circumstances, non-discrim inatory regulatory actions by a Party that are
designed and applied to protect legitimate public welfare objectives, such as public
health, safety, and the environm ent, do not constitute indirect expropriations.
 US Model B IT (2012)

Annex C
Service o f Documents on a Party
United States
Notices and other documents shall be served on the United States by delivery
Executive Director (L/EX)
Office of the Legal Adviser
Department of State
Washington, D.C. 20520
United States of America

[Country]
Notices and other documents shall be served on [Country] by delivery to:
[insert place of deliver}·' of notices and other documents for [Countiy]]
 Index

access to justice parties agreeing on 288

claim, right to bring 179 treaty provisions 288-9
fair and equitable treatment standard, as part U N C ITRA L Rules 289-90
o f 178-82 awards
admission o f foreign investm ent binding force of 310
Canadian policy 89 enforcement 310-12
compelled, n ot 87-8 publication 286-8
compliance w ith domestic law, requirement composition of tribunal 241
of 9 2 -7 conciliation compared 236-7
domestic laws o f host state, under 90 consent to
European policy 89 agreement between parries in 254-5
issues 89 amicable setdement, requirement for
Japanese policy 89 attem pt at 268—70
most-favoured-nation clause 89-90 consultation period 270
national treatment, standard of 89-90 delimitation of 255
non-local personnel, hiring and presence of 92 domestic law, relevance to
performance requirements 9 0-2 jurisdiction 264-7
right o f 88 interpretation 26 2 -4
treaty models 88-90 jurisdiction, defining 2 60-2
U nited States policy 89 local remedies, exhaustion of 265, 275
unlimited, n ot 89 means of giving 254
aid 10 national legislation, provisions in 254,
aliens 256-7
law of 20 procedural conditions 278-88
neglect of duty in treatm ent of 3 requirem ent 254
property, protection of restrictive construction, argument for 262-4
Calvo doctrine 1-3 scope of 260-2
expropriation see expropriation treaty, through 254
history of 2 5 -7 bilateral 257—9
status of, international disputes 3 multilateral 259-60
applicable law 8 1 -2 ,2 8 8 -9 3 umbrella clause, provisions of 262
arbitrary measures costs 298-300
adverse intention, relevance of 193-4 fair and equitable treatment standard 6
comparative standard 192 good faith 18
customary international law, relationship ICSID , by see International Centre for the
to 194-5 Setdement of Investment Disputes
fair and equitable treatment, relationship (ICSID)
to 194-5 institutions
general description 193 commercial 241
meaning 191-5 ICSID see International Centre for the
prohibition 191 Settlement of Investment Disputes
rule of law 191 (ICSID)
arbitration International Chamber of Commerce 241—2
applicable law 241 Iran-U S Claims Tribunal 243-4
BITs, provisions of 288—93 London Court of International
Energy Charter Treaty, provision of 288 Arbitration 242
ICSID Convention, provision of 288-9, Perm anent Court of Arbitration 244
2 9 2 -3 variety of 238-44
international and national rules 288 International Chamber of Commerce 241-2
international law and host state law, investor v state disputes, setdement of 236-312
relationship of 291-2 Iran-U S Claims Tribunal, in 243-4
NAFTA, provision of 288 litigation, advantages over 236
408 Index

arbitration (com.) interpretation see treat}7 interpretation

London C ourt o f International Arbitration, investment, definition 62—4
in 242 investments in territory of host state, reference
most-favoured-nation clauses, applicability to 70
o f 270-5 labour standards, observation of 26
non-ICSID 2 4 1 -4 Lisbon Treat}7 11-12
Permanent C ourt of Arbitration, in 244 model 8—9
procedural rules 278-88 m odern, roots of 6
provisional measures 281-3 most-favoured-nation treatment see most­
rules governing 278-88 favoured-nation treatment
treat}7, offer o f consent in 51 m otivation 21
tribunal precedents, authority of 3 3 -4 national treatm ent see national treatment
UN CITRAL Model Law 243 nationality or parties relying on 44
UNCITRAL Rules 241-3 performance requirements 9 0-2
arm ed conflicts preservation of rights 190-1
rules applicable in reciprocity of obligations 20-1
customaiy international law 183 rules, interpretation of 17
treaty law 183 sources of international law 13-14
structure o f 20-1
bilateral investm ent treaties (BITs) time, application in
alien property, protection of arbitration, consent to 40—1
Calvo doctrine 1—3 dispute, time o f 41—3
history of 2 5-7 events leading to dispute, time of 41-23
Hull rule 2, 4-5 inter-temporal 36
appellate mechanism, possibility of 35 jurisdiction and substance, rules for 36-8
applicable law provisions 288-93 provision in treaty as to 4 1-3
Broches concept 9 traditional character, reconsideration of 27
consent to arbitration through 257-9 US, by 6 -7
consent to ICSID jurisdiction under 65 US—France. 1796 1
customary law Vienna Convention, application of 17
impact on 5 W orld Trade Organization jurisprudence,
relationship to 22 application of 20 4 -6
developing states, between 7 BITs see bilateral investment treaties (BITs)
early developments 1-6 bribery
element of sovereignty, renunciation of 20 negotiation of investment contract, during 96—7
environmental standards, observation of 26
European states, by 6 -7 civil violence 183
European U nion 11-12 coercion
evolution and purpose of 6-11 fair and equitable treatm ent standard,
fair and equitable treatment, provision for application of 159—60
see fair and equitable treatm ent companies
standard control
Friendship, Commerce and Navigation 6 -7 foreign 50-2
full protection and security see full protection indicators of 52
and security standard economic substance, bond w ith state 55
German programme 6 -7 local
Germany-Pakistan 6 -7 foreign control of 5 0-2
global, call for 8 shareholder, as 57
growth and distribution of foreign investment, migration 53
role in 14 nationality 47—50
hast}7 negotiation o f 14 preponderance of nationals in 50
host state poliq7, non-compliance with 9 2-7 seat of business 49
host state sovereignty 24 conciliation
hum an rights, observation of 26 arbitration compared 236-7
improvement o f investment climate by 190 ICSID, by see International Centre for the
indirect expropriation, reference to 101-2 Settlement of Investment Disputes
interests and aspirations, balance of 20-1 (ICSID)
international public policy, non-compliance investor v state disputes, settlement of 2 3 6 - /
with 9 2-7 consent to arbitration 254—64
 Index 409
contractual rights estoppel
expropriation of 126-9 good faith 18
investment contracts see investment contracts EU law 11- 12, 135
privity of contract 175-7 evolution of investment protection treaties 6 - 7
regulatory authority, interference by 155 exhaustion of local remedies 235, 264—67
Convention on the Settlement of Investm ent expropriation
Disputes between States and analysis of occurrence o f 104
Nationals o f O dier States see ICSID breach of contract not am ounting to 128-9
Convention compensation ror
corporations see companies adequate 296
costs 61-2, 298-300 calculation of 294-5
Cotonou Agreement fair market value 296—7
wording of 25 illegal expropriation, for 100-1
interest on 297-8
damages 293-8 market value, determ ining 100
denial o f benefits 55-6 measure of 100
denial o f justice 156, 178-82 most-favoured-nation treatment 211
developing countries prompt, requirement o f 101
capital-exporting states, confrontations with 4 requirements 296-7
foreign investment 2 ,4 —5 ,7 —8, 11, 14,16, 24 valuation date 297
diplomatic protection conditions for 99
Calvo Doctrine 233 contractual rights, of 126-9
disadvantages of 233 control, issue of 117-18
ICSID Convention, effect of 233-4 creeping 125-6
non-compliance with ICSID award, revival of debt, failure to pay 129
right on 239 decisions, challenge and review of 300
treaty provisions, right curtailed by 233-4 defect in contractual performance not
usefulness, limited 232-3 am ounting to 128-9
discriminatory measures definition 99
comparison, basis of 196-7 direct, effect on legal title 101
domestic law, violation of 191 duration of measure 124-5
forms of 193 general regulatory measures, effect of 120-3
intent 193-4, 203-4 illegal, consequences of 100-1
meaning 191-5 indirect
reference to 191 balance o f rights 123
rule against 191 case law 104—12
construction permit, refusal to grant 106
early developments 1-2 context of measure 115
economic cooperation context of provisions 107
broad agreements on 14 contract rights, interference with 108
economic liberalism control, issue o f 117-18
move to 87-8 creeping 125-6
E C T see Energy Charter Treaty (ECT) definition, contours of 101
emergency, rules applicable on duration of measure 124-5
customary international law 183 E C H R jurisprudence 106-8
treaty law 183 economic effects 109
Energy Charter Treaty (ECT) economic viability, loss of 117
applicable law under 288 economically unsustainable, business being
consent to arbitration through 260 made 105
denial of benefits clause 55-6 effect of 101
features of 15 effect or intention of 112-15
investment, definition of 62-3 environmental protection measures 122
investor, definition 48 formulae 101—4
ratifications 15 free zone licence, revocation of 108-9
scope of 15 free-zone status, revocation of 107
source of international law, as 15-17 general regulator}' measures, effect of 120-3
establishment increased taxation, effect of 105
freedom of 88 interpretation of concept 101
right of 88 judicial and arbitral practice 104-12
410 Index

expropriation (cont.) customary international law 134-9, 194—5

lacunae in law 112 defining, attempts at 142—4
legal title, effect on 101 due process 154-6
legitimate benefits, reduction or removal EU law 135
of 113 evolution o f 139-41
legitimate expectations, existence o f 105—7 fact-specific conclusions, drawing 145
NAFTA, under 107—8 fair procedure 178—82
partial 119 gaps, filling 132
proportionality of measures 123 goals of policies, relating to 143
public purpose, measures adopted for 121 good faith 156-8
real interest, consideration of 115 governmental actions, variety of 129
sole effect doctrine 114 Havanna Charter, in 131
special levy, effect of 113-14 history of concept 130-2
tariff adjustment scheme, suspension of 113 independent treaty standard, as 134-5
treaties, reference in 101-2 customary m inim um standard,
U N C T A D study, definition in 103 and 136-7
unreasonable interference as 108 investment disputes, invoked in 131
water concession, breach of 118 legitimate expectations, protection
international law of 145-60
branches o f 99 methodological issues 141-2
domestic law, development from 104 most-favoured-nation treatm ent 210-11
rules o f 98 multilateral treaties, provisions of 131
legality of NAFTA, provision in 132, 135-6, 144
compensation, measure of 100 nature and function of clause 132-4
requirements 99-101 O E C D Draft Negotiating Text for a
legitimate expectations Multilateral Agreement on
concept o f 115-16 Investment, in
definition 119 procedural propriety' 154-6
explicit contractual assurances 116 rule of international law, as 133
fair and equitable treatment standard, separate standards, whedier 133
application of 145-60 specific application of 145-60
measures violating 116 stability 145-9
NAFTA, provisions of 107-8 stable legal and business environment, need
object of commercial transaction, of 127 for 152
partial 119 standards encompassed in 143
particular rights, of 119 starting point for discussion 139
permanent interference as 124—5 transparency 149-52
private property, human rights protection 106-8 treaty language, heterogeneity of 132
protected interests U N Code of Conduct for Transnational
definition 99 Corporations, in 131
right to expropriate 98 unlimited licence, replacement by
shares, withdrawal of right to acquire 118 limited 151, 159
stabilization clauses 82-5, 98 US treaty practice, in 130-1
violation of
fair and equitable treatm ent standard (FET) auction of seized ship, lack o f notification
access to justice 178 o f 145
administrative practices, relating to 144 bad faith, actions in 156-8
arbitrary measures, relationship to 194-5 banking licence, withdrawal of 144
breadth of 139 construction permit, refusal to grant 155
case law, defined in 138 execution of judgment, foiling 155
coercion and harassment, freedom from 15 9-60 foreigners, discrimination against 144
comprehensive definition of 142 licence, revocation of 155
concept o f privatization policy, change of 147-8
history of 130-2 reimbursement of VAT, inconsistent
origin of 130-2 treatm ent of 146-7
contractual obligations, compliance sovereign capacity, measures taken in 153
with 152-4 state aid, competitor receiving 144
contractual rights, interference by regulatory zoning regulations, proposal inconsistent
authority 155 with 143, 151-2
 Index 411
fair procedure foreign investm ent risk
fair and equitable treatm ent standard, as part change of position of host government, of 22
o f 178-82 commercial 21-2
procedural irregularity 181 laying out in advance 21-2
right to during trial 179 long-term 2 1 -2
force m ajeure political 2 1 -2
ILC Articles on state responsibility 187-8 insurance 228-31
rules applicable in foreign investors
customary international law 187-8 bilateral investment treaties, nationality
treat}7 law 187-8 determining benefit of 44
foreign investm ent contribution 70-5
admission o f see admission of foreign corporations, nationality of 47-50
investment denial of benefits 55-6
bilateral treaties see bilateral investment disputes, party to 249-53 see also settlement
treaties of investment disputes
business nature o f 19-22 Energy Charter Treaty, definition in 48
com petition for 87 false information, providing 9 5 -6
contracts see investment contracts host state policy, non-compliance with 92—7
decisive criterion for existence of 78 ICSID Convention, relying on 45
developing countries 2, 4 -5 , 7 -8 , 11, 14, im m unity rules, discrimination by 180-1
16, 24 individuals, nationality of 45-7
duration o f project 66, 7 1 -4 international public policy, non-compliance
foreign investor, owned or controlled by 78 with 92-7
guarantees under domestic law of host state, investment owned or controlled by 78
sufficient legal stability 166-7 locally incorporated company treated as 5 0 -2
host state and investor, relationship of 13 nationality
host state sovereignty 24 planning 5 2 -4
host state’s development, significant settlement of disputes, relevance to 252—3
contribution to 70-1 private 44-5
international law see foreign investment law regional treaty, relying on 44-5
investment, definition see investment shareholders 56-60
legal stability 23 fork in the road provision 267-8
performance requirements 90-2 full protection and security standard
principles governing 8 breadth of 161
risks see foreign investment risk concept of 160—1
treaties see bilateral investment treaties; customary international law', relationship
investment treaties to 166
W ashington Consensus 5, 87 due diligence, host state exercising 161
W orld Bank Guidelines, approach in 5 immunity, effect o f grant o f 180-1
worldwide am ount of 13 investor, legal protection 163-5
foreign investm ent law physical or legal infringement, no absolute
customary 4—6, 8 -9 protection against 161
anachronistic 5 physical violence and harassment, against 162-3
current state o f 5
impact of treaties on evolution of 5 general principles of law 18
insecurity as to 5 good faith
status o f 4 estoppel 18
domestic regulations, rules touching on 24 fair and equitable treatment standard 156-8
field o f study, as 19, 20 rule o f 4, 18
good faithj rule o f 4, 18 situations in which principle invoked IS
international and domestic law, distinction special area of application 18
between 12 good governance
international body of rules, as 19 concept of 24-5
interpretation 17 origin of 25
nature, structure and purpose of 19-27
private foreign investors, protection of 44-5 harassment
public and private 12 fair and equitable treatment standard,
specialized area, as 19 application of 159-60
treaty-based rules 6, 17, 22 full protection and security standard 162-3
412 Index

history of international investment law international C entre for the Setdem ent of
early developments 2-3 Investm ent Disputes (ICSID)
evolution o f investment protection treaties 6-8 Additional Facility 240-1, 253
fair and equitable treatment standard 130-2 appeals facility, possibility of 35
m inim um standard, emergence of an arbitration
international 3 -4 Additional Facility 2 40-1, 253
multilateral framework, quest for a 8-11 arbitrators
recent developments 11-12 competence 280
Second W orld War, developments after 4 -6 deadi, incapacity or resignation of 280
hum an rights disqualification, proposal for 280-1
expropriation 106-8 moral character 280
investment issues, approach to 26 national, exclusion of 280
investment treaties, observation in 26 num ber of 280
private properns protection of 106-8 award see arbitration award, below'
UN Special Representative report 27 jurisdiction 238-9
objections to 284
IC S ID Convention procedural questions, time for addressing 284
adoption o f 9 proceedings
advantages of system 9 costs o f 298-300
aim of 238 default 285
applicable law under 288-93 discontinuance 28 5 -6
arbitration, consent to 40—1 evidence in 285
cases under 9 frustration o f 239
classes of disputes submitted to jurisdiction, initiation of 279
notification of 78 institutional support 238
consent to arbitration through 259-60 non-cooperation of party 239
consent to jurisdiction 65 oral 28 4 -6
date o f 40-1 phases o f 284—6
constituent subdivisions or agencies, p arr/ rules 27 8 -9
status for 227 self-contained 239
dates critical to jurisdiction 39-41 settlem ent 28 5 -6
decisive date for participation in 39—4-1 provisional measures 281-3
design of 9 request for 279
diplomatic protecrion, right to 2 33-4 Tribunal 280
drafting history of 31 arbitration award
drafting o f 238 annulm ent
entry into force 9, 39, 239 appeals 30 1 -4
investment authority for 303
case law on interpretation 66-74 enforcement, stay of 301—2
reference to 61 excess o f powers, in case of 304—6
investor’s nationality, temporal fundamental rule of procedure, departure
requirements 40 from 306-7
jurisdiction, BIT denning 260-2 grounds for 303
locally incorporated company, treatment as new tribunal, resubmission to 308
foreign investor 40, 50-2 self-contained system for 301
nationality of person relying on 4 5-7 binding and final 239
ordinaiy commercial transaction, dispute date o f 286
concerning 66 enforcement 310-12
parties to 238 interpretation 309
procedural rules 278-9 non-compliance, right o f diplomatic
reasons 3 07-9 protection 239
sources o f international law 13 publication 2 86-8
insurance review' 300-9
disputes 230-1 revision 309
government 229-30 supplementation and rectification 308-9
political risk 228-31 writing, in 286
private 228—9 Convention see ICSID Convention
international aid creation of 9
good governance concept 24-5 forum selection clause, effect of 2 75-6
 Index 413
jurisdiction 238-9 scope radones mareriae 60
slow start for 239 traditional legal understanding, absence o f 60
International Cham ber of Commerce tribunals, interpretation by 6 1-2
(ICC) 2 4 1 -2 investment contracts
international law adaptation 86-6
broad framework, setting out 179 applicable law of 8 1 -2
customary breach not amounting to expropriation
arbitrary measures, relationship to 194—5 128-9
armed conflicts, in 183 bribery during negotiation of 96-7
civil violence 183 build, operate, and own 80
emergency, in 183 choice of law clause 81—2
EU law 135 compliance with obligations, fair and equitable
fair and equitable treatm ent standard treatm ent standard 152-4
134-9, 194-5 concession agreements distinguished 373
force majeure 183 defect in performance n ot amounting to
full protection and security standard, expropriation 128-9
relationship to 166 equilibrium of agreement 85-6
investment arbitration, relevance to 26 expropriation of rights 126-9
military action 183 forum selection clause 27 5 -8
m inim um standard, emergence of 3 -4 ground rules, laying down 80
necessity, in 184-7 national legal order, basis in 81
source of international law, as 17 oil and gas projects, for 80—1
state responsibility, regulation of 220 renegotiation 85—6
status o f 4 stabilization clauses 8 2 -5 , 98
history of international investment law 2-12 types of 69
host state, breach by 139 investment treaties
nature of international investment law 19-27 Abs-Shawcross D raft 8
sources o f international investment law 12-19 admission, models of 88—90
investm ent armed conflicts, provisions on 183
arbitral practice, in 75 Asian states, by 7
bilateral investment treaties, definition in 62-4 bilateral see bilateral investment treaties
case law on interpretation 66-74 emergency, provisions in 182-90
characteristics o f 6 3 -4 fair and equitable treatment, provision for sec
compliance widi domestic law, requirement fair and equitable treatment standard
o f 9 2 -7 force majeure provisions 187—8
concept of 60-1 full protection and security see full protection
contracts see investment contracts and security standard
costs as 6 1 -2 indirect expropriation, reference to 101-2
criteria for defining 7 0-5 interpretation see treaty interpretation
definition 5 7-8 investment, definitions of 62-5
denial of existence of 67 most-favoured-nation treatment
direct, scope of 60 see most-favoured-nation treatment
domestic laws, definition governed by 65 multilateral
double keyhole approach 61 consent to arbitration through 259-60
duration o f 65—6, 7 1-5 Energy Charter Treaty 15 see also Energy
duration o f project 66, 71-4 Charter Treaty
ever}' kind of asset, as 94 interpretation 28
false information, investor providing 95-6 investment, definitions of 65—6
freedom of 88 NAFTA see N orth American Free Trade
host state policy, non-compliance with 92-7 Agreement
host state’s development, significant preparation of 8-11
contribution to 70-1 sectoral 28
ICSID Convention, reference in 61 usefulness, discussion of 27
interrelated economic activities 61-2 necessity, provisions on 184-7
international public policy, non-compliance non-retroactivity 36
with 9 2 -7 object and purpose of ] 6 8-9
investment protection treaties, definitions regional 28
in 6 2-5 scope, freedom to fashion 74-5
portfolio 64 time, application in
414 Index

investm ent treaties (cont.) clauses 198—9

arbitration, consent to 40-1 differentiation
dispute, tim e of 41-3 existence 200-1
events leading to dispute, time of 4 1 -3 justification 2 02-3
ICSID Convention 39-41 discriminatory intent, relevance of 203-4
inter-temporal 36 domestic public interest, policies in favour
jurisdiction and substance, rules for 3 6-8 o f 203
relevant date to determine foreign and domestic investor, comparative
jurisdiction 39-41 setting 199-200
umbrella clause see umbrella clause illegal conduct 203
Iran-U S Claims T ribunal 243-4 m eaning 198-9
measure of 199-200
justice N ew International Economic Order, as part
access to justice 178-82 o f 198
denial of justice 162-6 subsidies 202
judicial review trade and investment law, divergence of 19,
governmental actions, of 180 205-6
W T O case law 204—6
legitimate expectations nationality
basis of 145 certificate of 4 5 -6
expropriation 115-16, 145—60 corporations, o f 47 -5 0
fair and equitable treatment standard, dual 4 6 -7
application of 145—60 individuals, of 4 5 -7
legal order o f hom e state, grounded in 145 legal personality, presupposing 47
objective core o f 146 planning 5 2-4
protection w ithout treaty guarantee 146 reliance on treaties depending on 44—5
unlimited licence, replacement by settlement of disputes, relevance to 252-3
limited 151, 159 shareholders, of 56-60
Lisbon T reaty 11—12 nature of international investment law
L ondon C ourt o f International A rbitration attracting foreign investment 22-4
(LCIA) 242 balancing duties and benefits 20-1
good governance 24—5
m ilitary action 183 long-term risks 2 1 -2
m ost-favoured-nation treatm ent (MFN) obligations for investors 2 5-7
clauses sovereign regulation 24
another treaty, invocation of 210 trade law 19
dispute settlement, applicability to 270—5 necessity
goal o f 206 ILC Articles on state responsibility 184-7
literal application 212 rules applicable on
variations 2 0 7 -8 customaiy international law 184—7
current state o f law 211-12 treaty law 189
fair and equitable treatment N o rth American Free T rade Agreement
requirement 210-11 (NAFTA)
German Model BIT, under 207-8 applicable law under 288
history of 206—7 basis for 14
interpretation, m ethod of 208-9 consent to arbitration through 260
mechanical application of principle 207 dispute settlement 15-16
NAFTA, under 209-10 disputes before entry into force 38-9
scope ratio materiae 209-11 drafting history of 31
standard of compensation in expropriation fair and equitable treatment principle in 132,
cases, determining 211 135-6, 144
substantive rights, invoking 209-11 Free Trade Commission, adoption of binding
traditional significance of rule 207 interpretations by 32
indirect expropriation under 107—8
NAFTA see N o rth American Free Trade investment
Agreement (NAFTA) most-favoured-nation treatment 209-10
national treatm ent investment, definition of 65—6
basis of comparison 199-200 party and investor of another party, settlement
burden of proof 205-6 of disputes between
 Index 415
scope o f 15-16 treatv provisions 288-9
substantive obligations 16 UN C ITRA L Rules 289-90
trade provisions 16 consent to arbitration see arbitration
treatm ent of investments 15-16 costs 298-300
oil and gas projects damages and compensation 293—8
investment contracts 80-1 decisions, challenge and review of
legal regime 80-1 appeals 300
Organization for Economic Cooperation and circumstances for 300
Development (OECD) ICSID arbitration, in see International
Declaration on International Investment Centre for die Settlement of
and Multinational Enterprises 26 Investment Disputes (ICSID)
D raft Negotiating Text for a Multilateral non-ICSID arbitration, in 300-1
Agreement on Investment, diplomatic protection 23 2 -4
fair and equitable treatment 131 direct disputes between states 234-5
Guidelines for M ultinational dispute
Corporations 26 ancillary transactions, as to 246-7
multilateral investment treaty definition 245
new initiative on 26 directness of relating to investment 2 4 6 -8
preparation o f 8-11 legal, jurisdictional requirement 24 5 -6
source o f international law, as 15-17 legal nature of 24 5 -6
parties to 249-5 3
Perm anent C ourt o f A rbitration (PCA) 244 subject matter of 245-8
poverty reduction illegal act, damages for 294-6
good governance concept 24-5 investment, existence of 248
preservation o f rights investor v state
O E C D D raft Convention 190-1 arbitration and conciliation 236-312
privity o f contract 175-7 see also arbitration; conciliation
project financing domestic courts, role of
environmental and social risks, addressing 26 act-of-state doctrine 236
Equator Principles 26 contract claims and treaty claims 276
prom issory notes contract, selection in 275-8
host state, issued by 66 fork in the road provision 2 67-8
status o f 66 forum selection clause 275-8
property limited usefulness 235—6
alien, protection of requirement to resort to 26 4 -7
Calvo doctrine 1-3 state immunity', effect o f rules of 311
expropriation see expropriation jurisdiction ratione materiae 245-8
history of 2 5 -7 jurisdiction ratione personae 249-53
H ull rule 2, 4 -5 monetary reparation, calculation of 294—6
traditional standard, attack on 2 most-favoured-nation clauses, applicability
of 270-5
reasons 3 0 7 -9 negligent behaviour, relevance of 295
regional treaties as sources o f law 15-16 parties to dispute
responsibility Additional Facility, relevance o f 253
state see state responsibility foreign investor 250-2
restitution 2 9 3 -4 host state 249-50
nationality of investor, relevance of 25 2 -3
Second W orld W ar, developments after the 4 -6 sovereign state and foreign investor 249
sectoral treaties as sources of law 15-17 subentity of host state 249-50
setdem ent o f investm ent disputes procedure 278-88
applicable law provisional measures 281-3
BITs, provisions of 288-93 reasons 307-9
Energy Charter Treaty, provision of 288 remedies 293-8
ICSID Convention, provision of 292-3 state v state
international and national rules 288 BITs, arbitration provisions in 233—4
international law and host state law, diplomatic protection 232-4
relationship of 291-2 direct disputes 233
NAFTA, provision of 288 effective means, effect o f investors’ access
parties agreeing on 288 to 233
416 Index

setdem ent o f investment disputes (cont.) role of 219-21

international law, principle o f 232 structure 2 21-2
negotiation, by 233 state organs, for 216-18
rare, becoming 233 territorial units, for 216, 218
shareholders
independent standing 57 trade law and investm ent law 19
investors, as 56-60 transfer o f funds
local company as 57 absolute right, absence of 214
protection conditions for 210
assets o f company, extending to 59 currency' of 212-13
indirect shareholding 58-9 host state, im port into 212
issue o f 57 inward and outward 214
minority, claim by 58 liberalization 215
parallel groups, claims by 60 modalities of regulation 213
sources o f international investm ent law 12-19 m onetary sovereignty, background of 213
bilateral investment treaties 13-14 restrictions 213-15
case law 19 scope of rules 213
customary international law 17 types of transfers, limited to 213
general principles of law 18 transparency
ICSID Convention 13 arbitration proceedings 287-88
regional treaties 15-17 construction and operating permits, issue
sectoral treaties 15-17 of 150
unilateral statements 18-19 fair and equitable treatment standard,
sovereignty application of 149-52, 153
host state, o f 24 good faith, acting in 157
natural resources, over 4 loan transaction lacking 151
traditional understanding of 24 protection widiout treaty guarantee 149
stabilization clauses 82-5, 98 treaty interpretation
state responsibility appeals 35
attribution greater uniformity, move to 3 5 -6
diverse functions, exercise of 223-4 institutional mechanisms for 32
judicial practice 222-5 interpretative statements 31-3
principle of 216 m ethods of 28 -3 0
separate legal entities 219 object and purpose, according to 29
state entities, actions of 219-21 precedents, authority of 33—4
constituent subdivisions or agencies under restrictive 171-2
ICSID Convention, party status restrictive or effective 30
for 227 State as merchant and State as sovereign
customary international law, regulation in 220 distinguished 173
failure ro protect, for 226-7 supplemental}' means of 29
foreign investment issues, for 219 travaux preparatoires, use of 31
ILC Articles uniform ity 3 5-6
attribution, principle of 216 Vienna Convention Article 31,
conduct directed or controlled by state 221 invoking 28-30
contravention of instructions, acting
in 217-18 um brella clause
excess of authority, acting in 216-17 attribution, issue of 175
force majeure 187-8 classical 174-5
necessity 184-7 conventional understanding of 169
state entities exercising governmental current jurisprudence 174
authority, conduct o f 2 21-2 definition 166-9
municipal law contract, breach of 225 divided tribunal, decision of 176
reparations 294-6 effective application 169-71
state entities ever)' contractual obligation, protecting 169
attribution of actions 219-21 France/H ong Kong Treaty, in 167
control 221-2 Germ an Model Treaty, in 167
iailure to protect 221-2 governmental or commercial actions
function 221-2 distinguished 174
governmental authority, exercise of 221-2 historical-legal context of 167-8
 Index 417
history of 167-8 fair and equitable treatm ent clause 131
jurisdiction of tribunals, hum an rights 27
extending 262
location o f 172 violence
meaning 167 physical, full protection and security
privity o f contract 175-7 standard 162-3
origin 166-9 private 163
relevance, context of 172
restrictive application 171-5 W orld Bank
State as m erchant and State as sovereign foreign investment international legal
distinguished 173 framework, addressing 9
UK Model Treaty, in 166-7 Guidelines on rhe T reatm ent of Foreign
unilateral acts 177-8 Direct Investment, approach in 5
wide scope o f 173 W o d d T rade O rganization (W TO )
wording o f 166-7 global rules, trade agreements
U N C ITRA L M odel Law 243 in addition to 14
UN C ITRA L Rules 241-3 multilateral investment treaty,
unilateral statements 18-19 Agreement on 26
United N ations (UN) national treatment, case law on 204-6
Code o f Conduct for Transnational TRIM S Agreement
Corporations 26 performance requirements 9 1 -2