W15: Jurisdiction of IIA Tribunals I

Question 1

Consent to Arbitration

Answer 1

1. Always based on an agreement - indispensable requirement for tribunal’s jurisdiction
2. Participation in treaties plays an imp. role; BUT can NOT by itself est. jurisdiction

METHODS OF GIVING CONSENT:

i. Included in direct agreement b/w parties
ii. Provision in the national legislation of the Host State
iii. Treaty b/w Host State and Investor’s State of Nationality

Claimants may rely on several instruments to est. consent.

Question 2

Consent: Direct Agreement

Answer 2

1. Compromissory Clause in investment agreement b/w Host State and Investor - submitting future disputes arising from the investment operation to arbitration
   - Equally possible to submit a dispute that has already arisen b/w the parties - thru consent expressed in a ‘Compromis’
2. May be given wrt existing/future disputes
3. Need not be recorded in a single instrument
   - Investment operations sometimes involve complex arrangement expressed in a no. of successive agreements
   - Arb. clauses may be contained in some but not others
   - Clauses not applied narrowly to the specific document containing them but were read in context of parties’ overall relationship
   - Interrelated contracts were seen as representing the legal framework for one investment operation
   - Arb. clauses contained in some, not all, the diff. contracts were interpreted as applying to the entire investment operation.
   * Duke v Peru - HELD:
   i. Principle of ‘Unity of Investment’ [from CSOB v Slovakia] (where parties had concluded several contracts and only 1 had an arb. clause)
   ii. Claimant would have to substantiate its claims by reference to the contract containing the arb. clause - other contracts taken into consideration for the purpose of interpreting and applying that contract

• Investment application made by the investor may provide for arbitration - if approved by competent authority of Host State, there is Consent

DELIMITATIONS TO CONSENT:
i. Defining it in general terms, excluding certain types of disputes/listing the questions they are submitting to arb.

IN PRACTICE:

i. Broad inclusive consent clauses are the norm - typically refer to ‘any dispute’/’all disputes’ u/respective agreements
ii. Tribunals generally take a broad view of expressions of consent

Question 3

Consent: Host State Legislation

Answer 3

1. Host State may offer consent to arb. to foreign investors in general terms
2. NOT every reference to arb. in national legislation amounts to consent
3. Some national investment laws provide unequivocally for dispute settlement by IIA; e.g., Art. 8(2), Albanian Law on Foreign Investment 1993
4. Other provisions are less explicit, but still indicate expression of state’s consent to IIA; e.g. ‘The investors may submit’ the dispute/dispute ‘shall be settled by’ arbitration
5. Unclear provisions may lead to a dispute as to whether the Host State has given its consent; e.g. Art. 22, Venezuelan Investment Law 1999
   * Mobil v Venezuela: Too vague to amount to consent

PROCESS:

i. Legislative provision = offer by state to investors
ii. To perfect an arb. agreement, investor must ACCEPT
iii. Acceptance can be merely by instituting arb.
iv. Host State may unilaterally repeal offer @ any time before acceptance
v. Investors are well advised to accept the offer thru a WRITTEN communication ASAP
vi. Investor’s acceptance = extent of offer made in the legislation
- Entirely possible for acceptance to be NARROWER than the offer; and to extend only to certain matters/particular investment operation

SUBJECT TO:

i. Conditions
ii. Limitation Periods
- E.g., Investor must accept offer w/in certain time limits
iii. Formalities
- E.g., obtaining investment authorisation

BROAD OFFERS OF CONSENT: Refer to disputes concerning foreign investments in general terms.

DELIMITATION OFFERS: i. Delimit Qs. covered by consent clauses

• Incl. requirement that dispute be wrt an approved enterprise
  ii. Some relate only to application and interpretation of the piece of legislation in Q.

Question 4

Consent: Bilateral Investment Treaties (BITs)

Answer 4

Basic Mechanism = National Legislation

• Parties to BIT offer consent to arbitration to investors who are nationals of the other contracting party.
• Agreement perfected through acceptance of that offer by an eligible investor
• Estd. Practice: investor may accept an offer of consent in BIT by instituting ICSID Proceedings
• Generation Ukraine v Ukraine
• Withdrawal of consent before acceptance is more difficult than in case of national legislation
• Offer in Treaty remains withstanding an attempt to terminate it, UNLESS there is a basis for the termination u/law of treaties
• Early acceptance is advisable
• Once accepted, arb. agreement remains in existence even if the BIT state parties agree to amend/terminate the treaty (acceptance may be made prior to institution of proceedings)

Question 5

Consent: BIT - Types

Answer 5

1. UNEQUIVOCAL CONSENT:
   - ‘Hereby consents’/’shall be submitted’
   - Majority of BITs contain clauses referring to IIA; most of which offer unequivocal consent to arb.
2. UNDERTAKINGS:
   - ‘Shall consent’
   - NOT ALL references to IIA in BITs necessarily constitute binding offers of consent. Some phrased as undertakings to give future consent.
   E.g., States may promise to accede to a demand by investor to submit to arbitration.
   *Millicom v Senegal: ‘devra consentir’ (shall consent) = unilateral offer and commitment by Senegal to submit itself to ICSID jurisdiction
3. SYMPATHETIC CONSIDERATION:
   - Does NOT = consent by Host State
4. ALTERNATIVES :
   - Composite Settlement Clauses: require subsequent agreement by parties to select one of the procedures/Advanced consent to all (giving initiating party a choice - some specifically state choice lies w/investor)
   - Legal effect depends on wording
   - Choices:
   i. Host State domestic courts
   ii. Procedures agreed to by the parties
   iii. ICSID Arbitration
   iv. ICC Arbitration
   v. Ad Hoc Arbitration (Often u/UNCITRAL Rules)
5. INDUCEMENTS:
   - Submission to arb. may be made a condition for admission of investments in the Host State
   - May form part of licensing process
   - BITs may provide specifically that their benefits will extend only to investors that have consented to arb.
6. ENVISAGE FUTURE AGREEMENT

Question 6

Consent: Multilateral Treaties

Answer 6

1. ICSID Convention is NOT one of the these.
2. Offers a detailed framework for the settlement of investment disputes but requires SEPARATE consent by the Host State and the investor.
3. In contrast, no. of regional treaties DO offer consent to arb.
   - NAFTA Arts. 1120 and 1122
   - ECT Art. 26(3)(a)
   - Institution of proceedings = Investor’s acceptance of the offer of consent

Question 7

Scope of Consent

Answer 7

1. Varies: ‘all disputes concerning investments’/’any legal dispute concerning an investment’

WIDE:

i. Do not restrict a tribunal’s jurisdiction to claims arising from BIT’s substantive standards
ii. These consent clauses encompass disputes that go beyond the interpretation and application of the BIT itself; incl disputes that arise from a contract wrt investment
iii. Case Law:
- PRO:
* Salini v Morocco
* Vivendi case
* SGS v Philippines
- AGAINST:
* SGS v Pakistan

NARROW:

i. Covers only violations of BIT’s substantive standards
- BIT: El Salvador-Netherlands, Art. 9
- NAFTA Art. 1116
- ECT Art. 26(1)
ii. Typically, expressions of consent ltd. to disputes wrt expropriations/amount of compensation for them
- BIT: China-Hungary, Art 10(1)
* Tradex v Albania

UMBRELLA CLAUSES:
i. Should extend jurisidiction of tribunals to violations of contracts even if consent is restricted to claims arising from breaches of the treaty

Question 8

Interpretation of Consent

Answer 8

1. Where based on treaty, would seem obvious to apply Treaty Principles of Interpretation
2. Reliance on domestic law principles appears attractive when consent based on national legislation
3. NOTE: perfected consent is neither a treaty nor simply a national legislation provision - it is an agreement b/w Host State and Investor

*CSOB v Slovakia: When consent based on contract referred to an unenforced BIT - HELD: reference to BIT = intention to incorporate its Arb. Clause into contract.

• CMS v Argentina: Qs. of jurisdiction are not sub: law applicable to merits of the case. Rather, governed by their own system defined by instruments determining jurisdiction
• ICSID: Art. 42 - Resolution on Merits; Art. 25 - Decision on Jurisdiction

*Mobil v Venezuela: Host State’s domestic law is relevant to jurisidiction if consent to arb. based on provision in its legislation

• In a no. of cases, respondents have argued that an expression of consent to arbitration should be construed restrictively - Mostly REJECTED.
• Some tribunals lean towards an extensive interpretation of consent clauses
• Majority have subscribed to a balanced approach that accepts neither a restrictive core an expansive approach to interpretation of consent clauses.
• To be interpreted: OBJECTIVELY and in GOOD FAITH
• SPP v Egypt