International Investment Law Symposium LLM Perspectives Online Publications

Playing By The Tribunals’ Rules: A Solution For Resolving The Conflict Between Rules And Practice In IIA Interpretation

I. Introduction

In her extremely comprehensive treatise on the interpretation of investment treaties, Trinh Hai Yen highlighted a serious problem with International Investment Agreements (“IIA”): IIAs have had a very tumultuous history with the Vienna Convention on the Law of Treaties (“VCLT”) as far as the application of Article 31 and 32, the customary standard for dealing with the interpretation of treaties, is concerned.01Trinh Hei Yen, The Interpretation of Investment Treaties 64 (2014). In most instances, arbitral tribunals have not applied these rules properly despite making explicit references to these provisions of the VCLT in their awards.02Michael Reisman and Mahnoush Arsanjani, Interpreting Treaties for the Benefit of Third Parties: The “Salvors Doctrine” and the Use of Legislative History in Investment Treaties, 104 AJIL 597, 598-99 (2010). In some circumstances, tribunals have just not followed the order in which Article 31 and Article 32 should be used or have omitted certain steps in the interpretive process laid down in the VCLT,03Yen, supra note 1, at 79. while in some other instances, tribunals did not to follow the VCLT at all and instead relied on external considerations.04Romesh Weeramantry, Treaty Interpretation in Investment Arbitration 157-64 (2012) There have also been instances when tribunals have over-relied on judicial decisions or have over-read IIA provisions.05Yen, supra note 1, at 83. In fact, a study by Thomas Walde showed that very few tribunals actually follow the VCLT rules of treaty interpretation in a step-by-step manner.06Thomas Walde, Interpreting Investment Treaties: Experiences and Examples in International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer 730 (2009).

Considering that tribunals very rarely follow the VCLT, the question of how to resolve this conflict between the practice of tribunals and the rules regarding IIA interpretation has arisen. Trinh Hai Yen believes that this is not even a point for consideration, and that tribunals need to strictly follow the VCLT and only after exhausting the VCLT steps should tribunals even think of adopting other approaches to treaty interpretation.07Yen, supra note 1, at 104-151. Even then, any approach adopted should be used only to deduce the mutual intention of the parties to the IIA.08Id. However, another view, briefly articulated by Gary Born, posits that perhaps IIAs could have a separate set of rules for their interpretation.09Gary Born, Should Investment Treaties Have Their Own Rules of Interpretation, Kluwer Arbitration Blog (Feb. 3, 2015), http://kluwerarbitrationblog.com/2015/02/03/should-investment-treaties-have-their-own-rules-of-interpretation/.

I propose that Gary Born might have suggested a million-dollar idea: in fact, the best way to reduce the conflict between the practice of tribunals and the rules of interpretation is to have a lex specialis regime for IIA interpretation. In brief, I argue that there is a consistent trend in the interpretation of IIA terms by tribunals even when they are not adhering to the VCLT. Tribunals try to align the meanings of IIA terms with the understanding of those terms in International Investment Law (“IIL”). Further, this trend is desirable, since the entire group of IIAs have started behaving like a de facto international regime and there is a need for consistency and predictability within such a regime. Therefore, in order to reduce the conflict between the interpretive practice of tribunals and the rules of interpretation, I propose a lex specialis regime for IIA interpretation that settles ambiguities in IIA terms in favor of consistency over diversity in the IIA regime.

To this end, in Part II, I will discuss the extant rules of treaty interpretation under International Law, namely Article 31 and 32 of the VCLT. In Part III of this paper, I will highlight the various conflicts between the rules mentioned in Part II and the practice of tribunals. In Part IV, I will identify a consistent trend in the practice of tribunals and then propose a method to resolve the conflict. Finally, in Part V, I will present my conclusions and possible ways to apply my suggestions in practice.

II. The IIA Interpretation Framework

With the exception of the North American Free Trade Agreement (“NAFTA”),10The NAFTA only makes vague reference to using applicable rules of International Law to interpret its provisions. See North American Free Trade Agreement, U.S.-Can.-Mex., art. 102(2), 32 I.L.M. 289 (1993) (“The Parties shall interpret and apply the provisions of this Agreement in the light of its objectives set out in paragraph 1 and in accordance with applicable rules of international law”). IIAs do not include rules on treaty interpretation.11In general IIAs do not provide any instructions on whether they should be interpreted in a particular manner or not. In such circumstances, the onus falls on other rules of International Law to aid in the interpretation of IIAs. The most frequently used and perhaps most authoritative rules in International Law on treaty interpretation are found in Article 31 and Article 32 of the VCLT, which provide an interpretive method that rests on deducing the mutual intention of the parties.12Eirik Bjorge, The Evolutionary Interpretation of Treaties 56-57 (2014). These rules reflect the customary law position on interpretation, a fact that has been recognized by the International Court of Justice (“ICJ”).13Territorial Dispute Case (Libya v. Chad), Judgment of February 3, 1994, ICJ Reports 6, 21-22 (1994). Even International Center for Settlement of Investment Disputes (“ICSID”) tribunals have confirmed that these rules apply to IIAs on account of their customary status.14Malaysian Historical Salvors v. Government of Malaysia, ICSID Case No. ARB/05/10, Decision on the Application for Annulment, ¶56 (2009).

Article 31(1) of the VCLT states that “a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.”15Vienna Convention on the Law of Treaties art. 31(1), 1155 U.N.T.S. 331 (1969). This is called a textual approach to treaty interpretation, according to which treaty interpretation should be based on a good faith reading16See International Law Commission (“ILC”), Draft Articles on the Law of Treaties with commentaries 219 (1966) (describing how the good faith element requires that when a treaty term has two meanings, one which gives some effect and the other which does not, preference should be given to the one that gives some effect). of the ordinary language17See Gerald Fitzmaurice, The Law and Procedure of the International Court of Justice: Treaty Interpretation and Certain Other Points, 28 BYIL 1, 2 (1951) (defining how ordinary language refers to the words ordinary or apparent signification). of the treaty terms, since it is presumed that mutual intention of the parties is expressed by the ordinary meaning of the terms used by them.18ILC, supra note 16, at 220. However, the ordinary meaning should be considered in the context of the treaty and its object and purpose. “Context” does not mean that a treaty may be interpreted in accordance with its historical or political context, or the circumstances surrounding its conclusion, but refers to the context of all the terms of the treaty in order to ensure a consistent interpretation of the treaty as a whole.19Roberto Castro de Figueiredo, Interpreting Investment Treaties, Kluwer Arbitration Blog (Oct. 21, 2014), http://kluwerarbitrationblog.com/2014/10/21/interpreting-investment-treaties/.

Article 31(2) and Article 31(3) of the VCLT provide an exhaustive list specifying the contextual factors and related elements that can be used when determining the intended ordinary meaning of the treaty terms among several possible definitions.20See VCLT, supra note 18, at art. 31(2)-31(3) (describing the different instruments that create binding obligations and evidence mutual agreement between parties to treaty). Additionally, the reference to the object and purpose is not an autonomous source of the parties’ intention and may not be used to override the text of the treaty.21Figuierdo, supra note 19. The treaty’s object and purpose serve as a test of conformity of ordinary meaning of treaty term with the mutual intent of the parties and do not contain direct obligations.22Yen, supra note 1, at 64.

However, if the meaning resulting from the application of Article 31 needs confirmation, is ambiguous, obscure, or leads to a result which is manifestly absurd or unreasonable, Article 32 of the VCLT allows reliance on supplementary sources for interpretation.23VCLT, supra note 15, at art. 32. These sources include the preparatory work of the treaty and the circumstances of its conclusion.24Id. at art. 32. While this is a non-exhaustive list and leaves room for the use of different interpretive rules, by mentioning these sources the VCLT emphasizes that interpreting bodies need to try to find the meaning of the terms from documents showing mutual intention of the contracting parties before looking elsewhere for guidance. Thus, in the absence of any special rules regarding treaty interpretation for IIAs, Articles 31 and 32 of the VCLT provide a hierarchal, step-by-step framework that has become accepted as the correct standard for interpreting IIA terms.

III. The Conflict Between The Rules And Practice25This section only briefly discusses and summarizes the conflict in the arbitral world that Trinh Hai Yen highlighted and explained. For a detailed discussion on most instaces of such conflict see Yen, supra note 1, at 32-98.

In today’s arbitral world, the VCLT rules have become something of a standard formula in international judgments and arbitral awards.26Reisman and Arsanjani, supra note 2, at 598-99. Despite this lip service, however, even tribunals that cite the VCLT rules verbatim often do not apply them,27Walde, supra note 6, at 730. let alone in the step-by-step fashion articulated in Articles 31 and 32.28Id. at 746. As far as the interpretation of IIAs are concerned, there are three noticeable ways in which the rules and the practice of tribunals regarding interpretation of IIAs conflict:29Yen, supra note, at 76-99. 1) disregard of the rules of interpretation; 2) overreliance on judicial decisions; and 3) liberal reading of treaty object and purpose.

Disregard Of The Rules Of Interpretation

The first major problem seen with IIA interpretation is that arbitral tribunals frequently disregard the rules of interpretation under the VCLT. As was stated earlier, the VCLT provides a step-by-step process for treaty interpretation; however, some tribunals ignore these principles entirely when interpreting IIAs. For example, in the Eastern Sugar BV award, the tribunal found legitimate expectations to be part of the fair and equitable treatment (“FET”) standard,30Eastern Sugar B.V. v. Czech Republic, SCC Case No. 088/2004, Partial Award, ¶207 (2007). despite the fact that the Czech-Netherland bilateral investment treaty (“BIT”) made no mention at all of the legitimate expectations standard31Id. at ¶ 198. and ignored the VCLT rules entirely. Similarly, in the Vivendi award, the tribunal held that full protection and security was one of the guarantees under the FET clause 32Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. v. Argentine Republic and Anglian Water Group (AWG) PLC v. Argentina, ICSID Case No. ARB/03/19, Decision on Liability, ¶171 (2010). without looking into the specificities of the applicable BIT in the case or trying to ascertain the parties’ intent. Rather, the tribunal drew its conclusion based solely on its own independent reasoning. Further, in the RosInvest award, the tribunal defined expropriation under the UK-Russia BIT as a measure that has the effect of a substantial deprivation of property forming all or a material part of the investment, without justifying this definition with any form of interpretive reasoning whatsoever.33RosInvestCo UK Ltd. v. Russian Federation, SCC Case No. Arb. V079/2005, Final Award, ¶ 623 (2010).

In other instances, tribunals made reference to the VCLT rules but completely disregarded them. A classic example of the same is the Metalclad award. In that case, the tribunal had initially referenced the VCLT rules and quoted them throughout its decision.34Yen, supra note 1, at 80 (citing Metalclad Corporation v. United Mexican States, ICSID Case No ARB (AF)/97/1, Award, ¶¶ 74-101 (2000) [hereinafter Metalclad]). But, when it concluded that the requirements of fairness and transparency were a part of the FET standard, it provided no rules-based explanation supporting its finding.35Id. at 80 (citing Metalclad, supra note 34, at ¶¶ 74-101(2000)). Similarly, in the ADMC Management Limited award, the tribunal deduced the meaning of investor by simply focusing on the ordinary meaning of the term completely, disregarding the VCLT’s contextual principles related to the object and purpose of the treaty despite explicitly citing Article 31 and 32 of the VCLT.36Id. at 82 (citing ADC Affiliate Limited and ADC & ADMC Management Limited v. Republic of Hungary, ICSID Case No. ARB/03/16, Award, ¶¶ 352-62 (2006)).

In some other cases, the tribunal went outside the accepted analytical rules to interpret treaties using commitments either unrelated to or not binding on the relevant parties. The ICS Inspection and Control Services tribunal examined Argentina’s BITs with different countries to deduce the meaning of the Most-Favored Nation (“MFN”) clause.37Inspection and Control Services Limited (ICS) v. Argentina, UNCITRAL, PCA Case No. 2010-9, Award, ¶ 316 (2012). Similarly, in the Berschader award, the tribunal looked at the BITs entered into by Soviet Union to confirm the meaning of the arbitration clause in the Soviet Union-Belgium BIT.38Vladimir Berschader and Michael Berschader v. Russian Federation, SCC Case No. 080/2004, ¶ 155 (2006). In fact, in the Plama award, the tribunal actually believed it appropriate to consider “treaties between one of the Contracting Parties and third States for the purpose of clarifying the meaning of a treaty’s text at the time it was entered into.”39Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, ¶ 125 (2005). Though the treaties used in the cases above may contain evidence of the intentions of individual State parties in different treaties, the value of these treaties fall short of the extrinsic sources mentioned under Article 31 – such as a “subsequent agreement” or “subsequent practice” or “relevant rules of international law” – because these treaties do not contain the mutual agreement of the relevant State parties.40Yen, supra note 1, at 74. Further, any attempt to use these BITs in such a way would be counter to the language and purpose of the VCLT.41Bjorge, supra note 10, at 57.

Overreliance On Judicial Decisions

The second major problem that arises in IIA interpretation is the overreliance on judicial decisions, especially before tribunals have exhausted the options under Article 31 to try to find the intention of the parties regarding the relevant treaty terms. Tribunals have frequently used judicial decisions to find the ordinary meaning of treaty terms, and have thereby given the “ordinary meaning” a far more expansive scope than intended. For example, in the Duke Energy award, the tribunal defined the term “matters of taxation” by importing the meaning of that term from another decision.42See Yen, supra note 1, at 74 (citing Duke Energy Electroquil Partners v. Republic of Ecuador, ICSID Case No. ARB/04/19, Award, ¶ 175 (2008)). Similarly, in the Archer Daniels award, the tribunal used the Methanex award to find the ordinary meaning of the common word “circumstances.”43See id. at 74 (citing Archer Daniels Midland Company And Tate & Lyle Ingredients Americas, Inc. V. United Mexican States, ICSID Case No. ARB (AF)/04/5, Award, ¶ 197 (2007)). In the Vivendi (Jurisdiction) award, the tribunal rejected Argentina’s arguments on jurisdiction and held that minority shares don’t have a separate cause of action under the US-Argentina BIT44Suez, Sociedad General de Aguas de Barcelona S.A., and Vivendi Universal S.A. v. the Argentine Republic and Anglian Water Group (AWG) PLC v. Argentina, ICSID Case No. ARB/03/19, Award on Jurisdiction, ¶ 88 (2005). based on the reasoning that the same argument was rejected in 18 prior decisions.45See Yen, supra note 1, at 83 (citing Vivendi Award on Jurisdiction, supra note 44, at ¶ 94).

On numerous occasions, tribunals have even deduced the meanings of substantive investment protections from judicial decisions. For example, in the El Paso decision, the ICSID tribunal reasoned the requirement of indirect expropriation was a substantial deprivation of the use of the investment – and not merely a deprivation of the benefits of or a loss in the value of investment – by relying on a series of judicial decisions such as Metaclad, Tecmed, Consortium RFCC, and LG&E.46El Paso Energy International Company v. Argentine Republic, ICSID Case No. ARB/03/15, Award, ¶¶ 232-56 (2011). This practice has been rather common in the FET jurisprudence, with tribunals often relying on the decisions of previous tribunals.

Similarly, in the LG&E award, the tribunal considered the rulings of earlier tribunals such as CMS, Metaclad, and Occidental Exploration and Production, and stated that the “stability of the legal and business framework in the State party is an essential element in the standard of what is fair and equitable treatment.”47LG&E Energy Corp. and others v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Objections to Jurisdiction, ¶¶ 124-25 (2006). While the LG&E tribunal based its decision on cases arising out of the same BIT,48Id. at ¶ 125. other tribunals have relied on cases arising out of entirely different BITs. In the Spyridon Roussalis award, for instance, the tribunal relied on cases arising out of the Kazakhstan-Turkey BIT, the Norway-Lithuania BIT, NAFTA, the Mexico-Spain BIT, and the Netherlands-Czech Republic BIT to support its definition of FET.49Born, supra note 9.

Overreliance on judicial decisions to deduce meanings without trying to infer mutual intent of the parties has been a growing trend across a number of other substantive provisions as well, including full protection and security, unreasonable and discriminatory measures, expropriation, and umbrella clauses.50See Yen, supra note 1, at 85 (citing a list of cases, including CMS, Plama, and BG Group, where tribunals relied on prior cases for interpretive guidance). This practice inherently bypasses the VCLT rules, because judicial decisions cannot be used as an interpretive source under 31(3) of the VCLT.51Id.at 89. The aim of the VCLT is to reconstruct and predict the mutual intent of the parties and deduce the meanings of treaty terms based on this shared conception, not to export meanings from other sources of law.52Bjorge, supra note 11, at 57. The only time judicial decisions may be relied on to confirm or to determine meanings of treaty terms is when other methods resulted in an ambiguous or obscure meaning or led to a manifestly absurd or unreasonable result.53See Theodorus de Boer, et.al. v. United States, UNCITRAL, Award on Jurisdiction, ¶ 50 (2008) (describing how judicial decisions are a subsidiary source of interpretation).

Liberal Reading of IIAs’ Object and Purpose

The third major problem that arises out of IIA interpretation using overly liberal readings of the object and purpose of the IIAs to interpret treaty terms. As was stated earlier, the object and purpose of the treaty should be used only to confirm the mutual intention of the parties and not to derive autonomous meanings. Frequently, tribunals have given pro-investor meanings to vague treaty terms and justified their interpretations based on the investment protection and promotion purpose of the treaty.54Yen, supra note 1, at 91. For example, in the CMS award, the tribunal referenced the preamble’s statements about the need to maintain a stable environment for investments and maximum effective use of economic resources when finding that a stable legal and business environment is an element of the FET standard.55CMS Gas Transmission Company v. Argentine Republic, ICSID Case No. ARB/01/18, Award, ¶ 274 (2005). In fact, in the SGS v Philippines award, the tribunal went further and stated that “[i]t is legitimate to resolve uncertainties in its [the treaty’s] interpretation so as to favour the protection of covered investments.”56SGS Société Générale de Surveillance S.A. v. The Republic of Paraguay, ICSID Case No. ARB/07/29, Decision on Jurisdiction, ¶ 116 (2010).

The major problem that arises with such an approach to interpretation, especially without first using the other means prescribed under Article 31 and Article 32 of the VCLT, is that it might result in a meaning contrary to the mutual intention of the parties. The object and purpose of the treaty serves merely as a template to check the compatibility of the ordinary meaning of treaty terms with the intention of the parties; it is in no way supposed to give rise to specific commitments, but rather just throw light on the literal meanings of the treaty terms.57Yen, supra note 1, at 97.

Thus, the above cases highlight two major consequences of the interpretive practice of investment dispute tribunals. First, the tribunals disregard the rules on treaty interpretation, and second, the tribunals import meanings to terms and create commitments not intended by IIA parties.

IV. Solving The Conflict

The previous part showed how the current practice with respect to treaty interpretation of IIA’s suffers from the problem of arbitrators not following the rules laid down in the VCLT and possibly giving treaty terms meanings not intended by the IIA parties. As stated before, there is the obvious suggestion by scholars that tribunals should resort to following the VCLT and should make mutual intention the only rationale for any deviation.58Id. at 101. However, in this part, I will show how that is not the desired approach in the IIA context. In fact, there is a consistent favorable trend in the interpretations of IIAs by tribunals, and the way to resolve the conflict between the existing rules and practice is to have a separate set of interpretive rules for IIAs. To this end, I will discuss (a) the consistent trend in IIA interpretations; (b) why this trend is favorable; and (c) how this trend can be legitimized and reconciled with the rules of treaty interpretation.

The Consistent Trend In IIA Interpretation

Tribunals have indeed crossed the line numerous times when viewed through the lens of the VCLT and have followed no uniform interpretative standard. However, a closer look at the awards shows a consistent pattern: tribunals trying, wherever possible, to interpret unclear provisions in IIAs in line with how these terms have come to be commonly understood in IIL. In this subpart, I will use the examples of the Eastern Sugar BV Award (Disregard of the VCLT), El Paso Award (Overreliance on Judicial Decisions), and CMS Award (Liberal Reading of Object and Purpose) to show how tribunals in the absence of clear intent of the IIA parties have used their discretion to give the IIA terms the same meanings that these terms have come to embody under IIL.

Eastern Sugar BV Award: In the rather criticized Eastern Sugar BV award, the tribunal concluded that investors’ legitimate expectations is an element of the FET standard without engaging in any interpretive discussion or even drawing from any case law or other IIAs.59Eastern Sugar B.V, supra note 30, at ¶ 207. However, if the Czech-Netherland BIT and other binding documents between the parties are examined, none of them shed clear light on the meaning of FET under the BIT.60Id. at 197. In the absence of any clear mutual intention, the tribunal, in holding legitimate expectations as an element of the FET standard, attributed to FET an element which is now widely regarded under investment law as a component of the FET standard.61See Rudolf Dolzer, Fair and Equitable Treatment: Today’s Contours, 12 Santa Clara J. Int’l L. 7, 17-29 (2014) (describing how legitimate expectations in today’s time has become central to the FET standard). Thus, even though the tribunal did not engage in any interpretive reasoning whatsoever, it defined FET in such a way so as to give it the meaning that IIL generally attributes to FET.

El Paso Award: The tribunal in the El Paso award relied on case law drawn from ad hoc tribunals to conclude that indirect expropriation requires substantial deprivation of the use of the investment and not merely a deprivation of the benefits of or a loss in the value of investment.62El Paso Energy International, supra note 46, at ¶ 256. In this award, the ICSID tribunal first observed that the text of the Argentina-USA BIT did not provide a clear definition of indirect expropriation; it merely stated that investments should not be expropriated even indirectly. 63Id. at ¶ 225. The tribunal then used IIL case law64Id. at ¶ 232-56. to fill in the definitional gaps and define indirect expropriation. Thus, using its own interpretive reasoning, the tribunal defined indirect expropriation in the same way as it has come to be understood in IIL.65See Peter D. Isakoff, Defining the Scope of Indirect Expropriation for International Investments, 3 Global Bus. L. Rev. 189, 202 (2013) (describing how indirect expropriation requires a substantive deprivation of the use of the investment).

CMS Award: The CMS Award tribunal used the object and purpose of the Argentina-USA BIT to identify a stable legal and business environment as an element of FET.66CMS Gas Transmission Company, supra note 55, at ¶ 274. In this case, the Argentina-USA BIT did not define FET clearly, only stating that investments must be treated in a fair and equitable manner.67Id. at ¶ 266. In the absence of a clear definition, the tribunal read the object and purpose of the treaty to incorporate the element of a stable legal and business environment into FET.68Id. at ¶ 274. While the tribunal did not follow the VCLT to the letter, in the absence of a clear definition in the Argentina-USA BIT, it incorporated a standard that is widely understood to be associated with FET under IIL.69Nicolas Angelet, Fair and Equitable Treatment in Max Planck Encyclopedia of Public International Law, ¶ 23 (2011) (describing how a stable legal and business environment is now recognized as an element of FET).

The three above cases thus highlight how tribunals, in the absence of clarity regarding the meaning of IIA terms, gave them the meanings generally associated with the terms in IIL. While I discussed three awards above, the same can be said with other awards mentioned Part II, be it the Vivendi award stating that minority shareholders have standing to bring a claim70CMS Gas Transmission Company v. Argentine Republic, ICSID Case No. ARB/01/8, Decision on Jurisdiction, ¶¶ 53-65 (2003). and that full protection and security is an element of FET;71See generally, Mahnaz Malik, The Full Protection and Security Standard Comes of Age: Yet another challenge for states in investment treaty arbitration? in Best Practices Series IISD (2011) (describing how full protection and security is now recognized as an element of FET). the ICS award stating that MFN does not apply to the dispute settlement clause;72ICS, supra note 37 at ¶¶ 80-87. the Metalclad award holding that fairness and transparency are elements of FET;73OECD, Fair and Equitable Treatment Standard in International Investment Law, OECD Working Papers on International Investment 26 (2004). or even the ADMC Management award holding that shareholding interest is an investment.74See Generation Ukraine, Inc. v. Ukraine, ICSID Case No. ARB/00/9, ¶ 8.5 (2003) (describing how shareholding interest is an investment in instances where shares are recognized as an investment under the BIT).

Why The Trend Is Desirable

When it comes to interpreting IIA terms, while most of the awards cited in the previous part of this paper adopted interpretive methods that were counter the VCLT, they were nonetheless not absolutely absurd. As shown above, in almost all the awards, the tribunals followed a consistent trend where they incorporated commonly accepted definitions of IIA terms, even in those instances when they were not obviously relying on any authority for their interpretations. I believe that this practice can be explained and justified because the entire body of IIAs and related case law have become one de facto IIA regime.

An international regime is a set of principles, norms, rules, and decision making procedures around which actors’ expectations converge in a given area of international relations.75Stephen D. Krasner, Structural Causes and Regime Consequences: Regimes as Intervening Variables, in Stephen D. Krasner Ed, Power, The State, And Sovereignty: Essays On International Relations 113 (2009). While not formally constituted as a regime, the group of three thousand IIAs together represent a convergence of expectations by States as to how host governments will behave toward investments from other regime members.76See Jeswald W. Salacuse, The Emerging Global Regime for Investment, 51 Harv. Int’l L.J. 427, 432 (describing these nine elements as “(1) definitions and scope of application; (2) investment promotion and conditions for the entry of foreign investments and investors; (3) general standards for the treatment of foreign investors and investments; (4) monetary transfers; (5) expropriation and dispossession; (6) operational and other conditions; (7) losses from armed conflict or internal disorder; (8) treaty exceptions, modifications, and terminations; and (9) dispute settlement”). Additionally, these objectives are achieved via the same nine elements within every treaty, and the language used to articulate these protections is often similar if not identical.77Id. at 468. Moreover, the rules and norms within the IIA structure have come to embody a specific set of principles.78Id. at 432. Thus, although each of the three thousand IIAs is legally separate, distinct, and binding only on its signatories, investment treaties as a group share similar structures, purposes, and principles.79Id. at 444. It is for this reason that the entire group of IIAs, despite some textual differences, can be considered a de facto international regime resting on the pillars of standard promised protections of investments and applicable enforcement mechanisms in the event that the host government fails to grant the promised treatment.80Id. at 445.

In international regimes, there is a need for and benefit to having consistency and predictability across the system;81Born, supra note 9. as a result, dispute settlement authorities try to resolve ambiguities in favor of consistency over diversity. For example, in the World Trade Organization (“WTO”) regime, the WTO Appellate Body has not adopted the VCLT strictly and has in fact functioned as an ordinary court maintaining a practice of unofficial stare decisis.82Isabelle Van Damme, Treaty Interpretation by the WTO Appellate Body, 21 Eur. J. Int’l L. 605, 614 (2010). Even if the general international law regime or regional European Human Rights regime is examined, while both the ICJ and European Court of Human Rights have paid great respect to the VCLT, they have developed a practice of trying to maintain consistency in their judgements by relying on past decisions and avoiding completely countering former judgements when possible.83See Gilbert Guillaume, The Use of Precedent by International Judges and Arbitrators, 2 J. Int’l Disp. Settlement 5, 5-23 (2011) (showing how courts like ECHR and ICJ have developed a system of precedents).

In the IIA regime, most existing IIAs are vague,84Thomas M. Franck, Fairness in International Law and Institutions 30 (1995). which provides tribunals with discretion to add context to their terms.85Ian Laird and Rebecca Askew, Finality Versus Consistency: Does Investor-State Arbitration Need an Appellate System?, 7 J. App. Prac. & Process 286, 286 (2005). Tribunals have used this discretion wherever possible to try to incorporate the commonly accepted definitions of those IIA terms. The different ad hoc tribunals’ findings of the meaning of FET, indirect expropriation, MFN, and investment, for instance, were all reflections of standards commonly associated with these protections in International Law. In doing so, tribunals have sometimes given expansive ordinary meanings to terms, incorporating within the ordinary meaning the usual definitions of those terms as understood in the IIA regime.

In other cases, tribunals have generally not used Article 32 in the way mandated by the VCLT and have rarely relied on the preparatory work or concluding history of the IIA to clarify or confirm the meaning resulting from an Article 31 interpretation.86Yen, supra note 1, at 67. In fact, rather than using subsidiary means in the absence of clear provisions to find mutual intent as required by the VCLT, tribunals use subsidiary means to construct new definitions which reflect standards that the particular terms embody in the IIA regime. If tribunals did adhere to the VCLT strictly to interpret vague IIAs, it would more often than not result in the absurdity of having the same word meaning separate things in three thousand different instruments.87Born, supra note 9. This result would come about because the VCLT allows very little room for importing meanings from other instruments88The VCLT allows reliance on subsidiary means of interpretation, which can include non-binding sources, only to confirm the meaning of terms or in those cases where the meaning of terms after applying article 31 is ambiguous, absurd, unjust, unreasonable, etc. and requires constructing and predicting the mutual intention of the contracting parties using only certain instruments and the IIA’s drafting and concluding history, which vary significantly from one IIA to another.89Born, supra note 9.

Thus, tribunals have used their discretion wherever possible to bring IIA terms in line with how these terms are understood in the IIA regime, thereby promoting not only consistency and predictability, but also the practicality of accepting the legwork of earlier tribunals rather than starting from scratch each time to interpret words with similar meanings that purport to do the same thing.90Id. It is for this reason that the interpretive trend of tribunals is favorable.

Legitimizing The Trend

The previous parts of this article highlighted how the VCLT’s approach to interpreting treaties is somewhat detached from the practice of treaty interpretation in IIA regimes. This phenomenon exists because the VCLT adopts a one-size-fits-all interpretive method to that does not take into account the unique workings of an international regime. That said, in other international regimes, it is possible to justify the practice of not strictly adhering to the VCLT on the grounds that: 1) the treaty and judicial body interpreting the treaty are the same from one case to another; 2) other judicial bodies are rarely cited; and 3) that despite the VCLT not being followed, deducing mutual intent of contracting parties is still the main rationale behind the interpretive process. However, in the IIA regime, these exceptions often do not apply, since the IIA regime is comprised of bilateral treaties, every adjudicating tribunal is a separate ad hoc tribunal, and deducing the mutual intention of the contracting parties is not the rationale behind deviations from the VCLT in most cases. Thus, the VCLT’s approach to treaty interpretation does not fulfill the IIA regime’s unique needs and requirements and is not compatible with the regime in practice. Therefore, I suggest a new set of interpretive rules for IIAs to bridge the gaps in the practice of tribunals and the rules regarding interpretation of IIAs, and thereby legitimize this practice of tribunals.

This new set of rules for IIAs would need to incorporate all the ways in which tribunals are operating to fulfill their goal of trying to ensure consistency in the regime. As was seen earlier, tribunals have accomplished consistency by incorporating definitions from different IIAs in the regime (both between a party of the in question IIA and a third party and those between third parties) and judicial decisions interpreting those IIAs early on. Therefore, an interpretation system that fills the gap between the existing interpretive rules and the practice of tribunals should involve three types of sources: 1) other IIAs of the parties of the IIA in question; 2) IIAs of third parties; and 3) arbitral decisions interpreting 1 & 2. I thus propose following methodology as a possible interpretative approach that reduces the gaps:

Rule 1
An IIA should be interpreted in good faith in accordance with the ‘meaning understood in the IIA regime’ of the terms of the IIA in light of its context and object and purpose, unless a ‘specific interpretation’ can be ‘clearly’ drawn from the text of the IIA, including its preamble and annexures, or from any other binding obligation between the contracting States to the IIA which has been introduced before the interpreting authority.

Rule 2
(a) ‘Clearly’ in Rule 1 means that the interpreting authority can infer the specific mutual intention easily and accurately, leaving very little doubt.91This is the normal dictionary meaning of clear. This clarification is added so as to ensure that tribunals do not apply creative interpretations of the word clear. (b) In deducing ‘meaning understood in the IIA regime,’92Considering the ever changing nature of the IIA regime, in these rules I refrain from defining what exactly is the meaning of a term as understood in the IIA regime and leave it to the interpreting authority to deduce using a non-exhaustive list of elements mentioned in 2(b). significance can be given to other IIAs in the IIA regime, investment practice of States, and judicial decisions arising out of the aforesaid practice and IIAs.
(c) The object and purpose of the IIA should not be used to give specific interpretation to IIA terms and should only be used to test conformity of the meaning understood in the IIA regime of the terms within the overall aim of the IIA.
(d) A good faith reading would mandate all attempts to reconcile the meaning understood meaning of the terms within the IIA regime with the context and object and purpose of the IIA before proceeding to later steps.

Rule 3
Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty, the circumstances of its conclusion, and other IIAs of the contracting parties of the relevant IIA, in order to confirm the specific interpretation that was drawn from Rule 1 or in cases where the specific interpretation that was drawn is ambiguous or obscure or leads to a result which is manifestly absurd or unreasonable.

Rule 4
In those cases where no specific interpretation is clearly available regarding a term and that term has 1) no definitive meaning under the IIA regime; 2) the meaning is contrary to the IIA’s object and purpose; or 3) the meaning does not fit within the IIA’s context, the particular term should be understood in accordance with the ‘ordinary language’ meaning of that term in light of the IIA’s context and object and purpose.

Rule 5
If the interpretation resulting from Rule 4 leaves the meaning of that particular term ambiguous, obscure, absurd, or unreasonable, the adjudicating authority may deduce the mutual intention of the contracting parties from any binding obligation between the parties and subsidiary means of interpretation such as the preparatory work of the IIA, the circumstances of its conclusion, and other IIAs of the contracting parties of the IIA.

The interpretive method proposed above provides a system that, in the absence of clear intent, would allow tribunals to import meanings from judicial decisions and other IIAs not binding on the parties of the IIA in question during the initial interpretive stages. Additionally, this method adds convenience to the interpretive process by not obligating tribunals to look for clear intent of the contracting IIA parties beyond the text and other binding rules between the contracting parties to the IIA. The only time it requires the adjudicating authority to construct and predict mutual intent is when no clear meaning can be inferred from any binding obligation between the IIA’s contracting parties and the IIA regime provides no meaning or provides results that are not reconcilable with the mutual intent of the parties. Even in that case, there is a greater degree of flexibility to infer mutual intent.

Thus, the above mentioned interpretive method provides a new system which, in cases of vagueness and lack of clear intent, enables the tribunal to use its discretion in filling gaps to promote regime consistency rather than trying to predict mutual intent, consistent with recent tribunal practice. That said, this new interpretive method in no way allows tribunals to override clear mutual intent in favor of regime consistency. What this method does is relax the standard for finding mutual intent, and in cases of ambiguity tries to ensure as much regime consistency as possible. Therefore, by allowing tribunals to interpret IIAs in this way, I believe that the conflict between the rules and the practice of tribunals can be reduced.

V. Conclusion

In this paper I attempted to solve the major problem in the “IIA regime” of interpretative inconsistency. I first found that the disregard of interpretive rules by tribunals and the interpretive outcomes of tribunals could be connected by a trend of tribunals attributing to IIA terms their definitions as understood in IIL. I then showed how the IIA system has become a de facto international regime and that interpretive regimes require consistency and predictability. Finally, I suggested a new interpretive method for IIAs to help fill in the gaps between the interpretive practice of tribunals and general rules of treaty interpretation, as well as to legitimize the interpretive practice of these tribunals.

These new rules of interpretation for IIAs aim to promote consistency, predictability, and convenience by allowing tribunals to settle lack of clarity in the meaning of IIA terms in favor of regime consistency, rather than trying to deduce and construct the mutual intention of the IIA parties. This new method also gives tribunals more flexibility to incorporate definitions of IIA terms in other IIAs not binding on the parties and derived from judicial decisions, which tribunals have been doing in practice. Although this method would help fill in the gaps between the interpretive practices and the standard treaty interpretation rules in most cases, this method would not address those awards that suffer from bad legal reasoning. In fact, no interpretive system would be able to help them. Those are institutional problems that can be only settled by reforms such as administrative checks on tribunals or the creation of an appeals system.

While I have laid down rules that could help legitimize the interpretive practice of tribunals, their application would depend on the State parties. A possible way to encourage their application would be to have this new method adopted as a separate multilateral treaty by the States of the IIA regime. Individual States could also separately incorporate this interpretive process in their respective IIAs, as specifying the interpretive method for the IIAs has recently become a trend.93See Kathryn Gordon and Joachim Pohl, Investment Treaties over Time – Treaty Practice and Interpretation in a Changing World, OECD Working Papers on International Investment (2015) (describing how some treaties have specific instructions on treaty interpretations even though these instructions have been merely to follow the VCLT). Another method by which these rules could be adopted would be to institutionalize these rules and provide them as a part of the ICSID process, since ICSID has now become a forum for most of the world’s investment arbitrations.94UNCTAD, Latest Developments in Investor State Dispute Settlement, IIA Monitor No 1, 2 (2008). Such rules could also be provided as part of the UNCTIRAL rules under which most non-ICSID investor-State arbitrations take place.

In conclusion, I hope that this new interpretive method, while reducing the gap between the practice and general treaty interpretation rules, also results in a consistent and predictable IIA regime overtime which would be conducive and advantageous to both States and investors.

References   [ + ]

01. Trinh Hei Yen, The Interpretation of Investment Treaties 64 (2014).
02. Michael Reisman and Mahnoush Arsanjani, Interpreting Treaties for the Benefit of Third Parties: The “Salvors Doctrine” and the Use of Legislative History in Investment Treaties, 104 AJIL 597, 598-99 (2010).
03. Yen, supra note 1, at 79.
04. Romesh Weeramantry, Treaty Interpretation in Investment Arbitration 157-64 (2012)
05. Yen, supra note 1, at 83.
06. Thomas Walde, Interpreting Investment Treaties: Experiences and Examples in International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer 730 (2009).
07. Yen, supra note 1, at 104-151.
08. Id.
09. Gary Born, Should Investment Treaties Have Their Own Rules of Interpretation, Kluwer Arbitration Blog (Feb. 3, 2015), http://kluwerarbitrationblog.com/2015/02/03/should-investment-treaties-have-their-own-rules-of-interpretation/.
10. The NAFTA only makes vague reference to using applicable rules of International Law to interpret its provisions. See North American Free Trade Agreement, U.S.-Can.-Mex., art. 102(2), 32 I.L.M. 289 (1993) (“The Parties shall interpret and apply the provisions of this Agreement in the light of its objectives set out in paragraph 1 and in accordance with applicable rules of international law”).
11. In general IIAs do not provide any instructions on whether they should be interpreted in a particular manner or not.
12. Eirik Bjorge, The Evolutionary Interpretation of Treaties 56-57 (2014).
13. Territorial Dispute Case (Libya v. Chad), Judgment of February 3, 1994, ICJ Reports 6, 21-22 (1994).
14. Malaysian Historical Salvors v. Government of Malaysia, ICSID Case No. ARB/05/10, Decision on the Application for Annulment, ¶56 (2009).
15. Vienna Convention on the Law of Treaties art. 31(1), 1155 U.N.T.S. 331 (1969).
16. See International Law Commission (“ILC”), Draft Articles on the Law of Treaties with commentaries 219 (1966) (describing how the good faith element requires that when a treaty term has two meanings, one which gives some effect and the other which does not, preference should be given to the one that gives some effect).
17. See Gerald Fitzmaurice, The Law and Procedure of the International Court of Justice: Treaty Interpretation and Certain Other Points, 28 BYIL 1, 2 (1951) (defining how ordinary language refers to the words ordinary or apparent signification).
18. ILC, supra note 16, at 220.
19. Roberto Castro de Figueiredo, Interpreting Investment Treaties, Kluwer Arbitration Blog (Oct. 21, 2014), http://kluwerarbitrationblog.com/2014/10/21/interpreting-investment-treaties/.
20. See VCLT, supra note 18, at art. 31(2)-31(3) (describing the different instruments that create binding obligations and evidence mutual agreement between parties to treaty).
21. Figuierdo, supra note 19.
22. Yen, supra note 1, at 64.
23. VCLT, supra note 15, at art. 32.
24. Id. at art. 32.
25. This section only briefly discusses and summarizes the conflict in the arbitral world that Trinh Hai Yen highlighted and explained. For a detailed discussion on most instaces of such conflict see Yen, supra note 1, at 32-98.
26. Reisman and Arsanjani, supra note 2, at 598-99.
27. Walde, supra note 6, at 730.
28. Id. at 746.
29. Yen, supra note, at 76-99.
30. Eastern Sugar B.V. v. Czech Republic, SCC Case No. 088/2004, Partial Award, ¶207 (2007).
31. Id. at ¶ 198.
32. Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. v. Argentine Republic and Anglian Water Group (AWG) PLC v. Argentina, ICSID Case No. ARB/03/19, Decision on Liability, ¶171 (2010).
33. RosInvestCo UK Ltd. v. Russian Federation, SCC Case No. Arb. V079/2005, Final Award, ¶ 623 (2010).
34. Yen, supra note 1, at 80 (citing Metalclad Corporation v. United Mexican States, ICSID Case No ARB (AF)/97/1, Award, ¶¶ 74-101 (2000) [hereinafter Metalclad]).
35. Id. at 80 (citing Metalclad, supra note 34, at ¶¶ 74-101(2000)).
36. Id. at 82 (citing ADC Affiliate Limited and ADC & ADMC Management Limited v. Republic of Hungary, ICSID Case No. ARB/03/16, Award, ¶¶ 352-62 (2006)).
37. Inspection and Control Services Limited (ICS) v. Argentina, UNCITRAL, PCA Case No. 2010-9, Award, ¶ 316 (2012).
38. Vladimir Berschader and Michael Berschader v. Russian Federation, SCC Case No. 080/2004, ¶ 155 (2006).
39. Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, ¶ 125 (2005).
40. Yen, supra note 1, at 74.
41. Bjorge, supra note 10, at 57.
42. See Yen, supra note 1, at 74 (citing Duke Energy Electroquil Partners v. Republic of Ecuador, ICSID Case No. ARB/04/19, Award, ¶ 175 (2008)).
43. See id. at 74 (citing Archer Daniels Midland Company And Tate & Lyle Ingredients Americas, Inc. V. United Mexican States, ICSID Case No. ARB (AF)/04/5, Award, ¶ 197 (2007)).
44. Suez, Sociedad General de Aguas de Barcelona S.A., and Vivendi Universal S.A. v. the Argentine Republic and Anglian Water Group (AWG) PLC v. Argentina, ICSID Case No. ARB/03/19, Award on Jurisdiction, ¶ 88 (2005).
45. See Yen, supra note 1, at 83 (citing Vivendi Award on Jurisdiction, supra note 44, at ¶ 94).
46. El Paso Energy International Company v. Argentine Republic, ICSID Case No. ARB/03/15, Award, ¶¶ 232-56 (2011).
47. LG&E Energy Corp. and others v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Objections to Jurisdiction, ¶¶ 124-25 (2006).
48. Id. at ¶ 125.
49. Born, supra note 9.
50. See Yen, supra note 1, at 85 (citing a list of cases, including CMS, Plama, and BG Group, where tribunals relied on prior cases for interpretive guidance).
51. Id.at 89.
52. Bjorge, supra note 11, at 57.
53. See Theodorus de Boer, et.al. v. United States, UNCITRAL, Award on Jurisdiction, ¶ 50 (2008) (describing how judicial decisions are a subsidiary source of interpretation).
54. Yen, supra note 1, at 91.
55. CMS Gas Transmission Company v. Argentine Republic, ICSID Case No. ARB/01/18, Award, ¶ 274 (2005).
56. SGS Société Générale de Surveillance S.A. v. The Republic of Paraguay, ICSID Case No. ARB/07/29, Decision on Jurisdiction, ¶ 116 (2010).
57. Yen, supra note 1, at 97.
58. Id. at 101.
59. Eastern Sugar B.V, supra note 30, at ¶ 207.
60. Id. at 197.
61. See Rudolf Dolzer, Fair and Equitable Treatment: Today’s Contours, 12 Santa Clara J. Int’l L. 7, 17-29 (2014) (describing how legitimate expectations in today’s time has become central to the FET standard).
62. El Paso Energy International, supra note 46, at ¶ 256.
63. Id. at ¶ 225.
64. Id. at ¶ 232-56.
65. See Peter D. Isakoff, Defining the Scope of Indirect Expropriation for International Investments, 3 Global Bus. L. Rev. 189, 202 (2013) (describing how indirect expropriation requires a substantive deprivation of the use of the investment).
66. CMS Gas Transmission Company, supra note 55, at ¶ 274.
67. Id. at ¶ 266.
68. Id. at ¶ 274.
69. Nicolas Angelet, Fair and Equitable Treatment in Max Planck Encyclopedia of Public International Law, ¶ 23 (2011) (describing how a stable legal and business environment is now recognized as an element of FET).
70. CMS Gas Transmission Company v. Argentine Republic, ICSID Case No. ARB/01/8, Decision on Jurisdiction, ¶¶ 53-65 (2003).
71. See generally, Mahnaz Malik, The Full Protection and Security Standard Comes of Age: Yet another challenge for states in investment treaty arbitration? in Best Practices Series IISD (2011) (describing how full protection and security is now recognized as an element of FET).
72. ICS, supra note 37 at ¶¶ 80-87.
73. OECD, Fair and Equitable Treatment Standard in International Investment Law, OECD Working Papers on International Investment 26 (2004).
74. See Generation Ukraine, Inc. v. Ukraine, ICSID Case No. ARB/00/9, ¶ 8.5 (2003) (describing how shareholding interest is an investment in instances where shares are recognized as an investment under the BIT).
75. Stephen D. Krasner, Structural Causes and Regime Consequences: Regimes as Intervening Variables, in Stephen D. Krasner Ed, Power, The State, And Sovereignty: Essays On International Relations 113 (2009).
76. See Jeswald W. Salacuse, The Emerging Global Regime for Investment, 51 Harv. Int’l L.J. 427, 432 (describing these nine elements as “(1) definitions and scope of application; (2) investment promotion and conditions for the entry of foreign investments and investors; (3) general standards for the treatment of foreign investors and investments; (4) monetary transfers; (5) expropriation and dispossession; (6) operational and other conditions; (7) losses from armed conflict or internal disorder; (8) treaty exceptions, modifications, and terminations; and (9) dispute settlement”).
77. Id. at 468.
78. Id. at 432.
79. Id. at 444.
80. Id. at 445.
81. Born, supra note 9.
82. Isabelle Van Damme, Treaty Interpretation by the WTO Appellate Body, 21 Eur. J. Int’l L. 605, 614 (2010).
83. See Gilbert Guillaume, The Use of Precedent by International Judges and Arbitrators, 2 J. Int’l Disp. Settlement 5, 5-23 (2011) (showing how courts like ECHR and ICJ have developed a system of precedents).
84. Thomas M. Franck, Fairness in International Law and Institutions 30 (1995).
85. Ian Laird and Rebecca Askew, Finality Versus Consistency: Does Investor-State Arbitration Need an Appellate System?, 7 J. App. Prac. & Process 286, 286 (2005).
86. Yen, supra note 1, at 67.
87. Born, supra note 9.
88. The VCLT allows reliance on subsidiary means of interpretation, which can include non-binding sources, only to confirm the meaning of terms or in those cases where the meaning of terms after applying article 31 is ambiguous, absurd, unjust, unreasonable, etc.
89. Born, supra note 9.
90. Id.
91. This is the normal dictionary meaning of clear. This clarification is added so as to ensure that tribunals do not apply creative interpretations of the word clear.
92. Considering the ever changing nature of the IIA regime, in these rules I refrain from defining what exactly is the meaning of a term as understood in the IIA regime and leave it to the interpreting authority to deduce using a non-exhaustive list of elements mentioned in 2(b).
93. See Kathryn Gordon and Joachim Pohl, Investment Treaties over Time – Treaty Practice and Interpretation in a Changing World, OECD Working Papers on International Investment (2015) (describing how some treaties have specific instructions on treaty interpretations even though these instructions have been merely to follow the VCLT).
94. UNCTAD, Latest Developments in Investor State Dispute Settlement, IIA Monitor No 1, 2 (2008).

You Might Also Like