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The Law of Investment Treaties, 2nd Edition by Salacuse, Jeswald W (1st May 2015)

6 The Interpretation of Investment Treaties

From: The Law of Investment Treaties (2nd Edition)

Jeswald W. Salacuse

From: Investment Claims (http://oxia.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved.  Subscriber: null; date: 16 January 2019

Subject(s):
Treaties, interpretation — Vienna Convention on the Law of Treaties — NAFTA (North American Free Trade Agreement) — ECT (Energy Charter Treaty) — BITs (Bilateral Investment Treaties)

(p. 155) The Interpretation of Investment Treaties

6.1  The Task of Interpretation

Investment treaties take a written form and usually, though not always, consist of a single instrument.1 For investment treaties to become a reality, however, and actually influence the behaviour of governments and investors, they must be interpreted and applied by government officials, lawyers, corporate executives, and arbitrators.2 Government officials interpret them in order to decide whether actions and policies affecting investors meet treaty commitments. Corporate executives and their counsel interpret them in planning investment projects and in negotiating with host governments about past and future treatment. And arbitrators interpret them to settle disputes between investors and states.

Treaty interpretation is never easy, but the task of interpreting investment treaties is rendered particularly difficult by two factors: first, the generality and vagueness of many of the terms used in their texts, such as ‘fair and equitable treatment’, ‘full protection and security’, and ‘expropriation and measures tantamount to expropriation’, which are rarely defined in the treaty text itself and which reasonable persons may interpret differently. The second difficulty is the factual and legal complexity of the investment transactions and relationships to which investment treaties are applied. As a result of these complexities, arbitral tribunals and lawyers must devote significant effort and time to give meaning to words that at first glance appear simple but usually are not. Further, these definitions must be painstakingly applied to determine whether actions taken by governments in their complex dealings with investors over lengthy periods of time comply with or violate treaty standards.

The purpose of this chapter is to examine some of the issues that arise in the interpretation of investment treaties and to provide guidance on treaty interpretation.

(p. 156) 6.2  Rules of Interpretation

The basic rules of investment treaty interpretation are found in Articles 31, 32, and 33 of the Vienna Convention on the Law of Treaties (VCLT). Article 31 sets down the general rules of interpretation, Article 32 guides the use of supplementary means of interpretation when a treaty text is ambiguous or obscure, and Article 33 applies to the interpretation of treaties that are authenticated in two or more languages, a situation which affects most investment treaties.

Arbitral tribunals faced with the task of interpreting investment treaty provisions invariably begin by invoking Article 31(1) of the VCLT. Article 31(1), which sets out the basic rule of treaty interpretation, provides 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 light of its object and purpose’. This provision points to four essential elements in the interpretation of a treaty: (1) the treaty text; (2) the ordinary meaning of the terms; (3) the context of the treaty terms; and (4) the treaty’s object and purpose. The following sections of this chapter examine each of these elements.

6.3  The Treaty Text

(a)  Sources of investment treaty texts

Essential to the process of treaty interpretation is the existence of an authentic treaty text to interpret. The texts of investment treaties are found in three types of sources: (i) government sources; (ii) international organization sources; and (iii) unofficial and non-governmental sources. Each is examined in turn.

(i)  Government sources

Governments of states nearly always publish in an official publication the authoritative texts of treaties to which they have agreed. Depending upon the laws of the particular country concerned, the publication will usually be the official and definitive source of laws, legal instruments, and treaties. Normally, such publications appear regularly in the country concerned, although the frequency of publication may vary depending on the amount of legislation and treaties needing to be published. The publications have differing names, including ‘official gazette’, ‘official journal’, or ‘official bulletin’. Thus, in Austria the publication is known as Bundesgesetzblatt, in Bahrain and many Arabic-speaking countries as Al-Jaridah al-Rasmiyah, in Chile and many Spanish-speaking countries as Diario Oficial, in France and in many French-speaking countries as Journal Officiel de la République, in Korea as (p. 157) Kwanbo, and in Japan as Kampo.3 Despite the variation in title, these governmental publications all serve the same function: they are official sources of treaty texts.

Certain countries adopt a different approach to treaty publication. They publish the agreements they conclude with other countries in treaty series. For example, the United States publishes United States Treaties and Other International Agreements (cited as UST) (Washington, DC: USGPO, 1950–), which is the cumulative collection of Treaties and Other International Acts Series (cited as TIAS) (Washington, DC: USGPO, 1946–) and the current official collection of US treaties and agreements. TIAS is the first US official publication of new treaties and agreements—slip treaties—and is later bound in UST. It combines and continues the numbering of the Treaty Series and Executive Agreement Series. The United Kingdom publishes Treaty Series (cited as TS) (London: HMSO, 1892–) and formerly published treaties in a series called British and Foreign State Papers (London: HMSO, 1812). Among other countries that publish a treaty series are Australia (Australian Treaty Series (ATS)), Canada (Canada Treaty Series (CTS)), and the Netherlands (Tractatenblad (Trb ‘year’, ‘nr’, eg Trb 1994, 12)). This list is not exhaustive. When conducting research, one must inquire into the existence and availability of a treaty series in the country in question.

Many states also maintain government websites that publish either the full text of treaties, indexes to treaties, or both. For example, Australia maintains the Australian Treaties Library,4 a website that contains the full text of Australia’s multilateral and bilateral treaties and their current status. The website is updated by the Department of Foreign Affairs and Trade. The Verdragenbank, published by the Netherlands Ministry of Foreign Affairs, contains information on treaties published in the official treaty series Tractatenblad as well as on treaties for which the Netherlands is the depositary.5 The UK’s Foreign and Commonwealth Office maintains an official website with links to the full texts of treaties involving the United Kingdom on a searchable database.6 The database of Switzerland’s Federal Department of Foreign Affairs contains information on all the international treaties that are either in force or signed by Switzerland, together with information on other important treaties and non-binding instruments.7 In the United States, a useful website for treaty texts is one maintained by the US Department of State Office of the Assistant Legal Adviser for Treaty Affairs. This website serves as the principal US government repository for US treaties and other international agreements.8 The text of treaties,9 published (p. 158) as Senate Treaty Documents, may be accessed through the Library of Congress’ THOMAS website.10

Some other governmental websites include: Belgium’s Treaties,11 Canada’s Treaty Information,12 France’s Base Pacte,13 and India’s Ministry of External Affairs Bilateral/Multilateral Documents.14

As with the official printed treaty series, the availability of official websites containing investment treaty texts and their legal status should be researched in each case: ministries of foreign affairs or trade and commerce may be a good starting point for the search.

(ii)  International organization sources

Certain international organizations are also depositories of investment treaty texts. These include the United Nations, the United Nations Conference on Trade and Development (UNCTAD), the International Centre for Settlement of Investment Disputes (ICSID), and the Organization of American States (OAS), among others. Each is examined in turn.

The United Nations

The United Nations Treaty Collection (UNTS) is a collection of treaties and international agreements concluded since 1946. Treaties are registered or filed with the UN Secretariat and then recorded and published pursuant to Article 102 of the Charter.15 The UNTS includes the texts of treaties in their authentic language(s), along with translations into English and French, as appropriate. The collection currently contains over 50,000 treaties and a similar number of related subsequent actions. The United Nations Treaty Collection, which has been published in hard copy in over 2,100 volumes, also continues to be the largest single collection of treaties on the internet.16

United Nations Conference on Trade and Development (UNCTAD)

UNCTAD provides many resources for accessing international investment agreements. (p. 159) UNCTAD’s website ‘Investment Policy Hub’ is an extremely valuable and accessible source for the texts of investment treaties signed by a selected country or the text of a specific treaty between two countries until the end of 2014. The database is searchable by keywords, country/region, categories (multilateral, regional, bilateral, non-governmental, and prototype instruments), and date.17 Details of the bilateral investment treaties (BITs) signed by most countries are also provided through an interactive resource.18

International Centre for Settlement of Investment Disputes (ICSID)

Since the early 1970s, ICSID, an affiliate of the World Bank, has collected and published the texts of BITs. Most have been included in a multi-volume collection of investment treaties entitled Investment Promotion and Protection Treaties, compiled by the International Centre for Settlement of Investment Disputes (London; New York: Oceana Publications, c 1983–). Lists of BITs were also published in 1989 and 1992 in the ICSID Review—Foreign Investment Law Journal. In addition, ICSID maintains a webpage that provides a chronological list of BITs concluded up to the end of 2007, and an alphabetical list of signatories that indicates the treaties which a given state has concluded. The data contained in both lists, which include signature and (where applicable) entry into force dates, are based on information provided to ICSID by foreign governments.19

Organization of American States (OAS)

The website supported by the OAS contains complete information of every trade20 and investment-related21 bilateral or multilateral legal instrument concluded by a member state of the OAS.

Energy Charter Treaty

The Energy Charter Secretariat, located in Brussels, Belgium, maintains a website containing the text of the 1994 Energy Charter Treaty (ECT) and its related documents.22

(iii)  Unofficial and non-governmental sources of investment treaty texts

One can also consider a variety of unofficial and non-governmental sources to locate investment treaty texts. These include: (1) the Electronic Information System for International Law (EISIL), which was developed and maintained by the American Society of International Law (ASIL) and contains specific references to BITs and other international investment agreements;23 and (2) Investment Treaty Arbitration (ITA). ITA maintains a useful website (p. 160) providing access to all publicly available investment treaty awards, information, and resources relating to investment treaties and investment treaty arbitration, and useful links to resources on BITs, Free Trade/Sectoral Agreements with Investment Protections, and Model BITs.24 Also, (3) InvestmentClaims.com, an online resource providing access to all relevant foreign investment law instruments and jurisprudence, includes references to international investment agreements;25 and (4) NAFTAClaims.com provides information about NAFTA investor–state dispute settlement and contains copies of important NAFTA legal documents.26

(b)  The language of treaty texts

While the basic source for interpreting an investment treaty is the text of the treaty itself, often the treaty is embodied in two or more separate texts, each in the official language or languages of the parties to the treaty. Almost invariably, when parties to a treaty have different official languages, the official text of the treaty is in those different languages. Moreover, the treaty text itself normally states that the treaty is done in the specified languages and that the different texts are ‘equally authentic’.27 Under Article 33 of the VCLT, ‘[w]‌hen a treaty has been authenticated in two or more languages, the text is equally authoritative in each language, unless the treaty provides or the parties agree that, in case of divergence, a particular text shall prevail’. It further provides in Article 33(3) that ‘[t]he terms of the treaty are presumed to have the same meaning in each authentic text’.

Despite the skill and efforts of translators, one occasionally finds differences between the versions of specific treaty provisions, a factor that greatly complicates treaty interpretation and application. As a guide for resolving such conflicts, Article 33(4) of the VCLT stipulates:

Except where a particular text prevails in accordance with paragraph 1, when a comparison of the authentic texts discloses a difference of meaning which the application of articles 31 and 32 does not remove, the meaning which best reconciles the texts, having regard to the object and purpose of the treaty, shall be adopted.

The case of Berschader v Russia provides an example of such an interpretational problem and its resolution.28 In that case, an investment arbitration tribunal had (p. 161) to interpret the Russia–Belgium BIT written in the Russian and French languages, each of which was equally authentic by the terms of the treaty. In order to establish its jurisdiction over the dispute, the tribunal had to determine whether the claimant’s financial contribution to the construction of a building for the Russian Supreme Court was an ‘investment’ under the BIT. The Russian language version, in Article 1.2 of the BIT, employed the term kapitalovlozhenie as the noun form of the word ‘investment’ and the term vlozhit as the verb form ‘to invest’. The French text used the words investissement and investir. Russia argued that the meaning of kapitalovlozhenie was restricted to capital investments contributed to the charter capital of a joint venture and that, although such interpretation was narrower in scope than the French term ‘investissement’, the tribunal should adopt a narrower interpretation to best carry out the object and purposes of the BIT, as required by Article 33 of the VCLT.

The tribunal found that such a narrow interpretation could not be supported and dismissed Russia’s arguments on several grounds. First, the tribunal found that Russian–English legal and economic dictionaries translated the term kapitalovlozhenie as investment. Second, it took note of BITs concluded by Russia in which the contracting parties agreed that the Russian and English were equally authentic languages and in which the term kapitalovlozhenie was translated as investment. Based on this analysis, the tribunal concluded that ‘while those terms may sometimes be used in the Russian language in the more limited sense of “contributions to the charter capital of a joint venture,” they are in fact also frequently used in a broader sense corresponding exactly to the English terms “investment” and “invest”’.29 Furthermore, the tribunal also took note of the French version of the Russia–Belgium BIT, which according to that treaty’s Protocol is equally authoritative as the Russian version. Since the French text uses the words investissement and investir, the tribunal concluded that the ordinary meaning of the words is identical to that of the English words investment and to invest.30

6.4  ‘Ordinary Meaning’ of Treaty Terms

The first principle stated in Article 31(1) of the VCLT is that ‘a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty’.31 Accordingly, the first step in interpretation is to establish the ordinary meaning of an investment treaty provision. To accomplish this, those engaged in the task of interpretation ordinarily refer to recognized dictionaries. For example, in the ICSID case of MTD v Chile, the tribunal interpreted the ‘fair (p. 162) and equitable’ standard of treatment by looking to a dictionary to determine the ordinary meaning of the terms ‘fair’ and ‘equitable’.32

Difficult interpretational problems are rarely settled conclusively by this first step. For example, in interpreting the words ‘fair and equitable treatment’ in a BIT, the tribunal in Saluka Investment BV (Netherlands) v The Czech Republic observed that the ‘“ordinary meaning” of “fair and equitable treatment” can only be defined by terms of almost equal vagueness’.33 After referring to the interpretational approaches of previous tribunals, the tribunal in Saluka concluded with respect to ordinary meaning:

In MTD, the tribunal stated that: ‘In their ordinary meaning, the terms ‘fair’ and ‘equitable’ … mean ‘just’, ‘evenhanded’, ‘unbiased’, ‘legitimate’. On the basis of such and similar definitions, one cannot say much more than the tribunal did in S.D. Myers by stating that an infringement of the standard requires ‘treatment in such an unjust or arbitrary manner that the treatment rises to the level that is unacceptable from the international perspective.’ This is probably as far as one can get by looking at the ‘ordinary meaning’ of the terms of Article 3.1 of the Treaty (emphasis added).34

Thus, an inquiry into ‘the ordinary meaning’ of a treaty term may not always yield conclusive results. In such a case, one would have to rely on other principles of treaty interpretation to determine the meaning of a treaty term.

6.5  ‘Context’ of Treaty Terms and ‘Object and Purpose’ of the Treaty

According to Article 31(1) of the VCLT, the ordinary meaning of the terms of the treaty is to be given ‘in their context’ and ‘in the light of [the treaty’s] object and purposes’. Thus, the interpretation of an investment treaty requires a determination of the ‘context’ of the treaty terms and the treaty’s object and purpose. Article 31(2) provides that the context of the terms of a treaty consists of the treaty text, including the preamble and annexes, any agreement relating to the treaty made by the parties in connection with the conclusion of the treaty, and any instrument made by one or more parties in connection with the conclusion of the treaty that was accepted by the other parties as an instrument related to the treaty. Thus, diplomatic correspondence between two states with respect to a BIT could be considered part of the context of the treaty terms and, therefore, useful for interpretation.

(p. 163) Investment arbitration tribunals often refer to the context of a treaty term and to the object and purpose of an investment treaty to interpret a specific treaty provision. For example, in considering the context within which Argentina and the United States included the fair and equitable treatment standard in their BIT, and its object and purpose, the LG&E tribunal35 referred to the Preamble to the BIT. In the Preamble, the two countries agreed that ‘fair and equitable treatment of investment is desirable in order to maintain a stable framework for investment and maximum effective use of economic resources’.36 As a result, the tribunal concluded:

In entering the Bilateral Treaty as a whole, the parties desired to ‘promote greater economic cooperation’ and ‘stimulate the flow of private capital and the economic development of the parties’. In light of these stated objectives, this Tribunal must conclude that stability of the legal and business framework is an essential element of fair and equitable treatment in this case, provided that they do not pose any danger for the existence of the host State itself.37

In Saluka, the tribunal made a clear distinction between the context of the treaty terms and the object and purposes of the treaty itself. It also distinguished the immediate context, which included the language used in the treaty regarding the level of treatment each state was to accord to investors from other states, from the ‘broader context’, which included the other provisions of the treaty.38 In determining the treaty’s object and purpose, the Saluka tribunal looked to the title of and preamble to the treaty and found its purpose was not only to protect investment but, more generally, to promote investment and intensify economic relations between the two states. This finding led the tribunal to take a balanced approach in interpreting the term ‘fair and equitable’ treatment. The tribunal chose this approach because ‘an interpretation which exaggerates the protection to be accorded to foreign investments may serve to dissuade host States from admitting foreign investments and so undermine the overall aim of extending and intensifying the parties’ mutual economic relations’.39

Thus, an examination of the context of the terms and the object and purpose of a treaty itself may assist in the interpretation of a treaty term when its ordinary meaning is elusive. At the same time, as the tribunal in Plama v Bulgaria noted, one should be mindful of the warning of Sir Ian Sinclair that ‘the risk that the placing of undue emphasis on the “object and purpose” of a treaty will encourage teleological methods of interpretation [which], in some of its more extreme forms, will even deny the relevance of the intentions of the parties’.40

(p. 164) 6.6  ‘Subsequent Agreement’ and ‘Subsequent Practice’

In addition to context, Article 31(3) of the VCLT requires that the interpretation of a treaty term take into account subsequent agreements between the parties regarding the interpretation and application of the treaty as well as any ‘subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation’.

Since the contracting parties may agree on the interpretation of an investment treaty’s terms in subsequent agreements and practice, investment arbitration tribunals and others engaged in treaty interpretation should refer to such agreements in interpreting such treaty terms. This is especially pertinent in the context of NAFTA’s Chapter 11 arbitrations. Under Article 1131(2) of NAFTA, the NAFTA Free Trade Commission (FTC) has the authority to issue interpretations of NAFTA provisions that are binding on NAFTA-based arbitration tribunals.41 As of January 2009, the FTC had issued several statements concerning the interpretation of some Chapter 11 provisions,42 non-disputing party participation,43 and notice of intent to submit a claim to arbitration.44 It is worth noting the distinction in legal character between the FTC’s Statement on Interpretation (p. 165) of Certain Chapter 11 Provisions and the Statements of the NAFTA Free Trade Commission on the operation of Chapter 11. The former was adopted ‘in order to clarify and reaffirm the meaning of certain of Chapter 11 provisions’,45 whereas the latter was adopted ‘in order to enhance the transparency and efficiency of Chapter 11 and provide guidance to investors and to Tribunals constituted under Section B of the Chapter’.46 This distinction is especially important in the light of Article 31(3)(a) of the VCLT, since the Statement on Interpretation of Certain Chapter 11 Provisions may be construed to constitute a subsequent agreement between the parties regarding the proper interpretation of Article 1105 and thus under the VCLT must be taken into account in interpreting a treaty’s terms. On the other hand, the Statements of the NAFTA Free Trade Commission on the operation of Chapter 11 represent mere ‘recommendations’ and thus lack binding character.47

6.7  ‘Relevant Rules of International Law Applicable between the Parties’

Article 31(3)(c) of the VCLT requires that, along with the context, subsequent agreements, and practice, treaty interpretation will also take into account any relevant rules of international law applicable to the relations between the parties. The importance of this provision is that it permits reference to other sources of international law for guidance in interpreting an unclear or deliberately ambiguous term. An example of such a situation is the ICSID case of LG&E v Argentina,48 where the tribunal had to decide claims arising out of what was (p. 166) asserted to be an indirect expropriation. The tribunal noted that in order to find an indirect expropriation it first had to define the concept, a task that was complicated by the fact that ‘[g]‌enerally, bilateral treaties do not define what constitutes an expropriation—they just make an express reference to “expropriation” and add the language “any other action that has equivalent effects”’.49 The US–Argentina BIT, the treaty that the tribunal had to apply, followed a similar pattern: ‘Likewise, Article IV of the [US–Argentina] Bilateral Treaty does not define the term “expropriation” and does not establish which measures, actions or conduct would constitute acts “tantamount to expropriation.”’50 To interpret the BIT, the tribunal therefore found it necessary to look to international law, provisions of other BITs,51 decisions of other international investment tribunals,52 and writings of publicists.53 Its reference to such sources of international law allowed the tribunal to define indirect expropriation and to determine that the respondent’s actions did not fall within the scope of the US–Argentina BIT’s expropriation clause, which protected against ‘any action that has the equivalent effects’ of expropriation.

In order to interpret the NAFTA provisions in SD Myers, Inc v Canada,54 the tribunal found it necessary ‘to review the other international agreements to which the Parties adhere’.55 Accordingly, it analysed the Canada–USA Transboundary Agreement on Hazardous Waste (Transboundary Agreement) and the North American Agreement on Environmental Cooperation (NAAEC) to assist in determining the scope of a state’s freedom under NAFTA to regulate the cross-border movement of toxic wastes. The tribunal found guidance in Article 11 of the Transboundary Agreement, which ‘does not give a party … absolute freedom to exclude the import or export of hazardous waste simply by enacting whatever national laws it chooses’.56 It also pointed out that the NAAEC and the international agreements affirmed in the NAAEC suggested that specific provisions of NAFTA should be interpreted in the light of the general principle that ‘where a state can achieve its chosen level of environmental protection through a variety of equally effective and reasonable means, it is obliged to adopt the alternative that is most consistent with open trade’.57 Although the tribunal acknowledged the possible relevance of the 1989 Basel Convention on the Control of Transboundary Movements of Hazardous Waste and Their Disposal, it refrained from applying it because at the time of the dispute the United States, unlike Canada, was not a party to that treaty.58 The tribunal’s reference to the applicable treaties (p. 167) between the United States and Canada was a key factor in its interpretation of Article 1102 of NAFTA and its subsequent finding that Canada’s regulatory measures were in breach of its obligations.

At the same time, the application of Article 31(3)(c) of the VCLT to the interpretation of investment treaties requires a careful and balanced approach in order to avoid unjustifiably including the same rules of international customary law that the contracting states sought to avoid by making a treaty. States have often decided to conclude an investment treaty either for substantive reasons, such as giving investors higher standards of protection than that afforded by customary international law, or for procedural reasons, such as avoiding the methodological problems associated with establishing the customary international norm’s constitutive elements—‘general practice’ and opinio juris sive necessitatis—which is often a contentious process.

On the other hand, in some cases contracting states may specifically intend to link an investment treaty’s substantive provisions with the rules of international customary law. For example, paragraph 1 of Article 5 of the US–Uruguay BIT of 2005 provides that each contracting party will grant covered investments treatment consonant with customary international law, including fair and equitable treatment and full protection and security.59 Paragraph 2 of that Article clarifies that ‘paragraph 1 prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to covered investments’ and that ‘“full protection and security” requires each Party to provide the level of police protection required under customary international law’.60 Such language clearly demonstrates the intent of the parties to incorporate the requirements of international customary law into the interpretation of the terms ‘the minimum standard of treatment’ and ‘full protection and security’ as it existed at the time of the conclusion of that treaty and as it has evolved over time.61

In general, then, the application of Article 31(3)(c) of the VCLT to the interpretation of investment treaties should proceed carefully and with due regard to the intentions of the contracting states.

(p. 168) 6.8  Special Meanings Intended by the Parties

Article 31(4) of the VCLT provides that a special meaning shall be given to a treaty term if it can be established that such was the contracting parties’ intention. Thus, for example, the tribunal in Parkerings-Compagniet AS v Lithuania62 had to decide whether ‘fair and reasonable treatment’ had the same meaning as ‘fair and equitable treatment’, and whether the former holds the respondent state to a stricter standard of conduct than the more commonly found fair and equitable treatment standard. The tribunal concluded:

The standard of ‘fair and equitable treatment’ has been interpreted broadly by Tribunals and, as a result, a difference of interpretation between the terms ‘fair’ and ‘reasonable’ is insignificant. The Claimant did not show any evidence which could demonstrate that, when signing the BIT, the Republic of Lithuania and the Kingdom of Norway intended to give a different protection to their investors than the protection granted by the ‘fair and equitable’ standard.63

One may therefore infer from this statement that the proponent of the special meaning has the burden of proving that the contracting parties intended the asserted special meaning.

6.9  Supplementary Means of Interpretation

Article 32 of the VCLT allows recourse 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 application of article 31, or to determine the meaning when the interpretation according to article 31: ‘(a) leaves the meaning ambiguous or obscure, or (b) leads to a result which is manifestly absurd or obscure’.

An illustration of recourse to supplementary material in treaty interpretation is found in Plama Consortium Limited v Bulgaria,64 in which the claimant, a Cypriot company, sought to establish ICSID jurisdiction on the basis of the ECT and the 1987 BIT between Cyprus and Bulgaria. The tribunal affirmed ICSID jurisdiction under the ECT and also considered whether it had jurisdiction under the Bulgaria–Cyprus BIT. This BIT contained a very limited international dispute settlement offer that, in essence, provided that only the measure of compensation for expropriation could be submitted to an UNCITRAL arbitration. It contained (p. 169) no offer of ICSID arbitration. The BIT did, however, have a most-favoured-nation clause. Since other BITs concluded by Bulgaria provided for ICSID arbitration, the claimant relied upon the most-favoured-nation clause to take advantage of the ICSID dispute settlement mechanism included in the other BITs. The investor argued that: (1) the claimant Plama Consortium Limited qualified as an investor under the Bulgaria–Cyprus BIT; (2) the Bulgaria–Cyprus BIT contained an MFN provision; (3) the MFN provision in the Bulgaria–Cyprus BIT applied to all aspects of investor ‘treatment’; and (4) ‘treatment’ covers settlement of disputed provisions in other BITs to which Bulgaria is a contracting party. As a result, the tribunal had to decide whether the term ‘treatment’ in the MFN provision of the BIT included or excluded dispute settlement provisions contained in other BITs to which Bulgaria was a contracting party.

The tribunal found that neither the ordinary meaning of the term ‘treatment’, nor its context, nor the object and purpose of the treaty provided legally sufficient guidance to conclude that the contracting states to the Bulgaria–Cyprus BIT intended the MFN provision to incorporate agreements to arbitrate in other treaties to which Bulgaria was a contracting party.65 Nor did it find any guidance in the provisions of paragraphs 2, 3, and 4 of Article 31 of the VCLT, since there were no facts or circumstances that indicated their application to the issues at hand.66 Lacking both specific textual support in the treaty and related documents on which to base a conclusion regarding the scope of the MFN clause, the tribunal turned to the negotiating history of the Bulgaria–Cyprus BIT. There, the tribunal found a sufficient basis to infer that the contracting parties did not consider the MFN provision to extend to dispute settlement provisions in other BITs.67 Although the parties were unable to produce actual preparatory work for the BIT, as authorized in Article 32 of the VCLT, the tribunal did find assistance in two facts relating to Bulgaria’s general negotiating behaviour. First, in 1998, after the end of communism, Bulgaria and Cyprus specifically sought to negotiate a revision to the dispute settlement provisions of the 1987 BIT. The negotiations failed. The Plama tribunal ‘inferred from these negotiations that the Contracting Parties to the BIT themselves did not consider that the MFN provision extends to dispute settlement provisions in other BITs’.68 Second, at the time Bulgaria concluded the BIT with Cyprus, ‘Bulgaria was under a communist regime that favored bilateral investment treaties with limited protections for foreign investors and with very limited dispute resolution provisions’.69 Thus, when faced with an inconclusive textual basis for interpreting the investment treaty, the tribunal resorted to facts outside the treaty and to its negotiating history as supplementary means of interpretation to determine the contracting parties’ intention at the time they concluded their BIT in 1987.

Despite the more than 3,300 investment treaties that have been negotiated over the last six decades, for various reasons obtaining useful negotiating history (p. 170) to assist in interpreting a treaty can be difficult, if not impossible. The recorded negotiating history and preparatory work may be scant or lost, or contracting states may be unwilling to provide the record to litigants, since such material, once released, may be used against the state that released it.70

One important preparatory document that is often publicly available, as was discussed in Chapter 4, at section 4.7 is the ‘model’ or ‘prototype’ treaty prepared by many capital-exporting countries to conduct BIT negotiations. While no arbitration cases seem to have referred to such prototypes of models yet, these documents may be used to interpret or illuminate the meaning of provisions in the BITs for which they were used. In studying investment treaties, a model BIT may not only provide a historical perspective but could also conceivably be used to interpret unclear treaty text. Under Article 32 of the VCLT, if the meaning of the text is ambiguous or obscure, recourse may be had to ‘the preparatory work of the treaty’ to interpret its text. Model or prototype treaties would certainly constitute ‘preparatory work’ within the meaning of that Article.

6.10  Arbitration and Judicial Decisions

International law contains no doctrine of binding precedent making the decisions of an international judicial or arbitral body in one case binding upon international judicial or arbitral bodies deciding similar, future cases.71 Article 59 of the Statute of the International Court of Justice specifically states that ‘[t]‌he decision of the Court has no binding force except between the parties and in respect of that particular case’.72 Similarly, Article 1136(1) of NAFTA, in virtually identical language, makes clear that decisions of investment arbitral tribunals under Chapter 11 do not constitute binding precedent for the future. The treaty states: ‘An award made by a Tribunal shall have no binding force except between the disputing parties and in respect of the particular case.’73 Neither the (p. 171) ICSID Convention nor individual investment treaties contain a similarly specific prohibition, but they do not expressly recognize that investment arbitration awards constitute precedent.74

On the other hand, Article 38(d) of the ICJ Statute, in defining the sources of international law, recognizes ‘judicial decisions and the teachings of the most highly qualified publicists of the various nations as subsidiary means for the determination of rules of law’.75 An initial question is whether arbitral decisions constitute ‘judicial decisions’ within the meaning of Article 38(1). On the one hand, if one adopts a formal and structural definition, it is possible to argue that since arbitral decisions do not emanate from a formally constituted ‘court’, they are not ‘judicial decisions’. On the other hand, if one makes a functional interpretation and defines ‘judicial decision’ as one ‘relating to judgment and the administration of justice’, then arbitral decisions do qualify as ‘judicial decisions’.76 In fact, in applying international law, international courts and tribunals, as well as governments and litigants, do refer to previous judicial decisions and arbitral decisions to determine the applicable rules of international law. In international investment arbitration, in particular, counsel for the parties regularly cite prior cases in support of their positions, and tribunals, while reaffirming that they are not bound by previous arbitral decisions and awards, nonetheless regularly refer to earlier awards and decisions in interpreting investment treaty provisions and deciding investment disputes. Various factors have supported this trend. First, the vague and general language of many investment treaties and the fact that treaties employ common legal concepts and phrases naturally lead lawyers and tribunals to refer to decisions in other cases to determine how such provisions should be interpreted. Second, the recognized goal of international investment law is to establish a predictable, stable legal framework for investments, which causes tribunals to pay attention to previous decisions on similar issues. Third, tribunals, like courts, are motivated by the underlying moral consideration that ‘like cases should be decided alike’, unless a strong reason exists to distinguish the current case from previous ones.

The growth in investor–state arbitration in recent years has led to a significant expansion in the jurisprudence of investment treaties. The commonality of (p. 172) language and provisions among investment treaties makes an understanding of judicial and arbitration decisions important to the interpretation and application of investment treaties. The sources for locating such decisions include: ICSID’s website,77 the Permanent Court of International Arbitration’s website,78 InvestmentClaims.com,79 Investment Treaty Arbitration (website edited by Professor Andrew Newcombe),80 Investor–State Law Guide,81 and NAFTA Claims.82 The NAFTA Chapter 11 awards and briefs can also be retrieved from governmental websites of the United States,83 Canada,84 and Mexico.85 On the other hand, principles of confidentiality, which to a greater or lesser extent apply to all investor–state arbitrations, may prevent the publication of important arbitral decisions and related documents in specific cases. Thus, unfortunately, unlike most well-administered national judicial systems, it is likely that some important arbitral decisions interpreting key treaty provisions are kept private and so are not part of investment treaty jurisprudence because the parties to the dispute or their counsel sought this result.86

6.11  Scholarly Commentary on Investment Treaties

The writing of scholars and practitioners is another source of assistance in interpreting investment treaties. As noted previously, Article 38 of the ICJ Statute specifies the use of ‘teachings of the most highly qualified publicists of the various nations as subsidiary means for the determination of rules of law’. The word ‘publicist’ has several meanings today, but its traditional definition is ‘an expert in international law’.87 Their ‘teachings’ refers to more than classroom lectures, also including their books, articles, monographs and testimony on international law. In short, ‘teachings’ refers to any medium by which experts on international law comment on their specialization. Both counsel and tribunals in investor–state arbitrations (p. 173) routinely refer to such works in analysing the meaning of treaty terms in specific cases. The amount of such doctrinal literature on international investment law is vast and growing quickly. Useful bibliographies include ICSID’s Bibliography on Bilateral Investment Treaties and International Investment Law88 and the Peace Palace Library’s Research Guide on Foreign Direct Investment.89

Footnotes:

1  The Vienna Convention on the Law of Treaties, Art 1(a) defines a ‘treaty’ as ‘an international agreement concluded between States in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments and whatever its particular designation’. Vienna Convention on the Law of Treaties (23 May 1969) 1155 UNTS 331 (VCLT).

2  For an extensive discussion of investment treaty interpretation, see generally Trinh Hai Yen, The Interpretation of Investment Treaties (Martinus Nijhoff, 2014).

3  JE Roberts (ed), A Guide to Official Gazettes and their Contents (Washington, DC: Law Library, Library of Congress, 1985).

4  See <http://www.austlii.edu.au/au/other/dfat/> accessed 16 October 2014.

5  See <https://verdragenbank.overheid.nl/> accessed 16 October 2014.

6  See <https://www.gov.uk/government/publications> accessed 16 October 2014.

8  See <http://www.state.gov/s/l/treaty/> accessed 16 October 2014.

9  The US legal system distinguishes between international treaties and agreements. The former are concluded in accordance with US Constitution, Art II, § 2 which gives the President the power ‘by and with the advice and consent of the Senate to make treaties, provided two-thirds of the Senators present concur’. Art VI states that the Constitution and ‘the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land’. The latter type consists of two kinds of agreements: executive-congressional agreements, entered by the President in accordance with legislation enacted by Congress, and presidential agreements, entered by the President in reliance on his constitutional powers.

10  See <http://thomas.loc.gov/home/treaties/trhelp.htm> accessed 16 October 2014.

11  See <http://diplomatie.belgium.be/en/treaties/> accessed 16 October 2014.

12  See <http://www.treaty-accord.gc.ca/index.aspx> accessed 16 October 2014.

15  The UN Charter, Art 102 states:

  1. (1)  Every treaty and every international agreement entered into by any Member of the United Nations after the present Charter comes into force shall as soon as possible be registered with the Secretariat and published by it.

  2. (2)  No party to any such treaty or international agreement which has not been registered in accordance with the provisions of paragraph 1 of this Article may invoke that treaty or agreement before any organ of the United Nations.

16  See <https://treaties.un.org/>accessed 16 October 2014.

17  See <http://investmentpolicyhub.unctad.org/IIA> accessed 16 October 2014.

18  ibid.

19  The ICSID website no longer provides up-to-date information on bilateral investment treaties.

20  See <http://www.sice.oas.org/agreements_e.asp> accessed 16 October 2014.

21  See <http://www.sice.oas.org/investment/bitindex_e.asp> accessed 16 October 2014.

22  See <http://www.encharter.org/> accessed 21 July 2014.

24  See <http://italaw.com/> accessed 16 October 2014.

25  See <http://oxia.ouplaw.com/home/ic> accessed 16 October 2014.

26  See <http://www.naftaclaims.com/> accessed 16 October 2014.

27  eg North American Free Trade Agreement, Art 2206 states: ‘The English, French and Spanish texts of this Agreement are equally authentic.’

28  Vladamir Berschader and Moïse Berschander v Russia, SCC Case No 080/2004 (Award) (21 April 2006). See also Elettronica Sicula SpA (ELSI) (United States v Italy), (Judgment) (20 July 1989) [1989] ICJ Rep 1, 57–60, in which the International Court of Justice, in interpreting the Treaty of Friendship, Commerce and Navigation between Italy and the United States, was faced with the question of whether the word ‘taken’ in Art V(2) of the English language text meant the same thing as ‘espropriati’ in the Italian version.

29  Vladamir Berschader (n 28 above) ¶ 109.

30  ibid ¶ 110.

31  See eg the Admissions case, [1950] ICJ Rep 8; J Crawford, Brownlie’s Principles of Public International Law (8th edn, OUP, 2012) 379.

32  In their ordinary meaning, the terms ‘fair’ and ‘equitable’ used in Art 3(1)62 of the BIT mean ‘just’, ‘even-handed’, ‘unbiased’, and ‘legitimate’. MTD Equity Sdn Bhd & MTD Chile SA v Chile, ICSID Case No ARB/01/7 (Award) (25 May 2004) ¶ 113.

33  Saluka Investments BV (The Netherlands) v The Czech Republic, UNCITRAL (Partial Award) (17 March 2006) ¶ 297.

34  ibid.

35  LG&E Energy Corp et al v The Argentine Republic, ICSID Case No ARB/02/1 (Decision on Liability) (26 September 2006).

36  ibid ¶ 124.

37  ibid.

38  Saluka Investments BV (The Netherlands) v The Czech Republic, UNCITRAL (Partial Award) (17 March 2006) ¶ 298.

39  ibid ¶ 300.

40  I Sinclair, The Vienna Convention on the Law of Treaties (2nd edn, Manchester University Press, 1984) 130; Plama Consortium Ltd v Bulgaria, ICSID Case No ARB/03/24 (Decision on Jurisdiction) (8 February 2005) ¶ 193 (Energy Charter Treaty).

41  The text of NAFTA, Art 1131(2) reads:

  1. 2.  If the Commission submits to the Tribunal an agreed interpretation, the interpretation shall be binding on the Tribunal. If the Commission fails to submit an agreed interpretation or fails to submit an agreed interpretation within such 60 day period, the Tribunal shall decide the issue of interpretation of the exception. (emphasis added)

The North American Free Trade Agreement of 1992, (1993) 32 ILM 289, 605.

42  The Statement of Interpretation of Certain Chapter 11 Provisions of 31 July 2001 addressed two important issues: access to documents and the scope of minimum standard of treatment. In addressing the former issue, the FTC took the view that nothing in NAFTA imposes a general duty of confidentiality on the disputing parties to a Chapter 11 arbitration. Further, subject to the application of Art 1137(4), nothing in NAFTA precludes the parties from providing public access to documents submitted to, or issued by, a Chapter 11 tribunal. In addressing the latter issue, the FTC adopted the interpretation that (1) NAFTA, Art 1105(1) requires that the customary international law minimum standard of treatment of aliens also be the minimum standard of treatment afforded to the investments of another party; (2) the concepts of ‘fair and equitable treatment’ and ‘full protection and security’ do not require treatment in addition to or beyond what is required by the customary international law minimum standard for the treatment of aliens; and (3) a determination that there has been a breach of another provision of NAFTA, or of a separate international agreement, does not establish that there has been a breach of Art 1105(1). Statement on Interpretation of Certain Chapter 11 Provisions, 31 July 2001.

43  The Commission’s Recommendation on Non-Disputing Party Participation made clear that no NAFTA provision limits a Chapter 11 tribunal’s discretion to accept written submissions from a non-disputing party. It also recommended that tribunals adopt the procedures agreed by NAFTA parties with respect to such submissions. Recommendation on Non-disputing Party Participation, 7 October 2004.

44  The FTC determined that the approved form for notices of intent to submit a claim to arbitration, if properly completed, would satisfy the requirements of NAFTA, Art 1119 and clarify the basis of a claim. The FTC also recommended that disputing investors use it. Recommendation on the Format of Notices of Intent, 7 October 2004.

45  Statement on Interpretation of Certain Chapter 11 Provisions, 31 July 2001 (emphasis added).

46  Statements of the NAFTA Free Trade Commission on the Operation of Chapter 11 (emphasis added).

47  The FTC’s Statement on Interpretation of Certain Chapter 11 Provisions has elicited strong criticism regarding both its nature (whether it was ‘an amendment’ and the FTC had thus overstepped its powers under NAFTA or whether it was ‘a subsequent agreement’ and the FTC thus acted within the treaty’s limits) and its content (whether the words ‘international law’ in NAFTA, Art 1105 meant only ‘customary international law’) on the part of commentators and international tribunals. Subsequent decisions followed the FTC interpretation. For more details, see T Weiler, ‘NAFTA Article 1105 and the Free Trade Commission; Just Sour Grapes, or Something More Serious?’ (2001) 29 Int’l Bus Lawyer 491, 496; P Dumberry, ‘The Quest to Define “Fair and Equitable Treatment” for Investors under International Law: The Case of the NAFTA Chapter 11 Pope and Talbot Awards’ (2002) 3 JWIT 657, 674–6; C Schreuer, Fair and Equitable Treatment in Arbitral Practice’ (2005) 6 JWIT 357, 362; T Westcott, ‘Recent Practice on Fair and Equitable Treatment’ (2007) 8 JWIT 413; Second opinion of Christopher Greenwood of 16 August 2001, ¶ 77 in Loewen Group, Inc and Raymond L Loewen v United States, ICSID Case No ARB(AF)/98/3; Second opinion of Robert Jennings of 18 September 2001, Part I in Methanex v United States, UNCITRAL (NAFTA); Pope & Talbot Inc v The Government of Canada, UNCITRAL (Award on Damages) (31 May 2002) (NAFTA) ¶ 47; Mondev Int’l Ltd v United States ICSID Case No ARB(AF)/99/2 (Award) (11 October 2002) (NAFTA) ¶¶ 120–122.

48  LG&E Energy Corp et al v The Argentine Republic, ICSID Case No ARB/02/1 (Decision on Liability) (26 September 2006).

49  ibid ¶ 185.

50  ibid.

51  ibid ¶ 188.

52  ibid ¶¶ 191–195.

53  ibid ¶ 196.

54  SD Myers, Inc v Canada, UNCITRAL (First Partial Award) (13 November 2000).

55  ibid ¶ 204.   

56  ibid ¶ 208.   

57  ibid ¶¶ 220–221.

58  Still the tribunal made this observation:

Even if the Basel Convention were to have been ratified by the NAFTA Parties, it should not be presumed that CANADA would have been able to use it to justify the breach of a specific NAFTA provision because … where a party has a choice among equally effective and reasonably available alternatives for complying … with a Basel Convention obligation, it is obliged to choose the alternative that is … least inconsistent … with the NAFTA. If one such alternative were to involve no inconsistency with the Basel Convention, clearly this should be followed.

ibid ¶ 215.

59  Treaty Between the United States of America and the Oriental Republic of Uruguay Concerning the Encouragement and Reciprocal Protection of Investment (4 November 2005), Art 5(1).

60  ibid Art 5(2) (emphasis added).

61  See eg ¶¶ 107–8, 124 of Mondev, where Mexico and Canada were found to have expressly accepted the point that the ‘minimum standard of treatment’ adopted in NAFTA, Art 1105 ‘existed in 1994, … had developed to that time … [and] has evolved and can evolve’. Mondev International Ltd v United States, ICSID Case No ARB(AF)/99/2 (Award) (11 October 2002).

62  Parkerings-Compagniet AS v Lithuania, ICSID Case No ARB/05/8 (Award) (11 September 2007).

63  ibid ¶ 277.

64  Plama Consortium Ltd v Bulgaria, ICSID Case No ARB/03/24 (Decision on Jurisdiction) (8 February 2005).

65  ibid ¶¶ 189–193.

66  ibid ¶ 194.

67  ibid ¶ 195.

68  ibid ¶ 195.

69  ibid ¶ 196.

70  eg in Pope & Talbot, Canada initially refused to reveal the travaux préparatoires that led to the adoption of NAFTA, Art 1105. The tribunal criticized that action:

having the documents would have made [the tribunal’s] earlier interpretations of Article 1105 less difficult and more focused on the issues before it. In this sense, the failure of Canada to provide the documents when requested … was unfortunate. Forcing the Tribunal to chase after the documents as it did is not acceptable.

Pope & Talbot Inc v The Government of Canada, UNCITRAL (Award on Damages) (31 May 2002) ¶ 39. When Canada finally acceded only partially to the tribunal’s request, the tribunal observed ‘[i]‌t is almost certain that the documents provided … are not all that exists, yet no effort was made by Canada to let the Tribunal know what, if anything, has been withheld’. ibid ¶ 41. Accordingly, the tribunal concluded that ‘[t]his incident’s injury to the [NAFTA] Chapter 11 process will surely linger’. ibid ¶ 42.

71  G Kaufmann-Kohler, ‘Arbitral Precedent: Dream, Necessity or Excuse?’ (2007) 23 Arbitration Int’l 357.

72  Statute of the International Court of Justice (1945), 3 Bevans 1179; 59 Stat 1031; TS 993; (1945) 39 AJIL Supp 215 (ICJ Statute).

73  The North American Free Trade Agreement of 1992, (1993) 32 ILM 289, 605 (NAFTA).

74  The ICSID Convention, Art 53(1) states: ‘The award shall be binding on the parties.’ Schreuer suggests that this provision may be interpreted as ‘excluding the applicability of the principle of binding precedent to successive ICSID cases’. He also notes that there is nothing in the preparatory work of the Convention suggesting that the doctrine of precedent should be applied to ICSID arbitration. C Schreuer, ‘A Doctrine of Precedent?’ in P Muchlinksi et al, The Oxford Handbook of International Investment Law (OUP, 2008) 1190.

75  ICJ Statute (n 72 above). See Ch 3, section 3.3(e).

76  The Oxford Dictionary of English defines ‘judicial’ as ‘of, by, or appropriate to a law court or judge; relating to the administration of justice’. See The Oxford Dictionary of English, (3rd edn, OUP 2010), available at <http://www.oxforddictionaries.com/us/definition/american_english/judicial> accessed 4 October 2014.

78  See <http://www.pca-cpa.org> accessed 16 October 2014.

79  See <http://oxia.ouplaw.com/home/ic> accessed 16 October 2014.

80  See <http://italaw.com/> accessed 16 October 2014.

81  The guide lets users search for arbitral decisions by specific topics, see how tribunals have referenced earlier decisions, and see how tribunals have interpreted specific treaty articles. See <http://www.investorstatelawguide.com/> accessed 16 October 2014.

82  See <http://www.naftaclaims.com> accessed 16 October 2014.

83  See <http://www.state.gov/s/l/c3433.htm> accessed 16 October 2014.

85  See <http://www.economia.gob.mx/?NLanguage=en&P=5500> accessed 16 October 2014.

86  Even ICSID, which is the most open of the arbitral institutions, is prevented by ICSID Convention, Art 48(5) from publishing awards without the consent of the parties.

87  eg The Oxford Dictionary of English defines publicist to mean, in addition, ‘a person responsible for publicizing a product, person, or company’ or a ‘journalist, especially one concerned with current affairs’. The Oxford Dictionary of English (n 76 above).