Relying upon parties' interpretation in treaty-based investor-state dispute settlement: filling the gaps in international investment agreements.

Author:Jaime, Margie-Lys
Position:IV. The Solution: Parties' Interpretation for filling the Gaps in International Investment Agreements B. Tracing a New Roadmap for Arbitral Tribunals in Investor-State Arbitration through V. Conclusion, with footnotes, p. 287-313
  1. Tracing a New Roadmap for Arbitral Tribunals in Investor-State Arbitration

    IIAs, as any other treaties, are indisputable sources of law in the sense of both Article 38 of the Statute of the ICJ (87) and the Vienna Convention on the Law of Treaties (VCLT). (88) As a result, in the absence of express rules in a particular IIA regarding joint interpretations and/or the intervention of non-disputing parties to the investor-state proceedings, it is appropriate to turn to the general rules of interpretation, as set forth by Articles 31-33 (Interpretation of Treaties) of the VCLT. (89) Article 31 of the VCLT is particularly valuable giving general rules of interpretation according to which the context of the terms of the treaty shall be considered:

    1. 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 purpose.

    2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes: (a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty; (b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.

    3. There shall be taken into account, together the context: (a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions; (b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation; (c) any relevant rules of international law applicable in the relations between the parties.

    4. A special meaning shall be given to a term if it is established that the parties so intended. (90)

    In Saluka v. Czech Republic, the arbitral tribunal analyzed the ordinary meaning and context of the "fair and equitable treatment" in the light of the VCLT. (91) In this sense, the arbitral tribunal distinguished between an "immediate" and a "broader" context for interpreting the terms of the fair and equitable treatment standard (both to be considered). (92) Based on the broader context, the fair and equitable treatment standard was linked to the object and the purpose of the treaty, which is, according to the arbitral tribunal, the stimulation of foreign investments and the economic development of both contracting parties as affirmed by the preamble of the treaty. (93) Likewise, in Continental Casualty Company v. Argentina, the link between the ordinary meaning of the terms used and the object and purpose of the provision was highlighted by the arbitral tribunal. In particular, the tribunal focused in the analysis of Article XI (General Exceptions) of the U.S.-Argentina BIT to determine whether the actions taken by Argentina during the 2001-2002 crises were measures covered by the exception. (94) In this case, Argentina argued that the United States was also from the position that the provision was self-executing, as reflected by the United States' arguments in cases under the ICJ and by the wording of Article 18(1) of the U.S. 2004 BIT Model. (95) However, the arbitral tribunal considered that there was inconclusive evidence to support the claim that the United States had taken a position on whether the clause was self-judging. (96) In any case, it is a fact that since 2004, the U.S. Model has incorporated financial services exceptions, allowing the parties to adopt non-discriminatory measures of general application by any public entity in pursuit of monetary and related credit or exchange rate policies. (97) The Argentina measures could certainly fit into this category. As it can be noted, the non-recourse to parties' interpretation as a means to fill the gaps of IIAs has resulted in contradictory decisions.

    According to Kenneth Vandevelde, "the cornerstone of the Vienna Convention is its requirement that courts refrain from inquiring into the parties' actual intentions if the provision to be interpreted is clear on its face." (98) Whereas this might be true at first glance, two main aspects shall be underlined from the perspective of international interpretation rules. First, while it is true that the VCLT is primarily based on an objective approach (i.e., in accordance with the "ordinary meaning" of the terms of the treaty), (99) it opens the door to arbitral tribunals to consult with the parties to the treaty for the interpretation of the text. Under this approach, even if the treaty according to which a claim is submitted is the starting point of the analysis made by the arbitral tribunal, parties' interpretation can play an important role pursuant to the international rules of interpretation, despite the apparent textual approach of the Vienna Convention. Second, the preparatory work of the treaty and other circumstances related to its conclusion are merely supplementary means of interpretation and shall not be taken into consideration except for confirming the meaning arrived by Article 31, when the meaning achieved by Article 31 leaves the meaning ambiguous or obscure, or leads to a result which is manifestly absurd or unreasonable. (100) However, this does not seem to be the path taken by arbitral tribunals in the investment arbitration field. (101)

    Arbitral tribunals have constantly disregarded or hesitated to consider parties' interpretation of treaties, instead favoring supplementary means of interpretation such as the preparatory work of the treaty. (102) This practice contradicts with the hierarchy expressed by the VCLT in Articles 31 and 32. Moreover, any preparatory work should be regarded cautiously because it will not always show the whole picture of the negotiation process, and therefore, can mislead the arbitral tribunal to an erroneous conclusion not intended by the parties. Therefore, arbitral tribunals should look primarily to Article 31 of the VCLT, which includes the recognition of subsequent agreements and subsequent practice of the parties to the treaty.

    Article 31, paragraph 3(a) of the VCLT allows for any kind of subsequent agreement between the parties to the treaty. (103) Likewise, paragraph 3(b) may allow consideration of other circumstances such as: (1) the adoption of new BITs models explaining the scope of the terms of a particular provision (like the U.S. BIT Model does with the fair and equitable treatment and the expropriation provisions), or (2) the successive positions of the parties in similar cases involving the same type of provision. (104) This is also true for paragraph four of the VCLT, regarding the parties' power to give a special meaning to the terms of the text (i.e., not ordinary meaning). (105) In the context of the Iran-United States Claims Tribunal, the relevance of subsequent practice as a means of interpretation has been recognized on several occasions, relying on such practice as a decisive consideration:

    [F]ar from playing a secondary role in the interpretation of the treaties, the subsequent practice of the Parties constitutes an important element in the exercise of interpretation. In interpreting the treaty provisions, international tribunals have often examined the subsequent practice of the parties. The Tribunal has also recognized the importance of the subsequent practice of the parties and has referred to it in several cases. (106) Pursuant to Article 31 (3) (a) and (b) of the VCLT, one could infer that if parties agreed on the interpretation or the application of the terms of a treaty, the arbitral tribunal's decision should conform to such agreement. (107) Nonetheless, the application of parties' agreement with respect to the interpretation of a treaty during an ISDS is not an easy pathway. The main concern is that the parties to a treaty are not the parties to the dispute; therefore, to some extent, the host state would be playing a double role, as a party to the treaty and as the respondent in the ISDS. In doing so, a host state may be seeking to influence the outcome of the arbitral proceeding or even amending the original agreement, which is far from the purpose of treaty interpretation. A related concern is whether a common agreement between the parties to a treaty regarding the interpretation of a term is a real interpretation and not a modification and/or an amendment of the treaty, out of the scope of Article 31 (a) and (b) of the VCLT. (108)

    In order to avoid misinterpretations, arbitral tribunals should engage in a continuous dialogue with the parties to the treaty instead of disregarding parties' interpretations. (109) More essentially, practitioners should properly argue before arbitral tribunals about the adequacy and pertinence of Articles 31(a) and (b) of the VCLT for interpretation purposes. At some point, such arguments and the continuous dialogue between the state-parties and the arbitral tribunal shall lean the balance towards the right use of VCLT in order to bring parties' interpretations for filling the gaps in IIAs.

    As the UNCTAD has pointed out, the parties to the treaty are not only the drafters but also the masters" of the treaty. (110) In this sense, they would always retain a certain degree of interpretative authority over the treaty. (111) Indeed, although the arbitral tribunals have certain discretion to provide a particular meaning to treaty provisions, their first mission is not to interpret the treaties but to apply them in particulars disputes. It is only by the delegation of the parties to the treaty that tribunals in fact have the power to interpret the text, though within the limits set by the international rules of interpretation pursuant the VCLT. In other words, these delegated powers are not unlimited and the margin of discretion should be consistent with the reasonable need of interpretation for the purpose of settling a...

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