University of Amsterdam, 31 July 2015
Fitting WTO Commitments under the Umbrella Clause
Is there a Potential?
Master’s Thesis in International and European Law Trade and Investment Law Track
Niki Ignatidi Student number: 10865144 Supervisor: Mrs. Esther Kentin
2 I. TABLE OF CONTENTS
I. TABLE OF CONTENTS ... 2
II. LIST OF ABBREVIATIONS ... 4
III. INTRODUCTION ... 5
IV. CHAPTERS ... 9
1. THE UMBRELLA CLAUSE ... 9
What is the Umbrella Clause? ... 9
1.1. The ‘Elevation’ Nature of the Umbrella Clause ... 11
1.2. 2. APPLICABLE LAW JURISDICTION AND ADMISSIBILITY ... 13
Which Law?... 13
2.1. Jurisdiction stricto sensu ... 15
2.2. Forum Selection Clauses in the Alleged Violated Rules... 17
2.3. Parallel Proceedings - Is this an Issue? ... 20
2.4. Interim Conclusions... 23
2.5. 3. THE SCOPE OF THE UMBRELLA CLAUSE ... 24
Before Assessing the Ambit of the Clause ... 24
3.1. Looking at the ‘Umbrella Clauses’... 25
3.2. 3.2.1. Methods of Interpretation ... 25
3.2.2. ‘obligations’ ... 27
3.2.3. ‘any obligation’ ... 28
3.2.4. ‘entered into’ ‘written’ or ‘contractual obligations’ ... 28
3.2.5. The Location of the Umbrella Clause ... 29
Specificity Requirements... 30
3.3. 3.3.1. How much Specificity is Needed? ... 30
3.3.2. How ‘Specific’ WTO Commitments are? ... 31
The Nexus with the Investor ... 32 3.4.
3
Did the Host-State Act in its Sovereign Capacity? ... 35
3.5. Concluding Remarks ... 36 3.6. 4. MORE THOUGHTS ... 37 Preliminary Remarks ... 37 4.1. Do Investors Need Standing Regarding Trade Issues? ... 37
4.2. 4.2.1. Private Standing in the WTO ... 37
4.2.2. Is Investment Arbitration an Alternative ‘Standing’?... 39
Alternative Routes for Investors within Investment Law ... 41
4.3. Can Umbrellas Cause a Flood? ... 42
4.4. Deterrent or Motivation for Investors? ... 43
4.5. States’ Concerns ... 44
4.6. 5. THE PHILIP MORRIS CASE. WHAT IF? ... 46
The Case so far ... 46
5.1. The Hypothetical Outcome of the Umbrella Clause Claim ... 49
5.2. 5.2.1. Stricto sensu Jurisdiction and Admissibility ... 49
5.2.2. The Scope of the Clause ... 49
V. CONCLUSION ... 51
VI. TABLES OF UMBRELLAS ... 54
1. DESCRIPTION... 54
2. TABLE 1 ... 56
3. TABLE 2 ... 58
VII. LIST OF CASES... 60
VIII. LIST OF LEGAL INSTRUMENTS ... 64
4 II. LIST OF ABBREVIATIONS
BIT Bilateral Investment Treaty
CETA Comprehensive Economic and Trade Agreement (Agreement between Canada and the European Union)
DSS Dispute Settlement System
DSU Dispute Settlement Understanding
ECJ European Court of Justice
EPA Economic Partnership Agreement
EU European Union
FET Fair and Equitable Treatment
GATS General Agreement on Trade in Services
ICJ International Court of Justice
ICSID International Centre for the Settlement of Investment Disputes ICSID Convention Convention on the Settlement of Investment Disputes between
States and Nationals of other States
IIA International investment Agreement
MFN Most Favored Nation
NAFTA North American Free Trade Agreement (Agreement between Canada, Mexico and the United States of America)
OECD Organization for Economic Co-operation and Development SCMs Subsidies and Countervailing Measures Agreement
TBT Technical Barriers to Trade
TPPA Transpacific Partnership Agreement (Agreement under
negotiation between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US, and Vietnam)
TRIMs Agreement on Trade Related Investment Measures TRIPs Agreement on Trade Related Intellectual Property Rights TTIP Transatlantic Trade and Investment Partnership (Agreement
under negotiation between the European Union and the United States of America)
UNCITRAL United Nations Commission on International Trade Law
US United States of America
VCLT Vienna Convention on the Law of Treaties
WHO World Health Organization
WTO World Trade Organization
5 III. INTRODUCTION
Imagine first two parallel lines. Think now that at different points they actually intersect. Despite this image could be unimaginable in mathematics, it is an existing phenomenon between different legal regimes. Examples of interaction are observable between several legal regimes and in different ways. Environmental and human rights law are usually considered under the framework of trade law as creating tensions between the regimes, whereas in the case of trade and investment law a kind of overlap rather than a conflict could be said to exist. Umbrella clauses as is shown in detail in this paper could reveal a point of the latter overlap.
Indisputably, trade and investment law have evolved differently in terms of legal instruments, procedures and results. Only few are the visible common features between the WTO annexed agreements and the various IIAs between States.1 Similarities can be seen mostly regarding issues of discrimination,2 but they do not signify an overlap in treatment, rather than merely depict the inevitable inequality which exists whenever foreigners are involved.3
In terms of their distinct objectives, meaning trade liberalization and investment protection, the two regimes were historically seen as ‘coexisting side by side’ in separate roads,4 an approach gradually abandoned however in more recent years.5 A current approach of the two regimes immediately reveals their common ultimate goal, namely facilitating global economic welfare and integration in a globalized immensely
1
IIAs contain BITs and FTAs with investment chapters, the notions IIAs and BITs are used interchangeably in the text.
2
Roger Alford ‘The Convergence of International Trade and Investment Arbitration’ (2013) Scholarly Works 1072 <http://scholarship.law.nd.edu/law_faculty_scholarship/1072> accessed 19 February 2015, 40.
Nevertheless, note that the provisions are merely resembling and in more concrete terms they differentiate a lot both in their formulation and in substance see Todd Weiler, ‘Treatment No Less Favorable Provisions Within the Context of International Investment Law: “Kindly Please Check Your International Trade Law Conceptions at the Door”.’ (2014) Santa Clara Journal of International Law 12(1), 79.
3
Jan Paulsson, Denial of Justice in International Law, (Cambridge University Press 2005) 149; Weiler (n2), 86.
4
Friedl Weiss, ‘Trade and Investment’ in Muchlinski P, Ortino F and Schreuer C, The Oxford
Handbook of International Investment Law (Oxford Handbooks in Law 2008), 183.
5
Fiona Beveridge, ‘Foreign Investment in the WTO’ (2006) Northern Ireland Legal Quarterly 57(3), 520-523.
6
interdependent world6 and establishes them as the ‘major engines of growth in developed and developing countries’.7
Simultaneously, the rapid proliferation of regional economic agreements touching upon several fields of international law,8 as well as the complexity of international States’ affairs, intensely call for a new perspective for international economic law, recognizing the convergence between the two regimes.9 The much-litigated NAFTA has paved the way inter alia for the more recent CETA and TTIP and signified that negotiating States do not see trade and investment law as secluded islands anymore. It is apparent that trade and investment are negotiated together and their interaction has become a mutually advantageous give-and-take relationship with corresponding results.10
In the field of trade law, the WTO annexed agreements concluded under the Uruguay Round provide concrete evidence of the convergence between trade and investment law.11 The TRIMs agreement addresses investment performance requirements affecting trade and possibly violating WTO law,12 while notably the GATS is the most investment-related agreement,13 followed by the TRIPs and the SCMs agreements.14
6
Sergio Puig, ‘International Regime Complexity and Economic Law Enforcement’ (2014) Journal of International Economic Law 17, 495.
7
Organization for Economic Co-Operation and Development, Open Markets Matter: The
Benefits of Trade and Investment Liberalization (OECD Publications 1998), 25.
8
The notion of regional economic agreements is preferred in the present thesis as compared to the regional trade agreements notion to underscore that these agreements are not only, or even sometimes mainly, about trade.
9
Joost Pawvelyn, ‘Dealing With the Increasing Complexity of Investment-Related Treaties: A Framework and Some Policy Guidelines’ (30 October 2012) <http://www.iisd.org> accessed 11 February 2015.
10
Hansel Pham, ‘International Trade Law and International Investment Law: Complexity and Coherence’ (12 April 2014) <http://www.asil.org/> accessed 11 February 2015.
11
For a more detailed approach see David Greenaway and André Sapir, ‘New Issues in the Uruguay Round: Services, TRIMs and TRIPs’ (1992) European Economic Review 36, 509.
12
Dallas DeLuca, ‘Trade-Related Investment Measures: U.S. Efforts to Shape a Pro-Business World Legal System’ (1994) Journal of International Affairs 48(1), 253; Scott Quillin, ‘The World Trade Organization and its Protection of Foreign Direct Investment: The Efficacy of the Agreement on Trade-Related Investment Measures’ (2003) Oklahoma City University Law Review 28, 886; Robert Edwards and Simon Lester, ‘Towards a More Comprehensive World Trade Organization Agreement on Trade Related Investment Measures’ (1997) Stanford Journal of International Law 33, 172.
13
Martín Molinuevo, Protecting Investment in Services: Investor-State Arbitration versus WTO
Dispute Settlement (Global Trade Law Series, Kluwer Law International 2011).
14
Mark Wu ‘The Scope and Limits of trade’s Influence in Shaping the Evolving International Investment Regime’ draft of the chapter to appear in Douglas Z et al. (eds), The Foundations of
7
On the other side of the spectrum, trade-related issues are inserted under the scope of investment law in a more indirect and controversial way. More precisely, though BITs do not normally refer to WTO law, trade issues become relevant under the ambit of various BITs’ clauses, such as fair and equitable treatment, expropriation and umbrella clauses.15 The legal implications of this interaction have caused huge controversy especially in relation to umbrella clauses, a matter which has not yet been put under courts’ scrutiny.
The objective of the present thesis is to address the question whether and under which circumstances WTO commitments can fit under BITs’ umbrella clauses. The recent dispute over Australia’s plain packaging legislation and the initiation of investment arbitration procedures by Philip Morris,16 including inter alia an umbrella clause claim under the Hong Kong-Australia BIT,17 reveals that the issue is not hypothetical but can actually emerge before a tribunal.18
As stated already, at the time this thesis is written no tribunal has yet decided on the issue. Nevertheless, useful input is provided by investment awards deciding on umbrella clauses. The research question is approached by answering the main questions as provided by case law and scholarship referring to the requirements needed for successfully making an umbrella clause claim. Comparisons are made throughout the thesis to point out the similarities and differences between the already litigated ‘umbrella cases’ and the scenario of invoking WTO breaches under an umbrella clause.19
The main legal framework of the discussion is international investment and trade law without though undermining the significance of general international law and the
Young ‘The Architecture of Rules and the Settlement of Disputes’ (1998) Journal of International Economic Law 1, 457.
Especially for the GATS see Emily Sweeney Samuelson and Solomon Ebere ‘Working Paper on GATS Negotiations on Domestic Regulation: Could a Foreign Investor Use GATS Disciplines in a BIT Claim?’ (Harrison Institute for Public Law Georgetown Law 2010), 4.
15
Wu (n14) 4
16
Philip Morris Asia Limited v. The Commonwealth of Australia (2011) UNCITRAL, PCA Case No. 2012-12, Notice of Claim (Philip Morris case).
17
Agreement between the Government of Hong Kong and the Government of Australia for the Promotion and Protection of Investments (1993).
18
Despite the fact that this claim was dropped finally by Philip Morris and will not be adjudicated.
19
By no means is this thesis implying that the authors cited here agree with the analogies made or that the sources used were produced under that perspective, but they certainly provide for valuable insight in the issue.
8
principles and rules given thereby. Some not strictly legal considerations also find their place within this thesis pertaining to concerns over the necessity of the discussed perspective for privates’ protection and its possible implications on future investment cases and on the participants’ behavior (investors and States).
As to the structure of the thesis, first, a brief introduction to the umbrella clauses, which can provide an adequate understanding of their evolution and scope, is provided. It should be noted that the present thesis does not purport to undertake a comprehensive analysis of umbrella clauses and does not provide a complete overview of the relevant jurisprudence and scholarship.
Secondly, what is to be defined is the applicable law over umbrella clause claims based on WTO commitments and whether these claims meet the jurisdictional and admissibility requirements. Umbrella clause controversies in jurisprudence and scholarship are all about jurisdiction and admissibility. A tribunal in assessing its jurisdiction has to go through two assessments. Looking at the jurisdictional prerequisites of the BIT provides for what the present thesis calls jurisdiction stricto sensu over the treaty claim. To determine though its ‘final’ jurisdiction the tribunal should examine whether a prima facie case is made with the claim. For that, the ambit of the umbrella clause at stake is to be addressed. The clauses’ texts along with other requirements that have evolved in jurisprudence for accepting umbrella clause claims are examined in that regard. Under both of these assessment steps the legal impediments are revealed which could potentially lead to an unsuccessful claim under an umbrella clause.
Moving away from the ‘pure’ legal considerations, the discussion would seem inadequate if it did not also take up other considerations which come into play and influence tribunals in reaching their decisions. First, it is important to consider whether there is indeed a need for investors to be able to bring WTO commitments under the scope of investment arbitration through umbrella clauses and at the same time reconsider concerns about triggering ‘floods’ of claims. In addition, it is interesting to look at the possible implications of such a perspective in investors’ and States’ behaviors.
Lastly, the results of the analysis are applied in the Philip Morris case in which a relevant claim was made initially but dropped afterwards.20 What is discussed is the
20
9
possible outcome of the case in relation to the umbrella clause claim, if the latter had not been left out of the arbitration.
All in all, the reader is more than welcome to have doubts and express concerns in relation to the discussed thesis, namely the possibility of fitting WTO commitments under the umbrella clause. It is this kind of skepticism that the present thesis tries to address and, if possible, reverse, or at least discuss without unnecessary prejudices.
IV. CHAPTERS
1. THE UMBRELLA CLAUSE21 What is the Umbrella Clause? 1.1.
Umbrella clauses express the pacta sunt servanda principle and set the duty for States to observe their obligations.22 As the majority of investment awards have acknowledged, they provide additional protection for investors, exceeding the commitments States have already undertaken in the BIT.23 Umbrella clauses are usually followed by labels such as ‘sanctity of contract’, ‘parallel effect’ or ‘elevation’ clauses.24
The first detectable umbrella clause is found in the 1959 Draft Convention on Investments Abroad.25 The clause was deemed to refer to both contractual and unilateral undertakings of the State but it was interpreted as a mere confirmation of general principles of international law and especially the pacta sunt servanda principle, without
21
It should be noted that the term umbrella clause is not in the text of the clauses, nevertheless it is the term most widely used.
22
Currently almost half of the BITs contain umbrella clauses, see Jean-Christophe Honlet and Guillaume Borg, ‘The Decision of the ICSID ad Hoc Committee in CMS v. Argentina Regarding the Conditions of Application of an Umbrella Clause: SGS v Philippines Revisited’ (2008) The Law and Practice of International Courts and Tribunals: A Practicioners’ Journal 7, 3.
Note though that NAFTA does not contain such clause, see John Boscariol ‘Foreign investment Protection Treaties: Opportunities in the Petroleum Industry’ (2006) Alberta Law Review 44(1), 131.
23
Christoph Schreuer, ‘Travelling the BIT Route of Waiting Periods, Umbrella Clauses and Forks in the Road’ (2004) The Journal of World Investment & Trade 5(2), 249.
24
Katia Yannaca-Small, ‘Interpretation of the Umbrella Clause in Investment Agreements’, (2006) OECD Working Papers on International Investment 3/2006, OECD Publishing, 3.
25
Herman Abs and Hartley Shawcross, ‘Draft Convention on Investments Abroad’ in ‘The Proposed Convention to Protect Private Foreign Investment: a Round Table’ (1960) Emory Law Journal 9, 115-118.
10
direct effect on investors’ protection.26 While more international treaties, started including similar clauses,27 the ‘umbrellas remained closed’ for a long time due to States’ reluctance to diplomatic protection.28 Even after BITs and investor-State arbitration were introduced, it was not before 2003, when the SGS v Pakistan dispute was settled, that wider attention was given to the clauses.29
In approaching umbrella clauses tribunals commonly face difficulties in defining the exact ambit of the clause. The clauses’ formulations are commonly different from one BIT to another, leading the endeavor to promulgate a single rule on interpreting and applying the clauses to failure.30 However, tribunals deciding mostly on contract violations under umbrella clause claims provide for some general rules for this interpretation, which are the main tools in addressing this paper’s subject.
As expected, since the clauses made their active appearance in investment arbitration, scholars also formulated their differing views on the matter. The most discernible distinction can be made between voices calling for more State sovereignty and implicitly rejecting umbrella clauses as causing more State constraints and views focusing on the principle of good governance exercised by States, as enunciated through the upholding of their commitments.31
After having provided a brief introduction to the umbrella clauses it suffices to conclude that umbrella clauses are litigated on a case-by-case basis and thus one should not anticipate consistency in jurisprudence and in strictly defining the legal criteria. As Crawford has put it especially with regard to umbrella clauses’ interpretation ‘the carpet
26
Anthony Sinclair, ‘The Origins of the Umbrella Clause in the International Law of Investment Protection’ (2004) Arbitration International 20(4), 422-423.
27
Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (Oxford University Press 2008) 154; Katia Yannaca-Small, ‘What About This “Umbrella Clause”?’ in Yannaca-Small K (ed), Arbitration under International Investment Agreements: A Guide to the
Key Issues (Oxford University Press 2010), 481.
28
Alex Weissenfels ‘Umbrella Clauses’ (2006/2007) Seminar on International Investment Protection Prof. Dr. August Reinisch, 6.
29
SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan (2003) ICSID Case No. ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction.
30
Krista Nadakavukaren Schefer, International Investment Law: Text, Cases and Materials (Edward Elgar 2013), 425.
31
Thomas Wälde, ‘The “Umbrella” Clause in Investment Arbitration: A comment on Original Intentions and Recent Cases’ (2005) The Journal of World Investment & Trade 6(2), 184.
11
looks very much as if different people have started from different ends without many common threads – a crazy quilt rather than a Persian rug’.32
The ‘Elevation’ Nature of the Umbrella Clause 1.2.
One of the most common labels of umbrella clauses is ‘elevation clauses’. The simple understanding of the term contains the idea that domestic obligations in the contract are elevated to international obligations. Much controversy exists whether it is appropriate to say that with umbrella clauses a contract claim is turned into an international claim or whether, it is just that the contract violation because of the umbrella clause is ‘elevated’ by constituting the basis of an international claim.33 The Tribunal in BIVAC v Paraguay stated that under the umbrella clause the tribunal is invited ‘to exercise jurisdiction over a contractual dispute’.34 But is it jurisdiction over a contractual or an investment dispute?
As Gadelshina states ‘a pacta sunt servanda clause can be compared to the driven gear which sets a mechanism of treaty protection in motion by transmitting energy from a driving gear, that is, a violation of “any other commitments”.’35 In other words, the obligation in the contract is the one that provides the facts of the claim while the umbrella clause remains the legal basis.36 The contract claim is not the one at stake, but the BIT claim is, despite its ‘contract origins’.37 The two claims belong to different legal systems,38 each one of which must be respected. The tribunal in Bayindir v Pakistan stated that ‘treaty claims are juridically distinct from claims for breach of contract, even
32
James Crawford, ‘Treaty and Contract in Investment Arbitration’, (2008) Arbitration International 24(3), 3 <http://is.muni.cz/el/1422/podzim2011/MVV61K/um/20201574> accessed 13 March 2015.
33
Weissenfels (n28) 17.
34
Bureau Veritas, Inspection, Valuation, Assessment and Control, BIVAC B.V. v. The Republic of
Paraguay (2009) ICSID Case No. ARB/07/9, Decision on Objections of Jurisdiction, para 143
[note that the excerpts used have not been annulled by the 2014 Committee’s Decision on Annulment].
35
Elvira Gadelshina, ‘Hermeneutic Reflections on the Specific Purpose of Umbrella Clauses’ (2013) Journal of World Investment & Trade 14, 810.
36
Ibid 807.
37
Ibid 810.
38
Anthony Sinclair, ‘Bridging the Contract/Treaty Divide’ in Binder C, Kriebaum U, Reinisch A and Wittich S (eds), International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (Oxford University Press 2009), 103.
12
where they arise out of the same facts’.39 Likewise, the Burlington v Ecuador tribunal defined that ‘Burlington's umbrella clause claim is a Treaty claim, not a contract claim’ and this distinction ‘is now well-established’.40 The claims co-exist without one nullifying or contradicting the other.41
As far as WTO commitments are concerned it seems like no ‘elevation’ considerations are to be an issue. All the commitments involved are on the same plane, namely the international plane. Unlike contracts between an investor and a State a violation of which is not ‘by itself, a violation of international law’ as the tribunal in SGS
v Pakistanunderscored,42 WTO violations are internationally wrongful by themselves. Nevertheless, a possible consideration would focus on the different legal fields involved. Following the same reasoning as with contracts, it could be said that there is no transformation in that scenario either. It is not that the trade claims alter their nature and become investment claims. WTO law provides for a commitment of the State, the upholding of which, is also an obligation of the State under the BIT.
Summing up, umbrella clauses do not result in the ‘instant transubstantiation’43 or any other ‘transformation’ of claims but provide for a legal basis factually emerging from commitments other than those in the BIT.44 It seems that the best understanding can be achieved through the simplest description, namely that umbrella clauses articulate the
pacta sunt servanda principle and oblige States into upholding the commitments they
have agreed to guarantee through the BIT, irrespective of their origin.45 The State is not ‘hunted’ for not upholding its WTO commitments but the obligations agreed to observe in the umbrella clause, substantiated through the violation of WTO commitments. As stated in SGS v Philippines the umbrella clause ‘addresses not the scope of the
39
Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan (2005) ICSID Case No. ARB/03/29, Decision on Jurisdiction, para 148.
40
Burlington Resources Inc. v. Republic of Ecuador (2010) ICSID Case No. ARB/08/5 (formerly Burlington Resources Inc. and others v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (PetroEcuador)), Decision on Jurisdiction, para 189.
41
Noble Ventures, Inc. v. Romania (2005) ICSID Case No. ARB/01/11, Award, para 53.
42 SGS v Pakistan (n29) para 167. 43 SGS v Pakistan (n29) para 172. 44 Crawford (n32) 21. 45
Stephan Schill, ‘Umbrella Clauses as Public Law Concepts in Comparative Perspective’ in Schill S (ed), International Investment Law and Comparative Public Law (Oxford University Press 2010), 343.
13
commitments entered into with regard to specific investments but the performance of these obligations, once they are ascertained’.46
2. APPLICABLE LAW JURISDICTION AND ADMISSIBILITY
Which Law? 2.1.
A lot of discussion exists in investment arbitration concerning the applicable law in each case. The applicable law is usually defined in the BIT or in other applicable rules, such as the ICSID Convention and the UNCITRAL Arbitration Rules.
BITs usually refer to international law as the applicable law in a dispute and it hardly could be otherwise since the BIT itself is an international agreement. Article 42.1 of the ICSID Convention defines as applicable law, in case no choice of law exists in the BIT, the law of the disputing State party together with ‘such rules of international law as may be applicable’. Similarly, the UNCITRAL Arbitration Rules guide the tribunal to apply ‘the law which it determines to be appropriate’.47 It should also be noted that even if no explicit set of rules can be found the hypothetical will of the States will probably point to international law.48
In Siemens v Argentina the tribunal stated that according to the ICSID Convention it will decide ‘on the basis of this Treaty (the BIT), and, as the case may be, on the basis of other treaties in force between the Contracting Parties, the internal law of the Contracting Party in whose territory the investment was made, including its rules of private international law, and on the general principles of international law’.49
In Vivendi the Annulment Committee stated that ‘whether there has been a breach of the BIT and whether there has been a breach of contract are different questions’ and continued to say that ‘Each of these claims will be determined by reference to its own proper or applicable law—in the case of the BIT, by international law; in the case of the
46
SGS Société Générale de Surveillance S.A. v. Republic of the Philippines (2004) ICSID Case No. ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction, para 126 (emphasis added).
47
UNCITRAL Arbitration Rules (as revised in 2010) (with new article 1, paragraph 4, as adopted in 2013), Article 35.
48
Hege Elisabeth Kjos, Applicable Law in Investor-State Arbitration: The Interplay Between
National and International Law (Oxford Monographs in International Law, Oxford University
Press 2013), 72-80.
49
Siemens A.G. v. The Argentine Republic (2007) ICSID Case No. ARB/02/8, Award, para 76 (text in brackets added).
14
Concession Contract, by the proper law of the contract’.50 Likewise in CMS v Argentina the Annulment Committee stated that ‘The effect of the umbrella clause is not to transform the obligation which is relied on into something else; the content of the obligation is unaffected, as is its proper law’.51
Turning to the situation of an umbrella clause claim based on WTO violations the tribunal will have to address WTO law. It should be restated that since the umbrella clause claim and the WTO claim are distinct, it could not be that the BIT can determine if a breach has occurred within the WTO system.52 That is different from saying that the tribunal cannot determine whether a breach of a rule exists under the scope of the umbrella clause. As the tribunal in Continental Casualty v Argentina stated ‘the Parties provided in the BIT […] for an additional guarantee to their investors, that is “to observe any obligation” that they have assumed […] irrespective of the law applicable to them’.53
In that regard WTO law is the ‘appropriate’ applicable law in determining whether a violation of WTO rules exists and consequently whether an umbrella clause breach exists. WTO law itself is interpreted in accordance with principles of customary international law like investment law, thus arbitrators, would interpret the WTO rules in accordance with the same interpretative rules as for investment law.54 Moreover, the so called ‘cross fertilization’ phenomenon between trade and investment law which can be best briefly described as making ‘analogical interpretations between treaties’55 reveals that the two ‘laws’ are not so detached from each other.
As the Annulment Committee underscored in Vivendi, a tribunal called to decide on a contractual violation should not refuse to complete this task merely because detailed analysis of issues pertaining to the violation of the contract is required.56 Under this
50
Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic (2002) ICSID Case No. ARB/97/3 (formerly Compañía de Aguas del Aconquija, S.A. and Compagnie Générale des Eaux v. Argentine Republic), Decision on Annulment, para 96.
51
CMS Gas Transmission Company v. The Republic of Argentina (2007) ICSID Case No. ARB/01/8, Decision of the ad hoc Committee on the Application for Annulment of the Argentine Republic, para 95(c).
52
Schill (n45) 331.
53
Continental Casualty Company v. The Argentine Republic (2008) ICSID Case No. ARB/03/9, Award, para 299.
54
Giorgio Sacerdoti, ‘Trade and Investment Law: Institutional Differences and Substantive Similarities’ (2014) Jerusalem Review of Legal Studies 9(1), 8.
55
Puig (n6) 507; Sacerdoti (n54) 9.
56
15
scope investment tribunals should not refuse to interpret WTO law on the contention that it requires an analysis of WTO law. A helpful guidance thereof, to avoid diverging interpretations compared to WTO jurisprudence, would be to request and allow the WTO in the investment arbitration procedure as amicus curiae,57 as has happened with the WHO in an ICSID case.58
It is noteworthy that even if the WTO rules were not discussed under an umbrella clause claim, WTO rules, if relevant, could be taken into account as ‘any relevant rules of international law applicable in the relations between the parties’, according to VCLT article 31(3).59
All in all, the idea that trade and investment law cannot have any kind of ‘cross application’ is far from reality. An umbrella clause claim referring to a WTO rule violation calls for the application of WTO law along with any other relevant international law and that does not seem to introduce any noteworthy interpretational problems.
Jurisdiction stricto sensu 2.2.
Most claims on umbrella clauses face a number of objections to jurisdiction. As it is not an unusual practice of investment tribunals to bifurcate the proceedings into a jurisdictional and a merits phase, the question of what is to be examined where, is of significant interest. In the jurisdictional phase the issue determined is whether the investor’s claims are within the jurisdiction of the tribunal rationae personae and
rationae materiae. The tribunal has to examine its competence to exercise jurisdiction
(kompetenz-kompetenz).60
57
Eugenia Levine, ‘Amicus Curiae in International Investment Arbitration: The Implications of an Increase in Third-Party Participation’ (2011) Berkeley Journal of International Law 29(1), 219.
58
Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental
Republic of Uruguay (2015) ICSID Case No. ARB/10/7 (formerly FTR Holding SA, Philip
Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay), Procedural Order No 3. See also Clovis Trevino and Luke Eric Peterson, ‘World Health Organization is Given Green-Light by Arbitrators to Intervene in Philip Morris v. Uruguay Arbitration’ (20 February 2015) <http://www.iareporter.com/articles/20150220_1> accessed 14 April 2015.
59
Gaetan Verhoosel, ‘The Use of Investor-State Arbitration Under Bilateral Investment Treaties to Seek Relief for Breaches of WTO Law’ (2003) Journal of International Economic Law 6(2), 503.
60
The terms jurisdiction and competence are used interchangeably in the text, for the distinction between the two terms in relation to the ICSID Convention see Gerold Zeiler, ‘Jurisdiction, Competence and Admissibility of Claims in ICSID Arbitration Proceedings’ in Binder C,
16
The main jurisdictional objection regarding umbrella clauses amounts to the allegation that the tribunal is not competent to adjudicate on issues other than what the parties have consented to. The usual occurrence is that consent is provided in the BIT.61 The dispute settlement clause provides for the scope of consent in each BIT and commonly refers to any dispute between an investor of one State and the other contracting State ‘arising out of an investment’ or ‘arising out of the investment agreement’. The narrowest jurisdiction clause found in BITs62 restricts the jurisdiction of an investment tribunal to disputes over the amount of compensation in case of expropriation.63 Apparently under the latter clause an umbrella clause claim would not fall under the jurisdiction of the tribunal irrespective of its factual basis. Turning to the common dispute settlement clauses a claim made on the basis of a provision of the IIA should be deemed as covered by the Parties’ consent as expressed in such clauses.64
Despite the decisions in SGS v Pakistan and SGS v Philippines are seen as contradictory regarding the umbrella clause claims, they contain a crucial common point. Both tribunals accepted having jurisdiction over the umbrella clause claims irrespective of the fact that the claims arose out of contractual breaches of the States (in this thesis characterized as stricto sensu jurisdiction) and then went on to examine their jurisdiction over those contract claims.65
However the definite judgment on jurisdiction would have to go further and determine the specific scope of the invoked umbrella clause and whether it covers the alleged facts. As the tribunal in SGS v Philippines stated ‘Provided the facts as alleged by the Claimant and as appearing from the initial pleadings fairly raise questions of breach of one or more provisions of the BIT, the Tribunal has jurisdiction to determine the
Kriebaum U, Reinisch A and Wittich S (eds), International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (Oxford University Press 2009), 78-81.
61
It can also be that it is provided in a different legal instrument. Then this specific instrument must be addressed to determine whether such claims are within the tribunal’s jurisdiction.
62
Especially BITs with Communist States such as China and the former Union of Soviet Socialist Republics.
63
An example of such a clause is provided in Article 9(3) of the Agreement between the Government of the People’s of China and the Government of the State of Qatar Concerning the Encouragement and Reciprocal Protection of Investments（1999).
64
Gadelshina (n35) 823.
65
Stanimir Alexandrov, ‘Breaches of Contract and Breaches of Treaty: The Jurisdiction of Treaty-based Arbitration Tribunals to Decide Breach of Contract Claims in SGS v. Pakistan and SGS v. Philippines’ (2004) The Journal of World Investment and Trade 5(4), 556.
17
claim’.66 The scope of umbrella clauses is discussed in detail in the next Chapter,67 but before that some other issues pertaining to jurisdiction and admissibility should be addressed.
Forum Selection Clauses in the Alleged Violated Rules 2.3.
Accepting jurisdiction seems a more perplexed issue when there is a forum selection clause in the set of rules claimed to be violated. The question then is which forum has jurisdiction and in case they both have, if there is a hierarchy between them.
In Toto v Lebanon the tribunal decided that the contractual claims are subject to the jurisdiction defined in the contract and the investment tribunal does not have jurisdiction over them.68 That may hold true for pure contract disputes69 but what about the relevant BIT claims? By rejecting jurisdiction, the tribunal practically nullified the umbrella clause and the commitments made thereby by States and treated them as mere declarations with no practical effect whatsoever, a view contrary to the common operation and purpose of a BIT clause.70
Other tribunals facing such considerations have often resorted to the inadmissibility option. Thus, the tribunal in BIVAC v Paraguay accepted having jurisdiction by stating that ‘the umbrella clause has to be interpreted in such a way as to give it some meaning and practical effect’. However, it did not proceed to the merits phase and declared the claims inadmissible, based on the exclusive jurisdiction clause contained in the contract from which, it stated, the Parties could not derogate.71
Distinguishing jurisdiction from admissibility is a quite perplexed issue in investment arbitration, which cannot be discussed here.72 A useful distinction is made by Highet in his dissenting opinion in Waste Management reading that ‘Jurisdiction is the
66
SGS v Philippines, Decision of the Tribunal on Objections to Jurisdiction (n46) para 157.
67
Chapter 3.
68
Toto Costruzioni Generali S.p.A. v. The Republic of Lebanon (2009) ICSID Case No. ARB/07/12, Decision on Jurisdiction, para 202.
69
Still the BIT’s dispute settlement clause must be examined.
70
Gadelshina (n35) 821.
71
BIVAC v Paraguay (n34) paras 141-142 and 147-159.
72
18
power of the tribunal to hear the case; admissibility is whether the case itself is defective—whether it is appropriate for the tribunal to hear it’.73
The tribunal in SGS v Philippines stated that since another way of solving the contractual dispute is defined in the contract, its jurisdiction should be deemed as secondary. Therefore it decided to declare the claim inadmissible and stay the proceedings until the contractual dispute was resolved according to the jurisdictional choices in the contract either with agreement or with a Philippine courts’ judgment.74 In that way, the tribunal implicitly inserted an ‘exhaustion of local remedies’ provision’ in the BIT.75 It also implied that it may have a review function over domestic courts.76
The tribunal also stated that it ‘cannot accept that standard BIT jurisdiction clauses automatically override the binding selection of a forum by the parties to determine their contractual claims’.77 However, it seems that the opposite argument could easily be supported as well, stating that the tribunal cannot accept that binding (though standard) BIT jurisdiction clauses can automatically be overridden by a standard (because it usually is standard) selection of a forum in the contract. The tribunal’s approach is deemed quite controversial in literature78 and was followed by the dissenting opinion of arbitrator Crivellaro stating that since the tribunal had jurisdiction there was no reason not to proceed to the merits phase.79
Other tribunals seem not to have had any difficulty in accepting their jurisdiction and proceeding to the merits and that seems to be the current tendency.80 The Vivendi Annulment Committee, followed by the SGS v Pakistan tribunal,81 stated in its decision that ‘where the “fundamental basis of the claim” is a treaty laying down an independent
73
Waste Management, Inc. v. United Mexican States (2000) ICSID Case No. ARB(AF)/98/2, Dissenting Opinion of Keith Highet, para 58.
74
SGS v Philippines, Decision of the Tribunal on Objections to Jurisdiction (n46) para 155.
75
Note that the existence of such a provision refers to domestic remedies and should not be deemed similarly applicable to WTO proceedings.
76
Wälde (n31) 227.
77
SGS v Philippines, Decision of the Tribunal on Objections to Jurisdiction (n46) para 153.
78
Jarrod Wong, ‘Umbrella Clauses in Bilateral Investment Treaties: of Breaches of Contract, Treaty Violations, and the Divide Between Developing and Developed Countries in Foreign Investment Disputes’ (2008) George Mason Law Review, 33 <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1260897> accessed 10 February 2015.
79
SGS Société Générale de Surveillance S.A. v. Republic of the Philippines (2009) ICSID Case No. ARB/02/6 Declaration, Dissenting Opinion of Antonio Crivellaro.
80
Weissenfels (n28) 9.
81
19
standard by which the conduct of the parties is to be judged, the existence of an exclusive jurisdiction clause in a contract […] cannot operate as a bar to the application of the treaty standard’.82 In addition the same Annulment Committee stated that ‘it is one thing to exercise contractual jurisdiction […] and another to take into account the terms of a contract in determining whether there has been a breach of a distinct standard of international law’, as a result, a tribunal ‘faced with such a claim and having validly held that it had jurisdiction, was obliged to consider and to decide it’.83 In judging its jurisdiction the tribunal has to determine whether the investors’ claims would be accepted if the alleged facts were proven.84 The alleged facts do not simultaneously constitute the basis for jurisdiction. One set of facts can always give rise to various claims according to different legal grounds if they provide for that.85
Turning to the specific issue of WTO commitments, the WTO DSS should be briefly addressed. According to DSU article 23.1 a trade dispute belongs to the exclusive jurisdiction of the WTO DSS which is the only one to which Members should have recourse. It should be kept in mind that this principle had to exist in WTO so that States would not take countermeasures against each other claiming that a WTO violation exists, without that being previously acknowledged by a dispute settlement body. Nevertheless, an investment tribunal would not make a unilateral decision on the WTO violation but on a BIT clause violation.
This provision ultimately reads like a forum selection clause in a private contract and is to be treated likewise. It has been said that a ‘stronger jurisdictional system’ with an exclusivity clause, like the WTO system, should disallow other international tribunals from exercising jurisdiction even if they are better applicable to the dispute.86 Nevertheless, that view should not be accepted as no hierarchy exists between trade and investment and neither dispute settlement system should be deemed as weaker. As the ECJ stated with regard to its ability to interpret WTO law ‘the fact that Article XXIII of
82
Vivendi (n50) para 101.
83
Vivendi (n50) paras 105 and 112 respectively.
84
Darius Chan, ‘The High-Water Mark of an Umbrella Clause: SGS v Paraguay’ (18 April 2012) <http://kluwerarbitrationblog.com/blog> accessed 10 January 2015.
85
Weissenfels (n28) 29.
86
Pieter Jan Kuijper, Conflicting Rules and Clashing Courts: the Case of Multilateral
Environmental Agreements, Free Trade Agreements and the WTO (ICTSD Dispute Settlement
20
GATT provides a special procedure for the settlement of disputes between contracting parties is not such as to preclude its interpretation by the Court’.87
Moreover, unlike dispute settlement clauses in contracts, it is not the investor that has agreed with the Host-State to the exclusive jurisdiction of the WTO DSS and thus it cannot be argued that he breaches any of his commitments by not following the latter.88
Summing up, the exclusivity clause contained in WTO’s DSU should not be an impediment for an investment tribunal to assert jurisdiction and find the claims admissible. This does not lead to the undermining or nullification of these provisions but pertains to the idea that they merely do not apply because of the different jurisdictional basis invoked.
Parallel Proceedings - Is this an Issue? 2.4.
Another issue pertaining mostly to admissibility and providing another possible argument against allowing WTO violations under the scope of umbrella clauses is the situation of parallel proceedings. The concerns thereof are based on having the ‘same’ dispute litigated in different proceedings. Tribunals faced with parallel proceedings concerns usually resort to the principles of res judicata89 or lis alibi pendens90 to save the day.91 To determine whether the ‘same’ dispute is at stake tribunals commonly use the ‘triple identity’ criteria, meaning that the proceedings are between the same parties, concerning same claims and under the same cause of action.92
87
EEC Seed Crushers' and Oil Processors' Federation (Fediol) v. Commission of the European
Communities (1989) Case C-70/87, ECR 1989 at 1781, para 21.
88
This is often a consideration with contract violations, see Bosh International, Inc and B&P Ltd
Foreign Investments Enterprise v. Ukraine (2012) ICSID Case No. ARB/08/11, Award, paras 251
et seq.
89
‘An earlier and final adjudication by a court or arbitration tribunal is conclusive in subsequent proceedings involving the same subject matter or relief, the same legal grounds and the same parties (the so-called “triple identity” criteria)’ see International Law Association, ‘Interim Report: “Res judicata” and Arbitration’ (2004), Berlin Conference 2004, International Commercial Arbitration, 2.
90
‘Law suit pending elsewhere’. Meaning a situation in which parallel proceedings are pending at the same time before different courts or tribunals involving the same parties and cause of action. See International Law Association, ‘Final Report on Lis Pendens and Arbitration’ (2006) Toronto Conference 2006, International Commercial Arbitration, 2.
91
Katia Yannaca-Small, ‘Parallel Proceedings’ in Muchlinski P, Ortino F and Schreuer C, The
Oxford Handbook of International Investment Law (Oxford Handbooks in Law 2008), 1013.
92
21
Two investment tribunals involved with allegedly the ‘same dispute’ and faced with
lis alibi pendens concerns, provide for a way the matter has been approached at least
between parallel investment proceedings. More precisely, the tribunal in Lauder v the
Czech Republic said that lis alibi pendens was of no use in this situation ‘since all the
other court and arbitration proceedings involve different parties and different causes of action’ and so ‘no possibility exists that any other court or arbitral tribunal can render a decision similar to or inconsistent with the award which will be issued by this Arbitral Tribunal’.93
Its ‘parallel’ tribunal in CME v the Czech Republic stated that ‘The fact that the object of the two proceedings, […] is the same, does not deprive the parties in the Treaty proceedings […] of jurisdiction’ and continued to say that the award could affect the quantum of damages or provide a defense for the Respondent in enforcement proceedings ‘However, jurisdiction is not affected by this incidence of parallel proceedings’.94
The tribunal also responding to the allegation of abuse by the investor of Treaty proceedings stated that: ‘Should two different Treaties grant remedies to the respective claimants deriving from the same facts and circumstances, this does not deprive one of the claimants of jurisdiction, if jurisdiction is granted under the respective Treaty’.95
Turning to the discussed perspective, unlike contract and treaty claims where the parallel proceedings (in domestic courts and before investment tribunals) would both be between the State and the Investor, proceedings brought before a State-State WTO Panel and an Investor-State tribunal are not between the same parties. It seems clear that no identity of the parties exists in that case.96 Nevertheless, a tribunal may not require absolute identity of the Parties but rather some kind of same interests behind the claims, under that approach, other criteria would be deemed determinative as those provided below.
Regarding identity of the claims and legal bases and according to the foregoing considerations on the nature of the umbrella clause, it could be said that no such identity exists between an umbrella clause claim and a WTO claim since they are based on
93
Ronald S. Lauder v. The Czech Republic (2001) UNCITRAL, Final Award, para 171.
94
CME Czech Republic B.V. v. The Czech Republic (2001) UNCITRAL, Partial Award, para 410.
95
Ibid, para 412.
96
Brooks Allen and Tommaso Soave, ‘Jurisdictional Overlap in WTO Dispute Settlement and Investment Arbitration’ (2014) Arbitration International 30(1), 14.
22
different legal bases, meaning the BIT and WTO law respectively.97 Following this approach, the umbrella clause claim is a treaty claim irrespective of its factual content which may be WTO law and which does not transform it into a WTO claim.
On the other side of the spectrum, a significant overlap exists between the two claims and the distinction made based on different ‘formal’ legal bases may seem more like an ‘argument by labeling-not by analysis’ as the sole arbitrator Paulsson said in
Pantechniki with regard to contract and treaty claims.98
A tribunal going beyond the mere ‘labeling’ of the claims will then have to find a different standard to determine the ‘similarity’ of the cases. The test used in Pantechniki was that the ‘claimed entitlements have the same normative source’ and the claim ‘truly does have an autonomous existence outside the contract’.99 The sole arbitrator acknowledged though that even this test is rather abstract and ‘Each situation must be regarded with discernment’.100
Turning to the discussed perspective some general remarks could be useful to determine when the ‘same case’ exists between an investment arbitration and a WTO proceeding. To begin with, conflicting awards, meaning an investment award deciding that a WTO rule is breached and a Panel Report stating the opposite, can be a significant issue in terms of general international law consistency and predictability.101 Moreover, a situation in which an investment award results in high compensation because of the violation of the umbrella clause, and a Panel Report finds that the State did not violate WTO law, would severely damage the legitimacy of both systems.
On the other side of the spectrum, the two litigations are seen from a different perspective, since in the investment litigation the investor’s interests are at stake, while in the WTO proceedings the ‘problem’ is the disruption of the function of the WTO system. Moreover, it could be said that they practically, in terms of their outcomes, would not be
97
Ibid, 15.
98
The point was made regarding a fork in the road provision and the attempt was to find if the domestic contract proceeding and the treaty-based arbitration were the ‘same dispute’,
Pantechniki S.A. Contractors & Engineers (Greece) v. The Republic of Albania (2009) ICSID
Case No. ARB/07/21, Award, para 61.
99
Ibid, para 62 and 64 respectively.
100
Ibid, para 62.
101
23
so problematic.102 The investment award, if a violation is found, will probably end with a compensational remedy, while the Panel Report will ask the State to comply with the WTO rules. These two awards could be complied with by the Host-State simultaneously, with no conflict whatsoever.
In addition, in the event that a WTO dispute is decided before the discussion of the relevant investment arbitration, the latter could even rely on the WTO Report in reaching its decision.103Lastly as already mentioned a helpful step to avoid inconsistent awards could be to have the WTO participating in the investment arbitration as amicus curiae through its legal representatives,104 as has been allowed for the WHO in a different investment proceeding.105
Interim Conclusions 2.5.
Based on the considerations analyzed in this chapter three main conclusions can be drawn. First, the applicable law is not more of an issue as it usually is in investment arbitration. Secondly, parallel proceedings and forum selection clauses in the alleged violated rules are not a problem per se under legal terms in the litigation of umbrella clauses encompassing WTO commitments. However in parallel proceedings it could also be that ‘same disputes’ are found to exist leading to the dismissal of the case, given also that possible conflicting awards seem rather problematic in terms of legal consistency, predictability and legitimacy of both the WTO and the investment legal order.
Thirdly, the tribunal does have jurisdiction stricto sensu if the requirements defined in its jurisdictional clause are met and a claim under the umbrella clause is a claim made on the IIA and thus almost always covered by the dispute settlement clause. Nevertheless, as stated above, especially with regard to umbrella clauses, for the tribunal to decide on its definite jurisdiction it does not suffice that the investor’s claim is made on a BIT provision and is thus within the ambit of the dispute settlement clause. The issues relevant to the ‘final jurisdiction’ assessment are addressed below.
102
Allen and Soave (n96) 15-20.
103
Tania Voon and Andrew Mitchell, ‘Time to Quit? Assessing International Investment Claims Against Plain Tobacco Packaging in Australia’ (2011) Journal of International Economic Law 14(3), 541, Allen and Soave (n96) 29.
104
Levine (n57) 219.
105
24 3. THE SCOPE OF THE UMBRELLA CLAUSE
Before Assessing the Ambit of the Clause 3.1.
Rationae materiae jurisdiction of the tribunal is not confined in merely introducing a
claim on a BIT clause. The claimant will choose how to characterize its claims and put them under the scope of the jurisdiction of the tribunal106 but then the latter would also have to determine whether they are ‘legally and factually adequate for jurisdictional purposes’,107 whether, in other words, they make a prima facie case. This issue has been characterized substantive in its nature since it actually asks if the violation alleged is a violation of the BIT,108 however it is consistently assessed in the jurisdictional phase.109
The tribunal in SGS v Pakistan stated that if the jurisdictional clause in the BIT ‘relates to any dispute at all […], it must comprehend disputes constituted by claimed violations of BIT provisions establishing substantive standards of treatment by one Contracting Party of investors of the other’.110 The tribunal clarified thus, that the treaty obligation invoked, must constitute a substantive obligation for the State, providing a cause of action for the investor.
The tribunal in Saipem v Bangladesh stated that it must examine ‘the meaning and scope of the provisions upon which Saipem relies to assert jurisdiction and to assess whether the facts alleged […] fall within those provisions or would be capable, if proven, of constituting breaches of the treaty obligations involved’, for that ‘the Tribunal will assess whether Saipem’s case is reasonably arguable on its face’ and ‘If the result is affirmative, jurisdiction will be established, but the existence of breaches will remain to be litigated on the merits’.111 To make the relevant assessment in the discussed perspective the tribunal will turn to the issues addressed below.
106 SGS v Pakistan (n29) para 145. 107 Chan (n84). 108 Zeiler (n60) 83-84. 109
The ICJ in the Oil Platforms case stated that it is in the jurisdictional phase that the tribunal will assess if the alleged facts are capable of causing a breach of the invoked provision see
Islamic Republic of Iran v United States of America (1996) ICJ Reports, Preliminary Objections
Judgment, para 16.
110
SGS v Philippines, Decision of the Tribunal on Objections to Jurisdiction (n46) para 26 (emphasis added).
111
Saipem S.p.A. v. The Peoples Republic of Bangladesh (2007) ICSID Case No. ARB/05/07 Decision on Jurisdiction and Recommendation on Provisional Measures, para 91.
25 Looking at the ‘Umbrella Clauses’
3.2.
3.2.1. Methods of Interpretation
The wording of the umbrella clause is the main tool for tribunals in approaching an umbrella clause claim and it is interpreted according to the VCLT rules on treaty interpretation.112 Umbrella clauses can generally be described as narrow or broad. Elements that can determine the interpretative breadth of each clause are phrases such as ‘any obligation’, ‘entered into’, ‘with an investor’ or ‘with regard to investments’. Clauses change from one BIT to another modifying at the same time the boundaries States intended them to have. Two basic approaches are discernible, meaning the restrictive and the literal approach.
The tribunal in SGS v Pakistan adopted a restrictive approach on the substantive content of the clause,113 and found the umbrella clause so general in its formulation that could not be deemed as imposing a substantive obligation on the parties. The tribunal paid much attention to the implications of a different interpretation and underscored that there is no ‘clear and convincing evidence’ that the contracting parties intended the umbrella clause to have such a ‘far reaching’ effect.114 This restrictive approach has been much debated and was followed by the Swiss Government’s letter which criticized the decision as not corresponding to the State’s intentions and the existing perspectives on the matter.115
Undoubtedly, awareness must exist when approaching umbrella-like clauses that may not be worded so as to create a legal obligation for the State to uphold its commitments.116 That was the case in Salini v Jordan117 where the clause read that the State will ‘create and maintain in its territory a legal framework apt to guarantee to
112
Inter alia see Eureko B.V. v. Republic of Poland (2005) Ad Hoc Investment Treaty Case, Partial Award on Liability, para 247.
113
Andrew Newcombe and Lluís Paradell, Law and Practice of Investment Treaties: Standards of
Treatment (Kluwer Law International 2009), 466-468.
114
SGS v Pakistan (n29) para 167.
115
Letter of the Swiss Secretariat for Economic Affairs to the ICSID Deputy –Secretariat General dated 1 October 2003 (2004) Mealy’s International Arbitration Report 19.
116
Bjørn Kunoy, ‘Singing in the Rain: Developments in the Interpretation of Umbrella Clauses’ (2006) The Journal of World Investment and Trade 7(2), 281.
117
Salini Costruttori S.p.A. and Italstrade S.p.A. v. The Hashemite Kingdom of Jordan (2004) ICSID Case No. ARB/02/13, Decision on Jurisdiction, paras 126-127.
26
investors the continuity of legal treatment, including the compliance, in good faith, of all undertakings assumed with regard to each specific investor’.118
Nonetheless, a cause of action was found in a similar clause in SGS v Paraguay where the tribunal found the ordinary meaning of the umbrella clause not to provide for ‘non textual limitations’ which could obstruct the clause from being applied.119 Similarly, the tribunal in SGS v Philippines found that the clause ‘means what it says’ and thus can encompass contract claims if it means to do so, meaning if it is broad enough,120 and continued to say that the SGS v Pakistan tribunal ‘failed to give any clear meaning to the “umbrella clause”’,121 that is the literal approach.
In Eureko v Poland122 as well as in Noble Ventures v Romania123 the disputed
clauses read that each Contracting Party shall observe any obligations it may have entered into with regard to investments of investors of the other contracting party.124 The tribunals in both cases interpreted the clauses broadly enough to encompass contract breaches, paying due regard to the principle of effectiveness by saying that a different interpretation would deprive the umbrella clause in the BIT of its practical content and that the clause should be given some meaning by itself.125
The tribunal in Noble Ventures v Romania stated with regard to the contract violation that:
While it is not the purpose of investment treaties per se to remedy such problems, a clause that is readily capable of being interpreted in this way and which would otherwise be deprived of practical applicability is naturally to be understood as protecting investors also with regard to contracts with the host State generally in so far as the contract entered into with regard to an investment.126
118
Dolzer and Schreuer (n27) 153-154.
119
SGS Société Générale de Surveillance S.A. v. The Republic of Paraguay (2010) ICSID Case No. ARB/07/29, Decision on Jurisdiction, para 168.
120
SGS v Philippines Decision of the Tribunal on Objections to Jurisdiction (n46) para 119.
121
Ibid, para 125.
122
Eureko v. Poland (n112) para 249.
123
Noble Ventures v Romania (n41) para 52 (emphasis added).
124
Agreement between the Kingdom of the Netherlands and the Republic of Poland on encouragement and reciprocal protection of investments (1992) Article 3 (5); US-Romania Bilateral Investment Treaty (1992) Article II 2 (c).
125
Gadelshina (n35) 815.
126
27
Under this scope, it could be useful to slightly adjust the tribunal’s latter statement to test if it would make sense for WTO commitments. Then, it would read that while it is not the purpose of investment treaties per se to remedy WTO violations, a clause that is broad enough to encompass different kinds of obligations and which would otherwise be deprived of some of its practical applicability is to be understood as protecting investors also with regard to violations of WTO obligations, in so far as the WTO obligations entered into with regard to an investment. Now if WTO obligations are deemed to be entered into with regard to an investment, an issue discussed further below,127 would that statement seem irrational?
In any case, the text of the umbrella clauses must be examined to determine their specific scope, and for the purpose of this thesis, whether and which WTO commitments could be covered under their ambit.
3.2.2. ‘obligations’
The majority of the umbrella clauses refer to obligations or commitments of the State. As the Tribunal pointed in Micula v Romania ‘whether an obligation has arisen depends on the law governing that obligation, and so the interpretation of the term “obligation” for purposes of the umbrella clause would rely primarily on that law rather than on international law’.128 Under that scope whether an obligation qualifies as such in the discussed perspective will be a matter of WTO law.
The WTO agreement provides inter alia for the binding nature of the WTO obligations to the States. According to Article II(2) of the WTO agreement, WTO Members are bound by all the rights and obligations in the agreement and its Annexes 1, 2 and 3. The same stands as to the Members Parties to the plurilateral agreements contained in Annex 4 of the WTO agreement pursuant to Article II(3). Consequently, WTO law does create obligations for the Contracting States which should be deemed as such under an umbrella clause.
127
Subchapter 3.2.4.
128
Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack
28 3.2.3. ‘any obligation’
A much-discussed umbrella clause is found in the US-Argentina BIT and provides that ‘Each Party shall observe any obligation it may have entered into with regard to investments’.129 This clause is deemed to be a broad one encompassing all kinds of obligations. The same clause appears in the Germany-Argentina BIT130 applicable in
Siemens v Argentina where the tribunal defined the clear meaning of the phrase ‘any
obligation’, as referring to all obligations even those stemming from contracts.131 Another tribunal took also a broad view in Enron v Argentina stating that this umbrella clause covers all obligations ‘regardless of their nature.’132
Other clauses refer to ‘any other obligations’ meaning obligations other than those covered by the BIT.133 Such broad clauses would most likely provide space for WTO commitments to fit in, as ‘any (other) obligation’ of the State.
3.2.4. ‘entered into’ ‘written’ or ‘contractual obligations’
Another decisive variant could be the phrase ‘entered into’.134 Two different interpretations have been expressed with regard to that wording. Under the first approach, this phrase refers to commitments made between the contracting parties.135 This approach does not seem to pose a problem with regard to WTO rules which are ‘entered into’ between inter alios the contracting States. Following the existing controversy on the nature of WTO obligations as bilateral or collective, it has been stated that State-State negotiations of the WTO treaties pertain to the creation of bilateral obligations. In that way as Pauwelyn puts it, a WTO obligation of one Member State ‘lies primarily in a
129
US-Argentina Bilateral Investment Treaty (1994) Article II 2(c).
130
Vellrag zwischen der Bundesrepublik Deutschland und der Argentinischen Republik Ober die Forderung und den Gegenseitigen Schutz von Kapitalanlagen (1993) Artikel 7(2).
131
Siemens v Argentina (n49) para 206.
132
Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic (2007) ICSID Case
No. ARB/01/3, Award, para 274.
133
For example similarly reads the Agreement between the People's Republic of China and the Federal Republic of Germany on the Encouragement and Reciprocal Protection of Investments (2003) Article 10(2) see Samuelson and Ebere (n14) 20 and 21.
134
Kamal Ghobadi ‘Analysis of Legal Effects of Umbrella Clauses on Bilateral Foreign Investment Treaties’ (2013) International Journal of Advanced Studies in Humanities and Social Science 1(9), 1208 <www.ijashss.com> accessed 10 February 2015.
135
